January 8, 2018
To our Shareholders,
At the end of our fourth fiscal year as a public company, I can report to you that Enanta has executed well on its
planned goals and has achieved many financial and clinical milestones as we head into 2018.
Enanta’s successful hepatitis C virus (HCV) collaboration with AbbVie has resulted in our second marketed product,
glecaprevir, which is part of AbbVie’s new 8-week treatment regimen for non-cirrhotic, treatment-naïve HCV
patients. This regimen, which received its first regulatory approvals in the summer of 2017, is a once-daily, pan-
genotypic, ribavirin-free, combination of two direct-acting antivirals (DAAs) (glecaprevir/pibrentasvir) that is being
marketed globally by AbbVie as MAVYRET™ (U.S.) and MAVIRET™ (ex-U.S.). This valuable collaboration provides
Enanta with ongoing royalties from these products, and has resulted in cumulative cash payments to us from
AbbVie totaling approximately $500 million through our 2017 fiscal year end.
Using this strong financial base we have been able to advance our wholly-owned internal research and
development programs in non-alcoholic steatohepatitis (NASH), primary biliary cholangitis (PBC), respiratory
syncytial virus (RSV) and hepatitis B virus (HBV).
Following positive Phase 1 data with our FXR agonist EDP-305, we recently initiated a Phase 2 clinical study in
PBC patients, and we plan to initiate a Phase 2 clinical study in NASH patients with fibrosis in early 2018. Both
NASH and PBC are serious diseases of the liver with limited treatment options. Given the seriousness and unmet
medical need of patients with these diseases, EDP-305 was granted Fast Track designation from the FDA for
both of these indications.
Our RSV program also advanced this year after we selected EDP-938 as our clinical candidate. EDP-938 is a non-
fusion inhibitor that has demonstrated a high barrier to resistance in in vitro models as it directly targets virus
replication, unlike most other compounds in development for RSV. We recently initiated a Phase 1 clinical study
and, subject to successful completion of this study, we plan to initiate a proof-of-concept challenge study in
RSV-infected humans later in 2018.
Our HBV program is also progressing well. Our current research efforts are focused on core inhibitors, with the
aim of developing a functional cure. Preclinical lead optimization continues to progress, with the goal of
identifying a development candidate in 2018.
As we begin a new year, I look back with pride at all we have accomplished and the progress that we continue
to make. I would like to thank our employees for all their efforts and you, our shareholders, for your support. I
look forward to updating you on our progress throughout the coming year.
Sincerely,
Jay R. Luly Ph.D.
President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
⌧ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2017
OR
(cid:4) 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
(State or other jurisdiction of
incorporation or organization)
2834
(Primary Standard Industrial
Classification Code Number)
04-3205099
(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:
Name of each exchange on which registered:
The NASDAQ Stock Market LLC (NASDAQ Global Select Market)
Title of each class:
Common Stock, $0.01 Par Value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:4) No ⌧
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes (cid:4) No ⌧
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 (cid:4)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files): Yes ⌧ No (cid:4)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ⌧
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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
Non-accelerated filer
Emerging growth company ⌧
(cid:4)
(cid:4) (Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
⌧
(cid:4)
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 (cid:4) No ⌧
The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of the last business day of the registrant’s
most recently completed second fiscal quarter, March 31, 2017, based on the last reported sale price of the registrant’s common stock of $30.80 per share
was $491,133,874. The number of shares of the registrant’s Common Stock, $0.01 par value, outstanding as of December 1, 2017, was 19,126,006 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement for its 2018 Annual Meeting of Stockholders scheduled to be held on February 28, 2018,
which Definitive Proxy will be filed with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year end of
September 30, 2017, are incorporated by reference into Part III of this Form 10-K.
As used in this Form 10-K, “Enanta,” “the Company,” “we,” “our,” and “us” refer to Enanta Pharmaceuticals, Inc.,
and “MAVYRET/MAVIRET” refers to AbbVie’s new HCV regimen consisting of tablets of
glecaprevir/pibrentasvir, except where the context otherwise requires or as otherwise indicated.
NOTE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K 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
Annual Report on Form 10-K 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 Annual Report on Form 10-K. These forward-looking statements speak only as of the date of this Annual Report
on Form 10-K. 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
Annual Report on Form 10-K.
ENANTA PHARMACEUTICALS, INC.
ANNUAL REPORT ON FORM 10-K
For the year ended September 30, 2017
INDEX
Item No.
Page
PART I
Business ....................................................................................................................................................
Risk Factors...............................................................................................................................................
Unresolved Staff Comments .....................................................................................................................
Properties ..................................................................................................................................................
Legal Proceedings .....................................................................................................................................
Mine Safety Disclosures ...........................................................................................................................
1.
1A.
1B.
2.
3.
4.
PART II
5.
Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities .......................................................................................................................................
Selected Consolidated Financial Data.......................................................................................................
6.
7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations ...................
7A. Quantitative and Qualitative Disclosures about Market Risk ...................................................................
Consolidated Financial Statements and Supplementary Data...................................................................
8.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................
9.
Controls and Procedures ...........................................................................................................................
9A.
Other Information .....................................................................................................................................
9B.
10.
11.
12.
13.
14.
15.
16.
PART III
Directors, Executive Officers and Corporate Governance........................................................................
Executive Compensation...........................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Certain Relationships and Related Transactions, and Director Independence .........................................
Principal Accounting Fees and Services ...................................................................................................
PART IV
Exhibits, Financial Statement Schedules ..................................................................................................
Form 10-K Summary ................................................................................................................................
Signatures..................................................................................................................................................
1
25
53
53
53
53
53
55
56
70
70
70
70
71
72
72
72
73
73
73
75
76
ITEM 1.
BUSINESS
Overview
PART I
BUSINESS
We are a biotechnology company that uses our robust, chemistry-driven approach and drug discovery capabilities to
create small molecule drugs primarily for the treatment of viral infections and liver diseases. We discovered
glecaprevir, the second of two protease inhibitors discovered and developed through our collaboration with AbbVie
and marketed as part of AbbVie’s new direct-acting antiviral (DAA) regimen under the tradenames MAVYRET™
(U.S.) or MAVIRET™ (ex-U.S.) (glecaprevir/pibrentasvir) for the treatment of chronic hepatitis C virus, or HCV.
The other protease inhibitor under our HCV collaboration is part of AbbVie’s initial DAA regimens for the
treatment of chronic HCV marketed under the tradenames VIEKIRA PAK® (paritaprevir/ritonavir/ombitasvir
/dasabuvir) (U.S.) or VIEKIRAX® (paritaprevir/ritonavir/ombitasvir) (ex-U.S.). Our royalties from our AbbVie
collaboration and our existing financial resources provide us funding to support our wholly owned research and
development efforts, which are currently focused on the following disease targets:
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non-alcoholic steatohepatitis, or NASH, a liver disease estimated to affect approximately 6 million
individuals in the U.S. alone;
primary biliary cholangitis, or PBC, a chronic liver disease that slowly destroys bile ducts in the liver,
which affects an estimated 17,000 individuals in the U.S.;
respiratory syncytial virus, or RSV, the most common cause of bronchiolitis and pneumonia in children
under one year of age in the U.S., resulting in an estimated 75,000 to 125,000 hospitalizations each year
in the U.S.; and
hepatitis B virus, or HBV, the most prevalent chronic hepatitis, which is estimated to affect
approximately 250 million individuals worldwide.
We had $293.7 million in cash and marketable securities at September 30, 2017. In fiscal 2017, we received and
earned as revenue a total of $65.0 million in milestone payments for commercialization regulatory approvals of the
glecaprevir/pibrentasvir combination in the U.S. in August 2017 and the EU in July 2017 and earned $37.8 million
in per-product royalties on portions of AbbVie’s net sales of its HCV regimens allocated to paritaprevir or
glecaprevir. We earned the remaining $15.0 million milestone payment from AbbVie upon reimbursement approval
for MAVIRET in Japan in November 2017. We expect our existing financial resources and quarterly royalty
payments will allow us to continue to invest for the foreseeable future in our wholly owned research and
development programs.
Our Wholly Owned Programs
Our wholly owned research and development programs are in liver disease (non-virology), namely NASH and PBC,
and in virology, namely RSV and HBV:
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NASH and PBC: We are working on multiple compounds that selectively bind to and activate the
farnesoid X receptor, or FXR. We plan to develop these compounds, referred to as FXR agonists, for
use in the treatment of NASH and PBC, both of which are liver diseases with very few therapeutic
options. Our lead FXR agonist, EDP-305, represents a new class of FXR agonist designed to take
advantage of increased binding interactions with the receptor. We believe this class is significantly
different from other FXR agonists in clinical development.
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In October 2017, we announced results of a Phase 1a/b clinical study of EDP-305, which was
generally safe and well tolerated over a broad range of single and multiple doses with
pharmacokinetic data supporting once daily oral dosing. The study included 98 healthy volunteer
subjects, or HV subjects, and 48 subjects who were obese and with or without pre-diabetes or type
1
2 diabetes, whom we refer to as subjects with presumptive non-alcoholic fatty liver disease, or PN
subjects.
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EDP-305 exhibited strong engagement of the FXR receptor as evidenced by increased
levels of FGF19 and reduced levels of C4, both of which are monitored as
downstream markers indicating FXR receptor activity.
Results support the ability to administer EDP-305 in future trials at doses that neither
elicit clinically significant changes in lipids nor result in pruritus (itching).
Since November 2016, we have presented data at the 2016 and 2017 annual meetings of the
American Association for the Study of Liver Diseases (AASLD), the 2017 NASH-TAG
conference and the 2017 International Liver Congress (ILC) that demonstrated that EDP-305 is a
highly selective FXR agonist and shows more potent activity in a variety of in vitro and in
vivo NASH models compared to the most advanced NASH candidate in development today,
obeticholic acid, or OCA.
We plan to initiate a Phase 2 clinical study of EDP-305 in PBC patients by the end of calendar
2017.
We also plan to initiate a Phase 2 clinical study of EDP-305 in NASH patients in early 2018.
EDP-305 has been granted Fast Track designation by the U.S. Food and Drug Administration
(FDA) for the treatment of NASH patients with liver fibrosis and separately for the treatment of
PBC.
In addition, we are pursuing research in other classes of FXR agonists as well as other
mechanisms that may provide therapeutic benefit in NASH and that either or both of these could
be used as combination therapies for NASH.
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RSV: We have selected EDP-938, a potent N-protein inhibitor of activity of both major subgroups of
RSV, referred to as RSV-A and RSV-B, as our first development candidate for RSV. We believe EDP-
938 is differentiated from fusion inhibitors currently in development for RSV because N-protein
inhibitors directly target the viral replication process of RSV and have demonstrated high barriers to
resistance against RSV in vitro.
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In June 2017, we presented preclinical data demonstrating that EDP-938 is a potent inhibitor of
both RSV-A and RSV-B activity, maintaining antiviral activity post-infection while presenting a
high barrier to resistance in vitro. EDP-938 demonstrated a greater than 4-log reduction in viral
load in an animal model challenged with RSV. Further, EDP-938 maintained antiviral potency
across all clinical isolates tested in vitro, as well as virus that was resistant to fusion inhibitors.
The compound inhibited RSV at a post-entry, replication step and maintained its activity in
vitro when given 24 hours post infection. In addition, combination studies of EDP-938 with other
types of RSV inhibitors, such as fusion inhibitors, showed synergistic antiviral effects.
(cid:129) We plan to initiate a Phase 1 clinical study of EDP-938 by the end of calendar 2017.
HBV: We also have a program to discover and develop new chemical entities for the treatment of HBV.
Our initial focus is on core inhibitors, a mechanism with early clinical validation. We believe that it may
be necessary to utilize more than one compound/mechanism for the treatment of HBV and therefore we
are pursuing multiple approaches. We continue to make progress in discovering, characterizing, and
seeking patent protection for new core inhibitors of HBV with the goal of identifying a development
candidate in 2018. In addition, we are conducting preclinical experiments with other mechanisms that
target HBV.
We have utilized our internal chemistry and drug discovery capabilities to generate all of our development-stage
programs.
2
Licensed Products
Through our Collaborative Development and License Agreement with AbbVie, we have developed and licensed to
AbbVie two protease inhibitor compounds that have been clinically tested, manufactured, and commercialized by
AbbVie. Royalties on AbbVie’s net sales allocated to the protease inhibitors in these HCV regimens provided us
$37.8 million and $57.7 million in royalty revenue in our 2017 and 2016 fiscal years, respectively. To date, we have
earned a total of $330.0 million in milestone payments related to clinical development and commercialization
regulatory approvals of these regimens in major markets, including a $15.0 million milestone earned in November
2017.
(cid:129)
Glecaprevir: Glecaprevir is the protease inhibitor we discovered that was developed by AbbVie in its
new fixed-dose combination with its NS5A inhibitor, pibrentasvir, for the treatment of HCV. This
combination, currently marketed under the brand name MAVYRET™ in the U.S. and MAVIRET™ ex-
U.S. and referred to in this report as MAVYRET/MAVIRET, is a new, once daily, all oral, fixed-dose,
ribavirin-free treatment for HCV genotypes 1-6, which is referred to as being pan-genotypic. In the EU,
U.S. and Japan it is approved as an 8-week treatment for patients without cirrhosis and new to treatment.
Today, these patients are estimated to represent the majority of HCV patients in the developed country
markets.
Our economics from AbbVie’s MAVYRET/MAVIRET consist of two components:
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(cid:129)
We earned a total of $65.0 million in milestone payments in fiscal 2017 upon approval for the
glecaprevir/pibrentasvir combination in the U.S. and the EU, and we earned the remaining $15.0
million milestone payment in November 2017 in connection with commercialization regulatory
approval in Japan.
We also receive annually tiered, double-digit, per-product royalties on 50% of the net sales of the
2-DAA glecaprevir/pibrentasvir combination in MAVYRET/MAVIRET, which are calculated
separately from the royalties of paritaprevir-containing regimens.
The EU, U.S. and Japan authorizations for the MAVYRET/MAVIRET combination of glecaprevir and
pibrentasvir, and AbbVie’s applications for approval of MAVYRET/MAVIRET in other jurisdictions,
are supported by the following studies:
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8 weeks for treatment-naïve, non-cirrhotics: In November 2016, results from several Phase 3
studies of this combination demonstrated 97.5% of chronic HCV infected patients without
cirrhosis and new to treatment across all major genotypes (GT1-6) achieved sustained virologic
response at 12 weeks post-treatment, referred to as SVR12, with just 8 weeks of
MAVYRET/MAVIRET treatment.
8 weeks with chronic kidney disease: Results were also presented from AbbVie’s EXPEDITION-
4 study in chronic HCV patients with chronic kidney disease (CKD), in which 98% of patients
(n=102/104) across all major genotypes (GT1-6) achieved SVR12 with 12 weeks of treatment with
MAVYRET/MAVIRET.
8 weeks for GT-3: Data from AbbVie’s ENDURANCE-3 study were presented at
the International Liver Congress, or ILC, demonstrating that 95% of patients with challenging-to-
treat, genotype 3 (GT3) chronic HCV infection, without cirrhosis and new to treatment, achieved
SVR12 after 8 weeks of treatment with MAVYRET/MAVIRET.
12 weeks for compensated cirrhosis: Data from AbbVie’s EXPEDITION-1 study were also
presented at the ILC, demonstrating that 99% of HCV-infected patients with genotype 1, 2, 4, 5 or
6 and compensated cirrhosis (Child-Pugh A) achieved SVR12 following 12 weeks of
MAVYRET/MAVIRET treatment without ribavirin.
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Paritaprevir: Paritaprevir is the protease inhibitor contained in AbbVie’s initial HCV treatment regimens
currently marketed in the U.S., EU, Japan and other countries around the world under the trade names
VIEKIRA PAK®, VIEKIRAX® VIEKIRAX XR™ and TECHNIVIE®. First approved and sold in the
U.S. in December 2014 for treatment of genotype 1, or GT-1, HCV, AbbVie’s HCV regimens
containing paritaprevir are now also approved for genotype 4, or GT-4, HCV.
3
Our Strategy
Our primary objective is to become a leader in the field of viral infections and liver diseases in order to provide new
treatments for patients with unmet medical needs. Our focus is on antiviral targets for viruses such as RSV and HBV
as well as liver diseases, such as NASH and PBC. All of these disease areas involve significant market opportunities
and have attracted the research and development efforts of many competitors. Our strategy includes the following
key elements:
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(cid:129)
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(cid:129)
Develop novel treatment options for NASH, PBC and RSV. We have potential candidates in clinical
development for NASH, PBC and RSV. EDP-305, our lead FXR agonist, has completed a Phase 1 a/b
clinical study and we expect to advance it by initiating a Phase 2 clinical study in PBC by the end of
calendar 2017 and a Phase 2 clinical study in NASH in early 2018. We have also selected EDP-938 as
our lead RSV development candidate and plan to initiate a Phase 1 clinical study of it by the end of
calendar 2017.
Invest in research and development of product candidates in HBV and additional product candidates in
NASH, PBC and RSV. We are continuing to invest significant resources in our NASH, PBC, RSV and
HBV research programs in an effort to identify and advance additional novel compounds that have the
potential to address significant unmet medical needs in these disease areas. We are also continuing our
efforts discovering HBV candidates and plan to identify a candidate in 2018. We may clinically explore
other diseases where our assets could play a role. We are also seeking to identify a lead candidate in a
second class of FXR agonists in 2018. In addition, we may seek to augment our product candidate
pipeline through the acquisition or in-licensing of external assets and/or technologies in one or more of
our disease areas of focus.
Use our existing resources and future cash flow from our AbbVie collaboration to fund our research
and development activities. Our existing financial resources and any future royalty payments from our
AbbVie collaboration will provide us substantial resources to fund our research and development
programs for the foreseeable future. These resources will allow us to advance up to several compounds
into clinical development and progress the most promising ones at least through proof-of-concept for
further development as a monotherapy or in combinations with other therapeutic agents when we
believe such combinations will provide the most promising opportunities.
Collaborate, where and when appropriate, with pharmaceutical partners to create combination
therapies and accelerate the development and commercialization of our proprietary compounds. We are
prepared to join forces, where and when appropriate, with collaborators with compounds targeting other
mechanisms of action in diseases such as NASH and HBV, where there is the potential for better
treatments with combination therapies. Our decisions regarding our proprietary programs will be based
on the results of our early phase clinical studies and the potential for combinations with one or more
drugs targeting other mechanisms of action in these diseases.
4
Our Research and Development Pipeline
The following table summarizes our product development pipeline in our virology and liver disease programs:
Our FXR Program in NASH and PBC
Background and Overview of NASH and PBC
Non-alcoholic fatty liver disease, or NAFLD, is the accumulation of excessive fat in liver cells in the form of
triglycerides, a process known as hepatic steatosis, that is not associated with alcohol abuse. It is normal for the liver
to contain some fat. However, if more than 5%-10% of the liver’s weight is fat, then it is called a fatty liver. A
subgroup of NAFLD patients have liver cell injury and inflammation (steatohepatitis) in addition to excessive fat.
Progression of this condition leads to non-alcoholic steatohepatitis, or NASH. Patients with NASH can develop
fibrosis, a fibrous scarring of the liver, and ultimately cirrhosis of the liver. Typically scored on a scale of 1-4, also
referred to as F1-F4, fibrosis in its earlier stages has been shown to be reversible, but in its most advanced stage
results in cirrhosis, which is understood to be a more advanced, irreversible scarring of the liver, potentially leading
to hepatocellular carcinoma (HCC) or requiring a liver transplant. NASH is widely considered to be the liver
expression of metabolic diseases related to type 2 diabetes, insulin resistance, obesity, hyperlipidemia and
hypertension.
5
Stages of Liver Injury
According to the World Gastroenterology Organization Global Guidelines 2014, NASH is an increasingly common
chronic liver disease with worldwide distribution that is closely associated with diabetes and obesity, which have
both reached epidemic proportions. It is estimated that there are at least 1.46 billion obese adults worldwide.
Approximately 6 million individuals in the U.S. are estimated to have progressed to NASH and some 600,000 to
NASH-related cirrhosis. NASH and NAFLD are now considered the number one cause of liver disease in Western
countries.
Currently, there are no approved treatments for NASH. While patients presenting with NASH are counseled on
lifestyle modifications, new effective treatments are urgently needed, particularly in the setting of advanced fibrosis
and cirrhosis. Currently, each of Intercept Pharmaceuticals, Genfit, Gilead and Allergan (Tobira) has a compound in
one or more Phase 3 trials in NASH. In addition, many Phase 2 and earlier stage studies of other classes of
compounds are underway by different companies.
Primary biliary cholangitis (formerly known as primary biliary cirrhosis), or PBC, is a chronic, or long-term, disease
of the liver that slowly destroys the medium-sized bile ducts within the liver. Bile is a digestive liquid that is made
in the liver. It travels through the bile ducts to the small intestine, where it helps digest fats and absorb fatty
vitamins. In patients with PBC, the bile ducts are destroyed by inflammation. This causes bile to remain in the liver,
where gradual injury damages liver cells and causes cirrhosis, or scarring of the liver. As cirrhosis progresses and
the amount of scar tissue in the liver increases, the liver loses its ability to function, leading to potential liver failure,
liver transplantation or hepatocellular carcinoma. While PBC is a relatively rare disease (the incidence in Europe,
North America, Asia and Australia ranges from 0.33-5.8 cases per 100,000, and is 10 times more common in women
than in men), it remains one of the major causes of liver failure and/or the need for liver transplant.
Agonists of the farnesoid X receptor, referred to as FXR agonists, have shown promising activity in many
preclinical models of liver disease. One FXR agonist, obeticholic acid, or OCA (brand name Ocaliva ®), which was
approved by the FDA in May 2016 for the treatment of PBC, has already demonstrated favorable clinical results in
NASH. We believe that new FXR agonists may provide substantial therapeutic benefit in NASH and PBC and may
overcome some of the potential shortcomings of OCA, including limited effects on resolution of NASH, elevation of
low-density lipoprotein, or LDL, and itching, also called pruritis.
Scientific Background
FXR is a nuclear hormone receptor that functions to modulate gene expression in response to various metabolic
stimuli. FXRs are expressed at high levels in the liver and intestine. Bile acids have been identified as important
physiological ligands for FXRs, able to bind and activate the receptor. The downstream gene modulation resulting
from bile acid engagement of FXRs not only contribute to the regulation of bile acid synthesis and metabolism, but
is also involved in a number of other metabolic processes, in particular lipid metabolism. More recently, it has been
discovered that bile acids, via FXR, are able to promote insulin sensitivity and decrease lipid synthesis in the liver.
In addition, studies have shown that bile acid-dependent FXR activation is able to provide beneficial effects on
fibrosis in the liver as well. For these reasons, FXR is considered to be a viable target for NASH. Recent Phase 2b
6
trials with OCA, a synthetic analog of natural bile acids known to activate FXR, demonstrated efficacy in NASH
patients. In PBC, improved outcomes would be expected due to the reduction of bile acid synthesis by activation of
FXR. OCA demonstrated efficacy in a Phase 3 trial in PBC, which was the basis for its conditional approval in the
U.S. in May 2016 for the treatment of PBC in combination with first line therapy ursodeoxycholic acid (UDCA) in
adults with an inadequate response to UDCA, or as monotherapy in adults unable to tolerate UDCA.
EDP-305 and Our Approach to the Treatment of NASH and PBC
Even though there has been clinical validation demonstrated by the FXR agonist, OCA, we believe that there is an
opportunity for the development of a treatment that shows improvements in potency and efficacy and reductions in
potential safety liabilities for the treatment of NASH and PBC. Using our strong chemistry capabilities, we have
undertaken the discovery and development of new FXR agonists that we believe may provide substantial
improvements over the FXR agonists currently in advanced clinical development.
EDP-305, our lead FXR agonist candidate, represents a new class of FXR agonists that has been designed to take
advantage of increased binding interactions with the receptor. Further, this non-bile acid class contains steroidal and
non-steroidal components, and does not contain the carboxylic acid group that can lead to the formation of taurine
and glycine conjugates normally associated with bile acids, which may also be present in other classes of FXR
agonists.
We reported the results of our Phase 1 a/b clinical study of EDP-305 in October 2017. Our double-blind, placebo-
controlled Phase 1 study was designed to evaluate the safety, tolerability and pharmacokinetics of single ascending
doses (SAD) and multiple ascending doses (MAD) of EDP-305 in adult healthy volunteer subjects, or HV subjects,
and subjects with presumptive NAFLD, or PN subjects. By presumptive NAFLD, we mean adults who are obese,
with or without pre-diabetes or type 2 diabetes.
In this Phase 1 study, EDP-305 was shown to be generally safe and well tolerated over a broad range of single and
multiple doses with pharmacokinetic (PK) data supporting once daily oral dosing. EDP-305 exhibited strong
engagement of the FXR receptor as evidenced by increased FGF19 levels and reduced C4 levels which can be
monitored as downstream markers indicating FXR activity. The results of the study support the ability to administer
EDP-305 in future trials at doses that neither elicit clinically significant changes in lipids nor result in pruritus.
•
•
•
A total of 146 subjects received at least one dose of EDP-305 (n=110) or placebo (n=36) including 50 HV
subjects in the SAD phases of the study and 96 (48 HV, and 48PN) subjects in the MAD phases of the
study. Overall, mean BMI in the PN cohort was 32 (29, 35). SAD had 6 cohorts at doses of 1, 5, 10, 20, 40
and 80 mg EDP-305/placebo, and MAD had 6 cohorts at doses of 0.5, 1, 2.5, 5, 10 and 20 mg EDP-
305/placebo for 14 days.
Strong FXR target engagement was demonstrated, with doses of EDP-305 > 1 mg increasing FGF19 and
reducing C4 in all subjects, while PN subjects were even more sensitive with significant effects also
observed in both parameters at the lowest multiple doses of 0.5 and 1 mg.
No serious adverse events (SAEs) were reported, and EDP-305 was generally well tolerated at all doses
tested.
o Treatment-emergent adverse events occurring in ≥ 2 EDP-305 treated subjects in MAD
cohorts were: headache and pruritus in HV subjects, and constipation and pruritus in PN
subjects.
o Of the cases of pruritus noted (9% for EDP-305, 3% in placebo), the majority were mild or
moderate and occurred at multiple doses of 20 mg, with no cases below 10mg. Notably, EDP-
305 demonstrated potent engagement of the FXR receptor across the lower dose range where
there was no pruritus.
o Two subjects discontinued treatment in the MAD phase at the 20 mg dose level, one for a
transient grade 2 elevation of ALT/AST liver enzymes, and one for moderate pruritus.
(cid:129) No dose-related changes in lipids were observed in HV subjects at any doses; and no dose-related changes
in lipids were observed in PN subjects except for reductions of total cholesterol and high-density
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lipoprotein, or HDL, cholesterol at the multiple 20mg dose, with no concomitant increase in low-density
lipoprotein, or LDL, cholesterol.
We plan to initiate a Phase 2 dose-ranging study in PBC patients by the end of 2017 and a Phase 2 dose-ranging
study in NASH patients in early 2018.
Our RSV Program
Background Overview of RSV
Respiratory syncytial virus, or RSV, is a virus that infects the lungs and represents a serious unmet medical need in
infants and children, as well as immune-compromised individuals and the elderly. RSV is the most common cause
of bronchiolitis (inflammation of the small airways in the lung) and pneumonia in children under 1 year of age in the
United States. Each year, 75,000 to 125,000 children in this age group are hospitalized due to RSV infection. In one
large U.S.-based study, RSV infection in children was associated with 20% of hospitalizations, 18% of emergency
department visits, and 15% of pediatric office visits for acute respiratory infections in the November-April
timeframe. Though a prophylactic monoclonal antibody-based treatment is available for infants considered at high
risk for RSV infection, this study found that most young children affected by RSV infection were previously
healthy, and thus would not normally be considered for prophylaxis. There is currently no safe and effective
treatment available for treating RSV infection.
Scientific Background
RSV is a member of the Paramyxoviridae family, and is a single-stranded, negative-sense RNA virus. The RSV
genome consists of ten genes that encode for 11 proteins, namely NS1, NS2, N, P, M, SH, G, F, M2-1, M2-2, and L.
The F and G proteins are the predominant target proteins for RSV vaccines. Similarly, small molecule therapeutics
have focused primarily on the F (or fusion) protein, while some efforts have targeted the N and L proteins. There are
two major subgroups of RSV, designated RSV-A and RSV-B, each of which contains numerous genotypes. Both
groups are viewed as capable of causing RSV infections that can result in hospitalization.
EDP-938 and Our approach to the treatment of RSV
While a number of companies are developing potential approaches geared towards the F protein (or fusion protein,
responsible for mediating viral entry of RSV into host cells), we are focused on the N-protein mechanism that
targets the replication process of RSV. It is possible that N-protein inhibitors may also be effective at later stages of
infection. Through our internal chemistry efforts, we have identified a clinical candidate, EDP-938, a potent
inhibitor of RSV-A and RSV-B, and plan to initiate a Phase 1 clinical study by the end of calendar 2017.
Our HBV Program
Background and Overview of HBV
Hepatitis B virus, or HBV, can cause potentially life-threatening liver infection. The virus is transmitted through
contact with the blood or other bodily fluids of an infected person. It is estimated that approximately 250 million
people worldwide are chronically infected, and 15-25% of patients with chronic HBV infection develop chronic
liver disease, including cirrhosis, liver cancer, or liver decompensation. It is also estimated that more than 885,000
people worldwide died in 2015 due to complications of HBV. Estimates for the total number of persons chronically
infected with HBV in the U.S. vary but generally range between 0.5 million and 2.0 million. Combining U.S., Japan,
and major EU populations, estimates of HBV prevalence have been as high as 4.9 million.
Current approaches to treatment include interferon therapy and/or inhibitors of HBV reverse transcriptase, the
enzyme responsible for viral DNA synthesis, which is necessary for HBV replication. Treatment with interferon
offers modest cure rates, and is accompanied by serious side effects, including flu-like symptoms, fatigue, headache
and nausea. Reverse transcriptase inhibitors can be very effective at suppressing the virus but often require lifelong
therapy and rarely result in full eradication of the virus from the liver. New treatments that can provide functional
cures to chronically-infected patients are urgently needed.
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Scientific Background
HBV is a partially double-stranded DNA virus, with a complex life cycle. There are multiple mechanisms associated
with HBV replication that could potentially be targeted with new drugs, including mechanisms of entry, capsid
assembly, cccDNA formation, transcription and secretion, as well as reverse transcriptase. In addition, host factor
and immunological mechanisms could play a role as well.
Our approach to the treatment of HBV
We are initially focusing on new core inhibitors that we expect to have an impact on capsid assembly and possibly
interfere with other viral processes. This approach is supported by early clinical validation, with the core inhibitor
NVR 3-778 from Novira and JNJ-56136379 from Janssen demonstrating clinical reduction of viral DNA in chronic
HBV patients in short-term Phase 2 clinical studies. We are making significant progress in discovering,
characterizing, and securing patent protection for new core inhibitors.
Our goal is to identify a development candidate from our HBV program in 2018. In addition, we are conducting
preclinical experiments with other mechanisms that target HBV.
Our Licensed HCV Protease Inhibitor Products
Background and Overview of HCV Market
HCV is a virus that is a common cause of viral hepatitis, an inflammation of the liver. HCV is typically contracted
by contact with the blood or other body fluids of another individual infected with HCV. HCV is a leading cause of
chronic liver disease, including cirrhosis, liver failure and cancer, and the leading cause of death from liver disease
in the United States. HCV disease progression occurs over a period of 20 to 30 years, with the majority of HCV-
infected individuals generally exhibiting no major symptoms in the early stages of the disease. Therefore, until a
major symptom is diagnosed, many individuals are unaware they are infected and live undiagnosed without seeking
treatment. For that reason, combined with the new availability of effective treatments for HCV, the United States
Centers for Disease Control and Prevention, or CDC, issued new guidelines in 2013 recommending screening for all
Americans born between the years 1945 and 1965 so that HCV-infected individuals will be aware of their condition
and can consider treatment options.
An estimated 180 million people worldwide are chronically infected with HCV and have an increased risk of
eventually developing liver cirrhosis or liver cancer. More than 350,000 people die every year from HCV-related
liver diseases. The CDC estimated in 2016 that 2.7-3.9 million people in the United States are chronically infected
with HCV, with an estimated 33,900 new infections in 2015, the most recent year for which the CDC has published
data. We believe that the chronically infected population remains significantly untreated, even with the introduction
of several new regimens beginning in 2013. With the introduction of Gilead’s Harvoni® and AbbVie’s VIEKIRA
PAK® in late 2014, the reported worldwide sales of the five leading HCV therapies in 2015 totaled approximately
$23 billion. After the introduction of Merck’s 2-DAA regimen (brand name ZEPATIER™) and Gilead’s pan-
genotypic 2-DAA regimen (brand name Epclusa™), reported worldwide sales of the seven leading HCV therapies in
2016 totaled approximately $19 billion. Reported worldwide net sales of the eight leading HCV therapies through
the nine months ended September 30, 2017 totaled approximately $10 billion. In the quarter ending September 30,
2017, AbbVie’s new, pan-genotypic regimen, MAVYRET/MAVIRET, was approved in the U.S., the EU, Japan and
other jurisdictions, including approval for 8-week treatment of treatment-naïve, non-cirrhotic HCV patients, and
Gilead’s new 3-DAA regimen, VOSEVI, was also approved as a 12-week regimen, including approval in specified
DAA-experienced patients.
HCV sales have declined since their peak in 2015 due to competitive pricing pressures and a decline in the number
of patients treated annually after the initial wave of diagnosed chronic HCV patients who had urgency for treatment.
After the regulatory approvals of MAVYRET and VOSEVI, Johnson & Johnson and Merck announced they had
terminated their development of additional HCV treatments.
The approved treatments for HCV have provided significant benefit to HCV patients. To date, these treatments have
cure rates approaching 100% in several subpopulations. Medical practice defines a “cure” as the point at which there
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is no quantifiable virus in a patient’s blood for a sustained period of time after cessation of therapy, which is often
referred to as a sustained virologic response, or SVR.
Scientific Background
Most of the currently approved HCV therapies targeting HCV focus directly on the viral life cycle and proteins that
are critical to HCV replication. Replication of the HCV genome occurs on intracellular membranes and requires the
participation of multiple viral proteins, some of which have enzymatic activities. Agents, often referred to as
inhibitors, that target viral proteins directly are generally referred to as direct acting antivirals, or DAAs. All
currently approved DAA therapies include one or a combination of two or more inhibitors of the NS3 protease, the
NS5A protein, and the NS5B polymerase.
NS3 Protease. As HCV replicates, it generates long strands of protein that must be processed into many individual
active functional proteins that are referred to as non-structural proteins with the designated abbreviation NS,
including NS3 and NS5A. The NS3 protease is responsible for most of this protein processing of the newly
translated HCV protein, and plays an essential role in the viral life cycle. Inhibition of the protease prevents these
new critical proteins from forming and therefore prevents replication and survival of the virus.
NS5A. The NS5A protein has key roles in both the RNA replication of HCV and modulation of the physiology of its
host cell in the body. Research has shown that targeting NS5A gives rise to profound antiviral activity, and as a
result, this protein has emerged as an additional important DAA target for anti-HCV drugs.
NS5B Polymerase. HCV is a single-stranded RNA virus, and NS5B is an HCV RNA polymerase responsible for
synthesis of new HCV RNA, allowing the HCV genome to be copied and the virus to survive and replicate. Two
separate classes of DAA inhibitors of NS5B polymerase are used as treatments for HCV. Nucleoside/nucleotide
inhibitors of NS5B directly inhibit the active site of that enzyme and prevent further elongation of the RNA, and
thus are equally active against all HCV genotypes. A second class, known as non-nucleoside inhibitors, affects
replication of the RNA by altering the shape of the enzyme at remote sites on the enzyme surface, with the result
being that any given non-nucleoside inhibitor is usually only active against certain HCV genotypes.
