Arrowhead Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Second fiscal quarter and six months ended March 31, 2023; comparisons are with the periods ended March 31, 2022. The company develops RNA interference therapeutics and has a clinical-stage pipeline; reported revenue is primarily from collaboration and licensing agreements.
Financial performance and position
| Metric | Three months ended March 31, 2023 | Six months ended March 31, 2023 |
|---|---|---|
| Revenue | $146.3 million, down 3.6% year over year | $208.8 million, up 16.5% |
| Operating expenses | $98.1 million | $202.8 million |
| Operating income (loss) | $48.2 million | $6.0 million |
| Net income attributable to Arrowhead | $48.7 million; diluted EPS $0.45 | $7.4 million; diluted EPS $0.07 |
| Operating cash flow | Not presented for the quarter | $(107.2) million |
| Investing cash flow | Not presented for the quarter | $(116.8) million |
| Financing cash flow | Not presented for the quarter | $251.1 million |
- At March 31, cash, cash equivalents and restricted cash were $135.0 million; short-term investments were $346.0 million and long-term investments $78.8 million. Total assets were $891.3 million.
- Current liabilities were $87.2 million. Long-term liabilities included $257.9 million related to the sale of future royalties and $80.1 million of lease liabilities. The filing reports no conventional borrowing balance; the royalty-sale liability is accounted for as debt.
- No gross margin measure is provided. Revenue is collaboration-based, rather than reported product sales.
- Six-month capital expenditures included $66.2 million of property and equipment purchases. Operating cash use reflected ongoing expenses and working-capital movements, including lower deferred revenue and higher receivables.
Changes and key drivers
- Quarterly revenue declined from $151.8 million to $146.3 million, while six-month revenue rose from $179.2 million to $208.8 million. Takeda accounted for $116.2 million of quarterly revenue and $132.5 million for the six months.
- Net income attributable to Arrowhead improved from a six-month loss of $18.5 million in 2022 to income of $7.4 million in 2023. Quarterly income increased from $44.4 million to $48.7 million.
- Six-month R&D expense increased 12% to $158.6 million, reflecting growth in discovery activity, personnel and facilities. G&A declined 25% to $44.2 million, largely due to lower stock-based compensation following reversal of costs on a performance award.
- Takeda’s revised expected timing for Phase 2 study visits shortened Arrowhead’s performance period and accelerated $61.4 million of revenue in the quarter and six-month period. The filing gives different per-share effects in different sections: $0.57 in the notes and $0.55 in MD&A.
- In November 2022, Royalty Pharma paid $250 million upfront for Arrowhead’s future Olpasiran royalties; Arrowhead recorded a royalty-sale liability and recognized $7.9 million of noncash interest expense over six months. The agreement also provides for up to $160 million of additional contingent payments. Cash from this transaction was the main source of financing cash flow.
Outlook, developments and risks
- Management said available cash and investments, together with its operating plan, are expected to fund operations for at least the next 12 months. It also expects R&D and certain G&A costs to continue rising as the pipeline advances, facilities expand, and inflation and labor costs affect spending.
- Arrowhead expected $40 million of Takeda milestone payments and $30 million of GSK milestone payments in the third quarter of fiscal 2023. The filing describes these as expected receipts, not guaranteed cash flows.
- The company reported positive interim or topline findings for several programs, including Fazirsiran and ARO-C3, and anticipated a third-quarter 2023 clinical trial application for ARO-SOD1. These are development-stage programs and outcomes remain uncertain.
- Janssen’s termination of its collaboration took effect April 7, 2023, after the reporting date; Arrowhead regained full rights to Phase 1 candidate ARO-PNPLA3 and will develop it itself.
- Arrowhead is investing in manufacturing, laboratory and office facilities in Verona, Wisconsin, and expanded facilities in San Diego. The filing cites substantial remaining build-out spending; the stated total investment range differs between sections and should be checked.
- The company authorized an at-the-market offering of up to $250 million of common stock but had issued no shares under it as of March 31, 2023. Stockholders approved doubling authorized common shares to 290 million.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. The company reported no material changes to its previously disclosed risk factors and no contingent liabilities recorded at quarter-end. Key risks include clinical and regulatory uncertainty, reliance on collaboration milestones and royalties, and continued operating and capital needs.
Important facts for investors to verify
- Reconcile the filing’s differing estimates of Takeda revenue acceleration’s diluted per-share impact ($0.57 in Note 2 versus $0.55 in MD&A).
- Track receipt and timing of the expected Takeda and GSK milestones, and any conditions attached to future collaboration payments.
- Assess cash burn, planned facility spending and the actual availability of the stated 12-month liquidity runway.
- Review the economics and forecast assumptions underlying the Royalty Pharma liability, including the royalties surrendered and potential contingent payments.
- Monitor clinical, regulatory and partnership updates across the pipeline, including ARO-PNPLA3 following Janssen’s termination.