Arrowhead Pharmaceuticals(ARWR) - 2024 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents the unaudited consolidated financial information for Arrowhead Pharmaceuticals, Inc., including financial statements, notes, and management's discussion and analysis ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited consolidated financial statements for June 30, 2024, with detailed notes on accounting policies, collaboration agreements, and key financial accounts Consolidated Balance Sheets The company's total assets increased to $883.8 million as of June 30, 2024, from $765.6 million at September 30, 2023, primarily driven by an increase in available-for-sale securities and property, plant, and equipment Consolidated Balance Sheet Highlights (June 30, 2024 vs. September 30, 2023) | Metric | June 30, 2024 (in thousands) | September 30, 2023 (in thousands) | Change (in thousands) | | :----------------------------------- | :--------------------------- | :---------------------------- | :-------------------- | | Total Assets | $883,759 | $765,552 | $118,207 | | Cash, cash equivalents and restricted cash | $69,399 | $110,891 | $(41,492) | | Available-for-sale securities | $367,272 | $292,735 | $74,537 | | Property, plant and equipment, net | $375,911 | $290,262 | $85,649 | | Total current liabilities | $96,714 | $105,456 | $(8,742) | | Liability related to sale of future royalties | $336,031 | $268,326 | $67,705 | | Total Stockholders' Equity | $330,547 | $271,343 | $59,204 | Consolidated Statements of Operations and Comprehensive Loss The company reported a significant increase in net loss attributable to Arrowhead Pharmaceuticals, Inc. for both the three and nine months ended June 30, 2024, primarily due to a substantial decrease in revenue from collaboration agreements and increased research and development expenses Consolidated Statements of Operations Highlights (Three and Nine Months Ended June 30) | Metric | 3 Months Ended June 30, 2024 (in thousands) | 3 Months Ended June 30, 2023 (in thousands) | Change (3 Months) | 9 Months Ended June 30, 2024 (in thousands) | 9 Months Ended June 30, 2023 (in thousands) | Change (9 Months) | | :------------------------------------------- | :-------------------------------------- | :-------------------------------------- | :---------------- | :-------------------------------------- | :-------------------------------------- | :---------------- | | Revenue | $0 | $15,825 | $(15,825) | $3,551 | $224,638 | $(221,087) | | Research and development expenses | $152,431 | $94,757 | $57,674 | $370,044 | $253,333 | $116,711 | | General and administrative expenses | $23,710 | $23,771 | $(61) | $72,384 | $67,977 | $4,407 | | Operating loss | $(176,141) | $(102,703) | $(73,438) | $(438,877) | $(96,672) | $(342,205) | | Net loss attributable to Arrowhead Pharma, Inc. | $(170,793) | $(102,946) | $(67,847) | $(428,957) | $(95,596) | $(333,361) | | Basic Net loss per share | $(1.38) | $(0.96) | $(0.42) | $(3.63) | $(0.90) | $(2.73) | | Diluted Net loss per share | $(1.38) | $(0.96) | $(0.42) | $(3.63) | $(0.90) | $(2.73) | Consolidated Statements of Stockholders' Equity Total stockholders' equity increased to $338.97 million as of June 30, 2024, from $287.16 million at September 30, 2023, primarily driven by a significant common stock issuance in January 2024, offset by accumulated deficit from net losses Consolidated Stockholders' Equity Highlights (June 30, 2024 vs. September 30, 2023) | Metric | June 30, 2024 (in thousands) | September 30, 2023 (in thousands) | Change (in thousands) | | :------------------------------------------- | :--------------------------- | :---------------------------- | :-------------------- | | Common Stock (shares) | 124,227 | 107,312 | 16,915 | | Common Stock (amount) | $217 | $200 | $17 | | Additional Paid-In Capital | $1,786,304 | $1,300,395 | $485,909 | | Accumulated Deficit | $(1,454,987) | $(1,026,030) | $(428,957) | | Total Arrowhead Pharma, Inc. Stockholders' Equity | $330,547 | $271,343 | $59,204 | | Total Noncontrolling Interest and Stockholders' Equity | $338,974 | $287,162 | $51,812 | Consolidated Statements of Cash Flows For the nine months ended June 30, 2024, the company experienced a net decrease in cash, cash equivalents, and restricted cash of $41.35 million, primarily due to significant cash used in operating and investing activities, partially offset by substantial proceeds from financing activities, including a common stock issuance Consolidated Cash Flow Summary (Nine Months Ended June 30) | Cash Flow Activity | 9 Months Ended June 30, 2024 (in thousands) | 9 Months Ended June 30, 2023 (in thousands) | Change (in thousands) | | :------------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------- | | Net cash used in operating activities | $(325,635) | $(127,964) | $(197,671) | | Net cash used in investing activities | $(197,149) | $(126,664) | $(70,485) | | Net cash provided by financing activities | $481,431 | $252,232 | $229,199 | | Net decrease in cash, cash equivalents and restricted cash | $(41,353) | $(2,396) | $(38,957) | | Cash, cash equivalents and restricted cash at end of period | $69,399 | $105,334 | $(35,935) | Notes to Consolidated Financial Statements The notes provide detailed explanations and disclosures for the financial statements, covering business, accounting policies, collaboration agreements, and key financial components NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Arrowhead Pharmaceuticals, Inc. is engaged in developing RNAi-based therapeutics for intractable diseases, with a pipeline spanning cardiometabolic, pulmonary, liver, muscle, and CNS therapeutic areas. The company reported several key clinical advancements and a significant equity offering in fiscal 2024 to bolster liquidity - The company is developing RNAi-based therapeutics to silence disease-causing genes, with a broad pipeline including plozasiran (Phase 3), zodasiran (Phase 2b), and olpasiran (Phase 3, partnered with Amgen)[18][19] - Key recent developments include advancing plozasiran into a Phase 3 cardiovascular outcomes trial (CAPITAN), successful top-line results from the Phase 3 PALISADE study for plozasiran in FCS, and completion of enrollment in Amgen's Phase 3 OCEAN(a) trial for olpasiran, triggering a $50.0 million milestone payment[19][21] - The company's cash, cash equivalents, and restricted cash decreased to $69.4 million as of June 30, 2024, from $110.9 million at September 30, 2023, while available-for-sale securities increased to $367.3 million[23] - In January 2024, the company completed an underwritten offering, issuing 15,790,000 shares of common stock for net proceeds of $429.3 million[25] - The company recorded an income tax benefit of $3.3 million for the nine months ended June 30, 2024, primarily due to a discrete change in uncertain tax positions related to the statute of limitation expiration[27] - New accounting pronouncements (ASU 2023-09 on Income Taxes and ASU 2023-07 on Segment Reporting) are not expected to have a material impact on the company's financial statements[28] NOTE 2. COLLABORATION AND LICENSE AGREEMENTS Collaboration and license agreement revenue significantly decreased due to Takeda obligations completion and Horizon termination, with new GSK and ongoing collaborations continuing Revenue from Collaboration and License Agreements (Nine Months Ended June 30) | Partner | 9 Months Ended 2024 (in thousands) | 9 Months Ended 2023 (in thousands) | Change (in thousands) | | :------ | :--------------------------------- | :--------------------------------- | :-------------------- | | GSK | $2,685 | $29 | $2,656 | | Horizon | $0 | $23 | $(23) | | Takeda | $866 | $146 | $720 | | Janssen | $0 | $0 | $0 | | Amgen | $0 | $25 | $(25) | | Total | $3,551 | $224 | $3,327 | - The Takeda License Agreement's revenue recognition was substantially completed by December 31, 2023, as Phase 2 study visits concluded, leading to a significant decrease in recognized revenue from this partnership in fiscal 2024[35] - The Horizon License Agreement was terminated by Amgen (after acquiring Horizon) on December 21, 2023, resulting in no further revenue from this collaboration[33] - The company entered into an Amended and Restated License Agreement with GSK in December 2023 for daplusiran/tomligisiran, receiving $2.7 million upon signing and eligible for up to $832.5 million in future milestones[32] - Amgen