UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~December 31, 2017~~

June 30, 2023

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

For the transition period from to .

Commission file number 001-38042

ARROWHEAD PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

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

~~225 S. Lake Avenue,~~

177 E. Colorado Blvd, Suite ~~1050~~

700

Pasadena, California ~~91101~~

91105

(626) 304-3400

(Address and telephone number of principal executive offices)

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

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

ARWR

The Nasdaq Global Select Market

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

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes ☒x No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”,~~filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

~~Large accelerated~~

☐

~~Accelerated filer~~

☒

Large Accelerated Filer

Accelerated Filer

~~Non-accelerated filer~~

☐ ~~(Do not check if a smaller reporting company)~~

~~Smaller reporting company~~

☐

Non-Accelerated Filer

Smaller Reporting Company

Emerging ~~growth company~~

Growth Company

☐

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

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

The number of shares of the registrant’s common stock outstanding as of ~~February 7, 2018~~July 31, 2023 was ~~86,787,566.~~

107,192,901.

	~~Page(s)~~

PART I. FINANCIAL INFORMATION

~~ITEM 1.~~

ITEM 1. FINANCIAL STATEMENTS

Arrowhead Pharmaceuticals, Inc.

Consolidated Balance Sheets

(unaudited)

December 31, 2017

September 30, 2017

ASSETS

CURRENT ASSETS

Cash and cash equivalents

$
11,531,345

$
24,838,567

Accounts receivable

149,931

67,797

Prepaid expenses

651,239

867,363

Other current assets

1,604,986

1,359,638

Short term investments

39,169,376

40,769,539

TOTAL CURRENT ASSETS

53,106,877

67,902,904

Property and equipment, net

14,932,366

15,513,019

Intangible assets, net

20,039,332

20,464,439

Other assets

141,918

141,918

TOTAL ASSETS

$
88,220,493

$
104,022,280

LIABILITIES AND STOCKHOLDERS’ EQUITY

CURRENT LIABILITIES

Accounts payable

$
5,707,047

$
4,076,514

Accrued expenses

3,478,512

4,564,507

Accrued payroll and benefits

1,936,024

3,399,679

Deferred rent

440,580

440,580

Deferred revenue

1,875,001

5,269,741

Derivative liabilities

20,445

695,114

Note Payable

212,233

208,506

Other current liabilities

46,407

46,407

TOTAL CURRENT LIABILITIES

13,716,249

18,701,048

LONG-TERM LIABILITIES

Deferred rent, net of current portion

1,834,392

1,929,052

Note Payable, net of current portion

2,270,542

2,325,018

Other non-current liabilities

200,000

200,000

TOTAL LONG-TERM LIABILITIES

4,304,934

4,454,070

Commitments and contingencies (Note 7)

STOCKHOLDERS’ EQUITY

Arrowhead Pharmaceuticals, Inc. stockholders' equity:

Common stock, $0.001 par value; 145,000,000 shares authorized;
74,917,876 and 74,785,426 shares issued and outstanding as of
December 31, 2017 and September 30, 2017, respectively

167,287

167,155

Additional paid-in capital

516,577,723

514,037,301

Accumulated other comprehensive income (loss)

23,704

33,232

Accumulated deficit

(446,014,216
)

(432,815,338
)
Total Arrowhead Pharmaceuticals, Inc. stockholders' equity

70,754,498

81,422,350

Noncontrolling interest

(555,188
)

(555,188
)
TOTAL STOCKHOLDERS’ EQUITY

70,199,310

80,867,162

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$
88,220,493

$
104,022,280

(In thousands, except per share amounts)


	June 30, 2023		September 30, 2022
	(unaudited)
ASSETS
Current assets:
Cash, cash equivalents and restricted cash	$	105,334	$	108,005
Accounts receivable	1,247		1,410
Short term investments	346,369		268,391
Prepaid expenses	10,053		7,289
Other current assets	7,162		20,204
Total current assets	470,165		405,299
Property and equipment, net	231,369		110,297
Intangible assets, net	10,687		11,962
Long-term investments	42,758		105,872
Right-of-use assets	40,667		58,291
Other assets	210		218
Total Assets	$	795,856	$	691,939

LIABILITIES, NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,874	$	2,868
Accrued expenses	38,191		46,856
Accrued payroll and benefits	4,434		12,251
Lease liabilities	2,823		2,776
Deferred revenue	16,905		74,099
Total current liabilities	70,227		138,850
Long-term liabilities:
Lease liabilities, net of current portion	79,911		78,800
Deferred revenue, net of current portion	—		55,950
Liability related to the sale of future royalties	263,064		—
Other liabilities	669		—
Total long-term liabilities	343,644		134,750
Commitments and contingencies (Note 7)
Noncontrolling interest and stockholders’ equity:
Common stock, $0.001 par value: Authorized 290,000 and 145,000 shares; issued and outstanding 107,102 and 105,960 shares	199		198
Additional paid-in capital	1,281,393		1,219,213
Accumulated other comprehensive loss	(411)		(136)
Accumulated deficit	(916,351)		(820,755)
Total Arrowhead Pharmaceuticals, Inc. stockholders’ equity	364,830		398,520
Noncontrolling interest	17,155		19,819
Total noncontrolling interest and stockholders’ equity	381,985		418,339
Total Liabilities, Noncontrolling Interest and Stockholders’ Equity	$	795,856	$	691,939

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

Arrowhead Pharmaceuticals, Inc.

Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share amounts)

(unaudited)

Three Months ended

Three Months ended

December 31, 2017

December 31, 2016

REVENUE

$
3,509,821

$
4,365,496

OPERATING EXPENSES

Research and development

8,431,903

9,527,051

Salaries and payroll-related costs

3,986,367

4,276,105

General and administrative expenses

1,671,185

1,854,174

Stock-based compensation

2,092,541

2,424,442

Depreciation and amortization

1,141,173

1,185,611

TOTAL OPERATING EXPENSES

17,323,169

19,267,383

OPERATING LOSS

(13,813,348
)

(14,901,887
)
OTHER INCOME (EXPENSE)

Interest income (expense), net

163,731

25,148

Change in value of derivatives

450,739

1,483,831

Other income (expense)

-

1,306,800

TOTAL OTHER INCOME (EXPENSE)

614,470

2,815,779

LOSS BEFORE INCOME TAXES

(13,198,878
)

(12,086,108
)
Provision for income taxes

-

-

NET LOSS

(13,198,878
)

(12,086,108
)
NET LOSS PER SHARE - BASIC & DILUTED

$
(0.18
)

$
(0.17
)
Weighted average shares outstanding - basic and diluted

74,831,415

71,444,600

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

Foreign Currency Translation Adjustments

(9,528
)

(192,608
)
COMPREHENSIVE LOSS

$
(13,208,406
)

$
(12,278,716
)


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
Revenue	$	15,825	$	32,412	$	224,638	$	211,656
Operating expenses:
Research and development	94,757		72,180		253,333		213,930
General and administrative	23,771		33,141		67,977		92,403
Total operating expenses	118,528		105,321		321,310		306,333
Operating loss	(102,703)		(72,909)		(96,672)		(94,677)

Other income (expense):
Interest income	4,172		1,240		11,414		3,450
Interest expense	(5,158)		—		(13,064)		—
Other, net	306		(377)		821		675
Total other (loss) income	(680)		863		(829)		4,125

Loss before income tax expense and noncontrolling interest	(103,383)		(72,046)		(97,501)		(90,552)
Income tax expense	742		—		759		—
Net loss including noncontrolling interest	(104,125)		(72,046)		(98,260)		(90,552)
Net loss attributable to noncontrolling interest, net of tax	(1,179)		—		(2,664)		—
Net loss attributable to Arrowhead Pharmaceuticals, Inc.	$	(102,946)	$	(72,046)	$	(95,596)	$	(90,552)

Net loss per share attributable to Arrowhead Pharmaceuticals, Inc.:
Basic	$	(0.96)	$	(0.68)	$	(0.90)	$	(0.86)
Diluted	$	(0.96)	$	(0.68)	$	(0.90)	$	(0.86)
Weighted-average shares used in calculating
Basic	107,004		105,753		106,597		105,273
Diluted	107,004		105,753		106,597		105,273

Other comprehensive loss, net of tax:
Foreign currency translation adjustments	(79)		(33)		(275)		(71)
Comprehensive loss	$	(104,204)	$	(72,079)	$	(98,535)	$	(90,623)

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

Arrowhead Pharmaceuticals, Inc.

Consolidated ~~Statement~~Statements of Stockholders’ Equity

(in thousands)

(unaudited)

Common Stock

Amount ($)

Additional Paid-In Capital

Accumulated Other Comprehensive Income (loss)

Accumulated Deficit

Non-controlling Interest

Totals

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

-

-

2,092,541

-

-

-

2,092,541

Exercise of warrants

122,450

122

447,891

-

-

-

448,013

Common stock- Restricted Stock Units vesting

10,000

10

(10
)

-

-

-

-

Foreign currency translation adjustments

-

-

-

(9,528
)

-

-

(9,528
)
Net loss for the three months ended December 31, 2017

-

-

-

-

(13,198,878
)

-

(13,198,878
)
Balance at December 31, 2017

74,917,876

$
167,287

$
516,577,723

$
23,704

$
(446,014,216
)

$
(555,188
)

$
70,199,310


	Common Stock	Amount ($)		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Non- controlling Interest		Totals
Balance at September 30, 2022	105,960	$	198	$	1,219,213	$	(136)	$	(820,755)	$	19,819	$	418,339
Stock-based compensation	—	—		19,390		—		—		—		19,390
Exercise of stock options	82	—		576		—		—		—		576
Common stock - restricted stock units vesting	98	1		(1)		—		—		—		—
Foreign currency translation adjustments	—	—		—		(122)		—		—		(122)
Interest in joint venture	—	—		—		—		—		(486)		(486)
Net loss for the three months ended December 31, 2022	—	—		—		—		(41,325)		—		(41,325)
Balance at December 31, 2022	106,140	$	199	$	1,239,178	$	(258)	$	(862,080)	$	19,333	$	396,372
Stock-based compensation	—	—		20,612		—		—		—		20,612
Exercise of stock options	64	—		520		—		—		—		520
Common stock - restricted stock units vesting	665	—		—		—		—		—		—
Foreign currency translation adjustments	—	—		—		(74)		—		—		(74)
Interest in joint venture	—	—		—		—		—		(999)		(999)
Net income for the three months ended March 31, 2023	—	—		—		—		48,675		—		48,675
Balance at March 31, 2023	106,869	$	199	$	1,260,310	$	(332)	$	(813,405)	$	18,334	$	465,106
Stock-based compensation	—	—		19,947		—		—		—		19,947
Exercise of stock options	198	—		1,136		—		—		—		1,136
Common stock - restricted stock units vesting	35	—		—		—		—		—		—
Foreign currency translation adjustments	—	—		—		(79)		—		—		(79)
Interest in joint venture	—	—		—		—		—		(1,179)		(1,179)
Net loss for the three months ended June 30, 2023	—	—		—		—		(102,946)		—		(102,946)
Balance at June 30, 2023	107,102	$	199	$	1,281,393	$	(411)	$	(916,351)	$	17,155	$	381,985


	Common Stock	Amount ($)		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Non- controlling Interest		Totals
Balance at September 30, 2021	104,327	$	197	$	1,053,386	$	(69)	$	(644,692)	$	—	$	408,822
Stock-based compensation	—	—		24,504		—		—		—		24,504
Exercise of stock options	208	—		2,145		—		—		—		2,145
Common stock - restricted stock units vesting	263	—		—		—		—		—		—
Foreign currency translation adjustments	—	—		—		(39)		—		—		(39)
Net loss for the three months ended December 31, 2021	—	—		—		—		(62,872)		—		(62,872)
Balance at December 31, 2021	104,798	$	197	$	1,080,035	$	(108)	$	(707,564)	$	—	$	372,560
Stock-based compensation	—	—		33,802		—		—		—		33,802
Exercise of stock options	237	—		1,537		—		—		—		1,537
Common stock - restricted stock units vesting	667	1		(1)		—		—		—		—
Foreign currency translation adjustments	—	—		—		1		—		—		1
Interest in joint venture	—	—		—		—		—		—		—
Net income for the three months ended March 31, 2022	—	—		—		—		44,366		—		44,366
Balance at March 31, 2022	105,702	$	198	$	1,115,373	$	(107)	$	(663,198)	$	—	$	452,266
Stock-based compensation	—	—		33,391		—		—		—		33,391
Exercise of stock options	53	—		599		—		—		—		599
Common stock - restricted stock units vesting	40	—		—		—		—		—		—
Foreign currency translation adjustments	—	—		—		(33)		—		—		(33)
Interest in joint venture	—	—		39,750		—		—		20,250		60,000
Net loss for the three months ended June 30, 2022	—	—		—		—		(72,046)		—		(72,046)
Balance at June 30, 2022	105,795	$	198	$	1,189,113	$	(140)	$	(735,244)	$	20,250	$	474,177

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

Arrowhead Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Three Months ended

Three Months ended

December 31, 2017

December 31, 2016

CASH FLOWS FROM OPERATING ACTIVITIES:

Net loss

$
(13,198,878
)

$
(12,086,108
)
Change in value of derivatives

(450,739
)

(1,483,831
)
Stock-based compensation

2,092,541

2,424,442

Depreciation and amortization

1,141,173

1,185,611

Amortization/(accretion) of note premiums

107,783

-

Changes in operating assets and liabilities:

Accounts receivable

(82,134
)

15,000

Prepaid expenses and Other Current Assets

(29,223
)

1,027,021

Deferred revenue

(3,394,740
)

25,652,536

Accounts payable

1,630,533

(4,648,013
)
Accrued expenses

(2,550,703
)

(1,850,996
)
Other

43,907

(235,471
)
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

(14,690,480
)

10,000,191

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(135,414
)

(5,296,653
)
Purchases of marketable securities

(5,018,040
)

-

Proceeds from sale of marketable securities

6,510,420

-

NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

1,356,966

(5,296,653
)
CASH FLOWS FROM FINANCING ACTIVITIES:

Principal payments on notes payable

(197,790
)

(47,277
)
Payments of taxes for net share settled restricted stock unit issuances

-

(417,140
)
Proceeds from the exercises of warrants and stock options

224,082

-

Proceeds from the issuance of common stock

-

12,500,000

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

26,292

12,035,583

NET INCREASE (DECREASE) IN CASH

(13,307,222
)

16,739,121

CASH AT BEGINNING OF PERIOD

24,838,567

85,366,448

CASH AT END OF PERIOD

$
11,531,345

$
102,105,569

Supplementary disclosures:

Interest Paid

$
(44,722
)

$
(48,195
)
Property and Equipment expenditures included in accounts payable and accrued
expenses

$
-

$
(1,041,276
)


	Nine Months Ended June 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(98,260)	$	(90,552)
Adjustments to reconcile net loss to net cash flow from operating activities
Stock-based compensation	59,949		91,697
Depreciation and amortization	8,634		7,761
(Accretion) amortization of note premiums/discounts	(1,030)		2,013
Non-cash interest expense on liability related to the sale of future royalties	13,064		—
Unrealized losses on marketable securities	—		5,755
Changes in operating assets and liabilities:
Accounts receivable	164		10,016
Prepaid expenses and other current assets	27,913		(8,867)
Accounts payable	5,001		(3,563)
Accrued expenses	(32,082)		1,713
Deferred revenue	(113,144)		(87,100)
Operating lease liabilities	1,158		3,733
Net cash used in operating activities	(128,633)		(67,394)

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(112,830)		(20,066)
Purchases of investments	(233,984)		(223,391)
Proceeds from maturities of investments	220,150		201,595
Net cash used in investing activities	(126,664)		(41,862)

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercises of stock options	2,232		4,331
Proceeds from the sale of future royalties	250,000		—
Proceeds from investment in joint venture	—		60,000
Proceeds from additional tenant improvement allowance	669		—
Net cash provided by financing activities	252,901		64,331

Net decrease in cash, cash equivalents and restricted cash	(2,396)		(44,925)

Effect of exchange rate on cash, cash equivalents and restricted cash	(275)		(70)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH:
BEGINNING OF PERIOD	108,005		184,434
END OF PERIOD	$	105,334	$	139,439

Supplementary disclosures:
Interest paid	$	—	$	—
Income taxes (paid) refunded	$	—	$	—

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

Arrowhead Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Unless otherwise noted, (1) the term “Arrowhead” refers to Arrowhead Pharmaceuticals, Inc., a Delaware corporation and its Subsidiaries, (2) the terms “Company,” “we,” “us,” and “our,” refer to the ongoing business operations of Arrowhead and its Subsidiaries, whether conducted through Arrowhead or a subsidiary of Arrowhead, (3) the term “Subsidiaries” refers collectively to Arrowhead Madison Inc. (“Arrowhead Madison”), 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.

NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

~~Nature of Business~~

General and Recent Developments

Arrowhead Pharmaceuticals, Inc. ~~develops~~and its subsidiaries (referred to herein collectively as the “Company”) are primarily engaged in developing medicines that treat intractable diseases by silencing the genes that cause them. Using a broad portfolio of RNA chemistries and efficient modes of delivery, ~~Arrowhead~~the Company’s 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’sThe Company’s RNAi-based therapeutics may leverage this natural pathway of gene ~~silencing.~~ silencing to target and shut down specific disease-causing genes.

The ~~company's~~following table presents the Company’s current pipeline:


Therapeutic Area	Name	Stage	Product Rights
Cardiometabolic	ARO-APOC3	Phase 2b and Phase 3	Arrowhead
	ARO-ANG3	Phase 2b	Arrowhead
	Olpasiran	Phase 3	Amgen
Pulmonary	ARO-ENAC2	Pre-Clinical	Arrowhead
	ARO-RAGE	Phase 1/2	Arrowhead
	ARO-MUC5AC	Phase 1/2a	Arrowhead
	ARO-MMP7	Phase 1/2a	Arrowhead
Liver	GSK-4532990 (formerly ARO-HSD)	Phase 2	GSK
	Fazirsiran	Phase 3	Takeda and Arrowhead
	JNJ-3989	Phase 2	Janssen
	HZN-457 (formerly ARO-XDH)	Phase 1	Horizon
	ARO-C3	Phase 1/2	Arrowhead
	ARO-PNPLA3 (formerly JNJ-75220795)	Phase 1	Arrowhead
Muscle	ARO-DUX4	Pre-Clinical	Arrowhead
Central Nervous System (CNS)	ARO-SOD1	Pre-Clinical	Arrowhead

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

During the first three quarters of fiscal 2023, the Company continued to develop and advance its pipeline ~~includes ARO-HBV for chronic hepatitis B virus, ARO-AAT for~~and partnered candidates. Several key recent developments include:

•hosted a Research & Development (R&D) Day on June 1, 2023 to discuss progress of the Company's pipeline of RNAi Therapeutics, at which the following updates were discussed:

◦ARO-RAGE showed continued dose response with single inhaled dose of 184 mg achieving mean knockdown of 90% and max of 95%;

◦adipose delivery platform achieved single dose target gene silencing of greater than 90% with six months of duration in non-human primates;

◦improved hepatic dimer platform achieved equivalent or better knockdown of two target genes with longer duration than monomer mixture in non-human primates;

◦TRiM™ platform now has potential to address multiple cell types including liver, ~~disease associated~~solid tumors, lung, central nervous system, skeletal muscle, and adipose;

◦announced progress towards the Company's "20 in 25" goal to grow its pipeline of RNAi therapeutics that leverage the proprietary Targeted RNAi Molecule (TRiM™) platform to a total of

20 clinical stage or marketed products in the year 2025;

•presented updated data from the Phase 2 SEQUOIA study of investigational RNAi therapy Fazirsiran in patients with alpha-1 antitrypsin deficiency ~~(AATD),~~liver disease which included:

◦Fazirsiran reduced serum Z-AAT concentration in a dose-dependent manner;

◦Fazirsiran significantly reduced liver Z-AAT;

◦Fazirsiran consistently reduced hepatic globule burden;

◦Fazirsiran treatment reduced histological signs of hepatic inflammation;

◦50% of the pooled Fazirsiran treated patients showed at least a one-point improvement in METAVIR liver fibrosis versus 38% in the placebo group;

◦Fazirsiran has been well tolerated to date;

◦pulmonary function test results (FEV1 and DLCO) for both Fazirsiran and placebo were stable over time with no apparent dose-dependent effects;

◦updated Phase 2 clinical data were presented at the European Association for the Study of the Liver (EASL) Congress 2023 in an oral presentation titled, “Fazirsiran reduces liver Z-alpha-1 antitrypsin synthesis, decreases globule burden and improves histological measures of liver disease in adults with alpha-1 antitrypsin deficiency: a randomized placebo-controlled phase 2 study”;

•presented interim data from the ongoing Phase 2 GATEWAY clinical study of ARO-ANG3 which included:

◦mean reduction in LDL-C of 48.1% (200mg) and 44.0% (300mg);

◦ANPTL3 inhibition with ARO-ANG3 also reduced HDL-C, non-HDL-C, and triglycerides, consistent with published human genetic data;

◦safety and tolerability;

•completed enrollment of the Phase 3 PALISADE clinical trial evaluating ARO-APOC3 for treatment of familial chylomicronemia syndrome;

•announced interim results from ARO-RAGE administration in Part 1 of the ongoing Phase 1/2 study in normal healthy volunteers which included:

◦reductions in soluble RAGE (sRAGE) as measured in serum after two doses on Day 1 and ~~ARO-ANG3~~Day 29;

◦duration of pharmacologic effect persisted for ~~hypertriglyceridemia, ARO-Lung1~~at least 6 weeks after the second administration of the 92 mg does with further follow up ongoing;

◦reduction in sRAGE as measured in bronchoalveolar lavage fluid (BALF) at Day 31 after a single dose;

◦reduction in in serum sRAGE was observed after a single dose;

◦the pooled placebo groups experienced a mean sRAGE increase of 8% in BALF and a mean decrease of 1% serum;

◦safety and tolerability;

•expanded TRiMTM platform to include an optimized intrathecal administration for ~~an undisclosed pulmonary target, ARO-HIF2~~CNS delivery with distribution throughout the brain and in all relevant brain cell types. The first development candidate to utilize this new delivery platform is ARO-SOD1. In June 2023, the Company filed a clinical trial application (CTA) for ~~renal cell carcinoma, ARO-F12 for hereditary angioedema~~approval to initiate a Phase 1 clinical study. In preclinical studies, ARO-SOD1 achieved 95% spinal cord tissue mRNA knockdown after a single intrathecal dose in human SOD1 transgenic rats and ~~thromboembolic disorders, and ARO-AMG1 for an undisclosed genetically validated cardiovascular target under~~maintained greater than 80% spinal cord tissue mRNA knockdown three months after a ~~license and collaboration agreement with Amgen, Inc., a Delaware corporation (“Amgen”). ARO-LPA (AMG 890) for cardiovascular disease was out-licensed to Amgen~~single intrathecal dose in ~~2016.~~

~~With regard to key recent developments, during~~non-human primates;

•dosed the first patient in Takeda’s Phase 3 REDWOOD clinical study of Fazirsiran for the treatment of alpha-1 antitrypsin deficiency associated liver diseases, triggering a $40.0 million milestone payment to the Company which was paid in the third quarter of fiscal ~~2018,~~2023;

•dosed the first patient in GSK’s Phase 2b trial of GSK4532990, formerly called ARO-HSD, an investigational RNAi therapeutic for the treatment of patients with non-alcoholic steatohepatitis (NASH), triggering a $30.0 million milestone payment to the Company ~~filed Clinical Trial Applications (CTAs)~~which was paid in the third quarter of fiscal 2023;

•announced that the U.S. Food and Drug Administration (FDA) has granted Fast Track designation to ARO-APOC3 for ~~ARO-AAT~~reducing triglycerides in adult patients with familial chylomicronemia syndrome (FCS). ARO-APOC3 was previously granted Orphan Drug designation by the FDA and ~~ARO-HBV to begin a phase~~the European Union;

•announced interim results from Part 1 ~~clinical study and a phase 1 /~~ of AROC3-1001, an ongoing Phase 1/2 clinical study ~~for each program, respectively. Additionally, on January 22, 2018,~~of ARO-C3, which included:

◦a dose-dependent reduction in serum C3, with 88% mean reduction at highest dose tested;

◦a dose-dependent reduction in AH50, a marker of alternative complement pathway hemolytic activity, with 91% mean reduction at highest dose tested;

◦duration of pharmacologic effect supportive of quarterly or less frequent subcutaneous dose administration;

◦safety and tolerability;

•received notice from Janssen of its decision to voluntarily terminate the Research Collaboration and Option Agreement (the “Janssen Collaboration Agreement”) between the Company ~~sold 11,500,000 shares~~and Janssen. The Company regained full rights to ARO-PNPLA3, formerly called JNJ-75220795, upon termination of ~~Common Stock~~the Janssen Collaboration Agreement, which took effect on April 7, 2023. ARO-PNPLA3 is in Phase 1 clinical trials that are now being developed by the Company;

•initiated dosing in ARO-MMP7-1001 (NCT05537025), a Phase 1/2a single ascending dose and multiple ascending dose clinical study to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamics of ARO-MMP7, an investigational RNAi therapeutic designed to reduce expression of matrix metalloproteinase 7 (MMP7) as a potential treatment for idiopathic pulmonary fibrosis (IPF), in up to 56 healthy volunteers and in up to 21 patients with IPF;

•enrolled the first subject in a ~~fully underwritten public offering, at~~Phase 1 randomized, placebo-controlled trial to assess the safety tolerability, pharmacokinetics and pharmacodynamics of a ~~public offering price of $5.25 per share. Net proceeds~~development-stage medicine, HZN-457 (previously known as ARO-XDH), which is out-licensed to Horizon, triggering a $15.0 million milestone payment to the Company which was paid in the second quarter of fiscal 2023;

•enrolled the first subject in Amgen’s Phase 3 trial of Olpasiran, triggering a $25.0 million milestone payment to the Company which was paid in the second quarter of fiscal 2023;

•entered into a Royalty Purchase Agreement (the “Royalty Pharma Agreement”) with Royalty Pharma Investments 2019 ICAV (“Royalty Pharma”) on November 9, 2022, pursuant to which Royalty Pharma paid $250.0 million upfront (See Note 11 — Liability Related to the Sale of Future Royalties of Notes to Consolidated Financial Statements of Part I, “Item 1. Financial Statements.”);

•announced top line results from the SEQUOIA Phase 2 Study of Fazirsiran in patients with Alpha-1 Antitrypsin Deficiency-Associated Liver Disease in which:

◦fibrosis regression was observed in 50% of patients receiving Fazirsiran;

◦median reductions of 94% of Z-AAT accumulation in the liver and mean reductions of 68% in histologic globule burden were ~~approximately $56.7 million after deducting underwriting commissions~~observed;

◦treatment emergent adverse events were generally well balanced between Fazirsiran and ~~discounts~~placebo groups;

◦results were consistent with AROAAT-2002 open-label study previously published in The New England Journal of Medicine.

Consolidation and ~~other offering expenses payable~~Basis of Presentation

The interim Consolidated Financial Statements include the accounts of Arrowhead Pharmaceuticals, Inc. and its subsidiaries (wholly-owned subsidiaries and a variable interest entity for which the Company is the primary beneficiary). Subsidiaries refer to Arrowhead Madison, Inc., Visirna Therapeutics, Inc. (“Visirna”), and Arrowhead Australia Pty Ltd. For subsidiaries in which the Company owns or is exposed to less than 100% of the economics, the Company records net loss attributable to noncontrolling interests in its consolidated statements of operations equal to the percentage of the economic or ownership interests retained in such entity by the ~~Company.~~

~~Liquidity~~

respective noncontrolling party.

The interim Consolidated Financial Statements have been prepared in conformity with ~~the~~U.S. generally accepted accounting principles ~~generally accepted in the United States of America, which contemplate the continuation~~(“GAAP”). The financial data of the Company asincluded herein are unaudited. In the opinion of management, all material adjustments of a ~~going concern. Historically,~~normal recurring nature have been made to present fairly the Company’s

financial position at June 30, 2023 and the results of operations and cash flows for the periods presented. All intercompany transactions and balances have been eliminated. Certain prior period amounts have been reclassified to conform with the current period presentation.

Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted from the accompanying interim consolidated financial statements and related notes. Readers are urged to review the Company’s Annual Report on Form 10-K for the year ended September 30, 2022 for more complete descriptions and discussions. Operating results and cash flows for the nine months ended June 30, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2023.

Liquidity

The Company’s primary ~~source~~sources of financing ~~has~~have been through the sale of its ~~securities.~~securities, revenue from its licensing and collaboration agreements and the sale of certain future royalties. Research and development activities have required significant capital investment since the Company’s ~~inception. 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 the Company plans to increase its internal manufacturing capabilities.

At ~~December 31, 2017,~~June 30, 2023, the Company had ~~$11.5~~$105.3 million in cash and ~~$39.2~~cash equivalents (including $7.3 million in restricted cash), $346.4 million in short-term investments and $42.8 million in long-term investments to fund operations. During the ~~three~~nine months ended ~~December 31, 2017,~~June 30, 2023, the Company’s cash and cash equivalents and investments balance ~~decreased~~increased by $~~14.9~~$12.2 million which was primarily ~~the result of cash outflows of $14.7 million related to operating activities.~~

~~On January 22, 2018, the Company sold 11,500,000 shares of Common Stock in a fully underwritten public offering, at a public offering price of $5.25 per share. Net proceeds~~due to the ~~Company were approximately $56.7~~$250.0 million ~~after deducting underwriting commissions~~upfront payment received from Royalty Pharma (Note 11) and ~~discounts~~$110.0 million in milestone payments from the Company’s collaboration and ~~other offering expenses payable~~license agreements, partially offset by ~~the Company. The Company believes its current financial resources are sufficient~~cash used to fund its ~~operations through at least~~operations.

In total, the ~~next twelve months.~~

Company is eligible to receive up to $3.4 billion in developmental, regulatory and sales milestones, and may receive various royalties on net sales from its licensing and collaboration agreements, subject to the terms and conditions of those agreements. The revenue recognition for these collaboration agreements is discussed further in Note 2.

Summary of Significant Accounting Policies

~~Principles of Consolidation—The consolidated financial statements include~~

There have been no changes to the ~~accounts of Arrowhead and its Subsidiaries. Arrowhead’s primary operating subsidiary is Arrowhead Madison, which is located~~significant accounting policies disclosed 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 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. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. 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. These condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and the notes thereto contained in ourmost recent Annual Report on Form 10-K for the fiscal year ended September 30, ~~2017.~~

~~Cash~~2022.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements that have significantly impacted this Quarterly Report on Form 10-Q, beyond those disclosed in the Company’s most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2022.

NOTE 2. COLLABORATION AND LICENSE AGREEMENTS

The following table provides a summary of revenue recognized:


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)
GSK	$	277	$	—	$	29,600	$	120,000
Horizon	1,539		6,666		23,206		21,251
Takeda	14,009		25,507		146,477		67,100
Janssen	—		239		355		3,305
Amgen	—		—		25,000		—
Total	$	15,825	$	32,412	$	224,638	$	211,656

The following table summarizes the balance of receivables and ~~Cash Equivalents—~~contract liabilities related to the Company’s

collaboration and license agreements:


	June 30, 2023		September 30, 2022
	(in thousands)
Receivables included in accounts receivable	$	1,539	$	6,174
Contract liabilities included in deferred revenue	$	16,905	$	130,049

Glaxosmithkline Intellectual Property (No. 3) Limited (“GSK”)

On November 22, 2021, GSK and the Company entered into an Exclusive License Agreement (the “GSK License Agreement”). Under the GSK License Agreement, GSK has received an exclusive license for GSK-4532990 (formerly ARO-HSD). The exclusive license is worldwide with the exception of greater China. The Company ~~considers~~completed its Phase 1/2 study of GSK-4532990, and GSK is wholly responsible for all ~~liquid debt instruments purchased with~~clinical development and commercialization of GSK-4532990 in its territory. Under the terms of the agreement, the Company has received an upfront payment of $120.0 million and recognized an additional $30.0 million at the start of a ~~maturity of three months or less to be cash equivalents.~~Phase 2 trial. The Company ~~had no restricted cash~~is also eligible for an additional payment of $100.0 million upon achieving a successful Phase 2 trial readout and the first patient dosed in a Phase 3 trial. Furthermore, should the Phase 3 trial read out positively, and the potential new medicine receives regulatory approval in major markets, the deal provides for commercial milestone payments to the Company of up to $190.0 million at ~~December 31, 2017~~first commercial sale, and ~~September 30, 2017.~~

~~Concentration of Credit Risk—~~up to $590.0 million in sales-related milestone payments. The Company ~~maintains several bank accounts at two financial institutions for its operations. These accounts are insured by~~is further eligible to receive tiered royalties on net product sales in a range of mid-teens to twenty percent.

At the ~~Federal Deposit Insurance Corporation (FDIC) for up to $250,000 per institution. Management believes~~inception of the GSK License Agreement, the Company ~~is not exposed~~identified one distinct performance obligation. The Company determined that the key deliverables included the license and certain R&D services, including the Company’s responsibility to ~~significant credit risk due~~complete the Phase 1/2 study (the “GSK R&D Services”). Due to the ~~financial position~~specialized and unique nature of the ~~depository institutions in~~GSK R&D Services and their direct relationship with the license, the Company determined that these deliverables represented one distinct bundle and, thus, one performance obligation. Beyond the GSK R&D Services, which ~~these deposits~~ are ~~held.~~

Investments—The Company may invest excess cash balances in short-term and long-term marketable debt securities. Investments may consist of certificates of deposits, 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 FASB ASC 320, Investments – Debt and Equity Securities. This statement requires certain 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 and equity 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 and equity 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 shareholders’ equity.

~~The Company classifies its investments in marketable debt securities based on the facts and circumstances present at the time of purchase~~responsibility of the ~~securities. During the three months ended December 31, 2017~~Company, GSK will be responsible for managing future clinical development and ~~2016, all of the Company’s investments 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 declinecommercialization in ~~fair value is determined to be other-than-temporary.~~

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.

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.

its territory.

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 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~~initial transaction price totaled $120.0 million, including the upfront payment, which was collected in January 2022. The Company has excluded any future estimated milestones or royalties from this transaction price to date. The Company has allocated the total $120.0 million initial transaction price to its one distinct performance obligation for the GSK-4532990 license and the associated GSK R&D Services. As the Company has completed its performance obligation related to this agreement, the upfront payment of $120.0 million was fully recognized during the six months ended March 31, 2022. Further, GSK dosed the first patient in a Phase 2 trial in March 2023, triggering a $30.0 million milestone payment to the Company which was paid in the third quarter of fiscal 2023. There were no contract assets and liabilities recorded as of June 30, 2023.

Horizon Therapeutics Ireland DAC (“Horizon”)

On June 18, 2021, Horizon and the Company entered into a collaboration and license agreement (the “Horizon License Agreement”). Under the terms of the Horizon License Agreement, Horizon received a worldwide exclusive license for HZN-457, a clinical-stage medicine being developed by Horizon as a potential treatment for people with uncontrolled gout. The Company conducted all activities through the preclinical stages of development of, and Horizon is now wholly responsible for clinical development and commercialization of, HZN-457. The Company received $40.0 million as an upfront payment in July 2021 and an additional $15.0 million upon Horizon’s initiation of a Phase 1 clinical trial in January 2023, and is eligible to receive up to $645.0 million in additional 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.

At the inception of the Horizon License Agreement, the Company identified one distinct performance obligation. The Company determined that the key deliverables included the license and certain R&D services, including the Company’s responsibilities to conduct all activities through the preclinical stages of development of HZN-457 (the “Horizon R&D Services”). 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 is responsible for managing future clinical development and commercialization of HZN-457.

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 allocated the total $40.0 million initial transaction price to its ~~contingent consideration~~one distinct performance obligation for the HZN-457 license and the associated Horizon R&D Services. Revenue was recognized on a straight-line basis over the timeframe for

completing the Horizon R&D Services. The Company determined that the straight-line basis was appropriate as its efforts were expended evenly over the course of completing its performance obligation. Further, Horizon enrolled the first subject in December 2022 in a Phase 1 randomized, placebo-controlled trial to assess the safety, tolerability, pharmacokinetics and pharmacodynamics of HZN-457, triggering a $15.0 million milestone payment to the Company which was paid in the second quarter of fiscal 2023. There was $1.5 million in contract assets recorded as accounts receivable and $0 contract liabilities as of June 30, 2023.

Takeda Pharmaceutical Company Limited (“Takeda”)

On October 7, 2020, Takeda and the Company entered into an Exclusive License and Co-Funding Agreement (the “Takeda License Agreement”). Under the Takeda License Agreement, Takeda and the Company will co-develop its Fazirsiran 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, Fazirsiran, 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 received an exclusive license to commercialize Fazirsiran, while the Company will be eligible to receive tiered royalties of 20% to 25% on net sales. The Company received $300.0 million as an upfront payment in January 2021, recognized an additional $40.0 million upon Takeda’s initiation of a Phase 3 clinical study in March 2023, and is eligible to receive potential development, regulatory and commercial milestones of up to $527.5 million.

At the inception of the Takeda License Agreement, the Company identified one distinct performance obligation. The Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibilities to complete the initial portion of the SEQUOIA study, to complete the ongoing Phase 2 AROAAT2002 study and to ensure certain manufacturing of Fazirsiran drug product is completed and delivered to Takeda (the “Takeda R&D Services”). Due to the specialized and unique nature of these Takeda R&D Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation. Beyond the Takeda R&D Services, which are the responsibility of the Company, Takeda will be responsible for managing future clinical development and commercialization outside the United States. Within the United States, the Company will also participate in co-development and co-commercialization efforts and will co-fund these efforts with Takeda as part of the 50/50 profit sharing structure within the United States. The Company considers the collaborative activities, including the co-development and co-commercialization, to be ~~$0 at December 31, 2017~~a separate unit of account within Topic 808, and ~~September 30, 2017.~~

~~Revenue Recognition— Revenue from product sales is~~as such, these co-funding amounts are recorded ~~when persuasive evidence of an arrangement exists, title has passed and delivery has occurred, a price is fixed and determinable, and collection is reasonably assured.~~

~~The Company may generate revenue from technology licenses, collaborative~~as research and development ~~arrangements, research grants~~expenses or general and product sales. Revenue under technology licenses and collaborative agreements typically consists of nonrefundable and/or guaranteed technology license fees, collaborative research funding, manufacturing and development services and various milestone and future product royalty or profit-sharing payments. These agreements are generally referred toadministrative expenses, as ~~multiple element arrangements.~~

appropriate.

The Company ~~applies~~has allocated the ~~accounting standard on revenue recognition for multiple element arrangements. The fair value of deliverables under the arrangement may be derived using a best estimate of selling~~total $300.0 million initial transaction price ~~if vendor specific objective evidence and third-party evidence is not available. Deliverables under the arrangement will be separate units of accounting if a delivered item has value~~ to ~~the customer on a standalone basis, if the arrangement includes a general right of return~~its one distinct performance obligation for the ~~delivered item, and if delivery or performance of the undelivered item is considered probable and substantially in the Company’s control.~~

The Company recognizes upfront license payments as revenue upon delivery of the license only if the license has standalone value from any undelivered performance obligations and that value can be determined. The undelivered performance obligations typically include manufacturing or development services or research and/or steering committee services. If the fair value of the undelivered performance obligations can be determined, then these obligations would be accounted for separately. If the license is not considered to have standalone value, then theFazirsiran license and ~~other undelivered performance obligations would be accounted for as a single unit of accounting. In this case,~~ the license payments and payments for performance obligations are recognized as revenue over the estimated period of when the performance obligations are performed or deferred indefinitely until the undelivered performance obligation is determined.

Whenever the Company determines that an arrangement should be accounted for as a single unit of accounting, the Company determines the period over which the performance obligations will be performed and revenue will be recognized.associated Takeda R&D Services. Revenue is recognized using a proportional performance ~~or straight-line method.~~method (based on actual patient visits completed versus total estimated visits completed for the ongoing SEQUOIA and AROAAT2002 clinical studies). The ~~proportional performance method is used when~~Company previously expected these clinical trials to extend to September 2025 in order to demonstrate long term safety and efficacy in the level of effort required to complete performance obligations under an arrangement can be reasonably estimated. The amount of revenue recognized under the proportional performance method is determined by multiplying the total payments under the contract, excluding royalties and payments contingent upon achievement of milestones, by the ratioopen label extension (OLE) part of the ~~level~~studies; however, Takeda now intends to initiate a new OLE study available to patients participating in these Phase 2 studies that will initiate as early as the fourth quarter of ~~effort performed to date to~~fiscal 2023. Based on this new information, patients enrolled in the estimated total level of effort required to complete performance obligations under the arrangement. If the Company cannot reasonably estimate the level of effort to complete performance obligations under an arrangement, the Company recognizes revenue under the arrangement on a straight-line basis over the period the Company isSEQUOIA and AROAAT2002 studies are expected to complete ~~its~~their Phase 2 study visits between June 2023 and June 2024, shortening the Company’s performance ~~obligations. Significant management judgment is required in determining~~obligation. As a result, effective the ~~level~~second quarter of ~~effort required under an arrangement and the period over which~~fiscal 2023, the Company ~~is expected to complete~~changed its ~~performance obligations under an arrangement.~~

milestone is achieved. If the milestone is achieved during the performance period, the Company will only recognize revenue to the extent of the proportional performance achieved at that date, or the proportion of the straight-line basis achieved at that date, and the remainder will becontract liabilities recorded as deferred revenue, ~~to be amortized over~~of which $16.9 million was classified as current as of June 30, 2023.

In March 2023, Takeda dosed the ~~remaining performance period. If~~first patient in the Phase 3 REDWOOD clinical study of Fazirsiran, triggering a $40.0 million milestone ~~is achieved after the performance period has completed and all performance obligations have been delivered,~~payment to the Company ~~will recognize the milestone payment as revenue in its entirety~~which was paid in the ~~period the milestone was achieved.~~

Deferred revenue will be classified as part of Current or Long-Term Liabilities in the accompanying Consolidated Balance Sheets based on the Company’s estimate of the portion of the performance obligations regarding that revenue will be completed within the next 12 months divided by the total performance period estimate. 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.

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 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.

Earnings (Loss) per Share—Basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings (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 and warrants to purchase Common Stock of the Company. All outstanding stock options, restricted stock units and warrants for the three months ended December 31, 2017 and 2016 have been excluded from the calculation of Diluted earnings (loss) per share 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.

Derivative Assets and Liabilities – The Company accounts for warrants and other derivative financial instruments as either equity or assets/liabilities based upon the characteristics and provisions of each instrument. Warrants classified as equity are recorded as Additional Paid-In Capital on the Company’s Consolidated Balance Sheet. Some of the Company’s warrants were determined to be ineligible for equity classification due to provisions that may result in an adjustment to their exercise price. Warrants classified as derivative liabilities and other derivative financial instruments that require separate accounting as assets or liabilities are recorded on the Company’s Consolidated Balance Sheet at their fair value on the date of issuance and are revalued on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods recorded as Other Income or Expense. The Company estimates the fair value of these assets/liabilities using option pricing models that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for expected volatility, expected life and risk-free interest rate.

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.

~~Recent Accounting Pronouncements~~

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 will become effective for the Company in the first quarter of 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. The Company is evaluating the potential effects of the adoption of this update on its financial statements.

In March 2016, the FASB issued ASU No. 2016-02, Leases. Under ASU 2016-02, lessees will be required to recognize a right-of-use asset and a lease liability for virtually all of their leases (other than leases that meet the definition of a short-term 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 effective for the Company in the firstthird quarter of fiscal ~~2020.~~2023. The Company ~~expects~~also recorded $1.4 million as accrued expenses as of June 30, 2023 that was primarily driven by co-development and co-commercialization activities.

Janssen Pharmaceuticals, Inc. (“Janssen”)

On October 3, 2018, Janssen, part of the ~~adoption~~Janssen Pharmaceutical Companies of ~~this update to have a material effect on the classification~~Johnson & Johnson, and ~~disclosure of its leased facilities in Madison, Wisconsin.~~

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 becomes effective for the Company in the first quarter of fiscal 2019. The Company does not expect that ASU 2017-09 will have a material impact on the Company's results of operations and consolidated financial statements.

~~NOTE 2.~~ ~~COLLABORATION AND LICENSE AGREEMENTS – AMGEN, INC.~~

~~On September 28, 2016,~~ the Company entered into ~~two~~a License Agreement (the “Janssen License Agreement”) and the Janssen Collaboration ~~and License agreements, and~~Agreement. The Company also entered into a ~~Common~~stock purchase agreement with JJDC, Inc. (“JJDC”), Johnson & Johnson’s venture capital arm (the “JJDC Stock Purchase Agreement”).

Under the Janssen License Agreement, ~~with Amgen Inc., a Delaware corporation (“Amgen”). Under one of the license agreements (the “Second Collaboration and License Agreement” or “ARO-LPA (AMG-890) Agreement”), Amgen has~~Janssen received a worldwide, exclusive license to ~~Arrowhead’s~~the Company’s JNJ-3989 (ARO-HBV) program, the Company’s third-generation subcutaneously administered RNAi therapeutic candidate being

developed as a potential therapy for patients with chronic hepatitis B virus infection. Beyond the Company’s Phase 1/2 study of JNJ-3989 (ARO-HBV), which the Company was responsible for completing, Janssen is wholly responsible for clinical development and commercialization of JNJ-3989 (ARO-HBV). Under the terms of the Janssen License Agreement, the Company has received $175.0 million as an upfront payment, $75.0 million in the form of an equity investment by JJDC in the Company’s common stock under the JJDC Stock Purchase Agreement, and milestone and option payments totaling $73.0 million, and the Company may receive up to $0.8 billion in development and sales milestone payments for the Janssen License Agreement. The Company is further eligible to receive tiered royalties on product sales up to mid-teens under the Janssen License Agreement.

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. This $10.0 million milestone payment was recognized entirely as of September 30, 2021. The Company conducted its discovery, optimization and preclinical research and development of JNJ-75220795 (ARO-JNJ1), ARO-JNJ2, and ARO-JNJ3 under the Janssen Collaboration Agreement. All costs and labor hours spent by the Company have been entirely funded by Janssen. On April 7, 2023, Janssen voluntarily terminated the Janssen Collaboration Agreement. Upon termination, the Company regained full rights to ARO-PNPLA3, formerly called JNJ-75220795, the only candidate for which Janssen had exercised its option.

At the inception of the Janssen License Agreement, the Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibility to complete the Phase 1/2 study of JNJ-3989 (ARO-HBV) and the Company’s responsibility to ensure certain manufacturing of JNJ-3989 (ARO-HBV) drug product is completed and delivered to Janssen (the “Janssen R&D Services”). Due to the specialized and unique nature of these Janssen R&D Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation.

The Company determined the transaction price totaled approximately $252.7 million, which includes the upfront payment, the premium paid by JJDC for its equity investment in the Company, two $25.0 million milestone payments related to JNJ-3989 (ARO-HBV), and estimated payments for reimbursable Janssen R&D Services to be performed. The Company has allocated the total $252.7 million initial transaction price to its one distinct performance obligation for the JNJ-3989 (ARO-HBV) license and the associated Janssen R&D Services. The Company recognized this transaction price in its entirety as of September 30, 2021, as its performance obligations were substantially completed. Future milestones and royalties achieved will be recognized in their entirety when earned. There were no contract assets and liabilities recorded as of June 30, 2023.

Amgen Inc. (“Amgen”)

On September 28, 2016, Amgen and the Company entered into two collaboration and license agreements and a common stock purchase agreement. Under the Second Collaboration and License Agreement (the “Olpasiran Agreement”), Amgen received a worldwide, exclusive license to the Company’s novel RNAi ~~ARO-LPA~~Olpasiran 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~~first 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~~to ARO-AMG1, an RNAi therapy for an undisclosed genetically validated cardiovascular target. InUnder both agreements, Amgen is wholly responsible for clinical development and commercialization.

Under the ~~Common Stock Purchase~~Olpasiran Agreement and the ARO-AMG1 Agreement, the Company has sold 3,002,793 shares of Common Stock to Amgen at a price of $7.16 per share, which represents the 30-day volume-weighted average price of the Common Stock on the NASDAQ stock market over the 30 trading days preceding the Effective Date, as defined in the ARO-AMG1 Agreement. Subject to Amgen’s exercise of the Option, as defined in the ARO-AMG1 Agreement, Amgen has agreed to purchase, and the Company has agreed to sell, an additional $5 million worth of shares of Common Stock based on a 30 trading day formula surrounding the date of the Option exercise.

~~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,~~common stock. Further, the Company received additional an $55.0 million in milestone payments; $10.0 million upon Amgen’s initiation of Phase 1 study in September 2018,$20.0 million upon its initiation of a Phase 2 clinical study in July 2020, and ~~could~~$25.0 million upon its first subject enrollment in a Phase 3 trial in December 2022. The Company has substantially completed its performance obligations under the Olpasiran Agreement and the ARO-AMG1 Agreement. There were no contract assets and liabilities recorded as of June 30, 2023.

In November 2022, Royalty Pharma and the Company entered into the Royalty Pharma Agreement. In consideration for the payments under the Royalty Pharma Agreement, Royalty Pharma is entitled to receive all royalties otherwise payable by Amgen to the Company under the Olpasiran Agreement. The Company remains eligible to receive up to ~~$617~~an additional $535.0 million in ~~option payments, and~~remaining development, regulatory and sales milestone ~~payments. The~~payments payable from Amgen and Royalty Pharma. See Note 11.

Joint Venture and License Agreement with Visirna Therapeutics, Inc. (“Visirna”)

On April 25, 2022, Visirna and the Company entered into a License Agreement (the “Visirna License Agreement”), pursuant to which Visirna received an exclusive license to develop, manufacture and commercialize four of the Company’s

RNAi-based investigational cardiometabolic medicines in Greater China (including the People’s Republic of China, Hong Kong, Macau and Taiwan). Pursuant to a Share Purchase Agreement (the “Visirna SPA”) entered into simultaneously with the Visirna License Agreement, the Company acquired a majority stake in Visirna as partial consideration for the Visirna License Agreement. Under the Visirna SPA, entities affiliated with Vivo Capital also acquired a minority stake in Visirna in exchange for $60.0 million in upfront capital to support the operations of Visirna. As further consideration under the Visirna License Agreement, the Company is ~~further~~also eligible to receive ~~single-digit~~potential royalties ~~for sales of products under~~on commercial sales.

During the ~~ARO-AMG1 Agreement and up to low double-digit royalties for sales of products under the ARO-LPA (AMG-890) Agreement.~~

~~Under the terms of the ARO-AMG1 Agreement,~~nine months ended June 30, 2023, the Company ~~has granted an option~~performed manufacturing and development work pursuant to a ~~worldwide, exclusive license to ARO-AMG1, an undisclosed genetically validated cardiovascular target. The collaboration~~Clinical Supply Agreement between the Company and Amgen is governed by a joint steering committee comprised of an equal number of representatives from each party. The Company is also responsible for developing, optimizing and manufacturing the candidate through certain preclinical efficacy and toxicology studies to determine whether the candidate the Company has developed meets the required criteria as defined in the agreement (the “Arrowhead Deliverable”). If this is achieved, Amgen will then have the option to an exclusive license for the intellectual property generated through the Company’s development efforts, and will likely assume all development, regulatory and commercialization efforts for the

candidate upon the option exercise. The Company has determined that the significant deliverables under the ARO-AMG1 Agreement include the license, the joint research committee and the development and manufacturing activities toward achieving the Arrowhead Deliverable. The Company also determined that, pursuant to the accounting guidance governing revenue recognition on multiple element arrangements, the license and collective undelivered activities and services do not have standalone value due to the specialized nature of the activities and services to be providedparties contemplated by the Company. Therefore, the deliverables are not separable and, accordingly, the license and undelivered services are being treated as a single unit of accounting. The Company will recognize revenue on a straight-line basis from October 1, 2016, through September 30, 2018. The due date for achieving the Arrowhead Deliverable is September 28, 2018.Visirna License Agreement. The Company received ~~the upfront payment of $5~~$0.9 million ~~due under~~as consideration for this ~~agreement in September 2016. The initial $5 million payment was~~manufacturing and development work, and there were no contract assets and liabilities recorded as ~~Deferred Revenue, and $0.6 million~~ of ~~this was amortized into Revenue during the three months ended December 31, 2017. Of the initial $5 million payment, approximately $1.9 million remained as Deferred Revenue as of December 31, 2017.~~

Under the terms of the ARO-LPA (AMG-890) Agreement, the Company has granted a worldwide, exclusive license to ARO-LPA (AMG-890). The collaboration between the Company and Amgen is governed by a joint research committee comprised of an equal number of representatives from each party, however Amgen has the final decision making authority regarding ARO-LPA (AMG-890) in this committee. The Company is also responsible for assisting Amgen in the oversight of certain development and manufacturing activities, most of which are to be covered at Amgen’s cost. The Company has determined that the significant deliverables under the ARO-LPA (AMG-890) Agreement include the license and the oversight of certain of the development and manufacturing activities. The Company also determined that, pursuant to the accounting guidance governing revenue recognition on multiple element arrangements, the license and collective undelivered activities and services do not have standalone value due to the specialized nature of the activities and services to be provided by the Company. Therefore, the deliverables are not separable and, accordingly, the license and undelivered services are being treated as a single unit of accounting. The Company recognized revenue on a straight-line basis from November 18, 2016 (the Hart-Scott-Rodino clearance date), through October 31, 2017, which was the date where the significant development and manufacturing related deliverables were completed. The Company received the upfront payment of $30 million due under the ARO-LPA (AMG-890) Agreement in November 2016. The initial $30 million payment was recorded as Deferred Revenue, and $2.7 million of this was amortized into Revenue during the three months ended December 31, 2017. The initial $30 million payment has been fully recognized, and no balance remains in Deferred Revenue as of December 31, 2017.

The Company also entered into a separate services agreement and separate statements of work with Amgen to provide certain services related to process development, manufacturing, materials supply, discovery studies, and other consulting services related to ARO-LPA (AMG 890) and ARO-AMG-1. During the three months ended December 31, 2017, these work orders generated approximately $0.2 million of Revenue.

June 30, 2023.

NOTE 3. PROPERTY AND EQUIPMENT

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

December 31,
2017

September 30, 2017

Computers, office equipment and furniture
$
600,334

$
600,334

Research equipment

9,796,374

9,660,960

Software

132,078

132,078

Leasehold improvements

12,208,380

12,208,380

Total gross fixed assets

22,737,166

22,601,752

Less: Accumulated depreciation and amortization

(7,804,800
)

(7,088,733
)
Property and equipment, net
$
14,932,366

$
15,513,019


	June 30, 2023		September 30, 2022
	(in thousands)
Computers, software, office equipment and furniture	$	2,198	$	2,182
Land	2,996		2,996
Research equipment	50,472		38,283
Leasehold improvements	96,344		42,017
Construction in progress	118,279		56,373
	270,289		141,851
Less: Accumulated depreciation and amortization	(38,920)		(31,554)
Property and equipment, net	$	231,369	$	110,297

Depreciation and amortization expense for property and equipment for the three months ended June 30, 2023 and 2022 was $2.9 million and $2.2 million, respectively. Depreciation and amortization expense for property and equipment for the nine months ended June 30, 2023 and 2022 was $7.4 million and $6.5 million, respectively.

The increase in the construction in progress during the nine months ended June 30, 2023 was mainly due to the continuing developments of manufacturing, laboratory and office facilities in Verona, Wisconsin as well as a new laboratory and office facility in San Diego, California. In May 2023, the Company completed the development of the San Diego facility, which resulted in the reclassification of construction in progress as leasehold improvements as of June 30, 2023. See Note 7.

NOTE 4. INVESTMENTS

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 December 31, 2017~~Company’s investments consisted of corporate bonds with maturities remaining of less than one year. 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 investments in accordance with FASB ASC 320, Investments – Debt and Equity Securities. At December 31, 2017, all investments were classified as held-to-maturity securities.

~~The following tables summarize~~ the ~~Company’s short-term investments as of December 31, 2017, and September 30, 2017.~~

following:

As of December 31, 2017

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Fair Value

Commercial notes (due within one year)
$
39,169,376

$
—

$
(376,905)

$
38,792,471


	As of June 30, 2023
	(in thousands)
	Adjusted Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

Short-term investments (due within one year)
Held to maturity debt securities	$	346,369	$	—	$	(4,204)	$	342,165
Held to maturity certificate of deposit	—		—		—		—
Total short-term investments	$	346,369	$	—	$	(4,204)	$	342,165

Long-term investments (due within one through three years)
Held to maturity debt securities	$	42,758	$	—	$	(294)	$	42,464
Total long-term investments	$	42,758	$	—	$	(294)	$	42,464

As of September 30, 2017

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Fair Value

Commercial notes (due within one year)
$
40,769,539

$
—

$
(334,755)

$
40,434,784


	As of September 30, 2022
	(in thousands)
	Adjusted Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

Short-term investments (due within one year)
Held to maturity debt securities	$	218,391	$	—	$	(3,661)	$	214,730
Held to maturity certificate of deposit	50,000		—		—		50,000
Total short-term investments	$	268,391	$	—	$	(3,661)	$	264,730

Long-term investments (due within one through three years)
Held to maturity debt securities	$	105,872	$	—	$	(5,569)	$	100,303
Total long-term investments	$	105,872	$	—	$	(5,569)	$	100,303

NOTE 5. INTANGIBLE ASSETS

Intangible assets subject to amortization include patents and a license agreement capitalized as part of the Novartis RNAi asset acquisition in March 2015. The ~~license agreement associated~~following table presents the components of intangible assets:


	Gross Carrying Amount		Accumulated Amortization		Impairment		Net Carrying Amount		Useful Lives
	(in thousands)								(in years)
As of June 30, 2023
Patents	$	21,728	$	12,933	$	—	$	8,795	14
License	3,129		1,237		—		1,892		21
Total intangible assets, net	$	24,857	$	14,170	$	—	$	10,687

As of September 30, 2022
Patents	$	21,728	$	11,770	$	—	$	9,958	14
License	3,129		1,125		—		2,004		21
Total intangible assets, net	$	24,857	$	12,895	$	—	$	11,962

Intangible assets are reviewed annually for impairment and more frequently if potential impairment indicators exist. No impairment indicators were identified during the nine months ended June 30, 2023 and 2022.

Intangible assets with ~~the Novartis RNAi asset acquisition is being~~definite useful lives are amortized on a straight-line basis over ~~the estimated life remaining at the time~~their useful lives. Intangible assets amortization expense was $0.4 million for each of acquisition, which was 21 years, and the accumulated amortization of the asset is approximately $420,482. 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 approximately $4,397,401. Amortization expense for the three months ended December 31, 2017 and 2016 was $425,107 and $425,107, respectively. Amortization expense is expected to be approximately $1,275,322 for the remainder of fiscal year 2018, $1,700,429 in 2019, $1,700,429 in 2020, $1,700,429 in 2021, $1,700,429 in 2022, $1,700,429 inJune 30, 2023 and ~~$10,261,864 thereafter.~~

2022, and $1.3 million and for each of the nine months ended June 30, 2023 and 2022. None of the intangible assets with definite useful lives are anticipated to have a residual value.

The following table ~~provides details on~~presents the ~~Company’s~~estimated future amortization expense related to intangible ~~asset balances:~~

assets as of June 30, 2023:

	~~Intangible assets~~ ~~subject to~~ ~~amortization~~
~~Balance at September 30, 2017~~	$	~~20,464,439~~
~~Impairment~~		-
~~Amortization~~		~~(425,107~~	)
~~Balance at December 31, 2017~~	$	~~20,039,332~~


	Amortization Expense
Year Ending September 30,	(in thousands)
2023 (remainder)	$	425
2024	1,700
2025	1,700
2026	1,700
2027	1,700
Thereafter	3,462
Total	$	10,687

NOTE 6. STOCKHOLDERS’ EQUITY

~~At December 31, 2017,~~

The following table summarizes the ~~Company had a total of 150,000,000~~Company’s shares of ~~capital~~common stock and preferred stock:


			Shares
	Par Value		Authorized	Issued	Outstanding
			(in thousands)
As of June 30, 2023
Common stock	$	0.001	290,000	107,102	107,102
Preferred stock	$	0.001	5,000	—	—

As of September 30, 2022
Common stock	$	0.001	145,000	105,960	105,960
Preferred stock	$	0.001	5,000	—	—

On March 16, 2023, the Company’s stockholders approved an increase in authorized ~~for issuance, consisting~~common shares, par value 0.001 per share, from 145,000,000 to 290,000,000. The amendment to the Amended and Restated Certificate of ~~145,000,000~~Incorporation was filed on April 27, 2023.

As of June 30, 2023 and September 30, 2022, respectively, 12,914,571 and 14,000,392 shares of ~~Common Stock, par value $0.001 per share, and 5,000,000 shares of Preferred Stock, par value $0.001 per share.~~

~~At December 31, 2017,~~ ~~74,917,876~~ ~~shares of Common Stock were outstanding. At December 31, 2017, 9,002,916 shares of Common Stock~~common stock were reserved for issuance upon exercise of options and vesting of restricted stock units granted or available for grant under ~~Arrowhead’s~~the Company’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.

On ~~January 22, 2018,~~December 2, 2022, the Company ~~sold 11,500,000~~entered into an open market sale agreement (the “Open Market Sale Agreement”), pursuant to which the Company may, from time to time, sell up to $250,000,000 in shares of ~~Common Stock~~the Company’s common stock through Jefferies LLC, acting as the sales agent and/or principal, in an at-the-market offering (“ATM Offering”). The Company is not required to sell shares under the Open Market Sale Agreement. The Company will pay Jefferies LLC a ~~fully underwritten public offering, at a public offering price~~commission of ~~$5.25 per share. Net~~up to 3.0% of the aggregate gross proceeds received from all sales of the common stock under the Open Market Sale Agreement. Unless otherwise terminated, the ATM Offering shall terminate upon the earlier of (i) the sale of all shares of common stock subject to the Sales Agreement and (ii) the termination of the Sales Agreement as permitted therein. The Company ~~were approximately $56.7 million after deducting underwriting commissions~~ and ~~discounts and other offering expenses payable by~~Jefferies may each terminate the ~~Company.~~

~~The following table summarizes information about warrants outstanding~~Open Market Sale Agreement at ~~December 31, 2017:~~

any time upon prior notice. As of June 30, 2023, no shares have been issued under the Open Market Sale Agreement.

Exercise prices

Number of
Warrants

Remaining
Life in Years

$
2.12

75,000

0.2

$
1.83

11,023

0.1

$
7.14

80,000

0.5

Total warrants outstanding

166,023

NOTE 7. COMMITMENTS AND CONTINGENCIES

~~Leases~~

~~The~~

Litigation

From time to time, the Company ~~leases~~may be subject to various claims and legal proceedings in the ordinary course of business. If the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount is reasonably estimable, the Company will accrue a liability for the estimated loss. There were no contingent liabilities recorded as of June 30, 2023.

Commitments

On December 20, 2021, the Company completed a purchase of 13 acres of land in the Verona Technology Park in Verona, Wisconsin, which is being developed into an approximately ~~8,500~~160,000 square ~~feet~~foot drug manufacturing facility and an approximately 140,000 square foot laboratory and office facility which will support the Company’s process development and analytical activities. As of office space for its corporate headquarters in Pasadena, California. The lease will expire in September 2019. Monthly rental payments are approximately $27,000 per month, increasing approximately 3% annually.

~~The~~June 30, 2023, the Company ~~also leases approximately 60,000 square feet~~has incurred $102.7 million and intends to spend an additional $160.0 million to $180.0 million to complete the build out of ~~office and laboratory space for its research facility in Madison, Wisconsin. The lease will expire in September 2026.~~the facilities. 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 is accounted for as a Note Payable on the Company’s Consolidated Balance Sheet. Monthly rental payments, including payments of principal and interest on the Note Payable are approximately $182,200 per month. The monthly rental payments (excluding principal and interest on the Note Payable), will increase approximately 2.5% annually.

~~Facility rent expense for the three months ended December 31, 2017 and 2016 was $354,400 and $407,500, respectively.~~

~~As of December 31, 2017, future minimum lease payments due in fiscal years under operating leases are as follows:~~

2018 (remainder of)re
$
1,150,247

2019

1,435,409

2020

1,044,431

2021

1,070,496

2022

1,097,168

2023 and thereafter

4,669,328

Total
$
10,467,079

~~Note Payable~~

~~As part of the Company’s lease for its research facility in Madison, Wisconsin discussed above,~~acquisition, the Company entered into a ~~$2.7 million promissory note payable~~development agreement with ~~its landlord~~the City of Verona to ~~finance~~construct certain ~~tenant~~infrastructure improvements ~~made to~~within the ~~new facility. The note~~tax incremental district and will be ~~amortized over~~reimbursed up to $16.0 million by the ~~10-year term~~City of Verona by future tax increment revenue generated from the ~~lease, commencing on October 1, 2016.~~developed property. The ~~note bears interest at a rate~~total amount of ~~7.1% and is payable in equal monthly installments~~funding that the City of ~~principal and interest.~~

~~As of December 31, 2017, future principal payments due in fiscal years~~Verona will pay under the ~~note payable are as follows:~~

2018 (remainder of)
$
157,757

2019

223,820

2020

240,258

2021

257,903

2022

276,845

2023 and thereafter

1,326,192

Total
$
2,482,775

~~Litigation~~

Tax Incremental Financing program is not guaranteed and will depend on future tax revenues generated from the developed property. The Company ~~and certain~~will also receive up to $2.5 million of ~~its officers and directors were named~~refundable Wisconsin state income tax credits from the Wisconsin Economic Development Corporation (WEDC) as ~~defendants in a putative consolidated class action~~incentives to invest 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),~~local community 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 is pending 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. On October 10, 2016, the plaintiffs appealed the dismissal of the consolidated class action to the United States Court of Appeals for the Ninth Circuit. The Weisman and Johnson derivative actions have been dismissed without prejudice. The Bernstein derivative action remains pending and is stayed pending the related consolidated class action. The Company believes it has meritorious defenses and intends to vigorously defend itself in each of these matters. The Company makes provisions for liabilities when it is both probable that a liability has been incurred and the amount can be reasonably estimated. No such liability has been recorded related to these matters. The Company does not expect these matters to have a material effect on its Consolidated Financial Statements.

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 December 27, 2017 the plaintiffs appealed the dismissal to the United States Court of Appeals for the Ninth Circuit. The Lucas and Singh actions are stayed pending resolution of the Ninth Circuit appeal. The Company believes it has meritorious defenses and intends to vigorously defend itself in these matters. The Company makes provisions for liabilities when it is both probable that a liability has been incurred and the amount can be reasonably estimated. No such liability has been recorded related to these matters. The Company cannot predict the ultimate outcome of this matter and cannot accurately estimate any potential liability the Company may incur or the impact of the results of this matter on the Company.

~~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.~~

~~Purchase Commitments~~

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 December 31, 2017, these future commitments were estimated at approximately $13.6 million, of which approximately $11.1 million is expected to be incurred in fiscal 2018, and $2.5 is expected to be incurred beyond fiscal 2018.

create new jobs.

Technology License Commitments

The Company has licensed from third parties the rights to use certain technologies for its research and development activities, as well as in any products ~~the Company~~it may develop using these licensed technologies. These agreements and other similar

agreements often require the Company to make 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~~and/or certain sales level milestones. ~~These milestone payments could amount to the mid to upper double-digit millions of dollars.~~ During the three and nine months ended ~~December 31, 2017~~June 30, 2023 and ~~2016,~~2022, the Company did not reach any ~~milestones requiring milestone payments. In certain agreements,~~milestones.

NOTE 8. LEASES

On November 19, 2021, the Company ~~may~~entered into a 15-year lease for approximately 144,000 square feet of office and research and development laboratory space in San Diego, California. This new facility accommodates increased personnel for its expanding pipeline of current and future drug candidates. The lease payments, which began on April 19, 2023, the rent commencement date, will be ~~required~~approximately $119.0 million over the initial 15-year term. The Company also estimates annual operating expenses to ~~make mid to high single-digit percentage royalty payments based on a percentage~~be approximately $3.0 million for the first year of the ~~sales~~lease, and these payments will continue throughout the initial 15-year term. The Company expects to pay approximately $32.0 million for leasehold improvements, net of tenant improvement allowances. Pursuant to the lease, within twelve months of the ~~relevant products.~~

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.

Further, the lease agreement grants the Company the right to receive an Additional Tenant Improvement Allowance (“ATIA”) funded by the lessor. The maximum amount of ATIA is $7.2 million, and as of June 30, 2023, the Company has received approximately $0.7 million, which has been recorded as other liabilities on its consolidated balance sheets. The Company will repay the ATIA through equal monthly payments, including 7% interest per annum over the base term, starting from the rent commencement date. Interest begins accruing on the date the lessor first disburses the ATIA.

Other Significant Leases

Pasadena, California: The Company leases 49,000 square feet of office space located at 177 Colorado Blvd. for its corporate headquarters from 177 Colorado Owner, LLC, which lease expires on April 30, 2027. The lease contains an option to renew for one term of five years.

San Diego, California: The Company subleased space from Halozyme, Inc. for additional research and development space in San Diego, California. The term of this sublease commenced on April 1, 2020 and ended on January 14, 2023. On December 23, 2022, the Company entered into a new six-month lease agreement with 11404 & 11408 Sorrento Valley Owner (DE) LLC, effective January 15, 2023. The lease ended on July 15, 2023.

Madison, Wisconsin: The Company leases space for office and laboratory facilities, which expires on September 30, 2031. The lease contains options to renew for two terms of five years. After accounting for additional rental square feet added pursuant to amendments to the lease agreement in 2019 and 2020, the Company currently leases a total of 111,000 square feet.

The components of lease assets and liabilities along with their classification on the Company’s consolidated balance sheets were as follows:


Lease Assets and Liabilities	Classification	June 30, 2023		September 30, 2022
		(in thousands)

Operating lease assets	Right-of-use assets	$	40,667	$	58,291

Current operating lease liabilities	Lease liabilities	2,823		2,776
Non-current operating lease liabilities	Lease liabilities, net of current portion	79,911		78,800


		Three Months Ended June 30,				Nine Months Ended June 30,
Lease Cost	Classification	2023		2022		2023		2022
		(in thousands)

Operating lease cost	Research and development	$	3,323	$	2,974	$	7,735	$	4,757
	General and administrative expense	509		448		1,542		1,288

Variable lease cost (1)	Research and development	257		179		627		519
	General and administrative expense	—		—		—		—

Total		$	4,089	$	3,601	$	9,904	$	6,564

(1) Variable lease cost is primarily related to operating expenses associated with the Company’s operating leases.

There was $0.6 million and $0.2 million short-term lease cost during the three months ended June 30, 2023, and 2022, respectively. There was $1.2 million and $0.7 million short-term lease cost during the nine months ended June 30, 2023, and 2022, respectively.

The following table presents payments of operating lease liabilities on an undiscounted basis as of June 30, 2023:


Year	Amounts
	(in thousands)
2023 (remainder of fiscal year)	$	1,143
2024	8,094
2025	11,800
2026	12,148
2027	11,320
2028 and thereafter	102,812
Total	$	147,317
Less imputed interest	$	(64,583)
Total operating lease liabilities (includes current portion)	$	82,734

Supplemental cash flow and other information related to leases was as follows:


	Nine Months Ended June 30,
	2023		2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (in thousands)	4,430		3,398

	June 30,
	2023		2022
Weighted-average remaining lease term (in years)	13.4		7.3
Weighted-average discount rate	8.0	%	8.5	%

NOTE 8. 9. STOCK-BASED COMPENSATION

~~Arrowhead~~

The Company has ~~two~~three plans that provide for equity-based compensation. Under the 2004 Equity Incentive Plan (the “2004 Plan”) and 2013 Incentive Plan ~~as of December 31, 2017, 2,114,286~~(the “2013 Plan”), 68,555 and ~~6,329,079~~3,440,076 shares, respectively, of ~~Arrowhead’s Common Stock~~the Company’s common stock are reserved for grants of stock options and restricted stock awards to employees and directors as of June 30, 2023.

On March 18, 2021, the ~~grant~~Company’s Board of Directors approved the Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan (the “2021 Plan”), which authorized 8,000,000 shares (subject to certain adjustments) available for grants of stock options, stock appreciation rights, restricted and unrestricted stock, performance awards, cash awards and ~~performance unit/share~~other awards convertible into or otherwise based on shares of the Company’s common stock. The maximum number of shares authorized under the 2021 Plan will be (i) reduced by any shares subject to ~~employees, consultants and others. No further grants may be~~awards made under the ~~2004 Equity Incentive Plan. As of December 31, 2017, there were options granted~~2013 Plan after January 1, 2021, and (ii) increased by any shares subject to outstanding to purchase 2,114,286 and 2,945,999 shares of Common Stock under the 2004 Equity Incentive Plan and the 2013 Incentive Plan, respectively, and there were 3,098,000 restricted stock units granted and outstandingawards under the 2013 ~~Incentive Plan. Also,~~Plan as of ~~December 31, 2017,~~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 June 30, 2023, the total number of shares reserved for issuance was 6,186,644 shares, which included 197,596 shares that were forfeited under the 2013 Plan, and 1,977,114 shares have been granted under the 2021 Plan.

In addition, there were ~~557,050~~712,454 shares reserved for options and ~~2,500~~746,175 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 three months ended December 31, 2017, no options or restricted stock units were granted under the 2004 Equity Incentive Plan, no options or restricted stock units were granted under the 2013 Incentive Plan, and 115,000 options and 2,500 restricted stock units were granted as inducementNasdaq Listing Rules.

The following table presents a summary of awards ~~to new employees outside of equity incentive plans.~~

outstanding:


	As of June 30, 2023
	2004 Plan	2013 Plan	2021 Plan	Inducement Awards	Total
Granted and outstanding awards:
Options	68,555	1,550,951	33,838	712,454	2,365,798
Restricted stock units	—	1,889,125	1,686,766	746,175	4,322,066
Total	68,555	3,440,076	1,720,604	1,458,629	6,687,864

The following table summarizes ~~information about~~stock-based compensation expenses included in operating expenses:


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
	(in thousands)

Research and development	8,982		8,098		26,129		23,958
General and administrative	10,965		25,292		33,820		67,739
Total	$	19,947	$	33,390	$	59,949	$	91,697

Stock Option Awards

The following table presents a summary of the stock ~~options:~~

Number of
Options
Outstanding

Weighted-
Average
Exercise
Price
Per Share


Weighted-
Average
Remaining
Contractual
Term


Aggregate
Intrinsic
Value

Balance At September 30, 2017

5,549,543

$
6.00



Granted

115,000

3.60



Cancelled

(47,207)

13.70



Exercised

–

–



Balance At December 31, 2017

5,617,336


$
5.89



6.3 years

$
2,474,103

Exercisable At December 31, 2017

4,169,205

$
6.40

5.6 years

$
1,301,464

~~Stock-based compensation expense related to stock options~~option activity for the ~~three~~nine months ended ~~December 31, 2017 and 2016 was $900,659 and $1,438,459, respectively.~~ June 30, 2023:


	Shares	Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Outstanding at September 30, 2022	2,721,384	$	20.73
Granted	32,151	33.03
Cancelled or expired	(43,936)	62.31
Exercised	(343,801)	6.48
Outstanding at June 30, 2023	2,365,798	$	22.20	4.4 years	$	43,813,599
Exercisable at June 30, 2023	2,188,690	$	20.28	4.2 years	$	43,480,339

The ~~Company does not recognize an income tax benefit as~~aggregate intrinsic values represents the ~~Company is currently operating at a loss and an actual income tax benefit may not be realized. For non-qualified stock options,~~amount by which the ~~loss creates a timing difference, resulting in a deferred tax asset, which is fully reserved by a valuation allowance.~~

~~The grant date fair value~~market price of the ~~options granted by~~underlying stock exceeds the ~~Company for~~exercise price of the ~~three months ended December 31, 2017 and 2016 was $348,899 and~~ ~~$215,539, respectively.~~

option. The total intrinsic value of the options exercised during the three months ended ~~December 31, 2017~~June 30, 2023 and ~~2016~~

2022 was $0$6.5 million and ~~$0,~~$1.6 million, respectively.

The total intrinsic value of the options exercised during the nine months ended June 30, 2023 and 2022 was $10.1 million and $24.9 million, respectively.

Stock-based compensation expense related to stock options outstanding for the three months ended June 30, 2023 and 2022, was $2.1 million and $2.6 million, respectively. Stock-based compensation expense related to stock options for the nine months ended June 30, 2023 and 2022 was $6.7 million and $8.3 million, respectively.

As of ~~December 31, 2017,~~June 30, 2023, the pre-tax compensation expense for all outstanding unvested stock options in the amount of ~~approximately $4,067,828~~$5.3 million will be recognized in the Company’s results of operations over a weighted average period of ~~1.8~~ ~~years.~~

12 months.

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option 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 following table provides the assumptions used ~~to value~~in the calculation of grant-date fair values of these stock options ~~are as follows:~~

based on the Back-Scholes option pricing model:

Three Months Ended December 31,

2017

2016
Dividend yield

—

—
Risk-free interest rate

2.05 – 2.22%

1.34 – 1.44%
Volatility

110%

79%
Expected life (in years)

6.25

6.25
Weighted average grant date fair value per share of options granted

$3.03

$4.49


	Nine Months Ended June 30,
	2023			2022 (5)
Expected dividend yield(1)	—			N/A
Risk-free interest rate(2)	3.69		%	N/A
Expected volatility(3)	86.4		%	N/A
Expected term (in years)(4)	6.25			N/A
Weighted average grant date fair value per share of options granted	$	24.80		N/A

(1) The dividend yield is zero as the Company currently does not pay a dividend.

(2) The risk-free interest rate is based on that of the U.S. Treasury ~~bond.~~

yields with equivalent terms in effect at the time of the grant.

(3) Volatility is estimated based on volatility average of the Company’s ~~Common Stock~~common stock price.

(4) The expected term represents the period of time that stock options granted are expected to be outstanding, by using historical exercise patterns and post-vesting termination behavior.

(5) No options were granted during the nine months ended June 30, 2022.

Restricted Stock Units

Restricted stock units ~~(RSUs)~~(“RSUs”), including market-based, time-based and performance-based awards, ~~were~~have been granted under the Company’s 2013 ~~Incentive Plan~~and 2021 Plans and as ~~inducement~~inducements grants granted outside of the ~~Plan. During the three months ended December 31, 2017, the Company issued 2,500 RSUs as an inducement award to a new employee outside of the equity incentive~~Company’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.common stock. RSU awards generally vest subject to the satisfaction of service requirements or the satisfaction of both service requirements and achievement of certain performance targets.

The following table summarizes the activity of the Company’s RSUs:

	Number of RSUs			Weighted- Average Grant Date Fair Value
Unvested at September 30, 2017		3,108,000		$	2.45
							Number of RSUs	Weighted- Average Grant Date Fair Value Per Share
Outstanding at September 30, 2022						Outstanding at September 30, 2022	4,069,431	$	62.96
Granted		2,500			3.51	Granted	1,144,594	34.27
Vested		(10,000	)		5.22	Vested	(798,271)	53.72
Forfeited		—			—	Forfeited	(93,688)	54.58
Unvested at December 31, 2017		3,100,500		$	2.44
Outstanding at June 30, 2023						Outstanding at June 30, 2023	4,322,066	$	57.45

During the three months ended December 31, 2017 and 2016, the Company recorded $1,191,882 and $985,983 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 Loss.

~~For RSUs, the grant date~~

The fair value of ~~the award is~~RSUs was determined based on the closing price of the Company’s ~~closing~~common stock ~~price at~~on the grant date, with consideration given to the probability of achieving service and/or performance conditions for ~~performance based~~ awards.

For the three months ended June 30, 2023 and 2022, the Company recorded $17.8 million and $33.7 million of expense

related to RSUs, respectively. For the nine months ended June 30, 2023 and 2022, the Company recorded $53.2 million and $83.4 million of expense related to RSUs, respectively. As of ~~December 31, 2017, the pre-tax~~June 30, 2023, there was $131.6 million of total unrecognized compensation ~~expense for all unvested~~cost related to RSUs ~~in the amount of approximately $1,534,292 will~~that is expected to be recognized ~~in the Company’s results of operations~~ over a ~~weighted average~~weighted-average period of ~~1.0~~2.3 years.

NOTE 9. 10. FAIR VALUE MEASUREMENTS

The Company ~~measures its financial assets and liabilities at~~employs a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. ~~Fair~~The fair value of a financial instrument is ~~defined as~~ the ~~price~~amount 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,~~date using the ~~Company is required~~exit price. Accordingly, when market observable data are not readily available, the Company’s own assumptions are used to ~~provide disclosure and categorize assets~~reflect those that market participants would be presumed to use in pricing the asset or liability at the measurement date.

Assets and liabilities ~~measured~~recorded 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 liabilitiesconsolidated balance sheets are ~~classified in their entirety~~categorized based on the ~~lowest~~ level of ~~input significant~~judgment associated with inputs used to measure their fair values and the ~~fair value measurement. The fair value hierarchy is defined~~level of market price observability, as follows:

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

liabilities as of the reporting date.

Level ~~2—Valuations~~2 Pricing inputs are other than quoted prices in active markets, which are based on ~~quoted~~the following:

• Quoted prices for similar assets or liabilities in active ~~markets,~~markets;

• Quoted prices for identical or ~~quoted prices~~similar assets or liabilities in ~~markets that are not active for which significant inputs are observable, either~~non-active markets; or

• Either directly or ~~indirectly.~~

indirectly observable inputs as of the reporting date.

Level ~~3—Valuations~~3 Pricing inputs 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~~measurement, and the determination of ~~what market participants would use~~fair value requires significant management judgment or estimation.

In certain cases, inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in ~~valuing~~the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Thus, a Level 3 fair value measurement may include inputs that are observable (Level 1 or Level 2) and unobservable (Level 3). The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or ~~liability at~~liability.

The Company uses prices and inputs that are current as of the measurement ~~date.~~

date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2, or from Level 2 to Level 3. The Company recognizes transfers between levels at either the actual date of the event or a change in circumstances that caused the transfer. At June 30, 2023 and September 30, 2022, the Company did not have any financial assets or financial liabilities based on Level 3 measurements.

The following table ~~summarizes fair value measurements at December 31, 2017 and September 30, 2017 for~~presents information about the Company’s assets and liabilities measured at fair value on a recurring ~~basis:~~

~~December 31, 2017:~~

Level 1

Level 2

Level 3

Total

Cash and cash equivalents
$
11,531,345

$
—

$
—

$
11,531,345

Short-term investments

39,169,376

—

—

39,169,376

Derivative liabilities

—

—

20,445

20,445

Contingent Consideration
$
—

$
—

$
—

$
—

~~September 30,~~ ~~2017~~:

Level 1

Level 2

Level 3

Total

Cash and cash equivalents
$
24,838,567

$
—

$
—

$
24,838,567

Short-term investments

40,769,539

—

—

40,769,539

Derivative liabilities

—

—

695,114

695,114

Contingent Consideration
$
—

$
—

$
—

$
—

~~As part~~basis, and indicates the fair value hierarchy of ~~a financing in January 2013, Arrowhead issued warrants~~the valuation techniques utilized by the Company:


	June 30, 2023
	Level 1		Level 2		Level 3		Total
	(in thousands)

Financial assets:
U.S. government bonds	$	27,092	$	—	$	—	$	27,092
Municipal securities	—		7,033		—		7,033
Commercial notes	—		62,755		—		62,755
Corporate debt securities	—		287,749		—		287,749
Certificate of deposits	—		—		—		—
Money market instruments	49,199		—		—		49,199


	September 30, 2022
	Level 1		Level 2		Level 3		Total
	(in thousands)

U.S. government bonds	$	1,973	$	—	$	—	$	1,973
Commercial notes	—		41,727		—		41,727
Corporate debt securities	—		271,333		—		271,333
Certificate of deposits	50,000		—		—		50,000
Money market instruments	39,262		—		—		39,262

NOTE 11. LIABILITY RELATED TO THE SALE OF FUTURE ROYALTIES

On November 9, 2022, the Company and Royalty Pharma entered into the Royalty Pharma Agreement, pursuant to ~~purchase~~which Royalty Pharma agreed to pay up to ~~833,530 shares of Common Stock (the “2013 Warrants”) of which 11,023 warrants were outstanding at December 31, 2017. Further, as part of~~$410.0 million in cash to the Company in consideration for the Company’s future royalty interest in Olpasiran, a ~~financing~~small interfering RNA (siRNA) originally developed by the Company and licensed to Amgen in ~~December 2012, Arrowhead issued warrants~~2016 under the Olpasiran Agreement.

Pursuant to ~~purchase~~the Royalty Pharma Agreement, Royalty Pharma paid $250.0 million upfront and agreed to pay up to ~~912,543 shares~~an additional $160.0 million in aggregate one-time milestone payments due if and when the following milestone events occur: (i) $50.0 million on completion of ~~Common Stock (the “2012 Warrants”)~~enrollment in the OCEAN Phase 3 clinical trial for Olpasiran, (ii) $50.0 million upon receipt of ~~which warrants to exercise 143,811 shares remained unexercised~~FDA approval of Olpasiran for an approved indication (reduction in the risk of myocardial infarction, urgent coronary revascularization, or coronary heart disease death in adults with established cardiovascular disease and ~~were cancelled~~elevated Lp(a)), and (iii) $60.0 million upon Royalty Pharma’s receipt of at ~~their expiration during~~least $70.0 million of royalty payments under the ~~three months ended December 31, 2017. Each~~Royalty Pharma Agreement in any single calendar year.

In consideration for the payment of the ~~Warrants contains a mechanism~~foregoing amounts under the Royalty Pharma Agreement, Royalty Pharma is entitled to ~~adjust~~receive all royalties otherwise payable by Amgen to the ~~strike price upon~~Company under the ~~issuance of certain dilutive equity securities. If during~~Olpasiran Agreement. The Company remains eligible to receive any milestone payments potentially payable by Amgen under the Olpasiran Agreement.

The Company has evaluated the terms of the ~~Warrants,~~Royalty Pharma Agreement and concluded in accordance with the relevant accounting guidance that the Company ~~issues Common Stock at a price lower than the exercise price~~accounted for the ~~Warrants, the exercise price would be reduced to the amount equal to the issuance price of the Common Stock. As a result of these features, the Warrants are subject to derivative accounting~~transaction as prescribed under ASC 815. Accordingly, the fair value of the Warrants on the date of issuance was estimated using an option pricing model and recorded on the Company’s Consolidated Balance Sheet as a derivative liability. The fair value of the Warrants is estimated at the end of each reporting perioddebt and the ~~change in the fair value~~funding of ~~the Warrants is~~$250.0 million from Royalty Pharma was recorded as a non-operating gain or loss as change in value of derivatives in the Company’s Consolidated Statement of Operations and Comprehensive Loss. During the three months ended December 31, 2017 and 2016, the Company recorded a non-cash gain/(loss) from the change in fair value of the derivative liability of $450,739 and $1,454,831, respectively.

~~The assumptions used in valuing the derivative liability were as follows:~~

2013 Warrants

December 31, 2017

September 30, 2017

Risk-free interest rate

1.01%

1.07%

Expected life

0.1 Years

0.3 Years

Dividend yield

—

—

Volatility

110%

79%

~~The following is a reconciliation of the derivative~~ liability related to ~~these Warrants:~~

Value at September 30, 2017
$
695,114

Issuance of instruments

—

Change in value

(450,739
)
Net settlements

(223,930
)
Value at December 31, 2017
$
20,445

the sale of future royalties on its consolidated balance sheets. The ~~derivative assets/liabilities are estimated~~Company is not obligated to repay this upfront funding received under the Royalty Pharma Agreement. This liability is amortized over the expected repayment term using ~~option pricing models that are~~an effective interest rate method. The effective interest rate is calculated based on the ~~individual characteristics~~rate that would enable the debt to be repaid in full over the anticipated life of the ~~warrants or instruments~~arrangement. The interest rate may vary during the term of the agreement depending on a number of factors, including the amount and timing of forecasted net revenues which affects the repayment timing and ultimate amount of repayment. The Company will evaluate the effective interest rate periodically based on its current revenue forecasts utilizing the prospective method. For the three and nine months ended June 30, 2023, the Company recognized non-cash interest expense of $5.2 million and $13.1 million, respectively, on the ~~valuation date, as well as assumptions~~consolidated statements of operations and comprehensive loss.

NOTE 12. EARNINGS PER SHARE

The following table presents the computation of basic and diluted earnings per share for ~~expected volatility, expected life~~the nine months ended

June 30, 2023 and risk-free interest rate. Changes in the assumptions used could have a material impact on the resulting fair value. The primary input affecting the value of the Company’s derivatives liabilities is the Company’s stock price. Other inputs have a comparatively insignificant effect.

As of September 30, 2015, 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 assumptions2022.


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
	(in thousands, except per share amounts)
Numerator:
Net loss	$	(102,946)	$	(72,046)	$	(95,596)	$	(90,552)

Denominator:
Weighted-average basic shares outstanding	107,004		105,753		106,597		105,273
Effect of dilutive securities	—		—		—		—
Weighted-average diluted shares outstanding	107,004		105,753		106,597		105,273

Basic earnings per share	$	(0.96)	$	(0.68)	$	(0.90)	$	(0.86)
Diluted earnings per share	$	(0.96)	$	(0.68)	$	(0.90)	$	(0.86)

Potentially dilutive securities representing approximately 3,467,000 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) 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 December 31, 2017 and September 30, 2017.

~~NOTE 10.~~ ~~SUBSEQUENT EVENTS~~

~~On January 22, 2018, the Company sold 11,500,000~~4,024,000 shares of ~~Common Stock in a fully underwritten public offering, at a public offering price~~common stock were excluded from the computation of ~~$5.25~~diluted earnings per ~~share. Net proceeds to~~share for the ~~Company were approximately $56.7 million after deducting underwriting commissions~~three and ~~discounts and other offering expenses payable by the Company.~~

nine months ended June 30, 2023, respectively, because their effect would have been anti-dilutive.

~~ITEM 2.~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we intend that such forward-looking statements be subject to the safe harbors created thereby. For this purpose, any statements contained in this Quarterly Report on Form 10-Q except for historical information may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “plan,” “project,” “could,” “estimate,” “target,” “forecast” or “continue” or the negative of these words or other variations thereof or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to projections of ~~our~~the Company’s future financial performance, trends in ~~our businesses,~~its business, or other characterizations of future events or circumstances are forward-looking statements.

These forward-looking statements include, but are not limited to, statements about the initiation, timing, progress and results of the Company’s preclinical studies and clinical trials, and its research and development programs; its expectations regarding the potential benefits of the partnership, licensing and/or collaboration arrangements and other strategic arrangements and transactions the Company has entered into or may enter into in the future; its beliefs and expectations regarding the amount and timing of future milestone, royalty or other payments that could be due to or from third parties under existing agreements; and its estimates regarding future revenues, research and development expenses, capital requirements and payments to third parties.

The forward-looking statements included herein are based on current expectations of ~~our~~the Company’s 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~~the Company’s control. As such, ~~our~~the Company’s actual results and timing of certain events may differ ~~significantly~~materially from ~~those expressed~~the results discussed, projected, anticipated or indicated in any forward-looking statements. ~~Readers should carefully review~~Forward-looking statements are not guarantees of future performance and the ~~factors identified~~Company’s actual results of operations, financial condition and cash flows may differ materially. Factors that may cause or contribute to such differences include, but are not limited to, those discussed in ~~our~~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 the Company’s most recent Annual Report on Form ~~10-K under the caption “Risk Factors”~~10-K. Readers should carefully review these risks, as well as the additional risks described in other documents ~~we file~~the Company files from time to time with the Securities and Exchange Commission ~~(“SEC”~~(the “SEC”)~~, including subsequent quarterly reports on Form 10-Q.~~. 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 usthe Company or any other person that such results will be achieved, and readers are cautioned not to place undue reliance on such forward-looking information. Statements made herein are as of the date of the filing of this Quarterly Report on Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Except as may be required by law, ~~we disclaim~~the Company disclaims any intent to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

~~Overview and Recent Developments~~

~~Arrowhead Pharmaceuticals, Inc.~~

OVERVIEW

The Company develops medicines that treat intractable diseases by silencing the genes that cause them. Using a broad portfolio of RNA chemistries and efficient modes of delivery, ~~Arrowhead~~the Company’s therapies trigger the ~~RNA interference~~RNAi mechanism to induce rapid, deep and durable knockdown of target genes. ~~RNA interference, or~~ 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 may leverage this natural pathway of gene ~~silencing.~~ silencing to target and shut down specific disease-causing genes.

The company's pipeline includes ARO-HBV for chronic hepatitis B virus, ARO-AAT for liver disease associated with alpha-1 antitrypsin deficiency (AATD), ARO-APOC3 and ARO-ANG3 for hypertriglyceridemia, ARO-Lung1 for an undisclosed pulmonary target, ARO-HIF2 for renal cell carcinoma, ARO-F12 for hereditary angioedema and thromboembolic disorders, and ARO-AMG1 for an undisclosed genetically validated cardiovascular target under a license and collaboration agreement with Amgen, Inc., a Delaware corporation (“Amgen”). ARO-LPA (AMG 890)~~for cardiovascular disease was out-licensed to Amgen in 2016.~~

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

~~In fiscal 2017, Arrowhead refocused~~Company has focused its resources on therapeutics that exclusively utilize ~~the company’s Targeted RNAi Molecule (TRiM~~^TM~~) platform technology. Therapeutics built on the TRiM~~^TM ~~platform have demonstrated~~its high levels of pharmacologic activity in multiple animal models spanning several therapeutic areas. The Company believes that 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 target multiple tissue types including liver, lung, muscle, CNS and ~~tumors;~~others; and the potential for improved safety and reduced risk of intracellular buildup, because there are ~~less~~fewer metabolites from smaller, simpler molecules. ~~As part of an R&D day in September 2017, the Company introduced its new TRiM~~^TM ~~platform and made the following announcements regarding its pipeline candidates:~~

ARO-AAT, Arrowhead's second generation subcutaneously administered clinical candidate for the treatment of alpha-1 antitrypsin deficiency liver disease, achieved up to 92% knockdown in monkeys, thought to be near complete suppression of hepatic production of the alpha-1 antitrypsin protein. In non-GLP rat and monkey exploratory toxicology studies, no changes in clinical chemistries or histopathology suggestive of organ toxicity were observed at doses up to 300 mg/kg (100x expected human dose).

ARO-HBV, Arrowhead's third generation subcutaneously administered clinical candidate for the treatment of chronic hepatitis B virus infection, achieved up to 99.9% knockdown of hepatitis B surface antigen (HBsAg), e-antigen (HBeAg), and HBV DNA in rodent models. In a non-GLP rat exploratory toxicology study, no changes in clinical chemistries or histopathology changes suggestive of organ toxicity were observed at doses up to 300 mg/kg (75-100x expected human dose).

Arrowhead has expanded its cardiovascular disease portfolio utilizing the TRiM™ platform. ARO-APOC3, targeting apolipoprotein C-III, and ARO-ANG3, targeting angiopoietin-like protein 3 (ANGPTL3) will be added to ARO-LPA (AMG 890)~~and ARO-AMG1, which are both partnered with Amgen. ARO-APOC3 and ARO-ANG3 will both be developed for the treatment of hypertriglyceridemia.~~

~~ARO-Lung1, the first generation candidate against an undisclosed gene target in the lung, reached almost 90% target knockdown following inhaled administration in rodents.~~

~~The ARO-HIF2 candidate targeting renal cell carcinoma achieved 85% target gene knockdown in a rodent tumor model.~~

During the first quarter of fiscal 2018, the Company filed Clinical Trial Applications (CTAs) for ARO-AAT and ARO-HBV to begin a phase 1 clinical study and a phase 1 / 2 clinical study for each program, respectively. These applications represent the first of five planned regulatory submissions to advance our pipeline candidates into clinical trials over the next 12 months.

The Company’s pipeline includes:

•Hypertriglyceridemia - ARO-APOC3

•Dyslipidemia - ARO-ANG3

•Cardiovascular disease - Olpasiran (formerly AMG 890 or ARO-LPA, out-licensed to Amgen)

•Cystic fibrosis - ARO-ENAC2

•Muco-obstructive or inflammatory pulmonary conditions - ARO-MUC5AC and ARO-RAGE

•Idiopathic pulmonary fibrosis - ARO-MMP7

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

•Alpha-1 antitrypsin deficiency (AATD) - Fazirsiran (formerly ARO-AAT, a collaboration ~~agreements~~ with ~~Amgen also continue~~Takeda)

•Chronic hepatitis B virus - JNJ-3989 (formerly ARO-HBV, out-licensed to ~~progress as it relates~~Janssen)

•Uncontrolled gout - HZN-457 (formerly ARO-XDH, out-licensed to ~~the ARO-LPA (AMG 890)~~Horizon)

•Complement mediated diseases - ARO-C3

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

•Facioscapulohumeral muscular dystrophy - ARO-DUX4

•Amyotrophic lateral sclerosis “ALS” (CNS) - ARO-SOD1

The Company operates lab facilities in San Diego, California and ARO-AMG1 candidates. 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, and could receive up to $617 million in option paymentsMadison, Wisconsin, where its research and development ~~regulatory and sales milestone payments.~~activities, including the development of RNAi therapeutics, take place. The Company is further eligible to receive single-digit royalties for sales of products under the ARO-AMG1 agreement and up to low double-digit royalties for sales of products under the ARO-LPA (AMG 890) Agreement.

Company’s principal executive offices are located in Pasadena, California.

The Company continues to develop other clinical candidates for future clinical trials. Clinical candidates are tested internally and through GLP toxicology studies at outside laboratories. Drug materials for such studies and clinical trials are either manufactured internally or contracted to third-party ~~manufactures when cGMP production is required.~~manufacturers. The Company engages third-party contract research organizations (CROs) to manage clinical trials and works cooperatively with such organizations on all aspects of clinical trial management, including plan design, patient recruiting, and follow up. These outside costs, relating to the preparation for and administration of clinical trials, are referred to as ~~“program costs”. If the~~“candidate costs.” As clinical candidates progress through ~~human testing, program~~clinical development, candidate costs will increase.

The First Three Quarters of Fiscal 2023 Business Highlights

Key recent developments during the first three quarters of fiscal 2023 included the following:

•hosted a Research & Development (R&D) Day on June 1, 2023 to discuss progress of the Company's pipeline of RNAi Therapeutics, at which the following updates were discussed:

◦ARO-RAGE showed continued dose response with single inhaled dose of 184 mg achieving mean knockdown of 90% and max of 95%;

◦adipose delivery platform achieved single dose target gene silencing of greater than 90% with six months of duration in non-human primates;

◦improved hepatic dimer platform achieved equivalent or better knockdown of two target genes with longer duration than monomer mixture in non-human primates;

◦TRiM™ platform now has potential to address multiple cell types including liver, solid tumors, lung, central nervous system, skeletal muscle, and adipose;

◦announced progress towards the Company's "20 in 25" goal to grow its pipeline of RNAi therapeutics that leverage the proprietary Targeted RNAi Molecule (TRiM™) platform to a total of 20 clinical stage or marketed products in the year 2025;

•presented updated data from the Phase 2 SEQUOIA study of investigational RNAi therapy Fazirsiran in patients with alpha-1 antitrypsin deficiency liver disease which included:

◦Fazirsiran reduced serum Z-AAT concentration in a dose-dependent manner;

◦Fazirsiran significantly reduced liver Z-AAT;

◦Fazirsiran consistently reduced hepatic globule burden;

◦Fazirsiran treatment reduced histological signs of hepatic inflammation;

◦50% of the pooled Fazirsiran treated patients showed at least a one-point improvement in METAVIR liver fibrosis versus 38% in the placebo group;

◦Fazirsiran has been well tolerated to date;

◦pulmonary function test results (FEV1 and DLCO) for both Fazirsiran and placebo were stable over time with no apparent dose-dependent effects;

◦updated Phase 2 clinical data were presented at the European Association for the Study of the Liver

(EASL) Congress 2023 in an oral presentation titled, “Fazirsiran reduces liver Z-alpha-1 antitrypsin synthesis, decreases globule burden and improves histological measures of liver disease in adults with alpha-1 antitrypsin deficiency: a randomized placebo-controlled phase 2 study”;

•presented interim data from the ongoing Phase 2 GATEWAY clinical study of ARO-ANG3 which included:

◦mean reduction in LDL-C of 48.1% (200mg) and 44.0% (300mg);

◦ANPTL3 inhibition with ARO-ANG3 also reduced HDL-C, non-HDL-C, and triglycerides, consistent with published human genetic data;

◦safety and tolerability;

•completed enrollment of the Phase 3 PALISADE clinical trial evaluating ARO-APOC3 for treatment of familial chylomicronemia syndrome;

•secured stockholder approval to increase authorized common shares to 290,000,000 from 145,000,000 to provide the Company with additional flexibility to issue common stock for a variety of general corporate purposes;

•announced interim results from ARO-RAGE administration in Part 1 of the ongoing Phase 1/2 study in normal healthy volunteers which included:

◦reductions in soluble RAGE (sRAGE) as measured in serum after two doses on Day 1 and Day 29;

◦duration of pharmacologic effect persisted for at least 6 weeks after the second administration of the 92 mg does with further follow up ongoing;

◦reduction in sRAGE as measured in bronchoalveolar lavage fluid (BALF) at Day 31 after a single dose;

◦reduction in in serum sRAGE was observed after a single dose;

◦the pooled placebo groups experienced a mean sRAGE increase of 8% in BALF and a mean decrease of 1% serum;

◦safety and tolerability;

•expanded TRiMTM platform to include an optimized intrathecal administration for CNS delivery with distribution throughout the brain and in all relevant brain cell types. The first development candidate to utilize this new delivery platform is ARO-SOD1. In June 2023, the Company filed a clinical trial application (CTA) for approval to initiate a Phase 1 clinical study. In preclinical studies, ARO-SOD1 achieved 95% spinal cord tissue mRNA knockdown after a single intrathecal dose in human SOD1 transgenic rats and maintained greater than 80% spinal cord tissue mRNA knockdown three months after a single intrathecal dose in non-human primates;

•dosed the first patient in GSK’s Phase 2b trial of GSK4532990, formerly called ARO-HSD, an investigational RNAi therapeutic for the treatment of patients with non-alcoholic steatohepatitis (NASH), triggering a $30.0 million milestone payment to the Company which was paid in the third quarter of fiscal 2023;

•announced that the U.S. Food and Drug Administration (FDA) has granted Fast Track designation to ARO-APOC3 for reducing triglycerides in adult patients with familial chylomicronemia syndrome (FCS). ARO-APOC3 was previously granted Orphan Drug designation by the FDA and the European Union;

•announced interim results from Part 1 of AROC3-1001, an ongoing Phase 1/2 clinical study of ARO-C3, which included:

◦a dose-dependent reduction in serum C3, with 88% mean reduction at highest dose tested;

◦a dose-dependent reduction in AH50, a marker of alternative complement pathway hemolytic activity, with 91% mean reduction at highest dose tested;

◦duration of pharmacologic effect supportive of quarterly or less frequent subcutaneous dose administration;

◦safety and tolerability;

•received notice from Janssen of its decision to voluntarily terminate the Janssen Collaboration Agreement

between the Company and Janssen. The Company regained full rights to ARO-PNPLA3, formerly called JNJ-75220795, upon termination of the Janssen Collaboration Agreement which took effect on April 7, 2023. ARO-PNPLA3 is in Phase 1 clinical trials that are now being developed by the Company;

•enrolled the first subject in a Phase 1 randomized, placebo-controlled trial to assess the safety tolerability, pharmacokinetics and pharmacodynamics of a development-stage medicine, HZN-457 (previously known as ARO-XDH), which is out-licensed to Horizon, triggering a $15.0 million milestone payment to the Company which was paid in the second quarter of fiscal 2023;

•enrolled the first subject in Amgen’s Phase 3 trial of Olpasiran, which triggered a $25.0 million milestone payment to the Company, which was paid in the second quarter of fiscal 2023;

•entered into the Royalty Pharma Agreement on November 9, 2022, pursuant to which Royalty Pharma paid $250.0 million upfront (See Note 11 — Liability Related to the Sale of Future Royalties of Notes to Consolidated Financial Statements of Part I, “Item 1. Financial Statements.”);

•announced top line results from the SEQUOIA Phase 2 Study of Fazirsiran in patients with Alpha-1 Antitrypsin Deficiency-Associated Liver Disease in which;

◦fibrosis regression was observed in 50% of patients receiving Fazirsiran;

◦median reductions of 94% of Z-AAT accumulation in the liver and mean reductions of 68% in histologic globule burden were observed;

◦treatment emergent adverse events were generally well balanced between Fazirsiran and placebo groups;

◦results were consistent with AROAAT-2002 open-label study previously published in The New England Journal of Medicine.

Net ~~losses were $13.2~~loss was $102.9 million ~~and $12.1 million during~~for the three months ended ~~December 31, 2017 and 2016, respectively. Diluted losses per share were $0.18 and $0.17 during~~June 30, 2023 as compared to $72.0 million for the three months ended ~~December 31, 2017 and 2016, respectively.~~

~~The Company strengthened its liquidity and financial position through an equity offering completed in January 2018, which generated approximately $56.7~~June 30, 2022. Net loss was $95.6 million ~~of net cash proceeds~~ for the ~~Company. These cash proceeds secured~~nine months ended June 30, 2023 as compared to $90.6 million for the ~~funding needed~~nine months ended June 30, 2022. Net loss per share – diluted was $0.96 for the three months ended June 30, 2023 as compared to ~~continue~~$0.68 for the three months ended June 30, 2022. Net loss per share – diluted was $0.90 for the nine months ended June 30, 2023 as compared to ~~advance our preclinical~~$0.86 for the nine months ended June 30, 2022.

The changes in net loss for the three and nine months ended June 30, 2023 reflect an increase in research and development expenses, which have continued to increase as the Company’s pipeline of candidates has expanded and progressed through clinical ~~candidates.~~ trial phases.

The Company had ~~$11.5~~$105.3 million of cash, ~~and~~ cash equivalents ~~$39.2~~and restricted cash, $346.4 million in short-term investments, $42.8 million of ~~short-term~~long-term investments and ~~$88.2~~$795.9 million of total assets as of ~~December 31, 2017,~~June 30, 2023, as compared to ~~$24.8~~$108.0 million ~~$40.8~~of cash, cash equivalents and restricted cash, $268.4 million in short-term investments, $105.9 million of long-term investments and ~~$104.0~~$691.9 million of total assets as of September 30, ~~2017, respectively.~~2022. Based upon the Company’s current cash and investment resources and operating plan, the Company expects to have sufficient liquidity to fund operations for at least the next twelve months.

Critical Accounting ~~Policies and~~ Estimates

~~Management makes certain judgments and uses certain~~

There have been no significant changes to the Company’s critical accounting estimates ~~and assumptions when applying GAAP~~disclosed in the ~~preparation~~most recent Annual Report on Form 10-K for the fiscal year ended September 30, 2022, except the Takeda revenue recognition described in Note 2 — Collaboration and License Agreements 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~~Notes 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.~~

Part I, “Item 1. Financial Statements.”

RESULTS OF OPERATIONS

The following data summarizes the Company’s results of operations for the following periods indicated:


	Three Months Ended June 30,				Nine Months Ended June 30,
	2023		2022		2023		2022
	(in thousands, except per share amounts)
Revenues	$	15,825	$	32,412	$	224,638	$	211,656
Operating loss	$	(102,703)	$	(72,909)	$	(96,672)	$	(94,677)
Net loss attributable to Arrowhead Pharmaceuticals, Inc.	$	(102,946)	$	(72,046)	$	(95,596)	$	(90,552)
Net loss per share-diluted	$	(0.96)	$	(0.68)	$	(0.90)	$	(0.86)

Revenue ~~Recognition~~

~~Revenue~~

Total revenue for the three months ended June 30, 2023 decreased to $15.8 million, or 51.2% from ~~product sales is recorded when persuasive evidence~~the same period of ~~an arrangement exists, title has passed~~2022. Total revenue for the nine months ended June 30, 2023 increased to $224.6 million, or 6.1% from the same period of 2022. The changes were primarily driven by the revenue recognition associated with GSK, Horizon, Takeda and ~~delivery has occurred, a price is fixed and determinable, and collection is reasonably assured.~~

Amgen license agreements, as discussed below. The Company ~~may generate~~has evaluated each agreement in accordance with FASB Topic 808–Collaborative Arrangements and Topic 606-Revenue for Contracts from Customers. See Note 2 — Collaboration and License Agreements to Consolidated Financial Statements of Part I, “Item 1. Financial Statements” for more information on revenue recognized under the collaboration and license agreements.

GSK

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

The Company determined the initial transaction price totaled $120.0 million, including the upfront payment, which was collected in January 2022 (see Note 2 — Collaboration and License Agreements to Consolidated Financial Statements of Part I, “Item 1. Financial Statements” for more information on revenue recognized under the GSK License Agreement). The Company has excluded any future estimated milestones or royalties from ~~technology licenses,~~this transaction price to date. The Company has allocated the total $120.0 million initial transaction price to its one distinct performance obligation for the GSK-4532990 license and the associated GSK R&D Services. As the Company has completed its performance obligation related to this agreement, the upfront payment of $120.0 million was fully recognized during the six months ended March 31, 2022. Further, GSK dosed the first patient in a Phase 2b trial in March 2023, triggering a $30.0 million milestone payment to the Company which was paid in the third quarter of fiscal 2023.

Horizon

On June 18, 2021, Horizon and the Company entered into the Horizon License Agreement. At the inception of the Horizon License Agreement, the Company identified one distinct performance obligation. The Company determined that the key deliverables included the license and certain R&D services, including the Company’s responsibilities to conduct all activities through the preclinical stages of development of HZN-457 (the “Horizon R&D Services”). 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 is responsible for managing future clinical development and commercialization of HZN-457.

The Company determined the initial transaction price totaled $40.0 million, including the upfront payment (see Note 2 — Collaboration and License Agreements to Consolidated Financial Statements of Part I, “Item 1. Financial Statements” for more information on revenue recognized under the Horizon License Agreement). The Company has excluded any future estimated milestones or royalties from this transaction price to date. The Company allocated the total $40.0 million initial transaction price to its one distinct performance obligation for the HZN-457 license and the associated Horizon R&D Services. Revenue was recognized on a straight-line basis over the timeframe for completing the Horizon R&D Services. The Company determined that the straight-line basis was appropriate as its efforts were expended evenly over the course of completing its performance obligation. Further, Horizon enrolled the first subject in December 2022 in a Phase 1

randomized, placebo-controlled trial to assess the safety, tolerability, pharmacokinetics and pharmacodynamics of HZN-457, triggering a $15.0 million milestone payment to the Company which was paid in the second quarter of fiscal 2023.

Takeda

On October 7, 2020, Takeda and the Company entered into the Takeda License Agreement. At the inception of the Takeda License Agreement, the Company identified one distinct performance obligation. The Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibilities to complete the initial portion of the SEQUOIA study, to complete the ongoing Phase 2 AROAAT2002 study and to ensure certain manufacturing of Fazirsiran drug product is completed and delivered to Takeda (the “Takeda R&D Services”). Due to the specialized and unique nature of these Takeda R&D Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation. Beyond the Takeda R&D Services, which are the responsibility of the Company, Takeda will be responsible for managing future clinical development and commercialization outside the United States. Within the United States, the Company will also participate in co-development and co-commercialization efforts and will co-fund these efforts with Takeda as part of the 50/50 profit sharing structure within the United States. The Company considers the collaborative activities, including the co-development and co-commercialization, to be a separate unit of account within Topic 808, and as such, these co-funding amounts are recorded as research and development ~~arrangements, research grants~~expenses or general and product sales. Revenue under technology licenses and collaborative agreements typically consists of nonrefundable and/or guaranteed technology license fees, collaborative research funding, manufacturing and development services and various milestone and future product royalty or profit-sharing payments. These agreements are generally referred toadministrative expenses, as ~~“multiple element arrangements”.~~

appropriate.

The Company ~~applies~~has allocated the ~~accounting standard on revenue recognition for multiple element arrangements. The fair value of deliverables under the arrangement may be derived using a best estimate of selling~~total $300.0 million initial transaction price ~~if vendor specific objective evidence and third-party evidence is not available. Deliverables under the arrangement will be separate units of accounting if a delivered item has value~~ to ~~the customer on a standalone basis and if the arrangement includes a general right of return~~its one distinct performance obligation for the ~~delivered item, delivery or performance of the undelivered item is considered probable and substantially in the Company’s control.~~

Whenever the Company determines that an arrangement should be accounted for as a single unit of accounting, the Company determines the period over which the performance obligations will be performed and revenue will be recognized.associated Takeda R&D Services. Revenue is recognized using a proportional performance ~~or straight-line method. The proportional performance~~ method ~~is used when~~(based on actual patient visits completed versus total estimated visits for the ~~level~~ongoing SEQUOIA and AROAAT2002 clinical studies). See Note 2 — Collaboration and License Agreements to Consolidated Financial Statements of ~~effort required to complete performance obligations under an arrangement can be reasonably estimated. The amount of~~Part I, “Item 1. Financial Statements” for more information on revenue recognized under the ~~proportional performance method is determined by multiplying~~Takeda License Agreement. The Company previously expected these clinical trials to extend to September 2025 in order to demonstrate long term safety and efficacy in the ~~total payments under the contract, excluding royalties and payments contingent upon achievement of milestones, by the ratio~~open label extension (OLE) part of the ~~level of effort performed~~studies; however, Takeda now intends to ~~date~~initiate a new OLE study available to patients participating in these Phase 2 studies that initiated in July 2023. Based on this new information, patients enrolled in the estimated total level of effort required to complete performance obligations under the arrangement. If the Company cannot reasonably estimate the level of effort to complete performance obligations under an arrangement, the Company recognizes revenue under the arrangement on a straight-line basis over the period the Company isSEQUOIA and AROAAT2002 studies are expected to complete ~~its~~their Phase 2 study visits between June 2023 and June 2024, shortening the Company’s performance ~~obligations. Significant management judgment is required in determining~~obligation. As a result, effective the ~~level~~second quarter of ~~effort required under an arrangement and the period over which~~fiscal 2023, the Company ~~is expected to complete~~changed its ~~performance obligations under an arrangement.~~

~~Many~~estimates of the ~~Company’s collaboration agreements entitle the Company~~revenue recognition to ~~additional payments upon the achievement~~better reflect these newly estimated proportional performance periods. The effect of ~~development, regulatory and sales performance-based milestones. If the achievement of a milestone is considered probable at the inception~~these changes in estimates resulted in accelerated revenue by $61.4 million, or $0.58 per share (diluted) for each of the ~~collaboration, the related milestone payment is included with other collaboration consideration, such as upfront fees~~three and ~~research funding, in the Company’s revenue calculation. Typically, these milestones are not considered probable at the inception~~nine months ended June 30, 2023. There were $16.9 million of the collaboration. As such, milestones will typically be recognized in one of two ways depending on the timing of when the milestone is achieved. If the milestone is achieved during the performance period, then the Company will only recognize revenue to the extent of the proportional performance achieved at that date, or the proportion of the straight-line basis achieved at that date, and the remainder will becontract liabilities recorded as deferred revenue, ~~to be amortized over~~which was classified as current as of June 30, 2023.

In March 2023, Takeda dosed the ~~remaining performance period. If~~first patient in the Phase 3 REDWOOD clinical study of Fazirsiran, triggering a $40.0 million milestone ~~is achieved after the performance period has completed and all performance obligations have been delivered, then~~payment to the Company ~~will recognize the milestone payment as revenue in its entirety~~which was paid in the ~~period the milestone was achieved.~~

~~Deferred revenue will be classified as part~~third quarter of Current or Long-Term Liabilities in the accompanying Consolidated Balance Sheets based on the Company’s estimate of the portion of the performance obligations regarding that revenue will be completed within the next 12 months divided by the total performance period estimate. This estimate is based on the Company’s current operating planfiscal 2023.

Amgen Inc. (“Amgen”)

On September 28, 2016, Amgen 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 of Long-lived Assets~~

We review long-lived assets for impairment whenever events or changes 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 are no longer appropriate. If impairment is indicated, recoverability is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected 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.

~~Impairment of Intangible assets~~

~~Intangible assets consist of~~entered into two collaboration and license agreements 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 ASU 2012-02, 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.

~~Stock-Based Compensation~~

We account for stock-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 itscommon 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. 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 by management.

~~Derivative Assets and Liabilities~~

We account for warrants and other derivative financial instruments as either equity or assets/liabilities based upon the characteristics and provisions of each instrument. Warrants classified as equity are recorded as additional paid-in capital on our Consolidated Balance Sheet and no further adjustments to their valuation are made. Some of our warrants were determined to be ineligible for equity classification because of provisions that may result in an adjustment to their exercise price. Warrants classified as derivative liabilities and other derivative financial instruments that require separate accounting as assets or liabilities are recorded on our Consolidated Balance Sheet at their fair value on the date of issuance and are revalued on each subsequent balance sheet date until such instruments are exercised or expire, with any changes in the fair value between reporting periods recorded as other income or expense. We estimate the fair value of these assets/liabilities using option pricing models that are based on the individual characteristics of the warrants or instruments on the valuation date, as well as assumptions for expected volatility, expected life and risk-free interest rate. Changes in the assumptions used could have a material impact on the resulting fair value. The primary input affecting the value of our derivatives liabilities is the Company’s stock price.

~~Contingent Consideration~~

The consideration for our acquisitions often includes future payments that are contingent upon the occurrence of a particular event. For example, milestone payments might be based on progress of clinical development, 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 the occurrence of such contingent payments based on various assumptions 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 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.

~~Results of Operations~~

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

Three Months Ended

Three Months Ended

December 31, 2017

December 31, 2016
Revenue

$
3,509,821

$
4,365,496

Operating Loss

(13,813,348
)

(14,901,887
)

Net Loss

(13,198,878
)

(12,086,108
)

Loss per Share (Basic and Diluted)

$
(0.18
)

$
(0.17
)

Our operating results were relatively consistent period over period. Operating Expenses were reduced given our clinical trial discontinuation in 2016, however this reduction was more than offset by reductions in Other Income and Revenue discussed further below.

~~Revenue~~

Total revenue was $3,509,821 and $4,365,496 for the three months ended December 31, 2017 and 2016, respectively. Revenue in the current period is primarily related to the upfront payments received from Amgen in 2016 that we are recognizing as Revenue as performance is completed for the ARO-LPA (AMG-890) and ARO-AMG1 Agreements. The decrease in our Revenue during the three months ended December 31, 2017 was driven by a reduction in the amount of Revenue recognized associated with the $30 million upfront payment received from Amgen associated with the ARO-LPA (AMG-890) Agreement. We recognized Revenue from the ARO-LPA (AMG-890) Agreement on a straight-line basis as performance was completed from November 2016 thru October 2017.

purchase agreement. Under the ~~terms of the ARO-LPA (AMG 890)~~Olpasiran Agreement, ~~the Company has granted~~Amgen received a worldwide, exclusive license to ~~ARO-LPA (AMG 890)~~.the Company’s novel RNAi Olpasiran program. Olpasiran is designed to reduce elevated lipoprotein(a), which is a genetically validated, independent risk factor for atherosclerotic cardiovascular disease. Amgen is wholly responsible for clinical development and commercialization. The ~~collaboration between~~Company has substantially completed its performance obligations under the Olpasiran Agreement.

Further, in November 2022, Royalty Pharma and the Company ~~and~~entered into the Royalty Pharma Agreement. In consideration for the payments under the Royalty Pharma Agreement, Royalty Pharma is entitled to receive all royalties otherwise payable by Amgen ~~is governed~~to the Company under the Olpasiran Agreement. The Company remains eligible to receive any milestone payments potentially payable by Amgen under the Olpasiran Agreement.

In December 2022, Amgen enrolled the first subject in its Phase 3 trial of Olpasiran, which triggered a ~~joint research committee comprised~~$25.0 million milestone payment to the Company which was paid in the second quarter of ~~an equal number of representatives from each party; however, Amgen has the final decision making authority regarding ARO-LPA (AMG 890)in this committee.~~fiscal 2023. The Company is ~~also responsible for assisting Amgen in the oversight of certain development and manufacturing activities, most of which are~~further eligible to ~~be covered at Amgen’s cost. The Company has determined that the significant deliverables under the ARO-LPA (AMG 890)~~Agreement include the license and the oversight of certain of the development and manufacturing activities. The Company also determined that, pursuant to the accounting guidance governing revenue recognition on multiple element arrangements, the license and collective undelivered activities and services do not have standalone value due to the specialized nature of the activities and services to be provided by the Company. Therefore, the deliverables are not separable and, accordingly, the license and undelivered services are being treated as a single unit of accounting. The Company recognized revenue on a straight-line basis from November 18, 2016 (the Hart-Scott-Rodino clearance date) through October 31, 2017, which is the date where the significant development and manufacturing related deliverables were completed. The Company received the upfront payment of $30 million due under this agreement in November 2016. The initial $30 million payment was recorded as Deferred Revenue, and $2.7 million of this was amortized into Revenue during the three months ended December 31, 2017. During the three months ended December 31, 2016, $3.7 million of this payment was amortized into Revenue. The initial $30 million payment has been fully recognized, and no balance remains in Deferred Revenue as of December 31, 2017.

Under the terms of the ARO-AMG1 Agreement, the Company has granted an option to a worldwide, exclusive license to ARO-AMG1, an undisclosed genetically validated cardiovascular target. The collaboration between the Company and Amgen is governed by a joint steering committee comprised of an equal number of representatives from each party. The Company is also responsible for developing, optimizing and manufacturing the candidate through certain preclinical efficacy and toxicology studies to determine whether the candidate the Company has developed meets the required criteria as defined in the agreement (the “Arrowhead Deliverable”). If this is achieved, Amgen will then have the optionreceive up to an ~~exclusive license for the intellectual property generated through the Company’s development efforts, and will likely assume all~~additional $535.0 million in aggregate development, regulatory, and commercialization efforts for the candidate upon the option exercise. The Company has determined that the significant deliverables under the ARO-AMG1 Agreement include the license, the joint research committeesales milestone payments from Amgen and the development and manufacturing activities toward achieving the Arrowhead Deliverable. The Company also determined that, pursuant to the accounting guidance governing revenue recognition on multiple element arrangements, the license and collective undelivered activities and services do not have standalone value due to the specialized nature of the activities and services to be provided by the Company. Therefore, the deliverables are not separable and, accordingly, the license and undelivered services are being treated as a single unit of accounting. The Company will recognize revenue on a straight-line basis from October 1, 2016, through September Royalty Pharma.

30 2018. The due date for achieving the Arrowhead Deliverable is September 28, 2018. The Company received the upfront payment of $5 million due under this agreement in September 2016. The initial $5 million payment was recorded as Deferred Revenue, and $0.6 million of this was amortized into Revenue during the three months ended December 31, 2017. During the three months ended December 31, 2016, $0.6 million of this payment was amortized into Revenue. Of the initial $5 million payment, $1.9 million remains in Deferred Revenue as of December 31, 2017.

Operating Expenses

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 three and nine months ended ~~December 31, 2017~~June 30, 2023 and ~~2016~~2022 are shown in the tables below.

Research and Development (R&D) Expenses ~~– Three months ended December 31, 2017 compared to the three months ended December 31, 2016~~

R&D expenses are related to the Company’s ~~on-going~~ 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~~the Company’s research ~~facility~~facilities in San Diego, California and Madison, Wisconsin, including facility costs and laboratory-related expenses. The Company does not separately track R&D expenses by individual research and development projects, or by individual drug candidates. The Company operates in a cross-functional manner across projects and does not separately allocate facilities-related costs, candidate costs, discovery costs, compensation expenses, depreciation and amortization expenses, and other expenses related to research and development activities.

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

~~(in thousands, except percentages)~~

Three

Three

Months Ended

% of Expense

Months Ended

% of Expense

Increase (Decrease)

December 31, 2017

Category

December 31, 2016

Category

$

%

Laboratory supplies & services

$
947

11
%

$
837

9
%

$
110

13
%
In vivo studies

680

8
%

461

5
%

219

48
%
Outside labs & contract services

73

1
%

132

1
%

(59
)

-45
%
Toxicity/efficacy studies

1,884

22
%

515

5
%

1,369

266
%
Drug manufacturing

3,345

40
%

2,225

23
%

1,120

50
%
Clinical trials

821

10
%

4,679

49
%

(3,858
)

-82
%
License, royalty & milestones

19

0
%

-

0
%

19

N/A

Facilities and related

594

7
%

592

6
%

2

0
%
Other research expenses

69

1
%

86

1
%

(17
)

-20
%
Total

$
8,432

100
%

$
9,527

100
%

$
(1,095
)

-11
%


(in thousands)	Three Months Ended June 30, 2023		% of Expense Category		Three Months Ended June 30, 2022		% of Expense Category		Increase (Decrease)
									$		%
Candidate costs	$	41,209	44	%	$	31,732	44	%	$	9,477	30	%
R&D discovery costs	20,253		21	%	15,081		21	%	5,172		34	%
Salaries	16,632		18	%	11,243		16	%	5,389		48	%
Facilities related	4,810		5	%	3,827		5	%	983		26	%
Total research and development expense, excluding non-cash expense	$	82,904	88	%	$	61,883	86	%	$	21,021	34	%
Stock compensation	8,982		9	%	8,098		11	%	884		11	%
Depreciation and amortization	2,871		3	%	2,200		3	%	671		31	%
Total research and development expense	$	94,757	100	%	$	72,181	100	%	$	22,576	31	%

~~Laboratory supplies and services expense~~


(in thousands)	Nine Months Ended June 30, 2023		% of Expense Category		Nine Months Ended June 30, 2022		% of Expense Category		Increase (Decrease)
									$		%
Candidate costs	$	110,079	43	%	$	101,789	47	%	$	8,290	8	%
R&D discovery costs	50,377		20	%	40,347		19	%	10,030		25	%
Salaries	47,725		19	%	33,641		16	%	14,084		42	%
Facilities related	11,601		5	%	7,644		4	%	3,957		52	%
Total research and development expense, excluding non-cash expense	$	219,782	87	%	$	183,421	86	%	$	36,361	20	%
Stock compensation	26,129		10	%	23,958		11	%	2,171		9	%
Depreciation and amortization	7,422		3	%	6,551		3	%	871		13	%
Total research and development expense	$	253,333	100	%	$	213,930	100	%	$	39,403	18	%

Candidate costs increased ~~by $110,000 from $837,000 during~~$9.5 million, or 30%, for the three months ended ~~December 31, 2016~~June 30, 2023 and $8.3 million, or 8%, for the nine months ended June 30, 2023 compared to ~~$947,000 during~~ the ~~current period. The~~same period of 2022. This increase ~~in laboratory supplies and services is a result of~~was primarily due to the additional ~~supply purchases necessary to support the expansion~~progression of the Company’s ~~preclinical~~ pipeline ~~as well as the development~~ of ~~the subcutaneous versions of its drug candidates.~~

~~In vivo studies expense~~candidates into and through clinical trials, which resulted in higher outsourced clinical trial, toxicity study and manufacturing costs.

R&D discovery costs increased ~~by $219,000 from $461,000 during~~$5.2 million, or 34%, for the three months ended ~~December 31, 2016 to $680,000 during the current period. In vivo expense can vary depending on the stage of preclinical candidates, the nature~~June 30, 2023 and amount of testing required and the cost variation of different in vivo testing models. The increase in in vivo studies in the current period is a result of additional discovery studies being conducted$10.0 million, or 25%, for the ~~Company’s subcutaneous candidates.~~

~~Outside labs and contract services expense decreased by $59,000 from $132,000 during the three~~nine months ended ~~December 31, 2016~~June 30, 2023 compared to ~~$73,000 during~~ the ~~current period. The decrease in outside labs and contract services in the current~~same period ~~is a result~~ of ~~additional discovery work being conducted in-house for the Company’s subcutaneous candidates.~~

~~Toxicity/efficacy studies expense increased by $1,369,000 from $515,000 during the three months ended December 31, 2016 to $1,884,000 during the current period.~~2022. 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 primarily relates to toxicology studies for ARO-AAT and ARO-HBV as each candidate moves toward clinical trials. We anticipate this expense to increase as we prepare to enter clinical trials with our new subcutaneous drug candidates.

Drug manufacturing expense increased by $1,120,000 from $2,225,000 during the three months ended December 31, 2016 to $3,345,000 during the current period. The increase primarily relates to manufacturing campaigns for ARO-AAT and ARO-HBV as each candidate moves toward clinical trials. We anticipate this expense to increase as we prepare to enter clinical trials with our new subcutaneous drug candidates.

~~Clinical trials expense decreased by $3,858,000 from $4,679,000 during the three months ended December 31, 2016 to $821,000 during the current period. The decrease is primarily~~was due to the ~~discontinuation~~growth of ~~our previous clinical candidates,~~the Company’s discovery efforts and ~~the close out of those studies. We anticipate this expense to increase as we prepare to enter clinical trials with our new subcutaneous drug candidates.~~

~~License, royalty~~continued advancement into novel therapeutic areas and milestones expense increased by $19,000 from $0 during the three months ended December 31, 2016 to $19,000 during the current period. 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 was consistent at $592,000 during the three months ended December 31, 2016 and $594,000 during the current period. This category includes rental costs for our research and development facility in Madison, Wisconsin.

Other research expense decreased by $17,000 from $86,000 during the three months ended December 31, 2016 to $69,000 during the current period. The decrease primarily relates to small non-recurring research expenses that occurred in the previous period.

~~Salaries – Three months ended December 31, 2017 compared to the three months ended December 31, 2016~~

~~The Company employs scientific, technical and administrative staff at its corporate offices and its research facility.~~ tissue types.

Salaries and ~~payroll-related~~stock compensation expense ~~consists~~consist of salary, bonuses, payroll taxes, related benefits and ~~related benefits. Salary~~stock compensation for the Company’s R&D personnel. The increases in salaries and payroll-related expenses include two major categories based on the primary activities of each employee: research and development (R&D) compensation expense and general and administrative (G&A) compensation expense. The following table provides details of salary and payroll-relatedstock comp expenses for the ~~periods indicated:~~

~~(in thousands, except percentages)~~

Three Months

% of

Three Months

% of

Ended

Expense

Ended

Expense

Increase (Decrease)

December 31, 2017

Category

December 31, 2016

Category

$

%

R&D - compensation-related

$
2,811

71
%

$
3,249

76
%

$
(438
)

-13
%
G&A - compensation-related

1,175

29
%

1,027

24
%

148

14
%
Total

$
3,986

100
%

$
4,276

100
%

$
(290
)

-7
%

~~R&D compensation expense decreased by $438,000 from $3,249,000 during the three~~nine months ended ~~December 31, 2016 to $2,811,000 during the current period. The decrease is~~June 30, 2023 were primarily due to an increase in R&D headcount that has occurred as the ~~reduction~~Company has expanded its pipeline of candidates, in ~~force in December 2016 associated with the discontinuation of our previous clinical candidates.~~

~~G&A~~addition to annual salary increases. Stock compensation expense increased by $148,000 from $1,027,000 during the three months ended December 31, 2016 to $1,175,000 during the current period. Additional headcount and salary adjustments accounted for the majority of the change in the current period.

~~General & Administrative Expenses – Three months ended December 31, 2017 compared to the three months ended December 31, 2016~~

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

~~(in thousands, except percentages)~~

Three

Three

Months Ended

% of Expense

Months Ended

% of Expense

Increase (Decrease)

December 31, 2017

Category

December 31, 2016

Category

$

%

Professional/outside services

$
665

40
%

$
695

38
%

$
(30
)

-4
%
Patent expense

348

21
%

287

16
%

61

21
%
Facilities and related

80

5
%

81

4
%

(1
)

-1
%
Travel

172

10
%

180

10
%

(8
)

-4
%
Business insurance

133

8
%

148

8
%

(15
)

-10
%
Communication and Technology

135

8
%

134

7
%

1

1
%
Office expenses

97

6
%

314

17
%

(217
)

-69
%
Other

41

3
%

15

1
%

26

173
%
Total

$
1,671

100
%

$
1,854

100
%

$
(183
)

-10
%

Professional/outside services include legal, accounting, consulting and other outside services retained by the Company. All periods include normally recurring legal and audit expenses related to SEC compliance and other corporate matters. Professional/outside services expense decreased by $30,000 from $695,000 during the three months ended December 31, 2016 to $665,000 during the current period. The decrease primarily related to small non-recurring professional fee charges incurred in 2016.

Patent expense increased by $61,000 from $287,000 during the three months ended December 31, 2016 to $348,000 during the current period. The Company continues to invest in patent protection for its product candidates and other RNAi technology through patent filings in numerous countries. The Company expects to extend and maintain protection for its current portfolios, as appropriate, and file new patent applications as technologies are developed and improved. Expenses can vary from period to period as patents proceed through their prosecution life cycle.

Facilities-related expense remained consistent at $81,000 and $80,000 in the three months ended December 31, 2016 and 2017, respectively. Facilities expense relates to recurring expenses associated with our corporate headquarters in Pasadena, California.

Travel expense decreased by $8,000 from $180,000 during the three months ended December 31, 2016 to $172,000 during the current period. Travel expense decreased due to the discontinuation of our clinical trials in November 2016 and reduction in R&D headcount. We anticipate this expense to increase as we prepare to enter clinical trials with our new subcutaneous drug candidates.

Business insurance expense decreased by $15,000 from $148,000 during the three months ended December 31, 2016 to $133,000 during the current period. Business insurance costs decreased primarily due to the disconintuation of our clinical trials in November 2016.

~~Communication and technology~~ was ~~consistent at $134,000 and $135,000 during the three months ended December 31, 2016 and 2017, respectively. This category includes costs associated with the Company’s IT infrastructure.~~

Office expense decreased by $217,000 from $314,000 during the three months ended December 31, 2016 to $97,000 during the current period. These expenses relate to conferences/training, office supplies, miscellaneous administrative expenses, and expenses related to office expansions at our R&D facility in Madison and our corporate headquarters in Pasadena. The decrease is primarily related to moving expenses for the Company’s move to its facility in Madison, Wisconsin in late 2016.

Other expense increased by $26,000 from $15,000 during the three months ended December 31, 2016 to $41,000 during the current period. This category consists primarily of conference attendance fees, franchise and property tax expenses and marketing expenses. The increase in other expense is primarily related to conference attendance fees recorded during the three months ended December 31, 2017.

~~Stock-based compensation expense~~

~~Stock-based compensation expense, a noncash expense, was $2,424,442 and $2,092,541 during the three months ended December 31, 2016 and 2017, respectively. Stock-based 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~~directors.

Facilities-related expense included lease costs for the Company’s ~~stock price on~~research and development facilities in San Diego, California and Madison, Wisconsin. Facilities-related costs increased $1.0 million, or 26%, for the ~~date~~three months ended June 30, 2023 and $4.0 million, or 52%, for the nine months ended June 30, 2023 compared to the same period of ~~the grant, as well as other assumptions. The decrease in the expense is primarily due to lower grant date fair values of recent awards~~2022. This increase was mainly due to the ~~Company’s stock price.~~

additional lease expense as the Company expands discovery efforts to identify new drug candidates.

Depreciation and amortization expense,

a non-cash expense, relates to depreciation on lab equipment and leasehold improvements at the facilities.

The Company anticipates these R&D expenses to continue to increase as its pipeline of candidates grows and progresses to later phase clinical trials, in addition to inflationary pressure on goods and services and the labor market.

General & Administrative Expenses

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


(in thousands)	Three Months Ended June 30, 2023		% of Expense Category		Three Months Ended June 30, 2022		% of Expense Category		Increase (Decrease)
									$		%
Salaries	$	5,063	21	%	$	3,175	10	%	$	1,888	59	%
Professional, outside services, and other	5,987		25	%	3,568		11	%	2,419		68	%
Facilities related	1,352		6	%	703		2	%	649		92	%
Total general & administrative expense, excluding non-cash expense	$	12,402	52	%	$	7,446	23	%	$	4,956	67	%
Stock compensation	10,965		46	%	25,292		76	%	(14,327)		(57)	%
Depreciation and amortization	404		2	%	403		1	%	1		—	%
Total general & administrative expense	$	23,771	100	%	$	33,141	100	%	$	(9,370)	(28)	%


(in thousands)	Nine Months Ended June 30, 2023		% of Expense Category		Nine Months Ended June 30, 2022		% of Expense Category		Increase (Decrease)
									$		%
Salaries	$	14,275	21	%	$	10,365	11	%	$	3,910	38	%
Professional, outside services, and other	15,293		22	%	11,004		12	%	4,289		39	%
Facilities related	3,377		5	%	2,085		2	%	1,292		62	%
Total general & administrative expense, excluding non-cash expense	$	32,945	48	%	$	23,454	25	%	$	9,491	40	%
Stock compensation	33,820		50	%	67,739		73	%	(33,919)		(50)	%
Depreciation and amortization	1,212		2	%	1,210		2	%	2		—	%
Total general & administrative expense	$	67,977	100	%	$	92,403	100	%	$	(24,426)	(26)	%

Salaries expense increased $1.9 million, or 59%, for the three months ended June 30, 2023 and $3.9 million, or 38%, for the nine months ended June 30, 2023 compared to the same period of 2022. The increase was driven by the combination of annual salary increases and increased headcount required to support the Company’s growth.

Professional, outside services, and other expense includes legal, consulting, patent expenses, business insurance expenses, other outside services, travel, communication and technology expenses. This expense increased $2.4 million, or 68%, for the three months ended June 30, 2023 and $4.3 million, or 39%, for the nine months ended June 30, 2023 compared to the same period of 2022. The increase was mainly due to consulting expenses related to software implementation and administrative expenses in support of additional headcount.

Facilities related expense primarily includes rental costs and other facilities-related costs for the Company’s corporate headquarters in Pasadena, California. Depreciation and amortization expense, a noncash expense, was ~~$1,185,611 and $1,141,173 during~~primarily related to amortization of leasehold improvements for the Company’s corporate headquarters.

Stock compensation expense, a non-cash expense, decreased by $14.3 million, or 57%, for the three months ended ~~December 31, 2016~~June 30, 2023 and ~~2017, respectively.~~$33.9 million, or 50%, for the nine months ended June 30, 2023 compared to the same periods of 2022. The ~~majority~~decrease was mainly due to the lower amount of ~~depreciation~~recognized compensation costs and ~~amortization expense relates~~the reversal of recognized compensation costs related to ~~depreciation on lab equipment at our Madison research facility. In addition,~~a performance award where the minimum performance goal was not met. The fair value of

market condition-based awards was expensed ratably over the service period and was not adjusted for actual achievement.

Other than with respect to the stock compensation costs described above, the Company ~~records depreciation~~anticipates these general and administrative expenses to continue to increase as its pipeline of candidates grows and progresses to later phase clinical trials, in addition to inflationary pressure on ~~leasehold improvements at its Madison research facility~~goods and ~~its Pasadena corporate headquarters. The expense was relatively consistent period to period.~~

services and the labor market.

Other Income (Loss)

Other income ~~/ expense~~

(loss) is primarily related to interest income and expense. Other income ~~/ expense was income of $2,815,779~~decreased $1.5 million and ~~$614,470 during~~$5.0 million for the three and nine months ended ~~December 31, 2016 and 2017, respectively.~~June 30, 2023, respectively, compared to the same periods of 2022. The ~~primary component of other income during~~decrease was primarily due to the ~~three months ended December 31, 2016 was a change in~~interest expense on the ~~value of derivative liabilities~~liability related to ~~certain warrants with a price adjustment feature, necessitating derivative accounting. The fluctuations were primarily driven~~the sale of future royalties, offset by ~~changes in the Company’s stock price, which had a corresponding impact to the valuation of the underlying warrants. Additionally, the Company recorded $1.3 million in other income~~higher yields on investments due to ~~an insurance settlement related to one of~~increased interest rates as well as various credits the ~~Company’s recent litigation cases. The settlement amount was~~Company received during the first three ~~months ended December 31, 2016.~~

~~Liquidity and Cash Resources~~

~~Arrowhead~~quarters of fiscal 2023.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations through the sale of its ~~securities.~~equity securities, revenue from its licensing and collaboration agreements, and the sale of certain future royalties. Research and development activities have required significant capital investment since the Company’s inception and are expected to continue to require significant cash ~~investment.~~

~~At December 31, 2017,~~expenditure as the Company’s pipeline continues to expand and matures into later stage clinical trials. Additionally, the Company ~~had~~expanded its facilities in Verona, Wisconsin and commenced the lease agreement for additional facilities in San Diego, California. Each of these expansions is designed to increase the Company’s internal manufacturing and discovery capabilities, and each will require significant capital investment.

The Company’s cash, ~~on hand of approximately $11.5~~cash equivalents and restricted cash decreased to $105.3 million asat June 30, 2023 compared to ~~$24.8~~$108.0 million at September 30, ~~2017. Excess cash~~2022. Cash invested in short-term fixed income securities was ~~$39.2~~$346.4 million at ~~December 31, 2017,~~June 30, 2023 compared to ~~$40.8~~$268.4 million at September 30, ~~2017. Additionally, on January 22, 2018,~~2022. Cash invested in long-term fixed income securities was $42.8 million at June 30, 2023, compared to $105.9 million at September 30, 2022. On December 2, 2022, the Company ~~sold 11,500,000~~entered into the Open Market Sale Agreement, pursuant to which the Company may, from time to time, sell up to $250.0 million in shares of ~~Common Stock~~the Company’s common stock through Jefferies LLC, acting as the sales agent and/or principal, in ~~a fully underwritten public offering, at a public offering price~~an at-the-market offering. As of ~~$5.25 per share. Net proceeds to~~June 30, 2023, no shares have been issued under the ~~Company were approximately $56.7 million after deducting underwriting commissions and discounts and other offering expenses payable by the Company.~~Open Market Sale Agreement. The Company believes its current financial resources are sufficient to fund its operations through at least the next twelve months.

The following table presents a summary of cash ~~flows for~~flows:


	Nine Months Ended June 30,
	2023		2022
	(in thousands)
Cash Flow from:
Operating activities	$	(128,633)	$	(67,394)
Investing activities	(126,664)		(41,862)
Financing activities	252,901		64,331
Net decrease in cash, cash equivalents and restricted cash	$	(2,396)	$	(44,925)

Cash, cash equivalents and restricted cash at end of period	$	105,334	$	139,439

During the ~~three~~nine months ended ~~December 31, 2017~~June 30, 2023, cash flows used by operating activities was $128.6 million, which was primarily due to the ongoing expenses related to the Company’s research and ~~2016 is~~development programs and general and administrative expenses, partially offset by the receipt of $110.0 million from collaboration and license agreements (see Note 2 — Collaboration and License Agreements to Consolidated Financial Statements of Part I, “Item 1. Financial Statements”). Cash used in investing activities was $126.7 million, which was primarily related to capital expenditures, $112.8 million of construction in progress, and $234.0 million purchases of investments, offset by maturities of investments of $220.2 million. Cash provided by financing activities of $252.9 million was primarily related to the $250.0 million payment from Royalty Pharma as ~~follows:~~

well as cash received from stock option exercises.See Note 11 — Liability Related to the Sale of Future Royalties of Notes to Consolidated Financial Statements of Part I, “Item 1. Financial Statements.”

Three Months Ended December 31, 2017

Three Months Ended December 31, 2016

Cash Flow from Continuing Operations:

Operating Activities

$
(14,690,480
)

$
10,000,191

Investing Activities

1,356,966

(5,296,653
)
Financing Activities

26,292

12,035,583

Net Increase (Decrease) in Cash

(13,307,222
)

16,739,121

Cash at Beginning of Period

24,838,567

85,366,448

Cash at End of Period

$
11,531,345

$
102,105,569

During the ~~three~~nine months ended ~~December 31, 2017, the Company~~June 30, 2022, cash flows used ~~$14.7 million in cash from~~by operating activities ~~for~~was $67.4 million, which was primarily due to the ~~on-going~~receipt of the $120.0 million upfront payment from GSK, offset by the ongoing expenses ~~of its~~related to the Company’s research and development programs and general and administrative expenses. Cash ~~provided by~~used in investing activities was ~~$1.4~~$41.9 million, which was primarily related to the purchase of property and equipment of $20.1 million and net purchases and maturities of ~~fixed-income~~ investments of ~~$6.5 million offset by purchases of fixed-income securities of $5.0~~$21.8 million. Cash provided by financing activities of ~~$26,292~~$64.3 million was ~~driven~~related to the formation of the Company's joint venture, Visirna, as well as cash received from stock option exercises.

On December 20, 2021, the Company completed a purchase of 13 acres of land in the Verona Technology Park in Verona, Wisconsin, which is being developed into an approximately 160,000 square foot drug manufacturing facility and an approximately 140,000 square foot laboratory and office facility which will support the Company’s process development and analytical activities. The Company has incurred $102.7 million and intends to spend an additional $160.0 million to $180.0 million to complete the build out of the facilities with cash on hand. As part of this land purchase, the Company entered into a development agreement with the City of Verona to construct certain infrastructure improvements within the tax incremental district and expects to be reimbursed up to $16.0 million by the ~~$0.2~~City of Verona by future tax increment revenue generated from the developed property. The total amount of funding that City of Verona is expected to pay under the Tax Incremental Financing program is not guaranteed and will depend on future tax revenues generated from the developed property. The Company also expects receive up to $2.5 million of ~~cash generated~~refundable Wisconsin state income tax

credits from ~~warrant exercises offset by $0.2 million of payments against a note payable.~~

~~During~~ the ~~three months ended December 31, 2016,~~Wisconsin Economic Development Corporation (WEDC) as incentives to invest in the Company generated $10.0 million in cash from operating activities, primarily driven by the $30 million upfront payment received from Amgen. This was partially offset by cash used for on-going expenses of its researchlocal community and development programs and corporate overhead. Cash used in investing activities was $5.3 million, which was primarily related to capital expenditures for leasehold improvements on the Company’s Madison research facility and lab equipment purchases. Cash generated by financing activities of $12.0 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.

~~Off-Balance Sheet Arrangements~~

~~We do not have any off-balance sheet arrangements or relationships.~~

create new jobs.

~~ITEM 3.~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in ~~our~~the Company’s exposure to market risk from that described in Item 7A of ~~our~~its Annual Report on Form 10-K for the year ended September 30, ~~2017, filed with the Securities and Exchange Commission on December 12, 2017.~~

2022.

~~ITEM 4.~~

ITEM 4. CONTROLS AND PROCEDURES

~~Our Chief Executive Officer~~

Evaluation of Disclosure Controls and our Chief Financial Officer, after evaluating our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e)) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”), have concluded that, as of the Evaluation Date, ourProcedures

The Company maintains disclosure controls and procedures ~~are effective~~designed to ensure that information ~~we are~~ required to ~~disclose~~be disclosed in its reports ~~that we file or submit~~filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and ~~to ensure~~ that ~~information required to be disclosed by us in~~ such ~~reports~~information is accumulated and communicated to ~~our~~its management, including ~~our~~its Chief Executive Officer and Chief Financial Officer, ~~where~~as appropriate, to allow for timely decisions regarding required disclosure.

No In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

As required by Rule 13a-15(b) of the Exchange Act, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the quarter covered by this Quarterly Report on Form 10-Q. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal ~~controls~~control 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~~the Company’s internal control over financial reporting.

The Company regularly evaluates its controls and procedures and makes improvements in the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during this process.

PART II—OTHER INFORMATION

~~ITEM 1.~~

ITEM 1. LEGAL PROCEEDINGS

From time to time, wethe Company may be involved in routine legal proceedings, as well as demands, claims and threatened litigation, which arise in the normal course of ~~our~~its business. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings, particularly complex legal proceedings, cannot be predicted with any certainty. ~~We disclosed information about certain of our~~There have been no material developments in the legal proceedings that the Company disclosed in Part I, Item 3 of ~~our~~its Annual Report on Form 10-K for the year ended September 30, ~~2017. For an update to those disclosures, see Note 7 to the Consolidated Financial Statements under the heading “Litigation” in Part I, Item 1.~~

2022.

~~ITEM 1A.~~

~~Risk Factors~~

ITEM 1A. RISK FACTORS

~~There have been no material changes~~

The Company’s business, results of operations and financial conditions are subject to various risks. These risks are described elsewhere in this Quarterly Report on Form 10-Q and in the ~~risk factors included in our~~Company’s other filings with the SEC, including the Company’s Annual Report on Form 10-K for the year ended September 30, ~~2017. Please carefully consider the information set forth in this Quarterly Report on Form 10-Q and~~2022. There have been no material changes from the risk factors ~~discussed~~identified in ~~Part I, “Item 1A. Risk Factors” in our~~the Company’s Annual Report on Form 10-K for the year ended September 30, 2017, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K, as well as other risks and uncertainties, could materially and adversely affect our business, results of operations and financial condition, which in turn could materially and adversely affect the trading price of shares of our Common Stock. Additional risks not currently known or currently material to us may also harm our business.

2022.

~~ITEM 2.~~

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

~~All information under this Item has been previously reported on our Current Reports on Form 8-K.~~

None.

~~ITEM 3.~~

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

~~ITEM 4.~~

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

~~ITEM 5.~~

ITEM 5. OTHER INFORMATION

~~None.~~

During the quarter ended June 30, 2023, no director or officer adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement.

~~ITEM 6.~~

ITEM 6. EXHIBITS

Exhibit Number	~~Document Description~~
Exhibit Number		Document Description
~~31.1~~
3.1		Amended and Restated Certificate of Incorporation (incorporated by reference from Exhibit 3.3 of the Company’s Form 8-K filed on April 6, 2016)

3.2		Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Arrowhead Pharmaceuticals, Inc. (incorporated by reference from Exhibit 3.2 of the Company’s Form 10-Q filed on May 2 , 20 2 3 )

3.3		Second Amended and Restated Bylaws of Arrowhead Pharmaceuticals, Inc., as amended January 24, 2023 (incorporated by reference from Exhibit 3.3 of the Company’s Form 10-Q filed on May 2, 2023)

31.1*		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*2002

~~31.2~~ 31.2*		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*2002

~~32.1~~ 32.1**		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**2002

~~32.2~~ 32.2**		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002**2002

~~101~~ 101.INS*		Inline XBRL Instance Document

101.SCH*		Inline XBRL Taxonomy Extension Schema Document

101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document

101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document

104*		The ~~following materials~~cover page from ~~Registrant’s~~this Quarterly Report on Form 10-Q, ~~for the quarter ended December 31, 2017,~~ formatted in Inline XBRL (Extensible Business Reporting Language): (1) Consolidated Balance Sheets, (2) Consolidated Statements of Operations, (3) Consolidated Statement of Stockholders’ Equity, (4) Consolidated Statements of Cash Flows, and (5) Notes to Consolidated Financial Statements. **

*	~~Filed herewith~~ (included as Exhibit 101)

**	~~Furnished herewith~~

_________________

*Filed herewith.

**Furnished herewith.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: ~~February 9, 2018~~

August 7, 2023


		ARROWHEAD PHARMACEUTICALS, INC.

~~By:~~		By:	/s/ Kenneth A. Myszkowski
			Kenneth A. Myszkowski
	Chief Financial Officer
			(Principal Financial Officer and Duly Authorized Officer)


			Page(s)
PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS ~~(unaudited)~~			1

Consolidated Balance Sheets			1

Consolidated Statements of Operations and Comprehensive Loss			2

Consolidated ~~Statement~~Statements of Stockholders’ Equity			3

Consolidated Statements of Cash Flows			4

Notes to Consolidated Financial Statements			5

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			18 25

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			27 35

ITEM 4. CONTROLS AND PROCEDURES			27 35

PART II — OTHER INFORMATION			36

ITEM 1. LEGAL PROCEEDINGS			28 36

ITEM 1A. RISK FACTORS			28 36

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			28 36

ITEM 3. DEFAULTS UPON SENIOR SECURITIES			28 36

ITEM 4. MINE SAFETY DISCLOSURES			28 36

ITEM 5. OTHER INFORMATION			28 36

ITEM 6. EXHIBITS			29 37

SIGNATURE			30 38

	(unaudited)
	December 31, 2017			September 30, 2017
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	11,531,345		$	24,838,567
Accounts receivable		149,931			67,797
Prepaid expenses		651,239			867,363
Other current assets		1,604,986			1,359,638
Short term investments		39,169,376			40,769,539
TOTAL CURRENT ASSETS		53,106,877			67,902,904
Property and equipment, net		14,932,366			15,513,019
Intangible assets, net		20,039,332			20,464,439
Other assets		141,918			141,918
TOTAL ASSETS	$	88,220,493		$	104,022,280
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	5,707,047		$	4,076,514
Accrued expenses		3,478,512			4,564,507
Accrued payroll and benefits		1,936,024			3,399,679
Deferred rent		440,580			440,580
Deferred revenue		1,875,001			5,269,741
Derivative liabilities		20,445			695,114
Note Payable		212,233			208,506
Other current liabilities		46,407			46,407
TOTAL CURRENT LIABILITIES		13,716,249			18,701,048
LONG-TERM LIABILITIES
Deferred rent, net of current portion		1,834,392			1,929,052
Note Payable, net of current portion		2,270,542			2,325,018
Other non-current liabilities		200,000			200,000
TOTAL LONG-TERM LIABILITIES		4,304,934			4,454,070
Commitments and contingencies (Note 7)
STOCKHOLDERS’ EQUITY
Arrowhead Pharmaceuticals, Inc. stockholders' equity:
Common stock, $0.001 par value; 145,000,000 shares authorized; 74,917,876 and 74,785,426 shares issued and outstanding as of December 31, 2017 and September 30, 2017, respectively		167,287			167,155
Additional paid-in capital		516,577,723			514,037,301
Accumulated other comprehensive income (loss)		23,704			33,232
Accumulated deficit		(446,014,216	)		(432,815,338	)
Total Arrowhead Pharmaceuticals, Inc. stockholders' equity		70,754,498			81,422,350
Noncontrolling interest		(555,188	)		(555,188	)
TOTAL STOCKHOLDERS’ EQUITY		70,199,310			80,867,162
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	88,220,493		$	104,022,280

	Three Months ended			Three Months ended
	December 31, 2017			December 31, 2016
REVENUE	$	3,509,821		$	4,365,496
OPERATING EXPENSES
Research and development		8,431,903			9,527,051
Salaries and payroll-related costs		3,986,367			4,276,105
General and administrative expenses		1,671,185			1,854,174
Stock-based compensation		2,092,541			2,424,442
Depreciation and amortization		1,141,173			1,185,611
TOTAL OPERATING EXPENSES		17,323,169			19,267,383
OPERATING LOSS		(13,813,348	)		(14,901,887	)
OTHER INCOME (EXPENSE)
Interest income (expense), net		163,731			25,148
Change in value of derivatives		450,739			1,483,831
Other income (expense)		-			1,306,800
TOTAL OTHER INCOME (EXPENSE)		614,470			2,815,779
LOSS BEFORE INCOME TAXES		(13,198,878	)		(12,086,108	)
Provision for income taxes		-			-
NET LOSS		(13,198,878	)		(12,086,108	)
NET LOSS PER SHARE - BASIC & DILUTED	$	(0.18	)	$	(0.17	)
Weighted average shares outstanding - basic and diluted		74,831,415			71,444,600
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign Currency Translation Adjustments		(9,528	)		(192,608	)
COMPREHENSIVE LOSS	$	(13,208,406	)	$	(12,278,716	)


	December 31, 2017			September 30, 2017
Computers, office equipment and furniture	$	600,334		$	600,334
Research equipment		9,796,374			9,660,960
Software		132,078			132,078
Leasehold improvements		12,208,380			12,208,380
Total gross fixed assets		22,737,166			22,601,752
Less: Accumulated depreciation and amortization		(7,804,800	)		(7,088,733	)
Property and equipment, net	$	14,932,366		$	15,513,019

	As of December 31, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Commercial notes (due within one year)	$	39,169,376	$	—	$	(376,905)	$	38,792,471

	As of September 30, 2017
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Commercial notes (due within one year)	$	40,769,539	$	—	$	(334,755)	$	40,434,784

Exercise prices		Number of Warrants		Remaining Life in Years
$	2.12		75,000		0.2
$	1.83		11,023		0.1
$	7.14		80,000		0.5
Total warrants outstanding			166,023

2018 (remainder of)re	$	1,150,247
2019		1,435,409
2020		1,044,431
2021		1,070,496
2022		1,097,168
2023 and thereafter		4,669,328
Total	$	10,467,079

2018 (remainder of)	$	157,757
2019		223,820
2020		240,258
2021		257,903
2022		276,845
2023 and thereafter		1,326,192
Total	$	2,482,775

	Number of Options Outstanding		Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term		Aggregate Intrinsic Value
Balance At September 30, 2017		5,549,543	$	6.00
Granted		115,000		3.60
Cancelled		(47,207)		13.70
Exercised		–		–
Balance At December 31, 2017		5,617,336	$	5.89		6.3 years	$	2,474,103
Exercisable At December 31, 2017		4,169,205	$	6.40		5.6 years	$	1,301,464

	Three Months Ended December 31,
	2017	2016
Dividend yield	—	—
Risk-free interest rate	2.05 – 2.22%	1.34 – 1.44%
Volatility	110%	79%
Expected life (in years)	6.25	6.25
Weighted average grant date fair value per share of options granted	$3.03	$4.49

2013 Warrants	December 31, 2017	September 30, 2017
Risk-free interest rate	1.01%	1.07%
Expected life	0.1 Years	0.3 Years
Dividend yield	—	—
Volatility	110%	79%

Value at September 30, 2017	$	695,114
Issuance of instruments		—
Change in value		(450,739	)
Net settlements		(223,930	)
Value at December 31, 2017	$	20,445

	Three					Three
	Months Ended		% of Expense			Months Ended		% of Expense			Increase (Decrease)
	December 31, 2017		Category			December 31, 2016		Category			$			%
Laboratory supplies & services	$	947		11	%	$	837		9	%	$	110			13	%
In vivo studies		680		8	%		461		5	%		219			48	%
Outside labs & contract services		73		1	%		132		1	%		(59	)		-45	%
Toxicity/efficacy studies		1,884		22	%		515		5	%		1,369			266	%
Drug manufacturing		3,345		40	%		2,225		23	%		1,120			50	%
Clinical trials		821		10	%		4,679		49	%		(3,858	)		-82	%
License, royalty & milestones		19		0	%		-		0	%		19		N/A
Facilities and related		594		7	%		592		6	%		2			0	%
Other research expenses		69		1	%		86		1	%		(17	)		-20	%
Total	$	8,432		100	%	$	9,527		100	%	$	(1,095	)		-11	%

	Three Months		% of			Three Months		% of
	Ended		Expense			Ended		Expense			Increase (Decrease)
	December 31, 2017		Category			December 31, 2016		Category			$			%
R&D - compensation-related	$	2,811		71	%	$	3,249		76	%	$	(438	)		-13	%
G&A - compensation-related		1,175		29	%		1,027		24	%		148			14	%
Total	$	3,986		100	%	$	4,276		100	%	$	(290	)		-7	%


	Three Months Ended December 31, 2017			Three Months Ended December 31, 2016
Cash Flow from Continuing Operations:
Operating Activities	$	(14,690,480	)	$	10,000,191
Investing Activities		1,356,966			(5,296,653	)
Financing Activities		26,292			12,035,583
Net Increase (Decrease) in Cash		(13,307,222	)		16,739,121
Cash at Beginning of Period		24,838,567			85,366,448
Cash at End of Period	$	11,531,345		$	102,105,569