Enanta Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended June 30, 2018, the third quarter of Enanta’s fiscal 2018. Financial statement amounts below are in U.S. dollars; millions are rounded from the filing’s thousands. The filing is unaudited.
Business context
Enanta is a biotechnology company developing small-molecule treatments for liver diseases and viral infections. Its current revenue comes from royalties and milestones under its AbbVie collaboration for hepatitis C (HCV) medicines containing Enanta-discovered protease inhibitors. The company’s wholly owned programs target NASH, primary biliary cholangitis (PBC), RSV, and HBV; it has no independently commercialized products.
Key financial metrics
| Metric | Three months ended June 30, 2018 | Three months ended June 30, 2017 | Nine months ended June 30, 2018 | Nine months ended June 30, 2017 |
|---|---|---|---|---|
| Revenue | $57.3m | $7.5m | $139.4m | $26.9m |
| Operating expenses | $34.6m | $20.6m | $85.5m | $56.6m |
| Operating income (loss) | $22.6m | ($13.1m) | $53.9m | ($29.7m) |
| Net income (loss) | $20.3m | ($8.4m) | $44.5m | ($18.8m) |
| Diluted earnings (loss) per share | $0.97 | ($0.44) | $2.17 | ($0.99) |
Revenue consisted of royalties in the quarter. Nine-month revenue included $124.4m of royalties and a $15.0m milestone earned when MAVIRET received commercialization approval in Japan. Research and development spending was $28.5m for the quarter and $67.9m for the nine months; general and administrative expense was $6.1m and $17.6m, respectively. The filing does not provide a clear gross-margin figure.
- Cash flow: For the nine months, operating activities provided $0.9m, investing activities used $27.5m, and financing activities provided $3.4m. Cash and cash equivalents declined $23.2m to $42.5m.
- Liquidity: Cash, cash equivalents, and short- and long-term marketable securities totaled $295.5m at June 30, 2018. Current assets were $339.9m versus current liabilities of $14.0m.
- Debt and obligations: Enanta reported no debt outstanding other than a $0.3m capital lease obligation. Total liabilities were $18.2m. A $0.6m money-market balance was restricted as collateral for a lease letter of credit.
Material changes versus the comparable period
- Revenue rose substantially as MAVYRET/MAVIRET, AbbVie’s newer glecaprevir-containing HCV regimen, drove the majority of Enanta’s royalties. Enanta said quarterly glecaprevir sales moved its calendar-year royalty calculation through the 12% tier and into the 14% tier; royalty tiers reset annually.
- Operating results shifted from losses to income, while R&D expense increased 85% for the quarter and 66% for the nine-month period, primarily due to greater clinical and preclinical activity, associated external costs, and increased headcount.
- Cash from operations improved from a $4.7m use to $0.9m provided, but remained modest relative to reported earnings. The filing attributes cash-flow timing to collaboration receipts, higher R&D spending, and tax payments; accounts receivable increased to $57.3m.
- Interest income increased with higher average investment balances and interest rates. The company recorded income tax expense in 2018, versus a tax benefit in the comparable 2017 periods.
Outlook, management commentary, risks, and unusual items
- Management said existing financial resources and expected cash flows should fund wholly owned R&D programs for the foreseeable future. It expected R&D expense to continue increasing as NASH, PBC, and RSV programs advance. No quantitative revenue or earnings guidance was provided.
- EDP-305 was in Phase 2 studies for PBC (INTREPID, begun December 2017) and NASH (ARGON-1, begun February 2018); it had FDA Fast Track designation for both indications. EDP-938 Phase 1 dosing was completed in July 2018, and management anticipated a Phase 2a RSV challenge study in the fourth calendar quarter of 2018, subject to successful Phase 1 completion. Enanta’s HBV program aimed to identify a development candidate in 2018.
- Revenue and near-term financial prospects depend heavily on AbbVie’s commercialization, pricing, reimbursement, market share, and continued sales of HCV regimens. The filing highlights competition, potential price and payer pressure, declining numbers of patients starting HCV treatment, and the risk that AbbVie could change priorities or terminate the collaboration.
- Other key risks include clinical-trial failure or delay, safety and regulatory setbacks, competition in NASH/PBC/RSV/HBV, dependence on third-party manufacturers and researchers (including suppliers in China), and intellectual-property claims. Enanta had no pending or threatened litigation and reported no material change in commitments or contingencies.
- The Tax Cuts and Jobs Act led to a $3.8m reduction in deferred tax assets from remeasurement at the lower federal tax rate. The nine-month effective tax rate was 22.2%; management said tax estimates could change as further guidance became available. An IRS examination for fiscal 2016 was being finalized after an agreed proposed adjustment that was immaterial to the financial statements.
- Disclosure controls were deemed effective, and management reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- AbbVie’s current and future MAVYRET/MAVIRET sales, pricing, reimbursement, market share, and the resulting royalty rates and cash receipts.
- Whether the $57.3m accounts receivable was collected after quarter-end, and how collection timing affects operating cash flow.
- Progress, enrollment, safety, and timing of the EDP-305 Phase 2 studies and EDP-938’s planned Phase 2a study; confirm subsequent HBV candidate-selection progress.
- Actual R&D spending and cash runway against management’s expectation that current resources are sufficient for the foreseeable future.
- Any updates to tax estimates, including the Tax Act adjustments and completion of the IRS examination.