ENANTA PHARMACEUTICALS, INC. The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the unaudited consolidated
financial statements and notes thereto included elsewhere in this Quarterly
Report on Form 10-Q, or Form 10-Q, and the audited consolidated financial
statements and notes thereto for our fiscal year ended
The Enanta name and logo are our trademarks. This Form 10-Q also includes trademarks, trade names and service marks of other persons. All other trademarks, trade names and service marks appearing in this Form 10-Q are the property of their respective owners.
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® (
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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 on average each year RSV leads to 3
million hospitalizations globally in children under 5 years old and 177,000
hospitalizations in the
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SARS-CoV-2, the virus that causes COVID-19, as well as other coronaviruses;
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Hepatitis B virus, or HBV, the most prevalent chronic hepatitis, which is
estimated by the
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Human metapneumovirus, or hMPV, a virus that is the second most common cause of lower respiratory tract infections in children behind RSV, with reinfection occurring throughout life.
We had
Our Wholly-Owned Programs
Our primary wholly-owned research and development programs are in virology, namely RSV, SARS-CoV-2, HBV and hMPV:
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RSV: We have a clinical stage program for RSV, for which the lead asset is
EDP-938, a potent N-protein inhibitor of activity of both major subgroups of
RSV. EDP-938 has Fast Track designation from the
o
EDP-938 - N-protein Inhibitor Candidate: We have studied EDP-938 in two Phase 2
studies that were designed to be proof-of-concept and exploratory to understand
better viral response in the context of RSV infection. These studies were
conducted in otherwise healthy adults. The first study was the challenge study,
which was reported out in mid-2019. The second study, known as RSVP, was
designed to confirm the challenge study findings in an adult outpatient
population with community-acquired RSV infection in order to provide us
additional information on symptom alleviation and viral load decline. In
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greatest potential to show optimal efficacy in high-risk populations, as these patients have reduced RSV immunity which manifests in a higher and longer duration of viral load and greater disease severity, allowing a bigger window to realize the full potential of EDP-938. We are continuing to evaluate EDP-938 in high-risk populations in the following ongoing and planned clinical studies, including pediatric patients, adult hematopoietic stem cell recipients and high-risk adults, all of which have the most significant unmet need:
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RSVPEDs: We have initiated a Phase 2 RSV study called RSVPEDs in pediatric
patients. In this dose-ranging, randomized, double-blind, placebo-controlled
study, we plan to enroll 90 infants and children aged 28 days to 36 months with
RSV-associated respiratory tract infection, including both hospitalized and
non-hospitalized patients
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RSVTx: We have also initiated a Phase 2b study called RSVTx in adult
hematopoietic cell transplant recipients with acute RSV infection and symptoms
of upper respiratory tract infection. We plan to enroll approximately 200 adult
subjects 18 to 75 years of age, within 72 hours of symptom onset,
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RSV-High Risk: Later this year we are planning to initiate another Phase 2b
study in high-risk adults, including the elderly and those
o
The prevalence of RSV has not yet returned to typical levels nor is it following any normal seasonal pattern since the COVID-19 pandemic began. The future incidence and timing of RSV infections remains highly unpredictable and thus may continue to impact enrollment in our ongoing RSV trials.
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EDP-323 - L-protein Inhibitor Candidate: Our newest clinical candidate for RSV is a novel oral, direct-acting antiviral selectively targeting the RSV L-protein, a viral RNA-dependent RNA polymerase enzyme that contains multiple enzymatic activities required for RSV replication. EDP-323 has shown nanomolar potency against RSV-A and RSV-B in vitro and is not expected to have cross-resistance to other classes of inhibitors. EDP-323 has the potential to be used alone or in combination with other RSV mechanisms, such as EDP-938, to broaden the treatment window or addressable patient populations. We plan to initiate a Phase 1 study of EDP-323 in the second half of calendar 2022.
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COVID-19: We have been leveraging our expertise in protease inhibitors to discover new compounds specifically designed to target the SARS-CoV-2 virus and potentially other coronaviruses. Our first clinical candidate for COVID-19 is EDP-235, an oral inhibitor of coronavirus 3CL protease, also referred to as the main coronavirus protease, or Mpro, which has been granted Fast Track designation from the FDA. In addition to SARS-CoV-2, EDP-235 has potent antiviral activity against other human coronaviruses, enabling the potential for a pan-coronavirus treatment, including possibly coronaviruses that may infect human populations in the future.
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EDP-235 - Protease Inhibitor Candidate - In
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HBV: Our lead clinical candidate for the treatment of chronic infection with hepatitis B virus, or HBV, is EDP-514, a core inhibitor that displays potent anti-HBV activity in vitro at multiple points in the HBV lifecycle. Our goal is to develop a
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combination therapy approach, including existing approved treatments such as a nucleoside reverse transcriptase inhibitor (NUC), with EDP-514 and one or more other mechanisms, which could lead to a functional cure for patients with chronic HBV infection.
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EDP-514 - Core Inhibitor Candidate - In
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hMPV: Since announcing our new drug discovery effort for human metapneumovirus,
or hMPV, in
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.
The following table summarizes our product development pipeline in our virology and liver disease programs:
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Our Royalty Revenue Collaboration
Our royalty revenue is generated through our
Glecaprevir is the protease inhibitor we discovered that was developed by AbbVie
in a fixed-dose combination with its NS5A inhibitor, pibrentasvir, for the
treatment of HCV. This patented combination, currently marketed under the brand
names MAVYRET® (
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COVID-19 Update
The current COVID-19 pandemic has presented substantial challenges for public health and economies around the world, and it is affecting our clinical trials, our royalty revenues received from AbbVie, and our business operations. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and public health actions taken to contain it and roll out vaccinations worldwide, as well as the cumulative economic impact of all of these factors. Additionally, as new, more infectious variants emerge, such as the Omicron variants, it is possible that the impact of the pandemic on our business may continue or change.
We are continuing to assess and manage the potential impact of the COVID-19 pandemic on our business and operations, including our expenses, clinical trials and royalty revenue. While the majority of our employees were working from home during the first 18 months of the pandemic, as we prepare to transition back to working on site, the majority of our employees are now working hybrid schedules while our scientific personnel are working full-time in our laboratories.
Our third-party contract manufacturing partners continue to operate at or near normal levels producing drug substance and drug product for our research and clinical development programs, so we currently do not anticipate any material interruptions in our supply chain, but it is possible that may change. In addition, the mitigation steps to manage the COVID-19 pandemic in the past two years have suppressed the global incidence of RSV and respiratory illnesses other than COVID-19, which has adversely affected enrollment in our RSV studies. We also continue to experience a variety of more minor interruptions and complications in our clinical trials, such as limitations in clinical trial supplies other than drug product, as well as local changes in COVID-19 impacts at individual trial sites. While our ongoing trials are proceeding, it is unclear what further impact, if any, the COVID-19 pandemic may have on the timeline for enrollment and/or completion of all or any of our clinical trials.
Regarding our royalty revenue, we have continued to report lower royalty revenue
during our fiscal 2021 and into 2022 as compared to periods ending before
While the evolving impact of COVID-19 will likely continue to affect aspects of
our business, including those described above, we remain capable of funding our
research and development programs for the next two years with the current level
of royalty revenue and our existing cash and short-term and long-term
investments, which totaled
Please see Item 1A "Risk Factors" in this Form 10-Q for additional discussion of risks and potential risks of the COVID-19 pandemic on our business, results of operations and financial condition.
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. We currently have two Phase 2 studies ongoing for our wholly-owned program in RSV and one Phase 1 study in our SARS-CoV-2 program. We are also progressing other compounds into preclinical development in our RSV, SARS-CoV-2 and HBV programs, as well as pursuing drug discovery efforts in hMPV.
During fiscal 2021 and into 2022, our business has been impacted by the COVID-19 pandemic. Specifically, AbbVie continues to report lower HCV revenues as a result of lower treated patient volumes. In addition, we have experienced slower enrollment in the clinical studies in our RSV program as a result of suppression of the incidence of respiratory illnesses globally (other than COVID-19) due to mitigation measures intended to suppress SARS-CoV-2.
As a result of the timing of our clinical and preclinical development programs, we expect our research and development expenses to fluctuate from period to period. However, in the coming years, we expect our research and development expenses generally to increase as our wholly-owned programs advance.
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. Absent a significant increase in the level of AbbVie's MAVYRET/MAVIRET sales that generate our royalty revenue and, given the planned levels of our future expenditures for the advancement of our internally developed compounds, we expect to continue to have net losses in fiscal 2022.
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.
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The following table summarizes our operating expenses for the three and nine
months ended
Operating Expenses
Three Months Ended Nine Months Ended
June 30, June 30,
2022 2021 2022 2021
(in thousands)
Research and development $ 39,090 $ 46,994 $ 129,726 $ 125,165
General and administrative 12,929 8,477 32,913 24,180
Total operating expenses $ 52,019 $ 55,471 $ 162,639 $ 149,345 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:
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personnel costs, including salaries, related benefits and stock-based compensation for employees engaged in scientific research and development functions;
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third-party contract costs relating to research, formulation, manufacturing, preclinical study and clinical trial activities;
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laboratory consumables;
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allocated facility-related costs; and
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third-party license fees.
Project-specific expenses reflect costs directly attributable to our clinical development candidates and preclinical candidates nominated and selected for further development. The 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 and development programs are in the 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, for 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 research and development programs, as well as potential additional costs associated with operating a growing publicly traded company.
Other Income, Net
Other income, net consists of interest and investment income and any 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 on 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
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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 Benefit
The income tax benefit is generally the result of federal and state tax benefits, releases of tax reserves or tax refunds due as a result of tax losses generated in the period which are able to be carried back to prior years under the Coronavirus Aid, Relief and Economic Security Act ("CARES Act"). The benefit of the CARES Act is not available beginning in fiscal 2022.
Results of Operations
Comparison of the Three Months Ended
Three Months Ended
June 30,
2022 2021
(in thousands)
Royalty revenue $ 19,479 $ 21,624
Research and development 39,090 46,994
General and administrative 12,929 8,477
Other income, net 393 439
Income tax benefit 447 9,384
Royalty Revenue
Our revenue consists of royalties received under our collaboration agreement
with AbbVie, substantially all of which are now derived from sales of
MAVYRET/MAVIRET. We are entitled to annually tiered, double-digit, per-product
royalties on 50% of all net sales of MAVYRET/MAVIRET. Our royalty revenues
eligible to be earned in the future will potentially fluctuate depending on
AbbVie's HCV market share, the pricing of the MAVYRET/MAVIRET regimen and the
number of patients treated with that regimen. Beginning with each
We recognized royalty revenue of
Research and development expenses
Three Months Ended
June 30,
2022 2021
(in thousands)
R&D programs:
Virology $ 34,042 $ 34,947
Liver disease (non-viral) 4,540 11,442
Other 508 605
Total research and development expenses
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The level of research and development expenses for the three months ended
In the near term, our clinical trial expenses could fluctuate if the impact of the COVID-19 pandemic continues through calendar 2022 and negatively impacts patient recruitment and monitoring. In the coming years, we expect our research and development expenses to increase as our wholly-owned programs advance, subject to any longer-term impact of the COVID-19 pandemic.
General and administrative expenses
General and administrative expenses increased by
Other income, net
Other income, net, decreased less than
Income tax benefit
For the three months ended
Results of Operations
Comparison of the Nine Months Ended
Nine Months Ended
June 30,
2022 2021
(in thousands)
Royalty Revenue $ 65,843 $ 73,499
Research and development 129,726 125,165
General and administrative 32,913 24,180
Other income, net 942 1,661
Income tax benefit 447 19,788
Royalty Revenue
We recognized royalty revenue of
Research and development expenses
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Nine Months Ended
June 30,
2022 2021
(in thousands)
R&D programs:
Virology $ 112,476 $ 89,416
Liver disease (non-viral) 15,641 33,527
Other 1,609 2,222
Total research and development expenses
The level of research and development expenses for the nine months ended
General and administrative expenses
General and administrative expenses increased by
Income tax benefit
For the nine months ended
Liquidity and Capital Resources
We fund our operations with cash flows from our royalty revenue and our existing
financial resources. At
The following table shows a summary of our cash flows for the nine months endedJune 30, 2022 and 2021: Nine Months Ended June 30, 2022 2021 (in thousands) Cash provided by (used in): Operating activities$ (69,248 ) $ (48,975 ) Investing activities 26,666 (35,692 ) Financing activities 17,103 2,137
Net decrease in cash, cash equivalents and restricted cash
Net cash used in operating activities
Cash used in operating activities was
For the foreseeable future, we expect to continue to incur substantial costs associated with research and development for our internally developed programs.
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Net cash provided by (used in) investing activities
Cash provided by investing activities was
Net cash provided by financing activities
Cash provided by financing activities was
Funding requirements
As of
Our future capital requirements are difficult to forecast and will depend on many factors, including:
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the amount of royalties generated from MAVYRET/MAVIRET sales under our existing collaboration with AbbVie;
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any continuing impact of the COVID-19 pandemic on the numbers of treated HCV patients;
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the number and characteristics of our research and development programs;
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the scope, progress, results and costs of researching and developing any of our product candidates on our own, including conducting advanced clinical trials;
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delays and additional expense in our clinical trials as a result of the COVID-19 pandemic continuing;
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the cost of manufacturing our product candidates for clinical development and any products we successfully commercialize independently;
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our ability to establish new collaborations, licensing or other arrangements, if any, and the financial terms of such arrangements;
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opportunities to in-license or otherwise acquire new technologies and therapeutic candidates;
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costs associated with prosecuting our patent infringement suit regarding use of a coronavirus 3CL protease inhibitor in Paxlovid, Pfizer's antiviral treatment for COVID-19;
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the timing of, and the costs involved in, obtaining regulatory approvals for any product candidates we develop independently;
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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;
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the timing and amount of any sales of our product candidates, if any, or royalties thereon;
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the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents, including any litigation costs and the outcomes of any such litigation; and
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potential fluctuations in foreign currency exchange rates.
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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.
Contractual Obligations and Commitments
In our 2021 Form 10-K Part II, Item 7, Management's Discussion and Analysis of Financial Conditions and Results of Operations, under the heading "Contractual Obligations and Commitments", we have described our commitments and contingencies.
During the nine months ended
We also entered into a new lease agreement for lab and office space in
The
Total estimated minimum lease payments for the next 5 years and thereafter under
our existing facility and leased equipment agreements and subject to the
completion of the to-be-constructed facility at Arsenal on the Charles are
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with accounting
principles generally accepted in
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 Form 10-Q.
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