ARROWHEAD PHARMACEUTICALS INC

Previous wording

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, including any commercialization efforts, 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.

Current wording

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,” “might,” “will,” “expect,” “believe,” “anticipate,” “goal,” “endeavor,” “strive,” “intend,” “plan,” “project,” “could,” “estimate,” “target,” “might,” “forecast,” “potential,” 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, and our research and development programs, our expectations regarding regulatory approval for and commercial launch of plozasiran; 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.

Previous wording

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.

Current wording

The Company believes that TRiMTM enabled therapeutics offer several potential advantages over prior generations 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, central nervous system (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.

Previous wording

•Non-alcoholic steatohepatitis (NASH) - GSK-4532990 (formerly ARO-HSD, out-licensed to GSK);

Current wording

•Metabolic-dysfunction associated steatohepatitis (MASH) - GSK-4532990 (formerly ARO-HSD, out

Previous wording

•Non-alcoholic steatohepatitis (NASH) - ARO-PNPLA3 (formerly JNJ-75220795 or ARO-JNJ1);

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•Metabolic-dysfunction associated steatohepatitis (MASH) - ARO-PNPLA3 (formerly JNJ-75220795 or ARO-JNJ1);

Previous wording

•Dystrophia myotonica protein kinase (DMPK) - ARO-DM1; and

Current wording

•Dystrophia myotonica protein kinase (DMPK) - ARO-DM1;

Previous wording

The First Three Quarters of Fiscal 2024 Business Highlights

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The First Quarter of Fiscal 2025 Business Highlights

Previous wording

Key recent developments through the first three quarters of fiscal 2024 included the following:

Current wording

Key recent developments through the first quarter of fiscal 2025 included the following:

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•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;

Current wording

•GSK dosed the fifth patient in a Phase 2 trial in December 2024, triggering a $2.5 million milestone payment to the Company which was paid in the second quarter of fiscal 2025;

Previous wording

•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;

Current wording

•Filed a request for regulatory clearance to initiate Phase 1/2a clinical trial of ARO-ALK7, which is being developed as a potential treatment for obesity.

Previous wording

The changes in net loss attributable to the Company for the three and nine months ended June 30, 2024 were mainly due to a decrease in revenue from the Company’s license and collaboration agreements, in conjunction with increased research and development expenses, which have continued to increase as the Company’s pipeline of candidates has expanded and progressed through clinical trial phases.

Current wording

Net loss attributable to Arrowhead Pharmaceuticals, Inc. was $173.1 million and $132.9 million for the three months ended December 31, 2024 and 2023, respectively. Net loss per share – diluted was $1.39 and $1.24 for the three months ended December 31, 2024 and 2023, respectively. The change in net loss for the three months ended December 31, 2024 was primarily due to increased research and development expenses, which have continued to increase as the Company’s pipeline of candidates has expanded and progressed through clinical trial phases.

Previous wording

The Company had $69.4 million of cash, cash equivalents and restricted cash, $367.3 million in available-for-sale securities, and $883.8 million of total assets as of June 30, 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 from the date of the issuance of these financial statements.

Current wording

The Company had $53.9 million of cash, cash equivalents and restricted cash and $499.0 million in available-for-sale securities as of December 31, 2024, as compared to $102.7 million of cash, cash equivalents and restricted cash and $578.3 million in available-for-sale securities as of September 30, 2024. 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 from the date of the issuance of these unaudited consolidated financial statements.

Previous wording

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.

Current wording

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 of the Notes to Consolidated Financial Statements of Part I, “Item 1. Financial Statements” for more information on revenue recognized under the collaboration and license agreements.

Previous wording

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 daplusiran/tomligisiran (GSK5637608, formerly JNJ-3989). Daplusiran/tomligisiran 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.

Current wording

Under the terms of the GSK-HBV Agreement, the Company received $2.7 million in December 2023, upon signing the GSK-HBV Agreement. Further, GSK dosed the fifth patient in a Phase 2 trial in December 2024, triggering a $2.5 million milestone payment to the Company which was paid in the second quarter of fiscal 2025.

