Arrowhead Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2024; balance sheet compared with September 30, 2023. The filing was signed May 9, 2024. Arrowhead is a clinical-stage RNA interference therapeutics developer.
Financial performance and position
| Metric | Three months ended March 31, 2024 | Six months ended March 31, 2024 |
|---|---|---|
| Revenue | $0, versus $146.3 million in 2023 | $3.6 million, versus $208.8 million in 2023 |
| Research and development expense | $101.1 million, up 35% | $217.6 million, up 37% |
| General and administrative expense | $25.1 million, up 8% | $48.7 million, up 10% |
| Operating loss | $126.2 million, versus $48.2 million operating income | $262.7 million, versus $6.0 million operating income |
| Net loss attributable to Arrowhead | $125.3 million; diluted loss per share $1.02 | $258.2 million; diluted loss per share $2.24 |
| Operating cash flow | $210.2 million used, compared with $107.2 million used in the prior-year six-month period |
Revenue fell sharply because significant collaboration revenue recognized in the prior-year periods did not recur; Takeda revenue recognition for the company’s performance obligation was substantially completed by December 2023. The quarter had no revenue, so a revenue margin comparison is not meaningful; the filing does not present a gross-margin measure.
At March 31, 2024, cash, cash equivalents and restricted cash were $127.7 million, with $395.4 million of available-for-sale securities. Total assets were $955.2 million; current liabilities were $65.2 million. The company reported $118.9 million of lease liabilities and a $280.9 million liability related to the sale of future royalties. That royalty financing is accounted for as debt; the company says it is not obligated to repay the upfront funding, and Royalty Pharma receives the olpasiran royalties covered by the agreement. Six-month capital expenditures were $102.7 million. Financing cash flow included $429.3 million net proceeds from a stock offering; cash and restricted cash increased $16.7 million over the six months.
Material changes and business developments
- Compared with the prior-year periods, the company shifted from income to substantial losses as collaboration revenue declined and research and development spending increased with pipeline progression, discovery activity, headcount and facilities costs.
- In January 2024, Arrowhead sold 15.79 million common shares at $28.50 per share, receiving $429.3 million net. Shares outstanding were 124.1 million at March 31, versus 107.3 million at September 30, 2023.
- Amgen completed enrollment in the Phase 3 OCEAN(a) olpasiran outcomes trial, triggering a $50 million milestone that was paid in the third quarter of fiscal 2024, after the reporting date.
- GSK received a worldwide exclusive license to develop and commercialize JNJ-3989, previously licensed to Janssen. Arrowhead received $2.7 million on signing and may receive up to $832.5 million in development and sales milestones.
- Horizon’s HZN-457 license was terminated effective December 21, 2023, following Amgen’s acquisition of Horizon. Arrowhead also reported positive Phase 2 SHASTA-2 findings for investigational plozasiran and initiated a Phase 1/2a ARO-DM1 trial.
Outlook, risks and contingencies
Management expects current cash and investment resources to fund operations for at least the next twelve months; the filing does not provide formal revenue or earnings guidance. Management expects research and development and general and administrative expenses to continue rising as the pipeline advances, with additional pressure from inflation and labor costs. The company intends to spend another $37 million to $51 million to complete its Wisconsin facilities.
Key risks include clinical development and regulatory uncertainty, rising research and facility costs, and reliance on future collaboration, milestone, royalty or equity financing. The company remains eligible for substantial milestone payments under licensing agreements, but timing and receipt depend on specified development, regulatory and commercial events. No contingent liabilities were recorded at March 31, 2024; the filing reports no material changes to previously disclosed risk factors or material developments in previously disclosed legal proceedings. Management concluded disclosure controls were effective at a reasonable assurance level.
Important facts for investors to verify
- Timing and probability of clinical, regulatory and commercial milestones, including the olpasiran milestone paid after quarter-end and potential GSK payments.
- Cash burn, capital expenditure needs and the assumptions underlying management’s at-least-twelve-month liquidity outlook.
- Progress and remaining cost to complete the Wisconsin facilities, and the effect of expanding clinical programs on operating expenses.
- Impact of the January equity offering on share count and future dilution, including outstanding equity awards.
- Royalty financing terms and estimates underlying the $280.9 million carrying liability and 9.3% estimated effective interest rate.