What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2024-02-06 compared with 2023-08-07 · 212 added, 356 removed, 355 unchanged (62% of the section changed)

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(In thousands, except per share amounts)

June 30, 2023

September 30, 2022

December 31, 2023 September 30, 2023

Current assets:

Cash, cash equivalents and restricted cash $ 58,215 $ 110,891

Accounts receivable 1,247 1,410

Short term investments 346,369 268,391

Available-for-sale securities, at fair value 162,064 292,735

Prepaid expenses 10,516 8,813

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Total current assets 237,899 419,521

Property and equipment, net 231,369 110,297

Property, plant and equipment, net 333,411 290,262

Intangible assets, net 9,837 10,262

Long-term investments 42,758 105,872

Right-of-use assets 44,907 45,297

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Deferred revenue — 866

Other liabilities 461 435

Total current liabilities 63,723 105,456

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Lease liabilities, net of current portion 115,157 104,608

Deferred revenue, net of current portion — 55,950

Liability related to the sale of future royalties 273,692 268,326

Other liabilities 669 —

Total long-term liabilities 388,849 372,934

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Common stock, $ 0.001 par value:

Authorized 290,000 and 145,000 shares;

Authorized 290,000 shares;

issued and outstanding 107,500 and 107,312 shares

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(In thousands, except per share amounts)

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

2023 2022 2023 2022

Three Months Ended December 31,

Revenue $ 3,551 $ 62,546

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Other, net 421 507

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

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

Income tax expense 742 — 759 —

Total other (expense) income ( 2,144 ) 340

Loss before income tax (benefit) expense and noncontrolling interest ( 138,689 ) ( 41,794 )

Income tax (benefit) expense ( 3,313 ) 17

Net loss including noncontrolling interest $ ( 135,376 ) $ ( 41,811 )

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Other comprehensive loss, net of tax:

Change in unrealized losses on available-for-sale securities 1,909 —

Foreign currency translation adjustments 58 ( 122 )

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Foreign currency translation adjustments — — — 58 — — 58

Interest in joint venture — — — — — ( 486 ) ( 486 )

Net loss for the three months ended December 31, 2022

— — — — ( 41,325 ) — ( 41,325 )

Change in unrealized losses on available-for-sale securities — — — 1,909 — — 1,909

Net loss — — — — ( 132,864 ) ( 2,512 ) ( 135,376 )

Balance at December 31, 2023 107,500 $ 200 $ 1,320,356 $ ( 1,255 ) $ ( 1,158,894 ) $ 13,307 $ 173,714

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

Exercise of stock options 64 — 520 — — — 520

Common stock - restricted stock units vesting 665 — — — — — —

Foreign currency translation adjustments — — — ( 74 ) — — ( 74 )

Interest in joint venture — — — — — ( 999 ) ( 999 )

Net income for the three months ended March 31, 2023

— — — — 48,675 — 48,675

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

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

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

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

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

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

Net loss for the three months ended June 30, 2023

— — — — ( 102,946 ) — ( 102,946 )

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

Amount ($) Additional

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

Net loss for the three months ended December 31, 2021

— — — — ( 62,872 ) — ( 62,872 )

Net loss — — — — ( 41,325 ) ( 486 ) ( 41,811 )

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

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

Exercise of stock options 237 — 1,537 — — — 1,537

Common stock - restricted stock units vesting 667 1 ( 1 ) — — — —

Foreign currency translation adjustments — — — 1 — — 1

Interest in joint venture — — — — — — —

Net income for the three months ended March 31, 2022

— — — — 44,366 — 44,366

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

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

Exercise of stock options 53 — 599 — — — 599

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

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

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

Net loss for the three months ended June 30, 2022

— — — — ( 72,046 ) — ( 72,046 )

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

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

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(in thousands)

Nine Months Ended June 30,

Three Months Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

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(Accretion) amortization of note premiums/discounts ( 835 ) 690

Realized gain on investments ( 80 ) —

Non-cash interest expense on liability related to the sale of future royalties 5,367 2,849

