Annual Report
2024
We are proud to report that 2024 was marked
by progress toward accomplishing many of
our goals. We made strides in advancing our
clinical-stage
candidates
for
respiratory
syncytial virus (RSV) as well as leveraging our
proven expertise in medicinal chemistry to
expand our discovery efforts in immunology.
Both our pipeline and R&D efforts underscore
our commitment to discovering and developing
novel, best-in-class medicines to transform the
lives of patients with curative therapies.
Our development programs in virology are
focused on RSV, an area of significant unmet
need with no therapies currently available.
We have two clinical-stage candidates for the
treatment of RSV — zelicapavir (EDP-938), an
N-protein inhibitor, and EDP-323, an L-protein
inhibitor. In December, we announced positive
data from a first-in-pediatrics Phase 2 study
evaluating zelicapavir in both hospitalized and
non-hospitalized children aged 28 days to 36
months with RSV. Prior to that, in September,
we reported positive data from a Phase 2a
challenge study of EDP-323. We believe the
results for EDP-323 are among the strongest
ever reported in an RSV challenge study,
raising the high bar set by zelicapavir, and
demonstrating the potential for our leading
clinical candidates in RSV to be developed as
once-daily single agents or in combination for
specific high-risk populations. Looking forward,
we expect to report results from RSVHR, our
ongoing Phase 2b study of zelicapavir in adults
with RSV infection who are at high risk of
complications, in the third quarter of 2025.
In 2024, we expanded our pipeline into an
adjacent area, immunology, where we are
concentrating on diseases with high unmet
medical need, validated targets and a clear
clinical development path. We made notable
progress as we focused on designing and
developing highly potent and selective, oral
small molecule inhibitors for the treatment
of inflammatory diseases. Specifically, in
November, we announced the selection of
EPS-1421, a novel, potent and selective oral
inhibitor of KIT, designed to treat chronic
spontaneous urticaria and other mast cell-
driven indications by depleting mast cells,
thereby addressing a primary driver of these
diseases. We plan to conduct scale-up activities
and IND enabling studies for EPS-1421 in 2025.
We also introduced a second immunology
program aimed at developing an oral treatment
of type 2 immune-driven diseases. Specifically,
we are focused on discovering oral STAT6
inhibitors for atopic dermatitis, and other
January 2025
At Enanta, we are dedicated to our mission of discovering
and developing groundbreaking small molecule drugs for
diseases with significant unmet need.
To Our Shareholders,
indications, by blocking the IL-4/IL-13 signaling
pathway, thereby addressing a primary driver
of these diseases. Enanta’s prototype inhibitors
in development demonstrate potent activity
and high selectivity for STAT6 over other
STATs in both biochemical and cellular assays.
We continue to evaluate multiple compounds
in preclinical studies and expect to select
a development candidate in the second half
of 2025.
Operationally and financially, we ended 2024
in a solid position. As of September 30, 2024,
Enanta had $248 million in cash, cash
equivalents and marketable securities, in
addition to a pending net operating loss refund
of approximately $30 million from the Internal
Revenue Service. This cash position is enhanced
by the ongoing portion of royalty revenue
from AbbVie’s sales of MAVYRET®/MAVIRET®,
which remains a leading treatment for
hepatitis C virus. In 2023, we monetized
54.5% of our royalties, and as such we still
receive 45.5% of all royalties. Through
prudent cash management, combined with
our ongoing royalties, we are able to support
our programs into fiscal year 2027. This
provides us with a strong foundation as we
execute our clinical and corporate goals,
working to deliver improved value to all our
stakeholders — patients, caregivers, physicians,
and shareholders.
As we turn the corner on 2024 and look ahead
to 2025, I believe we are in a strong position
on multiple fronts — financially, scientifically,
clinically and operationally. We enter the new
year with a continued focus on advancing our
programs in a capital efficient manner and will
also evaluate partnering opportunities. We look
forward to reporting on the next milestones
in 2025, including announcing data from our
RSVHR trial, further progressing our KIT and
STAT6 programs, and continuing to expand our
immunology portfolio.
In closing, I would like to recognize the
patients and caregivers involved in our
ongoing and completed studies. I would also
like to acknowledge our employees for their
dedication and hard work in the past year.
And again, I’d especially like to thank you, our
shareholders. We owe you our sincere gratitude
for the opportunity to execute our mission
of developing transformative medicines and
appreciate your support to do so.
Sincerely,
Jay R. Luly, Ph.D.
President and Chief Executive Officer
x
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, 2024
OR
☐
TRANS
R
ITION 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
04-3205099
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
4 Kingsbury Avenue
Watertown, Massachusetts 02472
(617) 607-0800
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offi
f ces)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
ENTA
NASDAQ
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 defin
f ed in Rule 405 of the Securities Act.
Yes ☐
No ☒
Indicate by check mark if the registrant is not required to fil
f e reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐
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
f
such shorter period that the registrant was required to fil
f e such reports), and (2) has been subj
u ect to such filin
f
g
requirements for
f
the past 90 days:
Yes ☒
No ☐
Indicate by check mark whether the registrant has submitted electronically every I
r
nteractive Data File required to be submitted pursuant to Rul
R e
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for
f
such shorter period that the registrant was required to submit such
files):
Yes ☒
No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or
an emerging growth company. See the definitions of “large accelerated filer,” “accelerated fil
f er,” “smaller reporting company,” and “emerging growth
company” in Rule 12b-2 of the Exchange Act:
Large accelerated file
f
r
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with
any new or revised fin
f ancial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has file
f
d a report on and attestation to its management’s assessment of the effe
f ctiveness of its
internal control over fin
f ancial reporting under Section 404(b) of the Sarba
r
nes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting fir
f m that
prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included
in the fil
f ing refle
f ct the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers dur
d
ing the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rul
R e 12b-2 of the Exchange Act):
Yes ☐
No ☒
The aggregate market value of the registrant’s common stock held by non-affi
f liates of the registrant as of the last business day of the registrant’s
most recently completed second fiscal quarter, March 31, 2024, based on the last reported sale price of the registrant’s common stock of $17.46 per share
was $347,379,533. The number of shares of the registrant’s Common Stock, $0.01 par value, outstanding as of November 5, 2024 was 21,194,326 shares.
DOCUMENTS INCORPORAT
R
ED BY REFERENCE
Information for
f
Part III of this Form 10-K will either (i) be incorporated by reference to portions of the registrant’s Defin
f itive Proxy Statement for
f
its 2025 Annual Meeting of Stockholders, or (ii) if the Defin
f itive Proxy is not filed with the Securities and Exchange Commission within 120 days afte
f r the
registrant’s fiscal year end of September 30, 2024, it will be provided by amendment to 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 HCV regimen consisting of tablets of glecaprevir/pi
/ brentasvir,
except where the context otherwise requires or as otherwise indicated. MAVYRET®, MAVIRET®, VIEKIRA
PAK®, VIEKIRAX® and EXVIERA
R
® are trademarks of AbbVie, Inc.
NOTE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains for
f
ward-looking statements concerning our business, operations and
financial performance and condition, as well as our plans, objectives and expectations for our business operations
and fin
f ancial 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 f
f
or
f
ward-looking statements by
terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due
d
,”
“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 fut
f ur
t
e events
and fut
f ur
t
e trends, or the negative of these terms or other comparabl
a e terminology. These for
f
ward-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, fut
f ur
t
e 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 i
r
n
which we operate and our management’s beliefs and assumptions. These forward-looking statements are not
guarantees of fut
f ur
t
e 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 actua
t
l 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 for
f
ward-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 upda
u
te or revise these for
f
ward-looking
statements for any reason, even if new infor
f
mation becomes availabl
a e in the future. You should, however, review
the fac
f
tors and risks we describe in the reports we will file from time to time with the SEC afte
f r 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, 2024
INDEX
Item No.
Page
Summary of Principal Risk Factors ..........................................................................................................
1
PART I
1.
Business ....................................................................................................................................................
3
1A.
Risk Factors...............................................................................................................................................
32
1B.
Unresolved Staff Comments .....................................................................................................................
56
1C.
Cybersecurity Risk Management and Strategy.........................................................................................
56
2.
Properties ..................................................................................................................................................
57
3.
Legal Proceedings.....................................................................................................................................
57
4.
Mine Safety Disclosures ...........................................................................................................................
57
PART II
5.
Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities .......................................................................................................................................
58
6.
Reserved....................................................................................................................................................
59
7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations...................
60
7A.
Quantitative and Qualitative Disclosures about Market Risk...................................................................
70
8.
Consolidated Financial Statements and Suppl
u
ementary Data...................................................................
70
9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...................
71
9A.
Controls and Procedures ...........................................................................................................................
71
9B.
Other Information .....................................................................................................................................
71
9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections......................................................
71
PART III
10.
Directors, Executive Officers and Corpor
r
ate Governance........................................................................
72
11.
Executive Compensation...........................................................................................................................
72
12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
72
13.
Certain Relationships and Related Transactions, and Director Independence .........................................
73
14.
Principal Accounting Fees and Services...................................................................................................
73
PART IV
15.
Exhibits and Financial Statement Schedul
d es ............................................................................................
74
16.
Form 10-K Summary ................................................................................................................................
76
Signatures..................................................................................................................................................
77
[THIS PAGE INTENTIONALLY LEFT BLANK]
1
SUMMARY OF PRINCIPAL RISK FACTORS
This summary b
r
riefly
f
states the principal risk
i
s a
k
nd uncertainties facing our business that could aff
a ect
f
our common stock,
which are only a
l
select portion of t
o
hose risks. A more complete statement of t
o
hose risks and uncertainties is set for
f
th in the
Section 1A “Ri
“
sk
i
Factors”
r
of this repor
e
t. This summary is qualifie
f d in its entirety b
t
y t
b
hat more complete statement. You
should careful
f ly read the entire statement and “Risk Fac
F
tors” when consider
d
ing the risk
i
s a
k
nd uncertainties as part of y
o
our
evaluation of a
o
n investment in our common stock.
•
We will require substantial additional funding to achieve our goals. If we do not generate sufficient fun
f
ding
from our existing collaboration and any future collaborations, we will need to obtain additional funding to
support our operations. A failure to obtain fun
f
ding when needed could for
f
ce us to delay, limit, reduce or
terminate some or all of our product development effo
f
rts.
•
Our revenues for
f
the next several years are substantially dependent upon AbbVie’s success selling
MAVYRET/MAVIRET, which includes our protease inhibitor, glecaprevir, for
f
the treatment of HCV.
•
AbbVie may continue to experience lower sales volume in fut
f ur
t
e quarters, primarily due to a reduc
d
tion in
diagnoses and treatment rates of HCV.
•
AbbVie’s MAVYRET/MAVIRET regimen will have to continue to compete successfully against other
products and therapi
a es for HCV, including competition for exclusive arrangements with third-party payors and
governmental entities as well as price competition, both in the U.S. and in other markets worldwide.
•
Beginning afte
f r June 30, 2023, 54.5% of our reported revenues represent payments that go directly to OMERS
following our April 2023 sale of that portion of our MAVYRET/MAVIRET royalties earned through June 30,
2032, subj
u ect to a cap on aggregate payments to OMERS equal to 1.42 times the purchase price.
•
Any fur
f
ther changes in royalty revenue earned under our AbbVie agreement or in the level of expenses
associated with our clinical development programs, or both, will cause our results of operations to flu
f
ctuate
from period to period. If AbbVie continues to experience lower sales volumes in future quarters combined with
research and development expenses in support of our advancing programs, we expect to have continuing
operating losses for
f
the for
f
eseeable future.
•
Many of the preclinical and clinical development activities required for
f
our product candidates must be
contracted out to contract research organizations, or CROs, at significant expense. We expect these expenses to
increase subs
u
tantially in the coming years if we are abl
a e to advance any of our compounds into registrational
clinical studi
t
es, as well as any impact of inflation, the combination of which will likely result in continuing
operating losses.
•
There are many companies developing potential therapies for RSV, SARS-CoV-2, type 2 immune and mast-
cell-driven diseases and other virology and immunology indications, which may result in others discovering,
developing or commercializing products befor
f
e we do or doing so more successful
f
ly than we do.
•
In most of the disease areas currently the subject of our research and development efforts, there are other
companies with product candidates that are more advanced than ours.
•
If we are not “fir
f st to market” or suffi
f ciently diffe
f rentiated with one of our product candidates in one or more of
our targeted disease indications, such as COVID-19, our competitive position could be compromised because it
may be more diffi
f cult for us to obtain marketing appr
a
oval for
f
that product candidate and/or market acceptance
of that product candidate as a fol
f low-on competitor.
•
Clinical drug development for
f
viral infec
f
tions and immunology indications involves a lengthy and expensive
process with uncertain timelines, uncertain outcomes and evolving clinical endpoints for regulatory approvals.
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.
•
None of our product candidates in our clinical development pipeline has yet to advance beyond Phase 2 clinical
trials.
•
Changes in regulatory r
r
equirements, policies and guidelines, including guidelines specifically addressing
requirements for
f
the development of treatments for
f
RSV, SARS-CoV-2 or other virology and immunology
2
indications could also delay the time required to reach regulatory a
r
ppr
a
oval of one or more of our product
candidates.
•
The results of clinical trials are inherently uncertain. 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, including
sufficient efficacy and an acceptable safet
f y and tolerability profile.
•
Several companies in the disease areas we are seeking to address have suffe
f red significant setba
t
cks in advanced
clinical trials due to adverse safet
f y profiles or lack of effi
f cacy, notwithstanding promising results in earlier
studi
t
es.
•
Clinical trials involving our product candidates may be suspended or terminated at any time for
f
a number of
safety-related reasons. For example, administering any product candidate to humans may produce undesirabl
a e
side effe
f cts not identifie
f d in preclinical studi
t
es.
•
We may choose to test any of our clinical candidates preclinically and/or clinically in combination with other
compounds with different mechanisms of action. 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
a
or in combination with other mechanisms of action.
•
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.
•
We could be unsuccessful in obtaining or maintaining adequate patent protection for
f
one or more of our
product candidates.
•
We are competing to develop intellectua
t
l property in areas of small-molecule drug
r
development that are highly
competitive.
•
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
f
to be invalid and/or unenfor
f
ceable, be
interpreted in a manner that does not adequately protect our products, or otherwise fail to provide us with any
competitive advantage.
•
We cannot be certain that we were the fir
f st to file patent applications on our product candidates or for
f
their
uses, or that our product candidates will not infringe patents that are currently issued or that are issued in the
future.
•
We rely on third parties to manufacture our clinical drug supplies, monitor, support, conduct and/or oversee
clinical trials of our product candidates that we develop independently.
3
PART I
ITEM 1.
BUSINESS
BUSINESS
Overview
We are a biotechnology company that uses our robust, chemistry-
r
driven approach and drug discovery capa
a
bi
a lities to
discover and develop small molecule drugs
r
with an emphasis on virology and immunology.
Virology
gy
We discovered glecaprevir, the second of two antiviral protease inhibitors discovered and developed through our
collabor
a
ation with AbbVie for the treatment of chronic infec
f
tion with hepatitis C virus
r
, or HCV. Glecaprevir is co-
formulated as part of AbbVie’s leading brand of direct-acting antiviral, or DAA, combination treatment for HCV, which has
been marketed under the tradenames MAVYRET® (U.S.) and MAVIRET® (ex-U.S.) (glecaprevir/pi
/ brentasvir) since 2017.
Our active development programs in virology are foc
f
used on respiratory s
r
yncytial virus
r
, or RSV, the most common cause of
bronchiolitis and pneumonia and leading cause of U.S. hospitalization in young children and a significant cause of
respiratory i
r
llness in older adul
d ts, with estimates suggesting that on average each year RSV leads to three million
hospitalizations globally in children under 5 years old and 177,000 hospitalizations in the U.S. in adults over the age of 65.
We also have development programs in virology for the following disease targets:
•
SARS-CoV-2, the virus that causes COVID-19, with estimates suggesting that COVID-19 continues to have a
disease burden greater than influenza, including persistent cases of infect
f
ion often referred to as long COVID
and hospitalization and death among the elderly and those with comorbidities, while new variants continue to
emerge on a regular basis; and
•
Hepatitis B virus
r
, or HBV, the most prevalent chronic hepatitis, which is estimated by the World Health
Organization to affect
f
close to 300 million individuals worldwide.
Immunology
gy
In immunology, we are designing and developing highly potent and selective, oral small molecule inhibitors for the
treatment of inflammatory disease by targeting key mechanisms of immune response. Our initial foc
f
us has been on
mechanisms involved in an overactive type 2 immune response, which is the reaction of the body's immune system when
the body detects infect
f
ions or allergens and sends out immune cells to fight them. An overactive response is a primary
r
driver of a number of infla
f mmatory d
r
iseases.
Our initial immunology targets involve the fol
f lowing mechanisms of immune response:
•
The receptor tyrosine kinase, known as KIT, which is critical for regulating mast cell activity; and
•
STAT6, a transcription fact
f
or uniquely responsible for interleukin-4 (IL-4)/interleukin-13 (IL-13) cell
signaling, the fac
f
tors that play important roles in regulating the responses of lymphocytes, myeloid cells, and
non-hematopoietic cells within the immune system.
These mechanisms are implicated, along with others, in several diseases, and it is not uncommon for
f
an effi
f cacious
treatment for one disease to be tested and approved for
f
other immunology indications. We currently plan to focus our
immunology drug
r
development efforts on the following disease indications:
•
Chronic spontaneous urticaria, or CSU, a severely debilitating, chronic infla
f mmatory skin disease manifes
f
ted
by hives, angioedema, which is swelling of soft tissues, or both, but with no identifie
f d triggers, which has an
estimated global prevalence of between 0.5% – 1% of the population, resulting in appr
a
oximately 1.75-3.5
million people with this condition at any given time in the U.S. alone; and
•
Atopic dermatitis, or AD, a chronic dermatological disease characterized by dry,
r
red, inflamed, irritated and
itchy skin with significant quality of life impacts such as leading a limited lifes
f
tyle, avoidance of social
4
interactions and a reduced range of activities, with AD affe
f cting 7.3% of the US adult population, of whom
~40% have moderate to severe disease.
As of September 30, 2024, we had $248.2 million in cash, cash equivalents and short-term marketable securities. We
believe that our existing cash, cash equivalents, and short-term marketable securities as of September 30, 2024 as well as
the cash flo
f ws from our retained portion of future HCV royalties will enable us to fund our operating expenses and capital
expenditure requirements into fis
f cal 2027. We have based this estimate on assumptions that may prove to be wrong, and we
could exhaust our availabl
a e capital resources sooner than we expect. See “Liquidity and Capital Resources.”
Because of the numerous risks and uncertainties associated with clinical development and commercialization, we are unabl
a e
to accurately predict the timing or amount of increased expenses or when, or if, we will be able to achieve or maintain
profita
f
bi
a lity. Until such time, if ever, as we can generate subs
u
tantial revenue sufficient to achieve profit
f ability, we expect to
finance our operations through a combination of equity offe
f rings, non-dilutive financings, collabor
a
ations, strategic alliances
or licensing agreements. We may be unabl
a e to raise additional funds
f
or enter into such other agreements or arrangements,
when needed, on fav
f
orable terms, or at all. If we are unabl
a e to raise capital or enter into such agreements as, and when,
needed, we may have to significantly delay, scale back or discontinue the fur
f
ther development and commercialization
effo
f
rts of one or more of our produc
d
ts, or may be forced to reduce or terminate our operations.
Our Who
W
lly-
l Owned Pro
P
gr
o
ams
Our primary wholly-owned research and development programs are in virology and immunology.
RSV. In virology, we have two clinical stage product candidates for
f
RSV – zelicapavir (formerly EDP-938) and EDP-323.
Both of these compounds are replication inhibitors that work by shutting down replication and the production of new
virions, as opposed to the other mechanism in development of fus
f
ion inhibition that only blocks viral entry.
r
Zelicapavir,
which has Fast Track designation fro
f
m the U.S. Food and Drug Administration, or FDA, is a potent inhibitor of the RSV N-
protein for
f
both major subgr
u
oups of RSV, referred to as RSV-A and RSV-B. Zelicapavir is being studied in two Phase 2
studi
t
es, each in a different high risk patient population. EDP-323, which also has a Fast Track designation from
f
the FDA, is
an inhibitor of the RSV L-protein for both major subgr
u
oups of RSV that has recently completed a Phase 2 challenge study.
t
•
Zelicapavir - N-p
N
rotein Inhibitor Can
C
didate: We have studi
t
ed zelicapavir in two Phase 2 studies that were
p
p
designed to be proof-o
f
f-concept and exploratory s
r
tudies in otherwise healthy young adul
d ts (not at high-risk for
serious outcomes with RSV) to understand the viral response in the context of RSV infection. With these
studi
t
es, zelicapavir has demonstrated a fav
f
orable safety profil
f e, consistent with that observed in over 500
subj
u ects exposed to zelicapavir to date. We believe that zelicapavir has the greatest potential to show optimal
effi
f cacy in high-risk populations since these patients have reduced RSV immunity, which manifests in a higher
and longer dur
d
ation of viral load and greater disease severity, allowing a bigger window to realize the full
potential of zelicapavir. Based on its growing safet
f y profile, we are continuing to evaluate zelicapavir in high-
risk populations, including pediatric patients and high-risk adul
d ts, all of which have significant unmet need:
Pediatri
t c Stu
S dy of Zelicapav
a
ir: RSVPEDs is a Phase 2 study
t
of zelicapavir in 96 pediatric patients, aged
y f
p
>28 days to <36 months. This dose-ranging, randomized, double-blind, placebo-controlled study,
t
is
evaluating multiple ascending doses for fiv
f e days in two age cohorts to determine safet
f y, tolerabi
a lity, and
pharmacokinetics, as well as a second part evaluating antiviral activity at the selected dose. In August
2024, we announced completion of enrollment of the RSVPEDs study.
t
We anticipate reporting topline
data in December 2024.
High-
i
Risk
i
Adul
d ts Study of Zelicapavir: We also have an ongoing Phase 2b study in high-risk adul
d ts,
g
y f
p
including those who are older than 65 years of age and those who have asthma, chronic obstruc
r
tive
pulmonary disease, or COPD, or congestive heart fai
f lure. Approximately 180 patients will be treated with
zelicapavir or placebo for
f
five days with a primary endpoint of time to resolution of RSV lower
respiratory t
r
ract disease symptoms. Enrollment is progressing and we are targeting enrollment completion
in the current Northern Hemisphere RSV season, with topline data expected in 2025.
•
EDP-
D
323 - L-protein Inhibitor Can
C
didate: Our second clinical RSV candidate, EDP-323, is a novel, oral,
p
direct-acting antiviral selectively targeting the RSV L-protein, a viral RNA
R
-dependent RNA polymerase
enzyme that contains multiple enzymatic activities required for
f
RSV replication. EDP-323 has sub-nanomolar
potency against RSV-A and RSV-B in vitro and protected mice in a dose-dependent manner fro
f
m RSV
infection as demonstrated by both virological and pathological endpoints. EDP-323 is not expected to have
cross-resistance to other classes of inhibitors and has the potential to be used alone, or in combination with
other RSV mechanisms, to broaden the treatment window or addressabl
a e patient populations. In September
5
2024, we announced positive topline results for EDP-323 in a Phase 2a challenge study
t
of healthy adults
infected with RSV. Treatment with EDP-323 achieved highly statistically significant (p=<0.0001) reductions in
both viral load and clinical symptoms compared to placebo. Overall, EDP-323 was generally well tolerated and
demonstrated a fav
f
orable safety profile
f
that was comparabl
a e to placebo over 5 days of dosing through Day 28
of follow-up. There were no serious adverse events and no discontinuations of EDP-323.
COVID-19. We leveraged our expertise in developing protease inhibitors to discover compounds specifically designed to
target the SARS-CoV-2 virus
r
and potentially other coronaviruses. We selected EDP-235, an oral inhibitor of the
coronavirus 3CL protease, also refer
f red to as 3CLpro or the main coronavirus protease, or Mpro, for
f
clinical development.
In addition to nanomolar activity against all SARS-CoV-2 variants tested to date, EDP-235 has potent antiviral activity
against other human coronaviruses, enabling the potential for
f
a pan-coronavirus treatment, including possibly coronaviruses
that may infect
f
human populations in the fut
f ur
t
e. Furthermore, EDP-235 has good tissue distribution, and is proje
o cted to
have four times higher drug levels in lung tissue compared to plasma.
•
SPRI
P
NT
I
Study of EDP-
D
235: In May 2023, we reported topline results from a Phase 2 clinical trial of EDP-235
in non-hospitalized, symptomatic patients with mild to moderate COVID-19 who were not at increased risk for
developing severe disease, which was the only study population permitted by the FDA. EDP-235 met the
primary endpoint of the trial and was generally safe a
f
nd well-tolerated.
A dose-dependent improvement in total symptom score was observed with EDP-235 treatment compared
to placebo, which achieved statistical significance (p<0.05) in the 400 mg treatment group at multiple
time points, starting as early as one day after the fir
f st dose.
An analysis of a subset of six symptoms showed a two-day shorter time (5 days to 3 days) to
improvement in patients receiving EDP-235 400 mg who were enrolled within three days of symptom
onset (p<0.01).
No effe
f ct on virologic endpoints as measured in the nose was detected due to the rapid viral decline in the
placebo arm of this highly immunologically-experienced, standard risk population.
In the subset of patients who were nucleocapsid seronegative (indicating no recent natur
t
al infection with
SARS-CoV-2), a viral load decline was observed at day five in the 400 mg group of 0.8 log overall and 1
log in the patients with symptom onset within three days befor
f
e treatment with EDP-235.
We will continue to focus on potential collabor
a
ations to progress EDP-235, as we will not advance this candidate into Phase
3 studies on our own.
Immunology. We are designing and developing highly potent and selective, oral, small molecule inhibitors targeting the
following mechanisms of immune response:
•
KIT Inhibitors. We have a preclinical stage program to develop oral KIT inhibitors to treat CSU and potentially
other indications by depleting mast cells, thereby addressing a primary driver of these diseases. We have
discovered novel, potent and selective oral KIT inhibitors, which are in preclinical development. In the four
f
th
quarter of 2024, we selected our lead development candidate, EPS-1421. This candidate demonstrates potent
nanomolar activity in both binding and cellular func
f
tion assays and is highly selective for
f
KIT versus other
kinases. This inhibitor also demonstrates strong in vitro and in vivo ADME properties. We expect to conduct
scale-up activities and IND-enabling studies for this program in 2025.
•
STAT6 Inhibitors. We have a discovery stage program to develop oral inhibitors of the signal transducer and
activator of transcription 6 transcription factor, known as STAT6, for
f
the treatment of type 2 immune driven
diseases, initially focusing on AD and potentially other indications by blocking the IL-4/IL-13 signaling
pathway, thereby addressing a primary driver of these diseases. We have discovered novel, potent and selective
oral STAT6 inhibitors, which are being optimized in the discovery stage. Our prototype inhibitors demonstrate
potent activity and high selectivity for STAT6 over other STATs in both biochemical and cellular assays. Our
prototype inhibitors also demonstrate systemic in vivo target engagement afte
f r ex vivo IL-4 stimulation. We are
continuing to evaluate multiple compounds in preclinical studi
t
es. We expect to conduct lead optimization
activities in this program in 2025.
We have utilized our internal chemistry a
r
nd drug
r
discovery capabilities to generate all of our development-stage programs.
We continue to invest subs
u
tantial resources in research programs to discover compounds targeting new disease areas.
6
Our Out-L
t
icensed Pro
P
ductst
HCV. Two protease inhibitors developed through our Collabor
a
ative Development and License Agreement with AbbVie
have been clinically tested, manufact
f
ur
t
ed, and commercialized by AbbVie as part of its combination regimens for HCV. We
have received the ful
f l $330.0 million of contractua
t
l milestone payments under the agreement related to clinical development
and commercialization regulatory a
r
ppr
a
ovals of these regimens in majo
a r markets, and we continue to earn royalties on sales
of the second generation regimen.
Glecaprevir is the HCV protease inhibitor we discovered that was developed by AbbVie in a fix
f ed-dose combination with
its NS5A inhibitor, pibrentasvir, for
f
the treatment of chronic HCV. This patented combination, currently marketed under the
brand names MAVYRET® (U.S.) and MAVIRET® (ex-U.S.), is referred to in this report as MAVYRET/MAVIRET. This
regimen is a once-daily, all-oral, fix
f ed-dose, ribavirin-free treatment for HCV genotypes 1-6, or GT1-6, which is referred to
as being pan-genotypic. In the U.S., EU and Japan it is approved as an 8-week treatment for patients with and without
compensated cirrhosis and new to treatment. Today, these patients are estimated to represent the majo
a rity of HCV patients
in over 50 countries where MAVYRET/MAVIRET is sold by AbbVie and where MAVYRET/MAVIRET remains the only
8-week pan-genotypic HCV treatment. The first protease inhibitor developed through this collabor
a
ation, paritapr
a
evir, is part
of Abbvie’s initial HCV regimens, which have been almost entirely replaced by MAVYRET/MAVIRET. Since August
2017, subs
u
tantially all of our royalty revenue has been derived from AbbVie’s net sales of MAVYRET/MAVIRET. Our
ongoing royalty revenues fro
f
m this regimen consist of annually tiered, double-digit, per-product royalties on 50% of the
calendar year net sales of the 2-DAA glecaprevir/pi
/ brentasvir combination in MAVYRET/MAVIRET. The annual royalty
tiers return to the lowest tier for
f
sales on and afte
f r each January 1. In April 2023, we sold 54.5% of our fut
f ur
t
e
MAVYRET/MAVIRET royalties for
f
a $200.0 million cash payment, subject to a cap of total royalties sold equal to 1.42
times the cash payment.
Our Strategy
Our primary objective is to become a leader in the discovery and development of small molecule drugs
r
with an emphasis on
first-in-disease treatments for
f
RSV and best-in-class small molecule treatments for
f
diseases with significant unmet medical
needs in immunology. Our strategy includes the following key elements:
•
Adva
d
nce clinical development of n
o
ovel virology product candidates for RSV.
V We have ongoing clinical studi
t
es
of two compounds discovered in our research program in RSV, a viral infection for
f
which there is currently no
availabl
a e effective treatment and as such there exists a substantial unmet medical need.
•
Adva
d
nce our preclinical immunology portfol
f io of novel, o
l
ral inhibitors of targets f
t
or
f
the treatme
t
nt of type
y
2
infl
n ammatory dise
i
ases. We have ongoing discovery and preclinical effo
f
rts targeting multiple mechanisms of the
immune response, including KIT, addressing mast cell driven diseases, with an initial foc
f
us on CSU. We also
have a discovery stage program targeting the STAT6 pathway, with an initial foc
f
us on AD.
•
Invest in research and development of c
o
ompounds
m
in new disease areas. We are continuing to invest resources
in our research programs in our effo
f
rts to identify a
f
nd advance additional novel compounds that have the
potential to address significant unmet medical needs in new disease areas. We may also explore clinically other
virologic or immunologic diseases where our assets could play a role. 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.
•
Collaborate or out-license, where and when appropriate, with pharmaceutical partners t
r
o accelerate the
development and commercialization of o
o
ur proprietary compounds and/or
/
create combination the
t
rapi
a es. We
may choose to collabor
a
ate with other companies to accelerate the global clinical development of one or more of
our product candidates. We are also prepared to join for
f
ces, where and when appr
a
opriate, with collaborators
with compounds targeting other mechanisms of action in diseases where there is the potential for better
treatments with combination therapi
a es, as we did in HCV. Our decisions regarding our proprietary programs
will be based on the results of our clinical studi
t
es and the potential for collabor
a
ations, including combinations
with one or more drugs
r
targeting other mechanisms of action in these diseases.
•
Continue to use our existing resources and future cash flow from our AbbVie
V
collaboration to fund
f
our
research and development activities. We believe our existing financial resources as well as the cash flows from
f
our retained portion of fut
f ur
t
e HCV royalties will enable us to fund our research and development programs into
fiscal 2027. These resources will allow us to continue to advance compounds in clinical development and to
progress the most promising candidates at least through proof-o
f
f-concept trials. Further development of any
compound as a monotherapy
a
or in combinations with other therape
a
utic agents when we believe such
combinations will provide the most promising opportunities will require additional fin
f ancial resources.
7
Our Research and Development Pipeline
The fol
f lowing tabl
a e summarizes our product development pipeline in our virology and immunology programs:
*Fixed-dose antiviral combination contains glecaprevir and AbbVie's NS5A inhibitor, pibrentasvir. Marketed by AbbVie as MAVYRET® (U.S.) and
MAVIRET® (ex-U.S.).
**Continued development dependent on partnering.
***Initial indications. Potential fut
f ur
t
e indications include asthma, chronic inducible urticaria (CIndU), eosinophilic esophagitis (EoE), prur
r
igo nodularis (PN) and
others.
Our RSV Program
Backgr
k
ound and Overview of R
o
SV
Respiratory s
r
yncytial virus
r
, or RSV, is a virus that infect
f
s the lungs and is the most common cause of bronchiolitis and
pneumonia in young children and a significant cause of respiratory i
r
llness in older adul
d ts, with estimates suggesting that on
average each year RSV leads to three million hospitalizations globally in children under 5 years old and appr
a
oximately
177,000 hospitalizations in the U.S. in adults over the age of 65. There are currently no safe and effective therapi
a es for RSV
infection.
Synagis, a prophylactic, monoclonal antibody-based treatment is approved for
f
infants considered at high risk for RSV
infection; however, studies have found that most young children with RSV infect
f
ion were previously healthy, and thus
would not normally be prescribed this prophylactic treatment. AstraZeneca and Sanofi (
f
BEYFORTUS®) have long-acting
monoclonal antibody products recently approved for
f
prophylaxis use in all infants and for those at risk up t
u
o 24 months of
age and Merck (clesrovimab)
a
has a similar antibody that has completed Phase 3 development. A maternal vaccine has been
approved for
f
inje
n ction in women at 32-36 weeks (U.S.) & 24-36 weeks (EU) of pregnancy dur
d
ing September through
January (ABRYSVO®/Pfizer). In addition, two RSV vaccines have been appr
a
oved in adults older than 60 years old
(ABRYSVO®/Pfizer and Moderna/mRESVIA®) and approved RSV vaccine for
f
adul
d ts over 50 years of age
(GSK/A
K
REXVY®).
While prophylaxis options have recently become availabl
a e, there is still significant unmet need for safe a
f
nd effe
f ctive
antiviral treatments in patients at high-risk for serious outcomes of RSV. The adoption of vaccines in the elderly population
is likely to be sub-optimal, especially as they are often only recommended with shared clinical decision-making. For
perspective, universally recommended vaccines in this population have peak adoption rates from ~35% (shingles) to ~55%
(flu). However, even with adoption, breakthrough infections will still occur, as vaccine efficacy is not complete. In the
pediatric population, both the maternal vaccine and the prophylactic antibody approaches provide only passive immunity,
which only lasts for a limited period of time and will just shift t
f
he time of fir
f st RSV infect
f
ion to the next season. Similarly,
uptake of these options will not be optimal and breakthrough infections will still occur in the population that does receive
them. Finally, the antibody approach has a low barrier to the development of viral resistance. Thus, despite these options for
prophylaxis, antiviral treatments are urgently needed.
Scientif
t ic
f
Backgr
k
ound
RSV is a single-stranded, negative-sense RNA
R
virus. There are two major subgr
u
oups of RSV, designated RSV-A and RSV-
B, each of which contains numerous genotypes. Both groups are viewed as capable of causing RSV infec
f
tions that can
result in hospitalization. The RSV genome consists of ten genes that encode for 11 proteins, namely NS1, NS2, N, P, M,
8
SH, G, F, M2-1, M2-2, and L. The F and G proteins are the predominant target proteins for
f
RSV vaccines. Similarly, small
molecule therapeutics have foc
f
used primarily on the F (or fus
f
ion) protein, while some effo
f
rts have targeted the N
(nucleocapsid) and L (contains viral RNA polymerase) proteins. Fusion inhibitors work by blocking viral entry, a
mechanism that may be less ideal when treatment begins at a time when massive amounts of viral replication is already
ongoing. Additionally, fus
f
ion inhibitors have been generally shown to have a lower barrier to the development of viral
resistance when in clinical use. Replication inhibitors (e.g., N and L inhibitors) work by blocking viral replication at its
source, stopping the production on new virions. They have demonstrated a higher bar to the emergence of viral resistance.
While most companies are developing potential appr
a
oaches geared toward the F-protein (or fus
f
ion protein, responsible for
mediating viral entry o
r
f RSV into host cells), we are foc
f
used on mechanisms, such as the N-protein and L-protein inhibitors,
that target the replication process of RSV directly.
Competit
t iv
t e Landscape
a
Several companies are seeking to develop antiviral treatments for
f
RSV infec
f
tion in adult and pediatric patients. Ark
Biosciences and Shionogi have compounds in clinical development.
There are several prophylaxis options on the market or in development. AstraZeneca/Sanofi (
f
BEYFORTUS®) and Merck
(clesrovimab – P
a
hase 3 complete) are developing long-acting monoclonal antibodies for prophylaxis use in infan
f
ts, and
Pfiz
f er has an appr
a
oved maternal vaccine (ABRYSVO®), all of which provide passive, short-term immunity to infants.
Sanofi i
f
s also evaluating a vaccine in infants and toddlers (RSV vaccine – Phase 3). There are also two approved RSV
vaccines for
f
adul
d ts over 60 years of age (Pfizer/ABRYSVO® and Moderna/mRESVIA®) and one approved RSV vaccine for
adul
d ts over 50 years of age (GSK/AREXVY®).
Zelicapav
a
ir, O
r
ur N-Pr
-
otei
t n I
i
nh
I
ibitor
t
Through our internal chemistry e
r
ffor
f
ts, we identifie
f d our lead clinical candidate, zelicapavir (formerly EDP-938). During
preclinical studi
t
es, zelicapavir demonstrated a greater than 4-log reduc
d
tion in viral load in an animal model challenged with
RSV. Further, zelicapavir maintained nanomolar antiviral potency across all clinical isolates tested in vitro, as well as virus
r
that was resistant to fusion inhibitors. The compound inhibited RSV at a post-entry r
r
eplication step and maintained its
activity in vitro when given 24 hours post infect
f
ion. It was also shown to have a high barrier to viral resistance. In addition,
combination studies of zelicapavir with other types of RSV inhibitors, such as fus
f
ion inhibitors, showed synergistic antiviral
effe
f cts.
We have studi
t
ed zelicapavir in two Phase 2 studies that were designed to be proof-o
f
f-concept and exploratory s
r
tudies to
understand the viral response better in the context of RSV infection. These studies were conducted in otherwise healthy
adul
d ts (not at high-risk for serious outcomes with RSV) infec
f
ted with RSV. Data from these studi
t
es demonstrated that
zelicapavir was safe a
f
nd well-tolerated. Based on the growing safety profil
f e of zelicapavir and diffe
f rences in the range of
the course of RSV infec
f
tion in higher risk populations, which have always been our target populations, we have continued
9
the development of zelicapavir in patients at high-risk for developing severe infection leading to hospitalization or
death. We believe zelicapavir has the greatest potential to show optimal efficacy in these high-risk populations with
significant unmet need, since these patients have reduc
d
ed RSV immunity, which manifests in a higher and longer dur
d
ation
of viral replication and greater disease severity, allowing a bigger window to realize the full potential of zelicapavir.
There are now two Phase 2b stud
t
ies of zelicapavir is in high-risk populations, including pediatric patients and high-risk
adul
d ts, all of which have significant unmet need.
•
Pediatric Study of Zelicapavir: RSVPEDs is our Phase 2 study
t
in 96 pediatric patients, aged >28 days to <36
months. This dose-ranging, randomized, double-blind, placebo-controlled study, is evaluating multiple
ascending doses for fiv
f e days in two age cohorts to determine safet
f y, tolerabi
a lity, and pharmacokinetics, as well
as a second part evaluating antiviral activity at the selected dose. In August 2024, we announced completion of
enrollment of the RSVPEDs study. We anticipate reporting topline data in December 2024.
•
High-Risk Adults Study of Zelicapavir: We also have a Phase 2b study
t
in high-risk adul
d ts, including those
who are older than 65 years of age and those who have asthma, chronic obstruc
r
tive pulmonary disease, or
COPD, or congestive heart fai
f lure. Approximately 180 patients will be treated with zelicapavir or placebo for
f
five days with a primary endpoint of time to resolution of RSV lower respiratory tract disease symptoms.
Enrollment is progressing and we are targeting enrollment completion in the current Northern Hemisphere RSV
season with topline data in 2025.
EDP-
D
323, Our RSV L-Pr
-
otei
t n I
i
nh
I
ibitor:
In addition to our N-protein inhibitor, zelicapavir, our second clinical candidate for RSV is EDP-323, a novel oral, direct-
acting antiviral selectively targeting the RSV L-protein, a viral RNA-dependent RNA polymerase enzyme that contains
multiple enzymatic activities required for
f
RSV replication. EDP-323 has sub-nanomolar potency against RSV-A and RSV-
B in vitro and has protected mice in a dose-dependent manner fro
f
m RSV infection as demonstrated by both virological and
pathological endpoints. EDP-323 is not expected to have cross-resistance to other classes of inhibitors and has the potential
to be used alone, or in combination with other RSV mechanisms, to broaden the treatment window or addressabl
a e patient
populations.
We completed a Phase 1 clinical study
t
of EDP-323 in June 2023. This randomized, double-blind, placebo-controlled, first-
in-human Phase 1 study
t
enrolled healthy volunteers to evaluate the safely, tolerability and pharmacokinetics of oral EDP-
323 over a range of single ascending dose (SAD ranging from 50 to 800 mg, n=50) and multiple ascending doses (MAD
ranging from 200 to 800 mg for seven days, n=32) in fasted and fed
f
states. Overall, EDP-323 was generally safe and well-
tolerated up t
u
o 800 mg for up t
u
o seven days, where most adverse events (AEs) were mild, and there were no serious or
severe AEs. There was one study
t
discontinuation due to syncope, in the SAD/FE group, which was deemed unlikely to be
related to EDP-323. In the MAD phase, three AEs deemed possibly related to EDP-323 were mild, with two headaches and
one gastrointestinal event. There were no discontinuations due to AEs in the MAD phase. EDP-323 displayed
pharmacokinetics supportive of once daily dosing without regard to food. EDP-323 doses ranging from 200 to 800 mg
once-daily resulted in strong EC90 multiples against both RSV-A and RSV-B strains. Specifically, EDP-323 administered
once daily for seven days resulted in C24 (C-trough) concentrations at steady state of 11- to 44-fold over the protein
adju
d sted EC90 (0.3 nM) against both RSV-A and RSV-B strains.
10
In September 2024, we announced positive top-line results for EDP-323 in a Phase 2a human challenge study.
t
This study
t
was a randomized, double-blind, placebo-controlled, human challenge study
t
of 142 healthy adult participants inoculated
with RSV. Randomized participants (n=141) received either a once-daily (QD) 600 mg dose of EDP-323 for fiv
f e days
(high dose, n=47), a single 600 mg loading dose on day one followed by a 200 mg once-daily (QD) dose of EDP-323 for
four days (low dose, n=47), or placebo for fiv
f e days (n=47). The intent-to-treat-infect
f
ed population (ITT-I) was defin
f ed as
all randomized participants receiving challenge virus and at least one dose of study drug
r
with confir
f med RSV
infection. EDP-323 demonstrated a rapid and sustained antiviral effe
f ct. A highly statistically significant reduc
d
tion
(p<0.0001) was observed for
f
the primary effi
f cacy endpoint of area under the curve, or AUC, for
f
viral load as measured by
qRT-PCR in the ITT-I population for
f
each of the EDP-323 dosing groups as compared with placebo. Specifically, EDP-323
lowered viral load AUC by 85% in the high dose arm and 87% in the low dose arm compared to placebo. There was no
statistically significant diffe
f rence between the two EDP-323 dosing groups.
