What changed in this filing

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Item 1. Financial Statements

2024-05-09 compared with 2024-02-06 · 157 added, 110 removed, 457 unchanged (37% of the section changed)

3 unchanged sentences

(In thousands, except per share amounts)

December 31, 2023 September 30, 2023

March 31, 2024 September 30, 2023

Current assets:

37 unchanged sentences

Arrowhead Pharmaceuticals, Inc.

Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Operations and Comprehensive (Loss) Income

(In thousands, except per share amounts)

Three Months Ended December 31,

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

2024 2023 2024 2023

Revenue $ — $ 146,267 $ 3,551 $ 208,813

3 unchanged sentences

Total operating expenses 126,191 98,102 266,287 202,782

Operating loss ( 136,545 ) ( 42,134 )

Operating (loss) income ( 126,191 ) 48,165 ( 262,736 ) 6,031

Other income (expense):

2 unchanged sentences

Other, net 189 8 610 515

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

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

Total other expense ( 805 ) ( 489 ) ( 2,949 ) ( 149 )

(Loss) income before income tax (benefit) expense and noncontrolling interest ( 126,996 ) 47,676 ( 265,685 ) 5,882

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

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

Net (loss) income including noncontrolling interest ( 126,996 ) 47,676 $ ( 262,372 ) $ 5,865

Net loss attributable to noncontrolling interest, net of tax ( 1,696 ) ( 999 ) ( 4,208 ) ( 1,485 )

Net loss attributable to Arrowhead Pharmaceuticals, Inc.

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

$ ( 125,300 ) $ 48,675 $ ( 258,164 ) $ 7,350

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

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

Basic $ ( 1.02 ) $ 0.46 $ ( 2.24 ) $ 0.07

3 unchanged sentences

Diluted 123,285 108,143 115,307 107,893

Other comprehensive loss, net of tax:

Other comprehensive (loss) income, net of tax:

Change in unrealized losses on available-for-sale securities 216 — 2,125 —

Foreign currency translation adjustments ( 56 ) ( 74 ) 2 ( 196 )

Comprehensive loss $ ( 133,409 ) $ ( 41,933 )

Comprehensive (loss) income $ ( 126,836 ) $ 47,602 $ ( 260,245 ) $ 5,669

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

13 unchanged sentences

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

Stock-based compensation — — 17,750 — — — 17,750

Exercise of stock options 120 — 1,512 — — — 1,512

Common stock - restricted stock units vesting 723 1 ( 1 ) — — — —

Common stock issued, net of offering costs 15,790 16 429,249 — — — 429,265

Foreign currency translation adjustments — — — ( 56 ) — — ( 56 )

Change in unrealized losses on available-for-sale securities — — — 216 — — 216

Net loss — — — — ( 125,300 ) ( 1,696 ) ( 126,996 )

Balance at March 31, 2024 124,133 $ 217 $ 1,768,866 $ ( 1,095 ) $ ( 1,284,194 ) $ 11,611 $ 495,405

Amount ($) Additional

8 unchanged sentences

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

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 )

— — — — 48,675 ( 999 ) 47,676

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

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

2 unchanged sentences

(in thousands)

Three Months Ended December 31,

Six Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss $ ( 135,376 ) $ ( 41,811 )

Net (loss) income $ ( 262,372 ) $ 5,865

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

1 unchanged sentence

Depreciation and amortization 8,788 5,358

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

Amortization (accretion) of note premiums/discounts 896 ( 82 )

Realized gain on investments ( 80 ) —

12 unchanged sentences

Proceeds from sales and maturities of investments 208,615 141,994

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

Net cash used in investing activities ( 204,098 ) ( 116,759 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from the exercises of stock options 1,779 1,096

Proceeds from the issuance of common stock, net of offering costs 429,265 —

Proceeds from the sale of future royalties — 250,000

Net cash provided by financing activities 431,044 251,096

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

Net increase in cash, cash equivalents and restricted cash 16,729 27,150

Effect of exchange rate on cash, cash equivalents and restricted cash 84 ( 196 )

