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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_____________________________________
FORM 10-Q
_____________________________________
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
oTRANSITION 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)
_____________________________________
Delaware46-0408024
(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 classTrading 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 x No o
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 x No o
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
xAccelerated Filer
o
Non-Accelerated Filer
o
Smaller Reporting Company
o
Emerging Growth Company
o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of shares of the registrant’s common stock outstanding as of May 1, 2024 was 124,200,230.



Page(s)
Consolidated Statements of Stockholders’ Equity



PART I. FINANCIAL INFORMATION
ITEM 1.    FINANCIAL STATEMENTS
Arrowhead Pharmaceuticals, Inc.
Consolidated Balance Sheets
(In thousands, except per share amounts)
March 31, 2024September 30, 2023
(unaudited)
ASSETS
Current assets:
Cash, cash equivalents and restricted cash$127,704 $110,891 
Available-for-sale securities, at fair value395,410 292,735 
Prepaid expenses11,022 8,813 
Other current assets7,514 7,082 
Total current assets541,650 419,521 
Property, plant and equipment, net359,252 290,262 
Intangible assets, net9,412 10,262 
Right-of-use assets44,626 45,297 
Other assets210 210 
Total Assets$955,150 $765,552 
LIABILITIES, NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$8,521 $35,866 
Accrued expenses37,055 39,763 
Accrued payroll and benefits13,741 17,963 
Lease liabilities5,285 10,563 
Deferred revenue 866 
Other liabilities573 435 
Total current liabilities65,175 105,456 
Long-term liabilities:
Lease liabilities, net of current portion113,632 104,608 
Liability related to the sale of future royalties280,938 268,326 
Total long-term liabilities394,570 372,934 
Commitments and contingencies (Note 7)
Noncontrolling interest and stockholders’ equity:
Common stock, $0.001 par value:
Authorized 290,000 shares; issued and outstanding 124,133 and 107,312 shares
217 200 
Additional paid-in capital1,768,866 1,300,395 
Accumulated other comprehensive loss(1,095)(3,222)
Accumulated deficit(1,284,194)(1,026,030)
Total Arrowhead Pharmaceuticals, Inc. stockholders’ equity483,794 271,343 
Noncontrolling interest11,611 15,819 
Total noncontrolling interest and stockholders’ equity495,405 287,162 
Total Liabilities, Noncontrolling Interest and Stockholders’ Equity$955,150 $765,552 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Arrowhead Pharmaceuticals, Inc.
Consolidated Statements of Operations and Comprehensive (Loss) Income
(In thousands, except per share amounts)
(unaudited)
Three Months Ended March 31,Six Months Ended March 31,
2024202320242023
Revenue$ $146,267 $3,551 $208,813 
Operating expenses:
Research and development101,122 74,881 217,613 158,576 
General and administrative25,069 23,221 48,674 44,206 
Total operating expenses126,191 98,102 266,287 202,782 
Operating (loss) income(126,191)48,165 (262,736)6,031 
Other income (expense):
Interest income6,250 4,560 9,052 7,242 
Interest expense(7,244)(5,057)(12,611)(7,906)
Other, net189 8 610 515 
Total other expense(805)(489)(2,949)(149)
(Loss) income before income tax (benefit) expense and noncontrolling interest(126,996)47,676 (265,685)5,882 
Income tax (benefit) expense   (3,313)17 
Net (loss) income including noncontrolling interest(126,996)47,676 $(262,372)$5,865 
Net loss attributable to noncontrolling interest, net of tax(1,696)(999)(4,208)(1,485)
Net (loss) income attributable to Arrowhead Pharmaceuticals, Inc.$(125,300)$48,675 $(258,164)$7,350 
Net (loss) income per share attributable to Arrowhead Pharmaceuticals, Inc.:
Basic$(1.02)$0.46 $(2.24)$0.07 
Diluted$(1.02)$0.45 $(2.24)$0.07 
Weighted-average shares used in calculating
Basic123,285 106,757 115,307 106,394 
Diluted123,285 108,143 115,307 107,893 
Other comprehensive (loss) income, net of tax:
Change in unrealized losses on available-for-sale securities216  2,125  
Foreign currency translation adjustments(56)(74)2 (196)
Comprehensive (loss) income$(126,836)$47,602 $(260,245)$5,669 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Arrowhead Pharmaceuticals, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands)
(unaudited)
Common
Stock
Amount ($)
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Non-
controlling Interest
Totals
Balance at September 30, 2023107,312 $200 $1,300,395 $(3,222)$(1,026,030)$15,819 $287,162 
Stock-based compensation— — 19,694 — — — 19,694 
Exercise of stock options34 — 267 — — — 267 
Common stock - restricted stock units vesting154 — — — — —  
Foreign currency translation adjustments— — — 58 — — 58 
Change in unrealized losses on available-for-sale securities— — — 1,909 — — 1,909 
Net loss — — — — (132,864)(2,512)(135,376)
Balance at December 31, 2023107,500 $200 $1,320,356 $(1,255)$(1,158,894)$13,307 $173,714 
Stock-based compensation— — 17,750 — — — 17,750 
Exercise of stock options120 — 1,512 — — — 1,512 
Common stock - restricted stock units vesting723 1 (1)— — —  
Common stock issued, net of offering costs15,790 16 429,249 — — — 429,265 
Foreign currency translation adjustments— — — (56)— — (56)
Change in unrealized losses on available-for-sale securities— — — 216 — — 216 
Net loss— — — — (125,300)(1,696)(126,996)
Balance at March 31, 2024124,133 $217 $1,768,866 $(1,095)$(1,284,194)$11,611 $495,405 

Common
Stock
Amount ($)
Additional
Paid-In
Capital
Accumulated
Other
Comprehensive
Loss
Accumulated
Deficit
Non-
controlling Interest
Totals
Balance at September 30, 2022105,960 $198 $1,219,213 $(136)$(820,755)$19,819 $418,339 
Stock-based compensation— — 19,390 — — — 19,390 
Exercise of stock options82 — 576 — — — 576 
Common stock - restricted stock units vesting98 1 (1)— — —  
Foreign currency translation adjustments— — — (122)— — (122)
Net loss— — — — (41,325)(486)(41,811)
Balance at December 31, 2022106,140 $199 $1,239,178 $(258)$(862,080)$19,333 $396,372 
Stock-based compensation— — 20,612 — — — 20,612 
Exercise of stock options64 — 520 — — — 520 
Common stock - restricted stock units vesting665 — — — — —  
Foreign currency translation adjustments— — — (74)— — (74)
Net income
— — — — 48,675 (999)47,676 
Balance at March 31, 2023106,869 $199 $1,260,310 $(332)$(813,405)$18,334 $465,106 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
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Arrowhead Pharmaceuticals, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended March 31,
20242023
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income$(262,372)$5,865 
Adjustments to reconcile net loss to net cash flow from operating activities
Stock-based compensation37,444 40,002 
Depreciation and amortization8,788 5,358 
Amortization (accretion) of note premiums/discounts896 (82)
Realized gain on investments(80) 
Non-cash interest expense on liability related to the sale of future royalties12,612 7,906 
Changes in operating assets and liabilities:
Accounts receivable (68,024)
Prepaid expenses and other current assets(2,643)20,309 
Accounts payable(8,402)6,688 
Accrued expenses(11)(27,279)
Deferred revenue(866)(99,135)
Operating lease, net4,417 1,205 
Net cash used in operating activities(210,217)(107,187)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment(102,731)(66,225)
Purchases of investments(309,982)(192,528)
Proceeds from sales and maturities of investments208,615 141,994 
Net cash used in investing activities(204,098)(116,759)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercises of stock options1,779 1,096 
Proceeds from the issuance of common stock, net of offering costs429,265  
Proceeds from the sale of future royalties 250,000 
Net cash provided by financing activities431,044 251,096 
Net increase in cash, cash equivalents and restricted cash16,729 27,150 
Effect of exchange rate on cash, cash equivalents and restricted cash84 (196)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
BEGINNING OF PERIOD110,891 108,005 
END OF PERIOD$127,704 $134,959 
Supplementary disclosure of cash flows:
Income taxes paid$(3,014)$ 
Supplemental disclosure of noncash investing activities:
Capital expenditures included in accrued expenses
$7,265 $12,831 
The accompanying notes are an integral part of these unaudited consolidated financial statements.
