What changed in this filing

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Item 1. Financial Statements

2023-08-07 compared with 2023-05-02 · 176 added, 124 removed, 535 unchanged (36% of the section changed)

3 unchanged sentences

(In thousands, except per share amounts)

March 31, 2023

June 30, 2023

September 30, 2022

24 unchanged sentences

Liability related to the sale of future royalties 263,064 —

Other liabilities 669 —

Total long-term liabilities 343,644 134,750

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Arrowhead Pharmaceuticals, Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share amounts)

Three Months Ended March 31, Six Months Ended March 31,

Three Months Ended June 30, Nine Months Ended June 30,

2023 2022 2023 2022

4 unchanged sentences

Total operating expenses 118,528 105,321 321,310 306,333

Operating income (loss) 48,165 41,553 6,031 ( 21,768 )

Operating loss ( 102,703 ) ( 72,909 ) ( 96,672 ) ( 94,677 )

Other income (expense):

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Total other (loss) income ( 680 ) 863 ( 829 ) 4,125

Income (loss) before income tax expense and noncontrolling interest 47,676 44,366 5,882 ( 18,506 )

Loss before income tax expense and noncontrolling interest ( 103,383 ) ( 72,046 ) ( 97,501 ) ( 90,552 )

Income tax expense 742 — 759 —

Net income (loss) including noncontrolling interest 47,676 44,366 5,865 ( 18,506 )

Net loss including noncontrolling interest ( 104,125 ) ( 72,046 ) ( 98,260 ) ( 90,552 )

Net loss attributable to noncontrolling interest, net of tax ( 1,179 ) — ( 2,664 ) —

Net income (loss) attributable to Arrowhead Pharmaceuticals, Inc.

Net loss attributable to Arrowhead Pharmaceuticals, Inc.

$ ( 102,946 ) $ ( 72,046 ) $ ( 95,596 ) $ ( 90,552 )

Net income (loss) per share attributable to Arrowhead Pharmaceuticals, Inc.:

Net loss per share attributable to Arrowhead Pharmaceuticals, Inc.:

Basic $ ( 0.96 ) $ ( 0.68 ) $ ( 0.90 ) $ ( 0.86 )

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Diluted 107,004 105,753 106,597 105,273

Other comprehensive income (loss), net of tax:

Other comprehensive loss, net of tax:

Foreign currency translation adjustments ( 79 ) ( 33 ) ( 275 ) ( 71 )

Comprehensive income (loss) $ 47,602 $ 44,367 $ 5,669 $ ( 18,544 )

Comprehensive loss $ ( 104,204 ) $ ( 72,079 ) $ ( 98,535 ) $ ( 90,623 )

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Balance at September 30, 2022 105,960 $ 198 $ 1,219,213 $ ( 136 ) $ ( 820,755 ) $ 19,819 $ 418,339

105,960 $ 198 $ 1,219,213 $ ( 136 ) $ ( 820,755 ) $ 19,819 $ 418,339

Stock-based compensation — — 19,390 — — — 19,390

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Balance at December 31, 2022 106,140 $ 199 $ 1,239,178 $ ( 258 ) $ ( 862,080 ) $ 19,333 $ 396,372

106,140 $ 199 $ 1,239,178 $ ( 258 ) $ ( 862,080 ) $ 19,333 $ 396,372

Stock-based compensation — — 20,612 — — — 20,612

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Balance at March 31, 2023 106,869 $ 199 $ 1,260,310 $ ( 332 ) $ ( 813,405 ) $ 18,334 $ 465,106

Stock-based compensation — — 19,947 — — — 19,947

Exercise of stock options 198 — 1,136 — — — 1,136

Common stock - restricted stock units vesting 35 — — — — — —

Foreign currency translation adjustments — — — ( 79 ) — — ( 79 )

Interest in joint venture — — — — — ( 1,179 ) ( 1,179 )

Net loss for the three months ended June 30, 2023

— — — — ( 102,946 ) — ( 102,946 )

Balance at June 30, 2023 107,102 $ 199 $ 1,281,393 $ ( 411 ) $ ( 916,351 ) $ 17,155 $ 381,985

Amount ($) Additional

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Balance at September 30, 2021 104,327 $ 197 $ 1,053,386 $ ( 69 ) $ ( 644,692 ) $ — $ 408,822

104,327 $ 197 $ 1,053,386 $ ( 69 ) $ ( 644,692 ) $ — $ 408,822

Stock-based compensation — — 24,504 — — — 24,504

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Balance at December 31, 2021 104,798 $ 197 $ 1,080,035 $ ( 108 ) $ ( 707,564 ) $ — $ 372,560

104,798 $ 197 $ 1,080,035 $ ( 108 ) $ ( 707,564 ) $ — $ 372,560

Stock-based compensation — — 33,802 — — — 33,802

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Foreign currency translation adjustments — — — 1 — — 1

Interest in joint venture — — — — — — —

Net income for the three months ended March 31, 2022

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Balance at March 31, 2022 105,702 $ 198 $ 1,115,373 $ ( 107 ) $ ( 663,198 ) $ — $ 452,266

Stock-based compensation — — 33,391 — — — 33,391

Exercise of stock options 53 — 599 — — — 599

Common stock - restricted stock units vesting 40 — — — — — —

Foreign currency translation adjustments — — — ( 33 ) — — ( 33 )

Interest in joint venture — — 39,750 — — 20,250 60,000

Net loss for the three months ended June 30, 2022

— — — — ( 72,046 ) — ( 72,046 )

Balance at June 30, 2022 105,795 $ 198 $ 1,189,113 $ ( 140 ) $ ( 735,244 ) $ 20,250 $ 474,177

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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(in thousands)

Six Months Ended March 31,

Nine Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss) $ 5,865 $ ( 18,506 )

Adjustments to reconcile net income (loss) to net cash flow from operating activities

Net loss $ ( 98,260 ) $ ( 90,552 )

Adjustments to reconcile net loss to net cash flow from operating activities

Stock-based compensation 59,949 91,697

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Non-cash interest expense on liability related to the sale of future royalties 13,064 —

Unrealized losses on marketable securities — 5,755

Changes in operating assets and liabilities:

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Operating lease liabilities 1,158 3,733

Net cash (used in) provided by operating activities ( 107,187 ) 1,421

Net cash used in operating activities ( 128,633 ) ( 67,394 )

CASH FLOWS FROM INVESTING ACTIVITIES:

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Proceeds from the sale of future royalties 250,000 —

Proceeds from investment in joint venture — 60,000

Proceeds from additional tenant improvement allowance 669 —

Net cash provided by financing activities 252,901 64,331

Net increase (decrease) in cash, cash equivalents and restricted cash 27,150 ( 97,988 )

Net decrease in cash, cash equivalents and restricted cash ( 2,396 ) ( 44,925 )

Effect of exchange rate on cash, cash equivalents and restricted cash ( 275 ) ( 70 )

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Muscle ARO-DUX4 Pre-Clinical Arrowhead

CNS ARO-SOD1 Pre-Clinical Arrowhead

Central Nervous System (CNS)

ARO-SOD1 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.

During the first half of fiscal 2023, the Company continued to develop and advance its pipeline and partnered candidates.

During the first three quarters of fiscal 2023, the Company continued to develop and advance its pipeline and partnered candidates.

Several key recent developments include:

• hosted a Research & Development (R&D) Day on June 1, 2023 to discuss progress of the Company's pipeline of RNAi Therapeutics, at which the following updates were discussed:

◦ ARO-RAGE showed continued dose response with single inhaled dose of 184 mg achieving mean knockdown of 90% and max of 95%;

◦ adipose delivery platform achieved single dose target gene silencing of greater than 90% with six months of duration in non-human primates;

◦ improved hepatic dimer platform achieved equivalent or better knockdown of two target genes with longer duration than monomer mixture in non-human primates;

◦ TRiM™ platform now has potential to address multiple cell types including liver, solid tumors, lung, central nervous system, skeletal muscle, and adipose;

◦ announced progress towards the Company's "20 in 25" goal to grow its pipeline of RNAi therapeutics that leverage the proprietary Targeted RNAi Molecule (TRiM™) platform to a total of

20 clinical stage or marketed products in the year 2025;

• presented updated data from the Phase 2 SEQUOIA study of investigational RNAi therapy Fazirsiran in patients with alpha-1 antitrypsin deficiency liver disease which included:

◦ Fazirsiran reduced serum Z-AAT concentration in a dose-dependent manner;

◦ Fazirsiran significantly reduced liver Z-AAT;

◦ Fazirsiran consistently reduced hepatic globule burden;

◦ Fazirsiran treatment reduced histological signs of hepatic inflammation;

◦ 50% of the pooled Fazirsiran treated patients showed at least a one-point improvement in METAVIR liver fibrosis versus 38% in the placebo group;

◦ Fazirsiran has been well tolerated to date;

◦ pulmonary function test results (FEV1 and DLCO) for both Fazirsiran and placebo were stable over time with no apparent dose-dependent effects;

◦ updated Phase 2 clinical data were presented at the European Association for the Study of the Liver (EASL) Congress 2023 in an oral presentation titled, “Fazirsiran reduces liver Z-alpha-1 antitrypsin synthesis, decreases globule burden and improves histological measures of liver disease in adults with alpha-1 antitrypsin deficiency:

a randomized placebo-controlled phase 2 study”;

• presented interim data from the ongoing Phase 2 GATEWAY clinical study of ARO-ANG3 which included:

◦ mean reduction in LDL-C of 48.1% (200mg) and 44.0% (300mg);

◦ ANPTL3 inhibition with ARO-ANG3 also reduced HDL-C, non-HDL-C, and triglycerides, consistent with published human genetic data;

◦ safety and tolerability;

• completed enrollment of the Phase 3 PALISADE clinical trial evaluating ARO-APOC3 for treatment of familial chylomicronemia syndrome;

• announced interim results from ARO-RAGE administration in Part 1 of the ongoing Phase 1/2 study in normal healthy volunteers which included:

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◦ reduction in sRAGE as measured in bronchoalveolar lavage fluid (BALF) at Day 31 after a single dose;

◦ reduction in in serum sRAGE were observed after a single dose;

◦ reduction in in serum sRAGE was observed after a single dose;

◦ the pooled placebo groups experienced a mean sRAGE increase of 8% in BALF and a mean decrease of 1% serum;

◦ safety and tolerability;

• expanded TRiM TM platform to include an optimized intrathecal administration for central nervous system (CNS) delivery with distribution throughout the brain and in all relevant brain cell types.