Our Licensed Products in AbbVie’s Marketed Therapies
Paritaprevir - The first protease inhibitor developed through our collaboration with AbbVie, paritaprevir is one
DAA in AbbVie’s 3-DAA regimen marketed as VIEKIRA PAK® in the U.S. (containing
paritaprevir/ritonavir/ombitasvir/dasabuvir). Co-administration of paritaprevir with ritonavir, which we refer to
together as paritaprevir/r, combines paritaprevir with a commonly used boosting agent that increases the blood
concentrations of many protease inhibitors and has enabled once-daily dosing of paritaprevir. AbbVie developed
paritaprevir/r in the 3-DAA combination with its non-nucleoside polymerase and NS5A inhibitors, with or without
ribavirin, for treatment of genotype 1 HCV patients This 3-DAA combination has been sold as VIEKIRA PAK in
the U.S. since December 2014, and as VIEKIRAX®+EXVIERA® in the EU since January 2015, for non-cirrhotic
patients and those with early stage, or compensated, cirrhosis. AbbVie also markets a 2-DAA combination of
paritaprevir with the same NS5A inhibitor for genotype 4 HCV patients in the U.S. and EU under the name
VIEKIRAX, which is also approved for genotype 1 patients in Japan.
Glecaprevir - Our second protease inhibitor, glecaprevir, was developed by AbbVie in combination with
pibrentasvir, AbbVie’s second NS5A inhibitor. This co-formulated combination, marketed as MAVYRET (U.S.) or
MAVIRET (ex-U.S.), contains two new DAAs that target and inhibit proteins essential for the replication of the
hepatitis C virus. MAVYRET/MAVIRET is approved in the U.S. and the EU as an 8-week, pan-genotypic, fixed-
dose combination treatment, dosed once-daily as three oral tablets, taken with food, for chronic HCV patients
without cirrhosis and new to treatment. MAVYRET/MAVIRET is also approved as a treatment for patients with
specific treatment challenges, including those GT-1 patients not cured by prior treatment experience with either a
protease inhibitor or an NS5A inhibitor (but not both), and in patients with limited treatment options, such as those
with severe chronic kidney disease (CKD) or those with genotype 3 chronic HCV. MAVYRET/MAVIRET is
approved for use in patients across all stages of CKD with any of the major HCV genotypes (GT1-6).
10
•
The approvals of MAVYRET/MAVIRET are supported by data from nine registrational studies in
AbbVie’s clinical development program, which evaluated more than 2,300 patients in 27 countries across
all major HCV genotypes (GT1-6) and special populations. The key studies are summarized below:
Study Name
ENDURANCE-1
Patient Population
GT1 without cirrhosis, new to treatment or
not cured with previous IFN-based
treatments (pegIFN +/- RBV or SOF/RBV
+/- pegIFN), and patients co-infected with HIV-1
ENDURANCE-3
GT3 without cirrhosis,
new to treatment
SURVEYOR-2
(Part 4)
GT2, 4, 5, or 6 without cirrhosis, new to treatment
or not cured with previous IFN-based treatments
(pegIFN, SOF/RBV or pegIFN/SOF)
Treatment
Duration
8 weeks
8 weeks
8 weeks
EXPEDITION-1
GT1, 2 with compensated cirrhosis (Child-Pugh A)
12 weeks
SVR12 Rate
99%
(n=348/351)
95%
(n=149/157)
97%
(n=196/203)
99%
(n=145/146)
GT1-6 chronic HCV infection and chronic kidney
disease (CKD), including those on dialysis, not
cured with previous treatment with sofosbuvir
(SOF) plus ribavirin (RBV)
or with interferon (IFN) plus RBV, with or without
SOF
12 weeks
98%
(n=102/104)
EXPEDITION-4
Drug Discovery
We have internally discovered all of the compounds in our research and development programs. Our scientists have
expertise in the areas of medicinal chemistry, molecular virology and pharmacology, with highly developed sets of
skills in compound generation, target selection, screening and pharmacology, preclinical development and lead
optimization. We are utilizing these skills and capabilities in our discovery and development of virology and liver
disease product candidates.
We focus on virology and liver disease indications representing large and growing market opportunities with
significant unmet medical needs. Our selection of a particular therapeutic target within those disease indications
takes into consideration the experience and expertise of our scientific team and includes our ability to generate
robust medicinal chemistry structure-activity relationships to assist lead optimization and secure relevant intellectual
property rights. Once we have identified lead compounds, they are tested using in vitro and in vivo pharmacology
studies and in vivo research models of antiviral or antibacterial efficacy.
Collaboration and License Agreement with AbbVie
We entered into a Collaborative Development and License Agreement with Abbott Laboratories in November 2006 to
develop and commercialize HCV NS3 and NS3/4A protease inhibitors. The agreement, which was amended in January
and December 2009, was then assigned to AbbVie Inc. on January 1, 2013 in connection with Abbott’s transfer of its
research-based pharmaceuticals business to AbbVie. Under the agreement, we have granted AbbVie an exclusive,
worldwide, royalty-bearing license, including a right to grant sublicenses, to specified intellectual property, including
several issued U.S. patents, relating to protease inhibitors. We also granted AbbVie access to our drug discovery
capabilities in the HCV NS3 and NS3/4A protease inhibitor field. AbbVie granted us a co-exclusive (together with
AbbVie), royalty-free, fully paid license, without the right to grant sublicenses, to certain of AbbVie’s intellectual
property, AbbVie’s interest in joint intellectual property and improvements discovered by AbbVie, for the purpose of
allowing us to conduct certain development and commercialization activities in the United States relating to protease
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inhibitors. AbbVie is responsible for and has funded all costs associated with the development, manufacturing and
commercialization of paritaprevir, glecaprevir and any other compounds under this agreement. Under the agreement,
we are eligible to receive milestone payments and royalties with respect to these compounds. So long as a product
candidate is being developed or commercialized under the agreement, we undertake not to conduct any activity, or
grant licenses to a third party, relating to protease inhibitors.
A joint steering committee was established under the agreement with review and oversight responsibilities for all
research, development and commercialization activities. The joint steering committee is comprised of three of our
senior personnel and three senior personnel from AbbVie; however, AbbVie has final authority to make all decisions
regarding development and commercialization activities.
The research program and the evaluation period, which was performed by both parties, ended in June 2011. The first
commercialized compound was paritaprevir, and glecaprevir is now the second commercialized protease inhibitor.
AbbVie’s MAVYRET/MAVIRET, which is the fixed-dose combination of glecaprevir with pibrentasvir, received
regulatory approval in the U.S., EU and Japan in the quarter ending September 30, 2017. Through September 30,
2017, we have received a total of $500.0 million from AbbVie as part of our collaboration, consisting of license
payments, proceeds from a sale of preferred stock, research funding payments, milestone payments and royalties.
We earned a $15.0 million milestone payment upon reimbursement approval of MAVIRET in Japan in November
2017.
We are receiving annually tiered royalties on each protease product developed under the agreement, ranging from
the low double digits up to twenty percent, or on a blended basis from the low double digits up to the high teens,
based on AbbVie’s calendar year net sales of its HCV regimens that are allocated to the protease product in each
regimen. However, if a product is determined to be a combination product, as is the case for both paritaprevir and
glecaprevir, the net sales of the combination product are adjusted on a country-by-country and product-by-product
basis to reflect a good faith determination of the relative value of each pharmaceutically active ingredient, based on
the estimated fair market value. This means that a portion of AbbVie’s worldwide annual net sales of a combination
product or regimen is first allocated to one of our protease inhibitors and then that royalty-bearing portion is
multiplied by the annually tiered royalty rates to determine our actual royalty for the protease product in that
regimen in a given period. In October 2014, we entered into an amendment to our agreement with AbbVie to
finalize the net sales allocations for regimens containing paritaprevir, as well as for any regimen containing
glecaprevir. Under the terms of the agreement as amended, 50% of AbbVie’s net sales of the
MAVYRET/MAVIRET regimen containing glecaprevir are allocated to glecaprevir net sales for purposes of
calculating royalties, whereas only 30% of net sales of a 3-DAA regimen containing paritaprevir and 45% of net
sales of a 2-DAA regimen containing paritaprevir are allocated to paritaprevir net sales. These royalties are
calculated separately for each protease product, and the tiered royalty rates return to the lowest tier at the start of
each calendar year.
Royalties owed to us under the agreement can be reduced by AbbVie in certain circumstances, including (i) if
AbbVie exercises its right to license or otherwise acquire rights to intellectual property controlled by a third party
where a product could not be legally developed or commercialized in a country without the third-party intellectual
property right, (ii) where a product developed under the collaboration agreement is sold in a country and not covered
by a valid patent claim in such country, or (iii) where sales of a generic product are equal to at least a specified
percentage of AbbVie’s market share of a product in a country.
AbbVie’s obligation to pay royalties on products developed under the agreement expires on a country-by-country
and product-by-product basis upon the later of (i) the date of expiration of the last of the licensed patents with a
valid claim covering the product in the applicable country, and (ii) ten years after the first commercial sale of the
product in the applicable country.
Our intellectual property existing as of the effective date of the agreement remains our property. Any intellectual
property jointly developed is jointly owned. We will have the unilateral right to enforce our patent rights on any
covered product following the first commercial sale of such product, as will AbbVie. In the event of infringement
related to any of our patents, we will have the first right and option to initiate legal proceedings or take other actions.
In the event of infringement related to any AbbVie patents, AbbVie will have the first right and option to initiate
legal proceedings or take other actions. In the event of infringement of a joint patent right, we will discuss with
12
AbbVie whether to initiate legal proceedings or take other actions. AbbVie will have the obligation to defend at its
sole expense any actions brought against either party alleging infringement of third-party rights by reason of the
activities conducted under the agreement and we will have the right to obtain separate counsel at our own expense.
Additionally, AbbVie, at its sole expense, will be responsible for all trademark prosecution.
Subject to the exceptions described above, a party’s rights and obligations under the agreement continue until:
(i) such time as AbbVie is no longer developing a product candidate or (ii) if, as of the time AbbVie is no longer
developing any product candidates, AbbVie is commercializing any other protease inhibitor product, such time as all
royalty terms for all covered products and all co-development terms for all co-developed products have ended.
Accordingly, the final expiration date of the agreement is currently indeterminable.
Either party may terminate the agreement for cause in the event of a material breach, subject to prior notice and the
opportunity to cure, or in the event of the other party’s bankruptcy. Additionally, AbbVie may terminate the
agreement for any reason upon specified prior notice.
If we terminate the agreement for cause or AbbVie terminates without cause, any licenses and other rights granted to
AbbVie will terminate and AbbVie will be deemed to have granted us (i) a non-exclusive, perpetual, fully paid,
worldwide, royalty-free license, with the right to sublicense, under AbbVie’s intellectual property used in any
product candidate and (ii) an exclusive (even as to AbbVie), perpetual, fully paid, worldwide, royalty-free license,
with the right to sublicense, under AbbVie’s interest in joint intellectual property rights to develop product
candidates resulting from covered compounds and to commercialize any products derived from such compounds.
Upon our request, AbbVie will also transfer to us all right, title and interest in any related product trademarks,
regulatory filings and clinical trials.
If AbbVie terminates the agreement for our uncured breach, the milestone and royalty payments payable by AbbVie
may be reduced, the licenses granted to AbbVie will remain in place, we will be deemed to have granted AbbVie an
exclusive license under our interest in joint intellectual property, AbbVie will continue to have the right to
commercialize any covered products, and all rights and licenses granted to us by AbbVie will terminate.
Competition
We are engaged in segments of the pharmaceutical industry that are highly 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,
NASH, PBC, RSV and HBV and other viral infections or liver diseases that we may target in the future.
Many of our competitors have substantially greater commercial infrastructures and financial, technical and
personnel resources than we have, as well as drug candidates in late-stage clinical development. We will not be able
to compete successfully unless we are able to:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
design and develop products that are superior to other products in the market;
attract qualified scientific, medical, sales and marketing and commercial personnel;
obtain patent and/or other proprietary protection for our processes and product candidates;
obtain required regulatory approvals; and
collaborate with others in the development and commercialization of new products.
Established competitors may invest heavily to quickly discover and develop novel compounds that could make our
product candidates obsolete. In addition, any new product that competes with an approved product must demonstrate
compelling advantages in efficacy, convenience, tolerability and safety, or some combination of these factors, in
order to overcome price competition and to be commercially successful.
We expect AbbVie’s HCV treatment regimens containing any of our licensed protease inhibitors to continue to face
intense competition from existing approved products in the HCV market. AbbVie’s HCV treatment regimens
currently face competition in various world markets and subpopulations of HCV. The principal competitive
13
treatments are Gilead’s Sovaldi® (sofosbuvir), Harvoni® (a fixed-dose combination of sofosbuvir and ledipasir),
Epclusa® (a fixed dose combination of sofosbuvir and velpatasvir) and Vosevi™ (a triple combination therapy of
sofosbuvir, velpatasvir and voxilaprevir approved by the FDA in July 2017 for specified sofosbuvir -treatment
failures and NS5A-inhibitor treatment failures); Merck’s Zepatier® (a fixed-dose combination of grazoprevir and
elbasvir); with limited competition in certain sub-populations in specific geographies from Bristol-Myers Squibb’s
Daklinza™ (daclatasvir) and daclatasvir in combination with asunaprevir; and Johnson & Johnson’s
Olysio® (simeprevir).
Competitive products in the form of other treatment methods or a vaccine for HCV may render AbbVie’s products
obsolete or noncompetitive. AbbVie’s marketed HCV regimens that contain one of our collaboration’s protease
inhibitors will face competition based on their safety and effectiveness, reimbursement coverage, price, patent
position, marketing and sales capabilities, and other factors. If any of the products developed under our collaboration
agreement with AbbVie face competition from generic products, the collaboration agreement provides that the
royalty rate applicable to such product 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 current and future competitors for
AbbVie’s HCV products, our financial condition, operations and stock price will suffer.
We also expect our product candidates in other disease areas to face intense and increasing competition as new
products continue to enter the NASH and antiviral markets and advanced technologies become available. Though
there is currently no approved treatment for NASH, we expect significant competition from other companies in the
development of new treatments for NASH and related conditions. We are aware of several companies with programs
that are significantly more advanced than ours, including companies with compounds in Phase 3 in NASH, namely
Intercept, Genfit, Gilead, and Allergan (Tobira). In May 2016, the FDA granted conditional approval for Intercept’s
FXR agonist (brand name Ocaliva®) for the treatment of primary biliary cholangitis (PBC) in combination with first
line therapy UDCA in adults with an inadequate response to UDCA, or as monotherapy in adults unable to tolerate
UDCA. In addition, a number of companies are in Phase 2 clinical trials for NASH or related conditions. These
companies include Alberio, Arisaph, Astra-Zeneca, BMS, Boehringer Ingelheim, Conatus, Cirius, Galectin, Galmed,
Gilead, GlaxoSmithKline, Immuron, Inventiva, Madrigal, Medicinova, Novartis, NGM, Novo Nordisk, Pfizer,
Shire, and Viking. A significant number of other companies are conducting earlier clinical trials that may be
applicable in NASH and other cholestatic diseases, including Bird Rock Bio, Arena Pharmaceuticals, Fast Forward
Pharmaceuticals, Can-Fite Biopharma, Cymabay, Durect, Genkyotex, Ionis, and Islet. There are also additional
companies conducting preclinical studies in these disease areas.
Similarly, HBV and RSV represent competitive therapeutic areas. While there are effective antiviral medications
prescribed for HBV, they generally have low true cure rates. Many companies are seeking to develop new HBV
drugs that alone or in combination with other mechanisms could lead to a functional cure of HBV. Arbutus, Gilead,
HEC, Ionis, Johnson & Johnson, Maxwell, Replicor, Roche and Spring Bank have Phase 2 programs in progress,
with many of these companies conducting earlier stage programs as well. In addition, a number of companies have
Phase 1 or earlier stage HBV programs, including Aicuris, Alnylam, Altimmune, Assembly, Enyo and Transgene.
For RSV, there are currently no safe and effective therapies for already established RSV infection. Several
companies are seeking new antiviral treatments for RSV infection in adult and pediatric settings. Ark Bioscienes,
Johnson & Johnson, Gilead and ReViral have compounds in Phase 2 development, as does Ablynx with a potential
therapeutic antibody. Earlier stage, small molecule programs have also been reported by Medivir and Pulmocide. A
prophylactic, monoclonal-antibody-based treatment from MedImmune, which is commercialized by AbbVie outside
of the U.S., is approved for infants considered at high risk for RSV infection; however studies have found that most
young children affected by RSV infection were previously healthy, and thus would not normally be prescribed
prophylactic treatment. In addition, a number of companies have RSV vaccines in development, primarily directed
at prevention of RSV infection, and some companies are also evaluating vaccines in a therapeutic mode for
treatment of established RSV infection.
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.
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Intellectual Property
As part of our business strategy, we actively seek patent protection for our product candidates in the United States
and certain major foreign jurisdictions and file additional patent applications, when appropriate, to cover
improvements to our compounds. We also rely on trade secrets, internal know-how, technological innovations and
agreements with third parties to develop, maintain and protect our competitive position. Our ability to be
competitive will depend on the success of this strategy.
Each of our major programs, including HCV, NASH, PBC, HBV and RSV, typically has several issued patents and
pending patent claims in the program area containing claims to compounds, methods of use and processes for
synthesis. However, only a few of the issued patents and/or pending patent applications cover the lead product
candidate in a given program.
NASH, HBV and RSV Programs. Our patent portfolio directed to FXR agonists for NASH, PBC and fibrosis, core
inhibitors for HBV and N-protein inhibitors for RSV includes pending U.S. patent applications as well as numerous
foreign patent applications.
HCV NS3 Protease Inhibitor Program. The patent portfolio directed to the HCV protease inhibitor program with
AbbVie includes U.S. patents and foreign patents, as well as non-provisional applications. The issued U.S.
composition-of-matter patent covering paritaprevir is expected to expire in 2031. The issued U.S. composition-of-
matter patent covering glecaprevir is expected to expire in 2032. AbbVie is a joint owner of a number of these patent
applications. AbbVie also has rights to some or all of these patents and patent applications pursuant to its
collaboration agreement with us.
We may obtain patents for certain compounds many years before we obtain marketing approval for products
containing such compounds. Because patents have a limited life, which usually begins to run well before the first
commercial sale of the related product, the commercial value of the patent may be limited. However, we may be
able to apply for patent term extensions in the United States and in a number of European countries, compensating
in part for delays in obtaining marketing approval, but we cannot be certain we will obtain such extensions.
It is also very important that we do not infringe patents or other proprietary rights of others. If we do infringe such
patents or other proprietary rights, we could be prevented from developing or selling products or from using the
processes covered by those patents, could be required to pay substantial damages, or could be required to obtain a
license from the third party to allow us to use their technology, which may not be available on commercially
reasonable terms or at all. If we were not able to obtain a required license or develop alternative technologies, we
may be unable to develop or commercialize some or all of our products, and our business could be adversely
affected.
In addition, we jointly own patent applications, together with AbbVie, that claim paritaprevir and glecaprevir as a
chemical entity. However, there is no guarantee that such applications will issue. Further, the existence of issued
patents does not guarantee our right to practice the patented technology or commercialize the patented product.
Third parties may have already or could obtain rights to patents that could be used to prevent or attempt to prevent
us from commercializing our product candidates. If these other parties are successful in obtaining valid and
enforceable patents, and establishing our infringement of those patents, we could be prevented from
commercializing our product candidates unless we were able to obtain a license under such patents, which may not
be available on commercially reasonable terms or at all.
Much of our scientific capabilities depend upon the knowledge, experience and skills of key scientific and technical
personnel. To protect our rights to our proprietary know-how and technology, we endeavor to require all employees,
as well as our consultants and advisors, when feasible, to enter into confidentiality agreements that require
disclosure and assignment to us of ideas, developments, discoveries and inventions made by these employees,
consultants and advisors in the course of their service to us.
We may be unable to obtain, maintain and protect the intellectual property rights necessary to conduct our business,
and we may be subject to claims that we infringe or otherwise violate the intellectual property rights of others,
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which could materially harm our business. For more information, see “Risk Factors—Risks Related to Our
Intellectual Property Rights.”
Government Regulation
Government authorities in the United States, at the federal, state and local level, and in other countries extensively
regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling,
packaging, storage, record-keeping, promotion, advertising, distribution, post-approval monitoring and reporting,
marketing and export and import of products such as those we develop. Any pharmaceutical candidate that we
develop must be approved by the FDA before it may be legally marketed in the United States and by the appropriate
foreign regulatory agency before it may be legally marketed in foreign countries.
United States Drug Development Process
In the United States, the FDA regulates drugs under the Federal Food, Drug and Cosmetic Act, or FDCA, and
implementing regulations. Drugs are also subject to other federal, state and local statutes and regulations. The
process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and
foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply
with the applicable United States requirements at any time during the product development process, approval
process or after approval, may subject an applicant to administrative or judicial sanctions. FDA sanctions could
include refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product
recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of
government contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement
action could have a material adverse effect on us.
The process required by the FDA before a drug may be marketed in the United States generally involves the
following:
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Completion of preclinical laboratory tests, animal studies and formulation studies according to Good
Laboratory Practice, or GLPs, or other applicable regulations;
Submission to the FDA of an Investigational New Drug Application, or an IND, which must become
effective before human clinical trials may begin;
Performance of adequate and well-controlled human clinical trials according to the FDA’s current Good
Clinical Practice, or GCPs, to establish the safety and efficacy of the proposed drug for its intended use;
Submission to the FDA of a New Drug Application, or an NDA, for a new drug product;
Satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the drug
is to be produced to assess compliance with the FDA’s current Good Manufacturing Practice standards,
or cGMP, to assure that the facilities, methods and controls are adequate to preserve the drug’s identity,
strength, quality and purity;
Potential FDA audit of the nonclinical and clinical trial sites that generated the data in support of the
NDA; and
FDA review and approval of the NDA.
The lengthy process of seeking required approvals, which can often take anywhere from six months from the time
the NDA is filed if there is a priority review for a breakthrough therapy to twelve months for a standard review, and
the continuing need for compliance with applicable statutes and regulations require the expenditure of substantial
resources. There can be no certainty that approvals will be granted.
Before testing any compounds with potential therapeutic value in humans, the product candidate enters the
preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity and
formulation, as well as animal studies to assess the potential safety and activity of the product candidate. The
conduct of the preclinical tests must comply with GLP and other federal regulations and requirements. The sponsor
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must submit the results of the preclinical tests, together with manufacturing information, analytical data, any
available clinical data or literature and a proposed clinical protocol, to the FDA as part of the IND. The IND
automatically becomes effective 30 days after receipt by the FDA, unless the FDA places the clinical trial on a
clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any
outstanding concerns before the clinical trial can begin. The FDA may also impose clinical holds on a drug at any
time before or during clinical trials due to safety concerns or non-compliance. Accordingly, we cannot assure that
submission of an IND will result in the FDA allowing clinical trials to begin, or that, once begun, issues will not
arise that result in suspension or termination of such trial.
Clinical trials involve the administration of the product candidate to healthy volunteers or patients having the disease
being studied under the supervision of qualified investigators, generally physicians not employed by or under the
trial sponsor’s control. Clinical trials are conducted under protocols detailing, among other things, the objectives of
the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to
monitor subject safety. Each protocol must be submitted to the FDA as part of the IND. Clinical trials must be
conducted in accordance with the FDA’s GCP requirements. Further, each clinical trial must be reviewed and
approved by an independent institutional review board, or IRB, at or servicing each institution at which the clinical
trial will be conducted. An IRB is charged with protecting the welfare and rights of trial participants and considers
such items as whether the risks to individuals participating in the clinical trials are minimized and are reasonable in
relation to anticipated benefits. The IRB also approves the informed consent form that must be provided to each
clinical trial subject or his or her legal representative and must monitor the clinical trial until it is completed.
Human clinical trials prior to approval are typically conducted in three sequential phases that may overlap or be
combined:
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Phase 1. The drug is initially introduced into healthy humans and tested for safety, dosage tolerance,
absorption, metabolism, distribution and excretion. In the case of some products for severe or life-
threatening diseases, especially when the product may be too inherently toxic to ethically administer to
healthy volunteers, the initial human testing is often conducted only in patients having the specific
disease.
Phase 2. The drug is evaluated in a limited patient population to identify possible adverse effects and
safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to
determine dosage tolerance, optimal dosage and dosing schedule for patients having the specific disease.
Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an
expanded patient population at geographically dispersed clinical trial sites. These clinical trials, which
usually involve more patients than earlier trials, are intended to establish the overall risk/benefit ratio of
the product and provide an adequate basis for product labeling. Generally, at least two adequate and
well-controlled Phase 3 clinical trials are required by the FDA for approval of an NDA.
Post-approval studies, or Phase 4 clinical trials, may be conducted after initial marketing approval. These studies are
used to gain additional experience from the treatment of patients in the intended therapeutic indication and may be
required by the FDA as part of the approval process.
Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA and written
IND safety reports must be submitted to the FDA by the investigators for serious and unexpected adverse events or
any finding from tests in laboratory animals that suggests a significant risk for human patients. Phase 1, Phase 2 and
Phase 3 clinical trials may not be completed successfully within any specified period, if at all. The FDA, or the
sponsor or its data safety monitoring board, may suspend a clinical trial at any time on various grounds, including a
finding that the research patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or
terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the
IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.
Concurrent with clinical trials, companies usually complete additional animal studies and develop additional
information about the chemistry and physical characteristics of the drug as well as finalize a process for
manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing
process must be capable of consistently producing quality batches of the product candidate and, among other things,
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must include methods for testing the identity, strength, quality and purity of the final drug. Additionally, appropriate
packaging must be selected and tested and stability studies must be conducted to demonstrate that the product
candidate does not undergo unacceptable deterioration over its shelf life.
U.S. Review and Approval Processes
The results of product development, preclinical studies and clinical trials, along with descriptions of the
manufacturing process, analytical tests conducted on the chemistry of the drug, proposed labeling and other relevant
information are submitted to the FDA as part of an NDA requesting approval to market the product. The submission
of an NDA is subject to the payment of substantial user fees by the applicant; a waiver of such fees may be obtained
under certain limited circumstances.
In addition, under the Pediatric Research Equity Act, or PREA, an NDA or supplement to an NDA must contain
data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric
subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is
safe and effective. The FDA may grant deferrals for submission of pediatric data or full or partial waivers.
The FDA reviews all NDAs submitted before it accepts them for filing and may request additional information
rather than accepting an NDA for filing. Once the submission is accepted for filing, the FDA begins an in-depth
review of the NDA. Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act, or
PDUFA, the FDA has twelve months in which to complete its initial review of a standard NDA and respond to the
applicant, and six months for a priority NDA. The FDA does not always meet its PDUFA goal dates for standard
and priority NDAs.
After the NDA submission is accepted for filing, the FDA reviews the NDA to determine, among other things,
whether the proposed product is safe and effective for its intended use and whether the product is being
manufactured in accordance with cGMP to assure and preserve the product’s identity, strength, quality and purity. In
addition to its own review, the FDA may refer applications for novel drug products or drug products that present
difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other
experts, for review, evaluation and a recommendation as to whether the application should be approved and under
what conditions. The FDA is not bound by the recommendations of an advisory committee, but it considers such
recommendations carefully when making decisions. During the approval process, the FDA also will determine
whether a Risk Evaluation and Mitigation Strategy, or REMS, is necessary to assure the safe use of the drug. If the
FDA concludes that a REMS is needed, the sponsor of the NDA must submit a proposed REMS; the FDA will not
approve the NDA without a REMS, if required.
Before approving an NDA, the FDA will inspect the facilities at which the product is to be manufactured. The FDA
will not approve the product unless it determines that the manufacturing processes and facilities are in compliance
with cGMP requirements and are adequate to assure consistent production of the product within required
specifications. Additionally, before approving an NDA, the FDA will typically inspect one or more clinical sites to
assure compliance with GCP. If the FDA determines that the application, manufacturing process or manufacturing
facilities are not acceptable it will outline the deficiencies in the submission and often will request additional testing
or information.
The NDA review and approval process is lengthy and difficult, and the FDA may refuse to approve an NDA if the
applicable regulatory criteria are not satisfied or may require additional clinical data or other data and information.
Even if such data and information is submitted, the FDA may ultimately decide that the NDA does not satisfy the
criteria for approval. Data obtained from clinical trials are not always conclusive and may be susceptible to varying
interpretations, which could delay, limit or prevent regulatory approval. The FDA will issue a “complete response”
letter if the agency decides not to approve the NDA. The complete response letter usually describes all of the
specific deficiencies in the NDA identified by the FDA. The deficiencies identified may be minor, for example,
requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the complete
response letter may include recommended actions that the applicant might take to place the application in a
condition for approval. If a complete response letter is issued, the applicant may either resubmit the NDA,
addressing all of the deficiencies identified in the letter, or withdraw the application.
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If a product receives regulatory approval, the approval may be limited to specific diseases and dosages or the
indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the
FDA may require that certain contraindications, warnings or precautions be included in the product labeling. In
addition, the FDA may require Phase 4 testing, which involves clinical trials designed to further assess a product’s
safety and effectiveness and may require testing and surveillance programs to monitor the safety of approved
products that have been commercialized.
Expedited Development and Review Programs
The FDA has four programs intended to expedite the development and review of new drugs addressing unmet
medical needs or treating serious or life-threatening conditions: fast track, breakthrough therapy, priority review, and
accelerated approval.
The FDA “fast track” program is intended to expedite or facilitate the process for reviewing new products to treat
serious or life-threatening conditions and address unmet medical needs. Fast track designation applies to the
combination of the product and the specific indication for which it is being studied. Under the fast track program,
the sponsor will have more frequent interactions with the FDA during drug development, and may also submit
sections of the NDA on a rolling basis to the FDA for review before submitting the complete application. Fast track
does not guarantee that a product will be reviewed more quickly or receive FDA approval.
The FDA “breakthrough therapy” program is intended to expedite the development and review of drugs for serious
or life-threatening conditions. Preliminary clinical evidence must show that the drug may have substantial
improvement over existing therapies on one or more clinically significant endpoints. Although the drug does not
have to address an unmet medical need, designation of breakthrough therapy status carries all the “fast track”
program features. Additionally, the breakthrough therapy program entitles the sponsor to earlier and more frequent
interaction with the FDA review team regarding development of nonclinical and clinical data, and allows the FDA
to offer product development and regulatory advice necessary to shorten the time for product approval. The
breakthrough therapy status does not guarantee a quicker development or review of the product, and does not ensure
FDA approval.
The FDA also has a “priority review” program for products offering significant improvement in the treatment,
diagnosis or prevention of a disease. The goal of the priority review program is to shorten the review period to six
months from the ten months required for standard review. Any drug with breakthrough therapy, accelerated approval
designation, or fast track can be granted priority review if it meets the necessary criteria.
The FDA “accelerated approval” program is intended to expedite the development and review of products with the
potential to treat serious or life-threatening illnesses and provide meaningful therapeutic benefit over existing
treatments. The program allows approval of a product on the basis of adequate and well-controlled clinical studies
establishing that the product has an effect on a surrogate endpoint that is reasonably likely to predict a clinical
benefit, or on the basis of an effect on a clinical endpoint that can be measured earlier than survival or irreversible
morbidity. As a condition of approval, the FDA generally requires that a sponsor of the product perform adequate
and well-controlled post-marketing clinical studies to establish safety and efficacy for the approved indication.
Failure to conduct such studies or failure of the studies to establish required safety and efficacy may result in
revocation of approval. The FDA also requires, as a condition for accelerated approval, pre-approval of promotional
materials, which could adversely impact the timing of the commercial launch or subsequent marketing of the
product.
Post-Approval Requirements
Any drug products for which we receive FDA approvals are subject to continuing regulation by the FDA. Certain
requirements include, among other things, record-keeping requirements, reporting of adverse experiences with the
product, providing the FDA with updated safety and efficacy information on an annual basis or more frequently for
specific events, product sampling and distribution requirements, complying with certain electronic records and
signature requirements and complying with FDA promotion and advertising requirements. These promotion and
advertising requirements include, among others, standards for direct-to-consumer advertising, prohibitions against
promoting drugs for uses or in patient populations that are not described in the drug’s approved labeling (known as
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“off-label use”), rules for conducting industry-sponsored scientific and educational activities and promotional
activities involving the internet. Failure to comply with FDA requirements can have negative consequences,
including the immediate discontinuation of noncomplying materials, adverse publicity, enforcement letters from the
FDA, mandated corrective advertising or communications with doctors, and civil or criminal penalties. Although
physicians may prescribe legally available drugs for off-label uses, manufacturers may not market or promote such
off-label uses.
We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of
our product candidates. Manufacturers of our product candidates are required to comply with applicable FDA
manufacturing requirements contained in the FDA’s cGMP regulations. These regulations require, among other
things, quality control and quality assurance as well as the corresponding maintenance of comprehensive records
and documentation. Drug manufacturers and other entities involved in the manufacture and distribution of approved
drugs are also required to register their establishments and list any products they make with the FDA and to comply
with related requirements in certain states. These entities are further subject to periodic unannounced inspections by
the FDA and certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must
continue to expend time, money and effort in the area of production and quality control to maintain cGMP
compliance. Discovery of problems with a product after approval may result in serious and extensive restrictions on
a product, manufacturer or holder of an approved NDA. These restrictions may include suspension of a product until
the FDA is assured that quality standards can be met, continuing oversight of manufacturing by the FDA under a
“consent decree,” which frequently includes the imposition of costs and continuing inspections over a period of
many years, as well as possible withdrawal of the product from the market. In addition, changes to the
manufacturing process generally require prior FDA approval before being implemented. Other types of changes to
the approved product, such as adding new indications and additional labeling claims, are also subject to further FDA
review and approval.
The FDA also may require post-marketing testing, known as Phase 4 testing, as well as risk minimization action
plans and surveillance to monitor the effects of an approved product or place conditions on an approval that could
otherwise restrict the distribution or use of the product.
U.S. Patent Term Restoration and Marketing Exclusivity
Drug Price Competition and Patent Term Restoration Act of 1984
Depending upon the timing, duration and specifics of the FDA approval of the use of our product candidates, some
of our United States patents may be eligible for limited patent term extension under the Drug Price Competition and
Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments. The Hatch-
Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost
during federal regulatory review preceding the FDA regulatory review process. However, patent term restoration
cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. The patent
term restoration period is generally one-half the time between the effective date of an IND and the submission date
of an NDA plus the time between the submission date of an NDA and the approval of that application. Only one
patent applicable to an approved drug is eligible for the extension and the application for the extension must be
submitted within 60 days of approval, prior to the expiration of the patent. The United States Patent and Trademark
Office, in consultation with the FDA, reviews and approves the application for any patent term extension or
restoration. In the future, we may apply for restoration of patent term for one of our currently owned or licensed
patents to add patent life beyond its current expiration date, depending on the expected length of the clinical trials
and other factors involved in the filing of the relevant NDA. However, there is no guarantee that any such
application will be approved.
Federal Food, Drug and Cosmetic Act (“FDCA”)
Market exclusivity provisions under the FDCA, which are independent of patent status and any patent related
extensions, can also delay the submission or the approval of certain applications of other companies seeking to
reference another company’s NDA. If the new drug is a new chemical entity subject to an NDA, the FDCA provides
a five-year period of non-patent marketing exclusivity within the United States to the first applicant to obtain
approval of an NDA for a new chemical entity. A drug is a new chemical entity if the FDA has not previously
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approved any other new drug containing the same active moiety, which is the molecule or functional group of a
molecule responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for
review an abbreviated new drug application, or ANDA, or a so-called Section 505(b)(2) NDA, submitted by another
company for another version of such drug where the applicant does not own or have a legal right of reference to all
the data required for approval. However, such an application may be submitted after four years if it contains a
certification of patent invalidity or non-infringement to one of the patents listed with the FDA by the innovator NDA
holder. The FDCA also provides three years of marketing exclusivity for an NDA, or supplement to an existing
NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the
applicant are deemed by the FDA to be essential to the approval of the application, for example new indications,
dosages or strengths of an existing drug. This three-year exclusivity covers only the conditions associated with the
new clinical investigations and does not prohibit the FDA from approving ANDAs for drugs containing the original
active agent. Five-year and three-year exclusivity will not delay the submission or approval of a full NDA.
However, an applicant submitting a full NDA would be required to conduct or obtain a right of reference to all of
the preclinical studies and adequate and well-controlled clinical trials necessary to demonstrate safety and
effectiveness.
