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Stock-Based Compensation | 3 Months Ended
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Dec. 31, 2020
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] |
Stock-Based Compensation | NOTE 9. STOCK-BASED COMPENSATION Arrowhead has two plans that provide for equity-based compensation. Under the 2004 Equity Incentive Plan and the 2013 Incentive Plan, as of December 31, 2020, 509,210 and 5,102,360 shares, respectively, of Arrowhead’s Common Stock are reserved for the grant of stock options, stock appreciation rights, restricted stock awards and performance unit/share awards to employees, consultants and others. No further grants may be made under the 2004 Equity Incentive Plan. As of December 31, 2020, there were options granted and outstanding to purchase 509,210 and 2,320,640 shares of Common Stock under the 2004 Equity Incentive Plan and the 2013 Incentive Plan, respectively, and there were 2,385,200 restricted stock units granted and outstanding under the 2013 Incentive Plan. Also, as of December 31, 2020, there were 1,260,503 shares reserved for options and 762,950 shares reserved for restricted stock units issued as inducement grants to new employees outside of equity compensation plans. 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, 2020 |  |  | 4,539,403 |  |  | $ | 16.67 |  |  |  |  |  |  |
Granted |  |  | 144,000 |  |  | 63.64 |  |  |  |  |  |  |
Cancelled |  |  | (55,438 | ) |  | 24.48 |  |  |  |  |  |  |
Exercised |  |  | (537,612 | ) |  | 9.49 |  |  |  |  |  |  |
Balance at December 31, 2020 |  |  | 4,090,353 |  |  | $ | 19.16 |  |  | 6.3 years |  | $ | 235,465,861 |
Exercisable at December 31, 2020 |  |  | 2,556,040 |  |  | $ | 9.56 |  |  | 4.8 years |  | $ | 171,695,135 |
Stock-based compensation expense related to stock options for the three months ended December 31, 2020 and 2019 was $3.1 million and $1.6 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 December 31, 2020 and 2019 was $6.8 million and $8.6 million, respectively. The intrinsic value of the options exercised during the three months ended December 31, 2020, and 2019 was $32.0 million and $21.6 million, respectively. As o f December 31, 2020, the pre-tax compensation expense for all outstanding unvested stock options in the amount of $39.0 million will be recognized in the Company’s results of operations over a weighted average period of 3.1 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:
|  | Three Months Ended December 31, |  |
|  | 2020 |  |  | 2019 |  |
Dividend yield |  |  | - |  |  |  | - |  |
Risk-free interest rate |  | 0.4 – 0.6% |  |  | 1.4 - 1.8% |  |
Volatility |  | 90.0-90.4% |  |  | 90.5-91.0% |  |
Expected life (in years) |  |  | 6.25 |  |  |  | 6.25 |  |
Weighted average grant date fair value per share of options granted |  | $ | 47.34 |  |  | $ | 39.05 |  |
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 and performance-based awards, were granted under the Company’s 2013 Incentive Plan and as inducements grants granted outside of the Plan. During the three months ended December 31, 2020, the Company issued 2,200 RSUs under the 2013 Incentive Plan and 116,000 RSUs as inducement awards. At vesting, each outstanding RSU will be exchanged for one share of the Company’s Common Stock. RSU recipients may elect to net share settle upon vesting, in which case the Company pays the employee’s income taxes due upon vesting and withholds a number of shares of Common Stock of equal value. 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 |
Unvested at September 30, 2020 |  |  | 3,524,025 |  |  | $ | 44.11 |
Granted |  |  | 118,200 |  |  |  | 62.26 |
Vested |  |  | (280,325 | ) |  |  | 22.92 |
Forfeited |  |  | (213,750 | ) |  |  | 41.34 |
Unvested at December 31, 2020 |  |  | 3,148,150 |  |  | $ | 46.87 |
During the three months ended December 31, 2020 and 2019, the Company recorded $5.0 million and $2.9 million of expense related to RSUs, respectively. Such expense is included in stock-based compensation expense in the Company’s Consolidated Statement 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. As of December 31, 2020, the pre-tax compensation expense for all unvested RSUs in the amount of $82.0 million will be recognized in the Company’s results of operations over a weighted average period of 3.0 years. Unvested RSUs that we have deemed not probable of vesting as of December 31, 2020, have the potential of generating an additional $38.1 million of pre-tax compensation expense if we deem them probable of vesting in a future reporting period.

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