enta-10q_20170630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2017

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 001-35839

 

ENANTA PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 

 

DELAWARE

2834

04-3205099

(State or other jurisdiction of

incorporation or organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification Number)

500 Arsenal Street

Watertown, Massachusetts 02472

(617) 607-0800

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post 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 filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  (Do not check if a small reporting company)

  

Smaller reporting company

 

Emerging growth company

 

 

 

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of August 1, 2017, the registrant had 19,090,383 shares of common stock, $0.01 par value per share, outstanding.

 

 

 


 

ENANTA PHARMACEUTICALS, INC.

FORM 10-Q — Quarterly Report

For the Quarterly Period Ended June 30, 2017

TABLE OF CONTENTS

 

 

 

 

Page

PART I—FINANCIAL INFORMATION

 

 

Item 1.

Consolidated Financial Statements

  

3

 

Unaudited Consolidated Balance Sheets

 

3

 

Unaudited Consolidated Statements of Operations

 

4

 

Unaudited Consolidated Statements of Comprehensive Income (Loss)

 

5

 

Unaudited Consolidated Statements of Cash Flows

 

6

 

Unaudited Notes to Consolidated Financial Statements

 

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

16

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

26

Item 4.

Controls and Procedures

 

26

PART II—OTHER INFORMATION

 

 

Item 1A.

Risk Factors

 

27

Item 6.

Exhibits

 

52

Signatures

 

53

Exhibit Index

 

54

 

2


 

PART I—FINANCIAL INFORMATION

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

ENANTA PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except per share amounts)

 

 

 

June 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

22,263

 

 

$

16,577

 

Short-term marketable securities

 

 

169,752

 

 

 

193,507

 

Accounts receivable

 

 

7,511

 

 

 

12,841

 

Prepaid expenses and other current assets

 

 

6,589

 

 

 

9,231

 

Total current assets

 

 

206,115

 

 

 

232,156

 

Property and equipment, net

 

 

8,070

 

 

 

8,004

 

Long-term marketable securities

 

 

43,321

 

 

 

32,119

 

Deferred tax assets

 

 

17,723

 

 

 

8,390

 

Restricted cash

 

 

608

 

 

 

608

 

Total assets

 

$

275,837

 

 

$

281,277

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,488

 

 

$

3,377

 

Accrued expenses and other current liabilities

 

 

5,634

 

 

 

4,512

 

Total current liabilities

 

 

11,122

 

 

 

7,889

 

Warrant liability

 

 

1,291

 

 

 

1,251

 

Series 1 nonconvertible preferred stock

 

 

164

 

 

 

159

 

Other long-term liabilities

 

 

2,394

 

 

 

2,042

 

Total liabilities

 

 

14,971

 

 

 

11,341

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock; $0.01 par value per share, 100,000 shares authorized; 19,090 and

   19,036 shares issued and outstanding at June 30, 2017 and

   September 30, 2016, respectively

 

 

191

 

 

 

190

 

Additional paid-in capital

 

 

251,964

 

 

 

242,081

 

Accumulated other comprehensive income (loss)

 

 

(137

)

 

 

19

 

Retained earnings

 

 

8,848

 

 

 

27,646

 

Total stockholders' equity

 

 

260,866

 

 

 

269,936

 

Total liabilities and stockholders' equity

 

$

275,837

 

 

$

281,277

 

 

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

3


 

ENANTA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royalties

 

$

7,511

 

 

$

13,978

 

 

$

26,887

 

 

$

44,851

 

Milestones

 

 

 

 

 

 

 

 

 

 

 

30,000

 

Other

 

 

 

 

 

 

 

 

 

 

 

576

 

Total revenue

 

 

7,511

 

 

 

13,978

 

 

 

26,887

 

 

 

75,427

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

15,407

 

 

 

10,785

 

 

 

40,937

 

 

 

28,961

 

General and administrative

 

 

5,233

 

 

 

4,282

 

