UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant ☒ Filed by a Party other than the Registrant ☐
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Preliminary Proxy Statement |
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Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to § 240.14a-12 |
ENANTA PHARMACEUTICALS, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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No fee required |
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Fee computed on table below per Exchange Act Rules 14a-(6) (i) (1) and 0-11. |
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. |
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Amount Previously Paid:
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Form, Schedule or Registration Statement No.:
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ENANTA PHARMACEUTICALS, INC.
500 Arsenal Street
Watertown, Massachusetts 02472
(617) 607-0800
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD MARCH 3, 2022
The 2022 Annual Meeting of Stockholders (the “2022 Annual Meeting”) of Enanta Pharmaceuticals, Inc. (“Enanta”), a Delaware corporation, will be held virtually at 4:00 p.m. Eastern time on Thursday, March 3, 2022 via live audio webcast at www.proxydocs.com/ENTA for the following purposes:
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To elect two Class III directors to serve until the 2025 Annual Meeting of Stockholders. |
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To approve an amendment to Enanta’s 2019 Equity Incentive Plan to increase the number of shares of Common Stock reserved for issuance under the plan by 1,050,000 shares. |
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To approve, on an advisory basis, the compensation paid to our named executive officers, as disclosed in the accompanying proxy statement. |
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To ratify the appointment of PricewaterhouseCoopers LLP as Enanta’s independent registered public accounting firm for the 2022 fiscal year. |
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To transact any other business that may properly come before the meeting or any adjournment thereof. |
The record date for the 2022 Annual Meeting is January 7, 2022. Accordingly, only stockholders of record at the close of business on that date may vote at the meeting or any adjournment thereof.
You may vote on these matters in person (virtually), by proxy or via the internet or telephone. In order to provide our stockholders with a means to attend the annual meeting in a manner that does not endanger the health and well-being of our stockholders and our employees in the context of the continuing coronavirus (COVID-19) pandemic, we have elected to hold our annual meeting via remote communication. You may attend the virtual annual meeting and vote your shares during the meeting by visiting our annual meeting website at www.proxydocs.com/ENTA.
Whether or not you plan to attend the virtual meeting, we ask that you vote promptly so that your shares will be represented and voted at the meeting in accordance with your wishes.
You are entitled to participate in and submit questions in writing during the annual meeting if you were a stockholder as of the close of business on January 7, 2022. To participate in the 2022 Annual Meeting virtually via the Internet, please visit www.proxydocs.com/ENTA. In order to attend, you must register in advance at www.proxydocs.com/ENTA prior to the deadline of March 2, 2022 at 5:00 pm Eastern Time. Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you access to the meeting and will permit you to submit questions. You will not be able to attend the 2022 Annual Meeting in person. For instructions on how to vote your shares, please refer to the instructions on the Notice of Internet Availability of Proxy Materials you received in the mail, the section titled “How do I Vote” in the Proxy Statement or, if you requested to receive printed proxy materials, your enclosed proxy card. A list of our registered holders as of the close of business on the record date will be made available to stockholders during the meeting at www.proxydocs.com/ENTA.
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By order of the Board of Directors, |
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January 21, 2022 |
Nathaniel S. Gardiner |
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Secretary |
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MARCH 3, 2022
This proxy statement and our Annual Report are available online at the “Investors – 2022 Annual Meeting Materials” section of our website at www.enanta.com. For more information about how to access our virtual meeting, please visit the “Investors – 2022 Annual Meeting Materials” section of our website at www.enanta.com or contact Investor Relations at (617) 607-0710.
TABLE OF CONTENTS
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PROPOSAL 4: Vote to ratify appointment of independent registered public accounting firm |
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Potential Payments Upon Termination, Including Termination After a Change in Control Transaction |
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PROXY STATEMENT
INFORMATION CONCERNING SOLICITATION AND VOTING
We are soliciting proxies from our stockholders to vote at our 2022 Annual Meeting of Stockholders, or at any continuation, postponement or adjournment thereof, for the purposes discussed in this proxy statement. The annual meeting will be held virtually at 4:00, p.m. Eastern time on Thursday, March 3, 2022 at www.proxydocs.com/ENTA. For more information on how to access the virtual meeting, please visit the “Investors – 2022 Annual Meeting Materials” section of our website at www.enanta.com or contact Investor Relations at (617) 607-0710.
The proxy materials, including this proxy statement and our 2021 annual report to stockholders, are being distributed and made available on the internet at the “Investors – 2022 Annual Meeting Materials” section of our website at www.enanta.com on or about January 21, 2022.
This proxy statement contains important information for you to consider when deciding how to vote on the matters brought before the meeting. Please read it carefully.
All references in this proxy statement to a particular year, e.g. 2021, refer to our twelve-month fiscal year ended on September 30 of that year, e.g. September 30, 2021, unless the context indicates otherwise.
QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING AND VOTING
Why did I receive these materials?
We are soliciting proxies for our annual meeting of stockholders to be held on Thursday, March 3, 2022. You are receiving a proxy statement because you owned shares of our common stock on January 7, 2022, the record date for the annual meeting, and that ownership entitles you to vote at the meeting. By use of a proxy, you can vote, whether or not you attend the meeting at www.proxydocs.com/ENTA.
When and where is the Annual Meeting?
The annual meeting will be held virtually at 4:00 p.m. on Thursday, March 3, 2022, or at any future date and time following an adjournment or postponement of the meeting, at www.proxydocs.com/ENTA. In order to attend, you must register in advance at www.proxydocs.com/ENTA prior to the deadline of March 2, 2022 at 5:00 pm Eastern Time. Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you access to the meeting and will permit you to submit questions.
What proposals will be voted on at the Annual Meeting?
The four proposals to be considered and voted on at the annual meeting, as set forth in the accompanying Notice of Annual Meeting of Stockholders, are:
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the election of two Class III directors; |
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an amendment to increase the number of shares reserved for issuance under the 2019 Equity Incentive Plan; |
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an advisory vote on executive compensation; and |
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the ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the 2022 fiscal year. |
As far as we know, the only matters to be brought before the annual meeting are those referred to in this proxy statement. If any additional matters are presented at the annual meeting, the persons named as your proxies may vote your shares in their discretion.
How do I vote?
Beneficial Owner: Shares Registered in the Name of a Broker or Bank.
If on January 7, 2022 your shares were held in an account at a brokerage firm, bank, dealer, or other similar organization, then your shares are held in “street name” and you are the beneficial owner and not the record owner of the shares. If you are a beneficial owner of shares registered in the name of your broker, bank, or other agent, you
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should have received a notice of internet availability with voting instructions from that organization rather than from us. If you are a beneficial owner, you can vote in the following ways:
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By Mail: If you requested and received a paper copy of our proxy materials, you may vote using the proxy card supplied by your broker or bank by completing and mailing that proxy card to ensure that your vote is counted. |
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By Internet/Telephone: To vote over the internet, or by telephone, please follow any instructions provided by your broker or bank if either alternative is made available to you. |
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At Virtual Meeting: If you have followed the procedures described in this proxy statement for obtaining credentials for the meeting, you may vote online while attending the meeting virtually at www.proxydocs.com/ENTA and following the instructions for stockholder voting. In order to attend, you must register in advance at www.proxydocs.com/ENTA prior to the deadline of March 2, 2022 at 5:00 pm Eastern Time. Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you access to the meeting and will permit you to submit questions. |
Stockholder of Record: Shares Registered in Your Name.
If on January 7, 2022 your shares were registered directly in your name with our transfer agent, then you are a stockholder “of record.” If you are a stockholder of record, you may vote in person at the annual meeting or by any of the methods listed below. Whether or not you plan to attend the meeting, we urge you to vote by proxy to ensure your vote is counted. There are four ways for you to vote:
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By Mail: To vote using the proxy card, please complete, sign and date the proxy card furnished to you with the notice of this meeting and return it promptly in the envelope provided. If you return your signed proxy card to us before the annual meeting, we will vote your shares as you direct. |
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By Internet: To vote via the internet, access the website for our meeting at: www.proxypush.com/enta using the voter control number printed on the proxy card furnished to you with the notice of this meeting. Your shares will be voted in accordance with your instructions. You must specify how you want your shares voted or your internet vote cannot be completed and you will receive an error message. If you vote on the internet, you may also request electronic delivery of future proxy materials. |
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By Telephone: If you live in the United States or Canada, you may vote by proxy by calling toll-free 1-866-892-1702 and by following the instructions. When voting, you must have the voter control number printed on the notice of internet availability furnished to you. |
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At Virtual Meeting: You may vote online while attending the meeting virtually at www.proxydocs.com/ENTA and following the instructions for stockholder voting. In order to attend, you must register in advance at www.proxydocs.com/ENTA prior to the deadline of March 2, 2022 at 5:00 pm Eastern Time. Upon completing your registration, you will receive further instructions via email, including your unique links that will allow you access to the meeting and will permit you to submit questions. |
Who can vote at the Annual Meeting?
Only stockholders of record at the close of business on January 7, 2022, the record date, are entitled to notice of, and to vote at, the annual meeting or any adjournment or postponement of the meeting. On the record date, we had outstanding 20,506,753 shares of common stock, each of which is entitled to one vote upon each of the matters to be presented at the meeting.
You may contact our Secretary and General Counsel, Nathaniel S. Gardiner, at (617) 607-0800 to make arrangements to review a copy of the stockholder list at our offices in Watertown, MA, between the hours of 9:00 a.m. and 5:00 p.m., Eastern time, on any business day from February 18, 2022 to the time of the annual meeting. Please understand that we are complying with COVID-19 rules promulgated by the Commonwealth of Massachusetts. You will need to comply with our COVID-19 protocols for these rules, including confirming that you do not have symptoms of COVID-19 or any recent exposure to it and that you are fully vaccinated and immunized (including any indicated booster) and properly wearing an N95 or KN95 mask at all times while visiting our offices. It will also be necessary to plan a meeting time and place to provide access to our facility where the stockholder list is maintained.
See “How do I vote” above for more information regarding voting.
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What is the quorum requirement?
A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if at least a majority of the outstanding shares are represented by stockholders present at the meeting or present by proxy. On the record date, there were 20,506,753 shares outstanding and entitled to vote. Thus, 10,253,377 shares must be represented by stockholders present at the meeting in person or by proxy to have a quorum.
Your shares will be counted towards the quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other nominee) or if you vote in person at the meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. If there is no quorum, a majority of the shares present at the meeting may vote to adjourn the meeting to another date.
How are votes counted?
Votes will be counted by the inspector of election appointed for the meeting, who will separately count “For” and “Withhold” and, with respect to proposals other than the election of directors, “Against” votes, abstentions and broker non-votes. Abstentions and broker non-votes have no effect and will not be counted towards the vote total for any proposal.
If your shares are held by your broker in “street name” and you do not give instructions to your broker, your broker can vote your shares with respect to “discretionary” items, but not with respect to “non-discretionary” items. Discretionary items are proposals considered routine on which your broker may vote shares held in street name in the absence of your voting instructions. The ratification of the appointment of Enanta’s independent registered public accounting firm for the 2022 fiscal year will be the only discretionary matter on the agenda. Non-discretionary items are matters such as mergers, stockholder proposals, executive compensation and elections of directors. On non-discretionary items for which you do not give your broker instructions, the shares will be treated as broker non-votes.
What if I return a proxy card but do not make specific choices?
If you return a signed and dated proxy card without marking any voting selections, your shares will be voted
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“For” our two nominees for director; |
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“For” the amendment to increase the number of shares reserved for issuance under the 2019 Equity Incentive Plan; |
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“For” the approval, on an advisory basis, of the compensation paid to our named executive officers; and |
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“For” ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for our 2022 fiscal year. |
Can I change my vote after submitting my proxy?
Yes, if you are a record holder you can revoke your proxy in any one of four ways:
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You may revoke your vote by voting again by telephone prior to the close of the telephone voting facility. |
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You may revoke your vote by voting again over the internet prior to the close of the internet voting facility. |
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You may send a written notice that you are revoking your proxy to our Secretary, Nathaniel S. Gardiner, c/o Enanta Pharmaceuticals, Inc., 500 Arsenal Street, Watertown, Massachusetts 02472. |
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You may attend the meeting virtually and vote online during the meeting. |
If you are a beneficial owner and your shares are held by your broker or bank as a nominee or agent, you should follow the instructions provided by your broker or bank for revoking your proxy.
What is the vote required for a proposal to pass?
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Proposal 1. Directors are elected by a plurality of the votes cast by the holders of the shares represented in person or by proxy. Broker non-votes and proxies marked to withhold authority with respect to the election of one or more Class III directors will not be voted with respect to the director indicated. The two director nominees receiving the highest number of votes will be elected. |
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Proposal 2. The affirmative vote of the holders of a majority of the votes cast at the meeting is required for approval of the proposed amendment to increase the number of shares reserved for issuance under the 2019 Equity Incentive Plan. Abstentions and broker non-votes will have no effect on the voting outcome. |
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Proposal 3. The affirmative vote of the holders of a majority of the votes cast at the meeting is required for approval of the advisory resolution to approve the compensation of our named executive officers. Abstentions and broker non-votes will have no effect on the voting outcome. |
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Proposal 4. The affirmative vote of the holders of a majority of the votes cast at the meeting is required to ratify the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm for the 2022 fiscal year. Abstentions and broker non-votes will have no effect on the voting outcome. |
How can I find out the results of the voting at the Annual Meeting?
Preliminary voting results will be announced at the annual meeting. Final voting results will be published in a Current Report on Form 8-K, or Form 8-K, that we expect to file with the Securities and Exchange Commission, or SEC, within four business days after the annual meeting. If final voting results are not available to us in time to file a Form 8-K within four business days after the annual meeting, we intend to file a Form 8-K to publish preliminary results and, within four business days after the final results are known to us, file an additional Form 8-K to publish the final results.
Who is paying for this proxy solicitation?
We will pay for the entire cost of soliciting proxies. In addition to mailing the proxy materials, our officers, directors and employees may also solicit proxies in person, by telephone, or by other means of communication. Officers, directors and employees will not be paid any additional compensation for soliciting proxies. We will also request brokerage houses, custodians, nominees, and fiduciaries to forward copies of the proxy material to those persons for whom they hold shares, and we will reimburse those record holders for their reasonable expenses in transmitting this material. In addition, we have engaged The Proxy Advisory Group, LLC to assist in the solicitation of proxies and provide related advice for a services fee and reimbursement of customary disbursements, which are not expected to exceed $18,000, in total.
Householding of Annual Meeting Materials
Some banks, brokers and other nominee record holders may be “householding” our proxy statements and annual reports. This means that only one copy of our proxy statement and annual report to stockholders may have been sent to multiple stockholders in your household. We will promptly deliver a separate copy of either document to you if you call or write us at our principal executive offices, 500 Arsenal Street, Watertown, Massachusetts 02472, Attn: Investor Relations, telephone: (617) 607-0710. In the future, if you want to receive separate copies of the proxy statement or annual report to stockholders, or if you are receiving multiple copies and would like to receive only one copy per household, you should contact your bank, broker, or other nominee record holder, or you may contact us at the above address and telephone number.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table and footnotes set forth certain information regarding the beneficial ownership of our common stock as of December 15, 2021 by (i) persons known by us to be beneficial owners of more than 5% of our common stock, (ii) each of our current executive officers named in the Summary Compensation Table included in “Executive Compensation” below, (iii) our current directors and (iv) all our current executive officers and directors as a group. The percentage of shares beneficially owned is computed on the basis of 20,505,106 shares of our common stock outstanding as of December 15, 2021.
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Beneficial ownership is determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to our common stock. Shares of our common stock that a person has the right to acquire within 60 days of December 15, 2021 are deemed outstanding for purposes of computing the percentage ownership of the person holding such rights but are not deemed outstanding for purposes of computing the percentage ownership of any other person, except with respect to the percentage ownership of all directors and executive officers as a group. Except as otherwise indicated in the footnotes below, we believe the persons and entities in this table have sole voting and investing power with respect to all of the shares of our common stock beneficially owned by them, subject to community property laws, where applicable. Except as otherwise indicated in the footnotes below, the address of the beneficial owner is c/o Enanta Pharmaceuticals, Inc., 500 Arsenal Street, Watertown, MA 02472.
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Beneficially Owned Number of Shares |
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Beneficial Owner |
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Percent |
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BlackRock Inc.(1) |
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3,595,053 |
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17.53 |
% |
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Farallon Capital Management, LLC(2) |
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1,995,000 |
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9.73 |
% |
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Armistice Capital, LLC(3) |
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1,836,000 |
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8.95 |
% |
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The Vanguard Group, Inc.(4) |
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1,800,363 |
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8.78 |
% |
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Estate of Alan J. Dworsky and affiliates(5) |
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1,207,411 |
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5.89 |
% |
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State Street Corp(6) |
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1,072,182 |
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5.23 |
% |
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Jay R. Luly, Ph.D. |
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1,366,328 |
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†(7) |
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6.44 |
% |
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Yat Sun Or, Ph.D. |
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551,786 |
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2.66 |
% |
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Paul J. Mellett |
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175,455 |
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* |
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Brendan Luu |
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18,750 |
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* |
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Tara L. Kieffer, Ph.D. |
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16,250 |
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* |
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Bruce L. A. Carter, Ph.D. |
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48,875 |
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* |
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Mark G. Foletta |
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15,847 |
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* |
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Yujiro Hata |
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1,825 |
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* |
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Kristine Peterson |
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38,125 |
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* |
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Lesley Russell, MBChB, MRCP |
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41,875 |
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* |
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Terry Vance |
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74,610 |
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* |
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All current directors and executive officers as a group (13 persons) |
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2,750,415 |
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†(18) |
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12.42 |
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*Less than 1%
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Excludes all shares that may be issuable after December 15, 2021 under outstanding performance share units or relative total stockholder return units issued to management, as none of such shares were issuable within 60 days after December 15, 2021. |
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BlackRock Inc. reports that it holds, directly or through one or more of its subsidiaries, sole investment power with respect to all these shares, and sole voting power with respect to 3,450,638 of these shares and no voting power with respect to the remainder. This information is as of September 30, 2021, based solely on a Schedule 13F-HR filed by BlackRock Inc. on November 9, 2021. The address listed for BlackRock Inc. is 55 East 52nd Street, New York, NY 10055. |
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Farallon Capital Management, LLC reports that it holds sole voting and dispositive power over all of these shares. This information is based solely on a Schedule 13F-HR filed by Farallon Capital Management, LLC on November 15, 2021. The address listed for Farallon Capital Management, LLC is One Maritime Plaza, Suite 2100, San Francisco, CA 94111. |
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Armistice Capital, LLC reports that it holds, directly or through one or more of its subsidiaries, sole investment and voting power with respect to 1,856,000 shares. This information is based solely on a Schedule 13F-HR filed by Armistice Capital, LLC. on November 15, 2021. The address listed for Armistice Capital, LLC is 510 Madison Avenue, 7th Floor, New York, NY 10022. |
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The Vanguard Group, Inc. reports that it holds, directly or through one or more of its subsidiaries, (i) sole investment power and no voting power with respect to 1,762,796 of these shares, (ii) shared investment power and sole voting power with respect to 18,727 of these shares and (iii) shared investment and no voting power with respect to 18,840 of these shares. This information is based solely on a Schedule 13F-HR filed by Vanguard Group, Inc. on November 12, 2021. The address listed for Vanguard Group, Inc. is P.O. Box 2600, V26, Valley Forge, PA 19482-2600. |
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(5) |
Before Mr. Dworsky passed away in January 2021, it was reported that he beneficially owned an aggregate of 1,207,411 shares of Common Stock comprised of (i) 325,386 shares held by the Alan J. Dworsky 1988 Trust u/d/t |
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dated January 6, 1988, as amended, of which Mr. Dworsky was a trustee and over which shares Mr. Dworsky had shared voting and dispositive power, (ii) 302,166 shares held by the Dworsky Family 2020 Retained Annuity Trust, of which Mr. Dworsky was a trustee and over which shares Mr. Dworsky had sole voting and dispositive power, (iii) 430,870 shares held by the Alan J. Dworsky Grandchildren’s Trusts u/d/t dated July 14, 1995, as amended, of which Mr. Dworsky was a trustee and over which shares Mr. Dworsky had sole voting and dispositive power, and (iv) 148,989 shares held by the Popplestone Foundation u/d/t dated August 15, 2000, of which Mr. Dworsky was a trustee and had shared voting and dispositive power. This information is based solely on a Schedule 13G/A filed by Suzanne W. Dworsky, as executrix for the estate of Alan J. Dworsky, with the SEC on January 28, 2021 with respect to Mr. Dworsky’s holdings on December 31, 2020. The address listed for Mr. Dworsky is 8 Mercer Circle, Cambridge, MA 02138. |
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State Street Corp reports that it holds, directly or through one or more of its subsidiaries, (i) sole investment power and no voting power with respect to 1,030,321 of these shares and (ii) sole investment and no voting power with respect to 41,861 of these shares. This information is based solely on a Schedule 13F-HR filed by State Street Corp on November 15, 2021. The address listed for State Street Corp is One Lincoln Street, Boston, MA 02111. |
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Consists of (i) 655,153 shares of common stock and (ii) 711,175 shares of common stock issuable upon exercise of outstanding options that were exercisable within the 60-day period following December 15, 2021. |
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(8) |
Consists of (i) 324,661 shares of common stock and (ii) 227,125 shares of common stock issuable upon exercise of outstanding options that were exercisable within the 60-day period following December 15, 2021. |
|
(9) |
Consists of (i) 43,502 shares of common stock and (ii) 131,953 shares of common stock issuable upon exercise of outstanding options that were exercisable within the 60-day period following December 15, 2021. |
|
(10) |
Consists of 18,750 shares of common stock issuable upon exercise of outstanding options that were exercisable within the 60-day period following December 15, 2021. |
|
(11) |
Consists of 16,250 shares of common stock issuable upon exercise of outstanding options that were exercisable within the 60-day period following December 15, 2021. |
|
(12) |
Consists of 48,875 shares of common stock issuable upon exercise of outstanding options that were exercisable within the 60-day period following December 15, 2021. |
|
(13) |
Consists of 15,847 shares of common stock issuable upon exercise of outstanding options that were exercisable within the 60-day period following December 15, 2021. |
|
(14) |
Consists of 1,825 shares of common stock issuable upon exercise of outstanding options that were exercisable within the 60-day period following December 15, 2021. |
|
(15) |
Consists of 38,125 shares of common stock issuable upon exercise of outstanding options that were exercisable within the 60-day period following December 15, 2021. |
|
(16) |
Consists of 41,875 shares of common stock issuable upon exercise of outstanding options that were exercisable within the 60-day period following December 15, 2021. |
|
(17) |
Consists of (i) 15,295 shares of common stock and (ii) 59,315 shares of common stock issuable upon exercise of outstanding options that were exercisable within the 60-day period following December 15, 2021. |
|
(18) |
See Notes 6 through 17. Consists of (i) 1,105,739 shares of common stock and (ii) 1,644,676 shares of common stock issuable upon exercise of outstanding options that were exercisable within the 60-day period following December 15, 2021. |
6
ELECTION OF DIRECTORS
Our Board of Directors has fixed the number of directors at seven. Under our charter, our Board is divided into three classes, with each class having as nearly as possible an equal number of directors. The term of one class expires, with their successors being subsequently elected to a three-year term, at each annual meeting of stockholders. At the 2022 Annual Meeting, the two nominees named in this proxy statement as Class III Directors will be elected to hold office for three years until their successors are elected and qualified. The Board has nominated Mark Foletta and Lesley Russell for re-election as Class III Directors at the upcoming annual meeting. Mr. Foletta and Dr. Russell are independent directors as defined by applicable Nasdaq Stock Market standards governing the independence of directors. Each nominee has consented to serve, if elected. If any nominee is unable to serve, proxies will be voted for any replacement candidate nominated by our Board of Directors.
