ENANTA PHARMACEUTICALS INC

For the three months ended March 31, 2019 and 2018, the Company recorded an income tax benefit of $3,204 and income tax (expense) of ($5,370) respectively, both of which were attributable to the Company’s domestic operations. During the three months ended March 31, 2019, the Company recorded an income tax benefit, despite its pre-tax income, due to tax deductions for employee stock award-related activity during the quarter. For the six months ended March 31, 2019 and 2018, the Company recorded income tax (expense) of ($526) and ($9,014), respectively, representing effective tax rates of 1.7% and 27.1%, respectively. The effective tax rate for the six months ended March 31, 2019 differs from the federal statutory rate of 21.0% due to federal research and development tax

^{We recognized revenue of $39.6 million during the three months ended March 31, 2019 as compared to $44.0 million during the three months ended March 31, 2018. HCV net sales decreased in the three months ended March 31, 2019 as compared to the same period in 2018 due to lower international HCV net sales. Overall, the lower net sales reported thus far in the 2019 period are consistent with AbbVie’s full calendar year HCV sales guidance of $3.3 billion as compared to the reported full calendar year 2018 HCV sales of $3.6 billion. The royalty rate is lowest during the three months ended March 31st} because the calculation of royalties earned starts at the lowest royalty tier at the beginning of each calendar year.

AbbVie’s MAVYRET/MAVIRET regimen continues to be the leading HCV treatment in the U.S. and several market geographies in developed countries where it is approved even though in the U.S. it is priced well below the pricing of AbbVie’s first HCV regimens, and below that of its principal competitor, Gilead. While commercialization of this regimen is exclusively in AbbVie’s control without any required input from us, we believe it is possible that prices will decline further due to payers obtaining additional discounts or competitive market dynamics.  For example, the states of Louisiana and Washington have each announced efforts to negotiate a blanket price for one of the HCV drug companies to treat all patients in one or more state programs. Gilead was awarded the contract in Louisiana and AbbVie was awarded the contract in Washington. It is unknown whether these programs or other programs that states may adopt could have an impact on MAVYRET/MAVIRET sales. There may also be fluctuations in AbbVie’s market share over time due to these and other competitive actions by Gilead.

The regulations that govern marketing approvals, pricing and reimbursement for new drug products vary widely from country to country. In the United States, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, collectively referred to as the ACA, has significantly changed the way healthcare is financed by both governmental and private insurers. While we cannot predict what impact on federal reimbursement policies this law or any amendment to it will continue to have in general or specifically on MAVYRET/MAVIRET or any product or regimen that we may commercialize, the ACA or any such amendment may result in downward pressure on pharmaceutical reimbursement, which could negatively affect market acceptance of new products. In addition, although the United States Supreme Court has upheld the constitutionality of most of the ACA, several states have not implemented certain sections of the ACA, including 14 that have rejected the expansion of Medicaid eligibility for low income citizens, and some members of the U.S. Congress are still working to repeal the ACA. More recently, President Trump and the Republicans in both houses of the U.S. Congress have been seeking to repeal or replace all or portions of the ACA but to date they have been unable to agree on any such legislation. On December 14, 2018, a United States District Court judge in Texas ruled that the Affordable Care Act is unconstitutional in its entirety because the “individual mandate” was repealed by Congress as part of the Tax Cuts and Jobs Act of 2017. While this U.S. District Court judge, as well as the Trump administration and Centers for Medicare and Medicaid Services, have stated that the ruling will have no immediate effect pending appeal of the decision, it is unclear how this decision, subsequent appeals and other efforts to repeal and replace the Affordable Care Act will impact the Affordable Care Act. We cannot predict what legislation, if any, to repeal or replace the ACA will become law, or what impact any such legislation, or the Texas court challenge, may have on us or on AbbVie’s sales of MAVYRET/MAVIRET.

In addition, other legislative changes have been proposed since the Affordable Care Act was enacted. There has been increasing legislative and enforcement interest in the United States with respect to drug pricing practices. Specifically, there have been several recent U.S. congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient programs and reform government program reimbursement methodologies for drugs. We expect any healthcare reform measures that may be adopted in the future could result in more rigorous coverage criteria and an additional downward pressure on the price that AbbVie receives for MAVYRET/MAVIRET and could seriously harm our future revenues.