Arrowhead Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2022. The company develops RNA interference (RNAi) medicines; revenue principally comes from licensing and collaboration arrangements, not product sales.
Financial performance and position
Unless otherwise noted, amounts are in millions of dollars. The quarter’s unaudited results are compared with the three months ended December 31, 2021.
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Revenue | $62.5 | $27.4 |
| Research and development expense | $83.7 | $65.8 |
| General and administrative expense | $21.0 | $25.0 |
| Operating loss | $(42.1) | $(63.3) |
| Net loss attributable to Arrowhead | $(41.3) | $(62.9) |
| Diluted loss per share | $(0.39) | $(0.60) |
| Cash used in operating activities | $(75.5) | $(61.3) |
| Cash used in investing activities | $(80.7) | $(33.4) |
| Cash provided by financing activities | $250.6 | $1.9 |
- Revenue increased 127.9%, mainly from Horizon, Takeda, and Amgen arrangements. The filing does not present gross profit or a gross margin; product-style gross margins are not provided.
- At December 31, cash, cash equivalents and restricted cash were $202.2; short-term investments were $299.6; and long-term investments were $115.8. Combined, these totaled approximately $617.6. Total assets were $891.5.
- Current liabilities were $122.0, including $66.3 of current deferred revenue. Stockholders’ equity, including noncontrolling interest, was $396.4.
- The balance sheet included a $252.8 liability related to the sale of future royalties, recorded as debt for accounting purposes. The company said it is not obligated to repay the $250.0 upfront funding; repayment is tied to future Olpasiran royalties. The arrangement generated $2.8 of non-cash interest expense in the quarter. Lease liabilities totaled $82.1.
- Capital expenditures were $38.9, primarily for construction in progress. Cash increased by $94.4 during the quarter, principally because of the $250.0 Royalty Pharma upfront payment.
Changes, developments, and management outlook
- Net loss narrowed year over year as higher collaboration revenue more than offset increased R&D spending. R&D expense rose 27%, primarily from clinical, manufacturing, discovery, facilities, and personnel costs. Management expects R&D and G&A spending to continue increasing as programs advance, the pipeline expands, and inflation and labor costs affect spending.
- Amgen’s first patient enrolled in the Phase 3 Olpasiran trial, triggering a $25.0 milestone recognized in the quarter and paid in Q2 FY2023. Horizon’s first HZN-457 trial participant triggered a $15.0 milestone, also paid in Q2. Both were reported as quarter-end receivables.
- Royalty Pharma paid $250.0 upfront for the company’s future Olpasiran royalties and may pay up to another $160.0 upon specified clinical, regulatory, and royalty milestones. Royalty Pharma receives all royalties otherwise payable by Amgen; Arrowhead remains eligible for Amgen milestone payments.
- Management stated that available financial resources were expected to fund operations for at least the next 12 months. The company is also eligible for up to $4.1 billion in potential developmental, regulatory, and sales milestones across licensing and collaboration agreements; these payments are contingent and not assured.
- The company plans to invest $200–$260 million in Verona, Wisconsin manufacturing, laboratory, and office facilities. It also expects about $31 million for leasehold improvements at a new San Diego facility, with rent commencement estimated for April 2023. Potential Verona public incentives include up to $16.0 million in tax-increment financing reimbursements and $2.5 million in refundable state tax credits; amounts are not guaranteed.
- Top-line Phase 2 SEQUOIA results for Fazirsiran reported fibrosis regression in 50% of treated patients, median 94% reductions in liver Z-AAT accumulation, and mean 68% reductions in histologic globule burden. Treatment-emergent adverse events were generally balanced between Fazirsiran and placebo. These are reported trial findings, not evidence of approval or commercial success.
- The company established an at-the-market stock offering facility of up to $250.0 million; no shares had been sold under it by December 31, 2022. Management reported effective disclosure controls and no material changes in internal control over financial reporting. The filing reported no material changes to previously disclosed risk factors and no recorded contingent liabilities at quarter-end.
Important facts for investors to verify
- Whether milestone receivables recognized in Q1 were collected as expected in Q2, and how future collaboration revenue will be recognized.
- Progress, safety, efficacy, enrollment, and timing of key clinical programs, including Olpasiran, Fazirsiran, ARO-APOC3, and ARO-ANG3; clinical outcomes and milestone receipts remain uncertain.
- Cash burn, investment liquidity, and the assumptions supporting management’s at-least-12-month liquidity outlook as pipeline and facility spending grow.
- The terms, accounting estimates, and future royalty deductions under the Royalty Pharma agreement, including contingent payments and the effective-interest estimate.
- Facility construction costs and schedule, the timing and value of potential incentives, and any future use of the ATM offering and resulting dilution.