ENTA 10-Q
Enanta Pharmaceuticals Inc (ENTA)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(Address of principal executive offices) |
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(Zip Code) |
(Registrants telephone number, including area code:) (
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of August 1, 2023, the registrant had
Table of Contents
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PART I. |
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Item 1. |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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PART II. |
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Item 1A. |
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Item 5. |
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Item 6. |
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NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q ("Quarterly Report") contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) about us and our industry that involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this Quarterly Report, including statements regarding our future results of operations and financial condition, business strategy and plans and objectives of management for future operations, are forward-looking statements. In some cases, forward-looking statements may be identified by words such as “anticipate,” “believe,” “continue,” “could,” “design,” “estimate,” “expect,” “intend,” “may,” “plan,” “potentially,” “predict,” “project,” “should,” “will” or the negative of these terms or other similar expressions. We caution you that the foregoing list may not encompass all of the forward-looking statements made in this Quarterly Report.
Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available. These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions, including risks described in the section titled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022.
2
PART I—UNAUDITED FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
ENANTA PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except per share amounts)
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June 30, |
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September 30, |
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2023 |
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2022 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Short-term marketable securities |
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Accounts receivable |
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Prepaid expenses and other current assets |
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Income tax receivable |
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Total current assets |
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Long-term marketable securities |
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Property and equipment, net |
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Operating lease, right-of-use assets |
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Restricted cash |
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Other long-term assets |
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Total assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Liability related to the sale of future royalties |
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Operating lease liabilities |
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Total current liabilities |
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Liability related to the sale of future royalties, net of current portion |
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Operating lease liabilities, net of current portion |
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Series 1 nonconvertible preferred stock |
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Other long-term liabilities |
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Total liabilities |
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Stockholders' equity: |
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Common stock; $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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Accumulated deficit |
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( |
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Total stockholders' equity |
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Total liabilities and stockholders' equity |
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$ |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
3
ENANTA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
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Three Months Ended June 30, |
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Nine Months Ended June 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Revenue |
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Royalty revenue |
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$ |
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$ |
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$ |
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$ |
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License revenue |
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Total revenue |
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Operating expenses: |
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Research and development |
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General and administrative |
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Total operating expenses |
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Loss from operations |
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Other income (expense): |
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Interest expense |
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Interest and investment income, net |
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Total other income, net |
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Loss before income taxes |
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( |
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( |
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( |
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Income tax (expense) benefit |
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( |
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( |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Net loss per share, basic and diluted |
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$ |
( |
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$ |
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$ |
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$ |
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Weighted average common shares outstanding, basic and |
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The accompanying notes are an integral part of these consolidated financial statements.
4
ENANTA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)
(in thousands)
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Three Months Ended June 30, |
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Nine Months Ended June 30, |
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2023 |
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2022 |
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2023 |
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2022 |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Other comprehensive income (loss): |
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Net unrealized gains (losses) on marketable securities |
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( |
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( |
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Total other comprehensive income (loss) |
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( |
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( |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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The accompanying notes are an integral part of these consolidated financial statements.
5
ENANTA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands)
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Accumulated |
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Additional |
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Other |
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Total |
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Common Stock |
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Paid-In |
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Comprehensive |
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Accumulated |
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Stockholders' |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Equity |
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Balances, September 30, 2022 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Exercise of stock options |
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— |
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— |
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Vesting of restricted stock units, net of |
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— |
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( |
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— |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Balances, December 31, 2022 |
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( |
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( |
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Exercise of stock options |
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— |
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— |
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Vesting of restricted stock units, net of |
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— |
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( |
) |
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— |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balances, March 31, 2023 |
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( |
) |
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( |
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Exercise of stock options |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Other comprehensive income |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balances, June 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Accumulated |
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Retained |
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Additional |
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Other |
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Earnings |
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Total |
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Common Stock |
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Paid-In |
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Comprehensive |
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(Accumulated |
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Stockholders' |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit) |
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Equity |
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Balances, September 30, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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Exercise of stock options |
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— |
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— |
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Vesting of restricted stock units, net of |
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( |
) |
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— |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balances, December 31, 2021 |
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( |
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Exercise of stock options |
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— |
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— |
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Vesting of restricted stock units, net of |
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— |
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( |
) |
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— |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
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Balances, March 31, 2022 |
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( |
) |
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( |
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Exercise of stock options |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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— |
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— |
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Other comprehensive loss |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
Balances, June 30, 2022 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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The accompanying notes are an integral part of these consolidated financial statements.
6
ENANTA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
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Nine Months Ended June 30, |
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2023 |
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2022 |
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Cash flows from operating activities |
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Net loss |
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$ |
( |
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$ |
( |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Stock-based compensation expense |
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Depreciation and amortization expense |
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Non-cash interest expense associated with the sale of future royalties |
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Premium paid on marketable securities |
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( |
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( |
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Amortization (accretion) of premiums (discounts) on marketable securities |
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( |
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Loss on disposal of property and equipment |
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Change in operating assets and liabilities: |
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Accounts receivable |
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Prepaid expenses and other current assets |
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( |
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Income tax receivable |
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Operating lease, right-of-use assets |
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Other long-term assets |
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( |
) |
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( |
) |
Accounts payable |
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( |
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Accrued expenses |
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( |
) |
|
|
( |
) |
Operating lease liabilities |
|
|
( |
) |
|
|
( |
) |
Other long-term liabilities |
|
|
( |
) |
|
|
( |
) |
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from investing activities |
|
|
|
|
|
|
||
Purchase of marketable securities |
|
|
( |
) |
|
|
( |
) |
Proceeds from maturities and sales of marketable securities |
|
|
|
|
|
|
||
Purchase of property and equipment |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) investing activities |
|
|
( |
) |
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
||
Proceeds from the exercise of stock options |
|
|
|
|
|
|
||
Proceeds from the sale of future royalties |
|
|
|
|
|
|
||
Payments for debt issuance costs |
|
|
( |
) |
|
|
|
|
Payments for settlement of share-based awards |
|
|
( |
) |
|
|
( |
) |
Net cash provided by financing activities |
|
|
|
|
|
|
||
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
|
|
|
( |
) |
|
Cash, cash equivalents and restricted cash as of the beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash as of the end of period |
|
$ |
|
|
$ |
|
||
Supplemental disclosure of non-cash information: |
|
|
|
|
|
|
||
Purchases of fixed assets included in accounts payable and |
|
$ |
|
|
$ |
|
||
Operating lease liabilities arising from obtaining right-of-use assets |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these consolidated financial statements.
