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

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

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

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

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

The number of shares of the registrant’s common stock outstanding as of ~~April 30,~~August 2, 2021 was ~~104,084,876.~~104,259,256.

	(unaudited) March 31, 2021			September 30, 2020			(unaudited) June 30, 2021			September 30, 2020
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	372,377		$	143,583		$	325,981		$	143,583
Accounts receivable		955			845			671			845
Prepaid expenses		6,639			4,250			7,276			4,250
Other current assets		1,845			1,782			1,696			1,782
Marketable securities		125,793			85,020			126,407			85,020
Short term investments (held to maturity)		79,148			86,890
Short term investments								63,924			86,890
TOTAL CURRENT ASSETS		586,757			322,370			525,955			322,370
Property and equipment, net		39,400			30,881			47,786			30,881
Intangible assets, net		14,513			15,363			14,088			15,363
Long term investments (held to maturity)		97,490			137,487
Right-of-use assets		18,370			16,138
Long term investments								128,376			137,487
Operating Lease - Right-of-use assets								18,450			16,138
Other assets		265			265			272			265
TOTAL ASSETS	$	756,795		$	522,504		$	734,927		$	522,504
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	5,299		$	6,829		$	10,037		$	6,829
Accrued expenses		12,862			5,389			29,525			5,405
Accrued payroll and benefits		2,859			8,061			3,648			8,061
Lease liabilities		1,272			1,095			1,290			1,095
Deferred revenue		144,879			19,291			150,934			19,291
Other current liabilities		17			16
TOTAL CURRENT LIABILITIES		167,188			40,681			195,434			40,681
LONG-TERM LIABILITIES
Lease liabilities, net of current portion		22,528			20,044			22,854			20,044
Deferred revenue, net of current portion		121,530			-			79,749			-
TOTAL LONG-TERM LIABILITIES		144,058			20,044			102,603			20,044
Commitments and contingencies (Note 7)
STOCKHOLDERS’ EQUITY
Arrowhead Pharmaceuticals, Inc. stockholders’ equity:
Common stock, $0.001 par value; 145,000 shares authorized; 104,020 and 102,376 shares issued and outstanding as of March 31, 2021 and September 30, 2020, respectively		196			195
Common stock, $0.001 par value; 145,000 shares authorized; 104,209 and 102,376 shares issued and outstanding as of June 30, 2021 and September 30, 2020, respectively								197			195
Additional paid-in capital		996,645			965,410			1,017,949			965,410
Accumulated other comprehensive income		102			18			62			18
Accumulated deficit		(551,394	)		(503,844	)		(581,318	)		(503,844	)
TOTAL STOCKHOLDERS’ EQUITY		445,549			461,779			436,890			461,779
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	756,795		$	522,504		$	734,927		$	522,504

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

	Three Months Ended March 31,						Six Months Ended March 31,						Three Months Ended June 30,						Nine Months Ended June 30,
	2021			2020			2021			2020			2021			2020			2021			2020
REVENUE	$	32,811		$	23,529		$	54,113		$	52,983		$	45,891		$	27,376		$	100,004		$	80,359
OPERATING EXPENSES
Research and development		44,697			29,443			81,251			52,817			59,325			32,573			140,576			85,390
General and administrative expenses		16,346			16,326			25,147			27,260			18,434			10,749			43,581			38,009
TOTAL OPERATING EXPENSES		61,043			45,769			106,398			80,077			77,759			43,322			184,157			123,399
OPERATING INCOME (LOSS)		(28,232	)		(22,240	)		(52,285	)		(27,094	)		(31,868	)		(15,946	)		(84,153	)		(43,040	)
OTHER INCOME (EXPENSE)
Interest income, net		1,524			2,404			3,692			4,585			1,280			2,335			4,972			6,920
Other income (expense)		(110	)		-			1,043			-			664			-			1,707			-
TOTAL OTHER INCOME (EXPENSE)		1,414			2,404			4,735			4,585			1,944			2,335			6,679			6,920
INCOME (LOSS) BEFORE INCOME TAXES		(26,818	)		(19,836	)		(47,550	)		(22,509	)		(29,924	)		(13,611	)		(77,474	)		(36,120	)
Provision for income taxes		-			-			-			-			-			-			-			-
NET INCOME (LOSS)		(26,818	)		(19,836	)		(47,550	)		(22,509	)		(29,924	)		(13,611	)		(77,474	)		(36,120	)
NET INCOME (LOSS) PER SHARE - BASIC	$	(0.26	)	$	(0.20	)	$	(0.46	)	$	(0.23	)	$	(0.29	)	$	(0.13	)	$	(0.75	)	$	(0.36	)
NET INCOME (LOSS) PER SHARE - DILUTED	$	(0.26	)	$	(0.20	)	$	(0.46	)	$	(0.23	)	$	(0.29	)	$	(0.13	)	$	(0.75	)	$	(0.36	)
Weighted average shares outstanding - basic		103,867			101,653			103,303			99,359			104,099			101,843			103,569			100,184
Weighted average shares outstanding - diluted		103,867			101,653			103,303			99,359			104,099			101,843			103,569			100,184
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation adjustments		(96	)		(433	)		84			(238	)		(40	)		454			44			216
COMPREHENSIVE INCOME (LOSS)	$	(26,914	)	$	(20,269	)	$	(47,466	)	$	(22,747	)	$	(29,964	)	$	(13,157	)	$	(77,430	)	$	(35,904	)

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

	Common Stock		Amount ($)		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Non-controlling Interest			Totals			Common Stock		Amount ($)		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Non-controlling Interest			Totals
Balance at December 31, 2019		101,112	$	193	$	922,051		$	(196	)	$	(421,964	)	$	(555	)	$	499,529
Stock-based compensation		-		-		12,972			-			-			-			12,972
Exercise of stock options		214		-		1,330			-			-			-			1,330
Common stock - restricted stock units vesting		422		1		(1	)		-			-			-			-
Common stock - issued for cash		-		-		2			-			-			-			2
Foreign currency translation adjustments		-		-		-			(433	)		-			-			(433	)
Net income (loss) for the three months ended March 31, 2020		-		-		-			-			(19,836	)		-			(19,836	)
Balance at March 31, 2020		101,748	$	194	$	936,354		$	(629	)	$	(441,800	)	$	(555	)	$	493,564			101,748	$	194	$	936,354		$	(629	)	$	(441,800	)	$	(555	)	$	493,564

	Common Stock		Amount ($)		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Totals
Balance at December 31, 2020		103,194	$	195	$	978,655		$	198		$	(524,576	)	$	454,472
Stock-based compensation		-		-		15,359			-			-			15,359						-		-		10,046			-			-			-			10,046
Exercise of stock options		282		-		2,632			-			-			2,632						303		-		2,133			-			-			-			2,133
Common stock - restricted stock units vesting		544		1		(1	)		-			-			-						200		-		(1	)		-			-			-			(1	)
Foreign currency translation adjustments		-		-		-			(96	)		-			(96	)					-		-		-			454			-			-			454
Net income (loss) for the three months ended March 31, 2021		-		-		-			-			(26,818	)		(26,818	)
Net income (loss) for the three months ended June 30, 2020																					-		-		-			-			(13,611	)		-			(13,611	)
Balance at June 30, 2020																					102,251	$	194	$	948,532		$	(175	)	$	(455,411	)	$	(555	)	$	492,585

																				Common Stock		Amount ($)		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Totals
Balance at March 31, 2021		104,020	$	196	$	996,645		$	102		$	(551,394	)	$	445,549						104,020	$	196	$	996,645		$	102		$	(551,394	)	$	445,549
Stock-based compensation																					-		-		18,549			-			-			18,549
Exercise of stock options																					161		1		2,755			-			-			2,756
Common stock - restricted stock units vesting																					28		-		-			-			-			-
Foreign currency translation adjustments																					-		-		-			(40	)		-			(40	)
Net income (loss) for the three months ended June 30, 2021																					-		-		-			-			(29,924	)		(29,924	)
Balance at June 30, 2021																					104,209	$	197	$	1,017,949		$	62		$	(581,318	)	$	436,890

	Common Stock		Amount ($)		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Non-controlling Interest			Totals			Common Stock		Amount ($)		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Non-controlling Interest			Totals
Balance at September 30, 2019		95,506	$	187	$	664,086		$	(391	)	$	(419,291	)	$	(555	)	$	244,036			95,506	$	187	$	664,086		$	(391	)	$	(419,291	)	$	(555	)	$	244,036
Stock-based compensation		-		-		17,464			-			-			-			17,464			-		-		27,510			-			-			-			27,510
Exercise of stock options		686		1		4,331			-			-			-			4,332			989		1		6,463			-			-			-			6,464
Common stock - restricted stock units vesting		956		1		(1	)		-			-			-			-			1,156		1		(1	)		-			-			-			-
Common stock - issued for cash		4,600		5		250,474			-			-			-			250,479			4,600		5		250,474			-			-			-			250,479
Foreign currency translation adjustments		-		-		-			(238	)		-			-			(238	)		-		-		-			216			-			-			216
Net income (loss) for the six months ended March 31, 2020		-		-		-			-			(22,509	)		-			(22,509	)
Balance at March 31, 2020		101,748	$	194	$	936,354		$	(629	)	$	(441,800	)	$	(555	)	$	493,564
Net income (loss) for the nine months ended June 30, 2020																					-		-		-			-			(36,120	)		-			(36,120	)
Balance at June 30, 2020																					102,251	$	194	$	948,532		$	(175	)	$	(455,411	)	$	(555	)	$	492,585

	Common Stock		Amount ($)		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Totals						Common Stock		Amount ($)		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Totals
Balance at September 30, 2020		102,376	$	195	$	965,410		$	18		$	(503,844	)	$	461,779						102,376	$	195	$	965,410		$	18		$	(503,844	)	$	461,779
Stock-based compensation		-		-		23,502			-			-			23,502						-		-		42,051			-			-			42,051
Exercise of stock options		820		-		7,734			-			-			7,734						981		1		10,489			-			-			10,490
Common stock - restricted stock units vesting		824		1		(1	)		-			-			-						852		1		(1	)		-			-			-
Foreign currency translation adjustments		-		-		-			84			-			84						-		-		-			44			-			44
Net income (loss) for the six months ended March 31, 2021		-		-		-			-			(47,550	)		(47,550	)
Balance at March 31, 2021		104,020	$	196	$	996,645		$	102		$	(551,394	)	$	445,549
Net income (loss) for the nine months ended June 30, 2021																					-		-		-			-			(77,474	)		(77,474	)
Balance at June 30, 2021																					104,209	$	197	$	1,017,949		$	62		$	(581,318	)	$	436,890

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

	Six Months Ended March 31,						Nine Months Ended June 30,
	2021			2020			2021			2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(47,550	)	$	(22,509	)	$	(77,474	)	$	(36,120	)
Stock-based compensation		23,502			17,464			42,051			27,510
Depreciation and amortization		3,766			2,632			5,763			4,168
Amortization/(accretion) of note premiums/discounts		193			419			142			653
Changes in operating assets and liabilities:
Accounts receivable		(109	)		(604	)		174			(21,031	)
Prepaid expenses and other current assets		(2,213	)		47			(2,895	)		(863	)
Deferred revenue		247,118			(49,630	)		211,392			(56,530	)
Accounts payable		(1,530	)		5,768			3,208			(3,576	)
Accrued expenses		2,271			(5,425	)		13,682			(54	)
Other		(497	)		723			(702	)		1,302
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		224,951			(51,115	)		195,341			(84,541	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(11,437	)		(7,929	)		(15,368	)		(10,067	)
Purchases of investments		(40,000	)		(180,523	)		(95,195	)		(193,964	)
Proceeds from sale of investments		47,545			19,603			87,130			29,148
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		(3,892	)		(168,849	)		(23,433	)		(174,883	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercises of stock options		7,735			4,332			10,490			6,464
Proceeds from the issuance of common stock		-			250,479			-			250,479
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		7,735			254,811			10,490			256,943
NET INCREASE (DECREASE) IN CASH		228,794			34,847			182,398			(2,481	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		143,583			221,804			143,583			221,804
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	372,377		$	256,651		$	325,981		$	219,323

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

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

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

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

During ~~the first half of~~ fiscal year 2021, the Company continued to develop its pipeline and partnered candidates. The Company ~~hosted a key opinion leader webinar on its cardiometabolic candidates, ARO-APOC3 and ARO-ANG3. The Company presented~~announced positive interim clinical data ~~from~~on (i) AROAAT2002, an open-label Phase 2 clinical study of ARO-AAT, the Company’s second-generation investigational RNAi therapeutic being ~~developed~~co-developed with Takeda as a treatment for the rare genetic liver disease associated with ~~AATD.~~AATD, (ii) AROHSD1001, a Phase 1/2 clinical study of ARO-HSD, the Company’s investigational RNAi therapeutic being developed as a treatment for patients with alcohol-related and nonalcohol related liver diseases, such as nonalcoholic steatohepatitis (NASH), and (iii) AROHIF21001, a Phase 1b dose-finding clinical study of ARO-HIF2, the Company’s investigational RNAi therapeutic being developed as a treatment for patients with clear cell renal cell carcinoma. The Company also ~~announced~~presented preclinical data on the development of ARO-DUX4, the Company’s investigational RNAi therapeutic being developed as a treatment for patients with facioscapulohumeral muscular dystrophy (FSHD), at the 28th Annual FSHD Society International Research Congress. The Company hosted a key opinion leader webinar on its cardiometabolic candidates, ARO-APOC3 and ARO-ANG3, and presented positive clinical data ~~on its cardiometabolic candidates,~~from the Phase 1/2 clinical studies of ARO-APOC3 and ARO-ANG3 at the American Heart Association Scientific Sessions 2020. The Company filed two Investigational New Drug Applications with the United States Food and Drug Administration (the “FDA”) to begin a Phase 2b clinical study of ARO-APOC3 in patients with severe hypertriglyceridemia and a Phase 2b clinical study of ARO-ANG3 in patients with mixed ~~dyslipidemia. Finally,~~dyslipidemia, and initiated these two Phase 2b clinical studies in the third quarter of fiscal year 2021. In July 2021, the Company voluntarily paused AROENaC1001, a Phase 1/2 clinical study of ARO-ENaC, the Company’s investigational RNAi therapeutic being developed as a treatment for patients with cystic fibrosis, after receiving a preliminary update from an ongoing chronic toxicology study in rats that contained unexpected signals of local lung inflammation. New screening, enrollment and any further dosing of investigational ARO-ENaC have been paused pending additional data from ongoing nonclinical toxicology studies. The Company announced two collaborations during the first three quarters of fiscal year 2021: a collaboration with Takeda to co-develop and co-commercialize ARO-AAT for alpha-1 antitrypsin-associated liver ~~disease.~~disease and a collaboration with Horizon to develop ARO-XDH, an investigational RNAi therapeutic for uncontrolled gout. In July 2021, the Company received Breakthrough Therapy designation from the FDA for ARO-AAT, which is a process designed to expedite the development and review of drugs that are intended to treat a serious life-threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. The Company also earned a $10 million payment in connection with Janssen’s exercise of its option right for ARO-JNJ1 in May 2021, which option grants Janssen all rights, including licenses, and obligations to develop and commercialize ARO-JNJ1. See Note 2 for more information regarding the Company’s collaboration ~~with Takeda.~~and license agreements.

The Company’s partnered candidates under its collaboration agreements also continued to progress. Janssen began dosing patients in a Phase 2b triple combination study called REEF-1, designed to enroll up to 450 patients with chronic hepatitis B infection. ~~In connection with the start of this study, Arrowhead earned a $25.0 million milestone payment under the Company’s License Agreement with Janssen (“Janssen License Agreement”).~~ The Company is currently performing discovery, optimization and preclinical research and development for ARO-JNJ1, ARO-JNJ2 and ARO-JNJ3 for Janssen as part of the Company’s Research Collaboration and Option Agreement with Janssen (“Janssen Collaboration Agreement”). Under the terms of the Janssen agreements taken together, the Company has received $175.0 million as an upfront payment, $75.0 million in the form of an equity investment by Johnson & Johnson Innovation-JJDC, Inc. (“JJDC”) in Arrowhead Common Stock, ~~two $25.0 million~~and three milestone payments ~~and~~totaling $60.0 million, which include a $10 million payment for Janssen’s exercise of its option right for ARO-JNJ1 in May 2021. The Company may receive up to $1.6 billion in additional development and sales milestones payments for the Janssen License Agreement, and up to $1.9 billion in additional development and sales milestone payments for the 3 additional targets covered under the Janssen Collaboration Agreement. The Company is further eligible to receive tiered royalties on product sales up to mid-teens under the Janssen License Agreement and up to low teens under the Janssen Collaboration Agreement.

The Company’s collaboration agreement with Amgen for Olpasiran (previously referred to as AMG 890 or ARO-LPA) (the “Second Collaboration and License Agreement” or “Olpasiran Agreement”) continues to progress. In July 2020, Amgen initiated a Phase 2 clinical study, which resulted in a $20.0 million milestone payment to the Company. The Company has received $35.0 million in upfront payments, $21.5 million in the form of an equity investment by Amgen in the Company’s Common Stock, $30.0 million in milestone payments, and may receive up to an additional $400.0 million in remaining development, regulatory and sales

milestone payments. The Company is eligible to receive up to low double-digit royalties for sales of products under the Olpasiran Agreement.

On October 7, 2020, the Company entered into an Exclusive License and Co-Funding Agreement with Takeda (the “Takeda License Agreement”). Under the Takeda License Agreement, Takeda and the Company will co-develop the Company’s ARO-AAT program. Within the United States, ARO-AAT, if approved, will be co-commercialized under a 50/50 profit sharing structure. Outside the United States, Takeda will lead the global commercialization strategy and receive an exclusive license to commercialize ARO-AAT with the Company eligible to receive tiered royalties of 20% to 25% on net sales. In January 2021, the Company received $300.0 million as an upfront payment and is eligible to receive potential development, regulatory and commercial milestones of up to $740.0 million.

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

The revenue recognition for these collaboration agreements is discussed further in Note 2 below.

The Company is actively monitoring the ongoing COVID-19 pandemic. The financial results for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2021 were not significantly impacted by COVID-19. During fiscal year 2020, the Company had temporarily paused enrollment in its two ARO-AAT studies, SEQUOIA and the ARO-AAT 2002 study, but resumed the process of screening and enrolling patients. During the pause in enrollment, patients already enrolled in these studies continued to be dosed per protocol and continued to come in for their follow up visits. Additional delays have occurred in the Company’s earlier stage ~~programs, but the Company does not expect a material impact to any program’s anticipated timelines.~~programs. Additionally, the Company’s operations at its research and development facilities in Madison, Wisconsin and San Diego, California, and its corporate headquarters in Pasadena, California have continued to operate with limited impact, other than for enhanced safety measures, including work from home policies. However, the Company cannot predict the impact the progression of COVID-19 will have on future financial results due to a variety of factors including the ability of the Company’s clinical sites to continue to enroll subjects, the ability of the Company’s suppliers to continue to operate, the continued good health and safety of the Company’s employees, and ultimately the length and severity of the COVID-19 pandemic.

The Consolidated Financial Statements have been prepared in conformity with the accounting principles generally accepted in the United States of America (“GAAP”), which contemplate the continuation of the Company as a going concern. Historically, the Company’s primary sources of financing have been through the sale of its securities and revenue from its collaboration agreements. Research and development activities have required significant capital investment since the Company’s inception. The Company expects its operations to continue to require cash investment to pursue its research and development goals, including clinical trials and related drug manufacturing.

At ~~March 31,~~June 30, 2021, the Company had ~~$372.4~~$326.0 million in cash and cash equivalents (including $2.4 million in restricted cash), ~~$79.1~~$63.9 million in short-term investments, ~~$125.8~~$126.4 million in marketable securities and ~~$97.5~~$128.4 million in long-term investments to fund operations. During the ~~six~~nine months ended ~~March 31,~~June 30, 2021, the Company’s cash and investments balance increased by ~~$221.8~~$191.7 million, which was primarily the result of the ~~$300~~$300.0 million upfront payment from the Takeda License Agreement, partially offset by cash used to fund the Company’s research and development operations and general and administrative expenses.

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

In November 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-18 Collaborative Arrangements (Topic 808). This update provides clarification on the interaction between Revenue Recognition (Topic 606) and Collaborative Arrangements (Topic 808) including the alignment of unit of account guidance between the two topics. ASU 2018-18 became effective for the Company on October 1, 2020 and did not have a material impact on its Consolidated Financial Statements.

In August 2018, the FASB issued ASU No. 2018-15 Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. The new standard requires that certain implementation costs for cloud computing arrangements are capitalized and amortized over the term of the associated hosted cloud computing arrangement service. Capitalized implementation costs are classified in prepaid expenses and other assets. The amortization of the capitalized asset is presented in the same line on the statement of operations and comprehensive loss as the fees for the associated hosted cloud computing arrangement service and not included with depreciation or amortization expense related to property and equipment or intangible assets. Cash flows related to capitalized implementation costs are presented in cash flows used in operating activities. ASU 2018-15 became effective for the Company on October 1, 2020 and did not have a material impact on its Consolidated Financial Statements.

On September 28, 2016, the Company entered into 2 collaboration and license agreements and a common stock purchase agreement with Amgen. Under the Second Collaboration and License Agreement or Olpasiran Agreement, Amgen has received a worldwide, exclusive license to Arrowhead’s novel, RNAi Olpasiran (previously referred to as AMG 890 or ARO-LPA) program. These RNAi molecules are designed to reduce elevated lipoprotein(a), which is a genetically validated, independent risk factor for atherosclerotic cardiovascular disease. Under the other collaboration and license agreement (the “First Collaboration and License Agreement” or the “ARO-AMG1 Agreement”), Amgen received an option to a worldwide, exclusive license for ARO-AMG1, an RNAi therapy for an undisclosed genetically validated cardiovascular target. In both agreements, Amgen is wholly responsible for clinical development and commercialization. Under the terms of the agreements taken together, the Company has received $35.0 million in upfront payments, $21.5 million in the form of an equity investment by Amgen in the Company’s Common Stock, and $30.0 million in milestone payments, and may receive up to an additional $400.0 million in remaining development, regulatory and sales milestone payments. The Company is further eligible to receive up to low double-digit royalties for sales of products under the Olpasiran Agreement. In July 2019, Amgen informed the Company that it would not be exercising its option for an exclusive license for ARO-AMG1, and as such, there will be no further milestone or royalty payments under the ARO-AMG1 Agreement.

The Company substantially completed its performance obligations under the Olpasiran Agreement and the ARO-AMG1 Agreement. Future milestones and royalties achieved will be recognized in their entirety when earned. In July 2020, Amgen initiated a Phase 2 clinical study of Olpasiran, which resulted in a $20.0 million milestone payment to the Company. During the three ~~and six~~ months ended ~~March 31,~~June 30, 2021 and 2020, the Company recognized $0 and $0$20.0 of revenue, respectively. During the nine months ended June 30, 2021 and 2020, the Company recognized $0 and $20.0 million of revenue, respectively.As of ~~March 31,~~June 30, 2021, there were $0 in contract assets recorded as accounts receivable and $0 of contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.

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 is responsible for completing, Janssen is ~~also~~ wholly responsible for clinical development and commercialization of JNJ-3989. Under the Janssen Collaboration Agreement, Janssen will be able to select three new targets against which Arrowhead will develop clinical candidates. These candidates are subject to certain restrictions and do not include candidates that already were in the Company’s pipeline. The Company will perform discovery, optimization and preclinical research and development, entirely funded by Janssen, which on its own or in combination with Janssen development work, is sufficient to allow the filing of a U.S. Investigational New Drug Application or equivalent, at which time Janssen will have the option to take an exclusive license. If the option is exercised, Janssen will be wholly responsible for clinical development and commercialization of each optioned candidate. Under the terms of the agreements taken together, the Company has received $175.0 million as an upfront payment, $75.0 million in the form of an equity investment by JJDC in Arrowhead Common Stock under the JJDC Stock Purchase Agreement, and ~~two $25.0 million~~three milestone payments totaling $60.0 million, and may receive up to $1.6 billion in development and sales milestones payments for the Janssen License Agreement, and up to $1.9 billion in development and sales milestone payments for the 3 additional targets covered under the Janssen Collaboration Agreement. The Company is further eligible to receive tiered royalties on product sales up to mid-teens under the Janssen License Agreement and up to low teens under the Janssen Collaboration ~~Agreement on product sales.~~Agreement.

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

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, ~~the~~ two $25.0 million milestone payments ~~earned~~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. This revenue will be recognized using a proportional performance method (based on actual costs incurred versus total estimated costs incurred) beginning in October 2018 and ending as the Company’s efforts in overseeing the Phase 1/2 clinical trial are completed. During the three months ended ~~March 31,~~June 30, 2021 and 2020, the Company recognized approximately ~~$7.5~~$0 million and ~~$22.2~~$6.9 million of revenue associated with this performance obligation, respectively. During the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020, the Company recognized approximately $20.2 million and ~~$50.9~~$57.9 million of revenue associated with this performance obligation, respectively. As of ~~March 31,~~June 30, 2021, there were ~~$0.6~~$0.4 million in contract assets recorded as accounts receivable, and $0 of contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.

The Company has begun to conduct its discovery, optimization and preclinical research and development of ARO-JNJ1, ARO-JNJ2 and ARO-JNJ3 under the Janssen Collaboration Agreement. All costs and labor hours spent by the Company will be entirely funded by Janssen. During the three months ended ~~March 31,~~June 30, 2021 and 2020, the Company recognized ~~$0.1~~$0.2 million and ~~$1.4~~$0.4 million of revenue associated with these efforts, respectively. During the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020, the Company recognized ~~$0.3~~$0.5 million and ~~$2.1~~$2.4 million of revenue associated with these efforts, respectively. In May 2021, Janssen exercised its option right for ARO-JNJ1, which resulted in a $10.0 million milestone payment to the Company. This $10 million milestone payment was recognized entirely during the three months ended June 30, 2021.As of ~~March 31,~~June 30, 2021, there were $0.3 million of contract assets recorded as accounts receivable and $0 of contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.

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

The Company has evaluated the Takeda License Agreement in accordance with FASB Topic 606 - Revenue for Contracts from Customers, which became effective for the Company on October 1, 2018. At the inception of the Takeda License Agreement, the Company identified 1 distinct performance obligation. The Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibilities to complete the initial portion of the SEQUOIA study, to complete the ongoing Phase 2 AROAAT2002 study and to ensure certain manufacturing of ARO-AAT drug product is completed and delivered to Takeda (the “Takeda R&D Services”). Due to the specialized and unique nature of these Takeda R&D Services and their direct relationship with the license, the Company determined that these deliverables represent 1 distinct bundle and, thus, one performance obligation. Beyond the Takeda R&D Services, which are the responsibility of the Company, Takeda will be responsible for managing future clinical development and commercialization. The Company will co-fund certain of the development and commercialization costs that Takeda manages, and these co-funding amounts will be ~~offset against amounts owed to Arrowhead, either from milestones~~recorded as Research and Development Expenses or ~~royalties earned, or profits earned under the 50/50 profit sharing structure for U.S. commercialization.~~General and Administrative Expenses, as appropriate.

The Company determined the initial transaction price totaled approximately $300.0 million, which includes the upfront payment. The Company ~~will exclude~~has excluded any future estimated milestones, royalties, or profit-sharing payments from this transaction price to date. The Company ~~will allocate~~has allocated the total $300.0 million initial transaction price to its one distinct performance obligation for the ARO-AAT license and the associated Takeda R&D Services. Revenue will be recognized using a proportional performance method (based on actual costs incurred versus total estimated costs incurred for the Takeda R&D Services). Revenue for the three months ended ~~March 31,~~June 30, 2021 and 2020 ~~were $25.4~~was $35.7 million and $0, respectively. Revenue for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020 ~~were $33.6~~was $69.3 million and $0, respectively. As of ~~March 31,~~June 30, 2021, there were $0 in contract assets recorded as accounts receivable, ~~$144.9~~$150.9 million in contract liabilities recorded as deferred revenue and ~~$121.5~~$79.7 million in contract liabilities recorded as deferred revenue, net of the current portion.

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

The Company has evaluated the Horizon License Agreement in accordance with FASB Topic 606 - Revenue for Contracts from Customers, which became effective for the Company on October 1, 2018. At the inception of the Horizon License Agreement, the Company identified one distinct performance obligation. The Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibilities to conduct all activities through the preclinical stages of development of ARO-XDH (the “Horizon R&D Services”). Due to the specialized and unique nature of these Horizon R&D Services and their direct relationship with the license, the Company determined that these deliverables represent 1 distinct bundle and, thus, 1 performance obligation. Beyond the Horizon R&D Services, which are the responsibility of the Company, Horizon will be responsible for managing future clinical development and commercialization of ARO-XDH.

The Company determined the initial transaction price totaled approximately $40.0 million, which includes the upfront payment. The Company will exclude any future estimated milestones, royalties, or profit-sharing payments from this transaction price to date. The Company will allocate the total $40.0 million initial transaction price to its 1 distinct performance obligation for the ARO-XDH license and the associated Horizon R&D Services. Revenue will be recognized using a proportional performance method. At June 30, 2021, no amounts were recorded on the Company’s Consolidated Balance Sheets or Consolidated Statements of Operations and Comprehensive Income (Loss), as the Company has not performed any substantive Horizon R&D Services.

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

	March 31, 2021			September 30, 2020			June 30, 2021			September 30, 2020
	(In thousands)						(In thousands)
Computers, office equipment and furniture	$	1,022		$	662		$	1,163		$	662
Research equipment		23,894			20,654			23,972			20,654
Software		599			631			509			631
Leasehold improvements		33,107			25,238			42,934			25,238
Total gross fixed assets		58,622			47,185			68,578			47,185
Less: Accumulated depreciation and amortization		(19,222	)		(16,304	)		(20,792	)		(16,304	)
Property and equipment, net	$	39,400		$	30,881		$	47,786		$	30,881

Depreciation and amortization expense for property and equipment for the three months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$1.5~~$1.6 million and ~~$0.9~~$1.1 million, respectively. Depreciation and amortization expense for property and equipment for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$2.9~~$4.5 million and ~~$1.8~~$2.9 million, respectively.

Investments at ~~March 31,~~June 30, 2021 primarily consisted of corporate bonds that have maturities of less than 36 months, a certificate of deposit and marketable equity securities. The Company’s corporate bonds consist of both short-term and long-term bonds and are classified as “held-to-maturity” on the Company’s Consolidated Balance Sheets. The Company’s certificate of deposit matures in less than 24 months and is classified as “held-to-maturity” on the Company’s Consolidated Balance Sheet. The Company’s marketable equity securities consist of mutual funds that primarily invest in U.S. government bonds, U.S. government agency bonds, corporate bonds and other asset-backed debt securities. Dividends from these funds are automatically reinvested. The Company may also invest excess cash balances in ~~certificates of deposits,~~ money market accounts, government-sponsored enterprise securities, ~~corporate bonds~~ and/or commercial paper. The Company accounts for its held to maturity investments in accordance with FASB ASC 320, Investments – Debt and Equity Securities and its marketable equity securities in accordance with ASC 321, Investments – Equity Securities.

The following tables summarize the Company’s short-term and long-term investments and marketable securities as of ~~March 31,~~June 30, 2021 and September 30, 2020 by measurement category.

Held to Maturity	As of March 31, 2021									As of June 30, 2021
	(In thousands)									(In thousands)
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		��	Gross Unrealized Losses			Fair Value
Commercial notes (due within one year)	$	79,148	$	887	$	-		$	80,035	$	63,924	$	711		$	-		$	64,635
Commercial notes (due within one through three years)	$	97,490	$	2,655	$	(66	)	$	100,079	$	78,376	$	1,996		$	-		$	80,372
Certificate of deposit (due within two years)										$	50,000	$	-		$	-		$	50,000
Total	$	176,638	$	3,542	$	(66	)	$	180,114	$	192,300	$	2,707		$	-		$	195,007

	As of September 30, 2020									As of September 30, 2020
	(In thousands)									(In thousands)
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains			Gross Unrealized Losses			Fair Value
Commercial notes (due within one year)	$	86,890	$	1,590	$	-		$	88,480	$	86,890	$	1,590		$	-		$	88,480
Commercial notes (due within one through three years)	$	137,487	$	4,573	$	(79	)	$	141,981	$	137,487	$	4,573		$	(79	)	$	141,981
Total	$	224,377	$	6,163	$	(79	)	$	230,461	$	224,377	$	6,163		$	(79	)	$	230,461

Fair Value	As of March 31, 2021											As of June 30, 2021
	(In thousands)											(In thousands)
	Cost		Realized Gains/(Losses)		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cost		Realized Gains/(Losses)		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Marketable securities	$	125,000	$	1,079	$	205	$	(491	)	$	125,793	$	125,000	$	1,796	$	204	$	(593	)	$	126,407
Total	$	125,000	$	1,079	$	205	$	(491	)	$	125,793	$	125,000	$	1,796	$	204	$	(593	)	$	126,407

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

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

Intangible assets subject to amortization include patents and a license agreement capitalized as part of the Novartis RNAi asset acquisition in March 2015. The license agreement associated with the Novartis RNAi asset acquisition is being amortized over the estimated life remaining at the time of acquisition, which was 21 years, and the accumulated amortization of the asset is $0.9 million. The patents associated with the Novartis RNAi asset acquisition are being amortized over the estimated life remaining at the time of acquisition, which was 14 years, and the accumulated amortization of the assets is ~~$9.4~~$9.8 million. Amortization expense for the three months ended ~~March 31,~~June 30, 2021 and 2020 was $0.4 million and $0.4 million, respectively. Amortization expense for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$0.9~~$1.3 million and ~~$0.9~~$1.3 million, respectively. Amortization expense is expected to be ~~$0.9~~$0.4 million for the remainder of 2021, $1.7 million in 2022, $1.7 million in 2023, $1.7 million in 2024, $1.7 million in 2025 and ~~$6.8~~$6.9 million thereafter.

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

	Intangible assets subject to amortization			Intangible assets subject to amortization
	(in thousands)			(in thousands)
Balance at September 30, 2020	$	15,363		$	15,363
Impairment		-			-
Amortization		(850	)		(1,275	)
Balance at March 31, 2021	$	14,513
Balance at June 30, 2021				$	14,088

At ~~March 31,~~June 30, 2021, the Company had a total of 150,000,000 shares of capital stock authorized for issuance, consisting of 145,000,000 shares of Common Stock, par value $0.001 per share, and 5,000,000 shares of Preferred Stock, par value $0.001 per share.

At ~~March 31,~~June 30, 2021, ~~104,019,546~~104,209,347 shares of Common Stock were outstanding. At ~~March 31,~~June 30, 2021, ~~16,819,225~~15,381,164 shares of Common Stock were reserved for issuance upon exercise of options and vesting of restricted stock units granted or available for grant under Arrowhead’s 2004 Equity Incentive Plan, 2013 Incentive Plan, and 2021 Incentive Plan, as well as for inducement grants made to new ~~employees.~~employees under Rule 5635(c)(4) of the Nasdaq Listing Rules.

From time to time, the Company may be subject to various claims and legal proceedings in the ordinary course of business. If the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount is reasonably estimable, the Company will accrue a liability for the estimated loss. There were 0 contingent liabilities recorded as of the ~~six~~nine months ended ~~March 31,~~June 30, 2021.

In the normal course of business, the Company enters into various purchase commitments for the manufacture of drug components, for toxicology studies and for clinical studies. As of ~~March 31,~~June 30, 2021, these future commitments were estimated at approximately ~~$136.0~~$177.4 million, of which approximately ~~$78.0~~$39.0 million is expected to be incurred during the remainder of fiscal year 2021.

The Company has licensed from third parties the rights to use certain technologies for its research and development activities, as well as in any products the Company may develop using these licensed technologies. These agreements and other similar agreements often require milestone and royalty payments. Milestone payments, for example, may be required as the research and development process progresses through various stages of development, such as when clinical candidates enter or progress through clinical trials, upon a new drug application and upon certain sales level milestones. These milestone payments could amount to the mid to upper double-digit millions of dollars. During the three and ~~six~~nine months ended ~~March 31,~~June 30, 2021, the Company did 0t reach any milestones. During the three and ~~six~~nine months ended ~~March 31,~~June 30, 2020, the Company accrued amilestone payments of $0 and $0.9 million, ~~milestone payment~~respectively, related to the progression of the ARO-ENaC program. In certain agreements, the Company may be required to make mid to high single-digit percentage royalty payments based on a percentage of the sales of the relevant products.

In April 2019, the Company entered into a lease for its corporate headquarters in Pasadena, California. The 91 month office building lease between the Company and 177 Colorado Owner, LLC is for approximately 24,000 square feet of office space located at 177 E. Colorado Blvd, Pasadena, California. The increased capacity of this new office space compared to the Company’s prior corporate headquarters ~~will~~was intended to accommodate increased personnel as the Company’s pipeline of drug candidates expands and moves closer to market. Lease payments began on September 30, 2019 and are estimated to total approximately $8.7 million over the term. The lease expires on April 30, 2027. The Company has paid approximately $3.5 million for leasehold improvements, net of tenant improvement allowances. The lease contains an option to renew for 1 additional term of five years. The exercise of this option was not determined to be reasonably certain and thus was not included in lease liabilities on the Company’s Consolidated Balance Sheet at ~~March 31,~~June 30, 2021. On October 23, 2020, the Company entered into a lease expansion to add an additional approximately 24,000 square feet of office space at the same location for its corporate headquarters. ~~The lease commencement date is expected to be~~Lease payments for the expansion began in ~~June~~July 2021 ~~after certain leasehold improvements are completed,~~ and the lease for the expansion expires in April 2027. The lease payments for the expansion are expected to total $6.9 million. The Company anticipates paying approximately $4.2 million of leasehold improvements, net of tenant improvement ~~allowances.~~allowances, for the lease expansion. The increased capacity of this additional office space compared to the Company’s current corporate headquarters ~~will~~is intended to accommodate increased personnel as the Company’s pipeline of drug candidates ~~expands~~continues to expand and ~~moves~~move closer to market.

In January 2016, the Company entered into a lease for its research facility in Madison, Wisconsin. The lease ~~was~~is for approximately 60,000 square feet of office and laboratory space and ~~had~~has an expiration date of September 30, 2026. The lease was amended in January 2019 and May 2020 to expand the rentable square feet by an additional 40,000 total square feet and extend the lease expiration date to September 30, 2031. Lease payments are estimated to total approximately $26.2 million for the term. The Company ~~anticipates paying~~incurred approximately $11.0 million of leasehold improvements for the additional 40,000 square feet, net of tenant improvement allowances. The lease contains 2 options to renew for two additional terms of five years. The exercise of these options were not determined to be reasonably certain and thus was not included in lease liabilities on the Company’s Consolidated Balance Sheet at ~~March 31,~~June 30, 2021. In November 2020 and December 2020, the Company entered into amendments to expand the rentable square space by an additional 10,743 square feet and these amendments added a total of approximately $1.2 million of lease payments for the remainder of the term.

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

Operating lease cost during the three months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$1.1~~$1.6 million and ~~$0.5~~$0.8 million, respectively. Operating lease cost during the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$2.0~~$3.6 million and ~~$0.9~~$1.7 million, respectively. Variable lease costs for the three months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$0.2~~$0.1 million and $0.2 million, respectively. Variable lease costs for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$0.5~~$0.6 million and ~~$0.3~~$0.6 million, respectively. There was 0 short-term lease cost during the three and ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020.

The following table presents maturities of operating lease liabilities on an undiscounted basis as of ~~March 31,~~June 30, 2021:

	(in thousands)			(in thousands)
2021 (remainder of fiscal year)	$	1,740		$	964
2022		4,522			4,522
2023		4,624			4,624
2024		4,523			4,523
2025		4,649			4,649
2026 and thereafter		17,421			17,422
Total	$	37,479		$	36,704
Less imputed interest	$	(13,679	)	$	(12,560	)
Total operating lease liabilities (includes current portion)	$	23,800		$	24,144

Cash paid for the amounts included in the measurement of the operating lease liabilities on the Company’s Consolidated Balance Sheet and included in Other changes in operating assets and liabilities within cash flows from operating activities on the Company’s Consolidated Statement of Cash Flow for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$1.4~~$2.2 million and ~~$0.6~~$1.1 million, respectively. The weighted-average remaining lease term and weighted-average discount rate for all leases as of ~~March 31,~~June 30, 2021 was ~~8.5~~8.3 years and 8.5%, respectively.

Arrowhead has three plans that provide for equity-based compensation. Under the 2004 Equity Incentive Plan and the 2013 Incentive Plan, as of ~~March 31,~~June 30, 2021, ~~468,993~~429,141 and ~~6,593,291~~5,293,368 shares, respectively, of Arrowhead’s Common Stock are reserved for the grant of stock options, stock appreciation rights, restricted stock awards and performance unit/share awards to employees, consultants and others. No further grants may be made under the 2004 Equity Incentive Plan. As of ~~March 31,~~June 30, 2021, there were options granted and outstanding to purchase ~~468,993~~429,141 and ~~2,229,852~~2,127,918 shares of Common Stock under the 2004 Equity Incentive Plan and the 2013 Incentive Plan, respectively, and there were ~~3,177,950~~3,165,450 restricted stock units granted and outstanding under the 2013 Incentive Plan. Also, as of ~~March 31,~~June 30, 2021, there were ~~1,080,741~~1,001,516 shares reserved for options and ~~676,200~~636,700 shares reserved for restricted stock units issued as inducement grants to new employees outside of equity compensation plans. On March 18, 2021, the Company’s stockholders approved the Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan (“2021 Incentive Plan”), which authorizes 8,000,000 shares (subject to certain adjustments) to be awarded for grants of stock options, stock appreciation rights, restricted and unrestricted stock and stock units, performance awards, cash awards and other awards convertible into or otherwise based on shares of Arrowhead’s Common Stock. The maximum number of shares authorized under the 2021 Incentive Plan will be (i) reduced by any shares subject to awards made under the 2013 Incentive Plan after January 1, 2021, and (ii) increased by any shares subject to outstanding awards under the 2013 Incentive Plan as of January 1, 2021 that, after January 1, 2021, are canceled, expired, forfeited or otherwise not issued under such awards (other than as a result of being tendered or withheld to pay the exercise price or withholding taxes in connection with any such awards) or settled in cash. As of ~~March 31,~~June 30, 2021, there ~~had been no adjustments~~were options granted and outstanding to purchase 18,000 shares of Common Stock and 43,500 restricted stock units granted and outstanding under the ~~8,000,000~~2021 Incentive Plan. As of June 30, 2021, the total number of authorized shares under the 2021 Incentive Plan ~~and 0~~was 8,020,439 shares, ~~of Arrowhead’s Common Stock had been granted~~which includes 81,939 shares that were forfeited under the ~~2021~~2013 Incentive Plan.

	Number of Options Outstanding			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value		Number of Options Outstanding			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Balance at September 30, 2020		4,539,403		$	16.67					4,539,403		$	16.67
Granted		168,000		65.41						186,000		65.57
Cancelled		(108,149	)	28.85						(167,609	)	34.86
Exercised		(819,668	)	9.44						(981,219	)	10.69
Balance at March 31, 2021		3,779,586		$	20.06	6.1 years	$	175,292,764
Exercisable at March 31, 2021		2,426,786		$	10.64	4.8 years	$	135,141,412
Balance at June 30, 2021										3,576,575		$	20.00	5.9 years	$	224,666,017
Exercisable at June 30, 2021										2,417,915		$	11.18	4.7 years	$	173,212,122

Stock-based compensation expense related to stock options for the three months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$3.3~~$3.2 million and ~~$2.5~~$2.7 million, respectively. Stock-based compensation expense related to stock options for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$6.4~~$9.6 million and ~~$4.1~~$6.8 million, respectively. For non-qualified stock options, the expense creates a timing difference, resulting in a deferred tax asset, which is fully reserved by a valuation allowance.

The grant date fair value of the options granted by the Company for the three months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$1.4~~$0.9 million and ~~$18.0~~$3.4 million, respectively. The grant date fair value of the options granted by the Company for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$8.1~~$9.0 million and ~~$26.6~~$30.0 million, respectively.

The intrinsic value of the options exercised during the three months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$20.9~~$10.2 million and ~~$8.6~~$9.5 million, respectively. The intrinsic value of the options exercised during the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$52.8~~$63.0 million and ~~$30.2~~$39.8 million, respectively.

As of ~~March 31,~~June 30, 2021, the pre-tax compensation expense for all outstanding unvested stock options in the amount of ~~$35.7~~$31.3 million will be recognized in the Company’s results of operations over a weighted average period of ~~2.9~~2.7 years.

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which do not have vesting restrictions and are fully transferable. The determination of the fair value of each stock option is affected by the Company’s stock price on the date of grant, as well as assumptions regarding a number of highly complex and subjective variables. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

	Six Months Ended March 31,				Nine Months Ended June 30,
	2021		2020		2021		2020
Dividend yield		-		-		-		-
Risk-free interest rate	0.4 – 0.6%		0.5-1.8%		0.4 – 1.1%		0.4 – 1.8%
Volatility	86.6 – 90.4%		90.5 – 91.8%		86.2 – 90.4%		90.5 – 91.9%
Expected life (in years)		6.25		6.25		6.25		6.25
Weighted average grant date fair value per share of options granted	$	48.62	$	40.70	$	48.64	$	38.12

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

Restricted stock units (“RSUs”), including time-based and performance-based awards, ~~were~~have been granted under the Company’s 2013 Incentive Plan, 2021 Incentive Plan, and as inducements grants granted outside of the Company’s equity-based compensation ~~plans. During~~plans under Rule 5635(c)(4) of the three months ended March 31, 2021, the Company issued 1,324,750 RSUs under the 2013 Incentive Plan and 0 RSUs as inducement awards. During the six months ended March 31, 2021, the Company issued 1,326,950 RSUs under the 2013 Incentive Plan and 116,000 RSUs as inducement awards.Nasdaq Listing Rules. At vesting, each outstanding RSU will be exchanged for one share of the Company’s Common Stock. RSU awards generally vest subject to the satisfaction of service requirements or the satisfaction of both service requirements and achievement of certain performance targets.

	Number of RSUs			Weighted- Average Grant Date Fair Value		Number of RSUs			Weighted- Average Grant Date Fair Value
Unvested at September 30, 2020		3,524,025		$	44.11		3,524,025		$	44.11
Granted		1,442,950			75.54		1,488,450			75.29
Vested		(823,575	)		30.11		(851,825	)		30.41
Forfeited		(289,250	)		39.14		(315,000	)		39.93
Unvested at March 31, 2021		3,854,150		$	59.24
Unvested at June 30, 2021							3,845,650		$	59.55

During the three months ended ~~March 31,~~June 30, 2021 and 2020, the Company recorded ~~$12.1~~$15.4 million and ~~$10.4~~$7.4 million of expense related to RSUs, respectively. During the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020, the Company recorded ~~$17.1~~$32.5 million and ~~$13.3~~$20.7 million of expense related to RSUs, respectively. Such expense is included in stock-based compensation expense in the Company’s Consolidated Statement of Operations and Comprehensive Income (Loss). For RSUs, the expense creates a timing difference, resulting in a deferred tax asset, which is fully reserved by a valuation allowance.

For RSUs, the grant date fair value of the award is based on the Company’s closing stock price at the grant date, with consideration given to the probability of achieving performance conditions for performance-based awards. The grant date fair value of the RSUs granted by the Company for the three months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$101.6~~$3.1 million and ~~$122.0~~$5.9 million, respectively. The grant date fair value of the RSUs granted by the Company for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$109.0~~$112.1 million and ~~$136.0~~$141.8 million, respectively.

As of ~~March 31,~~June 30, 2021, the pre-tax compensation expense for all unvested RSUs in the amount of ~~$131.4~~$123.5 million will be recognized in the Company’s results of operations over a weighted average period of ~~3.1~~2.7 years. Unvested RSUs that we have deemed not probable of vesting as of ~~March 31,~~June 30, 2021, have the potential of generating an additional ~~$76.4~~$70.1 million of pre-tax compensation expense if we deem them probable of vesting in a future reporting period.

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

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

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

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

The following table summarizes fair value measurements at ~~March 31,~~June 30, 2021 and September 30, 2020 for assets and liabilities measured at fair value on a recurring basis.

	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
	(in thousands)								(in thousands)
Cash and cash equivalents	$	372,377	$	-	$	-	$	372,377	$	325,981	$	-	$	-	$	325,981
Marketable securities	$	125,793	$	-	$	-	$	125,793	$	126,407	$	-	$	-	$	126,407
Short-term investments (held to maturity)	$	-	$	80,035	$	-	$	80,035	$	-	$	64,635	$	-	$	64,635
Long-term investments (held to maturity)	$	-	$	100,079	$	-	$	100,079	$	-	$	130,372	$	-	$	130,372
Contingent consideration	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and we intend that such forward-looking statements be subject to the safe harbors created thereby. For this purpose, any statements contained in this 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 or other variations thereof or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, trends in our ~~businesses,~~business, or other characterizations of future events or circumstances are forward-looking statements.

The forward-looking statements included herein are based on current expectations of our management based on available information and involve a number of risks and uncertainties, all of which are difficult or impossible to predict accurately and many of which are beyond our control. In addition, many of these risks and uncertainties may be exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result. As such, our actual results may differ materially from those expressed in any forward-looking statements. Readers should carefully review the factors identified in our most recent Annual Report on Form 10-K under the caption “Risk Factors” as well as the additional risks and uncertainties described in other documents we file from time to time with the Securities and Exchange Commission (“SEC”), including our Quarterly Report on Form 10-Q for the quarter ended December 31, 2020, ~~this~~our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 and ~~subsequent quarterly reports~~this Quarterly Report 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 us or any other person that such results will be achieved, and readers are cautioned not to place undue reliance on such forward-looking information. Except as may be required by law, we disclaim any intent to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated ~~events.~~events

Arrowhead 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 high levels of pharmacologic activity in multiple animal models spanning several therapeutic areas. TRiM^TM enabled therapeutics offer several potential advantages over prior generation and competing technologies, including: simplified manufacturing and reduced costs; multiple routes of administration including subcutaneous injection and inhaled administration; the ability to target multiple tissue types including liver, lung and tumors; and the potential for improved safety and reduced risk of intracellular buildup, because there are less metabolites from smaller, simpler molecules.

During ~~the first half of~~ fiscal year 2021, the Company continued to develop its pipeline and partnered candidates. The Company ~~hosted a key opinion leader webinar on its cardiometabolic candidates, ARO-APOC3 and ARO-ANG3. The Company presented~~announced positive interim clinical data ~~from~~on (i) AROAAT2002, an open-label Phase 2 clinical study of ARO-AAT, the Company’s second-generation investigational RNAi therapeutic being ~~developed~~co-developed with Takeda as a treatment for the rare genetic liver disease associated with ~~AATD.~~AATD, (ii) AROHSD1001, a Phase 1/2 clinical study of ARO-HSD, the Company’s investigational RNAi therapeutic being developed as a treatment for patients with alcohol-related and nonalcohol related liver diseases, such as nonalcoholic steatohepatitis (NASH), and (iii) AROHIF21001, a Phase 1b dose-finding clinical study of ARO-HIF2, the Company’s investigational RNAi therapeutic being developed as a treatment for patients with clear cell renal cell carcinoma. The Company also ~~announced~~presented preclinical data on the development of ARO-DUX4, the Company’s investigational RNAi therapeutic being developed as a treatment for patients with facioscapulohumeral muscular dystrophy (FSHD), at the 28th Annual FSHD Society International Research Congress. The Company hosted a key opinion leader webinar on its cardiometabolic candidates, ARO-APOC3 and ARO-ANG3, and presented positive clinical data ~~on its cardiometabolic candidates,~~from the Phase 1/2 clinical studies of ARO-APOC3 and ARO-ANG3 at the American Heart Association Scientific Sessions 2020. The Company filed two Investigational New Drug Applications with the United States Food and Drug Administration (the “FDA”) to begin a Phase 2b clinical study of ARO-APOC3 in patients with severe hypertriglyceridemia and a Phase 2b clinical study of ARO-ANG3 in patients with mixed ~~dyslipidemia. Finally,~~dyslipidemia, and initiated these two Phase 2b clinical studies in the third quarter of fiscal year 2021. In July 2021, the Company voluntarily paused AROENaC1001, a Phase 1/2 clinical study of ARO-ENaC, the Company’s investigational RNAi therapeutic being developed as a treatment for patients with cystic fibrosis, after receiving a preliminary update from an ongoing chronic toxicology study in rats that contained unexpected signals of local lung inflammation. New screening, enrollment and any further dosing of investigational ARO-ENaC have been paused pending additional data from ongoing nonclinical toxicology studies. The Company announced two collaborations during the first three quarters of fiscal year 2021: a collaboration with Takeda to co-develop and co-commercialize ARO-AAT for alpha-1 antitrypsin-associated liver ~~disease.~~disease and a collaboration with Horizon to develop ARO-XDH, an investigational RNAi therapeutic for uncontrolled gout. In July 2021, the Company received Breakthrough Therapy designation from the FDA for ARO-AAT, which is a process designed to expedite the development and review of drugs that are intended to treat a serious life-threatening disease or condition and preliminary clinical evidence indicates that the drug may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints. The Company also earned a $10 million payment in connection with Janssen’s exercise of its option right for ARO-JNJ1 in May 2021, which option grants Janssen all rights, including licenses, and obligations to develop and commercialize ARO-JNJ1. See Note 2 ~~of the Notes to Consolidated Financial Statements included in this Quarterly Report on Form 10-Q~~ for more information regarding the Company’s collaboration ~~with Takeda.~~and license agreements.

The Company’s partnered candidates under its collaboration agreements also continued to progress. Janssen began dosing patients in a Phase 2b triple combination study called REEF-1, designed to enroll up to 450 patients with chronic hepatitis B infection. ~~In connection with the start of this study, Arrowhead earned a $25.0 million milestone payment under the Company’s License Agreement with Janssen (“Janssen License Agreement”).~~ The Company is currently performing discovery, optimization and preclinical research and development for ARO-JNJ1, ARO-JNJ2 and ARO-JNJ3 for Janssen as part of the Company’s Research Collaboration and Option Agreement with Janssen (“Janssen Collaboration Agreement”). Under the terms of the Janssen agreements taken together, the Company has received $175.0 million as an upfront payment, $75.0 million in the form of an equity investment by Johnson & Johnson Innovation-JJDC, Inc. (“JJDC”) in Arrowhead Common Stock, ~~two $25.0 million~~and three milestone payments ~~and~~totaling $60.0 million, which include a $10 million payment for Janssen’s exercise of its option right for ARO-JNJ1 in May 2021. The Company may receive up to $1.6 billion in additional development and sales milestones payments for the Janssen License Agreement, and up to $1.9 billion in additional development and sales milestone payments for the three additional targets covered under the Janssen Collaboration Agreement. The Company is further eligible to receive tiered royalties on product sales up to mid-teens under the Janssen License Agreement and up to low teens under the Janssen Collaboration Agreement.