completed enrollment in the Phase 3 OCEAN(a) trial for olpasiran, triggering a $50.0 million milestone payment to Arrowhead in Q3 fiscal 2024, though royalties are now directed to Royalty Pharma[21][37] NOTE 3. BALANCE SHEET ACCOUNTS Property, plant, and equipment, net, significantly increased to $375.9 million as of June 30, 2024, primarily due to the completion of a laboratory and office facility in Verona, Wisconsin, and ongoing construction Property, Plant and Equipment, Net (June 30, 2024 vs. September 30, 2023) | Asset Category | June 30, 2024 (in thousands) | September 30, 2023 (in thousands) | Change (in thousands) | | :--------------------------- | :--------------------------- | :---------------------------- | :-------------------- | | Building | $75,868 | $0 | $75,868 | | Construction in progress | $175,778 | $166,655 | $9,123 | | Property, plant and equipment, net | $375,911 | $290,262 | $85,649 | - During Q1 fiscal 2024, the company completed the build-out of a laboratory and office facility in Verona, Wisconsin, reclassifying $75.9 million from construction in progress to building and commencing depreciation[42] Accrued Expenses (June 30, 2024 vs. September 30, 2023) | Accrued Expense Category | June 30, 2024 (in thousands) | September 30, 2023 (in thousands) | Change (in thousands) | | :------------------------------- | :--------------------------- | :---------------------------- | :-------------------- | | Accrued R&D expenses; co-development | $21,280 | $5,895 | $15,385 | | Total accrued expenses | $47,899 | $39,763 | $8,136 | NOTE 4. INVESTMENTS The company's available-for-sale securities increased to $367.3 million as of June 30, 2024, from $292.7 million at September 30, 2023, with a shift in composition towards corporate debt securities and commercial notes Available-for-Sale Securities (June 30, 2024 vs. September 30, 2023) | Investment Type | June 30, 2024 (Fair Value, in thousands) | September 30, 2023 (Fair Value, in thousands) | Change (in thousands) | | :-------------------------- | :------------------------------------- | :-------------------------------------- | :-------------------- | | U.S. government bonds | $80,946 | $31,553 | $49,393 | | Commercial notes | $114,616 | $22,205 | $92,411 | | Corporate debt securities | $171,710 | $231,884 | $(60,174) | | Total available-for-sale securities | $367,272 | $292,735 | $74,537 | NOTE 5. INTANGIBLE ASSETS Net intangible assets decreased to $8.99 million as of June 30, 2024, from $10.26 million at September 30, 2023, due to ongoing amortization Intangible Assets, Net (June 30, 2024 vs. September 30, 2023) | Asset Category | June 30, 2024 (Net Carrying Amount, in thousands) | September 30, 2023 (Net Carrying Amount, in thousands) | Change (in thousands) | | :------------- | :------------------------------------------ | :------------------------------------------- | :-------------------- | | Patents | $7,243 | $8,407 | $(1,164) | | License | $1,744 | $1,855 | $(111) | | Total intangible assets, net | $8,987 | $10,262 | $(1,275) | Estimated Future Amortization Expense (as of June 30, 2024) | Year Ending September 30, | Amortization Expense (in thousands) | | :------------------------ | :---------------------------------- | | 2024 (remainder) | $425 | | 2025 | $1,700 | | 2026 | $1,700 | | 2027 | $1,700 | | 2028 | $1,700 | | Thereafter | $1,762 | | Total | $8,987 | NOTE 6. STOCKHOLDERS' EQUITY The number of common shares issued and outstanding significantly increased to 124.23 million as of June 30, 2024, from 107.31 million at September 30, 2023, primarily due to an underwritten public offering in January 2024 that generated $429.3 million in net proceeds Common Stock Issued and Outstanding (June 30, 2024 vs. September 30, 2023) | Metric | June 30, 2024 (in thousands) | September 30, 2023 (in thousands) | Change (in thousands) | | :--------------------------- | :--------------------------- | :---------------------------- | :-------------------- | | Common stock issued | 124,227 | 107,312 | 16,915 | | Common stock outstanding | 124,227 | 107,312 | 16,915 | - In January 2024, the company issued 15,790,000 shares of common stock at $28.50 per share, raising net proceeds of $429.3 million