Arrowhead Pharmaceuticals, Inc.
ARROWHEAD RESEARCH CORP (Form: 10-Q, Received: 02/04/2014 16:33:51)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

x

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

For the quarterly period ended December 31, 2013

¨

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

Commission file number 000-21898

 

ARROWHEAD RESEARCH CORPORATION

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

46-0408024

(State of incorporation)

 

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

225 S. Lake Avenue, Suite 1050

Pasadena, California 91101

(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   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes   x     No   ¨

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

 

Large accelerated

 

¨

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

¨   (Do not check if a smaller reporting company)

  

Smaller reporting company

 

x

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

The number of shares of the registrant’s common stock outstanding as of January 31, 2014 was 39,687,033.

 

 

 

 

 


 

Page(s)

PART I — FINANCIAL INFORMATION

 

 

 

ITEM 1. FINANCIAL STATEMENTS (unaudited)

1

 

 

Consolidated Balance Sheets

1

 

 

Consolidated Statements of Operations

2

 

 

Consolidated Statement of Stockholders’ Equity

3

 

 

Consolidated Statements of Cash Flows

7

 

 

Notes to Consolidated Financial Statements

11

 

 

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

25

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

31

 

 

ITEM 4. CONTROLS AND PROCEDURES

31

 

 

PART II — OTHER INFORMATION

 

 

 

ITEM 1. LEGAL PROCEEDINGS

32

 

 

ITEM 1A. RISK FACTORS

32

 

 

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

32

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

32

 

 

ITEM 4. MINE SAFETY DISCLOSURES

32

 

 

ITEM 5. OTHER INFORMATION

32

 

 

ITEM 6. EXHIBITS

32

 

 

SIGNATURE

33

 

 

 

 


PART I. FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

Arrowhead Research Corporation and Subsidiaries

(A Development Stage Company)

Consolidated Balance Sheets

 

 

(unaudited)

 

 

 

 

 

 

December 31, 2013

 

 

September 30, 2013

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

$

59,713,424

 

 

$

19,114,444

 

Trade receivable

 

75,000

 

 

 

75,000

 

Other receivables

 

20,488

 

 

 

8,663

 

Prepaid expenses and other current assets

 

689,954

 

 

 

615,351

 

Short term investments

 

15,912,757

 

 

 

9,030,261

 

TOTAL CURRENT ASSETS

 

76,411,623

 

 

 

28,843,719

 

PROPERTY AND EQUIPMENT

 

 

 

 

 

 

 

Computers, office equipment and furniture

 

323,376

 

 

 

323,376

 

Research equipment

 

3,319,429

 

 

 

3,452,013

 

Software

 

69,623

 

 

 

69,623

 

Leasehold improvements

 

2,749,409

 

 

 

2,749,409

 

 

 

6,461,837

 

 

 

6,594,421

 

Less:    Accumulated depreciation and amortization

 

(3,275,690

)

 

 

(3,081,186

)

PROPERTY AND EQUIPMENT, NET

 

3,186,147

 

 

 

3,513,235

 

OTHER ASSETS

 

 

 

 

 

 

 

Patents and other intangible assets, net

 

3,226,850

 

 

 

3,240,513

 

Investments

 

9,867,857

 

 

 

1,732,164

 

TOTAL OTHER ASSETS

 

13,094,707

 

 

 

4,972,677

 

TOTAL ASSETS

$

92,692,477

 

 

$

37,329,631

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Accounts payable

$

589,348

 

 

$

1,199,632

 

Accrued expenses

 

684,520

 

 

 

638,884

 

Accrued payroll and benefits

 

678,035

 

 

 

905,771

 

Deferred revenue

 

109,375

 

 

 

103,125

 

Derivative liabilities

 

5,097,442

 

 

 

4,096,363

 

Capital lease obligation

 

221,345

 

 

 

221,345

 

Notes payable

 

1,050,000

 

 

 

971,557

 

Other current liabilities

 

588,343

 

 

 

588,343

 

TOTAL CURRENT LIABILITIES

 

9,018,408

 

 

 

8,725,020

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

 

Notes payable, net of current portion

 

-

 

 

 

50,000

 

Capital lease obligation, net of current portion

 

1,006,398

 

 

 

1,061,113

 

Other non-current liabilities

 

1,757,384

 

 

 

1,758,709

 

TOTAL LONG-TERM LIABILITIES

 

2,763,782

 

 

 

2,869,822

 

Commitments and contingencies

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Arrowhead Research Corporation stockholders' equity:

 

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000,000 shares authorized; 51,291 and 9,900 shares

 

 

 

 

 

 

 

issued and outstanding as of December 31, 2013 and September 30, 2013, respectively

 

51

 

 

 

10

 

Common stock, $0.001 par value; 145,000,000 shares authorized; 39,002,152 and 32,489,444 shares

 

 

 

 

 

 

 

issued and outstanding as of December 31, 2013 and September 30, 2013, respectively

 

131,372

 

 

 

124,859

 

Additional paid-in capital

 

259,369,442

 

 

 

193,514,766

 

Accumulated deficit during the development stage

 

(176,769,281

)

 

 

(166,140,969

)

Total Arrowhead Research Corporation stockholders' equity

 

82,731,584

 

 

 

27,498,666

 

Noncontrolling interest

 

(1,821,297

)

 

 

(1,763,877

)

TOTAL STOCKHOLDERS’ EQUITY

 

80,910,287

 

 

 

25,734,789

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

92,692,477

 

 

$

37,329,631

 

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

 

1


Arrowhead Research Corporation and Subsidiaries

(A Development Stage Company)

Consolidated Statements of Operations

(unaudited)

 

 

 

Three Months ended

 

 

Three Months ended

 

 

May 7, 2003 (Inception) to

 

 

 

December 31, 2013

 

 

December 31, 2012

 

 

December 31, 2013

 

REVENUE

 

$

43,750

 

 

$

159,016

 

 

$

4,472,850

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

Salaries and payroll-related costs

 

 

2,081,791

 

 

 

1,629,423

 

 

 

35,141,590

 

General and administrative expenses

 

 

913,784

 

 

 

917,676

 

 

 

35,755,863

 

Research and development

 

 

3,133,014

 

 

 

1,576,666

 

 

 

54,457,389

 

Stock-based compensation

 

 

521,138

 

 

 

395,675

 

 

 

15,638,877

 

Depreciation and amortization

 

 

403,405

 

 

 

449,597

 

 

 

9,564,103

 

Impairment expense

 

 

-

 

 

 

-

 

 

 

1,308,047

 

Contingent consideration - fair value adjustments

 

 

-

 

 

 

-

 

 

 

1,421,652

 

TOTAL OPERATING EXPENSES

 

 

7,053,132

 

 

 

4,969,037

 

 

 

153,287,521

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING LOSS

 

 

(7,009,382

)

 

 

(4,810,021

)

 

 

(148,814,671

)

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

Equity in income (loss) of unconsolidated affiliates

 

 

(138,456

)

 

 

(63,557

)

 

 

(1,743,004

)

Impairment of investment in unconsolidated affiliates

 

 

-

 

 

 

-

 

 

 

(1,642,775

)

Gain on purchase of Roche Madison

 

 

-

 

 

 

-

 

 

 

1,576,107

 

Gain (loss) on sale of fixed assets, net

 

 

(53,562

)

 

 

18,493

 

 

 

(1,336,415

)

Realized and unrealized gain (loss) in marketable securities

 

 

-

 

 

 

-

 

 

 

62,954

 

Interest income (expense), net

 

 

40,578

 

 

 

7,416

 

 

 

2,693,112

 

Change in value of derivatives

 

 

(3,519,579

)

 

 

44,275

 

 

 

(5,538,564

)

Gain on sale of stock in subsidiary

 

 

-

 

 

 

-

 

 

 

2,292,800

 

Other income (expense)

 

 

(5,331

)

 

 

22,685

 

 

 

(753,306

)

TOTAL OTHER INCOME (EXPENSE)

 

 

(3,676,350

)

 

 

29,312

 

 

 

(4,389,091

)

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES

 

 

(10,685,732

)

 

 

(4,780,709

)

 

 

(153,203,762

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS

 

 

(10,685,732

)

 

 

(4,780,709

)

 

 

(153,203,762

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from discontinued operations

 

 

-

 

 

 

(18

)

 

 

(47,546,996

)

Gain on disposal of discontinued operations

 

 

-

 

 

 

-

 

 

 

4,708,588

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME (LOSS) FROM DISCONTINUED OPERATIONS

 

 

-

 

 

 

(18

)

 

 

(42,838,408

)

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

 

(10,685,732

)

 

 

(4,780,727

)

 

 

(196,042,170

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to noncontrolling interests

 

 

57,420

 

 

 

166,568

 

 

 

19,436,849

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS ATTRIBUTABLE TO ARROWHEAD

 

$

(10,628,312

)

 

$

(4,614,159

)

 

$

(176,605,321

)

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS PER SHARE ATTRIBUTABLE TO ARROWHEAD

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS - BASIC & DILUTED:

 

$

(0.28

)

 

$

(0.33

)

 

 

 

 

Weighted average shares outstanding - basic and diluted

 

 

37,741,743

 

 

 

14,113,620

 

 

 

 

 

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

 

 

2


Arrowhead Research Corporation and Subsidiaries

(A Development Stage Company)

Consolidated Statement of Stockholders’ Equity

from inception through December 31, 2013

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated Deficit

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Preferred Stock

 

 

Additional Paid-

 

 

Subscription

 

 

during the

 

 

Noncontrolling

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

in Capital

 

 

Receivable

 

 

Development Stage

 

 

interest

 

 

Totals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Initial Issuance of Stock:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock & warrants issued for cash @ $0.01 per unit

 

300,000

 

 

$

3,000

 

 

 

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

3,000

 

Common stock & warrants issued for cash @ $10.00 per unit

 

168,000

 

 

 

1,680

 

 

 

-

 

 

 

-

 

 

 

1,678,320

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,680,000

 

Stock issuance cost charged to additional paid-in capital

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(168,000

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(168,000

)

Net loss for period from inception to September 30, 2003

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(95,238

)

 

 

-

 

 

 

(95,238

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2003

 

468,000

 

 

$

4,680

 

 

 

-

 

 

$

-

 

 

 

1,510,320

 

 

$

-

 

 

$

(95,238

)

 

$

-

 

 

$

1,419,762

 

Exercise of stock options

 

7,500

 

 

 

75

 

 

 

-

 

 

 

-

 

 

 

14,925

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

15,000

 

Common stock & warrants issued for cash @ $10.00 per unit

 

47,500

 

 

 

475

 

 

 

-

 

 

 

-

 

 

 

474,525

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

475,000

 

Common stock & warrants issued for marketable securities @ $10.00 per unit

 

50,000

 

 

 

500

 

 

 

-

 

 

 

-

 

 

 

499,500

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

500,000

 

Stock issuance cost charged to additional paid-in capital

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(96,500

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(96,500

)

Common stock and warrants issued for cash @ $15.00 per unit

 

660,879

 

 

 

6,609

 

 

 

-

 

 

 

-

 

 

 

9,906,573

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,913,182

 

Common stock issued in reverse acquisition

 

70,553

 

 

 

706

 

 

 

-

 

 

 

-

 

 

 

(151,175

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(150,469

)

Common stock issued as a gift for $10.90 per share

 

15,000

 

 

 

163

 

 

 

-

 

 

 

-

 

 

 

162,587

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

162,750

 

Common stock and warrants issued as stock issuance cost @ $15.00 per unit

 

35,623

 

 

 

356

 

 

 

-

 

 

 

-

 

 

 

533,988

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

534,344

 

Stock issuance cost charged to additional paid-in capital

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(991,318

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(991,318

)

Exercise of stock option @ $2.00 per share

 

7,500

 

 

 

75

 

 

 

-

 

 

 

-

 

 

 

14,925

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

15,000

 

Exercise of stock options @ $10.00 per share

 

600

 

 

 

6

 

 

 

-

 

 

 

-

 

 

 

5,994

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,000

 

Stock-based compensation

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

175,653

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

175,653

 

Net loss for the year ended September 30, 2004

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,528,954

)

 

 

1,777,699

 

 

 

(751,255

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2004

 

1,363,155

 

 

$

13,645

 

 

 

-

 

 

$

-

 

 

 

12,059,997

 

 

$

-

 

 

$

(2,624,192

)

 

$

1,777,699

 

 

$

11,227,149

 

Exercise of warrants @ $15.00 per share

 

1,381,289

 

 

 

13,813

 

 

 

-

 

 

 

-

 

 

 

20,705,522

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20,719,335

 

Exercise of stock options @ $10.00 per share

 

2,500

 

 

 

25

 

 

 

-

 

 

 

-

 

 

 

24,975

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

25,000

 

Common stock issued to purchase Insert Therapeutics share @ $39.80 per share

 

50,226

 

 

 

502

 

 

 

-

 

 

 

-

 

 

 

1,999,498

 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

2,000,000

 

Common stock issued for services

 

1,250

 

 

 

12

 

 

 

-

 

 

 

-

 

 

 

49,988

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

50,000

 

Stock-based compensation

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

508,513

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

508,513

 

Change in percentage of ownership in subsidiary

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

230,087

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

230,087

 

Net loss for the year ended September 30, 2005

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,854,918

)

 

 

121,491

 

 

 

(6,733,427

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2005

 

2,798,419

 

 

$

27,997

 

 

 

-

 

 

$

-

 

 

 

35,578,580

 

 

$

-

 

 

$

(9,479,110

)

 

$

1,899,190

 

 

$

28,026,657

 

Exercise of stock options

 

11,579

 

 

 

116

 

 

 

-

 

 

 

-

 

 

 

341,421

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

341,537

 

Common stock issued @ $48.80 per share

 

20,485

 

 

 

205

 

 

 

-

 

 

 

-

 

 

 

999,795

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,000,000

 

3


Common stock issued @ $38.40 per share

 

1,500

 

 

 

15

 

 

 

-

 

 

 

-

 

 

 

57,585

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

57,600

 

Common stock and warrants issued @ $35.00 per unit

 

559,000

 

 

 

5,590

 

 

 

-

 

 

 

-

 

 

 

19,539,410

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

19,545,000

 

Common stock issued @ $59.10 per share

 

2,536

 

 

 

25

 

 

 

-

 

 

 

-

 

 

 

149,975

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

150,000

 

Common stock issued to purchase Calando Pharmaceuticals, Inc. @ $51.70 per share

 

20,838

 

 

 

208

 

 

 

-

 

 

 

-

 

 

 

1,077,125

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,077,333

 

Stock-based compensation

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,369,478

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,369,478

 

Net loss for the year ended September  30, 2006

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(18,997,209

)

 

 

(964,752

)

 

 

(19,961,961

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 30, 2006

 

3,414,359

 

 

$

34,156

 

 

 

-

 

 

$

-

 

 

 

59,113,369

 

 

$

-

 

 

$

(28,476,319

)

 

$

934,438

 

 

$

31,605,644

 

Exercise of stock options

 

18,616

 

 

 

186

 

 

 

-

 

 

 

-

 

 

 

434,541

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

434,727

 

Common stock and warrants issued @ $57.80 per unit

 

284,945

 

 

 

2,849

 

 

 

-

 

 

 

-

 

 

 

15,149,366

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

15,152,215

 

Arrowhead's increase in proportionate share of Insert Therapeutics' equity

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,401,394

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,401,394

 

Common stock issued for purchase of Carbon Nanotechnologies, Inc. @ $37.70 per share

 

143,122

 

 

 

1,431

 

 

 

-

 

 

 

-

 

 

 

5,398,569

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

5,400,000

 

Stock-based compensation