Enanta Pharmaceuticals, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2019. Financial statement amounts below are in millions of dollars, except per-share data.
Business context
Enanta is a biotechnology company developing treatments for viral infections and liver diseases. Its revenue is generated through its AbbVie collaboration, principally royalties on MAVYRET/MAVIRET, AbbVie’s hepatitis C regimen containing Enanta’s glecaprevir. Enanta’s wholly owned programs include EDP-938 for RSV, EDP-305 for NASH and PBC, and EDP-514 for HBV.
Financial performance and position
| Metric | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Nine months ended June 30, 2019 | Nine months ended June 30, 2018 |
|---|---|---|---|---|
| Revenue | $44.4 | $57.3 | $153.9 | $139.4 |
| Operating expenses | $40.6 | $34.6 | $123.6 | $85.5 |
| Operating income | $3.8 | $22.6 | $30.3 | $53.9 |
| Net income | $7.0 | $20.3 | $37.2 | $44.5 |
| Diluted EPS | $0.33 | $0.97 | $1.77 | $2.17 |
- Quarterly revenue fell about 23%, primarily reflecting lower AbbVie HCV sales, while nine-month revenue rose about 10% despite the prior-year period including a $15.0 million milestone payment. No further AbbVie milestones remain.
- Quarterly R&D expense increased 21% to $34.5 million; nine-month R&D expense rose 52% to $103.5 million as clinical programs advanced. G&A was $6.2 million for the quarter and $20.1 million year to date.
- Quarterly operating margin was approximately 8%, compared with 40% a year earlier; nine-month operating margin was approximately 20%, compared with 39%. Net income also benefited from an income tax benefit of $0.9 million in the quarter; the comparable 2018 quarter had $3.7 million of tax expense.
- Nine-month operating cash flow was $62.9 million, compared with $0.9 million in the prior-year period. Investing cash flow was negative $34.5 million, including $5.1 million of property and equipment purchases; financing cash flow was positive $1.9 million. Cash, cash equivalents and restricted cash increased $30.3 million.
- At June 30, cash and cash equivalents were $94.2 million and short-term marketable securities were $295.0 million, totaling approximately $389.2 million in cash, cash equivalents and marketable securities. Current assets were $451.3 million and current liabilities $20.5 million.
- Total liabilities were $25.4 million. The company reported no debt outstanding other than its capital lease obligation; that obligation was $0.2 million long term. Stockholders’ equity was $448.1 million.
Outlook, developments and risks
- Management said existing financial resources and continuing AbbVie royalties were expected to fund operations for the foreseeable future. It also expected R&D spending to continue increasing as programs advance, and cautioned that future profitability is uncertain.
- AbbVie had updated its calendar 2019 HCV sales outlook to approximately $3.1 billion, versus $3.6 billion in 2018. Enanta’s royalties depend on AbbVie’s sales, pricing, market share and reimbursement; royalty tiers reset annually.
- Enanta reported positive topline Phase 2a EDP-938 human-challenge results in June 2019 and aimed to begin a Phase 2b study in adult outpatients before the end of calendar 2019. EDP-305 Phase 2 studies were ongoing; ARGON-1 enrollment was complete, with topline results expected by the end of calendar Q3 2019. EDP-514 Phase 1a/1b began in July 2019.
- Principal risks include reliance on AbbVie for royalty revenue, declining or pressured HCV sales, competition, clinical and regulatory uncertainty, rising development costs, and reliance on third-party manufacturers and research providers. The filing reported no threatened or pending litigation and no material changes in commitments and contingencies during the nine-month period.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Subsequent AbbVie HCV sales and the resulting royalty revenue, including effects of pricing, payer access, competition and annual royalty-tier resets.
- Timing and results of EDP-305, EDP-938 and EDP-514 trials, and whether development costs continue to rise as anticipated.
- Cash and investment balances, operating cash flow, and the assumptions behind management’s “foreseeable future” liquidity assessment.
- Potential tax adjustments and the status of open tax examinations and uncertain tax positions.