ENANTA PHARMACEUTICALS INC (ENTA) FY 2021 MD&A

Overview

We are a biotechnology company that uses our robust, chemistry-driven approach and drug discovery capabilities to become a leader in the discovery and development of small molecule drugs for the treatment of viral infections and liver diseases. We discovered glecaprevir, the second of two protease inhibitors discovered and developed through our collaboration with AbbVie for the treatment of chronic hepatitis C virus, or HCV. Glecaprevir is co-formulated as part of AbbVie’s leading brand of direct-acting antiviral, or DAA, combination treatment for HCV, which is marketed under the tradenames MAVYRET® (U.S.) and MAVIRET® (ex-U.S.) (glecaprevir/pibrentasvir). Our royalties from our AbbVie collaboration provide us funding to support our wholly-owned research and development programs, which are primarily focused on the following disease targets:

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Respiratory syncytial virus, or RSV, the most common cause of bronchiolitis and pneumonia in young children and a significant cause of respiratory illness in older adults, with estimates suggesting that on average each year RSV leads to 3 million hospitalizations globally in children under 5 years old and 177,000 hospitalizations in the U.S. in adults over the age of 65;

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Hepatitis B virus, or HBV, the most prevalent chronic hepatitis, which is estimated by the World Health Organization to affect close to 300 million individuals worldwide;

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SARS-CoV-2, the virus that causes COVID-19; and

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Human metapneumovirus, or hMPV, a virus that causes respiratory infection with symptoms similar to RSV

We had $352.4 million in cash and marketable securities at September 30, 2021. In fiscal 2021, we earned $97.1 million in product royalties on AbbVie’s net sales of its HCV regimens. We expect cash flows from our continuing HCV royalties and our existing financial resources will allow us to continue to fund our wholly-owned research and development programs for at least the next two years.

Our Wholly-Owned Programs

Our primary wholly-owned research and development programs are in virology, namely RSV, HBV, SARS-CoV-2 and hMPV:

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RSV: We have a clinical stage program for RSV, for which the lead asset is EDP-938.

We discovered EDP-938, a potent N-protein inhibitor of activity of both major subgroups of RSV, referred to as RSV-A and RSV-B, and have been investigating it as our first clinical candidate for RSV. To our knowledge, EDP-938 is the only N-protein inhibitor in clinical development. EDP-938 has been investigated in a Phase 2a challenge study and is currently in three ongoing Phase 2 studies, each in a different patient population.

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RSVP: Our ongoing study with the most advanced enrollment is the RSVP study in adult outpatients with community-acquired RSV infection. This Phase 2b study is designed to help us better understand the feasibility of this direct-acting antiviral therapy by enrolling subjects, within 48 hours of symptom onset, who will then receive EDP-938 or placebo for five days. The mitigation steps to manage the COVID-19 pandemic since March 2020 have suppressed the incidence of RSV and other respiratory illnesses globally (other than COVID-19). We have continued our preparedness efforts to ensure we are ready when RSV re-emerges, including establishing trial sites in North America, Europe, the Asia-Pacific and the Southern Hemisphere, and there have been reports of increased RSV incidence globally, including the United States and Europe. Given that the recent re-emergence of RSV is not following any normal seasonal pattern, as well as the impact of renewed social distancing interventions where the Delta variant has increased the incidence of COVID-19, it is uncertain how significant or sustained the new incidence of RSV will be moving forward. Nonetheless, we expect that enrollment in the RSVP study will be complete during the Northern Hemisphere winter season if there is no further significant increase in social distancing interventions. Assuming this enrollment occurs, we would expect data in the first half of 2022.

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RSVPEDs: We have initiated a Phase 2 RSV study called RSVPEDs in pediatric patients. In this dose-ranging, randomized, double-blind, placebo-controlled study, we plan to enroll 90 infants and children aged 28 days to 36 months with RSV-associated respiratory tract infection, including both hospitalized and non-hospitalized patients who will be dosed in 4 age cohorts and will receive EDP-938 or placebo for 5 days. The study will be conducted in 2-parts. Part 1 will evaluate multiple ascending doses in each age cohort, with a primary endpoint of safety, tolerability, and pharmacokinetics. Part 2 will evaluate the selected dose from Part 1 across the 4 age cohorts, with a primary endpoint of antiviral activity.

