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 ~~March~~December 31, 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 ~~April 24, 2023~~January 31, 2024 was ~~106,900,421.~~123,896,914.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Arrowhead Pharmaceuticals, Inc.

Consolidated Balance Sheets

(In thousands, except per share amounts)


		March 31, 2023		September 30, 2022
		(unaudited)
	December 31, 2023						December 31, 2023	September 30, 2023
	(unaudited)
ASSETS
ASSETS
ASSETS	ASSETS
Current assets:	Current assets:
Current assets:
Current assets:
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	$	134,959	$	108,005
Accounts receivable		69,434		1,410
Short term investments		346,046		268,391
Cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash
Available-for-sale securities, at fair value
Prepaid expenses	Prepaid expenses	9,935		7,289
Other current assets	Other current assets	14,436		20,204
Total current assets	Total current assets	574,810		405,299
Property and equipment, net		185,228		110,297
Property, plant and equipment, net
Intangible assets, net	Intangible assets, net	11,112		11,962
Long-term investments		78,834		105,872
Right-of-use assets	Right-of-use assets	41,114		58,291
Other assets	Other assets	210		218
Total Assets	Total Assets	$	891,308	$	691,939

LIABILITIES, NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY	LIABILITIES, NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
LIABILITIES, NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
LIABILITIES, NONCONTROLLING INTEREST AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:
Current liabilities:
Current liabilities:
Accounts payable
Accounts payable
Accounts payable	Accounts payable	$	9,556	$	2,868
Accrued expenses	Accrued expenses	39,551		46,856
Accrued payroll and benefits	Accrued payroll and benefits	5,494		12,251
Lease liabilities	Lease liabilities	2,711		2,776
Deferred revenue	Deferred revenue	29,839		74,099
Other liabilities
Total current liabilities	Total current liabilities	87,151		138,850
Long-term liabilities:	Long-term liabilities:
Lease liabilities, net of current portion	Lease liabilities, net of current portion	80,070		78,800
Deferred revenue, net of current portion		1,075		55,950
Lease liabilities, net of current portion
Lease liabilities, net of current portion
Liability related to the sale of future royalties	Liability related to the sale of future royalties	257,906		—
Total long-term liabilities	Total long-term liabilities	339,051		134,750
Commitments and contingencies (Note 7)	Commitments and contingencies (Note 7)					Commitments and contingencies (Note 7)
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 106,869 and 105,960 shares		199		198
Common stock, $0.001 par value: Authorized 290,000 shares; issued and outstanding 107,500 and 107,312 shares
Common stock, $0.001 par value: Authorized 290,000 shares; issued and outstanding 107,500 and 107,312 shares
Common stock, $0.001 par value: Authorized 290,000 shares; issued and outstanding 107,500 and 107,312 shares
Additional paid-in capital	Additional paid-in capital	1,260,310		1,219,213
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(332)		(136)
Accumulated deficit	Accumulated deficit	(813,405)		(820,755)
Total Arrowhead Pharmaceuticals, Inc. stockholders’ equity	Total Arrowhead Pharmaceuticals, Inc. stockholders’ equity	446,772		398,520
Noncontrolling interest	Noncontrolling interest	18,334		19,819
Total noncontrolling interest and stockholders’ equity	Total noncontrolling interest and stockholders’ equity	465,106		418,339
Total Liabilities, Noncontrolling Interest and Stockholders’ Equity	Total Liabilities, Noncontrolling Interest and Stockholders’ Equity	$	891,308	$	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)~~Loss

(In thousands, except per share amounts)

(unaudited)


		Three Months Ended March 31,					Six Months Ended March 31,
		2023		2022			2023		2022
				Three Months Ended December 31,
				Three Months Ended December 31,
				Three Months Ended December 31,
						2023					2023	2022
Revenue	Revenue	$	146,267	$	151,805		$	208,813	$	179,244
Operating expenses:	Operating expenses:
Research and development	Research and development	74,881		75,985			158,576		141,750
Research and development
Research and development
General and administrative	General and administrative	23,221		34,267			44,206		59,262
Total operating expenses	Total operating expenses	98,102		110,252			202,782		201,012
Operating income (loss)		48,165		41,553			6,031		(21,768)
Operating loss

Other income (expense):	Other income (expense):
Other income (expense):
Other income (expense):
Interest income
Interest income
Interest income	Interest income	4,560		1,054			7,242		2,210
Interest expense	Interest expense	(5,057)		—			(7,906)		—
Other, net	Other, net	8		1,759			515		1,052
Total other (loss) income		(489)		2,813			(149)		3,262
Total other (expense) income

Income (loss) before income tax expense and noncontrolling interest		47,676		44,366			5,882		(18,506)
Income tax expense		—		—			17		—
Net income (loss) including noncontrolling interest		47,676		44,366			5,865		(18,506)
Loss before income tax (benefit) expense and noncontrolling interest
Loss before income tax (benefit) expense and noncontrolling interest
Loss before income tax (benefit) expense and noncontrolling interest
Income tax (benefit) expense
Net loss including noncontrolling interest
Net loss attributable to noncontrolling interest, net of tax	Net loss attributable to noncontrolling interest, net of tax	(999)		—			(1,485)		—
Net income (loss) attributable to Arrowhead Pharmaceuticals, Inc.		$	48,675	$	44,366		$	7,350	$	(18,506)
Net loss attributable to Arrowhead Pharmaceuticals, Inc.

Net income (loss) per share attributable to Arrowhead Pharmaceuticals, Inc.:
Net loss per share attributable to Arrowhead Pharmaceuticals, Inc.:
Net loss per share attributable to Arrowhead Pharmaceuticals, Inc.:
Net loss per share attributable to Arrowhead Pharmaceuticals, Inc.:
Basic
Basic
Basic	Basic	$	0.46	$	0.42		$	0.07	$	(0.18)
Diluted	Diluted	$	0.45	$	0.41		$	0.07	$	(0.18)
Weighted-average shares used in calculating	Weighted-average shares used in calculating
Basic	Basic	106,757		105,545			106,394		105,034
Basic
Basic
Diluted	Diluted	108,143		107,929			107,893		105,034

Other comprehensive income (loss), net of tax:
Other comprehensive loss, net of tax:
Other comprehensive loss, net of tax:
Other comprehensive loss, net of tax:
Change in unrealized losses on available-for-sale securities
Change in unrealized losses on available-for-sale securities
Change in unrealized losses on available-for-sale securities
Foreign currency translation adjustments	Foreign currency translation adjustments	(74)		1			(196)		(38)
Comprehensive income (loss)		$	47,602	$	44,367		$	5,669	$	(18,544)
Comprehensive loss

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

Arrowhead Pharmaceuticals, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands)

(unaudited)


		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
	Common Stock														Common Stock	Amount ($)	Additional Paid-In Capital	Accumulated Other Comprehensive Loss	Accumulated Deficit	Non- controlling Interest	Totals
Balance at September 30, 2023
Stock-based compensation	Stock-based compensation	—	—		19,390		—		—		—		19,390
Exercise of stock options	Exercise of stock options	82	—		576		—		—		—		576
Common stock - restricted stock units vesting	Common stock - restricted stock units vesting	98	1		(1)		—		—		—		—
Foreign currency translation adjustments	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
Change in unrealized losses on available-for-sale securities
Net loss
Balance at December 31, 2023


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

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

Arrowhead Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

Six Months Ended March 31,

2023

2022

Three Months Ended December 31,

2023

2022

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income (loss)

5,865

(18,506)

Adjustments to reconcile net income (loss) to net cash flow from operating activities

Net loss

Adjustments to reconcile net loss to net cash flow from operating activities

Stock-based compensation

40,002

58,307

Depreciation and amortization

5,358

5,167

(Accretion) amortization of note premiums/discounts

(82)

329

Realized gain on investments

Non-cash interest expense on liability related to the sale of future royalties

7,906

—

Changes in operating assets and liabilities:

Accounts receivable

(68,024)

8,938

Prepaid expenses and other current assets

20,309

(3,313)

Accounts payable

6,688

1,146

Accrued expenses

(27,279)

3,699

Deferred revenue

(99,135)

(54,926)

Operating lease liabilities

1,205

580

Net cash (used in) provided by operating activities

(107,187)

1,421

Operating lease, net

Net cash used in operating activities

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property and equipment

(66,225)

(10,530)

Purchases of investments

(192,528)

(148,391)

Proceeds from maturities of investments

141,994

55,781

Net cash used in investing activities

(116,759)

(103,140)

Proceeds from sales and maturities of investments

Net cash provided by (used in) investing activities

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from the exercises of stock options

1,096

3,731

Proceeds from the sale of future royalties

250,000

—

Net cash provided by financing activities

251,096

3,731

Net increase (decrease) in cash, cash equivalents and restricted cash

27,150

(97,988)

Net (decrease) increase in cash, cash equivalents and restricted cash

Effect of exchange rate on cash, cash equivalents and restricted cash

(196)

(38)

Effect of exchange rate on cash, cash equivalents and restricted cash

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

BEGINNING OF PERIOD

108,005

184,434

END OF PERIOD

134,959

86,408

Supplementary disclosures:

Supplementary disclosure of cash flows:

Interest paid

—

Income taxes (paid) refunded

—

Supplemental disclosure of noncash investing activities:

Capital expenditures included in accrued expenses

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

Arrowhead Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements

(unaudited)

NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

General and Recent Developments

Arrowhead Pharmaceuticals, Inc. 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, 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. The Company’s RNAi-based therapeutics may leverage this natural pathway of gene silencing to target and shut down specific disease-causing genes.

The following table presents the Company’s current pipeline:

Therapeutic Area

Name

Stage

Product Rights

Cardiometabolic

~~ARO-APOC3~~Plozasiran (ARO-APOC3)

Two Phase 2b and one Phase 3

Arrowhead

Zodasiran (ARO-ANG3)

~~ARO-ANG3~~

Two Phase 2b

Arrowhead

Olpasiran

Phase 3

Amgen

Pulmonary

~~ARO-ENAC2~~ARO-RAGE

~~Pre-Clinical~~Phase 1/2a

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 22b

GSK

Fazirsiran

Phase 3

Takeda and Arrowhead

JNJ-3989

Phase 2

~~Janssen~~GSK

ARO-C3

Phase 1/2a

~~HZN-457 (formerly ARO-XDH)~~

~~Phase 1~~

~~Horizon~~Arrowhead

ARO-PNPLA3

Phase 1

~~ARO-C3~~Arrowhead

ARO-CFB

Phase 1/22a

Arrowhead

Muscle

~~ARO-PNPLA3 (formerly JNJ-75220795)~~ARO-DUX4

Phase 11/2a

Arrowhead

~~Muscle~~ARO-DM1

~~ARO-DUX4~~

~~Pre-Clinical~~Phase 1/2a

Arrowhead

~~CNS~~Central Nervous System (CNS)

~~ARO-SOD1~~Various

Pre-Clinical

Arrowhead

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

During the first ~~half~~quarter of fiscal ~~2023,~~2024, the Company continued to develop and advance its pipeline and partnered candidates. Several key recent developments include:

•~~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~~Filed an application 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 were 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;~~

application (CTA) filing in the third quarter of 2023 to begin clinical studies. 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 is expected to be 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 RNAi therapeutic for the treatment of patients with non-alcoholic steatohepatitis (NASH), triggering a $30.0 million milestone payment to the Company which is expected to be paid in the third quarter of fiscal 2023;

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

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

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

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

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

◦~~safety and tolerability;~~

•received notice from Janssen of its decision to voluntarily terminate the Research Collaboration and Option Agreement (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),~~initiate a Phase 1/2a ~~single ascending dose and multiple ascending dose~~ clinical ~~study to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamics~~trial of ~~ARO-MMP7, an investigational RNAi therapeutic designed to reduce expression of matrix metalloproteinase 7 (MMP7)~~ARO-CFB, being developed as a potential treatment for ~~idiopathic pulmonary fibrosis (IPF), in up to 56 healthy volunteers and in up to 21 patients with IPF;~~complement mediated renal disease;

•~~enrolled the first subject in~~Filed an application for clearance to initiate a Phase 1/2a clinical trial of ARO-DM1, being developed as a potential treatment for type 1 ~~randomized, placebo-controlled trial to assess~~myotonic dystrophy (DM1), the ~~safety tolerability, pharmacokinetics~~most common adult-onset muscular dystrophy; and pharmacodynamics of a development-stage medicine, HZN-457 (formerly 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~~Entered into ~~a Royalty Purchase~~an Amended and Restated License Agreement ~~(the “Royalty Pharma Agreement”)~~ with ~~Royalty Pharma Investments 2019 ICAV (“Royalty Pharma”) on November 9, 2022,~~GSK, pursuant to which ~~Royalty Pharma paid $250.0 million upfront (See~~GSK received a worldwide, exclusive license to develop and commercialize JNJ-3989 (formerly ARO-HBV). JNJ-3989 had previously been licensed to Janssen Pharmaceuticals, Inc. See Note ~~11 — Liability Related to the Sale of Future Royalties of Notes to Consolidated Financial Statements of Part I, “Item 1. Financial Statements.”);~~2.

•~~announced Topline Results from SEQUOIA Phase 2 Study of Fazirsiran (formerly ARO-AAT) in patients with Alpha-1 Antitrypsin Deficiency-Associated Liver Disease in which;~~

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

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

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

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

Consolidation and Basis of Presentation

The interim Consolidated Financial Statements include the accounts of Arrowhead Pharmaceuticals, Inc. and its subsidiaries (wholly-owned subsidiaries and a variable interest entity for which the Company is the primary beneficiary). Subsidiaries refer to Arrowhead Madison, Inc., Visirna Therapeutics, Inc. (“Visirna”), and Arrowhead Australia Pty Ltd.

For subsidiaries in which the Company owns or is exposed to less than 100% of the economics, the Company records net loss attributable to noncontrolling interests in its consolidated statements of operations equal to the percentage of the economic or ownership interests retained in such entity by the respective noncontrolling party.

The interim Consolidated Financial Statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). The financial data of the Company included herein are unaudited. In the opinion of management, all material adjustments of a normal recurring nature have been made to present fairly the Company’s financial position at ~~March~~December 31, 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~~2023 for more complete descriptions and discussions. Operating results and cash flows for the ~~six~~three months ended ~~March~~December 31, 2023 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, ~~2023.~~2024.

Liquidity

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

~~At March~~As of December 31, 2023, the Company had ~~$135.0~~$58.2 million in cash, ~~and~~ cash equivalents ~~(including $7.3~~and restricted cash ($6.9 million in restricted cash)~~, $346.0~~ and $162.1 million in ~~short-term investments and $78.8 million in long-term investments~~available-for-sale debt securities to fund operations. During the ~~six~~three months ended ~~March~~December 31, 2023, the Company’s cash, ~~and~~ cash equivalents and restricted cash and investments balance ~~increased~~decreased by ~~$77.6~~$183.3 million which was primarily due to the ongoing expenses related to the Company’s research and development programs and general and administrative expenses and capital expenditures. During the three months ended December 31, 2022, the Company received the $250.0 million upfront payment ~~received~~ from Royalty Pharma (Note 11).

On January 2, 2024, the Company entered into an underwriting agreement with Jefferies LLC, BofA Securities, Inc., and ~~$40.0~~Cowen and Company, LLC, as representatives of the several underwriters. The Company issued 15,790,000 shares of common stock at a price of $28.50 per share. The aggregate purchase price paid by investors was $450.0 million ~~in milestone payments from Horizon~~ and ~~Amgen, partially offset by cash used to fund its operations.~~the Company received net proceeds of $429.0 million after deducting advisory fees and offering expenses.

In total, the Company is eligible to receive up to ~~$3.6~~$2.8 billion in developmental, regulatory and sales milestones, and may receive various royalties on net sales from its licensing and collaboration agreements, subject to the terms and conditions of those agreements. The revenue recognition for these collaboration agreements is discussed further in Note 2.

Summary of Significant Accounting Policies

There have been no changes to the significant accounting policies disclosed in the Company’s most recent Annual Report on Form 10-K for the fiscal year ended September 30, ~~2022.~~2023.

Uncertainty in Income Taxes

The Company recorded an income tax benefit of $3.3 million and $0 for the three months ended December 31, 2023 and 2022, respectively. The income tax benefit is primarily due to the discrete change in the Company’s uncertain tax positions related to the statute of limitation expiration.

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 December 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, to improve its income tax disclosure requirements. Under the ASU, entities must annually (1) disclose specific categories in the ~~Company’s most recent Annual Report on Form 10-K~~rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold. This ASU will become effective for the ~~fiscal year ended September 30, 2022.~~Company beginning on October 1, 2025. The Company does not expect any material impact on its consolidated financial statements and related disclosures resulting from applying this ASU.

NOTE 2. COLLABORATION AND LICENSE AGREEMENTS

The following table provides a summary of revenue recognized:


			Three Months Ended March 31,				Six Months Ended March 31,
			2023		2022		2023		2022
			(in thousands)
		Three Months Ended December 31,										Three Months Ended December 31,
		2023									2023		2022
		(in thousands)										(in thousands)
GSK	GSK		$	30,000	$	120,000	$	29,323	$	120,000
Horizon	Horizon		—		7,918		21,667		14,585
Takeda	Takeda		116,156		20,821		132,468		41,593
Janssen	Janssen		111		3,066		355		3,066
Amgen	Amgen		—		—		25,000		—
Total	Total		$	146,267	$	151,805	$	208,813	$	179,244

The following table summarizes the balance of receivables and contract liabilities related to the Company’s collaboration and license agreements:

March 31, 2023 September 30, 2022
(in thousands)
Receivables included in accounts receivable $ 70,000 $ 6,174
Contract liabilities included in deferred revenue $ 30,914 $ 130,049


	December 31, 2023		September 30, 2023
	(in thousands)
Receivables included in accounts receivable	$	—	$	—
Contract liabilities included in deferred revenue	$	—	$	866

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

GSK License Agreement

On November 22, 2021, GSK and the Company entered into an Exclusive License Agreement (the “GSK License Agreement”). Under the GSK License Agreement, GSK has received an exclusive license for GSK-4532990 (formerly ARO-HSD). The exclusive license is worldwide with the exception of greater ~~China, for which the Company retained rights to develop and commercialize GSK-4532990. The Company completed its Phase 1/2 study of GSK-4532990, and~~China. GSK is wholly responsible for all clinical development and commercialization of GSK-4532990 in its territory. ~~Under~~GSK dosed the ~~terms of the agreement,~~first patient in a Phase 2b trial in March 2023 and paid a $30.0 million milestone payment to the Company ~~has received an upfront payment~~in the third quarter of ~~$120.0 million and recognized an additional $30.0 million at the start of a Phase 2 trial.~~ fiscal 2023.

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 of up to $190.0 million at first commercial sale, and up to $590.0 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.

AtGSK-HBV Agreement

On December 11, 2023, the ~~inception~~Company entered into an Amended and Restated License Agreement with GSK (the “GSK-HBV Agreement”) pursuant to which GSK received a worldwide, exclusive license to develop and commercialize JNJ-3989 (formerly ARO-HBV), the Company’s third-generation subcutaneously administered RNAi therapeutic candidate being developed as a potential therapy for patients with chronic hepatitis B virus infection. JNJ-3989 had previously been licensed to Janssen in October 2018.

Under the terms of the ~~GSK License~~GSK-HBV Agreement, the Company ~~identified one distinct performance obligation.~~received $2.7 million in December 2023, upon signing the amended GSK-HBV Agreement. The Company ~~determined that the key deliverables included the license and certain R&D services, including the Company’s responsibility~~is eligible to ~~complete the Phase 1/2 study (the “GSK R&D Services”). Due~~receive up to the specialized and unique nature of the GSK R&D Services and their direct relationship with the license, the Company determined that these deliverables represented one distinct bundle and, thus, one performance obligation. Beyond the GSK R&D Services, which are the responsibility of the Company, GSK will be responsible for managing future clinical$832.5 million in development and ~~commercialization in its territory.~~sales milestone payments under the GSK-HBV Agreement.

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

Horizon Therapeutics Ireland DAC (“Horizon”)

OnIn 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~~received a $40.0 million ~~including the~~ upfront payment. The Company has excluded any future estimated milestones or royalties from this transaction price to date. The Company allocated the total $40.0 million initial transaction price to its one distinct performance obligation for the HZN-457 license and the associated Horizon R&D Services.payment in July 2021. Revenue was recognized

on a straight-line basis over the timeframe for completing the Horizon R&D ~~Services. The Company determined that the straight-line basis was appropriate as its efforts were expended evenly over the course of completing its performance obligation. Further, Horizon enrolled~~Services, concluding in the first ~~subject in December 2022 in~~quarter of 2023. Further, the Company received an additional $15.0 million upon Horizon’s initiation of a Phase 1 ~~randomized, placebo-controlled~~clinical trial ~~to assess the safety, tolerability, pharmacokinetics~~in January 2023.

On October 6, 2023, Amgen completed its acquisition of Horizon and ~~pharmacodynamics of HZN-457, triggering a $15.0 million milestone payment to~~subsequently notified the Company of Amgen’s intent to terminate the HZN-457 license. Horizon exercised its right to terminate the Horizon License Agreement for convenience, which ~~was paid in the second quarter of fiscal 2023. There were no contract assets and liabilities recorded as of March 31,~~took effect on December 21, 2023.

Takeda Pharmaceutical Company Limited (“Takeda”)

OnIn October 7, 2020, Takeda and the Company entered into an Exclusive License and Co-Funding Agreement (the “Takeda License Agreement”). Under the Takeda License Agreement, Takeda and the Company will co-develop ~~its~~the Company’s Fazirsiran program (formerly TAK-999 and ARO-AAT), the Company’s second-generation subcutaneously administered RNAi therapeutic candidate being developed as a treatment for liver disease associated with alpha-1 antitrypsin deficiency. Within the United States, ~~Fazirsiran,~~fazirsiran, if approved, will be co-commercialized under a 50/50 profit sharing structure. Outside the United States, Takeda received an exclusive license to commercialize fazirsiran and will lead the global commercialization strategy, ~~and will receive an exclusive license to commercialize Fazirsiran,~~ while the Company will be eligible to receive tiered royalties of 20% to 25% on net sales. The Company received $300.0 million as an upfront payment in January 2021, recognized an additional $40.0 million upon Takeda’s initiation of a Phase 3 clinical study in March 2023, and is eligible to receive potential development, regulatory and commercial milestones of up to $527.5 million.

