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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, 2021 

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)

 

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 (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.  

 

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 April 30, 2021 was 104,084,876.

 

 

 


 

 

 

Page(s)

PART I — FINANCIAL INFORMATION

 

 

 

ITEM 1. FINANCIAL STATEMENTS

1

 

 

Consolidated Balance Sheets

1

 

 

Consolidated Statements of Operations and Comprehensive Income (Loss)

2

 

 

Consolidated Statements 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  

16

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

25

 

 

ITEM 4. CONTROLS AND PROCEDURES

25

 

 

PART II — OTHER INFORMATION

26

 

 

ITEM 1. LEGAL PROCEEDINGS

26

 

 

ITEM 1A. RISK FACTORS

26

 

 

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

27

 

 

SIGNATURE

28

 

 

 


 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Arrowhead Pharmaceuticals, Inc.

Consolidated Balance Sheets

(In thousands, except per share amounts)

 

 

(unaudited)

March 31, 2021

 

 

September 30, 2020

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

$

372,377

 

 

$

143,583

 

Accounts receivable

 

955

 

 

 

845

 

Prepaid expenses

 

6,639

 

 

 

4,250

 

Other current assets

 

1,845

 

 

 

1,782

 

Marketable securities

 

125,793

 

 

 

85,020

 

Short term investments (held to maturity)

 

79,148

 

 

 

86,890

 

TOTAL CURRENT ASSETS

 

586,757

 

 

 

322,370

 

Property and equipment, net

 

39,400

 

 

 

30,881

 

Intangible assets, net

 

14,513

 

 

 

15,363

 

Long term investments (held to maturity)

 

97,490

 

 

 

137,487

 

Right-of-use assets

 

18,370

 

 

 

16,138

 

Other assets

 

265

 

 

 

265

 

TOTAL ASSETS

$

756,795

 

 

$

522,504

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Accounts payable

$

5,299

 

 

$

6,829

 

Accrued expenses

 

12,862

 

 

 

5,389

 

Accrued payroll and benefits

 

2,859

 

 

 

8,061

 

Lease liabilities

 

1,272

 

 

 

1,095

 

Deferred revenue

 

144,879

 

 

 

19,291

 

Other current liabilities

 

17

 

 

 

16

 

TOTAL CURRENT LIABILITIES

 

167,188

 

 

 

40,681

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

 

Lease liabilities, net of current portion

 

22,528

 

 

 

20,044

 

Deferred revenue, net of current portion

 

121,530

 

 

 

-

 

TOTAL LONG-TERM LIABILITIES

 

144,058

 

 

 

20,044

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Arrowhead Pharmaceuticals, Inc. stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.001 par value; 145,000 shares authorized; 104,020 and 102,376 shares issued and outstanding as of March 31, 2021 and September 30, 2020, respectively

 

196

 

 

 

195

 

Additional paid-in capital

 

996,645

 

 

 

965,410

 

Accumulated other comprehensive income

 

102

 

 

 

18

 

Accumulated deficit

 

(551,394

)

 

 

(503,844

)

TOTAL STOCKHOLDERS’ EQUITY

 

445,549

 

 

 

461,779

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

756,795

 

 

$

522,504

 

 

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)

(In thousands, except per share amounts)

 

 

 

Three Months Ended March 31,

 

 

Six Months Ended March 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

REVENUE

 

$

32,811

 

 

$

23,529

 

 

$

54,113

 

 

$

52,983

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

44,697

 

 

 

29,443

 

 

 

81,251

 

 

 

52,817

 

General and administrative expenses

 

 

16,346

 

 

 

16,326

 

 

 

25,147

 

 

 

27,260

 

TOTAL OPERATING EXPENSES

 

 

61,043

 

 

 

45,769

 

 

 

106,398

 

 

 

80,077

 

OPERATING INCOME (LOSS)

 

 

(28,232

)

 

 

(22,240

)

 

 

(52,285

)

 

 

(27,094

)

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income, net

 

 

1,524

 

 

 

2,404

 

 

 

3,692

 

 

 

4,585

 

Other income (expense)

