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Acquisitions
 9 Months Ended
Jun. 30, 2012
Acquisitions [Abstract]  
ACQUISITIONS

NOTE 2. ACQUISITIONS

Roche Madison

On October 21, 2011, the Company entered into a Stock and Asset Purchase Agreement (the “RNAi Purchase Agreement”) with Hoffmann-La Roche Inc. and F Hoffmann-La Roche Ltd (collectively, “Roche”), pursuant to which the Company purchased from Roche (i) all of the outstanding common stock of Roche Madison Inc. (“Roche Madison”) and (ii) the intellectual property rights then held by Roche related to its RNAi business and identified in the RNAi Purchase Agreement (the “Transaction”). In consideration for the purchase of Roche Madison and the Roche RNAi assets, the Company issued to Roche a promissory note with a principal value of $50,000 and 901,702 shares of Common Stock. Additionally, the Company agreed that, subject to stockholder approval under the NASDAQ Marketplace Rules, the Company would issue an additional 146,562 shares of Common Stock, plus a number of additional shares equal to 9.9% of the shares of Common Stock (or common stock equivalents) sold by the Company in capital raising transactions within one year from the closing, but only with respect to the first $3,118,615 of gross offering proceeds (the “Top-up Shares”). The Company received the necessary stockholder approval for these additional issuances on February 16, 2012 at its 2012 Annual Meeting of Stockholders and, as of June 30, 2012, expected to issue a total of approximately 250,000 additional shares to Roche in satisfaction of the obligation to issue the Top-up Shares.

Pursuant to the RNAi Purchase Agreement, Roche has a right of first negotiation on certain product candidates developed by the Company and its affiliates relating to the purchased assets. If the Company proposes to out-license or enters into substantive negotiations to out-license, any Clinical Candidate or Existing Candidate (as such terms are defined in the RNAi Purchase Agreement), the Company must give notice of the Candidate it proposes to out-license and negotiate exclusively and in good faith with Roche for 90 days regarding the applicable out-license. This right of first negotiation applies to all Existing Candidates and the first five Clinical Candidates for which the Company delivers notice to Roche and subsequently enters into an out-license.

In addition to the consideration paid by the Company at the closing of the Transaction, the Company is obligated to make certain royalty and milestone payments to Roche upon the occurrence of certain events. For certain product candidates that are developed by the Company or its affiliates and that are covered by a valid claim by the patent rights transferred in the Transaction for which the Company and Roche do not enter into a licensing arrangement, the Company will be obligated to pay a 3% royalty on Net Sales (as defined in the RNAi Purchase Agreement), provided that the royalty rate may be reduced or offset in certain circumstances. The obligation to pay royalties on such candidates will last until the later of (i) the expiration of the last to expire patent right related to such product candidate that was transferred in the Transaction and (ii) ten years after the first commercial sale of such product candidate.

The Company will also be obligated to make cash payments to Roche upon the achievement of various milestones, including the first regulatory approval of an Existing Candidate in certain jurisdictions and upon certain annual sales milestones for Existing Candidates that may receive regulatory approval. The potential payments range from $2,500,000 to $6,000,000 per milestone.

The following table summarizes the estimated fair values at the date of acquisition:

 

         

Current assets

   $ 432,709  

Property and equipment

     7,215,206  

Intangible assets

     1,090,000  

Other noncurrent assets

     6,264  

Current liabilities

     (414,122 ) 

Noncurrent liabilities

     (1,570,072 ) 

Gain on purchase

     (1,576,106 ) 
   

 

 

  

Total purchase consideration

   $ 5,183,879  
   

 

 

  

 

The purchase consideration was composed of the following:

 

         

Promissory note due Roche

   $ 50,000  

Shares issued to Roche

     4,147,830  

Shares to be issued to Roche

     674,188  

Top-up shares

     311,861  
   

 

 

  

Total purchase consideration

   $ 5,183,879  
   

 

 

  

Alvos Therapeutics

On April 5, 2012, the Company entered into a Stock Purchase Agreement to purchase all of the outstanding shares of Alvos Therapeutics, Inc., (“Alvos”), a privately held company that licensed from MD Anderson Cancer Center a large platform of proprietary human-derived homing peptides and the method for their discovery. In conjunction with the acquisition, Arrowhead hired one employee from Alvos, and retained one employee on a consulting basis. In exchange for all of the outstanding shares of Alvos, Arrowhead issued an upfront payment of 315,467 shares of Arrowhead Common Stock, which shares were issued in a private placement under Section 4(2) of the Securities Act of 1933 and are deemed to be restricted securities. The former Alvos stockholders are also eligible to receive additional issuances of stock valued at up to $23.5 million at the time of issuance based on the future achievement of clinical, regulatory and sales milestones

The following table summarizes the estimated fair values at the date of acquisition:

 

         

Current assets

   $ 29,332  

In-process R&D

     2,083,701  

Current liabilities

     (113,033 ) 
   

 

 

  

Total purchase consideration

   $ 2,000,000  
   

 

 

  

The purchase consideration was comprised solely of shares of Arrowhead Common Stock issued to the former shareholders of Alvos Therapeutics, Inc.

 

         

Shares issued

     315,457  

Price per share

   $ 6.34  
   

 

 

  

Total purchase consideration

   $ 2,000,000  
   

 

 

  

In-Process Research & Development (IPR&D)

Intangible assets include IPR&D, which represents the estimated fair value assigned to research and development projects acquired in a purchased business combination, which at the time of acquisition have not reached technological feasibility and had no alternative future use. IPR&D assets acquired in a business combination are capitalized as indefinite-lived intangible assets. These assets remain indefinite-lived until the completion or abandonment of the associated research and development efforts.

Impairment of Indefinite-Lived IPR&D

We review amounts capitalized as in-process research and development for impairment at least annually in the fourth quarter, and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In the event the carrying value of the assets is not expected to be recovered, the assets are written down to their estimated fair values. We continue to test our indefinite-lived IPR&D assets for potential impairment until the projects are completed or abandoned.