879407--12/14/2007--ARROWHEAD_RESEARCH

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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 generate revenues 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. We will need to establish additional relationships with strategic and development partners to fully develop and market our products. Nanotechnology-enabled products are new and may be viewed as being harmful to human health or the environment. We have entered into technology license agreements with third parties that require us to satisfy obligations to keep them effective, and if these agreements are terminated, our technology and our business would be seriously and adversely affected. We rely on outside sources for various components and processes for our products. We may be unable to scale up our manufacturing processes in a cost effective way. 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 technology licensed by the Company s Subsidiaries from various third parties may be subject to government rights and retained rights of the originating research institutions. The Company s ability to protect its patents and other proprietary rights is uncertain, exposing it to the possible loss of competitive advantage. We may be subject to patent infringement claims, which could result in substantial costs and liability and prevent us from commercializing our potential products. We may not be successful integrating operations of Unidym s California and Texas locations. 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 significant revenues and its business model does not predict significant revenues in the foreseeable future. Failure to effectively manage our growth could place strains on our managerial, operational and financial resources and could adversely affect our business and operating results. Our future success depends on our ability to expand our organization to match the growth of our Subsidiaries. We must overcome the many obstacles associated with integrating and operating varying business ventures to succeed. Neither the Company nor any of its Subsidiaries have confirmed the value of their assets or business by an independent valuation. 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, 2006 and 2007 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--12/14/2007--ARROWHEAD_RESEARCH_CORP