 

 

(110

)

 

 

-

 

 

 

1,043

 

 

 

-

 

TOTAL OTHER INCOME (EXPENSE)

 

 

1,414

 

 

 

2,404

 

 

 

4,735

 

 

 

4,585

 

INCOME (LOSS) BEFORE INCOME TAXES

 

 

(26,818

)

 

 

(19,836

)

 

 

(47,550

)

 

 

(22,509

)

Provision for income taxes

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

NET INCOME (LOSS)

 

 

(26,818

)

 

 

(19,836

)

 

 

(47,550

)

 

 

(22,509

)

NET INCOME (LOSS) PER SHARE - BASIC

 

$

(0.26

)

 

$

(0.20

)

 

$

(0.46

)

 

$

(0.23

)

NET INCOME (LOSS) PER SHARE - DILUTED

 

$

(0.26

)

 

$

(0.20

)

 

$

(0.46

)

 

$

(0.23

)

Weighted average shares outstanding - basic

 

 

103,867

 

 

 

101,653

 

 

 

103,303

 

 

 

99,359

 

Weighted average shares outstanding - diluted

 

 

103,867

 

 

 

101,653

 

 

 

103,303

 

 

 

99,359

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(96

)

 

 

(433

)

 

 

84

 

 

 

(238

)

COMPREHENSIVE INCOME (LOSS)

 

$

(26,914

)

 

$

(20,269

)

 

$

(47,466

)

 

$

(22,747

)

 

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

 

 

 

2


 

Arrowhead Pharmaceuticals, Inc.

Consolidated Statements of Stockholders’ Equity

(unaudited)

(In thousands, except per share amounts)

 

 

 

Common

Stock

 

 

Amount ($)

 

 

Additional

Paid-In

Capital

 

 

Accumulated Other

Comprehensive

Income (Loss)

 

 

Accumulated

Deficit

 

 

Non-controlling

Interest

 

 

Totals

 

Balance at December 31, 2019

 

 

101,112

 

 

$

193

 

 

$

922,051

 

 

$

(196

)

 

$

(421,964

)

 

$

(555

)

 

$

499,529

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

12,972

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

12,972

 

Exercise of stock options

 

 

214

 

 

 

-

 

 

 

1,330

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,330

 

Common stock - restricted stock units vesting

 

 

422

 

 

 

1

 

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Common stock - issued for cash

 

 

-

 

 

 

-

 

 

 

2

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

2

 

Foreign currency translation adjustments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(433

)

 

 

-

 

 

 

-

 

 

 

(433

)

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(19,836

)

 

 

-

 

 

 

(19,836

)

Balance at March 31, 2020

 

 

101,748

 

 

$

194

 

 

$

936,354

 

 

$

(629

)

 

$

(441,800

)

 

$

(555

)

 

$

493,564

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

Stock

 

 

Amount ($)

 

 

Additional

Paid-In

Capital

 

 

Accumulated Other

Comprehensive

Income (Loss)

 

 

Accumulated

Deficit

 

 

Totals

 

 

 

 

 

Balance at December 31, 2020

 

 

103,194

 

 

$

195

 

 

$

978,655

 

 

$

198

 

 

$

(524,576

)

 

$

454,472

 

 

 

 

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

15,359

 

 

 

-

 

 

 

-

 

 

 

15,359

 

 

 

 

 

Exercise of stock options

 

 

282

 

 

 

-

 

 

 

2,632

 

 

 

-

 

 

 

-

 

 

 

2,632

 

 

 

 

 

Common stock - restricted stock units vesting

 

 

544

 

 

 

1

 

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

Foreign currency translation adjustments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(96

)

 

 

-

 

 

 

(96

)

 

 

 

 

Net income (loss) for the three months ended March 31, 2021

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(26,818

)

 

 

(26,818

)

 

 

 

 

Balance at March 31, 2021

 

 

104,020

 

 

$

196

 

 

$

996,645

 

 

$

102

 

 

$

(551,394

)

 

$

445,549

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

$

187

 

 

$

664,086

 

 

$

(391

)

 

$

(419,291

)

