Arrowhead Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2018. The company develops RNA interference (RNAi) therapeutics and remains research- and clinical-stage, with revenue primarily from collaborations rather than product sales.
Financial results and position
| Metric | Three months ended June 30, 2018 | Three months ended June 30, 2017 | Nine months ended June 30, 2018 | Nine months ended June 30, 2017 |
|---|---|---|---|---|
| Revenue | $0.7 million | $9.3 million | $4.9 million | $22.7 million |
| Operating expenses | $16.6 million | $15.1 million | $49.7 million | $49.4 million |
| Operating loss | $15.9 million | $5.7 million | $44.8 million | $26.7 million |
| Net loss | $15.6 million | $5.5 million | $43.7 million | $23.6 million |
| Loss per share, basic and diluted | $0.18 | $0.07 | $0.53 | $0.32 |
- Revenue and margins: Revenue was mainly amortization of prior Amgen upfront payments and service work. The filing does not present a meaningful gross-margin measure.
- Cash flow: For the nine months, operating cash use was $44.5 million, investing cash use was $10.7 million, and financing provided $58.4 million. Cash increased $3.2 million to $28.0 million.
- Liquidity: At June 30, cash was $28.0 million, short-term investments $32.5 million, and long-term investments $17.7 million—$78.2 million combined at balance-sheet carrying value. Current assets were $61.9 million and current liabilities $7.1 million.
- Debt and obligations: Note payable totaled $2.38 million, including $0.22 million current. The company also disclosed $19.2 million of estimated purchase commitments and $9.7 million of future minimum operating lease payments.
- Balance sheet and equity: Total assets were $112.9 million and stockholders’ equity $101.8 million. Shares issued and outstanding rose to 87.9 million from 74.8 million at September 30, 2017.
Material changes versus the prior comparable periods
- Revenue declined sharply because the $30 million Amgen upfront payment for AMG 890 (ARO-LPA) had been recognized primarily in prior periods; that payment was fully recognized by June 30, 2018.
- Losses increased despite broadly stable total operating expenses, as lower collaboration revenue more than offset expense levels. Nine-month R&D expense was nearly flat at $37.0 million; manufacturing and toxicology/efficacy spending increased, while clinical-trial expense fell as prior studies were closed out.
- The January 2018 public offering of 11.5 million shares generated approximately $56.6 million net proceeds and supported the period’s financing cash inflow.
- Short- and long-term investments totaled $50.2 million at June 30, 2018, compared with $40.8 million in short-term investments at September 30, 2017.
Outlook, commentary, risks, and unusual items
- Management said existing financial resources were expected to fund operations for at least the next 12 months. It also noted that R&D investment is expected to continue and program costs may rise as candidates advance into clinical trials.
- ARO-AAT and ARO-HBV had entered clinical studies and dosing was underway. The company described these as the first of five planned regulatory submissions to advance candidates into clinical trials over the following 12 months.
- On August 1, 2018, after quarter-end, the company announced a $10 million Amgen milestone earned following the first dose of AMG 890 in a Phase 1 study; it expected to recognize the amount in fiscal Q4 2018.
- Amgen collaborations could yield up to $617 million in option and development, regulatory, and sales milestones, plus royalties, but these amounts are contingent and not assured.
- Clinical development, regulatory approval, manufacturing, and financing are significant risks for this development-stage company. The filing reported no material change to previously disclosed risk factors.
- Several securities and derivative lawsuits were disclosed. Earlier claims had been dismissed, while another consolidated class action was on appeal and related derivative cases were stayed. No liability was recorded; the company said it could not predict the outcome or estimate potential liability for the later matter.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. No off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Whether ARO-AAT and ARO-HBV clinical studies progress as planned and whether the other stated pipeline submissions occur.
- Recognition and receipt of the $10 million Amgen milestone, and the timing and conditions for further collaboration payments.
- Cash burn, R&D commitments, and whether available liquidity remains sufficient as clinical and manufacturing costs increase.
- Updates on the pending securities litigation and any resulting financial exposure.
- Potential dilution from equity compensation and future capital needs; the filing reported 87.9 million shares outstanding at quarter-end and 88.0 million on August 6, 2018.