Enanta Pharmaceuticals(ENTA) - 2021 Q3 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents the company's financial statements, management's analysis, market risk disclosures, and internal controls Consolidated Financial Statements The company reported a net loss of $24.0 million for Q3 2021 and $54.4 million for the nine months, primarily due to decreased royalty revenue and increased R&D expenses Consolidated Balance Sheets The balance sheet shows a decrease in total assets to $450.4 million by June 30, 2021, primarily due to reduced cash and cash equivalents Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2021 | September 30, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $4,601 | $87,131 | | Total marketable securities | $367,929 | $332,152 | | Total current assets | $321,155 | $436,837 | | Total assets | $450,436 | $486,132 | | Liabilities & Equity | | | | Total current liabilities | $28,624 | $24,157 | | Total liabilities | $32,586 | $30,552 | | Total stockholders' equity | $417,850 | $455,580 | Consolidated Statements of Operations The statement of operations highlights a net loss of $24.0 million for Q3 2021 and $54.4 million for the nine months, driven by increased R&D expenses Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Nine Months Ended June 30, 2021 | Nine Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Royalty revenue | $21,624 | $18,653 | $73,499 | $98,842 | | Research and development | $46,994 | $34,682 | $125,165 | $100,070 | | General and administrative | $8,477 | $6,823 | $24,180 | $20,628 | | Loss from operations | ($33,847) | ($22,852) | ($75,846) | ($21,856) | | Net loss | ($24,024) | ($14,265) | ($54,397) | ($6,827) | | Net loss per share (Basic & Diluted) | ($1.19) | ($0.71) | ($2.70) | ($0.34) | Consolidated Statements of Cash Flows The cash flow statement indicates a net cash outflow of $82.5 million for the nine months ended June 30, 2021, primarily from operating and investing activities Consolidated Cash Flow Summary (Nine Months Ended June 30, in thousands) | Cash Flow Category | 2021 | 2020 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | ($48,975) | $22,549 | | Net cash (used in) provided by investing activities | ($35,692) | $17,326 | | Net cash provided by financing activities | $2,137 | $8,750 | | Net (decrease) increase in cash, cash equivalents and restricted cash | ($82,530) | $48,625 | Notes to Consolidated Financial Statements Key notes detail revenue recognition from AbbVie royalties, stock-based compensation, and income tax benefits from the CARES Act - The company's primary revenue source is a collaboration with AbbVie for the HCV treatment MAVYRET®/MAVIRET®, with Enanta receiving annually tiered royalties ranging from 10% up to 20% on the portion of AbbVie's net sales allocated to the protease inhibitor component[27][42] - The company recognized stock-based compensation expense of $5.5 million and $15.6 million for the three and nine months ended June 30, 2021, respectively, with $49.3 million of unrecognized cost remaining[50] - Due to the CARES Act, the company recorded an income tax benefit and an income tax receivable of $30.6 million as of June 30, 2021, related to carrying back its current year tax loss against prior year tax payments[54] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial results, attributing them to fluctuating AbbVie royalty revenue impacted by COVID-19 and increased R&D spending on its pipeline, while maintaining strong liquidity Overview and Pipeline The company's business model relies on AbbVie royalties to fund its R&D pipeline focused on viral infections and liver diseases, impacted by COVID-19 - Enanta's business model relies on royalties from its AbbVie collaboration on the HCV drug MAVYRET®/MAVIRET® to fund its wholly-owned R&D programs[61] - The company's development pipeline is focused on viral infections and liver diseases, with key programs in Respiratory Syncytial Virus (RSV) (EDP-938), Hepatitis B Virus (HBV) (EDP-514, EDP-721), COVID-19 (EDP-235), and Non-alcoholic steatohepatitis (NASH) (EDP-305, EDP-297)[61][62][65][68] - The COVID-19 pandemic has suppressed RSV incidence, adversely affecting enrollment in the RSVP study, and led to lower royalty revenue due to a decline in HCV patient diagnoses and prescriptions[63][72] Results of Operations Operational results show a 16.0% increase in Q3 2021 royalty revenue but a $25.3 million decrease for the nine months, alongside a 35.5% rise in R&D expenses Comparison of Three Months Ended June 30 (in thousands) | Account | 2021 | 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Royalty Revenue | $21,624 | $18,653 | +16.0% | | R&D Expenses | $46,994 | $34,682 | +35.5% | | G&A Expenses | $8,477 | $6,823 | +24.2% | - The $3.0 million increase in Q3 2021 royalty revenue was due to higher reported HCV sales by AbbVie compared to the start of the pandemic in Q3 2020, though patient volumes remain below pre-COVID levels[84] - R&D expenses for Q3 2021 increased by $12.3 million YoY, primarily due to the timing of clinical studies in virology (HBV and RSV programs) and liver disease (NASH program)[88] - For the nine months ended June 30, 2021, royalty revenue decreased by $25.3 million compared to 2020, as AbbVie's sales of MAVYRET/MAVIRET were lower due to the pandemic's impact on HCV patient treatment volumes[95] Liquidity and Capital Resources The company maintains $372.5 million in cash and marketable securities, sufficient for two years, despite $49.0 million net cash used in operations - As of June 30, 2021, the company had $372.5 million in cash, cash equivalents, and marketable securities[100][105] - Management believes existing liquidity is sufficient to meet cash requirements for at least the next two years, despite the ongoing impact of COVID-19[100][106] - Net cash used in operating activities was $49.0 million for the nine months ended June 30, 2021, a significant shift from the $22.5 million provided by operating activities in the same period of 2020, driven by a higher net loss and changes in operating assets and liabilities[100][102] Quantitative and Qualitative Disclosures about Market Risk The company's market risk from interest rate sensitivity on its $372.5 million portfolio and foreign exchange fluctuations is considered immaterial - The company's portfolio of cash, cash equivalents, and marketable securities totaled $372.5 million, and a 100 basis point change in market interest rates is not expected to have a material impact[112] - Exposure to foreign currency exchange rates (primarily British Pound and Euro) from conducting clinical trials abroad was immaterial for the nine months ended June 30, 2021[113] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with no material changes in internal control over financial reporting - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[115] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[116] PART II—OTHER INFORMATION This section details significant risk factors, lists exhibits filed, and includes the required signatures for the report Risk Factors Significant risks include heavy dependence on AbbVie royalties, COVID-19 impacts, intense competition, inherent uncertainties of clinical development, and intellectual property challenges - Financial prospects are highly dependent on AbbVie's success in selling MAVYRET/MAVIRET, which could be adversely affected by lower sales volume due to reduced HCV diagnoses and treatment during the COVID-19 pandemic[119] - The ongoing COVID-19 pandemic has impacted business operations and clinical trials, causing delays in patient recruitment for studies like the Phase 2b ARGON-2 in NASH and suppressing the incidence of RSV, which affects RSV trial enrollment[125][127] - The company faces intense competition in all its target disease areas (HCV, RSV, HBV, NASH, COVID-19) from large pharmaceutical companies with greater resources and more advanced product candidates[122][124] - Clinical drug development is a lengthy, expensive, and uncertain process, where trials for proprietary product candidates may be delayed or fail, preventing commercialization[142] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and financial statements in Inline XBRL format - Exhibits filed include CEO and CFO certifications pursuant to Rule 13a-14(a) and 18 U.S.C. Section 1350 (Sarbanes-Oxley Act of 2002)[224][225] - The financial statements from the report are also filed in Inline XBRL format as Exhibit 101[226] Signatures The report was signed on August 9, 2021, by Paul J. Mellett, Chief Financial Officer of Enanta Pharmaceuticals, Inc - The Form 10-Q was signed on August 9, 2021, by Paul J. Mellett, Chief Financial Officer[233]