Unrealized losses on marketable securities — 5,755

Changes in operating assets and liabilities:

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Deferred revenue ( 866 ) ( 22,979 )

Operating lease liabilities 1,158 3,733

Operating lease, net 3,796 559

Net cash used in operating activities ( 117,840 ) ( 75,516 )

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Purchases of investments — ( 111,199 )

Proceeds from maturities of investments 220,150 201,595

Net cash used in investing activities ( 126,664 ) ( 41,862 )

Proceeds from sales and maturities of investments 133,495 69,416

Net cash provided by (used in) investing activities 64,839 ( 80,694 )

CASH FLOWS FROM FINANCING ACTIVITIES:

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Proceeds from the sale of future royalties — 250,000

Proceeds from investment in joint venture — 60,000

Proceeds from additional tenant improvement allowance 669 —

Net cash provided by financing activities 267 250,576

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

Net (decrease) increase in cash, cash equivalents and restricted cash ( 52,734 ) 94,366

Effect of exchange rate on cash, cash equivalents and restricted cash 58 ( 122 )

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END OF PERIOD $ 58,215 $ 202,249

Supplementary disclosures:

Supplementary disclosure of cash flows:

Interest paid $ — $ —

Income taxes (paid) refunded $ ( 999 ) $ —

Supplemental disclosure of noncash investing activities:

Capital expenditures included in accrued expenses

$ 11,290 $ 14,044

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

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Therapeutic Area Name Stage Product Rights

Cardiometabolic ARO-APOC3 Phase 2b and Phase 3 Arrowhead

ARO-ANG3 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 1/2a Arrowhead

Liver GSK-4532990 (formerly ARO-HSD)

ARO-MMP7 Phase 1/2a

Liver GSK-4532990 Phase 2b GSK

Fazirsiran Phase 3 Takeda and Arrowhead

JNJ-3989 Phase 2 Janssen

HZN-457 (formerly ARO-XDH) Phase 1 Horizon

ARO-C3 Phase 1/2 Arrowhead

ARO-PNPLA3 (formerly JNJ-75220795) Phase 1 Arrowhead

Muscle ARO-DUX4 Pre-Clinical Arrowhead

JNJ-3989 Phase 2 GSK

ARO-C3 Phase 1/2a

ARO-PNPLA3 Phase 1

ARO-CFB Phase 1/2a Arrowhead

ARO-DUX4 Phase 1/2a Arrowhead

ARO-DM1 Phase 1/2a Arrowhead

Central Nervous System (CNS)

ARO-SOD1 Pre-Clinical Arrowhead

The Company operates lab facilities in San Diego, California and Madison, Wisconsin, where its research and development activities, including the development of RNAi therapeutics, take place.

Various Pre-Clinical Arrowhead

The Company operates lab facilities in California and Wisconsin, where its research and development activities, including the development of RNAi therapeutics, take place.

The Company’s principal executive offices are located in Pasadena, California.

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

During the first quarter of fiscal 2024, the Company continued to develop and advance its pipeline and partnered candidates.

Several key recent developments include:

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

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

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

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

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

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

20 clinical stage or marketed products in the year 2025;

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

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

◦ Fazirsiran significantly reduced liver Z-AAT;

◦ Fazirsiran consistently reduced hepatic globule burden;

◦ Fazirsiran treatment reduced histological signs of hepatic inflammation;

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

◦ Fazirsiran has been well tolerated to date;

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

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

a randomized placebo-controlled phase 2 study”;

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

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

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

◦ safety and tolerability;

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

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

◦ reductions in soluble RAGE (sRAGE) as measured in serum after two doses on Day 1 and Day 29;

◦ duration of pharmacologic effect persisted for at least 6 weeks after the second administration of the 92 mg does with further follow up ongoing;

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

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

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

◦ safety and tolerability;

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

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

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

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

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

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

• announced that the U.S.

Food and Drug Administration (FDA) has granted Fast Track designation to ARO-APOC3 for reducing triglycerides in adult patients with familial chylomicronemia syndrome (FCS).

