Arrowhead Pharmaceuticals, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended September 30, 2021; comparisons are to fiscal 2020 unless noted. This is an annual report, not a standalone calendar-quarter report. Arrowhead is a clinical-stage RNA interference therapeutics developer; it had no approved products or product sales.
Financial results and position
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $138.3 million | $88.0 million |
| Operating expenses | $287.3 million | $181.2 million |
| Operating loss | $149.0 million | $93.2 million |
| Net loss | $140.8 million | $84.6 million |
| Diluted loss per share | $1.36 | $0.84 |
| Cash from (used in) operations | $171.2 million | ($95.4 million) |
- Revenue rose about 57%, mainly as the company recognized Takeda collaboration revenue. The company recognized $90.8 million from Takeda, $20.2 million related to the Janssen license and services, $20.0 million in Janssen option and milestone payments, and $6.7 million from Horizon. FY2021 revenue remained below FY2019’s $168.8 million.
- R&D expense increased 60% to $206.3 million, including $92.6 million in candidate costs; G&A expense rose 55% to $81.0 million. Management attributed expense growth to pipeline advancement, hiring, discovery work, and stock-based compensation.
- Approximate operating and net margins were negative 108% and negative 102%, respectively. These are calculated from reported revenue and losses; product gross margin is not applicable because there were no product sales.
- At September 30, 2021, cash and cash equivalents were $184.4 million; marketable securities were $126.7 million; short-term investments were $56.6 million; and long-term investments were $245.6 million. Together these totaled approximately $613.4 million, compared with approximately $453.0 million a year earlier.
- Current assets were $384.6 million and current liabilities $146.5 million, implying working capital of about $238.1 million and a current ratio of about 2.6. Total assets were $710.1 million; stockholders’ equity was $408.8 million.
- Liabilities included $242.6 million of deferred revenue and $25.5 million of lease liabilities. The balance sheet does not identify interest-bearing borrowings; cash-flow statements show no notes payable payments in FY2021.
- Operating cash flow was positive largely because collaboration cash advances increased deferred revenue, including Takeda’s $300 million upfront payment and Horizon’s $40 million upfront payment. Investing activities used $141.7 million, including $23.6 million for property and equipment; financing activities provided $11.3 million, primarily from stock-option exercises.
Material changes and business developments
- Arrowhead reported a larger annual loss despite higher revenue, as operating expenses expanded faster than revenue. Stock-based compensation reached $76.7 million, versus $43.4 million in FY2020.
- FY2021 cash from operations swung from use of $95.4 million to generation of $171.2 million, principally reflecting collaboration payments and deferred-revenue movements rather than recurring product revenue.
- The company expanded its workforce to 329 employees from 232 and continued to build its clinical and discovery pipeline. ARO-APOC3 and ARO-ANG3 entered Phase 2b trials; ARO-AAT received FDA Breakthrough Therapy designation; and Janssen and Amgen advanced partnered programs.
- ARO-ENaC enrollment and dosing were paused in July 2021 after rat toxicology results indicated unexpected local lung inflammation. Further activity was pending additional nonclinical data.
- Subsequent to year-end, Arrowhead signed an ARO-HSD license agreement with GSK, subject to closing conditions, with a $120 million upfront payment and potential milestone and royalty payments. It also entered a 15-year San Diego facility lease, with approximately $119 million in base rent over the initial term and estimated $31 million in leasehold improvements.
Outlook, risks and contingencies
- Management stated that available cash and investments were expected to fund operations for at least the next 12 months. No specific earnings, revenue, or product-launch guidance was provided.
- Management expects R&D and related costs to rise as programs advance, headcount grows, and manufacturing capacity expands. Future profitability depends on successful development, regulatory approval, commercialization, and/or partner payments.
- Key risks include clinical and regulatory failure or delay, the ARO-ENaC safety signal, reliance on partners for development milestones and commercialization, manufacturing and supply constraints, COVID-19-related trial delays, intellectual-property challenges, and uncertain pricing and reimbursement.
- The company reported no contingent liabilities recorded for litigation at year-end. It disclosed $214.9 million of commitments under clinical, manufacturing, and business-operation agreements, which it said were cancelable. Its collaboration revenue depends partly on judgment-based estimates of progress and remaining performance obligations.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- How much of reported revenue and operating cash flow reflects recognition or receipt of upfront collaboration payments, and how much is repeatable in future periods.
- Clinical results, trial timelines, and safety updates for ARO-AAT, ARO-APOC3, ARO-ANG3, ARO-HSD, and the paused ARO-ENaC program.
- Partner progress and the conditions, timing, and likelihood of potential milestones and royalties; headline milestone totals are contingent, not guaranteed revenue.
- Cash and investment runway under the company’s expanding R&D plans, including the cost and funding implications of the new San Diego lease and planned facility investment.
- Changes in share count and equity compensation: shares outstanding were 104.3 million at year-end, and stock-based compensation expense was $76.7 million.