7
ENANTA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(amounts in thousands, except per share data)
1. Nature of the Business and Basis of Presentation
Enanta Pharmaceuticals, Inc. (collectively with its subsidiary, the “Company”), incorporated in Delaware in
The Company is subject to many of the risks common to companies in the biotechnology industry, including but not limited to, the uncertainties of research and development, competition from technological innovations of others, dependence on collaborative arrangements, protection of proprietary technology, dependence on key personnel and compliance with government regulation. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approvals, prior to commercialization. These efforts require significant amounts of capital, adequate personnel and infrastructure, and extensive compliance reporting capabilities.
COVID-19
In March 2020, the World Health Organization declared COVID-19 a global pandemic and countries worldwide implemented various measures to contain the spread of the SARS-CoV-2 virus. National, state and local governments in affected regions implemented varying safety precautions, including quarantines, border closures, increased border controls, travel restrictions, shelter-in-place orders and shutdowns, business closures, cancellations of public gatherings and other measures. The pandemic caused minor disruptions in the supply chains for the Company’s research and product candidates, significant delays in the conduct of ongoing clinical trials and reductions in the number of patients accessing AbbVie’s HCV regimens which impacted royalties earned.
The extent to which COVID-19 will have further impact on the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new variants and public health actions taken to contain their impact, as well as the cumulative economic impact of both of those factors and the public health impact of the ending of emergency public health measures.
Unaudited Interim Financial Information
The consolidated balance sheet as of September 30, 2022 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The accompanying unaudited consolidated financial statements as of June 30, 2023 and for the three and nine months ended June 30, 2023 and 2022 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2022.
In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of June 30, 2023 and results of operations for the three and nine months ended June 30, 2023 and 2022 and cash flows for the nine months ended June 30, 2023 and 2022 have been made. The results of operations for the three and nine months ended June 30, 2023 are not necessarily indicative of the results of operations that may be expected for subsequent quarters or the year ending September 30, 2023.
8
The accompanying consolidated financial statements have been prepared in conformity with GAAP. All amounts in the consolidated financial statements and in the notes to the consolidated financial statements, except per share amounts, are in thousands unless otherwise indicated.
The accompanying consolidated financial statements have been prepared based on continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. The Company began reporting a net loss in fiscal 2020 and reported a net loss of $
2. Summary of Significant Accounting Policies
For the Company’s Significant Accounting Policies, please refer to its Annual Report on Form 10-K for the fiscal year ended September 30, 2022 and the liability related to the sale of future royalties below. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).
Use of Estimates
The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, management’s judgments with respect to its revenue arrangements; liability related to the sale of future royalties; valuation of stock-based awards and the accrual of research and development expenses. Estimates are periodically reviewed in light of changes in circumstances, facts and experience.
Liability Related to the Sale of Future Royalties
In April 2023, the Company entered into a royalty sale agreement with an affiliate of OMERS, pursuant to which the Company was paid a $
The liability related to the sale of future royalties and related interest expense are based on current estimates of future royalties, which the Company determines by using third-party forecasts of MAVYRET/MAVIRET sales. The Company periodically assesses the forecasted sales and to the extent the amount or timing of future estimated royalty payments is materially different than previous estimates, the Company will account for any such change by adjusting the liability related to the sale of future royalties and prospectively recognizing the related non-cash interest expense.
9
Net Income (Loss) per Share
Basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of outstanding stock options and unvested restricted stock units. For periods presented, diluted net loss per common share is the same as basic net loss per common share, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive.
The Company reported net losses for each of the three and nine months ended June 30, 2023 and 2022.
|
|
As of June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
Options to purchase common stock |
|
|
|
|
|
|
||
Unvested rTSRUs |
|
|
|
|
|
|
||
Unvested PSUs |
|
|
|
|
|
|
||
Unvested restricted stock units |
|
|
|
|
|
|
||
Recently Issued Accounting Pronouncements
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.
3. Fair Value of Financial Assets and Liabilities
The following tables present information about the Company’s financial assets and liabilities that were subject to fair value measurement on a recurring basis as of June 30, 2023 and September 30, 2022, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value:
|
|
Fair Value Measurements as of June 30, 2023 Using: |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
U.S. Treasury notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial paper |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Series 1 nonconvertible preferred stock |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
10
|
|
Fair Value Measurements as of September 30, 2022 Using: |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Money market funds |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Marketable securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury notes |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate bonds |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Commercial paper |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Series 1 nonconvertible preferred stock |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
During the three and nine months ended June 30, 2023 and 2022, there were
The outstanding shares of Series 1 nonconvertible preferred stock as of June 30, 2023 and September 30, 2022 are measured at fair value. These outstanding shares are financial instruments that might require a transfer of assets because of the liquidation features in the contract and are therefore recorded as liabilities and measured at fair value. The fair value of the outstanding shares is based on significant inputs not observable in the market, which represent a Level 3 measurement within the fair value hierarchy. The Company utilizes a probability-weighted valuation model which takes into consideration various outcomes that may require the Company to transfer assets upon liquidation. Changes in the fair values of the Series 1 nonconvertible preferred stock are recognized in other income (expense) in the consolidated statements of operations.
The recurring Level 3 fair value measurements of the Company’s outstanding Series 1 nonconvertible preferred stock using probability-weighted discounted cash flow include the following significant unobservable inputs:
|
|
Range |
|
||
|
|
June 30, |
|
September 30, |
|
Unobservable Input |
|
2023 |
|
2022 |
|
Probabilities of payout |
|
|
|
||
Discount rate |
|
|
|
||
There were
In April 2023, the Company entered into a royalty sale agreement with an affiliate of OMERS, pursuant to which the Company was paid a $
The Company accounted for the upfront payment as a liability related to the sale of future royalties which is recorded at fair value. The fair value of the liability is based on significant inputs not observable in the market, which represent a Level 3 measurement within the fair value hierarchy. The Company estimates the liability based on current estimates of future royalties expected to be paid to OMERS over the next 10 years. Changes in the fair value of the liability are recognized as interest expense in the consolidated statements of operations. The recurring Level 3 fair value measurement includes a weighted average interest rate of approximately
4. Marketable Securities
As of June 30, 2023 and September 30, 2022, the fair value of available-for-sale marketable securities, by type of security, was as follows:
|
|
June 30, 2023 |
|
|||||||||||||||||
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Credit Losses |
|
|
Fair Value |
|
|||||
|
|
(in thousands) |
|
|||||||||||||||||
Corporate bonds |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|||
Commercial paper |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
U.S. Treasury notes |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|||
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|||
11
|
|
September 30, 2022 |
|
|||||||||||||||||
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Credit Losses |
|
|
Fair Value |
|
|||||
|
|
(in thousands) |
|
|||||||||||||||||
Corporate bonds |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|||
Commercial paper |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
U.S. Treasury notes |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|||
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
|
|||
As of June 30, 2023 and September 30, 2022, marketable securities consisted of investments that mature within
5. Accrued Expenses
Accrued expenses and other current liabilities consisted of the following as of June 30, 2023 and September 30, 2022:
|
|
June 30, |
|
|
September 30, |
|
||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
Accrued pharmaceutical drug manufacturing |
|
$ |
|
|
$ |
|
||
Accrued research and development expenses |
|
|
|
|
|
|
||
Accrued payroll and related expenses |
|
|
|
|
|
|
||
Accrued other |
|
|
|
|
|
|
||
|
|
$ |
|
|
$ |
|
||
6. AbbVie Collaboration
The Company has a Collaborative Development and License Agreement (as amended, the “AbbVie Agreement”), with AbbVie to identify, develop and commercialize HCV NS3 and NS3/4A protease inhibitor compounds, including paritaprevir and glecaprevir, under which the Company has received license payments, proceeds from a sale of preferred stock, research funding payments, milestone payments and royalties totaling approximately $
The Company is receiving annually tiered royalties per Company protease product ranging
7. Liability Related to the Sale of Future Royalties
In April 2023, the Company entered into a royalty sale agreement with an affiliate of OMERS, pursuant to which the Company was paid a $
Because the royalty sale agreement will be paid back to OMERS up to a capped amount as well as the Company’s significant continuing involvement in the generation of future cash flows under its AbbVie Agreement, the Company recorded the proceeds from the transaction as a liability on its consolidated balance sheets which will be amortized as interest expense in the consolidated statements of operations under the effective interest rate method over the life of the royalty sale agreement. The Company will continue to record the full amount of royalties earned on MAVYRET/MAVIRET sales as royalty revenue in the consolidated statements of operations.
The Company’s liability related to the sale of future royalties is estimated based on forecasted worldwide MAVYRET/MAVYRET royalties to be paid to OMERS over the course of the royalty sale agreement. This estimate requires significant judgment, including the amount and timing of royalty payments up until the end of the royalty sale agreement, which is estimated to be the stated term of June 30, 2032. As royalties are earned by OMERS, the liability is reduced on the Company’s consolidated balance sheets.
At June 30, 2023, the estimated future cash flows resulted in an effective annual imputed interest rate of approximately
12
The following table summarizes the activity of the liability related to the sale of future royalties:
|
|
Liability related to the sale of future royalties |
|
|
|
|
(in thousands) |
|
|
Balance - September 30, 2022 |
|
$ |
|
|
Proceeds from sale of future royalties |
|
|
|
|
Debt issuance cost |
|
|
( |
) |
Royalty payments |
|
|
|
|
Non-cash interest expense |
|
|
|
|
Balance - June 30, 2023 |
|
$ |
|
|
8
As of June 30, 2023,
9. Stock-Based Awards
The Company grants stock-based awards, including stock options, restricted stock units and other unit awards under its 2019 Equity Incentive Plan (the “2019 Plan”), which was approved by its stockholders on February 28, 2019 and amended in March 2021, March 2022 and March 2023. The Company also has outstanding stock option awards under its 2012 Equity Incentive Plan (the “2012 Plan”) but is no longer granting awards under this plan.
The following table summarizes stock option activity, including performance-based options, for the year-to-date period ending June 30, 2023:
|
|
Shares |
|
|
Weighted |
|
|
Weighted |
|
|
Aggregate |
|
||||
|
|
(in thousands) |
|
|
|
|
|
(in years) |
|
|
(in thousands) |
|
||||
Outstanding as of September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Exercised |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Forfeited |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Outstanding as of June 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options vested and expected to vest as of |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Options exercisable as of June 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Market and Performance-Based Stock Unit Awards
The Company awards both performance share units, or PSUs, and relative total stockholder return units, or rTSRUs, to its executive officers. The number of units granted represents the target number of shares of common stock that may be earned; however, the actual number of shares that may be earned ranges from
|
|
PSUs |
|
|
rTSRUs |
|
||||||||||
|
|
Shares |
|
|
Weighted |
|
|
Shares |
|
|
Weighted |
|
||||
|
|
(in thousands) |
|
|
|
|
|
(in thousands) |
|
|
|
|
||||
Unvested as of September 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Unvested as of June 30, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
During the nine months ended June 30, 2023, a total of
13
Restricted Stock Units
The following table summarizes the restricted stock unit activity for the year-to-date period ending June 30, 2023:
|
|
Restricted Stock |
|
|
Weighted |
|
||
|
|
(in thousands) |
|
|
|
|
||
Unvested as of September 30, 2022 |
|
|
|
|
$ |
|
||
Granted |
|
|
|
|
|
|
||
Vested |
|
|
( |
) |
|
|
|
|
Cancelled |
|
|
( |
) |
|
|
|
|
Unvested as of June 30, 2023 |
|
|
|
|
$ |
|
||
Stock-Based Compensation Expense
During the three and nine months ended June 30, 2023 and 2022 the Company recognized the following stock-based compensation expense:
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Research and development |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
General and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|||||||
|
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Stock options |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
rTSRUs |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Performance stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
During the three and nine months ended June 30, 2023 and 2022, the Company recognized stock-based compensation expense for performance-based stock units for which vesting became probable upon achievement of performance-based targets that occurred during the performance period.
As of June 30, 2023, the Company had an aggregate of $
10. Income Taxes
For the three and nine months ended June 30, 2023, the Company recorded income tax expense of $
11. Commitments and Contingencies
Litigation and Contingencies Related to Use of Intellectual Property
From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. For example, third parties might allege that the Company or its collaborators are infringing their patent rights or that the Company is otherwise violating their intellectual property rights. Such third parties may resort to litigation against the Company or its collaborators, which the Company has agreed to indemnify. With respect to some of these patents, the Company expects that it will be required to obtain licenses and could be required to pay license fees or royalties, or both. These licenses may not be available on acceptable terms, or at all. A costly license, or inability to obtain a necessary license, would have a material adverse effect on the Company’s financial condition, results of operations or cash flows. The Company accrues contingent liabilities when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.
14
On June 21, 2022, the Company filed suit in the United States District Court for the District of Massachusetts, against Pfizer, Inc. seeking damages for infringement of U.S. Patent No. 11,358,953 (the ’953 Patent) in the manufacture, use and sale of Pfizer’s COVID-19 antiviral, Paxlovid™ (nirmatrelvir tablets; ritonavir tablets). The United States Patent and Trademark Office awarded the '953 Patent to the Company in June 2022 based on the Company's July 2020 patent application describing coronavirus protease inhibitors invented by the Company. The Company is seeking fair compensation for Pfizer’s use of a coronavirus protease inhibitor claimed in the ‘953 patent. The Company records all legal expenses associated with the patent infringement suit as incurred in the consolidated statements of operations.
The Company currently is not a party to any other litigation.
Indemnification Agreements
In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from services to be provided to the Company, or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and its executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. In addition, the Company maintains directors’ and officers’ insurance coverage. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and has not accrued any liabilities related to such obligations in its consolidated financial statements as of June 30, 2023.
Leases
The Company leases laboratory and office space under various non-cancelable operating leases. There have been no material changes to the Company’s leases during the three and nine months ended June 30, 2023. For additional information, please read Note 11, Leases, to the consolidated financial statements in the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2022.
15
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q, or Form 10-Q, and the audited consolidated financial statements and notes thereto for our fiscal year ended September 30, 2022 included in our Annual Report on Form 10-K for that fiscal year, which is referred to as our 2022 Form 10-K. Please refer to our note regarding forward-looking statements on page 2 of this Form 10-Q, which is incorporated herein by this reference.
The Enanta name and logo are our trademarks. This Form 10-Q also includes trademarks, trade names and service marks of other persons. All other trademarks, trade names and service marks appearing in this Form 10-Q are the property of their respective owners.
Overview
We are a biotechnology company that uses our robust, chemistry-driven approach and drug discovery capabilities to become a leader in the discovery and development of small molecule drugs, with an emphasis on treatments for viral infections. We discovered glecaprevir, the second of two protease inhibitors discovered and developed through our collaboration with AbbVie for the treatment of chronic infection with hepatitis C virus, or HCV. Glecaprevir is co-formulated as part of AbbVie’s leading brand of direct-acting antiviral, or DAA, combination treatment for HCV, which is marketed under the tradenames MAVYRET® (U.S.) and MAVIRET® (ex-U.S.) (glecaprevir/pibrentasvir). Our royalties from our AbbVie collaboration, combined with the proceeds from our recently completed royalty sale transaction, provide us funding to support our wholly-owned research and development programs, which are primarily focused on the following disease targets:
Since fiscal 2020, we have reported net losses. Our ability to generate revenue sufficient to achieve profitability will depend on the successful further development and commercialization of our product candidates. We generated revenue of $60.3 million and $65.8 million for the nine months ended June 30, 2023 and 2022, respectively, and incurred net losses of $105.7 million and $95.4 million for those same periods. As of June 30, 2023, we had an accumulated deficit of $178.9 million. We expect to continue to incur net losses for the foreseeable future. As a result, we expect to need additional funding for expenses related to our operating activities, including general and administrative expenses and research and development expenses.
Because of the numerous risks and uncertainties associated with clinical development and commercialization, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Until such time, if ever, as we can generate substantial revenue sufficient to achieve profitability, we expect to finance our operations through a combination of equity offerings, non-dilutive financings, collaborations, strategic alliances or licensing agreements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we are unable to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the further development and commercialization efforts of one or more of our products, or may be forced to reduce or terminate our operations.
As of June 30, 2023, we had $392.5 million in cash, cash equivalents and short-term and long-term marketable securities. We believe that our existing cash, cash equivalents, short-term and long-term marketable securities and our continuing portion of HCV royalties, will enable us to fund our operating expenses and capital expenditure requirements into the second half of fiscal 2027. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “Liquidity and Capital Resources.”
16
Our Wholly-Owned Programs
Our primary wholly-owned research and development programs are in virology, namely RSV, SARS-CoV-2, hMPV and HBV:
17
18
We have utilized our internal chemistry and drug discovery capabilities to generate all of our development-stage programs. We continue to invest substantial resources in research programs to discover back-up compounds as well as new compounds targeting different mechanisms of action, both in our disease areas of focus as well as potentially in other disease areas.
The following table summarizes our product development pipeline in our virology program:
*Fixed-dose antiviral combination contains glecaprevir and AbbVie’s NS5A inhibitor, pibrentasvir. Marketed by AbbVie as MAVYRET® (U.S.) and MAVIRET® (ex-U.S.).
Our Royalty Revenue Collaboration and Royalty Sale Agreement
Our royalty revenue is generated through our Collaborative Development and License Agreement with AbbVie, under which we have discovered and out-licensed to AbbVie two protease inhibitor compounds that have been clinically tested, manufactured, and commercialized by AbbVie as part of its combination regimens for HCV.
Glecaprevir is the HCV protease inhibitor we discovered that was developed by AbbVie in a fixed-dose combination with its NS5A inhibitor, pibrentasvir, for the treatment of chronic HCV. This patented combination, currently marketed under the brand names MAVYRET® (U.S.) and MAVIRET® (ex-U.S.), is referred to in this report as MAVYRET/MAVIRET. The first protease inhibitor developed through this collaboration, paritaprevir, is part of Abbvie’s initial HCV regimens, which have been almost entirely replaced by MAVYRET/MAVIRET. Since August 2017, substantially all of our royalty revenue has been derived from AbbVie’s net sales of MAVYRET/MAVIRET. Our ongoing royalty revenues from this regimen consist of annually tiered, double-digit, per-product royalties on 50% of the calendar year net sales of the 2-DAA glecaprevir/pibrentasvir combination in MAVYRET/MAVIRET. The annual royalty tiers return to the lowest tier for sales on and after each January 1.
In April 2023, we entered into a royalty sale agreement with an affiliate of OMERS, pursuant to which we were paid a $200.0 million cash purchase price in exchange for 54.5% of our future quarterly royalty payments on net sales of MAVYRET/MAVIRET after June 30, 2023, through June 30, 2032, subject to a cap on aggregate payments equal to 1.42 times the purchase price. The $200.0 million received in April 2023 was recognized on our consolidated balance sheets as a liability which will be reduced by the payments made to OMERS over the term of the royalty sale agreement. We will continue to record 100% of HCV royalties earned under the AbbVie Agreement as royalty revenue in our consolidated statements of operations since the AbbVie Agreement has not been amended and is independent of our agreement with OMERS.
Financial Operations Overview
We are currently funding all research and development for our wholly-owned programs, which are targeted toward the discovery and development of novel compounds with an emphasis on treatments for viral infections. As of the date of this report, we are conducting three Phase 2 studies for EDP-938 and are set to start a Phase 2 challenge study in the fall for EDP-323. We are also progressing our dual hMPV/RSV program and conducting preclinical discovery research efforts in other disease areas.
19
As a result of the timing of our clinical and preclinical development programs, we expect our research and development expenses will fluctuate from period to period. However, in the next 12 months, we expect our external research and development expenses generally to decrease since we will not conduct a Phase 3 trial of EDP-235 on our own.
To date, we have funded our operations primarily through royalty payments received under our collaboration agreement with AbbVie, a $200.0 million payment from our royalty sale agreement, and our existing cash, cash equivalents, and short-term and long-term marketable securities. We believe that our existing cash, cash equivalents and short-term and long-term marketable securities, as well as our continuing portion of HCV royalties, will enable us to fund our operating expenses and capital expenditure requirements into the second half of fiscal 2027.
Revenue
Our revenue is primarily derived from our collaboration agreement with AbbVie and AbbVie’s sales of MAVYRET/MAVIRET, an 8-week treatment regimen for chronic HCV. During the nine months ended June 30, 2023, we also generated $1.0 million of license revenue from an upfront payment related to a license agreement for one of the antibacterial compounds we are no longer developing.
The following table is a summary of revenue recognized for the three and nine months ended June 30, 2023 and 2022:
|
|
Three Months Ended June 30, |
|
|
Nine Months Ended June 30, |
|
||||||||||
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
||||
|
|
(in thousands) |
|
|||||||||||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Royalty revenue |
|
$ |
18,892 |
|
|
$ |
19,479 |
|
|
$ |
59,272 |
|
|
$ |
65,843 |
|
License revenue |
|
|
— |
|
|
|
— |
|
|
|
1,000 |
|
|
|
— |
|
Total revenue |
|
$ |
18,892 |
|
|
$ |
19,479 |
|
|
$ |
60,272 |
|
|
$ |
65,843 |
|
AbbVie Agreement
To date, we have received annually tiered, double-digit royalties on our protease inhibitor product glecaprevir included in AbbVie’s net sales of MAVYRET/MAVIRET. Under the terms of our AbbVie Agreement, 50% of AbbVie’s net sales of MAVYRET/MAVIRET are allocated to glecaprevir. Beginning with each January 1, the cumulative net sales of MAVYRET/MAVIRET start at zero for purposes of calculating the tiered royalties. As disclosed above regarding the OMERS royalty sale agreement, we will only retain 45.5% of royalties on net sales of MAVYRET/MAVIRET occurring after June 30, 2023 through June 30, 2032, subject to a cap on aggregate payments to OMERS equal to 1.42 times OMERS’ purchase price.
Internal Programs
As our internal product candidates are currently in Phase 1 or Phase 2 clinical development, we have not generated any revenue from our own product sales and do not expect to generate any revenue from product sales derived from these product candidates for at least the next several years.
Operating Expenses
Our operating expenses are comprised of research and development expenses and general and administrative expenses.
Research and Development Expenses
Research and development expenses consist of costs incurred to conduct basic research, such as the discovery and development of novel small molecules as therapeutics, as well as any external expenses of preclinical and clinical development activities. We expense all costs of research and development as incurred. These expenses consist primarily of:
Project-specific expenses reflect costs directly attributable to our clinical development candidates and preclinical candidates nominated and selected for further development. Our remaining research and development expenses are reflected in research and drug discovery, which represents early-stage drug discovery programs. At any given time, we typically have several active early-stage research and drug discovery projects. Our internal resources, employees, and infrastructure are not directly tied to any individual
20
research or drug discovery project and are typically deployed across multiple projects. As such, we do not report information regarding costs incurred for our early-stage research and drug discovery programs on a project-specific basis. We expect that our research and development expenses will fluctuate from period to period in the future as we advance our research and development programs. However, in the next 12 months, we expect our external research and development expenses generally to decrease since we will not conduct a Phase 3 trial of EDP-235 on our own. To date we have not identified any significant impact of inflation on spending in research and development, but it is uncertain whether there will be inflationary impacts in future periods.
