What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-07 compared with 2023-05-02 · 114 added, 91 removed, 203 unchanged (50% of the section changed)

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multiple routes of administration including subcutaneous injection and inhaled administration;

the ability to target multiple tissue types including liver, lung, muscle and others;

the ability to target multiple tissue types including liver, lung, muscle, CNS and others;

and the potential for improved safety and reduced risk of intracellular buildup, because there are fewer metabolites from smaller, simpler molecules.

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• Cystic fibrosis - ARO-ENAC2

• Muco-obstructive or inflammatory pulmonary conditions - ARO-RAGE and ARO-MUC5AC

• Muco-obstructive or inflammatory pulmonary conditions - ARO-MUC5AC and ARO-RAGE

• Idiopathic pulmonary fibrosis - ARO-MMP7

• Liver disease - GSK-4532990 (formerly ARO-HSD, out-licensed to GSK)

• Liver disease associated with alpha-1 antitrypsin deficiency (AATD) - Fazirsiran (formerly ARO-AAT, a collaboration with Takeda)

• Non-alcoholic steatohepatitis (NASH) - GSK-4532990 (formerly ARO-HSD, out-licensed to GSK)

• Alpha-1 antitrypsin deficiency (AATD) - Fazirsiran (formerly ARO-AAT, a collaboration with Takeda)

• Chronic hepatitis B virus - JNJ-3989 (formerly ARO-HBV, out-licensed to Janssen)

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These outside costs, relating to the preparation for and administration of clinical trials, are referred to as “candidate costs.” As clinical candidates progress through clinical development, candidate costs will increase.

The First Half of Fiscal 2023 Business Highlights

Key recent developments during the first half of fiscal 2023 included the following:

The First Three Quarters of Fiscal 2023 Business Highlights

Key recent developments during the first three quarters of fiscal 2023 included the following:

• 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;

• secured stockholder approval to increase authorized common shares to 290,000,000 from 145,000,000 to provide the Company with additional flexibility to issue common stock for a variety of general corporate purposes;

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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 be paid in the third quarter of fiscal 2023;

• dosed the first patient in GSK’s Phase 2 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;

• dosed t he 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 was 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 was paid in the third quarter of fiscal 2023;

• announced that the U.S.

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◦ safety and tolerability;

• received notice from Janssen of its decision to voluntarily terminate the Janssen Collaboration Agreement between the Company and Janssen.

• received notice from Janssen of its decision to voluntarily terminate the Janssen Collaboration Agreement

between the Company and Janssen.

The Company regained full rights to ARO-PNPLA3, formerly called JNJ-75220795, upon termination of the Janssen Collaboration Agreement which took effect on April 7, 2023.

ARO-PNPLA3 is in Phase 1 clinical trials that are now being developed by the Company;

• initiated dosing in AROMMP7-1001 (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;

• 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 (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;

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◦ results were consistent with AROAAT-2002 open-label study previously published in The New England Journal of Medicine.

Net income was $48.7 million for the three months ended March 31, 2023 as compared to $44.4 million for the three months ended March 31, 2022.

Net income was $7.4 million for the six months ended March 31, 2023 as compared to net losses of $18.5 million for the six months ended March 31, 2022.

Net income per share – diluted was $0.45 for the three months ended March 31, 2023 as compared to $0.41 for the three months ended March 31, 2022.

Net income per share – diluted was $0.07 for the six months ended March 31, 2023 as compared to net losses per share – diluted of $0.18 for the six months ended March 31, 2022.

The increase in net income for the three months ended March 31, 2023 was due to an increase in revenue from the Company’s license and collaboration agreements, primarily from the license agreements with Takeda and GSK, in conjunction with decreased general and administrative expenses.

The increase in net income for the six months ended March 31, 2023 was due to an increase in revenue from the Company’s license and collaboration agreements, primarily from the license agreements with Horizon, Amgen, Takeda and GSK, partially offset by increased research and development expenses, which have continued to increase as the Company’s pipeline of candidates has expanded and

progressed through clinical trial phases.

The Company had $135.0 million of cash, cash equivalents and restricted cash, $346.0 million in short-term investments, $78.8 million of long-term investments and $891.3 million of total assets as of March 31, 2023, as compared to $108.0 million of cash, cash equivalents and restricted cash, $268.4 million in short-term investments, $105.9 million of long-term investments and $691.9 million of total assets as of September 30, 2022.

Net loss was $102.9 million for the three months ended June 30, 2023 as compared to $72.0 million for the three months ended June 30, 2022.

Net loss was $95.6 million for the nine months ended June 30, 2023 as compared to $90.6 million for the nine months ended June 30, 2022.

Net loss per share – diluted was $0.96 for the three months ended June 30, 2023 as compared to $0.68 for the three months ended June 30, 2022.

Net loss per share – diluted was $0.90 for the nine months ended June 30, 2023 as compared to $0.86 for the nine months ended June 30, 2022.

The changes in net loss for the three and nine months ended June 30, 2023 reflect an increase in research and development expenses, which have continued to increase as the Company’s pipeline of candidates has expanded and progressed through clinical trial phases.

The Company had $105.3 million of cash, cash equivalents and restricted cash, $346.4 million in short-term investments, $42.8 million of long-term investments and $795.9 million of total assets as of June 30, 2023, as compared to $108.0 million of cash, cash equivalents and restricted cash, $268.4 million in short-term investments, $105.9 million of long-term investments and $691.9 million of total assets as of September 30, 2022.

Based upon the Company’s current cash and investment resources and operating plan, the Company expects to have sufficient liquidity to fund operations for at least the next twelve months.

Critical Accounting Estimates

There have been no significant changes to the Company’s critical accounting estimates disclosed in the most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2022, except Takeda revenue recognition described in Note 2 — Collaboration and License Agreements of Notes to Consolidated Financial Statements of Part I, “Item 1.

There have been no significant changes to the Company’s critical accounting estimates disclosed in the most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2022, except the Takeda revenue recognition described in Note 2 — Collaboration and License Agreements of Notes to Consolidated Financial Statements of Part I, “Item 1.

Financial Statements.”

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The following data summarizes the Company’s results of operations for the following periods indicated:

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

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

2023 2022 2023 2022

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

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

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

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

Net loss attributable to Arrowhead Pharmaceuticals, Inc.

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

Net income (loss) per share-diluted $ 0.45 $ 0.41 $ 0.07 $ (0.18)

Total revenue for the three months ended March 31, 2023 decreased to $146.3 million, or 3.6% from the same period of 2022.

Total revenue for the six and months ended March 31, 2023 increased to $208.8 million, or 16.5% from the same period of 2022.

Net loss per share-diluted $ (0.96) $ (0.68) $ (0.90) $ (0.86)

Total revenue for the three months ended June 30, 2023 decreased to $15.8 million, or 51.2% from the same period of 2022.

Total revenue for the nine months ended June 30, 2023 increased to $224.6 million, or 6.1% from the same period of 2022.

The changes were primarily driven by the revenue recognition associated with GSK, Horizon, Takeda and Amgen license agreements, as discussed below.

The Company has evaluated each agreement in accordance with FASB Topic 808– Collaborative Arrangements and Topic 606- Revenue for Contracts from Customers .

See Note 2 — Collaboration and License Agreements to Consolidated Financial Statements of Part I, “Item 1.

Financial Statements” for more information on revenue recognized under the collaboration and license agreements.

At the inception of the GSK License Agreement, the Company identified one distinct performance obligation.

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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 2b 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.

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

On June 18, 2021, Horizon and the Company entered into the Horizon License Agreement.

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 HZN-457 (the “Horizon R&D Services”).

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 HZN-457 (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.

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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.

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.

On October 7, 2020, Takeda and the Company entered into the Takeda License Agreement.

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The Company has allocated the total $300.0 million initial transaction price to its one distinct performance obligation for the Fazirsiran 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).

Revenue is recognized using a proportional performance method (based on actual patient visits completed versus total estimated visits for the ongoing SEQUOIA and AROAAT2002 clinical studies).

See Note 2 — Collaboration and License Agreements to Consolidated Financial Statements of Part I, “Item 1.

Financial Statements” for more information on revenue recognized under the Takeda License Agreement.

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 initiated in July 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 $0.55 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 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, which 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.

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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Amgen is wholly responsible for clinical development and commercialization.

The Company has substantially completed its performance obligations under the

Olpasiran Agreement.

The Company has substantially completed its performance obligations under the Olpasiran Agreement.

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

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The Company is further eligible to receive up to an additional $535.0 million in aggregate development, regulatory, and sales milestone payments from Amgen and Royalty Pharma.

See Note 2 — Collaboration and License Agreements to Consolidated Financial Statements of Part I, “Item 1.

