ARROWHEAD PHARMACEUTICALS, INC. 10-K

ITEM 9A. CONTROLS AND PROCEDURES Evaluation of Disclosure Controls and Procedures The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in its reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures. As required by Rule 13a-15(b) of the Exchange Act, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level. Management’s Annual Report on Internal Control over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of its Consolidated Financial Statements for external purposes in accordance with GAAP. This process includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures are being made only in accordance with authorizations of the Company’s management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the internal control over financial reporting to future periods are subject to risk that controls may become inadequate because either conditions change or the degree of compliance with policies or procedures may deteriorate. Management has assessed the effectiveness of the Company’s internal control over financial reporting as of September 30, 2024. In making this assessment, the Company used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013). Based on this assessment, management concluded that the Company’s internal control over financial reporting was effective as of September 30, 2024. KPMG LLP, the independent registered public accounting firm that audited the Consolidated Financial Statements included in this 2024 Annual Report on Form 10-K, has issued an audit report on the effectiveness of the Company’s internal control over financial reporting as of September 30, 2024 , which is included herein. 72 Changes in Internal Control Over Financial Reporting There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company regularly evaluates its controls and procedures and makes improvements in the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during this process. ITEM 9B. OTHER INFORMATION (a) License and Collaboration Agreement On November 25, 2024, the Company entered into an Exclusive License and Collaboration Agreement (the “Collaboration Agreement”) with Sarepta Therapeutics, Inc. (“Sarepta”) for the co-development and commercialization of multiple clinical and preclinical programs in rare, genetic diseases of the muscle, central nervous system, and the lungs. Under the Collaboration Agreement, Sarepta has received an exclusive worldwide license to the Company’s ARO-DUX4, ARO-DM1, ARO-MMP7, and ARO-ATXN2 clinical stage programs. Sarepta has also received an exclusive sublicensable worldwide license to the Company’s ARO-HTT, ARO-ATXN1, and ARO-ATXN3 preclinical stage programs. Pursuant to the Collaboration Agreement, Sarepta will be able to select up to six new targets for which the Company will perform discovery, optimization and preclinical development. Upon completion of the Company’s preclinical activities, Sarepta will receive an exclusive license to the Company’s product-specific intellectual property rights covering those compounds and be wholly responsible for clinical development and commercialization of each compound. Under the terms of the Collaboration Agreement, the Company expects to receive $500.0 million as an upfront payment and $250.0 million to be paid in annual installments of $50.0 million over 5 years. The Company is also eligible to receive $300.0 million in near-term payments associated with the continued enrollment of certain cohorts of a Phase 1/2 study, which the Company is on track to achieve. Further, for each of the 13 programs, the Company is eligible to receive development milestone payments between $110.0 million and $180.0 million per program and sales milestone payments between $500.0 million and $700.0 million per program. The Company is also eligible to receive tiered royalties on net sales of licensed products of up to the low double digits. Closing of the Collaboration Agreement is subject to clearance under the Hart-Scott Rodino Antitrust Improvements Act. The foregoing description of the Collaboration Agreement does not purport to be complete and is qualified in its entirety by reference to the Collaboration Agreement, a copy of which will be filed with the Company’s Quarterly Report on Form 10-Q for the quarter ended December 31, 2024. Stock Purchase Agreement In connection with the Collaboration Agreement, on November 25, 2024, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with an affiliate of Sarepta (the “Purchaser”) for a private placement of shares of common stock of the Company (the “Private Placement”). Pursuant to the Stock Purchase Agreement, the Company sold 11,926,301 shares of common stock (the “Shares”), at a price per Share of $27.2507, for an aggregate value of approximately $325.0 million. The Private Placement is expected to close concurrently with the Collaboration Agreement (the “Closing”). The Stock Purchase Agreement contains customary representations and warranties of the Company, on the one hand, and the Purchaser, on the other hand, and customary conditions to closing. The Stock Purchase Agreement provides that at any time following the Closing, the Purchaser may elect to exchange any or all of its Shares for pre-funded warrants to purchase shares of common stock of the Company, substantially in the form attached to the Stock Purchase Agreement. At the Closing, the Company will enter into an Investor Rights Agreement (the “Investor Rights Agreement”) with the Purchaser, which provides that the Company will appoint Doug Ingram to the board of directors of the Company effective as of the Closing. In addition, the Company will register the resale of the Shares pursuant to the Investor Rights Agreement. The Company is required to prepare and file a registration statement with the Securities and Exchange Commission no later than 30 days following the Closing. The Company has also agreed to, among other things, indemnify the Purchaser, their officers, directors, members, employees, partners, managers, stockholders, affiliates, investment advisors and agents under the registration statement 73 from certain liabilities and pay certain fees and expenses incident to the Company’s obligations under the Investor Rights Agreement. The securities to be issued and sold to Purchaser under the Stock Purchase Agreement will not be registered under the Securities Act of 1933, as amended (the Securities Act) in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder, or under any state securities laws. The Company relied on this exemption from registration based in part on representations made by the Purchaser. The securities may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. This Annual Report on Form 10-K is not an offer to sell or the solicitation of an offer to buy the securities described herein. The foregoing descriptions of the Stock Purchase Agreement and the form of Investor Rights Agreement do not purport to be complete and are qualified in their entirety by reference to the Stock Purchase Agreement and the form of Investor Rights Agreement, copies of which are filed as Exhibits 10.48 and 4.6 to this Annual Report on Form 10-K, respectively, and are incorporated by reference herein. Amendment to Credit Facility Also on November 26, 2024, the Company entered into an amendment to the Credit Facility (the “Amendment”) to modify, subject to certain conditions, amongst other things, the requirements to make prepayments of the loans under the Credit Facility with respect to the transactions contemplated by the Collaboration Agreement and the Stock Purchase Agreement. The foregoing description of the Amendment does not purport to be complete and is qualified in its entirety by reference to the Amendment, a copy of which will be filed with the Company’s Quarterly Report on Form 10-Q for the quarter ending December 31, 2024. Securities Purchase Agreement On November 25, 2024, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an institutional and accredited investor (the “Warrant Purchaser”) for a private placement of pre-funded warrants to purchase shares of common stock with an exercise price of $0.001 per share. Pursuant to the Securities Purchase Agreement, the Company sold pre-funded warrants to purchase up to 917,441 shares of common stock at a purchase price of $27.2497 per pre-funded warrant, for an aggregate value of approximately $25.0 million. The transaction is expected to close on or about November 27, 2024 (the “Warrant Closing”). The Securities Purchase Agreement contains customary representations and warranties of the Company, on the one hand, and the Purchasers, on the other hand, and customary conditions to closing. At the Warrant Closing, the Company will enter into a Registration Rights Agreement (the Registration Rights Agreement) with the Warrant Purchaser, which provides that the Company will register the resale of the shares of common stock underlying the pre-funded warrants pursuant to the Registration Rights Agreement. The Company is required to prepare and file a registration statement with the Securities and Exchange Commission no later than 30 days following the Warrant Closing. The Company has also agreed to, among other things, indemnify the Purchaser, their officers, directors, members, employees, partners, managers, stockholders, affiliates, investment advisors and agents under the registration statement from certain liabilities and pay certain fees and expenses incident to the Company’s obligations under the Registration Rights Agreement. The securities to be issued and sold to Warrant Purchaser under the Securities Purchase Agreement will not be registered under the Securities Act in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D promulgated thereunder, or under any state securities laws. The Company relied on this exemption from registration based in part on representations made by the Warrant Purchaser. The securities may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. This Annual Report on Form 10-K is not an offer to sell or the solicitation of an offer to buy the securities described herein. The foregoing descriptions of the Securities Purchase Agreement, the form of Registration Rights Agreement and the form of Pre-Funded Warrant do not purport to be complete and are qualified in their entirety by reference to the Securities Purchase Agreement, the form of Registration Rights Agreement and the form of Pre-Funded Warrant, copies of which are filed as Exhibits 10.49, 4.7 and 4.8 to this Annual Report on Form 10-K, respectively, and are incorporated by reference herein. 74 (b) Trading Plans During the fiscal quarter ended September 30, 2024, the following directors and officers (as defined in Exchange Act Rule 16a-1(f)) adopted certain trading plans intended to satisfy Rule 10b5-1(c): Name Title Adoption or Termination Date Plan Start Date Plan End Date Shares Vesting and Subject to Sell-To-Cover (1) Other Shares Being Sold (Subject to Certain Conditions) Adeoye Olukotun Board Member 09/24/2024 12/24/2024 06/24/2025 n/a 5,465 Christopher Anzalone President and Chief Executive Officer 08/16/2024 03/03/2025 12/31/2025 n/a 351,726 Christopher Anzalone President and Chief Executive Officer 08/22/2024 12/04/2024 12/31/2026 2,082,892 n/a Christopher Anzalone President and Chief Executive Officer 09/16/2024 01/02/2025 12/31/2026 96,566 n/a Douglass Given Board Member 09/12/2024 12/16/2024 12/31/2024 n/a 5,547 James Hamilton Chief of Discovery and Translational Medicine 08/19/2024 12/04/2024 11/28/2025 n/a 30,000 (1) This column indicates the total number of shares vesting, but the 10b5-1 Plan provides for the sale of only those shares necessary to satisfy payment of applicable withholding taxes. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information called for by this Item will be incorporated by reference from the Company’s Definitive Proxy Statement, under the headings Proposal One — Election of Directors, Equity Compensation Plan Information, Corporate Governance, Environmental and Social Commitment, Executive Compensation, and, if applicable, Delinquent Section 16(a) Reports — to be filed for the Company’s 2025 Annual Meeting of Stockholders (the “Definitive Proxy Statement”). ITEM 11. EXECUTIVE COMPENSATION The information called for by this Item will be incorporated by reference from the Definitive Proxy Statement, under the heading Executive Compensation. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The information called for by this Item will be incorporated by reference from the Definitive Proxy Statement, under the heading Voting Securities of Principal Stockholders and Management. ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE The information called for by this Item will be incorporated by reference from the Definitive Proxy Statement, under the headings Review and Approval of Related-Party Transactions and Certain Relationships and Related Transactions, and Director Independence. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES The information called for by this Item will be incorporated by reference from the Definitive Proxy Statement, under the heading Audit Fees. 75 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES The following documents are filed as part of this Annual Report on Form 10-K: (1) Financial Statements. See Index to Financial Statements and Schedule on page F-1. (2) Financial Statement Schedules. See Index to Financial Statements and Schedule on page F-1. All other schedules are omitted as the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the Consolidated Financial Statements or notes thereto. (3) Exhibits. The following exhibits are filed (or incorporated by reference herein) as part of this Annual Report on Form 10-K: Incorporated by Reference Herein Exhibit Number Description Form Date 1.1 Open Market Sale Agreement, dated as of December 2, 2022, by and between Arrowhead Pharmaceuticals, Inc. and Jefferies LLC Current Report on Form 8-K as Exhibit 1.1 December 2, 2022 2.1† Stock and Asset Purchase Agreement between Arrowhead Research Corporation and Roche entities, dated October 21, 2011 Annual Report on Form 10-K as Exhibit 2.1 December 20, 2011 2.2† Asset Purchase and Exclusive License Agreement between Arrowhead Research Corporation and Novartis Institutes for BioMedical Research, Inc., dated March 3, 2015 Quarterly Report on Form 10-Q, as Exhibit 2.1 May 11, 2015 3.1 Amended and Restated Certificate of Incorporation (incorporated by reference from Exhibit 3.3 of the Company’s Form 8-K filed on April 6, 2016) Current Report on Form 8-K as Exhibit 3.3 April 6, 2016 3.2 Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Arrowhead Pharmaceuticals, Inc. (incorporated by reference from Exhibit 3.2 of the Company’s Form 10-Q filed on May 2, 2023) Quarterly Report on Form 10-Q, as Exhibit 3.2 May 2, 2023 3.3 Second Amended and Restated Bylaws (incorporated by reference from Exhibit 3.1 of the Company’s Form 8-K filed on January 30, 2023) Current Report on Form 8-K as Exhibit 3.2 January 30, 2023 4.1 Form of Common Stock Certificate of Arrowhead Pharmaceuticals, Inc. Current Report on Form 8-K, as Exhibit 4.1 April 6, 2016 4.2 Form of Indenture Registration Statement on Form S-3, as Exhibit 4.2 December 2, 2019 4.3 Rights Agreement dated as of March 21, 2017, between the Company and Computershare Trust Company, N.A., as rights agent, which includes as Exhibit B the Form of Rights Certificate Current Report on Form 8-K, as Exhibit 4.1 March 23, 2017 4.4 Description of Registrant’s Securities Annual Report on Form 10-K, as Exhibit 4.4 November 25, 2019 4.5 Registration Rights Agreement by and between Arrowhead Pharmaceuticals, Inc. and Johnson & Johnson Innovation-JJDC, Inc., dated October 3, 2018 Quarterly Report on Form 10-Q, as Exhibit 10.4 February 7, 2019 4.6* Form of Investor Rights Agreement by and between Company and Sarepta Therapeutics Investments, Inc. (included as Exhibit A in Exhibit 10.4 8 ) 76 Incorporated by Reference Herein Exhibit Number Description Form Date 4.7* Form of Registration Rights Agreement by and between Company and Avoro Life Sciences Fund LLC (included as Exhibit B in Exhibit 10.49) 4.8* Form of Pre-Funded Warrant for Avoro Life Sciences Fund LLC 10.1** Arrowhead Research Corporation 2004 Equity Incentive Plan, as amended Schedule 14C, as Annex B January 12, 2012 10.2** Arrowhead Research Corporation 2013 Incentive Plan Schedule 14C, as Annex A December 20, 2013 10.3** Form of Stock Option Agreement for use with the 2013 Incentive Plan Current Report on Form 8-K, as Exhibit 10.1 February 12, 2014 10.4** Form of Restricted Stock Unit Agreement for use with the 2013 Incentive Plan Current Report on Form 8-K, as Exhibit 10.2 February 12, 2014 10.5** Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan Schedule 14A, as Exhibit A January 28, 2021 10.6** Form of RSU Agreement for Officers and Certain Other Employees (Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan- Inducement Award) Registration Statement on Form S-8, as Exhibit 99.1 December 22, 2021 10.7** Form of RSU Agreement for Officers and Certain Other Employees (Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan) Registration Statement on Form S-8, as Exhibit 99.1 February 28, 2024 10.8** Form of RSU Agreement for Employees (Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan - Inducement Award) Registration Statement on Form S-8, as Exhibit 99.2 December 22, 2021 10.9** Form of RSU Agreement for Employees (Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan) Registration Statement on Form S-8, as Exhibit 99.2 February 28, 2024 10.10** Form of Stock Option Grant (Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan- Inducement Award) Registration Statement on Form S-8, as Exhibit 99.3 December 22, 2021 10.11** Form of Stock Option Grant (Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan) Annual Report on Form 10-K, as Exhibit 10.11 November 29, 2023 10.12** Executive Incentive Plan, adopted December 12, 2006 Annual Report on Form 10-K, as Exhibit 10.11 December 14, 2006 10.13** A rrowhead Pharmaceuticals, Inc. Inducement Plan Quarterly Report on Form 10-Q, as Exhibit 10.1 May 9, 2024 10.14** Employment Agreement between Arrowhead and Dr. Christopher Anzalone, dated June 11, 2008 Current Report on Form 8-K, as Exhibit 10.1 June 13, 2008 10.15** Amendment to Employment Agreement between Arrowhead and Dr. Christopher Anzalone, effective May 12, 2009 Annual Report on Form 10-K, as Exhibit 10.8 December 22, 2009 10.16† Collaboration Agreement by and among Alnylam Pharmaceuticals, Inc. and F. Hoffmann-La Roche Ltd and Hoffman-La Roche Inc., dated October 29, 2009 † Annual Report on Form 10-K, as Exhibit 10.36 December 20, 2011 10.17† Non-Exclusive License Agreement between Arrowhead Research Corporation and Roche entities, dated October 21, 2011† Annual Report on Form 10-K, as Exhibit 10.33 December 20, 2011 10.18† License Agreement by and between Alnylam Pharmaceuticals, Inc., Arrowhead Research Corporation and Arrowhead Madison, Inc.† Quarterly Report on Form 10-Q, as Exhibit 10.1 August 12, 2014 10.19† Second Collaboration and Licensing Agreement between Arrowhead Pharmaceuticals, Inc. and Amgen Inc., dated September 28, 2016† Annual Report on Form 10-K, as Exhibit 10.19 December 14, 2016 77 Incorporated by Reference Herein Exhibit Number Description Form Date 10.20 Common Stock Purchase Agreement between the Company and Amgen Inc., dated September 28, 2016 Amendment No. 1 to the Registration Statement on Form S-3, as Exhibit 10.1) November 25, 2016 10.21† License Agreement by and between Arrowhead Pharmaceuticals, Inc. and Janssen Pharmaceuticals, Inc., dated October 3, 2018† Quarterly Report on Form 10-Q, as Exhibit 10.1 February 7, 2019 10.22† Amendment No. 1 to License Agreement by and between Arrowhead Pharmaceuticals, Inc. and Janssen Pharmaceuticals, Inc., dated December 18, 2018† Annual Report on Form 10-K, as Exhibit 10.19 November 25, 2019 10.23† Amendment No. 2 to License Agreement by and between Arrowhead Pharmaceuticals, Inc. and Janssen Pharmaceuticals, Inc., dated February 4, 2019† Annual Report on Form 10-K, as Exhibit 10.20 November 25, 2019 10.24† Amended and Restated License Agreement by an d between Arrowhead Pharmaceuticals, Inc. and GlaxoSmithKline Intellectual Property ( No. 3) Limited, dated December 11, 2023 Quarterly Report on Form 10-Q, as Exhibit 10.1 August 8, 2024 10.25 Stock Purchase Agreement by and between Johnson & Johnson Innovation-JJDC, Inc. and Arrowhead Pharmaceuticals, Inc., dated October 3, 2018 Quarterly Report on Form 10-Q, as Exhibit 10.3 February 7, 2019 10.26† Exclusive License and Co-Funding Agreement by and between Arrowhead Pharmaceuticals, Inc. and Takeda Pharmaceuticals U.S.A., Inc., dated October 7, 2020 † Quarterly Report on Form 10-Q, as Exhibit 10.1 February 4, 2021 10.27 First Amendment to Exclusive License and Co-Funding Agreement by and between Arrowhead Pharmaceuticals, Inc. and Takeda Pharmaceuticals U.S.A., Inc. dated March 15, 2022 Quarterly Report on Form 10-Q, as Exhibit 10.1 May 10, 2022 10.28† Collaboration and License Agreement by and between Arrowhead Pharmaceuticals, Inc. and Horizon Therapeutics Ireland DAC, dated June 18, 2021 † Quarterly Report on Form 10-Q, as Exhibit 10.4 August 5, 2021 10.29 Collaboration and License Agreement by and between Arrowhead Pharmaceuticals, Inc. and Glaxosmithkline Intellectual Property, dated November 22, 2021 Quarterly Report on Form 10-Q, as Exhibit 10.1 February 2, 2022 10.30 Royalty Purchase Agreement, dated as of November 9, 2022, by and between Arrowhead Pharmaceuticals, Inc. and Royalty Pharma Investments 2019 ICAV Quarterly Report on Form 10-Q, as Exhibit 10.1 February 6, 2023 10.31 Lease Agreement between University Research Park, Incorporated and Arrowhead Madison, Inc., dated January 8, 2016 Quarterly Report on Form 10-Q, as Exhibit 10.1 February 9. 2016 10.32 Amendment No. 1 to Lease Agreement between Arrowhead Madison , Inc. and University Research Park, Incorporated, dated October 22, 2018 Annual Report on Form 10-K, as Exhibit 10.23 November 23, 2020 10.33 Amendment No. 2 to Lease Agreement between Arrowhead Madison, Inc. and University Research Park, Incorporated, dated January 10, 2019 Annual Report on Form 10-K, as Exhibit 10.24 November 23, 2020 10.34 Amendment No. 3 to Lease Agreement between Arrowhead Madison, Inc. and University Research Park, Incorporated, dated January 11, 2019 Annual Report on Form 10-K, as Exhibit 10.25 November 23, 2020 10.35 Amendment No. 4 to Lease Agreement between Arrowhead Madison, Inc. and University Research Park, Incorporated, dated September 19, 2019 Annual Report on Form 10-K, as Exhibit 10.26 November 23, 2020 10.36 Amendment No. 5 to Lease Agreement between Arrowhead Madison, Inc. and University Research Park, Incorporated, dated May 14, 2020 Annual Report on Form 10-K, as Exhibit 10.27 November 23, 2020 10.37 Amendment No. 6 to Lease Agreement by and between Arrowhead Madison , Inc. and University Research Park, dated November 23, 2020 Quarterly Report on Form 10-Q, as Exhibit 10.3 February 4, 2021 78 Incorporated by Reference Herein Exhibit Number Description Form Date 10.38 Amendment No. 7 to Lease Agreement by and between Arrowhead Madison , Inc. and University Research Park, dated December 9, 2020 Quarterly Report on Form 10-Q, as Exhibit 10.4 February 4, 2021 10.39* Amendment No. 8 to Lease Agreement by and between Arrowhead Madison , Inc. and University Research Park, dated August 26, 2022 10.40* Amendment No. 9 to Lease Agreement by and between Arrowhead Madison , Inc. and University Research Park, dated April 3, 2023 10.41* Amendment No. 10 to Lease Agreement by and between Arrowhead Madison , Inc. and University Research Park, dated June 28, 2023 10.42* Amendment No. 11 to Lease Agreement by and between Arrowhead Madison , Inc. and University Research Park, dated September 13, 2024 10.43 Office Lease by and between 177 Colorado Owner LLC and Arrowhead Pharmaceuticals, Inc., dated April 17, 2019 Quarterly Report on Form 10-Q, as Exhibit 10.1 August 5, 2019 10.44 First Amendment to Office Lease by and between Arrowhead Pharmaceuticals, Inc. and 177 Colorado Owner LLC., dated October 23, 2020 Quarterly Report on Form 10-Q, as Exhibit 10.2 February 4, 2021 10.45 Lease Agreement by and between Arrowhead Pharmaceuticals, Inc. and ARE-SD Region No. 72, LLC, dated November 19, 2021 Quarterly Report on Form 10-Q, as Exhibit 10.2 February 2, 2022 10.46 First Amendment to Lease Agreement by and between Arrowhead Pharmaceuticals, Inc. and ARE-SD Region No. 72, LLC, dated September 26, 2023 Annual Report on Form 10-K, as Exhibit 10.39 November 29, 2023 10.47*† Financing Agreement by and between Company and Sixth Street Lending Partners, dated August 7, 2024 10.48* Stock Purchase Agreement by and between Company and Sarepta Therapeutics Investments, Inc., dated November 25, 2024 10.49* Securities Purchase Agreement by and between Company and Avoro Life Sciences Fund LLC, dated November 25, 2024 16.1 Letter from Rose, Snyder & Jacobs LLP, dated December 4, 2023 Current Report on Form 8-K, as Exhibit 16.1 December 5, 2023 19.1* Arrowhead Pharmaceuticals, Inc. Insider Trading Policy 21.1* List of Subsidiaries 23.1* Consent of Independent Public Registered Accounting Firm 23.2* Consent of Independent Public Registered Accounting Firm 31.1* Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 31.2* Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1*** Certification by Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 32.2*** Certification by Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 97** Arrowhead Pharmaceuticals, Inc. Compensation Recoupment (Clawback) Policy, dated November 20, 2023 Annual Report on Form 10-K, as Exhibit 97 November 29, 2023 101.INS* Inline XBRL Taxonomy Extension Instance Document 79 Incorporated by Reference Herein Exhibit Number Description Form Date 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 104* The cover page from the Company’s Annual Report on Form 10-K for the year ended September 30, 2024, formatted in Inline XBRL (included as Exhibit 101) * Filed herewith ** Indicates compensation plan, contract or arrangement. *** Furnished herewith † Certain portions of this exhibit were redacted by means of marking such portions with asterisks because the identified portions are (i) not material and (ii) treated as private or confidential by the Company. ITEM 16. FORM 10-K SUMMARY None. 80 SIGNATURE Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: November 26, 2024 ARROWHEAD PHARMACEUTICALS, INC. By: /s/ Christopher Anzalone Christopher Anzalone Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: Signature Title Date /s/ Christopher Anzalone Chief Executive Officer, President and Director (Principal Executive Officer) November 26, 2024 Christopher Anzalone /s/ Kenneth A. Myszkowski Chief Financial Officer (Principal Financial and Accounting Officer) November 26, 2024 Kenneth A. Myszkowski /s/ Douglass Given Director, Chairman of the Board of Directors November 26, 2024 Douglass Given /s/ Mauro Ferrari Director November 26, 2024 Mauro Ferrari /s/ Michael S. Perry Director November 26, 2024 Michael S. Perry /s/ William Waddill Director November 26, 2024 William Waddill /s/ Adeoye Olukotun Director November 26, 2024 Adeoye Olukotun /s/ Victoria Vakiener Director November 26, 2024 Victoria Vakiener /s/ Hongbo Lu Director November 26, 2024 Hongbo Lu 81 INDEX TO FINANCIAL STATEMENTS AND SCHEDULE Reports of Independent Registered Public Accounting Firm (PCAOB ID: 185 ) F- 2 Reports of Independent Registered Public Accounting Firm F- 5 Consolidated Balance Sheets as of September 30, 202 4 and 202 3 F- 6 Consolidated Statements of Operations and Comprehensive Loss for the years ended September 30, 2024, 2023 and 2022 F- 7 Consolidated Statements of Stockholders’ Equity for the years ended September 30, 2024, 2023 and 2022 F- 8 Consolidated Statements of Cash Flows for the years ended September 30, 2024, 2023 and 2022 F- 9 Notes to Consolidated Financial Statements F- 10 F-1 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Arrowhead Pharmaceuticals, Inc. Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Arrowhead Pharmaceuticals, Inc. and subsidiaries (the Company) as of September 30, 2024, the related consolidated statement of operations and comprehensive loss, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2024, and the results of its operations and its cash flows for the year ended, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of September 30, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated November 26, 2024 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate. Sufficiency of audit evidence over valuation of future royalty sales liability As discussed in Note 13 to the consolidated financial statements, the Company records the obligations under the Royalty Pharma Agreement with Royalty Pharma Investments (RPI) at carrying value using the effective interest method. The Company amortizes the sale of future royalties utilizing the prospective method to estimate future royalties to be paid by the Company to RPI over the life of the arrangement. The Company periodically assesses the amount and timing of expected royalty payments using a combination of internal projections and forecasts from external sources. To the extent such payments differ from the Company’s initial estimates, the Company will prospectively adjust the amortization of the royalty obligation and the effective interest rate. The estimate of the carrying value of the liability related to the sale of future royalties is derived from the estimate of future sales of olpasiran and the probability of success assumption. The estimate of future sales of olpasiran is based on key assumptions such as patient population, market penetration, olpasiran F-2 sales price, and the comparable guideline drug. The liability related to the sale of future royalties was $341,361 thousand as of September 30, 2024. We identified the evaluation of the sufficiency of audit evidence over the determination of the carrying value of the liability related to the sale of future royalties as a critical audit matter. Subjective auditor judgment was required to evaluate the sufficiency of audit evidence obtained because of the level of audit effort associated with evaluating the carrying value of the liability related to the sale of future royalties. The following are the primary procedures we performed to address this critical audit matter. We applied auditor judgment to determine the nature and extent of procedures to be performed over the evaluation of the carrying value of the liability related to the sale of future royalties. We evaluated the design and tested the operating effectiveness of certain internal controls related to management’s valuation process, including the determination of the key assumptions into the carrying value of the liability related to the sale of future royalties as described above. We assessed the patient population and market penetration assumptions by comparing to independently sourced external market and industry data. We performed sensitivity analyses over the estimated olpasiran sales price and probability of success using independently sourced external market and industry data and evaluated the impact of changes in those assumptions on the carrying value of the liability related to the sale of future royalties. We assessed the reasonableness of the comparable guideline drug by evaluating against drugs similar to olpasiran in the marketplace. We evaluated the sufficiency of audit evidence obtained by assessing the cumulative results of the audit procedures performed and potential bias in the accounting estimate, including the appropriateness of the nature and extent of such evidence. KPMG LLP We have served as the Company’s auditor since 2024. San Diego, CA November 26, 2024 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-3 To the Board of Directors and Stockholders of Arrowhead Pharmaceuticals, Inc. Opinion on Internal Control over Financial Reporting We have audited Arrowhead Pharmaceuticals, Inc. and subsidiaries' (the Company) internal control over financial reporting as of September 30, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheet of the Company as of September 30, 2024, the related consolidated statement of operations and comprehensive loss, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively, the consolidated financial statements), and our report dated November 26, 2024 expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. KPMG LLP San Diego, CA November 26, 2024 F-4 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Arrowhead Pharmaceuticals, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Arrowhead Pharmaceuticals, Inc., and Subsidiaries (the Company) as of September 30, 2023, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the two-year period ended September 30, 2023, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2023, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2023, in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Rose, Snyder & Jacobs LLP We have served as the Company’s auditor from 2004 to 2023. Encino, California November 29, 2023 F-5 Arrowhead Pharmaceuticals, Inc. Consolidated Balance Sheets (in thousands, except per share amounts) September 30, 2024 2023 ASSETS Current assets: Cash, cash equivalents and restricted cash $ 102,685 $ 110,891 Available-for-sale securities, at fair value 578,276 292,735 Prepaid expenses 9,537 8,813 Other current assets 4,973 4,033 Total current assets 695,471 416,472 Property, plant and equipment, net 386,032 290,262 Intangible assets, net 8,562 10,262 Right-of-use assets 45,255 45,297 Other assets 4,482 3,259 Total Assets $ 1,139,802 $ 765,552 LIABILITIES, NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 11,388 $ 35,866 Accrued expenses 63,017 39,763 Accrued payroll and benefits 21,989 17,963 Lease liabilities 6,342 10,563 Deferred revenue — 866 Other liabilities 432 435 Total current liabilities 103,168 105,456 Long-term liabilities: Lease liabilities, net of current portion 111,027 104,608 Liability related to the sale of future royalties 341,361 268,326 Credit facility 393,183 — Total long-term liabilities 845,571 372,934 Commitments and contingencies (Note 7) Noncontrolling interest and stockholders' equity: Common stock, $ 0.001 par value: Authorized 290,000 shares; issued and outstanding 124,376 and 107,312 shares 217 200 Additional paid-in capital 1,806,000 1,300,395 Accumulated other comprehensive income (loss) 4,750 ( 3,222 ) Accumulated deficit ( 1,625,523 ) ( 1,026,030 ) Total Arrowhead Pharmaceuticals, Inc. stockholders' equity 185,444 271,343 Noncontrolling interest 5,619 15,819 Total noncontrolling interest and stockholders' equity 191,063 287,162 Total Liabilities, Noncontrolling Interest and Stockholders' Equity $ 1,139,802 $ 765,552 The accompanying notes are an integral part of these consolidated financial statements. F-6 Arrowhead Pharmaceuticals, Inc. Consolidated Statements of Operations and Comprehensive Loss (in thousands, except per share amounts) Year Ended September 30, 2024 2023 2022 Revenue $ 3,551 $ 240,735 $ 243,231 Operating expenses: Research and development 505,870 353,188 297,307 General and administrative 98,761 92,549 124,431 Total operating expenses 604,631 445,737 421,738 Operating loss ( 601,080 ) ( 205,002 ) ( 178,507 ) Other income (expense): Interest income 22,720 15,299 5,033 Interest expense ( 32,352 ) ( 18,326 ) — Other, net ( 1,748 ) 1,538 765 Total other (expense) income ( 11,380 ) ( 1,489 ) 5,798 Loss before income tax expense and noncontrolling interest ( 612,460 ) ( 206,491 ) ( 172,709 ) Income tax (benefit) expense ( 2,767 ) 2,784 3,785 Net loss including noncontrolling interest ( 609,693 ) ( 209,275 ) ( 176,494 ) Net loss attributable to noncontrolling interest, net of tax ( 10,200 ) ( 4,000 ) ( 431 ) Net loss attributable to Arrowhead Pharmaceuticals, Inc. $ ( 599,493 ) $ ( 205,275 ) $ ( 176,063 ) Net loss per share attributable to Arrowhead Pharmaceuticals, Inc.: Basic $ ( 5.00 ) $ ( 1.92 ) $ ( 1.67 ) Diluted $ ( 5.00 ) $ ( 1.92 ) $ ( 1.67 ) Weighted-average shares used in calculating Basic 119,784 106,750 105,426 Diluted 119,784 106,750 105,426 Other comprehensive loss, net of tax: Unrealized gains (losses) on available-for-sale securities 3,775 ( 2,964 ) — Foreign currency translation adjustments 4,197 ( 122 ) ( 67 ) Comprehensive loss $ ( 601,721 ) $ ( 212,361 ) $ ( 176,561 ) The accompanying notes are an integral part of these consolidated financial statements. F-7 Arrowhead Pharmaceuticals, Inc. Consolidated Statements of Stockholders’ Equity (in thousands) Common Stock Amount ($) Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Non- controlling Interest Totals Balance at September 30, 2021 104,327 $ 197 $ 1,053,386 $ ( 69 ) $ ( 644,692 ) $ — $ 408,822 Stock-based compensation — — 120,893 — — — 120,893 Exercise of stock options 606 — 5,185 — — — 5,185 Common stock - restricted stock units vesting 1,027 1 ( 1 ) — — — — Foreign currency translation adjustments — — — ( 67 ) — — ( 67 ) Interest in joint venture — — 39,750 — — 20,250 60,000 Net loss — — — — ( 176,063 ) ( 431 ) ( 176,494 ) Balance at September 30, 2022 105,960 $ 198 $ 1,219,213 $ ( 136 ) $ ( 820,755 ) $ 19,819 $ 418,339 Common Stock Amount ($) Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Non- controlling Interest Totals Balance at September 30, 2022 105,960 $ 198 $ 1,219,213 $ ( 136 ) $ ( 820,755 ) $ 19,819 $ 418,339 Stock-based compensation — — 78,130 — — — 78,130 Exercise of stock options 439 1 3,053 — — — 3,054 Common stock - restricted stock units vesting 913 1 ( 1 ) — — — — Unrealized losses on available-for-sale securities — — — ( 2,964 ) — — ( 2,964 ) Foreign currency translation adjustments — — — ( 122 ) — — ( 122 ) Net loss — — — — ( 205,275 ) ( 4,000 ) ( 209,275 ) Balance at September 30, 2023 107,312 $ 200 $ 1,300,395 $ ( 3,222 ) $ ( 1,026,030 ) $ 15,819 $ 287,162 Common Stock Amount ($) Additional Paid-In Capital Accumulated Other Comprehensive Loss Accumulated Deficit Non- controlling Interest Totals Balance at September 30, 2023 107,312 $ 200 $ 1,300,395 $ ( 3,222 ) $ ( 1,026,030 ) $ 15,819 $ 287,162 Stock-based compensation — — 73,968 — — — 73,968 Exercise of stock options 226 — 2,389 — — — 2,389 Common stock - restricted stock units vesting 1,048 1 ( 1 ) — — — — Common stock issued, net of offering costs 15,790 16 429,249 — — — 429,265 Unrealized gains on available-for-sale securities — — — 3,775 — — 3,775 Foreign currency translation adjustments — — — 4,197 — — 4,197 Net loss — — — — ( 599,493 ) ( 10,200 ) ( 609,693 ) Balance at September 30, 2024 124,376 $ 217 $ 1,806,000 $ 4,750 $ ( 1,625,523 ) $ 5,619 $ 191,063 The accompanying notes are an integral part of these consolidated financial statements. F-8 Arrowhead Pharmaceuticals, Inc. Consolidated Statements of Cash Flows (in thousands) Year Ended September 30, 2024 2023 2022 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ ( 609,693 ) $ ( 209,275 ) $ ( 176,494 ) Adjustments to reconcile net loss to net cash flow from operating activities: Stock-based compensation 73,968 78,130 120,893 Depreciation and amortization 18,595 12,493 10,421 (Accretion) Amortization of note premiums/discounts ( 3,244 ) ( 2,017 ) 2,910 Non-cash interest expense on liability related to the sale of future royalties 23,035 18,326 — Non-cash interest expense on credit facility 9,317 — — Realized loss on investments 80 — 4,432 Changes in operating assets and liabilities: Accounts receivable — 1,410 8,845 Prepaid expenses and other current assets ( 1,664 ) 11,603 ( 19,291 ) Accounts payable ( 5,536 ) 32,998 ( 6,589 ) Accrued expenses 32,117 ( 14,965 ) 17,750 Deferred revenue ( 866 ) ( 129,183 ) ( 112,501 ) Operating lease, net 2,240 46,590 13,428 Other ( 1,200 ) — 65 Net cash used in operating activities ( 462,851 ) ( 153,890 ) ( 136,131 ) CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment ( 141,469 ) ( 176,737 ) ( 52,777 ) Purchases of investments ( 720,947 ) ( 246,141 ) ( 223,391 ) Proceeds from sales and maturities of investments 442,344 326,723 270,751 Net cash used in investing activities ( 420,072 ) ( 96,155 ) ( 5,417 ) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from the issuance of common stock, net of offering costs 429,265 — — Proceeds from the sale of future royalties 50,000 250,000 — Proceeds from credit facility 392,000 — — Payment of debt issuance costs ( 3,134 ) — — Proceeds from the exercises of stock options 2,389 3,053 5,186 Proceeds from investment in joint venture — — 60,000 Net cash provided by financing activities 870,520 253,053 65,186 Net (decrease) increase in cash, cash equivalents and restricted cash ( 12,403 ) 3,008 ( 76,362 ) Effect of exchange rate on cash, cash equivalents and restricted cash 4,197 ( 122 ) ( 67 ) CASH, CASH EQUIVALENTS AND RESTRICTED CASH: BEGINNING OF PERIOD 110,891 108,005 184,434 END OF PERIOD $ 102,685 $ 110,891 $ 108,005 Supplementary disclosure of cash flows: Income Taxes Paid $ ( 3,744 ) $ — $ ( 2 ) Supplementary disclosure of non-cash investing activities: Capital expenditures included in accounts payable and accrued expenses $ 4,206 $ 14,044 $ 17,578 Supplementary disclosure of non-cash financing activities: Debt issuance costs included in accrued expenses $ 5,000 $ — $ — The accompanying notes are an integral part of these consolidated financial statements. F-9 Arrowhead Pharmaceuticals, Inc. Notes to Consolidated Financial Statements NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES General Arrowhead Pharmaceuticals, Inc. and its subsidiaries (referred to herein collectively as the “Company”) are primarily engaged in developing medicines that treat intractable diseases by silencing the genes that cause them. Using a broad portfolio of RNA chemistries and efficient modes of delivery, the Company’s therapies trigger the RNA interference mechanism to induce rapid, deep and durable knockdown of target genes. RNA interference (“RNAi”) is a mechanism present in living cells that inhibits the expression of a specific gene, thereby affecting the production of a specific protein. The Company’s RNAi-based therapeutics may leverage this natural pathway of gene silencing to target and shut down specific disease-causing genes. The following table presents the Company’s current pipeline: Therapeutic Area Name Stage Product Rights Cardiometabolic plozasiran Phase 3 Arrowhead zodasiran Phase 2b Arrowhead olpasiran Phase 3 Amgen Pulmonary ARO-RAGE Phase 1/2a Arrowhead ARO-MUC5AC Phase 1/2a Arrowhead ARO-MMP7 Phase 1/2a Arrowhead Liver GSK-4532990 Phase 2b GSK fazirsiran Phase 3 Takeda and Arrowhead daplusiran/tomligisiran Phase 2 GSK ARO-PNPLA3 Phase 1 Arrowhead ARO-C3 Phase 1/2a Arrowhead ARO-CFB Phase 1/2a Arrowhead ARO-INHBE Phase 1/2a Arrowhead Muscle ARO-DUX4 Phase 1/2a Arrowhead ARO-DM1 Phase 1/2a Arrowhead Central Nervous System (CNS) ARO-ATXN2 Phase 1/2a Arrowhead The Company operates lab facilities in California and Wisconsin, where its research and development activities, including the development of RNAi therapeutics, take place. The Company’s principal executive offices are located in Pasadena, California. Consolidation and Basis of Presentation The Consolidated Financial Statements include the accounts of Arrowhead Pharmaceuticals, Inc. and its subsidiaries (wholly-owned subsidiaries and a variable interest entity for which the Company is the primary beneficiary). Subsidiaries refer to Arrowhead Madison, Inc., Visirna Therapeutics, Inc. (“Visirna”), and Arrowhead Australia Pty Ltd. For subsidiaries in which the Company owns or is exposed to less than 100% of the economics, the Company records net loss attributable to noncontrolling interests in its consolidated statements of operations equal to the percentage of the economic or ownership interests retained in such entity by the respective noncontrolling party. The Consolidated Financial Statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). All intercompany transactions and balances have been eliminated. Certain prior period amounts have been reclassified to conform with the current period presentation. Liquidity The Company’s primary sources of financing have been through the sale of its equity securities, credit facility, revenue from its licensing and collaboration agreements and the sale of certain future royalties. Research and development activities have required significant investment since the Company’s inception and are expected to continue to require significant cash expenditure in the future, particularly as the Company’s pipeline of drug candidates and its headcount have F-10 both expanded. Additionally, significant capital investment will be required as the Company’s pipeline matures into later stage clinical trials, including commercialization efforts. At September 30, 2024, the Company had $ 102.7 million in cash, cash equivalents and restricted cash ($ 3.5 million in restricted cash) and $ 578.3 million in available-for-sale securities to fund operations. During the year ended September 30, 2024, the Company’s cash, cash equivalents and restricted cash and investments balance increased by $ 277.3 million. This increase was primarily driven by net proceeds from the credit facility and the underwritten offering as discussed below, offset by ongoing expenses related to the Company’s research and development programs, general and administrative costs, and capital expenditures. On August 7, 2024, the Company entered into a financing agreement (the “Financing Agreement”) with Sixth Street Lending Partners, as representatives of several lenders. The Financing Agreement provides for a senior secured term loan facility of $ 500 million, which includes $ 400.0 million funded on the closing date with an additional $ 100.0 million at the Company’s option during the seven-year term. The Company received net proceeds of $ 388.9 million, after issuance costs as of September 30, 2024. See Note 14. On January 2, 2024, the Company entered into an underwriting agreement with Jefferies LLC, BofA Securities, Inc., and Cowen and Company, LLC, as representatives of the several underwriters. The Company issued 15,790,000 shares of common stock at an offering price of $ 28.50 per share. The aggregate purchase price paid by investors was $ 450.0 million, and the Company received net proceeds of $ 429.3 million after deducting advisory fees and offering expenses. In total, the Company is eligible to receive up to $ 2.7 billion in developmental, regulatory and sales milestones, and may receive various royalties on net sales from its licensing and collaboration agreements, subject to the terms and conditions of those agreements. The revenue recognition for these collaboration agreements is discussed further in Note 2. Summary of Significant Accounting Policies Use of Estimates The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, judgments and assumptions. The Company bases its estimates on historical experience and on various other assumptions that it believes are reasonable, the results of which form the basis for making judgments about the carrying values of assets, liabilities and equity and the amount of revenue and expense. Actual results could materially differ from those estimates. Cash, Cash Equivalents and Restricted Cash All highly liquid interest-bearing investments are classified as cash equivalents. These investments mainly include commercial paper with maturities of three months or less when purchased. The carrying value of these cash equivalents approximate fair value. There was $ 3.5 million and $ 7.9 million restricted cash at September 30, 2024 and 2023, respectively, that is primarily held as collateral associated with letters of credit for the Company’s facility leases. Investments The Company classified all of its investments in debt securities as available-for-sale and as current assets as they represent the investment of funds available for current operations as of September 30, 2024 and 2023. The available-for-sale investments may consist of investment-grade interest bearing instruments, primarily money market accounts, government-sponsored enterprise securities, corporate bonds and/or commercial paper, which are accounted for at fair value. Dividends from these funds were automatically re-invested. Changes in fair values are reported as unrealized gains or losses and are recorded in the Company’s consolidated statement of operations and comprehensive loss. The Company evaluates its investments for impairment. If an unrealized loss is determined to be other-than-temporary, it is written off as a realized loss through the consolidated statements of operations and comprehensive loss. The Company’s methodology of assessing other-than-temporary impairments is based on security-specific analysis as of the balance sheet date and considers various factors, including the length of time to maturity and the extent to which the fair value has been less than the cost, recoverability of future cash flows as compared to carrying value of the security, the financial condition and the near-term prospects of the issuer, and the Company’s ability and intent to hold the security. If a decline in fair value of investments is determined to be other-than-temporary, the securities are written down to fair value F-11 as the new cost basis and the amount of the write down is accounted for as realized losses. The Company did not recognize any other-than-temporary impairments of its investment for the years ended September 30, 2024, 2023, and 2022. Concentration of Credit Risk Financial instruments that potentially expose the Company to concentration of credit risk primarily consist of cash, cash equivalents and restricted cash and investments. As of September 30, 2024 and 2023, the Company’s investments were primarily invested in money market funds, commercial paper, and corporate debt securities through highly rated financial institutions. The Company has established guidelines relative to diversification and maturities that maintain safety and liquidity. The Company periodically reviews and modifies these guidelines to maximize trends in yields and interest rates without compromising safety and liquidity. The Company also maintains several bank accounts primarily at two financial institutions for its operations. These accounts are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $ 250,000 per institution. Property, Plant and Equipment Property, plant and equipment are recorded at cost, net of accumulated depreciation. Depreciation expense is recorded on a straight-line basis over the estimated useful lives of the assets. Leasehold improvements are amortized over the lesser of the expected useful life or the remaining lease term. Construction in progress reflects amounts incurred for construction or improvements of property, plant and equipment that have not been placed in service. Upon disposition, the cost and accumulated depreciation of assets retired or sold are removed from the respective asset category, and any gain or loss is recognized in the Company’s consolidated statement of operations and comprehensive loss. The estimated useful lives of property, plant and equipment are as follows (in years): Estimated Useful Lives Building 39 Research equipment 5 to 10 Furniture 7 Computers and software 3 to 5 Leasehold improvements 3 to 15 The Company periodically assesses long-lived assets or asset groups, including property, plant and equipment, for recoverability when events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the Company identifies an indicator of impairment, the Company assesses recoverability by comparing the carrying amount of the asset to the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset. An impairment loss is recognized when the carrying amount is not recoverable and is measured as the excess of carrying value over fair value. There were no impairment charges during the years ended September 30, 2024, 2023, and 2022. Intangible Assets Subject to Amortization Intangible assets subject to amortization include certain patents and license agreements. The Company evaluates intangible assets for impairment annually or whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount of intangible assets may exceed their implied fair values. No impairment charges were recorded during the years ended September 30, 2024, 2023, and 2022. Leases The Company determines whether a contract is, or contains, a lease at inception. All of the Company’s leases are classified as operating leases. Leases with terms greater than one-year are recognized on the Company’s consolidated balance sheets as right-of-use assets that represent the Company’s right to use an underlying asset for the lease term, and lease liabilities that represent its obligation to make lease payments arising from the lease. Lease assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the expected lease term. As of September 30, 2024 and 2023, the Company is not reasonably certain that it will exercise renewal options for any lease facilities. Therefore, these options are not included in the right-of-use assets and liabilities. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis an amount equal to the lease payments over a similar term and in a similar economic environment. The Company records expense to recognize lease payments on a straight-line basis over the expected lease term. Costs determined to be variable and not based on an index or rate are not included in the measurement of the lease liability and are expensed as incurred. Clinical Accruals F-12 The Company accrues liabilities for products received or services incurred, particularly for ongoing clinical trials, where service providers have not yet billed or where billing terms do not align with the timing of the work performed as of the period-end. These costs mainly include third-party clinical management or clinical research organization (CRO), laboratory analysis, and investigator fees. Accrual estimates may be based on vendor communications to obtain pending invoices and/or estimates for services performed during the period. In some cases, these estimates require judgment, drawing on an understanding of research and development programs, services provided during the period, prior experience, and, where applicable, the expected duration of third-party contracts. Actual costs upon settlement may differ significantly from the accrued amounts in the Company’s consolidated financial statements, though historical estimates have not differed materially from actual costs. Revenue Recognition The revenue standard provides a five-step framework for recognizing revenue as control of promised goods or services is transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements that it determines are within the scope of the revenue standard, the Company performs the following five steps: (i) identify the contract; (ii) identify the performance obligations; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. At contract inception, the Company assesses whether the goods or services promised within each contract are distinct and, therefore, represent a separate performance obligation, or whether they are not distinct and are combined with other goods and services until a distinct bundle is identified. The Company then determines the transaction price, which typically includes upfront payments and any variable consideration that it determines is probable to not cause a significant reversal in the amount of cumulative revenue recognized when the uncertainty associated with the variable consideration is resolved. The Company then allocates the transaction price to each performance obligation and recognizes the associated revenue when (or as) each performance obligation is satisfied. The Company recognizes the transaction price allocated to upfront license payments as revenue upon delivery of the license to the customer and resulting ability of the customer to use and benefit from the license, if the license is determined to be distinct from the other performance obligations identified in the contract. These other performance obligations are typically to perform research and development services for the customer, often times relating to the candidate that the customer is licensing. If the license is not considered to be distinct from other performance obligations, the Company assesses the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied at a point in time or over time. If the performance obligation is satisfied over time, the Company then determines the appropriate method of measuring progress for purposes of recognizing revenue from license payments. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the related revenue recognition. Typically, the Company’s collaboration agreements entitle it to additional payments upon the achievement of milestones or royalties on sales. The milestones are generally categorized into three types: development milestones, generally based on the initiation of toxicity studies or clinical trials; regulatory milestones, generally based on the submission, filing or approval of regulatory applications such as a New Drug Application (“NDA”) in the United States; and sales-based milestones, generally based on meeting specific thresholds of sales in certain geographic areas. The Company evaluates whether it is probable that the consideration associated with each milestone or royalty will not be subject to a significant reversal in the cumulative amount of revenue recognized. Amounts that meet this threshold are included in the transaction price using the most likely amount method, whereas amounts that do not meet this threshold are excluded from the transaction price until they meet this threshold. At the end of each subsequent reporting period, the Company re-evaluates the probability of a significant reversal of the cumulative revenue recognized for its milestones and royalties, and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and net income in the Company’s consolidated statements of operations and comprehensive loss. Typically, milestone payments and royalties are achieved after the Company’s performance obligations associated with the collaboration agreements have been completed and after the customer has assumed responsibility for the respective clinical or preclinical program. Milestones or royalties achieved after the Company’s performance obligations have been completed are recognized as revenue in the period the milestone or royalty was achieved. If a milestone payment is achieved during the performance period, the milestone payment would be recognized as revenue to the extent performance had been completed at that point, and the remaining balance would be recorded as deferred revenue. The revenue standard requires the Company to assess whether a significant financing component exists in determining the transaction price. The Company performs this assessment at the onset of its licensing or collaboration agreements. Typically, a significant financing component does not exist because the customer is paying for a license or services in advance with an upfront payment. Additionally, future royalty payments are not substantially within the control of the Company or the customer. F-13 Further, the revenue standard requires the Company to allocate the arrangement consideration on a relative standalone selling price basis for each performance obligation after determining the transaction price of the contract and identifying the performance obligations to which that amount should be allocated. The relative standalone selling price is defined in the revenue standard as the price at which an entity would sell a promised good or service separately to a customer. If other observable transactions in which the Company has sold the same performance obligation separately are not available, the Company estimates the standalone selling price of each performance obligation. Key assumptions to determine the standalone selling price may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success. Whenever the Company determines that goods or services promised in a contract should be accounted for as a combined performance obligation over time, the Company determines the period over which the performance obligations will be performed and revenue will be recognized. Revenue is recognized using the input method; Labor hours, costs incurred or patient visits in clinical trials are typically used as the measure of performance. Significant management judgment is required in determining the level of effort required under an arrangement and the period over which the Company is expected to complete its performance obligations. If the Company determines that the performance obligation is satisfied over time, any upfront payment received is initially recorded as deferred revenue on its consolidated balance sheets. Certain judgments affect the application of the Company’s revenue recognition policy. For example, the Company records short-term (less than one year) and long-term (over one year) deferred revenue based on its best estimate of when such revenue will be recognized. This estimate is based on the Company’s current operating plan and, the Company may recognize a different amount of deferred revenue over the next 12-month period if its plan changes in the future. Collaborative Arrangements The Company analyzes its collaborative arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards, and therefore are within the scope of Financial Accounting Standards Board (“FASB”) Topic 808 - Collaborative Arrangements . For collaborative arrangements that contain multiple elements, the Company determines which units of account are deemed to be within the scope of Topic 808 and which units of account are more reflective of a vendor-customer relationship, and therefore are within the scope of Topic 606 - Revenue for Contracts from Customers . For units of account that are accounted for pursuant to Topic 808, an appropriate recognition method is determined and applied consistently, either by analogy to appropriate accounting literature or by applying a reasonable accounting policy election. For collaborative arrangements that are within the scope of Topic 808, the Company evaluates the income statement classification for presentation of amounts due to or owed from other participants associated with multiple units of account in a collaborative arrangement based on the nature of each activity. Payments or reimbursements that are the result of a collaborative relationship instead of a customer relationship, such as co-development and co-commercialization activities, are recorded as increases or decreases to research and development expense or general and administrative expense, as appropriate. Research and Development Expenses Costs and expenses that can be clearly identified as research and development are charged to expense as incurred. Included in research and development costs are operating costs, facilities, supplies, external services, clinical trial and manufacturing costs, overhead directly related to the Company’s research and development operations, and costs to acquire technology licenses. Stock-Based Compensation Share-based compensation expenses for all stock grants are based on their estimated grant-date fair value. The fair value of stock option awards is estimated using the Black-Scholes option valuation model which requires the input of subjective assumptions to calculate the value of stock options. The Company uses historical data and other information to estimate the expected price volatility and the expected forfeiture rate for stock option awards. For restricted stock units, the value of the award is based on the Company’s stock price at the grant date. For performance-based restricted stock unit awards, the value of the award is based on the Company’s stock price at the grant date, with consideration given to the probability of the performance condition being achieved. Expense is recognized over the vesting period for all awards and commences at the grant date for time-based awards and upon the Company’s determination that the achievement of such performance conditions is probable for performance-based awards. This determination requires significant judgment by management. Income Taxes F-14 Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting basis and the respective tax basis of the Company’s assets and liabilities, and expected benefits of utilizing net operating loss, capital loss, and tax-credit carryforwards. The Company assesses the likelihood that its deferred tax assets will be realized and, to the extent management does not believe these assets are more likely than not to be realized, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates or laws is recognized in earnings in the period that includes the enactment date. Variable Interest Entity (“VIE”) A VIE is an entity that, by design, either (i) lacks sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties; or (ii) has equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity. The primary beneficiary of a VIE is required to consolidate the assets and liabilities of the VIE. The primary beneficiary is the party that has both (i) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE through its interest in the VIE. On April 25, 2022, the Company entered into a license agreement with Visirna (Note 2) and consolidated Visirna’s financial statements in which the Company has a direct controlling financial interest based on the VIE model. The Company considers all the facts and circumstances, including its role in establishing Visirna and its ongoing rights and responsibilities to assess whether the Company has the power to direct the activities of Visirna. In general, the parties that make the most significant decisions affecting a VIE and have the right to unilaterally remove those decision-makers are deemed to have the power to direct the activities of a VIE. The Company also considers all of its economic interests to assess whether the Company has the obligation to absorb losses of Visirna or the right to receive benefits from it that could potentially be significant to Visirna. This assessment requires the Company to apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to Visirna. Factors considered in assessing the significance include: the design of Visirna, including its capitalization structure, subordination of interests, payment priority, and the reasons why the interests are held by the Company. At Visirna’s inception, the Company determined whether it was the primary beneficiary and if Visirna should be consolidated based on the facts and circumstances. The Company performs ongoing reassessments of the VIE based on reconsideration events and reevaluates whether a change to the consolidation is required. As of September 30, 2024, there were no events to be reconsidered in the consolidation. Net Loss per Share Net loss per share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares primarily consist of stock options and restricted stock units outstanding. During the years ended September 30, 2024, 2023 and 2022, the calculation of the effect of dilutive stock options and restricted stock units excluded all stock options and restricted stock units outstanding during the period due to their anti-dilutive effect. Foreign Currency Translation Adjustments One of the Company’s wholly-owned subsidiaries’ functional currencies is not the United States dollar, which is the Company’s reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Translation adjustments arising from the use of different exchange rates from period to period are included in the accumulated other comprehensive loss. Segment Information The Company operates as a single segment because its chief decision makers review operating results on an aggregate basis and manage its operations as a single operating segment. F-15 Recent Accounting Pronouncements In December 2023, the 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 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. NOTE 2. COLLABORATION AND LICENSE AGREEMENTS The following table provides a summary of revenue recognized: Year Ended September 30, 2024 2023 2022 (in thousands) GSK $ 2,685 $ 29,657 $ 124,764 Horizon — 23,206 29,181 Takeda 866 162,516 85,834 Janssen — 356 3,452 Amgen — 25,000 — Total $ 3,551 $ 240,735 $ 243,231 The following table summarizes the balance of receivables and contract liabilities related to the Company’s collaboration and license agreements: September 30, 2024 2023 (in thousands) Receivables included in accounts receivable $ — $ — Contract liabilities included in deferred revenue $ — $ 866 Glaxosmithkline Intellectual Property (No. 3) Limited (“GSK”) 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. GSK is wholly responsible for all clinical development and commercialization of GSK-4532990 in its territory. The Company determined the initial transaction price totaled $ 120.0 million, including the upfront payment, which was collected in January 2022. The Company has completed its performance obligation related to this agreement, and the upfront payment of $ 120.0 million was fully recognized in the year ended September 30, 2022. Further, GSK dosed the first patient in a Phase 2b trial in March 2023 and paid a $ 30.0 million milestone payment to the Company in the third quarter of fiscal 2023. The Company is eligible for an additional payment of $ 100.0 million upon achieving the first patient dosed in a Phase 3 trial. Furthermore, should the Phase 3 trial read out positively, and the potential new medicine receives regulatory F-16 approval in major markets, the deal provides for commercial milestone payments to the Company of up to $ 190.0 million at first commercial sale, and up to $ 590.0 million in sales-related milestone payments. The Company is further eligible to receive tiered royalties on net product sales in a range of mid-teens to twenty percent. 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 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 September 30, 2024. Horizon Therapeutics Ireland DAC (“Horizon”) In June 2021, Horizon and the Company entered into a collaboration and license agreement (the “Horizon License Agreement”). Under the terms of the Horizon License Agreement, Horizon received a worldwide exclusive license for HZN-457, a clinical-stage medicine being developed by Horizon as a potential treatment for people with uncontrolled gout. At the inception of the Horizon License Agreement, the Company identified one distinct performance obligation. The Company determined that the key deliverables included the license and certain R&D services, including the Company’s responsibilities to conduct all activities through the preclinical stages of development of HZN-457 (the “Horizon R&D Services”). The Company received a $ 40.0 million upfront payment in July 2021. Revenue was recognized on a straight-line basis, which corresponded to the timeframe for completing the Horizon R&D Services, concluding in the first quarter of 2023. Further, the Company received an additional $ 15.0 million upon Horizon’s initiation of a Phase 1 clinical trial in January 2023. On October 6, 2023, Amgen completed its acquisition of Horizon and subsequently notified the Company of Amgen’s intent to terminate the HZN-457 license. Horizon exercised its right to terminate the Horizon License Agreement for convenience, which took effect on December 21, 2023. Takeda Pharmaceutical Company Limited (“Takeda”) In October 2020, Takeda and the Company entered into an Exclusive License and Co-Funding Agreement (the “Takeda License Agreement”). Under the Takeda License Agreement, Takeda and the Company will co-develop the Company’s fazirsiran program (formerly TAK-999 and ARO-AAT), the Company’s second-generation subcutaneously administered RNAi therapeutic candidate being developed as a treatment for liver disease associated with alpha-1 antitrypsin deficiency. Within the United States, fazirsiran, if approved, will be co-commercialized under a 50/50 profit sharing structure. Outside the United States, Takeda received an exclusive license to commercialize fazirsiran and will lead the global commercialization strategy, while the Company will be eligible to receive tiered royalties of 20 % to 25 % on net sales. At the inception of the Takeda License Agreement, the Company identified one distinct performance obligation. The Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibilities to complete the initial portion of the SEQUOIA study, to complete the ongoing Phase 2 AROAAT2002 study and to ensure certain manufacturing of fazirsiran drug product is completed and delivered to Takeda (the “Takeda R&D Services”). Due to the specialized and unique nature of these Takeda R&D Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation. Beyond the Takeda R&D Services, which are the responsibility of the Company, Takeda will be responsible for managing future clinical development and commercialization outside the United States. Within the United States, the Company will also participate in co-development and co-commercialization efforts and will co-fund these efforts with Takeda as part of the 50/50 profit sharing structure within the United States. The Company considers the collaborative activities, including the co-development and co-commercialization, to be a separate unit of account within Topic 808, and as such, these co-funding amounts are recorded as research and development expenses or general and administrative expenses, as appropriate. Under the terms of the Takeda License Agreement, the Company received $ 300.0 million as an upfront payment in January 2021 and an additional $ 40.0 million upon Takeda’s initiation of a Phase 3 REDWOOD clinical study of fazirsiran F-17 in March 2023, and is eligible to receive up to $ 527.5 million in additional potential development, regulatory and commercial milestones. 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). 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 September 30, 2024. The Company recorded $ 23.4 million as accrued expenses as of September 30, 2024 that was primarily driven by co-development and co-commercialization activities. Janssen Pharmaceuticals, Inc. (“Janssen”) 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 daplusiran/tomligisiran (GSK5637608, formerly JNJ-3989). Daplusiran/tomligisiran had previously been licensed to Janssen in October 2018. Amgen Inc. (“Amgen”) In September 2016, Amgen and the Company entered into two collaboration and license agreements and a common stock purchase agreement. Under the Second Collaboration and License Agreement (the “Olpasiran Agreement”), Amgen received a worldwide, exclusive license to the Company’s novel RNAi olpasiran (previously referred to as AMG-890 or ARO-LPA) program. These RNAi molecules are designed to reduce elevated lipoprotein(a), which is a genetically validated, independent risk factor for atherosclerotic cardiovascular disease. Under the Olpasiran Agreement, Amgen is wholly responsible for clinical development and commercialization. Under the Olpasiran Agreement, the Company has received $ 35.0 million in upfront payments and $ 21.5 million in the form of an equity investment by Amgen in the Company’s common stock. Further, the Company received 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 September 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”). Pursuant to the Royalty Pharma Agreement, Royalty Pharma paid an upfront amount of $ 250.0 million during the first quarter of fiscal 2023. An additional milestone payment of $ 50.0 million was paid during the third quarter of fiscal 2024 due to the completed enrollment of the Phase 3 OCEAN(a) outcomes trial for olpasiran. In consideration for the payments under the Royalty Pharma Agreement, Royalty Pharma is entitled to receive all royalties otherwise payable by Amgen to the Company under the Olpasiran Agreement. The Company remains eligible to receive up to an additional $ 485.0 million in remaining development, regulatory and sales milestone payments payable from Amgen and Royalty Pharma. See Note 13. F-18 NOTE 3. BALANCE SHEET ACCOUNTS Property, Plant and Equipment The following table summarizes the Company’s major classes of property, plant and equipment: September 30, 2024 2023 (in thousands) Land $ 2,996 $ 2,996 Building 75,988 — Research equipment 65,353 56,509 Furniture 5,594 1,540 Computers and software 981 700 Leasehold improvements 104,410 103,813 Construction in progress 188,731 166,655 444,053 332,213 Less: Accumulated depreciation and amortization ( 58,021 ) ( 41,951 ) Property, plant and equipment, net $ 386,032 $ 290,262 Depreciation and amortization expense for property, plant and equipment for the years ended September 30, 2024, 2023, and 2022 was $ 16.9 million, $ 10.7 million and $ 8.7 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 $ 76.0 million from construction in progress to building as of September 30, 2024. Further, the Company commenced depreciation on the newly completed facility over a 39 -year period. Accrued Expenses Accrued expenses consist of the following: September 30, 2024 2023 (in thousands) Accrued R&D expenses $ 28,069 $ 12,826 Accrued R&D expenses; co-development 23,351 5,895 Accrued capital expenditures 4,206 14,044 Other 7,391 6,998 Total accrued expenses $ 63,017 $ 39,763 F-19 NOTE 4. INVESTMENTS The Company’s investments consisted of the following: As of September 30, 2024 (in thousands) Adjusted Basis Gross Unrealized Gains Gross Unrealized Losses Fair Value Available-for-sale securities $ 577,465 $ 837 $ ( 26 ) $ 578,276 Total current investments $ 577,465 $ 837 $ ( 26 ) $ 578,276 As of September 30, 2023 (in thousands) Adjusted Basis Gross Unrealized Gains Gross Unrealized Losses Fair Value Available-for-sale securities $ 295,699 $ 3 $ ( 2,967 ) $ 292,735 Total current investments $ 295,699 $ 3 $ ( 2,967 ) $ 292,735 As of September 30, 2024, the gross unrealized losses were immaterial, and all of the Company’s available-for-sale investments were due within one year or less. On September 30, 2023, the Company changed the classification of its investment securities from held-to-maturity to available-for-sale. At the date of the transfer, the carrying value of the Company’s held-to-maturity securities was $ 295.7 million, and net unrealized losses of $ 3.0 million were recognized in accumulated other comprehensive loss. The Company has determined that the available-for-sale securities that were in an unrealized loss position did not have any credit loss impairment as of September 30, 2024 and 2023. F-20 NOTE 5. INTANGIBLE ASSETS Intangible assets subject to amortization include patents and a license agreement capitalized as part of the Novartis RNAi asset acquisition in March 2015. The following table presents the components of intangible assets: Gross Carrying Amount Accumulated Amortization Impairment Net Carrying Amount Useful Lives (in thousands) (in years) As of September 30, 2024 Patents $ 21,728 $ 14,873 $ — $ 6,855 14 License 3,129 1,422 — 1,707 21 Total intangible assets, net $ 24,857 $ 16,295 $ — $ 8,562 As of September 30, 2023 Patents $ 21,728 $ 13,321 $ — $ 8,407 14 License 3,129 1,274 — 1,855 21 Total intangible assets, net $ 24,857 $ 14,595 $ — $ 10,262 Intangible assets are reviewed annually for impairment and more frequently if potential impairment indicators exist. No impairment indicators were identified during 2024 and 2023. Intangible assets with definite useful lives are amortized on a straight-line basis over their useful lives. Intangible assets amortization expense in each of 2024, 2023, and 2022 was $ 1.7 million. 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 September 30, 2024: Amortization Expense Year Ending September 30, (in thousands) 2025 $ 1,700 2026 1,700 2027 1,700 2028 1,700 2029 795 Thereafter 967 Total $ 8,562 NOTE 6. STOCKHOLDERS’ EQUITY The following table summarizes the Company’s shares of common stock and preferred stock: F-21 Shares Par Value Authorized Issued Outstanding (in thousands) As of September 30, 2024 Common stock $ 0.001 290,000 124,376 124,376 Preferred stock $ 0.001 5,000 — — As of September 30, 2023 Common stock $ 0.001 290,000 107,312 107,312 Preferred stock $ 0.001 5,000 — — As of September 30, 2024 and 2023, respectively, 11,492,293 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. The Company issued 15,790,000 shares of common stock at an offering price of $ 28.50 per share. The aggregate purchase price paid by investors was $ 450.0 million and the Company received net proceeds of $ 429.3 million after deducting advisory fees and offering expenses. On December 2, 2022, the Company entered into an open market sale agreement (the “Open Market Sale Agreement”), pursuant to which the Company may, from time to time, sell up to $ 250,000,000 in shares of the Company’s common stock through Jefferies LLC, acting as the sales agent and/or principal, in an at-the-market offering (“ATM Offering”). The Company is not required to sell shares under the Open Market Sale Agreement. The Company will pay Jefferies LLC a commission of up to 3.0 % of the aggregate gross proceeds received from all sales of the common stock under the Open Market Sale Agreement. Unless otherwise terminated, the ATM Offering shall terminate upon the earlier of (i) the sale of all shares of common stock subject to the 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 September 30, 2024, no shares have been issued under the Open Market Sale Agreement. NOTE 7. COMMITMENTS AND CONTINGENCIES Litigation From time to time, the Company may be subject to various claims and legal proceedings in the ordinary course of business. 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 September 30, 2024 and 2023. Commitments The Company owns land in the Verona Technology Park in Verona, Wisconsin, which has been 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 September 30, 2024, the Company has incurred $ 285.7 million and intends to spend an additional $ 8.0 million to complete the build out of the facilities. NOTE 8. LEASES Pasadena, California : The Company leases 49,000 square feet of office space located at 177 East Colorado Blvd. for its corporate headquarters from 177 Colorado Owner, LLC, which lease expires on April 30, 2027. The lease contains an option to renew for one 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 September 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 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 F-22 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 September 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. 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 received $ 3.1 million and $ 27.7 million in ATIA from the lessor during fiscal years 2024 and 2023, respectively. As a result, the Company remeasured its lease liability and right-of-use assets to reflect these additional allowances and the related increased lease payments. The Company has further concluded that these ATIAs have no effects on the classification of the lease. The Company previously subleased additional research and development space in San Diego, California, which sublease ended during the fiscal year of 2023. Madison, Wisconsin : The Company leases 107,000 square feet space located at 502 South Rosa Road for its office and laboratory facilities from University Research Park, Inc., which lease expires on September 30, 2031. The lease contains options to renew for two terms of five years . 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 September 30, 2024. The components of lease assets and liabilities along with their classification on the Company’s consolidated balance sheets were as follows: September 30, Lease Assets and Liabilities Classification 2024 2023 (in thousands) Operating lease assets Right-of-use assets $ 45,255 $ 45,297 Current operating lease liabilities Lease liabilities 6,342 10,563 Non-current operating lease liabilities Lease liabilities, net of current portion 111,027 104,608 Year Ended September 30, Lease Cost Classification 2024 2023 2022 (in thousands) Operating lease cost Research and development $ 11,035 $ 10,350 $ 7,278 General and administrative expense 2,006 1,730 1,757 Variable lease cost (1) Research and development 3,648 1,179 728 General and administrative expense — — — Total $ 16,689 $ 13,259 $ 9,763 (1) Variable lease cost is primarily related to operating expenses associated with the Company’s operating leases. There was $ 0 , $ 1.4 million and $ 0.3 million short-term lease cost during the years ended September 30, 2024, 2023, and 2022, respectively. F-23 The following table presents maturities of operating lease liabilities on an undiscounted basis as of September 30, 2024: Year Amounts (in thousands) 2025 $ 15,456 2026 15,799 2027 14,974 2028 13,619 2029 13,905 2030 and thereafter 114,790 Total $ 188,543 Less imputed interest ( 71,174 ) Total operating lease liabilities $ 117,369 Supplemental cash flow and other information related to leases was as follows: Year Ended September 30, 2024 2023 2022 (in thousands) Cash received for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 3,099 $ 48,391 $ — Right-of-use assets adjusted in exchange for new/amended operating lease liabilities $ ( 29 ) $ 17,071 $ — Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from operating leases $ 11,038 $ 5,204 $ 4,500 Weighted-average remaining lease term (in years) 12.5 13.5 7 Weighted-average discount rate 8.0 % 8.0 % 8.5 % F-24 NOTE 9. STOCK-BASED COMPENSATION The Company has three plans that provide for equity-based compensation. Under the 2013 Incentive Plan (the “2013 Plan”), 2,899,230 shares of the Company’s common stock are reserved for grants of stock options and restricted stock awards to employees and directors as of September 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 September 30, 2024, the total number of shares available for issuance was 4,600,465 shares, which includes 159,678 and 190,627 shares that were forfeited under the 2013 and 2021 Plans, respectively, and 3,749,840 shares have been granted under the 2021 Plan. Under the Inducement Plan (the “Inducement Plan”), 832,950 shares of the Company’s common stock are authorized for issuance pursuant to grants of stock options, stock appreciation rights, restricted and unrestricted stock, stock units (including restricted stock units), performance awards, cash awards, and other awards convertible into or otherwise based on shares of the Company’s common stock. Awards under the Inducement Plan may only be granted to new employees of the Company in accordance with the provisions of Rule 5635(c)(4) of the Nasdaq Listing Rules. As of September 30, 2024, the total number of shares remaining available for issuance was 510,600 shares, and 362,050 shares have been granted under the Inducement Plan. In addition, prior to adoption of the Inducement Plan, the Company previously granted stand-alone inducement awards in the form of stock options and restricted stock units outside of the Company's equity plans to new employees under Rule 5635(c)(4) of the Nasdaq Listing Rules. As of September 30, 2024, there were 655,645 and 244,625 shares underlying outstanding stand-alone inducement options and restricted stock units, respectively. The following table presents a summary of awards outstanding: As of September 30, 2024 2013 Plan 2021 Plan Inducement Awards Total Granted and outstanding awards: Options 1,290,720 32,151 655,645 1,978,516 Restricted stock units 1,608,510 2,768,776 536,026 4,913,312 Total 2,899,230 2,800,927 1,191,671 6,891,828 F-25 The following table summarizes stock-based compensation expenses included in operating expenses: Year Ended September 30, 2024 2023 2022 (in thousands) Research and development $ 29,527 $ 34,332 $ 32,371 General and administrative 37,570 43,798 88,522 Total $ 67,097 $ 78,130 $ 120,893 Stock Option Awards The following table presents a summary of the stock option activity for the year ended September 30, 2024: Shares Weighted- Average Exercise Price Per Share Weighted- Average Remaining Contractual Term (Years) Aggregate Intrinsic Value Outstanding at September 30, 2023 2,263,477 $ 22.68 Granted — — Cancelled or expired ( 58,957 ) 36.80 Exercised ( 226,004 ) 10.64 Outstanding at September 30, 2024 1,978,516 $ 23.39 3.5 $ 13,782,840 Exercisable at September 30, 2024 1,975,824 $ 23.33 3.5 $ 13,782,840 The aggregate intrinsic values represent the amount by which the market price of the underlying stock exceeds the exercise price of the option. The total intrinsic value of the options exercised during the years ended September 30, 2024, 2023, and 2022 was $ 4.2 million, $ 12.2 million and $ 27.6 million, respectively. Stock-based compensation expense related to stock options outstanding for the years ended September 30, 2024, 2023, and 2022 was $ 2.8 million, $ 8.4 million and $ 10.8 million, respectively. As of September 30, 2024, the pre-tax compensation expense for all outstanding unvested stock options in the amount of $ 0.1 million will be recognized in the Company’s results of operations over a weighted average period of 2 months. The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes pricing valuation model was developed for use in estimating the fair value of traded options, which do not have vesting restrictions and are fully transferable. The determination of the fair value of each stock option is affected by the Company’s stock price on the date of grant, as well as assumptions regarding a number of highly complex and subjective variables. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. The following table provides the assumptions used in the calculation of grant-date fair values of these stock options based on the Black-Scholes option pricing model: Year Ended September 30, 2024 (5) 2023 2022 (5) Expected dividend yield (1) — — — Risk-free interest rate (2) N/A 3.69 – 4.57 % N/A Expected volatility (3) N/A 86.4 % N/A Expected term (in years) (4) N/A 6.25 N/A Weighted-average grant date fair value per share N/A 25.61 N/A (1) The dividend yield is zero as the Company currently does not pay a dividend. (2) The risk-free interest rate is based on that of the U.S. Treasury yields with equivalent terms in effect at the time of the grant. (3) Volatility is estimated based on volatility average of the Company’s common stock price. F-26 (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 year ended September 30, 2024 and September 30, 2022. Visirna ESOP : On October 1, 2023, Visirna, a subsidiary of the Company, granted 7,500,000 stock options to its employees from the Employee Stock Option Plan (the “Visirna ESOP”), which authorizes 20,000,000 shares for issuance. The Visirna ESOP is independently managed by Visirna, including the valuation process. As of September 30, 2024, stock-based compensation expense related to the Visirna ESOP was $ 6.9 million. Restricted Stock Units Restricted stock units (“RSUs”), including market-based, time-based and performance-based awards, have been granted under the Company’s 2013 and 2021 Plans, the Inducement Plan and as inducements awards granted outside of the Company’s equity-based compensation plans. At vesting, each outstanding RSU will be exchanged for one share of the Company’s common stock. RSU awards generally vest subject to the satisfaction of service requirements or the satisfaction of both service requirements and achievement of certain performance targets. The following table summarizes the activity of the Company’s RSUs: Number of RSUs Weighted- Average Grant Date Fair Value Outstanding as of September 30, 2023 4,241,640 $ 58.43 Granted 1,939,025 30.53 Vested ( 1,047,565 ) 51.90 Forfeited ( 219,788 ) 40.43 Outstanding as of September 30, 2024 4,913,312 $ 49.61 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 years ended September 30, 2024, 2023 and 2022, the Company recorded stock-based compensation expense of $ 64.3 million, $ 69.7 million and $ 113.6 million, respectively, related to shares of RSUs. As of September 30, 2024, there was $ 80.8 million of total unrecognized compensation cost related to RSUs that is expected to be recognized over a weighted-average period of 1.6 years. F-27 NOTE 10. FAIR VALUE MEASUREMENTS The Company employs a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date using the exit price. Accordingly, when market observable data are not readily available, the Company’s own assumptions are used to reflect those that market participants would be presumed to use in pricing the asset or liability at the measurement date. Assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the level of judgment associated with inputs used to measure their fair values and the level of market price observability, as follows: Level 1 Unadjusted quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Level 2 Pricing inputs are other than quoted prices in active markets, which are based on the following: • Quoted prices for similar assets or liabilities in active markets; • Quoted prices for identical or similar assets or liabilities in non-active markets; or • Either directly or indirectly observable inputs as of the reporting date. Level 3 Pricing inputs are unobservable and significant to the overall fair value measurement, and the determination of fair value requires significant management judgment or estimation. In certain cases, inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Thus, a Level 3 fair value measurement may include inputs that are observable (Level 1 or Level 2) and unobservable (Level 3). The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability. The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2, or from Level 2 to Level 3. The Company recognizes transfers between levels at either the actual date of the event or a change in circumstances that caused the transfer. At September 30, 2024 and 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 indicate the fair value hierarchy of the valuation techniques utilized by the Company: F-28 September 30, 2024 Level 1 Level 2 Level 3 Total (in thousands) Available-for-sale securities U.S. government and agency securities $ — $ 160,723 $ — $ 160,723 Commercial notes — 179,714 — 179,714 Corporate debt securities — 237,839 — 237,839 Total available-for-sale securities — 578,276 — 578,276 Cash equivalents Money market instruments 66,966 — — 66,966 Total cash equivalents 66,966 — — 66,966 Total financial assets $ 66,966 $ 578,276 $ — $ 645,242 September 30, 2023 Level 1 Level 2 Level 3 Total (in thousands) Available-for-sale securities U.S. government bonds $ 31,553 $ — $ — $ 31,553 Municipal securities — 7,093 — 7,093 Commercial notes — 22,205 — 22,205 Corporate debt securities — 231,884 — 231,884 Total available-for-sale securities 31,553 261,182 — 292,735 Cash equivalents Money market instruments 39,733 — — 39,733 Total cash equivalents 39,733 — — 39,733 Total financial assets $ 71,286 $ 261,182 $ — $ 332,468 NOTE 11. INCOME TAXES Income Tax Provision The components of the loss before income tax expense and noncontrolling interest are as follows: Year Ended September 30, 2024 2023 2022 (in thousands) Domestic $ ( 582,333 ) $ ( 194,639 ) $ ( 170,570 ) Foreign ( 30,127 ) ( 7,852 ) ( 1,708 ) Total $ ( 612,460 ) $ ( 202,491 ) $ ( 172,278 ) The provision for income taxes consisted of the following components: F-29 Year Ended September 30, 2024 2023 2022 (in thousands) Current: Federal $ 148 $ 1,074 $ — State 375 1,710 304 Foreign ( 3,290 ) — 3,481 Total current tax $ ( 2,767 ) $ 2,784 $ 3,785 Deferred: Federal $ — $ — $ — State — — — Foreign — — — Total deferred tax $ — $ — $ — Income tax provision $ ( 2,767 ) $ 2,784 $ 3,785 The following table presents a reconciliation of the tax expense based on the statutory rate to the Company’s actual tax expense in the consolidated statements of operations and comprehensive loss. A notional 21% tax rate was applied as follows: September 30, 2024 2023 2022 U.S. federal statutory income tax 21.0 % 21.0 % 21.0 % State income taxes, net of federal tax benefit 2.6 % 0.4 % 8.6 % Tax credits 3.0 % 6.8 % — % Permanent and other items 2.5 % ( 4.6 ) % ( 1.7 ) % Non-deductible compensation ( 0.9 ) % ( 4.6 ) % — % Foreign-derived intangible income deduction — % 1.2 % — % Stock compensation ( 0.7 ) % ( 1.1 ) % ( 1.7 ) % Valuation allowance ( 27.0 ) % ( 20.5 ) % ( 28.4 ) % Effective income tax rate 0.5 % ( 1.4 ) % ( 2.2 ) % Deferred Income Taxes The following table presents the significant components of the Company’s net deferred tax assets and liabilities: F-30 September 30, 2024 2023 (in thousands) Deferred tax assets: Net operating loss carryforwards $ 102,716 $ 60,495 Capitalized research and development 156,015 75,208 Tax credits 85,428 66,407 Deferred revenue 81,556 59,441 Lease liabilities 27,999 25,382 Stock compensation 10,989 10,296 Accrued compensation 4,078 3,082 Intangible assets 1,384 1,523 Other 2,843 2,636 Total gross deferred tax assets $ 473,008 $ 304,470 Valuation allowance $ ( 448,867 ) $ ( 284,626 ) Deferred tax liabilities: Fixed assets $ ( 13,155 ) $ ( 9,878 ) Right-of-use assets ( 10,792 ) ( 9,966 ) Unrealized gains ( 194 ) — Total gross deferred tax liability $ ( 24,141 ) $ ( 19,844 ) Net deferred tax assets (liabilities) $ — $ — A valuation allowance is recorded to reduce deferred tax assets to the amount that is more likely than not to be realized based on an assessment of positive and negative evidence, including estimates of future taxable income necessary to realize future deductible amounts. A significant piece of objective negative evidence evaluated was the cumulative loss incurred over the three-year period ended September 30, 2024. Such objective evidence limits the ability to consider other subjective evidence such as its projections for future growth. On the basis of this evaluation at September 30, 2024 and 2023, a valuation allowance of $ 448.9 million and $ 284.6 million, respectively, has been recorded. As of September 30, 2024, the Company had accumulated federal, state, and foreign net operating loss (“NOL”) carry forwards of $ 223.1 million, $ 693.2 million and $ 38.3 million, respectively. Of the $ 223.1 million in federal NOL carryforwards, $ 23.3 million was generated before January 1, 2018, and is subject to a 20-year carryforward period (“pre-Tax Act losses”), with expiration beginning in 2031. The remaining $ 199.8 million (“post-Tax Act losses”) can be carried forward indefinitely but is subject to an 80% taxable income limitation. Of the $ 693.2 million in state NOL carryforwards, $ 5.4 million can be carried forward indefinitely, while the remaining balance begins to expire in 2031. The Company also has foreign NOL carryforwards totaling $ 38.3 million, which begin to expire in 2027. Additionally, the Company has federal and state income tax credits of $ 85.6 million and $ 20.1 million, respectively. The federal credits begin to expire in 2035. Of the state income tax credits, $ 11.2 million begins to expire in 2035, while the remaining credits can be carried forward indefinitely. Pursuant to Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the “Code”), the annual use of an entity’s NOL and research and development credit carryforwards may be limited if there is a cumulative ownership change of greater than 50% within a three-year period. The annual limitation is determined based on the entity’s value immediately prior to the ownership change. Future ownership changes could further affect the limitation. If a limitation is applied, the related tax asset would be removed from the deferred tax asset schedule, with a corresponding reduction in the valuation allowance. To date, the Company has completed an analysis pursuant to Sections 382 and 383 through September 30, 2023. Ownership Changes may have occurred since then, and future changes could potentially limit the Company’s ability to utilize these attributes. Uncertainty in Income Taxes The Company has adopted guidance issued by the FASB that clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold of more-likely-than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more-likely-than not that a tax position F-31 will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. The following table summarizes the Company’s gross unrecognized tax benefits: Year Ended September 30, 2024 2023 2022 (in thousands) Beginning balance of unrecognized tax benefits $ 14,536 $ 3,481 $ — Gross increase for prior period tax positions 654 9,495 3,481 Gross decrease for prior period tax positions — ( 1,489 ) — Gross increase for current period tax positions 3,415 3,049 — Lapse of statue of limitations ( 1,992 ) — — Ending balance of unrecognized tax benefits $ 16,613 $ 14,536 $ 3,481 The Company has recorded income tax benefit of $ 3.3 million for the year ended September 30, 2024, and income tax expense of $ 0 and $ 3.5 million for the years ended September 30, 2023 and 2022, respectively, related to uncertain tax positions inclusive of interest and penalties. The Company’s policy is to recognize potential interest and penalties related to unrecognized tax benefits associated with uncertain tax positions, if any, in the income tax provision. As of September 30, 2024, the Company has not accrued any interest or penalties. If the unrecognized tax benefit as of September 30, 2024 is ultimately recognized, there would be no reduction in the Company’s income tax expense or effective tax rate, excluding the impact of U.S. Tax benefits netted against deferred taxes that are subject to a valuation allowance. The Company does not anticipate any changes in its unrecognized tax benefits over the next 12 months. The Company is subject to taxation in the U.S. and various states along with other foreign countries. Due to the presence of NOL carryforwards, all of the income tax years remain open for examination domestically. The Company has not been notified that it is under audit by the Internal Revenue Service or foreign taxing authorities; however, the Company has been notified of an income tax examination by the state of California. There are no other audits in any other jurisdictions. Deferred income taxes have not been provided for undistributed earnings of the Company’s consolidated foreign subsidiaries because of the Company’s intent to reinvest such earnings indefinitely in active foreign operations. At September 30, 2024, the Company had $ 0 in unremitted earnings that were permanently reinvested related to its consolidated foreign subsidiaries. The tax Cuts and Jobs Act subjects a U.S. shareholder to tax on Global Intangible Low-Taxed Income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740 No. 5. Accounting for GILTI, states that an entity can make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years or to provide for the tax expense related to GILTI in the year that the tax is incurred as a period expense only. The Company has elected to account for GILTI in the year the tax is incurred. NOTE 12. EMPLOYEE BENEFIT PLANS The Company sponsors a defined contribution retirement plan which is under Section 401(k) of the Internal Revenue Code and is designed to adhere to ERISA Fiduciary standards. All of the Company’s full-time employees are eligible to participate this plan. Under the terms of the plan, an eligible employee may elect to contribute a portion of their salary on a pre-tax basis, subject to federal statutory limitations. The plan allows for a discretionary match in an amount up to 100 % of each participant’s first 3 % of compensation contributed plus 50 % of each participant’s next 2 % of compensation contributed. For the years ended September 30, 2024, 2023, and 2022, the Company recorded expenses for the matching contributions under this plan of $ 3.4 million, $ 2.2 million and $ 1.7 million, respectively. The Company also provides certain employee benefit plans, including those which provide health and life insurance benefits to employees. F-32 NOTE 13. 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 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 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. 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 different than its original estimates, the Company will prospectively adjust the amortization of the royalty financing obligations and the effective interest rate. As of September 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. September 30, 2024 2023 (in thousands) Beginning carrying value $ 268,326 $ — Upfront payment received — 250,000 Milestone payment received 50,000 — Non-cash interest expense recognized 23,035 18,326 Ending carrying value $ 341,361 $ 268,326 NOTE 14. FINANCING AGREEMENT On August 7, 2024 (the “Closing Date”), the Company entered into the Financing Agreement with the guarantors party thereto, the lenders party thereto (the “Lenders”), and Sixth Street Lending Partners (“Sixth Street”), as the administrative agent and collateral agent for the Lenders. The Financing Agreement establishes a senior secured term loan facility of $ 500.0 million (the “Credit Facility”), consisting of $ 400.0 million funded on the Closing Date and an additional $ 100.0 million available at the Company’s option, subject to mutual agreement with Sixth Street, over the seven-year term. The outstanding principal balance of this Credit Facility, along with the accrued but unpaid interest, is due and payable on August 7, 2031 and bears interest at an annual rate of 15.0 %. On the Closing Date, the Company received net proceeds of F-33 $ 390.7 million, after issuance costs. Additional fees related to third parties have been paid or accrued as of September 30, 2024. The Company is permitted to use the net proceeds for working capital, capital expenditures and general corporate purposes of the Company and its subsidiaries. The Company will have the right to prepay loans under the Credit Facility at any time. The Company is required to partially repay loans under the Credit Facility with proceeds from certain asset sales, condemnation events and extraordinary receipts, subject, in some cases, to reinvestment rights. If the Company repays in full the aggregate principal outstanding under the Credit Facility and such payment in full occurs on or prior to August 7, 2028, the Company will be required to make an additional payment to the lenders under the Credit Facility on such date in an amount necessary for the lenders to achieve a multiple of two times on invested capital of the aggregate principal amount funded on the Closing Date. If such payment in full occurs after August 7, 2028, the Company will be required to make an additional payment to the lenders under the Credit Facility on such date in an amount necessary for the lenders to achieve the greater of the multiple of two times on invested capital of the aggregate principal amount funded on the Closing Date and the present value of all interest payments that would have been payable from such date through the maturity date of the Credit Facility. All obligations under the Financing Agreement will be secured on a first-priority basis, subject to certain exceptions, by security interests in substantially all assets of the Company and material subsidiaries of the Company, including its intellectual property, and will be guaranteed by material subsidiaries of the Company, including foreign subsidiaries, subject to certain exceptions. The Financing Agreement contains customary covenants, including, without limitation, a financial covenant to maintain liquidity (cash, cash equivalents and investments) of at least $ 100.0 million if the Company ’ s market capitalization is above $ 1.5 billion, and negative covenants that, subject to certain exceptions, restrict indebtedness, liens, investments (including acquisitions), fundamental changes, asset sales and licensing transactions, dividends, modifications to material agreements, payment of subordinated indebtedness, and other matters customarily restricted in such agreements. The Company is subject to restrictions on sales and licensing transactions with respect to certain core intellectual property, subject to certain exceptions, including certain transactions related to areas outside the United States, United Kingdom, European Union, Japan and China. The Financing Agreement contains certain embedded features that were identified and evaluated as not material to the consolidated financial statements. The outstanding balance of the Credit Facility consisted of the following: September 30, 2024 2023 (in thousands) Initial Term Loan $ 400,000 $ — Interest on the Initial Term Loan 9,000 — Less: Unamortized debt discount and issuance costs ( 15,817 ) — Net carrying amount $ 393,183 $ — The following table sets forth total interest expense recognized related to the Credit Facility: Year Ended September 30, 2024 2023 2022 (in thousands) Amortization of debt discount and issuance costs $ 317 $ — $ — Contractual interest expense 9,000 — — Total interest expense $ 9,317 $ — $ — The amounts shown in the table below, related to the Credit Facility, represent the maximum payments the Company is obligated to make to the Lenders during the indicated periods. A principal repayment of $ 400.0 million is scheduled for the fifth year, in line with the contractual terms of the Credit Facility. Actual payments may vary and could be lower than the amounts presented in the table. F-34 Year Amounts (in thousands) 2025 $ — 2026 — 2027 — 2028 — 2029 400,000 Thereafter 9,000 Total $ 409,000 NOTE 15. NET LOSS PER SHARE The following table presents the computation of basic and diluted net loss per share for the years ended September 30, 2024, 2023 and 2022. Year Ended September 30, 2024 2023 2022 (in thousands, except per share amounts) Numerator: Net loss attributable to Arrowhead Pharmaceuticals, Inc. $ ( 599,493 ) $ ( 205,275 ) $ ( 176,063 ) Denominator: Weighted-average basic shares outstanding 119,784 106,750 105,426 Effect of dilutive securities — — — Weighted-average diluted shares outstanding 119,784 106,750 105,426 Basic net loss per share $ ( 5.00 ) $ ( 1.92 ) $ ( 1.67 ) Diluted net loss per share $ ( 5.00 ) $ ( 1.92 ) $ ( 1.67 ) 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. Year Ended September 30, 2024 2023 2022 (in thousands) Options 707 633 533 Restricted stock units 4,030 3,420 3,352 Total 4,737 4,053 3,885 NOTE 16. SUBSEQUENT EVENTS On November 25, 2024, the Company entered into an Exclusive License and Collaboration Agreement (the “Collaboration Agreement”) with Sarepta Therapeutics, Inc. (“Sarepta”) for the co-development and commercialization of multiple clinical and preclinical programs in rare, genetic diseases of the muscle, central nervous system, and the lungs. Under the Collaboration Agreement, Sarepta has received an exclusive worldwide license to the Company’s ARO-DUX4, ARO-DM1, ARO-MMP7, and ARO-ATXN2 clinical stage programs. Sarepta has also received an exclusive sublicensable worldwide license to the Company’s ARO-HTT, ARO-ATXN1, and ARO-ATXN3 preclinical stage programs. Pursuant to the Collaboration Agreement, Sarepta will be able to select up to six new targets for which the Company will perform discovery, optimization and preclinical development. Upon completion of the Company’s preclinical F-35 activities, Sarepta will receive an exclusive license to the Company’s product-specific intellectual property rights covering those compounds and be wholly responsible for clinical development and commercialization of each compound. Closing of the Collaboration Agreement is subject to clearance under the Hart-Scott Rodino Antitrust Improvements Act. In connection with the Collaboration Agreement, on November 25, 2024, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with an affiliate of Sarepta for a private placement of shares of common stock of the Company (the “Private Placement”). Pursuant to the Stock Purchase Agreement, the Company sold 11,926,301 shares of common stock, at a price per share of $ 27.25 , for an aggregate value of approximately $ 325.0 million. The Private Placement is expected to close concurrently with the Collaboration Agreement. Under the terms of the agreements taken together, the Company expects to receive $ 500.0 million as an upfront payment under the Collaboration Agreement, $ 325.0 million in the form of an equity investment under the Stock Purchase Agreement, and $ 250.0 million to be paid in annual installments of $ 50.0 million over 5 years. The Company is also eligible to receive $ 300.0 million in near-term payments associated with the continued enrollment of certain cohorts of a Phase 1/2 study, which the Company is on track to achieve. Further, for each of the 13 programs, the Company is eligible to receive development milestone payments between $ 110.0 million and $ 180.0 million per program and sales milestone payments between $ 500.0 million and $ 700.0 million per program. The Company is also eligible to receive tiered royalties on net sales of licensed products of up to the low double digits. On November 26, 2024, the Company also entered into an amendment to the Credit Facility to modify, subject to certain conditions, amongst other things, the requirements to make prepayments of the loans under the Credit Facility with respect to the transactions contemplated by the Collaboration Agreement and the Stock Purchase Agreement. On November 25, 2024, the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”) with an institutional and accredited investor for a private placement of pre-funded warrants to purchase shares of common stock with an exercise price of $ 0.001 per share. Pursuant to the Securities Purchase Agreement, the Company sold pre-funded warrants to purchase up to 917,441 shares of common stock at a purchase price of $ 27.25 per pre-funded warrant, for an aggregate value of approximately $ 25.0 million. The transaction is expected to close on or about November 27, 2024. F-36