Indicate by a check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐

Indicate by a check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the ~~Registrant~~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.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒

The aggregate market value of issuer’s voting and non-voting outstanding Common Stock held by non-affiliates was approximately ~~$1.7~~$5.9 billion based upon the closing stock price of issuer’s Common Stock on March 31, ~~2019.~~2021. Shares of common stock held by each officer and director and by each person who is known to own 10% or more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates of the Company. This determination of affiliate status is not necessarily a conclusive determination for other purposes.

As of November ~~20, 2019, 95,708,027~~15, 2021, 104,525,708 shares of the issuer’s Common Stock were issued and outstanding.

Portions of the Definitive Proxy Statement to be filed for Arrowhead Pharmaceuticals Inc.’s ~~2020~~2022 Annual Meeting of Stockholders are incorporated by reference into Part III hereof.

This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and we intend that such forward-looking statements be subject to the safe harbors created thereby. For this purpose, any statements contained in this Annual Report on Form 10-K 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,” “intend,” ~~“could,~~“plan,” “project,”“could,” “estimate,” “target,” “forecast,” or “continue” or the negative 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 businesses, or other characterizations of future events or circumstances are forward-looking statements.

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. In addition, many of these risks and uncertainties may be amplified by global business and economic conditions, including the COVID-19 pandemic. As such, our actual results may differ significantly from those expressed in any forward-looking statements. 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 this 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. 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. 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.

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

Arrowhead develops medicines that treat intractable diseases by silencing the genes that cause them. Using a broad portfolio of RNA chemistries and efficient modes of delivery, Arrowhead therapies trigger the RNA interference mechanism to induce rapid, deep and durable knockdown of target genes. RNA interference ~~or RNAi,~~(“ RNAi”) is a mechanism present in living cells that inhibits the expression of a specific gene, thereby affecting the production of a specific protein. Deemed to be one of the most important recent discoveries in life science with the potential to transform medicine, the discoverers of RNAi were awarded a Nobel Prize in 2006 for their work. Arrowhead’s RNAi-based therapeutics leverage this natural pathway of gene silencing.

Arrowhead is focused on developing innovative drugs for diseases with a genetic basis, typically characterized by the overproduction of one or more proteins that are involved with disease. The depth and versatility of our RNAi technologies enables us to potentially address conditions in virtually any therapeutic area and pursue disease targets that are not otherwise addressable by small molecules and biologics. Arrowhead is ~~leading the field in~~focused on bringing the promise of RNAi to address diseases outside of the liver and our pipeline now includes disease targets in the liver, lung, muscle, and solid tumors.

ARO-APOC3 is designed to reduce production of Apolipoprotein C-III (apoC-III), a component of triglyceride rich lipoproteins (TRLs) including VLDL and chylomicrons and a key regulator of triglyceride metabolism. We believe that knocking down the hepatic production of apoC-III may result in reduced VLDL synthesis and assembly, enhanced breakdown of TRLs, and better clearance of VLDL and chylomicron remnants. Arrowhead is currently investigating ARO-APOC3 in two Phase 2b and one Phase 3 clinical trial.

Elevated triglyceride levels are an independent risk factor for cardiovascular disease. Severely elevated triglycerides (often over 2,000 mg/dL) in patients with familial chylomicronemia syndrome (FCS), a rare genetic disorder, can result in potentially fatal acute pancreatitis.

Study Name: Study of ARO-APOC3 in Healthy Volunteers, Hypertriglyceridemic Patients and Patients with Familial Chylomicronemia Syndrome (FCS)

A Phase 1 Single and Multiple Dose-Escalating Study to Evaluate the Safety, Tolerability, Pharmacokinetics and Pharmacodynamic Effects of ARO-APOC3 in Adult Healthy Volunteers as Well as in Severely Hypertriglyceridemic Patients and Patients With Familial Chylomicronemia Syndrome

Study Name: Study to Evaluate ARO-APOC3 in Adults With Severe Hypertriglyceridemia

A Double-Blind, Placebo-Controlled Phase 2b Study to Evaluate the Efficacy and Safety of ARO-APOC3 in Adults With Severe Hypertriglyceridemia

A Double-Blind, Placebo-Controlled Phase 2b Study to Evaluate the Efficacy and Safety of ARO-APOC3 in Adults With Mixed Dyslipidemia

Study Name: Study of ARO-APOC3 in Adults With Familial Chylomicronemia Syndrome (FCS)

A Phase 3 Study to Evaluate the Efficacy and Safety of ARO-APOC3 in Adults With Familial Chylomicronemia Syndrome

ARO-ANG3 is designed to reduce production of angiopoietin-like protein 3 (ANGPTL3), a liver synthesized inhibitor of lipoprotein lipase and endothelial lipase. ANGPTL3 inhibition has been shown to lower serum LDL, serum and liver triglyceride and has genetic validation as a novel target for cardiovascular disease. Arrowhead is currently investigating ARO-ANG3 in a Phase 2b clinical trial.

Dyslipidemia and hypertriglyceridemia are risk factors for atherosclerotic coronary heart disease and cardiovascular events.

Study Name: Study of ARO-ANG3 in Healthy Volunteers and in Dyslipidemic Patients

A Phase 1 Single and Multiple Dose Study to Evaluate the Safety, Tolerability, Pharmacokinetics and Pharmacodynamic Effects of ARO-ANG3 in Adult Healthy Volunteers and in Dyslipidemic Patients

A Double-blind, Placebo-controlled Phase 2b Study to Evaluate the Efficacy and Safety of ARO-ANG3 in Adults With Mixed Dyslipidemia

ARO-ENaC is designed to reduce production of the epithelial sodium channel alpha subunit (αENaC) in the airways of the lung. In cystic fibrosis patients, increased ENaC activity contributes to airway dehydration and reduced mucociliary transport. Arrowhead is currently investigating ARO-ENaC in a Phase 1/2a clinical trial, in which new enrollment was paused in July 2021 pending results from non-clinical chronic toxicology studies.

Cystic fibrosis (CF) is a rare disease caused by a genetic mutation that leads to mucus buildup in the lungs and pancreas. In CF lung disease, patients can have difficulty breathing and experience frequent and persistent lung infections.

Study Name: Study of ARO-ENaC in Healthy Volunteers and in Patients With Cystic Fibrosis

A Phase 1/2a Dose-Escalating Study to Evaluate the Safety, Tolerability and Pharmacokinetic Effects of ARO-ENaC in Normal Healthy Volunteers and Safety, Tolerability and Efficacy in Patients With Cystic Fibrosis

ARO-HSD is designed to reduce production of HSD17B13, a hydroxysteroid dehydrogenase involved in the metabolism of hormones, fatty acids and bile acids. Published human genetic data indicate that a loss of function mutation in HSD17B13 provides strong protection against nonalcoholic steatohepatitis (NASH) cirrhosis and alcoholic hepatitis and cirrhosis. Arrowhead is currently investigating ARO-HSD in a Phase 1/2a clinical trial.

Nonalcoholic steatohepatitis (NASH) is liver inflammation and damage caused by a buildup of fat in the liver. This can cause scarring of the liver and in advanced cases can lead to cirrhosis.

Study Name: Study of ARO-HSD in Healthy Volunteers and Patients With Non-Alcoholic Steatohepatitis (NASH) or Suspected NASH

A Phase 1/2a Single and Multiple Dose-Escalating Study to Evaluate the Safety, Tolerability, Pharmacokinetics and Pharmacodynamic Effects of ARO-HSD in Normal Healthy Volunteers as Well as in Patients With NASH or Suspected NASH

ARO-C3 is designed to reduce production of complement component 3 (C3) as a potential therapy for patients with various complement mediated or complement associated renal and hematological diseases. Arrowhead has filed a CTA to begin investigation of ARO-C3 in a Phase 1/2a clinical trial.

Study Name: Study of ARO-C3 in Adult Healthy Volunteers and Patients With Paroxysmal Nocturnal Hemoglobinuria and Complement-Mediated Renal Disease

A Phase 1/2a Dose-Escalating Study to Evaluate the Safety, Tolerability, Pharmacokinetics, and/or Pharmacodynamics of ARO-C3 in Adult Healthy Volunteers and in Adult Patients With Paroxysmal Nocturnal Hemoglobinuria and Adult Patients With Complement-Mediated Renal Disease

ARO-HIF2 is being developed for the treatment of clear cell renal cell carcinoma (ccRCC). ARO-HIF2 is designed to inhibit the production of HIF-2α, which has been linked to tumor progression and metastasis in ccRCC. Arrowhead believes it is an important target for intervention because over 90% of ccRCC tumors express a mutant form of the Von Hippel-Landau protein that is unable to degrade HIF-2α, leading to its accumulation during tumor hypoxia and promoting tumor growth. Arrowhead is currently investigating ARO-HIF2 in a Phase 1b clinical trial.

Renal Cell Carcinoma (“RCC”) is a type of kidney cancer that originates in the cells that line the small tubes that filter waste material from the blood. RCC is the most common type of kidney cancer accounting for more than 90% of cases with approximately 50,000 diagnoses in the United States each year. Unfortunately, patients with advanced stages of RCC have a 5-year survival rate of only 12-25%. Surgical resection is the mainstay of current treatment while chemotherapy and radiation have not been successful at prolonging survival. The treatment options for patients with metastatic disease are extremely limited.

Study Name: Study of ARO-HIF2 in Patients With Advanced Clear Cell Renal Cell Carcinoma

A Phase 1b Adaptive Dose-Finding Study of ARO-HIF2 in Patients With Advanced Clear Cell Renal Cell Carcinoma

ARO-DUX4 is designed to target the gene that encodes human double homeobox 4 (DUX4) protein as a potential treatment for patients with facioscapulohumeral muscular dystrophy. Arrowhead intends to file a CTA to begin a Phase 1 clinical trial in 2022.

Facioscapulohumeral muscular dystrophy (FSHD) is an autosomal dominant disease associated with the failure to maintain complete epigenetic suppression of DUX4 expression in differentiated skeletal muscle, leading to overexpression of DUX4, which is myotoxic and can lead to muscle degeneration. As DUX4 expression is recognized as the cause of muscle pathology in FSHD patients, Arrowhead believes that the selective targeting and knockdown of DUX4 using RNAi may prevent or reverse downstream myotoxicity and lead to muscle repair and improvement in muscle function in patients. There are currently no effective treatments specifically for FSHD.

Arrowhead entered into a collaboration and license agreement in October 2020 with Takeda Pharmaceutical Company Limited (“Takeda”) to develop and commercialize ARO-AAT. Under the terms of the agreement, Takeda and Arrowhead will co-develop ARO-AAT which, if approved, will be co-commercialized in the United States under a 50/50 profit-sharing structure. Outside the

U.S., Takeda will lead the global commercialization strategy and receive an exclusive license to commercialize ARO-AAT with Arrowhead eligible to receive tiered royalties of 20-25% on net sales. Arrowhead received an upfront payment of $300 million and is eligible to receive potential development, regulatory and commercial milestones up to $740 million.

ARO-AAT is the ~~company’s second generation~~Company’s subcutaneously administered RNAi therapeutic being developed as a treatment for liver disease associated with alpha-1 antitrypsin deficiency (AATD), which is a rare genetic disorder that severely damages the liver and lungs of affected individuals. ARO-AAT is designed to reduce production of the mutant Z-AAT protein by silencing the AAT gene in order to prevent accumulation of Z-AAT in the liver, allow clearance of the accumulated Z-AAT protein, prevent repeated cycles of cellular damage, and possibly prevent or even reverse the progression of liver fibrosis.

Initial results from AROAAT1001, a randomized, double-blind, placebo controlled single-ascending dose and multiple-ascending dose Phase 1 study to evaluate the safety, tolerability, pharmacokinetics, and effect of subcutaneous doses of ARO-AAT on serum alpha-1 antitrypsin levels in healthy adult volunteers, were presented in November 2018 at The Liver Meeting®. In the AROAAT1001 study, 45 normal healthy volunteers received a single dose of ARO-AAT (n=16), three monthly doses of ARO-AAT (n=12), or placebo (n=17). Key data presented include the following:

•~~Monthly serum AAT follow up is ongoing with 9 of 10 subjects at BLQ in the multiple-dose cohorts, including 100% of subjects from the 300 mg cohort~~

•~~Duration of response indicates that quarterly or less frequent dosing appears feasible~~

•~~ARO-AAT has been well-tolerated at all doses tested (up to 300 mg) given three times every 28 days~~

The goal of ARO-AAT treatment is prevention and potential reversal of Z-AAT accumulation-related liver injury and fibrosis. Reduction of inflammatory Z-AAT protein, which has been clearly defined as the cause of progressive liver disease in AATD patients, is important as it is expected to halt the progression of liver disease and allow fibrotic tissue repair.

AATD is a genetic disorder associated with liver disease in children and adults, and pulmonary disease in adults. AAT is a circulating glycoprotein protease inhibitor that is primarily synthesized and secreted by liver hepatocytes. Its physiologic function is the inhibition of neutrophil proteases to protect healthy lung tissues during inflammation and prevent tissue damage. The most common disease variant, the Z mutant, has a single amino acid substitution that results in improper folding of the protein. The mutant protein cannot be effectively secreted and accumulates in globules in the hepatocytes. This triggers continuous hepatocyte injury, leading to fibrosis, cirrhosis, and increased risk of hepatocellular carcinoma.

Individuals with the homozygous PiZZ genotype have severe deficiency of functional AAT leading to pulmonary disease and hepatocyte injury and liver disease. Lung disease in this patient population is frequently treated with AAT augmentation therapy. However, augmentation therapy does nothing to treat liver disease, and there is no specific therapy for hepatic manifestations. There is a significant unmet need as liver transplant, with its attendant morbidity and mortality, is currently the only available cure.

A Phase 1 Single and Multiple Dose-Escalating Study to Evaluate the Safety, Tolerability, Pharmacokinetics and Effect of ARO-AAT on Serum Alpha-1 Antitrypsin Levels in Normal Adult Volunteers

Study Name: Assessment of Changes in a Novel Histological Activity Scale in Response to ARO-AAT

A Pilot Open Label, Multi-dose, Phase 2 Study to Assess Changes in a Novel Histological Activity Scale in Response to ARO-AAT in Patients ~~With~~with Alpha-1 Antitrypsin Deficiency Associated Liver Disease (AATD)

Study Name: Safety, Tolerability and Effect on Liver Histologic Parameters of ARO-AAT (SEQUOIA)

A Placebo-Controlled, Multi-dose, Phase 2/3 Study to Determine the Safety, Tolerability and Effect on Liver Histologic Parameters in Response to ARO-AAT in Patients ~~With~~with Alpha-1 Antitrypsin Deficiency (AATD)

Initial topline results from the Phase1 study (AROAPOC31001) were presented at The 2019 Global Summit on Cardiology and Heart Diseases. The data demonstrated that ARO-APOC3 reduced plasma apoC-III and reduced triglycerides without drug-related serious or severe adverse events. A single dose of 100 mg of ARO-APOC3 in healthy volunteers achieved mean maximal reductions of plasma triglycerides of 63% and apoC-III protein of 94%. In November 2019, we presented additional data at the American Heart Association meeting. The data demonstrated in 40 subjects (24 active, 16 placebo) dose dependent reduction in serum APOC3, including a mean maximum reduction from baseline in serum APOC3 levels which ranged from 72% (10 mg dose) to 94% (100 mg dose). A reduction in serum APOC3 levels was maintained through the end of the study with week 16 mean reductions of 70% (25 mg dose) to 91% (100 mg dose). Mean maximum reduction from baseline in serum triglycerides ranged from 53% (77 mg/dL) (10 mg dose) to 64% (92 mg/dL) (100 mg dose). Mean maximum reduction from baseline in serum VLDL-C ranged from 53% (16 mg/dL) (10 mg dose) to 68% (19 mg/dL) (50 mg dose). Reduction in serum triglycerides and VLDL-C was maintained through the end of study, with week 16 mean reductions of 41%-55% for triglycerides and 42-53% for VLDL-C . Mean maximum reduction from baseline in serum LDL-C ranged from 12% (19 mg/dL) (25 mg dose) to 25% (35 mg/dL) (10 mg dose). A dose dependent increase in serum HDL-C was seen with a mean maximum increase from baseline in serum HDL-C ranging from 30% (13 mg/dL) 10 mg dose to 69% (32 mg/dL) 100 mg dose. Serum HDL-C increases were maintained through the end of study, with week 16 mean increases of 28% (12 mg/dL) (10 mg dose) to 52% (22 mg/dL) (100 mg dose). No serious or severe adverse events were reported. There was one adverse event of moderate transit ALT elevation (peak of 210 U/L on Day 22) in a subject receiving ARO-APOC3 who had elevated ALT at baseline (65 U/L). The ALT in that subject returned to baseline by Day 85 (61 U/L). There were eight local injection site reactions reported, more commonly at higher doses, all of which were rated mild.

~~Study Name: Study of ARO-APOC3 in Healthy Volunteers, Hypertriglyceridemic Patients and Patients With Familial Chylomicronemia Syndrome (FCS)~~

Initial topline results from the Phase1 study (AROANG1001) were presented at the 2019 Global Summit on Cardiology and Heart Diseases. The data demonstrated that ARO-ANG3 reduced plasma ANGPTL3 and reduced triglycerides without drug-related serious or severe adverse events. A single dose of 200 mg of ARO-ANG3 in healthy volunteers demonstrated mean maximal reductions of plasma triglycerides of 66% and ANGPTL3 protein of 79%. In November 2019, we presented additional data at the American Heart Association meeting. The data demonstrated dose dependent reduction in serum ANGPTL3. The mean reduction from baseline in ANGPTL3 ranged from 55% (50 ng/mL) (35 mg) to 83% (63 ng/mL) 300 mg, and reduction in ANGPTL3 were maintained through the end of the study, with week 16 mean reductions of 43% (42 ng/mL) (35 mg) to 75% (57 ng/mL) (300 mg). Dose dependent reduction in triglycerides and VLDL-C were also observed. Mean maximum triglyceride reduction from baseline ranged from 31% (38 mg/dL) (35 mg) to 66% (167 mg/dL) (200 mg. Mean maximum VLDL-C reduction from baseline ranged from 30% (8 mg/dL) (35 mg) to 65% (33 mg/dL) (200 mg). The reduction in triglyceride and VLDL-C maintained through end of study in 200 mg and 300 mg cohorts, with week 16 mean reductions of 47% to 53% for triglycerides, and 49% to 51% for VLDL-C. Mean maximum HDL-C were reduction ranged from 8% (4 mg/dL) (35 mg) to 26% (12 mg/dL) (300 mg) and there were HDL-C mean reductions at week 16 of up to 16% ((7mg/dL) (200 mg). The mean maximum LDL-C reduction ranged from 9% (16 mg/dL) (200 mg) to 30% (48 mg/dL) (300 mg) and LDL-C mean reductions at week 16 were up to 28% (46 mg/dL) (100 mg) after a single dose. The mean maximum reduction in LDL-C with a single dose of 200 mg was blunted by two subjects in the cohort with increasing LDL-C post-dose. Multiple dose healthy volunteer data at a 200 mg dose demonstrated similar reductions to 100 mg and 300 mg doses of 33%-46% reduction in LDL-C from baseline two weeks after a second dose. There were no drug related severe or serious adverse events. Two adverse events of mild transient elevations in ALT occurred, one on active drug and one on placebo. ALT elevation in one subject on ARO-ANG3 was confounded by concomitant ingestion of an herbal supplement with known liver toxicity. In that subject, the peak ALT was 192 U/L at day 99, and within normal limits by study day 113. One patient had a mild local injection site reaction.

~~Dyslipidemia and hypertriglyceridemia are risk factors for atherosclerotic coronary heart disease and cardiovascular events.~~

~~Study Name: Study of ARO-ANG3 in Healthy Volunteers and in Dyslipidemic Patients~~

~~A Phase 1 Single and Multiple Dose Study to Evaluate the Safety, Tolerability, Pharmacokinetics and Pharmacodynamic Effects of ARO-ANG3 in Adult Healthy Volunteers and in Dyslipidemic Patients~~

ARO-HSD is designed to reduce production of HSD17B13, a hydroxysteroid dehydrogenase involved in the metabolism of hormones, fatty acids and bile acids. Published human genetic data indicate that a loss of function mutation in HSD17B13 provides strong protection against nonalcoholic steatohepatitis (NASH) cirrhosis and alcoholic hepatitis and cirrhosis. Improvements in NASH and fibrosis were seen with HSD17B13 knockdown in the CDAA diet mouse model, a commonly used NASH model. Arrowhead expects to file a clinical trial application (CTA) before calendar year end 2019.

ARO-ENaC is designed to reduce production of the epithelial sodium channel alpha subunit (αENaC) in the airways of the lung. In cystic fibrosis patients, increased ENaC activity contributes to airway dehydration and reduced mucociliary transport. Arrowhead expects to file a CTA in the first half of calendar year 2020.

ARO-HIF2 is being developed for the treatment of clear cell renal cell carcinoma (ccRCC). ARO-HIF2 is designed to inhibit the production of HIF-2α, which has been linked to tumor progression and metastasis in ccRCC. Arrowhead believes it is an attractive target for intervention because over 90% of ccRCC tumors express a mutant form of the Von Hippel-Landau protein that is unable to degrade HIF-2α, leading to its accumulation during tumor hypoxia and promoting tumor growth. Arrowhead expects to file a CTA before calendar year end 2019.

Renal Cell Carcinoma is a type of kidney cancer that originates in the cells that line the small tubes that filter waste material from the blood. RCC is the most common type of kidney cancer accounting for more than 90% of cases with approximately 50,000 diagnoses in the U.S. each year. Unfortunately, patients with advanced stages of RCC have a 5-year survival rate of only 12-25%. Surgical resection is the mainstay of current treatment while chemotherapy and radiation have not been successful at prolonging survival. The treatment options for patients with metastatic disease are extremely limited.

Arrowhead entered into a license agreement in October 2018 with Janssen Pharmaceuticals, Inc. (“Janssen”), part of the Janssen Pharmaceutical Companies of Johnson & Johnson, to develop and commercialize ~~ARO-HBV.~~JNJ-3989 (formerly referred to as ARO-HBV). In addition, Arrowhead entered into a research collaboration and option agreement with Janssen to potentially collaborate for up to three additional RNAi therapeutics against new targets to be selected by Janssen.

Under the terms of the license agreement, Arrowhead received $175 million as an upfront payment. Separately, Johnson & Johnson Innovation – JJDC, Inc. (JJDC) made a ~~$75~~$75.0 million equity investment in Arrowhead ~~at a price of $23.00 per share of Arrowhead common stock.~~Common Stock.

Arrowhead is eligible to receive up to approximately $1.6 billion in milestone payments ~~for~~under the license agreement. Arrowhead is also eligible to receive approximately $1.9 billion in option and milestone payments for the collaboration and option agreement related to up to three additional targets. Arrowhead is further eligible to receive tiered royalties up to ~~mid teens~~mid-teens under the license agreement and up to low teens under the collaboration and option agreement on product sales. ~~During~~Since signing the ~~year ended September 30, 2019,~~license agreement, Arrowhead has received ~~two $25~~$70.0 million in developmental milestone payments from Janssen.

JNJ-3989 ~~(formerly~~(also referred to as JNJ-73763989 and formerly referred to as ARO-HBV)

JNJ-3989 ~~formerly ARO-HBV,~~ is being developed in collaboration with Janssen ~~to be~~as a ~~potentially curative~~potential therapy for patients with chronic hepatitis B infection, when used in combination with other therapeutic modalities. JNJ-3989 is a ~~sub-cutaneous,~~subcutaneous, RNAi therapy candidate which is designed to silence all HBV gene products and intervenes upstream of the reverse transcription process where current standard-of-care nucleotide and nucleoside analogues act. The company believes this, especially the elimination of hepatitis B surface antigen (HBsAg), may allow the body’s natural immune defenses to clear the virus and potentially lead to a functional cure. JNJ-3989 ~~(ARO-HBV)~~ is currently being investigated in multiple Phase 2 clinical trials being conducted by Janssen. The Phase 1/2a study and its preceding studies were conducted by Arrowhead.

Study Name: Study of ARO-HBV in Normal Adult Volunteers and Patients With Hepatitis B Virus (HBV)

A Phase 1/2a Single Dose-Escalating Study to Evaluate the Safety, Tolerability and Pharmacokinetic Effects of ARO-HBV in Normal Adult Volunteers and Multiple Escalating Doses Evaluating Safety, Tolerability and Pharmacodynamic Effects in HBV Patients

A Phase 2b Double-blind, Placebo-controlled, Randomized, Parallel, Single Dose Study to Investigate Pharmacokinetics, Safety, and Tolerability of JNJ-73763989 in Healthy Japanese Adult Participants

Study Name: A Study of Different Combination Regimens Including JNJ-73763989 and/or JNJ-56136379 for the Treatment of Chronic Hepatitis B Virus Infection (REEF-1)

A Phase 2b, Multicenter, Double-blind, Active-controlled, Randomized Study to Investigate the Efficacy and Safety of Different Combination Regimens Including JNJ-73763989 and/or JNJ-56136379 for the Treatment of Chronic Hepatitis B Virus Infection

Study Name: A Study of JNJ 73763989+JNJ 56136379+Nucleos(t)Ide Analog (NA) Regimen Compared to NA Alone in e Antigen Negative Virologically Suppressed Participants With Chronic Hepatitis B Virus Infection

A Randomized, Double Blind, Placebo-controlled Phase 2b Study to Evaluate Efficacy, Pharmacokinetics, and Safety of 48-week Study Intervention With JNJ 73763989+JNJ 56136379+Nucleos(t)Ide Analog (NA) Regimen Compared to NA Alone in e Antigen Negative Virologically Suppressed Participants With Chronic Hepatitis B Virus Infection

~~ARO-JNJ1~~Study Name: A Study of JNJ-73763989 in Healthy Chinese Adult Participants

~~ARO-JNJ1~~A Randomized, Open-Label, Parallel, Single Dose Study to Investigate Pharmacokinetics, Safety, and Tolerability of JNJ-73763989 in Healthy Chinese Adult Participants

Study Name: A Study to Evaluate the Effect of Hepatic Impairment on JNJ-73763989

A Phase 1, Single-Dose, Open-Label, Parallel-Group Study to Evaluate the Effect of Hepatic Impairment on the Pharmacokinetics of JNJ-73763989

Study Name: A Study of JNJ-73763989 + Nucleos(t)Ide Analog in Participants Co-Infected With Hepatitis B and Hepatitis D Virus (REEF-D)

A Phase 2, Multicenter, Randomized, Double-blind, Placebo-Controlled Study With Deferred Active Treatment to Investigate the Efficacy, Safety, and Pharmacokinetics of JNJ-73763989 + Nucleos(t)Ide Analog in Participants Co-Infected With Hepatitis B and Hepatitis D Virus

Study Name: A Study of JNJ-73763989 + JNJ-56136379 + Nucleos(t)Ide Analog (NA) Regimen With or Without Pegylated Interferon Alpha-2a (PegIFN-α2a) in Treatment-Naive Participants With Hepatitis B e Antigen (HBeAg) Positive Chronic Hepatitis B Virus (HBV) Infection and Normal Alanine Aminotransferase (ALT)

A Phase 2, Randomized, Open-label, Multicenter Study to Evaluate Efficacy, Pharmacokinetics, Safety, and Tolerability of Response-guided Treatment With JNJ-73763989 + JNJ-56136379 + Nucleos(t)Ide Analog Regimen With or Without Pegylated Interferon Alpha-2a in Treatment-naive Patients With HBeAg Positive Chronic Hepatitis B Virus Infection and Normal ALT

Study Name: A Study to Assess Intrahepatic and Peripheral Changes of Immunologic and Virologic Markers in Chronic Hepatitis B Virus Infection (INSIGHT)

A Phase 2 Randomized, Open-label, Parallel-group, Multicenter Study to Assess Intrahepatic and Peripheral Changes of Immunologic and Virologic Markers in Response to Combination Regimens Containing JNJ-73763989 and Nucleos(t)Ide Analog With or Without JNJ-56136379 in Patients With Chronic Hepatitis B Virus Infection

An Open-label, Single-dose, Parallel-group Study to Evaluate the Effect of Renal Impairment on the Pharmacokinetics of JNJ-73763989 in Adult Participants

Study Name: A Study of JNJ-73763989, Pegylated Interferon Alpha-2a and Nucleos(t)Ide Analogs in Participants With Chronic Hepatitis B Virus Infection (PENGUIN-2)

A Phase 2, Open-label, Multicenter Study to Assess Efficacy, Safety, Tolerability, and Pharmacokinetics of Treatment With JNJ-73763989, Nucleos(t)Ide Analogs, and Pegylated Interferon Alpha-2a in Patients With Chronic Hepatitis B Virus Infection

Study Name: A Study of JNJ-73763989, JNJ-56136379, Nucleos(t)Ide Analogs, and Pegylated Interferon Alpha-2a in Virologically Suppressed Participants With Chronic Hepatitis B Virus Infection (PENGUIN)

A Phase 2, Open-label, Single-arm, Multicenter Study to Assess Efficacy, Safety, Tolerability, and Pharmacokinetics of Treatment With JNJ-73763989, JNJ-56136379, Nucleos(t)Ide Analogs, and Pegylated Interferon Alpha-2a in Virologically Suppressed Patients With Chronic Hepatitis B Virus Infection

JNJ-75220795 (ARO-JNJ1) is an investigational therapeutic being developed by Janssen. It utilizes Arrowhead’s proprietary TRIM^TM platform and is designed to reduce expression in the liver of patatin like phospholipase domain containing 3 (PNPLA3) as a potential treatment for patients with non-alcoholic steatohepatitis (NASH). ARO-JNJ2 and ARO-JNJ3 are being developed against an undisclosed liver-expressed ~~target~~targets as part of Arrowhead’s ~~Research Collaboration~~research collaboration and ~~Option Agreement~~option agreement with Janssen.

Amgen Inc. (“Amgen”) acquired a worldwide, exclusive license in September 2016 to develop and commercialize ~~ARO-LPA (now~~Olpasiran (previously referred to as AMG ~~890)~~890 or ARO-LPA). Under the terms of the agreements taken together for ~~AMG 890 (ARO-LPA)~~Olpasiran and ARO-AMG1, the Company received ~~$35~~$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, and the Company was eligible to receive up to ~~$617~~$617.0 million in option payments and development, regulatory and sales milestone payments. The Company remains eligible to receive up to ~~$420~~an additional $400.0 million in remaining development, regulatory and sales milestone payments under the ~~AMG-890~~Olpasiran (ARO-LPA) agreement. Since signing the agreements, Arrowhead has received $30.0 million in developmental milestone payments from Amgen. The Company is further eligible to receive up to low double-digit royalties for sales of products under the ~~AMG-890 (ARO-LPA)~~Olpasiran (AMG 890, ARO-LPA) agreement.

~~AMG 890 (ARO-LPA)~~Olpasiran is designed to reduce production of apolipoprotein A, a key component of lipoprotein(a), which has been genetically linked with increased risk of cardiovascular diseases, independent of cholesterol and LDL levels. Amgen started a Phase 12 clinical study in July 2020 evaluating the efficacy, safety, and tolerability of ~~AMG 890 (ARO-LPA) designed to assess its safety~~Olpasiran in ~~volunteers and patients~~subjects with elevated levels of lipoprotein(a) ~~in August 2018. The initiation of this~~, triggering a $20 million milestone payment to Arrowhead. Amgen also reported Phase 1 clinical ~~study triggered~~results at the American Heart Association Scientific Sessions conference in November 2020.

Horizon Therapeutics Ireland DAC. (“Horizon”) and Arrowhead announced a ~~$10~~global collaboration and license agreement for ARO-XDH in June 2021.Under the terms of the agreement, Arrowhead will conduct all activities through preclinical stages of development of the siRNA therapeutic. Horizon will receive a worldwide exclusive license to the therapeutic and will be wholly responsible for clinical development and commercialization. Arrowhead received a $40 million ~~milestone~~upfront payment from ~~Amgen~~Horizon and is eligible to ~~Arrowhead~~receive up to $660 million in ~~2018. Amgen expects~~potential development, regulatory and commercial milestones, and is further eligible to ~~initiate a Phase 2 clinical study~~receive royalties in the ~~first half~~low- to mid-teens range on net product sales.

~~In August 2018, Arrowhead delivered to Amgen~~xanthine dehydrogenase (XDH) as a ~~candidate~~potential treatment for people with uncontrolled gout. Gout is a serious and painful form of arthritis that ~~met or exceeded the activity and safety requirements stipulated~~is caused by excess uric acid in the ~~ARO-AMG1 collaboration agreement. The option period expired on August 7, 2019,~~blood. In the United States, there are more than nine million gout patients and ~~Amgen advised Arrowhead~~approximately a third of those patients are treated with oral urate-lowering therapies. However, a meaningful portion of treated patients do not respond sufficiently to treatment and therefore continue to experience painful and debilitating gout symptoms. XDH represents a clinically validated target that ~~it did not intend~~is the primary source of serum uric acid (sUA). High levels of sUA, if left untreated or undertreated, can potentially lead to ~~exercise its option.~~serious long-term or even permanent damage to the bones, joints and organs.

RNAi is a mechanism present in living cells that inhibits the expression of a specific gene, thereby affecting the production of a specific protein. Deemed to be one of the most important recent discoveries in life science with the potential to transform medicine, the discoverers of RNAi were awarded a Nobel Prize in 2006 for their work. RNAi-based therapeutics may leverage this natural pathway of gene silencing to target and shut down specific disease-causing genes.

Small molecule and antibody drugs have proven effective at inhibiting certain cell surface, intracellular, and extracellular targets. However, other drug targets have proven difficult to inhibit with traditional drug-based and biologic therapeutics. Developing effective drugs for these targets would have the potential to address large underserved markets for the treatment of many diseases. Using the ability to specifically silence any gene, RNAi therapeutics may be able to address previously “undruggable” targets, unlocking the market potential of such targets.

This figure depicts the mechanism by which gene silencing occurs. Double stranded RNAi triggers are introduced into a cell and ~~get~~are loaded into the RNA-induced silencing complex, ~~(RISC)~~(“RISC”). The strands are then separated, leaving an active RISC/RNAi trigger complex. This complex can then pair with and degrade the complementary messenger RNAs ~~(mRNA)~~(“mRNA”) and stop the production of

the target proteins. RNAi is a catalytic process, so each RNAi trigger can degrade mRNA hundreds of times, which results in a relatively long duration of effect for RNAi therapeutics.

Arrowhead’s Targeted RNAi Molecule (TRiM^TM) platform utilizes ligand-mediated delivery and is designed to enable tissue-specific targeting while being structurally simple. Targeting has been core to Arrowhead’s development philosophy and the TRiM^TM platform builds on more than a decade of work on actively targeted drug delivery vehicles. Arrowhead scientists have discovered ways to progressively “TRiM” away extraneous features and chemistries and retain optimal pharmacologic activity.

The TRiM^TM platform ~~comprises~~is comprised of a highly potent RNA trigger identified using Arrowhead’s proprietary trigger selection rules and algorithms with the following components optimized, as needed, for each drug candidate: a high affinity targeting ligand; various linker and chemistries; structures that enhance pharmacokinetics; and highly potent RNAi triggers with sequence specific stabilization chemistries.

Therapeutics developed with the TRiM^TM platform offer several advantages: simplified manufacturing and reduced costs; multiple routes of administration; and potential for improved safety because there are less metabolites from smaller molecules, thereby reducing the risk of intracellular buildup. At Arrowhead, we also believe that for RNAi to reach its true potential, it must target organs outside the liver. Arrowhead is leading this expansion with the ~~TRiM~~^TMTRiMTM platform, which has shown the potential to reach multiple tissues, including liver, lung, tumor, muscle and others.

The structure and chemistries of the oligonucleotide molecules used to trigger the RNAi mechanism can be tailored for optimal activity. Arrowhead’s broad portfolio of RNA trigger structures and chemistries, including some proprietary structures, enable the ~~company~~Company to optimize each drug candidate on a target-by-target basis and utilize the combination of structure and chemical modifications that yield the most potent RNAi trigger.

As a component of the TRiM^TM platform, Arrowhead’s design philosophy for RNA chemical modifications is to start with a structurally simple molecule and add only selective modification and stabilization chemistries as necessary to achieve the desired level of target knockdown and duration of effect. The conceptual framework for the stabilization strategy starts with a more sophisticated RNAi trigger screening and selection process that identifies potent sequences rapidly in locations that others may miss.

Arrowhead’s research and development operations are primarily located in Madison, Wisconsin, and San Diego, California. Substantially all of the Company’s assets are located either in these facilities or in our corporate headquarters in Pasadena, California. A summary of our research and development resources is provided below:

The Company controls approximately ~~383~~406 issued patents (including ~~239~~263 directed to RNAi trigger molecules; 3039 directed to targeting groups or targeting compounds; and 75 for hydrodynamic gene delivery), including European validations, and approximately ~~397~~640 currently pending patent applications worldwide from 4957 different patent families. The Company’s patent applications have been filed throughout the world, including, in the United States, Argentina, ARIPO (Africa Regional Intellectual Property Organization), Australia, Brazil, Canada, Chile, China, Eurasian Patent Organization, Europe, GCC (Gulf Cooperation Council), Hong Kong, Israel, India, Indonesia, Iraq, Jordan, Japan, Republic of Korea, Lebanon, Mexico, New Zealand, OAPI (African Intellectual Property Organization), Peru, Philippines, Russian Federation, Saudi Arabia, Singapore, Thailand, Taiwan, Uruguay, Venezuela, Vietnam, and South Africa.

The Company owns issued patents or has filed patent applications directed to RNAi trigger molecules, which serve as the foundation of Arrowhead’s TRiM^TM platform, and are targeted to reduce expression of various gene targets, including the following:

*Assuming issuance of any pending patent ~~applications.~~applications, and excluding any patent term adjustments or patent term extensions.

The delivery technology-related patents and patent applications, which include components used in Arrowhead’s TRiM^TM platform, have been filed and/or issued in various jurisdictions worldwide including the United States, Argentina, Australia, Brazil, Canada, China, Eurasian Patent Organization, Europe (including validations in France, Germany, Italy, Spain, Switzerland, United Kingdom), GCC (Gulf Cooperation Council), Israel, India, Japan, Lebanon, Mexico, New Zealand, Philippines, Russia, South Korea, Singapore, Taiwan, Uruguay, and South Africa. The Company also controls a number of patents directed to hydrodynamic nucleic acid delivery, which issued in the United States, Australia and Europe (validated in Austria, Belgium, Switzerland, Germany, Denmark, Spain, Finland, France, the United Kingdom, Hungary, Ireland, Italy, Netherlands and Sweden). The approximate year of expiration for each of these various groups of patents are set forth below:

*Assuming issuance of any pending patent ~~applications.~~applications, and excluding any patent term adjustments or patent term extensions.

The RNAi and drug delivery patent landscapes are complex and rapidly evolving. As such, we may need to obtain additional patent licenses prior to commercialization of our candidates. You should review the factors identified in “Risk Factors” in Part I, Item 1A of this Annual Report on Form 10-K.

On October 21, 2011, Arrowhead acquired the RNAi therapeutics business of Hoffmann-La Roche, Inc. and F. Hoffmann-La Roche Ltd. (collectively, “Roche”). The acquisition provided us with two primary sources of value:

Pursuant to this acquisition, Roche assigned to Arrowhead its entire rights under certain licenses including: the License and Collaboration Agreement between Roche and Alnylam Pharmaceuticals, Inc. (“Alnylam”) dated July 8, 2007 (the “Alnylam License”); the Non-Exclusive Patent License Agreement between Roche and MDRNA, Inc. dated February 12, 2009 (“MDRNA License”); and the Non-Exclusive License Agreement between Roche and City of Hope dated September 19, 2011 (the “COH License”) ~~(Collectively~~(collectively the “RNAi Licenses”). The RNAi Licenses have provided the Company with non-exclusive, worldwide, perpetual, irrevocable, royalty-bearing rights and the right to sublicense a broad portfolio of intellectual property relating to the discovery, development, manufacture, characterization, and use of therapeutic products that function through the mechanism of RNA interference for specified targets.

The RNAi Licenses include licenses to patents related to modifications of double-stranded oligonucleotides, including modifications to the base, sugar, or internucleoside linkage, nucleotide mimetics, and end modifications, which do not abolish the RNAi activity of the double-stranded oligonucleotides. Also included are patents relating to modified double-stranded oligonucleotides, such as meroduplexes described in U.S. Patent No. 9,074,205 assigned to Marina Biotech (f/k/a MDRNA, Inc.), as well as U.S. Patent Nos. 8,314,227, 9,051,570, and 9,303,260 related to unlocked nucleotide analogs ~~(UNA)~~(“UNA”). The UNA patents were assigned by Marina Biotech to Arcturus Therapeutics, Inc., but remain part of the MDRNA License. The RNAi Licenses further include patents related to dicer substrates and uses of the double-stranded oligonucleotides that function through the mechanism of RNA interference, such as described in City of ~~Hope‘s~~Hope’s U.S. Patent Nos. 8,084,599, 8,658,356, 8,691,786, 8,796,444, 8,809,515, and 9,518,262.

In consideration for licenses obtained from Alnylam to certain RNAi intellectual property, in January 2012, we granted Alnylam a worldwide non-exclusive, sublicensable royalty-bearing license under our broad and target-specific DPC intellectual property rights

to research, develop and commercialize RNAi-based products against a single undisclosed target in combination with DPC technology. Under the license to Alnylam, Alnylam may be obligated to pay us development and sales milestone payments of up to the low double-digit millions of dollars for each licensed product that progresses through clinical trials, receives marketing approval and is the subject of a first commercial sale. Additionally, Alnylam may be obligated to pay us low single-digit percentage royalties on sales of such products.

On March 3, 2015, the Company entered into an Asset Purchase and Exclusive License Agreement (the “RNAi Purchase Agreement”) with Novartis pursuant to which the Company acquired Novartis’ RNAi assets and rights thereunder. Pursuant to the RNAi Purchase Agreement, the Company acquired or was granted a license to certain patents and patent applications owned or controlled by Novartis related to RNAi therapeutics, was assigned Novartis’s rights under a license from Alnylam (the “Alnylam-Novartis License”) and acquired a license to certain additional Novartis assets (the “Licensed Novartis Assets”). The patents acquired from Novartis include multiple patent families covering delivery technologies and RNAi-trigger design rules and modifications. The Licensed Novartis Assets include an exclusive, worldwide right and license, solely in the RNAi field, with the right to grant sublicenses through multiple tiers under or with respect to certain patent rights and know how relating to delivery technologies and RNAi-trigger design rules and modifications. Under the assigned Alnylam-Novartis License, the Company acquired a worldwide, royalty-bearing, exclusive license with limited sublicensing rights to existing and future Alnylam intellectual property (including intellectual property that came under Alnylam’s control on or before March 31, 2016), excluding intellectual property concerning delivery technology, to research, develop and commercialize 30 undisclosed gene targets.

We see the Roche and Novartis acquisitions as a powerful combination of intellectual property, R&D infrastructure, and RNAi experts. This foundation and substantial progress made by Arrowhead scientists over the last several years enable us to develop what we think are optimal RNAi therapeutics.

On September 28, 2016, the Company entered into two Collaboration and License agreements and a Common Stock Purchase Agreement with Amgen. Under the First Collaboration and License Agreement, Amgen received an option to a worldwide, exclusive license to ARO-AMG1_, an RNAi therapy for an undisclosed genetically validated cardiovascular target. Under the Second Collaboration and License Agreement (the “Olpasiran Agreement”), Amgen received a worldwide, exclusive license to Arrowhead’s novel, RNAi ~~AMG-980~~AMG 890 (ARO-LPA) ~~program.~~program, now referred to as Olpasiran. The ~~AMG-890 (ARO-LPA)~~Olpasiran RNAi molecules are designed to reduce elevated lipoprotein(a), which is a genetically validated, independent risk factor for atherosclerotic cardiovascular disease. In both agreements, Amgen is wholly responsible for clinical development and commercialization. Under the terms of the agreements taken together, the Company has received $35 million in upfront payments and $21.5 million in the form of an equity investment by Amgen in the Company’s Common Stock. The Company was eligible to receive up to ~~$617~~$617.0 million in option payments and development, regulatory and sales milestone payments. In August 2018, the Company received a ~~$10~~$10.0 million milestone payment from Amgen following the administration of the first dose of ~~AMG 890 (ARO-LPA)~~Olpasiran in a phase 1 clinical ~~study.~~trial. In July 2020, the Company received a $20.0 million milestone payment from Amgen following the initiation of a Phase 2 clinical study of Olpasiran. The Company remains eligible to receive up to ~~$420~~an additional $400.0 million in remaining development, regulatory and sales milestone payments under the ~~AMG-890 (ARO-LPA)~~Olpasiran agreement. The Company is further eligible to receive up to low double-digit royalties for sales of products under the ~~AMG 890 (ARO-LPA)~~Olpasiran agreement.

In August 2018, Arrowhead delivered to Amgen a candidate that met or exceeded the activity and safety requirements stipulated in the ARO-AMG1 collaboration agreement. The option period expired on August 7, 2019 and Amgen advised Arrowhead that it did not intend to exercise its option.

License and Research Collaboration Agreements with Janssen Pharmaceuticals, Inc.

On October 3, 2018, the Company entered into a License Agreement (“Janssen License Agreement”) and a Research Collaboration and Option Agreement (“Janssen Collaboration Agreement”) with ~~Janssen Pharmaceuticals, Inc. (“Janssen”), part of the Janssen Pharmaceutical Companies of Johnson & Johnson.~~ Janssen. The Company also entered into a Stock Purchase Agreement (“JJDC Stock Purchase Agreement”) with ~~Johnson & Johnson Innovation-JJDC, Inc. (“JJDC”), a New Jersey corporation.~~ JJDC.

Under the Janssen License Agreement, Janssen ~~will receive~~received a worldwide, exclusive license to the Company’s JNJ-3989 (ARO-HBV) program, the Company’s third-generation subcutaneously administered RNAi therapeutic candidate being developed as a ~~potentially curative~~potential therapy for patients with chronic hepatitis B virus infection. Beyond the Company’s ~~ongoing~~ Phase ~~1 /~~ 1/2 study of JNJ-3989 (ARO-HBV) ~~(which will remain the responsibility of the Company)~~, Janssen ~~will be~~is wholly responsible for further clinical development and ~~commercialization.~~commercialization of JNJ-3989 (ARO-HBV).

Under the Janssen Collaboration Agreement, Janssen will be able to select up to three new targets against which the Company will develop clinical candidates. These candidates are subject to certain restrictions and ~~will~~do not include candidates that were already in the Company’s ~~current~~ pipeline. The Company will perform discovery, optimization and preclinical development on selected targets, entirely funded by Janssen, which on its own or in combination with Janssen development work, is sufficient to allow the filing of a U.S. Investigational New Drug application or equivalent, at which time Janssen will have the option to take an exclusive license to the Company’s intellectual property rights covering that compound. If the option is exercised, Janssen will be wholly responsible for clinical development and commercialization of each optioned compound.

Under the terms of the agreements taken together, the Company has received (i) ~~$175~~$175.0 million as an upfront payment, (ii) ~~$75~~$75.0 million in the form of an equity investment by JJDC in the Company’s common stock, ~~at a price of $23.00 per share,~~(iii) milestone and ~~may receive (iii)~~option payments totaling $70.0 million, (iv) up to $1.6 billion in development and sales milestones payments for the Janssen License Agreement, and ~~(iv)~~(v) up to $1.9 billion in development and sales milestone payments for the three additional targets covered under the Janssen Collaboration Agreement. The Company is further eligible to receive tiered royalties up to ~~mid teens~~mid-teens under the Janssen License agreement and up to low teens under the Janssen Collaboration Agreement on product sales. ~~During the year ended September 30, 2019,~~

License and Research Collaboration Agreements with Takeda Pharmaceuticals U.S.A., Inc.

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

Research Collaboration And License Agreement with Horizon Therapeutics Ireland DAC.

On June 18, 2021, the Company entered into a Collaboration and ~~Development Facility~~

~~Arrowhead’s research and development operations are primarily located in Madison, Wisconsin. Substantially all~~License Agreement (the “Horizon License Agreement”) with Horizon Therapeutics Ireland DAC (“Horizon”). Under the terms of the ~~Company’s assets are located either in this facility or in our corporate headquarters in Pasadena. A summary~~Horizon License Agreement, Arrowhead will develop an RNAi therapeutic against xanthine dehydrogenase (XDH), as a potential treatment for people with uncontrolled gout. The Company will conduct all activities through preclinical stages of ~~our research~~development, and Horizon will receive a worldwide exclusive license to the RNAi therapeutic and be wholly responsible for clinical development ~~resources in Madison~~and commercialization. The Company received $40 million as an upfront payment from Horizon and is ~~provided below:~~

Research and development (R&D) expenses consist of costs incurred in discovering, developing and testing our clinical and preclinical candidates and platform technologies. R&D expenses also include costs relatedreceive up to clinical trials, including costs of contract research organizations to recruit patients and manage clinical trials. Other costs associated with clinical trials include manufacturing of clinical supplies, as well as good laboratory practice (“GLP”) toxicology studies necessary to support clinical trials, both of which are currently outsourced to cGMP-compliant manufacturers and GLP-compliant laboratories. Total research and development expense for fiscal 2019, 2018 and 2017 was $81.0 million, $53.0 million and $50.9 million, respectively.

At September 30, 2019, we employed 109 employees in an R&D function, primarily working from our facility in Madison, Wisconsin. These employees are engaged in various areas of research on Arrowhead candidate and platform development including synthesis and analytics, PK/biodistribution, formulation, CMC and analytics, tumor and extra-hepatic targeting, bioassays, live animal research, toxicology/histopathology, clinical and regulatory operations, and other areas. Salaries and payroll-related expenses and stock compensation for our R&D activities were $19.0 million, $15.1 million, and $14.6$660 million in ~~fiscal 2019, 2018~~potential development, regulatory and ~~2017, respectively. Costs related~~commercial milestones, and is further eligible to receive royalties in the manufacture of clinical supplies, GLP toxicology studies and clinical trial costs were $47.1 million, $23.6 million, and $22.2 million in fiscal 2019, 2018, and 2017, respectively. Facility-related costs, primarily rental costs for our leased laboratory in Madison, Wisconsin were $2.6 million, $2.3 million, and $2.3 million in fiscal 2019, 2018, and 2017, respectively. Depreciation and amortization expenses primarily for our lab equipment and leasehold improvements in our leased laboratory in Madison, Wisconsin were $4.4 million, $4.7 million and $4.7 million in fiscal 2019, 2018 and 2017, respectively. Licensing, royalties and milestones expenses were $0, $0, and $0 million in fiscal 2019, 2018 and 2017, respectively. These expenses are primarily relatedlow- to ~~milestone payments, which can vary from period to period depending~~mid-teens range on ~~the nature of our various license agreements, and the timing of reaching various development milestones requiring payment. Other research and development expenses~~

~~were $7.9 million, $7.3 million, and $7.2 million in fiscal 2019, 2018 and 2017, respectively. These expenses primarily relate to laboratory supply costs and animal-related costs for in-vivo studies.~~ net product sales.

Government authorities in the United States, at the federal, state, and local levels, and in other countries and jurisdictions, including the European Union, extensively regulate, among other things, the research, development, testing, product approval, manufacture, quality control, manufacturing changes, packaging, storage, recordkeeping, labeling, promotion, advertising, sales, distribution, marketing, and import and export of drugs and biologic products. All of our foreseeable product candidates are expected to be regulated as drugs. The processes for obtaining regulatory approval in the ~~U.S.~~United States and in foreign countries and jurisdictions, along with compliance with applicable statutes and regulations and other regulatory authorities both pre- and post-commercialization, are a significant factor in the production and marketing of our products and our R&D activities and require the expenditure of substantial time and financial resources.

In the ~~U.S.,~~United States, the FDA and other government entities regulate drugs under the Federal Food, Drug, and Cosmetic Act (the “FDCA”), the Public Health Service Act, and the regulations promulgated under those statutes, as well as other federal and state statutes and regulations. Failure to comply with applicable legal and regulatory requirements in the ~~U.S.~~United States at any time during the product development process, approval process, or after approval, may subject us to a variety of administrative or judicial sanctions, such as a delay in approving or refusal by the FDA to approve pending applications, withdrawal of approvals, delay or suspension of clinical trials, issuance of warning letters and other types of regulatory letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil monetary penalties, refusals of or debarment from government contracts, exclusion from the federal healthcare programs, restitution, disgorgement of profits, civil or criminal investigations by the FDA, U.S. Department of Justice, State Attorneys General, and/or other agencies, False Claims Act suits and/or other litigation, and/or criminal prosecutions.

An applicant seeking approval to market and distribute a new drug in the ~~U.S.~~United States must typically undertake the following:

(1) completion of pre-clinical laboratory tests, animal studies, and formulation studies in compliance with the FDA’s ~~GLP~~good laboratory practice (“GLP”) regulations;

(2) submission to the FDA of an Investigational New Drug Application (“IND”) for human clinical testing, which must become effective without FDA objection before human clinical trials may begin;

(3) approval by an independent institutional review board (“IRB”), representing each clinical site before each clinical trial may be initiated;

(4) performance of adequate and well-controlled human clinical trials in accordance with the FDA’s current good clinical practice (“cGCP”) regulations, to establish the safety and effectiveness of the proposed drug product for each indication for which approval is sought;

(5) preparation and submission to the FDA of a New Drug Application (“NDA”);

(6) satisfactory review of the NDA by an FDA advisory committee, where appropriate or if ~~applicable,~~applicable;

(7) satisfactory completion of one or more FDA inspections of the manufacturing facility or facilities at which the drug product, and the active pharmaceutical ingredient or ingredients thereof, are produced to assess compliance with current good manufacturing practice (“cGMP”) regulations and to assure that the facilities, methods, and controls are adequate to ensure the product’s identity, strength, quality, and purity;

(8) payment of user fees, as applicable, and securing FDA approval of the NDA; and

(9) compliance with any post-approval requirements, such as any Risk Evaluation and Mitigation Strategies (“REMS”) or post-approval studies required by the FDA.

Preclinical studies can include in vitro and animal studies to assess the potential for adverse events and, in some cases, to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including

GLP regulations. Other studies include laboratory evaluation of the purity, stability and physical form of the manufactured drug substance or active pharmaceutical ingredient and the physical properties, stability and reproducibility of the formulated drug or drug product. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical studies, among other things, to the FDA as part of an IND. Some preclinical testing, such as longer-term toxicity testing, animal tests of reproductive adverse events and carcinogenicity, may continue after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions related to a proposed clinical trial and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not result in the FDA allowing clinical trials to commence.

Following commencement of a clinical trial under an IND, the FDA may place a clinical hold on that trial. A clinical hold is an order issued by the FDA to the sponsor to delay a proposed clinical investigation or to suspend an ongoing investigation. A partial clinical hold is a delay or suspension of only part of the clinical work requested under the IND. For example, a specific protocol or part of a protocol is not allowed to proceed, while other protocols may do so. No more than 30 days after imposition of a clinical hold or partial clinical hold, the FDA will provide the sponsor a written explanation of the basis for the hold. Following issuance of a clinical hold or partial clinical hold, an investigation may only resume after the FDA has notified the sponsor that the investigation may proceed. The FDA will base that determination on information provided by the sponsor correcting the deficiencies previously cited or otherwise satisfying the FDA that the investigation can proceed.

Clinical trials involve the administration of the investigational product to human subjects under the supervision of qualified investigators in accordance with cGCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written study protocols detailing, among other things, the objectives of the study, the parameters to be used in monitoring safety and the effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In addition, an IRB representing each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing review and reapprove the study at least annually. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. Information about certain clinical trials must be submitted within specific timeframes to the NIH for public dissemination on its ClinicalTrials.gov website.

Human clinical trials are typically conducted in three sequential phases, which may overlap or be combined:

Phase 1: The product candidate is initially introduced into healthy human subjects or patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if possible, to gain an early indication of its effectiveness.

Phase 2: The product candidate is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance and optimal dosage.

Phase 3: The product candidate is administered to an expanded patient population, generally at geographically dispersed clinical trial sites, in well-controlled clinical trials to generate enough data to statistically evaluate the efficacy and safety of the product for approval, to establish the overall risk-benefit profile of the product, and to provide adequate information for the labeling of the product.

Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and more frequently if serious adverse events occur. Phase 1, Phase 2, and Phase 3 clinical trials may not be completed successfully within any specified period, or at all. Furthermore, the FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution, or an institution it represents, if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients. The FDA will typically inspect one or more clinical sites in late-stage clinical trials to assure compliance with cGCP and the integrity of the clinical data submitted.

Assuming successful completion of required clinical testing and other requirements, the results of the preclinical and clinical studies, together with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the drug product for one or more indications.

Under federal law, the submission of most NDAs is additionally subject to an application user fee, currently ~~$2.9~~$3.117 million for fiscal year 2022, for applications requiring clinical data, and the sponsor of an approved NDA is also subject to an annual program fee, currently ~~$325,000.~~$369,413 for fiscal year 2022. These fees are ~~typically increased~~adjusted annually.

Under certain circumstances, the FDA will waive the application fee for the first human drug application that a small business, defined as a company with less than 500 employees, including employees of affiliates, submits for review. An affiliate is defined as a business entity that has a relationship with a second business entity if one business entity controls, or has the power to control, the other business entity, or a third-party controls, or has the power to control, both entities. In addition, an application to market a prescription drug product that has received orphan designation is not subject to a prescription drug user fee unless the application includes an indication for other than the rare disease or condition for which the drug was designated.

The FDA conducts a preliminary review of an NDA within 60 days of its receipt and informs the sponsor by the 74th day after the FDA’s receipt of the submission to determine whether the application is sufficiently complete to permit substantive review. The FDA may request additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA has agreed to specified performance goals in the review process of NDAs. Most such applications are meant to be reviewed within ten months from the date of filing, and most applications for “priority review” products are meant to be reviewed within six months of filing. The review process may be extended by the FDA for three additional months to consider new information or clarification provided by the applicant to address an outstanding deficiency identified by the FDA following the original submission.

Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with cGCP.

The FDA also may require submission of a REMS plan to mitigate any identified or suspected serious risks. The REMS plan could include medication guides, physician communication plans, assessment plans, and elements to assure safe use, such as restricted distribution methods, patient registries, or other risk minimization tools.

The FDA is required to refer an application for a novel drug to an advisory committee or explain why such referral was not made. Typically, an advisory committee is a panel of independent experts, including clinicians and other scientific experts, that reviews, evaluates and provides a recommendation as to whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions.

On the basis of the FDA’s evaluation of the NDA and accompanying information, including the results of the inspection of the manufacturing facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the product with specific prescribing information for specific indications. A complete response letter generally outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDA’s satisfaction in a resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval.

If the FDA approves a product, it may limit the approved indications for use for the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies be conducted to further assess the drug’s safety after approval, require testing and surveillance programs to monitor the product after commercialization, or impose other conditions, including distribution restrictions or other risk management mechanisms, including REMS, which can materially affect the potential market and profitability of the product. After approval, the FDA may seek to prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. Some types of changes to the approved product, such as adding new indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and approval.

The product may also be subject to official lot release, meaning that the manufacturer is required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official lot release, the manufacturer must submit samples of each lot, together with a release protocol showing a summary of the history of manufacture of the lot and the results of all of the manufacturer’s tests performed on the lot, to the FDA. The FDA may in addition perform certain confirmatory tests on lots of

some products before releasing the lots for distribution. Finally, the FDA will conduct laboratory research related to the safety and effectiveness of drug products.

Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the U.S. and for which there is no reasonable expectation that the cost of developing and making available in the U.S. a drug for this type of disease or condition will be recovered from sales in the U.S. for that drug. Orphan drug designation entitles the applicant to incentives such as grant funding towards clinical study costs, tax advantages, and waivers of FDA user fees. Orphan drug designation must be requested before submitting an NDA, and both the drug and the disease or condition must meet certain criteria specified in the Orphan Drug Act and FDA’s implementing regulations at 21 C.F.R. Part 316. The granting of an orphan drug designation does not alter the standard regulatory requirements and process for obtaining marketing approval. Safety and effectiveness of a drug must be established through adequate and well-controlled studies.

After the FDA grants orphan drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. If a product that has orphan drug designation subsequently receives the first FDA approval for the disease for which it has such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other application to market the same drug for the same indication, except in very limited circumstances, for seven years. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition.

A sponsor may seek approval of its product candidate under programs designed to accelerate the FDA’s review and approval of NDAs. For example, Fast Track Designation may be granted to a drug intended for treatment of a serious or life-threatening disease or condition and data demonstrate its potential to address unmet medical needs for the disease or condition. The key benefits of Fast Track Designation are the eligibility for priority review, rolling review (submission of portions of an application before the complete marketing application is submitted), and accelerated approval, if relevant criteria are met. The FDA may grant the NDA a priority review designation, which sets the target date for FDA action on the application at six months after the FDA accepts the application for filing. Priority review is granted where there is evidence that the proposed product would be a significant improvement in the safety or effectiveness of the treatment, diagnosis, or prevention of a serious condition. Priority review designation does not change the scientific/medical standard for approval or the quality of evidence necessary to support approval.

The FDA may approve an NDA under the accelerated approval program if the drug treats a serious condition, provides a meaningful advantage over available therapies, and demonstrates an effect on either (1) a surrogate endpoint that is reasonably likely to predict clinical benefit, or (2) on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality, that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. Post-marketing studies or completion of ongoing studies after marketing approval are generally required to verify the drug’s clinical benefit in relationship to the surrogate endpoint or ultimate outcome in relationship to the clinical benefit.

In addition, the Food and Drug Administration Safety and Innovation Act of 2012 ~~or FDASIA,~~(“FDASIA”) established the Breakthrough Therapy designation. A sponsor may seek FDA designation of its product candidate as a breakthrough therapy if the drug is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. If a drug is designated as breakthrough therapy, FDA will provide more intensive guidance on the drug development program and expedite its review.

Drugs manufactured or distributed pursuant to FDA approvals are subject to pervasive and continuing regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product. After approval, most changes to the approved product, such as adding new indications or other labeling claims, are subject to prior FDA review and approval. There also are continuing, annual user fee requirements for any marketed products and the establishments at which such products are manufactured, as well as new application fees for supplemental applications with clinical data.

In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs are required to register their establishments with the FDA and state agencies and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations

from cGMP and impose reporting and documentation requirements upon the sponsor and any third-party manufacturers that the sponsor may decide to use. Accordingly, manufacturers must continue to expend time, money, and effort in the area of production and quality control to maintain cGMP compliance.

Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product, including adverse events or problems with manufacturing processes of unanticipated severity or frequency, or failure to comply with regulatory requirements, may result in revisions to the approved labeling to add new safety information; imposition of post-market studies or clinical trials to assess new safety risks; or imposition of distribution or other restrictions under a REMS program. Other potential consequences include, among other things:

The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant liability.

In addition, the distribution of prescription pharmaceutical products is subject to the Prescription Drug Marketing Act ~~(PDMA)~~(“PDMA”), which regulates the distribution of drugs and drug samples at the federal level and sets minimum standards for the registration and regulation of drug distributors by the states. Both the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose requirements to ensure accountability in distribution.

In 1984, with passage of the Drug Price Competition and Patent Term Restoration Act of 1984 (commonly referred to as the “Hatch-Waxman Amendments”) amending the FDCA, Congress authorized the FDA to approve generic drugs that are the same as drugs previously approved by the FDA under the NDA provisions of the statute. To obtain approval of a generic drug, an applicant must submit an abbreviated new drug application ~~(ANDA)~~(“ANDA”) to the agency. In support of such applications, a generic manufacturer may rely on the preclinical and clinical testing previously conducted for a drug product previously approved under an NDA, known as the reference listed drug ~~or RLD.~~(“RLD”). To reference that information, however, the ANDA applicant must demonstrate, and the FDA must conclude, that the generic drug does, in fact, perform in the same way as the RLD it purports to copy. Specifically, in order for an ANDA to be approved, the FDA must find that the generic version is identical to the RLD with respect to the active ingredients, the route of administration, the dosage form, and the strength of the drug.

At the same time, the FDA must also determine that the generic drug is “bioequivalent” to the innovator drug. Under the statute, a generic drug is bioequivalent to a RLD if “the rate and extent of absorption of the generic drug do not show a significant difference from the rate and extent of absorption of the RLD.” Upon approval of an ANDA, the FDA indicates that the generic product is “therapeutically equivalent” to the RLD and it assigns a therapeutic equivalence rating to the approved generic drug in its publication “Approved Drug Products with Therapeutic Equivalence Evaluations,” also referred to as the “Orange Book.” Physicians and pharmacists consider the therapeutic equivalence rating to mean that a generic drug is fully substitutable for the RLD. In addition, by operation of certain state laws and numerous health insurance programs, the FDA’s designation of a therapeutic equivalence rating often results in substitution of the generic drug without the knowledge or consent of either the prescribing physician or patient.

Under the Hatch-Waxman Amendments, the FDA may not approve an ANDA until any applicable period of nonpatent exclusivity for the RLD has expired. The FDCA provides a period of five years of data exclusivity for new drug containing a new chemical entity. In cases where such exclusivity has been granted, an ANDA may not be filed with the FDA until the expiration of five years unless the submission is accompanied by a Paragraph IV certification, in which case the applicant may submit its application four years following the original product approval. The FDCA also provides for a period of three years of exclusivity if the NDA includes reports of one or more new clinical investigations, other than bioavailability or bioequivalence studies, that were conducted by or for the applicant and are essential to the approval of the application. This three-year exclusivity period often protects changes to a previously approved drug product, such as a new dosage form, route of administration, combination or indication.

Upon approval of an NDA or a supplement thereto, NDA sponsors are required to list with the FDA each patent with claims that cover the applicant’s product or a method of using the product. Each of the patents listed by the NDA sponsor is published in the Orange Book. When an ANDA applicant files its application with the FDA, the applicant is required to certify to the FDA concerning any patents listed for the reference product in the Orange Book, except for patents covering methods of use for which the ANDA applicant is not seeking approval.

A certification that the new product will not infringe the already approved product’s listed patents or that such patents are invalid or unenforceable is called a Paragraph IV certification. If the applicant does not challenge the listed patents or indicate that it is not seeking approval of a patented method of use, the ANDA application will not be approved until all the listed patents claiming the referenced product have expired. If the ANDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the NDA and patent holders once the ANDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement lawsuit in response to the notice of the Paragraph IV certification. The filing of a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV certification automatically prevents the FDA from approving the ANDA until the earlier of 30 months, expiration of the patent, settlement of the lawsuit or a decision in the infringement case that is favorable to the ANDA applicant.

To the extent that a Section 505(b)(2) applicant is relying on studies conducted for an already approved product, the applicant is required to certify to the FDA concerning any patents listed for the approved product in the Orange Book to the same extent that an ANDA applicant would. As a result, approval of a 505(b)(2) NDA can be stalled until all the listed patents claiming the referenced product have expired, until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the referenced product has expired, and, in the case of a Paragraph IV certification and subsequent patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant.

Under the Pediatric Research Equity Act of 2003, an NDA or supplement thereto must contain data that are adequate to assess the safety and effectiveness of the drug product for the claimed indications in all relevant pediatric subpopulations, and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. With the enactment of FDASIA, sponsors must also submit pediatric study plans prior to the assessment data. Those plans must contain an outline of the proposed pediatric study or studies the applicant plans to conduct, including study objectives and design, any deferral or waiver requests, and other information required by regulation. The applicant, the FDA, and the FDA’s internal review committee must then review the information submitted, consult with each other, and agree upon a final plan. The FDA or the applicant may request an amendment to the plan at any time.

The FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data requirements. Additional requirements and procedures relating to deferral requests and requests for extension of deferrals are contained in FDASIA. Unless otherwise required by regulation, the pediatric data requirements do not apply to products with orphan designation.

Pediatric exclusivity is another type of non-patent marketing exclusivity in the United States and, if granted, provides for the attachment of an additional six months of marketing protection to the term of any existing regulatory exclusivity, including the non-patent and orphan exclusivity. This six-month exclusivity may be granted if an NDA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The data do not need to show the product to be effective in the pediatric population studied; rather, if the clinical trial is deemed to fairly respond to the FDA’s request, the additional protection is granted. If reports of requested pediatric studies are submitted to and accepted by the FDA within the statutory time limits, whatever statutory or regulatory periods of exclusivity or patent protection cover the product are extended by six months. This is not a patent term extension, but it effectively extends the regulatory period during which the FDA cannot accept or approve another application.

A patent claiming a new drug product may be eligible for a limited patent term extension under the Hatch-Waxman Amendments. Those Amendments permit a patent restoration of up to five years for patent term lost during product development and the FDA regulatory review. The restoration period granted is typically one-half the time between the effective date of an IND and the submission date of a NDA, plus the time between the submission date of a NDA and ultimate approval. Patent term restoration cannot be used to extend the remaining term of a patent past a total of 14 years from the product’s approval date. Only one patent applicable to an approved drug product is eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent in question. The U.S. Patent and Trademark Office reviews and approves the application for any patent term extension or restoration in consultation with the FDA.

The 21st Century Cures Act ~~(Cures Act)~~(the “Cures Act”), which was signed into law in December 2016, includes provisions to accelerate the development and delivery of new treatments. For example, the Cures Act requires the FDA to establish a program to evaluate the potential use of real world evidence to help to support the approval of a new indication for an approved drug and to help to support or satisfy post-approval study requirements, to issue guidance on adaptive and novel clinical trial designs for new drugs, and to establish a process for qualifying drug development tools used to support FDA approval for marketing or investigational use of a drug. The Cures Act also permits the FDA to rely on qualified data summaries to support the approval of a supplemental application for an already approved drug. The FDA ~~is in the process of~~has continued to issue guidance focused on implementing the Cures Act requirements.

In order to market anypharmaceutical product outside of the United States, a company must also comply with numerous and varying regulatory requirements of other countries and jurisdictions ~~regarding quality, safety and efficacy and~~ governing, among other things, research and development, testing, manufacturing, quality control, safety, efficacy, labeling, clinical trials, marketing authorization, packaging, storage, record keeping, reporting, export and import, advertising, marketing and other promotional practices involving pharmaceutical products, as well as commercial sales, distribution, authorization, approval and ~~distribution~~post-approval monitoring and reporting of our products. Whether or not it obtains FDA approval for apharmaceutical product, the company would need to obtain the necessary approvals by the comparable foreign regulatory authorities before it can commence clinical trials or marketing of thepharmaceutical product in those countries or jurisdictions. The approval process ultimately varies between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may negatively impact the regulatory process in others.

~~Pursuant~~Since the United Kingdom formally left the European Union on January 31, 2020 and the transition period, during which EU laws continued to apply to the United Kingdom, expired on December 31, 2020, EU laws now only apply to the United Kingdom in respect of Northern Ireland as laid out in the Protocol on Ireland and Northern Ireland. The European Union and the United Kingdom have concluded a trade and cooperation agreement (“TCA”), which was ratified by the UK Parliament on December 30, 2020. The TCA was applied provisionally as of January 1, 2021 and entered into force on May 1, 2021.

The TCA includes provisions affecting the life sciences sector (including on customs and tariffs), but areas for further discussion between the European Union and UK remain. In addition, there are some specific provisions concerning pharmaceuticals. These include the mutual recognition of Good Manufacturing Practice (“GMP”), inspections of manufacturing facilities for medicinal products and GMP documents issued. The TCA does not, however, contain wholesale mutual recognition of UK and EU pharmaceutical regulations and product standards.

Since January 1, 2021, the EU laws which have been transposed into UK law through secondary legislation continue to be applicable as “retained EU law”. As there is no general power to amend these regulations, the UK government has adopted the Medicines and Medical Devices Act 2021, which seeks to address this regulatory gap through introducing regulation-making, delegated powers covering the fields of human medicines, clinical trials of human medicines, veterinary medicines and medical devices. The purpose of the act is to enable the existing regulatory frameworks to be updated, with the powers granted under it only exercisable in relation to four pieces of legislation: the Human Medicines Regulations 2012, the Medicines for Human Use (Clinical Trials) Regulations 2004, the Medicines (Products for Human Use) Regulations 2016 and limited parts of the Medicines Act 1968 (specifically those parts which make provision related to pharmacies). It is then further restricted to amending or updating only those provisions stated in the act, which include clinical trials.

The new Medicines and Medical Devices Act 2021 supplements the UK Medical Devices Regulations 2002 (“UK Regulations”), which are based on the EU Medical Devices Directive as amended to reflect the UK’s post-Brexit regulatory regime. Notably, the UK Regulations do not include any of the revisions that have been made by the EU Medical Devices Regulation (EU) 2017/745, which has gained full application in all EU Member States since May 26, 2021. Additionally, the UK’s Medicines and Healthcare products Regulatory Agency (“MHRA”) launched a comprehensive consultation on September 16, 2021 with proposals to amend the regulatory framework for medical devices in the UK. The stated objectives of the proposals include expansion of the scope of the UK Regulations (e.g. by expanding the in vitro diagnostic medical device definition to includes software and other products, including products without an intended medical purpose but with similar functioning and risk profiles) and potentially through use of internationally recognised definitions (e.g. by excluding products that contain viable biological substances and excluding food), remove trade barriers, further the availability of medical devices and improve the favourability of the UK market. The consultation period closes on November 25, 2021 with a view to new regulations coming into force on July 1 2023 with appropriate transitional measures.

The conduct of clinical trials in the European Union is currently governed by the EU Clinical Trial Directive 2001/20/EC (“Clinical Trials Directive”), pursuant to which a system for the approval of clinical trials in the European Union has been implemented through national legislation of the ~~member states.~~EU Member States. Under ~~this system,~~the current regime, before a clinical trial can be initiated, an applicant must obtain approval ~~from the competent national authority of~~in each EU Member State where there is a ~~European Union member state in~~site at which the clinical trial is to be ~~conducted. Furthermore,~~conducted by two separate entities: The National Competent Authority (“NCA”), and one or more Ethics Committees. The NCA of the ~~applicant may only start a~~EU Member States in which the clinical trial ~~after~~will be conducted must authorize the conduct of the trial, and the independent Ethics Committee must grant a ~~competent ethics committee has issued a favorable opinion. CTAs~~positive opinion in relation to the conduct of the clinical trial in the relevant EU Member State before the commencement of the trial. Any substantial changes to trial protocol or other information submitted with the clinical trial applications must be submitted to or approved by the relevant NCA and Ethics Committees. Under the current regime all suspected unexpected serious adverse reactions to the investigated drug that occur during the clinical trial must be reported to the NCA and to the Ethics Committees of the EU Member State where they occur. Clinical trial applications (“CTAs”) must also be accompanied by an investigational ~~medicinal~~pharmaceutical product dossier with supporting information prescribed by the ~~European Clinical Trials Directive and~~ corresponding national laws of the ~~member states~~Member States and further detailed in applicable guidance documents.

~~In 2014,~~ However, the EU Member States have transposed and applied the provisions of the Clinical Trials Directive in a ~~new Clinical Trial Regulation 536/2014, replacing~~manner that is not always uniform. This has led to variations in the rules governing the conduct of clinical trials in the individual EU Member States. The EU has, therefore, adopted the EU Clinical Trials Regulation (EU) No 536/2014 (“Clinical Trials Regulation”). The Clinical Trials Regulation, which will replace the Clinical Trials Directive, ~~was adopted.~~introduces a complete overhaul of the existing regulation of clinical trials for pharmaceutical products in the EU, including a new coordinated procedure for authorization of clinical trials that is reminiscent of the mutual recognition procedure for marketing authorization of pharmaceutical products, and increased obligations on sponsors to publish clinical trial results. The coming into effect of the Clinical Trials Regulation has been postponed several times due to technical difficulties with the underlying IT systems. On July 31, 2021 the European Commission confirmed that the Clinical Trials Regulation will come into force on January 31, 2022. The new ~~Regulation will become directly applicable in all European Union member states (without national implementation) once~~Clinical Trials Information System (“CTIS”), which contains the ~~relevant~~centralized EU portal and database ~~are fully functional. It is expected that~~for clinical trials, will also go-live on this ~~will occur in calendar year 2020.~~ date.

The new Clinical Trials Regulation seeks to simplify and streamline the approval of clinical trials in the European Union, in particular through a ~~harmonised~~harmonized electronic submission and assessment process for clinical trials conducted in multiple EU Member States. For example, the sponsor will be able submit a single application for approval of a clinical trial through the CTIS. As part of the application process, the sponsor ~~shall propose~~proposes a reporting EU Member State, ~~who~~which will ~~coordinate~~take the ~~validation~~lead in validating and ~~evaluation of~~evaluating the application. The reporting ~~member state shall consult~~EU Member State consults and ~~coordinate~~coordinates with the other concerned ~~member states.~~EU Member States. If an application is rejected, it ~~can~~may be amended and resubmitted through the ~~EU portal.~~CTIS. If an approval is issued, the sponsor ~~can~~may start the clinical trial in all concerned ~~member states.~~EU Member States. However, a concerned ~~member state can~~EU Member State may in limited circumstances declare an “opt-out” from an approval. In such a case, the clinical trial cannot be conducted in that ~~member state.~~EU Member State. The Clinical Trials Regulation also aims to streamline and simplify the rules on safety reporting and introduces enhanced transparency requirements such as mandatory submission of a summary of the clinical trial results to the ~~EU database.~~CTIS. Information stored in the ~~EU database~~CTIS will be made publicly available subject to transparency rules. While the authorization and oversight of clinical trials in the EU remains the responsibility of the EU Member States, the CTIS is set-up, maintained and supervised by the European Medicines Agency (“EMA”).

Under both the current regime and the new Clinical Trials Regulation, national laws, regulations, and the applicable Good Clinical Practice and Good Laboratory Practice standards must also be respected during the conduct of the trials, including the International Council for Harmonization of Technical Requirements for Pharmaceuticals for Human Use (“ICH”) guidelines on Good Clinical Practice (“GCP”), and the ethical principles that have their origin in the Declaration of Helsinki.

During the development of a pharmaceutical product, the EMA and national regulators within the EU provide the opportunity for dialogue and guidance on the development program. At the EMA level, this is usually done in the form of scientific advice, which is given by the Committee for Medicinal Products for Human Use (“CHMP”) on the recommendation of the Scientific Advice Working Party (“SAWP”). A fee is incurred with each scientific advice procedure, but is significantly reduced for designated orphan medicines. Advice from the EMA is typically provided based on questions concerning, for example, quality (chemistry, manufacturing and controls testing), nonclinical testing and clinical studies, and pharmacovigilance plans and risk-management programs. Advice is not legally binding with regard to any future Marketing Authorization Application (“MAA”) of the product concerned.

In the EU and in Iceland, Norway and Liechtenstein (together the European Economic Area or “EEA”), after completion of all required clinical testing, pharmaceutical products may only be placed on the market after obtaining a Marketing Authorization (“MA”). To obtain ~~marketing approval~~an MA of a drug under European Union regulatory systems, an applicant ~~must~~can submit ~~a marketing authorization application (MAA) either under~~an MAA through, amongst others, a centralized or decentralized procedure.

The centralized procedure provides for the grant of a single marketing authorization by the European Commission that is valid for all EU Member States and, after respective national implementing decisions, in the three additional member states of the European ~~Union member states.~~Economic Area (Iceland, Norway and Liechtenstein). The centralized procedure is compulsory for specific pharmaceuticalproducts, including for medicines ~~produced~~developed by means of certain biotechnological processes, products designated as orphan ~~medicinal~~pharmaceutical products, advanced therapy pharmaceuticalproducts andpharmaceutical products with a new active substance indicated for the

treatment of certain diseases (AIDS, cancer, neurodegenerative disorders, diabetes, auto-immune and viral diseases). For pharmaceuticalproducts ~~with~~containing a new active substance not yet authorized in the European Economic Area before May 20, 2004 and indicated for the treatment of other diseases, ~~and~~

pharmaceuticalproducts that ~~are highly innovative~~constitute significant therapeutic, scientific or technical innovations or for which the grant of a marketing authorization through the centralized ~~process is~~procedure would be in the interest of ~~patients,~~public health at EU level, an applicant may voluntarily submit an application for a ~~centralized~~ marketing authorization tothrough the ~~EMA.~~centralized procedure.

Under the centralized procedure, the ~~Committee for Medicinal Products for Human Use (CHMP)~~CHMP established at the ~~European Medicines Agency (EMA)~~EMA is responsible for conducting the initial assessment of a drug. The CHMP is also responsible for several post-authorization and maintenance activities, such as the assessment of modifications or extensions to an existing marketing authorization. Under the centralized procedure, in the ~~European Union, the maximum~~ timeframe for the evaluation of an MAA by the EMA’s CHMP is, in principle, 210 days ~~excluding~~from receipt of a valid MAA. However, this timeline excludes clock stops, when additional ~~information or~~ written or oral ~~explanation~~information is to be provided by the applicant in response to questions ofasked by the ~~CHMP.~~CHMP, so the overall process typically takes a year or more, unless the application is eligible for an accelerated assessment. Accelerated ~~evaluation~~assessment might be granted by the CHMP in exceptional cases when a ~~medicinal~~pharmaceutical product is of major interest from the point of view of public health and in particular from the viewpoint of therapeutic innovation. ~~In this circumstance,~~On request, the ~~EMA ensures that~~CHMP can reduce the time frame to 150 days if the applicant provides sufficient justification for an accelerated assessment. The CHMP will provide a positive opinion regarding the application only if it meets certain quality, safety and efficacy requirements. However, the European Commission has final authority for granting the MA within 67 days after receipt of the CHMP ~~is given within 150 days.~~opinion.

The decentralized procedure ~~is available~~permits companies to ~~applicants who wish~~file identical MA applications for a pharmaceutical product to ~~market a product~~the competent authorities in various ~~European Union member states where~~EU Member States simultaneously if such pharmaceutical product has not received marketing approval in any ~~European Union member state~~EU Member State before. This procedure is available for pharmaceutical products not falling within the mandatory scope of the centralized procedure. The decentralized procedure provides for approval by one or more other, or concerned, ~~member states~~EU Member States of an assessment of an application performed by one-member state designated by the applicant, known as the reference ~~member state.~~EU Member State. Under this procedure, an applicant submits an application based on identical dossiers and related materials, including a draft summary of product characteristics, and draft labeling and package leaflet, to the reference ~~member state~~EU Member State and concerned ~~member states.~~EU Member States. The reference ~~member state~~EU Member State prepares a draft assessment report and drafts of the related materials within 120 days after receipt of a valid application. Within 90 days of receiving the reference ~~member state’s~~EU Member State’s assessment report and related materials, each concerned ~~member state~~EU Member State must decide whether to approve the assessment report and related materials.

If ~~a member state~~an EU Member State cannot approve the assessment report and related materials on the grounds of potential serious risk to public health, the disputed points are subject to a dispute resolution mechanism and may eventually be referred to the European Commission, whose decision is binding on all ~~member states.~~EU Member States.

All new MAAs must include a Risk Management Plan (“RMP”), describing the risk management system that the company will put in place and documenting measures to prevent or minimize the risks associated with the product. The regulatory authorities may also impose specific obligations as a condition of the MA. RMPs and Periodic Safety Update Reports (“PSURs”) are routinely available to third parties requesting access, subject to limited redactions.

Marketing Authorizations have an initial duration of five years. After these five years, the authorization may subsequently be renewed on the basis of a reevaluation of the risk-benefit balance. Once renewed, the MA is valid for an unlimited period unless the European Commission or the national competent authority decides, on justified grounds relating to pharmacovigilance, to proceed with only one additional five-year renewal. Applications for renewal must be made to the EMA at least nine months before the five-year period expires.

As in the United States, it may be possible to obtain a period of market and / or data exclusivity in the European Union that would have the effect of postponing the entry into the marketplace of a competitor’s generic, hybrid or biosimilar product (even if the pharmaceutical product has already received an MA) and prohibiting another applicant from relying on the MA holder’s pharmacological, toxicological and clinical data in support of another MA for the purposes of submitting an application, obtaining MA or placing the product on the market. In the European Union, new chemical entities qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market exclusivity. This data exclusivity, if granted, prevents regulatory authorities in the European Union from referencing the innovator’s data to assess a generic (abbreviated) application for eight years, after which generic marketing authorization can be submitted, and the innovator’s data may be referenced, but not approved for two years. The overall ten-year period ~~will~~can be extended to a maximum of eleven years if, during the first eight years of those ten years, the marketing authorization holder obtains an authorization for one or more new therapeutic indications which, during the scientific evaluation prior to their authorization, are ~~held~~deemed to bring a significant clinical benefit in comparison with existing therapies.

The data exclusivity period begins on the date of the product’s first MA in the European Union. After eight years, a generic product application may be submitted and generic companies may rely on the MA holder’s data. However, a generic product cannot launch until two years later (or a total of 10 years after the first MA in the EU of the innovator product), or three years later (or a total of 11 years after the first MA in the EU of the innovator product) if the MA holder obtains MA for a new indication with significant clinical benefit within the eight-year data exclusivity period. Additionally, another noncumulative one-year period of data exclusivity can be added to the eight years of data exclusivity where an application is made for a new indication for a well-established substance, provided that significant pre-clinical or clinical studies were carried out in relation to the new indication. Another year of data exclusivity may be added to the eight years, where a change of classification of a pharmaceutical product has been authorized on the

basis of significant pre-trial tests or clinical trials (when examining an application by another applicant for or holder of market authorization for a change of classification of the same substance the competent authority will not refer to the results of those tests or trials for one year after the initial change was authorized).

Products may not be granted data exclusivity since there is no guarantee that a product will be considered by the EU’s regulatory authorities to include a new chemical entity. Even if a compound is considered to be a new chemical entity and the sponsor is able to gain the prescribed period of data exclusivity, another company nevertheless could also market another version of the drug if such company can complete a full MAA with atheir own complete database of pharmaceutical ~~test,~~tests, preclinical ~~tests~~studies and clinical trials and obtain marketing approval of its pharmaceutical product.

The criteria for designating an orphan medicinal product in the European Union are similar in principle to those in the United States. The EMA grants orphan drug designation if the medicinal product is intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting no more than five in 10,000 persons in the European Union (prevalence criterion). In addition, Orphan Drug Designation can be granted if, for economic reasons, the medicinal product would be unlikely to be developed without incentives and if there is no other satisfactory method approved in the European Union of diagnosing, preventing, or treating the condition, or if such a method exists, the proposed medicinal product is a significant benefit to patients affected by the condition. An application for orphan drug designation (which is not a marketing authorization, as not all orphan-designated medicines reach the authorization application stage) must be submitted first before an application for marketing authorization of the medicinal product is submitted. The applicant will receive a fee reduction for the marketing authorization application if the orphan drug designation has been granted, but not if the designation is still pending at the time the marketing authorization is submitted, and ~~pricing~~sponsors must submit an annual report to EMA summarizing the status of development of the medicine. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process. Designated orphan medicines are eligible for conditional marketing authorization.

The EMA’s Committee for Orphan Medicinal Products reassesses the orphan drug designation of a product in parallel with the review for a marketing authorization; for a product to benefit from market exclusivity it must maintain its orphan drug designation at the time of marketing authorization review by the EMA and approval by the EC. Additionally, any marketing authorization granted for an orphan medicinal product must only cover the therapeutic indication(s) that are covered by the orphan drug designation. Upon the grant of a marketing authorization, orphan drug designation provides up to ten years of market exclusivity in the orphan indication.