4


Arrowhead Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements
(unaudited)
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
General and Recent Developments
Arrowhead Pharmaceuticals, Inc. and its subsidiaries (referred to herein collectively as the “Company”) are primarily engaged in developing medicines that treat intractable diseases by silencing the genes that cause them. Using a broad portfolio of RNA chemistries and efficient modes of delivery, the Company’s 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. The Company’s RNAi-based therapeutics may leverage this natural pathway of gene silencing to target and shut down specific disease-causing genes.
The following table presents the Company’s current pipeline:
Therapeutic AreaNameStageProduct Rights
Cardiometabolic
plozasiran (ARO-APOC3)
Phase 3
Arrowhead
zodasiran (ARO-ANG3)
Phase 2bArrowhead
olpasiran
Phase 3Amgen
PulmonaryARO-RAGE
Phase 1/2a
Arrowhead
ARO-MUC5ACPhase 1/2aArrowhead
ARO-MMP7
Phase 1/2a
Arrowhead
LiverGSK-4532990Phase 2bGSK
fazirsiran
Phase 3Takeda and Arrowhead
JNJ-3989Phase 2GSK
ARO-C3
Phase 1/2a
Arrowhead
ARO-PNPLA3
Phase 1
Arrowhead
ARO-CFBPhase 1/2aArrowhead
Muscle
ARO-DUX4Phase 1/2aArrowhead
ARO-DM1Phase 1/2aArrowhead
Central Nervous System (CNS)
VariousPre-ClinicalArrowhead
The Company operates lab facilities in California and Wisconsin, where its research and development activities, including the development of RNAi therapeutics, take place. The Company’s principal executive offices are located in Pasadena, California.
Thus far in fiscal 2024, the Company has continued to develop and advance its pipeline and partnered candidates. Several key recent developments include:
Completed enrollment in Amgen’s Phase 3 OCEAN(a) - outcome trial of olpasiran, triggering a $50.0 million milestone payment to the Company, which was paid in the third quarter of fiscal 2024;
Presented final data from the double-blind treatment period of the Company’s Phase 2 SHASTA-2 study of investigational plozasiran in patients with severe Hypertriglyceridemia. Results from the SHASTA-2 study showed dramatic, consistent, and sustained reductions in Apolipoprotein C-III (APOC3) and triglycerides and improvement in multiple atherogenic lipoprotein levels;
Announced an Expanded Access Program (EAP) to make investigational plozasiran available outside of a clinical trial for qualifying patients with familial chylomicronemia syndrome (FCS);
Initiated a Phase 1/2a clinical trial of ARO-DM1, being developed as a potential treatment for type 1 myotonic dystrophy (DM1), the most common adult-onset muscular dystrophy;
Filed an application for clearance to initiate a Phase 1/2a clinical trial of ARO-CFB, being developed as a potential treatment for complement mediated renal disease;
5


Entered into an Amended and Restated License Agreement with GSK, pursuant to which GSK received a worldwide, exclusive license to develop and commercialize JNJ-3989 (formerly ARO-HBV). JNJ-3989 had previously been licensed to Janssen Pharmaceuticals, Inc. See Note 2.
Consolidation and Basis of Presentation
The interim Consolidated Financial Statements include the accounts of Arrowhead Pharmaceuticals, Inc. and its subsidiaries (wholly-owned subsidiaries and a variable interest entity for which the Company is the primary beneficiary). Subsidiaries refer to Arrowhead Madison, Inc., Visirna Therapeutics, Inc. (“Visirna”), and Arrowhead Australia Pty Ltd. For subsidiaries in which the Company owns or is exposed to less than 100% of the economics, the Company records net loss attributable to noncontrolling interests in its consolidated statements of operations equal to the percentage of the economic or ownership interests retained in such entity by the respective noncontrolling party.
The interim Consolidated Financial Statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). The financial data of the Company included herein are unaudited. In the opinion of management, all material adjustments of a normal recurring nature have been made to present fairly the Company’s financial position at March 31, 2024 and the results of operations and cash flows for the periods presented. All intercompany transactions and balances have been eliminated.
Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted from the accompanying interim consolidated financial statements and related notes. Readers are urged to review the Company’s Annual Report on Form 10-K for the year ended September 30, 2023 for more complete descriptions and discussions. Operating results and cash flows for the six months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2024.
Liquidity
The Company’s primary sources of financing have been through the sale of its equity securities, revenue from its licensing and collaboration agreements and the sale of certain future royalties. 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. Additionally, significant capital investment will be required as the Company’s pipeline matures into later stage clinical trials.
As of March 31, 2024, the Company had $127.7 million in cash, cash equivalents and restricted cash ($2.2 million in restricted cash) and $395.4 million in available-for-sale securities to fund operations. During the six months ended March 31, 2024, the Company’s cash, cash equivalents and restricted cash and investments balance increased by $119.5 million which was primarily due to the net proceeds of $429.3 million from the underwritten offering in January 2024 discussed below, offset by ongoing expenses related to the Company’s research and development programs, general and administrative expenses and capital expenditures.
On January 2, 2024, the Company entered into an underwriting agreement with Jefferies LLC, BofA Securities, Inc., and Cowen and Company, LLC, as representatives of the several underwriters. The Company issued 15,790,000 shares of common stock at a price of $28.50 per share. The aggregate purchase price paid by investors was $450.0 million and the Company received net proceeds of $429.3 million after deducting advisory fees and offering expenses.
In total, the Company is eligible to receive up to $2.8 billion in developmental, regulatory and sales milestones, and may receive various royalties on net sales from its licensing and collaboration agreements, subject to the terms and conditions of those agreements. The revenue recognition for these collaboration agreements is discussed further in Note 2.
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 for the fiscal year ended September 30, 2023.