after deducting offering expenses[52] - As of June 30, 2024, no shares have been issued under the $250.0 million at-the-market (ATM) offering agreement established in December 2022[52] NOTE 7. COMMITMENTS AND CONTINGENCIES The company has no contingent liabilities recorded as of June 30, 2024, but has significant commitments related to the development of its Verona, Wisconsin facilities, with $266.0 million incurred and an additional $18.0 million to $32.0 million planned for completion - No contingent liabilities were recorded as of June 30, 2024[53] - The company has incurred $266.0 million for its Verona, Wisconsin facilities (drug manufacturing and lab/office), with an additional $18.0 million to $32.0 million expected to complete the build-out[54] NOTE 8. LEASES Operating lease liabilities increased to $112.04 million as of June 30, 2024, partly due to additional tenant improvement allowances for the San Diego facility, remeasuring lease liabilities and right-of-use assets Lease Assets and Liabilities (June 30, 2024 vs. September 30, 2023) | Metric | June 30, 2024 (in thousands) | September 30, 2023 (in thousands) | Change (in thousands) | | :---------------------------------- | :--------------------------- | :---------------------------- | :-------------------- | | Right-of-use assets | $44,339 | $45,297 | $(958) | | Lease liabilities, net of current portion | $112,040 | $104,608 | $7,432 | - The company received $30.8 million in Additional Tenant Improvement Allowances (ATIAs) for its San Diego facility during Q1 fiscal 2024, leading to a remeasurement of lease liabilities and right-of-use assets[58] Total Lease Cost (Nine Months Ended June 30) | Lease Cost Category | 9 Months Ended 2024 (in thousands) | 9 Months Ended 2023 (in thousands) | Change (in thousands) | | :------------------ | :--------------------------------- | :--------------------------------- | :-------------------- | | Total Lease Cost | $12,513 | $9,904 | $2,609 | NOTE 9. STOCK-BASED COMPENSATION Total stock-based compensation expense for the nine months ended June 30, 2024, was $48.98 million, a decrease from $59.95 million in the prior year, primarily due to decreased compensation costs related to performance awards and cancelled awards upon employee departures Stock-Based Compensation Expenses (Nine Months Ended June 30) | Expense Category | 9 Months Ended 2024 (in thousands) | 9 Months Ended 2023 (in thousands) | Change (in thousands) | | :--------------------------- | :--------------------------------- | :--------------------------------- | :-------------------- | | Research and development | $21,634 | $26,129 | $(4,495) | | General and administrative | $27,350 | $33,820 | $(6,470) | | Total | $48,984 | $59,949 | $(10,965) | - The decrease in stock compensation expense was primarily due to cancelled awards upon employee departures and decreased compensation costs related to performance awards[109][113] - As of June 30, 2024, there was $96.3 million of total unrecognized compensation cost related to RSUs, expected to be recognized over a weighted-average period of 1.6 years[76] NOTE 10. FAIR VALUE MEASUREMENTS As of June 30, 2024, the company's total financial assets measured at fair value were $401.75 million, primarily consisting of available-for-sale securities and cash equivalents, with the majority classified as Level 2 measurements Financial Assets Measured at Fair Value (June 30, 2024) | Asset Category | Level 1 (in thousands) | Level 2 (in thousands) | Level 3 (in thousands) | Total (in thousands) | | :-------------------------- | :--------------------- | :--------------------- | :--------------------- | :------------------- | | Available-for-sale securities | $0 | $367,272 | $0 | $367,272 | | Cash equivalents | $29,495 | $4,986 | $0 | $34,481 | | Total financial assets | $29,495 | $372,258 | $0 | $401,753 | - The company did not have any financial assets or liabilities based on Level 3 measurements as of June 30, 2024, or September 30, 2023[78] NOTE 11. LIABILITY RELATED TO THE SALE OF FUTURE ROYALTIES The future royalties liability increased to $336.03 million from a $50.0 million milestone payment and $17.71 million non-cash interest expense, with a 6.3% effective interest rate Liability Related to Sale of Future Royalties (June 30, 2024 vs. September 30, 2023) | Metric | Amount (in thousands) | | :------------------------------------------- | :-------------------- | | Carrying value as of September 30, 2023 | $268,326 | | Milestone payment received | $50,000 | | Non-cash interest expense recognized | $17,705 | | Carrying value as of June 30, 2024 | $336,031 | - A $50.0 million milestone payment was received in Q3 fiscal 2024 upon completion of enrollment in the OCEAN Phase 3 clinical trial for olpasiran, contributing to the increase in the liability[83] - The estimated effective interest rate for the liability related to the sale of future royalties was 6.3% as of June 30, 2024[83] NOTE 12. NET LOSS PER SHARE The basic and diluted net loss per share attributable to Arrowhead Pharmaceuticals, Inc. significantly increased to $(1.38) and $(3.63) for the three and nine months ended June 30, 2024, respectively, compared to the prior year, reflecting the increased net loss Net Loss Per Share (Three and Nine Months Ended June 30) | Metric | 3 Months Ended June 30, 2024 | 3 Months Ended June 30, 2023 | 9 Months Ended June 30, 2024 | 9 Months Ended June 30, 2023 | | :------------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net loss attributable to Arrowhead Pharma, Inc. (in thousands) | $(170,793) | $(102,946) | $(428,957) | $(95,596) | | Weighted-average basic shares outstanding (in thousands) | 124,199 | 107,004 | 118,260 | 106,597 | | Basic net loss per share | $(1.38) | $(0.96) | $(3.63) | $(0.90) | | Diluted net loss per share | $(1.38) | $(0.96) | $(3.63) | $(0.90) | NOTE 13. SUBSEQUENT EVENTS Subsequent to the quarter end, on August 7, 2024, the company entered into a senior secured term loan facility of up to $935.3 million with Sixth Street Lending Partners, including an initial $400.0 million draw, to be used for working capital, capital expenditures, and general corporate purposes - On August 7, 2024, the company secured a senior secured term loan facility of up to $935.3 million, with an initial draw of $400.0 million[89][130] - The Credit Facility matures on August 7, 2031, bears an annual interest rate of 15.0%, and does not require scheduled amortization payments during the term[89][130] - Proceeds from the initial loan are designated for working capital, capital expenditures, and general corporate purposes[130] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management discusses financial condition and results, highlighting increased net loss from decreased collaboration revenue and higher R&D expenses, along with liquidity, capital resources, and business developments OVERVIEW Arrowhead Pharmaceuticals is focused on developing RNAi-based therapeutics for intractable diseases across multiple therapeutic areas, including cardiometabolic, pulmonary, and liver conditions. The company's pipeline continues to advance, with several key clinical developments and a significant equity offering in fiscal 2024 - The company develops RNAi-based therapeutics leveraging the RNA interference mechanism to silence disease-causing genes, with a focus on its TRiM™ enabled therapeutics for various tissue types and administration routes[92] - The clinical pipeline includes candidates for hypertriglyceridemia (plozasiran), dyslipidemia (zodasiran), cardiovascular disease (olpasiran), pulmonary conditions (ARO-MUC5AC, ARO-RAGE, ARO-MMP7), liver diseases (GSK-4532990, fazirsiran, daplusiran/tomligisiran, ARO-PNPLA3, ARO-C3, ARO-CFB), and muscle disorders (ARO-DUX4, ARO-DM1)[93][94] - Significant business highlights for the first three quarters of fiscal 2024 include advancing plozasiran into a Phase 3 cardiovascular outcomes trial, successful top-line results from the Phase 3 PALISADE study for plozasiran, and completing enrollment in Amgen's Phase 3 OCEAN(a) trial for olpasiran, triggering a $50.0 million milestone[96] - The company's net loss attributable to Arrowhead Pharmaceuticals, Inc. increased to $429.0 million for the nine months ended June 30, 2024, from $95.6 million in the prior year, primarily due to decreased revenue and increased R&D expenses[98] - As of June 30, 2024, the company had $69.4 million in cash, cash equivalents, and restricted cash, and $367.3 million in available-for-sale securities, expecting sufficient liquidity for at least the next twelve months[98] RESULTS OF OPERATIONS Revenue substantially decreased due to completed collaboration obligations, while operating expenses, particularly R&D, significantly increased with pipeline advancement, leading to a higher operating and net loss Key Financial Results (Three and Nine Months Ended June 30) | Metric | 3 Months Ended June 30, 2024 (in thousands) | 3 Months Ended June 30, 2023 (in thousands) | 9 Months Ended June 30, 2024 (in thousands) | 9 Months Ended June 30, 2023 (in thousands) | | :------------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Revenue | $0 | $15,825 | $3,551 | $224,638 | | Operating loss | $(176,141) | $(102,703) | $(438,877) | $(96,672) | | Net loss attributable to Arrowhead Pharma, Inc. | $(170,793) | $(102,946) | $(428,957) | $(95,596) | | Net loss per share-diluted | $(1.38) | $(0.96) | $(3.63) | $(0.90) | Revenue Total revenue for the nine months ended June 30, 2024, decreased by $221.1 million (98.4%) compared to the same period in 2023, primarily because performance obligations under the Takeda License Agreement were substantially completed by December 31, 2023, and the Horizon License Agreement was terminated - Total revenue for the nine months ended June 30, 2024, decreased by $221.1 million, or 98.4%, compared to the same period in 2023[102] - The decrease was primarily due to the substantial completion of performance obligations under the Takeda License Agreement by December 31, 2023, and the termination of the Horizon License Agreement in December 2023[102][104] - Revenue for the nine months ended June 30, 2023, included $146.5 million from Takeda (including a $40.0 million milestone), $30.0 million from GSK, and $6.7 million from Horizon, plus a $15.0 million milestone from Horizon and a $25.0 million milestone from Amgen[104] Operating Expenses Total operating expenses increased significantly for the nine months ended June 30, 2024, driven by a 46% increase in R&D expenses due to pipeline progression and discovery efforts, and a 6% increase in G&A expenses due to higher salaries and professional services Total Operating Expenses (Nine Months Ended June 30) | Expense Category | 9 Months Ended 2024 (in thousands) | 9 Months Ended 2023 (in thousands) | Change (in thousands) | % Change | | :--------------------------- | :--------------------------------- | :--------------------------------- | :-------------------- | :------- | | Research and development | $370,044 | $253,333 | $116,711 | 46% | | General and administrative | $72,384 | $67,977 | $4,407 | 6% | | Total operating expenses | $442,428 | $321,310 | $121,118 | 38% | Research and Development (R&D) Expenses R&D expenses increased by $116.7 million (46%) for the nine months ended June 30, 2024, primarily due to higher candidate costs from advancing clinical trials, increased R&D discovery costs, and a rise in salaries due to increased headcount and annual increases Research and Development Expenses (Nine Months Ended June 30) | R&D Expense Category | 9 Months Ended 2024 (in thousands) | 9 Months Ended 2023 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------- | :--------------------------------- | :--------------------------------- | :-------------------- | :------- | | Candidate costs | $157,546 | $110,079 | $47,467 | 43% | | R&D discovery costs | $84,898 | $50,377 | $34,521 | 69% | | Salaries | $72,048 | $47,725 | $24,323 | 51% | | Facilities related | $19,597 | $11,601 | $7,996 | 69% | | Stock compensation | $23,735 | $26,129 | $(2,394) | (9)% | | Depreciation/amortization | $12,220 | $7,422 | $4,798 | 65% | | Total research and development expense | $370,044 | $253,333 | $116,711 | 46% | - The increase in candidate costs was driven by the progression of the company's pipeline into and through clinical trials, leading to higher manufacturing, outsourced clinical trial, and toxicity study costs[109] - R&D discovery costs increased due to expanded discovery efforts, advancement into novel therapeutic areas, and rising costs associated with CNS studies and lab supplies[109] General & Administrative Expenses General and administrative expenses increased by $4.4 million (6%) for the nine months ended June 30, 2024, primarily due to higher salaries from increased headcount and annual raises, and increased professional services, partially offset by a decrease in stock compensation General & Administrative Expenses (Nine Months Ended June 30) | G&A Expense Category | 9 Months Ended 2024 (in thousands) | 9 Months Ended 2023 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------- | :--------------------------------- | :--------------------------------- | :-------------------- | :------- | | Salaries | $20,087 | $14,275 | $5,812 | 41% | | Professional, outside services, and other | $16,910 | $15,293 | $1,617 | 11% | | Stock compensation | $30,759 | $33,820 | $(3,061) | (9)% | | Total general & administrative expenses | $72,384 | $67,977 | $4,407 | 6% | - The increase in salaries was due to annual salary increases and increased headcount to support company growth[113] - Professional, outside services, and other expenses increased mainly due to legal services for patent applications and intellectual property matters[113] Other Income (Expense) Other income increased by $2.8 million for the three months ended June 30, 2024, compared to the same period in 2023, primarily due to higher yields on investments from increased interest rates, partially offset by non-cash interest expense on the future royalties liability - Other income increased by $2.8 million for the three months ended June 30, 2024, compared to the same period in 2023[114] - This increase was primarily driven by higher yields on investments due to higher interest rates, partially offset by non-cash interest expense on the liability related to the sale of future royalties[115] LIQUIDITY AND CAPITAL RESOURCES Cash, cash equivalents, and restricted cash decreased to $69.4 million despite a $429.3 million stock offering, offset by significant cash usage in operating and investing activities, with sufficient liquidity expected for the next twelve months Cash, Cash Equivalents and Restricted Cash (June 30, 2024 vs. September 30, 2023) | Metric | June 30, 2024 (in thousands) | September 30, 2023 (in thousands) | Change (in thousands) | | :------------------------------------------- | :--------------------------- | :---------------------------- | :-------------------- | | Cash, cash equivalents and restricted cash | $69,399 | $110,891 | $(41,492) | | Available-for-sale securities | $367,272 | $292,735 | $74,537 | - Net proceeds of $429.3 million were received from an underwritten common stock offering in January 2024[116] Cash Flow Summary (Nine Months Ended June 30) | Cash Flow Activity | 9 Months Ended June 30, 2024 (in thousands) | 9 Months Ended June 30, 2023 (in thousands) | Change (in thousands) | | :------------------------------------------- | :-------------------------------------- | :-------------------------------------- | :-------------------- | | Operating activities | $(325,635) | $(127,964) | $(197,671) | | Investing activities | $(197,149) | $(126,664) | $(70,485) | | Financing activities | $481,431 | $252,232 | $229,199 | - The company expects to have sufficient liquidity to fund operations for at least the next twelve months[116] Contractual Obligations There have been no material changes to the company's contractual obligations since the Annual Report on Form 10-K for the year ended September 30, 2023 - No material changes in contractual obligations from the prior annual report[120] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes in the company's exposure to market risk since its Annual Report on Form 10-K for the year ended September 30, 2023 - No material changes in market risk exposure from the prior annual report[121] ITEM 4. CONTROLS AND PROCEDURES This section details the evaluation of disclosure controls and procedures, with the CEO and CFO concluding effectiveness and no material changes to internal controls during the quarter Evaluation of Disclosure Controls and Procedures As of June 30, 2024, the company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective at a reasonable assurance level - The CEO and CFO concluded that disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2024[122] Changes in Internal Control Over Financial Reporting No material changes occurred in internal control over financial reporting during the most recent fiscal quarter, as the company continuously evaluates and improves its controls - No material changes in internal control over financial reporting during the most recent fiscal quarter[123] PART II — OTHER INFORMATION This section provides additional information not covered in financial statements, including legal proceedings, risk factors, equity sales, defaults, and other disclosures ITEM 1. LEGAL PROCEEDINGS The company is occasionally involved in routine legal proceedings, but there have been no material developments in legal proceedings since the Annual Report on Form 10-K for the year ended September 30, 2023 - No material developments in legal proceedings since the prior annual report[125] ITEM 1A. RISK FACTORS There have been no material changes to the risk factors identified in the company's Annual Report on Form 10-K for the year ended September 30, 2023 - No material changes to risk factors from the prior annual report[126] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS There were no unregistered sales of equity securities or use of proceeds to report for the period - None to report[127] ITEM 3. DEFAULTS UPON SENIOR SECURITIES There were no defaults upon senior securities to report for the period - None to report[127] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company - Not Applicable[128] ITEM 5. OTHER INFORMATION This section discloses additional information, including a Rule 10b5-1(c) trading plan adopted by a board member and a significant post-quarter end financing agreement (c) Trading Plans One board member, Victoria Vakiener, adopted a Rule 10b5-1(c) trading plan on May 15, 2024, for shares vesting and subject to sell-to-cover arrangements, with a plan start date of December 16, 2024, and end date of December 31, 2024 Rule 10b5-1(c) Trading Plans Adopted (Quarter Ended June 30, 2024) | Name | Title | Adoption Date | Plan Start Date | Plan End Date | Shares Vesting and Subject to Sell-To-Cover | Shares Being Sold (Subject to Certain Conditions) | | :---------------- | :---------- | :-------------- | :-------------- | :------------ | :------------------------------------------ | :------------------------------------------------ | | Victoria Vakiener | Board Member | 5/15/2024 | 12/16/2024 | 12/31/2024 | n/a | 8,994 | Financing Agreement On August 7, 2024, the company secured a senior secured term loan facility of up to $935.3 million with Sixth Street Lending Partners, including an initial $400.0 million draw, maturing August 7, 2031, at a 15.0% annual interest rate, secured by company assets for working capital and capital expenditures - On August 7, 2024, the company entered into a senior secured term loan facility (Credit Facility) of up to $935.3 million with Sixth Street Lending Partners[130] - The Credit Facility includes an initial $400.0 million draw, a delayed draw term loan of up to $435.3 million, and an uncommitted incremental facility of up to $100.0 million[130] - The facility matures on August 7, 2031, bears an annual interest rate of 15.0%, and is secured on a first-priority basis by substantially all assets of the company and its material subsidiaries[130][131] - Proceeds from the initial loan are permitted for working capital, capital expenditures, and general corporate purposes, while delayed draw proceeds are solely for paying interest on the Credit Facility[130][131] ITEM 6. EXHIBITS This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including the cover page in Inline XBRL format and various certifications - The exhibits include the Inline XBRL formatted cover page and certifications from the Chief Executive Officer and Chief Financial Officer[133][134] SIGNATURE This section contains the official signature for the Quarterly Report on Form 10-Q SIGNATURE The Quarterly Report on Form 10-Q was signed on August 8, 2024, by Kenneth A. Myszkowski, Chief Financial Officer of Arrowhead Pharmaceuticals, Inc - The report was signed by Kenneth A. Myszkowski, Chief Financial Officer, on August 8, 2024[136]