During the 10-year period of market exclusivity, with a limited number of exceptions, the regulatory authorities of the EU Member States and the EMA may not accept applications for marketing authorization, accept an application to extend an existing marketing authorization or grant marketing authorization for other similar medicinal products for the same therapeutic indication. A similar medicinal product is defined as a medicinal product containing a similar active substance or substances as contained in a currently authorized orphan medicinal product, and which is intended for the same therapeutic indication. An orphan medicinal product can also obtain an additional two years of market exclusivity for an orphan-designated condition when the results of specific studies are reflected in the Summary of Product Characteristics (“SmPC”), addressing the pediatric population and completed in accordance with a fully compliant Pediatric Investigation Plan (“PIP”). No extension to any supplementary protection certificate can be granted on the basis of pediatric studies for orphan indications.

The 10-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the criteria for orphan designation, i.e. the condition prevalence or financial returns criteria under Article 3 of Regulation (EC) No. 141/2000 on orphan medicinal products. When the period of orphan market exclusivity for an indication ends, the orphan drug designation for that indication expires as well. Orphan exclusivity runs in parallel with normal rules on data exclusivity and market protection. Additionally, a marketing authorization may be granted to a similar medicinal product (orphan or not) for the same or overlapping indication subject to certain requirements.

In the European Union, companies developing a new pharmaceutical product are obligated to study their product in children and must therefore submit a PIP together with a request for agreement to the EMA. The EMA issues a decision on the PIP based on an opinion of the EMA’s Pediatric Committee (“PDCO”). Companies must conduct pediatric clinical trials in accordance with the PIP approved by the EMA, unless a deferral (e.g. until enough information to demonstrate its effectiveness and safety in adults is available) or waiver (e.g. because the relevant disease or condition occurs only in adults) has been granted by the EMA. The marketing authorization application for the pharmaceutical product must include the results of all pediatric clinical trials performed and details of all information collected in compliancewith the approved PIP, unless a waiver or a deferral has been granted, in which case the pediatric clinical trials may be completed at a later date. Pharmaceutical products that are granted a marketing authorization on the basis of the pediatric clinical trials conducted in accordance with the approved PIP are eligible for a six month extension of the protection under a supplementary protection certificate (if any is in effect at the time of approval) or, in the case of orphan pharmaceutical products, a two year extension of the orphan market exclusivity. This pediatric reward is subject to specific conditions

and is not automatically available when data in compliance with the approved PIP are developed and submitted. An approved PIP is also required when a marketing authorization holder wants to add a new indication, pharmaceutical form or route of administration for a medicine that is already authorized and covered by intellectual property rights.

Similar to the United States, both marketing authorization holders and manufacturers of pharmaceutical products are subject to comprehensive regulatory oversight by the EMA, the European Commission and/or the competent regulatory authorities of the EU Member States. This oversight applies both before and after grant of manufacturing licenses and marketing authorizations. It includes control of compliance with EU good manufacturing practices rules, manufacturing authorizations, pharmacovigilance rules and requirements governing advertising, promotion, sale, and distribution, recordkeeping, importing and exporting of pharmaceutical products.

Failure by us or by any of our third-party partners, including suppliers, manufacturers and distributors to comply with EU laws and the EU Member State laws implementing Directive 2001/83/EC on pharmaceutical products for human use and other core legislation relating to pharmaceutical products, and other EU Member State laws that apply to the conduct of clinical trials, manufacturing approval, marketing authorization of pharmaceutical products and marketing of such products, both before and after grant of marketing authorization, manufacturing of pharmaceutical products, statutory health insurance, bribery and anti-corruption or with other applicable regulatory requirements may result in administrative, civil or criminal penalties. These penalties could include delays or refusal to authorize the conduct of clinical trials or to grant marketing authorization, product withdrawals and recalls, product seizures, suspension, withdrawal or variation of the marketing authorization, total or partial suspension of production, distribution, manufacturing or clinical trials, operating restrictions, injunctions, suspension of licenses, fines and criminal penalties.

The holder of an EU marketing authorization for a pharmaceutical product must also comply with EU pharmacovigilance legislation and its related regulations and guidelines, which entail many requirements for conducting pharmacovigilance, or the assessment and monitoring of the safety of pharmaceutical products.

These pharmacovigilance rules can impose on holders of marketing authorizations the obligation to conduct a labor intensive collection of data regarding the risks and benefits of marketed pharmaceutical products and to engage in ongoing assessments of those risks and benefits, including the possible requirement to conduct additional clinical studies or post-authorization safety studies to obtain further information on a medicine’s safety, or to measure the effectiveness of risk-management measures, which may be time consuming and expensive and could impact our profitability. Marketing authorization holders must establish and maintain a pharmacovigilance system and appoint an individual qualified person for pharmacovigilance who is responsible for oversight of that system. Key obligations include expedited reporting of suspected serious adverse reactions and submission of PSURs in relation to pharmaceutical products for which they hold marketing authorizations The EMA reviews PSURs for pharmaceutical products authorized through the centralized procedure. If the EMA has concerns that the risk-benefit profile of a product has varied, it can adopt an opinion advising that the existing marketing authorization for the product be suspended, withdrawn or varied. The Agency can advise that the marketing authorization holder be obliged to conduct post-authorization Phase 4 safety studies. The EMA opinion is submitted to the European Commission for its consideration. If the Commission agrees with the opinion, it can adopt a decision varying the existing marketing authorization. Failure by the marketing authorization holder to fulfill the obligations for which the European Commission’s decision provides can undermine the on-going validity of the marketing authorization.

More generally, non-compliance with pharmacovigilance obligations can lead to the variation, suspension or withdrawal of the marketing authorization for the pharmaceutical product or imposition of financial penalties or other enforcement measures.

The manufacturing process for pharmaceutical products in the European Union is highly regulated and regulators may shut down manufacturing facilities that they believe do not comply with regulations. Manufacturing requires a manufacturing authorization, and the manufacturing authorization holder must comply with various requirements set out in the applicable EU laws, regulations and guidance, including Directive 2001/83/EC, Directive 2003/94/EC, Regulation (EC) No 726/2004 and the European Commission Guidelines for Good Manufacturing Practice, or GMP. These requirements include compliance with EU GMP standards when manufacturing pharmaceutical products and active pharmaceutical ingredients, including the manufacture of active pharmaceutical ingredients outside of the European Union with the intention to import the active pharmaceutical ingredients into the European Union.

Similarly, the distribution of pharmaceutical products into and within the European Union is subject to compliance with the applicable EU laws, regulations and guidelines, including the requirement to hold appropriate authorizations for distribution granted by the competent authorities of the EU Member States. The manufacturer or importer must have a qualified person who is responsible for certifying that each batch of product has been manufactured in accordance with GMP, before releasing the product for commercial distribution in the European Union or for use in a clinical trial. Manufacturing facilities are subject to periodic inspections by the competent authorities for compliance with GMP.

The advertising and promotion of our products is also subject to EU laws concerning promotion of pharmaceutical products, interactions with physicians, misleading and comparative advertising and unfair commercial practices. In addition, other national

legislation of individual EU Member States may apply to the advertising and promotion of pharmaceutical products and may differ from one country to another. These laws require that promotional materials and advertising in relation to pharmaceutical products comply with the product’s SmPC as approved by the competent regulatory authorities. The SmPC is the document that provides information to physicians concerning the safe and effective use of the pharmaceutical product. It forms an intrinsic and integral part of the marketing authorization granted for the pharmaceutical product. Promotion of a pharmaceutical product that does not comply with the SmPC is considered to constitute off-label promotion. All advertising and promotional activities for the product must be consistent with the approved SmPC and therefore all off-label promotion of pharmaceutical products is prohibited in the European Union. The applicable laws at the EU level and in the individual EU Member States also prohibit the direct-to-consumer advertising of prescription-only pharmaceutical products. Violations of the rules governing the promotion of pharmaceutical products in the European Union could be penalized by administrative measures, fines and imprisonment. These laws may further limit or restrict the advertising and promotion of our products to the general public and may also impose limitations on its promotional activities with healthcare professionals.

Even if a pharmaceutical product obtains a marketing authorization in the European Union, there can be no assurance that reimbursement for such product will be secured on a timely basis or at all. The EU Member States are free to restrict the range of pharmaceutical products for which their national health insurance systems provide reimbursement, and to control the prices and reimbursement levels of pharmaceutical products for human use. An EU Member State may approve a specific price or level of reimbursement for the pharmaceutical product, or alternatively adopt a system of direct or indirect controls on the profitability of the company responsible for placing the pharmaceutical product on the market, including volume-based arrangements, caps and reference pricing mechanisms.

Reference pricing used by various EU Member States and parallel distribution, or arbitrage between low-priced and high-priced member states, can further reduce prices. In some countries, we may be required to conduct a clinical study or other studies that compare the cost-effectiveness of our product candidates, if any, to other available therapies in order to obtain or maintain reimbursement or pricing approval. There can be no assurance that any country that has price controls or reimbursement limitations for pharmaceutical products will allow favorable reimbursement and pricing arrangements for any of our products. Historically, pharmaceutical products launched in the European Union do not follow price structures of the United States and generally published and actual prices tend to be significantly lower. Publication of discounts by third party payers or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and other countries.

The so-called health technology assessment (“HTA”) of pharmaceutical products is becoming an increasingly common part of the pricing and reimbursement procedures in some EU Member States, including France, Germany, Ireland, Italy and Sweden. The HTA process, which is governed by the national laws of these countries, is the procedure according to which the assessment of the public health impact, therapeutic impact, and the economic and societal impact of use of a given pharmaceutical product in the national healthcare systems of the individual country is conducted. HTA generally focuses on the clinical efficacy and effectiveness, safety, cost, and cost-effectiveness of individual pharmaceutical products as well as their potential implications for the healthcare system. Those elements of pharmaceutical products are compared with other treatment options available on the market. The outcome of HTA regarding specific pharmaceutical products will often influence the pricing and reimbursement status granted to pharmaceutical products by the regulatory authorities of individual EU Member States. A negative HTA of one of our products by a leading and recognized HTA body could not only undermine our ability to obtain reimbursement for such product in the EU Member State in which such negative assessment was issued, but also in other EU Member States. For example, EU Member States that have not yet developed HTA mechanisms could rely to some extent on the HTA performed in other countries with a developed HTA framework, when adopting decisions concerning the pricing and reimbursement of a specific pharmaceutical product.

On January 31, 2018, the European Commission adopted a proposal for a regulation on health technology assessment. This legislative proposal is intended to boost EU level cooperation among EU Member States in assessing health technologies, including new pharmaceutical products, and providing the basis for cooperation at the EU level for joint clinical assessments in these areas. The proposal provides that EU Member States will be able to use common HTA tools, methodologies and procedures across the European Union, working together in four main areas, including joint clinical assessment of the innovative health technologies with the most potential impact for patients, joint scientific consultations whereby developers can seek advice from HTA authorities, identification of emerging health technologies to identify promising technologies early, and continuing voluntary cooperation in other areas. Individual EU Member States will continue to be responsible for assessing non-clinical (e.g., economic, social, ethical) aspects of health technology, and making decisions on pricing and reimbursement. While EU Member States could choose to delay participation in the joint work until three years after the rules enter into force, it would become mandatory after six years.The European Commission has stated that the role of the draft HTA regulation is not to influence pricing and reimbursement decisions in the individual EU Member States, but there can be no assurance that the draft HTA regulation will not have effects on pricing and reimbursement decisions if and when the draft HTA regulation comes into force. On June 22, 2021, following three years of discussions in the Council of the European Union, the Council of the European Union and the European Parliament reached a provisional agreement on the draft HTA regulation. The European Parliament and the Council of the European Union are now expected to formally adopt the content of the agreement in the coming months.

To obtain reimbursement or pricing approval in some countries, including the EU Member States, we may be required to conduct studies that compare the cost-effectiveness of our product candidates to other therapies that are considered the local standard of care. There can be no assurance that any country will allow favorable pricing, reimbursement and market access conditions for any of our products, or that we will be feasible to conduct additional cost-effectiveness studies, if required.

In certain of the EU Member States, pharmaceutical products that are designated as orphan pharmaceutical products may be exempted or waived from having to provide certain clinical, cost-effectiveness and other economic data in connection with their filings for pricing/reimbursement approval.

The collection and use of personal health data and other personal information in the European Union is governed by the provisions of the European General Data Protection Regulation (EU) 2016/679 (“GDPR”), which came into force in May 2018 and related implementing laws in individual EU Member States. Under the GDPR, personal data can only be transferred to third countries in compliance with specific conditions for cross-border data transfers. A “third country” is a country other than the EU Member States and the three additional European Economic Area countries (Norway, Iceland and Liechtenstein) that have adopted a national law implementing the GDPR. Appropriate safeguards are required to enable transfers of personal data from the EU and EEA Member States. This status has a number of significant practical consequences, in particular for international data transfers, competent supervisory authorities and enforcement of the GDPR. The GDPR increased responsibility and liability in relation to personal data that we process.

The GDPR imposes a number of strict obligations and restrictions on the ability to process (processing includes collection, analysis and transfer of) personal data of individuals within the European Union and in the EEA, including health data from clinical trials and adverse event reporting. The GDPR also includes requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals prior to processing their personal data or personal health data, notification of data processing obligations to the national data protection authorities and the security and confidentiality of the personal data. EU Member States may also impose additional requirements in relation to health, genetic and biometric data through their national implementing legislation.

The GDPR also prohibits the transfer of personal data to countries outside of the European Union/EEA (including the United States) that are not considered by the European Commission to provide an adequate level of data protection, except if the data controller meets very specific requirements such as the use of standard contractual clauses (“SCCs”), issued by the European Commission. In this respect recent legal developments in Europe have created complexity and compliance uncertainty regarding certain transfers of personal data from the EU/EEA. For example, following the Schrems II decision of the Court of Justice of the European Union on July 16, 2020, in which the Court invalidated the Privacy Shield under which personal data could be transferred from the EU/EEA to U.S. entities who had self-certified under the Privacy Shield scheme, there is uncertainty as to the general permissibility of international data transfers under the GDPR. The Court did not invalidate the then current SCCs, but ruled that data exporters relying on these SCCs are required to verify, on a case-by-case basis, if the law of the third country ensures an adequate level of data protection that is essentially equivalent to that guaranteed in the EU/EEA. In light of the implications of this decision we may face difficulties regarding the transfer of personal data from the European Union/EEA to third countries. However, on June 4, 2021 the EU Commission has issued a new set of SCCs for data transfers from controllers of processors in the EU/EEA to controllers or processors established outside the EU/EEA. These SCCs replace the old sets of SCCs that were adopted under the previous European Data Protection Directive 95/46. Since September 27, 2021, it is no longer possible to conclude contracts incorporating these previous versions of the SCCs. In addition, for contracts concluded before September 27, 2021, it is still possible to rely on the previous SCCs until the end of an additional 15 months transitional period (until December 27, 2022), provided that the processing operations which are the subject matter of the contract remain unchanged and reliance on previous SCCs ensures that the transfer is subject to appropriate safeguards. On November 11, 2021, the European Data Protection Board has adopted recommendations on such appropriate safeguards that supplement transfer mechanisms. These recommendations aim to assist data exporters with their duty to identify and implement appropriate supplementary measures where they are needed to ensure an essentially equivalent level of protection to the personal data they transfer to third countries.

Failure to comply with the requirements of the GDPR and the related national data protection laws of the EU Member States may result in significant monetary fines for noncompliance of up to €20 million or 4% of the annual global revenues of the noncompliant company, whichever is greater, other administrative penalties and a number of criminal offenses (punishable by uncapped fines) for organizations and in certain cases their directors and officers as well as civil liability claims from individuals whose personal data was processed. Data protection authorities from the different EU Member States may still implement certain variations, enforce the GDPR and national data protection laws differently, and introduce additional national regulations and guidelines, which adds to the complexity of processing personal data in the European Union. Guidance developed at both EU level and at the national level in individual EU Member States concerning implementation and compliance practices are often updated or otherwise revised.

There is, moreover, a growing trend towards required public disclosure of clinical trial data in the European Union which adds to the complexity of obligations relating to processing health data from clinical trials. Such public disclosure obligations are provided in the new EU Clinical Trials Regulation, EMA disclosure initiatives and voluntary commitments by industry. Failing to comply with

these obligations could lead to government enforcement actions and significant penalties against us, harm to our reputation, and adversely impact our business and operating results. The uncertainty regarding the interplay between different regulatory frameworks, such as the Clinical Trials Regulation and the GDPR, further adds to the complexity that we face with regard to data protection regulation.

With regard to the transfer of data from the European Union to the United Kingdom, the TCA provided for a transition period of up to six months as of January 1, 2021 to enable the European Commission to complete its adequacy assessment of the UK’s data protection laws. On June 28, 2021 the European Commission adopted two adequacy decisions for the United Kingdom – one under the GDPR and the other for the Law Enforcement Directive. Personal data may now freely flow from the European Union to the United Kingdom since the United Kingdom is deemed to have an adequate data protection level. Additionally, following the UK's withdrawal from the European Union and the EEA, companies have to comply also with the UK’s data protection laws (including the GDPR as incorporated into UK national law), the latter regime having the ability to separately fine up to the greater of £17.5 million or 4% of global turnover. The adequacy decisions include a ‘sunset clause’ which entails that the decisions will automatically expire four years after their entry into force.

In the European Union, interactions between pharmaceutical companies and physicians are also governed by strict laws, regulations, industry self-regulation codes of conduct and physicians’ codes of professional conduct both at EU level and in the individual EU Member States. The provision of benefits or advantages to physicians to induce or encourage the prescription, recommendation, endorsement, purchase, supply, order or use of pharmaceutical products is prohibited in the European Union. The provision of benefits or advantages to physicians is also governed by the national anti-bribery laws of the EU Member States. Violation of these laws could result in substantial fines and imprisonment.

Payments made to physicians in certain EU Member States must be publicly disclosed. Moreover, agreements with physicians must often be the subject of prior notification and approval by the physician’s employer, his/her regulatory professional organization, and/or the competent authorities of the individual EU Member States. These requirements are provided in the national laws, industry codes, or professional codes of conduct, applicable in the individual EU Member States. Failure to comply with these requirements could result in reputational risk, public reprimands, administrative penalties, fines or imprisonment.

While the UK has left the EU, as mentioned above, it should be noted that the UK still has the strictest anti-bribery regime in Europe, the UK Bribery Act 2010. The Act is applicable English law and continues to apply to any company incorporated in or “carrying on business” in the United Kingdom, irrespective of where in the world the alleged bribery activity occurs.

Other Legislation Regarding Marketing, Authorization and Pricing of Pharmaceutical Products in the European Union

Other core legislation relating to the marketing, authorization and pricing of pharmaceutical products in the European Union includes the following:

From time to time, legislation is drafted, introduced and passed in the European Union, its member states and other states of Europe that could significantly change the statutory provisions governing the testing, approval, manufacturing, marketing, coverage

and reimbursement of pharmaceutical products. In addition to new legislation, pharmaceutical regulations and policies are often revised or interpreted by the EMA and national agencies in ways that may significantly affect our business and our products.

~~On March 29, 2017,~~Since the United Kingdom ~~triggered Article 50 of the Treaty of the Functioning of~~formally left the European Union on January 31, 2020 and the transition period, during which EU laws continued to apply to the United Kingdom, expired on December 31, 2020, EU laws now only apply to the United Kingdom in ~~order to formally leave~~respect of Northern Ireland as laid out in the Protocol on Ireland and Northern Ireland. However, the European Union ~~(the so-called “Brexit”). As~~and the United Kingdom have concluded the TCA, which entered into force on May 1, 2021. Since the TCA does not, however, contain wholesale mutual recognition of UK and EU pharmaceutical regulations and product standards, future UK pharmaceutical regulations and product standards may differ from those in the European Union. To that end, the UK’s MHRA launched a comprehensive consultation on September 16, 2021 with proposals to amend the regulatory framework for medical devices in the UK. The stated objectives of the ~~date~~proposals include expansion of ~~this filing, we cannot predict~~ the ~~regulatory implications~~scope of ~~Brexit in the (i) enforcement of EU law in~~ the UK ~~before~~Regulations, remove trade barriers, further the ~~effective date~~availability of ~~Brexit (which might be less stringent);~~medical devices and ~~/ or (ii)~~improve the ~~post-Brexit~~favourability of the UK ~~regime~~market. The consultation period closes on ~~market authorizations.~~November 25, 2021 with a view to new regulations coming into force on July 1 2023 with appropriate transitional measures.

Significant uncertainty exists as to the coverage and reimbursement status of products approved by the FDA and other government authorities. Sales of products will depend, in part, on the extent to which the costs of the products will be covered by third-party payors, including government health programs such as, in the United States, Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining whether a payor will provide coverage for a product may be separate from the process for setting the price or reimbursement rate that the payor will pay for the product once coverage is approved. Third-party payors may limit coverage to specific products on an approved list, or formulary, which might not include all of the approved products for a particular indication.

In order to secure coverage and reimbursement for any product that might be approved for sale, a company may need to conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness of the product, in addition to the costs required to obtain FDA or other comparable regulatory approvals. A payor’s decision to provide coverage for a drug product does not necessarily imply that an adequate reimbursement rate will be approved. Third-party reimbursement may not be sufficient to maintain price levels high enough to realize an appropriate return on our investment in product development.

The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices of drugs have been a focus in this effort. Third-party payors are increasingly challenging the prices charged for medical products and services and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy. If these third-party payors do not consider a product to be cost effective compared to other available therapies, they may not cover the product after approval as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow a company to sell its products at a profit. The U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost containment programs to limit the growth of government-paid health care costs, including price controls, risk sharing, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs. Adoption of such controls and measures and tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for pharmaceuticals. As a result, the marketability of any product which receives regulatory approval for commercial sale may suffer if the government and third-party payors fail to provide adequate coverage and reimbursement.

In addition, an increasing emphasis on managed care in the United States has increased and will continue to increase the pressure on drug pricing. Coverage policies, third-party reimbursement rates and drug pricing regulation may change at any time. In particular, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, contains provisions that may reduce the profitability of drug products, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual fees based on pharmaceutical companies’ share of sales to federal health care programs. Even if favorable coverage and reimbursement status is attained for one or more products that receive regulatory approval, less favorable coverage policies and reimbursement rates may be implemented in the future.

In the European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug products may be marketed only after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a particular product candidate to currently available therapies. For example, the European Union provides options for its member states to restrict the range of drug products for which their national health insurance systems provide reimbursement and to control the prices of medicinal products for human use. European Union member states may approve a specific price for a drug product or it may instead adopt a system of direct or indirect controls on the profitability of the company placing the drug product on the market. Other member states allow companies to fix their own prices for drug products but monitor and control company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing within a country. Any

country that has price controls or reimbursement limitations for drug products may not allow favorable reimbursement and pricing arrangements for any of our products.

Healthcare providers, physicians and third-party payors will play a primary role in the recommendation and prescription of drug products that are granted marketing approval. Arrangements with healthcare providers, physicians, third-party payors and customers are subject to broadly applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements and relationships through which we market, sell and distribute products for which we obtain marketing approval. Restrictions under applicable federal and state healthcare laws and regulations, include the following:

Various state and foreign laws also govern the privacy and security of health information in some circumstances; many of these laws differ from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.

The financial information required in this Item 1 is included in Part ~~II, Item 6 and Part~~ IV, Item 15 of this Annual Report on Form 10-K.

Arrowhead was originally incorporated in South Dakota in 1989 and was reincorporated in Delaware in 2000. In April 2016, Arrowhead changed its name from Arrowhead Research Corporation to Arrowhead Pharmaceuticals, Inc. The Company’s principal executive offices are located at 177 E. Colorado Blvd, Suite 700, Pasadena, California 91105, and its telephone number is (626) 304-3400. We also operate a research and development facility in Madison, Wisconsin. Employees

As of September 30, ~~2019,~~2021, Arrowhead ~~had 134 full-time~~employed 329 fulltime employees at three facilities in the US, including Pasadena, CA, Madison, WI and San Diego, CA. During fiscal year 2021, we grew our capabilities across the three sites by adding 97 new employees. The new employees were hired to support and extend our clinical and preclinical pipeline, with hires in clinical development and operations, research, manufacturing, and general and administrative functions.

We expect to continue to add additional employees in fiscal year 2022 with a focus on expanding our in-house manufacturing capacity, as well as increasing expertise and bandwidth in clinical and preclinical research and development. The Company continually evaluates the business need and opportunity and balances in-house expertise and capacity with outsourced expertise and capacity. Currently, we outsource substantial clinical trial work to clinical research organizations and certain drug manufacturing to contract manufacturers.

Drug development is a complex endeavor which requires deep expertise and experience across a broad array of disciplines. Pharmaceutical companies both large and small compete for a limited number qualified applicants to fill specialized positions. To attract qualified applicants to the Company, Arrowhead offers a total rewards package consisting of base salary and cash target bonus targeting the 50^th to 75^th percentile of market based on geography, a comprehensive benefit package and equity compensation for every employee. Bonus opportunity and equity compensation increase as a percentage of total compensation based on level of responsibility. Actual bonus payout is based on performance.

A large majority of Arrowhead’s employees have obtained advanced degrees in their professions. Arrowhead supports our employees’ further development with individualized development plans, mentoring, coaching, group training, conference attendance and financial support including tuition reimbursement.

Beginning in March 2020, Arrowhead has supported our employees and government efforts to curb the COVID-19 pandemic through a multifaceted communication, infrastructure, and behavior modification and enforcement effort:

In 2020 through June 2021, we provided a childcare subsidy to support employees who incurred additional expenses related to the loss of in person schooling and childcare.

Arrowhead is committed maintaining a welcome, healthy and equitable environment where all employees can excel and contribute to our mission of bringing safe and effective medicine to patients in need. In 2021, we initiated formal training and processes to promote awareness of inclusion and diversity issues for management and employees, including anti-bias training and employee outreach and engagement. In the coming year, we will continue and extend those efforts.

Our website address is http://~~www.arrowheadpharmaceuticals.com~~www.arrowheadpharmaceuticals.com. Our reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, including our annual reports on Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K, and amendments to those reports, are accessible through our website, free of charge, as soon as reasonably practicable after these reports are filed electronically with, or otherwise furnished to, the SEC. These SEC reports can be accessed through the “Investors” section of our website.

You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC ~~also~~ maintains an Internet website that contains reports, proxy and information statements, and other information regarding Arrowhead and other issuers that file electronically with the SEC. The SEC’s Internet website address is http://www.sec.gov.

You should carefully consider the risks discussed below and all of the other information contained in this report in evaluating us and an investment in our securities. If any of the following risks and uncertainties should occur, they could have a material adverse effect on our business, financial condition or results of operations. In that case, the trading price of our Common Stock could decline. Many of the following risks and uncertainties may be exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result. Additionally, we note that we have accrued net losses annually since inception given the stage of our drug development. We urge you to consider our likelihood of success and prospects in light of the risks, expenses and difficulties frequently encountered by entities at similar stages of development.

Our results of operations and financial condition may be adversely affected by the novel coronavirus (COVID-19) pandemic and other public health epidemics.

Our business and its operations, including but not limited to our research and development activities and our supply chain, could be adversely affected by health epidemics in regions where we have business operations, and such health epidemics could cause significant disruption in the operations of third parties upon whom we rely. In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. In response to public health directives and orders related to COVID-19, we implemented work-from-home policies for substantially all of our employees to the extent work can be performed effectively at home. The effects of executive and similar government orders, shelter-in-place orders and our work-from-home policies may negatively impact our productivity, disrupt our business, increase our expenses, including costs associated with preventive and precautionary measures that we, companies with which we conduct business, and governments are taking, and delay our clinical trials and timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. These and similar, and perhaps more severe, disruptions in our operations could negatively impact our business, results of operations and financial condition.

Quarantines, shelter-in-place, executive and similar government orders, or the perception that such orders, shutdowns or other restrictions, including vaccination requirements or mandates, on the conduct of business operations could occur, related to COVID-19 or other infectious diseases, have impacted and may continue to impact personnel at our business partners in the United States and other countries, or our access to raw materials for our research and development facility discovery efforts, which would disrupt our supply chain.

In addition, our clinical trials and preclinical programs have been and continue to be affected by the COVID-19 pandemic. For example, we have experienced delays in our earlier stage programs due to a shortage in non-human primates which are critical for our preclinical programs. Additionally, we have experienced delays in enrollment in our clinical trials.

Additionally, the Company’s operations at its research and development facilities in Madison, Wisconsin and San Diego, California, as well as its corporate headquarters in Pasadena, California have continued to operate with limited impact, other than for enhanced safety measures, including work from home policies. However, the Company cannot predict the impact that the progression of COVID-19 will have on future financial results due to a variety of factors including the ability of the Company’s clinical sites to continue to enroll subjects, the ability of the Company’s suppliers to continue to operate, the continued good health and safety of the Company’s employees, and ultimately the length of the COVID-19 pandemic, which in turn may be impacted by the efficacy, distribution and public acceptance of vaccines and treatments. If COVID-19 continues to spread in the United States and elsewhere, including as a result of mutations or variants, we may experience additional disruptions that could severely impact our business, preclinical studies and clinical trials, including:

The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the long-term economic impact brought by COVID-19, and the duration of such impact, may be difficult to assess or predict, the widespread pandemic has resulted in significant disruption of global financial markets, which could reduce our ability to access capital and negatively affect our future liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 and related government orders and restrictions could materially affect our business and the value of our common stock.

The COVID-19 pandemic continues to evolve rapidly. The ultimate impact of the COVID-19 pandemic or a similar public health emergency is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business, our clinical trials, healthcare systems, or the global economy as a whole. However, any one or a combination of these events could have an adverse effect on our results of operations and financial condition.

There are substantial risks inherent in attempting to commercialize our new drugs, and, as a result, we may not be able to successfully develop products for commercial use.

Our research and development efforts involve therapeutics based on RNA interference and our delivery systems, which are largely unproven technologies. Our scientists and engineers are working on developing technology in the early stages. However, such technology’s commercial feasibility and acceptance are unknown. Scientific research and development requires significant amounts of capital and takes a long time to reach commercial viability if it can be achieved at all. To date, our research and development projects have not produced commercially viable drugs and may never do so. During the research and development process, we may experience technological barriers that we may be unable to overcome. Because we use platform technology to develop drug candidates, toxicology signals that may emerge in the course of testing of one particular candidate may apply broadly across our drug candidate platform. Further, certain underlying premises in our development programs are not ~~proven.~~proven and many of the drug targets that we are pursuing have not yet been validated clinically. For instance, the reduction of the production of mutant alpha-1 antitrypsin in the liver may not lead to a reduction of globules in the liver, and even if it leads to a reduction in such globules, this may not lead to other beneficial hepatic changes. It is also unknown at this time what changes in the liver may be required to gain regulatory approval and/or favorable reimbursement for a drug that reduces the production of mutant alpha-1 antitrypsin in the liver. Similar uncertainties and risks exist that are specific to each of our development programs. Because of these and similar uncertainties, it is possible that no commercial products will be successfully developed. If we are unable to successfully develop commercial products, we will be unable to generate revenue or build a sustainable or profitable business.

There can be no assurance that our product candidates will obtain regulatory approval.

The sale of human therapeutic products in the ~~U.S.~~United States and foreign jurisdictions is subject to extensive and time consuming regulatory approval which requires, among other things:

The product candidates we currently have under development will require significant development, pre-clinical and clinical testing and investment of significant funds to gain regulatory approval before they can be commercialized. The results of our research and human clinical testing of our products may not meet regulatory requirements. Some of our product candidates, if approved, will require the completion of post-market studies. There can be no assurance that any of our products will be further developed and approved. The process of completing clinical testing and obtaining required approvals will take a number of years and require the use of substantial resources. Further, there can be no assurance that product candidates employing a new technology will be shown to be safe and effective in clinical trials or receive applicable regulatory approvals. If we fail to obtain regulatory approvals for any or all of our products, we will not be able to market such product and our operations may be adversely affected.

If testing of a particular product candidate does not yield successful results, then we will be unable to commercialize that product candidate.

We must demonstrate our product candidates’ safety and efficacy in humans through extensive clinical testing. Our research and development programs are at an early stage of development. We may experience numerous unforeseen events during, or as a result of, the testing process that could delay or prevent commercialization of any products, including the following:

Topline data may not accurately reflect the complete results of a particular study or trial.

We may publicly disclose topline or interim data from time to time, which is based on a preliminary analysis of then-available efficacy and safety data such as the data reported from the ~~AROAAT1001,~~AROAAT2002, AROANG31001, and AROAPOC31001 clinical studies which are based on preliminary analysis of key efficacy and safety data, and the results and related findings and conclusions are subject to change following a more comprehensive review of the data related to the particular study or trial. We also make assumptions, estimations, calculations and conclusions as part of our analyses of data, and we may not have received or had the opportunity to fully and carefully evaluate all data. As a result, the topline results that we report may differ from future results of the same studies, or different conclusions or considerations may qualify such results, once additional data have been received and fully evaluated. Topline data also remain subject to audit and verification procedures that may result in the final data being materially different from the preliminary data we previously published. As a result, topline data should be viewed with caution until the final data are available. Further, others, including regulatory agencies, may not accept or agree with our assumptions, estimations, calculations, conclusions or analyses or may interpret or weigh the importance of data differently, which could impact the value of the particular program, the approvability or commercialization of the particular drug candidate or drug and our company in general. In addition, the information we may publicly disclose regarding a particular study or clinical trial is based on what is typically extensive information, and you or others may not agree with what we determine is the material or otherwise appropriate information to include in our disclosure, and any information we determine not to disclose may ultimately be deemed significant with respect to future decisions, conclusions, views, activities or otherwise regarding a particular drug, drug candidate or our business. If the topline data that we report differ from a future analysis of results, or if others, including regulatory authorities, disagree with the conclusions reached, our ability to obtain approval for and commercialize our product candidates, our business, operating results, prospects or financial condition may be harmed.

It may take us longer than we project to complete clinical trials, and we may not be able to complete them at all.

Although for planning purposes, we project the commencement, continuation and completion of our clinical trials, a number of factors, including scheduling conflicts with participating clinicians and clinical institutions, and difficulties in identifying or enrolling patients who meet trial eligibility criteria, may cause significant delays. Enrollment of clinical trials may be particularly difficult in orphan diseases or limited-sized patient populations. The FDA or other regulatory bodies may require additional, longer or broader clinical trials to establish safety and effectiveness, notwithstanding guidance the Company may have received from those bodies during clinical trial planning and execution. Further, the cost for conducting clinical trials is significant and if our cash resources become limited we may not be able to commence, continue, and/or complete our clinical trials. We may not commence or complete clinical trials involving any of our product candidates as projected or may not conduct them successfully.

~~Fast Track~~Breakthrough Therapy designation for ARO-AAT may not lead to a faster development or review process.

We have been granted a ~~Fast Track~~Breakthrough Therapy designation for ARO-AAT in the United States for the treatment of liver disease associated with AATD. ~~Fast Track~~Breakthrough Therapy designation is intended to facilitate the development and expedite the review of new therapies to treat serious conditions with unmet medical needs by providing sponsors with the opportunity for frequent interactions and additional drug development guidance with the ~~FDA. Fast Track~~FDA and its senior managers.Breakthrough Therapy designation applies to the combination of the drug candidate and the specific indication for which it is being studied. Product candidates that receive ~~Fast Track~~Breakthrough Therapy designation may receive more frequent interactions with the FDA regarding the product candidate’s development plan and clinical trials and may be eligible for the FDA’s Rolling Review.

Despite receiving ~~Fast Track~~Breakthrough Therapy designation, ARO-AAT may not actually receive faster clinical development or regulatory review or approval any sooner than other product candidates that do not have such designation, or at all. Furthermore, such a designation does not increase the likelihood that ARO-AAT will receive marketing approval in the United States. The FDA may also ~~withdraw Fast Track~~rescind Breakthrough Therapy designation if it determines that ARO-AAT no longer meets the relevant criteria.

Even if our ~~clinical studies are successful and we achieve regulatory approval, the approved~~ product ~~label may be more limited than we or other parties anticipate, which could limit the commercial opportunity for our product candidates.~~

~~At the time drugs~~candidates are approved for commercialization, ~~they are given a “product label” from the FDA~~failure to comply with regulatory requirements or ~~other regulatory body. In most countries this label sets forth the approved indication for marketing and identifies potential safety concerns for prescribing~~

~~physicians and patients. While we intend to seek as broad a product label as possible for~~unanticipated problems with our ~~product candidates, we~~products may ~~receive a narrower label than is expected by either us or third parties,~~result in various adverse actions such as stockholders and securities analysts. For example, any approved products may only be indicated to treat refractory patients (i.e., those who have failed some other first-line therapy). Similarly, it is possible that only a specific sub-setthe suspension or withdrawal of ~~patients safely responds to~~ one or more of our ~~drug candidates. As~~products, closure of a ~~result,~~facility or enforcement of substantial penalties or fines.

If regulatory approval to sell any of our product candidates ~~even if successful in clinical trials, could be approved only for~~is received, regulatory agencies will subject any marketed product(s), as well as the manufacturing facilities, to continual review and periodic inspection. If previously unknown problems with a ~~subset~~product or with regulatory requirements are discovered, such as adverse events of ~~patients. Additionally, safety considerations~~unanticipated severity or frequency, problems with a manufacturing process or laboratory facility, or failure to comply with applicable regulatory approval requirements, a regulatory agency may ~~result in contraindications~~impose restrictions or penalties on that ~~could further limit the scope of an approved~~ product ~~label. Any of these~~ or on us. Such restrictions or penalties may include, among other ~~safety and efficacy considerations could limit the commercial opportunity for our product candidates.~~things:

Even if our product candidates are approved for commercialization, future regulatory reviews or inspections may result in the suspension or withdrawal of one or more of our products, closure of a facility or enforcement of substantial fines.

If regulatory approval to sell any of our product candidates is received, regulatory agencies will subject any marketed product(s), as well as the manufacturing facilities, to continual review and periodic inspection. If previously unknown problems with a product or manufacturing and laboratory facility are discovered, or we fail to comply with applicable regulatory approval requirements, a regulatory agency may impose restrictions on that product or on us. The agency may require the withdrawal of the product from the market, closure of the facility or enforcement of substantial fines.

We face potential product liability exposure, and if successful claims are brought against us, we may incur substantial liability for a product candidate and may have to limit its commercialization.

The use of our product candidates in clinical trials and the sale of any products for which we obtain marketing approval expose us to the risk of product liability claims. Product liability claims might be brought against us by clinical trial participants, consumers, health-care providers, pharmaceutical companies, or others selling our products. If we cannot successfully defend ourselves against these claims, we may incur substantial liabilities. Regardless of merit or eventual outcomes of such claims, product liability claims may result in:

Our insurance coverage may not be sufficient to reimburse us for all expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses.

The successful commercialization of our product candidates, if approved, will depend in part on the extent to which government authorities and health insurers establish adequate reimbursement levels and pricing policies.

Sales of any approved drug candidate will depend in part on the availability of coverage and reimbursement from third-party payers such as government insurance programs, including Medicare and Medicaid, private health insurers, health maintenance organizations and other health care related organizations, who are increasingly challenging the price of medical products and services. Accordingly, coverage and reimbursement may be uncertain. Adoption of any drug by the medical community may be limited if third-party payers will not offer coverage. Additionally, significant uncertainty exists as to the reimbursement status of newly approved drugs. Cost control initiatives may decrease coverage and payment levels for any drug and, in turn, the price that we will be able to charge and/or the volume of our sales. We are unable to predict all changes to the coverage or reimbursement methodologies that will be applied by private or government payers. Any denial of private or government payer coverage or inadequate reimbursement could harm our business and reduce our revenue. If we partner with third parties with respect to any of our product candidates, we may be

reliant on that partner to obtain reimbursement from government and private payors for the drug, if approved, and any failure of that partner to establish adequate reimbursement could have a negative impact on our revenues and profitability.

In addition, both the federal and state governments in the United States and foreign governments continue to propose and pass new legislation, regulations, and policies affecting coverage and reimbursement rates, which are designed to contain or reduce the cost of health care. Further federal and state proposals and healthcare reforms are likely, which could limit the prices that can be charged for the product candidates that we develop and may further limit our commercial opportunity. There may be future changes that result in reductions in potential coverage and reimbursement levels for our product candidates, if approved and commercialized, and we cannot predict the scope of any future changes or the impact that those changes would have on our operations.

If future reimbursement for approved product candidates, if any, is substantially less than we project, or rebate obligations associated with them are substantially greater than we expect, our future net revenue and profitability could be materially diminished.

We may not enjoy the market exclusivity benefits of our orphan drug ~~designation.~~designations.

Although we may obtain orphan designations in the treatment of certain diseases our products are intended to treat, the designation may not be applicable to any particular product we might get approved and that product may not be the first product to receive approval for that indication. Under the Orphan Drug Act, the first product with an orphan designation receives market exclusivity, which prohibits the FDA from approving the “same” drug for the same indication. The FDA has stated that drugs can be the “same” even when they are not identical but has not provided guidance with respect to how it will determine “sameness” for RNAi drugs. It is possible that another RNAi drug could be approved for the treatment of a disease one of our orphan products is intended to treat before our product is approved, which means that we may not obtain orphan drug exclusivity and could also potentially be blocked from approval until the first product’s orphan drug exclusivity period expires or we demonstrate, if we can, that our product is superior. Further, even if we obtain orphan drug exclusivity for a product, that exclusivity may not effectively protect the product from competition because different drugs can be approved for the same condition. Even after an orphan drug is approved and granted orphan drug exclusivity, the FDA can subsequently approve the same drug for the same condition if the FDA concludes that the later drug is safer, more effective or makes a major contribution to patient care. Further, orphan drug exclusivity can be lost if the FDA later determines that the request for designation was materially defective or if the applicant is unable to assure the availability of sufficient quantities of the drug to meet the needs of patients with the disease or condition for which the drug was designated.

Our success depends on the attraction and retention of senior management and scientists with relevant expertise.

Our future success depends to a significant extent on the continued services of our key employees, including our senior scientific, technical and managerial personnel. We do not maintain key person life insurance for any of our executives and we do not maintain employment agreements with many senior employees. Competition for qualified employees in the pharmaceutical industry is high, and our ability to execute our strategy will depend in part on our ability to continue to attract and retain qualified scientists, management and ~~management.~~other employees. This will depend in part on our ability to create and maintain a desirable workplace culture, which may be impacted by the long-term effects of the COVID-19 pandemic on the nature of the office environment and employee preferences for remote working. If we are unable to find, hire and retain qualified individuals, we will have difficulty implementing our business plan in a timely manner, or at all.

Our ability to protect our patents and other proprietary rights is uncertain, exposing us to the possible loss of competitive advantage.

We have licensed rights to pending patents and have filed and expect to continue to file patent applications. Researchers sponsored by us may also file patent applications that we may need to license. Such patent applications may not be available for licensing or may not be economically feasible to license. Certain of our patents may not be granted or may not contain claims of the necessary breadth because, for example, prior patents exist. If a particular patent is not granted, the value of the invention described in the patent would be diminished. Further, even if these patents are granted, they may be difficult to enforce. Even if ultimately successful, efforts to enforce our patent rights could be expensive, distracting for management, cause our patents to be invalidated or held unenforceable, and thus frustrate commercialization of products. Even if patents are issued and are enforceable, others may develop similar, superior or parallel technologies to any technology developed by us and not infringe on our patents. Our technology may prove to infringe upon patents or rights owned by others. Patent prosecution and maintenance is expensive, and we may be forced to curtail prosecution or maintenance if our cash resources are limited. Thus, the patents held by or licensed to us may not afford us any meaningful competitive advantage. If we are unable to derive value from our licensed or owned intellectual property, the value of your investment may decline.

We are party to technology license agreements with third parties that require us to satisfy obligations to keep them effective and, if these agreements are terminated, our technology and our business would be seriously and adversely affected.

We are party to license agreements to incorporate third party proprietary technologies into our drug products under development. These license agreements require us to pay royalties and satisfy other conditions. If we fail to satisfy our obligations under these agreements, the terms of the licenses may be materially modified, such as by rendering currently exclusive licenses non-exclusive, or it may give our licensors the right to terminate their respective agreement with us, which could limit our ability to implement our current business plan and harm our business and financial condition.

We may be subject to patent infringement claims, which could result in substantial costs and liability and prevent us from commercializing our potential products.

Because the intellectual property landscape in the fields in which we participate is rapidly evolving and interdisciplinary, it is difficult to conclusively assess our freedom to operate without infringing on third party rights. However, if granted marketing approval, we are currently aware of certain patent rights held by third parties that, if found to be valid and enforceable, could be alleged to render one or more of our drug candidates infringing. If a claim should be brought and is successful, we may be required to pay substantial damages, be forced to abandon any affected drug candidates and/or seek a license from the patent holder. In addition, any

patent infringement claims brought against us, whether or not successful, may cause us to incur significant expenses and divert the attention of our management and key personnel from other business concerns. These could negatively affect our results of operations and prospects. We cannot be certain that patents owned or licensed by us will not be challenged, potentially successfully, by others.

In addition, if our product candidates are found to infringe the intellectual property rights of third parties, these third parties may assert infringement claims against our customers, licensees, and other parties with whom we have business relationships and we may be required to indemnify those parties for any damages they suffer as a result of these claims. The claims may require us to initiate or defend protracted and costly litigation on behalf of customers, licensees, and other parties regardless of the merits of these claims. If any of these claims succeed, we may be forced to pay damages on behalf of those parties or may be required to obtain licenses for the products they use. If we cannot obtain all necessary licenses on commercially reasonable terms, we may be unable to continue selling such products.

We license patent rights from third-party owners and we rely on such owners to obtain, maintain and enforce the patents underlying such licenses.

We are a party to a number of licenses that give us rights to third-party intellectual property that is necessary or useful for our business. We also expect to enter into additional licenses to third-party intellectual property in the future.

Our success will depend in part on the ability of our licensors to obtain, maintain and enforce patent protection for our licensed intellectual property, in particular, those patents to which we have secured exclusive rights. Our licensors may not successfully prosecute the patent applications to which we are licensed. Even if patents are issued in respect of these patent applications, our licensors may fail to maintain these patents, may determine not to pursue litigation against other companies that are infringing these patents, or may pursue such litigation less aggressively than we would. Without protection for the intellectual property we license, other companies might be able to offer substantially identical products for sale, which could adversely affect our competitive business position and harm our business prospects.

Our technology licensed from various third parties may be subject to retained rights.

Our licensors often retain certain rights under their agreements with us, including the right to use the underlying technology for noncommercial academic and research use, to publish general scientific findings from research related to the technology, and to make customary scientific and scholarly disclosures of information relating to the technology. It is difficult to monitor whether our licensors limit their use of the technology to these uses, and we could incur substantial expenses to enforce our rights to our licensed technology in the event of misuse.

Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.

In order to protect our proprietary technology and processes, we rely in part on confidentiality agreements with our collaborators, employees, consultants, outside scientific collaborators and sponsored researchers, and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. As our organization grows, so does the risk of unauthorized disclosure of confidential information. In addition, while the company undertakes efforts to protect its trade secrets and other confidential information from disclosure, others may independently discover trade secrets and proprietary information, and in such cases, we may not be able to assert any trade secret rights against such party. Costly and time-consuming litigation could be necessary to enforce and

determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

We may not be able to effectively secure first-tier technologies when competing against other companies or investors.

Our future success may require that we acquire patent rights and know-how to new or complimentary technologies. However, we compete with a substantial number of other companies that may also compete for technologies we desire. In addition, many venture capital firms and other institutional investors, as well as other pharmaceutical and biotech companies, invest in companies seeking to commercialize various types of emerging technologies. Many of these companies have greater financial, scientific and commercial resources than us. Therefore, we may not be able to secure the technologies we desire. Furthermore, should any commercial undertaking by us prove to be successful, there can be no assurance competitors with greater financial resources will not offer competitive products and/or technologies.

Our business model assumes we will generate revenue by, among other activities, marketing or out-licensing the products we develop. Our drug candidates are in the early stages of development and because we have a short development history with both

RNA interference and our delivery technologies, there is a limited amount of information about us upon which you can evaluate our business and prospects.

We have no approved drugs and thus have not begun to market or generate revenues from the commercialization of any products. We have only a limited history upon which one can evaluate our RNAi therapeutic business as our drug candidates are still at an early stage of development. Thus, we have limited experience and have not yet demonstrated an ability to successfully overcome many of the risks and uncertainties frequently encountered by companies in new and rapidly evolving fields, particularly in the biopharmaceutical area. For example, to execute our business plan, we will need to successfully:

If we are unsuccessful in accomplishing these objectives, we may not be able to develop products, raise capital, expand our business or continue our operations.

We may need to establish additional relationships with strategic and development partners to fully develop our drug candidates and market any approved products.

~~In October 2018,~~Over the past several years we have entered into a license ~~agreement and research~~ and collaboration ~~agreement with Janssen Pharmaceuticals, Inc. and during fiscal year 2016, we entered into two collaboration and license~~ agreements with Takeda, Janssen, Amgen ~~Inc.~~and Horizon. Our business strategy includes obtaining additional collaborations with other pharmaceutical and biotech companies to support the development of our RNAi therapeutics and other drug candidates. We do not possess all of the financial and development resources necessary to develop and commercialize products that may result from our technologies. Unless we expand our product development capacity and enhance our internal marketing capability, we may need to make appropriate arrangements with strategic partners to develop and commercialize any drug candidates that may be approved. We may not be able to attract such partners, and even if we are able to enter into such partnerships, the terms may be less favorable than anticipated. Further, entering into partnership agreements may limit our commercialization options and/or require us to share revenues and profits with our partners. If we do not find appropriate partners, or if our existing arrangements or future agreements are not successful, our ability to develop and commercialize products could be adversely affected. Even if we are able to find collaborative partners, the overall success of the development and commercialization of product candidates in those programs will depend largely on the efforts of other parties and will be beyond our control. In addition, in the event we pursue our commercialization strategy through collaboration or licenses to third parties, there are a variety of technical, business and legal risks, including:

The occurrence of any of the above events or other related events could impair our ability to generate revenues and harm our business and financial condition.

Our ability to generate milestone and royalty payments under our current and potential future licensing and collaboration agreements is substantially controlled by our partners, and as such, we will likely need other sources of financing to continue to develop our internal drug candidates.

For instance, under our licensing and collaboration agreements with Amgen, Janssen, Takeda and ~~Janssen, both Amgen and Janssen~~Horizon, our partners substantially control ~~all~~ clinical development and commercialization for all of the candidates ~~discussed, and the potential future targets.~~covered under those agreements. To the extent that ~~i) either of these partners~~(i) our partners’ interests in advancing these candidates or targets changes, ~~ii)~~(ii) unforeseen scientific issues with the candidates arise, or ~~iii)~~(iii) the pace at which ~~either moves~~our partners move the candidates through clinical trials toward commercialization slows, our ability to collect milestones and royalties may be significantly diminished. This would further cause us to rely upon other sources of financing to continue to develop our other internal drug candidates.

We may lose a considerable amount of control over our intellectual property and may not receive anticipated revenues in strategic transactions, particularly where the consideration is contingent on the achievement of development or sales milestones.

Our business model has been to develop new technologies and to utilize the intellectual property created through the research and development process to develop commercially successful products. If the acquirers of our technologies fail to achieve performance milestones, we may not receive a significant portion of the total value of any sale, license or other strategic transaction.

We will need to achieve commercial acceptance of our drug candidates to generate revenues and achieve profitability.

Even if our research and development efforts yield technologically feasible applications, we may not successfully develop commercial products. Drug development takes years of study in human clinical trials prior to regulatory approval, and, even if we are successful, it may not be on a timely basis. During our drug development period, superior competitive technologies may be introduced which could diminish or extinguish the potential commercial uses for our drug candidates. Additionally, the degree to which the medical community and consumers will adopt any product we develop is uncertain. The rate and degree of market acceptance of our products will depend on a number of factors, including the establishment and demonstration in the medical community of the clinical efficacy and safety of our products, their potential advantage over alternative treatments, and the costs to patients and third-party payors, including insurance companies and Medicare. Recent efforts in the United States and abroad to reduce overall healthcare spending has put significant pressure on the price of prescription drugs and certain companies have been publicly criticized for the relatively high cost of their therapies. These pressures may force us to sell any approved drugs at a lower price than we or analysts may anticipate or may result in lower levels of reimbursement and coverage from third parties.

We cannot predict whether significant commercial market acceptance for our products, if approved, will ever develop, and we cannot reliably estimate the projected size of any such potential market. Our revenue growth and achievement of consistent profitability will depend substantially on our ability to introduce products that will be accepted by the medical community. If we are unable to cost-effectively achieve acceptance of our technology among the medical establishment and patients, or if the associated products do not achieve wide market acceptance, our business will be materially and adversely affected.

We rely on outside sources for various components and processes for our products.

We rely on third parties for various components and processes for our product candidates. We may not be able to achieve multiple sourcing because there may be no acceptable second source, other companies may choose not to work with us, or the component or process sought may be so new that a second source does not exist or does not exist on acceptable terms. There may be a disruption or delay in the performance of our third-party contractors, suppliers or collaborators which is beyond our control. If such third parties are unable to satisfy their commitments to us, the development of our products would be adversely affected. Therefore, it is possible that our development plans will have to be slowed down or stopped completely at times due to our inability to obtain required raw materials, components, and outsourced processes at an acceptable cost, if at all, or to get a timely response from ~~vendors.~~

vendors, particularly as a result of recent labor market and global supply chain constraints.

We have limited manufacturing capability and must rely on third-party manufacturers to manufacture our clinical supplies and commercial products, if and when approved, and if they fail to meet their obligations, the development and commercialization of our products could be adversely affected.

We have limited manufacturing capabilities and experience. Our drug candidates are composed of multiple components and require specialized formulations for which scale-up and manufacturing could be difficult. We have limited experience in such scale-up and manufacturing requiring us to depend on a limited number of third parties, who may not be able to deliver in a timely manner, or at all. In order to develop products, apply for regulatory approvals, and commercialize our products, we will need to develop, contract

for, or otherwise arrange for the necessary manufacturing capabilities. Our internal GMP manufacturing capabilities are limited to small-scale production of ~~material for use in~~ ~~in vitro~~ ~~and~~ ~~in vivo~~ ~~experiments that is not required to be produced under cGMP standards beyond those applicable to active pharmaceutical ingredients used in some early phase studies.~~material. There are a limited number of manufacturers that supply synthetic oligonucleotides. There are risks inherent in pharmaceutical manufacturing that could affect the ability of our contract manufacturers to meet our delivery time requirements or provide adequate amounts of material to meet our needs. Included in these risks are synthesis and purification failures and contamination during the manufacturing process, which could result in unusable product and cause delays in our development process, as well as additional expense to us.

Additionally, our product candidates have not yet been manufactured for commercial use. If any of our product candidates become approved for commercial sale, we will need to establish either internal or third-party manufacturing capacity. Manufacturing partner requirements may require us to fund capital improvements, perhaps on behalf of third parties, to support the scale-up of manufacturing and related activities. We may not be able to establish scaled manufacturing capacity for an approved product in a timely or economic manner, if at all. If we or our third-party manufacturers are unable to provide commercial quantities of such an approved product, we will have to successfully transfer manufacturing technology to a different manufacturer. Engaging a new manufacturer for such an approved product could require us to conduct comparative studies or utilize other means to determine bioequivalence of the new and prior manufacturers’ products, which could delay or prevent our ability to commercialize such an

approved product. If we or any of these manufacturers is unable or unwilling to increase its manufacturing capacity or if we are unable to establish alternative arrangements on a timely basis or on acceptable terms, the development and commercialization of such an approved product may be delayed or there may be a shortage in supply. Any inability to manufacture our product candidates or future approved drugs in sufficient quantities when needed would seriously harm our business. For example, recent global supply chain constraints have led to intermittent lab supply shortages, which are critical for our preclinical programs. While we are exploring alternative suppliers for certain critical materials, there can be no assurance that our efforts will be successful.

Manufacturers of our approved products, if any, must comply with cGMP requirements ~~enforced by~~relating to methods, facilities and controls used in the ~~FDA~~manufacturing, processing and ~~foreign health authorities through facilities inspection programs.~~packaging of the product, which are intended to ensure that drug products are safe and that they consistently meet applicable requirements and specifications. These requirements include quality control, quality assurance, and the maintenance of records and documentation. Manufacturers of our approved products, if any, may be unable to comply with these cGMP requirements and with other FDA, state and foreign regulatory requirements. These requirements are enforced by the FDA and other health authorities through periodic announced and unannounced inspections of manufacturing facilities. A failure to comply with these requirements or to provide adequate and timely corrective actions in response to deficiencies identified in an inspection may result in enforcement action, including warning letters, fines and civil penalties, suspension of production, suspension or delay in product approval, product seizure or recall, plant shutdown, or the delay, withholding, or withdrawal of product approval. If the safety of any quantities supplied is compromised due to a manufacturer’s failure to adhere to applicable laws or for other reasons, we may not be able to obtain regulatory approval for or successfully commercialize our products, which would seriously harm our business.

We rely on third parties to conduct our clinical trials, and if they fail to fulfill their obligations, the development of our products may be adversely affected.

We rely on independent clinical investigators, contract research organizations and other third-party service providers to assist us in managing, monitoring and otherwise carrying out our clinical trials. We contract with certain third-parties to provide certain services, including site selection, enrollment, monitoring and data management services. We rely on these parties to carry out our clinical trials in compliance with GCP and other relevant requirements. Although we depend heavily on these parties, we do not control them and therefore we cannot be assured that these third-parties will adequately perform all of their contractual obligations to us. These third parties may face disruptions due to the COVID-19 pandemic that may affect our ability to initiate and complete our clinical studies. If our third-party service providers cannot adequately and timely fulfill their obligations to us, or if the quality and accuracy of our clinical trial data is compromised due to failure by such third parties to adhere to our protocols, GCP, or other regulatory requirements or if such third-parties otherwise fail to meet deadlines, our development plans may be delayed or terminated. Further, if clinical study results are compromised, then we may need to repeat the affected studies, which could result in significant additional costs and delays to us.

We face competition from various entities including large pharmaceutical companies, small biotech companies, private companies, and research institutions.

Many of our competitors have greater financial resources and may have more experience in research and development, manufacturing, managing clinical trials and/or regulatory compliance than we do. Our competitors may compete with us for lead clinical trial investigators, clinical trial site locations and patient enrollment. These competitors may also compete with us on recruiting scientific and management personnel. Because our products are in the early stages of development, along with many of the competing products, and given unpredictability inherent in drug development, it is difficult to predict which third parties may provide the most competition, and on what specific basis that competition may be based.

We may have difficulty expanding our operations successfully as we evolve from a company primarily involved in discovery and pre-clinical testing into one that develops and commercializes drugs.

We expect that as we increase the number of product candidates we are developing we will also need to expand our operations. This expected growth may place a strain on our administrative and operational ~~infrastructure.~~infrastructure and information technology systems. As product candidates we develop enter and advance through clinical trials, we will need to expand our development, regulatory, manufacturing, marketing, and sales capabilities or contract with other organizations to provide these capabilities for us. As our operations expand due to our development progress, we expect that we will need to manage additional relationships with various collaborators, suppliers, and other organizations. Our ability to manage our operations and future growth will require us to continue to improve our operational, financial, information technology and management controls, reporting systems and procedures. We may not be able to implement improvements to our management information and control systems in an efficient or timely manner and may discover deficiencies in existing systems and controls.

Our business and operations could suffer in the event of information technology system failures.

Our internal computer systems and those of our contractors and consultants are vulnerable to damage from computer viruses, unauthorized access, ransomware and other cyber-attacks, human error, natural disasters, terrorism, war, and telecommunication and electrical failures. Such events could cause interruption of our operations and loss of intellectual property. For example, the loss of pre-clinical trial data or data from completed or ongoing clinical trials for our product candidates could result in delays in our regulatory filings and development efforts and significantly increase our costs. Further, cybersecurity breaches may allow hackers access to our preclinical compounds, strategies, discoveries, trade secrets, and/or other confidential information. To the extent that any disruption or security breach were to result in a loss of or damage to our data, or inappropriate disclosure of confidential, proprietary or private information, we could incur liability or regulatory penalties, including under laws and regulations governing the protection of health and other personally identifiable information, we could lose valuable trade secret rights, the development of our

product candidates could be delayed, and we could suffer reputational damage and damage to key business relationships. The risk of a cyber-security breach or other informational technology disruption, particularly through cyber-attacks, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. We have experienced cyber-security attacks in the past, which to date have not had a material impact on our operations or development programs; however; there is no assurance that such impacts will not be material in the future.

Because we use biological materials, hazardous materials, chemicals and radioactive compounds, if we do not comply with laws regulating the protection of the environment and health and human safety, our business could be adversely affected.

Our research, development and manufacturing activities involve the use of potentially harmful biological materials as well as materials, chemicals and various radioactive compounds that could be hazardous to human health and safety or the environment. We store most of these materials and various wastes resulting from their use at our facility in Madison, Wisconsin pending ultimate use and disposal. We cannot completely eliminate the risk of contamination, which could ~~cause:~~cause interruption to our research and development and manufacturing efforts, injury to our employees and others, environmental damage, and liabilities under federal, state and local law. In such an event, we may be held liable for any resulting damages, and any liability could exceed our resources. Although we carry insurance in amounts and types that we consider commercially reasonable, we do not have insurance coverage for losses relating to an interruption of our research, development or manufacturing efforts caused by contamination, and the coverage or coverage limits of our insurance policies may not be adequate. If our losses exceed our insurance coverage, our financial condition would be affected.

If a natural or man-made disaster strikes our research and development facility or otherwise affects our business, it could delay our progress developing our product candidates.

We conduct research and development in ~~a facility~~facilities in Madison, ~~Wisconsin.~~Wisconsin and San Diego, California. The facilities and the equipment we use are costly to replace and require substantial lead time to repair or replace. Our facilities may be harmed by natural or man-made disasters, including, without limitation, earthquakes, floods, fires and acts of terrorism; and if our facilities are affected by a disaster, or in some cases even a loss of power, our development efforts would be ~~delayed.~~delayed and significant costs could be incurred. Significant delays in our development efforts could materially impact our ability to obtain regulatory approval and to commercialize our products. Any insurance we maintain against damage to our property and the disruption of our business due to disaster may not be sufficient to cover all of our potential losses and may not continue to be available to us on acceptable terms, or at all. In addition, our development activities could be harmed or delayed by a shutdown of the U.S. government, including the FDA.

Litigation claims may result in financial losses or harm our reputation and may divert management resources.

When the market price of a stock is volatile, holders of that stock have often initiated securities class action litigation against the company that issued the stock. We cannot predict with certainty the eventual outcome of such litigation, arbitration or third-party inquiry. We may not be successful in defending ourselves or asserting our rights in current or future lawsuits, investigations, or claims

that have been or may be brought against us and, as a result, our business could be materially harmed. These lawsuits, arbitrations, investigations or claims may result in large judgments or settlements against us, any of which could have a negative effect on our financial performance and business. Additionally, lawsuits, arbitrations and investigations can be expensive to defend, whether or not the lawsuit, arbitration or investigation has merit, and the defense of these actions may divert the attention of our management and other resources that would otherwise be engaged in running our business.

Our operations, including our relationships with healthcare providers, physicians and third-party payers, are subject to applicable anti-kickback, fraud and abuse, and other healthcare laws and regulations, which, in the event of a violation, exposes us to liability for criminal sanctions, civil penalties, and contractual damages, and reputational harm and diminished profits and future earnings.

Our operations, including any arrangements that we enter into with healthcare providers, physicians, and third-party payers, are subject to broadly applicable fraud and abuse and other healthcare laws and regulations. Such laws and regulations, including applicable U.S. federal and state healthcare laws and regulations, as well as foreign laws, such as the federal Anti-Kickback Statute, the False Claims Act, the Health Insurance Portability and Accountability Act of 1996, or the Foreign Corrupt Practices Act, may constrain our operation and the business or financial arrangements through which we can market, sell and distribute any drug candidates for which we obtain marketing approval.

Efforts to confirm that our business arrangements with third parties comply with applicable healthcare laws and regulations involve substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we become subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion of products from government funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any of the physicians or other healthcare providers or entities with whom we expect to do business are found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs.

We have a history of net losses, and we expect to continue to incur net losses and may not achieve or maintain profitability.

We have incurred net losses since our inception and we expect that our operating losses will continue for the foreseeable future as we continue our drug development and discovery efforts. To achieve profitability, we must, either directly or through licensing and/or partnering relationships, meet certain milestones, successfully develop and obtain regulatory approval for one or more drug candidates and effectively manufacture, market and sell any drugs we successfully develop. Even if we successfully commercialize drug candidates that receive regulatory approval, we may not be able to realize revenues at a level that would allow us to achieve or sustain profitability. Accordingly, we may never generate significant revenue and, even if we do generate significant revenue, we may never achieve consistent profitability.

We will require substantial additional funds to complete our research and development activities.

Our business currently does not generate the cash that is necessary to finance our operations. Subject to the success of the research and development programs of our company and our partners, and potential licensing or partnering transactions, we may need to raise additional capital to:

We will need to raise additional funds through public or private equity offerings, debt financings or additional strategic alliances and licensing arrangements in the future to continue our operations. We may not be able to obtain additional financing on terms favorable to us, if at all. General market conditions may make it very difficult for us to seek financing from the capital markets, and the terms of any financing may adversely affect the holdings or the rights of our stockholders. For example, if we raise additional funds by issuing equity securities, further dilution to our stockholders will result, which may substantially dilute the value of your investment. In addition, as a condition to providing additional funds to us, future investors may demand, and may be granted, rights superior to those of existing stockholders. Debt financing, if available, may involve restrictive covenants that could limit our flexibility in conducting future business activities and, in the event of insolvency, would be paid before holders of equity securities received any distribution of corporate assets. In order to raise additional funds through alliance, joint venture or licensing arrangements, we may be required to relinquish rights to our technologies or drug candidates or grant licenses on terms that are not favorable to us. If adequate funds are not available, we may have to further delay, reduce or eliminate one or more of our planned activities. These actions would likely reduce the market price of our common stock.

If the estimates we make, or the assumptions on which we rely, in preparing our consolidated financial statements prove inaccurate, our actual results may vary from those reflected in our accruals.

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of our assets, liabilities, revenues and expenses, the amounts of charges accrued by us and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. We cannot assure you, however, that our estimates, or the assumptions underlying them, will be correct.

The investment of our cash, cash equivalents and fixed income marketable securities is subject to risks which may cause losses and affect the liquidity of these investments.

At September 30, ~~2019,~~2021, we had ~~$81.1~~$428.9 million in fixed income, certificate of deposit, and equity marketable securities. ~~These investments are in corporate bonds, but our~~Our investments may also include commercial paper, securities issued by the U.S. government obligations, ~~certificates of deposit~~ and money market funds meeting the criteria of our investment policy, which is focused on the preservation of our capital. These investments are subject to general credit, liquidity, and market and interest rate risks, particularly in the current economic environment. We may realize losses in the fair value of these investments or a complete loss of these investments, which would have a negative effect on our consolidated financial statements. In addition, should our investments cease paying or reduce the amount of interest paid to us, our interest income would suffer. The market risks associated with our investment portfolio may have an adverse effect on our results of operations, liquidity and financial condition.

Our ability to utilize net operating loss carryforwards and other tax benefits may be limited.

We have historically incurred net losses. Under the Internal Revenue Code of 1986, as amended ~~or the Code,~~(the “Code”), a corporation is generally allowed a deduction for net operating losses (NOLs) carried forward from a prior taxable year. Under that provision, we can carryforward our NOLs to offset our future taxable income, if any, until such NOLs are used or expire. As of September 30, ~~2019,~~2021, we had federal, and state NOL carryforwards of approximately ~~$314.8~~$569.0 million and ~~$211.5~~$626.5 million, respectively. ~~The federal NOL carryforwards will begin~~As a result of the Coronavirus Aid, Relief, and Economic Security Act of 2020 (“CARES Act”) and legislation commonly referred to ~~expire, if not utilized, beginning in 2039. These NOL carryforwards could expire unused before offsetting potential future income tax liabilities. Under~~as the Tax ~~Cut~~Cuts and Jobs Act of 2017 or(“2017 Tax Act”), NOLs arising before January 1, 2018, and NOLs arising after January 1, 2018, are subject to different rules. Under the CARES Act and 2017 Tax Act, federal NOLs incurred in 2018, 2019 and in2020 can generally be carried back five years, carried forward indefinitely and can offset 100% of future taxable income for tax years ~~may~~before January 1, 2021 and up to 80% of future taxable income for tax years after December 31, 2020. Any NOLs arising on or after January 1, 2021, cannot be carried back, can generally be carried forward indefinitely ~~but the deductibility~~and can offset up to 80% of ~~such federal net operating losses is limited.~~future taxable income. It is uncertain if and to what extent various states will conform to the newly enacted federal tax law. These NOL carryforwards could expire unused before offsetting potential future income tax liabilities.

In addition, under Section 382 of the ~~Internal Revenue~~ Code ~~of 1986, as amended,~~ and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is generally defined as a greater than 50 percent change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its pre-change NOL carryforwards and other pre-change tax attributes to offset its post-change income or taxes may be limited. It is possible that we have experienced an ownership change limitation. We may experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of which may be outside of our control.

If an ownership change occurs and our ability to use our NOL carryforwards is materially limited, it would harm our future operating results by effectively increasing our future tax obligations.

Our business is subject to changing regulations for corporate governance and public disclosure that has increased both our costs and the risk of ~~noncomplianc~~e.noncompliance.

Each year we are required to evaluate our internal controls systems in order to allow management to report on and our Independent Registered Public Accounting Firm to attest to, our internal controls as required by Section 404 of the Sarbanes-Oxley Act. As a result, we continue to incur additional expenses and divert our management's time to comply with these regulations. In addition, if we cannot continue to comply with the requirements of Section 404 in a timely manner, we might be subject to sanctions or investigation by regulatory authorities, such as the SEC, the Public Company Accounting Oversight Board ~~or PCAOB,~~(“PCAOB”) or The Nasdaq Global Select Market. Any such action could adversely affect our financial results and the market price of our ~~common stock.~~

~~The recently passed comprehensive tax reform bill could adversely affect our business and financial condition.~~

The Tax Act significantly revises the Internal Revenue Code of 1986, as amended. The Tax Act, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35 percent to a flat rate of 21 percent, limitation of the tax deduction for interest expense to 30 percent of adjusted earnings (except for certain small businesses), limitation of the deduction for net operating losses to 80 percent of current year taxable income and elimination of net operating loss carrybacks, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain and our business and financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the newly enacted federal tax law. The impact of this tax reform on holders of our common stock is also uncertain and could be adverse. We urge our stockholders to consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our common stock.

We are subject to U.S. federal, state, local and sales taxes in the ~~U.S.~~United States and Australia. Significant judgment is required in evaluating our tax positions. During the ordinary course of business, there are many activities and transactions for which the ultimate tax determination is uncertain. In addition, our tax obligations and effective tax rates could be adversely affected by changes in the relevant tax, accounting and other laws, regulations, principles and interpretations, including those relating to income tax nexus, by recognizing tax losses or lower than anticipated earnings in jurisdictions where we have lower statutory rates and higher than anticipated earnings in jurisdictions where we have higher statutory rates, by changes in foreign currency exchange rates, or by changes in the valuation of our deferred tax assets and liabilities. We may be audited in various jurisdictions, and such jurisdictions may assess additional taxes, sales taxes and value-added taxes against us. Although we believe our tax estimates are reasonable, the final determination of any tax audits or litigation could be materially different from our historical tax provisions and accruals, which could have a material adverse effect on our operating results or cash flows in the period for which a determination is made.

Our Board of Directors has the authority to issue shares of “blank check” preferred stock, which may make an acquisition of the Company by another company more difficult.

We have adopted and may in the future adopt certain measures that may have the effect of delaying, deferring or preventing a takeover or other change in control of the Company that a holder of our Common Stock might consider in its best interest. For example, our Board of Directors, without further action by our stockholders, currently has the authority to issue up to 5,000,000 shares of preferred stock and to fix the rights (including voting rights), preferences and privileges of these shares (“blank check” preferred). Such preferred stock may have rights, including economic rights, senior to our Common Stock. These factors could also reduce the price that certain investors might be willing to pay for shares of our Common Stock and result in the market price being lower than it would be without these provisions.

We will not distribute cash to our stockholders unless and until we can develop sufficient funds from operations to meet our ongoing needs and implement our business plan. The time frame for that is unpredictable and investors should not expect dividends in the near future, if at all.

If securities or industry analysts do not publish research reports about our business or if they make adverse recommendations regarding an investment in our stock, our stock price and trading volume may decline.

The trading market for our Common Stock can be influenced by the research and reports that industry or securities analysts publish about our business. Currently, coverage of our Company by industry and securities analysts is limited. Investors have many investment opportunities and may limit their investments to companies that receive greater coverage from analysts. If additional industry or securities analysts do not commence coverage of the Company, the trading price of our stock could be negatively impacted. If one or more of the analysts downgrade our stock or comment negatively on our prospects, our stock price may decline. If one or more of these analysts cease to cover our industry or us or fail to publish reports about the Company regularly, our Common Stock could lose visibility in the financial markets, which could also cause our stock price or trading volume to decline. Further, incorrect judgments, estimates or assumptions made by research analysts may adversely affect our stock price, particularly if subsequent performance falls below the levels that were projected by the research analyst(s), even if we did not set or endorse such expectations. Any of these events could cause further volatility in our stock price and could result in substantial declines in the value of our stock.

The market for purchases and sales of our Common Stock may be limited, and the sale of a limited number of shares could cause the price to fall sharply.

Although our Common Stock is listed for trading on the Nasdaq Global Select Market, at various times our securities are relatively thinly traded. Investor trading patterns could serve to exacerbate the volatility of the price of our stock. For example, mandatory sales of our Common Stock by institutional holders could be triggered if an investment in our Common Stock no longer satisfies their investment standards and guidelines. It may be difficult to sell shares of our Common Stock quickly without significantly depressing the value of the stock. Unless we are successful in developing continued investor interest in our stock, sales of our stock could result in major fluctuations in the price of the stock.

Our Common Stock price has fluctuated significantly over the last several years and may continue to do so in the future, without regard to our results of operations and prospects.

Because we are early in the stage of our drug development, there are few objective metrics by which our progress may be measured. Consequently, we expect that the market price of our Common Stock will continue to fluctuate significantly. We may not continue to generate substantial revenue from the license or sale of our technology for several years, if at all. In the absence of product revenue as a measure of our operating performance, we anticipate that investors and market analysts will assess our performance by considering factors such as:

We will not have control over many of these factors but expect that they may influence our stock price. As a result, our stock price may be volatile and such volatility could result in the loss of all or part of your investment.

Stockholder equity interest may be substantially diluted in any additional equity issuances.

~~Our certificate of incorporation authorizes~~We expect that significant additional capital will be needed in the ~~issuance of 145,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock, on such terms and at such prices as~~future to continue our ~~Board of Directors~~planned operations. To the extent we raise additional capital by issuing equity securities, our stockholders may ~~determine. The following serves as a summary of share issuance activity during the fiscal year ended September 30, 2019:~~

~~As of September 30, 2019, we had 95,506,271 shares of Common Stock issued and outstanding. The issuance of additional~~convertible securities or other equity securities in ~~financing~~one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by ~~us or through the exercise of options or warrants will dilute the equity interests of~~subsequent sales. These sales may also result in material dilution to our existing stockholders, ~~perhaps substantially,~~ and new investors could ~~result in dilution in the tangible net book value of a share of~~gain rights superior to our ~~Common Stock, depending upon the price and other terms on which the additional shares are issued.~~existing stockholders.

We are focused on technology related to new and improved pharmaceutical candidates. Product candidates that appear promising in the early phases of development, such as in animal and early human clinical trials, often fail to reach the market for a number of reasons, such as:

For example, any positive pre-clinical results in animals for our pre-clinical programs may not be replicated in human clinical studies. These programs may be also found to be unsafe in humans, particularly at higher doses needed to achieve the desired levels of

efficacy. Also, the positive safety results from single dose human clinical studies may not be replicated in other human studies, including multiple dose studies. Clinical and pre-clinical study results are frequently susceptible to varying interpretations by scientists, medical personnel, regulatory personnel, statisticians and others, which often delays, limits, or prevents further clinical development or regulatory approvals of potential products. Clinical trials can take many years to complete, including the process of study design, clinical site selection and the recruitment of patients. As a result, we can experience significant delays in completing clinical studies, which can increase the cost of developing a drug candidate and shorten the time that an approved product may be protected by patents. If our drug candidates are not successful in human clinical trials, we may be forced to curtail or abandon certain development programs. If we experience significant delays in commencing or completing our clinical studies, we could suffer from significant cost overruns, which could negatively affect our capital resources and our ability to complete these studies.

The healthcare system is under significant financial pressure to reduce costs, which could reduce payment and reimbursement rates for drugs.

Throughout the world and particularly in the United States the healthcare system is under significant financial pressure to reduce costs. The price of pharmaceuticals has been a topic of considerable public discussion that could lead to price controls or other price-limiting strategies by payors that have the effect of lowering payment and reimbursement rates for drugs or otherwise making the commercialization of pharmaceuticals less profitable. Political, economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after reimbursement has been obtained. These effects could reduce or eliminate our ability to return value to our ~~shareholders.~~stockholders.

Regulatory standards are subject to change over time, making it difficult to accurately predict the likelihood of marketing approval even when clinical trials meet their endpoints.

Regulatory standards are promulgated by various government entities and are subject to change based on factors such as scientific developments, public perceptions of risk, and political forces. Because clinical trials often take years to complete, it is sometimes possible for standards that exist during the conception and initiation of a clinical trial to change before the clinical trial is completed or reviewed by government regulators. For example, we may initiate clinical trials that are designed to show benefits on relatively short-term endpoints, but ultimately be required to show benefits in longer-term outcome studies. While some government entities have safeguards intended to ensure standards agreed upon by sponsors and regulators at the outset of a clinical trial are applied during regulatory review processes, those safeguards generally permit regulators to apply more rigorous standards where regulators believe doing so is necessary. As such, there can be no assurance that regulatory standards that are appropriate at the outset of a clinical trial program will not become more rigorous during the regulatory approval process and could potentially result in a delayed approval or denial of marketing authorization.

The Company does not own any real property. The following table summarizes the Company’s leased facilities as of September 30, ~~2019.~~2021.

Legal Proceedings are set forth in our financial statement schedules in Part IV, Item 15 of this Annual Report and are incorporated herein by reference. See Note 7 — Commitments and Contingencies of Notes to Consolidated Financial Statements of Part IV, Item 15. Exhibits and Financial Statement Schedules.

Our Common Stock is traded on ~~the~~The Nasdaq Global Select Market under the symbol “ARWR”. ~~The following table sets forth the high and low sales prices for a share of the Company’s Common Stock during each period indicated.~~

At November ~~20, 2019, 95,708,027~~15, 2021, 104,525,708 shares of the Company’s Common Stock were issued and outstanding, and were owned by ~~112~~100 stockholders of record, based on information provided by the Company’s transfer agent.

The Company has never paid dividends on its Common Stock and does not anticipate that it will do so in the foreseeable future.

The disclosure required under this item related to equity compensation plans is incorporated by reference from Item 12 of Part III of this Annual Report on Form 10-K.

~~All information under this Item has been previously reported on our Current Reports on Form 8-K.~~None.

We did not repurchase any shares of our Common Stock during the ~~years~~quarter ended September 30, ~~2019, 2018 and 2017.~~2021.

The following performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing. The graph compares the cumulative 5-year total return to ~~shareholders~~stockholders on our Common Stock relative to the cumulative total returns of the Nasdaq Composite Index and the Nasdaq Biotechnology Index. We selected the Nasdaq Biotechnology Index because we believe the index reflects the market conditions within the industry in which we primarily operate. The comparison of total return on investment, defined as the change in year-end stock price plus reinvested dividends, for each of the periods assumes that $100 was invested on September 30, ~~2014,~~2016, in each of our Common Stock, the Nasdaq Composite Index and the Nasdaq Biotechnology Index, with investment weighted on the basis of market capitalization.

The comparisons in the following graph are based on historical data and are not intended to forecast the possible future performance of our Common Stock.

~~The following selected financial data has been derived from our audited consolidated financial statements and should be read~~

~~in conjunction with the consolidated financial statements, the related notes thereto and the independent auditors’ report thereon, and~~

~~“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this~~

~~Form 10-K and in previously filed annual reports on Form 10-K of Arrowhead Pharmaceuticals, Inc.~~

Year Ended September

2019

2018

2017

2016

2015

OPERATING SUMMARY

REVENUE

$
168,795,577

$
16,142,321

$
31,407,709

$
158,333

$
382,000

OPERATING EXPENSES

Research and development

81,048,686

52,968,505

50,904,466

62,117,818

64,035,385

Acquired in-process research and development

-

-

-

-

10,142,786

General and administrative expenses

26,556,257

19,110,051

17,499,152

23,594,888

20,286,272

Impairment expense

-

-

-

2,050,817

-

Contingent consideration - fair value adjustments

-

-

-

(5,862,464
)

1,891,533

TOTAL OPERATING EXPENSES (a)

107,604,943

72,078,556

68,403,618

81,901,059

96,355,976

OPERATING INCOME (LOSS)

61,190,634

(55,936,235
)

(36,995,909
)

(81,742,726
)

(95,973,976
)
NET INCOME (LOSS)

67,974,849

(54,450,478
)

(34,380,295
)

(81,723,002
)

(91,940,882
)
NET INCOME (LOSS) PER SHARE:

Net Income (Loss) Per Share - Basic

$
0.72

$
(0.65
)

$
(0.47
)

$
(1.34
)

$
(1.60
)
Net Income (Loss) Per Share - Diluted

$
0.69

$
(0.65
)

$
(0.47
)

$
(1.34
)

$
(1.60
)

Weighted average shares outstanding – basic

93,858,857

83,638,469

73,898,598

61,050,880

57,358,442

Weighted average shares outstanding – diluted

98,607,815

83,638,469

73,898,598

61,050,880

57,358,442

CASH DIVIDEND PAID PER COMMON SHARE

$
-

$
-

$
-

$
-

$
-

September 30,

2019

2018

2017

2016

2015

FINANCIAL POSITION SUMMARY

CASH AND CASH EQUIVALENTS (b)

$
221,804,128

$
30,133,213

$
24,838,567

$
85,366,448

$
81,214,354

SHORT- AND LONG-TERM INVESTMENTS (b)

81,075,887

46,400,176

40,769,539

-

17,539,902

TOTAL ASSETS (b)

349,845,437

111,609,951

104,022,280

128,176,505

132,267,914

CAPITAL LEASE OBLIGATIONS

-

-

-

-

758,340

OTHER LONG-TERM OBLIGATIONS

8,738,506

4,003,999

4,454,070

7,508,452

6,204,917

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

Arrowhead Pharmaceuticals, Inc. develops medicines that treat intractable diseases by silencing the genes that cause them. Using a broad portfolio of RNA chemistries and efficient modes of delivery, Arrowhead therapies trigger the RNA interference mechanism to induce rapid, deep and durable knockdown of target genes. RNA interference ~~or RNAi,~~(“RNAi”) is a mechanism present in living cells that inhibits the expression of a specific gene, thereby affecting the production of a specific protein. Arrowhead’s RNAi-based therapeutics leverage this natural pathway of gene silencing. The ~~company's~~Company’s pipeline includes ~~ARO-AAT for liver disease associated with alpha-1 antitrypsin deficiency (AATD),~~ ARO-APOC3 for hypertriglyceridemia, ARO-ANG3 for dyslipidemia, ARO-HSD for liver disease, ARO-ENaC for cystic fibrosis, ~~and~~ ARO-HIF2 for renal cell ~~carcinoma.~~ ~~ARO-JNJ1~~carcinoma, ARO-DUX4 for facioscapulohumeral muscular dystrophy, ARO-LUNG2 for chronic obstructive pulmonary disorder, ARO-COV for the coronavirus that causes COVID-19 and other possible future pulmonary-borne pathogens and ARO-C3 for complement mediated diseases. ARO-XDH is being developed for anuncontrolled gout under a collaboration agreement with Horizon Therapeutics Ireland DAC (“Horizon”). ARO-JNJ2 and ARO-JNJ3 are being developed for undisclosed liver-expressed ~~target~~targets under a ~~license and~~ collaboration agreement with Janssen Pharmaceuticals, Inc. ~~ARO-HBV (JNJ-3989)~~ (“Janssen”). JNJ-75220795 (ARO-JNJ1) is being developed by Janssen as a potential treatment for patients with non-alcoholic steatohepatitis (NASH). ARO-AAT for liver disease associated with alpha-1 antitrypsin deficiency (“AATD”) was out-licensed to Takeda Pharmaceuticals U.S.A., Inc. (“Takeda”) in October 2020. JNJ-3989 (formerly referred to as ARO-HBV) for chronic hepatitis B virus was out-licensed to Janssen ~~Pharmaceuticals, Inc. (“Janssen”)~~ in October 2018. ~~ARO-LPA (AMG 890)~~Olpasiran (formerly referred to as AMG 890 or ARO-LPA) for cardiovascular disease was out-licensed to Amgen Inc. (“Amgen”) in 2016.

During fiscal year 2021, the Company continued to develop its pipeline and partnered candidates. The Company announced positive interim clinical data on (i) AROAAT2002, an open-label Phase 2 clinical study of ARO-AAT, the Company’s second-generation investigational RNAi therapeutic being co-developed with Takeda as a treatment for the rare genetic liver disease associated with AATD, (ii) AROHSD1001, a Phase 1/2 clinical study of ARO-HSD, the Company’s investigational RNAi therapeutic being developed as a treatment for patients with alcohol-related and nonalcohol related liver diseases, such as nonalcoholic steatohepatitis (NASH), and (iii) AROHIF21001, a Phase 1b dose-finding clinical study of ARO-HIF2, the Company’s investigational RNAi therapeutic being developed as a treatment for patients with clear cell renal cell carcinoma. The Company also presented preclinical data on the development of ARO-DUX4, the Company’s investigational RNAi therapeutic being developed as a treatment for patients with facioscapulohumeral muscular dystrophy (FSHD), at the 28th Annual FSHD Society International Research Congress. The Company hosted a key opinion leader webinar on its cardiometabolic candidates, ARO-APOC3 and ARO-ANG3, and presented positive clinical data from the Phase 1/2 clinical studies of ARO-APOC3 and ARO-ANG3 at the American Heart Association Scientific Sessions 2020. The Company filed two Investigational New Drug Applications with the United States Food and Drug Administration (the “FDA”) to begin a Phase 2b clinical study of ARO-APOC3 in patients with severe hypertriglyceridemia and a Phase 2b clinical study of ARO-ANG3 in patients with mixed dyslipidemia, and initiated these two Phase 2b clinical studies in the third quarter of fiscal year 2021. The Company also filed for regulatory clearance to begin a Phase 1/2a study of ARO-C3 for treatment of complement mediated diseases. In July 2021, the Company voluntarily paused AROENaC1001, a Phase 1/2 clinical study of ARO-ENaC, the Company’s investigational RNAi therapeutic being developed as a treatment for patients with cystic fibrosis, after receiving a preliminary update from an ongoing chronic toxicology study in rats that contained unexpected signals of local lung inflammation. New screening, enrollment and any further dosing of investigational ARO-ENaC have been paused pending additional data from ongoing nonclinical toxicology studies. The Company announced two collaborations during fiscal year 2021: a collaboration with Takeda to co-develop and co-commercialize ARO-AAT for alpha-1 antitrypsin-associated liver disease and a collaboration with Horizon to develop ARO-XDH, an investigational RNAi therapeutic for uncontrolled gout. In July 2021, the Company received Breakthrough Therapy designation from the FDA for ARO-AAT, which is a process designed to expedite the development and review of drugs that are intended to treat a serious life-threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints.