 

 

15,631

 

 

 

12,526

 

Total operating expenses

 

 

20,640

 

 

 

15,067

 

 

 

56,568

 

 

 

41,487

 

Income (loss) from operations

 

 

(13,129

)

 

 

(1,089

)

 

 

(29,681

)

 

 

33,940

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

628

 

 

 

474

 

 

 

1,749

 

 

 

1,238

 

Interest expense

 

 

(11

)

 

 

(11

)

 

 

(31

)

 

 

(34

)

Change in fair value of warrant liability and Series 1 nonconvertible preferred stock

 

 

(17

)

 

 

(16

)

 

 

(45

)

 

44

 

Total other income (expense), net

 

 

600

 

 

 

447

 

 

 

1,673

 

 

 

1,248

 

Income (loss) before income taxes

 

 

(12,529

)

 

 

(642

)

 

 

(28,008

)

 

 

35,188

 

Income tax (expense) benefit

 

 

4,103

 

 

 

(434

)

 

 

9,210

 

 

 

(11,720

)

Net income (loss)

 

$

(8,426

)

 

$

(1,076

)

 

$

(18,798

)

 

$

23,468

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.44

)

 

$

(0.06

)

 

$

(0.99

)

 

$

1.24

 

Diluted

 

$

(0.44

)

 

$

(0.06

)

 

$

(0.99

)

 

$

1.22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

19,081

 

 

 

18,983

 

 

 

19,055

 

 

 

18,893

 

Diluted

 

 

19,081

 

 

 

18,983

 

 

 

19,055

 

 

 

19,223

 

 

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

4


 

ENANTA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

(in thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

June 30,

 

 

June 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Net income  (loss)

 

$

(8,426

)

 

$

(1,076

)

 

$

(18,798

)

 

$

23,468

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses) on marketable securities, net of tax of ($17), $185, ($93), $50

 

 

(29

)

 

 

(84

)

 

 

(156

)

 

 

84

 

Total other comprehensive income (loss)

 

 

(29

)

 

 

(84

)

 

 

(156

)

 

 

84

 

Comprehensive income (loss)

 

$

(8,455

)

 

$

(1,160

)

 

$

(18,954

)

 

$

23,552

 

 

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

5


 

ENANTA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

 

Nine Months Ended

 

 

 

June 30,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(18,798

)

 

$

23,468

 

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating

   activities:

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

9,861

 

 

 

6,844

 

Depreciation and amortization expense

 

 

1,573

 

 

 

1,206

 

Deferred income taxes

 

 

(9,240

)

 

 

546

 

Income tax benefit from exercise of stock options

 

 

 

 

 

(1,749

)

Premium on marketable securities

 

 

(840

)

 

 

(130

)

Amortization of premium on marketable securities

 

 

564

 

 

 

1,304

 

Change in fair value of warrant liability and Series 1 nonconvertible

   preferred stock

 

 

45

 

 

 

(44

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

5,330

 

 

 

1,311

 

Unbilled receivables

 

 

 

 

 

433

 

Prepaid expenses and other current assets

 

 

2,584

 

 

 

67

 

Accounts payable

 

 

2,717

 

 

 

677

 

Accrued expenses

 

 

1,145

 

 

 

1,946

 

Income taxes payable

 

 

 

 

 

1,754

 

Other long-term liabilities

 

 

406

 

 

 

302

 

Net cash provided by (used in) operating activities

 

 

(4,653

)

 

 

37,935

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(2,272

)

 

 

(4,323

)

Purchase of marketable securities

 

 

(186,222

)

 

 

(150,490

)

Proceeds from maturities and sales of marketable securities

 

 

198,823

 

 

 

117,297

 

Net cash provided by (used in) investing activities

 

 

10,329

 

 

 

(37,516

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

266

 

 

 

945

 

Payments of capital lease obligations

 

 

(54

)

 

 

(50

)

Payments of withholding tax for share-based awards

 

 

(202

)

 

 

 

Income tax benefit from exercise of stock options

 

 

 

 

 

1,749

 

Net cash provided by financing activities

 

 

10

 

 

 

2,644

 

Net increase in cash and cash equivalents

 

 

5,686

 

 

 

3,063

 

Cash and cash equivalents at beginning of period

 

 

16,577

 

 

 

21,726

 

Cash and cash equivalents at end of period

 

$

22,263

 

 

$

24,789

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for income taxes

 

$

1,027

 

 

$

9,116

 

 

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

6


 

ENANTA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(Amounts in thousands, except share and per share data)

1.

Nature of the Business and Basis of Presentation

Enanta Pharmaceuticals, Inc. (the “Company”), incorporated in Delaware in 1995, is a research and development-focused biotechnology company that uses its robust, chemistry-driven approach and drug discovery capabilities to create small molecule drugs primarily for the treatment of viral infections and liver diseases. The Company’s success to date has been built on protease inhibitors discovered for the treatment of hepatitis C virus, or (“HCV”), which are licensed to AbbVie Inc. (“AbbVie”) and included in its HCV treatment regimens. The Company’s research and development programs are currently focused primarily on the following disease areas: hepatitis B virus (“HBV”); non-alcoholic steatohepatitis (“NASH”); primary biliary cholangitis (“PBC”); and respiratory syncytial virus (“RSV”).

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, the uncertainties of research and development, competition from technological innovations of others, dependence on collaborative arrangements, protection of proprietary technology, dependence on key personnel and compliance with government regulations and the need to obtain additional financing. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approvals, prior to commercialization. These efforts require significant amounts of capital, adequate personnel infrastructure, and extensive compliance reporting capabilities.

Unaudited Interim Financial Information

The consolidated balance sheet at September 30, 2016 was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (“GAAP”). The accompanying unaudited consolidated financial statements as of June 30, 2017 and for the nine months ended June 30, 2017 and 2016 have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2016.

In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of June 30, 2017 and results of operations for the three and nine months ended June 30, 2017 and 2016 and cash flows for the nine months ended June 30, 2017 and 2016, have been made. The results of operations for the nine months ended June 30, 2017 are not necessarily indicative of the results of operations that may be expected for subsequent quarters or the year ending September 30, 2017.

The accompanying consolidated financial statements have been prepared in conformity with GAAP. All dollar amounts in the consolidated financial statements and in the notes to the consolidated financial statements, except share and per share amounts, are in thousands unless otherwise indicated.

2.

Summary of Significant Accounting Policies

For the Company’s Significant Accounting Policies, please refer to its Annual Report on Form 10-K for the fiscal year ended September 30, 2016. There were no significant changes to the Company’s Significant Accounting Policies during the quarter.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, management’s judgments of separate units of accounting and best estimate of selling price of those units of accounting within its revenue arrangements; valuation of warrants, Series 1 nonconvertible preferred stock and stock-based awards; and the accounting for income taxes, including uncertain tax positions and the valuation of net deferred tax assets. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results could differ from the Company’s estimates.

7


 

Recently Issued Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board (the “FASB”) issued ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40) (“ASU 2014-15”), which requires management to assess a company’s ability to continue as a going concern and to provide related footnote disclosures in certain circumstances. This amendment will be effective for the Company for fiscal year ended September 30, 2017. The Company does not expect the adoption of ASU 2014-15 to have an impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”), which intends to simplify several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, a choice to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. This amendment will be effective for the Company in the fiscal year beginning October 1, 2017. Once adopted, the Company expects to change its policy over forfeitures by recording forfeitures as they occur. The Company is currently evaluating the impact of this change to retained earnings in the consolidated balance sheets. In addition, the adoption of the standard is expected to create variability in the consolidated statements of operations going forward as the tax consequences of settled share-based payments will be recognized in income tax (expense) benefit when share-based payment awards are settled.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”) which supersedes all existing revenue recognition requirements, including most industry-specific guidance. The new standard requires a company to recognize revenue when it transfers goods or services to customers in an amount that reflects the consideration that the company expects to receive for those goods or services. The FASB has continued to issue accounting standards updates to clarify and provide implementation guidance related to Revenue from Contracts with Customers, including ASU 2016-08, Revenue from Contract with Customers: Principal versus Agent Considerations, ASU 2016-10, Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing, and ASU 2016-12, Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients. These amendments address a number of areas, including an entity’s identification of its performance obligations in a contract, collectibility, non-cash consideration, presentation of sales tax and an entity’s evaluation of the nature of its promise to grant a license of intellectual property and whether or not that revenue is recognized over time or at a point in time. These new standards will be effective for the Company beginning October 1, 2018. The Company is currently evaluating the potential impact that Topic 606 may have on its financial position and results of operations.

In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”) that changes the presentation of restricted cash and cash equivalents on the statement of cash flows. Restricted cash and restricted cash equivalents will be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. This amendment is effective for the Company in the fiscal year beginning October 1, 2018, but early adoption is permissible. The Company is currently evaluating the potential impact that ASU 2016-18 may have on its statement of cash flows.

In February 2016, the FASB issued ASU No. 2016-02, Leases (“ASU 2016-02”), which will replace the existing guidance in ASC 840, “Leases.” The updated standard aims to increase transparency and comparability among organizations by requiring lessees to recognize leased assets and leased liabilities on the consolidated balance sheets and requiring disclosure of key information about leasing arrangements. This amendment is effective for the Company in the fiscal year beginning October 1, 2019, but early adoption is permissible. The Company is currently evaluating the potential impact that ASU 2016-02 may have on its financial position and results of operations.

In March 2017, the FASB issued ASU No. 2017-08, Receivables—Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities (“ASU 2017-08”) which requires companies to amend the amortization period for premiums on debt securities with explicit call features to be the earliest call date rather than through the contractual life of the debt instrument. This amendment aims to more closely align the recognition of interest income with the manner in which market participants price such instruments. This amendment is effective for the Company in the fiscal year beginning October 1, 2019, but early adoption is permissible. The Company is currently evaluating the potential impact that ASU 2017-08 may have on its financial position and results of operations.

In May 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation (Topic 718) (“ASU 2017-09”) which provides updated guidance about changes to the terms or conditions of a share-based payment award that require companies to apply modification accounting under Topic 718. This amendment is effective for the Company in the fiscal year beginning October 1, 2019, but early adoption is permissible. The Company is currently evaluating the potential impact that ASU 2017-09 may have on its financial position and results of operations.

8


 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (“ASU 2016-13”), which introduces a new methodology for accounting for credit losses on financial instruments, including available-for-sale debt securities. The guidance establishes a new “expected loss model” that requires entities to estimate current expected credit losses on financial instruments by using all practical and relevant information. Any expected credit losses are to be reflected as allowances rather than reductions in the amortized cost of available-for-sale debt securities. This amendment is effective for the Company in the fiscal year beginning October 1, 2020. The Company is currently evaluating the potential impact that ASU 2016-13 may have on its financial position and results of operations.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s consolidated financial statements upon adoption.

3.

Fair Value of Financial Assets and Liabilities

The following tables present information about the Company’s financial assets and liabilities that were subject to fair value measurement on a recurring basis as of June 30, 2017 and September 30, 2016 and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value:

 

 

 

Fair Value Measurements at June 30, 2017 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury notes

 

$

63,897

 

 

$

 

 

$

 

 

$

63,897

 

Cash equivalents

 

 

7,102

 

 

 

 

 

 

 

 

 

7,102

 

Corporate bonds

 

 

 

 

 

119,203

 

 

 

 

 

 

119,203

 

Commercial paper

 

 

 

 

 

25,976

 

 

 

 

 

 

25,976

 

U.S. Agency bonds

 

 

 

 

 

3,997

 

 

 

 

 

 

3,997

 

 

 

$

70,999

 

 

$

149,176

 

 

$

 

 

$

220,175

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liability

 

$

 

 

$

 

 

$

1,291

 

 

$

1,291

 

Series 1 nonconvertible preferred stock

 

 

 

 

 

 

 

164

 

 

 

164

 

 

 

$

 

 

$

 

 

$

1,455

 

 

$

1,455

 

 

 

 

Fair Value Measurements at September 30, 2016 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury notes

 

$

69,608

 

 

$

 

 

$

 

 

$

69,608

 

Cash equivalents

 

 

15,295

 

 

 

 

 

 

 

 

 

15,295

 

Corporate bonds

 

 

 

 

 

76,073

 

 

 

 

 

 

76,073

 

Commercial paper

 

 

 

 

 

49,900

 

 

 

 

 

 

49,900

 

U.S. Agency bonds

 

 

 

 

 

30,045

 

 

 

 

 

 

30,045

 

 

 

$

84,903

 

 

$

156,018

 

 

$

 

 

$

240,921

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrant liability

 

$

 

 

$

 

 

$

1,251

 

 

$

1,251

 

Series 1 nonconvertible preferred stock

 

 

 

 

 

 

 

 

159

 

 

 

159

 

 

 

$

 

 

$

 

 

$

1,410

 

 

$

1,410

 

 

Cash equivalents consist primarily of money market funds and debt securities with less than a 90 day maturity period.

 

During the nine months ended June 30, 2017 and 2016, there were no transfers between Level 1, Level 2 and Level 3.

As of June 30, 2017 and September 30, 2016, the Company’s warrant liability was comprised of the value of warrants for the purchase of its Series 1 nonconvertible preferred stock. These warrants are financial instruments that may require a transfer of assets because of the liquidation features and are therefore recorded as liabilities and measured at fair value. The outstanding Series 1 nonconvertible preferred stock was also measured at fair value. The fair value of these instruments was based on significant inputs not observable in the market, which represented a Level 3 measurement within the fair value hierarchy. The Company utilized a probability-weighted valuation model which takes into consideration various outcomes that may require the Company to transfer assets upon exercise.

9


 

Changes in the fair value of the warrant liability and Series 1 nonconvertible preferred stock are recognized in other income (expense), net in the consolidated statements of operations.

The recurring Level 3 fair value measurements of the Company’s warrant liability and Series 1 nonconvertible preferred stock using probability-weighted discounted cash flow include the following significant unobservable inputs:

 

 

 

 

Range (Weighted Average)

 

 

 

 

June 30,

 

 

September 30,

 

 

Unobservable Input

 

2017

 

 

2016

 

Warrant liability and Series 1

   nonconvertible preferred

   stock

Probabilities of payout

 

0%-60%

 

 

0%-60%

 

 

Periods in which payout is expected to occur

 

2018

 

 

2017-2018

 

 

Discount rate

 

 

5.25%

 

 

 

4.50%

 

 

The following table provides a rollforward of the aggregate fair values of the Company’s warrants for the purchase of Series 1 nonconvertible preferred stock and the outstanding Series 1 nonconvertible preferred stock for which fair value is determined by Level 3 inputs:

 

 

 

Warrant

Liability

 

 

Series 1

Nonconvertible

Preferred

Stock

 

Balance, September 30, 2016

 

$

1,251

 

 

$

159

 

Increase in fair value

 

 

40

 

 

 

5

 

Balance, June 30, 2017

 

$

1,291

 

 

$

164

 

 

4.

Marketable Securities

As of June 30, 2017 and September 30, 2016, the fair value of available-for-sale marketable securities, by type of security, was as follows:

 

 

 

June 30, 2017

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

Corporate bonds

 

$

119,298

 

 

$

7

 

 

$

(102

)

 

$

119,203

 

U.S. Treasury notes

 

 

64,010

 

 

 

 

 

 

(113

)

 

 

63,897

 

Commercial paper

 

 

25,976

 

 

 

 

 

 

 

 

 

25,976

 

U.S. Agency bonds

 

 

4,008

 

 

 

 

 

 

(11

)

 

 

3,997

 

 

 

$

213,292

 

 

$

7

 

 

$

(226

)

 

$

213,073

 

 

 

 

September 30, 2016

 

 

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

 

Corporate bonds

 

$

76,077

 

 

$

27

 

 

$

(31

)

 

$

76,073

 

U.S. Treasury notes

 

 

69,579

 

 

 

38

 

 

 

(9

)

 

 

69,608

 

Commercial paper

 

 

49,900

 

 

 

 

 

 

 

 

 

49,900

 

U.S. Agency bonds

 

 

30,040

 

 

 

15

 

 

 

(10

)

 

 

30,045

 

 

 

$

225,596

 

 

$

80

 

 

$

(50

)

 

$

225,626

 

 

As of June 30, 2017, marketable securities consisted of short-term marketable securities, which are investments that mature within one year, and long-term marketable securities, which consist of certain U.S. Treasury notes and corporate bonds that have maturities of more than one year but not more than three years and an aggregate fair value of $43,321.

10


 

5.

Accrued Expenses and Other Long-Term Liabilities

Accrued expenses and other current liabilities as well as other long-term liabilities consisted of the following as of June 30, 2017 and September 30, 2016:

 

 

 

June 30,

 

 

September 30,

 

 

 

2017

 

 

2016

 

Accrued expenses:

 

 

 

 

 

 

 

 

Accrued preclinical and clinical expenses

 

$

2,024

 

 

$

899

 

Accrued payroll and related expenses

 

 

2,002

 

 

 

2,384

 

Accrued professional fees

 

 

639

 

 

 

393

 

Accrued vendor manufacturing

 

 

452

 

 

 

441

 

Capital lease obligation

 

 

75

 

 

 

73

 

Accrued other

 

 

442

 

 

 

322

 

 

 

$

5,634

 

 

$

4,512

 

 

 

 

 

 

 

 

 

 

Other long-term liabilities:

 

 

 

 

 

 

 

 

Uncertain tax positions

 

$

1,109

 

 

$

745

 

Accrued rent expense

 

 

711

 

 

 

696

 

Capital lease obligation

 

 

402

 

 

 

458

 

Asset retirement obligation

 

 

172

 

 

 

143

 

 

 

$

2,394

 

 

$

2,042

 

 

6.

Ongoing Collaboration Agreements

AbbVie Collaboration

The Company has a Collaborative 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 paritaprevir and glecaprevir (ABT-493), under which the Company has received license payments, proceeds from a sale of preferred stock, research funding payments, milestone payments and royalties totaling approximately $427,000 through June 30, 2017. Since the Company completed all its performance obligations under the AbbVie Agreement by the end of fiscal 2011, any milestone payments received since then have been and will be recognized as revenue when the milestones are achieved by AbbVie. As of June 30, 2017, the Company is eligible to receive additional milestone payments of up to a total of $80,000 upon AbbVie’s achievement of commercialization regulatory approval in the U.S. and other major world markets for its glecaprevir/pibrentasvir (“G/P”) combination regimen for HCV.

The Company is also receiving annually tiered royalties per Company protease product ranging from the low double digits up to twenty percent, or on a blended basis from the low double digits up to the high teens, 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 product start at zero for purposes of calculating the tiered royalties on a product-by-product basis.

During the nine months ended June 30, 2016, the Company earned and recognized milestone revenue of $30,000 upon AbbVie’s achievement of commercialization regulatory approval of a paritaprevir-containing regimen in Japan in November 2015.

7.

Warrants to Purchase Series 1 Nonconvertible Preferred Stock and Series 1 Nonconvertible Preferred Stock

In October and November 2010, the Company issued warrants to purchase up to a total of 1,999,989 shares of Series 1 nonconvertible preferred stock, which expire on October 4, 2017. As these warrants and underlying Series 1 preferred stock are financial instruments that may require the Company to transfer assets, these instruments are classified as liabilities. The Company is required to remeasure the fair value of these instruments at each reporting date, with any adjustments recorded within other income (expense), net, in the consolidated statements of operations.

8.

Stock-Based Awards

The Company has granted stock-based awards, including stock options and restricted stock units, under its existing 2012 Equity Incentive Plan (the “2012 Plan”). The Company also has outstanding stock-based awards under its 1995 Equity Incentive Plan (the “1995 Plan”), but is no longer granting awards under this plan.

 

11


 

The following table summarizes stock option activity, including performance-based options, for the year-to-date period ending June 30, 2017:

 

 

 

Shares

Issuable

Under

Options

 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual

Term

in years

 

 

Aggregate

Intrinsic

Value

 

Outstanding as of September 30, 2016

 

 

1,895,456

 

 

$

28.75

 

 

 

7.6

 

 

$

7,369

 

Granted

 

 

559,019

 

 

 

30.04

 

 

 

 

 

 

 

 

 

Exercised

 

 

(41,789

)

 

 

6.36

 

 

 

 

 

 

 

 

 

Forfeited

 

 

(132,655

)

 

 

18.20

 

 

 

 

 

 

 

 

 

Outstanding as of June 30, 2017

 

 

2,280,031

 

 

$

30.09

 

 

 

7.6

 

 

$

17,347

 

Options vested and expected to vest as of

   June 30, 2017

 

 

2,264,139

 

 

$

30.08

 

 

 

7.6

 

 

$

9,358

 

Options exercisable as of June 30, 2017

 

 

1,259,717

 

 

$

28.06

 

 

 

6.7

 

 

$

12,257

 

 

Market and Performance-Based Stock Unit Awards

The Company awards both performance share units, or PSUs, and relative total stockholder return units, or rTSRUs, to its executive officers. The number of units represents the target number of shares of common stock that may be earned; however, the actual number of shares that may be earned ranges from 0% to 200% of the target number. The following table summarizes PSU and rTSRU activity for the year-to-date period ending June 30, 2017:

 

 

 

Performance Share

Units

 

 

Weighted

Average Grant

Date Fair

Value

 

 

Relative Total Stockholder Return Units

 

 

Weighted

Average Grant

Date Fair

Value

 

Unvested at September 30, 2016

 

 

48,525

 

 

$

33.70

 

 

 

48,525

 

 

$

31.74

 

Granted

 

 

44,500

 

 

$

35.89

 

 

 

44,500

 

 

$

46.11

 

Vested

 

 

(18,820

)

 

$

35.47

 

 

 

 

 

$

 

Cancelled

 

 

(4,705

)

 

$

35.47

 

 

 

(23,525

)

 

$

25.44

 

Unvested at June 30, 2017

 

 

69,500

 

 

$

34.51

 

 

 

69,500

 

 

$

43.07

 

 

Restricted Stock Units

During the nine months ended June 30, 2017, the Company awarded restricted stock units to its employees, which vest 50% in three years and 50% in four years, provided the employee remains employed with the Company at the time of vesting. The fair value of these awards is determined based on the intrinsic value of the stock on the date of grant and will be recognized as stock-based compensation expense, net of estimated forfeitures, over the requisite service period. The following table summarizes the restricted stock unit activity for the year-to-date period ending June 30, 2017:

 

 

 

Restricted Stock

Units

 

 

Weighted

Average Grant

Date Fair

Value

 

Unvested at September 30, 2016

 

 

 

 

$

 

Granted

 

 

112,460

 

 

$

30.00

 

Vested

 

 

 

 

$

 

Cancelled

 

 

(2,104

)

 

$

30.00

 

Unvested at June 30, 2017

 

 

110,356

 

 

$

30.00