Primary E
r
ffi
E
cacy Endpoint: 85-87% Decrease in Viral Load AUC b
U
y q
b
RT-P
T
CR
A highly statistically significant reduc
d
tion (p<0.0001) was observed for
f
the secondary effi
f cacy endpoint of AUC for
f
infectious viral load as measured by quantitative culture in the ITT-I population for
f
each of the EDP-323 dosing groups,
with a reduc
d
tion in viral culture AUC by 98% in the high dose arm and 97% in the low dose arm compared to placebo.
There was no statistically significant diffe
f rence between the two EDP-323 dosing groups.
11
Secondary E
r
ff
E ic
f acy E
c
ndpoi
E
nt: 97-98% Decrease in Viral Load AUC b
U
y V
b
ir
V al Culture
For the secondary effi
f cacy endpoint of AUC for
f
total symptom score, a highly statistically significant reduc
d
tion (p<0.0001)
was observed in the ITT-I population for
f
each of the EDP-323 dosing groups, with a symptom reduction of 66% in the high
dose arm and 78% in the low dose arm compared to placebo. There was no statistically significant diffe
f rence between the
two EDP-323 dosing groups.
Secondary E
r
ff
E ic
f acy E
c
ndpoi
E
nt: 66-78% Reduction in Symptoms
EDP-323 demonstrated favorabl
a e pharmacokinetics, suppor
u
tive of once-daily dosing. Mean trough plasma concentrations
were maintained at 16-fold above the protein-adjusted EC90 with the low dose, and 35-fold above the protein-adjusted
EC90 with the high dose, for both RSV A and B strains. In addition, EDP-323 demonstrated a fav
f
orable safety profil
f e over
a 5-day dosing period and through 28 days of follow-up. Adverse events, or AEs, were similar between EDP-323 dosing
groups and placebo. There were no serious adverse events, no severe adverse events, and no adverse events leading to
treatment discontinuation or study withdrawal.
12
EDP-
D
323 Safet
f y P
t
rofile
o
Our Immunology Programs
In immunology, we are designing and developing highly potent and selective, oral small molecule inhibitors for the
treatment of inflammatory disease by targeting key mechanisms of driving immune response. Our initial focus has been on
diseases driven by an overactive type 2 immune response. Type 2 immune responses are characterized by the
overproduction of interleukin-4 (IL-4), interleukin-5 (IL-5), interleukin-13 (IL-13), and Immunoglobulin E (IgE), through
the activation of T helper 2 (Th2) cells, CD4+ T cells, B cells, and innate cellular response consisting of mast cells, ILC2s,
eosinophils, basophils, and IL-4 and/or IL-13-activated macrophages. This immune response is a cruc
r
ial part of the body’s
defense mechanism; however, an overactive response is the primary driver of a number of infla
f mmatory diseases, including
AD, urticarias, asthma, eosinophilic esophagitis (EoE), prur
r
igo nodularis (PN), chronic rhinosinusitis with nasal polyps
(CRSwNP), as well as some forms of chronic obstruc
r
tive pulmonary disease (COPD) and other conditions.
Our initial targets include the receptor tyrosine kinase, known as KIT, which is critical for regulating mast cell activity.
KIT inhibitors may have potential in the treatment of CSU and other mast-cell-driven diseases. We are also targeting
STAT6, a transcription fac
f
tor responsible for IL-4/IL-13 signaling, which drives a Th2 dominant phenotype. STAT6
inhibitors may have potential in the treatment of AD and other type 2 immune driven phenotypes.
13
Background and Overview of CSU
CSU is a severely debilitating, chronic infla
f mmatory skin disease with no identifie
f d triggers. Clinical manifestations include
hives, angioedema, or both. Hives are variable in size and shape
a
and are characterized by swelling, itchiness, and/or a
burning sensation. Angioedema is characterized by pronounced deep tissue swelling along with tingling, burning, tightness
and sometimes pain. Patients with CSU also experience symptoms beyond skin manifestations, including sleep
distur
t
ba
r
nces, fat
f igue, irritabi
a lity, anxiety and depression and can affe
f ct performance at work or school. CSU is typically a
self-l
f imiting disorder, persisting for 2–5 years although some reports estimate that more than half of patients suffe
f r for
f
more
than 5 years. CSU may also recur afte
f r months or years of ful
f l remission. CSU impacts twice as many women as men, with
an estimated global prevalence between 0.5% – 1% of the population, which means that at any given time in the U.S. alone
approximately 1.75-3.5 million people are experiencing this condition. The peak age of diagnosis is during the core years of
working age, 20 – 40 years old. Standard of care treatment for CSU is antihistamines, however in approximately half the
patients, symptom alleviation is not adequate. There is a substantial unmet need for an efficacious oral agent as only a
minority of these uncontrolled cases are treated with one indicated biologic (<28%), which does not fully relieve symptoms
for most patients, likely in part due
d
to impacting only IgE-dependent activation pathways.
Scientif
t ic
f
Backgr
k
ound
Our appr
a
oach to treating CSU is to directly target mast cells which are the root cause of pathology in multiple diseases.
Mast cells are tissue-resident immune cells (e.g., skin, lung or GI) that can be activated through various cell surface
receptors, resulting in a signaling cascade that leads to degranulation and release of tryptase, histamine and other
inflammatory mediators. This release of infla
f mmatory mediators fro
f
m mast cells and subsequent propagation of a type 2
inflammatory response has been implicated in multiple infla
f mmatory d
r
iseases, including chronic urticaria, prurigo
nodularis, eosinophilic esophagitis, asthma, and AD. Current therapi
a es modulate only a small subset of either mast cell
stimulants or the downstream mediators of infla
f mmation that mast cells produce (e.g., antihistamines), but do not address
the underlying cause of disease, as they do not directly affe
f ct mast cells themselves.
We are targeting mast cells by inhibiting KIT, a central regulator of mast cell development and activation. KIT provides
pro-survival signals critical to mast cell survival and, therefor
f
e, the inhibition of KIT signaling leads to rapid mast cell
inactivation and depletion through apo
a
ptosis, thereby directly reducing the quantity of mast cells availabl
a e to drive
pathology. Clinical proof of concept for
f
this approach has been demonstrated with positive phase 2 data for
f
an anti-KIT
monoclonal antibody in CSU. Data suggest the potential for
f
best-in-disease efficacy with the mechanism, and a reasonabl
a e
safety profil
f e.
Competit
t iv
t e Landscape
a
There are a number of diffe
f rent mechanisms being explored for the treatment of CSU, including inhibitors of IL-4R, IgE,
Brut
r on’s tyrosine kinase, or BTK, SIGLEC-6, and MRGPRX2. Specifically for KIT inhibitors, there are companies with
antibodies in development, including Celldex (barzolvolimab -
a
Phase 3) and Jasper (briquilimab -
a
Phase 1b/2a), as well as
companies with oral, small molecules in early clinical development (Third Harmonic and Blueprint) or preclinical
development (Arcus and Alivexis). There are two oral MRGPRX2
R
inhibitors in early clinical development for
f
urticaria from
Incyte (INCB000262 - Ph2 CSU and Ph1b chronic inducible urticaria (CIndU)) and Evommune (EVO756 - Ph2 CIndU), in
addition to oral MRGPRX2 molecules in preclinical development (Septerna).
Our KIT
K
program
We have a preclinical stage program to develop oral KIT inhibitors to treat CSU and potentially other indications by
depleting mast cells, thereby addressing a primary driver of these diseases. We have discovered novel, potent and selective
oral KIT inhibitors and, in the four
f
th quarter of 2024, we selected our lead development candidate, EPS-1421. This
candidate demonstrates potent nanomolar activity in both binding and cellular func
f
tion assays and is highly selective
(>500x) for KIT versus other kinases. This inhibitor also demonstrates strong in vitro and in vivo ADME properties, with a
good pharmacokinetic, or PK, profile
f
across multiple preclinical species, and a low potential for
f
drug-
r
drug
r
interactions. We
expect to conduct scale-up activities and IND-enabling studies for this program in 2025.
Background and Overview of AD
AD is a chronic dermatological disease characterized by dry,
r
red, inflamed, irritated and itchy skin, and has significant
quality of life i
f
mpacts such as leading a limited lifes
f
tyle, avoidance of social interactions and impacted activities. The
disease affects an estimated 7.3% of the US adult population and approximately 40% of those have moderate to severe
disease. The majority (>90%) of moderate to severe patients are treated with an IL-4/IL-13 monoclonal antibody (e.g.,
DUPIXENT® (dupi
d
lumab)
a
) despite modest effi
f cacy, while a minority (<10%) are treated with an oral janus kinase, or JAK
inhibitor (e.g., RINVOQ® (upa
u
dacitinib)) due to safety concerns (black box warning for
f
serious infections, mortality,
malignancy, MACE, and thrombosis). Thus, there is a significant need for an efficacious and safe o
f
ral agent.
14
Scientif
t ic
f
Backgr
k
ound
Dysregulation of the Th2 immune response drives many allergic and autoimmune diseases, including AD and asthma,
which is characterized by an overproduction of IL-4 and IL-13. STAT-6 is a transcription factor predominantly expressed in
immune and epithelial cells that is responsible for IL-4/IL-13 signaling, which results in a Th2 dominant phenotype.
Evidence for STAT6 as a key driver of AD and asthma is the presence of STAT6 gain-of-fu
f
nction variants resulting in
severe AD and STAT6 loss-of-fu
f
nction variants protect against type 2 high asthma. Furthermore, clinical validation of this
pathway exists in a number of immunology indications from anti-IL-4/13 monoclonal antibodies and JAK inhibitors, which
block the IL-4/13 signaling pathway. Our STAT6 inhibitor program offe
f rs the potential for
f
an “oral Dupixent”, as it directly
blocks IL-4/IL-13 signaling, reduces infla
f mmation in Th2 driven preclinical models and no oral therapi
a es selectively
targeting this pathway are currently availabl
a e.
Competit
t iv
t e Landscape
a
The moderate-severe AD treatment landscape
a
is dominated by biologics targeting the IL-4 and/or IL-13 pathway (e.g.,
DUPIXENT® (dupi
d
lumab)
a
and ADBRY® (tralokinumab-ldrm)), with JAK inhibitors (e.g., RINVOQ® (upa
u
dacitinib) and
CIBINQO® (abr
a
ocitinib)) as the only oral option. Multiple oral mechanisms are in development, including inhibitors of
MRGPRX2, IRAK4
R
, STAT6, RAS
R
P and PKM2. The latest stage oral assets are in Ph2 (Incyte MRGPRX2 – Ph2a;
Sanofi/K
f
ym
K
era IRAK4 – Ph2). For STAT6 inhibitors specific
f ally, companies with oral assets in development include
Kymera (KT-621 – Phase 1) and Sanofi/
f Recludix (preclinical).
Our STAT6 program
We have a discovery stage program to develop oral STAT6 inhibitors to treat AD and potentially other indications by
blocking the IL-4/IL-13 signaling pathway, thereby addressing a primary driver of these diseases. We have discovered
novel, potent and selective oral STAT6 inhibitors, which are being optimized in the discovery stage. Our prototype
inhibitors demonstrate potent activity and high selectivity for STAT6 over other STATs in both biochemical and cellular
assays. Our prototype inhibitors also demonstrate systemic in vivo target engagement afte
f r ex vivo IL-4 stimulation. We are
continuing to evaluate multiple compounds in preclinical studi
t
es. We expect to conduct lead optimization activities in this
program in 2025.
Our Out-Licensed HCV Protease Inhibitor Products
Backgr
k
ound and Overview of H
o
CV
H
Market
HCV is a virus that is a common cause of viral hepatitis, an infla
f mmation of the liver. HCV is typically contracted by
contact with the blood or other body fluids of another individual infec
f
ted with HCV. HCV is a leading cause of chronic
liver disease, including cirrhosis, liver failure and cancer, and the leading cause of death fro
f
m liver disease in the United
States. HCV disease progression occurs over a period of 20 to 30 years, with the majority of HCV-infec
f
ted individuals
generally exhibiting no majo
a r symptoms in the early stages of the disease. Therefor
f
e, until a major symptom is diagnosed,
many individuals are unaware they are infec
f
ted and live undiagnosed without seeking treatment. For that reason, combined
with the new availabi
a lity of effe
f ctive treatments for
f
HCV, the United States Centers for Disease Control and Prevention, or
CDC, issued new guidelines in 2013 recommending screening for
f
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 58 million people worldwide are chronically infected with HCV and have an increased risk of eventua
t
lly
developing liver cirrhosis or liver cancer. Approximately 290,000 people die every y
r
ear fro
f
m HCV-related liver diseases.
According to the CDC, the incidence rate of acute HCV has increased 15% since 2019, with an estimated 66,700 new
infections in 2020, the most recent year for which the CDC has published data. During 2020, 41 states reported a total of
107,300 newly identifie
f d chronic HCV cases in 2020, corresponding to 40.7 chronic HCV cases per 100,000. HCV-
associated deaths during 2020 increased 4% (3.45 deaths per 100,000 people), compared to 2019 (3.33 deaths per 100,000
people). We believe that the chronically infected population remains significantly untreated, even with the introduc
d
tion of
several new treatment regimens beginning in 2013.
The appr
a
oved treatments for
f
HCV have provided significant benefit to HCV patients. To date, these treatments have cure
rates appr
a
oaching 100% in several subpopulations. Medical practice defin
f es a “cure” as the point at which there is no
quantifia
f bl
a e virus
r
in a patient’s blood for a sustained period of time after cessation of therapy,
a
which is often referred to as a
sustained virologic response, or SVR. For AbbVie’s MAVYRET/MAVIRET regimen, the majority of chronic HCV
patients only require 8 weeks of treatment compared to 12 weeks with other HCV regimens, including Gilead’s EPCLUSA®
and HARVONI® in almost all HCV genotypes.
Since the introduction of Gilead’s Harvoni® and AbbVie’s VIEKIRA P
R
AK® in late 2014, the reported worldwide sales of
the leading HCV therapi
a es have declined from $23 billion in 2015 to $3.2 billion in 2023. Through the fir
f st nine months of
calendar 2024, reported worldwide net sales were $2.3 billion. HCV sales have declined since their peak in 2015 due to
15
payers obtaining additional discounts, competitive market dynamics and a decline in the number of patients treated annually
afte
f r the initial wave of diagnosed chronic HCV patients who had urgency for treatment. Despite the high numbers of HCV
patients that have been successful
f ly treated, there remains a large population of chronic HCV-infect
f
ed patients who have yet
to be treated with one of the newer “high cure” regimens. In addition, and as noted above, new HCV infect
f
ions (principally
in association with IV drug
r
use) are an ongoing target population for
f
treatment.
COVID-19 has also impacted new HCV patient volumes, HCV diagnoses, HCV prescriptions and sales of
MAVYRET/MAVIRET worldwide. While new HCV infections are continuing, at this time it is uncertain when and the
extent to which treatment of new HCV patients and revenues will return to pre-COVID-19 levels.
Our Out-L
t
icensed Pro
P
ducts i
t
n A
i
bbVie
V ’s Marketed
t
Therapies
Gleca
l
pr
a
eviri - Our protease inhibitor, glecaprevir, which is part of the latest HCV regimen fro
f
m AbbVie, was developed by
AbbVie in combination with pibrentasvir, AbbVie’s second NS5A inhibitor. This co-formulated combination, marketed
under the tradenames MAVYRET® (U.S.) and MAVIRET® (ex-U.S.), contains two novel DAAs that target and inhibit
proteins essential for
f
the replication of HCV. MAVYRET/MAVIRET is appr
a
oved in the U.S., EU, Japa
a
n and numerous
other countries globally as an 8-week, pan-genotypic, fixed-dose combination treatment, dosed once-daily as three oral
tabl
a ets, 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
f
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, or CKD, or those with genotype 3 chronic HCV.
MAVYRET/MAVIRET is appr
a
oved for
f
use in patients across all stages of CKD with any of the majo
a r HCV genotypes
(GT1-6). The app
a
rovals of MAVYRET/MAVIRET are suppor
u
ted by data fro
f
m 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:
•
8 weeks f
k
or
f
treatment-n
t
aïve,
ï
non-cirr
i ho
r
tic patie
t nts:
t
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 majo
a r genotypes (GT1-6) achieved sustained virologic response at 12 weeks post-treatment, refer
f red
to as SVR12, with just 8 weeks of MAVYRET/MAVIRET treatment.
•
8 weeks f
k
or
f
GT-3
T
: Data from AbbVie’s ENDURANC
R
E-3 study were presented at the 2017 ILC, demonstrating
that 95% of patients with challenging-to-treat, genotype 3, or GT3, chronic HCV infection, without cirrhosis
and new to treatment, achieved SVR12 afte
f r 8 weeks of treatment with MAVYRET/MAVIRET.
•
8 weeks f
k
or
f
compensated cirrhosis: Based on data fro
f
m AbbVie’s EXPEDITION-8 study,
t
which demonstrated
that with 8 weeks of MAVYRET treatment, 100 percent (n=273/273) of genotype 1, 2, 4, 5 and 6 patients
achieved a sustained virologic response 8 weeks after treatment (SVR8) per protocol analysis. Based on this
data and a second cohort of the study
t
in GT3 chronic HCV-infect
f
ed patients, MAVYRET is now approved for
f
all genotypes with compensated cirrhosis in the U.S.
•
12 weeks w
k
ith c
t
hronic kidney dise
i
ase: Results were also presented fro
f
m AbbVie’s EXPEDITION-4 study
t
in
chronic HCV patients with chronic kidney disease, or CKD, in which 98% of patients (n=102/104) across all
majo
a r genotypes (GT1-6) achieved SVR12 with 12 weeks of treatment with MAVYRET/MAVIRET.
Parita
i pr
a
eviri - The first protease inhibitor developed through our collabor
a
ation with AbbVie, paritaprevir, is part of
AbbVie’s 3-DAA regimen approved for
f
the treatment of genotype 1 and 4 HCV patients. This 3-DAA combination was
sold as VIEKIRA P
R
AK® (paritapr
a
evir/r
r itonavir/ombitasvir/d
r asabuvir) in the U.S. fro
f
m December 2014 to December 2018,
and as VIEKIRAX®+EXVIERA
R
® in most other jurisdictions, for
f
non-cirrhotic patients and those with early stage, or
compensated, cirrhosis. These regimens have been almost entirely replaced by MAVYRET/MAVIRET.
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 intellectua
t
l property, including several issued
U.S. patents, relating to protease inhibitors. We also granted AbbVie access to our drug
r
discovery capabilities in the HCV
NS3 and NS3/4A protease inhibitor fie
f ld. 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 intellectua
t
l property, AbbVie’s interest in joint
intellectua
t
l property and improvements discovered by AbbVie, for
f
the purpos
r
e of allowing us to conduct certain
16
development and commercialization activities in the United States relating to protease inhibitors. AbbVie is responsible for
and has funded all costs associated with the development, manufac
f
turing and commercialization of paritaprevir, glecapr
a
evir
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 establ
a ished 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 fro
f
m AbbVie; however, AbbVie has fin
f al authority to make all decisions regarding development
and commercialization activities.
The research program and the evaluation period, which was perfor
f
med by both parties, ended in June 2011. The fir
f st
commercialized compound was paritapr
a
evir with the second commercialized compound, glecaprevir, approved in 2017 and
marketed under the tradenames MAVYRET® (U.S.) or MAVIRET™(ex-U.S.). Under this collabor
a
ation we have received
$396 million in payments fro
f
m AbbVie for
f
license payments, proceeds fro
f
m a sale of prefer
f red stock, research fundi
f
ng
payments and milestone payments.
We also receive annually tiered, double-digit royalties per protease inhibitor product developed under the agreement, which
range from ten percent up t
u
o twenty percent, or on a blended basis from the low double digits up t
u
o the high teens. However,
if a product is determined to be a combination product, as is the case for
f
both glecaprevir and paritapr
a
evir, the net sales of
the combination product are adju
d sted 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 fir
f st allocated to
one of our protease inhibitors and then that royalty-bearing portion is multiplied by the annually tiered royalty rates to
determine our actua
t
l royalty for the protease product in that regimen in a given period. Under the terms of our agreement, as
amended in October 2014, 50% of AbbVie’s net sales of MAVYRET/MAVIRET are allocated to glecaprevir. Beginning
with each January 1, the cumulative net sales of a given royalty-bearing protease inhibitor product start at zero for purpos
r
es
of calculating the tiered royalties on a product-by-product basis. Under this collabor
a
ation, we have received royalty
payments from AbbVie totaling $924 million through September 30, 2024. Further details of these tiered royalties are set
forth in Note 7 in Notes to Consolidated Financial Statements included in this report, which are incorporated herein by this
reference.
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 intellectua
t
l property controlled by a third party where a product
could not be legally developed or commercialized in a country without the third-party intellectua
t
l property right, (ii) where
a product developed under the collabor
a
ation 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 fir
f st commercial sale of the product in the
applicable country.
Our intellectua
t
l property existing as of the effe
f ctive date of the agreement remains our property. Any intellectua
t
l property
jointly developed is jointly owned. We will have the unilateral right to enforce our patent rights on any covered product
following the fir
f st commercial sale of such product, as will AbbVie. In the event of infri
f ngement related to any of our
patents, we will have the fir
f st 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 fir
f st right and option to initiate legal proceedings or take
other actions. In the event of infri
f ngement of a joint patent right, we will discuss with AbbVie whether to initiate legal
proceedings or take other actions. AbbVie will have the obligation to defen
f
d 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.
Subj
u ect to the exceptions described abo
a
ve, 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, a
f
s 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
f
all covered
products and all co-development terms for all co-developed products have ended. Accordingly, the fin
f al expiration date of
the agreement is currently indeterminable.
17
Either party may terminate the agreement for
f
cause in the event of a material breach, subj
u ect to prior notice and the
opportunity to cure, or in the event of the other party’s bankrupt
r
cy. Additionally, AbbVie may terminate the agreement for
f
any reason upon specified prior notice.
If we terminate the agreement for
f
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, perpetua
t
l, fully paid, worldwide,
royalty-free license, with the right to subl
u icense, under AbbVie’s intellectua
t
l property used in any product candidate and (ii)
an exclusive (even as to AbbVie), perpetua
t
l, fully paid, worldwide, royalty-free license, with the right to subl
u icense, under
AbbVie’s interest in joint intellectua
t
l property rights to develop product candidates resulting fro
f
m covered compounds and
to commercialize any products derived fro
f
m such compounds. Upon our request, AbbVie will also transfer
f
to us all rights,
title and interest in any related product trademarks, regulatory f
r
il
f ings and clinical trials.
If AbbVie terminates the agreement for our uncured breach, the royalty payments payable by AbbVie may be reduc
d
ed, 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 intellectua
t
l 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.
Royalty Sale Agreement
In April 2023, we entered into a royalty sale agreement with an affi
f liate of OMERS, a Canadian public employee pension
fund, pursuant to which we were paid a $200.0 million cash purchase price in exchange for 54.5% of our future quarterly
royalty payments on net sales of MAVYRET/MAVIRET, afte
f r June 30, 2023, through June 30, 2032, subj
u ect to a cap on
aggregate payments to OMERS equal to 1.42 times the purchase price.
For accounting purpos
r
es, we will continue to record 100% of HCV royalties earned under the AbbVie agreement as royalty
revenue in our consolidated statements of operation. The $200.0 million received in April 2023 was recognized on our
consolidated balance sheets as a liabi
a lity which will be reduc
d
ed by the payments made to OMERS over the term of the
Agreement. We will recognize imputed interest expense over the life o
f
f the royalty sale agreement based on our estimated
future MAVYRET/MAVIRET royalties.
Other Programs for
f
Out-Licensing in Virology
Our SARS-CoV-2 Program
Backgr
k
ound and Overview of S
o
AR
S
S-CoV-2
Severe acute respiratory syndrome coronavirus 2, or SARS-CoV-2, is the virus
r
that causes COVID-19 (coronavirus disease
2019), the respiratory i
r
llness responsible for the COVID-19 pandemic. SARS-CoV-2 is the seventh known coronavirus to
infect people, afte
f r 229E, NL63, OC43, HKU1
K
, MERS-CoV, and the original SARS-CoV. Patients at higher risk for
f
developing severe complications from COVID-19 include the elderly and those with underlying medical conditions like
cardiovascular disease, diabetes, chronic respiratory disease, or cancer. As of October 2023, the World Health Organization
estimated nearly 7 million deaths have been caused by COVID-19. There are also many patients who experience continuing
effe
f cts of COVID-19, ofte
f n refer
f red to as “long COVID”. While vaccines that reduce the severity of COVID-19 are
availabl
a e, uptake has not been optimal. In addition, breakthrough infection occurs in many cases because the vaccines are
not completely effe
f ctive or their effe
f ct diminishes over time, especially against emerging variants. Thus, there remains an
urgent need for effect
f
ive, safe and well-tolerated, conveniently-dosed, once-daily oral antiviral treatments.
Scientif
t ic
f
Backgr
k
ound
All coronaviruses have a single-stranded, positive-sense RNA
R
(+ssRNA
R
) genome, which is the largest known genome for
f
an RNA virus
r
. The overall structur
t
e of the SARS-CoV-2 genome is shared with other betacoronaviruses, namely MERS-
CoV and SARS-CoV. The 3C-like protease, or 3CL protease (also known as 3CLpro or the main protease, or Mpro), is
essential for
f
viral replication, and is a highly attractive target for
f
the development of direct-acting antiviral agents.
Competit
t iv
t e Landscape
a
For COVID, there are two oral antiviral treatments for
f
non-hospitalized, high-risk patients with SARS-CoV-2 infection:
PAXLOVID™, a 3CL protease inhibitor (nirmatrelvir) boosted with ritonavir (full approval), and LAGEVRIO™
(molnupiravir), a polymerase inhibitor (Emergency Use Authorization). There are no oral direct acting antivirals for
f
the
treatment of SARS-CoV-2 in late-stage global clinical trials.
EDP-
D
235, Our Lead, Oral, 3
l
CL Protea
t
se Inhibito
i r
18
We leveraged our expertise in developing protease inhibitors to discover compounds specifically designed to target the
SARS-CoV-2 virus and potentially other coronaviruses. We selected EDP-235, an oral inhibitor of the coronavirus 3CL
protease, also referred to as 3CLpro or the main coronavirus protease, or Mpro, for
f
clinical development. In addition to
nanomolar activity against all SARS-CoV-2 variants tested to date, EDP-235 has potent antiviral activity against other
human coronaviruses, enabling the potential for
f
a pan-coronavirus
r
treatment, including possibly coronaviruses that may
infect human populations in the fut
f ur
t
e. Furthermore, EDP-235 has good tissue distribution, and is proje
o cted to have four
times higher drug levels in lung tissue compared to plasma. In May 2023, we reported topline results from a Phase 2 clinical
trial of EDP-235 in non-hospitalized, symptomatic patients with mild to moderate COVID-19 who were not at increased
risk for developing severe disease. EDP-235 met the primary endpoint of the trial and was generally safe and well-tolerated.
A dose-dependent improvement in total symptom score was observed with EDP-235 treatment compared to placebo, which
achieved statistical significance (p<0.05) in the 400 mg treatment group at multiple time points, starting as early as one day
afte
f r the first dose. An analysis of a subset of six symptoms showed a two-day shorter time (5 days to 3 days) to
improvement in patients receiving EDP-235 400 mg who were enrolled within three days of symptom onset (p<0.01). No
effe
f ct on virologic endpoints as measured in the nose was detected due to the rapid viral decline in the placebo arm of this
highly immunologically-experienced, standard risk population. However, in the subset of patients who were nucleocapsid
seronegative (indicating no recent natur
t
al infection with SARS-CoV-2), a viral load decline was observed at day five in the
400 mg group of 0.8 log overall and 1 log in the patients with symptom onset within three days befor
f
e treatment with EDP-
235. We will continue to focus on potential collabor
a
ations to progress EDP-235, as we will not advance this candidate into
Phase 3 studi
t
es on our own.
Our HBV Program
Backgr
k
ound and Overview of H
o
BV
H
Hepatitis B virus
r
, or HBV, is a potentially life-
f threatening liver infection. It is estimated that close to 300 million people
worldwide are chronically infected, and 15-40% of patients with chronic HBV infection develop chronic liver disease,
including cirrhosis, liver cancer, or liver decompensation. HBV is a leading cause of chronic liver disease and liver
transplantation.
Current approaches to treatment include interferon therapy
a
and/or inhibitors of HBV nucleoside reverse transcriptase, which
suppr
u
ess the virus but require lifel
f ong therapy and rarely result in full eradication of the virus fro
f
m the liver. Treatment with
interferon offers modest cure rates, and is accompanied by serious side effe
f cts, including flu-like symptoms, fat
f igue,
headache and nausea. New treatments that can provide functional cures to chronically-infec
f
ted patients are urgently needed.
Scientif
t ic
f
Backgr
k
ound
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. Mechanisms under study for HBV include entry
r
inhibitors, core inhibitors or caps
a
id assembly modulators (CAMs), siRNA/
R
ASO targeting the HBV S antigen, and immune
modulators (eg; TLRs, PD-L1s, therape
a
utic vaccines, etc). These new HBV mechanisms are being studi
t
ed with nucleoside
inhibitors and in combination with each other, with the goal of achieving a func
f
tional cure for
f
a significant number of HBV
patients.
We believe that HBV, like HIV and HCV, will be optimally treated with multiple agents that have diffe
f rent mechanisms,
and therefore seek to develop a combination regimen. We initially focused on inhibitors of the HBV core protein, as it plays
a critical role in viral replication, intracellular traffic
f king, and maintenance of chronic infect
f
ions. Core inhibitors are
replication inhibitors that have been shown to act at multiple steps in the HBV lifecy
f
cle; preventing proper uncoating,
nuclear import, assembly, and recycling as well as potentially impacting other viral processes. This approach is suppor
u
ted
by clinical validation, demonstrating reduc
d
tion of viral RNA
R
and DNA in chronic HBV patients in Phase 2 clinical studi
t
es.
Competit
t iv
t e Landscape
a
While there are antiviral medications prescribed for HBV that can suppr
u
ess HBV DNA, they generally have low cure rates,
resulting in the need for lifel
f ong treatment. Many companies are seeking to develop new HBV drugs
r
that alone or in
combination with other mechanisms could lead to a func
f
tional cure for
f
HBV. Vir, GSK, Arbut
r
us
t
, and Roche have multiple
combination regimens under investigation in later stage clinical studi
t
es. In addition, a number of companies have Phase 1 or
earlier stage HBV programs.
EDP-
D
514
Our lead clinical candidate for
f
the treatment of chronic infec
f
tion with HBV is EDP-514, a core inhibitor that displays potent
anti-HBV activity in vitro at multiple points in the HBV lifecy
f
cle. Two Phase 1b studi
t
es of EDP-514 demonstrate the
19
compound is safe with strong antiviral activity in two different chronic HBV patient populations – those who have a high
viral load and those who are on a treatment with a nucleoside reverse transcriptase inhibitor. Our goal has been to develop a
combination therapy
a
approach, including existing approved treatments such as a nucleoside reverse transcriptase inhibitor,
or NUC, with EDP-514 and one or more other mechanisms, which could lead to a func
f
tional cure for
f
patients with chronic
HBV infect
f
ion. Advancement of this program is dependent upon our accessing another compound that could be developed
with EDP-514 for such a treatment regimen.
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,
r
molecular virology, pharmacology, and toxicology 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 small molecule drugs
r
with
an emphasis on virology and immunology indications.
We focus on virology and immunology 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
f
team and includes our ability to generate robust medicinal
chemistry s
r
truc
r
ture-activity relationships to assist lead optimization and secure relevant intellectua
t
l property rights. Once
we have identifie
f d lead compounds, they are tested using in vitro and in vivo pharmacology studi
t
es and in vivo research
models of antiviral or antibacterial effi
f cacy.
Business Development
We also regularly examine opportunities to in-license compounds and technologies to complement our existing internal
discovery programs. In addition, we engage from time to time in discussions with third parties to out-license intellectual
property that no longer fits
f
in our strategic priorities for
f
our internal research and development programs. For example, in
December 2022 we out-licensed one of our antibiotic compounds in exchange for a $1.0 million up-
u
front fee and future
milestone payments and royalties.
Competition
We are engaged in segments of the pharmaceutical industry t
r
hat are highly competitive and rapi
a dly changing. Many large
pharmaceutical and biotechnology companies, academic institut
t ions, governmental agencies and other public and private
research organizations are commercializing or pursuing the development of products that target HCV, RSV, SARS-CoV-2,
HBV, CSU, AD and other virology and immunology indications that we may target now or in the fut
f ur
t
e.
Many of our competitors have subs
u
tantially greater commercial infra
f structur
t
es and fin
f ancial, technical and personnel
resources than we have, as well as drug candidates in late-stage clinical development. We will not be able to compete
successful
f ly unless we are able to:
•
design and develop products that are superior to other products in the market;
•
attract qualifie
f d scientific
f , medical, regulatory,
r
sales and marketing and commercial personnel;
•
obtain patent and/or other proprietary protection for
f
our processes and product candidates;
•
obtain required regulatory a
r
pp
a
rovals; or
•
collabor
a
ate with others in the development and commercialization of new products.
Establ
a ished 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 appr
a
oved product must demonstrate compelling
advantages in effi
f cacy, convenience, tolerability and safet
f y, or some combination of these factors, to overcome competition
and to be commercially successful
f .
We expect AbbVie’s MAVYRET/MAVIRET to continue to face intense competition due
d
to existing appr
a
oved products in
the HCV market. AbbVie’s MAVYRET/MAVIRET regimen currently faces competition in various world markets and
subpopul
u
ations of HCV fro
f
m Gilead’s Epclusa® (a fixed dose combination of sofos
f
buvir and velpatasvir), Vosevi® (a triple
combination therapy
a
of sofosbuvir, velpatasvir and voxilapr
a
evir approved by the FDA for
f
specified sofosbuvir -treatment
failures and NS5A-inhibitor treatment failures) and Harvoni® (a fixed-dose combination of sofos
f
buvir and ledipasvir); and
to a lesser extent - Merck’s Zepatier® (a fixed-dose combination of grazoprevir and elbasvir). Gilead launched authorized
generic versions of Epclusa and Harvoni through its subs
u
idiary, Asegua Therapeutics, LLC, which have had an impact on
20
the competitive landscape. For example, the state of Louisiana selected Asegua as their HCV subs
u
cription model
pharmaceutical partner to provide the state with unrestricted access to its direct-acting antiviral medication.
Other competitive products in the for
f
m of other treatment methods or a vaccine for
f
HCV may render
MAVYRET/MAVIRET obsolete or noncompetitive. MAVYRET/MAVIRET will face competition based on its safet
f y and
effe
f ctiveness, reimbursement coverage, price, patent position, AbbVie’s marketing and sales capabilities, and other factors.
If MAVYRET/MAVIRET faces
f
competition fro
f
m generic products other than authorized generic versions by the
manufac
f
turer of the branded product (i.e. Gilead and Asegua Therapeutics), our collabor
a
ation agreement provides that the
royalty rate applicable to our protease product contained in the regimen is reduc
d
ed 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.
RSV, COVID-19, HBV, CSU, and AD represent competitive therape
a
utic areas. For RSV, there are currently no safe and
effe
f ctive therapi
a es for already established RSV infect
f
ion. Several companies are seeking to develop antiviral treatments for
f
RSV infect
f
ion in adult and pediatric patients. Ark Biosciences, Gilead and Shionogi all have compounds in clinical
development. There are several prophylaxis options on the market or in development. AstraZeneca/Sanofi (
f
BEYFORTUS®)
and Merck (clesrovimab – P
a
hase 3 complete) are developing long-acting monoclonal antibodies for prophylaxis use in
infants, and Pfizer has an appr
a
oved maternal vaccine (ABRYSVO®), all of which provide passive immunity to infants.
Sanofi i
f
s also evaluating a vaccine in infants and toddlers (RSVt vaccine – Phase 3). There are also two appr
a
oved RSV
vaccines for
f
adul
d ts over 60 years of age (Pfizer/ABRYSVO® and Moderna/mRESVIA®) and one approved RSV vaccine for
adul
d ts over 50 years of age (GSK/AREXVY®).
For COVID, there are two oral antiviral treatments for
f
non-hospitalized, high-risk patients with SARS-CoV-2 infection:
PAXLOVID™, a 3CL protease inhibitor (nirmatrelvir) boosted with ritonavir (full approval), and LAGEVRIO™
(molnupiravir), a polymerase inhibitor (Emergency Use Authorization). There are no oral direct acting antivirals for
f
the
treatment of SARS-CoV-2 in late-stage global clinical trials.
While there are antiviral medications prescribed for HBV that can suppr
u
ess HBV DNA, they generally have low cure rates,
resulting in the need for lifel
f ong treatment. Many companies are seeking to develop new HBV drugs
r
that alone or in
combination with other mechanisms could lead to a func
f
tional cure for
f
HBV. Vir, GSK, Arbut
r
us
t
, and Roche have multiple
combination regimens under investigation in later stage clinical studi
t
es. In addition, a number of companies have Phase 1 or
earlier stage HBV programs.
For CSU, there are a number of diffe
f rent mechanisms being explored, including inhibitors of IL-4R, IgE, BTK, SIGLEC-6,
and MRGPRX2
R
. Specifically for
f
KIT inhibitors, there are companies with antibodies in development, including Celldex
(barzolvolimab -
a
Phase 3) and Jasper (briquilimab -
a
Phase 1b/2a), as well as companies with oral, small molecules in early
Phase 1 development (Third Harmonic and Blueprint) or preclinical development (Arcus and Alivexis).
For AD, the moderate-severe AD treatment landscape is dominated by biologics targeting the IL-4 and/or IL-13 pathway
(e.g., DUPIXENT® (dupi
d
lumab)
a
and ADBRY®(tralokinumab-ldrm)), with JAK inhibitors (e.g., RINVOQ®(upa
u
dacitinib)
and CIBINQO® (abr
a
ocitinib)) as the only oral option. Multiple oral mechanisms are in development, including inhibitors of
MRGPRX2, IRAK4
R
, STAT6, RAS
R
P and PKM2. The latest stage oral assets are in Ph2 (Incyte MRGPRX2 – Ph2a;
Sanofi/K
f
ym
K
era IRAK4 – Ph2). For STAT6 inhibitors specific
f ally, companies with oral assets in development include
Kymera (KT-621 - Phase 1) and Sanofi/
f Recludix (preclinical).
If we are not able to develop new products that can compete effe
f ctively against our current and fut
f ur
t
e competitors, our
business will not grow and our financial condition, operations and stock price will suffe
f r.
Intellectual Property
As part of our business strategy, we actively seek patent protection for
f
our product candidates in the United States and
certain majo
a r for
f
eign jurisdictions and fil
f e additional patent appl
a
ications, when appr
a
opriate, 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 abi
a lity to be competitive will depend on the success of this
strategy.
Each of our majo
a r research and development programs for
f
RSV as well as our out-licensed products for HCV and our
SARS-CoV-2 and HBV assets, typically has several pending patent claims and issued patents in the program area
containing claims to compounds, methods of use and processes for
f
synthesis. However, only a few of the issued patents
21
and/or pending patent applications cover the lead product candidates in a given program. We also have patent appl
a
ications
pending for earlier stage immunology programs.
RSV, SARS-C
S
oV
C
-2
V
, HBV.
H
Our patent portfol
f io directed to N-and L-protein inhibitors for RSV, protease inhibitors for SARS-
CoV-2 and core inhibitors for HBV, includes issued U.S. patents or pending U.S. patent applications, or both, as well as
numerous foreign patent applications. We expect that our existing patents and patent applications (assuming patents are
ultimately issued), will provide patent coverage in the U.S., if and when a compound is approved by the FDA, until at least
2038 for each of our compounds currently in clinical development.
HCV NS3
N
Protease Inhibitor Program. The patent portfol
f io directed to the HCV protease inhibitor program with AbbVie
includes U.S. patents and for
f
eign patents, as well as pending applications. The issued U.S. composition-of-m
f
atter patent
covering paritapr
a
evir is expected to expire in 2031. The issued U.S. composition-of-m
f
atter patent covering glecaprevir is
expected to expire in 2032. AbbVie is a joint owner of a number of patents and patent appl
a
ications. 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 befor
f
e we obtain marketing approval for
f
products containing
such compounds. Because patents have a limited life,
f
which usually begins to run well befor
f
e the first commercial sale of
the related product, the commercial value of the patent may be limited. However, we may be abl
a e to appl
a
y for
f
patent term
extensions in the United States and in a number of European and other countries, compensating in part for
f
delays in
obtaining marketing appr
a
oval, 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 subs
u
tantial damages, or could be required to obtain a license from the third party
to allow us to use their technology, which may not be availabl
a e on commercially reasonabl
a e terms or at all. If we were not
able to obtain a required license or develop alternative technologies, we may be unabl
a e to develop or commercialize some
or all of our products, and our business could be adversely affected.
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
f
in obtaining valid
and enfor
f
ceable patents, and establishing our infringement of those patents, we could be prevented from commercializing
our product candidates unless we were abl
a e to obtain a license under such patents, which may not be availabl
a e on
commercially reasonabl
a e terms or at all.
Much of our scientific
f
capabilities depend upon
u
the knowledge, experience and skills of key scientific
f
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 fea
f
sible, to enter into confid
f entiality 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 unabl
a e to obtain, maintain and protect the intellectua
t
l property rights necessary to conduct our business, and we
may be subject to claims that we infringe or otherwise violate the intellectua
t
l property rights of others, which could
materially harm our business. For more infor
f
mation, see “Risk Factors—Risks Related to Our Intellectua
t
l Property Rights.”
Government Regulation
Government authorities in the United States, at the fed
f
eral, state and local level, and in other countries extensively regulate,
among other things, the research, development, testing, manufac
f
ture, quality control, approval, labe
a
ling, 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 appr
a
oved by the FDA
before it may be legally marketed in the United States and by the appr
a
opriate foreign regulatory a
r
gency before
f
it may be
legally marketed in for
f
eign countries.
United Sta
S tes Drug D
u
evelopm
l
ent Pro
P
cess
In the United States, the FDA regulates drugs
r
under the Federal Food, Drug
r
and Cosmetic Act, or FDCA, and implementing
regulations. Drugs are also subject to other fed
f
eral, state and local statut
t es and regulations. The process of obtaining
regulatory a
r
ppr
a
ovals and the subs
u
equent compliance with appropriate federal, state, local and for
f
eign statut
t es and
regulations require the expenditure of subs
u
tantial time and fin
f ancial resources. Failure to comply with the appl
a
icable 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 and other governmental sanctions could include refusal to appr
a
ove
pending applications, withdrawal of an approval, a clinical hold, enforcement letters, product recalls, product seizures, total
22
or partial suspension of production or distribution, inju
n nctions, fin
f es, refus
f
als of government contracts, restitution,
disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effec
f
t
on us.
The process required by the FDA befor
f
e a drug may be marketed in the United States generally involves the following:
•
Completion of preclinical labor
a
atory t
r
ests, animal studies and for
f
mulation studies according to Good
Labor
a
atory P
r
ractice, or GLPs, or other applicable regulations;
•
Subm
u
ission to the FDA of an Investigational New Drug
r
Application, or an IND, which must become effe
f ctive
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
r
for its intended use;
•
Subm
u
ission to the FDA of a New Drug
r
Application, or an NDA, for a new drug product;
•
Satisfactory c
r
ompletion of an FDA inspection of the manufact
f
ur
t
ing faci
f
lity or facilities where the drug is to be
produced to assess compliance with the FDA’s current Good Manufac
f
turing Practice standards, or cGMP, to
assure that the faci
f
lities, 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 appr
a
ovals, which can ofte
f n take anywhere from six months from the time the NDA
is filed if there is a priority review for a breakthrough therapy to at least ten months for a standard review, and the
continuing need for compliance with applicable statut
t es and regulations, require the expenditure of subs
u
tantial resources.
There can be no certainty that approvals will be granted.
Before testing any compounds with potential therape
a
utic value in humans, the product candidate enters the preclinical
testing stage. Preclinical tests include labo
a
ratory evaluations of product chemistry,
r
toxicity and for
f
mulation, as well as
animal studies to assess the potential safet
f y and activity of the product candidate. The conduct of the preclinical tests must
comply with GLP and other fed
f
eral regulations and requirements. The sponsor must subm
u
it the results of the preclinical
tests, together with manufac
f
turing information, analytical data, any availabl
a e 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 subm
u
ission 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
studi
t
ed under the supe
u
rvision of qualifie
f d 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 procedur
d
es, subject selection and exclusion criteria, and the parameters to be used to monitor subject safety. Each
protocol must be subm
u
itted 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 institut
t ional review board,
or IRB, at or servicing each institut
t ion at which the clinical trial will be conducted. An IRB is charged with protecting the
welfar
f e and rights of trial participants and considers such items as whether the risks to individuals participating in the
clinical trials are minimized and are reasonabl
a e in relation to anticipated benefits. The IRB also appr
a
oves the informed
consent for
f
m 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:
•
Phase 1. The drug
r
is initially introduced into healthy humans and tested for safet
f y, dosage tolerance,
absorption, metabol
a
ism, distribution and excretion. In the case of some products for severe or life-
f threatening
23
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
f
disease.
•
Phase 2. The drug
r
is evaluated in a limited patient population to identify p
f
ossible adverse effects and safety
risks, to preliminarily evaluate the effic
f acy of the product for
f
specific targeted diseases and to determine dosage
tolerance, optimal dosage and dosing schedul
d e for
f
patients having the specific disease.
•
Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical effi
f cacy and safet
f y 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/b
k enefit
f
ratio of the product and provide
an adequate basis for
f
product labeling. Generally, at least two adequate and well-controlled Phase 3 clinical
trials are required by the FDA for
f
approval of an NDA.
Post-appr
a
oval studies, or Phase 4 clinical trials, may be conducted after initial marketing appr
a
oval. These studies are used to
gain additional experience fro
f
m the treatment of patients in the intended therape
a
utic 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 subm
u
itted at least annually to the FDA and written IND
safety reports must be subm
u
itted to the FDA by the investigators for
f
serious and unexpected adverse events or any finding
from tests in labor
a
atory a
r
nimals that suggests a significant risk for
f
human patients. Phase 1, Phase 2 and Phase 3 clinical
trials may not be completed successful
f ly 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 fin
f ding that the research patients
are being exposed to an unacceptabl
a e health risk. Similarly, an IRB can suspend or terminate approval of a clinical trial at
its institut
t ion if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug
r
has been
associated with unexpected serious harm to patients.
Concurrent with clinical trials, companies usually complete additional animal studies and develop additional inform
f
ation
about the chemistry a
r
nd physical characteristics of the drug
r
as well as finalize a process for
f
manufac
f
turing the product in
commercial quantities in accordance with cGMP requirements. The manufact
f
ur
t
ing process must be capable of consistently
producing quality batches of the product candidate and, among other things, must include methods for testing the identity,
strength, quality and purity of the final drug. Additionally, appr
a
opriate packaging must be selected and tested, and stabi
a lity
studi
t
es must be conducted to demonstrate that the product candidate does not undergo unacceptabl
a e deterioration over its
shelf life.
f
U.S. Review and Appr
A
oval Processes
The results of product development, preclinical studi
t
es and clinical trials, along with descriptions of the manufact
f
ur
t
ing
process, analytical tests conducted on the chemistry o
r
f the drug,
r
proposed labe
a
ling and other relevant infor
f
mation are
subm
u
itted to the FDA as part of an NDA requesting appr
a
oval to market the product. The submission of an NDA is subject to
the payment of subs
u
tantial user fees
f
by the appl
a
icant; a waiver of such fees
f
may be obtained under certain limited
circumstances.
In addition, under the Pediatric Research Equity Act, or PREA, an NDA or suppl
u
ement to an NDA must contain data to
assess the safet
f y and effe
f ctiveness of the drug
r
for the claimed indications in all relevant pediatric subpopul
u
ations and to
suppor
u
t dosing and administration for each pediatric subpopul
u
ation for
f
which the product is safe a
f
nd effe
f ctive. The FDA
may grant deferrals for submission of pediatric data or ful
f l or partial waivers.
The FDA reviews all NDAs subm
u
itted befor
f
e it accepts them for
f
filing and may request additional infor
f
mation rather than
accepting an NDA for filin
f
g. Once the submission is accepted for
f
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
r
User Fee Act, or PDUFA, the FDA has ten
months in which to complete its initial review of a standard NDA and respond to the appl
a
icant, and six months for a priority
NDA. The review clock for
f
an NDA may be extended if a majo
a r amendment is submitted dur
d
ing the review cycle. In
addition, the FDA does not always meet its PDUFA goal dates for standard and priority NDAs.
Afte
f r the NDA subm
u
ission is accepted for filin
f
g, the FDA reviews the NDA to determine, among other things, whether the
proposed product is safe a
f
nd effe
f ctive for
f
its intended use and whether the product is being manufact
f
ur
t
ed 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 app
a
lications for novel drug products or drug
r
products that present diffi
f cult questions of safety or effi
f cacy to
an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a
recommendation as to whether the app
a
lication should be appr
a
oved and under what conditions. The FDA is not bound by the
recommendations of an advisory committee, but it considers such recommendations careful
f ly when making decisions.
During the appr
a
oval process, the FDA also will determine whether a Risk Evaluation and Mitigation Strategy, or REMS, is
24
necessary to assure the safe u
f
se of the drug. If the FDA concludes that a REMS is needed, the sponsor of the NDA must
subm
u
it 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 manufact
f
ur
t
ed. The FDA will not
approve the product unless it determines that the manufact
f
ur
t
ing 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 appl
a
ication, manufact
f
ur
t
ing process or manufac
f
turing facilities are not acceptabl
a e, it will outline the
deficiencies in the submission and often will request additional testing or infor
f
mation.
The NDA review and appr
a
oval process is lengthy and diffi
f cult, and the FDA may refuse to approve an NDA if the
applicable regulatory c
r
riteria are not satisfie
f d or may require additional clinical data or other data and information. Even if
such data and infor
f
mation is subm
u
itted, the FDA may ultimately decide that the NDA does not satisfy the criteria for
f
approval. Data obtained fro
f
m clinical trials are not always conclusive and may be susceptible to varying interpr
r
etations,
which could delay, limit or prevent regulatory a
r
ppr
a
oval. 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 defic
f iencies in the NDA
identified by the FDA. The deficiencies identifie
f d may be minor, for
f
example, requiring labe
a
ling changes, or majo
a r, for
example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions
that the app
a
licant might take to place the appl
a
ication in a condition for
f
approval. If a complete response letter is issued, the
applicant may either resubm
u
it the NDA, addressing all of the deficiencies identifie
f d in the letter, or withdraw the
application.
If a product receives regulatory a
r
ppr
a
oval, the appr
a
oval 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 fur
f
ther assess a product’s safet
f y and effe
f ctiveness and may require
testing and surveillance programs to monitor the safety of approved products that have been commercialized.
Expe
x
dite
i d Developm
l
ent and Review Programs
The FDA has four
f
programs intended to expedite the development and review of new drugs addressing unmet medical
needs or treating serious or life-
f threatening conditions: fas
f
t track, breakthrough therapy, priority review, and accelerated
approval, in addition to emergency use authorization, or EUA, in situations such as the COVID-19 pandemic.
The FDA “fas
f
t track” program is intended to expedite or facilitate the process for
f
reviewing new products to treat serious or
life-
f threatening conditions and address unmet medical needs. Fast track designation appl
a
ies to the combination of the
product and the specific indication for
f
which it is being studi
t
ed. Under the fast track program, the sponsor will have more
frequent interactions with the FDA during drug development, and may also subm
u
it sections of the NDA on a rolling basis to
the FDA for review befor
f
e 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
r
for serious or life-
threatening conditions. Preliminary c
r
linical evidence must show that the drug may have subs
u
tantial improvement over
existing therapi
a es 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 “fas
f
t track” program featur
t
es. 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 offe
f r product development and regulatory
r
advice necessary to shorten the time for product appr
a
oval. The breakthrough therapy status does not guarantee a quicker
development or review of the product, and does not ensure FDA appr
a
oval.
The FDA also has a “priority review” program for products offe
f ring 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
f
standard review. Any drug
r
with breakthrough therapy, accelerated approval designation, or fast track
can be granted priority review if it meets the necessary c
r
riteria.
The FDA “accelerated app
a
roval” program is intended to expedite the development and review of products with the potential
to treat serious or life-
f threatening illnesses and provide meaningful
f
therapeutic benefit
f
over existing treatments. The
program allows approval of a product on the basis of adequate and well-controlled clinical studi
t
es establ
a ishing that the
product has an effe
f ct on a surrogate endpoint that is reasonabl
a y likely to predict a clinical benefit, or on the basis of an
effe
f ct on a clinical endpoint that can be measured earlier than survival or irreversible morbidity. As a condition of appr
a
oval,
the FDA generally requires that a sponsor of the product perform adequate and well-controlled post-marketing clinical
studi
t
es to establ
a ish safet
f y and effi
f cacy for the approved indication. Failure to conduct such studies or failure of the stud
t
ies
to establ
a ish required safet
f y and effi
f cacy may result in revocation of appr
a
oval. The FDA also requires, as a condition for
25
accelerated appr
a
oval, pre-approval of promotional materials, which could adversely impact the timing of the commercial
launch or subsequent marketing of the product.
The FDA may also allow the use of unappr
a
oved medical products, or unappr
a
oved uses of appr
a
oved medical products, under
an emergency use authorization, or EUA, to diagnose, treat, or prevent serious or life-threatening diseases or conditions
when certain statut
t ory c
r
riteria have been met, including that there are no adequate, appr
a
oved, and availabl
a e alternatives. An
EUA is a mechanism to faci
f
litate the availability and use of medical countermeasures during public health emergencies,
such as the COVID-19 pandemic. Once subm
u
itted, the FDA will evaluate an EUA request and determine whether the
relevant statut
t ory c
r
riteria are met, taking into account the totality of the scientific
f
evidence about the drug that is available
to FDA. EUAs can be terminated, revoked or reissued, depending on the state of the public health emergency and new data
about the drug.
Post-A
t
ppr
A
oval 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 safet
f y and effi
f cacy information on an annual basis or more frequently for specific events,
drug
r
suppl
u
y chain requirements, product sampling and distribution requirements, complying with certain electronic records
and signature requirements and complying with FDA prescription drug
r
promotion and advertising requirements. These
promotion and advertising requirements include, among others, standards for
f
direct-to-consumer advertising, prohibitions
against promoting drugs for uses or in patient populations that are not described in the drug’
r
s appr
a
oved labeling (known as
“off-label use”), rul
r es for conducting industry-
r
sponsored scientific
f
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
availabl
a e drugs for off-label uses, manufact
f
ur
t
ers may not market or promote such off-label uses.
We rely, and expect to continue to rely, on third parties for
f
the production of clinical and commercial quantities of our
product candidates. Manufactur
t
ers of our product candidates are required to comply with applicable FDA manufac
f
turing
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
r
manufac
f
turers and other entities involved in the manufac
f
ture and distribution of appr
a
oved 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
f
compliance
with cGMP and other laws. Accordingly, manufac
f
turers must continue to expend time, money and effo
f
rt 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, manufact
f
ur
t
er or holder of an appr
a
oved NDA. These restrictions
may include suspension of a product until the FDA is assured that quality standards can be met, continuing oversight of
manufac
f
turing 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 fro
f
m the market. In addition, changes
to the manufact
f
ur
t
ing process generally require prior FDA approval befor
f
e 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 effe
f cts of an app
a
roved product or place conditions on an approval that could otherwise restrict
the distribution or use of the product.
U.S. Patent Term Restor
t
atio
t n and Marketin
t
g Exc
E
lusivity
i
Drug Price Com
C
pe
m
tition 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
f
limited patent term extension under the Drug
r
Price Competition and Patent Term
Restoration Act of 1984, commonly refer
f red to as the Hatch-Waxman Amendments. The Hatch-Waxman Amendments
permit a patent restoration term of up to five years as compensation for
f
patent term lost during fed
f
eral regulatory r
r
eview
preceding the FDA regulatory r
r
eview process. However, patent term restoration cannot extend the remaining term of a
patent beyond a total of 14 years fro
f
m the product’s appr
a
oval date. The patent term restoration period is generally one-half
the time between the effective date of an IND and the subm
u
ission date of an NDA plus the time between the submission
date of an NDA and the app
a
roval of that appl
a
ication. Only one patent applicable to an approved drug is eligible for the
extension and the appl
a
ication for
f
the extension must be subm
u
itted 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 appr
a
oves the application
26
for any patent term extension or restoration. In the fut
f ur
t
e, we may appl
a
y for
f
restoration of patent term for
f
one of our
currently owned or licensed patents to add patent life b
f
eyond 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,
F
Drug and Cosmetic Act, or FDCA
Market exclusivity provisions under the FDCA, which are independent of patent status
t
and any patent related extensions,
can also delay the subm
u
ission or the app
a
roval of certain applications of other companies seeking to refer
f ence another
company’s NDA. If the new drug
r
is a new chemical entity subj
u ect to an NDA, the FDCA provides a five-year period of
non-patent marketing exclusivity within the United States to the first appl
a
icant to obtain appr
a
oval of an NDA for a new
chemical entity. A drug
r
is a new chemical entity if the FDA has not previously approved any other new drug
r
containing the
same active moiety, which is the molecule or functional group of a molecule responsible for the action of the drug
r
subs
u
tance. During the exclusivity period, the FDA may not accept for review an abbr
a
eviated new drug
r
application, or
ANDA, or a so-called Section 505(b)(2) NDA, subm
u
itted by another company for another version of such drug
r
where the
applicant does not own or have a legal right of reference to all the data required for
f
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
f
an
NDA, or supplement to an existing NDA if new clinical investigations, other than bioavailabi
a lity studi
t
es, that were
conducted or sponsored by the appl
a
icant 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 fro
f
m appr
a
oving ANDAs for drugs containing
the original active agent. Five-year and three-year exclusivity will not delay the subm
u
ission 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 studi
t
es and adequate and well-controlled clinical trials necessary to demonstrate safet
f y and effe
f ctiveness.
Othe
t
r U.S
U
. H
S
ea
H
lthcare Laws and Com
C
pl
m ia
l nce Require
i
mentst
In the United States, our activities are potentially subj
u ect to regulation by various federal, state and local authorities in
addition to the FDA, including the Centers for Medicare & 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 offi
f ces within the
Department of Justice, state attorney generals and state and local governments.
At such time as we market, sell and distribute any products for which we obtain marketing appr
a
oval, it is possible that our
business activities could be subject to scrut
r iny and enforcement under one or more federal or state health care fra
f ud and
abuse laws and regulations. These fraud and abus
a
e laws include:
•
The fed
f
eral Anti-Kickba
k
ck Law, which prohibits, among other things, knowingly or willingly offer
f ing, paying,
soliciting or receiving remuneration, directly or indirectly, in cash or in kind, to induce or reward the
purchasing, leasing, ordering or arranging for or recommending the purchase, lease or order of any health care
items or service for which payment may be made, in whole or in part, by federal health care programs such as
Medicare and Medicaid;
•
The fed
f
eral civil False Claims Act, which prohibits, among other things, individuals or entities fro
f
m knowingly
presenting, or causing to be presented, a false or fra
f udulent claim for payment of government funds or
knowingly making, using or causing to be made or used, a false record or statement material to an obligation to
pay money to the government or knowingly concealing or knowingly and improperly avoiding, decreasing or
concealing an obligation to pay money to the federal government;
•
The fed
f
eral Health Insurance Portabi
a lity and Accountability Act of 1996, or HIPAA, which imposes criminal
liability for knowingly and willful
f ly executing a scheme to defraud any healthcare benefit
f
program, knowingly
and willfully embezzling or stealing fro
f
m a health care benefit
f
program, willful
f ly obstruc
r
ting a criminal
investigation of a health care offen
f
se, or knowingly and willful
f ly making false statements relating to healthcare
matters;
•
The fed
f
eral Physician Payment Sunshine Act, being implemented as the Open Payments Program, requires
certain pharmaceutical manufact
f
ur
t
ers to engage in extensive tracking of payments and other transfers of value
to physicians and teaching hospitals, and to subm
u
it such data to the Centers for Medicare and Medicaid Stud
t
ies,
or CMS, which will then make all of this data publicly availabl
a e on the CMS website; and
27
•
Analogous state laws and regulations, including state anti-kickba
k
ck and fal
f se claims laws, which may appl
a
y to
items or services reimbursed under Medicaid and other state programs or, in several states, apply regardless of
the payer, as well as other state laws that require pharmaceutical companies to report expenses related to the
marketing and promotion of pharmaceutical products, prohibit certain gifts or payments to health care providers
in the state, and/o
d r require pharmaceutical companies to implement compliance programs or marketing codes of
conduct.
Violations of fraud and abuse laws may be punishable by significant criminal and/or civil sanctions, including fines and
civil monetary penalties, the possibility of exclusion fro
f
m fed
f
eral health care programs (including Medicare and Medicaid)
and corpo
r
rate integrity agreements, which impose, among other things, rigorous operational and monitoring requirements
on companies. Similar sanctions and penalties also may be imposed upon executive offic
f ers and employees, including
criminal sanctions against executive offi
f cers under the so-called “responsible corporate officer” doctrine, even in situations
where the executive officer did not intend to violate the law and was unaware of any wrongdoing. Given the penalties that
may be imposed on companies and individuals if convicted, allegations of such violations ofte
f n result in settlements even if
the company or individual being investigated admits no wrongdoing. Settlements often include significant civil sanctions,
including fines and civil monetary penalties, and corpor
r
ate integrity agreements. If the government was to allege or convict
us or our executive offi
f cers, employees or consultants of violating these laws, our business could be harmed. In addition,
private individuals have the abi
a lity to bring similar actions under some of the fraud and abus
a
e laws described above. Our
activities could be subject to challenge for the reasons discussed above and due
d
to the broad scope of these laws and
extensive enfor
f
cement of them by law enforcement authorities. Further, federal and state laws that require manufact
f
ur
t
ers to
make reports on pricing and marketing infor
f
mation could subject us to penalty provisions.
In addition, 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 availabl
a e to
authorized users of the Federal Supply Schedul
d e of the General Services Administration, additional laws and requirements
apply. Under the Veterans Health Care Act, or VHCA, drug
r
companies are required to offer certain pharmaceutical products
at a reduc
d
ed price to a number of fed
f
eral agencies including the United States Department of Veterans Affa
f irs and United
States Department of Defense, the Public Health Service and certain private Public Health Service—designated entities in
order to participate in other fed
f
eral funding programs including Medicare and Medicaid. Recent legislative changes purpor
r
t
to require that discounted prices be offe
f red for
f
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 statut
t ory f
r
or
f
mulas, 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 manufac
f
turers
and wholesale distributors of pharmaceutical products in a state, including, in certain states, manufact
f
ur
t
ers and distributors
who ship products into the state even if such manufact
f
ur
t
ers or distributors have no place of business within the state. Some
states also impose requirements on manufact
f
ur
t
ers and distributors to establish the pedigree of product in the chain of
distribution, including some states that require manufac
f
turers and others to adopt new technology capa
a
bl
a e 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 fro
f
m providing certain physician prescribing data to pharmaceutical
companies for
f
use in sales and marketing, and to prohibit certain other sales and marketing practices. All of our activities
are potentially subj
u ect to fed
f
eral and state consumer protection and unfai
f r competition laws.
Europe
o
/ Rest of W
o
or
W
ld Government Regulat
l io
t n
In addition to regulations in the United States, we will be subj
u ect to a variety of regulations in other jurisdictions governing,
among other things, clinical trials and any commercial sales and distribution of our products.
Whether or not we obtain FDA approval for
f
a product, we must obtain the requisite approvals from regulatory a
r
uthorities 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 subm
u
ission of a clinical trial appl
a
ication 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 subm
u
itted 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
frf om country to country. In all cases, the clinical trials are conducted in accordance with International Confer
f ence on
28
Harmonisation (ICH) / WHO Good Clinical Practice standards and the appl
a
icable regulatory r
r
equirements and the ethical
principles that have their origin in the Declaration of Helsinki.
To obtain regulatory a
r
pp
a
roval of an investigational drug under European Union regulatory s
r
ystems, we must submit a
marketing authorization appl
a
ication to the European Medicines Agency, or the EMA. The application used to fil
f e 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
r
requirements and the ethical principles that have their origin in the Declaration of Helsinki.
If we fail to comply with applicable foreign regulatory r
r
equirements, we may be subject to, among other things, fin
f es,
suspension or withdrawal of regulatory approvals, product recalls, seizure of products, operating restrictions and criminal
prosecution.
Pharma
r
ceutical Cov
C
erage, P
e
ri
P cing
i
and Reimb
i
urse
r
ment
Significant uncertainty exists as to the coverage and reimbursement status
t
of any product candidates for
f
which we obtain
regulatory a
r
ppr
a
oval. In the United States and markets in other countries, sales of any products for which we receive
regulatory a
r
ppr
a
oval for
f
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
f
determining whether a payor will provide coverage for a drug
r
product may be
separate from the process for
f
setting the price or reimbursement rate that the payor will pay for
f
the drug product. Third-
party payors may limit coverage to specific drug products on an approved list, or formulary,
r
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
effi
f cacy. In recent years, both the Federal and State governments are increasingly considering and adopting laws that exert
greater influence over the price of prescription drugs. For example, a number of states are increasingly using more
aggressive price control tools such as Prescription Drug Affordability Boards that have the authority to conduct affordabi
a lity
reviews and establ
a ish uppe
u
r payment limits. The Inflation Reduc
d
tion Act passed by Congress in 2022 (discussed below),
authorized the Centers for Medicare and Medicaid Services, or CMS, to begin negotiating the prices on certain drugs
r
based
on factors such as research & developments costs and the health economic impact of a particular therapy. We may need to
conduct expensive pharmaco-economic studi
t
es to demonstrate the medical necessity and cost-effe
f ctiveness of our products,
in addition to the costs required to obtain the FDA appr
a
ovals. Our product candidates may not be considered medically
necessary or cost-effective. A payor’s decision to provide coverage for a drug
r
product does not imply that an adequate
reimbursement rate will be approved. Adequate third-party reimbursement may not be availabl
a e to enabl
a e us to maintain
price levels suffi
f cient to realize an appr
a
opriate return on our investment in product development. In certain circumstances,
we may need to negotiate discounts on a drug
r
product in order to ensure adequate formulary a
r
ccess for
f
patients.
In 2003, the United States government enacted legislation providing a partial prescription drug benefit
f
for Medicare
recipients, which became effect
f
ive at the beginning of 2006. Government payment for
f
some of the costs of prescription
drugs
r
may increase demand for
f
any products for which we receive marketing appr
a
oval. However, to obtain payments under
this program, we would be required to sell products to Medicare recipients through private prescription drug plans that
contract with the fed
f
eral government and adhere to certain minimum requirements.
The Patient Protection and Affo
f
rdable Care Act, as amended by the Health Care and Education Reconciliation Act,
collectively known as the Affo
f
rdable Care Act, or ACA, subs
u
tantially changed the way healthcare is financed by both
governmental and private insurers, and significantly impacted the pharmaceutical industry.
r
Since its adoption, the ACA contains a number of provisions, including those governing enrollment in federal healthcare
programs, reimbursement changes and fraud and abus
a
e, which have affected existing government healthcare programs and
have resulted in the development of new programs, including Medicare payment tied to performance. Additionally, the
Affo
f
rdable Care Act:
•
increased the minimum level of Medicaid rebates payabl
a e by manufac
f
turers of brand-name drugs
r
from 15.1%
to 23.1%;
•
required collection of rebates for drugs paid by Medicaid managed care organizations;
•
required manufact
f
ur
t
ers to participate in a coverage gap d
a
iscount program, under which they must agree to offer
f
50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries dur
d
ing their
29
coverage gap p
a
eriod, as a condition for
f
the manufact
f
ur
t
er’s outpa
t
tient drugs to be covered under Medicare Part
D, beginning January 2011; and
•
imposed a non-deductible annual fee
f
on pharmaceutical manufac
f
turers or importers who sell “branded
prescription drugs
r
” to specified federal government programs.
Ten states have not implemented the provisions of the ACA that involve the expansion of Medicaid eligibility to low-
income adul
d ts. While the United States Supreme Court recently rejected the latest challenge to the constitutionality of the
ACA, it is possible that other legislative effor
f
ts may seek to modify it. In addition, other legislative changes have been
proposed since the Affo
f
rdable Care Act was enacted, and other judicial challenges to the ACA are pending in the lower
courts.
There has been increasing legislative and enfor
f
cement interest in the United States with respect to drug pricing practices.
For example, the Inflation Reduc
d
tion Act of 2022, or IRA,
R
introduc
d
es some of the most significant changes to Medicare
payment for
f
prescription drugs since the ACA. Among its many provisions, the IRA a
R
uthorizes the Medicare program to
negotiate pricing for
f
certain high-cost and/or high-volume drugs, including physician-administered and self-a
f dministered
drugs
r
, that have been on the market for
f
a minimum amount of time without generic competition. Each year, beginning with
calendar year 2026, the Secretary of the Department of Health and Human Services will implement a negotiated price,
known as the “Maximum Fair Price”, or MFP, that will be made public and appl
a
y to the drug’
r
s Medicare utilization if the
drug
r
is among the top 10 drugs
r
with the highest Medicare spending. Manufact
f
ur
t
ers who fail to offe
f r the MFP, or fail to
come to the table to negotiate afte
f r the Secretary h
r
as determined their drug is eligible for negotiation, will incur an excise
tax of up t
u
o 95% for each sale of the drug in the United States. Depending on the share of Medicare spending each year that
is attributed to MAVYRET or any other drug
r
we may develop or out-license, and whether or not those drugs become
eligible for Medicare negotiation, those drugs and our revenue may be adversely impacted by this provision.
The IRA also requires manufact
f
ur
t
ers, beginning in 2023, to rebate the Medicare program for Medicare utilization of Part B
and Part D drugs
r
that have price increases faster than the rate of infla
f tion. The benchmark to which price increases are
compared varies depending on the drug. Although manufac
f
turers are generally familiar with inflation rebates under the
Medicaid program, where they have existed for
f
decades, the IRA represents the fir
f st time that the Centers for Medicare and
Medicaid Services, or CMS, has extended infla
f tion rebates to the Medicare program.
The IRA also redesigns the Medicare prescription drug benefit
f
in several important ways, beginning in calendar year 2024.
First, the IRA places an annual out-of-pocket cap on Medicare beneficiary c
r
ost sharing amounts, which will take effect in
calendar year 2025 before the ful
f l benefit
f
redesign. Previously, benefic
f iaries’ out-of-pocket costs were uncapped, even if
heavily subsidized. Second, the IRA requires that manufac
f
turers share in the cost of prescription drugs throughout the
prescription drug
r
benefit, beginning in calendar year 2025. Previously manufact
f
ur
t
ers only needed to offer discounted
pricing for
f
a single phase of the prescription drug benefit
f . As described above, in calendar year 2025, the IRA introduc
d
es a
new $2,000 out-of-pocket maximum in the Part D program for benefic
f iaries. Finally, the IRA s
R
hifts the majo
a rity of liabi
a lity
in the “catastrophic phase”—the phase of the prescription drug benefit
f
that only the costliest of Medicare benefic
f iaries
enter—to the private Part D plans, thereby encouraging them to better manage costs. Previously, the Federal government
incurred the vast majo
a rity of liabi
a lity during the catastrophic phase. Together, these changes to the Medicare prescription
drug
r
benefit will create new pricing dynamics for payers and manufactur
t
ers.
The United States Congress is also considering legislation that would dramatically reform the business model of the
pharmacy benefit
f
management, or PBM, industry.
r
In general, the principal PBM business model relies on rebate payments
from pharmaceutical manufactur
t
ers to PBMs (acting as agents of insurers) in exchange for administrative tasks such as
formulary d
r
evelopment, development of pharmacy networks, and plan benefit design. The proposed legislation would
replace the rebate model with a model that relies on up-
u
front discounts and would potentially significantly alter the
relationship between manufact
f
ur
t
ers and PBMs.
As noted above, state legislatur
t
es are also increasingly considering and adopting laws that exert greater influence over the
price of prescription drugs. In recent years, many states have passed cost transparency and pharmaceutical pricing laws.
These laws often require manufac
f
turers to report certain product infor
f
mation or other financial data to the state. States are
expected to continue their foc
f
us on pharmaceutical pricing and will increasingly move to more aggressive price control
tools such as Prescription Drug Affordability Boards that have the authority to conduct affordability reviews and establ
a ish
upper payment limits.
Different pricing and reimbursement schemes exist in other countries. In the European Union, governments influ
f ence 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 appr
a
oval, some of these countries may require the completion of clinical trials that compare the cost-effectiveness
of a particular product candidate to currently availabl
a e therapi
a es. Other member states allow companies to fix their own
30
prices for medicines but monitor and control company profits
f
. The downward pressure on healthcare costs in general,
particularly prescription drugs
r
, 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 marketabi
a lity of any drug candidates for
f
which we receive regulatory a
r
ppr
a
oval for
f
commercial sale may suffer
f
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
r
pricing.
Coverage policies and third-party reimbursement rates may change at any time. Even if fav
f
orable coverage and
reimbursement status
t
is attained for one or more products for which we receive regulatory a
r
ppr
a
oval, less favorable coverage
policies and reimbursement rates may be implemented in the fut
f ur
t
e.
Research and Development
Our research and development expenses were $131.5 million, $163.5 million and $164.5 million for
f
the fis
f cal years ended
September 30, 2024, 2023, and 2022, respectively.
Manufac
f
turing
We do not have our own manufact
f
ur
t
ing capabilities, except with respect to limited amounts of active pharmaceutical
ingredients needed for preclinical development. To date, we have relied on third-party manufact
f
ur
t
ers, including
manufac
f
turers in China, for supply of active pharmaceutical ingredients and ingredients for
f
use in clinical trials of our
product candidates. We also expect that in the fut
f ur
t
e we will rely on such manufac
f
turers to produce commercial quantities
of any product candidates that we commercialize ourselves. Manufact
f
ur
t
ing for
f
glecaprevir is conducted by AbbVie.
Wherever possible, we seek to identify multiple suppl
u
iers for raw materials and key intermediaries to be used in our
manufac
f
turing process.
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 protease inhibitor compounds 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
f , 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.
Our Corporate Information
We are a Delaware corporation, incorporated in 1995. Our principal executive offices are located at 4 Kingsbury A
r
venue,
Watertown, Massachusetts 02472, and our telephone number is (617) 607-0800. Our web site address is
http://w
/
ww.enanta.com.
Segment Infor
f
mation
We provide segment infor
f
mation in Note 2 to our Consolidated Financial Statements included in Item 8 of this report. We
are incorpor
r
ating that infor
f
mation into this section by this refer
f ence.
Human Capital Resources
As of September 30, 2024, we had 131 full-time employees, 65 of whom hold Ph.D. or M.D. degrees and an additional 30
of whom hold a master's degree or other post-gradua
d
te degree. We consider the intellectua
t
l capital of our employees to be
an essential driver of our business and key to our future prospects. Historically we have had relatively low turnover of
employees, but as the number of biotechnology and pharmaceutical companies in the Boston area has increased, we have
experienced an increase in the number of employees leaving for
f
other opportunities. Given our financial resources and our
track record, we continue to be able to fill the vacated positions. We also monitor our compensation programs closely and
provide what we consider to be a very c
r
ompetitive mix of compensation and insurance benefits
f
for all our employees, as
31
well as participation in our equity programs. None of our employees is subj
u ect to a collective bargaining agreement or
represented by a trade or labor union. We consider our relations with our employees to be good.
Available Infor
f
mation
Our Internet website address is http://www.enanta.com. Through our website, we make available, fre
f e 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 reasonabl
a y practicable afte
f r we electronically
file such material with, or fur
f
nish it to, the Securities and Exchange Commission, or SEC. These SEC reports can be
accessed through the “Investors” section of our website. The infor
f
mation found
f
on our website is not part of this or any
other report we file
f
with or furnish to the SEC.
In addition, the SEC maintains an Internet website that contains reports, proxy and infor
f
mation statements, and other
information regarding Enanta Pharmaceuticals, Inc. and other issuers that file
f
electronically with the SEC. The SEC’s
Internet website address is http://w
/
ww.sec.gov.
32
ITEM 1A.
RISK FACTORS
RISK FACTORS
Our business faces
f
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 careful
f ly consider them. Accordingly, in evaluating
our business, we encourage you to consider the fol
f lowing 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 affe
f ct our
business, prospects, financial condition and results of operations.
Risks Related to Our Business
We will
i
require substan
t
tial additio
i
nal fund
f
in
d
g to a
t
chieve our goals.
l
A fai
f lu
i
re to obtai
t n t
i
hi
t
s f
i
un
f
ding
i
when needed
d
couldl
force us to d
t
el
d ay
l
, l
y imit,
l
reduce or terminate s
t
ome or all of our product developm
l
ent effo
e
rts.
t
We will continue to expend subs
u
tantial resources discovering and developing our proprietary product candidates. These
expenditures will exceed our royalty revenues fro
f
m our AbbVie collabor
a
ation and will include costs associated with
research and development, preclinical manufac
f
turing of product candidates, conducting preclinical experiments and clinical
trials and obtaining regulatory a
r
pp
a
rovals, as well as commercializing any products later appr
a
oved for
f
sale. Our future capital
requirements depend on many fac
f
tors, including:
•
the number and characteristics of our research and development programs;
•
the scope, progress, results and costs of researching and developing our product candidates on our own,
including conducting advanced clinical trials;
•
our ability to establ
a ish new collabor
a
ations, licensing or other arrangements, if any, and the financial terms of
such arrangements;
•
the amount of our retained portion of royalties generated fro
f
m MAVYRET/MAVIRET sales under our existing
collabor
a
ation with AbbVie;
•
delays and additional expenses in our clinical trials;
•
the cost of manufac
f
turing our product candidates for
f
clinical development and any products we successfully
commercialize independently;
•
opportunities to in-license or otherwise acquire new technologies and therapeutic candidates
•
costs associated with prosecuting our patent infringement suit regarding use of a coronavirus 3CL protease
inhibitor in Paxlovid, Pfizer’s antiviral treatment for COVID-19;
•
the timing of, and the costs involved in, obtaining regulatory a
r
ppr
a
ovals 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
f
sale, including marketing, sales and distribution costs;
•
the timing and amount of any sales of our product candidates, if any, or royalties thereon;
•
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents, including any
litigation costs and the outcomes of any such litigation; and
•
potential fluctuations in foreign currency exchange rates.
Accordingly, we will need to obtain additional fundi
f
ng to suppor
u
t our operations. Additional funds
f
may not be availabl
a e if
and when we need them, on terms that are acceptabl
a e to us, or at all. Our abi
a lity to raise fun
f
ds will depend on financial,
economic and market conditions and other factors, many of which are beyond our control. If adequate funds are not
availabl
a e to us on a timely basis, we may be required to delay, limit, reduc
d
e or terminate preclinical studi
t
es, clinical trials or
other research and development activities for
f
one or more of our product candidates.
Our revenues are depe
e
nden
d
t upo
u
n royalty
l
revenues der
d
ived from AbbVie
V ’s net sales
l
of its MAVYRET
Y
/M
T
AVI
M
RET
I
regi
e me
i
n for
f
HCV, which inc
i
ludes our protea
t
se inhibito
i r, gleca
l
pr
a
evir.
i
If AbbVie
V
is unable t
l
o m
t
aint
i
ai
t n s
i
ales
l
of this
33
regi
e me
i
n at or above current levels o
l
f s
o
ales
l
, o
s
ur roya
o
lty revenues, as well as our retai
t ne
i
d cash portion of r
o
oyalti
l es, w
s
ill be
adverse
r
ly affe
f cted
t
.d
AbbVie’s MAVYRET/MAVIRET regimen continues to be a leading HCV treatment in the U.S. and several market
geographies in developed countries where it is appr
a
oved. While commercialization of this regimen is exclusively in
AbbVie’s control without any required input from us, we believe it is possible that prices will decline fur
f
ther due to payors
obtaining additional discounts or competitive market dynamics. For example, the states of Louisiana and Washington have
negotiated a blanket price for one of the HCV drug
r
companies to treat all patients in one or more state programs (e.g.,
Medicaid). Gilead has been awarded the contract in Louisiana and other states and AbbVie has been awarded the contract in
Washington and other states. In addition, Gilead has been able to access the Medicaid market at a lower price point to build
its market share by using an authorized generic version of its HCV regimen branded as Epclusa®. It is unknown whether
these programs or other programs that states may adopt could have any further impact on MAVYRET/MAVIRET sales.
There may also be fluctuations in AbbVie’s market share over time due to these and other competitive actions by Gilead.
In addition, in light of continued fis
f cal crises experienced by several countries in the European Union and Japa
a
n,
governments have announced or implemented measures to manage and reduc
d
e healthcare expenditures. AbbVie may
experience global pricing pressure for its MAVYRET/MAVIRET regimen fro
f
m such measures, which may be refle
f cted in
larger discounts or rebates on its regimens or delayed reimbursement. Also, private and public payors may choose to
exclude AbbVie’s MAVYRET/MAVIRET regimen from their for
f
mulary coverage lists or limit the types of patients for
f
whom coverage will be provided. Any such change in formulary c
r
overage, discounts or rebates or reimbursement for
MAVYRET/MAVIRET would negatively affect the demand for
f
this regimen and our royalty revenue derived from
f
its
sales.
In addition, AbbVie has the right to make decisions regarding the commercialization of licensed products without
consulting us. For example, in 2018 AbbVie entered into a royalty-free licensing agreement with the Medicines Patent Pool
to accelerate access to generic versions of MAVYRET/MAVIRET in 99 low- and middle-income countries and territories.
AbbVie may also 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 royalty revenues.
We and AbbVie
V
face substantia
t l compe
m
titi
i on in the marke
r
ts for HCV
H
drugs,
g
and the
t
re are many c
n
ompan
m
ies devel
d
opi
l
ng
i
poten
t
tial therapies for RSV and other vira
i
l inf
i
ec
f
tions, a
s
s well a
l
s for
f
CSU, AD and other immunology
o
dise
i
ases, w
s
hich
may r
a
esult i
l
n o
i
thers d
r
is
d covering
i
, d
g
ev
d
elopi
l
ng
i
or commercializing products b
t
efor
f
e we do o
d
r doi
d ng
i
so more successful
f
ly
l
than we do.
The pharmaceutical and biotechnology industries are intensely competitive and rapi
a dly changing. Many large
pharmaceutical and biotechnology companies, academic institut
t ions, governmental agencies and other public and private
research organizations are commercializing or pursuing the development of products that target viral infect
f
ions, including
HCV, RSV and immunology diseases, including CSU and AD, as well as SARS-CoV-2 and HBV assets and other viral
infections or diseases that we may target in the future. Many of our competitors have subs
u
tantially greater commercial
infrastructur
t
e and greater financial, technical and personnel resources than we have, as well as drug candidates in late-stage
clinical development.
In all the disease areas currently in the foc
f
us of our research and development efforts, there are other companies with
product candidates that are more advanced than ours. Our competitors may succeed in developing these product candidates
or others and obtaining regulatory a
r
ppr
a
oval befor
f
e we can do so with any of our product candidates. If we are not “fir
f st 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 diffi
f cult for us to obtain marketing appr
a
oval for
f
that product candidate and market
acceptance of that product candidate as a fol
f low-on competitor. In addition, any new product that competes with an
approved product typically must demonstrate compelling advantages in effi
f cacy, convenience, tolerabi
a lity or safety, or
some combination of these factors, to gain regulatory a
r
ppr
a
ovals, overcome price competition and be commercially
successful
f .
RSV, CSU and AD, as well as COVID-19 and HBV, represent competitive therapeutic areas.
For RSV, there are currently no safe and effective therapi
a es for already established RSV infection. Several companies are
seeking to develop antiviral treatments for
f
RSV infec
f
tion in adul
d t and pediatric patients. Ark Biosciences and Shionogi have
compounds in clinical development.
There are several prophylaxis options on the market or in development. AstraZeneca/Sanofi (
f
BEYFORTUS®) and Merck
(Clesrovimab – P
a
hase 3 complete) are developing long-acting monoclonal antibodies for prophylaxis use in infan
f
ts, and
Pfiz
f er has an appr
a
oved maternal vaccine (ABRYSVO®), all of which provide passive immunity to infants. Sanofi is also
evaluating a vaccine in infan
f
ts and toddlers (RSVt vaccine – Phase 3). There are also two approved RSV vaccines for
f
adul
d ts
34
over 60 years of age (Pfizer/A
r
BRYSVO® and Moderna/Mresvia®) and one approved RSV vaccine for adults over 50 years
of age (GSK/AREXVY®).
For CSU, there are a number of diffe
f rent mechanisms being explored, including inhibitors of IL-4R, IgE, BTK, SIGLEC-6,
and MRGPRX2
R
. Specifically for
f
KIT inhibitors, there are companies with antibodies in development, including Celldex
(barzolvolimab -
a
Phase 3) and Jasper (briquilimab -
a
Phase 1b/2a), as well as companies with oral, small molecules in early
clinical or preclinical development, including Third Harmonic, Blueprint, Arcus, and Alivexis.
For AD, the moderate-severe atopic dermatitis treatment landscape is dominated by biologics targeting the IL-4 and/or IL-
13 pathway (e.g., DUPIXENT® (dupi
d
lumab)
a
and ADBRY® (tralokinumab-ldrm)), with JAK inhibitors (e.g., RINVOQ®
(upa
u
dacitinib) and CIBINQO® (abr
a
ocitinib)) as the only oral option. Multiple oral mechanisms are in development,
including inhibitors of MRGPRX2, IRAK
R
4, STAT6, RASP and PKM2. The latest stage oral assets are in Ph2 (Incyte
MRGPRX2 – Ph2a; Sanofi/K
f
ym
K
era IRAK4 – Ph2). For STAT6 inhibitors specifically, companies with oral assets in
development include Kymera (KT-621 – Phase 1) and Sanofi/R
f
ecludix (preclinical).
In the chronic HCV market, we expect AbbVie’s MAVYRET/MAVIRET to continue to face intense competition due
d
to
existing appr
a
oved HCV products. AbbVie’s MAVYRET/MAVIRET regimen currently faces competition in various world
markets and subpopul
u
ations of HCV fro
f
m Gilead’s Epclusa® (a fixed dose combination of sofos
f
buvir and velpatasvir),
Vosevi® (a triple combination therapy
a
of sofosbuvir, velpatasvir and voxilapr
a
evir approved by the FDA for
f
specified
sofosbuvir treatment failures and NS5A-inhibitor treatment failures) and Harvoni® (a fixed-dose combination of sofos
f
buvir
and ledipasvir); and to a lesser extent - Merck’s Zepatier® (a fixed-dose combination of grazoprevir and elbasvir). Gilead
launched authorized generic versions of Epclusa and Harvoni through its subs
u
idiary, Asegua Therapeutics, LLC, which
have had an impact on the competitive landscape
a
. For example, the state of Louisiana selected Asegua as their HCV
subs
u
cription model pharmaceutical partner to provide the state with unrestricted access to its direct-acting antiviral
medication.
Other competitive products in the for
f
m of other treatment methods or a vaccine for
f
HCV may render
MAVYRET/MAVIRET obsolete or noncompetitive. MAVYRET/MAVIRET will face competition based on its safet
f y and
effe
f ctiveness, reimbursement coverage, price, patent position, AbbVie’s marketing and sales capabilities, and other factors.
If MAVYRET/MAVIRET faces
f
competition fro
f
m generic products other than authorized generic versions by the
manufac
f
turer of the branded product (e.g., Gilead and Asegua Therapeutics), our collabor
a
ation agreement provides that the
royalty rate applicable to our protease product contained in the regimen is reduc
d
ed 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, including any generic products, our business will not grow and our financial condition, operations and stock price
will suffer.
For COVID, there are two oral antiviral treatments for
f
non-hospitalized, high-risk patients with SARS-CoV-2 infection:
PAXLOVID™, a 3CL protease inhibitor (nirmatrelvir) boosted with ritonavir (full approval), and LAGEVRIO™
(molnupiravir), a polymerase inhibitor (Emergency Use Authorization). There are no oral direct acting antivirals for
f
the
treatment of SARS-CoV-2 in late stage global clinical trials.
While there are antiviral medications prescribed for HBV that can suppr
u
ess HBV DNA, they generally have low cure rates,
resulting in the need for lifel
f ong treatment. Many companies are seeking to develop new HBV drugs
r
that alone or in
combination with other mechanisms could lead to a func
f
tional cure for
f
HBV. Vir, GSK, Arbut
r
us
t
, and Roche have multiple
combination regimens under investigation in later stage clinical studi
t
es. In addition, a number of companies have Phase 1 or
earlier stage HBV programs.
If we are not able to develop new products that can compete effe
f ctively against our current and fut
f ur
t
e competitors, our
business will not grow and our financial condition, operations and stock price will suffe
f r.
We have not dev
d
elope
l
d ind
i
ep
d
endently
t
any a
n
ppr
a
oved products a
t
nd we have limited
t
clin
l
ical developm
l
ent exp
e
erience,
which makes it d
i
if
d fi
f cult to assess our ability
i
to develop
l
and commercialize our product candid
d at
d es
t
.
AbbVie has been responsible for all of the clinical development of our HCV protease inhibitor products. We have not yet
demonstrated an ability to address successful
f ly many of the risks and uncertainties associated with late-stage clinical
development, regulatory a
r
pp
a
roval and commercialization of therape
a
utic products such as the ones we plan to develop
independently. For example, to execute our business plan for
f
the development of our independent RSV programs, we will
need to successful
f ly:
•
execute clinical development of our product candidates and demonstrate acceptable safety and efficacy for them
alone or in combination with other drugs or drug
r
candidates;
•
obtain required regulatory a
r
ppr
a
ovals for the development and commercialization of our product candidates;
35
•
develop and maintain any fut
f ur
t
e collabor
a
ations we may enter into for any of these programs;
•
obtain and maintain patent protection for
f
our product candidates and freedom from infri
f ngement of intellectua
t
l
property of others;
•
establ
a ish acceptabl
a e commercial manufac
f
turing arrangements with third-party manufact
f
ur
t
ers;
•
build and maintain robust sales, distribution and marketing capabilities, either independently or in collabor
a
ation
with future collabor
a
ators;
•
gain market acceptance for our product candidates among physicians, payors and patients; and
•
manage our spending as costs and expenses increase due to clinical trials, regulatory a
r
ppr
a
ovals and
commercialization.
If we are unsuccessful in accomplishing these objectives, we may not be able to successful
f ly develop and commercialize
our product candidates and expand our business or continue our operations.
If we are not successful
f
in developi
l
ng
i
zelicapav
a
ir or EDP-
D
323, or disc
i
overing and developi
l
ng
i
KIT and STAT
T
6 i
T
nhi
i
bito
i rs,s
or in obtai
t ni
i
ng
i
a partner to advance EDP-
D
235 or EDP-
D
514, or in disc
i
overing fur
f
ther product candid
d at
d es
t
, o
s
ur abilit
i
y t
t
ot
expan
x
d our busine
i
ss and achieve our strateg
t
ic objectiv
t es will
i
be impai
m
re
i
d.
Much of our internal research is at preclinical stages. Research programs designed to identify p
f
roduct candidates require
subs
u
tantial technical, financial and human resources, whether or not any product candidates are ultimately identified. Our
research programs may initially show promise in identifyi
f ng additional potential product candidates, yet fai
f l to yield
product candidates for
f
clinical development or commercialization for
f
many reasons, including the fol
f lowing:
•
the research methodology used may not be successful
f
in identifyi
f ng additional potential product candidates;
•
competitors may develop alternatives that render our product candidates less commercially viable or obsolete;
•
competitors may obtain intellectua
t
l property protection that effectively prevents us fro
f
m developing a product
candidate;
•
a product candidate may, on further study, be shown not to be an effe
f ctive 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 c
r
riteria; and
•
a product candidate may not be capable of being produced in commercial quantities at an acceptabl
a e cost, or at
all.
Additional drug candidates that we may develop will require significant research, preclinical and clinical studi
t
es, regulatory
r
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 unabl
a e to
identify additional compounds suitabl
a e for
f
preclinical and clinical development, we may not be able to obtain suffi
f cient
product revenue in future periods, which likely would result in significant harm to our financial position and adversely
impact our stock price.
If we fail to attr
t act and keep senior manage
a
ment and key scientif
t ic
f
personnel, we may b
a
e unable t
l
o s
t
uccessful
f
ly
l
develop
o
our product candid
d at
d es
t
, c
s
onduct our clinical trials and commercialize
i
our product candid
d at
d es
t
.
Our success depends in part on our continued abi
a lity to attract, retain and motivate highly qualified management, clinical
and scientific
f
personnel. We are highly dependent upon our senior management, particularly Jay R. Luly, Ph.D., our Chief
Executive Offi
f cer and President, Yat Sun Or, Ph.D., our Senior Vice President, Research and Development and Chief
Scientific
f
Offi
f cer, and Scott T. Rottinghaus, M.D., our Senior Vice President and Chief Medical Offi
f cer, as well as other
employees and consultants. Although none of Drs. Luly, Or, or Rottinghaus has infor
f
med us to date that he expects 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
f
development of our product candidates.
While we have not historically experienced unique difficulties attracting and retaining qualifie
f d employees, we could
experience such problems in the future. For example, competition for
f
qualifie
f d 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 ultimately seek regulatory approvals and prepare for commercial activities. We may not be able to attract
and retain quality personnel on acceptabl
a e terms.
36
We may e
a
ncounter
t
diffi
i
culties exp
e
anding
i
our ope
o
rations successful
f
ly
l
to advance our product candid
d at
d es
t
.
As we seek to advance our product candidates through clinical trials, we will need to expand our development, regulatory,
r
manufac
f
turing, marketing and sales capabilities or contract with third parties to obtain these capa
a
bi
a lities. As our pipeline
expands, we expect that we will need to manage additional relationships with various strategic partners, suppl
u
iers and other
third parties. Futur
t
e growth will impose significant added responsibilities on members of management. Our fut
f ur
t
e fin
f ancial
performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our
ability to manage any fut
f ur
t
e growth effectively. To that end, we must be able to manage our development efforts and
clinical trials effe
f ctively 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
successful
f ly growing our company.
Risks Related to Development, Clinical Testing and Regulatory Approval of Our Product Candidates
Clin
l
ical drug developm
l
ent inv
i
olves
l
a len
l
gthy
t
and expe
e
nsive process with
i
uncertai
t n t
i
ime
t
lines and uncertain outcomes.
Any o
n
ngoing
i
or future clin
l
ical trials of our product candid
d at
d es
t
may f
a
ai
f l t
i
o d
t
em
d
onstra
t
te suffi
u
cient safet
f y a
t
nd effi
f cacy. I
y
fI
clin
l
ical trials of any o
n
f o
o
ur proprietary product candid
d at
d es
t
are prolonged or delaye
a
d or fai
f l,
i we may b
a
e unable t
l
ot
commercialize our product candid
d at
d es
t
on a time
t
ly basis or ever.r
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 dur
d
ing clinical development. None of our product
candidates in our pipeline, other than glecaprevir, which was clinically developed by AbbVie, has yet to advance beyond
Phase 2 clinical trials. Any ongoing or future clinical trials of our product candidates may fail to demonstrate suffi
f cient
safety and efficacy. Moreover, regulatory a
r
nd administrative delays for
f
any product candidate in our pipeline may adversely
affe
f ct our or any fut
f ur
t
e collabo
a
rator’s clinical development plans and jeopardize our or any fut
f ur
t
e collabor
a
ator’s ability to
attain product appr
a
oval, commence product sales and compete successful
f ly against other therapies.
Clinical trials can be delayed for
f
a variety of reasons, including delays related to:
•
reaching an agreement on acceptabl
a e terms with prospective contract research organizations, or CROs, and
clinical trial sites, the terms of which can be subj
u ect to extensive negotiation and may vary s
r
ignificantly among
different CROs and trial sites;
•
failure of third-party contractors, such as CROs, or investigators to comply with regulatory r
r
equirements;
•
failure to obtain on a timely basis, or at all, the necessary approvals from regulators or institutional review
boards, or IRBs, to commence a clinical trial at a prospective trial site, or their suspension or termination of a
clinical trial once commenced;
•
difficulty in recrui
r ting suitabl
a e patients to participate in a trial;
•
the broader impact of COVID-19 and other viruses on the incidence of RSV;
•
seasonality and variations in the incidence of infection year to year (e.g., RSV) affe
f cting enrollment in clinical
trials;
•
difficulty in having patients complete a trial or return for post-treatment follow-up;
•
clinical sites deviating fro
f
m trial protocol or dropping out of a trial;
•
problems with drug
r
product or drug substance storage and distribution;
•
having to add new clinical trial sites;
•
our inability to manufact
f
ur
t
e, or obtain fro
f
m third parties, adequate suppl
u
y of drug product suffi
f cient to
complete our preclinical studi
t
es and clinical trials;
•
changes in governmental or regulatory a
r
dministration;
•
lack of clear guidance or changes in regulatory r
r
equirements, policy and guidelines, including guidelines
specifically addressing requirements for the development of treatments for
f
RSV, COVID-19 or HBV infec
f
tion;
•
difficulty in obtaining and maintaining adequate insurance coverage;
•
program discontinuations or clinical holds for a program of a competitor, which could increase the level of
regulatory s
r
crut
r iny 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
37
•
varying interpr
r
etations of data by the FDA, the EMA and similar foreign regulatory a
r
gencies.
We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institut
t ions in which
such trial is being conducted, by any Data Safet
f y Monitoring Board, or DSMB, for
f
such trial, or by the FDA, the EMA or
other regulatory a
r
uthorities. Such authorities may impose such a suspension or termination due
d
to a number of fact
f
ors,
including failure to conduct the clinical trial in accordance with regulatory r
r
equirements or our clinical protocols, inspection
of the clinical trial operations or trial site by the FDA or other regulatory a
r
uthorities resulting in the imposition of a clinical
hold, unfor
f
eseen safety issues or adverse side effects, failure to demonstrate a benefit
f
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 fro
f
m trials or other clinical data regarding another company’s product
candidate in the same compound class as one of ours. If we or any fut
f ur
t
e collabor
a
ators experience delays in the completion
of, o
f
r 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 fro
f
m the product candidate will
be delayed. In addition, any delays in completing our clinical trials will increase our costs in the long term 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 fac
f
tors that cause, or lead to, a delay in the commencement
or completion of clinical trials may also ultimately lead to the denial of regulatory a
r
ppr
a
oval of our product candidates.
Zelicapav
a
ir or EDP-
D
323, or any o
n
ther product candid
d at
d e e
t
merging fro
f
m our current research programs, may h
a
ave
undes
d
irable s
l
ide e
d
ff
e ec
f
ts which may delay o
a
r prevent marke
r
ting appr
a
oval or, i
r f a
i
ppr
a
oval is received, r
d
equire
i
our product
candid
d at
d e t
t
o b
t
e take
t
n off
o
the marke
r
t, require us to i
t
nc
i
lude safe
a ty warnings or othe
t
rwise limit
l
sales.
In our RSV program, we are developing inhibitors of the N-protein and L-protein. No inhibitor of the RSV N- or L-protein
has progressed beyond a Phase 2 clinical trial, so we are not yet able to assess the potential liabilities of an N-protein or L-
protein inhibitor in large scale studies or in the general population. In addition, the principal target populations in RSV,
namely infants, the elderly, and the immunocompromised, represent sensitive or high-risk patient populations that could be
more prone to adverse effects of therapy.
If any of our product candidates receives marketing approval and we or others later identify undesirable or unacceptable
side effects caused by such products:
•
regulatory a
r
uthorities may require the addition of labeling statements, specific warnings, a contraindication or
field alerts to physicians and pharmacies;
•
we may be required to change instruc
r
tions 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;
•
the product may be subj
u ect to additional distribution restrictions under a REMS, if required by the FDA;
•
sales of the product may decrease significantly;
•
regulatory a
r
uthorities may require us to take our approved product off the market;
•
we may be subject to litigation or product liabi
a lity claims; and
•
our reputation and our stock price may suffe
f r.
Any of these events could prevent us from achieving or maintaining market acceptance of the affe
f cted product or could
subs
u
tantially increase commercialization costs and expenses, which in turn could delay or prevent us fro
f
m generating
significant revenue from the sale of any product we may develop.
If we are require
i
d to s
t
uspe
s
nd or disc
i
ontinue clin
l
ical trials due to s
t
ide e
d
ffe
e
cts o
t
r other safe
a ty risk
i
s a
k
ssociated
t
with
i
our
product candid
d at
d es
t
, o
s
r if w
i
e are required to conduct studies on the lon
l
g-term effe
f cts a
t
ssociated with t
t
he
t
use of a
o
ny of
those product candid
d at
d es
t
, t
s he
t
n commercializatio
t n any of those product candid
d at
d es
t
could b
l
e del
d ay
l
ed or halted
t
.d
Clinical trials involving our produc
d
t candidates may be suspended or terminated at any time for
f
a number of safet
f y-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
a
including any of them, presents an unacceptabl
a e safet
f y risk to the clinical trial patients. In
addition, IRBs or regulatory a
r
gencies may order the temporary d
r
iscontinuation or termination of clinical trials at any time if
they believe that the clinical trials are not being conducted in accordance with applicable regulatory r
r
equirements, including
if they present an unacceptable safety risk to patients. Administering any product candidate to humans may produce
undesirabl
a e side effects. The existence of undesirabl
a e side effects resulting fro
f
m any of our product candidates, or a
combination therapy
a
including any of them, could cause us or regulatory a
r
uthorities, such as the FDA or EMA, to interrupt,
38
delay or halt clinical trials of our product candidates and could result in the FDA or EMA or other regulatory a
r
gencies
denying further development or app
a
roval of our product candidates for
f
any or all targeted indications. This, in turn, could
prevent us fro
f
m commercializing our product candidates.
Results of earlie
l r clini
i
cal tri
t als m
l
ay not be predictiv
t e of t
o
he
t
results of later-stage
t
clin
l
ical trials.
To date we have only tested our product candidates through initial Phase 2 studies. The results of preclinical studi
t
es and
these 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 fai
f l to show the desired safety and efficacy results
despite having progressed through preclinical studi
t
es and initial clinical trials. For example, several companies engaged in
clinical development in the disease areas we are also engaged in have suffe
f red significant setba
t
cks in advanced clinical
trials due to adverse safet
f y profiles or lack of efficacy, notwithstanding promising results in earlier studies. Similarly, future
clinical trial results may not be successful
f
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 studi
t
es and early-stage and late-stage clinical trials
towards appr
a
oval and commercialization, it is customary t
r
hat various aspects of the development program, such as
manufac
f
turing and for
f
mulation, are altered along the way in an effo
f
rt 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 fut
f ur
t
e 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 regulat
l or
t
y a
r
ppr
a
oval processes of t
o
he
t
FDA,
D
the EMA
E
and other comparable f
l
or
f
eign
i
authorities are lengthy,
h
time
i
-
consuming and inherently
t
unpr
n
edic
d table,
l
and if w
i
e are ultima
l
tely unable t
l
o o
t
btai
t n t
i
im
t
ely r
l
egulat
l or
t
y a
r
pp
a
roval for
f
our
product candid
d at
d es
t
, o
s
ur busine
i
ss will
i
be substantia
t lly harmed.d
The regulatory a
r
ppr
a
oval process is expensive and, while the time required to gain FDA and for
f
eign regulatory a
r
ppr
a
oval is
uncertain, it may take years. Regulatory approvals are unpredictabl
a e and depend upon numerous factors, including the
subs
u
tantial discretion of the regulatory a
r
uthorities. In addition, approval policies, regulations, or the type and amount of
preclinical and clinical data necessary t
r
o gain appr
a
oval may change during the course of a product candidate’s clinical
development and may vary a
r
mong jurisdictions. We may be required to undertake and complete certain additional
preclinical studi
t
es to generate toxicity and other data required to support the subm
u
ission of a New Drug
r
Application, or
NDA, to the FDA or comparabl
a e appl
a
ication to other regulatory a
r
uthorities. AbbVie obtained all regulatory a
r
ppr
a
ovals for its
paritapr
a
evir-containing regimens and for
f
MAVYRET/MAVIRET, which contains glecaprevir. We have not obtained
regulatory a
r
ppr
a
oval 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 a
r
ppr
a
oval. Furthermore, approval in
the United States by the FDA does not ensure approval by regulatory a
r
uthorities in other countries or jurisdictions, and
approval by one foreign regulatory a
r
uthority does not ensure approval by regulatory a
r
uthorities in other foreign countries or
by the FDA.
Our product candidates could fail to receive regulatory a
r
ppr
a
oval for
f
many reasons, including the fol
f lowing:
•
the FDA, the EMA or other comparabl
a e for
f
eign regulatory a
r
uthorities may disagree with the design or
implementation of our clinical trials;
•
we may be unabl
a e to demonstrate to the satisfaction of the FDA, the EMA or other comparabl
a e for
f
eign
regulatory a
r
uthorities that a product candidate is safe and effective for
f
its proposed indication;
•
the results of clinical trials may not meet the level of statistical significance required by the FDA, the EMA or
other comparabl
a e for
f
eign regulatory a
r
uthorities for
f
approval;
•
we may be unabl
a e to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
•
the FDA, the EMA or other comparabl
a e for
f
eign regulatory a
r
uthorities may disagree with our interpretation of
data from preclinical studi
t
es or clinical trials;
•
the data collected from clinical trials of our product candidates may not be sufficient to support the subm
u
ission
of an NDA or other submissions or to obtain regulatory a
r
ppr
a
oval in the United States or elsewhere;
•
the FDA or comparable foreign regulatory a
r
uthorities may fail to approve the manufac
f
turing processes or
facilities of third-party manufact
f
ur
t
ers with which we contract for clinical and commercial supplies of any of our
product candidates; and
39
•
the appr
a
oval policies or regulations of the FDA, the EMA or other comparabl
a e for
f
eign regulatory a
r
uthorities
may significantly change in a manner rendering our clinical data insufficient for
f
approval.
We cannot be assured that, afte
f r spending subs
u
tantial time and resources, we will obtain regulatory a
r
ppr
a
ovals in any desired
jurisdiction. Even if we were to obtain appr
a
oval, regulatory a
r
uthorities may grant appr
a
oval 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 desirabl
a e for
f
the successful
f
commercialization of that product candidate. Significant clinical trial delays
could allow our competitors to obtain marketing appr
a
oval befor
f
e 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
f
our product candidates. In many foreign countries, including
those in the European Union, a product candidate must be approved for
f
reimbursement before it can be approved for
f
sale in
that country. Any of the for
f
egoing scenarios could materially harm the commercial prospects for
f
our product candidates and
our business.
The regulat
l or
t
y p
r
athw
t
ay for appr
a
oval of a the
t
rape
a
utic
t
treatment for
f
COVID-
I
19 such as EDP-
D
235 is contin
t
ually evolving
and may result in unexpe
x
cted
t
or unfo
n
reseen challe
l nges and lon
l
ger tim
t
elin
l
es than seen for earlier COV
C
ID
V
-19 vaccine
i
s
and the
t
rape
a
utic
t s.
Initial COVID-19 vaccines, therapeutic antibodies and other therapeutics that demonstrated positive results in clinical trials
have moved rapidly through the FDA regulatory r
r
eview and emergency use authorization, or EUA, process, as well as the
review and authorization process in a number of other jurisdictions, including the EU when there were no adequate,
approved, and available alternatives. The speed at which all parties acted to create and test many therapeutics for
f
COVID-
19 was unusual. The end of the pandemic, however, may have changed those dynamics. Evolving priorities within the FDA
or the regulatory a
r
uthorities in other jurisdictions, including changes based on new data regarding potential therapeutics of
others, and new variants of the virus, may significantly affe
f ct the regulatory t
r
imeline for
f
further authorizations or approvals
for therape
a
utics such as EDP-235. Accordingly, it is still uncertain what will be the timelines or regulatory p
r
rocesses
required for
f
the authorization or app
a
roval of new treatments for
f
COVID-19, including EDP-235.
Even if we receive regu
e
latory approval for any of our product candid
d at
d es
t
we develop
l
indepe
e
nden
d
tly, w
y
e will b
l
e subje
b ct to
ongoing
i
FDA o
D
blig
l atio
t ns and continu
i
ed regu
e
latory review in othe
t
r jurisdictio
t ns, w
s
hich may r
a
esult i
l
n s
i
igni
g
fi
i cant
additi
i onal expe
x
nse. Addi
d tio
i
nally, o
y
ur product candid
d at
d es
t
, i
s f a
i
ppr
a
oved, c
d
ould be subject to labeling and othe
t
r restrictions
and marke
r
t withdrawal and we may be subject to penaltie
t s if w
i
e or our collaborator
t
s f
r
ai
f l t
i
o c
t
ompl
m y w
l
ith regu
e
latory
requirements or expe
x
rience unanticipat
i
ed
t
problem
l
s with o
t
ur products.
t
Any regulatory a
r
ppr
a
ovals that we receive for
f
our product candidates we develop independently may be subject to
limitations on the appr
a
oved indicated uses for which the product may be marketed or subj
u ect to certain conditions of
approval, or may contain requirements for
f
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 manufact
f
ur
t
ing processes, labeling, packaging,
distribution, adverse event reporting, storage, advertising, promotion and recordkeeping for
f
the product will be subj
u ect to
extensive and ongoing regulatory r
r
equirements. These requirements include subm
u
issions of safety and other post-marketing
information and reports, as well as continued compliance with current good manufact
f
ur
t
ing practices, or cGMP, and good
clinical practices, or GCP, for
f
any clinical trials that we or our collabor
a
ators conduct post-approval. Later discovery of
previously unknown problems with a product, including adverse events of unanticipated severity or frequency, or with
third-party manufact
f
ur
t
ers or manufact
f
ur
t
ing processes, or fai
f lure to comply with regulatory r
r
equirements, may result in,
among other things:
•
restrictions on the marketing or manufact
f
ur
t
ing of the product, withdrawal of the product fro
f
m the market or
voluntary o
r
r mandatory product recalls;
•
fines, warning letters or holds on any post-approval clinical trials;
•
refusal by the FDA to appr
a
ove pending applications or suppl
u
ements to approved appl
a
ications 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
•
inju
n nctions or the imposition of civil or criminal penalties.
40
We cannot predict the likelihood, nature or extent of government regulation that may arise fro
f
m fut
f ur
t
e legislation or
administrative action, either in the United States or abr
a
oad. If we, or AbbVie in the case of any licensed HCV product, are
slow or unabl
a e to adapt
a
to changes in existing requirements or the adoption of new requirements or policies, or if we or
AbbVie are not able to maintain regulatory c
r
ompliance, our product candidates or AbbVie’s licensed HCV products may
lose any marketing approval that may have been obtained and we may not achieve or sustain profit
f ability, which would
adversely affect our business.
We may d
a
el
d ay
l
or terminate t
t
he
t
developm
l
ent of a
o
product candid
d at
d e a
t
t any time
i
if we believe the perceived market or
commercial oppor
o
tunity
i
does not justif
t y f
f
ur
f
ther investme
t
nt, w
t
hich could m
l
ater
t
ially harm our business and adverse
r
ly
affe
f ct our stock price.
Even though the results of preclinical studi
t
es and clinical trials that we have conducted or may conduct in the future may
suppor
u
t fur
f
ther 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 profil
f e of the product candidate is such that it may not receive regulatory
r
approvals in key markets, gain meaningful
f
market acceptance, otherwise provide any competitive advantages in its intended
indication or market or generate a significant retur
t
n to stockholders. Such a delay, suspension or termination could
materially harm our business, results of operations or financial condition.
Risks Related to Commercialization of Our Product Candidates
Unfa
n
vorable p
l
ricing
i
regu
e
lations, third-par
-
ty reimbursement practic
t es or health
l
care refo
e
rm initia
t tives in the Uni
U
te
i d
Stat
t es
t
could h
l
arm o
r
ur busine
i
ss.
The regulations that govern marketing appr
a
ovals, pricing and reimbursement for new drug
r
products vary widely from
country to country. In the United States, the Patient Protection and Affo
f
rdable Care Act, as amended by the Health Care and
Educ
d
ation Affordability Reconciliation Act of 2010, collectively refer
f red to as the ACA, has significantly changed the way
healthcare is fin
f anced 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
MAVYRET/MAVIRET or 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, several states have not implemented the provisions of the ACA that involve the expansion of
Medicaid-eligibility for low-income adults. While the United States Supreme Court recently rejected the latest challenge to
the constitutionality of the ACA, it is possible that other legislative efforts may seek to modify it. We cannot predict what
effe
f ct any legislation may have on us or on AbbVie’s sales of MAVYRET/MAVIRET. In addition, other legislative
changes have been proposed since the Affo
f
rdable Care Act was enacted. There has been increasing legislative and
enforcement interest in the United States with respect to drug
r
pricing practices. Most recently, the Inflation Reduc
d
tion Act
of 2022, or IRA,
R
which, among other provisions, included several measures intended to lower the cost of prescription drugs
and related healthcare refor
f
ms. Specifically, the Act authorizes and directs the Department of Health and Human Services,
or DHHS, to set drug price caps
a
for certain high-cost Medicare Part B and Part D qualifie
f d drugs, with the initial list of
drugs
r
selected in August 2023, and the first year of maximum price applicability to begin in calendar year 2026. The Act
further authorizes the DHHS to penalize pharmaceutical manufact
f
ur
t
ers that increase the price of certain Medicare Part B
and Part D drugs
r
faster than the rate of infla
f tion. Finally, the Act creates significant changes to the Medicare Part D benefit
design by cappi
a
ng Part D benefic
f iaries’ annual out-of-pocket spending beginning in calendar year 2025. We cannot be sure
whether additional or related legislation or rul
r emaking will be issued or enacted, or what impact, if any, such changes will
have on the royalty revenue we receive from MAVYRET/MAVIRET or revenue from any of our drug
r
candidates, if
approved for
f
commercial use, in the fut
f ur
t
e. If any fur
f
ther healthcare refor
f
m measures adopted in the fut
f ur
t
e result in
additional downward pressure on the price that AbbVie receives for MAVYRET/MAVIRET, this would adversely affect
our future revenues, and the price of our common stock could be materially adversely affected.
Our abi
a lity to commercialize any product candidate successful
f ly, as well as AbbVie’s continued commercialization of
MAVYRET/MAVIRET, will also depend in part on the extent to which reimbursement for these products and related
treatments will be availabl
a e fro
f
m 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
f
and establish reimbursement levels. A primary t
r
rend in the U.S.
healthcare industry i
r
s cost containment. Government authorities and third-party payors have attempted to control costs by
limiting coverage and the amount of reimbursement for
f
particular medications. In the case of HCV, limitations of coverage
have recently been used to limit access to HCV treatments for
f
only those patients with more advanced fibrosis. Increasingly,
third-party payors are requiring that drug companies provide them with predetermined discounts fro
f
m 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 availabl
a e for
f
any product that we may commercialize and, if reimbursement is availabl
a e, the level of
41
reimbursement. In addition, reimbursement may impact the demand for, or the price of, M
f
AVYRET/MAVIRET or any
product candidate for which we may obtain marketing appr
a
oval. If reimbursement is not availabl
a e or is availabl
a e only to
limited levels, we may not be able to successful
f ly commercialize any product candidate for which we may seek marketing
approval.
There may be significant delays in obtaining reimbursement for newly approved drugs, and coverage may be more limited
than the purpos
r
es for which the drug is appr
a
oved by the FDA or comparabl
a e 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, manufactur
t
e, sale and distribution. Interim reimbursement levels for new drugs
r
, if
applicable, may also be insufficient to cover our and any collabor
a
ator’s costs and may not be made permanent.
Reimbursement rates may vary according to the use of the drug
r
and the clinical setting in which it is used, may be based on
reimbursement levels already set for lower cost drugs
r
and may be incorporated into existing payments for other services.
Net prices for
f
drugs
r
may be reduc
d
ed by mandatory discounts or rebates required by government healthcare programs or
private payors and by any fut
f ur
t
e relaxation of laws that presently restrict imports of drugs
r
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 continue to obtain coverage and profitabl
a e
payment rates from both government-funded and private payors for
f
MAVYRET/MAVIRET, or our inability to obtain 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 p
r
roposals
to change the healthcare system in ways that could affect our ability to sell our products profit
f ably. 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 h
r
as been a particular foc
f
us of these efforts and has been significantly affected by majo
a r
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 collabor
a
ation with AbbVie. The implementation of cost containment measures
or other healthcare refor
f
ms may limit our ability to generate revenue, maintain profitabi
a lity or commercialize our product
candidates.
Foreign g
g
overnm
r
ents tend to impo
m
se stri
t ct price controls,
l
which may adverse
r
ly affe
f ct our fut
f
ure profi
o ta
i bility
i
.y
In most foreign countries, particularly in the European Union and Japa
a
n, prescription drug pricing and/or reimbursement is
subj
u ect to governmental control. In those countries that impose price controls, pricing negotiations with governmental
authorities can take considerable time afte
f r the receipt of marketing appr
a
oval for
f
a product. To obtain reimbursement or
pricing appr
a
oval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of
our product candidate to other availabl
a e therapi
a es.
Some countries require approval of the sale price of a drug
r
before it can be marketed. In many countries, the pricing review
period begins afte
f r marketing or product licensing approval is granted. In some for
f
eign markets, prescription
pharmaceutical pricing remains subj
u ect to continuing governmental control even after initial appr
a
oval is granted. As a result,
we (or AbbVie in the case of MAVYRET/MAVIRET) might obtain marketing appr
a
oval for
f
a product in a particular
country, but then be subj
u ect to price regulations that delay the commercial launch of the product, possibly for
f
lengthy time
periods, and negatively impact the revenues that are generated fro
f
m 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 l
r
evels, or if there is competition fro
f
m lower priced cross-border sales, our results of operations will be
negatively affe
f cted.
If i
f n t
i
he
t
future, w
e
e are unable t
l
o e
t
stabl
t
is
l h our own sales
l
, m
s
arke
r
ting and dist
i ri
t bution capabilitie
i
s or enter
t
into licensing
i
or collaboratio
t n agr
a
eements for the
t
se purposes, w
s
e may not be successful
f
in commercializi
i ng
i
any p
n
roduct candid
d at
d es
t
.
We do not have a sales or marketing infra
f structur
t
e and have no sales, marketing or distribution experience. We will seek to
either build our own commercial infra
f structur
t
e to commercialize any products if and when they are approved, or enter into
licensing or collabor
a
ation agreements where our collabor
a
ator is responsible for commercialization, as in the case of our
collabor
a
ation with AbbVie, or where we have the right to assist in the fut
f ur
t
e development and commercialization of such
products.
To develop internal sales, distribution and marketing capabilities, we will have to invest significant amounts of fin
f ancial
and management resources, some of which will be committed prior to any confir
f mation that any of our proprietary product
candidates will be approved. For product candidates for
f
which we decide to perform sales, marketing and distribution
functions ourselves, we could face
f
a number of additional risks, including:
•
our inability to recrui
r t and retain adequate numbers of effe
f ctive sales and marketing personnel;
42
•
the inabi
a lity 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 offe
f red by sales personnel, which may put us at a competitive
disadvantage relative to companies with more extensive product lines; and
•
unfor
f
eseen costs and expenses associated with creating an independent sales and marketing organization.
Where and when appropriate, we may elect to utilize contract sales for
f
ces 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
f
our products, the resulting revenues or the profita
f
bi
a lity 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
f
in
entering into arrangements with third parties to sell, market and distribute our product candidates or may be unabl
a e 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 effe
f ctively.
If we do not establ
a ish sales, marketing and distribution capabilities successful
f ly, either on our own or in collabor
a
ation with
third parties, we will not be successful
f
in commercializing our product candidates.
Commercial success of o
o
ur product candid
d at
d es
t
depe
e
nds u
d
pon
u
sign
i
ific
f ant marke
r
t acceptance among phys
h
icians, p
s
atie
t ntst
and healthcare payors o
r
f a
o
ny resulting appr
a
oved drug.g
Zelicapavir, EDP-323, and any other product candidate that we may develop in the fut
f ur
t
e, whether as part of a combination
therapy or as a monotherapy,
a
are subject to market acceptance among physicians, healthcare payors, patients and the
medical community. The degree of market acceptance of any product candidate for which we obtain appr
a
oval for
f
commercial sale, will depend on a number of fact
f
ors, including:
•
the efficacy and safet
f y 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
f
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 therapi
a es 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 availabi
a lity of adequate reimbursement and pricing by third parties and government authorities and
successful
f
negotiation of fav
f
orable agreements with payors by us or any collabor
a
ator 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 fav
f
or of one or more competitive products;
•
the continued longevity of any market for
f
which we develop a drug;
•
the levels of fundi
f
ng provided by government-funded healthcare for
f
treatment of any disease for
f
which we
develop a drug;
r
•
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.
43
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 signific
f ant additional revenue. Further, if new, more fav
f
orably received therapi
a es are introduc
d
ed
afte
f r any such regimen achieves market acceptance, then we may not be able to maintain that market acceptance over time.
Risks Related to Our Dependence on Third Parties
We may n
a
ot be successful
f
in establis
l hing
i
new product collaboratio
t ns, w
s
hich could a
l
dverse
r
ly affe
f ct our ability
i
to develop
l
and commercialize one or more of our product candid
d at
d es
t
. If w
I
e are unsuccessfu
s
l in m
i
aint
i
ai
t ni
i
ng
i
or forming allia
l nces
on favorable t
l
er
t
ms
r
, o
s
ur busine
i
ss may n
a
ot succeed.d
We may seek to enter into additional product collabor
a
ations in the fut
f ur
t
e, including alliances with other biotechnology or
pharmaceutical companies, to enhance and accelerate the development and commercialization of one or more of our product
candidates. For example, our continued development of EDP-235 and EDP-514 are dependent on establ
a ishing
collabor
a
ations. We fac
f
e significant competition in seeking appr
a
opriate collabor
a
ators and the negotiation process is time-
consuming and complex. Moreover, we may not be successful
f
in our effo
f
rts to establish other product collabor
a
ations or
other alternative arrangements for
f
any product candidates and programs because our research and development pipeline
may be insuffi
f cient, our product candidates and programs may be deemed to be at too early of a stage of development for
f
collabor
a
ative effort and/or third parties may not view our product candidates and programs as having the requisite potential
to demonstrate safet
f y and effi
f cacy. Even if we are successful
f
in our effo
f
rts to establish product collabor
a
ations, the terms that
we agree upon
u
may not be favorable to us and we may not be able to maintain such product collabor
a
ations if, f
f
or
f
example,
development or appr
a
oval of a product candidate is delayed or sales of an approved product are disappoi
a
nting.
If our existing collabor
a
ation agreement with AbbVie is terminated, or if we determine that entering into other product
collabor
a
ations is in our best interest but we either fail to enter into, experience a delay in entering into, or fai
f l to maintain,
such collabor
a
ations:
•
the development of certain of our product candidates may be terminated or delayed;
•
our cash expenditures related to the development of certain of our product candidates would increase
significantly and we may need to seek additional fin
f ancing;
•
we may be required to hire additional employees or otherwise develop expertise, such as clinical, regulatory,
r
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 reduc
d
ed.
We intend to rely on third-par
-
ty manufa
u
cturers t
r
o p
t
roduce our dev
d
elopm
l
ent-stage
t
product candid
d at
d e s
t
uppl
p ie
l s and any
n
commercial suppl
p ie
l s of a
o
ny approved product candid
d at
d es
t
. Any failure by a
b
third-par
-
ty manufac
f
turer to p
t
roduce
acceptable s
l
uppl
p ie
l s for
f
us may d
a
el
d ay
l
or impair o
i
ur abili
i ty
i
to initiate o
t
r compl
m et
l e o
t
ur clin
l
ical trials or sell any r
n
esulti
l ng
i
product.t
We do not currently own or operate any manufact
f
ur
t
ing faci
f
lities. We plan to continue to work with third-party contract
manufac
f
turers to produce suffi
f cient quantities of any product candidates for
f
preclinical testing, clinical trials and
commercialization. If we are unabl
a e to arrange for such a third-party manufact
f
ur
t
ing source for any of our product
candidates, or fail to do so on commercially reasonabl
a e terms, we may not be able to successful
f ly produce, develop and
market one or more of our product candidates, or we may be delayed in doing so.
Reliance on third-party manufac
f
turers entails risks to which we would not be subj
u ect if we manufact
f
ur
t
ed product candidates
ourselves, including reliance on the third party for regulatory c
r
ompliance and quality control and assurance, volume
production, the possibility of breach of the manufac
f
turing agreement by the third party because of factors beyond our
control (including a fai
f lure to synthesize and manufact
f
ur
t
e our product candidates in accordance with our product
specifications), shutdowns of manufactur
t
ing sites or other supply chain constraints, 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 manufact
f
ur
t
ed according to cGMP and similar fore
f
ign
standards. Pharmaceutical manufactur
t
ers and their subcontractors are required to register their facilities and/or products
manufac
f
tured at the time of subm
u
ission of the marketing appl
a
ication and then annually thereafte
f r with the FDA and certain
state and foreign agencies. They are also subject to periodic unannounced inspections by the FDA, state and other for
f
eign
authorities. Any subsequent discovery of problems with a product, or a manufact
f
ur
t
ing or laboratory f
r
aci
f
lity used by us or
our collabor
a
ators, may result in restrictions on the product or on the manufac
f
turing or labor
a
atory f
r
aci
f
lity, including
marketed product recall, suspension of manufactur
t
ing, product seizure, or a voluntary w
r
ithdrawal of the drug from
f
the
market. Any failure by our third-party manufact
f
ur
t
ers to comply with cGMP or failure to scale up m
u
anufact
f
ur
t
ing processes,
44
including any fai
f lure to deliver sufficient quantities of product candidates in a timely manner, could lead to a delay in, or
failure to obtain, regulatory a
r
ppr
a
oval of any of our product candidates.
We plan to rely on third-party manufact
f
ur
t
ers to purchase fro
f
m third-party suppl
u
iers the materials necessary t
r
o produce our
product candidates for
f
our clinical studi
t
es. There are a small number of suppliers for certain capi
a tal equipment and materials
that we plan to use to manufact
f
ur
t
e our drugs
r
. Such suppliers may not sell these materials to our manufact
f
ur
t
ers at the times
we need them or on commercially reasonabl
a e 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 suffi
f cient 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
d
to the need to replace a third-party manufac
f
turer could considerably
delay completion of our clinical studi
t
es, product testing and potential regulatory a
r
ppr
a
oval of our product candidates. If our
manufac
f
turers or we are unabl
a e to purchase these materials after regulatory a
r
ppr
a
oval has been obtained for
f
our product
candidates, the commercial launch of our product candidates would be delayed or there would be a shortage in suppl
u
y,
which would impair our ability to generate revenue from the sale of our product candidates.
Contract manufact
f
ur
t
ers may not be able to manufact
f
ur
t
e our product candidates at a cost or in quantities or in a timely
manner necessary to develop and commercialize them. If we successful
f ly 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
establ
a ish or access large-scale commercial manufac
f
turing capabilities. We may require additional funds
f
, personnel and
other resources to build, lease or operate any manufact
f
ur
t
ing faci
f
lity.
A portion of o
o
ur research and a portion of o
o
ur manufac
f
turing
i
of certain key i
e
nt
i
er
t
me
r
diates
t
used in the manufac
f
ture of
the activ
t e pharmaceutical ingredie
d nts f
t
or
f
our product candid
d at
d es
t
takes place in China thr
t
ough
u
third-par
-
ty researchersr
and manufac
f
turers. A sign
i
ific
f ant dis
d rupt
u io
t n in t
i
he
t
operation of t
o
ho
t
se researchers o
r
r manufac
f
turers, o
s
r a trade war,
geopolit
l ic
t al unrest, legi
e sl
i at
l io
t n (su
(
ch as the propos
o
ed BIOS
I
ECU
S
RE
U
Act), sanctio
t ns or othe
t
r regulat
l or
t
y r
r
equire
i
ments,
t
or
an epidem
d
ic in China, such as the COV
C
ID
V
-19 pandemic, c
c
ould materially
l
adverse
r
ly affe
f ct our business, fina
i
ncial
conditi
d
on and results
l
of operations.
Although manufact
f
ur
t
ing for
f
MAVYRET/MAVIRET is being conducted by AbbVie, we have relied on third parties located
in China to manufact
f
ur
t
e and supp
u
ly certain key intermediates used in the manufact
f
ur
t
e of our active pharmaceutical
ingredients, or API, for our current product candidates, and we expect to continue to use such third party manufact
f
ur
t
ers for
f
such intermediates for
f
any product candidates we develop independently. Any disrupt
r
ion in production or inabi
a lity of our
manufac
f
turers in China to produce adequate quantities to meet our needs, whether as a result of a natur
t
al disaster, pandemic
or other cause, 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
f
our early-stage programs. Any disrupt
u ion 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. For example, either of these risks could be triggered by an epidemic such as the outbr
t
eak of COVID-19
in the Wuhan region of China or the series of so-called “lock-downs” in China when strict quarantine requirements were
imposed on large population areas in response to new incidents of COVID infection. Our contract manufact
f
ur
t
ers in China,
which are not located in the Wuhan region, managed to avoid any material delays in their abi
a lity to deliver API and other
services through extraordinary e
r
ffor
f
ts, including temporarily housing staff in the manufact
f
ur
t
ing faci
f
lity. Furthermore, since
these researchers and manufac
f
turers are located in China, we are exposed to the possibility of product supply disrupt
u ion and
increased costs in the event of changes in the policies of the United States or Chinese governments, geopolitical unrest or
unstabl
a e economic conditions in China. For example, a trade war could lead to tariffs on the chemical intermediates we use
that are manufact
f
ur
t
ed in China. In addition, our contract manufact
f
ur
t
ers and researchers in China may be subject to U.S.
legislation, sanctions, trade restrictions and other foreign regulatory r
r
equirements, which could increase the cost or reduce
the supply of material availabl
a e to us or delay or prevent the procurement or supply of such material. Any of these matters
could materially and adversely affect our business and results of operations despite our ongoing effo
f
rts to mitigate these
risks. For example, the recently proposed BIOSECURE Act that was passed by the U.S. House of Representatives in
September 2024, as well as a substantially similar bill in the U.S. Senate, target U.S. government contracts, grants, and
loans for
f
entities that use equipment and services from certain named Chinese biotech companies, and authorize the U.S.
government to name additional Chinese biotechnology companies of concern. If these bills become law, or similar laws are
passed, they would have the potential to severely restrict the abi
a lity of companies to work with certain Chinese
biotechnology companies of concern without losing the abi
a lity to contract with, or otherwise receive funding from, the U.S.
government.
Any recall of the manufactur
t
ing lots or similar action regarding our API used in clinical trials could delay the trials or
detract fro
f
m the integrity of the trial data and its potential use in fut
f ur
t
e regulatory f
r
ilin
f
gs. In addition, manufac
f
turing
interrupt
u ions or failure to comply with regulatory r
r
equirements by any of these manufac
f
turers could significantly delay
clinical development of potential products and reduc
d
e third-party or clinical researcher interest and support of proposed
45
trials. These interrupt
r
ions 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. Futur
t
e
appreciation of the local currency could increase our costs. In addition, our labor
a
costs could continue to rise as wage rates
increase due to increased demand for
f
skilled laborers and the availabi
a lity of skilled labor declines in China.
We rely on third parties to m
t
onitor
t
, s
r
uppor
p
t, conduct and/o
d r oversee clin
l
ical trials of our product candid
d at
d es
t
that we
develop
l
indepe
e
nden
d
tly a
l
nd, i
d n s
i
ome cases, t
s o m
t
aint
i
ai
t n r
i
egulat
l or
t
y f
r
ile
f
s for
f
those product candid
d at
d es
t
. If w
I
e are not able t
l
ot
maintain or secure agreements with
i
such third parties on acceptable t
l
er
t
ms
r
, i
s f t
i
he
t
se third parties do n
d
ot perfor
f
m t
r
he
t
ir
services as required, i
d f g
i
eopol
o
itic
l
al unrest disru
i
pt
u s a
t
ctiv
t ity a
t
t a number of o
o
ur clin
l
ical trial sites, or if these thi
t
rd
i
parties
fail to time
i
ly transfer
f
any r
n
egulat
l or
t
y i
r
nf
i
or
f
ma
r
tion held by them to us, w
s
e may not be able t
l
o c
t
onduct our clini
i
cal tri
t als i
l
n
i
a tim
t
ely m
l
anner, obtai
t n r
i
egulat
l or
t
y a
r
ppr
a
oval for, or commercializ
l e, our product candid
d at
d es
t
.
We rely on CROs, hospitals, clinics, academic institut
t ions and other third-party collabor
a
ators who are outside our control to
monitor, suppor
u
t, conduct and/or oversee preclinical and clinical studi
t
es of our product candidates. We also rely on third
parties to perform clinical trials of our product candidates if and when they reach that stage. As a result, we have less
control over the timing and cost of these studi
t
es and the ability to recrui
r t trial subj
u ects than if we conducted these trials
wholly by ourselves. If we are unabl
a e to maintain or enter into agreements with these third parties on acceptabl
a e terms or
engagement is terminated, we may be unabl
a e to enroll patients on a timely basis or otherwise conduct our trials in the
manner we anticipate. Additionally, although no situations to date have caused a significant disrupt
r
ion in our clinical trial
operations, geopolitical unrest or a pandemic could disrupt
u
a number of our clinical trial sites and cause one or more of our
clinical trials to be delayed. In the case of zelicapavir, we paused recrui
r tment and dosing as a result of the COVID-19
pandemic in March 2020, but we were able to resume the studies in July 2020. The pause in these studies, as well as the
absence of RSV in the population generally, delayed enrollment of these studies, and it is uncertain whether any of our other
ongoing studi
t
es may be subject to further disrupt
u ions. In addition, there is no guarantee that these third parties will devote
adequate time and resources to our studi
t
es or perform as required by a contract or in accordance with regulatory
r
requirements, including maintenance of clinical trial information regarding our product candidates. If these third parties fai
f l
to meet expected deadlines, fai
f l to timely transfer
f
to us any regulatory i
r
nfor
f
mation, fail to adhere to protocols or fai
f l to act
in accordance with regulatory r
r
equirements 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
r
agencies.
To the ext
e en
t
t we elect to enter int
i
o a
t
dditio
i
nal lic
l ensing
i
or collabor
l
atio
t n agr
a
eements t
t
o p
t
artner our product candid
d at
d es
t
,s
our dep
d
endence on such relat
l io
t nships
i
may a
a
dverse
r
ly affe
f ct our business.
Our commercialization strategy for
f
some of our product candidates may depend on our ability to enter into collabor
a
ation
agreements with other companies to obtain access to other compounds for use in combination with any of our product
candidates or for
f
assistance and fundi
f
ng 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 collabor
a
ators
and negotiating the financial and other terms of a collabor
a
ation agreement are long and complex processes with uncertain
results. Even if we are successful
f
in entering into one or more additional collabor
a
ation agreements, collabor
a
ations 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 collabor
a
ation under the terms provided is not in our best interest, and we may
terminate the collabor
a
ation. Our collabor
a
ators could delay or terminate their agreements with us, and our product candidates
subj
u ect to collabor
a
ative arrangements may never be successful
f ly commercialized.
Further, our collaborators may develop alternative products or pursue alternative technologies either on their own or in
collabor
a
ation with others, including our competitors, and the priorities or foc
f
us of our collaborators may shift s
f
uch that our
programs receive less attention or resources than we would like, or they may be terminated altogether. Any such actions by
our collabor
a
ators may adversely affect our business prospects and ability to earn revenue. In addition, we could have
disputes with our collabor
a
ators, such as the interpr
r
etation of terms in our agreements. Any 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 collabor
a
ators
to share in the burden of conducting clinical trials, manufac
f
turing and marketing our product candidates or products. In
addition, our ability to appl
a
y our proprietary technologies to develop proprietary compounds will depend on our abi
a lity to
establ
a ish and maintain licensing arrangements or other collabor
a
ative arrangements with the holders of proprietary rights to
such compounds. We may not be able to establ
a ish such arrangements on fav
f
orable terms or at all, and our collaborative
arrangements may not be successful
f .
Risks Related to Our Intellectual Property Rights
46
We are compe
m
ting
i
to develop
l
intellectual prope
o
rty i
t
n a
i
reas of small-
l molecule drug developm
l
ent tha
t
t are high
i
ly
competitiv
t
e. We could b
l
e unsuccessfu
s
l in o
i
btai
t ni
i
ng
i
or maintaining adequate p
t
aten
t
t protectio
t n for
f
one or more of o
o
ur
product candid
d at
d es
t
.
Our commercial success will depend, in large part, on our ability to obtain and maintain patent and other intellectua
t
l
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
f
to be
invalid and/o
d r unenfor
f
ceabl
a e, 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 factua
t
l considerations. The standards appl
a
ied by the United States Patent
and Trademark Offi
f ce and for
f
eign patent offi
f ces in granting patents are not always applied uniformly or predictabl
a y. For
example, there is no uniform worldwide policy regarding patentable subj
u ect matter or the scope of claims allowabl
a e in
biotechnology and pharmaceutical patents. Consequently, patents may not issue fro
f
m our pending patent applications. As
such, we do not know the degree of fut
f ur
t
e 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 in the past have been funded, and others may in the fut
f ur
t
e be funde
f
d, 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 funde
f
d under a contract with NIAID,
an entity of the United States fed
f
eral government. When new technologies are developed with United States fed
f
eral
government funding, the government obtains certain rights in any resulting patents, including a nonexclusive license
authorizing the government to use the invention for
f
non-commercial purpos
r
es. These rights may permit the government to
disclose our confid
f ential infor
f
mation 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 prefer
f ence to United States industry.
r
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 appl
a
ications. In addition, our rights in such inventions are subject to
certain requirements to manufact
f
ur
t
e products in the United States.
Clai
l ms
i
that our product candid
d at
d es
t
or the sale o
l
r use of our products i
t
nf
i
ri
f ng
i
e the
t
paten
t
t or other intellectual prope
o
rtyt
righ
i
ts of third parties could result in costly
t
litigatio
t n or could require substan
t
tial time and money to resolve, even if
litig
t atio
t n is a
i
voided
d
.d
Our commercial success depends upon our ability to develop, manufact
f
ur
t
e, market and sell our product candidates and use
our proprietary technology without infringing the intellectua
t
l 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 fut
f ur
t
e infri
f nge third-party patents or
other intellectua
t
l property rights. Third parties might allege that we or our collabor
a
ators are infringing their patent rights or
that we have misappropriated their trade secrets, or that we are otherwise violating their intellectua
t
l property rights, whether
with respect to the manner in which we have conducted our research or to the composition, use or manufact
f
ur
t
e 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,
f
which litigation could be based on either existing intellectua
t
l property or
intellectua
t
l property that arises in the future.
It is also possible that we fai
f led to identify,
f
or may in the future fail to identify,
f
relevant patents or patent appl
a
ications held
by third parties that cover our product candidates. Other patent appl
a
ications in the United States and several other
jurisdictions are published appr
a
oximately 18 months afte
f r the earliest filing for which priority is claimed, with such earliest
filing date being commonly refer
f red to as the priority date. Furthermore, publication of discoveries in the scientific
f
or patent
literatur
t
e often lags behind actua
t
l discoveries. Therefore, we cannot be certain that we or our collabor
a
ators were the first to
invent, or the first to fil
f e patent appl
a
ications on, our product candidates or for
f
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 fil
f ed 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
counterpa
r
rt to determine priority of invention. Additionally, pending patent applications which have been published can,
subj
u ect 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 intellectua
t
l 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 availabl
a e on acceptabl
a e 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 intellectua
t
l
property. Ultimately, we could be prevented from commercializing a product, or be forced, by court order or otherwise, to
47
cease some or all aspects of our business operations, if, as a result of actua
t
l or threatened patent or other intellectua
t
l
property claims, we are unabl
a e to enter into licenses on acceptabl
a e terms. Further, we could be found
f
liable for significant
monetary damages as a result of claims of intellectua
t
l property infri
f ngement. For example, we have received, and may in
the fut
f ur
t
e receive, offers to license and demands to license from third parties claiming that we are infringing their
intellectua
t
l property or owe license fees and, even if such claims are without merit, there can be no assurance that we will
successful
f ly avoid or settle such claims.
In addition, if AbbVie licenses or otherwise acquires rights to intellectua
t
l property controlled by a third party in various
circumstances, for
f
example, where a product could not be legally developed or commercialized in a country without the
third-party intellectua
t
l 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 infri
f ngement, misappropriation of trade secrets or other violations of intellectua
t
l
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 intellectua
t
l property rights could therefore have a material adverse
impact on our business.
Issued patents c
t
overing one or more of our product candid
d at
d es
t
could b
l
e fou
f
nd invalid or unenfor
f
ceable i
l
f c
i
hallenged in
court, includin
d
g as a result of counterclaims fil
f ed
l
agains
i
t us in c
i
onnectio
t n with our effo
e
rts t
t
o e
t
nfor
f
ce our int
i
el
t le
l ctual
property r
t
ight
g
s a
t
gai
a
ns
i
t thi
t
rd
i
parties.
Despite measures we take to obtain patent and other intellectua
t
l property protection with respect to our product candidates
and proprietary technology, any of our intellectua
t
l 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 unenfor
f
ceable, as has been asserted by Pfiz
f er in our patent
infringement suit regarding Paxlovid, Pfiz
f er’s antiviral treatment for COVID-19. In patent litigation in the United States and
in some other jurisdictions, defen
f
dant counterclaims alleging invalidity and/or unenfor
f
ceability are commonplace. Grounds
for a validity challenge could be an alleged failure to meet any of several statut
t ory r
r
equirements, for example, lack of
novelty, obviousness or non-enablement. Grounds for an unenfor
f
ceability assertion could be an allegation that someone
connected with prosecution of the patent withheld relevant information fro
f
m the United States Patent and Trademark
Offi
f ce, or the app
a
licable foreign counterpa
r
rt, or made a misleading statement, dur
d
ing prosecution. Although we believe that
we have conducted our patent prosecution in accordance with the dut
d y of candor and in good fai
f th, the outcome following
legal assertions of invalidity and unenfor
f
ceabi
a lity during patent litigation is unpredictabl
a e. 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 defen
f
dant were to prevail on a legal assertion of invalidity and/or unenfor
f
ceability, we
would lose at least part, and perhaps
a
all, of the patent protection on a product candidate. If a defendant were to prevail on a
legal assertion of invalidity and/or unenfor
f
ceability, other than in litigation like the Pfiz
f er case, which does not cover EDP-
235, we would lose at least part, and perhaps
a
all, of the patent protection on a product candidate. Even if a defendant does
not prevail on a legal assertion of invalidity and/or unenfor
f
ceability, our patent claims may be construe
r
d in a manner that
would limit our ability to enfor
f
ce 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
f
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 reasonabl
a e terms
or at all). Any effo
f
rts to enfor
f
ce our intellectua
t
l property rights are also likely to be costly, as has been and may continue to
be the case with the Pfizer suit, and may divert the efforts of our scientific
f
and management personnel.
Intellectual prope
o
rty l
t
it
l ig
t atio
t n may lead to unfa
n
vorable p
l
ublicity that harms our repu
e
tation and causes the marke
r
t price
of our common stock to declin
l
e.
During the course of any intellectua
t
l 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 intellectua
t
l 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
f
our future products, which could have a material adverse effect on our business.
48
Intellectual prope
o
rty r
t
ight
g
s d
t
o n
d
ot necessarily
i
protec
t
t us fro
f
m all poten
t
tial thr
t
eats to our compe
m
titive advantage
a
.e
The degree of fut
f ur
t
e protection afforded by our intellectua
t
l property rights is uncertain because intellectua
t
l property rights
have limitations, and may not adequately protect our business, or permit us to maintain our competitive advantage. The
following examples are illustrative:
•
others may be abl
a e 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 fir
f st to make the inventions covered by the issued patents or pending patent
applications that we own or may in the fut
f ur
t
e exclusively license, which could result in the patent applications
not issuing or being invalidated afte
f r issuing;
•
we might not have been the fir
f st to file patent applications covering certain of our inventions, which could
result in the patent appl
a
ications not issuing or being invalidated after issuing;
•
others may independently develop similar or alternative technologies or duplicate any of our technologies
without infringing our intellectua
t
l property rights;
•
it is possible that our pending patent applications will not lead to issued patents;
•
issued patents that we own may not provide us with any competitive advantages, or may be held invalid or
unenforceabl
a e, as a result of legal challenges by our competitors; we may obtain patents for certain compounds
many years befor
f
e we obtain marketing appr
a
oval for
f
products containing such compounds, and because patents
have a limited life,
f
which may begin to run
r
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 fro
f
m such activities to develop competitive products for sale in our
majo
a r commercial markets;
•
we may fai
f l to develop additional proprietary technologies that are patentabl
a e;
•
the laws of certain foreign countries may not protect our intellectua
t
l property rights to the same extent as the
laws of the United States (e.g., in March 2022, the Rus
R
sian government adopted a decree allowing Russian local
entities and individuals to use inventions, utility models and industrial designs held by owners from “unfri
f endly
states” without the consent fro
f
m the owner and liabi
a lity for compensation), or we may fail to apply for
f
or obtain
adequate intellectua
t
l property protection in all the jurisdictions in which we operate; and
•
the patents of others may have an adverse effec
f
t on our business, for example, by preventing us from
f
marketing
one or more of our product candidates for
f
one or more indications.
Any of the afor
f
ementioned threats to our competitive advantage could have a material adverse effect on our business.
Unfa
n
vorable o
l
utco
t
mes in i
i
nt
i
el
t le
l ctual prope
o
rty l
t
itig
l
atio
t n could limit our research and developm
l
ent activ
t ities and/o
d r our
abili
i ty
i
to commercialize certain products.
t
If third parties successful
f ly assert their intellectua
t
l property rights against us, we might be barred fro
f
m using certain aspects
of our technology or barred fro
f
m 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.
f
In addition, if we are unsuccessful
f
in defending against allegations that we have
infringed, misappropriated or otherwise violated patent or other intellectua
t
l property rights of others, we may be for
f
ced to
pay substantial damage awards to the plaintiff.
f
There is inevitabl
a e uncertainty in any litigation, including intellectua
t
l
property litigation. There can be no assurance that we would prevail in any intellectua
t
l property litigation, even if the case
against us is weak or flawed. If litigation leads to an outcome unfav
f
orable to us, we may be required to obtain a license
from the intellectua
t
l property owner to continue our research and development programs or to market any resulting product.
It is possible that the necessary l
r
icense will not be availabl
a e to us on commercially acceptabl
a e terms, or at all. Alternatively,
we may be required to modify or redesign our products to avoid infri
f nging or otherwise violating third-party intellectua
t
l
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 subs
u
tantially greater resources. They are, therefore, likely to be
able to sustain the costs of complex intellectua
t
l property litigation longer than we could. In addition, the uncertainties
associated with litigation could have a material adverse effec
f
t on our ability to raise the funds
f
necessary t
r
o conduct our
49
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 fut
f ur
t
e intellectua
t
l property litigation, interfer
f ence 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 fut
f ur
t
e strategic partners to loss of our proprietary position, expose us to significant liabi
a lities, or require us to seek
licenses that may not be availabl
a e on commercially acceptabl
a e terms, if at all, each of which could have a material adverse
effe
f ct on our business.
Confid
f en
d
tiality
i
agreements with
i
empl
m oy
l
ees and thi
t
rd
i
parties may not prevent unautho
t
rize
i
d dis
d clos
l
ure of t
o
ra
t
de secretst
and other proprietary info
n
rmatio
t n.
In addition to patents, we rely on trade secrets, technical know-how and proprietary information concerning our business
strategy and product candidates to protect our competitive position in the fie
f ld of each of our antiviral product candidates
and our NASH compounds. In the course of our research and development activities and our business activities, we ofte
f n
rely on confid
f entiality agreements to protect our proprietary information. Such confid
f entiality agreements are used, for
example, when we talk to vendors of laboratory o
r
r clinical development services or potential strategic partners. In addition,
each of our employees is required to sign a confid
f entiality agreement and invention assignment agreement upon
u
joining our
company. We take steps to protect our proprietary information, and our confid
f entiality agreements and invention
assignment agreements are careful
f ly drafte
f d 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 confid
f ential inform
f
ation. This
might happe
a
n intentionally or inadvertently. It is possible that a competitor will make use of such infor
f
mation, 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 intellectua
t
l 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 diffi
f cult to protect. Although we use reasonabl
a e efforts to protect our trade secrets, our employees,
consultants, contractors, business partners or outside scientific
f
collabor
a
ators might intentionally or inadvertently disclose
our trade secret infor
f
mation 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
unpredictabl
a e. 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 collabor
a
ators may have rights to publish data and other infor
f
mation to which we have rights. In addition, we sometimes
engage individuals or entities to conduct research relevant to our business. The abi
a lity of these individuals or entities to
publish or otherwise publicly disclose data and other information generated during the course of their research is subj
u ect to
certain contractua
t
l limitations. These contractua
t
l provisions may be insuffi
f cient or inadequate to protect our confid
f ential
information. If we do not apply for
f
patent protection prior to such publication, or if we cannot otherwise maintain the
confid
f entiality of our proprietary technology and other confid
f ential infor
f
mation, then our ability to obtain patent protection
or to protect our trade secret infor
f
mation may be jeopardized, which could adversely affect our business.
Changes in p
i
aten
t
t law
l
could d
l
im
d
inish the
t
value of p
o
aten
t
ts in general, thereby i
b
mp
i
airi
i ng
i
our abilit
i
y t
t
o p
t
rotect our
products.
t
As is the case with many other biopharmaceutical companies, our success is heavily dependent on intellectua
t
l property,
particularly patents. Obtaining, maintaining and enforcing patents in the biopharmaceutical industry i
r
nvolves 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 diffi
f cult to obtain, or increased the uncertainty regarding the ability to obtain, maintain and enfor
f
ce
patents. For example, Congress recently passed patent refor
f
m legislation, and may pass patent reform legislation in the
future. The United States Supr
u
eme 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 fut
f ur
t
e, 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 fed
f
eral courts, the United States Patent and Trademark Office, and their respective for
f
eign counterpa
r
rts, the
laws and regulations governing patents could change in unpredictabl
a e 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 pr
f
oduct liabili
i ty
i
lawsuits
i
are brought
g
agains
i
t us, we may i
a
nc
i
ur substantia
t l lia
l bili
i tie
i
s and may b
a
e require
i
d to l
t
imit
l
commercializatio
t n of o
o
ur product candid
d at
d es
t
.
50
We face an inherent risk of product liabi
a lity as a result of the clinical testing of our product candidates, and we will fac
f
e 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 therapi
a es, is alleged to cause inju
n ry or is found to be otherwise
unsuitabl
a e dur
d
ing product testing, manufactur
t
ing, marketing or sale. Any such product liabi
a lity claims may include
allegations of defects in manufact
f
ur
t
ing, defects in design, a fai
f lure 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
successful
f ly defend ourselves against product liabi
a lity claims, we may incur subs
u
tantial liabi
a lities or be required to limit
commercialization of our product candidates. Even successful
f
defense would require significant fin
f ancial and management
resources. There is also risk that third parties we have agreed to indemnify c
f
ould incur liability.
Regardless of the merits or eventual outcome, liabi
a lity claims may result in:
•
decreased demand for
f
our product candidates or any resulting products;
•
inju
n ry to our reputation;
•
withdrawal of clinical trial participants;
•
costs to defen
f
d the related litigation;
•
a diversion of management’s time and our resources;
•
subs
u
tantial monetary awards to trial participants or patients;
•
product recalls, withdrawals or labeling, marketing or promotional restrictions;
•
loss of revenue;
•
the inabi
a lity to commercialize our product candidates; and
•
a decline in our stock price.
Our inabi
a lity to obtain and retain sufficient product liabi
a lity insurance at an acceptabl
a e cost to protect against potential
product liabi
a lity claims could prevent or inhibit the commercialization of products we develop. We currently carry product
liabi
a lity insurance covering our clinical studi
t
es. 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 subj
u ect to a product liabi
a lity claim for
f
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 abl
a e to obtain, suffic
f ient capital to pay such amounts.
Our int
i
er
t
nal compu
m
ter sys
s
tems, o
s
r tho
t
se of our colla
l borator
t
, C
r
RO
C
s or other contra
t
ctor
t
s o
r
r consultants,
t
may f
a
ai
f l o
i
r suffe
f r
security
i
breaches, w
s
hich could r
l
esult i
l
n a
i
material disru
i
pt
u io
t n of d
o
eve
d
lopm
o
ent progr
o
ams for
f
our product candid
d at
d es
t
.
Despite the implementation of security measures, our internal computer systems and those of our collabor
a
ators, CROs, and
other contractors and consultants are vulnerabl
a e to damage fro
f
m computer viruses, unauthorized access, natural disasters,
pandemics, terrorism, war and telecommunication and electrical fai
f lures. Information security risks have significantly
increased in recent years in part due to the prolifer
f ation of new technologies, the increased sophistication and activities of
organized crime, hackers, terrorists and other external parties, including foreign state actors as well as remote working for
many businesses. 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 fai
f lure, accident or security breach to date, if such an event were to occur
and cause interrupt
u ions in our operations, it could result in a material disrupt
r
ion of our independent drug
r
development
programs. For example, the loss of clinical trial data fro
f
m ongoing or future clinical trials for any of our product candidates
could result in delays in regulatory a
r
ppr
a
oval efforts and significantly increase costs to recover or reproduce the data. Our
information security systems are also subj
u ect 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 a
r
nd contractua
t
l requirements regarding the privacy and
security of personal health information. In the European Union, the General Data Protection Regulation, or GDPR, is even
more restrictive with respect to all personal infor
f
mation, including information masked by a coding system. In addition to
HIPAA and GDPR, numerous other fed
f
eral and state laws, including, without limitation, state security breach notific
f ation
laws, state health information privacy laws and fed
f
eral and state consumer protection laws, govern the collection, use,
disclosure and storage of personal infor
f
mation. To the extent that any disrupt
r
ion or security breach were to result in a loss of
or damage to data or applications, or inappr
a
opriate disclosure of confid
f ential or proprietary information or personal health
51
information, we could incur subs
u
tantial liabi
a lity, our reputation would be damaged, and the fur
f
ther development of our
product candidates could be delayed.
Our relat
l io
t nships
i
with
i
custom
t
ers a
r
nd third-par
-
ty payors i
r
n t
i
he
t
United
t
Stat
t es
t
and elsewhere will
i
be subject to applic
l ablel
anti-kickback, fraud and abuse and other health
l
care laws and regulat
l io
t ns, w
s
hich could e
l
xpos
e
e us to c
t
rimi
i
na
i
l sanctio
t ns,s
civil p
i
enaltie
l
s, contra
t
ctual dam
d
ages, repu
e
tational harm a
r
nd dimin
i
ished profi
o ts
i
and fut
f
ure earni
r
ng
i
s.
g
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
f
which we obtain marketing appr
a
oval. Our fut
f ur
t
e
arrangements with third-party payors and customers may expose us to broadly applicable fraud and abus
a
e and other
healthcare laws and regulations that may constrain the business or fin
f ancial arrangements and relationships through which
we market, sell and distribute our products for which we obtain marketing approval. Restrictions under appl
a
icable federal,
state and foreign healthcare laws and regulations include the fol
f lowing:
•
the fed
f
eral healthcare anti-kickba
k
ck statut
t e prohibits, among other things, persons from knowingly and willfully
soliciting, offe
f ring, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or
reward either the refer
f ral of an individual for
f
, or the purchase, order or recommendation of, a
f
ny good or service
for which payment may be made under fed
f
eral and state healthcare programs such as Medicare and Medicaid;
•
the fed
f
eral 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 fal
f se or fraudulent or making a false statement to avoid, decrease or
conceal an obligation to pay money to the federal government;
•
the fed
f
eral Health Insurance Portabi
a lity and Accountability Act of 1996, as amended by the Health Information
Technology for Economic and Clinical Health Act, imposes criminal and civil liability for
f
executing a scheme
to defraud any healthcare benefit program and also imposes obligations, including mandatory contractua
t
l terms,
with respect to safeguarding the privacy, security and transmission of individually identifiable health
information;
•
the fed
f
eral false statements statute prohibits knowingly and willfully falsifyi
f ng, concealing or covering up a
material fact or making any materially fal
f se statement in connection with the delivery o
r
f or payment for
healthcare benefit
f s, items or services;
•
the fed
f
eral transparency requirements under the Patient Protection and Affo
f
rdable Care Act of 2010 require
manufac
f
turers of drugs
r
, devices, biologics and medical suppl
u
ies to report to the Department of Health and
Human Services infor
f
mation 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 fal
f se 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’
r
s voluntary c
r
ompliance guidelines and the relevant compliance guidance
promulgated by the federal government in addition to requiring drug
r
manufac
f
turers to report inform
f
ation
related to payments to physicians and other healthcare providers or marketing expenditures; and
•
analogous anti-kickback, fra
f ud and abus
a
e and healthcare laws and regulations states, as well as in for
f
eign
countries.
Effo
f
rts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and
regulations will involve subs
u
tantial costs. It is possible that governmental authorities will conclude that our business
practices may not comply with current or future statut
t es, regulations or case law involving applicable fraud and abus
a
e or
other healthcare laws and regulations. If our operations are found
f
to be in violation of any of these laws or any other
governmental regulations that may appl
a
y to us, we may be subject to significant civil, criminal and administrative penalties,
damages, fines, exclusion fro
f
m government funded healthcare programs, such as Medicare and Medicaid, and the
curtailment or restructur
t
ing 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 collabor
a
ators, are found
f
not to
be in compliance with appl
a
icable laws, they may be subj
u ect to criminal, civil or administrative sanctions, including
exclusions from government funded healthcare programs, which could also materially affe
f ct our business.
Risks Related to Our Common Stock
Our stock price has been, and is likely t
l
o c
t
ontinue to be, v
e
olat
l il
t e,
l
and thus
t
our stockho
k
lder
d
s c
r
ould incur substan
t
tial
losses.
52
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. From October 1, 2019 through September 30, 2024, the daily closing price of our common stock on the
NASDAQ Global Select Market has ranged fro
f
m $8.18 to $97.37. The stock market in general and the market for
f
biopharmaceutical companies, and for
f
those developing potential therapi
a es for viral infections 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 holdings of our 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:
•
results from or delays of clinical trials of our product candidates, as well as results of regulatory r
r
eviews
relating to the appr
a
oval of our product candidates;
•
the results of our effo
f
rts to discover or develop additional 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 introduc
d
tions or announcements;
•
market expectations about and response to the levels of sales or scripts achieved by, or the announced prices or
discounts for
f
, AbbVie’s MAVYRET/MAVIRET regimen or competitive HCV drugs
r
;
•
failure of AbbVie’s MAVYRET/MAVIRET regimen to maintain its sales levels;
•
our dependence on third parties, including our collaborators, CROs, manufact
f
ur
t
ers, clinical trial sponsors and
clinical investigators;
•
regulatory,
r
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 departur
t
e of key scientific
f
or management personnel;
•
our ability to commercialize our product candidates we develop independently, if appr
a
oved;
•
the level of expenses related to any of our product candidates or clinical development programs;
•
actua
t
l or anticipated changes in estimates as to fin
f ancial 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;
•
market conditions in the pharmaceutical and biotechnology sectors;
•
sales of common stock by us or our stockholders in the fut
f ur
t
e, as well as the overall trading volume of our
common stock;
•
changes in the structur
t
e of healthcare payment systems or other actions that affe
f ct the effective reimbursement
rates for
f
treatment regimens containing our products or for competitive regimens;
•
general economic, industry a
r
nd 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.
A sale o
l
f a
o
substantia
t l number of s
o
hares of o
o
ur common stoc
t
k in t
i
he
t
public
l
market could c
l
ause the marke
r
t price of our
common stock to drop sign
i
ific
f antly,
l
even if our business is d
i
oi
d ng
i
well.
Sales of a subs
u
tantial 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 reduc
d
e the market price
of our common stock. As of September 30, 2024 we had 21.2 million shares of common stock outstanding. In addition, as
of September 30, 2024, we had 5.2 million and 0.6 million shares of common stock that are subject to outstanding options
and restricted stock unit awards, respectively, under our outstanding equity plans eligible for sale in the public market to the
extent permitted by the provisions of various vesting schedul
d es, and Rule 144 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 securitie
i
s or ind
i
ustry a
r
nalysts d
t
o n
d
ot publis
l h research, or publis
l h ina
i
ccurate o
t
r unfav
f
orable r
l
esearch about our
busine
i
ss, our stock price and trading
i
volume would l
l
ik
l ely d
l
ecl
d
in
l
e.
53
The trading market for our common stock will depend in part on the research and reports that securities or industry a
r
nalysts
publish abo
a
ut us or our business. For example, when those analysts are unabl
a e to predict accurately the demand and net
sales of AbbVie’s HCV regimens, our reported revenues have often been lower than the so-called “market consensus” of
our projected revenues, which has at times negatively affected our stock price. When one or more of the analysts who cover
us downgrades our stock or publishes inaccurate or unfav
f
orable research about our business, our stock price has declined. If
one or more of these analysts cease coverage of our company or fai
f l to publish reports on us regularly, demand for
f
our stock
could decrease, which might cause our stock price and trading volume to decline. In addition, if too few
f
securities or
industry a
r
nalysts cover our company, the trading price for
f
our stock would likely be negatively impacted.
Provisions in our corpor
r
ate c
t
harter
t
documents and under
d
Delaware law could make an acquisitio
t n of u
o
s, which may be
benefi
e cial to our stockho
k
lder
d
s,
r
more diffi
i
cult and may prevent attempts by our stockho
k
lder
d
s t
r
o r
t
eplace or remove our
current manage
a
ment.t
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 fav
f
orable, including transactions in which they might otherwise receive a
premium for
f
their shares.
These provisions could also limit the price that investors might be willing to pay in the fut
f ur
t
e for
f
shares of our common
stock, thereby depressing the market price of our common stock. In addition, because our board of directors is responsible
for appoi
a
nting the members of our management team, these provisions may fru
f
strate 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:
•
establ
a ish 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 fro
f
m the board;
•
establ
a ish advance notice requirements for
f
stockholder proposals that can be acted on at stockholder meetings
and nominations to our board of directors;
•
require that stockholder actions must be effe
f cted at a dul
d y 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 for
f
um
r
for certain actions involving us, our directors, offi
f cers, employees and stockholders;
•
provide our board of directors with the authority to designate the terms of and issue a new series of prefer
f red
stock without stockholder app
a
roval, which could be used to institute a “poison pill” that would work to dilute
the stock ownership of a potential hostile acquirer, effe
f ctively preventing acquisitions that have not been
approved by our board of directors; and
•
require the app
a
roval 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 Corpor
r
ation 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 appr
a
oved in a prescribed manner. Any provision in our
corporate charter or our bylaws or Delaware law that has the effe
f ct 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 employm
o
ent agr
a
eements w
t
ith our exe
e
cutive off
o ic
f ers m
r
ay require us to p
t
ay severance benefi
e ts
i
to any o
n
f t
o
ho
t
se persons
who are terminated
t
in connection with a change of c
o
ontrol of us, w
s
hich could h
l
arm o
r
ur fina
i
ncial conditi
i on or results.
Our executive offi
f cers are parties to employment agreements that provide for aggregate cash payments of up t
u
o
approximately $6.4 million for
f
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. 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
f
seeking a business combination with us.
54
Because we do n
d
ot anticipat
i
e p
t
aying cash div
d iden
d
ds on our common stock for the
t
foreseeable f
l
ut
f
ure, investors in our
common stock may n
a
ever receive a return on the
t
ir investme
t
nt.t
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
f
the for
f
eseeabl
a e fut
f ur
t
e. Instead, we plan to retain any earnings to
maintain and expand our existing operations.
Accordingly, investors must rely on sales of their common stock afte
f r 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.
Our ability
i
to use fut
f
ure net operating
i
loss carryfo
y
rwards, r
s
esearch and developm
l
ent tax
t
credit
d
carryfo
y
rwards, a
s
nd
certain othe
t
r tax
t
attr
t ibutes
t
may b
a
e limite
l
d.
Our abi
a lity to utilize fut
f ur
t
e net operating loss carryforwards (“NOLs”) generated as well as research and development tax
credit carryforwards may be limited under Section 382 of the Internal Revenue Code (“IRC”) or appl
a
icable state tax law.
The Section 382 limitations apply if an “ownership change” occurs. Generally, an ownership change results from
transactions that increase the ownership of 5% stockholders in the stock of a corpor
r
ation by more than 50% in the aggregate
over a three-year period. We have evaluated whether one or more ownership changes under Section 382 have occurred
since our inception and have determined that there have been such changes through September 30, 2022. Although we
believe that these ownership changes have not resulted in material limitations on our ability to utilize existing NOL
carryforwards and research and development tax credit carryforwards, our ability to utilize future NOLs and research and
development tax credit carryforwards may be limited due
d
to future ownership changes or for
f
other reasons. As a result, we
may not be able to take full advantage of NOL carryforwards and research and development tax credit carryforwards for
U.S. federal and state income tax purpos
r
es.
We are a smalle
l r reporting compan
m
y,
n
and any decisi
i on on our part to c
t
ompl
m y o
l
nly w
l
ith r
t
educed repor
e
ting
i
and dis
d clos
l
ure
requirements applic
l able t
l
o s
t
uch compan
m
ies could make our common stock less attr
t active to investors.
As of March 31, 2024, we qualifie
f d as a “smaller reporting company,” as defined in the Exchange Act of 1934, as amended,
or the Exchange Act. For as long as we continue to be a smaller reporting company, we may choose to take advantage of
exemptions from various reporting requirements appl
a
icable to other public companies that are not smaller reporting
companies, including, but not limited to, reduc
d
ed disclosure obligations regarding executive compensation in our periodic
reports and proxy statements and only being required to provide two years of audited fin
f ancial statements in annual reports.
We will remain a smaller reporting company so long as, as of March 31 of the preceding year, (i) the market value of our
common stock held by non-affi
f liates, or our public float, is less than $250.0 million; or (ii) we have annual revenues less
than $100.0 million and either we have no public float or our public float is less than $700.0 million.
If we take advantage of some or all of the reduc
d
ed disclosure requirements availabl
a e to smaller reporting companies,
investors may find our common stock less attractive, which may result in a less active trading market for our common stock
and greater stock price volatility. For so long as we are a smaller reporting company and are not classified as an
“accelerated filer” or “large accelerated filer” pursuant to SEC rules, we will be exempt from the auditor attestation
requirements of Section 404(b) of the Sarba
r
nes-Oxley Act.
General Risk Factors
If we fail to comply with
i
enviro
i
nmental, health
l
and safet
f y l
t
aw
l
s and regu
e
lations, w
s
e could become subject to f
t
in
f
es or
penalties or incur costs that could h
l
ave a material adverse
r
effe
f ct on the success of o
o
ur busine
i
ss.
We are subject to numerous environmental, health and safet
f y laws and regulations, including those governing laboratory
r
procedur
d
es and the handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve
the use of hazardous and fla
f mmable materials, including chemicals. Our operations also produce hazardous waste products.
We generally contract with third parties for
f
the disposal of these materials and wastes. We cannot eliminate the risk of
contamination or injury f
r
ro
f
m these materials. In the event of contamination or injury r
r
esulting fro
f
m our use of hazardous
materials or our or third parties’ disposal of hazardous materials, we could be held liabl
a e for
f
any resulting damages, and any
liabi
a lity could exceed our resources. We also could incur significant costs associated with civil or criminal fines and
penalties.
We may incur subs
u
tantial costs to comply with current or fut
f ur
t
e environmental, health and safet
f y laws and regulations.
These current or future laws and regulations may impair our research, development or production effo
f
rts. Failure to comply
with these laws and regulations also may result in substantial fin
f es, penalties or other sanctions.
We maintain workers’ compensation insurance to cover us for
f
costs and expenses we may incur due to inju
n ries to our
employees resulting fro
f
m the use of hazardous materials. This insurance may not provide adequate coverage against
55
potential liabi
a lities. We do not maintain insurance for
f
environmental liabi
a lity or toxic tort claims that may be asserted
against us in connection with our storage or disposal of hazardous or radioactive materials.
Our ins
i
urance polic
l ies are expe
x
nsive and only protec
t
t us fro
f
m spe
s
cifi
i ed busine
i
ss risk
i
s,
k
which will l
l
ea
l
ve us expos
x
ed to
sign
i
ific
f ant unins
i
ured liabili
i tie
i
s.
We do not carry insurance for
f
all categories of risk that our business may encounter. Some of the policies we currently
maintain include general liabi
a lity, employment practices liability, property, auto, workers’ compensation, cybersecurity,
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 subs
u
tantial payments, which would adversely affect our financial position and
results of operations. Furthermore, any increase in the volatility of our stock price, or changes in the insurance market
generally, may result in us being required to pay substantially higher premiums for our directors’ and officers’ liability
insurance than those to which we were previously subj
u ect and may even cause one or more of our underwriters to be
unwilling to insure us.
If we fail to maintain an effe
f ctiv
t e sys
s
tem of i
o
nt
i
er
t
nal control over fina
i
ncial reporting, we may n
a
ot be able t
l
o a
t
ccurately
repor
e
t our fina
i
ncial results
l
or prevent fra
f
ud. A
d
s a result, s
t
tockho
k
lder
d
s c
r
ould lose confid
f en
d
ce in our fin
f
ancial and other
public
l
repor
e
ting, which would harm our business and the tra
t
ding
i
price of o
o
ur common stock.k
Effe
f ctive internal controls over fin
f ancial reporting are necessary for us to provide reliabl
a e fin
f ancial reports and, together
with adequate disclosure controls and procedur
d
es, are designed to prevent fraud. Any fai
f lure to implement newly required
or improved controls, or diffi
f culties 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 Sarba
r
nes-Oxley Act of 2002, or
any subsequent testing by our independent registered public accounting fir
f m, may reveal defic
f iencies in our internal
controls over fin
f ancial reporting that are deemed to be material weaknesses or that may require prospective or retroactive
changes to our financial statements or identify o
f
ther areas for
f
further attention or improvement. Infer
f ior internal controls
could also cause investors to lose confid
f ence in our reported fin
f ancial information, which could have a negative effect on
the trading price of our common stock.
Our inf
i
or
f
ma
r
tion tech
t
nology
o
system
t
s, or those used by o
b
ur CROs or other contra
t
ctor
t
s o
r
r consultants,
t
may f
a
ai
f l o
i
r suffe
f r
othe
t
r breakdowns, c
s
yb
c
er-a
r
ttacks,
k
or info
n
rmatio
t n security breaches, w
s
hich could a
l
dverse
r
ly affe
f ct our business.
We are increasingly dependent upon information technology systems, infrastructur
t
e, and data to operate our business. We
also rely on third party vendors and their infor
f
mation technology systems. Despite the implementation of security measures,
our recovery systems, security protocols, network protection mechanisms, and other security measures and those of our
current or future CROs or other contractors and consultants are vulnerabl
a e to system fai
f lure, interrupt
u ion, compromise, or
damage from data corrupt
u ion, breakdown, computer hacking, malicious code (such as computer viruses or worms),
fraudulent activity, employee misconduct, theft,
f or error, denial-of-service attacks, telecommunication, and electrical
failures, natural disasters, public health epidemics, such as the COVID-19 pandemic, cyber-attacks by sophisticated nation-
state and nation-state supported actors, or other system attacks, disrupt
r
ion, or accidents. We receive, generate and store
significant and increasing volumes of personal health data and other confid
f ential and proprietary information. There can be
no assurance that we, or our collaborators, CROs, third-party vendors, contractors and consultants, will be successful
f
in
effo
f
rts to detect, prevent, protect against or fully recover systems or data from all breakdowns, service interrupt
u ions, attacks
or breaches.
The costs to respond to a security breach and/or to mitigate any security vulnerabi
a lities that may be identifie
f d could be
significant, our effo
f
rts to address these problems may not be successful
f , and these problems could result in unexpected
interrupt
u ions, delays, cessation of service, negative publicity, and other harm to our business and our competitive position.
Remediation of any potential security breach may involve significant time, resources, and expenses. Despite our best
effo
f
rts, our network security and data recovery measures and those of our vendors may still not be adequate to protect
against such security breaches and disrupt
u ions, which could cause harm to our business, financial condition and results of
operations.
Any cybersecurity incident could adversely affect our business, by leading to, for example, the loss of confid
f ential
information or other intellectua
t
l property, demands for ransom or other forms of blackmail or the unauthorized disclosure of
personal, confid
f ential or proprietary information of our employees, clinical trial participants, customers and others. We
could be subject to regulatory actions taken by governmental authorities, litigation under laws that protect the privacy and
security of personal infor
f
mation, or other for
f
ms of legal proceedings, which could result in significant investigations,
liabi
a lities or penalties.
We may not have adequate insurance coverage for security incidents or breaches. The successful
f
assertion of one or more
large claims against us that exceeds our availabl
a e insurance coverage, or results in changes to our insurance policies
56
(including premium increases or the imposition of large deduc
d
tible or co-insurance requirements), could have an adverse
effe
f ct on our business. In addition, we cannot be sure that our existing insurance coverage and coverage for errors and
omissions will continue to be availabl
a e on acceptabl
a e terms or that our insurers will not deny coverage as to any fut
f ur
t
e
claim.
Use of s
o
ocial media
d
could g
l
ive rise to l
t
ia
l bilit
i
y o
t
r reputat
t io
t nal harm.
r
We and our employees use social media to communicate externally. There is risk that the use of social media by us or our
employees to communicate about our product candidates or business may give rise to liability, lead to the loss of trade
secrets or other intellectua
t
l property or result in public exposure of personal infor
f
mation of our employees, clinical trial
patients, customers, and others. Furthermore, negative posts or comments about
a
us or our product candidates in social media
could seriously damage our reputation, brand image, and goodwill. Any of these events could have a material adverse effec
f
t
on our business, prospects, operating results, and fin
f ancial condition and could adversely affect the price of our common
stock.
We maintain our cash at fin
f
ancial instit
t utio
t ns, o
s
ft
o en
t
in balan
l
ces that exceed federally insured lim
l
its.
The majority of our cash is held in accounts at U.S. banking institutions. Cash held in depository accounts may exceed the
Federal Deposit Insurance Corpor
r
ation (“FDIC”) standard deposit insurance limit of $250,000. If such banking institutions
were to fail, such as Silicon Valley Bank when the FDIC took control in March 2023, we could lose all or a portion of those
amounts held in excess of such insured amounts. In the fut
f ur
t
e, access to our cash in amounts adequate to finance our
operations could be significantly impaired if the financial institutions with which we have arrangements encounter liquidity
constraints or fai
f lures. Any fut
f ur
t
e limitation on timely access to our funds or any material loss that we may experience in
the fut
f ur
t
e could have a material adverse effe
f ct on our financial condition and could materially impact our ability to pay our
operating expenses or make other payments.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 1C.
CYBERSECURITY RISK MANAGEMENT AND STRATEGY
We have continued to invest in an evolving state-of-t
f he-art cybersecurity framework of tools, processes, training, and
people designed to effic
f iently assess, identify,
f
and remediate material risks that could affect business operations, fin
f ancials,
or public reputation. Our multi-layered approach to cybersecurity involves regular network monitoring, vulnerabi
a lity
scanning, advanced threat detection, and incident response capabilities against recognized cyber threats to our business and
stakeholders, including ransomware, data breaches and insider threats. We regularly update our security measures, as
necessary, to ensure we address all new threats and technologies, using the National Institute of Standards and Technology
(“NIST”) Framework as a guide, when app
a
ropriate and relevant to our business.
As further protections, we utilize encryption, access control mechanisms and secure cloud infrastructur
t
es, and we invest in
extensive user training. All users regularly undergo upda
u
ted cybersecurity awareness training in an ongoing effort
f
to reduce
the risk of human error contributing to any potential security incidents. All users are also subject to simulated phishing
emails with real time feedba
d
ck for a more continuous layer of training.
We have retained a seasoned virtual Information Security Offi
f cer (“vISO”) to assist and guide our IT organization in
maintaining and evolving a comprehensive and robust cyber security environment. Monthly meetings review all fac
f
ets of
our current status
t
against appr
a
opriate NIST standards, review any incidents, and review the results of ongoing simulated
phishing exercises to identify c
f
ertain users who may need extended training. In addition, as part of our annual security
review, we hire a third-party network penetration testing fir
f m to provide simulated probing and subsequent reporting. We
use the results of these annual tests to improve the strength and flexibility of our network’s security.
Our Incident Response Plan (“IRP”) has evolved with our cyber environment and consists of a set of state-of-t
f he-art-tools
capable of monitoring, reporting and alerting, as well as regular reviews. The IRP also sets forth guidelines on how to
triage, assess the severity and materiality of findings, and remediate and escalate findings to upper management in a timely
manner, as necessary. In addition, as part of our overall risk mitigation strategy, we also maintain cyber insurance coverage.
However, such insurance may not be sufficient to cover us against all possible claims related to security breaches, cyber-
attacks and other related breaches. Our current environment contains no known risks from cybersecurity threats that could
materially impact our business operations, fin
f ancials, or public reputation.
57
Cybersecurity Governance and Oversight
The Board of Directors has assigned the Audit Committee to be responsible for reviewing our cybersecurity risk
management and strategy program and is presented, at least annually, with a review of our environment and reported
incidents. Part of our IRP also calls for the elevation of any necessary incidents to uppe
u
r management in a timely manner
whenever they occur.
We have also formed a steering committee, composed of IT staff a
f
nd relevant business leaders responsible for the
Company’s material infor
f
mation, including commercially sensitive data. The goals of this steering committee include
overseeing our annual material risk assessment and documenting and reporting to senior management. The steering
committee also reviews changes to procedur
d
al and other controls. We have also for
f
med a risk register subc
u
ommittee to
review and for
f
mally discuss any critical risks identified during our vISO annual assessment of our cyber environment.
ITEM 2.
PROPERTIES
Our corpor
r
ate headquarters is located in Watertown, Massachusetts, where we lease appr
a
oximately 73,000 square feet of
offi
f ce and laboratory s
r
pace under the 4 Kingsbury A
r
venue Agreement. We also lease appr
a
oximately 38,000 square feet of
additional office space located at 400 Talcott Avenue in Watertown, Massachusetts. Both property leases expire in
September 2034.
ITEM 3.
LEGAL PROCEEDINGS
Information with respect to legal proceedings is included in Note 13 of the Notes to Consolidated Financial Statements
contained in Part II, Item 8 of this Annual Report on Form 10-K, which is incorpor
r
ated herein by reference.
ITEM 4.
MINE SAFETY DISCLOSURES
Not appl
a
icable.
58
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 and we had 17 stockholders of record as of November 12, 2024. The fol
f lowing tabl
a e shows the high and low sales
price for
f
our common stock as reported by The NASDAQ Global Select Market for
f
the quarterly periods in the fis
f cal years
ended September 30, 2024 and 2023:
Fiscal 2024
High
Low
First Quarter................................................................................................... $
11.07
$
8.08
Second Quarter............................................................................................... $
17.76
$
9.24
Third Quarter.................................................................................................. $
17.80
$
11.28
Fourth Quarter................................................................................................ $
17.24
$
9.90
Fiscal 2023
High
Low
First Quarter................................................................................................... $
54.20
$
39.60
Second Quarter............................................................................................... $
62.06
$
38.16
Third Quarter.................................................................................................. $
41.45
$
19.91
Fourth Quarter................................................................................................ $
22.15
$
11.03
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.
59
Perfor
f
mance Graph(1)
The fol
f lowing graph shows a comparison from September 30, 2019 through September 30, 2024 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
f
the NASDAQ Composite Index and the NASDAQ Biotechnology Index assume reinvestment of
dividends.
COMPARISON OF FIVE YEARS CUMULATIVE TOTAL RETURN
Among Enanta Pharmaceuticals, Inc., the NASDAQ Composite Index,
and the NASDAQ Biotechnology Index
(1)
This performance graph shall not be deemed to be “soliciting material” or to be “file
f
d” with the SEC for purpos
r
es 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.
ITEM 6.
[RESERVED]
60
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERAT
R
IONS
You should read the following discussion and analys
l
is of fi
f
nancial condition and results of operations together with our
consolidat
d ed financial statements a
t
nd related notes included elsewhere in this Annual Repor
e
t on For
F
m 10-K. This
disc
i
ussion and other parts of this Annual Repor
e
t on For
F
m 10-K contain for
f
ward-l
d ooking statements t
t
hat involve risks and
uncertainties, such as statements r
t
egarding our plans, objectives, exp
e
ectations, intentions, and projections. Our actual
results could diffe
f r materially from those discussed in these for
f
ward-l
d ooking statements.
t
Factors t
r
hat could cause or
contribute to such differences include, but are not limited to, those discussed in the “Risk Fac
F
tors” section of t
o
his A
i
nnual
Repor
e
t on For
F
m 10-K.
Overview
We are a biotechnology company that uses our robust, chemistry-
r
driven approach and drug discovery capa
a
bi
a lities to
discover and develop small molecule drugs
r
with an emphasis on virology and immunology.
Virology
gy
We discovered glecaprevir, the second of two antiviral protease inhibitors discovered and developed through our
collabor
a
ation with AbbVie for the treatment of chronic infec
f
tion with hepatitis C virus
r
, or HCV. Glecaprevir is co-
formulated as part of AbbVie’s leading brand of direct-acting antiviral, or DAA, combination treatment for HCV, which has
been marketed under the tradenames MAVYRET® (U.S.) and MAVIRET® (ex-U.S.) (glecaprevir/pi
/ brentasvir) since 2017.
Our active development programs in virology are foc
f
used on respiratory s
r
yncytial virus
r
, or RSV, the most common cause of
bronchiolitis and pneumonia and leading cause of U.S. hospitalization in young children and a significant cause of
respiratory i
r
llness in older adul
d ts, with estimates suggesting that on average each year RSV leads to three million
hospitalizations globally in children under 5 years old and 177,000 hospitalizations in the U.S. in adults over the age of 65.
We also have development programs in virology for the following disease targets:
•
SARS-CoV-2, the virus that causes COVID-19, with estimates suggesting that COVID-19 continues to have a disease
burden greater than influenza, including persistent cases of infection often referred to as long COVID and
hospitalization and death among the elderly and those with comorbi
r dities, while new variants continue to emerge on a
regular basis; and
•
Hepatitis B virus
r
, or HBV, the most prevalent chronic hepatitis, which is estimated by the World Health Organization
to affe
f ct close to 300 million individuals worldwide.
Immunology
gy
In immunology, we are designing and developing highly potent and selective, oral small molecule inhibitors for the
treatment of inflammatory disease by targeting key mechanisms of immune response. Our initial foc
f
us has been on
mechanisms involved in an overactive type 2 immune response, which is the reaction of the body's immune system when
the body detects infect
f
ions or allergens and sends out immune cells to fight them. An overactive response is a primary
r
driver of a number of infla
f mmatory d
r
iseases.
Our initial immunology targets involve the fol
f lowing mechanisms of immune response:
•
The receptor tyrosine kinase, known as KIT, which is critical for regulating mast cell activity; and
•
STAT6, a transcription fac
f
tor uniquely responsible for interleukin-4 (IL-4)/interleukin-13 (IL-13) cell signaling, the
factors that play important roles in regulating the responses of lymphocytes, myeloid cells, and non-hematopoietic
cells within the immune system.
These mechanisms are implicated, along with others, in several diseases, and it is not uncommon for
f
an effi
f cacious
treatment for one disease to be tested and approved for
f
other immunology indications. We currently plan to focus our
immunology drug
r
development efforts on the following disease indications:
•
Chronic spontaneous urticaria, or CSU, a severely debilitating, chronic infla
f mmatory skin disease manifes
f
ted
by hives, angioedema, which is swelling of soft tissues, or both, but with no identifie
f d triggers, which has an
estimated global prevalence of between 0.5% – 1% of the population, resulting in appr
a
oximately 1.75-3.5
million people with this condition at any given time in the U.S. alone; and
•
Atopic dermatitis, or AD, a chronic dermatological disease characterized by dry,
r
red, inflamed, irritated and
itchy skin with significant quality of life impacts such as leading a limited lifes
f
tyle, avoidance of social
interactions and a reduced range of activities, with AD affe
f cting 7.3% of the US adult population, of whom
~40% have moderate to severe disease.
61
As of September 30, 2024, we had $248.2 million in cash, cash equivalents and short-term marketable securities. We
believe that our existing cash, cash equivalents and short-term marketable securities as of September 30, 2024, as well as
the cash flo
f ws from our retained portion of future HCV royalties will enable us to fund our operating expenses and capital
expenditure requirements into fis
f cal 2027.
Our Who
W
lly-
l Owned Pro
P
gr
o
ams
Our primary wholly-owned research and development programs are in virology and immunology.
RSV. In virology, we have two clinical stage product candidates for
f
RSV – zelicapavir (formerly EDP-938) and EDP-323.
Both of these compounds are replication inhibitors that work by shutting down replication and the production of new
virions, as opposed to the other mechanism in development of fus
f
ion inhibition that only blocks viral entry.
r
Zelicapavir,
which has Fast Track designation fro
f
m the U.S. Food and Drug Administration, or FDA, is a potent inhibitor of the RSV N-
protein for
f
both major subgr
u
oups of RSV, referred to as RSV-A and RSV-B. Zelicapavir is being studied in two Phase 2
studi
t
es, each in a different high risk patient population. EDP-323, which also has a Fast Track designation from
f
the FDA is
an inhibitor of the RSV L-protein for both major subgr
u
oups of RSV that has recently completed a Phase 2 challenge study.
t
•
Zelicapavir - N-p
N
rotein Inhibitor Can
C
didate: We have studi
t
ed zelicapavir in two Phase 2 studies that were
p
p
designed to be proof-o
f
f-concept and exploratory s
r
tudies in otherwise healthy young adul
d ts (not at high-risk for
serious outcomes with RSV) to understand the viral response in the context of RSV infection. With these
studi
t
es, zelicapavir has demonstrated a fav
f
orable safety profil
f e, consistent with that observed in over 500
subj
u ects exposed to zelicapavir to date. We believe that zelicapavir has the greatest potential to show optimal
effi
f cacy in high-risk populations since these patients have reduced RSV immunity, which manifests in a higher
and longer dur
d
ation of viral load and greater disease severity, allowing a bigger window to realize the full
potential of zelicapavir. Based on its growing safet
f y profile, we are continuing to evaluate zelicapavir in high-
risk populations, including pediatric patients and high-risk adul
d ts, all of which have significant unmet need:
Pediatri
t c Stu
S dy of Zelicapav
a
ir: RSVPEDs is a Phase 2 study
t
of zelicapavir in 96 pediatric patients, aged
y f
p
>28 days to <36 months. This dose-ranging, randomized, double-blind, placebo-controlled study,
t
is
evaluating multiple ascending doses for fiv
f e days in two age cohorts to determine safet
f y, tolerabi
a lity, and
pharmacokinetics, as well as a second part evaluating antiviral activity at the selected dose. In August
2024, we announced completion of enrollment of the RSVPEDs study.
t
We anticipate reporting topline
data in December 2024.
High-
i
Risk
i
Adul
d ts Study of Zelicapavir: We also have an ongoing Phase 2b study in high-risk adul
d ts,
g
y f
p
including those who are older than 65 years of age and those who have asthma, chronic obstruc
r
tive
pulmonary disease, or COPD, or congestive heart fai
f lure. Approximately 180 patients will be treated with
zelicapavir or placebo for
f
five days with a primary endpoint of time to resolution of RSV lower
respiratory t
r
ract disease symptoms. Enrollment is progressing and we are targeting enrollment completion
in the current Northern Hemisphere RSV season with topline data expected in 2025.
•
EDP-
D
323 - L-protein Inhibitor Can
C
didate: Our second clinical RSV candidate, EDP-323, is a novel oral, direct-
p
acting antiviral selectively targeting the RSV L-protein, a viral RNA-dependent RNA polymerase enzyme that
contains multiple enzymatic activities required for
f
RSV replication. EDP-323 has sub-nanomolar potency
against RSV-A and RSV-B in vitro and protected mice in a dose-dependent manner fro
f
m RSV infection as
demonstrated by both virological and pathological endpoints. EDP-323 is not expected to have cross-resistance
to other classes of inhibitors and has the potential to be used alone, or in combination with other RSV
mechanisms, to broaden the treatment window or addressabl
a e patient populations. In September 2024, we
announced positive topline results for EDP-323 in a Phase 2a challenge study
t
of healthy adults infected with
RSV. Treatment with EDP-323 achieved highly statistically significant (p=<0.0001) reductions in both viral
load and clinical symptoms compared to placebo. Overall, EDP-323 was generally well tolerated and
demonstrated a fav
f
orable safety profile
f
that was comparabl
a e to placebo over 5 days of dosing through Day 28
of follow-up. There were no serious adverse events and no discontinuations of EDP-323.
COVID-19. We leveraged our expertise in developing protease inhibitors to discover compounds specifically designed to
target the SARS-CoV-2 virus
r
and potentially other coronaviruses. We selected EDP-235, an oral inhibitor of the
coronavirus 3CL protease, also refer
f red to as 3CLpro or the main coronavirus protease, or Mpro, for
f
clinical development.
In addition to nanomolar activity against all SARS-CoV-2 variants tested to date, EDP-235 has potent antiviral activity
against other human coronaviruses, enabling the potential for
f
a pan-coronavirus treatment, including possibly coronaviruses
that may infect
f
human populations in the fut
f ur
t
e. Furthermore, EDP-235 has good tissue distribution, and is proje
o cted to
have four times higher drug levels in lung tissue compared to plasma.
62
•
SPRI
P
NT
I
Study of EDP-
D
235: In May 2023, we reported topline results from a Phase 2 clinical trial of EDP-235
in non-hospitalized, symptomatic patients with mild to moderate COVID-19 who were not at increased risk for
developing severe disease, which was the only study population permitted by the FDA. EDP-235 met the
primary endpoint of the trial and was generally safe a
f
nd well-tolerated.
A dose-dependent improvement in total symptom score was observed with EDP-235 treatment compared
to placebo, which achieved statistical significance (p<0.05) in the 400 mg treatment group at multiple
time points, starting as early as one day after the fir
f st dose.
An analysis of a subset of six symptoms showed a two-day shorter time (5 days to 3 days) to
improvement in patients receiving EDP-235 400 mg who were enrolled within three days of symptom
onset (p<0.01).
No effe
f ct on virologic endpoints as measured in the nose was detected due to the rapid viral decline in the
placebo arm of this highly immunologically-experienced, standard risk population.
In the subset of patients who were nucleocapsid seronegative (indicating no recent natur
t
al infection with
SARS-CoV-2), a viral load decline was observed at day five in the 400 mg group of 0.8 log overall and 1
log in the patients with symptom onset within three days befor
f
e treatment with EDP-235.
We will continue to focus on potential collabor
a
ations to progress EDP-235, as we will not advance this candidate into Phase
3 studies on our own.
Immunology. We are designing and developing highly potent and selective, oral, small molecule inhibitors targeting the
following mechanisms of immune response:
•
KIT Inhibitors. We have a preclinical stage program to develop oral KIT inhibitors to treat CSU and potentially
other indications by depleting mast cells, thereby addressing a primary driver of these diseases. We have
discovered novel, potent and selective oral KIT inhibitors, which are in preclinical development. In the four
f
th
quarter of 2024, we selected our lead development candidate, EPS-1421. This candidate demonstrates potent
nanomolar activity in both binding and cellular func
f
tion assays and is highly selective for
f
KIT versus other
kinases. This inhibitor also demonstrates strong in vitro and in vivo ADME properties. We expect to conduct
scale-up activities and IND-enabling studies for this program in 2025.
•
STAT6 Inhibitors. We have a discovery stage program to develop oral STAT6 inhibitors for the treatment of
type 2 immune driven diseases, initially foc
f
using on AD and potentially other indications by blocking the IL-
4/IL-13 signaling pathway, thereby addressing a primary driver of these diseases. We have discovered novel,
potent and selective oral STAT6 inhibitors, which are being optimized in the discovery stage. Our prototype
inhibitors demonstrate potent activity and high selectivity for STAT6 over other STATs in both biochemical
and cellular assays. Our prototype inhibitors also demonstrate systemic in vivo target engagement afte
f r ex vivo
IL-4 stimulation. We are continuing to evaluate multiple compounds in preclinical studi
t
es. We expect to
conduct lead optimization activities in this program in 2025.
We have utilized our internal chemistry a
r
nd drug
r
discovery capa
a
bi
a lities to generate all of our development-stage programs.
We continue to invest subs
u
tantial resources in research programs to discover compounds targeting new disease areas.
63
The fol
f lowing tabl
a e summarizes our product development pipeline in our virology and immunology programs:
*Fixed-dose antiviral combination contains glecaprevir and AbbVie's NS5A inhibitor, pibrentasvir. Marketed by AbbVie as MAVYRET® (U.S.) and
MAVIRET® (ex-U.S.).
**Continued development dependent on partnering.
***Initial indications. Potential fut
f ur
t
e indications include asthma, chronic inducible urticaria (CIndU), eosinophilic esophagitis (EoE), prur
r
igo nodularis (PN) and
others.
Our Royalty
l
Revenue Col
C la
l boratio
t n and Roya
o
lty Sale Agreement
Our royalty revenue is generated through our Collabor
a
ative Development and License Agreement with AbbVie, under
which we have discovered and out-licensed to AbbVie two protease inhibitor compounds that have been clinically tested,
manufac
f
tured, and commercialized by AbbVie as part of its combination regimens for
f
HCV.
Glecaprevir is the HCV protease inhibitor we discovered that was developed by AbbVie in a fix
f ed-dose combination with
its NS5A inhibitor, pibrentasvir, for
f
the treatment of chronic HCV. This patented combination, currently marketed under the
brand names MAVYRET® (U.S.) and MAVIRET® (ex-U.S.), is referred to in this report as MAVYRET/MAVIRET. The
first protease inhibitor developed through this collabor
a
ation, paritapr
a
evir, is part of AbbVie’s initial HCV regimens, which
have been almost entirely replaced by MAVYRET/MAVIRET. Since August 2017, subs
u
tantially all of our royalty revenue
has been derived fro
f
m AbbVie’s net sales of MAVYRET/MAVIRET. Our ongoing royalty revenues fro
f
m this regimen
consist of annually tiered, double-digit, per-product royalties on 50% of the calendar year net sales of the 2-DAA
glecapr
a
evir/p
r ibrentasvir combination in MAVYRET/MAVIRET. The annual royalty tiers return to the lowest tier for
f
sales
on and after each January 1
r
.
In April 2023, we entered into a royalty sale agreement with an affi
f liate of OMERS, a Canadian public employee pension
fund, pursuant to which we were paid a $200.0 million cash purchase price in exchange for 54.5% of our future quarterly
royalty payments on net sales of MAVYRET/MAVIRET, afte
f r June 30, 2023, through June 30, 2032, subj
u ect to a cap on
aggregate payments to OMERS equal to 1.42 times the purchase price.
For accounting purpos
r
es, we continue to record 100% of HCV royalties earned under the AbbVie agreement as royalty
revenue in our consolidated statements of operations. The $200.0 million received in April 2023 was recognized on our
consolidated balance sheets as a liabi
a lity, which will be reduced by the payments made to OMERS over the term of the
Agreement. We recognize imputed interest expense over the life o
f
f the royalty sale agreement based on our estimated fut
f ur
t
e
MAVYRET/MAVIRET royalties.
Financial Operations Overview
We are currently funding all research and development for
f
our wholly-owned programs, which are targeted toward the
discovery and development of novel compounds. As of the date of this report, we are conducting two Phase 2b studies of
zelicapavir and have recently completed a Phase 2a human challenge study
t
of EDP-323, both of which are in our virology
program. We also are conducting preclinical discovery research effo
f
rts in immunology .
As a result of the timing of our clinical and preclinical development programs, we expect our research and development
expenses will fluctuate fro
f
m period to period. However, in the next 12 months, we expect our external research and
development expenses generally to decrease since we will not conduct any further development of EDP-235 into Phase 3
studi
t
es and we made important adju
d stments to reduc
d
e our spending significantly in 2024.
64
To date, we have funde
f
d our operations primarily through royalty payments received under our collabor
a
ation agreement
with AbbVie, a $200.0 million payment received in April 2023 from our royalty sale agreement, and our existing cash, cash
equivalents, and short-term marketable securities. We believe that our existing cash, cash equivalents and short-term
marketable securities as of September 30, 2024, as well as the cash flo
f ws from our retained portion of fut
f ur
t
e HCV royalties,
will enable us to fund our operating expenses and capital expenditure requirements into fis
f cal 2027.
Revenue
Our revenue is primarily derived fro
f
m our collabor
a
ation agreement with AbbVie and AbbVie’s sales of
MAVYRET/MAVIRET, an 8-week treatment regimen for
f
chronic HCV. During the year ended September 30, 2023, we
also generated $1.0 million of license revenue from an upf
u
ro
f
nt payment related to a license agreement for
f
one of the
antibacterial compounds we are no longer developing.
The fol
f lowing tabl
a e is a summary o
r
f revenue recognized for the years ended September 30, 2024, 2023, and 2022:
Years Ended September 30,
2024
2023
2022
(in thousands)
Revenue
Royalty revenue ........................................................... $
67,635
$
78,204
$
86,160
License revenue............................................................
—
1,000
—
Total revenue.................................................................... $
67,635
$
79,204
$
86,160
As disclosed abo
a
ve regarding our OMERS royalty sale agreement, we only retain 45.5% of the cash payments from
f
royalties on net sales of MAVYRET/MAVIRET occurring afte
f r June 30, 2023 through June 30, 2032, subj
u ect to a cap on
aggregate payments to OMERS equal to 1.42 times OMERS’ purchase price.
Internal Programs
As our internal product candidates are currently in Phase 1 or Phase 2 clinical development, we have not generated any
revenue from our own product sales. We do not expect to generate any revenue from product sales derived from
f
these
product candidates for
f
at least the next several years.
Operatin
t
g Expe
E
nses
Our operating expenses are comprised of research and development expenses and general and administrative expenses.
Research and Developm
o
ent Exp
E
enses
Research and development expenses consist of costs incurred to conduct basic research, such as the discovery and
development of novel small molecules as therape
a
utics, 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:f
•
third-party contract costs relating to research, formulation, manufact
f
ur
t
ing, preclinical study,
t
and clinical trial
activities;
•
personnel costs, including salaries, related benefits, and stock-based compensation for
f
employees engaged in
scientific
f
research and development func
f
tions;
•
allocated fac
f
ility-related costs;
•
labor
a
atory c
r
onsumabl
a es; and
•
third-party license fees.
At any given time, we have later stage programs in clinical development as well as several active early-stage research and
drug
r
discovery projects. Our internal resources, employees and infra
f structur
t
e are utilized across multiple projects, including
our early-stage discovery projects. As such, we report infor
f
mation regarding costs incurred based on our programs (i.e.,
disease area) rather than on a proje
o ct specific basis. All indirect costs are allocated to programs based on headcount and
square footage of our facilities. We expect that our research and development expenses will fluctuate fro
f
m period to period
as we advance our research and development programs. However, in the next 12 months, we expect our external research
and development expenses generally to decrease since we will not conduct any further development of EDP-235 into Phase
3 studies and we made important adju
d stments to reduc
d
e our spending significantly in 2024. To date, we have not identified
65
any significant impact of infla
f tion on spending in research and development, but it is uncertain whether there will be
inflationary impacts in future periods.
Our research and drug discovery and development programs are in early stages; therefor
f
e, the successful
f
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 unabl
a e to determine the dur
d
ation 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 Admi
d
nist
i rative Expe
x
nses
General and administrative expenses consist primarily of personnel costs, which include salaries, related benefits and stock-
based compensation, of our executive, fin
f ance, business and corporate development and other administrative func
f
tions.
General and administrative expenses also include allocated faci
f
lity-related costs not otherwise included in research and
development expenses, directors’ and offi
f cers’ liabi
a lity insurance premiums, professional fees
f
for auditing, tax, and legal
services, patent expenses and litigation expenses associated with prosecuting our patent infringement suit.
We expect that general and administrative expenses may increase in the long term. To date we have not experienced a
significant impact of inflation on general and administrative expenses, but we anticipate infla
f tion may impact future
periods.
Othe
t
r Inc
I
ome (Ex
(
pe
x
nse)
Other income (expense) consists of interest expense, interest and investment income, net and the change in fair value of our
outstanding Series 1 nonconvertible prefer
f red stock. Interest expense consists of the interest expense and amortization of
debt issuance costs associated with the royalty sale agreement with an affiliate of OMERS. Interest income consists of
interest earned on our cash equivalents and marketable securities balances. Investment income consists of the amortization
or accretion of any purchased premium or discount, respectively, on our marketable securities. The change in fair value of
our Series 1 nonconvertible prefer
f red stock relates to the remeasurement of these financial instrum
r
ents from period to
period as these instrum
r
ents may require a transfer of assets because of the liquidation preference feat
f
ur
t
es of the underlying
instrument.
Income Tax B
a
enefit
f
(Expe
E
nse)
Income tax benefit
f
(expense) is based on our best estimate of taxabl
a e net income (loss), appl
a
icable income tax rates, net
research and development tax credits and carryforwards, net operating loss carrybacks and interest earned on such refunds
f
,
changes in valuation allowance estimates and defer
f red income taxes.
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 affe
f ct the reported amount of assets, liabi
a lities, equity, 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, therefor
f
e, consider these to be our
critical accounting policies. We evaluate our estimates and assumptions on an ongoing basis. Actual results may diffe
f r fro
f
m
these estimates under diffe
f rent assumptions and conditions. See also Note 2 to the consolidated financial statements
included elsewhere in this Annual Report on Form 10-K for
f
information about
a
these critical accounting policies as well as a
description of our other significant accounting policies.
66
Research and Developm
l
ent and Pharma
r
ceutic
t al Drug Manufa
u
cturing Accrualsl
We have entered into various contracts with third parties to perform research and development and pharmaceutical drug
r
manufac
f
turing. These include contracts with contract research organizations, or CROs, clinical manufact
f
ur
t
ing
organizations, or CMOs, testing laboratories, research hospitals and not-for-profit organizations and other entities to support
our research and development activities. We expense the cost of each contract as the work is performed. When billing terms
under these contracts do not coincide with the timing of when the work is performed, we are required to make estimates of
our outstanding obligations to those third parties as of period-end. Our accrua
r
l estimates are based on a number of fact
f
ors,
including our knowledge of the research and development programs and pharmaceutical drug
r
manufact
f
ur
t
ing activities and
associated timelines, invoicing to date, and the provisions in the contract. Significant judgments and estimates are made in
determining the accrue
r
d balances at the end of any reporting period. Actual results could diffe
f r fro
f
m our estimates.
Liabili
i ty
i
Related to t
t
he
t
Sale of Future Roya
o
ltie
t s
We accounted for the $200.0 million payment from OMERS as a liabi
a lity on our consolidated balance sheets because (1)
under the royalty sale agreement, OMERS will receive a portion of our royalty payments up to a capped amount of 1.42
times the original payment to us, and (2) we have significant continuing involvement in the generation of cash flo
f ws under
the AbbVie Agreement. Interest expense for
f
the liabi
a lity related to the sale of future royalties will be recognized using the
effe
f ctive interest rate method over the term of the royalty sale agreement.
The liabi
a lity related to the sale of future royalties and the related interest expense are based on our current estimates of
future royalties, which we determine by using third-party forecasts of MAVYRET/MAVIRET sales. Third-party for
f
ecasts
are upda
u
ted periodically based on the latest pricing, market share, and patient data. Changes in the amount or timing of
estimated royalties will affe
f ct the interest rate utilized in calculating the liabi
a lity related to the sale of future royalties.
Results of Operations
Years Ended September 30,
2024
2023
2022
(in thousands)
Revenue............................................................................ $
67,635
$
79,204
$
86,160
Research and development...............................................
131,476
163,524
164,522
General and administrative ..............................................
57,850
52,887
45,482
Interest expense................................................................
(10,940)
(5,148)
—
Interest and investment income, net.................................
14,770
11,360
1,573
Change in fair value of Series 1 nonconvertible
prefer
f red stock...............................................................
73
—
83
Income tax benefit
f
(expense) ...........................................
1,743
(2,821)
433
Net loss............................................................................. $
(116,045)
$
(133,816)
$
(121,755)
Comparison of the Yea
Y
rs Ended Sep
S
tember 30, 2024 and 2023
Revenue
We recognized revenue of $67.6 million and $79.2 million dur
d
ing the years ended September 30, 2024 and 2023,
respectively. The decrease in revenue year-over-year was primarily due to AbbVie’s lower reported HCV sales as compared
to the comparabl
a e period in 2023.
Our royalty revenues eligible to be earned in the future will depend on AbbVie’s HCV market share, the pricing of the
MAVYRET/MAVIRET regimen and the number of patients treated. In addition, at the beginning of each calendar year (the
second quarter of our fiscal year), our royalty rate resets to the lowest tier for
f
each of our royalty-bearing products licensed
to AbbVie.
Beginning with the quarter ended September 30, 2023, 54.5% of our quarterly royalty payments on net sales of
MAVYRET/MAVIRET that are included in our total revenue are paid to OMERS through June 30, 2032, subj
u ect to a cap
on aggregate payments equal to 1.42 times the purchase price. The $200.0 million received in April 2023 was recognized on
our consolidated balance sheets as a liabi
a lity which will be reduc
d
ed by the payments made to OMERS over the term of the
royalty sale agreement. We will continue to record 100% of HCV royalties earned under the AbbVie Agreement as royalty
revenue in our consolidated statements of operations since the AbbVie Agreement has not been amended and is independent
of our agreement with OMERS.
67
Research and devel
d
opm
l
ent expe
e
nses
Years Ended September 30,
2024
2023
(in thousands)
R&D programs:
Viro
i
logy
o
RSV ................................................................................................... $
86,367
$
78,120
COVID-19.........................................................................................
4,625
66,082
HBV...................................................................................................
371
6,974
Total Vir
V ology.................................................................................. $
91,363
$
151,176
Immunology
o
KIT ....................................................................................................
19,822
—
STAT6...............................................................................................
4,691
—
Total Immu
I
nology............................................................................ $
24,513
$
—
Othe
t
r Pro
P
gr
o
ams
NASH ................................................................................................
605
4,095
Early discovery..................................................................................
14,995
8,253
Total Other Programs ..................................................................... $
15,600
$
12,348
Total research and development expenses .......................................... $
131,476
$
163,524
Research and development expenses for
f
the year ended September 30, 2024 decreased by $32.0 million compared to the
same period in 2023.
Virology
The costs in our virology program decreased by $59.8 million primarily due to a decrease in costs associated with our
COVID-19 program as we stopped fur
f
ther internal development and will only progress the program in the context of a
collabor
a
ation. The decrease was offs
f et by an increase in costs for
f
our RSV clinical programs as we had two ongoing Phase
2b studi
t
es of zelicapavir and initiated and completed a challenge study
t
for EDP-323 during the fiscal year ended September
30, 2024. Costs associated with HBV decreased as we continued to wind down this program pending our identific
f ation of a
potential partnering compound for EDP-514.
Immunology
The costs in our immunology programs increased by $24.5 million as this is a new therape
a
utic area of focus for
f
the
company.
Other Programs
Other program costs increased by $3.3 million as we foc
f
used on early-stage drug
r
discovery programs, offs
f et by a decrease
in costs for
f
our NASH program as we continued to wind down this program.
General and administrativ
t e exp
e
enses
General and administrative expenses increased by $5.0 million for
f
the year ended September 30, 2024, compared to the
same period in 2023, due to an increase in legal expenses related to our patent infringement suit against Pfizer.
Othe
t
r inc
i
ome (ex
(
pe
x
nse)
Changes in components of other income (expense) were as fol
f lows:
Interest expe
x
nse
Interest expense increased by $5.8 million for
f
the year ended September 30, 2024, as compared to the same period in 2023,
due to the timing of the royalty sale agreement entered into during April 2023 with an affi
f liate of OMERS.
Interest and investme
t
nt income, net
Interest and investment income, net, increased by $3.4 million for
f
the year ended September 30, 2024, as compared to the
same period in 2023. The increase was due to an increase in average invested cash due
d
to receipt of $200.0 million from
f
OMERS in April 2023 as well as changes in interest rates year over year.
68
Income tax b
a
enefit
f
(expe
e
nse)
During the year ended September 30, 2024 we recorded an income tax benefit
f
of $1.7 million representing interest recorded
on a pending federal tax refund. The income tax expense dur
d
ing the year ended September 30, 2023 was driven by the
receipt of $200.0 million from the royalty sale agreement, which was taxabl
a e for
f
federal and state purpos
r
es and partially
offs
f et by utilization of fed
f
eral net operating losses and research and development tax credit carryforwards as well as a
deduction for for
f
eign derived intangible income.
Comparison of the Yea
Y
rs Ended Sep
S
tember 30, 2023 and 2022
For a discussion of our results of operations for the year ended September 30, 2023, as compared to the year ended
September 30, 2022, see Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations—Results of Operations—Comparison of the Years Ended September 30, 2023 and 2022 included in our Annual
Report on Form 10-K for
f
the fis
f cal year ended September 30, 2023.
Liquidity and Capital Resources
We fund our operations with cash flo
f ws from our retained portion of our royalty revenue and our existing financial
resources. At September 30, 2024, our principal sources of liquidity were cash and cash equivalents and short-term
marketable securities of $248.2 million.
The fol
f lowing tabl
a e shows a summary of our cash flows:
Years Ended September 30,
2024
2023
2022
(in thousands)
Cash provided by (used in):
Operating activities ...................................................... $
(78,764)
$
(103,154)
$
(84,782)
Investing activities .......................................................
58,235
(53,578)
54,897
Financing activities ......................................................
(27,626)
198,126
20,033
Net (decrease) increase in cash, cash equivalents and
restricted cash............................................................ $
(48,155)
$
41,394
$
(9,852)
Net cash used in o
i
pe
o
rating activ
t ities
Cash used in operating activities was $78.8 million for the year ended September 30, 2024 as compared to cash used in
operating activities of $103.2 million for the same period in 2023. The decrease in cash used in operating activities was
primarily driven by lower research and development payments, offs
f et by lower cash receipts associated with our AbbVie
agreement as we now only retain 45.5% of cash royalties fol
f lowing the royalty sale agreement with OMERS.
Net cash provided by (
b
us
(
ed in) i
n
nv
i
esting
i
activitie
t s
Cash provided by investing activities was $58.2 million for the year ended September 30, 2024 as compared to cash used in
investing activities of $53.6 million for
f
the same period in 2023. Our cash provided by investing activities increased $111.8
million, driven by timing of purchases, sales and matur
t
ities of marketabl
a e securities in 2024 compared to 2023. This
increase was partially offs
f et by increased capital expenditures in fis
f cal 2024 for the buildout of our new offic
f e and
labor
a
atory s
r
pace at 4 Kingsbury A
r
venue.
Net cash provided by (
b
us
(
ed in) f
n
in
f
ancing
i
activitie
i
s
Cash used in financing activities was $27.6 million for the year ended September 30, 2024 as compared to cash provided by
financing activities of $198.1 million for the same period in 2023. Our cash used in fin
f ancing activities decreased $225.8
million, driven primarily by the timing of receipt of $200.0 million from OMERS for
f
our royalty sale agreement executed in
April 2023.
Year Ended Sep
S
tember 30, 2023
For a discussion of our cash flo
f ws for the year ended September 30, 2023, see Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Cash Flows included in our
Annual Report on Form 10-K for
f
the fis
f cal year ended September 30, 2023.
69
Fundin
d
g Require
i
mentst
As of September 30, 2024, we had $248.2 million in cash, cash equivalents and short-term marketable securities. We
believe that our existing cash, cash equivalents and short-term marketable securities as of September 30, 2024, as well as
the cash flo
f ws from our retained portion of future HCV royalties will enable us to fund our operating expenses and capital
expenditure requirements into fis
f cal 2027. However, our projection of the period of time through which our financial
resources will be adequate to suppor
u
t our operations is a for
f
ward-looking statement that involves risks and uncertainties,
and actua
t
l results could vary m
r
aterially.
Our fut
f ur
t
e capital requirements are diffi
f cult to forecast and will depend on many factors, including:
•
the number and characteristics of our research and development programs;
•
the scope, progress, results and costs of researching and developing our product candidates on our own,
including conducting advanced clinical trials;
•
our ability to establ
a ish new collabor
a
ations, licensing or other arrangements, if any, and the financial terms of
such arrangements;
•
the amount of our retained portion of royalties generated fro
f
m MAVYRET/MAVIRET sales under our existing
collabor
a
ation with AbbVie;
•
delays and additional expenses in our clinical trials;
•
the cost of manufact
f
ur
t
ing our product candidates for
f
clinical development and any products we successfully
commercialize independently;
•
opportunities to in-license or otherwise acquire new technologies and therape
a
utic candidates;
•
costs associated with prosecuting our patent infringement suit regarding use of a coronavirus 3CL protease
inhibitor in Paxlovid, Pfiz
f er's antiviral treatment for COVID-19;
•
the timing of, and the costs involved in, obtaining regulatory a
r
ppr
a
ovals 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
f
sale, including marketing, sales and distribution costs;
•
the timing and amount of any sales of our product candidates, if any, or royalties thereon;
•
the costs involved in preparing, filing, prosecuting, maintaining, defending and enfor
f
cing patents, including any
litigation costs and the outcomes of any such litigation; and
•
potential fluctuations in foreign currency exchange rates.
Off-B
f
alance Sheet Arrangements
We do not engage in any off-balance sheet financing activities. We do not have any interest in entities refer
f red to as variabl
a e
interest entities, which include special purpos
r
e entities and other structur
t
ed 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 for
f
th in Note 2 to the consolidated financial statements included in this Annual Report on Form 10-K.
Contractual Obligations and Commitments
Facility Leases
As of the date of this report, we lease space in Watertown, Massachusetts, under three separate lease agreements with one
landlord.
In May 2022, we entered into a ten-year lease for
f
new laboratory a
r
nd offi
f ce space in Watertown, Massachusetts, adjacent to
our 400 Talcott Avenue premises at Arsenal on the Charles at 4 Kingsbury A
r
venue since our lease for
f
offi
f ce and laboratory
r
space at 500 Arsenal Street was to expire on September 1, 2027. The construc
r
tion of the facility shell was completed and
we gained access to the building to construc
r
t tenant improvements dur
d
ing the three months ended March 31, 2024. Upon
gaining access to the 4 Kingsbury A
r
venue building, we capitalized a right-of-use asset and lease liabi
a lity of appr
a
oximately
$32 million on our consolidated balance sheets which reflects our fixed base rent payments, net of appr
a
oximately $15
70
million of a tenant improvement allowance provided by the landlord, over the 10-year term of the lease. The 4 Kingsbury
r
Avenue lease ends September 30, 2034.
In conjunction with the commencement of our lease at 4 Kingsbury A
r
venue during the three months ended March 31, 2024,
we adju
d sted our 500 Arsenal Street lease liabi
a lity to shorten the expiration date fro
f
m September 2027 to the date the 4
Kingsbury A
r
venue building became ready for
f
our occupa
u
ncy. This resulted in a decrease in the lease liabi
a lity and right-of-
use asset on our consolidated balance sheets by appr
a
oximately $9.0 million. The rent commencement date for
f
our 4
Kingsbury A
r
venue lease was September 12, 2024, and we moved into the space in November 2024 at which time our lease
at 500 Arsenal Street expired.
The second lease for
f
offi
f ce space located at 400 Talcott Avenue commenced on September 24, 2018 for a term of six years.
In May 2022, we amended this lease to expand the rented space and extend the lease term through June 1, 2034. We spent
approximately $6.3 million in capital expenditures for
f
the additional space, which primarily relate to tenant improvements.
We received a tenant improvement allowance fro
f
m the landlord of $2.5 million. In July 2024, we amended our lease
agreement to confirm alignment with the lease end date of our 4 Kingsbury A
r
venue lease at September 30, 2034.
Total estimated minimum lease payments for
f
the next 5 years and thereafte
f r under our existing facility and leased
equipment agreements are $8.7 million in 2025, $8.5 million in 2026, $8.7 million in 2027, $9.0 million in 2028, $9.3
million in 2029, and $50.6 million thereafte
f r.
Prefer
f
red Sto
S ck
As of September 30, 2024, we had 1.9 million outstanding shares of Series 1 nonconvertible prefer
f red stock, all of which
we classified as a long-term liability on our consolidated balance sheet and recorded at fair value of $1.4 million. The fai
f r
value of the prefer
f red stock was measured based on significant inputs not observabl
a e in the market, which represented a
Level 3 measurement within the fair value hierarchy. The fai
f r value of these instrum
r
ents represents less than 10% of
liabi
a lities as of September 30, 2024. The Series 1 nonconvertible prefer
f red stock issued would require the payment of $2.0
million in the event of a qualifyi
f ng merger or sale of the company.
OMERS
M
Agre
g
ement
In April 2023, we entered into a royalty sale agreement with an affi
f liate of OMERS, pursuant to which we were paid a
$200.0 million cash purchase price in exchange for 54.5% of our future quarterly royalty payments on net sales of
MAVYRET/MAVIRET after June 30, 2023, through June 30, 2032, subj
u ect to a cap o
a
n aggregate payments equal to 1.42
times the purchase price.
The $200.0 million received in April 2023 was recognized on our consolidated balance sheets as a liabi
a lity which will be
reduced by the payments made to OMERS over the term of the Agreement.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
i
We had cash, cash equivalents and short-term marketable securities of $248.2 million and $369.9 million at September 30,
2024 and 2023, respectively, which consisted of cash, money market funds
f
, corpor
r
ate bonds, commercial paper and treasury
r
notes. Interest income is sensitive to changes in the general level of interest rates; however, due
d
to the natur
t
e of these
investments, a change in market interest rates of 1% would not be expected to have a material impact on our financial
condition or results of operations for either period.
Foreign E
g
xc
E
hange Risk
As we continue to progress our wholly-owned programs into clinical development, we will conduct clinical trials and
clinical manufac
f
turing outside of the U.S. and thus will face exposure to movements in for
f
eign currency exchange rates,
primarily the British Pound and Euro, against the U.S. Dollar, arising fro
f
m our accounts payable and accrued expenses.
During fiscal 2024 and 2023, the impact of for
f
eign currency exposure was immaterial and thus did not have a significant
impact on our consolidated financial statements. Our operations may become subj
u ect to more significant flu
f ctua
t
tions in
foreign currency exchange rates in the fut
f ur
t
e if we continue to contract with vendors outside of the U.S.
ITEM 8.
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our consolidated financial statements, together with the report of our independent registered public accounting fir
f m, appear
on pages F-1 through F-25 of this Annual Report on Form 10-K.
71
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures and Internal Control over Financial Reporting
Evaluation of D
o
isclosure Cont
C
rols and Procedur
d
es
We maintain disclosure controls and procedur
d
es that are designed to ensure that infor
f
mation required to be disclosed in the
Company’s reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed,
summarized and reported within the time periods specified in the SEC’s rules and forms, and that such infor
f
mation is
accumulated and communicated to management, including our Chief Executive Officer (CEO) and Chief Financial Offi
f cer
(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 procedur
d
es, no matter how well designed and
operated, can provide only reasonabl
a e assurance of achieving the desired control objectives, as the Company's are designed
to do, and management necessarily was required to appl
a
y its judgment in evaluating the risk related to controls and
procedur
d
es.
In connection with the preparation of this Form 10-K, as of September 30, 2024, an evaluation was performed under the
supe
u
rvision and with the participation of our management, including the CEO and CFO, of the effe
f ctiveness of the design
and operation of our disclosure controls and procedur
d
es (as defin
f ed in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act). Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedur
d
es were effe
f ctive at a
reasonabl
a e assurance level as of September 30, 2024. These conclusions were communicated to the Audit Committee.
Management’s Repor
e
t on Int
I ernal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over fin
f ancial reporting as
defined in Rul
R e 13a-15(f) and Rul
R e 15d-15(f) under the Exchange Act. Our internal control system is designed to provide
reasonabl
a e assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation
of published fin
f ancial statements. All internal control systems, no matter how well designed, have inherent limitations.
Therefor
f
e, even those systems determined to be effe
f ctive can provide only reasonabl
a e assurance with respect to fin
f ancial
statement preparation and presentation.
Our management has assessed the effe
f ctiveness of our internal control over fin
f ancial reporting as of September 30, 2024. In
making this assessment, management used the criteria set for
f
th by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO) in its 2013 Internal Control—In
—
tegr
e
ated Framework.
r
Based on this assessment, our
management has concluded that as of September 30, 2024, our internal control over fin
f ancial reporting is effe
f ctive.
Changes in Int
I ernal Control over Financial Reporting
There were no changes in our internal control over fin
f ancial reporting that occurred dur
d
ing the quarter ended September 30,
2024 that have materially affe
f cted, or are reasonabl
a y likely to materially affe
f ct, our internal control over fin
f ancial reporting.
ITEM 9B.
OTHER INFORMATION
None.
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not appl
a
icable.
72
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORAT
R
E GOVERNANCE
Portions of the response to this item are incorporated herein by reference to the discussion responsive thereto in the
Company’s Defin
f itive Proxy Statement relating to the 2025 Annual Meeting of Stockholders, also refer
f red to as the 2025
Proxy Statement, which will be filed within 120 days afte
f r September 30, 2024.
We have adopted a Code of Business Conduct and Ethics (the code of ethics) that appl
a
ies to all of our employees, offic
f ers
and directors. The code of ethics is availabl
a e on our website at http://www.enanta.com. In addition, if we make any
subs
u
tantive amendments to the code of ethics or grant any waiver, including any implicit waiver, fro
f
m a provision of the
code to any of our executive officers or directors, we will disclose the natur
t
e of such amendment or waiver as required by
applicable law on our website or on a Form 8-K.
ITEM 11.
EXECUTIVE COMPENSATION
The response to this item is incorpor
r
ated herein by reference fro
f
m the discussion responsive thereto in the 2025 Proxy
Statement, which will be filed within 120 days afte
f r September 30, 2024.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The response to this item is incorpor
r
ated herein by reference in part fro
f
m the discussion responsive thereto in the 2025
Proxy Statement, which will be filed within 120 days afte
f r September 30, 2024.
The fol
f lowing tabl
a e provides infor
f
mation about the securities authorized for issuance under the Company’s equity
compensation plans as of September 30, 2024:
Equity Compensation Plan Information
(in thousands, except per share infor
f
mation)
Plan Category
Number of securities
to be issued
upon exercise of
outstanding options,
warrants and rights
Weighted
average
exercise price of
outstanding
options,
warrants and
rights
Number of securities
remaining available for
f
future issuance under
equity compensation plans
(excluding securities
refle
f cted in column (a))
(a)
(b)
(c)
Equity compensation plans appr
a
oved by
security holders (1) ............................................
5,796 (2)$
41.69
2,164 (3)
Equity compensation plans not approved by
security holders ................................................
—
—
—
Totals ...........................................................
5,796
2,164
(1)
Consists of the Company’s 2019 Equity Incentive Plan, the Company's 2024 Inducement Stock Plan, 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 2019 Equity Incentive Plan, the Company's 2024 Inducement Stock Plan and the Company’s Amended
and Restated 2012 Equity Incentive Plan.
(3)
Consists of shares of the Company’s common stock reserved for fut
f ur
t
e issuance under the Company’s 2019 Equity
Incentive Plan, the Company's 2024 Inducement Stock Plan and the Company’s Employee Stock Purchase Plan.
73
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANS
R
ACTIONS, AND DIRECTOR
INDEPENDENCE
The response to this item is incorpor
r
ated herein by reference fro
f
m the discussion responsive thereto in the 2025 Proxy
Statement, which will be filed within 120 days afte
f r September 30, 2024.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
The response to this item is incorpor
r
ated herein by reference fro
f
m the discussion responsive thereto in the 2025 Proxy
Statement, which will be filed within 120 days afte
f r September 30, 2024.
74
PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) 1. FINANCIAL STATEMENTS
The fin
f ancial 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 infor
f
mation 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
Incorporated by Reference
Exhibit
Number
Exhibit Description
Form
Date
Exhibit
Number
File Number
Filed
Herewith
3.1
Restated Certific
f ate of Incorpor
r
ation of Enanta
Pharmaceuticals, Inc.
8-K
03/28/2013
3.1
001-35839
3.2
Amended and Restated Bylaws of Enanta
Pharmaceuticals, Inc. (as amended and restated in August
2015).
8-K
08/18/2015
3.2
001-35839
4.1
Specimen certific
f ate evidencing shares of common stock.
S-1/A
02/05/2013
4.1
333-184779
4.2
Specimen certific
f ate evidencing shares of Series 1 Non-
Convertible Prefer
f red Stock
10-K
12/11/2017
4.3
001-35839
4.3
Description of securities registered pursuant to Section 12
of the Securities Exchange Act of 1934
10-K
11/27/2019
4.3
001-35839
10.1#
Form of Indemnific
f ation Agreement for directors and
offi
f cers.
S-1/A
02/05/2013
10.7
333-184779
10.2#
Amended and Restated Employment Agreement between
the Company and Jay R. Luly, Ph.D., dated as of March 4,
2013.
S-1/A
03/05/2013
10.5
333-184779
10.3#
Form of Amended and Restated Employment Agreement
for Executive Offi
f cers other than the Chief Executive
Offi
f cer.
S-1/A
03/05/2013
10.17
333-184779
10.4†
Collabor
a
ative Development and License 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
Collabor
a
ative Development and License Agreement dated
December 9, 2009 (assigned to AbbVie Inc. as of January
1, 2013).
8-K
02/05/2021
10.1
001-35839
10.5†
Third Amendment to Collabor
a
ative Development and
License Agreement between the Company and AbbVie
dated October 20, 2014.
8-K
02/05/2021
10.2
001-35839
10.6
Fourth Amendment to Collabor
a
ative Development and
License Agreement between the Company and AbbVie
dated as of March 3, 2015.
10-Q
05/08/2015
10.1
001-35839
75
10.7
Royalty Purchase Agreement between Enanta
Pharmaceuticals, Inc. and OCM Life Sciences Portfolio
LP dated as of April 25, 2023
8-K
04/27/2023
10.1
001-35839
10.8
Lease Agreement between Company and Athena Arsenal,
LLC, dated as of September 24, 2018.
10-K
11/29/2018
10.10
001-35839
10.9
First Amendment to Lease Agreement made as of May
12, 2022 by and between ARE-MA Region No. 75, LLC
and the Company.
8-K
05/17/2022
10.2
001-35839
10.10
Lease Agreement made as of May 12, 2022 by and
between ARE-MA Region No. 75, LLC and the
Company.
8-K
05/17/2022
10.3
001-35839
10.11#
2012 Equity Incentive Plan (As adju
d sted to reflect the
application of the 1-for-4.31 reverse stock split of the
Company’s common stock effe
f cted on March 1, 2013).
10-
K/A
01/06/2017
10.14
001-35839
10.12#
Form of Incentive Stock Option Agreement under 2012
Equity Incentive Plan.
S-1/A
03/05/2013
10.13
333-184779
10.13#
Form of Non-Statut
t ory S
r
tock Option Agreement under
2012 Equity Incentive Plan.
S-1/A
03/05/2013
10.14
333-184779
10.14#
Form of Non-Statut
t ory S
r
tock Option Certific
f ate for
f
directors under 2012 Equity Incentive Plan.
S-1/A
03/05/2013
10.15
333-184779
10.15#
Form of Performance Share Unit Certificate under 2012
Equity Incentive Plan.
10-K
12/11/2017
10.18
001-35839
10.16#
Form of Relative Total Stockholder Retur
t
n Unit
Certific
f ate under 2012 Equity Incentive Plan.
10-K
12/11/2017
10.19
001-35839
10.17#
Employee Stock Purchase Plan.
S-1/A
02/05/2013
10.16
333-184779
10.18#
2019 Equity Incentive Plan (As amended March 2024)
8-K
03/12/2024
10.1
001-35839
10.19#
Form of Notice of Grant of Non-Statut
t ory S
r
tock Option
under 2019 Equity Incentive Plan.
10-Q
05/10/2019
10.2
001-35839
10.20#
Form of Notice of Grant of Non-Statut
t ory S
r
tock Option
for Directors under 2019 Equity Incentive Plan.
10-Q
05/10/2019
10.3
001-35839
10.21#
Form of Relative Total Stockholder Retur
t
n Unit
Certific
f ate under 2019 Equity Incentive Plan.
10-Q
05/10/2019
10.4
001-35839
10.22#
Form of Performance Share Unit Certificate under 2019
Equity Incentive Plan.
10-Q
05/10/2019
10.5
001-35839
10.23#
Form of Notice of Restricted Stock Unit Award under
2019 Equity Incentive Plan.
10-K
11/25/2020
10.27
001-35839
10.24#
Amended and Restated Employment Agreement dated as
of Februa
r
ry 8, 2024 by and between the Company and
Nathaniel S. Gardiner, effe
f ctive April 1, 2024
10-Q
05/08/2024
10.2
001-35839
10.25#
2024 Inducement Stock Incentive Plan
S-8
05/08/2024
99.2
333-279217
10.26#
Form of Notice of Grant of Non-Statut
t ory S
r
tock Option
under 2024 Inducement Stock Incentive Plan
X
10.27#
Form of Notice of Grant of Restricted Stock Unit Award
under 2024 Inducement Stock Incentive Plan
X
76
10.28#
Form of Performance Share Unit Certificate under 2024
Inducement Stock Incentive Plan
X
10.29#
Form of Relative Total Stockholder Retur
t
n Unit
Certific
f ate under 2024 Inducement Stock Incentive Plan
X
10.30
Second Amendment to Lease Agreement, dated as of July
26, 2024, between ARE-MA REGION NO. 75, LLC and
the Company
X
10.31
Third Amendment to Lease Agreement, dated as of
September 13, 2024, between ARE-MA REGION NO.
75, LLC and the Company
X
19.1
Amended and Restated Securities Trading Policy
X
21.1
Subs
u
idiaries of the Company.
X
23.1
Consent of PricewaterhouseCoopers LLP, Independent
Registered Publ
u ic Accounting Firm.
X
31.1
Certific
f ation of the Chief Executive Offi
f cer pursuant to
Rule 13a-14(a) or 15d-14(a) of the Securities Exchange
Act of 1934.
X
31.2
Certific
f ation of Chief Financial Officer pursuant to Rul
R e
13a-14(a) or 15d-14(a) of the Securities Exchange Act of
1934.
X
32.1
Certific
f ation of the Chief Executive Offi
f cer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarba
r
nes-Oxley
Act of 2002.
X
97.1
Amended and Restated Compensation Clawback Policy
X
101.INS
XBRL Instance Document - The instance document does
not appear in the interactive data file because its XBRL
tags are embedded within the inline XBRL document
X
101.SCH Inline XBRL Taxonomy Extension Schema with
embedded Linkbases document
104
Cover Page Interactive Data File (for
f
matted as Inline
XBRL with applicable Taxonomy Extension information
contained in Exhibit 101)
#
Management contract or compensatory plan, contract or agreement.
†
Confid
f ential treatment granted as to portions of this Exhibit. The confid
f ential portions of this Exhibit have been
omitted and are marked by asterisks.
††
This Exhibit has been filed separately with the commission pursuant to an appl
a
ication for
f
confid
f entiality treatment.
The confid
f ential portions of this Exhibit have been omitted and are marked by asterisks.
ITEM 16.
FORM 10-K SUMMARY
None.
77
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has dul
d y caused
this report to be signed on its behalf by the undersigned, thereunto dul
d y authorized, this 27th day of November, 2024.
ENANTA PHARMACEUTICALS, INC.
By:
/s/ Jay R. Luly, Ph.D.
Jay R. Luly, Ph.D.
Chief E
e
xecu
E
tive Offic
O
er
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the fol
f lowing
persons on behalf of the Company in the capacities and on the dates indicated.
Signature
g
Title
Date
/s/ Jay R. Luly, Ph.D.
Jay R. Luly, Ph.D.
President and Chief Executive
Offi
f cer and Director
(Principal Executive Offic
f er)
November 27, 2024
/s/ Paul J. Mellett
Paul J. Mellett
Chief Financial and Administrative
Offi
f cer
(Principal Financial and
Accounting Offic
f er)
November 27, 2024
/s/ Bruce L.A. Carter, Ph.D.
Bruc
r
e L.A. Carter, Ph.D.
Director
November 27, 2024
/s/ Mark G. Foletta
Mark G. Foletta
Director
November 27, 2024
/s/ Yujiro S. Hata
Yujir
u
o S. Hata
Director
November 27, 2024
/s/ Kri
K stine Peterson
Kristine Peterson
Director
November 27, 2024
/s/ Lesley Rus
R
sell, MB. Ch.B., MRCP
Lesley Russell, MB. Ch.B., MRCP
Director
November 27, 2024
/s/ Terry Vance
Terry Vance
Director
November 27, 2024
[THIS PAGE INTENTIONALLY LEFT BLANK]
F-1
ITEM 8.
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ENANTA PHARMACEUTICALS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Registered Publ
u ic Accounting Firm (PCAOB ID 238)
F-2
Consolidated Balance Sheets
F-4
Consolidated Statements of Operations
F-5
Consolidated Statements of Comprehensive Loss
F-6
Consolidated Statements of Stockholders’ Equity
F-7
Consolidated Statements of Cash Flows
F-8
Notes to Consolidated Financial Statements
F-9
F-2
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Enanta Pharmaceuticals, Inc.
Opinion on the
t
Fina
i
ncial Sta
S tementst
We have audited the accompanying consolidated balance sheets of Enanta Pharmaceuticals, Inc. and its subs
u
idiary (the “Company”)
as of September 30, 2024 and 2023, and the related consolidated statements of operations, of comprehensive loss, of stockholders'
equity and of cash flo
f ws for each of the three years in the period ended September 30, 2024, including the related notes (collectively
referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the fin
f ancial position of the Company as of September 30, 2024 and 2023, and the results of its operations and its
cash flo
f ws for each of the three years in the period ended September 30, 2024 in confor
f
mity with accounting principles generally
accepted in the United States of America.
Basis f
i
or
f
Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting fir
f m registered with the
Publ
u ic Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the
Company in accordance with the U.S. fed
f
eral securities laws and the appl
a
icable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits of these consolidated fin
f ancial statements in accordance with the standards of the PCAOB. Those standards
require that we plan and perform the audits to obtain reasonabl
a e assurance about
a
whether the consolidated financial statements are free
of material misstatement, whether due
d
to error or fra
f ud. The Company is not required to have, nor were we engaged to perform, an
audit of its internal control over fin
f ancial reporting. As part of our audits we are required to obtain an understanding of internal control
over fin
f ancial reporting but not for the purpos
r
e of expressing an opinion on the effectiveness of the Company's internal control over
financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedur
d
es to assess the risks of material misstatement of the consolidated financial statements,
whether due
d
to error or fra
f ud, and performing procedur
d
es that respond to those risks. Such procedur
d
es included examining, on a test
basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the
consolidated financial statements. We believe that our audits provide a reasonabl
a e basis for our opinion.
Critical Audit M
i
at
M te
t rs
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements
that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are
material to the consolidated financial statements and (ii) involved our especially challenging, subj
u ective, or complex judgments. The
communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a
whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or
on the accounts or disclosures to which it relates.
Research and Developm
o
ent and Pharmaceutical Drug Manufac
f
turing Accrualsl
As described in Notes 2 and 6 to the consolidated financial statements, the Company has entered into various contracts with third
parties to perform research and development and pharmaceutical drug
r
manufact
f
ur
t
ing. When billing terms under these contracts do not
coincide with the timing of when the work is performed, management is required to make estimates of outstanding obligations to those
third parties as of period end. Within accrue
r
d expenses and other current liabi
a lities, total accrue
r
d research and development expenses
and accrued pharmaceutical drug
r
manufactur
t
ing amounted to $3.1 million and $0.9 million as of September 30, 2024, respectively.
The accrual estimates are based on a number of fact
f
ors, including management’s knowledge of the research and development
programs and pharmaceutical drug
r
manufac
f
turing activities and associated timelines, invoicing to date, and the provisions in the
contract. Significant judgments and estimates are made in determining the accrue
r
d balances at the end of any reporting period.
The principal considerations for our determination that performing procedur
d
es relating to research and development and
pharmaceutical drug
r
manufactur
t
ing accrua
r
ls is a critical audit matter are the significant judgment by management in developing the
accrua
r
l estimates, as the estimates are based on a number of fact
f
ors, including management’s knowledge of the research and
development programs and pharmaceutical drug
r
manufac
f
turing activities and associated timelines, invoicing to date, and the
provisions in the contracts, which in tur
t
n led to a high degree of auditor judgment, subj
u ectivity and effort in performing procedures
F-3
and evaluating management’s significant assumptions related to progress towards completion of the research and development
programs and pharmaceutical drug
r
manufac
f
turing activities.
Addressing the matter involved performing procedur
d
es and evaluating audit evidence in connection with forming our overall opinion
on the consolidated financial statements. These procedur
d
es included, among others (i) testing management’s process for
f
developing
estimates based upon the progress of the research and development programs and pharmaceutical drug
r
manufact
f
ur
t
ing activities; (ii)
evaluating the appropriateness of the method used by management to develop the estimates; (iii) reading research and development
and pharmaceutical drug
r
manufact
f
ur
t
ing contracts on a test basis; (iv) evaluating the completeness and accuracy of data used by
management; and (v) evaluating the reasonabl
a eness of significant assumptions related to the progress towards completion. Evaluating
management’s assumptions related to progress towards completion of the research and development programs and pharmaceutical
drug
r
manufac
f
turing activities included evaluating whether the assumptions were reasonabl
a e considering the associated timelines,
invoicing to date and the provisions in the contracts.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
November 27, 2024
We have served as the Company’s auditor since 1999.
F-4
ENANTA PHARMACEUTICALS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
September 30,
September 30,
2024
2023
Assets
Current assets:
Cash and cash equivalents.................................................................................
$
37,233
$
85,388
Short-term marketable securities.......................................................................
210,953
284,522
Accounts receivable ..........................................................................................
6,646
8,614
Prepaid expenses and other current assets.........................................................
12,413
13,263
Income tax receivabl
a e........................................................................................
31,999
31,004
Short-term restricted cash..................................................................................
608
—
Total current assets........................................................................................
299,852
422,791
Property and equipment, net..................................................................................
32,688
11,919
Operating lease, right-of-use assets.......................................................................
40,658
22,794
Long-term restricted cash......................................................................................
3,360
3,968
Other long-term assets...........................................................................................
94
803
Total assets ....................................................................................................
$
376,652
$
462,275
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ..............................................................................................
$
8,002
$
4,097
Accrue
r
d expenses and other current liabilities..................................................
13,547
18,339
Liability related to the sale of future royalties ..................................................
34,462
35,076
Operating lease liabi
a lities ..................................................................................
1,524
5,275
Total current liabi
a lities ..................................................................................
57,535
62,787
Liability related to the sale of future royalties, net of current portion ..................
134,779
159,429
Operating lease liabi
a lities, net of current portion..................................................
53,943
21,238
Series 1 nonconvertible prefer
f red stock ................................................................
1,350
1,423
Other long-term liabi
a lities .....................................................................................
231
663
Total liabi
a lities...............................................................................................
247,838
245,540
Commitments and contingencies (Note 13)
Stockholders' equity:
Common stock; $0.01 par value per share, 100,000 shares authorized;
21,194 and 21,059 shares issued and outstanding at September 30, 2024
and September 30, 2023, respectively............................................................
212
211
Additional paid-in capi
a tal..................................................................................
451,340
424,693
Accumulated other comprehensive gain (loss) .................................................
302
(1,174)
Accumulated defic
f it ..........................................................................................
(323,040)
(206,995)
Total stockholders' equity..............................................................................
128,814
216,735
Total liabi
a lities and stockholders' equity.......................................................
$
376,652
$
462,275
The accompanying notes are an integral part of these consolidated financial statements.
F-5
ENANTA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF OPERAT
R
IONS
(in thousands, except per share data)
Years Ended September 30,
2024
2023
2022
Revenue
Royalty revenue................................................................................. $
67,635
$
78,204
$
86,160
License revenue .................................................................................
—
1,000
—
Total revenue .................................................................................
67,635
79,204
86,160
Operating expenses:
Research and development ................................................................
131,476
163,524
164,522
General and administrative................................................................
57,850
52,887
45,482
Total operating expenses ...............................................................
189,326
216,411
210,004
Loss from operations .............................................................................
(121,691)
(137,207)
(123,844)
Other income (expense):
Interest expense .................................................................................
(10,940)
(5,148)
—
Interest and investment income, net ..................................................
14,770
11,360
1,573
Change in fair value of Series 1 nonconvertible prefer
f red stock.......
73
—
83
Total other income, net..................................................................
3,903
6,212
1,656
Loss before income taxes.......................................................................
(117,788)
(130,995)
(122,188)
Income tax benefit
f
(expense).............................................................
1,743
(2,821)
433
Net loss .................................................................................................. $
(116,045)
$
(133,816)
$
(121,755)
Net loss per share, basic and diluted...................................................... $
(5.48)
$
(6.38)
$
(5.91)
Weighted average common shares outstanding, basic and diluted........
21,157
20,969
20,603
The accompanying notes are an integral part of these consolidated financial statements.
F-6
ENANTA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(in thousands)
Years Ended September 30,
2024
2023
2022
Net loss....................................................................................................... $
(116,045) $
(133,816) $
(121,755)
Other comprehensive income (loss):
Net unrealized gains (losses) on marketable securities............................
1,476
2,550
(3,342)
Total other comprehensive income (loss) ..........................................
1,476
2,550
(3,342)
Comprehensive loss.................................................................................... $
(114,569) $
(131,266) $
(125,097)
The accompanying notes are an integral part of these consolidated financial statements.
F-7
ENANTA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands)
Accumulated
Retained
Additional
Other
Earnings
Total
Common Stock
Paid-In
Comprehensive
(Accumulated
Stockholders'
Shares
Amount
Capital
Income (Loss)
Deficit)
Equity
Balances at September 30, 2021...............................
20,238
$
202
$
351,033
$
(382)
$
48,576
$
399,429
Exercise of stock options ...........................................
517
6
21,256
—
—
21,262
Vesting of restricted stock units, net of withholding .....
36
—
(1,229)
—
—
(1,229)
Stock-based compensation expense.............................
—
—
26,969
—
—
26,969
Other comprehensive loss ..........................................
—
—
—
(3,342)
—
(3,342)
Net loss....................................................................
—
—
—
—
(121,755)
(121,755)
Balances at September 30, 2022...............................
20,791
208
398,029
(3,724)
(73,179)
321,334
Exercise of stock options ...........................................
124
1
2,207
—
—
2,208
Vesting of restricted stock units, net of withholding .....
144
2
(3,759)
—
—
(3,757)
Stock-based compensation expense.............................
—
—
28,216
—
—
28,216
Other comprehensive income .....................................
—
—
—
2,550
—
2,550
Net loss....................................................................
—
—
—
—
(133,816)
(133,816)
Balances at September 30, 2023...............................
21,059
211
424,693
(1,174)
(206,995)
216,735
Exercise of stock options ...........................................
16
—
147
—
—
147
Vesting of restricted stock units, net of withholding .....
119
1
(295)
—
—
(294)
Stock-based compensation expense.............................
—
—
26,795
—
—
26,795
Other comprehensive income .....................................
—
—
—
1,476
—
1,476
Net loss....................................................................
—
—
—
—
(116,045)
(116,045)
Balances at September 30, 2024...............................
21,194
$
212
$
451,340
$
302
$
(323,040)
$
128,814
The accompanying notes are an integral part of these consolidated financial statements.
F-8
ENANTA PHARMACEUTICALS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended September 30,
2024
2023
2022
Cash flows fro
f
m operating activities
Net loss................................................................................................... $
(116,045)
$
(133,816)
$
(121,755)
Adju
d stments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense ...................................................
26,795
28,216
26,969
Depreciation and amortization expense..............................................
2,336
2,371
2,973
Non-cash interest expense associated with the sale of fut
f ur
t
e royalties
(135)
5,148
—
Non-cash royalty revenue..................................................................
2,350
(10,318)
—
Premium paid on marketabl
a e securities..............................................
—
(73)
(846)
Amortization (accretion) of premiums (discounts) on marketable
securities...........................................................................................
(1,138)
(2,856)
1,171
Loss on disposal of property and equipment ......................................
16
150
—
Change in fair value of Series 1 nonconvertible prefer
f red stock .........
(73)
—
(83)
Change in operating assets and liabi
a lities:
Accounts receivabl
a e........................................................................
1,968
11,704
3,258
Prepaid expenses and other current assets........................................
850
182
743
Income tax receivabl
a e .....................................................................
(995)
(2,286)
8,537
Operating lease, right-of-use assets..................................................
6,096
4,598
4,776
Other long-term assets.....................................................................
709
(107)
(604)
Accounts payable............................................................................
(414)
(1,151)
(4,634)
Accrue
r
d expenses ...........................................................................
(5,646)
(2,558)
(1,477)
Operating lease liabi
a lities ................................................................
4,994
(2,567)
(3,706)
Other long-term liabilities ...............................................................
(432)
209
(104)
Net cash used in operating activities..................................................
(78,764)
(103,154)
(84,782)
Cash flows fro
f
m investing activities
Purchase of marketable securities............................................................
(307,282)
(373,391)
(171,446)
Proceeds fro
f
m matur
t
ities and sale of marketable securities ......................
383,465
328,871
228,468
Purchase of property and equipment........................................................
(17,948)
(9,058)
(2,125)
Net cash provided by (used in) investing activities.............................
58,235
(53,578)
54,897
Cash flows fro
f
m fin
f
ancing activities
Payments on royalty sale liabi
a lity, net of imputed interest........................
(27,479)
—
—
Proceeds fro
f
m the exercise of stock options.............................................
147
2,208
21,262
Proceeds fro
f
m the sale of future royalties ................................................
—
200,000
—
Payments for debt issuance costs.............................................................
—
(325)
—
Payments for settlement of share-based awards........................................
(294)
(3,757)
(1,229)
Net cash provided by (used in) fin
f ancing activities ............................
(27,626)
198,126
20,033
Net increase (decrease) in cash, cash equivalents and restricted cash .
(48,155)
41,394
(9,852)
Cash, cash equivalents and restricted cash at beginning of period.............
89,356
47,962
57,814
Cash, cash equivalents and restricted cash at end of period ...................... $
41,201
$
89,356
$
47,962
Supplemental disclosure of cash flow information
Cash paid for taxes.............................................................................. $
241
$
4,899
$
—
Cash paid for interest .......................................................................... $
11,710
$
1,987
$
—
Cash received fro
f
m tenant improvement allowances............................ $
9,358
$
1,994
$
—
Supplemental disclosure of noncash infor
f
mation:
Purchases of fix
f ed assets included in accounts payable and
accrue
r
d expenses.............................................................................. $
5,597
$
424
$
1,215
Operating lease liabi
a lities arising from obtaining right-of-use assets .... $
23,960
$
3,817
$
23,910
The accompanying notes are an integral part of these consolidated financial statements.
F-9
ENANTA PHARMACEUTICALS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data)
1. Nature of the Business
Enanta Pharmaceuticals, Inc. (collectively with its subs
u
idiary, the “Company”), incorporated in Delaware in 1995, is a biotechnology
company that uses its robust, chemistry-
r
driven approach and drug discovery capabilities to discover and develop small molecule drugs
r
with an emphasis on virology and immunology. The Company discovered glecapr
a
evir, the second of two antiviral protease inhibitors
discovered and developed through its collabor
a
ation with AbbVie for the treatment of chronic infect
f
ion with hepatitis C virus
r
, or HCV.
Glecaprevir is co-formulated as part of AbbVie’s leading brand of direct-acting antiviral, or DAA, combination treatment for HCV,
which has been marketed under the tradenames MAVYRET® (U.S.) and MAVIRET® (ex-U.S.) (glecaprevir/pi
/ brentasvir) since 2017.
The Company is subj
u ect to many of the risks common to companies in the biotechnology industry,
r
including but not limited to, the
uncertainties of research and development, competition fro
f
m technological innovations of others, dependence on collabor
a
ative
arrangements, protection of proprietary technology, dependence on key personnel and compliance with government regulation.
Product candidates currently under development will require significant additional research and development efforts, including
extensive preclinical and clinical testing and regulatory approvals, prior to commercialization. These efforts require significant
amounts of capital, adequate personnel and infrastructur
t
e, and extensive compliance reporting capabilities.
2. Summary of Signific
f ant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include those of the Company and its subsidiary, Enanta Pharmaceuticals
Security Corporation, afte
f r elimination of all intercompany accounts and transactions. The accompanying consolidated financial
statements have been prepared in confor
f
mity with accounting principles generally accepted in the United States of America
(“GAAP”). Certain prior period amounts have been reclassified to confor
f
m to the current year presentation. Any refer
f ence in these
notes to applicable guidance is meant to refer
f
to the authoritative GAAP as found
f
in the Accounting Standards Codification and
Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).
Use of Estimates
The preparation of consolidated financial statements in confor
f
mity with GAAP requires management to make estimates and
assumptions that affe
f ct the reported amounts of assets and liabi
a lities, the disclosure of contingent assets and liabi
a lities at the date of the
consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant
estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, management’s
judgments with respect to its revenue arrangements; liabi
a lity related to the sale of future royalties; valuation of stock-based awards and
the accrual of research and development expenses. Estimates are periodically reviewed in light of changes in circumstances, fac
f
ts and
experience.
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 matur
t
ities of less than
one year from the balance sheet date are classified as short-term marketable securities. Marketabl
a e securities with remaining matur
t
ities
of greater than one year from the balance sheet date are classified as long-term marketable securities.
The Company classifies all of its marketable securities as availabl
a e-for-sale. The Company continually evaluates the credit ratings of
its investment portfol
f io 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/A- or higher according to Moody’s or S&P or A- by Fitch. The Company reports
availabl
a e-for-sale investments at fai
f r 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 identific
f ation basis and realized gains and losses are
included in other income (expense) within the consolidated statements of operations. When the fair value is below the amortized cost
of a marketabl
a e security, an estimate of expected credit losses is made. The credit-related impairment amount is recognized in the
consolidated statements of operations. Credit losses are recognized through the use of an allowance for
f
credit losses account in the
consolidated balance sheet and subsequent improvements in expected credit losses are recognized as a reversal of an amount in the
allowance account. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to
sell the security prior to recovery of its amortized cost basis, then the allowance for
f
the credit loss is written-off and the excess of the
amortized cost basis of the asset over its fair value is recorded in the consolidated statements of operations. There were no credit
losses recorded during the years ended September 30, 2024, 2023, and 2022.
F-10
Restricted Cash
As of September 30, 2024 and 2023, the Company had outstanding letters of credit collateralized by a money market account totaling
$3,968, to the benefit
f
of the landlord of the Company’s building leases. A total of $608 is classified as short-term restricted cash and
$3,360 is classified as long-term restricted cash as of September 30, 2024 based on the lease term end date of the Company's faci
f
lity
lease agreements. As of September 30, 2023, $3,968 was classified as long-term restricted cash.
Concentration of Credit Risk and of Significant Customers and Suppliers
Financial instrum
r
ents that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents,
short-term and long-term marketable securities and accounts receivabl
a e. The Company has all cash and investment balances at one
accredited fin
f ancial institut
t ion, including cash in amounts that exceed federally insured limits. The Company does not believe it is
subj
u ect to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
The Company has historically generated the majo
a rity of its revenue from its collabor
a
ative research and license agreements. As of
September 30, 2024 and 2023, accounts receivabl
a e consisted of amounts due
d
from the Company’s principal collabor
a
ator (see Note 7).
The Company is completely dependent on third-party manufac
f
turers for product supply for
f
preclinical and clinical research activities.
The Company relies and expects to continue to rely exclusively on several manufact
f
ur
t
ers to supply the Company with its drug supply
requirements related to these activities. These research programs would be adversely affected by a significant interrupt
u ion in the
suppl
u
y fro
f
m these third-party manufac
f
turers.
Fair Value Measurements
Certain assets and liabi
a lities are carried at fair value under GAAP. Fair value is defin
f ed 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 liabi
a lity in an
orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must
maximize the use of observabl
a e inputs and minimize the use of unobservabl
a e inputs. A fai
f r value hierarchy is based on three levels of
inputs that are used to measure fai
f r value, of which the fir
f st two levels are considered observable and the last is considered
unobservabl
a e:
•
Level 1—Quoted prices in active markets for identical assets or liabi
a lities.
•
Level 2—Observabl
a e 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
f
identical or similar assets or liabilities, or other inputs that are
observable or can be corroborated by observabl
a e market data.
•
Level 3—Unobservabl
a e inputs that are suppor
u
ted by little or no market activity and that are significant to determining the
fair value of the assets or liabi
a lities, including pricing models, discounted cash flow methodologies and similar techniques.
The Company’s instrum
r
ents that are carried at fair value are cash equivalents, short-term and long-term marketable securities and the
Series 1 nonconvertible prefer
f red stock. The carrying values of accounts receivabl
a e, prepaid and other assets, accounts payable and
accrue
r
d expenses approximate their fai
f r value due to the short-term nature of these assets and liabi
a lities.
Property and Equipment
Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is recognized using the straight-line
method over the following estimated useful lives:
Labor
a
atory a
r
nd offi
f ce equipment
5 years
Leasehold improvements
Shorter of life o
f
f lease or estimated useful
f
life
Purchased softw
f
are
3 years
Computer equipment
3 years
Furniture
7 years
Expenditures for
f
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
f
lives. Upon retirement or sale, the cost and related accumulated
depreciation of assets disposed are removed fro
f
m the accounts and any resulting gain or loss is included in other income (expense) in
the consolidated statements of operations.
Leases
The Company accounts for
f
a contract as a lease when it has the right to control the asset for
f
a period of time while obtaining
subs
u
tantially all of the asset’s economic benefits. The Company determines if an arrangement is a lease or contains an embedded lease
at inception. For arrangements that meet the definition of a lease, the Company determines the initial classific
f ation and measurement
F-11
of its right-of-use asset and lease liabi
a lity at the lease commencement date and thereafte
f r if modified. The lease term includes any
renewal options that the Company is reasonabl
a y assured to exercise. The present value of lease payments is determined by using the
interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses its estimated secured incremental
borrowing rate for that lease term. The Company’s policy is to not record leases with an original term of 12 months or less on its
consolidated balance sheets and recognizes those lease payments in the consolidated statements of operations on a straight-line basis
over the lease term.
In addition to rent, the leases may require the Company to pay additional costs, such as utilities, maintenance and other operating
costs, which are generally referred to as non-lease components. The Company has elected to not separate lease and non-lease
components. Only the fix
f ed costs for
f
lease components and their associated non-lease components are accounted for as a single lease
component and recognized as part of a right-of-use asset and lease liabi
a lity. Rent expense for
f
operating leases is recognized on a
straight-line basis over the reasonabl
a y assured lease term based on the total lease payments and is included in operating expense in the
consolidated statements of operations.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, primarily property and equipment and right-of-use assets, for
f
impairment whenever events or
changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverabl
a e. 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 o
r
r 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
f
recoverabi
a lity, the Company compares for
f
ecasts 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 flo
f ws 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.
Liability Related to the Sale of Future Royalties
In April 2023, the Company entered into a royalty sale agreement with an affiliate of OMERS, pursuant to which the Company was
paid a $200,000 cash purchase price in exchange for 54.5% of the Company’s fut
f ur
t
e quarterly royalty payments on net sales of
MAVYRET/MAVIRET. The Company recognized the $200,000 received fro
f
m OMERS as a liabi
a lity on its consolidated balance
sheets because the $200,000 will be paid back to OMERS up t
u
o a 1.42 cappe
a
d amount and the Company has significant continuing
involvement under the AbbVie Agreement. Interest expense for
f
the liabi
a lity related to the sale of future royalties is recognized using
the effective interest rate method over the term of the royalty sale agreement.
The liabi
a lity related to the sale of future royalties and related interest expense are based on current estimates of fut
f ur
t
e royalties, which
the Company determines by using third-party forecasts of MAVYRET/MAVIRET sales. The Company periodically assesses the
forecasted sales and to the extent the amount or timing of future estimated royalty payments is materially different than previous
estimates, the Company will account for any such change by adju
d sting the liabi
a lity related to the sale of future royalties and
prospectively recognizing the related non-cash interest expense.
Revenue Recognition
The Company’s revenue has been generated primarily through collabor
a
ative 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 nonrefunda
f
bl
a e
upfro
f
nt license fees, payments for
f
research and development activities, payments based upon
u
the achievement of certain milestones,
and royalty payments based on product sales derived fro
f
m the collabor
a
ation.
The Company recognizes revenue to depict the transfer
f
of promised goods or services to customers in an amount that reflects the
consideration to which the Company expects to be entitled in exchange for those goods or services. The Company receives sales-based
royalties for which the license is deemed to be the predominant item to which the royalties relate and thus the Company recognizes
sales-based royalties as the underlying sales are earned.
Research and Development Costs
Included in research and development costs are wages, stock-based compensation and benefit
f s of employees performing research and
development, 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 studi
t
es
and manufact
f
ur
t
e quantities of product for
f
preclinical and clinical studi
t
es. The Company expenses the cost of each contract as the work
is performed.
F-12
Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the
period in which they are incurred. Advance payments for
f
goods or services to be received in the fut
f ur
t
e for
f
use in research and
development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the
services are performed.
Research and Development and Pharmaceutical Drug Manufac
f
turing Accruals
The Company has entered into various contracts with third parties to perform research and development and pharmaceutical drug
r
manufac
f
turing. This includes contracts with contract research organizations (“CROs”), clinical manufact
f
ur
t
ing organizations
(“CMOs”), testing laboratories, research hospitals and not for profit organizations and other entities to suppor
u
t our research and
development activities. When billing terms under these contracts do not coincide with the timing of when the work is performed, the
Company is required to make estimates of outstanding obligations to those third parties as of period end. The accrua
r
l estimates are
based on a number of fac
f
tors, including the Company’s knowledge of the research and development programs and pharmaceutical
drug
r
manufac
f
turing activities and associated timelines, invoicing to date, and the provisions in the contract. Significant judgments and
estimates are made in determining the accrued balances at the end of any reporting period. Actual results could diffe
f r fro
f
m our
estimates.
Patent Costs
All patent-related costs incurred in connection with filing and prosecuting patent appl
a
ications are recorded as general and
administrative expenses as incurred.
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 restricted stock units
with service-based and perfor
f
mance-based vesting is based on the fai
f r value of the stock on the date of grant. The Company uses the
Monte-Carlo model to calculate the fai
f r value on the date of grant of market-based awards. The fair value of service-based awards is
recognized as stock-based compensation expense over the requisite service period, which is generally the vesting period of the
respective award. For awards with graded vesting, the straight-line method of expense recognition is appl
a
ied to all awards with
service-only based conditions. The Company uses the graded-vesting method to record the expense of awards with both service-based
and performance-based vesting conditions, commencing once achievement of the performance condition becomes probabl
a e. The
Company classifie
f s stock-based compensation expense in the consolidated statements of operations in the same manner in which the
award recipient’s payroll costs are classified. The Company accounts for
f
stock-based compensation expense related to forfei
f tures as
the for
f
feitur
t
es occur.
Income Taxes
The Company accounts for
f
income taxes using the asset and liabi
a lity method, which requires the recognition of defer
f red tax assets and
liabi
a lities for
f
the expected future tax consequences of events that have been recognized in the financial statements or in the Company’s
tax retur
t
ns. Defer
f red taxes are determined based on the difference between the fin
f ancial reporting and tax basis of assets and liabi
a lities
using enacted tax rates in effe
f ct in the years in which the differences are expected to reverse. Changes in defer
f red tax assets and
liabi
a lities are recorded in income tax expense.
The Company assesses the likelihood that its deferred tax assets will be recovered fro
f
m fut
f ur
t
e taxable income and, to the extent it
believes based upon the weight of availabl
a e evidence, that it is more likely than not that all or a portion of defer
f red tax assets will not
be realized, a valuation allowance is establ
a ished through a charge to income tax expense. The realization of defer
f red tax assets is
dependent upon the Company’s ability to generate future taxabl
a e income dur
d
ing the periods in which those temporary d
r
iffe
f rences
become deductible. Potential for
f
recovery of deferred tax assets is evaluated by estimating the future taxabl
a e profits expected and
considering prudent and feas
f
ible tax planning strategies.
Uncertain tax positions represent tax positions for which reserves have been establ
a ished. The Company accounts for
f
uncertainty in
income taxes recognized in the consolidated financial statements by appl
a
ying a two-step process to determine the amount to be
recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon
u
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 that may be recognized is the largest amount that has a
greater than 50% likelihood of being realized upon ultimate settlement. Income tax expense includes the effe
f cts of any resulting tax
reserves, or unrecognized tax benefit
f s, that are considered appr
a
opriate as well as the related net interest and penalties.
Net Income (Loss) per Share
Basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of shares of
common stock outstanding for the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by
F-13
the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the
dilutive effe
f ct of outstanding stock options and unvested restricted stock units. For periods in which the Company reported a net loss,
diluted net loss per common share is the same as basic net loss per common share, since dilutive common shares are not assumed to
have been issued if their effect is anti-dilutive.
The Company reported net losses for each of the years ended September 30, 2024, 2023, and 2022. The Company excluded the
following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net
loss per share for the periods indicated because including them would have had an anti-dilutive effect:
Years Ended September 30,
2024
2023
2022
(in thousands)
Options to purchase common stock .......................................
5,184
4,365
3,993
Unvested rTSRUs
R
..................................................................
92
81
101
Unvested PSUs.......................................................................
92
81
101
Unvested restricted stock units ..............................................
428
411
219
Segment Data
The Company manages its operations as a single segment for the purpos
r
es of assessing performance and making operating decisions.
The Company is a biotechnology company foc
f
used on discovering and developing small molecule drugs, with an emphasis on
treatments for
f
viral infect
f
ions. 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 (Loss)
Comprehensive income (loss) includes net income (loss) 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 (loss) is
unrealized gains and losses on available-for-sale marketabl
a e securities.
Going Concern
In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Sta
S tements -
t
Going Conc
C
ern (Subt
(
opic 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 filin
f
g and, in certain circumstances, provide additional foot
f
note disclosures.
Based on a detailed cash for
f
ecast incorpor
r
ating current research and development activities and related spending plans, the Company
believes that its current cash, cash equivalents and short-term marketable securities on hand at September 30, 2024 will enable us to
fund our operating expenses and capital expenditure requirements for
f
at least the next twelve months beyond the date of issuance of
these consolidated financial statements. The amount of capital availabl
a e will depend on the Company’s management of its existing
cash, cash equivalents and short-term marketable securities, as well as the cash flo
f ws from our retained portion of fut
f ur
t
e HCV
royalties. If the Company should require financing beyond these resources to fund its research and development efforts, it may not be
able to obtain fin
f ancing on acceptabl
a e terms, or at all.
Recently Issued Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segm
e
ent Reporting (To
(
pi
o c 280) ("ASU 2023-07"), which requires public entities
to disclose information about
a
their reportabl
a e segments’ significant expenses and other segment items on an interim and annual basis.
Publ
u ic entities with a single reportabl
a e segment are required to appl
a
y the disclosure requirements in ASU 2023-07, as well as all
existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. This amendment is effective
for the Company in the fiscal year beginning October 1, 2024, and interim periods within the fis
f cal year beginning October 1, 2025,
on a retrospective basis with early adoption permitted. This accounting standard will require additional disclosures about segment
information, however, the Company does not expect ASU 2023-07 to have a material impact on the Company’s consolidated financial
position or results of operations.
In December 2023, the FASB issued ASU 2023-09, Income Taxes
a
(Topi
T
c 740) ("ASU 2023-09"), which requires public entities, on an
annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid
disaggregated by jurisdiction. ASU 2023-09 is effe
f ctive for
f
the Company in the fis
f cal year beginning October 1, 2025, with early
adoption permitted. The Company is currently evaluating the potential impact that ASU 2023-09 may have on its financial statement
disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement – Repor
e
ting Comprehensive Inc
I
ome – Expe
x
nse Disaggregation
Disc
i
losures (Subt
(
opic 220-40) ("ASU 2024-03"), which requires public entities to provide disaggregated disclosure of income
statement expenses. Publ
u ic entities are required to disaggregate, in a tabular presentation, each relevant expense caption on the face of
F-14
the consolidated statements of operations such as the fol
f lowing expenses: purchases of inventory,
r
employee compensation, intangible
asset amortization, and depreciation. ASU 2024-03 is effe
f ctive for
f
the Company in the fis
f cal year beginning October 1, 2027, with
early adoption permitted. The Company is currently evaluating the potential impact that ASU 2024-03 may have on its financial
statement disclosures.
3. Fair Value of Financial Assets and Liabilities
The fol
f lowing tabl
a es present infor
f
mation about
a
the Company’s fin
f ancial assets and liabi
a lities that were subj
u ect to fair value
measurement on a recurring basis as of September 30, 2024 and 2023 and indicate the fair value hierarchy of the valuation inputs
utilized to determine such fai
f r value:
Fair Value Measurements at September 30, 2024 Using:
Level 1
Level 2
Level 3
Total
(in thousands)
Assets:
Cash equivalents:
Money market funds
f
................................... $
33,448
$
—
$
—
$
33,448
Marketable securities:
U.S. Treasury n
r
otes.....................................
210,953
—
—
210,953
244,401
—
—
244,401
Liabilities:
Series 1 nonconvertible prefer
f red stock .....
—
—
1,350
1,350
$
—
$
—
$
1,350
$
1,350
Fair Value Measurements at September 30, 2023 Using:
Level 1
Level 2
Level 3
Total
(in thousands)
Assets:
Cash equivalents:
Money market funds
f
................................... $
55,357
$
—
$
—
$
55,357
U.S. Treasury n
r
otes.....................................
29,755
—
—
29,755
Marketable securities:
U.S. Treasury n
r
otes.....................................
236,782
—
—
236,782
Corporate bonds..........................................
—
26,435
—
26,435
Commercial paper.......................................
—
21,305
—
21,305
321,894
47,740
—
369,634
Liabilities:
Series 1 nonconvertible prefer
f red stock .....
—
—
1,423
1,423
$
—
$
—
$
1,423
$
1,423
Cash equivalents as of September 30, 2024 consist of money market funds
f
that are readily convertible to cash and with less than 90
days until maturity. Cash equivalents as of September 30, 2023 consist of money market funds
f
and U.S. treasury n
r
otes that are readily
convertible to cash and with less than 90 days until maturity.
During the years ended September 30, 2024, 2023, and 2022, there were no transfers between Level 1, Level 2 and Level 3.
The fai
f r value of Level 2 instruments classifie
f d as marketabl
a e securities were determined through third-party pricing services. The
pricing services use many observabl
a e market inputs to determine value, including reportabl
a e trades, benchmark yields, credit spreads,
broker/dealer quotes, bids, offe
f rs, and current spot rates.
The outstanding shares of Series 1 nonconvertible prefer
f red stock as of September 30, 2024 and 2023 are measured at fair value.
These outstanding shares are fin
f ancial instruments that might require a transfer of assets because of the liquidation fea
f
tures in the
contract and are therefor
f
e recorded as liabi
a lities and measured at fair value. The fai
f r value of the outstanding shares is based on
significant inputs not observabl
a e in the market, which represent a Level 3 measurement within the fai
f r value hierarchy. The Company
utilizes a probabi
a lity-weighted valuation model, which takes into consideration various outcomes that may require the Company to
transfer
f
assets upon liquidation. Changes in the fair values of the Series 1 nonconvertible prefer
f red stock are recognized in other
income (expense) in the consolidated statements of operations.
F-15
The recurring Level 3 fair value measurements of the Company’s outstanding Series 1 nonconvertible prefer
f red stock using
probabi
a lity-weighted discounted cash flo
f w include the fol
f lowing significant unobservabl
a e inputs:
Series 1 nonconvertible preferred stock
Range
September 30,
Unobservable Input
2024
2023
Probabi
a lities of payout
0%-65%
0%-65%
Discount rate
9.00%
7.25%
The fol
f lowing tabl
a e provides a rollfor
f
ward of the aggregate fai
f r value of the Company’s outstanding Series 1 nonconvertible prefer
f red
stock for
f
which fai
f r value is determined by Level 3 inputs:
Series 1
Nonconvertible
Prefer
f
red
Stock
(in thousands)
Balance, September 30, 2021 ..................................................................................... $
1,506
Change in fair value..................................................................................................
(83)
Balance, September 30, 2022 .....................................................................................
1,423
Change in fair value..................................................................................................
—
Balance, September 30, 2023 .....................................................................................
1,423
Change in fair value..................................................................................................
(73)
Balance, September 30, 2024 ..................................................................................... $
1,350
In April 2023, the Company entered into a royalty sale agreement with an affiliate of OMERS, pursuant to which the Company was
paid a $200,000 cash purchase price in exchange for 54.5% of future quarterly royalty payments on net sales of
MAVYRET/MAVIRET, afte
f r June 30, 2023, through June 30, 2032, subj
u ect to a cap o
a
n aggregate payments equal to 1.42 times the
purchase price. The Company accounted for the upfro
f
nt payment as a liabi
a lity related to the sale of fut
f ur
t
e royalties. The carrying value
of the liabi
a lity related to the sale of future royalties app
a
roximates fai
f r value as of September 30, 2024 and 2023 and is based on current
estimates of fut
f ur
t
e royalties expected to be paid to OMERS over the next 10 years, which are considered Level 3 inputs. See Note 8
for a rollforward of the liabi
a lity.
4. Marketable Securities
As of September 30, 2024 and 2023, the fai
f r value of availabl
a e-for-sale marketabl
a e securities, by type of security, was as follows:
September 30, 2024
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Credit
Losses
Fair Value
(in thousands)
U.S. Treasury n
r
otes.....................................................
210,267
686
—
—
210,953
$ 210,267
$
686
$
—
$
—
$ 210,953
September 30, 2023
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Credit
Losses
Fair Value
(in thousands)
Corporate bonds............................................................ $
27,127
$
—
$
(692) $
—
$
26,435
Commercial paper.........................................................
21,305
—
—
—
21,305
U.S. Treasury n
r
otes.......................................................
236,880
12
(110)
—
236,782
$ 285,312
$
12
$
(802) $
—
$ 284,522
As of September 30, 2024 and 2023 marketable securities consisted of investments that matur
t
e within one year.
F-16
5. Property and Equipment, Net
Property and equipment, net consisted of the fol
f lowing as of September 30, 2024 and 2023:
September 30,
2024
2023
(in thousands)
Labor
a
atory a
r
nd offi
f ce equipment............................................................................. $
15,701
$
15,891
Leasehold improvements .........................................................................................
13,975
13,804
Purchased softw
f
are...................................................................................................
1,093
1,444
Furniture...................................................................................................................
3,117
2,290
Computer equipment................................................................................................
1,101
962
Construc
r
tion in progress ..........................................................................................
22,748
1,273
57,735
35,664
Less: Accumulated depreciation and amortization ..................................................
(25,047)
(23,745)
$
32,688
$
11,919
As of September 30, 2024, construc
r
tion in progress related primarily to leasehold improvements for
f
the new labor
a
atory and office
space located at 4 Kingsbury A
r
venue in Watertown, Massachusetts. Depreciation and amortization expense for
f
property and
equipment, was $2,336, $2,371 and $2,973 for the years ended September 30, 2024, 2023, and 2022, respectively.
6. Accrued Expenses and Other Current Liabilities
Accrue
r
d expenses and other current liabilities consisted of the fol
f lowing as of September 30, 2024 and 2023:
September 30,
2024
2023
(in thousands)
Accrue
r
d payroll and related expenses ................................................. $
6,570
$
7,037
Accrue
r
d research and development expenses .....................................
3,087
6,120
Accrue
r
d professional fees
f
....................................................................
1,332
1,632
Accrue
r
d pharmaceutical drug
r
manufac
f
turing .....................................
930
3,083
Accrue
r
d other ......................................................................................
1,628
467
$
13,547
$
18,339
7. Collaboration Agreements
AbbVie Collaboration
The Company has a Collabor
a
ative Development and License Agreement (as amended, the “AbbVie Agreement”), with AbbVie to
identify, develop and commercialize HCV NS3 and NS3/4A protease inhibitor compounds, including paritapr
a
evir and glecaprevir,
under which the Company has received license payments, proceeds fro
f
m a sale of prefer
f red stock, research fundi
f
ng payments,
milestone payments and royalties totaling appr
a
oximately $1,320,000 through September 30, 2024. Since the Company satisfied all of
its performance obligations under the AbbVie Agreement by the end of fis
f cal 2011, all milestone payments received since then have
been recognized as revenue when the milestones were achieved by AbbVie.
The Company is receiving annually tiered royalties per Company protease product ranging from ten percent up t
u
o twenty percent, or
on a blended basis from ten percent up t
u
o the high teens, on the portion of AbbVie’s calendar year net sales of each HCV regimen that
is allocated to the protease inhibitor in the regimen. Beginning with each January 1, the cumulative net sales of a given royalty-bearing
protease inhibitor product start at zero for
f
purpos
r
es of calculating the tiered royalties on a product-by-product basis. The following
tabl
a e details the royalty tiers associated with cumulative calendar year net sales allocated to each royalty-bearing product as provided
in the AbbVie Agreement:
Calendar Year Net Sales
Royalty Tier
(in thousands)
(%)
up to $500,000
10%
from $500,000 up to $750,000
12%
from $750,000 up to $1,000,000
14%
from $1,000,000 up to $2,500,000
17%
greater than or equal to $2,500,000
20%
F-17
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 intellectua
t
l property controlled by a third party where a product could not be
legally developed or commercialized in a country without the third-party intellectua
t
l property right, (ii) where a product developed
under the collabor
a
ation 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
u
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 afte
f r the first commercial sale of the product in the applicable country.
Subj
u ect 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, a
f
s 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
f
all covered products have ended. Accordingly,
the fin
f al expiration date of the agreement is currently indeterminable.
Either party may terminate the agreement for
f
cause in the event of a material breach, subj
u ect to prior notice and the opportuni
t
ty to
cure, or in the event of the other party’s bankrupt
r
cy. Additionally, AbbVie may terminate the agreement for
f
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, perpetua
t
l, fully-paid, worldwide,
royalty-free license, with the right to subl
u icense, under AbbVie’s intellectua
t
l property used in any product candidate, and (ii) an
exclusive (even as to AbbVie), perpetua
t
l, fully-paid, worldwide, royalty-free license, with the right to subl
u icense, under AbbVie’s
interest in any joint intellectual property rights to develop product candidates resulting fro
f
m covered compounds and to commercialize
any products derived fro
f
m such compounds. Upon the Company’s request, AbbVie will also transfer
f
to the Company all right, title
and interest in any related product trademarks, regulatory f
r
il
f ings and clinical trials.
If AbbVie terminates the agreement for the Company’s uncured breach, the milestone and royalty payments payabl
a e 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 intellectua
t
l property, AbbVie will continue to have the right to commercialize any
covered products, and all rights and licenses granted to the Company by AbbVie will terminate.
8. Liability Related to the Sale of Future Royalties
In April 2023, the Company entered into a royalty sale agreement with an affiliate of OMERS, pursuant to which the Company was
paid a $200,000 cash purchase price in exchange for 54.5% of future quarterly royalty payments on net sales of
MAVYRET/MAVIRET, afte
f r June 30, 2023, through June 30, 2032, subj
u ect to a cap o
a
n aggregate payments equal to 1.42 times the
purchase price.
Because the royalty sale agreement will be paid back to OMERS up to a capped amount as well as the Company’s significant
continuing involvement in the generation of fut
f ur
t
e cash flo
f ws under its AbbVie Agreement, the Company recorded the proceeds fro
f
m
the transaction as a liability on its consolidated balance sheets which will be amortized as interest expense in the consolidated
statements of operations under the effe
f ctive interest rate method over the life o
f
f the royalty sale agreement. The Company will
continue to record the ful
f l amount of royalties earned on MAVYRET/MAVIRET sales as royalty revenue in the consolidated
statements of operations.
The Company’s liabi
a lity related to the sale of fut
f ur
t
e royalties is estimated based on for
f
ecasted worldwide MAVYRET/MAVYRET
royalties to be paid to OMERS over the course of the royalty sale agreement. This estimate requires significant judgment, including
the amount and timing of royalty payments up until the end of the royalty sale agreement, which is estimated to be the stated term of
June 30, 2032. As royalties are earned by OMERS, the liabi
a lity is reduced on the Company’s consolidated balance sheets.
At September 30, 2024, the estimated future cash flows resulted in an effective annual imputed interest rate of approximately 6.87%.
The fol
f lowing tabl
a e summarizes the activity of the liabi
a lity related to the sale of fut
f ur
t
e royalties:
F-18
Liability related to the sale of future
royalties
(in thousands)
Balance - September 30, 2022 .................................................................................................... $
—
Proceeds fro
f
m sale of fut
f ur
t
e royalties.......................................................................................
200,000
Debt issuance cost.....................................................................................................................
(325)
Royalty payabl
a e to royalty purchaser........................................................................................
(10,318)
Interest expense, net of capitalized interest of $0 .....................................................................
5,148
Balance - September 30, 2023 .................................................................................................... $
194,505
Royalty payabl
a e to purchaser....................................................................................................
(7,960)
Payments on royalty sale liabi
a lity .............................................................................................
(28,916)
Interest expense, net of capitalized interest of $672 .................................................................
11,612
Balance - September 30, 2024 .................................................................................................... $
169,241
9. Stockholders’ Equity
The Company is authorized to issue 100,000 shares of common stock at a par value of $0.01 per share. Each share of common stock
entitles the holder to one vote on all matters subm
u
itted 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 also is authorized to issue 5,000 shares of prefer
f red stock at a par value of $0.01 per share, of which 2,000 shares are
designated as Series 1 Nonconvertible prefer
f red stock and 3,000 shares are undesignated and unissued.
10. Series 1 Nonconvertible Preferr
f
ed Stock
The Company’s Certifif cate of Incorporation authorizes the issuance of up to 2,000 shares of Series 1 nonconvertible prefer
f red stock at
a par value of $0.01 per share. Holders of Series 1 nonconvertible prefer
f red 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 prefer
f red stockholders are
entitled to receive in preference to all other stockholders, an amount equal to $1.00 per share, adjusted for
f
any stock dividends, stock
splits or reclassifications. Series 1 nonconvertible prefer
f red 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 prefer
f red stock with the
approval of the holders of a majority of the outstanding shares of Series 1 nonconvertible prefer
f red 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. As these shares qualify as a derivative, they are classifie
f d as a liabi
a lity on the Company’s
consolidated balance sheet.
As of September 30, 2024 and 2023, 1,930 shares of Series 1 nonconvertible prefer
f red stock were issued and outstanding. For the
years ended September 30, 2024, 2023, and 2022, the remeasurement of the Series 1 nonconvertible prefer
f red stock resulted in non-
cash gain of $73, $0 and $83, respectively, which was recorded in other income (expense) in the consolidated statements of
operations. The total fai
f r value of the Series 1 nonconvertible prefer
f red stock was $1,350 and $1,423 as of September 30, 2024 and
2023, respectively.
11. Stock-Based Awards
The Company grants stock-based awards, including stock options, restricted stock units and other unit awards under its 2019 Equity
Incentive Plan (the “2019 Plan”), which was appr
a
oved by its stockholders on Februa
r
ry 28, 2019 and amended in March 2021, March
2022, and March 2023 and its 2024 Inducement Stock Incentive Plan (“2024 Inducement Plan”). The Company also has outstanding
stock option awards under its 2012 Equity Incentive Plan (the “2012 Plan”), but is no longer granting awards under this plan. The
Company’s 2019 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 nonqualifie
f d stock options for the purchase of common stock, restricted stock units, performance units,
stock appr
a
eciation 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 2019 Plan is subj
u ect to increase by the number of
shares forfeited under any options forfeited and not exercised under the 2019 Plan or any predecessor plans such as the 2012 Plan.
Pursuant to the Company's 2024 Inducement Plan, the Company may grant non-statut
t ory s
r
tock options, stock appreciation rights,
restricted stock, restricted stock units and other stock-based awards to persons who (i) were not previously an employee or director of
the Company or (ii) are commencing employment with the Company fol
f lowing a bona fide period of non-employment, in either case
as an inducement material to the individual’s entering into employment with the Company and in accordance with the requirements of
Nasdaq Stock Market Rul
R e 5635(c)(4). As of September 30, 2024, 1,978 shares remained availabl
a e for
f
future awards under the 2019
Plan and 2024 Inducement Plan.
Options granted to employees under the 2019 Plan and the 2024 Inducement Plan generally vest over four
f
years and to non-employee
directors over one year, and expire afte
f r ten years. As required under the equity plans, the exercise price for awards granted is not to
F-19
be less than the fai
f r value of common shares on the date of grant. Restricted stock units with service-based vesting conditions
generally vest over four
f
years.
Stock Option Valuation
The fai
f r value of each stock option award is determined on the date of grant using the Black-Scholes option-pricing model. The
volatility has been determined using the Company’s traded stock price to estimate expected volatility. The expected term of the
Company’s options has historically been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla”
options. The risk-free interest rate is determined by refer
f ence to the U.S. Treasury y
r
ield curve in effect at the time of grant of the
award for
f
time periods approximately equal to the expected term of the award. The expected dividend yield is zero due
d
to the fact
f
that
the Company has never paid cash dividends and does not expect to pay any cash dividends in the for
f
eseeabl
a e fut
f ur
t
e. 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,
2024
2023
2022
Risk-free interest rate..............................................................
4.45%
3.88%
1.72%
Expected term (in years).........................................................
6.01
6.04
6.04
Expected volatility ..................................................................
52%
48%
47%
Expected dividends.................................................................
0%
0%
0%
Weighted average grant date fair value ..................................
$
5.43
$
22.71
$
33.22
The fol
f lowing tabl
a e summarizes stock option activity, including aggregate intrinsic value for
f
the year ended September 30, 2024:
Shares
Issuable
Under
Options
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Term in years
Aggregate
Intrinsic
Value
(in thousands)
(in thousands)
Outstanding as of September 30, 2023..................
4,365
$
52.68
5.9
$
—
Granted..................................................................
1,365
9.99
Exercised...............................................................
(16)
8.99
Forfeited................................................................
(530)
42.05
Outstanding as of September 30, 2024..................
5,184
$
42.67
6.3
$
1,416
Options vested and expected to vest as of
September 30, 2024..............................................
5,184
$
42.67
6.3
$
1,416
Options exercisable as of September 30, 2024......
3,482
$
50.73
5.1
$
250
The aggregate intrinsic value of options is calculated as the diffe
f rence 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 infor
f
mation:
Years Ended September 30,
2024
2023
2022
(in thousands)
Aggregate intrinsic value of stock options exercised .............
$
93
$
3,295
$
17,650
Proceeds to Company from stock options exercised ..............
$
147
$
2,208
$
21,262
Market and Perfor
f
mance-Based Stock Unit Awards
The Company awards both performance share units (“PSUs”) and relative total stockholder retur
t
n units (“rTSRUs
R
”) to its executive
offi
f cers.
The PSUs vest and result in issuance, or settlement, of common shares for
f
each recipient, based upon
u
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 two years. The fai
f r value of PSUs is based on the fai
f r
value of the stock on the date of grant, which is determined to be the closing price of the Company's common stock. Stock-based
compensation expense for
f
PSUs is recorded in the statements of operations over the service period, commencing when it is probabl
a e
that the specified research and development milestone is achieved.
The rTSRUs vest and result in the issuance of common stock based upon
u
the recipient’s continuing employment with the Company
through the settlement date of the award and the relative ranking of the total stockholder retur
t
n, or TSR, of the Company’s common
stock in relation to the TSR of the component companies in the NASDAQ Biotech Index over two specifie
f d periods that are two years
apart, based on a comparison of average closing stock prices in specified periods noted in the award agreement. The number of
F-20
market-based rTSRUs
R
awarded represents the target number of shares of common stock that may be earned; however, the actua
t
l
number of shares that may be earned ranges from 0% to 150% of the target number, depending on the award agreement and the year
of the award. The Company used a Monte Carlo model to estimate the grant-date fai
f r value of the rTSRUs. Stock-based compensation
expense for
f
rTSRUs
R
is recorded in the statements of operations over the service period regardless of whether the market condition is
achieved.
Assumptions and estimates utilized in the calculation of the fai
f r 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 for
f
th the weighted average grant date fair value assumptions used to value the rTSRUs
R
:
Years Ended September 30,
2024
2023
2022
Risk-free interest rate..............................................................
4.40%
4.19%
0.94%
Dividend yield.........................................................................
0%
0%
0%
Expected volatility ..................................................................
74%
77%
80%
Performance period (years).....................................................
2.00
2.03
1.97
The fol
f lowing tabl
a e summarizes PSU and rTSRU a
R
ctivity (at target) for the year ended September 30, 2024:
PSUs
rTSRUs
Shares
Weighted
Average
Grant
Date Fair
Value per
Share
Shares
Weighted
Average
Grant
Date Fair
Value per
Share
(in thousands, except per share data)
Unvested at September 30, 2023............................
81
$
58.58
81
$
45.82
Granted....................................................................
55
9.69
52
10.48
Vested .....................................................................
(25)
68.67
—
—
Cancelled ................................................................
(19)
51.14
(41)
47.25
Unvested at September 30, 2024............................
92
$
27.98
92
$
25.09
The total fair value of PSUs and rTSRUs
R
vested during the years ended September 30, 2024, 2023, and 2022 were $307, $8,103, and
$1,414, respectively.
Restricted Stock Units
The fol
f lowing tabl
a e summarizes the restricted stock unit activity for the year ending September 30, 2024:
Restricted
Stock
Units
Weighted
Average Grant
Date Fair
Value per
Share
(in thousands, except per share data)
Unvested at September 30, 2023 ...............................................................
411
$
51.78
Granted.......................................................................................................
175
9.27
Vested.........................................................................................................
(122)
52.54
Cancelled....................................................................................................
(36)
25.03
Unvested at September 30, 2024 ...............................................................
428
$
36.37
The total fair value of restricted stock units vested during the years ended September 30, 2024, 2023, and 2022 were $1,228, $2,590,
and $2,427, respectively.
F-21
Stock-Based Compensation Expense
The Company recorded the fol
f lowing stock-based compensation expense for
f
the years ended September 30, 2024, 2023, and 2022:
Years Ended September 30,
2024
2023
2022
(in thousands)
Research and development .....................................................
$
7,389
$
9,551
$
9,728
General and administrative .....................................................
19,406
18,665
17,241
$
26,795
$
28,216
$
26,969
Years Ended September 30,
2024
2023
2022
(in thousands)
Stock options ............................................................................ $
15,342
$
19,784
$
19,615
rTSRUs
R
.....................................................................................
1,243
1,893
1,597
PSUs .........................................................................................
4,087
542
2,628
Restricted stock units................................................................
6,123
5,997
3,129
$
26,795
$
28,216
$
26,969
As of September 30, 2024, the Company had an aggregate of $31,039 of unrecognized stock-based compensation cost, which is
expected to be recognized over a weighted average period of 2.0 years.
12. Leases
The Company has three real estate leases for properties located in Watertown, Massachusetts. The first lease, for
f
offi
f ce and laboratory
r
space at 500 Arsenal Street, the second lease, is for offic
f e space located at 400 Talcott Avenue and the third lease for
f
offi
f ce and
labor
a
atory s
r
pace is located at 4 Kingsbury A
r
venue.
Lease payments for
f
the Company's real estate leases include fixed lease payments that escalate over the terms of the leases and require
the Company to pay certain operating expenses based on actua
t
l costs incurred. Operating expenses that are not fixed in nature
t
are
expensed in the period incurred and included in variabl
a e lease costs. The leases do not include any restrictions or covenants that had to
be accounted for under the lease guidance.
In May 2022, the Company entered into its lease agreement for 4 Kingsbury A
r
venue with its existing landlord, adja
d cent to its 400
Talcott Avenue premises. Construc
r
tion of the facility shell was completed by the landlord and the Company gained access to the
building to construc
r
t tenant improvements dur
d
ing the three months ended March 31, 2024. The estimated minimum lease payments for
the 4 Kingsbury A
r
venue facility total $76,470 over the ten-year term. The lease also contains a tenant improvement allowance of
$15,205. The Company recorded a right-of-use asset of $32,499 and lease liabi
a lity of $31,939 upon commencement of the lease
during the year ended September 30, 2024. The Company moved its lab o
a
perations from 500 Arsenal Street into the newly construc
r
ted
4 Kingsbury A
r
venue facility in November 2024.
In conjunction with the new lease agreement at 4 Kingsbury A
r
venue, the Company amended its 500 Arsenal Street lease to shorten the
term of the lease fro
f
m September 2027 to November 2024. The Company remeasured the lease term and remaining lease payments for
f
the 500 Arsenal Street fac
f
ility during the year ended September 30, 2024 when the Company gained access to the 4 Kingsbury
r
Avenue facility. The Company recorded an adjustment to the right-of-u
f
se asset and lease liabi
a lity for 500 Arsenal Street of $9,322
during the year ended September 30, 2024.
The Company leases units of equipment over eighteen-month lease periods commencing upon
u
shipment of each unit. The lease
agreements contain options to terminate the leases early or to extend the leases for successive six-month periods, however these
options were not included in the right-of-use assets and lease liabi
a lity as they were not reasonabl
a y certain of being exercised. The
equipment leases require the Company to pay for certain consumable and peripheral equipment supplies based on actua
t
l costs
incurred. As these costs are not fixed in natur
t
e, they are expensed in the period incurred and included in variabl
a e lease costs.
The components of lease expense for the Company’s real estate and equipment leases were as fol
f lows:
Years Ended September 30,
2024
2023
2022
(in thousands)
Operating lease cost...................................................................................................
$
10,574
$
6,230
$
6,294
Variable lease cost .....................................................................................................
4,720
5,352
2,375
$
15,294
$
11,582
$
8,669
F-22
Suppl
u
emental disclosure of cash flo
f w infor
f
mation related to the Company's operating leases included in cash flo
f ws used in operating
activities in the consolidated statements of cash flows were as fol
f lows:
Years Ended September 30,
2024
2023
2022
(in thousands)
Cash paid for amounts included in the measurement of operating lease liabi
a lities...
$
8,283
$
6,586
$
4,966
Tenant improvement allowance received ..................................................................
$
9,358
$
1,994
$
—
Operating lease liabi
a lities arising from obtaining right-of-use assets........................
$
23,960
$
3,817
$
23,910
The weighted-average remaining lease term and discount rate were as follows:
September 30,
2024
2023
Weighted-average remaining lease term - operating leases (in years) ........................................
9.8
6.5
Weighted-average discount rate - operating leases .....................................................................
8.8%
7.2%
As the Company’s leases do not provide an implicit rate, the Company utilized its incremental borrowing rate based on infor
f
mation
availabl
a e at the lease commencement date, which represents an internally developed rate that would be incurred to borrow, on a
collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment.
Future annual minimum lease payments relating to the Company's lease liabi
a lities as of September 30, 2024 were as follows:
Years ended September 30,
p
,
(in thousands)
2025..................................................................................................................................................................
8,701
2026..................................................................................................................................................................
8,467
2027..................................................................................................................................................................
8,721
2028..................................................................................................................................................................
8,983
2029..................................................................................................................................................................
9,252
Thereafter.........................................................................................................................................................
50,595
Total fut
f ur
t
e minimum lease payments.............................................................................................................
94,719
Less: imputed interest ......................................................................................................................................
(33,003)
Less: tenant improvement allowance...............................................................................................................
(6,249)
Total operating lease liabi
a lities ........................................................................................................................$
55,467
September 30,
Included in the balance sheet:
2024
2023
(in thousands)
Current operating lease liabi
a lities .................................................................................
$
1,524
$
5,275
Operating lease liabi
a lities, net of current portion..........................................................
53,943
21,238
Total operating lease liabi
a lities.....................................................................................
$
55,467
$
26,513
The Company is required to maintain security deposits of $92 in connection with the real estate lease of 400 Talcott Avenue, which is
included in other long-term assets on the Company's consolidated balance sheets. In addition, the Company is required to maintain
letters of credit for
f
certain of its leases, collateralized by money market accounts of $3,968, which amounts are classified as short-term
and long-term restricted cash on the consolidated balance sheets.
13. Commitments and Contingencies
Litigation and Contingencies Related to Use of Intellectual Property
From time to time, the Company may become subj
u ect to legal proceedings, claims and litigation arising in the ordinary c
r
ourse of
business. Except as described below, 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 intellectua
t
l property rights. Such third parties may resort to litigation against the Company or its collabor
a
ators, which the
Company has agreed to indemnify.
f
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 availabl
a e on acceptabl
a e terms, or at
all. A costly license, or inabi
a lity to obtain a necessary l
r
icense, would have a material adverse effect on the Company’s fin
f ancial
condition, results of operations or cash flows. The Company accrue
r
s contingent liabi
a lities when it is probabl
a e that fut
f ur
t
e expenditur
t
es
will be made and such expenditures can be reasonabl
a y estimated.
F-23
In June 2022, the Company announced that it filed suit in the United States District Court for
f
the District of Massachusetts on June 21,
2022, against Pfizer, Inc. seeking damages for infri
f ngement of U.S. Patent No. 11,358,953 (the ’953 Patent) in the manufac
f
ture, use
and sale of Pfizer’s COVID-19 antiviral, Paxlovid™(nirmatrelvir tablets; ritonavir tablets). The United States Patent and Trademark
Offi
f ce awarded the '953 Patent to the Company in June 2022 based on the Company's July 2020 patent application describing
coronavirus protease inhibitors invented by the Company. The Company is seeking fai
f r compensation for
f
Pfiz
f er’s use of a coronavirus
protease inhibitor claimed in the ‘953 patent. On May 28, 2024, the Company and Pfizer each filed motions for summary judgment
and a hearing on the motions was held on July 31, 2024. The timing for a ruling on each of the motions for summary judgment is
currently uncertain. The Company records all legal expenses associated with the patent infri
f ngement suit as incurred in the
consolidated statements of operations.
Indemnific
f ation Agreements
In the ordinary c
r
ourse of business, the Company may provide indemnific
f ations 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 or from services to be provided to the Company, or from intellectua
t
l property infri
f ngement claims made by third
parties. In addition, the Company has entered into indemnific
f ation agreements with members of its board of directors and its executive
offi
f cers that will require the Company, among other things, to indemnify t
f
hem against certain liabi
a lities 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 indemnific
f ation agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs
as a result of such indemnific
f ations. In addition, the Company maintains directors’ and officers’ insurance coverage. The Company
does not believe that the outcome of any claims under indemnific
f ation arrangements will have a material effect on its financial
position, results of operations or cash flows, and has not accrue
r
d any liabi
a lities related to such obligations in its consolidated financial
statements as of September 30, 2024 and 2023.
14. Income Taxes
Income before income taxes for
f
all periods presented is fro
f
m domestic operations, which are the Company’s only operations. During
the years ended September 30, 2024, 2023, and 2022, the Company recorded income tax benefit
f
(expense) as follows:
Years Ended September 30,
2024
2023
2022
(in thousands)
Current income tax (expense) benefit:
Federal.................................................................................................... $
1,936
$
(2,522) $
—
State........................................................................................................
(193)
(299)
449
Deferred income tax (expense) benefit:
f
Federal....................................................................................................
—
—
(16)
State........................................................................................................
—
—
—
Income tax (expense) benefit..................................................................... $
1,743
$
(2,821) $
433
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,
2024
2023
2022
Federal statutory income tax rate...........................................................
(21.0)%
(21.0)%
(21.0)%
State taxes, net of federal benefit
f .......................................................
(2.7)
(2.7)
(2.9)
Change in valuation allowance..........................................................
10.6
36.6
30.8
Federal research and development tax credit.....................................
(2.2)
(4.6)
(4.6)
Share-based compensation.................................................................
5.0
2.2
(0.8)
State research and development tax credit.........................................
(0.7)
(0.9)
(1.5)
Foreign derived intangible income ....................................................
—
(7.0)
—
Interest on net operating loss carryback claim...................................
(1.2)
(0.8)
—
Change in deferred tax rate................................................................
10.6
(0.1)
(0.1)
Other ..................................................................................................
0.1
0.5
(0.3)
Effe
f ctive income tax rate .......................................................................
(1.5)%
2.2 %
(0.4)%
The effective tax rates dur
d
ing the years ended September 30, 2024 and 2023 differ fro
f
m the U.S. federal statutory rate primarily due to
the ful
f l valuation allowance maintained on the Company’s net deferred tax assets.
Changes in the valuation allowance for
f
deferred tax assets during the years ended September 30, 2024, 2023, and 2022 are as fol
f lows:
F-24
Years Ended September 30,
2024
2023
2022
(in thousands)
Valuation allowance, beginning of year............................................. $
(115,120)
$
(67,726)
$
(29,298)
Increase recorded to valuation allowance............................................
(12,124)
(47,394)
(38,428)
Valuation allowance, end of year ....................................................... $
(127,244)
$
(115,120)
$
(67,726)
Net defer
f red tax assets as of September 30, 2024 and 2023 consisted of the following:
September 30,
2024
2023
(in thousands)
Deferred tax assets:
Capi
a talized research and development................................................................. $
49,921
$
34,855
Liability related to the sale of future royalties .....................................................
36,200
46,560
Tax credit carryforwards ......................................................................................
18,793
15,549
Share-based compensation ...................................................................................
14,551
16,974
Operating lease liabi
a lity .......................................................................................
13,058
6,485
Net operating loss carryforward...........................................................................
7,274
43
Accrue
r
d compensation .........................................................................................
1,387
1,318
Accrue
r
d expenses.................................................................................................
50
495
Unrealized loss .....................................................................................................
—
189
Other temporary d
r
iffe
f rences.................................................................................
161
214
Total defer
f red tax assets...................................................................................
141,395
122,682
Valuation allowance.............................................................................................
(127,244)
(115,120)
Net defer
f red tax assets..........................................................................................
14,151
7,562
Deferred tax liabi
a lities:
Operating lease, right-of-use assets..................................................................
(8,627)
(1,525)
Depreciation .....................................................................................................
(4,362)
(5,456)
Prepaid expenses ..............................................................................................
(999)
(581)
Unrealized gain ................................................................................................
(163)
—
Total defer
f red tax liabilities .................................................................................
(14,151)
(7,562)
Net defer
f red income tax assets (liabi
a lities) .............................................................. $
—
$
—
As of September 30, 2024, the Company had fed
f
eral net operating loss carryforwards of $28,679 which do not expire and state net
operating loss carryforwards of $19,840, which may be availabl
a e to offse
f
t fut
f ur
t
e taxable income and expire at various dates beginning
in 2032. As of September 30, 2024, the Company also had fed
f
eral and state research and development tax credit carryforwards of
$13,909 and $6,866, respectively, which may be availabl
a e to reduc
d
e fut
f ur
t
e tax liabi
a lities and expire at various dates beginning in 2042
and 2035, respectively.
Utilization of the federal and state net operating loss carryforwards and research and development tax credit carryf
r
or
f
wards may be
subj
u ect to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code (“IRC”) of 1986, and
corresponding provisions of state law, due
d
to ownership changes that may have occurred previously or that could occur in the fut
f ur
t
e.
These ownership changes may limit the amount of net operating loss and research and development tax credit carryforwards that can
be utilized annually to offs
f et future tax liabi
a lities. In general, an ownership change, as defin
f ed by Section 382, results from
f
transactions that increase the ownership of 5% stockholders in the stock of a corpor
r
ation by more than 50% in the aggregate over a
three-year period. The Company completed a review of the changes in ownership through September 30, 2022 and determined that the
transactions have not resulted in an ownership change during the year ended September 30, 2022, as defined by Section 382. The
impact of the historical ownership changes have been reflected within our deferred tax assets shown in the tabl
a e above
a
. Although the
Company believes that these ownership changes have not resulted in material limitations on its abi
a lity to use these net operating losses
and credit carryforwards, its ability to utilize these and fut
f ur
t
e net operating losses and credit carryforwards may be limited due
d
to
future ownership changes or for
f
other reasons. As a result, the Company may not be able to take full advantage of its carryforwards
for U.S. fed
f
eral and state tax purpos
r
es.
F-25
The Company has evaluated the positive and negative evidence bearing upon
u
its ability to realize the deferred tax assets, which are
comprised primarily of net operating loss carryforwards, research and development tax credit carryforwards and stock compensation
expense. The Company considers it more likely that it will not have sufficient taxable income in the fut
f ur
t
e that will allow it to realize
all of its existing defer
f red tax assets. This is due to the fact
f
the Company continues to progress its wholly-owned research and
development programs and its declining royalty revenues fro
f
m its Collabor
a
ation Agreement with AbbVie. As a result, the Company
continued to record a valuation allowance as of September 30, 2024 against its deferred tax assets to reduce a portion of the
Company’s defer
f red tax assets for which the Company does not believe it is more likely than not these will be realized.
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 subj
u ect to examination by fed
f
eral and state jurisdictions, where applicable. The Company’s tax years in the U.S. are
still open under statute from 2020 to the present. Earlier years may be examined to the extent that tax credit or net operating loss
carryforwards are used in fut
f ur
t
e periods. During the year ended September 30, 2024, the Company received notice of examination by
the Internal Revenue Service (“IRS”) for the years ending September 30, 2018 and September 30, 2019. The Company received and
agreed to a notice of proposed adju
d stment from the IRS in October 2024, resulting in an additional refund
f
of $871 related to the year
ended September 30, 2019. The Company has not received notice of examination by any other jurisdictions for any other tax year
open under statute.
Beginning in October 1, 2022, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) eliminated the Company’s option to deduc
d
t research
and development expenditures currently and requires taxpayers to amortize them over fiv
f e years for domestic research expenditures
and over fif
f te
f en years for
f
foreign research expenditures, pursuant to IRC 174. The most significant impact of this provision is an
increase to the current taxabl
a e income for
f
the year ended September 30, 2023, the tax year in which the provision took effe
f ct for the
Company.
In response to the COVID-19 pandemic, the CARES Act was signed into law in March 2020. The CARES Act lifte
f d certain deduction
limitations originally imposed by the Tax Act. Under the CARES Act, the Company was permitted to carryback net operating losses
for up t
u
o fiv
f e years for
f
losses generated in fis
f cal 2018 through fiscal 2021. Net operating loss carrybacks were previously prohibited
under the Tax Act. The CARES Act also eliminated the 80% of taxabl
a e income limitations by allowing corporate entities to fully
utilize net operating loss carryforwards to offs
f et taxabl
a e income in fis
f cal years 2018, 2019 or 2020. In addition, the CARES Act made
qualifie
f d improvement property eligible for
f
15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act
resulted in a $28,721 income tax benefit
f
related to a federal net operating loss carryback at the previously enacted 35% rate in the
Company’s consolidated financial statements dur
d
ing the year ended September 30, 2021. As of September 30, 2024 and 2023, the
Company had an income tax receivabl
a e of $31,999 and $31,004, respectively, which includes interest receivable of $3,292 as of
September 30, 2024.
Uncertain tax positions represent tax positions for which reserves have been establ
a ished. The Company’s policy is to record interest
and penalties related to uncertain tax positions as part of income tax expense. Total interest related to uncertain tax positions recorded
as a liabi
a lity on the Company’s consolidated balance sheets were $11 and $3 as of September 30, 2024 and 2023, respectively. A
reconciliation of the beginning and ending amount of uncertain tax positions is summarized as follows:
September 30,
2024
2023
(in thousands)
Beginning Balance...................................................................................................... $
1,056
$
226
Additions based on tax positions for the current period ..........................................
—
882
Reductions for tax positions due to laps
a
e of statute of limitations ..........................
(11)
(156)
Additions (reductions) for
f
tax positions of prior periods.........................................
(140)
104
Ending Balance........................................................................................................... $
905
$
1,056
The Company does not expect that its uncertain tax position will materially change within the next twelve months.
15. 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, 2024, 2023, and 2022, the Company recognized $1,697, $1,784, and $1,596, respectively, of
expense related to its contributions to this plan.
[THIS PAGE INTENTIONALLY LEFT BLANK]
MANAGEMENT TEAM
Jay R. Luly, Ph.D.
President, Director and Chief Executive Officer
Tara L. Kieffer, Ph.D.
Chief Product Strategy Officer
Matthew P. Kowalsky, J.D.
Chief Legal Officer and Corporate Secretary
Brendan Luu
Chief Business Officer
Paul J. Mellett
Chief Financial and Administrative Officer
Yat Sun Or, Ph.D.
Chief Scientific Officer
Scott T. Rottinghaus, M.D.
Chief Medical 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.
Mark G. Foletta
Former Chief Financial Officer,
Amylin Pharmaceuticals, Inc.,
and other companies
Yujiro S. Hata
Founder and Chief Executive Officer,
IDEAYA Biosciences, Inc.
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
Private consultant and former biotechnology
venture capital investor
Corporate Headquarters
Enanta Pharmaceuticals, Inc.
4 Kingsbury Avenue
Watertown, MA 02472
Investor Inquiries
Investor inquiries (including requests for a
copy of Enanta’s Annual Report on Form 10-K,
available free of charge) should be directed to:
Enanta Pharmaceuticals, Inc.
4 Kingsbury Avenue
Watertown, MA 02472
Attention: Investor Relations
Phone: 617-744-3848
Email: ir@enanta.com
The 2024 Annual Report on Form 10-K and
other investor information are available 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
Corporate Counsel
Foley Hoag LLP
Seaport West
155 Seaport Boulevard
Boston, Massachusetts 02210
Transfer Agent
Computershare Investor Services
462 South 4th Street, Suite 1600
Louisville, KY 40202
Stock Listing
NASDAQ Global Select Market: ENTA
Website
www.enanta.com
Enanta Pharmaceuticals, Inc.
4 Kingsbury Avenue
Watertown, MA 02472
www.enanta.com