Our research and drug discovery and development programs are at early stages; therefore, the successful development of our product candidates is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. Given the uncertainty associated with clinical trial enrollments and the risks inherent in the development process, we are unable to determine the duration and completion costs of the current or future clinical trials of our product candidates or if, or to what extent, we will generate revenue from the commercialization and sale of any of our product candidates. We anticipate that we will make determinations as to which development programs to pursue and how much funding to direct to each program on an ongoing basis in response to the preclinical and clinical success and prospects of each product candidate, as well as ongoing assessments of the commercial potential of each product candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs, which include salaries, related benefits, and stock-based compensation, of our executive, finance, business and corporate development, and other administrative functions. General and administrative expenses also include travel expenses, allocated facility-related costs not otherwise included in research and development expenses, directors’ and officers’ liability insurance premiums, professional fees for auditing, tax, and legal services and patent expenses.
We expect that general and administrative expenses will continue to increase in the future primarily due to the ongoing expansion of our operating activities in support of our own research and development programs, as well as our patent litigation seeking damages for infringement of one of our COVID-19 patents. To date we have not experienced a significant impact of inflation on spending in general and administrative, but we anticipate inflation may impact future periods.
Other Income (Expense)
Other income (expense) consists of interest expense, interest and investment income, net and the change in fair value of our outstanding Series 1 nonconvertible preferred stock. Interest expense consists of the non-cash interest expense and amortization of debt issuance costs associated with the royalty sale agreement with an affiliate of OMERS. Interest income consists of interest earned on our cash equivalents and short-term and long-term marketable securities balances and interest earned for any refunds received from tax authorities. Investment income consists of the amortization or accretion of any purchased premium or discount, respectively, on our short-term and long-term marketable securities. The change in fair value of our Series 1 nonconvertible preferred stock relates to the remeasurement of these financial instruments from period to period as these instruments may require a transfer of assets because of the liquidation preference features of the underlying instrument.
Income Tax (Expense) Benefit
Income tax (expense) benefit is based on our best estimate of taxable net losses, applicable income tax rates, net research and development tax credits and carryforwards, net operating loss carrybacks, changes in valuation allowance estimates and deferred income taxes.
Results of Operations
Comparison of the Three Months Ended June 30, 2023 and 2022
|
|
Three Months Ended June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
Royalty revenue |
|
$ |
18,892 |
|
|
$ |
19,479 |
|
Research and development |
|
|
42,987 |
|
|
|
39,090 |
|
General and administrative |
|
|
12,618 |
|
|
|
12,929 |
|
Interest expense |
|
|
1,997 |
|
|
|
— |
|
Interest and investment income, net |
|
|
3,866 |
|
|
|
393 |
|
Income tax (expense) benefit |
|
|
(4,221 |
) |
|
|
447 |
|
Net loss |
|
$ |
(39,065 |
) |
|
$ |
(31,700 |
) |
21
Royalty revenue
We recognized royalty revenue of $18.9 million during the three months ended June 30, 2023 as compared to $19.5 million during the three months ended June 30, 2022. The $0.6 million decrease in royalty revenue was due to AbbVie’s lower reported HCV sales as compared to the comparable period in 2022.
Our royalty revenues eligible to be earned in the future will depend on AbbVie’s HCV market share, the pricing of the MAVYRET/MAVIRET regimen and the number of patients treated. In addition, at the beginning of each calendar year (the second quarter of our fiscal year), our royalty rate resets to the lowest tier for each of our royalty-bearing products licensed to AbbVie.
In April 2023, we entered into a royalty sale agreement with an affiliate of OMERS, pursuant to which we were paid a $200.0 million cash purchase price in exchange for 54.5% of our future quarterly royalty payments on net sales of MAVYRET/MAVIRET after June 30, 2023, through June 30, 2032, subject to a cap on aggregate payments equal to 1.42 times the purchase price. The $200.0 million received in April 2023 was recognized on our consolidated balance sheets as a liability which will be reduced by the payments made to OMERS over the term of the royalty sale agreement. We will continue to record 100% of HCV royalties earned under the AbbVie Agreement as royalty revenue in our consolidated statements of operations since the AbbVie Agreement has not been amended and is independent of our agreement with OMERS.
Research and development expenses
|
|
Three Months Ended June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
R&D programs: |
|
|
|
|
|
|
||
Virology |
|
$ |
40,336 |
|
|
$ |
34,042 |
|
Liver disease (non-viral) |
|
|
809 |
|
|
|
4,540 |
|
Other |
|
|
1,842 |
|
|
|
508 |
|
Total research and development expenses |
|
$ |
42,987 |
|
|
$ |
39,090 |
|
The level of research and development expenses for the three months ended June 30, 2023 increased by $3.9 million compared to the same period in 2022. The increase in costs of $6.3 million in our virology program was primarily due to an increase in clinical trial costs and an increase in headcount, partially offset by a decrease in preclinical and manufacturing costs due to timing of our studies in our virology programs. The costs in our non-viral liver disease program decreased by $3.7 million as we wound down our non-alcoholic steatohepatitis, or NASH, program, which is now substantially complete. The costs in our other discovery programs increased by $1.3 million due to an increase in headcount and increase in lab material and supply purchases.
In the next 12 months, we expect our external research and development expenses generally to decrease since we will not conduct a Phase 3 trial of EDP-235 on our own.
General and administrative expenses
General and administrative expenses decreased by $0.3 million for the three months ended June 30, 2023 compared to the same period in 2022. The change was due to a decrease in stock compensation expense, partially offset by an increase in legal fees related to our patent infringement suit against Pfizer.
