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Investment In Subsidiaries
 9 Months Ended
Jun. 30, 2011
Investment In Subsidiaries  
Investment In Subsidiaries

NOTE 2. INVESTMENT IN SUBSIDIARIES

Calando Pharmaceuticals, Inc. (formerly known as Insert Therapeutics, Inc. "Insert")

Calando is a clinical stage nanobiotechnology company at the forefront of RNAi therapeutics. Calando is developing nanoparticle therapeutics that use our patented sugar (cyclodextrin)-based polymer technologies as a drug delivery system for siRNA.

On April 17, 2008, Calando merged with and into Insert, with Insert as the surviving company. Prior to the merger, Arrowhead invested an aggregate of $23.2 million in Calando through the purchase of equity and loans. As a condition of the merger, the Preferred Stock of each of Calando and Insert was converted into common stock and the loans were converted to equity. As a result of the merger, shares of Insert common stock were issued to the stockholders of the former Calando, and Insert changed its name to Calando Pharmaceuticals, Inc.

On November 26, 2008, Calando entered into Unsecured Convertible Promissory Note Agreements ("Notes") for $2.5 million with accredited investors and Arrowhead, which invested $200,000 in the Notes offering. Arrowhead subsequently invested an additional $600,000 in the same offering. Except for one Note in the principal amount of $500,000, all Notes and accrued interest were converted into a total of 2,950 shares of Calando Series A Preferred Stock on June 23, 2009. The remaining Note is due November 26, 2013; see Note 4 for further information.

In fiscal 2010, Arrowhead issued 1,220,000 shares of its Common Stock in exchange for 3,050,000 shares of Calando common stock, with several minority stockholders of Calando. In conjunction with this exchange, Arrowhead also issued warrants to purchase 264,000 shares of Arrowhead Common Stock in exchange for warrants to purchase 660,000 shares of Calando common stock. Also in fiscal 2010, Arrowhead issued warrants to purchase up to 3,906,250 shares of its Common Stock in exchange for 1,562.5 shares of Calando Series A Preferred Stock. The Calando Series A Preferred Stock have a liquidation preference and are convertible into 3,381,303 shares of Calando common stock.

In January 2011, Arrowhead invested $9.1 million, through a cash investment of $1.0 million and the conversion of $8.1 million intercompany debt, acquiring newly issued Calando Series B and Series C preferred stock.

As of June 30, 2011, Arrowhead had advances outstanding to Calando totaling $0.4 million.

As of June 30, 2011, Arrowhead owned 79% of the outstanding shares of Calando and 73% on a fully diluted basis.

Ablaris Therapeutics, Inc.

Ablaris was formed and began operations in the first quarter of fiscal 2011 through the licensing of certain anti-obesity technology developed at the MD Anderson Cancer Center at the University of Texas. During the nine months ended June 30, 2011, Ablaris raised $2.9 million in cash, of which $1.3 million was invested by Arrowhead and $1.6 million was invested by outside investors, through the issuance of Series A Preferred stock.

As of June 30, 2011, Arrowhead owned 64% of the outstanding shares of Ablaris and 64% on a fully diluted basis.

 

Nanotope, Inc.

Nanotope is developing advanced nanomaterials for the treatment of spinal cord injuries, cartilage regeneration and wound healing. As of June 30, 2011, Arrowhead owned 23% of the outstanding shares of Nanotope, 19% on a fully diluted basis. Arrowhead accounts for its investment in Nanotope using the equity method of accounting. As of June 30, 2011, Nanotope had indebtedness to Arrowhead in the amount of $1.1 million, which Arrowhead has included in other receivables. It is expected that this indebtedness will be repaid or converted to equity.

Summarized financial information for Nanotope, Inc. is as follows:

 

     June 30, 2011     September 30, 2010  

Current assets

    $ 185,000      $ 16,000   

Non-current assets

      100,000        130,000   

Liabilities

      1,143,000        585,000   

Equity

      (858,000 )      (439,000 ) 

 

     For the three
months ended
June 30, 2011		     For the three
months ended
June 30, 2010		     For the nine
months  ended
June 30, 2011		     For the nine
months  ended
June 30, 2010		  

Revenue

    $ 3,000      $ —        $ 515,000      $ 9,000   

Operating expenses

      283,000        300,000        896,0000        758,000   

Net loss

      (306,000 )      (300,000 )      (419,000 )      (748,000 ) 

 

     For the nine  months
ended
June 30, 2011		     For the nine  months
ended
June 30, 2010		  

Cash flows used in operating activities

    $ (427,000 )    $ (331,000 ) 

Cash flows used in investing activities

      (28,000 )      (7,000 ) 

Cash flows provided by financing activities

      628,000        —     

Leonardo Biosystems, Inc.

Leonardo is developing a drug-delivery platform technology based on novel methods of designing spheroid porous silicon microparticles that selectively accumulate in tumor vasculature. Arrowhead accounts for its investment in Leonardo using the cost method of accounting. As of June 30, 2011, Leonardo had indebtedness to Arrowhead in the amount of $255,000, included in other receivables, which is expected to be repaid or converted to equity. As of June 30, 2011, Arrowhead's ownership interest in Leonardo was 5%.