What changed in this filing

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Item 1. Financial Statements

2024-08-08 compared with 2024-05-09 · 182 added, 130 removed, 484 unchanged (39% of the section changed)

3 unchanged sentences

(In thousands, except per share amounts)

March 31, 2024 September 30, 2023

June 30, 2024 September 30, 2023

Current assets:

37 unchanged sentences

Arrowhead Pharmaceuticals, Inc.

Consolidated Statements of Operations and Comprehensive (Loss) Income

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share amounts)

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

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

2024 2023 2024 2023

4 unchanged sentences

Total operating expenses 176,141 118,528 442,428 321,310

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

Operating loss ( 176,141 ) ( 102,703 ) ( 438,877 ) ( 96,672 )

Other income (expense):

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Other, net 760 306 1,370 821

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

Total other income (expense) 2,164 ( 680 ) ( 785 ) ( 829 )

Loss before income tax expense (benefit) and noncontrolling interest ( 173,977 ) ( 103,383 ) ( 439,662 ) ( 97,501 )

Income tax expense (benefit) — 742 ( 3,313 ) 759

Net loss including noncontrolling interest ( 173,977 ) ( 104,125 ) $ ( 436,349 ) $ ( 98,260 )

Net loss attributable to noncontrolling interest, net of tax ( 3,184 ) ( 1,179 ) ( 7,392 ) ( 2,664 )

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

Net loss attributable to Arrowhead Pharmaceuticals, Inc.

$ ( 170,793 ) $ ( 102,946 ) $ ( 428,957 ) $ ( 95,596 )

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

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

Basic $ ( 1.38 ) $ ( 0.96 ) $ ( 3.63 ) $ ( 0.90 )

3 unchanged sentences

Diluted 124,199 107,004 118,260 106,597

Other comprehensive (loss) income, net of tax:

Other comprehensive loss, net of tax:

Change in unrealized losses on available-for-sale securities 249 — 2,374 —

Foreign currency translation adjustments ( 141 ) ( 79 ) ( 139 ) ( 275 )

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

Comprehensive loss $ ( 173,869 ) $ ( 104,204 ) $ ( 434,114 ) $ ( 98,535 )

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

4 unchanged sentences

Comprehensive

controlling Interest Totals

controlling Interest Total

Balance at September 30, 2023 107,312 $ 200 $ 1,300,395 $ ( 3,222 ) $ ( 1,026,030 ) $ 15,819 $ 287,162

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

Stock-based compensation — — 17,050 — — — 17,050

Exercise of stock options 43 — 388 — — — 388

Common stock - restricted stock units vesting 51 — — — — — —

Foreign currency translation adjustments — — ( 141 ) — — ( 141 )

Change in unrealized losses on available-for-sale securities — — — 249 — — 249

Net loss — — — — ( 170,793 ) ( 3,184 ) ( 173,977 )

Balance at June 30, 2024 124,227 $ 217 $ 1,786,304 $ ( 987 ) $ ( 1,454,987 ) $ 8,427 $ 338,974

Amount ($) Additional

Comprehensive

controlling Interest Totals

controlling Interest Total

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

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

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

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

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

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

Net loss — — — — ( 102,946 ) ( 1,179 ) ( 104,125 )

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

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

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(in thousands)

Six Months Ended March 31,

Nine Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

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

Net loss $ ( 436,349 ) $ ( 98,260 )

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

6 unchanged sentences

Accounts receivable — 164

Prepaid expenses and other current assets ( 2,643 ) 20,309

Prepaid expenses and other assets ( 1,746 ) 27,913

Accounts payable 2,785 5,001

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Net cash provided by financing activities 481,431 252,232

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

Net decrease in cash, cash equivalents and restricted cash ( 41,353 ) ( 2,396 )

Effect of exchange rate on cash, cash equivalents and restricted cash ( 139 ) ( 275 )

4 unchanged sentences

Income taxes paid $ ( 3,062 ) $ —

Supplemental disclosure of noncash investing activities:

Supplemental disclosure of non-cash investing activities:

Capital expenditures included in accrued expenses

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Phase 3 Takeda and Arrowhead

JNJ-3989 Phase 2 GSK

ARO-C3 Phase 1/2a

daplusiran/tomligisiran (GSK5637608, formerly JNJ-3989)

ARO-PNPLA3 Phase 1

ARO-C3 Phase 1/2a

ARO-CFB Phase 1/2a Arrowhead

7 unchanged sentences

Several key recent developments include:

• Announced plans to advance investigational plozasiran into a Phase 3 cardiovascular outcomes trial called CAPITAN, which is designed to enroll patients with mixed hyperlipidemia and residual risk of atherosclerotic cardiovascular disease;

• Announced successful top-line results from the pivotal Phase 3 PALISADE study of investigational plozasiran in patients with familial chylomicronemia syndrome (FCS).

