What changed in this filing

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Item 9A. Controls and Procedures

2023-11-29 compared with 2022-11-28 · 402 added, 308 removed, 817 unchanged (46% of the section changed)

3 unchanged sentences

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures.

effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K.

As required by Rule 13a-15(b) of the Exchange Act, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K.

Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

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There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

The Company’s process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during this process.

The Company’s process for evaluating controls and procedures is continuous and encompasses consistent improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during this process.

OTHER INFORMATION

(b) Trading Plans

During the quarter ended September 30, 2023, the following directors and officers (as defined in Exchange Act Rule 16a-1(f)) adopted certain trading plans intended to satisfy Rule 10b5-1(c):

Name Title Adoption or Termination Date

Plan Start Date Plan End Date Shares Vesting and Subject to Sell-To-Cover (1)

Other Shares Being Sold (Subject to Certain Conditions)

Mauro Ferrari Board Member 09/28/2023 01/11/2024 01/31/2024 n/a 3,147

Douglass Given Board Member 09/26/2023 01/11/2024 01/31/2024 n/a 2,911

James Hamilton (2)

Chief Discovery and Translational Medicine 08/15/2023 01/03/2024 01/31/2024 52,500 n/a

James Hamilton Chief Discovery and Translational Medicine 08/22/2023 12/01/2023 11/29/2024 n/a 35,000

Ken Myszkowski Chief Financial Officer 09/07/2023 01/05/2024 01/31/2024 30,000 n/a

Patrick O ’ Brien

Chief Operating Officer and General Counsel 09/03/2023 01/03/2024 01/05/2024 n/a 4,000

Tracie Oliver Chief Commercial Officer 08/28/2023 01/05/2024 07/31/2024 17,625 n/a

Victoria Vakiener Board Member 09/28/2023 01/11/2024 05/31/2024 n/a 6,519

William Waddill Board Member 08/29/2023 01/11/2024 01/31/2024 n/a 3,934

(1) This column indicates the total number of shares vesting, but the 10b5-1 Plan provides for the sale of only those shares necessary to satisfy payment of applicable withholding taxes.

(2) Termination of a trading plan that was intended to satisfy Rule 10b5-1(c).

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

the Company’s 2023 Annual Meeting of Stockholders, which proxy statement will be filed no later than January 28, 2023 (the “Definitive Proxy Statement”).

The information called for by this Item will be incorporated by reference from the Company’s Definitive Proxy Statement, under the headings Proposal One — Election of Directors, Equity Compensation Plan Information, Corporate Governance, Environmental and Social Commitment, and, if applicable, Delinquent Section 16(a) Reports, to be filed for the Company’s 2024 Annual Meeting of Stockholders, which proxy statement will be filed no later than January 26, 2024 (the “Definitive Proxy Statement”).

EXECUTIVE COMPENSATION

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The information called for by this Item will be incorporated by reference from the Definitive Proxy Statement, under the heading Voting Securities of Principal Stockholders and Management.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

The information called for by this Item will be incorporated by reference from the Definitive Proxy Statement, under the headings Review and Approval of Related-Party Transactions and Certain Relationships and Related Transactions, and Director Independence.

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Number Description Form Date

1.1 Open Market Sale Agreement, dated as of August 5, 2020, by and between Arrowhead Pharmaceuticals, Inc.

1.1 Open Market Sale Agreement, dated as of December 2, 2022, by and between Arrowhead Pharmaceuticals, Inc.

and Jefferies LLC

Quarterly Report on Form 10-Q, as Exhibit 1.1 August 5, 2020

Current Report on Form 8-K as Exhibit 1.1 December 2, 2022

2.1† Stock and Asset Purchase Agreement between Arrowhead Research Corporation and Roche entities, dated October 21, 2011

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Quarterly Report on Form 10-Q, as Exhibit 2.1 May 11, 2015

Incorporated by Reference Herein

Number Description Form Date

3.1 Amended and Restated Certificate of Incorporation

Current Report on Form 8-K as Exhibit 3.3 April 6, 2016

3.2 Amended and Restated Bylaws

3.1 Amended and Restated Certificate of Incorporation (incorporated by reference from Exhibit 3.3 of the Company’s Form 8-K filed on April 6, 2016)

Current Report on Form 8-K as Exhibit 3.3 April 6, 2016

3.2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Arrowhead Pharmaceuticals, Inc.

(incorporated by reference from Exhibit 3.2 of the Company’s Form 10-Q filed on May 2, 2023)

Quarterly Report on Form 10-Q, as Exhibit 3.2 May 2, 2023

3.3 Second Amended and Restated Bylaws (incorporated by reference from Exhibit 3.1 of the Company’s Form 8-K filed on January 30, 2023)

Current Report on Form 8-K as Exhibit 3.2 January 30, 2023

4.1 Form of Common Stock Certificate of Arrowhead Pharmaceuticals, Inc.

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Quarterly Report on Form 10-Q, as Exhibit 10.4 February 7, 2019

Incorporated by Reference Herein

Number Description Form Date

10.1** Arrowhead Research Corporation 2004 Equity Incentive Plan, as amended

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Schedule 14A, Exhibit A January 28, 2021

10.6** Form of RSU Agreement for Officers and Certain Other Employees (Arrowhead Pharmace uticals, Inc.

2021 Incentive Pla n - Inducement Award)

10.6** Form of RSU Agreement for Officers and Certain Other Employees (Arrowhead Pharmaceuticals, Inc.

2021 Incentive Plan- Inducement Award)

Registration Statement on Form S-8, Exhibit 99.1 December 22, 2021

10.7*, ** Form of RSU Agreement for Officers and Certain Other Employees (Arrowhead Pharmaceuticals, Inc.

2021 Incentive Plan)

10.8** Form of RSU Agreement for Employees (Arrowhead Pharmaceuticals, Inc.

2021 Incentive Plan- Inducement Award) Registration Statement on Form S-8, Exhibit 99.2 December 22, 2021

2021 Incentive Plan- Inducement Award)

Registration Statement on Form S-8, Exhibit 99.2 December 22, 2021

10.9*, ** Form of RSU Agreement for Employees (Arrowhead Pharmaceuticals, Inc.

2021 Incentive Plan)

10.10** Form of Stock Option Grant (Arrowhead Pharmaceuticals, Inc.

2021 Incentive Plan- Inducement Award) Registration Statement on Form S-8, Exhibit 99.3 December 22, 2021

2021 Incentive Plan- Inducement Award)

Registration Statement on Form S-8, Exhibit 99.3 December 22, 2021

10.11*, ** Form of Stock Option Grant (Arrowhead Pharmaceuticals, Inc.

2021 Incentive Plan)

10.12** Executive Incentive Plan, adopted December 12, 2006

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Annual Report on Form 10-K, as Exhibit 10.36 December 20, 2011

Incorporated by Reference Herein

Number Description Form Date

10.16† Non-Exclusive License Agreement between Arrowhead Research Corporation and Roche entities, dated October 21, 2011†

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Quarterly Report on Form 10-Q, as Exhibit 10.1 August 12, 2014

10.15† First Collaboration and Licensing Agreement between Arrowhead Pharmaceuticals, Inc.

and Amgen Inc., dated September 28, 2016†

Annual Report on Form 10-K, as Exhibit 10.18 December 14, 2016

10.17† Second Collaboration and Licensing Agreement between Arrowhead Pharmaceuticals, Inc.

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Quarterly Report on Form 10-Q, as Exhibit 10.1 February 7, 2019

Incorporated by Reference Herein

Number Description Form Date

10.20† Amendment No.

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and Janssen Pharmaceuticals, Inc., dated December 18, 2018†

Annual Report on Form 10-Q, as Exhibit 10.19 November 25, 2019

Annual Report on Form 10-K, as Exhibit 10.19 November 25, 2019

10.21† Amendment No.

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Annual Report on Form 10-K, as Exhibit 10.20 November 25, 2019

10.21† Research Collaboration and Option Agreement by and between Arrowhead Pharmaceuticals, Inc.

and Janssen Pharmaceuticals, Inc., dated October 3, 2018†

Quarterly Report on Form 10-Q, as Exhibit 10.2 February 7, 2019

10.22† Amendment No.

1 to Research Collaboration and Option Agreement by and between Arrowhead Pharmaceuticals, Inc.

and Janssen Pharmaceuticals, Inc., dated November 14, 2019†

Annual Report on Form 10-K, as Exhibit 10.21 November 25, 2019

10.22 Stock Purchase Agreement by and between Johnson & Johnson Innovation-JJDC, Inc.

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Quarterly Report on Form 10-Q, as Exhibit 10.1 February 2, 2022

Incorporated by Reference Herein

Number Description Form Date

10.27 Royalty Purchase Agreement, dated as of November 9, 2022, by and between Arrowhead Pharmaceuticals, Inc.

and Royalty Pharma Investments 2019 ICAV

Quarterly Report on Form 10-Q, as Exhibit 10.1 February 6, 2023

10.28 Lease Agreement between University Research Park, Incorporated and Arrowhead Madison, Inc., dated January 8, 2016

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Quarterly Report on Form 10-Q, as Exhibit 10.1 August 5, 2019

Incorporated by Reference Herein

Number Description Form Date

10.37 First Amendment to Office Lease by and between Arrowhead Pharmaceuticals, Inc.

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Quarterly Report on Form 10-Q, as Exhibit 10.2 February 4, 2021

10.38† Sublease Agreement by and between Halozyme, Inc.

and Arrowhead Pharmaceuticals, Inc.

dated March 3, 2020†

Quarterly Report on Form 10-Q, as Exhibit 10.1 May 7, 2020

10.38 Lease Agreement by and between Arrowhead Pharmaceuticals, Inc.

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Quarterly Report on Form 10-Q, as Exhibit 10.2 February 2, 2022

10.39* First Amendment to Lease Agreement by and between Arrowhead Pharmaceuticals, Inc.

and ARE-SD Region No.

72, LLC, dated September 26, 2023

21.1* List of Subsidiaries

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32.1*** Certification by Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Incorporated by Reference Herein

Number Description Form Date

32.2*** Certification by Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

97*, ** Arrowhead Pharmaceuticals, Inc.

