ARROWHEAD PHARMACEUTICALS, INC. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we intend that such forward-looking statements be subject to the safe harbors created thereby. For this purpose, any statements contained in this Quarterly Report on Form 10-Q except for historical information may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “might,” “will,” “expect,” “believe,” “anticipate,” “goal,” “endeavor,” “strive,” “intend,” “plan,” “project,” “could,” “estimate,” “target,” “might,” “forecast,” “potential,” or “continue” or the negative of these words or other variations thereof or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, trends in our business, or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements include, but are not limited to, statements about the initiation, timing, progress and results of our preclinical studies and clinical trials, and our research and development programs; our expectations regarding the potential benefits of the partnership, licensing and/or collaboration arrangements and other strategic arrangements and transactions we have entered into or may enter into in the future; our beliefs and expectations regarding the amount and timing of future milestone, royalty or other payments that could be due to or from third parties under existing agreements; and our estimates regarding future revenues, sales of REDEMPLO (plozasiran), our expectations regarding regulatory approval for and commercial launch of plozasiran, operating income, research and development expenses, cash flows, capital requirements and payments to third parties. The forward-looking statements included herein are based on current expectations of our management based on available information and involve a number of risks and uncertainties, all of which are difficult or impossible to predict accurately, and many of which are beyond our control. As such, our actual results or outcomes and timing of certain events may differ materially from those discussed, projected, anticipated or indicated in any forward-looking statements. Forward-looking statements are not guarantees of future performance and our actual results of operations, financial condition and cash flows may differ materially. Factors that may cause or contribute to such differences include, but are not limited to, those discussed in more detail in “Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations” of Part I and “Item 1A. Risk Factors” of Part II of this Quarterly Report on Form 10-Q as well as “Item 1. Business” and “ Item 1A. Risk Factors” of Part I and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II of our most recent Annual Report on Form 10-K. Readers should carefully review these risks, as well as the additional risks described in other documents we file from time to time with the Securities and Exchange Commission (the “SEC”). In light of the significant risks and uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved, and readers are cautioned not to place undue reliance on such forward-looking information. Statements made herein are as of the date of the filing of this Quarterly Report on Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Except as may be required by law, we disclaim any intent to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. OVERVIEW The Company develops medicines that treat intractable diseases by silencing the genes that cause them. Using a broad portfolio of RNA chemistries and modes of delivery, the Company’s therapies trigger the RNAi interference mechanism to induce rapid, deep and durable knockdown of target genes. RNAi is a mechanism present in living cells that inhibits the expression of a specific gene, thereby affecting the production of a specific protein. RNAi-based therapeutics seek to leverage this natural pathway of gene silencing to target and shut down specific disease-causing genes. The Company believes that TRiM TM enabled therapeutics offer several potential advantages over prior generations and competing technologies, including: simplified manufacturing and reduced costs; multiple routes of administration including subcutaneous injection and inhaled administration; the ability to target multiple tissue types including liver, lung, skeletal muscle, central nervous system (CNS), adipose tissue, ocular, and cardiomyocytes; and the potential for improved safety and reduced risk of intracellular buildup, because there are fewer metabolites from smaller, simpler molecules. The Company's products: • REDEMPLO ® (Greater China rights out-licensed to Sanofi), indicated as an adjunct to diet to reduce