Uncertainty in Income Taxes
The Company recorded an income tax benefit of $3.3 million and $0 for the six months ended March 31, 2024 and 2023, respectively. The income tax benefit is primarily due to the discrete change in the Company’s uncertain tax positions related to the statute of limitation expiration.
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Recent Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to improve its income tax disclosure requirements. Under the ASU, entities must annually (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. This ASU will become effective for the Company beginning on October 1, 2025. The Company does not expect any material impact on its consolidated financial statements and related disclosures resulting from applying this ASU.
NOTE 2. COLLABORATION AND LICENSE AGREEMENTS
The following table provides a summary of revenue recognized:
Three Months Ended March 31,Six Months Ended March 31,
2024202320242023
(in thousands)
GSK$ $30,000 $2,685 $29,323 
Horizon   21,667 
Takeda 116,156 866 132,468 
Janssen 111  355 
Amgen   25,000 
Total$ $146,267 $3,551 $208,813 
The following table summarizes the balance of receivables and contract liabilities related to the Company’s collaboration and license agreements:
March 31, 2024September 30, 2023
(in thousands)
Receivables included in accounts receivable$ $ 
Contract liabilities included in deferred revenue$ $866 
Glaxosmithkline Intellectual Property (No. 3) Limited (“GSK”)
GSK License Agreement
On November 22, 2021, GSK and the Company entered into an Exclusive License Agreement (the “GSK License Agreement”). Under the GSK License Agreement, GSK has received an exclusive license for GSK-4532990 (formerly ARO-HSD). The exclusive license is worldwide with the exception of greater China. GSK is wholly responsible for all clinical development and commercialization of GSK-4532990 in its territory. GSK dosed the first patient in a Phase 2b trial in March 2023 and paid a $30.0 million milestone payment to the Company in the third quarter of fiscal 2023.
The Company is eligible for an additional payment of $100.0 million upon achieving 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 $190.0 million at first commercial sale, and up to $590.0 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.
GSK-HBV Agreement
On December 11, 2023, the Company entered into an Amended and Restated License Agreement with GSK (the “GSK-HBV Agreement”) pursuant to which GSK received a worldwide, exclusive license to develop and commercialize JNJ-3989 (formerly ARO-HBV), the Company’s third-generation subcutaneously administered RNAi therapeutic candidate being developed as a potential therapy for patients with chronic hepatitis B virus infection. JNJ-3989 had previously been licensed to Janssen in October 2018.
Under the terms of the GSK-HBV Agreement, the Company received $2.7 million in December 2023, upon signing the amended GSK-HBV Agreement. The Company is eligible to receive up to $832.5 million in development and sales milestone payments under the GSK-HBV Agreement.
There were no contract assets and liabilities recorded as of March 31, 2024.
7


Horizon Therapeutics Ireland DAC (“Horizon”)
In June 2021, Horizon and the Company entered into a collaboration and license agreement (the “Horizon License Agreement”). Under the terms of the Horizon License Agreement, Horizon received a worldwide exclusive license for HZN-457, a clinical-stage medicine being developed by Horizon as a potential treatment for people with uncontrolled gout.
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 HZN-457 (the “Horizon R&D Services”). The Company received a $40.0 million upfront payment in July 2021. Revenue was recognized on a straight-line basis over the timeframe for completing the Horizon R&D Services, concluding in the first quarter of 2023. Further, the Company received an additional $15.0 million upon Horizon’s initiation of a Phase 1 clinical trial in January 2023.
On October 6, 2023, Amgen completed its acquisition of Horizon and subsequently notified the Company of Amgen’s intent to terminate the HZN-457 license. Horizon exercised its right to terminate the Horizon License Agreement for convenience, which took effect on December 21, 2023.
Takeda Pharmaceutical Company Limited (“Takeda”)
In October 2020, Takeda and the Company entered into an Exclusive License and Co-Funding Agreement (the “Takeda License Agreement”). Under the Takeda License Agreement, Takeda and the Company will co-develop the Company’s fazirsiran program (formerly TAK-999 and ARO-AAT), 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, fazirsiran, if approved, will be co-commercialized under a 50/50 profit sharing structure. Outside the United States, Takeda received an exclusive license to commercialize fazirsiran and will lead the global commercialization strategy, while the Company will be eligible to receive tiered royalties of 20% to 25% on net sales.
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 fazirsiran 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 are recorded as research and development expenses or general and administrative expenses, as appropriate.
Under the terms of the Takeda License Agreement, the Company received $300.0 million as an upfront payment in January 2021 and an additional $40.0 million upon Takeda’s initiation of a Phase 3 REDWOOD clinical study of fazirsiran in March 2023, and is eligible to receive up to $527.5 million in additional potential development, regulatory and commercial milestones.
The Company has allocated the total $300.0 million initial transaction price to its one distinct performance obligation for the fazirsiran license and the associated Takeda R&D Services. Revenue was recognized using the input method (based on actual patient visits completed versus total estimated visits completed for the ongoing SEQUOIA and AROAAT2002 clinical studies). The Phase 2 study visits for patients in the SEQUOIA and AROAAT2002 studies concluded by December 31, 2023, and the Company has substantially completed its performance obligation under the Takeda license agreement. As such, all revenue has been fully recognized as of December 31, 2023. There were no further deferred revenue and contract liabilities as of March 31, 2024.
The Company has recorded $13.8 million as accrued expenses as of March 31, 2024 that was primarily driven by co-development and co-commercialization activities.
Janssen Pharmaceuticals, Inc. (“Janssen”)
On April 7, 2023, Janssen voluntarily terminated its collaboration agreement with the Company and the Company regained full rights to ARO-PNPLA3, formerly called JNJ-75220795. ARO-PNPLA3 is in Phase 1 clinical trials, which are
8


now being developed by the Company.
Further, on December 11, 2023, the Company entered into the GSK-HBV Agreement, as discussed above, pursuant to which GSK received an exclusive license for JNJ-3989 (formerly ARO-HBV). JNJ-3989 had previously been licensed to Janssen in October 2018.
Amgen Inc. (“Amgen”)
In September 2016, Amgen and the Company entered into two collaboration and license agreements and a common stock purchase agreement. Under the Second Collaboration and License Agreement (the “Olpasiran Agreement”), Amgen received a worldwide, exclusive license to the Company’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 Olpasiran Agreement, Amgen is wholly responsible for clinical development and commercialization.
Under the Olpasiran Agreement, the Company has received $35.0 million in upfront payments and $21.5 million in the form of an equity investment by Amgen in the Company’s common stock. Further, the Company received additional an $55.0 million in milestone payments; $10.0 million upon Amgen’s initiation of a Phase 1 study in September 2018, $20.0 million upon its initiation of a Phase 2 clinical study in July 2020, and $25.0 million upon its first subject enrollment in a Phase 3 trial in December 2022. The Company has substantially completed its performance obligations under the Olpasiran Agreement. There were no contract assets and liabilities recorded as of March 31, 2024.
In November 2022, Royalty Pharma Investments 2019 ICAV (“Royalty Pharma”) and the Company entered into the Royalty Pharma Agreement. In consideration for the payments under the Royalty Pharma Agreement, Royalty Pharma is entitled to receive all royalties otherwise payable by Amgen to the Company under the Olpasiran Agreement. The Company remains eligible to receive up to an additional $535.0 million in remaining development, regulatory and sales milestone payments payable from Amgen and Royalty Pharma. See Note 11.
Visirna Therapeutics, Inc. (“Visirna”)
In April 2022, the Company and Visirna, its subsidiary, entered into a License Agreement (the “Visirna License Agreement”), pursuant to which Visirna received an exclusive license to develop, manufacture and commercialize four of the Company’s RNAi-based investigational cardiometabolic medicines in Greater China (including the People’s Republic of China, Hong Kong, Macau and Taiwan).
The Company also performs manufacturing and development work pursuant to a Clinical Supply Agreement between the parties contemplated by the Visirna License Agreement. The Company received $0.1 million and $0.9 million as consideration for this manufacturing and development work for the six months ended March 31, 2024 and 2023, respectively. There were no contract assets and liabilities recorded as of March 31, 2024.
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NOTE 3. BALANCE SHEET ACCOUNTS
Property, Plant and Equipment
The following table summarizes the Company’s major classes of property, plant and equipment:
March 31, 2024September 30, 2023
(in thousands)
Land$2,996 $2,996 
Building75,262  
Research equipment62,926 56,509 
Furniture4,150 1,540 
Computers and software923 700 
Leasehold improvements104,723 103,813 
Construction in progress158,243 166,655 
409,223 332,213 
Less: Accumulated depreciation and amortization(49,971)(41,951)
Property, plant and equipment, net$359,252 $290,262 
Depreciation and amortization expense for property, plant and equipment for the three months ended March 31, 2024 and 2023 was $4.1 million and $2.2 million, respectively. Depreciation and amortization expense for property and equipment for the six months ended March 31, 2024 and 2023 was $7.9 million and $4.5 million, respectively.
During the first quarter of fiscal 2024, the Company completed the build out of one of its laboratory and office facilities in Verona, Wisconsin, which resulted in the reclassification of $75.3 million from construction in progress to building as of March 31, 2024. Further, the Company commenced depreciation on the newly completed facility over a 39-year period.
Accrued Expenses
Accrued expenses consist of the following:
March 31, 2024September 30, 2023
(in thousands)
Accrued R&D expenses
$14,443 $16,125 
Accrued R&D expenses; co-development
13,751 5,895 
Accrued capital expenditures
7,265 14,044 
Other
1,596 3,699 
Total accrued expense
$37,055 $39,763 

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NOTE 4. INVESTMENTS
The Company’s investments consisted of the following:
As of March 31, 2024
(in thousands)
Adjusted BasisGross
Unrealized Gains
Gross
Unrealized Losses
Fair Value
Available-for-sale securities$396,249 $11 $(850)$395,410 
Total current investments$396,249 $11 $(850)$395,410 
As of September 30, 2023
(in thousands)
Adjusted BasisGross
Unrealized Gains
Gross
Unrealized Losses
Fair Value
Available-for-sale securities$295,699 $3 $(2,967)$292,735 
Total current investments$295,699 $3 $(2,967)$292,735 
The Company has determined that the available-for-sale securities that were in an unrealized loss position did not have any credit loss impairment as of March 31, 2024 and 2023.
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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 following table presents the components of intangible assets:
Gross Carrying AmountAccumulated AmortizationImpairmentNet Carrying AmountUseful Lives
(in thousands)(in years)
As of March 31, 2024
Patents$21,728 $14,097 $ $7,631 14
License3,129 1,348  1,781 21
Total intangible assets, net$24,857 $15,445 $ $9,412 
As of September 30, 2023
Patents$21,728 $13,321 $ $8,407 14
License3,129 1,274  1,855 21
Total intangible assets, net$24,857 $14,595 $ $10,262 
Intangible assets are reviewed annually for impairment and more frequently if potential impairment indicators exist. No impairment indicators were identified during the six months ended March 31, 2024 and 2023.
Intangible assets with definite useful lives are amortized on a straight-line basis over their useful lives. Intangible assets amortization expense was $0.4 million for each of the three months ended March 31, 2024 and 2023, and $0.9 million for each of six months ended March 31, 2024 and 2023. None of the intangible assets with definite useful lives are anticipated to have a residual value.
The following table presents the estimated future amortization expense related to intangible assets as of March 31, 2024:
Amortization Expense
Year Ending September 30, (in thousands)
2024 (remainder)$850 
20251,700 
20261,700 
20271,700 
20281,700 
Thereafter1,762 
Total$9,412 

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NOTE 6. STOCKHOLDERS’ EQUITY
The following table summarizes the Company’s shares of common stock and preferred stock:
Shares
Par ValueAuthorizedIssuedOutstanding
(in thousands)
As of March 31, 2024
Common stock$0.001 290,000 124,133 124,133 
Preferred stock$0.001 5,000   
As of September 30, 2023
Common stock$0.001 290,000 107,312 107,312 
Preferred stock$0.001 5,000   
As of March 31, 2024 and September 30, 2023, respectively, 11,723,683 and 12,709,837 shares of common stock were reserved for issuance upon exercise of options and vesting of restricted stock units granted or available for grant under the Company’s 2004 Equity Incentive Plan, 2013 Incentive Plan, 2021 Incentive Plan, as well as for other inducement grants made to new employees under Rule 5635(c)(4) of the Nasdaq Listing Rules.
On January 2, 2024, the Company entered into an underwriting agreement with Jefferies LLC, BofA Securities, Inc., and Cowen and Company, LLC, as representatives of the several underwriters. The Company issued 15,790,000 shares of common stock at an offering price of $28.50 per share. The aggregate purchase price paid by investors was $450.0 million and the Company received net proceeds of $429.3 million after deducting advisory fees and offering expenses.
On December 2, 2022, the Company entered into an open market sale agreement (the “Open Market Sale 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 (“ATM Offering”). The Company is not required to sell shares under the Open Market Sale 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 Open Market Sale Agreement. Unless otherwise terminated, the ATM Offering shall terminate upon the earlier of (i) the sale of all shares of common stock subject to the Sales Agreement and (ii) the termination of the Sales Agreement as permitted therein. The Company and Jefferies may each terminate the Open Market Sale Agreement at any time upon prior notice. As of March 31, 2024, no shares have been issued under the Open Market Sale Agreement.
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 March 31, 2024.
Commitments
The Company owns land in the Verona Technology Park in Verona, Wisconsin, which is being developed into an approximately 160,000 square foot drug manufacturing facility and an approximately 140,000 square foot laboratory and office facility which will support the Company’s manufacturing process development and analytical activities. During the first quarter of fiscal 2024, the Company completed the build out of one of its laboratory and office facilities.
As of March 31, 2024, the Company has incurred $247.0 million and intends to spend an additional $37.0 million to $51.0 million to complete the build out of the facilities.
NOTE 8. LEASES
Pasadena, California: The Company leases 49,000 square feet of office space located at 177 East Colorado Blvd. for its corporate headquarters from 177 Colorado Owner, LLC, which lease expires on April 30, 2027. The lease contains an option to renew for one additional five-year term.
San Diego, California: The Company leases 144,000 square feet of office and research and development laboratory space located at 10102 Hoyt Park, San Diego, California, which lease expires on April 30, 2038. Pursuant to the lease, within
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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.
The lease agreement grants the Company the right to receive an Additional Tenant Improvement Allowance (“ATIA”) funded by the lessor, with a maximum amount of $7.2 million, subject to a 7% interest per annum over the base term. Further, on September 25, 2023, the Company executed the first amendment to the lease, which grants a second ATIA with a maximum amount of $23.6 million, bearing interest at a rate of 9% per annum over the base term. The Company received $30.8 million ATIA from the lessor during the first quarter of fiscal 2024. As a result, the Company remeasured its lease liability and right-of-use assets to reflect these additional allowances and the related increased lease payments. The Company has further concluded that these ATIAs have no effects on the classification of the lease.
The Company previously subleased additional research and development space in San Diego, California, which subleases ended during the fiscal year of 2023.
Madison, Wisconsin: The Company leases space for office and laboratory facilities, which expires on September 30, 2031. The lease contains options to renew for two terms of five years. After accounting for additional rental square feet added pursuant to amendments to the lease agreement in 2019 and 2020, the Company currently leases a total of 115,000 square feet.
The components of lease assets and liabilities along with their classification on the Company’s consolidated balance sheets were as follows:
Lease Assets and LiabilitiesClassificationMarch 31, 2024September 30, 2023
(in thousands)
Operating lease assetsRight-of-use assets$44,626 $45,297 
Current operating lease liabilitiesLease liabilities5,285 10,563 
Non-current operating lease liabilitiesLease liabilities, net of current portion113,632 104,608 
Three Months Ended March 31,Six Months Ended March 31,
Lease CostClassification2024202320242023
(in thousands)
Operating lease costResearch and development$2,572 $2,343 $5,566 $4,412 
General and administrative expense491 500 967 1,033 
Variable lease cost (1)
Research and development836 160 1,615 370 
General and administrative expense    
Total $3,899 $3,003 $8,148 $5,815 
(1) Variable lease cost is primarily related to operating expenses associated with the Company’s operating leases.
There was no short-term lease cost during the first half of fiscal 2024. There was $0.4 million and $0.7 million short-term lease cost during the three and six months ended March 31, 2023, respectively.
The following table presents maturities of operating lease liabilities on an undiscounted basis as of March 31, 2024:
YearAmounts
(in thousands)
2024 (remainder of fiscal year)$6,997 
202515,356 
202615,696 
202714,869 
202813,511 
2029 and thereafter128,356 
Total$194,785 
Less imputed interest$(75,868)
Total operating lease liabilities (includes current portion)$118,917 
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Supplemental cash flow and other information related to leases was as follows:
Three Months Ended March 31,Six Months Ended March 31,
2024202320242023
(in thousands)
Cash received for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$ $8,918 $3,099 $17,929 
Right-of-use assets obtained in exchanged for amended operating lease liabilities$ $ $64 $22,582 
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$2,046 $1,098 $4,016 $2,196 
March 31,
20242023
Weighted-average remaining lease term (in years)13.06.6
Weighted-average discount rate8.0 %8.5 %
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NOTE 9. STOCK-BASED COMPENSATION
The Company has three plans that provide for equity-based compensation. Under the 2004 Equity Incentive Plan (the “2004 Plan”) and the 2013 Incentive Plan (the “2013 Plan”), 0 and 2,967,887 shares, respectively, of the Company’s common stock are reserved for grants of stock options and restricted stock awards to employees and directors as of March 31, 2024.
On March 18, 2021, the Company’s Board of Directors approved the Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan (the “2021 Plan”), which authorized 8,000,000 shares (subject to certain adjustments) available for grants of stock options, stock appreciation rights, restricted and unrestricted stock, performance awards, cash awards and other awards convertible into or otherwise based on shares of the Company’s common stock. The maximum number of shares authorized under the 2021 Plan will be (i) reduced by any shares subject to awards made under the 2013 Plan after January 1, 2021, and (ii) increased by any shares subject to outstanding awards under the 2013 Plan as of January 1, 2021 that, after January 1, 2021, are canceled, expired, forfeited or otherwise not issued under such awards (other than as a result of being tendered or withheld to pay the exercise price or withholding taxes in connection with any such awards) or settled in cash. As of March 31, 2024, the total number of shares available for issuance was 4,553,827 shares, which includes 158,678 and 134,389 shares that were forfeited under the 2013 and 2021 Plans, respectively, and 3,689,089 shares have been granted under the 2021 Plan.
In addition, there were 688,165 shares reserved for options and 637,563 shares reserved for restricted stock units issued as inducement grants to new employees granted outside of the Company’s equity-based compensation plans under Rule 5635(c)(4) of the Nasdaq Listing Rules.
The following table presents a summary of awards outstanding:
As of March 31, 2024
2004 Plan2013 Plan2021 PlanInducement AwardsTotal
Granted and outstanding awards:
Options 1,358,377 32,151 688,165 2,078,693 
Restricted stock units 1,609,510 2,844,090 637,563 5,091,163 
Total 2,967,887 2,876,241 1,325,728 7,169,856 
The following table summarizes stock-based compensation expenses included in operating expenses:
Three Months Ended March 31,Six Months Ended March 31,
2024202320242023
Research and development$7,097 $8,745 $15,413 $17,147 
General and administrative9,491 11,868 18,860 22,855 
Total$16,588 $20,613 $34,273 $40,002 
Stock Option Awards
The following table presents a summary of the stock option activity for the six months ended March 31, 2024:
SharesWeighted-
Average
Exercise
Price
Per Share
Weighted-
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
Outstanding at September 30, 2023
2,263,477$22.68 
Granted 
Cancelled or expired(30,437)61.11 
Exercised(154,347)11.53 
Outstanding at March 31, 2024
2,078,693$23.04 4.0 years$26,788,979 
Exercisable at March 31, 2024
2,054,866$22.72 3.9 years$26,788,746 
The aggregate intrinsic values represent the amount by which the market price of the underlying stock exceeds the exercise price of the option. The total intrinsic value of the options exercised during the three months ended March 31, 2024
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and 2023 was $2.5 million and $1.4 million, respectively. The total intrinsic value of the options exercised during the six months ended March 31, 2024 and 2023 was $3.1 million and $3.6 million, respectively
Stock-based compensation expense related to stock options outstanding for the three months ended March 31, 2024 and 2023, was $0.6 million and $2.2 million, respectively. Stock-based compensation expense related to stock options outstanding for the six months ended March 31, 2024 and 2023, was $2.1 million and $4.6 million, respectively.
As of March 31, 2024, the pre-tax compensation expense for all outstanding unvested stock options in the amount of $0.8 million will be recognized in the Company’s results of operations over a weighted average period of 4 months.
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option pricing model was developed for use in estimating the fair value of traded options, which do not have vesting restrictions and are fully transferable. The determination of the fair value of each stock option is affected by the Company’s stock price on the date of grant, as well as assumptions regarding a number of highly complex and subjective variables. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. No options were granted during the six months ended March 31, 2024 and 2023.
Visirna ESOP: On October 1, 2023, Visirna, a subsidiary of the Company, granted 7,500,000 stock options to its employees from the Employee Stock Option Plan (the “Visirna ESOP”), which authorizes 20,000,000 shares for issuance. The Visirna ESOP is independently managed by Visirna, including the valuation process. For the three and six months ended March 31, 2024, stock-based compensation expense related to the Visirna ESOP was $1.2 million and $3.2 million, respectively.
Restricted Stock Units
Restricted Stock Units (“RSUs”), including market-based, time-based and performance-based awards, have been granted under the Company’s 2013 and 2021 Plans and as inducements grants granted outside of the Company’s equity-based compensation plans. At vesting, each outstanding RSU will be exchanged for one share of the Company’s common stock. RSU awards generally vest subject to the satisfaction of service requirements or the satisfaction of both service requirements and achievement of certain performance targets.
The following table summarizes the activity of the Company’s RSUs:
Number of
RSUs
Weighted-
Average
Grant
Date
Fair Value
Per Share
Outstanding at September 30, 2023
4,241,640$58.43 
Granted1,838,02530.75 
Vested(876,352)53.60 
Forfeited(112,150)44.16 
Outstanding at March 31, 2024
5,091,163$49.58 
The fair value of RSUs was determined based on the closing price of the Company’s common stock on the grant date, with consideration given to the probability of achieving service and/or performance conditions for awards.
For the three months ended March 31, 2024 and 2023, the Company recorded $16.0 million and $18.4 million of expense related to RSUs, respectively. For the six months ended March 31, 2024 and 2023, the Company recorded $32.2 million and $35.4 million of expense related to RSUs, respectively. As of March 31, 2024, there was $112.0 million of total unrecognized compensation cost related to RSUs that is expected to be recognized over a weighted-average period of 1.7 years.
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NOTE 10. FAIR VALUE MEASUREMENTS
The Company employs a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The Company’s valuation techniques and inputs used to measure fair value and the definition of the three levels (Level 1, Level 2, and Level 3) of the fair value hierarchy are disclosed in Note 10 - Fair Value Measurements of Notes to Consolidated Financial Statements of Part IV, “Item 15. Exhibits and Financial Statement Schedules” of its Annual Report on Form 10-K for the year ended September 30, 2023.
The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2, or from Level 2 to Level 3. The Company recognizes transfers between levels at either the actual date of the event or a change in circumstances that caused the transfer. At March 31, 2024 and September 30, 2023, the Company did not have any financial assets or financial liabilities based on Level 3 measurements.
The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques utilized by the Company:
March 31, 2024
Level 1Level 2Level 3Total
(in thousands)
Available-for-sale securities
U.S. Treasuries$4,963 $ $ $4,963 
U.S. government bonds 48,637  48,637 
Municipal securities 3,949  3,949 
Commercial notes 120,710  120,710 
Corporate debt securities 217,151  217,151 
Total available-for-sale securities4,963 390,447  395,410 
Cash equivalents
Money market instruments77,080   77,080 
U.S. Treasuries4,993   4,993 
Commercial notes 4,997  4,997 
Total cash equivalents82,073 4,997  87,070 
Total financial assets$87,036 $395,444 $ $482,480 
September 30, 2023
Level 1Level 2Level 3Total
(in thousands)
Available-for-sale securities
U.S. government bonds$31,553 $ $ $31,553 
Municipal securities 7,093  7,093 
Commercial notes 22,205  22,205 
Corporate debt securities 231,884  231,884 
Total available-for-sale securities
31,553 261,182  292,735 
Cash equivalents
Money market instruments347   347 
Total cash equivalents347   347 
Total financial assets$31,900 $261,182 $ $293,082 

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NOTE 11. LIABILITY RELATED TO THE SALE OF FUTURE ROYALTIES
In November 2022, the Company and Royalty Pharma entered into the Royalty Pharma Agreement, pursuant to which Royalty Pharma agreed to pay up to $410.0 million in cash to the Company in consideration for the Company’s future royalty interest in olpasiran, a small interfering RNA (siRNA) originally developed by the Company and licensed to Amgen in September 2016 under the Olpasiran Agreement.
Pursuant to the Royalty Pharma Agreement, Royalty Pharma paid $250.0 million upfront and agreed to pay up to an additional $160.0 million in aggregate one-time milestone payments due if and when the following milestone events occur: (i) $50.0 million on completion of enrollment in the OCEAN Phase 3 clinical trial for olpasiran, (ii) $50.0 million upon receipt of FDA approval of olpasiran for an approved indication (reduction in the risk of myocardial infarction, urgent coronary revascularization, or coronary heart disease death in adults with established cardiovascular disease and elevated Lp(a)), and (iii) $60.0 million upon Royalty Pharma’s receipt of at least $70.0 million of royalty payments under the Royalty Pharma Agreement in any single calendar year.
In consideration for the payment of the foregoing amounts under the Royalty Pharma Agreement, Royalty Pharma is entitled to receive all royalties otherwise payable by Amgen to the Company under the Olpasiran Agreement. The Company remains eligible to receive any milestone payments potentially payable by Amgen under the Olpasiran Agreement.
The Company has evaluated the terms of the Royalty Pharma Agreement and concluded in accordance with the relevant accounting guidance that the Company accounted for the transaction as debt and the funding of $250.0 million from Royalty Pharma was recorded as a liability related to the sale of future royalties on its consolidated balance sheets. The Company is not obligated to repay this upfront funding received under the Royalty Pharma Agreement.
The Company records the obligations at their carrying value using the effective interest method. In order to amortize the sale of future royalties, the Company utilizes the prospective method to estimate the future royalties to be paid by the Company to the counterparty over the life of the arrangement. Under the prospective method, a new effective interest rate is determined based on the revised estimate of remaining cash flows. The new rate is the discount rate that equates the present value of the revised estimate of remaining cash flows with the carrying amount of the debt, and it will be used to recognize non-cash interest expense for the remaining periods. The Company periodically assesses the amount and the timing of expected royalty payments using a combination of internal projections and forecasts from external sources. The estimates of future net product sales (and resulting royalty payments) are based on key assumptions including population, penetration, probability of success and sales price, among others. To the extent such payments are greater or less than the Company’s initial estimates or the timing of such payments is materially different than its original estimates, the Company will prospectively adjust the amortization of the royalty financing obligations and the effective interest rate. As of March 31, 2024, the estimated effective interest rate was 9.3%.
The following table presents the activity with respect to the liability related to the sale of future royalties.
Carrying Amount
(in thousands)
Carrying value as of September 30, 2023$268,326 
Non-cash interest expense recognized12,612 
Carrying value as of March 31, 2024$280,938 
NOTE 12. NET LOSS PER SHARE
The following table presents the computation of basic and diluted net loss per share for the three and six months ended March 31, 2024 and 2023.
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Three Months Ended March 31,Six Months Ended March 31,
2024202320242023
(in thousands, except per share amounts)
Numerator:
Net (loss) income attributable to Arrowhead Pharmaceuticals, Inc.$(125,300)$48,675 $(258,164)$7,350 
Denominator:
Weighted-average basic shares outstanding123,285 106,757 115,307 106,394 
Effect of dilutive securities 1,386  1,499 
Weighted-average diluted shares outstanding123,285 108,143 115,307 107,893 
Basic net (loss) gain per share$(1.02)$0.46 $(2.24)$0.07 
Diluted net (loss) gain per share$(1.02)$0.45 $(2.24)$0.07 
The following table sets forth the potentially dilutive securities that have been excluded from the calculation of diluted net loss per share because to include them would be anti-dilutive.
Three Months Ended March 31,Six Months Ended March 31,
2024202320242023
(in thousands)
Options595 767 657 779 
Restricted stock units3,411 3,583 3,931 3,290 
Total4,006 4,350 4,588 4,069 
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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we intend that such forward-looking statements be subject to the safe harbors created thereby. For this purpose, any statements contained in this Quarterly Report on Form 10-Q except for historical information may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “goal,” “endeavor,” “strive,” “intend,” “plan,” “project,” “could,” “estimate,” “target,” “forecast” or “continue” or the negative of these words or other variations thereof or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, trends in our business, or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements include, but are not limited to, statements about the initiation, timing, progress and results of our preclinical studies and clinical trials, our research and development programs, and our “20 in 25” pipeline goal; our expectations regarding the potential benefits of the partnership, licensing and/or collaboration arrangements and other strategic arrangements and transactions we have entered into or may enter into in the future; our beliefs and expectations regarding the amount and timing of future milestone, royalty or other payments that could be due to or from third parties under existing agreements; and our estimates regarding future revenues, research and development expenses, capital requirements and payments to third parties.
The forward-looking statements included herein are based on current expectations of our management based on available information and involve a number of risks and uncertainties, all of which are difficult or impossible to predict accurately, and many of which are beyond our control. As such, our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated or indicated in any forward-looking statements. Forward-looking statements are not guarantees of future performance and our actual results of operations, financial condition and cash flows may differ materially. Factors that may cause or contribute to such differences include, but are not limited to, those discussed in more detail in “Item 1. Business” and Item 1A. Risk Factors” of Part I and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II of our most recent Annual Report on Form 10-K. Readers should carefully review these risks, as well as the additional risks described in other documents we file from time to time with the Securities and Exchange Commission (the “SEC”). In light of the significant risks and uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved, and readers are cautioned not to place undue reliance on such forward-looking information. Statements made herein are as of the date of the filing of this Quarterly Report on Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Except as may be required by law, we disclaim any intent to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
OVERVIEW
The Company 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, the Company’s therapies trigger the RNAi interference mechanism to induce rapid, deep and durable knockdown of target genes. RNAi is a mechanism present in living cells that inhibits the expression of a specific gene, thereby affecting the production of a specific protein. RNAi-based therapeutics may leverage this natural pathway of gene silencing to target and shut down specific disease-causing genes.
The Company has focused its resources on therapeutics that exclusively utilize its high levels of pharmacologic activity in multiple animal models spanning several therapeutic areas. The Company believes that TRiMTM enabled therapeutics offer several potential advantages over prior generation and competing technologies, including: simplified manufacturing and reduced costs; multiple routes of administration including subcutaneous injection and inhaled administration; the ability to target multiple tissue types including liver, lung, CNS, muscle and adipose tissue; and the potential for improved safety and reduced risk of intracellular buildup, because there are fewer metabolites from smaller, simpler molecules.
The Company’s clinical pipeline includes:
Hypertriglyceridemia - plozasiran (formerly ARO-APOC3);
Dyslipidemia - zodasiran (formerly ARO-ANG3);
Cardiovascular disease - olpasiran (formerly AMG 890 or ARO-LPA, out-licensed to Amgen);
Muco-obstructive or inflammatory pulmonary conditions - ARO-MUC5AC and ARO-RAGE;
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Idiopathic pulmonary fibrosis - ARO-MMP7;
Non-alcoholic steatohepatitis (NASH) - GSK-4532990 (formerly ARO-HSD, out-licensed to GSK);
Alpha-1 antitrypsin deficiency (AATD) - fazirsiran (formerly ARO-AAT, a collaboration with Takeda);
Chronic hepatitis B virus - JNJ-3989 (formerly ARO-HBV, out-licensed to GSK);
Complement mediated diseases - ARO-C3;
Non-alcoholic steatohepatitis (NASH) - ARO-PNPLA3 (formerly JNJ-75220795 or ARO-JNJ1);
Facioscapulohumeral muscular dystrophy - ARO-DUX4;
Dystrophia myotonica protein kinase (DMPK) - ARO-DM1; and
Hepatic expression of complement factor B (CFB) - ARO-CFB.
The Company operates lab facilities in California and Wisconsin, where its research and development activities, including the development of RNAi therapeutics, take place. The Company’s principal executive offices are located in Pasadena, California.
The Company continues to develop other clinical candidates for future clinical trials. Clinical candidates are tested internally and through Good Laboratory Practice (GLP) toxicology studies at outside laboratories. Drug materials for such studies and clinical trials are either manufactured internally or contracted to third-party manufacturers. The Company engages third-party contract research organizations (CROs) to manage clinical trials and works cooperatively with such organizations on all aspects of clinical trial management, including plan design, patient recruiting, and follow up. These outside costs, including toxicology/efficacy testing and manufacturing costs, as well as the preparation for and administration of clinical trials, are referred to as “candidate costs.” As clinical candidates progress through clinical development, candidate costs will increase.
The First Half of Fiscal 2024 Business Highlights
Key recent developments through fiscal 2024 included the following:
Completed enrollment in Amgen’s Phase 3 OCEAN(a) - outcome trial of olpasiran, triggering a $50.0 million milestone payment to the Company, which was paid in the third quarter of fiscal 2024;
Presented final data from the double-blind treatment period of the Company’s Phase 2 SHASTA-2 study of investigational plozasiran in patients with severe Hypertriglyceridemic. Results from the SHASTA-2 study showed dramatic, consistent, and sustained reductions in Apolipoprotein C-III (APOC3) and triglycerides and improvement in multiple atherogenic lipoprotein levels;
Announced an Expanded Access Program (EAP) to make investigational plozasiran available outside of a clinical trial for qualifying patients with familial chylomicronemia syndrome (FCS);
Initiated a Phase 1/2a clinical trial of ARO-DM1, being developed as a potential treatment for type 1 myotonic dystrophy (DM1), the most common adult-onset muscular dystrophy;
Filed an application for clearance to initiate a Phase 1/2a clinical trial of ARO-CFB, being developed as a potential treatment for complement mediated renal disease;
Entered into an underwriting agreement with Jefferies LLC, BofA Securities, Inc., and Cowen and Company, LLC, as representatives of the several underwriters. The Company issued 15,790,000 shares of common stock at a price of $28.50 per share. The aggregate purchase price paid by investors was $450.0 million and the Company received net proceeds of $429.3 million after deducting advisory fees and offering expenses; and
Entered into an Amended and Restated License Agreement with GSK, pursuant to which GSK received a worldwide, exclusive license to develop and commercialize JNJ-3989 (formerly ARO-HBV). JNJ-3989 had previously been licensed to Janssen Pharmaceuticals, Inc. See Note 2 - Collaboration and License Agreements to Consolidated Financial Statements of Part I, “Item 1. Financial Statements.”
Net loss attributable to the Company was $125.3 million for the three months ended March 31, 2024 as compared to net income attributable to the Company of $48.7 million for the three months ended March 31, 2023. Net loss attributable to the Company was $258.2 million for the six months ended March 31, 2024 as compared to net income attributable to the Company of $7.4 million for the six months ended March 31, 2023. Net loss per share – diluted was $1.02 for the three months ended March 31, 2024 as compared to net income per share – diluted of $0.45 for the three months ended March 31, 2023. Net loss per share – diluted was $2.24 for the six months ended March 31, 2024 as compared to net income per share – diluted of $0.07 for the six months ended March 31, 2023.
The changes in net loss attributable to the Company for the three and six months ended March 31, 2024 were mainly due to a decrease in revenue from the Company’s license and collaboration agreements, in conjunction with increased
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research and development expenses, which have continued to increase as the Company’s pipeline of candidates has expanded and progressed through clinical trial phases.
The Company had $127.7 million of cash, cash equivalents and restricted cash, $395.4 million in available-for-sale securities, and $955.2 million of total assets as of March 31, 2024, as compared to $110.9 million of cash, cash equivalents and restricted cash, $292.7 million in available-for-sale securities and $765.6 million of total assets as of September 30, 2023. Based upon the Company’s current cash and investment resources and operating plan, the Company expects to have sufficient liquidity to fund operations for at least the next twelve months.
Critical Accounting Estimates
There have been no significant changes to the Company’s critical accounting estimates disclosed in the most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2023.
RESULTS OF OPERATIONS
The following data summarizes the Company’s results of operations for the following periods indicated:
Three Months Ended March 31,Six Months Ended March 31,
2024202320242023
(in thousands, except per share amounts)
Revenue$— $146,267 $3,551 $208,813 
Operating (loss) income
$(126,191)$48,165 $(262,736)$6,031 
Net (loss) income attributable to Arrowhead Pharmaceuticals, Inc.
$(125,300)$48,675 $(258,164)$7,350 
Net (loss) income per share-diluted
$(1.02)$0.45 $(2.24)$0.07 
Revenue
Total revenue for the three months ended March 31, 2024 decreased by $146.3 million or 100.0% from the same period of 2023. Total revenue for the six months ended March 31, 2024 decreased by $205.3 million, or 98.3% from the same period of 2023. The changes were primarily driven by decreased revenue recognition associated with the Company’s license and collaboration agreements during the first half of fiscal 2024. The revenue for the six months ended March 31, 2024 was mainly driven by the revenue recognition associated with Takeda and GSK, as discussed below.
The Company has evaluated each agreement in accordance with FASB Topic 808–Collaborative Arrangements and Topic 606-Revenue for Contracts from Customers. See Note 2 — Collaboration and License Agreements to Consolidated Financial Statements of Part I, “Item 1. Financial Statements” for more information on revenue recognized under the collaboration and license agreements.
Takeda: In October 2020, Takeda and the Company entered into the Takeda License Agreement. The Company has allocated the total $300.0 million initial transaction price to its one distinct performance obligation for the fazirsiran license and the associated Takeda R&D Services. Revenue was recognized using the input method (based on actual patient visits completed versus total estimated visits completed for the ongoing SEQUOIA and AROAAT2002 clinical studies). The Phase 2 study visits for patients in the SEQUOIA and AROAAT2002 studies concluded by December 31, 2023, and the Company has substantially completed its performance obligation under the Takeda license agreement. As such, all revenue has been fully recognized as of December 31, 2023.
During the six months ended March 31, 2023, the Company recorded $132.5 million revenue, including $40.0 million milestone payment by dosing the first patient in the Phase 3 REDWOOD clinical study of fazirsiran.
GSK: On December 11, 2023, GSK and the Company entered into the GSK HBV Agreement. Under the GSK-HBV Agreement, GSK received a worldwide, exclusive license to develop and commercialize JNJ-3989 (formerly ARO-HBV). JNJ-3989 had previously been licensed to Janssen in October 2018. Under the terms of the GSK-HBV Agreement, the Company received $2.7 million in December 2023, upon signing the GSK-HBV Agreement.
During the six months ended March 31, 2023, the Company recorded a $30.0 million milestone payment by dosing the first patient in a Phase 2b trial under GSK License Agreement.
Horizon/Amgen: During the six months ended March 31, 2023, the Company recorded $6.7 million revenue of the total $40.0 million upfront payment received in July 2021, which was recognized on a straight-line basis over the
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timeframe for completing the Horizon R&D Services, concluding in the first quarter of 2023. Horizon enrolled the first subject in December 2022 in a Phase 1 randomized, placebo-controlled trial to assess the safety, tolerability, pharmacokinetics and pharmacodynamics of HZN-457, triggering a $15.0 million milestone payment to the Company which was paid in the second quarter of fiscal 2023. Further, Amgen enrolled the first subject in its Phase 3 trial of olpasiran, which triggered a $25.0 million milestone payment to the Company which was paid in the second quarter of fiscal 2023. On October 6, 2023, Amgen, Inc. completed its acquisition of Horizon and subsequently notified the Company of Amgen’s intent to terminate the HZN-457 license. Horizon exercised its right to terminate the Horizon License Agreement for convenience, which took effect on December 21, 2023.
Operating Expenses
The analysis below details the operating expenses and discusses the expenditures of the Company within the major expense categories. For purposes of comparison, the amounts for the three and six months ended March 31, 2024 and 2023 are shown in the tables below.
Research and Development (R&D) Expenses
R&D expenses are related to the Company’s research and development discovery efforts and related candidate costs, which are comprised primarily of outsourced costs related to the manufacturing of clinical supplies, toxicity/efficacy studies and clinical trial expenses. Internal costs primarily relate to discovery operations at the Company’s research facilities in California and Wisconsin, including facility costs and laboratory-related expenses. The Company does not separately track R&D expenses by individual research and development project, or by individual drug candidate. The Company operates in a cross-functional manner across projects and does not separately allocate facilities-related costs, candidate costs, discovery costs, compensation expenses, depreciation and amortization expenses, and other expenses related to research and development activities.
The following table provides details of research and development expenses for the periods indicated:
(in thousands)Three Months Ended
March 31, 2024
% of
Expense
Category
Three Months Ended
March 31, 2023
% of
Expense
Category
Increase (Decrease)
$%
Candidate costs$33,905 34 %$26,586 36 %$7,319 28 %
R&D discovery costs24,786 24 %17,431 23 %7,355 42 %
Salaries24,921 25 %16,404 22 %8,517 52 %
Facilities related5,923 %3,450 %2,473 72 %
Total research and development expense, excluding non-cash expense$89,535 89 %$63,871 85 %