Dr. Christopher Anzalone - President & Chief Executive Officer Paul McDonnel - Chief Financial Officer Brandi Floberg - The Piacente Group Dr. Mark Tilley - Unidym Thomas Schluep - Chief Scientific Officer, Calando

Good afternoon ladies and gentlemen. Thank you so much for standing by. Welcome to the Arrowhead Research third quarter fiscal year 2009 conference call. (Operator Instructions) I will now turn the conference over to Ms. Brandi Floberg with The Piacente Group. Please go ahead.

Thank you, operator. Good afternoon everyone, and thank you for joining us today to discuss Arrowhead Financial results for the fiscal third quarter ended June 30, 2009. With us today from management are President and CEO, Dr. Christopher Anzalone and Chief Financial Officer, Paul McDonnel. The management will provide a brief overview of the quarter and we’ll then open the call up to your questions. Also on the call for participation in the Q&A session is Dr. Mark Tilley from Unidym and Thomas Schluep, Chief Scientific Officer from Calando. Before we begin, I would like to remind you that 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 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 said, I would like to turn over the call to Dr. Chris Anzalone, President and CEO of the company. Chris?

Thanks Brandi. Good afternoon everyone, and thank you for joining us on our call today. Over the past year, one of our key initiatives has been to refine our business model and to take a more active role in controlling the operations of our subsidiaries to more effectively manage the business. These moves have been both defensive and offensive in nature, and that they are a reaction to the deterioration of the capital markets, but also intended to enable our companies to move more quickly and efficiently to market. Over the past quarters, in particular, we have made tremendous headway accomplishing this transformation to streamline our business. During the fiscal third quarter and subsequent to its close we believe we have made significant progress on a number of fronts, including the following: One, Unidym entered into a development partnership with LG electronics, we had agreements with two of the three largest LCD manufacturers in the world. Two, Unidym began a process to supply partnership with Continental company a large manufacturer of carbon materials to outsource its bulk carbon nanotube production and help ensure a high quantity and high quality supply capabilities. Three, Unidym continued aggressive cost cutting measures to increase flexibility. Four, Unidym consolidated its operations in California by closing its Houston facilities. Five, Unidym continued to sample prototypes with multiple manufacturers and its core markets within the display industry. Six, Arrowhead increased its ownership position in Unidym to approximately 67% and is in the process of closing agreements to bring its ownership to 70%. Seven, Arrowhead closed a significantly oversubscribed financing round to strengthen its balance sheets. Eight, Calando entered into an agreement with Cerulean Pharmaceuticals to license its non-RNAI business providing it with modest upfront cash, a potential significant revenue stream as product move to markets and the ability to cut a large portion of this firm. Nine, Calando has focused its resource entirely on its clinical RNAI activities rather than longer term R&D. Ten, Calando’s RNAI phase-I clinical trial continues to progress well and CALAA-01 continues to be well tolerated with no drug related serious adverse events reported. Eleven, we believe Calando’s CALAA-01 trial is now entering the therapeutic dose range, and we have seen some exciting preliminary data. Twelve, the nanotube’s cartilage regeneration candidates has shown very exciting data in rabbit model suggesting that it maybe an attractive early partnership. The quarter is not without its challenges however. For instance, we had some onetime cost associated with consolidating Unidym’s operations completing the Cerulean transaction in closing Calando’s non-RNAI operations. In addition, we received notification that we had fallen below the $2.5 million minimum shareholder equity requirements with the NASDAQ capital market. We took decisive action to address this, and with the Cerulean transaction, conversion of approximately $2 million of Calando debt into Calando equity and permanently eliminating $1.5 million of the Unidym put option liability, we ended the quarter with greater than $3.7 million of shareholder equity. In addition, subsequent to the quarter’s end, we completed a financing of greater than $2.7 million and permanently removed the remaining $500,000 of Unidym put option liability. Just prior to this call we filed an 8-K per NASDAQ rules, detailing these enhancements to our stockholder equity. We believe we have now fulfilled the NASDAQ requirements for compliance. Our primary near-term focus is on product development efforts with our most advanced subsidiary Unidym, where we see the nearest term value creation for our shareholders. A key component to bringing our products to market as quickly as possible is our increased focus on partnerships. This a consistent move for all of our subsidiaries where we have shifted away from capital and time intensive reliance on internal development to a structure that