The Company’s partnered candidates under its collaboration agreements also continued to progress. Janssen began dosing patients in a Phase 2b triple combination study called REEF-1, designed to enroll up to 450 patients with chronic hepatitis B infection. The Company is currently performing discovery, optimization and preclinical research and development for JNJ-75220795 (ARO-JNJ1), ARO-JNJ2 and ARO-JNJ3 for Janssen as part of the Company’s Research Collaboration and Option Agreement with Janssen (the “Janssen Collaboration Agreement”), and Janssen has began dosing patients in its Phase 1 clinical trial for JNJ-75220795 (ARO-JNJ1). Amgen has initiated a Phase 2 clinical trial for Olpasiran (previously referred to as AMG 890 or ARO-LPA). The Company entered into two licensing deals during fiscal 2021: i) an Exclusive License and Co-Funding Agreement (the “Takeda License Agreement”) with Takeda for ARO-AAT, and ii) a Collaboration and License Agreement (the “Horizon License Agreement”) with

Horizon Therapeutics Ireland DAC (“Horizon”) for ARO-XDH. ARO-AAT is currently in Phase 2 clinical trials and ARO-XDH is in discovery-stage. During fiscal year 2021, the Company earned $340.0 million in upfront payments from its collaboration agreements, and $20.0 million in option and milestone payments. In total, the Company remains eligible for $5.3 billion in developmental, regulatory and sales milestones, in various royalties on net sales.

The revenue recognition for these collaboration agreements is discussed further in Note 2 Notes to Consolidated Financial Statements of Part IV, Item 15. Exhibits and Financial Statement Schedules.

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

~~During fiscal 2019,~~Arrowhead has focused its resources on therapeutics that exclusively utilize the ~~Company has continued~~Company’s Targeted RNAi Molecule (TRiM^TM) platform technology. Therapeutics built on the TRiM^TM platform have demonstrated high levels of pharmacologic activity in multiple animal models spanning several therapeutic areas. TRiM^TM 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 ~~develop its pipeline~~target multiple tissue types including liver, lung, muscle and ~~partnered candidates. In April 2019, the Company presented clinical data for JNJ-3989 (ARO-HBV)~~tumors; and ~~ARO-AAT at the International Liver Congress, and in April 2019, the Company received FDA clearance to commence a Phase 2/3 study of ARO-AAT that has~~ the potential ~~to serve as a pivotal registrational study. In June 2019, the Company received the Fast Track Designation~~ for ~~ARO-AAT~~improved safety and reduced risk of intracellular buildup, because there are less metabolites from the FDA. In December 2018 and January 2019, Clinical Trial Applications (CTAs) were filed for ARO-ANG3 and ARO-APOC3, respectively, and dosing has commenced for both trials. In June 2019 and July 2019, the Company received the Orphan Drug Designations for ARO-APOC3 and ARO-ANG3, respectively, from the FDA. In September 2019, the Company presented clinical and preclinical data on ARO-APOC3 and ARO-ANG3 at the Global Summit on Cardiology and Heart Diseases. The Company also continues to work on optimizing its other extra-hepatic preclinical pipeline candidates including ARO-ENaC and ARO-HIF2, its hepatic preclinical pipeline candidate, ARO-HSD, and its partnered pipeline candidate, ARO-JNJ1. Amgen is currently progressing its phase 1 clinical study of AMG-890 (ARO-LPA) and Janssen is currently progressing its phase 2b clinical study of JNJ-3989 (ARO-HBV).

The Company also made significant progress on the business development front. In October 2018, the Company entered into a License Agreement (“Janssen License Agreement”) and a Research Collaboration and Option Agreement (“Janssen Collaboration Agreement”) with Janssen Pharmaceuticals, Inc. (“Janssen”) part of the Janssen Pharmaceutical Companies of Johnson & Johnson. The Company also entered into a Stock Purchase Agreement (“JJDC Stock Purchase Agreement”) with Johnson & Johnson Innovation-JJDC, Inc. (“JJDC”), a New Jersey corporation. Under the Janssen License Agreement, Janssen has received a worldwide, exclusive license to the Company’s JNJ-3989 (ARO-HBV) program, the Company’s third-generation subcutaneously administered RNAi therapeutic candidate being developed as a potentially curative therapy for patients with chronic hepatitis B virus infection. Beyond the Company’s ongoing Phase 1 / 2 study of JNJ-3989 (ARO-HBV), Janssen will be wholly responsible for clinical development and commercialization. Under the Janssen Collaboration Agreement, Janssen will be able to select three new targets against which Arrowhead will develop clinical candidates. These candidates are subject to certain restrictions and will not include candidates in the Company’s current pipeline. The Company will perform discovery, optimization and preclinical development, entirely funded by Janssen, sufficient to allow the filing of a U.S. Investigational New Drug application or equivalent, at which time Janssen will have the option to take an exclusive license. If the option is exercised, Janssen will be wholly responsible for clinical development and commercialization. Under the JJDC Stock Purchase Agreement, in October 2018 the Company sold 3,260,869 shares of common stock to JJDC at a price of $23.00 per share. Under the terms of the agreements taken together, the Company has received $175 million as an upfront payment, $75 million in the form of an equity investment by JJDC in Arrowhead common stock, and may receive up to $1.6 billion in development and sales milestones payments for the Janssen License Agreement, and up to $1.9 billion in development and sales milestone payments for the three additional targets covered under the Janssen Collaboration Agreement. The Company is further eligible to receive tiered royalties up to mid teens under the Janssen License Agreement and up to low teens under the Janssen Collaboration Agreement on product sales. In April 2019, the Company earned a $25 million milestone payment from Janssen following the initiation of dosing in a new triple combination cohort (cohort 12) in the Company’s ongoing Phase 1 / 2 study of JNJ-3989 (ARO-HBV). In August 2019, the Company earned an additional $25 million milestone

payment from Janssen following the initiation of dosing in its phase 2b study of JNJ-3989 (ARO-HBV). The revenue recognition for these milestone payments and the Janssen License Agreement and the Janssen Collaboration Agreement are discussed further below.

The Company’s license agreement with Amgen for AMG 890 (ARO-LPA) continues to progress. The Company has received $35 million in upfront payments and $21.5 million in the form of an equity investment by Amgen in the Company’s Common Stock. Upon signing the collaboration agreements with Amgen, the Company was eligible to receive up to $617 million in option payments and development, regulatory and sales milestone payments. The Company remains eligible to receive up to $420 million in development, regulatory and sales milestone payments under the AMG-890 (ARO-LPA) agreement. The Company is further eligible to receive up to low double-digit royalties for sales of products under the AMG 890 (ARO-LPA) Agreement. On August 1, 2018, the Company announced that it had earned a $10 million milestone payment from Amgen following the administration of the first dose of AMG 890 (ARO-LPA) in a phase 1 clinical study. This milestone payment was recognized as Revenue in its entirety during the year ended September 30, 2018. In July 2019, Amgen informed the Company that it would not be exercising its option to an exclusive license for ARO-AMG1, and as such, there will be no further milestone or royalty payments under the ARO-AMG1 Agreement.smaller, simpler molecules.

The Company continues to develop other clinical candidates for future clinical trials. Clinical candidates are tested internally and through GLP toxicology studies at outside laboratories. Drug materials for such studies and clinical trials are either contracted to third-party ~~manufactures~~manufacturers or manufactured internally. The Company engages third-party contract research organizations ~~(CROs)~~(“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, relating to the preparation for and administration of clinical trials, are referred to as ~~“program costs”.~~“candidate costs.” If the clinical candidates progress through human testing, ~~program~~candidate costs will increase.

The Company is actively monitoring the ongoing COVID-19 pandemic. The financial results for the years ended September 30, 2021 and 2020 were not significantly impacted by COVID-19. Operationally, the Company experienced delays in its earlier stage programs due to a shortage in non-human primates, which are critical for the Company’s preclinical programs. Additionally, the Company experienced delays in enrollment in its clinical trials. The Company’s operations at its research and development facilities in Madison, Wisconsin and San Diego, California, and its corporate headquarters in Pasadena, California have continued to operate with limited impact, other than for enhanced safety measures, including work from home policies, and intermittent lab supply shortages. However, the Company cannot predict the impact the progression of COVID-19 will have on future financial and operational results due to a variety of factors, including the ability of the Company’s clinical sites to continue to enroll subjects, the ability of the Company’s suppliers to continue to operate, the continued good health and safety of the Company’s employees and the length and severity of the COVID-19 pandemic.

Net ~~income~~loss was ~~$68.0~~$140.8 million ~~during~~for the year ended September 30, ~~2019~~2021 as compared to net ~~losses~~loss of ~~$54.5~~$84.6 million ~~and $34.4 million during the years ended September 30, 2018 and 2017, respectively. Diluted income per share was $0.69 during~~for the year ended September 30, ~~2019~~2020 and net income of $68.0 million for the year ended September 30, 2019. Net loss per share – diluted was $1.36 for the year ended September 30, 2021 as compared to ~~diluted losses~~net loss per ~~share~~share-diluted of ~~$0.65 and $0.47 during~~$0.84 for the ~~years~~year ended September 30, ~~2018~~2020 and ~~2017, respectively.~~net income per share-diluted of $0.69 for the year ended September 30, 2019. An increase in research and development and general and administrative expenses, partially offset by an increase in revenue ~~in 2019 from~~due to the ~~license and~~Takeda collaboration, ~~agreements with Janssen is~~were the ~~driver~~drivers of the ~~increases~~increase in net ~~income~~loss and ~~diluted income~~net loss per share for the year ended September 30, 2021, as discussed further below.

The Company has strengthened its liquidity and financial position ~~during~~through upfront and milestone payments received under its collaboration agreements, as well as equity financings. Under the ~~year ended September 30, 2019~~terms of the Company’s agreements with ~~$300~~Janssen taken together, the Company has received $175.0 million as an upfront payment, $75.0 million in the form of an equity investment by JJDC in Arrowhead Common Stock and four milestone payments totaling $70.0 million. Under the terms of the Company’s agreements with Amgen, the Company has received $35.0 million in upfront ~~milestone and~~payments, $21.5 million in the form of an equity investment ~~payments received from Janssen. These cash proceeds secure~~by Amgen in the ~~funding needed to continue to advance our preclinical candidates.~~Company’s Common Stock and $30.0 million in milestone payments. The Company’s October 2020 licensing agreement with Takeda resulted in a $300.0 million upfront payment, and the Company’s June 2021 licensing agreement with Horizon resulted in a $40 million upfront payment, each of which was collected during fiscal year 2021. The Company had ~~$221.8~~$184.4 million of cash and cash equivalents, ~~$36.9~~$126.7 million of marketable securities, $56.6 million in short-term investments, ~~$44.2~~$245.6 million inof long-term investments and ~~$349.8~~$710.1 million of total assets as of September 30, ~~2019,~~2021, as compared to ~~$30.1~~$143.6 million ~~$46.4~~of cash and cash equivalents, $85.0 million $0of marketable securities, $86.9 million in short-term investments, $137.5 million of long-term investments and ~~$111.6~~$522.5 million of total assets as of September 30, ~~2018,~~2020, respectively. 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.

Management makes certain judgments and uses certain estimates and assumptions when applying ~~GAAP~~accounting principles generally accepted in the United States (“GAAP”) in the preparation of our Consolidated Financial Statements. We evaluate our estimates and judgments on an ongoing basis and base our estimates on historical experience and on assumptions that we believe to be reasonable under the circumstances. Our experience and assumptions form the basis for our judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may vary from what we anticipate and different assumptions or estimates about the future could change our reported results. We believe the following accounting policies are the most critical to us, in that they require our most difficult, subjective or complex judgments in the preparation of our consolidated financial statements. For further information, see Note 1, Organization and Significant Accounting Policies, to our Consolidated Financial Statements, which outlines our application of significant accounting policies.

Investments—The Company may invest excess cash balances in short-term and long-term marketable debt and equity securities. Investments may consist of certificates of deposit, money market accounts, government-sponsored enterprise securities, corporate bonds and/or commercial paper. The Company accounts for its investment in marketable securities in accordance with Financial Accounting Standards Board (“FASB”) ASC 320, Investments – Debt and Equity Securities and ASC 321, Investments in Equity Securities. ASC 320-Investments-Debt and Equity Securities requires debt securities to be classified into three categories:

Held-to-Maturity—Debt securities that the entity has the positive intent and ability to hold to maturity are reported at amortized cost.

Trading Securities—Debt securities that are bought and held primarily for the purpose of selling in the near term are reported at fair value, with unrealized gains and losses included in earnings.

Available-for-Sale—Debt securities not classified as either securities held-to-maturity or trading securities are reported at fair value with unrealized gains or losses excluded from earnings and reported as a separate component of stockholders’ equity.

The Company classifies its investments in marketable debt securities based on the facts and circumstances present at the time of purchase of the securities. During the years ended September 30, 2021, 2020 and 2019, all of the Company’s debt securities were classified as held-to-maturity.

Held-to-maturity investments are measured and recorded at amortized cost on the Company’s Consolidated Balance Sheet. Discounts and premiums to par value of the debt securities are amortized to interest income/expense over the term of the security. No gains or losses on investment securities are realized until they are sold or a decline in fair value is determined to be other-than-temporary.

The Company invests in shares of mutual funds that invest in marketable debt securities such as U.S. government bonds, U.S. government agency bonds, corporate bonds, and other asset backed debt securities. The Company accounts for these securities using the guidance from FASB ASC 321, Investments-Equity Securities. These securities are recorded on the Company’s Consolidated Balance Sheet as “marketable securities” and recorded at fair value. All unrealized gains/losses associated with these securities are recorded in the Company’s Consolidated Statement of Operations and Comprehensive Income (Loss).

Intangible Assets Subject to Amortization—Intangible assets subject to amortization include certain patents and license agreements. Intangible assets subject to amortization are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable and are also reviewed annually to determine whether any impairment is necessary.

Contingent Consideration—The consideration for the Company’s acquisitions may include future payments that are contingent upon the occurrence of a particular event. For example, milestone payments might be based on the achievement of various regulatory approvals or future sales milestones, and royalty payments might be based on drug product sales levels. The Company records a contingent consideration obligation for such contingent payments at fair value on the acquisition date. The Company estimates the fair value of contingent consideration obligations through valuation models designed to estimate the probability of such contingent payments based on various assumptions and incorporating estimated success rates. Estimated payments are discounted using present value techniques to arrive at an estimated fair value at the balance sheet date. Changes in the fair value of the contingent consideration obligations are recognized within the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss). Changes in the fair value of the contingent consideration obligations can result from changes to one or multiple inputs, including adjustments to the discount rates, changes in the amount or timing of expected expenditures associated with product development, changes in the amount or timing of cash flows from products upon commercialization, changes in the assumed achievement or timing of any development milestones, changes in the probability of certain clinical events and changes in the assumed probability associated with regulatory approval. These fair value measurements are based on significant inputs not observable in the market. Substantial judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense the Company

records in any given period. The Company determined the fair value of its contingent consideration obligation to be $0 at September 30, 2021 and September 30, 2020.

Recognition— On October 1, 2018, the Company adopted FASB Topic 606 – Revenue for Contracts from Customers which amended revenue recognition principles and provides a single, comprehensive set of criteria for revenue recognition within and across all industries. The Company’s adoption of the ~~new~~ revenue standard did not have a material impact on its Consolidated Financial Statements. The Company has not yet achieved commercial sales of its drug candidates to date, however, the new standard is applicable to the Company’s ongoing licensing and collaboration agreements, including those with Amgen, Janssen, Takeda and ~~Janssen,~~Horizon, and the analysis of the impact of this guidance on those agreements is discussed further ~~below.~~ in Note 2 of Notes to Consolidated Financial Statements of Part IV, Item 15. Exhibits and Financial Statement Schedules.

goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of the ~~new~~ revenue standard, the Company performs the following five steps: (i) identify the contract; (ii) identify the performance obligations; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. At contract inception, the Company assesses whether the goods or services promised within each contract are distinct and, therefore, represent a separate performance obligation, or whether they are not distinct and are combined with other goods and services until a distinct bundle is identified. The Company then determines the transaction price, which typically includes upfront payments and any variable consideration that the Company determines is probable to not cause a significant reversal in the amount of cumulative revenue recognized when the uncertainty associated with the variable consideration is resolved. The Company then allocates the transaction price to each performance obligation and recognizes the associated revenue when (or as) each performance obligation is satisfied.

The Company recognizes the transaction price allocated to upfront license payments as revenue upon delivery of the license to the customer and resulting ability of the customer to use and benefit from the license, if the license is determined to be distinct from the other performance obligations identified in the contract. These other performance obligations are typically to perform research and development services for the customer, often times relating to the candidate that the customer is licensing. If the license is not considered to be distinct from other performance obligations, the Company assesses the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied at a point in time or over time. If the performance obligation is satisfied over time, the Company then determines the appropriate method of measuring progress for purposes of recognizing revenue from license payments. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the related revenue recognition.

Typically, the Company’s collaboration agreements entitle it to additional payments upon the achievement of milestones or royalties on sales. The milestones are generally categorized into three types: development milestones, generally based on the initiation of toxicity studies or clinical trials; regulatory milestones, generally based on the submission, filing or approval of regulatory applications such as a Clinical Trial Application ~~(CTA)~~(“CTA”) or a New Drug Application ~~(NDA)~~(“NDA”) in the United States; and sales-based milestones, generally based on meeting specific thresholds of sales in certain geographic areas. The Company evaluates whether it is probable that the consideration associated with each milestone or royalty will not be subject to a significant reversal in the cumulative amount of revenue recognized. Amounts that meet this threshold are included in the transaction price using the most likely amount method, whereas amounts that do not meet this threshold are excluded from the transaction price until they meet this threshold. At the end of each subsequent reporting period, the Company re-evaluates the probability of a significant reversal of the cumulative revenue recognized for our milestones and royalties, and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and net income in our Consolidated ~~Statement~~Statements of Operations and Comprehensive Income (Loss). Typically, milestone payments and royalties are achieved after the Company’s performance obligations associated with the collaboration agreements have been completed and after the customer has assumed responsibility for the respective clinical or pre-clinical program. Milestones or royalties achieved after the Company’s performance obligations have been completed are recognized as revenue in the period the milestone or royalty was achieved. If a milestone payment is achieved during the performance period, the milestone payment would be recognized as revenue to the extent performance had been completed at that point, and the remaining balance would be recorded as deferred revenue.

The ~~new~~ revenue standard requires the Company to assess whether a significant financing component exists in determining the transaction price. The Company performs this assessment at the onset of its licensing or collaboration agreements. Typically, a significant financing component does not exist because the customer is paying for a license or services in advance with an upfront payment. Additionally, future royalty payments are not substantially within the control of the Company or the customer.

the Company has sold the same performance obligation separately are not available, the Company estimates the standalone selling price of each performance obligation. Key assumptions to determine the standalone selling price may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success.

Whenever the Company determines that goods or services promised in a contract should be accounted for as a combined performance obligation over time, the Company determines the period over which the performance obligations will be performed and revenue will be recognized. Revenue is recognized using either the proportional performance ~~method.~~method or on a straight-line basis if efforts will be expended evenly over time. Labor hours, costs incurred or patient visits in clinical trials are typically used as the measure of performance. Significant management judgment is required in determining the level of effort required under an arrangement and the period over which the Company is expected to complete its performance obligations. If the Company determines that the performance obligation is satisfied over time, any upfront payment received is initially recorded as deferred revenue on the Company’s Consolidated Balance Sheets.

Certain judgments affect the application of the Company’s revenue recognition policy. For example, the Company records short-term and long-term deferred revenue based on its best estimate of when such revenue will be recognized. Short-term deferred revenue consists of amounts that are expected to be recognized as revenue in the next 12 months, and long-term deferred revenue consists of amounts that the Company does not expect will be recognized in the next 12 months. This estimate is based on the Company’s current operating plan and, if the Company’s operating plan should change in the future, the Company may recognize a different amount of deferred revenue over the next 12-month period.

~~Impairment~~Collaborative Arrangements—The Company analyzes its collaborative arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards, and therefore are within the scope of ~~Long-lived Assets~~FASB Topic 808—Collaborative Arrangements. For collaborative arrangements that contain multiple elements, the Company determines which units of account are deemed to be within the scope of Topic 808 and which units of account are more reflective of a vendor-customer relationship, and therefore are within the scope of Topic 606. For units of account that are accounted for pursuant to Topic 808, an appropriate recognition method is determined and applied consistently, either by analogy to appropriate accounting literature or by applying a reasonable accounting policy election. For collaborative arrangements that are within the scope of Topic 808, the Company evaluates the income statement classification for presentation of amounts due to or owed from other participants associated with multiple units of account in a collaborative arrangement based on the nature of each activity. Payments or reimbursements that are the result of a collaborative relationship instead of a customer relationship, such as co-development and co-commercialization activities, are recorded as increases or decreases to Research and Development Expense or General and Administrative Expense, as appropriate.

~~We review long-lived assets for impairment whenever events or changes~~Research and Development—Costs and expenses that can be clearly identified as research and development are charged to expense as incurred in ~~business circumstances indicate that the carrying amount of assets may not be fully recoverable or that our assumptions about the useful lives of these assets~~accordance with FASB ASC 730-10. Included in research and development costs are ~~no longer appropriate. If impairment is indicated, recoverability is measured by a comparison of the carrying amount of an asset~~operating costs, facilities, supplies, external services, clinical trial and manufacturing costs, overhead directly related to the ~~estimated undiscounted future cash flows expected~~Company’s research and development operations, and costs to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset.

Intangible assets consist of a license agreement and patents acquired in conjunction with a business or asset acquisition. Intangible assets are monitored for potential impairment whenever events or circumstances indicate that the carrying amount may not be recoverable and are also reviewed annually to determine whether any impairment is necessary. Based on ASC 350, the annual review of intangible assets is performed via a two-step process. First, a qualitative assessment is performed to determine if it is more likely than not that the intangible asset is impaired. If required, a quantitative assessment is performed and, if necessary, impairment is recorded.acquire technology licenses.

~~We account~~Compensation—The Company accounts for ~~stock-based~~share-based compensation arrangements in accordance with FASB ASC 718, which requires the measurement and recognition of compensation expense for all share-based payment awards to be based on estimated fair values. The Company uses the Black-Scholes option valuation model to estimate the fair value of its stock options at the date of grant. The Black-Scholes option valuation model requires the input of subjective assumptions to calculate the value of stock options. For restricted stock units, the value of the award is based on the Company’s stock price at the grant date. For performance-based restricted stock unit awards, the value of the award is based on the Company’s stock price at the grant ~~date.~~date, with consideration given to the probability of the performance condition being achieved. The Company uses historical data and other information to estimate the expected price volatility for stock option awards and the expected forfeiture rate for all awards. Expense is recognized over the vesting period for all awards and commences at the grant date for time-based awards and upon the Company’s determination that the achievement of such performance conditions is probable for performance-based awards. This determination requires significant ~~judgement~~judgment by management.

Income Taxes—The ~~consideration~~Company accounts for ~~our acquisitions often includes~~income taxes under the liability method, which requires the recognition of deferred income tax assets and liabilities for the expected future ~~payments~~tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are ~~contingent upon~~recognized for the ~~occurrence~~tax consequences in future years of ~~a particular event. For example, milestone payments might be~~differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on ~~progress~~enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. The provision for income taxes, if any, represents the tax payable for the period and the change in deferred income tax assets and liabilities during the period.

Leases—The Company determines whether a contract is, or contains, a lease at inception. The Company classifies each of ~~clinical development,~~its leases as operating or financing considering factors such as the ~~achievement~~length of ~~various regulatory approvals~~the lease term, the present value of the lease payments, the

nature of the asset being leased, and the potential for ownership of the asset to transfer during the lease term. Leases with terms greater than one-year are recognized on the Consolidated Balance Sheets as Right-of-use assets and Lease liabilities and are measured at the present value of the fixed payments due over the expected lease term minus the present value of any incentives, rebates or ~~future sales milestones,~~abatements expected to be received from the lessor. Options to extend a lease are typically excluded from the expected lease term as the exercise of the option is typically not reasonably certain. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis an amount equal to the lease payments over a similar term and ~~royalty payments might be based on drug product sales levels.~~in a similar economic environment. The Company records expense to recognize fixed lease payments on a ~~contingent consideration obligation for such contingent payments at fair value~~straight-line basis over the expected lease term. Costs determined to be variable and not based on an index or rate are not included in the ~~acquisition date. The Company estimates the fair value of contingent consideration obligations through valuation models designed to estimate the probability~~measurement of the ~~occurrence of such contingent payments based on various assumptions~~lease liability and ~~incorporating estimated success rates. Estimated payments~~ are discounted using present value techniques to arrive at estimated fair value at the balance sheet date. Changes in the fair value of our contingent consideration obligations are recognized within our Consolidated Statements of Operations. Changes in the fair value of the contingent consideration obligations can result from changes to one or multiple inputs, including adjustments to the discount rates, changes in the amount or timing of expected expenditures associated with product development, changes in the amount or timing of cash flows from products upon commercialization, changes in the assumed achievement or timing of any development milestones, changes in the probability of certain clinical events and changes in the assumed probability associated with regulatory approval. These fair value measurements are based on significant inputs not observable in the market. Substantial judgment is employed in determining the appropriateness of these assumptionsexpensed as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense the Company records in any given period.incurred.

The following data summarizes our results of operations for the following periods indicated:

The increase in revenue for the year ended September 30, 2021 compared to the year ended September 30, 2020 was driven by the timing of the recognition of the $300 million initial transaction price associated with our ~~Revenue~~agreement with Takeda as we achieved progress toward completing our performance obligation. The increase in Net Losses during the year ended September 30, 2019 was driven by recognition of Revenue associated with our license and collaboration agreements with Janssen discussed further below. This increase in Revenue was also the key driver of the increase in our Operating Income, Net Income and Net Income per Share. Research and Development expenses increased during fiscal 2019 due2021 compared to ~~the progress and expansion of our clinical candidate pipeline as both ARO-ANG3 and ARO-APOC3 entered the clinic, and ARO-AAT progressed to a phase 2 clinical study.~~

~~Total revenue was $168,795,577 for the~~ year ended September 30, ~~2019~~2020 was driven by increases in research and ~~$16,142,321~~development and general and administrative expenses as our pipeline of clinical candidates has continued to increase.

Total revenue for the ~~year~~years ended September 30, ~~2018.~~ 2021, 2020, and 2019 was $138.3 million, $88.0 million and $168.8 million, respectively. Revenue in the current period is primarily related to the recognition of ~~a portion~~$90.8 million of revenue associated with the ~~$252.6~~Takeda License Agreement, recognition of $20.2 million related to the $252.7 million initial transaction price associated with our agreements with Janssen and JJDC, ~~as we achieved progress toward completing our performance obligation within those agreements.~~ ~~Revenue~~recognition of $6.7 million of revenue associated with the Horizon License Agreement and $20.0 million in ~~the prior period was primarily related to a $10 million~~option and milestone ~~payment received~~payments from ~~Amgen in August 2018, which was earned following the administration of the first dose of AMG 890 (ARO-LPA) in a phase 1 clinical study.~~ Janssen for JNJ-75220795 (ARO-JNJ1).

On September 28, 2016, the Company entered into two collaboration and license agreements and a common stock purchase agreement with Amgen. Under the Second Collaboration and License ~~agreements, and a Common Stock Purchase~~ Agreement ~~with Amgen Inc., a Delaware corporation (“Amgen”). Under one of the license agreements (the “Second Collaboration and License Agreement”~~ or ~~“AMG 890 (ARO-LPA) Agreement”),~~Olpasiran Agreement, Amgen has received a worldwide, exclusive license to Arrowhead’s novel, RNAi ~~ARO-LPA~~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 other collaboration and license agreement (the “First Collaboration and License Agreement” or the “ARO-AMG1 Agreement”), Amgen received an option to a worldwide, exclusive license for ARO-AMG1, an RNAi therapy for an undisclosed genetically validated cardiovascular target. In both agreements, Amgen is wholly responsible for clinical development and commercialization. Under the ~~Common Stock Purchase Agreement, the Company has sold 3,002,793 shares of Common Stock to Amgen at a price of $7.16 per share. Under the~~ terms of the agreements taken together, the Company has received ~~$35~~$35.0 million in upfront payments, $21.5 million in the form of an equity investment by Amgen in the Company’s Common ~~Stock. Upon signing the collaboration agreements with Amgen, the Company was eligible to~~Stock, and $30.0 million in milestone payments, and may receive up to ~~$617~~an additional $400.0 million in ~~option payments, and~~remaining development, regulatory and sales milestone payments. The Company ~~remains eligible to receive up to $420 million in development, regulatory and sales milestone payments. The Company~~ is further eligible to receive up to low double-digit royalties for sales of products under the ~~AMG 890 (ARO-LPA)~~Olpasiran Agreement. In July 2019, Amgen informed the Company that it would not be exercising its option for an exclusive license for ARO-AMG1, and as such, there will be no further milestone or royalty payments under the ARO-AMG1 Agreement.

The Company has evaluated these agreements in accordance with ~~the new revenue recognition standard that became effective~~FASB Topics 808 – Collaboration Arrangements and 606 - Revenue for ~~the~~Contracts from Customers. The Company on October 1, 2018. The adoption of the new revenue standard did not have a material impact on the balances reported when evaluated under the superseded revenue standard. During the year ended September 30, 2018, the Companyhas substantially completed its performance obligations under the ~~AMG 890 (ARO-LPA)~~Olpasiran Agreement and the ARO-AMG1 Agreement. Future milestones and royalties achieved will be recognized in their entirety when earned. In July 2020, Amgen initiated a Phase 2 clinical study for Olpasiran, which resulted in a $20 million milestone payment to the Company. During the years ended September 30, ~~2019, 2018~~2021, 2020 and ~~2017,~~2019, the Company recognized ~~$0.3 million, $16.1~~$0, $20.1 million and ~~$31.3~~$0.3 million of Revenue associated with its agreements with Amgen, respectively. As of September 30, ~~2019,~~2021, there were $0 in contract assets

recorded as ~~Accounts Receivable,~~accounts receivable and $0 contract liabilities recorded as ~~Deferred Revenue~~current deferred revenue on the Company’s Consolidated Balance Sheets.

Regarding the ARO-AMG1 Agreement, in August 2018, the Company delivered to Amgen a candidate that met or exceeded the activity and safety requirements stipulated in the ARO-AMG1 Agreement. The option period expired on August 7, 2019, and Amgen advised the Company that it did not intend to exercise its option. As such, there will be no further milestone or royalty payments under the ARO-AMG1 Agreement.

On October 3, 2018, the Company entered into athe Janssen License Agreement ~~(“Janssen License Agreement”)~~ and ~~a Research Collaboration and Option Agreement (“~~the Janssen Collaboration ~~Agreement”)~~Agreement with Janssen, ~~Pharmaceuticals, Inc. (“Janssen”)~~ part of the Janssen Pharmaceutical Companies of Johnson & Johnson. The Company also entered into a ~~Stock Purchase Agreement~~stock purchase agreement with JJDC (“JJDC Stock Purchase Agreement”) ~~with Johnson & Johnson Innovation-JJDC, Inc. (“JJDC”), a New Jersey corporation.~~. Under the Janssen License Agreement, Janssen has received a worldwide, exclusive license to the Company’s ~~ARO-HBV~~JNJ-3989 (ARO-HBV) program, the Company’s third-generation subcutaneously administered RNAi therapeutic candidate being developed as a ~~potentially curative~~potential therapy for patients with chronic hepatitis B virus infection. Beyond the Company’s ~~ongoing~~ Phase ~~1 /~~ 1/2 study of ~~ARO-HBV,~~JNJ-3989 (ARO-HBV), which the Company is responsible for completing, Janssen ~~will be~~is wholly

responsible for clinical development and ~~commercialization.~~commercialization of JNJ-3989. Under the Janssen Collaboration Agreement, Janssen will be able to select three new targets against which Arrowhead will develop clinical candidates. These candidates are subject to certain restrictions and ~~will~~do not include candidates that already were in the Company’s ~~current~~ pipeline. The Company will perform discovery, optimization and preclinical research and development, entirely funded by Janssen, which on its own or in combination with Janssen development work, is sufficient to allow the filing of a U.S. Investigational New Drug ~~application~~Application or equivalent, at which time Janssen will have the option to take an exclusive license. If the option is exercised, Janssen will be wholly responsible for clinical development and ~~commercialization. Under the JJDC Stock Purchase Agreement, in October 2018 the Company sold 3,260,869 shares~~commercialization of ~~common stock to JJDC at a price of $23.00 per share.~~each optioned candidate. Under the terms of the agreements taken together, the Company has received ~~$175~~$175.0 million as an upfront payment, ~~$75~~$75.0 million in the form of an equity investment by JJDC in Arrowhead ~~common stock,~~Common Stock under the JJDC Stock Purchase Agreement, and milestone and option payments totaling $70.0 million, and may receive up to $1.6 billion in development and sales milestones payments for the Janssen License Agreement, and up to $1.9 billion in development and sales milestone payments for the three additional targets covered under the Janssen Collaboration Agreement. The Company is further eligible to receive tiered royalties on product sales up to ~~mid teens~~mid-teens under the ~~license agreement~~Janssen License Agreement and up to low teens under the ~~collaboration and option agreement on product sales.~~Janssen Collaboration Agreement.

The Company has evaluated these agreements in accordance with ~~the new revenue recognition requirements that became effective~~FASB Topics 808 – Collaboration Arrangements and 606 - Revenue for ~~the Company on October 1, 2018. The adoption of the new revenue standard did not have a material impact on the balances reported when evaluated under the superseded revenue standard.~~Contracts from Customers. At the inception of these agreements, the Company ~~has~~ identified one distinct performance obligation. Regarding the Janssen License Agreement, the Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibility to complete the ~~ongoing~~ Phase ~~1 /~~ 1/2 study of JNJ-3989 (ARO-HBV) and the Company’s responsibility to ensure certain manufacturing of JNJ-3989 (ARO-HBV) drug product is completed and delivered to Janssen (the “Janssen R&D Services”). Due to the specialized and unique nature of these Janssen R&D ~~services,~~Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation. The Company also determined that Janssen’s option to require the Company to develop up to three new targets is not a material right and, thus, not a performance obligation at the onset of the agreement. The consideration for this option ~~will be~~is accounted for ~~when it is exercised.~~separately.

The Company determined the transaction price totaled approximately ~~$252.6~~$252.7 million, which includes the upfront payment, the premium paid by JJDC for its equity investment in the Company, ~~the~~ two ~~$25~~$25.0 million milestone payments ~~earned~~related to JNJ-3989 (ARO-HBV), and estimated payments for reimbursable Janssen R&D ~~services~~Services to be performed. The Company has allocated the total ~~$252.6~~$252.7 million initial transaction price to its one distinct performance obligation for the ~~ARO-HBV~~JNJ-3989 (ARO-HBV) license and the associated Janssen R&D Services. ~~This revenue~~The Company has recognized this transaction price in its entirety as of September 30, 2021 as the performance obligation had been substantially completed. Future milestones and royalties achieved will be recognized ~~using a proportional performance method (based on actual labor hours versus estimated total labor hours) beginning~~ in ~~October 2018 and ending as the Company’s efforts in overseeing the ongoing phase 1 / 2 clinical trial are completed.~~their entirety when earned. During the ~~year~~years ended September 30, 2021, 2020 and 2019, the Company recognized approximately $20.2 million, $65.0 million, and $167.5 million of ~~Revenue~~revenue associated with this performance ~~obligation.~~obligation, respectively. As of September 30, ~~2019~~2021, there were $0$0.1 million in contract assets recorded as ~~Accounts Receivable, $77.8 million~~accounts receivable, and $0 of contract liabilities recorded as current ~~Deferred Revenue, and $5.0 million of contract liabilities recorded as long-term Deferred Revenue~~deferred revenue on the Company’s Consolidated Balance Sheets. The $77.8 million of current Deferred Revenue and $5.0 million of long-term Deferred Revenue is driven by the upfront payment and premium paid by JJDC for its equity investment in the Company as well as the two $25 million milestones paid by Janssen, net of revenue recognized in the period.

~~During the year ended September 30, 2019, Janssen selected the first of the three targets under the Janssen Collaboration Agreement, now referred to as ARO-JNJ1, and the~~The Company has begun to conduct its discovery, optimization and preclinical research and development of ~~ARO-JNJ1.~~JNJ-75220795 (ARO-JNJ1), ARO-JNJ2 and ARO-JNJ3 under the Janssen Collaboration Agreement. All costs and labor hours spent by the Company will be entirely funded by Janssen. During the years ended September 30, 2021, 2020 and 2019, the Company recognized $0.5 million, $2.9 million and $1.0 million of revenue associated with these efforts, respectively. In May 2021, Janssen exercised its option right for for JNJ-75220795 (ARO-JNJ1), which resulted in a $10.0 million milestone payment to the Company, and in September 2021, Janssen dosed its fifth patient in its phase 1 clinical trial for JNJ-75220795 (ARO-JNJ1), which resulted in a $10.0 million milestone payment to the Company. Each of these milestone payments was recognized entirely during the year ended September 30, ~~2019, the Company recognized $1.0 million of Revenue associated with its efforts on the ARO-JNJ1 candidate.~~2021. As of September 30, ~~2019~~2021, there were ~~$0.7~~$10.0 million of contract assets recorded as accounts receivable and $0 of contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets. The $10.0 million milestone payment for the dosing of the fifth patient in its Phase 1 clinical trial for JNJ-75220795 (ARO-JNJ1) was received in October 2021.

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

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

The Company determined the initial transaction price totaled $300.0 million, including the upfront payment. The Company has excluded any future estimated milestones or royalties from this transaction price to date. The Company has allocated the total $300.0 million initial transaction price to its one distinct performance obligation for the ARO-AAT license and the associated Takeda R&D Services. Revenue will be recognized using a proportional performance method (based on actual patient visits completed versus total estimated visits completed for the ongoing SEQUOIA and AROAAT2002 clinical studies). Revenue for the years ended September 30, 2021, 2020 and 2019 was $90.8 million, $0 and $0, respectively. As of September 30, 2021, there were $0 in contract assets recorded as ~~Accounts Receivable,~~accounts receivable, $84.4 million in contract liabilities recorded as deferred revenue, $124.8 million in contract liabilities recorded as deferred revenue, net of the current portion, and $3.1 million in contract liabilities recorded as accrued expenses. The $3.1 million in accrued expenses was primarily driven by co-development and co-commercialization activities.

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

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

The Company determined the initial transaction price totaled $40.0 million, including the upfront payment. The Company has excluded any future estimated milestones or royalties from this transaction price to date. The Company will allocate the total $40.0 million initial transaction price to its one distinct performance obligation for the ARO-XDH license and the associated Horizon R&D Services. Revenue will be recognized on a straight-line basis over the estimated timeframe for completing the Horizon R&D Services. The Company determined that the straight-line basis was appropriate as its efforts will be expended evenly over the course of completing its performance obligation. Revenue for the years ended September 30, 2021, 2020 and 2019, was $6.7 million, $0 and $0, respectively. As of September 30, 2021, there were $0.1 million in contract ~~liabilities.~~ assets recorded as accounts receivable, $26.7 million in contract liabilities recorded as deferred revenue and $6.7 million in contract liabilities recorded as deferred revenue, net of the current portion.

The analysis below details the operating expenses and discusses the expenditures of the Company within the major expense categories. Certain reclassifications have been made to prior-period operating expense categories to conform to the current period presentation. For purposes of comparison, the amounts for the years ended September 30, ~~2019~~2021 and ~~2018~~2020 are shown in the tables below.

R&D expenses are related to the Company’s research and development discovery efforts and related ~~program~~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 our research ~~facility~~facilities in Madison, Wisconsin and San Diego, California, including facility costs and laboratory-related expenses. Salaries and stock compensation expense consist of salary, bonuses, payroll taxes and related benefits and stock compensation for our R&D personnel. Depreciation and amortization expense relates to depreciation on lab equipment and leasehold improvements at our ~~Madison~~ research ~~facility.~~facilities. We do 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. The following table provides details of research and development ~~expense~~expenses for the periods indicated:

Twelve Months Ended September 30,

% of Expense

Twelve Months Ended September 30,

% of Expense

Increase (Decrease)

2019

Category

2018

Category

$

%

Salaries

$
15,502

19
%

$
12,721

24
%

$
2,781

22
%
Stock compensation

3,515

4
%

2,396

5
%

1,119

47
%
In Vivo studies

2,526

3
%

2,705

5
%

(179
)

-7
%
Drug manufacturing

22,069

27
%

14,336

27
%

7,733

54
%
Toxicity/efficacy studies

11,251

14
%

6,294

12
%

4,957

79
%
Clinical trials

13,742

17
%

2,935

6
%

10,807

368
%
License, royalty & milestones

-

0
%

32

0
%

(32
)

N/A

Facilities related

2,649

3
%

2,280

4
%

369

16
%
Depreciation/amortization

4,420

6
%

4,672

9
%

(252
)

-5
%
Other R&D

5,375

7
%

4,598

9
%

777

17
%
Total

$
81,049

100
%

$
52,969

100
%

$
28,080

53
%

	Twelve					Twelve
	Months Ended		% of Expense			Months Ended		% of Expense			Increase (Decrease)
	September 30, 2021		Category			September 30, 2020		Category			$		%
Salaries	$	40,179		19	%	$	26,300		20	%	$	13,879		53	%
Facilities related		7,694		4	%		4,136		3	%		3,558		86	%
Candidate costs		92,628		45	%		60,638		47	%		31,990		53	%
R&D discovery costs		32,734		16	%		16,192		13	%		16,542		102	%
Total research and development expense, excluding non-cash expense	$	173,235		84	%	$	107,266		83	%	$	65,969		62	%
Stock compensation		25,742		12	%		16,277		13	%		9,465		58	%
Depreciation/amortization		7,365		4	%		5,332		4	%		2,033		38	%
Total research and development expense	$	206,342		100	%	$	128,875		100	%	$	77,467		60	%

Salaries expense increased by ~~$2,781,000~~$13,879,000 from ~~$12,721,000~~$26,300,000 during the year ended September 30, ~~2018~~2020 to ~~$15,502,000~~$40,179,000 during the current period. ~~The~~This increase ~~in the expense~~ is primarily due to an increase in R&D headcount that has occurred as the Company ~~expands~~has expanded its pipeline of candidates. We anticipate this expense to continue to increase as we continue to expand our pipeline of candidates and increase headcount to support our discovery efforts to identify new drug candidates.

~~Stock compensation expense, a non-cash~~Facilities-related expense increased by ~~$1,119,000~~$3,558,000 from ~~$2,396,000~~$4,136,000 during the year ended September 30, ~~2018~~2020 to $3,515,000 during the current period. Stock compensation expense is based upon the valuation of stock options and restricted stock units granted to employees, directors, and certain consultants. Many variables affect the amount expensed, including the Company’s stock price on the date of the grant, as well as other assumptions. The increase in the expense is primarily due to the increased headcount discussed above and a mix of higher grant date fair values of awards amortizing during the periods due to the Company’s stock price at the time of the grants.

In vivo studies expense decreased by $179,000 from $2,705,000 during the year ended September 30, 2018 to $2,526,000 during the current period. In vivo studies expense can vary depending on the stage of preclinical candidates, the nature and amount of testing required and the cost variation of different in vivo testing models. The decrease in in vivo studies expense is ~~the result of the timing of discovery studies being completed between periods~~.

~~Drug manufacturing expense increased by $7,733,000 from $14,336,000 during the year ended September 30, 2018 to $22,069,000 during the current period.~~ The increase in the expense primarily relates to the timing of manufacturing campaigns for JNJ-3989 (ARO-HBV), ARO-ANG3 and ARO-APOC3 clinical trials and toxicology studies. We anticipate this expense to increase as the volume of candidates in our pipeline increases and as each candidate progresses through clinical trial phases.

Toxicity/efficacy studies expense increased by $4,957,000 from $6,294,000 during the year ended September 30, 2018 to $11,251,000 during the current period. This category includes IND-enabling toxicology studies as well as post-IND toxicology studies, such as long-term toxicology studies, and other efficacy studies. The increase in the expense primarily relates to toxicology studies for ARO-AAT, JNJ-3989 (ARO-HBV), ARO-ANG3 and ARO-APOC3 as each candidate progresses through and into clinical trials. We anticipate this expense to increase as we prepare to enter clinical trials with our other drug candidates.