Other U.S. Healthcare Laws and Compliance Requirements
In the United States, our activities are potentially subject to regulation by various federal, state and local authorities
in addition to the FDA, including the Centers for Medicare and Medicaid Services (formerly the Health Care
Financing Administration), other divisions of the United States Department of Health and Human Services (e.g., the
Office of Inspector General), the United States Department of Justice and individual United States Attorney offices
within the Department of Justice, state attorney generals and state and local governments. For example, sales,
marketing and scientific/educational grant programs must comply with the anti-fraud and abuse provisions of the
Social Security Act, the False Claims Act, the privacy and security provisions of the Health Insurance Portability
and Accountability Act, or HIPAA, and similar state laws, each as amended. Pricing and rebate programs must
comply with the Medicaid rebate requirements of the Omnibus Budget Reconciliation Act of 1990 and the Veterans
Health Care Act of 1992, each as amended. If products are made available to authorized users of the Federal Supply
Schedule of the General Services Administration, additional laws and requirements apply. Under the Veterans
Health Care Act, or VHCA, drug companies are required to offer certain pharmaceutical products at a reduced price
to a number of federal agencies including the United States Department of Veterans Affairs and United States
Department of Defense, the Public Health Service and certain private Public Health Service—designated entities in
order to participate in other federal funding programs including Medicare and Medicaid. Recent legislative changes
purport to require that discounted prices be offered for certain United States Department of Defense purchases for its
TRICARE program via a rebate system. Participation under the VHCA requires submission of pricing data and
calculation of discounts and rebates pursuant to complex statutory formulas, as well as the entry into government
procurement contracts governed by the Federal Acquisition Regulations.
In order to distribute products commercially, we must comply with state laws that require the registration of
manufacturers and wholesale distributors of pharmaceutical products in a state, including, in certain states,
manufacturers and distributors who ship products into the state even if such manufacturers or distributors have no
place of business within the state. Some states also impose requirements on manufacturers and distributors to
establish the pedigree of product in the chain of distribution, including some states that require manufacturers and
others to adopt new technology capable of tracking and tracing product as it moves through the distribution chain.
Several states have enacted legislation requiring pharmaceutical companies to establish marketing compliance
programs, file periodic reports with the state, make periodic public disclosures on sales, marketing, pricing, clinical
trials and other activities, and/or register their sales representatives, as well as to prohibit pharmacies and other
healthcare entities from providing certain physician prescribing data to pharmaceutical companies for use in sales
and marketing, and to prohibit certain other sales and marketing practices. All of our activities are potentially subject
to federal and state consumer protection and unfair competition laws.
Europe / Rest of World Government Regulation
In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions
governing, among other things, clinical trials and any commercial sales and distribution of our products.
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Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory
authorities in foreign countries prior to the commencement of clinical trials or marketing of the product in those
countries. Certain countries outside of the United States have a similar process that requires the submission of a
clinical trial application much like the IND prior to the commencement of human clinical trials. In the European
Union, for example, a clinical trial application, or CTA, must be submitted to each country’s national health
authority and an independent ethics committee, much like the FDA and IRB, respectively. Once the CTA is
approved in accordance with a country’s requirements, clinical trials may proceed.
The requirements and process governing the conduct of clinical trials, product licensing, pricing and reimbursement
vary from country to country. In all cases, the clinical trials are conducted in accordance with International
Conference on Harmonisation (ICH) / WHO Good Clinical Practice standards and the applicable regulatory
requirements and the ethical principles that have their origin in the Declaration of Helsinki.
To obtain regulatory approval of an investigational drug under European Union regulatory systems, we must submit
a marketing authorization application to the European Medicines Agency, or the EMA. The application used to file
an NDA in the United States is similar to that required in the European Union, with the exception of, among other
things, country-specific document requirements.
For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the
requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary from
country to country. In all cases, again, the clinical trials are conducted in accordance with GCPs and the applicable
regulatory requirements and the ethical principles that have their origin in the Declaration of Helsinki.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things,
fines, suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions
and criminal prosecution.
Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we
obtain regulatory approval. In the United States and markets in other countries, sales of any products for which we
receive regulatory approval for commercial sale will depend in part on the availability of reimbursement from third-
party payors. Third-party payors include government health administrative authorities, managed care providers,
private health insurers and other organizations. The process for determining whether a payor will provide coverage
for a drug product may be separate from the process for setting the price or reimbursement rate that the payor will
pay for the drug product. Third-party payors may limit coverage to specific drug products on an approved list, or
formulary, which might not include all of the FDA-approved drug products for a particular indication. Third-party
payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical
products and services, in addition to their safety and efficacy. We may need to conduct expensive pharmaco-
economic studies in order to demonstrate the medical necessity and cost-effectiveness of our products, in addition to
the costs required to obtain the FDA approvals. Our product candidates may not be considered medically necessary
or cost-effective. A payor’s decision to provide coverage for a drug product does not imply that an adequate
reimbursement rate will be approved. Adequate third-party reimbursement may not be available to enable us to
maintain price levels sufficient to realize an appropriate return on our investment in product development.
In 2003, the United States government enacted legislation providing a partial prescription drug benefit for Medicare
recipients, which became effective at the beginning of 2006. Government payment for some of the costs of
prescription drugs may increase demand for any products for which we receive marketing approval. However, to
obtain payments under this program, we would be required to sell products to Medicare recipients through
prescription drug plans operating pursuant to this legislation. These plans will likely negotiate discounted prices for
our products. Federal, state and local governments in the United States continue to consider legislation to limit the
growth of healthcare costs, including the cost of prescription drugs. Future legislation could limit payments for
pharmaceuticals such as the product candidates that we are developing.
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The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act,
collectively known as the Affordable Care Act, substantially changed the way healthcare is financed by both
governmental and private insurers, and significantly impacted the pharmaceutical industry.
The comprehensive overhaul has extended coverage to approximately 20 million previously uninsured Americans.
Since its adoption, the Affordable Care Act contains a number of provisions, including those governing enrollment
in federal healthcare programs, reimbursement changes and fraud and abuse, which have affected existing
government healthcare programs and have resulted in the development of new programs, including Medicare
payment for performance initiatives and improvements to the physician quality reporting system and feedback
program. Additionally, the Affordable Care Act, as limited by the United States Supreme Court’s decision in June
2012:
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increases the minimum level of Medicaid rebates payable by manufacturers of brand-name drugs from
15.1% to 23.1%;
requires collection of rebates for drugs paid by Medicaid managed care organizations;
requires manufacturers to participate in a coverage gap discount program, under which they must agree
to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible
beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to
be covered under Medicare Part D, beginning January 2011; and
imposes a non-deductible annual fee on pharmaceutical manufacturers or importers who sell “branded
prescription drugs” to specified federal government programs.
There have been proposals by President Trump and the Republican majorities in both houses of the U.S. Congress to
repeal or replace all or portions of the Affordable Care Act but to date no such legislation has been agreed upon. At
this time, it remains unclear what legislation, if any, to repeal or replace the Affordable Care Act will become law,
or what impact any such legislation may have on our existing product candidates, any of our future product
candidates or AbbVie’s commercialization of its HCV regimens. The full impact that the Affordable Care Act and
other new laws will have on our business remains uncertain.
Different pricing and reimbursement schemes exist in other countries. In the European Union, governments
influence the price of pharmaceutical products through their pricing and reimbursement rules and control of national
healthcare systems that fund a large part of the cost of those products to consumers. Some jurisdictions operate
positive and negative list systems under which products may only be marketed once a reimbursement price has been
agreed. To obtain reimbursement or pricing approval, some of these countries may require the completion of clinical
trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other
member states allow companies to fix their own prices for medicines, but monitor and control company profits. The
downward pressure on healthcare costs in general, particularly prescription drugs, has become very intense. As a
result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries,
cross-border imports from low-priced markets exert a commercial pressure on pricing within a country.
The marketability of any drug candidates for which we receive regulatory approval for commercial sale may suffer
if the government and third-party payers fail to provide adequate coverage and reimbursement. In addition, emphasis
on managed care in the United States has increased and we expect will continue to increase the pressure on
pharmaceutical drug pricing. Coverage policies and third-party reimbursement rates may change at any time. Even if
favorable coverage and reimbursement status is attained for one or more products for which we receive regulatory
approval, less favorable coverage policies and reimbursement rates may be implemented in the future.
Manufacturing
We do not have our own manufacturing capabilities, except with respect to limited amounts of active pharmaceutical
ingredients needed for preclinical development. In the past, we have relied on third-party manufacturers for supply
of active pharmaceutical ingredients, and we expect that in the future we will rely on such manufacturers for the
supply of ingredients that will be used in clinical trials of our product candidates that we are developing ourselves.
Manufacturing for paritaprevir and glecaprevir are conducted by AbbVie. We do not expect to establish our own
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manufacturing facilities and we will continue to rely on third-party manufacturers to produce commercial quantities
of any product candidates that we commercialize ourselves. We believe that all of the materials required for the
manufacture of those product candidates could be obtained from more than one source.
Sales and Marketing
We currently do not have any commercialization or sales and marketing capabilities, and currently have no fixed
plans to invest in or build such capabilities internally. We have partnered our products for HCV with AbbVie. We
may also partner or collaborate with, or license commercial rights to, other larger pharmaceutical or
biopharmaceutical companies to support the development of one or more of our wholly owned product candidates
through late-stage clinical development and, if successful, commercialization. However, we still retain all
commercial rights to our independent programs and we will continue to evaluate our alternatives for
commercializing them once they are more advanced in their clinical development.
Employees
As of September 30, 2017, we had 89 full-time employees, 53 of whom hold Ph.D. or M.D. degrees. None of our
employees are subject to a collective bargaining agreement or represented by a trade or labor union. We consider our
relations with our employees to be good.
Available Information
Our Internet website address is http://www.enanta.com. Through our website, we make available, free of charge, our
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to
those reports, as well as proxy statements, and, from time to time, other documents as soon as reasonably practicable
after we electronically file such material with, or furnish it to, the Securities and Exchange Commission, or SEC.
These SEC reports can be accessed through the “Investors” section of our website. The information found on our
website is not part of this or any other report we file with or furnish to the SEC.
Investors may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F
Street, NE, Washington, DC 20549. You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet website that contains reports, proxy and
information statements, and other information regarding Enanta Pharmaceuticals, Inc. and other issuers that file
electronically with the SEC. The SEC’s Internet website address is http://www.sec.gov.
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ITEM 1A.
RISK FACTORS
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 following discussion of risk factors, in its
entirety, in addition to other information contained in or incorporated by reference into this Annual Report on Form
10-K and our other public filings with the SEC. 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.
Risks Related to Our Business
Our financial prospects for the next several years are dependent upon the development and commercialization
efforts of AbbVie for combination therapies incorporating our protease inhibitors paritaprevir or glecaprevir for
the treatment of HCV. AbbVie may act in its best interest rather than in our best interest, which could adversely
affect our business.
We rely on AbbVie to fund and conduct the clinical development and commercialization of regimens containing
paritaprevir or glecaprevir (our second protease inhibitor, which is one of the two DAAs in AbbVie’s
MAVYRET/MAVIRET treatment), over which we have granted AbbVie complete control. Our ability to generate
significant revenue in the near term will depend primarily on the success of AbbVie’s continued efforts to
commercialize its paritaprevir-containing regimens in markets worldwide, as well as the successful marketing
launch and commercialization by AbbVie of MAVYRET/MAVIRET. Such successes are subject to significant
uncertainty, and we have no control over the resources, time and effort that AbbVie may devote to its regimens
containing paritaprevir or glecaprevir. Any of several events or factors could have a material adverse effect on our
ability to generate revenue from AbbVie’s commercialization of paritaprevir or glecaprevir in combination
therapies. For example, AbbVie:
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may not achieve satisfactory levels of market acceptance and reimbursement by physicians, patients and
third-party payers for the MAVYRET/MAVIRET regimen in the various markets of the world where it
is being introduced and sold by AbbVie;
may not compete successfully with its MAVYRET/MAVIRET regimen against other products and
therapies for HCV;
may experience different competitive challenges and market opportunity for its paritaprevir-containing
regimens as it begins to commercialize its MAVYRET/MAVIRET HCV regimen containing
glecaprevir;
may have to comply with additional requests and recommendations from the FDA, including label
restrictions for its regimens containing paritaprevir or glecaprevir;
may not make all regulatory filings and obtain all necessary approvals from foreign regulatory agencies
and all commercially necessary reimbursement approvals;
may not commit sufficient resources to the marketing and distribution of MAVYRET/MAVIRET,
whether for competitive or strategic reasons or otherwise due to a change in business priorities;
may cease to perform its obligations under the terms of our collaboration agreement;
may unilaterally terminate our collaboration agreement on specified prior notice without any reason and
without any further commitment; and
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may not be able to manufacture paritaprevir or glecaprevir in compliance with requirements of the FDA
and similar foreign regulatory agencies and in commercial quantities sufficient to meet market demand
We do not have access to all information regarding the HCV regimens being commercialized by AbbVie, including
certain information about spontaneous safety reports for any marketed product, regulatory affairs, process
development, manufacturing, marketing, sales and other areas known by AbbVie. Thus, our ability to keep our
stockholders informed about the status of products licensed under our collaboration is limited by the degree to which
AbbVie keeps us informed. If AbbVie does not perform in the manner we expect or fulfill its responsibilities in a
timely manner, or at all, the global commercialization of MAVYRET/MAVIRET could be delayed or terminated or
be commercially unsuccessful. In addition, AbbVie has the right to make decisions regarding the development
and commercialization of licensed product without consulting us, and may make decisions with which we do not
agree. If AbbVie acts in a manner that is not in our best interest, then it could adversely affect our business and
prospects.
Our royalty revenues are derived from AbbVie’s net sales of regimens to treat HCV. If AbbVie is unable to
increase and maintain sales of these regimens above current levels of sales, our royalty revenues and results of
operations would be adversely affected.
Our quarterly royalty revenue from AbbVie’s net sales of HCV treatment regimens containing paritaprevir has
declined since those sales peaked in the first quarter of our fiscal 2016. AbbVie has priced the
MAVYRET/MAVIRET regimen well below the pricing of its first HCV regimens, and below that of its principal
competitor, which means AbbVie will need to capture significant increases in market share to maintain or increase
its HCV net sales and our royalty revenues. While commercialization of these regimens is exclusively in AbbVie’s
control without any input from us, we believe it is possible that prices will decline further due to payers obtaining
additional discounts, and there may be a decline in AbbVie’s market share over time due to competitive actions by
its principal competitor. We also note that AbbVie’s principal competitor in HCV, Gilead, has reported a decline
year over year across all major geographic markets in the number of new patients starting on DAA treatments for
HCV.
In addition, in light of continued fiscal crises experienced by several countries in the European Union and Japan,
governments have announced or implemented measures to manage and reduce healthcare expenditures. AbbVie may
experience global pricing pressure for its HCV regimens from such measures, which may be reflected in larger
discounts or rebates on its regimens or delayed reimbursement. Also, private and public payers may choose to
exclude AbbVie’s regimens from their formulary coverage lists or limit the types of patients for whom coverage will
be provided. Any such change in formulary coverage, discounts or rebates or reimbursement for AbbVie’s HCV
regimens would negatively affect the demand for such regimens and our royalty revenues from them.
We and AbbVie face substantial competition in the markets for HCV drugs, and there are many companies
developing potential therapies for NASH, PBC, HBV and RSV, as well as other liver diseases and viral
infections, 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,
NASH, PBC, HBV, RSV and other viral infections or liver 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 under the focus of our research and development efforts, there are other companies
with more 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
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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, in order
to gain regulatory approvals, overcome price competition and be commercially successful.
We expect AbbVie’s HCV treatment regimens containing any of our licensed protease inhibitors to continue to face
intense competition due to existing approved products in the HCV market. AbbVie’s HCV treatment regimens
currently face competition in various world markets and subpopulations of HCV from Gilead’s
Sovaldi® (sofosbuvir), Harvoni® (a fixed-dose combination of sofosbuvir and ledipasvirm), Epclusa® (a fixed dose
combination of sofosbuvir and velpatasvir) and Vosevi™ (a triple combination therapy of sofosbuvir, velpatasvir
and voxilaprevir approved by the FDA in July 2017 for specified sofosbuvir -treatment failures and NS5A-inhibitor
treatment failures); Merck’s Zepatier® (a fixed-dose combination of grazoprevir and elbasvir); Bristol-Myers
Squibb’s Daklinza™ (daclatasvir) and daclatasvir in combination with asunaprevir; and Johnson & Johnson’s
Olysio® (simeprevir). Competitive products in the form of other treatment methods or a vaccine for HCV may render
AbbVie’s HCV regimens obsolete or noncompetitive. AbbVie’s regimens that contain one of our collaboration’s
protease inhibitors will face competition based on their safety and effectiveness, reimbursement coverage, price,
patent position, AbbVie’s marketing and sales capabilities, and other factors. If any of AbbVie’s HCV regimens face
competition from generic products, the 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.
We also expect our other product candidates to face intense and increasing competition as new products continue to
enter the NASH and antiviral markets and advanced technologies become available. Though there is currently no
approved treatment for NASH, we expect significant competition from other companies in the development of new
treatments for NASH and related conditions. We are aware of several companies with programs that are
significantly more advanced than ours, including companies with compounds in Phase 3 in NASH, namely
Intercept, Genfit, Gilead, and Tobira (Allergan). In May 2016, the FDA granted conditional approval for Intercept’s
FXR agonist (brand name Ocaliva®) for the treatment of primary biliary cholangitis (PBC) in combination with first
line therapy UDCA in adults with an inadequate response to UDCA, or as monotherapy in adults unable to tolerate
UDCA. In addition, a number of companies are in Phase 2 clinical trials for NASH or related conditions. These
companies include Alberio, Arisaph, Astra-Zeneca, BMS, Boehringer Ingelheim, Conatus, Cirius, Galectin, Galmed,
Gilead, GlaxoSmithKline, Immuron, Inventiva, Madrigal, Medicinova, Novartis, NGM, Novo Nordisk, Pfizer,
Shire, and Viking. A significant number of other companies are conducting earlier clinical trials that may be
applicable in NASH and other cholestatic diseases, including Bird Rock Bio, Arena Pharmaceuticals, Fast Forward
Pharmaceuticals, Can-Fite Biopharma, Cymabay, Durect, Genkyotex, Ionis, and Islet. There are also additional
companies conducting preclinical studies in these disease areas.
Similarly, HBV and RSV represent competitive therapeutic areas. While there are effective antiviral medications
prescribed for HBV, they generally have low true cure rates. Many companies are seeking to develop new HBV
drugs that alone or in combination with other mechanisms could lead to a functional cure of HBV. Arbutus, Gilead,
HEC, Ionis, Johnson & Johnson, Maxwell, Replicor, Roche and Spring Bank have Phase 2 programs in progress,
with many of these companies conducting earlier stage programs as well. In addition, a number of companies have
Phase 1 or earlier stage HBV programs, including Aicuris, Alnylam, Altimmune, Assembly, Enyo and Transgene.
For RSV, there are currently no safe and effective therapies for already established RSV infection. Several
companies are seeking new antiviral treatments for RSV infection in adult and pediatric settings. Ark Bioscienes,
Johnson & Johnson, Gilead and ReViral each have compounds in Phase 2 development, as does Ablynx with a
potential therapeutic antibody. Earlier stage, small molecule programs have also been reported by Medivir and
Pulmocide. A prophylactic, monoclonal-antibody-based treatment from MedImmune, which is commercialized by
AbbVie outside of the U.S., is approved for infants considered at high risk for RSV infection; however studies have
found that most young children with RSV infection were previously healthy, and thus would not normally be
prescribed prophylactic treatment. In addition, a number of companies have RSV vaccines in development,
primarily directed at prevention of RSV infection, and some companies are also evaluating vaccines in a therapeutic
mode for treatment of established RSV infection.
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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.
We have not developed independently any approved products and we have limited clinical development
experience, which makes it difficult to assess our ability to develop and commercialize our product candidates.
AbbVie has been and will continue to be responsible for all of the clinical development of our paritaprevir and
glecaprevir protease inhibitor product candidates. We have not yet demonstrated an ability to address successfully
many of the risks and uncertainties associated with late stage clinical development, regulatory approval and
commercialization of therapeutic products such as the ones we plan to develop independently. For example, to
execute our business plan for development of our independent NASH, PBC, HBV and RSV programs, we will need
to successfully:
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execute clinical development of our product candidates and demonstrate acceptable safety and efficacy
for them alone or in combination with other drugs or drug candidates;
obtain required regulatory approvals for the development and commercialization of our product
candidates;
develop and maintain any future collaborations we may enter into for any of these programs;
obtain and maintain patent protection for our product candidates and freedom from infringement of
intellectual property of others;
establish acceptable commercial manufacturing arrangements with third-party manufacturers;
build and maintain robust sales, distribution and marketing capabilities, either independently or in
collaboration with future collaborators;
gain market acceptance for our product candidates among physicians, payers and patients; and
manage our spending as costs and expenses increase due to clinical trials, regulatory approvals and
commercialization.
If we are unsuccessful in accomplishing these objectives, we may not be able to successfully develop and
commercialize our product candidates and expand our business or continue our operations.
If we are not successful in discovering further product candidates in addition to EDP-305 and EDP-938, our
ability to expand our business and achieve our strategic objectives will be impaired.
Much of our internal research is at preclinical stages. Research programs designed to identify product candidates
require substantial technical, financial and human resources, whether or not any product candidates are ultimately
identified. Our research programs may initially show promise in identifying additional potential product candidates,
yet fail to yield product candidates for clinical development or commercialization for many reasons, including the
following:
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the research methodology used may not be successful in identifying additional potential product
candidates;
competitors may develop alternatives that render our product candidates less commercially viable or
obsolete;
competitors may obtain intellectual property protection that effectively prevents us from developing a
product candidate;
a product candidate may, on further study, be shown not to be an effective treatment in humans or to
have harmful side effects or other characteristics that indicate it is unlikely to be effective or otherwise
does not meet applicable regulatory criteria; and
a product candidate may not be capable of being produced in commercial quantities at an acceptable
cost, or at all.
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Additional drug candidates that we may develop will require significant research, preclinical and clinical studies,
regulatory approvals and commitments of resources before they can be commercialized. We cannot give assurance
that our research will lead to the discovery of any additional drug candidates that will generate additional revenue
for us. If we are unable to identify additional compounds suitable for preclinical and clinical development, we may
not be able to obtain sufficient product revenue in future periods, which likely would result in significant harm to
our financial position and adversely impact our stock price.
Expenses associated with development of our product candidates may cause our results of operations to fluctuate
from period to period, which may result in losses.
Many of the preclinical and clinical development activities required for our product candidates have to be contracted
out to contract research organizations (CROs) at significant expense. We expect these expenses to increase
substantially in the coming year as we advance compounds and conduct more clinical studies. It is difficult to
accurately predict the timing and amounts of these expenses, and we expect that they will vary from quarter to
quarter. In addition, the FDA or other regulatory agencies may require more preclinical or clinical testing than we
originally anticipated for any of our product candidates. We may also be required to purchase expensive competitor
drugs for use in our trials, either to demonstrate potential treatment combinations or as comparators to our product
candidates. As a result, the expenses of our development programs and our operating results may fluctuate
significantly from quarter to quarter, and our stock price may be adversely affected.
If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully
develop our product candidates, conduct our clinical trials and commercialize our product candidates.
Our success depends in part on our continued ability to attract, retain and motivate highly qualified management,
clinical and scientific personnel. We are highly dependent upon our senior management, particularly Jay R. Luly,
Ph.D., our Chief Executive Officer and President, Yat Sun Or, Ph.D., our Senior Vice President, Research and
Development and Chief Scientific Officer, and Nathalie Adda, M.D., our Senior Vice President, Chief Medical
Officer, as well as other employees and consultants. Although none of these individuals has informed us to date that
he or she intends to retire or resign in the near future, the loss of the services of any of these individuals or one or
more of our other members of senior management could delay or prevent the successful development of our product
candidates.
Although we have not historically experienced unique difficulties attracting and retaining qualified employees, we
could experience such problems in the future. For example, competition for qualified personnel in the biotechnology
and pharmaceutical fields is intense. In addition, we will need to hire additional personnel as we expand our clinical
development and commercial activities. We may not be able to attract and retain quality personnel on acceptable
terms.
We may encounter difficulties in managing our growth and expanding our operations successfully.
As we expand our research efforts and seek to advance our product candidates through clinical trials, we will need to
expand our development, regulatory, manufacturing, marketing and sales capabilities or contract with third parties to
provide these capabilities for us. As our operations expand, we expect that we will need to manage additional
relationships with various strategic partners, suppliers and other third parties. Future growth will impose significant
added responsibilities on members of management. Our future financial performance and our ability to
commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any
future growth effectively. To that end, we must be able to manage our development efforts and clinical trials
effectively and hire, train and integrate additional management, administrative and sales and marketing personnel.
We may not be able to accomplish these tasks, and our failure to accomplish any of them could prevent us from
successfully growing our company.
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To date, our principal sources of revenue have been our collaboration agreements, including our current
agreement with AbbVie. Future levels of royalties under the AbbVie agreement are uncertain. We have had no
other products approved for commercial sale by us. Therefore, it is possible that we may incur operating losses in
one or more years in the future, and our ability to achieve sustained profitability is unproven.
In each of our 2017, 2016, 2015 and 2014 fiscal years our net income resulted primarily from license payments,
including milestone payments we earned from AbbVie and royalties we earned since December 2014 on net sales of
AbbVie’s HCV regimens allocated to our protease inhibitors included in those regimens. There is no assurance,
however, that we will report net income in subsequent years. To date, we have not commercialized any products
ourselves.
Our principal source of revenue historically has been our collaboration agreements, including our current agreement
with AbbVie. The level of future royalties on products containing paritaprevir or glecaprevir are uncertain given the
competitive nature of the market for HCV therapies, the emergence of new therapies for HCV, price competition,
the changing nature of payer contracts of AbbVie and others, and the varying rates of reimbursement in different
countries. At any time, AbbVie may choose not to continue its commercialization activities for the
MAVYRET/MAVIRET regimen or that regimen may not be accepted in the market. If we are unable to develop and
commercialize any more of our product candidates, either alone or with a collaborator, or if any such product
candidate does not achieve market acceptance, we may not generate sufficient product sales or product royalties. In
addition, for any of our product candidates included in a treatment regimen with more than one active compound, it
would be uncertain what portion of net sales of the regimen would be allocated to our product candidate. Even if we
do generate significant product royalties or product sales, we may not be able to sustain profitability on a quarterly
or annual basis. Our failure to sustain profitability could depress the market price of our common stock and
ultimately could impair our ability to raise capital, expand our business, diversify our product offerings or continue
our operations. A decline in the market price of our common stock also could cause you to lose all or a part of your
investment.
We may require substantial additional financing in the longer term to achieve our goals if the further
commercialization of paritaprevir containing regimens is curtailed or if any launch or commercialization of
MAVYRET/MAVIRET is delayed or is not successful. A failure to obtain this necessary capital when needed
could force us to delay, limit, reduce or terminate some or all of our product development efforts.
Since our inception, most of our resources have been dedicated to the discovery and preclinical development of our
product candidates. In particular, we have expended, and believe that we will continue to expend for the foreseeable
future, substantial resources discovering and developing our proprietary product candidates. These expenditures will
include costs associated with research and development, preclinical manufacturing of product candidates,
conducting preclinical experiments and clinical trials and obtaining regulatory approvals, as well as commercializing
any products later approved for sale. For the foreseeable future, we expect to incur substantial additional costs
associated with research and development for our internally developed programs, exclusive of costs incurred by
AbbVie in developing MAVYRET/MAVIRET. In addition, we may seek opportunities to in-license or otherwise
acquire new therapeutic candidates and therapies.
Our future capital requirements depend on many factors, including:
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whether our existing collaboration continues to generate substantial royalties to us;
the number and characteristics of the product candidates we pursue;
the scope, progress, results and costs of researching and developing any of our product candidates on
our own, including conducting preclinical research and clinical trials;
opportunities to in-license or otherwise acquire new therapeutic candidates and therapies;
the timing, receipt and amount of royalties on paritaprevir and glecaprevir and any sales of our product
candidates, if any, or royalties thereon;
the timing of, and the costs involved in, obtaining regulatory approvals for any product candidates we
develop independently;
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the cost of commercialization activities, if any, of any product candidates we develop independently that
are approved for sale, including marketing, sales and distribution costs;
the cost of manufacturing our product candidates and any products we successfully commercialize
independently, including manufacturing for clinical development;
our ability to maintain our existing collaboration and to establish new collaborations, licensing or other
arrangements and the financial terms of such agreements; and
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents,
including any litigation costs and the outcomes of any such litigation.
Additional funds may not be available if and when we need them, on terms that are acceptable to us, or at all. Our
ability to raise funds will depend on financial, economic and market conditions and other factors, many of which are
beyond our control. If adequate funds are not available to us on a timely basis, we may be required to delay, limit,
reduce or terminate preclinical studies, clinical trials or other research and development activities for one or more of
our product candidates.
Our government funded contract for our antibiotic program, which was concluded in fiscal 2015, is subject to
audit and adjustments that could affect our previously reported revenues.
Our contract with the National Institute of Allergy and Infectious Diseases, or NIAID, a division of the National
Institutes of Health, an agency of the United States Department of Health and Human Services, to support our antibiotic
program, was completed in fiscal 2015. Our contract-related costs and fees, including allocated indirect costs, are
subject to audits and adjustments by negotiation between us and the U.S. government. As part of the audit process, the
government audit agency verifies that all charges made by a contractor against a contract are legitimate and
appropriate. Audits may result in recalculation of contract revenues and non-reimbursement of some contract costs and
fees. Any audits of our contract related costs and fees could result in material adjustments to our reported revenue and
require payments by us to the U.S. government.
Risks Related to Development, Clinical Testing and Regulatory Approval of Our Product Candidates
Clinical drug development involves a lengthy and expensive process with uncertain timelines and uncertain
outcomes. If clinical trials of any of our proprietary product candidates are prolonged or delayed, we may be
unable to commercialize our product candidates on a timely basis.
Clinical testing is expensive and, depending on the stage of development, can take a substantial time period to
complete. Its outcome is inherently uncertain, and failure can occur at any time during clinical development. None
of our product candidates in our pipeline other than paritaprevir and glecaprevir, which have been clinically
developed by AbbVie, has yet to advance beyond Phase 2 clinical trials. Any future clinical trials of our product
candidates may fail to demonstrate sufficient safety and efficacy. Moreover, regulatory and administrative delays for
any product candidate in our pipeline may adversely affect our or any future collaborator’s clinical development
plans and jeopardize our or any future collaborator’s ability to attain product approval, commence product sales and
compete successfully against other therapies.
Clinical trials can be delayed for a variety of reasons, including delays related to:
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reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and
clinical trial sites, the terms of which can be subject to extensive negotiation and may vary significantly
among different CROs and trial sites;
failure of third-party contractors, such as CROs, or investigators to comply with regulatory
requirements;
delay or failure in obtaining the necessary approvals from regulators or institutional review boards, or
IRBs, in order to commence a clinical trial at a prospective trial site, or their suspension or termination
of a clinical trial once commenced;
difficulty in recruiting suitable patients to participate in a trial;
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difficulty in having patients complete a trial or return for post-treatment follow-up;
clinical sites deviating from trial protocol or dropping out of a trial;
problems with drug product or drug substance storage and distribution;
adding new clinical trial sites;
our inability to manufacture, or obtain from third parties, adequate supply of drug product sufficient to
complete our preclinical studies and clinical trials;
governmental or regulatory delays and changes in regulatory requirements, policy and guidelines,
including guidelines specifically addressing requirements for the development of treatments for NASH,
PBC, RSV or HBV;
program discontinuations or clinical holds for a program of a competitor, which could increase the level
of regulatory scrutiny or delay data review or other response times by regulators with respect to one of
our programs in the same class as the competitor’s program; or
varying interpretations of data by the FDA, the EMA and similar foreign regulatory agencies.
We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in
which such trial is being conducted, by any Data Safety Monitoring Board, or DSMB, for such trial, or by the FDA,
the EMA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a
number of factors, including failure to conduct the clinical trial in accordance with regulatory requirements or our
clinical protocols, inspection of the clinical trial operations or trial site by the FDA or other regulatory authorities
resulting in the imposition of a clinical hold, unforeseen safety issues or adverse side effects, failure to demonstrate
a benefit from using a drug, changes in governmental regulations or administrative actions or lack of adequate
funding to continue the clinical trial. In addition, delays can occur due to safety concerns arising from trials or other
clinical data regarding another company’s product candidate in the same compound class as one of ours. If we or
any future collaborators experience delays in the completion of, or termination of, any clinical trial of one of our
product candidates, the commercial prospects of the product candidate will be harmed, and our ability to commence
product sales and generate product revenues from the product candidate will be delayed. In addition, any delays in
completing our clinical trials will increase our costs and slow down our product candidate development and
approval process. Any of these occurrences may harm our business, financial condition and prospects significantly.
In addition, many of the factors that cause, or lead to, a delay in the commencement or completion of clinical trials
may also ultimately lead to the denial of regulatory approval of our product candidates.
We may choose to test any of our clinical candidates preclinically and/or clinically in combination with other
compounds with different mechanisms of action, and any adverse results from such testing may have adverse
consequences for the further development potential of not only the combination but also the clinical candidate
itself as a monotherapy or in combination with other mechanisms of action.
We expect that the further development of successful therapies in our principal disease areas of NASH, RSV and
HBV may require combining one or more of our compounds with other compounds with different mechanisms of
action. To advance our programs and achieve favorable opportunities for any such combinations we may conduct
preclinical testing, as well as clinical testing, with one of our other compounds or with a compound of a third party,
with or without a longer-term collaboration with any such party. We may choose to disclose such testing in advance,
but we can anticipate that some of the testing would be done without any public disclosure. If any such testing
produces adverse results, we may have to disclose it to regulatory authorities as part of the data available with
respect to our product candidate and the data may have adverse consequences for the further development and the
ultimate conditions attached to any approved use of the product candidate, whether in the combination tested or even
as a monotherapy or in combination with other mechanisms.
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EDP-305, EDP-938 or any other product candidate emerging from our current NASH, PBC, RSV and HBV
programs may have undesirable side effects which may delay or prevent marketing approval, or, if approval is
received, require our product candidate to be taken off the market, require us to include safety warnings or
otherwise limit sales.
In our NASH/PBC program, we are developing agonists of the farnesoid X receptor, or FXR, that are designed to
bind to that receptor and then trigger a response from it. The adverse effects from long-term exposure to the FXR
drug class are not well known since within this class only two drugs have been approved by the FDA—Ocaliva®,
approved in May 2016 for PBC, and an older drug not commonly used but approved to treat cholesterol gallstones
(by dissolving them) and a rare lipid storage disease. Unforeseen side effects from any of our product candidates
could arise either during clinical development or, if approved, after the approved product has been marketed. The
range and potential severity of possible side effects from systemic therapies like FXR agonists could be significant.
In addition, our drug candidates for NASH may be developed as a potential treatment for a severe disease that
commonly occurs in patients with other serious conditions, including metabolic syndrome and diabetes. Any clinical
trials in NASH will necessarily be conducted in patient populations that may be more prone than the general
population to exhibit certain disease states or adverse events. It may be difficult to discern whether certain events or
symptoms observed during our trials were due to our drug candidates or placebo, resulting in our company and our
development programs being negatively affected even if such events or symptoms are ultimately determined to be
unlikely related to our drug candidates.
If any of our product candidates receives marketing approval and we or others later identify undesirable or
unacceptable side effects caused by such products:
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regulatory authorities may require the addition of labeling statements, specific warnings, a
contraindication or field alerts to physicians and pharmacies;
we may be required to change instructions regarding the way the product is administered, conduct
additional clinical trials or change the labeling of the product;
we may be subject to limitations on how we may promote the product;
sales of the product may decrease significantly;
regulatory authorities may require us to take our approved product off the market;
we may be subject to litigation or product liability claims; and
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the affected product or
could substantially increase commercialization costs and expenses, which in turn could delay or prevent us from
generating significant revenue from the sale of any product we develop.
If we are required to suspend or discontinue clinical trials due to side effects or other safety risks associated with
our product candidates, or if we are required to conduct studies on the long-term effects associated with the use
of any of those product candidates, commercialization any of those product candidates could be delayed or
halted.
Clinical trials involving our product candidates may be suspended or terminated at any time for a number of safety-
related reasons. For example, we may voluntarily suspend or terminate clinical trials if at any time one of our
product candidates, or a combination therapy including any of them, presents an unacceptable safety risk to the
clinical trial patients. In addition, IRBs or regulatory agencies may order the temporary discontinuation or
termination of clinical trials at any time if they believe that the clinical trials are not being conducted in accordance
with applicable regulatory requirements, including if they present an unacceptable safety risk to patients.
Administering any product candidate to humans may produce undesirable side effects. The existence of undesirable
side effects resulting from any of our product candidates, or a combination therapy including any of them, could
cause us or regulatory authorities, such as the FDA or EMA, to interrupt, delay or halt clinical trials of our product
candidates and could result in the FDA or EMA or other regulatory agencies denying further development or
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approval of our product candidates for any or all targeted indications. This, in turn, could prevent us from
commercializing our product candidates.
Results of earlier clinical trials may not be predictive of the results of later-stage clinical trials.
The results of preclinical studies and early clinical trials of our product candidates may not be predictive of the
results of later-stage clinical trials, if any. In addition, results of Phase 3 clinical trials in one or more ethnic groups
are not necessarily indicative of results in other ethnic groups. Product candidates in later stages of clinical trials
may fail to show the desired safety and efficacy results despite having progressed through preclinical studies and
initial clinical trials. Many companies in the biopharmaceutical industry have suffered significant setbacks in
advanced clinical trials due to adverse safety profiles or lack of efficacy, notwithstanding promising results in earlier
studies. Similarly, future clinical trial results may not be successful for these or other reasons.
Product candidate development risk is heightened by any changes in the planned clinical trials compared to the
completed clinical trials. As product candidates are developed through preclinical early and late stage clinical trials
towards approval and commercialization, it is customary that various aspects of the development program, such as
manufacturing and formulation, are altered along the way in an effort to optimize processes and results. Such
changes carry the risk that they will not achieve these intended objectives. Any of these changes could make the
results of planned clinical trials or other future clinical trials we may initiate less predictable and could cause our
product candidates to perform differently, which could delay completion of clinical trials, delay approval of our
product candidates and/or jeopardize our ability to commence product sales and generate revenues.
The regulatory approval processes of the FDA, the EMA and other comparable foreign authorities are lengthy,
time-consuming and inherently unpredictable, and if we are ultimately unable to obtain timely regulatory
approval for our product candidates, our business will be substantially harmed.
The regulatory approval process is expensive and, while the time required to gain FDA and foreign regulatory
approval is uncertain, it may take years. Regulatory approvals are unpredictable and depend upon numerous factors,
including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the
type and amount of preclinical and clinical data necessary to gain approval may change during the course of a
product candidate’s clinical development and may vary among jurisdictions. We may be required to undertake and
complete certain additional preclinical studies to generate toxicity and other data required to support the submission
of a New Drug Application, or NDA, to the FDA or comparable application to other regulatory authorities. AbbVie
obtained all regulatory approvals for its paritaprevir-containing regimens and for MAVYRET/MAVIRET, which
contains glecaprevir. We have not obtained regulatory approval by ourselves for any of our wholly owned product
candidates and it is possible that none of our existing product candidates or any of our future product candidates will
ever obtain regulatory approval. Furthermore, approval in the United States by the FDA does not ensure approval by
regulatory authorities in other countries or jurisdictions, and approval by one foreign regulatory authority does not
ensure approval by regulatory authorities in other foreign countries or by the FDA.
Our product candidates could fail to receive regulatory approval for many reasons, including the following:
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the FDA, the EMA or other comparable foreign regulatory authorities may disagree with the design or
implementation of our clinical trials;
we may be unable to demonstrate to the satisfaction of the FDA, the EMA or other comparable foreign
regulatory authorities that a product candidate is safe and effective for its proposed indication;
the results of clinical trials may not meet the level of statistical significance required by the FDA, the
EMA or other comparable foreign regulatory authorities for approval;
we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its
safety risks;
the FDA, the EMA or other comparable foreign regulatory authorities may disagree with our
interpretation of data from preclinical studies or clinical trials;
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the data collected from clinical trials of our product candidates may not be sufficient to support the
submission of an NDA or other submissions or to obtain regulatory approval in the United States or
elsewhere;
the FDA or comparable foreign regulatory authorities may fail to approve the manufacturing processes
or facilities of third-party manufacturers with which we contract for clinical and commercial supplies of
any of our product candidates; and
the approval policies or regulations of the FDA, the EMA or other comparable foreign regulatory
authorities may significantly change in a manner rendering our clinical data insufficient for approval.
We cannot be assured that after spending substantial time and resources, we will obtain regulatory approvals in any
desired jurisdiction. Even if we were to obtain approval, regulatory authorities may grant approval contingent on the
performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not
include the labeling claims necessary or desirable for the successful commercialization of that product candidate.
Significant clinical trial delays could allow our competitors to obtain marketing approval before we do or could in
effect shorten the patent protection period during which we may have the exclusive right to commercialize our
product candidates. In addition, it may ultimately not be possible to achieve the prices intended for our products. In
many foreign countries, including those in the European Union, a product candidate must be approved for
reimbursement before it can be approved for sale in that country. Any of the foregoing scenarios could materially
harm the commercial prospects for our product candidates and our business.
Even if we receive regulatory approval for any of our product candidates we develop independently, we will be
subject to ongoing FDA obligations and continued regulatory review in other jurisdictions, which may result in
significant additional expense. Additionally, our product candidates, if approved, could be subject to labeling and
other restrictions and market withdrawal and we may be subject to penalties if we or our collaborators fail to
comply with regulatory requirements or experience unanticipated problems with our products.
Any regulatory approvals that we receive for our product candidates we develop independently may be subject to
limitations on the approved indicated uses for which the product may be marketed or subject to certain conditions of
approval, or may contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials,
and surveillance to monitor the safety and efficacy of the product candidate.
In addition, if the FDA approves any of our product candidates, the manufacturing processes, labeling, packaging,
distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for the product will be
subject to extensive and ongoing regulatory requirements. These requirements include submissions of safety and
other post-marketing information and reports, as well as continued compliance with current good manufacturing
practices, or cGMP, and good clinical practices, or GCP, for any clinical trials that we or our collaborators conduct
post-approval. Later discovery of previously unknown problems with a product, including adverse events of
unanticipated severity or frequency, or with third-party manufacturers or manufacturing processes, or failure to
comply with regulatory requirements, may result in, among other things:
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restrictions on the marketing or manufacturing of the product, withdrawal of the product from the
market or voluntary or mandatory product recalls;
fines, warning letters or holds on any post-approval clinical trials;
refusal by the FDA to approve pending applications or supplements to approved applications filed by us,
or suspension or revocation of product license approvals;
product seizure or detention, or refusal to permit the import or export of products; and
injunctions or the imposition of civil or criminal penalties.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or
administrative action, either in the United States or abroad. If we, or AbbVie in the case of any licensed HCV
product, are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or
policies, or if we or AbbVie are not able to maintain regulatory compliance, our product candidates or AbbVie’s
35
licensed HCV products may lose any marketing approval that may have been obtained and we may not achieve or
sustain profitability, which would adversely affect our business.
We may delay or terminate the development of a product candidate at any time if we believe the perceived market
or commercial opportunity does not justify further investment, which could materially harm our business and
adversely affect our stock price.
Even though the results of preclinical studies and clinical trials that we have conducted or may conduct in the future
may support further development of one or more of our product candidates, we may delay, suspend or terminate the
future development of a product candidate at any time for strategic, business, financial or other reasons, including
the determination or belief that the emerging profile of the product candidate is such that it may not receive
regulatory approvals in key markets, gain meaningful market acceptance, otherwise provide any competitive
advantages in its intended indication or market or generate a significant return to stockholders. Such a delay,
suspension or termination could materially harm our business, results of operations or financial condition. In
addition, AbbVie has the right to make decisions regarding the development and commercialization of paritaprevir
and glecaprevir without consulting us, and may make decisions with which we do not agree.
Risks Related to Commercialization of Our Product Candidates
Even if AbbVie successfully commercializes MAVYRET/MAVIRET, or even if we are able to commercialize any
other treatment regimen containing one of our product candidates from any of our proprietary discovery
programs, MAVYRET/MAVIRET or the resulting products, as the case may be, may become subject to
unfavorable pricing regulations, third-party reimbursement practices or healthcare reform initiatives in the
United States, which would harm our business.
The regulations that govern marketing approvals, pricing and reimbursement for new drug products vary widely
from country to country. In the United States, the Patient Protection and Affordable Care Act, as amended by the
Health Care and Education Affordability Reconciliation Act of 2010, collectively referred to as the ACA, is
significantly changing the way healthcare is financed by both governmental and private insurers. While we cannot
predict what impact on federal reimbursement policies this law or any amendment to it will continue to have in
general or specifically on any product or regimen that we may commercialize, the ACA or any such amendment
may result in downward pressure on pharmaceutical reimbursement, which could negatively affect market
acceptance of new products. In addition, although the United States Supreme Court has upheld the constitutionality
of most of the ACA, several states have not implemented certain sections of the ACA, including 19 that have
rejected the expansion of Medicaid eligibility for low income citizens, and some members of the U.S. Congress are
still working to repeal the ACA. More recently, President Trump and the Republican majorities in both houses of the
U.S. Congress have been seeking to repeal or replace all or portions of the ACA but to date they have been unable to
agree on any such legislation. We cannot predict what legislation, if any, to repeal or replace the ACA will become
law, or what impact any such legislation may have on us or on AbbVie’s commercialization of its HCV regimens.
Our ability to commercialize any product candidate successfully, as well as AbbVie’s commercialization of
MAVYRET/MAVIRET, will also depend in part on the extent to which reimbursement for these products and
related treatments will be available from government health administration authorities, private health insurers and
other organizations. Government authorities and third-party payors, such as private health insurers and health
maintenance organizations, decide which medications they will pay for and establish reimbursement levels. A
primary trend in the U.S. healthcare industry is cost containment. Government authorities and third-party payors
have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. In
the case of HCV, limitations of coverage have recently been used to limit access to HCV treatments for only those
patients with more advanced fibrosis. Increasingly, third-party payors are requiring that drug companies provide
them with predetermined discounts from list prices and, in many cases involving HCV drugs, seeking discounts in
exchange for greater patient access to a particular HCV drug. In addition, there are private and public payors
challenging the prices charged for medical products. We cannot be sure that reimbursement will be available for any
product that we may commercialize and, if reimbursement is available, the level of reimbursement. In addition,
reimbursement may impact the demand for, or the price of, MAVYRET/MAVIRET or any product candidate for
which we may obtain marketing approval. If reimbursement is not available or is available only to limited levels,
AbbVie may not be successful in commercializing MAVYRET/MAVIRET and we may not be able to successfully
commercialize any product candidate for which we may seek marketing approval.
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There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more
limited than the purposes for which the drug is approved by the FDA or comparable authorities in other
jurisdictions. Moreover, eligibility for reimbursement does not imply that any drug will be paid for in all cases or at
a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim
reimbursement levels for new drugs, if applicable, may also be insufficient to cover our and any collaborator’s costs
and may not be made permanent. Reimbursement rates may vary according to the use of the drug and the clinical
setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be
incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts
or rebates required by government healthcare programs or private payors and by any future relaxation of laws that
presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States.
Third-party payors often rely upon Medicare coverage policy and payment limitations in setting their own
reimbursement policies. AbbVie’s inability to promptly obtain coverage and profitable payment rates from both
government-funded and private payors for MAVYRET/MAVIRET, or our inability to do the same for any product
candidate that we develop, could have a material adverse effect on our operating results, our ability to raise capital
needed to commercialize products and our overall financial condition.
In general, the United States and several other jurisdictions are considering a number of legislative and regulatory
proposals to change the healthcare system in ways that could affect our ability to sell our products profitably.
Among policy makers and payors in the United States and elsewhere, there is significant interest in promoting
changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or
expanding access to healthcare. In the United States, the pharmaceutical industry has been a particular focus of these
efforts and has been significantly affected by major legislative initiatives. We expect to experience pricing pressures
in connection with the sale of any products that we develop or that are being commercialized under our
collaboration with AbbVie. The implementation of cost containment measures or other healthcare reforms may limit
our ability to generate revenue, maintain profitability or commercialize our product candidates.
If, in the future, we are unable to establish our own sales, marketing and distribution capabilities or enter into
licensing or collaboration agreements for these purposes, we may not be successful in commercializing any
product candidates.
We do not have a sales or marketing infrastructure and have no sales, marketing or distribution experience. We will
seek to either build our own commercial infrastructure to commercialize any products if and when they are
approved, or enter into licensing or collaboration agreements where our collaborator is responsible for
commercialization, as in the case of our collaboration with AbbVie, or where we have the right to assist in the future
development and commercialization of such products.
To develop internal sales, distribution and marketing capabilities, we will have to invest significant amounts of
financial and management resources, some of which will be committed prior to any confirmation that any of our
proprietary product candidates will be approved. For product candidates for which we decide to perform sales,
marketing and distribution functions ourselves, we could face a number of additional risks, including:
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our inability to recruit and retain adequate numbers of effective sales and marketing personnel;
the inability of sales personnel to obtain access to physicians or persuade adequate numbers of
physicians to prescribe any products;
the lack of complementary products to be offered by sales personnel, which may put us at a competitive
disadvantage relative to companies with more extensive product lines; and
unforeseen costs and expenses associated with creating an independent sales and marketing
organization.
Where and when appropriate, we may elect to utilize contract sales forces or distribution partners to assist in the
commercialization of our product candidates. If we enter into arrangements with third parties to perform sales,
marketing and distribution services for our products, the resulting revenues or the profitability from these revenues
to us are likely to be lower than if we had sold, marketed and distributed our products ourselves. In addition, we may
not be successful in entering into arrangements with third parties to sell, market and distribute our product
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candidates or may be unable to do so on terms that are favorable to us. We likely will have little control over such
third parties, and any of these third parties may fail to devote the necessary resources and attention to sell, market
and distribute our products effectively.
If we do not establish sales, marketing and distribution capabilities successfully, either on our own or in
collaboration with third parties, we will not be successful in commercializing our product candidates.
Our commercial success depends upon significant market acceptance among physicians, patients and healthcare
payors of MAVYRET/MAVIRET, as well as similar market acceptance of any product candidates we are
developing independently.
MAVYRET/MAVIRET, as well as EDP-305, EDP-938, or any other product candidate that we may develop in the
future, whether as part of a combination therapy or as a monotherapy, may not gain market acceptance among
physicians, healthcare payors, patients and the medical community. The degree of market acceptance of
MAVYRET/MAVIRET or of any product candidate for which we obtain approval for commercial sale, will depend
on a number of factors, including:
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the efficacy and safety of treatment regimens containing one of our product candidates, as demonstrated
in clinical trials, and the degree to which these regimens represent a clinically meaningful improvement
in care as compared with other available therapies;
the clinical indications for which any treatment regimen containing one of our product candidates
become approved;
acceptance among physicians, major operators of clinics, payors and patients of any treatment regimen
containing one of our product candidates;
the willingness of the target patient population to try new therapies and of physicians to prescribe these
therapies;
the potential and perceived advantages of treatment regimens containing one of our product candidates
over alternative treatments;
the cost of treatment of regimens containing one of our product candidates in relation to the cost of
alternative treatments;
the availability of adequate reimbursement and pricing by third parties and government authorities and
successful negotiation of favorable agreements with payors by us or any collaborator of ours, as well as
the impact of any agreements among any of the foregoing and one or more of our competitors limiting
access to our product in favor of one or more competitive products;
the continued longevity of the HCV drug market or growth and longevity of any other market for which
we develop a drug;
the levels of funding provided by government-funded healthcare for HCV treatment or treatment of any
other disease for which we develop a drug;
the relative convenience and ease of administration of any treatment regimen containing one of our
product candidates compared to competitive regimens;
the prevalence and severity of adverse side effects, whether involving the use of treatment regimens
containing one of our products candidates or similar, competitive treatment regimens; and
the effectiveness of our sales and marketing efforts and those of AbbVie in the case of
MAVYRET/MAVIRET.
If treatment regimens containing one of our product candidates are approved and then fail to achieve market
acceptance, we may not be able to generate significant additional revenue. Further, if new, more favorably received
therapies are introduced after any such regimen achieves market acceptance, then we may not be able to maintain
that market acceptance over time.
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Foreign governments tend to impose strict price controls, which may adversely affect our future profitability.
In most foreign countries, particularly in the European Union, prescription drug pricing and/or reimbursement is
subject to governmental control. In those countries that impose price controls, pricing negotiations with
governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain
reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares
the cost-effectiveness of our product candidate to other available therapies.
Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing
review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription
pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As
a result, we (or AbbVie in the case of MAVYRET/MAVIRET) might obtain marketing approval for a product in a
particular country, but then be subject to price regulations that delay commercial launch of the product, possibly for
lengthy time periods, and negatively impact the revenues that are generated from the sale of the product in that
country. If reimbursement of MAVYRET/MAVIRET or of any of our product candidates is unavailable or limited
in scope or amount, or if pricing is set at unsatisfactory levels, or if there is competition from lower priced cross-
border sales, our results of operations will be negatively affected.
Risks Related to Our Dependence on Third Parties
We may not be successful in establishing new product collaborations, which could adversely affect our ability to
develop and commercialize one or more of our product candidates. If we are unsuccessful in maintaining or
forming alliances on favorable terms, our business may not succeed.
We may seek to enter into additional product collaborations in the future, including alliances with other
biotechnology or pharmaceutical companies, to enhance and accelerate the development and commercialization of
one or more of our product candidates. We face significant competition in seeking appropriate collaborators and the
negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish
other product collaborations or other alternative arrangements for any product candidates and programs because our
research and development pipeline may be insufficient, our product candidates and programs may be deemed to be
at too early of a stage of development for collaborative effort and/or third parties may not view our product
candidates and programs as having the requisite potential to demonstrate safety and efficacy. Even if we are
successful in our efforts to establish product collaborations, the terms that we agree upon may not be favorable to us
and we may not be able to maintain such product collaborations if, for example, development or approval of a
product candidate is delayed or sales of an approved product are disappointing.
If our existing collaboration agreement with AbbVie is terminated, or if we determine that entering into other
product collaborations is in our best interest but we either fail to enter into, delay in entering into or fail to maintain
such collaborations:
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the development of certain of our product candidates may be terminated or delayed;
our cash expenditures related to development of certain of our product candidates would increase
significantly and we may need to seek additional financing;
we may be required to hire additional employees or otherwise develop expertise, such as clinical,
regulatory, sales and marketing expertise, which we do not currently have;
we will bear all of the risk related to the development of any such product candidates; and
the competitiveness of any product candidate that is commercialized could be reduced.
We intend to rely on third-party manufacturers to produce our development-stage product candidate supplies and
any commercial supplies of any approved product candidates. Any failure by a third-party manufacturer to
produce acceptable supplies for us may delay or impair our ability to initiate or complete our clinical trials or sell
any resulting product.
We do not currently own or operate any manufacturing facilities. We plan to continue to work with third-party
contract manufacturers to produce sufficient quantities of any product candidates for preclinical testing, clinical
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trials and commercialization. If we are unable to arrange for such a third-party manufacturing source for any of our
product candidates, or fail to do so on commercially reasonable terms, we may not be able to successfully produce,
develop and market one or more of our product candidates, or we may be delayed in doing so.
Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured product
candidates ourselves, including reliance on the third party for regulatory compliance and quality control and
assurance, volume production, the possibility of breach of the manufacturing agreement by the third party because
of factors beyond our control (including a failure to synthesize and manufacture our product candidates in
accordance with our product specifications) and the possibility of termination or nonrenewal of the agreement by the
third party at a time that is costly or damaging to us. In addition, the FDA and other regulatory authorities require
that our product candidates be manufactured according to cGMP and similar foreign standards. Pharmaceutical
manufacturers and their subcontractors are required to register their facilities and/or products manufactured at the
time of submission of the marketing application and then annually thereafter with the FDA and certain state and
foreign agencies. They are also subject to periodic unannounced inspections by the FDA, state and other foreign
authorities. Any subsequent discovery of problems with a product, or a manufacturing or laboratory facility used by
us or our collaborators, may result in restrictions on the product or on the manufacturing or laboratory facility,
including marketed product recall, suspension of manufacturing, product seizure, or a voluntary withdrawal of the
drug from the market. Any failure by our third-party manufacturers to comply with cGMP or failure to scale up
manufacturing processes, including any failure to deliver sufficient quantities of product candidates in a timely
manner, could lead to a delay in, or failure to obtain, regulatory approval of any of our product candidates.
We plan to rely on third-party manufacturers to purchase from third-party suppliers the materials necessary to
produce our product candidates for our clinical studies. There are a small number of suppliers for certain capital
equipment and materials that we plan to use to manufacture our drugs. Such suppliers may not sell these materials to
our manufacturers at the times we need them or on commercially reasonable terms. Moreover, we currently do not
have any agreements for the production of these materials. Although we do not intend to begin a clinical trial unless
we believe we have a sufficient supply of a product candidate to complete the clinical trial, any significant delay in
the supply of a product candidate or the material components thereof for an ongoing clinical trial due to the need to
replace a third-party manufacturer could considerably delay completion of our clinical studies, product testing and
potential regulatory approval of our product candidates. If our manufacturers or we are unable to purchase these
materials after regulatory approval has been obtained for our product candidates, the commercial launch of our
product candidates would be delayed or there would be a shortage in supply, which would impair our ability to
generate revenue from the sale of our product candidates.
Contract manufacturers may not be able to manufacture our product candidates at a cost or in quantities or in a
timely manner necessary to develop and commercialize them. If we successfully commercialize any of our product
candidates, to meet our projected needs we may need to find third parties that will increase their scale of production,
or we may have to establish or access large-scale commercial manufacturing capabilities. We may require additional
funds, personnel and other resources to build, lease or operate any manufacturing facility.
A portion of our research and a portion of our manufacturing of certain key intermediates used in the
manufacture of the active pharmaceutical ingredients for our product candidates takes place in China through
third-party researchers and manufacturers. A significant disruption in the operation of those researchers or
manufacturers or political unrest in China could materially adversely affect our business, financial condition
and results of operations.
Although manufacturing for MAVYRET/MAVIRET is being conducted by AbbVie, we have relied on third parties
located in China to manufacture and supply certain key intermediates used in the manufacture of our active
pharmaceutical ingredients, or API, for our current product candidates, and we expect to continue to use such third
party manufacturers for such intermediates for any product candidates we develop independently. Any disruption in
production or inability of our manufacturers in China to produce adequate quantities to meet our needs, whether as a
result of a natural disaster or other causes, could impair our ability to operate our business on a day-to-day basis and
to continue our research and development of our product candidates. We also use contract researchers in China to
conduct a portion of our research for our early stage programs. Any disruption in the team conducting that research
could cause delays in one or more of our research programs and could require us to curtail one or more programs, at
least until we could contract for that research to be done elsewhere. Furthermore, since these researchers and
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manufacturers are located in China, we are exposed to the possibility of product supply disruption and increased
costs in the event of changes in the policies of the Chinese government, political unrest or unstable economic
conditions in China. Any of these matters could materially and adversely affect our business and results of
operations. Any recall of the manufacturing lots or similar action regarding our API used in clinical trials could
delay the trials or detract from the integrity of the trial data and its potential use in future regulatory filings. In
addition, manufacturing interruptions or failure to comply with regulatory requirements by any of these
manufacturers could significantly delay clinical development of potential products and reduce third-party or clinical
researcher interest and support of proposed trials. These interruptions or failures could also impede
commercialization of our product candidates and impair our competitive position. Further, we may be exposed to
fluctuations in the value of the local currency in China. Future appreciation of the local currency could increase our
costs. In addition, our labor costs could continue to rise as wage rates increase due to increased demand for skilled
laborers and the availability of skilled labor declines in China.
We will rely on third parties to monitor, support, conduct and/or oversee clinical trials of our product candidates
that we develop independently and, in some cases, to maintain regulatory files for those product candidates. If we
are not able to maintain or secure agreements with such third parties on acceptable terms, if these third parties
do not perform their services as required, or if these third parties fail to timely transfer any regulatory
information held by them to us, we may not be able to obtain regulatory approval for, or commercialize, our
product candidates.
We will rely on CROs, hospitals, clinics, academic institutions and other third-party collaborators who are outside
our control to monitor, support, conduct and/or oversee preclinical and clinical studies of our product candidates.
We will also rely on third parties to perform clinical trials of our product candidates when they reach that stage. As a
result, we have less control over the timing and cost of these studies and the ability to recruit trial subjects than if we
conducted these trials wholly by ourselves. If we are unable to maintain or enter into agreements with these third
parties on acceptable terms, or if any such engagement is terminated, we may be unable to enroll patients on a
timely basis or otherwise conduct our trials in the manner we anticipate. In addition, there is no guarantee that these
third parties will devote adequate time and resources to our studies or perform as required by a contract or in
accordance with regulatory requirements, including maintenance of clinical trial information regarding our product
candidates. If these third parties fail to meet expected deadlines, fail to timely transfer to us any regulatory
information, fail to adhere to protocols or fail to act in accordance with regulatory requirements or our agreements
with them, or if they otherwise perform in a substandard manner or in a way that compromises the quality or
accuracy of their activities or the data they obtain, then clinical trials of our product candidates may be extended,
delayed or terminated, or our data may be rejected by the FDA or regulatory agencies.
To the extent we elect to enter into additional licensing or collaboration agreements to partner our product
candidates, our dependence on such relationships may adversely affect our business.
Our commercialization strategy for some of our product candidates may depend on our ability to enter into
collaboration agreements with other companies to obtain access to other compounds for use in combination with any
of our product candidates or for assistance and funding for the development and potential commercialization of any
of these product candidates, similar to what we have done with AbbVie. Supporting diligence activities conducted
by potential collaborators and negotiating the financial and other terms of a collaboration agreement are long and
complex processes with uncertain results. Even if we are successful in entering into one or more additional
collaboration agreements, collaborations can involve greater uncertainty for us, as we may have limited or no
control over certain aspects of our collaborative programs. We may determine that continuing a collaboration under
the terms provided is not in our best interest, and we may terminate the collaboration. Our collaborators could delay
or terminate their agreements with us, and our product candidates subject to collaborative arrangements may never
be successfully commercialized.
Further, our collaborators may develop alternative products or pursue alternative technologies either on their own or
in collaboration with others, including our competitors, and the priorities or focus of our collaborators may shift
such that our programs receive less attention or resources than we would like, or they may be terminated altogether.
Any such actions by our collaborators may adversely affect our business prospects and ability to earn revenue. In
addition, we could have disputes with our collaborators, such as the interpretation of terms in our agreements. Any
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such disagreements could lead to delays in the development or commercialization of any potential products or could
result in time-consuming and expensive litigation or arbitration, which may not be resolved in our favor.
Even with respect to programs that we intend to commercialize ourselves, we may enter into agreements with
collaborators to share in the burden of conducting clinical trials, manufacturing and marketing our product
candidates or products. In addition, our ability to apply our proprietary technologies to develop proprietary
compounds will depend on our ability to establish and maintain licensing arrangements or other collaborative
arrangements with the holders of proprietary rights to such compounds. We may not be able to establish such
arrangements on favorable terms or at all, and our collaborative arrangements may not be successful.
Risks Related to Our Intellectual Property Rights
We could be unsuccessful in obtaining or maintaining adequate patent protection for one or more of our product
candidates.
Our commercial success will depend, in large part, on our ability to obtain and maintain patent and other intellectual
property protection with respect to our product candidates. We cannot be certain that patents will be issued or
granted with respect to our patent applications that are currently pending, or that issued or granted patents will not
later be found to be invalid and/or unenforceable, be interpreted in a manner that does not adequately protect our
products, or otherwise provide us with any competitive advantage. The patent position of biotechnology and
pharmaceutical companies is generally uncertain because it involves complex legal and factual considerations. The
standards applied by the United States Patent and Trademark Office and foreign patent offices in granting patents
are not always applied uniformly or predictably. For example, there is no uniform worldwide policy regarding
patentable subject matter or the scope of claims allowable in biotechnology and pharmaceutical patents.
Consequently, patents may not issue from our pending patent applications. As such, we do not know the degree of
future protection that we will have on our proprietary products and technology, if any, and a failure to obtain
adequate intellectual property protection with respect to our product candidates and proprietary technology could
have a material adverse impact on our business.
In addition, certain of our activities have been funded, and may in the future be funded, by the United States federal
government. For example, the preclinical and early clinical development of the lead antibiotic product candidate in
our former antibiotic program, which we are no longer developing, was funded under a contract with NIAID, an
entity of the United States federal government. When new technologies are developed with United States federal
government funding, the government obtains certain rights in any resulting patents, including a nonexclusive license
authorizing the government to use the invention for non-commercial purposes. These rights may permit the
government to disclose our confidential information to third parties and to exercise “march-in” rights to use or allow
third parties to use our patented technology. The government can exercise its march-in rights if it determines that
action is necessary because we fail to achieve practical application of the United States government-funded
technology, or because action is necessary to alleviate health or safety needs, to meet requirements of federal
regulations or to give preference to United States industry. In addition, United States government-funded inventions
must be reported to the government and United States government funding must be disclosed in any resulting patent
applications. In addition, our rights in such inventions are subject to certain requirements to manufacture products in
the United States.
Issued patents covering one or more of our product candidates could be found invalid or unenforceable if
challenged in court.
Despite measures we take to obtain patent and other intellectual property protection with respect to our product
candidates and proprietary technology, any of our intellectual property rights could be challenged or invalidated. For
example, if we were to initiate legal proceedings against a third party to enforce a patent covering one of our product
candidates, the defendant could counterclaim that our patent is invalid and/or unenforceable. In patent litigation in
the United States and in some other jurisdictions, defendant counterclaims alleging invalidity and/or
unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of
several statutory requirements, for example, lack of novelty, obviousness or non-enablement. Grounds for an
unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld
relevant information from the United States Patent and Trademark Office, or the applicable foreign counterpart, or
42
made a misleading statement, during prosecution. Although we believe that we have conducted our patent
prosecution in accordance with the duty of candor and in good faith, the outcome following legal assertions of
invalidity and unenforceability during patent litigation is unpredictable. With respect to the validity question, for
example, we cannot be certain that there is no invalidating prior art, of which we and the patent examiner were
unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity and/or unenforceability,
we would lose at least part, and perhaps all, of the patent protection on a product candidate. Even if a defendant does
not prevail on a legal assertion of invalidity and/or unenforceability, our patent claims may be construed in a manner
that would limit our ability to enforce such claims against the defendant and others. Any loss of patent protection
could have a material adverse impact on one or more of our product candidates and our business.
Enforcing our intellectual property rights against third parties may also cause such third parties to file other
counterclaims against us, which could be costly to defend and could require us to pay substantial damages, cease the
sale of certain products or enter into a license agreement and pay royalties (which may not be possible on
commercially reasonable terms or at all). Any efforts to enforce our intellectual property rights are also likely to be
costly and may divert the efforts of our scientific and management personnel.
Claims that our product candidates or the sale or use of our products infringe the patent or other intellectual
property rights of third parties could result in costly litigation or could require substantial time and money to
resolve, even if litigation is avoided.
Our commercial success depends upon our ability to develop, manufacture, market and sell our product candidates
and use our proprietary technology without infringing the intellectual property rights of others. We cannot guarantee
that our product candidates or any uses of our product candidates do not and will not in the future infringe third-
party patents or other intellectual property rights. Third parties might allege that we or our collaborators are
infringing their patent rights or that we have misappropriated their trade secrets, or that we are otherwise violating
their intellectual property rights, whether with respect to the manner in which we have conducted our research or to
the composition, use or manufacture of the compounds we have developed or are developing with our collaborators.
Such third parties might resort to litigation against us or other parties we have agreed to indemnify, which litigation
could be based on either existing intellectual property or intellectual property that arises in the future.
It is also possible that we failed to identify, or may in the future fail to identify, relevant patents or patent
applications held by third parties that cover our product candidates. For example, applications filed before
November 29, 2000 and certain applications filed after that date that will not be filed outside the United States
remain confidential until patents issue. Other patent applications in the United States and several other jurisdictions
are published approximately 18 months after the earliest filing for which priority is claimed, with such earliest filing
date being commonly referred to as the priority date. Furthermore, publication of discoveries in the scientific or
patent literature often lags behind actual discoveries. Therefore, we cannot be certain that we or our collaborators
were the first to invent, or the first to file patent applications on, our product candidates or for their uses, or that our
product candidates will not infringe patents that are currently issued or that are issued in the future. In the event that
a third party has also filed a patent application covering one of our product candidates or a similar invention, we
may have to participate in an adversarial proceeding, known as an interference, declared by the U.S. Patent and
Trademark Office or its foreign counterpart to determine priority of invention. Additionally, pending patent
applications which have been published can, subject to certain limitations, be later amended in a manner that could
cover our products or their use.
In order to avoid or settle potential claims with respect to any patent or other intellectual property rights of third
parties, we may choose or be required to seek a license from a third party and be required to pay license fees or
royalties or both, which could be substantial. These licenses may not be available on acceptable terms, or at all.
Even if we were able to obtain a license, the rights may be nonexclusive, which could result in our competitors
gaining access to the same intellectual property. Ultimately, we could be prevented from commercializing a product,
or be forced, by court order or otherwise, to cease some or all aspects of our business operations, if, as a result of
actual or threatened patent or other intellectual property claims, we are unable to enter into licenses on acceptable
terms. Further, we could be found liable for significant monetary damages as a result of claims of intellectual
property infringement. For example, we have received, and may in the future receive, offers to license and demands
to license from third parties claiming that we are infringing their intellectual property or owe license fees and, even
if such claims are without merit, there can be no assurance that we will successfully avoid or settle such claims.
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In addition, if AbbVie licenses or otherwise acquires rights to intellectual property controlled by a third party in
various circumstances, for example, where a product could not be legally developed or commercialized in a country
without the third-party intellectual property right, it is entitled under our collaboration agreement to decrease
payments payable to us on a product-by-product basis and, in certain cases, on a country-by-country basis. Any of
the foregoing events could harm our business significantly.
Defending against claims of patent infringement, misappropriation of trade secrets or other violations of intellectual
property rights could be costly and time consuming, regardless of the outcome. Thus, even if we were to ultimately
prevail, or to settle at an early stage, such litigation could burden us with substantial unanticipated costs. In addition,
litigation or threatened litigation could result in significant demands on the time and attention of our management
team, distracting them from the pursuit of other company business. Claims that our product candidates or the sale or
use of our future products infringe, misappropriate or otherwise violate third-party intellectual property rights could
therefore have a material adverse impact on our business.
Unfavorable outcomes in intellectual property litigation could limit our research and development activities
and/or our ability to commercialize certain products.
If third parties successfully assert their intellectual property rights against us, we might be barred from using certain
aspects of our technology, or barred from developing and commercializing certain products. Prohibitions against
using certain technologies, or prohibitions against commercializing certain products, could be imposed by a court or
by a settlement agreement between us and a plaintiff. In addition, if we are unsuccessful in defending against
allegations that we have infringed, misappropriated or otherwise violated patent or other intellectual property rights
of others, we may be forced to pay substantial damage awards to the plaintiff. There is inevitable uncertainty in any
litigation, including intellectual property litigation. There can be no assurance that we would prevail in any
intellectual property litigation, even if the case against us is weak or flawed. If litigation leads to an outcome
unfavorable to us, we may be required to obtain a license from the intellectual property owner in order to continue
our research and development programs or to market any resulting product. It is possible that the necessary license
will not be available to us on commercially acceptable terms, or at all. Alternatively, we may be required to modify
or redesign our products in order to avoid infringing or otherwise violating third-party intellectual property rights.
This may not be technically or commercially feasible, may render our products less competitive, or may delay or
prevent the entry of our products to the market. Any of the foregoing could limit our research and development
activities, our ability to commercialize one or more product candidates, or both.
Most of our competitors are larger than we are and have substantially greater resources. They are, therefore, likely to
be able to sustain the costs of complex intellectual property litigation longer than we could. In addition, the
uncertainties associated with litigation could have a material adverse effect on our ability to raise the funds
necessary to conduct our clinical trials, continue our internal research programs, in-license needed technology, or
enter into strategic partnerships that would help us bring our product candidates to market.
In addition, any future intellectual property litigation, interference or other administrative proceedings will result in
additional expense and distraction of our personnel. An adverse outcome in such litigation or proceedings may
expose us or any future strategic partners to loss of our proprietary position, expose us to significant liabilities, or
require us to seek licenses that may not be available on commercially acceptable terms, if at all, each of which could
have a material adverse effect on our business.
Intellectual property litigation may lead to unfavorable publicity that harms our reputation and causes the
market price of our common stock to decline.
During the course of any intellectual property litigation, there could be public announcements of the results of
hearings, rulings on motions, and other interim proceedings in the litigation. If securities analysts or investors regard
these announcements as negative, the perceived value of our products, programs or intellectual property could be
diminished. Accordingly, the market price of our common stock may decline. Such announcements could also harm
our reputation or the market for our future products, which could have a material adverse effect on our business.
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Confidentiality agreements with employees and third parties may not prevent unauthorized disclosure of trade
secrets and other proprietary information.
In addition to patents, we rely on trade secrets, technical know-how and proprietary information concerning our
business strategy and product candidates in order to protect our competitive position in the field of HCV, other
antivirals and liver disease. In the course of our research and development activities and our business activities, we
often rely on confidentiality agreements to protect our proprietary information. Such confidentiality agreements are
used, for example, when we talk to vendors of laboratory or clinical development services or potential strategic
partners. In addition, each of our employees is required to sign a confidentiality agreement and invention assignment
agreement upon joining our company. We take steps to protect our proprietary information, and our confidentiality
agreements and invention assignment agreements are carefully drafted to protect our proprietary interests.
Nevertheless, there can be no guarantee that an employee or an outside party will not make an unauthorized
disclosure of our proprietary confidential information. This might happen intentionally or inadvertently. It is
possible that a competitor will make use of such information, and that our competitive position will be
compromised, in spite of any legal action we might take against persons making such unauthorized disclosures. In
addition, to the extent that our employees, consultants or contractors use intellectual property owned by others in
their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.
Trade secrets are difficult to protect. Although we use reasonable efforts to protect our trade secrets, our employees,
consultants, contractors, business partners or outside scientific collaborators might intentionally or inadvertently
disclose our trade secret information to competitors or our trade secrets may otherwise be misappropriated.
Enforcing a claim that a third party illegally obtained and is using any of our trade secrets is expensive and time
consuming, and the outcome is unpredictable. In addition, courts outside the United States sometimes are less
willing than United States courts to protect trade secrets. Moreover, our competitors may independently develop
equivalent knowledge, methods and know-how.
Our collaborators may have rights to publish data and other information to which we have rights. In addition,
we sometimes engage individuals or entities to conduct research relevant to our business. The ability of these
individuals or entities to publish or otherwise publicly disclose data and other information generated during
the course of their research is subject to certain contractual limitations. These contractual provisions may be
insufficient or inadequate to protect our confidential information. If we do not apply for patent protection prior
to such publication, or if we cannot otherwise maintain the confidentiality of our proprietary technology and other
confidential information, then our ability to obtain patent protection or to protect our trade secret information may
be jeopardized, which could adversely affect our business.
Intellectual property rights do not necessarily protect us from all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property
rights have limitations, and may not adequately protect our business, or permit us to maintain our competitive
advantage. The following examples are illustrative:
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others may be able to make compounds that are similar to our product candidates but that are not
covered by the claims of the patents that we own or have exclusively licensed;
we might not have been the first to make the inventions covered by the issued patents or pending patent
applications that we own or may in the future exclusively license, which could result in the patent
applications not issuing or being invalidated after issuing;
we might not have been the first to file patent applications covering certain of our inventions, which
could result in the patent applications not issuing or being invalidated after issuing;
others may independently develop similar or alternative technologies or duplicate any of our
technologies without infringing our intellectual property rights;
it is possible that our pending patent applications will not lead to issued patents;
45
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issued patents that we own may not provide us with any competitive advantages, or may be held invalid
or unenforceable, as a result of legal challenges by our competitors; we may obtain patents for certain
compounds many years before we obtain marketing approval for products containing such compounds,
and because patents have a limited life, which may begin to run prior to the commercial sale of the
related product, the commercial value of our patents may be limited;
our competitors might conduct research and development activities in countries where we do not have
patent rights and then use the information learned from such activities to develop competitive products
for sale in our major commercial markets;
we may fail to develop additional proprietary technologies that are patentable;
the laws of certain foreign countries may not protect our intellectual property rights to the same extent
as the laws of the United States, or we may fail to apply for or obtain adequate intellectual property
protection in all the jurisdictions in which we operate; and
the patents of others may have an adverse effect on our business, for example by preventing us from
marketing one or more of our product candidates for one or more indications.
Any of the aforementioned threats to our competitive advantage could have a material adverse effect on our
business.
Changes in patent law could diminish the value of patents in general, thereby impairing our ability to protect our
products.
As is the case with many other biopharmaceutical companies, our success is heavily dependent on intellectual
property, particularly patents. Obtaining, maintaining and enforcing patents in the biopharmaceutical industry
involves both technological complexity and legal complexity. Therefore, the process of obtaining, maintaining and
enforcing biopharmaceutical patents is costly, time-consuming and inherently uncertain. In addition, recent
legislative and judicial developments in the United States and elsewhere have in some cases narrowed the protection
afforded to patent owners, made patents more difficult to obtain, or increased the uncertainty regarding the ability to
obtain, maintain and enforce patents. For example, Congress recently passed patent reform legislation, and may pass
patent reform legislation in the future. The United States Supreme Court has ruled on several patent cases in recent
years, and in certain circumstances has narrowed the scope of patent protection available or otherwise weakened the
rights of patent owners. In addition to increasing uncertainty with regard to our ability to obtain patents in the future,
this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on
decisions and actions by the United States Congress, the federal courts, the United States Patent and Trademark
Office, and their respective foreign counterparts, the laws and regulations governing patents could change in
unpredictable ways that could weaken our ability to obtain new patents or to maintain and enforce our existing
patents and patents that we might obtain in the future.
Risks Related to Our Industry
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to
limit commercialization of our product candidates.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates, and we will
face an even greater risk if we commercialize any product candidates. For example, we may be sued if any of our
product candidates, including any that are developed in combination therapies, allegedly causes injury or is found to
be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims
may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the
product, negligence, strict liability and a breach of warranties. Claims could also be asserted under state consumer
protection acts. If we cannot successfully defend ourselves against product liability claims, we may incur substantial
liabilities or be required to limit commercialization of our product candidates. Even successful defense would
require significant financial and management resources. There is also risk that third parties we have agreed to
indemnify could incur liability.
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Regardless of the merits or eventual outcome, liability claims may result in:
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decreased demand for our product candidates or any resulting products;
injury to our reputation;
withdrawal of clinical trial participants;
costs to defend the related litigation;
a diversion of management’s time and our resources;
substantial monetary awards to trial participants or patients;
product recalls, withdrawals or labeling, marketing or promotional restrictions;
loss of revenue;
the inability to commercialize our product candidates; and
a decline in our stock price.
Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against
potential product liability claims could prevent or inhibit the commercialization of products we develop. We
currently carry product liability insurance covering our clinical studies in the amount of $10.0 million in the
aggregate. Although we maintain such insurance, any claim that may be brought against us could result in a court
judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of
the limits of our insurance coverage. Our insurance policies also have various exclusions, and we may be subject to
a product liability claim for which we have no coverage. We will have to pay any amounts awarded by a court or
negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may
not have, or be able to obtain, sufficient capital to pay such amounts.
Our internal computer systems, or those of our collaborator, CROs or other contractors or consultants, may fail
or suffer security breaches, which could result in a material disruption of development programs for our product
candidates.
Despite the implementation of security measures, our internal computer systems and those of our collaborators,
CROs, and other contractors and consultants are vulnerable to damage from computer viruses, unauthorized access,
natural disasters, terrorism, war and telecommunication and electrical failures. Information security risks have
significantly increased in recent years in part due to the proliferation of new technologies and the increased
sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state
actors. As cyber threats continue to evolve, we may be required to expend significant additional resources to
continue to modify or enhance our protective measures or to investigate and remediate any information security
breaches.
While we have not experienced any such system failure, accident or security breach to date, if such an event were to
occur and cause interruptions in our operations, it could result in a material disruption of our independent drug
development programs. For example, the loss of clinical trial data from ongoing or future clinical trials for any of
our product candidates could result in delays in regulatory approval efforts and significantly increase costs to
recover or reproduce the data. Our information security systems are also subject to laws and regulations requiring
that we take measures to protect the privacy and security of certain information we gather and use in our business.
For example, HIPAA and its implementing regulations impose, among other requirements, certain regulatory and
contractual requirements regarding the privacy and security of personal health information. In addition to HIPAA,
numerous other federal and state laws, including, without limitation, state security breach notification laws, state
health information privacy laws and federal and state consumer protection laws, govern the collection, use,
disclosure and storage of personal information. To the extent that any disruption or security breach were to result in
a loss of or damage to data or applications, or inappropriate disclosure of confidential or proprietary information or
personal health information, we could incur substantial liability, our reputation would be damaged, and the further
development of our product candidates could be delayed.
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Our relationships with customers and third-party payors in the United States and elsewhere will be subject to
applicable anti-kickback, fraud and abuse and other healthcare laws and regulations, which could expose us to
criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future
earnings.
Healthcare providers, physicians and third-party payors in the United States and elsewhere play a primary role in the
recommendation and prescription of any product candidates for which we obtain marketing approval. Our future
arrangements with third-party payors and customers may expose us to broadly applicable fraud and abuse and other
healthcare laws and regulations that may constrain the business or financial arrangements and relationships through
which we market, sell and distribute our products for which we obtain marketing approval. Restrictions under
applicable federal, state and foreign healthcare laws and regulations include the following:
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the federal healthcare anti-kickback statute prohibits, among other things, persons from knowingly and
willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in
kind, to induce or reward either the referral of an individual for, or the purchase, order or
recommendation of, any good or service for which payment may be made under federal and state
healthcare programs such as Medicare and Medicaid;
the federal False Claims Act imposes criminal and civil penalties, including civil whistleblower or qui
tam actions, against individuals or entities for knowingly presenting, or causing to be presented, to the
federal government, claims for payment that are false or fraudulent or making a false statement to avoid,
decrease or conceal an obligation to pay money to the federal government;
the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health
Information Technology for Economic and Clinical Health Act, imposes criminal and civil liability for
executing a scheme to defraud any healthcare benefit program and also imposes obligations, including
mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of
individually identifiable health information;
the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering
up a material fact or making any materially false statement in connection with the delivery of or
payment for healthcare benefits, items or services;
the federal transparency requirements under the Patient Protection and Affordable Care Act of 2010
requires manufacturers of drugs, devices, biologics and medical supplies to report to the Department of
Health and Human Services information related to physician payments and other transfers of value and
physician ownership and investment interests;
analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to
sales or marketing arrangements and claims involving healthcare items or services reimbursed by non-
governmental third-party payors, including private insurers, and some state laws require pharmaceutical
companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the
relevant compliance guidance promulgated by the federal government in addition to requiring drug
manufacturers to report information related to payments to physicians and other healthcare providers or
marketing expenditures; and
analogous anti-kickback, fraud and abuse and healthcare laws and regulations in foreign countries.
Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and
regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business
practices may not comply with current or future statutes, regulations or case law involving applicable fraud and
abuse or other healthcare laws and regulations. If our operations are found to be in violation of any of these laws or
any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and
administrative penalties, damages, fines, exclusion from government funded healthcare programs, such as Medicare
and Medicaid, and the curtailment or restructuring of our operations, which could have a material adverse effect on
our business. If any of the physicians or other providers or entities with whom we expect to do business, including
our collaborators, are found not to be in compliance with applicable laws, they may be subject to criminal, civil or
administrative sanctions, including exclusions from government funded healthcare programs, which could also
materially affect our business.
48
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines
or penalties or incur costs that could have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing
laboratory procedures and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our
operations involve the use of hazardous and flammable materials, including chemicals. Our operations also produce
hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes.
We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury
resulting from our use of hazardous materials or our or third parties’ disposal of hazardous materials, we could be
held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant
costs associated with civil or criminal fines and penalties.
We may incur substantial costs in order to comply with current or future environmental, health and safety laws and
regulations. These current or future laws and regulations may impair our research, development or production
efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other
sanctions.
We maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to
our employees resulting from the use of hazardous materials. This insurance may not provide adequate coverage
against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be
asserted against us in connection with our storage or disposal of hazardous or radioactive materials.
Our insurance policies are expensive and only protect us from specified business risks, which will leave us
exposed to significant uninsured liabilities.
We do not carry insurance for all categories of risk that our business may encounter. Some of the policies we
currently maintain include general liability, employment practices liability, property, auto, workers’ compensation,
products liability and directors’ and officers’ insurance. We do not know, however, if we have adequate levels of
coverage for any liability we may incur, or whether we will always be able to continue to maintain such insurance.
Any significant uninsured liability may require us to make substantial payments, which would adversely affect our
financial position and results of operations. Furthermore, any increase in the volatility of our stock price may result
in us being required to pay substantially higher premiums for our directors’ and officers’ liability insurance than
those to which we are currently subject, and may even cause one or more of our underwriters to be unwilling to
insure us.
Risks Related to Our Common Stock
Our stock price has been, and is likely to continue to be, volatile, and thus our stockholders could incur
substantial losses.
Our stock price has been volatile and could be subject to wide fluctuations in response to various factors, many of
which are beyond our control. Since our initial public offering in March 2013, the price of our common stock on the
NASDAQ Global Select Market has ranged from $16.18 to $52.58. The stock market in general and the market for
biopharmaceutical companies, and for those developing potential therapies for HCV in particular, have experienced
extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of
this volatility, you may not be able to sell your common stock at or above your purchase price, if at all. The market
price for our common stock may be influenced by many factors, including:
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actions by AbbVie regarding HCV treatment regimens containing paritaprevir or the
MAVYRET/MAVIRET regimen containing glecaprevir as approved in the U.S., EU and Japan,
including announcements regarding clinical, regulatory or commercial developments or our
collaboration;
market expectations about and response to the levels of sales or scripts achieved by, or the announced
prices or discounts for, AbbVie’s paritaprevir-containing HCV treatment regimens or competitive HCV
drugs;
49
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failure of AbbVie’s paritaprevir-containing HCV treatment regimens to maintain their sales levels or
AbbVie’s MAVYRET/MAVIRET regimen to achieve commercial success;
results from or delays of clinical trials of our other product candidates, as well as results of regulatory
reviews relating to the approval of our product candidates;
new products, product candidates or new uses for existing products or technologies introduced or
announced by our competitors and the timing of these introductions or announcements;
the results of our efforts to discover or develop additional product candidates;
our dependence on third parties, including our collaborators, CROs, clinical trial sponsors and clinical
investigators;
regulatory, political or legal developments in the United States or other countries;
developments or disputes concerning patent applications, issued patents or other proprietary rights;
the recruitment or departure of key scientific or management personnel;
our ability to commercialize our product candidates we develop independently, if approved;
the level of expenses related to any of our product candidates or clinical development programs;
actual or anticipated changes in estimates as to financial results, development timelines or
recommendations by securities analysts;
period-to-period variations in our financial results or those of companies that are perceived to be similar
to us;
sales of common stock by us or our stockholders in the future, as well as the overall trading volume of
our common stock;
changes in the structure of healthcare payment systems or other actions that affect the effective
reimbursement rates for treatment regimens containing our products or for competitive regimens;
market conditions in the pharmaceutical and biotechnology sectors;
general economic, industry and market conditions and other factors that may be unrelated to our
operating performance or the operating performance of our competitors, including changes in market
valuations of similar companies; and
the other factors described in this “Risk Factors” section.
Provisions in our corporate charter documents and under Delaware law could make an acquisition of us, which
may be beneficial to our stockholders, more difficult and may prevent attempts by our stockholders to replace or
remove our current management.
Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other
change in control of us that stockholders may consider favorable, including transactions in which they might
otherwise receive a premium for their shares.
These provisions could also limit the price that investors might be willing to pay in the future for shares of our
common stock, thereby depressing the market price of our common stock. In addition, because our board of
directors is responsible for appointing the members of our management team, these provisions may frustrate or
prevent any attempts by our stockholders to replace or remove our current management by making it more difficult
for stockholders to replace members of our board of directors. Among other things, these provisions:
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establish a classified or staggered board of directors such that not all members of the board are elected at
one time;
allow the authorized number of our directors to be changed only by resolution of our board of directors;
limit the manner in which stockholders can remove directors from the board;
50
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establish advance notice requirements for stockholder proposals that can be acted on at stockholder
meetings and nominations to our board of directors;
require that stockholder actions must be effected at a duly called stockholder meeting and prohibit
actions by our stockholders by written consent;
limit who may call stockholder meetings;
provide that the state courts or, in certain circumstances, the federal courts, in Delaware shall be the sole
and exclusive forum for certain actions involving us, our directors, officers, employees and
stockholders;
provide our board of directors with the authority to designate the terms of and issue a new series of
preferred stock without stockholder approval, which could be used to institute a “poison pill” that would
work to dilute the stock ownership of a potential hostile acquirer, effectively preventing acquisitions
that have not been approved by our board of directors; and
require the approval of the holders of at least 66 2/3% of the votes that all our stockholders would be
entitled to cast to amend or repeal certain provisions of our charter or bylaws.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the
Delaware General Corporation Law, which prohibit a person who owns 15% or more of our outstanding voting
stock from merging or combining with us for a period of three years after the date of the transaction in which the
person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a
prescribed manner. Any provision in our corporate charter or our bylaws or Delaware law that has the effect of
delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for
their shares of our common stock, and could also affect the price that some investors are willing to pay for our
common stock.
Our employment agreements with our executive officers may require us to pay severance benefits to any of those
persons who are terminated in connection with a change of control of us, which could harm our financial
condition or results.
Our executive officers are parties to employment agreements that provide for aggregate cash payments of up to
approximately $4.1 million for severance and other non-equity-based benefits in the event of a termination of
employment in connection with a change of control of our company. In addition, based on the closing price of our
common stock as of September 30, 2017 of $46.80 per common share, the aggregate intrinsic value of unvested
stock options and other equity awards subject to accelerated vesting upon these events was $6.6 million. The
accelerated vesting of awards options could result in dilution to our stockholders and harm the market price of our
common stock. The payment of these severance benefits could harm our company’s financial condition and results.
In addition, these potential severance payments may discourage or prevent third parties from seeking a business
combination with us.
We are an “emerging growth company,” and we cannot be certain if the reduced reporting requirements
applicable to “emerging growth companies” will make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act. For as long as we continue to be an “emerging
growth company,” we may take advantage of exemptions from various reporting requirements that are applicable to
other public companies that are not “emerging growth companies,” including not being required to comply with the
auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations
regarding executive compensation in our periodic reports and proxy statements and exemptions from the
requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any
golden parachute payments not previously approved. As an “emerging growth company” we are required to report
periodic financial results and selected financial data related to two fiscal years compared to three and five years,
respectively, for comparable data required to be reported by other public companies in selected SEC reports. We
may take advantage of these exemptions until we are no longer an “emerging growth company.” Based on the
market value of our common stock at March 31, 2017 and the number of shares of our common stock held by non-
affiliates, we will continue to be an “emerging growth company” until the end of our 2018 fiscal year. We cannot
51
predict if investors will find our common stock less attractive because we may rely on these exemptions. If some
investors find our common stock less attractive as a result, there may be a less active trading market for our common
stock and our stock price may be more volatile.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to
accurately report our financial results or prevent fraud. As a result, stockholders could lose confidence in our
financial and other public reporting, which would harm our business and the trading price of our common stock.
Effective internal controls over financial reporting are necessary for us to provide reliable financial reports and,
together with adequate disclosure controls and procedures, are designed to prevent fraud. Any failure to implement
required new or improved controls, or difficulties encountered in their implementation could cause us to fail to meet
our reporting obligations. In addition, any testing by us conducted in connection with Section 404 of the Sarbanes-
Oxley Act of 2002, or any subsequent testing by our independent registered public accounting firm, may reveal
deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses or that may
require prospective or retroactive changes to our financial statements or identify other areas for further attention or
improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial
information, which could have a negative effect on the trading price of our common stock.
We are required to disclose changes made in our internal controls and procedures on a quarterly basis and our
management is required to assess the effectiveness of these controls annually. However, for as long as we are an
“emerging growth company” under the JOBS Act, our independent registered public accounting firm will not be
required to attest to the effectiveness of our internal controls over financial reporting pursuant to Section 404. We
will continue to be an “emerging growth company” until our fiscal year ending September 30, 2018. An independent
assessment of the effectiveness of our internal controls could detect problems that our management’s assessment
might not. Undetected material weaknesses in our internal controls could lead to financial statement restatements
and require us to incur the expense of remediation.
Because we do not anticipate paying cash dividends on our common stock for the foreseeable future, investors in
our common stock may never receive a return on their investment.
You should not rely on an investment in our common stock to provide dividend income. We do not anticipate that
we will pay any cash dividends to holders of our common stock for the foreseeable future. Instead, we plan to retain
any earnings to maintain and expand our existing operations.
Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as
the only way to realize any return on their investment. As a result, investors seeking cash dividends should not
invest in our common stock.
A sale of a substantial number of shares of our common stock in the public market could cause the market price
of our common stock to drop significantly, even if our business is doing well.
Sales of a substantial number of shares of our common stock in the public market could occur at any time. These
sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce
the market price of our common stock. As of September 30, 2017, we had 19.1 million shares of common stock
outstanding. In addition, as of September 30, 2017, 2.3 million and 0.2 million shares of common stock that are
subject to outstanding options or restricted stock unit awards, respectively, under our equity plan are eligible for sale
in the public market to the extent permitted by the provisions of various vesting schedules, and Rules 144 and 701
under the Securities Act. If these additional shares of common stock are sold, or it is perceived that they will be sold,
in the public market, the trading price of our common stock could decline.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about
our business, our stock price and trading volume could decline.
The trading market for our common stock will depend in part on the research and reports that securities or industry
analysts publish about us or our business. If those analysts are unable to predict accurately the demand and net sales
52
of AbbVie’s HCV regimens, that could result in our reported revenues and earnings being lower than the so-called
“market consensus” of our projected revenues, which could negatively affect our stock price. In addition, if too few
securities or industry analysts cover our company, the trading price for our stock would likely be negatively
impacted. In the event that one or more of the analysts who cover us downgrade our stock or publish inaccurate or
unfavorable research about our business, our stock price would likely decline. If one or more of these analysts cease
coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which
might cause our stock price and trading volume to decline.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our corporate headquarters is located in Watertown, Massachusetts, where we lease approximately 49,000 square
feet of office and laboratory space. The term of our current lease expires on September 1, 2022.
ITEM 3.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market and Stockholder Information
Our common stock has been listed on The NASDAQ Global Select Market under the symbol “ENTA” since
March 21, 2013. The following table shows the high and low sales price for our common stock as reported by The
NASDAQ Global Select Market for the quarterly periods in the fiscal years ended September 30, 2017 and 2016:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2017
High
Low
34.53 $
36.05 $
37.54 $
46.80 $
22.32
27.72
29.45
33.42
Fiscal 2016
High
Low
40.68 $
34.19 $
32.41 $
26.81 $
23.90
21.52
21.55
21.00
$
$
$
$
$
$
$
$
As of December 1, 2017, there were 30 stockholders of record of our common stock, which excludes stockholders
whose shares were held in nominee or street name by brokers.
53
We have never declared or paid cash dividends on our common stock, and we do not expect to declare or pay any
cash dividends for the foreseeable future.
Performance Graph(1)
The following graph shows a comparison from March 21, 2013 through September 30, 2017 of cumulative total
return on assumed investments of $100.00 in cash in each of our common stock, the NASDAQ Composite Index
and the NASDAQ Biotechnology Index. Such returns are based on historical results and are not intended to suggest
future performance. Data for the NASDAQ Composite Index and the NASDAQ Biotechnology Index assume
reinvestment of dividends.
COMPARISON OF FIFTY FOUR MONTH CUMULATIVE TOTAL RETURN
Among Enanta Pharmaceuticals, Inc., the NASDAQ Composite Index,
and the NASDAQ Biotechnology Index
Enanta Pharmaceuticals, Inc. (ENTA)
Nasdaq Biotechnology (NBI)
Nasdaq Composite (IXIC)
$310
$300
$290
$280
$270
$260
$250
$240
$230
$220
$210
$200
$190
$180
$170
$160
$150
$140
$130
$120
$110
$100
$90
3/21/2013
6/21/2013
9/21/2013
12/21/2013
3/21/2014
6/21/2014
9/21/2014
12/21/2014
3/21/2015
6/21/2015
9/21/2015
12/21/2015
3/21/2016
6/21/2016
9/21/2016
12/21/2016
3/21/2017
6/21/2017
9/21/2017
(1)
This performance graph shall not be deemed to be “soliciting material” or to be “filed” with the SEC for
purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to the
liabilities under that Section, and shall not be deemed incorporated by reference into any filing of Enanta
Pharmaceuticals, Inc. under the Securities Act of 1933, as amended.
54
ITEM 6.
SELECTED CONSOLIDATED FINANCIAL DATA
We have derived the consolidated statements of operations data for the years ended September 30, 2017, 2016, and
2015 and the consolidated balance sheet data as of September 30, 2017 and 2016 from our audited financial
statements included elsewhere in this Annual Report on Form 10-K. The selected statements of operations data for
the years ended September 30, 2014 and 2013 and the balance sheet data as of September 30, 2015, 2014 and 2013
are derived from our audited financial statements not included in this Annual Report on Form 10-K. Our historical
results for any prior period are not necessarily indicative of any results to be expected for any future period.
Consolidated Statements of Operations Data:
Revenue
Operating expenses:
Research and development
General and administrative
Total operating expenses
Income from operations
Other income (expense), net
Net income before income tax
Income tax (expense) benefit
Net income
Accretion of redeemable convertible
preferred stock to redemption value
Net income attributable to participating
securities
Net income (loss) attributable to common
stockholders
Net income (loss) per share attributable to
common stockholders:
2017
Years Ended September 30,
2016
2014
2015
(in thousands, except per share data)
2013
$ 102,814 $ 88,268
$ 160,880
$ 47,741
$ 32,053
57,451
20,749
78,200
40,461
16,966
57,427
23,189
13,543
36,732
24,614
2,333
30,841
1,719
124,148
1,307
26,947
(9,237)
17,710
32,560
(10,894)
21,666
125,455
(46,463)
78,992
18,740
10,016
28,756
18,985
283
19,268
15,170
34,438
16,841
6,183
23,024
9,029
598
9,627
—
9,627
—
—
—
—
—
—
—
—
(2,526)
(13,670)
$ 17,710 $ 21,666
$ 78,992
$ 34,438
$
(6,569)
Basic
Diluted
$
$
0.93 $
0.91 $
1.14
1.13
$
$
4.23
4.09
$
$
1.88
1.80
$
$
(0.67)
(0.67)
Weighted average common shares outstanding:
Basic
Diluted
19,066
19,407
18,929
19,224
18,673
19,295
18,355
19,185
9,788
9,788
Consolidated Balance Sheet Data:
Cash, cash equivalents and marketable securities
Working capital
Total assets
Capital lease obligation
Warrant liability
Series 1 nonconvertible preferred stock
Total stockholders’ equity
2017
2016
As of September 30,
2015
(in thousands)
2014
2013
$ 293,707
216,837
326,637
458
807
762
301,676
$ 242,203
$ 209,443
$ 131,767
$ 112,183
224,267
163,937
103,229
100,187
281,277
246,013
155,415
116,973
531
1,251
159
598
1,276
163
—
1,584
202
—
1,620
—
269,936
236,157
148,654
110,468
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ITEM 7.
RESULTS OF OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
You should read the following discussion and analysis of financial condition and results of operations together with
the section entitled “Selected Consolidated Financial Data” and our consolidated financial statements and related
notes included elsewhere in this Annual Report on Form 10-K. This discussion and other parts of this Annual Report
on Form 10-K contain forward-looking statements that involve risks and uncertainties, such as statements regarding
our plans, objectives, expectations, intentions and projections. Our actual results could differ materially from those
discussed in these forward-looking statements. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed in the “Risk Factors” section of this Annual Report on Form 10-K.
Overview
We are a biotechnology company that uses our robust, chemistry-driven approach and drug discovery capabilities to
create small molecule drugs primarily for the treatment of viral infections and liver diseases. We discovered
glecaprevir, the second of two protease inhibitors discovered and developed through our collaboration with AbbVie
and marketed as part of AbbVie’s new direct-acting antiviral (DAA) regimen under the tradenames MAVYRET™
(U.S.) or MAVIRET™ (ex-U.S.) (glecaprevir/pibrentasvir) for the treatment of chronic hepatitis C virus, or HCV.
The other protease inhibitor under our HCV collaboration is part of AbbVie’s initial DAA regimens for the
treatment of chronic HCV marketed under the tradenames VIEKIRA PAK® (paritaprevir/ritonavir/ombitasvir/
dasabuvir) (U.S.) or VIEKIRAX® (paritaprevir/ritonavir/ombitasvir) (ex-U.S.). Our royalties from our AbbVie
collaboration and our existing financial resources provide us funding to support our wholly owned research and
development efforts, which are currently focused on the following disease targets:
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non-alcoholic steatohepatitis, or NASH, a liver disease estimated to affect approximately 6 million
individuals in the U.S. alone;
primary biliary cholangitis, or PBC, a chronic liver disease that slowly destroys bile ducts in the liver,
which affects an estimated 17,000 individuals in the U.S.;
respiratory syncytial virus, or RSV, the most common cause of bronchiolitis and pneumonia in children
under one year of age in the U.S., resulting in an estimated 75,000 to 125,000 hospitalizations each year
in the U.S.; and
hepatitis B virus, or HBV, the most prevalent chronic hepatitis, which is estimated to affect
approximately 250 million individuals worldwide.
We had $293.7 million in cash and marketable securities at September 30, 2017. In fiscal 2017, we received and
earned as revenue a total of $65.0 million in milestone payments for commercialization regulatory approvals of the
glecaprevir/pibrentasvir combination in the U.S. in August 2017 and the EU in July 2017 and earned $37.8 million
in per-product royalties on portions of AbbVie’s net sales of its HCV regimens allocated to paritaprevir or
glecaprevir. We earned the remaining $15.0 million milestone payment from AbbVie upon reimbursement approval
for MAVIRET in Japan in November 2017. We expect our existing financial resources and quarterly royalty
payments will allow us to continue to invest for the foreseeable future in our wholly owned research and
development programs.
Our Wholly Owned Programs
Our wholly owned research and development programs are in liver disease (non-virology), namely NASH and PBC,
and in virology, namely RSV and HBV:
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NASH and PBC: We are working on multiple compounds that selectively bind to and activate the
farnesoid X receptor, or FXR. We plan to develop these compounds, referred to as FXR agonists, for
use in the treatment of NASH and PBC, both of which are liver diseases with very few therapeutic
options. Our lead FXR agonist, EDP-305, represents a new class of FXR agonist designed to take
advantage of increased binding interactions with the receptor. We believe this class is significantly
different from other FXR agonists in clinical development.
56
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In October 2017, we announced results of a Phase 1a/b clinical study of EDP-305, which was generally
safe and well tolerated over a broad range of single and multiple doses with pharmacokinetic data
supporting once daily oral dosing. The study included 98 healthy volunteer subjects, or HV subjects,
and 48 subjects who were obese and with or without pre-diabetes or type 2 diabetes, whom we refer to
as subjects with presumptive non-alcoholic fatty liver disease, or PN subjects.
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EDP-305 exhibited strong engagement of the FXR receptor as evidenced by increased
levels of FGF19 and reduced levels of C4, both of which are monitored as
downstream markers indicating FXR receptor activity.
Results support the ability to administer EDP-305 in future trials at doses that neither
elicit clinically significant changes in lipids nor result in pruritus (itching).
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Since November 2016, we have presented data at the 2016 and 2017 annual meetings of the
American Association for the Study of Liver Diseases (AASLD), the 2017 NASH-TAG
conference and the 2017 International Liver Congress (ILC) that demonstrated that EDP-305 is a
highly selective FXR agonist and shows more potent activity in a variety of in vitro and in
vivo NASH models compared to the most advanced NASH candidate in development today,
obeticholic acid, or OCA.
We plan to initiate a Phase 2 clinical study of EDP-305 in PBC patients by the end of calendar
2017.
We also plan to initiate a Phase 2 clinical study of EDP-305 in NASH patients in early 2018.
EDP-305 has been granted Fast Track designation by the U.S. Food and Drug Administration
(FDA) for the treatment of NASH patients with liver fibrosis and separately for the treatment of
PBC.
In addition, we are pursuing research in other classes of FXR agonists as well as other
mechanisms that may provide therapeutic benefit in NASH and that either or both of these could
be used as combination therapies for NASH.
RSV: We have selected EDP-938, a potent N-protein inhibitor of activity of both major subgroups of
RSV, referred to as RSV-A and RSV-B, as our first development candidate for RSV. We believe EDP-
938 is differentiated from fusion inhibitors currently in development for RSV because N-protein
inhibitors directly target the viral replication process of RSV and have demonstrated high barriers to
resistance against RSV in vitro.
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In June 2017, we presented preclinical data demonstrating that EDP-938 is a potent inhibitor of
both RSV-A and RSV-B activity, maintaining antiviral activity post-infection while presenting a
high barrier to resistance in vitro. EDP-938 demonstrated a greater than 4-log reduction in viral
load in an animal model challenged with RSV. Further, EDP-938 maintained antiviral potency
across all clinical isolates tested in vitro, as well as virus that was resistant to fusion inhibitors.
The compound inhibited RSV at a post-entry, replication step and maintained its activity in
vitro when given 24 hours post infection. In addition, combination studies of EDP-938 with other
types of RSV inhibitors, such as fusion inhibitors, showed synergistic antiviral effects.
(cid:129) We plan to initiate a Phase 1 clinical study of EDP-938 by the end of calendar 2017.
HBV: We also have a program to discover and develop new chemical entities for the treatment of HBV.
Our initial focus is on core inhibitors, a mechanism with early clinical validation. We believe that it may
be necessary to utilize more than one compound/mechanism for the treatment of HBV and therefore we
are pursuing multiple approaches. We continue to make progress in discovering, characterizing, and
seeking patent protection for new core inhibitors of HBV with the goal of identifying a development
candidate in 2018. In addition, we are conducting preclinical experiments with other mechanisms that
target HBV.
We have utilized our internal chemistry and drug discovery capabilities to generate all of our development-stage
programs.
57
Licensed Products
Through our Collaborative Development and License Agreement with AbbVie, we have developed and licensed to
AbbVie two protease inhibitor compounds that have been clinically tested, manufactured, and commercialized by
AbbVie. Royalties on AbbVie’s net sales allocated to the protease inhibitors in these HCV regimens provided us
$37.8 million and $57.7 million in royalty revenue in our 2017 and 2016 fiscal years, respectively. To date, we have
earned a total of $330.0 million in milestone payments related to clinical development and commercialization
regulatory approvals of these regimens in major markets, including a $15.0 million milestone earned in November
2017.
(cid:129)
Glecaprevir: Glecaprevir is the protease inhibitor we discovered that was developed by AbbVie in its
new fixed-dose combination with its NS5A inhibitor, pibrentasvir, for the treatment of HCV. This
combination, currently marketed under the brand name MAVYRET™ in the U.S. and MAVIRET™ ex-
U.S. and referred to in this report as MAVYRET/MAVIRET, is a new, once daily, all oral, fixed-dose,
ribavirin-free treatment for HCV genotypes 1-6, which is referred to as being pan-genotypic. In the EU,
U.S. and Japan it is approved as an 8-week treatment for patients without cirrhosis and new to treatment.
Today, these patients are estimated to represent the majority of HCV patients in the developed country
markets.
Our economics from AbbVie’s MAVYRET/MAVIRET consist of two components:
(cid:129)
(cid:129)
We earned a total of $65.0 million in milestone payments in fiscal 2017 upon approval for the
glecaprevir/pibrentasvir combination in the U.S. and the EU, and we earned the remaining $15.0
million milestone payment in November 2017 in connection with commercialization regulatory
approval in Japan.
We also receive annually tiered, double-digit, per-product royalties on 50% of the net sales of the
2-DAA glecaprevir/pibrentasvir combination in MAVYRET/MAVIRET, which are calculated
separately from the royalties of paritaprevir-containing regimens.
The EU, U.S. and Japan authorizations for the MAVYRET/MAVIRET combination of glecaprevir and
pibrentasvir, and AbbVie’s applications for approval of MAVYRET/MAVIRET in other jurisdictions,
are supported by the following studies:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
8 weeks for treatment-naïve, non-cirrhotics: In November 2016, results from several Phase 3
studies of this combination demonstrated 97.5% of chronic HCV infected patients without
cirrhosis and new to treatment across all major genotypes (GT1-6) achieved sustained virologic
response at 12 weeks post-treatment, referred to as SVR12, with just 8 weeks of
MAVYRET/MAVIRET treatment.