3 unchanged sentences

Supplementary disclosure of cash flows:

Interest paid $ — $ —

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

Income taxes paid $ ( 3,014 ) $ —

Supplemental disclosure of noncash investing activities:

14 unchanged sentences

Cardiometabolic plozasiran (ARO-APOC3)

Two Phase 2b and one Phase 3 Arrowhead

zodasiran (ARO-ANG3)

Two Phase 2b Arrowhead

Olpasiran Phase 3 Amgen

Phase 2b Arrowhead

Phase 3 Amgen

Pulmonary ARO-RAGE Phase 1/2a

2 unchanged sentences

Liver GSK-4532990 Phase 2b GSK

Fazirsiran Phase 3 Takeda and Arrowhead

Phase 3 Takeda and Arrowhead

JNJ-3989 Phase 2 GSK

8 unchanged sentences

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

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

Thus far in fiscal 2024, the Company has continued to develop and advance its pipeline and partnered candidates.

Several key recent developments include:

• Completed enrollment in Amgen’s Phase 3 OCEAN(a) - outcome trial of olpasiran, triggering a $ 50.0 million milestone payment to the Company, which was paid in the third quarter of fiscal 2024;

• Presented final data from the double-blind treatment period of the Company’s Phase 2 SHASTA-2 study of investigational plozasiran in patients with severe Hypertriglyceridemia.

Results from the SHASTA-2 study showed dramatic, consistent, and sustained reductions in Apolipoprotein C-III (APOC3) and triglycerides and improvement in multiple atherogenic lipoprotein levels;

• Announced an Expanded Access Program (EAP) to make investigational plozasiran available outside of a clinical trial for qualifying patients with familial chylomicronemia syndrome (FCS);

• Initiated 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;

• 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).

9 unchanged sentences

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 December 31, 2023 and the results of operations and cash flows for the periods presented.

In the opinion of management, all material adjustments of a normal recurring nature have been made to present fairly the Company’s financial position at March 31, 2024 and the results of operations and cash flows for the periods presented.

All intercompany transactions and balances have been eliminated.

1 unchanged sentence

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 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.

Operating results and cash flows for the six months ended March 31, 2024 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.

1 unchanged sentence

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).

As of March 31, 2024, the Company had $ 127.7 million in cash, cash equivalents and restricted cash ($ 2.2 million in restricted cash) and $ 395.4 million in available-for-sale securities to fund operations.

During the six months ended March 31, 2024, the Company’s cash, cash equivalents and restricted cash and investments balance increased by $ 119.5 million which was primarily due to the net proceeds of $ 429.3 million from the underwritten offering in January 2024 discussed below, offset by ongoing expenses related to the Company’s research and development programs, general and administrative expenses and capital expenditures.

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.

6 unchanged sentences

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 Company recorded an income tax benefit of $ 3.3 million and $ 0 for the six months ended March 31, 2024 and 2023, 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.

7 unchanged sentences

The following table provides a summary of revenue recognized:

Three Months Ended December 31,

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

2024 2023 2024 2023

(in thousands)

6 unchanged sentences

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

March 31, 2024 September 30, 2023

(in thousands)

17 unchanged sentences

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.

There were no contract assets and liabilities recorded as of March 31, 2024.

Horizon Therapeutics Ireland DAC (“Horizon”)

4 unchanged sentences

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.

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.

14 unchanged sentences

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, 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.

Revenue was 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 Phase 2 study visits for patients in the SEQUOIA and AROAAT2002 studies concluded by December 31, 2023, and the Company has substantially completed its performance obligation under the Takeda license agreement.

As such, all revenue has been fully recognized as of December 31, 2023.

There were no further deferred revenue and contract liabilities as of March 31, 2024 .

The Company has recorded $ 13.8 million as accrued expenses as of March 31, 2024 that was primarily driven by co-development and co-commercialization activities.

Janssen Pharmaceuticals, Inc.

