ENANTA PHARMACEUTICALS INC quarterly report, Q3 FY2021

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Enanta Pharmaceuticals, Inc. — Form 10-Q Summary

Reporting period: Fiscal third quarter and nine months ended June 30, 2021. Amounts below are in U.S. dollars; financial statement amounts are in millions unless noted. The filing was signed August 9, 2021.

Business context

Enanta is a clinical-stage biotechnology company developing small-molecule treatments for viral infections and liver diseases. Its principal revenue source is tiered royalties from AbbVie’s HCV treatment MAVYRET/MAVIRET, which includes Enanta-discovered glecaprevir. Royalty receipts fund Enanta’s wholly owned research and development programs.

Financial results and liquidity

  • Quarterly revenue: Royalty revenue was $21.6 million, up 15.9% from $18.7 million in the prior-year quarter.
  • Quarterly expenses and loss: R&D expense was $47.0 million, up 35.5%; G&A expense was $8.5 million, up 24.2%. Operating loss was $33.8 million versus $22.9 million. Net loss was $24.0 million, or $1.19 per share, compared with $14.3 million, or $0.71 per share.
  • Nine-month results: Royalty revenue was $73.5 million, down 25.6% from $98.8 million. Operating expenses rose to $149.3 million from $120.7 million, and net loss widened to $54.4 million from $6.8 million. Net loss per share was $2.70 versus $0.34.
  • Margins: The filing does not present a gross margin measure. Operating loss was approximately 156% of quarterly revenue and 103% of nine-month revenue.
  • Cash flow: Operating cash use was $49.0 million for the nine months, compared with $22.5 million provided in the prior-year period. Investing cash use was $35.7 million; financing provided $2.1 million. Cash, cash equivalents and restricted cash declined by $82.5 million to $5.2 million.
  • Liquidity: Cash, cash equivalents, and short- and long-term marketable securities totaled $372.5 million at June 30, 2021. Marketable securities were $367.9 million at fair value. Current assets were $321.2 million and current liabilities $28.6 million.
  • Debt and obligations: The filing reports no conventional borrowings. Liabilities included $6.7 million of operating lease liabilities and $1.5 million of Series 1 nonconvertible preferred stock, classified as a liability.

Material changes versus the prior comparable period

  • Quarterly royalties increased year over year because AbbVie’s reported HCV sales were higher than in the quarter when the pandemic began; HCV patient volumes remained below pre-pandemic levels.
  • Nine-month royalties fell $25.3 million as COVID-19-related reductions in HCV diagnoses, patient treatment and prescriptions weighed on AbbVie sales.
  • Higher R&D spending, particularly in virology, reflected expanded and later-stage clinical work. Nine-month R&D increased $25.1 million; G&A increased $3.6 million.
  • Cash, cash equivalents and restricted cash fell substantially, while a large portion of available liquidity remained invested in marketable securities.

Outlook, commentary and risks

  • Management expects existing financial resources and continuing HCV royalties to fund operations for at least two years. It expects fiscal 2021 expenses to exceed revenue and R&D expenses to increase as programs advance. These are forward-looking estimates, not guarantees.
  • Pipeline milestones described include EDP-938 Phase 2 RSV studies, with RSVP enrollment and data timing dependent on RSV resurgence; EDP-514 HBV studies, including an ongoing 800 mg cohort; planned first dosing of EDP-721 in August 2021; and a planned early-2022 first-in-human study for COVID-19 candidate EDP-235. The company expected EDP-297 and an interim ARGON-2 analysis in the third calendar quarter of 2021.
  • COVID-19 and its variants could disrupt clinical enrollment, trial timelines, research operations and HCV treatment volumes. Reduced RSV incidence had hindered enrollment in the RSVP study. Management said contract manufacturers were operating near normal levels and did not anticipate a material supply interruption at that time.
  • Revenue depends heavily on AbbVie’s commercialization of MAVYRET/MAVIRET. Risks include lower HCV diagnosis and treatment, competition, price and reimbursement pressure, and AbbVie’s control over commercialization and ability to terminate the collaboration under specified terms.
  • The company recorded income tax benefits of $9.4 million for the quarter and $19.8 million for the nine months, principally reflecting its ability and intent to carry back losses under the CARES Act. It recorded a $30.6 million income tax receivable, including an estimated fiscal 2021 loss carryback refund; substantially all net deferred tax assets remained subject to a valuation allowance.
  • No current litigation was reported. The filing describes potential intellectual-property and indemnification exposures but reports no related accrual at June 30, 2021. Management reported effective disclosure controls and no material change in internal control over financial reporting.

Important facts for investors to verify

  • Subsequent AbbVie HCV sales, royalty receipts and patient-treatment trends, including the effect of competition, pricing and reimbursement.
  • Actual cash burn and whether the stated minimum two-year funding runway remains supportable as clinical spending changes.
  • Clinical-trial enrollment, safety and efficacy results, and whether COVID-19 or RSV seasonality changes the disclosed development timelines.
  • Receipt and timing of the estimated tax refund included in the $30.6 million income tax receivable.
  • Potential dilution from equity awards: 3.9 million options were outstanding at June 30, 2021, and 4.3 million common-stock equivalents were excluded from diluted loss per share as anti-dilutive.