The first development candidate to utilize this new delivery platform, ARO-SOD1, is anticipated to have a clinical trial

application (CTA) filing in the third quarter of 2023 to begin clinical studies.

• expanded TRiM TM platform to include an optimized intrathecal administration for CNS delivery with distribution throughout the brain and in all relevant brain cell types.

The first development candidate to utilize this new delivery platform is ARO-SOD1.

In June 2023, the Company filed a clinical trial application (CTA) for approval to initiate a Phase 1 clinical study.

In preclinical studies, ARO-SOD1 achieved 95% spinal cord tissue mRNA knockdown after a single intrathecal dose in human SOD1 transgenic rats and maintained greater than 80% spinal cord tissue mRNA knockdown three months after a single intrathecal dose in non-human primates;

• dosed the first patient in Takeda’s Phase 3 REDWOOD clinical study of Fazirsiran for the treatment of alpha-1 antitrypsin deficiency associated liver diseases, triggering a $ 40.0 million milestone payment to the Company which is expected to be paid in the third quarter of fiscal 2023;

• dosed the first patient in GSK’s Phase 2b trial of GSK4532990, formerly called ARO-HSD, an investigational RNAi therapeutic for the treatment of patients with non-alcoholic steatohepatitis (NASH), triggering a $ 30.0 million milestone payment to the Company which is expected to be paid in the third quarter of fiscal 2023;

• announced that the U.S.

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• initiated dosing in ARO-MMP7-1001 (NCT05537025), a Phase 1/2a single ascending dose and multiple ascending dose clinical study to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamics of ARO-MMP7, an investigational RNAi therapeutic designed to reduce expression of matrix metalloproteinase 7 (MMP7) as a potential treatment for idiopathic pulmonary fibrosis (IPF), in up to 56 healthy volunteers and in up to 21 patients with IPF;

• enrolled the first subject in a Phase 1 randomized, placebo-controlled trial to assess the safety tolerability, pharmacokinetics and pharmacodynamics of a development-stage medicine, HZN-457 (formerly ARO-XDH), which is out-licensed to Horizon, triggering a $ 15.0 million milestone payment to the Company which was paid in the second quarter of fiscal 2023;

• enrolled the first subject in a Phase 1 randomized, placebo-controlled trial to assess the safety tolerability, pharmacokinetics and pharmacodynamics of a development-stage medicine, HZN-457 (previously known as ARO-XDH), which is out-licensed to Horizon, triggering a $ 15.0 million milestone payment to the Company which was paid in the second quarter of fiscal 2023;

• enrolled the first subject in Amgen’s Phase 3 trial of Olpasiran, triggering a $ 25.0 million milestone payment to the Company which was paid in the second quarter of fiscal 2023;

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Financial Statements.”);

• announced Topline Results from SEQUOIA Phase 2 Study of Fazirsiran (formerly ARO-AAT) in patients with Alpha-1 Antitrypsin Deficiency-Associated Liver Disease in which;

• announced top line results from the SEQUOIA Phase 2 Study of Fazirsiran in patients with Alpha-1 Antitrypsin Deficiency-Associated Liver Disease in which:

◦ fibrosis regression was observed in 50% of patients receiving Fazirsiran;

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The financial data of the Company included herein are unaudited.

In the opinion of management, all material adjustments of a normal recurring nature have been made to present fairly the Company’s financial position at March 31, 2023 and the results of operations and cash flows for the periods presented.

In the opinion of management, all material adjustments of a normal recurring nature have been made to present fairly the Company’s

financial position at June 30, 2023 and the results of operations and cash flows for the periods presented.

All intercompany transactions and balances have been eliminated.

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Readers are urged to review the Company’s Annual Report on Form 10-K for the year ended September 30, 2022 for more complete descriptions and discussions.

Operating results and cash flows for the six months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2023.

Operating results and cash flows for the nine months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2023.

The Company’s primary sources of financing have been through the sale of its securities, revenue from its licensing and collaboration agreements and the sale of certain future royalties.

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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.

At March 31, 2023, the Company had $ 135.0 million in cash and cash equivalents (including $ 7.3 million in restricted cash), $ 346.0 million in short-term investments and $ 78.8 million in long-term investments to fund operations.

During the six months ended March 31, 2023, the Company’s cash and cash equivalents and investments balance increased by $ 77.6 million which was primarily due to the $ 250.0 million upfront payment received from Royalty Pharma (Note 11) and $ 40.0 million in milestone payments from Horizon and Amgen, partially offset by cash used to fund its operations.

