UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-35839

ENANTA PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	2834	04-3205099
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

500 Arsenal Street

Watertown, Massachusetts 02472

(617) 607-0800

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	ENTA	NASDAQ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of January 31, 2022, the registrant had 20,530,085 shares of common stock, $0.01 par value per share, outstanding.

PART I—FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

ENANTA PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except per share amounts)

	December 31,			September 30,
	2021			2021
Assets
Current assets:
Cash and cash equivalents	$	99,068		$	57,206
Short-term marketable securities		159,984			186,796
Accounts receivable		27,648			23,576
Prepaid expenses and other current assets		11,506			14,188
Income tax receivable		28,751			37,255
Total current assets		326,957			319,021
Long-term marketable securities		88,668			108,416
Property and equipment, net		5,435			5,943
Operating lease, right-of-use assets		18,834			4,711
Restricted cash		608			608
Other long-term assets		92			92
Total assets	$	440,594		$	438,791
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	7,841		$	9,540
Accrued expenses and other current liabilities		26,580			22,429
Operating lease liabilities		3,469			4,203
Total current liabilities		37,890			36,172
Operating lease liabilities, net of current portion		15,958			1,126
Series 1 nonconvertible preferred stock		1,506			1,506
Other long-term liabilities		856			558
Total liabilities		56,210			39,362
Commitments and contingencies (Note 11)
Stockholders' equity:
Common stock; $0.01 par value per share, 100,000 shares authorized; 20,506 and    20,238 shares issued and outstanding at December 31, 2021 and    September 30, 2021, respectively		205			202
Additional paid-in capital		366,724			351,033
Accumulated other comprehensive loss		(1,006	)		(382	)
Retained earnings		18,461			48,576
Total stockholders' equity		384,384			399,429
Total liabilities and stockholders' equity	$	440,594		$	438,791

The accompanying notes are an integral part of these consolidated financial statements.

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ENANTA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)

	Three Months Ended
	December 31,
	2021			2020
Royalty revenue	$	27,648		$	31,743
Operating expenses:
Research and development		48,549			36,665
General and administrative		9,508			7,377
Total operating expenses		58,057			44,042
Loss from operations		(30,409	)		(12,299	)
Other income (expense):
Other income (expense), net		258			677
Total other income (expense), net		258			677
Loss before income taxes		(30,151	)		(11,622	)
Income tax benefit		36			3,294
Net loss	$	(30,115	)	$	(8,328	)
Net loss per share:
Basic	$	(1.48	)	$	(0.41	)
Diluted	$	(1.48	)	$	(0.41	)
Weighted average shares outstanding:
Basic		20,388			20,093
Diluted		20,388			20,093

The accompanying notes are an integral part of these consolidated financial statements.

3

ENANTA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(unaudited)

(in thousands)

	Three Months Ended
	December 31,
	2021			2020
Net loss	$	(30,115	)	$	(8,328	)
Other comprehensive loss:
Net unrealized losses on marketable securities		(624	)		(439	)
Total other comprehensive loss		(624	)		(439	)
Comprehensive loss	$	(30,739	)	$	(8,767	)

The accompanying notes are an integral part of these consolidated financial statements.

4

ENANTA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands)

								Accumulated
					Additional			Other						Total
	Common Stock				Paid-In			Comprehensive			Retained			Stockholders'
	Shares		Amount		Capital			Income			Earnings			Equity
Balances at September 30, 2020		20,077	$	201	$	326,963		$	844		$	127,572		$	455,580
Exercise of stock options		33		—		833			—			—			833
Vesting of restricted stock units, net of    withholding		32		—		(534	)		—			—			(534	)
Stock-based compensation expense		—		—		4,883			—			—			4,883
Other comprehensive loss		—		—		—			(439	)		—			(439	)
Net loss		—		—		—			—			(8,328	)		(8,328	)
Balances at December 31, 2020		20,142	$	201		332,145			405			119,244			451,995

								Accumulated
					Additional			Other						Total
	Common Stock				Paid-In			Comprehensive			Retained			Stockholders'
	Shares		Amount		Capital			Income (Loss)			Earnings			Equity
Balances at September 30, 2021		20,238	$	202	$	351,033		$	(382	)	$	48,576		$	399,429
Exercise of stock options		248		2		10,407			—			—			10,409
Vesting of restricted stock units, net of    withholding		20		1		(778	)		—			—			(777	)
Stock-based compensation expense		—		—		6,062			—			—			6,062
Other comprehensive loss		—		—		—			(624	)		—			(624	)
Net loss		—		—		—			—			(30,115	)		(30,115	)
Balances at December 31, 2021		20,506	$	205	$	366,724		$	(1,006	)	$	18,461		$	384,384

The accompanying notes are an integral part of these consolidated financial statements

5

ENANTA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

	Three Months Ended
	December 31,
	2021			2020
Cash flows from operating activities
Net loss	$	(30,115	)	$	(8,328	)
Adjustments to reconcile net income to net cash provided by    operating activities:
Stock-based compensation expense		6,062			4,883
Depreciation and amortization expense		780			871
Premium paid on marketable securities		(474	)		(1,025	)
Amortization of premium on marketable securities		546			431
Change in operating assets and liabilities:
Accounts receivable		(4,072	)		(8,251	)
Prepaid expenses and other current assets		2,682			(4,496	)
Income tax receivable		8,504			3,189
Operating lease, right-of-use assets		1,436			1,152
Accounts payable		(1,663	)		575
Accrued expenses		4,206			(2,498	)
Operating lease liabilities		(1,461	)		(1,289	)
Other long-term liabilities		298			(104	)
Net cash used in operating activities		(13,271	)		(14,890	)
Cash flows from investing activities
Purchase of marketable securities		(62,902	)		(104,674	)
Proceeds from maturities and sale of marketable securities		108,766			87,417
Purchase of property and equipment		(363	)		(188	)
Net cash provided by (used in) investing activities		45,501			(17,445	)
Cash flows from financing activities
Proceeds from exercise of stock options		10,409			833
Payments for settlement of share-based awards		(777	)		(534	)
Net cash provided by financing activities		9,632			299
Net increase (decrease) in cash, cash equivalents and restricted cash		41,862			(32,036	)
Cash, cash equivalents and restricted cash at beginning of period		57,814			87,739
Cash, cash equivalents and restricted cash at end of period	$	99,676		$	55,703
Supplemental disclosure of non-cash information:
Purchases of fixed assets included in accounts payable and accrued expenses	$	46		$	62
Operating lease liabilities arising from obtaining right-of-use assets	$	15,559		$	1,907

The accompanying notes are an integral part of these consolidated financial statements.

6

ENANTA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(Amounts in thousands, except per share data)

1. Nature of the Business and Basis of Presentation

Enanta Pharmaceuticals, Inc. (the “Company”), incorporated in Delaware in 1995, is a biotechnology company that uses its 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. The Company discovered glecaprevir, the second of two protease inhibitors discovered and developed through its collaboration with AbbVie for the treatment of chronic hepatitis C virus, or HCV. Glecaprevir is co-formulated as part of AbbVie’s leading direct-acting antiviral, or DAA, combination treatment for HCV, which is marketed under the tradenames MAVYRET® (U.S.) and MAVIRET®(ex-U.S.) (glecaprevir/pibrentasvir). Royalties from the Company’s AbbVie collaboration and its existing financial resources provide funding to support the Company’s wholly-owned research and development programs, which are primarily focused on the following disease targets: respiratory syncytial virus (“RSV”), hepatitis B virus (“HBV”), SARS-CoV-2, and human metapneumovirus (“hMPV”).

The Company is subject to many of the risks common to companies in the biotechnology industry, including but not limited to, the uncertainties of research and development, competition from technological innovations of others, dependence on collaborative arrangements, protection of proprietary technology, dependence on key personnel and compliance with government regulation. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approvals, prior to commercialization. These efforts require significant amounts of capital, adequate personnel and infrastructure, and extensive compliance reporting capabilities.

COVID-19

In March 2020, the World Health Organization declared COVID-19 a global pandemic and countries worldwide implemented various measures to contain the spread of the SARS-CoV-2 virus. National, state and local governments in affected regions have implemented and may continue to implement varying safety precautions, including quarantines, border closures, increased border controls, travel restrictions, shelter-in-place orders and shutdowns, business closures, cancellations of public gatherings and other measures. The extent and severity of the impact on the Company’s business and clinical trials will be determined largely by the extent to which there are disruptions in the supply chains for its research and product candidates, delays in the conduct of ongoing and future clinical trials, or reductions in the number of patients accessing AbbVie’s HCV regimens, or any combination of those events. During the second half of fiscal 2021 and through December 31, 2021, AbbVie experienced a decline in HCV sales compared to prior years as a result of a reduction in patients accessing AbbVie’s HCV regimens due to the COVID-19 pandemic.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s 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 its variants and public health actions taken to contain it, as well as the cumulative economic impact of both of those factors.

Unaudited Interim Financial Information

The consolidated balance sheet at September 30, 2021 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The accompanying unaudited consolidated financial statements as of December 31, 2021 and for the three months ended December 31, 2021 and 2020 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2021.

In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of December 31, 2021 and results of operations for the three months ended December 31, 2021 and 2020 and cash flows for the three months ended December 31, 2021 and 2020, have been made. The results of operations for the three months ended December 31, 2021 are not necessarily indicative of the results of operations that may be expected for subsequent quarters or the year ending September 30, 2022.

7

The accompanying consolidated financial statements have been prepared in conformity with GAAP. All amounts in the consolidated financial statements and in the notes to the consolidated financial statements, except per share amounts, are in thousands unless otherwise indicated.

2. Summary of Significant Accounting Policies

For the Company’s Significant Accounting Policies, please refer to its Annual Report on Form 10-K for the fiscal year ended September 30, 2021. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, management’s judgments with respect to its revenue arrangements; valuation of stock-based awards and the accrual of research and development expenses. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. The future developments of the COVID-19 pandemic also may directly or indirectly impact the Company’s business. The Company has made estimates of the impact of COVID-19 in the Company’s consolidated financial statements as of December 31, 2021. Actual results could differ from the Company’s estimates.

Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes (Topic 740), which removes certain exceptions to the general principles in Topic 740 – Income Taxes and improves consistent application of and simplifies GAAP for other areas of Topic 740 by clarifying and amending existing guidance. This ASU became effective for the Company beginning October 1, 2021 and interim periods within that year. The adoption of the standard did not have a material impact on the Company's financial position or results of operations.

Recently Issued Accounting Pronouncements

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption. 

3. Fair Value of Financial Assets and Liabilities

The following tables present information about the Company’s financial assets and liabilities that were subject to fair value measurement on a recurring basis as of December 31, 2021 and September 30, 2021, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value:

	Fair Value Measurements at December 31, 2021 Using:
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Cash equivalents:
Money market funds	$	86,185	$	—	$	—	$	86,185
Marketable securities:
U.S. Treasury notes		74,707		—		—		74,707
Corporate bonds		—		112,546		—		112,546
Commercial paper		—		61,399		—		61,399
	$	160,892	$	173,945	$	—	$	334,837
Liabilities:
Series 1 nonconvertible preferred stock	$	—	$	—	$	1,506	$	1,506
	$	—	$	—	$	1,506	$	1,506

8

	Fair Value Measurements at September 30, 2021 Using:
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Cash equivalents:
Money market funds	$	54,819	$	—	$	—	$	54,819
Marketable securities:
U.S. Treasury notes		83,038		—		—		83,038
Corporate bonds		—		124,703		—		124,703
Commercial paper		—		87,471		—		87,471
	$	137,857	$	212,174	$	—	$	350,031
Liabilities:
Series 1 nonconvertible preferred stock	$	—	$	—	$	1,506		1,506
	$	—	$	—	$	1,506	$	1,506

During the three months ended December 31, 2021 and 2020, there were no transfers between Level 1, Level 2 and Level 3.

The outstanding shares of Series 1 nonconvertible preferred stock are measured at fair value. The fair value of these instruments was based on significant inputs not observable in the market, which represented a Level 3 measurement within the fair value hierarchy. The Company utilized a probability-weighted valuation model which takes into consideration various outcomes that may require the Company to transfer assets upon liquidation. Changes in the fair value of the Series 1 nonconvertible preferred stock are recognized in other income (expense), net in the consolidated statements of operations.

The recurring Level 3 fair value measurements of the Company’s outstanding Series 1 nonconvertible preferred stock using probability-weighted discounted cash flow include the following significant unobservable inputs:

	Range
	December 31,	September 30,
Unobservable Input	2021	2021
Probabilities of payout	0%-65%	0%-65%
Discount rate	4.25%	4.25%

The following table provides a rollforward of the aggregate fair values of the Company’s outstanding Series 1 nonconvertible preferred stock for which fair value is determined by Level 3 inputs:

	Series 1 Nonconvertible Preferred Stock
Balance, September 30, 2021	$	1,506
Change in fair value of nonconvertible preferred stock		—
Balance, December 31, 2021	$	1,506

4. Marketable Securities

As of December 31, 2021 and September 30, 2021, the fair value of available-for-sale marketable securities, by type of security, was as follows:

	December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Credit Losses		Fair Value
	(in thousands)
Corporate bonds	$	112,942	$	30	$	(426	)	$	—	$	112,546
Commercial paper		61,399		—		—			—		61,399
U.S. Treasury notes		74,933		2		(228	)		—		74,707
	$	249,274	$	32	$	(654	)	$	—	$	248,652

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	September 30, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Credit Losses		Fair Value
	(in thousands)
Corporate bonds	$	124,678	$	93	$	(68	)	$	—	$	124,703
Commercial paper		87,471		—		—			—		87,471
U.S. Treasury notes		83,061		3		(26	)		—		83,038
	$	295,210	$	96	$	(94	)	$	—	$	295,212

As of December 31, 2021 and September 30, 2021, marketable securities consisted of investments that mature within one year, with the exception of certain corporate bonds and U.S. Treasury notes, which have maturities between one and three years and an aggregate fair value of $88,668 and $108,416, respectively.

5. Accrued Expenses and Other Long-Term Liabilities

Accrued expenses and other current liabilities, as well as other long-term liabilities, consisted of the following as of December 31, 2021 and September 30, 2021:

	December 31,		September 30,
	2021		2021
	(in thousands)
Accrued expenses:
Accrued research and development expenses	$	6,447	$	6,062
Accrued payroll and related expenses		2,423