ARROWHEAD PHARMACEUTICALS, INC. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in its reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures. As required by Rule 13a-15(b) of the Exchange Act, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the 66 effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level. Management’s Annual Report on Internal Control over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of its Consolidated Financial Statements for external purposes in accordance with GAAP. This process includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the internal control over financial reporting to future periods are subject to risk that controls may become inadequate because either conditions change or the degree of compliance with policies or procedures may deteriorate. Management has assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2022. In making this assessment, the Company used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on this assessment, management concluded that the Company’s internal control over financial reporting was effective as of September 30, 2022. Rose, Snyder and Jacobs LLP, the independent registered public accounting firm that audited the Consolidated Financial Statements included in this 2022 Annual Report on Form 10-K, has issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of September 30, 2022, which is included herein. Changes in Internal Control Over Financial Reporting There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company’s process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during this process. ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. The information called for by this Item will be incorporated by reference from the Company’s Definitive Proxy Statement, under the headings Proposal One — Election of Directors, Equity Compensation Plan Information, Corporate Governance, Environmental and Social Commitment, and, if applicable, Delinquent Section 16(a) Reports, to be filed for 67 the Company’s 2023 Annual Meeting of Stockholders, which proxy statement will be filed no later than January 28, 2023 (the “Definitive Proxy Statement”). ITEM 11. EXECUTIVE COMPENSATION The information called for by this Item will be incorporated by reference from the Definitive Proxy Statement, under the heading Executive Compensation. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. The information called for by this Item will be incorporated by reference from the Definitive Proxy Statement, under the heading Voting Securities of Principal Stockholders and Management. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. The information called for by this Item will be incorporated by reference from the Definitive Proxy Statement, under the headings Review and Approval of Related-Party Transactions and Certain Relationships and Related Transactions, and Director Independence. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information called for by this Item will be incorporated by reference from the Definitive Proxy Statement, under the heading Audit Fees. PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES The following documents are filed as part of this Annual Report on Form 10-K: (1) Financial Statements. See Index to Financial Statements and Schedule on page F-1. (2) Financial Statement Schedules. See Index to Financial Statements and Schedule on page F-1. All other schedules are omitted as the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements or notes thereto. (3) Exhibits. The following exhibits are filed (or incorporated by reference herein) as part of this Annual Report on Form 10-K: Incorporated by Reference Herein Exhibit Number Description Form Date 1.1 Open Market Sale Agreement, dated as of August 5, 2020, by and between Arrowhead Pharmaceuticals, Inc. and Jefferies LLC Quarterly Report on Form 10-Q, as Exhibit 1.1 August 5, 2020 2.1† Stock and Asset Purchase Agreement between Arrowhead Research Corporation and Roche entities, dated October 21, 2011 Annual Report on Form 10-K as Exhibit 2.1 December 20, 2011 2.2† Asset Purchase and Exclusive License Agreement between Arrowhead Research Corporation and Novartis Institutes for BioMedical Research, Inc., dated March 3, 2015 Quarterly Report on Form 10-Q, as Exhibit 2.1 May 11, 2015 68 Incorporated by Reference Herein Exhibit Number Description Form Date 3.1 Amended and Restated Certificate of Incorporation Current Report on Form 8-K as Exhibit 3.3 April 6, 2016 3.2 Amended and Restated Bylaws Current Report on Form 8-K as Exhibit 3.4 April 6, 2016 4.1 Form of Common Stock Certificate of Arrowhead Pharmaceuticals, Inc. Current Report on Form 8-K, as Exhibit 4.1 April 6, 2016 4.2 Form of Indenture Registration Statement on Form S-3, as Exhibit 4.2 December 2, 2019 4.3 Rights Agreement dated as of March 21, 2017, between the Company and Computershare Trust Company, N.A., as rights agent, which includes as Exhibit B the Form of Rights Certificate Current Report on Form 8-K, as Exhibit 4.1 March 23, 2017 4.4 Description of Registrant’s Securities Annual Report on Form 10-K, as Exhibit 4.4 November 25, 2019 4.5 Registration Rights Agreement by and between Arrowhead Pharmaceuticals, Inc. and Johnson & Johnson Innovation-JJDC, Inc., dated October 3, 2018 Quarterly Report on Form 10-Q, as Exhibit 10.4 February 7, 2019 10.1** Arrowhead Research Corporation 2004 Equity Incentive Plan, as amended Schedule 14C, as Annex B January 12, 2012 10.2** Arrowhead Research Corporation 2013 Incentive Plan Schedule 14C, as Annex A December 20, 2013 10.3** Form of Stock Option Agreement for use with the 2013 Incentive Plan Current Report on Form 8-K, as Exhibit 10.1 February 12, 2014 10.4** Form of Restricted Stock Unit Agreement for use with the 2013 Incentive Plan Current Report on Form 8-K, as Exhibit 10.2 February 12, 2014 10.5** Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan Schedule 14A, Exhibit A January 28, 2021 10.6** Form of RSU Agreement for Officers and Certain Other Employees (Arrowhead Pharmace uticals, Inc. 2021 Incentive Pla n - Inducement Award) Registration Statement on Form S-8, Exhibit 99.1 December 22, 2021 10.7** Form of RSU Agreement for Employees (Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan- Inducement Award) Registration Statement on Form S-8, Exhibit 99.2 December 22, 2021 10.8** Form of Stock Option Grant (Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan- Inducement Award) Registration Statement on Form S-8, Exhibit 99.3 December 22, 2021 10.9** Executive Incentive Plan, adopted December 12, 2006 Annual Report on Form 10-K, as Exhibit 10.11 December 14, 2006 10.10** Employment Agreement between Arrowhead and Dr. Christopher Anzalone, dated June 11, 2008 Current Report on Form 8-K, as Exhibit 10.1 June 13, 2008 10.11** Amendment to Employment Agreement between Arrowhead and Dr. Christopher Anzalone, effective May 12, 2009 Annual Report on Form 10-K, as Exhibit 10.8 December 22, 2009 10.12† Collaboration Agreement by and among Alnylam Pharmaceuticals, Inc. and F. Hoffmann-La Roche Ltd and Hoffman-La Roche Inc., dated October 29, 2009 † Annual Report on Form 10-K, as Exhibit 10.36 December 20, 2011 69 Incorporated by Reference Herein Exhibit Number Description Form Date 10.13† Non-Exclusive License Agreement between Arrowhead Research Corporation and Roche entities, dated October 21, 2011† Annual Report on Form 10-K, as Exhibit 10.33 December 20, 2011 10.14† License Agreement by and between Alnylam Pharmaceuticals, Inc., Arrowhead Research Corporation and Arrowhead Madison, Inc.† Quarterly Report on Form 10-Q, as Exhibit 10.1 August 12, 2014 10.15† First Collaboration and Licensing Agreement between Arrowhead Pharmaceuticals, Inc. and Amgen Inc., dated September 28, 2016† Annual Report on Form 10-K, as Exhibit 10.18 December 14, 2016 10.16† Second Collaboration and Licensing Agreement between Arrowhead Pharmaceuticals, Inc. and Amgen Inc., dated September 28, 2016† Annual Report on Form 10-K, as Exhibit 10.19 December 14, 2016 10.17 Common Stock Purchase Agreement between the Company and Amgen Inc., dated September 28, 2016 Amendment No. 1 to the Registration Statement on Form S-3, as Exhibit 10.1) November 25, 2016 10.18† License Agreement by and between Arrowhead Pharmaceuticals, Inc. and Janssen Pharmaceuticals, Inc., dated October 3, 2018† Quarterly Report on Form 10-Q, as Exhibit 10.1 February 7, 2019 10.19† Amendment No. 1 to License Agreement by and between Arrowhead Pharmaceuticals, Inc. and Janssen Pharmaceuticals, Inc., dated December 18, 2018† Annual Report on Form 10-Q, as Exhibit 10.19 November 25, 2019 10.20† Amendment No. 2 to License Agreement by and between Arrowhead Pharmaceuticals, Inc. and Janssen Pharmaceuticals, Inc., dated February 4, 2019† Annual Report on Form 10-K, as Exhibit 10.20 November 25, 2019 10.21† Research Collaboration and Option Agreement by and between Arrowhead Pharmaceuticals, Inc. and Janssen Pharmaceuticals, Inc., dated October 3, 2018† Quarterly Report on Form 10-Q, as Exhibit 10.2 February 7, 2019 10.22† Amendment No. 1 to Research Collaboration and Option Agreement by and between Arrowhead Pharmaceuticals, Inc. and Janssen Pharmaceuticals, Inc., dated November 14, 2019† Annual Report on Form 10-K, as Exhibit 10.21 November 25, 2019 10.23 Stock Purchase Agreement by and between Johnson & Johnson Innovation-JJDC, Inc. and Arrowhead Pharmaceuticals, Inc., dated October 3, 2018 Quarterly Report on Form 10-Q, as Exhibit 10.3 February 7, 2019 10.24† Exclusive License and Co-Funding Agreement by and between Arrowhead Pharmaceuticals, Inc. and Takeda Pharmaceuticals U.S.A., Inc., dated October 7, 2020 † Quarterly Report on Form 10-Q, as Exhibit 10.1 February 4, 2021 10.25 First Amendment to Exclusive License and Co-Funding Agreement by and between Arrowhead Pharmaceuticals, Inc. and Takeda Pharmaceuticals U.S.A., Inc. dated March 15, 2022 Quarterly Report on Form 10-Q, as Exhibit 10.1 May 10, 2022 10.26† Collaboration and License Agreement by and between Arrowhead Pharmaceuticals, Inc. and Horizon Therapeutics Ireland DAC, dated June 18, 2021 † Quarterly Report on Form 10-Q, as Exhibit 10.4 August 5, 2021 10.27 Collaboration and License Agreement by and between Arrowhead Pharmaceuticals, Inc. and Glaxosmithkline Intellectual Property, dated November 22, 2021 Quarterly Report on Form 10-Q, as Exhibit 10.1 February 2, 2022 70 Incorporated by Reference Herein Exhibit Number Description Form Date 10.28 Lease Agreement between University Research Park, Incorporated and Arrowhead Madison, Inc., dated January 8, 2016 Quarterly Report on Form 10-Q, as Exhibit 10.1 February 9. 2016 10.29 Amendment No. 1 to Lease Agreement between Arrowhead Pharmaceuticals, Inc. and University Research Park, Incorporated, dated October 22, 2018 Annual Report on Form 10-K, as Exhibit 10.23 November 23, 2020 10.30 Amendment No. 2 to Lease Agreement between Arrowhead Pharmaceuticals, Inc. and University Research Park, Incorporated, dated January 10, 2019 Annual Report on Form 10-K, as Exhibit 10.24 November 23, 2020 10.31 Amendment No. 3 to Lease Agreement between Arrowhead Pharmaceuticals, Inc. and University Research Park, Incorporated, dated January 11, 2019 Annual Report on Form 10-K, as Exhibit 10.25 November 23, 2020 10.32 Amendment No. 4 to Lease Agreement between Arrowhead Pharmaceuticals, Inc. and University Research Park, Incorporated, dated September 19, 2019 Annual report on Form 10-K, as Exhibit 10.26 November 23, 2020 10.33 Amendment No. 5 to Lease Agreement between Arrowhead Pharmaceuticals, Inc. and University Research Park, Incorporated, dated May 14, 2020 Annual report on Form 10-K, as Exhibit 10.27 November 23, 2020 10.34 Amendment No. 6 to Lease Agreement by and between Arrowhead Pharmaceuticals, Inc. and University Research Park, dated November 23, 2020 Quarterly Report on Form 10-Q, as Exhibit 10.3 February 4, 2021 10.35 Amendment No. 7 to Lease Agreement by and between Arrowhead Pharmaceuticals, Inc. and University Research Park, dated December 9, 2020 Quarterly Report on Form 10-Q, as Exhibit 10.4 February 4, 2021 10.36 Office Lease by and between 177 Colorado Owner LLC and Arrowhead Pharmaceuticals, Inc., dated April 17, 2019 Quarterly Report on Form 10-Q, as Exhibit 10.1 August 5, 2019 10.37 First Amendment to Office Lease by and between Arrowhead Pharmaceuticals, Inc. and 177 Colorado Owner LLC., dated October 23, 2020 Quarterly Report on Form 10-Q, as Exhibit 10.2 February 4, 2021 10.38† Sublease Agreement by and between Halozyme, Inc. and Arrowhead Pharmaceuticals, Inc. dated March 3, 2020† Quarterly Report on Form 10-Q, as Exhibit 10.1 May 7, 