Enanta Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2014. Financial figures below are in millions of dollars unless otherwise stated. Enanta is a development-stage biotechnology company focused on infectious diseases; it has no approved products and has generated no product sales or royalties.
Financial results
| Metric | Three months ended June 30, 2014 | Three months ended June 30, 2013 | Nine months ended June 30, 2014 | Nine months ended June 30, 2013 |
|---|---|---|---|---|
| Revenue | $42.051 | $1.649 | $45.104 | $30.704 |
| Operating expenses | $7.156 | $5.827 | $20.793 | $16.974 |
| Operating income (loss) | $34.895 | ($4.178) | $24.311 | $13.730 |
| Net income (loss) | $50.053 | ($4.138) | $39.480 | $14.070 |
| Net income (loss) per diluted share | $2.61 | ($0.23) | $2.06 | ($0.30) |
| Cash from operating activities | Not separately reported | Not separately reported | $25.111 | $13.156 |
- Quarterly revenue included $40.0 million of AbbVie milestones following U.S. and EU regulatory filings for the first regimen containing an Enanta collaboration compound; the remaining $2.051 million came from the NIAID contract.
- Nine-month revenue rose 47% year over year, while operating expenses rose 23%. Quarterly R&D expense was $4.553 million, up from $4.039 million; quarterly G&A was $2.603 million, up from $1.788 million. Nine-month R&D and G&A were $13.538 million and $7.255 million, respectively.
- The $15.122 million income-tax benefit materially increased reported net income. Enanta reversed its deferred-tax-asset valuation allowance after reassessing expected future taxable income; the total allowance released was approximately $22.892 million.
- At June 30, cash and cash equivalents were $26.374 million; short- and long-term marketable securities totaled $111.213 million. Together these were approximately $137.6 million, compared with approximately $112.2 million at September 30, 2013. Total assets were $159.514 million, total liabilities $6.561 million, and stockholders’ equity $152.953 million. The company reported no debt.
- Operating cash flow was $25.111 million for the nine months, compared with $13.156 million a year earlier. Investing activities used $8.716 million and financing activities provided $1.120 million, primarily from stock-option exercises.
Material changes and business developments
- The AbbVie milestone drove the sharp increase in quarterly revenue and profit. Nine-month 2013 revenue had included $15.0 million in AbbVie milestones and $11.0 million in Novartis milestones; no Novartis revenue was recognized in the first nine months of 2014.
- R&D spending increased, principally reflecting EDP-788 antibiotic clinical-trial and early-stage discovery costs. NS5A program spending declined because Novartis is responsible for further development at its own expense.
- G&A expense increased, largely from stock-based compensation, insurance, and public-company accounting and legal costs. Nine-month stock-based compensation was $1.887 million versus $0.777 million.
- Accumulated deficit was $67.970 million at June 30, 2014. Common shares outstanding were 18,580,720 at June 30; 18,582,628 were reported outstanding as of August 8, 2014.
Outlook, risks, and contingencies
- Management expected fiscal 2014 R&D expense of approximately $18–$22 million, excluding collaborators’ development costs. It believed available cash and investments would fund anticipated needs for at least 24 months; both estimates are forward-looking and subject to uncertainty.
- Enanta could receive up to $155 million in additional AbbVie pre-commercial regulatory milestones for the first regimen and further milestones for additional protease-inhibitor products. Management expected most of the first-regimen milestones to be earned in fiscal 2015, subject to approvals and other conditions. Future royalties are also possible, but no product royalties had been earned as of the filing.
- AbbVie controls development and commercialization of Enanta’s protease inhibitors; Novartis controls further development of its NS5A inhibitors and may terminate its collaboration on 120 days’ notice. Revenue and future profitability therefore depend substantially on partners’ execution, regulatory outcomes, market acceptance, and sales allocation terms.
- The NIAID antibiotic contract could provide up to $42.7 million if all options are exercised; approximately $23.5 million had been committed through February 2015. Future funding is discretionary and subject to government appropriations and possible audit adjustments.
- Key disclosed risks include clinical-trial failure or delay, regulatory and safety hurdles, intense competition in HCV and antibiotics, dependence on collaborators and third-party manufacturers, intellectual-property disputes, and the possibility of needing additional capital. No threatened or pending litigation was reported. The company disclosed no off-balance-sheet financing arrangements.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether AbbVie’s submitted HCV regimen receives regulatory approvals, when any additional milestones are earned, and how collaboration sales are allocated for royalty purposes.
- Progress, funding, and clinical results for Enanta’s independent programs and the NIAID-funded EDP-788 program, including whether NIAID exercises further options.
- The basis and future realizability of deferred tax assets after the valuation-allowance reversal, and the effect of milestone timing on reported earnings and cash flows.
- Whether the $18–$22 million fiscal 2014 R&D estimate and management’s at-least-24-month liquidity assessment remain valid as development costs and collaboration receipts change.