Brandi Floberg - IR Christopher Anzalone - President and CEO Ken Myszkowski - CFO

Todd Ulrich - Private Investor

Welcome to the Arrowhead Research Third Quarter Fiscal 2010 Conference Call. At this time, all participants are on a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Brandi Floberg. Thank you, you may begin.

Thank you, operator. Good afternoon everyone and thank you for joining us today to discuss Arrowhead's results for its fiscal 2010 third quarter ended June 30, 2010. With us today from management are President and CEO, Dr. Christopher Anzalone and Chief Financial Officer, Ken Myszkowski. Management will provide a brief overview of the quarter and 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 Dr. Thomas Schluep 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 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 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 the call over to Dr. Christopher Anzalone, President and CEO of the company. Chris? Dr. Christopher Anzalone: Thanks very much, Brandi. Good afternoon everyone, and thank you for joining us on our call today. The end of our second fiscal quarter marked an important event with the publication of Calando's interim Phase I data in the procedures still on nature. Gene balancing via RNA interference and effective systemic delivery of siRNA, we demonstrate it for the first time in humans. We have followed the Calando accomplishment with continued execution based on six core focus areas to build value. They are one, market; two, science; three, management; four, capital; five, Partnerships; and six, smart growth. These are critical drivers for us and I believe for our shareholders. We have made significant progress in all of these areas over the past quarter. Let me address examples of each and start with the market. Proper market identification must lead our business strategy. The risks associated with technology development and operational execution requires that any business we build must address a clear, large and/or unmet market need. Calando is focused on the large oncology market and is also exploring strategies to customize its flexible RONDEL platform to address other indications. Unidym is focused on applying its carbon nanotube materials to large and growing displayed markets and continues to make progress in penetrating touch panel markets. This week, we announced an auction to license the new technology platform developed at MD Anderson Cancer Center to fight obesity. We have been exploring this market for quite some time in search for platforms that could address this very large set of markets in a new and powerful way. There may not be a market within medicine with larger direct and indirect economic costs. Hence obesity is an attractive target for us. We are very excited about the technology and we will continue to explore whether our license and potential new company will be a good opportunity for us. Let’s now turn to science, the raw material used to address these large market opportunities. Our company’s initiatives must be based on world class science. There is simply no substitute. Calando has demonstrated its scientific bona fides on multiple occasions including through the Nature publication and most recently through its presentation of Phase I data at the American Society for Clinical Oncology 2010 annual meeting. As we have discussed in the past, the trial is ongoing. It is progressing and we are continuing to enroll patients. As this common practice with clinical trials, we do not expect to be providing additional interim updates on data from the Phase I until it has been completed. We expect the final data from this trial will be submitted for publication and appear in the new journal. Unidym has also demonstrated the power and breadth of its science on many occasions. We believe that the deep pattern portfolio puts us in a powerful position in the use of carbon nanotubes for electronic devices. Over the past quarter, Unidym's had key new patents granted by the US Patent Office to further build on its already substantial intellectual property base. The Nanotope technology has also move forward impressively over the past quarter but the publication in the prestigious journal proceedings of the National Academy of Scientist. The new data demonstrate cartilage regeneration in an established rapid model and we are very excited about continuing that development and addressing the large unmet need of medicine. The new obesity technology that we auctioned comes out of a highly respective laboratory of doctors Renata Pasqualini and Wadih Arap from MD Anderson. This is a prolific laboratory with a rich history of great science, the technology involved, the type of molecule that's specifically targets and kills blood vessels that feed that tissue. This method of treating obesity is highly unique and has been tested in literally 100 of animals across multiple obesities with impressive results. For instance, it was reported that obese rodents lost approximately 30% of their body weight after only 28 days of treatment. Of course, there are number of issues remaining to be considered as we explore whether or not to license the technology and build the company around it. The basic science underlining the opportunity however is world class. It has been published in high quality scientific journals such as Nature Medicine and featured in popular press outlets such as The Wall Street Journal and The New York Times. This is a potentially big opportunity for us but let me be clear, it does not represent a shift of focus away from more and more mature subsidiaries. Rather this technology may fit well within our nanomedicine portfolio and in fact offer powerful synergies with Calando, Nanotope and Leonardo. Now to management. Good science and attractive market opportunities are critical but alone are insufficient for a quality company. They must be coupled with management capable of creating value. We have made good progress expanding our team over the third quarter with additions of Dr. Lee