Compensation Recoupment (Clawback) Policy, dated November 20, 2023

101.INS* Inline XBRL Taxonomy Extension Instance Document

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William Waddill

/s/ Marianne De Backer Director November 28, 2022

Marianne De Backer

/s/ Adeoye Olukotun Director November 29, 2023

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Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2023, 2022 and 2021

Consolidated Statements of Cash Flows of for the years ended September 30, 202 2 , 202 1 and 20 20

Consolidated Statements of Cash Flows for the years ended September 30, 2023, 2022 and 2021

Notes to Consolidated Financial Statements

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We evaluated whether the selected measures of progress towards satisfaction of performance obligations were applied consistently.

We also tested the completeness and accuracy of the underlying data used for the measure of progress by testing and or analyzing the underlying data and conducting interviews of project personnel.

We also tested the completeness and accuracy of the underlying data used for the measure of progress by testing and or analyzing the underlying data.

Rose, Snyder & Jacobs LLP

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Accounts receivable — 1,410

Short-term investments 268,391 56,627

Marketable securities — 126,728

Available-for-sale securities, at fair value 292,735 —

Held-to-maturity securities, at amortized cost — 268,391

Prepaid expenses 8,813 7,289

3 unchanged sentences

Intangible assets, net 10,262 11,962

Long-term investments 105,872 245,595

Held-to-maturity securities, at amortized cost — 105,872

Right-of-use assets 45,297 58,291

8 unchanged sentences

Deferred revenue 866 74,099

Other liabilities 435 —

Total current liabilities 105,456 138,850

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Deferred revenue, net of current portion — 55,950

Liability related to the sale of future royalties 268,326 —

Total long-term liabilities 372,934 134,750

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Other income (expense):

Interest income, net 5,033 6,120 9,191

Other income (expense), net 765 2,070 ( 583 )

Total other income 5,798 8,190 8,608

Interest income 15,299 5,033 6,120

Interest expense ( 18,326 ) — —

Other, net 1,538 765 2,070

Total other (expense) income ( 1,489 ) 5,798 8,190

Loss before income tax expense and noncontrolling interest ( 206,491 ) ( 172,709 ) ( 140,846 )

4 unchanged sentences

$ ( 205,275 ) $ ( 176,063 ) $ ( 140,848 )

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

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

Basic $ ( 1.92 ) $ ( 1.67 ) $ ( 1.36 )

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Other comprehensive loss, net of tax:

Unrealized losses on available-for-sale securities ( 2,964 ) — —

Foreign currency translation adjustments ( 122 ) ( 67 ) ( 87 )

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Common stock - restricted stock units vesting 899 1 ( 1 ) — — — —

Common stock - issued for cash 4,600 5 250,474 — — — 250,479

Foreign currency translation adjustments — — — ( 87 ) — — ( 87 )

Deconsolidation of Ablaris Therapeutics, Inc.

— — — — — 555 555

Net loss — — — — ( 140,848 ) — ( 140,848 )

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Foreign currency translation adjustments — — — ( 67 ) — — ( 67 )

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

Net loss — — — — ( 176,063 ) ( 431 ) ( 176,494 )

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Common stock - restricted stock units vesting 913 1 ( 1 ) — — — —

Unrealized losses on available-for-sale securities — — — ( 2,964 ) — — ( 2,964 )

Foreign currency translation adjustments — — — ( 122 ) — — ( 122 )

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

Net loss — — — — ( 205,275 ) ( 4,000 ) ( 209,275 )

10 unchanged sentences

Stock-based compensation 78,130 120,893 76,673

Net loss (gain) from investments 4,432 ( 1,708 ) ( 20 )

Depreciation and amortization 12,493 10,421 8,267

Amortization of note premiums 2,910 266 525

(Accretion) amortization of note premiums/discounts ( 2,017 ) 2,910 266

Non-cash interest expense on liability related to the sale of future royalties 18,326 — —

Net loss (gain) from investments — 4,432 ( 1,708 )

Changes in operating assets and liabilities:

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Deferred revenue ( 129,183 ) ( 112,501 ) 223,258

Operating lease liabilities 13,428 3,192 1,124

Operating lease, net 46,590 13,428 3,192

Other — 65 ( 169 )

Net cash (used in) provided by operating activities ( 136,131 ) 171,312 ( 95,801 )

Net cash provided by (used in) operating activities ( 153,890 ) ( 136,131 ) 171,312

CASH FLOWS FROM INVESTING ACTIVITIES:

1 unchanged sentence

Purchases of investments ( 246,141 ) ( 223,391 ) ( 240,703 )

Proceeds from sale of investments 270,751 122,592 50,138

Proceeds from sales and maturities of investments 326,723 270,751 122,592

Net cash used in investing activities ( 96,155 ) ( 5,417 ) ( 141,678 )

1 unchanged sentence

Proceeds from the exercises of stock options 3,053 5,186 11,305

Proceeds from the issuance of common stock — — 250,479

Proceeds from the sale of future royalties 250,000 — —

Proceeds from investment in joint venture — 60,000 —

Net cash provided by financing activities 253,053 65,186 11,305

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ( 76,362 ) 40,939 ( 78,631 )

EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS ( 67 ) ( 88 ) 410

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 184,434 143,583 221,804

CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 108,005 $ 184,434 $ 143,583

Net increase (decrease) in cash, cash equivalents and restricted cash 3,008 ( 76,362 ) 40,939

Effect of exchange rate on cash, cash equivalents and restricted cash ( 122 ) ( 67 ) ( 88 )

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

BEGINNING OR PERIOD 108,005 184,434 143,583

END OF PERIOD $ 110,891 $ 108,005 $ 184,434

Supplementary disclosures:

Interest paid $ — $ — $ —

Income Taxes (Paid) Refunded $ ( 2 ) $ ( 2 ) $ 103

Income Taxes Paid $ — $ ( 2 ) $ ( 2 )

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

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Therapeutic Area Name Stage Product Rights

Cardiometabolic ARO-APOC3 Two Phase 2b and one Phase 3 Arrowhead

ARO-ANG3 Two Phase 2b Arrowhead

Cardiometabolic Plozasiran (ARO-APOC3)

Two Phase 2b and one Phase 3 Arrowhead

Zodasiran (ARO-ANG3)

Two Phase 2b Arrowhead

Olpasiran Phase 3 Amgen

Pulmonary ARO-ENAC2 Pre-Clinical Arrowhead

ARO-RAGE Phase 1/2 Arrowhead

Pulmonary ARO-RAGE Phase 1/2a

ARO-MUC5AC Phase 1/2a Arrowhead

ARO-MMP7 Phase 1/2 Arrowhead

Liver ARO-HSD Phase 1/2 GSK

ARO-AAT Phase 2 Takeda and Arrowhead

JNJ-3989 Phase 2 Janssen

ARO-XDH Phase 1 Horizon

ARO-C3 Phase 1/2 Arrowhead

ARO-MMP7 Phase 1/2a

Liver GSK-4532990 Phase 2b GSK

Fazirsiran Phase 3 Takeda and Arrowhead

JNJ-3989 Phase 2 Janssen (1)

Muscle ARO-DUX4 Pre-Clinical Arrowhead

HZN-457 Phase 1 Horizon (2)

ARO-C3 Phase 1/2a

ARO-PNPLA3 Phase 1

ARO-DUX4 Pre-Clinical Arrowhead

Central Nervous System (CNS)

ARO-SOD1 Pre-Clinical Arrowhead

(1) On October 30, 2023, the Company entered into an Assignment and Consent Agreement with Janssen.

(2) On October 6, 2023, Amgen announced that it has completed its acquisition of Horizon.

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.

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The Consolidated Financial Statements include the accounts of Arrowhead Pharmaceuticals, Inc.

and its subsidiaries (wholly-owned subsidiaries and a variable interest entity that the Company is the primary beneficiary in).

and its subsidiaries (wholly-owned subsidiaries and a variable interest entity for which the Company is the primary beneficiary).

Subsidiaries refer to Arrowhead Madison, Inc., Visirna Therapeutics, Inc.

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Certain prior period amounts have been reclassified to conform with the current period presentation.

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

Research and development activities have required significant capital investment since the Company’s inception and are expected to continue to require significant cash expenditure in the future, particularly as the Company’s pipeline of drug candidates and its headcount have both expanded significantly.

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.

significantly.

Additionally, significant capital investment will be required as the Company’s pipeline matures into later stage clinical trials and as the Company plans to increase its internal manufacturing capabilities.

At September 30, 2022, the Company had $ 108.0 million in cash and cash equivalents (including $ 7.3 million in restricted cash), $ 268.4 million in short-term investments and $ 105.9 million in long-term investments to fund operations.

During the year ended September 30, 2022, the Company’s cash and cash equivalents and investments balance decreased by $ 131.1 million which was primarily cash being used to fund the Company’s operations, offset by the $ 120.0 million upfront payment received from Glaxosmithkline Intellectual Property Limited (Note 2) and $ 60.0 million cash infusion from the formation of Visirna (Note 2).

At September 30, 2023, the Company had $ 110.9 million in cash, cash equivalents and restricted cash ($ 7.9 million in restricted cash) and $ 292.7 million in available-for-sale debt securities to fund operations.

During the year ended September 30, 2023, the Company’s cash, cash equivalents and restricted cash and investments balance decreased by $ 78.6 million which was primarily due to cash used to fund its operations, offset by the $ 250.0 million upfront payment received from Royalty Pharma (Note 13) and $ 110.0 million in milestone payments from the Company’s collaboration and license agreements (Note 2).

In total, the Company is eligible to receive up to $ 2.8 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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Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

The preparation of financial statements in conformity with U.S.

generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.

On an ongoing basis, the Company evaluates its estimates, judgments and assumptions.

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At Visirna’s inception, the Company determined whether it was the primary beneficiary and if Visirna should be consolidated based on the facts and circumstances.

The Company has determined that Visirna, in which the Company is the primary beneficiary, meets the definition of a business.

The Company performs ongoing reassessments of the VIE based on reconsideration events and reevaluates whether a change to the consolidation is required.

As of September 30, 2023, there were no events to be reconsidered in the consolidation.

Cash, Cash Equivalents and Restricted Cash

All highly liquid interest-bearing investments with short-term are classified as cash equivalents.

All highly liquid interest-bearing investments are classified as cash equivalents.