Votes Required
Directors will be elected by a plurality of the votes cast by the stockholders entitled to vote on this proposal at the meeting. Broker non-votes and proxies marked to withhold authority with respect to one or more Class III directors will not be treated as votes cast for this purpose and, therefore, will not affect the outcome of the election.
Nominees for Director and Current Directors
Current SEC rules require us to discuss briefly the specific experience, qualifications, attributes or skills that led the Board to conclude that each director or nominee for director should serve on our Board of Directors. The following matrix summarizes the significant experience and skills of each of our directors that we think is especially relevant to his or her service on our Board. We have also provided this discussion in a separate paragraph immediately below the biographical information provided for each director further below.
|
Board Experience Matrix (As of December 15, 2021) |
|||||||
|
Biotech Experience |
Carter |
Foletta |
Hata |
Luly |
Peterson |
Russell |
Vance |
|
Biotech Industry |
|
|
|
|
|
|
|
|
Business Development and M&A |
|
|
|
|
|
|
|
|
Therapeutic Drug Development |
|
|
|
|
|
|
|
|
Finance and Audit |
|
|
|
|
|
|
|
|
Strategic Partnering |
|
|
|
|
|
|
|
|
Senior Executive Roles |
|
|
|
|
|
|
|
|
Public Company Boards |
|
|
|
|
|
|
|
7
In accordance with Nasdaq’s recently adopted board diversity listing standards, we are also disclosing aggregated statistical information about our Board’s self-identified gender and racial characteristics and LGBTQ+ status as voluntarily confirmed to us by each of our directors.
|
Board Diversity Matrix (As of December 15, 2021) |
|
|||||||||||||||||||
|
Total Number of Directors - 7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Female |
|
|
|
Male |
|
|
|
Non-Binary |
|
|
|
Did Not Disclose Gender |
|
||||
|
Directors |
|
|
|
2 |
|
|
|
|
5 |
|
|
|
|
— |
|
|
|
|
— |
|
|
Number of Directors who identify in Any of the Categories Below: |
|
|||||||||||||||||||
|
African American or Black |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Alaskan Native or Native American |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Asian |
|
|
|
— |
|
|
|
|
1 |
|
|
|
|
— |
|
|
|
|
— |
|
|
Hispanic or Latinx |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
Native Hawaiian or Pacific Islander |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
White |
|
|
|
2 |
|
|
|
|
4 |
|
|
|
|
— |
|
|
|
|
— |
|
|
Two or More Races or Ethnicities |
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
|
|
— |
|
|
LGBTQ+ |
|
|
— |
|
||||||||||||||||
|
Did Not Disclose Demographic Background |
|
|
— |
|
||||||||||||||||
The following table contains biographical information as of December 15, 2021 about the nominees for Class III directors and our current directors whose terms of office will continue after the annual meeting. The table includes information provided by the directors individually as to their age, current position, principal occupation and experience for the past five years, and the names of other public companies for which they currently serve as a director or have served as a director during the past five years.
As you read the disclosure, please keep in mind that any specific qualification, attribute or skill that is attributed to one director should not necessarily imply that other directors do not possess that qualification, attribute or skill. Furthermore, this disclosure does not impose on any director any duties, obligations or liability that are greater than the duties, obligations, and liability imposed on each other member of the Board.
Because the discussion of the specific experience, qualifications, attributes or skills of a director is to be made each year in light of Enanta’s business and structure at that time, the content of this discussion may change for one or more directors in future years.
8
|
Name and Age |
Business Experience During Past Five Years and Other Directorships |
Director
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class III Directors (present term expires in 2022; nominees for election at the Annual Meeting)
|
|
|
Mark G. Foletta, Age 61 |
Mark G. Foletta was elected to our board of directors in June 2020. Mr. Foletta had been the Chief Financial Officer and Executive Vice President of Tocagen, Inc., a public biotechnology company, from February 2017 until its merger with Forte Biosciences in June 2020. Mr. Foletta previously served as Senior Vice President, Finance and Chief Financial Officer of Amylin Pharmaceuticals, Inc., a publicly traded pharmaceutical company, from March 2006 through Amylin’s acquisition by Bristol Myers-Squibb Company in August 2012, and as Vice President, Finance and Chief Financial Officer of Amylin from 2000 to 2006. Previously, Mr. Foletta held a number of management positions with Intermark, Inc. and Triton Group Ltd. from 1986 to 2000 and served as an Audit Manager with Ernst & Young. From August 2015 to July 2016, Mr. Foletta served as the interim CFO of Biocept, Inc., a public diagnostics company. Mr. Foletta is an independent director of DexCom, Inc., a public medical device company where he also serves as Lead Director, and AMN Healthcare Services, Inc., a public healthcare services company. Mr. Foletta received a B.A. in Business Economics from the University of California, Santa Barbara.
We believe that Mr. Foletta’s considerable audit and financial experience in the biotechnology and healthcare sectors qualifies him to serve on our board of directors. |
2020 |
|
|
|
|
|
Lesley Russell, MBChB, MRCP Age: 61 |
Lesley Russell, MBChB, MRCP, was elected to our board of directors in November 2016. Dr. Russell served as Chief Medical Officer of Innocoll Holdings Plc., a public biotechnology company, from April 2016 until November 2017, prior to which Dr. Russell served as Chief Operating Officer and Chief Medical Officer of TetraLogic Pharmaceuticals, another public biotechnology company, from August 2013. Dr. Russell was a medical executive with Cephalon, Inc. from January 2000 to 2011, most recently as Executive Vice President and Chief Medical Officer from September 2006 until October 2011, when Cephalon was acquired by Teva Pharmaceuticals. Dr. Russell served as a Senior Vice President and Global Head, Research and Development for Global Branded Products from the acquisition until July 2012. Dr. Russell previously held positions in medical research at US Bioscience, Eli Lilly and Amgen. Dr. Russell is an independent director of Imugene Limited, an Australian public biotechnology company, Chimeric Therapeutics Limited, an Australian public biotechnology company. She also previously served during the past five years as an independent director of AMAG Pharmaceuticals, Inc., a public specialty pharmaceutical company, and Endocyte Pharmaceuticals, Inc., a public biotechnology company. Dr. Russell holds a Bachelor of Medicine, Bachelor of Surgery (MBChB) from the University of Edinburgh and is a member of the Royal College of Physicians (MRCP), UK.
We believe that Dr. Russell is qualified to serve on our board of directors due to her business and drug development experience, her service on other public company boards and her knowledge of our industry.
|
2016 |
9
10
|
Kristine Peterson Age: 62 |
Kristine Peterson has served as a member of our board of directors since September 2017. Ms. Peterson has over 30 years of senior executive experience in commercial and business leadership roles in the pharmaceutical and biotechnology industry. From 2009 to 2016, Ms. Peterson served as Chief Executive Officer of Valeritas, Inc., a commercial-stage medical technology company where, under her leadership, the organization evolved from a research stage company to a commercial enterprise. Previously she held executive global marketing and commercial roles at Johnson & Johnson from 2004 to 2009, most recently as Company Group Chair, Biotech Sector, where she was responsible for commercial, R&D, and biologics manufacturing for biotech, oncology, immunology and cell therapy. From 2003 to 2004, she served as Senior Vice President, Commercial Operations for Biovail Corporation and President of Biovail Pharmaceuticals. Earlier in her career, she spent 20 years at Bristol-Myers Squibb Company in senior sales and marketing roles of increasing responsibility in a broad range of therapeutic areas that included Cardiovascular, Metabolic, Anti-infective, Virology, Neuroscience, Immunology/Inflammation, Pulmonary, and Oncology. Ms. Peterson currently serves on the Boards of Directors of Amarin Corporation plc, Immunocor, plc, ImmunoGen, Inc. and Paratek Pharmaceuticals, Inc., all of which are public biopharmaceutical companies. She also previously served during the past five years as an independent director of EyePoint Pharmaceuticals, Inc. She received a Master of Business Administration and a Bachelor of Science from the University of Illinois at Urbana-Champaign.
We believe that Ms. Peterson is qualified to serve on our board of directors due to her executive management and sales and marketing experience in large pharmaceutical companies and smaller biotechnology companies and her other public company board experience.
|
2017 |
|
Terry C. Vance Age: 65 |
Terry C. Vance has served as a member of our board of directors since June 2011. From June 2013 until November 2018, Mr. Vance was Chief Business Officer of BioMotiv, LLC, a drug development company affiliated with The Harrington Project. Until January 2018, Mr. Vance was a Managing Member of EGS Healthcare, a late-stage venture capital fund that he co-founded in 2000. Before starting EGS Healthcare, Mr. Vance was a founding partner in Eagle Advisors, which provided strategic advice to emerging biotechnology companies. Prior to Eagle, Mr. Vance was an investment banker, first with Salomon Brothers and then with Goldman Sachs, where he was a vice president in the Capital Markets Division. Mr. Vance received an AB from Princeton University and an MBA from Stanford University. |
2011 |
|
|
We believe that Mr. Vance is qualified to serve on our board of directors due to his business and financial experience as a venture capital investor and investment banker in our industry. |
|
Recommendation
We recommend a vote “FOR” each of our two Class III director nominees.
11
AMENDMENT TO 2019 EQUITY INCENTIVE PLAN
We are asking stockholders to approve an amendment to our 2019 Equity Incentive Plan, which we refer to as the 2019 Equity Plan, to increase the number of shares of our common stock reserved for issuance under the plan by 1,050,000 shares.
Reasons for Seeking Stockholder Approval
The following reasons for approving the proposed amendment are discussed in greater detail in the following pages:
|
• |
Equity awards are a key part of our compensation program for employees generally |
|
• |
Our equity program is designed to incentivize performance |
|
• |
We have managed our equity burn rate efficiently |
|
• |
Our equity award overhang reflects 8+ years without dilutive equity financings |
|
• |
The proposed increase will enable needed recruitment and retention into 2023 |
Equity Awards are a Key Part of our Compensation Program for Employees Generally
Our Compensation Committee believes that equity compensation has been, and will continue to be, a critical component of our compensation program because it develops a culture of ownership among our employees and aligns their interests with the interests of our stockholders. Unlike many companies, we have a practice of granting equity-based awards broadly throughout our organization, believing that we will succeed if all our employees feel invested in us, our business and our future. From September 30, 2020 to September 30, 2021, we increased our employee headcount (from 141 employees to 155), including senior level hires. In 2022, we anticipate that we will continue to build our research and development team with plans to hire approximately 45 additional employees to support clinical development of our most advanced compounds. To date, we have successfully competed for top talent, often in direct competition with much larger pharmaceutical companies with greater resources, in part because of our use of equity-based compensation. In addition, we have to compete with other biotechnology companies, all of which use equity-based compensation as a key component of their compensation programs. We believe that equity awards are central to our employment value proposition and are necessary for us to continue competing for top talent as we grow.
As of December 31, 2021, there were 510,961 shares available for grant under the 2019 Equity Plan. Accordingly, without the proposed addition to the reserve in the 2019 Equity Plan, our ability to provide equity incentives for our planned new hires, as well as our existing employees and management team, would be severely limited. In turn, this would place us at a competitive disadvantage because our ability to attract, motivate and retain key personnel would be compromised during a critical growth period.
Our Equity Program is Designed to Incentivize Performance
As noted above, our broad-based equity program generally provides for stock option awards and restricted stock unit awards to all employees, which awards are designed to incentivize performance because no value is created unless our stock price increases from the date the options are granted. We grant stock options to new employees that are subject to 25% vesting on the first anniversary of employment with the balance vesting quarterly over the subsequent three years. In addition, we provide annual awards of stock options to all employees that are subject to quarterly vesting over four years from the date of grant. Since November 2020, our Compensation Committee has chosen to grant a portion of the annual equity award as restricted stock units that are subject to annual vesting over four years from the date of grant. The number of restricted stock units is determined by reducing the number of stock options by one third and then calculating the Black-Scholes value of the shares eliminated from the option awards and dividing that quotient by a 30-day average of the equity value of our common stock.
In the case of our management team, the Compensation Committee makes awards of stock options, and most recently restricted stock units, in line with awards to our other employees described above, as well as performance share units. Currently, the performance share units are divided into two types: one half are performance share units, or PSUs, which are tied to corporate research and development objectives, and one half are relative total stockholder return units, or rTSRUs, which are tied to our relative stock performance. Specifically, the PSUs are subject to research and development goals based on advancement of our clinical programs in respiratory syncytial virus (RSV), SARS-CoV-2, hepatitis B virus (HBV) and human metapneumovirus (hMPV) and our other earlier stage
12
research; and the rTSRUs are based on the relative performance of our common stock against the other component companies in the Nasdaq Biotechnology Index over the same 60-day calendar periods two years apart, with no units vesting unless (i) our stock is in at least the 65th percentile of component companies at the end of the performance period and (ii) there is an absolute increase in our stock value. Each type of performance share unit can expire unvested or vest in an amount up to 150% of the target number of units, depending on the company's performance.
Our Compensation Committee believes that the program of stock options, restricted stock units and performance units provides management and our employees appropriate incentives to build the value of our company.
We Have Managed Our Equity Burn Rate Efficiently
In determining the proposed number of shares to be added to the reserve for issuance under the 2019 Equity Plan and for which stockholder approval is being sought, the Compensation Committee considered the historical amounts of common stock underlying equity awards granted by the Company in the past three years and our projections for the coming year based on the Company's current employee headcount and projected additions. In our fiscal years 2019, 2020 and 2021, the Company made equity awards, including a targeted number of shares reserved for performance-based unit awards, representing a total of 694,300, 875,084 and 1,192,463 shares, respectively, without giving effect to any forfeitures.
The following table sets forth information regarding historical awards granted for the 2019 through 2021 period, and the corresponding annual net burn rate, which is defined as the number of shares covered by awards granted, net of forfeitures, divided by the weighted-average number of shares of common stock outstanding for that year, for each of the last five fiscal years:
|
|
|
Fiscal Year Ended September 30, |
|
|||||||||
|
Share Element |
|
2021 |
|
|
2020 |
|
|
2019 |
|
|||
|
Time-based Stock Options and Restricted Stock Units Granted, Net of Forfeitures |
|
|
834,833 |
|
|
|
619,832 |
|
|
|
560,926 |
|
|
Performance-Based Full Value Unit Awards Granted, at Target, Net of Forfeitures |
|
|
131,580 |
|
|
|
33,456 |
|
|
|
22,500 |
|
|
Total Time-Based Awards Granted and Performance-Based Awards Granted |
|
|
966,413 |
|
|
|
653,288 |
|
|
|
583,426 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Common Shares Outstanding During the Fiscal Year |
|
|
20,171,425 |
|
|
|
19,940,376 |
|
|
|
19,583,625 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual Net Burn Rate |
|
|
4.8 |
% |
|
|
3.3 |
% |
|
|
3.0 |
% |
|
3-Year Average Net Burn Rate |
|
|
3.7 |
% |
|
|
|
|
|
|
|
|
Without deducting forfeitures, our three-year average burn rate for the 2019-2021 fiscal years was 4.6%. This compares to a median rate of 5.1% in our peer group in calendar year 2020, the most recent year for which comparable data is available.
Our Equity Award Overhang Reflects 8+ Years Without Dilutive Equity Financings
In making its determinations, the Compensation Committee also considered the total amount of stock options and other equity awards outstanding under existing awards. As of December 31, 2021, we had shares reserved for future issuance and for outstanding equity awards covering a total of 4,654,971 shares (commonly referred to as the “overhang”), consisting of stock options to purchase a total of 4,177,391 shares, restricted stock units for 223,835 shares, and performance unit awards targeting a total of 253,745 shares. Our overhang reflects the fact that we have not issued any shares of our common stock in an equity financing since the closing of our initial public offering in March 2013. Most biotechnology companies in that period of time would have done several rounds of follow-on equity financings, substantially reducing the percentage of shares represented by outstanding equity awards. In Enanta’s case this dilution was avoided because we have received over $1 billion in milestone payments and royalties on sales of products containing our HCV protease inhibitors since our 2013 IPO and we had $352 million in our cash and cash equivalent reserves at September 30, 2021.
The Proposed Increase Will Enable Needed Recruitment and Retention into 2023
After a review of our historical practices and in the context of our current and expected future growth, the Compensation Committee has determined that the proposed increase of 1,050,000 shares, which represents the equivalent of 5.1% of our shares of common stock outstanding as of December 31, 2021, is appropriate to cover our anticipated requirements for recruitment of new employees and retention of our personnel until at least the 2023 annual meeting of stockholders. The proposed increase is made in the context of our need to recruit more
13
senior level employees in chemistry, manufacturing and controls (“CMC”), clinical development, medical affairs, project management and business development to support the advancement of our clinical-stage pipeline into larger clinical trials. The Compensation Committee believes that the proposed addition to the share reserve is essential to the Company's ability to continue to grant equity incentives for at least the next year, which is vital to our efforts to attract and retain the highly skilled individuals required to support our continued growth in the extremely competitive labor markets in which we compete.
The closing price of our common stock on the Nasdaq Global Select Market on December 31, 2021 was $74.78 per share. Based solely on the closing price of our common stock on December 31, 2021, the aggregate intrinsic value of the proposed additional 1,050,000 shares of common stock, which would be newly reserved for issuance under the 2019 Equity Plan, is $78,519,000.
Stockholder Approval Requirements
Approval of the proposed amendment to the 2019 Equity Plan by our stockholders is required under the listing rules of the Nasdaq Stock Market. Stockholder approval will also ensure favorable federal income tax treatment for any awards of incentive stock options that may be made under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code").
General Description of 2019 Equity Plan
The purpose of the 2019 Equity Plan is to attract and retain employees, directors and consultants and to provide an incentive for these individuals to achieve long-range performance goals. The 2019 Equity Plan permits us, under the direction of the Compensation Committee, to grant equity awards to our employees, directors and consultants, including incentive and non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units and other stock-based and cash-based awards. Under the 2019 Equity Plan to date, we have awarded only non-statutory stock options, time-based restricted stock units, performance share units and relative total stockholder return units.
As of December 31, 2021, 157 employees and six non-employee directors were eligible to participate in the 2019 Equity Plan. As of that date, a total of 2,210,743 shares were reserved under the 2019 Equity Plan for outstanding stock options, and 223,835 shares were reserved for outstanding restricted stock unit awards. In addition, as of that date a total of 253,745 shares were reserved for potential issuance pursuant to performance-based and market-based stock unit awards at the target amounts of such awards. While no further awards have been made under our 2012 Equity Incentive Plan, referred to as our 2012 Equity Plan, since February 26, 2019, shares subject to options that were granted under that plan and that are forfeited or that expire unexercised are then added to the shares available for issuance under the 2019 Equity Plan. Similarly, no further awards were made under our Amended and Restated 1995 Equity Incentive Plan, referred to as the 1995 Equity Plan, after our initial public offering in March 2013, and shares subject to options that were granted under that plan and that are forfeited or that expire unexercised are then added to the shares available for issuance under the 2019 Equity Plan. There remain 1,849,131 shares subject to outstanding options awarded under the 2012 Equity Plan and 117,517 shares subject to outstanding options awarded under the 1995 Equity Plan, all of which, if forfeited, would become available for issuance under the 2019 Equity Plan. In aggregate we have 4,654,971 shares subject to outstanding options and equity awards under all three of our equity incentive plans or reserved for future issuance under the 2019 Equity Plan.
As of December 31, 2021, outstanding options awarded under the 2019 Equity Plan had exercise prices ranging from $41.20 per share to $103.85 per share. The weighted average exercise price of all outstanding options under the plan and its predecessors is $52.74 per share, and those options have a term of ten years and, as of December 31, 2021, had a weighted average duration of 6.75 years. As the amount of any awards under the 2019 Equity Plan is within the Compensation Committee’s discretion, total awards that may be granted for a fiscal year are not determinable until completion of the year.
14
The following table sets forth shares underlying awards granted under the 2019 Equity Plan and unexercised or not settled, as the case may be, as of the close of business on September 30, 2021:
|
Total Awards Under the 2019 Equity Incentive Plan |
|
|
|||
|
|
|
|
|
|
|
|
|
|
Number of Shares of Common Stock Underlying Options/Units† |
|
|
|
|
Current named executive officers: |
|
|
|
|
|
|
Jay R. Luly, Ph.D. |
|
|
311,900 |
|
(a) |
|
Brendan Luu |
|
|
96,710 |
|
(b) |
|
Tara L. Kieffer, Ph.D. |
|
|
87,870 |
|
(c) |
|
Yat Sun Or, Ph.D. |
|
|
97,100 |
|
(d) |
|
Paul J. Mellett |
|
|
95,100 |
|
(e) |
|
Current executive officers as a group (7 persons) |
|
|
2,186,389 |
|
(f) |
|
Current non-executive officer directors as a group (6 persons) |
|
|
142,644 |
|
|
|
Other Enanta employees as a group |
|
|
1,000,320 |
|
|
|
|
|
|
|
|
|
|
Total Awards through September 30, 2021 |
|
|
3,329,353 |
|
(f) |
† The numbers of performance-based PSU and rTSRU unit awards included in this table are the target numbers of shares subject to the awards. Actual performance may result in no shares being issued under a stock unit award or up to 1.5x that target number of shares being issued. Restricted stock units with time-based vesting are included at the total number of shares subject to the awards.
|
|
(a) |
Includes a total of 67,600 shares subject to performance-based unit awards, which will only vest upon achievement of specified performance criteria over the corresponding performance period. |
|
|
(b) |
Includes a total of 22,260 shares subject to performance-based unit awards, which will only vest upon achievement of specified performance criteria over the corresponding performance period. |
|
|
(c) |
Includes a total of 22,320 shares subject to performance-based unit awards, which will only vest upon achievement of specified performance criteria over the corresponding performance period. |
|
|
(d) |
Includes a total of 28,700 shares subject to performance-based unit awards, which will only vest upon achievement of specified performance criteria over the corresponding performance period. |
|
|
(e) |
Includes a total of 26,800 shares subject to performance-based unit awards, which will only vest upon achievement of specified performance criteria over the corresponding performance period. |
|
|
(f) |
Includes a total of 222,980 shares subject to performance-based unit awards, which will only vest upon achievement of specified performance criteria over the corresponding performance period. |
Because the granting of awards under the 2019 Equity Plan is discretionary, we cannot now determine the number or type of awards to be granted in the future to any particular person or group if the amendment to the 2019 Equity Plan is approved.
Administration and Eligibility
Awards are made by the Compensation Committee, which has been designated by our Board of Directors to administer the 2019 Equity Plan. Subject to certain limitations, the Compensation Committee may delegate to one or more of our executive officers the power to make awards to participants who are not subject to Section 16 of the Securities Exchange Act of 1934 and are not “executive officers” for purposes of the Securities Exchange Act of 1934, as amended. The Compensation Committee has authorized our Chief Executive Officer to make awards to non-executive employees within parameters approved by the Committee.
The Compensation Committee administers the 2019 Equity Plan and determines the terms and conditions of each equity award to our executive officers and directors, including the number of shares subject to the award, the exercise price and the form of payment of the exercise price for any stock option, the vesting conditions of the award and the terms of any withholding of shares or other provisions to satisfy tax withholding requirements for the award.
15
Types of Awards
The 2019 Equity Plan provides for the following categories of awards:
Stock Options. The Compensation Committee may grant options to purchase shares of common stock that are either incentive stock options, or ISOs, eligible for the special tax treatment described below, or nonstatutory stock options. No option may have an exercise price that is less than the fair market value of the common stock on the date of grant or a term of more than ten years. An option may be exercised by the payment of the option price in cash or with such other lawful consideration as the Compensation Committee may determine, including by delivery of shares of common stock owned by the optionholder, by a broker-assisted cashless exercise, or by Enanta retaining shares otherwise issuable pursuant to the option.
Restricted Stock. Our Compensation Committee may grant shares of common stock that are only earned if specified conditions, such as a completing a term of employment or satisfying pre-established performance goals, are met and that are otherwise subject to forfeiture. Shares of restricted stock may not be sold, transferred or otherwise encumbered until earned, unless the Compensation Committee provides otherwise.
Restricted Stock Units. Our Compensation Committee may grant units that represent the right to receive shares of our common stock, subject to such terms, restrictions, conditions, performance criteria, vesting requirements, settlement terms, and payment rules, if any, as the Committee shall determine.
Unrestricted Stock. Our Compensation Committee may grant shares of common stock that are not subject to restrictions or forfeiture.
Stock Appreciation Rights. Our Compensation Committee may grant stock appreciation rights, or SARs, where the participant receives cash, shares of common stock, or other property, or a combination thereof, as determined by the Compensation Committee, equal in value to the difference between the measurement price of the SAR and the fair market value of the common stock on the date of exercise. SARs may be granted in tandem with options (at or after award of the option) or alone and unrelated to an option. SARs in tandem with an option shall terminate to the extent that the related option is exercised, and the related option shall terminate to the extent that the tandem SARs are exercised. SARs granted in tandem with options shall have a measurement price not less than the exercise price of the related option. SARs granted alone and unrelated to an option shall have a measurement price not less than 100% of the Fair Market Value of the common stock on the date of award or on such future date as the Committee may determine is the grant date of such award.
Federal Income Tax Consequences Relating to Awards
Incentive Stock Options. An optionee does not realize taxable income upon the grant or exercise of an incentive stock option, known as an ISO, under the 2019 Equity Plan. If no disposition of shares issued to an optionee pursuant to the exercise of an ISO is made by the optionee within two years from the date of grant or within one year from the date of exercise, then (a) upon sale of such shares, any amount realized in excess of the option price (the amount paid for the shares) is taxed to the optionee as a long-term capital gain and any loss sustained will be a long-term capital loss and (b) no deduction is allowed to Enanta for Federal income tax purposes. The exercise of ISOs gives rise to an adjustment in computing alternative minimum taxable income that may result in alternative minimum tax liability for the optionee.
If shares of common stock acquired upon the exercise of an ISO are disposed of prior to the expiration of the two-year and one-year holding periods described above, referred to as a disqualifying disposition, then (a) the optionee realizes ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of the shares at exercise (or, if less, the amount realized on a sale of such shares) over the option price thereof and (b) Enanta is entitled to deduct this amount. Any further gain realized is taxed as a capital gain, which will be long-term if the shares were held for more than one year following exercise and does not result in any deduction to Enanta. A disqualifying disposition in the year of exercise will generally avoid the alternative minimum tax consequences of the exercise of an ISO.
Non-statutory Stock Options. No income is realized by the optionee at the time a non-statutory option is granted. Upon exercise, (a) ordinary income is realized by the optionee in an amount equal to the difference between the option price and the fair market value of the shares on the date of exercise and (b) Enanta receives a tax deduction for the same amount. Upon disposition of the shares, appreciation or depreciation after the date of exercise is treated as a capital gain or loss, which will be short-term or long-term depending upon how long the shares have been held and will not result in any deduction by Enanta.
16
Restricted Stock. Awards of restricted stock that are non-transferable and subject to forfeiture are generally not taxable to the recipient until the shares vest. When the shares vest, the recipient realizes compensation income equal to the difference between the amount paid for the shares and their fair market value at the time of the vesting, and we are entitled to a corresponding deduction. The tax is payable for the year in which the vesting occurs, regardless of whether the shares are sold at that time. Upon subsequent disposition of the shares, any appreciation or depreciation is treated as short-term or long-term capital gain or loss, depending on the length of time the recipient has held the shares after the date on which the shares vested.
Instead of being taxed when the shares vest, a recipient may elect to be taxed in the year the shares are awarded by filing a “Section 83(b) election” with the Internal Revenue Service within 30 days after issuance of the restricted shares. The recipient then realizes compensation income in the year of the award equal to the difference between the amount paid for the shares and their fair market value at the time of issuance, and Enanta is entitled to a corresponding deduction at that time. Upon subsequent disposition of the shares, any appreciation or depreciation is treated as short-term or long-term capital gain or loss, depending on the length of time the recipient has held the shares since the date of receipt of the shares.
Unrestricted Stock. Generally, a recipient will be taxed at the time of the grant of the award. The fair market value of the shares at that time will be treated as ordinary income and Enanta is entitled to receive a tax deduction for the amount reported as ordinary income. Upon disposition of the shares, any appreciation or depreciation since the time of grant is treated as short-term or long-term capital gain or loss, depending on the length of time the recipient has held the shares.
Restricted Stock Units. A recipient does not realize taxable income upon the grant or vesting of a restricted stock unit. When a stock unit is settled, i.e. when the underlying share of common stock is issued to the recipient, the recipient realizes ordinary income in an amount equal to the fair market value of the shares distributed to settle the award, and Enanta is entitled to a tax deduction for such amount. If the award is settled in shares, then upon disposition of the shares any subsequent appreciation or depreciation is treated as short- or long-term capital gain or loss, depending on the length of time the recipient has held the shares since the date of settlement.
Internal Revenue Code Section 162(m) Limitation on Deductibility of Certain Equity Awards
After enactment of the Tax Cuts and Jobs Act of 2017, United States tax law generally does not allow publicly-held companies to obtain tax deductions for compensation of more than $1.0 million paid in any year to any of the chief executive officer, the chief financial officer and the next three highest paid executive officers, as well as any officer who was treated as a covered employee under Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended, for any year beginning after December 31, 2016 (each, a “covered employee”). As a result, Enanta is not entitled to a compensation deduction with respect to awards under the 2019 Equity Plan to a covered employee to the extent the aggregate amount payable results in total compensation in excess of the $1.0 million limit.
Equity Compensation Plan Information
The following table provides information about the securities authorized for issuance under the Company's equity compensation plans as of September 30, 2021:
Equity Compensation Plan Information
|
Equity Compensation Plan 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) |
|
4,192,171 |
|
|
(2 |
) |
$ |
44.68 |
|
|
|
1,282,098 |
|
(3)(4) |
|
|
Equity compensation plans not approved by security holders |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
|
4,192,171 |
|
|
|
|
|
|
|
|
|
1,282,098 |
|
|
|
|
(1) |
Consists of the 2019 Equity Plan, the 2012 Equity Plan, the 1995 Equity Plan and our Employee Stock Purchase Plan. |
17
|
|
(2) |
Consists of shares of our common stock issuable upon exercise of outstanding options, restricted stock units and performance share units issued under the 2019 Equity Plan, the 2012 Equity Plan and the 1995 Equity Plan. |
|
|
|
(3) |
Consists of 1,096,098 shares of our common stock reserved for future issuance under the 2019 Equity Plan and 186,000 shares reserved for issuance under our Employee Stock Purchase Plan. |
|
|
|
(4) |
As of December 31, 2021, after annual equity awards in the quarter then ended, only 510,961 shares of our common stock remained available for future issuance under the 2019 Equity Incentive Plan. |
|
New Plan Benefits Table
The issuance of any awards under the 2019 Equity Plan will be at the discretion of our Compensation Committee. Therefore, it is not possible to determine the amount or form of any award that will be granted to any individual in the future.
Proposed Approval of Additional Shares to be Reserved for Issuance under the 2019 Equity Plan
We are seeking stockholder approval of the increase in the number of shares of our common stock reserved for issuance under the 2019 Equity Plan by 1,050,000 shares. If Proposal 2 is approved by the requisite vote of stockholders, the Company intends to register subsequently the additional shares reserved for issuance under the 2019 Equity Incentive Plan by filing a registration statement on Form S-8.
The preceding summary of the 2019 Equity Plan is qualified in its entirety by reference to the full text of the 2019 Equity Plan, which is set forth as Appendix A to this proxy statement filed with the SEC.
Vote Required
The affirmative vote of a majority of the shares represented in person or by proxy at the annual meeting and voted on this proposal will constitute the approval of the amendment to increase the number of shares of our common stock reserved for issuance under our 2019 Equity Plan by 1,050,000 shares. Abstentions and broker non-votes will not be treated as votes cast for the purpose of determining the outcome of this proposal.
Recommendation
We recommend a vote "FOR" the proposal to approve the amendment to the 2019 Equity Incentive Plan.
18
ADVISORY VOTE TO APPROVE THE COMPENSATION PAID TO
OUR NAMED EXECUTIVE OFFICERS
We are providing our stockholders with the opportunity to cast an advisory (non-binding) vote on executive compensation, also known as a “say-on-pay” vote. In light of the vote of our stockholders recommending annual say-on-pay votes at our 2020 annual meeting of stockholders, we intend to continue to seek this input on an annual basis.
The say-on-pay vote is a non-binding vote on the compensation paid to our named executive officers, as described elsewhere in this proxy statement under the heading “Executive Compensation,” and includes the “Compensation Discussion and Analysis,” the tabular disclosure regarding compensation of our named executive officers and the accompanying narrative disclosure set forth elsewhere in this proxy statement. The Executive Compensation section describes our compensation philosophy and objectives, how we determine executive compensation, the elements of total compensation and the actual compensation of our named executive officers identified in that section. Our Compensation Committee and our Board believe that the policies and practices described in the “Compensation Discussion and Analysis” are effective in implementing our compensation philosophy and objectives and that the compensation of our named executive officers for 2021 reflects and supports those policies and practices.
The say-on-pay vote is not binding on our Compensation Committee or our Board. However, our Compensation Committee and the Board will take into account the result of the vote when determining future executive compensation arrangements.
Recommendation
We recommend a vote “FOR” the proposal to approve, on an advisory basis, the compensation paid to our named executive officers, as described in this proxy statement.
RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The firm of PricewaterhouseCoopers LLP, an independent registered public accounting firm, has audited our financial statements for each of the years ended September 30, 2021, 2020 and 2019. Our Audit Committee has appointed them to serve as our auditors for the fiscal year ending September 30, 2022. Detailed disclosure of the audit and tax fees we paid to PricewaterhouseCoopers LLP in 2021 and 2020 may be found in the “Audit Fees” section of this proxy statement. Based on these disclosures and information in the Audit Committee Report provided elsewhere in this proxy statement, our Audit Committee is satisfied that PricewaterhouseCoopers LLP is sufficiently independent of management to perform its duties properly. Although not legally required to do so, our Board considers it desirable to seek, and recommends, stockholder ratification of our selection of PricewaterhouseCoopers LLP as our independent registered public accounting firm for fiscal year 2022. If the stockholders fail to ratify our selection, the Audit Committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in the best interest of Enanta and its stockholders.
Recommendation
We recommend a vote “FOR” ratification of the appointment of PricewaterhouseCoopers LLP as our independent registered public accounting firm.
19
Board Leadership and Independence. Our Board of Directors has determined that Mark Foletta and Lesley Russell, as well as four of the other directors continuing their terms after the 2022 Annual Meeting, are independent directors as defined by applicable Nasdaq Stock Market standards governing the independence of directors. Jay R. Luly, Ph.D., our President and Chief Executive Officer, is not considered independent.
The Board of Directors sets company strategy and provides oversight and accountability for our Chief Executive Officer and management. Dr. Carter has served as our non-executive Chairman of the Board since December 2015. Dr. Carter presides over meetings of the Board of Directors and provides guidance to our Chief Executive Officer. Dr. Luly is responsible for setting the strategic direction for our Company and the day-to-day leadership and performance of the Company. We believe that separation of our Board of Directors and executive leadership preserves the independence of these roles and maximizes performance.
Board Meetings and Committees. Our Board of Directors held seven meetings during 2021, and the independent directors held executive sessions at four of the meetings of the Board. During 2021, each of the directors then in office attended at least 75% of the aggregate of all meetings of the Board of Directors and all meetings of the committees of the Board of Directors on which such director then served.
Continuing directors and nominees for election as directors in a given year are required to attend the annual meeting of stockholders, barring significant commitments or special circumstances. All of our directors then serving as directors attended our 2021 annual meeting of stockholders.
Stockholder Communications. Any stockholder wishing to communicate with our Board of Directors, a particular director or the chair of any committee of the Board of Directors may do so by sending written correspondence to our principal executive offices, to the attention of the Chairman of the Board. All such communications will be delivered to the Board of Directors or the applicable director or committee chair.
During 2021, our Board of Directors had three standing committees: Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. The following matrix shows the composition and leadership of each of these standing committees:
|
Board Committees |
|||||||
|
Committee |
Carter |
Foletta |
Hata |
Luly |
Peterson |
Russell |
Vance |
|
Audit |
|
Chair |
|
|
|
|
|
|
Compensation |
|
|
|
|
Chair |
|
|
|
Nominating and Corporate Governance |
|
|
|
|
|
|
Chair |
Audit Committee. Our Audit Committee’s responsibilities include:
|
|
• |
appointing, approving the compensation of and assessing the independence of our registered public accounting firm; |
|
|
• |
overseeing the work of our registered public accounting firm, including through the receipt and consideration of reports from such firm; |
|
|
• |
reviewing and discussing with management and the registered public accounting firm our annual and quarterly financial statements and related disclosures; |
|
|
• |
monitoring our internal control over financial reporting, disclosure controls and procedures and code of business conduct and ethics; |
|
|
• |
overseeing our risk assessment and risk management policies; |
20
|
|
|
|
|
• |
establishing policies regarding hiring employees from the registered public accounting firm and procedures for the receipt and retention of accounting related complaints and concerns; |
|
|
• |
meeting independently with our registered public accounting firm and with our management; |
|
|
• |
reviewing and approving or ratifying any related person transactions; and |
|
|
• |
preparing the Audit Committee Report required by SEC rules. |
The members of our Audit Committee during 2021 were Messrs. Foletta and Vance and Dr. Russell, with Mr. Foletta serving as Chair of the Audit Committee. All members of our Audit Committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and Nasdaq. Our Board has determined that each of Messrs. Foletta and Vance is an audit committee financial expert as defined under the applicable rules of the SEC and has the requisite financial sophistication as defined under the applicable rules and regulations of Nasdaq. Our Board has determined that each of Messrs. Foletta and Vance and Dr. Russell is independent under the applicable rules of Nasdaq and under the applicable rules of the SEC. The Audit Committee held five meetings during 2021. The Audit Committee operates under a written charter that satisfies the applicable standards of the SEC and Nasdaq. A copy of the Audit Committee charter is available in the “Investors – Corporate Governance” section of the Company’s website at www.enanta.com.