~~Clinical trials expense increased by $10,807,000 from $2,935,000 during the year ended September 30, 2018 to $13,742,000 during the current period.~~ The increase in the expense is primarily due to the ongoing ARO-AAT and JNJ-3989 (ARO-HBV) clinical trials, and the start up of the ARO-ANG3 and ARO-APOC3 clinical trials. We anticipate this expense to increase as our current clinical candidates progress through clinical trials and as we enter clinical trials with our other drug candidates.

License, royalty and milestones expense was relatively minor in both periods. This category includes milestone payments which can vary from period to period depending on the nature of our various license agreements, and the timing of reaching various development milestones requiring payment. No significant milestones were achieved in either period.

~~Facilities expense increased by $369,000 from $2,280,000 during the year ended September 30, 2018 to $2,649,000~~$7,694,000 during the current period. This category includes rental costs for our research and development ~~facility~~facilities in Madison, ~~Wisconsin.~~ ~~The~~Wisconsin and San Diego, California. This increase ~~in the expense~~ is primarily due to the commencement of our sublease in San Diego, California in April 2020, the expansion of our Madison facility and increased ~~rental~~repairs and ~~common area~~ maintenance ~~expenses for~~expense on equipment. We anticipate this expense to increase in the future due to our ~~research~~plans to continue to increase our manufacturing capabilities and ~~development facility.~~discovery efforts.

~~Depreciation and amortization expense, decreased~~Candidate costs increased by ~~$252,000~~$31,990,000 from ~~$4,672,000~~$60,638,000 during the year ended September 30, ~~2018~~2020 to ~~$4,420,000~~$92,628,000 during the current period. ~~The majority of depreciation and amortization expense relates to depreciation on lab equipment at our Madison research facility.~~ ~~In addition, the Company records depreciation on leasehold improvements at its Madison research facility, and the decrease in depreciation and amortization expense relates~~This increase is primarily due to the ~~timing of amortization of these leasehold improvements in each period as the length~~progression of our ~~lease has been extended.~~ pipeline of candidates into and through clinical trials, which results in higher outsourced clinical trial, toxicity study and manufacturing costs. We anticipate these expenses to continue to increase as our pipeline of candidates grows and progresses to later phase clinical trials.

~~Other research expense~~R&D discovery costs increased by ~~$777,000~~$16,542,000 from ~~$4,598,000~~$16,192,000 during the year ended September 30, ~~2018~~2020 to ~~$5,375,000 during~~$32,734,000 in the current period. This ~~category includes~~increase is primarily due to the ~~following costs~~growth of our discovery efforts, including the addition of our research facility in San Diego. We anticipate this expense to continue to increase as we increase headcount to support our discovery efforts ~~and the advancement of current~~to identify new drug ~~candidates: in-house laboratory supplies, outsourced labs services, and other miscellaneous research and development expenses.~~ ~~The increase in other research~~candidates.

Stock compensation expense, ~~is due to additional in-house laboratory supplies for our increased headcount.~~

~~The following table provides details of our general and administrative expenses for the periods indicated:~~

~~Salaries~~a non-cash expense, increased by ~~$1,906,000~~$9,465,000 from ~~$6,382,000~~$16,277,000 during the year ended September 30, ~~2018~~2020 to ~~$8,288,000 during the current period.~~ ~~The increase in the expense is primarily driven by annual merit increases, performance bonuses and increased headcount.~~

~~Stock compensation expense increased by $2,819,000 from $6,059,000 during the year ended September 30, 2018 to $8,878,000~~$25,742,000 during the current period. Stock compensation expense is based upon the valuation of stock options and restricted stock units granted to employees, directors and certain consultants. Many variables affect the amount expensed, including the Company’s stock price on the date of the grant, as well as other assumptions. The increase in the expense in the current period is primarily due to the ~~timing~~increased headcount discussed above and a mix of higher grant date fair values of awards amortizing during the current period due to the Company’s stock price at the time of the ~~achievement~~grants. We generally expect future stock compensation expense to increase as our headcount continues to increase to support our clinical pipeline.

Depreciation and amortization expense, a non-cash expense, increased by $2,033,000 from $5,332,000 during the year ended September 30, 2020 to $7,365,000 during the current period. The majority of ~~certain performance-based awards~~depreciation and amortization expense relates to depreciation on lab equipment and leasehold improvements at our Madison and San Diego research facilities.

The following table provides details of our general and administrative expenses for the periods indicated:

Salaries expense increased by $1,900,000 from $11,781,000 during the year ended September 30, 2020 to $13,681,000 during the current period. The increase is primarily driven by annual merit increases, performance bonuses and increased headcount needed to support our growing clinical pipeline. We anticipate this expense to continue to increase as our pipeline expands.

Professional/outside services include legal, accounting, consulting, patent expenses, business insurance expenses and other outside services retained by the Company. Professional/outside services expense increased by ~~$1,274,000~~$2,806,000 from ~~$4,331,000~~$7,342,000 during the year ended September 30, ~~2018~~2020 to ~~$5,605,000~~$10,148,000 during the current period. The increase ~~in the expense~~ is primarily related to ~~recruiting fees for increased headcount.~~an increase in consulting expenses in the current period.

Facilities-related expense increased ~~$707,000~~by $141,000 from ~~$727,000~~$2,203,000 during the year ended September 30, ~~2018~~2020 to ~~$1,434,000~~$2,344,000 during the current period. This category primarily includes rental costs for our corporate headquarters in Pasadena, California. The increase ~~in the expense is primarily~~was due to ~~furniture and office supply purchases as~~ the ~~Company moved to a new~~additional space leased for our corporate headquarters to accommodate the increase in ~~September and October 2019.~~

Depreciation and amortization expense, a noncash expense, was relatively minor in each of the periods. The majority of general and administrative depreciation and amortization expense relates to depreciation on leasehold improvements at our Pasadena headquarters. This expense will increase as we anticipate spending approximately $3.5 million, net of tenant improvement allowances, on leasehold improvements for our new corporate headquarters in Pasadena, California.headcount.

Other G&A expense ~~increased~~decreased by ~~$748,000~~$257,000 from ~~$1,584,000~~$3,233,000 during the year ended September 30, ~~2018~~2020 to ~~$2,332,000~~$2,976,000 during the current period. This category consists primarily of travel, communication and technology, office expenses, and franchise and property tax expenses. ~~The~~We anticipate this expense to increase in the ~~expense was due to various travel and communication and technology expenses~~future as our headcount ~~has increased.~~increases in order to support our growing pipeline.

~~Other income /~~Stock compensation expense, ~~was income of $1,488,157~~a non-cash expense, increased by $23,825,000 from $27,106,000 during the year ended September 30, ~~2018 as compared~~2020 to ~~income of $6,957,768~~$50,931,000 during the current period. The ~~largest component~~increase is due to certain performance-based stock awards being deemed probable of ~~other income /~~being achieved in the current period. Stock compensation expense ~~in both period was interest income~~is based upon the valuation of ~~$7.0 million~~stock options and ~~$1.0 million for~~restricted stock units granted to employees, directors and certain consultants. Many variables affect the ~~years ended September 30, 2019 and 2018, respectively. This interest income was earned~~amount expensed, including the Company’s stock price on the ~~Company’s portfolio~~date of ~~short-term~~the grant, as well as other assumptions. We generally expect future stock compensation expense to increase as our headcount continues to increase to support our clinical pipeline.

Depreciation and ~~long-term investments, money market accounts and cash and cash equivalents which~~amortization expense, a noncash expense, increased ~~significantly due to the cash received~~by $290,000 from ~~Janssen~~$611,000 during the year ended September 30, ~~2019.~~ 2020 to $901,000 during the current period. The increase is primarily related to amortization of leasehold improvements for our corporate headquarters.

~~The Provision for Income Taxes increased by $171,153 from $2,400~~Other income/expense was income of $8.6 million during the year ended September 30, ~~2018~~2020 compared to ~~$173,553~~income of $8.2 million during the current period. Other income/expense primarily consists of interest income. The ~~increase~~change in ~~the expense is due to alternative minimum state taxes due in the current year based on our net~~interest income ~~earned.~~

~~For a discussion of our results of operations comparison for 2018 and 2017, refer to our Annual Report on Form 10-K for~~between the ~~fiscal~~ year ended September 30, ~~2018 filed~~2021 and 2020 is primarily due to the amounts invested in and the interest rates earned on ~~December 11, 2018.~~our bond portfolio.

Arrowhead has historically financed its operations through the sale of its equity ~~securities.~~securities and revenue from its collaboration agreements. Research and development activities have required significant capital investment since the Company’s inception and are expected to continue to require significant cash expenditure in the ~~future.~~future, particularly as the Company’s pipeline of drug candidates and its headcount have expanded significantly. Additionally, significant capital investment will be required as the Company’s pipeline matures into later stage clinical trials, as well as with the Company’s plans to increase its internal manufacturing capabilities and discovery efforts.

At September 30, ~~2019,~~2021, the Company had cash ~~and cash equivalents~~ on hand of approximately ~~$221.8~~$184.4 million as compared to ~~$30.1~~$143.6 million at September 30, ~~2018. Excess cash~~2020. Cash invested in short-term fixed income securities and marketable securities was $183.4 million at September 30, 2021, compared to $171.9 million at September 30, 2020. Cash invested in long-term fixed income securities was ~~$81.1~~$245.6 million at September 30, ~~2019,~~2021, compared to ~~$46.4~~$137.5 million at September 30, ~~2018.~~2020. The Company also entered into an Open Market Sale Agreement (the “ATM” agreement), pursuant to which the Company may, from time to time, sell up to $250,000,000 in shares of the Company’s common stock through Jefferies LLC. As of the year ended September 30, 2021, no shares have been issued under the ATM agreement. The Company believes its current financial resources are sufficient to fund its operations through at least the next twelve months.

A summary of cash flows for the years ended September 30, ~~2019, 2018,~~2021, 2020, and ~~2017 is~~2019 as follows:

During the year ended September 30, 2021, the Company generated $171.2 million in cash from operating activities, which was primarily related to the Takeda license agreement’s $300 million upfront payment, partially offset by the ongoing expenses of the Company’s research and development programs and general and administrative expenses. Cash used in investing activities was $141.7 million, which was primarily related to the purchase of investments of $240.7 million and purchase of property and equipment of $23.6 million, partially offset by maturities of fixed-income securities of $122.6 million. Cash provided by financing activities of $11.3 million was due to cash received from stock option exercises.

During the year ended September 30, 2020, the Company used $95.4 million in cash from operating activities, which was primarily related to the ongoing expenses of the Company’s research and development programs and general and administrative expenses. Cash used in investing activities was $240.8 million, which was primarily related to the purchase of investments of $279.0 million and purchase of property and equipment of $12.0 million, partially offset by maturities of fixed-income securities of $50.1 million. Cash provided by financing activities of $257.9 million was driven by the securities financing in December 2019, which generated $250.5 million in net cash proceeds, as well as $7.5 million in cash received from stock option exercises.

During the year ended September 30, 2019, the Company generated $173.0 million in cash from operating activities, which was primarily related to the $175.0 million upfront payment and the two $25.0 million milestone payments received from Janssen, and the premium JJDC paid on the Company’s common stock during the period. These inflows were partially offset by approximately $66.5 million of cash used for the ongoing expenses of the Company’s research and development programs and general and administrative expenses. Cash used in investing activities was $47.7 million, which was primarily related to purchases of fixed-income investments of $90.3 million partially offset by maturities of fixed-income investments of $54.5 million. Cash provided by financing activities of $66.4 million was driven by the equity investment the Company received from JJDC during the period.

~~During~~For information related to our future commitments for our facility related obligaitons, see Notes 8 and 14 of Notes to Consolidated Financial Statements of Part IV, Item 15. Exhibits and Financial Statement Schedules. For information related to our future commitments relating to our collaboration and licensing agreements, see Notes 2 and 8 of Notes to Consolidated Financial Statements of Part IV, Item 15. Exhibits and Financial Statement Schedules. Commitments related to our clinical, manufacturing and business operation related agreements are $214.9 million as of the year ended September 30, 2018, the Company used $47.2 million in cash from operating activities, which was primarily related to $57.2 million used for the on-going expenses of its research and development programs and general and administrative expenses, offset by the $10 million milestone payment for the AMG 890 (ARO-LPA) Agreement with Amgen. Cash used in investing activities was $7.4 million, which was primarily related to maturities of fixed-income investments of $46.1 million offset by purchases of fixed-income securities of $52.1 million. Cash provided by financing activities of $60.0 million was driven by the $56.6 million of cash generated from the underwritten public offering in January 2018.

During the year ended September 30, 2017, the Company used $23.9 million in cash from operating activities, primarily driven by $53.9 million of cash used for the on-going expenses of its research and development programs and general and administrative expenses, partially offset by the $30 million upfront payment received from Amgen. Cash used in investing activities was $48.6 million, which was primarily related to investments in short-term fixed-income securities of $45.0 million and $7.9 million of capital expenditures primarily for leasehold improvements on the Company’s Madison, Wisconsin research facility and lab equipment purchases. Cash generated by financing activities of $12.1 million was driven by the $12.5 million equity investment received from Amgen and was partially offset by cash paid for employee taxes on net share settlements of restricted stock units that vested during the period.

In the table below, we set forth our enforceable and legally binding obligations and future commitments at September 30, 2019 for the categories shown, as well as obligations related to contracts in such categories that we2021, however these agreements are likely to continue. Some of the figures that we include in this table are based on management’s estimates and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by third parties and other factors. Because these estimates and assumptions are necessarily subjective, the obligations we will actually pay in future periods may vary from those reflected in the table. The following table does not include any future obligations that may be owed under existing license agreements, as the certainty of achieving the relevant milestones that would trigger these payments is currently unknown.cancelable.

~~As of September 30, 2019, we did not have any off-balance sheet arrangements, as defined in Item 303(a)(4)(ii) of SEC Regulation S-K.~~

~~See Note 1 to our Consolidated Financial Statements of this annual report on Form 10-K for a description of recent accounting pronouncements applicable to our business.~~

We are exposed to market risk related to changes in interest rates, which could adversely affect the value of our interest rate-sensitive assets and liabilities. We do not hold any instruments for trading purposes and investment criteria are governed by the Company’s Investment Policy. As of September 30, ~~2019~~2021 and ~~2018,~~2020, we had cash and cash equivalents of ~~$221.8~~$184.4 million and ~~$30.1~~$143.6 million, respectively, and short-term and long-term investments and marketable securities of ~~$81.1~~$428.9 million and ~~$46.4~~$309.4 million, respectively. At times, we have invested our cash reserves in corporate bonds typically with maturities of less than 23 years, and we have historically classified these investments as held-to-maturity. We have also invested in mutual funds that invest in marketable debt securities such as U.S. government bonds, U.S. government agency bonds, corporate bonds, and other asset backed debt securities. Due to the relatively short-term nature of the investments that we hold, we do not believe that the results of operations or cash flows would be affected to any significant degree by a sudden change in market interest rates relative to our investment portfolio.

The information required by this item is included in Item 15 of this Annual Report on Form 10-K.

Our Chief Executive Officer and our Chief Financial Officer, after evaluating our “disclosure controls and procedures” (as defined in Securities Exchange Act of 1934 (the “Exchange Act”) Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report on Form 10-K (the “Evaluation Date”) have concluded that as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, where appropriate, to allow timely decisions regarding required disclosure.

No change in the Company’s internal controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act) occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United ~~States.~~States (“GAAP”). This process includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with ~~generally accepted accounting principles,~~GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the internal control over financial reporting to future periods are subject to risk that the internal control may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

Management’s Assessment of the Effectiveness of our Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management conducted an assessment of the effectiveness of the Company’s internal control over financial reporting based on the criteria set forth in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on the Company’s assessment, management

has concluded that its internal control over financial reporting was effective as of September 30, ~~2019~~2021 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with GAAP. The Company’s independent registered public accounting firm, Rose, Snyder and Jacobs LLP, has issued an audit report on the Company’s internal control over financial reporting, which appears in Item 15 of this Form 10-K.

There was no change in our internal control over financial reporting that occurred during the fourth quarter of the year ended September 30, ~~2019~~2021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

~~None.~~Exclusive License Agreement with Glaxosmithkline Intellectual Property (No. 3) Limited

On November 22, 2021, the Company entered into an Exclusive License Agreement (the “GSK License Agreement”) with Glaxosmithkline Intellectual Property (No. 3) Limited (“GSK”). Under the GSK License Agreement, GSK has received an exclusive license for ARO-HSD, the Company’s investigational RNAi therapeutic being developed as a treatment for patients with alcohol-related and nonalcohol related liver diseases, such as nonalcoholic steatohepatitis (NASH). The exclusive license is worldwide with the exception of greater China, for which the Company will retain rights to develop and commercialize. Beyond the Company’s Phase 1/2 study of (ARO-HSD), which the Company is responsible for completing, GSK is wholly responsible for clinical development and commercialization of ARO-HSD in its territory. Under the terms of the agreement, Arrowhead will receive an upfront payment of $120 million and is eligible for additional payments of $30 million at the start of Phase 2 and $100 million upon achieving a successful Phase 2 trial readout and the first patient dosed in a Phase 3 trial. Furthermore, should the Phase 3 trial read out positively, and the potential new medicine receives regulatory approval in major markets, the deal provides for commercial milestone payments to Arrowhead of up to $190 million at first commercial sale, and up to $590 million in sales-related milestone payments. Arrowhead is further eligible to receive tiered royalties on net product sales in a range of mid-teens to twenty percent. The transactions contemplated under the GSK Agreement are subject to customary closing conditions, including clearance by the relevant competition authorities.

The description of the Agreement contained herein does not purport to be complete and is qualified in its entirety by reference to the complete text of the Agreement which will be filed as an exhibit to the Company’s Quarterly Report on Form 10-Q for the quarter ending December 31, 2021.

On November 19, 2021, the Company entered into a new lease for a San Diego, California research facility. The 15-year lease is for approximately 144,000 square feet of office and research and development laboratory space to be constructed in San Diego, California. This lease will replace the Company’s current research facility sublease for property located in San Diego, California. The increased capacity of this new facility compared to the Company’s current research facility in San Diego will accommodate increased personnel for the Company’s expanding pipeline of current and future drug candidates.

The estimated rent commencement date for the lease is in May 2023 after construction and leasehold improvements have been completed. The lease payments, which begin on the rent commencement date, will be approximately $119.0 million over the initial 15-year term. The Company also estimates payments for operating expenses to be approximately $3.0 million for the first year of the lease, and these payments will continue throughout the initial 15-year term. The Company expects to pay approximately $31.0 million for leasehold improvements, net of tenant improvement allowances. Pursuant to the lease, within twelve months of the expiration of the initial 15-year term, the Company has the option to extend the lease for up to one additional ten-year term, with certain annual increases in base rent.

The information called for by this Item will be incorporated by reference from our Definitive Proxy Statement, under the headings Proposal One — Election of Directors, Equity Compensation Plan Information, and, if applicable, Delinquent Section 16(a) Reports, to be filed for our ~~2020~~2022 Annual Meeting of Stockholders, which proxy statement will be filed no later than January 28, ~~2020.~~2022.

We have adopted a Code of Ethics, as part of our Code of Corporate Conduct, that applies to all of our directors, officers and employees, including our principal executive, principal financial and principal accounting officers, or persons performing similar functions. Our Code of Ethics is posted on our website located at https://arrowheadpharma.com/code-corporate-conduct/. We intend to disclose future amendments to certain provisions of the Code of Ethics, and waivers of the Code of Ethics granted to executive officers and directors, on the website within four business days following the date of the amendment or waiver.

The information called for by this Item will be incorporated by reference from our Definitive Proxy Statement, under the heading Executive Compensation, to be filed for our ~~2020~~2022 Annual Meeting of Stockholders, which proxy statement will be filed no later than January 28, ~~2020.~~

The information called for by this Item will be incorporated by reference from our Definitive Proxy Statement, under the heading Voting Securities of Principal Stockholders and Management, to be filed for our ~~2020~~2022 Annual Meeting of Stockholders, which proxy statement will be filed no later than January 28, ~~2020.~~

The information called for by this Item will be incorporated by reference from our Definitive Proxy Statement, under the headings Review and Approval of Related-Party Transactions and Certain Relationships and Related Transactions, and Director Independence, to be filed for our ~~2020~~2022 Annual Meeting of Stockholders, which proxy statement will be filed no later than January 28, ~~2020.~~

The information called for by this Item will be incorporated by reference from our Definitive Proxy Statement, under the heading Audit Fees, to be filed for our ~~2020~~2022 Annual Meeting of Stockholders, which proxy statement will be filed no later than January 28, ~~2020.~~

See Index to Financial Statements and Schedule on page F-1. All other schedules are omitted as the required information is not present or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements or notes thereto.

The following exhibits are filed (or incorporated by reference herein) as part of this Annual Report on Form 10-K:

†Certain confidential portions of this exhibit were omitted by means of marking such portions with asterisks because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized, on this ~~25th~~22nd day of November ~~2019.~~2021.

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report on Form 10-K has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

We have audited the accompanying consolidated balance sheets of Arrowhead Pharmaceuticals, Inc. and ~~subsidiaries~~Subsidiaries (the Company) as of September 30, ~~2019~~2021 and ~~2018,~~2020, and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended September 30, ~~2019,~~2021, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, ~~2019~~2021 and ~~2018,~~2020, and the results of its operations and its cash flows for each of the years in the three-year period ended September 30, ~~2019,~~2021, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of September 30, ~~2019,~~2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated November ~~25, 2019,~~22, 2021, expressed an unqualified opinion.

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

As discussed in Note 1 to the Consolidated Financial Statements, the Company adopted Accounting Standards Codification 606 (“ASC 606”): Revenue from Contracts with Customers as of October 1, 2018. As discussed in Note 1 and Note 2 to the Consolidated Financial Statements, the Company earns its revenue through license and collaboration agreements. For performance obligations related to services that are required to be recognized over time, the Company ~~generally~~ measures its progress to completion using various measures, including an input measure of total labor costs incurred divided by total labor costs expected to be ~~incurred.~~incurred, time elapsed, and an output measure of total patient visits divided by total patient visits expected. The selection of measurement criteria is based on the nature and phase of trials being conducted.

Auditing revenue recognition is complex and highly judgmental due to the variability and uncertainty associated with the Company’s assessment of measure of progress. Changes in these estimates would have a significant effect on the amount of revenue recognized.

We obtained an understanding, evaluated the design, and tested the operating effectiveness of controls that address the risk of material misstatement of license and collaboration agreement revenue including those associated with cost to complete estimates. We tested controls over management’s process to collect, review, and approve the data used in assessing revenue recognized over time.

To test the measures of progress used for pe ~~rformance~~performance obligations related to services that are required to be recognized over time, our audit procedures included, among others, evaluating the appropriateness of the Company’s accounting policy for each type of arrangement, testing the identified measure of performance by reading contracts with customers, including all amendments, and reviewing the contract analyses prepared by management. We evaluated whether the selected measures of progress towards satisfaction of performance obligations were applied consistently. We also tested the completeness and accuracy of the underlying data used for the measure of progress by testing and or analyzing the underlying ~~cost~~ data and conducting interviews of project personnel.

We have audited Arrowhead Pharmaceuticals, Inc. and ~~subsidiaries~~Subsidiaries (the Company’s) internal control over financial reporting as of September 30, ~~2019,~~2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, ~~2019,~~2021, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets as of September 30, ~~2019~~2021 and 2020 and the related consolidated statements of operations and comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended September 30, ~~2019~~2021 and related notes, and our report dated November ~~25, 2019~~22, 2021 expressed an unqualified opinion thereon.

The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

September 30, 2019

September 30, 2018

ASSETS

CURRENT ASSETS

Cash and cash equivalents
$
221,804,128

$
30,133,213

Accounts receivable

661,361

327,375

Prepaid expenses

3,317,999

1,267,717

Other current assets

2,563,435

640,117

Short-term investments

36,899,894

46,400,176

TOTAL CURRENT ASSETS

265,246,817

78,768,598

Property and equipment, net

23,214,899

13,935,425

Intangible assets, net

17,063,580

18,764,010

Long-term investments

44,175,993

-

Other assets

144,148

141,918

TOTAL ASSETS
$
349,845,437

$
111,609,951

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

Accounts payable
$
7,649,921

$
2,806,098

Accrued expenses

6,504,729

5,043,087

Accrued payroll and benefits

4,955,887

3,937,605

Deferred rent

173,952

307,334

Deferred revenue

77,769,629

600

Note payable

-

223,820

Other current liabilities

16,561

46,407

TOTAL CURRENT LIABILITIES

97,070,679

12,364,951

LONG-TERM LIABILITIES

Deferred rent, net of current portion

3,703,364

1,702,801

Deferred revenue, net of current portion

5,035,142

-

Note payable, net of current portion

-

2,101,198

Other non-current liabilities

-

200,000

TOTAL LONG-TERM LIABILITIES

8,738,506

4,003,999

Commitments and contingencies (Note 7)

STOCKHOLDERS’ EQUITY

Arrowhead Pharmaceuticals, Inc. stockholders' equity:

Common stock, $0.001 par value; 145,000,000 shares authorized; 95,506,271 and 88,505,302 shares
issued and outstanding as of September 30, 2019 and September 30, 2018, respectively

187,876

180,875

Additional paid-in capital

664,086,155

582,902,694

Accumulated other comprehensive income (loss)

(391,624
)

(21,564
)
Accumulated deficit

(419,290,967
)

(487,265,816
)
Total Arrowhead Pharmaceuticals, Inc. stockholders' equity

244,591,440

95,796,189

Noncontrolling interest

(555,188
)

(555,188
)
TOTAL STOCKHOLDERS’ EQUITY

244,036,252

95,241,001

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
349,845,437

$
111,609,951

	September 30, 2021			September 30, 2020
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	184,434		$	143,583
Accounts receivable		10,255			846
Prepaid expenses		4,362			4,251
Other current assets		2,191			1,782
Marketable securities		126,728			85,020
Short term investments		56,627			86,890
TOTAL CURRENT ASSETS		384,597			322,372
Property and equipment, net		48,675			30,881
Intangible assets, net		13,663			15,363
Long term investments		245,595			137,487
Right-of-use assets		17,346			16,137
Other assets		272			264
TOTAL ASSETS	$	710,148		$	522,504
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	9,457		$	6,829
Accrued expenses		14,001			5,389
Accrued payroll and benefits		9,773			8,061
Lease liabilities		2,250			1,095
Deferred revenue		111,055			19,291
Other current liabilities		-			17
TOTAL CURRENT LIABILITIES		146,536			40,682
LONG-TERM LIABILITIES
Lease liabilities, net of current portion		23,295			20,043
Deferred revenue, net of current portion		131,495			-
TOTAL LONG-TERM LIABILITIES		154,790			20,043
Commitments and contingencies (Note 7)
STOCKHOLDERS’ EQUITY
Common stock, $0.001 par value; 145,000 shares authorized; 104,327 and 102,376 shares issued and outstanding as of September 30, 2021 and September 30, 2020, respectively		197			195
Additional paid-in capital		1,053,386			965,410
Accumulated other comprehensive income (loss)		(69	)		18
Accumulated deficit		(644,692	)		(503,844	)
TOTAL STOCKHOLDERS’ EQUITY		408,822			461,779
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	710,148		$	522,504

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

	Year Ended September 30									Years Ended September 30,
	2019			2018			2017			2021			2020			2019
REVENUE	$	168,795,577		$	16,142,321		$	31,407,709		$	138,287		$	87,992		$	168,796
OPERATING EXPENSES
Research and development		81,048,686			52,968,505			50,904,466			206,342			128,875			81,049
General and administrative expenses		26,556,257			19,110,051			17,499,152			80,981			52,276			26,556
TOTAL OPERATING EXPENSES		107,604,943			72,078,556			68,403,618			287,323			181,151			107,605
OPERATING INCOME (LOSS)		61,190,634			(55,936,235	)		(36,995,909	)		(149,036	)		(93,159	)		61,191
OTHER INCOME (EXPENSE)
Interest income (expense), net		6,957,768			1,048,523			415,128			6,120			9,191			6,958
Change in value of derivatives		-			432,141			890,362
Other income (expense)		-			7,493			1,312,524
Other income (expense), net											2,070			(583	)		-
TOTAL OTHER INCOME (EXPENSE)		6,957,768			1,488,157			2,618,014			8,190			8,608			6,958
INCOME (LOSS) BEFORE INCOME TAXES		68,148,402			(54,448,078	)		(34,377,895	)		(140,846	)		(84,551	)		68,149
Provision for income taxes		(173,553	)		(2,400	)		(2,400	)		(2	)		(2	)		(174	)
NET INCOME (LOSS)		67,974,849			(54,450,478	)		(34,380,295	)		(140,848	)		(84,553	)		67,975
NET INCOME (LOSS) PER SHARE - BASIC	$	0.72		$	(0.65	)	$	(0.47	)	$	(1.36	)	$	(0.84	)	$	0.72
NET INCOME (LOSS) PER SHARE - DILUTED	$	0.69		$	(0.65	)	$	(0.47	)	$	(1.36	)	$	(0.84	)	$	0.69
Weighted average shares outstanding - basic		93,858,857			83,638,469			73,898,598			103,745			100,722			93,859
Weighted average shares outstanding - diluted		98,607,815			83,638,469			73,898,598			103,745			100,722			98,608
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign Currency Translation Adjustments		(370,060	)		(54,796	)		25,783
Foreign currency translation adjustments											(87	)		410			(370	)
COMPREHENSIVE INCOME (LOSS)	$	67,604,789		$	(54,505,274	)	$	(34,354,512	)	$	(140,935	)	$	(84,143	)	$	67,605

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

Preferred Stock

Amount ($)

Common Stock

Amount ($)

Additional Paid-In Capital

Accumulated Other Comprehensive Income (loss)

Accumulated Deficit

Non-controlling Interest

Totals

Balance at September 30, 2016

15,652

$
16

69,746,685

$
162,116

$
493,844,909

$
7,449

$
(398,435,043
)

$
(555,188
)

$
95,024,259

Stock-based compensation

-

-

-

-

7,891,595

-

-

-

7,891,595

Exercise of stock options

-

-

135,730

136

271,795

-

-

-

271,931

Common stock- Restricted Stock Units vesting

-

-

481,212

481

(403,742
)

-

-

-

(403,261
)
Common stock issued to Amgen at $7.16 per share

-

-

1,745,810

1,746

12,418,254

-

-

-

12,420,000

Preferred stock converted to common stock

(15,652
)

(16
)

2,670,989

2,671

(2,655
)

-

-

-

-

Exchange rights exercised

-

-

5,000

5

17,145

-

-

-

17,150

Foreign currency translation adjustments

-

-

-

-

-

25,783

-

-

25,783

Net loss for the year ended September 30, 2017

-

-

-

-

-

-

(34,380,295
)

-

(34,380,295
)
Balance at September 30, 2017

-

$
-

74,785,426

$
167,155

$
514,037,301

$
33,232

$
(432,815,338
)

$
(555,188
)

$
80,867,162

Stock-based compensation

-

-

-

-

8,454,607

-

-

-

8,454,607

Exercise of stock options

-

-

604,611

605

2,656,105

-

-

-

2,656,710

Exercise of warrants

-

-

288,473

288

1,237,141

-

-

-

1,237,429

Common stock- Restricted Stock Units vesting

-

-

1,326,792

1,327

(55,995
)

-

-

-

(54,668
)
Common stock issued at $5.25 per share

-

-

11,500,000

11,500

56,573,535

-

-

-

56,585,035

Foreign currency translation adjustments

-

-

-

-

-

(54,796
)

-

-

(54,796
)
Net loss for the year ended September 30, 2018

-

-

-

-

-

-

(54,450,478
)

-

(54,450,478
)
Balance at September 30, 2018

-

$
-

88,505,302

$
180,875

$
582,902,694

$
(21,564
)

$
(487,265,816
)

$
(555,188
)

$
95,241,001

Stock-based compensation

-

-

-

-

12,393,323

-

-

-

12,393,323

Exercise of stock options

-

-

1,542,795

1,543

8,273,867

-

-

-

8,275,410

Common stock- Restricted Stock Units vesting

-

-

2,197,305

2,197

(2,197
)

-

-

-

-

Common stock issued at $23.00 per share

-

-

3,260,869

3,261

60,518,468

-

-

-

60,521,729

Foreign currency translation adjustments

-

-

-

-

-

(370,060
)

-

-

(370,060
)
Net income for the year ended September 30, 2019

-

-

-

-

-

-

67,974,849

-

67,974,849

Balance at September 30, 2019

-

$
-

95,506,271

$
187,876

$
664,086,155

$
(391,624
)

$
(419,290,967
)

$
(555,188
)

$
244,036,252

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

Year ended September 30,

2019

2018

2017

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

$
67,974,849

$
(54,450,478
)

$
(34,380,295
)
Change in value of derivatives

-

(432,141
)

(890,362
)
Stock-based compensation

12,393,323

8,454,607

7,891,595

Depreciation and amortization

4,439,144

4,699,275

4,690,440

Amortization/(accretion) of note premiums

1,069,070

383,075

(43,519
)
Changes in operating assets and liabilities:

Accounts receivable

(333,986
)

(259,578
)

7,203

Prepaid expenses and other current assets

(3,710,515
)

319,166

2,814,509

Deferred revenue

82,804,171

(5,269,140
)

157,981

Accounts payable

4,843,825

(1,270,416
)

(3,509,995
)
Accrued expenses

2,450,079

1,016,506

(401,777
)
Other

1,104,963

(414,293
)

(274,752
)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

173,034,923

(47,223,417
)

(23,938,972
)
CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(12,001,225
)

(1,421,252
)

(7,918,198
)
Purchases of marketable securities

(90,266,001
)

(52,083,131
)

(44,974,736
)
Proceeds from sale of marketable securities

54,521,219

46,069,420

4,248,716

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

(47,746,007
)

(7,434,963
)

(48,644,218
)
CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments on notes payable

(2,415,150
)

(208,506
)

(197,790
)
Payments of taxes for net share settled restricted stock unit issuances

-

(54,667
)

(438,838
)
Proceeds from the exercises of warrants and stock options

8,275,410

3,631,164

272,818

Proceeds from the issuance of common stock

60,521,739

56,585,035

12,419,119

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

66,381,999

59,953,026

12,055,309

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

191,670,915

5,294,646

(60,527,881
)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

30,133,213

24,838,567

85,366,448

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$
221,804,128

$
30,133,213

$
24,838,567

Supplementary disclosures:

Interest Paid

$
(27,437
)

$
(173,381
)

$
(187,647
)
Income Tax Credits Refunded

$
-

$
-

$
3,635,016

Income Tax Paid

$
(302,400
)

$
(2,400
)

$
(2,400
)

	Common Stock		Amount ($)		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Non-controlling Interest			Totals
Balance at September 30, 2018		88,505		181		582,903			(22	)		(487,266	)		(555	)	$	95,241
Stock-based compensation		-		-		12,393			-			-			-			12,393
Exercise of stock options		1,543		2		8,274			-			-			-			8,276
Common stock - restricted stock units vesting		2,197		2		(2	)		-			-			-			-
Common stock - issued for cash		3,261		3		60,518			-			-			-			60,521
Foreign currency translation adjustments		-		-		-			(370	)		-			-			(370	)
Net income (loss) for the twelve months ended September 30, 2019		-		-		-			-			67,975			-			67,975
Balance at September 30, 2019		95,506	$	188	$	664,086		$	(392	)	$	(419,291	)	$	(555	)	$	244,036


	Common Stock		Amount ($)		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Non-controlling Interest			Totals
Balance at September 30, 2019		95,506		188		664,086			(392	)		(419,291	)		(555	)	$	244,036
Stock-based compensation		-		-		43,383			-			-			-			43,383
Exercise of stock options		1,111		1		7,468			-			-			-			7,469
Common stock - restricted stock units vesting		1,159		1		(1	)		-			-			-			-
Common stock - issued for cash		4,600		5		250,474			-			-			-			250,479
Foreign currency translation adjustments		-		-		-			410			-			-			410
Deconsolidation of Ablaris Therapeutics, Inc.		-		-		-			-			-			555			555
Net income (loss) for the twelve months ended September 30, 2020		-		-		-			-			(84,553	)		-			(84,553	)
Balance at September 30, 2020		102,376	$	195	$	965,410		$	18		$	(503,844	)	$	-		$	461,779


	Common Stock		Amount ($)		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Totals
Balance at September 30, 2020		102,376	$	195	$	965,410		$	18		$	(503,844	)	$	461,779
Stock-based compensation		-		-		76,673			-			-			76,673
Exercise of stock options		1,052		1		11,304			-			-			11,305
Common stock - restricted stock units vesting		899		1		(1	)		-			-			-
Foreign currency translation adjustments		-		-		-			(87	)		-			(87	)
Net income (loss) for the twelve months ended September 30, 2021		-		-		-			-			(140,848	)		(140,848	)
Balance at September 30, 2021		104,327	$	197	$	1,053,386		$	(69	)	$	(644,692	)	$	408,822

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

	Years ended September 30,
	2021			2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(140,848	)	$	(84,553	)	$	67,975
Stock-based compensation		76,673			43,383			12,393
Depreciation and amortization		8,267			5,942			4,439
Amortization/(accretion) of note premiums		266			525			1,069
Changes in operating assets and liabilities:
Accounts receivable		(9,409	)		(184	)		(334	)
Prepaid expenses and other current assets		(360	)		(387	)		(3,711	)
Accounts payable		2,628			(821	)		4,844
Accrued expenses		9,522			1,989			2,450
Deferred revenue		223,258			(63,514	)		82,804
Other		1,227			2,229			1,106
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		171,224			(95,391	)		173,035
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(23,567	)		(11,952	)		(12,001	)
Purchases of investments		(240,703	)		(278,964	)		(90,266	)
Proceeds from sale of investments		122,592			50,138			54,521
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		(141,678	)		(240,778	)		(47,746	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on notes payable		-			-			(2,415	)
Proceeds from the exercises of stock options		11,305			7,469			8,275
Proceeds from the issuance of common stock		-			250,479			60,522
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		11,305			257,948			66,382
NET INCREASE (DECREASE) IN CASH		40,851			(78,221	)		191,671
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		143,583			221,804			30,133
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	184,434		$	143,583		$	221,804
Supplementary disclosures:
Interest paid	$	-		$	-		$	(27	)
Income Taxes (Paid)/Refunded	$	(2	)	$	103		$	(302	)

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

Arrowhead Pharmaceuticals, Inc. develops medicines that treat intractable diseases by silencing the genes that cause them. Using a broad portfolio of RNA chemistries and efficient modes of delivery, Arrowhead therapies trigger the RNA interference mechanism to induce rapid, deep and durable knockdown of target genes. RNA interference ~~or RNAi,~~(“RNAi”) is a mechanism present in living cells that inhibits the expression of a specific gene, thereby affecting the production of a specific protein. Arrowhead’s RNAi-based therapeutics leverage this natural pathway of gene silencing. The ~~company's~~Company’s pipeline includes ~~ARO-AAT for liver disease associated with alpha-1 antitrypsin deficiency (AATD),~~ ARO-APOC3 for hypertriglyceridemia, ARO-ANG3 for dyslipidemia, ARO-HSD for liver disease, ARO-ENaC for cystic fibrosis, ~~and~~ ARO-HIF2 for renal cell ~~carcinoma.~~ ~~ARO-JNJ1~~carcinoma, ARO-DUX4 for facioscapulohumeral muscular dystrophy, ARO-LUNG2 for chronic obstructive pulmonary disorder, ARO-COV for the coronavirus that causes COVID-19 and other possible future pulmonary-borne pathogens and ARO-C3 for complement mediated diseases. ARO-XDH is being developed for anuncontrolled gout under a collaboration agreement with Horizon Therapeutics Ireland DAC (“Horizon”). ARO-JNJ2 and ARO-JNJ3 are being developed for undisclosed liver-expressed ~~target~~targets under a ~~license and~~ collaboration agreement with Janssen Pharmaceuticals, Inc. ~~ARO-HBV (JNJ-3989)~~ (“Janssen”). JNJ-75220795 (ARO-JNJ1) is being developed by Janssen as a potential treatment for patients with non-alcoholic steatohepatitis (NASH). ARO-AAT for liver disease associated with alpha-1 antitrypsin deficiency (“AATD”) was out-licensed to Takeda Pharmaceuticals U.S.A., Inc. (“Takeda”) in October 2020. JNJ3989 (formerly referred to as ARO-HBV) for chronic hepatitis B virus was out-licensed to Janssen ~~Pharmaceuticals, Inc. (“Janssen”)~~ in October 2018. ~~ARO-LPA (AMG 890)~~Olpasiran (formerly referred to as AMG 890 or ARO-LPA) for cardiovascular disease was out-licensed to Amgen Inc. (“Amgen”) in 2016.

The Company’s partnered candidates under its collaboration agreements also continued to progress. Janssen began dosing patients in a Phase 2b triple combination study called REEF-1, designed to enroll up to 450 patients with chronic hepatitis B infection. The Company is currently performing discovery, optimization and preclinical research and development for ARO-JNJ2 and ARO-JNJ3 for Janssen as part of the Company’s Research Collaboration and Option Agreement with Janssen (“Janssen Collaboration Agreement”), and Janssen has began dosing patients in its Phase 1 clinical trial for JNJ-75220795 (ARO-JNJ1). Amgen has initiated a Phase 2 clinical trial for Olpasiran (previously referred to as AMG 890 or ARO-LPA). The Company entered into two licensing deals during fiscal 2021: i) an Exclusive License and Co-Funding Agreement (the “Takeda License Agreement”) with Takeda for ARO-AAT, and ii) a Collaboration and License Agreement (the “Horizon License Agreement”) with Horizon Therapeutics Ireland DAC

(“Horizon”) for ARO-XDH. ARO-AAT is currently in phase 2 clinical trials and ARO-XDH is in discovery-stage. During fiscal year 2021, the Company earned $340.0 million in upfront payments from its collaboration agreements, and $20.0 million in option and milestone payments. In total, the Company remains eligible for $5.3billion in developmental, regulatory and sales milestones and various royalties on net sales. The revenue recognition for these collaboration agreements is discussed further in Note 2 below.

~~During fiscal 2019,~~The Company is actively monitoring the ongoing COVID-19 pandemic. The financial results for the years ended September 30, 2021 and 2020 were not significantly impacted by COVID-19. Operationally, the Company ~~has continued~~experienced delays in its earlier stage programs due to ~~develop its pipeline and partnered candidates. In April 2019, the Company presented clinical data for JNJ-3989 (ARO-HBV) and ARO-AAT at the International Liver Congress, and~~a shortage in April 2019, the Company received FDA clearance to commence a Phase 2/3 study of ARO-AAT that has the potential to serve as a pivotal registrational study. In June 2019, the Company received the Fast Track Designation for ARO-AAT from the FDA. In December 2018 and January 2019, Clinical Trial Applications (CTAs) were filed for ARO-ANG3 and ARO-APOC3, respectively, and dosing has commenced for both trials. In June 2019 and July 2019, the Company received the Orphan Drug Designations for ARO-APOC3 and ARO-ANG3, respectively, from the FDA. In September 2019, the Company presented clinical and preclinical data on ARO-APOC3 and ARO-ANG3 at the Global Summit on Cardiology and Heart Diseases. The Company also continues to work on optimizing its other extra-hepatic preclinical pipeline candidates including ARO-ENaC and ARO-HIF2, its hepatic preclinical pipeline candidate, ARO-HSD, and its partnered pipeline candidate, ARO-JNJ1. Amgen is currently progressing its phase 1 clinical study of AMG-890 (ARO-LPA) and Janssen is currently progressing its phase 2b clinical study of JNJ-3989 (ARO-HBV).

