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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 March 31, 2021

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)

 

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

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 every Interactive Data File required to be submitted 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 such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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

 

☐  

  

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 April 26, 2021, the registrant had 20,195,129 shares of common stock, $0.01 par value per share, outstanding.

 

 

 


 

 

ENANTA PHARMACEUTICALS, INC.

FORM 10-Q — Quarterly Report

For the Quarterly Period Ended March 31, 2021

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 Stockholders’ Equity

 

6

 

Unaudited Consolidated Statements of Cash Flows

 

7

 

Unaudited Notes to Consolidated Financial Statements

 

8

Item 2.

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

 

17

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

 

NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Form 10-Q, contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “aim,” “anticipate,” “assume,” “believe,” “contemplate,” “continue,” “could,” “due,” “estimate,” “expect,” “goal,” “intend,” “may,” “objective,” “plan,” “predict,” “potential,” “positioned,” “seek,” “should,” “target,” “will,” “would,” and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about overall trends, royalty revenue trends, research and clinical development plans, liquidity and capital needs and other statements of expectations, beliefs, future plans and strategies, anticipated events or trends and similar expressions. These forward-looking statements are based on our management’s current expectations, estimates, forecasts and projections about our business and the industry in which we operate and our management’s beliefs and assumptions. These forward-looking statements are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this Form 10-Q may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under “Risk Factors” and discussed elsewhere in this Form 10-Q. These forward-looking statements speak only as of the date of this Form 10-Q. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future. You should, however, review the factors and risks we describe in the reports we will file from time to time with the SEC after the date of this Form 10-Q.

2


 

PART I—FINANCIAL INFORMATION

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

ENANTA PHARMACEUTICALS, INC.

CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except per share amounts)

 

 

 

March 31,

 

 

September 30,

 

 

 

2021

 

 

2020

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

77,126

 

 

$

87,131

 

Short-term marketable securities

 

 

298,821

 

 

 

299,518

 

Accounts receivable

 

 

20,132

 

 

 

23,492

 

Prepaid expenses and other current assets

 

 

32,140

 

 

 

26,696

 

Total current assets

 

 

428,219

 

 

 

436,837

 

Long-term marketable securities

 

 

24,493

 

 

 

32,634

 

Property and equipment, net

 

 

7,038

 

 

 

8,596

 

Deferred tax assets

 

 

345

 

 

 

345

 

Operating lease, right-of-use assets

 

 

6,972

 

 

 

7,020

 

Restricted cash

 

 

608

 

 

 

608

 

Other long-term assets

 

 

92

 

 

 

92

 

Total assets

 

$

467,767

 

 

$

486,132

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

5,699

 

 

$

5,737

 

Accrued expenses and other current liabilities

 

 

15,744

 

 

 

14,159

 

Operating lease liabilities

 

 

5,175

 

 

 

4,261

 

Total current liabilities

 

 

26,618

 

 

 

24,157

 

Operating lease liabilities, net of current portion

 

 

2,644

 

 

 

3,838

 

Series 1 nonconvertible preferred stock

 

 

1,479

 

 

 

1,479

 

Other long-term liabilities

 

 

994

 

 

 

1,078

 

Total liabilities

 

 

31,735

 

 

 

30,552

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock; $0.01 par value per share, 100,000 shares authorized; 20,185 and

   20,077 shares issued and outstanding at March 31, 2021 and

   September 30, 2020, respectively

 

 

202

 

 

 

201

 

Additional paid-in capital

 

 

338,576

 

 

 

326,963

 

Accumulated other comprehensive income

 

 

55

 

 

 

844

 

Retained earnings

 

 

97,199

 

 

 

127,572

 

Total stockholders' equity

 

 

436,032

 

 

 

455,580

 

Total liabilities and stockholders' equity

 

$

467,767

 

 

$

486,132

 

 

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

 

 

Six Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Royalty revenue

 

$

20,132

 

 

$

27,619

 

 

$

51,875

 

 

$

80,189

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

41,506

 

 

 

32,610

 

 

 

78,171

 

 

 

65,388

 

General and administrative

 

 

8,326

 

 

 

6,884

 

 

 

15,703

 

 

 

13,805

 

Total operating expenses

 

 

49,832

 

 

 

39,494

 

 

 

93,874

 

 

 

79,193

 

Income (loss) from operations

 

 

(29,700

)

 

 

(11,875

)

 

 

(41,999

)

 

 

996

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

 

545

 

 

 

1,950

 

 

 

1,222

 

 

 

4,026

 

Total other income (expense), net

 

 

545

 

 

 

1,950

 

 

 

1,222

 

 

 

4,026

 

Income (loss) before income taxes

 

 

(29,155

)

 

 

(9,925

)

 

 

(40,777

)

 

 

5,022

 

Income tax benefit

 

 

7,110

 

 

 

3,920

 

 

 

10,404

 

 

 

2,416

 

Net income (loss)

 

$

(22,045

)

 

$

(6,005

)

 

$

(30,373

)

 

$

7,438

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(1.09

)

 

$

(0.30

)

 

$

(1.51

)

 

$

0.37

 

Diluted

 

$

(1.09

)

 

$

(0.30

)

 

$

(1.51

)

 

$

0.36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

20,171

 

 

 

19,922

 

 

 

20,131

 

 

 

19,836

 

Diluted

 

 

20,171

 

 

 

19,922

 

 

 

20,131

 

 

 

20,692

 

 

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

 

 

Six Months Ended

 

 

 

March 31,

 

 

March 31,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Net income (loss)

 

$

(22,045

)

 

$

(6,005

)

 

$

(30,373

)

 

$

7,438

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gains (losses) on marketable securities, net of tax of $0, $119, $0 and $147

 

 

(350

)

 

 

374

 

 

$

(789

)

 

$

462

 

Total other comprehensive income (loss), net of tax

 

 

(350

)

 

 

374

 

 

 

(789

)

 

 

462

 

Comprehensive income (loss)

 

$

(22,395

)

 

$

(5,631

)

 

$

(31,162

)

 

$

7,900

 

 

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

5


 

ENANTA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Retained

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income

 

 

Earnings

 

 

Equity

 

Balances at September 30, 2019

 

 

19,703

 

 

$

197

 

 

$

298,409

 

 

$

146

 

 

$

163,740

 

 

$

462,492

 

Exercise of stock options

 

 

76

 

 

 

1

 

 

 

2,305

 

 

 

 

 

 

 

 

 

2,306

 

Vesting of restricted stock units, net of

   withholding

 

 

31

 

 

 

 

 

 

(1,140

)

 

 

 

 

 

 

 

 

(1,140

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

5,098

 

 

 

 

 

 

 

 

 

5,098

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

88

 

 

 

 

 

 

88

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,443

 

 

 

13,443

 

Balances at December 31, 2019

 

 

19,810

 

 

$

198

 

 

$

304,672

 

 

$

234

 

 

$

177,183

 

 

$

482,287

 

Exercise of stock options

 

 

160

 

 

 

2

 

 

 

4,714

 

 

 

 

 

 

 

 

 

 

 

4,716

 

Vesting of restricted stock units, net of

   withholding

 

 

16

 

 

 

 

 

 

(358

)

 

 

 

 

 

 

 

 

(358

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,977

 

 

 

 

 

 

 

 

 

4,977

 

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

374

 

 

 

 

 

 

374

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,005

)

 

 

(6,005

)

Balances at March 31, 2020

 

 

19,986

 

 

 

200

 

 

 

314,005

 

 

 

608

 

 

 

171,178

 

 

 

485,991

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

Retained

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Earnings

 

 

Equity

 

Balances at September 30, 2020

 

 

20,077

 

 

$

201

 

 

$

326,963

 

 

$

844

 

 

$

127,572

 

 

$

455,580

 

Exercise of stock options

 

 

33

 

 

 

 

 

 

833

 

 

 

 

 

 

 

 

 

833

 

Vesting of restricted stock units, net of

   withholding

 

 

32

 

 

 

 

 

 

(534

)

 

 

 

 

 

 

 

 

(534

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,883

 

 

 

 

 

 

 

 

 

4,883

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(439

)

 

 

 

 

 

(439

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,328

)

 

 

(8,328

)

Balances at December 31, 2020

 

 

20,142

 

 

$

201

 

 

$

332,145

 

 

$

405

 

 

$

119,244

 

 

$

451,995

 

Exercise of stock options

 

 

43

 

 

 

1

 

 

 

1,151

 

 

 

 

 

 

 

 

 

 

1,152

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

5,280

 

 

 

 

 

 

 

 

 

 

5,280

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(350

)

 

 

 

 

 

 

(350

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,045

)

 

 

(22,045

)

Balances at March 31, 2021

 

 

20,185

 

 

 

202

 

 

 

338,576

 

 

 

55

 

 

 

97,199

 

 

 

436,032

 

 

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

6


 

ENANTA PHARMACEUTICALS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

 

 

 

 

Six Months Ended

 

 

 

March 31,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(30,373

)

 

$

7,438

 

Adjustments to reconcile net income to net cash provided by

   operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

10,163

 

 

 

10,076

 

Depreciation and amortization expense

 

 

1,705

 

 

 

1,819

 

Deferred income taxes

 

 

 

 

 

(1,224

)

Premium paid on marketable securities

 

 

(1,238

)

 

 

(2,398

)

(Accretion) amortization of (discount) premium on marketable securities

 

 

956

 

 

 

(379

)

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

3,360

 

 

 

23,694

 

Prepaid expenses and other current assets

 

 

(5,444

)

 

 

(4,536

)

Operating lease, right-of-use assets

 

 

2,565

 

 

 

1,311

 

Accounts payable

 

 

15

 

 

 

(731

)

Accrued expenses

 

 

1,703

 

 

 

(5,585

)

Operating lease liabilities

 

 

(2,797

)

 

 

(1,484

)

Other long-term liabilities

 

 

(84

)

 

 

(964

)

Net cash provided by (used in) operating activities

 

 

(19,469

)

 

 

27,037

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(171,586

)

 

 

(171,884

)

Proceeds from maturities and sale of marketable securities

 

 

179,917

 

 

 

163,273

 

Purchase of property and equipment

 

 

(318

)

 

 

(842

)

Net cash provided by (used in) investing activities

 

 

8,013

 

 

 

(9,453

)

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

1,985

 

 

 

7,022

 

Payments for settlement of share-based awards

 

 

(534

)

 

 

(1,498

)

Net cash provided by financing activities

 

 

1,451

 

 

 

5,524

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

(10,005

)

 

 

23,108

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

87,739

 

 

 

51,838

 

Cash, cash equivalents and restricted cash at end of period

 

$

77,734

 

 

$

74,946

 

Supplemental disclosure of non-cash operating and investing information:

 

 

 

 

 

 

 

 

Purchases of fixed assets included in accounts payable and accrued expenses

 

$

17

 

 

$

109

 

Operating lease liabilities arising from obtaining right-of-use assets

 

$

2,517

 

 

$

1,997

 

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

7


 

ENANTA PHARMACEUTICALS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

(Amounts in thousands, except per share data)

1.

Nature of the Business and Basis of Presentation

Enanta Pharmaceuticals, Inc. (the “Company”), incorporated in Delaware in 1995, is a biotechnology company that uses its robust, chemistry-driven approach and drug discovery capabilities to become a leader in the discovery and development of small molecule drugs for the treatment of viral infections and liver diseases. The Company discovered glecaprevir, the second of two protease inhibitors discovered and developed through its collaboration with AbbVie for the treatment of chronic hepatitis C virus, or HCV. Glecaprevir is co-formulated as part of AbbVie’s leading 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). Royalties from the Company’s AbbVie collaboration and its existing financial resources provide funding to support the Company’s wholly-owned research and development programs, which are primarily focused on the following disease targets: respiratory syncytial virus (“RSV”), hepatitis B virus (“HBV”), SARS-CoV-2, human metapneumovirus (“hMPV”) and non-alcoholic steatohepatitis (“NASH”).

The Company is subject to many of the 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 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 infrastructure, and extensive compliance reporting capabilities.

COVID-19

In March 2020, the World Health Organization declared COVID-19 a global pandemic and countries worldwide implemented various measures to contain the spread of the SARS-CoV-2 virus. National, state and local governments in affected regions have implemented and may continue to implement varying safety precautions, including quarantines, border closures, increased border controls, travel restrictions, shelter-in-place orders and shutdowns, business closures, cancellations of public gatherings and other measures. The extent of the impact on the Company’s business and clinical trials to date has largely been delays in the conduct of out-sourced preclinical testing and ongoing and future clinical trials, as well as reductions in the number of patients accessing AbbVie’s HCV regimens.

The full extent to which the COVID-19 pandemic will continue to directly or indirectly impact the Company’s business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19 and its variants, public health actions taken to contain the pandemic and mitigate its economic effects and to roll out vaccinations worldwide, as well as the cumulative economic impact of all of these factors.

Unaudited Interim Financial Information

The consolidated balance sheet at September 30, 2020 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 March 31, 2021 and for the three and six months ended March 31, 2021 and 2020 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, 2020.

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 March 31, 2021 and results of operations for the three and six months ended March 31, 2021 and 2020 and cash flows for the six months ended March 31, 2021 and 2020, have been made. The results of operations for the three and six months ended March 31, 2021 are not necessarily indicative of the results of operations that may be expected for subsequent quarters or the year ending September 30, 2021.

8


 

The accompanying consolidated financial statements have been prepared in conformity with GAAP. All amounts in the consolidated financial statements and in the notes to the consolidated financial statements, except 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, 2020. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

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 with respect to its revenue arrangements; valuation of Series 1 nonconvertible preferred stock and stock-based awards; the accrual of research and development expenses, 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 and other facts. The future developments of the COVID-19 pandemic which may directly or indirectly impact the Company’s business include quarantines, border closures, increased border controls, travel restrictions, shelter-in-place orders and shutdowns, business closures, cancellations of public gatherings and other measures. The Company has made estimates of the impact of COVID-19 in the Company’s consolidated financial statements as of March 31, 2021. Actual results could differ from the Company’s estimates.

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326) (“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. The Company adopted ASU 2016-13 as of October 1, 2020. For available-for-sale debt securities with unrealized losses, the Company measures credit losses in a manner similar to previous U.S. GAAP, except that losses will be recognized as allowances instead of reductions in the amortized cost of the debt securities. The adoption of ASU 2016-13 did not have a material impact on the consolidated financial statements.  

Recently Issued Accounting Pronouncements 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). This standard simplifies various aspects of the income tax accounting guidance in ASC 740, including requirements related to hybrid tax regimes, the tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of entities not subject to tax, the intra-period tax allocation exception to the incremental approach, ownership changes in investments, changes from a subsidiary to an equity method investment, interim-period accounting for enacted changes in tax law, and the year-to-date loss limitation in interim-period tax accounting. This amendment is effective for the Company in the fiscal year beginning October 1, 2021; however, early adoption is permitted. The Company is currently in the process of evaluating the impact that ASU 2019-12 may have on its consolidated financial statements.

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.

9


 

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 March 31, 2021 and September 30, 2020, and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value:

 

 

Fair Value Measurements at March 31, 2021 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

76,137

 

 

$

 

 

$

 

 

$

76,137

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury notes

 

 

51,556

 

 

 

 

 

 

 

 

 

51,556

 

Commercial paper

 

 

 

 

 

153,459

 

 

 

 

 

 

153,459

 

Corporate bonds

 

 

 

 

 

118,299