At June 30, 2023, the Company had $ 105.3 million in cash and cash equivalents (including $ 7.3 million in restricted cash), $ 346.4 million in short-term investments and $ 42.8 million in long-term investments to fund operations.

During the nine months ended June 30, 2023, the Company’s cash and cash equivalents and investments balance increased by $ 12.2 million which was primarily due to the $ 250.0 million upfront payment received from Royalty Pharma (Note 11) and $ 110.0 million in milestone payments from the Company’s collaboration and license agreements, partially offset by cash used to fund its operations.

In total, the Company is eligible to receive up to $ 3.4 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.

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The following table provides a summary of revenue recognized:

Three Months Ended March 31, Six Months Ended March 31,

Three Months Ended June 30, Nine Months Ended June 30,

2023 2022 2023 2022

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Total $ 15,825 $ 32,412 $ 224,638 $ 211,656

The following table summarizes the balance of receivables and contract liabilities related to the Company’s collaboration and license agreements:

March 31, 2023 September 30, 2022

The following table summarizes the balance of receivables and contract liabilities related to the Company’s

collaboration and license agreements:

June 30, 2023 September 30, 2022

(in thousands)

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Under the GSK License Agreement, GSK has received an exclusive license for GSK-4532990 (formerly ARO-HSD).

The exclusive license is worldwide with the exception of greater China, for which the Company retained rights to develop and commercialize GSK-4532990.

The exclusive license is worldwide with the exception of greater China.

The Company completed its Phase 1/2 study of GSK-4532990, and GSK is wholly responsible for all clinical development and commercialization of GSK-4532990 in its territory.

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As the Company has completed its performance obligation related to this agreement, the upfront payment of $ 120.0 million was fully recognized during the six months ended March 31, 2022.

Further, GSK dosed the first patient in a Phase 2 trial in March 2023, triggering a $ 30.0 million milestone payment to the Company which is expected to be paid in the third quarter of fiscal 2023.

There were no contract assets and liabilities recorded as of March 31, 2023.

Further, GSK dosed the first patient in a Phase 2 trial in March 2023, triggering a $ 30.0 million milestone payment to the Company which was paid in the third quarter of fiscal 2023.

There were no contract assets and liabilities recorded as of June 30, 2023.

Horizon Therapeutics Ireland DAC (“Horizon”)

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Under the terms of the Horizon License Agreement, Horizon received a worldwide exclusive license for HZN-457, a clinical-stage medicine being developed by Horizon as a potential treatment for people with uncontrolled gout.

The Company conducted all activities through the preclinical stages of development of, and Horizon is now wholly

responsible for clinical development and commercialization of, HZN-457.

The Company conducted all activities through the preclinical stages of development of, and Horizon is now wholly responsible for clinical development and commercialization of, HZN-457.

The Company received $ 40.0 million as an upfront payment in July 2021 and an additional $ 15.0 million upon Horizon’s initiation of a Phase 1 clinical trial in January 2023, and is eligible to receive up to $ 645.0 million in additional potential development, regulatory and sales milestones.

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The Company allocated the total $ 40.0 million initial transaction price to its one distinct performance obligation for the HZN-457 license and the associated Horizon R&D Services.

Revenue was recognized on a straight-line basis over the timeframe for completing the Horizon R&D Services.

Revenue was recognized on a straight-line basis over the timeframe for

completing the Horizon R&D Services.

The Company determined that the straight-line basis was appropriate as its efforts were expended evenly over the course of completing its performance obligation.

Further, Horizon enrolled the first subject in December 2022 in a Phase 1 randomized, placebo-controlled trial to assess the safety, tolerability, pharmacokinetics and pharmacodynamics of HZN-457, triggering a $ 15.0 million milestone payment to the Company which was paid in the second quarter of fiscal 2023.

There were no contract assets and liabilities recorded as of March 31, 2023.

There was $ 1.5 million in contract assets recorded as accounts receivable and $ 0 contract liabilities as of June 30, 2023.

Takeda Pharmaceutical Company Limited (“Takeda”)

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Within the United States, Fazirsiran, 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 Fazirsiran, while the Company will be eligible to receive tiered royalties of 20 % to 25 % on net sales.

Outside the United States, Takeda will lead the global commercialization strategy and received an exclusive license to commercialize Fazirsiran, while the Company will be eligible to receive tiered royalties of 20 % to 25 % on net sales.

The Company received $ 300.0 million as an upfront payment in January 2021, recognized an additional $ 40.0 million upon Takeda’s initiation of a Phase 3 clinical study in March 2023, and is eligible to receive potential development, regulatory and commercial milestones of up to $ 527.5 million.

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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 previously expected these clinical trials to extend to September 2025 in order to demonstrate long term safety and efficacy in the open label extension part of the studies;

however, Takeda now intends to initiate a new open label extension (OLE) study available to patients participating in these Phase 2 studies that will initiate as early as July 2023.

The Company previously expected these clinical trials to extend to September 2025 in order to demonstrate long term safety and efficacy in the open label extension (OLE) part of the studies;

however, Takeda now intends to initiate a new OLE study available to patients participating in these Phase 2 studies that will initiate as early as the fourth quarter of fiscal 2023.

Based on this new information, patients enrolled in the SEQUOIA and AROAAT2002 studies are expected to complete their Phase 2 study visits between June 2023 and June 2024, shortening the Company’s performance obligation.

As a result, effective the second quarter of fiscal 2023, the Company changed its estimates of the revenue recognition to better reflect these newly estimated proportional performance periods.

The effect of these changes in estimates resulted in accelerated revenue by $ 61.4 million, or $ 0.57 per share (diluted) for

each of the three and six months ended March 31, 2023.

There were $ 30.9 million of contract liabilities recorded as deferred revenue, of which $ 29.8 million was classified as current as of March 31, 2023.

In March 2023, Takeda dosed the first patient in the Phase 3 REDWOOD clinical study of Fazirsiran, triggering a $ 40.0 million milestone payment to the Company which is expected to be paid in the third quarter of fiscal 2023.

The Company also recorded $ 9.4 million as accrued expenses as of March 31, 2023 that was primarily driven by co-development and co-commercialization activities.

As a result, effective the second quarter of fiscal 2023, the Company changed its estimates of the revenue recognition to better reflect this newly estimated performance period.

The effect of these changes in estimates resulted in accelerated revenue by $ 61.4 million, or $ 0.58 per share (diluted) for each of the three and nine months ended June 30, 2023.

There were $ 16.9 million of contract liabilities recorded as deferred revenue, of which $ 16.9 million was classified as current as of June 30, 2023.

In March 2023, Takeda dosed the first patient in the Phase 3 REDWOOD clinical study of Fazirsiran, triggering a $ 40.0 million milestone payment to the Company which was paid in the third quarter of fiscal 2023.

The Company also recorded $ 1.4 million as accrued expenses as of June 30, 2023 that was primarily driven by co-development and co-commercialization activities.

Janssen Pharmaceuticals, Inc.

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(“JJDC”), Johnson & Johnson’s venture capital arm (the “JJDC Stock Purchase Agreement”).

Under the Janssen License Agreement, Janssen 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.

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).

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The Company is further eligible to receive tiered royalties on product sales up to mid-teens under the Janssen License Agreement.

On April 7, 2023, Janssen voluntarily terminated the Janssen Collaboration Agreement.

Upon termination, the Company regained full rights to ARO-PNPLA3, formerly called JNJ-75220795, the only candidate for which Janssen had exercised its option.

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.

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All costs and labor hours spent by the Company have been entirely funded by Janssen.

There was no revenue recorded associated with the Company’s agreement with Janssen for the six months ended March 31, 2023 and 2022.

There were no contract assets and liabilities recorded as of March 31, 2023.

On April 7, 2023, Janssen voluntarily terminated the Janssen Collaboration Agreement.

Upon termination, the Company regained full rights to ARO-PNPLA3, formerly called JNJ-75220795, the only candidate for which Janssen had exercised its option.

At the inception of 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”).

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Future milestones and royalties achieved will be recognized in their entirety when earned.

There were no contract assets and liabilities recorded as of March 31, 2023.

There were no contract assets and liabilities recorded as of June 30, 2023.

On September 28, 2016, Amgen and the Company entered into two collaboration and license agreements and a common stock purchase agreement.

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The Company has substantially completed its performance obligations under the Olpasiran Agreement and the ARO-AMG1 Agreement.

There were no contract assets and liabilities recorded as of March 31, 2023.

There were no contract assets and liabilities recorded as of June 30, 2023.

In November 2022, Royalty Pharma and the Company entered into the Royalty Pharma Agreement.

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Joint Venture and License Agreement with Visirna Therapeutics, Inc.

On April 25, 2022, Visirna and the Company entered into a License Agreement (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).

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 (the “Visirna SPA”) entered into simultaneously with the Visirna License Agreement, the Company acquired a majority stake in Visirna as partial consideration for the Visirna License Agreement.

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As further consideration under the Visirna License Agreement, the Company is also eligible to receive potential royalties on commercial sales.

During the six months ended March 31, 2023, the Company performed manufacturing and development work pursuant to a Clinical Supply Agreement between the parties contemplated by the Visirna License Agreement.

The Company received $ 0.9 million as consideration for this manufacturing and development work, and there were no contract assets and liabilities recorded as of March 31, 2023.

During the nine months ended June 30, 2023, the Company performed manufacturing and development work pursuant to a Clinical Supply Agreement between the parties contemplated by the Visirna License Agreement.

The Company received $ 0.9 million as consideration for this manufacturing and development work, and there were no contract assets and liabilities recorded as of June 30, 2023.

PROPERTY AND EQUIPMENT

The following table summarizes the Company’s major classes of property and equipment:

March 31, 2023 September 30, 2022

June 30, 2023 September 30, 2022

(in thousands)

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Property and equipment, net $ 231,369 $ 110,297

Depreciation and amortization expense for property and equipment for each of the three months ended March 31, 2023 and 2022 was $ 2.2 million.

Depreciation and amortization expense for property and equipment for the six months ended March 31, 2023 and 2022 was $ 4.5 million and $ 4.3 million, respectively.

The increase in the construction in progress during the six months ended March 31, 2023 was mainly due to the continuing developments of manufacturing, laboratory and office facilities in Verona, Wisconsin as well as a new laboratory and office facility in San Diego, California.

Depreciation and amortization expense for property and equipment for the three months ended June 30, 2023 and 2022 was $ 2.9 million and $ 2.2 million, respectively.

Depreciation and amortization expense for property and equipment for the nine months ended June 30, 2023 and 2022 was $ 7.4 million and $ 6.5 million, respectively.

The increase in the construction in progress during the nine months ended June 30, 2023 was mainly due to the continuing developments of manufacturing, laboratory and office facilities in Verona, Wisconsin as well as a new laboratory and office facility in San Diego, California.

In May 2023, the Company completed the development of the San Diego facility, which resulted in the reclassification of construction in progress as leasehold improvements as of June 30, 2023.

The Company’s investments consisted of the following:

As of March 31, 2023

As of June 30, 2023

(in thousands)

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Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount Useful Lives

(amounts in thousands) (in years)

As of March 31, 2023

(in thousands) (in years)

As of June 30, 2023

Patents $ 21,728 $ 12,933 $ — $ 8,795 14

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Intangible assets are reviewed annually for impairment and more frequently if potential impairment indicators exist.

No impairment indicators were identified during the six months ended March 31, 2023 and 2022.

No impairment indicators were identified during the nine months ended June 30, 2023 and 2022.

Intangible assets with definite useful lives are amortized on a straight-line basis over their useful lives.

Intangible assets amortization expense was $ 0.4 million for each of the three months ended March 31, 2023 and 2022, and $ 0.9 million and for each of the six months ended March 31, 2023 and 2022.

Intangible assets amortization expense was $ 0.4 million for each of the three months ended June 30, 2023 and 2022, and $ 1.3 million and for each of the nine months ended June 30, 2023 and 2022.

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 March 31, 2023:

The following table presents the estimated future amortization expense related to intangible assets as of June 30, 2023:

Amortization Expense

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(in thousands)

As of March 31, 2023

As of June 30, 2023

Common stock $ 0.001 290,000 107,102 107,102

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The amendment to the Amended and Restated Certificate of Incorporation was filed on April 27, 2023.

The Company does not have any current intention to issue shares in connection with acquisitions or pursuant to any equity financing outside of its existing equity compensation plans.

As of March 31, 2023 and September 30, 2022, respectively, 13,075,198 and 14,000,392 shares of common stock 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.

As of June 30, 2023 and September 30, 2022, respectively, 12,914,571 and 14,000,392 shares of common stock 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.

On December 2, 2022, the Company entered into an open market sale agreement (the “Open Market Sale 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”).

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The Company and Jefferies may each terminate the Open Market Sale Agreement at any time upon prior notice.

As of March 31, 2023, no shares have been issued under the Open Market Sale Agreement.

As of June 30, 2023, no shares have been issued under the Open Market Sale Agreement.

COMMITMENTS AND CONTINGENCIES

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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 March 31, 2023.

There were no contingent liabilities recorded as of June 30, 2023.

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 of June 30, 2023, the Company has incurred $ 102.7 million and intends to spend an additional $ 160.0 million to $ 180.0 million to complete 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.

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These agreements and other similar

agreements often require milestone and royalty payments.

agreements often require the Company to make 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.

During the three and six months ended March 31, 2023 and 2022, the Company did not reach any milestones.

During the three and nine months ended June 30, 2023 and 2022, the Company did not reach any milestones.

On November 19, 2021, the Company entered into a 15 -year lease for approximately 144,000 square feet of office and research and development laboratory space in San Diego, California.

This facility replaces the Company’s current office and research facility 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.

This new facility accommodates increased personnel for its expanding pipeline of current and future drug candidates.

The lease payments, which began on April 19, 2023, 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 also estimates annual 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 $ 32.0 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.

Further, the lease agreement grants the Company the right to receive an Additional Tenant Improvement Allowance (“ATIA”) funded by the lessor.

The maximum amount of ATIA is $ 7.2 million, and as of June 30, 2023, the Company has received approximately $ 0.7 million, which has been recorded as other liabilities on its consolidated balance sheets.

The Company will repay the ATIA through equal monthly payments, including 7 % interest per annum over the base term, starting from the rent commencement date.

Interest begins accruing on the date the lessor first disburses the ATIA.

Other Significant Leases

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The Company subleased space from Halozyme, Inc.

for additional research and development facility in San Diego, California.

for additional research and development space in San Diego, California.

The term of this sublease commenced on April 1, 2020 and ended on January 14, 2023.

On December 23, 2022, the Company entered into a new six-month lease agreement with 11404 & 11408 Sorrento Valley Owner (DE) LLC, effective January 15, 2023.

The lease will end on July 15, 2023.

The lease ended on July 15, 2023.

Madison, Wisconsin :

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The components of lease assets and liabilities along with their classification on the Company’s consolidated balance sheets were as follows:

Lease Assets and Liabilities Classification March 31, 2023 September 30, 2022

Lease Assets and Liabilities Classification June 30, 2023 September 30, 2022

(in thousands)

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Non-current operating lease liabilities Lease liabilities, net of current portion 79,911 78,800

Three Months Ended March 31, Six Months Ended March 31,

Three Months Ended June 30, Nine Months Ended June 30,

Lease Cost Classification 2023 2022 2023 2022

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General and administrative expense 509 448 1,542 1,288

Variable lease cost Research and development 160 182 370 340

Variable lease cost (1)

Research and development 257 179 627 519

General and administrative expense — — — —

Total $ 4,089 $ 3,601 $ 9,904 $ 6,564

Variable lease cost primarily related to operating expenses associated with the Company’s operating leases.

There was $ 0.4 million and $ 0.3 million short-term lease cost during the three months ended March 31, 2023, and 2022, respectively.

There was $ 0.7 million and $ 0.5 million short-term lease cost during the six months ended March 31, 2023, and 2022, respectively.

The following table presents payments of operating lease liabilities on an undiscounted basis as of March 31, 2023:

(1) Variable lease cost is primarily related to operating expenses associated with the Company’s operating leases.

There was $ 0.6 million and $ 0.2 million short-term lease cost during the three months ended June 30, 2023, and 2022, respectively.

There was $ 1.2 million and $ 0.7 million short-term lease cost during the nine months ended June 30, 2023, and 2022, respectively.

The following table presents payments of operating lease liabilities on an undiscounted basis as of June 30, 2023:

(in thousands)

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Supplemental cash flow and other information related to leases was as follows:

Six Months Ended March 31,

Nine Months Ended June 30,

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows from operating leases (in thousands) 4,430 3,398

March 31, 2023

Weighted-average remaining lease term (in years) 13.4 7.3

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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”), 173,983 and 3,518,957 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 March 31, 2023.

Under the 2004 Equity Incentive Plan (the “2004 Plan”) and 2013 Incentive Plan (the “2013 Plan”), 68,555 and 3,440,076 shares, respectively, of the Company’s common stock are reserved for grants of stock options and restricted stock awards to employees and directors as of June 30, 2023.

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.

2021 Incentive Plan (the “2021 Plan”), which authorized 8,000,000 shares (subject to certain adjustments) available for grants of stock options, stock appreciation rights, restricted and unrestricted stock, 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 March 31, 2023, the total number of shares reserved for issuance under the 2021 Incentive Plan was 6,126,788 shares, which includes 139,053 shares that were forfeited under the 2013 Plan.

As of June 30, 2023, the total number of shares reserved for issuance was 6,186,644 shares, which included 197,596 shares that were forfeited under the 2013 Plan, and 1,977,114 shares have been granted under the 2021 Plan.

In addition, there were 712,454 shares reserved for options and 746,175 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 March 31, 2023

As of June 30, 2023

2004 Plan 2013 Plan 2021 Plan Inducement Awards Total

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Total 68,555 3,440,076 1,720,604 1,458,629 6,687,864

The following table summarizes stock-based compensation expenses included in operating expenses:

Three Months Ended June 30, Nine Months Ended June 30,

2023 2022 2023 2022

(in thousands)

Research and development 8,982 8,098 26,129 23,958

General and administrative 10,965 25,292 33,820 67,739

Total $ 19,947 $ 33,390 $ 59,949 $ 91,697

Stock Option Awards

The following table presents a summary of the stock option activity for the six months ended March 31, 2023:

The following table presents a summary of the stock option activity for the nine months ended June 30, 2023:

Shares Weighted-

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Exercised ( 343,801 ) 6.48

Outstanding at March 31, 2023

Outstanding at June 30, 2023

2,365,798 $ 22.20 4.4 years $ 43,813,599

Exercisable at March 31, 2023

Exercisable at June 30, 2023

2,188,690 $ 20.28 4.2 years $ 43,480,339

The aggregate intrinsic values represents the amount by which the market price of the underlying stock exceeds the exercise price of the option.

The total intrinsic value of the options exercised during the three months ended March 31, 2023 and 2022 was $ 1.4 million and $ 10.8 million, respectively.

The total intrinsic value of the options exercised during the six months ended March 31, 2023 and 2022 was $ 3.6 million and $ 23.3 million, respectively.

Stock-based compensation expense related to stock options outstanding for the three months ended March 31, 2023 and 2022, was $ 2.2 million and $ 2.7 million, respectively.

Stock-based compensation expense related to stock options for the six months ended March 31, 2023 and 2022 was $ 4.6 million and $ 5.7 million, respectively.

As of March 31, 2023, the pre-tax compensation expense for all outstanding unvested stock options in the amount of $ 7.6 million will be recognized in the Company’s results of operations over a weighted average period of 1.0 year.

The total intrinsic value of the options exercised during the three months ended June 30, 2023 and

2022 was $ 6.5 million and $ 1.6 million, respectively.

