10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from       to       .  

Commission file number 001-38042

ARROWHEAD PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware	46-0408024
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

177 E. Colorado Blvd, Suite 700

Pasadena, California 91105

(626) 304-3400

(Address and telephone number of principal executive offices)

Former name, former address, and former fiscal year, if changed since last report: N/A

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	ARWR	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller Reporting Company	☐
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

The number of shares of the registrant’s common stock outstanding as of May 5, 2022 was 105,736,200.

	Page(s)
PART I — FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS	1
Consolidated Balance Sheets	1
Consolidated Statements of Operations and Comprehensive Income (Loss)	2
Consolidated Statements of Stockholders’ Equity	3
Consolidated Statements of Cash Flows	4
Notes to Consolidated Financial Statements	5
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	18
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	29
ITEM 4. CONTROLS AND PROCEDURES	29
PART II — OTHER INFORMATION	30
ITEM 1. LEGAL PROCEEDINGS	30
ITEM 1A. RISK FACTORS	30
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	31
ITEM 3. DEFAULTS UPON SENIOR SECURITIES	31
ITEM 4. MINE SAFETY DISCLOSURES	31
ITEM 5. OTHER INFORMATION	31
ITEM 6. EXHIBITS	32
SIGNATURE	33

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Arrowhead Pharmaceuticals, Inc.

Consolidated Balance Sheets

(In thousands, except per share amounts)

	(unaudited) March 31, 2022			September 30, 2021
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	86,408		$	184,434
Accounts receivable		1,317			10,255
Prepaid expenses		6,622			4,362
Other current assets		7,796			2,191
Marketable securities		122,575			126,728
Short term investments		192,912			56,627
TOTAL CURRENT ASSETS		417,630			384,597
Property and equipment, net		54,888			48,675
Intangible assets, net		12,813			13,663
Long term investments		201,590			245,595
Right-of-use assets		16,379			17,346
Other assets		275			272
TOTAL ASSETS	$	703,575		$	710,148
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	10,603		$	9,457
Accrued expenses		23,710			14,001
Accrued payroll and benefits		3,765			9,773
Lease liabilities		2,910			2,250
Deferred revenue		97,869			111,055
TOTAL CURRENT LIABILITIES		138,857			146,536
LONG-TERM LIABILITIES
Lease liabilities, net of current portion		22,698			23,295
Deferred revenue, net of current portion		89,754			131,495
TOTAL LONG-TERM LIABILITIES		112,452			154,790
Commitments and contingencies (Note 7)
STOCKHOLDERS’ EQUITY
Arrowhead Pharmaceuticals, Inc. stockholders’ equity:
Common stock, $0.001 par value; 145,000 shares authorized; 105,702 and 104,327 shares issued and outstanding as of March 31, 2022 and September 30, 2021, respectively		198			197
Additional paid-in capital		1,115,373			1,053,386
Accumulated other comprehensive loss		(107	)		(69	)
Accumulated deficit		(663,198	)		(644,692	)
TOTAL STOCKHOLDERS’ EQUITY		452,266			408,822
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	703,575		$	710,148

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Arrowhead Pharmaceuticals, Inc.

Consolidated Statements of Operations and Comprehensive Income (Loss)

(unaudited)

(In thousands, except per share amounts)

	Three Months Ended March 31,					Six Months Ended March 31,
	2022		2021			2022			2021
REVENUE	$	151,805	$	32,811		$	179,244		$	54,113
OPERATING EXPENSES
Research and development		75,985		44,697			141,750			81,251
General and administrative expenses		34,267		16,346			59,262			25,147
TOTAL OPERATING EXPENSES		110,252		61,043			201,012			106,398
OPERATING INCOME (LOSS)		41,553		(28,232	)		(21,768	)		(52,285	)
OTHER INCOME (EXPENSE)
Interest income, net		1,054		1,524			2,210			3,692
Other income (expense)		1,759		(110	)		1,052			1,043
TOTAL OTHER INCOME (EXPENSE)		2,813		1,414			3,262			4,735
INCOME (LOSS) BEFORE INCOME TAXES		44,366		(26,818	)		(18,506	)		(47,550	)
Provision for income taxes		-		-			-			-
NET INCOME (LOSS)		44,366		(26,818	)		(18,506	)		(47,550	)
NET INCOME (LOSS) PER SHARE - BASIC	$	0.42	$	(0.26	)	$	(0.18	)	$	(0.46	)
NET INCOME (LOSS) PER SHARE - DILUTED	$	0.41	$	(0.26	)	$	(0.18	)	$	(0.46	)
Weighted average shares outstanding - basic		105,545		103,867			105,034			103,303
Weighted average shares outstanding - diluted		107,929		103,867			105,034			103,303
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation adjustments		1		(96	)		(38	)		84
COMPREHENSIVE INCOME (LOSS)	$	44,367	$	(26,914	)	$	(18,544	)	$	(47,466	)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Arrowhead Pharmaceuticals, Inc.

Consolidated Statements of Stockholders’ Equity

(unaudited)

(In thousands, except per share amounts)

	Common Stock		Amount ($)		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Totals
Balance at December 31, 2020		103,194	$	195	$	978,655		$	198		$	(524,576	)	$	454,472
Stock-based compensation		-		-		15,359			-			-			15,359
Exercise of stock options		282		-		2,632			-			-			2,632
Common stock - restricted stock units vesting		544		1		(1	)		-			-			-
Foreign currency translation adjustments		-		-		-			(96	)		-			(96	)
Net income (loss) for the three months ended March 31, 2021		-		-		-			-			(26,818	)		(26,818	)
Balance at March 31, 2021		104,020	$	196	$	996,645		$	102		$	(551,394	)	$	445,549
	Common Stock		Amount ($)		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Totals
Balance at December 31, 2021		104,798	$	197	$	1,080,035		$	(108	)	$	(707,564	)	$	372,560
Stock-based compensation		-		-		33,802			-			-			33,802
Exercise of stock options		237		-		1,537			-			-			1,537
Common stock - restricted stock units vesting		667		1		(1	)		-			-			-
Foreign currency translation adjustments		-		-		-			1			-			1
Net income (loss) for the three months ended March 31, 2022		-		-		-			-			44,366			44,366
Balance at March 31, 2022		105,702	$	198	$	1,115,373		$	(107	)	$	(663,198	)	$	452,266

	Common Stock		Amount ($)		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Totals
Balance at September 30, 2020		102,376	$	195	$	965,410		$	18		$	(503,844	)	$	461,779
Stock-based compensation		-		-		23,502			-			-			23,502
Exercise of stock options		820		-		7,734			-			-			7,734
Common stock - restricted stock units vesting		824		1		(1	)		-			-			-
Common stock - issued for cash		-		-		-			-			-			-
Foreign currency translation adjustments		-		-		-			84			-			84
Net income (loss) for the six months ended March 31, 2021		-		-		-			-			(47,550	)		(47,550	)
Balance at March 31, 2021		104,020	$	196	$	996,645		$	102		$	(551,394	)	$	445,549
	Common Stock		Amount ($)		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Totals
Balance at September 30, 2021		104,327	$	197	$	1,053,386		$	(69	)	$	(644,692	)	$	408,822
Stock-based compensation		-		-		58,306			-			-			58,306
Exercise of stock options		444		-		3,682			-			-			3,682
Common stock - restricted stock units vesting		931		1		(1	)		-			-			-
Foreign currency translation adjustments		-		-		-			(38	)		-			(38	)
Net income (loss) for the six months ended March 31, 2022		-		-		-			-			(18,506	)		(18,506	)
Balance at March 31, 2022		105,702	$	198	$	1,115,373		$	(107	)	$	(663,198	)	$	452,266

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Arrowhead Pharmaceuticals, Inc.

Consolidated Statements of Cash Flows

(unaudited)

(In thousands, except per share amounts)

	Six Months Ended March 31,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(18,506	)	$	(47,550	)
Stock-based compensation		58,307			23,502
Depreciation and amortization		5,167			3,766
Unrealized (gains) losses on marketable securities		4,153			(773	)
Amortization/(accretion) of note premiums/discounts		329			193
Changes in operating assets and liabilities:
Accounts receivable		8,938			(109	)
Prepaid expenses and other current assets		(7,914	)		(2,213	)
Deferred revenue		(54,926	)		247,118
Accounts payable		1,146			(1,530	)
Accrued expenses		3,699			2,271
Other		990			276
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES		1,383			224,951
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment		(10,530	)		(11,437	)
Purchases of investments		(148,391	)		(40,000	)
Proceeds from sale of investments		55,781			47,545
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES		(103,140	)		(3,892	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercises of stock options		3,731			7,735
NET CASH PROVIDED BY FINANCING ACTIVITIES		3,731			7,735
NET INCREASE (DECREASE) IN CASH		(98,026	)		228,794
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		184,434			143,583
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	86,408		$	372,377

The accompanying notes are an integral part of these unaudited consolidated financial statements.

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Arrowhead Pharmaceuticals, Inc.

Notes to Consolidated Financial Statements

(unaudited)

Unless otherwise noted, (1) the term “Arrowhead” refers to Arrowhead Pharmaceuticals, Inc., a Delaware corporation and its Subsidiaries, (2) the terms “Company,” “we,” “us,” and “our,” refer to the ongoing business operations of Arrowhead and its Subsidiaries, whether conducted through Arrowhead or a subsidiary of Arrowhead, (3) the term “Subsidiaries” refers to Arrowhead Madison Inc. (“Arrowhead Madison”) and Arrowhead Australia Pty Ltd (“Arrowhead Australia”), (4) the term “Common Stock” refers to Arrowhead’s Common Stock, par value $0.001 per share, (5) the term “Preferred Stock” refers to Arrowhead’s Preferred Stock, par value $0.001 per share, and (6) the term “Stockholder(s)” refers to the holders of Arrowhead’s Common Stock.

NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business and Recent Developments

Arrowhead Pharmaceuticals, Inc. develops medicines that treat intractable diseases by silencing the genes that cause them. Using a broad portfolio of RNA chemistries and efficient modes of delivery, Arrowhead therapies trigger the RNA interference mechanism to induce rapid, deep and durable knockdown of target genes. RNA interference (“RNAi”) is a mechanism present in living cells that inhibits the expression of a specific gene, thereby affecting the production of a specific protein. Arrowhead’s RNAi-based therapeutics leverage this natural pathway of gene silencing. The Company’s pipeline includes ARO-APOC3 for hypertriglyceridemia, ARO-ANG3 for dyslipidemia, ARO-ENaC2 for cystic fibrosis, ARO-DUX4 for facioscapulohumeral muscular dystrophy, ARO-COV for the coronavirus that causes COVID-19 and other possible future pulmonary-borne pathogens, ARO-C3 for complement mediated diseases and ARO-RAGE and ARO-MUC5AC for various muco-obstructive or inflammatory pulmonary conditions. ARO-HSD for liver disease was out-licensed to Glaxosmithkline Intellectual Property (No. 3) Limited (“GSK”) in November 2021.  ARO-XDH is being developed for uncontrolled gout under a collaboration agreement with Horizon Therapeutics Ireland DAC (“Horizon”). JNJ-75220795 (ARO-JNJ1) is being developed by Janssen as a potential treatment for patients with non-alcoholic steatohepatitis (NASH). ARO-AAT for liver disease associated with alpha-1 antitrypsin deficiency (“AATD”) was out-licensed to Takeda Pharmaceuticals U.S.A., Inc. (“Takeda”) in October 2020. JNJ-3989 (formerly referred to as ARO-HBV) for chronic hepatitis B virus was out-licensed to Janssen in October 2018.  Olpasiran (formerly referred to as AMG 890 or ARO-LPA) for cardiovascular disease was out-licensed to Amgen Inc. (“Amgen”) in 2016. While the Company believes that initial ARO-HIF2 Phase 1 clinical data provides proof of concept for the ability to deliver siRNA to RCC tumors, the Company has decided not to pursue further clinical development of ARO-HIF2 based on a number of factors including the evolving competitive landscape for HIF2 inhibitors.

Arrowhead operates lab facilities in Madison, Wisconsin and San Diego, California, where the Company’s research and development activities, including the development of RNAi therapeutics, take place. The Company’s principal executive offices are located in Pasadena, California.

During the first half of fiscal 2022, the Company continued to develop and advance its pipeline and partnered candidates and expanded its facilities to support the Company’s growing pipeline. Several key recent developments include:

i) dosed the first patients in its PALISADE study, a phase 3 clinical study to evaluate the safety and efficacy of ARO-APOC3 in adults with familial chylomicronemia syndrome (FCS);

ii) entered into an exclusive license agreement with GSK for ARO-HSD;

iii) Janssen presented clinical data from REEF-1, a Phase 2b study of different combination regimens, including JNJ-73763989 (JNJ-3989), formerly called ARO-HBV, and/or JNJ-56136379 (JNJ-6379), and a nucleos(t)ide analog (NA) for the treatment of chronic hepatitis B virus infection (CHB);

iv) filed for regulatory clearance to begin a Phase 1/2a study of ARO-C3 and subsequently dosed the first subjects in AROC3-1001, a Phase 1/2 clinical study of ARO-C3, the Company’s investigational RNA interference (RNAi) therapeutic designed to reduce production of complement component 3 (C3) as a potential therapy for various complement mediated diseases;

v) presented additional interim clinical data from AROHSD1001, AROAAT2002, and AROAPOC31001;

vi) completed the purchase of 13 acres of land in the Verona Technology Park in Verona, Wisconsin, which is planned to be the site of an approximately 140,000 square foot drug manufacturing facility and an approximately 115,000 square foot laboratory and office facility and entered into a lease agreement for a new 144,000 square foot laboratory and office facility in San Diego, California.  Both facilities will provide additional space to support the Company’s continued growth;

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vii) completed enrollment in Phase 2b ARCHES-2 study of investigational ARO-ANG3 for patients with mixed dyslipidemia;

viii) filed for regulatory clearance to initiate Phase 1/2a study of ARO-RAGE for treatment of Asthma;

ix) filed for regulatory clearance to initiate Phase 1/2a study of ARO-MUC5AC for treatment of muco-obstructive lung disease;

x) initiated and dosed the first patients in the Phase 2 GATEWAY clinical study of investigational ARO-ANG3 for the treatment of patients with homozygous familial hypercholersterolemia;

xi) decided not to pursue further clinical development of ARO-HIF2 based on a number of factors including the evolving competitive landscape for HIF2 inhibitors.

The Company is actively monitoring the ongoing COVID-19 pandemic. The financial results for the three and six months ended March 31, 2022 were not significantly impacted by COVID-19. Operationally, the Company has experienced delays in its earlier stage programs due to a shortage in non-human primates, which are critical to the Company’s preclinical programs. Additionally, the Company has experienced delays in enrollment in its clinical trials. The Company’s operations at its research and development facilities in Madison, Wisconsin and San Diego, California, and its corporate headquarters in Pasadena, California have continued with limited impact, other than for enhanced safety measures, including work from home policies and intermittent lab supply shortages. However, the Company cannot predict the impact the progression of COVID-19 will have on future financial and operational results due to a variety of factors, including the ability of the Company’s clinical sites to continue to enroll subjects, the ability of the Company’s suppliers to continue to operate, the continued good health and safety of the Company’s employees and the length and severity of the COVID-19 pandemic.

Liquidity

The Consolidated Financial Statements have been prepared in conformity with the accounting principles generally accepted in the United States of America (“GAAP”), which contemplate the continuation of the Company as a going concern.  Historically, the Company’s primary sources of financing have been through the sale of its securities and revenue from its licensing and collaboration agreements. Research and development activities have required significant capital investment since the Company’s inception and are expected to continue to require significant cash expenditure in the future, particularly as the Company’s pipeline of drug candidates and its headcount have both expanded significantly.  Additionally, significant capital investment will be required as the Company’s pipeline matures into later stage clinical trials, as well as with the Company’s plans to increase its internal manufacturing capabilities, as well as expand its footprint in Verona, Wisconsin and San Diego, California. 

At March 31, 2022, the Company had $86.4 million in cash and cash equivalents (including $7.9 million in restricted cash), $192.9 million in short-term investments, $122.6 million in marketable securities and $201.6 million in long-term investments to fund operations.  During the six months ended March 31, 2022, the Company’s cash and investments balance decreased by $9.9 million, which was primarily due to cash being used to fund the Company’s operations, partially offset by the $120.0 million upfront payment received from GSK.  

In total, the Company remains eligible for $4.9 billion in developmental, regulatory and sales milestones and various royalties on net sales from its licensing and collaboration agreements.  The revenue recognition for these collaboration agreements is discussed further in Note 2 below.  

Summary of Significant Accounting Policies

There have been no changes to the significant accounting policies disclosed in the Company’s most recent Annual Report on Form 10-K.

Recent Accounting Pronouncements  

There have been no recent accounting pronouncements that have significantly impacted this Quarterly Report on Form 10-Q, beyond those disclosed in the Company’s most recent Annual Report on Form 10-K.

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NOTE 2. COLLABORATION AND LICENSE AGREEMENTS

Amgen Inc.

On September 28, 2016, the Company entered into two collaboration and license agreements and a common stock purchase agreement with Amgen. Under the Second Collaboration and License Agreement (the “Olpasiran Agreement”), Amgen has received a worldwide, exclusive license to Arrowhead’s novel RNAi Olpasiran (previously referred to as AMG 890 or ARO-LPA) program. These RNAi molecules are designed to reduce elevated lipoprotein(a), which is a genetically validated, independent risk factor for atherosclerotic cardiovascular disease. Under the prior collaboration and license agreement (the “First Collaboration and License Agreement” or the “ARO-AMG1 Agreement”), Amgen received an option to a worldwide, exclusive license for ARO-AMG1, an RNAi therapy for an undisclosed genetically validated cardiovascular target. Under both agreements, Amgen is wholly responsible for clinical development and commercialization. Under the terms of the agreements taken together, the Company has received $35.0 million in upfront payments, $21.5 million in the form of an equity investment by Amgen in the Company’s Common Stock, and $30.0 million in milestone payments, and may receive up to an additional $400.0 million in remaining development, regulatory and sales milestone payments. The Company is further eligible to receive up to low double-digit royalties for sales of products under the Olpasiran Agreement. In July 2019, Amgen informed the Company that it would not be exercising its option for an exclusive license for ARO-AMG1, and as such, there will be no further milestone or royalty payments under the ARO-AMG1 Agreement.     

The Company has evaluated these agreements in accordance with FASB Topics 808 – Collaboration Arrangements and 606 - Revenue for Contracts from Customers. The Company has substantially completed its performance obligations under the Olpasiran Agreement and the ARO-AMG1 Agreement. Future milestones and royalties achieved will be recognized in their entirety when earned. In July 2020, Amgen initiated a Phase 2 clinical study of Olpasiran, which resulted in a $20.0 million milestone payment to the Company. During the three and six months ended March 31, 2022 and 2021, the Company recognized $0 and $0 of revenue associated with its agreement with Amgen, respectively. As of March 31, 2022, there were $0 in contract assets recorded as accounts receivable and $0 contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.

Janssen Pharmaceuticals, Inc.

On October 3, 2018, the Company entered into a License Agreement (the “Janssen License Agreement”) and a Research Collaboration and Option Agreement (the “Janssen Collaboration Agreement”) with Janssen, part of the Janssen Pharmaceutical Companies of Johnson & Johnson.  The Company also entered into a stock purchase agreement with JJDC (“JJDC Stock Purchase Agreement”).  Under the Janssen License Agreement, Janssen has received a worldwide, exclusive license to the Company’s JNJ-3989 (ARO-HBV) program, the Company’s third-generation subcutaneously administered RNAi therapeutic candidate being developed as a potential therapy for patients with chronic hepatitis B virus infection. Beyond the Company’s Phase 1/2 study of JNJ-3989 (ARO-HBV), which the Company was responsible for completing, Janssen is wholly responsible for clinical development and commercialization of JNJ-3989.  Under the Janssen Collaboration Agreement, Janssen was able to select three new targets against which Arrowhead would develop clinical candidates.  These candidates were subject to certain restrictions and do not include candidates that already were in the Company’s pipeline.  The Company was obligated to perform discovery, optimization and preclinical research and development, entirely funded by Janssen, which on its own or in combination with Janssen development work, would have been sufficient to allow the filing of a U.S. Investigational New Drug Application or equivalent, at which time Janssen would have the option to take an exclusive license. If the option was exercised, Janssen would have been wholly responsible for clinical development and commercialization of each optioned candidate.  Under the terms of the agreements taken together, the Company has received $175.0 million as an upfront payment, $75.0 million in the form of an equity investment by JJDC in Arrowhead Common Stock under the JJDC Stock Purchase Agreement, and milestone and option payments totaling $73.0 million, and the Company may receive up to $1.6 billion in development and sales milestones payments for the Janssen License Agreement, and up to $0.6 billion in development and sales milestone payments for the remaining target covered under the Janssen Collaboration Agreement. The Company is further eligible to receive tiered royalties on product sales up to mid-teens under the Janssen License Agreement and up to low teens under the Janssen Collaboration Agreement. During the three months ended March 31, 2022, Janssen’s option period expired unexercised for two of the three candidates (ARO-JNJ2 and ARO-JNJ3) under the Janssen Collaboration Agreement.

The Company has evaluated these agreements in accordance with FASB Topics 808 – Collaboration Arrangements and 606 - Revenue for Contracts from Customers.  At the inception of these agreements, the Company identified one distinct performance obligation.  Regarding the Janssen License Agreement, the Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibility to complete the Phase 1/2 study of JNJ-3989 (ARO-HBV) and the Company’s responsibility to ensure certain manufacturing of JNJ-3989 (ARO-HBV) drug product is completed and delivered to Janssen (the “Janssen R&D Services”).  Due to the specialized and unique nature of these Janssen R&D Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation.  The Company also determined that Janssen’s option to require the Company to develop up to three new targets is not a material right and, thus, not a performance obligation at the onset of the agreement.  The consideration for this option is accounted for separately.

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The Company determined the transaction price totaled approximately $252.7 million, which includes the upfront payment, the premium paid by JJDC for its equity investment in the Company, two $25.0 million milestone payments related to JNJ-3989 (ARO-HBV), and estimated payments for reimbursable Janssen R&D Services to be performed.  The Company has allocated the total $252.7 million initial transaction price to its one distinct performance obligation for the JNJ-3989 (ARO-HBV) license and the associated Janssen R&D Services.  The Company has recognized this transaction price in its entirety as of September 30, 2021, as its performance obligations were substantially completed. Future milestones and royalties achieved will be recognized in their entirety when earned.  During the three months ended March 31, 2022 and 2021, the Company recognized approximately $0 and $7.5 million of revenue associated with this performance obligation, respectively. During the six months ended March 31, 2022 and 2021, the Company recognized approximately $0 and $20.2 million of revenue associated with this performance obligation, respectively. As of March 31, 2022, there were $0 in contract assets recorded as accounts receivable, and $0 of contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.  

The Company has conducted its discovery, optimization and preclinical research and development of JNJ-75220795 (ARO-JNJ1), ARO-JNJ2, and ARO-JNJ3 under the Janssen Collaboration Agreement.  All costs and labor hours spent by the Company have been entirely funded by Janssen. During the three months ended March 31, 2022, Janssen’s option period expired unexercised for two of the three candidates (ARO-JNJ2 and ARO-JNJ3) under the Janssen Collaboration Agreement. During the three months ended March 31, 2022 and 2021, the Company recognized $0.1 million and $0.1 million of revenue associated with these efforts, respectively. During the six months ended March 31, 2022 and 2021, the Company recognized $0.1 million and $0.3 million of revenue associated with these efforts, respectively. As of March 31, 2022, there were $0.1 million of contract assets recorded as accounts receivable and $0 of contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.

Takeda Pharmaceuticals U.S.A., Inc.

On October 7, 2020, the Company entered into an Exclusive License and Co-funding agreement (the “Takeda License Agreement”) with Takeda.  Under the Takeda License Agreement, Takeda and the Company will co-develop the Company’s ARO-AAT program, the Company’s second-generation subcutaneously administered RNAi therapeutic candidate being developed as a treatment for liver disease associated with alpha-1 antitrypsin deficiency. Within the United States, ARO-AAT, if approved, will be co-commercialized under a 50/50 profit sharing structure. Outside the United States, Takeda will lead the global commercialization strategy and will receive an exclusive license to commercialize ARO-AAT, while the Company will be eligible to receive tiered royalties of 20% to 25% on net sales.  In January 2021, the Company received $300.0 million as an upfront payment and is eligible to receive potential development, regulatory and commercial milestones of up to $740.0 million.  

The Company has evaluated the Takeda License Agreement in accordance with FASB Topics 808 – Collaborative Arrangements and 606 - Revenue for Contracts from Customers. At the inception of the Takeda License Agreement, the Company identified one distinct performance obligation.  The Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibilities to complete the initial portion of the SEQUOIA study, to complete the ongoing Phase 2 AROAAT2002 study and to ensure certain manufacturing of ARO-AAT drug product is completed and delivered to Takeda (the “Takeda R&D Services”).  Due to the specialized and unique nature of these Takeda R&D Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation.  Beyond the Takeda R&D Services, which are the responsibility of the Company, Takeda will be responsible for managing future clinical development and commercialization outside the United States.  Within the United States, the Company will also participate in co-development and co-commercialization efforts and will co-fund these efforts with Takeda as part of the 50/50 profit sharing structure within the United States.  The Company considers the collaborative activities, including the co-development and co-commercialization, to be a separate unit of account within Topic 808, and as such, these co-funding amounts will be recorded as Research and Development Expenses or General and Administrative Expenses, as appropriate.  

The Company determined the initial transaction price totaled $300.0 million, which includes the upfront payment.  The Company has excluded any future milestones or royalties from this transaction price to date.  The Company has allocated the total $300.0 million initial transaction price to its one distinct performance obligation for the ARO-AAT license and the associated Takeda R&D Services.  Revenue will be recognized using a proportional performance method (based on actual patient visits completed versus total estimated visits completed for the ongoing SEQUOIA and AROAAT2002 clinical studies). Revenue for the three months ended March 31, 2022 and 2021 was $20.8 million and $25.4 million, respectively. Revenue for the six months ended March 31, 2022 and 2021 was $41.6 million and $33.6 million, respectively. As of March 31, 2022, there were $0 in contract assets recorded as accounts receivable, $77.9 million in contract liabilities recorded as deferred revenue and $89.8 million in contract liabilities recorded as deferred revenue, net of the current portion, and $5.0 million in contract liabilities recorded as accrued expenses.  The $5.0 million in accrued expenses was primarily driven by co-development and co-commercialization activities.  

Horizon Therapeutics Ireland DAC

On June 18, 2021, the Company entered into the Horizon License Agreement with Horizon.  Under the Horizon License Agreement, Horizon received a worldwide exclusive license for ARO-XDH, a previously undisclosed discovery-stage investigational RNAi therapeutic being developed by the Company as a potential treatment for people with uncontrolled gout. The Company will

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conduct all activities through the preclinical stages of development of ARO-XDH, and Horizon will be wholly responsible for clinical development and commercialization of ARO-XDH. In July 2021, the Company received $40 million as an upfront payment and is eligible to receive up to $660 million in potential development, regulatory and sales milestones.  The Company is also eligible to receive royalties in the low- to mid-teens range on net product sales.  

The Company has evaluated the Horizon License Agreement in accordance with FASB Topics 808 – Collaborative Arrangements and 606 - Revenue for Contracts from Customers. At the inception of the Horizon License Agreement, the Company identified one distinct performance obligation.  The Company determined that the key deliverables included the license and certain R&D services, including the Company’s responsibilities to conduct all activities through the preclinical stages of development of ARO-XDH (the “Horizon R&D Services”).  Due to the specialized and unique nature of these Horizon R&D Services and their direct relationship with the license, the Company determined that these deliverables represented one distinct bundle and, thus, one performance obligation.  Beyond the Horizon R&D Services, which are the responsibility of the Company, Horizon will be responsible for managing future clinical development and commercialization of ARO-XDH.  

The Company determined the initial transaction price totaled $40.0 million, including the upfront payment.  The Company has excluded any future estimated milestones or royalties, from this transaction price to date.  The Company will allocate the total $40.0 million initial transaction price to its one distinct performance obligation for the ARO-XDH license and the associated Horizon R&D Services. Revenue will be recognized on a straight-line basis over the estimated timeframe for completing the Horizon R&D Services.  The Company determined that the straight-line basis was appropriate as its efforts will be expended evenly over the course of completing its performance obligation. Revenue for the three months ended March 31, 2022 and 2021 was $6.7 million and $0, respectively. Revenue for the six months ended March 31, 2022 and 2021 was $13.3 million and $0, respectively. As of March 31, 2022, there were $0 million in contract assets recorded as accounts receivable, $20.0 million in contract liabilities recorded as deferred revenue.

         The Company has manufactured ARO-XDH material for Horizon in furtherance of the research plan entered into pursuant to the Horizon License Agreement, for which the Company has been reimbursed for its costs. During the three and six months ended March 31, 2022 and 2021, the Company recognized $1.3 million and $0 with these efforts, respectively. As of March 31, 2022, there were $1.3 million of contract assets recorded as accounts receivable and $0 of contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.  
 

Glaxosmithkline Intellectual Property (No. 3) Limited

On November 22, 2021, the Company entered into an Exclusive License Agreement (the “GSK License Agreement”) with GSK.  Under the GSK License Agreement, GSK has received an exclusive license for ARO-HSD, the Company’s investigational RNAi therapeutic being developed as a treatment for patients with alcohol-related and nonalcohol related liver diseases, such as nonalcoholic steatohepatitis (NASH).  The exclusive license is worldwide with the exception of greater China, for which the Company retained rights to develop and commercialize.  Beyond the Company’s Phase 1/2 study of (ARO-HSD), which the Company is responsible for completing, GSK is wholly responsible for clinical development and commercialization of ARO-HSD in its territory. Under the terms of the agreement, the Company has received an upfront payment of $120 million and is eligible for additional payments of $30 million at the start of Phase 2 and $100 million upon achieving a successful Phase 2 trial readout and the first patient dosed in a Phase 3 trial. Furthermore, should the Phase 3 trial read out positively, and the potential new medicine receives regulatory approval in major markets, the deal provides for commercial milestone payments to the Company of up to $190 million at first commercial sale, and up to $590 million in sales-related milestone payments. The Company is further eligible to receive tiered royalties on net product sales in a range of mid-teens to twenty percent.

The Company has evaluated the GSK License Agreement in accordance with FASB Topics 808 – Collaborative Arrangements and 606 - Revenue for Contracts from Customers. At the inception of the GSK License Agreement, the Company identified one distinct performance obligation.  The Company determined that the key deliverables included the license and certain R&D services, including the Company’s responsibility to complete the Phase 1/2 study, (the “GSK R&D Services”).  Due to the specialized and unique nature of these GSK R&D Services and their direct relationship with the license, the Company determined that these deliverables represented one distinct bundle and, thus, one performance obligation.  Beyond the GSK R&D Services, which are the responsibility of the Company, GSK will be responsible for managing future clinical development and commercialization in its territory.  

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The Company determined the initial transaction price totaled $120.0 million, including the upfront payment. The $120.0 million upfront payment was collected in January 2022. The Company has excluded any future estimated milestones or royalties from this transaction price to date.  The Company has allocated the total $120.0 million initial transaction price to its one distinct performance obligation for the ARO-HSD license and the associated GSK R&D Services.  As the Company has completed its performance obligation related to this agreement, the upfront payment of $120.0 million will be fully recognized as of the three and six months ended March 31, 2022.  Revenue for the three and six months ended March 31, 2022 and 2021 was $120.0 million and $0, respectively. As of March 31, 2022, there were $0 in contract assets recorded as accounts receivable, $0 in contract liabilities recorded as deferred revenue.

NOTE 3. PROPERTY AND EQUIPMENT

The following table summarizes the Company’s major classes of property and equipment:

	March 31, 2022			September 30, 2021
	(In thousands)
Computers, software, office equipment and furniture	$	2,272		$	2,170
Research equipment		28,370			27,500
Leasehold improvements		42,017			41,524
Construction in Progress		6,414			345
Land		2,996			-
Total gross fixed assets		82,069			71,539
Less: Accumulated depreciation and amortization		(27,181	)		(22,864	)
Property and equipment, net	$	54,888		$	48,675

Depreciation and amortization expense for property and equipment for the three months ended March 31, 2022 and 2021 was $2.2 million and $1.5 million, respectively. Depreciation and amortization expense for property and equipment for the six months ended March 31, 2022 and 2021 was $4.3 million and $2.9 million, respectively. Construction in Progress relates to the Company’s Verona and San Diego research facilities. Land relates to the Company’s Verona, Wisconsin research facility.

NOTE 4. INVESTMENTS

Investments at March 31, 2022 primarily consisted of corporate bonds that have maturities of less than 36 months, a certificate of deposit and marketable equity securities. The Company’s corporate bonds consist of both short-term and long-term bonds and are classified as “held-to-maturity” on the Company’s Consolidated Balance Sheets. The Company’s certificate of deposit matures in less than 12 months and is classified as “held-to-maturity” on the Company’s Consolidated Balance Sheet, or classified as cash and cash equivalents if the corporate bonds are purchased 90 days or less from maturity.  The Company’s marketable equity securities consist of mutual funds that primarily invest in U.S. government bonds, U.S. government agency bonds, corporate bonds and other asset-backed debt securities. Dividends from these funds are automatically re-invested.  The Company may also invest excess cash balances in money market accounts, government-sponsored enterprise securities, and/or commercial paper. These securities are classified as cash and cash equivalents on the Company’s Consolidated Balance Sheet. The Company accounts for its held to maturity investments in accordance with FASB ASC 320, Investments – Debt and Equity Securities and its marketable equity securities in accordance with ASC 321, Investments – Equity Securities.  We did not record any impairment charges related to our marketable debt securities during the three and six months ended March 31, 2022.

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The following tables summarize the Company’s short-term and long-term investments and marketable securities as of March 31, 2022 and September 30, 2021 by measurement category:

	As of March 31, 2022
	(In thousands)
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Classified as Cash Equivalents
Commercial notes (due within ninety days)	$	26,678	$	1	$	(1	)	$	26,678
Classified as Held to Maturity
Commercial notes (due within one year)	$	142,912	$	225	$	(307	)	$	142,830
Commercial notes (due within one through three years)	$	201,590	$	-	$	(5,864	)	$	195,726
Certificate of deposit (due within one year)	$	50,000	$	-	$	-		$	50,000
Classified as Marketable Securities
Marketable securities	$	128,805	$	-	$	(6,230	)	$	122,575
Total	$	549,985	$	226	$	(12,402	)	$	537,809
	As of September 30, 2021
	(In thousands)
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Classified as Held to Maturity
Commercial notes (due within one year)	$	56,627	$	803	$	-		$	57,430
Commercial notes (due within one through three years)	$	195,595	$	1,151	$	(103	)	$	196,643
Certificate of deposit (due within one through two years)	$	50,000	$	-	$	-		$	50,000
Classified as Marketable Securities
Marketable securities	$	127,481	$	-	$	(753	)	$	126,728
Total	$	429,703	$	1,954	$	(856	)	$	430,801

NOTE 5. INTANGIBLE ASSETS

Intangible assets subject to amortization include patents and a license agreement capitalized as part of the Novartis RNAi asset acquisition in March 2015. The license agreement associated with the Novartis RNAi asset acquisition is being amortized over the estimated life remaining at the time of acquisition, which was 21 years, and the accumulated amortization of the asset is $1.1 million.  The patents associated with the Novartis RNAi asset acquisition are being amortized over the estimated life remaining at the time of acquisition, which was 14 years, and the accumulated amortization of the assets is $11.0 million. Amortization expense for the three months ended March 31, 2022 and 2021 was $0.4 million and $0.4 million, respectively. Amortization expense for the six months ended March 31, 2022 and 2021 was $0.9 million and $0.9 million, respectively. Amortization expense is expected to be $0.9 million for the remainder of fiscal 2022, $1.7 million in 2023, $1.7 million in 2024, $1.7 million in 2025, $1.7 million in 2026 and $5.2 million thereafter.

The following table provides details on the Company’s intangible asset balances:

	Intangible Assets Subject to Amortization
	(in thousands)
Balance at September 30, 2021	$	13,663
Impairment		-
Amortization		(850	)
Balance at March 31, 2022	$	12,813

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NOTE 6. STOCKHOLDERS’ EQUITY

At March 31, 2022, the Company had a total of 150,000,000 shares of capital stock authorized for issuance, consisting of 145,000,000 shares of Common Stock, par value $0.001 per share, and 5,000,000 shares of Preferred Stock, par value $0.001 per share.

At March 31, 2022, 105,702,499 shares of Common Stock were outstanding.  At March 31, 2022, 14,054,083 shares of Common Stock were reserved for issuance upon exercise of options and vesting of restricted stock units granted or available for grant under Arrowhead’s 2004 Equity Incentive Plan, 2013 Incentive Plan, and 2021 Incentive Plan, as well as for inducement grants made to new employees under Rule 5635(c)(4) of the Nasdaq Listing Rules.

In August 2020, the Company entered into an Open Market Sale Agreement (the “ATM Agreement”), pursuant to which the Company may, from time to time, sell up to $250,000,000 in shares of the Company’s Common Stock through Jefferies LLC, acting as the sales agent and/or principal, in an at-the-market offering. The Company is not required to sell shares under the ATM Agreement. The Company will pay Jefferies LLC a commission of up to 3.0% of the aggregate gross proceeds received from all sales of the common stock under the ATM Agreement. Unless otherwise terminated, the ATM Agreement continues until the earlier of selling all shares available under the ATM Agreement or December 2, 2022. At March 31, 2022, no shares have been sold under the ATM Agreement.

NOTE 7. COMMITMENTS AND CONTINGENCIES

Litigation

From time to time, the Company may be subject to various claims and legal proceedings in the ordinary course of business.  If the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount is reasonably estimable, the Company will accrue a liability for the estimated loss. There were no contingent liabilities recorded as of March 31, 2022.

Commitments

On December 20, 2021, the Company completed a purchase of 13 acres of land in the Verona Technology Park in Verona, WI, which is planned to be the site of an approximately 140,000 square foot drug manufacturing facility and an approximately 115,000 square foot laboratory and office facility to support process development and analytical activities. Arrowhead intends to invest between $200 million and $250 million into the buildout of the facilities. As part of this acquisition, the Company also entered into a development agreement with the City of Verona to construct certain infrastructure improvements within the TIF district, and will be reimbursed by the City of Verona by future tax increment revenue generated from the developed property. The total amount of funding that City of Verona will pay as reimbursements under the TIF program for these improvements is not guaranteed and will depend on future tax revenues generated from the developed property.

Technology License Commitments

The Company has licensed from third parties the rights to use certain technologies for its research and development activities, as well as in any products the Company may develop using these licensed technologies. These agreements and other similar agreements often require milestone and royalty payments.  Milestone payments, for example, may be required as the research and development process progresses through various stages of development, such as when clinical candidates enter or progress through clinical trials, upon a new drug application and upon certain sales level milestones.  These milestone payments could amount to the mid to upper double-digit millions of dollars. During the three and six months ended March 31, 2022 and 2021, the Company did not reach any milestones. Under certain agreements, the Company may be required to make mid to high single-digit percentage royalty payments based on a percentage of sales of the relevant products.    

NOTE 8. LEASES

Leases

In April 2019, the Company entered into a lease for its corporate headquarters in Pasadena, California.  The 91 month office building lease between the Company and 177 Colorado Owner, LLC is for approximately 24,000 square feet of office space located at 177 E. Colorado Blvd, Pasadena, California.  The increased capacity of this new office space compared to the Company’s prior corporate headquarters will accommodate increased personnel as the Company’s pipeline of drug candidates expands and moves closer to market. Lease payments began on September 30, 2019 and are estimated to total approximately $8.7 million over the term.  The lease expires on April 30, 2027.  The Company has paid approximately $3.5 million for leasehold improvements, net of tenant improvement allowances.  The lease contains an option to renew for one term of five years. The exercise of this option was not determined to be reasonably certain and thus was not included in lease liabilities on the Company’s Consolidated Balance Sheet at March 31, 2022. On October 23, 2020, the Company entered into a lease expansion to add an additional approximately 24,000 square feet of office space at the same location for its corporate headquarters. Lease payments for the expansion began in July 2021 and the lease for the expansion expires in April 2027. The lease payments for the expansion are expected to total $6.9 million.  The Company has paid approximately $4.0 million of leasehold improvements, net of tenant improvement allowances, for the lease expansion.  The increased capacity of this additional office space compared to the Company’s current corporate headquarters is intended to accommodate increased personnel as the Company’s pipeline of drug candidates continues to expand and move closer to market. 

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In January 2016, the Company entered into a lease for its research facility in Madison, Wisconsin.  The lease was for approximately 60,000 square feet of office and laboratory space and had an expiration date of September 30, 2026. The lease was amended in January 2019 and May 2020 to expand the rentable square feet by an additional 40,000 square feet and to extend the lease expiration date to September 30, 2031. Lease payments are estimated to total approximately $26.2 million for the term. The Company incurred approximately $11.0 million of leasehold improvements for the additional 40,000 square feet, net of tenant improvement allowances. The lease contains two options to renew for two terms of five years. The exercise of these options were not determined to be reasonably certain and thus was not included in lease liabilities on the Company’s Consolidated Balance Sheet at March 31, 2022.  In November 2020 and December 2020, the Company entered into amendments to expand the rentable square space by an additional 10,743 square feet and these amendments added a total of approximately $1.2 million of lease payments for the remainder of the term.            

In March 2020, the Company entered into a sublease agreement for additional research and development facility space in San Diego, California.  The Sublease provides additional space needed to accommodate the recent growth of the Company’s personnel and discovery efforts. The Sublease is for approximately 21,000 rentable square feet.  The term of the Sublease commenced on April 1, 2020 and will end on January 14, 2023.  Sublease payments are estimated to total approximately $2.0 million over the term.

On November 19, 2021, the Company entered into a new lease for a San Diego, California research facility.  The 15-year lease is for approximately 144,000 square feet of office and research and development laboratory space to be constructed in San Diego, California.  This lease will replace the Company’s current research facility sublease for property located in San Diego, California.  The increased capacity of this new facility compared to the Company’s current research facility in San Diego will accommodate increased personnel for the Company’s expanding pipeline of current and future drug candidates. The estimated rent commencement date for the lease is in May 2023, after construction and leasehold improvements have been completed.  The lease payments, which begin on the rent commencement date, will be approximately $119.0 million over the initial 15-year term.  The Company also estimates payments for operating expenses to be approximately $3.0 million for the first year of the lease, and these payments will continue throughout the initial 15-year term. The Company expects to pay approximately $31.0 million for leasehold improvements, net of tenant improvement allowances.  Pursuant to the lease, within twelve months of the expiration of the initial 15-year term, the Company has the option to extend the lease for up to one additional ten-year term, with certain annual increases in base rent. No lease liabilities have been recorded as of March 31, 2022 as the lease commencement date has not yet occurred.

Operating lease cost during the three months ended March 31, 2022 and 2021 was $1.3 million and $1.1 million, respectively. Operating lease cost during the six months ended March 31, 2022 and 2021 was $2.6 million and $2.0 million, respectively. Variable lease costs for the three months ended March 31, 2022 and 2021 was $0.1 million and $0.2 million, respectively. Variable lease costs for the six months ended March 31, 2022 and 2021 was $0.3 million and $0.5 million, respectively. There was no short-term lease cost during the three and six months ended March 31, 2022 and 2021.

The following table presents payments of operating lease liabilities on an undiscounted basis as of March 31, 2022:

	(in thousands)
2022 (remainder of fiscal year)	$	2,537
2023		4,786
2024		4,621
2025		4,749
2026		5,050
2027 and thereafter		13,200
Total	$	34,943
Less imputed interest	$	(9,335	)
Total operating lease liabilities (includes current portion)	$	25,608

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Cash paid for the amounts included in the measurement of the operating lease liabilities on the Company’s Consolidated Balance Sheet and included in Other changes in operating assets and liabilities within cash flows from operating activities on the Company’s Consolidated Statements of Cash Flows for the six months ended March 31, 2022 and 2021 was $2.2 million and $1.4 million, respectively. The weighted-average remaining lease term and weighted-average discount rate for all leases as of March 31, 2022 was 7.6 years and 8.5%, respectively.

NOTE 9. STOCK-BASED COMPENSATION

Arrowhead has three plans that provide for equity-based compensation. Under the 2004 Equity Incentive Plan and the 2013 Incentive Plan, as of March 31, 2022, 218,107 and 4,183,395 shares, respectively, of Arrowhead’s Common Stock are reserved for the grant of stock options, stock appreciation rights, and restricted stock unit awards to employees, consultants and others. No further grants may be made under the 2004 Equity Incentive Plan.  As of March 31, 2022, there were options granted and outstanding to purchase 218,107 and 1,871,258 shares of Common Stock under the 2004 Equity Incentive Plan and the 2013 Incentive Plan, respectively, and there were 2,312,137 restricted stock units granted and outstanding under the 2013 Incentive Plan. As of March 31, 2022, there were 857,290 shares reserved for options and 691,750 shares reserved for restricted stock units issued as inducement grants to new employees outside of equity compensation plans. As of March 31, 2022, there were 3,000 shares of Common Stock reserved for options and 1,474,350 shares of Common Stock reserved for restricted stock units granted and outstanding under the 2021 Incentive Plan.  As of March 31, 2022, the total number of shares available under the 2021 Incentive Plan was 6,635,816 shares, which includes 110,791 shares that were forfeited under the 2013 Incentive Plan.

Stock Options

The following table summarizes information about stock options:

	Number of Options Outstanding			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Balance at September 30, 2021		3,456,239		$	19.60
Granted		-			-
Cancelled		(61,820	)	44.77
Exercised		(444,764	)	8.28
Balance at March 31, 2022		2,949,655		$	20.78	5.4 years	$	83,259,543
Exercisable at March 31, 2022		2,342,356		$	15.41	4.8 years	$	75,982,912

Stock-based compensation expense related to stock options for the three months ended March 31, 2022 and 2021 was $2.7 million and $3.3 million, respectively. Stock-based compensation expense related to stock options for the six months ended March 31, 2022 and 2021 was $5.7 million and $6.4 million, respectively. For non-qualified stock options, the expense creates a timing difference, resulting in a deferred tax asset, which is fully reserved by a valuation allowance.

The grant date fair value of the options granted by the Company for the three months ended March 31, 2022 and 2021 was $0 and $1.4 million, respectively. The grant date fair value of the options granted by the Company for the six months ended March 31, 2022 and 2021 was $0 and $8.1 million, respectively.  

The intrinsic value of the options exercised during the three months ended March 31, 2022 and 2021 was $10.8 million and $20.9 million, respectively. The intrinsic value of the options exercised during the six months ended March 31, 2022 and 2021 was $23.3 million and $52.8 million, respectively.

As of March 31, 2022, the pre-tax compensation expense for all outstanding unvested stock options in the amount of $18.6 million will be recognized in the Company’s results of operations over a weighted average period of 1.9 years.

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The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which do not have vesting restrictions and are fully transferable. The determination of the fair value of each stock option is affected by the Company’s stock price on the date of grant, as well as assumptions regarding a number of highly complex and subjective variables. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

The assumptions used to value stock options are as follows:

	Six Months Ended March 31,
	2022	2021
Dividend yield	N/A		-
Risk-free interest rate	N/A	0.4 – 0.6%
Volatility	N/A	86.6 – 90.4%
Expected life (in years)	N/A		6.25
Weighted average grant date fair value per share of options granted	N/A	$	48.62

The dividend yield is zero as the Company currently does not pay a dividend.

The risk-free interest rate is based on that of the U.S. Treasury bond.

Volatility is estimated based on volatility average of the Company’s Common Stock price.

Restricted Stock Units

Restricted stock units (“RSUs”), including time-based, market condition-based, and performance condition-based awards, have been granted under the Company’s 2013 Incentive Plan, 2021 Incentive Plan, and as inducements grants granted outside of the Company’s equity-based compensation plans under Rule 5635(c)(4) of the Nasdaq Listing Rules.  At vesting, each outstanding RSU will be exchanged for one share of the Company’s Common Stock. RSU awards generally vest subject to the satisfaction of service requirements or the satisfaction of both service requirements and achievement of certain performance targets.  

The following table summarizes the activity of the Company’s RSUs:

	Number of RSUs			Weighted- Average Grant Date Fair Value Per Share
Unvested at September 30, 2021		3,831,850		$	61.24
Granted		1,605,450			56.73
Vested		(931,063	)		49.25
Forfeited		(37,625	)		63.42
Unvested at March 31, 2022		4,468,612		$	62.10

During the three months ended March 31, 2022 and 2021, the Company recorded $28.2 million and $12.1 million of expense related to RSUs, respectively. During the six months ended March 31, 2022 and 2021, the Company recorded $49.7 million and $17.1 million of expense related to RSUs, respectively. Such expense is included in stock-based compensation expense in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss). For RSUs, the expense creates a timing difference, resulting in a deferred tax asset, which is fully reserved by a valuation allowance.  

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For RSUs, the grant date fair value of the award is based on the Company’s closing stock price at the grant date, with consideration given to the probability of achieving performance conditions for performance-based awards. The grant date fair value of the RSUs granted by the Company for the three months ended March 31, 2022 and 2021 was $83.4 million and $101.6 million, respectively. The grant date fair value of the RSUs granted by the Company for the six months ended March 31, 2022 and 2021 was $91.1 million and $109.0 million, respectively.

As of March 31, 2022, the pre-tax compensation expense for all unvested RSUs in the amount of $206.8 million will be recognized in the Company’s results of operations over a weighted average period of 2.7 years.  

NOTE 10. FAIR VALUE MEASUREMENTS

The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. Additionally, the Company is required to provide disclosure and categorize assets and liabilities measured at fair value into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable measure of fair value while Level 3 generally requires significant management judgment. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The fair value hierarchy is defined as follows:

Level 1—Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly.