 

$

(555

)

 

$

244,036

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

17,464

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

17,464

 

Exercise of stock options

 

 

686

 

 

 

1

 

 

 

4,331

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,332

 

Common stock - restricted stock units vesting

 

 

956

 

 

 

1

 

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Common stock - issued for cash

 

 

4,600

 

 

 

5

 

 

 

250,474

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

250,479

 

Foreign currency translation adjustments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(238

)

 

 

-

 

 

 

-

 

 

 

(238

)

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(22,509

)

 

 

-

 

 

 

(22,509

)

Balance at March 31, 2020

 

 

101,748

 

 

$

194

 

 

$

936,354

 

 

$

(629

)

 

$

(441,800

)

 

$

(555

)

 

$

493,564

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

Stock

 

 

Amount ($)

 

 

Additional

Paid-In

Capital

 

 

Accumulated Other

Comprehensive

Income (Loss)

 

 

Accumulated

Deficit

 

 

Totals

 

 

 

 

 

Balance at September 30, 2020

 

 

102,376

 

 

$

195

 

 

$

965,410

 

 

$

18

 

 

$

(503,844

)

 

$

461,779

 

 

 

 

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

23,502

 

 

 

-

 

 

 

-

 

 

 

23,502

 

 

 

 

 

Exercise of stock options

 

 

820

 

 

 

-

 

 

 

7,734

 

 

 

-

 

 

 

-

 

 

 

7,734

 

 

 

 

 

Common stock - restricted stock units vesting

 

 

824

 

 

 

1

 

 

 

(1

)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

 

 

Foreign currency translation adjustments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

84

 

 

 

-

 

 

 

84

 

 

 

 

 

Net income (loss) for the six months ended March 31, 2021

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(47,550

)

 

 

(47,550

)

 

 

 

 

Balance at March 31, 2021

 

 

104,020

 

 

$

196

 

 

$

996,645

 

 

$

102

 

 

$

(551,394

)

 

$

445,549

 

 

 

 

 

 

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

 

 

3


 

Arrowhead Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(In thousands, except per share amounts)

 

 

 

Six Months Ended March 31,

 

 

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(47,550

)

 

$

(22,509

)

Stock-based compensation

 

 

23,502

 

 

 

17,464

 

Depreciation and amortization

 

 

3,766

 

 

 

2,632

 

Amortization/(accretion) of note premiums/discounts

 

 

193

 

 

 

419

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(109

)

 

 

(604

)

Prepaid expenses and other current assets

 

 

(2,213

)

 

 

47

 

Deferred revenue

 

 

247,118

 

 

 

(49,630

)

Accounts payable

 

 

(1,530

)

 

 

5,768

 

Accrued expenses

 

 

2,271

 

 

 

(5,425

)

Other

 

 

(497

)

 

 

723

 

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

 

 

224,951

 

 

 

(51,115

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(11,437

)

 

 

(7,929

)

Purchases of investments

 

 

(40,000

)

 

 

(180,523

)

Proceeds from sale of investments

 

 

47,545

 

 

 

19,603

 

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

 

 

(3,892

)

 

 

(168,849

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from the exercises of stock options

 

 

7,735

 

 

 

4,332

 

Proceeds from the issuance of common stock

 

 

-

 

 

 

250,479

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

 

 

7,735

 

 

 

254,811

 

NET INCREASE (DECREASE) IN CASH

 

 

228,794

 

 

 

34,847

 

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

 

143,583

 

 

 

221,804

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

372,377

 

 

$

256,651

 

 

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

 

 

4


 

Arrowhead Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Unless otherwise noted, (1) the term “Arrowhead” refers to Arrowhead Pharmaceuticals, Inc., a Delaware corporation and its Subsidiaries, (2) the terms “Company,” “we,” “us,” and “our,” refer to the ongoing business operations of Arrowhead and its Subsidiaries, whether conducted through Arrowhead or a subsidiary of Arrowhead, (3) the term “Subsidiaries” refers to Arrowhead Madison Inc. (“Arrowhead Madison”) and Arrowhead Australia Pty Ltd (“Arrowhead Australia”), (4) the term “Common Stock” refers to Arrowhead’s Common Stock, (5) the term “Preferred Stock” refers to Arrowhead’s Preferred Stock and (6) the term “Stockholder(s)” refers to the holders of Arrowhead Common Stock.

                         

NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business and Recent Developments

Arrowhead Pharmaceuticals, Inc. develops medicines that treat intractable diseases by silencing the genes that cause them. Using a broad portfolio of RNA chemistries and efficient modes of delivery, Arrowhead 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. Arrowhead’s RNAi-based therapeutics leverage this natural pathway of gene silencing. The Company’s pipeline includes ARO-APOC3 for hypertriglyceridemia, ARO-ANG3 for dyslipidemia, ARO-HSD for liver disease, ARO-ENaC for cystic fibrosis, ARO-HIF2 for renal cell carcinoma, ARO-DUX4 for facioscapulohumeral muscular dystrophy, ARO-LUNG2 for chronic obstructive pulmonary disorder (“COPD”), and ARO-COV for the coronavirus that causes COVID-19 and other possible future pulmonary-borne pathogens. ARO-JNJ1, ARO-JNJ2 and ARO-JNJ3 are being developed for undisclosed liver-expressed targets under a collaboration agreement with Janssen Pharmaceuticals, Inc. (“Janssen”).  ARO-AAT for liver disease associated with alpha-1 antitrypsin deficiency (“AATD”) was out-licensed to Takeda Pharmaceuticals U.S.A., Inc. (“Takeda”) in October 2020. JNJ3989 (formerly referred to as ARO-HBV) for chronic hepatitis B virus was out-licensed to Janssen in October 2018.  Olpasiran (formerly referred to as AMG 890 or ARO-LPA) for cardiovascular disease was out-licensed to Amgen Inc. (“Amgen”) in 2016.

Arrowhead operates lab facilities in Madison, Wisconsin and San Diego, California, where the Company’s research and development activities, including the development of RNAi therapeutics, take place. The Company’s principal executive offices are located in Pasadena, California.

During the first half of fiscal year 2021, the Company continued to develop its pipeline and partnered candidates.  The Company hosted a key opinion leader webinar on its cardiometabolic candidates, ARO-APOC3 and ARO-ANG3. The Company presented positive interim clinical data from AROAAT2002, an open-label Phase 2 clinical study of ARO-AAT, the Company’s second-generation investigational RNAi therapeutic being developed as a treatment for the rare genetic liver disease associated with AATD.  The Company also announced positive clinical data on its cardiometabolic candidates, ARO-APOC3 and ARO-ANG3, at the American Heart Association Scientific Sessions 2020. The Company filed two Investigational New Drug Applications with the United States Food and Drug Administration to begin a Phase 2b clinical study of ARO-APOC3 in patients with severe hypertriglyceridemia and a Phase 2b clinical study of ARO-ANG3 in patients with mixed dyslipidemia. Finally, the Company announced a collaboration with Takeda to co-develop and co-commercialize ARO-AAT for alpha-1 antitrypsin-associated liver disease.  See Note 2 for more information regarding the collaboration with Takeda.

The Company’s partnered candidates under its collaboration agreements also continued to progress.  Janssen began dosing patients in a Phase 2b triple combination study called REEF-1, designed to enroll up to 450 patients with chronic hepatitis B infection. In connection with the start of this study, Arrowhead earned a $25.0 million milestone payment under the Company’s License Agreement with Janssen (“Janssen License Agreement”).  The Company is currently performing discovery, optimization and preclinical research and development for ARO-JNJ1, ARO-JNJ2 and ARO-JNJ3 for Janssen as part of the Company’s Research Collaboration and Option Agreement with Janssen (“Janssen Collaboration Agreement”).  Under the terms of the Janssen agreements taken together, the Company has received $175.0 million as an upfront payment, $75.0 million in the form of an equity investment by Johnson & Johnson Innovation-JJDC, Inc. (“JJDC”) in Arrowhead Common Stock, two $25.0 million milestone payments and may receive up to $