Enanta Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and six months ended March 31, 2023. Dollar amounts below are in millions unless stated otherwise. The filing is unaudited.
Business context
Enanta is a biotechnology company developing small-molecule therapies, primarily for viral infections. Its principal revenue source was tiered royalties from AbbVie’s MAVYRET/MAVIRET hepatitis C regimen. The company’s wholly owned research programs focus on RSV, SARS-CoV-2, hMPV and HBV. Enanta has reported operating losses since fiscal 2020 and expects losses to continue as it advances its programs.
Financial performance
| Metric | Three months ended March 31, 2023 | Prior-year quarter | Six months ended March 31, 2023 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $17.8 | $18.7 | $41.4 | $46.4 |
| Research and development expense | $43.5 | $42.1 | $84.4 | $90.6 |
| General and administrative expense | $13.8 | $10.5 | $26.5 | $20.0 |
| Operating loss | $(39.5) | $(33.8) | $(69.5) | $(64.3) |
| Net loss | $(37.7) | $(33.6) | $(66.6) | $(63.7) |
| Basic and diluted loss per share | $(1.79) | $(1.63) | $(3.19) | $(3.11) |
- Quarterly revenue fell about 5%; six-month revenue fell about 11%, mainly because AbbVie reported lower HCV sales. The six-month 2023 total included $1.0 million of license revenue from an antibacterial compound no longer in development.
- Quarterly R&D increased, reflecting higher virology clinical-trial and staffing costs, partly offset by lower manufacturing costs and the wind-down of the non-viral NASH program. Six-month R&D declined as NASH costs substantially fell.
- G&A rose in both comparisons, principally from higher stock-based compensation and legal fees for the Pfizer patent suit. Higher interest rates increased interest and investment income.
- Gross margin is not presented as a meaningful measure in the filing; revenue is primarily royalty and license revenue, with operating costs reported as R&D and G&A.
Cash flow, liquidity and obligations
- At March 31, 2023, cash and cash equivalents were $73.2 million, marketable securities were $151.9 million, and total cash, cash equivalents and short- and long-term marketable securities were $225.1 million. Restricted cash was $4.0 million.
- For the six months, operating cash use was $49.4 million, versus $39.6 million a year earlier. Investing activities provided $80.3 million, largely reflecting marketable-security maturities and sales; financing activities used $1.7 million. Ending cash, cash equivalents and restricted cash totaled $77.1 million.
- The balance sheet reported $57.1 million in total liabilities, including operating lease liabilities of $28.0 million and $1.4 million of Series 1 nonconvertible preferred stock recorded as a liability. No conventional borrowings are identified in the presented balance sheet.
- In April 2023, after quarter-end, Enanta received $200.0 million from an OMERS affiliate in exchange for 54.5% of future MAVYRET/MAVIRET royalties through June 30, 2032, subject to aggregate payments capped at 1.42 times the purchase price. Enanta expects to record the proceeds as cash with offsetting short- and long-term liabilities and to recognize imputed interest expense. It stated that existing resources, this payment and retained HCV royalties are expected to fund operations and capital needs into calendar 2026; this estimate depends on assumptions that may prove inaccurate.
Outlook, developments and risks
- Pipeline updates in the filing include EDP-938 in three Phase 2 RSV studies, EDP-323 in Phase 1 with data expected in the second quarter of 2023, and EDP-235 in Phase 2 for COVID-19. Enanta also described early-stage PLpro and hMPV/RSV dual-inhibitor programs and EDP-514 for HBV.
- The filing reports May 2023 topline EDP-235 Phase 2 results, which occurred after the reporting period: the trial met its primary endpoint and the drug was generally well tolerated; the filing also describes symptom improvements at the 400 mg dose. No difference in time to improvement for all targeted symptoms was observed, and no nasal virologic-endpoint effect was detected in the study population.
- Management expects R&D spending generally to rise as wholly owned programs advance. Future HCV royalties depend on AbbVie sales, market share, pricing and patients treated; royalty rates reset to the lowest tier at the start of each calendar year.
- Enanta is suing Pfizer over alleged infringement of a coronavirus-protease patent related to Paxlovid and is seeking damages. Litigation expenses are recorded as incurred; the filing does not quantify a potential recovery or outcome.
- The company identified clinical, regulatory, financing, intellectual-property and collaboration risks. It reported no material changes to previously disclosed risk factors. Less than 5% of cash and marketable securities was held at Silicon Valley Bank, and Enanta had initiated transfer of those funds after the bank’s closure.
Important facts for investors to verify
- Subsequent AbbVie royalty sales, royalty trends and the effect of transferring 54.5% of future payments on long-term cash generation.
- Actual operating cash burn, R&D commitments and whether the stated runway into calendar 2026 remains achievable.
- Clinical-trial progress, safety and efficacy results for EDP-938, EDP-323, EDP-235 and other pipeline candidates, including the complete EDP-235 Phase 2 data.
- Progress, costs and potential outcomes of the Pfizer patent litigation.
- Future G&A costs, including stock-based compensation and legal expenses, and the implications of the royalty-purchase accounting and imputed interest expense.