UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended June 30, ~~2022~~2023


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

For the transition period from to .

Commission file number 001-38042

ARROWHEAD PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)


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

177 E. Colorado Blvd, Suite 700

Pasadena, California 91105

(626) 304-3400

(Address and telephone number of principal executive offices)

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001 per share

ARWR

The Nasdaq Global Select Market

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

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

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


Large Accelerated Filer	x	Accelerated Filer	o

Non-Accelerated Filer	o	Smaller Reporting Company	o

Emerging Growth Company	o

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

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

The number of shares of the registrant’s common stock outstanding as of July ~~28, 2022~~31, 2023 was ~~105,848,963.~~107,192,901.


			Page(s)
PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS			1

Consolidated Balance Sheets ~~(Unaudited)~~			1

Consolidated Statements of Operations and Comprehensive ~~Income (Loss) (Unaudited)~~Loss			2

Consolidated Statements of Stockholders’ Equity ~~and Noncontrolling Interest~~			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			1925

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			3035

ITEM 4. CONTROLS AND PROCEDURES			3035

PART II — OTHER INFORMATION			3236

ITEM 1. LEGAL PROCEEDINGS			3236

ITEM 1A. RISK FACTORS			3236

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			3236

ITEM 3. DEFAULTS UPON SENIOR SECURITIES			3236

ITEM 4. MINE SAFETY DISCLOSURES			3236

ITEM 5. OTHER INFORMATION			3236

ITEM 6. EXHIBITS			3337

SIGNATURE			3438

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Arrowhead Pharmaceuticals, Inc.

Consolidated Balance Sheets

(In thousands, except per share amounts)


							June 30, 2023		September 30, 2022
		(unaudited) June 30, 2022		September 30, 2021			(unaudited)
ASSETS	ASSETS					ASSETS
CURRENT ASSETS
Cash and cash equivalents		$	139,439	$	184,434
Current assets:						Current assets:
Cash, cash equivalents and restricted cash						Cash, cash equivalents and restricted cash	$	105,334	$	108,005
Accounts receivable	Accounts receivable	239		10,255		Accounts receivable	1,247		1,410
Short term investments						Short term investments	346,369		268,391
Prepaid expenses	Prepaid expenses	6,761		4,362		Prepaid expenses	10,053		7,289
Other current assets	Other current assets	8,892		2,191		Other current assets	7,162		20,204
Marketable securities		—		126,728
Short term investments		277,057		56,627
TOTAL CURRENT ASSETS		432,388		384,597
Total current assets						Total current assets	470,165		405,299
Property and equipment, net	Property and equipment, net	71,904		48,675		Property and equipment, net	231,369		110,297
Intangible assets, net	Intangible assets, net	12,387		13,663		Intangible assets, net	10,687		11,962
Long term investments		165,920		245,595
Long-term investments						Long-term investments	42,758		105,872
Right-of-use assets	Right-of-use assets	68,908		17,346		Right-of-use assets	40,667		58,291
Other assets	Other assets	275		272		Other assets	210		218
TOTAL ASSETS		$	751,782	$	710,148
Total Assets						Total Assets	$	795,856	$	691,939

LIABILITIES, NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY	LIABILITIES, NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY					LIABILITIES, NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Current liabilities:						Current liabilities:
Accounts payable	Accounts payable	$	5,894	$	9,457	Accounts payable	$	7,874	$	2,868
Accrued expenses	Accrued expenses	32,499		14,001		Accrued expenses	38,191		46,856
Accrued payroll and benefits	Accrued payroll and benefits	2,648		9,773		Accrued payroll and benefits	4,434		12,251
Lease liabilities	Lease liabilities	2,883		2,250		Lease liabilities	2,823		2,776
Deferred revenue	Deferred revenue	84,288		111,055		Deferred revenue	16,905		74,099
TOTAL CURRENT LIABILITIES		128,212		146,536
LONG-TERM LIABILITIES
Total current liabilities						Total current liabilities	70,227		138,850
Long-term liabilities:						Long-term liabilities:
Lease liabilities, net of current portion	Lease liabilities, net of current portion	78,231		23,295		Lease liabilities, net of current portion	79,911		78,800
Deferred revenue, net of current portion	Deferred revenue, net of current portion	71,162		131,495		Deferred revenue, net of current portion	—		55,950
TOTAL LONG-TERM LIABILITIES		149,393		154,790
Liability related to the sale of future royalties						Liability related to the sale of future royalties	263,064		—
Other liabilities						Other liabilities	669		—
Total long-term liabilities						Total long-term liabilities	343,644		134,750
Commitments and contingencies (Note 7)	Commitments and contingencies (Note 7)	0		0		Commitments and contingencies (Note 7)
STOCKHOLDERS’ EQUITY
Arrowhead Pharmaceuticals, Inc. stockholders’ equity:
Common stock, $0.001 par value; 145,000 shares authorized; 105,795 and 104,327 shares issued and outstanding as of June 30, 2022 and September 30, 2021, respectively		198		197
Noncontrolling interest and stockholders’ equity:						Noncontrolling interest and stockholders’ equity:
Common stock, $0.001 par value: Authorized 290,000 and 145,000 shares; issued and outstanding 107,102 and 105,960 shares						Common stock, $0.001 par value: Authorized 290,000 and 145,000 shares; issued and outstanding 107,102 and 105,960 shares	199		198
Additional paid-in capital	Additional paid-in capital	1,189,113		1,053,386		Additional paid-in capital	1,281,393		1,219,213
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(140)		(69)		Accumulated other comprehensive loss	(411)		(136)
Accumulated deficit	Accumulated deficit	(735,244)		(644,692)		Accumulated deficit	(916,351)		(820,755)
TOTAL ARROWHEAD PHARMACEUTICALS INC. STOCKHOLDERS' EQUITY		453,927		408,822
Noncontrolling Interest		20,250		—
TOTAL STOCKHOLDERS’ EQUITY		474,177		408,822
TOTAL LIABILITIES, NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY		$	751,782	$	710,148
Total Arrowhead Pharmaceuticals, Inc. stockholders’ equity						Total Arrowhead Pharmaceuticals, Inc. stockholders’ equity	364,830		398,520
Noncontrolling interest						Noncontrolling interest	17,155		19,819
Total noncontrolling interest and stockholders’ equity						Total noncontrolling interest and stockholders’ equity	381,985		418,339
Total Liabilities, Noncontrolling Interest and Stockholders’ Equity						Total Liabilities, Noncontrolling Interest and Stockholders’ Equity	$	795,856	$	691,939

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

Arrowhead Pharmaceuticals, Inc.

Consolidated Statements of Operations and Comprehensive ~~Income (Loss)~~

~~(unaudited)~~Loss

(In thousands, except per share amounts)

Three Months Ended June 30, Nine Months Ended June 30,
2022 2021 2022 2021
REVENUE $ 32,412 $ 45,891 $ 211,656 $ 100,004
OPERATING EXPENSES
Research and development 72,180 59,325 213,930 140,576
General and administrative expenses 33,141 18,434 92,403 43,581
TOTAL OPERATING EXPENSES 105,321 77,759 306,333 184,157
OPERATING INCOME (LOSS) (72,909) (31,868) (94,677) (84,153)
OTHER INCOME
Interest income, net 1,240 1,280 3,450 4,972
Other income (expense) (377) 664 675 1,707
TOTAL OTHER INCOME 863 1,944 4,125 6,679
INCOME (LOSS) BEFORE INCOME TAXES (72,046) (29,924) (90,552) (77,474)
Provision for income taxes — — — —
NET INCOME (LOSS) (72,046) (29,924) (90,552) (77,474)
NET INCOME (LOSS) PER SHARE - BASIC $ (0.68) $ (0.29) $ (0.86) $ (0.75)
NET INCOME (LOSS) PER SHARE - DILUTED $ (0.68) $ (0.29) $ (0.86) $ (0.75)
Weighted average shares outstanding - basic 105,753 104,099 105,273 103,569
Weighted average shares outstanding - diluted 105,753 104,099 105,273 103,569
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation adjustments (33) (40) (71) 44
COMPREHENSIVE INCOME (LOSS) $ (72,079) $ (29,964) $ (90,623) $ (77,430)
(unaudited)


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

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

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

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

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

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

Arrowhead Pharmaceuticals, Inc.

Consolidated Statements of Stockholders’ Equity ~~and Noncontrolling Interest~~

(in thousands)

(unaudited)

~~(In thousands, except per share amounts)~~


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

Common
Stock
Amount ($)
Additional
Paid-In
Capital
Accumulated Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Noncontrollling Interest Totals
Balance at March 31, 2021 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
Noncontrollling Interest Totals
Balance at March 31, 2022 105,702 $ 198 $ 1,115,373 $ (107) $ (663,198) $ — $ 452,266
Stock-based compensation — — 33,391 — — — 33,391
Exercise of stock options 53 — 599 — — — 599
Common stock - restricted stock units vesting 40 — — — — — —
Foreign currency translation adjustments — — — (33) — — (33)
Interest in joint venture — — 39,750 — — 20,250 60,000
Net income (loss) for the three months ended June 30, 2022 — — — — (72,046) — (72,046)
Balance at June 30, 2022 105,795 $ 198 $ 1,189,113 $ (140) $ (735,244) $ 20,250 $ 474,177

Common
Stock
Amount ($)
Additional
Paid-In
Capital
Accumulated Other
Comprehensive
Income (Loss)
Accumulated
Deficit
Noncontrollling Interest Totals
Balance at September 30, 2020 102,376 $ 195 $ 965,410 $ 18 $ (503,844) $ — $ 461,779
Stock-based compensation — — 42,051 — — — 42,051
Exercise of stock options 981 1 10,489 — — — 10,490
Common stock - restricted stock units vesting 852 1 (1) — — — —
Foreign currency translation adjustments — — — 44 — — 44
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


		Common Stock	Amount ($)		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Accumulated Deficit		Noncontrollling Interest		Totals			Common Stock	Amount ($)		Additional Paid-In Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Non- controlling Interest		Totals
Balance at September 30, 2021	Balance at September 30, 2021	104,327	$	197	$	1,053,386	$	(69)	$	(644,692)	$	—	$	408,822	Balance at September 30, 2021	104,327	$	197	$	1,053,386	$	(69)	$	(644,692)	$	—	$	408,822
Stock-based compensation	Stock-based compensation	—	—		91,697		—		—		—		91,697		Stock-based compensation	—	—		24,504		—		—		—		24,504
Exercise of stock options	Exercise of stock options	497	—		4,281		—		—		—		4,281		Exercise of stock options	208	—		2,145		—		—		—		2,145
Common stock - restricted stock units vesting	Common stock - restricted stock units vesting	971	1		(1)		—		—		—		—		Common stock - restricted stock units vesting	263	—		—		—		—		—		—
Foreign currency translation adjustments	Foreign currency translation adjustments	—	—		—		(71)		—		—		(71)		Foreign currency translation adjustments	—	—		—		(39)		—		—		(39)
Net loss for the three months ended December 31, 2021															Net loss for the three months ended December 31, 2021	—	—		—		—		(62,872)		—		(62,872)
Balance at December 31, 2021															Balance at December 31, 2021	104,798	$	197	$	1,080,035	$	(108)	$	(707,564)	$	—	$	372,560
Stock-based compensation															Stock-based compensation	—	—		33,802		—		—		—		33,802
Exercise of stock options															Exercise of stock options	237	—		1,537		—		—		—		1,537
Common stock - restricted stock units vesting															Common stock - restricted stock units vesting	667	1		(1)		—		—		—		—
Foreign currency translation adjustments															Foreign currency translation adjustments	—	—		—		1		—		—		1
Interest in joint venture	Interest in joint venture	—	—		39,750		—		—		20,250		60,000		Interest in joint venture	—	—		—		—		—		—		—
Net income (loss) for the nine months ended June 30, 2022		—	—		—		—		(90,552)		—		(90,552)
Net income for the three months ended March 31, 2022															Net income for the three months ended March 31, 2022	—	—		—		—		44,366		—		44,366
Balance at March 31, 2022															Balance at March 31, 2022	105,702	$	198	$	1,115,373	$	(107)	$	(663,198)	$	—	$	452,266
Stock-based compensation															Stock-based compensation	—	—		33,391		—		—		—		33,391
Exercise of stock options															Exercise of stock options	53	—		599		—		—		—		599
Common stock - restricted stock units vesting															Common stock - restricted stock units vesting	40	—		—		—		—		—		—
Foreign currency translation adjustments															Foreign currency translation adjustments	—	—		—		(33)		—		—		(33)
Interest in joint venture															Interest in joint venture	—	—		39,750		—		—		20,250		60,000
Net loss for the three months ended June 30, 2022															Net loss for the three months ended June 30, 2022	—	—		—		—		(72,046)		—		(72,046)
Balance at June 30, 2022	Balance at June 30, 2022	105,795	$	198	$	1,189,113	$	(140)	$	(735,244)	$	20,250	$	474,177	Balance at June 30, 2022	105,795	$	198	$	1,189,113	$	(140)	$	(735,244)	$	20,250	$	474,177

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

Arrowhead Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

~~(In thousands, except per share amounts)~~


		Nine Months Ended June 30,					Nine Months Ended June 30,
		2022		2021			2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$	(90,552)	$	(77,474)
Net loss						Net loss	$	(98,260)	$	(90,552)
Adjustments to reconcile net loss to net cash flow from operating activities						Adjustments to reconcile net loss to net cash flow from operating activities
Stock-based compensation	Stock-based compensation	91,697		42,051		Stock-based compensation	59,949		91,697
Depreciation and amortization	Depreciation and amortization	7,761		5,763		Depreciation and amortization	8,634		7,761
Unrealized (gains) losses on marketable securities		5,755		(1,387)
Amortization/(accretion) of note premiums/discounts		2,013		142
(Accretion) amortization of note premiums/discounts						(Accretion) amortization of note premiums/discounts	(1,030)		2,013
Non-cash interest expense on liability related to the sale of future royalties						Non-cash interest expense on liability related to the sale of future royalties	13,064		—
Unrealized losses on marketable securities						Unrealized losses on marketable securities	—		5,755
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	10,016		174		Accounts receivable	164		10,016
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(8,876)		(2,895)		Prepaid expenses and other current assets	27,913		(8,867)
Deferred revenue		(87,100)		211,392
Accounts payable	Accounts payable	(3,563)		3,208		Accounts payable	5,001		(3,563)
Accrued expenses	Accrued expenses	1,713		13,682		Accrued expenses	(32,082)		1,713
Other		3,672		685
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		(67,464)		195,341
Deferred revenue						Deferred revenue	(113,144)		(87,100)
Operating lease liabilities						Operating lease liabilities	1,158		3,733
Net cash used in operating activities						Net cash used in operating activities	(128,633)		(67,394)

CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	Purchases of property and equipment	(20,066)		(15,368)		Purchases of property and equipment	(112,830)		(20,066)
Purchases of investments	Purchases of investments	(223,391)		(95,195)		Purchases of investments	(233,984)		(223,391)
Proceeds from sale of investments		201,595		87,130
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		(41,862)		(23,433)
Proceeds from maturities of investments						Proceeds from maturities of investments	220,150		201,595
Net cash used in investing activities						Net cash used in investing activities	(126,664)		(41,862)

CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercises of stock options	Proceeds from the exercises of stock options	4,331		10,490		Proceeds from the exercises of stock options	2,232		4,331
Proceeds from the sale of future royalties						Proceeds from the sale of future royalties	250,000		—
Proceeds from investment in joint venture	Proceeds from investment in joint venture	60,000		—		Proceeds from investment in joint venture	—		60,000
NET CASH PROVIDED BY FINANCING ACTIVITIES		64,331		10,490
NET INCREASE (DECREASE) IN CASH		(44,995)		182,398
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		184,434		143,583
CASH AND CASH EQUIVALENTS AT END OF PERIOD		$	139,439	$	325,981
Proceeds from additional tenant improvement allowance						Proceeds from additional tenant improvement allowance	669		—
Net cash provided by financing activities						Net cash provided by financing activities	252,901		64,331

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

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

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

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

Arrowhead Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Unless otherwise noted, (1) the term “Arrowhead” refers to Arrowhead Pharmaceuticals, Inc., a Delaware corporation and its Subsidiaries, (2) the terms “Company,” “we,” “us,” and “our,” refer to the ongoing business operations of Arrowhead and its Subsidiaries, whether conducted through Arrowhead or a subsidiary of Arrowhead, (3) the term “Subsidiaries” refers to Arrowhead Madison Inc. (“Arrowhead Madison”), Visirna Therapeutics Inc. ("Visirna"), and Arrowhead Australia Pty Ltd (“Arrowhead Australia”), (4) the term “Common Stock” refers to Arrowhead’s Common Stock, par value $0.001 per share, (5) the term “Preferred Stock” refers to Arrowhead’s Preferred Stock, par value $0.001 per share, and (6) the term “Stockholder(s)” refers to the holders of Arrowhead’s Common Stock.

NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

~~Nature of Business~~General and Recent Developments

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

The following table presents the Company’s pipeline includes ARO-APOC3 for hypertriglyceridemia, ARO-ANG3 for dyslipidemia, ARO-ENaC2 for cystic fibrosis, ARO-DUX4 for facioscapulohumeral muscular dystrophy, ARO-COV for the coronavirus that causes COVID-19 and other possible future pulmonary-borne pathogens, ARO-C3 for complement mediated diseases, ARO-RAGE and ARO-MUC5AC for various muco-obstructive or inflammatory pulmonary conditions and ARO-MMP7 for idiopathic pulmonary fibrosis. ARO-HSD for liver disease was out-licensed to Glaxosmithkline Intellectual Property (No. 3) Limited (“GSK”) in November 2021. ARO-XDH is being developed for uncontrolled gout under a collaboration agreement with Horizon Therapeutics Ireland DAC (“Horizon”). JNJ-75220795 (ARO-JNJ1) is being developed by Janssen as a potential treatment for patients with non-alcoholic steatohepatitis (NASH).current pipeline:ARO-AAT for liver disease associated with alpha-1 antitrypsin deficiency (“AATD”) was out-licensed to Takeda Pharmaceuticals U.S.A., Inc. (“Takeda”) in October 2020. JNJ-3989 (formerly referred to as ARO-HBV) for chronic hepatitis B virus was out-licensed to Janssen 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. While the Company believes that initial ARO-HIF2 Phase 1 clinical data provides proof of concept for the ability to deliver siRNA to RCC tumors, the Company has decided not to pursue further clinical development of ARO-HIF2 based on a number of factors including the evolving competitive landscape for HIF2 inhibitors.


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

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

During the first three quarters of fiscal ~~2022,~~2023, the Company continued to develop and advance its pipeline and partnered ~~candidates and expanded its facilities to support the Company’s growing pipeline.~~candidates. Several key recent developments include:

i)•~~dosed~~hosted a Research & Development (R&D) Day on June 1, 2023 to discuss progress of the ~~first patients in its PALISADE study, a phase 3 clinical study to evaluate~~Company's pipeline of RNAi Therapeutics, at which the ~~safety~~following updates were discussed:

◦ARO-RAGE showed continued dose response with single inhaled dose of 184 mg achieving mean knockdown of 90% and ~~efficacy~~max of ~~ARO-APOC3 in adults with familial chylomicronemia syndrome (FCS)~~95%;

~~ii)~~◦~~entered into an exclusive license agreement~~adipose delivery platform achieved single dose target gene silencing of greater than 90% with ~~GSK for ARO-HSD;~~six months of duration in non-human primates;

~~iii)~~◦~~Janssen presented clinical data from REEF-1, a Phase 2b study~~improved hepatic dimer platform achieved equivalent or better knockdown of different combination regimens, including JNJ-73763989 (JNJ-3989), formerly called ARO-HBV, and/or JNJ-56136379 (JNJ-6379), and a nucleos(t)ide analog (NA) for the treatment of chronic hepatitis B virus infection (CHB);two target genes with longer duration than monomer mixture in non-human primates;

~~iv)~~◦~~filed for regulatory clearance~~TRiM™ platform now has potential to ~~begin a Phase 1/2a study of ARO-C3~~address multiple cell types including liver, solid tumors, lung, central nervous system, skeletal muscle, and ~~subsequently dosed the first subjects in AROC3-1001, a Phase 1/2 clinical study of ARO-C3, the Company’s~~ i~~nvestigational RNA interference (RNAi) therapeutic designed to reduce production of complement component 3 (C3) as a potential therapy for various complement mediated diseases;~~adipose;

v)◦~~presented additional interim clinical data from AROHSD1001, AROAAT2002, and AROAPOC31001;~~announced progress towards the Company's "20 in 25" goal to grow its pipeline of RNAi therapeutics that leverage the proprietary Targeted RNAi Molecule (TRiM™) platform to a total of

~~vi)completed the purchase of 13 acres of land~~20 clinical stage or marketed products in the Verona Technology Park in Verona, Wisconsin and held a groundbreaking ceremony on the site. The site is being developed into an approximately 160,000 square foot drug manufacturing facility and an approximately 140,000 square foot laboratory and office facility which will support the Company's process development and analytical activities. The Company also announced that it received awards for up to $16 million in tax increment financingyear 2025;

•presented updated data from the city of Verona, and up to $2.5 million in refundable Wisconsin state income tax credits from the Wisconsin Economic Development Corporation (WEDC) as incentives to invest in the local community and create new jobs. Additionally, The Company entered into a lease agreement for a new 144,000 square foot laboratory and office facility in San Diego, California to support discovery activities;

~~vii)completed enrollment in~~ Phase ~~2b ARCHES-2~~2 SEQUOIA study of investigational ~~ARO-ANG3 for~~RNAi therapy Fazirsiran in patients with ~~mixed dyslipidemia;~~alpha-1 antitrypsin deficiency liver disease which included:

~~viii)~~◦~~filed for regulatory clearance to initiate Phase 1/2a study of ARO-RAGE for treatment of Asthma;~~Fazirsiran reduced serum Z-AAT concentration in a dose-dependent manner;

~~ix)~~◦~~filed for regulatory clearance to initiate Phase 1/2a study of ARO-MUC5AC for treatment of muco-obstructive lung disease;~~Fazirsiran significantly reduced liver Z-AAT;

x)◦~~initiated and dosed~~Fazirsiran consistently reduced hepatic globule burden;

◦Fazirsiran treatment reduced histological signs of hepatic inflammation;

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

◦Fazirsiran has been well tolerated to date;

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

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

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

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

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

◦safety and tolerability;

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

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

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

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

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

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

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

◦safety and tolerability;

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

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

•dosed the first patient in GSK’s Phase 2b trial of GSK4532990, formerly called ARO-HSD, an investigational ~~ARO-ANG3~~RNAi therapeutic for the treatment of patients with ~~homozygous~~non-alcoholic steatohepatitis (NASH), triggering a $30.0 million milestone payment to the Company which was paid in the third quarter of fiscal 2023;

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

~~xi)~~•~~entered into definitive agreements~~announced interim results from Part 1 of AROC3-1001, an ongoing Phase 1/2 clinical study of ARO-C3, which included:

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

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

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

◦safety and tolerability;

•received notice from Janssen of its decision to ~~form a joint venture, Visirna Therapeutics, Inc. (“Visirna”~~voluntarily terminate the Research Collaboration and Option Agreement (the “Janssen Collaboration Agreement”) ~~with Vivo Capital (“Vivo”) through which~~between the Company and ~~Vivo intend~~Janssen. The Company regained full rights to ~~expand~~ARO-PNPLA3, formerly called JNJ-75220795, upon termination of the ~~reach of innovative medicines~~Janssen Collaboration Agreement, which took effect on April 7, 2023. ARO-PNPLA3 is in ~~Greater China;~~Phase 1 clinical trials that are now being developed by the Company;

~~xii)~~•~~hosted~~initiated dosing in ARO-MMP7-1001 (NCT05537025), a ~~pulmonary research & development (R&D) Day~~Phase 1/2a single ascending dose and multiple ascending dose clinical study to ~~discuss~~evaluate the ~~Company’s emerging pipeline~~safety, tolerability, pharmacokinetics, and pharmacodynamics of ~~pulmonary targeted RNA interference (RNAi)~~ARO-MMP7, an investigational RNAi therapeutic ~~candidates that leverage its proprietary Targeted RNAi Molecule (TRIM~~TM~~) platform, including an announcement of its previously undisclosed candidate~~ designed to reduce expression of matrix metalloproteinase 7 (MMP7) as a potential treatment for idiopathic pulmonary fibrosis (IPF);, in up to 56 healthy volunteers and in up to 21 patients with IPF;

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

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

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

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

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

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

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

◦results were consistent with AROAAT-2002 open-label study ~~(AROAAT-2002) of investigational fazirsiran (TAK-999/ARO-AAT) for the treatment of liver disease associated with alpha-1 antitrypsin deficiency (AATD), and was recently~~previously published in ~~the~~The New England Journal of ~~Medicine (NEJM)~~Medicine.

Consolidation and ~~presented~~Basis of Presentation

The interim Consolidated Financial Statements include the accounts of Arrowhead Pharmaceuticals, Inc. and its subsidiaries (wholly-owned subsidiaries and a variable interest entity for which the Company is the primary beneficiary). Subsidiaries refer to Arrowhead Madison, Inc., Visirna Therapeutics, Inc. (“Visirna”), and Arrowhead Australia Pty Ltd. For subsidiaries in ~~an oral presentation at The International Liver Congress™ 2022 - The Annual Meeting~~which the Company owns or is exposed to less than 100% of the ~~European Association for~~economics, the ~~Study~~Company records net loss attributable to noncontrolling interests in its consolidated statements of operations equal to the percentage of the ~~Liver (EASL).~~economic or ownership interests retained in such entity by the respective noncontrolling party.

The Company is actively monitoring the ongoing COVID-19 pandemic. The financial results for the three and nine months ended June 30, 2022 were not significantly impacted by COVID-19. Operationally, the Company has experienced delays in its earlier stage programs due to a shortage in non-human primates, which are critical to the Company’s preclinical programs. Additionally, the Company has experienced delays in enrollment in its clinical trials. The Company’s operations at its research and development facilities in Madison, Wisconsin and San Diego, California, and its corporate headquarters in Pasadena, California have continued with limited impact, other than for enhanced safety measures and intermittent lab supply shortages. However, the Company cannot predict the impact the progression of COVID-19 will have on future financial and operational results due to a variety of factors, including the ability of the Company’s clinical sites to continue to enroll subjects, the ability of the Company’s suppliers to continue to operate, the continued good health and safety of the Company’s employees and the length and severity of the COVID-19 pandemic.

~~Liquidity~~

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

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

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

Liquidity

The Company’s primary sources of financing have been through the sale of its securities, ~~and~~ revenue from its licensing and collaboration ~~agreements.~~agreements and the sale of certain future royalties. Research and development activities have required significant capital investment since the Company’s inception and are expected to continue to require significant cash expenditure in the future, particularly as the Company’s pipeline of drug candidates and its headcount have both expanded significantly. Additionally, significant capital investment will be required as the Company’s pipeline matures into later stage clinical trials and as ~~well as with~~ the ~~Company’s~~Company plans to increase its internal manufacturing ~~capabilities, and expand its footprint in Verona, Wisconsin and San Diego, California.~~

capabilities.

At June 30, ~~2022,~~2023, the Company had ~~$139.4~~$105.3 million in cash and cash equivalents (including ~~$7.4~~$7.3 million in restricted cash), ~~$277.1~~$346.4 million in short-term investments ~~$0 in marketable securities~~ and ~~$165.9~~$42.8 million in long-term investments to fund operations. ~~$60 million of our cash balance resulted from the formation of our joint venture, Viserna.~~ During the nine months ended June 30, ~~2022,~~2023, the Company’s cash and cash equivalents and investments balance ~~decreased~~increased by ~~$31.0~~$12.2 million which was primarily due to ~~cash being used to fund~~ the ~~Company’s operations, partially offset by the $120.0~~$250.0 million upfront payment received from ~~GSK,~~Royalty Pharma (Note 11) and ~~$60~~$110.0 million in milestone payments from the Company’s collaboration and license agreements, partially offset by cash ~~infusion~~used to ~~Viserna.~~fund its operations.

In total, the Company ~~remains~~is eligible ~~for $4.9~~to receive up to $3.4 billion in developmental, regulatory and sales milestones, and may receive various royalties on net sales from its licensing and collaboration agreements, subject to the terms and conditions of those agreements. The revenue recognition for these collaboration agreements is discussed further in Note ~~2 below.~~2.

Summary of Significant Accounting Policies

There have been no changes to the significant accounting policies disclosed in the Company’s most recent Annual Report on Form ~~10-K.~~10-K for the fiscal year ended September 30, 2022.

Recent Accounting Pronouncements

There have been no recent accounting pronouncements that have significantly impacted this Quarterly Report on Form 10-Q, beyond those disclosed in the Company’s most recent Annual Report on Form ~~10-K.~~

~~Basis of Presentation~~

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information. Accordingly, they do not include all of the information and notes required by US GAAP for complete financial statements. In our opinion, the unaudited consolidated financial statements have been prepared on the same basis as audited consolidated financial statements and include all adjustments, consisting of only normal recurring adjustments, necessary10-K for the fair presentation of our financial position, results of operations, comprehensive income and cash flows. The interim results are not necessarily indicative of the results of operations to be expected for the year ending September 30, 2022 or any other period.

The accompanying unaudited consolidated financial statements include the accounts of our wholly owned subsidiaries, as well as the accounts of Visirna, a variable interest entity for which we are the primary beneficiary. All intercompany balances and transactions have been eliminated in consolidation. For consolidated entities where we own or are exposed to less than 100% of the economics, we record net income (loss) attributable to noncontrolling interest in our unaudited consolidated statements of income equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for thefiscal year ended September 30, ~~2021, filed with the SEC.~~2022.

NOTE 2. COLLABORATION AND LICENSE AGREEMENTS

~~Amgen Inc.~~The following table provides a summary of revenue recognized:

~~On September 28, 2016,~~


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

The following table summarizes the ~~Company entered into 2 collaboration~~balance of receivables and license agreements and a common stock purchase agreement with Amgen. Under the Second Collaboration and License Agreement (the “Olpasiran Agreement”), Amgen has received a worldwide, exclusive licensecontract liabilities related 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 prior 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. Under 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.~~collaboration and license agreements:

The Company has evaluated these agreements in accordance with FASB Topics 808 – Collaboration Arrangements and 606 - Revenue for Contracts from Customers. The Company has 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 nine months ended June 30, 2022 and 2021, the Company recognized $0 and $0 of revenue associated with its agreement with Amgen, respectively.~~As of June 30, 2022, there were $0 in contract assets recorded as accounts receivable and $0 contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.~~


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

~~Janssen Pharmaceuticals, Inc.~~Glaxosmithkline Intellectual Property (No. 3) Limited (“GSK”)

On ~~October 3, 2018,~~November 22, 2021, GSK and the Company entered into aan Exclusive License Agreement (the ~~“Janssen~~“GSK License Agreement”) and a Research Collaboration and Option Agreement (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~~GSK License Agreement, ~~Janssen~~GSK has received ~~a worldwide,~~an exclusive license tofor GSK-4532990 (formerly ARO-HSD). The exclusive license is worldwide with 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’sexception of greater China. The Company completed its Phase 1/2 study of ~~JNJ-3989 (ARO-HBV), which the Company was responsible for completing, Janssen~~GSK-4532990, and GSK is wholly responsible for all clinical development and commercialization of JNJ-3989. Under the Janssen Collaboration Agreement, Janssen was able to select three new targets against which Arrowhead would develop clinical candidates. These candidates were subject to certain restrictions and do not include candidates that already wereGSK-4532990 in ~~the Company’s pipeline. The Company was obligated to perform discovery, optimization and preclinical research and development, entirely funded by Janssen, which on~~ its own or in combination with Janssen development work, would have been sufficient to allow the filing of a U.S. Investigational New Drug Application or equivalent, at which time Janssen would have the option to take an exclusive license. If the option was exercised, Janssen would have been wholly responsible for clinical development and commercialization of each optioned candidate.territory. Under the terms of the ~~agreements taken together,~~agreement, the Company has received ~~$175.0 million as~~ an upfront payment ~~$75.0 million in the form~~ of ~~an equity investment by JJDC in Arrowhead Common Stock under the JJDC Stock Purchase Agreement, and milestone and option payments totaling $73.0~~$120.0 million and recognized an additional $30.0 million at the start of a Phase 2 trial. The Company is also eligible for an additional payment of $100.0 million upon achieving a successful Phase 2 trial readout and the first patient dosed in a Phase 3 trial. Furthermore, should the Phase 3 trial read out positively, and the potential new medicine receives regulatory approval in major markets, the deal provides for commercial milestone payments to the Company ~~may receive~~of up to ~~$1.6 billion in development and sales milestones payments for the Janssen License Agreement,~~$190.0 million at first commercial sale, and up to ~~$0.6 billion~~$590.0 million in ~~development and sales~~sales-related milestone ~~payments for the remaining target covered under the Janssen Collaboration Agreement.~~payments. The Company is further eligible to receive tiered royalties on net product sales upin a range of mid-teens to mid-teens under the Janssen License Agreement and up to low teens under the Janssen Collaboration Agreement. During the three months ended June 30, 2022, Janssen’s option period expired unexercised for two of the three candidates (ARO-JNJ2 and ARO-JNJ3) under the Janssen Collaboration Agreement.twenty percent.

~~The Company has evaluated these agreements in accordance with FASB Topics 808 – Collaboration Arrangements and 606 - Revenue for Contracts from Customers.~~ At the inception of ~~these agreements,~~the GSK License Agreement, the Company identified 1one distinct performance obligation. ~~Regarding the Janssen License Agreement, the~~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~~“GSK R&D Services”). Due to the specialized and unique nature of ~~these Janssen~~the GSK R&D Services and their direct relationship with the license, the Company determined that these deliverables ~~represent~~represented one distinct bundle and, thus, one performance obligation. ~~The Company also determined that Janssen’s option to require~~Beyond the GSK R&D Services, which are the responsibility of the Company, ~~to develop up to three new targets is not a material right~~GSK will be responsible for managing future clinical development and ~~thus, not a performance obligation at the onset of the agreement. The consideration for this option is accounted for separately.~~commercialization in its territory.

The Company determined the initial transaction price totaled ~~approximately $252.7~~$120.0 million, ~~which includes~~including the upfront payment, ~~the premium paid by JJDC for its equity investment~~which was collected in ~~the~~January 2022. The Company ~~two $25.0 million milestone payments related~~has excluded any future estimated milestones or royalties from this transaction price to ~~JNJ-3989 (ARO-HBV), and estimated payments for reimbursable Janssen R&D Services to be performed.~~date. The Company has allocated the total ~~$252.7~~$120.0 million initial transaction price to its one distinct performance obligation for the ~~JNJ-3989 (ARO-HBV)~~GSK-4532990 license and the associated ~~Janssen~~GSK R&D Services. As the Company has completed its performance obligation related to this agreement, the upfront payment of $120.0 million was fully recognized during the six months ended March 31, 2022. Further, GSK dosed the first patient in a Phase 2 trial in March 2023, triggering a $30.0 million milestone payment to the Company which was paid in the third quarter of fiscal 2023. There were no contract assets and liabilities recorded as of June 30, 2023.

Horizon Therapeutics Ireland DAC (“Horizon”)

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

At the inception of the Horizon License Agreement, the Company identified one distinct performance obligation. The Company determined that the key deliverables included the license and certain R&D services, including the Company’s responsibilities to conduct all activities through the preclinical stages of development of HZN-457 (the “Horizon R&D Services”). Due to the specialized and unique nature of these Horizon R&D Services and their direct relationship with the license, the Company determined that these deliverables represented one distinct bundle and, thus, one performance obligation. Beyond the Horizon R&D Services, which are the responsibility of the Company, Horizon is responsible for managing future clinical development and commercialization of HZN-457.

The Company determined the initial transaction price totaled $40.0 million, including the upfront payment. The Company has ~~recognized~~excluded any future estimated milestones or royalties from this transaction price into date. The Company allocated the total $40.0 million initial transaction price to its entirety as of September 30, 2021, as its performance obligations were substantially completed. Future milestones and royalties achieved will be recognized in their entirety when earned. During the three months ended June 30, 2022 and 2021, the Company recognized approximately $0 and $0 of revenue associated with thisone distinct performance obligation ~~respectively. During~~for the ~~nine months ended June 30, 2022~~HZN-457 license and ~~2021,~~ the ~~Company~~associated Horizon R&D Services. Revenue was recognized ~~approximately $0 and $20.2 million of revenue associated with this performance obligation, respectively. As of June 30, 2022, there were $0 in contract~~on a straight-line basis over the timeframe for

~~assets recorded as accounts receivable, and $0 of contract liabilities recorded as current deferred revenue on~~completing the ~~Company’s Consolidated Balance Sheets.~~

Horizon R&D Services. The Company ~~has conducted~~determined that the straight-line basis was appropriate as its ~~discovery, optimization~~efforts were expended evenly over the course of completing its performance obligation. Further, Horizon enrolled the first subject in December 2022 in a Phase 1 randomized, placebo-controlled trial to assess the safety, tolerability, pharmacokinetics and ~~preclinical research and development~~pharmacodynamics of ~~JNJ-75220795 (ARO-JNJ1), ARO-JNJ2, and ARO-JNJ3 under the Janssen Collaboration Agreement. All costs and labor hours spent by~~HZN-457, triggering a $15.0 million milestone payment to the Company have been entirely funded by Janssen. During the three months ended June 30, 2022, Janssen’s option period expired unexercised for two of the three candidates (ARO-JNJ2 and ARO-JNJ3) under the Janssen Collaboration Agreement as reportedwhich was paid in the second quarter of ~~2022. During the three months ended June 30, 2022 and 2021, the Company recognized $0.0~~fiscal 2023. There was $1.5 million and $0.2 million of revenue associated with these efforts, respectively. During the nine months ended June 30, 2022 and 2021, the Company recognized $0.1 million and $0.5 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 June 30, 2022, there were $0 of~~ contract assets recorded as accounts receivable and $0 of contract liabilities ~~recorded~~ as ~~current deferred revenue on the Company’s Consolidated Balance Sheets.~~of June 30, 2023.

Takeda ~~Pharmaceuticals U.S.A., Inc.~~Pharmaceutical Company Limited (“Takeda”)

On October 7, 2020, Takeda and the Company entered into an Exclusive License and ~~Co-funding agreement~~Co-Funding Agreement (the “Takeda License Agreement”) ~~with Takeda.~~. Under the Takeda License Agreement, Takeda and the Company will co-develop ~~the Company’s ARO-AAT~~its Fazirsiran program, the Company’s second-generation subcutaneously administered RNAi therapeutic candidate being developed as a treatment for liver disease associated with alpha-1 antitrypsin deficiency. Within the United States, ~~ARO-AAT,~~Fazirsiran, if approved, will be co-commercialized under a 50/50 profit sharing structure. Outside the United States, Takeda will lead the global commercialization strategy and ~~will receive~~received an exclusive license to commercialize ~~ARO-AAT,~~Fazirsiran, while the Company will be eligible to receive tiered royalties of 20% to 25% on net sales. ~~In January 2021, the~~The Company received $300.0 million as an upfront payment in January 2021, recognized an additional $40.0 million upon Takeda’s initiation of a Phase 3 clinical study in March 2023, and is eligible to receive potential development, regulatory and commercial milestones of up to ~~$740.0~~$527.5 million.

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

The Company determined the initial transaction price totaled $300.0 million, which includes the upfront payment. The Company has excluded any future milestones or royalties from this transaction price to date. The Company has allocated the total $300.0 million initial transaction price to its one distinct performance obligation for the ~~ARO-AAT~~Fazirsiran license and the associated Takeda R&D Services. Revenue ~~will be~~is recognized using a proportional performance method (based on actual patient visits completed versus total estimated visits completed for the ongoing SEQUOIA and AROAAT2002 clinical studies). ~~Revenue~~The Company previously expected these clinical trials to extend to September 2025 in order to demonstrate long term safety and efficacy in the open label extension (OLE) part of the studies; however, Takeda now intends to initiate a new OLE study available to patients participating in these Phase 2 studies that will initiate as early as the fourth quarter of fiscal 2023. Based on this new information, patients enrolled in the SEQUOIA and AROAAT2002 studies are expected to complete their Phase 2 study visits between June 2023 and June 2024, shortening the Company’s performance obligation. As a result, effective the second quarter of fiscal 2023, the Company changed its estimates of the revenue recognition to better reflect this newly estimated performance period. The effect of these changes in estimates resulted in accelerated revenue by $61.4 million, or $0.58 per share (diluted) for each of the three ~~months ended June 30, 2022~~ and ~~2021 was $25.5 million and $35.7 million, respectively. Revenue for the~~ nine months ended June 30, ~~2022 and 2021 was $67.1~~2023. There were $16.9 million ~~and $69.3 million, respectively. As~~ of ~~June 30, 2022, there were $0 in contract assets recorded as accounts receivable, $71.0 million in~~ contract liabilities recorded as deferred revenue, ~~and $71.2~~of which $16.9 million was classified as current as of June 30, 2023.

In March 2023, Takeda dosed the first patient in ~~contract liabilities~~the Phase 3 REDWOOD clinical study of Fazirsiran, triggering a $40.0 million milestone payment to the Company which was paid in the third quarter of fiscal 2023. The Company also recorded ~~as deferred revenue, net of the current portion, and $7.8~~$1.4 million ~~in contract liabilities recorded~~ as accrued ~~expenses. The $7.8 million in accrued~~ expenses as of June 30, 2023 that was primarily driven by co-development and co-commercialization activities.

~~Horizon Therapeutics Ireland DAC~~Janssen Pharmaceuticals, Inc. (“Janssen”)

On ~~June 18, 2021,~~October 3, 2018, Janssen, part of the Janssen Pharmaceutical Companies of Johnson & Johnson, and the Company entered into ~~the Horizon~~a License Agreement (the “Janssen License Agreement”) and the Janssen Collaboration Agreement. The Company also entered into a stock purchase agreement with ~~Horizon.~~ JJDC, Inc. (“JJDC”), Johnson & Johnson’s venture capital arm (the “JJDC Stock Purchase Agreement”).

Under the ~~Horizon~~Janssen License Agreement, Janssen 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

910

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

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

The Company determined the initial transaction price totaled $40.0 million, including the upfront payment. The Company has excluded any future estimated milestones or royalties, from this transaction price to date. The Company will allocate the total $40.0 million initial transaction price to its 1 distinct performance obligation for the ARO-XDH license and the associated Horizon R&D Services. Revenue will be recognized on a straight-line basis over the estimated timeframe for completing the Horizon R&D Services. The Company determined that the straight-line basis was appropriate as its efforts will be expended evenly over the course of completing its performance obligation. Revenue for the three months ended June 30, 2022 and 2021 was $6.7 million and $0, respectively. Revenue for the nine months ended June 30, 2022 and 2021 was $20.0 million and $0, respectively. As of June 30, 2022, there were $0 million in contract assets recorded as accounts receivable, $13.3 million in contract liabilities recorded as deferred revenue.

The Company has manufactured ARO-XDH material for Horizon in furtherance of the research plan entered into pursuant to the Horizon License Agreement, for which the Company has been reimbursed for its costs. During the nine months ended June 30, 2022 and 2021, the Company recognized $1.3 million and $0 with these efforts, respectively. As of June 30, 2022, there were $0.0 million of contract assets recorded as accounts receivable and $0 of contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.

~~Glaxosmithkline Intellectual Property (No. 3) Limited~~

~~On November 22, 2021, the Company entered into an Exclusive License Agreement (the “GSK License Agreement”) with GSK. Under the GSK License Agreement,~~ ~~GSK has received an exclusive license for ARO-HSD, the Company’s investigational RNAi therapeutic being developed as a treatment~~therapy for patients with alcohol-related and nonalcohol related liver diseases, such as nonalcoholic steatohepatitis (NASH). The exclusive license is worldwide with the exception of greater China, for which the Company retained rights to develop and commercialize. chronic hepatitis B virus infection. Beyond the Company’s Phase 1/2 study of ~~(ARO-HSD)~~JNJ-3989 (ARO-HBV), which the Company iswas responsible for completing, ~~GSK~~Janssen is wholly responsible for clinical development and commercialization of ~~ARO-HSD in its territory.~~JNJ-3989 (ARO-HBV). Under the terms of the ~~agreement,~~Janssen License Agreement, the Company has received $175.0 million as an upfront payment, $75.0 million in the form of ~~$120~~an equity investment by JJDC in the Company’s common stock under the JJDC Stock Purchase Agreement, and milestone and option payments totaling $73.0 million, and ~~is eligible for additional payments of $30 million at~~ the ~~start of Phase 2~~Company may receive up to $0.8 billion in development and $100 million upon achieving a successful Phase 2 trial readout and the first patient dosed in a Phase 3 trial. Furthermore, should the Phase 3 trial read out positively, and the potential new medicine receives regulatory approval in major markets, the deal provides for commercialsales milestone payments tofor the ~~Company of up to $190 million at first commercial sale, and up to $590 million in sales-related milestone payments.~~Janssen License Agreement. The Company is further eligible to receive tiered royalties on ~~net~~ product sales up to mid-teens under the Janssen License Agreement.

In May 2021, Janssen exercised its option right for JNJ-75220795 (ARO-JNJ1) which resulted in a ~~range~~$10.0 million milestone payment to the Company. This $10.0 million milestone payment was recognized entirely as of ~~mid-teens to twenty percent.~~

September 30, 2021. The Company ~~has evaluated~~conducted its discovery, optimization and preclinical research and development of JNJ-75220795 (ARO-JNJ1), ARO-JNJ2, and ARO-JNJ3 under the ~~GSK License Agreement in accordance with FASB Topics 808 – Collaborative Arrangements~~Janssen Collaboration Agreement. All costs and ~~606 - Revenue~~labor hours spent by the Company have been entirely funded by Janssen. On April 7, 2023, Janssen voluntarily terminated the Janssen Collaboration Agreement. Upon termination, the Company regained full rights to ARO-PNPLA3, formerly called JNJ-75220795, the only candidate for ~~Contracts from Customers.~~ which Janssen had exercised its option.

At the inception of the ~~GSK~~Janssen 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 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 ~~“GSK~~“Janssen R&D Services”). Due to the specialized and unique nature of these ~~GSK~~Janssen R&D Services and their direct relationship with the license, the Company determined that these deliverables ~~represented 1~~represent one distinct bundle and, thus, one performance obligation. ~~Beyond the GSK R&D Services, which are the responsibility of the Company, GSK will be responsible for managing future clinical development and commercialization in its territory.~~

The Company determined the ~~initial~~ transaction price totaled ~~$120.0~~approximately $252.7 million, ~~including~~which includes the upfront ~~payment. The $120.0~~payment, the premium paid by JJDC for its equity investment in the Company, two $25.0 million ~~upfront payment was collected in January 2022. The Company has excluded any future~~milestone payments related to JNJ-3989 (ARO-HBV), and estimated ~~milestones or royalties from this transaction price~~payments for reimbursable Janssen R&D Services to ~~date.~~be performed. The Company has allocated the total ~~$120.0~~$252.7 million initial transaction price to its one distinct performance obligation for the ~~ARO-HSD~~JNJ-3989 (ARO-HBV) license and the associated ~~GSK~~Janssen R&D Services. AsThe Company recognized this transaction price in its entirety as of September 30, 2021, as its performance obligations were substantially completed. Future milestones and royalties achieved will be recognized in their entirety when earned. There were no contract assets and liabilities recorded as of June 30, 2023.

Amgen Inc. (“Amgen”)

On September 28, 2016, Amgen and the Company entered into two collaboration and license agreements and a common stock purchase agreement. Under the Second Collaboration and License Agreement (the “Olpasiran Agreement”), Amgen received a worldwide, exclusive license to the Company’s novel RNAi Olpasiran program. These RNAi molecules are designed to reduce elevated lipoprotein(a), which is a genetically validated, independent risk factor for atherosclerotic cardiovascular disease. Under the first collaboration and license agreement (the “First Collaboration and License Agreement” or the “ARO-AMG1 Agreement”), Amgen received an option to a worldwide, exclusive license to ARO-AMG1, an RNAi therapy for an undisclosed genetically validated cardiovascular target. Under both agreements, Amgen is wholly responsible for clinical development and commercialization.

Under the Olpasiran Agreement and the ARO-AMG1 Agreement, the Company has received $35.0 million in upfront payments and $21.5 million in the form of an equity investment by Amgen in the Company’s common stock. Further, the Company received additional an $55.0 million in milestone payments; $10.0 million upon Amgen’s initiation of Phase 1 study in September 2018,$20.0 million upon its initiation of a Phase 2 clinical study in July 2020, and $25.0 million upon its first subject enrollment in a Phase 3 trial in December 2022. The Company has substantially completed its performance ~~obligation related to this agreement,~~obligations under the ~~upfront payment of $120.0 million will be fully recognized~~Olpasiran Agreement and the ARO-AMG1 Agreement. There were no contract assets and liabilities recorded as ~~of the three and nine months ended June 30, 2022. Revenue for the nine months ended June 30, 2022 and 2021 was $120.0 million and $0, respectively. As~~ of June 30, 2023.

In November 2022, ~~there were $0~~Royalty Pharma and the Company entered into the Royalty Pharma Agreement. In consideration for the payments under the Royalty Pharma Agreement, Royalty Pharma is entitled to receive all royalties otherwise payable by Amgen to the Company under the Olpasiran Agreement. The Company remains eligible to receive up to an additional $535.0 million in ~~contract assets recorded as accounts receivable, $0 in contract liabilities recorded as deferred revenue.~~

remaining development, regulatory and sales milestone payments payable from Amgen and Royalty Pharma. See Note 11.

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

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

RNAi-based investigational ~~cardiobolic~~cardiometabolic medicines in Greater China (including the People’s Republic of China, Hong Kong, Macau and Taiwan).Pursuant to a Share Purchase Agreement (the “Visirna SPA”) entered into simultaneously with the Visirna License Agreement, ~~(the “Visirna SPA”),~~ the Company acquired a majority stake in Visirna ~~(after accounting for shares reserved for Visirna’s employee stock ownership plan)~~ as partial consideration for the Visirna License Agreement.Under the Visirna SPA, entities affiliated with Vivo Capital ~~(“Vivo”)~~ also acquired a minority stake in Visirna in exchange for ~~$60~~$60.0 million in upfront capital to support the operations of Visirna.As further consideration under the Visirna License Agreement, the Company is also eligible to receive potential royalties on commercial sales.

During the nine months ended June 30, 2023, the Company performed manufacturing and development work pursuant to a Clinical Supply Agreement between the parties contemplated by the Visirna License Agreement. The Company ~~has determined that Visirna is a variable interest entity upon its formation~~received $0.9 million as consideration for this manufacturing and development work, and there were no contract assets and liabilities recorded as of June 30, ~~2022, and it has been determined that Arrowhead is the primary beneficiary; accordingly, Arrowhead consolidates the financial statements of Visirna.~~2023.