The Company also made significant progress on the business development front. In October 2018, the Company entered into a License Agreement (“Janssen License Agreement”) and a Research Collaboration and Option Agreement (“Janssen Collaboration Agreement”) with Janssen Pharmaceuticals, Inc. (“Janssen”) part of the Janssen Pharmaceutical Companies of Johnson & Johnson. The Company also entered into a Stock Purchase Agreement (“JJDC Stock Purchase Agreement”) with Johnson & Johnson Innovation-JJDC, Inc. (“JJDC”), a New Jersey corporation. Under the Janssen License Agreement, Janssen has received a worldwide, exclusive licensenon-human primates, which are critical to the Company’s ~~JNJ-3989 (ARO-HBV) program,~~preclinical programs. Additionally, the Company experienced delays in enrollment in its clinical trials. The Company’s operations at its research and development facilities in Madison, Wisconsin and San Diego, California, and its corporate headquarters in Pasadena, California have continued with limited impact, other than for enhanced safety measures, including work from home policies, and intermittent lab supply shortages. However, the Company cannot predict the impact the progression of COVID-19 will have on future financial and operational results due to a variety of factors, including the ability of the Company’s ~~third-generation subcutaneously administered RNAi therapeutic candidate being developed as a potentially curative therapy for patients with chronic hepatitis B virus infection. Beyond~~clinical sites to continue to enroll subjects, the ability of the Company’s ~~ongoing Phase 1 / 2 study~~suppliers to continue to operate, the continued good health and safety of JNJ-3989 (ARO-HBV), Janssen will be wholly responsible for clinical development and commercialization. Under the Janssen Collaboration Agreement, Janssen will be able to select three new targets against which Arrowhead will develop clinical candidates. These candidates are subject to certain restrictions and will not include candidates in the Company’s ~~current pipeline. The Company will perform discovery, optimization~~employees and ~~preclinical development, entirely funded by Janssen, sufficient to allow~~ the filing of a U.S. Investigational New Drug application or equivalent, at which time Janssen will have the option to take an exclusive license. If the option is exercised, Janssen will be wholly responsible for clinical developmentlength and ~~commercialization. Under the JJDC Stock Purchase Agreement, in October 2018 the Company sold 3,260,869 shares of common stock to JJDC at a price of $23.00 per share. Under the terms~~severity of the agreements taken together, the Company has received $175 million as an upfront payment, $75 million in the form of an equity investment by JJDC in Arrowhead common stock, and may receive up to $1.6 billion in development and sales milestones payments for the Janssen License Agreement, and up to $1.9 billion in development and sales milestone payments for the three additional targets covered under the Janssen Collaboration Agreement. The Company is further eligible to receive tiered royalties up to mid teens under the Janssen License Agreement and up to low teens under the Janssen Collaboration Agreement on product sales. ~~In April 2019, the Company earned a $25 million milestone payment from Janssen following the initiation of dosing in a new triple combination cohort (cohort 12) in the Company’s~~

ongoing Phase 1 / 2 study of JNJ-3989 (ARO-HBV). In August 2019, the Company earned an additional $25 million milestone payment from Janssen following the initiation of dosing in its phase 2b study of JNJ-3989 (ARO-HBV). The revenue recognition for these milestone payments and the Janssen License Agreement and the Janssen Collaboration Agreement are discussed further in Note 2 below.

The Company’s license agreement with Amgen for AMG 890 (ARO-LPA) continues to progress. The Company has received $35 million in upfront payments and $21.5 million in the form of an equity investment by Amgen in the Company’s Common Stock. Upon signing the collaboration agreements with Amgen, the Company was eligible to receive up to $617 million in option payments and development, regulatory and sales milestone payments. The Company remains eligible to receive up to $420 million in development, regulatory and sales milestone payments. The Company is further eligible to receive up to low double-digit royalties for sales of products under the AMG 890 (ARO-LPA) Agreement. On August 1, 2018, the Company announced that it had earned a $10 million milestone payment from Amgen following the administration of the first dose of AMG 890 (ARO-LPA) in a phase 1 clinical study. This milestone payment was recognized as Revenue in its entirety during the year ended September 30, 2018. In July 2019, Amgen informed the Company that it would not be exercising its option to an exclusive license for ARO-AMG1, and as such, there will be no further milestone or royalty payments under the ARO-AMG1 Agreement.COVID-19 pandemic.

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

At September 30, ~~2019,~~2021, the Company had ~~$221.8~~$184.4 million in cash and cash equivalents ~~$36.9~~(including $2.4 million in restricted cash), $56.6 million in short-term investments and ~~$44.2~~$126.7 million in marketable securities, and $245.6 million in long-term investments to fund operations. During the year ended September 30, ~~2019,~~2021, the Company’s cash and investments balance increased by $~~226.3~~$160.4 million,~~which~~ was primarily the result of the ~~$75 million equity investment from JJDC and the $175~~$300.0 million upfront payment from the Takeda License Agreement and ~~$50~~the $40 million ~~of milestone payments~~upfront payment from ~~Janssen, respectively, as discussed further in Note 2 below. These cash inflows were~~the Horizon License Agreement, partially offset by cash ~~outflows related~~used to ~~operating activities~~fund the Company’s research and ~~investing activities.~~development operations and general and administrative expenses.

Principles of Consolidation—The Consolidated Financial Statements include the accounts of Arrowhead and its Subsidiaries. Arrowhead’s primary operating subsidiary is Arrowhead Madison, which is located in Madison, Wisconsin, where the Company’s research and development facility is located. All significant intercompany accounts and transactions are eliminated in consolidation.

Basis of Presentation and Use of Estimates—The preparation of financial statements in conformity ~~with accounting principles generally accepted in the United States~~GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. Additionally, certain reclassifications have been made to prior period financial statements to conform to the current period presentation.

Cash and Cash Equivalents—The Company considers all liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Included within Cash and cash equivalents on the Consolidated Balance Sheets is ~~$1.0~~$2.4 million and $0$1.8 restricted cash at September 30, ~~2019~~2021 and September 30, ~~2018,~~2020, respectively. Amounts included in restricted cash are primarily held as collateral associated with a letter of credit for the Company’s ~~new~~ lease for its corporate headquarters in Pasadena, California.

Concentration of Credit Risk—The Company maintains several bank accounts primarily at two financial institutions for its operations. These accounts are insured by the Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per institution. Management believes the Company is not exposed to significant credit risk due to the financial position of the depository institutions in which these deposits are held.

Investments—The Company may invest excess cash balances in short-term and long-term marketable debt and equity securities. Investments may consist of certificates of deposit, money market accounts, government-sponsored enterprise securities, corporate bonds and/or commercial paper. The Company accounts for its ~~investment in marketable securities~~investments in accordance with ~~FASB~~Financial Accounting Standards Board (“FASB”) ASC 320, Investments – Debt and Equity Securities and ASC 321, Investments in Equity Securities. ~~This statement~~ASC 320-Investments-Debt and Equity Securities requires debt securities to be classified into three categories:

~~Held-to-maturity—~~Held-to-Maturity—Debt securities that the entity has the positive intent and ability to hold to maturity are reported at amortized cost.

Trading Securities—Debt securities that are bought and held primarily for the purpose of selling in the near term are reported at fair value, with unrealized gains and losses included in earnings.

The Company classifies its investments in marketable debt securities based on the facts and circumstances present at the time of purchase of the securities. During the years ended September 30, ~~2019, 2018~~2021, 2020 and ~~2017, respectively,~~2019, all of the Company’s ~~investments~~debt securities were classified as held-to-maturity.

Property and Equipment—Property and equipment are recorded at cost, which may equal fair market value in the case of property and equipment acquired in conjunction with a business acquisition. Depreciation of property and equipment is recorded using the straight-line method over the respective useful lives of the assets ranging from three to seven years. Leasehold improvements are amortized over the lesser of the expected useful life or the remaining lease term. Long-lived assets, including property and equipment are reviewed for impairment whenever events or circumstances indicate that the carrying amount of these assets may not be recoverable.

Contingent ~~Consideration -~~ Consideration—The consideration for the Company’s acquisitions may include future payments that are contingent upon the occurrence of a particular event. For example, milestone payments might be based on the achievement of various regulatory approvals or future sales milestones, and royalty payments might be based on drug product sales levels. The Company records a contingent consideration obligation for such contingent payments at fair value on the acquisition date. The Company estimates the fair value of contingent consideration obligations through valuation models designed to estimate the probability of such contingent payments based on various assumptions and incorporating estimated success rates. Estimated payments are discounted using present value techniques to arrive at an estimated fair value at the balance sheet date. Changes in the fair value of the contingent consideration obligations are recognized within the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss). Changes in the fair value of the contingent consideration obligations can result from changes to one or multiple inputs, including adjustments to the discount rates, changes in the amount or timing of expected expenditures associated with product development, changes in the amount or timing of cash flows from products upon commercialization, changes in the assumed achievement or timing of any development milestones, changes in the probability of certain clinical events and changes in the assumed probability associated with regulatory approval. These fair value measurements are based on significant inputs not observable in the market. Substantial judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense the Company records in any given period. The Company determined the fair value of its contingent consideration obligation to be $0 at September 30, ~~2019~~2021 and September 30, ~~2018.~~

Revenue Recognition— On October 1, 2018, the Company adopted FASB Topic 606 – Revenue for Contracts from Customers which amended revenue recognition principles and provides a single, comprehensive set of criteria for revenue recognition within and

across all industries. The Company’s adoption of the ~~new~~ revenue standard did not have a material impact on its Consolidated Financial Statements. The Company has not yet achieved commercial sales of its drug candidates to date, however, the new standard is applicable to the Company’s ongoing licensing and collaboration agreements, including those with Amgen, Janssen, Takeda and ~~Janssen,~~Horizon, and the analysis of the impact of this guidance on those agreements is discussed further in Note 2 ~~below.~~ of Notes to Consolidated Financial Statements.

The ~~new~~ revenue standard provides a five-step framework for recognizing revenue as control of promised goods or services is transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of the ~~new~~ revenue standard, the Company performs the following five steps: (i) identify the contract; (ii) identify the performance obligations; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. At contract inception, the Company assesses whether the goods or services promised within each contract are distinct and, therefore, represent a separate performance obligation, or whether they are not distinct and are combined with other goods and services until a distinct bundle is identified. The Company then determines the transaction price, which typically includes upfront payments and any variable consideration that the Company determines is probable to not cause a significant reversal in the amount of cumulative revenue recognized when the uncertainty associated with the variable

consideration is resolved. The Company then allocates the transaction price to each performance obligation and recognizes the associated revenue when (or as) each performance obligation is satisfied.

The ~~new~~ revenue standard requires the Company to allocate the arrangement consideration on a relative standalone selling price basis for each performance obligation after determining the transaction price of the contract and identifying the performance obligations to which that amount should be allocated. The relative standalone selling price is defined in the ~~new~~ revenue standard as the price at which an entity would sell a promised good or service separately to a customer. If other observable transactions in which the Company has sold the same performance obligation separately are not available, the Company estimates the standalone selling price of each performance obligation. Key assumptions to determine the standalone selling price may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates and probabilities of technical and regulatory success.

Collaborative Arrangements—The Company analyzes its collaborative arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards, and therefore are within the scope of FASB Topic 808 - Collaborative Arrangements. For collaborative arrangements that contain multiple elements, the Company determines which units of account are deemed to be within the scope of Topic 808 and which units of account are more reflective of a vendor-customer relationship, and therefore are within the scope of Topic 606. For units of account that are accounted for pursuant to Topic 808, an appropriate recognition method is determined and applied consistently, either by analogy to appropriate accounting literature or by applying a reasonable accounting policy election. For collaborative arrangements that are within the scope of Topic 808, the Company evaluates the income statement classification for presentation of amounts due to or owed from other participants associated with multiple units of account in a collaborative arrangement based on the nature of each activity. Payments or reimbursements that are the result of a collaborative relationship instead of a customer relationship, such as co-development and co-commercialization activities, are recorded as increases or decreases to Research and Development Expense or General and Administrative Expense, as appropriate.

Allowance for Doubtful Accounts—The Company accrues an allowance for doubtful accounts based on estimates of uncollectible revenues by analyzing historical collections, accounts receivable aging and other factors. Accounts receivable are written off when all collection attempts have failed.

Research and Development—Costs and expenses that can be clearly identified as research and development are charged to expense as incurred in ~~saccordance~~accordance with FASB ASC 730-10. Included in research and development costs are operating costs, facilities, supplies, external services, clinical trial and manufacturing costs, overhead directly related to the Company’s research and development operations, and costs to acquire technology licenses.

Net Income (Loss) per Share—Basic net income (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share are computed using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares primarily consist of stock options and restricted stock units issued to employees. During the years ended September 30, ~~2019, 2018~~2021, 2020 and ~~2017,~~2019, the calculation of the effect of dilutive stock options and restricted stock units was ~~4,748,958~~0 shares, 0 shares, and 04,748,958 shares, respectively. During the year ended September 30, ~~2019, the calculation of the effect of dilutive stock options~~2021 and ~~restricted stock units excluded 1,007,500 stock options and 11,500 restricted stock units due to their anti-dilutive effect. During the years ended September 30, 2018 and 2017,~~2020, the calculation of the effect of dilutive stock options and restricted stock units excluded all stock options and restricted stock units granted and outstanding during the period due to their anti-dilutive effect. During the year ended September 30, 2019, the calculation of the effect of dilutive stock options and restricted stock units excluded 1,007,500 stock options and 11,500 restricted stock units granted and outstanding during the period due to their anti-dilutive effect.

Stock-Based Compensation—The Company accounts for share-based compensation arrangements in accordance with FASB ASC 718, which requires the measurement and recognition of compensation expense for all share-based payment awards to be based on estimated fair values. The Company uses the Black-Scholes option valuation model to estimate the fair value of its stock options at the date of grant. The Black-Scholes option valuation model requires the input of subjective assumptions to calculate the value of stock options. For restricted stock units, the value of the award is based on the Company’s stock price at the grant date. For performance-based restricted stock unit awards, the value of the award is based on the Company’s stock price at the grant date, with consideration given to the probability of the performance condition being achieved. The Company uses historical data and other information to estimate the expected price volatility for stock option awards and the expected forfeiture rate for all awards. Expense is recognized over the vesting period for all awards and commences at the grant date for time-based awards and upon the Company’s determination that the achievement of such performance conditions is probable for performance-based awards. This determination requires significant judgment by management.

Income Taxes—The Company accounts for income taxes under the liability method, which requires the recognition of deferred income tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each period end based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized. The provision for income taxes, if any, represents the tax payable for the period and the change in deferred income tax assets and liabilities during the period.

Leases—The Company determines whether a contract is, or contains, a lease at inception. The Company classifies each of its leases as operating or financing considering factors such as the length of the lease term, the present value of the lease payments, the nature of the asset being leased, and the potential for ownership of the asset to transfer during the lease term. Leases with terms greater than one-year are recognized on the Consolidated Balance Sheets as Right-of-use assets and Lease liabilities and are measured at the present value of the fixed payments due over the expected lease term minus the present value of any incentives, rebates or abatements expected to be received from the lessor. Options to extend a lease are typically excluded from the expected lease term as the exercise of the option is typically not reasonably certain. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis an amount equal to the lease payments over a similar term and in a similar economic environment. The Company records expense to recognize fixed lease payments on a straight-line basis over the expected lease term. Costs determined to be variable and not based on an index or rate are not included in the measurement of the lease liability and are expensed as incurred.

In May 2014, the FASB issued ASU No. 2014-09 Revenue from Contracts with Customers (Topic 606), which will supersede nearly all existing revenue recognition guidance under GAAP. ASU No. 2014-09 provides that an entity recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, and assets recognized from costs incurred to obtain or fulfill a contract. ASU No. 2014-09 allows for either full retrospective or modified retrospective adoption and became effective for the Company in the first quarter of fiscal 2019. In April 2016, the FASB issued an amendment to ASU No. 2014-09 with update ASU 2016-10 which provided more specific guidance around the identification of performance obligations and licensing arrangements. On October 1, 2018, the Company adopted this standard using the modified retrospective method. The Company’s implementation approach included reviewing the status of each of its ongoing license agreements and collaboration agreements and designing appropriate internal controls to enable the preparation of financial information. The Company completed its assessment of the impact of the new revenue recognition guidance and determined that there will be no material impact. The Company’s existing performance obligations under its ongoing license and collaboration agreements as of October 1, 2018 and prior were substantially completed prior to September 30, 2018. For these agreements that were ongoing as of October 1, 2018, any future option, milestone or royalty payments received will be accounted for under the sales-based royalty exception provided for under this new revenue recognition guidance. Additionally, there will be no impact to cash from or used in operating, financing or investing activities on the Company’s Consolidated Statement of Cash Flows as a result of the adoption of the new standard.

In March 2016, the FASB issued ASU No. 2016-02, ~~Leases.~~Leases (Topic ASC 842). Under ~~ASU 2016-02,~~ASC 842, lessees ~~will be~~are required to recognize a right-of-use asset and a right-of-use lease liability for virtually all ~~of their~~ leases ~~(other~~other than ~~leases~~those that meet the definition of a short-term ~~lease).~~lease. For income statement purposes, a dual model was retained, requiring leases to be classified as either operating or finance. Operating leases will result in straight-line expense ~~(similar to current operating leases)~~ while finance leases will result in a front-loaded expense pattern (similar to current capital leases). ~~ASU 2016-02 becomes~~The Company adopted this standard effective October 1, 2019 and elected the package of three practical expedients that permits an entity to i) not reassess whether expired or existing contracts contain leases, ii) not reassess lease classification for existing or expired leases, and iii) not consider whether previously capitalized initial direct costs would be appropriate under the new standard. At September 30, 2021, the Company ~~in the first quarter~~has recorded right-of-use assets of ~~fiscal 2020. The Company is assessing the impact~~$17.3 million and lease liabilities of ~~the adoption of this update and it expects the adoption to have a material effect~~$25.5 million on its Consolidated Balance Sheets ~~including classification~~for its research and ~~disclosure of~~development facility leases in Madison, Wisconsin and San Diego, California, as well as its ~~leased facilities.~~

In May 2017, the FASB issued ASU No. 2017-09, which is an update to Topic 718, Compensation - Stock Compensation. The update provides guidance on determining which changes to the terms and conditions of share-based payment awards, including stock options, require an entity to apply modification accounting under Topic 718. ASU 2017-09 became effective for the Companycorporate headquarters lease in ~~the first quarter of fiscal 2019.~~Pasadena, California, as discussed further in Note 8 below. The adoption of this ~~update has~~standard did not ~~had~~have a material impact on the ~~Company's results~~Company’s Consolidated Statements of ~~operations~~Operations and Comprehensive Income (Loss) and the Company’s Consolidated ~~Financial Statements.~~Statements of Cash Flows.

In November 2018, the FASB issued ASU No. 2018-18 Collaborative Arrangements (Topic 808). This update provides clarification on the interaction between Revenue Recognition (Topic 606) and Collaborative Arrangements (Topic 808) including the alignment of unit of account guidance between the two ~~topics/~~topics. ASU 2018-18 ~~becomes~~became effective for the Company in the first quarter of fiscal 2021 with early adoption permitted. The ~~Company does not expect the~~ adoption of this update todid not have a material effect on ~~its~~the Company’s Consolidated Financial Statements.

On September 28, 2016, the Company entered into ~~two~~2 collaboration and license agreements and a common stock purchase agreement with Amgen. Under the Second Collaboration and License ~~agreements, and a Common Stock Purchase~~ Agreement ~~with Amgen Inc., a Delaware corporation (“Amgen”). Under one of the license agreements (the “Second Collaboration and License Agreement”~~ or ~~“AMG 890 (ARO-LPA) Agreement”),~~Olpasiran Agreement, Amgen has received a worldwide, exclusive license to Arrowhead’s novel, RNAi ~~ARO-LPA~~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 other collaboration and license agreement (the “First Collaboration and License Agreement” or the “ARO-AMG1 Agreement”), Amgen received an option to a worldwide, exclusive license for ARO-AMG1, an RNAi therapy for an undisclosed genetically validated cardiovascular target. In both agreements, Amgen is wholly responsible for clinical development and commercialization. Under the ~~Common Stock Purchase Agreement, the Company has sold 3,002,793 shares of Common Stock to Amgen at a price of $7.16 per share. Under the~~ terms of the agreements taken together, the Company has received ~~$35~~$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. Upon signing the collaboration agreements with Amgen, the Company was eligible to~~Stock, and $30.0 million in milestone payments, and may receive up to ~~$617~~an additional $400.0 million in ~~Option payments, and development, regulatory and sales milestone payments. The Company remains eligible to receive up to $420 million in~~remaining development, regulatory and sales milestone payments. The Company is further eligible to receive up to low double-digit royalties for sales of products under the ~~AMG 890 (ARO-LPA)~~Olpasiran Agreement. In July 2019, Amgen informed the Company that it would not be exercising its option for an exclusive license for ARO-AMG1, and as such, there will be no further milestone or royalty payments under the ARO-AMG1 Agreement.

~~generation~~third-generation subcutaneously administered RNAi therapeutic candidate being developed as a ~~potentially curative~~potential therapy for patients with chronic hepatitis B virus infection. Beyond the Company’s ~~ongoing~~ Phase ~~1 /~~ 1/2 study of ~~ARO-HBV,~~JNJ-3989 (ARO-HBV), which the Company is responsible for completing, Janssen ~~will be~~is wholly responsible for clinical development and ~~commercialization.~~commercialization of JNJ-3989. Under the Janssen Collaboration Agreement, Janssen will be able to select three new targets against which Arrowhead will develop clinical candidates. These candidates are subject to certain restrictions and ~~will~~do not include candidates that already were in the Company’s ~~current~~ pipeline. The Company will perform discovery, optimization and preclinical research and development, entirely funded by Janssen, which on its own or in combination with Janssen development work, is sufficient to allow the filing of a U.S. Investigational New Drug ~~application~~Application or equivalent, at which time Janssen will have the option to take an exclusive license. If the option is exercised, Janssen will be wholly responsible for clinical development and ~~commercialization. Under the JJDC Stock Purchase Agreement, in October 2018 the Company sold 3,260,869 shares~~commercialization of ~~common stock to JJDC at a price of $23.00 per share.~~each optioned candidate. Under the terms of the agreements taken together, the Company has received ~~$175~~$175.0 million as an upfront payment, ~~$75~~$75.0 million in the form of an equity investment by JJDC in Arrowhead ~~common stock,~~Common Stock under the JJDC Stock Purchase Agreement, and milestone and option payments totaling $70.0 million, and may receive up to $1.6 billion in development and sales milestones payments for the Janssen License Agreement, and up to $1.9 billion in development and sales milestone payments for the ~~three~~3 additional targets covered under the Janssen Collaboration Agreement. The Company is further eligible to receive tiered royalties on product sales up to ~~mid teens~~mid-teens under the ~~license agreement~~Janssen License Agreement and up to low teens under the ~~collaboration and option agreement on product sales.~~Janssen Collaboration Agreement.

The Company has evaluated these agreements in accordance with ~~the new revenue recognition requirements that became effective~~FASB Topics 808 – Collaboration Arrangements and 606 - Revenue for ~~the Company on October 1, 2018. The adoption of the new revenue standard did not have a material impact on the balances reported when evaluated under the superseded revenue standard.~~Contracts from Customers. At the inception of these agreements, the Company ~~has~~ identified ~~one~~1 distinct performance obligation. Regarding the Janssen License Agreement, the Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibility to complete the ~~ongoing~~ Phase ~~1 /~~ 1/2 study of JNJ-3989 (ARO-HBV) and the Company’s responsibility to ensure certain manufacturing of JNJ-3989 (ARO-HBV) drug product is completed and delivered to Janssen (the “Janssen R&D Services”). Due to the specialized and unique nature of these Janssen R&D ~~services,~~Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation. The Company also determined that Janssen’s option to require the Company to develop up to three new targets is not a material right and, thus, not a performance obligation at the onset of the agreement. The consideration for this option ~~will be~~is accounted for ~~when it is exercised.~~separately.

The Company determined the transaction price totaled approximately ~~$252.6~~$252.7 million, which includes the upfront payment, the premium paid by JJDC for its equity investment in the Company, ~~the~~ two ~~$25~~$25.0 million milestone payments ~~earned~~related to JNJ-3989 (ARO-HBV), and estimated payments for reimbursable Janssen R&D ~~services~~Services to be performed. The Company has allocated the total ~~$252.6~~$252.7 million initial transaction price to its one distinct performance obligation for the ~~ARO-HBV~~JNJ-3989 (ARO-HBV) license and the associated Janssen R&D Services. ~~This revenue~~The Company has recognized this transaction price in its entirety as of September 30, 2021 as efforts on its performance obligation have been substantially completed. Future milestones and royalties achieved will be recognized ~~using a proportional performance method (based on actual labor hours versus estimated total labor hours) beginning~~ in ~~October 2018 and ending as the Company’s efforts in overseeing the ongoing phase 1 / 2 clinical trial are completed.~~their entirety when earned. During the ~~year~~years ended September 30, 2021, 2020 and 2019, the Company recognized approximately $20.2 million, $65.0 million, and $167.5 million of ~~Revenue~~revenue associated with this performance ~~obligation.~~obligation, respectively. As of September 30, ~~2019~~2021, there were $0$0.1 million in contract assets recorded as ~~Accounts Receivable, $77.8 million~~accounts receivable, and $0 of contract liabilities recorded as current ~~Deferred Revenue, and $5.0 million of contract liabilities recorded as and long-term Deferred Revenue~~deferred revenue on the Company’s Consolidated Balance Sheets. The $77.8 million of current Deferred Revenue and $5.0 million of long-term Deferred Revenue is driven by the upfront payment and premium paid by JJDC for its equity investment in the Company as well as the two $25 million milestones paid by Janssen, net of revenue recognized in the period.

~~During the year ended September 30, 2019, Janssen selected the first of the three targets under the Janssen Collaboration Agreement, now referred to as ARO-JNJ1, and the~~The Company has begun to conduct its discovery, optimization and preclinical research and development of ~~ARO-JNJ1.~~JNJ-75220795 (ARO-JNJ1), ARO-JNJ2 and ARO-JNJ3 under the Janssen Collaboration Agreement. All costs and labor hours spent by the Company will be entirely funded by Janssen. During the years ended September 30, 2021, 2020 and 2019, the Company recognized $0.5 million, $2.9 million and $1.0 million of revenue associated with these efforts, respectively. In May 2021, Janssen exercised its option right for JNJ-75220795 (ARO-JNJ1), which resulted in a $10.0 million milestone payment to the Company, and in September 2021, Janssen dosed its fifth patient in its phase 1 clinical trial for JNJ-75220795 (ARO-JNJ1), which resulted in $10.0 million milestone payment to the Company. Each of these milestone payments was recognized entirely during the year ended September 30, ~~2019, the Company recognized $1.0 million of Revenue associated with its efforts on the ARO-JNJ1 candidate.~~2021. As of September 30, ~~2019~~2021, there were ~~$0.7~~$10.0 million of contract assets recorded as accounts receivable and $0 of contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets. The $10.0 million milestone payment for the dosing of the fifth patient in its Phase 1 clinical trial for JNJ-75220795 (ARO-JNJ1) was received in October 2021.

The Company has evaluated the Takeda License Agreement in accordance with FASB Topics 808 – Collaborative Arrangements and 606 - Revenue for Contracts from Customers. At the inception of the Takeda License Agreement, the Company identified 1 distinct performance obligation. The Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibilities to complete the initial portion of the SEQUOIA study, to complete the ongoing Phase 2 AROAAT2002 study and to ensure certain manufacturing of ARO-AAT drug product is completed and delivered to Takeda (the “Takeda R&D Services”). Due to the specialized and unique nature of these Takeda R&D Services and their direct relationship with the license, the Company determined that these deliverables represent 1 distinct bundle and, thus, one performance obligation. Beyond the Takeda R&D Services, which are the responsibility of the Company, Takeda will be responsible for managing future clinical development and commercialization outside the United States. Within the United States, the Company will also participate in co-development and co-commercialization efforts and will co-fund these efforts with Takeda as part of the 50/50 profit sharing structure within the United States. The Company considers the collaborative activities, including the co-development and co-commercialization, to be a separate unit of account within Topic 808, and as such, these co-funding amounts will be recorded as Research and Development Expenses or General and Administrative Expenses, as appropriate.

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

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

The Company determined the initial transaction price totaled $40.0 million, including the upfront payment. The Company has excluded any future estimated milestones or royalties, from this transaction price to date. The Company will allocate the total $40.0 million initial transaction price to its 1 distinct performance obligation for the ARO-XDH license and the associated Horizon R&D Services. Revenue will be recognized on a straight-line basis over the estimated timeframe for completing the Horizon R&D Services. The Company determined that the straight-line basis was appropriate as its efforts will be expended evenly over the course of completing its performance obligation. Revenue for the years ended September 30, 2021, 2020 and 2019, was $6.7 million, $0 and $0, respectively. As of September 30, 2021, there were $0.1 million in contract ~~liabilities.~~ assets recorded as accounts receivable, $26.7 million in contract liabilities recorded as deferred revenue and $6.7 million in contract liabilities recorded as deferred revenue, net of the current portion.

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

Depreciation and amortization expense for ~~Property~~property and ~~Equipment the~~equipment for the years ended September 30, 2021, 2020, and 2019 ~~2018~~was $6.6 million, $4.2 million and ~~2017 was $2,738,715, $2,998,846, and $2,990,010,~~$2.7 million respectively.

~~The Company invests a portion of its excess cash balances in short-term debt securities and may, from time to time, also invest in long-term debt securities.~~ Investments at September 30, ~~2019~~2021 primarily consisted of corporate bonds ~~with~~that have maturities ~~remaining~~ of less than 36 ~~months.~~months, a certificate of deposit and marketable equity securities. The Company’s investments in corporate bonds consist of both short-term and long-term bonds and are classified as “held-to-maturity” on the Company’s Consolidated Balance Sheets. The Company’s certificate of deposit matures in less than 24 months and is classified as “held-to-maturity” on the Company’s Consolidated Balance Sheet. The Company’s marketable equity securities consist of mutual funds that primarily invest in U.S. government bonds, U.S. government agency bonds, corporate bonds and other asset-backed debt securities. Dividends from these funds are automatically reinvested. The Company may also invest excess cash balances in ~~certificates of deposits,~~ money market accounts, government-sponsored enterprise securities, ~~corporate bonds~~ and/or commercial paper. The Company accounts for its held to maturity investments in accordance with FASB ASC 320, Investments – Debt and Equity Securities and its marketable equity securities in accordance with ASC 321, Investments – Equity Securities. ~~At September 30, 2019, all investments were classified as held-to-maturity securities.~~

The following tables summarize the Company’s short-term, ~~and~~ long-term investments and marketable securities as of September 30, ~~2019,~~2021 and September 30, ~~2018.~~2020 by measurement category.

Held to Maturity									As of September 30, 2021
	As of September 30, 2019								(in thousands)
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Commercial notes (due within one year)	$	36,899,894	$	222,584	$	—	$	37,122,478	$	56,627	$	803	$	-		$	57,430
Commercial notes (due within three years)	$	44,175,993	$	875,258	$	—	$	45,051,251
Commercial notes (due within one through three years)									$	195,595	$	1,151	$	(103	)	$	196,643
Certificate of deposit (due within two years)									$	50,000	$	-	$	-		$	50,000
Total	$	81,075,887	$	1,097,842	$	—	$	82,173,729	$	302,222	$	1,954	$	(103	)	$	304,073

									As of September 30, 2020
									(in thousands)
									Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Commercial notes (due within one year)									$	86,890	$	1,590	$	-		$	88,480
Commercial notes (due within one through three years)									$	137,487	$	4,574	$	(79	)	$	141,982
Total									$	224,377	$	6,164	$	(79	)	$	230,462

Fair Value									As of September 30, 2021
									(in thousands)
									Cost		Realized Gains/(Losses)		Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
Marketable securities									$	125,000	$	2,481	$	135		$	(888	)	$	126,728
Total									$	125,000	$	2,481	$	135		$	(888	)	$	126,728

Fair Value									As of September 30, 2020
									(in thousands)
									Cost		Realized Gains/(Losses)		Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
Marketable securities									$	85,000	$	95	$	-		$	(75	)	$	85,020
Total									$	85,000	$	95	$	-		$	(75	)	$	85,020

Intangible assets subject to amortization include patents and a license agreement capitalized as part of the Novartis RNAi asset acquisition in March 2015. The license agreement associated with the Novartis RNAi asset acquisition is being amortized over the estimated life remaining at the time of acquisition, which was 21 years, and the accumulated amortization of the asset is ~~approximately $680,191.~~$1.0 million. The patents associated with the Novartis RNAi asset acquisition are being amortized over the estimated life remaining at the time of acquisition, which was 14 years, and the accumulated amortization of the assets is ~~$7,113,443.~~$10.2 million. Amortization expense for the years ended September 30, 2021, 2020, and 2019 ~~2018~~was $1.7 million, $1.7 million and ~~2017 was $1,700,430, $1,700,429 and $1,700,429,~~$1.7 million, respectively. Amortization expense is expected to be ~~$1,700,429 in 2020, $1,700,429 in 2021, $1,700,429~~$1.7 million in 2022, ~~$1,700,429~~$1.7 million in 2023, ~~$1,700,429~~$1.7 million in 2024, $1.7 million in 2025, $1.7 million in 2026 and ~~$8,561,435~~$5.2 million thereafter.

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

At September 30, ~~2019,~~2021, the Company had a total of 150,000,000 shares of capital stock authorized for issuance, consisting of 145,000,000 shares of Common Stock, par value $0.001 per share, and 5,000,000 shares of Preferred Stock, par value $0.001 per share.

At September 30, ~~2019,~~ ~~95,506,271~~ 2021, 104,326,672shares of Common Stock were outstanding. At September 30, ~~2019, 7,177,796~~2021, 15,228,479 shares of Common Stock were reserved for issuance upon exercise of options and vesting of restricted stock units granted or available for grant under Arrowhead’s 2004 Equity Incentive Plan, 2013 Incentive Plan, and ~~2013~~2021 Incentive Plan, as well as for inducement grants made to new ~~employees.~~ employees under Rule 5635(c)(4) of the Nasdaq Listing Rules.

In ~~October 2018~~August 2020, the Company ~~sold 3,260,869~~entered into an Open Market Sale Agreement (the “ATM Agreement”), pursuant to which the Company may, from time to time, sell up to $250,000,000 in shares of the Company’s Common Stock through Jefferies LLC, acting as the sales agent and/or principal, in an at-the-market offering (“ATM Offering”). The Company is not required to ~~JJDC at~~sell shares under the ATM Agreement. The Company will pay Jefferies LLC a ~~price~~commission of ~~$23.00 per share as part~~up to 3.0% of the ~~JJDC Stock Purchase~~aggregate gross proceeds received from all sales of the common stock under the ATM Agreement. Unless otherwise terminated, the ATM Agreement ~~discussed further in Note~~continues until the earlier of selling all shares available under the ATM Agreement or December 2, ~~above. The Company received proceeds of $75.0 million. The portion of these proceeds that were deemed to be a premium were recorded as deferred revenue as discussed further in Note 2 above.~~ 2022. At September 30, 2021, 0 shares have been issued under the ATM Agreement.

~~In April 2019,~~From time to time, the Company ~~entered a new lease for its corporate headquarters~~may be subject to various claims and legal proceedings in ~~Pasadena, California. The 91 month office building lease between~~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 ~~and 177 Colorado Owner, LLC is for approximately 24,000 square feet of office space located at 177 E. Colorado Blvd, Pasadena, California, and this lease~~ will replace the Company’s current corporate headquarters office lease. The increased capacity of this new office space compared to the Company’s current corporate headquarters will accommodate increased personnel as the Company’s pipeline of drug candidates expands and moves closer to market. Lease payments began on September 30, 2019 and are estimated to total approximately $8.8 million over the term. The Company expects to pay approximately $3.5 million for leasehold improvements, net of tenant improvement allowances. Monthly rental payments are approximately $65,700 per monthaccrue a liability for the ~~first~~estimated loss. There were 0 contingent liabilities recorded as of the year ~~and will increase approximately 3% annually.~~

The Company also leases approximately 61,000 square feet of office and laboratory space for its research facility in Madison, Wisconsin. In January 2019, the Company amended its existing lease to add an additional 13,000 square feet of laboratory and office space to the facility. The amended lease will expire in September 2029. As part of this lease, the Company was provided a primary tenant improvement allowance of $2.1 million which is accounted for as Deferred Rent and a secondary tenant improvement allowance of $2.7 million which was accounted for as a Note Payable on the Company’s Consolidated Balance Sheet. In October 2018, the Company paid off the remaining $2.3 million balance on the note payable. Monthly rental payments are approximately $135,800 per month and will increase approximately 2.5% annually.

~~Facility rent expense for the years~~ ended September 30, ~~2019, 2018 and 2017 was $1,654,800, $1,288,000 and $1,441,000, respectively.~~

~~As of September 30, 2019, future minimum lease payments due in fiscal years under operating leases are as follows:~~

The Company and certain of its officers and directors were named as defendants in a putative consolidated class action in the United States District Court for the Central District of California regarding certain public statements in connection with the Company’s hepatitis B drug research. The consolidated class action, initially filed as ~~Wang v. Arrowhead Research Corp., et al., No. 2:14-cv-07890 (C.D. Cal., filed Oct. 10, 2014), and~~ ~~Eskinazi v. Arrowhead Research Corp., et al.~~, No. 2:14-cv-07911 (C.D. Cal., filed Oct. 13, 2014), asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and sought damages in an unspecified amount. Additionally, three putative stockholder derivative actions captioned ~~Weisman v. Anzalone et al., No. 2:14-cv-08982 (C.D. Cal., filed Nov. 20, 2014),~~ ~~Bernstein (Backus) v. Anzalone, et al., No. 2:14-cv-09247 (C.D. Cal., filed Dec. 2, 2014); and~~ ~~Johnson v. Anzalone, et al.~~, No. 2:15-cv-00446 (C.D. Cal., filed Jan. 22, 2015), were filed in the United States District Court for the Central District of California, alleging breach of fiduciary duty by the Company’s Board of Directors in connection with the alleged facts underlying the securities claims. An additional consolidated derivative action asserting similar claims was filed in Los Angeles County Superior Court, initially filed as ~~Bacchus v. Anzalone, et al., (L.A. Super., filed Mar. 5, 2015); and~~ ~~Jackson v. Anzalone, et al.~~ (L.A. Super., filed Mar. 16, 2015). Each of these suits seeks damages in unspecified amounts and some seek various forms of injunctive relief. On October 7, 2016, the federal district court dismissed the consolidated class action with prejudice. Following the dismissal of the consolidated class action, the parties for the Weisman and Johnson actions jointly stipulated to dismiss the actions, with the parties bearing their own fees and costs. The parties to the Bernstein and consolidated derivative action agreed to stay the matters pending the resolution of the Ninth Circuit appeal of the dismissal of the consolidated class action. On February 15, 2018, the Ninth Circuit issued a memorandum affirming the district court’s dismissal of all claims. Plaintiffs in the consolidated derivative action voluntarily dismissed their case. The parties to the Bernstein action filed a stipulation to continue the stay of the action pending resolution of the Ninth Circuit appeal in Meller v. Arrowhead Pharmaceuticals, Inc., Case No. 2:16-cv-08505 (C.D. Cal.). The Bernstein matter was dismissed on September 4, 2019. All actions relating to the Company’s hepatitis B drug research have been dismissed.

The Company and certain executive officers were named as defendants in a putative consolidated class action in the United States District Court for the Central District of California regarding certain public statements in connection with the Company’s drug research programs. The consolidated class action, initially filed as ~~Meller v. Arrowhead Pharmaceuticals, Inc., et al., No. 2:16-cv-08505 (C.D. Cal, filed Nov. 15, 2016 ),~~ ~~Siegel v. Arrowhead Pharmaceuticals, Inc., et al., No. 2:16-cv-8954 (C.D. Cal., filed Dec. 2, 2016), and~~ ~~Unz v. Arrowhead Pharmaceuticals, Inc., et al~~., No.2:17-cv-00310 (C.D. Cal., filed Jan. 13, 2017) asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 regarding certain public statements in connection with the Company’s drug research programs and seek damages in an unspecified amount. Additionally, a putative stockholder derivative action captioned ~~Johnson v. Anzalone, et al~~., (Los Angeles County Superior Court, filed January 19, 2017) asserting substantially similar claims is pending in Los Angeles County Superior Court and is stayed pending the related consolidated class action. Two additional putative stockholder derivative actions, captioned ~~Lucas v. Anzalone, et al.,~~ ~~No. 2:17-cv-03207 (C.D. Cal., filed April 28, 2017), and~~ ~~Singh v. Anzalone, et al~~., No. 2:17-cv-03160 (C.D. Cal., filed April 27, 2017), alleging breach of fiduciary duty by the Company’s Board of Directors in connection with the alleged facts underlying the securities claims, are pending in the United States District Court for the Central District of California. The Lucas and Singh actions have been consolidated. On December 21, 2017, the federal district court dismissed the consolidated class action with prejudice. On July 23, 2019, the Ninth Circuit issued a memorandum affirming the district court’s dismissal of all claims in the consolidated class action. The Lucas and Singh actions have been voluntarily dismissed. The Johnson action was dismissed on November 13, 2019. All actions relating to public statements in connection with the Company’s drug research programs have been dismissed.

~~With regard to legal fees, such as attorney fees related to these matters or any other legal matters, the Company recognizes such costs as incurred.~~

In the normal course of business, we enter into various purchase commitments for the manufacture of drug components, for toxicology studies, and for clinical studies. As of September 30, 2019, these future commitments were estimated at approximately $60.2 million, of which approximately $50.9 million is expected to be incurred in fiscal 2020, and $9.3 is expected to be incurred beyond fiscal 2020. 2021.

The Company has licensed from third parties the rights to use certain technologies for its research and development activities, as well as in any products the Company may develop using these licensed technologies. These agreements and other similar agreements often require milestone and royalty payments. Milestone payments, for example, may be required as the research and development process progresses through various stages of development, such as when clinical candidates enter or progress through clinical trials, upon NDA and upon certain sales level milestones. These milestone payments could amount to the mid to upper double-digit millions of dollars. During the ~~years~~year ended September 30, 2021, the Company did 0t incur any milestone payments. During the year ended September 30, 2020, the Company triggered $2.4 million of milestone payments related to the progression of the ARO-ENaC and ARO-HIF2 candidates. During the year ended September 30, 2019, ~~2018 and 2017,~~ the Company did ~~not trigger~~0t incur any ~~of these~~ milestone payments. In certain agreements, the Company may be required to make mid to high single-digit percentage royalty payments based on a percentage of the sales of the relevant products.

In April 2019, the Company entered into a lease for its corporate headquarters in Pasadena, California. The 91 month office building lease between the Company and 177 Colorado Owner, LLC is for approximately 24,000 square feet of office space located at 177 E. Colorado Blvd, Pasadena, California. The increased capacity of this new office space compared to the Company’s prior corporate headquarters will accommodate increased personnel as the Company’s pipeline of drug candidates expands and moves

closer to market. Lease payments began on September 30, 2019 and are estimated to total approximately $8.7 million over the term. The lease expires on April 30, 2027. The Company has paid approximately $3.5 million for leasehold improvements, net of tenant improvement allowances. The lease contains an option to renew for 1 term of five years. The exercise of this option was not determined to be reasonably certain and thus was not included in lease liabilities on the Company’s Consolidated Balance Sheet at September 30, 2021. On October 23, 2020, the Company entered into a lease expansion to add an additional approximately 24,000 square feet of office space at the same location for its corporate headquarters. Lease payments for the expansion began in July 2021 and the lease for the expansion expires in April 2027. The lease payments for the expansion are expected to total $6.9 million. The Company has paid approximately $4.0 million of leasehold improvements, net of tenant improvement allowances, for the lease expansion. The increased capacity of this additional office space compared to the Company’s current corporate headquarters is intended to accommodate increased personnel as the Company’s pipeline of drug candidates continues to expand and move closer to market.