The Company highlighted recent data for its cardiometabolic pipeline at its June 25, 2024, Cardiometabolic event;

• Presented preclinical data on ARO-INHBE for the treatment of obesity and metabolic diseases at the American Diabetes Association 84 th Scientific Sessions.

INHBE small interfering RNA (siRNA) administration resulted in multiple promising findings including:

(1) 95% reduction in INHBE mRNA expression, (2) 19% suppression of body weight compared to saline controls, (3) 26% loss of fat mass, and (4) preservation of lean mass;

• Announced results from the Phase 2b double blind, randomized ARCHES-2 study of investigational zodasiran in patients with mixed hyperlipidemia;

• Announced that new interim clinical data on ARO-RAGE achieves high level of gene knockdown in patients with asthma;

• 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;

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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);

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

• 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.

• Entered into an Amended and Restated License Agreement with GSK, pursuant to which GSK received a worldwide, exclusive license to develop and commercialize daplusiran/tomligisiran (GSK5637608, formerly JNJ-3989).

Daplusiran/tomligisiran 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 March 31, 2024 and the results of operations and cash flows for the periods presented.

In the opinion of management, all material adjustments of a normal recurring nature have been made to present fairly the Company’s financial position at June 30, 2024 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 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.

Operating results and cash flows for the nine months ended June 30, 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.

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

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.

As of June 30, 2024, the Company had $ 69.4 million in cash, cash equivalents and restricted cash ($ 2.2 million in restricted cash) and $ 367.3 million in available-for-sale securities to fund operations.

During the nine months ended June 30, 2024, the Company’s cash, cash equivalents and restricted cash and investments balance increased by $ 33.0 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.

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

5 unchanged sentences

Uncertainty in Income Taxes

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 Company recorded an income tax benefit of $ 3.3 million and expense of $ 0.8 million for the nine months ended June 30, 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.

Recent Accounting Pronouncements

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

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“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.

Under the guidance, 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 guidance 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.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which is intended to improve reportable segment disclosure requirements, primarily through additional disclosures about significant segment expenses.

The guidance requires public companies with a single reportable segment to provide all disclosures required under ASC 280.

In addition, the guidance requires public companies to include in interim reports all disclosures related to a reportable segment’s profit or loss and assets that are currently required in annual reports.

The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The amendments should be applied retrospectively to all prior periods presented in the financial statements.

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 March 31, Six Months Ended March 31,

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

2024 2023 2024 2023

6 unchanged sentences

Total $ — $ 15,825 $ 3,551 $ 224,638

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

March 31, 2024 September 30, 2023

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

collaboration and license agreements:

June 30, 2024 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”).

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

GSK-HSD License Agreement

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

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

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

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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.

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 daplusiran/tomligisiran (GSK5637608, formerly JNJ-3989), the Company’s third-generation subcutaneously administered RNAi therapeutic candidate being developed as a potential therapy for patients with chronic hepatitis B virus infection.

GSK5637608 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 March 31, 2024.

There were no contract assets and liabilities recorded as of June 30, 2024.

Horizon Therapeutics Ireland DAC (“Horizon”)

12 unchanged sentences

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

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

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

5 unchanged sentences

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.

The Company 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 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).

1 unchanged sentence

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.

There were no further deferred revenue and contract liabilities as of June 30, 2024 .

The Company recorded $ 21.3 million as accrued expenses as of June 30, 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.

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.

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 daplusiran/tomligisiran (GSK5637608, formerly JNJ-3989).

Daplusiran/tomligisiran 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.

3 unchanged sentences

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;

Further, the Company received an additional $ 55.0 million in milestone payments;

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

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

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

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

There were no contract assets and liabilities recorded as of June 30, 2024.