Hartwell and Andrew Von Eschenbach to our Scientific Advisory Board. The former is a Nobel Laureate and President of Fred Hutchinson Cancer Center. Dr. Von Eschenbach is the former Director of The National Cancer Institute and Commissioner of the FDA until 2009. They are fantastic additions to our team, and we interact closely with them on a regular basis. We also brought in Dr. Bruce Given as CEO of Leonardo Biosystems during the quarter. He is a physician with over 20 years of senior management experience in the biotechnology and pharmaceutical industries. He is a perfect fit for the company, and we are honored to have him on our team. Let's now discuss capital. I believe that many shareholders have seen great science and big opportunities with Arrowhead, but have had real concerns with our ability to continue to finance and therefore extract the value from our platform. Ensuring that we are properly capitalized while always keeping a keen eye on limiting delusion to our shareholders is a key focus for me. We made significant progress on this front during the quarter. In June we completed a registered draft offering of $8.65 million with Oppenheimer and company. Oppenheimer is an excellent name, and we believe that working with a bank of this caliber will also yield longer-term benefits and improve our visibility among institutional investors of similar quality. As I stated on our last quarterly call in May, and again in our webcast annual shareholder meeting, ensuring proper liquidity remained a major focus, and would be necessary to continue to build and extract value from our assets. This raise was a strategic and prudent decision that we undertook in order to gain more flexibility to execute on our nearest term growth drivers from our position of strength. We now have the cash, and time to make the most sensible decisions to extract new value from our assets, and believe that it is in this way that we can drive maximum value for our company and for our shareholders. Often during the quarter, Leonardo Biosystems secured $2.5 million in financing from a Texas Emerging Technology Fund. We view this as an important validation of the technology and business opportunity, and it provides Dr. Given with capital to begin building on his vision for the company. Remaining properly capitalized also has a cost component, and we continue to focus on this. We decreased quarterly operating expenses by 53% versus the prior year's quarter while still advancing our businesses and we believe not sacrificing significant upside potential. We expect to be able to continue cost containment as we focus increasingly on nanomedicine. Unidym represents approximately half our cash burn, and it is our goal to spin that company out or make it financially independent by the end of the calendar year. This needs to be done correctly however, because we are committed to capturing a significant value we have created at Unidym, while eliminating our ongoing cost exposure. Next, we move to partnerships. As you know, partnering strategies are a large part of our business, and are intended to decrease our costs and maximize our ability to bring products to market. Unidym has been aggressive on this front, and in the last quarter announced deals with Tokyo Electron and Guardian Industries. Tokyo Electron is a leading tools manufacturer for the electronics industry, and will be important to us as we begin addressing the LCD market. Guardian is a leading glass company, and our agreement expands Unidym's reach as its prior manufacturing and marketing efforts in the touch panel industry had been primarily focused on carbon films on plastic. Under this agreement, Guardian has agreed to fund a joint development effort to optimize and scale carbon coated glass products utilizing Unidym's CNTs with an initial focus on touch panels. These partnerships are important validation points for our technology in business, and will be helpful in addressing our target markets. Of course, our primary partner in focus is on Calando. Given at the advanced stage in siRNA delivery, we continue to believe that it is uniquely positioned to execute on one of our series of good partnerships. Over the past quarter we have been working towards these ends and remains our goal to incur first partnership by the end of the calendar year. We plan to keep our investors updated on this front as we secure material advancements. We have also been working closely with Nanotope to enter into a first commercial partnership and hope to be successful by the end of the calendar year. Let’s now turn to final driver identified at the beginning of the call, smart growth. Within this category I see two related priorities; one, to ensure that our nearest term value drivers remain our priority; and two, to present a cohesive focused model to our shareholders. We've made progress in both of these fronts in the past quarter. Clearly, Calando presents the nearest term value opportunities given the state of our RNAi therapeutics, the vaccine problem of systemic delivery of siRNA and Calando’s leadership in the field. As such finishing the Phase I trial and entering into the right side of deals is the primary near term focus for us. Also important, is presenting a focused business and strategy to our shareholders. As I have said in the past when Arrowhead was first launched, there were many good reasons to build a diversified nanotechnology company. Now, however it makes increasing sense to focus on a single vertical in order to maximize operational efficiencies and better enabled institutional ownership of our stock, we are moving in that direction. All new subsidiaries will be nanomedicine companies and the area that we know well and in which we see big opportunities going forward. As mentioned earlier in the call, part of this transition will be to [spring] Unidym out in some fashion while capturing the upside potential we have created. With that, I would like to turn the call over to our CFO, Ken Myszkowski for a brief review of our financial performance for the quarter, Ken?

Thanks Chris and good afternoon everyone. As we reported earlier today our net loss for fiscal 2010 third quarter was $400,000 or $0.01 per share based on $64.6 million weighted average shares outstanding. This compares with a net loss of $2.5 million or $0.06 per share based on $43.4 million weighted shares outstanding for the quarter ended June 30, 2009. On a consolidated basis for the nine months ended June 30, 2010 net cash used in operating activities totaled $5.2 million compared with $12.7 million in the prior year period. For the quarter ended June 30, 2010 revenues were 134,000 and consisted primarily of Unidym sales of CNTs. This compares with $2.6 million in the quarter ended June 30, 2009 which included $2.4 million related to revenue from a licensing agreement between Calando and Cerulean Pharma, Inc. and revenue from grants. Our total operating expenses for the quarter ended June 30, 2010 decreased 53% to $2.3 million from $4.9 million during the quarter ended June 30, 2009. A significant reduction in operating expenses was a result of measures we undertook in 2009 to streamline our businesses and better align our cost structure or capital resources. Turning to our balance sheet, as of June 30, 2010 we had cash and cash equivalents of $9 million compared with $2 million as of September 30, 2009. Our increase in cash included $8.7 million from our registered direct offering of 6.6 million shares common stock and warrants to purchase 3.3 million shares of common stock which we completed in June and $3.2 million in growth proceeds from a private placement of approximately 5.1 million units which was completed in December. With that brief overview, I will now turn the call back to Chris for concluding remarks. Dr. Christopher Anzalone: Thanks Ken. We are working as hard as ever to build on a momentum Calando has created for us and continue to drive our programs forward. With our cash infusion we are in strong position to continue advance in the company. As we look ahead our primarily goals remain the same, to identify and develop nanomedicine subsidiaries where we can create additional value and partner or monetize these assets with the focus on platform technologies. Specific goals for the remaining four and half months of the calendar year are as follows: one, to complete dosing patients in Calando’s Phase I trial; two, establish a first partnership with Calando; three, making Unidym independent; four, consolidate Arrowhead's ownership position in Nanotope; five, execute a first commercial partnership at Nanotope; six, launch a new nanomedicine subsidiary; seven, reemerge at a focused nanomedicine company; and eight, bringing a new member of the Arrowhead Board of Directors with specialized experience in nanomedicine. These are indeed substantial goals and we are making good progress in each. Thank you for your attention and your continued support. I will now open the call to questions. Operator?

(Operator Instructions) Our first question is from Todd Ulrich, Private Investor. Please go ahead with your question. Todd Ulrich - Private Investor: I had a question regarding Calando. Is there anything you can speak to regarding clinical progress since last quarter in terms of additional enrollee so far, or enrollees is to be expected and then secondarily does anything you can speak about regarding any additional data which we are making from previous trends thanks. Dr. Christopher Anzalone: I appreciate the question and unfortunately a bit hamstrung on my ability to respond to it. I can tell this, through the trials ongoing we are enrolling, the trial is moving smoothly. I really can’t beyond go that, I really can’t speak to any interim data. As I mentioned, this will go into what we believe to be a paper that we will submit for publication into a (inaudible) Journal and so really, really can’t speak to those results until it's done. So it's our goal to finish this trial by the end of year and hopefully we can speak in a more granular way about the data at that point. Todd Ulrich - Private Investor: It sounds like too versus comments made last year quarter that there is at least the potential to do a partnership before the trial is complete. Dr. Christopher Anzalone: I think that is possible. I don’t think that a partnership is depended upon finishing the Phase I.

(Operator Instructions). I am showing no further question in queue. I'd like to turn the call back over to management. Dr. Christopher Anzalone: Thank you all for participating. And we will see you next quarter.

This concludes today’s teleconference. You may disconnect your lines. Thank you for your participation.