The total intrinsic value of the options exercised during the nine months ended June 30, 2023 and 2022 was $ 10.1 million and $ 24.9 million, respectively.

Stock-based compensation expense related to stock options outstanding for the three months ended June 30, 2023 and 2022, was $ 2.1 million and $ 2.6 million, respectively.

Stock-based compensation expense related to stock options for the nine months ended June 30, 2023 and 2022 was $ 6.7 million and $ 8.3 million, respectively.

As of June 30, 2023, the pre-tax compensation expense for all outstanding unvested stock options in the amount of $ 5.3 million will be recognized in the Company’s results of operations over a weighted average period of 12 months.

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model.

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The following table provides the assumptions used in the calculation of grant-date fair values of these stock options based on the Back-Scholes option pricing model:

Six Months Ended March 31,

Nine Months Ended June 30,

2023 2022 (5)

Expected dividend yield (1)

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Expected term (in years) (4)

Weighted average grant date fair value per share of options granted (5)

Weighted average grant date fair value per share of options granted $ 24.80 N/A

(1) The dividend yield is zero as the Company currently does not pay a dividend.

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(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 six months ended March 31, 2022.

(5) No options were granted during the nine months ended June 30, 2022.

Restricted Stock Units

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Forfeited ( 93,688 ) 54.58

Outstanding at March 31, 2023

Outstanding at June 30, 2023

4,322,066 $ 57.45

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.

For the three months ended March 31, 2023 and 2022, the Company recorded $ 18.4 million and $ 28.2 million of expense related to RSUs, respectively.

For the six months ended March 31, 2023 and 2022, the Company recorded $ 35.4 million and $ 49.7 million of expense related RSUs, respectively.

As of March 31, 2023, there was $ 153.6 million of total unrecognized compensation cost related to RSUs that is expected to be recognized over a weighted-average period of 2.5 years.

For the three months ended June 30, 2023 and 2022, the Company recorded $ 17.8 million and $ 33.7 million of expense

related to RSUs, respectively.

For the nine months ended June 30, 2023 and 2022, the Company recorded $ 53.2 million and $ 83.4 million of expense related to RSUs, respectively.

As of June 30, 2023, there was $ 131.6 million of total unrecognized compensation cost related to RSUs that is expected to be recognized over a weighted-average period of 2.3 years.

FAIR VALUE MEASUREMENTS

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The Company recognizes transfers between levels at either the actual date of the event or a change in circumstances that caused the transfer.

At March 31, 2023 and September 30, 2022, the Company did not have any financial assets or financial liabilities based on Level 3 measurements.

At June 30, 2023 and September 30, 2022, 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 indicates the fair value hierarchy of the valuation techniques utilized by the Company:

March 31, 2023

June 30, 2023

Level 1 Level 2 Level 3 Total

(in thousands)

Financial assets:

government bonds $ 27,092 $ — $ — $ 27,092

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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.

(i) $ 50.0 million on completion of enrollment in the 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.

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The interest rate may vary during the term of the agreement depending on a number of factors, including the amount and timing of forecasted net revenues which affects the repayment timing and ultimate amount of repayment.

The Company will evaluate the effective interest rate quarterly based on its current revenue forecasts utilizing the prospective method.

For the three and six months ended March 31, 2023, the Company recognized non-cash interest expense of $ 5.1 million and $ 7.9 million, respectively, on the consolidated statements of operations and comprehensive income (loss).

The Company will evaluate the effective interest rate periodically based on its current revenue forecasts utilizing the prospective method.

For the three and nine months ended June 30, 2023, the Company recognized non-cash interest expense of $ 5.2 million and $ 13.1 million, respectively, on the consolidated statements of operations and comprehensive loss.

EARNINGS PER SHARE

The following table presents the computation of basic and diluted earnings per share for the six months ended

March 31, 2023 and 2022.

Three Months Ended March 31, Six Months Ended March 31,

The following table presents the computation of basic and diluted earnings per share for the nine months ended

June 30, 2023 and 2022.

Three Months Ended June 30, Nine Months Ended June 30,

2023 2022 2023 2022

(in thousands, except per share amounts)

Net income (loss) $ 48,675 $ 44,366 $ 7,350 $ ( 18,506 )

Net loss $ ( 102,946 ) $ ( 72,046 ) $ ( 95,596 ) $ ( 90,552 )

Weighted-average basic shares outstanding 107,004 105,753 106,597 105,273

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Diluted earnings per share $ ( 0.96 ) $ ( 0.68 ) $ ( 0.90 ) $ ( 0.86 )

Potentially dilutive securities representing approximately 4,350,000 and 4,069,000 shares of common stock were excluded from the computation of diluted earnings per share for the three and six months ended March 31, 2023, respectively, because their effect would have been anti-dilutive.

There were no potentially dilutive securities with anti-dilutive effect for the six months ended March 31, 2022.

Potentially dilutive securities representing approximately 3,467,000 and 4,024,000 shares of common stock were excluded from the computation of diluted earnings per share for the three and nine months ended June 30, 2023, respectively, because their effect would have been anti-dilutive.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements