ENANTA PHARMACEUTICALS, INC. You should read the following discussion and analysis of financial condition and results of operations together with the section entitled "Selected Consolidated Financial Data" and our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and other parts of this Annual Report on Form 10-K contain forward-looking statements that involve risks and uncertainties, such as statements regarding our plans, objectives, expectations, intentions, and projections. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the "Risk Factors" section of this Annual Report on Form 10-K.
Overview
We are a biotechnology company that uses our robust, chemistry-driven approach
and drug discovery capabilities to become a leader in the discovery and
development of small molecule drugs for the treatment of viral infections and
liver diseases. We discovered glecaprevir, the second of two protease inhibitors
discovered and developed through our collaboration with AbbVie for the treatment
of chronic hepatitis C virus, or HCV. Glecaprevir is co-formulated as part of
AbbVie's leading brand of direct-acting antiviral, or DAA, combination treatment
for HCV, which is marketed under the tradenames MAVYRET® (
• Respiratory syncytial virus, or RSV, the most common cause of
bronchiolitis and pneumonia in young children and a significant cause of
respiratory illness in older adults, with estimates suggesting that
approximately 200,000 hospitalizations in the U.S. and EU occur each year
in children under the age of two and approximately 170,000
hospitalizations in these regions occur each year in adults over the age
of 65;
• Hepatitis B virus, or HBV, the most prevalent chronic hepatitis, which is
estimated by the World Health Organization to affect more than 250 million
individuals worldwide;
• SARS-CoV-2, the virus that causes COVID-19;
• Human metapneumovirus, or hMPV, a virus that causes respiratory infection
with symptoms similar to RSV; and
• Non-alcoholic steatohepatitis, or NASH, a liver disease estimated to
affect approximately 1.5% to 6.5% of the population in the developed world
(which translates to approximately 5 to 20 million individuals in the U.S.
alone).
We had
Our Wholly-Owned Programs
Our wholly-owned research and development programs are in virology, namely RSV, HBV, SARS-CoV-2 and hMPV, and in NASH, a non-viral liver disease:
• RSV: We have a clinical stage program for RSV, for which the lead asset is
EDP-938.
o In June 2019 , we announced positive topline results from our Phase 2a
human challenge study of EDP-938 in healthy adults infected with a
specific strain of RSV.
o Based on the results of the challenge study, we now have an ongoing
Phase 2b study of EDP-938, which is in adult outpatients with
community-acquired RSV infection. This study, named RSVP, is designed
to help us better understand the feasibility of this direct-acting
antiviral therapy. While many of the sites for the Northern Hemisphere
missed an unusually early RSV season in 2019-2020 and COVID-19 delayed
or prevented activation of some trial sites in the Southern
Hemisphere, the mitigation steps to manage the COVID-19 pandemic
significantly reduced the incidence of respiratory illnesses (other
than COVID-19) at the activated sites in that region's RSV season. We
are reactivating sites in North America and are adding sites in
several countries in Europe in preparation for the 2020-2021 winter
RSV season, and also plan to add sites in Asian countries in 2021.
While it is too early to know the extent of any impact of COVID-19 on
the levels of RSV infection in this season and our RSVP timelines,
assuming full study enrollment in the Northern Hemisphere for the
2020-2021 season, we would expect to have data in the third calendar
quarter of 2021.
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o Concurrent with the RSVP study, we plan to initiate two additional
Phase 2 RSV studies during the 2020-2021 Northern Hemisphere RSV
season, one in adult transplant patients who are immune-compromised
and one in pediatric patients. The adult transplant patient study,
named RSVTx, is a Phase 2b randomized, double-blind,
placebo-controlled study of EDP-938 to evaluate the effect of EDP-938
in adult hematopoietic cell transplant recipients with acute RSV
infection of the upper respiratory tract.
o The pediatric trial, named RSVPEDs, is a randomized, double-blind,
placebo-controlled Phase 2 dose ranging study of EDP-938 to evaluate
EDP-938 regimens in hospitalized or non-hospitalized infants and
children aged 28 days to 24 months, who test positive for RSV based on
an approved diagnostic assay.
o It is too early to know what impact, if any, COVID-19 may have on the
timelines for the RSVTx or RSVPEDs studies.
• HBV: Our lead candidate for the treatment of chronic infection with
hepatitis B virus, or HBV, is EDP-514, a novel core inhibitor that
displays potent anti-HBV activity in vitro at multiple points in the HBV
lifecycle. We have initiated clinical development of EDP-514 and have
ongoing studies of it in patients with chronic HBV.
o Our initial study was a randomized, double-blind, placebo-controlled
Phase 1a/1b study designed in two parts. Part 1 of the study was
completed successfully. Overall, EDP-514 demonstrated a favorable
safety profile in healthy subjects. Based on these results, we
initiated Part 2 of the study to evaluate EDP-514 in nuc-suppressed
patients, and subject to any future adverse impact of the COVID-19
pandemic, we expect to have topline results in the second calendar
quarter of 2021.
o In addition, in July 2020 , we initiated a separate Phase 1b study in
patients with chronic HBV infection who are not on HBV therapy and
have high levels of virus in their blood whom we refer to as viremic
HBV patients. Subject to any future adverse impact of the COVID-19
pandemic, we expect to have preliminary data from this study in the
second quarter of calendar 2021.
• COVID-19: Since we announced our newest discovery program for the
treatment of COVID-19, we have been leveraging our expertise in
direct-acting antiviral mechanisms to discover new compounds to treat
COVID-19, using a combination of screening and targeted drug design.
• hMPV: Since announcing our new drug discovery effort for hMPV in January
2020 , we have been optimizing nanomolar inhibitor leads against this virus
and are working toward identifying our first clinical candidate for this
indication.
• NASH: We currently have two compounds in clinical development for NASH,
EDP-305 and EDP-297, referred to as FXR agonists. These compounds, which
selectively bind to and activate the Farnesoid X receptor, or FXR,
represent a class of FXR agonists designed to take advantage of increased
binding interactions with this receptor.
o In July 2020 we initiated ARGON-2, a 72-week, Phase 2b, randomized,
double-blind, placebo-controlled study, with histological endpoints,
including fibrosis in 340 biopsy-confirmed NASH patients treated with
EDP-305 or placebo. We are using EDP-305 doses of 1.5 mg and 2.0 mg,
which we believe will favorably balance strong, efficacious target
engagement with tolerability.
o In September 2020 , we initiated a Phase 1 clinical study of EDP-297, a
highly potent and targeted follow-on FXR agonist, being developed for
the treatment of NASH. The Phase 1, randomized, double-blind,
placebo-controlled, first-in-human study is designed to assess the
safety, tolerability, and pharmacokinetics, including the effect of
food intake, of orally administered EDP-297 in approximately 74
healthy adult subjects. Two phases are planned: a single ascending
dose phase enrolling six cohorts, including a two-part food effect
cohort, and a multiple ascending dose phase enrolling three cohorts.
Subject to any future adverse impact of the COVID-19 pandemic, we
expect to have preliminary data from this study in the second calendar
quarter of 2021.
o At approximately the same time that we expect to have data from the
EDP-297 study, we expect that ARGON-2 will provide us an interim
analysis at 12 weeks of treatment on a subset of patients to enhance
our ability to prioritize our FXR agonist compounds and seek
opportunities more quickly for development of one or both of them in
combinations with other mechanisms for NASH with fibrosis.
o In addition, we have been pursuing research in other mechanisms that
may provide therapeutic benefit in NASH, any of which might be used in
combination with an FXR agonist or other therapies for NASH.
We have utilized our internal chemistry and drug discovery capabilities to generate all of our development-stage programs. We continue to invest substantial resources in research programs to discover back-up compounds as well as new compounds targeting different mechanisms of action, both in our disease areas of focus as well as potentially in other disease areas.
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Our Out-Licensed Products
Through our
Since
Financial Operations Overview
We are currently funding all research and development for our wholly-owned programs, which are targeted toward the discovery and development of novel compounds for the treatment of viral infections and liver diseases. In 2020, we had two Phase 2 studies ongoing for our wholly-owned programs in RSV and NASH and two Phase 1 studies in our HBV and NASH programs. We are also progressing other compounds into preclinical development in our RSV, HBV and NASH programs as well as pursuing drug discovery efforts in hMPV and COVID-19.