2020 10.39 Lease Agreement by and between Arrowhead Pharmaceuticals, Inc. and ARE-SD Region No. 72, LLC, dated November 19, 2021 Quarterly Report on Form 10-Q, as Exhibit 10.1 February 2, 2022 21.1* List of Subsidiaries 23.1* Consent of Independent Public Registered Accounting Firm 31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1*** Certification by Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 71 Incorporated by Reference Herein Exhibit Number Description Form Date 32.2*** Certification by Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 101.INS* Inline XBRL Taxonomy Extension Instance Document 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 104* The cover page from the Company’s Annual Report on Form 10-K for the year ended September 30, 2022, formatted in Inline XBRL (included as Exhibit 101) * Filed herewith ** Indicates compensation plan, contract or arrangement. *** Furnished herewith † Certain portions of this exhibit were redacted by means of marking such portions with asterisks because the identified portions are (i) not material and (ii) treated as private or confidential by the Company. ITEM 16. FORM 10-K SUMMARY None. 72 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: November 28, 2022 ARROWHEAD PHARMACEUTICALS, INC. By: /s/ Christopher Anzalone Christopher Anzalone Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date /s/ Christopher Anzalone Chief Executive Officer, President and Director (Principal Executive Officer) November 28, 2022 Christopher Anzalone /s/ Kenneth A. Myszkowski Chief Financial Officer (Principal Financial and Accounting Officer) November 28, 2022 Kenneth A. Myszkowski /s/ Douglass Given Director, Chairman of the Board of Directors November 28, 2022 Douglass Given /s/ Mauro Ferrari Director November 28, 2022 Mauro Ferrari /s/ Michael S. Perry Director November 28, 2022 Michael S. Perry /s/ William Waddill Director November 28, 2022 William Waddill /s/ Marianne De Backer Director November 28, 2022 Marianne De Backer /s/ Adeoye Olukotun Director November 28, 2022 Adeoye Olukotun /s/ Victoria Vakiener Director November 28, 2022 Victoria Vakiener 73 INDEX TO FINANCIAL STATEMENTS AND SCHEDULE Reports of Independent Registered Public Accounting Firm (PCAOB ID: 468 ) F- 2 Consolidated Balance Sheets as of September 30, 202 2 and 202 1 F- 5 Consolidated Statements of Operations and Comprehensive Loss for the years ended September 30, 202 2 , 202 1 and 20 20 F- 6 Consolidated Statements of Stockholders’ Equity for the years ended September 30, 202 2 , 202 1 , and 20 20 F- 7 Consolidated Statements of Cash Flows of for the years ended September 30, 202 2 , 202 1 and 20 20 F- 8 Notes to Consolidated Financial Statements F- 9 F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Arrowhead Pharmaceuticals, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Arrowhead Pharmaceuticals, Inc. and Subsidiaries (the Company) as of September 30, 2022 and 2021, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended September 30, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, 2022, in conformity with accounting principles generally accepted in the United States of America. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated November 28, 2022, expressed an unqualified opinion. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Revenue Recognition – Revenue Recognized Over Time Description of the Matter As discussed in Note 1 and Note 2 to the Consolidated Financial Statements, the Company earns its revenue through license and collaboration agreements. For performance obligations related to services that are required to be recognized over time, the Company measures its progress to completion using various measures, including an input measure of total labor costs incurred divided by total labor costs expected to be incurred, time elapsed, and an output measure of total patient visits divided by total patient visits expected. The selection of measurement criteria is based on the nature and phase of trials being conducted. F-2 Auditing revenue recognition is complex and highly judgmental due to the variability and uncertainty associated with the Company’s assessment of measure of progress. Changes in these estimates would have a significant effect on the amount of revenue recognized. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls that address the risk of material misstatement of license and collaboration agreement revenue including those associated with cost to complete estimates. We tested controls over management’s process to collect, review, and approve the data used in assessing revenue recognized over time. To test the measures of progress used for performance obligations related to services that are required to be recognized over time, our audit procedures included, among others, evaluating the appropriateness of the Company’s accounting policy for each type of arrangement, testing the identified measure of performance by reading contracts with customers, including all amendments, and reviewing the contract analyses prepared by management. We evaluated whether the selected measures of progress towards satisfaction of performance obligations were applied consistently. We also tested the completeness and accuracy of the underlying data used for the measure of progress by testing and or analyzing the underlying data and conducting interviews of project personnel. Rose, Snyder & Jacobs LLP We have served as the Company’s auditor since 2004. Encino, California November 28, 2022 F-3 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Arrowhead Pharmaceuticals, Inc. Opinion on Internal Control over Financial Reporting We have audited Arrowhead Pharmaceuticals, Inc. and its Subsidiaries (the Company’s) internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets as of September 30, 2022 and 2021 and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended September 30, 2022 and related notes, and our report dated November 28, 2022 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Rose, Snyder & Jacobs LLP Encino, CA November 28, 2022 F-4 Arrowhead Pharmaceuticals, Inc. Consolidated Balance Sheets (in thousands, except per share amounts) September 30, 2022 2021 ASSETS Current assets: Cash, cash equivalents and restricted cash $ 108,005 $ 184,434 Accounts receivable 1,410 10,255 Short-term investments 268,391 56,627 Marketable securities — 126,728 Prepaid expenses 7,289 4,362 Other current assets 20,204 2,191 Total current assets 405,299 384,597 Property and equipment, net 110,297 48,675 Intangible assets, net 11,962 13,663 Long-term investments 105,872 245,595 Right-of-use assets 58,291 17,346 Other assets 218 272 Total Assets $ 691,939 $ 710,148 LIABILITIES, NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 2,868 $ 9,457 Accrued expenses 46,856 14,001 Accrued payroll and benefits 12,251 9,773 Lease liabilities 2,776 2,250 Deferred revenue 74,099 111,055 Total current liabilities 138,850 146,536 Long-term liabilities: Lease liabilities, net of current portion 78,800 23,295 Deferred revenue, net of current portion 55,950 131,495 Total long-term liabilities 134,750 154,790 Commitments and contingencies (Note 7) Noncontrolling interest and stockholders' equity: Common stock, $ 0.001 par value: Authorized 145,000 shares; issued and outstanding 105,960 and 104,327 shares 198 197 Additional paid-in capital 1,219,213 1,053,386 Accumulated other comprehensive loss ( 136 ) ( 69 ) Accumulated deficit ( 820,755 ) ( 644,692 ) Total Arrowhead Pharmaceuticals, Inc. stockholders' equity 398,520 408,822 Noncontrolling interest 19,819 — Total noncontrolling interest and stockholders' equity 418,339 408,822 Total Liabilities, Noncontrolling Interest and Stockholders' Equity $ 691,939 $ 710,148 The accompanying notes are an integral part of these consolidated financial statements. F-5 Arrowhead Pharmaceuticals, Inc. Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share amounts) Year Ended September 30, 2022 2021 2020 Revenue $ 243,231 $ 138,287 $ 87,992 Operating expenses: Research and development 297,307 206,342 128,875 General and administrative 124,431 80,981 52,276 Total operating expenses 421,738 287,323 181,151 Operating loss ( 178,507 ) ( 149,036 ) ( 93,159 ) Other income (expense): Interest income, net 5,033 6,120 9,191 Other income (expense), net 765 2,070 ( 583 ) Total other income 5,798 8,190 8,608 Loss before income tax expense and noncontrolling interest ( 172,709 ) ( 140,846 ) ( 84,551 ) Income tax expense 3,785 2 2 Net loss including noncontrolling interest ( 176,494 ) ( 140,848 ) ( 84,553 ) Net loss attributable to noncontrolling interest, net of tax ( 431 ) — — Net loss attributable to Arrowhead Pharmaceuticals, Inc. $ ( 176,063 ) $ ( 140,848 ) $ ( 84,553 ) Net loss per share attriutable to Arrowhead Pharmaceuticals, Inc.: Basic $ ( 1.67 ) $ ( 1.36 ) $ ( 0.84 ) Diluted $ ( 1.67 ) $ ( 1.36 ) $ ( 0.84 ) Weighted-average shares used in calculating Basic 105,426 103,745 100,722 Diluted 105,426 103,745 100,722 Other comprehensive loss, net of tax: Foreign currency translation adjustments ( 67 ) ( 87 ) 410 Comprehensive loss $ ( 176,561 ) $ ( 140,935 ) $ ( 84,143 ) The accompanying notes are an integral part of these consolidated financial statements. F-6 Arrowhead Pharmaceuticals, Inc. Consolidated Statements of Stockholders’ Equity (in thousands) Common Stock Amount ($) Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Non- controlling Interest Totals Balance at September 30, 2019 95,506 $ 188 $ 664,086 $ ( 392 ) $ ( 419,291 ) $ ( 555 ) $ 244,036 Stock-based compensation — — 43,383 — — — 43,383 Exercise of stock options 1,111 1 7,468 — — — 7,469 Common stock - restricted stock units vesting 1,159 1 ( 1 ) — — — — Common stock - issued for cash 4,600 5 250,474 — — — 250,479 Foreign currency translation adjustments — — — 410 — — 410 Deconsolidation of Ablaris Therapeutics, Inc. — — — — — 555 555 Net loss — — — — ( 84,553 ) — ( 84,553 ) Balance at September 30, 2020 102,376 $ 195 $ 965,410 $ 18 $ ( 503,844 ) $ — $ 461,779 Common Stock Amount ($) Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Non- controlling Interest Totals Balance at September 30, 2020 102,376 $ 195 $ 965,410 $ 18 $ ( 503,844 ) $ — $ 461,779 Stock-based compensation — — 76,673 — — — 76,673 Exercise of stock options 1,052 1 11,304 — — — 11,305 Common stock - restricted stock units vesting 899 1 ( 1 ) — — — — Foreign currency translation adjustments — — — ( 87 ) — — ( 87 ) Net loss — — — — ( 140,848 ) — ( 140,848 ) Balance at September 30, 2021 104,327 $ 197 $ 1,053,386 $ ( 69 ) $ ( 644,692 ) $ — $ 408,822 Common Stock Amount ($) Additional Paid-In Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Non- controlling Interest Totals Balance at September 30, 2021 104,327 $ 197 $ 1,053,386 $ ( 69 ) $ ( 644,692 ) $ — $ 408,822 Stock-based compensation — — 120,893 — — — 120,893 Exercise of stock options 606 — 5,185 — — — 5,185 Common stock - restricted stock units vesting 1,027 1 ( 1 ) — — — — Foreign currency translation adjustments — — — ( 67 ) — — ( 67 ) Interest in joint venture — — 39,750 — 20,250 60,000 Net loss — — — — ( 176,063 ) ( 431 ) ( 176,494 ) Balance at September 30, 2022 105,960 $ 198 $ 1,219,213 $ ( 136 ) $ ( 820,755 ) $ 19,819 $ 418,339 The accompanying notes are an integral part of these consolidated financial statements. F-7 Arrowhead Pharmaceuticals, Inc. Consolidated Statements of Cash Flows (in thousands) Year Ended September 30, 2022 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 176,494 ) $ ( 140,848 ) $ ( 84,553 ) Adjustments to reconcile net loss to net cash flow from operating activities: Stock-based compensation 120,893 76,673 43,383 Net loss (gain) from investments 4,432 ( 1,708 ) ( 20 ) Depreciation and amortization 10,421 8,267 5,942 Amortization of note premiums 2,910 266 525 Changes in operating assets and liabilities: Accounts receivable 8,845 ( 9,409 ) ( 184 ) Prepaid expenses and other current assets ( 19,291 ) ( 360 ) ( 387 ) Accounts payable ( 6,589 ) 2,628 ( 821 ) Accrued expenses 17,750 9,522 1,989 Deferred revenue ( 112,501 ) 223,258 ( 63,514 ) Operating lease liabilities 13,428 3,192 1,124 Other 65 ( 169 ) 715 Net cash (used in) provided by operating activities ( 136,131 ) 171,312 ( 95,801 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment ( 52,777 ) ( 23,567 ) ( 11,952 ) Purchases of investments ( 223,391 ) ( 240,703 ) ( 278,964 ) Proceeds from sale of investments 270,751 122,592 50,138 Net cash used in investing activities ( 5,417 ) ( 141,678 ) ( 240,778 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the exercises of stock options 5,186 11,305 7,469 Proceeds from the issuance of common stock — — 250,479 Proceeds from investment in joint venture 60,000 — — Net cash provided by financing activities 65,186 11,305 257,948 NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 76,362 ) 40,939 ( 78,631 ) EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS ( 67 ) ( 88 ) 410 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 184,434 143,583 221,804 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 108,005 $ 184,434 $ 143,583 Supplementary disclosures: Interest paid $ — $ — $ — Income Taxes (Paid) Refunded $ ( 2 ) $ ( 2 ) $ 103 The accompanying notes are an integral part of these consolidated financial statements. F-8 Arrowhead Pharmaceuticals, Inc. Notes to Consolidated Financial Statements NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES General Arrowhead Pharmaceuticals, Inc. and its subsidiaries (referred to herein collectively as the “Company”) are primarily engaged in developing medicines that treat intractable diseases by silencing the genes that cause them. Using a broad portfolio of RNA chemistries and efficient modes of delivery, the Company’s therapies trigger the RNA interference mechanism to induce rapid, deep and durable knockdown of target genes. RNA interference (“RNAi”) is a mechanism present in living cells that inhibits the expression of a specific gene, thereby affecting the production of a specific protein. The Company’s RNAi-based therapeutics may leverage this natural pathway of gene silencing to target and shut down specific disease-causing genes. The following table presents the Company’s current pipeline: Therapeutic Area Name Stage Product Rights Cardiometabolic ARO-APOC3 Two Phase 2b and one Phase 3 Arrowhead ARO-ANG3 Two Phase 2b Arrowhead Olpasiran Phase 3 Amgen Pulmonary ARO-ENAC2 Pre-Clinical Arrowhead ARO-RAGE Phase 1/2 Arrowhead ARO-MUC5AC Phase 1/2a Arrowhead ARO-MMP7 Phase 1/2 Arrowhead Liver ARO-HSD Phase 1/2 GSK ARO-AAT Phase 2 Takeda and Arrowhead JNJ-3989 Phase 2 Janssen ARO-XDH Phase 1 Horizon ARO-C3 Phase 1/2 Arrowhead JNJ-75220795 Phase 1 Janssen Muscle ARO-DUX4 Pre-Clinical Arrowhead The Company operates lab facilities in San Diego, California and Madison, 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. Consolidation and Basis of Presentation The Consolidated Financial Statements include the accounts of Arrowhead Pharmaceuticals, Inc. and its subsidiaries (wholly-owned subsidiaries and a variable interest entity that the Company is the primary beneficiary in). Subsidiaries refer to Arrowhead Madison, Inc., Visirna Therapeutics, Inc. (“Visirna”), and Arrowhead Australia Pty Ltd. For subsidiaries in which the Company owns or is exposed to less than 100% of the economics, the Company records net loss attributable to noncontrolling interests in its consolidated statements of operations equal to the percentage of the economic or ownership interests retained in such entity by the respective noncontrolling party. The Consolidated Financial Statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). All intercompany transactions and balances have been eliminated. Certain prior period amounts have been reclassified to conform with the current period presentation. Liquidity The Company’s primary sources of financing have been through the sale of its securities and revenue from its licensing and collaboration agreements. Research and development activities have required significant capital investment since the Company’s inception and are expected to continue to require significant cash expenditure in the future, particularly as the Company’s pipeline of drug candidates and its headcount have both expanded significantly. Additionally, significant capital investment will be required as the Company’s pipeline matures into later stage clinical trials and as the Company plans to increase its internal manufacturing capabilities. F-9 At September 30, 2022, the Company had $ 108.0 million in cash and cash equivalents (including $ 7.3 million in restricted cash), $ 268.4 million in short-term investments and $ 105.9 million in long-term investments to fund operations. During the year ended September 30, 2022, the Company’s cash and cash equivalents and investments balance decreased by $ 131.1 million which was primarily cash being used to fund the Company’s operations, offset by the $ 120.0 million upfront payment received from Glaxosmithkline Intellectual Property Limited (Note 2) and $ 60.0 million cash infusion from the formation of Visirna (Note 2). In total, the Company is eligible to receive up to $ 4.9 billion in developmental, regulatory and sales milestones, and may receive various royalties on net sales from its licensing and collaboration agreements, subject to the terms and conditions of those agreements. The revenue recognition for these collaboration agreements is discussed further in Note 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, judgments and assumptions. The Company bases its estimates on historical experience and on various other assumptions that it believes are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenue and expense. Actual results could materially differ from those estimates. Variable Interest Entity (“VIE”) A VIE is an entity that, by design, either (i) lacks sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties; or (ii) has equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity. The primary beneficiary of a VIE is required to consolidate the assets and liabilities of the VIE. The primary beneficiary is the party that has both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE through its interest in the VIE. On April 25, 2022, the Company entered into a license agreement with Visirna (Note 2) and consolidated Visirna’s financial statements in which the Company has a direct controlling financial interest based on the VIE model. The Company considers all the facts and circumstances, including its role in establishing Visirna and its ongoing rights and responsibilities to assess whether the Company has the power to direct the activities of Visirna. In general, the parties that make the most significant decisions affecting a VIE and have the right to unilaterally remove those decision-makers are deemed to have the power to direct the activities of a VIE. The Company also considers all of its economic interests to assess whether the Company has the obligation to absorb losses of Visirna or the right to receive benefits from it that could potentially be significant to Visirna. This assessment requires the Company to apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to Visirna. Factors considered in assessing the significance include: the design of the Visirna, including its capitalization structure, subordination of interests, payment priority, and the reasons why the interests are held by the Company. At Visirna’s inception, the Company determined whether it was the primary beneficiary and if Visirna should be consolidated based on the facts and circumstances. The Company has determined that Visirna, in which the Company is the primary beneficiary, meets the definition of a business. The Company performs ongoing reassessments of the VIE based on reconsideration events and reevaluates whether a change to the consolidation is required. Cash, Cash Equivalents and Restricted Cash All highly liquid interest-bearing investments with short-term are classified as cash equivalents. These investments mainly include commercial paper with maturities of three months or less when purchased. The carrying value of these cash equivalents approximate fair value. There were $ 7.3 million and $ 2.4 million restricted cash at September 30, 2022 and September 30, 2021, respectively, that are primarily held as collateral associated with letters of credit for the Company’s facility leases. The increase in 2022 was mainly due to the Company’s expansion plan in Verona, Wisconsin and San Diego, California. Concentration of Credit Risk F-10 Financial instruments that potentially expose the Company to concentration of credit risk primarily consist of cash and cash equivalents and investments. As of September 30, 2022 and 2021, the Company’s investments were primarily invested in money market funds, certificates of deposit, commercial paper, and corporate debt securities through highly rated financial institutions. The Company also maintains several bank accounts primarily at three financial institutions for its operations. These accounts are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $ 250,000 per institution. Management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which these deposits are held. Investments Investment securities are mainly held-to-maturity investments and marketable securities. These held-to-maturity investments may consist of investment-grade interest bearing instruments, primarily certificates of deposit, money market accounts, government-sponsored enterprise securities, corporate bonds and/or commercial paper, which are stated at amortized cost. The Company does not intend to sell these investment securities and the contractual maturities are not greater than 36 months. Those with maturities less than twelve months are included in short-term investments on the Company’s consolidated balance sheets, while those with remaining maturities in excess of twelve months are included in long-term investments on its consolidated balance sheets. Discounts and premiums to par value of the debt securities are amortized to interest income/expense over the term of the security, and no gains or losses on held-to-maturity investment are realized until they are sold. The Company’s marketable debt securities consisted of mutual funds that primarily invest in U.S. government bonds, U.S. government agency bonds, and corporate bonds. Dividends from these funds were automatically re-invested. These securities were recorded at fair value, and all unrealized gains/losses were recorded in the Company’s consolidated statement of operations and comprehensive loss. In April 2022, the Company sold all marketable debt securities for $ 122.3 million. The Company monitors its investments closely. If an unrealized loss is determined to be other-than-temporary, it is written off as a realized loss through the consolidated statements of operations and comprehensive loss. The Company’s methodology of assessing other-than-temporary impairments is based on security-specific analysis as of the balance sheet date and considers various factors, including the length of time to maturity and the extent to which the fair value has been less than the cost, recoverability of future cash flows as compared to carrying value of the security, the financial condition and the near-term prospects of the issuer, and the Company’s ability and intent to hold the security. If a decline in fair value of investments is determined to be other-than-temporary, the securities are written down to fair value as the new cost basis and the amount of the write down is accounted for as realized losses. The Company did not recognize any other-then-temporary impairments of its investment for the years ended September 30, 2022, 2021, and 2020. Property and Equipment Property and equipment are recorded at cost, which may equal fair market value in the case of property and equipment acquired in conjunction with a business acquisition. Depreciation of property and equipment is recorded using the straight-line method over the respective useful lives of the assets ranging from three to seven years . Leasehold improvements are amortized over the lesser of the expected useful life or the remaining lease term. The Company periodically assesses long-lived assets or asset groups, including property and equipment, for recoverability when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the Company identifies an indicator of impairment, the Company assesses recoverability by comparing the carrying amount of the asset to the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset. An impairment loss is recognized when the carrying amount is not recoverable and is measured as the excess of carrying value over fair value. There were no impairment charges during 2022, 2021, and 2020. Intangible Assets Subject to Amortization Intangible assets subject to amortization include certain patents and license agreements. The Company qualitatively evaluates intangible assets for impairment annually or whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount of intangible assets may exceed their implied fair values. As of September 30, 2022 and 2021, intangible impairment assessments indicated that there was no impairment. Leases The Company determines whether a contract is, or contains, a lease at inception. All of the Company’s leases are classified as operating leases. Leases with terms greater than one-year are recognized on the Company’s consolidated balance sheets as right-of-use assets that represent the Company’s right to use an underlying asset for the lease term, and lease liabilities that represent its obligation to make lease payments arising from the lease. Lease assets and liabilities are F-11 recognized at the lease commencement date based on the estimated present value of lease payments over the expected lease term minus the present value of any incentives, rebates or abatement expected to be received from the lessor. The Company did not include the extension option in the lease term. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis an amount equal to the lease payments over a similar term and in a similar economic environment. The Company records expense to recognize fixed lease payments on a straight-line basis over the expected lease term. Costs determined to be variable and not based on an index or rate are not included in the measurement of the lease liability and are expensed as incurred. Contingent Consideration The consideration for the Company’s acquisitions may include future payments that are contingent upon the occurrence of a particular event. For example, milestone payments might be based on the achievement of various regulatory approvals or future sales milestones, and royalty payments might be based on drug product sales levels. The Company records a contingent consideration obligation for such contingent payments at fair value on the acquisition date. The Company estimates the fair value of contingent consideration obligations through valuation models designed to estimate the probability of such contingent payments based on various assumptions and incorporating estimated success rates. Estimated payments are discounted using present value techniques to arrive at an estimated fair value at the balance sheet date. Changes in the fair value of the contingent consideration obligations are recognized within the Company’s consolidated statements of operations and comprehensive loss. Changes in the fair value of the contingent consideration obligations can result from changes to one or multiple inputs, including adjustments to the discount rates, changes in the amount or timing of expected expenditures associated with product development, changes in the amount or timing of cash flows from products upon commercialization, changes in the assumed achievement or timing of any development milestones, changes in the probability of certain clinical events and changes in the assumed probability associated with regulatory approval. These fair value measurements are based on significant inputs not observable in the market. Substantial judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense the Company records in any given period. The Company determined the fair value of its contingent consideration obligation to be $ 0 at September 30, 2022 and 2021. Revenue Recognition On October 1, 2018, the Company adopted Financial Accounting Standards Board (“FASB”) Topic 606 – Revenue for Contracts from Customers which amended revenue recognition principles and provides a single, comprehensive set of criteria for revenue recognition within and across all industries. The Company’s adoption of the revenue standard did not have a material impact on its Consolidated Financial Statements. The Company has not yet achieved commercial sales of its drug candidates to date, however, the new standard is applicable to its ongoing licensing and collaboration agreements. See Note 2. The revenue standard provides a five-step framework for recognizing revenue as control of promised goods or services is transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements that it determines are within the scope of the revenue standard, the Company performs the following five steps: (i) identify the contract; (ii) identify the performance obligations; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. At contract inception, the Company assesses whether the goods or services promised within each contract are distinct and, therefore, represent a separate performance obligation, or whether they are not distinct and are combined with other goods and services until a distinct bundle is identified. The Company then determines the transaction price, which typically includes upfront payments and any variable consideration that the Company determines is probable to not cause a significant reversal in the amount of cumulative revenue recognized when the uncertainty associated with the variable consideration is resolved. The Company then allocates the transaction price to each performance obligation and recognizes the associated revenue when (or as) each performance obligation is satisfied. The Company recognizes the transaction price allocated to upfront license payments as revenue upon delivery of the license to the customer and resulting ability of the customer to use and benefit from the license, if the license is determined to be distinct from the other performance obligations identified in the contract. These other performance obligations are typically to perform research and development services for the customer, often times relating to the candidate that the customer is licensing. If the license is not considered to be distinct from other performance obligations, the Company assesses the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied at a point in time or over time. If the performance obligation is satisfied over time, the Company then determines F-12 the appropriate method of measuring progress for purposes of recognizing revenue from license payments. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the related revenue recognition. Typically, the Company’s collaboration agreements entitle it to additional payments upon the achievement of milestones or royalties on sales. The milestones are generally categorized into three types: development milestones, generally based on the initiation of toxicity studies or clinical trials; regulatory milestones, generally based on the submission, filing or approval of regulatory applications such as a Clinical Trial Application (“CTA”) or a New Drug Application (“NDA”) in the United States; and sales-based milestones, generally based on meeting specific thresholds of sales in certain geographic areas. The Company evaluates whether it is probable that the consideration associated with each milestone or royalty will not be subject to a significant reversal in the cumulative amount of revenue recognized. Amounts that meet this threshold are included in the transaction price using the most likely amount method, whereas amounts that do not meet this threshold are excluded from the transaction price until they meet this threshold. At the end of each subsequent reporting period, the Company re-evaluates the probability of a significant reversal of the cumulative revenue recognized for its milestones and royalties, and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and net income in the Company’s consolidated statements of operation and comprehensive loss. Typically, milestone payments and royalties are achieved after the Company’s performance obligations associated with the collaboration agreements have been completed and after the customer has assumed responsibility for the respective clinical or preclinical program. Milestones or royalties achieved after the Company’s performance obligations have been completed are recognized as revenue in the period the milestone or royalty was achieved. If a milestone payment is achieved during the performance period, the milestone payment would be recognized as revenue to the extent performance had been completed at that point, and the remaining balance would be recorded as deferred revenue. The revenue standard requires the Company to assess whether a significant financing component exists in determining the transaction price. The Company performs this assessment at the onset of its licensing or collaboration agreements. Typically, a significant financing component does not exist because the customer is paying for a license or services in advance with an upfront payment. Additionally, future royalty payments are not substantially within the control of the Company or the customer. The revenue standard requires the Company to allocate the arrangement consideration on a relative standalone selling price basis for each performance obligation after determining the transaction price of the contract and identifying the performance obligations to which that amount should be allocated. The relative standalone selling price is defined in the revenue standard as the price at which an entity would sell a promised good or service separately to a customer. If other observable transactions in which the Company has sold the same performance obligation separately are not available, the Company estimates the standalone selling price of each performance obligation. Key assumptions to determine the standalone selling price may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success. Whenever the Company determines that goods or services promised in a contract should be accounted for as a combined performance obligation over time, the Company determines the period over which the performance obligations will be performed and revenue will be recognized. Revenue is recognized using either the proportional performance method or on a straight-line basis if efforts will be expended evenly over time. Labor hours, costs incurred or patient visits in clinical trials are typically used as the measure of performance. Significant management judgment is required in determining the level of effort required under an arrangement and the period over which the Company is expected to complete its performance obligations. If the Company determines that the performance obligation is satisfied over time, any upfront payment received is initially recorded as deferred revenue on its consolidated balance sheets. Certain judgments affect the application of the Company’s revenue recognition policy. For example, the Company records short-term (less than one year) and long-term (over one year) deferred revenue based on its best estimate of when such revenue will be recognized. This estimate is based on the Company’s current operating plan and, the Company may recognize a different amount of deferred revenue over the next 12-month period if its plan changes in the future. Collaborative Arrangements The Company analyzes its collaborative arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards, and therefore are within the scope of FASB Topic 808 - Collaborative Arrangements . For collaborative arrangements that contain multiple elements, the Company determines which units of account are deemed to be within the scope of Topic 808 and which units of account are more reflective of a vendor-customer relationship, and therefore are within the scope of Topic 606. For units of account that are accounted for pursuant to Topic 808, an appropriate recognition method is determined and applied consistently, either by analogy to appropriate accounting literature or by applying a reasonable accounting policy election. For collaborative arrangements that are within the scope of Topic 808, F-13 the Company evaluates the income statement classification for presentation of amounts due to or owed from other participants associated with multiple units of account in a collaborative arrangement based on the nature of each activity. Payments or reimbursements that are the result of a collaborative relationship instead of a customer relationship, such as co-development and co-commercialization activities, are recorded as increases or decreases to research and development expense or general and administrative expense, as appropriate. Research and Development Costs and expenses that can be clearly identified as research and development are charged to expense as incurred. Included in research and development costs are operating costs, facilities, supplies, external services, clinical trial and manufacturing costs, overhead directly related to the Company’s research and development operations, and costs to acquire technology licenses. Earnings per Share Basic earnings per share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares primarily consist of stock options and restricted stock units issued to employees. During the years ended September 30, 2022, 2021 and 2020, the calculation of the effect of dilutive stock options and restricted stock units excluded all stock options and restricted stock units granted and outstanding during the period due to their anti-dilutive effect. Stock-Based Compensation Share-based compensation expenses for all grants are based on their estimated grant-date fair value. The fair value of stock option awards is estimated using the Black-Scholes option valuation model which requires the input of subjective assumptions to calculate the value of stock options. For restricted stock units, the value of the award is based on the Company’s stock price at the grant date. For performance-based restricted stock unit awards, the value of the award is based on the Company’s stock price at the grant date, with consideration given to the probability of the performance condition being achieved. The Company uses historical data and other information to estimate the expected price volatility for stock option awards and the expected forfeiture rate for all awards. Expense is recognized over the vesting period for all awards and commences at the grant date for time-based awards and upon the Company’s determination that the achievement of such performance conditions is probable for performance-based awards. This determination requires significant judgment by management. Income Taxes Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting basis and the respective tax basis of the Company’s assets and liabilities, and expected benefits of utilizing net operating loss, capital loss, and tax-credit carryforwards. The Company assesses the likelihood that its deferred tax assets will be realized and, to the extent management does not believe these assets are more likely than not to be realized, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates or laws is recognized in earnings in the period that includes the enactment date. Recent Accounting Pronouncements In December 2019, the FASB issued Accounting Standards Update 2019-12, I ncome Taxes (Topic 740): Simplifying the Accounting for Income Taxes , which eliminates certain exceptions related to the incremental approach for intra-period allocation, deferred tax recognition requirement for changes in equity method investments and foreign subsidiaries, and methodology for calculating income taxes in an interim period. The guidance also simplifies certain aspects of the accounting for franchise taxes, the accounting for step-up in the tax basis of goodwill, and accounting for change in tax laws or rates. The Company adopted the new standard which became effective for fiscal years and interim periods within those years that begin after December 15, 2020. The adoption of the new standard did not have any material impact on the Company’s Consolidated Financial Statements. NOTE 2. COLLABORATION AND LICENSE AGREEMENTS Glaxosmithkline Intellectual Property (No. 3) Limited (“GSK”) F-14 On November 22, 2021, GSK and the Company entered into an Exclusive License Agreement (the “GSK License Agreement”). Under the GSK License Agreement, GSK has received an exclusive license for ARO-HSD. The exclusive license is worldwide with the exception of greater China, for which the Company retained rights to develop and commercialize ARO-HSD. The Company has completed its Phase 1/2 study of ARO-HSD, and GSK is now wholly responsible for all clinical development and commercialization of ARO-HSD in its territory. Under the terms of the agreement, the Company has received an upfront payment of $ 120.0 million and is eligible for additional payments of $ 30.0 million at the start of Phase 2 and $ 100.0 million upon achieving a successful Phase 2 trial readout and the first patient dosed in a Phase 3 trial. Furthermore, should the Phase 3 trial readout positively, and the potential new medicine receives regulatory approval in major markets, the deal provides for commercial milestone payments to the Company of up to $ 190.0 million at first commercial sale, and up to $ 590.0 million in sales-related milestone payments. The Company is further eligible to receive tiered royalties on net product sales in a range of mid-teens to twenty percent. At the inception of the GSK License Agreement, the Company identified one distinct performance obligation. The Company determined that the key deliverables included the license and certain R&D services, including the Company’s responsibility to complete the Phase 1/2 study, (the “GSK R&D Services”). Due to the specialized and unique nature of the GSK R&D Services and their direct relationship with the license, the Company determined that these deliverables represented one distinct bundle and, thus, one performance obligation. Beyond the GSK R&D Services, which are the responsibility of the Company, GSK will be responsible for managing future clinical development and commercialization in its territory. The Company determined the initial transaction price totaled $ 120.0 million, including the upfront payment, which was collected in January 2022. The Company has excluded any future estimated milestones or royalties from this transaction price to date. The Company has allocated the total $ 120.0 million initial transaction price to its one distinct performance obligation for the ARO-HSD license and the associated GSK R&D Services. As the Company has completed its performance obligation related to this agreement, the upfront payment of $ 120.0 million was fully recognized as of September 30, 2022. There were $ 0 in contract assets recorded as accounts receivable and $ 0 in contract liabilities recorded as deferred revenue as of September 30, 2022. The Company has also performed certain development and manufacturing activities, including drug substance and drug product manufacture under GMP conditions, for GSK pursuant to the GSK License Agreement, for which the Company has been reimbursed for its costs. The Company recognized $ 4.8 million in connection with these efforts for the year ended September 30, 2022. There were $ 4.8 million of contract assets recorded as accounts receivable and $ 0 of contract liabilities recorded as current deferred revenue as of September 30, 2022. Horizon Therapeutics Ireland DAC (“Horizon”) On June 18, 2021, Horizon and the Company entered into a collaboration and license agreement (the “Horizon License Agreement”). Under the terms of the Horizon License Agreement, Horizon received a worldwide exclusive license for ARO-XDH, a previously undisclosed discovery-stage investigational RNAi therapeutic being developed by the Company as a potential treatment for people with uncontrolled gout. The Company conducted all activities through the preclinical stages of development of ARO-XDH, and Horizon is now wholly responsible for clinical development and commercialization of ARO-XDH. In July 2021, the Company received $ 40.0 million as an upfront payment and is eligible to receive up to $ 660.0 million in potential development, regulatory and sales milestones. The Company is also eligible to receive royalties in the low- to mid-teens range on net product sales. At the inception of the Horizon License Agreement, the Company identified one distinct performance obligation. The Company determined that the key deliverables included the license and certain R&D services, including the Company’s responsibilities to conduct all activities through the preclinical stages of development of ARO-XDH (the “Horizon R&D Services”). Due to the specialized and unique nature of these Horizon R&D Services and their direct relationship with the license, the Company determined that these deliverables represented one distinct bundle and, thus, one performance obligation. Beyond the Horizon R&D Services, which are the responsibility of the Company, Horizon will be responsible for managing future clinical development and commercialization of ARO-XDH. The Company determined the initial transaction price totaled $ 40.0 million, including the upfront payment. The Company has excluded any future estimated milestones or royalties from this transaction price to date. The Company allocates the total $ 40.0 million initial transaction price to its one distinct performance obligation for the ARO-XDH license and the associated Horizon R&D Services. Revenue is recognized on a straight-line basis over the estimated timeframe for completing the Horizon R&D Services. The Company determined that the straight-line basis was appropriate as its efforts will be expended evenly over the course of completing its performance obligation. Revenue for the years ended September 30, 2022 and 2021 were $ 26.7 million and $ 6.7 million, respectively. There were $ 0 in contract assets recorded as accounts receivable and $ 6.7 million in contract liabilities recorded as deferred revenue as of September 30, 2022. F-15 In addition, the Company has performed certain development and manufacturing activities, including drug substance and drug product manufacture under GMP conditions, for Horizon pursuant to the Horizon License Agreement. The Company recognized $ 2.5 million and $ 0 in connection with these efforts for the years ended September 30, 2022 and 2021, respectively. There were $ 1.3 million of contract assets recorded as accounts receivable and $ 0 of contract liabilities recorded as current deferred revenue as of September 30, 2022. Takeda Pharmaceutical Company Limited (“Takeda”) On October 7, 2020, Takeda and the Company entered into an Exclusive License and Co-Funding Agreement (the “Takeda License Agreement”). Under the Takeda License Agreement, Takeda and the Company will co-develop its ARO-AAT program, the Company’s second-generation subcutaneously administered RNAi therapeutic candidate being developed as a treatment for liver disease associated with alpha-1 antitrypsin deficiency. Within the United States, ARO-AAT, if approved, will be co-commercialized under a 50/50 profit sharing structure. Outside the United States, Takeda will lead the global commercialization strategy and will receive an exclusive license to commercialize ARO-AAT, while the Company will be eligible to receive tiered royalties of 20 % to 25 % on net sales. In January 2021 , the Company received $ 300.0 million as an upfront payment and is eligible to receive potential development, regulatory and commercial milestones of up to $ 595.0 million. At the inception of the Takeda License Agreement, the Company identified one distinct performance obligation. The Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibilities to complete the initial portion of the SEQUOIA study, to complete the ongoing Phase 2 AROAAT2002 study and to ensure certain manufacturing of ARO-AAT drug product is completed and delivered to Takeda (the “Takeda R&D Services”). Due to the specialized and unique nature of these Takeda R&D Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation. Beyond the Takeda R&D Services, which are the responsibility of the Company, Takeda will be responsible for managing future clinical development and commercialization outside the United States. Within the United States, the Company will also participate in co-development and co-commercialization efforts and will co-fund these efforts with Takeda as part of the 50/50 profit sharing structure within the United States. The Company considers the collaborative activities, including the co-development and co-commercialization, to be a separate unit of account within Topic 808, and as such, these co-funding amounts are recorded as research and development expenses or general and administrative expenses, as appropriate. The Company determined the initial transaction price totaled $ 300.0 million, which includes the upfront payment. The Company has excluded any future milestones or royalties from this transaction price to date. The Company has allocated the total $ 300.0 million initial transaction price to its one distinct performance obligation for the ARO-AAT license and the associated Takeda R&D Services. Revenue is recognized using a proportional performance method (based on actual patient visits completed versus total estimated visits completed for the ongoing SEQUOIA and AROAAT2002 clinical studies). The Company recognized $ 85.8 million and $ 90.8 million in connection with these efforts for the years ended September 30, 2022 and 2021, respectively. There were $ 0 of contract assets recorded as accounts receivable and $ 123.4 million of contract liabilities recorded as deferred revenue, of which $ 67.4 million was classified as current deferred revenue, as of September 30, 2022. The Company also recorded $ 8.6 million as accrued expenses that was primarily driven by co-development and co-commercialization activities. Janssen Pharmaceuticals, Inc. (“Janssen”) On October 3, 2018, Janssen, part of the Janssen Pharmaceutical Companies of Johnson & Johnson, and the Company entered into a License Agreement (the “Janssen License Agreement”) and a Research Collaboration and Option Agreement (the “Janssen Collaboration Agreement”). The Company also entered into a stock purchase agreement with JJDC, Inc. (“JJDC”), Johnson & Johnson's venture capital arm (“JJDC Stock Purchase Agreement”). Under the Janssen License Agreement, Janssen has received a worldwide, exclusive license to the Company’s JNJ-3989 (ARO-HBV) program, the Company’s third-generation subcutaneously administered RNAi therapeutic candidate being developed as a potential therapy for patients with chronic hepatitis B virus infection. Beyond the Company’s Phase 1/2 study of JNJ-3989 (ARO-HBV), which the Company was responsible for completing, Janssen is wholly responsible for clinical development and commercialization of JNJ-3989 (ARO-HBV). Under the Janssen Collaboration Agreement, Janssen was able to select three new targets against which the Company would develop clinical candidates. These candidates were subject to certain restrictions and did not include candidates that already were in the Company’s pipeline. The Company was obligated to perform discovery, optimization and preclinical research and development, entirely funded by Janssen, which on its own or in combination with Janssen development work, would have been sufficient to allow the filing of a U.S. Investigational New Drug Application (“IND”) or equivalent, at which time Janssen would have the option to take an exclusive license. If the option was exercised, Janssen would have been wholly responsible for clinical development and commercialization of each optioned candidate. Under the terms of the agreements taken together, the Company has received $ 175.0 million as an F-16 upfront payment, $ 75.0 million in the form of an equity investment by JJDC in the Company’s common stock under the JJDC Stock Purchase Agreement, and milestone and option payments totaling $ 73.0 million, and the Company may receive up to $ 1.6 billion in development and sales milestone payments for the Janssen License Agreement, and up to $ 0.6 billion in development and sales milestone payments for the remaining target covered under the Janssen Collaboration Agreement. The Company is further eligible to receive tiered royalties on product sales up to mid-teens under the Janssen License Agreement and up to low teens under the Janssen Collaboration Agreement. During 2022, Janssen’s option period expired unexercised for two of the three candidates (ARO-JNJ2 and ARO-JNJ3) under the Janssen Collaboration Agreement. At the inception of Janssen License Agreement and Janssen Collaboration Agreement, the Company identified one distinct performance obligation. Regarding the Janssen License Agreement, the Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibility to complete the Phase 1/2 study of JNJ-3989 (ARO-HBV) and the Company’s responsibility to ensure certain manufacturing of JNJ-3989 (ARO-HBV) drug product is completed and delivered to Janssen (the “Janssen R&D Services”). Due to the specialized and unique nature of these Janssen R&D Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation. The Company also determined that Janssen’s option to require the Company to develop up to three new targets is not a material right and, thus, not a performance obligation at the onset of the agreement. The consideration for this option is accounted for separately. The Company determined the transaction price totaled approximately $ 252.7 million, which includes the upfront payment, the premium paid by JJDC for its equity investment in the Company, two $ 25.0 million milestone payments related to JNJ-3989 (ARO-HBV), and estimated payments for reimbursable Janssen R&D Services to be performed. The Company has allocated the total $ 252.7 million initial transaction price to its one distinct performance obligation for the JNJ-3989 (ARO-HBV) license and the associated Janssen R&D Services. The Company has recognized this transaction price in its entirety as of September 30, 2021, as its performance obligations were substantially completed. Future milestones and royalties achieved will be recognized in their entirety when earned. There were no contract assets and liabilities recorded as of September 30, 2022. The Company has conducted its discovery, optimization and preclinical research and development of JNJ-75220795 (ARO-JNJ1), ARO-JNJ2, and ARO-JNJ3 under the Janssen Collaboration Agreement. All costs and labor hours spent by the Company have been entirely funded by Janssen. Janssen’s option period expired unexercised for two of the three candidates (ARO-JNJ2 and ARO-JNJ3) under the Janssen Collaboration Agreement during 2022. In May 2021, Janssen exercised its option right for JNJ-75220795 (ARO-JNJ1), which resulted in a $ 10.0 million milestone payment to the Company. This $ 10.0 million milestone payment was recognized entirely as of September 30, 2021. The Company recognized $ 3.4 million and $ 0.5 million of revenue associated with these efforts during September 30, 2022 and 2021, respectively. There were $ 0.1 million of contract assets recorded as accounts receivable and $ 0 of contract liabilities recorded as current deferred revenue as of September 30, 2022. Amgen Inc. (“Amgen”) On September 28, 2016, Amgen and the Company entered into two collaboration and license agreements and a common stock purchase agreement. Under the Second Collaboration and License Agreement (the “Olpasiran Agreement”), Amgen has received a worldwide, exclusive license to the Company’s novel RNAi Olpasiran (previously referred to as AMG 890 or ARO-LPA) program. These RNAi molecules are designed to reduce elevated lipoprotein(a), which is a genetically validated, independent risk factor for atherosclerotic cardiovascular disease. Under the prior collaboration and license agreement (the “First Collaboration and License Agreement” or the “ARO-AMG1 Agreement”), Amgen received an option to a worldwide, exclusive license to ARO-AMG1, an RNAi therapy for an undisclosed genetically validated cardiovascular target. Under both agreements, Amgen is wholly responsible for clinical development and commercialization. Under the Olpasiran Agreement and the ARO-AMG1 Agreement, the Company has received $ 35.0 million in upfront payments, $ 21.5 million in the form of an equity investment by Amgen in the Company’s common stock, and $ 30.0 million in milestone payments, and may receive up to an additional $ 400.0 million in remaining development, regulatory and sales milestone payments. The Company is further eligible to receive up to low double-digit royalties for sales of products under the Olpasiran Agreement. The Company has substantially completed its performance obligations under the Olpasiran Agreement and the ARO-AMG1 Agreement. In July 2019, Amgen informed the Company that it would not be exercising its option for an exclusive license for ARO-AMG1, and as such, there will be no further milestone or royalty payments under the ARO-AMG1 Agreement. In July 2020, Amgen initiated a Phase 2 clinical study of Olpasiran, which resulted in a $ 20.0 million milestone payment to the Company. There were no revenue recorded associated with the Company’s agreement with Amgen for the years ended September 30, 2022 and 2021. There were no contract assets and liabilities recorded as of September 30, 2022. F-17 Joint Venture and License Agreement with Visirna Therapeutics, Inc. (“Visirna”) On April 25, 2022, the Company entered into a License Agreement with Visirna (the “Visirna License Agreement”), pursuant to which Visirna received an exclusive license to develop, manufacture and commercialize four of the Company’s RNAi-based investigational cardiometabolic medicines in Greater China (including the People’s Republic of China, Hong Kong, Macau and Taiwan). Pursuant to a Share Purchase Agreement entered into simultaneously with the Visirna License Agreement (the “Visirna SPA”), the Company acquired a majority stake in Visirna (after accounting for shares reserved for Visirna’s employee stock ownership plan) as partial consideration for the Visirna License Agreement. Under the Visirna SPA, entities affiliated with Vivo Capital also acquired a minority stake in Visirna in exchange for $ 60.0 million in upfront capital to support the operations of Visirna. As further consideration under the Visirna License Agreement, the Company is also eligible to receive potential royalties on commercial sales. NOTE 3. PROPERTY AND EQUIPMENT The following table summarizes the Company’s major classes of property and equipment: September 30, 2022 2021 (in thousands) Computers, software, office equipment and furniture $ 2,182 $ 2,170 Land 2,996 — Research equipment 38,283 27,500 Leasehold improvements 42,017 41,524 Construction in progress 56,373 345 141,851 71,539 Less: Accumulated depreciation and amortization ( 31,554 ) ( 22,864 ) Property and equipment, net $ 110,297 $ 48,675 Depreciation and amortization expense for property and equipment for the years ended September 30, 2022, 2021, and 2020 was $ 8.7 million, $ 6.6 million and $ 4.2 million respectively. The increase in the construction in progress during 2022 was mainly due to the developments of manufacturing, laboratory and office facilities in Verona, Wisconsin as well as a new laboratory and office facility in San Diego, California. See Note 7. F-18 NOTE 4. INVESTMENTS The Company’s investments consisted of the following: As of September 30, 2022 (In thousands) Adjusted Basis Gross Unrealized Gains Gross Unrealized Losses Fair Value Short-term investments (due within one year) Held to maturity debt securities $ 218,391 $ — $ ( 3,661 ) $ 214,730 Held to maturity certifiate of deposit 50,000 — — 50,000 Total short-term investments $ 268,391 $ — $ ( 3,661 ) $ 264,730 Long-term investments (Due within one through three years) Held to maturity debt securities 105,872 — ( 5,569 ) 100,303 Total long-term investments $ 105,872 $ — $ ( 5,569 ) $ 100,303 Marketable debt securities $ — $ — $ — $ — As of September 30, 2021 (In thousands) Adjusted Basis Gross Unrealized Gains Gross Unrealized Losses Fair Value Short-term investments (due within one year) Held to maturity debt securities $ 56,627 $ 803 $ — $ 57,430 Total short-term investments $ 56,627 $ 803 $ — $ 57,430 Long-term investments (Due within one through three years) Held to maturity debt securities $ 195,595 $ 1,151 $ ( 103 ) $ 196,643 Held to maturity certificate of deposit 50,000 — — 50,000 Total long-term investments $ 245,595 $ 1,151 $ ( 103 ) $ 246,643 Marketable debt securities $ 127,481 $ — $ ( 753 ) $ 126,728 F-19 NOTE 5. INTANGIBLE ASSETS Intangible assets subject to amortization include patents and a license agreement capitalized as part of the Novartis RNAi asset acquisition in March 2015. The following table presents the components of intangible asset: Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount Useful Lives (amounts in thousands) (in years) As of September 30, 2022 Patents $ 21,728 $ 11,770 $ — $ 9,958 14 License 3,129 1,125 — 2,004 21 Total intangible assets, net $ 24,857 $ 12,895 $ — $ 11,962 As of September 30, 2021 Patents $ 21,728 $ 10,217 $ — $ 11,511 14 License 3,129 977 — 2,152 21 Total intangible assets, net $ 24,857 $ 11,194 $ — $ 13,663 Intangible assets are reviewed annually for impairment and more frequently if potential impairment indicators exist. No impairment indicators were identified during 2022 and 2021. Intangible assets with definite useful lives are amortized on a straight-line basis over their useful lives. Intangible assets amortization expense in each of 2022, 2021, and 2020 was $ 1.7 million. None of the intangible assets with definite useful lives are anticipated to have a residual value. The following table presents the estimated future amortization expense related to intangible assets as of September 30, 2022: Amortization Expense Year Ending September 30, (in thousands) 2023 $ 1,700 2024 1,700 2025 1,700 2026 1,700 2027 1,700 Thereafter 3,462 Total $ 11,962 NOTE 6. STOCKHOLDERS’ EQUITY The following table summarizes the Company’s shares of common stock and preferred stock: F-20 Shares Par Value Authorized Issued Outstanding (in thousands) As of September 30, 2022 Common stock $ 0.001 145,000 105,960 105,960 Preferred stock $ 0.001 50,000 — — As of September 30, 2021 Common stock $ 0.001 145,000 104,327 104,327 Preferred stock $ 0.001 50,000 — — 14,000,392 and 15,228,479 shares of common stock at September 30, 2022 and 2021, respectively, were reserved for issuance upon exercise of options and vesting of restricted stock units granted or available for grant under the Company’s 2004 Equity Incentive Plan, 2013 Incentive Plan, and 2021 Incentive Plan, as well as for inducement grants made to new employees under Rule 5635(c)(4) of the Nasdaq Listing Rules. In August 2020, the Company entered into an Open Market Sale Agreement (the “ATM Agreement”), pursuant to which the Company may, from time to time, sell up to $ 250,000,000 in shares of the Company’s common stock through Jefferies LLC, acting as the sales agent and/or principal, in an at-the-market offering (“ATM Offering”). The Company is not required to sell shares under the ATM Agreement. The Company will pay Jefferies LLC a commission of up to 3.0 % of the aggregate gross proceeds received from all sales of the common stock under the ATM Agreement. Unless otherwise terminated, the ATM Agreement continues until the earlier of selling all shares available under the ATM Agreement or December 2, 2022. At September 30, 2022, no shares have been issued under the ATM Agreement . NOTE 7. COMMITMENTS AND CONTINGENCIES Litigation From time to time, the Company may be subject to various claims and legal proceedings in the ordinary course of business. If the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount is reasonably estimable, the Company will accrue a liability for the estimated loss. There were no contingent liabilities recorded as of the year ended September 30, 2022. Commitments On December 20, 2021, the Company completed a purchase of 13 acres of land in the Verona Technology Park in Verona, Wisconsin, which is being developed into an approximately 160,000 square foot drug manufacturing facility and an approximately 140,000 square foot laboratory and office facility which will support the Company’s process development and analytical activities. The Company intends to invest between $ 200.0 million and $ 260.0 million into the build out of the facilities. As part of this acquisition, the Company entered into a development agreement with the City of Verona to construct certain infrastructure improvements within the tax incremental district and will be reimbursed up to $ 16.0 million by the City of Verona by future tax increment revenue generated from the developed property. The total amount of funding that City of Verona will pay under the Tax Incremental Financing program is not guaranteed and will depend on future tax revenues generated from the developed property . The Company will also receive up to $ 2.5 million of refundable Wisconsin state income tax credits from the Wisconsin Economic Development Corporation (WEDC) as incentives to invest in the local community and create new jobs. Technology License Commitments The Company has licensed from third parties the rights to use certain technologies for its research and development activities, as well as in any products it may develop using these licensed technologies. These agreements and other similar agreements often require milestone and royalty payments. Milestone payments, for example, may be required as the research and development process progresses through various stages of development, such as when clinical candidates enter or progress through clinical trials, upon NDA and/or certain sales level milestones. The Company made milestone payments of $ 0 , $ 2.4 million, $ 0 for the years ended September 30, 2022, 2021, and 2020, respectively. The Company did not reach any milestones during the years of 2022 and 2020. During 2021, the Company triggered the milestone related to the progression of the ARO-ENaC and ARO-HIF2 candidates. F-21 NOTE 8. LEASES On November 19, 2021, the Company entered into a new 15 -year lease for approximately 144,000 square feet of office and research and development laboratory space under construction in San Diego, California. This facility will replace the Company’s current office and research facility sublease located in San Diego, California. The increased capacity of this new facility compared to the Company’s current research facility in San Diego will accommodate increased personnel for its expanding pipeline of current and future drug candidates. The estimated rent commencement date for the new lease is in April 2023 after construction and leasehold improvements have been completed. The lease payments, which begin on the rent commencement date, will be approximately $ 119.0 million over the initial 15 -year term. The Company also estimates payments for operating expenses to be approximately $ 3.0 million for the first year of the lease, and these payments will continue throughout the initial 15 -year term. The Company expects to pay approximately $ 31.0 million for leasehold improvements, net of tenant improvement allowances. Pursuant to the lease, within twelve months of the expiration of the initial 15 -year term, the Company has the option to extend the lease for up to one additional ten-year term, with certain annual increases in base rent. Other Significant Leases Pasadena, California : The Company leases office space located at 177 Colorado Blvd for its corporate headquarters from 177 Colorado Owner, LLC. The lease began on September 30, 2019 and expires on April 30, 2027. The lease contains an option to renew for one term of five years . On October 23, 2020, the Company entered into a lease expansion to add an additional approximately 24,000 square feet of office with a lease expiration date of April 30, 2027. San Diego, California : The Company subleases space from Halozyme, Inc. for additional research and development facility in San Diego, California. The term of this sublease commenced on April 1, 2020 and will end on January 14, 2023. Madison, Wisconsin : The Company leases space for office and laboratory facilities, which had an expiration date of September 30, 2026. The lease was amended in January 2019 and May 2020 to expand the rentable square feet by an additional 40,000 square feet and to extend the lease expiration date to September 30, 2031. The lease contains two options to renew for two terms of five years . In November 2020 and December 2020, the Company entered into amendments to expand the rentable square space by an additional 10,743 square feet for the remainder of the term. The components of lease assets and liabilities along with their classification on the Company’s consolidated balance sheets were as follows: September 30, Lease Assets and Liabilities Classification 2022 2021 (in thousands) Operating lease assets Right-of-use assets $ 58,291 $ 17,346 Current operating lease liabilities Lease liabilities 2,776 2,250 Non-current operating lease liabilities Lease liabilities, net of current portion 78,800 23,295 The components of lease cost along with its classification on the Company’s consolidated statements of operations were as follows: Year Ended September 30, Lease Cost Classification 2022 2021 2020 (in thousands) Operating lease cost Research and development $ 7,278 $ 3,649 $ 925 General and administrative expense 1,757 1,498 1,474 Variable lease cost Research and development 728 814 802 General and administrative expense — 1 — Total $ 9,763 $ 5,962 $ 3,201 Variable lease cost primarily related to operating expenses associated with the Company’s operating leases. There was $ 0.3 million and $ 0 short-term lease cost during the years ended September 30, 2022, and 2021, respectively. F-22 The following table presents maturities of operating lease liabilities on an undiscounted basis as of September 30, 2022: Year Amounts (in thousands) 2023 $ 5,802 2024 8,094 2025 11,800 2026 12,138 2027 11,297 2028 and thereafter 102,813 Total $ 151,944 Less imputed interest ( 70,368 ) Total operating lease liabilities $ 81,576 Supplemental cash flow and other information related to leases was as follows: Year Ended September 30, 2022 2021 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases (in thousands) $ 4,500 $ 3,100 Weighted-average remaining lease term (in years) 7 8 Weighted-average discount rate 8.5 % 8.5 % NOTE 9. STOCK-BASED COMPENSATION The Company has three plans that provide for equity-based compensation. Under the 2004 Equity Incentive Plan (the “2004 Plan”) and 2013 Incentive Plan (the “2013 Plan”), 175,083 and 4,072,137 shares, respectively, of the Company’s common stock are reserved for the grant of stock options, stock appreciation rights, restricted stock awards and performance unit/share awards to employees, consultants and others as of September 30, 2022. On March 18, 2021, the Company’s Board of Directors approved the Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan (the “2021 Plan”), which authorizes 8,000,000 shares (subject to certain adjustments) to be awarded for grants of stock options, stock appreciation rights, restricted and unrestricted stock and stock units, performance awards, cash awards and other awards convertible into or otherwise based on shares of the Company’s common stock. The maximum number of shares authorized under the 2021 Plan will be (i) reduced by any shares subject to awards made under the 2013 Plan after January 1, 2021, and (ii) increased by any shares subject to outstanding awards under the 2013 Plan as of January 1, 2021 that, after January 1, 2021, are canceled, expired, forfeited or otherwise not issued under such awards (other than as a result of being tendered or withheld to pay the exercise price or withholding taxes in connection with any such awards) or settled in cash. As of September 30, 2022, the total number of shares reserved for issuance under the 2021 Incentive Plan was 7,190,077 shares, which includes 131,897 shares that were forfeited under the 2013 Plan. In addition, there were 778,425 shares reserved for options and 838,625 shares reserved for restricted stock units issued as inducement grants to new employees granted outside of the Company’s equity-based compensation plans under Rule 5635(c)(4) of the Nasdaq Listing Rules. The following table presents a summary of awards outstanding: As of September 30, 2022 2004 Plan 2013 Plan 2021 Plan Total Granted and outstanding awards: Options 175,083 2,543,301 3,000 2,721,384 Restricted stock units — 3,145,886 923,545 4,069,431 Total 175,083 5,689,187 926,545 6,790,815 F-23 Stock Option Awards The following table presents a summary of the stock option activity for the year ended September 30, 2022: Shares Weighted- Average Exercise Price Per Share Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding at September 30, 2021 3,456,239 $ 19.60 Granted — — Cancelled or expired ( 128,635 ) 47.73 Exercised ( 606,220 ) 8.55 Outstanding at September 30, 2022 2,721,384 $ 20.73 4.9 $ 48,114,746 Exercisable at September 30, 2022 2,351,641 $ 16.93 4.5 $ 46,889,825 The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the Company’s closing stock price and the stock option exercise price) that would have been received by the stock option holders had all stock options been exercised on September 30, 2022. The total intrinsic value of the options exercised during the years ended September 30, 2022, 2021, and 2020 was $ 27.6 million, $ 66.9 million and $ 44.1 million, respectively. Stock-based compensation expense related to stock options for the years ended September 30, 2022, 2021, and 2020 was $ 10.8 million, $ 12.4 million and $ 9.7 million, respectively. As of September 30, 2022, the pre-tax compensation expense for all outstanding unvested stock options in the amount of $ 12.0 million will be recognized in the Company’s results of operations over a weighted average period of 1.5 years. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which do not have vesting restrictions and are fully transferable. The determination of the fair value of each stock option is affected by the Company’s stock price on the date of grant, as well as assumptions regarding a number of highly complex and subjective variables. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The following table provides the assumptions used in the calculation of grant-date fair values of these stock options based on the Black-Scholes option pricing model: Year Ended September 30, 2022 (5) 2021 2020 Expected dividend yield (1) — — — Risk-free interest rate (2) N/A 0.4 – 1.1 % 0.40 – 1.8 % Expected volatility (3) N/A 86.2 – 90.4 % 90.0 – 92.0 % Expected term (in years) (4) N/A 6.25 6.25 Weighted-average grant date fair value per share N/A $ 48.64 $ 36.35 (1) The dividend yield is zero as the Company currently does not pay a dividend. (2) The risk-free interest rate is based on that of the U.S. Treasury yields with equivalent terms in effect at the time of the grant.. (3) Volatility is estimated based on volatility average of the Company’s common stock price. (4) The expected term represents the period of time that stock options granted are expected to be outstanding, by using historical exercise patterns and post-vesting termination behavior. (5) No options were granted during the year ended September 30, 2022. Restricted Stock Units Restricted stock units (“RSUs”), including market-based, time-based and performance-based awards, have been granted under the Company’s 2013 and 2021 Plans and as inducements grants granted outside of the Company’s equity-based compensation plans. At vesting, each outstanding RSU will be exchanged for one share of the Company’s common F-24 stock. RSU awards generally vest subject to the satisfaction of service requirements or the satisfaction of both service requirements and achievement of certain performance targets. The following table summarizes the activity of the Company’s RSUs: Number of RSUs Weighted- Average Grant Date Fair Value Outstanding as of September 30, 2021 3,831,850 $ 61.24 Granted 1,396,170 57.18 Vested ( 1,027,088 ) 49.88 Forfeited ( 131,501 ) 64.44 Outstanding as of September 30, 2022 4,069,431 $ 62.96 The fair value of RSUs was determined based on the closing price of the Company’s common stock on the grant date, with consideration given to the probability of achieving service and/or performance conditions for awards. On July 8, 2022, the Company revised the equity award made to its Chief Executive Officer on January 1, 2022 consisting of 800,000 shares, equal in value of $ 38.4 million, that was 100% market-based awards. The revised awards consist of 99,521 RSUs and 149,282 performance-based RSUs. No incremental expense resulted from the modification. The fair values of these awards were estimated on the date of grant using a closed-form valuation model (Monte-Carlo). For the years ended September 30, 2022, 2021 and 2020, the Company recorded stock-based compensation expense of $ 113.6 million, $ 64.2 million and $ 33.7 million, respectively, related to shares of RSUs. As of September 30, 2022, there was $ 140.7 million of total unrecognized compensation cost related to RSUs that is expected to be recognized over a weighted-average period of 2.4 years. NOTE 10. FAIR VALUE MEASUREMENTS The Company employs a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date using the exit price. Accordingly, when market observable data are not readily available, the Company’s own assumptions are used to reflect those that market participants would be presumed to use in pricing the asset or liability at the measurement date. Assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the level of judgment associated with inputs used to measure their fair values and the level of market price observability, as follows: Level 1 Unadjusted quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Level 2 Pricing inputs are other than quoted prices in active markets, which are based on the following: • Quoted prices for similar assets or liabilities in active markets; • Quoted prices for identical or similar assets or liabilities in non-active markets; or • Either directly or indirectly observable inputs as of the reporting date. Level 3 Pricing inputs are unobservable and significant to the overall fair value measurement, and the determination of fair value requires significant management judgment or estimation. In certain cases, inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Thus, a Level 3 fair value measurement may include inputs that are observable (Level 1 or Level 2) and unobservable (Level 3). The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability. The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2, or from Level 2 to Level 3. The Company recognizes transfers between levels at either the actual date of the event or a change in circumstances that caused F-25 the transfer. At September 30, 2022 and 2021, the Company did not have any financial assets or financial liabilities based on Level 3 measurements The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation techniques utilized by the Company: September 30, 2022 Level 1 Level 2 Level 3 Total (in thousands) U.S. government bonds $ 1,973 $ — $ — $ 1,973 Commercial notes — 41,727 — 41,727 Corporate debt securities — 271,333 — 271,333 Certificate of deposits 50,000 — — 50,000 Money market instruments 39,262 — — 39,262 September 30, 2021 Level 1 Level 2 Level 3 Total (in thousands) Corporate debt securities $ — $ 254,073 $ — $ 254,073 Certificate of deposits 50,000 — — 50,000 Money market instruments 160,032 — — 160,032 Marketable debt securities 126,728 — — 126,728 There were no transfers between Levels 1, 2, and 3 of the fair value hierarchy during the years ended September 30, 2022 and 2021. The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable, and accrued expenses of the Company approximate fair value based on the short maturities of these instruments. At September 30, 2022, the Company did not have any nonrecurring fair value measurements of nonfinancial assets or nonfinancial liabilities. NOTE 11. INCOME TAXES Income Tax Provision The provision for income taxes consisted of the following components: F-26 September 30, 2022 2021 (in thousands) Federal: Current $ — $ — Deferred — — — — State: Current 304 2 Deferred — — 304 2 Foreign: Current 3,481 — Deferred — — 3,481 — Total: Current 3,785 2 Deferred — — Income tax provision $ 3,785 $ 2 The following table presents a reconciliation of the tax expense based on the statutory rate to the Company’s actual tax expense in the consolidated statements of operations: September 30, 2022 2021 2020 At U.S. federal statutory rate - 21.0 % - 21.0 % - 21.0 % State taxes, net of federal effect - 8.6 % - 7.0 % - 7.0 % Stock compensation 1.7 % - 1.3 % - 13.3 % Valuation allowance 28.4 % 29.3 % 43.3 % Other 1.7 % 0.0 % - 2.0 % Effective income tax rate 2.2 % 0.0 % 0.0 % F-27 Deferred Income Taxes The following table presents the significant components of the Company’s net deferred tax assets and liabilities: September 30, 2022 2021 (in thousands) Deferred tax assets: Accrued Compensation $ 2,961 $ 2,371 Stock Compensation 41,479 22,454 Capitalized Research & Development 324 324 California Alternative Minimum Tax 483 179 Net Operating Losses 171,319 185,431 Intangible Assets 2,973 3,562 Deferred Revenue 38,810 — Right of Use Assets/Lease Liabilities 2,844 1,938 Capital Loss 1,679 — Total gross deferred tax assets $ 262,872 $ 216,259 Valuation allowance $ ( 242,394 ) $ ( 194,255 ) Deferred tax liabilities: Fixed Assets $ ( 1,088 ) $ ( 6,360 ) State taxes ( 19,390 ) ( 15,644 ) Total gross deferred tax liability $ ( 20,478 ) $ ( 22,004 ) Net deferred tax assets (liabilities) $ — $ — The Company has concluded, in accordance with the applicable accounting standards, that it is more-likely-than not that the Company may not realize the benefit of all of its deferred tax assets. Accordingly, management has provided a 100 % valuation allowance against its deferred tax assets until such time as management believes that its projections of future profits as well as expected future tax rates make the realization of these deferred tax assets more-likely-than-not. Significant judgment is required in the evaluation of deferred tax benefits and differences in future results from the Company’s estimates could result in material differences in the realization of these assets. The Company has performed an assessment of positive and negative evidence regarding the realization of the net deferred tax asset. This assessment included the evaluation of scheduled reversals of deferred tax liabilities, the availability of carry forwards and estimates of projected future taxable income. As of September 30, 2022, the Company had available gross federal net operating loss (“NOL”) carry forwards of $ 504.8 million and gross state NOL carry forwards of $ 626.5 million. The NOLs expire at various dates through 2042. Uncertainty in Income Taxes The Company has adopted guidance issued by the FASB that clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold of more-likely-than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more-likely-than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. The following table summarizes the Company’s gross unrecognized tax benefits: F-28 Year Ended September 30, 2022 2021 2020 (in thousands) Beginning balance of unrecognized tax benefits $ — $ — $ — Increase for prior period tax positions 3,481 — — Ending balance of unrecognized tax benefits $ 3,481 $ — $ — Included in the balance of unrecognized tax benefits at September 30, 2022, 2021 and 2020 were $ 3.5 million, $ 0 and $ 0 respectively, that if the Company recognized, would affect its effective tax rate. The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense. During the years ended September 30, 2022 and 2021, the Company recognized $ 1.4 million and $ 0 , respectively, of accrued interest and penalties related to gross unrecognized tax benefits. The Company does not foresee any material changes to its gross unrecognized tax benefits within the next twelve months. The Company and its subsidiaries file income tax returns with the Internal Revenue Service, the state of California and certain other taxing jurisdictions. The Company is subject to income tax examinations by the Internal Revenue Service and by state tax authorities until the net operating losses are settled. The Company is under examination by the state of California for the years 2018 and 2019. NOTE 12. EMPLOYEE BENEFIT PLANS The Company sponsors a defined contribution retirement plan which is under Section 401(k) of the Internal Revenue Code and is designed to adhere to ERISA Fiduciary standards. Substantially all of the Company’s employees are eligible to participate this plan. Under the terms of the plan, an eligible employee may elect to contribute a portion of their salary on a pre-tax basis, subject to federal statutory limitations. The plan allows for a discretionary match in an amount up to 100 % of each participant’s first 3 % of compensation contributed plus 50 % of each participant’s next 2 % of compensation contributed. For the years ended September 30, 2022, 2021, and 2020, the Company recorded expenses for the matching contributions under this plan of $ 1.7 million, $ 1.3 million and $ 0.9 million, respectively. The Company also provides certain employee benefit plans, including those which provide health and life insurance benefits to employees. NOTE 13. SUBSEQUENT EVENTS On November 9, 2022, the Company and Royalty Pharma Investments 2019 ICAV (“Royalty Pharma”) entered into a Royalty Purchase Agreement (the “Royalty Pharma Agreement”), pursuant to which Royalty Pharma agreed to pay up to $ 410.0 million in cash to the Company in consideration for the Company’s future royalty interest in Olpasiran, a small interfering RNA (siRNA) originally developed by the Company and licensed to Amgen in 2016 under the Olpasiran Agreement. Pursuant to the Royalty Pharma Agreement, Royalty Pharma paid $ 250.0 million upfront and agreed to pay up to an additional $ 160.0 million in aggregate one-time milestone payments due if and when the following milestone events occur: (i) $ 50.0 million on completion of enrollment in the planned OCEAN Phase 3 clinical trial for Olpasiran, (ii) $ 50.0 million upon receipt of FDA approval of Olpasiran for an approved indication (reduction in the risk of myocardial infarction, urgent coronary revascularization, or coronary heart disease death in adults with established cardiovascular disease and elevated Lp(a)), and (iii) $ 60.0 million upon Royalty Pharma’s receipt of at least $ 70.0 million of royalty payments under the Royalty Pharma Agreement in any single calendar year. In consideration for the payment of the foregoing amounts under the Royalty Pharma Agreement, Royalty Pharma is entitled to receive all royalties otherwise payable by Amgen to the Company under the Olpasiran Agreement. The Company remains eligible to receive any milestone payments potentially payable by Amgen under the Olpasiran Agreement. The Royalty Pharma Agreement contains other customary terms and conditions, including representations and warranties, covenants, and indemnification obligations in favor of each party. The above description of the Royalty Pharma Agreement is a summary of the material terms, does not purport to be complete and is qualified in its entirety by reference F-29 to the Royalty Pharma Agreement, which will be filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ending December 31, 2022. F-30