Dr. Christopher Anzalone - President and Chief Executive Officer Dr. James Hamilton - Vice President, and Chief Executive Officer, Calando Pharmaceuticals, Inc. Paul McDonnel - Chief Financial Officer Sean Olson - Vice President of Business Development, Unidym Sanjay Hurry - Investor Relations

Bill Boutin - Indusino Capital Management Jeff Ram - Stifel, Nicolaus & Company Unidentified Analyst

Good afternoon ladies and gentlemen and thank you for standing by. Welcome to the Arrowhead Research first quarter and fiscal year 2009 financial results conference call. (Operator Instructions) This conference is being recorded today Monday, February 9, 2009. I would now like to turn the conference to our host, Sanjay Hurry, Investor Relations of Arrowhead Research Corporation. Please go ahead, sir.

Thank you, operator. Good afternoon everyone, and thank you for joining us to discuss Arrowhead’s financial results for the fiscal first quarter ended December 31, 2008. With us today from management are President and CEO, Dr. Christopher Anzalone and Chief Financial Officer, Paul McDonnel. Management will provide a brief overview of the quarter and will then open the call up for to your questions. Also on the call for participation in the Q&A session, our Chief Executive Officers of Calando and Unidym, Dr. James Hamilton and Dr. Mark Tilley. Comments made during today’s call may contain certain forward-looking statements within the meaning of Section 27a of the Securities Act of 1933 and Section 21e of the Securities Exchange Act of 1934. All statements other than statements of historical fact including without limitation those with respect to Arrowhead’s goals, plans, and strategies are forward-looking statements. Without limiting the generality of the foregoing words such as may, will, expect, believe, anticipate, intend, could, estimate, or continue or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to projections of Arrowhead’s future financial performance, trends in its businesses, or other characterizations of future events or circumstances are forward-looking statements. Forward-looking statements represent managements’ current expectations and are inherently uncertain. You should also refer to the discussions under ‘Risk Factors’ in Arrowhead’s annual report on Form 10-K and the Company’s quarterly reports on Form 10-Q for additional matters to be considered in this regard. Thus, actual results may differ materially. Arrowhead undertakes no duty to update any of the forward-looking statements discussed on today’s call. With that, I would like to turn over the call to Dr. Chris Anzalone, President and CEO. Chris? Dr. Christopher Anzalone: Thank you, Sanjay. Good afternoon everyone, and thank you for attending our conference call this quarter. It has been only two months since our last conference call so today I would like to focus primarily on our strategy to get through this difficult financial and economic time while serving our mission to bringing potentially game changing nanotechnologies to the market place. There are five fundamental action items that are currently driving our businesses. They are one, optimizing the consolidation of our subsidiaries such that we operate more efficiently as an enterprise; two, aggressively cutting cost where possible; three, sharpening the focus of our business models; four, continuing to move our technologies and products to market as quickly as possible; five, securing necessary capital. I will discuss what this framework is meant for Arrowhead as an enterprise as well as its subsidiary over the past quarter. For Arrowhead, the parent Company, our strategy has meant focusing our resources almost entirely on our current subsidiaries while we are keeping the future pipeline of opportunities warm so we may act on them when the time is right. Arrowhead professionals are focused on