NOTE 3. PROPERTY AND EQUIPMENT

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


		June 30, 2022		September 30, 2021			June 30, 2023		September 30, 2022
		(In thousands)					(in thousands)
Computers, software, office equipment and furniture	Computers, software, office equipment and furniture	$	2,210	$	2,170	Computers, software, office equipment and furniture	$	2,198	$	2,182
Land						Land	2,996		2,996
Research equipment	Research equipment	31,678		27,500		Research equipment	50,472		38,283
Leasehold improvements	Leasehold improvements	42,017		41,524		Leasehold improvements	96,344		42,017
Construction in Progress		22,338		345
Land		2,996		—
Total gross fixed assets		101,239		71,539
Construction in progress						Construction in progress	118,279		56,373
							270,289		141,851
Less: Accumulated depreciation and amortization	Less: Accumulated depreciation and amortization	(29,335)		(22,864)		Less: Accumulated depreciation and amortization	(38,920)		(31,554)
Property and equipment, net	Property and equipment, net	$	71,904	$	48,675	Property and equipment, net	$	231,369	$	110,297

Depreciation and amortization expense for property and equipment for the three months ended June 30, 2023 and 2022 ~~and 2021~~ was ~~$2.2~~$2.9 million and ~~$1.6~~$2.2 million, respectively. Depreciation and amortization expense for property and equipment for the nine months ended June 30, 2023 and 2022 was $7.4 million and ~~2021 was~~ $6.5 million, ~~and $4.5 million,~~ respectively. ~~Construction~~

The increase in ~~Progress relates~~the construction in progress during the nine months ended June 30, 2023 was mainly due to the ~~Company’s~~continuing developments of manufacturing, laboratory and office facilities in Verona, Wisconsin as well as a new laboratory and office facility in San Diego, ~~research facilities. Land relates to~~California. In May 2023, the ~~Company’s Verona, Wisconsin research facility.~~

~~NOTE 4.~~ ~~INVESTMENTS~~Company completed the development of the San Diego facility, which resulted in the reclassification of construction in progress as leasehold improvements as of June 30, 2023. See Note 7.

1113

~~Investments at June 30, 2022 primarily~~NOTE 4. INVESTMENTS

The Company’s investments consisted of commercial paper and corporate bonds that have maturities of less than 36 months and a certificate of deposit. Cash and cash equivalents consist of cash on hand and commercial paper purchased with 90-days or less remaining to maturity. 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 12 months and is classified as “held-to-maturity” on the Company’s Consolidated Balance Sheet,’. The Company’s marketable equity securities consisted 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 were automatically re-invested. In April 2022, all marketable securities were sold for $122.3 million. The Company may also invest excess cash balances in money market accounts, and these securities would be classified as cash and cash equivalents on the Company’s Consolidated Balance Sheet. 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. We did not record any impairment charges related to our marketable debt securities during the three and nine months ended June 30, 2022.following:

~~The following tables summarize the Company’s short-term and long-term investments and marketable securities as of June 30, 2022 and September 30, 2021 by measurement category:~~


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

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

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

As of June 30, 2022
(In thousands)
Cost Basis Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value
Classified as Cash Equivalents
Commercial notes (due within ninety days) $ 25,325 $ 11 $ — $ 25,336
Classified as Held to Maturity
Commercial notes (due within one year) $ 227,057 $ 21 $ (1,588) $ 225,490
Commercial notes (due within one through three years) $ 165,920 $ — $ (6,380) $ 159,540
Certificate of deposit (due within one year) $ 50,000 $ — $ — $ 50,000
Classified as Marketable Securities
Marketable securities $ — $ — $ — $ —
Total $ 468,302 $ 32 $ (7,968) $ 460,366
As of September 30, 2021
(In thousands)
Cost Basis Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value
Classified as Held to Maturity
Commercial notes (due within one year) $ 56,627 $ 803 $ — $ 57,430
Commercial notes (due within one through three years) $ 195,595 $ 1,151 $ (103) $ 196,643
Certificate of deposit (due within one through two years) $ 50,000 $ — $ — $ 50,000
Classified as Marketable Securities
Marketable securities $ 127,481 $ — $ (753) $ 126,728
Total $ 429,703 $ 1,954 $ (856) $ 430,801


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

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

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

NOTE 5. INTANGIBLE ASSETS

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


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

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

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

Intangible assets with ~~the Novartis RNAi asset acquisition is being~~definite useful lives are amortized on a straight-line basis over ~~the estimated life remaining at the time~~their useful lives. Intangible assets amortization expense was $0.4 million for each of acquisition, which was 21 years, and the accumulated amortization of the asset is $1.1 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 $11.4 million. Amortization expense for~~ the three months ended June 30, 2023 and 2022, and ~~2021 was $0.4~~$1.3 million and ~~$0.4 million, respectively. Amortization expense~~ for each of the nine months ended June 30, ~~2022~~2023 and ~~2021 was $1.3 million and $1.3 million, respectively. Amortization expense is expected~~2022. None of the intangible assets with definite useful lives are anticipated to ~~be $0.4 million for the remainder of fiscal2022, $1.7 million in 2023, $1.7 million in 2024, $1.7 million in 2025, $1.7 million in 2026 and $5.2 million thereafter.~~have a residual value.

The following table ~~provides details on~~presents the ~~Company’s~~estimated future amortization expense related to intangible ~~asset balances:~~assets as of June 30, 2023:


	Intangible Assets Subject to Amortization
	~~(in thousands)~~
~~Balance at September 30, 2021~~	$	~~13,663~~
~~Impairment~~	—
~~Amortization~~	~~(1,276)~~
~~Balance at June 30, 2022~~	$	~~12,387~~


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

NOTE 6. STOCKHOLDERS’ EQUITY

AtThe following table summarizes the Company’s shares of common stock and preferred stock:


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

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

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

As of June 30, 2023 and September 30, 2022, ~~the Company had a total of 150,000,000~~respectively, 12,914,571 and 14,000,392 shares of ~~capital~~common 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 June 30, 2022, 105,795,456 shares of Common Stock were outstanding. At June 30, 2022, 13,942,716 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~~the Company’s 2004 Equity Incentive Plan, 2013 Incentive Plan, and 2021 Incentive Plan, as well as for inducement grants made to new employees under Rule 5635(c)(4) of the Nasdaq Listing Rules.

~~In August 2020,~~On December 2, 2022, the Company entered into an ~~Open~~open market sale agreement (the “Open Market Sale ~~Agreement (the “ATM~~ Agreement”), pursuant to which the Company may, from time to time, sell up to $250,000,000 in shares of the Company’s ~~Common Stock~~common stock through Jefferies LLC, acting as the sales agent and/or principal, in an at-the-market ~~offering.~~offering (“ATM Offering”). The Company is not required to sell shares under the ~~ATM~~Open Market Sale Agreement. The Company will pay Jefferies LLC a commission of up to 3.0% of the aggregate gross proceeds received from all sales of the common stock under the ~~ATM~~Open Market Sale Agreement. Unless otherwise terminated, the ATM ~~Agreement continues until~~Offering shall terminate upon the earlier of ~~selling~~(i) the sale of all shares ~~available under~~of common stock subject to the ~~ATM~~Sales Agreement ~~or December 2, 2022. At~~and (ii) the termination of the Sales Agreement as permitted therein. The Company and Jefferies may each terminate the Open Market Sale Agreement at any time upon prior notice. As of June 30, ~~2022,~~2023, no shares have been ~~sold~~issued under the ~~ATM~~Open Market Sale Agreement.

NOTE 7. COMMITMENTS AND CONTINGENCIES

Litigation

From time to time, the Company may be subject to various claims and legal proceedings in the ordinary course of business. If the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount is reasonably estimable, the Company will accrue a liability for the estimated loss. There were no contingent liabilities recorded as of June 30, ~~2022.~~2023.

Commitments

On December 20, 2021, the Company completed a purchase of 13 acres of land in the Verona Technology Park in Verona, Wisconsin, which is ~~planned to be the site of~~being developed into an approximately 160,000 square foot drug manufacturing facility and an approximately 140,000 square foot laboratory and office facility towhich will support the Company’s process development and analytical activities. ~~Arrowhead~~As of June 30, 2023, the Company has incurred $102.7 million and intends to ~~invest between $200~~spend an additional $160.0 million ~~and $250~~to $180.0 million ~~into~~to complete the ~~buildout~~build out of the facilities. As part of this acquisition, the Company ~~also~~ entered into a development agreement with the City of Verona to construct certain infrastructure improvements within the ~~TIF~~tax incremental district and will be reimbursed up to $16.0 million by the City of Verona by future tax increment revenue generated from the developed property. The total amount of funding that the City of Verona will pay ~~as reimbursements~~ under the ~~TIF~~Tax Incremental Financing program ~~for these improvements~~ is not guaranteed and will depend on future tax revenues generated from the developed property.

The Company will also receive up to $2.5 million of refundable Wisconsin state income tax credits from the Wisconsin Economic Development Corporation (WEDC) as incentives to invest in the local community and create new jobs.

Technology License Commitments

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

agreements often require the Company to make milestone and royalty payments. Milestone payments, for example, may be required as the research and development process progresses through various stages of development, such as when clinical candidates enter or progress through clinical trials, upon ~~a new drug application and upon~~NDA and/or certain sales level milestones. ~~These milestone payments could amount to the mid to upper double-digit millions of dollars.~~ During the three and nine months ended June 30, ~~2022~~2023 and ~~2021,~~2022, the Company did not reach any milestones. ~~Under certain agreements, the Company may be required to make mid to high single-digit percentage royalty payments based on a percentage of sales of the relevant products.~~

NOTE 8. LEASES

~~Leases~~

In April 2019, the Company entered into a lease for its corporate headquarters in Pasadena, California. The 91 month office building lease between the Company and 177 Colorado Owner, LLC is for approximately 24,000 square feet of office space located at 177 E. Colorado Blvd, Pasadena, California. The increased capacity of this new office space compared to the Company’s prior corporate headquarters will accommodate increased personnel as the Company’s pipeline of drug candidates expands and moves closer to market. Lease payments began on September 30, 2019 and are estimated to total approximately $8.7 million over the term. The lease expires on April 30, 2027. The Company has paid approximately $3.5 million for leasehold improvements, net of tenant improvement allowances. The lease contains an option to renew for 1 term of five years. The exercise of this option was not determined to be reasonably certain and thus was not included in lease liabilities on the Company’s Consolidated Balance Sheet at June 30, 2022. On October 23, 2020, the Company entered into a lease expansion to add an additional approximately 24,000 square feet of office space at the same location for its corporate headquarters. Lease payments for the expansion began in July 2021and the lease for the expansion expires in April 2027. The lease payments for the expansion are expected to total $6.9 million. The Company has paid approximately $4.0 million of leasehold improvements, net of tenant improvement allowances, for the lease expansion.

In January 2016, the Company entered into a lease for its research facility in Madison, Wisconsin. The lease was for approximately 60,000 square feet of office and laboratory space and had an expiration date of September 30, 2026. The lease was amended in January 2019 and May 2020 to expand the rentable square feet by an additional 40,000 square feet and to extend the lease expiration date to September 30, 2031. Lease payments are estimated to total approximately $26.2 million for the term.The Company incurred approximately $11.0 million of leasehold improvements for the additional 40,000 square feet, net of tenant improvement allowances. The lease contains 2 options to renew for two terms of five years. The exercise of these options were not determined to be reasonably certain and thus was not included in lease liabilities on the Company’s Consolidated Balance Sheet at June 30, 2022. 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 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.

On November 19, 2021, the Company entered into a ~~new lease for a San Diego, California research facility. The~~ 15-year lease is for approximately 144,000 square feet of office and research and development laboratory space ~~to be constructed~~ in San Diego, California. This ~~lease will replace the Company’s current research facility sublease for property located in San Diego, California. The increased capacity of this~~ new facility ~~compared to the Company’s current research facility in San Diego will accommodate~~accommodates increased personnel for ~~the Company’s~~its expanding pipeline of current and future drug candidates. The ~~estimated rent commencement date for the lease is in March 2023, after construction and leasehold improvements have been completed. The~~ lease payments, which ~~begin~~began on April 19, 2023, the rent commencement date, will be approximately $119.0 million over the initial 15-year term. The Company also estimates ~~payments for~~annual operating expenses to be approximately $3.0 million for the first year of the lease, and these payments will continue throughout the initial 15-year term. The Company expects to pay approximately ~~$31.0~~$32.0 million for leasehold improvements, net of tenant improvement allowances. Pursuant to the lease, within twelve months of the expiration of the initial 15-year term, the

Company has the option to extend the lease for up to 1one additional ten-year term, with certain annual increases in base rent. .

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

Other Significant Leases

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

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

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

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


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

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

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


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

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

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

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

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

There was $0.6 million and $0.2 million short-term lease cost during the three months ended June 30, 2023, and 2022, ~~and 2021~~respectively. There was ~~$3.4~~$1.2 million and ~~$1.6~~$0.7 million ~~respectively. Operating~~short-term lease cost during the nine months ended June 30, 2023, and 2022, ~~and 2021 was $6.0 million and $3.6 million,~~ respectively. Variable lease costs for the three months ended June 30, 2022 and 2021 was $0.2 million and $0.1 million, respectively. Variable lease costs for the nine months ended June 30, 2022 and 2021 was $0.5 million and $0.6 million, respectively. There was no short-term lease cost during the three and nine months ended June 30, 2022 and 2021.

The following table presents payments of operating lease liabilities on an undiscounted basis as of June 30, ~~2022:~~2023:


Year				Year	Amounts
		(in thousands)			(in thousands)
2022 (remainder of fiscal year)		$	1,309
2023		5,802
2023 (remainder of fiscal year)				2023 (remainder of fiscal year)	$	1,143
2024	2024	8,094		2024	8,094
2025	2025	11,800		2025	11,800
2026	2026	12,313		2026	12,148
2027 and thereafter		114,109
2027				2027	11,320
2028 and thereafter				2028 and thereafter	102,812
Total	Total	$	153,427	Total	$	147,317
Less imputed interest	Less imputed interest	$	(72,313)	Less imputed interest	$	(64,583)
Total operating lease liabilities (includes current portion)	Total operating lease liabilities (includes current portion)	$	81,114	Total operating lease liabilities (includes current portion)	$	82,734

~~Cash paid for the amounts included in the measurement of the operating lease liabilities on the Company’s Consolidated Balance Sheet~~Supplemental cash flow and included in Other changes in operating assets and liabilities within cash flows from operating activities on the Company’s Consolidated Statements of Cash Flows for the nine months ended June 30, 2022 and 2021other information related to leases was ~~$3.4 million and $2.2 million, respectively. The weighted-average remaining lease term and weighted-average discount rate for all leases~~ as ~~of June 30, 2022 was 7.3 years and 8.5%, respectively.~~follows:


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

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

NOTE 9. STOCK-BASED COMPENSATION

~~Arrowhead~~The Company has three plans that provide for equity-based compensation. Under the 2004 Equity Incentive Plan (the “2004 Plan”) and ~~the~~ 2013 Incentive Plan (the “2013 Plan”), 68,555 and 3,440,076 shares, respectively, of the Company’s common stock are reserved for grants of stock options and restricted stock awards to employees and directors as of June 30, ~~2022, 216,607 and 4,114,999~~2023.

On March 18, 2021, the Company’s Board of Directors approved the Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan (the “2021 Plan”), which authorized 8,000,000 shares ~~respectively, of Arrowhead’s Common Stock are reserved~~(subject to certain adjustments) available for ~~the grant~~grants of stock options, stock appreciation rights, restricted and ~~restricted~~unrestricted stock, ~~unit~~performance awards, cash awards and other awards convertible into or otherwise based on shares of the Company’s common stock. The maximum number of shares authorized under the 2021 Plan will be (i) reduced by any shares subject to ~~employees, consultants and others. No further grants may be~~awards made under the ~~2004 Equity Incentive Plan.~~2013 Plan after January 1, 2021, and (ii) increased by any shares subject to outstanding awards under the 2013 Plan as of January 1, 2021 that, after January 1, 2021, are canceled, expired, forfeited or otherwise not issued under such awards (other than as a result of being tendered or withheld to pay the exercise price or withholding taxes in connection with any such awards) or settled in cash. As of June 30, ~~2022, there~~2023, the total number of shares reserved for issuance was 6,186,644 shares, which included 197,596 shares that were options granted and outstanding to purchase 216,607 and 1,806,987 shares of Common Stock under the 2004 Equity Incentive Plan and the 2013 Incentive Plan, respectively, and there were 2,308,012 restricted stock units granted and outstandingforfeited under the 2013 ~~Incentive~~Plan, and 1,977,114 shares have been granted under the 2021 Plan. ~~As of June 30, 2022,~~

In addition, there were ~~816,248~~712,454 shares reserved for options and ~~682,500~~746,175 shares reserved for restricted stock units issued as inducement grants to new employees granted outside of ~~equity~~the Company’s equity-based compensation ~~plans. As~~plans under Rule 5635(c)(4) of the Nasdaq Listing Rules.

The following table presents a summary of awards outstanding:


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

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


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

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

Stock Option Awards

The following table presents a summary of the stock option activity for the nine months ended June 30, ~~2022, there were 3,000 shares~~2023:


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

The aggregate intrinsic values represents the amount by which the market price of ~~Common Stock reserved for~~the underlying stock exceeds the exercise price of the option. The total intrinsic value of the options ~~and 1,507,267 shares of Common Stock reserved for restricted stock units granted and outstanding under~~exercised during the ~~2021 Incentive Plan. As of~~three months ended June 30, ~~2022, the total number of shares available under the 2021 Incentive Plan was 6,627,845 shares, which includes 119,612 shares that were forfeited under the 2013 Incentive Plan.~~2023 and

1519

~~Stock Options~~

2022 was $6.5 million and $1.6 million, respectively. The ~~following table summarizes information about stock options:~~

Number of
Options
Outstanding Weighted-
Average
Exercise
Price
Per Share Weighted-
Average
Remaining
Contractual
Term Aggregate
Intrinsic
Value
Balance at September 30, 2021 3,456,239 $ 19.60
Granted — —
Cancelled (106,801) 43.68
Exercised (506,596) 8.45
Balance at June 30, 2022 2,842,842 $ 20.60 5.1 years $ 55,434,252
Exercisable at June 30, 2022 2,370,089 $ 16.14 4.6 years $ 52,941,990
total intrinsic value of the options exercised during the nine months ended June 30, 2023 and 2022 was $10.1 million and $24.9 million, respectively.

Stock-based compensation expense related to stock options outstanding for the three months ended June 30, 2023 and 2022, ~~and 2021~~ was ~~$2.6~~$2.1 million and ~~$3.2~~$2.6 million, respectively. Stock-based compensation expense related to stock options for the nine months ended June 30, 2023 and 2022 ~~and 2021~~ was ~~$8.3~~$6.7 million and ~~$9.6 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 June 30, 2022 and 2021 was $0 and $0.9 million, respectively. The grant date fair value of the options granted by the Company for the nine months ended June 30, 2022 and 2021 was $0 and $9.0 million, respectively.

The intrinsic value of the options exercised during the three months ended June 30, 2022 and 2021 was $1.6 million and $10.2 million, respectively. The intrinsic value of the options exercised during the nine months ended June 30, 2022 and 2021 was $24.9 million and $63.0$8.3 million, respectively.

As of June 30, ~~2022,~~2023, the pre-tax compensation expense for all outstanding unvested stock options in the amount of ~~$14.9~~$5.3 million will be recognized in the Company’s results of operations over a weighted average period of ~~1.7 years.~~12 months.

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

The following table provides the assumptions used ~~to value~~in the calculation of grant-date fair values of these stock options ~~are as follows:~~based on the Back-Scholes option pricing model:

Nine Months Ended June 30,
2022 2021
Dividend yield N/A —
Risk-free interest rate N/A 0.4% - 1.1%
Volatility N/A 86% - 90.4%
Expected life (in years) N/A 6.25
Weighted average grant date fair value per share of options granted N/A $ 48.64


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

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

(2) The risk-free interest rate is based on that of the U.S. Treasury ~~bond.~~yields with equivalent terms in effect at the time of the grant.

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

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

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

Restricted Stock Units

Restricted stock units (“RSUs”), including market-based, time-based ~~market condition-based,~~ and ~~performance condition-based~~performance-based awards, have been granted under the Company’s 2013 ~~Incentive Plan,~~and 2021 ~~Incentive Plan,~~Plans and as inducements grants granted outside of the Company’s equity-based compensation ~~plans under Rule 5635(c)(4) of the Nasdaq Listing Rules.~~plans. At vesting, each outstanding RSU will be exchanged for one share of the Company’s ~~Common Stock.~~common stock. RSU awards generally vest subject to the satisfaction of service requirements or the satisfaction of both service requirements and achievement of certain performance targets.

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


		Number of RSUs	Weighted- Average Grant Date Fair Value Per Share			Number of RSUs	Weighted- Average Grant Date Fair Value Per Share
Unvested at September 30, 2021		3,831,850	$	61.24
Outstanding at September 30, 2022					Outstanding at September 30, 2022	4,069,431	$	62.96
Granted	Granted	1,691,367	56.73		Granted	1,144,594	34.27
Vested	Vested	(962,188)	49.10		Vested	(798,271)	53.72
Forfeited	Forfeited	(95,625)	69.32		Forfeited	(93,688)	54.58
Unvested at June 30, 2022		4,465,404	$	61.97
Outstanding at June 30, 2023					Outstanding at June 30, 2023	4,322,066	$	57.45

During the three months ended June 30, 2022 and 2021, the Company recorded $33.7 million and $15.4 million of expense related to RSUs, respectively. During the nine months ended June 30, 2022 and 2021, the Company recorded $83.4 million and $32.5 million of expense related to RSUs, respectively. Such expense is included in stock-based compensation expense in the Company’s Consolidated Statements 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~~The fair value of ~~the award is~~RSUs was determined based on the closing price of the Company’s ~~closing~~common stock ~~price at~~on the grant date, with consideration given to the probability of achieving service and/or performance conditions for ~~performance-based~~ awards. ~~The grant date fair value of the RSUs granted by the Company for~~

For the three months ended June 30, 2023 and 2022, ~~and 2021 was $42.5~~the Company recorded $17.8 million and ~~$3.1~~$33.7 million of expense

related to RSUs, respectively. ~~The grant date fair value of the RSUs granted by the Company for~~For the nine months ended June 30, 2023 and 2022, ~~and 2021 was $95.2~~the Company recorded $53.2 million and ~~$112.1~~$83.4 million of expense related to RSUs, respectively.

As of June 30, ~~2022, the pre-tax~~2023, there was $131.6 million of total unrecognized compensation ~~expense for all unvested~~cost related to RSUs ~~in the amount of $190.3 million will~~that is expected to be recognized ~~in the Company’s results of operations~~ over a ~~weighted average~~weighted-average period of ~~2.7~~2.3 years.

NOTE 10. FAIR VALUE MEASUREMENTS

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

Assets and liabilities ~~measured~~recorded at fair value ~~into one of three different levels depending~~ on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable measure of fair value while Level 3 generally requires significant management judgment. Financial assets and liabilitiesconsolidated balance sheets are ~~classified in their entirety~~categorized based on the ~~lowest~~ level of ~~input significant~~judgment associated with inputs used to measure their fair values and the ~~fair value measurement. The fair value hierarchy is defined~~level of market price observability, as follows:

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

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

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

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

• Either directly or ~~indirectly.~~indirectly observable inputs as of the reporting date.

Level ~~3—Valuations~~3 Pricing inputs are ~~based on prices or valuation techniques that require inputs that are both~~ unobservable and significant to the overall fair value ~~measurement. Inputs reflect management’s best estimate~~measurement, and the determination of ~~what market participants would use~~fair value requires significant management judgment or estimation.

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

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

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

The following table ~~summarizes fair value measurements at June 30, 2022 and September 30, 2021 for~~presents information about the Company’s assets and liabilities measured at fair value on a recurring ~~basis:~~basis, and indicates the fair value hierarchy of the valuation techniques utilized by the Company:


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

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


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

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

NOTE 11. LIABILITY RELATED TO THE SALE OF FUTURE ROYALTIES

On November 9, 2022, the Company and Royalty Pharma entered into the Royalty Pharma Agreement, pursuant to which Royalty Pharma agreed to pay up to $410.0 million in cash to the Company in consideration for the Company’s future royalty interest in Olpasiran, a small interfering RNA (siRNA) originally developed by the Company and licensed to Amgen in 2016 under the Olpasiran Agreement.

Pursuant to the Royalty Pharma Agreement, Royalty Pharma paid $250.0 million upfront and agreed to pay up to an additional $160.0 million in aggregate one-time milestone payments due if and when the following milestone events occur: (i) $50.0 million on completion of enrollment in the OCEAN Phase 3 clinical trial for Olpasiran, (ii) $50.0 million upon receipt of FDA approval of Olpasiran for an approved indication (reduction in the risk of myocardial infarction, urgent coronary revascularization, or coronary heart disease death in adults with established cardiovascular disease and elevated Lp(a)), and (iii) $60.0 million upon Royalty Pharma’s receipt of at least $70.0 million of royalty payments under the Royalty Pharma Agreement in any single calendar year.

In consideration for the payment of the foregoing amounts under the Royalty Pharma Agreement, Royalty Pharma is entitled to receive all royalties otherwise payable by Amgen to the Company under the Olpasiran Agreement. The Company remains eligible to receive any milestone payments potentially payable by Amgen under the Olpasiran Agreement.

The Company has evaluated the terms of the Royalty Pharma Agreement and concluded in accordance with the relevant accounting guidance that the Company accounted for the transaction as debt and the funding of $250.0 million from Royalty Pharma was recorded as a liability related to the sale of future royalties on its consolidated balance sheets. The Company is not obligated to repay this upfront funding received under the Royalty Pharma Agreement. This liability is amortized over the expected repayment term using an effective interest rate method. The effective interest rate is calculated based on the rate that would enable the debt to be repaid in full over the anticipated life of the arrangement. The interest rate may vary during the term of the agreement depending on a number of factors, including the amount and timing of forecasted net revenues which affects the repayment timing and ultimate amount of repayment. The Company will evaluate the effective interest rate periodically based on its current revenue forecasts utilizing the prospective method. For the three and nine months ended June 30, 2023, the Company recognized non-cash interest expense of $5.2 million and $13.1 million, respectively, on the consolidated statements of operations and comprehensive loss.

NOTE 12. EARNINGS PER SHARE

The following table presents the computation of basic and diluted earnings per share for the nine months ended

June 30, ~~2022:~~2023 and 2022.

Level 1 Level 2 Level 3 Total
(in thousands)
Classified as Cash and cash equivalents
Commercial Notes $ — $ 25,336 $ — $ 25,336
Classified as Marketable Securities
Marketable securities $ — $ — $ — $ —
Classified as Held to Maturity
Short-term investments $ — $ 225,490 $ — $ 225,490
Long-term investments $ — $ 159,540 $ — $ 159,540
Certificate of deposits $ 50,000 $ — $ — $ 50,000
Classified as Contingent Consideration
Contingent consideration $ — $ — $ — $ —


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

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

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

~~September~~Potentially dilutive securities representing approximately 3,467,000 and 4,024,000 shares of common stock were excluded from the computation of diluted earnings per share for the three and nine months ended June 30, ~~2021:~~

Level 1 Level 2 Level 3 Total
(in thousands)
Classified as Marketable Securities
Marketable securities $ 126,728 $ — $ — $ 126,728
Classified as Held to Maturity
Short-term investments $ — $ 57,430 $ — $ 57,430
Long-term investments $ — $ 196,643 $ — $ 196,643
Certificate of deposit $ 50,000 $ — $ — $ 50,000
Classified as Contingent Consideration
Contingent consideration $ — $ — $ — $ —

2023, respectively, because their effect would have been anti-dilutive.

~~NOTE 11.~~
~~SUBSEQUENT EVENTS~~

~~None.~~

1824

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

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and we intend that such forward-looking statements be subject to the safe harbors created thereby. For this purpose, any statements contained in this Quarterly Report on Form 10-Q except for historical information may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “plan,” “project,” “could,” “estimate,” “target,” ~~“forecast,”~~“forecast” or “continue” or the negative of these words or other variations thereof or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to projections of ~~our~~the Company’s future financial performance, trends in ~~our~~its business, or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements include, but are not limited to, statements about the initiation, timing, progress and results of the Company’s preclinical studies and clinical trials, and its research and development programs; its expectations regarding the potential benefits of the partnership, licensing and/or collaboration arrangements and other strategic arrangements and transactions the Company has entered into or may enter into in the future; its beliefs and expectations regarding the amount and timing of future milestone, royalty or other payments that could be due to or from third parties under existing agreements; and its estimates regarding future revenues, research and development expenses, capital requirements and payments to third parties.

The forward-looking statements included herein are based on current expectations of ~~our~~the Company’s management based on available information and involve a number of risks and uncertainties, all of which are difficult or impossible to predict accurately, and many of which are beyond ~~our~~the Company’s control. ~~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~~the Company’s actual results and timing of certain events may differ materially from ~~those expressed~~the results discussed, projected, anticipated or indicated in any forward-looking statements. ~~Readers should carefully review~~Forward-looking statements are not guarantees of future performance and the ~~factors identified~~Company’s actual results of operations, financial condition and cash flows may differ materially. Factors that may cause or contribute to such differences include, but are not limited to, those discussed in ~~our~~more detail in “Item 1. Business” and “Item 1A. Risk Factors” of Part I and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of Part II of the Company’s most recent Annual Report on Form ~~10-K under the caption “Risk Factors”~~10-K. Readers should carefully review these risks, as well as the additional risks ~~and uncertainties~~ described in other documents ~~we file~~the Company files from time to time with the Securities and Exchange Commission ~~(“SEC”~~(the “SEC”)~~, including this Quarterly Report on Form 10-Q for the quarter ended June 30, 2022.~~. In light of the significant risks and uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by usthe Company or any other person that such results will be achieved, and readers are cautioned not to place undue reliance on such forward-looking information. Statements made herein are as of the date of the filing of this Quarterly Report on Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Except as may be required by law, ~~we disclaim~~the Company disclaims any intent to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

~~Description of Business~~OVERVIEW

~~Overview~~

~~Arrowhead Pharmaceuticals, Inc.~~The Company develops medicines that treat intractable diseases by silencing the genes that cause them. Using a broad portfolio of RNA chemistries and efficient modes of delivery, ~~Arrowhead~~the Company’s therapies trigger the ~~RNA interference~~RNAi mechanism to induce rapid, deep and durable knockdown of target genes. ~~RNA interference (“RNAi”)~~RNAi is a mechanism present in living cells that inhibits the expression of a specific gene, thereby affecting the production of a specific protein. ~~Arrowhead’s~~ RNAi-based therapeutics may leverage this natural pathway of gene ~~silencing.~~ silencing to target and shut down specific disease-causing genes.

The Company has focused its resources on therapeutics that exclusively utilize its high levels of pharmacologic activity in multiple animal models spanning several therapeutic areas. The Company believes that TRiMTM enabled therapeutics offer several potential advantages over prior generation and competing technologies, including: simplified manufacturing and reduced costs; multiple routes of administration including subcutaneous injection and inhaled administration; the ability to target multiple tissue types including liver, lung, muscle, CNS and others; and the potential for improved safety and reduced risk of intracellular buildup, because there are fewer metabolites from smaller, simpler molecules.

The Company’s pipeline ~~includes~~includes:

•Hypertriglyceridemia - ARO-APOC3 ~~for hypertriglyceridemia,~~

•Dyslipidemia - ARO-ANG3 for dyslipidemia, ARO-ENaC2 for cystic fibrosis, ARO-DUX4 for facioscapulohumeral muscular dystrophy, ARO-COV for the coronavirus that causes COVID-19 and other possible future pulmonary-borne pathogens, ARO-C3 for complement mediated diseases, ARO-RAGE and ARO-MUC5AC for various muco-obstructive or inflammatory pulmonary conditions and ARO-MMP7 for idiopathic pulmonary fibrosis. ARO-HSD for liver

•Cardiovascular disease was out-licensed to Glaxosmithkline Intellectual Property (No. 3) Limited (“GSK”) in November 2021. ARO-XDH is being developed for uncontrolled gout under a collaboration agreement with Horizon Therapeutics Ireland DAC (“Horizon”). JNJ-75220795 (ARO-JNJ1) is being developed by Janssen as a potential treatment for patients with non-alcoholic steatohepatitis (NASH).ARO-AAT for liver disease associated with alpha-1 antitrypsin deficiency (“AATD”) was out-licensed to Takeda Pharmaceuticals U.S.A., Inc. (“Takeda”) in October 2020. JNJ-3989 (formerly referred to as ARO-HBV) for chronic hepatitis B virus was out-licensed to Janssen in October 2018.- Olpasiran (formerly ~~referred to as~~ AMG 890 or ~~ARO-LPA) for cardiovascular disease was~~ARO-LPA, out-licensed to Amgen Inc. (“Amgen”) in 2016. While the Company believes that initial ARO-HIF2 Phase 1 clinical data provides proof of concept for the ability to deliver siRNA to RCC tumors, the Company has decided not to pursue further clinical development of ARO-HIF2 based on a number of factors including the evolving competitive landscape for HIF2 inhibitors.Amgen)

1925

~~Arrowhead~~•Cystic fibrosis - ARO-ENAC2

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

•Idiopathic pulmonary fibrosis - ARO-MMP7

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

•Alpha-1 antitrypsin deficiency (AATD) - Fazirsiran (formerly ARO-AAT, a collaboration with Takeda)

•Chronic hepatitis B virus - JNJ-3989 (formerly ARO-HBV, out-licensed to Janssen)

•Uncontrolled gout - HZN-457 (formerly ARO-XDH, out-licensed to Horizon)

•Complement mediated diseases - ARO-C3

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

•Facioscapulohumeral muscular dystrophy - ARO-DUX4

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

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

The First Three Quarters of Fiscal 2023 Business Highlights

Key recent developments during the first three quarters of fiscal ~~2022,~~2023 included the following:

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

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

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

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

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

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

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

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

◦Fazirsiran significantly reduced liver Z-AAT;

◦Fazirsiran consistently reduced hepatic globule burden;

◦Fazirsiran treatment reduced histological signs of hepatic inflammation;

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

◦Fazirsiran has been well tolerated to date;

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

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

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

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

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

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

◦safety and tolerability;

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

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

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

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

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

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

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

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

◦safety and ~~expanded its facilities to support the Company’s growing pipeline. Several key recent developments include:~~tolerability;

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

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

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

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

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

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

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

◦safety and tolerability;

•received notice from Janssen of its ~~PALISADE study,~~decision to voluntarily terminate the Janssen Collaboration Agreement

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

•initiated dosing in ARO-MMP7-1001 (NCT05537025), a ~~phase 3~~Phase 1/2a single ascending dose and multiple ascending dose clinical study to evaluate the safety, tolerability, pharmacokinetics, and ~~efficacy~~pharmacodynamics of ~~ARO-APOC3 in adults with familial chylomicronemia syndrome (FCS);~~

~~ii)entered into~~ARO-MMP7, an ~~exclusive license agreement with GSK for ARO-HSD;~~

~~iii)~~Janssen presented clinical data from REEF-1, a Phase 2b study of different combination regimens, including JNJ-73763989 (JNJ-3989), formerly called ARO-HBV, and/or JNJ-56136379 (JNJ-6379), and a nucleos(t)ide analog (NA) for the treatment of chronic hepatitis B virus infection (CHB);

~~iv)filed for regulatory clearance to begin a Phase 1/2a study of ARO-C3 and subsequently dosed the first subjects in AROC3-1001, a Phase 1/2 clinical study of ARO-C3, the Company’s~~ i~~nvestigational RNA interference (RNAi)~~investigational RNAi therapeutic ~~designed to reduce production of complement component 3 (C3) as a potential therapy for various complement mediated diseases;~~

v)~~presented additional interim clinical data from AROHSD1001, AROAAT2002, and AROAPOC31001;~~

~~vi)~~completed the purchase of 13 acres of land in the Verona Technology Park in Verona, Wisconsin and held a groundbreaking ceremony on the site. The site is being developed into an approximately 160,000 square foot drug manufacturing facility and an approximately 140,000 square foot laboratory and office facility which will support the Company's process development and analytical activities. The Company also announced that it received awards for up to $16 million in tax increment financing from the city of Verona, and up to $2.5 million in refundable Wisconsin state income tax credits from the Wisconsin Economic Development Corporation (WEDC) as incentives to invest in the local community and create new jobs. Additionally, The Company entered into a lease agreement for a new 144,000 square foot laboratory and office facility in San Diego, California to support discovery activities;

~~vii)completed enrollment in Phase 2b ARCHES-2 study of investigational ARO-ANG3 for patients with mixed dyslipidemia;~~

~~viii)filed for regulatory clearance to initiate Phase 1/2a study of ARO-RAGE for treatment of Asthma;~~

~~ix)filed for regulatory clearance to initiate Phase 1/2a study of ARO-MUC5AC for treatment of muco-obstructive lung disease;~~

x)~~initiated and dosed the first patients in the Phase 2 GATEWAY clinical study of investigational ARO-ANG3 for the treatment of patients with homozygous familial hypercholersterolemia;~~

~~xi)~~entered into definitive agreements to form a joint venture, Visirna Therapeutics, Inc. (“Visirna”) with Vivo Capital (“Vivo”) through which the Company and Vivo intend to expand the reach of innovative medicines in Greater China;

~~xii)~~hosted a pulmonary research & development (R&D) Day to discuss the Company’s emerging pipeline of pulmonary targeted RNA interference (RNAi) therapeutic candidates that leverage its proprietary Targeted RNAi Molecule (TRIMTM~~) platform, including an announcement of its previously undisclosed candidate~~ designed to reduce expression of matrix metalloproteinase 7 (MMP7) as a potential treatment for idiopathic pulmonary fibrosis (IPF);, in up to 56 healthy volunteers and in up to 21 patients with IPF;

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

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

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

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

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

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

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

Net loss was $102.9 million for the three months ended June 30, 2023 as compared to $72.0 million for the three months ended June 30, 2022. Net loss was $95.6 million for the nine months ended June 30, 2023 as compared to $90.6 million for the nine months ended June 30, 2022. Net loss per share – diluted was $0.96 for the three months ended June 30, 2023 as compared to $0.68 for the three months ended June 30, 2022. Net loss per share – diluted was $0.90 for the nine months ended June 30, 2023 as compared to $0.86 for the nine months ended June 30, 2022.

The ~~Annual Meeting of the European Association for the Study of the Liver (EASL).~~

~~The Company is actively monitoring the ongoing COVID-19 pandemic. The financial results~~changes in net loss for the three and nine months ended June 30, 2022 were not significantly impacted by COVID-19. Operationally, the Company has experienced delays in its earlier stage programs due to a shortage in non-human primates, which are critical to the Company’s preclinical programs. Additionally, the Company has experienced delays in enrollment in its clinical trials. The Company’s operations at its research and development facilities in Madison, Wisconsin and San Diego, California, and its corporate headquarters in Pasadena, California have continued with limited impact, other than for enhanced safety measures and intermittent lab supply shortages. However, the Company cannot predict the impact the progression of COVID-19 will have on future financial and operational results due to a variety of factors, including the ability of the Company’s clinical sites to continue to enroll subjects, the ability of the Company’s suppliers to continue to operate, the continued good health and safety of the Company’s employees and the length and severity of the COVID-19 pandemic.

Net losses were $72.0 million for the three months ended June 30, 2022 as compared to net losses of $29.9 million for the three months ended June 30, 2021. Net losses were $90.6 million for the nine months ended June 30, 2022 as compared to net losses of $77.5 million for the nine months ended June 30, 2021. Net losses per share-diluted were $0.68 for the three months ended June 30, 2022 as compared to net losses per share-diluted of $0.29 for the three months ended June 30, 2022. Net losses per share-diluted were $0.86 for the nine months ended June 30, 2022 as compared to net losses per share-diluted of $0.75 for the nine months ended June 30, 2021. The increase in net losses for the three months ended June 30, 2022 was due to2023 reflect an increase in research and development ~~and general and administrative~~ expenses, which have continued to increase 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 License Agreement (as defined below) and the Horizon License Agreement (as defined below).phases.

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 four milestone payments totaling $70.0 million. Under the terms of the Company’s agreements with Amgen, the Company has received $35.0 million in upfront 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 Takeda License Agreement resulted in a $300.0 million upfront payment, and the Horizon License Agreement resulted in a $40.0 million upfront payment. Finally, the GSK License Agreement resulted in an upfront payment of $120.0 million, which was received in January 2022.The Company had ~~$139.4~~$105.3 million of cash, ~~and~~ cash equivalents ~~$277.1~~and restricted cash, $346.4 million in short-term investments, ~~$165.9~~$42.8 million of ~~long term~~long-term investments and ~~$751.8~~$795.9 million of total assets as of June 30, ~~2022,~~2023, as compared to ~~$184.4~~$108.0 million of cash, ~~and~~ cash equivalents ~~$126.7 million of marketable securities, $56.6~~and restricted cash, $268.4 million in short-term investments, ~~$245.6~~$105.9 million of ~~long term~~long-term investments and ~~$710.1~~$691.9 million of total assets as of September 30, ~~2021.~~2022. Based upon the Company’s current cash and investment resources and operating plan, the Company expects to have sufficient liquidity to fund operations for at least the next twelve months.

Critical Accounting ~~Policies and~~ Estimates

There have been no significant changes to the ~~significant~~Company’s critical accounting ~~policies~~estimates disclosed in the ~~Company’s~~ most recent Annual Report on Form ~~10-K.~~10-K for the fiscal year ended September 30, 2022, except the Takeda revenue recognition described in Note 2 — Collaboration and License Agreements of Notes to Consolidated Financial Statements of Part I, “Item 1. Financial Statements.”

~~Results of Operations~~

RESULTS OF OPERATIONS

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

Three Months Ended June 30,
2022 2021
(in thousands, except per share
amounts)
Revenues $ 32,412 $ 45,891
Operating income (loss) $ (72,909) $ (31,868)
Net income (loss) $ (72,046) $ (29,924)
Net income (loss) per share-diluted (0.68) (0.29)

Nine Months Ended June 30,
2022 2021
(in thousands, except per share
amounts)
Revenues $ 211,656 $ 100,004
Operating income (loss) $ (94,677) $ (84,153)
Net income (loss) $ (90,552) $ (77,474)
Net income (loss) per share-diluted (0.86) (0.75)

The increase in revenue for the nine months ended June 30, 2022 compared to the nine months ended June 30, 2021 was driven by the revenue recognized from the GSK, Takeda and Horizon License Agreements.


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

Revenue

Total revenue for the three months ended June 30, ~~2022 and 2021 was $32.4~~2023 decreased to $15.8 million, ~~and $45.9 million, respectively.~~or 51.2% from the same period of 2022. Total revenue for the nine months ended June 30, ~~2022~~2023 increased to $224.6 million, or 6.1% from the same period of 2022. The changes were primarily driven by the revenue recognition associated with GSK, Horizon, Takeda and ~~2021 was $211.7 million~~Amgen license agreements, as discussed below. The Company has evaluated each agreement in accordance with FASB Topic 808–Collaborative Arrangements and ~~$100.0 million, respectively.~~ Topic 606-Revenue for Contracts from Customers. See Note 2 — Collaboration and License Agreements to Consolidated Financial Statements of Part I, “Item 1. Financial Statements” for more information on revenue recognized under the ~~nine months ended June 30, 2022 is primarily related to~~collaboration and license agreements.

GSK

At the ~~recognition~~inception of ~~the $120.0 million of revenue associated with the upfront payment received from GSK under~~ the GSK License Agreement, ~~in the second quarter of 2022.~~

~~Amgen Inc.~~

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 (the “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 prior 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. Under 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.

~~Janssen Pharmaceuticals, Inc.~~

On October 3, 2018, the Company entered into a License Agreement (the “Janssen License Agreement”) and a Research Collaboration and Option Agreement (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 was responsible for completing, Janssen is wholly responsible for clinical development and commercialization of JNJ-3989. Under the Janssen

Collaboration Agreement, Janssen was able to select three new targets against which Arrowhead would develop clinical candidates. These candidates were subject to certain restrictions and do not include candidates that already were in the Company’s pipeline. The Company was obligated to perform discovery, optimization and preclinical research and development, entirely funded by Janssen, which on its own or in combination with Janssen development work, would have been sufficient to allow the filing of a U.S. Investigational New Drug Application or equivalent, at which time Janssen would have the option to take an exclusive license. If the option was exercised, Janssen would have been 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 milestone and option payments totaling $73.0 million, and the Company may receive up to $1.6 billion in development and sales milestones payments for the Janssen License Agreement, and up to $0.6 billion in development and sales milestone payments for the remaining target 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. During the three months ended June 30, 2022, Janssen’s option period expired unexercised for two of the three candidates (ARO-JNJ2 and ARO-JNJ3) under the Janssen Collaboration Agreement.

~~The Company has evaluated these agreements in accordance with FASB Topics 808 – Collaboration Arrangements and 606 - Revenue for Contracts from Customers. At the inception of these agreements,~~ the Company identified one distinct performance obligation. ~~Regarding the Janssen License Agreement, the~~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~~“GSK R&D Services”). Due to the specialized and unique nature of ~~these Janssen~~the GSK R&D Services and their direct relationship with the license, the Company determined that these deliverables ~~represent~~represented one distinct bundle and, thus, one performance obligation. ~~The Company also determined that Janssen’s option to require~~Beyond the GSK R&D Services, which are the responsibility of the Company, ~~to develop up to three new targets is not a material right~~GSK will be responsible for managing future clinical development and ~~thus, not a performance obligation at the onset of the agreement. The consideration for this option is accounted for separately.~~commercialization in its territory.

The Company determined the initial transaction price totaled ~~approximately $252.7~~$120.0 million, ~~which includes~~including the upfront payment, which was collected in January 2022 (see Note 2 — Collaboration and License Agreements to Consolidated Financial Statements of Part I, “Item 1. Financial Statements” for more information on revenue recognized under the ~~premium paid by JJDC for its equity investment in the~~GSK License Agreement). The Company ~~two $25.0 million milestone payments related~~has excluded any future estimated milestones or royalties from this transaction price to ~~JNJ-3989 (ARO-HBV), and estimated payments for reimbursable Janssen R&D Services to be performed.~~date. The Company has allocated the total ~~$252.7~~$120.0 million initial transaction price to its one distinct performance obligation for the ~~JNJ-3989 (ARO-HBV)~~GSK-4532990 license and the associated ~~Janssen~~GSK R&D Services. ~~The~~As the Company has ~~recognized this transaction price in its entirety as of September 30, 2021, as~~completed its performance ~~obligations were substantially completed. Future milestones and royalties achieved will be~~obligation related to this agreement, the upfront payment of $120.0 million was fully recognized ~~in their entirety when earned. During~~during the ~~three~~six months ended ~~June 30, 2022 and 2021,~~March 31, 2022. Further, GSK dosed the Company recognized approximately $0 and $0 of revenue associated with this performance obligation, respectively. During the nine months ended June 30, 2022 and 2021, the Company recognized approximately $0 and $20.2 million of revenue associated with this performance obligation, respectively. As of June 30, 2022, 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.

The Company has conducted its discovery, optimization and preclinical research and development of JNJ-75220795 (ARO-JNJ1), ARO-JNJ2, and ARO-JNJ3 under the Janssen Collaboration Agreement. All costs and labor hours spent by the Company have been entirely funded by Janssen. During the three months ended June 30, 2022, Janssen’s option period expired unexercised for two of the three candidates (ARO-JNJ2 and ARO-JNJ3) under the Janssen Collaboration Agreement as reported in the second quarter of 2022. During the three months ended June 30, 2022 and 2021, the Company recognized $0.0 million and $0.2 million of revenue associated with these efforts, respectively. During the nine months ended June 30, 2022 and 2021, the Company recognized $0.1 million and $0.5 million of revenue associated with these efforts, respectively. In May 2021, Janssen exercised its option right for ARO-JNJ1, which resultedfirst patient in a ~~$10.0~~Phase 2b trial in March 2023, triggering a $30.0 million milestone payment to the ~~Company. This $10 million milestone payment~~Company which was ~~recognized entirely during~~paid in the ~~three months ended~~third quarter of fiscal 2023.

Horizon

On June ~~30, 2021.As of June 30, 2022, there were $0 of contract assets recorded as accounts receivable~~18, 2021, Horizon and ~~$0 of contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.~~

~~Takeda Pharmaceuticals U.S.A., Inc.~~

~~On October 7, 2020,~~ the Company entered into ~~an Exclusive~~the Horizon License ~~and Co-funding agreement (the “Takeda License Agreement”) with Takeda. Under~~Agreement. At the ~~Takeda~~inception of the Horizon License Agreement, ~~Takeda~~the Company identified one distinct performance obligation. The Company determined that the key deliverables included the license and certain R&D services, including the Company’s responsibilities to conduct all activities through the preclinical stages of development of HZN-457 (the “Horizon R&D Services”). Due to the specialized and unique nature of these Horizon R&D Services and their direct relationship with the license, the Company determined that these deliverables represented one distinct bundle and, thus, one performance obligation. Beyond the Horizon R&D Services, which are the responsibility of the Company, Horizon is responsible for managing future clinical development and commercialization of HZN-457.

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

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~~candidate being developed as~~randomized, placebo-controlled trial to assess the safety, tolerability, pharmacokinetics and pharmacodynamics of HZN-457, triggering a ~~treatment for liver disease associated with alpha-1 antitrypsin deficiency. Within the United States, ARO-AAT, if approved, will be co-commercialized under a~~ ~~50/50 profit sharing~~ ~~structure. Outside the United States, Takeda will lead the global commercialization strategy and will receive an exclusive license~~$15.0 million milestone payment to ~~commercialize ARO-AAT, while~~ the Company ~~will be eligible to receive tiered royalties~~which was paid in the second quarter of ~~20% to 25% on net sales. In January 2021,~~fiscal 2023.

Takeda

On October 7, 2020, Takeda and 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~~entered into the Takeda License ~~Agreement in accordance with FASB Topics 808 – Collaborative Arrangements and 606 - Revenue for Contracts from Customers.~~Agreement. At the inception of the Takeda License Agreement, the Company identified one distinct performance obligation. The Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibilities to complete the initial portion of the SEQUOIA study, to complete the ongoing Phase 2 AROAAT2002 study and to ensure certain manufacturing of ~~ARO-AAT~~Fazirsiran drug product is completed and delivered to Takeda (the “Takeda R&D Services”). Due to the specialized and unique nature of these Takeda R&D Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation. Beyond the Takeda R&D Services, which are the responsibility of the Company, Takeda will be responsible for managing future clinical development and commercialization outside the United States. Within the United States, the Company will also participate in co-development and co-commercialization efforts and will co-fund these efforts with Takeda as part of the 50/50 profit sharing structure within the United States. The Company considers the collaborative activities, including the co-development and co-commercialization, to be a separate unit of account within Topic 808, and as such, these co-funding amounts ~~will be~~are recorded as ~~Research~~research and ~~Development Expenses~~development expenses or ~~General~~general and ~~Administrative Expenses,~~administrative expenses, as appropriate.

The Company determined the initial transaction price totaled $300.0 million, which includes the upfront payment. The Company has excluded any future milestones or royalties from this transaction price to date. The Company has allocated the total $300.0 million initial transaction price to its one distinct performance obligation for the ~~ARO-AAT~~Fazirsiran license and the associated Takeda R&D Services. Revenue ~~will be~~is recognized using a proportional performance method (based on actual patient visits completed versus total estimated visits ~~completed~~ for the ongoing SEQUOIA and AROAAT2002 clinical studies). ~~Revenue~~See Note 2 — Collaboration and License Agreements to Consolidated Financial Statements of Part I, “Item 1. Financial Statements” for more information on revenue recognized under the ~~three months ended June 30, 2022~~Takeda License Agreement. The Company previously expected these clinical trials to extend to September 2025 in order to demonstrate long term safety and ~~2021 was $25.5 million and $35.7 million, respectively. Revenue for~~efficacy in the nine months ended June 30, 2022 and 2021 was $67.1 million and $69.3 million, respectively. As of June 30, 2022, there were $0 in contract assets recorded as accounts receivable, $71.0 million in contract liabilities recorded as deferred revenue and $71.2 million in contract liabilities recorded as deferred revenue, netopen label extension (OLE) part of the ~~current portion,~~studies; however, Takeda now intends to initiate a new OLE study available to patients participating in these Phase 2 studies that initiated in July 2023. Based on this new information, patients enrolled in the SEQUOIA and ~~$7.8 million in contract liabilities recorded as accrued expenses. The $7.8 million in accrued expenses was primarily driven by co-development~~AROAAT2002 studies are expected to complete their Phase 2 study visits between June 2023 and ~~co-commercialization activities.~~

~~Horizon Therapeutics Ireland DAC~~

On June ~~18, 2021,~~2024, shortening the Company’s performance obligation. As a result, effective the second quarter of fiscal 2023, the Company ~~entered into the Horizon License Agreement with Horizon. Under the Horizon License Agreement,~~ Horizon received a worldwide exclusive license for ARO-XDH, a previously undisclosed discovery-stage investigational RNAi therapeutic being developed by the Company as a potential treatment for people with uncontrolled gout. The Company will conduct all activities through the preclinical stages of development of ARO-XDH, and Horizon will be wholly responsible for clinical development and commercialization of ARO-XDH. In July 2021, the Company received $40 million as an upfront payment and is eligible to receive up to $660 million in potential development, regulatory and sales milestones. The Company is also eligible to receive royalties in the low- to mid-teens range on net product sales.

~~The Company has evaluated the Horizon License Agreement in accordance with FASB Topics 808 – Collaborative Arrangements and 606 - Revenue for Contracts from Customers. At the inception~~changed its estimates of the ~~Horizon License Agreement, the Company identified one distinct~~revenue recognition to better reflect these newly estimated proportional performance ~~obligation.~~periods. 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 natureeffect of these Horizon R&D Services and their direct relationship with the license, the Company determined that these deliverables represented one distinct bundle and, thus, one performance obligation. Beyond the Horizon R&D Services, which are the responsibility of the Company, Horizon will be responsiblechanges in estimates resulted in accelerated revenue by $61.4 million, or $0.58 per share (diluted) for ~~managing future clinical development and commercialization of ARO-XDH.~~

and the associated Horizon R&D Services. Revenue will be recognized on a straight-line basis over the estimated timeframe for completing the Horizon R&D Services. The Company determined that the straight-line basis was appropriate as its efforts will be expended evenly over the course of completing its performance obligation. Revenue for the three months ended June 30, 2022 and 2021 was $6.7 million and $0, respectively. Revenue for the nine months ended June 30, 2022 and 2021 was $20.0 million and $0, respectively. As of June 30, 2022, there were $0 million in contract assets recorded as accounts receivable, $13.3 million in contract liabilities recorded as deferred revenue.

~~Glaxosmithkline Intellectual Property (No. 3) Limited~~

~~On November 22, 2021, the Company entered into an Exclusive License Agreement (the “GSK License Agreement”) with GSK. Under the GSK License Agreement,~~ GSK has received an exclusive license for ARO-HSD, the Company’s investigational RNAi therapeutic being developed as a treatment for patients with alcohol-related and nonalcohol related liver diseases, such as nonalcoholic steatohepatitis (NASH). The exclusive license is worldwide with the exception of greater China, for which the Company retained rights to develop and commercialize. ~~Beyond the Company’s Phase 1/2 study of (ARO-HSD), which the Company is responsible for completing, GSK is wholly responsible for clinical development and commercialization of ARO-HSD in its terr~~itory. Under the terms of the agreement, the Company has received an upfront payment of $120 million and is eligible for additional payments of $30 million at the start of Phase 2 and $100 million upon achieving a successful Phase 2 trial readout and the first patient dosed in a Phase 3 trial. Furthermore, should the Phase 3 trial read out positively, and the potential new medicine receives regulatory approval in major markets, the deal provides for commercial milestone payments to the Company of up to $190 million at first commercial sale, and up to $590 million in sales-related milestone payments. ~~The Company is further eligible to receive tiered royalties on net product sales in a range of mid-teens to twenty percent.~~

The Company has evaluated the GSK License Agreement in accordance with FASB Topics 808 – Collaborative Arrangements and 606 - Revenue for Contracts from Customers. At the inception of the GSK License Agreement, the Company identified one distinct performance obligation. The Company determined that the key deliverables included the license and certain R&D services, including the Company’s responsibility to complete the Phase 1/2 study, (the “GSK R&D Services”). Due to the specialized and unique nature of these GSK R&D Services and their direct relationship with the license, the Company determined that these deliverables represented one distinct bundle and, thus, one performance obligation. Beyond the GSK R&D Services, which are the responsibility of the Company, GSK will be responsible for managing future clinical development and commercialization in its territory.

The Company determined the initial transaction price totaled $120.0 million, including the upfront payment. The $120.0 million upfront payment was collected in January 2022. The Company has excluded any future estimated milestones or royalties from this transaction price to date. The Company has allocated the total $120.0 million initial transaction price to its one distinct performance obligation for the ARO-HSD license and the associated GSK R&D Services. As the Company has completed its performance obligation related to this agreement, the upfront payment of $120.0 million will be fully recognized aseach of the three and nine months ended June 30, ~~2022. Revenue for the nine months ended June 30, 2022 and 2021 was $120.0~~2023. There were $16.9 million ~~and $0, respectively. As~~ of ~~June 30, 2022, there were $0 in contract assets recorded as accounts receivable, $0 in~~ contract liabilities recorded as deferred ~~revenue.~~revenue, which was classified as current as of June 30, 2023.

In March 2023, Takeda dosed the first patient in the Phase 3 REDWOOD clinical study of Fazirsiran, triggering a $40.0 million milestone payment to the Company which was paid in the third quarter of fiscal 2023.

~~Joint Venture~~Amgen Inc. (“Amgen”)

On September 28, 2016, Amgen and ~~License Agreement with Visirna Therapeutics, Inc.~~

~~On April 25, 2022,~~ the Company entered into two collaboration and license agreements and a ~~License~~common stock purchase agreement. Under the Olpasiran Agreement, ~~(the “Visirna License Agreement”) with Visirna Therapeutics, Inc. (“Visirna”), pursuant to which Visirna~~Amgen received ana worldwide, exclusive license to ~~develop, manufacture~~the Company’s novel RNAi Olpasiran program. Olpasiran is designed to reduce elevated lipoprotein(a), which is a genetically validated, independent risk factor for atherosclerotic cardiovascular disease. Amgen is wholly responsible for clinical development and ~~commercialize four of Arrowhead’s RNAi-based investigational cardiobolic medicines~~commercialization. The Company has substantially completed its performance obligations under the Olpasiran Agreement.

Further, in ~~Greater China (including~~November 2022, Royalty Pharma and the ~~People’s Republic of China, Hong Kong, Macau and Taiwan).Pursuant to a Share Purchase Agreement~~Company entered into ~~simultaneously with~~ the ~~Visirna License Agreement (the “Visirna SPA”), the Company acquired a majority stake in Visirna (after accounting for shares reserved for Visirna’s employee stock ownership plan) as partial~~Royalty Pharma Agreement. In consideration for the ~~Visirna License Agreement.~~Under the Visirna SPA, entities affiliated with Vivo Capital (“Vivo”) also acquired a minority stake in Visirna in exchange for $60 million in upfront capital to support the operations of Visirna.~~As further consideration~~payments under the ~~Visirna License~~Royalty Pharma Agreement, Royalty Pharma is entitled to receive all royalties otherwise payable by Amgen to the Company ~~is also~~under the Olpasiran Agreement. The Company remains eligible to receive ~~potential royalties on commercial sales.~~any milestone payments potentially payable by Amgen under the Olpasiran Agreement.

In December 2022, Amgen enrolled the first subject in its Phase 3 trial of Olpasiran, which triggered a $25.0 million milestone payment to the Company which was paid in the second quarter of fiscal 2023. The Company is further eligible to receive up to an additional $535.0 million in aggregate development, regulatory, and sales milestone payments from Amgen and Royalty Pharma.

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The Company has determined that Visirna is a variable interest entity upon its formation and as of June 30, 2022, and it has been determined that Arrowhead is the primary beneficiary; accordingly, Arrowhead consolidates the financial statements of Visirna.

Operating Expenses

The analysis below details the operating expenses and discusses the expenditures of the Company within the major expense categories. ~~Certain reclassifications have been made to prior-period operating expense categories to conform to the current period presentation.~~ For purposes of comparison, the amounts for the three and nine months ended June 30, ~~2022~~2023 and ~~2021~~2022 are shown in the tables below.

Research and Development (R&D) Expenses

R&D expenses are related to the Company’s research and development discovery efforts and related ~~program~~candidate costs, which are comprised primarily of outsourced costs related to the manufacturing of clinical supplies, toxicity/efficacy studies and clinical trial expenses. Internal costs primarily relate to discovery operations at ~~our~~the Company’s research facilities in ~~Madison, Wisconsin and~~ San Diego, California and Madison, Wisconsin, 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 consist of depreciation on lab equipment and leasehold improvements at our research facilities. ~~We do~~The Company does not separately track R&D expenses by individual research and development projects, ~~including~~or by individual drug candidates. The Company operates in a cross-functional manner across projects and does not separately allocate facilities-related costs, candidate costs, discovery costs, compensation expenses, depreciation and amortization expenses, and other expenses ~~for~~related to research and development activities.

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

~~(table below in thousands)~~


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


		Three Months Ended June 30, 2022		% of Expense Category				Three Months Ended June 30, 2021			% of Expense Category			Increase (Decrease)
										$				%
(in thousands)																				(in thousands)	Nine Months Ended June 30, 2023				% of Expense Category				Nine Months Ended June 30, 2022				% of Expense Category			Increase (Decrease)
																																$				%
Candidate costs																				Candidate costs	$	110,079					43	%					$	101,789		47		%	$	8,290		8	%
R&D discovery costs																				R&D discovery costs	50,377				20	%			40,347				19		%	10,030			25		%
Salaries	Salaries	$	11,243			16	%				$	8,518		14		%	$	2,725				32	%	Salaries	47,725				19		%		33,641			16		%	14,084			42	%
Facilities related	Facilities related	$	3,827	5	%			$	1,306		2		%	$	2,521		193		%	Facilities related	11,601				5	%			7,644				4		%	3,957			52		%
Candidate costs		$	31,732	44	%			$	31,468		54		%	$	264		1		%
R&D discovery costs		$	15,081	21	%			$	10,082		17		%	$	4,999		50		%
Total research and development expense, excluding non-cash expense	Total research and development expense, excluding non-cash expense	$	61,883	86	%			$	51,374		87		%	$	10,509		20		%	Total research and development expense, excluding non-cash expense	$	219,782			87	%			$	183,421			86		%	$	36,361		20		%
Stock compensation	Stock compensation	$	8,098	11	%			$	6,530		11		%	$	1,568		24		%	Stock compensation	26,129				10	%			23,958				11		%	2,171			9		%
Depreciation/amortization		$	2,200	3	%			$	1,421		2		%	$	779		55		%
Depreciation and amortization																				Depreciation and amortization	7,422				3	%			6,551				3		%	871			13		%
Total research and development expense	Total research and development expense	$	72,181	100	%			$	59,325		100		%	$	12,856		22		%	Total research and development expense	$	253,333			100	%			$	213,930			100		%	$	39,403		18		%

Nine Months Ended June 30, 2022
% of
Expense
Category
Nine Months Ended June 30, 2021
% of
Expense
Category
Increase (Decrease)
$ %
Salaries $ 33,641 16 % $ 25,375 18 % $ 8,266 33 %
Facilities related 7,644 4 % $ 4,456 3 % $ 3,188 72 %
Candidate costs 101,789 47 % $ 67,152 48 % $ 34,637 52 %
R&D discovery costs 40,347 19 % $ 20,295 14 % $ 20,052 99 %
Total research and development expense, excluding non-cash expense $ 183,421 86 % $ 117,278 83 % $ 66,143 56 %
Stock compensation $ 23,958 11 % $ 18,421 13 % $ 5,537 30 %
Depreciation/amortization $ 6,551 3 % $ 4,877 4 % $ 1,674 34 %
Total research and development expense $ 213,930 100 % $ 140,576 100 % $ 73,354 52 %

~~Salaries expense~~Candidate costs increased ~~by $2,725,000 from $8,518,000 during~~$9.5 million, or 30%, for the three months ended June 30, ~~2021 to $11,243,000 during the current period. Salaries expense increased by $8,266,000 from $25,375,000 during~~2023 and $8.3 million, or 8%, for the nine months ended June 30, ~~2021~~2023 compared to ~~$33,641,000 during~~ the ~~current period.~~same period of 2022. This increase iswas primarily due to the additional progression of the Company’s pipeline of candidates into and through clinical trials, which resulted in higher outsourced clinical trial, toxicity study and manufacturing costs.

R&D discovery costs increased $5.2 million, or 34%, for the three months ended June 30, 2023 and $10.0 million, or 25%, for the nine months ended June 30, 2023 compared to the same period of 2022. This increase was due to the growth of the Company’s discovery efforts and continued advancement into novel therapeutic areas and tissue types.

Salaries and stock compensation expense consist of salary, bonuses, payroll taxes, related benefits and stock compensation for the Company’s R&D personnel. The increases in salaries and stock comp expenses for the nine months ended June 30, 2023 were primarily due to an increase in R&D headcount that has occurred as the Company has expanded its pipeline of ~~candidates. We anticipate this~~candidates, in addition to annual salary increases. Stock compensation expense was based upon the valuation of

stock options and restricted stock units granted to ~~continue~~employees and directors.

Facilities-related expense included lease costs for the Company’s research and development facilities in San Diego, California and Madison, Wisconsin. Facilities-related costs increased $1.0 million, or 26%, for the three months ended June 30, 2023 and $4.0 million, or 52%, for the nine months ended June 30, 2023 compared to the same period of 2022. This increase was mainly due to the additional lease expense as ~~we continue to expand our pipeline of candidates and increase headcount to support our~~the Company expands discovery efforts to identify new drug ~~candidates, in addition~~candidates.

Depreciation and amortization expense, a non-cash expense, relates to ~~inflationary pressures in~~depreciation on lab equipment and leasehold improvements at the ~~labor market.~~facilities.

Facilities expense increased by $2,521,000 from $1,306,000 during the three months ended June 30, 2021 to $3,827,000 during the current period. Facilities expense increased by $3,188,000 from $4,456,000 during the nine months ended June 30, 2021 to $7,644,000 during the current period. This category includes rental costs for our research and development facilities in Madison, Wisconsin and San Diego, California. We expect this expense to continue to increase as we continue to build out our manufacturing capabilities to support our discovery efforts to identify new drug candidates. The ~~increase in facilities expense is due to the recognition of rent expense from the San Diego research facility.~~

Candidate costs increased by $264,000 from $31,468,000 during the three months ended June 30, 2021 to $31,732,000 during the current period. Candidate costs increased by $34,637,000 from $67,152,000 during the nine months ended June 30, 2021 to $101,789,000 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. For example, our cardiometabolic candidates, ARO-ANG3 and ARO-APOC3, have advanced into phase 2 and phase 3 clinical trials. We anticipateCompany anticipates these R&D expenses to continue to increase as ~~our~~its pipeline of candidates grows and progresses to later phase clinical trials, in addition to ~~unforeseen~~ inflationary pressure on goods and ~~services.~~

~~R&D discovery costs increased by $4,999,000 from $10,082,000 during~~services and the three months ended June 30, 2021 to $15,081,000 in the current period. R&D discovery costs increased by $20,052,000 from $20,295,000 during the nine months ended June 30, 2021 to $40,347,000 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 $1,568,000 from $6,530,000 during the three months ended June 30, 2021 to $8,098,000 during the current period. Stock compensation expense, a non-cash expense, increased by $5,537,000 from $18,421,000 during the nine months ended June 30, 2021 to $23,958,000 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. We generally expect future stock compensation expense to continue to increase as our headcount continues to increase to support our clinical pipeline.

Depreciation and amortization expense, a non-cash expense, increased by $779,000 from $1,421,000 during the three months ended June 30, 2021 to $2,200,000 during the current period. Depreciation and amortization expense, a non-cash expense, increased by $1,674,000 from $4,877,000 during the nine months ended June 30, 2021 to $6,551,000 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 facilities. The increase in depreciation and amortization expense is due to an increase in laboratory equipment and leasehold improvements. We expect this amount to increase in the future as we continue to purchase additional lab equipment and increase our footprint expansions to support our growing pipeline.labor market.

General & Administrative Expenses

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

~~(table below in thousands)~~


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

Three Months Ended June 30, 2022 % of
Expense
Category Three Months Ended June 30, 2021 % of
Expense
Category Increase (Decrease)
$ %
Salaries $ 3,175 10 % $ 2,570 14 % $ 605 24 %
Professional/outside services 1,576 5 % 379 2 % 1,197 316 %
Facilities related 703 2 % 610 3 % 93 15 %
Other G&A 1,992 6 % 2,278 12 % (286) (13) %
Total general & administrative expense, excluding non-cash expense $ 7,446 23 % $ 5,837 31 % $ 1,609 28 %
Stock compensation 25,292 76 % 12,020 66 % 13,272 110 %
Depreciation/amortization 403 1 % 577 3 % (174) (30) %
Total general & administrative expense $ 33,141 100 % $ 18,434 100 % $ 14,707 80 %


		Nine Months Ended June 30, 2022		% of Expense Category				Nine Months Ended June 30, 2021			% of Expense Category			Increase (Decrease)
										$				%
(in thousands)																				(in thousands)	Nine Months Ended June 30, 2023				% of Expense Category				Nine Months Ended June 30, 2022			% of Expense Category		Increase (Decrease)
																															$			%
Salaries	Salaries	$	10,365			11	%				$	8,411		19		%	$	1,954				23	%	Salaries			$	14,275				21	%	$	10,365	11	%	$	3,910	38	%
Professional/outside services		6,083		7	%			4,199			10		%	1,884			45		%
Professional, outside services, and other																				Professional, outside services, and other	15,293				22	%			11,004			12	%	4,289		39	%
Facilities related	Facilities related	2,085		2	%			2,127			5		%	(42)			(2)		%	Facilities related	3,377				5	%			2,085			2	%	1,292		62	%
Other G&A		4,921		5	%			4,326			10		%	595			14		%
Total general & administrative expense, excluding non-cash expense	Total general & administrative expense, excluding non-cash expense	$	23,454	25	%			$	19,063		44		%	$	4,391		23		%	Total general & administrative expense, excluding non-cash expense	$	32,945			48	%			$	23,454		25	%	$	9,491	40	%
Stock compensation	Stock compensation	67,739		74	%			23,631			54		%	44,108			187		%	Stock compensation	33,820				50	%			67,739			73	%	(33,919)		(50)	%
Depreciation/amortization		1,210		1	%			887			2		%	323			36		%
Depreciation and amortization																				Depreciation and amortization	1,212				2	%			1,210			2	%	2		—	%
Total general & administrative expense	Total general & administrative expense	$	92,403	100	%			$	43,581		100		%	$	48,822		112		%	Total general & administrative expense	$	67,977			100	%			$	92,403		100	%	$	(24,426)	(26)	%

Salaries expense increased ~~by $605,000 from $2,570,000 during~~$1.9 million, or 59%, for the three months ended June 30, ~~2021 to $3,175,000 during the current period. Salaries expense increased by $1,954,000 from $8,411,000 during~~2023 and $3.9 million, or 38%, for the nine months ended June 30, ~~2021~~2023 compared to ~~$10,365,000 during~~ the ~~current period. This~~same period of 2022. The increase ~~is primarily due to an increase in G&A~~was driven by the combination of annual salary increases and increased headcount ~~that has occurred as the Company has grown. We expect salaries expense to continue to increase as our headcount continues to increase~~required to support ~~our expanding clinical pipeline, in addition to inflationary pressures in~~ the ~~labor market.~~Company’s growth.

~~Professional/~~Professional, outside services, ~~include~~and other expense includes legal, ~~accounting,~~ consulting, patent expenses, business insurance expenses, ~~and~~ other outside services, ~~retained by the Company. Professional/outside services~~travel, communication and technology expenses. This expense increased ~~by 1,197,000 from $379,000 during~~$2.4 million, or 68%, for the three months ended June 30, ~~2021 to $1,576,000 during the current period. Professional/outside services expense increased by $1,884,000 from $4,199,000 during~~2023 and $4.3 million, or 39%, for the nine months ended June 30, ~~2021~~2023 compared to ~~$6,083,000 during~~ the ~~current period. We expect future professional/outside services expense to increase as we continue to increase discovery efforts.~~same period of 2022. The increase ~~in professional/outside services expense is~~was mainly due to ~~intellectual property~~consulting expenses related to software implementation and ~~general legal fees.~~administrative expenses in support of additional headcount.

~~Facilities-related~~Facilities related expense increased by $93,000 from $610,000 during the three months ended June 30, 2021 to $703,000 during the current period. Facilities-related expense decreased by $42,000 from $2,127,000 during the nine months ended June 30, 2021 to $2,085,000 during the current period. This category primarily includes rental costs and other facilities-related costs for ~~our~~the Company’s corporate headquarters in Pasadena, California. ~~The increase in facilities~~Depreciation and amortization expense, a noncash expense, was primarily related ~~expenses is due~~ to ~~an increase in building maintenance and repair costs. We expect future facilities related expenses to increase as we continue to increase our headcount and footprint to support our discovery efforts.~~

~~Other G&A expense decreased by $286,000 from $2,278,000 during~~amortization of leasehold improvements for the three months ended June 30, 2021 to $1,992,000 during the current period. Other G&A expense increased by $595,000 from $4,326,000 during the nine months ended June 30, 2021 to $4,921,000 during the current period. This category consists primarily of travel, communication and technology, office expenses, and franchise and property tax expenses. The decrease during the three months ended June 30, 2022 and 2021 is due to a decrease in consulting expenses from the prior year. The increase during the nine months ended June 30, 2022 and 2021 is due to software and software implementation costs..Company’s corporate headquarters.

Stock compensation expense, a non-cash expense, ~~increased~~decreased by ~~$13,272,000 from $12,020,000 during~~$14.3 million, or 57%, for the three months ended June 30, ~~2021 to $25,292,000 during the current period. Stock compensation expense, a non-cash expense, increased by $44,108,000 from $23,631,000 during~~2023 and $33.9 million, or 50%, for the nine months ended June 30, ~~2021~~2023 compared to ~~$67,739,000 during~~ the ~~current period. Stock~~same periods of 2022. The decrease was mainly due to the lower amount of recognized compensation ~~expense is based upon~~costs and the ~~valuation~~reversal 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 current period is duerecognized compensation costs related to a performance award ~~that~~where the minimum performance goal was ~~achieved earlier than anticipated, as well as a modification of certain performance awards to include market conditions.~~not met. The fair value of

market condition-based awards iswas expensed ratably over the service period and iswas not adjusted for actual achievement. ~~We generally expect future~~

Other than with respect to the stock compensation ~~expense~~costs described above, the Company anticipates these general and administrative expenses to continue to increase as ~~our headcount continues~~its pipeline of candidates grows and progresses to ~~increase~~later phase clinical trials, in addition to ~~support our clinical pipeline.~~

~~Depreciation~~inflationary pressure on goods and ~~amortization expense, a noncash expense, decreased by $174,000 from $577,000 during~~services and the three months ended June 30, 2021 to $403,000 during the current period. Depreciation and amortization expense, a noncash expense, increased by $323,000 from $887,000 during the nine months ended June 30, 2021 to $1,210,000 during the current period. The decrease in depreciation expense in the current quarter is due to reclassification of certain depreciation from general and administrative to research and development.labor market.

Other Income (Loss)

Other income decreased by $1,080,000 from $1,944,000 during the three months ended June 30, 2021 to $863,000 during the current period. Other income decreased by $2,554,000 from $6,679,000 during the nine months ended June 30, 2021 compared to $4,125,000 during the current period. Other income(loss) is primarily related to interest income and ~~realized~~expense. Other income decreased $1.5 million and ~~unrealized gain/loss on our marketable securities.~~$5.0 million for the three and nine months ended June 30, 2023, respectively, compared to the same periods of 2022. The decrease ~~in other income is~~was primarily due to ~~lower yields~~the interest expense on ~~more recently purchased bonds and increase in realized loss on~~the liability related to the sale of ~~marketable securities~~future royalties, offset by ~~a property tax credit~~higher yields on investments due to increased interest rates as well as various credits the ~~company~~Company received during the ~~current period.~~first three quarters of fiscal 2023.

~~Liquidity and Capital Resources~~

~~Arrowhead~~LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations through the sale of its equity securities, ~~and~~ revenue from its licensing and collaboration ~~agreements.~~agreements, and the sale of certain future royalties. Research and development activities have required significant capital investment since the Company’s inception and are expected to continue to require significant cash expenditure as the Company’s pipeline continues to expand and matures into later stage clinical trials. Additionally, the Company ~~plans to expand~~expanded its facilities ~~with its purchase of land~~ in Verona, Wisconsin and ~~its entry into a new~~commenced the lease agreement for additional facilities in San Diego, California. Each of these expansions is designed to increase the Company’s internal manufacturing and discovery capabilities, and each will require significant capital ~~investment~~.investment.

AtThe Company’s cash, cash equivalents and restricted cash decreased to $105.3 million at June 30, ~~2022, the Company's cash and cash equivalents totalled approximately $139.4 million as~~2023 compared to ~~$184.4~~$108.0 million at September 30, ~~2021.~~2022. Cash invested in short-term fixed income securities ~~and marketable securities~~ was ~~$277.1~~$346.4 million at June 30, ~~2022,~~2023 compared to ~~$183.4~~$268.4 million at September 30, ~~2021.~~2022. Cash invested in long-term fixed income securities was ~~$165.9~~$42.8 million at June 30, ~~2022,~~2023, compared to ~~$245.6~~$105.9 million at September 30, ~~2021. The~~2022. On December 2, 2022, the Company ~~also~~ entered into anthe 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~~$250.0 million in shares of the Company’s ~~Common Stock~~common stock through Jefferies ~~LLC.~~LLC, acting as the sales agent and/or principal, in an at-the-market offering. As of June 30, ~~2022,~~2023, no shares have been ~~sold~~issued under the ~~ATM~~Open Market Sale Agreement. The Company believes its current financial resources are sufficient to fund its operations through at least the next twelve months.

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


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

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

During the nine months ended June 30, ~~2022~~2023, cash flows used by operating activities was $128.6 million, which was primarily due to the ongoing expenses related to the Company’s research and ~~2021 is~~development programs and general and administrative expenses, partially offset by the receipt of $110.0 million from collaboration and license agreements (see Note 2 — Collaboration and License Agreements to Consolidated Financial Statements of Part I, “Item 1. Financial Statements”). Cash used in investing activities was $126.7 million, which was primarily related to capital expenditures, $112.8 million of construction in progress, and $234.0 million purchases of investments, offset by maturities of investments of $220.2 million. Cash provided by financing activities of $252.9 million was primarily related to the $250.0 million payment from Royalty Pharma as ~~follows:~~

Nine Months Ended June 30, 2022 Nine Months Ended June 30, 2021
(in thousands)
Cash flow from:
Operating activities (67,464) 195,341
Investing activities (41,862) (23,433)
Financing activities 64,331 10,490
Net increase (decrease) in cash and cash equivalents (44,995) 182,398
Cash and cash equivalents at beginning of period 184,434 143,583
Cash and cash equivalents at end of period 139,439 325,981
well as cash received from stock option exercises.See Note 11 — Liability Related to the Sale of Future Royalties of Notes to Consolidated Financial Statements of Part I, “Item 1. Financial Statements.”

During the nine months ended June 30, 2022, cash ~~flow~~flows used by operating activities was ~~$67.5~~$67.4 million, which was primarily due to the receipt of the $120.0 million upfront payment from GSK, offset by the ongoing expenses related to the Company’s research and development programs and general and administrative expenses. Cash used in investing activities was $41.9 million, which was primarily related to the purchase of property and equipment of $20.1 million and net ~~sales~~purchases and maturities of investments of $21.8 million. Cash provided by financing activities of $64.3 million was ~~primarily~~ related to the formation of ~~our~~the Company's joint venture, ~~Viserna,~~Visirna, as well as ~~cash received from stock option exercises.~~

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

On December 20, 2021, the Company completed a purchase of 13 acres of land in the Verona Technology Park in Verona, Wisconsin, which is ~~planned to be the site of~~being developed into an approximately 160,000 square foot drug manufacturing facility and an approximately 140,000 square foot laboratory and office facility towhich will support the Company’s process development and analytical activities. ~~Arrowhead~~The Company has incurred $102.7 million and intends to ~~invest between $200~~spend an additional $160.0 million ~~and $250~~to $180.0 million ~~into~~to complete the ~~buildout~~build out of the ~~facilities.~~facilities with cash on hand. As part of this ~~acquisition,~~land purchase, the Company ~~also~~ entered into a development agreement with the City of Verona to construct certain infrastructure improvements within the ~~TIF~~tax incremental district and ~~will~~expects to be reimbursed up to $16.0 million by the City of Verona by future tax increment revenue generated from the developed property. The total amount of funding that City of Verona ~~will~~is expected to pay ~~as reimbursements~~ under the ~~TIF~~Tax Incremental Financing program ~~for these improvements~~ is not guaranteed and will depend on future tax revenues generated from the developed property. The Company also expects receive up to $2.5 million of refundable Wisconsin state income tax

~~Capital Resources~~

credits from the Wisconsin Economic Development Corporation (WEDC) as incentives to invest in the local community and ~~Material Cash Requirements~~

A summary of our capital resources and material cash requirements is presented in Item 7 of our Annual Report on Form 10-K for our fiscal year ended September 30, 2021. Other than as described above, there were no material changes to our capital resources and material cash requirements during the three months ended June 30, 2022.create new jobs.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in ~~our~~the Company’s exposure to market risk from that described in Item 7A of ~~our~~its Annual Report on Form 10-K for the year ended September 30, ~~2021.~~2022.

ITEM 4. CONTROLS AND PROCEDURES

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

The Company maintains disclosure controls and procedures ~~are effective~~designed to ensure that information ~~we are~~ required to ~~disclose~~be disclosed in its reports ~~that we file or submit~~filed under the Exchange Act is recorded, processed, summarized,

and reported within the time periods specified in ~~Securities and Exchange Commission~~the SEC rules and forms, and ~~to ensure~~ that ~~information required to be disclosed by us in~~ such ~~reports~~information is accumulated and communicated to ~~our~~its management, including ~~our~~its Chief Executive Officer and Chief Financial Officer, ~~where~~as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

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

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal ~~controls~~control over financial reporting ~~(as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) occurred~~ during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, ~~our~~the Company’s internal control over financial reporting. The Company regularly evaluates its controls and procedures and makes improvements in the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during this process.

3135

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, wethe Company may be involved in routine legal proceedings, as well as demands, claims and threatened litigation, which arise in the normal course of ~~our~~its business. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings, particularly complex legal proceedings, cannot be predicted with any certainty. There have been no material developments in the legal proceedings that wethe Company disclosed in Part I, Item 3 of ~~our~~its Annual Report on Form 10-K for the year ended September 30, ~~2021.~~2022.

ITEM 1A. ~~Risk Factors~~RISK FACTORS

The Company

~~There have been no material changes~~’s business, results of operations and financial conditions are subject to various risks. These risks are described elsewhere in this Quarterly Report on Form 10-Q and in the ~~risk factors included in our~~Company’s other filings with the SEC, including the Company’s Annual Report on Form 10-K for the year ended September 30, ~~2021 as updated by our Quarterly Report on Form 10-Q for the period ended March 31,~~ 2022. ~~Please carefully consider the information set forth in this Quarterly Report on Form 10-Q and~~There have been no material changes from the risk factors ~~discussed~~identified in ~~Part I, “Item 1A. Risk Factors” in our~~the Company’s Annual Report on Form 10-K for the year ended September 30, 2021 and in Part II, “Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the period ended March 31, 2022, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K and our Quarterly Report on Form 10-Q, as well as other risks and uncertainties, could materially and adversely affect our business, results of operations and financial condition, which in turn could materially and adversely affect the trading price of shares of our Common Stock. Additional risks not currently known or currently material to us may also harm our business.2022.

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

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

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

~~None.~~

3236

ITEM 6. EXHIBITS


Exhibit Number						Document Description

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

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

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

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

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*						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)

_________________

*Filed herewith.

**Furnished herewith.

3337

SIGNATURE

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

Dated: August ~~4, 2022~~7, 2023


			ARROWHEAD PHARMACEUTICALS, INC.

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

3438


	As of June 30, 2022
	(In thousands)
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Classified as Cash Equivalents
Commercial notes (due within ninety days)	$	25,325	$	11	$	—	$	25,336
Classified as Held to Maturity
Commercial notes (due within one year)	$	227,057	$	21	$	(1,588)	$	225,490
Commercial notes (due within one through three years)	$	165,920	$	—	$	(6,380)	$	159,540
Certificate of deposit (due within one year)	$	50,000	$	—	$	—	$	50,000
Classified as Marketable Securities
Marketable securities	$	—	$	—	$	—	$	—
Total	$	468,302	$	32	$	(7,968)	$	460,366

	As of September 30, 2021
	(In thousands)
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Classified as Held to Maturity
Commercial notes (due within one year)	$	56,627	$	803	$	—	$	57,430
Commercial notes (due within one through three years)	$	195,595	$	1,151	$	(103)	$	196,643
Certificate of deposit (due within one through two years)	$	50,000	$	—	$	—	$	50,000
Classified as Marketable Securities
Marketable securities	$	127,481	$	—	$	(753)	$	126,728
Total	$	429,703	$	1,954	$	(856)	$	430,801


	Number of Options Outstanding	Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Balance at September 30, 2021	3,456,239	$	19.60
Granted	—	—
Cancelled	(106,801)	43.68
Exercised	(506,596)	8.45
Balance at June 30, 2022	2,842,842	$	20.60	5.1 years	$	55,434,252
Exercisable at June 30, 2022	2,370,089	$	16.14	4.6 years	$	52,941,990