Compensation Committee. Our Compensation Committee’s responsibilities include:
|
|
• |
annually reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer; |
|
|
• |
reviewing and approving, or making recommendations to our board of directors with respect to, the compensation of our chief executive officer and our other executive officers; |
|
|
• |
overseeing an evaluation of our senior executives; |
|
|
• |
overseeing and administering our cash and equity incentive plans; |
|
|
• |
reviewing and making recommendations to our board of directors with respect to director compensation; and |
|
|
• |
reviewing and discussing annually with management our executive compensation disclosure, and our Compensation Committee Report, required by SEC rules. |
The members of our Compensation Committee during 2021 were Drs. Carter and Golumbeski (until his retirement from the Board in February 2021), Mr. Hata since his election in August 2021, and Mr. Vance and Ms. Peterson. Ms. Peterson serves as Chair our Compensation Committee. None of the members of our Compensation Committee has been one of our officers or employees, other than Mr. Hata who was a business development executive at Enanta before 2011. None of our executive officers currently serves, or in the past fiscal year has served, as a member of the Board or Compensation Committee of any entity that has one or more executive officers on our Board or Compensation Committee. Each of the members of our Compensation Committee is independent under the applicable rules and regulations of Nasdaq and is a “non-employee director” as defined in Rule 16b-3 promulgated under the Exchange Act. Our Compensation Committee held nine meetings during 2021. Our Compensation Committee operates under a written charter adopted by the Board, which is available in the “Investors – Corporate Governance” section of our website at www.enanta.com.
For more information regarding the authority of our Compensation Committee, the extent of delegation to our Compensation Committee, our processes and procedures for determining executive compensation and the role of executive officers and compensation consultants in determining or recommending the amount or form of compensation for directors and executive officers, please see “Executive Compensation – Compensation Discussion and Analysis” in this proxy statement.
Nominating and Corporate Governance Committee. Our Nominating and Corporate Governance Committee’s responsibilities include:
|
|
• |
identifying individuals qualified to become members of our board of directors; |
|
|
• |
recommending to our board of directors the persons to be nominated for election as directors and to each of our board’s committees; |
|
|
• |
reviewing and making recommendations to our board of directors with respect to our board leadership structure; |
21
|
|
• |
reviewing and making recommendations to our board of directors with respect to management succession planning; |
|
|
• |
developing and recommending to our board corporate governance principles; and |
|
|
• |
overseeing an annual self-evaluation by our board of directors. |
The current members of our Nominating and Corporate Governance Committee are our independent directors, namely Drs. Carter and Russell, Messrs. Foletta, Hata and Vance and Ms. Peterson. Mr. Vance chairs the Nominating and Corporate Governance Committee. Each of the members of our Nominating and Corporate Governance Committee is an independent director under the applicable rules and regulations of Nasdaq relating to Nominating and Corporate Governance Committee independence. The Committee held one meeting during 2021. The Nominating and Corporate Governance Committee operates pursuant to a written charter, which is available in the “Investors – Corporate Governance” section of our website at www.enanta.com.
The Nominating and Corporate Governance Committee considers candidates for Board membership suggested by its members and the Chief Executive Officer. It typically establishes a subcommittee (the “Recruiting Subcommittee”) to work with an independent recruiting firm and Dr. Luly to help identify and recruit additional candidates. This was the process that resulted in the recruitment of Drs. Carter and Russell, Messrs. Foletta and Hata and Ms. Peterson. Additionally, in selecting nominees for directors, the Nominating and Corporate Governance Committee will review candidates recommended by stockholders in the same manner and using the same general criteria as candidates recruited by the committee and/or recommended by the Board. Any stockholder who wishes to recommend a candidate for consideration by the committee as a nominee for director should follow the procedures described later in this proxy statement under the heading “Stockholder Matters – Stockholder Recommendations for Director Nominations.” The Recruiting Subcommittee will also consider whether to nominate any person proposed by a stockholder in accordance with the provisions of our bylaws relating to stockholder nominations as described later in this proxy statement under the heading “Stockholder Matters – Deadline for Stockholder Proposals and Director Nominations.”
This process used by the Recruiting Subcommittee in recent years is likely to be the process for any future director searches. Typically the Recruiting Subcommittee starts the director search process by identifying a mix of types of experience and personal characteristics that the Recruiting Subcommittee considers most valuable to complement the skills and experience of existing directors. Once the Recruiting Subcommittee has identified prospective nominee candidates, the Subcommittee then makes an initial determination as to whether to conduct a full evaluation of any candidate. This initial determination is based on the information provided to the Subcommittee in a report from the recruiting firm, as well as the Subcommittee’s own knowledge of the prospective candidate. The preliminary determinations are based primarily on the need for additional Board members to fill vacancies or expand the size of the Board and the likelihood that the prospective nominee could satisfy the evaluation factors described below. The Subcommittee then evaluates the prospective nominees against the standards and qualifications set out in our Corporate Governance Guidelines, which include among others:
|
|
• |
the extent to which the prospective nominee’s skills, experience and perspective add to the range of talent appropriate for the Board and whether such attributes are relevant to our business and industry; |
|
|
• |
the prospective nominee’s ability to dedicate the time and resources sufficient for the diligent performance of Board duties; |
|
|
• |
whether the prospective nominee meets the independence requirements and Audit Committee and Compensation Committee qualifications defined under applicable Nasdaq Stock Market standards and if appropriate, the Audit Committee financial expert requirements defined under applicable SEC rules and regulations; and |
|
|
• |
the extent to which the prospective nominee holds any position that would conflict with a director’s responsibilities to Enanta. |
The Committee seeks a variety of occupational and personal backgrounds on the Board in order to obtain a range of viewpoints, perspectives and skills.
If the Recruiting Subcommittee’s initial evaluation is positive, the members of the Recruiting Subcommittee each interview the candidate. Upon completion of this evaluation and interview process, the Recruiting Subcommittee confers informally and then makes a recommendation to the full Board as to whether the candidate should be nominated by the Board and invites other directors to interview the candidate in person or by phone. The Board then determines whether to approve the nominee after considering the recommendation and report of the Chair of the Recruiting Subcommittee.
In November 2021, the Nominating and Corporate Governance Committee established a subcommittee (the “Nominating Subcommittee”) for the purpose of determining the director nominees for election at the 2022 Annual
22
Meeting. The Nominating Subcommittee consists of Dr. Carter, Ms. Peterson and Messrs. Hata and Vance, all of whom are independent directors. In January 2022, the Nominating Subcommittee approved the director nominees for election at the 2022 Annual Meeting.
Risk Oversight. The Board’s role in our risk oversight process includes receiving reports from time to time from the Audit Committee on areas of material risk to the Company, including operational, financial, legal and regulatory, and strategic and reputational risks.
Certain Relationships and Related Transactions
Policy on Related Person Transactions
Our Board of Directors has adopted a written Policy on Related Person Transactions that sets forth our policies and procedures for the reporting, review, and approval or ratification of each related person transaction. Our Audit Committee is responsible for implementing this policy and determining that any related person transaction is in our best interests. The policy applies to transactions and other relationships that would need to be disclosed in this proxy statement as related person transactions pursuant to SEC rules. In general, these transactions and relationships are defined as those involving a direct or indirect interest of any of our executive officers, directors, nominees for director and 5% stockholders, as well as specified members of the family or household of any of these individuals or stockholders, where we or any of our affiliates have participated in the transaction (either as a direct party or by arranging the transaction) and the transaction involves more than $120,000. In adopting this policy, our Board expressly excluded from its coverage any transactions, among others, involving compensation of our executive officers or directors that it or our Compensation Committee has expressly approved.
We have not engaged in any transactions with related persons since the beginning of our 2021 fiscal year.
Compensation Committee Interlocks and Insider Participation
During 2021, our Compensation Committee members were Drs. Carter and Golumbeski (until his retirement from the Board in March 2021), Mr. Hata upon his election to the Board in August 2021, and Ms. Peterson and Mr. Vance, none of whom currently is, or formerly was, an officer or employee of Enanta, other than Mr. Hata who was a business development executive of Enanta before 2011. None of our executive officers served as a member of the board of directors or compensation committee of any other company that had one or more executive officers serving as a member of our Board of Directors or Compensation Committee.
The following section provides biographical information as of December 15, 2021 about our current executive officers:
|
Name |
|
Age |
|
Position |
|
Jay R. Luly, Ph.D. |
|
65 |
|
President and Chief Executive Officer |
|
Paul J. Mellett |
|
66 |
|
Senior Vice President, Finance & Administration and Chief Financial Officer |
|
Yat Sun Or, Ph.D. |
|
69 |
|
Senior Vice President, Research & Development and Chief Scientific Officer |
|
Tara L. Kieffer, Ph.D. |
|
44 |
|
Senior Vice President, New Product Strategy and Development |
|
Brendan Luu |
|
47 |
|
Senior Vice President, Business Development |
|
Nathalie Adda, M.D. |
|
56 |
|
Senior Vice President and Chief Medical Officer |
|
Nathaniel S. Gardiner, J.D. |
|
68 |
|
Senior Vice President and General Counsel |
Jay R. Luly, Ph.D., has served as our President and Chief Executive Officer and as a member of our board of directors since July 2003. Prior to joining Enanta, Dr. Luly was an Entrepreneur in Residence at Oxford Bioscience Partners. Before joining Oxford in March 2002, Dr. Luly held the positions of Senior Vice President, Research and Development Operations and Senior Vice President, Discovery Strategy and Operations at Millennium Pharmaceuticals following Millennium’s merger with LeukoSite, Inc., where he had served as Senior Vice President, Drug Discovery and Preclinical Development. Prior to joining LeukoSite, he held a number of senior drug discovery positions at Abbott Laboratories from 1983 to 1997. Dr. Luly received a B.S. from the University of Illinois at Urbana-Champaign and a Ph.D. in synthetic organic chemistry from the University of California, Berkeley.
Paul J. Mellett has served as our Senior Vice President, Finance & Administration and Chief Financial Officer since September 2003. From April 2001 through August 2003, he held the position of Senior Vice President and Chief Financial Officer of Essential Therapeutics, Inc., a public biotechnology company. Previously, Mr. Mellett was the Chief Financial Officer and Vice President of Administration at GelTex Pharmaceuticals, Inc., a publicly held biotechnology company that was acquired by Genzyme Corporation in December 2000. From 1994 to 1997, Mr. Mellett
23
served as Chief Financial Officer of Marshall Contractors, a construction management firm specializing in the pharmaceutical, biotechnology and semiconductor industries, which was acquired by Fluor Corporation in 1996. From 1977 to 1994, Mr. Mellett was employed with Deloitte & Touche LLP, a public accounting firm, and was promoted to Audit Partner in 1989. Mr. Mellett received a B.S. in Business Administration from Boston College.
