Arrowhead Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2023; comparative period is the three months ended December 31, 2022. Arrowhead develops RNA interference (RNAi) medicines. Its pipeline spans cardiometabolic, pulmonary, liver, muscle and CNS programs, with several candidates partnered or licensed to other companies.
Financial performance and liquidity
| Metric | Q1 FY2024 | Q1 FY2023 |
|---|---|---|
| Revenue | $3.6 million | $62.5 million |
| Research and development expense | $116.5 million | $83.7 million |
| General and administrative expense | $23.6 million | $21.0 million |
| Operating loss | $136.5 million | $42.1 million |
| Net loss attributable to Arrowhead | $132.9 million | $41.3 million |
| Diluted loss per share | $1.24 | $0.39 |
| Cash used in operating activities | $117.8 million | $75.5 million |
Revenue fell 94.3% year over year. The prior-year quarter included substantial collaboration revenue, including $25.0 million from Amgen and $21.7 million from Horizon; current-quarter revenue was principally from GSK ($2.7 million) and Takeda ($0.9 million). The company reported no profit or positive operating margin in either period.
R&D expense rose 39%, reflecting pipeline advancement, discovery activity, increased headcount and facility costs. Management expects R&D and G&A spending to continue increasing as programs advance, alongside inflationary and labor-cost pressures.
At December 31, 2023, cash, cash equivalents and restricted cash were $58.2 million, including $6.9 million restricted, and available-for-sale securities were $162.1 million. Together these resources totaled $220.3 million, down $183.3 million from September 30, 2023. Total assets were $626.3 million. The company used $117.8 million in operating cash and spent $68.7 million on property and equipment; investing cash flow was positive $64.8 million, mainly from investment sales and maturities.
Long-term liabilities included $273.7 million related to the sale of future royalties and $115.2 million of lease liabilities. The royalty liability is accounted for as debt and accrues non-cash interest; Arrowhead says it is not obligated to repay the upfront funding, while Royalty Pharma receives the olpasiran royalties assigned under the agreement. No contingent liabilities were recorded.
Material changes and notable items
- On January 2, 2024, after quarter-end, Arrowhead sold 15.79 million shares at $28.50 per share, receiving $429.0 million in net proceeds after fees and expenses. Management expects existing resources, including those proceeds, to fund operations for at least the next 12 months. The offering also increased shares outstanding.
- In December 2023, GSK received a worldwide exclusive license to develop and commercialize JNJ-3989, previously licensed to Janssen. Arrowhead received $2.7 million on signing and is eligible for up to $832.5 million in development and sales milestones.
- Horizon’s HZN-457 license termination took effect December 21, 2023, following Amgen’s acquisition of Horizon.
- Takeda’s Phase 2 visits for fazirsiran were completed by December 31, 2023; the remaining $0.9 million of deferred revenue was recognized in the quarter. Arrowhead and Takeda share U.S. development and commercialization costs and, if approved, U.S. profits.
- Arrowhead filed applications to initiate Phase 1/2a trials for ARO-CFB and ARO-DM1. It also completed a Verona, Wisconsin laboratory and office facility build-out and began depreciation. The company has incurred $224.7 million on its Verona facilities and expects to spend another $60 million to $73 million to complete them.
Outlook, risks and contingencies
Management’s liquidity outlook is at least 12 months, based on available resources, its operating plan and the January 2024 offering. The filing does not provide specific revenue or earnings guidance. The company warns that R&D requirements and capital needs are expected to rise as its pipeline advances, and that interim results are not necessarily indicative of full-year results.
Clinical development, trial timing and outcomes, regulatory approval, commercialization, collaboration milestones and future royalties are uncertain. The filing reports no material changes to the risk factors in the September 2023 Form 10-K and no material developments in previously disclosed legal proceedings. It reports no recorded contingent liabilities.
Important facts for investors to verify
- Whether the January offering’s net proceeds and share dilution align with the company’s stated liquidity runway and future financing needs.
- Quarterly cash burn, planned spending on clinical programs and the remaining cost and schedule for completing the Verona facilities.
- Clinical progress and trial results for key programs, including plozasiran, zodasiran, fazirsiran and newly advancing candidates.
- Potential milestone timing and economics under the GSK, Takeda and other collaboration agreements, and the impact of Horizon’s termination.
- How the royalty-sale liability’s non-cash interest and assigned olpasiran royalties affect future reported results and cash receipts.