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RSVTx: We have also initiated a Phase 2b study called RSVTx in adult hematopoietic cell transplant recipients with acute RSV infection and symptoms of upper respiratory tract infection. We plan to enroll approximately 200 adult subjects 18 to 75 years of age, within 72 hours of symptom onset, who will receive EDP-938 or placebo for 21 days. The primary endpoint is the incidence of lower respiratory tract complications within 28 days of enrollment, while secondary endpoints include change from baseline in RSV RNA viral load, safety and pharmacokinetics.

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L-Inhibitor: We also have initiated an RSV L-protein inhibitor discovery effort centered around potent nanomolar leads active against both RSV-A and RSV-B, for potential use alone or in combination with agents targeting other RSV mechanisms, such as our lead RSV asset, EDP-938.

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HBV: Our lead clinical candidate for the treatment of chronic infection with hepatitis B virus, or HBV, is EDP-514, a core inhibitor that displays potent anti-HBV activity in vitro at multiple points in the HBV lifecycle. Our goal is to develop a combination therapy approach, including existing approved treatments such as a nucleoside reverse transcriptase inhibitor (NUC), with EDP-514 and one or more other mechanisms, which could lead to a functional cure for patients with chronic HBV infection.

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EDP-514 - Phase 1a/b- Our initial study of EDP-514 was a randomized, double-blind, placebo-controlled Phase 1a/1b study designed in two parts. Part 1 of the study in healthy subjects demonstrated that EDP-514 is well-tolerated with a favorable safety profile and has a pharmacokinetic profile supportive of once-daily dosing. In Part 2, we studied EDP-514 in chronic HBV patients already being treated with a marketed NUC, which we refer to as NUC-suppressed patients.

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EDP-514 - Phase 1b study in Viremic HBV patients - In addition, we conducted a second Phase 1b study, to evaluate EDP-514 in chronic HBV patients with high viral load not currently on treatment, which we refer to as viremic patients.

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RNA Destabilizer - We initiated a Phase 1 clinical study of EDP-721, an HBV RNA destabilizer, but discontinued development of the compound based on emerging safety observations in the single ascending dose part of the study.

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COVID-19: Since we announced our newest discovery program – developing a direct-acting antiviral for the treatment of COVID-19 – we have been leveraging our expertise in protease inhibitors to discover new compounds specifically designed to target the SARS-CoV-2 virus and potentially other coronaviruses. We have completed IND-enabling studies on our lead oral protease inhibitor, EDP-235, which we plan to begin testing in a first-in-human study in early calendar 2022.

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hMPV: Since announcing our new drug discovery effort for hMPV in January 2020, we have been optimizing nanomolar inhibitor leads against this virus and are working toward identifying our first clinical candidate for this indication.

In addition to our ongoing wholly owned programs, we currently have two clinically-developed FXR agonists for NASH, EDP-305 and EDP-297, which we are seeking to out-license. These compounds selectively bind to and activate the Farnesoid X receptor, or FXR. Based on an internal interim analysis of a subset of patients in a Phase 2 study of EDP-305 at 12 weeks of treatment, as well

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as results from the Phase 1 clinical study of EDP-297, we made a business decision in 2021 to prioritize combination approaches through an out-licensing strategy for further development of either or both of these FXR agonists and not to continue further development of them internally.

We have utilized our internal chemistry and drug discovery capabilities to generate all of our development-stage programs. We continue to invest substantial resources in research programs to discover back-up compounds as well as new compounds targeting different mechanisms of action, both in our disease areas of focus as well as potentially in other disease areas.

Our Out-Licensed Products

Two protease inhibitors developed through our Collaborative Development and License Agreement with AbbVie have been clinically tested, manufactured, and commercialized by AbbVie as part of its combination regimens for HCV. We have earned all $330.0 million milestone payments under the agreement related to clinical development and commercialization regulatory approvals of these regimens in major markets. Glecaprevir is the protease inhibitor we discovered that was developed by AbbVie in a fixed-dose combination with its NS5A inhibitor, pibrentasvir, for the treatment of 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, fixed-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 majority 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.

Since August 2017, substantially all of our royalty revenue has been derived from AbbVie’s net sales of MAVYRET/MAVIRET. Our ongoing royalty revenues from this regimen consist of annually tiered, double-digit, per-product royalties on 50% of the calendar year net sales of the 2-DAA glecaprevir/pibrentasvir combination in MAVYRET/MAVIRET. These royalties are calculated separately from the royalties on AbbVie’s paritaprevir-containing regimens, AbbVie’s initial HCV treatment now replaced by MAVYRET/MAVIRET in most markets worldwide. The annual royalty tiers for each of these royalty-bearing products return to the lowest tier for sales on and after each January 1.

Financial Operations Overview

We are currently funding all research and development for our wholly-owned programs, which are targeted toward the discovery and development of novel compounds for the treatment of viral infections and liver diseases. In 2021, we had three Phase 2 studies ongoing for our wholly-owned program in RSV and three Phase 1 studies in our HBV program. We are also progressing other compounds into preclinical development in our RSV, HBV and SARS-CoV-2 programs as well as pursuing drug discovery efforts in hMPV.

During the second half of fiscal 2020 and into 2021, our business has been impacted by the COVID-19 pandemic. Specifically, we reported lower royalty revenues from our AbbVie agreement as a result of lower treated patient volumes as well as slower enrollment in certain clinical studies in our virology program as a result of suppression of the incidence of respiratory illnesses globally (other than COVID-19) due to mitigation measures intended to suppress SARS-CoV-2.

As a result of our clinical development programs, as well as efforts to advance other compounds into preclinical development, we expect to incur greater expenses in fiscal 2022 than in 2021 as we continue to advance our RSV, HBV, SARS-CoV-2 and hMPV programs. However, if the COVID-19 pandemic further slows our research and development programs, it will reduce our spending in those areas in the near term.

We are funding our operations primarily through royalty payments received under our collaboration agreement with AbbVie and our existing cash, cash equivalents, and short-term and long-term marketable securities. Our revenue is currently dependent on royalty payments we receive from AbbVie on its sales of MAVYRET/MAVIRET. Absent a significant increase in the level of AbbVie’s MAVYRET/MAVIRET sales that generate our royalty revenue, and given the planned increases in our future expenditures for the advancement of our internally developed compounds, we expect to continue to have net losses in fiscal 2022.

Revenue

Our revenue is derived from our collaboration agreement with AbbVie and AbbVie's sales of MAVYRET/MAVIRET, an 8-week treatment regimen that is pan-genotypic.

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The following table is a summary of revenue recognized for the years ended September 30, 2021, 2020, and 2019:

AbbVie Agreement

We currently receive annually tiered, double-digit royalties on our protease inhibitor product glecaprevir included in AbbVie’s net sales of MAVYRET/MAVIRET. Under the terms of our AbbVie agreement, 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 MAVYRET/MAVIRET start at zero for purposes of calculating the tiered royalties. For detail regarding the royalty tiers under our AbbVie agreement, see Note 7 in Notes to Consolidated Financial Statements of this report which is incorporated herein by this reference.

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

Operating Expenses

The following table summarizes our operating expenses for the years ended September 30, 2021, 2020, and 2019:

Research and Development Expenses

Research and development expenses consist of costs incurred to conduct basic research, such as the discovery and development of novel small molecules as therapeutics, as well as any external expenses of preclinical and clinical development activities. We expense all costs of research and development as incurred. These expenses consist primarily of:

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personnel costs, including salaries, related benefits and stock-based compensation for employees engaged in scientific research and development functions;

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third-party contract costs relating to research, formulation, manufacturing, preclinical study and clinical trial activities;

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laboratory consumables;

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allocated facility-related costs; and

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third-party license fees.

Project-specific expenses reflect costs directly attributable to our clinical development candidates and preclinical candidates nominated and selected for further development. Remaining research and development expenses are reflected in research and drug discovery, which represents early-stage drug discovery programs. At any given time, we typically have several active early stage research and drug discovery projects. Our internal resources, employees and infrastructure are not directly tied to any individual research or drug discovery project and are typically deployed across multiple projects. As such, we do not report information regarding costs incurred for our early-stage research and drug discovery programs on a project-specific basis. We expect that our research and development expenses will continue to increase in the future as we advance our research and development programs.

Our research and drug discovery and development programs are at early stages; therefore, the successful development of our product candidates is highly uncertain and may not result in approved products. Completion dates and completion costs can vary significantly

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for each product candidate and are difficult to predict. Given the uncertainty associated with clinical trial enrollments, particularly in the context of the COVID-19 pandemic, and the risks inherent in the development process, we are unable to determine the duration and completion costs of the current or future clinical trials of our product candidates or if, or to what extent, we will generate revenue from the commercialization and sale of any of our product candidates. We anticipate that we will make determinations as to which development programs to pursue and how much funding to direct to each program on an ongoing basis in response to the preclinical and clinical success and prospects of each product candidate, as well as ongoing assessments of the commercial potential of each product candidate.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel costs, which include salaries, related benefits and stock-based compensation, of our executive, finance, business and corporate development and other administrative functions. General and administrative expenses also include travel expenses, allocated facility-related costs not otherwise included in research and development expenses, directors and officers’ liability insurance premiums, and professional fees for auditing, tax, and legal services and patent expenses.

We expect that general and administrative expenses will increase in the future primarily due to the ongoing expansion of our operating activities in support of our own research and development programs, as well as potential additional costs associated with operating a growing publicly traded company.

Other Income (Expense), Net

Other income (expense), net consists of interest and investment income and the change in fair value of our outstanding Series 1 nonconvertible preferred stock. Interest income consists of interest earned on our cash equivalents and short-term and long-term marketable securities balances as well as interest earned for any refunds received from tax authorities. Investment income consists of the amortization or accretion of any purchased premium or discount on our short-term and long-term marketable securities. The change in fair value of our Series 1 nonconvertible preferred stock relates to the remeasurement of these financial instruments from period to period as these instruments may require a transfer of assets because of the liquidation preference features of the underlying instrument.

Income Tax (Expense) Benefit

Income tax (expense) benefit for the years ended September 30, 2021, 2020, and 2019 is the result of federal and state taxes generated from our domestic operations or the benefit of tax refunds due as a result of tax losses generated in the period which are able to be carried back to prior years under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). Income tax (expense) benefit is based on our best estimate of applicable income tax rates, net research and development tax credits, net operating loss carrybacks, changes in valuation allowance estimates and deferred income taxes, for the entire fiscal year applied to pre-tax profit or loss reported for the year-to-date period, except when a reliable estimate of the annual effective tax rate cannot be made and we instead use the year-to-date effective tax rate.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amount of assets, liabilities, 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, therefore, consider these to be our critical accounting policies. We evaluate our estimates and assumptions on an ongoing basis. Actual results may differ from these estimates under different assumptions and conditions. See also Note 2 to the consolidated financial statements included elsewhere in this Annual Report on Form 10-K for information about these critical accounting policies as well as a description of our other significant accounting policies.

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Research and Development and Pharmaceutical Drug Manufacturing Accruals

We have entered into various contracts with third parties to perform research and development and pharmaceutical drug manufacturing. These include contracts with contract research organizations (“CROs”), clinical manufacturing organizations (“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 obligation as of period end to those third parties. Our accrual estimates are based on a number of factors, including our knowledge of the research and development programs and pharmaceutical drug manufacturing 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 differ from our estimates.

Results of Operations

Comparison of Years Ended September 30, 2021, 2020, and 2019

Revenue. We recognized revenue of $97.1 million, $122.5 million, and $205.2 million during the years ended September 30, 2021, 2020, and 2019, respectively. The decrease in revenue year-over-year was due to lower numbers of treated HCV patients as a result of the worldwide COVID-19 pandemic which adversely affected all of fiscal 2021 and at least seven months of fiscal 2020.

Our weighted average royalty rate on the portion of AbbVie’s sales allocable to our protease inhibitor products was approximately 11% in fiscal 2021 versus 13% in both fiscal 2020 and 2019. The decrease in the weighted average royalty rate in 2021 compared to previous years was due to sales levels being in lower royalty tiers as a result of lower protease inhibitor sales due to the COVID-19 pandemic.

Our royalty revenues eligible to be earned in the future will depend on AbbVie’s HCV market share, the pricing of the MAVYRET/MAVIRET regimen and the number of patients treated. In addition, at the beginning of each calendar year (the second quarter of our fiscal year), our royalty rate resets to the lowest tier for each of our royalty-bearing products licensed to AbbVie. (See Note 7 to our consolidated financial statements for further details on our royalty rate tier.)

Research and development expenses.

Research and development expense increased by $37.4 million for the year ended September 30, 2021 as compared to the same period in 2020. The increase year-over-year was primarily driven by the timing of our clinical studies in our virology programs, offset by a decrease in clinical trial expenses in our liver disease program. For our virology program, we had two Phase 1b studies of EDP-514 in chronic HBV as well as three Phase 2 studies of EDP-938 in RSV, including the expanded RSVP study which was ongoing in 2021, and a Phase 1a study of EDP-721, an HBV RNA destabilizer that was discontinued in November 2021. In the prior year, we had our

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clinical study of EDP-514 in a Phase 1a study and our ongoing Phase 2 RSVP study of EDP-938. For our liver disease program in 2021, we had our ongoing Phase 2 study (ARGON-2) of EDP-305 expanding to additional sites and our Phase 1 study of our FXR follow-on candidate, EDP-297, whereas in 2020 we had the launch of ARGON-2 and we were in the process of completing our ARGON-1 study.

Research and development expense decreased by $5.5 million for the year ended September 30, 2020 as compared to the same period in 2019. The decrease year-over-year was primarily due to the timing of our clinical studies in our virology and liver disease programs as well as the impact of the COVID-19 pandemic. For our virology program, we initiated our Phase 2 RSVP study in 2020, continued our Phase 1a/1b study of EDP-514, and initiated a separate Phase 1b study in viremic patients with chronic HBV infection. We also initiated our ARGON-2 study in our liver disease program in 2020. However, in March 2020, we paused enrollment of the ARGON-2 and HBV nuc-suppressed study but were able to resume recruitment of both studies in July 2020. In fiscal 2019, we had initiated and completed part 1 of a Phase 2a human challenge study of EDP-938 and initiated a Phase 1a/1b clinical study of EDP-514, both of which are part of our virology programs. We also had two Phase 2 studies of EDP-305 ongoing, one in NASH patients and one in PBC patients, in our liver disease program.

We expect our research and development expenses will continue to increase in the future as we conduct more clinical development activities.

General and administrative expenses. General and administrative expenses increased to $32.5 million for the year ended September 30, 2021 as compared to $27.4 million for the same period in 2020. The increase was primarily due to increases in headcount and related compensation expense in support of expansion of our research and development operations.

General and administrative expenses increased by $1.1 million for the year ended September 30, 2020 as compared to the same period in 2019. The increase was primarily due to an increase in patent costs to support our broadening patent portfolio and premiums on directors and officers insurance.

We expect our general and administrative expenses will continue to increase in the future as our operations grow to support further research and development.

Other income (expense), net. Changes in components of other income (expense), net were as follows:

Interest and investment income, net. Interest and investment income, net, decreased by $4.5 million for the year ended September 30, 2021 compared to the same period in 2020, primarily due to lower invested cash balances and lower investment yield on our marketable securities purchased in 2021 compared to 2020.

Interest and investment income, net, decreased by $2.3 million for the year ended September 30, 2020 compared to the same period in 2019, primarily due to more purchases of our debt securities at a premium in fiscal 2020.

Income tax (expense) benefit. We recorded an income tax benefit of $28.6 million and income tax (expense) of ($1.1) million for the years ended September 30, 2021 and 2020, respectively. The effective tax rate used to calculate our income tax benefit for the year ended September 30, 2021 was 26.6% and for the year ended September 30, 2020 it was an effective tax rate of 3.3%. We recorded an income tax benefit in 2021 due to our pre-tax loss and a federal net operating loss carryback under the CARES Act. In 2020, we recorded income tax expense due to a valuation allowance charge recorded against the majority of our deferred tax assets of $18.3 million, partially offset by a federal net operating loss carryback under the CARES Act, research and development tax credits generated during the year and release of an uncertain tax position reserve related to the close of a tax audit. A valuation allowance was recorded against the majority of our deferred tax assets in 2020 because it was more likely than not that we would not have sufficient taxable income in the future that would allow us to realize the majority of our deferred tax assets. As of September 30, 2021, we continue to record a valuation allowance against all of our deferred tax assets.

In 2019, we recorded an income tax benefit of $0.8 million driven by a federal income tax benefit associated with foreign-derived royalty income, federal research and development tax credits and tax deductions from employee stock-award related activity during the year.

Liquidity and Capital Resources

We fund our operations with cash flows from our royalty revenue and our existing financial resources. At September 30, 2021, our principal sources of liquidity were cash and cash equivalents and short-term and long-term marketable securities of $352.4 million.

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The following table shows a summary of our cash flows for each of the years ended September 30, 2021, 2020, and 2019:

Net cash provided by (used in) operating activities

Cash used in operating activities was $70.0 million for the year ended September 30, 2021 as compared to cash provided by operating activities of $7.1 million for the same period in 2020. The decrease in cash provided by operating activities was primarily driven by a decrease in royalty payments received under our collaboration with AbbVie and an increase in research and development costs incurred year-over-year.

Cash provided by operating activities was $7.1 million for the year ended September 30, 2020 as compared to $71.4 million for the same period in 2019. The decrease in cash provided by operating activities was primarily driven by a decrease in royalty payments received under our collaboration with AbbVie and an increase in research and development costs incurred year-over-year, which were partially offset by a decrease in cash taxes paid.

For the foreseeable future, we expect to incur substantial costs associated with research and development for our internally developed programs.

Net cash provided by (used in) investing activities

The increase of $17.2 million in cash provided by investing activities for the year ended September 30, 2021 as compared to the same period in 2020 was driven by timing of purchases, sales and maturities of marketable securities.

The increase of $106.5 million in cash provided by investing activities for the year ended September 30, 2020 as compared to the same period in 2019 was driven by timing of purchases, sales and maturities of marketable securities.

Net cash provided by financing activities

The decrease in cash provided by financing activities of $5.9 million for the year ended September 30, 2021 as compared to the same period in 2020 was driven by a decrease in proceeds from stock option exercises in 2021 as compared to 2020.

The increase in cash provided by financing activities of $6.4 million for the year ended September 30, 2020 as compared to the same period in 2019 was driven by an increase in proceeds from stock option exercises in 2020 as compared to 2019 as well as a decrease in withholding tax payments for the settlement of share-based awards.

Funding Requirements

As of September 30, 2021, we had $352.4 million in cash, cash equivalents and short-term and long-term marketable securities. We believe that our existing cash, cash equivalents and marketable securities as of September 30, 2021 will be sufficient to meet our anticipated cash requirements for at least the next two years. However, our forecast of the period of time through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially.

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

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the amount of royalties generated from MAVYRET/MAVIRET sales under our existing collaboration with AbbVie;

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any continuing impact of the COVID-19 pandemic on the numbers of treated HCV patients;

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the number and characteristics of our research and development programs;

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the scope, progress, results and costs of researching and developing any of our product candidates on our own, including conducting advanced clinical trials;

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delays and additional expense in our clinical trials as a result of the COVID-19 pandemic continuing;

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the cost of manufacturing our product candidates for clinical development and any products we successfully commercialize independently;

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our ability to establish new collaborations, licensing or other arrangements, if any, and the financial terms of such arrangements;

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opportunities to in-license or otherwise acquire new technologies and therapeutic candidates;

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the timing of, and the costs involved in, obtaining regulatory approvals for any product candidates we develop independently;

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the cost of commercialization activities, if any, of any product candidates we develop independently that are approved for sale, including marketing, sales and distribution costs;

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the timing and amount of any sales of our product candidates, if any, or royalties thereon;

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the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patents, including any litigation costs and the outcomes of any such litigation; and

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potential fluctuations in foreign currency exchange rates.

We do not believe that inflation had a material effect on our business, financial condition or results of operations in the last three fiscal years. If our costs were to become subject to significant inflationary pressures, we could not offset such higher costs through revenue increases because our revenues are substantially outside of our control. Our inability to do so could harm our business, financial condition and results of operations.

Off-Balance Sheet Arrangements

We do not engage in any off-balance sheet financing activities. We do not have any interest in entities referred to as variable interest entities or unconsolidated entities, which include special purpose entities and other structured finance entities.

Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is set forth in Note 2 to the consolidated financial statements included in this Annual Report on Form 10-K.

Contractual Obligations and Commitments

We lease space in Watertown, Massachusetts under two separate lease agreements.

The first lease, located at 500 Arsenal Street, commenced on October 1, 2011 and was amended in 2015 to expand the rented space and extend the lease term through September 2022. In November 2021, the Company exercised its option to extend this lease for an additional 5 years through September 1, 2027. This lease is for office and laboratory space. In conjunction with the amendment of the lease, the Company entered into a capital lease agreement to fund certain leasehold improvements and the purchase of lab equipment.

The second lease, located at 400 Talcott Avenue, commenced on September 24, 2018 for office space and extends through August 1, 2024.

As of September 30, 2021, we had 1.9 million outstanding shares of Series 1 nonconvertible preferred stock, all of which we classified as long-term liabilities on our consolidated balance sheet and recorded at fair value of $1.5 million. The fair value of the preferred stock was measured based on significant inputs not observable in the market, which represented a Level 3 measurement within the fair value hierarchy. The fair value of these instruments represents less than 10% of liabilities measured at fair value as of September 30, 2021. The Series 1 nonconvertible preferred stock issued would require the payment of $2.0 million in the event of a qualifying merger or sale of the company.