Biotech Values

[DewDiligence]

What’s wrong with ENTA?

ENTA has been selling off hard. The reason, IMO, is that FY2Q20 (calendar 1Q20) sales and earnings are going to be awful.

First, the royalty rate ENTA receives from ABBV on global Mavyret sales drops back to the 10% lowest tier at the beginning of each calendar year and has to work its way back to the higher tiers as the year progresses. By comparison, in ENTA’s FY1Q20 (calendar 4Q19), the Mavyret royalty rate was at the second-highest tier of 17%. (See #msg-142808661 for the royalty-rate schedule that applies each calendar year.)

Moreover, ABBV's Mavyret sales to new patients presumably fell sharply in March, when people started deferring non-essential doctor visits. For anyone who has been living with HCV for a number of years (or decades) and has been putting off treatment, the COVID-19 pandemic is a reason to continue putting it off a while longer.

Nevertheless, I continue to like ENTA’s RSV and HBV programs, and I still think ENTA is a strong buyout candidate. I haven’t sold any shares.

p.s. ABBV reports 1Q20 Mavyret sales tomorrow, before the open.