Arrowhead Pharmaceuticals, Inc. — Form 10-Q Summary
Business context and period: Arrowhead develops RNAi-based medicines. This unaudited filing covers the fiscal third quarter and nine months ended June 30, 2020; the fiscal year ends September 30. Its pipeline includes company-developed and partnered clinical candidates.
Financial performance and position
| Metric | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Nine months ended June 30, 2020 | Nine months ended June 30, 2019 |
|---|---|---|---|---|
| Revenue | $27.4 million | $42.7 million | $80.4 million | $125.5 million |
| Operating income (loss) | ($15.9 million) | $18.6 million | ($43.0 million) | $51.6 million |
| Net income (loss) | ($13.6 million) | $20.3 million | ($36.1 million) | $56.3 million |
| Diluted earnings (loss) per share | ($0.13) | $0.21 | ($0.36) | $0.58 |
- Quarterly revenue declined about 36% year over year; nine-month revenue declined about 36%. Management attributed the decline primarily to the timing of progress recognized under the Janssen/JJDC arrangements, partly offset by $20 million of Amgen-related revenue in the 2020 periods.
- Research and development expense was $32.6 million for the quarter and $85.4 million for nine months, up 69% and 48%, respectively. General and administrative expense was $10.7 million and $38.0 million, up 123% and 133%. Higher pipeline activity, headcount, and stock-based compensation contributed to the increases.
- Operating margin, calculated as operating income or loss divided by revenue, was approximately (58%) for the quarter and (54%) for nine months, versus approximately 44% and 41% in the comparable 2019 periods. The filing does not present a gross margin or cost-of-revenue line.
- Operating cash use was $84.5 million for the nine months, compared with $159.2 million of cash provided in 2019. Investing activities used $174.9 million, mainly for purchases of fixed-income investments and property and equipment. Financing provided $256.9 million, chiefly from the December 2019 stock offering.
- At June 30, cash and cash equivalents were $219.3 million, short-term investments $67.7 million, and long-term investments $177.5 million. Total cash and investments were approximately $464.6 million. Current assets were $315.2 million; current liabilities were $42.8 million.
- The balance sheet reports $21.4 million of lease liabilities, including current and long-term portions, and no notes payable balance. Total stockholders’ equity was $492.6 million. The company issued 4.6 million shares in December 2019 and received $250.5 million net proceeds.
Material changes, outlook, and risks
- Revenue fell as a greater portion of Janssen/JJDC consideration had been recognized in the prior-year period. Janssen-related revenue was $6.9 million in the quarter and $57.9 million for nine months, versus $42.3 million and $124.8 million in 2019. The company reported $26.3 million of current deferred revenue related to the Janssen arrangement.
- Amgen initiated a Phase 2 study in July 2020, which the filing says will result in a $20 million milestone payment. The filing also reports $20 million of Amgen-related revenue and receivable at June 30; investors should verify the timing and conditions associated with recognition and payment.
- Management expects current cash and investment resources to fund operations for at least the next 12 months. It anticipates increased clinical and related costs as candidates advance, and said clinical-trial expenses are expected to rise as programs progress.
- COVID-19 had not significantly affected reported results, but enrollment in two ARO-AAT studies was temporarily paused and resumed during the quarter. Further disruption to trial enrollment, sites, suppliers, employees, or timelines remained uncertain.
- As of June 30, estimated purchase commitments were $83.0 million, including $20.5 million expected in fiscal 2020. Third-party technology licenses may also require milestone payments potentially in the mid- to upper-double-digit millions and royalties if products are commercialized. No contingent liabilities were recorded for litigation at June 30.
- Effective August 5, 2020, after quarter-end, Arrowhead established a $250 million at-the-market equity facility; no shares had been sold under it as of the filing. The facility could provide capital but may dilute existing shareholders.
Most important facts for investors to verify
- Trial progress, safety, and enrollment updates across ARO-AAT, ARO-HSD, ARO-APOC3, ARO-ANG3, ARO-HIF2, ARO-ENaC, and partnered programs.
- Revenue-recognition assumptions and milestone payment timing under the Janssen and Amgen agreements, including the $20 million Amgen milestone.
- Cash burn relative to the approximately $464.6 million cash-and-investment balance, planned clinical spending, and $83.0 million of purchase commitments.
- Potential share dilution from equity compensation and any future use of the $250 million ATM facility.
- COVID-19 effects on trials and supply, and the clinical, regulatory, manufacturing, and financing risks described in the filing.