ENANTA PHARMACEUTICALS INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES Disclosure Controls and Procedures and Internal Control over Financial Reporting Evaluation of Disclosure Controls and Procedures We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as the Company's are designed to do, and management necessarily was required to apply its judgment in evaluating the risk related to controls and procedures. In connection with the preparation of this Form 10-K, as of September 30, 2024, an evaluation was performed under the supervision and with the participation of our management, including the CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2024. These conclusions were communicated to the Audit Committee. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and Rule 15d-15(f) under the Exchange Act. Our internal control system is designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Our management has assessed the effectiveness of our internal control over financial reporting as of September 30, 2024. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its 2013 Internal Control—Integrated Framework. Based on this assessment, our management has concluded that as of September 30, 2024, our internal control over financial reporting is effective. Changes in Internal Control over Financial Reporting There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. OTHER INFORMATION None . ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 71 PART III ITEM 10. DIRECTORS, EXECUTIVE OF FICERS AND CORPORATE GOVERNANCE Portions of the response to this item are incorporated herein by reference to the discussion responsive thereto in the Company’s Definitive Proxy Statement relating to the 2025 Annual Meeting of Stockholders, also referred to as the 2025 Proxy Statement, which will be filed within 120 days after September 30, 2024. We have adopted a Code of Business Conduct and Ethics (the code of ethics) that applies to all of our employees, officers and directors. The code of ethics is available on our website at http://www.enanta.com. In addition, if we make any substantive amendments to the code of ethics or grant any waiver, including any implicit waiver, from a provision of the code to any of our executive officers or directors, we will disclose the nature of such amendment or waiver as required by applicable law on our website or on a Form 8-K. ITEM 11. EXECUTI VE COMPENSATION The response to this item is incorporated herein by reference from the discussion responsive thereto in the 2025 Proxy Statement, which will be filed within 120 days after September 30, 2024. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OW NERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS The response to this item is incorporated herein by reference in part from the discussion responsive thereto in the 2025 Proxy Statement, which will be filed within 120 days after September 30, 2024. The following table provides information about the securities authorized for issuance under the Company’s equity compensation plans as of September 30, 2024: Equity Compensation Plan Information (in thousands, except per share information) Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (a) (b) (c) Equity compensation plans approved by security holders (1) 5,796 (2) $ 41.69 2,164 (3) Equity compensation plans not approved by security holders — — — Totals 5,796 2,164 (1) Consists of the Company’s 2019 Equity Incentive Plan, the Company's 2024 Inducement Stock Plan, the Company’s 2012 Equity Incentive Plan, as amended, and the Company’s Employee Stock Purchase Plan. (2) Consists of shares of the Company’s common stock issuable upon exercise of outstanding options issued under the Company’s 2019 Equity Incentive Plan, the Company's 2024 Inducement Stock Plan and the Company’s Amended and Restated 2012 Equity Incentive Plan. (3) Consists of shares of the Company’s common stock reserved for future issuance under the Company’s 2019 Equity Incentive Plan, the Company's 2024 Inducement Stock Plan and the Company’s Employee Stock Purchase Plan. 72 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The response to this item is incorporated herein by reference from the discussion responsive thereto in the 2025 Proxy Statement, which will be filed within 120 days after September 30, 2024. ITEM 14. PRINCIPAL ACCOU NTING FEES AND SERVICES The response to this item is incorporated herein by reference from the discussion responsive thereto in the 2025 Proxy Statement, which will be filed within 120 days after September 30, 2024. 73 PART IV ITEM 15. EXHIBITS AND FINAN CIAL STATEMENT SCHEDULES (a) 1. FINANCIAL STATEMENTS The financial statements are included under Part II, Item 8 of this Report. 2. FINANCIAL STATEMENTS SCHEDULE Schedules are omitted because they are not applicable, or are not required, or because the information is included in the consolidated financial statements and notes thereto. 3. EXHIBITS – The exhibits are listed below under Part IV, Item 15(b) of this Report. (b) EXHIBITS Incorporated by Reference Exhibit Number Exhibit Description Form Date Exhibit Number File Number Filed Herewith 3.1 Restated Certificate of Incorporation of Enanta Pharmaceuticals, Inc. 8-K 03/28/2013 3.1 001-35839 3.2 Amended and Restated Bylaws of Enanta Pharmaceuticals, Inc. (as amended and restated in August 2015). 8-K 08/18/2015 3.2 001-35839 4.1 Specimen certificate evidencing shares of common stock. S-1/A 02/05/2013 4.1 333-184779 4.2 Specimen certificate evidencing shares of Series 1 Non-Convertible Preferred Stock 10-K 12/11/2017 4.3 001-35839 4.3 Description of securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 10-K 11/27/2019 4.3 001-35839 10.1# Form of Indemnification Agreement for directors and officers. S-1/A 02/05/2013 10.7 333-184779 10.2# Amended and Restated Employment Agreement between the Company and Jay R. Luly, Ph.D., dated as of March 4, 2013. S-1/A 03/05/2013 10.5 333-184779 10.3# Form of Amended and Restated Employment Agreement for Executive Officers other than t he Chief Executive Officer. S-1/A 03/05/2013 10.17 333-184779 10.4† Collaborative Development and License Agreement between the Company and Abbott Laboratories, dated November 27, 2006; as amended by a First Amendment to Collaborative Development and License Agreement dated January 27, 2009 and a Second Amendment to Collaborative Development and License Agreement dated December 9, 2009 (assigned to AbbVie Inc. as of January 1, 2013). 8-K 02/05/2021 10.1 001-35839 10.5† Third Amendment to Collaborative Development and License Agreement between the Company and AbbVie dated October 20, 2014. 8-K 02/05/2021 10.2 001-35839 10.6 Fourth Amendment to Collaborative Development and License Agreement between the Company and AbbVie dated as of March 3, 2015. 10-Q 05/08/2015 10.1 001-35839 74 10.7 Royalty Purchase Agreement between Enanta Pharmaceuticals, Inc. and OCM Life Sciences Portfolio LP dated as of April 25, 2023 8-K 04/27/2023 10.1 001-35839 10.8 Lease Agreement between Company and Athena Arsenal, LLC, dated as of September 24, 2018. 10-K 11/29/2018 10.10 001-35839 10.9 First Amendment to Lease Agreement made as of May 12, 2022 by and between ARE-MA Region No. 75, LLC and the Company. 8-K 05/17/2022 10.2 001-35839 10.10 Lease Agreement made as of May 12, 2022 by and between ARE-MA Region No. 75, LLC and the Company . 8-K 05/17/2022 10.3 001-35839 10.11# 2012 Equity Incentive Plan (As adjusted to reflect the application of the 1-for-4.31 reverse stock split of the Company’s common stock effected on March 1, 2013). 10-K/A 01/06/2017 10.14 001-35839 10.12# Form of Incentive Stock Option Agreement under 2012 Equity Incentive Plan. S-1/A 03/05/2013 10.13 333-184779 10.13# Form of Non-Statutory Stock Option Agreement under 2012 Equity Incentive Plan. S-1/A 03/05/2013 10.14 333-184779 10.14# Form of Non-Statutory Stock Option Certificate for directors under 2012 Equity Incentive Plan. S-1/A 03/05/2013 10.15 333-184779 10.15# Form of Performance Share Unit Certificate under 2012 Equity Incentive Plan. 10-K 12/11/2017 10.18 001-35839 10.16# Form of Relative Total Stockholder Return Unit Certificate under 2012 Equity Incentive Plan. 10-K 12/11/2017 10.19 001-35839 10.17# Employee Stock Purchase Plan. S-1/A 02/05/2013 10.16 333-184779 10.18# 2019 Equity Incentive Plan (As amended March 2024) 8-K 03/12/2024 10.1 001-35839 10.19# Form of Notice of Grant of Non-Statutory Stock Option under 2019 Equity Incentive Plan. 10-Q 05/10/2019 10.2 001-35839 10.20# Form of Notice of Grant of Non-Statutory Stock Option for Directors under 2019 Equity Incentive Plan. 10-Q 05/10/2019 10.3 001-35839 10.21# Form of Relative Total Stockholder Return Unit Certificate under 2019 Equity Incentive Plan. 10-Q 05/10/2019 10.4 001-35839 10.22# Form of Performance Share Unit Certificate under 2019 Equity Incentive Plan. 10-Q 05/10/2019 10.5 001-35839 10.23# Form of Notice of Restricted Stock Unit Award under 2019 Equity Incentive Plan. 10-K 11/25/2020 10.27 001-35839 10.24# Amended and Restated Employment Agreement dated as of February 8, 2024 by and between the Company and Nathaniel S. Gardiner, effective April 1, 2024 10-Q 05/08/2024 10.2 001-35839 10.25# 2024 Inducement Stock Incentive Plan S-8 05/08/2024 99.2 333-279217 10.26# Form of Notice of Grant of Non-Statutory Stock Option under 2024 Inducement Stock Incentive Plan X 10.27# Form of Notice of Grant of Restricted Stock Unit Award under 2024 Inducement Stock Incentive Plan X 75 10.28# Form of Performance Share Unit Certificate under 2024 Inducement Stock Incentive Plan X 10.29# Form of Relative Total Stockholder Return Unit Certificate under 2024 Inducement Stock Incentive Plan X 10.30 Second Amendment to Lease Agreement, dated as of July 26, 2024, between ARE-MA REGION NO. 75, LLC and the Company X 10.31 Third Amendment to Lease Agreement, dated as of September 13, 2024, between ARE-MA REGION NO. 75, LLC and the Company X 19.1 Amended and Restated Securities Trading Policy X 21.1 Subsidiaries of the Company. X 23.1 Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. X 31.1 Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934. X 31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934. X 32.