Interest expense
Interest expense increased $2.0 million for the three months ended June 30, 2023, as compared to the same period in 2022 due to the non-cash interest expense and amortization of debt issuance costs associated with the royalty sale agreement entered into during April 2023 with an affiliate of OMERS.
Interest and investment income, net
Interest and investment income, net, increased $3.5 million for the three months ended June 30, 2023, as compared to the same period in 2022. The increase was due to an increase in our cash balance due to receipt of the $200.0 million from OMERS as well as changes in interest rates year over year.
Income tax (expense) benefit
During the three months ended June 30, 2023 and 2022, we recorded income tax expense of $4.2 million and an income tax benefit of $0.4 million, respectively. The income tax expense in 2023 was driven by the receipt of the $200.0 million from the royalty sale agreement, which is taxable for federal and state purposes, and is partially offset by utilization of federal net operating losses and research and development tax credit carryforwards as well as a deduction for foreign derived intangible income. The income tax benefit for 2022 was driven by a release of a state tax reserve during the period.
22
Comparison of the Nine Months Ended June 30, 2023 and 2022
|
|
Nine Months Ended June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
Royalty revenue |
|
$ |
59,272 |
|
|
$ |
65,843 |
|
License revenue |
|
|
1,000 |
|
|
|
— |
|
Research and development |
|
|
127,357 |
|
|
|
129,726 |
|
General and administrative |
|
|
39,092 |
|
|
|
32,913 |
|
Interest expense |
|
|
1,997 |
|
|
|
— |
|
Interest and investment income, net |
|
|
6,696 |
|
|
|
942 |
|
Income tax (expense) benefit |
|
|
(4,231 |
) |
|
|
447 |
|
Net loss |
|
$ |
(105,709 |
) |
|
$ |
(95,407 |
) |
Royalty revenue
We recognized royalty revenue of $59.3 million during the nine months ended June 30, 2023 as compared to $65.8 million during the nine months ended June 30, 2022. The $6.6 million decrease in royalty revenue was due to AbbVie’s lower reported HCV sales as compared to the comparable period in 2022.
Our royalty revenues eligible to be earned in the future will depend on AbbVie’s HCV market share, the pricing of the MAVYRET/MAVIRET regimen and the number of patients treated.
License revenue
We also recognized $1.0 million of license revenue during the nine months ended June 30, 2023 related to an upfront payment received for a license agreement for one of the antibacterial compounds we are no longer developing.
Research and development expenses
|
|
Nine Months Ended June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
R&D programs: |
|
|
|
|
|
|
||
Virology |
|
$ |
120,478 |
|
|
$ |
112,476 |
|
Liver disease (non-viral) |
|
|
2,175 |
|
|
|
15,641 |
|
Other |
|
|
4,704 |
|
|
|
1,609 |
|
Total research and development expenses |
|
$ |
127,357 |
|
|
$ |
129,726 |
|
The level of research and development expenses for the nine months ended June 30, 2023 decreased by $2.4 million compared to the same period in 2022. The increase in costs of $8.0 million in our virology program was primarily due to an increase in clinical trial costs and an increase headcount partially offset by a decrease in preclinical and manufacturing costs due to the timing and scope of clinical trials. The costs in our non-viral liver disease program decreased by $13.5 million as we wound down our non-alcoholic steatohepatitis, or NASH, program, which is now substantially complete. The costs in our other discovery programs increased by $3.1 million due to an increase in headcount and increase in lab material and supply purchases.
General and administrative expenses
General and administrative expenses increased by $6.2 million for the nine months ended June 30, 2023 compared to the same period in 2022. The increase was due to an increase in stock-based compensation expense and an increase in legal fees related to our patent infringement suit against Pfizer.
Interest expense
Interest expense increased $2.0 million for the nine months ended June 30, 2023, as compared to the same period in 2022 due to non-cash interest expense and amortization of debt issuance costs recorded as a result of the royalty sale agreement with an affiliate of OMERS, which was entered into in the third quarter of 2023.
Interest and investment income, net
Interest and investment income, net, increased $5.8 million for the nine months ended June 30, 2023, as compared to the same period in 2022. The increase was due to an increase in our cash balance due to receipt of the $200.0 million from OMERS as well as changes in interest rates year over year.
23
Income tax (expense) benefit
During the nine months ended June 30, 2023 and 2022, we recorded income tax expense of $4.2 million and an income tax benefit of $0.4 million, respectively. The income tax expense in 2023 was driven by the receipt of the $200.0 million from the royalty sale agreement, which is taxable for federal and state purposes, partially offset by utilization of federal net operating losses and research and development tax credit carryforwards as well as a deduction for foreign derived intangible income. The income tax benefit for 2022 was driven by a release of a state tax reserve during the period.
Liquidity and Capital Resources
We fund our operations with cash flows from our royalty revenue and our existing financial resources. At June 30, 2023, our principal sources of liquidity were cash, cash equivalents and short-term and long-term marketable securities totaling $392.5 million.
The following table shows a summary of our cash flows for the nine months ended June 30, 2023 and 2022:
|
|
|
|
|||||
|
|
Nine Months Ended June 30, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
|
|
(in thousands) |
|
|||||
Cash provided by (used in): |
|
|
|
|
|
|
||
Operating activities |
|
$ |
(81,552 |
) |
|
$ |
(69,248 |
) |
Investing activities |
|
|
(65,414 |
) |
|
|
26,666 |
|
Financing activities |
|
|
198,149 |
|
|
|
17,103 |
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
$ |
51,183 |
|
|
$ |
(25,479 |
) |
Net cash used in operating activities
Cash used in operating activities was $81.6 million for the nine months ended June 30, 2023 as compared to cash used in operating activities of $69.2 million for the same period in 2022. Our cash used in operating activities increased $12.3 million, driven by timing of our research and development payments year-over-year and was offset by a federal tax refund of $8.5 million received in 2022.
For the foreseeable future, we expect to continue to incur substantial costs associated with research and development for our internally developed programs.
Net cash provided by (used in) investing activities
Cash used in investing activities was $65.4 million for the nine months ended June 30, 2023 as compared to cash provided by investing activities of $26.7 million for the same period in 2022. Our cash used in investing activities increased $92.1 million, driven by timing of purchases, sales and maturities of marketable securities in 2023 compared to 2022, offset by increased capital expenditures in fiscal 2023 for the buildout of our leased premises at 400 Talcott Avenue.
Net cash provided by financing activities
Cash provided by financing activities was $198.1 million for the nine months ended June 30, 2023 as compared to cash provided by financing activities of $17.1 million for the same period in 2022. Our cash provided by financing activities increased $181.0 million, driven by the proceeds from the sale of future royalties partially offset by the decrease in proceeds from stock option exercises.
Funding requirements
As of June 30, 2023, we had $392.5 million in cash, cash equivalents and short-term and long-term marketable securities. We believe that our existing cash, cash equivalents and short-term and long-term marketable securities as of June 30, 2023, as well as the cash flows from our continuing portion of HCV royalties will be sufficient to meet our anticipated cash requirements into the second half of fiscal 2027. However, our projection of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.
During the quarter ended June 30, 2023, we completed the transfer of all of our cash, cash equivalents and short-term and long-term marketable securities previously held at Silicon Valley Bank to a larger financial institution.
Our future capital requirements are difficult to forecast and will depend on many factors, including:
24
Off-Balance Sheet Arrangements
We do not engage in any off-balance sheet financing activities. We do not have any interest in entities referred to as variable interest entities, which include special purpose entities and other structured finance entities.
Contractual Obligations and Commitments
In April 2023, we entered into a royalty sale agreement with an affiliate of OMERS, pursuant to which we were paid a $200.0 million cash purchase price in exchange for 54.5% of our future quarterly royalty payments on net sales of MAVYRET/MAVIRET after June 30, 2023, through June 30, 2032, subject to a cap on aggregate payments equal to 1.42 times the purchase price.
The $200.0 million received in April 2023 was recognized on our consolidated balance sheets as a liability which will be reduced by the payments made to OMERS over the term of the Agreement. We will recognize imputed interest expense over the life of the royalty sale agreement based on our estimated future MAVYRET/MAVIRET royalties. We will continue to record 100% of HCV royalties earned under the AbbVie agreement as royalty revenue in our consolidated statements of operations since the AbbVie Agreement has not been amended and is independent of our agreement with OMERS.
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Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions. See our 2022 Form 10-K for information about our critical accounting policies as well as a description of our other significant accounting policies. There have been no significant changes to our critical accounting policies since the beginning of this fiscal year other than with respect to the liability related to the sale of future royalties described below.
Liability Related to the Sale of Future Royalties
We account for the $200.0 million payment from OMERS as a liability on our consolidated balance sheets because (1) under the royalty sale agreement OMERS will receive a portion of our royalty payments up to a capped amount of 1.42 times the original payment to us, and (2) we have significant continuing involvement in the generation of cash flows under the AbbVie Agreement. Interest expense for the liability related to the sale of future royalties will be recognized using the effective interest rate method over the term of the royalty sale agreement.
The liability related to the sale of future royalties and the related interest expense are based on our current estimates of future royalties, which we determine by using third-party forecasts of MAVYRET/MAVIRET sales. Third-party forecasts are updated periodically based on the latest pricing, market share and patient data. Changes in the amount or timing of estimated royalties will affect the interest rate utilized in the calculation of the liability related to the sale of future royalties.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is set forth in Note 2 to the consolidated financial statements included in this Form 10-Q.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the three and nine months ended June 30, 2023, there were no material changes to our market risk disclosures as set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2022.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures and Internal Control over Financial Reporting
Evaluation of Disclosure Controls and Procedures.
Our management, with the participation of the principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this quarterly report. Based on this evaluation, the principal executive officer and principal financial officer concluded that these disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods.
Changes in Internal Control Over Financial Reporting.
There were no changes in our internal control over financial reporting that occurred during the quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II —OTHER INFORMATION
ITEM 1A. RISK FACTORS
RISK FACTORS
Our business faces significant risks and uncertainties. Certain factors may have a material adverse effect on our business prospects, financial condition and results of operations, and you should carefully consider them. Accordingly, in evaluating our business, we encourage you to consider the detailed discussion of risk factors included in our 2022 Form 10-K. There have been no material changes to such risk factors during the quarter ended June 30, 2023. Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.
ITEM 5. OTHER INFORMATION
During the three months ended June 30, 2023, no director or officer of the Company
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ITEM 6. EXHIBITS
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Incorporated by Reference |
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Exhibit Number |
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Exhibit Description |
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Form |
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Date |
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Exhibit Number |
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File Number |
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Filed Herewith |
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3.1 |
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Restated Certificate of Incorporation of Enanta Pharmaceuticals, Inc. |
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8-K |
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03/28/2013 |
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3.1 |
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001-35839 |
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3.2 |
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Amended and Restated Bylaws of Enanta Pharmaceuticals, Inc. (as amended and restated in August 2015) |
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8-K |
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08/18/2015 |
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3.2 |
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001-35839 |
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10.1 |
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8-K |
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04/27/2023 |
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10.1 |
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001-35839 |
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31.1 |
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— |
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— |
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— |
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— |
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X |
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31.2 |
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— |
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— |
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— |
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— |
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X |
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32.1 |
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— |
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— |
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— |
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— |
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X |
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101 |
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The following financial statements from the Quarterly Report of Enanta Pharmaceuticals, Inc. on Form 10-Q for the quarter ended June 30, 2023 formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, (vi) and Notes to Consolidated Financial Statements, tagged as blocks of text and including detailed tags |
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X |
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104
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Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
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X |
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ENANTA PHARMACEUTICALS, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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ENANTA PHARMACEUTICALS, INC. |
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Date: August 8, 2023 |
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/s/ Paul J. Mellett |
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Paul J. Mellett Chief Financial Officer (Principal Financial and Accounting Officer) |
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