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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended December 31, 2021 

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

For the transition period from       to       .  

Commission file number 001-38042

 

ARROWHEAD PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

46-0408024

(State or other jurisdiction of incorporation or organization)

 

(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)

 

Former name, former address, and former fiscal year, if changed since last report: N/A

 

Securities registered pursuant to Section 12(b) of the Exchange 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 January 31, 2022 was 105,459,716.

 

 

 


 

 

 

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  

17

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

26

 

 

ITEM 4. CONTROLS AND PROCEDURES

26

 

 

PART II — OTHER INFORMATION

27

 

 

ITEM 1. LEGAL PROCEEDINGS

27

 

 

ITEM 1A. RISK FACTORS

27

 

 

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

27

 

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

27

 

 

ITEM 4. MINE SAFETY DISCLOSURES

27

 

 

ITEM 5. OTHER INFORMATION

27

 

 

ITEM 6. EXHIBITS

28

 

 

SIGNATURE

29

 

 

 


 

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Arrowhead Pharmaceuticals, Inc.

Consolidated Balance Sheets

(In thousands, except per share amounts)

 

 

(unaudited)

December 31, 2021

 

 

September 30, 2021

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

Cash and cash equivalents

$

91,587

 

 

$

184,434

 

Accounts receivable

 

150

 

 

 

10,255

 

Prepaid expenses

 

5,199

 

 

 

4,362

 

Other current assets

 

2,795

 

 

 

2,191

 

Marketable securities

 

126,010

 

 

 

126,728

 

Short term investments

 

112,537

 

 

 

56,627

 

TOTAL CURRENT ASSETS

 

338,278

 

 

 

384,597

 

Property and equipment, net

 

52,303

 

 

 

48,675

 

Intangible assets, net

 

13,238

 

 

 

13,663

 

Long term investments

 

217,572

 

 

 

245,595

 

Right-of-use assets

 

16,875

 

 

 

17,346

 

Other assets

 

273

 

 

 

272

 

TOTAL ASSETS

$

638,539

 

 

$

710,148

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

Accounts payable

$

4,068

 

 

$

9,457

 

Accrued expenses

 

18,518

 

 

 

14,001

 

Accrued payroll and benefits

 

2,968

 

 

 

9,773

 

Lease liabilities

 

2,826

 

 

 

2,250

 

Deferred revenue

 

108,652

 

 

 

111,055

 

TOTAL CURRENT LIABILITIES

 

137,032

 

 

 

146,536

 

LONG-TERM LIABILITIES

 

 

 

 

 

 

 

Lease liabilities, net of current portion

 

22,489

 

 

 

23,295

 

Deferred revenue, net of current portion

 

106,458

 

 

 

131,495

 

TOTAL LONG-TERM LIABILITIES

 

128,947

 

 

 

154,790

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Arrowhead Pharmaceuticals, Inc. stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.001 par value; 145,000 shares authorized; 104,798 and 104,327 shares issued and outstanding as of December 31, 2021 and September 30, 2021, respectively

 

197

 

 

 

197

 

Additional paid-in capital

 

1,080,035

 

 

 

1,053,386

 

Accumulated other comprehensive income

 

(108

)

 

 

(69

)

Accumulated deficit

 

(707,564

)

 

 

(644,692

)

TOTAL STOCKHOLDERS’ EQUITY

 

372,560

 

 

 

408,822

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

638,539

 

 

$

710,148

 

 

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 December 31,

 

 

 

2021

 

 

2020

 

REVENUE

 

$

27,439

 

 

$

21,303

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

Research and development

 

 

65,765

 

 

 

36,555

 

General and administrative expenses

 

 

24,995

 

 

 

8,802

 

TOTAL OPERATING EXPENSES

 

 

90,760

 

 

 

45,357

 

OPERATING INCOME (LOSS)

 

 

(63,321

)

 

 

(24,054

)

OTHER INCOME (EXPENSE)

 

 

 

 

 

 

 

 

Interest income, net

 

 

1,156

 

 

 

2,169

 

Other income (expense)

 

 

(707

)

 

 

1,153

 

TOTAL OTHER INCOME (EXPENSE)

 

 

449

 

 

 

3,322

 

INCOME (LOSS) BEFORE INCOME TAXES

 

 

(62,872

)

 

 

(20,732

)

Provision for income taxes

 

 

-

 

 

 

-

 

NET INCOME (LOSS)

 

 

(62,872

)

 

 

(20,732

)

NET INCOME (LOSS) PER SHARE - BASIC

 

$

(0.60

)

 

$

(0.20

)

NET INCOME (LOSS) PER SHARE - DILUTED

 

$

(0.60

)

 

$

(0.20

)

Weighted average shares outstanding - basic

 

 

104,534

 

 

 

102,757

 

Weighted average shares outstanding - diluted

 

 

104,534

 

 

 

102,757

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(39

)

 

 

180

 

COMPREHENSIVE INCOME (LOSS)

 

$

(62,911

)

 

$

(20,552

)

 

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

 

 

Totals

 

Balance at September 30, 2020

 

 

102,376

 

 

$

195

 

 

$

965,410

 

 

$

18

 

 

$

(503,844

)

 

$

461,779

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

8,144

 

 

 

-

 

 

 

-

 

 

 

8,144

 

Exercise of stock options

 

 

538

 

 

 

-

 

 

 

5,101

 

 

 

-

 

 

 

-

 

 

 

5,101

 

Common stock - restricted stock units vesting

 

 

280

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Foreign currency translation adjustments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

180

 

 

 

-

 

 

 

180

 

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(20,732

)

 

 

(20,732

)

Balance at December 31, 2020

 

 

103,194

 

 

$

195

 

 

$

978,655

 

 

$

198

 

 

$

(524,576

)

 

$

454,472

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common

Stock

 

 

Amount ($)

 

 

Additional

Paid-In

Capital

 

 

Accumulated Other

Comprehensive

Income (Loss)

 

 

Accumulated

Deficit

 

 

Totals

 

Balance at September 30, 2021

 

 

104,327

 

 

$

197

 

 

$

1,053,386

 

 

$

(69

)

 

$

(644,692

)

 

$

408,822

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

24,504

 

 

 

-

 

 

 

-

 

 

 

24,504

 

Exercise of stock options

 

 

208

 

 

 

 

 

 

 

2,145

 

 

 

-

 

 

 

-

 

 

 

2,145

 

Common stock - restricted stock units vesting

 

 

263

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Foreign currency translation adjustments

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(39

)

 

 

-

 

 

 

(39

)

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

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(62,872

)

 

 

(62,872

)

Balance at December 31, 2021

 

 

104,798

 

 

$

197

 

 

$

1,080,035

 

 

$

(108

)

 

$

(707,564

)

 

$

372,560

 

 

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)

 

 

 

Three Months Ended December 31,

 

 

 

2021

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(62,872

)

 

$

(20,732

)

Stock-based compensation

 

 

24,504

 

 

 

8,144

 

Depreciation and amortization

 

 

2,573

 

 

 

1,848

 

Amortization/(accretion) of note premiums/discounts

 

 

(280

)

 

 

(302

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

10,105

 

 

 

(8,157

)

Prepaid expenses and other current assets

 

 

(1,181

)

 

 

(3,193

)

Deferred revenue

 

 

(27,439

)

 

 

(12,547

)

Accounts payable

 

 

(5,389

)

 

 

(2,002

)

Accrued expenses

 

 

(2,290

)

 

 

(1,126

)

Other

 

 

922

 

 

 

(855

)

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

 

 

(61,347

)

 

 

(38,922

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(5,778

)

 

 

(4,271

)

Purchases of investments

 

 

(65,875

)

 

 

-

 

Proceeds from sale of investments

 

 

38,268

 

 

 

34,429

 

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

 

 

(33,385

)

 

 

30,158

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from the exercises of stock options

 

 

1,885

 

 

 

5,102

 

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

 

 

1,885

 

 

 

5,102

 

NET INCREASE (DECREASE) IN CASH

 

 

(92,847

)

 

 

(3,662

)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

 

 

184,434

 

 

 

143,583

 

CASH AND CASH EQUIVALENTS AT END OF PERIOD

 

$

91,587

 

 

$

139,921

 

 

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, par value $0.001 per share, (5) the term “Preferred Stock” refers to Arrowhead’s Preferred Stock, par value $0.001 per share, and (6) the term “Stockholder(s)” refers to the holders of Arrowhead’s 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-ENaC for cystic fibrosis, ARO-HIF2 for renal cell carcinoma, ARO-DUX4 for facioscapulohumeral muscular dystrophy, ARO-LUNG2 for chronic obstructive pulmonary disorder, ARO-COV for the coronavirus that causes COVID-19 and other possible future pulmonary-borne pathogens, ARO-C3 for complement mediated diseases and ARO-RAGE and ARO-MUC5AC for various muco-obstructive or inflammatory pulmonary conditions. ARO-HSD for liver disease was out-licensed to Glaxosmithkline Intellectual Property (No. 3) Limited (“GSK”) in November 2021.  ARO-XDH is being developed for uncontrolled gout under a collaboration agreement with Horizon Therapeutics Ireland DAC (“Horizon”). ARO-JNJ2 and ARO-JNJ3 are being developed for undisclosed liver-expressed targets under a collaboration agreement with Janssen Pharmaceuticals, Inc. (“Janssen”).  JNJ-75220795 (ARO-JNJ1) is being developed by Janssen as a potential treatment for patients with non-alcoholic steatohepatitis (NASH). 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. JNJ-3989 (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 quarter of fiscal 2022, the Company continued to develop and advance its pipeline and partnered candidates and expanded its facilities to support the Company’s growing pipeline.  Several key recent developments include:

 

i)

dosed the first patients in its PALISADE study, a phase 3 clinical study to evaluate the safety and efficacy of ARO-APOC3 in adults with familial chylomicronemia syndrome (FCS);

 

ii)

entered into an exclusive license agreement with GSK for ARO-HSD;

 

iii)

Janssen presented clinical data from REEF-1, a Phase 2b study of different combination regimens, including JNJ-73763989 (JNJ-3989), formerly called ARO-HBV, and/or JNJ-56136379 (JNJ-6379), and a nucleos(t)ide analog (NA) for the treatment of chronic hepatitis B virus infection (CHB);

 

iv)

filed for regulatory clearance to begin a Phase 1/2a study of ARO-C3;

 

v)

presented additional interim clinical data from AROHSD1001, AROAAT2002, and AROAPOC31001; and

 

vi)

completed the purchase of 13 acres of land in the Verona Technology Park in Verona, Wisconsin, which is planned to be the site of an approximately 140,000 square foot laboratory and office facility and entered into a lease agreement for a new 144,000 square foot laboratory and office facility in San Diego, California.  Both facilities will provide additional space to support the Company’s continued growth.

5


The Company is actively monitoring the ongoing COVID-19 pandemic. The financial results for the three months ended December 31, 2021 were not significantly impacted by COVID-19. Operationally, the Company has experienced delays in its earlier stage programs due to a shortage in non-human primates, which are critical to the Company’s preclinical programs. Additionally, the Company has experienced delays in enrollment in its clinical trials. The Company’s operations at its research and development facilities in Madison, Wisconsin and San Diego, California, and its corporate headquarters in Pasadena, California have continued with limited impact, other than for enhanced safety measures, including work from home policies and intermittent lab supply shortages. However, the Company cannot predict the impact the progression of COVID-19 will have on future financial and operational results due to a variety of factors, including the ability of the Company’s clinical sites to continue to enroll subjects, the ability of the Company’s suppliers to continue to operate, the continued good health and safety of the Company’s employees and the length and severity of the COVID-19 pandemic.

Liquidity

The Consolidated Financial Statements have been prepared in conformity with the accounting principles generally accepted in the United States of America (“GAAP”), which contemplate the continuation of the Company as a going concern.  Historically, the Company’s primary sources of financing have been through the sale of its securities and revenue from its licensing and collaboration agreements. Research and development activities have required significant capital investment since the Company’s inception and are expected to continue to require significant cash expenditure in the future, particularly as the Company’s pipeline of drug candidates and its headcount have both expanded significantly.  Additionally, significant capital investment will be required as the Company’s pipeline matures into later stage clinical trials, as well as with the Company’s plans to increase its internal manufacturing capabilities. 

At December 31, 2021, the Company had $91.6 million in cash and cash equivalents (including $3.0 million in restricted cash), $112.5 million in short-term investments, $126.0 million in marketable securities and $217.6 million in long-term investments to fund operations.  During the three months ended December 31, 2021, the Company’s cash and investments balance decreased by $65.7 million, which was primarily due to cash being used to fund the Company’s operations.

In total, the Company remains eligible for $6.2 billion in developmental, regulatory and sales milestones and various royalties on net sales from its licensing and collaboration agreements.  The revenue recognition for these collaboration agreements is discussed further in Note 2 below.  

Summary of Significant Accounting Policies

There have been no changes to the significant accounting policies disclosed in the Company’s most recent Annual Report on Form 10-K.

Recent Accounting Pronouncements  

There have been no recent accounting pronouncements that have significantly impacted this Quarterly Report on Form 10-Q, beyond those disclosed in the Company’s most recent Annual Report on Form 10-K.

 

 

6


 

NOTE 2. COLLABORATION AND LICENSE AGREEMENTS

Amgen Inc.

On September 28, 2016, the Company entered into two collaboration and license agreements and a common stock purchase agreement with Amgen. Under the Second Collaboration and License Agreement (the “Olpasiran Agreement”), Amgen has received a worldwide, exclusive license to Arrowhead’s novel RNAi Olpasiran (previously referred to as AMG 890 or ARO-LPA) program. These RNAi molecules are designed to reduce elevated lipoprotein(a), which is a genetically validated, independent risk factor for atherosclerotic cardiovascular disease. Under the prior collaboration and license agreement (the “First Collaboration and License Agreement” or the “ARO-AMG1 Agreement”), Amgen received an option to a worldwide, exclusive license for ARO-AMG1, an RNAi therapy for an undisclosed genetically validated cardiovascular target. Under both agreements, Amgen is wholly responsible for clinical development and commercialization. Under the terms of the agreements taken together, the Company has received $35.0 million in upfront payments, $21.5 million in the form of an equity investment by Amgen in the Company’s Common Stock, and $30.0 million in milestone payments, and may receive up to an additional $400.0 million in remaining development, regulatory and sales milestone payments. The Company is further eligible to receive up to low double-digit royalties for sales of products under the Olpasiran Agreement. In July 2019, Amgen informed the Company that it would not be exercising its option for an exclusive license for ARO-AMG1, and as such, there will be no further milestone or royalty payments under the ARO-AMG1 Agreement.     

The Company has evaluated these agreements in accordance with FASB Topics 808 – Collaboration Arrangements and 606 - Revenue for Contracts from Customers. The Company has substantially completed its performance obligations under the Olpasiran Agreement and the ARO-AMG1 Agreement. Future milestones and royalties achieved will be recognized in their entirety when earned. In July 2020, Amgen initiated a Phase 2 clinical study of Olpasiran, which resulted in a $20.0 million milestone payment to the Company. During the three months ended December 31, 2021 and 2020, the Company recognized $0 and $0 of revenue associated with its agreement with Amgen, respectively. As of December 31, 2021, there were $0 in contract assets recorded as accounts receivable and $0 contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.

Janssen Pharmaceuticals, Inc.

On October 3, 2018, the Company entered into a License Agreement (the “Janssen License Agreement”) and a Research Collaboration and Option Agreement (the “Janssen Collaboration Agreement”) with Janssen, part of the Janssen Pharmaceutical Companies of Johnson & Johnson.  The Company also entered into a stock purchase agreement with JJDC (“JJDC Stock Purchase Agreement”).  Under the Janssen License Agreement, Janssen has received a worldwide, exclusive license to the Company’s JNJ-3989 (ARO-HBV) program, the Company’s third-generation subcutaneously administered RNAi therapeutic candidate being developed as a potential therapy for patients with chronic hepatitis B virus infection. Beyond the Company’s Phase 1/2 study of JNJ-3989 (ARO-HBV), which the Company was responsible for completing, Janssen is wholly responsible for clinical development and commercialization of JNJ-3989.  Under the Janssen Collaboration Agreement, Janssen will be able to select three new targets against which Arrowhead will develop clinical candidates.  These candidates are subject to certain restrictions and do not include candidates that already were in the Company’s pipeline.  The Company will perform discovery, optimization and preclinical research and development, entirely funded by Janssen, which on its own or in combination with Janssen development work, is sufficient to allow the filing of a U.S. Investigational New Drug Application or equivalent, at which time Janssen will have the option to take an exclusive license. If the option is exercised, Janssen will be wholly responsible for clinical development and commercialization of each optioned candidate.  Under the terms of the 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 JJDC in Arrowhead Common Stock under the JJDC Stock Purchase Agreement, and milestone and option payments totaling $70.0 million, and the Company may receive up to $1.6 billion in development and sales milestones payments for the Janssen License Agreement, and up to $1.9 billion in development and sales milestone payments for the three additional targets covered under the Janssen Collaboration Agreement. The Company is further eligible to receive tiered royalties on product sales up to mid-teens under the Janssen License Agreement and up to low teens under the Janssen Collaboration Agreement.

The Company has evaluated these agreements in accordance with FASB Topics 808 – Collaboration Arrangements and 606 - Revenue for Contracts from Customers.  At the inception of these agreements, the Company identified one distinct performance obligation.  Regarding the Janssen License Agreement, the Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibility to complete the Phase 1/2 study of JNJ-3989 (ARO-HBV) and the Company’s responsibility to ensure certain manufacturing of JNJ-3989 (ARO-HBV) drug product is completed and delivered to Janssen (the “Janssen R&D Services”).  Due to the specialized and unique nature of these Janssen R&D Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation.  The Company also determined that Janssen’s option to require the Company to develop up to three new targets is not a material right and, thus, not a performance obligation at the onset of the agreement.  The consideration for this option is accounted for separately.

7


The Company determined the transaction price totaled approximately $252.7 million, which includes the upfront payment, the premium paid by JJDC for its equity investment in the Company, two $25.0 million milestone payments related to JNJ-3989 (ARO-HBV), and estimated payments for reimbursable Janssen R&D Services to be performed.  The Company has allocated the total $252.7 million initial transaction price to its one distinct performance obligation for the JNJ-3989 (ARO-HBV) license and the associated Janssen R&D Services.  The Company has recognized this transaction price in its entirety as of September 30, 2021, as its performance obligations were substantially completed. Future milestones and royalties achieved will be recognized in their entirety when earned.  During the three months ended December 31, 2021 and 2020, the Company recognized approximately $0 and $12.7 million of revenue associated with this performance obligation, respectively. As of December 31, 2021, there were $0 in contract assets recorded as accounts receivable, and $0 of contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.  

The Company has begun to conduct its discovery, optimization and preclinical research and development of JNJ-75220795 (ARO-JNJ1), ARO-JNJ2 and ARO-JNJ3 under the Janssen Collaboration Agreement.  All costs and labor hours spent by the Company will be entirely funded by Janssen. During the three months ended December 31, 2021 and 2020, the Company recognized $0 and $0.3 million of revenue associated with these efforts, respectively. As of December 31, 2021, there were $0 of contract assets recorded as accounts receivable and $0 of contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.

Takeda Pharmaceuticals U.S.A., Inc.

On October 7, 2020, the Company entered into an Exclusive License and Co-funding agreement (the “Takeda License Agreement”) with Takeda.  Under the Takeda License Agreement, Takeda and the Company will co-develop the Company’s ARO-AAT program, the Company’s second-generation subcutaneously administered RNAi therapeutic candidate being developed as a treatment for liver disease associated with alpha-1 antitrypsin deficiency. Within the United States, ARO-AAT, if approved, will be co-commercialized under a 50/50 profit sharing structure. Outside the United States, Takeda will lead the global commercialization strategy and will receive an exclusive license to commercialize ARO-AAT, while the Company will be eligible to receive tiered royalties of 20% to 25% on net sales.  In January 2021, the Company received $300.0 million as an upfront payment and is eligible to receive potential development, regulatory and commercial milestones of up to $740.0 million.  

The Company has evaluated the Takeda License Agreement in accordance with FASB Topics 808 – Collaborative Arrangements and 606 - Revenue for Contracts from Customers. At the inception of the Takeda License Agreement, the Company identified one distinct performance obligation.  The Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibilities to complete the initial portion of the SEQUOIA study, to complete the ongoing Phase 2 AROAAT2002 study and to ensure certain manufacturing of ARO-AAT drug product is completed and delivered to Takeda (the “Takeda R&D Services”).  Due to the specialized and unique nature of these Takeda R&D Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation.  Beyond the Takeda R&D Services, which are the responsibility of the Company, Takeda will be responsible for managing future clinical development and commercialization outside the United States.  Within the United States, the Company will also participate in co-development and co-commercialization efforts and will co-fund these efforts with Takeda as part of the 50/50 profit sharing structure within the United States.  The Company considers the collaborative activities, including the co-development and co-commercialization, to be a separate unit of account within Topic 808, and as such, these co-funding amounts will be recorded as Research and Development Expenses or General and Administrative Expenses, as appropriate.  

The Company determined the initial transaction price totaled $300.0 million, which includes the upfront payment.  The Company has excluded any future milestones or royalties from this transaction price to date.  The Company has allocated the total $300.0 million initial transaction price to its one distinct performance obligation for the ARO-AAT license and the associated Takeda R&D Services.  Revenue will be recognized using a proportional performance method (based on actual patient visits completed versus total estimated visits completed for the ongoing SEQUOIA and AROAAT2002 clinical studies). Revenue for the three months ended December 31, 2021 and 2020 was $20.8 million and $8.2 million, respectively. As of December 31, 2021, there were $0 in contract assets recorded as accounts receivable, $82.0 million in contract liabilities recorded as deferred revenue and $106.5 million in contract liabilities recorded as deferred revenue, net of the current portion, and $2.9 million in contract liabilities recorded as accrued expenses.  The $2.9 million in accrued expenses was primarily driven by co-development and co-commercialization activities.  

Horizon Therapeutics Ireland DAC

On June 18, 2021, the Company entered into the Horizon License Agreement with Horizon.  Under the Horizon License Agreement, Horizon received a worldwide exclusive license for ARO-XDH, a previously undisclosed discovery-stage investigational RNAi therapeutic being developed by the Company as a potential treatment for people with uncontrolled gout. The Company will conduct all activities through the preclinical stages of development of ARO-XDH, and Horizon will be wholly responsible for clinical development and commercialization of ARO-XDH. In July 2021, the Company received $40 million as an upfront payment and is eligible to receive up to $660 million in potential development, regulatory and sales milestones.  The Company is also eligible to receive royalties in the low- to mid-teens range on net product sales.  

8


The Company has evaluated the Horizon License Agreement in accordance with FASB Topics 808 – Collaborative Arrangements and 606 - Revenue for Contracts from Customers. At the inception of the Horizon License Agreement, the Company identified one distinct performance obligation.  The Company determined that the key deliverables included the license and certain R&D services, including the Company’s responsibilities to conduct all activities through the preclinical stages of development of ARO-XDH (the “Horizon R&D Services”).  Due to the specialized and unique nature of these Horizon R&D Services and their direct relationship with the license, the Company determined that these deliverables represented one distinct bundle and, thus, one performance obligation.  Beyond the Horizon R&D Services, which are the responsibility of the Company, Horizon will be responsible for managing future clinical development and commercialization of ARO-XDH.  

The Company determined the initial transaction price totaled $40.0 million, including the upfront payment.  The Company has excluded any future estimated milestones or royalties, from this transaction price to date.  The Company will allocate the total $40.0 million initial transaction price to its one distinct performance obligation for the ARO-XDH license and the associated Horizon R&D Services. Revenue will be recognized on a straight-line basis over the estimated timeframe for completing the Horizon R&D Services.  The Company determined that the straight-line basis was appropriate as its efforts will be expended evenly over the course of completing its performance obligation. Revenue for the three months ended December 31, 2021 and 2020 was $6.7 million and $0, respectively.  As of December 31, 2021, there were $0.1 million in contract assets recorded as accounts receivable, $26.7 million in contract liabilities recorded as deferred revenue.    

Glaxosmithkline Intellectual Property (No. 3) Limited

On November 22, 2021, the Company entered into an Exclusive License Agreement (the “GSK License Agreement”) with GSK.  Under the GSK License Agreement, GSK has received an exclusive license for ARO-HSD, the Company’s investigational RNAi therapeutic being developed as a treatment for patients with alcohol-related and nonalcohol related liver diseases, such as nonalcoholic steatohepatitis (NASH).  The exclusive license is worldwide with the exception of greater China, for which the Company will retain rights to develop and commercialize.  Beyond the Company’s Phase 1/2 study of (ARO-HSD), which the Company is responsible for completing, GSK is wholly responsible for clinical development and commercialization of ARO-HSD in its territory. Under the terms of the agreement, the Company has received an upfront payment of $120 million and is eligible for additional payments of $30 million at the start of Phase 2 and $100 million upon achieving a successful Phase 2 trial readout and the first patient dosed in a Phase 3 trial. Furthermore, should the Phase 3 trial read out positively, and the potential new medicine receives regulatory approval in major markets, the deal provides for commercial milestone payments to the Company of up to $190 million at first commercial sale, and up to $590 million in sales-related milestone payments. The Company is further eligible to receive tiered royalties on net product sales in a range of mid-teens to twenty percent.

The Company has evaluated the GSK License Agreement in accordance with FASB Topics 808 – Collaborative Arrangements and 606 - Revenue for Contracts from Customers. At the inception of the GSK License Agreement, the Company identified one distinct performance obligation.  The Company determined that the key deliverables included the license and certain R&D services, including the Company’s responsibility to complete the Phase 1/2 study, (the “GSK R&D Services”).  Due to the specialized and unique nature of these GSK R&D Services and their direct relationship with the license, the Company determined that these deliverables represented one distinct bundle and, thus, one performance obligation.  Beyond the GSK R&D Services, which are the responsibility of the Company, GSK will be responsible for managing future clinical development and commercialization in its territory.  

The Company determined the initial transaction price totaled $120.0 million, including the upfront payment. The Company has excluded any future estimated milestones or royalties from this transaction price to date.  The Company has allocated the total $120.0 million initial transaction price to its one distinct performance obligation for the ARO-HSD license and the associated GSK R&D Services.  Revenue will be recognized using a proportional performance method. As of December 31, 2021, no revenue or contract assets or liabilities were recognized as the GSK License Agreement had not yet completed customary closing conditions, including clearance by the relevant competition authorities.  This clearance was achieved in January 2022 and the upfront payment of $120.0 million was also received by the Company in January 2022.

 

9


 

NOTE 3. PROPERTY AND EQUIPMENT

The following table summarizes the Company’s major classes of property and equipment:

 

 

 

December 31, 2021

 

 

September 30, 2021

 

 

 

(In thousands)

 

Computers, software, office equipment and furniture

 

$

2,182

 

 

$

2,170

 

Research equipment

 

 

28,010

 

 

 

27,500

 

Leasehold improvements

 

 

41,977

 

 

 

41,524

 

Construction in Progress

 

 

2,152

 

 

 

345

 

Land

 

 

2,996

 

 

 

-

 

Total gross fixed assets

 

 

77,317

 

 

 

71,539

 

Less: Accumulated depreciation and amortization

 

 

(25,014

)

 

 

(22,864

)

Property and equipment, net

 

$

52,303

 

 

$

48,675

 

 

Depreciation and amortization expense for property and equipment for the three months ended December 31, 2021 and 2020 was $2.1 million and $1.4 million, respectively. Construction in Progress and Land both relate to the Company’s Verona, Wisconsin research facility.

 

 

  

NOTE 4. INVESTMENTS

Investments at December 31, 2021 primarily consisted of corporate bonds that have maturities of less than 36 months, a certificate of deposit and marketable equity securities. The Company’s corporate bonds consist of both short-term and long-term bonds and are classified as “held-to-maturity” on the Company’s Consolidated Balance Sheets. The Company’s certificate of deposit matures in less than 12 months and is classified as “held-to-maturity” on the Company’s Consolidated Balance Sheet.  The Company’s marketable equity securities consist of mutual funds that primarily invest in U.S. government bonds, U.S. government agency bonds, corporate bonds and other asset-backed debt securities. Dividends from these funds are automatically re-invested.  The Company may also invest excess cash balances in money market accounts, government-sponsored enterprise securities, and/or commercial paper.  The Company accounts for its held to maturity investments in accordance with FASB ASC 320, Investments – Debt and Equity Securities and its marketable equity securities in accordance with ASC 321, Investments – Equity Securities.  

The following tables summarize the Company’s short-term and long-term investments and marketable securities as of December 31, 2021 and September 30, 2021 by measurement category:

 

Held to Maturity

 

As of December 31, 2021

 

 

 

 

 

(In thousands)

 

 

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

 

 

Commercial notes (due within one year)

 

$

62,537

 

 

$

687

 

 

$

-

 

 

$

63,224

 

 

 

Commercial notes (due within one through three years)

 

$

217,572

 

 

$

381

 

 

$

(1,374

)

 

$

216,579

 

 

 

Certificate of deposit (due within one year)

 

$

50,000

 

 

$

-

 

 

$

-

 

 

$

50,000

 

 

 

Total

 

$

330,109

 

 

$

1,068

 

 

$

(1,374

)

 

$

329,803

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2021

 

 

 

 

 

(In thousands)

 

 

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

 

 

Commercial notes (due within one year)

 

$

56,627

 

 

$

803

 

 

$

-

 

 

$

57,430

 

 

 

Commercial notes (due within one through three years)

 

$

195,595

 

 

$

1,151

 

 

$

(103

)

 

$

196,643

 

 

 

Certificate of deposit (due within two years)

 

$

50,000

 

 

$

-

 

 

$

-

 

 

$

50,000

 

 

 

Total

 

$

302,222

 

 

$

1,954

 

 

$

(103

)

 

$

304,073

 

 

 

10


 

 

Fair Value

 

As of December 31, 2021

 

 

 

(In thousands)

 

 

 

Cost

 

 

Realized

Gains/(Losses)

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

Marketable securities

 

$

125,000

 

 

$

3,134

 

 

$

-

 

 

$

(2,124

)

 

$

126,010

 

Total

 

$

125,000

 

 

$

3,134

 

 

$

-

 

 

$

(2,124

)

 

$

126,010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2021

 

 

 

(In thousands)

 

 

 

Cost

 

 

Realized

Gains/(Losses)

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

Marketable securities

 

$

125,000

 

 

$

2,481

 

 

$

135

 

 

$

(888

)

 

$

126,728

 

Total

 

$

125,000

 

 

$

2,481

 

 

$

135

 

 

$

(888

)

 

$

126,728

 

 

Realized gains for marketable securities recorded at fair value consist of dividends received and re-invested into the associated fund.  

 

NOTE 5. INTANGIBLE ASSETS

Intangible assets subject to amortization include patents and a license agreement capitalized as part of the Novartis RNAi asset acquisition in March 2015. The license agreement associated with the Novartis RNAi asset acquisition is being amortized over the estimated life remaining at the time of acquisition, which was 21 years, and the accumulated amortization of the asset is $1.0 million.  The patents associated with the Novartis RNAi asset acquisition are being amortized over the estimated life remaining at the time of acquisition, which was 14 years, and the accumulated amortization of the assets is $10.6 million. Amortization expense for the three months ended December 31, 2021 and 2020 was $0.4 million and $0.4 million, respectively. Amortization expense is expected to be $1.3 million for the remainder of fiscal 2022, $1.7 million in 2023, $1.7 million in 2024, $1.7 million in 2025, $1.7 million in 2026 and $5.2 million thereafter.

The following table provides details on the Company’s intangible asset balances:

 

 

 

Intangible

Assets

Subject to

Amortization

 

 

 

(in thousands)

 

Balance at September 30, 2021

 

$

13,663

 

Impairment

 

 

-

 

Amortization

 

 

(425

)

Balance at December 31, 2021

 

$

13,238

 

 

NOTE 6. STOCKHOLDERS’ EQUITY

At December 31, 2021, the Company had a total of 150,000,000 shares of capital stock authorized for issuance, consisting of 145,000,000 shares of Common Stock, par value $0.001 per share, and 5,000,000 shares of Preferred Stock, par value $0.001 per share.

At December 31, 2021, 104,798,186 shares of Common Stock were outstanding.  At December 31, 2021, 14,834,548 shares of Common Stock were reserved for issuance upon exercise of options and vesting of restricted stock units granted or available for grant under Arrowhead’s 2004 Equity Incentive Plan, 2013 Incentive Plan, and 2021 Incentive Plan, as well as for inducement grants made to new employees under Rule 5635(c)(4) of the Nasdaq Listing Rules.

In August 2020, the Company entered into an Open Market Sale Agreement (the “ATM Agreement”), pursuant to which the Company may, from time to time, sell up to $250,000,000 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. The Company is not required to sell shares under the ATM Agreement. The Company will pay Jefferies LLC a commission of up to 3.0% of the aggregate gross proceeds received from all sales of the common stock under the ATM Agreement. Unless otherwise terminated, the ATM Agreement continues until the earlier of selling all shares available under the ATM Agreement or December 2, 2022. At December 31, 2021, no shares have been sold under the ATM Agreement.

11


NOTE 7. COMMITMENTS AND CONTINGENCIES

Litigation

From time to time, the Company may be subject to various claims and legal proceedings in the ordinary course of business.  If the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount is reasonably estimable, the Company will accrue a liability for the estimated loss. There were no contingent liabilities recorded as of December 31, 2021.

Commitments

On December 20, 2021, the Company completed a purchase of 13 acres of land in the Verona Technology Park in Verona, WI, which is planned to be the site of an approximately 140,000 square foot drug manufacturing facility and an approximately 115,000 square foot laboratory and office facility to support process development and analytical activities. Arrowhead intends to invest between $200 million and $250 million into the buildout of the facilities. As part of this acquisition, the Company also entered into a development agreement with the City of Verona to construct certain infrastructure improvements within the TIF district, and will be reimbursed by the City of Verona by future tax increment revenue generated from the developed property. The total amount of funding that City of Verona will pay as reimbursements under the TIF program for these improvements is not guaranteed and will depend on future tax revenues generated from the developed property.

Technology License Commitments

The Company has licensed from third parties the rights to use certain technologies for its research and development activities, as well as in any products the Company may develop using these licensed technologies. These agreements and other similar agreements often require milestone and royalty payments.  Milestone payments, for example, may be required as the research and development process progresses through various stages of development, such as when clinical candidates enter or progress through clinical trials, upon a new drug application and upon certain sales level milestones.  These milestone payments could amount to the mid to upper double-digit millions of dollars. During the three months ended December 31, 2021 and 2020, the Company did not reach any milestones. Under certain agreements, the Company may be required to make mid to high single-digit percentage royalty payments based on a percentage of sales of the relevant products.    

 

 

NOTE 8. LEASES

Leases

In April 2019, the Company entered into a lease for its corporate headquarters in Pasadena, California.  The 91 month office building lease between the Company and 177 Colorado Owner, LLC is for approximately 24,000 square feet of office space located at 177 E. Colorado Blvd, Pasadena, California.  The increased capacity of this new office space compared to the Company’s prior corporate headquarters will accommodate increased personnel as the Company’s pipeline of drug candidates expands and moves closer to market. Lease payments began on September 30, 2019 and are estimated to total approximately $8.7 million over the term.  The lease expires on April 30, 2027.  The Company has paid approximately $3.5 million for leasehold improvements, net of tenant improvement allowances.  The lease contains an option to renew for one term of five years. The exercise of this option was not determined to be reasonably certain and thus was not included in lease liabilities on the Company’s Consolidated Balance Sheet at December 31, 2021. On October 23, 2020, the Company entered into a lease expansion to add an additional approximately 24,000 square feet of office space at the same location for its corporate headquarters. Lease payments for the expansion began in July 2021 and the lease for the expansion expires in April 2027. The lease payments for the expansion are expected to total $6.9 million.  The Company has paid approximately $4.0 million of leasehold improvements, net of tenant improvement allowances, for the lease expansion.  The increased capacity of this additional office space compared to the Company’s current corporate headquarters is intended to accommodate increased personnel as the Company’s pipeline of drug candidates continues to expand and move closer to market. 