During 2020, we experienced disruptions in our business due to the spread of
COVID-19. Specifically, we paused recruitment of our Phase 2 ARGON-2 study in
NASH and Part 2 of our Phase 1a/1b study in nuc-suppressed HBV patients in
As a result of our clinical development programs, as well as efforts to advance other compounds into preclinical development, we expect to incur greater expenses in fiscal 2021 than in 2020 as we continue to advance our RSV, NASH, HBV, hMPV, and SARS CoV-2 programs. However, if the COVID-19 pandemic slows down our research and development programs, it will reduce our spending in those areas in the near term.
We are funding our operations primarily through royalty payments received under our collaboration agreement with AbbVie and our existing cash, cash equivalents, and short-term and long-term marketable securities. Our revenue is currently dependent on royalty payments we receive from AbbVie on its sales of MAVYRET/MAVIRET. During 2020, royalty revenues declined as compared to the prior year due primarily to the worldwide impact of COVID-19 on treated patient volumes as well as competitive pricing pressures in select markets. Given the uncertainty regarding the level of AbbVie's future MAVYRET/MAVIRET sales that will generate our royalty revenue as well as increases in our future expenditures for the advancement of our internally developed compounds, we expect our expenses will exceed our revenues in fiscal 2021.
Revenue
Our revenue is derived from our collaboration agreement with AbbVie. Substantially all our royalty revenues are now derived from the sales of MAVYRET/MAVIRET, an 8-week treatment regimen that is pan-genotypic.
Under the terms of our AbbVie agreement, we earn annually tiered, double-digit
royalties on the 50% of AbbVie's net sales of MAVYRET/MAVIRET allocated to
glecaprevir, the protease inhibitor we discovered. Beginning with each
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The following table is a summary of revenue recognized for the years ended
Years Ended September 30,
2020 2019 2018
(in thousands)
AbbVie agreement:
Royalties $ 122,473 $ 205,197 $ 191,625
Milestones - - 15,000
Total revenue $ 122,473 $ 205,197 $ 206,625
AbbVie Agreement
We currently receive annually tiered, double-digit royalties per protease
inhibitor product on AbbVie's net sales allocable to either of our
collaboration's protease inhibitor products. Under the terms of our AbbVie
agreement, as amended in
Since all of our research performance obligations under the AbbVie agreement
were concluded by
We expect all of our revenue in 2021 to be generated from our collaboration agreement with AbbVie.
Internal Programs
As our internal product candidates are currently in Phase 1 or Phase 2 clinical development, we have not generated any revenue from our own product sales and do not expect to generate any revenue from product sales derived from these product candidates for at least the next several years.
Operating Expenses
The following table summarizes our operating expenses for the years ended
Years Ended September 30,
2020 2019 2018
(in thousands)
Research and development $ 136,756 $ 142,213 $ 94,856
General and administrative 27,356 26,246 23,441
Total operating expenses $ 164,112 $ 168,459 $ 118,297 Research and Development Expenses
Research and development expenses consist of costs incurred to conduct basic research, such as the discovery and development of novel small molecules as therapeutics, as well as any external expenses of preclinical and clinical development activities. We expense all costs of research and development as incurred. These expenses consist primarily of:
• personnel costs, including salaries, related benefits and stock-based
compensation for employees engaged in scientific research and development
functions;
• third-party contract costs relating to research, formulation,
manufacturing, preclinical study and clinical trial activities;
• laboratory consumables;
• allocated facility-related costs; and
• third-party license fees.
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Project-specific expenses reflect costs directly attributable to our clinical development candidates and preclinical candidates nominated and selected for further development. Remaining research and development expenses are reflected in research and drug discovery, which represents early-stage drug discovery programs. At any given time, we typically have several active early stage research and drug discovery projects. Our internal resources, employees and infrastructure are not directly tied to any individual research or drug discovery project and are typically deployed across multiple projects. As such, we do not report information regarding costs incurred for our early-stage research and drug discovery programs on a project-specific basis. We expect that our research and development expenses will continue to increase in the future as we advance our research and development programs.
Our research and drug discovery programs are at early stages; therefore, the successful development of our product candidates is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly for each product candidate and are difficult to predict. Given the uncertainty associated with clinical trial enrollments, particularly in the context of the COVID-19 pandemic, and the risks inherent in the development process, we are unable to determine the duration and completion costs of the current or future clinical trials of our product candidates or if, or to what extent, we will generate revenue from the commercialization and sale of any of our product candidates. We anticipate that we will make determinations as to which development programs to pursue and how much funding to direct to each program on an ongoing basis in response to the preclinical and clinical success and prospects of each product candidate, as well as ongoing assessments of the commercial potential of each product candidate.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs, which include salaries, related benefits and stock-based compensation, of our executive, finance, business and corporate development and other administrative functions. General and administrative expenses also include travel expenses, allocated facility-related costs not otherwise included in research and development expenses, directors and officers liability insurance premiums, and professional fees for auditing, tax, and legal services and patent expenses.
We expect that general and administrative expenses will increase in the future primarily due to the ongoing expansion of our operating activities in support of our own research and development programs, as well as potential additional costs associated with operating a growing publicly traded company.
Other Income (Expense), Net
Other income (expense), net consists of interest and investment income and the change in fair value of our outstanding Series 1 nonconvertible preferred stock. Interest income consists of interest earned on our cash equivalents and short-term and long-term marketable securities balances as well as interest earned for any refunds received from tax authorities. Investment income consists of the amortization or accretion of any purchased premium or discount on our short-term and long-term marketable securities. The change in fair value of our Series 1 nonconvertible preferred stock relates to the remeasurement of these financial instruments from period to period as these instruments may require a transfer of assets because of the liquidation preference features of the underlying instrument.
Income Tax (Expense) Benefit
Income tax (expense) benefit for the years ended
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in
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Research and Development and Pharmaceutical Drug Manufacturing Accruals
We have entered into various contracts with third parties to perform research and development and pharmaceutical drug manufacturing. These include contracts with contract research organizations ("CROs"), clinical manufacturing organizations ("CMOs"), testing laboratories, research hospitals and not-for-profit organizations and other entities to support our research and development activities. We expense the cost of each contract as the work is performed. When billing terms under these contracts do not coincide with the timing of when the work is performed, we are required to make estimates of our outstanding obligation as of period end to those third parties. Our accrual estimates are based on a number of factors, including our knowledge of the research and development programs and pharmaceutical drug manufacturing activities associated with timelines, invoicing to date, and the provisions in the contract. Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period. Actual results could differ from our estimates.
Income Taxes
Income taxes are provided for tax effects of transactions reported in the consolidated financial statements and consist of income taxes currently due plus deferred income taxes related to timing differences between the basis of certain assets and liabilities for financial statement reporting purposes and the basis for income tax reporting purposes. Deferred taxes are determined based on the difference between the financial reporting and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in income tax expense.
A valuation allowance is provided if, based upon the weight of available
evidence, it is more likely than not that some or all of the deferred tax assets
will not be realized. At each balance sheet date, we assess the likelihood that
deferred tax assets will be realized and recognize a valuation allowance if it
is more likely than not that all or some portion of the deferred tax assets will
not be realized. The realization of deferred tax assets is dependent upon the
ability to generate future taxable income during the periods in which those
temporary differences become deductible. Assessment of a potential recovery of
deferred tax assets requires significant judgment and is evaluated by estimating
the future taxable income expected and considering prudent and feasible tax
planning strategies. As of
Uncertain tax positions represent tax positions for which reserves have been established. We account for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more likely than not to be sustained, the tax position is then assessed to determine the amount to be recognized in the financial statements. The amount that may be recognized is the largest amount that has a greater than 50% likelihood of being realized upon ultimate settlement. Income tax expense includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.
Results of Operations
Comparison of Years Ended
Years Ended September 30,
2020 2019 2018
(in thousands)
Revenue $ 122,473 $ 205,197 $ 206,625
Research and development 136,756 142,213 94,856
General and administrative 27,356 26,246 23,441
Other income (expense):
Interest and investment income, net 6,471 8,819 4,852
Change in fair value of Series 1
nonconvertible preferred stock 149 - (59 )
Income tax (expense) benefit (1,149 ) 826 (21,165 )
Net income (loss) (36,168 ) 46,383 71,956
Revenue. We recognized revenue of
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We recognized revenue of
Our weighted average royalty rate on the portion of AbbVie's sales allocable to
our protease inhibitor products was approximately 13%, 13% and 12% during the
years ended
Our royalty revenues eligible to be earned in the future will depend on AbbVie's HCV market share, the pricing of the MAVYRET/MAVIRET regimen, the impact of the COVID-19 pandemic on treated patient volumes and the number of patients treated. In addition, at the beginning of each calendar year (the second quarter of our fiscal year), our royalty rate resets to the lowest tier for each of our royalty-bearing products licensed to AbbVie. (See Note 7 to our consolidated financial statements for further details on our royalty rate tier.)
Research and development expenses.
Years Ended September 30,
2020 2019 2018
(in thousands)
R&D programs:
Virology $ 85,856 $ 75,087 $ 40,047
Liver disease 45,001 66,892 54,691
Other 5,899 234 118
Total research and development expenses
Research and development expense decreased by
Research and development expense increased by
We expect that our research and development expenses will continue to increase in the future as we conduct more clinical development activities.
General and administrative expenses. General and administrative expenses
increased by
General and administrative expenses increased by
We expect our general and administrative expenses will continue to increase in the future as our operations grow to support further research and development.
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Other income (expense), net. Changes in components of other income (expense), net were as follows:
Interest and investment income, net. Interest and investment income, net,
decreased by
Interest and investment income, net, increased by
Change in fair value of Series 1 nonconvertible preferred stock. We recognized
other income for the year ended
Income tax (expense) benefit. We recorded income tax expense of
We recorded an income tax benefit of
Income tax benefit (expense) for all periods presented was attributable to the tax provision on earnings of our operations, all of which are domestic.
Liquidity and Capital Resources
During fiscal 2020, 2019 and 2018, we funded our operations with cash flows
generated from operations. At
The following table shows a summary of our cash flows for each of the years
ended
Years Ended September 30,
2020 2019 2018
(in thousands)
Cash provided by (used in):
Operating activities $ 7,088 $ 71,418 $ 29,220
Investing activities 19,830 (86,664 ) (35,402 )
Financing activities 8,983 2,574 4,409
Net increase (decrease) in cash and cash
equivalents $ 35,901 $ (12,672 ) $ (1,773 ) Net cash provided by operating activities
Cash provided by operating activities was
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Cash provided by operating activities was
Net cash provided by (used in) investing activities
The increase of
The increase of
Net cash provided by financing activities
The increase in cash provided by financing activities of
The decrease in cash provided by financing activities of
Funding Requirements
As of
Our future capital requirements are difficult to forecast and will depend on many factors, including:
• the amount of royalties generated from MAVYRET/MAVIRET sales under our
existing collaboration with AbbVie;
• any continuing impact of the COVID-19 pandemic on the numbers of treated
HCV patients;
• the number and characteristics of our research and development programs;
• the scope, progress, results and costs of researching and developing any
of our product candidates on our own, including conducting advanced
clinical trials;
• delays and additional expense in our clinical trials as a result of the
COVID-19 pandemic;
• the cost of manufacturing our product candidates for clinical development
and any products we successfully commercialize independently;
• opportunities to in-license or otherwise acquire new technologies,
therapeutic candidates and therapies;
• the timing of, and the costs involved in, obtaining regulatory approvals
for any product candidates we develop independently;
• the cost of commercialization activities, if any, of any product
candidates we develop independently that are approved for sale, including
marketing, sales and distribution costs;
• the timing and amount of any sales of our product candidates, if any, or
royalties thereon;
• our ability to establish new collaborations, licensing or other
arrangements, if any, and the financial terms of such arrangements;
• the costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing patents, including any litigation costs and the
outcomes of any such litigation; and
• potential fluctuations in foreign currency exchange rates.
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We do not believe that inflation had a material effect on our business, financial condition or results of operations in the last three fiscal years. If our costs were to become subject to significant inflationary pressures, we could not offset such higher costs through revenue increases because our revenues are substantially outside of our control. Our inability to do so could harm our business, financial condition and results of operations.
Off-Balance Sheet Arrangements
We do not engage in any off-balance sheet financing activities. We do not have any interest in entities referred to as variable interest entities, which include special purpose entities and other structured finance entities.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is set forth in Note 2 to the consolidated financial statements included in this Annual Report on Form 10-K.
Contractual Obligations and Commitments
We lease space in
The first lease, located at
The second lease, located at
The following table summarizes our contractual obligations atSeptember 30, 2020 and the effect such obligations are expected to have on our liquidity and cash flow in future periods: Payments Due by Period 2026 and 2021 2022-2023 2024-2025 later Total (in thousands) Operating leases$ 4,654 $ 3,544 $ 519 $ -$ 8,717
As of
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