ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 September 30, 2022 included in our Annual Report on Form 10-K for that fiscal year, which is referred to as our 2022 Form 10-K. Please refer to our note regarding forward-looking statements on page 2 of this Form 10-Q, which is incorporated herein by this reference.
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, with an emphasis on treatments for viral infections. We discovered glecaprevir, the second of two protease inhibitors discovered and developed through our collaboration with AbbVie for the treatment of chronic infection with 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® (U.S.) and MAVIRET® (ex-U.S.) (glecaprevir/pibrentasvir). Our royalties from our AbbVie collaboration provide us funding to support our wholly-owned research and development programs, which are primarily focused on the following disease targets:
•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 U.S. in adults over the age of 65;
•SARS-CoV-2, the virus that causes COVID-19, as well as other coronaviruses, with estimates suggesting that COVID-19 has caused over 300,000 deaths and over 2.4 million hospitalizations in the U.S. in 2022 through April 29th, with comparable, or at least significant, impact in other major populations of the world and with new variants still emerging;
•Human metapneumovirus, or hMPV, an important, relatively recently identified cause of respiratory tract infections, particularly in children, the elderly and immunocompromised individuals, with symptoms similar to RSV; and
•Hepatitis B virus, or HBV, the most prevalent chronic hepatitis, which is estimated by the World Health Organization to affect close to 300 million individuals worldwide.
Since fiscal 2020, we have reported a net loss. Our ability to generate revenue sufficient to achieve profitability will depend on the successful further development and commercialization of our products. We generated revenue of $41.4 million and $46.4 million for the six months ended March 31, 2023 and 2022, respectively, and incurred net losses of $66.6 million and $63.7 million for those same periods. As of March 31, 2023, we had an accumulated deficit of $139.8 million. We expect to continue to incur net losses for the foreseeable future. As a result, we may need additional funding for expenses related to our operating activities, including general and administrative expenses and research and development expenses.
Because of the numerous risks and uncertainties associated with clinical development and commercialization, we are unable to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain profitability. Until such time, if ever, as we can generate substantial revenue sufficient to achieve profitability, we expect to finance our operations through a combination of equity offerings, non-dilutive financings, collaborations, strategic alliances or licensing agreements. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we are unable to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the further development and commercialization efforts of one or more of our products, or may be forced to reduce or terminate our operations.
15
As of March 31, 2023, we had $225.1 million in cash, cash equivalents and short-term and long-term marketable securities. In April 2023, we entered into a royalty sale agreement with an affiliate of OMERS, which paid us a $200.0 million cash purchase price in exchange for 54.5% of our future quarterly royalty payments on net sales of MAVYRET/MAVIRET, beginning with the payment for the quarter ending September 30, 2023, through June 30, 2032, subject to a cap on aggregate payments equal to 1.42 times the purchase price. We believe that our existing cash, cash equivalents and short-term and long-term marketable securities, as well as the $200.0 million payment received in our April 2023 royalty sale transaction and our continuing portion of HCV royalties, will enable us to fund our operating expenses and capital expenditure requirements into calendar 2026. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “Liquidity and Capital Resources.”
Our Wholly-Owned Programs
Our primary wholly-owned research and development programs are in virology, namely RSV, SARS-CoV-2, hMPV and HBV:
•RSV: We have a clinical stage program for RSV, with two compounds in clinical trials – EDP-938 and EDP-323. EDP-938, which has Fast Track designation from the U.S. Food and Drug Administration, or FDA, is a potent N-protein inhibitor of activity of both major subgroups of RSV, referred to as RSV-A and RSV-B. It has been investigated in a Phase 2a challenge study and is currently in three ongoing Phase 2 studies, each in a different patient population. EDP-323, an inhibitor of the RSV L-protein with Fast Track designation from the FDA, is currently in a Phase 1 clinical study with data expected in the second quarter of 2023.
oEDP-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 studies 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 in an adult outpatient population with community-acquired RSV infection that had a data read out in May 2022. EDP-938 has demonstrated a favorable safety profile, consistent with that observed in approximately 500 subjects exposed to EDP-938 to date. We believe that EDP-938 has the 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. Based on the efficacy and growing safety profile 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 other high-risk adults, all of which have significant unmet need:
▪RSVPEDs: RSVPEDs is a Phase 2 study in pediatric patients. This dose-ranging, randomized, double-blind, placebo-controlled study, will evaluate multiple ascending doses for five days in two age cohorts to determine safety, tolerability, and pharmacokinetics, as well as a second part evaluating the selected dose for antiviral activity.
▪RSVTx: RSVTx is a Phase 2b study in adult hematopoietic cell transplant recipients with acute RSV infection and symptoms of upper respiratory tract infection. The study is designed for approximately 200 adult subjects who must be 18 to 75 years of age. Subjects receive EDP-938 or placebo for 21 days and are monitored for the incidence of lower respiratory tract complications within 28 days of enrollment.
▪RSVHR: RSVHR is a Phase 2b study in high-risk adults, including those who are older than 65 years of age and those who have asthma, chronic obstructive pulmonary disease, or COPD, or congestive heart failure. Approximately 180 patients will be treated with EDP-938 or placebo for five days and evaluated for 28 days thereafter. The primary endpoint of the study is time to resolution of RSV lower respiratory tract disease symptoms.
oThe three ongoing studies are expected to continue through at least 2023 and we are monitoring RSV epidemiology to determine the impact on trial enrollment and timing for the data readouts.
oEDP-323 - L-protein Inhibitor Candidate: Our second 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 sub-nanomolar potency against RSV-A and RSV-B in vitro and has protected mice in a dose-dependent manner from RSV infection as demonstrated by both virological and pathological endpoints. EDP-323 is not expected to have cross-resistance to other classes of inhibitors and 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 initiated
16
a Phase 1 clinical study of EDP-323 in October 2022 and expect to report data from this study in the second quarter of 2023.
•COVID-19: We have leveraged our expertise in developing protease inhibitors to discover new compounds specifically designed to target the SARS-CoV-2 virus and potentially other coronaviruses.
oEDP-235 - Protease Inhibitor Candidate: Our lead clinical candidate for COVID-19, EDP-235, is an oral inhibitor of the coronavirus 3CL protease, also referred to as 3CLpro or the main coronavirus protease, or Mpro, which has been granted Fast Track designation by the FDA. In addition to nanomolar activity against all SARS-CoV-2 variants tested to date, 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.
▪Phase 1 Study – In July 2022, we completed a Phase 1 study and reported positive topline results. This first-in-human, randomized, double-blind, placebo-controlled study enrolled healthy volunteers to evaluate the safety, tolerability, and pharmacokinetics, or PK, of oral EDP-235 in single ascending doses, and multiple ascending doses, for seven days, and the effect of food. Data from the Phase 1 study demonstrated EDP-235 was generally safe and well-tolerated in doses up to 400mg for seven days and adverse events were infrequent and mild. Strong exposure multiples over the EC90 (a measure of potency, specifically the concentration of drug that results in 90% inhibition of viral replication in vitro) were observed without the need for ritonavir boosting and its associated drug-drug interactions. Specifically, EDP-235 200mg and 400mg taken once daily with food resulted in mean trough plasma levels at steady state that were 7-fold and 13-fold over the plasma-protein-adjusted EC90 for the Omicron variant of SARS-CoV-2. Furthermore, EDP-235 is projected to have four times higher drug levels in lung tissue compared to plasma.
▪Phase 2 Study – In May 2023, we reported topline results from SPRINT (SARS-CoV-2 Protease Inhibitor Treatment), a Phase 2 clinical trial of EDP-235. This randomized, double-blind, placebo-controlled study evaluated the safety, tolerability, antiviral activity and clinical symptoms of EDP-235 compared to placebo in approximately 230 non-hospitalized, symptomatic patients with mild to moderate COVID-19 who were not at increased risk for developing severe disease. Patients were eligible to participate if they had symptoms for five days or less and had not received a SARS-CoV-2 vaccine or been infected with SARS-CoV-2 within 90 days of enrollment. Patients received either 200mg or 400mg EDP-235 or placebo orally with food once daily for five days. EDP-235 met the primary endpoint of the trial and was generally safe and well-tolerated. A dose-dependent improvement in symptoms was observed with EDP-235 treatment compared to placebo, which achieved statistical significance (p<0.05) in the 400mg treatment group at multiple time points, starting as early as one day after the first dose. In a prespecified population consisting of patients enrolled within 3 days of symptom onset, a statistically significant improvement was observed with EDP-235 at 400mg at all time points. While no difference was observed in time to improvement of 14 targeted COVID-19 symptoms, an analysis of a subset of these symptoms showed a 2-day shorter time to improvement in patients receiving EDP-235 400mg who were enrolled within 3 days of symptom onset (p<0.01). No effect on virologic endpoints as measured in the nose was detected due to the rapid viral decline in the placebo arm of this highly immunologically-experienced, standard risk population. An additional analysis of patients with a baseline viral load greater than 5 logs showed a decline of 0.4 log at day 3 in both EDP-235 treatment arms compared to placebo.
oPLpro inhibitor program: We are also researching additional targets and compounds that might be eligible to be designated for clinical development for the treatment of SARS-CoV-2. In January 2023, we announced a new research program focused on the discovery and development of inhibitors of the SARS-CoV-2 papain-like protease (PLpro), for the oral treatment of COVID-19. PLpro is an essential enzyme, which, along with the 3CL protease (3CLpro, or Mpro), plays an important role in viral replication and also acts to suppress the innate immune response. Inhibition of PLpro blocks viral replication and has the potential to restore the dysregulated immune response to SARS-CoV-2 infection. As this mechanism is distinct from 3CL protease inhibition, it has the potential to be used alone or in combination with 3CL protease inhibitors such as EDP-235 or other compounds to provide a range of treatment regimens for different patient populations suffering from COVID-19.
•hMPV: Human metapneumovirus, or hMPV, is a virus that is a significant cause of respiratory tract infections, or RTIs, particularly in children, the elderly and immunocompromised individuals. It is the second most common cause of lower respiratory tract infections in children, with symptoms similar to RSV. The viral structure and lifecycle of hMPV are also similar to RSV.
17
ohMPV/RSV Dual-Inhibitor: In January 2023, we announced a new research program with broader spectrum antiviral activity, targeting hMPV and RSV with a single agent, which we refer to as a dual-inhibitor. In preclinical studies, these dual-inhibitors maintained activity against multiple genotypes and strains of hMPV and RSV in a range of cell types, and blocked replication in a dose-dependent manner in respective mouse models of each virus. We expect to select a dual hMPV/RSV clinical candidate in the fourth quarter of 2023.
•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 combination therapy approach, including existing approved treatments such as a nucleoside reverse transcriptase inhibitor, or NUC, with EDP-514 and one or more other mechanisms, which could lead to a functional cure for patients with chronic HBV infection. We are in the process of seeking other compounds that could be developed with EDP-514 for such a treatment regimen.
oEDP-514 - Core Inhibitor Candidate: Final data from two Phase 1b studies of EDP-514 demonstrate the compound is safe and potent in two different chronic HBV patient populations – those who have a high viral load and those who are on a treatment with a nucleoside reverse transcriptase inhibitor. Based on these data, we remain convinced that EDP-514, which has Fast Track designation, has the potential to be a best-in-class core inhibitor for HBV.
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 program:
*Fixed-dose antiviral combination contains glecaprevir and AbbVie’s NS5A inhibitor, pibrentasvir. Marketed by AbbVie as MAVYRET® (U.S.) and MAVIRET® (ex-U.S.).
Our Royalty Revenue Collaboration
Our royalty revenue is generated through our Collaborative Development and License Agreement with AbbVie, under which we have discovered and out-licensed to AbbVie two protease inhibitor compounds that have been clinically tested, manufactured, and commercialized by AbbVie as part of its combination regimens for HCV.
Glecaprevir is the HCV protease inhibitor we discovered that was developed by AbbVie in a fixed-dose combination with its NS5A inhibitor, pibrentasvir, for the treatment of chronic HCV. This patented combination, currently marketed under the brand names MAVYRET® (U.S.) and MAVIRET® (ex-U.S.), is referred to in this report as MAVYRET/MAVIRET. The first protease inhibitor
18
developed through this collaboration, paritaprevir, is part of Abbvie’s initial HCV regimens, which have been almost entirely replaced by MAVYRET/MAVIRET. Since August 2017, substantially all of our royalty revenue has been derived from AbbVie’s net sales of MAVYRET/MAVIRET. Our ongoing royalty revenues from this regimen consist of annually tiered, double-digit, per-product royalties on 50% of the calendar year net sales of the 2-DAA glecaprevir/pibrentasvir combination in MAVYRET/MAVIRET. The annual royalty tiers return to the lowest tier for sales on and after each January 1.