ARO-APOC3 was previously granted Orphan Drug designation by the FDA and the European Union;

• announced interim results from Part 1 of AROC3-1001, an ongoing Phase 1/2 clinical study of ARO-C3, which included:

◦ a dose-dependent reduction in serum C3, with 88% mean reduction at highest dose tested;

◦ a dose-dependent reduction in AH50, a marker of alternative complement pathway hemolytic activity, with 91% mean reduction at highest dose tested;

◦ duration of pharmacologic effect supportive of quarterly or less frequent subcutaneous dose administration;

◦ safety and tolerability;

• received notice from Janssen of its decision to voluntarily terminate the Research Collaboration and Option Agreement (the “Janssen Collaboration Agreement”) between the Company and Janssen.

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

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

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

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

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

• entered into a Royalty Purchase Agreement (the “Royalty Pharma Agreement”) with Royalty Pharma Investments 2019 ICAV (“Royalty Pharma”) on November 9, 2022, pursuant to which Royalty Pharma paid $ 250.0 million upfront (See Note 11 — Liability Related to the Sale of Future Royalties of Notes to Consolidated Financial Statements of Part I, “Item 1.

Financial Statements.”);

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

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

◦ median reductions of 94% of Z-AAT accumulation in the liver and mean reductions of 68% in histologic globule burden were observed;

◦ treatment emergent adverse events were generally well balanced between Fazirsiran and placebo groups;

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

• Filed an application for clearance to initiate a Phase 1/2a clinical trial of ARO-CFB, being developed as a potential treatment for complement mediated renal disease;

• Filed an application for clearance to initiate a Phase 1/2a clinical trial of ARO-DM1, being developed as a potential treatment for type 1 myotonic dystrophy (DM1), the most common adult-onset muscular dystrophy;

• Entered into an Amended and Restated License Agreement with GSK, pursuant to which GSK received a worldwide, exclusive license to develop and commercialize JNJ-3989 (formerly ARO-HBV).

JNJ-3989 had previously been licensed to Janssen Pharmaceuticals, Inc.

Consolidation and Basis of Presentation

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The financial data of the Company included herein are unaudited.

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

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

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

All intercompany transactions and balances have been eliminated.

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

Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted from the accompanying interim consolidated financial statements and related notes.

Readers are urged to review the Company’s Annual Report on Form 10-K for the year ended September 30, 2023 for more complete descriptions and discussions.

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

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

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

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

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

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

Operating results and cash flows for the three months ended December 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2024.

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

Additionally, significant capital investment will be required as the Company’s pipeline matures into later stage clinical trials.

As of December 31, 2023, the Company had $ 58.2 million in cash, cash equivalents and restricted cash ($ 6.9 million in restricted cash) and $ 162.1 million in available-for-sale debt securities to fund operations.

During the three months ended December 31, 2023, the Company’s cash, cash equivalents and restricted cash and investments balance decreased by $ 183.3 million which was primarily due to the ongoing expenses related to the Company’s research and development programs and general and administrative expenses and capital expenditures.

During the three months ended December 31, 2022, the Company received the $ 250.0 million upfront payment from Royalty Pharma (Note 11).

On January 2, 2024, the Company entered into an underwriting agreement with Jefferies LLC, BofA Securities, Inc., and Cowen and Company, LLC, as representatives of the several underwriters.

The Company issued 15,790,000 shares of common stock at a price of $ 28.50 per share.

The aggregate purchase price paid by investors was $ 450.0 million and the Company received net proceeds of $ 429.0 million after deducting advisory fees and offering expenses.

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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There have been no changes to the significant accounting policies disclosed in the Company’s most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

Uncertainty in Income Taxes

The Company recorded an income tax benefit of $ 3.3 million and $ 0 for the three months ended December 31, 2023 and 2022, respectively.

The income tax benefit is primarily due to the discrete change in the Company’s uncertain tax positions related to the statute of limitation expiration.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements that have significantly impacted this Quarterly Report on Form 10-Q, beyond those disclosed in the Company’s most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , to improve its income tax disclosure requirements.

