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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-38042

 

ARROWHEAD PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

46-0408024

(State of incorporation)

 

(I.R.S. Employer Identification No.)

177 E. Colorado Blvd, Suite 700

Pasadena, California 91105

(626) 304-3400

(Address and telephone number of principal executive offices)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer

 

  

Accelerated Filer

 

  

 

 

 

 

Non-Accelerated Filer

 

  

  

Smaller Reporting Company

 

 

 

 

 

 

 

 

Emerging Growth Company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, Par Value $0.001 per share

 

ARWR

 

The Nasdaq Global Select Market

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

The number of shares of the registrant’s common stock outstanding as of May 5, 2020 was 101,773,274.

 

 

 


 

 

 

Page(s)

PART I — FINANCIAL INFORMATION

 

 

 

ITEM 1. FINANCIAL STATEMENTS (unaudited)

1

 

 

Consolidated Balance Sheets

1

 

 

Consolidated Statements of Operations and Comprehensive Income (Loss)

2

 

 

Consolidated Statement of Stockholders’ Equity

3

 

 

Consolidated Statements of Cash Flows

5

 

 

Notes to Consolidated Financial Statements

6

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

16

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

26

 

 

ITEM 4. CONTROLS AND PROCEDURES

26

 

 

PART II — OTHER INFORMATION

 

 

 

ITEM 1. LEGAL PROCEEDINGS

27

 

 

ITEM 1A. RISK FACTORS

27

 

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

28

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

28

 

 

ITEM 4. MINE SAFETY DISCLOSURES

28

 

 

ITEM 5. OTHER INFORMATION

28

 

 

ITEM 6. EXHIBITS

29

 

 

SIGNATURE

30

 

 

 

 


PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Arrowhead Pharmaceuticals, Inc.

Consolidated Balance Sheets

 

 

(unaudited)

March 31, 2020

 

 

September 30, 2019

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

$

256,650,727

 

 

$

221,804,128

 

Accounts receivable

 

1,265,771

 

 

 

661,361

 

Prepaid expenses

 

3,062,333

 

 

 

3,317,999

 

Other current assets

 

2,536,284

 

 

 

2,563,435

 

Short term investments

 

50,959,058

 

 

 

36,899,894

 

TOTAL CURRENT ASSETS

 

314,474,173

 

 

 

265,246,817

 

Property and equipment, net

 

29,362,741

 

 

 

23,214,899

 

Intangible assets, net

 

16,213,366

 

 

 

17,063,580

 

Long term investments

 

190,618,075

 

 

 

44,175,993

 

Right-of-use assets

 

10,263,197

 

 

 

-

 

Other assets

 

144,150

 

 

 

144,148

 

TOTAL ASSETS

$

561,075,702

 

 

$

349,845,437

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Accounts payable

$

13,417,692

 

 

$

7,649,921

 

Accrued expenses

 

4,419,233

 

 

 

6,504,729

 

Accrued payroll and benefits

 

1,616,090

 

 

 

4,955,887

 

Lease liabilities

 

688,454

 

 

 

-

 

Deferred rent

 

-

 

 

 

173,952

 

Deferred revenue

 

33,174,765

 

 

 

77,769,629

 

Other current liabilities

 

17,263

 

 

 

16,561

 

TOTAL CURRENT LIABILITIES

 

53,333,497

 

 

 

97,070,679

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

 

Lease liabilities, net of current portion

 

14,178,735

 

 

 

-

 

Deferred rent, net of current portion

 

-

 

 

 

3,703,364

 

Deferred revenue, net of current portion

 

-

 

 

 

5,035,142

 

TOTAL LONG-TERM LIABILITIES

 

14,178,735

 

 

 

8,738,506

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Arrowhead Pharmaceuticals, Inc. stockholders' equity:

 

 

 

 

 

 

 

Common stock, $0.001 par value; 145,000,000 shares authorized; 101,748,107 and 95,506,271 shares

   issued and outstanding as of March 31, 2020 and September 30, 2019, respectively

 

194,117

 

 

 

187,876

 

Additional paid-in capital

 

936,353,920

 

 

 

664,086,155

 

Accumulated other comprehensive income (loss)

 

(629,114

)

 

 

(391,624

)

Accumulated deficit

 

(441,800,265

)

 

 

(419,290,967

)

Total Arrowhead Pharmaceuticals, Inc. stockholders' equity

 

494,118,658

 

 

 

244,591,440

 

Noncontrolling interest

 

(555,188

)

 

 

(555,188

)

TOTAL STOCKHOLDERS’ EQUITY

 

493,563,470

 

 

 

244,036,252

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

561,075,702

 

 

$

349,845,437

 

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

 

 

 

1


Arrowhead Pharmaceuticals, Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(unaudited)

 

 

 

Three Months Ended March 31,

 

 

Six Months Ended March 31,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

REVENUE

 

$

23,528,853

 

 

$

48,148,275

 

 

$

52,983,433

 

 

$

82,806,171

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

29,443,335

 

 

 

20,798,628

 

 

 

52,816,951

 

 

 

38,370,671

 

General and administrative expenses

 

 

16,325,773

 

 

 

5,338,955

 

 

 

27,260,330

 

 

 

11,478,664

 

TOTAL OPERATING EXPENSES

 

 

45,769,108

 

 

 

26,137,583

 

 

 

80,077,281

 

 

 

49,849,335

 

OPERATING INCOME (LOSS)

 

 

(22,240,255

)

 

 

22,010,692

 

 

 

(27,093,848

)

 

 

32,956,836

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

2,404,685

 

 

 

1,886,290

 

 

 

4,584,550

 

 

 

2,977,399

 

TOTAL OTHER INCOME (EXPENSE)

 

 

2,404,685

 

 

 

1,886,290

 

 

 

4,584,550

 

 

 

2,977,399

 

INCOME (LOSS) BEFORE INCOME TAXES

 

 

(19,835,570

)

 

 

23,896,982

 

 

 

(22,509,298

)

 

 

35,934,235

 

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

NET INCOME (LOSS)

 

 

(19,835,570

)

 

 

23,896,982

 

 

 

(22,509,298

)

 

 

35,934,235

 

NET INCOME (LOSS) PER SHARE - BASIC

 

$

(0.20

)

 

$

0.25

 

 

$

(0.23

)

 

$

0.39

 

NET INCOME (LOSS) PER SHARE - DILUTED

 

$

(0.20

)

 

$

0.24

 

 

$

(0.23

)

 

$

0.37

 

Weighted average shares outstanding - basic

 

 

101,653,136

 

 

 

94,155,407

 

 

 

99,359,140

 

 

 

92,623,615

 

Weighted average shares outstanding - diluted

 

 

101,653,136

 

 

 

98,082,644

 

 

 

99,359,140

 

 

 

97,214,546

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(433,564

)

 

 

(28,162

)

 

 

(237,490

)

 

 

(50,342

)

COMPREHENSIVE INCOME (LOSS)

 

$

(20,269,134

)

 

$

23,868,820

 

 

$

(22,746,788

)

 

$

35,883,893

 

 

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

 

 

 

2


Arrowhead Pharmaceuticals, Inc.

Consolidated Statement of Stockholders’ Equity

(unaudited)

 

 

 

Common Stock

 

 

Amount ($)

 

 

Additional Paid-In Capital

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Accumulated Deficit

 

 

Non-controlling Interest

 

 

Totals

 

Balance at December 31, 2018

 

 

92,591,457

 

 

$

184,961

 

 

$

647,142,565

 

 

$

(43,744

)

 

$

(475,228,563

)

 

$

(555,188

)

 

$

171,500,031

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

2,601,348

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,601,348

 

Exercise of stock options

 

 

535,915

 

 

 

536

 

 

 

2,669,501

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,670,037

 

Common stock - restricted stock units vesting

 

 

1,538,346

 

 

 

1,538

 

 

 

(1,538

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Common stock - issued for cash

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Foreign currency translation adjustments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(28,162

)

 

 

-

 

 

 

-

 

 

 

(28,162

)

Net income (loss) for the three months ended March 31, 2019

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

23,896,982

 

 

 

-

 

 

 

23,896,982

 

Balance at March 31, 2019

 

 

94,665,718

 

 

$

187,035

 

 

$

652,411,876

 

 

$

(71,906

)

 

$

(451,331,581

)

 

$

(555,188

)

 

$

200,640,236

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Amount ($)

 

 

Additional Paid-In Capital

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Accumulated Deficit

 

 

Non-controlling Interest

 

 

Totals

 

Balance at December 31, 2019

 

 

101,111,797

 

 

$

193,481

 

 

$

922,050,595

 

 

$

(195,550

)

 

$

(421,964,695

)

 

$

(555,188

)

 

$

499,528,643

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

12,971,702

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

12,971,702

 

Exercise of stock options

 

 

214,239

 

 

 

214

 

 

 

1,329,810

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,330,024

 

Common stock - restricted stock units vesting

 

 

422,071

 

 

 

422

 

 

 

(422

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Common stock - issued for cash

 

 

-

 

 

 

-

 

 

 

2,235

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,235

 

Foreign currency translation adjustments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(433,564

)

 

 

-

 

 

 

-

 

 

 

(433,564

)

Net income (loss) for the three months ended March 31, 2020

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(19,835,570

)

 

 

-

 

 

 

(19,835,570

)

Balance at March 31, 2020

 

 

101,748,107

 

 

$

194,117

 

 

$

936,353,920

 

 

$

(629,114

)

 

$

(441,800,265

)

 

$

(555,188

)

 

$

493,563,470

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Amount ($)

 

 

Additional Paid-In Capital

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Accumulated Deficit

 

 

Non-controlling Interest

 

 

Totals

 

Balance at September 30, 2018

 

 

88,505,302

 

 

$

180,875

 

 

$

582,902,694

 

 

$

(21,564

)

 

$

(487,265,816

)

 

$

(555,188

)

 

$

95,241,001

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

5,318,882

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,318,882

 

Exercise of stock options

 

 

702,242

 

 

 

702

 

 

 

3,674,029

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,674,731

 

Common stock - restricted stock units vesting

 

 

2,197,305

 

 

 

2,197

 

 

 

(2,197

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Common stock - issued for cash

 

 

3,260,869

 

 

 

3,261

 

 

 

60,518,468

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

60,521,729

 

Foreign currency translation adjustments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(50,342

)

 

 

-

 

 

 

-

 

 

 

(50,342

)

Net income (loss) for the six months ended March 31, 2019

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

35,934,235

 

 

 

-

 

 

 

35,934,235

 

Balance at March 31, 2019

 

 

94,665,718

 

 

$

187,035

 

 

$

652,411,876

 

 

$

(71,906

)

 

$

(451,331,581

)

 

$

(555,188

)

 

$

200,640,236

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Amount ($)

 

 

Additional Paid-In Capital

 

 

Accumulated Other Comprehensive Income (Loss)

 

 

Accumulated Deficit

 

 

Non-controlling Interest

 

 

Totals

 

Balance at September 30, 2019

 

 

95,506,271

 

 

$

187,876

 

 

$

664,086,155

 

 

$

(391,624

)

 

$

(419,290,967

)

 

$

(555,188

)

 

$

244,036,252

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

17,463,455

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

17,463,455

 

Exercise of stock options

 

 

686,432

 

 

 

686

 

 

 

4,330,891

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,331,577

 

Common stock - restricted stock units vesting

 

 

955,404

 

 

 

955

 

 

 

(955

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Common stock - issued for cash

 

 

4,600,000

 

 

 

4,600

 

 

 

250,474,374

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

250,478,974

 

Foreign currency translation adjustments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(237,490

)

 

 

-

 

 

 

-

 

 

 

(237,490

)

Net income (loss) for the six months ended March 31, 2020

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(22,509,298

)

 

 

-

 

 

 

(22,509,298

)

Balance at March 31, 2020

 

 

101,748,107

 

 

$

194,117

 

 

$

936,353,920

 

 

$

(629,114

)

 

$

(441,800,265

)

 

$

(555,188

)

 

$

493,563,470

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

3


 

 

4


Arrowhead Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Six Months Ended March 31,

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(22,509,298

)

 

$

35,934,235

 

Stock-based compensation

 

 

17,463,455

 

 

 

5,318,882

 

Depreciation and amortization

 

 

2,631,472

 

 

 

2,353,319

 

Amortization/(accretion) of note premiums

 

 

419,212

 

 

 

330,229

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(604,410

)

 

 

(13,094,965

)

Prepaid expenses and other current assets

 

 

46,520

 

 

 

(1,440,287

)

Deferred revenue

 

 

(49,630,006

)

 

 

120,622,138

 

Accounts payable

 

 

5,767,770

 

 

 

1,256,092

 

Accrued expenses

 

 

(5,424,591

)

 

 

(2,340,651

)

Other

 

 

725,481

 

 

 

(240,737

)

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

 

 

(51,114,395

)

 

 

148,698,255

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(7,929,100

)

 

 

(946,788

)

Purchases of marketable securities

 

 

(180,523,424

)

 

 

(90,266,001

)

Proceeds from sale of marketable securities

 

 

19,602,967

 

 

 

12,239,219

 

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

 

 

(168,849,557

)

 

 

(78,973,570

)

CASH FLOWS FROM FINANCING ACTIVITIES: