Arrowhead Pharmaceuticals, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended September 30, 2022; filed November 28, 2022. Although the request metadata refers to “2022 Q4,” this is an annual report, not a standalone quarterly filing. Arrowhead is a clinical-stage RNA interference therapeutics company; it reported no commercial product sales.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $243.2 million | $138.3 million | Up 75.9% |
| Research and development expense | $297.3 million | $206.3 million | Up 44% |
| General and administrative expense | $124.4 million | $81.0 million | Up 54% |
| Operating loss | $(178.5) million | $(149.0) million | Loss widened |
| Net loss attributable to Arrowhead | $(176.1) million | $(140.8) million | Loss widened |
| Diluted loss per share | $(1.67) | $(1.36) | Loss per share increased |
| Cash used in operating activities | $(136.1) million | Cash provided: $171.3 million | Declined $307.4 million |
Revenue growth primarily reflected collaboration and license agreement revenue, including recognition of the $120 million GSK upfront payment, Horizon revenue, and ongoing recognition of Takeda’s upfront payment. Revenue is variable and dependent on collaboration agreements, milestones, and performance obligations; the company had not generated revenue from commercial product sales.
R&D expense increased with clinical-trial progression and pipeline expansion. G&A expense included a substantial non-cash stock-compensation increase: total G&A stock compensation was $88.5 million, up from $50.9 million, partly due to performance awards and award modifications. The company reported $120.9 million of total stock-based compensation for FY2022.
Financial position and liquidity
- At September 30, 2022, cash, cash equivalents and restricted cash were $108.0 million; short-term investments were $268.4 million and long-term investments were $105.9 million. Together, cash and investments totaled approximately $482.3 million.
- Total assets were $691.9 million, compared with $710.1 million a year earlier. Shareholders’ equity, including noncontrolling interest, was $418.3 million.
- The filing reports no borrowings or other conventional financial debt. Lease liabilities totaled $81.6 million, including $2.8 million current and $78.8 million long-term; future undiscounted operating lease payments were $151.9 million.
- Current liabilities were $138.9 million, including $74.1 million of current deferred revenue. Total deferred revenue was $130.0 million. Management said existing cash and investment resources were expected to fund operations for at least the next 12 months.
- Financing cash flow was $65.2 million, primarily reflecting $60.0 million invested by Vivo-affiliated entities in Visirna and proceeds from stock-option exercises. Investing cash use was $5.4 million, including $52.8 million of property and equipment purchases, largely offset by investment sales.
Material changes, outlook and notable items
- Operating losses widened as spending on clinical development, discovery, staffing and facilities grew. Management expects R&D and G&A expenses to continue rising as programs advance, with inflation and labor costs also cited.
- Arrowhead advanced ARO-APOC3 into Phase 3 for familial chylomicronemia syndrome and progressed ARO-ANG3, ARO-C3 and pulmonary candidates into clinical testing. Fazirsiran (ARO-AAT) is being co-developed with Takeda; ARO-HSD and ARO-XDH are licensed to GSK and Horizon, respectively. Several other programs are partner-controlled.
- In April 2022, Arrowhead formed Visirna, a Greater China license/joint-venture arrangement for four cardiometabolic medicines; Vivo-affiliated entities contributed $60 million. Arrowhead consolidated Visirna and recorded a noncontrolling interest.
- The company plans to invest $200–$260 million in its Verona, Wisconsin manufacturing, laboratory and office buildout. It also expects approximately $31 million of leasehold improvements for the new San Diego facility. The Verona project may qualify for up to $16 million in city tax-increment financing reimbursements and up to $2.5 million in Wisconsin tax credits; the city reimbursement depends on future tax revenues.
- Subsequent event: On November 9, 2022, Royalty Pharma paid $250 million upfront and may pay up to an additional $160 million upon specified Olpasiran milestones, in exchange for royalties otherwise payable by Amgen. Arrowhead retains eligibility for Amgen milestone payments. These proceeds were received after fiscal year-end and are not included in September 30, 2022 cash balances.
- Commitments for clinical, manufacturing and business operations were $229.6 million; many were cancellable. The $250 million ATM equity facility had no shares issued through September 30, 2022.
- Principal risks include clinical and regulatory failure or delay, safety findings, reliance on partners and contract manufacturers, uncertain milestone and royalty receipts, intellectual-property challenges, reimbursement and pricing pressure, competition, and macroeconomic or supply-chain disruption. No contingent liabilities were recorded at year-end. The financial statements received an unqualified audit opinion, and management and the auditor concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Whether key clinical programs meet efficacy, safety and enrollment targets, particularly ARO-APOC3, ARO-ANG3 and fazirsiran.
- How much of reported revenue is recognized from upfront payments and partner-funded services, and the timing and conditions for future milestones and royalties.
- The pace and total cost of the Verona and San Diego expansion, and the availability of expected public incentives.
- The terms and milestone triggers of the Royalty Pharma Olpasiran transaction, including the royalties relinquished and the conditions on the remaining $160 million.
- Whether liquidity remains adequate as operating cash use and planned capital spending increase; confirm the effect of post-year-end proceeds separately from year-end balances.