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Stock-Based Compensation | 6 Months Ended
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Mar. 31, 2024
Share-Based Payment Arrangement [Abstract] |
Stock-Based Compensation | STOCK-BASED COMPENSATION The Company has three plans that provide for equity-based compensation. Under the 2004 Equity Incentive Plan (the “2004 Plan”) and the 2013 Incentive Plan (the “2013 Plan”), 0 and 2,967,887 shares, respectively, of the Company’s common stock are reserved for grants of stock options and restricted stock awards to employees and directors as of March 31, 2024. On March 18, 2021, the Company’s Board of Directors approved the Arrowhead Pharmaceuticals, Inc. 2021 Incentive Plan (the “2021 Plan”), which authorized 8,000,000 shares (subject to certain adjustments) available for grants of stock options, stock appreciation rights, restricted and unrestricted stock, performance awards, cash awards and other awards convertible into or otherwise based on shares of the Company’s common stock. The maximum number of shares authorized under the 2021 Plan will be (i) reduced by any shares subject to awards made under the 2013 Plan after January 1, 2021, and (ii) increased by any shares subject to outstanding awards under the 2013 Plan as of January 1, 2021 that, after January 1, 2021, are canceled, expired, forfeited or otherwise not issued under such awards (other than as a result of being tendered or withheld to pay the exercise price or withholding taxes in connection with any such awards) or settled in cash. As of March 31, 2024, the total number of shares available for issuance was 4,553,827 shares, which includes 158,678 and 134,389 shares that were forfeited under the 2013 and 2021 Plans, respectively, and 3,689,089 shares have been granted under the 2021 Plan. In addition, there were 688,165 shares reserved for options and 637,563 shares reserved for restricted stock units issued as inducement grants to new employees granted outside of the Company’s equity-based compensation plans under Rule 5635(c)(4) of the Nasdaq Listing Rules. The following table presents a summary of awards outstanding:
| As of March 31, 2024
| 2004 Plan |  | 2013 Plan |  | 2021 Plan |  | Inducement Awards |  | Total
Granted and outstanding awards: |  |  |  |  |  |  |  |  |
Options | — |  |  | 1,358,377 |  |  | 32,151 |  |  | 688,165 |  |  | 2,078,693 |
Restricted stock units | — |  |  | 1,609,510 |  |  | 2,844,090 |  |  | 637,563 |  |  | 5,091,163 |
Total | — |  |  | 2,967,887 |  |  | 2,876,241 |  |  | 1,325,728 |  |  | 7,169,856 |
The following table summarizes stock-based compensation expenses included in operating expenses:
| Three Months Ended March 31, |  | Six Months Ended March 31,
| 2024 |  | 2023 |  | 2024 |  | 2023
Research and development | $ | 7,097 |  |  | $ | 8,745 |  |  | $ | 15,413 |  |  | $ | 17,147 |
General and administrative | 9,491 |  |  | 11,868 |  |  | 18,860 |  |  | 22,855 |
Total | $ | 16,588 |  |  | $ | 20,613 |  |  | $ | 34,273 |  |  | $ | 40,002 |
Stock Option Awards The following table presents a summary of the stock option activity for the six months ended March 31, 2024:
| Shares |  | Weighted- Average Exercise Price Per Share |  | Weighted- Average Remaining Contractual Term (Years) |  | Aggregate Intrinsic Value
Outstanding at September 30, 2023 | 2,263,477 |  | $ | 22.68 |  |  |  |  |
Granted | — |  | — |  |  |  |  |
Cancelled or expired | (30,437) |  | 61.11 |  |  |  |  |
Exercised | (154,347) |  | 11.53 |  |  |  |  |
Outstanding at March 31, 2024 | 2,078,693 |  | $ | 23.04 |  |  | 4.0 years |  | $ | 26,788,979 |
Exercisable at March 31, 2024 | 2,054,866 |  | $ | 22.72 |  |  | 3.9 years |  | $ | 26,788,746 |
The aggregate intrinsic values represent the amount by which the market price of the underlying stock exceeds the exercise price of the option. The total intrinsic value of the options exercised during the three months ended March 31, 2024 and 2023 was $2.5 million and $1.4 million, respectively. The total intrinsic value of the options exercised during the six months ended March 31, 2024 and 2023 was $3.1 million and $3.6 million, respectively Stock-based compensation expense related to stock options outstanding for the three months ended March 31, 2024 and 2023, was $0.6 million and $2.2 million, respectively. Stock-based compensation expense related to stock options outstanding for the six months ended March 31, 2024 and 2023, was $2.1 million and $4.6 million, respectively. As of March 31, 2024, the pre-tax compensation expense for all outstanding unvested stock options in the amount of $0.8 million will be recognized in the Company’s results of operations over a weighted average period of 4 months. 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 pricing 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, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. No options were granted during the six months ended March 31, 2024 and 2023. Visirna ESOP: On October 1, 2023, Visirna, a subsidiary of the Company, granted 7,500,000 stock options to its employees from the Employee Stock Option Plan (the “Visirna ESOP”), which authorizes 20,000,000 shares for issuance. The Visirna ESOP is independently managed by Visirna, including the valuation process. For the three and six months ended March 31, 2024, stock-based compensation expense related to the Visirna ESOP was $1.2 million and $3.2 million, respectively. Restricted Stock Units Restricted Stock Units (“RSUs”), including market-based, time-based and performance-based awards, have been granted under the Company’s 2013 and 2021 Plans and as inducements grants granted outside of the Company’s equity-based compensation plans. 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
Outstanding at September 30, 2023 | 4,241,640 |  | $ | 58.43 |
Granted | 1,838,025 |  | 30.75 |
Vested | (876,352) |  | 53.60 |
Forfeited | (112,150) |  | 44.16 |
Outstanding at March 31, 2024 | 5,091,163 |  | $ | 49.58 |
The fair value of RSUs was determined based on the closing price of the Company’s common stock on the grant date, with consideration given to the probability of achieving service and/or performance conditions for awards. For the three months ended March 31, 2024 and 2023, the Company recorded $16.0 million and $18.4 million of expense related to RSUs, respectively. For the six months ended March 31, 2024 and 2023, the Company recorded $32.2 million and $35.4 million of expense related to RSUs, respectively. As of March 31, 2024, there was $112.0 million of total unrecognized compensation cost related to RSUs that is expected to be recognized over a weighted-average period of 1.7 years.

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