supporting our current subsidiaries which we believe have great potential. As those of you familiar with the Company are aware, our business model is predicated upon centralization of key management responsibilities at the Arrowhead level and to provide our subsidiaries with decent management and enables each subsidiary to accelerate development and manage cost. We have always believed this to be an efficient model and particularly in today's capital constrained environment, we see it as a key competitive advantage for our subsidiaries. And now to Unidym, of all the Arrowhead subsidiaries, it has undergone the greatest progress towards streamlining and increased focus. As I discussed on the December call, Unidym initiated reorganization last quarter intended to significantly decrease the Company's cash burn and create a more focused business model. The shift was significant and it included an agreement between Unidym and Arrowhead to increase Arrowhead's operational involvement and to tap Arrowhead Vice President of Advanced Materials, Dr. Mark Tilley, as Unidym CEO. Unidym's reorganization is resulting in a leaner, more agile company, better able to respond to opportunities in what is already a difficult market. Once the costs-cutting measures are fully implemented, we estimate the Unidym will achieve more than a 60% reduction in cash burn. The focus however is not just on cost savings. Before the reorganization, Unidym employ a vertically integrated model that included manufacturing in bulk material for noncore markets as well as the manufacturing of transparent conductive films for commercial products. Unidym is in the process of divesting the bulk materials business and is focusing on an expanded license program and to a possible sale of the business to monetize this opportunity. Transparent conductive films are of course critical to Unidym as moving to touch screen market and it is now focused on establishing partnerships with film companies rather than manufacturing film itself. We believe that partnering with film companies that have extensive technical expertise and established distribution channels will enable Unidym to address touch screen market more rapidly while decreasing capital needs. Unidym is now focused solely on its core competencies such as its extensive patent portfolio and the ability to make conductive inks with electronics grade carbon nanotubes. As such we believe Unidym is well positioned to move more rapidly into its primary target markets of LCDs and touch screens in a cost effective manner. As you know, as it sharpens its focus and contains costs, it continues to make solid progress toward the market place and we are confident that Unidym will realize revenue from sale of material to touch panel manufacturers in the near term. The milestone was originally forecast for December 2008 but missed amidst this slowing economy. We also believe that Unidym's progress toward addressing the LCD market is accelerating and its significant deals and accomplishments will be announced in coming quarters. For instance, Samsung Electronics demonstrated the world's first carbon nanotube-based color active matrix electrophoretic display last quarter. The device is the result of an ongoing joint development program between Samsung Electronics Company and Unidym and uses a carbon nanotube transparent electrode developed by Unidym. Also last quarter, Tokyo Electronic Venture Capital, a longstanding strategic partner and investor committed additional capital to Unidym and we expect continued collaboration between Unidym and Tokyo Electronic and the LCD in several markets. We believe that Unideym's continued progress, its near-term potential for market penetration and lower cost structure position it to attract additional outside capital from strategic and financial investors in coming quarters. Unidym is currently in the process of raising its financial. Turning to Calando, like Unidym, it has focused on moving forward toward commercialization while working hard to contain cost and become increasingly efficient. Calando continues to have an agreement with Arrowhead enabling Dr. James Hamilton, Arrowhead Vice President to Medical Technologies to serve as Calando's CEO. In addition, other Arrowhead professionals are actively engaged in such activities as business development and patent protection providing Calando with a relatively low level recurring burn rate. This lean structure provides Calando with the flexibility to effectively turn down spending or reallocate capital rapidly and as necessary. Calando's resources are currently solely focused on the clinical programs in enhancing its value for a partnership or ultimate acquisition. Our expenses last quarter reflect this. The majority of Calando's costs were related to the Phase I clinical trial for CALAA-01, managing the initiation of the Phase II clinical trial for IT-101 and assembling mini institutions that will run that and moving CALAA-02, Calando second RNAi clinical candidate toward an IND filing with the FDA. We believe these are all high-return endeavors that drive significant value back to Calando as a partner or ultimately as an acquisition target. The progress Calando demonstrated in 2008 continued into the first fiscal quarter of 2009. Calando's RONDEL enabled siRNA based therapeutic CALAA-01 remained ahead of schedule and Phase I clinical trials in patients with solid tumors and I am pleased to report that the trial continues to progress well. Last quarter, Calando also announced the use of its RONDEL systemic delivery technology for the treatment of sepsis in mice. These points out the broad utility we believe of this system and represented the meaningful extension of its siRNA delivery technology beyond its initial avocation to oncology. Moving to our wholly owned subsidiary, Tego Biosciences, we revised Tego's business to a licensing model last quarter. The owner of the key IP in the area of modified fullerenes for using therapeutics and diagnostic applications, Tego maintains an expansive patent portfolio. We believe it could be a better use of our capital to focus on partnering and licensing of the technology to companies that work best in developing end products rather than building the product themselves. As such, we have reduced cash burn here to virtually zero. As with Calando, we have an active process to establish partnerships and are confident that we will be able to announce deals in the coming quarters. With regard to our wholly owned subsidiary Agonn, it remains principally focused on acquiring key IP to target niche opportunities within the high growth energy market and in particular with regard to next generation ultra capacitors for use in hydroelectric vehicles as well as non traditional energy production markets. This process continues to make progress and requires minimal capital at this stage. Finally turning to our minority interest, Leonardo Biosystems and Nanotope, these companies have very low burn rate as they develop candidates to bring to the clinic. Leonardo is leveraging the resources and expertise of the large lab of Dr. Mauro Ferrari, nanocancer specialist and Leonardo founder to develop its multistage drug delivery system. Dr. Ferrari's lab at the University of Texas helps Science Center in Houston made significant advancement last quarter in delivering new classes of molecules that Leonardo is applying to its proprietary system. Nanotope continue to optimize a formulation of its spinal cord regeneration candidates and develop what we believe to be a breakthrough animal data with the new cartilage regeneration candidate. So, I will now turn to Arrowhead's CFO, Paul McDonnel to discuss Arrowhead's quarterly financial results. Paul?

Thank you, Chris. As described in the 10-Q filed today on a consolidated basis, Arrowhead finished the first quarter of fiscal 2009 with a consolidated net loss of $8.030 million compared to a net loss of $5.234 million for the same period in the prior year. More importantly, on a consolidated basis, the net cash used in operating activities during the quarter totaled $7.449 million compared to $5.832 million for the same quarter in the prior year. Cash and receivables on hand as of the end of the quarter totaled approximately $8.643 million compared to $10.152 million as of October 1st at the beginning of the current fiscal year. On a consolidated basis, the Arrowhead has benefited from the approximately $2.516 million raised or committed through the Calando note offering, all of which is now being collected and $2 million of mezzanine financing at Unidym. Together with $700,000 in cash received from the sale of Unidym's equity interest in size. The net decrease in cash and cash equivalents during the quarter was approximately $2.457 million. Work force and headcount reductions made since the beginning of the fiscal year are expected to result in annualized cash savings from salaries and benefits well in excess of $4.300 million. Additionally, the eventual cash savings from closing Unidym's Texas facility and consolidating nano II production in the Unidym's Northern California operations will result in additional annualized operational cash savings estimated well over $1 million per year. But consolidating facilities may first require up to $1 million of cash over the next couple of months. The impact of the cash saving actions taken by the various subsidiaries during the first quarter will become more apparent in Arrowhead's consolidated results of operations for the current quarter which will end on March 31st. For the quarter ended December 31, the savings resulting from the reduction in headcount at Unidym and Calando were largely offset by the increasing expenses resulting from a decision made earlier in the fiscal year to pursue an additional drug candidate for Calando's RONDEL delivery system. The new drug, CALAA-02 demonstrates the RONDEL systems ability to move quickly into the clinic. However, moving quickly comes at a cost. During the quarter, Calando incurred nonrecurring cost of a licensing, outside laboratories, manufacturing, consulting and other pre-clinical work for CALAA-02 totaling approximately $1.3 million. These nonrecurring costs are on top of the cost incurred for completing Phase I of IT-101, conducting Phase I clinical trials for CALAA-01 and initiating ovarian cancer Phase II clinical trial for IT-101. The timing and the magnitude of the future clinical trial and patient cost is difficult to predict which in turn makes cash forecasting very imprecise. However, Arrowhead's consolidated cash consumed by operations will decrease significantly in the current quarter compared with the prior quarter and will continue to decrease from quarter to quarter after that. For an overview of possible strategy to address the operational cash requirement of Arrowhead's various subsidiaries, I will turn the time back to Chris. Chris? Dr. Christopher Anzalone: Thanks Paul. The five action areas that I laid out at the beginning of the call are simply a more granular way of describing of basic strategy which is to strengthen our balance sheet while moving our technologies and companies toward commercialization. I believe we will make good progress initiating programs to contain costs and maximize our efficiency as an enterprise but of course potentially more important is our ability to bring in additional capital. Even in these difficult times, we believe there are many ways we can strengthen our balance sheet and secure necessary capital. We are moving in parallel down multiple pads for additional financing and they include one, a single or series of partnerships for Calando; two, direct investments into Calando from strategic and/or financial investors; three, funded JDAs and partnerships for Unidym; four, revenue generated from Unidym sales; five, license fees to Unidym; six, the sale of Unidym's bulk materials business; seven, direct investments into Unidym from strategic and/or financial investors; eight, the sale of Tego; nine, Tego license fees and ten, continued scheduled payouts from the 2008 Ionic sale. Now, let me be clear, we are moving aggressively down of all of these roads and we have significant traction in everyone of them. These are 10 achievable targets and it did not represent a complete list of the financial options we are pursuing but we believe it is unlikely that all of these strategies will bear fruit in a timely manner. We are confident that it is enough for us to succeed to provide us with the financing we need, to use a parlance in my biology training and we believe we have enough redundancies in this system. What was conspicuously absent from this list is raising additional equity capital directly into Arrowhead. Of course this remains an option particularly as we hit key near-term milestones. Finally, I would like to add some perspective to this analysis and to try to help our shareholders see what I see. This is a Company that we believe has potentially significant near-term opportunities in large high growth markets. For instance, we believe Unidym is extremely well positioned to participate in the transformation of touch screen and LCD markets. These are large markets where major players have indicated they are in search of replacement of ITO and we believe we have such replacements. We are highly optimistic with Unidym's technological platform and world class partners will help it address these large markets in the near term. Similarly, we believe Calando has something that the pharmaceutical industry needs and we believe that Calando's RONDEL system can help overcome the problems associated with systemic delivery of siRNA and contribute to the wider adoption of RNAi therapeutics. Further we believe Calando's micro search system can be a valuable tool for delivering certain small molecule drugs as well as other classes of molecules. Importantly, we believe that all these opportunities have the potential to drive real near-term value via partnerships and market penetration. We are highly focused on creating a runway that is long enough to enable Arrowhead to begin to realize this value. Of course there are two ways to lengthen such a runway, decreasing costs and increasing capital. As I have discussed, we are working toward both. These are indeed difficult times but I believe that Arrowhead and its subsidiaries are making great stride and fiscal 2009 will be a pivotal year for us. With that, operator, I would like to open the call to questions.

(Operator's instruction) Your first question comes from the line of Bill Boutin - Indusino Capital Management. Bill Boutin - Indusino Capital Management: Real quick, could you guys go over again your plan, just on the Company, until the end of the year? Dr. Christopher Anzalone: Sure, we believe we have sufficient capital on the books and opportunities that we can get to the end of the year and into 2010. We are pursuing a number of avenues. I mentioned 10 of them. These are the most pressing. However, we are really walking down multiple pads beyond this 10, I will repeat this however. One is a single or series of partnerships for Calando. We believe that that could bring in capital to Calando and possibly to Arrowhead, direct investments into Calando from strategic and/or financial investors. Again, Calando and Unidym are our two greatest consumers of capital but to the extent that we can source direct investments into those. It will greatly enhance our balance sheet. Number three is funded JDAs and partnerships for Unidym. Number four is revenue generator from the Unidym sales. Number five is license fees to Unidym. Number six is the sale of Unidym's book materials business. Number seven is direct investments into Unidym from strategic and/or financial investors. Again as I mentioned earlier in the call, we are actually pursuing that as we speak. Number eight is the sale of Tego. Nine is Tego license fees and ten is continued schedule payouts from the 2008 sale of Ionics.

Your next question comes from the line of Jeff Ram - Stifel, Nicolaus & Company. Jeff Ram - Stifel, Nicolaus & Company: Could you talk a little bit about the, you touched on the cartilage breakthrough and Nanotope, what that could mean and is there a potential to partner up with something like that to raise cash? Dr. Christopher Anzalone: Yes. So Nanotope has at least two primary areas right now. Of course the spinal cord regeneration candidates that we have been working out for quite some time and we are continuing to optimize that formulation and as you point out this new candidate for cartilage regeneration. What we have seen there is we believe truly stunning. What we have seen in our model is the ability to regenerate a lost cartilage and it appears that that new cartilage is virtually indistinguishable from native non-injured cartilage. We are excited about this, to say the least, and we are actively talking to other companies about partnering that. We believe we can partner that fairly early, far before the clinic we think that will help us to defray the cost of the clinical trials. And let me also be clear, Jeff, that is not the majority on subsidiary. We have minority interest there, better than 20% but that is not a majority on subsidiary at this time.

.: Bill Boutin - Indusino Capital Management: Yes, just a follow up on my previous question on the plan for the end of the year. Are we talking fiscal year or you are talking calendar year when you said 2010? Dr. Christopher Anzalone: We are talking fiscal year. Bill Boutin - Indusino Capital Management: Okay and then given what you listed off and you still need to execute on one or more of the things to make the plan viable? Dr. Christopher Anzalone: Yes. So, we are not in the business of just staying in the business through the end of fiscal 2009 and so we are actively pursing these as well as again other avenues to bring in additional capital that will give us runway far beyond that into 2010 and beyond. We think this is a fairly important inflexion point for us, in large part because of our two most mature subsidiaries; Calando and Unidym we believe are really at the cost of breakthroughs and partnerships. So, we are focused like a laser on this next six to nine months to make sure that we can provide the capital that they need. Again, we are confident that we can do that. Bill Boutin - Indusino Capital Management: Okay and then just another quick question. Previously or several times with Calando, you used some sort of near term events and I think the first time you used it was October 13th before you put out the series of letters on each of the portfolio of companies and now during this call, it is the first time that you have kind of left the near term out, that wording. Dr. Christopher Anzalone: We think the very near-term partnership opportunities. I did not mean to leave that out. It is just, Bill, these things take some time in the good environment but is less in economic environment so these take a bit of work and we are actively involved in that process and I think we will get through it.

(Operator's instruction) Your next question comes from the line of Unidentified Analyst.

Chris, you mentioned that obviously the operational involvement with Unidym has increased over the past several quarters. Does that in any way increased your financial obligation for funding or any kind of collateral situation of Unidym? Dr. Christopher Anzalone: No, it does not. We do not have any ongoing obligations to Unidym other than the fact that we think it is a winner and we want to do everything we can to make it succeed or to help it succeed.

Okay and then also you mentioned a couple of times that you are in the process of raising some financing for Unidym right now. What is the likelihood that you guys think you will get that done in the next quarter? Dr. Christopher Anzalone: It is difficult to predict timing in this environment, of course, as you know. We are working very hard at securing that financing this quarter. It may slip to next quarter. It maybe trenched out over two quarters. It is just too early to tell.

(Operator's instruction) Sir, I show no further questions in the queue. I will now turn it back for any closing remarks that you have. Sir, there are no further questions in the queue. Dr. Christopher Anzalone: Okay, if there are no further questions, we certainly thank everyone for their time and their interest and we will see you on the call next quarter.

Ladies and gentlemen, that concludes Arrowhead Research first quarter fiscal year 2009 financial results conference call. If you would like to listen to a replay of today's conference, please dial 303-590-3000 or 1800-405-2236. AT&T would like to thank you for your participation. You may now disconnect.