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. X 97.1 Amended and Restated Compensation Clawback Policy X 101.INS XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document X 101.SCH Inline XBRL Taxonomy Extension Schema with embedded Linkbases document 104 Cover Page Interactive Data File (formatted as Inline XBRL with applicable Taxonomy Extension information contained in Exhibit 101) # Management contract or compensatory plan, contract or agreement. † Confidential treatment granted as to portions of this Exhibit. The confidential portions of this Exhibit have been omitted and are marked by asterisks. †† This Exhibit has been filed separately with the commission pursuant to an application for confidentiality treatment. The confidential portions of this Exhibit have been omitted and are marked by asterisks. ITEM 16. FORM 10-K SUMMARY None. 76 SIGNAT URES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, this 27th day of November, 2024. ENANTA PHARMACEUTICALS, INC. By: /s/ Jay R. Luly, Ph.D. Jay R. Luly, Ph.D. Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company in the capacities and on the dates indicated. Signature Title Date /s/ Jay R. Luly, Ph.D. Jay R. Luly, Ph.D. President and Chief Executive Officer and Director (Principal Executive Officer) November 27, 2024 /s/ Paul J. Mellett Paul J. Mellett Chief Financial and Administrative Officer (Principal Financial and Accounting Officer) November 27, 2024 /s/ Bruce L.A. Carter, Ph.D. Bruce L.A. Carter, Ph.D. Director November 27, 2024 /s/ Mark G. Foletta Mark G. Foletta Director November 27, 2024 /s/ Yujiro S. Hata Yujiro S. Hata Director November 27, 2024 /s/ Kristine Peterson Kristine Peterson Director November 27, 2024 /s/ Lesley Russell, MB. Ch.B., MRCP Lesley Russell, MB. Ch.B., MRCP Director November 27, 2024 /s/ Terry Vance Terry Vance Director November 27, 2024 77 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ENANTA PHARMACEUTICALS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID 238 ) F- 2 Consolidated Balance Sheets F- 4 Consolidated Statements of Operations F- 5 Consolidated Statements of Comprehensive Loss F- 6 Consolidated Statements of Stockholders’ Equity F- 7 Consolidated Statements of Cash Flows F- 8 Notes to Consolidated Financial Statements F- 9 F- 1 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholders of Enanta Pharmaceuticals, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Enanta Pharmaceuticals, Inc. and its subsidiary (the “Company”) as of September 30, 2024 and 2023, and the related consolidated statements of operations, of comprehensive loss, of stockholders' equity and of cash flows for each of the three years in the period ended September 30, 2024, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2024 in conformity with accounting principles generally accepted in the United States of America. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Research and Development and Pharmaceutical Drug Manufacturing Accruals As described in Notes 2 and 6 to the consolidated financial statements, the Company has entered into various contracts with third parties to perform research and development and pharmaceutical drug manufacturing. When billing terms under these contracts do not coincide with the timing of when the work is performed, management is required to make estimates of outstanding obligations to those third parties as of period end. Within accrued expenses and other current liabilities, total accrued research and development expenses and accrued pharmaceutical drug manufacturing amounted to $3.1 million and $0.9 million as of September 30, 2024, respectively. The accrual estimates are based on a number of factors, including management’s 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. The principal considerations for our determination that performing procedures relating to research and development and pharmaceutical drug manufacturing accruals is a critical audit matter are the significant judgment by management in developing the accrual estimates, as the estimates are based on a number of factors, including management’s knowledge of the research and development programs and pharmaceutical drug manufacturing activities and associated timelines, invoicing to date, and the provisions in the contracts, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures F- 2 and evaluating management’s significant assumptions related to progress towards completion of the research and development programs and pharmaceutical drug manufacturing activities. Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included, among others (i) testing management’s process for developing estimates based upon the progress of the research and development programs and pharmaceutical drug manufacturing activities; (ii) evaluating the appropriateness of the method used by management to develop the estimates; (iii) reading research and development and pharmaceutical drug manufacturing contracts on a test basis; (iv) evaluating the completeness and accuracy of data used by management; and (v) evaluating the reasonableness of significant assumptions related to the progress towards completion. Evaluating management’s assumptions related to progress towards completion of the research and development programs and pharmaceutical drug manufacturing activities included evaluating whether the assumptions were reasonable considering the associated timelines, invoicing to date and the provisions in the contracts. /s/ PricewaterhouseCoopers LLP Boston, Massachusetts November 27, 2024 We have served as the Company’s auditor since 1999. F- 3 ENANTA PHARMACEUTICALS, INC. CONSOLIDATED B ALANCE SHEETS (in thousands, except per share data) September 30, September 30, 2024 2023 Assets Current assets: Cash and cash equivalents $ 37,233 $ 85,388 Short-term marketable securities 210,953 284,522 Accounts receivable 6,646 8,614 Prepaid expenses and other current assets 12,413 13,263 Income tax receivable 31,999 31,004 Short-term restricted cash 608 — Total current assets 299,852 422,791 Property and equipment, net 32,688 11,919 Operating lease, right-of-use assets 40,658 22,794 Long-term restricted cash 3,360 3,968 Other long-term assets 94 803 Total assets $ 376,652 $ 462,275 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 8,002 $ 4,097 Accrued expenses and other current liabilities 13,547 18,339 Liability related to the sale of future royalties 34,462 35,076 Operating lease liabilities 1,524 5,275 Total current liabilities 57,535 62,787 Liability related to the sale of future royalties, net of current portion 134,779 159,429 Operating lease liabilities, net of current portion 53,943 21,238 Series 1 nonconvertible preferred stock 1,350 1,423 Other long-term liabilities 231 663 Total liabilities 247,838 245,540 Commitments and contingencies (Note 13) Stockholders' equity: Common stock; $ 0.01 par value per share, 100,000 shares authorized; 21,194 and 21,059 shares issued and outstanding at September 30, 2024 and September 30, 2023, respectively 212 211 Additional paid-in capital 451,340 424,693 Accumulated other comprehensive gain (loss) 302 ( 1,174 ) Accumulated deficit ( 323,040 ) ( 206,995 ) Total stockholders' equity 128,814 216,735 Total liabilities and stockholders' equity $ 376,652 $ 462,275 The accompanying notes are an integral part of these consolidated financial statements. F- 4 ENANTA PHARMACEUTICALS, INC. CONSOLIDATED STATEME NTS OF OPERATIONS (in thousands, except per share data) Years Ended September 30, 2024 2023 2022 Revenue Royalty revenue $ 67,635 $ 78,204 $ 86,160 License revenue — 1,000 — Total revenue 67,635 79,204 86,160 Operating expenses: Research and development 131,476 163,524 164,522 General and administrative 57,850 52,887 45,482 Total operating expenses 189,326 216,411 210,004 Loss from operations ( 121,691 ) ( 137,207 ) ( 123,844 ) Other income (expense): Interest expense ( 10,940 ) ( 5,148 ) — Interest and investment income, net 14,770 11,360 1,573 Change in fair value of Series 1 nonconvertible preferred stock 73 — 83 Total other income, net 3,903 6,212 1,656 Loss before income taxes ( 117,788 ) ( 130,995 ) ( 122,188 ) Income tax benefit (expense) 1,743 ( 2,821 ) 433 Net loss $ ( 116,045 ) $ ( 133,816 ) $ ( 121,755 ) Net loss per share, basic and diluted $ ( 5.48 ) $ ( 6.38 ) $ ( 5.91 ) Weighted average common shares outstanding, basic and diluted 21,157 20,969 20,603 The accompanying notes are an integral part of these consolidated financial statements. F- 5 ENANTA PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands) Years Ended September 30, 2024 2023 2022 Net loss $ ( 116,045 ) $ ( 133,816 ) $ ( 121,755 ) Other comprehensive income (loss): Net unrealized gains (losses) on marketable securities 1,476 2,550 ( 3,342 ) Total other comprehensive income (loss) 1,476 2,550 ( 3,342 ) Comprehensive loss $ ( 114,569 ) $ ( 131,266 ) $ ( 125,097 ) The accompanying notes are an integral part of these consolidated financial statements. F- 6 ENANTA PHARMACEUTICALS, INC. CONSOLIDATED STATEMENTS O F STOCKHOLDERS’ EQUITY (in thousands) Accumulated Retained Additional Other Earnings Total Common Stock Paid-In Comprehensive (Accumulated Stockholders' Shares Amount Capital Income (Loss) Deficit) Equity Balances at September 30, 2021 20,238 $ 202 $ 351,033 $ ( 382 ) $ 48,576 $ 399,429 Exercise of stock options 517 6 21,256 — — 21,262 Vesting of restricted stock units, net of withholding 36 — ( 1,229 ) — — ( 1,229 ) Stock-based compensation expense — — 26,969 — — 26,969 Other comprehensive loss — — — ( 3,342 ) — ( 3,342 ) Net loss — — — — ( 121,755 ) ( 121,755 ) Balances at September 30, 2022 20,791 208 398,029 ( 3,724 ) ( 73,179 ) 321,334 Exercise of stock options 124 1 2,207 — — 2,208 Vesting of restricted stock units, net of withholding 144 2 ( 3,759 ) — — ( 3,757 ) Stock-based compensation expense — — 28,216 — — 28,216 Other comprehensive income — — — 2,550 — 2,550 Net loss — — — — ( 133,816 ) ( 133,816 ) Balances at September 30, 2023 21,059 211 424,693 ( 1,174 ) ( 206,995 ) 216,735 Exercise of stock options 16 — 147 — — 147 Vesting of restricted stock units, net of withholding 119 1 ( 295 ) — — ( 294 ) Stock-based compensation expense — — 26,795 — — 26,795 Other comprehensive income — — — 1,476 — 1,476 Net loss — — — — ( 116,045 ) ( 116,045 ) Balances at September 30, 2024 21,194 $ 212 $ 451,340 $ 302 $ ( 323,040 ) $ 128,814 The accompanying notes are an integral part of these consolidated financial statements. F- 7 ENANTA PHARMACEUTICALS, INC. CONSOLIDATED STATEM ENTS OF CASH FLOWS (in thousands) Years Ended September 30, 2024 2023 2022 Cash flows from operating activities Net loss $ ( 116,045 ) $ ( 133,816 ) $ ( 121,755 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 26,795 28,216 26,969 Depreciation and amortization expense 2,336 2,371 2,973 Non-cash interest expense associated with the sale of future royalties ( 135 ) 5,148 — Non-cash royalty revenue 2,350 ( 10,318 ) — Premium paid on marketable securities — ( 73 ) ( 846 ) Amortization (accretion) of premiums (discounts) on marketable securities ( 1,138 ) ( 2,856 ) 1,171 Loss on disposal of property and equipment 16 150 — Change in fair value of Series 1 nonconvertible preferred stock ( 73 ) — ( 83 ) Change in operating assets and liabilities: Accounts receivable 1,968 11,704 3,258 Prepaid expenses and other current assets 850 182 743 Income tax receivable ( 995 ) ( 2,286 ) 8,537 Operating lease, right-of-use assets 6,096 4,598 4,776 Other long-term assets 709 ( 107 ) ( 604 ) Accounts payable ( 414 ) ( 1,151 ) ( 4,634 ) Accrued expenses ( 5,646 ) ( 2,558 ) ( 1,477 ) Operating lease liabilities 4,994 ( 2,567 ) ( 3,706 ) Other long-term liabilities ( 432 ) 209 ( 104 ) Net cash used in operating activities ( 78,764 ) ( 103,154 ) ( 84,782 ) Cash flows from investing activities Purchase of marketable securities ( 307,282 ) ( 373,391 ) ( 171,446 ) Proceeds from maturities and sale of marketable securities 383,465 328,871 228,468 Purchase of property and equipment ( 17,948 ) ( 9,058 ) ( 2,125 ) Net cash provided by (used in) investing activities 58,235 ( 53,578 ) 54,897 Cash flows from financing activities Payments on royalty sale liability, net of imputed interest ( 27,479 ) — — Proceeds from the exercise of stock options 147 2,208 21,262 Proceeds from the sale of future royalties — 200,000 — Payments for debt issuance costs — ( 325 ) — Payments for settlement of share-based awards ( 294 ) ( 3,757 ) ( 1,229 ) Net cash provided by (used in) financing activities ( 27,626 ) 198,126 20,033 Net increase (decrease) in cash, cash equivalents and restricted cash ( 48,155 ) 41,394 ( 9,852 ) Cash, cash equivalents and restricted cash at beginning of period 89,356 47,962 57,814 Cash, cash equivalents and restricted cash at end of period $ 41,201 $ 89,356 $ 47,962 Supplemental disclosure of cash flow information Cash paid for taxes $ 241 $ 4,899 $ — Cash paid for interest $ 11,710 $ 1,987 $ — Cash received from tenant improvement allowances $ 9,358 $ 1,994 $ — Supplemental disclosure of noncash information: Purchases of fixed assets included in accounts payable and accrued expenses $ 5,597 $ 424 $ 1,215 Operating lease liabilities arising from obtaining right-of-use assets $ 23,960 $ 3,817 $ 23,910 The accompanying notes are an integral part of these consolidated financial statements. F- 8 ENANTA PHARMACEUTICALS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share data) 1. Nature of the Business Enanta Pharmaceuticals, Inc. (collectively with its subsidiary, the “Company” ), incorporated in Delaware in 1995 , is a biotechnology company that uses its robust, chemistry-driven approach and drug discovery capabilities to discover and develop small molecule drugs with an emphasis on virology and immunology. The Company discovered glecaprevir, the second of two antiviral protease inhibitors discovered and developed through its collaboration with AbbVie for the treatment of chronic infection with 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 has been marketed under the tradenames MAVYRET ® (U.S.) and MAVIRET ® (ex-U.S.) (glecaprevir/pibrentasvir) since 2017. 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 and infrastructure, and extensive compliance reporting capabilities. 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying consolidated financial statements include those of the Company and its subsidiary, Enanta Pharmaceuticals Security Corporation, after elimination of all intercompany accounts and transactions. The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Certain prior period amounts have been reclassified to conform to the current year presentation. Any reference in these notes to applicable guidance is meant to refer to the authoritative GAAP as found in the Accounting Standards Codification 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; liability related to the sale of future royalties; valuation of stock-based awards and the accrual of research and development expenses. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Cash Equivalents and Marketable Securities The Company considers all short-term, highly liquid investments with original maturities of ninety days or less at acquisition date to be cash equivalents. Marketable securities with original maturities of greater than ninety days and remaining maturities of less than one year from the balance sheet date are classified as short-term marketable securities. Marketable securities with remaining maturities of greater than one year from the balance sheet date are classified as long-term marketable securities. The Company classifies all of its marketable securities as available-for-sale. The Company continually evaluates the credit ratings of its investment portfolio and underlying securities. The Company invests in accordance with its investment policy and invests at the date of purchase in securities with a rating of A3/A- or higher according to Moody’s or S&P or A- by Fitch. The Company reports available-for-sale investments at fair value as of each balance sheet date and records any unrealized gains or losses as a component of stockholders’ equity. The cost of securities sold is determined on a specific identification basis and realized gains and losses are included in other income (expense) within the consolidated statements of operations. When the fair value is below the amortized cost of a marketable security, an estimate of expected credit losses is made. The credit-related impairment amount is recognized in the consolidated statements of operations. Credit losses are recognized through the use of an allowance for credit losses account in the consolidated balance sheet and subsequent improvements in expected credit losses are recognized as a reversal of an amount in the allowance account. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security prior to recovery of its amortized cost basis, then the allowance for the credit loss is written-off and the excess of the amortized cost basis of the asset over its fair value is recorded in the consolidated statements of operations. There were no credit losses recorded during the years ended September 30, 2024, 2023, and 2022. F- 9 Restricted Cash As of September 30, 2024 and 2023 , the Company had outstanding letters of credit collateralized by a money market account totaling $ 3,968 , to the benefit of the landlord of the Company’s building leases. A total of $ 608 is classified as short-term restricted cash and $ 3,360 is classified as long-term restricted cash as of September 30, 2024 based on the lease term end date of the Company's facility lease agreements. As of September 30, 2023 , $ 3,968 was classified as long-term restricted cash. Concentration of Credit Risk and of Significant Customers and Suppliers Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, short-term and long-term marketable securities and accounts receivable. The Company has all cash and investment balances at one accredited financial institution, including cash in amounts that exceed federally insured limits. The Company does not believe it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships. The Company has historically generated the majority of its revenue from its collaborative research and license agreements. As of September 30, 2024 and 2023, accounts receivable consisted of amounts due from the Company’s principal collaborator (see Note 7). The Company is completely dependent on third-party manufacturers for product supply for preclinical and clinical research activities. The Company relies and expects to continue to rely exclusively on several manufacturers to supply the Company with its drug supply requirements related to these activities. These research programs would be adversely affected by a significant interruption in the supply from these third-party manufacturers. Fair Value Measurements Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. A fair value hierarchy is based on three levels of inputs that are used to measure fair value, of which the first two levels are considered observable and the last is considered unobservable: • Level 1—Quoted prices in active markets for identical assets or liabilities. • Level 2—Observable inputs (other than Level 1 quoted prices) such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. • Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. The Company’s instruments that are carried at fair value are cash equivalents, short-term and long-term marketable securities and the Series 1 nonconvertible preferred stock. The carrying values of accounts receivable, prepaid and other assets, accounts payable and accrued expenses approximate their fair value due to the short-term nature of these assets and liabilities. Property and Equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation expense is recognized using the straight-line method over the following estimated useful lives: Laboratory and office equipment 5 years Leasehold improvements Shorter of life of lease or estimated useful life Purchased software 3 years Computer equipment 3 years Furniture 7 years Expenditures for repairs and maintenance of assets are charged to expense as incurred. Costs of major additions and betterments are capitalized and depreciated on a straight-line basis over their useful lives. Upon retirement or sale, the cost and related accumulated depreciation of assets disposed are removed from the accounts and any resulting gain or loss is included in other income (expense) in the consolidated statements of operations. Leases The Company accounts for a contract as a lease when it has the right to control the asset for a period of time while obtaining substantially all of the asset’s economic benefits. The Company determines if an arrangement is a lease or contains an embedded lease at inception. For arrangements that meet the definition of a lease, the Company determines the initial classification and measurement F- 10 of its right-of-use asset and lease liability at the lease commencement date and thereafter if modified. The lease term includes any renewal options that the Company is reasonably assured to exercise. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses its estimated secured incremental borrowing rate for that lease term. The Company’s policy is to not record leases with an original term of 12 months or less on its consolidated balance sheets and recognizes those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. In addition to rent, the leases may require the Company to pay additional costs, such as utilities, maintenance and other operating costs, which are generally referred to as non-lease components. The Company has elected to not separate lease and non-lease components. Only the fixed costs for lease components and their associated non-lease components are accounted for as a single lease component and recognized as part of a right-of-use asset and lease liability. Rent expense for operating leases is recognized on a straight-line basis over the reasonably assured lease term based on the total lease payments and is included in operating expense in the consolidated statements of operations. Impairment of Long-Lived Assets The Company reviews long-lived assets, primarily property and equipment and right-of-use assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or economic trends, and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-lived asset to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of an asset are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset over its fair value, determined based on discounted cash flows. To date, the Company has no t recorded any impairment losses on long-lived assets. Liability Related to the Sale of Future Royalties In April 2023, the Company entered into a royalty sale agreement with an affiliate of OMERS, pursuant to which the Company was paid a $ 200,000 cash purchase price in exchange for 54.5 % of the Company’s future quarterly royalty payments on net sales of MAVYRET/MAVIRET. The Company recognized the $ 200,000 received from OMERS as a liability on its consolidated balance sheets because the $200,000 will be paid back to OMERS up to a 1.42 capped amount and the Company has significant continuing involvement under the AbbVie Agreement. Interest expense for the liability related to the sale of future royalties is recognized using the effective interest rate method over the term of the royalty sale agreement. The liability related to the sale of future royalties and related interest expense are based on current estimates of future royalties, which the Company determines by using third-party forecasts of MAVYRET/MAVIRET sales. The Company periodically assesses the forecasted sales and to the extent the amount or timing of future estimated royalty payments is materially different than previous estimates, the Company will account for any such change by adjusting the liability related to the sale of future royalties and prospectively recognizing the related non-cash interest expense. Revenue Recognition The Company’s revenue has been 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. The Company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. The Company receives sales-based royalties for which the license is deemed to be the predominant item to which the royalties relate and thus the Company recognizes sales-based royalties as the underlying sales are earned. Research and Development Costs Included in research and development costs are wages, stock-based compensation and benefits of employees performing research and development, third-party license fees and other operational costs related to the Company’s research and development activities, including facility-related expenses and external costs of outside contractors engaged to conduct both preclinical and clinical studies and manufacture quantities of product for preclinical and clinical studies. The Company expenses the cost of each contract as the work is performed. F- 11 Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred. Advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. The prepaid amounts are expensed as the related goods are delivered or the services are performed. Research and Development and Pharmaceutical Drug Manufacturing Accruals The Company has entered into various contracts with third parties to perform research and development and pharmaceutical drug manufacturing. This includes 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. When billing terms under these contracts do not coincide with the timing of when the work is performed, the Company is required to make estimates of outstanding obligations to those third parties as of period end. The accrual estimates are based on a number of factors, including the Company’s 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. Patent Costs All patent-related costs incurred in connection with filing and prosecuting patent applications are recorded as general and administrative expenses as incurred. Stock-Based Compensation The Company measures all stock options and other stock-based awards granted to employees at fair value on the date of grant. The Company uses the Black-Scholes option-pricing model in the valuation of its stock options. The fair value of restricted stock units with service-based and performance-based vesting is based on the fair value of the stock on the date of grant. The Company uses the Monte-Carlo model to calculate the fair value on the date of grant of market-based awards. The fair value of service-based awards is recognized as stock-based compensation expense over the requisite service period, which is generally the vesting period of the respective award. For awards with graded vesting, the straight-line method of expense recognition is applied to all awards with service-only based conditions. The Company uses the graded-vesting method to record the expense of awards with both service-based and performance-based vesting conditions, commencing once achievement of the performance condition becomes probable. The Company classifies stock-based compensation expense in the consolidated statements of operations in the same manner in which the award recipient’s payroll costs are classified. The Company accounts for stock-based compensation expense related to forfeitures as the forfeitures occur. Income Taxes The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements or in the Company’s tax returns. Deferred taxes are determined based on the difference between the financial reporting and tax basis of assets and liabilities using enacted tax rates in effect in the years in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in income tax expense. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income and, to the extent it believes based upon the weight of available evidence, that it is more likely than not that all or a portion of deferred tax assets will not be realized, a valuation allowance is established through a charge to income tax expense. The realization of deferred tax assets is dependent upon the Company’s ability to generate future taxable income during the periods in which those temporary differences become deductible. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected and considering prudent and feasible tax planning strategies. Uncertain tax positions represent tax positions for which reserves have been established. The Company accounts for uncertainty in income taxes recognized in the consolidated financial statements by applying a two-step process to determine the amount to be recognized. First, the tax position must be evaluated to determine the likelihood that it will be sustained upon external examination by the taxing authorities. If the tax position is deemed more likely than not to be sustained, the tax position is then assessed to determine the amount of benefit to be recognized in the financial statements. The amount that may be recognized is the largest amount that has a greater than 50 % likelihood of being realized upon ultimate settlement. Income tax expense includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties. Net Income (Loss) per Share Basic net income (loss) per common share is computed by dividing the net income (loss) by the weighted average number of shares of common stock outstanding for the period. Diluted net income (loss) per common share is computed by dividing net income (loss) by F- 12 the weighted average number of common shares outstanding for the period, including potential dilutive common shares assuming the dilutive effect of outstanding stock options and unvested restricted stock units. For periods in which the Company reported a net loss, diluted net loss per common share is the same as basic net loss per common share, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported net losses for each of the years ended September 30, 2024, 2023, and 2022 . The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect: Years Ended September 30, 2024 2023 2022 (in thousands) Options to purchase common stock 5,184 4,365 3,993 Unvested rTSRUs 92 81 101 Unvested PSUs 92 81 101 Unvested restricted stock units 428 411 219 Segment Data The Company manages its operations as a single segment for the purposes of assessing performance and making operating decisions. The Company is a biotechnology company focused on discovering and developing small molecule drugs, with an emphasis on treatments for viral infections. Revenue is generated exclusively from transactions occurring with partners located in the United States, and all assets are held in the United States. Comprehensive Income (Loss) Comprehensive income (loss) includes net income (loss) as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders. The Company’s only element of other comprehensive income (loss) is unrealized gains and losses on available-for-sale marketable securities. Going Concern In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40) (“ASU 2014-15”). The Company adopted this standard as of September 30, 2017. The standard requires the Company to assess its ability to continue as a going concern one year beyond the date of filing and, in certain circumstances, provide additional footnote disclosures. Based on a detailed cash forecast incorporating current research and development activities and related spending plans, the Company believes that its current cash, cash equivalents and short-term marketable securities on hand at September 30, 2024 will enable us to fund our operating expenses and capital expenditure requirements for at least the next twelve months beyond the date of issuance of these consolidated financial statements. The amount of capital available will depend on the Company’s management of its existing cash, cash equivalents and short-term marketable securities, as well as the cash flows from our retained portion of future HCV royalties. If the Company should require financing beyond these resources to fund its research and development efforts, it may not be able to obtain financing on acceptable terms, or at all. Recently Issued Accounting Pronouncements In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280) ("ASU 2023-07"), which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. This amendment is effective for the Company in the fiscal year beginning October 1, 2024, and interim periods within the fiscal year beginning October 1, 2025, on a retrospective basis with early adoption permitted. This accounting standard will require additional disclosures about segment information, however, the Company does not expect ASU 2023-07 to have a material impact on the Company’s consolidated financial position or results of operations. In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740) ("ASU 2023-09"), which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. ASU 2023-09 is effective for the Company in the fiscal year beginning October 1, 2025, with early adoption permitted. The Company is currently evaluating the potential impact that ASU 2023-09 may have on its financial statement disclosures. In November 2024, the FASB issued ASU 2024-03, Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40) ("ASU 2024-03"), which requires public entities to provide disaggregated disclosure of income statement expenses. Public entities are required to disaggregate, in a tabular presentation, each relevant expense caption on the face of F- 13 the consolidated statements of operations such as the following expenses: purchases of inventory, employee compensation, intangible asset amortization, and depreciation. ASU 2024-03 is effective for the Company in the fiscal year beginning October 1, 2027, with early adoption permitted. The Company is currently evaluating the potential impact that ASU 2024-03 may have on its financial statement disclosures. 