triglycerides in adults with Familial Chylomicronemia Syndrome (FCS), which has received regulatory approvals 32 in the United States, Canada, and China. The following table presents the Company’s current pipeline: Therapeutic Area Name Stage Product Rights Cardiometabolic plozasiran Phase 3 Arrowhead (1) zodasiran Phase 3 Arrowhead olpasiran Phase 3 Amgen GSK4532990 Phase 2b GSK ARO-PNPLA3 Phase 1 Arrowhead ARO-INHBE Phase 1/2a Arrowhead ARO-ALK7 Phase 1/2a Arrowhead ARO-DIMER-PA Phase 1/2a Arrowhead (1) Pulmonary ARO-RAGE Phase 1/2a Arrowhead SRP-1002 (ARO-MMP7) Phase 1/2a Sarepta Liver fazirsiran Phase 3 Takeda and Arrowhead daplusiran/tomligisiran Phase 2 GSK Neuromuscular SRP-1001 (ARO-DUX4) Phase 1/2a Sarepta SRP-1003 (ARO-DM1) Phase 1/2a Sarepta SRP-1004 (ARO-ATXN2) Phase 1/2a Sarepta SRP-1005 (ARO-HTT) Phase 1 Sarepta ARO-MAPT Phase 1/2a Arrowhead ARO-SNCA Pre-clinical Novartis Other ARO-C3 Phase 1/2a Arrowhead ARO-CFB Phase 1/2a Arrowhead (1) Greater China rights for plozasiran are out-licensed to Sanofi . The Company operates lab facilities in California and Wisconsin, where its research and development activities, including the development of RNAi therapeutics, take place. The Company’s principal executive offices are located in Pasadena, California. The Company continues to develop other clinical candidates for future clinical trials. Clinical candidates are tested internally and through Good Laboratory Practice (GLP) toxicology studies at outside laboratories. Drug materials for such studies, clinical trials, and commercial products are either manufactured internally or contracted to third-party manufacturers. The Company engages third-party contract research organizations (CROs) to manage clinical trials and works cooperatively with such organizations on all aspects of clinical trial management, including plan design, patient recruiting, and follow up. These outside costs, including toxicology/efficacy testing and manufacturing costs, as well as the preparation for and administration of clinical trials, are referred to as “candidate costs.” As clinical candidates progress through clinical development, candidate costs will increase. The First Half Quarter of Fiscal 2026 Business Highlights The bullets below highlight key developments in our business during the first half of fiscal year 2026: • Presented new long-term efficacy and safety data for plozasiran across a spectrum of hypertriglyceridemia at the American College of Cardiology’s 75th Annual Scientific Session and Expo. ◦ Patients with severe hypertriglyceridemia (sHTG) achieved an 83% median reduction in triglycerides (TG), with 96% of patients achieving TG levels below 500 mg/dL, a threshold associated with increased risk of acute pancreatitis. ◦ No adjudicated acute pancreatitis events occurred in any patient receiving plozasiran during the 2-year Phase 2b Open-Label Expansion (OLE) Study. ◦ Favorable and durable improvements in atherogenic lipoproteins, including remnant cholesterol, non-high-density lipoprotein (HDL) cholesterol, and Apolipoprotein B (ApoB), were observed, with 33 a safety profile consistent with earlier trials. • Initiated and dosed the first subjects in a Phase 1/2a clinical trial of ARO-DIMER-PA, the Company’s investigational RNAi therapeutic being developed as a potential treatment for atherosclerotic cardiovascular disease (ASCVD) due to mixed hyperlipidemia. ◦ ARO-DIMER-PA is designed to silence expression of both proprotein convertase subtilisin kexin 9 (PCSK9) and apolipoprotein C3 (APOC3) genes. ◦ This represents an important step forward for the field of RNAi therapeutics, as it is the first clinical candidate to target two genes simultaneously in one molecule, enabled by Arrowhead’s innovative and proprietary Targeted RNAi Molecule (TRiM ™ ) platform. • Completed upsized offerings of convertible senior notes, common stock, and pre-funded warrants with gross proceeds of $930.0 million, which strengthened the Company’s balance sheet. • Announced that the Chinese National Medical Products Administration (NMPA) has approved REDEMPLO (plozasiran) for the reduction of triglyceride levels in adult patients with familial chylomicronemia syndrome (FCS). ◦ REDEMPLO will be marketed in Greater China by Sanofi under an agreement between Sanofi and Arrowhead. • Announced interim results from two Phase 1/2a clinical trials of ARO-INHBE and ARO-ALK7, the Company’s investigational RNAi therapeutics being developed as potential treatments for obesity, showing for patients enrolled in the study that: ◦ ARO-INHBE in combination with tirzepatide, a GLP-1/GIP