incorporates more partnerships and licensing. This strategy is intended to conserve cash while retaining potential upside and we made tangible progress in this initiative. Based on the efficiencies we’ve achieved so far, we are confident that this is the right strategy for our company. In the third fiscal quarter, we effectively reduced our operating expenses by 51% year-over-year. We also significantly decreased our cash burn and at the end of June we are operating at a run rate of about $750,000 per month, which is a decrease of 28% compared with our marked burn rate. This will continue to decrease in July and beyond because the June numbers include significant costs that ended in July. With our cost control measures nearly completed, I would like to review what we see as our nearest term opportunities. During the quarter, we successfully restructured Unidym’s business model from a vertically integrated company to a one that focuses on its core competencies and establishes partnerships with well positioned and well capitalized companies to commercialize this technology. As we discussed on our previous call, as part of our partnership strategy Unidym transferred a portion of its assets for CNT production to Continental Carbon or CCNI. We are in a process of negotiating a license and supply agreement for CCNI, to provide the majority of Unidym’s bulk CNT supplying needs. We expect the agreement to consist of upfront payments and royalties. Subject to completion of the second closing, Unidym has the potential to receive earn out payments of up to $26.5 million from CCNI based on achieving certain sales milestones. We have considerably scaled back Unidym’s cost structure and aggressively reduced its cash burn by an impressive 50% from July to June of this year. Unidym is now running more efficiently and effectively and is on track to commercialize its CNT products for touch screens later in 2009. We are extremely excited about Unidym’s market opportunities for CNTs. Prior to Unidym’s rollup of key foundational technology and acquisition of three companies, we saw CNT is a highly fragmented market with no clear leader. Unidym’s near-term products offer an attractive replacement for critical, and many believe suboptimal, material currently used in touch panels, LCD displays and thin-film solar cells. We believe that Unidym could have the first commercial replacement for incumbent ITO or indium tin oxide in these devices. This creates a significant opportunity for Unidym with a total addressable market that is thought to exceed $2.5 billion in 2009 and expected to grow to over $3.5 billion by 2012. On August 7, 2009, we closed a significantly oversubscribed private placement of common stock and warrants for total proceeds of $2.76 million. Given the commercialization of Unidym’s products is a key focus, funds from this transaction will be largely allocated to assisting Unidym in bring its transparent conductive materials into the large commercial touch panel markets and we believe we could see some modest revenue contributions from Unidym products by the end of calendar 2009. Our next step will be focused on entering into the LCD market and even larger market opportunity, which we expect to accomplish in 2011 and have more granular visibility on timing in 2010. Unidym has already established partnerships with industry leading OEMs, including Samsung Electronics, LG Electronics, and Tokyo Electronics, and they have been working with these companies for some time to break into a our target markets. We’ve conducted extensive sampling of literally dozens of working prototypes in both touch screens and LCDs that used our material. We believe that once we gain traction in the touch screen and LCD target markets, our penetration could be fairly rapid and our margins would be attractive. We see big opportunities to create value relatively quickly if we can break into these markets to show a fairly steep adoption curve and demonstrate the large margins that we expect. As Unidym’s technology can be used across multiple industries, we see longer-term market opportunities for Unidym products in thin film transistors or printable electronics, and as a replacement for metal oxide films in solar energy applications. During the third fiscal quarter, we strategically increased our stake in Unidym to capture additional value from the subsidiary that now own approximately 6% to 7% of the subsidiary with agreements in place to reach 70% with what we see as best in class technology, a strong pattern portfolio and a set of solutions to establish the market opportunities. We are optimistic that Unidym may emerge as a key player in next generation electronic materials. We’ve also made good progress with our majority owned subsidiary Calando. In the third fiscal quarter, we successfully brought to a close license agreements for its drugs delivery platform Cyclosert and the associated clinical stage anti-cancer drug IT-101. We’ve been working on partnering this program for some time and are delighted to have completed this agreement in which we received a modest upfront payment of $2.4 million. Calando could receive over $30 million in development and sales milestone payments plus royalties, should IT-101 be approved for sale and successfully marketed. Additionally, there is upside for every new drug candidates that Cerulean is able to bring to market with the linear-cyclodextrin drug delivery platform in the form of other development and sales milestone payments plus revenues. We strongly believe in IT-101 and the flexible Cyclosert platform. We also have confidence in Cerulean’s ability to bring multiple compounds to the market using a licensed technology. Therefore, we believe this deal with bring significant value to Arrowhead over the long run. Importantly, this deal enabled us to retain upside potential while eliminating a large portion of our burn and reduced Calando’s liabilities. This is an expensive clinical program and its elimination enables Calando to focus its resources solely on its clinical stage RNAi program. Calando is now running on a lean and efficient model with a greatly reduced burn rate. We have virtually eliminated long-term R&D spending and have become a highly focused clinical stage company that allocates all of its resources to moving its siRNA in a delivery platform through the clinic. We have retained the key rights and know-how for Calando’s RNAi business. As you know, this is a fairly new field within the pharmaceuticals industry that has garnered interest for its novel and potentially powerful way to treat a variety of diseases including cancer. The key problem limiting the widespread use of RNAi for therapeutic purposes is systemic delivery. For a number of reasons, this has been a difficult problem for the industry to overcome and we believe that the first company to demonstrate effective systemic delivery in humans we will be in a position to create a lot of value. To our knowledge, no company has ever demonstrated conclusive evidence of RNAi in humans. It has been our goal all along to be that company through our RONDEL delivery system. As you know, last year, we initiated a phase-I clinical trial of RONDEL via our first RNAi therapeutic CALAA-01. We believe we are the first ones to use a delivery vehicle to administer siRNA systemically in humans and the first to use siRNA against cancer in humans. So, we truly believe that Calando has been at the forefront of this new and potentially revolutionary field. We have been clear about our desire to partner CALAA-01 in a RONDEL platform with a company capable of brining multiple therapeutics through the clinic into the market. It simply does not makes sense for us to assume the cost associated with completing clinical trials and establishing sales, marketing and distribution channels particularly at this point in Arrowhead development cycle and during these capital constrain times. This remains our model and some have inquired as to why we have yet to establish that partnership. We believe that because this platform is not partnered early in its development companies would rather wait to see clinical data rather than making a deal based on pre-clinical animal data that they were not involved in generating. Given where we are in the clinical trials we are cautiously optimistic that we maybe entering a period where multiple companies would have heightened interest. We are currently nearing the end of the phase-I ascending dose trial with CALAA-01, we are very happy to report that the drug has been well tolerated by patients and to-date have seen no drug related serious adverse events or SAEs measured by which a drug safety profile is determined. Importantly, we believe we now begin entering the drugs therapeutic dose range and are seeing some interesting preliminary data. As we verify results and eventually conclude the trial I look forward to sharing additional finds with you. In addition to our near term Unidym and Calando prospects, we also believe that Nanotope Incorporated could be a considerable value driver without requiring significant additional capital from Arrowhead, Nanotope’s technology enables us to employ a single platform that is customizable for different indications that help regenerate various tissues. In pre-clinical studies in multiple animal models, Nanotope’s compounds have demonstrated the ability to reverse paralysis associated with spinal cord injury, regenerate cartilage, increase healing rates in chronic wounds and regenerate bone. While early stage all these indications offer large market opportunities with unmet medical needs. We developed over 100 different compounds that are focused on different tissue and we think it’s a very healthy platform that could present an attractive set of partnering opportunities. Specifically, our recent work in cartilage regeneration has garnered notable interest and we are cautiously optimistic that we will be able to establish a high quality partnership in this area in the near term. As our later stage companies and programs such as Unidym mature, we will be looking to opportunities like Nanotope where we can monetize the assets of early stage platform technologies with multiple applications and partner these programs with established companies to absorb the cost of later stage development. As we work with our subsidiaries to bring innovative new products to markets, we are very proud of the efficiencies we have achieved and will continue to implement prudent cost controls for maximizing our partnering opportunities. With that I would like to turn the call over to Paul McDonnel to provide details of our financial results for the quarter. Paul?

Thank you, Chris. As we reported earlier today, on a consolidated basis, Arrowhead finished its third fiscal quarter ended June 30, 2009, with a consolidated net loss of $2.5 million compared to a consolidated net loss of $7.5 million for the same period in the prior year. On a consolidated basis, net cash used in operating activities during the quarter totaled $1.5 million compared to $7.7 million for the same quarter of the prior year. Cash and receivables on hand as of June 30, totaled approximately $2.3 million compared to $10.2 million as of September 30, 2008, the end of the last fiscal year over nine months ago. The head count reductions and cost saving actions taken since the end of the last fiscal year and throughout the first three quarters of the current fiscal year, resulted in a $5.1 million reduction in total operating expenses in the current quarter compared to the same quarter in the prior year. Including the recently completed offerings Arrowhead has raised approximately $7.3 million of cash from outside investments since the beginning of the current fiscal year. During the third quarter Unidym and Calando negotiated a conversion of a combined $3.6 million in debt to equity. Another $500,000 of consolidated debt was converted to equity after the end of the quarter. Arrowhead’s stockholder equity increased to net $3.3 million during the quarter, bringing the total consolidated stockholders’ equity balance to $3.7 million as of June 30. During the quarter, the company had consolidated operating expenses of $4.96 million compared to $10.1 million in the year ago period. The 51% decline in operating expense is attributable to the head count and other cost saving actions mentioned earlier. Calando’s cash required for its research and development activities was approximately $1.6 million during the third quarter compared to $1.8 million of cash required during the second quarter or an 11% decline quarter-to-quarter. Of the $1.6 million in cash required by Calando’s at operations during the quarter, over $600,000 were used to satisfy payables and include expenses from the prior quarter. As Chris has highlighted, Calando’s expenses and its resulting cash demands are expected to continue to decrease as Calando utilizes the benefits of its partnership and licensing initiatives and the closure of its Pasadena facility. Consolidated operating expenses also included a $1.7 million non-cash charge to record purchased and processed research and development. This charge is the result of Arrowhead issuing Arrowhead’s stock to acquire additional shares in Unidym from Unidym right order stockholders. Unidym’s cash required by operations was approximately $830,000 in the third quarter, compared to $1.7 million during the second quarter and $2.4 million in the first quarter of the fiscal year. If we exclude the one time benefit of the $700,000 of cash received from the sale of [Insize] and the $200,000 from licensing of certain intellectual proprietary during the first quarter, Unidym has reduced its quarterly cash consumption by nearly $2.4 million since the beginning of the fiscal year. This represents a greater than 70% decrease in cash required by operations of Unidym. The decrease in cash required by operations was due to the elimination and the closure of two Texas facilities, reductions in head count, reductions in salaries and other cost containment measures, and we anticipate Unidym’s cash burn to continue to decline. I’ll now turn the call over to Chris for concluding remarks.

: I would like to take a moment to thank him for his contributions for the company and his assistance through our quarterly reporting cycle. It has been a true pleasure working with Paul and we are pleased that he will continue to have access to him as a consultant as needed as we look for a replacement CFO. In the interim, we welcome back Joseph T. Kingsley into the company who has joined our team as Vice President of Finance and Accounting, as you may recall Ted is Arrowhead’s former President and CFO and we expect him to be our interim CFO while we look for permanent replacement. We are extremely excited about the near term opportunities of our subsidiaries. As we look to the next stage of Arrowhead’s evolution we are optimistic that our more mature subsidiaries, Unidym and Calando, will serve as near term value drivers for our shareholders while we develop follow-on value engines such as Nanotope. I believe that these three companies are highly representative of our model. One, we look to develop platform technologies that maybe monetized across multiple markets or product offerings to effectively give us multiple short-term goal. Two, we look to address large and current market opportunities. Three, we are maximizing the efficiency of our structure to create lean businesses capable of growing with limited capital, and four we are increasing the leveraging of established partners to limit our capital requirements and speed on to market. We remain highly optimistic about the transformative nature of nano technology in general and about the growth prospects of our subsidiaries in particular. We believe that our model and current assets are well positioned to create significant shareholder value in a short as well as long-term. With that I would like to open the call to questions. Operator. : I would like to take a moment to thank him for his contributions for the company and his assistance through our quarterly reporting cycle. It has been a true pleasure working with Paul and we are pleased that he will continue to have access to him as a consultant as needed as we look for a replacement CFO. In the interim, we welcome back Joseph T. Kingsley into the company who has joined our team as Vice President of Finance and Accounting, as you may recall Ted is Arrowhead’s former President and CFO and we expect him to be our interim CFO while we look for permanent replacement. We are extremely excited about the near term opportunities of our subsidiaries. As we look to the next stage of Arrowhead’s evolution we are optimistic that our more mature subsidiaries, Unidym and Calando, will serve as near term value drivers for our shareholders while we develop follow-on value engines such as Nanotope. I believe that these three companies are highly representative of our model. One, we look to develop platform technologies that maybe monetized across multiple markets or product offerings to effectively give us multiple short-term goal. Two, we look to address large and current market opportunities. Three, we are maximizing the efficiency of our structure to create lean businesses capable of growing with limited capital, and four we are increasing the leveraging of established partners to limit our capital requirements and speed on to market. We remain highly optimistic about the transformative nature of nano technology in general and about the growth prospects of our subsidiaries in particular. We believe that our model and current assets are well positioned to create significant shareholder value in a short as well as long-term. With that I would like to open the call to questions. Operator. : I would like to take a moment to thank him for his contributions for the company and his assistance through our quarterly reporting cycle. It has been a true pleasure working with Paul and we are pleased that he will continue to have access to him as a consultant as needed as we look for a replacement CFO. In the interim, we welcome back Joseph T. Kingsley into the company who has joined our team as Vice President of Finance and Accounting, as you may recall Ted is Arrowhead’s former President and CFO and we expect him to be our interim CFO while we look for permanent replacement. We are extremely excited about the near term opportunities of our subsidiaries. As we look to the next stage of Arrowhead’s evolution we are optimistic that our more mature subsidiaries, Unidym and Calando, will serve as near term value drivers for our shareholders while we develop follow-on value engines such as Nanotope. I believe that these three companies are highly representative of our model. One, we look to develop platform technologies that maybe monetized across multiple markets or product offerings to effectively give us multiple short-term goal. Two, we look to address large and current market opportunities. Three, we are maximizing the efficiency of our structure to create lean businesses capable of growing with limited capital, and four we are increasing the leveraging of established partners to limit our capital requirements and speed on to market. We remain highly optimistic about the transformative nature of nano technology in general and about the growth prospects of our subsidiaries in particular. We believe that our model and current assets are well positioned to create significant shareholder value in a short as well as long-term. With that I would like to open the call to questions. Operator.

(Operator Instructions) There do not appear to be any questions at this time. With that this will conclude today’s conference. We do thank you very much for your participation. If you would like to listen to a replay of today’s conference, you could do so by dialing 1800-406-7325 or 303-590-3030 and put the access code 4134570. We thank you very much for your participation. Have a very pleasant rest of your day.