Enanta Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2016. The interim financial statements are unaudited. Unless stated otherwise, amounts below are in millions of dollars.
Business context
Enanta is a research-focused biotechnology company developing small-molecule therapies for HCV, HBV, NASH and RSV. Its principal current revenue source is AbbVie’s commercialization of HCV regimens containing paritaprevir; AbbVie is also developing Enanta’s ABT-493. Enanta is advancing its own cyclophilin inhibitor EDP-494 and FXR agonist EDP-305, alongside earlier HBV and RSV programs.
Financial results and liquidity
| Metric | Three months ended March 31, 2016 | Three months ended March 31, 2015 | Six months ended March 31, 2016 | Six months ended March 31, 2015 |
|---|---|---|---|---|
| Total revenue | $13.0 | $57.4 | $61.4 | $134.9 |
| Research and development expense | $9.1 | $5.4 | $18.2 | $9.9 |
| General and administrative expense | $4.4 | $3.4 | $8.2 | $6.2 |
| Operating income (loss) | $(0.6) | $48.6 | $35.0 | $118.8 |
| Net income (loss) | $(1.6) | $28.8 | $24.5 | $70.8 |
| Diluted EPS | $(0.09) | $1.49 | $1.28 | $3.67 |
- Quarterly revenue in 2016 consisted of $13.0 in AbbVie royalties; there was no milestone revenue. Six-month revenue included a $30.0 AbbVie milestone for a paritaprevir-containing regimen’s Japanese reimbursement approval and $30.9 in royalties.
- For the six months, operating cash flow was $40.0, investing cash flow was $(6.1), and financing cash flow was $0.7. Cash and cash equivalents rose to $56.4 from $21.7 at September 30, 2015.
- Cash, cash equivalents and short- and long-term marketable securities totaled $245.6 at March 31, 2016, excluding $13.0 in royalty receivables. Total assets were $281.6; total liabilities were $15.2; stockholders’ equity was $266.4. The company reported no debt outstanding.
- Operating cash flow was below the prior-year period mainly because AbbVie cash receipts declined; increased R&D spending also contributed. Investing cash flow primarily reflected purchases and maturities of marketable securities.
Changes versus the prior comparable periods
- Second-quarter revenue fell $44.4 year over year, principally because the 2015 quarter included a $50.0 AbbVie milestone and $0.4 of NIAID contract revenue. Royalties increased to $13.0 from $7.0.
- Six-month revenue declined $73.4, as $125.0 of milestone revenue in the 2015 period exceeded the $30.0 milestone recognized in 2016, partly offset by royalties rising to $30.9 from $8.4.
- R&D expense increased 70% in the quarter and 84% for the six-month period, with increased headcount, facility expansion and clinical and preclinical work in virology and liver disease programs. G&A expense also increased, primarily due to higher stock-based compensation and headcount.
- Enanta recorded a $1.6 income-tax provision despite a quarterly pretax loss, reflecting an increase in its estimated annual effective tax rate. The six-month effective tax rate was 31.5%, versus 40.7% in 2015, primarily reflecting reinstated federal R&D tax credits.
Outlook, commentary and risks
- Management said existing cash and investments should support anticipated cash needs for the foreseeable future, while cautioning that the estimate is forward-looking and actual needs depend on development costs and collaboration revenue.
- Enanta expected R&D spending to rise as it advanced EDP-494 and its NASH, HBV and RSV programs. It planned to begin EDP-305 clinical trials in the second half of calendar 2016 and intended to advance a candidate in at least one of HBV or RSV into clinical development in calendar 2017.
- AbbVie was conducting Phase 2 and Phase 3 studies of ABT-493 with ABT-530; AbbVie planned for a first U.S. approval in calendar 2017. Enanta remained eligible for up to $80.0 in additional milestones under the AbbVie collaboration.
- Revenue and future profitability remain dependent on AbbVie’s development, regulatory approvals, market uptake and sales of paritaprevir-containing regimens and ABT-493. Enanta has limited control over AbbVie’s decisions, and HCV competition, pricing, reimbursement, safety communications and generic competition could affect royalties.
- Other material risks include clinical and regulatory uncertainty, rising development costs, reliance on third-party manufacturers and research partners, intellectual-property challenges, and the possibility of needing additional financing if collaboration revenue or development progress falls short. Management reported no threatened or pending litigation and no material changes to commitments and contingencies during the six months.
Important facts for investors to verify
- Current AbbVie regimen sales, royalty calculations and the impact of competition, payer access and safety-related labeling on paritaprevir revenue.
- ABT-493 trial progress, regulatory timing and whether the stated 2017 approval plan remains achievable.
- EDP-494 clinical progress and whether EDP-305 enters trials on the stated schedule; also the pace and cost of HBV and RSV development.
- Cash-burn trajectory and the assumptions behind management’s “foreseeable future” liquidity assessment, especially if royalties or milestones decline.
- The effect of quarterly milestone timing and tax-rate estimates on reported earnings; 2016 quarterly loss contrasts with six-month profitability.