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.

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).

8 unchanged sentences

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.

There were no contract assets and liabilities recorded as of March 31, 2024.

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

3 unchanged sentences

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.

The Company received $ 0.1 million and $ 0.9 million as consideration for this manufacturing and development work for the six months ended March 31, 2024 and 2023, respectively.

There were no contract assets and liabilities recorded as of March 31, 2024.

BALANCE SHEET ACCOUNTS

1 unchanged sentence

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

December 31, 2023 September 30, 2023

March 31, 2024 September 30, 2023

(in thousands)

9 unchanged sentences

Property, plant and equipment, net $ 359,252 $ 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.

Depreciation and amortization expense for property, plant and equipment for the three months ended March 31, 2024 and 2023 was $ 4.1 million and $ 2.2 million, respectively.

Depreciation and amortization expense for property and equipment for the six months ended March 31, 2024 and 2023 was $ 7.9 million and $ 4.5 million, respectively.

During the first quarter of fiscal 2024, the Company completed the build out of one of its laboratory and office facilities in Verona, Wisconsin, which resulted in the reclassification of $ 75.3 million from construction in progress to building as of March 31, 2024.

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

1 unchanged sentence

Accrued expenses consist of the following:

December 31, 2023 September 30, 2023

March 31, 2024 September 30, 2023

(in thousands)

3 unchanged sentences

co-development

Accrued capital expenditure

11,290 14,044

Accrued capital expenditures

Total accrued expense

1 unchanged sentence

The Company’s investments consisted of the following:

As of December 31, 2023

As of March 31, 2024

(in thousands)

2 unchanged sentences

Unrealized Losses Fair Value

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

Available-for-sale securities $ 396,249 $ 11 $ ( 850 ) $ 395,410

Total current investments $ 396,249 $ 11 $ ( 850 ) $ 395,410

4 unchanged sentences

Unrealized Losses Fair Value

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

Available-for-sale securities $ 295,699 $ 3 $ ( 2,967 ) $ 292,735

Total current investments $ 295,699 $ 3 $ ( 2,967 ) $ 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.

The Company has determined that the available-for-sale securities that were in an unrealized loss position did not have any credit loss impairment as of March 31, 2024 and 2023.

INTANGIBLE ASSETS

3 unchanged sentences

(in thousands) (in years)

As of December 31, 2023

As of March 31, 2024

Patents $ 21,728 $ 14,097 $ — $ 7,631 14

6 unchanged sentences

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

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

No impairment indicators were identified during the six months ended March 31, 2024 and 2023.

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 December 31, 2023 and 2022.

Intangible assets amortization expense was $ 0.4 million for each of the three months ended March 31, 2024 and 2023, and $ 0.9 million for each of six months ended March 31, 2024 and 2023.

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 December 31, 2023:

The following table presents the estimated future amortization expense related to intangible assets as of March 31, 2024:

Amortization Expense

7 unchanged sentences

(in thousands)

As of December 31, 2023

As of March 31, 2024

Common stock $ 0.001 290,000 124,133 124,133

3 unchanged sentences

Preferred stock $ 0.001 5,000 — —

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.

As of March 31, 2024 and September 30, 2023, respectively, 11,723,683 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, 2021 Incentive Plan, as well as for other 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.

6 unchanged sentences

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

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

As of March 31, 2024, 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 December 31, 2023 and September 30, 2023.

There were no contingent liabilities recorded as of March 31, 2024.

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.

During the first quarter of fiscal 2024, the Company completed the build out of one of its laboratory and office facilities.

As of March 31, 2024, the Company has incurred $ 247.0 million and intends to spend an additional $ 37.0 million to $ 51.0 million to complete the build out of the facilities.

Pasadena, California :

4 unchanged sentences

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.

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.

The Company received $ 30.8 million ATIA from the lessor during the first quarter of fiscal 2024.

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.

