What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2025-05-12 compared with 2025-02-10 · 108 added, 62 removed, 141 unchanged (55% of the section changed)

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The forward-looking statements included herein are based on current expectations of our management based on available information and involve a number of risks and uncertainties, all of which are difficult or impossible to predict accurately, and many of which are beyond our control.

As such, our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated or indicated in any forward-looking statements.

As such, our actual results or outcomes and timing of certain events may differ materially from those discussed, projected, anticipated or indicated in any forward-looking statements.

Forward-looking statements are not guarantees of future performance and our actual results of operations, financial condition and cash flows may differ materially.

Factors that may cause or contribute to such differences include, but are not limited to, those discussed in more detail in “Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations” of Part I and “Item 1A.

Risk Factors” of Part II of this Quarterly Report on Form 10-Q as well as “Item 1.

Business” and “ Item 1A.

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• Hypertriglyceridemia - plozasiran (formerly ARO-APOC3);

• Dyslipidemia - zodasiran (formerly ARO-ANG3);

• Homozygous familial hypercholesterolemia (HoFH) - zodasiran (formerly ARO-ANG3);

• Cardiovascular disease - olpasiran (formerly AMG 890 or ARO-LPA, out-licensed to Amgen);

• Inflammatory pulmonary conditions - ARO-RAGE;

• Idiopathic pulmonary fibrosis - ARO-MMP7;

• Idiopathic pulmonary fibrosis - SRP-1002 (formerly ARO-MMP7, out-licensed to Sarepta);

• Metabolic-dysfunction associated steatohepatitis (MASH) - GSK-4532990 (formerly ARO-HSD, out

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

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

• Complement mediated diseases - ARO-C3;

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

• Complement mediated diseases - ARO-C3 and ARO-CFB;

• Metabolic-dysfunction associated steatohepatitis (MASH) - ARO-PNPLA3 (formerly JNJ-75220795 or ARO-JNJ1);

• Facioscapulohumeral muscular dystrophy - ARO-DUX4;

• Dystrophia myotonica protein kinase (DMPK) - ARO-DM1;

• Hepatic expression of complement factor B (CFB) - ARO-CFB;

• Obesity - ARO-INHBE;

• Spinocerebellar ataxia 2 - ARO-ATXN2.

• Obesity - ARO-INHBE and ARO- ALK7

• Facioscapulohumeral muscular dystrophy -SRP-1001 (formerly ARO-DUX4, out-licensed to Sarepta);

• Dystrophia myotonica protein kinase (DMPK) - SRP1003 (formerly ARO-DM1 out-licensed to Sarepta;

• Spinocerebellar ataxia 2 -SRP-1004 (formerly ARO-ATXN2, out-licensed to Sarepta).

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

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

The First Quarter of Fiscal 2025 Business Highlights

Key recent developments through the first quarter of fiscal 2025 included the following:

The First Half of Fiscal 2025 Business Highlights

Key recent developments through fiscal 2025 included the following:

• Announced Topline results from Part 2 of a Phase 1/2 clinical study of ARO-C3, the Company’s investigational RNAi therapeutic designed to reduce liver production of complement component 3 (C3) as a potential therapy for various complement mediated diseases.

ARO-C3 achieved reductions in alternative pathway complement activity and proteinuria;

• Showcased preclinical data supporting the advancement of two first-in-class clinical stage, RNAi-based investigational therapeutics being developed by the Company for the treatment of obesity and metabolic diseases;

• Announced preclinical results on ARO-ALK7, which is the first RNAi-based therapy designed to silence adipocyte expression of the ACVR1 to reduce the production of Activin receptor-like kinase 7 (ALK7), which acts as a receptor in a pathway that regulates energy homeostasis in adipose tissue.

Arrowhead received regulatory clearance to initiate a Phase 1/2a clinical trial of ARO-ALK7 in New Zealand, which the company anticipates will begin dosing in the second quarter of 2025;

• Entered into a global licensing and collaboration agreement with Sarepta Therapeutics, Inc ( “ Sarepta ” ) on November 25, 2024, which closed on February 7, 2025.

Closing of the transaction was subject to the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and other customary conditions.

Upon closing, the Company received $325.0 million through the purchase of 11,926,301 shares of Company common stock by Sarepta, at a price per share of $27.25, and received $500.0 million as an upfront payment on February 24, 2025.