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

Under the terms of the Takeda License Agreement, the Company received $300.0 million as an upfront payment in January 2021 and an additional $40.0 million upon Takeda’s initiation of a Phase 3 REDWOOD clinical study of fazirsiran in March 2023, and is eligible to receive up to $527.5 million in additional potential development, regulatory and commercial milestones.

The Company has allocated the total $300.0 million initial transaction price to its one distinct performance obligation for the ~~Fazirsiran~~fazirsiran license and the associated Takeda R&D Services. Revenue is recognized using ~~a proportional performance~~the input method (based on actual patient visits completed versus total estimated visits completed for the ongoing SEQUOIA and AROAAT2002 clinical studies). 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, in August 2023, Takeda ~~now intends to initiate~~initiated a ~~new open label extension (OLE)~~Phase 3 OLE study, ~~available to patients participating in these~~concluding the Phase 2 ~~studies that will initiate as early as July 2023. Based on this new information,~~study visits for 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,~~by December 31, 2023. Consequently, the Company ~~changed~~adjusted its ~~estimates of the~~ revenue recognition estimates in the fiscal year 2023 to ~~better reflect these newly estimated proportional~~align with the revised performance ~~periods. The effect of these changes in estimates resulted~~period, resulting in accelerated revenue ~~by $61.4~~of $70.5 million, or ~~$0.57~~$0.66 per diluted share, ~~(diluted)~~ for

~~each~~ the year ended September 30, 2023. The remaining $0.9 million of deferred revenue was recognized for the three ~~and six~~ months ended ~~March~~December 31, 2023. There were ~~$30.9 million of~~no further contract liabilities ~~recorded as deferred revenue, of which $29.8 million was classified as current~~ as of ~~March~~December 31, ~~2023.~~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 is expected to be paid in the third quarter of fiscal 2023. The Company also recorded ~~$9.4~~$11.1 million as accrued expenses as of ~~March~~December 31, 2023 that was primarily driven by co-development and co-commercialization activities.

Janssen Pharmaceuticals, Inc. (“Janssen”)

On October 3, 2018, Janssen, part of the Janssen Pharmaceutical Companies of Johnson & Johnson, and the Company entered into a License Agreement (the “Janssen License Agreement”) and the Janssen Collaboration Agreement. The Company also entered into a stock purchase agreement with JJDC, Inc. (“JJDC”), Johnson & Johnson’s venture capital arm (the “JJDC Stock Purchase Agreement”). Under the 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 developed as a potential therapy for patients with chronic hepatitis B virus infection. Beyond the Company’s Phase 1/2 study of JNJ-3989 (ARO-HBV), which the Company was responsible for completing, Janssen is wholly responsible for clinical development and commercialization of JNJ-3989 (ARO-HBV).

Under the terms of the Janssen License Agreement, the Company has received $175.0 million as an upfront payment, $75.0 million in the form of an equity investment by JJDC in the Company’s common stock under the JJDC Stock Purchase Agreement, and milestone and option payments totaling $73.0 million, and the Company may receive up to $0.8 billion in development and sales milestone payments for the Janssen License Agreement. The Company is further eligible to receive tiered royalties on product sales up to mid-teens under the Janssen License Agreement.

On April 7, 2023, Janssen voluntarily terminated its collaboration agreement with the ~~Janssen Collaboration Agreement. Upon termination,~~Company and the Company regained full rights to ARO-PNPLA3, formerly called ~~JNJ-75220795, the only candidate for~~JNJ-75220795. ARO-PNPLA3 is in Phase 1 clinical trials, which ~~Janssen had exercised its option.~~

In May 2021, Janssen exercised its option right for JNJ-75220795 (ARO-JNJ1), which resulted in a $10.0 million milestone payment to the Company. This $10.0 million milestone payment was recognized entirely as of September 30, 2021. The Company conducted its discovery, optimization and preclinical research and development of JNJ-75220795 (ARO-JNJ1), ARO-JNJ2, and ARO-JNJ3 under the Janssen Collaboration Agreement. All costs and labor hours spentare now being developed by the ~~Company have been entirely funded by Janssen. There was no revenue recorded associated with the Company’s agreement with Janssen for the six months ended March 31,~~Company.

Further, on December 11, 2023, ~~and 2022. There were no contract assets and liabilities recorded as of March 31, 2023.~~

~~At the inception of the Janssen License Agreement,~~ the Company ~~determined that~~entered into the ~~key deliverables included the~~GSK-HBV Agreement, as discussed above, pursuant to which GSK received an exclusive license ~~and certain R&D services including the Company’s responsibility to complete the Phase 1/2 study of~~for JNJ-3989 ~~(ARO-HBV) and the Company’s responsibility to ensure certain manufacturing of~~(formerly ARO-HBV). JNJ-3989 ~~(ARO-HBV) drug product is completed and delivered~~had previously been licensed to Janssen (the “Janssen R&D Services”). Due to the specialized and unique nature of these Janssen R&D Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation.in October 2018.

The Company determined the transaction price totaled approximately $252.7 million, which includes the upfront payment, the premium paid by JJDC for its equity investment in the Company, two $25.0 million milestone payments related to JNJ-3989 (ARO-HBV), and estimated payments for reimbursable Janssen R&D Services to be performed. The Company has allocated the total $252.7 million initial transaction price to its one distinct performance obligation for the JNJ-3989 (ARO-HBV) license and the associated Janssen R&D Services. The Company recognized this transaction price in its entirety as of September 30, 2021, as its performance obligations were substantially completed. Future milestones and royalties achieved will be recognized in their entirety when earned. There were no contract assets and liabilities recorded as of March 31, 2023.

Amgen Inc. (“Amgen”)

OnIn 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~~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 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,Olpasiran Agreement, 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 a 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 obligations under the Olpasiran ~~Agreement and the ARO-AMG1~~ Agreement. There were no contract assets and liabilities recorded as of ~~March~~December 31, 2023.

In November 2022, Royalty Pharma and the Company entered into the Royalty Pharma Agreement. In consideration for the payments under the Royalty Pharma Agreement, Royalty Pharma is entitled to receive all royalties otherwise payable by Amgen to the Company under the Olpasiran Agreement. The Company remains eligible to receive up to an additional $535.0 million in 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”)

OnIn April ~~25,~~ 2022, ~~Visirna and~~ the Company and Visirna, its subsidiary, entered into a License Agreement (the “Visirna License Agreement”), pursuant to which Visirna received an exclusive license to develop, manufacture and commercialize four of the Company’s RNAi-based investigational cardiometabolic medicines in Greater China (including the People’s Republic of China, Hong Kong, Macau and Taiwan). ~~Pursuant to a Share Purchase Agreement (the “Visirna SPA”) entered into simultaneously with the Visirna License Agreement, the~~

The Company ~~acquired a majority stake in Visirna as partial consideration for the Visirna License Agreement. Under the Visirna SPA, entities affiliated with Vivo Capital~~ also acquired a minority stake in Visirna in exchange for $60.0 million in upfront capital to support the operations of Visirna. As further consideration under the Visirna License Agreement, the Company is also eligible to receive potential royalties on commercial sales.

~~During the six months ended March 31, 2023, the Company performed~~performs manufacturing and development work pursuant to a Clinical Supply Agreement between the parties contemplated by the Visirna License Agreement. The Company received ~~$0.9 million~~$85,989 and $749,262 as consideration for this manufacturing and development work for the three months ended December 31, 2023 and ~~there~~2022, respectively. There were no contract assets and liabilities recorded as of ~~March~~December 31, 2023.

119

NOTE 3. ~~PROPERTY AND EQUIPMENT~~BALANCE SHEET ACCOUNTS

Property, Plant and Equipment

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


		March 31, 2023		September 30, 2022
		(in thousands)
Computers, software, office equipment and furniture		$	2,198	$	2,182
	December 31, 2023					December 31, 2023		September 30, 2023
	(in thousands)						(in thousands)
Land	Land	2,996		2,996
Building
Research equipment	Research equipment	46,873		38,283
Furniture
Computers and software
Leasehold improvements	Leasehold improvements	42,017		42,017
Construction in progress	Construction in progress	127,216		56,373
		221,300		141,851
	379,200
Less: Accumulated depreciation and amortization	Less: Accumulated depreciation and amortization	(36,072)		(31,554)
Property and equipment, net		$	185,228	$	110,297
Property, plant and equipment, net

Depreciation and amortization expense for property and equipment for ~~each of~~ the three months ended ~~March~~December 31, 2023 and 2022 was ~~$2.2 million. Depreciation~~$3.8 million and ~~amortization expense for property and equipment for the six months ended March~~$2.3 million, respectively.

As of December 31, 2023, ~~and 2022 was $4.5 million and $4.3 million, respectively.~~

~~The increase in~~ the ~~construction in progress during~~Company completed the ~~six months ended March 31, 2023 was mainly due to the continuing developments~~build out of ~~manufacturing,~~one of its laboratory and office facilities in Verona, Wisconsin, ~~as well as~~which resulted in the reclassification of related construction in progress to building. Further, the Company commenced depreciation on the newly completed facility over a ~~new laboratory and office facility in San Diego, California. See Note 7.~~39-year period.

Accrued Expenses

Accrued expenses consist of the following:


	December 31, 2023		September 30, 2023
	(in thousands)
Accrued R&D expenses	$	18,106	$	16,125
Accrued R&D expenses; co-development	11,104		5,895
Accrued capital expenditure	11,290		14,044
Other	6,104		3,699
Total accrued expense	$	46,604	$	39,763

1210

NOTE 4. INVESTMENTS

The Company’s investments consisted of the following:

As of March 31, 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 $ 346,046 $ — $ (3,755) $ 342,291
Held to maturity certificate of deposit — — — —
Total short-term investments $ 346,046 $ — $ (3,755) $ 342,291
Long-term investments (due within one through three years)
Held to maturity debt securities $ 78,834 $ — $ (1,709) $ 77,125
Total long-term investments $ 78,834 $ — $ (1,709) $ 77,125


	As of December 31, 2023
	(in thousands)
	Adjusted Basis		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value


Available-for-sale debt securities	$	163,119	$	—	$	(1,055)	$	162,064

Total current investments	$	163,119	$	—	$	(1,055)	$	162,064

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


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


Available-for-sale debt securities	$	295,699	$	—	$	(2,964)	$	292,735

Total current investments	$	295,699	$	—	$	(2,964)	$	292,735

The Company has determined that the available-for-sale debt securities that were in an unrealized loss position did not have any credit loss impairment as of December 31, 2023 and 2022.

1311

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 following table presents the components of intangible assets:


		Gross Carrying Amount		Accumulated Amortization		Impairment		Net Carrying Amount		Useful Lives
		(amounts in thousands)								(in years)
As of March 31, 2023
	Gross Carrying Amount															Gross Carrying Amount					Accumulated Amortization				Impairment						Net Carrying Amount			Useful Lives
	(in thousands)																								(in thousands)										(in years)
As of December 31, 2023
Patents
Patents
Patents	Patents	$	21,728	$	12,545	$	—	$	9,183	14	$	21,728		$			$	13,709		$		$	—	$			$	8,019	14				14
License	License	3,129		1,200		—		1,929		21	License		3,129		1,311				1,311		—			—		1,818				1,818		21		21
Total intangible assets, net	Total intangible assets, net	$	24,857	$	13,745	$	—	$	11,112

As of September 30, 2022
As of September 30, 2023

As of September 30, 2023

As of September 30, 2023
Patents
Patents
Patents	Patents	$	21,728	$	11,770	$	—	$	9,958	14	$	21,728		$			$	13,321		$		$	—	$			$	8,407	14				14
License	License	3,129		1,125		—		2,004		21	License		3,129		1,274				1,274		—			—		1,855				1,855		21		21
Total intangible assets, net	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 ~~six~~three months ended ~~March~~December 31, 2023 and 2022.

Intangible assets with definite useful lives are amortized on a straight-line basis over their useful lives. Intangible assets amortization expense was $0.4 million for each of the three months ended ~~March 31, 2023 and 2022, and $0.9 million and for each of the six months ended March~~December 31, 2023 and 2022. None of the intangible assets with definite useful lives are anticipated to have a residual value.

The following table presents the estimated future amortization expense related to intangible assets as of ~~March~~December 31, 2023:


			Amortization Expense
		Amortization Expense					Amortization Expense
Year Ending September 30,	Year Ending September 30,		(in thousands)		Year Ending September 30,	(in thousands)
2023 (remainder)			$	850
2024			1,700
2024 (remainder)
2025	2025		1,700
2026	2026		1,700
2027	2027		1,700
2028
Thereafter	Thereafter		3,462
Total	Total		$	11,112

1412

NOTE 6. STOCKHOLDERS’ EQUITY

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

Shares
Par Value Authorized Issued Outstanding
(in thousands)
As of March 31, 2023
Common stock $ 0.001 290,000 106,869 106,869
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. The Company does not have any current intention to issue shares in connection with acquisitions or pursuant to any equity financing outside of its existing equity compensation plans.


			Shares
	Par Value		Authorized	Issued	Outstanding
			(in thousands)
As of December 31, 2023
Common stock	$	0.001	290,000	107,500	107,500
Preferred stock	$	0.001	5,000	—	—

As of September 30, 2023
Common stock	$	0.001	290,000	107,312	107,312
Preferred stock	$	0.001	5,000	—	—

As of ~~March~~December 31, 2023 and September 30, ~~2022,~~2023, respectively, ~~13,075,198~~12,559,380 and ~~14,000,392~~12,709,837 shares of common stock were reserved for issuance upon exercise of options and vesting of restricted stock units granted or available for grant under 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.

On January 2, 2024, the Company entered into an underwriting agreement with Jefferies LLC, BofA Securities, Inc., and Cowen and Company, LLC, as representatives of the several underwriters. The Company issued 15,790,000 shares of common stock at an offering price of $28.50 per share. The aggregate purchase price paid by investors was $450.0 million and the Company received net proceeds of $429.0 million after deducting advisory fees and offering expenses.

On December 2, 2022, the Company entered into an open market sale agreement (the “Open Market Sale Agreement”), pursuant to which the Company may, from time to time, sell up to $250,000,000 in shares of the Company’s common stock through Jefferies LLC, acting as the sales agent and/or principal, in an at-the-market offering (“ATM Offering”). The Company is not required to sell shares under the 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 Open Market Sale Agreement. Unless otherwise terminated, the ATM Offering shall terminate upon the earlier of (i) the sale of all shares of common stock subject to the Sales Agreement and (ii) the termination of the Sales Agreement as permitted therein. The Company and Jefferies may each terminate the Open Market Sale Agreement at any time upon prior notice. As of ~~March~~December 31, 2023, no shares have been issued under the 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 ~~March~~December 31, 2023 and September 30, 2023.

Commitments

~~On December 20, 2021, the~~The Company ~~completed a purchase of 13 acres of~~owns land in the Verona Technology Park in Verona, Wisconsin, which is being developed into an approximately 160,000 square foot drug manufacturing facility and an approximately 140,000 square foot laboratory and office facility which will support the Company’s manufacturing process development and analytical activities. ~~The~~As of December 31, 2023, the Company has incurred $224.7 million and intends to ~~invest between $200.0~~spend an additional $60.0 million ~~and $260.0~~to $73.0 million ~~into~~to complete the ~~build-out~~build out of the facilities. As part of this acquisition, the Company entered into a development agreement with the City of Verona to construct certain infrastructure improvements within the 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 under the Tax Incremental Financing program 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 it may develop using these licensed technologies. These agreements and other similar

agreements often require milestone and royalty payments. Milestone payments, for example, may be required as the research and development process progresses through various stages of development, such as when clinical candidates enter or progress through clinical trials, upon NDA and/or certain sales level milestones. During the three and six months ended March 31, 2023 and 2022, the Company did not reach any milestones.

NOTE 8. LEASES

~~On November 19, 2021, the~~Pasadena, California: The Company ~~entered into a 15-year~~leases 49,000 square feet of office space located at 177 East 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 ~~approximately~~one additional five-year term.

San Diego, California: The Company leases 144,000 square feet of office and research and development laboratory space inlocated at 10102 Hoyt Park, San Diego, California. This facility replaces the Company’s current office and research facility located in San Diego, California. The increased capacity of this new facility compared to the Company’s current research facility in San Diego will accommodate increased personnel for its expanding pipeline of current and future drug candidates. TheCalifornia, which lease ~~payments which began~~expires 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 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 $32.0 million for leasehold improvements, net of tenant improvement allowances.30, 2038. Pursuant to the lease, within twelve months of the expiration of the initial 15-year term, the Company has the option to extend the lease for up to one

additional ten-year term, with certain annual increases in base rent.

~~Other Significant Leases~~

~~Pasadena, California~~:The lease agreement grants the Company the right to receive an Additional Tenant Improvement Allowance (“ATIA”) funded by the lessor, with a maximum amount of $7.2 million, subject to a 7% interest per annum over the base term. Further, on September 25, 2023, the Company executed the first amendment to the lease, which grants a second ATIA with a maximum amount of $23.6 million, bearing interest at a rate of 9% per annum over the base term. The Company ~~leases 49,000 square feet~~has received $30.8 millionATIA from the lessor as of ~~office space located at 177 Colorado Blvd. for~~December 31, 2023. As a result, the Company remeasured its ~~corporate headquarters from 177 Colorado Owner, LLC, which~~ lease ~~expires on April 30, 2027. The~~liability and right-of-use assets to reflect these additional allowances and the related increased lease ~~contains an option to renew for one term of five years.~~

~~San Diego, California~~:payments. The Company has further concluded that these ATIAs have no effects on the classification of the lease.

The Company previously subleased ~~space from Halozyme, Inc. for~~ additional research and development ~~facility~~space in San Diego, ~~California. The term~~California, which subleases ended during the fiscal year 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 will end 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~~115,000 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

March 31, 2023

September 30, 2022

Lease Assets and Liabilities

Classification

December 31, 2023

September 30, 2023

(in thousands)

Operating lease assets

Right-of-use assets

41,114

58,291

Current operating lease liabilities

Lease liabilities

2,711

2,776

Current operating lease liabilities

Non-current operating lease liabilities

Lease liabilities, net of current portion

80,070

78,800


				Three Months Ended March 31,				Six Months Ended March 31,
			Three Months Ended December 31,													Three Months Ended December 31,
Lease Cost	Lease Cost	Classification		2023		2022		2023		2022		Lease Cost	Classification	2023	2022
				(in thousands)

Operating lease cost	Operating lease cost	Research and development		$	2,343	$	905	$	4,412	$	1,783
		General and administrative expense		500		420		1,033		840
Operating lease cost

Variable lease cost		Research and development		160		182		370		340
Operating lease cost
	General and administrative expense
		General and administrative expense		—		—		—		—
Variable lease cost (1)
Variable lease cost (1)
Variable lease cost (1)
	General and administrative expense

Total	Total			$	3,003	$	1,507	$	5,815	$	2,963
Total
Total

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

There was ~~$0.4 million~~$0 and ~~$0.3~~$0.1 million short-term lease cost during the three months ended ~~March 31, 2023, and 2022, respectively. There was $0.7 million and $0.5 million short-term lease cost during the six months ended March~~December 31, 2023, and 2022, respectively.

The following table presents ~~payments~~maturities of operating lease liabilities on an undiscounted basis as of ~~March~~December 31, 2023:


Year	Year	Amounts		Year	Amounts
		(in thousands)
2023 (remainder of fiscal year)		$	3,070
2024		8,094
	(in thousands)					(in thousands)
2024 (remainder of fiscal year)
2025	2025	11,800
2026	2026	12,138
2027	2027	11,297
2028 and thereafter		102,813
2028
2029 and thereafter
Total	Total	$	149,212
Less imputed interest	Less imputed interest	(66,431)
Total operating lease liabilities (includes current portion)	Total operating lease liabilities (includes current portion)	$	82,781

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


		Three Months Ended December 31,													Three Months Ended December 31,
		2023										2023				2022
		(in thousands)													(in thousands)
Cash received for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from operating leases
Operating cash flows from operating leases
Right-of-use assets obtained in exchange for amended operating lease liabilities
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Operating cash flows from operating leases
Operating cash flows from operating leases
			Six Months Ended March 31,
			2023			2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases (in thousands)			$	2,503		$	2,171

			March 31, 2023
			2023			2022
			December 31,
			December 31,
			December 31,
		2023										2023				2022
Weighted-average remaining lease term (in years)	Weighted-average remaining lease term (in years)		6.6			7.6			Weighted-average remaining lease term (in years)	13.3			6.9
Weighted-average discount rate	Weighted-average discount rate		8.5		%	8.5		%	Weighted-average discount rate	8.0	%		8.5	%

1715

NOTE 9. STOCK-BASED COMPENSATION

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”), ~~173,983~~0 and ~~3,518,957~~3,363,299 shares, respectively, of the Company’s common stock are reserved for ~~the grant~~grants of stock options ~~stock appreciation rights,~~and restricted stock awards ~~and performance unit/share awards~~ to employees ~~consultants~~ and ~~others~~directors as of ~~March~~December 31, 2023.

On March 18, 2021, the Company’s Board of Directors approved the Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan (the “2021 Plan”), which ~~authorizes~~authorized 8,000,000 shares (subject to certain adjustments) ~~to be awarded~~available for grants of stock options, stock appreciation rights, restricted and unrestricted stock, ~~and stock units,~~ performance awards, cash awards and other awards convertible into or otherwise based on shares of the Company’s common stock. The maximum number of shares authorized under the 2021 Plan will be (i) reduced by any shares subject to awards made under the 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 ~~March~~December 31, 2023, the total number of shares ~~reserved~~available for issuance ~~under the 2021 Incentive Plan~~ was ~~6,126,788~~5,774,487 shares, which includes ~~139,053~~158,678 and 77,014 shares that were forfeited under the 2013 and 2021 Plans, respectively, and 2,411,054 shares have been granted under the 2021 Plan.

In addition, there were ~~743,726~~691,245 shares reserved for options and ~~738,875~~684,900 shares reserved for restricted stock units issued as inducement grants to new employees granted outside of the Company’s equity-based compensation plans under Rule 5635(c)(4) of the Nasdaq Listing Rules.

The following table presents a summary of awards outstanding:

As of March 31, 2023

2004 Plan

2013 Plan

2021 Plan

Inducement Awards

Total

As of December 31, 2023

2004 Plan

2013 Plan

2021 Plan

Inducement Awards

Total

Granted and outstanding awards:

Options

173,983

1,629,457

35,151

743,726

2,582,317

Restricted stock units

—

1,889,500

1,701,968

738,875

4,330,343

Total

173,983

3,518,957

1,737,119

1,482,601

6,912,660

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


	Three Months Ended December 31,
	2023		2022


Research and development	7,823		8,402
General and administrative	9,862		10,987
Total	$	17,685	$	19,389

Stock Option Awards

The following table presents a summary of the stock option activity for the ~~six~~three months ended ~~March~~December 31, 2023:

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

Weighted-
Average
Exercise
Price
Per Share

Weighted-
Average
Remaining
Contractual
Term (Years)

Aggregate
Intrinsic
Value

Outstanding at September 30, 2023

Granted

32,151

33.03

Cancelled or expired

(25,581)

58.07

Cancelled or expired

Exercised

(145,637)

7.50

Outstanding at March 31, 2023

2,582,317

21.26

4.5 years

30,107,439

Exercisable at March 31, 2023

2,348,193

18.75

4.2 years

30,100,306

Exercised

Outstanding at December 31, 2023

Exercisable at December 31, 2023

The aggregate intrinsic values ~~represents~~represent the amount by which the market price of the underlying stock exceeds the exercise price of the option. The total intrinsic value of the options exercised during the three months ended ~~March~~December 31, 2023

and 2022 was ~~$1.4~~$0.6 million and ~~$10.8 million, respectively. The total intrinsic value of the options exercised during the six months ended March 31, 2023 and 2022 was $3.6 million and $23.3~~$2.3 million, respectively.

Stock-based compensation expense related to stock options outstanding for the three months ended ~~March~~December 31, 2023 and 2022, was ~~$2.2~~$1.5 million and ~~$2.7 million, respectively. Stock-based compensation expense related to stock options for the six months ended March 31, 2023 and 2022 was $4.6 million and $5.7~~$2.4 million, respectively.

As of ~~March~~December 31, 2023, the pre-tax compensation expense for all outstanding unvested stock options in the amount of ~~$7.6~~$1.4 million will be recognized in the Company’s results of operations over a weighted average period of ~~1.0 year.~~5 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~~pricing 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, 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 in the calculation of grant-date fair values of these stock options based on the Back-Scholes option pricing model:~~

Six Months Ended March 31,
2023 2022
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 (5)
$ 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 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 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 ~~six~~three months ended ~~March~~December 31, 2023 and 2022.

Visirna ESOP: On October 1, 2023, Visirna, a subsidiary of the Company, granted 7,500,000 stock options to its employees from the Employee Stock Option Plan (the “Visirna ESOP”), which authorizes 20,000,000 shares for issuance. The Visirna ESOP is independently managed by Visirna, including the valuation process. For the three months ended December 31, 2023, stock-based compensation expense related to the Visirna ESOP was $2.0 million.

Restricted Stock Units

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

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


		Number of RSUs	Weighted- Average Grant Date Fair Value Per Share
Outstanding at September 30, 2022		4,069,431	$	62.96
	Number of RSUs				Number of RSUs	Weighted- Average Grant Date Fair Value Per Share
Outstanding at September 30, 2023
Granted	Granted	1,098,544	34.67
Vested	Vested	(763,132)	54.20
Forfeited	Forfeited	(74,500)	57.28
Outstanding at March 31, 2023		4,330,343	$	57.62
Outstanding at December 31, 2023

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

For the three months ended ~~March~~December 31, 2023 and 2022, the Company recorded ~~$18.4~~$16.2 million and ~~$28.2~~$17.0 million of expense related to RSUs, respectively. ~~For the six months ended March 31, 2023 and 2022, the Company recorded $35.4 million and $49.7 million of expense related RSUs, respectively.~~ As of ~~March~~December 31, 2023, there was ~~$153.6~~$91.9 million of total unrecognized compensation cost related to RSUs that is expected to be recognized over a weighted-average period of ~~2.5~~1.5 years.

1917

NOTE 10. FAIR VALUE MEASUREMENTS

The Company employs a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date using the exit price. Accordingly, when market observable data are not readily available, the Company’s ~~own assumptions are used to reflect those that market participants would be presumed to use in pricing the asset or liability at the measurement date.~~

~~Assets~~valuation techniques and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the level of judgment associated with inputs used to measure their fair values and the level of market price observability, as follows:

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

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

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

~~• Quoted prices for identical or similar assets or liabilities in non-active markets; or~~

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

~~Level 3 Pricing inputs are unobservable and significant to the overall fair value measurement, and the determination of fair value requires significant management judgment or estimation.~~

~~In certain cases,~~ inputs used to measure fair value ~~may fall into different~~and the definition of the three levels (Level 1, Level 2, and Level 3) of the fair value ~~hierarchy. In such cases,~~hierarchy are disclosed in Note 10 - Fair Value Measurements of Notes to Consolidated Financial Statements of Part IV, “Item 15. Exhibits and Financial Statement Schedules” of its Annual Report on Form 10-K for the level in 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.year ended September 30, 2023.

The Company uses prices and inputs that are current as of the measurement 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 ~~March~~December 31, 2023 and September 30, ~~2022,~~2023, the Company did not have any financial assets or financial liabilities based on Level 3 measurements.

The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques utilized by the Company:


	December 31, 2023											December 31, 2023
	Level 1									Level 1	Level 2	Level 3	Total
	(in thousands)											(in thousands)
		March 31, 2023
		Level 1		Level 2		Level 3		Total
		(in thousands)

Available-for-sale debt securities
Available-for-sale debt securities
Available-for-sale debt securities
U.S. government bonds
U.S. government bonds
U.S. government bonds	U.S. government bonds	$	23,074	$	—	$	—	$	23,074
Municipal securities	Municipal securities	—		7,034		—		7,034
Commercial notes	Commercial notes	—		95,786		—		95,786
Corporate debt securities	Corporate debt securities	—		306,950		—		306,950
Certificate of deposits		—		—		—		—
Total available-for sale debt securities
Money market instruments	Money market instruments	53,743		—		—		53,743
Total financial assets


	September 30, 2023											September 30, 2023
	Level 1									Level 1	Level 2	Level 3	Total
	(in thousands)											(in thousands)
		September 30, 2022
		Level 1		Level 2		Level 3		Total
		(in thousands)

Available-for-sale debt securities
Available-for-sale debt securities
Available-for-sale debt securities
U.S. government bonds	U.S. government bonds	$	1,973	$	—	$	—	$	1,973
U.S. government bonds
U.S. government bonds
Municipal securities
Commercial notes	Commercial notes	—		41,727		—		41,727
Corporate debt securities	Corporate debt securities	—		271,333		—		271,333
Certificate of deposits		50,000		—		—		50,000
Total available-for-sale debt securities
Money market instruments	Money market instruments	39,262		—		—		39,262
Total financial assets

NOTE 11. LIABILITY RELATED TO THE SALE OF FUTURE ROYALTIES

OnIn 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,~~olpasiran, a small interfering RNA (siRNA) originally developed by the Company and licensed to Amgen in September 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 ~~planned~~ OCEAN Phase 3 clinical trial for ~~Olpasiran,~~olpasiran, (ii) $50.0 million upon receipt of FDA approval of ~~Olpasiran~~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 ~~quarterly~~periodically based on its current revenue forecasts utilizing the prospective method. For the three ~~and six~~ months ended ~~March~~December 31, 2023 and 2022, the Company recognized non-cash interest expense of ~~$5.1~~$5.4 million and ~~$7.9~~$2.8 million, respectively, on the consolidated statements of operations and comprehensive ~~income (loss).~~loss.

NOTE 12. EARNINGS PER SHARE

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

~~March~~ December 31, 2023 and 2022.

Three Months Ended March 31, Six Months Ended March 31,
2023 2022 2023 2022
(in thousands, except per share amounts)
Numerator:
Net income (loss) $ 48,675 $ 44,366 $ 7,350 $ (18,506)
Denominator:
Weighted-average basic shares outstanding 106,757 105,545 106,394 105,034
Effect of dilutive securities 1,386 2,384 1,499 —
Weighted-average diluted shares outstanding 108,143 107,929 107,893 105,034
Basic earnings per share $ 0.46 $ 0.42 $ 0.07 $ (0.18)
Diluted earnings per share $ 0.45 $ 0.41 $ 0.07 $ (0.18)


	Three Months Ended December 31,
		2023		2022
		(in thousands, except per share amounts)
Numerator:
Net loss attributable to Arrowhead Pharmaceuticals, Inc.		$	(132,864)	$	(41,325)

Denominator:
Weighted-average basic shares outstanding		107,415		106,039
Effect of dilutive securities		—		—
Weighted-average diluted shares outstanding		107,415		106,039

Basic earnings per share		$	(1.24)	$	(0.39)
Diluted earnings per share		$	(1.24)	$	(0.39)

Potentially dilutive securities representing approximately ~~4,350,000~~3,544,000 and ~~4,069,000~~3,327,000 shares of common stock were excluded from the computation of diluted earnings per share for the three ~~and six~~ months ended ~~March~~December 31, 2023 and 2022, respectively, because their effect would have been anti-dilutive. ~~There were no potentially dilutive securities with anti-dilutive effect for the six months ended March 31, 2022.~~

2219

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,”“goal,” “endeavor,” “strive,” “intend,” “plan,” “project,” “could,” “estimate,” “target,” “forecast” or “continue” or the negative of these words or other variations thereof or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to projections of ~~the Company’s~~our future financial performance, trends in ~~its~~our business, or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements include, but are not limited to, statements about the initiation, timing, progress and results of ~~the Company’s~~our preclinical studies and clinical trials, ~~and its~~our research and development ~~programs; its~~programs, and our “20 in 25” pipeline goal; our expectations regarding the potential benefits of the partnership, licensing and/or collaboration arrangements and other strategic arrangements and transactions ~~the Company has~~we have entered into or may enter into in the future; ~~its~~our beliefs and expectations regarding the amount and timing of future milestone, royalty or other payments that could be due to or from third parties under existing agreements; and ~~its~~our 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 ~~the~~ ~~Company~~’sour 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 ~~the Company’s~~our control. As such, ~~the Company’s~~our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated or indicated in any forward-looking statements. Forward-looking statements are not guarantees of future performance and ~~the Company’s~~our 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 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~~our most recent Annual Report on Form 10-K. Readers should carefully review these risks, as well as the additional risks described in other documents ~~the Company files~~we file from time to time with the Securities and Exchange Commission (the “SEC”). 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 ~~the Company~~us or any other person that such results will be achieved, and readers are cautioned not to place undue reliance on such forward-looking information. 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, ~~the Company disclaims~~we disclaim any intent to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

OVERVIEW

The Company develops medicines that treat intractable diseases by silencing the genes that cause them. Using a broad portfolio of RNA chemistries and efficient modes of delivery, the Company’s therapies trigger the RNAi interference mechanism to induce rapid, deep and durable knockdown of target genes. RNAi is a mechanism present in living cells that inhibits the expression of a specific gene, thereby affecting the production of a specific protein. RNAi-based therapeutics may leverage this natural pathway of gene 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, CNS, muscle and ~~others;~~adipose tissue; and the potential for improved safety and reduced risk of intracellular buildup, because there are fewer metabolites from smaller, simpler molecules.

The Company’s clinical pipeline includes:

•Hypertriglyceridemia - ~~ARO-APOC3~~Plozasiran (formerly ARO-APOC3);

•Dyslipidemia - ~~ARO-ANG3~~Zodasiran (formerly ARO-ANG3);

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

2320

•~~Cystic fibrosis - ARO-ENAC2~~

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

•Idiopathic pulmonary fibrosis - ~~ARO-MMP7~~ARO-MMP7;

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

•~~Liver disease associated with alpha-1~~Alpha-1 antitrypsin deficiency (AATD) - ~~Fazirsiran~~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)~~GSK);

•Complement mediated diseases - ~~ARO-C3~~ARO-C3;

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

•Facioscapulohumeral muscular dystrophy - ~~ARO-DUX4~~ARO-DUX4;

•~~Amyotrophic lateral sclerosis “ALS” (CNS)~~Dystrophia myotonica protein kinase (DMPK) - ~~ARO-SOD1~~ARO-DM1; and

•Hepatic expression of complement factor B (CFB) - ARO-CFB.

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 ~~Half~~Quarter of Fiscal ~~2023~~2024 Business Highlights

Key recent developments during the first ~~half~~quarter of fiscal ~~2023~~2024 included the following:

•~~secured stockholder approval to increase authorized~~Entered into an underwriting agreement with Jefferies LLC, BofA Securities, Inc., and Cowen and Company, LLC, as representatives of the several underwriters. The Company issued 15,790,000 shares of common ~~shares to 290,000,000 from 145,000,000 to provide~~stock at a price of $28.50 per share. The aggregate purchase price paid by investors was $450.0 million and the Company ~~with additional flexibility to issue common stock for a variety~~received net proceeds of ~~general corporate purposes;~~$429.0 million after deducting advisory fees and offering expenses;

•~~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~~Filed an application 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 were 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 TRiM~~TM ~~platform~~clearance to include an optimized intrathecal administration for central nervous system (CNS) delivery with distribution throughout the brain and in all relevant brain cell types. The first development candidate to utilize this new delivery platform, ARO-SOD1, is anticipated to have a clinical trial application (CTA) filing in the third quarter of 2023 to begin clinical studies. 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 2 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 is expected to be paid in the third quarter of fiscal 2023;

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

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

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

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

◦~~safety and tolerability;~~

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

•~~initiated dosing in AROMMP7-1001 (NCT05537025),~~initiate a Phase 1/2a ~~single ascending dose and multiple ascending dose~~ clinical ~~study to evaluate the safety, tolerability, pharmacokinetics, and pharmacodynamics~~trial of ~~ARO-MMP7, an investigational RNAi therapeutic designed to reduce expression of matrix metalloproteinase 7 (MMP7)~~ARO-CFB, being developed as a potential treatment for ~~idiopathic pulmonary fibrosis (IPF), in up to 56 healthy volunteers and in up to 21 patients with IPF;~~complement mediated renal disease;

•~~enrolled the first subject in~~Filed an application for clearance to initiate a Phase 1/2a clinical trial of ARO-DM1, being developed as a potential treatment for type 1 ~~randomized, placebo-controlled trial to assess~~myotonic dystrophy (DM1), the ~~safety tolerability, pharmacokinetics~~most common adult-onset muscular dystrophy; 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~~Entered into ~~the Royalty Pharma~~an Amended and Restated License Agreement ~~on November 9, 2022,~~with GSK, pursuant to which ~~Royalty Pharma paid $250.0 million upfront (See~~GSK received a worldwide, exclusive license to develop and commercialize JNJ-3989 (formerly ARO-HBV). JNJ-3989 had previously been licensed to Janssen Pharmaceuticals, Inc. See Note ~~11 — Liability Related to the Sale of Future Royalties of Notes to Consolidated Financial Statements of Part I, “Item 1. Financial Statements.”);~~

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

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

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

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

◦~~results were consistent with AROAAT-2002 open-label study previously published in The New England Journal of Medicine.~~2.

Net ~~income~~loss was ~~$48.7~~$132.9 million for the three months ended ~~March~~December 31, 2023 as compared to ~~$44.4~~$41.3 million for the three months ended ~~March~~December 31, 2022. Net ~~income~~loss per share – diluted was ~~$7.4 million~~$1.24 for the ~~six~~three months ended ~~March~~December 31, 2023 as compared to ~~net losses of $18.5 million for the six months ended March 31, 2022. Net income per share – diluted was $0.45~~$0.39 for the three months ended ~~March~~December 31, ~~2023 as compared to $0.41~~2022.

The changes in net loss for the three months ended ~~March 31, 2022. Net income per share – diluted was $0.07 for the six months ended March~~December 31, 2023 ~~as compared to net losses per share – diluted of $0.18 for the six months ended March 31, 2022.~~

~~The increase in net income for the three months ended March 31, 2023 was~~were due to the combination of a decrease in revenue and an increase in revenue from the Company’s license and collaboration agreements, primarily from the license agreements with Takeda and GSK, in conjunction with decreased general and administrative expenses. The increase in net income for the six months ended March 31, 2023 was due to an increase in revenue from the Company’s license and collaboration agreements, primarily from the license agreements with Horizon, Amgen, Takeda and GSK, partially offset by increased research and development expenses, which have continued to increase as the Company’s pipeline of candidates has expanded and

progressed through clinical trial phases.

The Company had ~~$135.0~~$58.2 million of cash, cash equivalents and restricted cash, ~~$346.0~~$162.1 million in ~~short-term investments, $78.8 million of long-term investments~~available-for-sale securities, and ~~$891.3~~$626.3 million of total assets as of ~~March~~December 31, 2023, as compared to ~~$108.0~~$110.9 million of cash, cash equivalents and restricted cash, ~~$268.4~~$292.7 million in ~~short-term investments, $105.9 million of long-term investments~~available-for-sale securities and ~~$691.9~~$765.6 million of total assets as of September 30, ~~2022.~~2023. Based upon the Company’s current cash and investment resources, ~~and~~ operating plan, and factoring in the $429.0 million in net proceeds from the January 2024 stock offering, the Company expects to have sufficient liquidity to fund operations for at least the next twelve months.

Critical Accounting Estimates

There have been no significant changes to the Company’s critical accounting estimates disclosed in the most recent Annual Report on Form 10-K for the fiscal year ended September 30, ~~2022, except Takeda revenue recognition described in Note 2 — Collaboration and License Agreements of Notes to Consolidated Financial Statements of Part I, “Item 1. Financial Statements.”~~2023.

RESULTS OF OPERATIONS

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

Three Months Ended March 31, Six Months Ended March 31,
2023 2022 2023 2022
(in thousands, except per share amounts)
Revenues $ 146,267 $ 151,805 $ 208,813 $ 179,244
Operating income (loss) $ 48,165 $ 41,553 $ 6,031 $ (21,768)
Net income (loss) attributable to Arrowhead Pharmaceuticals, Inc. $ 48,675 $ 44,366 $ 7,350 $ (18,506)
Net income (loss) per share-diluted $ 0.45 $ 0.41 $ 0.07 $ (0.18)


	Three Months Ended December 31,
	2023		2022
	(in thousands, except per share amounts)
Revenue	$	3,551	$	62,546
Operating loss	$	(136,545)	$	(42,134)
Net loss attributable to Arrowhead Pharmaceuticals, Inc.	$	(132,864)	$	(41,325)
Net loss per share-diluted	$	(1.24)	$	(0.39)

Revenue

Total revenue for the three months ended ~~March~~December 31, 2023 decreased ~~to $146.3~~by $59.0 million, or ~~3.6% from the same period of 2022. Total revenue for the six and months ended March 31, 2023 increased to $208.8 million, or 16.5%~~94.3% from the same period of 2022. The ~~changes~~revenue for the three months ended December 31, 2023 were ~~primarily~~mainly driven by the revenue recognition associated with GSK ~~Horizon,~~and Takeda, ~~and Amgen license agreements,~~ as discussed below.

The Company has evaluated each agreement in accordance with FASB Topic 808–Collaborative Arrangements and Topic 606-Revenue for Contracts from Customers.

~~GSK~~

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

~~The Company determined the initial transaction price totaled $120.0 million, including the upfront payment, which was collected in January 2022 (see~~ See Note 2 — Collaboration and License Agreements to Consolidated Financial Statements of Part I, “Item 1. Financial Statements” for more information on revenue recognized under the collaboration and license agreements.

GSK: On December 11, 2023, GSK and the Company entered into the GSK HBV Agreement. Under the GSK-HBV Agreement, GSK received a worldwide, exclusive license to develop and commercialize JNJ-3989 (formerly ARO-HBV). JNJ-3989 had previously been licensed to Janssen in October 2018. Under the terms of the GSK-HBV Agreement, the Company received $2.7 million in December 2023, upon signing the GSK-HBV Agreement.

Takeda: In October 2020, Takeda and the Company entered into the Takeda License ~~Agreement). The Company has excluded any future estimated milestones or royalties from this transaction price to date.~~Agreement. The Company has allocated the total ~~$120.0~~$300.0 million initial transaction price to its one distinct performance obligation for the ~~GSK-4532990~~fazirsiran license and the associated ~~GSK~~Takeda R&D Services. AsRevenue is recognized using the ~~Company has~~input method (based on actual patient visits completed ~~its performance obligation related to this agreement,~~versus total estimated visits completed for the upfront payment of $120.0 million was fully recognized during the six months ended March 31, 2022. Further, GSK dosed the first patient in a Phase 2b trial in March 2023, triggering a $30.0 million milestone payment to the Company which is expected to be paid in the third quarter of fiscal 2023.

~~Horizon~~

~~On June 18, 2021, Horizon~~ongoing SEQUOIA and ~~the Company entered into the Horizon License Agreement. At the inception of the Horizon License Agreement, the Company identified one distinct performance obligation. The Company determined that~~

the key deliverables included the license and certain R&D services, including the Company’s responsibilities to conduct all activities through the preclinical stages of development of HZN-457 (the “Horizon R&D Services”). Due to the specialized and unique nature of these Horizon R&D Services and their direct relationship with the license, the Company determined that these deliverables represented one distinct bundle and, thus, one performance obligation. Beyond the Horizon R&D Services, which are the responsibility of the Company, Horizon is responsible for managing futureAROAAT2002 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)studies). The Company ~~has excluded any future estimated milestones or royalties from this transaction price~~previously expected these clinical trials to ~~date.~~extend to September 2025 in order to demonstrate long term safety and efficacy in the open label extension (OLE) part of the studies; however, in August 2023, Takeda initiated a Phase 3 OLE study, concluding the Phase 2 study visits for patients in the SEQUOIA and AROAAT2002 studies by December 31, 2023. Consequently, the Company adjusted its revenue recognition estimates in the fiscal 2023 to align with the revised performance period and the remaining $0.9 million deferred revenue was recognized for the three months ended December 31, 2023. The Company ~~allocated~~recognized $16.3 million revenue for the three months ended December 31, 2022.

Horizon/Amgen: During the three months ended December 31, 2022, Horizon recorded $6.7 million revenue of 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~~upfront payment received in July 2021, which was recognized on a straight-line basis over the timeframe for completing the Horizon R&D ~~Services. The Company determined that~~Services, concluding in the ~~straight-line basis was appropriate as its efforts were expended evenly over the course~~first quarter of ~~completing its performance obligation. Further,~~2023. Horizon also enrolled the first subject in December 2022 in a Phase 1 randomized, placebo-controlled trial to assess the safety, tolerability, pharmacokinetics and pharmacodynamics of HZN-457, triggering a $15.0 million milestone payment to the Company which was paid in the second quarter of fiscal 2023.

~~Takeda~~

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

The Company has allocated the total $300.0 million initial transaction price to its one distinct performance obligation for the Fazirsiran license and the associated Takeda R&D Services. Revenue 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). 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 Takeda License Agreement. The Company previously expected these clinical trials to extend to September 2025 in order to demonstrate long term safety and efficacy in the open label extension part of the studies; however, Takeda now intends to initiate a new open label extension (OLE) study available to patients participating in these Phase 2 studies that will initiate as early as July 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 these newly estimated proportional performance periods. The effect of these changes in estimates resulted in accelerated revenue by $61.4 million, or $0.55 per share (diluted) for each of the three and six months ended March 31, 2023. There were $30.9 million of contract liabilities recorded as deferred revenue, of which $29.8 million was classified as current as of March 31, 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 Olpasiran Agreement, Amgen received a worldwide, exclusive license to the Company’s novel RNAi Olpasiran program. Olpasiran is designed to reduce elevated lipoprotein(a), which is a genetically validated, independent risk factor for atherosclerotic cardiovascular disease. Amgen is wholly responsible for clinical development and commercialization. The Company has substantially completed its performance obligations under the

~~Olpasiran Agreement.~~

Further, in November 2022, Royalty Pharma and the Company entered into the Royalty Pharma Agreement. In consideration for the payments under the Royalty Pharma Agreement, Royalty Pharma is entitled to receive all royalties otherwise payable by Amgen to the Company under the Olpasiran Agreement. The Company remains eligible to receive 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,~~olpasiran, which triggered a $25.0 million milestone payment to the Company which was paid in the second quarter of fiscal 2023. ~~The~~On October 6, 2023, Amgen,,Inc. completed its acquisition of Horizon and subsequently notified the Company ~~is further eligible~~of Amgen’s intent to ~~receive up~~terminate the HZN-457 license. Horizon exercised its right to ~~an additional $535.0 million in aggregate development, regulatory, and sales milestone payments from Amgen and Royalty Pharma. See Note 2 — Collaboration and~~terminate the Horizon License ~~Agreements to Consolidated Financial Statements of Part I, “Item 1. Financial Statements”~~Agreement for ~~more information~~convenience, which took effect on ~~revenue recognized under the collaboration and license agreements with Amgen.~~December 21, 2023.

2822

Operating Expenses

The analysis below details the operating expenses and discusses the expenditures of the Company within the major expense categories. For purposes of comparison, the amounts for the three ~~and six~~ months ended ~~March~~December 31, 2023 and 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 candidate costs, which are comprised primarily of outsourced costs related to the manufacturing of clinical supplies, toxicity/efficacy studies and clinical trial expenses. Internal costs primarily relate to discovery operations at the Company’s research facilities in ~~San Diego,~~ California and ~~Madison,~~ Wisconsin, including facility costs and laboratory-related expenses. The Company does not separately track R&D expenses by individual research and development projects, or by individual drug candidates. The Company operates in a cross-functional manner across projects and does not separately allocate facilities-related costs, candidate costs, discovery costs, compensation expenses, depreciation and amortization expenses, and other expenses related to research and development activities.

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

(in thousands) Three Months Ended
March 31, 2023
% of
Expense
Category
Three Months Ended
March 31, 2022
% of
Expense
Category
Increase (Decrease)
$ %
Candidate costs $ 26,586 36 % $ 37,713 50 % $ (11,127) (30) %
R&D discovery costs 17,431 23 % 14,266 19 % 3,165 22 %
Salaries 16,404 22 % 11,404 15 % 5,000 44 %
Facilities related 3,450 4 % 1,779 2 % 1,671 94 %
Total research and development expense, excluding non-cash expense $ 63,871 85 % $ 65,162 86 % $ (1,291) (2) %
Stock compensation 8,745 12 % 8,642 11 % 103 1 %
Depreciation and amortization 2,265 3 % 2,181 3 % 84 4 %
Total research and development expense $ 74,881 100 % $ 75,985 100 % $ (1,104) (1) %


(in thousands)	(in thousands)	Six Months Ended March 31, 2023		% of Expense Category				Six Months Ended March 31, 2022			% of Expense Category			Increase (Decrease)						(in thousands)	Three Months Ended December 31, 2023					% of Expense Category					Three Months Ended December 31, 2022							% of Expense Category						Increase (Decrease)
										$				%																				$						%
Candidate costs	Candidate costs	$	68,870			43	%				$	70,058		49		%	$	(1,188)						(2)	%		Candidate costs	$	45,274	39					39		%				$	42,284	51				51		%			$	2,990	7	7	%
R&D discovery costs	R&D discovery costs	30,124		19	%			25,266			18		%	4,858			19		%	R&D discovery costs	29,222		25				25	%				12,693				15				15		%				16,529			130		130		%
Salaries	Salaries	31,093		20	%			22,398			16		%	8,695			39		%	Salaries	22,595		19				19	%				14,689				17			17		%				7,906			54		54		%
Facilities related	Facilities related	6,791		4	%			3,817			3		%	2,974			78		%	Facilities related	6,542		6				6	%				3,341				4			4		%				3,201			96		96		%
Total research and development expense, excluding non-cash expense	Total research and development expense, excluding non-cash expense	$	136,878	86	%			$	121,539		86		%	$	15,339		13		%	Total research and development expense, excluding non-cash expense	$	103,633	89				89	%				$	73,007			87			87		%				$	30,626		42		42		%
Stock compensation	Stock compensation	17,147		11	%			15,860			11		%	1,287			8		%	Stock compensation	9,007		8				8	%				8,402				10			10		%				605			7		7		%
Depreciation and amortization	Depreciation and amortization	4,551		3	%			4,351			3		%	200			5		%	Depreciation and amortization	3,851		3				3	%				2,286				3			3		%				1,565			68		68		%
Total research and development expense	Total research and development expense	$	158,576	100	%			$	141,750		100		%	$	16,826		12		%	Total research and development expense	$	116,491	100				100	%				$	83,695			100			100		%				$	32,796		39		39		%

Candidate costs ~~decreased $11.1~~increased $3.0 million, or ~~30%~~7%, for the three months ended March 31, 2023 and $1.2 million, or 2%, for the six months ended March 31, 2023 compared to the same period of 2022. This decrease was primarily due to the reduction in outsourced manufacturing and toxicity study costs as the Company’s pipeline of candidates progressed through clinical trials in 2022.

~~R&D discovery costs increased $3.2 million, or 22%, for the three months ended March 31, 2023 and $4.9 million, or 19%, for the six months ended March~~December 31, 2023 compared to the same period of 2022. This increase was primarily due to the additional progression of the Company’s pipeline of candidates into and through clinical trials, which resulted in higher manufacturing, outsourced clinical trial, and toxicity study costs.

R&D discovery costs increased $16.5 million, or 130%, for the three months ended December 31, 2023 compared to the same period of 2022. This increase was primarily driven by the growth of the Company’s discovery efforts and continued advancement into novel therapeutic areas and tissue ~~types.~~types, particularly due to an increase in labor along with rising costs associated with CNS studies and lab supplies.

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 three months ended December 31, 2023 were primarily due to an increase in R&D headcount that has occurred as the Company has expanded its pipeline of candidates, in addition to annual salary increases. Stock compensation expense was based upon the valuation of stock options and restricted stock units

granted to employees ~~directors~~ and ~~certain consultants.~~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 ~~$1.7~~$3.2 million, or ~~94%~~96%, for the three months ended ~~March 31, 2023 and $3.0 million, or 78%, for the six months ended March~~December 31, 2023 compared to the same period of 2022. This increase was mainly due to the additional lease expense in San Diego, California as the Company expands discovery efforts to identify new drug candidates.

Depreciation and amortization expense, a non-cash expense, ~~relates~~increased $1.6 million, or 68% for the three months ended December 31, 2023 compared to ~~depreciation on lab equipment and~~the same period of 2022. The increase was primarily attributed to higher leasehold improvements, atdue to completion of the ~~facilities.~~development of the San Diego facility. Additionally, as of December 31, 2023, the Company completed the build out of one of its laboratory and office facilities in Verona, Wisconsin, and commenced depreciation.

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

General & Administrative Expenses

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

Three Months Ended
March 31, 2023 % of
Expense
Category Three Months Ended
March 31, 2022 % of
Expense
Category Increase (Decrease)
$ %
Salaries $ 5,005 22 % $ 3,760 11 % $ 1,245 33 %
Professional, outside services, and others 4,923 21 % 4,241 13 % 682 16 %
Facilities related 1,020 4 % 702 2 % 318 45 %
Total general & administrative expense, excluding non-cash expense $ 10,948 47 % $ 8,703 26 % $ 2,245 26 %
Stock compensation 11,868 51 % 25,160 73 % (13,292) (53) %
Depreciation and amortization 405 2 % 404 1 % 1 — %
Total general & administrative expense $ 23,221 100 % $ 34,267 100 % $ (11,046) (32) %


		Six Months Ended March 31, 2023		% of Expense Category				Six Months Ended March 31, 2022			% of Expense Category			Increase (Decrease)
										$				%
(in thousands)																				(in thousands)	Three Months Ended December 31, 2023						% of Expense Category					Three Months Ended December 31, 2022					% of Expense Category						Increase (Decrease)
																																										$					%
Salaries	Salaries	$	9,212			21	%				$	7,190		12		%	$	2,022				28	%	Salaries	$	6,259					27		27		%			$	4,207		20			20		%			$	2,052		49	49	%
Professional, outside services, and others		9,306		21	%			7,436			13		%	1,870			25		%
Professional, outside services, and other																				Professional, outside services, and other	5,222						22		%			4,383					21		%				839					19	%
Facilities related	Facilities related	2,025		4	%			1,382			2		%	643			47		%	Facilities related	1,025			4				4		%			1,005			5			5	%				20			2			2	%
Total general & administrative expense, excluding non-cash expense	Total general & administrative expense, excluding non-cash expense	$	20,543	46	%			$	16,008		27		%	$	4,535		28		%	Total general & administrative expense, excluding non-cash expense	$	12,506		53				53		%			$	9,595		46			46	%				$	2,911		30			30	%
Stock compensation	Stock compensation	22,855		52	%			42,447			72		%	(19,592)			(46)		%	Stock compensation	10,687			45				45		%			10,987			52			52	%				(300)			(3)			(3)	%
Depreciation and amortization	Depreciation and amortization	808		2	%			807			1		%	1			—		%	Depreciation and amortization	412			2				2		%			403			2			2	%				9			2			2	%
Total general & administrative expense	Total general & administrative expense	$	44,206	100	%			$	59,262		100		%	$	(15,056)		(25)		%	Total general & administrative expense	$	23,605		100				100		%			$	20,985		100			100	%				$	2,620		12			12	%

Salaries expense increased ~~$1.2~~$2.1 million, or ~~33%~~49%, for the three months ended ~~March 31, 2023 and $2.0 million, or 28%, for the six months ended March~~December 31, 2023 compared to the same period of 2022. The increase was driven by the combination of annual salary increases and increased headcount required to support the Company’s growth.

Professional, outside services, and ~~others~~other expense includes legal, consulting, patent expenses, business insurance expenses, other outside services, travel, and communication and technology expenses. This expense increased ~~$0.7~~$0.8 million, or ~~16%~~19%, for the three months ended ~~March 31, 2023 and $1.9 million, or 25%, for the six months ended March~~December 31, 2023 compared to the same period of 2022. The increase was mainly due to ~~consulting expenses related to software implementation~~legal services associated with new patent applications and ~~administrative expenses in support of additional headcount.~~intellectual property matters.

Facilities related expense primarily includes rental costs and other facilities-related costs for the Company’s corporate headquarters in Pasadena, California.

Stock compensation expense, a non-cash expense, was based upon the valuation of stock options and restricted stock units granted to employees.

Depreciation and amortization expense, a noncash expense, was primarily related to amortization of leasehold improvements for the Company’s corporate headquarters.

Stock compensation expense, a non-cash expense, decreased by $13.3 million, or 53%, for the three months ended March 31, 2023 and $19.6 million, or 46%, for the six months ended March 31, 2023 compared to the same period of 2022.

The decrease was mainly due to the reversal of recognized compensation costs related to a performance award where the minimum performance goal was not met. The fair value of market condition-based awards was expensed ratably over the service period and was not adjusted for actual achievement.

~~Excluding the stock compensation costs described above, the~~ Company anticipates these general and administrative expenses to continue to increase as its pipeline of candidates grows and progresses to later phase clinical trials, in addition to inflationary pressure on goods and services and the labor market.

Other Income (Expense)

Other income (expense) is primarily related to interest ~~income/~~income and expense. Other expense ~~and realized/unrealized gain/loss on investments. Other income decreased $3.3 million and $3.4~~increased $2.5 million for the three ~~and six~~ months ended ~~March~~December 31, 2023 ~~respectively,~~ compared to the same periods of 2022. The ~~decrease~~increase was primarily due to the non-cash interest expense on the liability related to the sale of future ~~royalties, offset by higher yields on investments due to increased interest rates as well as credits the Company received during the first half of fiscal 2023.~~royalties.

3124

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically financed its operations through the sale of its ~~common stock, and~~equity securities, revenue from its licensing and collaboration agreements, ~~as well as more recently~~and the sale of certain future royalties. Research and development activities have required significant capital investment since the Company’s inception and are expected to continue to require significant cash expenditure as the Company’s pipeline continues to expand and matures into later stage clinical trials. Additionally, the Company expanded its facilities in Verona, Wisconsin and ~~commenced the lease agreement for~~leased 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~~requires significant capital investment.

The Company’s cash, cash equivalents and restricted cash ~~increased~~decreased to ~~$135.0~~$58.2 million at ~~March~~December 31, 2023 compared to ~~$108.0~~$110.9 million at September 30, ~~2022.~~2023. Cash invested in ~~short-term fixed income~~available-for-sale debt securities was ~~$346.0~~$162.1 million at ~~March~~December 31, 2023 compared to ~~$268.4~~$292.7 million at September 30, ~~2022. Cash invested in long-term fixed income securities was $78.8 million at March 31, 2023, compared to $105.9 million at September 30, 2022.~~ 2023.

On December 2, 2022, the Company entered into the Open Market Sale Agreement, pursuant to which the Company may, from time to time, sell up to $250.0 million in shares of the Company’s common stock through Jefferies LLC, acting as the sales agent and/or principal, in an at-the-market offering. As of ~~March~~December 31, 2023, no shares have been issued under the Open Market Sale Agreement.

The Company believes its current financial resources are sufficient to fund its operations through at least the next twelve months.

The following table presents a summary of cash flows:


		Six Months Ended March 31,
		2023		2022
		(in thousands)
	Three Months Ended December 31,						Three Months Ended December 31,
	2023					2023		2022
	(in thousands)						(in thousands)
Cash Flow from:	Cash Flow from:
Operating activities
Operating activities
Operating activities	Operating activities	$	(107,187)	$	1,421
Investing activities	Investing activities	(116,759)		(103,140)
Financing activities	Financing activities	251,096		3,731
Net increase (decrease) in cash, cash equivalents and restricted cash		$	27,150	$	(97,988)
Net (decrease) increase in cash, cash equivalents and restricted cash

Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	134,959	$	86,408
Cash, cash equivalents and restricted cash at end of period
Cash, cash equivalents and restricted cash at end of period

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

During the ~~six~~three months ended ~~March~~December 31, ~~2023,~~2022, cash flows used by operating activities was ~~$107.2~~$75.5 million, which was primarily due to the ongoing expenses related to the Company’s research and development programs and general and administrative expenses, partially offset by the receipt of ~~$40.0~~$6.0 million from ~~Amgen~~GSK and ~~Horizon (see Note 2 — Collaboration and License Agreements to Consolidated Financial Statements of Part I, “Item 1. Financial Statements”).~~Horizon. Cash used in investing activities was ~~$116.8~~$80.7 million, which was primarily related to capital expenditures, ~~$66.2 million of~~primarily construction in progress, of $38.9 million and ~~$192.5~~investments of $111.2 million, ~~of investments,~~partially offset by net sales and maturities of investments of ~~$142.0~~$69.4 million. Cash provided by financing activities of ~~$251.1~~$250.6 million was primarily related to the $250.0 million payment from Royalty Pharma as well as cash received from stock option exercises. See Note 11 — Liability Related to the Sale of Future Royalties of Notes to Consolidated Financial Statements of Part I, “Item 1. Financial Statements.”

During the six months ended March 31, 2022, cash flows provided by operating activities was $1.4 million, which was primarily due to the receipt of the $120.0 million upfront payment from GSK, partially 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 $103.1 million, which was primarily related to the purchase of property and equipment of $10.5 million and net purchases of investments of $92.6 million. Cash provided by financing activities of $3.7 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 being developed into an approximately 160,000 square foot drug manufacturing facility and an approximately 140,000 square foot laboratory and office facility which will support the Company’s process development and analytical activities. The Company has spent approximately $80.0 million and intends to spend an additional between $180.0 million and $210.0 million to complete the build out of the facilities. As part of this land purchase, the Company entered into a development agreement with the City of Verona to construct certain infrastructure improvements within the tax incremental district and expects to be reimbursed up to $16.0 million by the City of Verona by future tax increment revenue generated from the developed property. The total amount of funding that City of Verona is expected to pay under the Tax Incremental Financing program is not guaranteed and will depend on future tax revenues generated from the developed property. The Company also expects receive up to $2.5 million of 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.~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in the Company’s exposure to market risk from that described in Item 7A of its Annual Report on Form 10-K for the year ended September 30, ~~2022.~~2023.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in its reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to its management, including its Chief Executive Officer and Chief Financial Officer, 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.~~objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures.

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

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, 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.

3326

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, the Company may be involved in routine legal proceedings, as well as demands, claims and threatened litigation, which arise in the normal course of 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 the Company disclosed in Part I, Item 3 of its Annual Report on Form 10-K for the year ended September 30, ~~2022.~~2023.

ITEM 1A. RISK FACTORS

The Company’s business, results of operations and financial conditions are subject to various risks. These risks are described elsewhere in this Quarterly Report on Form 10-Q and in the Company’s other filings with the SEC, including the Company’s Annual Report on Form 10-K for the year ended September 30, ~~2022.~~2023. There have been no material changes from the risk factors identified in the Company’s Annual Report on Form 10-K for the year ended September 30, ~~2022.~~2023.

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

~~None.~~(c) Trading Plans

During the quarter ended December 31, 2023, no director or officer adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement.

3427

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*3.2						Certificate of Amendment to the Amended and Restated Certificate of Incorporation of Arrowhead Pharmaceuticals, ~~Inc.~~Inc. (incorporated by reference from Exhibit 3.2 of the Company’s Form 10-Q filed on May 2, 2023)

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

10.1*,†						Ame nded and Restated License Agreemen t, dated as of December 11 , 202 3 , by and between Arrowhead Pharmaceuticals, Inc. and GlaxoSmithKline Intellectual Property (No. 3) Limited

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.

†Certain portions of this exhibit were redacted by means of marking such portions with asterisks because the identified portions are (i) not material and (ii) treated as private or confidential by the Company.

3528

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: ~~May 2, 2023~~February 6, 2024


			ARROWHEAD PHARMACEUTICALS, INC.

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

3629


			Page(s)
PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS			1

Consolidated Balance Sheets			1

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

Consolidated Statements of Stockholders’ Equity			3

Consolidated Statements of Cash Flows			4

Notes to Consolidated Financial Statements			5

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			2320

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			3325

ITEM 4. CONTROLS AND PROCEDURES			3326

PART II — OTHER INFORMATION			3427

ITEM 1. LEGAL PROCEEDINGS			3427

ITEM 1A. RISK FACTORS			3427

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			3427

ITEM 3. DEFAULTS UPON SENIOR SECURITIES			3427

ITEM 4. MINE SAFETY DISCLOSURES			3427

ITEM 5. OTHER INFORMATION			3427

ITEM 6. EXHIBITS			3528

SIGNATURE			3629


(in thousands)	Three Months Ended March 31, 2023		% of Expense Category		Three Months Ended March 31, 2022		% of Expense Category		Increase (Decrease)
									$		%
Candidate costs	$	26,586	36	%	$	37,713	50	%	$	(11,127)	(30)	%
R&D discovery costs	17,431		23	%	14,266		19	%	3,165		22	%
Salaries	16,404		22	%	11,404		15	%	5,000		44	%
Facilities related	3,450		4	%	1,779		2	%	1,671		94	%
Total research and development expense, excluding non-cash expense	$	63,871	85	%	$	65,162	86	%	$	(1,291)	(2)	%
Stock compensation	8,745		12	%	8,642		11	%	103		1	%
Depreciation and amortization	2,265		3	%	2,181		3	%	84		4	%
Total research and development expense	$	74,881	100	%	$	75,985	100	%	$	(1,104)	(1)	%