Arrowhead Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter ended June 30, 2022; comparisons are with the prior-year quarter and nine-month period. Arrowhead develops RNAi therapeutics and remains a clinical-stage company whose revenue is principally from licensing and collaboration agreements.
Financial performance and liquidity
| Metric | Three months ended June 30, 2022 | Three months ended June 30, 2021 | Nine months ended June 30, 2022 | Nine months ended June 30, 2021 |
|---|---|---|---|---|
| Revenue | $32.4 million | $45.9 million | $211.7 million | $100.0 million |
| Research and development expense | $72.2 million | $59.3 million | $213.9 million | $140.6 million |
| General and administrative expense | $33.1 million | $18.4 million | $92.4 million | $43.6 million |
| Operating loss | $72.9 million | $31.9 million | $94.7 million | $84.2 million |
| Net loss | $72.0 million | $29.9 million | $90.6 million | $77.5 million |
| Diluted loss per share | $0.68 | $0.29 | $0.86 | $0.75 |
| Operating cash flow | Not separately reported for the quarter | $(67.5) million | $195.3 million |
Quarterly operating margin was approximately negative 225%; the nine-month operating margin was approximately negative 45%. The filing does not report a conventional gross margin. The company reported no income tax provision.
At June 30, 2022, cash and cash equivalents were $139.4 million, short-term investments $277.1 million and long-term investments $165.9 million—approximately $582.4 million combined. Current assets were $432.4 million and current liabilities $128.2 million. The balance sheet reports no borrowings; long-term liabilities principally include lease liabilities and deferred revenue. Total assets were $751.8 million. Cash and cash equivalents declined $45.0 million from September 30, 2021.
Changes versus comparable periods
- Quarterly revenue fell 29% year over year, while nine-month revenue more than doubled. The nine-month increase chiefly reflected the $120 million GSK upfront payment recognized as revenue during the fiscal year, together with revenue under Takeda and Horizon agreements; the quarter’s reported revenue was principally from Takeda and Horizon.
- Quarterly net loss widened to $72.0 million from $29.9 million; the nine-month loss widened to $90.6 million from $77.5 million. Higher pipeline, staffing and facility costs contributed to the increase.
- Nine-month operating cash flow shifted from $195.3 million provided to $67.5 million used, reflecting operating expenditures and changes in deferred revenue, among other items. Investing activities used $41.9 million, including $20.1 million of property and equipment purchases; financing provided $64.3 million, including the $60 million Visirna investment.
- Stock-based compensation rose to $91.7 million for the first nine months from $42.1 million a year earlier, materially affecting reported expenses and losses.
Outlook, developments and risks
- Management said existing cash and investment resources are expected to fund operations for at least the next 12 months. No specific earnings or revenue guidance was provided.
- Management expects research, clinical-trial, staffing and facility costs to increase as programs advance and the company expands discovery and manufacturing capacity. It plans to invest $200 million to $250 million in the Verona, Wisconsin facilities. A new San Diego lease entails approximately $119 million of base rent over 15 years, with rent expected to begin in 2023.
- Pipeline developments included starting a Phase 3 ARO-APOC3 study in familial chylomicronemia syndrome, dosing the first subjects in the ARO-C3 Phase 1/2 study, completing enrollment in the ARO-ANG3 Phase 2b ARCHES-2 study, and initiating the ARO-ANG3 GATEWAY study. Takeda and Arrowhead reported Phase 2 ARO-AAT results.
- COVID-19 had not significantly affected reported financial results, but the company cited non-human-primate shortages delaying earlier-stage programs, clinical enrollment delays and intermittent laboratory supply shortages. Future effects remain uncertain.
- Visirna, formed with Vivo Capital for Greater China rights to four investigational medicines, received $60 million from Vivo. Arrowhead consolidates Visirna and reports a noncontrolling interest.
- The company remains eligible for substantial future milestones and royalties under partner agreements, but these depend on development, regulatory and commercial outcomes. The Verona tax-increment reimbursements are not guaranteed. The filing reports no recorded contingent liabilities and no material changes to previously disclosed risk factors.
Key facts for investors to verify
- How much of future revenue will depend on milestone or other nonrecurring license payments, versus ongoing collaboration performance.
- Clinical trial progress, enrollment, safety and efficacy results for the lead programs, and the potential impact of primate and supply constraints.
- Cash use and investment balances relative to the planned Verona and San Diego expansion costs and rising operating expenses.
- The timing and conditions for partner milestones and royalties, and the financial and commercial development of the Visirna joint venture.
- The impact of stock-based compensation on reported losses and potential share dilution; 105.8 million common shares were outstanding at June 30, 2022.