Under the ASU, entities must annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold.

This ASU will become effective for the Company beginning on October 1, 2025.

The Company does not expect any material impact on its consolidated financial statements and related disclosures resulting from applying this ASU.

COLLABORATION AND LICENSE AGREEMENTS

The following table provides a summary of revenue recognized:

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

2023 2022 2023 2022

Three Months Ended December 31,

(in thousands)

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Total $ 3,551 $ 62,546

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

collaboration and license agreements:

June 30, 2023 September 30, 2022

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

December 31, 2023 September 30, 2023

(in thousands)

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3) Limited (“GSK”)

GSK License Agreement

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

1 unchanged sentence

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

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

Under the terms of the agreement, the Company has received an upfront payment of $ 120.0 million and recognized an additional $ 30.0 million at the start of a Phase 2 trial.

The Company is also eligible for an additional payment of $ 100.0 million upon achieving a successful Phase 2 trial readout and the first patient dosed in a Phase 3 trial.

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

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

The Company is 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.

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

The Company determined that the key deliverables included the license and certain R&D services, including the Company’s responsibility to complete the Phase 1/2 study (the “GSK R&D Services”).

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

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

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

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

The Company has allocated the total $ 120.0 million initial transaction price to its one distinct performance obligation for the 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 during the six months ended March 31, 2022.

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

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

GSK-HBV Agreement

On December 11, 2023, the Company entered into an Amended and Restated License Agreement with GSK (the “GSK-HBV Agreement”) pursuant to which GSK received a worldwide, exclusive license to develop and commercialize JNJ-3989 (formerly ARO-HBV), the Company’s third-generation subcutaneously administered RNAi therapeutic candidate being developed as a potential therapy for patients with chronic hepatitis B virus infection.

JNJ-3989 had previously been licensed to Janssen in October 2018.

Under the terms of the GSK-HBV Agreement, the Company received $ 2.7 million in December 2023, upon signing the amended GSK-HBV Agreement.

The Company is eligible to receive up to $ 832.5 million in development and sales milestone payments under the GSK-HBV Agreement.

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

Horizon Therapeutics Ireland DAC (“Horizon”)

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

In June 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 HZN-457, a clinical-stage medicine being developed by Horizon as a potential treatment for people with uncontrolled gout.

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

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

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

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

The Company determined that the key deliverables included the license and certain R&D services, including the Company’s responsibilities to conduct all activities through the preclinical stages of development of HZN-457 (the “Horizon R&D Services”).

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

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

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 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.

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

The Company received a $ 40.0 million upfront payment in July 2021.

Revenue was recognized

on a straight-line basis over the timeframe for completing the Horizon R&D Services, concluding in the first quarter of 2023.

Further, the Company received an additional $ 15.0 million upon Horizon’s initiation of a Phase 1 clinical trial in January 2023.

On October 6, 2023, Amgen completed its acquisition of Horizon and subsequently notified the Company of Amgen’s intent to terminate the HZN-457 license.

Horizon exercised its right to terminate the Horizon License Agreement for convenience, which took effect on December 21, 2023.

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 Fazirsiran 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.

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

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

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.

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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.

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

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

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

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

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

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

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

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

however, in August 2023, Takeda initiated a Phase 3 OLE study, concluding the Phase 2 study visits for patients in the SEQUOIA and AROAAT2002 studies by December 31, 2023.

Consequently, the Company adjusted its revenue recognition estimates in the fiscal year 2023 to align with the revised performance period, resulting in accelerated revenue of $ 70.5 million, or $ 0.66 per diluted share, for the year ended September 30, 2023.

The remaining $ 0.9 million of deferred revenue was recognized for the three months ended December 31, 2023.

There were no further contract liabilities as of December 31, 2023 .

The Company also recorded $ 11.1 million as accrued expenses as of December 31, 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 the Janssen Collaboration Agreement.

