Enanta Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended June 30, 2015 (fiscal 2015). Amounts below are in millions of dollars unless stated otherwise. The filing is unaudited.
Business context
Enanta is a research-focused biotechnology company developing small-molecule therapies for viral infections and liver diseases. Its principal commercial revenue opportunity is its collaboration with AbbVie: Enanta receives royalties on sales attributable to paritaprevir and may receive development and regulatory milestones. Enanta also funds internal HCV programs, including cyclophilin, NS5A and nucleotide polymerase inhibitors, and has announced a focus on NASH.
Financial results and liquidity
| Metric | Three months ended June 30, 2015 | Three months ended June 30, 2014 | Nine months ended June 30, 2015 | Nine months ended June 30, 2014 |
|---|---|---|---|---|
| Revenue | $11.6 | $42.1 | $146.5 | $45.1 |
| Operating expenses | $9.9 | $7.2 | $26.0 | $20.8 |
| Income from operations | $1.7 | $34.9 | $120.5 | $24.3 |
| Net income | $2.4 | $50.1 | $73.2 | $39.5 |
| Diluted earnings per share | $0.13 | $2.61 | $3.80 | $2.06 |
- For the nine months, revenue included $125.0 million in AbbVie milestones, $19.7 million in paritaprevir royalties and $1.7 million under the NIAID contract. The prior-year period included $40.0 million in AbbVie milestones and $5.1 million from NIAID.
- Quarterly revenue fell year over year because the prior-year quarter included a $40.0 million AbbVie milestone; the 2015 quarter’s revenue was mostly $11.4 million in royalties. Quarterly net income also compared against a prior-year period that included a $15.1 million tax benefit.
- Nine-month net income included a $48.1 million income tax provision, versus a $15.1 million tax benefit in the prior-year period. The 2015 provision primarily reflected tax on current-period earnings and use of deferred tax assets.
- R&D expense rose to $16.1 million for the nine months, mainly from increased spending and staffing on early-stage discovery programs; lower NIAID program spending partly offset the increase. G&A expense increased to $9.8 million, primarily reflecting stock-based compensation and costs of expansion.
- Operating cash flow was $79.0 million for the nine months, compared with $25.1 million a year earlier. Investing activities used $92.3 million, primarily reflecting purchases of marketable securities; financing activities provided $2.4 million. Cash and cash equivalents declined to $19.8 million from $30.7 million at September 30, 2014.
- At June 30, cash, cash equivalents and marketable securities totaled $211.9 million; total assets were $237.8 million and total liabilities were $9.5 million. Current assets were $172.6 million and current liabilities $7.3 million. Enanta reported no debt outstanding.
- The company reported no gross-margin measure. Operating and net income were materially affected by milestone, royalty and tax items, so period comparisons do not solely reflect recurring operations.
Changes, outlook and material matters
- Paritaprevir-containing regimens were approved in the U.S. in December 2014 and in Europe in January 2015. After quarter-end, on July 24, 2015, the FDA approved a paritaprevir-containing regimen for genotype 4 HCV.
- AbbVie’s ABT-493 and ABT-530 combination was completing Phase 2 trials in 2015. Enanta reported AbbVie’s plan to begin Phase 3 trials before year-end 2015 and a target U.S. approval date in 2017; these are forward-looking plans, not assured outcomes.
- Management said existing cash and marketable securities were expected to fund anticipated requirements for the foreseeable future, while noting that needs depend on development spending, collaboration revenue and other factors. Enanta expected R&D expense to increase as it advances HCV, NASH and other programs.
- Enanta expected an additional $30 million AbbVie milestone upon Japanese commercialization approval of a paritaprevir-containing regimen and stated it expected to earn it in the quarter ending December 31, 2016. The milestone remained contingent on approval.
- The NIAID antibiotic contract was amended to reduce committed funding to $21.0 million; Enanta had received $18.3 million through June 30 and expected completion in August 2015. The company discontinued commercial development of the antibiotic for non-biodefense indications and did not expect significant additional contract revenue. Government audits could result in adjustments to reported contract revenue.
- Novartis returned rights to Enanta’s NS5A program in September 2014; Enanta assumed responsibility for the proof-of-concept study. The company also amended its office and laboratory lease, which expires in September 2022; disclosed future minimum operating-lease payments totaled $15.0 million.
- Key risks include reliance on AbbVie’s development and commercialization decisions and HCV sales; competition and changing treatment standards; uncertain clinical, regulatory and commercial outcomes for Enanta’s own programs; and dependence on third-party manufacturers and collaborators. The filing reported no pending or threatened litigation, but discussed potential intellectual-property claims and licensing costs.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter. The filing reported no off-balance-sheet financing arrangements.
Important facts for investors to verify
- AbbVie’s reported sales, royalty calculations and contractual allocation of combination-regimen sales to paritaprevir.
- Progress and timing of ABT-493/ABT-530 trials, regulatory filings and approvals, and the contingent Japanese milestone.
- Enanta’s internal-program costs, clinical progress and funding requirements, including plans in HCV and NASH.
- Cash generation and tax effects: the nine-month results included substantial milestone revenue and a significant tax provision, while management’s liquidity outlook is forward-looking.
- Completion and audit reconciliation of the NIAID contract, and obligations under the amended lease and intellectual-property licenses.