Enanta Pharmaceuticals, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended September 30, 2019; the filing also reports unaudited fourth-quarter results. Enanta is a clinical-stage biotechnology company. Nearly all revenue comes from royalties on AbbVie’s HCV regimen MAVYRET/MAVIRET; Enanta has no independently commercialized products.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $205.2 million | $206.6 million |
| Research and development expense | $142.2 million | $94.9 million |
| General and administrative expense | $26.2 million | $23.4 million |
| Operating income | $36.7 million | $88.3 million |
| Net income | $46.4 million | $72.0 million |
| Diluted EPS | $2.21 | $3.48 |
| Cash from operating activities | $71.4 million | $29.2 million |
FY2019 operating margin was approximately 17.9% and net margin approximately 22.6%. Net margin benefited from an income tax benefit of $0.8 million; FY2018 included income tax expense of $21.2 million. The FY2019 royalty revenue was $205.2 million, up from $191.6 million, while FY2018 also included a $15.0 million milestone payment. The weighted-average royalty rate on sales allocated to Enanta’s protease inhibitors was approximately 13%, versus 12% in FY2018.
For Q4 FY2019, revenue was $51.3 million, operating expenses $44.9 million, and net income $9.2 million. Q4 FY2018 revenue was $67.2 million, including the $15.0 million Japan milestone; net income was $27.4 million.
At September 30, 2019, cash, cash equivalents and marketable securities totaled $400.2 million, working capital was $379.2 million, and total assets were $489.8 million. Total liabilities were $27.3 million; Enanta reported no debt other than a $0.3 million capital lease obligation. Operating cash flow increased year over year, while investing cash outflow was $86.7 million, primarily reflecting purchases, maturities and sales of marketable securities. Management said available resources and expected AbbVie royalties should fund operations for the foreseeable future, including at least the next 12 months.
Programs, developments and outlook
- RSV — EDP-938: A Phase 2a human-challenge study showed statistically significant reductions in viral load and symptoms versus placebo, with no serious adverse events reported. Enanta initiated the Phase 2b RSVP outpatient study in November 2019; topline results could be available in Q3 2020, depending on enrollment and the RSV season.
- NASH/PBC — EDP-305: In the Phase 2a ARGON-1 NASH study, the 2.5 mg dose met the ALT primary endpoint and significantly reduced liver fat. Pruritus occurred in approximately 51% of participants at 2.5 mg versus less than 10% at 1 mg; discontinuation due to pruritus was 20.8% and 1.8%, respectively. Enanta planned to start the 72-week Phase 2b ARGON-2 study in Q2 2020. PBC study INTREPID data were expected in Q2 2020.
- Follow-on NASH candidate — EDP-297: Selected in November 2019; Phase 1 initiation was planned for mid-2020. The cited efficacy and tissue-distribution profile is preclinical.
- HBV — EDP-514: A Phase 1a/1b study began in 2019. Enanta targeted completion of healthy-volunteer dose escalation in Q1 2020 and planned studies in HBV patients thereafter.
Management expects R&D expense to increase in FY2020 as clinical programs advance. No specific financial guidance for FY2020 revenue, earnings or cash use is provided. Future results depend substantially on AbbVie’s HCV sales, pricing, reimbursement and market share, as well as clinical progress and development spending. Enanta’s revenue concentration in one partner and product is a central risk; AbbVie controls commercialization and may terminate the collaboration on specified notice.
Key risks, contingencies and other items
- HCV market sales have been declining industry-wide amid competition, discounting, payer pressure and fewer patients remaining to treat; any fall in MAVYRET/MAVIRET sales could reduce Enanta’s royalties.
- Clinical candidates remain early-stage and face efficacy, safety, enrollment, regulatory and execution risks. EDP-305’s dose-related pruritus is a notable tolerability concern; later-stage or broader-population results may differ from early studies.
- Enanta relies on third parties for clinical-trial supply and manufacturing, including suppliers and research activity in China, creating potential supply, cost and geopolitical exposures.
- Operating lease commitments totaled $9.3 million; capital lease obligations were $0.3 million. The Series 1 preferred stock carries a potential $2.0 million payment upon a qualifying merger or sale, whose timing or occurrence is uncertain.
- The company reported no material legal proceedings. The auditor issued an unqualified opinion and concluded internal control over financial reporting was effective. Adoption of the revenue standard had no material effect.
Important facts for investors to verify
- AbbVie’s quarterly and annual MAVYRET/MAVIRET sales, pricing, discounts, market share and Enanta’s royalty rate and receipts.
- Whether planned RSV, NASH/PBC and HBV trial milestones occurred on schedule, and the full efficacy and safety data, including EDP-305 pruritus and discontinuations.
- FY2020 R&D spending, operating cash flow and cash runway relative to management’s outlook and AbbVie royalty trends.
- Terms and potential impact of royalty reductions, patent coverage and royalty-duration provisions under the AbbVie agreement.