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 September 30, 2024 and 2023 and indicate the fair value hierarchy of the valuation inputs utilized to determine such fair value: Fair Value Measurements at September 30, 2024 Using: Level 1 Level 2 Level 3 Total (in thousands) Assets: Cash equivalents: Money market funds $ 33,448 $ — $ — $ 33,448 Marketable securities: U.S. Treasury notes 210,953 — — 210,953 244,401 — — 244,401 Liabilities: Series 1 nonconvertible preferred stock — — 1,350 1,350 $ — $ — $ 1,350 $ 1,350 Fair Value Measurements at September 30, 2023 Using: Level 1 Level 2 Level 3 Total (in thousands) Assets: Cash equivalents: Money market funds $ 55,357 $ — $ — $ 55,357 U.S. Treasury notes 29,755 — — 29,755 Marketable securities: U.S. Treasury notes 236,782 — — 236,782 Corporate bonds — 26,435 — 26,435 Commercial paper — 21,305 — 21,305 321,894 47,740 — 369,634 Liabilities: Series 1 nonconvertible preferred stock — — 1,423 1,423 $ — $ — $ 1,423 $ 1,423 Cash equivalents as of September 30, 2024 consist of money market funds that are readily convertible to cash and with less than 90 days until maturity. Cash equivalents as of September 30, 2023 consist of money market funds and U.S. treasury notes that are readily convertible to cash and with less than 90 days until maturity. During the years ended September 30, 2024, 2023, and 2022 , there were no transfers between Level 1, Level 2 and Level 3. The fair value of Level 2 instruments classified as marketable securities were determined through third-party pricing services. The pricing services use many observable market inputs to determine value, including reportable trades, benchmark yields, credit spreads, broker/dealer quotes, bids, offers, and current spot rates. The outstanding shares of Series 1 nonconvertible preferred stock as of September 30, 2024 and 2023 are measured at fair value. These outstanding shares are financial instruments that might require a transfer of assets because of the liquidation features in the contract and are therefore recorded as liabilities and measured at fair value. The fair value of the outstanding shares is based on significant inputs not observable in the market, which represent a Level 3 measurement within the fair value hierarchy. The Company utilizes a probability-weighted valuation model, which takes into consideration various outcomes that may require the Company to transfer assets upon liquidation. Changes in the fair values of the Series 1 nonconvertible preferred stock are recognized in other income (expense) in the consolidated statements of operations. F- 14 The recurring Level 3 fair value measurements of the Company’s outstanding Series 1 nonconvertible preferred stock using probability-weighted discounted cash flow include the following significant unobservable inputs: Series 1 nonconvertible preferred stock Range September 30, Unobservable Input 2024 2023 Probabilities of payout 0 %- 65 % 0 %- 65 % Discount rate 9.00 % 7.25 % The following table provides a rollforward of the aggregate fair value of the Company’s outstanding Series 1 nonconvertible preferred stock for which fair value is determined by Level 3 inputs: Series 1 Nonconvertible Preferred Stock (in thousands) Balance, September 30, 2021 $ 1,506 Change in fair value ( 83 ) Balance, September 30, 2022 1,423 Change in fair value — Balance, September 30, 2023 1,423 Change in fair value ( 73 ) Balance, September 30, 2024 $ 1,350 In April 2023, the Company entered into a royalty sale agreement with an affiliate of OMERS, pursuant to which the Company was paid a $ 200,000 cash purchase price in exchange for 54.5 % of future quarterly royalty payments on net sales of MAVYRET/MAVIRET, after June 30, 2023, through June 30, 2032, subject to a cap on aggregate payments equal to 1.42 times the purchase price. The Company accounted for the upfront payment as a liability related to the sale of future royalties. The carrying value of the liability related to the sale of future royalties approximates fair value as of September 30, 2024 and 2023 and is based on current estimates of future royalties expected to be paid to OMERS over the next 10 years, which are considered Level 3 inputs. See Note 8 for a rollforward of the liability. 4. Marketable Securities As of September 30, 2024 and 2023, the fair value of available-for-sale marketable securities, by type of security, was as follows: September 30, 2024 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Credit Losses Fair Value (in thousands) U.S. Treasury notes 210,267 686 — — 210,953 $ 210,267 $ 686 $ — $ — $ 210,953 September 30, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Credit Losses Fair Value (in thousands) Corporate bonds $ 27,127 $ — $ ( 692 ) $ — $ 26,435 Commercial paper 21,305 — — — 21,305 U.S. Treasury notes 236,880 12 ( 110 ) — 236,782 $ 285,312 $ 12 $ ( 802 ) $ — $ 284,522 As of September 30, 2024 and 2023 marketable securities consisted of investments that mature within one year . F- 15 5. Property and Equipment, Net Property and equipment, net consisted of the following as of September 30, 2024 and 2023: September 30, 2024 2023 (in thousands) Laboratory and office equipment $ 15,701 $ 15,891 Leasehold improvements 13,975 13,804 Purchased software 1,093 1,444 Furniture 3,117 2,290 Computer equipment 1,101 962 Construction in progress 22,748 1,273 57,735 35,664 Less: Accumulated depreciation and amortization ( 25,047 ) ( 23,745 ) $ 32,688 $ 11,919 As of September 30, 2024, construction in progress related primarily to leasehold improvements for the new laboratory and office space located at 4 Kingsbury Avenue in Watertown, Massachusetts. Depreciation and amortization expense for property and equipment, was $ 2,336 , $ 2,371 and $ 2,973 for the years ended September 30, 2024, 2023, and 2022 , respectively. 6. Accrued Expenses and Other Current Liabilities Accrued expenses and other current liabilities consisted of the following as of September 30, 2024 and 2023: September 30, 2024 2023 (in thousands) Accrued payroll and related expenses $ 6,570 $ 7,037 Accrued research and development expenses 3,087 6,120 Accrued professional fees 1,332 1,632 Accrued pharmaceutical drug manufacturing 930 3,083 Accrued other 1,628 467 $ 13,547 $ 18,339 7. Collaboration Agreements AbbVie Collaboration The Company has a Collaborative Development and License Agreement (as amended, the “AbbVie Agreement”), with AbbVie to identify, develop and commercialize HCV NS3 and NS3/4A protease inhibitor compounds, including paritaprevir and glecaprevir, under which the Company has received license payments, proceeds from a sale of preferred stock, research funding payments, milestone payments and royalties totaling approximately $ 1,320,000 through September 30, 2024. Since the Company satisfied all of its performance obligations under the AbbVie Agreement by the end of fiscal 2011, all milestone payments received since then have been recognized as revenue when the milestones were achieved by AbbVie. The Company is receiving annually tiered royalties per Company protease product ranging from ten percent up to twenty percent, or on a blended basis from ten percent up to the high teens, on the portion of AbbVie’s calendar year net sales of each HCV regimen that is allocated to the protease inhibitor in the regimen. Beginning with each January 1, the cumulative net sales of a given royalty-bearing protease inhibitor product start at zero for purposes of calculating the tiered royalties on a product-by-product basis. The following table details the royalty tiers associated with cumulative calendar year net sales allocated to each royalty-bearing product as provided in the AbbVie Agreement: Calendar Year Net Sales Royalty Tier (in thousands) (%) up to $ 500,000 10 % from $ 500,000 up to $ 750,000 12 % from $ 750,000 up to $ 1,000,000 14 % from $ 1,000,000 up to $ 2,500,000 17 % greater than or equal to $ 2,500,000 20 % F- 16 Royalties owed to the Company under the agreement can be reduced by AbbVie in certain circumstances, including (i) if AbbVie exercises its right to license or otherwise acquire rights to intellectual property controlled by a third party where a product could not be legally developed or commercialized in a country without the third-party intellectual property right, (ii) where a product developed under the collaboration agreement is sold in a country and not covered by a valid patent claim in such country, and (iii) where sales of a generic product are equal to at least a specified percentage of AbbVie’s market share of its product in a country. AbbVie’s obligation to pay royalties on a product developed under the agreement expires on a country-by-country basis upon the later of (i) the date of expiration of the last of the licensed patents with a valid claim covering the product in the applicable country, or (ii) ten years after the first commercial sale of the product in the applicable country. Subject to certain exceptions, a party’s rights and obligations under the agreement continue until (i) such time as AbbVie is no longer developing a product candidate or (ii) if, as of the time AbbVie is no longer developing any product candidates, AbbVie is commercializing any other protease inhibitor product, such time as all royalty terms for all covered products have ended. Accordingly, the final expiration date of the agreement is currently indeterminable. Either party may terminate the agreement for cause in the event of a material breach, subject to prior notice and the opportunity to cure, or in the event of the other party’s bankruptcy. Additionally, AbbVie may terminate the agreement for any reason upon specified prior notice. If the Company terminates the agreement for cause or AbbVie terminates without cause, any licenses and other rights granted to AbbVie will terminate and AbbVie will be deemed to have granted the Company (i) a non-exclusive, perpetual, fully-paid, worldwide, royalty-free license, with the right to sublicense, under AbbVie’s intellectual property used in any product candidate, and (ii) an exclusive (even as to AbbVie), perpetual, fully-paid, worldwide, royalty-free license, with the right to sublicense, under AbbVie’s interest in any joint intellectual property rights to develop product candidates resulting from covered compounds and to commercialize any products derived from such compounds. Upon the Company’s request, AbbVie will also transfer to the Company all right, title and interest in any related product trademarks, regulatory filings and clinical trials. If AbbVie terminates the agreement for the Company’s uncured breach, the milestone and royalty payments payable by AbbVie may be reduced, the licenses granted to AbbVie will remain in place, the Company will be deemed to have granted AbbVie an exclusive license under the Company’s interest in joint intellectual property, AbbVie will continue to have the right to commercialize any covered products, and all rights and licenses granted to the Company by AbbVie will terminate. 8. Liability Related to the Sale of Future Royalties In April 2023, the Company entered into a royalty sale agreement with an affiliate of OMERS, pursuant to which the Company was paid a $ 200,000 cash purchase price in exchange for 54.5 % of future quarterly royalty payments on net sales of MAVYRET/MAVIRET, after June 30, 2023, through June 30, 2032, subject to a cap on aggregate payments equal to 1.42 times the purchase price. Because the royalty sale agreement will be paid back to OMERS up to a capped amount as well as the Company’s significant continuing involvement in the generation of future cash flows under its AbbVie Agreement, the Company recorded the proceeds from the transaction as a liability on its consolidated balance sheets which will be amortized as interest expense in the consolidated statements of operations under the effective interest rate method over the life of the royalty sale agreement. The Company will continue to record the full amount of royalties earned on MAVYRET/MAVIRET sales as royalty revenue in the consolidated statements of operations. The Company’s liability related to the sale of future royalties is estimated based on forecasted worldwide MAVYRET/MAVYRET royalties to be paid to OMERS over the course of the royalty sale agreement. This estimate requires significant judgment, including the amount and timing of royalty payments up until the end of the royalty sale agreement, which is estimated to be the stated term of June 30, 2032. As royalties are earned by OMERS, the liability is reduced on the Company’s consolidated balance sheets. At September 30, 2024 , the estimated future cash flows resulted in an effective annual imputed interest rate of approximately 6.87 %. The following table summarizes the activity of the liability related to the sale of future royalties: F- 17 Liability related to the sale of future royalties (in thousands) Balance - September 30, 2022 $ — Proceeds from sale of future royalties 200,000 Debt issuance cost ( 325 ) Royalty payable to royalty purchaser ( 10,318 ) Interest expense, net of capitalized interest of $ 0 5,148 Balance - September 30, 2023 $ 194,505 Royalty payable to purchaser ( 7,960 ) Payments on royalty sale liability ( 28,916 ) Interest expense, net of capitalized interest of $ 672 11,612 Balance - September 30, 2024 $ 169,241 9. Stockholders’ Equity The Company is authorized to issue 100,000 shares of common stock at a par value of $ 0.01 per share. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company’s stockholders . Common stockholders are entitled to receive such dividends as may be declared by the board of directors, if any. The Company also is authorized to issue 5,000 shares of preferred stock at a par value of $ 0.01 per share, of which 2,000 shares are designated as Series 1 Nonconvertible preferred stock and 3,000 shares are undesignated and unissued. 10. Series 1 Nonconvertible Preferred Stock The Company’s Certificate of Incorporation authorizes the issuance of up to 2,000 shares of Series 1 nonconvertible preferred stock at a par value of $ 0.01 per share. Holders of Series 1 nonconvertible preferred stock are not entitled to receive dividends. In the event of any liquidation, deemed liquidation, dissolution or winding up of the Company, the Series 1 nonconvertible preferred stockholders are entitled to receive in preference to all other stockholders, an amount equal to $ 1.00 per share, adjusted for any stock dividends, stock splits or reclassifications. Series 1 nonconvertible preferred stockholders will not be entitled to vote unless required by the Company pursuant to the laws of the State of Delaware. The Company may redeem the Series 1 nonconvertible preferred stock with the approval of the holders of a majority of the outstanding shares of Series 1 nonconvertible preferred stock at a redemption price of $ 1.00 per share. The Company must redeem the stock within 60 days of such election. Shares that are redeemed will be retired or canceled and not reissued by the Company. As these shares qualify as a derivative, they are classified as a liability on the Company’s consolidated balance sheet. As of September 30, 2024 and 2023 , 1,930 shares of Series 1 nonconvertible preferred stock were issued and outstanding. For the years ended September 30, 2024, 2023, and 2022 , the remeasurement of the Series 1 nonconvertible preferred stock resulted in non-cash gain of $ 73 , $ 0 and $ 83 , respectively, which was recorded in other income (expense) in the consolidated statements of operations. The total fair value of the Series 1 nonconvertible preferred stock was $ 1,350 and $ 1,423 as of September 30, 2024 and 2023 , respectively. 11. Stock-Based Awards The Company grants stock-based awards, including stock options, restricted stock units and other unit awards under its 2019 Equity Incentive Plan (the “2019 Plan”), which was approved by its stockholders on February 28, 2019 and amended in March 2021, March 2022, and March 2023 and its 2024 Inducement Stock Incentive Plan (“2024 Inducement Plan”). The Company also has outstanding stock option awards under its 2012 Equity Incentive Plan (the “2012 Plan”), but is no longer granting awards under this plan. The Company’s 2019 Plan permits the Company to sell or issue awards of common stock or restricted common stock or to grant awards of incentive stock options or nonqualified stock options for the purchase of common stock, restricted stock units, performance units, stock appreciation rights or other cash incentive awards, to employees, members of the board of directors and consultants of the Company. The number of shares of common stock that may be issued under the 2019 Plan is subject to increase by the number of shares forfeited under any options forfeited and not exercised under the 2019 Plan or any predecessor plans such as the 2012 Plan. Pursuant to the Company's 2024 Inducement Plan, the Company may grant non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based awards to persons who (i) were not previously an employee or director of the Company or (ii) are commencing employment with the Company following a bona fide period of non-employment, in either case as an inducement material to the individual’s entering into employment with the Company and in accordance with the requirements of Nasdaq Stock Market Rule 5635(c)(4). As of September 30, 2024 , 1,978 shares remained available for future awards under the 2019 Plan and 2024 Inducement Plan. Options granted to employees under the 2019 Plan and the 2024 Inducement Plan generally vest over four years and to non-employee directors over one year , and expire after ten years . As required under the equity plans, the exercise price for awards granted is not to F- 18 be less than the fair value of common shares on the date of grant. Restricted stock units with service-based vesting conditions generally vest over four years . Stock Option Valuation The fair value of each stock option award is determined on the date of grant using the Black-Scholes option-pricing model. The volatility has been determined using the Company’s traded stock price to estimate expected volatility. The expected term of the Company’s options has historically 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. The expected dividend yield is zero due to 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 awards are as follows, presented on a weighted average basis: Years Ended September 30, 2024 2023 2022 Risk-free interest rate 4.45 % 3.88 % 1.72 % Expected term (in years) 6.01 6.04 6.04 Expected volatility 52 % 48 % 47 % Expected dividends 0 % 0 % 0 % Weighted average grant date fair value $ 5.43 $ 22.71 $ 33.22 The following table summarizes stock option activity, including aggregate intrinsic value for the year ended September 30, 2024: Shares Issuable Under Options Weighted Average Exercise Price Weighted Average Remaining Contractual Term in years Aggregate Intrinsic Value (in thousands) (in thousands) Outstanding as of September 30, 2023 4,365 $ 52.68 5.9 $ — Granted 1,365 9.99 Exercised ( 16 ) 8.99 Forfeited ( 530 ) 42.05 Outstanding as of September 30, 2024 5,184 $ 42.67 6.3 $ 1,416 Options vested and expected to vest as of September 30, 2024 5,184 $ 42.67 6.3 $ 1,416 Options exercisable as of September 30, 2024 3,482 $ 50.73 5.1 $ 250 The aggregate intrinsic value of options is calculated as the difference between the exercise price of the options and the fair value of the Company’s common stock. The following tables summarize additional exercise and grant date information: Years Ended September 30, 2024 2023 2022 (in thousands) Aggregate intrinsic value of stock options exercised $ 93 $ 3,295 $ 17,650 Proceeds to Company from stock options exercised $ 147 $ 2,208 $ 21,262 Market and Performance-Based Stock Unit Awards The Company awards both performance share units (“PSUs”) and relative total stockholder return units (“rTSRUs”) to its executive officers. The PSUs vest and result in issuance, or settlement, of common shares for each recipient, based upon the recipient’s continued employment with the Company through the settlement date of the award and the Company’s achievement of specified research and development milestones. The requisite service period of the PSUs is generally two years. The fair value of PSUs is based on the fair value of the stock on the date of grant, which is determined to be the closing price of the Company's common stock. Stock-based compensation expense for PSUs is recorded in the statements of operations over the service period, commencing when it is probable that the specified research and development milestone is achieved. The rTSRUs vest and result in the issuance of common stock based upon the recipient’s continuing employment with the Company through the settlement date of the award and the relative ranking of the total stockholder return, or TSR, of the Company’s common stock in relation to the TSR of the component companies in the NASDAQ Biotech Index over two specified periods that are two years apart, based on a comparison of average closing stock prices in specified periods noted in the award agreement. The number of F- 19 market-based rTSRUs awarded represents the target number of shares of common stock that may be earned; however, the actual number of shares that may be earned ranges from 0 % to 150 % of the target number, depending on the award agreement and the year of the award. The Company used a Monte Carlo model to estimate the grant-date fair value of the rTSRUs. Stock-based compensation expense for rTSRUs is recorded in the statements of operations over the service period regardless of whether the market condition is achieved. Assumptions and estimates utilized in the calculation of the fair value of the rTSRUs include the risk-free interest rate, dividend yield, expected volatility based on the historical volatility of publicly traded peer companies and the remaining performance period of the award. The table below sets forth the weighted average grant date fair value assumptions used to value the rTSRUs: Years Ended September 30, 2024 2023 2022 Risk-free interest rate 4.40 % 4.19 % 0.94 % Dividend yield 0 % 0 % 0 % Expected volatility 74 % 77 % 80 % Performance period (years) 2.00 2.03 1.97 The following table summarizes PSU and rTSRU activity (at target) for the year ended September 30, 2024: PSUs rTSRUs Shares Weighted Average Grant Date Fair Value per Share Shares Weighted Average Grant Date Fair Value per Share (in thousands, except per share data) Unvested at September 30, 2023 81 $ 58.58 81 $ 45.82 Granted 55 9.69 52 10.48 Vested ( 25 ) 68.67 — — Cancelled ( 19 ) 51.14 ( 41 ) 47.25 Unvested at September 30, 2024 92 $ 27.98 92 $ 25.09 The total fair value of PSUs and rTSRUs vested during the years ended September 30, 2024, 2023, and 2022 were $ 307 , $ 8,103 , and $ 1,414 , respectively. Restricted Stock Units The following table summarizes the restricted stock unit activity for the year ending September 30, 2024: Restricted Stock Units Weighted Average Grant Date Fair Value per Share (in thousands, except per share data) Unvested at September 30, 2023 411 $ 51.78 Granted 175 9.27 Vested ( 122 ) 52.54 Cancelled ( 36 ) 25.03 Unvested at September 30, 2024 428 $ 36.37 The total fair value of restricted stock units vested during the years ended September 30, 2024, 2023, and 2022 were $ 1,228 , $ 2,590 , and $ 2,427 , respectively. F- 20 Stock-Based Compensation Expense The Company recorded the following stock-based compensation expense for the years ended September 30, 2024, 2023, and 2022: Years Ended September 30, 2024 2023 2022 (in thousands) Research and development $ 7,389 $ 9,551 $ 9,728 General and administrative 19,406 18,665 17,241 $ 26,795 $ 28,216 $ 26,969 Years Ended September 30, 2024 2023 2022 (in thousands) Stock options $ 15,342 $ 19,784 $ 19,615 rTSRUs 1,243 1,893 1,597 PSUs 4,087 542 2,628 Restricted stock units 6,123 5,997 3,129 $ 26,795 $ 28,216 $ 26,969 As of September 30, 2024, the Company had an aggregate of $ 31,039 of unrecognized stock-based compensation cost, which is expected to be recognized over a weighted average period of 2.0 years. 12. Leases The Company has three real estate leases for properties located in Watertown, Massachusetts. The first lease, for office and laboratory space at 500 Arsenal Street, the second lease, is for office space located at 400 Talcott Avenue and the third lease for office and laboratory space is located at 4 Kingsbury Avenue. Lease payments for the Company's real estate leases include fixed lease payments that escalate over the terms of the leases and require the Company to pay certain operating expenses based on actual costs incurred. Operating expenses that are not fixed in nature are expensed in the period incurred and included in variable lease costs. The leases do not include any restrictions or covenants that had to be accounted for under the lease guidance. In May 2022, the Company entered into its lease agreement for 4 Kingsbury Avenue with its existing landlord, adjacent to its 400 Talcott Avenue premises. Construction of the facility shell was completed by the landlord and the Company gained access to the building to construct tenant improvements during the three months ended March 31, 2024. The estimated minimum lease payments for the 4 Kingsbury Avenue facility total $ 76,470 over the ten-year term. The lease also contains a tenant improvement allowance of $ 15,205 . The Company recorded a right-of-use asset of $ 32,499 and lease liability of $ 31,939 upon commencement of the lease during the year ended September 30, 2024. The Company moved its lab operations from 500 Arsenal Street into the newly constructed 4 Kingsbury Avenue facility in November 2024. In conjunction with the new lease agreement at 4 Kingsbury Avenue, the Company amended its 500 Arsenal Street lease to shorten the term of the lease from September 2027 to November 2024. The Company remeasured the lease term and remaining lease payments for the 500 Arsenal Street facility during the year ended September 30, 2024 when the Company gained access to the 4 Kingsbury Avenue facility. The Company recorded an adjustment to the right-of-use asset and lease liability for 500 Arsenal Street of $ 9,322 during the year ended September 30, 2024. The Company leases units of equipment over eighteen-month lease periods commencing upon shipment of each unit. The lease agreements contain options to terminate the leases early or to extend the leases for successive six-month periods , however these options were not included in the right-of-use assets and lease liability as they were not reasonably certain of being exercised. The equipment leases require the Company to pay for certain consumable and peripheral equipment supplies based on actual costs incurred. As these costs are not fixed in nature, they are expensed in the period incurred and included in variable lease costs. The components of lease expense for the Company’s real estate and equipment leases were as follows: Years Ended September 30, 2024 2023 2022 (in thousands) Operating lease cost $ 10,574 $ 6,230 $ 6,294 Variable lease cost 4,720 5,352 2,375 $ 15,294 $ 11,582 $ 8,669 F- 21 Supplemental disclosure of cash flow information related to the Company's operating leases included in cash flows used in operating activities in the consolidated statements of cash flows were as follows: Years Ended September 30, 2024 2023 2022 (in thousands) Cash paid for amounts included in the measurement of operating lease liabilities $ 8,283 $ 6,586 $ 4,966 Tenant improvement allowance received $ 9,358 $ 1,994 $ — Operating lease liabilities arising from obtaining right-of-use assets $ 23,960 $ 3,817 $ 23,910 The weighted-average remaining lease term and discount rate were as follows: September 30, 2024 2023 Weighted-average remaining lease term - operating leases (in years) 9.8 6.5 Weighted-average discount rate - operating leases 8.8 % 7.2 % As the Company’s leases do not provide an implicit rate, the Company utilized its incremental borrowing rate based on information available at the lease commencement date, which represents an internally developed rate that would be incurred to borrow, on a collateralized basis, over a similar term, an amount equal to the lease payments in a similar economic environment. Future annual minimum lease payments relating to the Company's lease liabilities as of September 30, 2024 were as follows: Years ended September 30, (in thousands) 2025 8,701 2026 8,467 2027 8,721 2028 8,983 2029 9,252 Thereafter 50,595 Total future minimum lease payments 94,719 Less: imputed interest ( 33,003 ) Less: tenant improvement allowance ( 6,249 ) Total operating lease liabilities $ 55,467 September 30, Included in the balance sheet: 2024 2023 (in thousands) Current operating lease liabilities $ 1,524 $ 5,275 Operating lease liabilities, net of current portion 53,943 21,238 Total operating lease liabilities $ 55,467 $ 26,513 The Company is required to maintain security deposits of $ 92 in connection with the real estate lease of 400 Talcott Avenue, which is included in other long-term assets on the Company's consolidated balance sheets. In addition, the Company is required to maintain letters of credit for certain of its leases, collateralized by money market accounts of $ 3,968 , which amounts are classified as short-term and long-term restricted cash on the consolidated balance sheets. 13. Commitments and Contingencies Litigation and Contingencies Related to Use of Intellectual Property From time to time, the Company may become subject to legal proceedings, claims and litigation arising in the ordinary course of business. Except as described below, 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 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, would 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 made and such expenditures can be reasonably estimated. F- 22 In June 2022, the Company announced that it filed suit in the United States District Court for the District of Massachusetts on June 21, 2022, against Pfizer, Inc. seeking damages for infringement of U.S. Patent No. 11,358,953 (the ’953 Patent) in the manufacture, use and sale of Pfizer’s COVID-19 antiviral, Paxlovid ™ (nirmatrelvir tablets; ritonavir tablets). The United States Patent and Trademark Office awarded the '953 Patent to the Company in June 2022 based on the Company's July 2020 patent application describing coronavirus protease inhibitors invented by the Company. The Company is seeking fair compensation for Pfizer’s use of a coronavirus protease inhibitor claimed in the ‘953 patent. On May 28, 2024, the Company and Pfizer each filed motions for summary judgment and a hearing on the motions was held on July 31, 2024. The timing for a ruling on each of the motions for summary judgment is currently uncertain. The Company records all legal expenses associated with the patent infringement suit as incurred in the consolidated statements of operations. 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 or from services to be provided to 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 and its executive officers 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. 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. In addition, the Company maintains directors’ and officers’ insurance coverage. 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 has not accrued any liabilities related to such obligations in its consolidated financial statements as of September 30, 2024 and 2023 . 14. Income Taxes Income before income taxes for all periods presented is from domestic operations, which are the Company’s only operations. During the years ended September 30, 2024, 2023, and 2022, the Company recorded income tax benefit (expense) as follows: Years Ended September 30, 2024 2023 2022 (in thousands) Current income tax (expense) benefit: Federal $ 1,936 $ ( 2,522 ) $ — State ( 193 ) ( 299 ) 449 Deferred income tax (expense) benefit: Federal — — ( 16 ) State — — — Income tax (expense) benefit $ 1,743 $ ( 2,821 ) $ 433 A reconciliation of the U.S. federal statutory income tax rate to the Company’s effective tax rate is as follows: Years Ended September 30, 2024 2023 2022 Federal statutory income tax rate ( 21.0 ) % ( 21.0 ) % ( 21.0 ) % State taxes, net of federal benefit ( 2.7 ) ( 2.7 ) ( 2.9 ) Change in valuation allowance 10.6 36.6 30.8 Federal research and development tax credit ( 2.2 ) ( 4.6 ) ( 4.6 ) Share-based compensation 5.0 2.2 ( 0.8 ) State research and development tax credit ( 0.7 ) ( 0.9 ) ( 1.5 ) Foreign derived intangible income — ( 7.0 ) — Interest on net operating loss carryback claim ( 1.2 ) ( 0.8 ) — Change in deferred tax rate 10.6 ( 0.1 ) ( 0.1 ) Other 0.1 0.5 ( 0.3 ) Effective income tax rate ( 1.5 ) % 2.2 % ( 0.4 ) % The effective tax rates during the years ended September 30, 2024 and 2023 differ from the U.S. federal statutory rate primarily due to the full valuation allowance maintained on the Company’s net deferred tax assets. Changes in the valuation allowance for deferred tax assets during the years ended September 30, 2024, 2023, and 2022 are as follows: F- 23 Years Ended September 30, 2024 2023 2022 (in thousands) Valuation allowance, beginning of year $ ( 115,120 ) $ ( 67,726 ) $ ( 29,298 ) Increase recorded to valuation allowance ( 12,124 ) ( 47,394 ) ( 38,428 ) Valuation allowance, end of year $ ( 127,244 ) $ ( 115,120 ) $ ( 67,726 ) Net deferred tax assets as of September 30, 2024 and 2023 consisted of the following: September 30, 2024 2023 (in thousands) Deferred tax assets: Capitalized research and development $ 49,921 $ 34,855 Liability related to the sale of future royalties 36,200 46,560 Tax credit carryforwards 18,793 15,549 Share-based compensation 14,551 16,974 Operating lease liability 13,058 6,485 Net operating loss carryforward 7,274 43 Accrued compensation 1,387 1,318 Accrued expenses 50 495 Unrealized loss — 189 Other temporary differences 161 214 Total deferred tax assets 141,395 122,682 Valuation allowance ( 127,244 ) ( 115,120 ) Net deferred tax assets 14,151 7,562 Deferred tax liabilities: Operating lease, right-of-use assets ( 8,627 ) ( 1,525 ) Depreciation ( 4,362 ) ( 5,456 ) Prepaid expenses ( 999 ) ( 581 ) Unrealized gain ( 163 ) — Total deferred tax liabilities ( 14,151 ) ( 7,562 ) Net deferred income tax assets (liabilities) $ — $ — As of September 30, 2024 , the Company had federal net operating loss carryforwards of $ 28,679 which do not expire and state net operating loss carryforwards of $ 19,840 , which may be available to offset future taxable income and expire at various dates beginning in 2032 . As of September 30, 2024 , the Company also had federal and state research and development tax credit carryforwards of $ 13,909 and $ 6,866 , respectively, which may be available to reduce future tax liabilities and expire at various dates beginning in 2042 and 2035 , respe ctively. Utilization of the federal and state net operating loss carryforwards and research and development tax credit carryforwards may be subject to a substantial annual limitation under Sections 382 and 383 of the Internal Revenue Code (“IRC”) of 1986, and corresponding provisions of state law, due to ownership changes that may have occurred pre viously or that could occur in the future. These ownership changes may limit the amount of net operating loss and research and development tax credit carryforwards that can be utilized annually to offset future tax liabilities. In general, an ownership change, as defined by Section 382, results from transactions that increase the ownership of 5 % stockholders in the stock of a corporation by more than 50 % in the aggregate over a three-year period. The Company completed a review of the changes in ownership through September 30, 2022 and determined that the transactions have not resulted in an ownership change during the year ended September 30, 2022, as defined by Section 382. The impact of the historical ownership changes have been reflected within our deferred tax assets shown in the table above. Although the Company believes that these ownership changes have not resulted in material limitations on its ability to use these net operating losses and credit carryforwards , its ability to utilize these and future net operating losses and credit carryforwards may be limited due to future ownership changes or for other reasons. As a result, the Company may not be able to take full advantage of its carryforwards for U.S. federal and state tax purposes. F- 24 The Company has evaluated the positive and negative evidence bearing upon its ability to realize the deferred tax assets, which are comprised primarily of net operating loss carryforwards, research and development tax credit carryforwards and stock compensation expense. The Company considers it more likely that it will not have sufficient taxable income in the future that will allow it to realize all of its existing deferred tax assets. This is due to the fact the Company continues to progress its wholly-owned research and development programs and its declining royalty revenues from its Collaboration Agreement with AbbVie. As a result, the Company continued to record a valuation allowance as of September 30, 2024 against its deferred tax assets to reduce a portion of the Company’s deferred tax assets for which the Company does not believe it is more likely than not these will be realized. The Company files tax returns as prescribed by the tax laws of the jurisdictions in which it operates. In the normal course of business, the Company is subject to examination by federal and state jurisdictions, where applicable. The Company’s tax years in the U.S. are still open under statute from 2020 to the present. Earlier years may be examined to the extent that tax credit or net operating loss carryforwards are used in future periods. During the year ended September 30, 2024, the Company received notice of examination by the Internal Revenue Service (“IRS”) for the years ending September 30, 2018 and September 30, 2019. The Company received and agreed to a notice of proposed adjustment from the IRS in October 2024, resulting in an additional refund of $ 871 related to the year ended September 30, 2019. The Company has not received notice of examination by any other jurisdictions for any other tax year open under statute. Beginning in October 1, 2022, the Tax Cuts and Jobs Act of 2017 (the “Tax Act”) eliminated the Company’s option to deduct research and development expenditures currently and requires taxpayers to amortize them over five years for domestic research expenditures and over fifteen years for foreign research expenditures, pursuant to IRC 174. The most significant impact of this provision is an increase to the current taxable income for the year ended September 30, 2023, the tax year in which the provision took effect for the Company. In response to the COVID-19 pandemic, the CARES Act was signed into law in March 2020. The CARES Act lifted certain deduction limitations originally imposed by the Tax Act. Under the CARES Act, the Company was permitted to carryback net operating losses for up to five years for losses generated in fiscal 2018 through fiscal 2021. Net operating loss carrybacks were previously prohibited under the Tax Act. The CARES Act also eliminated the 80% of taxable income limitations by allowing corporate entities to fully utilize net operating loss carryforwards to offset taxable income in fiscal years 2018, 2019 or 2020. In addition, the CARES Act made qualified improvement property eligible for 15-year cost-recovery and 100% bonus depreciation. The enactment of the CARES Act resulted in a $ 28,721 income tax benefit related to a federal net operating loss carryback at the previously enacted 35 % rate in the Company’s consolidated financial statements during the year ended September 30, 2021. As of September 30, 2024 and 2023 , the Company had an income tax receivable of $ 31,999 and $ 31,004 , respectively, which includes interest receivable of $ 3,292 as of September 30, 2024. Uncertain tax positions represent tax positions for which reserves have been established. The Company’s policy is to record interest and penalties related to uncertain tax positions as part of income tax expense. Total interest related to uncertain tax positions recorded as a liability on the Company’s consolidated balance sheets were $ 11 and $ 3 as of September 30, 2024 and 2023 , respectively. A reconciliation of the beginning and ending amount of uncertain tax positions is summarized as follows: September 30, 2024 2023 (in thousands) Beginning Balance $ 1,056 $ 226 Additions based on tax positions for the current period — 882 Reductions for tax positions due to lapse of statute of limitations ( 11 ) ( 156 ) Additions (reductions) for tax positions of prior periods ( 140 ) 104 Ending Balance $ 905 $ 1,056 The Company does not expect that its uncertain tax position will materially change within the next twelve months. 15. 401(k) Plan The Company has a 401(k) plan. This plan covers substantially all employees who meet minimum age and service requirements. During the years ended September 30, 2024, 2023, and 2022, the Company recognized $ 1,697 , $ 1,784 , and $ 1,596 , respectively, of expense related to its contributions to this plan. F- 25