Arrowhead Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2022. Unaudited financial statements; amounts below are in U.S. dollars. Arrowhead develops RNA interference (RNAi) medicines. Its pipeline includes internally developed and partnered programs across cardiometabolic, liver, pulmonary and other diseases.
Financial performance and liquidity
| Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | Six months ended March 31, 2022 | Six months ended March 31, 2021 |
|---|---|---|---|---|
| Revenue | $151.8m | $32.8m | $179.2m | $54.1m |
| Operating expenses | $110.3m | $61.0m | $201.0m | $106.4m |
| Operating income (loss) | $41.6m | $(28.2)m | $(21.8)m | $(52.3)m |
| Net income (loss) | $44.4m | $(26.8)m | $(18.5)m | $(47.6)m |
| Diluted earnings (loss) per share | $0.41 | $(0.26) | $(0.18) | $(0.46) |
- Revenue and earnings: The quarter’s revenue included $120.0m recognized from the GSK ARO-HSD license upfront payment. Six-month revenue also included $41.6m from Takeda and $13.3m from Horizon, in addition to other collaboration revenue. Management attributed the quarter’s profit and the reduced six-month loss primarily to GSK revenue recognition.
- Costs and margins: R&D expense was $76.0m for the quarter and $141.8m for six months, up 70% and 74%, respectively. G&A expense was $34.3m and $59.3m, up 110% and 136%. Higher candidate and discovery costs reflected pipeline progression and expansion; G&A stock compensation also rose substantially. The filing does not present gross margin.
- Cash flow: Six-month operating cash flow was $1.4m, versus $225.0m provided in the prior-year period. Investing activities used $103.1m, including $10.5m for property and equipment and $92.6m net purchases of investments. Financing activities provided $3.7m, primarily from option exercises. Cash and cash equivalents declined $98.0m to $86.4m.
- Liquidity and balance sheet: At March 31, 2022, Arrowhead reported $86.4m cash and cash equivalents, $192.9m short-term investments, $122.6m marketable securities and $201.6m long-term investments. Total assets were $703.6m and stockholders’ equity was $452.3m. Current liabilities were $138.9m, including $97.9m deferred revenue. No interest-bearing debt is reported; lease liabilities totaled $25.6m. Cash and investment resources decreased by $9.9m from September 30, 2021, partly reflecting operating use of cash and partly offset by GSK’s upfront payment.
Material changes and developments
- Quarterly revenue rose to $151.8m from $32.8m, largely due to recognition of the GSK upfront payment. Six-month revenue increased to $179.2m from $54.1m; the six-month net loss narrowed, but the company remained loss-making for that period.
- R&D and G&A spending increased significantly as the pipeline, clinical activity, headcount and facilities expanded. Six-month stock-based compensation was $58.3m, versus $23.5m a year earlier.
- Arrowhead advanced ARO-APOC3 into a Phase 3 study, completed enrollment in the ARO-ANG3 Phase 2b ARCHES-2 study, and initiated/dosed patients in the ARO-ANG3 Phase 2 GATEWAY study. It also began dosing in the ARO-C3 Phase 1/2 study and filed to initiate studies of ARO-RAGE and ARO-MUC5AC.
- The company discontinued further development of ARO-HIF2, citing the evolving competitive landscape. Janssen’s options for ARO-JNJ2 and ARO-JNJ3 expired unexercised.
Outlook, risks and contingencies
- Management said current cash and investment resources are expected to fund operations for at least the next 12 months. No specific revenue, earnings or cash-flow guidance was provided. Management expects R&D, personnel, facility and stock-compensation costs to continue rising as programs advance and capabilities expand.
- Arrowhead plans to invest $200m–$250m in facilities on land acquired in Verona, Wisconsin, including a planned manufacturing facility and laboratory/office space. A new 144,000-square-foot San Diego lease is expected to begin rent in May 2023; stated lease payments are approximately $119m over 15 years, excluding estimated operating expenses and leasehold improvements.
- Management cited clinical enrollment delays and shortages of non-human primates and lab supplies. The Russia-Ukraine conflict disrupted planned trial sites in Russia, Ukraine and Belarus, requiring alternatives; broader effects on trials and supply chains remain uncertain. The company also highlighted competition for qualified staff, wage inflation, execution and intellectual-property risks.
- No contingent liabilities were recorded at March 31, 2022, and the filing reports no material legal-proceeding developments. Verona infrastructure reimbursements depend on future tax revenues and are not guaranteed.
- Subsequent event: On April 25, 2022, Arrowhead and Vivo Capital agreed to form Visirna, licensing four investigational cardiometabolic candidates for Greater China. Vivo is to provide $60m initial funding; Arrowhead retains a majority stake and may receive royalties.
Important facts for investors to verify
- How much of reported revenue and quarterly profit reflects the one-time $120m GSK upfront payment, versus recurring collaboration revenue or future milestones.
- The timing, cash cost and funding plan for the Verona buildout, San Diego facility and increasing clinical-trial expenditures.
- Whether management’s at-least-12-month liquidity assessment remains appropriate as operating costs and investment commitments rise.
- Clinical progress, enrollment and regulatory milestones across key programs, including ARO-APOC3, ARO-ANG3, ARO-AAT and ARO-HSD, and the effects of geopolitical and supply constraints.
- The impact of elevated stock-based compensation, dilution, and the terms and funding of the Visirna joint venture.