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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 June 30, 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 July 27, 2020 was 102,291,803.

 

 

 

 


 

 

 

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

4

 

 

Notes to Consolidated Financial Statements

5

 

 

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

15

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

24

 

 

ITEM 4. CONTROLS AND PROCEDURES

24

 

 

PART II — OTHER INFORMATION

 

 

 

ITEM 1. LEGAL PROCEEDINGS

25

 

 

ITEM 1A. RISK FACTORS

25

 

 

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

26

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

26

 

 

ITEM 4. MINE SAFETY DISCLOSURES

26

 

 

ITEM 5. OTHER INFORMATION

26

 

 

ITEM 6. EXHIBITS

28

 

 

SIGNATURE

29

 

 

 

 


PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Arrowhead Pharmaceuticals, Inc.

Consolidated Balance Sheets

 

 

(unaudited)

June 30, 2020

 

 

September 30, 2019

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

$

219,322,617

 

 

$

221,804,128

 

Accounts receivable

 

21,692,564

 

 

 

661,361

 

Prepaid expenses

 

4,096,473

 

 

 

3,317,999

 

Other current assets

 

2,411,937

 

 

 

2,563,435

 

Short term investments

 

67,709,263

 

 

 

36,899,894

 

TOTAL CURRENT ASSETS

 

315,232,854

 

 

 

265,246,817

 

Property and equipment, net

 

30,389,707

 

 

 

23,214,899

 

Intangible assets, net

 

15,788,258

 

 

 

17,063,580

 

Long term investments

 

177,529,881

 

 

 

44,175,993

 

Right-of-use assets

 

16,522,013

 

 

 

-

 

Other assets

 

265,359

 

 

 

144,148

 

TOTAL ASSETS

$

555,728,072

 

 

$

349,845,437

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Accounts payable

$

4,073,869

 

 

$

7,649,921

 

Accrued expenses

 

9,414,696

 

 

 

6,504,729

 

Accrued payroll and benefits

 

1,991,001

 

 

 

4,955,887

 

Lease liabilities

 

1,011,951

 

 

 

-

 

Deferred rent

 

-

 

 

 

173,952

 

Deferred revenue

 

26,274,362

 

 

 

77,769,629

 

Other current liabilities

 

17,262

 

 

 

16,561

 

TOTAL CURRENT LIABILITIES

 

42,783,141

 

 

 

97,070,679

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

 

Lease liabilities, net of current portion

 

20,359,726

 

 

 

-

 

Deferred rent, net of current portion

 

-

 

 

 

3,703,364

 

Deferred revenue, net of current portion

 

-

 

 

 

5,035,142

 

TOTAL LONG-TERM LIABILITIES

 

20,359,726

 

 

 

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; 102,250,872 and 95,506,271 shares issued and outstanding as of June 30, 2020 and September 30, 2019, respectively

 

194,620

 

 

 

187,876

 

Additional paid-in capital

 

948,532,470

 

 

 

664,086,155

 

Accumulated other comprehensive income (loss)

 

(175,219

)

 

 

(391,624

)

Accumulated deficit

 

(455,411,478

)

 

 

(419,290,967

)

Total Arrowhead Pharmaceuticals, Inc. stockholders' equity

 

493,140,393

 

 

 

244,591,440

 

Noncontrolling interest

 

(555,188

)

 

 

(555,188

)

TOTAL STOCKHOLDERS’ EQUITY

 

492,585,205

 

 

 

244,036,252

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

555,728,072

 

 

$

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 June 30,

 

 

Nine Months Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

REVENUE

 

$

27,375,778

 

 

$

42,696,636

 

 

$

80,359,211

 

 

$

125,502,807

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

32,573,134

 

 

 

19,291,710

 

 

 

85,390,086

 

 

 

57,662,381

 

General and administrative expenses

 

 

10,748,506

 

 

 

4,809,177

 

 

 

38,008,836

 

 

 

16,287,841

 

TOTAL OPERATING EXPENSES

 

 

43,321,640

 

 

 

24,100,887

 

 

 

123,398,922

 

 

 

73,950,222

 

OPERATING INCOME (LOSS)

 

 

(15,945,862

)

 

 

18,595,749

 

 

 

(43,039,711

)

 

 

51,552,585

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income (expense), net

 

 

2,334,649

 

 

 

1,739,959

 

 

 

6,919,200

 

 

 

4,717,359

 

TOTAL OTHER INCOME (EXPENSE)

 

 

2,334,649

 

 

 

1,739,959

 

 

 

6,919,200

 

 

 

4,717,359

 

INCOME (LOSS) BEFORE INCOME TAXES

 

 

(13,611,213

)

 

 

20,335,708

 

 

 

(36,120,511

)

 

 

56,269,944

 

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

NET INCOME (LOSS)

 

 

(13,611,213

)

 

 

20,335,708

 

 

 

(36,120,511

)

 

 

56,269,944

 

NET INCOME (LOSS) PER SHARE - BASIC

 

$

(0.13

)

 

$

0.21

 

 

$

(0.36

)

 

$

0.60

 

NET INCOME (LOSS) PER SHARE - DILUTED

 

$

(0.13

)

 

$

0.21

 

 

$

(0.36

)

 

$

0.58

 

Weighted average shares outstanding - basic

 

 

101,843,436

 

 

 

94,935,471

 

 

 

100,184,216

 

 

 

93,364,102

 

Weighted average shares outstanding - diluted

 

 

101,843,436

 

 

 

98,884,744

 

 

 

100,184,216

 

 

 

97,814,019

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

453,895

 

 

 

(31,172

)

 

 

216,405

 

 

 

(81,514

)

COMPREHENSIVE INCOME (LOSS)

 

$

(13,157,318

)

 

$

20,304,536

 

 

$

(35,904,106

)

 

$

56,188,430

 

 

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 March 31, 2019

 

 

94,665,718

 

 

$

187,035

 

 

$

652,411,876

 

 

$

(71,906

)

 

$

(451,331,580

)

 

$

(555,188

)

 

$

200,640,237

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

1,957,993

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,957,993

 

Exercise of stock options

 

 

541,919

 

 

 

542

 

 

 

2,766,732

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,767,274

 

Foreign currency translation adjustments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(31,172

)

 

 

-

 

 

 

-

 

 

 

(31,172

)

Net income (loss) for the three months ended June 30, 2019

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20,335,708

 

 

 

-

 

 

 

20,335,708

 

Balance at June 30, 2019

 

 

95,207,637

 

 

$

187,577

 

 

$

657,136,601

 

 

$

(103,078

)

 

$

(430,995,872

)

 

$

(555,188

)

 

$

225,670,040

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Amount ($)

 

 

Additional

Paid-In Capital

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Accumulated

Deficit

 

 

Non-controlling

Interest

 

 

Totals

 

Balance at March 31, 2020

 

 

101,748,107

 

 

$

194,117

 

 

$

936,353,920

 

 

$

(629,114

)

 

$

(441,800,265

)

 

$

(555,188

)

 

$

493,563,470

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

10,046,208

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

10,046,208

 

Exercise of stock options

 

 

302,765

 

 

 

303

 

 

 

2,132,542

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2,132,845

 

Common stock - restricted stock units vesting

 

 

200,000

 

 

 

200

 

 

 

(200

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Foreign currency translation adjustments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

453,895

 

 

 

-

 

 

 

-

 

 

 

453,895

 

Net income (loss) for the three months ended June 30, 2020

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(13,611,213

)

 

 

-

 

 

 

(13,611,213

)

Balance at June 30, 2020

 

 

102,250,872

 

 

$

194,620

 

 

$

948,532,470

 

 

$

(175,219

)

 

$

(455,411,478

)

 

$

(555,188

)

 

$

492,585,205

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

-

 

 

 

7,276,875

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

7,276,875

 

Exercise of stock options

 

 

1,244,161

 

 

 

1,244

 

 

 

6,440,761

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,442,005

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(81,514

)

 

 

-

 

 

 

-

 

 

 

(81,514

)

Net income (loss) for the nine months ended June 30, 2019

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

56,269,944

 

 

 

-

 

 

 

56,269,944

 

Balance at June 30, 2019

 

 

95,207,637

 

 

$

187,577

 

 

$

657,136,601

 

 

$

(103,078

)

 

$

(430,995,872

)

 

$

(555,188

)

 

$

225,670,040

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

-

 

 

 

-

 

 

 

27,509,663

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

27,509,663

 

Exercise of stock options

 

 

989,197

 

 

 

989

 

 

 

6,463,433

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

6,464,422

 

Common stock - restricted stock units vesting

 

 

1,155,404

 

 

 

1,155

 

 

 

(1,155

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Common stock - issued for cash

 

 

4,600,000

 

 

 

4,600

 

 

 

250,474,374

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

250,478,974

 

Foreign currency translation adjustments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

216,405

 

 

 

-

 

 

 

-

 

 

 

216,405

 

Net income (loss) for the nine months ended June 30, 2020

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(36,120,511

)

 

 

-

 

 

 

(36,120,511

)

Balance at June 30, 2020

 

 

102,250,872

 

 

$

194,620

 

 

$

948,532,470

 

 

$

(175,219

)

 

$

(455,411,478

)

 

$

(555,188

)

 

$

492,585,205

 

 

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

 

 

 

3


Arrowhead Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(unaudited)

 

 

 

Nine Months Ended June 30,

 

 

 

2020

 

 

2019

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(36,120,511

)

 

$

56,269,944

 

Stock-based compensation

 

 

27,509,663

 

 

 

7,276,875

 

Depreciation and amortization

 

 

4,167,873

 

 

 

3,356,769

 

Amortization/(accretion) of note premiums

 

 

652,747

 

 

 

682,243

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(21,031,203

)

 

 

(1,716,736

)

Prepaid expenses and other current assets

 

 

(863,287

)

 

 

(2,393,230

)

Deferred revenue

 

 

(56,530,409

)

 

 

97,940,261

 

Accounts payable

 

 

(3,576,053

)

 

 

1,824,146

 

Accrued expenses

 

 

(54,217

)

 

 

(3,477,235

)

Other

 

 

1,303,852

 

 

 

(538,020

)

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

 

 

(84,541,545

)

 

 

159,225,017

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(10,067,360

)

 

 

(4,170,285

)

Purchases of marketable securities

 

 

(193,964,290

)

 

 

(90,266,001

)

Proceeds from sale of marketable securities

 

 

29,148,287

 

 

 

29,861,219

 

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

 

 

(174,883,363

)

 

 

(64,575,067

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Principal payments on notes payable

 

 

-

 

 

 

(2,415,150

)

Proceeds from the exercises of  stock options

 

 

6,464,423

 

 

 

6,442,005

 

Proceeds from the issuance of common stock

 

 

250,478,974

 

 

 

60,521,729

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

 

 

256,943,397

 

 

 

64,548,584

 

NET INCREASE (DECREASE) IN CASH

 

 

(2,481,511

)

 

 

159,198,534

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

 

221,804,128

 

 

 

30,133,213

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

219,322,617

 

 

$

189,331,747

 

Supplementary disclosures:

 

 

 

 

 

 

 

 

Interest paid

 

$

-