receptor co-agonist, nearly doubled weight loss at week 16 and roughly tripled reductions in visceral fat, total fat, and liver fat versus tirzepatide alone in obese patients with type 2 diabetes mellitus at those same endpoints at week 12. ◦ ARO-ALK7, the first RNAi-therapeutic to show adipocyte gene target silencing in a clinical trial, achieved dose dependent reductions in adipose ALK7 messenger (mRNA) with a mean reduction of -88% at the 200 mg dose at week 8 with a maximum reduction of -94%. • Announced that Health Canada has issued a Notice of Compliance (NOC) authorizing REDEMPLO™ (plozasiran) as an adjunct to diet to reduce triglycerides in adults with familial chylomicronemia syndrome (FCS) for whom standard triglyceride lowering therapies have been inadequate. ◦ REDEMPLO is the first and only Health Canada-approved siRNA medicine to be studied in patients with genetically confirmed and clinically diagnosed FCS. ◦ The Health Canada approval is based on positive results from the Phase 3 PALISADE study where REDEMPLO significantly reduced triglycerides from baseline and lowered the numerical incidence of acute pancreatitis compared to placebo. • Initiated and dosed the first subjects in a Phase 1/2a clinical trial of ARO-MAPT, the Company’s investigational RNAi therapeutic being developed as a potential treatment for tauopathies including Alzheimer’s disease, a progressive neurodegenerative disease characterized by cognitive and functional decline. • Announced that the FDA has granted Breakthrough Therapy designation to investigational plozasiran as an adjunct to diet to reduce triglyceride (TG) levels in adults with severe hypertriglyceridemia (SHTG) (TG levels greater than or equal to 500 mg/dL). • On November 20, 2025, the Company earned a $200.0 million milestone payment from Sarepta Therapeutics, Inc., which was triggered on November 20, 2025, when the Company reached the second of two prespecified enrollment targets and subsequent authorization to dose escalate in a Phase 1/2 clinical study of ARO-DM1, an investigational RNAi therapeutic for the treatment of type 1 myotonic dystrophy (DM1). • The FDA approved the Company's New Drug Application (NDA) for REDEMPLO injection for Familial Chylomicronemia Syndrome (FCS), on November 18, 2025. This approval was supported by clinical data from the Phase 3 PALISADE study, a randomized, double-blind, placebo-controlled trial in adults with clinically diagnosed or genetically confirmed FCS. The PALISADE study met its primary endpoint and all multiplicity-controlled key secondary endpoints, including demonstrating significant reductions in triglycerides and APOC3. In PALISADE, 25 mg REDEMPLO achieved deep and durable reductions in 34 triglycerides, with a median change from baseline of -80% versus -17% in the pooled placebo group, and a lower numerical incidence of acute pancreatitis compared with placebo. • Entered into a global licensing and collaboration agreement with Novartis Pharma AG ("Novartis") on August 29, 2025, which closed on October 17, 2025. Closing of the transaction was subject to the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and other customary conditions. Upon closing, the Company received $200.0 million as an upfront payment on October 23, 2025. Additionally, the Company is eligible to receive up to $2.0 billion in potential milestone payments plus royalties on commercial sales. The bullets below highlight other key developments in our business subsequent to the second quarter of fiscal year 2026: • Received positive CHMP opinion recommending approval of REDEMPLO (plozasiran) to reduce triglycerides in adults with familial chylomicronemia syndrome (FCS) in Europe. ◦ The European Commission is expected to issue a decision on REDEMPLO’s Marketing Authorization in the second quarter of 2026. • Announced that the Australian Therapeutic Goods Administration (TGA) has approved REDEMPLO (plozasiran), as an adjunct to diet to reduce triglyceride levels for adult patients with familial chylomicronaemia syndrome (FCS) in Australia. • Announced an exclusive worldwide license agreement with Madrigal Pharmaceuticals for ARO-PNPLA3, Arrowhead’s clinical stage RNA interference (RNAi) therapeutic designed to reduce liver expression of patatin-like phospholipase domain containing 3 (PNPLA3) as a potential treatment for patients with metabolic dysfunction-associated steatohepatitis (MASH): ◦ Under the terms of the agreement, Madrigal will make a $25 million upfront payment to Arrowhead. Arrowhead is also eligible to receive development, regulatory, and sales milestone payments of up to $975 million. Arrowhead is further eligible to receive tiered royalties on commercial sales ranging from high-single digits to the mid-teens. ◦ In a Phase 1 single-ascending dose clinical study, ARO-PNPLA3 achieved encouraging results, including a dose-dependent mean reduction in liver fat of up to 40% in patients homozygous for the I148M mutation, no apparent treatment emergent increases in triglycerides or LDL-cholesterol, and a positive safety and tolerability profile at all doses studied. There have been no significant changes to the Company’s critical accounting estimates disclosed in the most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2025. RESULTS OF OPERATIONS The following data summarizes the Company’s results of operations for the following periods indicated: Three Months Ended March 31, Six Months Ended March 31, 2026 2025 2026 2025 (in thousands, except per share amounts) Revenue $ 73,737 $ 542,709 $ 337,770 $ 545,209 Operating (loss) income $ (141,260) $ 381,202 $ (100,451) $ 219,790 Net (loss) income attributable to Arrowhead $ (132,732) $ 370,445 $ (101,919) $ 197,360 Net (loss) income per diluted share attributable to Arrowhead $ (0.93) $ 2.75 $ (0.73) $ 1.52 Revenue Total revenue for the three and six months ended March 31, 2026 decreased by $469.0 million and $207.4 million, respectively, from the same periods of 2025. The change was primarily driven by lower Sarepta revenue, partially offset by increased revenue from Novartis and Sanofi, reflecting the timing and progress of the Company’s respective collaboration and license agreements. The Company has evaluated each agreement in accordance with FASB Topic 808– Collaborative Arrangements and 35 Topic 606- Revenue for Contracts from Customers . See Note 2 — Collaboration and License Agreements of the Notes to Consolidated Financial Statements of Part I, “Item 1. Financial Statements” for more information on revenue recognized under the collaboration and license agreements. Sarepta : On November 25, 2024, the Company entered into the Sarepta Collaboration Agreement and Stock Purchase Agreement with Sarepta for the development and commercialization of multiple clinical and preclinical programs in rare, genetic diseases of the muscle, central nervous system, and lungs. On December 16, 2025, the Company entered into the Sarepta Clinical Supply Agreement, whereby the Company is responsible for manufacturing and supplying certain materials to Sarepta for specified activities. During the six months ended March 31, 2026, the Company recorded $271.2 million in revenue. Novartis : On August 29, 2025, the Company entered into the Novartis Collaboration Agreement with Novartis for the development and commercialization of multiple preclinical programs in rare, genetic diseases of the central nervous system. During the six months ended March 31, 2026, the Company recorded $54.7 million in revenue. Visirna and Sanofi : On August 1, 2025, Visirna HK, a wholly owned subsidiary of Visirna Therapeutics, Inc, a majority owned subsidiary of the Company, entered into an Asset Purchase Agreement with Sanofi, pursuant to which Visirna HK sold all of its assets and rights in investigational plozasiran to Sanofi, which included an assignment of Visirna HK’s rights (as successor by assignment from Visirna) to develop and commercialize investigational plozasiran in Greater China pursuant to that certain License Agreement by and between the Company and Visirna dated, April 25, 2022 (the “Visirna License Agreement”). During the six months ended March 31, 2026, the Company recorded $10.7 million in revenue associated with this transaction. 36 Operating Expenses The analysis below details the operating expenses and discusses the expenditures of the Company within the major expense categories. For purposes of comparison, the amounts for the three and six months ended March 31, 2026 and 2025 are shown in the tables below. Research and Development (“R&D”) Expenses Research and development expenses consist of expenses for drug candidate and discovery costs, which are comprised primarily of outsourced costs related to the manufacturing of clinical supplies, toxicity/efficacy studies and clinical trial expenses. Internal costs primarily relate to discovery operations at the Company’s research facilities in California and Wisconsin, including facility costs and laboratory-related expenses. The Company operates in a cross-functional manner across projects and does not separately allocate facilities-related costs, candidate costs, discovery costs, compensation expenses, depreciation and amortization expenses, and other expenses related to research and development activities. The Company does not fully track research and development expenses by individual research and development projects, or by individual drug candidates. The following table provides details of research and development expenses for the periods indicated: (in thousands) Three Months Ended March 31, 2026 % of Expense Category Three Months Ended March 31, 2025 % of Expense Category Increase (Decrease) $ % Candidate costs $ 99,449 58 % $ 71,191 54 % $ 28,258 40 % Discovery costs 18,498 11 % 14,806 11 % 3,692 25 % Salaries 33,546 19 % 26,907 20 % 6,639 25 % Facilities related 7,595 4 % 6,737 5 % 858 13 % Total research and development expense, excluding non-cash expense $ 159,088 92 % $ 119,641 90 % $ 39,447 33 % Stock compensation 8,297 5 % 7,888 6 % 409 5 % Depreciation and amortization 5,868 3 % 5,573 4 % 295 5 % Total research and development expense $ 173,253 100 % $ 133,102 100 % $ 40,151 30 % (in thousands) Six Months Ended March 31, 2026 % of Expense Category Six Months Ended March 31, 2025 % of Expense Category Increase (Decrease) $ % Candidate costs $ 204,439 59 % $ 148,087 55 % $ 56,352 38 % Discovery costs 40,326 12 % 27,742 10 % 12,584 45 % Salaries 63,585 18 % 54,052 20 % 9,533 18 % Facilities related 15,697 4 % 14,487 5 % 1,210 8 % Total research and development expense, excluding non-cash expense $ 324,047 93 % $ 244,368 90 % $ 79,679 33 % Stock compensation 14,655 4 % 15,437 6 % (782) (5) % Depreciation and amortization 11,754 3 % 10,299 4 % 1,455 14 % Total research and development expense $ 350,456 100 % $ 270,104 100 % $ 80,352 30 % Candidate costs increased $28.3 million, or 40%, for the three months ended March 31, 2026 and $56.4 million, or 38%, for the six months ended March 31, 2026 compared to the same periods of 2025. The increase was primarily due to the additional progression of the Company’s pipeline of candidates into and through clinical trials, which resulted in higher outsourced clinical trial costs, manufacturing, and toxicity study costs. Discovery costs increased $3.7 million, or 25%, for the three months ended March 31, 2026 and $12.6 million, or 45%, for the six months ended March 31, 2026 compared to the same periods of 2025, primarily driven by higher R&D discovery activity associated with ongoing discovery efforts and expansion into novel therapeutic areas and tissue types, partially offset by lower partnership cost. Salaries consist of salary, bonuses, payroll taxes, and related benefits for the Company’s R&D personnel. Salaries expense increased $6.6 million, or 25%, for the three months ended March 31, 2026 and $9.5 million, or 18%, for the six months ended March 31, 2026 compared to the same periods of 2025. The increase was primarily due to an increase in 37 headcount that has occurred as the Company has expanded its pipeline of candidates and worked to prepare for the manufacture of commercial material at the Verona facility, as well as annual salary increases. Facilities-related expense includes lease costs for the Company’s research and development facilities in San Diego, California and in Madison, Wisconsin. These expenses increased $0.9 million, or 13%, for the three months ended March 31, 2026 and $1.2 million or 8%, for the six months ended March 31, 2026 compared to the same period of 2025. This increase was primarily due to expenses, such as utilities and repair and maintenance charges, associated with the expanded manufacturing facilities in Verona, Wisconsin to support manufacturing operations. Stock compensation expense, a non-cash expense, is primarily based on the valuation of restricted stock units granted to employees, which is based on the closing stock price on the grant date. Stock compensation expense increased $0.4 million, or 5%, for the three months ended March 31, 2026 compared to the same period of 2025, primarily driven by the annual issuance of RSU grants to employees in January 2026. Stock compensation expense decreased $0.8 million, or 5% for the six months ended March 31, 2026 compared to the same period of 2025, primarily driven by stock options award expense incurred in the second fiscal quarter 2025 related to Visirna, our variable interest entity, that did not repeat in the second fiscal quarter 2026. Depreciation and amortization expense, a non-cash expense, relates to depreciation on buildings, lab equipment and leasehold improvements. These expenses increased $0.3 million, or 5%, for the three months ended March 31, 2026 and $1.5 million, or 14% for the six months ended March 31, 2026 compared to the same periods of 2025. The increase was primarily attributable to the transfer of additional manufacturing equipment following the completion of certification, qualification and validation to support manufacturing operations. Selling, General and Administrative Expenses The following table provides details of selling, general and administrative expenses for the periods indicated: (in thousands) Three Months Ended March 31, 2026 % of Expense Category Three Months Ended March 31, 2025 % of Expense Category Increase (Decrease) $ % Salaries $ 12,435 30 % $ 7,857 27 % $ 4,578 58 % Professional, outside services, and other 18,940 45 % 10,815 38 % 8,125 75 % Facilities related 1,496 4 % 1,082 4 % 414 38 % Total selling, general and administrative expense, excluding non-cash expenses $ 32,871 79 % $ 19,754 69 % $ 13,117 66 % Stock compensation 8,373 20 % 8,140 29 % 233 3 % Depreciation and amortization 500 1 % 511 2 % (11) (2) % Total selling, general and administrative expenses $ 41,744 100 % $ 28,405 100 % $ 13,339 47 % (in thousands) Six Months Ended March 31, 2026 % of Expense Category Six Months Ended March 31, 2025 % of Expense Category Increase (Decrease) $ % Salaries $ 24,375 28 % $ 15,188 27 % $ 9,187 60 % Professional, outside services, and other 37,841 43 % 20,941 38 % 16,900 81 % Facilities related 3,159 4 % 2,367 4 % 792 33 % Total selling, general and administrative expense, excluding non-cash expenses $ 65,375 75 % $ 38,496 69 % $ 26,879 70 % Stock compensation 21,386 24 % 15,799 29 % 5,587 35 % Depreciation and amortization 1,004 1 % 1,020 2 % (16) (2) % Total selling, general and administrative expenses $ 87,765 100 % $ 55,315 100 % $ 32,450 59 % Salaries expense increased $4.6 million, or 58%, for the three months ended March 31, 2026 and $9.2 million, or 60% for the six months ended March 31, 2026 compared to the same periods of 2025. The increase was driven by higher headcount required to support the Company’s growth as the Company prepared for commercialization, as well as of annual salary increases. Professional, outside services, and other expenses include costs related to commercial activities, legal, consulting, patent filings, business insurance, other external services, as well as travel, communication, and technology expenses. These expenses increased $8.1 million, or 75%, for the three months ended March 31, 2026 and $16.9 million, or 81% for 38 the six months ended March 31, 2026 compared to the same periods of 2025. The increase was mainly due to commercialization expense associated with the Company;s launch of REDEMPLO, including costs for marketing and commercial launch support. Facilities related expense primarily includes rental costs and other facilities-related costs for the Company’s corporate headquarters in Pasadena, California. These expenses increased $0.4 million, or 38%, for the three months ended March 31, 2026 and $0.8 million, or 33% for the six months ended March 31, 2026 compared to the same periods of 2025. The increase was primarily driven by higher staff amenities expenses driven by higher headcount. Stock compensation expense, a non-cash expense, is based on the valuation of restricted stock units granted to employees, which is based on the closing stock price on the grant date. These expenses increased $0.2 million, or 3%, for the three months ended March 31, 2026 and $5.6 million, or 35% for the six months ended March 31, 2026 compared to the same periods of 2025. The increase was primarily due to recognition of compensation expense related to a performance-based restricted stock unit award following the achievement of a pre-specified performance milestone. Depreciation and amortization expense, a noncash expense, was primarily related to amortization of leasehold improvements for the Company’s corporate headquarters. Other Income (Expense) Other income (expense) is primarily related to interest income and expense, and to gain on VIE'S sale of IPR&D assets. Other income increased $15.3 million and $16.4 million for the three and six months ended March 31, 2026 compared to the same periods of 2025. The increase was primarily due to a gain on VIE'S sale of IPR&D assets related to the transfer of research and development assets from Visirna to Bisirna in January 2026. On January 15, 2026, Visirna closed on an Asset Transfer Agreement with Bisirna to sell and transfer certain assets and rights associated with R&D technology. The purchase price was $19.0 million, payable as (i) $9.0 million in paid-in-full warrants (exercise price of $0.18 per share) issued by Bisirna at the closing of the asset transfer, and (ii) $10.0 million of Bisirna Series A preferred shares, which were issued upon the closing of Bisirna’s Series A equity financing on January 15, 2026. As the performance obligation associated with the asset transfer was fully satisfied at closing, the Company recognized $19.0 million of gain in other income for the quarter ended March 31, 2026. Net (Loss) Income Net loss attributable to Arrowhead Pharmaceuticals, Inc. was $132.7 million and $101.9 million for the three and six months ended March 31, 2026, compared to a net income attributable to Arrowhead Pharmaceuticals, Inc. of $370.4 million and $197.4 million for the three and six months ended March 31, 2025. Net loss per diluted share was $0.93 and $0.73 for the three and six months ended March 31, 2026, compared to a net income per diluted share of $2.75 and $1.52 for the three and six months ended March 31, 2025. The decrease in net income attributable to Arrowhead Pharmaceuticals, Inc. for the three and six months ended March 31, 2026 compared to the same periods of 2025 was primarily due to a decrease in revenue from the Sarepta Collaboration Agreement, combined with higher commercial costs as well as research and development expenses, associated with the expansion of the Company's pipeline and progression through clinical trial phases. 39 LIQUIDITY AND CAPITAL RESOURCES The Company’s primary sources of financing have been through the sale of its equity securities, credit facility, revenue from its licensing and collaboration agreements, the sale of certain future royalties and issuance of convertible debt. Research and development activities have required significant capital investment since the Company’s inception and are expected to continue to require significant cash expenditure as the Company’s pipeline continues to expand and matures into later stage clinical trials, including commercialization efforts. The Company’s cash, cash equivalents and restricted cash was $188.5 million as of March 31, 2026 compared to $226.5 million as of September 30, 2025. Cash invested in available-for-sale securities was $1,595.6 million as of March 31, 2026 compared to $692.8 million as of September 30, 2025. On November 25, 2024, the Company entered into a licensing and collaboration agreement with Sarepta. Upon closing, the Company received $325.0 million for the purchase of 11,926,301 shares of common stock, at a price per share of $27.25, and received $500.0 million as an upfront payment on February 24, 2025. During the fourth quarter of fiscal 2025, a $100.0 million milestone payment from Sarepta was triggered, when the Company reached the first of two prespecified enrollment targets and subsequent authorization to dose escalate in a Phase 1/2 clinical study of ARO-DM1, an investigational RNAi therapeutic for the treatment of type 1 myotonic dystrophy (DM1). The Company received $53.2 million of Arrowhead common stock and $50.0 million cash from Sarepta to satisfy the milestone payment. During the second quarter of fiscal 2026, the Company received $200.0 million of the second DM1 milestone payment and a $50.0 million payment for the first installment of the annual fee. The Company is eligible to receive the second installment of the annual fee of up to $50.0 million over the 12 months from March 31, 2026, On August 29, 2025, the Company entered into a licensing and collaboration agreement with Novartis. Upon closing in October 2025, the Company received $200.0 million as an upfront payment. On December 10, 2025, the Company entered into the Amended and Restated Sale Agreement with Jefferies LLC, acting as sales agent and/or principal, which amended and restated the Company’s prior open market sale agreement in its entirety. Pursuant to the Amended and Restated Sale Agreement, the Company may, from time to time, sell shares of the Company’s common stock through Jefferies LLC in an at-the-market offering, up to the maximum program amount permitted under the Company’s effective shelf registration statement. As of March 31, 2026, the Company had sold approximately 689,000 shares of common stock under the Amended and Restated Sale Agreement, generating gross proceeds of $48.2 million and net proceeds of $46.8 million, after deducting commissions and offering costs. On January 7, 2026, the Company entered into an underwriting agreement with Jefferies and J.P. Morgan for the 2026 Offering of: (i) 2,015,505 shares of common stock with $0.001 par value per share, at a public offering price of $64.50 per share, and (ii) pre‑funded warrants to purchase 1,550,387 shares of common stock, at a public offering price of $64.499, which represents the per share public offering price for the common stock less the $0.001 per share exercise price for each pre-funded warrant. The 2026 Offering closed on January 9, 2026, generating gross proceeds of $230 million and net proceeds of $216.6 million after deducting the underwriting discounts and commissions and other offering expenses. On January 7, 2026, the Company issued $700.0 million aggregate principal amount of 0.00% Notes due January 15, 2032. This transaction closed on January 12, 2026, generating gross proceeds of $700.0 million and net proceeds of $681.9 million. During the first quarter of fiscal 2026, Visirna declared a cash dividend of $100.0 million to its shareholders. In March 2026, Visirna paid cash dividends totaling $94.8 million, consisting of $56.4 million paid to the Company and $38.4 million paid to the Company’s noncontrolling shareholders. Based upon the Company's current cash and investment resources and operating plan, the Company expects to have sufficient liquidity to fund its operations through at least the next twelve months from the date of the issuance of these 40 unaudited consolidated financial statements. The following table presents a summary of cash flows: Six Months Ended March 31, 2026 2025 (in thousands) Cash Flow from: Operating activities $ 97,923 $ 313,781 Investing activities (918,024) (343,303) Financing activities 780,967 113,016 Net decrease (increase) in cash, cash equivalents and restricted cash $ (39,134) $ 83,494 Cash, cash equivalents and restricted cash at end of period $ 188,517 $ 185,709 During the six months ended March 31, 2026, cash flow provided by operating activities was $97.9 million, which was primarily due to $200.0 million of cash received as part of the Novartis agreement, $200.0 million of the second DM1 milestone payment and a $50.0 million payment for the first installment of the annual fee received as part of the Sarepta agreement, partially offset by increase in ongoing expenses related to the Company's research and development programs and selling, general and administrative expenses. Cash used in investing activities amounted to $918.0 million, which was primarily attributable to investment purchases of $1,061.6 million, and capital expenditures of $4.7 million, partially offset by proceeds from maturities of investments of $124.5 million and proceeds from sales of investments of $23.7 million. Cash provided by financing activities of $781.0 million was primarily due to $681.3 million net proceeds from the issuance of convertible note, $116.6 million in net proceeds from a follow-on common stock offering, $46.8 million in net proceeds from the issuance of common stock under the Company's at-the-market equity offering program, $100.0 million proceeds from issuance of pre-funded warrants and $10.1 million proceeds from the exercise of stock options, partially offset by partial repayment of the credit facility of $84.5 million, purchase of the Capped Calls of $47.9 million, and dividends paid to noncontrolling shareholders of $41.5 million (See Note 6 — Stockholders’ Equity of Notes to Consolidated Financial Statements of Part I, “Item 1. Financial Statements”). During the six months ended March 31, 2025, cash flow provided by operating activities was $313.8 million, which was primarily due to $500.0 million of cash received as part of the Sarepta agreement, partially offset by ongoing expenses related to the Company's research and development programs and selling, general and administrative expenses. Cash used in investing activities was $343.3 million, which was primarily attributable to capital expenditures of $12.8 million and investment purchases of $677.9 million, partially offset by proceeds from sales and maturities of investments of $347.4 million. Cash provided by financing activities of $113.0 million was primarily related to cash received from the issuance of common stock as well as stock option exercises. Contractual Obligations The Company entered into a global licensing and collaboration agreement with Novartis on August 29, 2025, which closed on October 17, 2025 (see Note 2). There has been no other material change in the Company’s contractual obligations from that described in Item 7 of its Annual Report on Form 10-K for the fiscal year ended September 30, 2025. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has been no material change in the Company ’ s exposure to market risk from that described in Item 7A of its Annual Report on Form 10-K for the fiscal year ended September 30, 2025.