The Company will also receive $250.0 million to be paid in equal installments over five years and is eligible to receive an additional $300.0 million in near-term payments.

Additionally, the Company is eligible to receive royalties on commercial sales and up to approximately $10.0 billion in future potential milestone payments;

• Submitted a New Drug Application (NDA) to the U.S.

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The FDA provided a Prescription Drug User Fee Act (PDUFA) action date of November 18, 2025, and indicated it is not currently planning to hold an advisory committee meeting;

• Entered into a global and collaboration agreement with Sarepta Therapeutics, Inc.

The Company received $325.0 million as an equity investment on February 7, 2025 and will receive $500.0 million as an upfront payment during the second quarter of fiscal 2025.

The Company will also receive $250.0 million to be paid in equal installments over five years and is eligible to receive an additional $300.0 million in near-term payments.

Additionally, the Company is eligible to receive royalties on commercial sales and up to approximately $10.0 billion in future potential milestone payments;

• GSK dosed the fifth patient in a Phase 2 trial in December 2024, triggering a $2.5 million milestone payment to the Company which was paid in the second quarter of fiscal 2025;

• GSK dosed its fifth patient in a Phase 2 trial in December 2024, triggering a $2.5 million milestone payment to the Company which was paid in the second quarter of fiscal 2025;

• Announced that the Company has dosed the first subjects in a Phase 1/2a clinical trial of ARO-INHBE;

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The study resulted in multiple promising findings including:

(1) ARO-CFO led to dose dependent reductions in circulating CFB protein by up to 90% with greater than 3 months duration, (2) single and multiple doses of ARO-CFB led to near complete inhibition of alternative pathway activity based on Wieslab AP, and (3) single and multiple doses of ARO-CFB led to near complete inhibition of alternative pathway hemolytic activity, measured by AH50;

• Filed a request for regulatory clearance to initiate Phase 1/2a clinical trial of ARO-ALK7, which is being developed as a potential treatment for obesity.

Net loss attributable to Arrowhead Pharmaceuticals, Inc.

was $173.1 million and $132.9 million for the three months ended December 31, 2024 and 2023, respectively.

Net loss per share – diluted was $1.39 and $1.24 for the three months ended December 31, 2024 and 2023, respectively.

The change in net loss for the three months ended December 31, 2024 was primarily due to increased research and development expenses, which have continued to increase as the Company’s

pipeline of candidates has expanded and progressed through clinical trial phases.

The Company had $53.9 million of cash, cash equivalents and restricted cash and $499.0 million in available-for-sale securities as of December 31, 2024, as compared to $102.7 million of cash, cash equivalents and restricted cash and $578.3 million in available-for-sale securities as of September 30, 2024.

(1) ARO-CFB led to dose dependent reductions in circulating CFB protein by up to 90% with greater than 3 months duration, (2) single and multiple doses of ARO-CFB led to near complete inhibition of alternative pathway activity based on Wieslab AP, and (3) single and multiple doses of ARO-CFB led to near complete inhibition of alternative pathway hemolytic activity, measured by AH50.

Net income attributable to Arrowhead Pharmaceuticals, Inc.

was $370.4 million for the three months ended March 31, 2025 and net loss attributable to Arrowhead Pharmaceuticals, Inc.

was $125.3 million for the three months ended March 31, 2024.

Net income attributable to Arrowhead Pharmaceuticals, Inc.

was $197.4 million for the six months ended March 31, 2025 and net loss attributable to Arrowhead Pharmaceuticals, Inc.

was $258.2 million for the six months ended March 31, 2024.

Net income per diluted share was $2.75 for the three months ended March 31, 2025 and net loss per diluted share was $1.02 for the three months ended March 31, 2024.

Net income per diluted share was $1.52 for the six months ended March 31, 2025 and net loss per diluted share was $2.24 for the six months ended March 31, 2024.

The increase in net income for the three and six months ended March 31, 2025 was due to an increase in revenue from the Company's Sarepta Collaboration Agreement partially offset by research and development expenses, which have continued to increase as the Company's pipeline of candidates has expanded and progressed through clinical trial phases.

The Company had $185.7 million of cash, cash equivalents and restricted cash and $911.7 million in available-for-sale securities as of March 31, 2025, as compared to $102.7 million of cash, cash equivalents and restricted cash and $578.3 million in available-for-sale securities as of September 30, 2024.