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

The Company received $ 0.1 million and $ 0.9 million as consideration for this manufacturing and development work for the nine months ended June 30, 2024 and 2023, respectively.

There were no contract assets and liabilities recorded as of June 30, 2024.

BALANCE SHEET ACCOUNTS

1 unchanged sentence

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

March 31, 2024 September 30, 2023

June 30, 2024 September 30, 2023

(in thousands)

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Property, plant and equipment, net $ 375,911 $ 290,262

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.

Depreciation and amortization expense for property, plant and equipment for the three months ended June 30, 2024 and 2023 was $ 4.4 million and $ 2.9 million, respectively.

Depreciation and amortization expense for property and equipment for the nine months ended June 30, 2024 and 2023 was $ 12.3 million and $ 7.4 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 $ 75.9 million from construction in progress to building as of June 30, 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:

March 31, 2024 September 30, 2023

June 30, 2024 September 30, 2023

(in thousands)

4 unchanged sentences

Accrued capital expenditures

Total accrued expense

Total accrued expenses

$ 47,899 $ 39,763

The Company’s investments consisted of the following:

As of March 31, 2024

As of June 30, 2024

(in thousands)

11 unchanged sentences

Total current investments $ 295,699 $ 3 $ ( 2,967 ) $ 292,735

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.

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 June 30, 2024 and 2023.

INTANGIBLE ASSETS

3 unchanged sentences

(in thousands) (in years)

As of March 31, 2024

As of June 30, 2024

Patents $ 21,728 $ 14,485 $ — $ 7,243 14

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

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

No impairment indicators were identified during the nine months ended June 30, 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 March 31, 2024 and 2023, and $ 0.9 million for each of six months ended March 31, 2024 and 2023.

Intangible assets amortization expense was $ 0.4 million for the three months ended June 30, 2024 and 2023, and $ 1.3 million for the nine months ended June 30, 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 March 31, 2024:

The following table presents the estimated future amortization expense related to intangible assets as of June 30, 2024:

Amortization Expense

7 unchanged sentences

(in thousands)

As of March 31, 2024

As of June 30, 2024

Common stock $ 0.001 290,000 124,227 124,227

3 unchanged sentences

Preferred stock $ 0.001 5,000 — —

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.

As of June 30, 2024 and September 30, 2023, respectively, 11,608,148 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 2013 and 2021 Incentive Plans, 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.

4 unchanged sentences

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

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

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

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

As of March 31, 2024, no shares have been issued under the Open Market Sale Agreement.

As of June 30, 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 March 31, 2024.

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

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.

As of June 30, 2024, the Company has incurred $ 266.0 million and intends to spend an additional $ 18.0 million to $ 32.0 million to complete the build out of the facilities.

Pasadena, California :

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

The Company is not reasonably certain that it will exercise this option to

renew and therefore it is not included in right-of-use assets and liabilities as of June 30, 2024.

San Diego, California :

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 Company leases 144,000 square feet of office and research and development laboratory space located at 10102 Hoyt Park from 11404 & 11408 Sorrento Valley Owner, LLC, 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 Company is not reasonably certain that it will exercise this option to renew and therefore it is not included in right-of-use assets and liabilities as of June 30, 2024.

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.

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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.

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

Madison, Wisconsin :

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

The Company leases 115,000 square feet space located at 502 South Rosa Road for its office and laboratory facilities, which lease expires on September 30, 2031.

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

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

The Company is not reasonably certain that it will exercise this option and therefore it is not included in right-of-use assets and liabilities as of June 30, 2024.

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

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

Lease Assets and Liabilities Classification June 30, 2024 September 30, 2023

(in thousands)

2 unchanged sentences

Non-current operating lease liabilities Lease liabilities, net of current portion 112,040 104,608

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

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

Lease Cost Classification 2024 2023 2024 2023

7 unchanged sentences

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

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:

There was no short-term lease cost during the nine months ended June 30, 2024.

There was $ 0.6 million and $ 1.2 million short-term lease cost during the three and nine months ended June 30, 2023, respectively.

The following table presents maturities of operating lease liabilities on an undiscounted basis as of June 30, 2024:

(in thousands)

5 unchanged sentences

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

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

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

2024 2023 2024 2023

2 unchanged sentences

Operating cash flows from operating leases $ — $ 5,414 $ 3,099 $ 23,343

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

Right-of-use assets adjusted in exchange for new/amended operating lease liabilities

$ — $ 3,519 $ ( 64 ) $ ( 19,063 )

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

3 unchanged sentences

STOCK-BASED COMPENSATION

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 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.

2021 Incentive Plan (the “2021 Plan”), which authorized 8,000,000 shares (subject to certain adjustments) available for grants of stock options, stock appreciation rights, restricted and unrestricted stock, performance awards, cash awards and other awards convertible into or otherwise based on shares of the Company’s common stock.

The Company has two plans that provide for equity-based compensation under the 2013 and the 2021 plans.

Under the 2013 Incentive Plan (the “2013 Plan”), 2,924,586 shares 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, 2024.

Under the 2021 Incentive Plan (the “2021 Plan”), 8,000,000 shares (subject to certain adjustments) of the Company’s common stock are reserved for grants of stock options, stock appreciation rights, restricted and unrestricted stock, performance awards, cash awards and other awards convertible into or otherwise based on shares of the Company’s common stock.

The maximum number of shares authorized under the 2021 Plan will be (i) reduced by any shares subject to awards made under the 2013 Plan after January 1, 2021, and (ii) increased by any shares subject to outstanding awards under the 2013 Plan as of January 1, 2021 that, after January 1, 2021, are canceled, expired, forfeited or otherwise not issued under such awards (other than as a result of being tendered or withheld to pay the exercise price or withholding taxes in connection with any such awards) or settled in cash.

As of March 31, 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.

As of June 30, 2024, the total number of shares available for issuance was 4,565,727 shares, which includes 158,928 and 154,139 shares that were forfeited under the 2013 and 2021 Plans, respectively, and 3,697,189 shares have been granted under the 2021 Plan.

In addition, there were 665,020 shares reserved for options and 616,638 shares reserved for restricted stock units issued as inducement grants to new employees granted outside of the Company’s equity-based compensation plans under Rule 5635(c)(4) of the Nasdaq Listing Rules.

The following table presents a summary of awards outstanding:

As of March 31, 2024

2004 Plan 2013 Plan 2021 Plan Inducement Awards Total

As of June 30, 2024

2013 Plan 2021 Plan Inducement Awards Total

Granted and outstanding awards:

3 unchanged sentences

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

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

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

2024 2023 2024 2023

3 unchanged sentences

Stock Option Awards

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

The following table presents a summary of the stock option activity for the nine months ended June 30, 2024:

Shares Weighted-

5 unchanged sentences

Exercised ( 197,398 ) 10.98

Outstanding at March 31, 2024

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

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 March 31, 2024

and 2023 was $ 2.5 million and $ 1.4 million, respectively.

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.

Outstanding at June 30, 2024

2,012,497 $ 23.22 3.8 $ 22,486,304

Exercisable at June 30, 2024

2,001,968 $ 23.05 3.8 $ 22,486,304

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 June 30, 2024 and 2023 was $ 0.7 million and $ 6.5 million, respectively.

The total intrinsic value of the options exercised during the nine months ended June 30, 2024 and 2023 was $ 3.8 million and $ 10.1 million, respectively.

Stock-based compensation expense related to stock options outstanding for the three months ended June 30, 2024 and 2023, was $ 0.4 million and $ 2.1 million, respectively.

Stock-based compensation expense related to stock options outstanding for the nine months ended June 30, 2024 and 2023, was $ 2.5 million and $ 6.7 million, respectively.

As of June 30, 2024, the pre-tax compensation expense for all outstanding unvested stock options in the amount of $ 0.4 million will be recognized in the Company’s results of operations over a weighted average period of 3 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 six months ended March 31, 2024 and 2023.

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

Nine Months Ended June 30,

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 N/A $ 24.80

(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 computation of expected term was determined based on safe harbor rules, considering the contractual terms of the awards and vesting schedules.

(5) No options were granted during the nine months ended June 30, 2024.

Visirna ESOP :

1 unchanged sentence

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

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.

For the three and nine months ended June 30, 2024, stock-based compensation expense related to the Visirna ESOP was $ 2.3 million and $ 5.5 million, respectively.

Restricted Stock Units

9 unchanged sentences

Forfeited ( 160,775 ) 41.75

Outstanding at March 31, 2024

Outstanding at June 30, 2024

5,029,924 $ 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 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.

For the three months ended June 30, 2024 and 2023, the Company recorded $ 14.3 million and $ 17.8 million of expense related to RSUs, respectively.

For the nine months ended June 30, 2024 and 2023, the Company recorded $ 46.5 million and $ 53.2 million of expense related to RSUs, respectively.

As of June 30, 2024, there was $ 96.3 million of total unrecognized compensation cost related to RSUs that is expected to be recognized over a weighted-average period of 1.6 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 March 31, 2024 and September 30, 2023, the Company did not have any financial assets or financial liabilities based on Level 3 measurements.

At June 30, 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:

March 31, 2024

June 30, 2024

Level 1 Level 2 Level 3 Total

1 unchanged sentence

Available-for-sale securities

Treasuries $ 4,963 $ — $ — $ 4,963

government bonds $ — $ 80,946 $ — $ 80,946

Municipal securities — 3,949 — 3,949

Commercial notes — 114,616 — 114,616

3 unchanged sentences

Money market instruments 29,495 — — 29,495

Treasuries 4,993 — — 4,993

Commercial notes — 4,986 — 4,986

16 unchanged sentences

LIABILITY RELATED TO THE SALE OF FUTURE ROYALTIES

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:

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 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.

During the third quarter of fiscal 2024, Amgen completed enrollment of the Phase 3 OCEAN(a) outcomes trial of olpasiran, which triggered a $ 50.0 million milestone payment that the Company received in the same quarter.

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

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

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

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

The Company has evaluated the terms of the Royalty Pharma Agreement and concluded, in accordance with the relevant accounting guidance, that the Company accounted for the transaction as debt and the funding of $ 250.0 million and $ 50.0 million from Royalty Pharma were recorded as liabilities related to the sale of future royalties on its consolidated balance sheets.

The Company is not obligated to repay these funds received under the Royalty Pharma Agreement.

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

4 unchanged sentences

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 %.

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

As of June 30, 2024, the estimated effective interest rate was 6.3 %.

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

2 unchanged sentences

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

Milestone payment received

Non-cash interest expense recognized 17,705

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

Carrying value as of June 30, 2024 $ 336,031

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,

The following table presents the computation of basic and diluted net loss per share for the three and nine months ended June 30, 2024 and 2023.

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

2024 2023 2024 2023

(in thousands, except per share amounts)

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

Net loss attributable to Arrowhead Pharmaceuticals, Inc.

$ ( 170,793 ) $ ( 102,946 ) $ ( 428,957 ) $ ( 95,596 )

2 unchanged sentences

Weighted-average diluted shares outstanding 124,199 107,004 118,260 106,597

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

Basic net loss per share $ ( 1.38 ) $ ( 0.96 ) $ ( 3.63 ) $ ( 0.90 )

Diluted net loss per share $ ( 1.38 ) $ ( 0.96 ) $ ( 3.63 ) $ ( 0.90 )

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,

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

2024 2023 2024 2023

3 unchanged sentences

Total 4,729 3,467 4,771 4,024

SUBSEQUENT EVENTS

Financing Agreement

On August 7, 2024 (the “Closing Date”), the Company entered into a financing agreement (the “Financing Agreement”) with the guarantors party thereto, the lenders party thereto (the “Lenders”), and Sixth Street Lending Partners, as the administrative agent and collateral agent for the Lenders.

The Financing Agreement provides for a senior secured term loan facility of $ 500.0 million (the “Credit Facility”), which includes $ 400.0 million funded on the Closing Date with an additional $ 100.0 million at the Company’s option, subject to mutual agreement between Sixth Street and the Company, during the seven-year term of the agreement.

The Credit Facility matures on August 7, 2031 (the “Maturity Date”) and bears interest at an annual rate equal to 15.0 %.

The Credit Facility does not provide for scheduled amortization payments during the term, and all principal will be due on the Maturity Date.

The Company has the right to prepay loans under the Financing Agreement at any time.

Other Information of Part II, for more information.

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