Arrowhead Research Corporation — Form 10-Q Summary
Business context and reporting period
The filing is for the quarter and nine months ended June 30, 2013. The registrant is identified in the filing as Arrowhead Research Corporation; it describes itself as a development-stage biopharmaceutical company developing targeted RNAi therapeutics. Its programs include chronic hepatitis B, obesity, and cancer.
Financial results and liquidity
| Metric | Three months ended June 30, 2013 | Nine months ended June 30, 2013 |
|---|---|---|
| Revenue | $43,750 | $246,516 |
| Operating loss | $6.39 million | $16.59 million |
| Net loss attributable to Arrowhead | $6.08 million | $17.45 million |
| Loss per share, basic and diluted | $0.23 | $0.92 |
| Cash used in continuing operating activities | — | $13.64 million |
Revenue was primarily from license agreements and services; the filing does not present gross profit or a meaningful gross margin. At June 30, cash and cash equivalents were $29.03 million and short-term investments were $4.06 million, or approximately $33.1 million combined. Current assets were $34.41 million against current liabilities of $6.68 million. Total assets were $41.49 million and stockholders’ equity was $33.31 million.
Debt and lease obligations included $975,649 of notes payable and $1.34 million of capital lease principal, approximately $2.31 million combined. The company reported a $25.65 million increase in cash during the nine months, primarily reflecting $42.45 million of net equity proceeds. The cash flow statement reports $3.00 million used in investing activities; MD&A gives a different figure of $3.3 million.
Changes versus the prior comparable period
- For the nine months, revenue increased to $246,516 from $103,125, while net loss attributable to Arrowhead widened to $17.45 million from $15.81 million. Loss per share improved to $0.92 from $1.48, alongside a higher weighted-average share count.
- Operating expenses rose to $16.84 million from $15.81 million for the nine months. Research and development increased 63% to $5.46 million, mainly due to hepatitis B preclinical studies, manufacturing, and clinical preparation.
- General and administrative expense declined to $2.60 million from $5.34 million, largely because prior-period costs included nonrecurring acquisition-related expense.
- Cash and short-term investments rose substantially from $3.48 million at September 30, 2012. Common shares outstanding increased from 13.58 million to 31.31 million by June 30, 2013, reflecting equity financings.
Outlook, commentary, risks, and unusual items
- Management said research and development will continue to require significant cash investment and anticipated that additional equity financing, licensing, or other revenue sources would be needed. No numerical earnings or revenue guidance is provided.
- Following quarter-end, Arrowhead received approval to begin a Phase 1 trial of ARC-520 for chronic hepatitis B in Australia; the first patient was dosed July 23, 2013. Management said clinical supplies were largely manufactured and expected to cover a planned Phase 2a study.
- Calando terminated its Caltech license in August 2013. Arrowhead said it would cease further investment in the RONDEL delivery platform and CALAA-01; the company recorded a $1.31 million impairment of related patents in the quarter.
- The company reported a $1.0 million write-down related to a Wisepower note receivable. It had collected about $1.2 million from selling Wisepower shares by June 30 and $260,000 more in July; receipt of additional consideration remained uncertain.
- May’s financing generated $35.4 million net proceeds through common and convertible preferred stock. The filing warns that further equity financing may dilute shareholders and may pressure the share price.
- Management reported effective disclosure controls and no material change in internal control over financial reporting. It reported no material litigation pending and no material changes to the risk factors in its prior annual report.
Important facts for investors to verify
- ARC-520 trial progress, safety findings, and timing and funding requirements for the planned Phase 2a study.
- Cash burn, available liquidity, and the timing and terms of any future financing or licensing arrangements.
- Full implications of the Caltech license termination for retained or sublicensed rights, royalties, and the remaining pipeline.
- Final collection or recovery, if any, under the Wisepower note and related sale agreement.
- Potential dilution from outstanding warrants, options, and convertible preferred stock; the filing reports 6.06 million warrants outstanding at June 30.
- The investing cash-flow difference between the cash flow statement and MD&A, and the terms and maturity of the company’s notes and lease obligations.