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, 2020

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, 2021, the registrant had 20,171,852 shares of common stock, $0.01 par value per share, outstanding.

ENANTA PHARMACEUTICALS, INC.

FORM 10-Q — Quarterly Report

For the Quarterly Period Ended December 31, 2020

TABLE OF CONTENTS

		Page
PART I—FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements	3
	Unaudited Consolidated Balance Sheets	3
	Unaudited Consolidated Statements of Operations	4
	Unaudited Consolidated Statements of Comprehensive Income (Loss)	5
	Unaudited Consolidated Statements of Stockholders’ Equity	6
	Unaudited Consolidated Statements of Cash Flows	7
	Unaudited Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	25
Item 4.	Controls and Procedures	25
PART II—OTHER INFORMATION
Item 1A.	Risk Factors	26
Item 6.	Exhibits	51
Signatures		52

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Form 10-Q, contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about overall trends, royalty revenue trends, research and clinical development plans, liquidity and capital needs and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions. These forward-looking statements are based on our management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and our management’s beliefs and assumptions. These forward-looking statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Form 10-Q may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and discussed elsewhere in this Form 10-Q. These forward-looking statements speak only as of the date of this Form 10-Q. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Form 10-Q.

2

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,
	2020		2020
Assets
Current assets:
Cash and cash equivalents	$	55,095	$	87,131
Short-term marketable securities		331,101		299,518
Accounts receivable		31,743		23,492
Prepaid expenses and other current assets		28,003		26,696
Total current assets		445,942		436,837
Long-term marketable securities		18,462		32,634
Property and equipment, net		7,788		8,596
Deferred tax assets		345		345
Operating lease, right-of-use assets		7,775		7,020
Restricted cash		608		608
Other long-term assets		92		92
Total assets	$	481,012	$	486,132
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	6,305	$	5,737
Accrued expenses and other current liabilities		11,542		14,159
Operating lease liabilities		5,197		4,261
Total current liabilities		23,044		24,157
Operating lease liabilities, net of current portion		3,520		3,838
Series 1 nonconvertible preferred stock		1,479		1,479
Other long-term liabilities		974		1,078
Total liabilities		29,017		30,552
Commitments and contingencies (Note 11)
Stockholders' equity:
Common stock; $0.01 par value per share, 100,000 shares authorized; 20,142 and    20,077 shares issued and outstanding at December 31, 2020 and    September 30, 2020, respectively		201		201
Additional paid-in capital		332,145		326,963
Accumulated other comprehensive income		405		844
Retained earnings		119,244		127,572
Total stockholders' equity		451,995		455,580
Total liabilities and stockholders' equity	$	481,012	$	486,132

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

3

ENANTA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)

	Three Months Ended
	December 31,
	2020			2019
Royalty revenue	$	31,743		$	52,570
Operating expenses:
Research and development		36,665			32,778
General and administrative		7,377			6,921
Total operating expenses		44,042			39,699
Income (loss) from operations		(12,299	)		12,871
Other income (expense):
Other income (expense), net		677			2,076
Total other income (expense), net		677			2,076
Income (loss) before income taxes		(11,622	)		14,947
Income tax (expense) benefit		3,294			(1,504	)
Net income (loss)	$	(8,328	)	$	13,443
Net income (loss) per share:
Basic	$	(0.41	)	$	0.68
Diluted	$	(0.41	)	$	0.65
Weighted average shares outstanding:
Basic		20,093			19,751
Diluted		20,093			20,773

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

4

ENANTA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

(in thousands)

	Three Months Ended
	December 31,
	2020			2019
Net income (loss)	$	(8,328	)	$	13,443
Other comprehensive income:
Net unrealized gains (losses) on marketable securities, net of    tax of $0 and ($28)		(439	)		88
Total other comprehensive income (loss), net of tax		(439	)		88
Comprehensive income (loss)	$	(8,767	)	$	13,531

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

5

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, 2019		19,703	$	197	$	298,409		$	146	$	163,740	$	462,492
Exercise of stock options		76		1		2,305			—		—		2,306
Vesting of restricted stock units, net of    withholding		31		—		(1,140	)		—		—		(1,140	)
Stock-based compensation expense		—		—		5,098			—		—		5,098
Other comprehensive income, net of tax		—		—		—			88		—		88
Net income		—		—		—			—		13,443		13,443
Balances at December 31, 2019		19,810	$	198	$	304,672		$	234	$	177,183	$	482,287

								Accumulated
					Additional			Other						Total
	Common Stock				Paid-In			Comprehensive			Retained			Stockholders'
	Shares		Amount		Capital			Income (Loss)			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

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

6

ENANTA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

	Three Months Ended
	December 31,
	2020			2019
Cash flows from operating activities
Net income (loss)	$	(8,328	)	$	13,443
Adjustments to reconcile net income to net cash provided by    operating activities:
Stock-based compensation expense		4,883			5,098
Depreciation and amortization expense		871			904
Deferred income taxes		—			657
Premium paid on marketable securities		(1,025	)		(988	)
(Accretion) amortization of (discount) premium on marketable securities		431			(330	)
Other non-cash items		—			(2	)
Change in operating assets and liabilities:
Accounts receivable		(8,251	)		(1,257	)
Prepaid expenses and other current assets		(1,307	)		1,146
Operating lease, right-of-use assets		1,152			520
Accounts payable		575			(179	)
Accrued expenses		(2,498	)		(5,989	)
Operating lease liabilities		(1,289	)		(593	)
Other long-term liabilities		(104	)		(67	)
Net cash provided by (used in) operating activities		(14,890	)		12,363
Cash flows from investing activities
Purchase of marketable securities		(104,674	)		(117,461	)
Proceeds from maturities and sale of marketable securities		87,417			80,748
Purchase of property and equipment		(188	)		(488	)
Net cash used in investing activities		(17,445	)		(37,201	)
Cash flows from financing activities
Proceeds from exercise of stock options		833			2,306
Payments for settlement of share-based awards		(534	)		(1,140	)
Net cash provided by financing activities		299			1,166
Net decrease in cash, cash equivalents and restricted cash		(32,036	)		(23,672	)
Cash, cash equivalents and restricted cash at beginning of period		87,739			51,838
Cash, cash equivalents and restricted cash at end of period	$	55,703		$	28,166
Supplemental disclosure of non-cash operating and investing information:
Purchases of fixed assets included in accounts payable and accrued expenses	$	62		$	216
Operating lease liabilities arising from obtaining right-of-use assets	$	1,907		$	1,131

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

7

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, human metapneumovirus (“hMPV”) and non-alcoholic steatohepatitis (“NASH”).

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 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 virus. National, state and local governments in affected regions have implemented and may continue to implement 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 2020 and into fiscal 2021, AbbVie experienced a decline in HCV sales compared to prior years as a result of a decline in patients accessing AbbVie’s HCV regimens due to the COVID-19 pandemic.

The full extent to which the COVID-19 pandemic will continue to 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, public health actions taken to contain the pandemic and mitigate its economic effects and to roll out vaccinations worldwide, as well as the cumulative economic impact of all of these factors.

Unaudited Interim Financial Information

The consolidated balance sheet at September 30, 2020 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, 2020 and for the three months ended December 31, 2020 and 2019 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, 2020.

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, 2020 and results of operations for the three months ended December 31, 2020 and 2019 and cash flows for the three months ended December 31, 2020 and 2019, have been made. The results of operations for the three months ended December 31, 2020 are not necessarily indicative of the results of operations that may be expected for subsequent quarters or the year ending September 30, 2021.

8

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, 2020. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) 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 Series 1 nonconvertible preferred stock and stock-based awards; the accrual of research and development expenses, and the accounting for income taxes, including uncertain tax positions and the valuation of net deferred tax assets. Estimates are periodically reviewed in light of changes in circumstances and other facts. The future developments of the COVID-19 pandemic which may directly or indirectly impact the Company’s business include quarantines, border closures, increased border controls, travel restrictions, shelter-in-place orders and shutdowns, business closures, cancellations of public gatherings and other measures. The Company has made estimates of the impact of COVID-19 in the Company’s consolidated financial statements as of December 31, 2020. Actual results could differ from the Company’s estimates.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) (“ASU 2016-13”), which introduces a new methodology for accounting for credit losses on financial instruments, including available-for-sale debt securities. The guidance establishes a new “expected loss model” that requires entities to estimate current expected credit losses on financial instruments by using all practical and relevant information. Any expected credit losses are to be reflected as allowances rather than reductions in the amortized cost of available-for-sale debt securities. The Company adopted ASU 2016-13 during the three months ended December 31, 2020. For available-for-sale debt securities with unrealized losses, the Company measures credit losses in a manner similar to previous U.S. GAAP, except that losses will be recognized as allowances instead of reductions in the amortized cost of the debt securities. The adoption of ASU 2016-13 did not have a material impact on the consolidated financial statements.  

Recently Issued Accounting Pronouncements 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This standard simplifies various aspects of the income tax accounting guidance in ASC 740, including requirements related to hybrid tax regimes, the tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of entities not subject to tax, the intra-period tax allocation exception to the incremental approach, ownership changes in investments, changes from a subsidiary to an equity method investment, interim-period accounting for enacted changes in tax law, and the year-to-date loss limitation in interim-period tax accounting. This amendment is effective for the Company in the fiscal year beginning October 1, 2021; however, early adoption is permitted. The Company is currently in the process of evaluating the impact that ASU 2019-12 may have on its consolidated financial statements.

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.

9

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, 2020 and September 30, 2020, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value:

	Fair Value Measurements at December 31, 2020 Using:
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Cash equivalents:
Money market funds	$	44,817	$	—	$	—	$	44,817
Marketable securities:
U.S. Treasury notes		91,851		—		—		91,851
Commercial paper		—		138,415		—		138,415
Corporate bonds		—		119,297		—		119,297
	$	136,668	$	257,712	$	—	$	394,380
Liabilities:
Series 1 nonconvertible preferred stock	$	—	$	—	$	1,479	$	1,479
	$	—	$	—	$	1,479	$	1,479

	Fair Value Measurements at September 30, 2020 Using:
	Level 1		Level 2		Level 3		Total
	(in thousands)
Assets:
Cash equivalents:
Money market funds	$	81,502	$	—	$	—	$	81,502
Marketable securities:
U.S. Treasury notes		94,208		—		—		94,208
Commercial paper		—		93,909		—		93,909
Corporate bonds		—		144,035		—		144,035
	$	175,710	$	237,944	$	—	$	413,654
Liabilities:
Series 1 nonconvertible preferred stock	$	—	$	—	$	1,479		1,479
	$	—	$	—	$	1,479	$	1,479

During the three months ended December 31, 2020 and 2019, 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 exercise. 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	2020	2020
Probabilities of payout	0%-60%	0%-60%
Discount rate	4.25%	4.25%

10

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, 2020	$	1,479
Change in fair value of nonconvertible preferred stock		—
Balance, December 31, 2020	$	1,479

4. Marketable Securities

As of December 31, 2020 and September 30, 2020, the fair value of available-for-sale marketable securities, by type of security, was as follows:

	December 31, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Credit Losses		Fair Value
	(in thousands)
Corporate bonds	$	118,765	$	537	$	(5	)	$	—	$	119,297
Commercial Paper		138,415		—		—			—		138,415
U.S. Treasury notes		91,593		261		(3	)		—		91,851
	$	348,773	$	798	$	(8	)	$	—	$	349,563

	September 30, 2020
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Credit Losses		Fair Value
	(in thousands)
Corporate bonds	$	143,274	$	775	$	(14	)	$	—	$	144,035
Commercial Paper		93,909		—		—			—