Previous wording

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.

Current wording

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 three months ended December 31, 2023, the Company recorded $0.9 million revenue.

Previous wording

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 nine months ended June 30, 2024 and 2023 are shown in the tables below.

Current wording

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 months ended December 31, 2024 and 2023 are shown in the tables below.

Previous wording

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.

Current wording

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 projects, or by individual drug candidates. 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.

Previous wording

The following table provides details of research and development expenses for the periods indicated:

Current wording

The following table provides details of research and development expenses:

Previous wording

Candidate costs increased $37.2 million, or 90%, for the three months ended June 30, 2024 and $47.5 million, or 43%, for the nine months ended June 30, 2024 compared to the same period of 2023. This increase was primarily due to the additional progression of the Company’s pipeline of candidates into and through clinical trials, which resulted in higher manufacturing, outsourced clinical trial, and toxicity study costs.

Current wording

Candidate costs increased $23.9 million, or 45%, for the three months ended December 31, 2024 compared to the same period of 2023. This increase was primarily due to the additional progression of the Company’s pipeline of candidates into and through clinical trials, which resulted in higher manufacturing, outsourced clinical trial, and toxicity study costs.

Previous wording

R&D discovery costs increased $10.6 million, or 53%, for the three months ended June 30, 2024 and $34.5 million, or 69%, for the nine months ended June 30, 2024 compared to the same period of 2023. This increase was primarily driven by the growth of the Company’s discovery efforts and continued advancement into novel therapeutic areas and tissue types, along with rising costs associated with CNS studies and lab supplies.

Current wording

R&D discovery costs decreased $8.6 million, or 40%, for the three months ended December 31, 2024 compared to the same period of 2023. This decrease was primarily driven by strategic shifts toward clinical development and commercial launch. R&D discovery costs are influenced by the Company’s ongoing discovery efforts, continued advancements into novel therapeutic areas and tissue types, and increasing costs related to CNS studies and lab supplies.

Previous wording

Salaries consist of salary, bonuses, payroll taxes, and related benefits for the Company’s R&D personnel. Salaries expense increased $7.9 million, or 47%, for the three months ended June 30, 2024 and $24.3 million, or 51%, for the nine months ended June 30, 2024 compared to the same period of 2023. The increase was primarily due to an increase in R&D headcount that has occurred as the Company has expanded its pipeline of candidates, in addition to annual salary increases.

Current wording

Salaries consist of salary, bonuses, payroll taxes, and related benefits for the Company’s R&D personnel. Salaries expense increased $4.6 million, or 20%, for the three months ended December 31, 2024 compared to the same period of 2023. The increase was primarily due to an increase in R&D headcount that has occurred as the Company has expanded its pipeline of candidates, in addition to annual salary increases.

Previous wording

Facilities-related expense includes lease costs for the Company’s research and development facilities in San Diego, California and Madison, Wisconsin. Facilities-related costs increased $2.3 million, or 48%, for the three months ended June 30, 2024 and $8.0 million, or 69%, for the nine months ended June 30, 2024 compared to the same period of 2023. This increase was mainly due to the ATIAs on the lease in San Diego, California. See Note 8 — Leases of Notes to Consolidated Financial Statements of Part I, “Item 1. Financial Statements.”

Current wording

Facilities-related expense includes lease costs for the Company’s research and development facilities in San Diego, California and in Madison and Verona, Wisconsin. These expenses increased $1.2 million, or 18%, for the three months ended December 31, 2024 compared to the same period of 2023. This increase was primarily due to property taxes charged to the laboratory and office facilities in Verona, Wisconsin, which completed their build out during the first quarter of fiscal 2024.

Previous wording

Stock compensation expense, a non-cash expense, was based upon the valuation of stock options and restricted stock units granted to employees. Stock compensation expense decreased $1.7 million, or 19%, for the three months ended June 30, 2024 and $2.4 million, or 9%, for the nine months ended June 30, 2024 compared to the same period of 2023. The decrease was primarily due to the cancelled awards upon the departure of employees.