In January 2016, the Company entered into a lease for its research facility in Madison, Wisconsin. The lease was for approximately 60,000 square feet of office and laboratory space and had an expiration date of September 30, 2026. The lease was amended in January 2019 and May 2020 to expand the rentable square feet by an additional 40,000 square feet and to extend the lease expiration date to September 30, 2031. Lease payments are estimated to total approximately $26.2 million for the term. The Company incurred approximately $11.0 million of leasehold improvements for the additional 40,000 square feet, net of tenant improvement allowances.The lease contains 2 options to renew for two terms of five years. The exercise of these options were not determined to be reasonably certain and thus was not included in lease liabilities on the Company’s Consolidated Balance Sheet at September 30, 2021. In November 2020 and December 2020, the Company entered into amendments to expand the rentable square space by an additional 10,743 square feet and these amendments added a total of approximately $1.2 million of lease payments for the remainder of the term.

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

Operating lease cost during the years ended September 30, 2021, 2020 and 2019 was $5.1 million, $2.4 million and $1.3 million respectively. Variable lease costs during the year ended September 30, 2021, 2020, and 2019 were $0.8 million, $0.8 million and $0.5 million respectively. There was 0 short-term lease cost during the years ended September 30, 2021, 2020 and 2019.

The following table presents maturities of operating lease liabilities on an undiscounted basis as of September 30, 2021:

Cash paid for the amounts included in the measurement of the operating lease liabilities on the Company’s Consolidated Balance Sheet and included in Other changes in operating assets and liabilities within cash flows from operating activities on the Company’s Consolidated Statements of Cash Flow for the years ended September 30, 2021, 2020 and 2019 were $3.1 million, $1.8 million and $1.3 million, respectively. The weighted-average remaining lease term and weighted-average discount rate for all leases as of September 30, 2021 was 8 years and 8.5%, respectively.

Arrowhead has ~~two~~three plans that provide for equity-based compensation. Under the 2004 Equity Incentive Plan and 2013 Incentive Plan, as of September 30, ~~2019, 1,099,337~~2021, 429,141 and ~~5,226,948~~5,225,983 shares, respectively, of Arrowhead’s Common Stock are reserved for the grant of ~~time-based vesting~~ stock options, stock appreciation rights, restricted stock awards and performance unit/share awards to employees, consultants and others. No further grants may be made under the 2004 Equity Incentive Plan. As of September 30, ~~2019,~~2021, there were options granted and outstanding to purchase ~~1,099,337~~429,141 and ~~2,831,322~~2,066,533 shares of Common Stock under the 2004 Equity Incentive Plan

and the 2013 Incentive Plan, respectively, and there were ~~2,054,333~~3,159,450 restricted stock units granted and outstanding under the 2013 Incentive Plan. Also, as of September 30, ~~2019,~~2021, there were ~~843,011~~957,565 shares reserved for options and ~~8,500~~602,000 shares reserved for restricted stock units issued as inducement grants to new employees granted outside of ~~equity~~the Company’s equity-based compensation ~~plans. During~~plans under Rule 5635(c)(4) of the ~~year ended September 30, 2019, no~~Nasdaq Listing Rules. On March 18, 2021, the Company’s stockholders approved the Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan (“2021 Incentive Plan”), which authorizes 8,000,000 shares (subject to certain adjustments) to be awarded for grants of stock options, orstock appreciation rights, restricted and unrestricted stock and stock units, ~~were granted~~performance awards, cash awards and other awards convertible into or otherwise based on shares of Arrowhead’s Common Stock. The maximum number of shares authorized under the ~~2004 Equity~~2021 Incentive Plan ~~517,500 options and 1,406,888 restricted stock units were granted~~will be (i) reduced by any shares subject to awards made under the 2013 Incentive Plan after January 1, 2021, and ~~362,000~~(ii) increased by any shares subject to outstanding awards under the 2013 Incentive 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 September 30, 2021, there were options granted and ~~8,500~~outstanding to purchase 3,000 shares of Common Stock and 70,400 restricted stock units granted and outstanding under the 2021 Incentive Plan. As of September 30, 2021, the total number of authorized shares under the 2021 Incentive Plan was 8,013,790 shares, which includes 87,190 shares that were ~~granted as inducement awards to new employees outside of equity incentive plans.~~forfeited under the 2013 Incentive Plan.

Stock-based compensation expense related to stock options for the years ended September 30, 2021, 2020, and 2019 ~~2018~~was $12.4 million, $9.7 million and ~~2017 was $3,955,216, $3,265,348 and $4,524,833,~~$4.0 million, respectively. ~~The Company does not recognize an income tax benefit as the Company has historically operated at a loss and an actual income tax benefit may not be realized.~~ For non-qualified stock options, the expense creates a timing difference, resulting in a deferred tax asset, which is fully reserved by a valuation allowance.

The grant date fair value of the options granted by the Company for the years ended September 30, 2021, 2020, and 2019 ~~2018~~was $9.0 million, $34.6 million and ~~2017 was $12,137,250, $4,141,318 and~~ ~~$849,816,~~$12.1 million, respectively.

The intrinsic value of the options exercised during the years ended September 30, 2021, 2020, and 2019 ~~2018~~was $66.9 million, $44.1 million and ~~2017 was $24,561,189, $5,805,317 and $35,512,~~$24.6 million, respectively.

As of September 30, ~~2019,~~2021, the pre-tax compensation expense for all outstanding unvested stock options in the amount of ~~$12,639,567~~$26.3 million will be recognized in the Company’s results of operations over a weighted average period of ~~3.2~~ ~~years.~~2.4 years.

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 valuation 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, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

The dividend yield is ~~zero~~0 as the Company currently does not pay a dividend.

Volatility is estimated based on volatility average of the Company’s Common Stock price.

Restricted stock units ~~(RSUs)~~(“RSUs”), including time-based and performance-based awards, ~~were~~have been granted under the Company’s 2013 Incentive Plan, 2021 Incentive Plan, and as ~~inducement~~inducements grants granted outside of the Plan. During the year ended September 30, 2019, the Company issued 1,406,888 RSUs under the 2013 Incentive Plan and 8,500 RSUs as an inducement award to a new employee outside of the equity incentiveCompany’s equity-based compensation plans. At vesting, each outstanding RSU will be exchanged for one share of the Company’s Common Stock. RSU recipients may elect to net share settle upon vesting, in which case the Company pays the employee’s income taxes due upon vesting and withholds a number of shares of Common Stock of equal value. RSU awards generally vest subject to the satisfaction of service requirements or the satisfaction of both service requirements and achievement of certain performance targets.

During the years ended September 30, ~~2019, 2018~~2021, 2020 and ~~2017,~~2019, the Company recorded ~~$8,438,107, $5,189,259~~$64.2 million, $33.7 million and ~~$3,366,762~~$8.4 million of expense related to RSUs, respectively. Such expense is included in stock-based compensation expense in the Company’s Consolidated Statement of Operations and Comprehensive Income (Loss). ~~The Company does not recognize an income tax benefit as the Company has historically operated at a loss and an actual income tax benefit may not be realized.~~ For RSUs, the expense creates a timing difference, resulting in a deferred tax asset, which is fully reserved by a valuation allowance.

For RSUs, the grant date fair value of the award is based on the Company’s closing stock price at the grant date, with consideration given to the probability of achieving performance conditions for performance-based awards. The grant date fair value of the RSUs granted by the Company for the years ended September 30, 2021, 2020 and 2019 was $127.7 million, $149.4 million and $17.8 million, respectively.

As of September 30, ~~2019,~~2021, the pre-tax compensation expense for all unvested RSUs in the amount of ~~$9,937,559~~$118.0 million will be recognized in the Company’s results of operations over a weighted average period of ~~2.6~~2.7 years. Unvested RSUs that we have deemed not probable of vesting as of September 30, 2021, have the potential of generating an additional $35.7 million of pre-tax compensation expense if we deem them probable of vesting in a future reporting period.

The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. Additionally, the Company is required to provide disclosure and categorize assets and liabilities measured at fair value into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable measure of fair value while Level 3 generally requires significant management judgment. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The fair value hierarchy is defined as follows:

Level 1—Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly.

Level 3—Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

The following table summarizes fair value measurements at September 30, ~~2019~~2021 and September 30, ~~2018~~2020 for assets and liabilities measured at fair value on a recurring ~~basis:~~basis.

The Company had a liability for contingent consideration related to its acquisition of the Roche RNAi business completed in 2011. The fair value measurement of the contingent consideration obligations is determined using Level 3 inputs. The fair value of contingent consideration obligations is based on a discounted cash flow model using a probability-weighted income approach. The measurement is based upon unobservable inputs supported by little or no market activity based on the Company’s assumptions and experience. Estimating timing to complete the development and obtain approval of products is difficult, and there are inherent uncertainties in developing a product candidate, such as obtaining ~~U.S. Food and Drug Administration (FDA)~~FDA and other regulatory approvals. In determining the probability of regulatory approval and commercial success, the Company utilizes data regarding similar milestone events from several sources, including industry studies and its own experience. These fair value measurements represent Level 3 measurements as they are based on significant inputs not observable in the market. Significant judgment is employed in determining the appropriateness of these assumptions as of the acquisition date and for each subsequent period. Accordingly, changes in assumptions could have a material impact on the amount of contingent consideration expense the Company records in any given period. In November 2016, the Company announced the discontinuation of its clinical trial efforts for ARC-520, ARC-AAT and ARC-521. Given this development, the Company assessed the fair value of its contingent consideration obligation to be $0 at September 30, ~~2019~~2021 and September 30, ~~2018.~~2020.

The Company utilizes the guidance issued by the FASB for accounting for income taxes which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and

statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provision for income taxes represents the tax payable for the period and the change during the period in deferred tax assets and liabilities.

Components of the net deferred tax asset (liability) at September 30, ~~2019~~2021 and ~~2018~~2020 are as follows:

The Company has concluded, in accordance with the applicable accounting standards, that it is more likely than not that the Company may not realize the benefit of all of its deferred tax assets. Accordingly, management has provided a 100% valuation allowance against its deferred tax assets until such time as management believes that its projections of future profits as well as expected future tax rates make the realization of these deferred tax assets more-likely-than-not. Significant judgment is required in the evaluation of deferred tax benefits and differences in future results from our estimates could result in material differences in the realization of these assets. The Company has ~~recorded a full valuation allowance related to all of its deferred tax assets. The Company has~~ performed an assessment of positive and negative evidence regarding the realization of the net deferred tax asset in accordance with FASB ASC 740-10, “Accounting for Income Taxes.” This assessment included the evaluation of scheduled reversals of deferred tax liabilities, the availability of carry forwards and estimates of projected future taxable income.

As of September 30, ~~2019,~~2021, the Company had available gross federal net operating loss ~~(NOL)~~(“NOL”) carry forwards of approximately $~~314.8~~ 569.0million and gross state NOL carry forwards of $~~211.5~~ 626.5 million. The NOLs expire at various dates through ~~2039.~~2041.

The provisions for income taxes for the years ended September 30, ~~2019~~2021 and ~~2018~~2020 are as follows:

The Company’s effective income tax rate differs from the statutory federal income tax rate as follows for the years ended September 30, ~~2019~~2021 and ~~2018:~~2020:

In December 2017, the President of the United States signed into law the Tax Cuts and Jobs Act, or TCJA, tax reform legislation. The TCJA makes significant changes in U.S. tax law including a reduction in the corporate tax rates, changes to net operating loss

carryforwards and carrybacks, and a repeal of the corporate alternative minimum tax. The TCJA reduced the U.S. corporate tax rate from the current rate of 35 percent down to 21 percent starting on January 1, 2018. As a result of the TCJA, the Company was required to revalue deferred tax assets and liabilities at 21 percent during the year ended September 30, 2018. This revaluation resulted in a provision of $37.0 million to income tax expense in continuing operations and a corresponding reduction in the valuation allowance during the year ended September 30, 2018. As a result, there was no impact to our Consolidated Statements of Comprehensive Income (Loss) as a result of the reduction in tax rates. The other provisions of the TCJA did not have a material impact on our Consolidated Financial Statements.

The Company has adopted guidance issued by the FASB that clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold of more likely than not and a measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position and must assume that the tax position will be examined by taxing authorities. The Company’s policy is to include interest and penalties related to unrecognized tax benefits in income tax expense. The Company has ~~not~~0t recognized any unrecognized tax benefits and does ~~not~~0t have any interest or penalties related to uncertain tax positions as of September 30, ~~2019~~2021 and ~~2018.~~2020.

The Company files income tax returns with the Internal Revenue Service (“IRS”), the state of California ~~the Australia Tax Office (“ATO”)~~ and certain other taxing jurisdictions. The Company is subject to income tax examinations by the IRS and by state tax authorities until the net operating losses are settled. ~~During the year ended September 30, 2016, the IRS commenced an audit for the tax year ended September 30, 2015. The IRS audit concluded without any material adjustments.~~

In January 2005, the Company adopted a defined contribution 401(k) retirement savings plan covering substantially all of its employees. The Plan is administered under the “safe harbor” provision of ERISA. Under the terms of the plan, an eligible employee may elect to contribute a portion of their salary on a pre-tax basis, subject to federal statutory limitations. The plan allows for a discretionary match in an amount up to 100% of each participant’s first 3% of compensation contributed plus 50% of each participant’s next 2% of compensation contributed.

For the years ended September 30, 2021, 2020, and 2019, ~~2018, and 2017, we~~the Company recorded expenses under this plan of ~~$545,698, $451,623~~$1.3 million, $0.9 million and ~~$426,470,~~$0.5 million, respectively.

In addition to the employee benefit plans described above, the Company provides certain employee benefit plans, including those which provide health and life insurance benefits to employees.

~~NOTE 12.~~ ~~UNAUDITED QUARTERLY FINANCIAL DATA~~San Diego Lease Agreement with ARE-SD Region No. 72 LLC

The ~~following table presents selected unaudited quarterly financial data~~estimated rent commencement date for ~~each full quarterly period~~the lease is in May 2023 after construction and leasehold improvements have been completed. The lease payments, which begin on the rent commencement date, will be approximately $119.0 million over the initial 15-year term. The Company also estimates payments for operating expenses to be approximately $3.0 million for the first year of the ~~years ended September 30, 2019~~lease, and ~~2018:~~these payments will continue throughout the initial 15-year term. The Company expects to pay approximately $31.0 million for leasehold improvements, net of tenant improvement allowances. Pursuant to the lease, within twelve months of the expiration of the initial 15-year term, the Company has the option to extend the lease for up to 1 additional ten-year term, with certain annual increases in base rent.

Exclusive License Agreement with Glaxosmithkline Intellectual Property (No. 3) Limited

Delaware		46-0408024
(State or other jurisdiction of ~~incorporation)~~incorporation or organization)		(I.R.S. Employer Identification No.)

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value	ARWR	The Nasdaq Global Select Market

Large accelerated filer ☒		Accelerated filer ☐		Non-accelerated filer ☐		Smaller ~~Reporting Company~~ reporting company ☐
Emerging growth company ☐

PART I

ITEM 1.1.	BUSINESS	1
ITEM 1A.	RISK FACTORS	2532
ITEM 1B.	UNRESOLVED STAFF COMMENTS	3846
ITEM 2.	PROPERTIES	3846
ITEM 3.	LEGAL PROCEEDINGS	3846
ITEM 4.	MINE SAFETY DISCLOSURES	3846

PART II

ITEM 5.	MARKETFORTHE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERSAND ISSUER PURCHASESOF EQUITY SECURITIES	3947
ITEM 6.	S~~ELECTED~~ F~~INANCIAL~~ D~~ATA~~Reserved	4149
ITEM 7.	MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITIONAND RESULTSOF OPERATIONS	4250
ITEM 7A.	QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	5261
ITEM 8.	FINANCIAL STATEMENTSAND SUPPLEMENTARY DATA	5261
ITEM 9.	CHANGESINAND DISAGREEMENTSWITH ACCOUNTANTSON ACCOUNTINGAND FINANCIAL DISCLOSURE	5261
ITEM 9A.	CONTROLSAND PROCEDURES	5261
ITEM 9B.	OTHER INFORMATION	5362
ITEM 9C.	Disclosure Regarding Foreign Jursidictions That Prevent Inspections	62

PART III

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE	5363
ITEM 11.	EXECUTIVE COMPENSATION	5363
ITEM 12.	SECURITY OWNERSHIPOF CERTAIN BENEFICIAL OWNERSAND MANAGEMENTAND RELATED STOCKHOLDERS	5363
ITEM 13.	CERTAIN RELATIONSHIPS, RELATED TRANSACTIONSAND DIRECTORS INDEPENDENCE	5363
ITEM 14.	PRINCIPAL ACCOUNTANT FEESAND SERVICES	5363

PART IV

ITEM 15.	EXHIBITSAND FINANCIAL STATEMENT SCHEDULES	5363
Item 16.	Form 10-K Summary	67

SIGNATURE		5668

INDEX TO FINANCIAL STATEMENTS AND SCHEDULES		F-1


Patent Group	Estimated Year(s) of Expiration*
RNAi Triggers Gene Target
HBV	2032, 2036, 2037
AAT	2035, 2038
LPA	2036
~~Factor 12~~α-ENaC	~~2036,~~2028, 2038
~~HIF2α~~	~~2034, 2036~~
~~RRM2~~	~~2031~~
APOC3	2035, 2038, 2040
ANGPTL3	2038
~~α-ENaC~~HIF2α	~~2028,~~2034, 2036, 2040
HSD17B13	2039
PNPLA3	2041
Factor 12	2036, 2038
RRM2	2031
β-ENaC	2031
β-Catenin	2033

Patent Group	Estimated Year(s) of Expiration*
Cx43	2029
HCV	2023
HIF1A	2026
HRH1	2027
HSF1	2030, 2032
FRP-1	2026
KRAS	2033
PDtype4	2026
PI4Kinase	2028
SYK	2027
TNF-α	2027, 2028

Patent Group	Estimated Year(s) of Expiration*
Targeting ligands and other RNAi delivery and platform technologies
Targeting groups (Galactose derivative trimer-PK)	2031
Targeting groups (αvβ3 integrin)	2034, 2039, 2039
Targeting groups (αvβ6 integrin)	2037, 2038
Targeting groups (Galactose derivative ligands)	2037, 2037
RNAi agent design (5′-phosphate mimic)	2037
Physiologically labile linkers	2036
Biologically cleavable linkers	2036
Trialkyne linkers	2039
Transferrin targeting	2028
LDLR targeting	2028
Peptide targeting (CPP-Arg)	2028
Peptide targeting (YM3-10H)	2032

Hydrodynamic delivery
~~Second iteration~~	~~2020~~
Third iteration	2024

Arrowhead Pharmaceuticals, Inc. Employees by Geography
	Number of Employees as of September 30,
Site	2021		2020
Pasadena, CA		93		65
Madison, WI		198		150
San Diego, CA		38		17
Total		329		232

	Fiscal Year Ended September 30,
	2019				2018
	High		Low		High		Low
1st Quarter	$	20.31	$	10.41	$	4.54	$	3.01
2nd Quarter		20.60		11.67		8.09		3.57
3rd Quarter		28.84		17.30		14.24		6.26
4th Quarter		36.80		25.68		22.39		12.25

	Year Ended September
	2019		2018			2017			2016			2015
OPERATING SUMMARY
REVENUE	$	168,795,577	$	16,142,321		$	31,407,709		$	158,333		$	382,000
OPERATING EXPENSES
Research and development		81,048,686		52,968,505			50,904,466			62,117,818			64,035,385
Acquired in-process research and development		-		-			-			-			10,142,786
General and administrative expenses		26,556,257		19,110,051			17,499,152			23,594,888			20,286,272
Impairment expense		-		-			-			2,050,817			-
Contingent consideration - fair value adjustments		-		-			-			(5,862,464	)		1,891,533
TOTAL OPERATING EXPENSES (a)		107,604,943		72,078,556			68,403,618			81,901,059			96,355,976
OPERATING INCOME (LOSS)		61,190,634		(55,936,235	)		(36,995,909	)		(81,742,726	)		(95,973,976	)
NET INCOME (LOSS)		67,974,849		(54,450,478	)		(34,380,295	)		(81,723,002	)		(91,940,882	)
NET INCOME (LOSS) PER SHARE:
Net Income (Loss) Per Share - Basic	$	0.72	$	(0.65	)	$	(0.47	)	$	(1.34	)	$	(1.60	)
Net Income (Loss) Per Share - Diluted	$	0.69	$	(0.65	)	$	(0.47	)	$	(1.34	)	$	(1.60	)

Weighted average shares outstanding – basic		93,858,857		83,638,469			73,898,598			61,050,880			57,358,442
Weighted average shares outstanding – diluted		98,607,815		83,638,469			73,898,598			61,050,880			57,358,442

CASH DIVIDEND PAID PER COMMON SHARE	$	-	$	-		$	-		$	-		$	-
	September 30,
	2019		2018			2017			2016			2015
FINANCIAL POSITION SUMMARY
CASH AND CASH EQUIVALENTS (b)	$	221,804,128	$	30,133,213		$	24,838,567		$	85,366,448		$	81,214,354
SHORT- AND LONG-TERM INVESTMENTS (b)		81,075,887		46,400,176			40,769,539			-			17,539,902
TOTAL ASSETS (b)		349,845,437		111,609,951			104,022,280			128,176,505			132,267,914
CAPITAL LEASE OBLIGATIONS		-		-			-			-			758,340
OTHER LONG-TERM OBLIGATIONS		8,738,506		4,003,999			4,454,070			7,508,452			6,204,917

$100 investment in stock or index	Ticker	September 30, 2016		September 30, 2017			September 30, 2018			September 30, 2019			September 30, 2020		September 30, 2021
Arrowhead Pharmaceuticals, Inc.	ARWR	$	100.00	$		58.91	$	260.82		$		383.40	$	585.85	$	849.39
NASDAQ Biotechnology Index	^NBI	$	100.00	$	115.39		$		126.70	$	103.32		$	140.62	$	167.98
NASDAQ Composite Index	^IXIC	$	100.00	$	122.29		$	151.47		$	150.59		$	210.23	$		272.00


	Twelve Months Ended September 30,		% of Expense			Twelve Months Ended September 30,		% of Expense			Increase (Decrease)
		2019		Category			2018		Category		$			%
Salaries	$	15,502		19	%	$	12,721		24	%	$	2,781			22	%
Stock compensation		3,515		4	%		2,396		5	%		1,119			47	%
In Vivo studies		2,526		3	%		2,705		5	%		(179	)		-7	%
Drug manufacturing		22,069		27	%		14,336		27	%		7,733			54	%
Toxicity/efficacy studies		11,251		14	%		6,294		12	%		4,957			79	%
Clinical trials		13,742		17	%		2,935		6	%		10,807			368	%
License, royalty & milestones		-		0	%		32		0	%		(32	)	N/A
Facilities related		2,649		3	%		2,280		4	%		369			16	%
Depreciation/amortization		4,420		6	%		4,672		9	%		(252	)		-5	%
Other R&D		5,375		7	%		4,598		9	%		777			17	%
Total	$	81,049		100	%	$	52,969		100	%	$	28,080			53	%


	Twelve Months Ended September 30, 2019		% of Expense Category			Twelve Months Ended September 30, 2018		% of Expense Category			Increase (Decrease)
											$			%
Salaries	$	8,288		31	%	$	6,382		33	%	$	1,906			30	%
Stock compensation		8,878		33	%		6,059		32	%		2,819			47	%
Professional/outside services		5,605		21	%		4,331		23	%		1,274			29	%
Facilities related		1,434		5	%		727		4	%		707			97	%
Depreciation/amortization		19		0	%		27		0	%		(8	)		-30	%
Other G&A		2,332		9	%		1,584		8	%		748			47	%
Total	$	26,556		100	%	$	19,110		100	%	$	7,446			39	%

										Years ended September 30,
	Year ended September 30,									2021			2020			2019
	2019			2018			2017			(in thousands)
Cash Flow from:
Operating Activities	$	173,034,923		$	(47,223,417	)	$	(23,938,972	)	$	171,224		$	(95,391	)	$	173,035
Investing Activities		(47,746,007	)		(7,434,963	)		(48,644,218	)		(141,678	)		(240,778	)		(47,746	)
Financing Activities		66,381,999			59,953,026			12,055,309			11,305			257,948			66,382
Net increase (decrease) in cash and cash equivalents		191,670,915			5,294,646			(60,527,881	)
Net Increase (decrease) in cash and cash equivalents											40,851			(78,221	)		191,671
Cash and cash equivalents at beginning of period		30,133,213			24,838,567			85,366,448			143,583			221,804			30,133
Cash and cash equivalents at end of period	$	221,804,128		$	30,133,213		$	24,838,567		$	184,434		$	143,583		$	221,804

	Payments due by Period
	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Long-Term Debt		-		-		-		-		-
Capital Leases		-		-		-		-		-
Operating Leases		22,385,552		1,521,451		4,777,825		5,252,070		10,834,206
Purchase Obligations		60,200,000		50,900,000		9,300,000		-		-
Other Long-Term Liabilities		8,738,506		415,608		5,866,358		831,216		1,625,324
Total	$	91,324,058	$	52,837,059	$	19,944,183	$	6,083,286	$	12,459,530

Exhibit ~~Number~~		~~Description~~		Incorporated by Reference Herein
Number		Description		Form		Date
	~~2.1~~
1.1		Open Market Sale Agreement, dated as of August 5, 2020, by and between Arrowhead Pharmaceuticals, Inc. and Jefferies LLC		Quarterly Report on Form 10-Q, as Exhibit 1.1		August 5, 2020

2.1†		Stock and Asset Purchase Agreement between Arrowhead Research Corporation and Roche entities, dated October 21, 2011†		Annual Report on Form 10-K ~~for the fiscal year ended September 30, 2011,~~ as Exhibit 2.1		December 20, 2011

~~2.2~~2.2†		Asset Purchase and Exclusive License Agreement between Arrowhead Research Corporation and Novartis Institutes for BioMedical Research, Inc., dated March 3, 2015†		Quarterly Report on Form 10-Q, as Exhibit 2.1		May 11, 2015

3.1		Amended and Restated Certificate of Incorporation ~~of Arrowhead Research Corporation, a Delaware corporation, filed with the Secretary of State of the State of Delaware on April 5, 2016~~		Current Report on Form 8-K as Exhibit 3.3		April 6, 2016

3.2		Amended and Restated Bylaws ~~of Arrowhead Pharmaceuticals, Inc.~~		Current Report on ~~form~~Form 8-K as Exhibit 3.4		April 6, 2016

4.1		Form of Common Stock Certificate of Arrowhead Pharmaceuticals, Inc.		Current Report on Form 8-K, as Exhibit 4.1		April 6, 2016

4.2		Form of Indenture		Registration Statement on Form S-3, ~~(File No. 333-214315)~~ as Exhibit 4.2		~~October 28, 2016~~December 2, 2019

4.3		Rights Agreement dated as of March 21, 2017, between the Company and Computershare Trust Company, N.A., as rights agent, which includes as Exhibit B the Form of Rights Certificate		Current Report on Form 8-K, as Exhibit 4.1		March 23, 2017

4.4		Description of Registrant’s Securities*	4.5		Description of Registrant’s Securities Registration Rights Agreement by and between Arrowhead Pharmaceuticals, Inc. and Johnson & Johnson Innovation-JJDC, Inc., dated October 3, 2018		Annual Report on Form 10-K, as Exhibit 4.4 Quarterly Report on Form 10-Q, as Exhibit 10.4	November 25, 2019 February 7, 2019

10.1**		Arrowhead Research Corporation 2004 Equity Incentive Plan, as amended		Schedule 14C, as Annex B		January 12, 2012

10.2**		Arrowhead Research Corporation 2013 Incentive Plan		Schedule 14C, as Annex A		December 20, 2013

10.3**		Form of Stock Option Agreement for use with the 2013 Incentive Plan		Current Report on Form 8-K, as Exhibit 10.1		February 12, 2014

10.4 10.5 10.6 10.7 10.8**		Form of Restricted Stock Unit Agreement for use with the 2013 Incentive Plan Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan Form of Performance RSU Agreement for use with the 2021 Incentive Plan Form of Stock Option Agreement for use with the 2021 Incentive Plan Form of RSU Agreement for use with the 2021 Incentive Plan		Current Report on Form 8-K, as Exhibit 10.2 Schedule 14A, Exhibit A Quarterly Report on Form 10-Q, as Exhibit 10.1 Quarterly Report on Form 10-Q, as Exhibit 10.2 Quarterly Report on Form 10-Q, as Exhibit 10.3		February 12, 2014 January 28, 2021 August 5, 2021 August 5, 2021 August 5, 2021

Exhibit		Incorporated by Reference Herein
Number	Description	Form	Date

10.9**	Executive Incentive Plan, adopted December 12, 2006	Annual Report on Form 10-K, as Exhibit 10.11	December 14, 2006

10.10**	Employment Agreement between Arrowhead and Dr. Christopher Anzalone, dated June 11, 2008	Current Report on Form 8-K, as Exhibit 10.1	June 13, 2008

10.11**	Amendment to Employment Agreement between Arrowhead and Dr. Christopher Anzalone, effective May 12, 2009	Annual Report on Form 10-K, as Exhibit 10.8	December 22, 2009

10.12†	Non-Exclusive License Agreement between Arrowhead Research Corporation and Roche entities, dated October 21, 2011†	Annual Report on Form 10-K, as Exhibit 10.33	December 20, 2011

10.13†	Collaboration Agreement by and among Alnylam Pharmaceuticals, Inc. and F. Hoffmann-La Roche Ltd and Hoffman-La Roche Inc., dated October 29, 2009 †	Annual Report on Form 10-K, as Exhibit 10.36	December 20, 2011

10.14†	License Agreement by and between Alnylam Pharmaceuticals, Inc., Arrowhead Research Corporation and Arrowhead Madison, Inc.†	Quarterly Report on Form 10-Q, as Exhibit 10.1	August 12, 2014


10.5**10.16†	~~Executive Incentive Plan, adopted December 12, 2006~~	~~Annual Report on Form 10-K for the fiscal year ended September 30, 2006, as Exhibit 10.11~~	~~December 14, 2006~~

10.6**	~~Employment Agreement between Arrowhead and Dr. Christopher Anzalone, dated June 11, 2008~~	~~Current Report on Form 8-K, as Exhibit 10.1~~	~~June 13, 2008~~

Exhibit Number	~~Description~~	~~Incorporated by Reference Herein~~
Exhibit Number	~~Description~~	~~Form~~	~~Date~~

10.7**	~~Amendment to Employment Agreement between Arrowhead and Dr. Christopher Anzalone, effective May 12, 2009~~	~~Annual Report on Form 10-K for the fiscal year ended September 30, 2009, as Exhibit 10.8~~	~~December 22, 2009~~


~~10.8~~	~~Non-Exclusive License Agreement between Arrowhead Research Corporation and Roche entities, dated October 21, 2011†~~	~~Annual Report on Form 10-K for the fiscal year ended September 30, 2011, as Exhibit 10.33~~	~~December 20, 2011~~

~~10.9~~	~~Collaboration Agreement by and among Alnylam Pharmaceuticals, Inc. and F. Hoffmann-La Roche Ltd and Hoffman-La Roche Inc., dated October 29, 2009 †~~	~~Annual Report on Form 10-K for the fiscal year ended September 30, 2011, as Exhibit 10.36~~	~~December 20, 2011~~

~~10.10~~	~~License Agreement by and between Alnylam Pharmaceuticals, Inc., Arrowhead Research Corporation and Arrowhead Madison, Inc.†~~	~~Quarterly Report on Form 10-Q, as Exhibit 10.1~~	~~August 12, 2014~~

~~10.11~~	~~Lease Agreement between University Research Park, Incorporated and Arrowhead Madison, Inc., dated January 8, 2016~~	~~Quarterly Report on Form 10-Q, as Exhibit 10.1~~	~~February 9, 2016~~

~~10.12~~	First Collaboration and Licensing Agreement between Arrowhead Pharmaceuticals, Inc. and Amgen Inc., dated September 28, 2016†	Annual Report on Form 10-K, ~~for the fiscal year ended September 30, 2016,~~ as Exhibit 10.18	December 14, 2016

~~10.13~~10.17†	Second Collaboration and Licensing Agreement between Arrowhead Pharmaceuticals, Inc. and Amgen Inc., dated September 28, 2016†	Annual Report on Form 10-K, ~~for the fiscal year ended September 30, 2016,~~ as Exhibit 10.19	December 14, 2016

~~10.14~~10.18	Common Stock Purchase Agreement between the Company and Amgen Inc., dated September 28, 2016	Amendment No. 1 to the Registration Statement on Form S-3, ~~(File No. 333-214311)~~as Exhibit 10.1)	November 25, 2016

~~10.15~~10.19†	License Agreement by and between Arrowhead Pharmaceuticals, Inc. and Janssen Pharmaceuticals, Inc., dated October 3, 2018†	Quarterly Report on Form 10-Q, as Exhibit 10.1	February 7, 2019

~~10.16~~10.20†	Research Collaboration and Option Agreement by and between Arrowhead Pharmaceuticals, Inc. and Janssen Pharmaceuticals, Inc., dated October 3, 2018†	Quarterly Report on Form 10-Q, as Exhibit 10.2	February 7, 2019

~~10.17~~10.21	Stock Purchase Agreement by and between Johnson & Johnson Innovation-JJDC, Inc. and Arrowhead Pharmaceuticals, Inc., dated October 3, 2018	Quarterly Report on Form 10-Q, as Exhibit 10.3	February 7, 2019

~~10.18~~10.22†	~~Registration Rights~~Amendment No. 1 to License Agreement by and between Arrowhead Pharmaceuticals, Inc. and ~~Johnson & Johnson Innovation-JJDC,~~Janssen Pharmaceuticals, Inc., dated ~~October 3, 2018~~December 18, 2018†	~~Quarterly~~Annual Report on Form 10-Q, as Exhibit ~~10.4~~10.19	~~February 7,~~November 25, 2019

~~10.19~~10.23†	Amendment No. 12 to License Agreement by and between Arrowhead Pharmaceuticals, Inc. and Janssen Pharmaceuticals, Inc., dated ~~December 18, 2018*†~~February 4, 2019†	Annual Report on Form 10-K, as Exhibit 10.20	November 25, 2019

~~10.20~~10.24†	~~Amendment No. 2 to License Agreement by and between Arrowhead Pharmaceuticals, Inc. and Janssen Pharmaceuticals, Inc., dated February4, 2019*†~~

~~10.21~~	Amendment No. 1 to Research Collaboration and Option Agreement by and between Arrowhead Pharmaceuticals, Inc. and Janssen Pharmaceuticals, Inc., dated November 14, ~~2019*†~~2019†	Annual Report on Form 10-K, as Exhibit 10.21

	ARROWHEAD PHARMACEUTICALS, INC.

	By:		/s/ Christopher Anzalone
			Christopher Anzalone
			Chief Executive Officer

Signature	Title	Date

/s/ Christopher Anzalone	Chief Executive Officer, President and	November ~~25, 2019~~22, 2021
Christopher Anzalone	Director (Principal Executive Officer)

~~Signature~~	~~Title~~	~~Date~~
/s/ Kenneth A. Myszkowski	Chief Financial Officer (Principal	November ~~25, 2019~~22, 2021
Kenneth A. Myszkowski	Financial and Accounting Officer)

/s/Douglass Given	Director, Chairman of the Board of Directors	November ~~25, 2019~~22, 2021
Douglass Given

/s/ Mauro Ferrari	Director	November ~~25, 2019~~22, 2021
Mauro Ferrari

/s/ Michael S. Perry	Director	November ~~25, 2019~~22, 2021
Michael S. Perry

/s/ William Waddill	Director	November ~~25, 2019~~22, 2021
William Waddill

/s/ Marianne De Backer	Director	November 22, 2021
Marianne De Backer

/s/ Adeoye Olukotun	Director	November 22, 2021
Adeoye Olukotun

Reports of Independent Registered Public Accounting Firm		F-2
Consolidated Balance Sheets of Arrowhead Pharmaceuticals, Inc., September 30, ~~2019~~2021 and ~~201~~20208		F-5
Consolidated Statements of Operations and Comprehensive Income (Loss) of Arrowhead Pharmaceuticals, Inc. for the years ended September 30, ~~2019, 2018~~2021, 2020 and ~~2017~~2019		F-6
Consolidated ~~Statement~~Statements of Stockholders’ Equity of Arrowhead Pharmaceuticals, Inc. for the years ended September 30, ~~2019, 2018,~~2021, 2020, and ~~201~~20197		F-7
Consolidated Statements of Cash Flows of Arrowhead Pharmaceuticals, Inc. for the years ended September 30, ~~2019, 2018~~2021, 2020 and ~~201~~20197		F-8
Notes to Consolidated Financial Statements of Arrowhead Pharmaceuticals, Inc.		F-9


Rose, Snyder & Jacobs LLP

We have served as the Company’s auditor since 2004.

Encino, California
November 22, 2021
~~November 25, 2019~~

	Preferred Stock			Amount ($)			Common Stock		Amount ($)		Additional Paid-In Capital			Accumulated Other Comprehensive Income (loss)			Accumulated Deficit			Non-controlling Interest			Totals
Balance at September 30, 2016		15,652		$	16			69,746,685	$	162,116	$	493,844,909		$	7,449		$	(398,435,043	)	$	(555,188	)	$	95,024,259
Stock-based compensation		-			-			-		-		7,891,595			-			-			-			7,891,595
Exercise of stock options		-			-			135,730		136		271,795			-			-			-			271,931
Common stock- Restricted Stock Units vesting		-			-			481,212		481		(403,742	)		-			-			-			(403,261	)
Common stock issued to Amgen at $7.16 per share		-			-			1,745,810		1,746		12,418,254			-			-			-			12,420,000
Preferred stock converted to common stock		(15,652	)		(16	)		2,670,989		2,671		(2,655	)		-			-			-			-
Exchange rights exercised		-			-			5,000		5		17,145			-			-			-			17,150
Foreign currency translation adjustments		-			-			-		-		-			25,783			-			-			25,783
Net loss for the year ended September 30, 2017		-			-			-		-		-			-			(34,380,295	)		-			(34,380,295	)
Balance at September 30, 2017		-		$	-			74,785,426	$	167,155	$	514,037,301		$	33,232		$	(432,815,338	)	$	(555,188	)	$	80,867,162
Stock-based compensation		-			-			-		-		8,454,607			-			-			-			8,454,607
Exercise of stock options		-			-			604,611		605		2,656,105			-			-			-			2,656,710
Exercise of warrants		-			-			288,473		288		1,237,141			-			-			-			1,237,429
Common stock- Restricted Stock Units vesting		-			-			1,326,792		1,327		(55,995	)		-			-			-			(54,668	)
Common stock issued at $5.25 per share		-			-			11,500,000		11,500		56,573,535			-			-			-			56,585,035
Foreign currency translation adjustments		-			-			-		-		-			(54,796	)		-			-			(54,796	)
Net loss for the year ended September 30, 2018		-			-			-		-		-			-			(54,450,478	)		-			(54,450,478	)
Balance at September 30, 2018		-		$	-			88,505,302	$	180,875	$	582,902,694		$	(21,564	)	$	(487,265,816	)	$	(555,188	)	$	95,241,001
Stock-based compensation		-			-			-		-		12,393,323			-			-			-			12,393,323
Exercise of stock options		-			-			1,542,795		1,543		8,273,867			-			-			-			8,275,410
Common stock- Restricted Stock Units vesting		-			-			2,197,305		2,197		(2,197	)		-			-			-			-
Common stock issued at $23.00 per share		-			-			3,260,869		3,261		60,518,468			-			-			-			60,521,729
Foreign currency translation adjustments		-			-			-		-		-			(370,060	)		-			-			(370,060	)
Net income for the year ended September 30, 2019		-			-			-		-		-			-			67,974,849			-			67,974,849
Balance at September 30, 2019		-		$	-			95,506,271	$	187,876	$	664,086,155		$	(391,624	)	$	(419,290,967	)	$	(555,188	)	$	244,036,252

							September 30, 2021			September 30, 2020
	September 30, 2019			September 30, 2018			(in thousands)
Computers, office equipment and furniture	$	637,577		$	600,334		$	1,661		$	662
Research equipment		12,932,304			10,751,627			27,500			20,654
Software		147,254			152,676			509			631
Leasehold improvements		21,579,415			12,236,150			41,869			25,238
Total gross fixed assets		35,296,550			23,740,787			71,539			47,185
Less: Accumulated depreciation and amortization		(12,081,651	)		(9,805,362	)		(22,864	)		(16,304	)
Property and equipment, net	$	23,214,899		$	13,935,425		$	48,675		$	30,881

	As of September 30, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Commercial notes (due within one year)	$	46,400,176	$	—	$	(429,050	)	$	45,971,126
Commercial notes (due within three years)	$	—	$	—	$	—		$	—
Total	$	46,400,176	$	—	$	(429,050	)	$	45,971,126

	~~Intangible assets~~ ~~subject to~~ ~~amortization~~
~~Balance at September 30, 2018~~	$	~~18,764,010~~
~~Impairment~~		-
~~Amortization~~		~~(1,700,430~~	)
~~Balance at September 30, 2019~~	$	~~17,063,580~~

	Intangible assets subject to amortization
	(in thousands)
Balance at September 30, 2020	$	15,363
Impairment		-
Amortization		(1,700	)
Balance at September 30, 2021	$	13,663

	(in thousands)
2022		4,708
2023		4,786
2024		4,621
2025		4,749
2026		5,050
2027 and thereafter		13,200
Total	$	37,114
Less imputed interest	$	(11,569	)
Total operating lease liabilities (includes current portion)	$	25,545

	Number of Options Outstanding		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value		Number of Options Outstanding			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Balance At September 30, 2018		5,524,399	$	6.14
Balance At September 30, 2020										4,539,403		$	16.67
Granted		879,500		16.05						186,000		65.57
Cancelled		(87,434)		8.96						(217,820	)	40.12
Exercised		(1,542,795)		5.36						(1,051,344	)	10.75
Balance At September 30, 2019		4,773,670	$	8.16		6.0 years	$	95,727,301
Exercisable At September 30, 2019		3,515,379	$	6.58		4.9 years	$	75,931,836
Balance At September 30, 2021										3,456,239		$	19.60	5.56	$	149,501,055
Exercisable At September 30, 2021										2,510,091		$	12.23	4.58	$	126,302,948

	Number of RSUs			Weighted- Average Grant Date Fair Value		Number of RSUs			Weighted- Average Grant Date Fair Value
Unvested at September 30, 2018		2,968,500		$	2.99
Unvested at September 30, 2020							3,524,025		$	44.11
Granted		1,415,388			12.57		1,672,350			76.34
Vested		(2,197,305	)		2.78		(899,025	)		30.65
Forfeited		(123,750	)		8.98		(465,500	)		44.91
Unvested at September 30, 2019		2,062,833		$	9.43
Unvested at September 30, 2021							3,831,850		$	61.24

									Level 1		Level 2		Level 3		Total
	Level 1		Level 2		Level 3		Total		(in thousands)
Cash and cash equivalents	$	221,804,128	$	—	$	—	$	221,804,128	$	184,434	$	-	$	-	$	184,434
Short-term investments		37,122,478		—		—		37,122,478
Long-term investments		45,051,251		—		—		45,051,251
Marketable securities									$	126,728	$	-	$	-	$	126,728
Short-term investments (held to maturity)									$	-	$	57,430	$	-	$	57,430
Long-term investments (held to maturity)									$	-	$	246,643	$	-	$	246,643
Contingent Consideration	$	—	$	—	$	—	$	—	$	-	$	-	$	-	$	-

	First		Second		Third		Fourth
Year ended September 30, 2019	Quarter		Quarter		Quarter		Quarter
Revenues	$	34,657,896	$	48,148,275	$	42,696,636	$	43,292,770
Operating Income (Loss)	$	10,946,144	$	22,010,692	$	18,595,749	$	9,638,049
Net Income (Loss)	$	12,037,253	$	23,896,982	$	20,335,708	$	11,704,906
Net Income (Loss) per share - BASIC	$	0.13	$	0.25	$	0.21	$	0.12
Net Income (Loss) per share - DILUTED	$	0.13	$	0.24	$	0.21	$	0.12