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

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

Three Months Ended December 31,

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

2025 2024 2025 2024

(in thousands, except per share amounts)

Revenue $ 542,709 $ — $ 545,209 $ 3,551

Operating loss

$ (161,412) $ (136,545)

Net loss attributable to Arrowhead Pharmaceuticals, Inc.

Operating income (loss) $ 381,202 $ (126,191) $ 219,790 $ (262,736)

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

$ 370,445 $ (125,300) $ 197,360 $ (258,164)

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

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

$ 2.75 $ (1.02) $ 1.52 $ (2.24)

Total revenue for the three months ended December 31, 2024 and 2023 was $2.5 million and $3.6 million, respectively, and was primarily driven by the revenue recognition associated with GSK and Takeda license agreements as discussed below.

Total revenue for the three months ended March 31, 2025 increased by $542.7 million from the same periods of 2024.

Total revenue for the six months ended March 31, 2025 increased by $541.7 million from the same periods of 2024.

The change was primarily driven by the revenue recognition associated with GSK and Sarepta license agreements as discussed below.

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

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Further, GSK dosed the fifth patient in a Phase 2 trial in December 2024, triggering a $2.5 million milestone payment to the Company which was paid in the second quarter of fiscal 2025.

During the six months ended March 31, 2025, the Company recorded $2.5 million revenue.

In October 2020, Takeda and the Company entered into the Takeda License Agreement.

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

During the three months ended December 31, 2023, the Company recorded $0.9 million revenue.

During the six months ended March 31, 2024, the Company recorded $0.9 million revenue.

On November 25, 2024, the Company entered into the Sarepta Collaboration Agreement and Stock Purchase Agreement with Sarepta for the development and commercialization of multiple clinical and preclinical programs in rare, genetic diseases of the muscle, central nervous system, and lungs.

During the six months ended March 31, 2025, the Company recorded $542.7 million in revenue.

As of March 31, 2025, no revenue was recorded for the milestone payments or royalties, as none had been achieved.

Operating Expenses

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

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

For purposes of comparison, the amounts for the three and six months ended March 31, 2025 and 2024 are shown in the tables below.

Research and Development (R&D) Expenses

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The Company operates in a cross-functional manner across projects and does not separately allocate facilities-related costs, candidate costs, discovery costs, compensation expenses, depreciation and amortization expenses, and other expenses related to research and development activities.

The following table provides details of research and development expenses:

The following tables provide details of research and development expenses for the periods indicated:

(in thousands) Three Months Ended

December 31, 2024 % of

March 31, 2025 % of

Three Months Ended

December 31, 2023 % of

March 31, 2024 % of

Increase (Decrease)

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Total research and development expense $ 133,102 100 % $ 101,122 100 % $ 31,980 32 %

Candidate costs increased $23.9 million, or 45%, for the three months ended December 31, 2024 compared to the same period of 2023.

(in thousands) Six Months Ended

March 31, 2025 % of

Six Months Ended

March 31, 2024 % of

Increase (Decrease)

Candidate costs $ 148,087 55 % $ 94,085 43 % $ 54,002 57 %

R&D discovery costs 27,742 10 % 39,102 18 % (11,360) (29) %

Salaries 54,052 20 % 47,516 22 % 6,536 14 %

Facilities related 14,487 5 % 12,465 6 % 2,022 16 %

Total research and development expense, excluding non-cash expense $ 244,368 90 % $ 193,168 89 % $ 51,200 27 %

Stock compensation 15,437 6 % 16,494 7 % (1,057) (6) %

Depreciation and amortization

10,299 4 % 7,951 4 % 2,348 30 %

Total research and development expense $ 270,104 100 % $ 217,613 100 % $ 52,491 24 %

Candidate costs increased $30.1 million, or 73%, for the three months ended March 31, 2025 and $54.0 million, or 57%, for the six months ended March 31, 2025 compared to the same periods of 2024.

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

R&D discovery costs decreased $8.6 million, or 40%, for the three months ended December 31, 2024 compared to the same period of 2023.

R&D discovery costs decreased $2.8 million, or 16%, for the three months ended March 31, 2025 and $11.4 million, or 29%, for the six months ended March 31, 2025 compared to the same periods of 2024.

This decrease was primarily driven by strategic shifts toward clinical development and commercial launch.

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

Salaries expense increased $4.6 million, or 20%, for the three months ended December 31, 2024 compared to the same period of 2023.

Salaries expense increased $2.0 million, or 8%, for the three months ended March 31, 2025 and $6.5 million, or 14%, for the six months ended March 31, 2025 compared to the same periods of 2024.

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

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

These expenses increased $1.2 million, or 18%, for the three months ended December 31, 2024 compared to the same period of 2023.

These expenses increased $0.8 million, or 14%, for the three months ended March 31, 2025 and $2.0 million, or 16%, for the six months ended March 31, 2025 compared to the same periods of 2024.

This increase was primarily due to property taxes charged to the laboratory and office facilities in Verona, Wisconsin, which completed their build out during the first quarter of fiscal 2024.

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

Stock compensation expense decreased $1.5 million, or 16%, for the three months ended December 31, 2024 compared to the same period of 2023.

Stock compensation expense increased $0.4 million, or 5%, for the three months ended March 31, 2025, which was primarily due to an increase in R&D headcount.

Stock compensation decreased $1.1 million, or 6%, for the six months ended March 31, 2025 compared to the same periods of 2024.

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

Depreciation and amortization expense, a non-cash expense, relates to depreciation on buildings, lab equipment and leasehold improvements.

These expenses increased $0.9 million, or 23% for the three months ended December 31, 2024 compared to the same period of 2023.

These expenses increased $1.5 million, or 36% for the three months ended March 31, 2025 and $2.3 million, or 30%, for the six months ended March 31, 2025 compared to the same periods of 2024.

The increase was primarily attributed to completion of the build out of facilities in Verona, Wisconsin, and the commencement of depreciation.

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General & Administrative Expenses

The following table provides details of general and administrative expenses:

The following tables provide details of general and administrative expenses for the periods indicated:

(in thousands) Three Months Ended

December 31, 2024 % of

Category Three Months Ended

December 31, 2023 % of

Category Increase (Decrease)

March 31, 2025 % of

Three Months Ended

March 31, 2024 % of

Increase (Decrease)

Salaries $ 7,857 28 % $ 7,088 28 % $ 769 11 %

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$ 28,405 100 % $ 25,069 100 % $ 3,336 13 %

Salaries expense increased $1.1 million, or 17%, for the three months ended December 31, 2024 compared to the same period of 2023.

(in thousands) Six Months Ended

March 31, 2025 % of

Category Six Months Ended

March 31, 2024 % of

Category Increase (Decrease)

Salaries $ 15,188 27 % $ 13,347 27 % $ 1,841 14 %

Professional, outside services, and other 20,941 38 % 11,500 24 % 9,441 82 %

Facilities related 2,367 4 % 2,040 4 % 327 16 %

Total general & administrative expense, excluding non-cash expense $ 38,496 69 % $ 26,887 55 % $ 11,609 43 %

Stock compensation 15,799 29 % 20,950 43 % (5,151) (25) %

Depreciation and amortization

1,020 2 % 837 2 % 183 22 %

Total general & administrative expense $ 55,315 100 % $ 48,674 100 % $ 6,641 14 %

Salaries expense increased $0.8 million, or 11%, for the three months ended March 31, 2025 and $1.8 million, or 14%, for the six months ended March 31, 2025 compared to the same periods of 2024.

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

Professional, outside services, and other expenses include costs related to legal, audit, consulting, patent filings, business insurance, other external services, as well as travel, communication, and technology expenses.

This expense increased $4.9 million, or 94%, for the three months ended December 31, 2024 compared to the same period of 2023.

This expense increased $4.5 million, or 72%, for the three months ended March 31, 2025 and $9.4 million, or 82%, for the six months ended March 31, 2025 compared to the same periods of 2024.

The increase was mainly due to professional services associated with commercialization and business development efforts.

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

This expense decreased $3.0 million, or 28%, for the three months ended December 31, 2024 compared to the same period of 2023.

This expense decreased $2.1 million, or 21%, for the three months ended March 31, 2025 and $5.2 million, or 25%, for the six months ended March 31, 2025 compared to the same periods of 2024.

The decrease was primarily due to lower compensation costs related to performance awards, as the timing of these expenses can vary based on the achievement of related performance targets.

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

Other expense increased $11.6 million for the three months ended December 31, 2024 compared to the same period of 2023.

Other expense increased $10.8 million and $22.3 million for the three and six months ended March 31, 2025 compared to the same periods of 2024.

The increase was primarily due to non-cash interest expense associated with the liability related to the sale of future royalties and the Credit Facility, partially offset by higher income from increased investment yields due to higher average cash balance.

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Research and development activities have required significant capital investment since the Company’s inception and are expected to continue to require significant cash expenditure as the Company’s pipeline continues to expand and matures into later stage clinical trials, including commercialization efforts.

The Company’s cash, cash equivalents and restricted cash was $53.9 million as of December 31, 2024 compared to $102.7 million as of September 30, 2024.

Cash invested in available-for-sale securities was $499.0 million as of December 31, 2024 compared to $578.3 million as of September 30, 2024.

The Company’s cash, cash equivalents and restricted cash was $185.7 million as of March 31, 2025 compared to $102.7 million as of September 30, 2024.

Cash invested in available-for-sale securities was $911.7 million as of March 31, 2025 compared to $578.3 million as of September 30, 2024.

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 $250.0 million in shares of the Company’s common stock through Jefferies LLC, acting as the sales agent and/or principal, in an at-the-market offering.

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

As of March 31, 2025, no shares have been issued under the Open Market Sale Agreement.

In August 2024, the Company entered into the Credit Facility, which provides for a senior secured term loan facility of $500.0 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 of the agreement.

The Company received net proceeds of $388.9 million, after issuance costs as of September 30, 2024.

On November 25, 2024, the Company entered into a licensing and collaboration agreement with Sarepta.

Upon closing, the Company received $325.0 million for the purchase of 11,926,301 shares of common stock, at a price per share of $27.25, and received $500.0 million as an upfront payment on February 24, 2025.

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

The following table presents a summary of cash flows:

Three Months Ended December 31,

Six Months Ended March 31,

(in thousands)

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Financing activities 113,016 431,044

Net decrease in cash, cash equivalents and restricted cash $ (48,728) $ (52,734)

Net increase in cash, cash equivalents and restricted cash $ 83,494 $ 16,729

Cash, cash equivalents and restricted cash at end of period $ 185,709 $ 127,704

During the three months ended December 31, 2024, cash flow used in operating activities was $146.3 million, which was primarily due to the ongoing expenses related to the Company’s research and development programs and general and administrative expenses.

Cash provided by investing activities amounted to $76.9 million, which was primarily attributable to proceeds from maturities of investments of $118.2 million, offset by capital expenditures of $7.5 million and investment purchases of $33.7 million.

Cash provided by financing activities of $20.6 million was primarily related to cash received from the pre-funded warrants and stock option exercises (See Note 6 — Stockholders’ Equity of Notes to Consolidated Financial Statements of Part I, “Item 1.

During the six months ended March 31, 2025, cash flow provided by operating activities was $313.8 million, which was primarily due to $500.0 million of cash received as part of the Sarepta agreement, partially offset by ongoing expenses related to the Company's research and development programs and general and administrative expenses.

Cash used in investing activities amounted to $343.3 million, which was primarily attributable to capital expenditures of $12.8 million and investment purchases of $677.9 million, offset by proceeds from maturities of investments of $347.4 million.

Cash provided by financing activities of $113.0 million was primarily related to cash received from the issuance of common stock in the Sarepta agreement and pre-funded warrants and stock option exercises (See Note 6 — Stockholders’ Equity of Notes to Consolidated Financial Statements of Part I, “Item 1.

Financial Statements”).

During the three months ended December 31, 2023, cash flow used in operating activities was $117.8 million, which was primarily due to the ongoing expenses related to the Company’s research and development programs and general and administrative expenses.

Cash provided by investing activities was $64.8 million, which was primarily related to sales and maturities of investments of $133.5 million, offset by capital expenditures of $68.7 million of construction in progress.

Cash provided by financing activities of $0.3 million was primarily related to cash received from stock option exercises.

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

Cash used in investing activities was $204.1 million, which was primarily attributable to capital expenditures of $102.7 million and investment purchases of $310.0 million, partially offset by proceeds from sales and maturities of investments of $208.6 million.

Cash provided by financing activities of $431.0 million was primarily related to cash received from the issuance of common stock as well as stock option exercises.

Contractual Obligations

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis