Arrowhead Pharmaceuticals, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended September 30, 2023; this is an annual report, not a standalone fourth-quarter filing. Arrowhead is a clinical-stage biotechnology company developing RNA interference (RNAi) medicines. It reported 14 clinical-stage investigational medicines and is pursuing a goal of 20 partnered or wholly owned drugs in clinical trials or on the market by 2025. It had no approved products or product-sales revenue.
Financial performance and liquidity
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $240.7 million | $243.2 million |
| Operating loss | $205.0 million | $178.5 million |
| Net loss attributable to Arrowhead | $205.3 million | $176.1 million |
| Diluted loss per share | $1.92 | $1.67 |
| Operating cash flow | $(153.9) million | $(136.1) million |
| Cash, cash equivalents and restricted cash at year-end | $110.9 million | $108.0 million |
| Investments at year-end | $292.7 million | $374.3 million |
Revenue declined approximately 1.0%, while net loss widened approximately 16.6%. Research and development expense rose 19% to $353.2 million, reflecting pipeline advancement, discovery investment and increased staffing. General and administrative expense fell 26% to $92.5 million, primarily because stock-based compensation decreased, including reversal of expense for a performance award whose minimum goal was not met. No product gross margin is reported because the company had no commercial product sales.
Cash used in investing activities was $96.2 million, including $176.7 million of property and equipment purchases, partly offset by investment maturities. Financing cash flow was $253.1 million, principally the $250.0 million Royalty Pharma upfront payment. Combined cash and investments were approximately $403.6 million at year-end. Management said current resources and its operating plan were expected to fund operations for at least 12 months.
Arrowhead reported a $268.3 million long-term liability from the sale of future olpasiran royalties and $18.3 million of related non-cash interest expense. This arrangement is accounted for as debt, although the company is not obligated to repay the upfront funding; Royalty Pharma receives royalties otherwise payable by Amgen. The filing does not present conventional borrowings as a material funding source. Total operating lease liabilities were $115.2 million. Commitments for clinical, manufacturing and business-operation agreements were $579.7 million, many cancellable.
Material developments and unusual items
- Takeda initiated the Phase 3 REDWOOD trial of fazirsiran, triggering a $40 million milestone. A change in estimated duration of Arrowhead’s remaining Takeda research obligations accelerated $70.5 million of revenue in FY2023, or $0.66 per diluted share.
- GSK initiated a Phase 2b trial of GSK-4532990, triggering a $30 million milestone. Arrowhead reported $29.7 million of GSK revenue in FY2023, compared with $124.8 million in FY2022, when the $120 million upfront payment was recognized.
- FY2023 revenue also included $162.5 million from Takeda, $23.2 million from Horizon and $25.0 million from Amgen. Revenue is therefore substantially dependent on licensing, collaboration and milestone timing rather than product sales.
- Arrowhead received $250 million from Royalty Pharma for future olpasiran royalties and remains eligible for specified additional milestone payments. It also remains eligible for significant potential milestones and royalties under other licensing agreements, subject to partner development decisions and contractual conditions.
- Janssen voluntarily terminated its collaboration in April 2023; Arrowhead regained rights to ARO-PNPLA3 and is developing it. In October 2023, Arrowhead consented to assignment of the Janssen license agreement to GSK, subject to antitrust approvals.
- After year-end, Horizon notified Arrowhead that it would terminate the HZN-457 license for convenience, effective December 21, 2023. Amgen had completed its acquisition of Horizon in October 2023.
Outlook, management commentary and risks
Management expects R&D expense to continue rising as candidates advance to later-stage trials and the pipeline expands; it also anticipates increases in G&A costs, excluding the described stock-compensation effect. The Verona, Wisconsin manufacturing and laboratory build-out had incurred $166.2 million by year-end, with a further $120 million to $130 million expected to complete it. The company reported no specific earnings or revenue guidance.
Key uncertainties include clinical efficacy and safety, trial enrollment and timing, regulatory approval, reimbursement and pricing, intellectual-property protection, and reliance on partners for development and commercialization of licensed candidates. Arrowhead also cited dependence on third-party manufacturers and clinical research organizations, limited scaled manufacturing capacity, possible supply-chain disruptions, competition, and the need for additional capital as development spending grows. The Verona reimbursement of up to $16 million from future tax-increment revenue is not guaranteed. Investments are exposed to credit, liquidity and interest-rate risks; the company reclassified debt securities as available-for-sale at year-end and recorded $3.0 million of unrealized losses in accumulated other comprehensive loss.
The company reported effective disclosure controls and internal control over financial reporting. Its auditor issued unqualified opinions on the financial statements and internal controls. No contingent liabilities were recorded at September 30, 2023.
Most important facts for investors to verify
- Whether clinical results and regulatory progress support the commercial potential of lead candidates, especially plozasiran, fazirsiran and zodasiran; clinical-stage results do not guarantee approval or commercial success.
- How the Horizon termination and pending Janssen-to-GSK assignment affect HZN-457, ARO-PNPLA3 and potential future collaboration revenue.
- The sustainability and timing of collaboration revenue, including the $70.5 million Takeda revenue acceleration, and the extent to which future milestones depend on partner decisions.
- Cash burn, available liquidity and funding needs as trials and the Verona facility build-out proceed; assess the cancellability and timing of the $579.7 million commitments.
- The terms and accounting for the Royalty Pharma transaction, including the future royalty stream transferred and the carrying value and interest expense of the related liability.