Enanta Pharmaceuticals(ENTA) - 2023 Q4 - Annual Report

Part I Business Enanta Pharmaceuticals is a biotechnology company focused on developing small molecule drugs for viral infections, primarily funded by MAVYRET/MAVIRET royalties and a recent royalty sale, to advance its wholly-owned pipeline in RSV, SARS-CoV-2, and HBV - The company's primary focus is on its wholly-owned research and development programs in virology, specifically targeting RSV, SARS-CoV-2, and HBV[21] - Enanta's main source of funding is ongoing royalties from its collaboration with AbbVie for the HCV drug MAVYRET/MAVIRET and a recent $200.0 million cash payment from a royalty sale agreement[18][19] Fiscal Year 2023 & 2022 Financial Snapshot | Metric | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Revenue | $79.2 million | $86.2 million | | Net Loss | $133.8 million | $121.8 million | - In April 2023, Enanta sold 54.5% of its future MAVYRET/MAVIRET royalties to an affiliate of OMERS for a $200.0 million cash payment. This sale covers royalties through June 30, 2032, subject to a cap. Consequently, Enanta will only receive 45.5% of these royalty payments going forward[29][77] - The company expects its existing cash, equivalents, marketable securities, and retained royalties to fund operations through fiscal 2027[20][286] Our Wholly-Owned Programs Enanta's internal pipeline focuses on virology, with clinical candidates EDP-938 and EDP-323 for RSV, EDP-235 for COVID-19 (seeking partnership), and EDP-514 for HBV (seeking combination partner) - RSV Program: - EDP-938 (N-protein inhibitor): Currently in two Phase 2 studies (RSVPEDs in pediatrics, RSVHR in high-risk adults). Data is expected in Q3 2024[22][24] - EDP-323 (L-protein inhibitor): Completed a Phase 1 study with positive results and initiated a Phase 2 challenge study in Q4 2023, with data also expected in Q3 2024[22][24] - COVID-19 Program (EDP-235): Following topline results from the Phase 2 SPRINT trial in May 2023, the company will not advance the candidate on its own and is seeking collaborations for further progression[50] - HBV Program (EDP-514): The core inhibitor has demonstrated safety and strong antiviral activity in two Phase 1b studies. Advancement of the program into a combination therapy regimen depends on accessing another compound through partnership[25][57] Our Out-Licensed Products and Royalty Agreement Enanta's revenue primarily comes from AbbVie's MAVYRET/MAVIRET royalties, with 54.5% of future royalties sold for $200 million covering July 2023 to June 2032 - Substantially all royalty revenue is derived from AbbVie's net sales of MAVYRET/MAVIRET, which contains Enanta's discovered protease inhibitor, glecaprevir[28] - The royalty structure consists of annually tiered, double-digit royalties on 50% of the calendar year net sales of MAVYRET/MAVIRET. The tiers reset to the lowest level each January 1[69] - In April 2023, the company sold 54.5% of its future MAVYRET/MAVIRET royalties for a $200.0 million cash payment. The sale is effective for royalties after June 30, 2023, through June 30, 2032, and is subject to a payment cap of 1.42 times the purchase price[77][294] Competition Enanta faces intense competition across all therapeutic areas from larger pharmaceutical companies and biotechs with greater resources - RSV: Competitors include Ark Biosciences and Pfizer (fusion inhibitors). Recently approved prophylaxis options include monoclonal antibodies (AstraZeneca/Sanofi's Beyfortus) and vaccines (Pfizer's ABRYSVO, GSK's AREXVY)[33][85] - COVID-19: Pfizer's PAXLOVID is an approved oral antiviral. Other companies with oral antivirals in Phase 3 include Shionogi, Atea, and Gilead[47][86] - HCV: AbbVie's MAVYRET/MAVIRET faces intense competition from Gilead's products (Epclusa®, Vosevi®, Harvoni®) and their authorized generic versions[87] - HBV: Many companies, including Vir, GSK, Arbutus, and Roche, are developing new drugs with the goal of finding a functional cure, often through combination regimens[89] Risk Factors The company faces significant risks including a need for additional funding, heavy reliance on MAVYRET/MAVIRET sales, uncertain pipeline development, third-party manufacturing reliance, and intellectual property challenges - The company requires substantial additional funding for its operations and product development, as it expects to have continuing operating losses for the foreseeable future[162] - Revenues are substantially dependent on AbbVie's success in selling MAVYRET/MAVIRET, and after June 30, 2023, 54.5% of these royalty payments are directed to OMERS, reducing Enanta's retained cash flow[15][164] - Clinical drug development is a lengthy, expensive process with uncertain outcomes. None of the company's proprietary candidates have advanced beyond Phase 2 trials, and trials could be delayed by factors like RSV seasonality or regulatory changes[183][184] - The company relies on third-party manufacturers, including some in China, for key intermediates and API, creating risks related to supply disruption, geopolitical issues, and quality control[215][221] - Enanta faces significant intellectual property risks, including the potential for patents to be invalidated and costly litigation, such as the current patent infringement suit against Pfizer regarding Paxlovid[230][235] Properties Enanta leases all its office and laboratory space in Watertown, MA, and is consolidating operations into a new 73,000 sq. ft. facility by December 2023 - The company leases all its office and laboratory space in Watertown, Massachusetts[275] - A new lease for a 73,000 sq. ft. facility at Arsenal on the Charles has been signed, with expected access for tenant improvements in December 2023. This new lease will consolidate operations and replace the current 500 Arsenal Street lease[275] Legal Proceedings The company is involved in a patent infringement lawsuit against Pfizer, Inc., filed in June 2022, alleging infringement by Paxlovid™ on its U.S. Patent No. 11,358,953 - In June 2022, Enanta filed a patent infringement lawsuit against Pfizer, Inc. in the U.S. District Court for the District of Massachusetts[488] - The suit alleges that Pfizer's COVID-19 treatment, Paxlovid™, infringes on Enanta's U.S. Patent No. 11,358,953, and seeks damages for this infringement[488] Part II Market for the Company's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Enanta's common stock trades on NASDAQ under "ENTA" and has shown volatility, with no cash dividends paid or anticipated - The company's common stock trades on The NASDAQ Global Select Market under the symbol "ENTA"[279] Fiscal 2023 Quarterly Stock Price Range | Quarter | High ($) | Low ($) | | :--- | :--- | :--- | | First | 54.20 | 39.60 | | Second | 62.06 | 38.16 | | Third | 41.45 | 19.91 | | Fourth | 22.15 | 11.03 | - Enanta has never declared or paid cash dividends and does not expect to in the foreseeable future[279] Management's Discussion and Analysis of Financial Condition and Results of Operations In fiscal 2023, Enanta's revenue decreased to $79.2 million, resulting in a net loss of $133.8 million, while a $200 million royalty sale bolstered cash, expected to fund operations through fiscal 2027 Results of Operations (in thousands) | | FY 2023 | FY 2022 | | :--- | :--- | :--- | | Total Revenue | $79,204 | $86,160 | | Research and development | $163,524 | $164,522 | | General and administrative | $52,887 | $45,482 | | Net loss | $(133,816) | $(121,755) | - The decrease in revenue was due to lower reported HCV sales by AbbVie. The weighted average royalty rate was approximately 11% in both fiscal 2023 and 2022[316] - R&D expenses decreased slightly by $1.0 million. A $6.8 million increase in virology program costs was offset by a $13.6 million decrease as the non-viral liver disease (NASH) program was wound down[319] - G&A expenses increased by $7.4 million, primarily due to higher legal fees related to the patent infringement suit against Pfizer[321] - The company received $200.0 million from a royalty sale agreement in April 2023, which is recorded as a liability on the balance sheet. This transaction also led to $5.1 million in non-cash interest expense in fiscal 2023[294][322] Quantitative and Qualitative Disclosures about Market Risk Enanta is exposed to interest rate risk on its $369.9 million cash and marketable securities, and foreign exchange risk from international operations, though both were immaterial in fiscal 2023 - The company is exposed to interest rate risk on its cash and marketable securities portfolio of $369.9 million, but does not expect a 1% change in rates to have a material impact[343] - Foreign exchange risk exists due to contracts with vendors outside the U.S. (primarily British Pound and Euro), but the impact was immaterial in fiscal 2023[344] Consolidated Financial Statements and Supplementary Data The audited consolidated financial statements for the fiscal year ended September 30, 2023, with an unqualified auditor opinion, reflect a $133.8 million net loss and highlight research and development accruals as a critical audit matter - The independent auditor, PricewaterhouseCoopers LLP, provided an unqualified (clean) opinion on the consolidated financial statements and internal control over financial reporting[386] - The auditor identified "Research and Development and Pharmaceutical Drug Manufacturing Accruals" as a Critical Audit Matter due to the significant management judgment involved in estimating these balances[393][394] Consolidated Balance Sheet Highlights (in thousands) | | Sept 30, 2023 | Sept 30, 2022 | | :--- | :--- | :--- | | Total Current Assets | $422,791 | $311,713 | | Total Assets | $462,275 | $375,410 | | Total Liabilities | $245,540 | $54,076 | | Total Stockholders' Equity | $216,735 | $321,334 | Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of September 30, 2023, with no material changes reported - Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[348] - Based on the COSO 2013 framework, management concluded that internal control over financial reporting was effective as of September 30, 2023[352] - There were no changes in internal control over financial reporting during the fourth quarter of 2023 that materially affected, or are reasonably likely to materially affect, internal controls[349] Part III Directors, Executive Compensation, Security Ownership, and Other Matters Information for these items is incorporated by reference from the company's separately filed Definitive Proxy Statement for its 2024 Annual Meeting of Stockholders - The detailed information for Items 10 through 14 is not included in this 10-K report but is incorporated by reference from the company's 2024 Proxy Statement[358][360][364][365] Equity Compensation Plan Information (as of Sept 30, 2023) | Plan Category | Securities to be issued upon exercise (thousands) | Weighted-average exercise price ($) | Securities available for future issuance (thousands) | | :--- | :--- | :--- | :--- | | Approved by security holders | 4,938 | 46.57 | 1,721 | Part IV Exhibits and Financial Statement Schedules This section lists all exhibits filed with the 10-K, including corporate governance documents and key material contracts like the AbbVie collaboration and OMERS royalty purchase agreements - This section provides a comprehensive list of all exhibits filed with the 10-K, including the Restated Certificate of Incorporation, Bylaws, and material contracts[369] - Key material contracts listed as exhibits include the Collaborative Development and License Agreement with AbbVie (and its amendments) and the Royalty Purchase Agreement with OCM Life Sciences Portfolio LP (an affiliate of OMERS)[369][370]