The Company’s collaboration agreement with Amgen for Olpasiran (previously referred to as AMG 890 or ARO-LPA) (the “Second Collaboration and License Agreement” or “Olpasiran Agreement”)continues to progress. In July 2020, Amgen initiated a Phase 2 clinical study, which resulted in a $20.0 million milestone payment to the Company. The Company has received $35.0 million in upfront payments, $21.5 million in the form of an equity investment by Amgen in the Company’s Common Stock, $30.0 million in milestone payments, and may receive up to an additional $400.0 million in remaining development, regulatory and sales milestone payments. The Company is eligible to receive up to low double-digit royalties for sales of products under the Olpasiran Agreement.

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

Net losses were ~~$26.8~~$29.9 million for the three months ended ~~March 31,~~June 30, 2021 as compared to net losses of ~~$19.8~~$13.6 million for the three months ended ~~March 31,~~June 30, 2020. Net losses were ~~$47.6~~$77.5 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 as compared to net losses of ~~$22.5~~$36.1 million for the ~~six~~nine months ended ~~March 31,~~June 30, 2020. Net losses per share-diluted were ~~$0.26~~$0.29 for the three months ended ~~March 31,~~June 30, 2021 as compared to net losses per share-diluted of ~~$0.20~~$0.13 for the three months ended ~~March 31,~~June 30, 2020. Net losses per share-diluted were ~~$0.46~~$0.75 for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 as compared to net losses per share-diluted of ~~$0.23~~$0.36 for the ~~six~~nine months ended ~~March 31,~~June 30, 2020. The increase in net losses for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2021 was due to an increase in research and development expenses as the Company’s pipeline of candidates has expanded and progressed through clinical trial phases, partially offset by an increase in revenue from the Company’s license and collaboration agreements, primarily from the Takeda collaboration.

The Company has strengthened its liquidity and financial position through upfront and milestone payments received under its collaboration agreements, as well as equity financings. Under the terms of the Company’s agreements with Janssen taken together, the Company has received $175.0 million as an upfront payment, $75.0 million in the form of an equity investment by JJDC in Arrowhead Common Stock, and ~~two $25.0 million~~three milestone ~~payments.~~payments totaling $60.0 million. Under the terms of the Company’s agreements with Amgen, the Company has received $35.0 million in upfront payments, $21.5 million in the form of an equity investment by Amgen in the Company’s Common Stock and $30.0 million in milestone payments. The Company’s October 2020 licensing agreement with Takeda resulted in a $300.0 million upfront payment, which was collected in the beginning of the second quarter of 2021. The Company had ~~$372.4~~$326.0 million of cash and cash equivalents, ~~$125.8~~$126.4 million of marketable securities, ~~$79.1~~$63.9 million in short-term investments, ~~$97.5~~$128.4 million of long term investments and ~~$756.8~~$734.9 million of total assets as of ~~March 31,~~June 30, 2021, as compared to $143.6 million of cash and cash equivalents, $85.0 million of marketable securities, $86.9 million in short-term investments, $137.5 million of long term investments and $522.5 million of total assets as of September 30, 2020, respectively. Based upon the Company’s current cash and investment resources and operating plan, the Company expects to have sufficient liquidity to fund operations for at least the next twelve months.

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

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

	Three Months Ended March 31,						Three Months Ended June 30,
	2021			2020			2021			2020
	(in thousands, except per share amounts)						(in thousands, except per share amounts)
Revenues	$	32,811		$	23,529		$	45,891		$	27,376
Operating Income (loss)	$	(28,232	)	$	(22,240	)	$	(31,868	)	$	(15,946	)
Net Income (loss)	$	(26,818	)	$	(19,836	)	$	(29,924	)	$	(13,611	)
Net Income (Loss) per Share-Diluted	$	(0.26	)	$	(0.20	)	$	(0.29	)	$	(0.13	)

	Six Months Ended March 31,						Nine Months Ended June 30,
	2021			2020			2021			2020
	(in thousands, except per share amounts)						(in thousands, except per share amounts)
Revenues	$	54,113		$	52,983		$	100,004		$	80,359
Operating Income (loss)	$	(52,285	)	$	(27,094	)	$	(84,153	)	$	(43,040	)
Net Income (loss)	$	(47,550	)	$	(22,509	)	$	(77,474	)	$	(36,120	)
Net Income (Loss) per Share-Diluted	$	(0.46	)	$	(0.23	)	$	(0.75	)	$	(0.36	)

The increase in revenue for the three and ~~six~~nine months ended ~~March 31,~~June 30, 2021 compared to the three and ~~six~~nine months ended ~~March 31,~~June 30, 2020 was driven by the revenue recognized for the Takeda collaboration. The increase in net losses during the three and ~~six~~nine months ended ~~March 31,~~June 30, 2021 compared to the three and ~~six~~nine months ended ~~March 31,~~June 30, 2020 was driven by an increase in research and development expenses as our pipeline of clinical candidates has continued to increase and progress through clinical trial phases, partially offset by an increase in revenue from the Takeda License Agreement.

Total revenue for the three months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$32.8~~$45.9 million and ~~$23.5~~$27.4 million, respectively. Total revenue for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020 was ~~$54.1~~$100.0 million and ~~$53.0~~$80.4 million, respectively. Revenue for the three

months ended ~~March 31,~~June 30, 2021 is primarily related to the recognition of ~~$25.4~~$35.7 million of revenue associated with the Takeda License Agreement and the $10 million milestone payment from Janssen for ARO-JNJ1. Revenue for the nine months ended June 30, 2021 is primarily related to the recognition of $69.3 million of revenue associated with the Takeda License Agreement, the recognition of a portion of the $252.7 million initial transaction price associated with our agreements with Janssen and JJDC for the progress we achieved towards completing our performance obligations under those ~~agreements. Revenue for the six months ended March 31, 2021 is primarily related to the recognition of $33.6 million of revenue associated with the Takeda License Agreement~~agreements, and the ~~recognition of a portion of the $252.7~~$10 million ~~initial transaction price associated with our agreements with~~milestone payment from Janssen ~~and JJDC~~ for ~~the progress we achieved towards completing our performance obligations under those agreements.~~ARO-JNJ1.

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

The Company substantially completed its performance obligations under the Olpasiran Agreement and the ARO-AMG1 Agreement. Future milestones and royalties achieved will be recognized in their entirety when earned. In July 2020, Amgen initiated a Phase 2 clinical study of Olpasiran, which resulted in a $20.0 million milestone payment to the Company. During the three ~~and six~~ months ended ~~March 31,~~June 30, 2021 and 2020, the Company recognized $0 and ~~$0 in~~$20.0 of revenue, respectively. During the nine months ended June 30, 2021 and 2020, the Company recognized $0 and $20 million of revenue, respectively.As of ~~March 31,~~June 30, 2021, there were $0 in contract assets recorded as accounts receivable and $0 of contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.

On October 3, 2018, the Company entered into the Janssen License Agreement and the Janssen Collaboration Agreement with Janssen, part of the Janssen Pharmaceutical Companies of Johnson & Johnson. The Company also entered into a stock purchase agreement with JJDC (“JJDC Stock Purchase Agreement”). Under the Janssen License Agreement, Janssen has received a worldwide, exclusive license to the Company’s JNJ-3989 (ARO-HBV) program, the Company’s third-generation subcutaneously administered RNAi therapeutic candidate being developed as a potential therapy for patients with chronic hepatitis B virus infection. Beyond the Company’s Phase 1/2 study of JNJ-3989 (ARO-HBV), which the Company is responsible for completing, Janssen is ~~also~~ wholly responsible for clinical development and commercialization of JNJ-3989. Under the Janssen Collaboration Agreement, Janssen will be able to select three new targets against which Arrowhead will develop clinical candidates. These candidates are subject to certain restrictions and do not include candidates that already were in the Company’s pipeline. The Company will perform discovery, optimization and preclinical research and development, entirely funded by Janssen, which on its own or in combination with Janssen development work, is sufficient to allow the filing of a U.S. Investigational New Drug Application or equivalent, at which time Janssen will have the option to take an exclusive license. If the option is exercised, Janssen will be wholly responsible for clinical development and commercialization of each optioned candidate. Under the terms of the agreements taken together, the Company has received $175.0 million as an upfront payment, $75.0 million in the form of an equity investment by JJDC in Arrowhead Common Stock under the JJDC Stock Purchase Agreement, and ~~two $25.0 million~~three milestone payments totaling $60.0 million, and may receive up to $1.6 billion in development and sales milestones payments for the Janssen License Agreement, and up to $1.9 billion in development and sales milestone payments for the three additional targets covered under the Janssen Collaboration Agreement. The Company is further eligible to receive tiered royalties on product sales up to mid-teens under the Janssen License Agreement and up to low teens under the Janssen Collaboration ~~Agreement on product sales.~~Agreement.

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

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, ~~the~~ two $25.0 million milestone payments ~~earned~~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. This revenue will be recognized using a proportional performance method (based on actual costs incurred versus total estimated costs incurred) beginning in October 2018 and ending as the Company’s efforts in overseeing the Phase 1/2 clinical trial are completed. During the three months ended ~~March 31,~~June 30, 2021 and 2020, the Company recognized approximately ~~$7.4~~$0 million and ~~$22.2~~$6.9 million of revenue associated with this performance obligation, respectively. During the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020, the Company recognized approximately $20.2 million and ~~$50.9~~$57.9 million of revenue associated with this performance obligation, respectively. As of ~~March 31,~~June 30, 2021, there were ~~$0.6~~$0.4 million in contract assets recorded as accounts receivable, and $0 of contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.

antitrypsin deficiency. Within the United States, ARO-AAT, if approved, will be co-commercialized under a 50/50 profit sharing structure. Outside the United States, Takeda will lead the global commercialization strategy and receive an exclusive license to commercialize ARO-AAT with the Company eligible to receive tiered royalties of 20% to 25% on net sales. In January 2021, the Company received $300.0 million as an upfront payment and is eligible to receive potential development, regulatory and commercial milestones of up to $740.0 million.

The Company has evaluated the Takeda License Agreement in accordance with FASB Topic 606 - Revenue for Contracts from Customers, which became effective for the Company on October 1, 2018. At the inception of the Takeda License Agreement, the Company identified one distinct performance obligation. The Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibilities to complete the initial portion of the SEQUOIA study, to complete the ongoing Phase 2 AROAAT2002 study and to ensure certain manufacturing of ARO-AAT drug product is completed and delivered to Takeda (the “Takeda R&D Services”). Due to the specialized and unique nature of these Takeda R&D Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation. Beyond the Takeda R&D Services, which are the responsibility of the Company, Takeda will be responsible for managing future clinical development and commercialization. The Company will co-fund certain of the development and commercialization costs that Takeda manages, and these co-funding amounts will be ~~offset against amounts owed to Arrowhead, either from milestones~~recorded as Research and Development Expenses or ~~royalties earned, or profits earned under the 50/50 profit sharing structure for U.S. commercialization.~~General and Administrative Expenses, as appropriate.

The Company has evaluated the Horizon License Agreement in accordance with FASB Topic 606 - Revenue for Contracts from Customers, which became effective for the Company on October 1, 2018. At the inception of the Horizon License Agreement, the Company identified one distinct performance obligation. The Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibilities to conduct all activities through the preclinical stages of development of ARO-XDH (the “Horizon R&D Services”). Due to the ~~Notes~~specialized and unique nature of these Horizon 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 Horizon R&D Services, which are the responsibility of the Company, Horizon will be responsible for managing future clinical development and commercialization of ARO-XDH.

The Company determined the initial transaction price totaled approximately $40.0 million, which includes the upfront payment. The Company will exclude any future estimated milestones, royalties, or profit-sharing payments from this transaction price to date. The Company will allocate the total $40.0 million initial transaction price to its one distinct performance obligation for the ARO-XDH license and the associated Horizon R&D Services. Revenue will be recognized using a proportional performance method. At June 30, 2021, no amounts were recorded on the Company’s Consolidated ~~Financial~~Balance Sheets or Consolidated Statements ~~included in this Quarterly Report on Form 10-Q for more information regarding our collaboration~~of Operations and ~~license agreements.~~Comprehensive Income (Loss), as the Company has not performed any substantive Horizon R&D Services.

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 ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020 are shown in the tables below.

R&D expenses are related to the Company’s research and development efforts and related program 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 operations at our research facilities in Madison, Wisconsin and San Diego, California, including facility costs and laboratory-related expenses. Salaries and stock compensation expense consist of salary, bonuses, payroll taxes and related benefits and stock compensation for our R&D personnel. Depreciation and amortization expense relates to depreciation on lab equipment and leasehold improvements at our research facilities. We do not separately track R&D expenses by individual research and development projects, including 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 for research and development activities. The following table provides details of research and development expenses for the periods indicated:

	Three					Three										Three					Three
	Months Ended		% of Expense			Months Ended		% of Expense			Increase (Decrease)					Months Ended		% of Expense			Months Ended		% of Expense			Increase (Decrease)
	March 31, 2021		Category			March 31, 2020		Category			$		%			June 30, 2021		Category			June 30, 2020		Category			$		%
Salaries	$	8,685		19	%	$	4,216		14	%	$	4,469		106	%	$	8,518		14	%	$	4,861		15	%	$	3,657		75	%
Facilities related		1,671		4	%		823		3	%		848		103	%		1,306		2	%		1,209		4	%		97		8	%
Candidate costs		20,667		46	%		15,716		53	%		4,951		32	%		31,468		53	%		15,755		48	%		15,713		100	%
R&D discovery costs		5,502		12	%		4,516		15	%		986		22	%		10,082		17	%		4,070		13	%		6,012		148	%
Total research and development expense, excluding non-cash expense		36,525		82	%		25,271		86	%		11,254		45	%		51,374		87	%		25,895		80	%		25,479		98	%
Stock compensation		6,406		14	%		2,953		10	%		3,453		117	%		6,530		11	%		5,296		16	%		1,234		23	%
Depreciation/amortization		1,766		4	%		1,219		4	%		547		45	%		1,421		2	%		1,382		4	%		39		3	%
Total research and development expense	$	44,697		100	%	$	29,443		100	%	$	15,254		52	%	$	59,325		100	%	$	32,573		100	%	$	26,752		82	%

	Six					Six										Nine					Nine
	Months Ended		% of Expense			Months Ended		% of Expense			Increase (Decrease)					Months Ended		% of Expense			Months Ended		% of Expense			Increase (Decrease)
	March 31, 2021		Category			March 31, 2020		Category			$		%			June 30, 2021		Category			June 30, 2020		Category			$		%
Salaries	$	16,857		21	%	$	8,312		16	%	$	8,545		103	%	$	25,375		18	%	$	13,173		15	%	$	12,202		93	%
Facilities related		3,150		4	%		1,444		3	%		1,706		118	%		4,456		3	%		2,653		3	%		1,803		68	%
Candidate costs		35,684		44	%		29,145		55	%		6,539		22	%		67,152		48	%		44,901		53	%		22,251		50	%
R&D discovery costs		10,213		13	%		7,471		14	%		2,742		37	%		20,295		14	%		11,540		14	%		8,755		76	%
Total research and development expense, excluding non-cash expense	$	65,904		81	%	$	46,372		88	%	$	19,532		42	%	$	117,278		84	%	$	72,267		85	%	$	45,011		62	%
Stock compensation		11,891		15	%		4,115		8	%		7,776		189	%		18,421		13	%		9,411		11	%		9,010		96	%
Depreciation/amortization		3,456		4	%		2,330		4	%		1,126		48	%		4,877		4	%		3,712		4	%		1,165		31	%
Total research and development expense	$	81,251		100	%	$	52,817		100	%	$	28,434		54	%	$	140,576		100	%	$	85,390		100	%	$	55,186		65	%

Salaries expense increased by ~~$4,469,000~~$3,657,000 from ~~$4,216,000~~$4,861,000 during the three months ended ~~March 31,~~June 30, 2020 to ~~$8,685,000~~$8,518,000 during the current period. Salaries expense increased by ~~$8,545,000~~$12,202,000 from ~~$8,312,000~~$13,173,000 during the ~~six~~nine months ended ~~March 31,~~June 30, 2020 to ~~$16,857,000~~$25,375,000 during the current period. This increase is primarily due to an increase in R&D headcount that has occurred as the Company has expanded its pipeline of candidates. We anticipate this expense to continue to increase as we continue to expand our pipeline of candidates and increase headcount to support our discovery efforts to identify new drug candidates

Facilities expense increased by ~~$848,000~~$97,000 from ~~$823,000~~$1,209,000 during the three months ended ~~March 31,~~June 30, 2020 to ~~$1,671,000~~$1,306,000 during the current period. Facilities expense increased by ~~$1,706,000~~$1,803,000 from ~~$1,444,000~~$2,653,000 during the ~~six~~nine months ended ~~March 31,~~June 30, 2020 to ~~$3,150,000~~$4,456,000 during the current period. This category includes rental costs for our research and development facilities in Madison, Wisconsin and San Diego, California. This increase is primarily due to the commencement of our sublease in San Diego, California in April 2020 and the lease expansion at our Madison facility in May 2020.

Candidate costs increased by ~~$4,951,000~~$15,713,000 from ~~$15,716,000~~$15,755,000 during the three months ended ~~March 31,~~June 30, 2020 to ~~$20,667,000~~$31,468,000 during the current period. Candidate costs increased by ~~$6,539,000~~$22,251,000 from ~~$29,145,000~~$44,901,000 during the ~~six~~nine months ended ~~March 31,~~June 30, 2020 to ~~$35,684,000~~$67,152,000 during the current period. This increase is primarily due to the progression of our pipeline of candidates into and through clinical trials, which results in higher outsourced clinical trial, toxicity study and manufacturing costs. We anticipate these expenses to continue to increase as our pipeline of candidates grows and progresses to later phase clinical trials.

R&D discovery costs increased by ~~$986,000~~$6,012,000 from ~~$4,516,000~~$4,070,000 during the three months ended ~~March 31,~~June 30, 2020 to ~~$5,502,000~~$10,082,000 in the current period. R&D discovery costs increased by ~~$2,742,000~~$8,755,000 from ~~$7,471,000~~$11,540,000 during the ~~six~~nine months ended ~~March 31,~~June 30, 2020 to ~~$10,213,000~~$20,295,000 in the current period. This increase is primarily due to the growth of our discovery efforts, including the addition of our research facility in San Diego. We anticipate this expense to continue to increase as we increase headcount to support our discovery efforts to identify new drug candidates.

Stock compensation expense, a non-cash expense, increased by ~~$3,453,000~~$1,234,000 from ~~$2,953,000~~$5,296,000 during the three months ended ~~March 31,~~June 30, 2020 to ~~$6,406,000~~$6,530,000 during the current period. Stock compensation expense, a non-cash expense, increased by ~~$7,776,000~~$9,010,000 from ~~$4,115,000~~$9,411,000 during the ~~six~~nine months ended ~~March 31,~~June 30, 2020 to ~~$11,891,000~~$18,421,000 during the current period. Stock compensation expense is based upon the valuation of stock options and restricted stock units granted to employees, directors and certain consultants. Many variables affect the amount expensed, including the Company’s stock price on the date of the grant, as well as other assumptions. The increase in the expense in the current period is primarily due to the increased headcount discussed above and a mix of higher grant date fair values of awards amortizing during the current period due to the Company’s stock price at the time of the grants. We generally expect future stock compensation expense to increase as our headcount continues to increase to support our clinical pipeline.

Depreciation and amortization expense, a non-cash expense, increased by ~~$547,000~~$39,000 from ~~$1,219,000~~$1,382,000 during the three months ended ~~March 31,~~June 30, 2020 to ~~$1,766,000~~$1,421,000 during the current period. Depreciation and amortization expense, a non-cash expense, increased by ~~$1,126,000~~$1,165,000 from ~~$2,330,000~~$3,712,000 during the ~~six~~nine months ended ~~March 31,~~June 30, 2020 to ~~$3,456,000~~$4,877,000 during the current period. The majority of depreciation and amortization expense relates to depreciation on lab equipment and leasehold improvements at our Madison and San Diego research ~~facility.~~facilities.

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

	Three					Three											Three					Three
	Months Ended		% of Expense			Months Ended		% of Expense			Increase (Decrease)						Months Ended		% of Expense			Months Ended		% of Expense			Increase (Decrease)
	March 31, 2021		Category			March 31, 2020		Category			$			%			June 30, 2021		Category			June 30, 2020		Category			$			%
Salaries	$	3,257		20	%	$	3,033		19	%	$	224			7	%	$	2,570		14	%	$	2,633		25	%	$	(63	)		-2	%
Professional/outside services		1,838		11	%		1,677		10	%		161			10	%		379		2	%		2,020		19	%		(1,641	)		-81	%
Facilities related		787		5	%		418		3	%		369			88	%		610		3	%		446		4	%		164			37	%
Other G&A		1,355		8	%		1,026		6	%		329			32	%		2,278		12	%		746		7	%		1,532			205	%
Total general & administrative expense, excluding non-cash expense		7,237		44	%		6,154		38	%		1,083			137	%		5,837		32	%		5,845		54	%		(8	)		159	%
Stock compensation		8,953		55	%		10,019		61	%		(1,066	)		-11	%		12,020		65	%		4,750		44	%		7,270			153	%
Depreciation/amortization		156		1	%		153		1	%		3			2	%		577		3	%		154		1	%		423			275	%
Total general & administrative expense	$	16,346		100	%	$	16,326		100	%	$	20			129	%	$	18,434		100	%	$	10,749		100	%	$	7,685			586	%

	Six					Six											Nine					Nine
	Months Ended		% of Expense			Months Ended		% of Expense			Increase (Decrease)						Months Ended		% of Expense			Months Ended		% of Expense			Increase (Decrease)
	March 31, 2021		Category			March 31, 2020		Category			$			%			June 30, 2021		Category			June 30, 2020		Category			$			%
Salaries	$	5,841		23	%	$	7,114		26	%	$	(1,273	)		-18	%	$	8,411		19	%	$	9,747		26	%	$	(1,336	)		-14	%
Professional/outside services		3,820		15	%		3,499		13	%		321			9	%		4,199		10	%		5,519		15	%		(1,320	)		-24	%
Facilities related		1,517		6	%		1,211		4	%		306			25	%		2,127		5	%		1,657		4	%		470			28	%
Other G&A		2,048		8	%		1,785		7	%		263			15	%		4,326		10	%		2,531		6	%		1,795			71	%
Total general & administrative expense, excluding non-cash expense	$	13,226		52	%	$	13,609		50	%	$	(383	)		-3	%	$	19,063		44	%	$	19,454		51	%	$	(391	)		-2	%
Stock compensation		11,611		46	%		13,349		49	%		(1,738	)		-13	%		23,631		54	%		18,099		48	%		5,532			31	%
Depreciation/amortization		310		2	%		302		1	%		8			3	%		887		2	%		456		1	%		431			95	%
Total general & administrative expense	$	25,147		100	%	$	27,260		100	%	$	(2,113	)		-8	%	$	43,581		100	%	$	38,009		100	%	$	5,572			15	%

Salaries expense ~~increased~~decreased by ~~$224,000~~$63,000 from ~~$3,033,000~~$2,633,000 during the three months ended ~~March 31,~~June 30, 2020 to ~~$3,257,000~~$2,570,000 during the current period. Salaries expense decreased by ~~$1,273,000~~$1,336,000 from ~~$7,114,000~~$9,747,000 during the ~~six~~nine months ended ~~March 31,~~June 30, 2020 to ~~$5,841,000~~$8,411,000 during the current period. The ~~increase~~decrease of ~~$224,000~~$1,336,000 during the ~~three~~nine months ended ~~March 31,~~June 30, 2021 as compared to the ~~three~~nine months ended ~~March 31, 2020 is due to an increase in headcount. The decrease of $1,273,000 during the six months ended March 31, 2021 as compared to the six months ended March 31,~~June 30, 2020 is primarily due to higher annual performance bonuses awarded in December 2019. We expect salaries expense to increase as our headcount continues to increase to support our expanding clinical pipeline.

Professional/outside services include legal, accounting, consulting, patent expenses, business insurance expenses and other outside services retained by the Company. Professional/outside services expense ~~increased~~decreased by ~~$161,000~~$1,641,000 from ~~$1,677,000~~$2,020,000 during the three months ended ~~March 31,~~June 30, 2020 to ~~$1,838,000~~$379,000 during the current period. Professional/outside services expense ~~increased~~decreased by ~~$321,000~~$1,320,000 from ~~$3,499,000~~$5,519,000 during the ~~six~~nine months ended ~~March 31,~~June 30, 2020 to ~~$3,820,000~~$4,199,000 during the current period. The ~~increase~~decrease in professional/outside services expense is primarily related to ~~increased consulting costs.~~the timing of certain patent-related expenses.

Facilities-related expense increased by ~~$369,000~~$164,000 from ~~$418,000~~$446,000 during the three months ended ~~March 31,~~June 30, 2020 to ~~$787,000~~$610,000 during the current period. Facilities-related expense increased by ~~$306,000~~$470,000 from ~~$1,211,000~~$1,657,000 during the ~~six~~nine months ended ~~March 31,~~June 30, 2020 to ~~$1,517,000~~$2,127,000 during the current period. This category primarily includes rental costs for our corporate headquarters in Pasadena, California. The increase isin both periods was due to ~~increased communication and technology costs as~~ the ~~Company’s headcount continues~~additional space leased for our corporate headquarters to ~~grow.~~accommodate an increase in headcount.

Other G&A expense increased by ~~$329,000~~$1,532,000 from ~~$1,026,000~~$746,000 during the three months ended ~~March 31,~~June 30, 2020 to ~~$1,355,000~~$2,278,000 during the current period. Other G&A expense increased by ~~$263,000~~$1,795,000 from ~~$1,785,000~~$2,531,000 during the ~~six~~nine months ended ~~March 31,~~June 30, 2020 to ~~$2,048,000~~$4,326,000 during the current period. This category consists primarily of travel, communication and technology, office expenses, and franchise and property tax expenses. The increase is due to an increase in headcount at the Company’s corporate headquarters.

Stock compensation expense, a non-cash expense, ~~decreased~~increased by ~~$1,066,000~~$7,270,000 from ~~$10,019,000~~$4,750,000 during the three months ended ~~March 31,~~June 30, 2020 to ~~$8,953,000~~$12,020,000 during the current period. Stock compensation expense, a non-cash expense, ~~decreased~~increased by ~~$1,738,000~~$5,532,000 from ~~$13,349,000~~$18,099,000 during the ~~six~~nine months ended ~~March 31,~~June 30, 2020 to ~~$11,611,000~~$23,631,000 during the current period. Stock compensation expense is based upon the valuation of stock options and restricted stock units granted to employees, directors and certain consultants. Many variables affect the amount expensed, including the Company’s stock price on the date of the grant, as well as other assumptions. We generally expect future stock compensation expense to increase as our headcount continues to increase to support our clinical pipeline.

Depreciation and amortization expense, a noncash expense, increased by ~~$3,000~~$423,000 from ~~$153,000~~$154,000 during the three months ended ~~March 31,~~June 30, 2020 to ~~$156,000~~$577,000 during the current period. Depreciation and amortization expense, a noncash expense, increased by ~~$8,000~~$431,000 from ~~$302,000~~$456,000 during the ~~six~~nine months ended ~~March 31,~~June 30, 2020 to ~~$310,000~~$887,000 during the current period. The increase is primarily related to amortization of leasehold improvements for our corporate headquarters.

Other income/expense was income of ~~$2,405,000~~$2,335,000 during the three months ended ~~March 31,~~June 30, 2020 compared to income of ~~$1,414,000~~$1,944,000 during the current period. Other income/expense was income of ~~$4,585,000~~$6,920,000 during the ~~six~~nine months ended ~~March 31,~~June 30, 2020 compared to income of ~~$4,735,000~~$6,679,000 during the current period. Other income is primarily related to interest income and realized and unrealized gain/loss on our marketable securities.

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

At ~~March 31,~~June 30, 2021, the Company had cash on hand of approximately ~~$372.4~~$326.0 million as compared to $143.6 million at September 30, 2020. Cash invested in short-term fixed income securities and marketable securities was ~~$204.9~~$190.3 million at ~~March 31,~~June 30, 2021, compared to $171.9 million at September 30, 2020. Cash invested in long-term fixed income securities was ~~$97.5~~$128.4 million at ~~March 31,~~June 30, 2021, compared to $137.5 million at September 30, 2020. The Company also entered into an Open Market Sale Agreement (the “ATM agreement”) in August 2020, pursuant to which the Company may, from time to time, sell up to $250,000,000 in shares of the Company’s Common Stock through Jefferies LLC. As of ~~March 31,~~June 30, 2021, no shares have been issued under the ATM agreement. The Company believes its current financial resources are sufficient to fund its operations through at least the next twelve months.

A summary of cash flows for the ~~six~~nine months ended ~~March 31,~~June 30, 2021 and 2020 is as follows:

	Six Months Ended			Six Months Ended			Nine Months Ended			Nine Months Ended
	March 31, 2021			March 31, 2020			June 30, 2021			June 30, 2020
	(in thousands)						(in thousands)
Cash Flow from:
Operating Activities		224,951			(51,115	)		195,341			(84,541	)
Investing Activities		(3,892	)		(168,849	)		(23,433	)		(174,883	)
Financing Activities		7,735			254,811			10,490			256,943
Net Increase (decrease) in cash and cash equivalents		228,794			34,847			182,398			(2,481	)
Cash and cash equivalents at beginning of period		143,583			221,804			143,583			221,804
Cash and cash equivalents at end of period		372,377			256,651			325,981			219,323

During the ~~six~~nine months ended ~~March 31,~~June 30, 2021, cash flow provided by operating activities was ~~$225.0~~$195.3 million, which was primarily due to the $300 million payment received under the Takeda License Agreement and the $10 million milestone payment from Janssen for ARO-JNJ1, partially offset by ongoing expenses of the Company’s research and development programs and general and administrative expenses. Cash used in investing activities was ~~$3.9~~$23.4 million, which was primarily related to the purchase of property and equipment of ~~$11.4~~$15.4 million, partially offset by the net ~~sales~~purchase of investments of ~~$7.5~~$8.1 million. Cash provided by financing activities of ~~$7.7~~$10.5 million was related to cash received from stock option exercises.

During the ~~six~~nine months ended ~~March 31,~~June 30, 2020, the Company used ~~$51.1~~$84.5 million in cash from operating activities, which was primarily related to the ongoing expenses of the Company’s research and development programs and general and administrative expenses. Cash used in investing activities was ~~$168.8~~$174.9 million, which was primarily related to the purchase of fixed-income investments of ~~$180.5~~$194.0 million and property and equipment of ~~$7.9~~$10.1 million, partially offset by the maturity of ~~$19.6~~$29.1 million of fixed-income securities. Cash provided by financing activities of ~~$254.8~~$256.9 million was driven by the Company’s securities financing in December 2019, which generated $250.5 million in net cash proceeds, as well as ~~$4.3~~$6.5 million in cash received from stock option exercises.

There has been no material change in our exposure to market risk from that described in Item 7A of our Annual Report on Form 10-K for the year ended September 30, 2020.

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

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

From time to time, we may be involved in routine legal proceedings, as well as demands, claims and threatened litigation, which arise in the normal course of our 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 we disclosed in Part I, Item 3 of our Annual Report on Form 10-K for the year ended September 30, 2020.

There have been no material changes to the risk factors included in our Annual Report on Form 10-K for the year ended September 30, 2020. Please carefully consider the information set forth in this Quarterly Report on Form 10-Q and the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2020, 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.

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.

Delaware		46-0408024
(State of incorporation)		(I.R.S. Employer Identification No.)

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

	Page(s)
PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS	1

Consolidated Balance Sheets	1

Consolidated Statements of Operations and Comprehensive Income (Loss)	2

Consolidated Statements of Stockholders’ Equity	3

Consolidated Statements of Cash Flows	4

Notes to Consolidated Financial Statements	5

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	1617

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	2527

ITEM 4. CONTROLS AND PROCEDURES	2527

PART II — OTHER INFORMATION	2628

ITEM 1. LEGAL PROCEEDINGS	2628

ITEM 1A. RISK FACTORS	2628

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	2628

ITEM 3. DEFAULTS UPON SENIOR SECURITIES	2628

ITEM 4. MINE SAFETY DISCLOSURES	2628

ITEM 5. OTHER INFORMATION	2628

ITEM 6. EXHIBITS	2729

SIGNATURE	2830

Exhibit Number		Document Description

10.1		~~Arrowhead~~Form of Performance RSU Agreement (Arrowhead Pharmaceuticals, Inc. 2021 Incentive ~~Plan (Incorporated by reference from Exhibit A of the Company’s Definitive Proxy Statement on Schedule 14A filed on January 28, 2021)~~Plan)*
~~31.1~~
10.2		Form of Stock Option Agreement (Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan)*

10.3		Form of RSU Agreement (Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan)*

10.4		Collaboration and License Agreement by and between Arrowhead Pharmaceuticals, Inc. and Horizon Therapeutics Ireland DAC, dated June 18, 2021*†

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*

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*

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**

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**

101.INS ~~101.SCH~~		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 cover page from this Quarterly Report on Form 10-Q, formatted in Inline XBRL (included as Exhibit 101)*

	ARROWHEAD PHARMACEUTICALS, INC.

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

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