# Enanta Pharmaceuticals Inc: Form 10-Q for the period ended Dec 31, 2023

- Company: [Enanta Pharmaceuticals Inc](/companies/enta.md) (CIK 1177648)
- Form: 10-Q
- Filed: 2024-02-08
- Accepted by EDGAR: Feb 8, 2024, 16:24 ET
- Period: 2023-12-31
- Accession: 0000950170-24-012796
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1177648/000095017024012796/enta-20231231.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1177648/000095017024012796/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2023-10-01 to 2023-12-31 | $18.0m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Research and development | 3 months, 2023-10-01 to 2023-12-31 | $36.4m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2023-10-01 to 2023-12-31 | −$34.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2023-10-01 to 2023-12-31 | $3.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2023-10-01 to 2023-12-31 | −$622.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-10-01 to 2023-12-31 | −$33.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2023-10-01 to 2023-12-31 | −$1.58 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2023-10-01 to 2023-12-31 | −$1.58 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2023-10-01 to 2023-12-31 | 21,088,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2023-10-01 to 2023-12-31 | −$25.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2023-10-01 to 2023-12-31 | $787.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-12-31 | $39.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-12-31 | $390.3m | us-gaap:AssetsCurrent |
| Total assets | at 2023-12-31 | $428.5m | us-gaap:Assets |
| Current liabilities | at 2023-12-31 | $62.4m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-12-31 | $236.6m | us-gaap:Liabilities |
| Shareholders' equity | at 2023-12-31 | $191.9m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 38,108 characters.

*The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed 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, 2023 included in our Annual Report on Form 10-K for that fiscal year, which is referred to as our 2023 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 discover and develop small molecule drugs with an emphasis on virology and immunology indications. 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). The ongoing royalties from our AbbVie collaboration, combined with the proceeds from our April 2023 royalty sale transaction, have provided us funding to support our wholly-owned research and development programs primarily focused on the following disease targets:

#### Virology:

- 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, with estimates suggesting that COVID-19 continues to have a disease burden greater than influenza, including persistent cases of infection often referred to as long COVID and hospitalization and death among the elderly and those with comorbidities, while new variants continue to emerge on a regular basis; 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.

#### Immunology:

- Chronic spontaneous urticaria (CSU) is a severely debilitating, chronic inflammatory skin disease with no identified triggers. Clinical manifestations include hives, angioedema, or both. Patients with CSU also experience symptoms beyond the skin manifestations, including sleep disturbances, fatigue, irritability, anxiety and depression. The estimated global prevalence is between 0.5% – 1% of the population, which means that at any given time in the U.S. alone approximately 1.75-3.5 million people are experiencing this condition. Standard of care treatment for CSU is antihistamines, however in approximately half the patients, symptom alleviation is not adequate. There is a substantial unmet need for an efficacious oral agent as only a minority of these uncontrolled cases are treated with one indicated biologic (\<28%).

As of December 31, 2023, we had $337.2 million in cash, cash equivalents and short-term marketable securities. We expect that our existing cash, cash equivalents, short-term marketable securities and our retained portion of future HCV royalties, will enable us to fund our operating expenses and capital expenditure requirements through fiscal 2027.

### Our Wholly-Owned Programs

Our primary wholly-owned research and development programs are in virology and immunology. Our virology programs have been focused on RSV, SARS-CoV-2 and HBV and our immunology program is focused on oral inhibitors of the receptor tyrosine kinase known as KIT for the treatment of CSU, and potentially other mast-cell-driven diseases.

#### Virology Programs:

- RSV: We have two clinical stage programs for RSV – zelicapavir (formerly EDP-938) and EDP-323. Both of these compounds are replication inhibitors that work by shutting down replication and the production of new virions, as opposed to the other mechanism in development of fusion inhibition that only blocks viral entry. Zelicapivir, which has Fast Track designation from the U.S. Food and Drug Administration, or FDA, is a potent inhibitor of the RSV N-protein being studied in two ongoing Phase 2 studies, each in a different patient population. EDP-323, which also has a Fast Track designation from the FDA is an inhibitor of the RSV L-protein that is currently in a Phase 2 challenge study.
- *Zelicapavir - N-protein Inhibitor Candidate:* We have studied zelicapavir in two Phase 2 studies that were designed to be proof-of-concept and exploratory studies to understand the viral response in the context of RSV infection. With these studies, zelicapavir has demonstrated a favorable safety profile, consistent with that observed in over 500 subjects exposed to zelicapavir to date. These studies were conducted in otherwise healthy adults (not at high-risk for serious outcomes with RSV) infected with RSV. The first study was a challenge study, in which healthy adults were infected with RSV in a clinical setting and statistically significant effects on viral load and symptoms were observed. The second study, known as RSVP, was in an otherwise healthy adult outpatient population with community-acquired RSV infection and showed that this population resolves quickly from infection and is not in need of treatment. We believe that zelicapavir has the greatest potential to show optimal efficacy in high-risk populations since 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 zelicapavir. Based on the growing safety profile of zelicapavir, we are continuing to evaluate zelicapavir in high-risk populations in the following ongoing clinical studies, including pediatric patients and 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, is evaluating multiple ascending doses for five days in two age cohorts to determine safety, tolerability, and pharmacokinetics, as well as a second part evaluating antiviral activity at the selected dose.
- *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 zelicapavir or placebo for five days with a primary endpoint of time to resolution of RSV lower respiratory tract disease symptoms.
- *Next steps:* We anticipate completing enrollment in the RSVPEDs study and report data in the third quarter of calendar 2024, assuming the normal RSV season in the Northern Hemisphere continues.
- *EDP-323 - L-protein Inhibitor Candidate:* Our second clinical RSV candidate, EDP-323, 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 sub-nanomolar potency against RSV-A and RSV-B *in vitro* and 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, to broaden the treatment window or addressable patient populations. In June 2023, we completed a Phase 1 clinical study and reported positive topline results, which demonstrated that EDP-323 was safe and well-tolerated with pharmacokinetics supportive of once-daily dosing with target exposures achieved and no food effect. Based on these positive data, we initiated a Phase 2 challenge study of EDP-323 in the fourth quarter of calendar 2023 and anticipate topline data in the third quarter of calendar 2024.
- COVID-19: We have leveraged our expertise in developing protease inhibitors to discover compounds specifically designed to target the SARS-CoV-2 virus and potentially other coronaviruses.
- *EDP-235 - Protease Inhibitor Candidate:* 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. Furthermore,

EDP-235 has good tissue distribution, and is projected to have four times higher drug levels in lung tissue compared to plasma. A robust treatment effect and prevention of transmission was observed in a ferret model.

- *Phase 1 Study:* In July 2022, we completed a Phase 1 study and reported positive topline results which demonstrated EDP-235 was generally safe and well-tolerated in doses up to 400 mg for seven days and adverse events were infrequent and mild. Pharmacokinetics were supportive of once-daily dosing without ritonavir and without regard to food and achieved target exposure levels of up to 13-fold over the plasma protein-adjusted EC90.
- *Phase 2 Study:* In May 2023, we reported topline results from SPRINT (**S**ARS-CoV-2 **Pr**otease **In**hibitor **T**reatment), a Phase 2 clinical trial of EDP-235. This randomized, double-blind, placebo-controlled study evaluated the safety, tolerability, antiviral activity and affect on 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 received either 200 mg or 400 mg EDP-235 or placebo orally 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 total symptom score was observed with EDP-235 treatment compared to placebo, which achieved statistical significance (p\<0.05) in the 400 mg treatment group at multiple time points, starting as early as one day after the first dose. While no difference was observed in time to improvement in the overall group of 14 measured COVID-19 symptoms, an analysis of a subset of six symptoms showed a two-day shorter time to improvement in patients receiving EDP-235 400 mg who were enrolled within three 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. However, in the subset of patients who were nucleocapsid seronegative (indicating no recent natural infection with SARS-CoV-2), a viral load decline was observed at day five in the 400 mg group of 0.8 log overall and 1 log in the patients with symptom onset within three days before treatment with EDP-235.
- *Next Steps:* Going forward, we will continue to focus on potential collaborations to progress EDP-235, as we will not advance this candidate into Phase 3 studies on our own.
- 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. Advancement of this program is dependent upon our accessing another compound that could be developed with EDP-514 for such a treatment regimen.
- *EDP-514 - Core Inhibitor Candidate:* Final data from two Phase 1b studies of EDP-514 demonstrate the compound is safe with strong antiviral activity 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.

#### Immunology Program:

- CSU: We have a discovery stage program to develop KIT inhibitors to treat CSU by depleting mast cells, thereby addressing a primary driver of this disease. We have developed novel, potent and selective oral inhibitors of KIT, which are now being optimized in preclinical development. Our prototype inhibitors demonstrate potent nanomolar activity in both binding and cellular function assays and are highly selective for KIT versus other kinases. These inhibitors also demonstrate strong *in vitro* and *in vivo* ADME properties. Our goal is to select a lead candidate for KIT in late 2024, as well as introduce a second immunology program in 2024.

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 compounds targeting new disease areas.

The following table summarizes our product development pipeline in our virology programs:

\*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 and Royalty Sale Agreement

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 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.

In April 2023, we entered into a royalty sale agreement with an affiliate of OMERS, a Canadian public employee pension fund, 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, after June 30, 2023, through June 30, 2032, subject to a cap on aggregate payments to OMERS equal to 1.42 times the purchase price.

For accounting purposes, we continue to record 100% of HCV royalties earned under the AbbVie agreement as royalty revenue in our condensed consolidated statements of operations. The $200.0 million received in April 2023 was recognized on our condensed consolidated balance sheets as a liability, which will be reduced by the payments made to OMERS over the term of the Agreement. We recognize imputed interest expense over the life of the royalty sale agreement based on our estimated future MAVYRET/MAVIRET royalties.

### 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. As of the date of this report, we are conducting two Phase 2 studies for zelicapavir and a Phase 2 challenge study of EDP-323. We are also conducting preclinical discovery research efforts in other disease areas.

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 next 12 months, we expect our external research and development expenses generally to decrease since we will not conduct any further development of EDP-235 into Phase 3 studies and we have made important adjustments to reduce our spending significantly in 2024.

To date, we have funded our operations primarily through royalty payments received under our collaboration agreement with AbbVie, a $200.0 million payment from our royalty sale agreement, 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 marketable securities, as well as our retained portion of future HCV royalties, will enable us to fund our operating expenses and capital expenditure requirements through fiscal 2027.

### 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 quarter 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 months ended December 31, 2023 and 2022:

*(in thousands)*

| Revenue | Three Months Ended December 31, 2023 | 2022 |
| --- | ---: | ---: |
| Royalty revenue | $18,003 | $22,585 |
| License revenue | — | 1,000 |
| Total revenue | $18,003 | $23,585 |

### AbbVie Agreement

To date, we have 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, 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. As disclosed above regarding the OMERS royalty sale agreement, we will only retain 45.5% of the cash payments from royalties on net sales of MAVYRET/MAVIRET occurring after June 30, 2023 through June 30, 2032, subject to a cap on aggregate payments to OMERS equal to 1.42 times OMERS’ purchase price.

### 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. We do not expect to generate any revenue from product sales derived from these product candidates for at least the next several years.

### 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:

- third-party contract costs relating to research, formulation, manufacturing, preclinical study, and clinical trial activities;
- personnel costs, including salaries, related benefits, and stock-based compensation for employees engaged in scientific research and development functions;
- allocated facility-related costs;
- laboratory consumables; and
- third-party license fees.

At any given time, we have later stage programs in clinical development as well as several active early-stage research and drug discovery projects. Our internal resources, employees and infrastructure are utilized across multiple projects, including our early stage discovery projects. As such, we report information regarding costs incurred based on our programs (i.e. disease area) rather than on a project specific basis. All indirect costs are allocated to programs based on headcount and square footage of our facilities. We expect that our research and development expenses will fluctuate from period to period as we advance our research and development programs. However, in the next 12 months, we expect our external research and development expenses generally to decrease since we will not advance EDP-235 into Phase 3 studies on our own. 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 in 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 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, patent expenses and litigation expenses associated with prosecuting our patent infringement suit.

We expect that general and administrative expenses may increase in the long term. To date we have not experienced a significant impact of inflation on general and administrative expenses, but we anticipate inflation may impact future periods.

### Other Income (Expense)

Other income (expense) consists of interest expense, interest and investment income, net and the change in fair value of our outstanding Series 1 nonconvertible preferred stock. Interest expense consists of the non-cash interest expense and amortization of debt issuance costs associated with the royalty sale agreement with an affiliate of OMERS. Interest income consists of interest earned on our cash equivalents and short-term marketable securities balances. Investment income consists of the amortization or accretion of any purchased premium or discount, respectively, on our short-term marketable securities. The change in fair value of our Series 1 nonconvertible preferred stock relates to the remeasurement of these financial instruments from period to period as these instruments may require a transfer of assets because of the liquidation preference features of the underlying instrument.

### Income Tax Benefit

The income tax benefit for the three months ended December 31, 2023 was driven by interest recorded on a pending federal income tax refund. The income tax benefit for the three months ended December 31, 2022 is the result of the release of a state tax reserve.

### Results of Operations

### Comparison of the Three Months Ended December 31, 2023 and 2022

*(in thousands)*

|  | Three Months Ended December 31, 2023 | 2022 |
| --- | ---: | ---: |
| Revenue | $18,003 | $23,585 |
| Research and development | 36,371 | 40,902 |
| General and administrative | 16,518 | 12,696 |
| Interest expense | (3,441) | — |
| Interest and investment income, net | 4,298 | 993 |
| Income tax benefit | 622 | 34 |
| Net loss | $(33,407) | $(28,986) |

### Revenue

We recognized revenue of $18.0 million during the three months ended December 31, 2023 as compared to $23.6 million during the three months ended December 31, 2022. The $5.6 million decrease in revenue was primarily 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.

Beginning with the quarter ended September 30, 2023, 54.5% of our quarterly royalty payments on net sales of MAVYRET/MAVIRET that are included in our total revenue are paid to OMERS through June 30, 2032, subject to a cap on aggregate payments equal to 1.42 times the purchase price. The $200.0 million received in April 2023 was recognized on our condensed consolidated balance sheets as a liability which will be reduced by the payments made to OMERS over the term of the royalty sale agreement. We will continue to record 100% of HCV royalties earned under the AbbVie Agreement as royalty revenue in our condensed consolidated statements of operations since the AbbVie Agreement has not been amended and is independent of our agreement with OMERS.

### Research and development expenses

*(in thousands)*

| R&D programs: Virology | Three Months Ended December 31, 2023 | 2022 |
| --- | ---: | ---: |
| RSV | $24,294 | $17,810 |
| COVID-19 | 3,251 | 18,951 |
| HBV | 66 | 1,997 |
| Total Virology | $27,611 | $38,758 |
| **Immunology** |  |  |
| CSU | 3,931 | — |
| Total Immunology | $3,931 | $— |
| **Other Programs** |  |  |
| NASH | 368 | 851 |
| Early discovery | 4,461 | 1,293 |
| Total Other Programs | $4,829 | $2,144 |
| Total research and development expenses | $36,371 | $40,902 |

The level of research and development expenses for the three months ended December 31, 2023 decreased by $4.5 million compared to the same period in 2022.

#### Virology

The costs in our virology program decreased $11.1 million primarily due to a decrease in costs associated with our COVID-19 program as we stopped further internal development and will only progress the program in the context of one or more collaborations. This decrease was offset by an increase in costs for our RSV clinical programs as we had two ongoing Phase 2 studies of zelicapavir and a challenge study initiated for EDP-323 in the three months ended December 31, 2023. Costs associated with HBV decreased as we continued to wind down this program.

#### Immunology

The costs in our immunology increased by $3.9 million as this is a new therapeutic area of focus for the company.

#### Other Programs

Other program costs increased by $2.7 million as we focused on early stage drug discovery programs, offset by a decrease in costs for our NASH program as we continued to wind down this program.

Expenses associated with our COVID-19, HBV and NASH programs will continue as we complete all the required procedures for concluded clinical trials.

In the next 12 months, we expect our external research and development expenses generally to decrease since we will not advance our COVID-19 candidate, EDP-235, into Phase 3 studies on our own.

### General and administrative expenses

General and administrative expenses increased by $3.8 million for the three months ended December 31, 2023 compared to the same period in 2022. The change was due to an increase in stock compensation expense and an increase in legal expenses related to our patent infringement suit against Pfizer.

### Other income (expense)

Changes in components of other income (expense) were as follows:

### Interest expense

Interest expense increased $3.4 million for the three months ended December 31, 2023, as compared to the same period in 2022 due to interest expense and amortization of debt issuance costs associated with the royalty sale agreement entered into during April 2023 with an affiliate of OMERS.

### Interest and investment income, net

Interest and investment income, net, increased $3.3 million for the three months ended December 31, 2023, as compared to the same period in 2022. The increase was due to an increase in our cash balance due to receipt of the $200.0 million from OMERS as well as changes in interest rates year over year.

### Income tax benefit

During the three months ended December 31, 2023 and 2022, we recorded an income tax benefit of $0.6 million and less than $0.1 million, respectively. The income tax benefit in 2023 was driven by interest recorded on a pending federal tax refund. The income tax benefit for 2022 was driven by a release of a state tax reserve during the period.

### Liquidity and Capital Resources

We fund our operations with cash flows from our retained portion of our royalty revenue and our existing financial resources. At December 31, 2023, our principal sources of liquidity were cash and cash equivalents and short-term marketable securities of $337.2 million.

The following table shows a summary of our cash flows:

*(in thousands)*

| Cash provided by (used in): | Three Months Ended December 31, 2023 | 2022 |
| --- | ---: | ---: |
| Operating activities | $(24,988) | $(35,641) |
| Investing activities | (13,117) | 33,569 |
| Financing activities | (7,350) | 301 |
| Net decrease in cash, cash equivalents and restricted cash | $(45,455) | $(1,771) |

### Net cash used in operating activities

Cash used in operating activities was $25.0 million for the three months ended December 31, 2023 as compared to cash used in operating activities of $35.6 million for the same period in 2022. Our cash used in operating activities decreased primarily due to a significant decrease in spending in our clinical programs which was partially offset by lower cash receipts associated with our AbbVie agreement as we now only retain 45.5% of cash royalties following the royalty sale agreement with OMERS.

### Net cash provided by (used in) investing activities

Cash used in investing activities was $13.1 million for the three months ended December 31, 2023 as compared to cash provided by investing activities of $33.6 million for the same period in 2022. Our cash used in investing activities increased $46.7 million, driven by the timing of purchases, sales and maturities of marketable securities in 2023 compared to 2022 and decreased capital expenditures in fiscal 2023 compared to fiscal 2022 due to the timing of our buildout of our leased premises at 400 Talcott Avenue.

### Net cash provided by (used in) financing activities

Cash used in financing activities was $7.4 million for the three months ended December 31, 2023 as compared to cash provided by financing activities of $0.3 million for the same period in 2022. Our cash used in financing activities increased $7.7 million, driven by our payment to OMERS for our royalty sale agreement.

### Funding Requirements

As of December 31, 2023, we had $337.2 million in cash, cash equivalents and short-term marketable securities. We believe that our existing cash, cash equivalents and short-term marketable securities as of December 31, 2023, as well as the cash flows from our retained portion of future HCV royalties will be sufficient to meet our anticipated cash requirements through fiscal 2027. However, our projection 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.

Our future capital requirements are difficult to forecast and will depend on many factors, including:

- the number and characteristics of our research and development programs;
- the scope, progress, results and costs of researching and developing our product candidates on our own, including conducting advanced clinical trials;
- our ability to establish new collaborations, licensing or other arrangements, if any, and the financial terms of such arrangements;
- the amount of our retained portion of royalties generated from MAVYRET/MAVIRET sales under our existing collaboration with AbbVie;
- delays and additional expenses in our clinical trials;
- the cost of manufacturing our product candidates for clinical development and any products we successfully commercialize independently;
- opportunities to in-license or otherwise acquire new technologies 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

We currently lease space in Watertown, Massachusetts, under two separate lease agreements with one landlord. We have entered into a third lease agreement with the same landlord to lease additional laboratory and office space at a to-be-constructed facility located at Arsenal on the Charles in Watertown, Massachusetts.

Our first lease for office and laboratory space at 500 Arsenal Street expires on September 1, 2027. In May 2022, we entered into a new ten-year lease for laboratory and office space in Watertown, Massachusetts, adjacent to our 400 Talcott Avenue premises at Arsenal on the Charles, at 4 Kingsbury Avenue. The construction of the facility shell has been completed and we expect to gain access to the building to construct tenant improvements in February 2024. In connection with this lease, we amended our 500 Arsenal Street lease to shorten the expiration date from September 1, 2027, to the date the Kingsbury Avenue facility is ready for our occupancy, which is currently estimated to occur by the end of November 2024.

The second lease for office space located at 400 Talcott Avenue, commenced on September 24, 2018 for a term of six years. In May 2022, we amended this lease to expand the rented space and extend the lease term through June 1, 2034. We spent approximately $6.3 million in capital expenditures for the additional space, which primarily relate to tenant improvements. We received a tenant improvement allowance from the landlord of $2.5 million.

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 after June 30, 2023, through June 30, 2032, subject to a cap on aggregate payments equal to 1.42 times the purchase price.

The $200.0 million received in April 2023 was recognized on our condensed consolidated balance sheets as a liability which will be reduced by the payments made to OMERS over the term of the Agreement.

### Critical Accounting Policies

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our condensed 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 2023 Form 10-K for information about our critical accounting policies as well as a description of our other significant accounting policies. There have been no significant changes to our critical accounting policies since the beginning of this fiscal year.

### 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 condensed consolidated financial statements included in this Form 10-Q.

## Market risk

As filed, 284 characters.

During the three months ended December 31, 2023, there were no material changes to our market risk disclosures as set forth in Part II, Item 7A “Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the fiscal year ended September 30, 2023.

## Controls and procedures

As filed, 1,211 characters.

### Disclosure Controls and Procedures and Internal Control over Financial Reporting

#### Evaluation of Disclosure Controls and Procedures.

Our management, with the participation of the principal executive officer and principal financial officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act), as of the end of the period covered by this quarterly report. Based on this evaluation, the principal executive officer and principal financial officer concluded that these disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods.

#### Changes in Internal Control Over Financial Reporting.

There were no changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 7,100 characters.

### RISK FACTORS

Our business faces significant risks and uncertainties. Certain factors may have a material adverse effect on our business prospects, financial condition and results of operations, and you should carefully consider them. Accordingly, in evaluating our business, we encourage you to consider the detailed discussion of risk factors included in our 2023 Form 10-K.

Except for the risk factor below, there have been no material changes to such risk factors during the quarter ended December 31, 2023. Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.

***We and AbbVie face substantial competition in the markets for HCV drugs, and there are many companies developing potential therapies for RSV, SARS-CoV-2, HBV and CSU which may result in others discovering, developing or commercializing products before we do or doing so more successfully than we do.***

The pharmaceutical and biotechnology industries are intensely competitive and rapidly changing. Many large pharmaceutical and biotechnology companies, academic institutions, governmental agencies and other public and private research organizations are commercializing or pursuing the development of products that target HCV, RSV, SARS-CoV-2 HBV, CSU and other viral infections or immunology diseases that we may target in the future. Many of our competitors have substantially greater commercial infrastructure and greater financial, technical and personnel resources than we have, as well as drug candidates in late-stage clinical development.

In all the disease areas currently in the focus of our research and development efforts, there are other companies with product candidates that are more advanced than ours. Our competitors may succeed in developing these product candidates or others and obtaining regulatory approval before we can do so with any of our product candidates. If we are not “first to market” with one of our product candidates in one or more of these disease indications, our competitive position could be compromised because it may be more difficult for us to obtain marketing approval for that product candidate and market acceptance of that product candidate as a follow-on competitor. In addition, any new product that competes with an approved product typically must demonstrate compelling advantages in efficacy, convenience, tolerability or safety, or some combination of these factors, to gain regulatory approvals, overcome price competition and be commercially successful.

RSV, COVID-19, HBV and CSU represent competitive therapeutic areas.

For RSV, there are currently no safe and effective therapies for already established RSV infection. Several companies are seeking to develop antiviral treatments for RSV infection in adult and pediatric patients. Ark Biosciences, Pfizer/ReViral (acquired in June 2022) and Shionogi all have compounds in clinical development.

There are several prophylaxis options on the market or in development. AstraZeneca/Sanofi (Beyfortus – approved) and Merck (Clesrovimab – Phase 3) are developing long-acting monoclonal antibodies for prophylaxis use in infants, and Pfizer has an approved maternal vaccine (ABRYSVO™), all of which provide passive immunity to infants. There are also 2 approved RSV vaccines for adults over 60 years of age (Pfizer/ABRYSVO™ and GSK/AREXVY®).

For COVID, there are two oral antiviral treatments for non-hospitalized, high-risk patients with SARS-CoV-2 infection: PAXLOVID™, a 3CL protease inhibitor (nirmatrelvir) boosted with ritonavir (full approval), and LAGEVRIO™ (molnupiravir), a polymerase inhibitor (Emergency Use Authorization). Additionally, other companies are developing oral direct acting antivirals for SARS-CoV-2 that are currently in global Phase 3 studies include Shionogi, Atea, and Gilead (an oral formulation of remdesivir).

While there are antiviral medications prescribed for HBV that can suppress HBV DNA, they generally have low cure rates, resulting in the need for lifelong treatment. Many companies are seeking to develop new HBV drugs that alone or in combination with other mechanisms could lead to a functional cure for HBV. Vir, GSK, Arbutus, and Roche have multiple combination regimens under investigation in later stage clinical studies. In addition, a number of companies have Phase 1 or earlier stage HBV programs.

For CSU, there are a number of different mechanisms being explored, including inhibitors of IL-4R, IgE, BTK, SIGLEC-6, MRGPRX2 and SYK. Specifically for KIT inhibitors, there are companies with antibodies in development, including Celldex (barzolvolimab - Phase 2), Jasper (briquilimab - Phase 1), and Acelyrin (SLRN-517 - Phase 1/Phase 2), as well as companies with oral, small molecules in preclinical development, including ThirdHarmonic, Blueprint, Arcus, and Modulus.

In the chronic HCV market, we expect AbbVie’s MAVYRET/MAVIRET to continue to face intense competition due to existing approved HCV products. AbbVie’s MAVYRET/MAVIRET regimen currently faces competition in various world markets and subpopulations of HCV from Gilead’s Epclusa® (a fixed dose combination of sofosbuvir and velpatasvir), Vosevi® (a triple combination therapy of sofosbuvir, velpatasvir and voxilaprevir approved by the FDA for specified sofosbuvir -treatment failures and NS5A-inhibitor treatment failures) and Harvoni® (a fixed-dose combination of sofosbuvir and ledipasvir); and to a lesser extent - Merck’s Zepatier® (a fixed-dose combination of grazoprevir and elbasvir). Gilead launched authorized generic versions of Epclusa and Harvoni through its subsidiary, Asegua Therapeutics, LLC, which have had an impact on the competitive landscape. For example, the state of Louisiana selected Asegua as their HCV subscription model pharmaceutical partner to provide the state with unrestricted access to its direct-acting antiviral medication.

Other competitive products in the form of other treatment methods or a vaccine for HCV may render MAVYRET/MAVIRET obsolete or noncompetitive. MAVYRET/MAVIRET will face competition based on its safety and effectiveness, reimbursement coverage, price, patent position, AbbVie’s marketing and sales capabilities, and other factors. If MAVYRET/MAVIRET faces competition from generic products other than authorized generic versions by the manufacturer of the branded product (i.e. Gilead and Asegua Therapeutics), our collaboration agreement provides that the royalty rate applicable to our protease product contained in the regimen is reduced significantly by a specified percentage on a product-by-product, country-by-country basis. If AbbVie is not able to compete effectively against its competitors in HCV, our business will not grow and our financial condition, operations and stock price will suffer.

If we are not able to develop new products that can compete effectively against our current and future competitors, our business will not grow and our financial condition, operations and stock price will suffer.

Filed Feb 8, 2024.
Source: SEC EDGAR, the filing index for accession 0000950170-24-012796. Last ingested by Listed: Oct 29, 2026, 16:06 ET. No prices; not investment advice.