Current wording

Stock compensation expense, a non-cash expense, is based up the valuation of stock options and restricted stock units granted to employees. Stock compensation expense decreased $1.5 million, or 16%, for the three months ended December 31, 2024 compared to the same period of 2023. The decrease was primarily due to the cancellation of awards upon the departure of employees.

Previous wording

Depreciation and amortization expense, a non-cash expense, increased $1.4 million, or 49% for the three months ended June 30, 2024 and $4.8 million, or 65%, for the nine months ended June 30, 2024 compared to the same period of 2023. The increase was primarily attributed to higher leasehold improvements, due to completion of the development of the San Diego facility. Additionally, as of December 31, 2023, the Company completed the build out of one of its laboratory and office facilities in Verona, Wisconsin, and commenced depreciation.

Current wording

Depreciation and amortization expense, a non-cash expense, relates to depreciation on buildings, lab equipment and leasehold improvements. These expenses increased $0.9 million, or 23% for the three months ended December 31, 2024 compared to the same period of 2023. The increase was primarily attributed to completion of the build out of facilities in Verona, Wisconsin, and the commencement of depreciation.

Previous wording

The following table provides details of the Company’s general and administrative expenses for the periods indicated:

Current wording

The following table provides details of general and administrative expenses:

Previous wording

Salaries expense increased $1.7 million, or 33%, for the three months ended June 30, 2024 and $5.8 million, or 41%, for the nine months ended June 30, 2024 compared to the same period of 2023. The increase was driven by the combination of annual salary increases and increased headcount required to support the Company’s growth.

Current wording

Salaries expense increased $1.1 million, or 17%, for the three months ended December 31, 2024 compared to the same period of 2023. The increase was driven by the combination of annual salary increases and increased headcount required to support the Company’s growth.

Previous wording

Professional, outside services, and other expense includes legal, consulting, patent expenses, business insurance expenses, other outside services, travel, and communication and technology expenses. This expense decreased $0.6 million, or 10%, for the three months ended June 30, 2024 and increased $1.6 million, or 11%, for the nine months ended June 30, 2024 compared to the same period of 2023. The increase for the nine months ended June 30, 2024 was mainly due to legal services associated with patent applications and intellectual property matters, as well as other professional services.

Current wording

Professional, outside services, and other expenses include costs related to legal, audit, consulting, patent filings, business insurance, other external services, as well as travel, communication, and technology expenses. This expense increased $4.9 million, or 94%, for the three months ended December 31, 2024 compared to the same period of 2023. The increase was mainly due to professional services associated with commercialization and business development efforts.

Previous wording

Stock compensation expense, a non-cash expense, was based upon the valuation of stock options and restricted stock units granted to employees. This expense decreased $1.2 million, or 11%, for the three months ended June 30, 2024 and $3.1 million, or 9%, for the nine months ended June 30, 2024 compared to the same period of 2023. The decrease was mainly due to the decreased compensation costs related to performance awards.

Current wording

Stock compensation expense, a non-cash expense, is based on the valuation of stock options and restricted stock units granted to employees. This expense decreased $3.0 million, or 28%, for the three months ended December 31, 2024 compared to the same period of 2023. The decrease was primarily due to lower compensation costs related to performance awards, as the timing of these expenses can vary based on the achievement of related performance targets.

Previous wording

Other income (expense) is primarily related to interest income and expense. Other income increased $2.8 million for the three months ended June 30, 2024 compared to the same period of 2023. The increase was primarily due to the higher yields on investments due to higher interest rates, offset by the non-cash interest expense on the liability related to the sale of future royalties. The balance remained consistent for the nine months ended June 30, 2024 compared to the same period of 2023.

Current wording

Other income (expense) is primarily related to interest income and expense. Other expense increased $11.6 million for the three months ended December 31, 2024 compared to the same period of 2023. The increase was primarily due to non-cash interest expense associated with the liability related to the sale of future royalties and the Credit Facility, partially offset by higher income from increased investment yields due to higher average cash balance.

Previous wording

The Company has historically financed its operations 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 as the Company’s pipeline continues to expand and matures into later stage clinical trials. Additionally, the Company expanded its facilities in Verona, Wisconsin and leased additional facilities in San Diego, California. Each of these expansions is designed to increase the Company’s internal manufacturing and discovery capabilities and requires significant capital investment.

Current wording

The Company has historically financed its operations through the sale of its equity securities, credit facility, 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 as the Company’s pipeline continues to expand and matures into later stage clinical trials, including commercialization efforts.

Previous wording

The Company’s cash, cash equivalents and restricted cash decreased to $69.4 million at June 30, 2024 compared to $110.9 million at September 30, 2023. Cash invested in available-for-sale securities was $367.3 million at June 30, 2024 compared to $292.7 million at September 30, 2023.

Current wording

The Company’s cash, cash equivalents and restricted cash was $53.9 million as of December 31, 2024 compared to $102.7 million as of September 30, 2024. Cash invested in available-for-sale securities was $499.0 million as of December 31, 2024 compared to $578.3 million as of September 30, 2024.

Previous wording

On December 2, 2022, the Company entered into the Open Market Sale Agreement, pursuant to which the Company may, from time to time, sell up to $250.0 million 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. As of June 30, 2024, no shares have been issued under the Open Market Sale Agreement.

Current wording

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 $250.0 million 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. As of December 31, 2024, no shares have been issued under the Open Market Sale Agreement.

Previous wording

The Company believes its current financial resources are sufficient to fund its operations through at least the next twelve months from the date of the issuance of these financial statements.

Current wording

The Company believes its current financial resources are sufficient to fund its operations through at least the next twelve months from the date of the issuance of these unaudited consolidated financial statements.

Previous wording

During the nine months ended June 30, 2024, cash flow used in operating activities was $325.6 million, which was primarily due to the ongoing expenses related to the Company’s research and development programs and general and administrative expenses. Cash used in investing activities amounted to $197.1 million, which was primarily attributable to capital expenditures of $117.2 million and investment purchases of $428.6 million, offset by proceeds from sales and maturities of investments of $348.6 million. Cash provided by financing activities of $481.4 million was related to cash received from the issuance of common stock, a milestone payment from Royalty Pharma, and stock option exercises (See Note 6 — Stockholders’ Equity of Notes to Consolidated Financial Statements of Part I, “Item 1. Financial Statements.”).

Current wording

During the three months ended December 31, 2024, cash flow used in operating activities was $146.3 million, which was primarily due to the ongoing expenses related to the Company’s research and development programs and general and administrative expenses. Cash provided by investing activities amounted to $76.9 million, which was primarily attributable to proceeds from maturities of investments of $118.2 million, offset by capital expenditures of $7.5 million and investment purchases of $33.7 million. Cash provided by financing activities of $20.6 million was primarily related to cash received from the pre-funded warrants and stock option exercises (See Note 6 — Stockholders’ Equity of Notes to Consolidated Financial Statements of Part I, “Item 1. Financial Statements.”).

Previous wording

During the nine months ended June 30, 2023, cash flows used in operating activities was $128.0 million, which was primarily due to the ongoing expenses related to the Company’s research and development programs and general and administrative expenses, partially offset by the receipt of $110.0 million from collaboration and license agreements. Cash used in investing activities was $126.7 million, which was primarily related to capital expenditures, $112.8 million of construction in progress and investment purchases of $234.0 million, offset by maturities of investments of $220.2 million. Cash provided by financing activities of $252.2 million was primarily related to the $250.0 million payment from Royalty Pharma as well as cash received from stock option exercises. See Note 11 – Liability Related to the Sale of Future

Current wording

During the three months ended December 31, 2023, cash flow used in operating activities was $117.8 million, which was primarily due to the ongoing expenses related to the Company’s research and development programs and general and administrative expenses. Cash provided by investing activities was $64.8 million, which was primarily related to sales and maturities of investments of $133.5 million, offset by capital expenditures of $68.7 million of construction in progress. Cash provided by financing activities of $0.3 million was primarily related to cash received from stock option exercises.