Enanta Pharmaceuticals, Inc. — Q1 FY2017 Form 10-Q
Reporting period: Three months ended December 31, 2016, compared with the three months ended December 31, 2015. Financial amounts below are in millions of dollars unless otherwise noted.
Business context
Enanta is an R&D-focused biotechnology company. Its principal current revenue source is royalties from AbbVie’s hepatitis C (HCV) regimens containing Enanta-discovered protease inhibitors. Wholly owned research programs focus on NASH, primary biliary cholangitis (PBC), respiratory syncytial virus (RSV), and hepatitis B (HBV).
Financial results and liquidity
| Metric | Q1 FY2017 | Q1 FY2016 |
|---|---|---|
| Revenue | $10.4 | $48.4 |
| Research and development expense | $12.5 | $9.0 |
| General and administrative expense | $4.9 | $3.8 |
| Operating income (loss) | $(7.0) | $35.6 |
| Net income (loss) | $(5.0) | $26.2 |
| Diluted earnings (loss) per share | $(0.26) | $1.36 |
| Operating cash flow | $3.1 | $30.0 |
- Revenue fell 78% year over year. Current-quarter revenue was entirely $10.4 million of AbbVie royalties. The prior-year quarter included a $30.0 million AbbVie milestone and $0.6 million from the NIAID contract, in addition to $17.9 million of royalties.
- R&D expense rose 39%, mainly due to advancing clinical and preclinical work, increased staffing, and external development costs. G&A expense rose 29%, primarily reflecting higher stock-based compensation.
- The current-quarter net loss included a $1.5 million income tax benefit; the prior-year period included $9.7 million of tax expense.
- Operating cash flow was $3.1 million, versus $30.0 million provided in the prior-year quarter. The comparison was primarily affected by the absence of the prior-year milestone and increased R&D spending.
- At December 31, 2016, cash, cash equivalents, and marketable securities totaled $244.4 million, including $20.6 million of cash and cash equivalents. Current assets were $224.1 million and current liabilities were $6.4 million. Total liabilities were $10.2 million; the company reported no debt other than capital lease obligations.
- Total assets were $278.4 million and stockholders’ equity was $268.2 million. No gross margin is presented; the filing reports operating expenses rather than a cost-of-revenue line.
Material changes and outlook
- AbbVie’s paritaprevir royalty revenue declined year over year amid increased HCV competition and lower sales. Enanta said quarterly royalty revenue had declined since peaking in Q1 FY2016.
- AbbVie submitted a U.S. NDA for glecaprevir/pibrentasvir (G/P) in December 2016; the filing reported FDA Breakthrough Therapy Designation and priority review, and an EU marketing application validated in January 2017 for accelerated assessment. Enanta could receive up to $80 million in additional approval milestones, plus tiered royalties if G/P is approved and commercialized.
- Enanta reported that EDP-305 had entered Phase 1 in September 2016 and planned to study it in PBC patients later in 2017, with a NASH patient study targeted for 2018. EDP-305 received FDA Fast Track designation for NASH patients with liver fibrosis.
- Enanta planned to begin a Phase 1 study of RSV candidate EDP-938 in Q4 calendar 2017 and aimed to identify an HBV development candidate in 2017. It discontinued further development of HCV candidate EDP-494 and redirected resources to other wholly owned programs.
- Management believed available cash and investments would fund operations for the foreseeable future, while noting that this estimate is uncertain. It expected R&D expenses to increase as NASH, RSV, and HBV programs advance; the filing provided no specific earnings or revenue guidance.
Risks, contingencies, and unusual items
- Near-term revenue remains substantially dependent on AbbVie’s commercialization decisions, HCV product sales, and regulatory outcomes for G/P. Competition, pricing pressure, payer restrictions, and declining paritaprevir sales could reduce royalties.
- Enanta’s internally developed candidates remain in early development and face clinical, regulatory, manufacturing, financing, intellectual-property, and commercialization risks. Development costs and timing are uncertain.
- The quarter’s year-over-year results were materially affected by the nonrecurring $30.0 million milestone in the prior-year period. Stock-based compensation was $3.3 million, up from $2.0 million; the filing reported $31.2 million of unrecognized compensation cost expected to be recognized over a weighted-average 2.8 years.
- The company disclosed no pending or threatened litigation and no material change in commitments and contingencies during the quarter. It reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- AbbVie’s subsequent G/P regulatory decisions, launch timing, market uptake, pricing, and resulting milestone or royalty payments.
- Current sales trends and royalty calculations for paritaprevir-containing regimens, including the effects of competition and payer access.
- Actual clinical progress, safety findings, and spending for EDP-305, EDP-938, and the HBV program versus the stated development plans.
- Whether cash burn and R&D investment remain consistent with management’s “foreseeable future” liquidity assessment, particularly if AbbVie-related revenue declines.