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

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

Under the Janssen License Agreement, Janssen received a worldwide, exclusive license to the Company’s JNJ-3989 (ARO-HBV) program, the Company’s third-generation subcutaneously administered RNAi therapeutic candidate being

developed as a potential therapy for patients with chronic hepatitis B virus infection.

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 terms of the Janssen License Agreement, 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 $ 0.8 billion 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.

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 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.

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

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

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

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

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

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

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 received a worldwide, exclusive license to the Company’s novel RNAi Olpasiran program.

On April 7, 2023, Janssen voluntarily terminated its collaboration agreement with the Company and the Company regained full rights to ARO-PNPLA3, formerly called JNJ-75220795.

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

Further, on December 11, 2023, the Company entered into the GSK-HBV Agreement, as discussed above, pursuant to which GSK received an exclusive license for JNJ-3989 (formerly ARO-HBV).

JNJ-3989 had previously been licensed to Janssen in October 2018.

In September 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 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 first 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 and $ 21.5 million in the form of an equity investment by Amgen in the Company’s common stock.

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 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 and the ARO-AMG1 Agreement.

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

$ 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 December 31, 2023.

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

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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.

On April 25, 2022, Visirna and the Company entered into a License Agreement (the “Visirna License Agreement”), pursuant to which Visirna received an exclusive license to develop, manufacture and commercialize four of the Company’s

RNAi-based investigational cardiometabolic medicines in Greater China (including the People’s Republic of China, Hong Kong, Macau and Taiwan).

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

Under the Visirna SPA, entities affiliated with Vivo Capital also acquired a minority stake in Visirna in exchange for $ 60.0 million in upfront capital to support the operations of Visirna.

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

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

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

PROPERTY AND EQUIPMENT

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

June 30, 2023 September 30, 2022

Visirna Therapeutics, Inc.

In April 2022, the Company and Visirna, its subsidiary, entered into a License Agreement (the “Visirna License Agreement”), pursuant to which Visirna received an exclusive license to develop, manufacture and commercialize four of the Company’s RNAi-based investigational cardiometabolic medicines in Greater China (including the People’s Republic of China, Hong Kong, Macau and Taiwan).

The Company also performs manufacturing and development work pursuant to a Clinical Supply Agreement between the parties contemplated by the Visirna License Agreement.

The Company received $ 85,989 and $ 749,262 as consideration for this manufacturing and development work for the three months ended December 31, 2023 and 2022, respectively.

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

BALANCE SHEET ACCOUNTS

Property, Plant and Equipment

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

December 31, 2023 September 30, 2023

(in thousands)

Computers, software, office equipment and furniture $ 2,198 $ 2,182

Land $ 2,996 $ 2,996

Building 71,797 —

Research equipment 59,956 56,509

Furniture 2,761 1,540

Computers and software 883 700

Leasehold improvements 103,893 103,813

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Accumulated depreciation and amortization ( 45,789 ) ( 41,951 )

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

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

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

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

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

Property, plant and equipment, net $ 333,411 $ 290,262

Depreciation and amortization expense for property and equipment for the three months ended December 31, 2023 and 2022 was $ 3.8 million and $ 2.3 million, respectively.

As of December 31, 2023, the Company completed the build out of one of its laboratory and office facilities in Verona, Wisconsin, which resulted in the reclassification of related construction in progress to building.

Further, the Company commenced depreciation on the newly completed facility over a 39-year period.

