ENANTA PHARMACEUTICALS INC - Quarter Report: 2013 March (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

For the quarterly period ended March 31, 2013

OR

Commission File Number 001-35839

ENANTA PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

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  x

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files):    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 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  x

The number of shares of the registrant’s Common Stock, $0.01 par value, outstanding as of May 10, 2013, was 17,818,796 shares.

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ENANTA PHARMACEUTICALS, INC.

FORM 10-Q — Quarterly Report

For the Quarterly Period Ended March 31, 2013

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ENANTA PHARMACEUTICALS, INC.

BALANCE SHEETS

(unaudited)

(In thousands, except share and per share amounts)

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

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ENANTA PHARMACEUTICALS, INC.

STATEMENTS OF OPERATIONS

(unaudited)

(In thousands, except share and per share amounts)

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

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ENANTA PHARMACEUTICALS, INC.

STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

(In thousands)

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

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ENANTA PHARMACEUTICALS, INC.

STATEMENTS OF CASH FLOWS

(unaudited)

(In thousands)

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

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ENANTA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS

(unaudited)

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

Enanta Pharmaceuticals, Inc. (the “Company”), incorporated in Delaware in 1995, is a research and development-focused biotechnology company that uses its chemistry-driven approach and drug discovery capabilities to create small molecule drugs in the infectious disease field. The Company is developing novel protease, NS5A, cyclophilin and nucleotide polymerase inhibitors targeted against the hepatitis C virus (“HCV”). Additionally, the Company has created a new class of bridged bicyclic antibiotics known as Bicyclolides that overcomes bacterial resistance. Antibacterial focus areas include “superbugs,” respiratory tract infections, and intravenous and oral treatments for hospital and community Methicillin-resistant Staphylococcus aureus (“MRSA”).

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, new technological innovations, dependence on collaborative arrangements, protection of proprietary technology, dependence on key personnel, 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 approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure, and extensive compliance reporting capabilities.

On March 26, 2013 the Company completed an initial public offering (“IPO”) of its common stock, which resulted in the sale of 4,600,000 shares at a price of $14.00 per share. The Company received net proceeds from the IPO of approximately $59,892 based upon the price of $14.00 per share and after deducting underwriting discounts and commissions paid by the Company.

Unaudited Interim Financial Information

The balance sheet at September 30, 2012 was derived from audited financial statements, but does not include all disclosures required by GAAP. The accompanying unaudited financial statements as of March 31, 2013 and for the three and six months ended March 31, 2013 and 2012 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 for the year ended September 30, 2012 included in the Company’s final prospectus filed pursuant to rule 424(b) under the Securities Act of 1933, as amended, filed with the Securities and Exchange Commission on March 21, 2013.

In the opinion of management, all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the Company’s financial position as of March 31, 2013 and results of operations for the three and six months ended March 31, 2013 and 2012 and cash flows for the six months ended March 31, 2013 and 2012 have been made. The results of operations for the three and six months ended March 31, 2013 are not necessarily indicative of the results of operations that may be expected for the year ending September 30, 2013.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). All dollar amounts in the financial statements and in the notes to the consolidated financial statements, except share and per share amounts, are in thousands unless otherwise indicated.

Use of Estimates

The preparation of 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

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ENANTA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

(unaudited)

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

liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions reflected in these 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; the valuation of common stock, warrants and stock-based awards; the useful lives of property and equipment; 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.

Revenue Recognition

The Company’s revenue is generated primarily through collaborative research and license agreements. The terms of these agreements contain multiple deliverables, which may include (i) licenses, (ii) research and development activities, and (iii) participation in joint research and development steering committees. The terms of these agreements may include nonrefundable upfront license fees, payments for research and development activities, payments based upon the achievement of certain milestones, and royalty payments based on product sales derived from the collaboration. In all instances, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, delivery has occurred or the services have been rendered, collectibility of the resulting receivable is reasonably assured, and the Company has fulfilled its performance obligations under the contract.

For multiple element agreements entered into or materially modified after October 1, 2011, the Company applies the principles included in Accounting Standards Update (“ASU”) No. 2009-13, Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”) to account for revenue. Under this guidance the selling prices of deliverables under the arrangement may be derived using third-party evidence (“TPE”) or a best estimate of selling price (“BESP”), if vendor specific objective evidence (“VSOE”) is not available. The objective of BESP is to determine the price at which the Company would transact a sale if the element within the license agreement was sold on a standalone basis. Establishing BESP involves management’s judgment and considers multiple factors, including market conditions and company-specific factors including those factors contemplated in negotiating the agreements as well as internally developed models that include assumptions related to market opportunity, discounted cash flows, estimated development costs, probability of success, and the time needed to commercialize a product candidate pursuant to the license. In validating the Company’s BESP, the Company considers whether changes in key assumptions used to determine the BESP will have a significant effect on the allocation of the arrangement consideration between the multiple deliverables. Deliverables under the arrangement are separate units of accounting if (i) the delivered item has value to the customer on a standalone basis, and (ii) if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item is considered probable and substantially within the control of the Company. The arrangement consideration that is fixed or determinable at the inception of the arrangement is allocated to the separate units of accounting based on their relative selling prices. The appropriate revenue recognition model is applied to each element, and revenue is accordingly recognized as each element is delivered. The Company may exercise significant judgment in determining whether a deliverable is a separate unit of accounting.

In determining the separate units of accounting, the Company evaluates whether the license has standalone value to the collaborator based on consideration of the relevant facts and circumstances for each arrangement. Factors considered in this determination include the research and development capabilities of the collaborator and the availability of relevant research expertise in the marketplace. In addition, the Company considers whether or not (i) the collaborator can use the license for its intended purpose without the receipt of the remaining deliverables, (ii) the value of the license is dependent on the undelivered items, and (iii) the collaborator or other vendors can provide the undelivered items.

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ENANTA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

(unaudited)

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

Under a collaborative research and license agreement, a steering committee is typically responsible for overseeing the general working relationships, determining the protocols to be followed in the research and development performed, and evaluating the results from the continued development of the product in order to determine the clinical studies to be performed. The Company evaluates whether its participation in joint research and development steering committees is a substantive obligation or whether the services are considered inconsequential or perfunctory. The Company’s participation on a steering committee is considered “participatory” and therefore accounted for as a separate element when the collaborator requires the participation of the Company to ensure all elements of an arrangement are maximized. Steering committee services that are considered participatory are combined with other research services or performance obligations required under an arrangement, if any, in determining the level of effort required in an arrangement and the period over which the Company expects to complete its aggregate performance obligations. Alternatively, the Company’s participation on a steering committee is considered “protective” and therefore not accounted for as a separate element in a case where the Company can exercise or control when to be involved at its own discretion. Factors the Company considers in determining if its participation in a joint steering committee is participating or protective include: (i) which party negotiated or requested the steering committee, (ii) how frequently the steering committee meets, (iii) whether or not there are any penalties or other recourse if the Company does not attend the steering committee meetings, (iv) which party has decision making authority on the steering committee, and (v) whether or not the collaborator has the requisite experience and expertise associated with the research and development of the licensed intellectual property.

For agreements entered into prior to October 1, 2011, the Company accounted for the multiple elements within the agreements as a single unit of accounting and all payments received were recognized as revenue over the estimated period of performance of the entire arrangement as the Company was not able to separately recognize revenue for the elements under the provisions of previously applicable revenue recognition guidance.

For all periods presented, whenever the Company determines that an element is delivered over a period of time, revenue is recognized using either a proportional performance model or a straight-line model over the period of performance, which is typically the research and development term. Full-time equivalents (“FTEs”) are typically used as the measure of performance. At each reporting period, the Company reassesses its cumulative measure of performance and makes appropriate adjustments, if necessary. The Company recognizes revenue using the proportional performance model whenever the Company can make reasonably reliable estimates of the level of effort required to complete its performance obligations under an arrangement. Revenue recognized under the proportional performance model at each reporting period is determined by multiplying the total expected payments under the contract (excluding royalties and payments contingent upon achievement of milestones) by the ratio of the level of effort incurred to date to the estimated total level of effort required to complete the performance obligations under the arrangement. Revenue is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined using the proportional performance model as of each reporting period. Alternatively, if the Company cannot make reasonably reliable estimates the level of effort required to complete its performance obligations under an arrangement, then revenue under the arrangement is recognized on a straight-line basis over the period expected to complete the Company’s performance obligations. If and when a contingent milestone payment is earned, the additional consideration to be received is allocated to the separate units of accounting in the arrangement based on their relative selling prices at the inception of the arrangement. Revenue is limited to the lesser of the cumulative amount of payments received or the cumulative amount of revenue earned, as determined on a straight-line basis as of the period end date. If the Company cannot reasonably estimate when its performance obligation period ends, then revenue is deferred until the Company can reasonably estimate when the performance obligation period ends.

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ENANTA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

(unaudited)

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

Royalty revenue, if any, is recognized based on contractual terms when reported sales are reliably measurable and collectibility is reasonably assured, provided that there are no performance obligations then remaining. To date, none of the Company’s products have been approved, and therefore the Company has not earned any royalty revenue from product sales.

During the three and six months ended March 31, 2013 and 2012 the Company also generated revenue from a government contract that reimburses the Company for certain allowable costs for the funded project. Revenue from the government contract is recognized when the related service is performed. The related costs incurred by the Company under the government contract are included in research and development expense in the statements of operations.

Amounts received prior to satisfying all revenue recognition criteria are recorded as deferred revenue in the accompanying balance sheets. Amounts not expected to be recognized as revenue within the next twelve months of the balance sheet date are classified as long-term deferred revenue.

In the event that a collaborative research and license agreement is terminated and the Company then has no further performance obligations, the Company recognizes as revenue any amounts that had not previously been recorded as revenue but were classified as deferred revenue at the date of such termination.

Recently Issued and Adopted Accounting Pronouncements

In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU 2013-02”). This newly issued accounting standard requires an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under U.S. GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under U.S. GAAP that provide additional detail about those amounts. ASU 2013-02 is effective for fiscal years and interim periods within those years beginning after December 15, 2012 and will become effective for the Company on October 1, 2013. The Company does not believe the adoption of this standard will have an impact on the Company’s financial position or results of its operations.

Other accounting standards that have been issued 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 financial statements upon adoption.

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ENANTA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

(unaudited)

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

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, 2013 and September 30, 2012 and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value:

Cash equivalents at March 31, 2013 and September 30, 2012 consist of money market funds.

During the three or six months ended March 31, 2013 and 2012, there were no transfers between Level 1, Level 2 and Level 3.

As of September 30, 2012, the warrant liability is comprised of the values of warrants for the purchase of Series E redeemable convertible preferred stock and warrants for the purchase of Series 1 nonconvertible preferred stock, measured at fair value, and are based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The Company’s valuation of the warrant liability utilized the Black-Scholes option-pricing model, which incorporates assumptions and estimates to value the Series E warrants and Series 1 warrants. Related to the valuation of warrants for the purchase of Series 1 nonconvertible preferred stock, the most significant quantitative elements associated with the Company’s Level 3 inputs impacting fair value measurement was the fair value per share of the underlying Series 1 nonconvertible preferred stock. The Company determined that the fair value of the Series 1 nonconvertible preferred stock equals its stated liquidation preference of $1.00 per share and was $1,981 as of September 30, 2012. Since the Series 1 nonconvertible preferred stock ranks senior to all other classes of stock and its liquidation preference is small relative to the Company’s equity value, the probability of a 100% payout on the Series 1 nonconvertible preferred stock was considered to be high. The fair value of warrants for the purchase of Series E redeemable

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ENANTA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

(unaudited)

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

convertible preferred stock was $20, as of September 30, 2012. The Company assesses these assumptions and estimates on a quarterly basis as additional information impacting the assumptions is obtained. Changes in the fair value of the warrant liability are recognized in the statements of operations.

As of March 31, 2013, the warrant liability consists solely of the warrants for the purchase of Series 1 nonconvertible preferred stock. The Series E warrants expired during the six months ended March 31, 2013. As of March 31, 2013, the Company utilized a probability-weighted valuation model which takes into consideration various outcomes that may require the Company to transfer assets upon exercise and determined that the fair value of the Series 1 warrants was $1,767.

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

As of March 31, 2013 and September 30, 2012, the fair value of available-for-sale marketable securities by type of security was as follows:

At March 31, 2013, marketable securities consisted of investments that mature within one year, with the exception of certain U.S. Agency and corporate bonds, which have maturities within two years and an aggregate fair value of $12,629.

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ENANTA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

(unaudited)

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

Accrued expenses (current) and other long-term liabilities consisted of the following as of March 31, 2013 and September 30, 2012:

AbbVie Collaboration

On November 27, 2006, the Company entered into a Collaborative Development and License Agreement (the “Abbott Agreement” or “AbbVie Agreement”) with Abbott Laboratories (“Abbott”) to identify, develop and commercialize HCV NS3 and NS3/4A protease inhibitor compounds, including ABT-450. The agreement, which was amended in January and December 2009, was assigned to AbbVie Inc. (“AbbVie”) on January 1, 2013 in connection with Abbott’s transfer of its research-based pharmaceuticals business to AbbVie. Under the terms of the AbbVie Agreement, as amended, AbbVie paid to the Company upfront license payments and FTE reimbursements to fund research activities. The Company is also eligible to receive milestone payments for the successful development by AbbVie of one or more HCV compounds as well as tiered royalties per 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 net sales by AbbVie allocable to the collaboration’s protease inhibitors. Deliverables under the AbbVie Agreement included a license, research services and participation on a steering committee. The Company concluded that all deliverables under the AbbVie Agreement should be treated as a single unit of accounting. Accordingly, revenue was recognized using the proportional performance model over the period during which the Company performed research services. The Company completed all remaining obligations under the agreement as of June 2011. All milestone payments received after June 2011 are recognized as revenue when each milestone is achieved by AbbVie.

Through June 2011, under the AbbVie Agreement the Company had received upfront license payments, research funding, and milestone payments totaling $92,450, all of which has been recognized as revenue as of June 30, 2011. In December 2012, the Company received an additional $15,000 milestone payment under the AbbVie Agreement as a result of AbbVie’s initiation of dosing in a Phase 3 clinical trial involving ABT-450. This amount was recognized as revenue during the three months ended December 31, 2012.

During the three months ended March 31, 2013 and 2012, the Company recognized no revenue related to this agreement. During the six months ended March 31, 2013 and 2012, the Company recognized revenue of $15,000 and $0, respectively.

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ENANTA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

(unaudited)

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

As of March 31, 2013, the Company is eligible to receive additional future milestone payments totaling up to $40,000 upon AbbVie’s achievement of regulatory filing milestones for the first protease inhibitor product resulting from its collaboration and additional milestone payments totaling up to $155,000 upon AbbVie’s achievement of commercial regulatory approval milestones in selected world markets. The Company is also eligible to receive additional milestone payments totaling up to $80,000 upon AbbVie’s achievement of similar commercial regulatory approval milestones for each additional product containing a new protease inhibitor.

Novartis Collaboration

On February 16, 2012, the Company entered into a license and collaboration agreement with Novartis (the “Novartis Agreement”) for the development, manufacture and commercialization of its lead development candidate, EDP-239, from its NS5A HCV inhibitor program. Under the terms of the Novartis Agreement, Novartis agreed to pay a nonrefundable upfront fee to the Company and reimbursement of manufacturing and quality assurance expenses related to EDP-239 totaling $34,442. Under the agreement, the Company is eligible to receive aggregate milestone payments of up to $406,000 upon Novartis’ initiation of clinical trials, achievement of regulatory approvals, and/or net sales of products containing the Company’s NS5A inhibitors. The Company is also eligible to receive tiered royalties ranging on a blended basis from the low double digits up to the high teens on net product sales by Novartis allocable to the collaboration’s NS5A inhibitors. Under the agreement, a clinical milestone payment of $11,000 was due to the Company upon Novartis’ initiation of dosing in the first Phase 1 clinical trial involving EDP-239 or another NS5A inhibitor, and was received by the Company in January 2013. An additional milestone payment of $15,000 will be due upon Novartis’ initiation of the first Phase 2 clinical trial using a combination containing an NS5A inhibitor. In addition, Novartis agreed to fund research activities for one year commencing February 2012, up to a total of $1,800. In March 2013, the agreement was amended to extend research funding for an additional six months through August 2013 at the same reimbursement rate.

The Company determined that the deliverables under the Novartis Agreement were the license and the research services. As each of these deliverables had standalone value it was determined that they each represented a separate unit of accounting. Arrangement consideration was allocated between the license and research services based on their relative selling prices using best estimate of selling price.

During the three months ended March 31, 2013 and 2012 the Company recognized total revenue of $465 and $34,667, respectively, related to the delivery of the license and the performance of the research services. During the six months ended March 31, 2013 and 2012, the Company recognized total revenue of $11,877 and $34,667, respectively, under the Novartis Agreement.

NIAID Contract

On September 30, 2011, the Company entered into a contract with the National Institute of Allergy and Infectious Diseases (“NIAID”), a division of the National Institutes of Health (“NIH”), which could provide up to $42,700 in development funding to the Company over a five-year period. The contract will fund the preclinical and clinical development of a new class of bridged bicyclic antibiotics known as Bicyclolides to be used as medical countermeasures against multiple biodefense Category A and B bacteria.

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ENANTA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

(unaudited)

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

The contract has an initial term of 30 months ending on March 30, 2014. NIAID has the option to extend the contract up to six times. If each extension option is exercised, the contract would be extended until September 30, 2016. The initial award under the initial term was $14,300, with the possibility of up to a total of $42,700 if each option period is exercised by NIAID.

The Company recognizes revenue under this agreement as development services are performed in accordance with the funding agreement. During the three months ended March 31, 2013 and 2012, $731 and $1,898 of revenue, respectively, was recognized under this agreement. During the six months ended March 31, 2013 and 2012, the Company recognized revenue of $2,178 and $2,639, respectively, under this agreement.

On March 1, 2013, the Company effected an increase in the number of authorized shares of its common stock from 70,000,000 to 100,000,000 shares. On March 1, 2013, the Company effected a 1-for-4.31 reverse stock split of its issued and outstanding shares of common stock and a proportional adjustment to the existing conversion ratio for each series of Redeemable Convertible Preferred Stock and Convertible Preferred Stock. Accordingly, all share and per share amounts for all periods presented in these financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect the reverse stock split and adjustment of the preferred share conversion ratios.

On March 26, 2013 the Company completed an initial public offering (“IPO”) of its common stock, which resulted in the sale of 4,600,000 shares at a price of $14.00 per share. The Company received net proceeds from the IPO of approximately $59,892 based upon the price of $14.00 per share and after deducting underwriting discounts and commissions paid by the Company.

Upon closing of the initial public offering, all outstanding shares of the Company’s redeemable convertible preferred stock and convertible preferred stock were converted into 11,656,875 shares of common stock.

Warrants to Purchase Series E Preferred Stock

Warrants for the purchase of Series E redeemable convertible preferred stock (“Series E preferred stock”) were issued by the Company in fiscal 2002 and fiscal 2004 during various financings. As these warrants are financial instruments that could have required a transfer of assets because of the redemption feature at the option of the holders of the Series E preferred stock, these warrants were classified as liabilities on the Company’s balance sheet.

As of September 30, 2012, warrants for the purchase of 12,500 shares of Series E preferred stock remained outstanding. These warrants expired during the six months ended March 31, 2013.

Warrants to Purchase Series 1 Preferred Stock

In October and November 2010, a total of 1,999,989 warrants to purchase Series 1 nonconvertible preferred stock were issued. These warrants expire on October 4, 2017. As these warrants are free-standing financial instruments that may require the Company to transfer assets upon exercise, these warrants are classified as liabilities. These warrants had a fair value of $1,280 upon issuance. The Company is required to remeasure the fair value of these preferred stock warrants at each reporting date, with any adjustments recorded within the change in fair value of warrant liability included in other income (expense) in the statement of operations. The warrants were

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ENANTA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

(unaudited)

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

remeasured at each reporting period, resulting in net income of $214 and $0 for the three and six months ended March 31, 2013 and 2012, respectively. As of March 31, 2013 and September 30, 2012, the total fair value of the Series 1 nonconvertible preferred stock warrants was $1,767 and $1,981, respectively.

1995 Equity Incentive Plan

The 1995 Equity Incentive Plan (the “1995 Plan”) provides for the Company to sell or issue common stock or restricted common stock, or to grant incentive stock options or nonqualified stock options for the purchase of common stock, to employees, members of the board of directors and consultants of the Company. Sales, issuances or grants of shares entitle the holder to purchase common stock from the Company, for a specified exercise price, during a period specified by the applicable equity award agreement. The 1995 Plan is administered by the board of directors and exercise prices, vesting and other restrictions are all determined at their discretion. Options granted under the 1995 Plan to non-executive employees generally vest 25% per year and expire after ten years; options granted to executive employees generally vest over one to four years; and options granted to the board of directors vest over a two-year period. On January 17, 2013, the Company’s stockholders approved an amendment to the 1995 Equity Incentive Plan to increase the number of shares of common stock reserved for issuance under the plan by 232,018 shares to 2,772,777 shares. Upon closing of the Company’s initial public offering, 26,742 shares reserved and not then subject to outstanding options were transferred to the 2012 Plan, and no further awards will be made under the 1995 Plan.

2012 Equity Incentive Plan

On January 17, 2013, the Company’s stockholders approved the 2012 Equity Incentive Plan (the “2012 Plan”), which became effective immediately prior to the closing of the Company’s initial public offering. The 2012 Plan permits the Company to sell or issue common stock or restricted common stock, to grant incentive stock options or nonqualified stock options for the purchase of common stock, or to grant restricted stock units, stock appreciation rights or other cash incentive awards, to employees, members of the board of directors and consultants of the Company. The total number of shares of common stock that may be issued under the plan is 348,355 shares, including 26,742 shares incorporated from the 1995 Plan that were reserved and not subject to outstanding options as of the closing of the Company’s initial public offering. The number of shares of common stock that may be issued under the plan is also subject to increase by the number of shares forfeited under any options terminated and not exercised under the 1995, plus an increase in shares on the first day of each fiscal year by the lowest of (i) 3% of the Company’s outstanding shares of common stock as of that date, (ii) 2,088,167 shares of common stock, or (iii) an amount determined by the board of directors.

During the three months ended March 31, 2013, the Company granted to certain executives 167,052 options that vest upon the achievement of certain performance-based targets. The fair value of these options at the grant date was $1,487. Through March 31, 2013, the Company recorded approximately $5 of stock compensation expense related to these awards for the portion of the service period incurred related to performance-based targets that were considered probable.

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ENANTA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

(unaudited)

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

Employee Stock Purchase Plan

On January 3, 2013, the Company’s stockholders approved the Employee Stock Purchase Plan (the “ESPP”). A total of 185,614 shares of common stock were reserved for issuance under this plan, which became effective immediately prior the closing of the Company’s initial public offering. As of March 31, 2013, the first offering period under the ESPP had not commenced and no shares have been issued.

Stock Option Valuation

The fair value of each stock option grant is estimated on the date of grant using the Black-Scholes option-pricing model. The Company historically has been a private company and lacks sufficient company-specific historical and implied volatility information. Therefore, it estimates its expected stock volatility based on the historical volatility of its publicly traded peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded stock price. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future. The relevant data used to determine the value of the stock option grants is as follows, presented on a weighted average basis: 

The Company recognizes compensation expense for only the portion of awards that are expected to vest. In developing a forfeiture rate estimate, the Company has considered its historical experience to estimate pre-vesting forfeitures for service-based awards. The impact of a forfeiture rate adjustment will be recognized in full in the period of adjustment, and if the actual forfeiture rate is materially different from the Company’s estimate, the Company may be required to record adjustments to stock-based compensation expense in future periods.

As required by the 1995 Plan and 2012 Plan, the exercise price for awards granted is not to be less than the fair value of common shares as estimated by the Company as of the date of grant. For periods prior to the initial public offering of common stock, the Company valued its common stock by taking into consideration its most recently available valuation of common shares performed by management and the board of directors as well as additional factors which may have changed since the date of the most recent contemporaneous valuation through the date of grant.

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ENANTA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

(unaudited)

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

The following table summarizes stock option activity during the six months ended March 31, 2013:

The Company recorded stock-based compensation expense for the three and six months ended March 31, 2013 and 2012 in the following expense categories:

As of March 31, 2013, the Company had an aggregate of $1,721 of unrecognized stock-based compensation cost, which is expected to be recognized over a weighted average period of 2.8 years.

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ENANTA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

(unaudited)

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

Basic and diluted net income (loss) per share attributable to common stockholders was calculated as follows for the three and six months ended March 31, 2013 and 2012:

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ENANTA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

(unaudited)

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

Stock options for the purchase of 245,225 weighted average shares were excluded from the computation of diluted net income per share attributable to common stockholders for the three months ended March 31, 2013 and stock options for the purchase of 126,489 weighted average shares were excluded from the computation of diluted net income per share attributable to common stockholders for the six months ended March 31, 2013 because those options had an anti-dilutive impact due to the assumed proceeds per share using the treasury stock method being greater than the average fair value of the Company’s common shares for those periods. Stock options for the purchase of 1,540,845 weighted average shares were excluded from the computation of diluted net loss per share attributable to common stockholders for the three months ended March 31, 2013 because those options had an anti-dilutive impact due to the net loss attributable to common stockholders incurred for the period.

There were no outstanding common stock equivalents that had an anti-dilutive impact on net income per share attributable to common stockholders for the three or six months ended March 31, 2012.

Leases

The Company has an office and laboratory lease that expires in September 2018. Payment escalation as specified in the lease agreement is accrued such that rent expense is recognized on a straight-line basis over the terms of occupancy. The Company recorded rent expense of $237 for the three months ended March 31, 2013 and 2012, and $474 for the six months ended March 31, 2013 and 2012.

In connection with the lease, the Company has outstanding a $436 letter of credit, collateralized by a money market account. As of March 31, 2013 and September 30, 2012, the Company classified $436 related to the letter of credit as restricted cash.

Intellectual Property License

The Company has a non-exclusive intellectual property license agreement under which it is required to pay the licensor future license fees of $250, $250 and $200 in fiscal years 2013, 2014 and 2015, respectively. In addition, the Company is required to pay (1) annual maintenance fees of $105 for each year that the agreement remains in effect in order to maintain the right to use the license, and (2) a one-time fee of $50 in each circumstance in which the Company provides the licensed intellectual property to one of its collaborators with the prior consent of the licensor. As of March 31, 2013, the Company had accrued expense relating to this obligation of $661 of which $228 was included in accrued expenses and $433 was included in other long-term liabilities.

Litigation and Contingencies Related to Use of Intellectual Property

As of March 31, 2013 the Company was aware of a potential license it may need to acquire with respect to patents it used, or may have used, in prior years or periods. During the three months ended March 31, 2013, the Company first determined that the probable license costs could be reasonably estimated. As a result, during that period, the Company recorded an expense and a corresponding accrued liability of $500, based on its best estimate at that date of this contingent liability.

From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. The Company currently is not a party to any threatened or pending litigation. However, third parties might allege that the Company or its collaborators are infringing their patent rights or that

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ENANTA PHARMACEUTICALS, INC.

NOTES TO FINANCIAL STATEMENTS—(Continued)

(unaudited)

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

the Company is otherwise violating their intellectual property rights. Such third parties may resort to litigation against the Company or its collaborators, which the Company has agreed to indemnify. With respect to some of these patents, the Company expects that it will be required to obtain licenses and could be required to pay license fees or royalties, or both. These licenses may not be available on acceptable terms, or at all. A costly license, or inability to obtain a necessary license, could have a material adverse effect on the Company’s financial condition, results of operations or cash flows. The Company accrues contingent liabilities when it is probable that future expenditures will be incurred and such expenditures can be reasonably estimated.

Indemnification Agreements

In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, business partners, and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements, from services to be provided by the Company, or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. Despite the fact that the Company has obtained insurance coverage for certain of these indemnifications, the maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company does not believe that the outcome of any claims under indemnification arrangements will have a material effect on its financial position, results of operations or cash flows, and it has not accrued any liabilities related to such obligations in its financial statements as of March 31, 2013.

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The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited financial statements and notes thereto included elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto for the year ended September 30, 2012 included in our final prospectus filed with the Securities and Exchange Commission on March 21, 2013. This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “should,” “estimate,” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section titled “Risk Factors,” set forth in Part II, Item 1A of this Quarterly Report on Form 10-Q. The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

Overview

We are a research and development-focused biotechnology company that uses its robust chemistry-driven approach and drug discovery capabilities to create small molecule drugs in the infectious disease field. We are discovering and developing inhibitors designed for use against the hepatitis C virus, referred to as HCV. We believe that a successful approach to a complete cure for HCV in most patients will likely require treatment with a combination of drugs that attack different mechanisms necessary for replication and survival of HCV. Further, as there are many variants of HCV, we are developing inhibitors that may be used in multiple combination therapies, each designed and tested for effectiveness against one or more of those variants. Our development of inhibitors for validated HCV target mechanisms, as well as our collaborations with AbbVie (which name refers to Abbott Laboratories for all periods before January 1, 2013) and Novartis, should allow us to participate in multiple unique drug combinations as we seek the best combination therapies for HCV in its various forms.

Our HCV portfolio includes inhibitors of four fundamental, validated HCV targets. Our lead product candidate, ABT-450, is a protease inhibitor being developed in several combination regimens in multiple Phase 2 and Phase 3 trials through our collaboration with AbbVie. AbbVie has funded all research and development of our protease inhibitors since we entered into the collaboration in November 2006, and is responsible for obtaining regulatory approvals and commercializing ABT-450 and any follow-on products worldwide. Our lead NS5A product candidate, EDP-239, is being developed through our collaboration with Novartis. Under our collaboration with Novartis, Novartis is responsible for all further development of our NS5A inhibitors. Novartis is also responsible for funding further research that we conduct to discover additional NS5A compounds at least through August 2013. Our independent research activities are focused on our lead cyclophilin inhibitor candidates, which are in preclinical development. We also have a small-molecule drug discovery effort underway for nucleotide polymerase inhibitors. We are currently funding all research and development for our cyclophilin inhibitor and nucleotide polymerase inhibitor programs. We expect to incur substantially greater expenses as we seek to advance these programs into clinical development.

In addition to our HCV programs, we have used our internal research capabilities to discover a new class of antibiotics called Bicyclolides, which we are developing for the treatment of multi-drug resistant bacteria, including methicillin-resistant Staphylococcus aureus bacteria, also referred to as MRSA. Up to $14.3 million of the preclinical development of our lead antibiotic candidate, EDP-788, is funded under a September 2011 contract with the National Institute of Allergy and Infectious Diseases, a division of the National Institutes of Health, an agency of the United States Department of Health and Human Services, or NIAID, and there is potential for further NIAID funding of early clinical development.

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Since commencing our operations in 1995, we have devoted substantially all of our resources to the discovery and development of novel inhibitors for the treatment of infectious diseases. We have historically funded our operations primarily through the sale of convertible preferred stock and payments received under our collaborations and a government contract. On March 26, 2013, we completed our initial public offering of 4,600,000 shares of common stock at an offering price of $14.00 per share, which included the exercise in full by the underwriters of their option to purchase up to 600,000 additional shares of common stock. We received net proceeds of approximately $59.9 million, after deducting underwriting discounts and commissions. As of March 31, 2013, we had $121.7 million in cash and investments.

Our revenue from our collaboration agreements has resulted in our reporting net income in each of our past three fiscal years and in the first quarter of our fiscal 2013. However, we reported a net loss in the second quarter of our fiscal 2013, had an accumulated deficit of $98.9 million as of March 31, 2013 and have generated no royalties or other revenue from product sales. We expect that our revenue in the near term will continue to be substantially dependent on our collaborations with AbbVie and Novartis and their continued advancement of the related development programs. Given the schedule of potential milestone payments and the uncertain nature and timing of clinical development, we cannot predict when or whether we will receive further milestone payments under these collaborations or whether we will report either revenue or net income in future years.

Financial Operations Overview

Revenue

Since our inception, our revenue has been derived from two primary sources: collaboration agreements with pharmaceutical companies and one government research and development contract. We have not generated any revenue from product sales. In November 2006, we entered into a collaboration agreement with AbbVie and in February 2012 we entered into a collaboration agreement with Novartis. In September 2011, we entered into a contract with NIAID, which will fund the preclinical development of our lead product candidate in our new class of Bicyclolide antibiotics.

The following table is a summary of revenue recognized from our collaboration agreements and government contract for the three and six months ended March 31, 2013 and 2012: