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Commitments and Contingencies | 6 Months Ended
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Mar. 31, 2017
Commitments And Contingencies Disclosure [Abstract] |
Commitments and Contingencies | NOTE 7. COMMITMENTS AND CONTINGENCIES Leases The Company leases approximately 8,500 square feet of office space for its corporate headquarters in Pasadena, California. The lease will expire in September 2019. Monthly rental payments are approximately $27,000 per month, increasing approximately 3% annually. The Company also leases approximately 60,000 square feet of office and laboratory space for its research facility in Madison, Wisconsin. The lease will expire in September 2026. As part of this lease, the Company was provided a primary tenant improvement allowance of $2.1 million which is accounted for as Deferred Rent and a secondary tenant improvement allowance of $2.7 million which is accounted for as a Note Payable on the Company’s Consolidated Balance Sheet. Monthly rental payments, including common area maintenance, real estate taxes and payments of principal and interest on the Note Payable are approximately $180,200 per month. The Company previously leased additional research facility space in Middleton, Wisconsin, however, this lease expired in December 2016. Monthly rental expense for the Middleton space was approximately $14,000. Other monthly rental expenses included common area maintenance and real estate taxes totaling approximately $4,000 per month. Facility rent expense for the three and six months ended March 31, 2017 was $416,800 and $797,900, respectively, and facility rent expense for the three and six months ended March 31, 2016 was $228,400 and $427,000, respectively. As of March 31, 2017, future minimum lease payments due in fiscal years under operating leases are as follows:
2017 | $ | 746,022 |
2018 |  | 1,531,765 |
2019 |  | 1,435,409 |
2020 |  | 1,044,431 |
2021 |  | 1,070,496 |
2022 and thereafter |  | 5,766,495 |
Total | $ | 11,594,618 |
Note Payable As part of the Company’s lease for its research facility in Madison, Wisconsin discussed above, the Company entered into a $2.7 million promissory note payable with its landlord to finance certain tenant improvements made to the new facility. The note will be amortized over the 10-year term of the lease, commencing on October 1, 2016. The note bears interest at a rate of 7.1% and is payable in equal monthly installments of principal and interest. As of March 31, 2017, future principal payments due in fiscal years under the note payable are as follows:
2017 | $ | 98,840 |
2018 |  | 208,506 |
2019 |  | 223,820 |
2020 |  | 240,258 |
2021 |  | 257,903 |
2022 and thereafter |  | 1,603,038 |
Total | $ | 2,632,365 |
Litigation The Company and certain of its officers and directors were named as defendants in a putative consolidated class action in the United States District Court for the Central District of California regarding certain public statements in connection with the Company’s hepatitis B drug research. The consolidated class action, initially filed as Wang v. Arrowhead Research Corp., et al., No. 2:14-cv-07890 (C.D. Cal., filed Oct. 10, 2014), and Eskinazi v. Arrowhead Research Corp., et al., No. 2:14-cv-07911 (C.D. Cal., filed Oct. 13, 2014), asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and sought damages in an unspecified amount. Additionally, three putative stockholder derivative actions captioned Weisman v. Anzalone et al., No. 2:14-cv-08982 (C.D. Cal., filed Nov. 20, 2014), Bernstein (Backus) v. Anzalone, et al., No. 2:14-cv-09247 (C.D. Cal., filed Dec. 2, 2014); and Johnson v. Anzalone, et al., No. 2:15-cv-00446 (C.D. Cal., filed Jan. 22, 2015), were filed in the United States District Court for the Central District of California, alleging breach of fiduciary duty by the Company’s Board of Directors in connection with the facts underlying the securities claims. An additional consolidated derivative action asserting similar claims is pending in Los Angeles County Superior Court, initially filed as Bacchus v. Anzalone, et al., (L.A. Super., filed Mar. 5, 2015); and Jackson v. Anzalone, et al. (L.A. Super., filed Mar. 16, 2015). Each of these suits seeks damages in unspecified amounts and some seek various forms of injunctive relief. On October 7, 2016, the federal district court dismissed the consolidated class action with prejudice. On October 10, 2016 the plaintiffs appealed the dismissal of the consolidated class action to the United States Court of Appeals for the Ninth Circuit. The Weisman and Johnson derivative actions have been dismissed without prejudice. The Bernstein derivative action remains pending and is stayed pending the related consolidated class action. The Company believes it has meritorious defenses and intends to vigorously defend itself in each of these matters. The Company makes provisions for liabilities when it is both probable that a liability has been incurred and the amount can be reasonably estimated. No such liability has been recorded related to these matters. The Company does not expect these matters to have a material effect on its Consolidated Financial Statements. With regard to legal fees, such as attorney fees related to these matters or any other legal matters, the Company recognizes such costs as incurred. The Company and certain executive officers were named as defendants in a putative consolidated class action in the United States District Court for the Central District of California regarding certain public statements in connection with the Company’s drug research programs. The consolidated class action, initially filed as Meller v. Arrowhead Pharmaceuticals, Inc., et al., No. 2:16-cv-08505 (C.D. Cal, filed Nov. 15, 2016 ), Siegel v. Arrowhead Pharmaceuticals, Inc., et al., No. 2:16-cv-8954 (C.D. Cal., filed Dec. 2, 2016), and Unz v. Arrowhead Pharmaceuticals, Inc., et al., No.2:17-cv-00310 (C.D. Cal., filed Jan. 13, 2017) asserts claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 regarding certain public statements in connection with the Company’s drug research programs and seek damages in an unspecified amount. Additionally, a putative stockholder derivative action captioned Johnson v. Anzalone, et al., (Los Angeles County Superior Court, filed January 19, 2017) asserting substantially similar claims is pending in Los Angeles County Superior Court and is stayed pending the related consolidated class action. The Company believes it has meritorious defenses and intends to vigorously defend itself in these matters. The Company makes provisions for liabilities when it is both probable that a liability has been incurred and the amount can be reasonably estimated. No such liability has been recorded related to these matters. The Company cannot predict the ultimate outcome of this matter and cannot accurately estimate any potential liability the Company may incur or the impact of the results of this matter on the Company. With regard to legal fees, such as attorney fees related to these matters or any other legal matters, the Company recognizes such costs as incurred. Purchase Commitments In the normal course of business, we enter into various purchase commitments for the manufacture of drug components, for toxicology studies, and for clinical studies. As of March 31, 2017, these future commitments were estimated at approximately $11.4 million, of which approximately $7.1 million is expected to be incurred in fiscal 2017, and $4.4 million is expected to be incurred beyond fiscal 2017. 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 NDA 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, 2017 and 2016, the Company did not reach any milestones requiring milestone payments. In certain agreements, the Company may be required to make mid to high single-digit percentage royalty payments based on a percentage of the sales of the relevant products.

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