6 unchanged sentences

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 December 31, 2023 September 30, 2023

Lease Assets and Liabilities Classification March 31, 2024 September 30, 2023

(in thousands)

2 unchanged sentences

Non-current operating lease liabilities Lease liabilities, net of current portion 113,632 104,608

Three Months Ended December 31,

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

Lease Cost Classification 2024 2023 2024 2023

(in thousands)

Operating lease cost Research and development $ 2,572 $ 2,343 $ 5,566 $ 4,412

5 unchanged sentences

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

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:

There was no short-term lease cost during the first half of fiscal 2024.

There was $ 0.4 million and $ 0.7 million short-term lease cost during the three and six months ended March 31, 2023, respectively.

The following table presents maturities of operating lease liabilities on an undiscounted basis as of March 31, 2024:

(in thousands)

5 unchanged sentences

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

Three Months Ended December 31,

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

2024 2023 2024 2023

(in thousands)

1 unchanged sentence

Operating cash flows from operating leases $ — $ 8,918 $ 3,099 $ 17,929

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

Right-of-use assets obtained in exchanged for amended operating lease liabilities $ — $ — $ 64 $ 22,582

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

4 unchanged sentences

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

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.

Under the 2004 Equity Incentive Plan (the “2004 Plan”) and the 2013 Incentive Plan (the “2013 Plan”), 0 and 2,967,887 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 March 31, 2024.

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

1 unchanged sentence

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 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.

As of March 31, 2024, the total number of shares available for issuance was 4,553,827 shares, which includes 158,678 and 134,389 shares that were forfeited under the 2013 and 2021 Plans, respectively, and 3,689,089 shares have been granted under the 2021 Plan.

In addition, there were 688,165 shares reserved for options and 637,563 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 December 31, 2023

As of March 31, 2024

2004 Plan 2013 Plan 2021 Plan Inducement Awards Total

4 unchanged sentences

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

Three Months Ended December 31,

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

2024 2023 2024 2023

Research and development $ 7,097 $ 8,745 $ 15,413 $ 17,147

2 unchanged sentences

Stock Option Awards

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

The following table presents a summary of the stock option activity for the six months ended March 31, 2024:

Shares Weighted-

5 unchanged sentences

Exercised ( 154,347 ) 11.53

Outstanding at December 31, 2023

Outstanding at March 31, 2024

2,078,693 $ 23.04 4.0 years $ 26,788,979

Exercisable at December 31, 2023

Exercisable at March 31, 2024

2,054,866 $ 22.72 3.9 years $ 26,788,746

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

The total intrinsic value of the options exercised during the three months ended March 31, 2024

and 2023 was $ 2.5 million and $ 1.4 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 total intrinsic value of the options exercised during the six months ended March 31, 2024 and 2023 was $ 3.1 million and $ 3.6 million, respectively

Stock-based compensation expense related to stock options outstanding for the three months ended March 31, 2024 and 2023, was $ 0.6 million and $ 2.2 million, respectively.

Stock-based compensation expense related to stock options outstanding for the six months ended March 31, 2024 and 2023, was $ 2.1 million and $ 4.6 million, respectively.

As of March 31, 2024, the pre-tax compensation expense for all outstanding unvested stock options in the amount of $ 0.8 million will be recognized in the Company’s results of operations over a weighted average period of 4 months.

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

2 unchanged sentences

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.

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

No options were granted during the six months ended March 31, 2024 and 2023.

Visirna ESOP :

1 unchanged sentence

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.

For the three and six months ended March 31, 2024, stock-based compensation expense related to the Visirna ESOP was $ 1.2 million and $ 3.2 million, respectively.

Restricted Stock Units

9 unchanged sentences

Forfeited ( 112,150 ) 44.16

Outstanding at December 31, 2023

Outstanding at March 31, 2024

5,091,163 $ 49.58

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 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.

For the three months ended March 31, 2024 and 2023, the Company recorded $ 16.0 million and $ 18.4 million of expense related to RSUs, respectively.

For the six months ended March 31, 2024 and 2023, the Company recorded $ 32.2 million and $ 35.4 million of expense related to RSUs, respectively.

As of March 31, 2024, there was $ 112.0 million of total unrecognized compensation cost related to RSUs that is expected to be recognized over a weighted-average period of 1.7 years.

FAIR VALUE MEASUREMENTS

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

At March 31, 2024 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:

December 31, 2023

March 31, 2024

Level 1 Level 2 Level 3 Total

(in thousands)

Available-for-sale debt securities

Available-for-sale securities

Treasuries $ 4,963 $ — $ — $ 4,963

government bonds — 48,637 — 48,637

2 unchanged sentences

Corporate debt securities — 217,151 — 217,151

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

Total available-for-sale securities 4,963 390,447 — 395,410

Cash equivalents

Money market instruments 77,080 — — 77,080

Treasuries 4,993 — — 4,993

Commercial notes — 4,997 — 4,997

Total cash equivalents 82,073 4,997 — 87,070

Total financial assets $ 87,036 $ 395,444 $ — $ 482,480

2 unchanged sentences

(in thousands)

Available-for-sale debt securities

Available-for-sale securities

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

2 unchanged sentences

Corporate debt securities — 231,884 — 231,884

Total available-for-sale debt securities 31,553 261,182 — 292,735

Total available-for-sale securities

31,553 261,182 — 292,735

Cash equivalents

Money market instruments 347 — — 347

Total cash equivalents 347 — — 347

Total financial assets $ 31,900 $ 261,182 $ — $ 293,082

2 unchanged sentences

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:

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.

2 unchanged sentences

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 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 three months ended December 31, 2023 and 2022.

Three Months Ended December 31,

The Company records the obligations at their carrying value using the effective interest method.

In order to amortize the sale of future royalties, the Company utilizes the prospective method to estimate the future royalties to be paid by the Company to the counterparty over the life of the arrangement.

Under the prospective method, a new effective interest rate is determined based on the revised estimate of remaining cash flows.

The new rate is the discount rate that equates the present value of the revised estimate of remaining cash flows with the carrying amount of the debt, and it will be used to recognize non-cash interest expense for the remaining periods.

The Company periodically assesses the amount and the timing of expected royalty payments using a combination of internal projections and forecasts from external sources.

The estimates of future net product sales (and resulting royalty payments) are based on key assumptions including population, penetration, probability of success and sales price, among others.

To the extent such payments are greater or less than the Company’s initial estimates or the timing of such payments is materially different than its original estimates, the Company will prospectively adjust the amortization of the royalty financing obligations and the effective interest rate.

As of March 31, 2024, the estimated effective interest rate was 9.3 %.

The following table presents the activity with respect to the liability related to the sale of future royalties.

Carrying Amount

(in thousands)

Carrying value as of September 30, 2023 $ 268,326

Non-cash interest expense recognized 12,612

Carrying value as of March 31, 2024 $ 280,938

NET LOSS PER SHARE

The following table presents the computation of basic and diluted net loss per share for the three and six months ended March 31, 2024 and 2023.

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

2024 2023 2024 2023

(in thousands, except per share amounts)

Net loss attributable to Arrowhead Pharmaceuticals, Inc.

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

$ ( 125,300 ) $ 48,675 $ ( 258,164 ) $ 7,350

2 unchanged sentences

Weighted-average diluted shares outstanding 123,285 108,143 115,307 107,893

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

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

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.

Basic net (loss) gain per share $ ( 1.02 ) $ 0.46 $ ( 2.24 ) $ 0.07

Diluted net (loss) gain per share $ ( 1.02 ) $ 0.45 $ ( 2.24 ) $ 0.07

The following table sets forth the potentially dilutive securities that have been excluded from the calculation of diluted net loss per share because to include them would be anti-dilutive.

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

2024 2023 2024 2023

(in thousands)

Options 595 767 657 779

Restricted stock units 3,411 3,583 3,931 3,290

Total 4,006 4,350 4,588 4,069

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