COVID-19 Update
The COVID-19 pandemic had an impact on our royalty revenues received from AbbVie. We continued to report lower royalty revenue during fiscal 2022 and in the first half of fiscal 2023 as compared to periods ending before March 2020. The pandemic resulted in a decline in patient volumes, HCV diagnoses, HCV prescriptions and sales of MAVYRET/MAVIRET.
Please see Item 1A “Risk Factors” in our 2022 Form 10-K 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 with an emphasis on treatments for viral infections. As of the date of this report, we are conducting three Phase 2 studies and one Phase 1 study for a different compound in our RSV program and one Phase 2 study in our SARS-CoV-2 program. We are also progressing other compounds into preclinical development.
As a result of the timing of our clinical and preclinical development programs, we expect our research and development expenses will 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.
To date, we have funded 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. We believe that our existing cash, cash equivalents and short-term and long-term marketable securities, as well as the $200.0 million payment received in our April 2023 royalty sale agreement and our continuing portion of HCV royalties, will enable us to fund our operating expenses and capital expenditure requirements into calendar 2026.
Revenue
Our revenue is primarily derived from our collaboration agreement with AbbVie and AbbVie’s sales of MAVYRET/MAVIRET, an 8-week treatment regimen for chronic HCV. During the first half of fiscal 2023, we also generated $1.0 million of license revenue from an upfront payment related to a license agreement for one of the antibacterial compounds we are no longer developing.
The following table is a summary of revenue recognized for the three and six months ended March 31, 2023 and 2022:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Six Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
|
2023 |
|
|
2022 |
|
|
|
(in thousands) |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
Royalty revenue |
|
$ |
17,795 |
|
|
$ |
18,716 |
|
|
$ |
40,380 |
|
|
$ |
46,364 |
|
License revenue |
|
|
— |
|
|
|
— |
|
|
|
1,000 |
|
|
|
— |
|
Total revenue |
|
$ |
17,795 |
|
|
$ |
18,716 |
|
|
$ |
41,380 |
|
|
$ |
46,364 |
|
AbbVie Agreement
To date, we received annually tiered, double-digit royalties on our protease inhibitor product glecaprevir included in AbbVie’s net sales of MAVYRET/MAVIRET. Under the terms of our AbbVie agreement, as amended in October 2014, 50% of AbbVie’s net sales of MAVYRET/MAVIRET are allocated to glecaprevir. Beginning with each January 1, the cumulative net sales of MAVYRET/MAVIRET start at zero for purposes of calculating the tiered royalties.
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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Operating Expenses
Our operating expenses are comprised of research and development expenses and general and administrative expenses.
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;
•allocated facility-related costs;
•laboratory consumables; and
•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. Our 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 increase in the future as we advance our research and development programs. To date we have not identified any significant impact of inflation on spending in research and development, but it is uncertain whether there will be inflationary impacts in future periods.
Our research and drug discovery and development 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, professional fees for auditing, tax, and legal services and patent expenses.
We expect that general and administrative expenses will continue to 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 our patent litigation seeking damages for infringement of one of our COVID-19 patents. To date we have not experienced a significant impact of inflation on spending in general and administrative, but we anticipate inflation may impact future periods.
Other Income (Expense)
Other income (expense) consists of interest and investment income, net 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 and interest earned for any refunds received from tax authorities. Investment income consists of the amortization or accretion of any purchased premium or discount, respectively, 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.
20
Income Tax Expense
Income tax expense is based on our best estimate of taxable net losses, applicable income tax rates, net research and development tax credits and carryforwards, net operating loss carrybacks, changes in valuation allowance estimates and deferred income taxes.
Results of Operations
Comparison of the Three Months Ended March 31, 2023 and 2022
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|
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Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
|
|
(in thousands) |
|
Royalty revenue |
|
$ |
17,795 |
|
|
$ |
18,716 |
|
Research and development |
|
|
43,468 |
|
|
|
42,087 |
|
General and administrative |
|
|
13,778 |
|
|
|
10,476 |
|
Interest and investment income, net |
|
|
1,837 |
|
|
|
255 |
|
Income tax expense |
|
|
(44 |
) |
|
|
— |
|
Net loss |
|
$ |
(37,658 |
) |
|
$ |
(33,592 |
) |
Royalty revenue
We recognized royalty revenue of $17.8 million during the three months ended March 31, 2023 as compared to $18.7 million during the three months ended March 31, 2022. The $0.9 million decrease in royalty revenue was due to AbbVie’s lower reported HCV sales as compared to the comparable period in 2022.
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 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.
Research and development expenses
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Three Months Ended March 31, |
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|
2023 |
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|
2022 |
|
|
|
(in thousands) |
|
R&D programs: |
|
|
|
|
|
|
Virology |
|
$ |
41,384 |
|
|
$ |
35,912 |
|
Liver disease (non-viral) |
|
|
515 |
|
|
|
5,547 |
|
Other |
|
|
1,569 |
|
|
|
628 |
|
Total research and development expenses |
|
$ |
43,468 |
|
|
$ |
42,087 |
|
The level of research and development expenses for the three months ended March 31, 2023 increased by $1.4 million compared to the same period in 2022. The increase in costs of $5.5 million in our virology program was primarily due to an increase in clinical trial costs and an increase in headcount, partially offset by a decrease in manufacturing costs due to timing of our studies in our virology programs. The costs in our non-viral liver disease program decreased by $5.0 million as we wound down our non-alcoholic steatohepatitis, or NASH, program, which is now substantially complete.
We expect our research and development expenses will increase in the future as we conduct more clinical development activities.
General and administrative expenses
General and administrative expenses increased by $3.3 million for the three months ended March 31, 2023 compared to the same period in 2022. The increase was due to an increase in stock-based compensation expense and an increase in legal fees related to our patent infringement suit against Pfizer.
Interest and investment income, net
Interest and investment income, net, increased $1.6 million for the three months ended March 31, 2023, as compared to the same period in 2022. The increase was due to changes in interest rates year over year.
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Comparison of the Six Months Ended March 31, 2023 and 2022
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|
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Six Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
|
|
(in thousands) |
|
Royalty revenue |
|
$ |
40,380 |
|
|
$ |
46,364 |
|
License revenue |
|
|
1,000 |
|
|
|
— |
|
Research and development |
|
|
84,370 |
|
|
|
90,636 |
|
General and administrative |
|
|
26,474 |
|
|
|
19,984 |
|
Interest and investment income, net |
|
|
2,830 |
|
|
|
549 |
|
Income tax expense |
|
|
(10 |
) |
|
|
— |
|
Net loss |
|
$ |
(66,644 |
) |
|
$ |
(63,707 |
) |
Royalty revenue
We recognized royalty revenue of $40.4 million during the six months ended March 31, 2023 as compared to $46.4 million during the six months ended March 31, 2022. The $6.0 million decrease in royalty revenue was due to AbbVie’s lower reported HCV sales as compared to the comparable period in 2022.
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 and the number of patients treated.
License revenue
We also recognized $1.0 million of license revenue during the six months ended March 31, 2023 related to an upfront payment received for a license agreement for one of the antibacterial compounds we are no longer developing.
Research and development expenses
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|
|
|
|
|
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|
|
Six Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
|
|
(in thousands) |
|
R&D programs: |
|
|
|
|
|
|
Virology |
|
$ |
80,142 |
|
|
$ |
78,434 |
|
Liver disease (non-viral) |
|
|
1,366 |
|
|
|
11,101 |
|
Other |
|
|
2,862 |
|
|
|
1,101 |
|
Total research and development expenses |
|
$ |
84,370 |
|
|
$ |
90,636 |
|
The level of research and development expenses for the six months ended March 31, 2023 decreased by $6.3 million compared to the same period in 2022. The increase in costs of $1.7 million in our virology program was primarily due to an increase in clinical trial costs and an increase headcount partially offset by a decrease in manufacturing costs due to the timing and scope of clinical trials. The costs in our non-viral liver disease program decreased by $9.7 million as we wound down our non-alcoholic steatohepatitis, or NASH, program, which is now substantially complete.
General and administrative expenses
General and administrative expenses increased by $6.5 million for the six months ended March 31, 2023 compared to the same period in 2022. The increase was due to an increase in stock-based compensation expense and an increase in legal fees related to our patent infringement suit against Pfizer.
Interest and investment income, net
Interest and investment income, net, increased $2.3 million for the six months ended March 31, 2023, as compared to the same period in 2022. The increase was due to changes in interest rates year over year.
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Liquidity and Capital Resources
We fund our operations with cash flows from our royalty revenue and our existing financial resources. At March 31, 2023, our principal sources of liquidity were cash, cash equivalents and short-term and long-term marketable securities totaling $225.1 million.
The following table shows a summary of our cash flows for the six months ended March 31, 2023 and 2022:
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Six Months Ended March 31, |
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2023 |
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2022 |
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(in thousands) |
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Cash provided by (used in): |
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Operating activities |
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$ |
(49,424 |
) |
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$ |
(39,646 |
) |
Investing activities |
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80,334 |
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|
|
10,446 |
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Financing activities |
|
|
(1,726 |
) |
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12,983 |
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Net increase (decrease) in cash, cash equivalents and restricted cash |
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$ |
29,184 |
|
|
$ |
(16,217 |
) |
Net cash used in operating activities
Cash used in operating activities was $49.4 million for the six months ended March 31, 2023 as compared to cash used in operating activities of $39.6 million for the same period in 2022. Our cash used in operating activities increased $9.8 million, driven by timing of our research and development payments year-over-year as well as a federal tax refund of $8.5 million received in 2022.
For the foreseeable future, we expect to continue to incur substantial costs associated with research and development for our internally developed programs.
Net cash provided by investing activities
Cash provided by investing activities was $80.3 million for the six months ended March 31, 2023 as compared to cash provided by investing activities of $10.4 million for the same period in 2022. Our cash provided by investing activities increased $69.9 million, driven by timing of purchases, sales and maturities of marketable securities in 2023 compared to 2022, offset by increased capital expenditures in the first half of fiscal 2023 for the buildout of our 400 Talcott Avenue expansion.
Net cash provided by (used in) financing activities
Cash used in financing activities was $1.7 million for the six months ended March 31, 2023 as compared to cash provided by financing activities of $13.0 million for the same period in 2022. Our cash provided by financing activities decreased $14.7 million, driven by a decrease in proceeds from stock option exercises and an increase in payments for settlement of share-based awards.
Funding requirements
As of March 31, 2023, we had $225.1 million in cash, cash equivalents and short-term and long-term marketable securities. We believe that our existing cash, cash equivalents and short-term and long-term marketable securities as of March 31, 2023, as well as the $200.0 million received in our April 2023 royalty sale transaction and cash flows from our continuing portion of HCV royalties will be sufficient to meet our anticipated cash requirements into calendar 2026. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.
On March 10, 2023, Silicon Valley Bank (“SVB”), which held less than 5% of our cash and marketable securities, was closed by the California Department of Financial Protection and Innovation and the Federal Deposit Insurance Corporation (“FDIC”) was appointed as SVB’s receiver. We have initiated the transfer of all of our cash, cash equivalents and short-term and long-term marketable securities previously held at SVB to a larger financial institution.
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;
•the scope, progress, results and costs of researching and developing our product candidates on our own, including conducting advanced clinical trials;
•the number and characteristics of our research and development programs;
•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;
•opportunities to in-license or otherwise acquire new technologies and therapeutic candidates;
•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;
•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;
•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.
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 April 2023, we entered into a royalty sale agreement with an affiliate of OMERS, pursuant to which we were paid a $200.0 million cash purchase price in exchange for 54.5% of our future quarterly royalty payments on net sales of MAVYRET/MAVIRET, beginning with the payment for the quarter ending September 30, 2023, through June 30, 2032, subject to a cap on aggregate payments equal to 1.42 times the purchase price.
In our third fiscal quarter, we will record the $200.0 million up-front payment on our consolidated balance sheets as a cash asset with offsetting short and long-term liabilities. Beginning in our third fiscal quarter, we will account for all HCV royalties as royalty revenue in our consolidated statements of operations and we will recognize imputed interest expense over the life of the Royalty Purchase Agreement based on the estimated future HCV royalties.
Critical Accounting Policies
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amount of assets, liabilities, revenue, costs and expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions and conditions. See our 2022 Form 10-K for information about critical accounting policies as well as a description of our other significant accounting policies.
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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