Enanta Pharmaceuticals(ENTA) - 2020 Q4 - Annual Report

Part I Business Overview Enanta Pharmaceuticals develops small molecule drugs for viral infections and liver diseases, funding its R&D pipeline primarily through royalties from AbbVie's HCV treatment - The company's primary focus is on discovering and developing small molecule drugs for viral infections (RSV, HBV, SARS-CoV-2, hMPV) and liver diseases (NASH)[20] - Funding for wholly-owned R&D programs is supported by royalties from the collaboration with AbbVie on the HCV treatment MAVYRET/MAVIRET[20] Financial Metrics (as of FY 2020) | Financial Metric | Value (as of FY 2020) | | :--- | :--- | | Cash, Cash Equivalents & Marketable Securities | $419 million | | Fiscal 2020 Royalty Revenue | $122.5 million | Enanta's Research and Development Pipeline (as of September 30, 2020) | Disease Area | Product Candidate / Class | Discovery/Preclinical | Phase 1 | Phase 2 | Phase 3 | Marketed | Status | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | HCV | glecaprevir (Protease Inhibitor) | | | | | ✓ | Marketed by AbbVie in MAVYRET/MAVIRET | | RSV | EDP-938 (N-Protein Inhibitor) | | | ✓ | | | Phase 2b RSVP study ongoing | | NASH | EDP-305 (FXR Agonist) | | | ✓ | | | Phase 2b ARGON-2 study ongoing | | HBV | EDP-514 (Core Inhibitor) | | ✓ | | | | Two Phase 1b studies ongoing | | NASH | EDP-297 (FXR Agonist Follow-on) | | ✓ | | | | Phase 1 study ongoing | | hMPV | Non-Fusion Inhibitor | ✓ | | | | | Discovery | | COVID-19 | SARS-CoV-2 Inhibitor | ✓ | | | | | Discovery | Risk Factors The company faces significant risks including heavy reliance on AbbVie's HCV drug sales, clinical development uncertainties, intense competition, and potential impacts from the COVID-19 pandemic - Financial prospects are heavily dependent on AbbVie's success in selling MAVYRET/MAVIRET for HCV, with sales potentially impacted by reduced diagnoses and treatment rates due to the COVID-19 pandemic[101] - The company faces substantial competition in all its target disease areas (HCV, RSV, HBV, NASH, hMPV, SARS-CoV-2), with many competitors having more advanced product candidates and greater resources[104][107] - Clinical drug development is a lengthy, expensive, and uncertain process, and the company's pipeline candidates have not yet advanced beyond Phase 2 trials, with potential for delays or failures[121] - The ongoing COVID-19 pandemic has impacted business operations and clinical trials, causing delays in recruitment for studies like the ARGON-2 (NASH) and RSVP (RSV) trials[108][110] - The company relies on third-party manufacturers, including some in China, for clinical drug supplies, with potential disruptions from trade wars, political unrest, or pandemics adversely affecting operations[145][148] Properties Enanta leases approximately 67,000 square feet of office and laboratory space for its corporate headquarters in Watertown, Massachusetts - The company leases a total of approximately 67,000 square feet of office and laboratory space in Watertown, Massachusetts, across two separate lease agreements[191] Legal Proceedings The company is not currently involved in any material legal proceedings as of the report date - The company is not currently involved in any material legal proceedings[192] Part II Market for Common Equity and Related Matters Enanta's common stock trades on NASDAQ under "ENTA", and the company has never paid cash dividends nor anticipates doing so - Common stock is traded on The NASDAQ Global Select Market under the symbol "ENTA"[198] Quarterly Stock Price (Fiscal Years 2020 & 2019) | Fiscal Year | Quarter | High ($) | Low ($) | | :--- | :--- | :--- | :--- | | 2020 | First | 67.88 | 57.15 | | | Second | 62.12 | 38.40 | | | Third | 58.59 | 44.90 | | | Fourth | 54.57 | 42.07 | | 2019 | First | 86.42 | 64.09 | | | Second | 106.80 | 68.67 | | | Third | 101.27 | 80.52 | | | Fourth | 89.25 | 58.02 | - The company has never declared or paid cash dividends and does not expect to in the foreseeable future[199] Selected Consolidated Financial Data This section provides selected financial data for the past five fiscal years, highlighting a shift to a net loss in FY2020 despite stable total assets Selected Historical Financial Data (in thousands, except per share data) | Metric | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Revenue | $122,473 | $205,197 | $206,625 | | Research and development | $136,756 | $142,213 | $94,856 | | Total operating expenses | $164,112 | $168,459 | $118,297 | | Income (loss) from operations | $(41,639) | $36,738 | $88,328 | | Net income (loss) | $(36,168) | $46,383 | $71,956 | | Diluted net income (loss) per share | $(1.81) | $2.21 | $3.48 | | Total assets (at year end) | $486,132 | $489,829 | $414,227 | | Cash, cash equivalents and marketable securities | $419,283 | $400,249 | $325,119 | Management's Discussion and Analysis (MD&A) Management discusses the company's financial performance, noting a significant revenue decrease and net loss in FY2020, while maintaining strong liquidity Results of Operations FY2020 revenue decreased significantly to $122.5 million due to lower AbbVie royalties, resulting in a net loss of $36.2 million despite slightly reduced R&D expenses Revenue Comparison (in thousands) | Year Ended September 30, | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Royalties | $122,473 | $205,197 | $191,625 | | Milestones | — | — | $15,000 | | Total revenue | $122,473 | $205,197 | $206,625 | - The $82.7 million decrease in revenue in FY2020 was due to lower numbers of treated HCV patients as a result of the worldwide COVID-19 pandemic and competitive pricing pressures[233] R&D Expense by Program (in thousands) | R&D Program | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Virology | $85,856 | $75,087 | $40,047 | | Liver disease | $45,001 | $66,892 | $54,691 | | Other | $5,899 | $234 | $118 | | Total R&D expenses | $136,756 | $142,213 | $94,856 | - R&D expense decreased by $5.5 million in FY2020 compared to FY2019, primarily due to the timing of clinical studies and the impact of the COVID-19 pandemic, which paused or delayed enrollment in several trials[237] Liquidity and Capital Resources As of September 30, 2020, Enanta maintained strong liquidity with $419 million in cash and securities, despite a significant decrease in operating cash flow in FY2020 - The company's principal sources of liquidity are cash, cash equivalents, and marketable securities, totaling $419 million as of September 30, 2020[241] Summary of Cash Flows (in thousands) | Activity | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Net cash from Operating | $7,088 | $71,418 | $29,220 | | Net cash from Investing | $19,830 | $(86,664) | $(35,402) | | Net cash from Financing | $8,983 | $2,574 | $4,409 | - The decrease in cash from operations in FY2020 was primarily driven by a decrease in royalty payments received from AbbVie and an increase in R&D costs[241] Consolidated Financial Statements and Supplementary Data This section presents the audited consolidated financial statements and the independent auditor's unqualified opinion, highlighting critical audit matters related to R&D accruals - The independent auditor, PricewaterhouseCoopers LLP, issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of September 30, 2020[293] - A critical audit matter identified was the significant management judgment required in estimating research and development and pharmaceutical drug manufacturing accruals, which are based on contract terms, timelines, and progress of activities[303][304] - The company adopted the new lease accounting standard (Topic 842) on October 1, 2019, resulting in the recognition of right-of-use assets of $7.2 million and lease liabilities of $8.6 million[350] Controls and Procedures Management concluded that both disclosure controls and internal control over financial reporting were effective as of September 30, 2020, with no material changes - Management concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2020[258] - Based on the COSO 2013 framework, management concluded that the company's internal control over financial reporting was effective as of September 30, 2020[260] Part III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance is incorporated by reference from the company's 2021 Proxy Statement - Detailed information on directors, executive officers, and corporate governance is incorporated by reference from the 2021 Proxy Statement[265] Executive Compensation Details regarding executive compensation are incorporated by reference from the company's 2021 Proxy Statement - Information on executive compensation is incorporated by reference from the 2021 Proxy Statement[266] Security Ownership and Equity Compensation Plans This section details securities authorized under equity compensation plans as of September 30, 2020, with further ownership details incorporated by reference Equity Compensation Plan Information (as of September 30, 2020) | Plan Category | Securities to be issued upon exercise (a) | Weighted-average exercise price ($) (b) | Securities remaining for future issuance (c) | | :--- | :--- | :--- | :--- | | Equity plans approved by security holders | 3,399,000 | $47.81 | 1,407,000 | | Equity plans not approved by security holders | — | — | — | | Total | 3,399,000 | $47.81 | 1,407,000 | Part IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed as part of the Form 10-K, including governance documents and material contracts - The financial statements are included under Part II, Item 8 of the report[274] - A list of all exhibits filed with the report is provided, including governance documents, material contracts like the AbbVie agreement, and compensatory plans[277]