Accrued Expenses

Accrued expenses consist of the following:

December 31, 2023 September 30, 2023

(in thousands)

Accrued R&D expenses

$ 18,106 $ 16,125

Accrued R&D expenses;

co-development

Accrued capital expenditure

11,290 14,044

Total accrued expense

$ 46,604 $ 39,763

The Company’s investments consisted of the following:

As of June 30, 2023

As of December 31, 2023

(in thousands)

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Unrealized Losses Fair Value

Short-term investments (due within one year)

Held to maturity debt securities $ 346,369 $ — $ ( 4,204 ) $ 342,165

Held to maturity certificate of deposit — — — —

Total short-term investments $ 346,369 $ — $ ( 4,204 ) $ 342,165

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

Held to maturity debt securities $ 42,758 $ — $ ( 294 ) $ 42,464

Total long-term investments $ 42,758 $ — $ ( 294 ) $ 42,464

Available-for-sale debt securities $ 163,119 $ — $ ( 1,055 ) $ 162,064

Total current investments $ 163,119 $ — $ ( 1,055 ) $ 162,064

As of September 30, 2023

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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 certificate 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

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

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

The Company has determined that the available-for-sale debt securities that were in an unrealized loss position did not have any credit loss impairment as of December 31, 2023 and 2022.

INTANGIBLE ASSETS

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(in thousands) (in years)

As of June 30, 2023

As of December 31, 2023

Patents $ 21,728 $ 13,709 $ — $ 8,019 14

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

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

No impairment indicators were identified during the three months ended December 31, 2023 and 2022.

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

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

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

None of the intangible assets with definite useful lives are anticipated to have a residual value.

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

The following table presents the estimated future amortization expense related to intangible assets as of December 31, 2023:

Amortization Expense

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(in thousands)

As of June 30, 2023

As of December 31, 2023

Common stock $ 0.001 290,000 107,500 107,500

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Preferred stock $ 0.001 5,000 — —

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 June 30, 2023 and September 30, 2022, respectively, 12,914,571 and 14,000,392 shares of common stock were reserved for issuance upon exercise of options and vesting of restricted stock units granted or available for grant under the Company’s 2004 Equity Incentive Plan, 2013 Incentive Plan, and 2021 Incentive Plan, as well as for inducement grants made to new employees under Rule 5635(c)(4) of the Nasdaq Listing Rules.

As of December 31, 2023 and September 30, 2023, respectively, 12,559,380 and 12,709,837 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 January 2, 2024, the Company entered into an underwriting agreement with Jefferies LLC, BofA Securities, Inc., and Cowen and Company, LLC, as representatives of the several underwriters.

The Company issued 15,790,000 shares of common stock at an offering price of $ 28.50 per share.

The aggregate purchase price paid by investors was $ 450.0 million and the Company received net proceeds of $ 429.0 million after deducting advisory fees and offering expenses.

On December 2, 2022, the Company entered into an open market sale agreement (the “Open Market Sale Agreement”), pursuant to which the Company may, from time to time, sell up to $ 250,000,000 in shares of the Company’s common stock through Jefferies LLC, acting as the sales agent and/or principal, in an at-the-market offering (“ATM Offering”).

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

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

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

COMMITMENTS AND CONTINGENCIES

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

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

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

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

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

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

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

Technology License Commitments

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

These agreements and other similar

agreements often require the Company to make milestone and royalty payments.

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

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

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

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

The lease payments, which began on April 19, 2023, the rent commencement date, will be approximately $ 119.0 million over the initial 15 -year term.

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

The Company expects to pay approximately $ 32.0 million for leasehold improvements, net of tenant improvement allowances.

Pursuant to the lease, within twelve months of the expiration of the initial 15 -year term, the Company has the option to extend the lease for up to one additional ten-year term, with certain annual increases in base rent.

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

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

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

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

Other Significant Leases

There were no contingent liabilities recorded as of December 31, 2023 and September 30, 2023.

The Company owns 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 manufacturing process development and analytical activities.

As of December 31, 2023, the Company has incurred $ 224.7 million and intends to spend an additional $ 60.0 million to $ 73.0 million to complete the build out of the facilities.

Pasadena, California :

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

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 .

The lease contains an option to renew for one additional five-year term.

San Diego, California :

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.

The Company leases 144,000 square feet of office and research and development laboratory space located at 10102 Hoyt Park, San Diego, California, which lease expires on April 30, 2038.

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 $ 30.8 million ATIA from the lessor as of December 31, 2023.

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

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

The Company previously subleased additional research and development space in San Diego, California, which subleases ended during the fiscal year of 2023.