12


In January 2016, the Company entered into a lease for its research facility in Madison, Wisconsin.  The lease was for approximately 60,000 square feet of office and laboratory space and had an expiration date of September 30, 2026. The lease was amended in January 2019 and May 2020 to expand the rentable square feet by an additional 40,000 square feet and to extend the lease expiration date to September 30, 2031. Lease payments are estimated to total approximately $26.2 million for the term. The Company incurred approximately $11.0 million of leasehold improvements for the additional 40,000 square feet, net of tenant improvement allowances. The lease contains two options to renew for two terms of five years. The exercise of these options were not determined to be reasonably certain and thus was not included in lease liabilities on the Company’s Consolidated Balance Sheet at December 31, 2021.  In November 2020 and December 2020, the Company entered into amendments to expand the rentable square space by an additional 10,743 square feet and these amendments added a total of approximately $1.2 million of lease payments for the remainder of the term.            

 

In March 2020, the Company entered into a sublease agreement for additional research and development facility space in San Diego, California.  The Sublease provides additional space needed to accommodate the recent growth of the Company’s personnel and discovery efforts. The Sublease is for approximately 21,000 rentable square feet.  The term of the Sublease commenced on April 1, 2020 and will end on January 14, 2023.  Sublease payments are estimated to total approximately $2.0 million over the term.

 

On November 19, 2021, the Company entered into a new lease for a San Diego, California research facility.  The 15-year lease is for approximately 144,000 square feet of office and research and development laboratory space to be constructed in San Diego, California.  This lease will replace the Company’s current research facility sublease for property located in San Diego, California.  The increased capacity of this new facility compared to the Company’s current research facility in San Diego will accommodate increased personnel for the Company’s expanding pipeline of current and future drug candidates. The estimated rent commencement date for the lease is in May 2023, after construction and leasehold improvements have been completed.  The lease payments, which begin on the rent commencement date, will be approximately $119.0 million over the initial 15-year term.  The Company also estimates payments for operating expenses to be approximately $3.0 million for the first year of the lease, and these payments will continue throughout the initial 15-year term. The Company expects to pay approximately $31.0 million for leasehold improvements, net of tenant improvement allowances.  Pursuant to the lease, within twelve months of the expiration of the initial 15-year term, the Company has the option to extend the lease for up to one additional ten-year term, with certain annual increases in base rent. No lease liabilities have been recorded as of December 31, 2021 as the lease commencement date has not yet occurred.

Operating lease cost during the three months ended December 31, 2021 and 2020 was $1.3 million and $0.9 million, respectively. Variable lease costs for the three months ended December 31, 2021 and 2020 was $0.2 million and $0.2 million, respectively. There was no short-term lease cost during the three months ended December 31, 2021 and 2020.

The following table presents maturities of operating lease liabilities on an undiscounted basis as of December 31, 2021:

 

 

 

(in thousands)

 

2022

 

$

3,685

 

2023

 

 

4,786

 

2024

 

 

4,621

 

2025

 

 

4,749

 

2026

 

 

5,050

 

2027 and thereafter

 

 

13,200

 

Total

 

$

36,091

 

Less imputed interest

 

$

(10,776

)

Total operating lease liabilities (includes current portion)

 

$

25,315

 

 

Cash paid for the amounts included in the measurement of the operating lease liabilities on the Company’s Consolidated Balance Sheet and included in Other changes in operating assets and liabilities within cash flows from operating activities on the Company’s Consolidated Statements of Cash Flows for the three months ended December 31, 2021 and 2020 was $1.0 million and $0.7 million, respectively. The weighted-average remaining lease term and weighted-average discount rate for all leases as of December 31, 2021 was 7.8 years and 8.5%, respectively.

13


 

NOTE 9. STOCK-BASED COMPENSATION

 

Arrowhead has three plans that provide for equity-based compensation. Under the 2004 Equity Incentive Plan and the 2013 Incentive Plan, as of December 31, 2021, 376,301 and 4,904,814 shares, respectively, of Arrowhead’s Common Stock are reserved for the grant of stock options, stock appreciation rights, and restricted stock unit awards to employees, consultants and others. No further grants may be made under the 2004 Equity Incentive Plan.  As of December 31, 2021, there were options granted and outstanding to purchase 376,301 and 1,948,814 shares of Common Stock under the 2004 Equity Incentive Plan and the 2013 Incentive Plan, respectively, and there were 2,956,000 restricted stock units granted and outstanding under the 2013 Incentive Plan. Also, as of December 31, 2021, there were 889,890 shares reserved for options and 651,000 shares reserved for restricted stock units issued as inducement grants to new employees outside of equity compensation plans. Under the 2021 Incentive Plan, as of December 31, 2021, 3,000 shares of Common Stock and 76,400 restricted stock units were granted and outstanding under the 2021 Incentive Plan.  As of December 31, 2021, the total number of authorized shares under the 2021 Incentive Plan was 8,012,543 shares, which includes 91,943 shares that were forfeited under the 2013 Incentive Plan.

 

Stock Options

The following table summarizes information about stock options:

 

 

 

Number of

Options

Outstanding

 

 

Weighted-

Average

Exercise

Price

Per Share

 

 

Weighted-

Average

Remaining

Contractual

Term