Financial Statements” for more information on revenue recognized under the collaboration and license agreements with Amgen.

Operating Expenses

The analysis below details the operating expenses and discusses the expenditures of the Company within the major expense categories.

For purposes of comparison, the amounts for the three and six months ended March 31, 2023 and 2022 are shown in the tables below.

Research and Development Expenses

For purposes of comparison, the amounts for the three and nine months ended June 30, 2023 and 2022 are shown in the tables below.

Research and Development (R&D) Expenses

R&D expenses are related to the Company’s research and development discovery efforts and related candidate costs, which are comprised primarily of outsourced costs related to the manufacturing of clinical supplies, toxicity/efficacy studies and clinical trial expenses.

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(in thousands) Three Months Ended

March 31, 2023 % of

June 30, 2023 % of

Three Months Ended

March 31, 2022 % of

June 30, 2022 % of

Increase (Decrease)

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Total research and development expense $ 94,757 100 % $ 72,181 100 % $ 22,576 31 %

(in thousands) Six Months Ended

March 31, 2023 % of

Six Months Ended

March 31, 2022 % of

(in thousands) Nine Months Ended

June 30, 2023 % of

Nine Months Ended

June 30, 2022 % of

Increase (Decrease)

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Total research and development expense $ 253,333 100 % $ 213,930 100 % $ 39,403 18 %

Candidate costs decreased $11.1 million, or 30%, for the three months ended March 31, 2023 and $1.2 million, or 2%, for the six months ended March 31, 2023 compared to the same period of 2022.

This decrease was primarily due to the reduction in outsourced manufacturing and toxicity study costs as the Company’s pipeline of candidates progressed through clinical trials in 2022.

R&D discovery costs increased $3.2 million, or 22%, for the three months ended March 31, 2023 and $4.9 million, or 19%, for the six months ended March 31, 2023 compared to the same period of 2022.

Candidate costs increased $9.5 million, or 30%, for the three months ended June 30, 2023 and $8.3 million, or 8%, for the nine months ended June 30, 2023 compared to the same period of 2022.

This increase was primarily due to the additional progression of the Company’s pipeline of candidates into and through clinical trials, which resulted in higher outsourced clinical trial, toxicity study and manufacturing costs.

R&D discovery costs increased $5.2 million, or 34%, for the three months ended June 30, 2023 and $10.0 million, or 25%, for the nine months ended June 30, 2023 compared to the same period of 2022.

This increase was due to the growth of the Company’s discovery efforts and continued advancement into novel therapeutic areas and tissue types.

Salaries and stock compensation expense consist of salary, bonuses, payroll taxes, related benefits and stock compensation for the Company’s R&D personnel.

The increases in salaries and stock comp expenses were primarily due to an increase in R&D headcount that has occurred as the Company has expanded its pipeline of candidates, in addition to annual salary increases.

Stock compensation expense was based upon the valuation of stock options and restricted stock units

granted to employees, directors and certain consultants.

The increases in salaries and stock comp expenses for the nine months ended June 30, 2023 were primarily due to an increase in R&D headcount that has occurred as the Company has expanded its pipeline of candidates, in addition to annual salary increases.

Stock compensation expense was based upon the valuation of

stock options and restricted stock units granted to employees and directors.

Facilities-related expense included lease costs for the Company’s research and development facilities in San Diego, California and Madison, Wisconsin.

Facilities-related costs increased $1.7 million, or 94%, for the three months ended March 31, 2023 and $3.0 million, or 78%, for the six months ended March 31, 2023 compared to the same period of 2022.

Facilities-related costs increased $1.0 million, or 26%, for the three months ended June 30, 2023 and $4.0 million, or 52%, for the nine months ended June 30, 2023 compared to the same period of 2022.

This increase was mainly due to the additional lease expense as the Company expands discovery efforts to identify new drug candidates.

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The following table provides details of the Company’s general and administrative expenses for the periods indicated:

Three Months Ended

March 31, 2023 % of

(in thousands) Three Months Ended

June 30, 2023 % of

Category Three Months Ended

March 31, 2022 % of

June 30, 2022 % of

Category Increase (Decrease)

Salaries $ 5,063 21 % $ 3,175 10 % $ 1,888 59 %

Professional, outside services, and others 4,923 21 % 4,241 13 % 682 16 %

Professional, outside services, and other 5,987 25 % 3,568 11 % 2,419 68 %

Facilities related 1,352 6 % 703 2 % 649 92 %

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Total general & administrative expense $ 23,771 100 % $ 33,141 100 % $ (9,370) (28) %

Six Months Ended

March 31, 2023 % of

Category Six Months Ended

March 31, 2022 % of

(in thousands) Nine Months Ended

June 30, 2023 % of

Category Nine Months Ended

June 30, 2022 % of

Category Increase (Decrease)

Salaries $ 14,275 21 % $ 10,365 11 % $ 3,910 38 %

Professional, outside services, and others 9,306 21 % 7,436 13 % 1,870 25 %

Professional, outside services, and other 15,293 22 % 11,004 12 % 4,289 39 %

Facilities related 3,377 5 % 2,085 2 % 1,292 62 %

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Total general & administrative expense $ 67,977 100 % $ 92,403 100 % $ (24,426) (26) %

Salaries expense increased $1.2 million, or 33%, for the three months ended March 31, 2023 and $2.0 million, or 28%, for the six months ended March 31, 2023 compared to the same period of 2022.

Salaries expense increased $1.9 million, or 59%, for the three months ended June 30, 2023 and $3.9 million, or 38%, for the nine months ended June 30, 2023 compared to the same period of 2022.

The increase was driven by the combination of annual salary increases and increased headcount required to support the Company’s growth.

Professional, outside services, and others expense includes legal, consulting, patent expenses, business insurance expenses, other outside services, travel, communication and technology expenses.

This expense increased $0.7 million, or 16%, for the three months ended March 31, 2023 and $1.9 million, or 25%, for the six months ended March 31, 2023 compared to the same period of 2022.

Professional, outside services, and other expense includes legal, consulting, patent expenses, business insurance expenses, other outside services, travel, communication and technology expenses.

This expense increased $2.4 million, or 68%, for the three months ended June 30, 2023 and $4.3 million, or 39%, for the nine months ended June 30, 2023 compared to the same period of 2022.

The increase was mainly due to consulting expenses related to software implementation and administrative expenses in support of additional headcount.

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Depreciation and amortization expense, a noncash expense, was primarily related to amortization of leasehold improvements for the Company’s corporate headquarters.

Stock compensation expense, a non-cash expense, decreased by $13.3 million, or 53%, for the three months ended March 31, 2023 and $19.6 million, or 46%, for the six months ended March 31, 2023 compared to the same period of 2022.

The decrease was mainly due to the reversal of recognized compensation costs related to a performance award where the minimum performance goal was not met.

The fair value of market condition-based awards was expensed ratably over the service period and was not adjusted for actual achievement.

Excluding the stock compensation costs described above, the Company anticipates these general and administrative expenses to continue to increase as its pipeline of candidates grows and progresses to later phase clinical trials, in addition to inflationary pressure on goods and services and the labor market.

Other income is primarily related to interest income/expense and realized/unrealized gain/loss on investments.

Other income decreased $3.3 million and $3.4 million for the three and six months ended March 31, 2023, respectively, compared to the same periods of 2022.

The decrease was primarily due to the interest expense on the liability related to the sale of future royalties, offset by higher yields on investments due to increased interest rates as well as credits the Company received during the first half of fiscal 2023.

Stock compensation expense, a non-cash expense, decreased by $14.3 million, or 57%, for the three months ended June 30, 2023 and $33.9 million, or 50%, for the nine months ended June 30, 2023 compared to the same periods of 2022.

The decrease was mainly due to the lower amount of recognized compensation costs and the reversal of recognized compensation costs related to a performance award where the minimum performance goal was not met.

The fair value of

market condition-based awards was expensed ratably over the service period and was not adjusted for actual achievement.

Other than with respect to the stock compensation costs described above, the Company anticipates these general and administrative expenses to continue to increase as its pipeline of candidates grows and progresses to later phase clinical trials, in addition to inflationary pressure on goods and services and the labor market.

Other Income (Loss)

Other income (loss) is primarily related to interest income and expense.

Other income decreased $1.5 million and $5.0 million for the three and nine months ended June 30, 2023, respectively, compared to the same periods of 2022.

The decrease was primarily due to the interest expense on the liability related to the sale of future royalties, offset by higher yields on investments due to increased interest rates as well as various credits the Company received during the first three quarters of fiscal 2023.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations through the sale of its common stock, and revenue from its licensing and collaboration agreements as well as more recently the sale of certain future royalties.