Level 3—Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

The following table summarizes fair value measurements at March 31, 2022 and September 30, 2021 for assets and liabilities measured at fair value on a recurring basis:  

March 31, 2022:

	Level 1		Level 2		Level 3		Total
	(in thousands)
Classified as Cash and cash equivalents
Commercial Notes	$	-	$	26,678	$	-	$	26,678
Classified as Marketable Securities
Marketable securities	$	122,575	$	-	$	-	$	122,575
Classified as Held to Maturity
Short-term investments	$	-	$	142,830	$	-	$	142,830
Long-term investments	$	-	$	195,726	$	-	$	195,726
Certificate of deposits	$	50,000	$	-	$	-	$	50,000
Classified as Contingent Consideration
Contingent consideration	$	-	$	-	$	-	$	-

September 30, 2021:

	Level 1		Level 2		Level 3		Total
	(in thousands)
Classified as Marketable Securities
Marketable securities	$	126,728	$	-	$	-	$	126,728
Classified as Held to Maturity
Short-term investments	$	-	$	57,430	$	-	$	57,430
Long-term investments	$	-	$	196,643	$	-	$	196,643
Certificate of deposit	$	50,000	$	-	$	-	$	50,000
Classified as Contingent Consideration
Contingent consideration	$	-	$	-	$	-	$	-

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NOTE 11. SUBSEQUENT EVENTS

Visirna Therapeutics, Inc.    

   On April 25, 2022, Arrowhead Pharmaceuticals, Inc., entered into definitive agreements to form a joint venture, Visirna Therapeutics, Inc. (“Visirna”) with Vivo Capital (“Vivo”) through which the Company and Vivo intend to expand the reach of innovative medicines in Greater China. The Company licensed to Visirna the exclusive rights to develop and commercialize four of Arrowhead’s investigational RNA interference (RNAi) therapeutic candidates for cardiometabolic diseases in mainland China, Hong Kong, Macau, and Taiwan. Vivo will provide initial funding of $60.0 million to Visirna. The Company has a majority stake in Visirna following this initial funding and is further eligible to receive potential royalties on commercial sales.

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ITEM  2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and we intend that such forward-looking statements be subject to the safe harbors created thereby. For this purpose, any statements contained in this Quarterly Report on Form 10-Q except for historical information may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “plan,” “project,” “could,” “estimate,” “target,” “forecast,” or “continue” or the negative of these words or other variations thereof or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to projections of our future financial performance, trends in our business, or other characterizations of future events or circumstances are forward-looking statements.

The forward-looking statements included herein are based on current expectations of our management based on available information and involve a number of risks and uncertainties, all of which are difficult or impossible to predict accurately, and many of which are beyond our control. In addition, many of these risks and uncertainties may be exacerbated by the COVID-19 pandemic and any worsening of the global business and economic environment as a result. As such, our actual results may differ materially from those expressed in any forward-looking statements. Readers should carefully review the factors identified in our most recent Annual Report on Form 10-K under the caption “Risk Factors” as well as the additional risks and uncertainties described in other documents we file from time to time with the Securities and Exchange Commission (“SEC”), including this Quarterly Report on Form 10-Q for the quarter ended March 31, 2022. In light of the significant risks and uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by us or any other person that such results will be achieved, and readers are cautioned not to place undue reliance on such forward-looking information. Except as may be required by law, we disclaim any intent to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

Description of Business

Unless otherwise noted, (1) the term “Arrowhead” refers to Arrowhead Pharmaceuticals, Inc., a Delaware corporation and its Subsidiaries, (2) the terms “Company,” “we,” “us,” and “our,” refer to the ongoing business operations of Arrowhead and its Subsidiaries, whether conducted through Arrowhead or a subsidiary of Arrowhead, (3) the term “Subsidiaries” refers to Arrowhead Madison Inc. (“Arrowhead Madison”) and Arrowhead Australia Pty Ltd (“Arrowhead Australia”), (4) the term “Common Stock” refers to Arrowhead’s Common Stock, par value $0.001 per share, (5) the term “Preferred Stock” refers to Arrowhead’s Preferred Stock, par value $0.001 per share, and (6) the term “Stockholder(s)” refers to the holders of Arrowhead Common Stock.

Overview

Arrowhead Pharmaceuticals, Inc. develops medicines that treat intractable diseases by silencing the genes that cause them. Using a broad portfolio of RNA chemistries and efficient modes of delivery, Arrowhead therapies trigger the RNA interference mechanism to induce rapid, deep and durable knockdown of target genes. RNA interference (“RNAi”) is a mechanism present in living cells that inhibits the expression of a specific gene, thereby affecting the production of a specific protein. Arrowhead’s RNAi-based therapeutics leverage this natural pathway of gene silencing. The Company’s pipeline includes ARO-APOC3 for hypertriglyceridemia, ARO-ANG3 for dyslipidemia, ARO-ENaC2 for cystic fibrosis, ARO-DUX4 for facioscapulohumeral muscular dystrophy, ARO-COV for the coronavirus that causes COVID-19 and other possible future pulmonary-borne pathogens, ARO-C3 for complement mediated diseases and ARO-RAGE and ARO-MUC5AC for various muco-obstructive or inflammatory pulmonary conditions. ARO-HSD for liver disease was out-licensed to Glaxosmithkline Intellectual Property (No. 3) Limited (“GSK”) in November 2021.  ARO-XDH is being developed for uncontrolled gout under a collaboration agreement with Horizon Therapeutics Ireland DAC (“Horizon”). JNJ-75220795 (ARO-JNJ1) is being developed by Janssen as a potential treatment for patients with non-alcoholic steatohepatitis (NASH). ARO-AAT for liver disease associated with alpha-1 antitrypsin deficiency (“AATD”) was out-licensed to Takeda Pharmaceuticals U.S.A., Inc. (“Takeda”) in October 2020. JNJ-3989 (formerly referred to as ARO-HBV) for chronic hepatitis B virus was out-licensed to Janssen in October 2018.  Olpasiran (formerly referred to as AMG 890 or ARO-LPA) for cardiovascular disease was out-licensed to Amgen Inc. (“Amgen”) in 2016. While the Company believes that initial ARO-HIF2 Phase 1 clinical data provides proof of concept for the ability to deliver siRNA to RCC tumors, the Company has decided not to pursue further clinical development of ARO-HIF2 based on a number of factors including the evolving competitive landscape for HIF2 inhibitors.

Arrowhead operates lab facilities in Madison, Wisconsin and San Diego, California, where the Company’s research and development activities, including the development of RNAi therapeutics, take place. The Company’s principal executive offices are located in Pasadena, California.

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During the first half of fiscal 2022, the Company continued to develop and advance its pipeline and partnered candidates and expanded its facilities to support the Company’s growing pipeline.  Several key recent developments include:

i) dosed the first patients in its PALISADE study, a phase 3 clinical study to evaluate the safety and efficacy of ARO-APOC3 in adults with familial chylomicronemia syndrome (FCS);

ii) entered into an exclusive license agreement with GSK for ARO-HSD;

iii) Janssen presented clinical data from REEF-1, a Phase 2b study of different combination regimens, including JNJ-73763989 (JNJ-3989), formerly called ARO-HBV, and/or JNJ-56136379 (JNJ-6379), and a nucleos(t)ide analog (NA) for the treatment of chronic hepatitis B virus infection (CHB);

iv) filed for regulatory clearance to begin a Phase 1/2a study of ARO-C3 and subsequently dosed the first subjects in AROC3-1001, a Phase 1/2 clinical study of ARO-C3, the Company’s investigational RNA interference (RNAi) therapeutic designed to reduce production of complement component 3 (C3) as a potential therapy for various complement mediated diseases;

v) presented additional interim clinical data from AROHSD1001, AROAAT2002, and AROAPOC31001;

vi) completed the purchase of 13 acres of land in the Verona Technology Park in Verona, Wisconsin, which is planned to be the site of an approximately 140,000 square foot drug manufacturing facility and an approximately 115,000 square foot laboratory and office facility and entered into a lease agreement for a new 144,000 square foot laboratory and office facility in San Diego, California.  Both facilities will provide additional space to support the Company’s continued growth;

vii) completed enrollment in Phase 2b ARCHES-2 study of investigational ARO-ANG3 for patients with mixed dyslipidemia;

viii) filed for regulatory clearance to initiate Phase 1/2a study of ARO-RAGE for treatment of Asthma;

ix) filed for regulatory clearance to initiate Phase 1/2a study of ARO-MUC5AC for treatment of muco-obstructive lung disease;

x) initiated and dosed the first patients in the Phase 2 GATEWAY clinical study of investigational ARO-ANG3 for the treatment of patients with homozygous familial hypercholersterolemia;

xi) decided not to pursue further clinical development of ARO-HIF2 based on a number of factors including the evolving competitive landscape for HIF2 inhibitors.

The Company is actively monitoring the ongoing COVID-19 pandemic. The financial results for the three and six months ended March 31, 2022 were not significantly impacted by COVID-19. Operationally, the Company has experienced delays in its earlier stage programs due to a shortage in non-human primates, which are critical to the Company’s preclinical programs. Additionally, the Company has experienced delays in enrollment in its clinical trials. The Company’s operations at its research and development facilities in Madison, Wisconsin and San Diego, California, and its corporate headquarters in Pasadena, California have continued with limited impact, other than for enhanced safety measures, including work from home policies and intermittent lab supply shortages. However, the Company cannot predict the impact the progression of COVID-19 will have on future financial and operational results due to a variety of factors, including the ability of the Company’s clinical sites to continue to enroll subjects, the ability of the Company’s suppliers to continue to operate, the continued good health and safety of the Company’s employees and the length and severity of the COVID-19 pandemic.

Net income was $44.4 million for the three months ended March 31, 2022 as compared to net losses of $26.8 million for the three months ended March 31, 2021. Net losses were $18.5 million for the six months ended March 31, 2022 as compared to net losses of $47.6 million for the six months ended March 31, 2021. Net income per share-diluted was $0.41 for the three months ended March 31, 2022 as compared to net losses per share-diluted of $0.26 for the three months ended March 31, 2021. Net losses per share-diluted were $0.18 for the six months ended March 31, 2022 as compared to net losses per share-diluted of $0.46 for the six months ended March 31, 2021. The net income during the three months ended March 31, 2022, and the reduction in net loss for the six months ended March 31, 2022 as compared to the six months ended March 31, 2021 was due to the recognition of the $120.0 million upfront payment received from GSK under the GSK License Agreement (as defined below).  This increased revenue was partially offset by increased research and development and general and administrative expenses as the Company’s pipeline of candidates has expanded and progressed through clinical trial phases.  

The Company has strengthened its liquidity and financial position through upfront and milestone payments received under its collaboration agreements, as well as equity financings. Under the terms of the Company’s agreements with Janssen, taken together, the Company has received $175.0 million as an upfront payment, $75.0 million in the form of an equity investment by JJDC in

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Arrowhead Common Stock, and four milestone payments totaling $70.0 million. Under the terms of the Company’s agreements with Amgen, the Company has received $35.0 million in upfront payments, $21.5 million in the form of an equity investment by Amgen in the Company’s Common Stock and $30.0 million in milestone payments. The Takeda License Agreement resulted in a $300.0 million upfront payment, and the Horizon License Agreement resulted in a $40.0 million upfront payment. Finally, the GSK License Agreement resulted in an upfront payment of $120.0 million, which was received in January 2022. The Company had $86.4 million of cash and cash equivalents, $122.6 million of marketable securities, $192.9 million in short-term investments, $201.6 million of long term investments and $703.6 million of total assets as of March 31, 2022, as compared to $184.4 million of cash and cash equivalents, $126.7 million of marketable securities, $56.6 million in short-term investments, $245.6 million of long term investments and $710.1 million of total assets as of September 30, 2021. Based upon the Company’s current cash and investment resources and operating plan, the Company expects to have sufficient liquidity to fund operations for at least the next twelve months.

Critical Accounting Policies and Estimates

There have been no changes to the significant accounting policies disclosed in the Company’s most recent Annual Report on Form 10-K.

Results of Operations

The following data summarizes our results of operations for the following periods indicated:

	Three Months Ended March 31,
	2022			2021
	(in thousands, except per share amounts)
Revenues	$	151,805		$	32,811
Operating income (loss)	$	41,553		$	(28,232	)
Net income (loss)	$	44,366		$	(26,818	)
Net income (loss) per share-diluted	$	0.41		$	(0.26	)
	Six Months Ended March 31,
	2022			2021
	(in thousands, except per share amounts)
Revenues	$	179,244		$	54,113
Operating income (loss)	$	(21,768	)	$	(52,285	)
Net income (loss)	$	(18,506	)	$	(47,550	)
Net income (loss) per share-diluted	$	(0.18	)	$	(0.46	)

The increase in revenue and operating income for the three and six months ended March 31, 2022 compared to the three and six months ended March 31, 2021 was driven by the revenue recognized from the GSK, Takeda and Horizon License Agreements.

Revenue

Total revenue for the three months ended March 31, 2022 and 2021 was $151.8 million and $32.8 million, respectively. Total revenue for the six months ended March 31, 2022 and 2021 was $179.2 million and $54.1 million, respectively. Revenue for the three months ended March 31, 2022 is primarily related to the recognition of the $120.0 million of revenue associated with the upfront payment received from GSK under the GSK License Agreement.

Amgen Inc.

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On September 28, 2016, the Company entered into two collaboration and license agreements and a common stock purchase agreement with Amgen. Under the Second Collaboration and License Agreement (the “Olpasiran Agreement”), Amgen has received a worldwide, exclusive license to Arrowhead’s novel RNAi Olpasiran (previously referred to as AMG 890 or ARO-LPA) program. These RNAi molecules are designed to reduce elevated lipoprotein(a), which is a genetically validated, independent risk factor for atherosclerotic cardiovascular disease. Under the prior collaboration and license agreement (the “First Collaboration and License Agreement” or the “ARO-AMG1 Agreement”), Amgen received an option to a worldwide, exclusive license for ARO-AMG1, an RNAi therapy for an undisclosed genetically validated cardiovascular target. Under both agreements, Amgen is wholly responsible for clinical development and commercialization. Under the terms of the agreements taken together, the Company has received $35.0 million in upfront payments, $21.5 million in the form of an equity investment by Amgen in the Company’s Common Stock, and $30.0 million in milestone payments, and may receive up to an additional $400.0 million in remaining development, regulatory and sales milestone payments. The Company is further eligible to receive up to low double-digit royalties for sales of products under the Olpasiran Agreement. In July 2019, Amgen informed the Company that it would not be exercising its option for an exclusive license for ARO-AMG1, and as such, there will be no further milestone or royalty payments under the ARO-AMG1 Agreement.     

The Company has evaluated these agreements in accordance with FASB Topics 808 – Collaboration Arrangements and 606 - Revenue for Contracts from Customers. The Company has substantially completed its performance obligations under the Olpasiran Agreement and the ARO-AMG1 Agreement. Future milestones and royalties achieved will be recognized in their entirety when earned. In July 2020, Amgen initiated a Phase 2 clinical study of Olpasiran, which resulted in a $20.0 million milestone payment to the Company. During the three and six months ended March 31, 2022 and 2021, the Company recognized $0 and $0 of revenue associated with its agreement with Amgen, respectively. As of March 31, 2022, there were $0 in contract assets recorded as accounts receivable and $0 contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.

Janssen Pharmaceuticals, Inc.

On October 3, 2018, the Company entered into a License Agreement (the “Janssen License Agreement”) and a Research Collaboration and Option Agreement (the “Janssen Collaboration Agreement”) with Janssen, part of the Janssen Pharmaceutical Companies of Johnson & Johnson.  The Company also entered into a stock purchase agreement with JJDC (“JJDC Stock Purchase Agreement”).  Under the Janssen License Agreement, Janssen has received a worldwide, exclusive license to the Company’s JNJ-3989 (ARO-HBV) program, the Company’s third-generation subcutaneously administered RNAi therapeutic candidate being developed as a potential therapy for patients with chronic hepatitis B virus infection. Beyond the Company’s Phase 1/2 study of JNJ-3989 (ARO-HBV), which the Company was responsible for completing, Janssen is wholly responsible for clinical development and commercialization of JNJ-3989.  Under the Janssen Collaboration Agreement, Janssen was able to select three new targets against which Arrowhead would develop clinical candidates.  These candidates were subject to certain restrictions and do not include candidates that already were in the Company’s pipeline.  The Company was obligated to perform discovery, optimization and preclinical research and development, entirely funded by Janssen, which on its own or in combination with Janssen development work, would have been sufficient to allow the filing of a U.S. Investigational New Drug Application or equivalent, at which time Janssen would have the option to take an exclusive license. If the option was exercised, Janssen would have been wholly responsible for clinical development and commercialization of each optioned candidate.  Under the terms of the agreements taken together, the Company has received $175.0 million as an upfront payment, $75.0 million in the form of an equity investment by JJDC in Arrowhead Common Stock under the JJDC Stock Purchase Agreement, and milestone and option payments totaling $73.0 million, and the Company may receive up to $1.6 billion in development and sales milestones payments for the Janssen License Agreement, and up to $0.6 billion in development and sales milestone payments for the remaining target covered under the Janssen Collaboration Agreement. The Company is further eligible to receive tiered royalties on product sales up to mid-teens under the Janssen License Agreement and up to low teens under the Janssen Collaboration Agreement. During the three months ended March 31, 2022, Janssen’s option period expired unexercised for two of the three candidates (ARO-JNJ2 and ARO-JNJ3) under the Janssen Collaboration Agreement.

The Company has evaluated these agreements in accordance with FASB Topics 808 – Collaboration Arrangements and 606 - Revenue for Contracts from Customers.  At the inception of these agreements, the Company identified one distinct performance obligation.  Regarding the Janssen License Agreement, the Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibility to complete the Phase 1/2 study of JNJ-3989 (ARO-HBV) and the Company’s responsibility to ensure certain manufacturing of JNJ-3989 (ARO-HBV) drug product is completed and delivered to Janssen (the “Janssen R&D Services”).  Due to the specialized and unique nature of these Janssen R&D Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation.  The Company also determined that Janssen’s option to require the Company to develop up to three new targets is not a material right and, thus, not a performance obligation at the onset of the agreement.  The consideration for this option is accounted for separately.

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The Company determined the transaction price totaled approximately $252.7 million, which includes the upfront payment, the premium paid by JJDC for its equity investment in the Company, two $25.0 million milestone payments related to JNJ-3989 (ARO-HBV), and estimated payments for reimbursable Janssen R&D Services to be performed.  The Company has allocated the total $252.7 million initial transaction price to its one distinct performance obligation for the JNJ-3989 (ARO-HBV) license and the associated Janssen R&D Services.  The Company has recognized this transaction price in its entirety as of September 30, 2021, as its performance obligations were substantially completed. Future milestones and royalties achieved will be recognized in their entirety when earned.  During the three months ended March 31, 2022 and 2021, the Company recognized approximately $0 and $7.5 million of revenue associated with this performance obligation, respectively. During the six months ended March 31, 2022 and 2021, the Company recognized approximately $0 and $20.2 million of revenue associated with this performance obligation, respectively. As of March 31, 2022, there were $0 in contract assets recorded as accounts receivable, and $0 of contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.  

The Company has conducted its discovery, optimization and preclinical research and development of JNJ-75220795 (ARO-JNJ1), ARO-JNJ2, and ARO-JNJ3 under the Janssen Collaboration Agreement.  All costs and labor hours spent by the Company have been entirely funded by Janssen. During the three months ended March 31, 2022, Janssen’s option period expired unexercised for two of the three candidates (ARO-JNJ2 and ARO-JNJ3) under the Janssen Collaboration Agreement. During the three months ended March 31, 2022 and 2021, the Company recognized $0.1 million and $0.1 million of revenue associated with these efforts, respectively. During the six months ended March 31, 2022 and 2021, the Company recognized $0.1 million and $0.3 million of revenue associated with these efforts, respectively. As of March 31, 2022, there were $0.1 million of contract assets recorded as accounts receivable and $0 of contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.

Takeda Pharmaceuticals U.S.A., Inc.

On October 7, 2020, the Company entered into an Exclusive License and Co-funding agreement (the “Takeda License Agreement”) with Takeda.  Under the Takeda License Agreement, Takeda and the Company will co-develop the Company’s ARO-AAT program, the Company’s second-generation subcutaneously administered RNAi therapeutic candidate being developed as a treatment for liver disease associated with alpha-1 antitrypsin deficiency. Within the United States, ARO-AAT, if approved, will be co-commercialized under a 50/50 profit sharing structure. Outside the United States, Takeda will lead the global commercialization strategy and will receive an exclusive license to commercialize ARO-AAT, while the Company will be eligible to receive tiered royalties of 20% to 25% on net sales.  In January 2021, the Company received $300.0 million as an upfront payment and is eligible to receive potential development, regulatory and commercial milestones of up to $740.0 million.     

The Company has evaluated the Takeda License Agreement in accordance with FASB Topics 808 – Collaborative Arrangements and 606 - Revenue for Contracts from Customers. At the inception of the Takeda License Agreement, the Company identified one distinct performance obligation.  The Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibilities to complete the initial portion of the SEQUOIA study, to complete the ongoing Phase 2 AROAAT2002 study and to ensure certain manufacturing of ARO-AAT drug product is completed and delivered to Takeda (the “Takeda R&D Services”).  Due to the specialized and unique nature of these Takeda R&D Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation.  Beyond the Takeda R&D Services, which are the responsibility of the Company, Takeda will be responsible for managing future clinical development and commercialization outside the United States.  Within the United States, the Company will also participate in co-development and co-commercialization efforts and will co-fund these efforts with Takeda as part of the 50/50 profit sharing structure within the United States.  The Company considers the collaborative activities, including the co-development and co-commercialization, to be a separate unit of account within Topic 808, and as such, these co-funding amounts will be recorded as Research and Development Expenses or General and Administrative Expenses, as appropriate.    

The Company determined the initial transaction price totaled $300.0 million, which includes the upfront payment.  The Company has excluded any future milestones or royalties from this transaction price to date.  The Company has allocated the total $300.0 million initial transaction price to its one distinct performance obligation for the ARO-AAT license and the associated Takeda R&D Services.  Revenue will be recognized using a proportional performance method (based on actual patient visits completed versus total estimated visits completed for the ongoing SEQUOIA and AROAAT2002 clinical studies). Revenue for the three months ended March 31, 2022 and 2021 was $20.8 million and $25.4 million, respectively. Revenue for the six months ended March 31, 2022 and 2021 was $41.6 million and $33.6 million, respectively. As of March 31, 2022, there were $0 in contract assets recorded as accounts receivable, $77.9 million in contract liabilities recorded as deferred revenue and $89.8 million in contract liabilities recorded as deferred revenue, net of the current portion, and $5.0 million in contract liabilities recorded as accrued expenses.  The $5.0 million in accrued expenses was primarily driven by co-development and co-commercialization activities.

Horizon Therapeutics Ireland DAC

On June 18, 2021, the Company entered into the Horizon License Agreement with Horizon.  Under the Horizon License Agreement, Horizon received a worldwide exclusive license for ARO-XDH, a previously undisclosed discovery-stage investigational

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RNAi therapeutic being developed by the Company as a potential treatment for people with uncontrolled gout. The Company will conduct all activities through the preclinical stages of development of ARO-XDH, and Horizon will be wholly responsible for clinical development and commercialization of ARO-XDH. In July 2021, the Company received $40 million as an upfront payment and is eligible to receive up to $660 million in potential development, regulatory and sales milestones.  The Company is also eligible to receive royalties in the low- to mid-teens range on net product sales.  

The Company has evaluated the Horizon License Agreement in accordance with FASB Topics 808 – Collaborative Arrangements and 606 - Revenue for Contracts from Customers. At the inception of the Horizon License Agreement, the Company identified one distinct performance obligation.  The Company determined that the key deliverables included the license and certain R&D services, including the Company’s responsibilities to conduct all activities through the preclinical stages of development of ARO-XDH (the “Horizon R&D Services”).  Due to the specialized and unique nature of these Horizon R&D Services and their direct relationship with the license, the Company determined that these deliverables represented one distinct bundle and, thus, one performance obligation.  Beyond the Horizon R&D Services, which are the responsibility of the Company, Horizon will be responsible for managing future clinical development and commercialization of ARO-XDH.  

The Company determined the initial transaction price totaled $40.0 million, including the upfront payment.  The Company has excluded any future estimated milestones or royalties, from this transaction price to date.  The Company will allocate the total $40.0 million initial transaction price to its one distinct performance obligation for the ARO-XDH license and the associated Horizon R&D Services. Revenue will be recognized on a straight-line basis over the estimated timeframe for completing the Horizon R&D Services.  The Company determined that the straight-line basis was appropriate as its efforts will be expended evenly over the course of completing its performance obligation. Revenue for the three months ended March 31, 2022 and 2021 was $6.7 million and $0, respectively. Revenue for the six months ended March 31, 2022 and 2021 was $13.3 million and $0, respectively. As of March 31, 2022, there were $0 million in contract assets recorded as accounts receivable, $20.0 million in contract liabilities recorded as deferred revenue.

         The Company has manufactured ARO-XDH material for Horizon in furtherance of the research plan entered into pursuant to the Horizon License Agreement, for which the Company has been reimbursed for its costs. During the three and six months ended March 31, 2022 and 2021, the Company recognized $1.3 million and $0 with these efforts, respectively. As of March 31, 2022, there were $1.3 million of contract assets recorded as accounts receivable and $0 of contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.

Glaxosmithkline Intellectual Property (No. 3) Limited

On November 22, 2021, the Company entered into an Exclusive License Agreement (the “GSK License Agreement”) with GSK.  Under the GSK License Agreement, GSK has received an exclusive license for ARO-HSD, the Company’s investigational RNAi therapeutic being developed as a treatment for patients with alcohol-related and nonalcohol related liver diseases, such as nonalcoholic steatohepatitis (NASH).  The exclusive license is worldwide with the exception of greater China, for which the Company retained rights to develop and commercialize.  Beyond the Company’s Phase 1/2 study of (ARO-HSD), which the Company is responsible for completing, GSK is wholly responsible for clinical development and commercialization of ARO-HSD in its territory. Under the terms of the agreement, the Company has received an upfront payment of $120 million and is eligible for additional payments of $30 million at the start of Phase 2 and $100 million upon achieving a successful Phase 2 trial readout and the first patient dosed in a Phase 3 trial. Furthermore, should the Phase 3 trial read out positively, and the potential new medicine receives regulatory approval in major markets, the deal provides for commercial milestone payments to the Company of up to $190 million at first commercial sale, and up to $590 million in sales-related milestone payments. The Company is further eligible to receive tiered royalties on net product sales in a range of mid-teens to twenty percent.

The Company has evaluated the GSK License Agreement in accordance with FASB Topics 808 – Collaborative Arrangements and 606 - Revenue for Contracts from Customers. At the inception of the GSK License Agreement, the Company identified one distinct performance obligation.  The Company determined that the key deliverables included the license and certain R&D services, including the Company’s responsibility to complete the Phase 1/2 study, (the “GSK R&D Services”).  Due to the specialized and unique nature of these GSK R&D Services and their direct relationship with the license, the Company determined that these deliverables represented one distinct bundle and, thus, one performance obligation.  Beyond the GSK R&D Services, which are the responsibility of the Company, GSK will be responsible for managing future clinical development and commercialization in its territory.

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The Company determined the initial transaction price totaled $120.0 million, including the upfront payment. The $120.0 million upfront payment was collected in January 2022. The Company has excluded any future estimated milestones or royalties from this transaction price to date.  The Company has allocated the total $120.0 million initial transaction price to its one distinct performance obligation for the ARO-HSD license and the associated GSK R&D Services. As the Company has completed its performance obligation related to this agreement, the upfront payment of $120.0 million will be fully recognized as of the three and six months ended March 31, 2022. Revenue for the three and six months ended March 31, 2022 and 2021 was $120.0 million and $0, respectively. As of March 31, 2022, there were $0 in contract assets recorded as accounts receivable, $0 in contract liabilities recorded as deferred revenue.

Operating Expenses

The analysis below details the operating expenses and discusses the expenditures of the Company within the major expense categories. Certain reclassifications have been made to prior-period operating expense categories to conform to the current period presentation.  For purposes of comparison, the amounts for the three and six months ended March 31, 2022 and 2021 are shown in the tables below.

Research and Development Expenses

R&D expenses are related to the Company’s research and development efforts and related program costs, which are comprised primarily of outsourced costs related to the manufacturing of clinical supplies, toxicity/efficacy studies and clinical trial expenses.  Internal costs primarily relate to operations at our research facilities in Madison, Wisconsin and San Diego, California, including facility costs and laboratory-related expenses. Salaries and stock compensation expense consist of salary, bonuses, payroll taxes and related benefits and stock compensation for our R&D personnel.  Depreciation and amortization expense consist of depreciation on lab equipment and leasehold improvements at our research facilities.  We do not separately track R&D expenses by individual research and development projects, including by individual drug candidates. The Company operates in a cross-functional manner across projects and does not separately allocate facilities-related costs, candidate costs, discovery costs, compensation expenses, depreciation and amortization expenses, and other expenses for research and development activities.  The following table provides details of research and development expenses for the periods indicated:

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(table below in thousands)

	Three					Three
	Months Ended		% of Expense			Months Ended		% of Expense			Increase (Decrease)
	March 31, 2022		Category			March 31, 2021		Category			$		%
Salaries	$	11,404		15	%	$	8,685		19	%	$	2,719		31	%
Facilities related		1,779		2	%		1,671		4	%		108		6	%
Candidate costs		37,713		50	%		20,667		47	%		17,046		82	%
R&D discovery costs		14,266		19	%		5,502		12	%		8,764		159	%
Total research and development expense, excluding non-cash expense	$	65,162		86	%	$	36,525		82	%	$	28,637		78	%
Stock compensation		8,642		11	%		6,406		14	%		2,236		35	%
Depreciation/amortization		2,181		3	%		1,766		4	%		415		23	%
Total research and development expense	$	75,985		100	%	$	44,697		100	%	$	31,288		70	%
	Six					Six
	Months Ended		% of Expense			Months Ended		% of Expense			Increase (Decrease)
	March 31, 2022		Category			March 31, 2021		Category			$		%
Salaries	$	22,398		16	%	$	16,857		21	%	$	5,541		33	%
Facilities related		3,817		3	%		3,150		4	%		667		21	%
Candidate costs		70,058		49	%		35,684		44	%		34,374		96	%
R&D discovery costs		25,266		18	%		10,213		13	%		15,053		147	%
Total research and development expense, excluding non-cash expense		121,539		86	%		65,904		82	%		55,635		84	%
Stock compensation		15,860		11	%		11,891		15	%		3,969		33	%
Depreciation/amortization		4,351		3	%		3,456		3	%		895		26	%
Total research and development expense	$	141,750		100	%	$	81,251		100	%	$	60,499		74	%

Salaries expense increased by $2,719,000 from $8,685,000 during the three months ended March 31, 2021 to $11,404,000 during the current period. Salaries expense increased by $5,541,000 from $16,857,000 during the six months ended March 31, 2021 to $22,398,000 during the current period.  This increase is primarily due to an increase in R&D headcount that has occurred as the Company has expanded its pipeline of candidates. We anticipate this expense to continue to increase as we continue to expand our pipeline of candidates and increase headcount to support our discovery efforts to identify new drug candidates, in addition to inflationary pressures in the labor market.

Facilities expense increased by $108,000 from $1,671,000 during the three months ended March 31, 2021 to $1,779,000 during the current period. Facilities expense increased by $667,000 from $3,150,000 during the six months ended March 31, 2021 to $3,817,000 during the current period. This category includes rental costs for our research and development facilities in Madison, Wisconsin and San Diego, California. We expect this expense to continue to increase as we continue to build out our manufacturing capabilities to support our discovery efforts to identify new drug candidates.

Candidate costs increased by $17,046,000 from $20,667,000 during the three months ended March 31, 2021 to $37,713,000 during the current period. Candidate costs increased by $34,374,000 from $35,684,000 during the six months ended March 31, 2021 to $70,058,000 during the current period. This increase is primarily due to the progression of our pipeline of candidates into and through clinical trials, which results in higher outsourced clinical trial, toxicity study and manufacturing costs. For example, our cardiometabolic candidates, ARO-ANG3 and ARO-APOC3, have advanced into phase 2 and phase 3 clinical trials. We anticipate these expenses to continue to increase as our pipeline of candidates grows and progresses to later phase clinical trials, in addition to unforeseen inflationary pressure on goods and services.

R&D discovery costs increased by $8,764,000 from $5,502,000 during the three months ended March 31, 2021 to $14,266,000 in the current period. R&D discovery costs increased by $15,053,000 from $10,213,000 during the six months ended March 31, 2021 to $25,266,000 in the current period. This increase is primarily due to the growth of our discovery efforts, including the addition of our research facility in San Diego. We anticipate this expense to continue to increase as we increase headcount to support our discovery efforts to identify new drug candidates.

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Stock compensation expense, a non-cash expense, increased by $2,236,000 from $6,406,000 during the three months ended March 31, 2021 to $8,642,000 during the current period. Stock compensation expense, a non-cash expense, increased by $3,969,000 from $11,891,000 during the six months ended March 31, 2021 to $15,860,000 during the current period. Stock compensation expense is based upon the valuation of stock options and restricted stock units granted to employees, directors and certain consultants. Many variables affect the amount expensed, including the Company’s stock price on the date of the grant, as well as other assumptions. The increase in the expense in the current period is primarily due to the increased headcount discussed above and a mix of higher grant date fair values of awards amortizing during the current period due to the Company’s stock price at the time of the grants. We generally expect future stock compensation expense to continue to increase as our headcount continues to increase to support our clinical pipeline.  

Depreciation and amortization expense, a non-cash expense, increased by $415,000 from $1,766,000 during the three months ended March 31, 2021 to $2,181,000 during the current period. Depreciation and amortization expense, a non-cash expense, increased by $895,000 from $3,456,000 during the six months ended March 31, 2021 to $4,351,000 during the current period.  The majority of depreciation and amortization expense relates to depreciation on lab equipment and leasehold improvements at our Madison and San Diego research facilities. The increase in depreciation and amortization expense is due to an increase in laboratory equipment and leasehold improvements. We expect this amount to increase in the future as we continue to purchase additional lab equipment to support our growing pipeline.

General & Administrative Expenses

The following table provides details of our general and administrative expenses for the periods indicated:

(table below in thousands)

	Three					Three
	Months Ended		% of Expense			Months Ended		% of Expense			Increase (Decrease)
	March 31, 2022		Category			March 31, 2021		Category			$			%
Salaries	$	3,760		11	%	$	3,257		20	%	$	503			15	%
Professional/outside services		2,330		7	%		1,838		11	%		492			27	%
Facilities related		702		2	%		787		5	%		(85	)		-11	%
Other G&A		1,911		6	%		1,355		8	%		556			41	%
Total general & administrative expense, excluding non-cash expense	$	8,703		26	%	$	7,237		44	%	$	1,466			20	%
Stock compensation		25,160		73	%		8,953		55	%		16,207			181	%
Depreciation/amortization		404		1	%		156		1	%		248			159	%
Total general & administrative expense	$	34,267		100	%	$	16,346		100	%	$	17,921			110	%
	Six					Six
	Months Ended		% of Expense			Months Ended		% of Expense			Increase (Decrease)
	March 31, 2022		Category			March 31, 2021		Category			$			%
Salaries	$	7,190		12	%	$	5,841		23	%	$	1,349			23	%
Professional/outside services		4,507		8	%		3,820		15	%		687			18	%
Facilities related		1,382		2	%		1,517		6	%		(135	)		-9	%
Other G&A		2,929		5	%		2,048		8	%		881			43	%
Total general & administrative expense, excluding non-cash expense		16,008		27	%		13,226		52	%		2,782			21	%
Stock compensation		42,447		72	%		11,611		46	%		30,836			266	%
Depreciation/amortization		807		1	%		310		2	%		497			160	%
Total general & administrative expense	$	59,262		100	%	$	25,147		100	%	$	34,115			136	%

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Salaries expense increased by $503,000 from $3,257,000 during the three months ended March 31, 2021 to $3,760,000 during the current period. Salaries expense increased by $1,349,000 from $5,841,000 during the six months ended March 31, 2021 to $7,190,000 during the current period. This increase is primarily due to an increase in G&A headcount that has occurred as the Company has grown. We expect salaries expense to continue to increase as our headcount continues to increase to support our expanding clinical pipeline.  

Professional/outside services include legal, accounting, consulting, patent expenses, business insurance expenses and other outside services retained by the Company. Professional/outside services expense increased by $492,000 from $1,838,000 during the three months ended March 31, 2021 to $2,330,000 during the current period. Professional/outside services expense increased by $687,000 from $3,820,000 during the six months ended March 31, 2021 to $4,507,000 during the current period. We expect future professional/outside services expense to increase as we continue to increase discovery efforts.

Facilities-related expense decreased by $85,000 from $787,000 during the three months ended March 31, 2021 to $702,000 during the current period. Facilities-related expense decreased by $135,000 from $1,517,000 during the six months ended March 31, 2021 to $1,382,000 during the current period. This category primarily includes rental costs for our corporate headquarters in Pasadena, California. The decrease in facilities related expenses is due to a decrease in building maintenance and repair costs. We expect future facilities related expenses to increase as we continue to increase our headcount & footprint to support our discovery efforts.

Other G&A expense increased by $556,000 from $1,355,000 during the three months ended March 31, 2021 to $1,911,000 during the current period. Other G&A expense increased by $881,000 from $2,048,000 during the six months ended March 31, 2021 to $2,929,000 during the current period. This category consists primarily of travel, communication and technology, office expenses, and franchise and property tax expenses.  The increase is due to increased information technology costs to support the Company’s increased headcount.

Stock compensation expense, a non-cash expense, increased by $16,207,000 from $8,953,000 during the three months ended March 31, 2021 to $25,160,000 during the current period. Stock compensation expense, a non-cash expense, increased by $30,836,000 from $11,611,000 during the six months ended March 31, 2021 to $42,447,000 during the current period. Stock compensation expense is based upon the valuation of stock options and restricted stock units granted to employees, directors and certain consultants. Many variables affect the amount expensed, including the Company’s stock price on the date of the grant, as well as other assumptions. The increase in the current period is due to a performance award that was achieved earlier than anticipated, as well as a modification of certain performance awards to include market conditions. The fair value of market condition-based awards is expensed ratably over the service period and is not adjusted for actual achievement. We generally expect future stock compensation expense to continue to increase as our headcount continues to increase to support our clinical pipeline.  

Depreciation and amortization expense, a noncash expense, increased by $248,000 from $156,000 during the three months ended March 31, 2021 to $404,000 during the current period. Depreciation and amortization expense, a noncash expense, increased by $497,000 from $310,000 during the six months ended March 31, 2021 to $807,000 during the current period.  The increase is primarily related to amortization of leasehold improvements for our corporate headquarters.

Other Income/Expense

Other income/expense was income of $1,414,000 during the three months ended March 31, 2021 compared to $2,813,000 during the current period. Other income/expense was income of $4,735,000 during the six months ended March 31, 2021 compared to $3,262,000 during the current period.  Other income is primarily related to interest income and realized and unrealized gain/loss on our marketable securities. The increase in other income/expense is due to lower yields on more recently purchased bonds and increase in unrealized loss on our marketable securities offset by a property tax credit the company received during the current period.

Liquidity and Capital Resources

Arrowhead has historically financed its operations through the sale of its equity securities and revenue from its collaboration agreements. Research and development activities have required significant capital investment since the Company’s inception and are expected to continue to require significant cash expenditure as the Company’s pipeline continues to expand and matures into later stage clinical trials.  Additionally, the Company’s plans to expand its facilities with its purchase of land in Verona, Wisconsin, and its entry into a new lease in San Diego, California.  Each of these expansions is designed to increase the Company’s internal manufacturing and discovery capabilities, and each will require significant capital investment.

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At March 31, 2022, the Company had cash on hand of approximately $86.4 million as compared to $184.4 million at September 30, 2021.  Cash invested in short-term fixed income securities and marketable securities was $315.5 million at March 31, 2022, compared to $183.4 million at September 30, 2021.  Cash invested in long-term fixed income securities was $201.6 million at March 31, 2022, compared to $245.6 million at September 30, 2021. The Company also entered into an Open Market Sale Agreement (the “ATM Agreement”) in August 2020, pursuant to which the Company may, from time to time, sell up to $250,000,000 in shares of the Company’s Common Stock through Jefferies LLC.  As of March 31, 2022, no shares have been sold under the ATM Agreement. The Company believes its current financial resources are sufficient to fund its operations through at least the next twelve months.

A summary of cash flows for the six months ended March 31, 2022 and 2021 is as follows:

	Six Months Ended			Six Months Ended
	March 31, 2022			March 31, 2021
	(in thousands)
Cash flow from:
Operating activities		1,383			224,951
Investing activities		(103,140	)		(3,892	)
Financing activities		3,731			7,735
Net increase (decrease) in cash and cash equivalents		(98,026	)		228,794
Cash and cash equivalents at beginning of period		184,434			143,583
Cash and cash equivalents at end of period		86,408			372,377

During the six months ended March 31, 2022, cash flow used by operating activities was $1.4 million, which was primarily due to the receipt of the $120.0 million upfront payment from GSK, partially offset by the ongoing expenses related to the Company’s research and development programs and general and administrative expenses. Cash used in investing activities was $103.1 million, which was primarily related to the purchase of property and equipment of $10.5 million and net purchase of investments of $92.6 million. Cash provided by financing activities of $3.7 million was related to cash received from stock option exercises.

During the six months ended March 31, 2021, cash flow provided by operating activities was $225.0 million, which was primarily due to the $300 million payment received under the Takeda License Agreement, partially offset by ongoing expenses of the Company’s research and development programs and general and administrative expenses. Cash used in investing activities was $3.9 million, which was primarily related to the purchase of property and equipment of $11.4 million, partially offset by the net sales of investments of $7.5 million. Cash provided by financing activities of $7.7 million was related to cash received from stock option exercises.

On December 20, 2021, the Company completed a purchase of 13 acres of land in the Verona Technology Park in Verona, WI, which is planned to be the site of an approximately 140,000 square foot drug manufacturing facility and an approximately 115,000 square foot laboratory and office facility to support process development and analytical activities. Arrowhead intends to invest between $200 million and $250 million into the buildout of the facilities. As part of this acquisition, the Company also entered into a development agreement with the City of Verona to construct certain infrastructure improvements within the TIF district, and will be reimbursed by the City of Verona by future tax increment revenue generated from the developed property. The total amount of funding that City of Verona will pay as reimbursements under the TIF program for these improvements is not guaranteed and will depend on future tax revenues generated from the developed property.

Capital Resources and Material Cash Requirements

A summary of our capital resources and material cash requirements is presented in Item 7 of our Annual Report on Form 10-K for our fiscal year ended September 30, 2021. Other than as described above, there were no material changes to our capital resources and material cash requirements during the three months ended March 31, 2022.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There has been no material change in our exposure to market risk from that described in Item 7A of our Annual Report on Form 10-K for the year ended September 30, 2021.

ITEM 4. CONTROLS AND PROCEDURES

Our Chief Executive Officer and our Chief Financial Officer, after evaluating our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”), have concluded that, as of the Evaluation Date, our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms, and to ensure that information required to be disclosed by us in such reports is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer where appropriate, to allow timely decisions regarding required disclosure.

No change in the Company’s internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) occurred during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may be involved in routine legal proceedings, as well as demands, claims and threatened litigation, which arise in the normal course of our business. Litigation can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings, particularly complex legal proceedings, cannot be predicted with any certainty. There have been no material developments in the legal proceedings that we disclosed in Part I, Item 3 of our Annual Report on Form 10-K for the year ended September 30, 2021.

ITEM 1A. Risk Factors

There have been no material changes to the risk factors included in our Annual Report on Form 10-K for the year ended September 30, 2021 other than the risk factors presented below. Please carefully consider the information set forth in this Quarterly Report on Form 10-Q and the risk factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2021, which could materially affect our business, financial condition or future results. The risks described herein and in our Annual Report on Form 10-K, as well as other risks and uncertainties, could materially and adversely affect our business, results of operations and financial condition, which in turn could materially and adversely affect the trading price of shares of our Common Stock. Additional risks not currently known or currently material to us may also harm our business.

Risks Related to Our Discovery, Development, and Commercialization of Medicines

Our success depends on the attraction and retention of senior management and scientists with relevant expertise.

Our future success depends to a significant extent on the continued services of our key employees, including our senior scientific, technical and managerial personnel. We do not maintain key person life insurance for any of our executives and we do not maintain employment agreements with many senior employees. Competition for qualified employees in the pharmaceutical industry is high, and our ability to execute our strategy will depend in part on our ability to continue to attract and retain qualified scientists, management and other employees. This will depend in part on our ability to create and maintain a desirable workplace culture, which may be impacted by the long-term effects of the COVID-19 pandemic on the nature of the office environment and employee preferences for remote working. In addition, the market for qualified employees in the pharmaceutical industry is experiencing labor shortages and inflationary pressures are causing salaries and wages to increase, all of which exacerbates these competitive dynamics. If we are unable to find, hire and retain qualified individuals, we will have difficulty implementing our business plan in a timely manner, or at all.

Geopolitical risks associated with the ongoing Russia-Ukraine conflict have impacted our clinical trial plans and could have an adverse impact on our business, financial condition and results of operations.

The ongoing conflict between Russia and Ukraine has caused or exacerbated volatility and disruptions to various aspect of the global economy. The uncertain nature, magnitude, and duration of hostilities stemming from the conflict in Ukraine, including the potential effects of sanctions and counter-sanctions, retaliatory cyber-attacks on the world economy and markets, have contributed to increased market volatility and uncertainty, which could have an adverse impact on macroeconomic factors that affect our business and operations, such as worldwide supply chain issues. Sanctions imposed by the U.S., EU, and other countries in response to the Russia-Ukraine conflict and any response to such sanctions may have an adverse impact on our business, including our clinical trials, the financial markets and the global economy. Additionally, the ongoing conflict has impacted our business decisions with respect to potential clinical trial sites in Europe. For example, a number of our clinical trial sites we had previously planned to use in Russia, Ukraine and Belarus were shut down and we have sought alternatives in other geographies. We cannot be certain of the overall impact of the conflict on our ability to conduct and complete our clinical trials as planned. However, interruptions of our clinical trials can result in significant delays or termination of the research, development or commercialization of our drug candidates, which could impair our ability to generate revenues and harm our business and financial condition. The potential effects of the conflict could also amplify many of the other risks described in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended September 30, 2021.  

Risks Related to Our Intellectual Property

Our ability to protect our patents and other proprietary rights is uncertain, exposing us to the possible loss of competitive advantage.

We have licensed rights to pending patents and have filed and expect to continue to file patent applications. Researchers sponsored by us may also file patent applications that we may need to license. Such patent applications may not be available for licensing or may not be economically feasible to license. Certain of our patents may not be granted or may not contain claims of the necessary breadth because, for example, prior patents exist. If a particular patent is not granted, the value of the invention described in the patent would

30

be diminished. Further, even if these patents are granted, they may be difficult to enforce. Even if ultimately successful, efforts to enforce our patent rights could be expensive, distracting for management, cause our patents to be invalidated or held unenforceable, and thus frustrate commercialization of products. Even if patents are issued and are enforceable, others may develop similar, superior or parallel technologies to any technology developed by us and not infringe on our patents. Our technology may prove to infringe upon patents or rights owned by others. Patent prosecution and maintenance is expensive, and we may be forced to curtail prosecution or maintenance if our cash resources are limited. Thus, the patents held by or licensed to us may not afford us any meaningful competitive advantage. In addition, the laws of some foreign countries in which we do business, including through our joint ventures, do not protect intellectual property rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant problems in protecting and defending our intellectual property both in the United States and abroad. If we are unable to adequately protect our owned intellectual property or derive sufficient value from our licensed or owned intellectual property, the value of your investment may decline.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not Applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

Exhibit Number	Document Description
10.1*† 31.1*	First Amendment to Exclusive License and Co-Funding Agreement by and between Arrowhead Pharmaceuticals, Inc. and Takeda Pharmaceuticals U.S.A., Inc. dated March 15, 2022 Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	Inline XBRL Instance Document
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
104*	The cover page from this Quarterly Report on Form 10-Q, formatted in Inline XBRL (included as Exhibit 101)

* Filed herewith.

** Furnished herewith.

† Certain confidential portions of this exhibit were omitted by means of marking such portions with asterisks because the identified confidential portions (i) are not material and (ii) would be competitively harmful if publicly disclosed.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: May 10, 2022

ARROWHEAD PHARMACEUTICALS, INC.
By:	/s/ Kenneth A. Myszkowski
	Kenneth A. Myszkowski Chief Financial Officer
	(Principal Financial Officer and Duly Authorized Officer)

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EX-10.1

Exhibit 10.1

[***] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED BECAUSE THE INFORMATION (I) IS NOT MATERIAL AND (II) WOULD BE COMPETITIVELY HARMFUL IF PUBLICLY DISCLOSED.

FIRST AMENDMENT TO EXCLUSIVE LICENSE AND CO-FUNDING AGREEMENT

This First Amendment (this “First Amendment”), entered into as of March 15, 2022 but effective retroactively as of October 7, 2020 (the “First Amendment Effective Date”), is made to that certain Exclusive License and Co-Funding Agreement (the “Agreement”), dated as of October 7, 2020, by and between Takeda Pharmaceuticals U.S.A., Inc., a company incorporated under the laws of the State of Delaware (“Takeda”), and Arrowhead Pharmaceuticals Inc., a company organized and existing under the Laws of the State of Delaware (“Arrowhead”).  The parties to this Agreement are collectively referred to as the “Parties” and individually as a “Party.”  Capitalized terms used but not defined in this First Amendment have the meanings ascribed to them in the Agreement.

