Arrowhead Pharmaceuticals, Inc. — Form 10-Q summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2021. Dollar amounts below are in millions, except per-share data. Comparisons are with the corresponding 2020 period unless otherwise stated.
Business context and financial performance
Arrowhead develops RNA interference (RNAi) medicines. Its pipeline spans liver, cardiometabolic, pulmonary, cancer and other disease areas, with several programs licensed or developed with partners. The company remains a development-stage business whose results depend substantially on collaboration revenue and continued investment in research and clinical development.
| Metric | Three months ended June 30, 2021 | Nine months ended June 30, 2021 |
|---|---|---|
| Revenue | $45.9; up 67.6% | $100.0; up 24.5% |
| Research and development expense | $59.3; up 82.1% | $140.6; up 64.6% |
| General and administrative expense | $18.4; up 71.5% | $43.6; up 14.7% |
| Operating loss | $(31.9) | $(84.2) |
| Net loss | $(29.9), or $(0.29) per diluted share | $(77.5), or $(0.75) per diluted share |
| Net loss as a percentage of revenue | Approximately 65.2% | Approximately 77.5% |
Revenue growth primarily reflected Takeda collaboration revenue; the quarter also included a $10 million milestone payment after Janssen exercised its ARO-JNJ1 option. R&D expense rose as the pipeline expanded and advanced, including higher candidate, clinical, manufacturing and discovery costs. No gross margin is presented in the filing.
Cash flow, liquidity and obligations
- Cash and cash equivalents: $326.0 at June 30, 2021, compared with $143.6 at September 30, 2020. Marketable securities were $126.4; short-term investments $63.9; and long-term investments $128.4. These balances total approximately $644.7 in cash and investments.
- Nine-month cash flows: Operating activities provided $195.3, versus $84.5 used in the prior-year period; investing activities used $23.4; financing activities provided $10.5. Operating cash flow benefited substantially from the $300 million Takeda upfront payment and changes in deferred revenue, so it should not be read as recurring operating cash generation.
- Debt and liquidity: The filing does not disclose interest-bearing borrowings. Current and long-term liabilities include lease liabilities and deferred revenue; deferred revenue is not borrowing debt. Management said available resources were expected to fund operations for at least the next 12 months.
- Commitments: Future purchase commitments were estimated at $177.4, including approximately $39.0 expected during the remainder of fiscal 2021. Operating lease liabilities totaled $24.1 at June 30.
Material changes, outlook and risks
- Takeda: The company received a $300 million upfront payment in January 2021 for the ARO-AAT collaboration. It recognized $35.7 million of related revenue in the quarter and $69.3 million in the nine-month period. At June 30, $230.7 million remained recorded as deferred revenue. The agreement provides for U.S. 50/50 profit sharing if approved and, outside the U.S., tiered royalties of 20%–25%, along with potential milestones.
- Horizon: Arrowhead signed a license agreement for ARO-XDH in June. The $40 million upfront payment was received in July, after quarter-end; no amount was recognized in the June 30 financial statements. Potential milestones total up to $660 million, plus low- to mid-teens royalties.
- Pipeline update: Phase 2b studies of ARO-APOC3 and ARO-ANG3 began during the quarter. In July, Arrowhead paused new screening, enrollment and dosing in the ARO-ENaC study after preliminary rat toxicology results showed unexpected local lung inflammation; further activity awaits additional nonclinical data. The July timing makes this a subsequent-period development.
- Management outlook: Management expects R&D and related costs to continue increasing as programs and clinical trials progress, and expects stock-based compensation to rise with headcount. No specific financial guidance was provided. FDA Breakthrough Therapy designation for ARO-AAT was received in July.
- Other risks and contingencies: The company cited potential clinical, manufacturing, enrollment and COVID-19-related delays. It reported no contingent liabilities accrued at June 30 and no material change to the risk factors in its 2020 Form 10-K. It also reported no material COVID-19 impact on the period’s financial results, while noting future effects remained uncertain.
Investor facts to verify
- How much of reported revenue and operating cash flow reflects collaboration upfront payments, milestones and deferred-revenue recognition rather than recurring product sales.
- Additional toxicology findings and the potential timeline or implications of the ARO-ENaC pause.
- ARO-AAT clinical progress, development spending and the terms and accounting treatment of the Takeda collaboration.
- Whether clinical-trial and manufacturing commitments, including the $177.4 million purchase commitments, change as the pipeline advances.
- Any subsequent-period financial effects of the $40 million Horizon payment received in July and other post-quarter developments.