ENANTA PHARMACEUTICALS INC annual report, FY2023

Enanta Pharmaceuticals, Inc. — FY2023 Form 10-K

Reporting period: Fiscal year ended September 30, 2023. This is an annual report, not a standalone fourth-quarter report. Enanta is a clinical-stage biotechnology company whose revenue is primarily royalties from AbbVie’s HCV treatment MAVYRET/MAVIRET; its wholly owned programs focus on RSV, SARS-CoV-2 and HBV.

Financial performance and liquidity

Metric	FY2023	FY2022
Total revenue	$79.2 million	$86.2 million
Operating expenses	$216.4 million	$210.0 million
Operating loss	$137.2 million	$123.8 million
Net loss	$133.8 million	$121.8 million
Net loss per share, diluted	$6.38	$5.91
Cash used in operating activities	$103.2 million	$84.8 million

• Revenue was mainly royalties of $78.2 million; the remaining $1.0 million was upfront license revenue from an out-licensed antibacterial compound. Royalties declined year over year with lower AbbVie HCV sales. The weighted-average royalty rate on sales allocated to Enanta’s protease products was approximately 11% in both years.
• Research and development expense was $163.5 million, slightly below $164.5 million. Virology spending increased, largely offset by reduced non-viral liver-disease spending as the NASH program wound down. General and administrative expense rose to $52.9 million from $45.5 million, primarily due to legal fees for the Pfizer patent case and higher stock-based compensation.
• Cash, cash equivalents and short-term marketable securities totaled $369.9 million at year-end, versus $249.2 million in cash and short-term securities at September 30, 2022; FY2022 also included $29.3 million of long-term marketable securities. Current assets were $422.8 million and current liabilities $62.8 million.
• Financing cash flow included the $200.0 million received from OMERS for selling 54.5% of future MAVYRET/MAVIRET royalties after June 30, 2023 through June 30, 2032, subject to a 1.42-times purchase-price cap. The proceeds are recorded as a liability, not revenue or conventional borrowing; the year-end royalty-sale liability was $194.5 million, including a current portion of $35.1 million. FY2023 included $5.1 million of related non-cash interest expense.
• No gross margin is reported, and the filing does not provide a conventional debt total. Operating lease liabilities were $26.5 million. Enanta reported no off-balance-sheet financing arrangements.

Material changes and business developments

• Revenue decreased 8.1% and net loss widened by $12.1 million. Operating expenses increased $6.4 million; the larger operating cash outflow also reflected payment timing, lower royalty receipts and estimated tax payments.
• The OMERS transaction increased liquidity but reduced Enanta’s retained cash from qualifying royalties to 45.5% through the agreement term, subject to the cap. Enanta continues to report 100% of royalties as revenue and recognizes the OMERS payments against the liability.
• EDP-323 completed Phase 1 with positive topline safety and pharmacokinetic results; Enanta initiated a Phase 2 challenge study in calendar Q4 2023. EDP-938 remained in Phase 2 studies in pediatric and high-risk adult populations.
• EDP-235 met the primary endpoint in its Phase 2 COVID-19 study, with statistically significant symptom-score improvement in the 400 mg group at multiple time points. No overall effect was detected on nasal virologic endpoints in the study population. Enanta said it would not advance EDP-235 on its own and would seek a partner.
• EDP-514 Phase 1b studies showed antiviral activity, but further development as a combination therapy depends on access to another compound. The RSV/hMPV dual-inhibitor research program was paused; the NASH program was substantially wound down.

Outlook, risks and unusual items

• Management estimates existing cash, cash equivalents, short-term securities and retained HCV royalties can fund operating expenses and capital needs through fiscal 2027. This is a forecast dependent on assumptions, including future AbbVie sales, development spending and trial progress; management expects ongoing losses and may need additional funding.
• Enanta expects external R&D expense generally to decrease over the next 12 months, in part because it will not advance EDP-235 independently and has made spending adjustments. RSV data timing depends on enrollment and a normal Northern Hemisphere RSV season; EDP-938 and EDP-323 topline data were expected in calendar Q3 2024.
• Key risks include reliance on AbbVie’s declining and competitive HCV market, lower retained royalties after the OMERS sale, clinical and regulatory uncertainty, programs still at early clinical stages, dependence on third-party manufacturers and CROs, and the need for partners or additional capital. RSV seasonality may delay trials.
• Enanta filed a patent infringement suit against Pfizer in June 2022 concerning its ’953 patent and Paxlovid. Legal expenses are recorded as incurred; the filing does not provide a clear estimate of potential recovery or ultimate outcome. The suit’s costs and result could affect expenses and liquidity.
• Interest and investment income increased to $11.4 million from $1.6 million, reflecting higher cash balances after the OMERS payment and higher interest rates. FY2023 included $2.8 million of income tax expense despite a pretax loss, principally related to the royalty-sale proceeds; deferred tax assets remain subject to a valuation allowance.
• Management and the external auditor concluded internal control over financial reporting was effective as of September 30, 2023. The auditor identified R&D and drug-manufacturing accrual estimates as a critical audit matter because they require significant judgment.

Important facts for investors to verify

• Current AbbVie MAVYRET/MAVIRET sales trends, pricing, market share and resulting royalty receipts, and the projected duration of royalties.
• OMERS royalty-sale liability forecasts, effective interest assumptions, payments to date and remaining cap; distinguish reported royalty revenue from cash retained by Enanta.
• Cash burn, planned 2024 spending reductions and the assumptions supporting management’s fiscal 2027 funding estimate.
• Enrollment, safety and efficacy results for EDP-938 and EDP-323, including the impact of RSV seasonality; any partner or development decision for EDP-235 and EDP-514.
• Developments, legal costs and any court rulings in the Pfizer patent litigation, as well as any material changes in contingencies or potential recoveries.
• Clinical supply and trial execution risks, including third-party manufacturing exposure in China and the timing and cost of the new laboratory facility.