Enanta To Retain Momentum On The Back Of Upcoming FDA Decision

Summary

• Enanta to receive FDA decision on next-generation protease inhibitor Glecaprevir.
• The company stands to gain higher royalties from Glecaprevir than from Paritaprevir.
• Entana is also developing treatments for other liver ailments such as NASH.

Enanta Pharmaceuticals (NASDAQ:NASDAQ:ENTA)is a biotechnology firm focused on developing small molecule drugs for treating various ailments including liver diseases. The company is looking to recalibrate its HCV portfolio with the introduction of Glecaprevir. The FDA is expected to provide its decision in August, which may prove to be a solid catalyst for the stock. The company is also focusing on diversifying its portfolio by developing treatments for other liver issues such as Non-alcoholic Steatohepatitis (NASH) and Respiratory Syncytial Virus infection (RSV). Enanta is also scheduled to announce Phase 1 study data for its other pipeline drug EDP 305 later this year, resulting in another possible catalyst for the stock .

The company has its fingers in several pies with one product Paritaprevir, a protease inhibitor already in the market and another HCV product Glecaprevir on its way as the company expects the FDA to announce its decision in August. Glecaprevir is a second generation protease inhibitor and is designed to replace Paritaprevir, for which the company holds a collaboration with AbbVie. Enanta expects substantial increase in its milestone payments and royalties with the approval of Glecaprevir. The company had reported $9 million in revenue for the quarter ended March 31 and it consisted entirely of royalty payments from AbbVie for the use of Paritaprevir in its HCV treatment regimes. The company has reported its Glecaprevir payments to be more lucrative than Paritaprevir as shown by the diagram below.

Enanta’s collaboration with AbbVie allows it to piggyback on its stronger partner as the company is not required to incur prohibitive marketing expenses for competing in the market. AbbVie’s collaboration also allows it to yield the benefits of brand name association.

The company’s long term value proposition comes from the fact that the company is not only working on the HCV front, but has also developed expertise in Non-alcoholic Steatohepatitis, or NASH segment. Its focus on liver diseases helps the company in achieving scale economies and synergies, while focusing on different types of liver diseases allows Enanta to diversify its portfolio. The company currently has a NASH drug candidate EDP-305 in Phase I stage. While it is too early to predict the outcome of its trials, the company is focusing on a highly lucrative market. The preclinical studies for EDP 305 have been encouraging, as the treatment showed effectiveness in controlling liver injury and fibrosis. This potent Farnesoid X receptor (FXR) agonist also reduced fibrosis progression.

The announcement of clinical data from Phase 1 during the second half of this year may well prove to be another positive catalyst for the company. Enanta also plans to start a Phase 2 study for PBC during the latter half of the year while a similar study for NASH is likely to be initiated by early next year. Enanta has also set its eyes on the RSV market as another drug candidate EDP 938 is in pre-clinical stage. The company recently reported that its In vitro data showed that the drug is a potent inhibitor of both RSV-A and RSV-B activity, maintaining antiviral activity post-infection while presenting a high barrier to resistance.

The company’s financial position is relatively sound as for the quarter ended on March 31st, it reported its cash, cash equivalents and short term marketable securities at $176 million, which provides a comfortable cushion for the company at its current burn rate. The company’s net loss for the period stood at $5.4 million, which may be seen as a cause of concern. However, the higher loss is mainly on account of increase in R&D expenses, which jumped to $13 million during the quarter, from $9.1 million it had reported for the corresponding quarter of the previous year.

Risk Profile

Enanta’s main risk comes from the decline in the US HCV market, which is currently its main source of revenue. According to some studies, the decline is likely to continue. However, the company is likely to bear a lesser brunt than other major companies such as Gilead as Enanta only has an indirect stake in the market. Further, the company has cushioned the blow by diversifying into NASH and RSV markets, which look promising. Overall, the risk factor due to the decline in HCV market is adequately covered by the company’s prospects on other fronts.

Investment Thesis

Enanta stock has shown good momentum as it gained over 57 percent value in the past 12 months. It is currently trading close to its 52 weeks high of $38.40 and is likely to maintain the momentum owing to its upcoming catalyst of the FDA decision in August. However, risk conscious investors may wait for mild dips in the price to accumulate the stock, which has the potential of yielding good returns in the short to mid period range.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.