Business context and reporting period
Enanta Pharmaceuticals, Inc. is a biotechnology company whose principal revenue comes from royalties on AbbVie’s HCV treatment MAVYRET/MAVIRET, which includes Enanta-discovered glecaprevir. Royalties fund Enanta’s wholly owned drug-development programs in RSV, HBV, NASH, SARS-CoV-2 and hMPV. This is the fiscal-year 2020 Form 10-K, covering the year ended September 30, 2020; the filing also reports the September 2020 quarter.
Financial results and liquidity
Amounts are in U.S. dollars; figures are rounded.
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue, almost entirely royalties | $122.5 million | $205.2 million |
| Research and development expense | $136.8 million | $142.2 million |
| General and administrative expense | $27.4 million | $26.2 million |
| Operating income (loss) | $(41.6) million | $36.7 million |
| Net income (loss) | $(36.2) million | $46.4 million |
| Operating cash flow | $7.1 million | $71.4 million |
- Annual revenue declined 40% year over year, principally because COVID-19 reduced HCV diagnoses and treatment volumes and because of competitive pricing pressure. The company reported no milestone revenue in 2020; 2018 included a $15 million milestone.
- Operating margin was approximately negative 34% in 2020 versus positive 18% in 2019; net margin was approximately negative 30% versus positive 23%.
- For the September 2020 quarter, revenue was $23.6 million versus $51.3 million in the September 2019 quarter; net loss was $29.3 million versus net income of $9.2 million.
- Cash, cash equivalents and marketable securities totaled $419.3 million at year-end, up from $400.2 million. Working capital was $412.7 million; total assets were $486.1 million and stockholders’ equity was $455.6 million.
- No debt was outstanding. Operating lease liabilities were $8.1 million. The company also carried $1.5 million of Series 1 nonconvertible preferred stock as a liability; a qualifying merger or sale could require a $2.0 million payment.
- Management said existing financial resources and expected royalties should fund operations for the foreseeable future, including at least 12 months beyond the financial statements’ issuance. The company reported no off-balance-sheet financing.
Material changes versus the prior period
- Lower HCV royalties drove the shift from 2019 profit to a 2020 net loss. Operating expenses fell modestly, as lower R&D spending more than offset higher G&A.
- Operating cash flow dropped to $7.1 million from $71.4 million, reflecting lower royalty receipts and higher R&D cash costs, partly offset by lower cash taxes.
- R&D spending shifted toward virology: virology expense rose to $85.9 million from $75.1 million, while liver-disease expense fell to $45.0 million from $66.9 million.
- The company adopted lease accounting guidance in fiscal 2020, recording right-of-use assets and lease liabilities; adoption had no material effect on results or cash flows.
Outlook, management commentary and risks
- Management expected fiscal 2021 expenses to exceed revenue and R&D expense to increase as clinical programs advance. Royalties from AbbVie were expected to remain the company’s revenue source in 2021; Enanta did not expect product-sales revenue from its own candidates for at least several years.
- RSV candidate EDP-938’s Phase 2b RSVP study was disrupted by the pandemic and reduced RSV incidence at Southern Hemisphere sites. Assuming full Northern Hemisphere enrollment, management expected data in calendar Q3 2021. Additional studies in transplant patients and pediatric patients were planned for the 2020–2021 RSV season.
- EDP-514 HBV studies and the EDP-297 Phase 1 NASH study were expected to provide data in calendar Q2 2021, subject to pandemic impacts. The 72-week ARGON-2 Phase 2b study of EDP-305 began in July 2020, with a planned interim analysis after 12 weeks in a subset of patients.
- Earlier EDP-305 Phase 2a results included a statistically significant ALT reduction at the 2.5 mg dose versus placebo, but pruritus led to treatment discontinuation in 20.8% of subjects in that dose arm. Longer-term efficacy and safety remain unestablished.
- Key risks include dependence on AbbVie and one HCV product for substantially all revenue; HCV market contraction, competition, reimbursement and pricing pressure; COVID-19 effects on HCV treatment and trial recruitment; clinical, regulatory, manufacturing and supply-chain uncertainty; and competitors with more advanced programs. No wholly owned candidate had advanced beyond Phase 2.
- The company recorded an $18.3 million valuation allowance against deferred tax assets. The CARES Act enabled an $8.6 million tax benefit from a federal net-operating-loss carryback. The audit opinion was unqualified, and management and the auditor reported effective internal control over financial reporting. Enanta reported no material legal proceedings.
Important facts for investors to verify
- AbbVie’s latest MAVYRET/MAVIRET sales, market share, pricing and treated-patient volumes, and the resulting royalty outlook.
- Whether HCV diagnoses and treatment rates recover from pandemic-related declines, and how future disruptions could affect royalty receipts.
- Clinical enrollment, timelines and efficacy and safety results for EDP-938, EDP-514, EDP-305 and EDP-297, including any changes to stated data expectations.
- Whether projected R&D spending and royalty trends change the company’s cash runway, financing needs or development priorities.
- The effect of EDP-305 tolerability findings and the FDA’s June 2020 complete response letter for Intercept’s NASH candidate on the competitive and safety outlook for FXR programs.