Enanta Pharmaceuticals, Inc. — Q2 FY2021 Form 10-Q
Reporting period: Fiscal quarter and six months ended March 31, 2021. Interim financial statements are unaudited. Amounts below are in millions of dollars unless otherwise indicated.
Business context
Enanta is a biotechnology company whose reported revenue is primarily royalties from AbbVie’s HCV treatment MAVYRET/MAVIRET, which includes Enanta-discovered glecaprevir. Royalty income supports wholly owned research and development programs in RSV, HBV, SARS-CoV-2, hMPV and NASH. Enanta reported no product-sales revenue from its own candidates.
Financial performance and liquidity
| Metric | Three months ended March 31, 2021 | Three months ended March 31, 2020 | Six months ended March 31, 2021 | Six months ended March 31, 2020 |
|---|---|---|---|---|
| Royalty revenue | $20.1 | $27.6 | $51.9 | $80.2 |
| Research and development expense | $41.5 | $32.6 | $78.2 | $65.4 |
| General and administrative expense | $8.3 | $6.9 | $15.7 | $13.8 |
| Operating loss (income) | $(29.7) | $(11.9) | $(42.0) | $1.0 |
| Net loss (income) | $(22.0) | $(6.0) | $(30.4) | $7.4 |
| Basic and diluted earnings (loss) per share | $(1.09) | $(0.30) | $(1.51) basic; $(1.51) diluted | $0.37 basic; $0.36 diluted |
- Operating expenses exceeded royalty revenue; the filing does not present a conventional gross margin for this business.
- For the six months, operating cash flow was negative $19.5 million, versus positive $27.0 million in the prior-year period. Cash, cash equivalents and restricted cash declined $10.0 million to $77.7 million.
- At March 31, cash and cash equivalents were $77.1 million; short- and long-term marketable securities totaled $323.3 million. Together, cash and marketable securities were approximately $400.4 million.
- Total assets were $467.8 million and total liabilities were $31.7 million. The filing reports no borrowings; liabilities include operating lease obligations and $1.5 million of Series 1 nonconvertible preferred stock recorded as a liability.
- Current assets were $428.2 million and current liabilities $26.6 million. No conventional debt balance is disclosed.
Material changes versus the prior comparable period
- Quarterly royalty revenue fell $7.5 million; six-month royalty revenue fell $28.3 million. Enanta attributed the decline to HCV patient volumes remaining below pre-pandemic levels. AbbVie reported MAVYRET/MAVIRET sales of $415 million for the quarter and $896 million for the six months, down from $559 million and $1.2 billion, respectively.
- Quarterly R&D expense rose $8.9 million and six-month R&D expense rose $12.8 million, primarily reflecting timing and advancement of virology clinical studies. G&A increased by $1.4 million for the quarter and $1.9 million for the six months, mainly due to headcount and compensation.
- Other income declined year over year, mainly because of lower investment income amid lower interest rates and purchases of securities at a premium.
- The six-month tax benefit increased to $10.4 million from $2.4 million, primarily reflecting a federal net operating loss carryback under the CARES Act. Enanta maintained a valuation allowance against substantially all net deferred tax assets.
Outlook, management commentary and risks
- Management said existing financial resources and continuing royalties should fund programs for the foreseeable future, while cautioning that this is a forward-looking estimate. Enanta expected fiscal 2021 expenses to exceed revenue and R&D spending to increase as programs advance.
- Near-term milestones described included expected EDP-514 HBV study topline results later in calendar Q2 2021, EDP-721 Phase 1 initiation around mid-2021, and an internal ARGON-2 interim analysis in calendar Q3 2021. Enanta also expected to begin IND-enabling studies for its first SARS-CoV-2 protease inhibitor later in Q2 2021, with a Phase 1 study targeted for early 2022. These are management expectations, not guarantees.
- COVID-19 had reduced HCV diagnoses and treatment, weakening royalty revenue; it also delayed or complicated trial recruitment. Low RSV incidence adversely affected enrollment in the RSVP study, and the timing of RSV’s return was uncertain. Management reported contract manufacturers operating near normal levels, with no material supply interruption then anticipated.
- Revenue is highly dependent on AbbVie’s commercialization of MAVYRET/MAVIRET, which Enanta does not control. Risks include continued HCV volume declines, pricing and reimbursement pressure, competition, and potential changes to the collaboration.
- Other significant risks include clinical-trial failure or delay, uncertain product safety and efficacy, regulatory and manufacturing setbacks, intellectual-property disputes, and the possibility that future R&D costs outpace royalty income. Enanta reported no current litigation and no material change in contractual obligations during the six-month period.
Most important facts for investors to verify
- Whether AbbVie’s HCV sales and Enanta’s royalty revenue stabilize or continue to decline, including the effects of patient volumes, competition and pricing.
- Whether cash burn and planned R&D spending remain consistent with management’s stated liquidity runway and “foreseeable future” funding assessment.
- Progress, enrollment and data timing for EDP-938 RSV trials, EDP-514 and EDP-721 HBV programs, and the ARGON-2 and EDP-297 NASH studies.
- Whether COVID-19 or other factors cause further clinical-trial, supply-chain or HCV-treatment disruptions.
- The assumptions and potential repeatability of the CARES Act tax-loss carryback benefit and the continuing valuation allowance on deferred tax assets.