The Company has historically financed its operations through the sale of its equity securities, revenue from its licensing and collaboration agreements, and the sale of certain future royalties.

Research and development activities have required significant capital investment since the Company’s inception and are expected to continue to require significant cash expenditure as the Company’s pipeline continues to expand and matures into later stage clinical trials.

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Each of these expansions is designed to increase the Company’s internal manufacturing and discovery capabilities, and each will require significant capital investment.

The Company’s cash, cash equivalents and restricted cash increased to $135.0 million at March 31, 2023 compared to $108.0 million at September 30, 2022.

Cash invested in short-term fixed income securities was $346.0 million at March 31, 2023 compared to $268.4 million at September 30, 2022.

Cash invested in long-term fixed income securities was $78.8 million at March 31, 2023, compared to $105.9 million at September 30, 2022.

The Company’s cash, cash equivalents and restricted cash decreased to $105.3 million at June 30, 2023 compared to $108.0 million at September 30, 2022.

Cash invested in short-term fixed income securities was $346.4 million at June 30, 2023 compared to $268.4 million at September 30, 2022.

Cash invested in long-term fixed income securities was $42.8 million at June 30, 2023, compared to $105.9 million at September 30, 2022.

On December 2, 2022, the Company entered into the Open Market Sale Agreement, pursuant to which the Company may, from time to time, sell up to $250.0 million 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.

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.

The Company believes its current financial resources are sufficient to fund its operations through at least the next twelve months.

The following table presents a summary of cash flows:

Six Months Ended March 31,

Nine Months Ended June 30,

(in thousands)

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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)

Cash, cash equivalents and restricted cash at end of period $ 105,334 $ 139,439

During the six months ended March 31, 2023, cash flows used by operating activities was $107.2 million, which was primarily due to the ongoing expenses related to the Company’s research and development programs and general and administrative expenses, partially offset by the receipt of $40.0 million from Amgen and Horizon (see Note 2 — Collaboration and License Agreements to Consolidated Financial Statements of Part I, “Item 1.

During the nine months ended June 30, 2023, cash flows used by operating activities was $128.6 million, which was primarily due to the ongoing expenses related to the Company’s research and development programs and general and administrative expenses, partially offset by the receipt of $110.0 million from collaboration and license agreements (see Note 2 — Collaboration and License Agreements to Consolidated Financial Statements of Part I, “Item 1.

Financial Statements”).

Cash used in investing activities was $116.8 million, which was primarily related to capital expenditures, $66.2 million of construction in progress, and $192.5 million of investments, offset by net sales and maturities of investments of $142.0 million.

Cash used in investing activities was $126.7 million, which was primarily related to capital expenditures, $112.8 million of construction in progress, and $234.0 million purchases of investments, offset by maturities of investments of $220.2 million.

Cash provided by financing activities of $252.9 million was primarily related to the $250.0 million payment from Royalty Pharma as well as cash received from stock option exercises.

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Financial Statements.”

During the six months ended March 31, 2022, cash flows provided by operating activities was $1.4 million, which was primarily due to the receipt of the $120.0 million upfront payment from GSK, partially offset by the ongoing expenses related to the Company’s research and development programs and general and administrative expenses.

Cash used in investing activities was $103.1 million, which was primarily related to the purchase of property and equipment of $10.5 million and net purchases of investments of $92.6 million.

Cash provided by financing activities of $3.7 million was related to cash received from stock option exercises.

During the nine months ended June 30, 2022, cash flows used by operating activities was $67.4 million, which was primarily due to the receipt of the $120.0 million upfront payment from GSK, offset by the ongoing expenses related to the Company’s research and development programs and general and administrative expenses.

Cash used in investing activities was $41.9 million, which was primarily related to the purchase of property and equipment of $20.1 million and net purchases and maturities of investments of $21.8 million.

Cash provided by financing activities of $64.3 million was related to the formation of the Company's joint venture, Visirna, as well as cash received from stock option exercises.

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 has spent approximately $80.0 million and intends to spend an additional between $180.0 million and $210.0 million to complete the build out of the facilities.

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 with cash on hand.

As part of this land purchase, the Company entered into a development agreement with the City of Verona to construct certain infrastructure improvements within the tax incremental district and expects to 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 is expected to pay under the Tax Incremental Financing program is not guaranteed and will depend on future tax revenues generated from the developed property.

The Company also expects 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.

The Company also expects 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.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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 2. Management’s Discussion and Analysis