Enanta Pharmaceuticals, Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended September 30, 2017. The filing was signed December 11, 2017. Enanta is a biotechnology company whose revenue chiefly comes from royalties and milestones under its HCV collaboration with AbbVie; its wholly owned research focuses on NASH, PBC, RSV and HBV.
Financial performance and position
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $102.8 million | $88.3 million |
| Operating expenses | $78.2 million | $57.4 million |
| Income from operations | $24.6 million | $30.8 million |
| Net income | $17.7 million | $21.7 million |
| Diluted EPS | $0.91 | $1.13 |
| Cash from operating activities | $52.7 million | $35.8 million |
| Cash, cash equivalents and marketable securities at year-end | $293.7 million | $242.2 million |
- FY2017 revenue comprised $65.0 million of AbbVie milestones and $37.8 million of royalties. The $65.0 million milestones related to U.S. and EU approvals of glecaprevir/pibrentasvir (MAVYRET/MAVIRET). A further $15.0 million Japan milestone was earned in November 2017 and is recognized in the following quarter.
- Operating margin was approximately 23.9%, down from 34.9% in FY2016; net margin was approximately 17.2%, down from 24.5%.
- R&D expense rose 42% to $57.5 million, largely as clinical and preclinical programs advanced. G&A increased 22% to $20.7 million.
- Operating cash flow improved year over year, while investing activities used $4.6 million, mainly reflecting purchases, maturities and sales of marketable securities. Cash and cash equivalents increased by $49.1 million.
- Working capital was $216.8 million. The company reported no debt other than a $0.5 million capital lease obligation; total liabilities were $25.0 million.
Material changes and quarterly context
- Revenue increased 16% year over year, but royalty revenue fell from $57.7 million to $37.8 million as sales of paritaprevir-containing regimens declined amid competition. Higher glecaprevir milestone revenue more than offset that royalty decline.
- Net income fell 18% as operating expenses grew faster than revenue. FY2017 included a significant one-time milestone contribution; quarterly results were uneven.
- In the September 2017 quarter, revenue was $75.9 million and net income was $36.5 million, primarily reflecting the $65.0 million approval milestones. The first three fiscal quarters each reported a net loss.
- Enanta began earning royalties on glecaprevir-containing regimens in FY2017’s fourth quarter.
Outlook, programs and risks
- Management said existing financial resources and expected quarterly AbbVie royalties should fund operations for the foreseeable future, including at least 12 months beyond the financial statements’ issuance. This outlook depends partly on future HCV royalty levels.
- Management expected R&D expense to increase in FY2018 as clinical studies began and preclinical work advanced. Plans at filing included Phase 2 EDP-305 studies in PBC by year-end 2017 and NASH in early 2018, and a Phase 1 EDP-938 RSV study by year-end 2017. The company also targeted an HBV development candidate in 2018.
- October 2017 Phase 1a/b results for EDP-305, reported after fiscal year-end, showed FXR target engagement and generally good short-term tolerability. No serious adverse events were reported; pruritus occurred in 9% of treated subjects versus 3% on placebo, and two subjects discontinued at the 20 mg dose. These early findings do not establish efficacy in patients.
- AbbVie controls development and commercialization of the partnered HCV products. Enanta’s royalty revenue is exposed to competition, price discounts, payer access, declining HCV treatment volumes and AbbVie’s commercial decisions; AbbVie may terminate the agreement on notice.
- Other principal risks include clinical-trial failure or delay, safety and regulatory uncertainty, intense competition in NASH/RSV/HBV, reliance on third-party manufacturers and research providers, and dependence on patent protection. Enanta has no internally commercialized products or sales infrastructure.
- No material legal proceedings were reported. The company disclosed an IRS examination of FY2016 with no adjustments proposed to date, and a prior NIAID contract subject to possible audit and adjustment. The filing reported no off-balance-sheet financing arrangements.
Important facts for investors to verify
- AbbVie’s launch, sales, pricing, reimbursement and market share for MAVYRET/MAVIRET, and how these translate into Enanta royalties under the product allocation and tiered royalty terms.
- Whether HCV royalty declines continue and whether new glecaprevir royalties offset declining paritaprevir royalties.
- Actual timing, enrollment, safety and results of the EDP-305 and EDP-938 clinical studies, plus progress toward an HBV candidate.
- R&D spending, cash burn and runway against the company’s stated funding outlook as trials expand.
- Potential tax, manufacturing, intellectual-property or collaboration developments that could affect reported results or future cash flows.