Madison, Wisconsin :

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

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

Lease Assets and Liabilities Classification December 31, 2023 September 30, 2023

(in thousands)

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Non-current operating lease liabilities Lease liabilities, net of current portion 115,157 104,608

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

Three Months Ended December 31,

Lease Cost Classification 2023 2022

(in thousands)

Operating lease cost Research and development $ 2,994 $ 2,069

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

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

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

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

There was $ 0 and $ 0.1 million short-term lease cost during the three months ended December 31, 2023, and 2022, respectively.

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

(in thousands)

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

Nine Months Ended June 30,

Three Months Ended December 31,

(in thousands)

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

Operating cash flows from operating leases $ 3,099 $ —

Right-of-use assets obtained in exchange for amended operating lease liabilities $ 64 $ —

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

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

Operating cash flows from operating leases $ 2,080 $ 1,331

Weighted-average remaining lease term (in years) 13.3 6.9

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

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

Under the 2004 Equity Incentive Plan (the “2004 Plan”) and the 2013 Incentive Plan (the “2013 Plan”), 0 and 3,363,299 shares, respectively, of the Company’s common stock are reserved for grants of stock options and restricted stock awards to employees and directors as of December 31, 2023.

On March 18, 2021, the Company’s Board of Directors approved the Arrowhead Pharmaceuticals, Inc.

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

As of December 31, 2023, the total number of shares available for issuance was 5,774,487 shares, which includes 158,678 and 77,014 shares that were forfeited under the 2013 and 2021 Plans, respectively, and 2,411,054 shares have been granted under the 2021 Plan.

In addition, there were 691,245 shares reserved for options and 684,900 shares reserved for restricted stock units issued as inducement grants to new employees granted outside of the Company’s equity-based compensation plans under Rule 5635(c)(4) of the Nasdaq Listing Rules.

The following table presents a summary of awards outstanding:

As of June 30, 2023

As of December 31, 2023

2004 Plan 2013 Plan 2021 Plan Inducement Awards Total

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

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

2023 2022 2023 2022

(in thousands)

Three Months Ended December 31,

Research and development 7,823 8,402

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Stock Option Awards

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

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

Shares Weighted-

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2,263,477 $ 22.68

Granted 32,151 33.03

Cancelled or expired ( 29,457 ) 61.11

Exercised ( 33,825 ) 8.30

Outstanding at June 30, 2023

Outstanding at December 31, 2023

2,200,195 $ 22.46 4.1 years $ 31,862,157

Exercisable at June 30, 2023

Exercisable at December 31, 2023

2,118,298 $ 21.72 3.9 years $ 31,840,866

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

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

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

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

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

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

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

The 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 three months ended December 31, 2023

and 2022 was $ 0.6 million and $ 2.3 million, respectively.

Stock-based compensation expense related to stock options outstanding for the three months ended December 31, 2023 and 2022, was $ 1.5 million and $ 2.4 million, respectively.

As of December 31, 2023, the pre-tax compensation expense for all outstanding unvested stock options in the amount of $ 1.4 million will be recognized in the Company’s results of operations over a weighted average period of 5 months.

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

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

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

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

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

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

Nine Months Ended June 30,

2023 2022 (5)

Expected dividend yield (1)

Risk-free interest rate (2)

Expected volatility (3)

Expected term (in years) (4)

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

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

(2) The risk-free interest rate is based on that of the U.S.

Treasury yields with equivalent terms in effect at the time of the grant.

(3) Volatility is estimated based on volatility average of the Company’s common stock price.

(4) The expected term represents the period of time that stock options granted are expected to be outstanding, by using historical exercise patterns and post-vesting termination behavior.

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

No options were granted during the three months ended December 31, 2023 and 2022.

Visirna ESOP :

On October 1, 2023, Visirna, a subsidiary of the Company, granted 7,500,000 stock options to its employees from the Employee Stock Option Plan (the “Visirna ESOP”), which authorizes 20,000,000 shares for issuance.

The Visirna ESOP is independently managed by Visirna, including the valuation process.

For the three months ended December 31, 2023, stock-based compensation expense related to the Visirna ESOP was $ 2.0 million.

Restricted Stock Units

9 unchanged sentences

Forfeited ( 14,775 ) 51.21

Outstanding at June 30, 2023

Outstanding at December 31, 2023

4,584,698 $ 55.58

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

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

related to RSUs, respectively.

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

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

For the three months ended December 31, 2023 and 2022, the Company recorded $ 16.2 million and $ 17.0 million of expense related to RSUs, respectively.

As of December 31, 2023, there was $ 91.9 million of total unrecognized compensation cost related to RSUs that is expected to be recognized over a weighted-average period of 1.5 years.

FAIR VALUE MEASUREMENTS

The Company employs a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.

The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date using the exit price.

Accordingly, when market observable data are not readily available, the Company’s own assumptions are used to reflect those that market participants would be presumed to use in pricing the asset or liability at the measurement date.

Assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the level of judgment associated with inputs used to measure their fair values and the level of market price observability, as follows:

Level 1 Unadjusted quoted prices are available in active markets for identical assets or liabilities as of the reporting date.

Level 2 Pricing inputs are other than quoted prices in active markets, which are based on the following:

• Quoted prices for similar assets or liabilities in active markets;

• Quoted prices for identical or similar assets or liabilities in non-active markets;

• Either directly or indirectly observable inputs as of the reporting date.

Level 3 Pricing inputs are unobservable and significant to the overall fair value measurement, and the determination of fair value requires significant management judgment or estimation.

In certain cases, inputs used to measure fair value may fall into different levels of the fair value hierarchy.

In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety.

Thus, a Level 3 fair value measurement may include inputs that are observable (Level 1 or Level 2) and unobservable (Level 3).

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability.

The Company’s valuation techniques and inputs used to measure fair value and the definition of the three levels (Level 1, Level 2, and Level 3) of the fair value hierarchy are disclosed in Note 10 - Fair Value Measurements of Notes to Consolidated Financial Statements of Part IV, “Item 15.

Exhibits and Financial Statement Schedules” of its Annual Report on Form 10-K for the year ended September 30, 2023.

The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption.

2 unchanged sentences

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

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

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

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques utilized by the Company:

June 30, 2023

December 31, 2023

Level 1 Level 2 Level 3 Total

(in thousands)

Financial assets:

Available-for-sale debt securities

government bonds $ 10,859 $ — $ — $ 10,859

2 unchanged sentences

Corporate debt securities — 144,052 — 144,052

Certificate of deposits — — — —

Total available-for sale debt securities 10,859 151,205 — 162,064

Money market instruments 6,489 — — 6,489

Total financial assets $ 17,348 $ 151,205 $ — $ 168,553

September 30, 2023

1 unchanged sentence

(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

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.

In November 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 September 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 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.

6 unchanged sentences

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

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

For the three months ended December 31, 2023 and 2022, the Company recognized non-cash interest expense of $ 5.4 million and $ 2.8 million, respectively, on the consolidated statements of operations and comprehensive loss.

EARNINGS PER SHARE

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

June 30, 2023 and 2022.

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

2023 2022 2023 2022

The following table presents the computation of basic and diluted earnings per share for the three months ended December 31, 2023 and 2022.

Three Months Ended December 31,

(in thousands, except per share amounts)

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

Net loss attributable to Arrowhead Pharmaceuticals, Inc.

$ ( 132,864 ) $ ( 41,325 )

Weighted-average basic shares outstanding 107,415 106,039

3 unchanged sentences

Diluted earnings per share $ ( 1.24 ) $ ( 0.39 )

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

Potentially dilutive securities representing approximately 3,544,000 and 3,327,000 shares of common stock were excluded from the computation of diluted earnings per share for the three months ended December 31, 2023 and 2022, respectively, because their effect would have been anti-dilutive.

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

What changed 10-Q

Item 1. Financial Statements