These investments mainly include commercial paper with maturities of three months or less when purchased.

The carrying value of these cash equivalents approximate fair value.

There were $ 7.3 million and $ 2.4 million restricted cash at September 30, 2022 and September 30, 2021, respectively, that are primarily held as collateral associated with letters of credit for the Company’s facility leases.

The increase in 2022 was mainly due to the Company’s expansion plan in Verona, Wisconsin and San Diego, California.

There was $ 7.9 million and $ 7.3 million restricted cash at September 30, 2023 and 2022, respectively, that is primarily held as collateral associated with letters of credit for the Company’s facility leases.

Concentration of Credit Risk

Financial instruments that potentially expose the Company to concentration of credit risk primarily consist of cash and cash equivalents and investments.

Financial instruments that potentially expose the Company to concentration of credit risk primarily consist of cash, cash equivalents and restricted cash and investments.

As of September 30, 2023 and 2022, the Company’s investments were primarily invested in money market funds, certificates of deposit, commercial paper, and corporate debt securities through highly rated financial institutions.

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Management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which these deposits are held.

Investment securities are mainly held-to-maturity investments and marketable securities.

These held-to-maturity investments may consist of investment-grade interest bearing instruments, primarily certificates of deposit, money market accounts, government-sponsored enterprise securities, corporate bonds and/or commercial paper, which are stated at amortized cost.

Investment securities are mainly held-to-maturity investments, available-for-sale, and marketable securities.

These held-to-maturity investments may consist of investment-grade interest bearing instruments, primarily money market accounts, government-sponsored enterprise securities, corporate bonds and/or commercial paper, which are stated at amortized cost.

The Company does not intend to sell these investment securities and the contractual maturities are not greater than 36 months.

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Discounts and premiums to par value of the debt securities are amortized to interest income/expense over the term of the security, and no gains or losses on held-to-maturity investment are realized until they are sold.

The Company reassesses the classification of held-to-maturity at each reporting period.

The available-for-sale investments may consist of investment-grade interest bearing instruments, primarily money market accounts, government-sponsored enterprise securities, corporate bonds and/or commercial paper, which are accounted for at fair value.

Changes in fair values are reported as unrealized gains or losses and are recorded in the Company’s consolidated statement of operations and comprehensive loss.

On September 30, 2023, the Company changed the classification of debt securities to available-for-sale from held-to-maturity.

As a result, these debt securities are carried at fair value.

The Company’s marketable debt securities consisted of mutual funds that primarily invest in U.S.

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These securities were recorded at fair value, and all unrealized gains/losses were recorded in the Company’s consolidated statement of operations and comprehensive loss.

In April 2022, the Company sold all marketable debt securities for $ 122.3 million.

In April 2022, the Company sold all of its investments in mutual funds for $ 122.3 million.

The Company monitors its investments closely.

2 unchanged sentences

If a decline in fair value of investments is determined to be other-than-temporary, the securities are written down to fair value as the new cost basis and the amount of the write down is accounted for as realized losses.

The Company did not recognize any other-then-temporary impairments of its investment for the years ended September 30, 2022, 2021, and 2020.

The Company did not recognize any other-than-temporary impairments of its investment for the years ended September 30, 2023, 2022, and 2021.

Property and Equipment

Property and equipment are recorded at cost, which may equal fair market value in the case of property and equipment acquired in conjunction with a business acquisition.

Property and equipment are recorded at cost.

Depreciation of property and equipment is recorded using the straight-line method over the respective useful lives of the assets ranging from three to seven years .

3 unchanged sentences

An impairment loss is recognized when the carrying amount is not recoverable and is measured as the excess of carrying value over fair value.

There were no impairment charges during 2022, 2021, and 2020.

There were no impairment charges during the years ended September 30, 2023, 2022, and 2021.

Intangible Assets Subject to Amortization

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Leases with terms greater than one-year are recognized on the Company’s consolidated balance sheets as right-of-use assets that represent the Company’s right to use an underlying asset for the lease term, and lease liabilities that represent its obligation to make lease payments arising from the lease.

Lease assets and liabilities are

recognized at the lease commencement date based on the estimated present value of lease payments over the expected lease term minus the present value of any incentives, rebates or abatement expected to be received from the lessor.

The Company did not include the extension option in the lease term.

Lease assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the expected lease term.

The interest rate implicit in lease contracts is typically not readily determinable.

As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis an amount equal to the lease payments over a similar term and in a similar economic environment.

The Company records expense to recognize fixed lease payments on a straight-line basis over the expected lease term.

The Company records expense to recognize lease payments on a straight-line basis over the expected lease term.

Costs determined to be variable and not based on an index or rate are not included in the measurement of the lease liability and are expensed as incurred.

Contingent Consideration

The consideration for the Company’s acquisitions may include future payments that are contingent upon the occurrence of a particular event.

For example, milestone payments might be based on the achievement of various regulatory approvals or future sales milestones, and royalty payments might be based on drug product sales levels.

The Company records a contingent consideration obligation for such contingent payments at fair value on the acquisition date.

The Company estimates the fair value of contingent consideration obligations through valuation models designed to estimate the probability of such contingent payments based on various assumptions and incorporating estimated success rates.

Estimated payments are discounted using present value techniques to arrive at an estimated fair value at the balance sheet date.

Changes in the fair value of the contingent consideration obligations are recognized within the Company’s consolidated statements of operations and comprehensive loss.

Changes in the fair value of the contingent consideration obligations can result from changes to one or multiple inputs, including adjustments to the discount rates, changes in the amount or timing of expected expenditures associated with product development, changes in the amount or timing of cash flows from products upon commercialization, changes in the assumed achievement or timing of any development milestones, changes in the probability of certain clinical events and changes in the assumed probability associated with regulatory approval.

These fair value measurements are based on significant inputs not observable in the market.

Substantial judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period.

Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense the Company records in any given period.

The Company determined the fair value of its contingent consideration obligation to be $ 0 at September 30, 2022 and 2021.

Revenue Recognition

On October 1, 2018, the Company adopted Financial Accounting Standards Board (“FASB”) Topic 606 – Revenue for Contracts from Customers which amended revenue recognition principles and provides a single, comprehensive set of criteria for revenue recognition within and across all industries.

The Company’s adoption of the revenue standard did not have a material impact on its Consolidated Financial Statements.

The Company has not yet achieved commercial sales of its drug candidates to date, however, the new standard is applicable to its ongoing licensing and collaboration agreements.

The revenue standard provides a five-step framework for recognizing revenue as control of promised goods or services is transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

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At contract inception, the Company assesses whether the goods or services promised within each contract are distinct and, therefore, represent a separate performance obligation, or whether they are not distinct and are combined with other goods and services until a distinct bundle is identified.

The Company then determines the transaction price, which typically includes upfront payments and any variable consideration that the Company determines is probable to not cause a significant reversal in the amount of cumulative revenue recognized when the uncertainty associated with the variable consideration is resolved.

The Company then determines the transaction price, which typically includes upfront payments and any variable consideration that it determines is probable to not cause a significant reversal in the amount of cumulative revenue recognized when the uncertainty associated with the variable consideration is resolved.

The Company then allocates the transaction price to each performance obligation and recognizes the associated revenue when (or as) each performance obligation is satisfied.

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If the license is not considered to be distinct from other performance obligations, the Company assesses the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied at a point in time or over time.

If the performance obligation is satisfied over time, the Company then determines

the appropriate method of measuring progress for purposes of recognizing revenue from license payments.

If the performance obligation is satisfied over time, the Company then determines the appropriate method of measuring progress for purposes of recognizing revenue from license payments.

The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the related revenue recognition.

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Additionally, future royalty payments are not substantially within the control of the Company or the customer.

The revenue standard requires the Company to allocate the arrangement consideration on a relative standalone selling price basis for each performance obligation after determining the transaction price of the contract and identifying the performance obligations to which that amount should be allocated.

Further, the revenue standard requires the Company to allocate the arrangement consideration on a relative standalone selling price basis for each performance obligation after determining the transaction price of the contract and identifying the performance obligations to which that amount should be allocated.

The relative standalone selling price is defined in the revenue standard as the price at which an entity would sell a promised good or service separately to a customer.

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Whenever the Company determines that goods or services promised in a contract should be accounted for as a combined performance obligation over time, the Company determines the period over which the performance obligations will be performed and revenue will be recognized.

Revenue is recognized using either the proportional performance method or on a straight-line basis if efforts will be expended evenly over time.

Revenue is recognized using the input method;

Labor hours, costs incurred or patient visits in clinical trials are typically used as the measure of performance.

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Collaborative Arrangements

The Company analyzes its collaborative arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards, and therefore are within the scope of FASB Topic 808 - Collaborative Arrangements .

For collaborative arrangements that contain multiple elements, the Company determines which units of account are deemed to be within the scope of Topic 808 and which units of account are more reflective of a vendor-customer relationship, and therefore are within the scope of Topic 606.

For units of account that are accounted for pursuant to Topic 808, an appropriate recognition method is determined and applied consistently, either by analogy to appropriate accounting literature or by applying a reasonable accounting policy election.

For collaborative arrangements that are within the scope of Topic 808,

the Company evaluates the income statement classification for presentation of amounts due to or owed from other participants associated with multiple units of account in a collaborative arrangement based on the nature of each activity.

For collaborative arrangements that are within the scope of Topic 808, the Company evaluates the income statement classification for presentation of amounts due to or owed from other participants associated with multiple units of account in a collaborative arrangement based on the nature

of each activity.

Payments or reimbursements that are the result of a collaborative relationship instead of a customer relationship, such as co-development and co-commercialization activities, are recorded as increases or decreases to research and development expense or general and administrative expense, as appropriate.

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Included in research and development costs are operating costs, facilities, supplies, external services, clinical trial and manufacturing costs, overhead directly related to the Company’s research and development operations, and costs to acquire technology licenses.

Earnings per Share

Basic earnings per share is computed using the weighted-average number of common shares outstanding during the period.

Diluted earnings per share is computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period.

Dilutive potential common shares primarily consist of stock options and restricted stock units issued to employees.

During the years ended September 30, 2022, 2021 and 2020, the calculation of the effect of dilutive stock options and restricted stock units excluded all stock options and restricted stock units granted and outstanding during the period due to their anti-dilutive effect.

Stock-Based Compensation

Share-based compensation expenses for all grants are based on their estimated grant-date fair value.

Share-based compensation expenses for all stock grants are based on their estimated grant-date fair value.

The fair value of stock option awards is estimated using the Black-Scholes option valuation model which requires the input of subjective assumptions to calculate the value of stock options.

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For performance-based restricted stock unit awards, the value of the award is based on the Company’s stock price at the grant date, with consideration given to the probability of the performance condition being achieved.

The Company uses historical data and other information to estimate the expected price volatility for stock option awards and the expected forfeiture rate for all awards.

The Company uses historical data and other information to estimate the expected price volatility and the expected forfeiture rate for stock option awards.

Expense is recognized over the vesting period for all awards and commences at the grant date for time-based awards and upon the Company’s determination that the achievement of such performance conditions is probable for performance-based awards.

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The effect on deferred tax assets and liabilities of a change in tax rates or laws is recognized in earnings in the period that includes the enactment date.

Earnings per Share

Basic earnings per share is computed using the weighted-average number of common shares outstanding during the period.

Diluted earnings per share is computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period.

Dilutive potential common shares primarily consist of stock options and restricted stock units outstanding.

During the years ended September 30, 2023, 2022 and 2021, the calculation of the effect of dilutive stock options and restricted stock units excluded all stock options and restricted stock units outstanding during the period due to their anti-dilutive effect.

Foreign currency translation adjustments

One of the Company’s wholly-owned subsidiaries’ functional currencies are not the United States dollar, which is the Company’s reporting currency.

Assets and liabilities are translated at the exchange rate in effect at the balance sheet date.

Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period.

Translation adjustments arising from the use of different exchange rates from period to period are included in the accumulated other comprehensive loss.

Recent Accounting Pronouncements

In December 2019, the FASB issued Accounting Standards Update 2019-12, I ncome Taxes (Topic 740):

Simplifying the Accounting for Income Taxes , which eliminates certain exceptions related to the incremental approach for intra-period allocation, deferred tax recognition requirement for changes in equity method investments and foreign subsidiaries, and methodology for calculating income taxes in an interim period.

The guidance also simplifies certain aspects of the accounting for franchise taxes, the accounting for step-up in the tax basis of goodwill, and accounting for change in tax laws or rates.

The Company adopted the new standard which became effective for fiscal years and interim periods within those years that begin after December 15, 2020.

The adoption of the new standard did not have any material impact on the Company’s Consolidated Financial Statements.

There have been no recent accounting pronouncements that have significantly impacted this Annual Report on Form 10-K.

COLLABORATION AND LICENSE AGREEMENTS

The following table provides a summary of revenue recognized:

Year Ended September 30,

2023 2022 2021

(in thousands)

GSK $ 29,657 $ 124,764 $ —

Horizon 23,206 29,181 6,816

Takeda 162,516 85,834 90,784

Janssen 356 3,452 40,687

Amgen 25,000 — —

Total $ 240,735 $ 243,231 $ 138,287

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

September 30,

(in thousands)

Receivables included in accounts receivable $ — $ 1,410

Contract liabilities included in deferred revenue $ 866 $ 130,049

Glaxosmithkline Intellectual Property (No.

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On November 22, 2021, GSK and the Company entered into an Exclusive License Agreement (the “GSK License Agreement”).

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

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

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

Under the terms of the agreement, the Company has received an upfront payment of $ 120.0 million and is eligible for additional payments of $ 30.0 million at the start of Phase 2 and $ 100.0 million upon achieving a successful Phase 2 trial readout and the first patient dosed in a Phase 3 trial.

Furthermore, should the Phase 3 trial readout positively, and the potential new medicine receives regulatory approval in major markets, the deal provides for commercial milestone payments to the Company of up to $ 190.0 million at first commercial sale, and up to $ 590.0 million in sales-related milestone payments.

The Company is further eligible to receive tiered royalties on net product sales in a range of mid-teens to twenty percent.

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.

GSK is wholly responsible for all clinical development and commercialization of GSK-4532990 in its territory.

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

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Due to the specialized and unique nature of the GSK R&D Services and their direct relationship with the license, the Company determined that these deliverables represented one distinct bundle and, thus, one performance obligation.

Beyond the GSK R&D Services, which are the responsibility of the Company, GSK will be responsible for managing future clinical development and commercialization in its territory.

The Company determined the initial transaction price totaled $ 120.0 million, including the upfront payment, which was collected in January 2022.

The Company has excluded any future estimated milestones or royalties from this transaction price to date.

The Company has allocated the total $ 120.0 million initial transaction price to its one distinct performance obligation for the ARO-HSD license and the associated GSK R&D Services.

As the Company has completed its performance obligation related to this agreement, the upfront payment of $ 120.0 million was fully recognized as of September 30, 2022.

There were $ 0 in contract assets recorded as accounts receivable and $ 0 in contract liabilities recorded as deferred revenue as of September 30, 2022.

The Company has also performed certain development and manufacturing activities, including drug substance and drug product manufacture under GMP conditions, for GSK pursuant to the GSK License Agreement, for which the Company has been reimbursed for its costs.

The Company recognized $ 4.8 million in connection with these efforts for the year ended September 30, 2022.

There were $ 4.8 million of contract assets recorded as accounts receivable and $ 0 of contract liabilities recorded as current deferred revenue as of September 30, 2022.

The Company has allocated the total $ 120.0 million initial transaction price to its one distinct performance obligation for the GSK-4532990 license and the associated GSK R&D Services.

As the Company has completed its performance obligation related to this agreement, the upfront payment of $ 120.0 million was fully recognized in the year ended September 30, 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 was paid in the third quarter of fiscal 2023.

The Company is also eligible for an additional payment of $ 100.0 million upon achieving the first patient dosed in a Phase 3 trial.

Furthermore, should the Phase 3 trial read out positively, and the potential new medicine receives regulatory approval in major markets, the deal provides for commercial milestone payments to the Company of up to $ 190.0 million at first commercial sale, and up to $ 590.0 million in sales-related milestone payments.

The Company is further eligible to receive tiered royalties on net product sales in a range of mid-teens to twenty percent.

The Company has also performed certain development and manufacturing activities, including the manufacture of drug substance and drug product under GMP conditions, for GSK pursuant to the GSK License Agreement, for which the Company has been reimbursed for its costs.

The Company recognized $ 0.3 million and $ 4.8 million in connection with these efforts for the years ended September 30, 2023 and 2022, respectively.

Horizon Therapeutics Ireland DAC (“Horizon”)

On June 18, 2021, Horizon and the Company entered into a collaboration and license agreement (the “Horizon License Agreement”).

Under the terms of the Horizon License Agreement, Horizon received a worldwide exclusive license for ARO-XDH, a previously undisclosed discovery-stage investigational RNAi therapeutic being developed by the Company as a potential treatment for people with uncontrolled gout.

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

In July 2021, the Company received $ 40.0 million as an upfront payment and is eligible to receive up to $ 660.0 million in potential development, regulatory and sales milestones.

The Company is also eligible to receive royalties in the low- to mid-teens range on net product sales.

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

Horizon is wholly responsible for clinical development and commercialization of HZN-457.

On October 6, 2023, Amgen completed its acquisition of Horizon.

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

The Company determined that the key deliverables included the license and certain R&D services, including the Company’s responsibilities to conduct all activities through the preclinical stages of development of ARO-XDH (the “Horizon R&D Services”).

Due to the specialized and unique nature of these Horizon R&D Services and their direct relationship with the license, the Company determined that these deliverables represented one distinct bundle and, thus, one performance obligation.

Beyond the Horizon R&D Services, which are the responsibility of the Company, Horizon will be responsible for managing future clinical development and commercialization of ARO-XDH.

The Company determined the initial transaction price totaled $ 40.0 million, including the upfront payment.

The Company has excluded any future estimated milestones or royalties from this transaction price to date.

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

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

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

Revenue for the years ended September 30, 2022 and 2021 were $ 26.7 million and $ 6.7 million, respectively.

There were $ 0 in contract assets recorded as accounts receivable and $ 6.7 million in contract liabilities recorded as deferred revenue as of September 30, 2022.

Beyond the Horizon R&D Services, which are the responsibility of the Company, Horizon will be responsible for managing future clinical development and commercialization of HZN-457.

The Company conducted all activities through the preclinical stages of development of HZN-457.

Under the terms of the agreement, the Company received an upfront payment of $ 40.0 million in July 2021.

The Company determined the initial transaction price totaled $ 40.0 million and has excluded any future estimated milestones or royalties from this transaction price to date.

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.

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.

On November 21, 2023, the Company received notice from Horizon that it has elected to terminate the Horizon License Agreement.

Horizon exercised its right to terminate the Horizon License Agreement for convenience.

The termination will take effect on December 21, 2023.

In addition, the Company has performed certain development and manufacturing activities, including drug substance and drug product manufacture under GMP conditions, for Horizon pursuant to the Horizon License Agreement.

The Company recognized $ 2.5 million and $ 0 in connection with these efforts for the years ended September 30, 2022 and 2021, respectively.

There were $ 1.3 million of contract assets recorded as accounts receivable and $ 0 of contract liabilities recorded as current deferred revenue as of September 30, 2022.

The Company recognized $ 1.5 million and $ 2.5 million in connection with these efforts for the years ended September 30, 2023 and 2022, respectively.

Takeda Pharmaceutical Company Limited (“Takeda”)

On October 7, 2020, Takeda and the Company entered into an Exclusive License and Co-Funding Agreement (the “Takeda License Agreement”).

Under the Takeda License Agreement, Takeda and the Company will co-develop its ARO-AAT program, the Company’s second-generation subcutaneously administered RNAi therapeutic candidate being developed as a treatment for liver disease associated with alpha-1 antitrypsin deficiency.

Within the United States, ARO-AAT, if approved, will be co-commercialized under a 50/50 profit sharing structure.

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

In January 2021 , the Company received $ 300.0 million as an upfront payment and is eligible to receive potential development, regulatory and commercial milestones of up to $ 595.0 million.

Under the Takeda License Agreement, Takeda and the Company will co-develop the Company’s Fazirsiran program (formerly TAK-999 and ARO-AAT), the Company’s second-generation subcutaneously administered RNAi therapeutic candidate being developed as a treatment for liver disease associated with alpha-1 antitrypsin deficiency.

Within the United States, fazirsiran, if approved, will be co-commercialized under a 50/50 profit sharing structure.

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

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

The Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibilities to complete the initial portion of the SEQUOIA study, to complete the ongoing Phase 2 AROAAT2002 study and to ensure certain manufacturing of ARO-AAT drug product is completed and delivered to Takeda (the “Takeda R&D Services”).

The Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibilities to complete the initial portion of the SEQUOIA study, to complete the ongoing Phase 2 AROAAT2002 study and to ensure certain manufacturing of fazirsiran drug product is completed and delivered to Takeda (the “Takeda R&D Services”).

Due to the specialized and unique nature of these Takeda R&D Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation.

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The Company considers the collaborative activities, including the co-development and co-commercialization, to be a separate unit of account within Topic 808, and as such, these co-funding amounts are recorded as research and development expenses or general and administrative expenses, as appropriate.

The Company determined the initial transaction price totaled $ 300.0 million, which includes the upfront payment.

The Company has excluded any future milestones or royalties from this transaction price to date.

The Company has allocated the total $ 300.0 million initial transaction price to its one distinct performance obligation for the ARO-AAT license and the associated Takeda R&D Services.

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

The Company recognized $ 85.8 million and $ 90.8 million in connection with these efforts for the years ended September 30, 2022 and 2021, respectively.

There were $ 0 of contract assets recorded as accounts receivable and $ 123.4 million of contract liabilities recorded as deferred revenue, of which $ 67.4 million was classified as current deferred revenue, as of September 30, 2022.

The Company also recorded $ 8.6 million as accrued expenses that was primarily driven by co-development and co-commercialization activities.

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

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 the input 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 (OLE) part of the studies;

however, in August 2023, Takeda initiated a Phase 3 OLE study available to patients participating in these Phase 2 studies.

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 December 2023, 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 this newly estimated performance period.

The effect of these changes in estimates resulted in accelerated revenue by $ 70.5 million, or $ 0.66 per share (diluted) for the year ended September 30, 2023.

There were $ 0.9 million of contract liabilities recorded as current deferred revenue as of September 30, 2023.

The Company also recorded $ 4.5 million as accrued expenses as of September 30, 2023 that was primarily driven by co-development and co-commercialization activities.

Janssen Pharmaceuticals, Inc.

On October 3, 2018, Janssen, part of the Janssen Pharmaceutical Companies of Johnson & Johnson, and the Company entered into a License Agreement (the “Janssen License Agreement”) and a Research Collaboration and Option Agreement (the “Janssen Collaboration Agreement”).

On October 3, 2018, Janssen, part of the Janssen Pharmaceutical Companies of Johnson & Johnson, and the Company entered into a License Agreement (the “Janssen License Agreement”).

The Company also entered into a stock purchase agreement with JJDC, Inc.

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

Under the Janssen License Agreement, Janssen has received a worldwide, exclusive license to the Company’s JNJ-3989 (ARO-HBV) program, the Company’s third-generation subcutaneously administered RNAi therapeutic candidate being developed as a potential therapy for patients with chronic hepatitis B virus infection.

Beyond the Company’s Phase 1/2 study of JNJ-3989 (ARO-HBV), which the Company was responsible for completing, Janssen is wholly responsible for clinical development and commercialization of JNJ-3989 (ARO-HBV).

Under the Janssen Collaboration Agreement, Janssen was able to select three new targets against which the Company would develop clinical candidates.

These candidates were subject to certain restrictions and did not include candidates that already were in the Company’s pipeline.

The Company was obligated to perform discovery, optimization and preclinical research and development, entirely funded by Janssen, which on its own or in combination with Janssen development work, would have been sufficient to allow the filing of a U.S.

Investigational New Drug Application (“IND”) or equivalent, at which time Janssen would have the option to take an exclusive license.

If the option was exercised, Janssen would have been wholly responsible for clinical development and commercialization of each optioned candidate.

Under the terms of the agreements taken together, the Company has received $ 175.0 million as an

upfront payment, $ 75.0 million in the form of an equity investment by JJDC in the Company’s common stock under the JJDC Stock Purchase Agreement, and milestone and option payments totaling $ 73.0 million, and the Company may receive up to $ 1.6 billion in development and sales milestone payments for the Janssen License Agreement, and up to $ 0.6 billion in development and sales milestone payments for the remaining target covered under the Janssen Collaboration Agreement.

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

During 2022, Janssen’s option period expired unexercised for two of the three candidates (ARO-JNJ2 and ARO-JNJ3) under the Janssen Collaboration Agreement.

At the inception of Janssen License Agreement and Janssen Collaboration Agreement, the Company identified one distinct performance obligation.

Regarding the Janssen License Agreement, the Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibility to complete the Phase 1/2 study of JNJ-3989 (ARO-HBV) and the Company’s responsibility to ensure certain manufacturing of JNJ-3989 (ARO-HBV) drug product is completed and delivered to Janssen (the “Janssen R&D Services”).

(“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 (formerly ARO-HBV) program, the Company’s third-generation subcutaneously administered RNAi therapeutic candidate being developed as a potential therapy for patients with chronic hepatitis B virus infection.

Beyond the Company’s Phase 1/2 study of JNJ-3989, which the Company was responsible for completing, Janssen is wholly responsible for clinical development and commercialization of JNJ-3989.

Under the terms of the Janssen License Agreement, the Company received $ 175.0 million as an upfront payment, $ 75.0 million in the form of an equity investment by JJDC in the Company’s common stock under the JJDC Stock Purchase Agreement, and milestone and option payments totaling $ 73.0 million, and the Company may receive up to $ 825.0 million in development and sales milestone payments for the Janssen License Agreement.

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

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 and the Company’s responsibility to ensure certain manufacturing of JNJ-3989 drug product is completed and delivered to Janssen (the “Janssen R&D Services”).

Due to the specialized and unique nature of these Janssen R&D Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation.

The Company also determined that Janssen’s option to require the Company to develop up to three new targets is not a material right and, thus, not a performance obligation at the onset of the agreement.

The consideration for this option is accounted for separately.

The Company determined the transaction price totaled approximately $ 252.7 million, which includes the upfront payment, the premium paid by JJDC for its equity investment in the Company, two $ 25.0 million milestone payments related to JNJ-3989 (ARO-HBV), and estimated payments for reimbursable Janssen R&D Services to be performed.

The Company has allocated the total $ 252.7 million initial transaction price to its one distinct performance obligation for the JNJ-3989 (ARO-HBV) license and the associated Janssen R&D Services.

The Company has recognized this transaction price in its entirety as of September 30, 2021, as its performance obligations were substantially completed.

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

The Company determined the transaction price totaled approximately $ 252.7 million, which includes the upfront payment, the premium paid by JJDC for its equity investment in the Company, two $ 25.0 million milestone payments related to JNJ-3989, and estimated payments for reimbursable Janssen R&D Services to be performed.

The Company has allocated the total $ 252.7 million initial transaction price to its one distinct performance obligation for the JNJ-3989 license and the associated Janssen R&D Services.

The Company recognized this transaction price in its entirety as of September 30, 2021, as its performance obligations were substantially completed.

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

The Company has conducted its discovery, optimization and preclinical research and development of JNJ-75220795 (ARO-JNJ1), ARO-JNJ2, and ARO-JNJ3 under the Janssen Collaboration Agreement.

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

Janssen’s option period expired unexercised for two of the three candidates (ARO-JNJ2 and ARO-JNJ3) under the Janssen Collaboration Agreement during 2022.

In May 2021, Janssen exercised its option right for JNJ-75220795 (ARO-JNJ1), which resulted in a $ 10.0 million milestone payment to the Company.

This $ 10.0 million milestone payment was recognized entirely as of September 30, 2021.

The Company recognized $ 3.4 million and $ 0.5 million of revenue associated with these efforts during September 30, 2022 and 2021, respectively.

There were $ 0.1 million of contract assets recorded as accounts receivable and $ 0 of contract liabilities recorded as current deferred revenue as of September 30, 2022.

On April 7, 2023, Janssen voluntarily terminated its collaboration agreement with the Company, dated October 3, 2018.

Upon termination of the collaboration agreement, the Company regained full rights to ARO-PNPLA3, formerly called JNJ-75220795.

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

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

Under the Second Collaboration and License Agreement (the “Olpasiran Agreement”), Amgen has received a worldwide, exclusive license to the Company’s novel RNAi Olpasiran (previously referred to as AMG 890 or ARO-LPA) program.

Under the Second Collaboration and License Agreement (the “Olpasiran Agreement”), Amgen received a worldwide, exclusive license to the Company’s novel RNAi olpasiran (previously referred to as AMG- 890 or ARO-LPA) program.

These RNAi molecules are designed to reduce elevated lipoprotein(a), which is a genetically validated, independent risk factor for atherosclerotic cardiovascular disease.

Under the prior collaboration and license agreement (the “First Collaboration and License Agreement” or the “ARO-AMG1 Agreement”), Amgen received an option to a worldwide, exclusive license to ARO-AMG1, an RNAi therapy for an undisclosed genetically validated cardiovascular target.

Under both agreements, Amgen is wholly responsible for clinical development and commercialization.

Under the Olpasiran Agreement and the ARO-AMG1 Agreement, the Company has received $ 35.0 million in upfront payments, $ 21.5 million in the form of an equity investment by Amgen in the Company’s common stock, and $ 30.0 million in milestone payments, and may receive up to an additional $ 400.0 million in remaining development, regulatory and sales milestone payments.

The Company is further eligible to receive up to low double-digit royalties for sales of products under the Olpasiran Agreement.

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

In July 2019, Amgen informed the Company that it would not be exercising its option for an exclusive license for ARO-AMG1, and as such, there will be no further milestone or royalty payments under the ARO-AMG1 Agreement.

In July 2020, Amgen initiated a Phase 2 clinical study of Olpasiran, which resulted in a $ 20.0 million milestone payment to the Company.

There were no revenue recorded associated with the Company’s agreement with Amgen for the years ended September 30, 2022 and 2021.

Under the Olpasiran Agreement, Amgen is wholly responsible for clinical development and commercialization.

Under the Olpasiran Agreement, the Company has received $ 35.0 million in upfront payments and $ 21.5 million in the form of an equity investment by Amgen in the Company’s common stock.

Further, the Company received additional an

$ 55.0 million in milestone payments;

$ 10.0 million upon Amgen’s initiation of a Phase 1 study in September 2018, $ 20.0 million upon its initiation of a Phase 2 clinical study in July 2020, and $ 25.0 million upon its first subject enrollment in a Phase 3 trial in December 2022.

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

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

In November 2022, Royalty Pharma Investments 2019 ICAV (“Royalty Pharma”) and the Company entered into a Royalty Purchase Agreement (the “Royalty Pharma Agreement”).

In consideration for the payments under the Royalty Pharma Agreement, Royalty Pharma is entitled to receive all royalties otherwise payable by Amgen to the Company under the Olpasiran Agreement.

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

Joint Venture and License Agreement with Visirna Therapeutics, Inc.

8 unchanged sentences

Computers, software, office equipment and furniture $ 2,240 $ 2,182

Land 2,996 2,996

Research equipment 56,509 38,283

5 unchanged sentences

Depreciation and amortization expense for property and equipment for the years ended September 30, 2023, 2022, and 2021 was $ 10.7 million, $ 8.7 million and $ 6.6 million respectively.

The increase in the construction in progress during 2022 was mainly due to the developments of manufacturing, laboratory and office facilities in Verona, Wisconsin as well as a new laboratory and office facility in San Diego, California.

The increase in the construction in progress during 2023 was mainly due to the continuing developments of manufacturing, laboratory and office facilities in Verona, Wisconsin.

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

The Company’s investments consisted of the following:

4 unchanged sentences

Unrealized Losses Fair Value

Short-term investments (due within one year)

Held to maturity debt securities $ 218,391 $ — $ ( 3,661 ) $ 214,730

Held to maturity certifiate of deposit 50,000 — — 50,000

Total short-term investments $ 268,391 $ — $ ( 3,661 ) $ 264,730

Long-term investments (Due within one through three years)

Held to maturity debt securities 105,872 — ( 5,569 ) 100,303

Total long-term investments $ 105,872 $ — $ ( 5,569 ) $ 100,303

Marketable debt securities $ — $ — $ — $ —

Available-for-sale debt securities $ 295,699 $ — $ ( 2,964 ) $ 292,735

Total current investments $ 295,699 $ — $ ( 2,964 ) $ 292,735

On September 30, 2023, the Company changed the classification of its investment securities from held-to-maturity to available-for-sale.

This change enables the Company’s need to be able to respond to market and liquidity risks in managing its portfolio.

Such investments are carried at fair value with any unrealized gains and losses reported as a component of other accumulated comprehensive loss.

At the date of the transfer, the carrying value of the Company’s held-to-maturity securities was $ 295.7 million, and net unrealized losses of $ 3.0 million were recognized in accumulated other comprehensive loss.

The Company does not believe that the available-for-sale debt securities that were in an unrealized loss position have any credit loss impairment as of September 30, 2023.

As of September 30, 2022

5 unchanged sentences

Held-to-maturity debt securities

Total short-term investments $ 56,627 $ 803 $ — $ 57,430

$ 218,391 $ — $ ( 3,661 ) $ 214,730

Held-to-maturity certificate of deposit

50,000 — — 50,000

Total current investments $ 268,391 $ — $ ( 3,661 ) $ 264,730

Long-term investments (Due within one through three years)

Held-to-maturity debt securities $ 105,872 $ — $ ( 5,569 ) $ 100,303

Held to maturity certificate of deposit 50,000 — — 50,000

Total long-term investments $ 105,872 $ — $ ( 5,569 ) $ 100,303

Marketable debt securities $ 127,481 $ — $ ( 753 ) $ 126,728

INTANGIBLE ASSETS

Intangible assets subject to amortization include patents and a license agreement capitalized as part of the Novartis RNAi asset acquisition in March 2015.

The following table presents the components of intangible asset:

The following table presents the components of intangible assets:

Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount Useful Lives

(amounts in thousands) (in years)

(in thousands)

As of September 30, 2023

26 unchanged sentences

Preferred stock $ 0.001 5,000 — —

14,000,392 and 15,228,479 shares of common stock at September 30, 2022 and 2021, respectively, were reserved for issuance upon exercise of options and vesting of restricted stock units granted or available for grant under the Company’s 2004 Equity Incentive Plan, 2013 Incentive Plan, and 2021 Incentive Plan, as well as for inducement grants made to new employees under Rule 5635(c)(4) of the Nasdaq Listing Rules.

In August 2020, the Company entered into an Open Market Sale Agreement (the “ATM Agreement”), pursuant to which the Company may, from time to time, sell up to $ 250,000,000 in shares of the Company’s common stock through Jefferies LLC, acting as the sales agent and/or principal, in an at-the-market offering (“ATM Offering”).

The Company is not required to sell shares under the ATM Agreement.

The Company will pay Jefferies LLC a commission of up to 3.0 % of the aggregate gross proceeds received from all sales of the common stock under the ATM Agreement.

Unless otherwise terminated, the ATM Agreement continues until the earlier of selling all shares available under the ATM Agreement or December 2, 2022.

At September 30, 2022, no shares have been issued under the ATM Agreement .

On March 16, 2023, the Company’s stockholders approved an increase in authorized common shares, par value $ 0.001 per share, from 145,000,000 to 290,000,000 .

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

As of September 30, 2023 and 2022, respectively, 12,709,837 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”).

The Company is not required to sell shares under the Open Market Sale Agreement.

The Company will pay Jefferies LLC a commission of up to 3.0 % of the aggregate gross proceeds received from all sales of the common stock under the Open Market Sale Agreement.

Unless otherwise terminated, the ATM Offering shall terminate upon the earlier of (i) the sale of all shares of common stock subject to the Sales Agreement and (ii) the termination of the Sales Agreement as permitted therein.

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

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

COMMITMENTS AND CONTINGENCIES

1 unchanged sentence

If the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount is reasonably estimable, the Company will accrue a liability for the estimated loss.

There were no contingent liabilities recorded as of the year ended September 30, 2022.

There were no contingent liabilities recorded as of September 30, 2023 and 2022.

On December 20, 2021, the Company completed a purchase of 13 acres of land in the Verona Technology Park in Verona, Wisconsin, which is being developed into an approximately 160,000 square foot drug manufacturing facility and an approximately 140,000 square foot laboratory and office facility which will support the Company’s process development and analytical activities.

The Company intends to invest between $ 200.0 million and $ 260.0 million into the build out of the facilities.

As part of this acquisition, the Company entered into a development agreement with the City of Verona to construct certain infrastructure improvements within the tax incremental district and will be reimbursed up to $ 16.0 million by the City of Verona by future tax increment revenue generated from the developed property.

The total amount of funding that City of Verona will pay under the Tax Incremental Financing program is not guaranteed and will depend on future tax revenues generated from the developed property .

The Company will also receive up to $ 2.5 million of refundable Wisconsin state income tax credits from the Wisconsin Economic Development Corporation (WEDC) as incentives to invest in the local community and create new jobs.

As of September 30, 2023, the Company has incurred $ 166.2 million and intends to spend an additional $ 120.0 million to $ 130.0 million to complete the build out of the facilities.

As part of this land acquisition, the Company entered into a development agreement with the City of Verona to construct certain infrastructure improvements within the tax increment district and will be reimbursed up to $ 16.0 million by the City of Verona by future tax increment revenue generated from the developed property.

The total amount of funding that City of Verona will pay under the Tax Increment Financing program is not guaranteed and will depend on future tax revenues generated from the developed property .

The Company also became eligible to receive up to $ 2.5 million in refundable Wisconsin state income tax credits from the Wisconsin Economic Development Corporation (WEDC) as incentives for investing in the local community and creating new job opportunities.

As of September 30, 2023, the Company has collected $ 1.5 million of these credits.

Technology License Commitments

The Company has licensed from third parties the rights to use certain technologies for its research and development activities, as well as in any products it may develop using these licensed technologies.

These agreements and other similar agreements often require milestone and royalty payments.

Milestone payments, for example, may be required as the research and development process progresses through various stages of development, such as when clinical candidates enter or progress through clinical trials, upon NDA and/or certain sales level milestones.

The Company made milestone payments of $ 0 , $ 2.4 million, $ 0 for the years ended September 30, 2022, 2021, and 2020, respectively.

These agreements and other similar 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.

The Company did not reach any milestones during the years of 2023 and 2022.

During 2021, the Company triggered the milestone related to the progression of the ARO-ENaC and ARO-HIF2 candidates.

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

This facility will replace the Company’s current office and research facility sublease located in San Diego, California.

The increased capacity of this new facility compared to the Company’s current research facility in San Diego will accommodate increased personnel for its expanding pipeline of current and future drug candidates.

The estimated rent commencement date for the new lease is in April 2023 after construction and leasehold improvements have been completed.

The lease payments, which begin on the rent commencement date, will be approximately $ 119.0 million over the initial 15 -year term.

The Company also estimates payments for operating expenses to be approximately $ 3.0 million for the first year of the lease, and these payments will continue throughout the initial 15 -year term.

The Company expects to pay approximately $ 31.0 million for leasehold improvements, net of tenant improvement allowances.

During 2021, the Company triggered the milestone related to the progression of the ARO-ENaC and ARO-HIF2 candidates and made milestone payments of $ 2.4 million.

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, for which the rent commencement date began on April 19, 2023.

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

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.

The lease agreement grants the Company the right to receive an Additional Tenant Improvement Allowance (“ATIA”) funded by the lessor, with a maximum amount of $ 7.2 million, subject to a 7 % interest per annum over the base term.

Further, on September 25, 2023, the Company executed the first amendment to the lease, which grants a second ATIA with a maximum amount of $ 23.6 million, bearing interest at a rate of 9 % per annum over the base term.

The Company has received $ 27.8 million ATIA from the lessor as of September 30, 2023.

As a result, the Company remeasured its lease liability and right-of-use assets to reflect these additional allowances and the related increase lease payments.

The Company has further concluded that these ATIAs have no effects on the classification of the lease.

Other Significant Leases

Pasadena, California :

The Company leases office space located at 177 Colorado Blvd for its corporate headquarters from 177 Colorado Owner, LLC.

The lease began on September 30, 2019 and expires on April 30, 2027.

The Company leases 49,000 square feet of office space located at 177 East Colorado Blvd.

for its corporate headquarters from 177 Colorado Owner, LLC, which lease expires on April 30, 2027.

The lease contains an option to renew for one term of five years.

On October 23, 2020, the Company entered into a lease expansion to add an additional approximately 24,000 square feet of office with a lease expiration date of April 30, 2027.

San Diego, California :

The Company subleases space from Halozyme, Inc.

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

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

The Company subleased space from Halozyme, Inc.

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 ended on July 15, 2023.

Madison, Wisconsin :

The Company leases space for office and laboratory facilities, which had an expiration date of September 30, 2026.

The lease was amended in January 2019 and May 2020 to expand the rentable square feet by an additional 40,000 square feet and to extend the lease expiration date to September 30, 2031.

The lease contains two options to renew for two terms of five years .

In November 2020 and December 2020, the Company entered into amendments to expand the rentable square space by an additional 10,743 square feet for the remainder of the term.

The Company leases space for office and laboratory facilities, which expires on September 30, 2031.

The lease contains options to renew for two terms of five years .

After accounting for additional rental square feet added pursuant to amendments to the lease agreement in 2019 and 2020, the Company currently leases a total of 115,000 square feet.

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

11 unchanged sentences

General and administrative expense 1,730 1,757 1,498

Variable lease cost Research and development 728 814 802

Variable lease cost (1)

Research and development 1,179 728 814

General and administrative expense — — 1

Total $ 13,259 $ 9,763 $ 5,962

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

There was $ 0.3 million and $ 0 short-term lease cost during the years ended September 30, 2022, and 2021, respectively.

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

There was $ 1.4 million, $ 0.3 million and $ 0 short-term lease cost during the years ended September 30, 2023, 2022, and 2021, respectively.

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

(in thousands)

2024 $ 10,735

2029 and thereafter 124,951

4 unchanged sentences

Year Ended September 30,

2023 2022 2021

(in thousands)

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

Operating cash flows from operating leases $ 48,391 $ — $ —

Right-of-use assets obtained in exchange for amended operating lease liabilities $ 17,071 $ — $ —

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

Operating cash flows from operating leases (in thousands) $ 4,500 $ 3,100

Operating cash flows from operating leases $ 5,204 $ 4,500 $ 3,100

Weighted-average remaining lease term (in years) 13.5 7 8

2 unchanged sentences

The Company has three plans that provide for equity-based compensation.

Under the 2004 Equity Incentive Plan (the “2004 Plan”) and 2013 Incentive Plan (the “2013 Plan”), 175,083 and 4,072,137 shares, respectively, of the Company’s common stock are reserved for the grant of stock options, stock appreciation rights, restricted stock awards and performance unit/share awards to employees, consultants and others as of September 30, 2022.

Under the 2004 Equity Incentive Plan (the “2004 Plan”) and the 2013 Incentive Plan (the “2013 Plan”), 0 and 3,408,707 shares, respectively, of the Company’s common stock are reserved for the grant of stock options and restricted stock awards to employees and directors of the Company as of September 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 September 30, 2022, the total number of shares reserved for issuance under the 2021 Incentive Plan was 7,190,077 shares, which includes 131,897 shares that were forfeited under the 2013 Plan.

As of September 30, 2023, the total number of shares reserved for issuance was 6,204,720 shares, which includes 217,922 shares that were forfeited under the 2013 Plan, and 1,979,364 shares have been granted under the 2021 Plan.

In addition, there were 707,432 shares reserved for options and 683,825 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.

1 unchanged sentence

As of September 30, 2023

2004 Plan 2013 Plan 2021 Plan Total

2004 Plan 2013 Plan 2021 Plan Inducement Awards Total

Granted and outstanding awards:

8 unchanged sentences

Outstanding at September 30, 2022 2,721,384 $ 20.73

Granted 32,151 33.03

Cancelled or expired ( 50,708 ) 60.72

2 unchanged sentences

Exercisable at September 30, 2023 2,141,592 $ 21.45 4.2 $ 26,786,757

The aggregate intrinsic values in the table above represent the total pre-tax intrinsic value (the difference between the Company’s closing stock price and the stock option exercise price) that would have been received by the stock option holders had all stock options been exercised on September 30, 2022.

The aggregate intrinsic values represent 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 years ended September 30, 2023, 2022, and 2021 was $ 12.2 million, $ 27.6 million and $ 66.9 million, respectively.

Stock-based compensation expense related to stock options for the years ended September 30, 2022, 2021, and 2020 was $ 10.8 million, $ 12.4 million and $ 9.7 million, respectively.

Stock-based compensation expense related to stock options outstanding for the years ended September 30, 2023, 2022, and 2021 was $ 8.4 million, $ 10.8 million and $ 12.4 million, respectively.

As of September 30, 2023, the pre-tax compensation expense for all outstanding unvested stock options in the amount of $ 2.9 million will be recognized in the Company’s results of operations over a weighted average period of 0.4 years.

1 unchanged sentence

The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which do not have vesting restrictions and are fully transferable.

The determination of the fair value of each stock option is affected by the Company’s stock price on the date of grant, as well as assumptions regarding a number of highly complex and subjective variables.

The determination of the fair value of each stock option is affected by the Company’s stock price on the date of grant, as well as assumptions regarding a number of highly complex and

subjective variables.

Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

1 unchanged sentence

Year Ended September 30,

2023 2022 (5)

Expected dividend yield (1)

Risk-free interest rate (2)

3.69 – 4.57 %

N/A 0.40 – 1.1 %

1 unchanged sentence

N/A 86.2 – 90.4 %

90.0 – 92.0 %

Expected term (in years) (4)

9 unchanged sentences

Restricted stock units (“RSUs”), including market-based, time-based and performance-based awards, have been granted under the Company’s 2013 and 2021 Plans and as inducements grants granted outside of the Company’s equity-based compensation plans.

At vesting, each outstanding RSU will be exchanged for one share of the Company’s common

At vesting, each outstanding RSU will be exchanged for one share of the Company’s common stock.

RSU awards generally vest subject to the satisfaction of service requirements or the satisfaction of both service requirements and achievement of certain performance targets.

7 unchanged sentences

The fair value of RSUs was determined based on the closing price of the Company’s common stock on the grant date, with consideration given to the probability of achieving service and/or performance conditions for awards.

On July 8, 2022, the Company revised the equity award made to its Chief Executive Officer on January 1, 2022 consisting of 800,000 shares, equal in value of $ 38.4 million, that was 100% market-based awards.

On July 8, 2022, the Company revised the equity award made to its Chief Executive Officer on January 1, 2022 consisting of 800,000 shares, equal in value to $ 38.4 million, that was a 100% market-based award.

The revised awards consist of 99,521 RSUs and 149,282 performance-based RSUs.

21 unchanged sentences

This condition could cause an instrument to be reclassified from Level 1 to Level 2, or from Level 2 to Level 3.

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

the transfer.

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

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

3 unchanged sentences

(in thousands)

Available-for-sale debt securities

government bonds $ 31,553 $ — $ — $ 31,553

Municipal securities — 7,093 — 7,093

Commercial notes — 22,205 — 22,205

Corporate debt securities — 231,884 — 231,884

Certificate of deposits 50,000 — — 50,000

Total available-for-sale debt securities

31,553 261,182 — 292,735

Money market instruments 347 — — 347

Total financial assets

$ 31,900 $ 261,182 $ — $ 293,082

September 30, 2022

1 unchanged sentence

(in thousands)

Held-to-maturity debt securities

government bonds $ 1,973 $ — $ — $ 1,973

Municipal securities — — — —

Commercial notes — 41,727 — 41,727

Corporate debt securities — 271,333 — 271,333

Certificate of deposits 50,000 — — 50,000

Total held-to-maturity debt securities

51,973 313,060 — 365,033

Money market instruments 39,262 — — 39,262

Marketable debt securities 126,728 — — 126,728

Total financial assets

$ 91,235 $ 313,060 $ — $ 404,295

Debt securities were reclassified from held-to-maturity to available-for-sale recorded at fair value on a recurring basis.

The fair value of debt securities are priced using model pricing based on the securities’ relationship to other benchmark quoted prices as provided by an independent third party, and under GAAP are considered a Level 2 input.

There were no transfers between Levels 1, 2, and 3 of the fair value hierarchy during the years ended September 30, 2023 and 2022.

2 unchanged sentences

Income Tax Provision

The components of the loss before income taxes are as follows:

Year Ended September 30,

2023 2022 2021

(in thousands)

$ ( 194,639 ) $ ( 170,570 ) $ ( 140,846 )

( 7,852 ) ( 1,708 ) —

$ ( 202,491 ) $ ( 172,278 ) $ ( 140,846 )

The provision for income taxes consisted of the following components:

September 30,

Year Ended September 30,

2023 2022 2021

(in thousands)

Current $ — $ —

Current 304 2

Current 3,481 —

Current 3,785 2

$ 1,074 $ — $ —

Total current tax

$ 2,784 $ 3,785 $ 2

Total deferred tax

Income tax provision $ 2,784 $ 3,785 $ 2

The following table presents a reconciliation of the tax expense based on the statutory rate to the Company’s actual tax expense in the consolidated statements of operations.

A notional 21% tax rate was applied as follows:

September 30,

2023 2022 2021

federal statutory rate - 21.0 % - 21.0 % - 21.0 %

State taxes, net of federal effect - 8.6 % - 7.0 % - 7.0 %

federal statutory income tax 21.0 % 21.0 % 21.0 %

State income taxes, net of federal tax benefit 0.4 % 8.6 % 7.0 %

Tax credits 6.8 % — % — %

Permanent and other items - 4.6 % - 1.7 % — %

Non-deductible compensation - 4.6 % — % — %

Foreign-derived intangible income deduction 1.2 % — % — %

Stock compensation - 1.1 % - 1.7 % 1.3 %

Valuation allowance - 20.5 % - 28.4 % - 29.3 %

Other 1.7 % 0.0 % - 2.0 %

Effective income tax rate - 1.4 % - 2.2 % — %

4 unchanged sentences

Deferred tax assets:

Accrued Compensation $ 2,961 $ 2,371

Net operating loss carryforwards $ 60,495 $ 171,319

Capitalized research and development 75,208 324

Tax credits 66,407 —

Deferred revenue 59,441 38,810

Lease liabilities 25,382 2,844

Stock compensation 10,296 41,479

Capitalized Research & Development 324 324

California Alternative Minimum Tax 483 179

Net Operating Losses 171,319 185,431

Accrued compensation 3,082 2,961

Intangible assets 1,523 2,973

Deferred Revenue 38,810 —

Right of Use Assets/Lease Liabilities 2,844 1,938

Capital Loss 1,679 —

Other 2,636 2,162

Total gross deferred tax assets $ 304,470 $ 262,872

2 unchanged sentences

Fixed assets $ ( 9,878 ) $ ( 1,088 )

Right-of-use assets ( 9,966 ) —

State taxes — ( 19,390 )

1 unchanged sentence

Net deferred tax assets (liabilities) $ — $ —

The Company has concluded, in accordance with the applicable accounting standards, that it is more-likely-than not that the Company may not realize the benefit of all of its deferred tax assets.

Accordingly, management has provided a 100 % valuation allowance against its deferred tax assets until such time as management believes that its projections of future profits as well as expected future tax rates make the realization of these deferred tax assets more-likely-than-not.

Significant judgment is required in the evaluation of deferred tax benefits and differences in future results from the Company’s estimates could result in material differences in the realization of these assets.

The Company has performed an assessment of positive and negative evidence regarding the realization of the net deferred tax asset.

This assessment included the evaluation of scheduled reversals of deferred tax liabilities, the availability of carry forwards and estimates of projected future taxable income.

As of September 30, 2022, the Company had available gross federal net operating loss (“NOL”) carry forwards of $ 504.8 million and gross state NOL carry forwards of $ 626.5 million.

The NOLs expire at various dates through 2042.

A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized based on an assessment of positive and negative evidence, including estimates of future taxable income necessary to realize future deductible amounts.

A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended September 30, 2023.

Such objective evidence limits the ability to consider other subjective evidence such as its projections for future growth.

On the basis of this evaluation at September 30, 2023 and 2022, a valuation allowance of $ 284.6 million and $ 242.4 million, respectively, has been recorded.

As of September 30, 2023, the Company had accumulated federal and state net operating loss (“NOL”) carry forwards of $ 134.3 million and $ 491.5 million, respectively.

Of the $ 134.3 million of federal NOL carryforwards, $ 34.0 million was generated before January 1, 2018 and is subject to the 20-year carryforward period (“pre-Tax Act losses”).

The remaining $ 100.3 million (“post-Tax Act losses”) can be carried forward indefinitely but is subject to the 80% taxable income limitation.

Of the $ 491.5 million of state NOL carryforwards $ 2.9 million can be carried forward indefinitely.

The pre-Tax Act U.S.

federal and state net operating loss carryforwards will expire at various dates through 2041.

Pursuant to the Internal Revenue Code of 1986, as amended (the “Code”) Sections 382 and 383, annual use of an entity’s NOL and research and development credit carryforwards may be limited if there is a cumulative change in ownership of greater than 50% within a three-year period.

The amount of the annual limitation is determined based on the value of the entity immediately prior to the ownership change.

Subsequent ownership changes may further affect the limitation in future years.

If limited, the related tax asset would be removed from the deferred tax asset schedule with a corresponding reduction in the valuation allowance.

To date, the Company has not completed an analysis pursuant to Sections 382 and 383.

Future changes in ownership may occur which could limit the Company’s ability to utilize attributes.

Uncertainty in Income Taxes

6 unchanged sentences

Beginning balance of unrecognized tax benefits $ 3,481 $ — $ —

Increase for prior period tax positions 3,481 — —

Gross increase for prior period tax positions 9,495 3,481 —

Gross decrease for prior period tax positions ( 1,489 ) — —

Gross increase for current period tax positions 3,049 — —

Ending balance of unrecognized tax benefits $ 14,536 $ 3,481 $ —

Included in the balance of unrecognized tax benefits at September 30, 2022, 2021 and 2020 were $ 3.5 million, $ 0 and $ 0 respectively, that if the Company recognized, would affect its effective tax rate.

The Company recognizes interest accrued related to unrecognized tax benefits and penalties as income tax expense.

During the years ended September 30, 2022 and 2021, the Company recognized $ 1.4 million and $ 0 , respectively, of accrued interest and penalties related to gross unrecognized tax benefits.

The Company does not foresee any material changes to its gross unrecognized tax benefits within the next twelve months.

The Company and its subsidiaries file income tax returns with the Internal Revenue Service, the state of California and certain other taxing jurisdictions.

The Company is subject to income tax examinations by the Internal Revenue Service and by state tax authorities until the net operating losses are settled.

The Company is under examination by the state of California for the years 2018 and 2019.

For the years ended September 30, 2023, 2022 and 2021, the Company has recorded income tax expense of $ 0 , $ 3.5 million and $ 0 respectively, related to uncertain tax positions.

The Company’s policy is to recognize potential interest and penalties related to unrecognized tax benefits associated with uncertain tax positions, if any, in the income tax provision.

As of September 30, 2023, the Company has accrued interest and penalties of $ 0.6 million and $ 0.9 million, respectively.

If the unrecognized tax benefit at September 30, 2023 are ultimately recognized, excluding the impact of U.S.

Tax benefits netted against deferred taxes that are subject to a valuation allowance, approximately $ 3.5 million would result in a reduction in the Company’s income tax expense and effective tax rate.

The Company expects that $ 3.5 million of its unrecognized tax benefits to change over the next 12 months.

The Company is subject to taxation in the U.S.

and various states along with other foreign countries.

Due to the presence of NOL carryforwards, all of the income tax years remain open for examination domestically.

The Company has not been notified that it is under audit by the Internal Revenue Service or foreign taxing authorities;

however, the Company has been notified of an income tax examination by the state of California.

There are no other audits in any other jurisdictions.

EMPLOYEE BENEFIT PLANS

5 unchanged sentences

The Company also provides certain employee benefit plans, including those which provide health and life insurance benefits to employees.

SUBSEQUENT EVENTS

On November 9, 2022, the Company and Royalty Pharma Investments 2019 ICAV (“Royalty Pharma”) entered into a Royalty Purchase Agreement (the “Royalty Pharma Agreement”), pursuant to which Royalty Pharma agreed to pay up to $ 410.0 million in cash to the Company in consideration for the Company’s future royalty interest in Olpasiran, a small interfering RNA (siRNA) originally developed by the Company and licensed to Amgen in 2016 under the Olpasiran Agreement.

LIABILITY RELATED TO THE SALE OF FUTURE ROYALTIES

On November 9, 2022, the Company and Royalty Pharma entered into the Royalty Pharma Agreement, pursuant to which Royalty Pharma agreed to pay up to $ 410.0 million in cash to the Company in consideration for the Company’s future royalty interest in olpasiran, a small interfering RNA (siRNA) originally developed by the Company and licensed to Amgen in 2016 under the Olpasiran Agreement.

Pursuant to the Royalty Pharma Agreement, Royalty Pharma paid $ 250.0 million upfront and agreed to pay up to an additional $ 160.0 million in aggregate one-time milestone payments due if and when the following milestone events occur:

(i) $ 50.0 million on completion of enrollment in the planned OCEAN Phase 3 clinical trial for Olpasiran, (ii) $ 50.0 million upon receipt of FDA approval of Olpasiran for an approved indication (reduction in the risk of myocardial infarction, urgent coronary revascularization, or coronary heart disease death in adults with established cardiovascular disease and elevated Lp(a)), and (iii) $ 60.0 million upon Royalty Pharma’s receipt of at least $ 70.0 million of royalty payments under the Royalty Pharma Agreement in any single calendar year.

(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.

The Company remains eligible to receive any milestone payments potentially payable by Amgen under the Olpasiran Agreement.

The Royalty Pharma Agreement contains other customary terms and conditions, including representations and warranties, covenants, and indemnification obligations in favor of each party.

The above description of the Royalty Pharma Agreement is a summary of the material terms, does not purport to be complete and is qualified in its entirety by reference

to the Royalty Pharma Agreement, which will be filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ending December 31, 2022.

The Company has evaluated the terms of the Royalty Pharma Agreement and concluded in accordance with the relevant accounting guidance that the Company accounted for the transaction as debt and the funding of $ 250.0 million from Royalty Pharma was recorded as a liability related to the sale of future royalties on its consolidated balance sheets.

The Company is not obligated to repay this upfront funding received under the Royalty Pharma Agreement.

This liability is amortized over the expected repayment term using an effective interest rate method.

The effective interest rate is calculated based on the rate that would enable the debt to be repaid in full over the anticipated life of the arrangement.

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 periodically based on its current revenue forecasts utilizing the prospective method.

For 2023, the Company recognized non-cash interest expense of $ 18.3 million, 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 years ended September 30, 2023, 2022 and 2021.

Year Ended September 30,

2023 2022 2021

(in thousands, except per share amounts)

Net loss attributable to Arrowhead Pharmaceuticals, Inc.

$ ( 205,275 ) $ ( 176,063 ) $ ( 140,848 )

Weighted-average basic shares outstanding 106,750 105,426 103,745

Effect of dilutive securities — — —

Weighted-average diluted shares outstanding 106,750 105,426 103,745

Basic earnings per share $ ( 1.92 ) $ ( 1.67 ) $ ( 1.36 )

Diluted earnings per share $ ( 1.92 ) $ ( 1.67 ) $ ( 1.36 )

Potentially dilutive securities representing approximately 4,053,000 , 3,885,000 and 2,063,000 shares of common stock were excluded from the computation of diluted earnings per share for the years ended September 30, 2023, 2022 and 2021, respectively, because their effect would have been anti-dilutive.

SUBSEQUENT EVENTS

On October 30, 2023, the Company entered into an Assignment and Consent Agreement with Janssen, whereby, the Company consented to the assignment of the Janssen License Agreement to GSK, which assignment shall be effective upon the receipt of certain anti-trust approvals.

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-K

Item 9A. Controls and Procedures