879407--12/14/2006--ARROWHEAD_RESEARCH

related topics

{product, candidate, development}

{stock, price, operating}

{stock, price, share}

{acquisition, growth, future}

{interest, director, officer}

{control, financial, internal}

{provision, law, control}

{cost, regulation, environmental}

{property, intellectual, protect}

{regulation, change, law}

{personnel, key, retain}

{product, liability, claim}

{operation, international, foreign}

{regulation, government, change}

We are a development stage company and we have limited historical operations. We urge you to consider our likelihood of success and prospects in light of the risks, expenses and difficulties frequently encountered by entities at similar stages of development. The following is a summary of certain risks we face. They are not the only risks we face. Additional risks of which we are not presently aware or that we currently believe are immaterial may also harm our business and results of operations. The trading price of our common stock could decline due to the occurrence of any of these risks, and investors could lose all or part of their investment. In assessing these risks, investors should also refer to the other information contained or incorporated by reference in our other filings with the Securities and Exchange Commission. CERTAIN RISK FACTORS RELATING TO THE COMPANY S FOCUS ON NANOTECHNOLOGY There are substantial inherent risks in attempting to commercialize new technological applications, and, as a result, we may not be able to successfully develop nanotechnology for commercial use. We will need to achieve commercial acceptance of our applications to obtain revenue and achieve profitability. The Company may not be able to effectively secure first-tier research and development projects when competing against existing or new ventures. Nanotechnology-enabled products are new and may be viewed as being harmful to human health or the environment. The Company will need approval from governmental authorities in the United States and other countries to successfully realize commercial value from the Company s activities. If export controls affecting our products are expanded, our business will be adversely affected. Our research and product development efforts pertaining to the pharmaceutical industry are subject to additional risks. Our corporate compliance program cannot guarantee that we are in compliance with all applicable federal and state regulations. The Company s ability to protect its patents and other proprietary rights is uncertain, exposing it to the possible loss of competitive advantage. CERTAIN RISK FACTORS RELATING TO THE EARLY STAGE OF THE COMPANY S BUSINESS We are a development stage company and the Company s success is subject to the substantial risks inherent in the establishment of a new business venture. The Company has not generated revenue and its business model does not predict significant revenues in the foreseeable future. We must overcome the many obstacles associated with integrating and operating varying business ventures to succeed. The Company may need to raise additional capital in the near future, and, if we are unable to secure adequate funds on acceptable terms, the Company may be unable to support its business plan. Stockholder interest in the Company may be substantially diluted in additional financings by the Company. The Company s success depends on the attraction and retention of senior management and scientists with relevant expertise. CERTAIN RISK FACTORS RELATING TO OUR STOCK Arrowhead s Common Stock price has fluctuated significantly during fiscal 2005 and 2006 and may continue to do so in the future. The market for purchases and sales of the Company s Common Stock may be very limited, and the sale of a limited number of shares could cause the price to fall sharply. If securities or industry analysts do not publish research reports about our business, of if they make adverse recommendations regarding an investment in our stock, our stock price and trading volume may decline. The market price of our Common Stock may be adversely affected by the sale of shares by the Company s management or founding Stockholders. We may be the target of securities class action litigation due to future stock price volatility. We do not intend to declare cash dividends on our Common Stock. Our Board of Directors has the authority to issue shares of blank check Preferred Stock, which may make an acquisition of our company by another company more difficult.

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879407--12/14/2006--ARROWHEAD_RESEARCH_CORP