What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2024-08-08 compared with 2024-05-09 · 87 added, 74 removed, 176 unchanged (48% of the section changed)

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In addition, any statements that refer to projections of our future financial performance, trends in our business, or other characterizations of future events or circumstances are forward-looking statements.

These forward-looking statements include, but are not limited to, statements about the initiation, timing, progress and results of our preclinical studies and clinical trials, our research and development programs, and our “20 in 25” pipeline goal;

These forward-looking statements include, but are not limited to, statements about the initiation, timing, progress and results of our preclinical studies and clinical trials, including any commercialization efforts, our research and development programs, and our “20 in 25” pipeline goal;

our expectations regarding the potential benefits of the partnership, licensing and/or collaboration arrangements and other strategic arrangements and transactions we have entered into or may enter into in the future;

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

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

• Chronic hepatitis B virus - daplusiran/tomligisiran (GSK5637608, formerly JNJ-3989, out-licensed to GSK);

• Complement mediated diseases - ARO-C3;

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These outside costs, including toxicology/efficacy testing and manufacturing costs, as well as the preparation for and administration of clinical trials, are referred to as “candidate costs.” As clinical candidates progress through clinical development, candidate costs will increase.

The First Half of Fiscal 2024 Business Highlights

Key recent developments through fiscal 2024 included the following:

The First Three Quarters of Fiscal 2024 Business Highlights

Key recent developments through the first three quarters of fiscal 2024 included the following:

• 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;

• 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 Hypertriglyceridemic.

• 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;

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The aggregate purchase price paid by investors was $450.0 million and the Company received net proceeds of $429.3 million after deducting advisory fees and offering expenses;

• 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.

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

Financial Statements.”

Net loss attributable to the Company was $125.3 million for the three months ended March 31, 2024 as compared to net income attributable to the Company of $48.7 million for the three months ended March 31, 2023.

Net loss attributable to the Company was $258.2 million for the six months ended March 31, 2024 as compared to net income attributable to the Company of $7.4 million for the six months ended March 31, 2023.

Net loss per share – diluted was $1.02 for the three months ended March 31, 2024 as compared to net income per share – diluted of $0.45 for the three months ended March 31, 2023.

Net loss per share – diluted was $2.24 for the six months ended March 31, 2024 as compared to net income per share – diluted of $0.07 for the six months ended March 31, 2023.

The changes in net loss attributable to the Company for the three and six months ended March 31, 2024 were mainly due to a decrease in revenue from the Company’s license and collaboration agreements, in conjunction with increased

research and development expenses, which have continued to increase as the Company’s pipeline of candidates has expanded and progressed through clinical trial phases.

The Company had $127.7 million of cash, cash equivalents and restricted cash, $395.4 million in available-for-sale securities, and $955.2 million of total assets as of March 31, 2024, as compared to $110.9 million of cash, cash equivalents and restricted cash, $292.7 million in available-for-sale securities and $765.6 million of total assets as of September 30, 2023.

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

Net loss attributable to Arrowhead Pharmaceuticals, Inc.

was $170.8 million and $102.9 million for the three months ended June 30, 2024 and 2023, respectively.

Net loss attributable to Arrowhead Pharmaceuticals, Inc.

was $429.0 million and $95.6 million for the nine months ended June 30, 2024 and 2023, respectively.

Net loss per share – diluted was $1.38 and $0.96 for the three months ended June 30, 2024 and 2023, respectively.

Net loss per share – diluted was $3.63 and $0.90 for the nine months ended June 30, 2024 and 2023, respectively.

The changes in net loss attributable to the Company for the three and nine months ended June 30, 2024 were mainly due to a decrease in revenue from the Company’s license and collaboration agreements, in conjunction with increased research and development expenses, which have continued to increase as the Company’s pipeline of candidates has expanded and progressed through clinical trial phases.

The Company had $69.4 million of cash, cash equivalents and restricted cash, $367.3 million in available-for-sale securities, and $883.8 million of total assets as of June 30, 2024, as compared to $110.9 million of cash, cash equivalents and restricted cash, $292.7 million in available-for-sale securities and $765.6 million of total assets as of September 30, 2023.

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

Critical Accounting Estimates

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

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

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

2024 2023 2024 2023

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Revenue $ — $ 15,825 $ 3,551 $ 224,638

Operating (loss) income

Operating loss

$ (176,141) $ (102,703) $ (438,877) $ (96,672)

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-diluted

Net loss per share-diluted

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

Total revenue for the three months ended March 31, 2024 decreased by $146.3 million or 100.0% from the same period of 2023.

Total revenue for the six months ended March 31, 2024 decreased by $205.3 million, or 98.3% from the same period of 2023.

The changes were primarily driven by decreased revenue recognition associated with the Company’s license and collaboration agreements during the first half of fiscal 2024.

The revenue for the six months ended March 31, 2024 was mainly driven by the revenue recognition associated with Takeda and GSK, as discussed below.

Total revenue for the three months ended June 30, 2024 decreased by $15.8 million or 100.0% from the same period of 2023.

Total revenue for the nine months ended June 30, 2024 decreased by $221.1 million, or 98.4% from the same period of 2023.

The changes were primarily driven by decreased revenue recognition associated with the Company’s license and collaboration agreements during the nine months ended June 30, 2024.

The revenue for the nine months ended June 30, 2023 was mainly driven by the revenue recognition associated with Takeda, GSK, and Horizon/Amgen license agreements, as discussed below.

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

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

During the six months ended March 31, 2023, the Company recorded $132.5 million revenue, including $40.0 million milestone payment by dosing the first patient in the Phase 3 REDWOOD clinical study of fazirsiran.

During the nine months ended June 30, 2023, the Company recorded $146.5 million revenue, including a $40.0 million milestone payment by dosing the first patient in the Phase 3 REDWOOD clinical study of fazirsiran.

On December 11, 2023, GSK and the Company entered into the GSK-HBV Agreement.

Under the GSK-HBV Agreement, GSK received a worldwide, exclusive license to develop and commercialize JNJ-3989 (formerly ARO-HBV).

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

Under the GSK-HBV Agreement, GSK received a worldwide, exclusive license to develop and commercialize daplusiran/tomligisiran (GSK5637608, formerly JNJ-3989).

Daplusiran/tomligisiran 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 GSK-HBV Agreement.

During the six months ended March 31, 2023, the Company recorded a $30.0 million milestone payment by dosing the first patient in a Phase 2b trial under GSK License Agreement.

During the nine months ended June 30, 2023, the Company recorded a $30.0 million milestone payment by dosing the first patient in a Phase 2b trial under GSK-HSD License Agreement.

Horizon/Amgen :

During the six months ended March 31, 2023, the Company recorded $6.7 million revenue of the total $40.0 million upfront payment received in July 2021, which was recognized on a straight-line basis over the

timeframe for completing the Horizon R&D Services, concluding in the first quarter of 2023.

During the nine months ended June 30, 2023, the Company recorded $6.7 million revenue of the total $40.0 million upfront payment received in July 2021, which was recognized on a straight-line basis over the timeframe for completing the Horizon R&D Services, concluding in the first quarter of 2023.

There was also $1.5 million of reimbursable costs.

Horizon enrolled the first subject in December 2022 in a Phase 1 randomized, placebo-controlled trial to assess the safety, tolerability, pharmacokinetics and pharmacodynamics of HZN-457, triggering a $15.0 million milestone payment to the Company which was paid in the second quarter of fiscal 2023.

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

For purposes of comparison, the amounts for the three and six months ended March 31, 2024 and 2023 are shown in the tables below.

For purposes of comparison, the amounts for the three and nine months ended June 30, 2024 and 2023 are shown in the tables below.

Research and Development (R&D) Expenses

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(in thousands) Three Months Ended

March 31, 2024 % of

June 30, 2024 % of

Three Months Ended

March 31, 2023 % of

June 30, 2023 % of

Increase (Decrease)

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Total research and development expense $ 152,431 100 % $ 94,757 100 % $ 57,674 61 %

(in thousands) Six Months Ended

March 31, 2024 % of

Six Months Ended

March 31, 2023 % of

(in thousands) Nine Months Ended

June 30, 2024 % of

Nine Months Ended

June 30, 2023 % of

Increase (Decrease)

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Total research and development expense $ 370,044 100 % $ 253,333 100 % $ 116,711 46 %

Candidate costs increased $7.3 million, or 28%, for the three months ended March 31, 2024 and $10.3 million, or 15%, for the six months ended March 31, 2024 compared to the same period of 2023.

This increase was primarily due to the additional progression of the Company’s pipeline of candidates into and through clinical trials, which resulted in higher

manufacturing, outsourced clinical trial, and toxicity study costs.

R&D discovery costs increased $7.4 million, or 42%, for the three months ended March 31, 2024 and $23.9 million, or 79%, for the six months ended March 31, 2024 compared to the same period of 2023.

This increase was primarily driven by the growth of the Company’s discovery efforts and continued advancement into novel therapeutic areas and tissue types, particularly due to an increase in labor along with rising costs associated with CNS studies and lab supplies.

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

The increase in salaries for the three and six months ended March 31, 2024 was primarily due to an increase in R&D headcount that has occurred as the Company has expanded its pipeline of candidates, in addition to annual salary increases.

Stock compensation expense was based upon the valuation of stock options and restricted stock units granted to employees and directors.

The decrease in stock compensation expense for the three and six months ended March 31, 2024 was primarily due to the cancelled awards upon the departure of employees.

Candidate costs increased $37.2 million, or 90%, for the three months ended June 30, 2024 and $47.5 million, or 43%, for the nine months ended June 30, 2024 compared to the same period of 2023.

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

R&D discovery costs increased $10.6 million, or 53%, for the three months ended June 30, 2024 and $34.5 million, or 69%, for the nine months ended June 30, 2024 compared to the same period of 2023.

This increase was primarily driven by the growth of the Company’s discovery efforts and continued advancement into novel therapeutic areas and tissue types, along with rising costs associated with CNS studies and lab supplies.

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

Salaries expense increased $7.9 million, or 47%, for the three months ended June 30, 2024 and $24.3 million, or 51%, for the nine months ended June 30, 2024 compared to the same period of 2023.

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

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

Facilities-related costs increased $2.5 million, or 72%, for the three months ended March 31, 2024 and $5.7 million, or 84%, for the six months ended March 31, 2024 compared to the same period of 2023.

Facilities-related costs increased $2.3 million, or 48%, for the three months ended June 30, 2024 and $8.0 million, or 69%, for the nine months ended June 30, 2024 compared to the same period of 2023.

This increase was mainly due to the ATIAs on the lease in San Diego, California.

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Financial Statements.”

Depreciation and amortization expense, a non-cash expense, increased $1.8 million, or 81% for the three months ended March 31, 2024 and $3.4 million, or 75%, for the six months ended March 31, 2024, compared to the same period of 2023.

Stock compensation expense, a non-cash expense, was based upon the valuation of stock options and restricted stock units granted to employees.

Stock compensation expense decreased $1.7 million, or 19%, for the three months ended June 30, 2024 and $2.4 million, or 9%, for the nine months ended June 30, 2024 compared to the same period of 2023.

The decrease was primarily due to the cancelled awards upon the departure of employees.

Depreciation and amortization expense, a non-cash expense, increased $1.4 million, or 49% for the three months ended June 30, 2024 and $4.8 million, or 65%, for the nine months ended June 30, 2024 compared to the same period of 2023.

The increase was primarily attributed to higher leasehold improvements, due to completion of the development of the San Diego facility.

Additionally, as of December 31, 2023, the Company completed the build out of one of its laboratory and office facilities in Verona, Wisconsin, and commenced depreciation.

The Company anticipates these R&D expenses to continue to increase as its pipeline of candidates grows and progresses to later phase clinical trials, in addition to inflationary pressure on goods and services and the labor market.

The Company anticipates these R&D expenses to continue to increase as its pipeline of candidates grows and

progresses to later phase clinical trials, in addition to inflationary pressure on goods and services and the labor market.

General & Administrative Expenses

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(in thousands) Three Months Ended

March 31, 2024 % of

June 30, 2024 % of

Category Three Months Ended

March 31, 2023 % of

June 30, 2023 % of

Category Increase (Decrease)

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$ 23,710 100 % $ 23,771 100 % $ (61) — %

(in thousands) Six Months Ended

March 31, 2024 % of

Category Six Months Ended

March 31, 2023 % of

(in thousands) Nine Months Ended

June 30, 2024 % of

Category Nine Months Ended

June 30, 2023 % of

Category Increase (Decrease)

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$ 72,384 100 % $ 67,977 100 % $ 4,407 6 %

Salaries expense increased $2.1 million, or 42%, for the three months ended March 31, 2024 and $4.1 million, or 45%, for the six months ended March 31, 2024 compared to the same period of 2023.

The increase was driven by the

combination of annual salary increases and increased headcount required to support the Company’s growth.

Salaries expense increased $1.7 million, or 33%, for the three months ended June 30, 2024 and $5.8 million, or 41%, for the nine months ended June 30, 2024 compared to the same period of 2023.

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

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

This expense increased $1.4 million, or 28%, for the three months ended March 31, 2024 and $2.2 million, or 24%, for the six months ended March 31, 2024 compared to the same period of 2023.

The increase was mainly due to legal services associated with new patent applications and intellectual property matters, as well as other professional services.

This expense decreased $0.6 million, or 10%, for the three months ended June 30, 2024 and increased $1.6 million, or 11%, for the nine months ended June 30, 2024 compared to the same period of 2023.

The increase for the nine months ended June 30, 2024 was mainly due to legal services associated with patent applications and intellectual property matters, as well as other professional services.

Facilities related expense primarily includes rental costs and other facilities-related costs for the Company’s corporate headquarters in Pasadena, California.

Stock compensation expense, a non-cash expense, was based upon the valuation of stock options and restricted stock units granted to employees.

This expense decreased $1.6 million, or 14%, for the three months ended March 31, 2024 and $1.9 million, or 8%, for the six months ended March 31, 2024 compared to the same period of 2023.

This expense decreased $1.2 million, or 11%, for the three months ended June 30, 2024 and $3.1 million, or 9%, for the nine months ended June 30, 2024 compared to the same period of 2023.

The decrease was mainly due to the decreased compensation costs related to performance awards.

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

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

The Company anticipates these general and administrative expenses to continue to increase as its pipeline of candidates grows and progresses to later phase clinical trials including commercialization efforts, in addition to inflationary pressure on goods and services and the labor market.

Other Income (Expense)

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

Other expense increased $0.3 million and $2.8 million for the three and six months ended March 31, 2024, respectively, compared to the same periods of 2023.

The increase was primarily due to the non-cash interest expense on the liability related to the sale of future royalties, partially offset by higher yields on investments due to increased interest rates.

Other income increased $2.8 million for the three months ended June 30, 2024 compared to the same period of 2023.

The increase was primarily due to the higher

yields on investments due to higher interest rates, offset by the non-cash interest expense on the liability related to the sale of future royalties.

The balance remained consistent for the nine months ended June 30, 2024 compared to the same period of 2023.

LIQUIDITY AND CAPITAL RESOURCES

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

The Company’s cash, cash equivalents and restricted cash increased to $127.7 million at March 31, 2024 compared to $110.9 million at September 30, 2023.

Cash invested in available-for-sale securities was $395.4 million at March 31, 2024 compared to $292.7 million at September 30, 2023.

The Company’s cash, cash equivalents and restricted cash decreased to $69.4 million at June 30, 2024 compared to $110.9 million at September 30, 2023.

Cash invested in available-for-sale securities was $367.3 million at June 30, 2024 compared to $292.7 million at September 30, 2023.

On December 2, 2022, the Company entered into the Open Market Sale Agreement, pursuant to which the Company may, from time to time, sell up to $250.0 million in shares of the Company’s common stock through Jefferies LLC, acting as the sales agent and/or principal, in an at-the-market offering.

As of March 31, 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.

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.

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The aggregate purchase price paid by investors was $450.0 million and the Company received net proceeds of $429.3 million after deducting advisory fees and offering expenses.

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

The Company believes its current financial resources are sufficient to fund its operations through at least the next twelve months from the date of the issuance of these financial statements.

The following table presents a summary of cash flows:

Six Months Ended March 31,

Nine Months Ended June 30,

(in thousands)

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Financing activities 481,431 252,232

Net increase in cash, cash equivalents and restricted cash

Net decrease in cash, cash equivalents and restricted cash

$ (41,353) $ (2,396)

Cash, cash equivalents and restricted cash at end of period $ 69,399 $ 105,334

During the six months ended March 31, 2024, cash flow used in operating activities was $210.2 million, which was primarily due to the ongoing expenses related to the Company’s research and development programs and general and administrative expenses.

During the nine months ended June 30, 2024, cash flow used in operating activities was $325.6 million, which was primarily due to the ongoing expenses related to the Company’s research and development programs and general and administrative expenses.

Cash used in investing activities amounted to $197.1 million, which was primarily attributable to capital expenditures of $117.2 million and investment purchases of $428.6 million, offset by proceeds from sales and maturities of investments of $348.6 million.

Cash provided by financing activities of $431.0 million was primarily related to cash received from the issuance of common stock as well as stock option exercises (See Note 6 — Stockholders’ Equity of Notes to Consolidated Financial Statements of Part I, “Item 1.

Cash provided by financing activities of $481.4 million was related to cash received from the issuance of common stock, a milestone payment from Royalty Pharma, and stock option exercises (See Note 6 — Stockholders’ Equity of Notes to Consolidated Financial Statements of Part I, “Item 1.

Financial Statements.”).

During the six months ended March 31, 2023, cash flows used by operating activities was $107.2 million, which was primarily due to the ongoing expenses related to the Company’s research and development programs and general and administrative expenses, partially offset by the receipt of $40.0 million from Amgen and Horizon.

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

During the nine months ended June 30, 2023, cash flows used in operating activities was $128.0 million, which was primarily due to the ongoing expenses related to the Company’s research and development programs and general and administrative expenses, partially offset by the receipt of $110.0 million from collaboration and license agreements.

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

Cash provided by financing activities of $252.2 million was primarily related to the $250.0 million payment from Royalty Pharma as well as cash received from stock option exercises.

See Note 11 – Liability Related to the Sale of Future Royalties of Notes to Consolidated Financial Statements of Part I, “Item 1.

See Note 11 – Liability Related to the Sale of Future

Royalties of Notes to Consolidated Financial Statements of Part I, “Item 1.

Financial Statements.”

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis