Enanta Pharmaceuticals, Inc. — Q3 FY2017 Form 10-Q
Reporting period: Three and nine months ended June 30, 2017. Financial amounts below are in millions of dollars unless stated otherwise. The filing was signed August 9, 2017.
Business context
Enanta is a research-focused biotechnology company. Its revenue primarily comes from royalties on AbbVie’s hepatitis C (HCV) regimens containing Enanta-discovered protease inhibitors. Internal programs focus on liver diseases (NASH and PBC) and viral infections (RSV and HBV). Enanta does not independently market approved products.
Financial results and liquidity
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Revenue | 2017: $7.5; 2016: $14.0 | 2017: $26.9; 2016: $75.4 |
| Operating expenses | 2017: $20.6; 2016: $15.1 | 2017: $56.6; 2016: $41.5 |
| Operating income (loss) | 2017: $(13.1); 2016: $(1.1) | 2017: $(29.7); 2016: $33.9 |
| Net income (loss) | 2017: $(8.4); 2016: $(1.1) | 2017: $(18.8); 2016: $23.5 |
| Basic/diluted EPS | 2017: $(0.44); 2016: $(0.06) | 2017: $(0.99); 2016: $1.24 / $1.22 |
- Third-quarter revenue consisted entirely of AbbVie royalties. The filing does not report a separate gross margin; the company’s operating and net margins were negative in Q3.
- R&D expense was $15.4 million in Q3 and $40.9 million for nine months; G&A was $5.2 million and $15.6 million, respectively. Higher R&D reflected advancing internal programs, increased staffing, and greater external clinical and preclinical costs.
- Nine-month operating cash flow was $(4.7) million, versus $37.9 million provided in the prior-year period. Investing activities provided $10.3 million; financing activities provided $0.01 million. Cash and cash equivalents increased to $22.3 million from $16.6 million at September 30, 2016.
- Cash, cash equivalents, and marketable securities totaled $235.3 million at June 30, 2017. Total liabilities were $15.0 million. Enanta reported no debt other than capital lease obligations, totaling approximately $0.5 million.
- Current assets were $206.1 million and current liabilities $11.1 million. Total assets were $275.8 million and stockholders’ equity was $260.9 million.
Material changes versus prior comparable periods
- Q3 revenue declined 46%, to $7.5 million, as royalties on paritaprevir-containing regimens fell amid increased HCV competition.
- Nine-month revenue fell to $26.9 million from $75.4 million. The prior-year period included a $30.0 million AbbVie milestone and $0.6 million from a completed NIAID contract; the current period included neither. Royalties also declined, from $44.9 million to $26.9 million.
- Nine-month operating expenses rose 36%, including a 41% increase in R&D expense. The company moved from prior-year nine-month net income to a net loss in 2017.
- Marketable securities totaled $213.1 million at June 30, compared with $225.6 million at September 30, 2016; cash and cash equivalents increased over that same balance-sheet comparison.
Outlook, commentary, and risks
- Management said existing financial resources and cash flows were expected to fund operations for the foreseeable future, while noting that this assessment is subject to uncertainty. No numerical earnings or revenue guidance was provided.
- After quarter-end, AbbVie received EU authorization in July 2017 and U.S. FDA approval in August 2017 for glecaprevir/pibrentasvir (MAVIRET/MAVYRET). Enanta reported that these approvals earned $65.0 million in milestone payments in the third calendar quarter of 2017; this was not included in June 30 results. Enanta also expected a potential $15.0 million milestone upon anticipated Japanese approval in Q4 2017.
- Management expected R&D spending to increase as NASH, PBC, RSV, and HBV programs advance. Planned milestones included beginning an EDP-305 PBC study in late 2017, targeting a Phase 2 NASH study in 2018, and beginning an EDP-938 Phase 1 study in Q4 2017. The HBV program aimed to identify a development candidate in 2017.
- Key risks include dependence on AbbVie’s development and commercialization decisions and HCV sales, declining paritaprevir royalties, competition and pricing/reimbursement pressure, and the uncertain cost, timing, and success of clinical development and regulatory approval. The filing also discusses intellectual-property, manufacturing, and third-party collaboration risks.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter. The company had no threatened or pending litigation disclosed.
Important facts for investors to verify
- Whether MAVIRET/MAVYRET sales generate meaningful new royalties, and whether the potential Japanese approval milestone was achieved.
- AbbVie HCV sales trends and the effects of competition, discounts, reimbursement, and market access on Enanta’s royalty revenue.
- Progress, timing, safety, and spending for EDP-305, EDP-938, and the HBV program against the stated development plans.
- Cash burn and the assumptions behind management’s “foreseeable future” funding assessment, particularly if royalties decline or R&D investment rises.