8 weeks with chronic kidney disease: Results were also presented from AbbVie’s EXPEDITION-
4 study in chronic HCV patients with chronic kidney disease (CKD), in which 98% of patients
(n=102/104) across all major genotypes (GT1-6) achieved SVR12 with 12 weeks of treatment with
MAVYRET/MAVIRET.
8 weeks for GT-3: Data from AbbVie’s ENDURANCE-3 study were presented at
the International Liver Congress, or ILC, demonstrating that 95% of patients with challenging-to-
treat, genotype 3 (GT3) chronic HCV infection, without cirrhosis and new to treatment, achieved
SVR12 after 8 weeks of treatment with MAVYRET/MAVIRET.
12 weeks for compensated cirrhosis: Data from AbbVie’s EXPEDITION-1 study were also
presented at the ILC, demonstrating that 99% of HCV-infected patients with genotype 1, 2, 4, 5 or
6 and compensated cirrhosis (Child-Pugh A) achieved SVR12 following 12 weeks of
MAVYRET/MAVIRET treatment without ribavirin.
(cid:129)
Paritaprevir: Paritaprevir is the protease inhibitor contained in AbbVie’s initial HCV treatment regimens
currently marketed in the U.S., EU, Japan and other countries around the world under the trade names
VIEKIRA PAK®, VIEKIRAX® VIEKIRAX XR™ and TECHNIVIE®. First approved and sold in the
U.S. in December 2014 for treatment of genotype 1, or GT-1, HCV, AbbVie’s HCV regimens
containing paritaprevir are now also approved for genotype 4, or GT-4, HCV.
58
Financial Operations Overview
We are currently funding all research and development for our internal programs. We expect to incur substantially
greater expenses as we continue to advance our FXR agonist program for NASH and PBC. We have completed a
Phase 1 study in 146 patients and plan to initiate additional studies, one in PBC patients by the end of calendar 2017
and one in NASH patients in early 2018. We also plan to initiate a Phase 1 clinical study of our lead RSV candidate,
EDP-938, by the end of calendar 2017. We expect to increase expenses in fiscal 2018 as we conduct these clinical
studies and advance other compounds into substantial preclinical development.
Since commencing our operations in 1995, we have devoted substantially all of our resources to the discovery and
development of novel compounds for the treatment of viral infections and liver diseases. For the periods included in
this report we have funded our operations primarily through payments received under collaboration agreements with
pharmaceutical companies and one government research and development contract, as well as net proceeds that we
received from our March 2013 IPO. Our revenue from our collaboration agreements has resulted in our reporting net
income in each of our past six fiscal years. Our revenue in the near term will continue to be dependent on our royalty
payments from our collaboration with AbbVie.
For its new MAVYRET/MAVIRET regimen, which in the majority of chronic HCV patients only requires 8 weeks
of treatment compared to 12 weeks with VIEKIRA PAK, AbbVie has initially set a lower list price compared to its
original HCV regimens and other HCV products on the market. As MAVYRET/MAVIRET replaces AbbVie’s
paritaprevir-containing regimens over the next several quarters, AbbVie is seeking to increase its HCV market share
through this pricing and the favorable treatment characteristics of the new regimen. It is still too early to know how
successful AbbVie’s efforts will be. Given the uncertainty of AbbVie’s future HCV sales that will generate our
royalty payments and the development risks affecting our future expenditures for the advancement of our internally
developed compounds, it is uncertain whether we will continue to report net income in fiscal 2018 and thereafter.
Revenue
Since our inception, our revenue has been derived from two primary sources: collaboration agreements with
pharmaceutical companies and one government research and development contract. We have entered into three
significant collaboration agreements and contracts since 2006, the most significant of which is our continuing
collaboration agreement with AbbVie. In addition, from September 2011 through August 2015, we had a contract
with the National Institute of Allergy and Infectious Diseases, or NIAID, which funded the preclinical and early
clinical development of an antibiotic product candidate for potential use in biodefense.
Beginning in our fiscal year ended September 30, 2015, we generated royalty revenue from AbbVie’s net sales
allocable to paritaprevir, which is part of AbbVie’s initial treatment regimens for HCV approved in the U.S. in
December 2014 and in the EU and dozens of other countries since then. During the year ended September 30, 2017,
AbbVie received approval for its new HCV regimen, marketed as MAVYRET™ in the U.S. and MAVIRET™
outside the U.S.
The following table is a summary of revenue recognized from our collaboration agreement and our government
contract for the years ended September 30, 2017, 2016, and 2015:
2017
Years Ended September 30,
2016
(in thousands)
2015
AbbVie agreement:
Milestones
Royalties
NIAID contract:
Total revenue
$
65,000 $
37,814
—
$ 102,814 $
30,000 $ 125,000
34,077
57,692
1,803
576
88,268 $ 160,880
59
AbbVie Agreement
Since all of our research obligations under the AbbVie agreement were concluded by June 30, 2011, all milestone
payments received since then have been recognized as revenue upon achievement of each milestone by AbbVie. We
earned and recognized as revenue milestone payments associated with commercialization regulatory approvals of
HCV regimens under the AbbVie agreement totaling $65.0 million, $30.0 million and $125.0 million, during the
years ended September 30, 2017, 2016, and 2015. Milestone revenue recognized in our fiscal 2017 was related to
commercialization regulatory approvals of glecaprevir-containing regimens marketed as MAVYRET™ (U.S.) and
MAVIRET™ (ex-U.S.) while milestone revenue recognized in our fiscal years 2016 and 2015 related to
commercialization regulatory approvals of AbbVie’s paritaprevir-containing regimens. In November 2017, we
earned an additional $15.0 million milestone payment from AbbVie related to commercialization regulatory
approval of MAVIRET™ in Japan.
We also receive annually tiered, double-digit royalties per protease inhibitor product on AbbVie’s net sales allocable
to either of our collaboration’s protease inhibitors. Under the terms of our AbbVie agreement, as amended in
October 2014, 30% of net sales of 3-DAA regimens containing paritaprevir and 45% of net sales of 2-DAA
regimens containing paritaprevir are allocated to paritaprevir for purposes of calculating our annually tiered
royalties. In the case of regimens containing glecaprevir, 50% of AbbVie’s net sales are allocated to glecaprevir.
Beginning with each January 1, the cumulative net sales of each royalty-bearing product start at zero for purposes of
calculating the tiered royalties on a product-by-product basis.
We expect all of our revenue in 2018 to be generated from our collaboration agreement with AbbVie.
NIAID Contract
Under our NIAID contract, which ended in August 2015, we received research and development funding of
approximately $20.6 million from NIAID through September 30, 2016. We recognized revenue of $0.6 million and
$1.8 million under this agreement during the years ended September 30, 2016 and 2015, respectively.
Internal Programs
As our internal product candidates are currently in preclinical or early 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. We expect that our revenue for the next several years will
be derived from royalties and the remaining milestone payment (which was earned in November 2017) under our
current collaboration agreement with AbbVie, as well as any additional collaboration that we may enter into in the
future.
Operating Expenses
The following table summarizes our operating expenses for the years ended September 30, 2017, 2016, and 2015:
2017
Years Ended September 30,
2016
(in thousands)
2015
Research and development
General and administrative
Total operating expenses
$
$
57,451 $
20,749
78,200 $
40,461 $
16,966
57,427 $
23,189
13,543
36,732
60
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:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
personnel costs, including salaries, related benefits and stock-based compensation expense for
employees engaged in scientific research and development functions;
third-party contract costs relating to research, formulation, manufacturing, preclinical study and clinical
trial activities;
third-party license fees;
laboratory consumables; and
allocated facility-related costs.
Project-specific expenses reflect costs directly attributable to our clinical development candidates and preclinical
candidates nominated and selected for further development. Remaining research and development expenses are
reflected in research and drug discovery, which represents early-stage drug discovery programs. At any given time,
we typically have several active early stage research and drug discovery projects. Our internal resources, employees
and infrastructure are not directly tied to any individual research or drug discovery project and are typically
deployed across multiple projects. As such, we do not report information regarding costs incurred for our early-stage
research and drug discovery programs on a project-specific basis. We expect that our research and development
expenses will continue to increase in the future as we advance our NASH, PBC, RSV and HBV programs.
Our research and drug discovery 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 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, and professional fees for auditing, tax, and legal services and patent expenses.
We expect that general and administrative expenses will increase in the future primarily due to ongoing expansion of
our operating activities in support of our own research and development programs, as well as potential additional
costs associated with operating a growing public company.
Other Income (Expense), Net
Interest income. Interest income consists of interest earned on our cash equivalents and short-term and long-term
marketable securities balances as well as interest earned for refunds received from tax authorities.
Interest expense. Interest expense consists of interest expense related to our capital lease obligation.
61
Change in fair value of warrant liability and Series 1 nonconvertible preferred stock. We have issued warrants for
the purchase of our Series 1 nonconvertible preferred stock and we have issued Series 1 nonconvertible preferred
stock, both of which are financial instruments that may require a transfer of assets because of the liquidation
preference features of the underlying stock. Therefore, we have classified these warrants and Series 1 nonconvertible
preferred stock as liabilities that we remeasure to fair value at each reporting period. We record the changes in the
fair value of the warrants and Series 1 nonconvertible preferred stock as a component of other income (expense),
net.
Income Tax Expense
Income tax expense is based on our best estimate of applicable income tax rates for the entire fiscal year applied to
pre-tax profit reported for the year-to-date period. The income tax expense for the years ended September 30, 2017,
2016, and 2015 resulted from federal and state taxes attributable to our operating income.
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 believe that the estimates and assumptions involved in the accounting
policies described below may have the greatest potential impact on our consolidated financial statements and,
therefore, consider these to be our critical accounting policies. We evaluate our estimates and assumptions on an
ongoing basis. Actual results may differ from these estimates under different assumptions and conditions. See also
Note 2 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for
information about these critical accounting policies as well as a description of our other significant accounting
policies.
Revenue Recognition
Our revenue has been generated primarily through collaborative research and license agreements. The terms of these
agreements contain multiple deliverables which may include (i) licenses, (ii) research and development activities,
and (iii) participation in joint research and development steering committees. The terms of these agreements may
include nonrefundable upfront license fees, payments for research and development activities, payments based upon
the achievement of certain milestones, and royalty payments based on product sales derived from the collaboration.
The majority of revenue is derived under our agreement with AbbVie. Under this agreement, we have no ongoing
deliverables and therefore, royalties and milestones received under this arrangement are recognized when earned. In
all instances, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an
arrangement exists, delivery has occurred or the services have been rendered, collectibility of the resulting
receivable is reasonably assured, and we have fulfilled our performance obligations under the contract.
We apply Accounting Standards Codification No. 605-25, Revenue Recognition Multiple-Deliverable Revenue
Arrangements, or ASC 605-25, for multiple element arrangements entered into or materially modified on or after
October 1, 2011. This guidance amends the criteria for separating and allocating consideration in a multiple-element
arrangement by modifying the fair value requirements for revenue recognition and eliminating the use of residual
value method. The selling prices of deliverables under the arrangement may be derived using third-party evidence,
(“TPE”) or a best estimate of selling price (“BESP”), if vendor-specific objective evidence (“VSOE”), is not
available. The objective of BESP is to determine the price at which we would transact a sale if the element within
the license agreement was sold on a standalone basis. Establishing BESP involves management’s judgment and
considers multiple factors, including market conditions and company-specific factors such as those factors
contemplated in negotiating the agreements as well as internally developed models that include assumptions related
to market opportunity, discounted cash flows, estimated development costs, probability of success, and the time
needed to commercialize a product candidate pursuant to the license. In validating our BESP, we consider whether
changes in key assumptions used to determine the BESP will have a significant effect on the allocation of the
arrangement consideration between the multiple deliverables. Deliverables under a multiple element arrangement
are separated into multiple units if (i) the delivered item has value to the customer on a standalone basis and (ii) if
the arrangement includes a general right of return relative to the delivered item, delivery or performance of the
62
undelivered item is considered probable and substantially within our control. In determining the separate units of
accounting, we evaluate whether the license has standalone value to the collaborator based on consideration of the
relevant facts and circumstances for each arrangement. Factors considered in this determination include the research
and development capabilities of the collaborator and the availability of relevant research expertise in the
marketplace. In addition, we consider whether or not (i) the collaborator can use the license for its intended purpose
without the receipt of the remaining deliverables, (ii) the value of the license is dependent on the undelivered items,
and (iii) the collaborator or other vendors can provide the undelivered items. We may exercise significant judgment
in determining whether a deliverable is a separate unit of accounting. The arrangement consideration that is fixed or
determinable at the inception of the arrangement is allocated to the separate units of accounting based on their
relative selling prices. The appropriate revenue recognition model is applied to each element and revenue is
accordingly recognized as each element is delivered.
Royalty revenue is recognized based on contractual terms when reported sales are reliably measurable and
collectibility is reasonably assured, provided that there are no performance obligations remaining.
During the years ended September 30, 2016 and 2015, we also generated revenue from a government contract under
which we were reimbursed for certain allowable costs incurred for the funded project. Revenue from the government
contract was recognized when the related service was performed. The related costs incurred by us under the
government contract were included in research and development expense in the consolidated statements of
operations. This contract was completed in August 2015.
Amounts received prior to satisfying all revenue recognition criteria are recorded as deferred revenue in the
accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the next
twelve months of the consolidated balance sheet date are classified as long-term deferred revenue.
In the event that a collaborative research and license agreement is terminated and we then have no further
performance obligations, we recognize as revenue any amounts that had not previously been recorded as revenue but
were classified as deferred revenue at the date of such termination.
Stock-Based Compensation - Stock Options and Restricted Stock Unit Awards
We measure stock awards with service-based conditions granted to employees and directors at fair value on the date
of grant and recognize the corresponding stock-based compensation expense of those awards, net of estimated
forfeitures, over the requisite service period, which is generally the vesting period of the respective award. Stock
awards granted with service-based vesting conditions, which include restricted stock units and stock options, are
recorded as an expense using the straight-line method. In the case of performance-based options, we recognize
stock-based compensation expense related to these awards when the performance-based targets are deemed probable
of being achieved.
The fair value of each restricted stock unit granted is based on the fair value of our common stock on the date of
grant. The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-
pricing model. We have granted stock options with exercise prices equivalent to the fair value of our common stock
on the date of grant. Generally, our expected volatility has been measured based on a combination of our historical
stock volatility since our March 2013 IPO and the historical volatility of our publicly traded peer companies. We
expect to continue to utilize this method until such time as we have adequate historical data regarding the volatility
of our traded stock price following our March 2013 IPO. The expected term of our options has been determined
utilizing the “simplified” method for awards that qualify as “plain-vanilla” options and we expect to continue to do
so until such time as we have adequate historical data regarding our employee exercise patterns. The risk-free
interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for
time periods approximately equal to the expected term of the award. Our expected dividend yield is 0 and is based
on the fact that we have never paid cash dividends and do not expect to pay any cash dividends in the foreseeable
future.
We recognize stock-based compensation expense for only the portion of awards that are expected to vest. In
developing a forfeiture rate estimate, we have considered our historical experience to estimate pre-vesting forfeitures
63
for service-based options. If our actual forfeiture rate is materially different from the estimate, our stock-based
compensation expense could be different from what we have recorded in the current period.
These assumptions represent our best estimates, but the estimates involve inherent uncertainties and the application
of our judgment. As a result, if factors change and we use significantly different assumptions or estimates, our stock-
based compensation expense could be materially different.
Stock-Based Compensation - Market and Performance-based Stock Unit Awards
In addition to awards with service-based vesting conditions, we also have granted performance share units, or PSUs,
and relative stockholder return units, or rTSRUs, to certain of our executives. The number of units represents the
target number of shares of common stock that may be earned; however, the actual number of shares that may be
earned ranges from 0% to 200% of the target number. The fair value of PSUs is based on the fair value of our
common stock on the date of grant. The fair value of rTSRUs is based on a Monte Carlo simulation model.
Assumptions and estimates utilized in the calculation of the fair value of the rTSRUs include the risk-free interest
rate, dividend yield, average closing price, expected volatility based on the historical volatility of publicly traded
peer companies and the remaining performance period of the award.
The PSUs vest and result in issuance, at settlement, of common shares for each recipient based upon the recipient’s
continued employment with us through the settlement date of the award and our achievement of specified research
and development milestones. The requisite service period of the PSUs is generally 2 years. In the case of PSUs, we
recognize stock-based compensation expense based on the grant date fair value of the award only when
performance-based targets are deemed probable of being achieved.
The rTSRUs vest and result in the issuance of common stock based upon the recipient’s continuing employment
with us through the settlement date of the award and the relative ranking of the total stockholder return, or TSR, of
our common stock in relation to the TSR of the component companies in the NASDAQ Biotech Index, generally
over a two-year period based on a comparison of average closing stock prices in specified periods noted in the award
agreement. The fair value related to the rTSRUs is recorded as stock-based compensation expense over the period
from date of grant to the settlement date regardless of whether the related target relative total stockholder return is
achieved.
Income Taxes
Income taxes are provided for tax effects of transactions reported in the consolidated financial statements and
consist of income taxes currently due plus deferred income taxes related to timing differences between the basis of
certain assets and liabilities for financial statement reporting purposes and the basis for income tax reporting
purposes. Deferred taxes are determined based on the difference between the financial reporting and tax basis of
assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse.
Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. A valuation allowance
is provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized. At each balance sheet date, we assess the likelihood that deferred tax assets will be
realized, and recognize a valuation allowance if it is more likely than not that some portion of the deferred tax assets
will not be realized. Assessment of the potential recovery of deferred tax assets requires judgment and is evaluated
by estimating the future taxable income expected and considering prudent and feasible tax planning strategies. As of
September 30, 2017, we continue to believe it is more likely than not that we will be able to realize our deferred tax
assets and therefore no valuation allowance has been recorded in either period.
Uncertain tax positions represent tax positions for which reserves have been established. We account for uncertainty
in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the
amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the likelihood that it
will be sustained upon external examination by the taxing authorities. If the tax position is deemed more likely than
not to be sustained, the tax position is then assessed to determine the amount of benefit to be recognized in the
financial statements. The amount of the benefit that may be recognized is the largest amount that has a greater than
50% likelihood of being realized upon ultimate settlement. The provision for income taxes includes the effects of
64
any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net
interest and penalties.
JOBS Act
The JOBS Act was signed into law on April 5, 2012 and contains provisions that, among other things, reduce certain
reporting requirements for an “emerging growth company.” As an “emerging growth company,” we are electing not
to take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or
revised accounting standards, and as a result, we will comply with new or revised accounting standards on the
relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of
the JOBS Act provides that our decision not to take advantage of the extended transition period is irrevocable.
Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company”, we are not required to,
among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial
reporting pursuant to Section 404, (ii) provide all of the compensation disclosures that may be required of non-
emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act,
(iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board
regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information
about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive
compensation-related items such as the correlation between executive compensation and performance and
comparisons of the Chief Executive Officer’s compensation to median employee compensation. Based on the
market value of our common stock at March 31, 2017 and the number of shares of our common stock held by non-
affiliates, we continued to be an “emerging growth company” for our fiscal 2017. Therefore, these exemptions will
apply until the end of our fiscal year 2018, which includes the fifth anniversary of the completion of our initial
public offering in March 2013.
Results of Operations
Comparison of Years Ended September 30, 2017, 2016, and 2015
Revenue
Research and development
General and administrative
Other income (expense), net:
2017
Years Ended September 30,
2016
(in thousands)
88,268
$
40,461
16,966
$ 102,814
57,451
20,749
$ 160,880
23,189
13,543
2015
Interest income
Interest expense
Change in fair value of warrant liability and
Series 1 nonconvertible preferred stock, net
Income tax expense
2,532
(40)
1,735
(45)
968
(8)
(159)
(9,237)
29
(10,894)
347
(46,463)
Revenue. We recognized revenue of $102.8 million during the year ended September 30, 2017, as compared to
$88.3 million during the year ended September 30, 2016. The increase in revenue of $14.5 million year over year
was primarily due to timing of milestone payments earned under our AbbVie agreement and was partially offset by
lower royalties earned on AbbVie’s net sales of HCV regimens allocated to paritaprevir during 2017 as compared to
2016. During the years ended September 30, 2017 and 2016, we recognized milestone revenue of $65.0 million and
$30.0 million, respectively. In fiscal 2017, we earned and received milestone payments as a result of
commercialization regulatory approvals for AbbVie’s glecaprevir-containing regimens in the EU and U.S. In fiscal
2016, we earned and received a milestone payment as a result of commercialization regulatory approval for
AbbVie’s paritaprevir-containing regimen in Japan. We earned royalties of $37.8 million and $57.7 million during
the years ended September 30, 2017 and 2016, respectively, primarily based on the portion of AbbVie’s net sales of
its HCV regimens allocable to paritaprevir. We recognized lower royalty revenue in 2017 compared to 2016 due to
lower sales of paritaprevir-containing regimens as a result of increased competition from other HCV products on the
65
market. We began earning royalties on the portion of AbbVie’s net sales of glecaprevir-containing regimens in the
fourth quarter of fiscal 2017.
We recognized revenue of $88.3 million during the year ended September 30, 2016 as compared to $160.9 million
during the year ended September 30, 2015. The decrease in revenue of $72.6 million year over year was primarily
due to a decrease in milestone payments received from AbbVie and was partially offset by higher royalties earned
on the portions of AbbVie’s net sales of HCV regimens allocated to paritaprevir during 2016. During the years
ended September 30, 2016 and 2015, we recognized milestone revenue of $30.0 million and $125.0 million,
respectively. In fiscal 2016, we earned and received a milestone payment as a result of commercialization regulatory
approval for AbbVie’s paritaprevir-containing regimen in Japan. In fiscal 2015, we earned and received milestone
payments as a result of commercialization regulatory approvals for AbbVie’s paritaprevir-containing regimen in the
U.S. and EU We earned royalties of $57.7 million and $34.1 million during the years ended September 30, 2016 and
2015, respectively, based on the portion of AbbVie’s net sales of its HCV regimens allocable to paritaprevir. We
recognized higher royalty revenue in fiscal 2016 compared to 2015 due to the timing of regulatory approvals of
paritaprevir-containing regimens which started in fiscal 2015 and continued in fiscal 2016.
Research and development expenses.
2017
Years Ended September 30,
2016
(in thousands)
2015
R&D programs:
Liver disease
Virology
Other
Total research and development expenses
$
$
34,750 $
22,399
302
57,451 $
17,840 $
21,692
929
40,461 $
9,096
10,403
3,690
23,189
Research and development expense increased by $17.0 million for the year ended September 30, 2017 as compared
to the same period in 2016 due to progression of preclinical and clinical activities in our liver disease and virology
programs. Increases were driven by an increase in headcount to support our clinical and preclinical activities and an
increase in external costs for those activities.
Research and development expenses increased by $17.3 million for the year ended September 30, 2016 as compared
to the same period in 2015 due to progression of preclinical and clinical activities in our liver disease and virology
programs. Increases were driven by an increase in headcount to support our preclinical activities, expansion of our
research facility and an increase in external costs for clinical and preclinical activities.
We expect that our research and development expenses will continue to increase in the future as we advance
our NASH, PBC, RSV and HBV programs.
General and administrative expenses. General and administrative expenses increased by $3.8 million for the year
ended September 30, 2017 as compared to the same period in 2016 primarily due to an increase in compensation
expense due to increased headcount as well as the achievement of milestones in 2017 under existing performance-
based stock awards in 2017.
General and administrative expenses increased by $3.4 million for the year ended September 30, 2016 as compared
to the same period in 2015 primarily due to an increase in stock-based compensation expense related to an increase
in headcount, additional stock option grants to employees, and achievement of performance-based stock awards in
2016.
Other income (expense), net. Changes in components of other income (expense), net were as follows:
Interest income. Interest income increased by $0.8 million for the year ended September 30, 2017 as compared to
the same period in 2016 due to higher average investment balances and changes in interest rates for fiscal 2017 as
compared to the same period in 2016.
66
Interest income increased by $0.8 million for the year ended September 30, 2016 as compared to the same period in
2015 due to higher average investment balances in fiscal 2016 as compared to 2015.
Interest expense. Interest expense represents interest related to our capital lease obligation.
Change in fair value of warrant liability and Series 1 nonconvertible preferred stock. We recognized other expense
of $0.2 million and other income of less than $0.1 million for the years ended September 30, 2017 and 2016,
respectively. We recognized expense in our fiscal 2017 due to an increase in fair value of the outstanding liabilities
year over year, and recognized income in our fiscal 2016 due to a decrease in fair value of the outstanding liabilities
year over year. During the year ended September 30, 2017, a total of 0.7 million warrants were exercised, resulting
in the issuance of 0.7 million shares of Series 1 nonconvertible preferred stock.
Subsequent to September 30, 2017, a total of 0.9 million warrants were exercised prior to warrant expiration,
resulting in 0.9 million shares of Series 1 nonconvertible preferred stock issued. On October 4, 2017, less than 0.1
million of outstanding warrants expired unexercised. The liability associated with these expired warrants will be
reversed, resulting in income in 2018.
We recognized other income of less than $0.1 million and $0.3 million for the years ended September 30, 2016 and
2015 as a result of the remeasurement of the warrant liability and Series 1 nonconvertible preferred stock year over
year due to a decrease in fair value of the outstanding liabilities.
Income tax expense. Income tax expense was $9.2 million and $10.9 million for the years ended September 30,
2017 and 2016, respectively. The effective tax rate for the years ended September 30, 2017 and 2016 was 34.3% and
33.5%, respectively. The decrease in income tax expense was primarily due to lower profit before taxes as well as an
increase in federal research and development tax credits which were deductible for tax purposes. The increase in the
effective tax rate was primarily due to an increase in non-deductible stock-based compensation expense. This
increase was partially offset by an increase in federal research and development credits as part of our advancement
of our wholly owned research and development programs in 2017.
Income tax expense was $10.9 million and $46.5 million for the years ended September 30, 2016, and 2015,
respectively. The effective tax rate for the years ended September 30, 2016 and 2015 was 33.5%, and 37.0%,
respectively. The decrease in income tax expense was primarily due to lower profit before taxes as well as the
reinstatement in fiscal 2016 of the federal research and development tax credits for prior years, which were
deductible for tax purposes and included in the Company’s annual effective tax rate for 2016. The decrease in the
effective tax rate was primarily due to an increase in federal research and development credits as part of our
advancement of our wholly owned research and development programs in 2016. This increase was partially offset
by an increase in non-deductible stock-based compensation expense.
Income tax expense for all periods presented was attributable to the tax provision on the earnings of our operations,
all of which are domestic.
Liquidity and Capital Resources
From our inception through September 30, 2017, we have financed our operations primarily through payments under
our collaborations, government research and development contracts and grants, and the net proceeds from our initial
public offering of our equity in March 2013.
67
The following table shows a summary of our cash flows for each of the years ended September 30, 2017, 2016, and
2015:
2017
Years Ended September 30,
2016
(in thousands)
2015
Cash provided by (used in):
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash and cash
equivalents
$
$
$
$
$
52,653
76,673
35,809
(4,572) $ (43,663) $ (88,186)
2,540
2,705
1,017
$
$
$
49,098
$
(5,149) $
(8,973)
Net cash provided by operating activities
The increase in cash provided by operating activities of $16.8 million for the year ended September 30, 2017 as
compared to the same period in 2016 was primarily driven by an increase in cash receipts under our collaboration
with AbbVie of $15.9 million year over year. We received $105.1 million during 2017, including royalties and
$65.0 million in milestone payments, compared to $89.2 million in cash from AbbVie during 2016, including
royalties and a $30.0 million milestone payment. In addition, our cash taxes paid, net of refunds received, decreased
by $17.5 million, due to lower profit before tax and timing of tax payments and refunds. These increases were
partially offset by increased cash spending on research and development during 2017 in order to progress clinical
development and preclinical research in our proprietary programs.
The decrease in cash provided by operating activities of $40.9 million for the year ended September 30, 2016 as
compared to the same period in 2015 was primarily driven by a decrease in cash receipts under our collaboration
with AbbVie of $55.5 million year over year. We received $89.2 million in cash from AbbVie during 2016,
including royalties and a $30.0 million milestone payment, compared to $144.7 million in cash from AbbVie during
2015, including royalties and $125.0 million in milestone payments. In addition, we increased cash spending on
research and development during 2016 in order to progress clinical development and preclinical research in our
proprietary programs. These decreases to cash used in operating activities were partially offset by a decrease in
income tax payments of $27.5 million based on lower income before income tax in 2016 as compared to 2015.
Net cash used in investing activities
The increase in cash used in investing activities of $39.1 million for the year ended September 30, 2017 as compared
to the same period in 2016 was driven by timing of purchases, sales and maturities of marketable securities. In
addition, our capital asset outlay decreased by $2.2 million year over year due to the expansion of our research
facility which was completed in fiscal 2016.
The decrease in cash used in investing activities of $44.5 million for the year ended September 30, 2016 as
compared to the same period in 2015 was driven by timing of purchases, sales and maturities of marketable
securities. The decrease was partially offset by an increase in capital expenditure outlay in 2016 of $2.4 million
compared to 2015 due to the expansion of our research facility in 2016.
Net cash provided by financing activities
The decrease in cash provided by financing activities of $1.7 million for the year ended September 30, 2017 as
compared to the same period in 2016 was driven primarily by tax withholding payments for the vesting of
performance stock units in 2017 and a lower income tax benefit for stock options exercised in fiscal 2017 as
compared to fiscal 2016.
The increase in cash provided by financing activities of $0.2 million for the year ended September 30, 2016 as
compared to the same period in 2015 was driven by an increase in proceeds from exercises of stock options.
68
Funding Requirements
As of September 30, 2017, we had $293.7 million in cash, cash equivalents and short-term and long-term marketable
securities. We believe that our existing cash, cash equivalents and marketable securities as of September 30, 2017
will be sufficient to meet our anticipated cash requirements for the foreseeable future. However, our forecast that the
use of 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:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
whether our existing collaboration continues to generate substantial royalties to us;
the number and characteristics of the product candidates we pursue;
the scope, progress, results and costs of researching and developing any of our product candidates on
our own, including conducting preclinical research and clinical trials;
opportunities to in-license or otherwise acquire new therapeutic candidates and therapies;
the timing, receipt and amount of royalties on paritaprevir and glecaprevir and any sales of our product
candidates, if any, or royalties thereon;
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 cost of manufacturing our product candidates and any products we successfully commercialize
independently, including manufacturing for clinical development;
our ability to maintain our existing collaboration and to establish new collaborations, licensing or other
arrangements and the financial terms of such agreements; and
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents,
including any litigation costs and the outcomes of any such litigation.
We do not believe that inflation had a material effect on our business, financial condition or results of operations in
the last three fiscal years. If our costs were to become subject to significant inflationary pressures, we could not
offset such higher costs through revenue increases because our revenues are substantially outside of our control. Our
inability to do so could harm our business, financial condition and results of operations.
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.
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 Annual Report on
Form 10-K.
Contractual Obligations and Commitments
We lease office space in Watertown, Massachusetts under a lease that commenced on October 1, 2011 and was
amended in 2015 to expand the rented space and extend the lease term through September 2022. In conjunction with
the amendment of the lease, the Company entered into a capital lease agreement to fund certain leasehold
improvements and the purchase of lab equipment. The following table summarizes our contractual obligations at
69
September 30, 2017 and the effect such obligations are expected to have on our liquidity and cash flow in future
periods:
Operating leases
Capital leases
Payments Due by Period
2018
2019-2020 2021-2022
2023 and
later
Total
$
$
2,062
79
4,289
179
(in thousands)
4,322
$
200
$
—
—
$ 10,673
458
Total contractual
commitments and obligations $
2,141
$
4,468
$
4,522
$
—
$ 11,131
As of September 30, 2017, we had 1.0 million outstanding warrants for the purchase of Series 1 nonconvertible
preferred stock and 1.0 million outstanding shares of Series 1 nonconvertible preferred stock, all of which we
classified as long-term liabilities on our consolidated balance sheet and recorded at fair value of $1.6 million. The
fair value of both of these classes of instruments was measured based on significant inputs not observable in the
market, which represented a Level 3 measurement within the fair value hierarchy. The fair value of these
instruments represents less than 10% of liabilities measured at fair value as of September 30, 2017. The Series 1
nonconvertible preferred stock issued combined with the outstanding warrants as of September 30, 2017, would
require the payment of $2.0 million upon a qualifying merger or sale of our company. The table above does not
include this liability because we are unable to estimate the timing of this required payment, or if it will be required at
all.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity
We had cash, cash equivalents and marketable securities of $293.7 million at September 30, 2017, which consisted
of cash, money market funds, agency securities, commercial paper, treasury notes and corporate bonds. Interest
income is sensitive to changes in the general level of interest rates; however, due to the nature of these
investments, a 1% change in market interest rates would not be expected to have a material impact on our financial
condition or results of operations. Other than our capital lease obligation, we had no debt outstanding as of
September 30, 2017.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements, together with the report of our independent registered public accounting firm,
appear on pages F-1 through F-31 of this Annual Report on Form 10-K.
ITEM 9.
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed
in the Company’s reports under the Securities Exchange Act of 1934, as amended (the Exchange Act), is recorded,
processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such
information is accumulated and communicated to management, including our Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure. In designing
and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no
matter how well designed and operated, can provide only reasonable assurance of achieving the desired control
70
objectives, as the Companies are designed to do, and management necessarily was required to apply its judgment in
evaluating the risk related to controls and procedures.
In connection with the preparation of this Form 10-K, as of September 30, 2017, an evaluation was performed under
the supervision and with the participation of our management, including the CEO and CFO, of 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 Exchange Act). Based on that evaluation, our management concluded that our disclosure controls and
procedures were effective at a reasonable assurance level as of September 30, 2017. These conclusions were
communicated to the Audit Committee.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as
defined in Rule 13a-15(f) under the Exchange Act. Our internal control system is designed to provide reasonable
assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of
published financial statements. All internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with
respect to financial statement preparation and presentation.
Our management has assessed the effectiveness of our internal control over financial reporting as of September 30,
2017. In making this assessment, management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in its 2013 Internal Control—Integrated Framework. Based on
this assessment, our management has concluded that as of September 30, 2017 our internal control over financial
reporting is effective.
As an Emerging Growth Company, as defined under the terms of the Jobs Act of 2012, the Company’s independent
registered accounting firm is not required to issue an attestation report on the internal control over financial
reporting.
Change in Internal Control over Financial Reporting—There were no changes in our internal control over financial
reporting that occurred during our last quarter that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
71
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Portions of the response to this item are incorporated herein by reference from the discussion responsive thereto
under the captions “Proposal 1 - Election of Directors—Nominees for Director and Current Directors”, “Section
16(a) Beneficial Ownership Reporting Compliance”, “Executive Officers” and “Corporate Governance—Board and
Committee Matters” in the Company’s Definitive Proxy Statement relating to the 2018 Annual Meeting of
Stockholders, also referred to as the 2018 Proxy Statement.
We have adopted a Code of Business Conduct and Ethics (the code of ethics) that applies to all of our directors,
officers and employees. The code of ethics is available on our website at http://www.enanta.com. In addition, if we
make any substantive amendments to the code of ethics or grant any waiver, including any implicit waiver, from a
provision of the code to any of our executive officers or directors, we will disclose the nature of such amendment or
waiver as required by applicable law.
ITEM 11.
EXECUTIVE COMPENSATION
The response to this item is incorporated herein by reference from the discussion responsive thereto under the
following captions in the 2018 Proxy Statement: “Executive Compensation” and “Corporate Governance—Certain
Relationships and Related Transactions.”
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The response to this item is incorporated herein by reference in part from the discussion responsive thereto under the
caption “Beneficial Ownership of Common Stock” in the 2018 Proxy Statement.
The following table provides information about the securities authorized for issuance under the Company’s equity
compensation plans as of September 30, 2017:
Equity Compensation Plan Information
(in thousands, except per share information)
Plan Category
Equity compensation plans approved by
security holders (1)
Equity compensation plans not approved by
security holders
Totals
Number of securitie
s
to be issued
upon exercise of
outstanding options,
warrants and rights
(a)
Weighted
average
exercise price of
outstanding
options,
warrants and
rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation plan
s
(excluding securities
reflected in column (a))
(c)
3,567 (2) $
19.56
3,567
460 (3)
460
(1) Consists of the Company’s Amended and Restated 1995 Equity Incentive Plan, as amended, the Company’s
2012 Equity Incentive Plan, as amended, and the Company’s Employee Stock Purchase Plan.
(2) Consists of shares of the Company’s common stock issuable upon exercise of outstanding options issued
under the Company’s Amended and Restated 1995 Equity Incentive Plan and the Company’s 2012 Equity
Incentive Plan as well as Series 1 nonconvertible preferred stock issuable upon exercise of outstanding
warrants.
(3) Consists of shares of the Company’s common stock reserved for future issuance under the Company’s 2012
Equity Incentive Plan and the Company’s Employee Stock Purchase Plan. This does not include 574 shares
72
that were automatically added to the Company’s 2012 Equity Incentive Plan by its terms as of October 1,
2017.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The response to this item is incorporated herein by reference from the discussion responsive thereto under the
caption “Corporate Governance—Certain Relationships and Related Transactions” and “Corporate Governance—
Board and Committee Matters” in the 2018 Proxy Statement.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The response to this item is incorporated herein by reference from the discussion responsive thereto under the
captions “Corporate Governance—Board and Committee Matters” and “Audit Committee Report—Audit Fees” in
the 2018 Proxy Statement.
PART IV
ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) 1. FINANCIAL STATEMENTS
The financial statements are included under Part II, Item 8 of this Report.
2. FINANCIAL STATEMENTS SCHEDULE
Schedules are omitted because they are not applicable, or are not required, or because the information is included in
the consolidated financial statements and notes thereto.
3. EXHIBITS –
The exhibits are listed below under Part IV, Item 15(b) of this Report.
(b) EXHIBITS
Exhibit
Number
3.1
3.2
4.1
4.2
4.3
Exhibit Description
Restated Certificate of Incorporation of Enanta
Pharmaceuticals, Inc.
Amended and Restated Bylaws of Enanta
Pharmaceuticals, Inc. (as amended and restated
in August 2015).
Specimen certificate evidencing shares of
common stock.
Form of Series 1 Non-Convertible Preferred
Stock Warrant.
Specimen certificate evidencing shares of Series
1 Non-Convertible Preferred Stock
Incorporated by Reference
Form
8-K
Date
03/28/2013
Exhibit
Number
3.1
Filed
Herewith
File Number
001-35839
8-K
08/18/2015
3.2
001-35839
S-1/A
02/05/2013
S-1
11/06/2012
4.1
4.2
333-184779
333-184779
X
10.1# Form of Indemnification Agreement for
S-1/A
02/05/2013
10.7
333-184779
directors and officers.
10.2# Amended and Restated Employment Agreement
S-1/A
03/05/2013
10.5
333-184779
between the Company and Jay R. Luly, Ph.D.,
dated as of March 4, 2013.
10.3# Form of Amended and Restated Employment
Agreement for Executive Officers other than
Chief Executive Officer.
S-1/A
03/05/2013
10.17
333-184779
73
Exhibit
Number
10.4† Collaborative Development and License
Exhibit Description
Form
10-Q
Date
02/09/2016
Exhibit
Number
10.1
Filed
Herewith
File Number
001-35839
Incorporated by Reference
Agreement between the Company and Abbott
Laboratories, dated November 27, 2006; as
amended by a First Amendment to Collaborative
Development and License Agreement dated
January 27, 2009 and a Second Amendment to
Collaborative Development and License
Agreement dated December 9, 2009 (assigned to
AbbVie Inc. as of January 1, 2013).
10.5† Third Amendment to Collaborative Development
10-K
12/11/2014
10.5
001-35839
and License Agreement between the Company and
AbbVie dated October 20, 2014.
Fourth Amendment to Collaborative Development
and License Agreement between the Company and
AbbVie dated as of March 3, 2015.
Lease Agreement between Company and ARE-
500 Arsenal Street LLC, dated as of April 15,
2011.
First Amendment to Lease Agreement made as
of March 5, 2015 between the Company and
ARE-500 Arsenal Street LLC.
Third Amended and Restated Registration
Rights Agreement, dated as of August 23, 2012.
10.6
10.7
10.8
10.9
10-Q
05/08/2015
10.1
001-35839
S-1
11/06/2012
10.6
333-184779
10-Q
05/08/2015
10.2
001-35839
S-1/A
11/06/2012
10.4
333-184779
10.10# Amended and Restated 1995 Equity Incentive
S-1/A
03/05/2013
10.8
333-184779
Plan.
10.11# Form of Incentive Stock Option Certificate
under Amended and Restated 1995 Equity
Incentive Plan.
10.12# Form of Non-Statutory Stock Option Certificate
under Amended and Restated 1995 Equity
Incentive Plan.
10.13# Form of Non-Statutory Stock Option Certificate
for directors under Amended and Restated 1995
Equity Incentive Plan.
S-1/A
03/05/2013
10.9
333-184779
S-1/A
03/05/2013
10.10
333-184779
S-1/A
03/05/2013
10.11
333-184779
10.14# 2012 Equity Incentive Plan (As adjusted to
10-K/A 01/06/2017
10.14
001-35839
reflect the application of the 1-for-4.31 reverse
stock split of the Company’s common stock
effected on March 1, 2013).
10.15# Form of Incentive Stock Option Agreement
under 2012 Equity Incentive Plan.
S-1/A
03/05/2013
10.13
333-184779
10.16# Form of Non-Statutory Stock Option Agreement
S-1/A
03/05/2013
10.14
333-184779
under 2012 Equity Incentive Plan.
10.17# Form of Non-Statutory Stock Option Certificate
S-1/A
03/05/2013
10.15
333-184779
for directors under 2012 Equity Incentive Plan.
10.18# Form of Performance Share Unit Certificate
under 2012 Equity Incentive Plan.
10.19# Form of Relative Total Stockholder Return Unit
Certificate under 2012 Equity Incentive Plan.
10.20# Employee Stock Purchase Plan.
21.1
23.1
Subsidiaries of the Company.
Consent of PricewaterhouseCoopers LLP,
Independent Registered Public Accounting
Firm.
74
S-1/A
02/05/2013
10.16
333-184779
X
X
X
X
Incorporated by Reference
Exhibit
Number
File Number
Filed
Herewith
X
X
X
X
Exhibit
Number
31.1
31.2
32.1
101
Exhibit Description
Form
Date
Certification of the Chief Executive Officer
pursuant to Rule 13a-14(a) or 15d-14(a) of the
Securities Exchange Act of 1934.
Certification of Chief Financial Officer pursuant
to Rule 13a-14(a) or 15d-14(a) of the Securities
Exchange Act of 1934.
Certification of the Chief Executive Officer and
Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
The following materials from the Annual Report
of Enanta Pharmaceuticals, Inc. on Form 10-K
for the year ended September 30, 2017,
formatted in XBRL (eXtensible Business
Reporting Language): (i) Consolidated Balance
Sheets as of September 30, 2017 and September
30, 2016 of Enanta Pharmaceuticals, Inc., (ii)
Consolidated Statements of Operations for the
years ended September 30, 2017, 2016, and
2015 of Enanta Pharmaceuticals, Inc., (iii)
Consolidated Statements of Comprehensive
Income for the years ended September 30, 2017,
2016, and 2015 of Enanta Pharmaceuticals, Inc.,
(iv) Consolidated Statements of Stockholders’
Equity (Deficit) for the years ended September
30, 2017, 2016, and 2015 of Enanta
Pharmaceuticals, Inc., (v) Consolidated
Statements of Cash Flows for the years ended
September 30, 2017, 2016, and 2015 of Enanta
Pharmaceuticals, Inc., and (vi) Notes to
Consolidated Financial Statements of Enanta
Pharmaceuticals, Inc.
#
†
††
Management contract or compensatory plan, contract or agreement.
Confidential treatment granted as to portions of this Exhibit. The confidential portions of this Exhibit have
been omitted and are marked by asterisks.
This Exhibit has been filed separately with the commission pursuant to an application for confidentiality
treatment. The confidential portions of this Exhibit have been omitted and are marked by asterisks.
ITEM 16.
FORM 10-K SUMMARY
None.
75
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 11th day of
December, 2017.
ENANTA PHARMACEUTICALS, INC.
By:
/s/ Jay R. Luly, Ph.D.
Jay R. Luly, Ph.D.
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Company in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Jay R. Luly, Ph.D.
Jay R. Luly, Ph.D.
/s/ Paul J. Mellett
Paul J. Mellett
President and Chief Executive
Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Stephen Buckley, Jr.
Stephen Buckley, Jr.
/s/ Bruce L.A. Carter, Ph.D.
Bruce L.A. Carter, Ph.D.
/s/ George S. Golumbeski, Ph.D.
George S. Golumbeski, Ph.D.
/s/ Kristine Peterson
Kristine Peterson
/s/ Lesley Russell, MB. Ch.B., MRCP
Lesley Russell, MB. Ch.B., MRCP
/s/ Terry Vance
Terry Vance
Director
Director
Director
Director
Director
Director
December 11, 2017
December 11, 2017
December 11, 2017
December 11, 2017
December 11, 2017
December 11, 2017
December 11, 2017
December 11, 2017
76
ENANTA PHARMACEUTICALS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Stockholders’ Equity (Deficit)
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-8
F-1
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Enanta Pharmaceuticals, Inc.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations,
comprehensive income, changes in stockholders’ equity (deficit) and cash flows present fairly, in all material
respects, the financial position of Enanta Pharmaceuticals, Inc. and its subsidiary as of September 30, 2017 and
2016, and the results of their operations and their cash flows for each of the three years in the period ended
September 30, 2017 in conformity with accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our audits of these financial statements in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
December 11, 2017
F-2
ENANTA PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
Assets
Current assets:
Cash and cash equivalents
Short-term marketable securities
Accounts receivable
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Long-term marketable securities
Deferred tax assets
Restricted cash
Total assets
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Income taxes payable
Total current liabilities
Warrant liability
Series 1 nonconvertible preferred stock
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 12)
Stockholders' equity:
Common stock; $0.01 par value per share, 100,000 shares
authorized; 19,120 and 19,036 shares issued and outstanding at
September 30, 2017 and September 30, 2016, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss)
Retained earnings
Total stockholders' equity
Total liabilities and stockholders' equity
September 30,
2017
September 30,
2016
$
$
$
$
65,675 $
157,994
10,614
3,536
237,819
8,049
70,038
10,123
608
326,637 $
3,714 $
7,970
9,298
20,982
807
762
2,410
24,961
191
256,241
(112)
45,356
301,676
326,637 $
16,577
193,507
12,841
9,231
232,156
8,004
32,119
8,390
608
281,277
3,377
4,512
—
7,889
1,251
159
2,042
11,341
190
242,081
19
27,646
269,936
281,277
The accompanying notes are an integral part of these consolidated financial statements.
F-3
ENANTA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Revenue
Milestones
Royalties
Other
Total revenue
Operating expenses:
Research and development
General and administrative
Total operating expenses
Income from operations
Other income (expense):
Interest income
Interest expense
Change in fair value of warrant liability and Series 1
nonconvertible preferred stock
Total other income (expense), net
Income before income taxes
Income tax expense
Net income
Net income per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Years Ended September 30,
2016
2015
2017
$
$
65,000
37,814
—
102,814
57,451
20,749
78,200
24,614
$
30,000
57,692
576
88,268
40,461
16,966
57,427
30,841
125,000
34,077
1,803
160,880
23,189
13,543
36,732
124,148
2,532
(40)
1,735
(45)
968
(8)
(159)
2,333
26,947
(9,237)
$
17,710
29
1,719
32,560
(10,894)
$
21,666
0.93
0.91
$
$
1.14
1.13
$
$
19,066
19,407
18,929
19,224
347
1,307
125,455
(46,463)
78,992
4.23
4.09
18,673
19,295
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-4
ENANTA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Other comprehensive income (loss):
Years Ended September 30,
2016
2015
2017
$
17,710 $
21,666
$
78,992
Net unrealized gains (losses) on marketable securities, net of
tax of ($78), ($9) and $20
Total other comprehensive income (loss)
Comprehensive income
(131)
(131)
17,579 $
(14)
(14)
21,652 $
133
133
79,125
$
The accompanying notes are an integral part of these consolidated financial statements.
F-5
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F
ENANTA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended September 30,
2016
2015
2017
$
17,710 $
21,666 $
78,992
Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by
operating activities:
Stock-based compensation expense
Depreciation and amortization expense
Deferred income taxes
Premium on marketable securities
Amortization of premium on marketable securities
Income tax benefit from exercise of stock options
Change in fair value of warrant liability and Series 1
nonconvertible preferred stock
Other non-cash items
Change in operating assets and liabilities:
Accounts receivable
Unbilled receivables
Prepaid expenses and other current assets
Accounts payable
Accrued expenses
Income taxes payable
Other long-term liabilities
Net cash provided by operating activities
Cash flows from investing activities
Purchase of marketable securities
Maturities of marketable securities
Sale of marketable securities
Purchase of property and equipment
Other investing activities
Net cash used in investing activities
Cash flows from financing activities
Proceeds from exercise of stock options
Income tax benefit from exercise of stock options
Payments of withholding tax for share-based awards
Payments of capital lease obligations
Net cash provided by financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Cash paid for income taxes
Non-cash items:
Purchases of fixed assets included in accounts payable and
accrued expenses
Fixed assets financed by landlord
Fixed assets purchased through capital lease
$
$
$
$
$
13,071
2,137
(1,654)
(1,229)
702
(213)
159
—
2,227
—
5,678
633
3,443
9,511
478
52,653
9,354
1,661
(2,294)
(518)
1,511
(1,747)
(29)
34
2,448
433
(964)
1,451
1,858
548
397
35,809
(251,371)
239,287
10,018
(2,506)
—
(4,572)
(192,429)
153,504
—
(4,738)
—
(43,663)
1,079
213
(202)
(73)
1,017
49,098
16,577
65,675 $
1,026
1,747
—
(68)
2,705
(5,149)
21,726
16,577 $
5,838
639
11,028
(3,042)
2,244
(1,814)
(347)
(35)
(13,565)
2,337
(6,680)
(543)
(227)
1,199
649
76,673
(196,304)
108,407
2,210
(2,336)
(163)
(88,186)
726
1,814
—
—
2,540
(8,973)
30,699
21,726
1,588 $
12,616 $
40,072
318 $
— $
— $
637 $
— $
— $
1,562
239
598
The accompanying notes are an integral part of these consolidated financial statements.
F-7
ENANTA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data)
1. Nature of the Business
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 create small molecule drugs primarily
for the treatment of viral infections and liver diseases. The Company discovered glecaprevir, the second of two
protease inhibitors discovered and developed through the Company’s collaboration with AbbVie and marketed as
part of AbbVie’s new direct-acting antiviral (DAA) regimen under the tradenames MAVYRET™ (U.S.) or
MAVIRET™ (ex-U.S.) (glecaprevir/pibrentasvir) for the treatment of chronic hepatitis C virus, or HCV. The other
protease inhibitor under the Company’s HCV collaboration is part of AbbVie’s initial DAA regimens for the
treatment of chronic HCV marketed under the tradenames VIEKIRA PAK®
(paritaprevir/ritonavir/ombitasvir/dasabuvir) (U.S.) or VIEKIRAX® (paritaprevir/ritonavir/ombitasvir) (ex-U.S.).
The royalties from the AbbVie collaboration and the Company’s existing financial resources provides funding to
support the Company’s wholly owned research and development efforts, which are currently focused on the
following disease targets: hepatitis B virus (“HBV”); non-alcoholic steatohepatitis (“NASH”); primary biliary
cholangitis (“PBC”); and respiratory syncytial virus (“RSV”).
The Company is subject to 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 regulations and the need to obtain additional financing. 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 and
adequate personnel infrastructure and compliance reporting capabilities.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include those of the Company and its subsidiary, Enanta
Pharmaceuticals Security Corporation, after elimination of all intercompany accounts and transactions. The
accompanying consolidated financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America (“GAAP”).
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 of separate units of accounting and best estimate
of selling price of those units of accounting within its revenue arrangements; valuation of warrants, Series 1
nonconvertible preferred stock and stock-based awards; 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, facts and experience. Actual results could differ from the Company’s estimates.
Cash Equivalents and Marketable Securities
The Company considers all short-term, highly liquid investments with original maturities of ninety days or less at
acquisition date to be cash equivalents. Marketable securities with original maturities of greater than ninety days and
remaining maturities of less than one year from the balance sheet date are classified as short-term marketable
securities. Marketable securities with remaining maturities of greater than one year from the balance sheet date are
classified as long-term marketable securities.
F-8
The Company classifies all of its marketable securities as available-for-sale. All marketable securities are held with
one investment manager. The Company continually evaluates the credit ratings of its investment portfolio and
underlying securities. The Company invests in accordance with its investment policy and invests at the date of
purchase in securities with a rating of A3 or higher and A- or higher according to Moody’s and S&P, respectively.
The Company reports available-for-sale investments at fair value as of each balance sheet date and records any
unrealized gains or losses as a component of stockholders’ equity. The cost of securities sold is determined on a
specific identification basis, and realized gains and losses are included in other income (expense), net within the
consolidated statements of operations. If any adjustment to fair value reflects a decline in the value of the
investment, the Company considers available evidence to evaluate the extent to which the decline is “other than
temporary” and reduces the investment to fair value through a charge to the consolidated statements of operations.
There were no such adjustments necessary during the years ended September 30, 2017, 2016, and 2015.
Restricted Cash
As of September 30, 2017 and 2016, the Company had an outstanding letter of credit collateralized by a money
market account of $608 to the benefit of the landlord of the Company’s current building lease. This amount was
classified as long-term restricted cash as of September 30, 2017 and 2016.
Concentration of Credit Risk and of Significant Customers and Suppliers
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash,
cash equivalents, marketable securities, accounts receivable and unbilled receivables. The Company has all cash and
investment balances at one accredited financial institution, including cash in amounts that exceed federally insured
limits. The Company does not believe that it is subject to unusual credit risk beyond the normal credit risk
associated with commercial banking relationships.
The Company has historically generated all of its revenue from its collaborative research and license agreements as
well as a U.S. government contract (see Note 7). As of September 30, 2017 and 2016, accounts receivable consisted
of amounts due from the Company’s principal collaborator (see Note 7).
The Company is completely dependent on third-party manufacturers for product supply for preclinical and clinical
research activities in its non-partnered programs. The Company relies and expects to continue to rely exclusively on
several manufacturers to supply it with its requirements for the active pharmaceutical ingredients related to these
programs. These research programs would be adversely affected by a significant interruption in the supply of its
active pharmaceutical ingredients.
Fair Value Measurements
Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that
would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous
market for the asset or liability in an orderly transaction between market participants on the measurement date.
Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use
of unobservable inputs. A fair value hierarchy is based on three levels of inputs which are used to measure fair
value, of which the first two levels are considered observable and the last is considered unobservable:
(cid:129)
(cid:129)
(cid:129)
Level 1—Quoted prices in active markets for identical assets or liabilities.
Level 2—Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets
for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets
or liabilities, or other inputs that are observable or can be corroborated by observable market data.
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant
to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow
methodologies and similar techniques.
The Company’s instruments that are carried at fair value are cash equivalents, marketable securities and the warrant
and Series 1 nonconvertible preferred stock liabilities. The carrying values of accounts receivable and unbilled
F-9
receivables, accounts payable and accrued expenses approximate their fair value due to the short-term nature of
these assets and liabilities.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation or amortization. Depreciation and
amortization expense is recognized using the straight-line method over the following estimated useful lives:
Laboratory and office equipment
Leasehold improvements
Purchased software
Computer equipment
Furniture
5 years
Shorter of life of lease or estimated useful life
3 years
3 years
7 years
Expenditures for repairs and maintenance of assets are charged to expense as incurred. Costs of major additions and
betterments are capitalized and depreciated on a straight-line basis over their useful lives. Upon retirement or sale,
the cost and related accumulated depreciation or amortization of assets disposed are removed from the accounts and
any resulting gain or loss is included in income from operations in the consolidated statements of operations.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property and equipment, for impairment whenever events or
changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable.
Factors that the Company considers in deciding when to perform an impairment review include significant
underperformance of the business in relation to expectations, significant negative industry or economic trends, and
significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a
long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result
from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be
recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than
its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset
over its fair value, determined based on discounted cash flows. To date, the Company has not recorded any
impairment losses on long-lived assets.
Revenue Recognition
The Company’s revenue has been generated primarily through collaborative research and license agreements. The
terms of these agreements contain multiple deliverables, which may include (i) licenses, (ii) research and
development activities, and (iii) participation in joint research and development steering committees. The terms of
these agreements may include nonrefundable upfront license fees, payments for research and development activities,
payments based upon the achievement of certain milestones, and royalty payments based on product sales derived
from the collaboration. In all instances, revenue is recognized only when the price is fixed or determinable,
persuasive evidence of an arrangement exists, delivery has occurred or the services have been rendered, collectibility
of the resulting receivable is reasonably assured, and the Company has fulfilled its performance obligations under
the contract.
On October 1, 2011, the Company adopted Accounting Standards Update No. 2009-13, Multiple-Deliverable
Revenue Arrangements (“ASU 2009-13”). This guidance, which applies to multiple-element arrangements entered
into or materially modified on or after October 1, 2011, amends the criteria for separating and allocating
consideration in a multiple-element arrangement by modifying the fair value requirements for revenue recognition
and eliminating the use of the residual value method. The selling prices of deliverables under the arrangement may
be derived using third-party evidence (“TPE”) or a best estimate of selling price (“BESP”), if vendor-specific
objective evidence (“VSOE”) is not available. The objective of BESP is to determine the price at which the
Company would transact a sale if the element within the license agreement was sold on a standalone basis.
Establishing BESP involves management’s judgment and considers multiple factors, including market conditions
and company-specific factors including those factors contemplated in negotiating the agreements as well as
internally developed models that include assumptions related to market opportunity, discounted cash flows,
F-10
estimated development costs, probability of success, and the time needed to commercialize a product candidate
pursuant to the license. Deliverables under a multiple-element arrangement are separated into multiple units if (i) the
delivered item has value to the customer on a standalone basis, and (ii) if the arrangement includes a general right of
return relative to the delivered item, delivery or performance of the undelivered item is considered probable and
substantially within the control of the Company. The arrangement consideration that is fixed or determinable at the
inception of the arrangement is allocated to the separate units of accounting based on their relative selling prices
derived using TPE or BESP. The appropriate revenue recognition model is applied to each element, and revenue is
accordingly recognized as each element is delivered. The Company may exercise significant judgment in
determining whether a deliverable is a separate unit of accounting.
In determining the separate units of accounting, the Company evaluates whether the license has standalone value to
the collaborator based on consideration of the relevant facts and circumstances for each arrangement. Factors
considered in this determination include the research and development capabilities of the collaborator and the
availability of relevant research expertise in the marketplace. In addition, the Company considers whether or not
(i) the collaborator can use the license for its intended purpose without the receipt of the remaining deliverables,
(ii) the value of the license is dependent on the undelivered items, and (iii) the collaborator or other vendors can
provide the undelivered items.
For all periods presented, whenever the Company determines that an element is delivered over a period of time,
revenue is recognized using either a proportional performance model or a straight-line model over the period of
performance, which is typically the research and development term. Full-time equivalents (“FTEs”) are typically
used as the measure of performance. At each reporting period, the Company reassesses its cumulative measure of
performance and makes appropriate adjustments, if necessary. The Company recognizes revenue using the
proportional performance model whenever the Company can make reasonably reliable estimates of the level of
effort required to complete its performance obligations under an arrangement. Revenue recognized under the
proportional performance model at each reporting period is determined by multiplying the total expected payments
under the contract (excluding royalties and payments contingent upon achievement of milestones) by the ratio of the
level of effort incurred to date to the estimated total level of effort required to complete the performance obligations
under the arrangement. Revenue is limited to the lesser of the cumulative amount of payments received or the
cumulative amount of revenue earned, as determined using the proportional performance model as of each reporting
period. Alternatively, if the Company cannot make reasonably reliable estimates of the level of effort required to
complete its performance obligations under an arrangement, then revenue under the arrangement is recognized on a
straight-line basis over the period expected to complete the Company’s performance obligations. If and when a
contingent milestone payment is earned, the additional consideration to be received is allocated to the separate units
of accounting in the arrangement based on their relative selling prices at the inception of the arrangement. Revenue
is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned,
as determined on a straight-line basis as of the period end date. If the Company cannot reasonably estimate when its
performance obligation period ends, then revenue is deferred until the Company can reasonably estimate when the
performance obligation period ends.
Royalty revenue is recognized based on contractual terms when reported sales are reliably measurable and
collectibility is reasonably assured, provided that there are no performance obligations remaining.
During the years ended September 30, 2016 and 2015, the Company also generated revenue from a government
contract, under which the Company was reimbursed for certain allowable costs for the funded project. Revenue from
the government contract was recognized when the related service was performed. The related costs incurred by the
Company under the government contract were included in research and development expenses in the consolidated
statements of operations.
Amounts received prior to satisfying all revenue recognition criteria are recorded as deferred revenue in the
accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the next
twelve months of the consolidated balance sheet date are classified as long-term deferred revenue.
In the event that a collaborative research and license agreement is terminated and the Company then has no further
performance obligations, the Company recognizes as revenue any amounts that had not previously been recorded as
revenue but were classified as deferred revenue at the date of such termination.
F-11
Research and Development Costs
Research and development costs are expensed as incurred. Included in research and development costs are wages,
stock-based compensation and benefits of employees, third-party license fees and other operational costs related to
the Company’s research and development activities, including facility-related expenses and external costs of outside
contractors engaged to conduct both preclinical and clinical studies and manufacture quantities of product for
preclinical and clinical studies. The Company also includes in research and development expense the costs to
complete the Company’s obligations under research collaborations.
Patent Costs
All patent-related costs incurred in connection with filing and prosecuting patent applications are recorded as
general and administrative expenses as incurred, as recoverability of such expenditures is uncertain.
Stock-Based Compensation
The Company measures all stock options and other stock-based awards granted to employees at fair value on the
date of grant. The Company uses the Black-Scholes option-pricing model in the valuation of its stock options. The
fair value of performance-based awards and restricted stock units is based on intrinsic value of the stock on the date
of grant. The Company uses the Monte-Carlo simulation in order to calculate the fair value of the market-based
awards. The fair value of options is recognized as stock-based compensation expense, net of estimated forfeitures,
over the requisite service period, which is generally the vesting period of the respective award. The straight-line
method of expense recognition is applied to all awards with service-based and market-based conditions. The
Company records stock-based compensation expense related to performance-based awards when the performance-
based targets are probable of being achieved. The Company classifies stock-based compensation expense in the
consolidated statements of operations in the same manner in which the award recipient’s payroll costs are classified.
Income Taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the
financial statements or in the Company’s tax returns. Deferred taxes are determined based on the difference between
the financial reporting and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the
differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for
income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable
income and, to the extent it believes based upon the weight of available evidence, that it is more likely than not that
all or a portion of deferred tax assets will not be realized, a valuation allowance is established through a charge to
income tax expense. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits
expected and considering prudent and feasible tax planning strategies.
Uncertain tax positions represent tax positions for which reserves have been established. The Company accounts for
uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to
determine the amount of tax benefit to be recognized. First, the tax position must be evaluated to determine the
likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed
more likely than not to be sustained, the tax position is then assessed to determine the amount of benefit to be
recognized in the financial statements. The amount of the benefit that may be recognized is the largest amount that
has a greater than 50% likelihood of being realized upon ultimate settlement. The provision for income taxes
includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as
well as the related net interest and penalties.
Net Income per Share
Basic net income per common share is computed by dividing the net income by the weighted average number of
shares of common stock outstanding for the period. Diluted net income per common share is computed by dividing
net income by the weighted average number of common shares outstanding for the period, including potential
dilutive common shares assuming the dilutive effect of outstanding stock options and unvested restricted stock units.
F-12
Market-based awards are included in diluted net income per common share to the extent they would have vested if
the period end date was the market criteria measurement date.
Segment Data
The Company manages its operations as a single segment for the purposes of assessing performance and making
operating decisions. The Company is a biotechnology company focused on discovering and developing small
molecule drugs for the treatment of viral infections and liver diseases. Revenue is generated exclusively from
transactions occurring with partners located in the United States and all assets are held in the United States.
Comprehensive Income
Comprehensive income includes net income as well as other changes in stockholders’ equity that result from
transactions and economic events other than those with stockholders. The Company’s only element of other
comprehensive income is unrealized gains and losses on available-for-sale marketable securities.
Going Concern
In August 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-15, Presentation of
Financial Statements - Going Concern (Subtopic 205-40) (“ASU 2014-15”). The Company adopted this standard as
of September 30, 2017. The standard requires the Company to assess its ability to continue as a going concern one
year beyond the date of filing and, in certain circumstances, provide additional footnote disclosures. Based on a
detailed cash forecast incorporating current research and development activities and related spending plans, the
Company believes that current cash, cash equivalents and marketable securities on hand at September 30, 2017
should be sufficient to fund operations for the foreseeable future, including at least the next twelve months beyond
the date of issuance of these financial statements. The amount of capital available will depend on the Company’s
management of its existing cash, cash equivalents and marketable securities, as well as the level of future royalties
the Company earns under its collaboration with AbbVie. If the Company should require financing beyond these
resources to fund its research and development efforts, it may not be able to obtain financing on acceptable terms, or
at all.
Recently Issued Accounting Pronouncements
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment
Accounting (“ASU 2016-09”), which intends to simplify several aspects of accounting for share-based payment
transactions, including the income tax consequences, classification of awards as either equity or liabilities, a choice
to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain
classifications on the statement of cash flows. This amendment will be effective for the Company in the fiscal year
beginning October 1, 2017. The Company expects to change its forfeiture rate policy on a prospective basis by
recording forfeitures as they occur. Upon adoption, the cumulative impact of this policy change to retained earnings
will not be material to the consolidated balance sheet. Once adopted, the consolidated statements of cash flows will
present any excess tax benefits as a cash flow from operating activities. The Company has elected to adopt this
change on a prospective basis. The adoption of the standard is also expected to create variability in the consolidated
statements of operations on a prospective basis as the tax consequences of settled share-based payments will be
recognized in income tax expense when share-based payment awards are settled.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU
2014-09”) which supersedes all existing revenue recognition requirements, including most industry-specific
guidance. The new standard requires a company to recognize revenue when it transfers goods or services to
customers in an amount that reflects the consideration that the company expects to receive for those goods or
services. The FASB has continued to issue accounting standards updates to clarify and provide implementation
guidance related to Revenue from Contracts with Customers, including ASU 2016-08, Revenue from Contract with
Customers: Principal versus Agent Considerations, ASU 2016-10, Revenue from Contracts with Customers:
Identifying Performance Obligations and Licensing, and ASU 2016-12, Revenue from Contracts with Customers:
Narrow-Scope Improvements and Practical Expedients. These amendments address a number of areas, including an
F-13
entity’s identification of its performance obligations in a contract, collectibility, non-cash consideration, presentation
of sales tax and an entity’s evaluation of the nature of its promise to grant a license of intellectual property and
whether or not that revenue is recognized over time or at a point in time. The new guidance must be adopted using
either a modified retrospective approach or a full retrospective approach for all periods presented. Under the
modified retrospective method, the cumulative effect of applying the new standard would be recognized at the
adoption date in retained earnings on the consolidated balance sheet. Under the full retrospective approach, the new
standard would be applied to each prior reporting period presented. These new standards will be effective for the
Company beginning October 1, 2018. Currently, the Company has only one revenue-generating contract – the
AbbVie Agreement. The Company has completed its substantial performance obligations under the contract and is
eligible to earn annually tiered per-product royalties on the portion of AbbVie’s net sales of HCV regimens allocable
to the protease inhibitor in the regimen. The Company is in process of determining the method of adoption but under
either method, the impact of adoption is not expected to have a material impact on the Company’s consolidated
financial statements as it only has one revenue-generating arrangement outstanding to date in which all performance
obligations have been achieved.
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted
Cash (“ASU 2016-18”) that changes the presentation of restricted cash and cash equivalents on the statement of cash
flows. Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when
reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This
amendment is effective for the Company in the fiscal year beginning October 1, 2018, but early adoption is
permissible. The Company is currently evaluating the potential impact that ASU 2016-18 may have on its statement
of cash flows.
In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which will replace the existing
guidance in ASC 840, “Leases.” The updated standard aims to increase transparency and comparability among
organizations by requiring lessees to recognize leased assets and leased liabilities on the consolidated balance sheets
and requiring disclosure of key information about leasing arrangements. This amendment is effective for the
Company in the fiscal year beginning October 1, 2019, but early adoption is permissible. The Company is currently
evaluating the potential impact that ASU 2016-02 may have on its financial position and results of operations.
In March 2017, the FASB issued ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic
310-20): Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”) which requires
companies to amend the amortization period for premiums on debt securities with explicit call features to be the
earliest call date rather than through the contractual life of the debt instrument. This amendment aims to more
closely align the recognition of interest income with the manner in which market participants price such instruments.
This amendment is effective for the Company in the fiscal year beginning October 1, 2019, but early adoption is
permissible. The Company is currently evaluating the potential impact that ASU 2017-08 may have on its financial
position and results of operations.
In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718) (“ASU 2017-
09”) which provides updated guidance about changes to the terms or conditions of a share-based payment award that
require companies to apply modification accounting under Topic 718. This amendment is effective for the Company
in the fiscal year beginning October 1, 2018, but early adoption is permissible. The Company is currently evaluating
the potential impact that ASU 2017-09 may have on its financial position and results of operations.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (“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. This amendment is effective for the Company in the fiscal year beginning October 1, 2020. The Company
is currently evaluating the potential impact that ASU 2016-13 may have on its financial position and results of
operations.
F-14
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do
not require adoption until a future date are not expected to have a material impact on the Company’s consolidated
financial statements upon adoption.
3. Fair Value of Financial Assets and Liabilities
The following tables present information about the Company’s financial assets and liabilities that were subject to
fair value measurement on a recurring basis as of September 30, 2017 and 2016 and indicate the fair value hierarchy
of the valuation inputs utilized to determine such fair value:
Fair Value Measurements at September 30, 2017 Using:
Level 1
Level 2
Level 3
Total
(in thousands)
Assets:
Cash equivalents:
Money market funds
Commercial paper
Corporate bonds
Marketable securities:
U.S. Treasury notes
Corporate bonds
Commercial paper
U.S. Agency bonds
Liabilities:
Warrant liability
Series 1 nonconvertible preferred stock
$
$
$
$
19,863 $
—
—
— $
29,756
3,000
60,843
—
— 150,731
—
12,458
—
4,000
80,706 $ 199,945 $
— $
—
—
19,863
29,756
3,000
—
60,843
— 150,731
—
12,458
—
4,000
— $ 280,651
— $
—
— $
— $
—
— $
807 $
762
1,569 $
807
762
1,569
Assets:
Cash equivalents:
Money market funds
Marketable securities:
U.S. Treasury notes
Corporate bonds
Commercial paper
U.S. Agency bonds
Liabilities:
Warrant liability
Series 1 nonconvertible preferred stock
Fair Value Measurements at September 30, 2016 Using:
Level 1
Level 2
Level 3
Total
(in thousands)
$
15,295 $
— $
— $
15,295
69,608
—
—
—
—
76,073
49,900
30,045
84,903 $ 156,018 $
—
69,608
—
76,073
—
49,900
—
30,045
— $ 240,921
— $
—
— $
— $
—
— $
1,251 $
159
1,410 $
1,251
159
1,410
$
$
$
Cash equivalents at September 30, 2017 and 2016 consist of money market funds, corporate bonds and commercial
paper which are readily convertible to cash and with less than 90 days until maturity.
During the years ended September 30, 2017, 2016, and 2015, there were no transfers between Level 1, Level 2 and
Level 3.
F-15
As of September 30, 2017 and 2016, the warrant liability was comprised of the value of the warrants for the
purchase of Series 1 nonconvertible preferred stock measured at fair value. As of September 30, 2017 and 2016, the
outstanding Series 1 nonconvertible preferred stock was also measured at fair value. The fair values of these
instruments were 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
values of the warrant liability and 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 warrant liability and Series 1 nonconvertible
preferred stock using probability-weighted discounted cash flow include the following significant unobservable
inputs:
Unobservable Input
Probabilities of payout
Discount rate
Range (Weighted Average)
September 30,
2017
2016
0%-65% 0%-60%
5.25% 4.50%
The following table provides a rollforward of the aggregate fair values of the Company’s warrants for the purchase
of Series 1 nonconvertible preferred stock and the outstanding Series 1 nonconvertible preferred stock for which fair
value is determined by Level 3 inputs:
Series 1
Nonconvertible
Preferred
Stock
Warrant
Liability
Balance, September 30, 2014
Decrease in fair value
Balance, September 30, 2015
Decrease in fair value
Balance, September 30, 2016
Warrants exercised
Increase in fair value
Balance, September 30, 2017
(in thousands)
$
$ 1,584
(308)
$ 1,276
(25)
$ 1,251
(549)
105
807
$
$
$
$
202
(39)
163
(4)
159
549
54
762
4. Marketable Securities
As of September 30, 2017 and 2016, the fair value of available-for-sale marketable securities, by type of security,
was as follows:
Corporate bonds
U.S. Treasury notes
Commercial paper
U.S. Agency bonds
September 30, 2017
Gross
Gross
Unrealized
Unrealized
Losses
Gains
Amortized
Cost
Fair Value
$ 150,841 $
60,908
12,458
4,004
$ 228,211 $
(in thousands)
9 $
—
—
—
9 $
(119) $ 150,731
(65) 60,843
— 12,458
4,000
(4)
(188) $ 228,032
F-16
Corporate bonds
U.S. Treasury notes
Commercial paper
U.S. Agency bonds
September 30, 2016
Gross
Gross
Unrealized
Unrealized
Losses
Gains
Amortized
Cost
Fair Value
$ 76,077 $
69,579
49,900
30,040
$ 225,596 $
(in thousands)
27 $
38
—
15
80 $
(31) $ 76,073
(9) 69,608
— 49,900
(10) 30,045
(50) $ 225,626
As of September 30, 2017 and 2016, marketable securities consisted of investments that mature within one year,
with the exception of certain corporate bonds and U.S. Treasury notes, which have maturities between one and three
years and an aggregate fair value of $70,038 and $32,119, respectively.
5. Property and Equipment
Property and equipment consisted of the following as of September 30, 2017 and 2016:
Laboratory and office equipment
Leasehold improvements
Purchased software
Furniture
Construction in progress
Computer equipment
Less: Accumulated depreciation and amortization
September 30,
2017
2016
$
(in thousands)
9,521
3,717
775
595
250
245
15,103
(7,054)
$
8,049
7,440
3,715
705
551
504
187
13,102
(5,098)
8,004
$
$
Depreciation and amortization expense for property and equipment, including assets acquired under capital leases,
was $2,137, $1,661 and $639 for the years ended September 30, 2017, 2016, and 2015, respectively.
6. Accrued Expenses, Other Current Liabilities and Other Long-Term Liabilities
Accrued expenses, other current liabilities and other long-term liabilities consisted of the following as of September
30, 2017 and 2016:
F-17
Accrued expenses:
Accrued preclinical and clinical expenses
Accrued payroll and related expenses
Accrued vendor manufacturing
Accrued professional fees
Capital lease obligation
Accrued other
Other long-term liabilities:
Uncertain tax positions
Accrued rent expense
Capital lease obligation
Asset retirement obligation
September 30,
2017
2016
(in thousands)
3,156 $
2,829
1,130
456
79
320
7,970 $
1,175 $
676
379
180
2,410 $
899
2,384
459
393
73
304
4,512
745
696
458
143
2,042
$
$
$
$
7. Collaboration Agreements
AbbVie Collaboration
On November 27, 2006, the Company entered into a Collaborative Development and License Agreement (the
“AbbVie Agreement”) with Abbott Laboratories to identify, develop and commercialize HCV NS3 and NS3/4A
protease inhibitor compounds, including paritaprevir and glecaprevir. The agreement was assigned by Abbott to
AbbVie Inc. on January 1, 2013 in connection with Abbott’s transfer of its research-based pharmaceuticals business
to AbbVie.
Under the terms of the AbbVie Agreement, as amended, AbbVie paid the Company upfront license payments and
FTE reimbursements to fund research activities. The Company is also eligible to receive milestone payments for the
successful development by AbbVie of one or more HCV compounds, as well as annually tiered, per-product
royalties on the portion of AbbVie’s net sales of its HCV treatment regimens allocated to the protease inhibitor
product.
The Company determined that the deliverables under the AbbVie Agreement included (i) the non-exclusive, royalty-
free, worldwide research license and the exclusive, royalty-bearing development and commercialization license,
(ii) the research services, and (iii) a commitment to participate on a steering committee, all of which were to be
delivered over a three-year period. The Company concluded that the license did not have standalone value as it was
dependent, in part, upon the Company’s continuing involvement in the HCV protease inhibitor research and its
involvement in the joint steering committee. Additionally, the undelivered items, including the Company’s
participation in the joint steering committee, which was considered participatory due to its decision making
responsibilities, and the research services, did not have VSOE or VOE of fair value. Therefore, the license, the
research services, and the joint steering committee participation were treated as a single unit of accounting.
Accordingly, all amounts received were deferred, and revenue was recognized using the proportional performance
model over the period during which the Company performed research services in connection with the AbbVie
Agreement, as amended.
Subsequent to the research and evaluation period, which ended in June 2011, all decisions related to the
development, commercialization and marketing have been made by AbbVie. The Company has the right to continue
to attend the joint steering committee meetings to monitor the development and marketing plans; however, the
Company has no decision-making rights. As such, the joint steering committee commitment became protective in
nature as of June 16, 2011.
During the years ended September 30, 2017, 2016, and 2015, the Company received $65,000, $30,000, and
$125,000, respectively, in milestone payments under the AbbVie Agreement as a result of AbbVie’s
F-18
commercialization regulatory approvals for regimens containing the collaboration’s first protease inhibitor. From
commencement of the collaboration through September 30, 2017, the Company received a total of $500,000 under
the AbbVie Agreement consisting of an upfront license payment, research funding, milestone payments, royalties
and preferred stock financing. As of September 30, 2017, the Company is eligible to receive an additional milestone
payment of $15,000 upon AbbVie’s achievement of commercialization regulatory approval in Japan for MAVIRET.
Since the Company completed all its performance obligations under the AbbVie Agreement by the end of fiscal
2011, any milestone payments earned since then have been and will be recognized as revenue when the associated
milestone is achieved by AbbVie.
The Company receives annually tiered royalties on each protease product developed under the AbbVie Agreement,
ranging from the low double digits up to twenty percent, or on a blended basis from the low double digits up to the
high teens, based on the portion of AbbVie’s calendar year net sales of the corresponding HCV regimen that is
allocated to the protease product contained in the regimen. The portion of a product that is determined to be a
combination product, as is the case for both regimens containing paritaprevir or glecaprevir, the net sales of the
combination product are adjusted on a country-by-country and product-by-product basis to reflect a good faith
determination of the relative value of each pharmaceutically active ingredient, based on the estimated fair market
value. Under the terms of the amended agreement, 50% of AbbVie’s net sales of regimens containing glecaprevir
are allocated to glecaprevir net sales for purposes of calculating royalties, whereas only 30% of net sales of a 3-
DAA regimen containing paritaprevir and 45% of net sales of a 2-DAA regimen containing paritaprevir are
allocated to paritaprevir net sales.
Royalties owed to the Company under the agreement can be reduced by AbbVie in certain circumstances, including
(i) if AbbVie exercises its right to license or otherwise acquire rights to intellectual property controlled by a third
party where a product could not be legally developed or commercialized in a country without the third-party
intellectual property right, (ii) where a product developed under the collaboration agreement is sold in a country and
not covered by a valid patent claim in such country, and (iii) where sales of a generic product are equal to at least a
specified percentage of AbbVie’s market share of its product in a country.
AbbVie’s obligation to pay royalties on a product developed under the agreement expires on a country-by-country
basis upon the later of (i) the date of expiration of the last of the licensed patents with a valid claim covering the
product in the applicable country, or (ii) ten years after the first commercial sale of the product in the applicable
country.
Subject to certain exceptions, a party’s rights and obligations under the agreement continue until (i) such time as
AbbVie is no longer developing a product candidate or (ii) if, as of the time AbbVie is no longer developing any
product candidates, AbbVie is commercializing any other protease inhibitor product, such time as all royalty terms
for all covered products have ended. Accordingly, the final expiration date of the agreement is currently
indeterminable.
Either party may terminate the agreement for cause in the event of a material breach, subject to prior notice and the
opportunity to cure, or in the event of the other party’s bankruptcy. Additionally, AbbVie may terminate the
agreement for any reason upon specified prior notice.
If the Company terminates the agreement for cause or AbbVie terminates without cause, any licenses and other
rights granted to AbbVie will terminate and AbbVie will be deemed to have granted the Company (i) a non-
exclusive, perpetual, fully-paid, worldwide, royalty-free license, with the right to sublicense, under AbbVie’s
intellectual property used in any product candidate, and (ii) an exclusive (even as to AbbVie), perpetual, fully-paid,
worldwide, royalty-free license, with the right to sublicense, under AbbVie’s interest in any joint intellectual
property rights to develop product candidates resulting from covered compounds and to commercialize any products
derived from such compounds. Upon the Company’s request, AbbVie will also transfer to the Company all right,
title and interest in any related product trademarks, regulatory filings and clinical trials.
If AbbVie terminates the agreement for the Company’s uncured breach, the milestone and royalty payments payable
by AbbVie may be reduced, the licenses granted to AbbVie will remain in place, the Company will be deemed to
have granted AbbVie an exclusive license under the Company’s interest in joint intellectual property, AbbVie will
F-19
continue to have the right to commercialize any covered products, and all rights and licenses granted to the
Company by AbbVie will terminate.
NIAID Contract
On September 30, 2011, the Company entered into a contract with the National Institute of Allergy and Infectious
Diseases (“NIAID”), a division of the National Institutes of Health (“NIH”), providing development funding to the
Company for the preclinical and clinical development of a bridged bicyclic antibiotic. The contract was completed
in August 2015 upon the Company’s delivery of the study report for the Phase 1 clinical study.
The Company recognized revenue under this contract as development services were performed in accordance with
the funding agreement. During the years ended September 30, 2016 and 2015, the Company recognized revenue of
$576 and $1,803, respectively, under this contract. The Company received aggregate payments of $20,637 under the
NIAID contract from its commencement through January 31, 2016.
8. Stockholders’ Equity
The Company is authorized to issue 100,000 shares of common stock at a par value of $0.01. Each share of common
stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders. Common
stockholders are entitled to receive such dividends as may be declared by the board of directors, if any.
The Company previously had 209 shares of treasury stock outstanding, which were retired on September 30, 2015,
resulting in a decrease in the same number of issued shares of common stock.
9. Series 1 Nonconvertible Preferred Stock and Warrants
The Company’s Certificate of Incorporation authorizes the issuance of up to 2,000 shares of Series 1 nonconvertible
preferred stock at a par value of $0.01 per share. Holders of Series 1 nonconvertible preferred stock are not entitled
to receive dividends. In the event of any liquidation, deemed liquidation, dissolution or winding up of the Company,
the Series 1 nonconvertible preferred stockholders are entitled to receive in preference to all other stockholders, an
amount equal to $1.00 per share, adjusted for any stock dividends, stock splits or reclassifications. Series 1
nonconvertible preferred stockholders will not be entitled to vote unless required by the Company pursuant to the
laws of the State of Delaware. The Company may redeem the Series 1 nonconvertible preferred stock with the
approval of the holders of a majority of the outstanding shares of Series 1 nonconvertible preferred stock at a
redemption price of $1.00 per share. The Company must redeem the stock within 60 days of such election. Shares
that are redeemed will be retired or canceled and not reissued by the Company.
In October and November 2010, a total of 2,000 warrants to purchase Series 1 nonconvertible preferred stock were
issued. The warrants had an expiration date of October 4, 2017. As these warrants are free-standing financial
instruments that may require the Company to transfer assets upon exercise, up to a maximum of $2,000, these
warrants are classified as liabilities on the Company’s consolidated balance sheet.
F-20
The following table summarizes the Company’s outstanding warrants:
Outstanding, as of September 30, 2014
Granted
Expired
Exercised
Outstanding, as of September 30, 2015
Granted
Expired
Exercised
Outstanding, as of September 30, 2016
Granted
Expired
Exercised
Outstanding, as of September 30, 2017
Weighted
Average
Exercise
Price
Series 1
Nonconvertible
Preferred
Stock Warrant
s
Exercisable
(in thousands, except per share
data)
1,775 $
—
—
—
1,775 $
—
—
—
1,775 $
—
—
(745) $
1,030 $
0.01
—
—
—
0.01
—
—
—
0.01
—
—
0.01
0.01
For the years ended September 30, 2017, 2016, and 2015, the remeasurement of the warrants and Series 1
nonconvertible preferred stock resulted in income (expense) recorded in the consolidated statements of operations of
($159), $29, and $347, respectively. As of September 30, 2017 and 2016, the total fair value of the
Series 1 nonconvertible preferred stock was $762 and $159, respectively. As of September 30, 2017 and 2016, the
total fair value of the Series 1 nonconvertible preferred stock warrants was $807 and $1,251, respectively.
Subsequent to September 30, 2017, warrants to purchase a total of 977 shares of Series 1 nonconvertible preferred
stock were exercised prior to warrant expiration, resulting in the issuance of 970 shares of Series 1 nonconvertible
preferred stock. On October 4, 2017, a total of 52 outstanding warrants expired unexercised. The liability associated
with these expired warrants will be reversed, resulting in income in 2018.
10. Stock-Based Awards
The Company’s 2012 Equity Incentive Plan (the “2012 Plan”) permits the Company to sell or issue awards of
common stock or restricted common stock or to grant awards of incentive stock options or nonqualified stock
options for the purchase of common stock, restricted stock units, performance units, stock appreciation rights or
other cash incentive awards, to employees, members of the board of directors and consultants of the Company. The
number of shares of common stock that may be issued under the 2012 Plan is subject to increase by the number of
shares forfeited under any options terminated and not exercised under the 2012 Plan or a predecessor plan, known as
the 1995 Equity Incentive Plan, as well as by the number of shares added on the first day of each fiscal year, which
is the lowest amount among the following: (i) 3% of the Company’s outstanding shares of common stock as of that
date, (ii) 2,088 shares of common stock, or (iii) an amount determined by the Compensation Committee of the Board
of Directors. On October 1, 2017, the number of shares of common stock that might be issued under the 2012 Plan
was increased by 574 shares. As of September 30, 2017, 274 shares remained available for future award.
The 2012 Plan replaces and is the successor to the 1995 Equity Incentive Plan (the “1995 Plan”). The 1995 Plan
provided for the Company to sell or issue awards of common stock or restricted common stock, or to grant awards
of incentive stock options or nonqualified stock options for the purchase of common stock, to employees, members
of the board of directors and consultants of the Company. Sales, issuances or grants of shares entitle the holder to
purchase common stock from the Company, for a specified exercise price, during a period specified by the
applicable equity award agreement. Upon the closing of the Company’s initial public offering, all remaining shares
F-21
reserved for issuance under the 1995 Plan were transferred to the 2012 Plan and no further awards were or will be
made under the 1995 Plan.
Under the Company’s Employee Stock Purchase Plan (“ESPP”) a total of 186 shares of common stock are reserved
for issuance. As of September 30, 2017, the Company had not commenced any offering under the ESPP and no plan
shares have been issued.
The Company applies the fair value recognition provisions for all stock-based awards granted or modified. In the
case of service-based awards, the compensation cost is recorded over the requisite service period of the award on the
straight-line method based on the grant-date fair value. The requisite service period for service-based option awards
is generally four years. Options granted under the 2012 Plan to employees generally vest over four years and to non-
employee directors over one year, and expire after ten years.
Stock Option Valuation
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option-pricing
model. The Company estimates expected volatility based on the historical volatility of publicly traded peer
companies. The Company expects to continue to do so until such time as adequate historical data regarding the
volatility of the Company’s traded stock price following our March 2013 IPO is available. The expected term of the
Company’s options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla”
options. The Company expects to continue to utilize this method until such time as we have adequate historical data
regarding our employee exercise patterns. The risk-free interest rate is determined by reference to the U.S. Treasury
yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of
the award. The expected dividend yield is zero on the fact that the Company has never paid cash dividends and does
not expect to pay any cash dividends in the foreseeable future. The relevant data used to determine the value of the
stock option awards are as follows, presented on a weighted average basis:
Years Ended September 30,
2016
2015
2017
Risk-free interest rate
Expected term (in years)
Expected volatility
Expected dividends
1.97%
6.05
60%
0%
1.77%
6.10
70%
0%
1.85%
6.03
74%
0%
The Company recognizes stock-based compensation expense for only the portion of awards that are expected to
vest. In developing a forfeiture rate estimate, the Company has considered its historical experience to estimate pre-
vesting forfeitures for service-based awards. The impact of a forfeiture rate adjustment will be recognized in full in
the period of adjustment, and if the actual forfeiture rate is materially different from the Company’s estimate, the
Company may be required to record adjustments to its stock-based compensation expense in future periods.
Beginning in fiscal 2018, the Company will no longer utilize a forfeiture rate estimate in calculating stock-based
compensation expense and will recognize forfeitures as they occur.
As required by the 1995 Plan and the 2012 Plan, the exercise price for awards granted is not to be less than the fair
value of common shares as estimated by the Company as of the date of grant.
F-22
The following table summarizes stock option activity, including aggregate intrinsic value for the year ended
September 30, 2017:
Weighted
Average
Remaining
Contractual
Term in
years
Weighted
Average
Exercise
Price
Shares
Issuable
Under
Options
(in
thousands)
1,895 $
613
(72)
(138)
2,298 $
28.75
30.93
14.95
18.73
30.36
Aggregate
Intrinsic
Value
(in
thousands)
7,369
7.6 $
7.4 $
37,821
2,283 $
1,350 $
30.35
28.52
7.4 $
6.7 $
37,596
24,705
Outstanding as of September 30, 2016
Granted
Exercised
Forfeited
Outstanding as of September 30, 2017
Options vested and expected to vest as of
September 30, 2017
Options exercisable as of September 30, 2017
The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and
the fair value of the Company’s common stock. The following tables summarize additional exercise and grant date
information:
Aggregate intrinsic value of stock options exercised
Proceeds from stock options exercised
$
$
1,503 $
1,079 $
7,705 $
1,026 $
4,827
726
2017
Years Ended September 30,
2016
(in thousands)
2015
Years Ended September 30,
2017
2016
2015
Weighted average grant date fair value of options granted
(per share)
$
17.52 $
19.12 $
27.77
Performance-Based Options
In March 2013, the Company granted to certain executives 167 options that vest upon the achievement of certain
performance-based targets. The aggregate grant date fair value of these options was $2,479. During the years ended
September 30, 2017 and 2016, certain performance-based targets were achieved and the Company recorded stock-
based compensation expense of $413 and $620, respectively, related to achievement of those targets. No stock-based
compensation expense related to these options was recognized during the year ended September 30, 2015, as none of
the performance-based targets was deemed to have become probable of being achieved in that period. The
performance period for these options ended during the year ended September 30, 2017.
Market and Performance-Based Stock Unit Awards
The Company awards both performance share units, or PSUs, and relative total stockholder return units, or rTSRUs,
to its executive officers. The number of units represents the target number of shares of common stock that may be
earned; however, the actual number of shares that may be earned ranges from 0% to 200% of the target number.
The PSUs will vest and result in issuance, or settlement, of common shares for each recipient, based upon the
recipient’s continued employment with the Company through the settlement date of the award and the Company’s
achievement of specified research and development milestones. The requisite service period of the PSUs is generally
2 years.
F-23
The rTSRUs will vest and result in the issuance of common stock based upon the recipient’s continuing employment
with the Company through the settlement date of the award and the relative ranking of the total stockholder return,
or TSR, of the Company’s common stock in relation to the TSR of the component companies in the NASDAQ
Biotech Index over a two-year period based on a comparison of average closing stock prices in specified periods
noted in the award agreement. The number of market-based rTSRUs awarded represents the target number of shares
of common stock that may be earned; however, the actual number of shares that may be earned ranges from 0% to
200% of the target number. The Company used a Monte Carlo simulation model to estimate the grant-date fair value
of the rTSRUs. Assumptions and estimates utilized in the calculation of the fair value of the rTSRUs include the
risk-free interest rate, dividend yield, expected volatility based on the historical volatility of publicly traded peer
companies and the remaining performance period of the award. The table below sets forth the weighted average
grant date fair value assumptions used to value the rTSRUs:
Years Ended September 30,
2016
2015
2017
Risk-free interest rate
Dividend yield
Expected volatility
Remaining performance period (years)
1.24%
0%
66%
1.99
0.94%
0%
65%
1.93
0.61%
0%
56%
1.86
The following table summarizes activity for the year ended September 30, 2017 based on a target achievement of
100%:
Weighted
Average
Grant
Date Fair
Value -
PSUs
PSUs
rTSRUs
Weighted
Average
Grant
Date Fair
Value -
rTSRUs
Unvested at September 30, 2016
Granted
Vested
Cancelled
Unvested at September 30, 2017
(in thousands, except per share data)
$
49
$
45
—
$
(24) $
$
70
33.70
35.89
35.47
35.47
34.51
$
49
45
$
(19) $
(5) $
$
70
31.74
46.11
—
25.44
43.07
The PSUs that vested in fiscal 2017 relate to awards that achieved certain research and development milestones for
which the Company recognized stock-based compensation expense during the year ended September 30, 2017.
The following table summarizes the weighted average grant date fair value of these awards granted:
Years Ended September 30,
2016
2015
2017
Weighted average grant date fair value of PSUs
granted (per unit)
Weighted average grant date fair value of rTSRUs
granted (per unit)
$
$
35.89 $
32.04 $
35.90
46.11 $
35.70 $
26.51
Restricted Stock Units
In November 2016, the Company awarded restricted stock units to its employees, of which 50% vests in three years
and 50% vests in four years, provided the employee remains employed with the Company at the time of vesting. The
fair value of these awards was determined based on the intrinsic value of the stock on the date of grant and is
recognized as stock-based compensation expense, net of estimated forfeitures, over the requisite service period. The
following table summarizes the restricted stock unit activity for the year to date period ending September 30, 2017:
F-24
Unvested at September 30, 2016
Granted
Vested
Cancelled
Unvested at September 30, 2017
Weighted
Average Grant
Date Fair
Value
Restricted
Stock
Units
(in thousands, except per
share data)
— $
112 $
— $
(2) $
110 $
—
30.00
—
30.00
30.00
Stock-Based Compensation Expense
The Company recorded the following stock-based compensation expense for the years ended September 30, 2017,
2016, and 2015:
Research and development
General and administrative
(in thousands)
$
$
4,078 $
8,993
13,071 $
2,882 $
6,472
9,354 $
1,644
4,194
5,838
Years Ended September 30,
2016
2015
2017
2017
Years Ended September 30,
2016
(in thousands)
2015
Stock options
PSUs
rTSRUs
Restricted stock units
$
$
10,442 $
668
1,267
694
13,071 $
8,661 $
—
693
—
9,354 $
5,657
—
181
—
5,838
As of September 30, 2017, the Company had an aggregate of $24,613 of unrecognized stock-based compensation
cost, which is expected to be recognized over a weighted average period of 2.2 years.
F-25
11. Net Income Per Share
Basic and diluted net income per common share was calculated as follows for the years ended September 30, 2017,
2016, and 2015:
2017
Years Ended September 30,
2016
(in thousands, except per share data)
2015
Basic net income per share:
Numerator:
Net income
Denominator:
Weighted average common shares
outstanding — basic
Net income per share common share —
basic
Diluted net income per share:
Numerator:
Net income
Denominator:
Weighted average common shares
outstanding — basic
Dilutive effect of common stock
equivalents
Weighted average common shares
outstanding — diluted
Net income per share common share —
diluted
Anti-dilutive common stock equivalents
excluded from above
$
17,710 $
21,666 $
78,992
19,066
18,929
18,673
$
0.93 $
1.14
$
4.23
$
17,710 $
21,666
$
78,992
19,066
18,929
18,673
341
295
622
19,407
19,224
19,295
$
0.91 $
1.13
$
4.09
2,161
1,475
605
The impact of certain common stock equivalents were excluded from the computation of diluted net income per
common share attributable to common stockholders for the years ended September 30, 2017, 2016, and 2015, because
those options had an anti-dilutive impact due to the assumed proceeds per share using the treasury stock method being
greater than the average fair value of the Company’s common shares for those periods.
As of September 30, 2017, 2016, and 2015, the Company excluded unvested performance stock awards from the
calculation of diluted net income per common share as these awards contain performance conditions that would not
have been achieved as of the end of each reporting period had the measurement period ended as of that date.
12. Commitments and Contingencies
Leases
The Company had an office and laboratory lease that was effective from fiscal 2011 to 2018. During the year ended
September 30, 2015, the Company amended the lease to expand the rented space and extend the lease term through
September 2022. Payment escalations specified in the lease agreement, as amended, are accrued such that rent
expense is recognized on a straight-line basis over the term of occupancy. For the years ended September 30, 2017,
2016, and 2015, the Company recognized rent expense of $2,025, $2,025, and $1,326, respectively, in the
consolidated statements of operations.
F-26
Future minimum lease payments as of September 30, 2017 are as follows:
Years Ended September 30,
Operating
Leases
Capital
Leases
2018
2019
2020
2021
2022
Thereafter
Total
$
$
$
(in thousands)
2,062
2,117
2,172
2,229
2,093
—
10,673
$
79
86
93
101
99
—
458
In connection with the current lease, the Company has an outstanding letter of credit in the amount of $608 as of
September 30, 2017 and 2016, collateralized by a money market account. As of September 30, 2017 and 2016, the
Company classified the money market account as long-term restricted cash.
The amended lease also included a $598 tenant improvement allowance from the landlord, which was accounted for
as a capital lease obligation.
Intellectual Property Licenses
The Company has a non-exclusive intellectual property license agreement with a licensor of research technology.
Under the 2012 agreement, the Company was required to pay the third party licensor an upfront license fee and
additional fees up to the third anniversary of the agreement. In addition, the Company was required to pay annual
maintenance fees for each year that the agreement remains in effect, commencing on the first anniversary of the
agreement, in order to maintain the right to use the license. During the years ended September 30, 2017, 2016, and
2015, the Company paid $115, $120 and $200, respectively, under the agreement. The license agreement was
terminated during the year ended September 30, 2017.
During the year ended September 30, 2013, the Company amended an existing license agreement to extend rights to
patents previously licensed for one of its programs for use in its HCV research. Under the license, the Company is
obligated to pay milestones totaling up to $5,000 plus low single-digit royalties, for the development and regulatory
approval of each HCV product outside of the Company’s collaboration with AbbVie and any other collaboration it
may enter into in the future with a partner that has already licensed these patents. During the year ended September
30, 2016, the Company paid a $500 milestone payment under this amended agreement as a result of the Company’s
filing to commence clinical development of its own HCV product candidate which was recorded as a research and
development expense. There were no such payments made during the years ended September 30, 2017 and 2015.
The Company has stopped further development of its own HCV product candidate.
Litigation and Contingencies Related to Use of Intellectual Property
From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the
ordinary course of business. The Company currently is not a party to any threatened or pending litigation. However,
third parties might allege that the Company or its collaborators are infringing their patent rights or that the Company
is otherwise violating their intellectual property rights. Such third parties may resort to litigation against the
Company or its collaborators, which the Company has agreed to indemnify. With respect to some of these patents,
the Company expects that it will be required to obtain licenses and could be required to pay license fees or royalties,
or both. These licenses may not be available on acceptable terms, or at all. A costly license, or inability to obtain a
necessary license, would have a material adverse effect on the Company’s financial condition, results of operations
or cash flows. The Company accrues contingent liabilities when it is probable that future expenditures will be made
and such expenditures can be reasonably estimated.
F-27
Indemnification Agreements
In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to
customers, vendors, lessors, business partners, and other parties with respect to certain matters including, but not
limited to, losses arising out of breach of such agreements, from services to be provided by the Company, or from
intellectual property infringement claims made by third parties. In addition, the Company has entered into
indemnification agreements with members of its board of directors that will require the Company, among other
things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or
officers. The maximum potential amount of future payments the Company could be required to make under these
indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs
as a result of such indemnifications. In addition, the Company maintains officers and directors insurance coverage.
The Company does not believe that the outcome of any claims under indemnification arrangements will have a
material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities
related to such obligations in its financial statements as of September 30, 2017 and 2016.
13. Income Taxes
Income before income taxes for all periods presented is from domestic operations, which are the Company’s only
operations. During the years ended September 30, 2017, 2016, and 2015, the Company recorded income tax expense
as follows:
2017
Years Ended September 30,
2016
(in thousands)
2015
Current income tax (expense) benefit:
Federal
State
Deferred income tax (expense) benefit:
Federal
State
$ (10,078) $ (12,233) $ (35,040)
(2,172)
(813)
(956)
1,503
151
(7,371)
(1,880)
(9,237) $ (10,894) $ (46,463)
2,136
159
$
A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective tax rate is as follows:
Years Ended September 30,
2016
2015
2017
Federal statutory income tax rate
State taxes, net of federal benefit
Federal research and development tax credit
Share-based compensation
Change in statutory rate
Other
Effective income tax rate
35.0%
2.7
(7.4)
4.5
—
(0.5)
34.3%
35.0%
2.7
(3.8)
2.6
—
(3.0)
33.5%
35.0%
2.6
(0.1)
0.5
0.3
(1.3)
37.0%
F-28
Net deferred tax assets as of September 30, 2017 and 2016 consisted of the following:
Deferred tax assets:
Share-based compensation
Capitalized research and development expenses
Other temporary differences
Unrealized loss
$
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Depreciation
Prepaid expenses
Unrealized gain
Total deferred tax liabilities
September 30,
2017
2016
(in thousands)
$
7,899
1,199
2,172
67
11,337
—
11,337
(1,026)
(188)
—
(1,214)
4,919
2,052
1,498
—
8,469
—
8,469
(68)
—
(11)
(79)
Net deferred income tax assets (liabilities)
$
10,123
$
8,390
The net deferred tax asset is presented as a long-term asset on the consolidated balance sheets.
After consideration of all the evidence, both positive and negative, the Company determined that no valuation
allowance is needed for all or a portion of its deferred tax assets as of September 30, 2017 because it is more likely
than not that the deferred tax assets will be realized. In subsequent periods, the Company may determine that it is
more likely than not that the deferred tax assets will not be realized and thus, a valuation allowance may be recorded
against all or any portion of its deferred tax assets on the Company’s consolidated balance sheet with a
corresponding non-cash charge to income tax expense in the consolidated statements of operations.
During the year ended September 30, 2015, the Company utilized $0 and $8,433 of federal and state net operating
loss carryforwards, respectively generated during fiscal 2014. During the year ended September 30, 2015, the
Company also utilized $4,481 and $2,214 of federal and state research and development tax credit and other credit
carryforwards, respectively, generated during 2014.
The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal
course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. The
Company’s tax years are still open under statute from 2013 to the present. Earlier years may be examined to the
extent that tax credit or net operating loss carryforwards are used in future periods. The Company has recently
received notification of examination by the Internal Revenue Service for the year ending September 30, 2016. No
adjustments have been proposed to date. The Company has not received notice of examination by any other
jurisdictions for any other tax year open under statute.
Uncertain tax positions represent tax positions for which reserves have been established. The Company’s policy is to
record interest and penalties related to uncertain tax positions as part of income tax expense. A reconciliation of the
beginning and ending amount of uncertain tax positions is summarized as follows:
F-29
Beginning Balance
Additions based on tax positions for the current period
Additions based on tax positions for prior periods
Reductions for tax positions of prior periods
Ending Balance
$
$
September 30,
2017
2016
$
(in thousands)
745
134
355
(59)
1,175
$
448
294
16
(13)
745
The Company does not expect that its uncertain tax position will materially change within the next twelve months.
14. 401(k) Plan
The Company has a 401(k) plan. This plan covers substantially all employees who meet minimum age and service
requirements. During the years ended September 30, 2017, 2016, and 2015, the Company recognized $712, $513
and $382, respectively, of expense related to its contributions to this plan.
15. Selected Quarterly Financial Data (unaudited)
Quarterly financial information for fiscal 2017 and 2016 is presented in the following table:
2017 Quarter Ended
December 31, 201
6
September 30, 201
7
Revenue (1)
Operating expenses
Other income (expense), net
Income tax (expense) benefit
Net income (loss)
Net income (loss) per common share —
basic
Net income (loss) per common share —
diluted
$
$
$
Revenue (2)
Operating expenses
Other income (expense), net
Income tax (expense) benefit
Net income (loss)
Net income (loss) per common share —
basic
Net income (loss) per common share —
diluted
$
$
$
March 31, 2017 June 30, 2017
(in thousands, except per share data)
7,511 $
20,640
600
4,103
(8,426)
8,959 $
18,465
549
3,565
(5,392)
10,417 $
17,463
524
1,542
(4,980)
(0.26) $
(0.28) $
(0.44) $
(0.26) $
(0.28) $
(0.44) $
2016 Quarter Ended
March 31, 2016 June 30, 2016
(in thousands, except per share data)
13,978 $
15,067
447
(434)
(1,076)
13,004 $
13,569
472
(1,552)
(1,645)
48,445 $
12,851
329
(9,734)
26,189
1.39 $
(0.09) $
(0.06) $
1.37 $
(0.09) $
(0.06) $
75,927
21,632
660
(18,447)
36,508
1.91
1.86
12,841
15,940
471
826
(1,802)
(0.09)
(0.09)
December 31, 201
5
September 30, 201
6
(1) During the fourth quarter of 2017, the Company recognized $65,000 in milestone revenue from AbbVie upon
achievement of commercialization regulatory approval of AbbVie’s glecaprevir-containing regimen in the
U.S. and EU
(2) During the first quarter of 2016, the Company recognized $30,000 in milestone revenue from AbbVie upon
achievement of commercialization regulatory approval of AbbVie’s paritaprevir-containing regimen in Japan.
F-30
16. Subsequent Events
In November 2017, the Company earned the remaining $15,000 milestone payment for the commercialization
regulatory approval of AbbVie’s MAVIRET in Japan, which will be reflected in the Company’s consolidated
statement of operations for the quarter ending December 31, 2017.
F-31
Corporate Headquarters
Enanta Pharmaceuticals, Inc.
500 Arsenal Street
Watertown, MA 02472
Investor Inquiries
Investor Inquiries (including requests for a copy of
Enanta’s Form 10-K) should be directed to:
Enanta Pharmaceuticals, Inc.
500 Arsenal Street
Watertown, MA 02472
Attention: Investor Relations
Phone: 617-607-0800
The 2017 Annual Report on Form 10-K and other
investor information are available free of charge in
the Investors section of Enanta’s website at
www.enanta.com.
Independent Registered Public Accounting Firm
PricewaterhouseCoopers LLP
101 Seaport Boulevard, Suite 500
Boston, MA 02210
Legal Counsel
Foley Hoag LLP
Seaport West
155 Seaport Boulevard
Boston, Massachusetts 02210
Transfer Agent
Computershare Trust Company, N.A.
250 Royall Street
Canton, MA 02021
Stock Listing
NASDAQ Global Select Market: ENTA
Web Site
www.enanta.com
Management Team
Jay R. Luly, Ph.D.
President, Director and Chief Executive Officer
Nathalie Adda, M.D.
Senior Vice President and Chief Medical Officer
Nathaniel S. Gardiner, J.D.
Senior Vice President and General Counsel
Paul J. Mellett
Senior Vice President, Finance & Administration and
Chief Financial Officer
Timothy D. Ocain, Ph.D.
Senior Vice President, New Product Strategy &
Development
Yat Sun Or, Ph.D.
Senior Vice President, Research & Development
and Chief Scientific Officer
Board of Directors
Bruce L.A. Carter, Ph.D.
Non-Executive Chairman of the Board,
Enanta Pharmaceuticals, Inc.
Former President and Chief Executive Officer,
ZymoGenetics, Inc.
Stephen Buckley, Jr.
Retired partner of Ernst & Young LLP
George S. Golumbeski, Ph.D.
Executive Vice President for Innovation,
Celgene Corporation
Jay R. Luly, Ph.D.
President and Chief Executive Officer,
Enanta Pharmaceuticals, Inc.
Kristine Peterson
Former Chief Executive Officer, Valeritas, Inc.
Lesley Russell, MBChB, MRCP
Former Chief Medical Officer, Cephalon, Inc. and
other companies
Terry C. Vance
Chief Business Officer, BioMotiv, LLC
Enanta Pharmaceuticals, Inc.
500 Arsenal Street
Watertown, MA 02472