RECITALS

WHEREAS, the Parties desire to amend the Agreement with respect to, among other things, the Parties’ respective funding obligations regarding the costs of certain Development activities; and

WHEREAS, each of the Parties has approved this First Amendment in accordance with Section 17.4 (Entire Agreement; Amendments) of the Agreement.

NOW, THEREFORE, in consideration of the premises and mutual promises and covenants contained in this First Amendment, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree that as of the First Amendment Effective Date, the Agreement incorporates and includes these terms as amended and or added as follows:

AGREEMENT

1. Amendment of Article 1 (Definitions):

a. The definition of “Additional Studies” is hereby deleted in its entirety and replaced with the following:

“Additional Studies” means, collectively, (a) a Phase III Clinical Trial for a Product that is focused on the treatment of cirrhotic patients (adult F4cc) conducted in or for the Profit-Share Territory, (b) any Phase III Clinical Trials for a Product that are focused on the treatment of pediatric patients conducted in or for the Profit-Share Territory, and (c) any other Clinical Trial that (i) is intended to support the Regulatory Approval of a Product for the treatment of cirrhotic patients or pediatric patients and (ii) is included under the Co-Funded Development Plan. For clarity, the [***] to be performed by Takeda is an Additional Study.

b. The definition of “Co-Funded Development Activities” is hereby deleted in its entirety and replaced with the following:

“Co-Funded Development Activities” means (a) the Additional Studies, (b) any PMR/PMC Activities, and (c) any Other Studies to be conducted by or on behalf of Takeda.

c. The definition of “Eligible Development Costs Share Ratio” is hereby deleted in its entirety and replaced with the following:

“Eligible Development Expense Share Ratio” has the meaning set forth in Section 3.2.3(b) (Shared Development Expenses).

d. The definition of “Eligible Development Expenses” is hereby deleted in its entirety and replaced with the following:

“Eligible Development Expenses” means all FTE Costs, Out-of-Pocket Costs, and other costs and expenses incurred by or on behalf of a Party or its Affiliates that are attributable to PMR/PMC Activities or Other Studies in accordance with the applicable Co-Funded Development Plan or Arrowhead Co-Funded Development Plan, including the following:

(a) [***];

(b) [***]; and

in each case, to the extent such costs are consistent with the applicable Co-Funded Development Budget or Arrowhead Co-Funded Development Budget, plus applicable Allowable Overruns [***]. If any FTE Cost, Out-of-Pocket Cost, or other cost or expense is specifically identifiable or reasonably allocable to more than one Development cost category above, then such cost or expense will only be counted once. No expense included as an Eligible Development Expense will also be included as an Eligible Commercialization Expense or an Eligible Medical Affairs Expense. Eligible Development Expenses will be recognized and calculated in accordance with the applicable Accounting Standards.

e. The definition of “Eligible Development Expenses Report” is hereby deleted in its entirety and replaced with the following:

“Eligible Development Expenses Report” has the meaning set forth in Section 3.2.3(b) (Shared Development Expenses).

f. The definition of “PMR/PMC Activities” is hereby deleted in its entirety and replaced with the following:

“PMR/PMC Activities” means any post-marketing requirements or post-marketing commitments, in each case, undertaken as a condition, or otherwise required by a Regulatory Authority in order, to obtain or maintain Regulatory Approval for a Product in the Profit-Share Territory. For the avoidance of doubt, any post-marketing requirements or post-marketing commitments will be considered to have been undertaken as a condition, or otherwise required by a Regulatory Authority, for example, if such activities are included in any written plan provided to a Regulatory Authority or if such activities are reflected in any meeting minutes related to a meeting with such Regulatory Authority.

Page 2

The following new definitions are hereby added to Article 1 (Definitions):

“Other Studies” means any Clinical Trial for a Product conducted by or on behalf of either Party in the Profit-Share Territory, other than any Additional Study, Ongoing Development Trials, New Phase III Trial, or PMR/PMC Activities. For clarity, open-label extension studies for a Product conducted by a Party in the Profit-Share Territory will constitute Other Studies.

“Phase I Clinical Trial” means a Clinical Trial (or any arm thereof) of an investigational product that satisfies the requirements of U.S. federal regulation 21 C.F.R. § 312.21(a) and its successor regulation, or an equivalent Clinical Trial prescribed by the relevant Regulatory Authority in a country other than the United States.

[***].

2. Amendment of Article 2 (License Grant):

a. Section 2.6 (No Other Rights; Retained Rights) of the Agreement is hereby deleted in its entirety and replaced with the following:

No Other Rights and Retained Rights.  Except as otherwise expressly provided in this Agreement, under no circumstances will a Party or any of its Affiliates, as a result of this Agreement, obtain any ownership interest, license, or other right in or to any Know How, Patent Rights, or other intellectual property of the other Party, including tangible or intangible items owned, controlled, or developed by the other Party, or provided by the other Party to the receiving Party at any time, pursuant to this Agreement.  [***].

3. Amendment of Article 3 (Development):

a. Section 3.1.5 (Co-Funded Development Plan) of the Agreement is hereby deleted in its entirety and replaced with the following:

(a) Takeda Co-Funded Development Plan.  At least [***] prior to the commencement of any Co-Funded Development Activities, Takeda will prepare a detailed written plan for such activities and submit such plan to the JSC to review, discuss, and determine whether to approve. The development plan for the Co-Funded Development Activities is referred to as the “Co-Funded Development Plan.”  The Co-Funded Development Plan will include: (a) [***] and (b) a detailed written budget, on an activity-by-activity basis, of expected FTE Costs, Out-of-Pocket Costs, and other costs and expenses relating to the performance of such PMR/PMC Activities, Additional Studies, and Other Studies to be conducted by or on behalf of Takeda under the Co-Funded Development Plan on a [***]basis for the subsequent [***], which budget will include [***] (as may be updated by the Parties from time to time, the “Initial Co-Funded Development Budget”, and together with such budget in respect of each subsequent Calendar Year, each, a “Co-Funded Development Budget”). Takeda, through the JSC, will propose updates to the Co-Funded Development Plan on an [***] basis, and will propose a Co-Funded Development Budget for each subsequent [***] no later than [***] of

Page 3

the then-current [***].  In addition, Takeda may propose updates to the Co-Funded Development Plan and the Co-Funded Development Budget as necessary from time-to-time during a Calendar Year. The JSC will review, discuss, and determine whether to approve the proposed Co-Funded Development Plan, including the Initial Co-Funded Development Budget, and each [***]update and any other such proposed material update, in accordance with Section 9.2.3 (Responsibilities of JSC).

(b) Arrowhead Co-Funded Development Plan.  If the JSC requests that Arrowhead perform any Other Study for a Product, then Arrowhead will prepare a detailed written plan for such Other Study and submit such plan to the JSC to review, discuss, and determine whether to approve. The development plan for Development activities in support of any such Other Study is referred to as the “Arrowhead Co-Funded Development Plan.”  The  Arrowhead Co-Funded Development Plan will include: (a) [***] and (b) a detailed written budget, on an activity-by-activity basis, of expected FTE Costs, Out-of-Pocket Costs, and other costs and expenses relating to the performance of such Other Study(ies) to be conducted by or on behalf of Arrowhead under the Arrowhead Co-Funded Development Plan on a [***] basis for the subsequent Calendar Year, which budget will include [***] (as may be updated by the Parties from time to time, the “Initial Arrowhead Co-Funded Development Budget”, and together with such budget in respect of each subsequent Calendar Year, each, a “Arrowhead Co-Funded Development Budget”). Arrowhead, through the JSC, will propose updates to the Arrowhead Co-Funded Development Plan on an [***] basis, and will propose a Arrowhead Co-Funded Development Budget for each subsequent [***] no later than [***] of the then-current [***].  In addition, Arrowhead may propose updates to the Arrowhead Co-Funded Development Plan and the Arrowhead Co-Funded Development Budget as necessary from time-to-time during a Calendar Year. The JSC will review, discuss, and determine whether to approve the proposed Arrowhead Co-Funded Development Plan, including the Initial Arrowhead Co-Funded Development Budget, and each [***] update and any other such proposed update, in accordance with Section 9.2.3 (Responsibilities of JSC).

b. Section 3.2.3(a) (Co-Funded Expenses) of the Agreement is hereby deleted in its entirety and replaced with the following:

(a) Co-Funded Expenses.  (i) The Parties will share the Eligible Development Expenses incurred [***] and (ii) Arrowhead will [***].

c. Section 3.2.3(b) (PMR/PMC Activities) of the Agreement is hereby deleted in its entirety and replaced with the following:

(b) Shared Development Expenses.  Commencing from and after the Execution Date and during the Term, the Parties will share all Eligible Development Expenses [***] at a ratio of [***] (Takeda: Arrowhead) (the “Eligible Development Costs Share Ratio”) in accordance with [***].  Within [***] after the end of each [***] after the Effective Date, ([***] (each such report, an “Eligible Development Expenses Report”). Following receipt of the Eligible Development Expenses Report(s) following a given [***], such Eligible Development Expenses Report(s) will be [***].

Page 4

d. Section 3.2.3(d) (Reimbursement for Additional Studies) of the Agreement is hereby deleted in its entirety and replaced with the following:

(d)Reimbursement for Additional Studies.  Prior to the commencement of each Additional Study, Takeda will submit an invoice to Arrowhead for [***] (the “Forecasted Additional Study Credit”). For each Additional Study, Takeda may [***]. No later than [***] following the completion of each Additional Study, Takeda will provide Arrowhead with a [***] ([***], the “Actual Additional Study Credit”), and (A) if [***] and (B) if [***].

4. Amendment of Article 9 (Governance):

a. Section 9.2.3(a) (Responsibilities of the JSC) of the Agreement is hereby deleted in its entirety and replaced with the following:

(a) review, discuss, and determine whether to approve (i) the Co-Funded Development Plan, Co-Funded Development Budget, and any updates thereto (ii) [***], (iii) any Arrowhead Co-Funded Development Plan, Arrowhead Co-Funded Development Budget, and any updates thereto, and (iv) [***];

5. Amendment of Article 10 (Payments):

a. Section 10.2.3 (Milestone Credits and Adjustments) of the Agreement is hereby deleted in its entirety and replaced with the following:

(a)Additional Studies Credit.  Takeda will [***].

b. Section 10.4.5(b) (Withholding Taxes) of the Agreement is hereby deleted in its entirety and replaced with the following:

(b) Withholding Taxes. The amounts payable pursuant to this Agreement (“Payments”) will not be reduced on account of any Taxes unless required by applicable Law. Any Party making payments pursuant to this Agreement (the “Paying Party”) will deduct and withhold from the Payments made to the other Party (the “Payee”) any Taxes that it is required by applicable Law to deduct or withhold (“Withholding Taxes”), and any such amounts deducted or withheld by the Paying Party will be treated as having been paid to the Payee for purposes of this Agreement. Any such Withholding Taxes will be an expense of and borne by the Payee. If any such Withholding Tax is assessed against, or paid (but in each case not withheld) by the Paying Party, then the Payee will pay the relevant amount of such Withholding Tax to the Paying Party. In the event that a Governmental Authority retroactively determines that a payment made by the Paying Party to the Payee under this Agreement should have been subject to Withholding Taxes (or to additional Withholding Taxes), and the Paying Party remits such Withholding Taxes to the Governmental Authority, including any interest and penalties that may be imposed thereon, at the option of the Paying Party, then the Payee will pay the relevant amount of any Withholding Tax (including any interest and penalties thereon) to the Paying Party. Notwithstanding the foregoing, if the Payee is entitled under any applicable tax treaty to a reduction of rate of, or the elimination of, or recovery of, applicable Withholding Tax, then it may deliver to the Paying Party or the appropriate Governmental Authority the prescribed forms necessary to reduce the applicable rate of withholding or to relieve the Paying Party of its

Page 5

obligation to withhold tax. If the Payee timely delivers to the Paying Party a validly executed form establishing a reduced rate or exemption from withholding, the Paying Party shall apply the reduced rate of withholding, or not withhold, as the case may be, provided that the Paying Party is in receipt of evidence, in a form reasonably satisfactory to the Paying Party, for example the Payee’s delivery of all applicable documentation, at least two weeks prior to the time that the Payments are due. If, in accordance with the foregoing, the Paying Party withholds any amount, then it will pay to the Payee the balance when due, make timely payment (or cause its agent to make timely payment) to the proper taxing authority of the withheld amount, and send the Payee proof of such payment within [***]following that payment.

6. Other Terms Unchanged.  The Agreement, except where explicitly amended by this First Amendment, will remain unchanged and in full force and effect and is in all respects agreed to, ratified and confirmed hereby.  Any reference to the Agreement after the First Amendment Effective Date will be deemed to be a reference to the Agreement, as amended by this First Amendment.  

7. Effectiveness.  This First Amendment will be effective as of the First Amendment Effective Date.

8. Governing Law.  This First Amendment will be construed in accordance with and governed by the laws of the State of New York, without giving effect to the provisions, policies or principles thereof relating to choice or conflict of laws.

9. Severability.  If any provision of this First Amendment or the application thereof to any Person or circumstance will, for any reason and to any extent, be invalid or unenforceable, the remainder of this First Amendment and the application of that provision to other Persons or circumstances will not be affected, but rather will be enforced to the extent permitted by Applicable Law.

10. Headings.  The section headings used in this First Amendment are for convenience only and will not be read or construed as limiting the substance or generality of this First Amendment.

11. Counterparts.  This First Amendment may be signed in one or more counterparts, each of which will be considered an original, with the same effect as if the signatures were upon the same instrument.

12. Modification.  This First Amendment may be amended, modified, renewed or extended only by written instrument executed by all Parties hereto.

SIGNATURES APPEAR ON THE FOLLOWING PAGE

Page 6

IN WITNESS WHEREOF, the Parties hereto have caused this First Amendment to be executed as of the First Amendment Effective Date by their respective officers thereunto duly authorized.  

TAKEDA PHARMACEUTICALS U.S.A., INC.

BY: /s/ Nenad Grmusa

NAME: Nenad Grmusa

TITLE: Head, Center for External Innovation

ARROWHEAD PHARMACEUTICALS, INC.

BY: /s/ Chris Anzalone

NAME: Chris Anzalone

TITLE:CEO

[Signature Page to First Amendment to Exclusive License and Co-Funding Agreement]

EX-31.1

Exhibit 31.1

CERTIFICATION PURSUANT SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Christopher Anzalone, Chief Executive Officer of Arrowhead Pharmaceuticals, Inc., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Arrowhead Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2022
	/s/ CHRISTOPHER ANZALONE
	Christopher Anzalone
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION PURSUANT SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Kenneth A. Myszkowski, Chief Financial Officer of Arrowhead Pharmaceuticals, Inc., certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Arrowhead Pharmaceuticals, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 10, 2022
	/s/ Kenneth A. Myszkowski
	Kenneth A. Myszkowski,
	Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Christopher Anzalone, Chief Executive Officer of Arrowhead Pharmaceuticals, Inc. (the “Company”), certify, pursuant to Rule 13(a)-14(b) or Rule 15(d)-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, that (i) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2022, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of the Company.

Date: May 10, 2022
	/s/ CHRISTOPHER ANZALONE
	Christopher Anzalone
	Chief Executive Officer

A signed original of these written statements required by 18 U.S.C. Section 1350 has been provided to Arrowhead Pharmaceuticals, Inc. and will be retained by Arrowhead Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Kenneth A. Myszkowski, Chief Financial Officer of Arrowhead Pharmaceuticals, Inc. (the “Company”), certify, pursuant to Rule 13(a)-14(b) or Rule 15(d)-14(b) of the Securities Exchange Act of 1934 and 18 U.S.C. Section 1350, that (i) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended March 31, 2022, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of the Company.

Date: May 10, 2022
	/s/ Kenneth A. Myszkowski
	Kenneth A. Myszkowski
	Chief Financial Officer

A signed original of these written statements required by 18 U.S.C. Section 1350 has been provided to Arrowhead Pharmaceuticals, Inc. and will be retained by Arrowhead Pharmaceuticals, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	6 Months Ended
	Mar. 31, 2022	May 05, 2022
Cover [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2022
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q2
Trading Symbol	ARWR
Entity Registrant Name	ARROWHEAD PHARMACEUTICALS, INC.
Entity Central Index Key	0000879407
Entity Current Reporting Status	Yes
Current Fiscal Year End Date	--09-30
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		105,736,200
Entity Shell Company	false
Entity Small Business	false
Entity Emerging Growth Company	false
Entity File Number	001-38042
Entity Tax Identification Number	46-0408024
Entity Address, Address Line One	177 E. Colorado Blvd
Entity Address, Address Line Two	Suite 700
Entity Address, City or Town	Pasadena
Entity Address, State or Province	CA
Entity Address, Postal Zip Code	91105
City Area Code	626
Local Phone Number	304-3400
Document Quarterly Report	true
Document Transition Report	false
Title of 12(b) Security	Common Stock, par value $0.001 per share
Security Exchange Name	NASDAQ
Entity Incorporation, State or Country Code	DE
Entity Interactive Data Current	Yes

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2022	Sep. 30, 2021
CURRENT ASSETS
Cash and cash equivalents	$ 86,408	$ 184,434
Accounts receivable	1,317	10,255
Prepaid expenses	6,622	4,362
Other current assets	7,796	2,191
Marketable securities	122,575	126,728
Short term investments	192,912	56,627
TOTAL CURRENT ASSETS	417,630	384,597
Property and equipment, net	54,888	48,675
Intangible assets, net	12,813	13,663
Long term investments	201,590	245,595
Right-of-use assets	16,379	17,346
Other assets	275	272
TOTAL ASSETS	703,575	710,148
CURRENT LIABILITIES
Accounts payable	10,603	9,457
Accrued expenses	23,710	14,001
Accrued payroll and benefits	3,765	9,773
Lease liabilities	2,910	2,250
Deferred revenue	97,869	111,055
TOTAL CURRENT LIABILITIES	138,857	146,536
LONG-TERM LIABILITIES
Lease liabilities, net of current portion	22,698	23,295
Deferred revenue, net of current portion	89,754	131,495
TOTAL LONG-TERM LIABILITIES	112,452	154,790
Commitments and contingencies (Note 7)
Arrowhead Pharmaceuticals, Inc. stockholders’ equity:
Common stock, $0.001 par value; 145,000 shares authorized; 105,702 and 104,327 shares issued and outstanding as of March 31, 2022 and September 30, 2021, respectively	198	197
Additional paid-in capital	1,115,373	1,053,386
Accumulated other comprehensive loss	(107)	(69)
Accumulated deficit	(663,198)	(644,692)
TOTAL STOCKHOLDERS’ EQUITY	452,266	408,822
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$ 703,575	$ 710,148

XML

Consolidated Balance Sheets (Parenthetical) - $ / shares	Mar. 31, 2022	Sep. 30, 2021
Statement Of Financial Position [Abstract]
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	145,000,000	145,000,000
Common stock, shares issued	105,702,000	104,327,000
Common stock, shares outstanding	105,702,499	104,327,000

XML

Consolidated Statements of Operations and Comprehensive Income (Loss) (unaudited) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Mar. 31, 2022	Mar. 31, 2021
Income Statement [Abstract]
REVENUE	$ 151,805	$ 32,811	$ 179,244	$ 54,113
OPERATING EXPENSES
Research and development	75,985	44,697	141,750	81,251
General and administrative expenses	34,267	16,346	59,262	25,147
TOTAL OPERATING EXPENSES	110,252	61,043	201,012	106,398
OPERATING INCOME (LOSS)	41,553	(28,232)	(21,768)	(52,285)
OTHER INCOME (EXPENSE)
Interest income, net	1,054	1,524	2,210	3,692
Other income (expense)	1,759	(110)	1,052	1,043
TOTAL OTHER INCOME (EXPENSE)	2,813	1,414	3,262	4,735
INCOME (LOSS) BEFORE INCOME TAXES	44,366	(26,818)	(18,506)	(47,550)
NET INCOME (LOSS)	$ 44,366	$ (26,818)	$ (18,506)	$ (47,550)
NET INCOME (LOSS) PER SHARE - BASIC	$ 0.42	$ (0.26)	$ (0.18)	$ (0.46)
NET INCOME (LOSS) PER SHARE - DILUTED	$ 0.41	$ (0.26)	$ (0.18)	$ (0.46)
Weighted average shares outstanding - basic	105,545	103,867	105,034	103,303
Weighted average shares outstanding - diluted	107,929	103,867	105,034	103,303
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Foreign currency translation adjustments	$ 1	$ (96)	$ (38)	$ 84
COMPREHENSIVE INCOME (LOSS)	$ 44,367	$ (26,914)	$ (18,544)	$ (47,466)

XML

Consolidated Statements of Stockholders' Equity (unaudited) - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Income (Loss)	Accumulated Deficit
Beginning Balance, Amount at Sep. 30, 2020	$ 461,779	$ 195	$ 965,410	$ 18	$ (503,844)
Beginning Balance, Shares at Sep. 30, 2020		102,376,000
Stock-based compensation	23,502		23,502
Exercise of stock options, Amount	7,734		7,734
Exercise of stock options, Shares		820,000
Common stock - restricted stock units vesting, Amount		$ 1	(1)
Common stock - restricted stock units vesting, Shares		824,000
Foreign currency translation adjustments	84			84
Net income (loss)	(47,550)				(47,550)
Ending Balance, Amount at Mar. 31, 2021	445,549	$ 196	996,645	102	(551,394)
Ending Balance, Shares at Mar. 31, 2021		104,020,000
Beginning Balance, Amount at Dec. 31, 2020	454,472	$ 195	978,655	198	(524,576)
Beginning Balance, Shares at Dec. 31, 2020		103,194,000
Stock-based compensation	15,359		15,359
Exercise of stock options, Amount	2,632		2,632
Exercise of stock options, Shares		282,000
Common stock - restricted stock units vesting, Amount		$ 1	(1)
Common stock - restricted stock units vesting, Shares		544,000
Foreign currency translation adjustments	(96)			(96)
Net income (loss)	(26,818)				(26,818)
Ending Balance, Amount at Mar. 31, 2021	445,549	$ 196	996,645	102	(551,394)
Ending Balance, Shares at Mar. 31, 2021		104,020,000
Beginning Balance, Amount at Sep. 30, 2021	408,822	$ 197	1,053,386	(69)	(644,692)
Beginning Balance, Shares at Sep. 30, 2021		104,327,000
Stock-based compensation	58,306		58,306
Exercise of stock options, Amount	$ 3,682		3,682
Exercise of stock options, Shares	444,764	444,000
Common stock - restricted stock units vesting, Amount		$ 1	(1)
Common stock - restricted stock units vesting, Shares		931,000
Foreign currency translation adjustments	$ (38)			(38)
Net income (loss)	(18,506)				(18,506)
Ending Balance, Amount at Mar. 31, 2022	452,266	$ 198	1,115,373	(107)	(663,198)
Ending Balance, Shares at Mar. 31, 2022		105,702,000
Beginning Balance, Amount at Dec. 31, 2021	372,560	$ 197	1,080,035	(108)	(707,564)
Beginning Balance, Shares at Dec. 31, 2021		104,798,000
Stock-based compensation	33,802		33,802
Exercise of stock options, Amount	1,537		1,537
Exercise of stock options, Shares		237,000
Common stock - restricted stock units vesting, Amount		$ 1	(1)
Common stock - restricted stock units vesting, Shares		667,000
Foreign currency translation adjustments	1			1
Net income (loss)	44,366				44,366
Ending Balance, Amount at Mar. 31, 2022	$ 452,266	$ 198	$ 1,115,373	$ (107)	$ (663,198)
Ending Balance, Shares at Mar. 31, 2022		105,702,000

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Mar. 31, 2022	Mar. 31, 2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$ (18,506)	$ (47,550)
Stock-based compensation	58,307	23,502
Depreciation and amortization	5,167	3,766
Unrealized (gains) losses on marketable securities	4,153	(773)
Amortization/(accretion) of note premiums/discounts	329	193
Changes in operating assets and liabilities:
Accounts receivable	8,938	(109)
Prepaid expenses and other current assets	(7,914)	(2,213)
Deferred revenue	(54,926)	247,118
Accounts payable	1,146	(1,530)
Accrued expenses	3,699	2,271
Other	990	276
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES	1,383	224,951
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment	(10,530)	(11,437)
Purchases of investments	(148,391)	(40,000)
Proceeds from sale of investments	55,781	47,545
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES	(103,140)	(3,892)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the exercises of stock options	3,731	7,735
NET CASH PROVIDED BY FINANCING ACTIVITIES	3,731	7,735
NET INCREASE (DECREASE) IN CASH	(98,026)	228,794
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	184,434	143,583
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$ 86,408	$ 372,377

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Organization and Significant Accounting Policies

6 Months Ended

Mar. 31, 2021

Accounting Policies [Abstract]

Organization and Significant Accounting Policies

NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Business and Recent Developments

Arrowhead Pharmaceuticals, Inc. develops medicines that treat intractable diseases by silencing the genes that cause them. Using a broad portfolio of RNA chemistries and efficient modes of delivery, Arrowhead therapies trigger the RNA interference mechanism to induce rapid, deep and durable knockdown of target genes. RNA interference (“RNAi”) is a mechanism present in living cells that inhibits the expression of a specific gene, thereby affecting the production of a specific protein. Arrowhead’s RNAi-based therapeutics leverage this natural pathway of gene silencing. The Company’s pipeline includes ARO-APOC3 for hypertriglyceridemia, ARO-ANG3 for dyslipidemia, ARO-ENaC2 for cystic fibrosis, ARO-DUX4 for facioscapulohumeral muscular dystrophy, ARO-COV for the coronavirus that causes COVID-19 and other possible future pulmonary-borne pathogens, ARO-C3 for complement mediated diseases and ARO-RAGE and ARO-MUC5AC for various muco-obstructive or inflammatory pulmonary conditions. ARO-HSD for liver disease was out-licensed to Glaxosmithkline Intellectual Property (No. 3) Limited (“GSK”) in November 2021.  ARO-XDH is being developed for uncontrolled gout under a collaboration agreement with Horizon Therapeutics Ireland DAC (“Horizon”). JNJ-75220795 (ARO-JNJ1) is being developed by Janssen as a potential treatment for patients with non-alcoholic steatohepatitis (NASH). ARO-AAT for liver disease associated with alpha-1 antitrypsin deficiency (“AATD”) was out-licensed to Takeda Pharmaceuticals U.S.A., Inc. (“Takeda”) in October 2020. JNJ-3989 (formerly referred to as ARO-HBV) for chronic hepatitis B virus was out-licensed to Janssen in October 2018.  Olpasiran (formerly referred to as AMG 890 or ARO-LPA) for cardiovascular disease was out-licensed to Amgen Inc. (“Amgen”) in 2016. While the Company believes that initial ARO-HIF2 Phase 1 clinical data provides proof of concept for the ability to deliver siRNA to RCC tumors, the Company has decided not to pursue further clinical development of ARO-HIF2 based on a number of factors including the evolving competitive landscape for HIF2 inhibitors.

Arrowhead operates lab facilities in Madison, Wisconsin and San Diego, California, where the Company’s research and development activities, including the development of RNAi therapeutics, take place. The Company’s principal executive offices are located in Pasadena, California.

During the first half of fiscal 2022, the Company continued to develop and advance its pipeline and partnered candidates and expanded its facilities to support the Company’s growing pipeline. Several key recent developments include:

i) dosed the first patients in its PALISADE study, a phase 3 clinical study to evaluate the safety and efficacy of ARO-APOC3 in adults with familial chylomicronemia syndrome (FCS);

ii) entered into an exclusive license agreement with GSK for ARO-HSD;

iii) Janssen presented clinical data from REEF-1, a Phase 2b study of different combination regimens, including JNJ-73763989 (JNJ-3989), formerly called ARO-HBV, and/or JNJ-56136379 (JNJ-6379), and a nucleos(t)ide analog (NA) for the treatment of chronic hepatitis B virus infection (CHB);

iv) filed for regulatory clearance to begin a Phase 1/2a study of ARO-C3 and subsequently dosed the first subjects in AROC3-1001, a Phase 1/2 clinical study of ARO-C3, the Company’s investigational RNA interference (RNAi) therapeutic designed to reduce production of complement component 3 (C3) as a potential therapy for various complement mediated diseases;

v) presented additional interim clinical data from AROHSD1001, AROAAT2002, and AROAPOC31001;

vi) completed the purchase of 13 acres of land in the Verona Technology Park in Verona, Wisconsin, which is planned to be the site of an approximately 140,000 square foot drug manufacturing facility and an approximately 115,000 square foot laboratory and office facility and entered into a lease agreement for a new 144,000 square foot laboratory and office facility in San Diego, California.  Both facilities will provide additional space to support the Company’s continued growth;

vii) completed enrollment in Phase 2b ARCHES-2 study of investigational ARO-ANG3 for patients with mixed dyslipidemia;

viii) filed for regulatory clearance to initiate Phase 1/2a study of ARO-RAGE for treatment of Asthma;

ix) filed for regulatory clearance to initiate Phase 1/2a study of ARO-MUC5AC for treatment of muco-obstructive lung disease;

x) initiated and dosed the first patients in the Phase 2 GATEWAY clinical study of investigational ARO-ANG3 for the treatment of patients with homozygous familial hypercholersterolemia;

xi) decided not to pursue further clinical development of ARO-HIF2 based on a number of factors including the evolving competitive landscape for HIF2 inhibitors.

The Company is actively monitoring the ongoing COVID-19 pandemic. The financial results for the three and six months ended March 31, 2022 were not significantly impacted by COVID-19. Operationally, the Company has experienced delays in its earlier stage programs due to a shortage in non-human primates, which are critical to the Company’s preclinical programs. Additionally, the Company has experienced delays in enrollment in its clinical trials. The Company’s operations at its research and development facilities in Madison, Wisconsin and San Diego, California, and its corporate headquarters in Pasadena, California have continued with limited impact, other than for enhanced safety measures, including work from home policies and intermittent lab supply shortages. However, the Company cannot predict the impact the progression of COVID-19 will have on future financial and operational results due to a variety of factors, including the ability of the Company’s clinical sites to continue to enroll subjects, the ability of the Company’s suppliers to continue to operate, the continued good health and safety of the Company’s employees and the length and severity of the COVID-19 pandemic.

Liquidity

The Consolidated Financial Statements have been prepared in conformity with the accounting principles generally accepted in the United States of America (“GAAP”), which contemplate the continuation of the Company as a going concern.  Historically, the Company’s primary sources of financing have been through the sale of its securities and revenue from its licensing and collaboration agreements. Research and development activities have required significant capital investment since the Company’s inception and are expected to continue to require significant cash expenditure in the future, particularly as the Company’s pipeline of drug candidates and its headcount have both expanded significantly.  Additionally, significant capital investment will be required as the Company’s pipeline matures into later stage clinical trials, as well as with the Company’s plans to increase its internal manufacturing capabilities, as well as expand its footprint in Verona, Wisconsin and San Diego, California. 

At March 31, 2022, the Company had $86.4 million in cash and cash equivalents (including $7.9 million in restricted cash), $192.9 million in short-term investments, $122.6 million in marketable securities and $201.6 million in long-term investments to fund operations.  During the six months ended March 31, 2022, the Company’s cash and investments balance decreased by $9.9 million, which was primarily due to cash being used to fund the Company’s operations, partially offset by the $120.0 million upfront payment received from GSK.  

In total, the Company remains eligible for $4.9 billion in developmental, regulatory and sales milestones and various royalties on net sales from its licensing and collaboration agreements.  The revenue recognition for these collaboration agreements is discussed further in Note 2 below.  

Summary of Significant Accounting Policies

There have been no changes to the significant accounting policies disclosed in the Company’s most recent Annual Report on Form 10-K.

Recent Accounting Pronouncements  

There have been no recent accounting pronouncements that have significantly impacted this Quarterly Report on Form 10-Q, beyond those disclosed in the Company’s most recent Annual Report on Form 10-K.

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Collaboration and License Agreements

6 Months Ended

Mar. 31, 2022

Collaboration And License Agreements [Abstract]

Collaboration and License Agreements

NOTE 2. COLLABORATION AND LICENSE AGREEMENTS

Amgen Inc.

On September 28, 2016, the Company entered into two collaboration and license agreements and a common stock purchase agreement with Amgen. Under the Second Collaboration and License Agreement (the “Olpasiran Agreement”), Amgen has received a worldwide, exclusive license to Arrowhead’s novel RNAi Olpasiran (previously referred to as AMG 890 or ARO-LPA) program. These RNAi molecules are designed to reduce elevated lipoprotein(a), which is a genetically validated, independent risk factor for atherosclerotic cardiovascular disease. Under the prior collaboration and license agreement (the “First Collaboration and License Agreement” or the “ARO-AMG1 Agreement”), Amgen received an option to a worldwide, exclusive license for ARO-AMG1, an RNAi therapy for an undisclosed genetically validated cardiovascular target. Under both agreements, Amgen is wholly responsible for clinical development and commercialization. Under the terms of the agreements taken together, the Company has received $35.0 million in upfront payments, $21.5 million in the form of an equity investment by Amgen in the Company’s Common Stock, and $30.0 million in milestone payments, and may receive up to an additional $400.0 million in remaining development, regulatory and sales milestone payments. The Company is further eligible to receive up to low double-digit royalties for sales of products under the Olpasiran Agreement. In July 2019, Amgen informed the Company that it would not be exercising its option for an exclusive license for ARO-AMG1, and as such, there will be no further milestone or royalty payments under the ARO-AMG1 Agreement.     

The Company has evaluated these agreements in accordance with FASB Topics 808 – Collaboration Arrangements and 606 - Revenue for Contracts from Customers. The Company has substantially completed its performance obligations under the Olpasiran Agreement and the ARO-AMG1 Agreement. Future milestones and royalties achieved will be recognized in their entirety when earned. In July 2020, Amgen initiated a Phase 2 clinical study of Olpasiran, which resulted in a $20.0 million milestone payment to the Company. During the three and six months ended March 31, 2022 and 2021, the Company recognized $0 and $0 of revenue associated with its agreement with Amgen, respectively. As of March 31, 2022, there were $0 in contract assets recorded as accounts receivable and $0 contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.

Janssen Pharmaceuticals, Inc.

On October 3, 2018, the Company entered into a License Agreement (the “Janssen License Agreement”) and a Research Collaboration and Option Agreement (the “Janssen Collaboration Agreement”) with Janssen, part of the Janssen Pharmaceutical Companies of Johnson & Johnson.  The Company also entered into a stock purchase agreement with JJDC (“JJDC Stock Purchase Agreement”).  Under the Janssen License Agreement, Janssen has received a worldwide, exclusive license to the Company’s JNJ-3989 (ARO-HBV) program, the Company’s third-generation subcutaneously administered RNAi therapeutic candidate being developed as a potential therapy for patients with chronic hepatitis B virus infection. Beyond the Company’s Phase 1/2 study of JNJ-3989 (ARO-HBV), which the Company was responsible for completing, Janssen is wholly responsible for clinical development and commercialization of JNJ-3989.  Under the Janssen Collaboration Agreement, Janssen was able to select three new targets against which Arrowhead would develop clinical candidates.  These candidates were subject to certain restrictions and do not include candidates that already were in the Company’s pipeline.  The Company was obligated to perform discovery, optimization and preclinical research and development, entirely funded by Janssen, which on its own or in combination with Janssen development work, would have been sufficient to allow the filing of a U.S. Investigational New Drug Application or equivalent, at which time Janssen would have the option to take an exclusive license. If the option was exercised, Janssen would have been wholly responsible for clinical development and commercialization of each optioned candidate.  Under the terms of the agreements taken together, the Company has received $175.0 million as an upfront payment, $75.0 million in the form of an equity investment by JJDC in Arrowhead Common Stock under the JJDC Stock Purchase Agreement, and milestone and option payments totaling $73.0 million, and the Company may receive up to $1.6 billion in development and sales milestones payments for the Janssen License Agreement, and up to $0.6 billion in development and sales milestone payments for the remaining target covered under the Janssen Collaboration Agreement. The Company is further eligible to receive tiered royalties on product sales up to mid-teens under the Janssen License Agreement and up to low teens under the Janssen Collaboration Agreement. During the three months ended March 31, 2022, Janssen’s option period expired unexercised for two of the three candidates (ARO-JNJ2 and ARO-JNJ3) under the Janssen Collaboration Agreement.

The Company has evaluated these agreements in accordance with FASB Topics 808 – Collaboration Arrangements and 606 - Revenue for Contracts from Customers.  At the inception of these agreements, the Company identified one distinct performance obligation.  Regarding the Janssen License Agreement, the Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibility to complete the Phase 1/2 study of JNJ-3989 (ARO-HBV) and the Company’s responsibility to ensure certain manufacturing of JNJ-3989 (ARO-HBV) drug product is completed and delivered to Janssen (the “Janssen R&D Services”).  Due to the specialized and unique nature of these Janssen R&D Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation.  The Company also determined that Janssen’s option to require the Company to develop up to three new targets is not a material right and, thus, not a performance obligation at the onset of the agreement.  The consideration for this option is accounted for separately.

The Company determined the transaction price totaled approximately $252.7 million, which includes the upfront payment, the premium paid by JJDC for its equity investment in the Company, two $25.0 million milestone payments related to JNJ-3989 (ARO-HBV), and estimated payments for reimbursable Janssen R&D Services to be performed.  The Company has allocated the total $252.7 million initial transaction price to its one distinct performance obligation for the JNJ-3989 (ARO-HBV) license and the associated Janssen R&D Services.  The Company has recognized this transaction price in its entirety as of September 30, 2021, as its performance obligations were substantially completed. Future milestones and royalties achieved will be recognized in their entirety when earned.  During the three months ended March 31, 2022 and 2021, the Company recognized approximately $0 and $7.5 million of revenue associated with this performance obligation, respectively. During the six months ended March 31, 2022 and 2021, the Company recognized approximately $0 and $20.2 million of revenue associated with this performance obligation, respectively. As of March 31, 2022, there were $0 in contract assets recorded as accounts receivable, and $0 of contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.  

The Company has conducted its discovery, optimization and preclinical research and development of JNJ-75220795 (ARO-JNJ1), ARO-JNJ2, and ARO-JNJ3 under the Janssen Collaboration Agreement.  All costs and labor hours spent by the Company have been entirely funded by Janssen. During the three months ended March 31, 2022, Janssen’s option period expired unexercised for two of the three candidates (ARO-JNJ2 and ARO-JNJ3) under the Janssen Collaboration Agreement. During the three months ended March 31, 2022 and 2021, the Company recognized $0.1 million and $0.1 million of revenue associated with these efforts, respectively. During the six months ended March 31, 2022 and 2021, the Company recognized $0.1 million and $0.3 million of revenue associated with these efforts, respectively. As of March 31, 2022, there were $0.1 million of contract assets recorded as accounts receivable and $0 of contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.

Takeda Pharmaceuticals U.S.A., Inc.

On October 7, 2020, the Company entered into an Exclusive License and Co-funding agreement (the “Takeda License Agreement”) with Takeda.  Under the Takeda License Agreement, Takeda and the Company will co-develop the Company’s ARO-AAT program, the Company’s second-generation subcutaneously administered RNAi therapeutic candidate being developed as a treatment for liver disease associated with alpha-1 antitrypsin deficiency. Within the United States, ARO-AAT, if approved, will be co-commercialized under a 50/50 profit sharing structure. Outside the United States, Takeda will lead the global commercialization strategy and will receive an exclusive license to commercialize ARO-AAT, while the Company will be eligible to receive tiered royalties of 20% to 25% on net sales.  In January 2021, the Company received $300.0 million as an upfront payment and is eligible to receive potential development, regulatory and commercial milestones of up to $740.0 million.  

The Company has evaluated the Takeda License Agreement in accordance with FASB Topics 808 – Collaborative Arrangements and 606 - Revenue for Contracts from Customers. At the inception of the Takeda License Agreement, the Company identified one distinct performance obligation.  The Company determined that the key deliverables included the license and certain R&D services including the Company’s responsibilities to complete the initial portion of the SEQUOIA study, to complete the ongoing Phase 2 AROAAT2002 study and to ensure certain manufacturing of ARO-AAT drug product is completed and delivered to Takeda (the “Takeda R&D Services”).  Due to the specialized and unique nature of these Takeda R&D Services and their direct relationship with the license, the Company determined that these deliverables represent one distinct bundle and, thus, one performance obligation.  Beyond the Takeda R&D Services, which are the responsibility of the Company, Takeda will be responsible for managing future clinical development and commercialization outside the United States.  Within the United States, the Company will also participate in co-development and co-commercialization efforts and will co-fund these efforts with Takeda as part of the 50/50 profit sharing structure within the United States.  The Company considers the collaborative activities, including the co-development and co-commercialization, to be a separate unit of account within Topic 808, and as such, these co-funding amounts will be recorded as Research and Development Expenses or General and Administrative Expenses, as appropriate.  

The Company determined the initial transaction price totaled $300.0 million, which includes the upfront payment.  The Company has excluded any future milestones or royalties from this transaction price to date.  The Company has allocated the total $300.0 million initial transaction price to its one distinct performance obligation for the ARO-AAT license and the associated Takeda R&D Services.  Revenue will be recognized using a proportional performance method (based on actual patient visits completed versus total estimated visits completed for the ongoing SEQUOIA and AROAAT2002 clinical studies). Revenue for the three months ended March 31, 2022 and 2021 was $20.8 million and $25.4 million, respectively. Revenue for the six months ended March 31, 2022 and 2021 was $41.6 million and $33.6 million, respectively. As of March 31, 2022, there were $0 in contract assets recorded as accounts receivable, $77.9 million in contract liabilities recorded as deferred revenue and $89.8 million in contract liabilities recorded as deferred revenue, net of the current portion, and $5.0 million in contract liabilities recorded as accrued expenses.  The $5.0 million in accrued expenses was primarily driven by co-development and co-commercialization activities.  

Horizon Therapeutics Ireland DAC

On June 18, 2021, the Company entered into the Horizon License Agreement with Horizon.  Under the Horizon License Agreement, Horizon received a worldwide exclusive license for ARO-XDH, a previously undisclosed discovery-stage investigational RNAi therapeutic being developed by the Company as a potential treatment for people with uncontrolled gout. The Company will

conduct all activities through the preclinical stages of development of ARO-XDH, and Horizon will be wholly responsible for clinical development and commercialization of ARO-XDH. In July 2021, the Company received $40 million as an upfront payment and is eligible to receive up to $660 million in potential development, regulatory and sales milestones.  The Company is also eligible to receive royalties in the low- to mid-teens range on net product sales.  

The Company has evaluated the Horizon License Agreement in accordance with FASB Topics 808 – Collaborative Arrangements and 606 - Revenue for Contracts from Customers. At the inception of the Horizon License Agreement, the Company identified one distinct performance obligation.  The Company determined that the key deliverables included the license and certain R&D services, including the Company’s responsibilities to conduct all activities through the preclinical stages of development of ARO-XDH (the “Horizon R&D Services”).  Due to the specialized and unique nature of these Horizon R&D Services and their direct relationship with the license, the Company determined that these deliverables represented one distinct bundle and, thus, one performance obligation.  Beyond the Horizon R&D Services, which are the responsibility of the Company, Horizon will be responsible for managing future clinical development and commercialization of ARO-XDH.  

The Company determined the initial transaction price totaled $40.0 million, including the upfront payment.  The Company has excluded any future estimated milestones or royalties, from this transaction price to date.  The Company will allocate the total $40.0 million initial transaction price to its one distinct performance obligation for the ARO-XDH license and the associated Horizon R&D Services. Revenue will be recognized on a straight-line basis over the estimated timeframe for completing the Horizon R&D Services.  The Company determined that the straight-line basis was appropriate as its efforts will be expended evenly over the course of completing its performance obligation. Revenue for the three months ended March 31, 2022 and 2021 was $6.7 million and $0, respectively. Revenue for the six months ended March 31, 2022 and 2021 was $13.3 million and $0, respectively. As of March 31, 2022, there were $0 million in contract assets recorded as accounts receivable, $20.0 million in contract liabilities recorded as deferred revenue.

         The Company has manufactured ARO-XDH material for Horizon in furtherance of the research plan entered into pursuant to the Horizon License Agreement, for which the Company has been reimbursed for its costs. During the three and six months ended March 31, 2022 and 2021, the Company recognized $1.3 million and $0 with these efforts, respectively. As of March 31, 2022, there were $1.3 million of contract assets recorded as accounts receivable and $0 of contract liabilities recorded as current deferred revenue on the Company’s Consolidated Balance Sheets.  
 

Glaxosmithkline Intellectual Property (No. 3) Limited

On November 22, 2021, the Company entered into an Exclusive License Agreement (the “GSK License Agreement”) with GSK.  Under the GSK License Agreement, GSK has received an exclusive license for ARO-HSD, the Company’s investigational RNAi therapeutic being developed as a treatment for patients with alcohol-related and nonalcohol related liver diseases, such as nonalcoholic steatohepatitis (NASH).  The exclusive license is worldwide with the exception of greater China, for which the Company retained rights to develop and commercialize.  Beyond the Company’s Phase 1/2 study of (ARO-HSD), which the Company is responsible for completing, GSK is wholly responsible for clinical development and commercialization of ARO-HSD in its territory. Under the terms of the agreement, the Company has received an upfront payment of $120 million and is eligible for additional payments of $30 million at the start of Phase 2 and $100 million upon achieving a successful Phase 2 trial readout and the first patient dosed in a Phase 3 trial. Furthermore, should the Phase 3 trial read out positively, and the potential new medicine receives regulatory approval in major markets, the deal provides for commercial milestone payments to the Company of up to $190 million at first commercial sale, and up to $590 million in sales-related milestone payments. The Company is further eligible to receive tiered royalties on net product sales in a range of mid-teens to twenty percent.

The Company has evaluated the GSK License Agreement in accordance with FASB Topics 808 – Collaborative Arrangements and 606 - Revenue for Contracts from Customers. At the inception of the GSK License Agreement, the Company identified one distinct performance obligation.  The Company determined that the key deliverables included the license and certain R&D services, including the Company’s responsibility to complete the Phase 1/2 study, (the “GSK R&D Services”).  Due to the specialized and unique nature of these GSK R&D Services and their direct relationship with the license, the Company determined that these deliverables represented one distinct bundle and, thus, one performance obligation.  Beyond the GSK R&D Services, which are the responsibility of the Company, GSK will be responsible for managing future clinical development and commercialization in its territory.  

The Company determined the initial transaction price totaled $120.0 million, including the upfront payment. The $120.0 million upfront payment was collected in January 2022. The Company has excluded any future estimated milestones or royalties from this transaction price to date.  The Company has allocated the total $120.0 million initial transaction price to its one distinct performance obligation for the ARO-HSD license and the associated GSK R&D Services.  As the Company has completed its performance obligation related to this agreement, the upfront payment of $120.0 million will be fully recognized as of the three and six months ended March 31, 2022.  Revenue for the three and six months ended March 31, 2022 and 2021 was $120.0 million and $0, respectively. As of March 31, 2022, there were $0 in contract assets recorded as accounts receivable, $0 in contract liabilities recorded as deferred revenue.

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Property and Equipment

6 Months Ended

Mar. 31, 2022

Property Plant And Equipment [Abstract]

Property and Equipment

NOTE 3. PROPERTY AND EQUIPMENT

The following table summarizes the Company’s major classes of property and equipment:

	March 31, 2022			September 30, 2021
	(In thousands)
Computers, software, office equipment and furniture	$	2,272		$	2,170
Research equipment		28,370			27,500
Leasehold improvements		42,017			41,524
Construction in Progress		6,414			345
Land		2,996			-
Total gross fixed assets		82,069			71,539
Less: Accumulated depreciation and amortization		(27,181	)		(22,864	)
Property and equipment, net	$	54,888		$	48,675

Depreciation and amortization expense for property and equipment for the three months ended March 31, 2022 and 2021 was $2.2 million and $1.5 million, respectively. Depreciation and amortization expense for property and equipment for the six months ended March 31, 2022 and 2021 was $4.3 million and $2.9 million, respectively. Construction in Progress relates to the Company’s Verona and San Diego research facilities. Land relates to the Company’s Verona, Wisconsin research facility.

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Investments

3 Months Ended

Dec. 31, 2021

Held To Maturity Securities Classified [Abstract]

Investments

NOTE 4. INVESTMENTS

Investments at March 31, 2022 primarily consisted of corporate bonds that have maturities of less than 36 months, a certificate of deposit and marketable equity securities. The Company’s corporate bonds consist of both short-term and long-term bonds and are classified as “held-to-maturity” on the Company’s Consolidated Balance Sheets. The Company’s certificate of deposit matures in less than 12 months and is classified as “held-to-maturity” on the Company’s Consolidated Balance Sheet, or classified as cash and cash equivalents if the corporate bonds are purchased 90 days or less from maturity.  The Company’s marketable equity securities consist of mutual funds that primarily invest in U.S. government bonds, U.S. government agency bonds, corporate bonds and other asset-backed debt securities. Dividends from these funds are automatically re-invested.  The Company may also invest excess cash balances in money market accounts, government-sponsored enterprise securities, and/or commercial paper. These securities are classified as cash and cash equivalents on the Company’s Consolidated Balance Sheet. The Company accounts for its held to maturity investments in accordance with FASB ASC 320, Investments – Debt and Equity Securities and its marketable equity securities in accordance with ASC 321, Investments – Equity Securities.  We did not record any impairment charges related to our marketable debt securities during the three and six months ended March 31, 2022.

The following tables summarize the Company’s short-term and long-term investments and marketable securities as of March 31, 2022 and September 30, 2021 by measurement category:

	As of March 31, 2022
	(In thousands)
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Classified as Cash Equivalents
Commercial notes (due within ninety days)	$	26,678	$	1	$	(1	)	$	26,678
Classified as Held to Maturity
Commercial notes (due within one year)	$	142,912	$	225	$	(307	)	$	142,830
Commercial notes (due within one through three years)	$	201,590	$	-	$	(5,864	)	$	195,726
Certificate of deposit (due within one year)	$	50,000	$	-	$	-		$	50,000
Classified as Marketable Securities
Marketable securities	$	128,805	$	-	$	(6,230	)	$	122,575
Total	$	549,985	$	226	$	(12,402	)	$	537,809
	As of September 30, 2021
	(In thousands)
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Classified as Held to Maturity
Commercial notes (due within one year)	$	56,627	$	803	$	-		$	57,430
Commercial notes (due within one through three years)	$	195,595	$	1,151	$	(103	)	$	196,643
Certificate of deposit (due within one through two years)	$	50,000	$	-	$	-		$	50,000
Classified as Marketable Securities
Marketable securities	$	127,481	$	-	$	(753	)	$	126,728
Total	$	429,703	$	1,954	$	(856	)	$	430,801

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Intangible Assets

6 Months Ended

Mar. 31, 2022

Goodwill And Intangible Assets Disclosure [Abstract]

Intangible Assets

NOTE 5. INTANGIBLE ASSETS

Intangible assets subject to amortization include patents and a license agreement capitalized as part of the Novartis RNAi asset acquisition in March 2015. The license agreement associated with the Novartis RNAi asset acquisition is being amortized over the estimated life remaining at the time of acquisition, which was 21 years, and the accumulated amortization of the asset is $1.1 million.  The patents associated with the Novartis RNAi asset acquisition are being amortized over the estimated life remaining at the time of acquisition, which was 14 years, and the accumulated amortization of the assets is $11.0 million. Amortization expense for the three months ended March 31, 2022 and 2021 was $0.4 million and $0.4 million, respectively. Amortization expense for the six months ended March 31, 2022 and 2021 was $0.9 million and $0.9 million, respectively. Amortization expense is expected to be $0.9 million for the remainder of fiscal 2022, $1.7 million in 2023, $1.7 million in 2024, $1.7 million in 2025, $1.7 million in 2026 and $5.2 million thereafter.

The following table provides details on the Company’s intangible asset balances:

	Intangible Assets Subject to Amortization
	(in thousands)
Balance at September 30, 2021	$	13,663
Impairment		-
Amortization		(850	)
Balance at March 31, 2022	$	12,813

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Stockholders' Equity

6 Months Ended

Mar. 31, 2022

Equity [Abstract]

Stockholders' Equity

NOTE 6. STOCKHOLDERS’ EQUITY

At March 31, 2022, the Company had a total of 150,000,000 shares of capital stock authorized for issuance, consisting of 145,000,000 shares of Common Stock, par value $0.001 per share, and 5,000,000 shares of Preferred Stock, par value $0.001 per share.

At March 31, 2022, 105,702,499 shares of Common Stock were outstanding.  At March 31, 2022, 14,054,083 shares of Common Stock were reserved for issuance upon exercise of options and vesting of restricted stock units granted or available for grant under Arrowhead’s 2004 Equity Incentive Plan, 2013 Incentive Plan, and 2021 Incentive Plan, as well as for inducement grants made to new employees under Rule 5635(c)(4) of the Nasdaq Listing Rules.

In August 2020, the Company entered into an Open Market Sale Agreement (the “ATM Agreement”), pursuant to which the Company may, from time to time, sell up to $250,000,000 in shares of the Company’s Common Stock through Jefferies LLC, acting as the sales agent and/or principal, in an at-the-market offering. The Company is not required to sell shares under the ATM Agreement. The Company will pay Jefferies LLC a commission of up to 3.0% of the aggregate gross proceeds received from all sales of the common stock under the ATM Agreement. Unless otherwise terminated, the ATM Agreement continues until the earlier of selling all shares available under the ATM Agreement or December 2, 2022. At March 31, 2022, no shares have been sold under the ATM Agreement.

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Commitments and Contingencies

6 Months Ended

Mar. 31, 2022

Commitments And Contingencies Disclosure [Abstract]

Commitments and Contingencies

NOTE 7. COMMITMENTS AND CONTINGENCIES

Litigation

From time to time, the Company may be subject to various claims and legal proceedings in the ordinary course of business.  If the potential loss from any claim, asserted or unasserted, or legal proceeding is considered probable and the amount is reasonably estimable, the Company will accrue a liability for the estimated loss. There were no contingent liabilities recorded as of March 31, 2022.

Commitments

On December 20, 2021, the Company completed a purchase of 13 acres of land in the Verona Technology Park in Verona, WI, which is planned to be the site of an approximately 140,000 square foot drug manufacturing facility and an approximately 115,000 square foot laboratory and office facility to support process development and analytical activities. Arrowhead intends to invest between $200 million and $250 million into the buildout of the facilities. As part of this acquisition, the Company also entered into a development agreement with the City of Verona to construct certain infrastructure improvements within the TIF district, and will be reimbursed by the City of Verona by future tax increment revenue generated from the developed property. The total amount of funding that City of Verona will pay as reimbursements under the TIF program for these improvements is not guaranteed and will depend on future tax revenues generated from the developed property.

Technology License Commitments

The Company has licensed from third parties the rights to use certain technologies for its research and development activities, as well as in any products the Company may develop using these licensed technologies. These agreements and other similar agreements often require milestone and royalty payments.  Milestone payments, for example, may be required as the research and development process progresses through various stages of development, such as when clinical candidates enter or progress through clinical trials, upon a new drug application and upon certain sales level milestones.  These milestone payments could amount to the mid to upper double-digit millions of dollars. During the three and six months ended March 31, 2022 and 2021, the Company did not reach any milestones. Under certain agreements, the Company may be required to make mid to high single-digit percentage royalty payments based on a percentage of sales of the relevant products.    

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Leases

6 Months Ended

Mar. 31, 2022

Leases [Abstract]

Leases

NOTE 8. LEASES

Leases

In April 2019, the Company entered into a lease for its corporate headquarters in Pasadena, California.  The 91 month office building lease between the Company and 177 Colorado Owner, LLC is for approximately 24,000 square feet of office space located at 177 E. Colorado Blvd, Pasadena, California.  The increased capacity of this new office space compared to the Company’s prior corporate headquarters will accommodate increased personnel as the Company’s pipeline of drug candidates expands and moves closer to market. Lease payments began on September 30, 2019 and are estimated to total approximately $8.7 million over the term.  The lease expires on April 30, 2027.  The Company has paid approximately $3.5 million for leasehold improvements, net of tenant improvement allowances.  The lease contains an option to renew for one term of five years. The exercise of this option was not determined to be reasonably certain and thus was not included in lease liabilities on the Company’s Consolidated Balance Sheet at March 31, 2022. On October 23, 2020, the Company entered into a lease expansion to add an additional approximately 24,000 square feet of office space at the same location for its corporate headquarters. Lease payments for the expansion began in July 2021 and the lease for the expansion expires in April 2027. The lease payments for the expansion are expected to total $6.9 million.  The Company has paid approximately $4.0 million of leasehold improvements, net of tenant improvement allowances, for the lease expansion.  The increased capacity of this additional office space compared to the Company’s current corporate headquarters is intended to accommodate increased personnel as the Company’s pipeline of drug candidates continues to expand and move closer to market. 

In January 2016, the Company entered into a lease for its research facility in Madison, Wisconsin.  The lease was for approximately 60,000 square feet of office and laboratory space and had an expiration date of September 30, 2026. The lease was amended in January 2019 and May 2020 to expand the rentable square feet by an additional 40,000 square feet and to extend the lease expiration date to September 30, 2031. Lease payments are estimated to total approximately $26.2 million for the term. The Company incurred approximately $11.0 million of leasehold improvements for the additional 40,000 square feet, net of tenant improvement allowances. The lease contains two options to renew for two terms of five years. The exercise of these options were not determined to be reasonably certain and thus was not included in lease liabilities on the Company’s Consolidated Balance Sheet at March 31, 2022.  In November 2020 and December 2020, the Company entered into amendments to expand the rentable square space by an additional 10,743 square feet and these amendments added a total of approximately $1.2 million of lease payments for the remainder of the term.            

In March 2020, the Company entered into a sublease agreement for additional research and development facility space in San Diego, California.  The Sublease provides additional space needed to accommodate the recent growth of the Company’s personnel and discovery efforts. The Sublease is for approximately 21,000 rentable square feet.  The term of the Sublease commenced on April 1, 2020 and will end on January 14, 2023.  Sublease payments are estimated to total approximately $2.0 million over the term.

On November 19, 2021, the Company entered into a new lease for a San Diego, California research facility.  The 15-year lease is for approximately 144,000 square feet of office and research and development laboratory space to be constructed in San Diego, California.  This lease will replace the Company’s current research facility sublease for property located in San Diego, California.  The increased capacity of this new facility compared to the Company’s current research facility in San Diego will accommodate increased personnel for the Company’s expanding pipeline of current and future drug candidates. The estimated rent commencement date for the lease is in May 2023, after construction and leasehold improvements have been completed.  The lease payments, which begin on the rent commencement date, will be approximately $119.0 million over the initial 15-year term.  The Company also estimates payments for operating expenses to be approximately $3.0 million for the first year of the lease, and these payments will continue throughout the initial 15-year term. The Company expects to pay approximately $31.0 million for leasehold improvements, net of tenant improvement allowances.  Pursuant to the lease, within twelve months of the expiration of the initial 15-year term, the Company has the option to extend the lease for up to one additional ten-year term, with certain annual increases in base rent. No lease liabilities have been recorded as of March 31, 2022 as the lease commencement date has not yet occurred.

Operating lease cost during the three months ended March 31, 2022 and 2021 was $1.3 million and $1.1 million, respectively. Operating lease cost during the six months ended March 31, 2022 and 2021 was $2.6 million and $2.0 million, respectively. Variable lease costs for the three months ended March 31, 2022 and 2021 was $0.1 million and $0.2 million, respectively. Variable lease costs for the six months ended March 31, 2022 and 2021 was $0.3 million and $0.5 million, respectively. There was no short-term lease cost during the three and six months ended March 31, 2022 and 2021.

The following table presents payments of operating lease liabilities on an undiscounted basis as of March 31, 2022:

	(in thousands)
2022 (remainder of fiscal year)	$	2,537
2023		4,786
2024		4,621
2025		4,749
2026		5,050
2027 and thereafter		13,200
Total	$	34,943
Less imputed interest	$	(9,335	)
Total operating lease liabilities (includes current portion)	$	25,608

Cash paid for the amounts included in the measurement of the operating lease liabilities on the Company’s Consolidated Balance Sheet and included in Other changes in operating assets and liabilities within cash flows from operating activities on the Company’s Consolidated Statements of Cash Flows for the six months ended March 31, 2022 and 2021 was $2.2 million and $1.4 million, respectively. The weighted-average remaining lease term and weighted-average discount rate for all leases as of March 31, 2022 was 7.6 years and 8.5%, respectively.

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Stock-Based Compensation

6 Months Ended

Mar. 31, 2022

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Stock-Based Compensation

NOTE 9. STOCK-BASED COMPENSATION

Arrowhead has three plans that provide for equity-based compensation. Under the 2004 Equity Incentive Plan and the 2013 Incentive Plan, as of March 31, 2022, 218,107 and 4,183,395 shares, respectively, of Arrowhead’s Common Stock are reserved for the grant of stock options, stock appreciation rights, and restricted stock unit awards to employees, consultants and others. No further grants may be made under the 2004 Equity Incentive Plan.  As of March 31, 2022, there were options granted and outstanding to purchase 218,107 and 1,871,258 shares of Common Stock under the 2004 Equity Incentive Plan and the 2013 Incentive Plan, respectively, and there were 2,312,137 restricted stock units granted and outstanding under the 2013 Incentive Plan. As of March 31, 2022, there were 857,290 shares reserved for options and 691,750 shares reserved for restricted stock units issued as inducement grants to new employees outside of equity compensation plans. As of March 31, 2022, there were 3,000 shares of Common Stock reserved for options and 1,474,350 shares of Common Stock reserved for restricted stock units granted and outstanding under the 2021 Incentive Plan.  As of March 31, 2022, the total number of shares available under the 2021 Incentive Plan was 6,635,816 shares, which includes 110,791 shares that were forfeited under the 2013 Incentive Plan.

Stock Options

The following table summarizes information about stock options:

	Number of Options Outstanding			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Balance at September 30, 2021		3,456,239		$	19.60
Granted		-			-
Cancelled		(61,820	)	44.77
Exercised		(444,764	)	8.28
Balance at March 31, 2022		2,949,655		$	20.78	5.4 years	$	83,259,543
Exercisable at March 31, 2022		2,342,356		$	15.41	4.8 years	$	75,982,912

Stock-based compensation expense related to stock options for the three months ended March 31, 2022 and 2021 was $2.7 million and $3.3 million, respectively. Stock-based compensation expense related to stock options for the six months ended March 31, 2022 and 2021 was $5.7 million and $6.4 million, respectively. For non-qualified stock options, the expense creates a timing difference, resulting in a deferred tax asset, which is fully reserved by a valuation allowance.

The grant date fair value of the options granted by the Company for the three months ended March 31, 2022 and 2021 was $0 and $1.4 million, respectively. The grant date fair value of the options granted by the Company for the six months ended March 31, 2022 and 2021 was $0 and $8.1 million, respectively.  

The intrinsic value of the options exercised during the three months ended March 31, 2022 and 2021 was $10.8 million and $20.9 million, respectively. The intrinsic value of the options exercised during the six months ended March 31, 2022 and 2021 was $23.3 million and $52.8 million, respectively.

As of March 31, 2022, the pre-tax compensation expense for all outstanding unvested stock options in the amount of $18.6 million will be recognized in the Company’s results of operations over a weighted average period of 1.9 years.

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options, which do not have vesting restrictions and are fully transferable. The determination of the fair value of each stock option is affected by the Company’s stock price on the date of grant, as well as assumptions regarding a number of highly complex and subjective variables. Because the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

The assumptions used to value stock options are as follows:

	Six Months Ended March 31,
	2022	2021
Dividend yield	N/A		-
Risk-free interest rate	N/A	0.4 – 0.6%
Volatility	N/A	86.6 – 90.4%
Expected life (in years)	N/A		6.25
Weighted average grant date fair value per share of options granted	N/A	$	48.62

The dividend yield is zero as the Company currently does not pay a dividend.

The risk-free interest rate is based on that of the U.S. Treasury bond.

Volatility is estimated based on volatility average of the Company’s Common Stock price.

Restricted Stock Units

Restricted stock units (“RSUs”), including time-based, market condition-based, and performance condition-based awards, have been granted under the Company’s 2013 Incentive Plan, 2021 Incentive Plan, and as inducements grants granted outside of the Company’s equity-based compensation plans under Rule 5635(c)(4) of the Nasdaq Listing Rules.  At vesting, each outstanding RSU will be exchanged for one share of the Company’s Common Stock. RSU awards generally vest subject to the satisfaction of service requirements or the satisfaction of both service requirements and achievement of certain performance targets.  

The following table summarizes the activity of the Company’s RSUs:

	Number of RSUs			Weighted- Average Grant Date Fair Value Per Share
Unvested at September 30, 2021		3,831,850		$	61.24
Granted		1,605,450			56.73
Vested		(931,063	)		49.25
Forfeited		(37,625	)		63.42
Unvested at March 31, 2022		4,468,612		$	62.10

During the three months ended March 31, 2022 and 2021, the Company recorded $28.2 million and $12.1 million of expense related to RSUs, respectively. During the six months ended March 31, 2022 and 2021, the Company recorded $49.7 million and $17.1 million of expense related to RSUs, respectively. Such expense is included in stock-based compensation expense in the Company’s Consolidated Statements of Operations and Comprehensive Income (Loss). For RSUs, the expense creates a timing difference, resulting in a deferred tax asset, which is fully reserved by a valuation allowance.  

For RSUs, the grant date fair value of the award is based on the Company’s closing stock price at the grant date, with consideration given to the probability of achieving performance conditions for performance-based awards. The grant date fair value of the RSUs granted by the Company for the three months ended March 31, 2022 and 2021 was $83.4 million and $101.6 million, respectively. The grant date fair value of the RSUs granted by the Company for the six months ended March 31, 2022 and 2021 was $91.1 million and $109.0 million, respectively.

As of March 31, 2022, the pre-tax compensation expense for all unvested RSUs in the amount of $206.8 million will be recognized in the Company’s results of operations over a weighted average period of 2.7 years.  

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Fair Value Measurements

6 Months Ended

Mar. 31, 2022

Fair Value Disclosures [Abstract]

Fair Value Measurements

NOTE 10. FAIR VALUE MEASUREMENTS

The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. Additionally, the Company is required to provide disclosure and categorize assets and liabilities measured at fair value into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable measure of fair value while Level 3 generally requires significant management judgment. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The fair value hierarchy is defined as follows:

Level 1—Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly.

Level 3—Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

The following table summarizes fair value measurements at March 31, 2022 and September 30, 2021 for assets and liabilities measured at fair value on a recurring basis:  

March 31, 2022:

	Level 1		Level 2		Level 3		Total
	(in thousands)
Classified as Cash and cash equivalents
Commercial Notes	$	-	$	26,678	$	-	$	26,678
Classified as Marketable Securities
Marketable securities	$	122,575	$	-	$	-	$	122,575
Classified as Held to Maturity
Short-term investments	$	-	$	142,830	$	-	$	142,830
Long-term investments	$	-	$	195,726	$	-	$	195,726
Certificate of deposits	$	50,000	$	-	$	-	$	50,000
Classified as Contingent Consideration
Contingent consideration	$	-	$	-	$	-	$	-

September 30, 2021:

	Level 1		Level 2		Level 3		Total
	(in thousands)
Classified as Marketable Securities
Marketable securities	$	126,728	$	-	$	-	$	126,728
Classified as Held to Maturity
Short-term investments	$	-	$	57,430	$	-	$	57,430
Long-term investments	$	-	$	196,643	$	-	$	196,643
Certificate of deposit	$	50,000	$	-	$	-	$	50,000
Classified as Contingent Consideration
Contingent consideration	$	-	$	-	$	-	$	-

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Subsequent Events

6 Months Ended

Mar. 31, 2022

Subsequent Events [Abstract]

Subsequent Events

NOTE 11. SUBSEQUENT EVENTS

Visirna Therapeutics, Inc.    

   On April 25, 2022, Arrowhead Pharmaceuticals, Inc., entered into definitive agreements to form a joint venture, Visirna Therapeutics, Inc. (“Visirna”) with Vivo Capital (“Vivo”) through which the Company and Vivo intend to expand the reach of innovative medicines in Greater China. The Company licensed to Visirna the exclusive rights to develop and commercialize four of Arrowhead’s investigational RNA interference (RNAi) therapeutic candidates for cardiometabolic diseases in mainland China, Hong Kong, Macau, and Taiwan. Vivo will provide initial funding of $60.0 million to Visirna. The Company has a majority stake in Visirna following this initial funding and is further eligible to receive potential royalties on commercial sales.

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Organization and Significant Accounting Policies (Policies)

6 Months Ended

Mar. 31, 2021

Accounting Policies [Abstract]

Recent Accounting Pronouncements

Recent Accounting Pronouncements  

There have been no recent accounting pronouncements that have significantly impacted this Quarterly Report on Form 10-Q, beyond those disclosed in the Company’s most recent Annual Report on Form 10-K.

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Property and Equipment (Tables)

6 Months Ended

Mar. 31, 2022

Property Plant And Equipment [Abstract]

Summary of Property and Equipment

The following table summarizes the Company’s major classes of property and equipment:

	March 31, 2022			September 30, 2021
	(In thousands)
Computers, software, office equipment and furniture	$	2,272		$	2,170
Research equipment		28,370			27,500
Leasehold improvements		42,017			41,524
Construction in Progress		6,414			345
Land		2,996			-
Total gross fixed assets		82,069			71,539
Less: Accumulated depreciation and amortization		(27,181	)		(22,864	)
Property and equipment, net	$	54,888		$	48,675

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Investments (Tables)

3 Months Ended

6 Months Ended

Dec. 31, 2021

Mar. 31, 2022

Held To Maturity Securities Classified [Abstract]

Summary of Short-term and Long-term Investments and Marketable Securities

The following tables summarize the Company’s short-term and long-term investments and marketable securities as of March 31, 2022 and September 30, 2021 by measurement category:

	As of March 31, 2022
	(In thousands)
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Classified as Cash Equivalents
Commercial notes (due within ninety days)	$	26,678	$	1	$	(1	)	$	26,678
Classified as Held to Maturity
Commercial notes (due within one year)	$	142,912	$	225	$	(307	)	$	142,830
Commercial notes (due within one through three years)	$	201,590	$	-	$	(5,864	)	$	195,726
Certificate of deposit (due within one year)	$	50,000	$	-	$	-		$	50,000
Classified as Marketable Securities
Marketable securities	$	128,805	$	-	$	(6,230	)	$	122,575
Total	$	549,985	$	226	$	(12,402	)	$	537,809
	As of September 30, 2021
	(In thousands)
	Cost Basis		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Classified as Held to Maturity
Commercial notes (due within one year)	$	56,627	$	803	$	-		$	57,430
Commercial notes (due within one through three years)	$	195,595	$	1,151	$	(103	)	$	196,643
Certificate of deposit (due within one through two years)	$	50,000	$	-	$	-		$	50,000
Classified as Marketable Securities
Marketable securities	$	127,481	$	-	$	(753	)	$	126,728
Total	$	429,703	$	1,954	$	(856	)	$	430,801

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Intangible Assets (Tables)

6 Months Ended

Mar. 31, 2022

Goodwill And Intangible Assets Disclosure [Abstract]

Schedule of Intangible Assets

The following table provides details on the Company’s intangible asset balances:

	Intangible Assets Subject to Amortization
	(in thousands)
Balance at September 30, 2021	$	13,663
Impairment		-
Amortization		(850	)
Balance at March 31, 2022	$	12,813

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Leases (Tables)

6 Months Ended

Mar. 31, 2022

Leases [Abstract]

Summary of Maturities of Operating Lease Liabilities on an Undiscounted Basis

The following table presents payments of operating lease liabilities on an undiscounted basis as of March 31, 2022:

	(in thousands)
2022 (remainder of fiscal year)	$	2,537
2023		4,786
2024		4,621
2025		4,749
2026		5,050
2027 and thereafter		13,200
Total	$	34,943
Less imputed interest	$	(9,335	)
Total operating lease liabilities (includes current portion)	$	25,608

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Stock-Based Compensation (Tables)

6 Months Ended

Mar. 31, 2022

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Summarized Information about Stock Options

The following table summarizes information about stock options:

	Number of Options Outstanding			Weighted- Average Exercise Price Per Share		Weighted- Average Remaining Contractual Term	Aggregate Intrinsic Value
Balance at September 30, 2021		3,456,239		$	19.60
Granted		-			-
Cancelled		(61,820	)	44.77
Exercised		(444,764	)	8.28
Balance at March 31, 2022		2,949,655		$	20.78	5.4 years	$	83,259,543
Exercisable at March 31, 2022		2,342,356		$	15.41	4.8 years	$	75,982,912

Assumptions Used to Value Stock Options

The assumptions used to value stock options are as follows:

	Six Months Ended March 31,
	2022	2021
Dividend yield	N/A		-
Risk-free interest rate	N/A	0.4 – 0.6%
Volatility	N/A	86.6 – 90.4%
Expected life (in years)	N/A		6.25
Weighted average grant date fair value per share of options granted	N/A	$	48.62

Summary of Share Activity Related to RSUs

The following table summarizes the activity of the Company’s RSUs:

	Number of RSUs			Weighted- Average Grant Date Fair Value Per Share
Unvested at September 30, 2021		3,831,850		$	61.24
Granted		1,605,450			56.73
Vested		(931,063	)		49.25
Forfeited		(37,625	)		63.42
Unvested at March 31, 2022		4,468,612		$	62.10

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Fair Value Measurements (Tables)

6 Months Ended

Mar. 31, 2022

Fair Value Disclosures [Abstract]

Fair Value Measurements for Assets and Liabilities Measured at Fair Value on Recurring Basis

The following table summarizes fair value measurements at March 31, 2022 and September 30, 2021 for assets and liabilities measured at fair value on a recurring basis:  

March 31, 2022:

	Level 1		Level 2		Level 3		Total
	(in thousands)
Classified as Cash and cash equivalents
Commercial Notes	$	-	$	26,678	$	-	$	26,678
Classified as Marketable Securities
Marketable securities	$	122,575	$	-	$	-	$	122,575
Classified as Held to Maturity
Short-term investments	$	-	$	142,830	$	-	$	142,830
Long-term investments	$	-	$	195,726	$	-	$	195,726
Certificate of deposits	$	50,000	$	-	$	-	$	50,000
Classified as Contingent Consideration
Contingent consideration	$	-	$	-	$	-	$	-

September 30, 2021:

	Level 1		Level 2		Level 3		Total
	(in thousands)
Classified as Marketable Securities
Marketable securities	$	126,728	$	-	$	-	$	126,728
Classified as Held to Maturity
Short-term investments	$	-	$	57,430	$	-	$	57,430
Long-term investments	$	-	$	196,643	$	-	$	196,643
Certificate of deposit	$	50,000	$	-	$	-	$	50,000
Classified as Contingent Consideration
Contingent consideration	$	-	$	-	$	-	$	-

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Organization and Significant Accounting Policies - Additional Information (Detail) $ in Thousands		6 Months Ended
	Dec. 20, 2021 ft² a	Mar. 31, 2022 USD ($)	Nov. 19, 2021 ft²	Sep. 30, 2021 USD ($)
Organization And Significant Accounting Policies [Line Items]
Cash and cash equivalents		$ 86,408		$ 184,434
Restricted Cash		7,900
Short-term investments		192,912		56,627
Marketable securities		122,600
Long-term investments		201,590		$ 245,595
Net increase (decrease) in cash and investments		9,900
GSK
Organization And Significant Accounting Policies [Line Items]
Upfront milestone payment received		120,000
Janssen
Organization And Significant Accounting Policies [Line Items]
Development regulatory and sales milestones payments		$ 4,900,000
Wisconsin | Drug Manufacturing Facility
Organization And Significant Accounting Policies [Line Items]
Planned area of the site | ft²	140,000
Wisconsin | Laboratory and Office Facility
Organization And Significant Accounting Policies [Line Items]
Planned area of the site | ft²	115,000
Wisconsin | Verona Technology Park
Organization And Significant Accounting Policies [Line Items]
Land purchased, number of acres | a	13
California | Research Facility in San Diego
Organization And Significant Accounting Policies [Line Items]
Office space leases, in square feet | ft²			144,000

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Collaboration and License Agreements - Amgen, Inc - Additional Information (Detail) $ in Thousands		3 Months Ended		6 Months Ended
	Sep. 28, 2016 USD ($) Agreement	Mar. 31, 2022 USD ($)	Mar. 31, 2021 USD ($)	Mar. 31, 2022 USD ($)	Mar. 31, 2021 USD ($)	Sep. 30, 2021 USD ($)	Jul. 31, 2020 USD ($)
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Revenues		$ 151,805	$ 32,811	$ 179,244	$ 54,113
Contract liabilities		97,869		97,869		$ 111,055
Collaboration and License agreements | Amgen
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Agreement date	Sep. 28, 2016
Number of agreements | Agreement	2
Cash received as due under collaboration agreement	$ 35,000
License Collaboration And Stock Purchase Agreement | Amgen
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Proceeds from the issuance of common stock	21,500
Olpasiran and ARO-AMG1 Agreement | Amgen
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Milestone payments	$ 30,000						$ 20,000
Revenues		0	$ 0	0	$ 0
Contract liabilities		0		0
Contract assets		0		0
Olpasiran Agreement | Amgen | Maximum
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Additional remaining development regulatory and sales milestones payments		$ 400,000		$ 400,000

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Collaboration and License Agreements - Janssen Pharmaceuticals, Inc - Additional Information (Detail)		3 Months Ended		6 Months Ended
	Oct. 03, 2018 USD ($) Obligation	Mar. 31, 2022 USD ($)	Mar. 31, 2021 USD ($)	Mar. 31, 2022 USD ($)	Mar. 31, 2021 USD ($)	Jan. 31, 2022 USD ($)	Sep. 30, 2021 USD ($)
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Revenues		$ 151,805,000	$ 32,811,000	$ 179,244,000	$ 54,113,000
Deferred revenue		97,869,000		97,869,000			$ 111,055,000
Collaboration and License agreements
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Initial transaction price	$ 252,700,000
JJDC | Common Stock Purchase Agreement
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Agreement date	Oct. 03, 2018
Proceeds from the issuance of common stock	$ 75,000,000.0
Janssen | Collaboration and License agreements
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Cash received as due under collaboration agreement	175,000,000.0
Janssen
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Development, regulatory and sales milestones payments		4,900,000,000		4,900,000,000
Milestone payment	$ 73,000,000.0
Janssen | License Agreement
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Agreement date	Oct. 03, 2018
Janssen | License Agreement | Maximum
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Development, regulatory and sales milestones payments	$ 1,600,000,000
Janssen | Research Collaboration and Option Agreement
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Agreement date	Oct. 03, 2018
Janssen | Collaboration Agreement | Maximum
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Development, regulatory and sales milestones payments	$ 600,000,000
Janssen | JNJ-3989 (ARO-HBV) Agreement
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Milestone payment	$ 25,000,000.0
Number of distinct performance obligations | Obligation	1
Revenues		0	7,500,000	0	20,200,000
Contract assets						$ 0
Deferred revenue						$ 0
Janssen | JNJ-75220795 (ARO-JNJ1)
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Revenues		100,000	$ 100,000	100,000	$ 300,000
Contract assets		100,000		100,000
Deferred revenue		$ 0		$ 0

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Collaboration and License Agreements - Takeda Pharmaceuticals U.S.A., Inc - Additional Information (Detail) $ in Thousands		3 Months Ended		6 Months Ended
	Oct. 07, 2020 USD ($) Obligation Bundle	Mar. 31, 2022 USD ($)	Mar. 31, 2021 USD ($)	Mar. 31, 2022 USD ($)	Mar. 31, 2021 USD ($)	Sep. 30, 2021 USD ($)	Jan. 31, 2021 USD ($)
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Revenues		$ 151,805	$ 32,811	$ 179,244	$ 54,113
Contract liabilities, current		97,869		97,869		$ 111,055
Deferred revenue, net of current portion		89,754		89,754		$ 131,495
Takeda License Agreement | License and Co-Funding Agreement
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Agreement date	Oct. 07, 2020
Ratio of Profit Sharing Structure for United States Commercialization	50/50 profit sharing
Cash received as due under collaboration agreement							$ 300,000
Number of distinct bundle | Bundle	1
Number of distinct performance obligations | Obligation	1
Initial transaction price	$ 300,000
Revenues		20,800	$ 25,400	41,600	$ 33,600
Contract assets		0		0
Takeda License Agreement | License and Co-Funding Agreement | Deferred Revenue
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Contract liabilities, current		77,900		77,900
Deferred revenue, net of current portion		89,800		89,800
Takeda License Agreement | License and Co-Funding Agreement | Accrued Expenses
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Contract liabilities, current		$ 5,000		$ 5,000
Takeda License Agreement | Minimum [Member] | License and Co-Funding Agreement
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Percentage of eligible to receive tiered royalties on net sales	20.00%
Takeda License Agreement | Maximum | License and Co-Funding Agreement
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Percentage of eligible to receive tiered royalties on net sales	25.00%
Development regulatory and sales milestones payments							$ 740,000

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Collaboration and License Agreements - Horizon Therapeutics Ireland DAC - Additional Information (Detail) $ in Thousands		3 Months Ended		6 Months Ended
	Jun. 18, 2021 USD ($) Obligation Bundle	Mar. 31, 2022 USD ($)	Mar. 31, 2021 USD ($)	Mar. 31, 2022 USD ($)	Mar. 31, 2021 USD ($)	Sep. 30, 2021 USD ($)	Jul. 31, 2021 USD ($)
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Revenues		$ 151,805	$ 32,811	$ 179,244	$ 54,113
Contract liabilities		97,869		97,869		$ 111,055
Horizon Therapeutics Ireland DAC | ARO-XDH
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Agreement date	Jun. 18, 2021
Cash received as due under collaboration agreement							$ 40,000
Number of distinct performance obligations | Obligation	1
Initial transaction price	$ 40,000
Revenues		6,700	0	13,300	0
Contract assets		0		0
Contract liabilities		20,000		20,000
Horizon Therapeutics Ireland DAC | License Agreement
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Number of distinct bundle | Bundle	1
Number of distinct performance obligations | Obligation	1
Horizon Therapeutics Ireland DAC | ARO-XDH Supply Agreement
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Revenues		1,300	$ 0	1,300	$ 0
Contract assets		1,300		1,300
Contract liabilities		$ 0		$ 0
Horizon Therapeutics Ireland DAC | Maximum | ARO-XDH
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Development regulatory and sales milestones payments	$ 660,000

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Collaboration and License Agreements - Glaxosmithkline Intellectual Property (No. 3) Limited - Additional Information (Detail) $ in Thousands			1 Months Ended	3 Months Ended		6 Months Ended
	Nov. 22, 2021 USD ($) Obligation Bundle	Oct. 03, 2018 USD ($)	Jan. 31, 2022 USD ($)	Mar. 31, 2022 USD ($)	Mar. 31, 2021 USD ($)	Mar. 31, 2022 USD ($)	Mar. 31, 2021 USD ($)	Sep. 30, 2021 USD ($)
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Revenues				$ 151,805	$ 32,811	$ 179,244	$ 54,113
Contract liabilities				$ 97,869		97,869		$ 111,055
Collaboration and License agreements
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Initial transaction price		$ 252,700
Collaboration and License agreements | GSK
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Milestone payment	$ 120
Milestone payment receivable at start of phase two	30
Milestone payment receivable upon achievement of phase two and first patient dosed in phase three	100
Tiered royalties on net product sales receive description				The Company is further eligible to receive tiered royalties on net product sales in a range of mid-teens to twenty percent.
Collaboration and License agreements | Maximum | GSK
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Commercial milestone payments at first commercial sale	190
Sales-related milestone payments	$ 590
ARO-HSD Agreement | GSK
Collaborative Arrangements And Noncollaborative Arrangement Transactions [Line Items]
Number of distinct bundle | Bundle	1
Number of distinct performance obligations | Obligation	1
Initial transaction price	$ 120,000
Cash received as due under collaboration agreement			$ 120,000
Performance obligation related to agreement, upfront payment				$ 120,000		120,000
Revenues				120,000	$ 0	120,000	$ 0
Contract assets				0		0
Contract liabilities				$ 0		$ 0

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Property and Equipment - Summary of Property and Equipment (Detail) - USD ($) $ in Thousands	Mar. 31, 2022	Sep. 30, 2021
Property Plant And Equipment [Abstract]
Computers, software, office equipment and furniture	$ 2,272	$ 2,170
Research equipment	28,370	27,500
Leasehold improvements	42,017	41,524
Construction in Progress	6,414	345
Land	2,996
Total gross fixed assets	82,069	71,539
Less: Accumulated depreciation and amortization	(27,181)	(22,864)
Property and equipment, net	$ 54,888	$ 48,675

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Property and Equipment - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Mar. 31, 2022	Mar. 31, 2021
Property Plant And Equipment [Abstract]
Depreciation and amortization expense for property and equipment	$ 2.2	$ 1.5	$ 4.3	$ 2.9

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Investments - Summary of Short-term and Long-term Investments and Marketable Securities (Detail) - USD ($) $ in Thousands	Mar. 31, 2022	Sep. 30, 2021
Schedule Of Held To Maturity Securities And Marketable Securities [Line Items]
Short-term and Long-term Investments and Marketable Securities, Cost Basis	$ 549,985	$ 429,703
Short-term and Long-term Investments and Marketable Securities, Gross Unrealized Gains	226	1,954
Short-term and Long-term Investments and Marketable Securities, Gross Unrealized Losses	(12,402)	(856)
Short-term and Long-term Investments and Marketable Securities, Fair Value	537,809	430,801
Commercial Notes Due Within Ninety Days
Schedule Of Held To Maturity Securities And Marketable Securities [Line Items]
Cash Equivalents, Cost Basis	26,678
Cash Equivalents, Gross Unrealized Gains	1
Cash Equivalents, Gross Unrealized Losses	(1)
Cash Equivalents, Fair Value	26,678
Commercial Note Due Within One Year
Schedule Of Held To Maturity Securities And Marketable Securities [Line Items]
Held to Maturity, Cost Basis	142,912	56,627
Held to Maturity, Gross Unrealized Gains	225	803
Held to Maturity, Gross Unrealized Losses	(307)
Held to Maturity, Fair Value	142,830	57,430
Commercial Note Due Within One Through Three Years
Schedule Of Held To Maturity Securities And Marketable Securities [Line Items]
Held to Maturity, Cost Basis	201,590	195,595
Held to Maturity, Gross Unrealized Gains		1,151
Held to Maturity, Gross Unrealized Losses	(5,864)	(103)
Held to Maturity, Fair Value	195,726	196,643
Certificate of Deposit Due Within One Year
Schedule Of Held To Maturity Securities And Marketable Securities [Line Items]
Held to Maturity, Cost Basis	50,000
Held to Maturity, Fair Value	50,000
Certificate of Deposit Due Within One Through Two Years
Schedule Of Held To Maturity Securities And Marketable Securities [Line Items]
Held to Maturity, Cost Basis		50,000
Held to Maturity, Fair Value		50,000
Marketable Securities
Schedule Of Held To Maturity Securities And Marketable Securities [Line Items]
Marketable Securities, Cost Basis	128,805	127,481
Marketable Securities, Gross Unrealized Losses	(6,230)	(753)
Marketable Securities, Fair Value	$ 122,575	$ 126,728

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Intangible Assets - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Mar. 31, 2022	Mar. 31, 2021
Finite Lived Intangible Assets [Line Items]
Amortization expense	$ 400	$ 400	$ 900	$ 850
Amortization of license agreements remainder of fiscal year 2022	900		900
Amortization of license agreements in 2023	1,700		1,700
Amortization of license agreements in 2024	1,700		1,700
Amortization of license agreements in 2025	1,700		1,700
Amortization of license agreements in 2026	1,700		1,700
Amortization of license agreements, thereafter	5,200		$ 5,200
Novartis | Licensing Agreement
Finite Lived Intangible Assets [Line Items]
Amortization period of intangible assets			21 years
Finite-lived intangible assets, accumulated amortization	1,100		$ 1,100
Novartis | Patents
Finite Lived Intangible Assets [Line Items]
Amortization period of intangible assets			14 years
Finite-lived intangible assets, accumulated amortization	$ 11,000		$ 11,000

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Intangible Assets - Schedule of Intangible Assets (Detail) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Mar. 31, 2022	Mar. 31, 2021
Intangible Assets Net Excluding Goodwill [Abstract]
Intangible assets subject to amortization, beginning balance			$ 13,663
Intangible assets subject to amortization, Amortization	$ (400)	$ (400)	(900)	$ (850)
Intangible assets subject to amortization, ending balance	$ 12,813		$ 12,813

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Stockholders' Equity - Additional Information (Detail) - USD ($)	1 Months Ended
	Aug. 31, 2020	Mar. 31, 2022	Sep. 30, 2021
Class Of Stock [Line Items]
Capital stock authorized for issuance		150,000,000
Common stock, shares authorized		145,000,000	145,000,000
Common stock, par value		$ 0.001	$ 0.001
Preferred stock, shares authorized		5,000,000
Preferred stock, par value		$ 0.001
Common stock, shares outstanding		105,702,499	104,327,000
At The Market Agreement
Class Of Stock [Line Items]
Shares issued to institutional investors		0
At The Market Agreement | Maximum
Class Of Stock [Line Items]
Common stock shares value reserved for future issuance	$ 250,000,000
Percentage of commission to sales agent	3.00%
2004 Equity Incentive Plan, 2013 Equity Incentive Plan, 2021 Equity Incentive Plan and Inducement Grants
Class Of Stock [Line Items]
Common Stock, Share reserve for issuance		14,054,083

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Commitments and Contingencies - Additional Information (Detail)		3 Months Ended	6 Months Ended
	Dec. 20, 2021 USD ($) ft² a	Mar. 31, 2022 USD ($)	Mar. 31, 2022 USD ($)
Other Commitments [Line Items]
Contingent liabilities		$ 0	$ 0
Technology License Commitments
Other Commitments [Line Items]
Milestone payments		$ 0	$ 0
Verona Technology Park | Wisconsin
Other Commitments [Line Items]
Land purchased, number of acres | a	13
Drug Manufacturing Facility | Wisconsin
Other Commitments [Line Items]
Planned area of the site | ft²	140,000
Laboratory and Office Facility | Wisconsin
Other Commitments [Line Items]
Planned area of the site | ft²	115,000
Facilities | Minimum [Member]
Other Commitments [Line Items]
Amount intends to invest for buildout of the facilities	$ 200,000,000
Facilities | Maximum
Other Commitments [Line Items]
Amount intends to invest for buildout of the facilities	$ 250,000,000

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Leases - Additional Information (Detail) $ in Thousands			1 Months Ended			2 Months Ended	3 Months Ended		6 Months Ended		17 Months Ended
	Nov. 19, 2021 USD ($) ft² Option	Oct. 23, 2020 USD ($) ft²	Mar. 31, 2020 USD ($) ft²	Apr. 30, 2019 USD ($) ft² Option	Jan. 31, 2016 ft²	Dec. 31, 2020 USD ($) ft² Option	Mar. 31, 2022 USD ($)	Mar. 31, 2021 USD ($)	Mar. 31, 2022 USD ($)	Mar. 31, 2021 USD ($)	May 31, 2020 USD ($) ft²
Lessee Lease Description [Line Items]
Estimated lease payments							$ 34,943		$ 34,943
Operating lease cost							1,300	$ 1,100	2,600	$ 2,000
Variable lease cost							100	200	300	500
Short-term lease cost							$ 0	$ 0	0	0
Operating lease cash payments									$ 2,200	$ 1,400
Weighted-average remaining lease term							7 years 7 months 6 days		7 years 7 months 6 days
Weighted-average discount rate							8.50%		8.50%
California | Halozyme, Inc. | Sublease Agreement
Lessee Lease Description [Line Items]
Office space leases, in square feet | ft²			21,000
Estimated lease payments			$ 2,000
Lease expiration date			Jan. 14, 2023
Sublease commencement date			Apr. 01, 2020
Corporate Headquarters In Pasadena | California
Lessee Lease Description [Line Items]
Office space leases, in square feet | ft²		24,000
Estimated lease payments		$ 6,900
Payments for leasehold improvements, net of tenant improvement allowances		$ 4,000
Lease expansion commencement period		2021-07
Lease expansion expiration month and year		2027-04
Corporate Headquarters In Pasadena | California | Colorado Owner, LLC
Lessee Lease Description [Line Items]
Lease term				91 months
Office space leases, in square feet | ft²				24,000
Lease payments, commencement date				Sep. 30, 2019
Estimated lease payments				$ 8,700
Lease expiration date				Apr. 30, 2027
Payments for leasehold improvements, net of tenant improvement allowances				$ 3,500
Operating lease renewal term				5 years
Number of options to renew | Option				1
Research Facility in Madison | Wisconsin
Lessee Lease Description [Line Items]
Office space leases, in square feet | ft²					60,000
Estimated lease payments						$ 1,200					$ 26,200
Lease expiration date					Sep. 30, 2026						Sep. 30, 2031
Operating lease renewal term						5 years
Number of options to renew | Option						2
Additional office space for lease | ft²						10,743					40,000
Expected leasehold improvements, net of tenant improvement allowances											$ 11,000
Research Facility in San Diego | California
Lessee Lease Description [Line Items]
Lease term	15 years
Office space leases, in square feet | ft²	144,000
Lease payments, commencement date	May 31, 2023
Estimated lease payments	$ 119,000
Payments for leasehold improvements, net of tenant improvement allowances	$ 31,000
Operating lease renewal term	10 years
Estimated payments for operating expenses	$ 3,000
Research Facility in San Diego | California | Maximum
Lessee Lease Description [Line Items]
Number of options to renew | Option	1

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Leases - Summary of Maturities of Operating Lease Liabilities on an Undiscounted Basis (Detail) $ in Thousands	Mar. 31, 2022 USD ($)
Leases [Abstract]
2022 (remainder of fiscal year)	$ 2,537
2023	4,786
2024	4,621
2025	4,749
2026	5,050
2027 and thereafter	13,200
Total	34,943
Less imputed interest	(9,335)
Total operating lease liabilities (includes current portion)	$ 25,608

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Stock-Based Compensation - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended		6 Months Ended
	Mar. 31, 2022	Mar. 31, 2021	Mar. 31, 2022	Mar. 31, 2021	Sep. 30, 2021
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Number of options outstanding	2,949,655		2,949,655		3,456,239
RSU awards vesting, description			At vesting, each outstanding RSU will be exchanged for one share of the Company’s Common Stock. RSU awards generally vest subject to the satisfaction of service requirements or the satisfaction of both service requirements and achievement of certain performance targets.
Employee Stock Option
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	$ 2.7	$ 3.3	$ 5.7	$ 6.4
Grant date fair value of the options granted	0.0	1.4	0.0	8.1
Intrinsic value of options exercised	10.8	20.9	23.3	52.8
Unrecognized pre-tax compensation expense	18.6		$ 18.6
Weighted average period to recognize pre-tax compensation expense			1 year 10 months 24 days
Dividend yield			0.00%
Restricted Stock Units (RSUs)
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Stock-based compensation expense	$ 28.2	12.1	$ 49.7	17.1
Weighted average period to recognize pre-tax compensation expense	2 years 8 months 12 days
Grant date fair value of other than options granted	$ 83.4	$ 101.6	91.1	$ 109.0
Unrecognized pre-tax compensation expense	$ 206.8		$ 206.8
2004 Equity Incentive Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Shares reserve for issuance	218,107		218,107
2004 Equity Incentive Plan | Employee Stock Option
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Number of options outstanding	218,107		218,107
2013 Incentive Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Shares reserve for issuance	4,183,395		4,183,395
Number of shares forfeited			110,791
2013 Incentive Plan | Employee Stock Option
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Number of options outstanding	1,871,258		1,871,258
2013 Incentive Plan | Restricted Stock Units (RSUs)
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Number of restricted stock units outstanding	2,312,137		2,312,137
Outside Of Equity Compensation Plans
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Shares reserve for issuance	857,290		857,290
Outside Of Equity Compensation Plans | Restricted Stock Units (RSUs)
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Shares reserve for issuance	691,750		691,750
2021 Incentive Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Common Stock, Share reserve for issuance	6,635,816		6,635,816
2021 Incentive Plan | Employee Stock Option
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Number of options outstanding	3,000		3,000
2021 Incentive Plan | Restricted Stock Units (RSUs)
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Number of restricted stock units outstanding	1,474,350		1,474,350

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Stock-Based Compensation - Summarize Information about Stock Options (Detail) - USD ($)	6 Months Ended
	Mar. 31, 2022
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Number of Options Outstanding, beginning balance	3,456,239
Number of Options Outstanding, Cancelled	(61,820)
Number of Options Outstanding, Exercised	(444,764)
Number of Options Outstanding, ending balance	2,949,655
Number of Options Outstanding, Exercisable	2,342,356
Weighted-Average Exercise Price Per Share, beginning balance	$ 19.60
Weighted-Average Exercise Price Per Share, Cancelled	44.77
Weighted-Average Exercise Price Per Share, Exercised	8.28
Weighted-Average Exercise Price Per Share, ending balance	20.78
Weighted-Average Exercise Price Per Share, Exercisable	$ 15.41
Weighted-Average Remaining Contractual Term	5 years 4 months 24 days
Weighted-Average Remaining Contractual Term, Exercisable	4 years 9 months 18 days
Aggregate Intrinsic Value	$ 83,259,543
Aggregate Intrinsic Value, Exercisable	$ 75,982,912

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Stock-Based Compensation - Assumptions Used to Value Stock Options (Detail)	6 Months Ended
	Mar. 31, 2021 $ / shares
Share Based Compensation Arrangement By Share Based Payment Award Fair Value Assumptions And Methodology [Abstract]
Risk-free interest rate, minimum	0.40%
Risk-free interest rate, maximum	0.60%
Volatility, minimum	86.60%
Volatility, maximum	90.40%
Expected life (in years)	6 years 3 months
Weighted average grant date fair value per share of options granted	$ 48.62

XML

Stock-Based Compensation - Summary of RSUs Activity (Detail) - Restricted Stock Units (RSUs)	6 Months Ended
	Mar. 31, 2022 $ / shares shares
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Number of RSUs, Unvested, beginning of period | shares	3,831,850
Number of RSUs, Granted | shares	1,605,450
Number of RSUs, Vested | shares	(931,063)
Number of RSUs, Forfeited | shares	(37,625)
Number of RSUs, Unvested, End of period | shares	4,468,612
Weighted-Average Grant Date Fair Value, beginning balance | $ / shares	$ 61.24
Weighted-Average Grant Date Fair Value, Granted | $ / shares	56.73
Weighted-Average Grant Date Fair Value, Vested | $ / shares	49.25
Weighted-Average Grant Date Fair Value, Forfeited | $ / shares	63.42
Weighted-Average Grant Date Fair Value, ending balance | $ / shares	$ 62.10

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Fair Value Measurements - Fair Value Measurements for Assets and Liabilities Measured at Fair Value on Recurring Basis (Detail) - Fair Value, Measurements, Recurring - USD ($) $ in Thousands	Mar. 31, 2022	Sep. 30, 2021
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Commercial Notes	$ 26,678
Marketable securities	122,575	$ 126,728
Held to Maturity, Fair Value	142,830	57,430
Long-term investments	195,726	196,643
Certificate of deposits	50,000	50,000
Level 1
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Marketable securities	122,575	126,728
Certificate of deposits	50,000	50,000
Level 2
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Commercial Notes	26,678
Held to Maturity, Fair Value	142,830	57,430
Long-term investments	$ 195,726	$ 196,643

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Subsequent Events - Additional Information (Detail) $ in Millions	Apr. 25, 2022 USD ($)
Subsequent Event
Subsequent Event [Line Items]
Initial funding	$ 60.0