Yat Sun Or, Ph.D., has been our Senior Vice President, Research & Development and Chief Scientific Officer since November 1999. Prior to joining Enanta, Dr. Or held key leadership positions at Abbott Laboratories from 1985 to 1999, where he received two Chairman’s Awards for his outstanding research, which led to the discovery and development of immunosuppressant and antibacterial drugs. Prior to Abbott, Dr. Or was a member of the cardiovascular drug discovery team at Schering-Plough. Dr. Or received his Ph.D. in Organic Chemistry from the University of Chicago and completed Postdoctoral Fellowships at Ohio State University and Indiana University.
Tara L. Kieffer, Ph.D., joined us as Senior Vice President, New Product Strategy and Development in December 2020. Previously Dr. Kieffer held positions of increasing responsibility at Vertex Pharmaceuticals Incorporated, a biotechnology company, most recently as Vice President, External Innovation, Business Development since October 2018. Prior to that she was Vice President, Integrated Program Management since March 2017, and Senior Director, Chief of Staff to the Chief Medical Officer from October 2014 to March 2017. In her previous ten years at Vertex she advanced as a virologist, becoming Director, Clinical Biomarkers in the Department of Translational Medical Sciences. Dr. Kieffer did her graduate work at Johns Hopkins School of Medicine, Department of Molecular Biology and Genetics from 1999 to 2004. Dr. Kieffer received her B.A. from Colgate University and received her Ph.D. in Immunology from Johns Hopkins University School of Medicine.
Brendan Luu joined us as Senior Vice President, Business Development in January 2021. During the prior 17 years Mr. Luu held business development positions of increasing responsibility at Merck KGaA, a pharmaceutical company, most recently as Vice President and Global Head of Oncology Business Development since 2018. Previously Mr. Luu was Senior Director and Global Head of Business Development, Strategic Initiatives where he led strategy and partnering efforts for Merck KGaA’s late-stage pipeline. Earlier in his career Mr. Luu held various roles with BASF Corporation and Tyco International, working in engineering, sales and marketing. Mr. Luu his B.A. from Drexel University and received his M.B.A. from the New York University Stern School of Business.
Nathalie Adda, M.D., has been our Senior Vice President and Chief Medical Officer since June 2015 and is retiring at the end of February 2022, after which she will be a consultant to Enanta for a transition period. Prior to joining Enanta, Dr. Adda was Chief Medical Officer, VP Clinical Development, Medical and Regulatory Affairs at Transgene SA, where she led the Oncology and Infectious Disease programs since 2012. From 2006 to 2012, she was Senior Medical Director and the medical lead for the Incivek® (telaprevir) Clinical Program at Vertex Pharmaceuticals, Inc. Earlier in her career, Dr. Adda held medical and research positions at Gilead, Triangle Pharmaceuticals and Boehringer Ingelheim, where she worked on programs for infectious diseases such as human immunodeficiency virus, hepatitis B virus and hepatitis C virus. Dr. Adda is a graduate of the University of Paris, where she received a Doctorate in Medicine, as well as a Master’s Degree in Biostatistics, and where she did postgraduate work in infectious diseases.
Nathaniel S. Gardiner, J.D., has served as our Senior Vice President and General Counsel since May 2014 and has served as our Secretary since 1995. Previously Mr. Gardiner was a corporate and securities law partner for 25 years, most recently at Edwards Wildman Palmer LLP since October 2011, previously at Edwards Angell Palmer & Dodge LLP since November 2005, and before that at Palmer & Dodge LLP, where he represented Enanta and several other biotechnology companies. Mr. Gardiner received his A.B. from Harvard College and his J.D. from the University of Virginia School of Law.
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Compensation Discussion and Analysis
This section provides an overview and analysis of our executive compensation program, including its design and objectives, as well as the rationale applied and the decisions made under our program with respect to the compensation paid or awarded in fiscal 2021 to Drs. Luly, Or and Kieffer and Messrs. Mellett and Luu, whom we refer to collectively as our Named Executive Officers, or NEOs. Later in this proxy statement, you will find a series of tables containing specific information about the compensation earned by these individuals in fiscal 2021. The discussion below is intended to help you understand the detailed information provided in those tables and to put that information into context based on our overall compensation program for our Named Executive Officers.
Our Executive Compensation Philosophy
We rely on the expertise of our executive management team to drive overall company performance. Our compensation program is intended to align the interests of our Named Executive Officers with those of our stockholders by measuring and rewarding their performance against our research and development objectives. Consistent with this pay-for-performance philosophy, our Compensation Committee has structured certain elements of the compensation program for our executive officers, including our NEOs, to reward performance by emphasizing equity compensation opportunities, as well as variable cash incentives that are based on corporate performance measured against annual objectives that are pre-established by our Compensation Committee. In addition, a significant component of the executive equity compensation program is based on corporate performance against two-year research and development and business development objectives and relative total stockholder return.
Our Compensation Committee has determined that our executive compensation program will generally over time target the executive team’s base salaries, total target cash compensation and time-based equity awards to those of executives in the 50th percentile of comparable executives in our peer group companies. In addition, our Compensation Committee has expanded our executive team’s total equity compensation opportunity by including performance awards that target approximately the difference between the equity compensation of the 75th percentile of comparable executives in our peer group companies and the equity compensation of the 50th percentile in our peer group companies. These awards vest in part only if Enanta achieves high levels of performance against the company’s longer-term research and development objectives and in part if the value of Enanta’s stock increases more relative to at least 65% of the traded stocks of other public biotechnology companies in the Nasdaq Biotechnology Index.
Our compensation philosophy is designed to promote our corporate objectives. Our guiding principles focus on:
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Attracting, retaining and motivating top talent; |
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Aligning executive compensation with the attainment of our research and development objectives and business strategy; |
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Rewarding executives for achievement of near and long-term individual and corporate goals; and |
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Aligning executive compensation with long-term stockholder value and accomplishments that we believe will increase the value of Enanta in the long term. |
Compensation Committee
Our board of directors has delegated authority to our Compensation Committee, which currently consists of four of our six non-employee directors, to provide oversight of our executive compensation program for our NEOs as well as our other executive officers. Our Compensation Committee reviews and evaluates the executive compensation program on an annual basis to ensure that the program is aligned with our compensation philosophy. Since our compensation program is administered on a calendar year basis, our Compensation Committee at its regularly scheduled November meeting reviews our corporate performance for the year and takes the following actions:
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determines annual variable cash compensation; |
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sets base salary and target percentages of base salary for variable cash compensation for the calendar year beginning January 1; |
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grants stock option awards; and |
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determines the number of shares that will be subject to performance unit awards. |
Our Compensation Committee reviews these actions with the other non-employee directors for their input before finalizing them. In addition, our Compensation Committee makes recommendations to our Board of Directors, based on recommendations made by our compensation consultant, regarding non-employee director fees and equity awards.
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Role of Compensation Consultant
Our Compensation Committee retains each year an independent compensation consulting firm to provide advisory services concerning our compensation programs for our executive officers. This consulting firm also reviews the fees and equity awards for non-employee directors. These services include recommendations regarding our compensation practices and, based on direction from our Compensation Committee, detailed analyses and recommendations based on the percentile rankings of comparable executives, as well as non-employee directors, in our peer group companies.
Radford Consulting, an AON Consulting company, which we refer to as Radford, has been selected by our Compensation Committee for this role and has assisted the committee by providing the following services in fiscal 2021:
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Competitive benchmarking and market data analysis, including data used for determining each of the components of the compensation of our CEO, each of our other NEOs, and other members of our executive management team, as well as for our non-employee directors; |
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Advice on industry compensation practices, including the structure and mix of equity compensation; and |
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Participation in several of our Compensation Committee’s meetings in fiscal 2021. |
In addition, the members of the Radford team provide advice to our Compensation Committee. Other than providing data as mentioned below, the Radford team does not provide any other services to Enanta. Management works with Radford at the direction of the Committee to provide the consultant with all information it deems necessary to advise the Committee. Radford follows internal guidelines and practices to guard against any conflict of interest and to ensure the objectivity of its advice and has confirmed the same in writing to our Compensation Committee. After review and consultation with Radford, our Compensation Committee has determined that Radford is independent of the company and the members of the Committee.
Role of Company Management
Our CEO makes recommendations to our Compensation Committee concerning our company performance relative to corporate performance objectives and proposed compensation of the other NEOs and any other executive officers. In addition, our CEO leads management in setting the research and development objectives that are used as the performance objectives for the variable cash compensation plan, subject to Compensation Committee review and approval, and he reviews any adjustments to our proposed peer group and provides suggestions to Radford for inclusions or exclusions. Our CEO works closely with our Compensation Committee to ensure that our Compensation Committee is provided with the appropriate information to make its decisions, including with respect to the performance of each of the other executive officers relative to each officer’s individual annual performance objectives, and to propose recommendations for Compensation Committee consideration regarding the compensation elements for those NEOs. Once our CEO has made his recommendations to our Compensation Committee, this committee reviews them, including consultation with the other non-employee directors regarding our CEO’s compensation, and makes the final compensation determinations. Once our Compensation Committee evaluates compensation data from Radford and makes its final determinations for the other NEOs and other executive officers, those determinations are delivered to our CEO, who then communicates them to the management team.
Benchmarking and Use of Peer Group Data
Our executive compensation program seeks to provide total compensation at pay levels of executives with similar roles at comparable companies when targeted levels of performance are achieved. Use of survey data from our peers plays a significant role in the structure of the compensation program because it is a primary input in setting target levels for base salaries, variable cash compensation and equity awards. These data also help to ensure that we provide compensation that is competitive with the market so that we can attract, retain and motivate talent.
As indicated above, our Compensation Committee retains Radford to conduct a study of peer companies for the purpose of reviewing the compensation levels of our executive team, including the NEOs. Radford provides proposed changes, if any, to our peer group to our Compensation Committee and our Compensation Committee then reviews the peer group and, based on the available data and input from members of the Committee, determines and approves the final peer group. Our Compensation Committee uses the peer group data to help identify a reasonable benchmark for base salaries, target variable cash compensation, time-based equity awards and target performance-based equity awards and then analyzes company and individual performance to determine whether it is appropriate to move away from this baseline. Peer group data also plays a role in determining the non-cash compensation that is paid to the NEOs, as the market data we obtain regarding companies in our peer group informs what types and amounts of non-cash compensation are appropriate for competitive purposes.
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We believe that the design of our executive compensation program, with its emphasis on reward for achievement of the key objectives that comprise our annual and long-term business plan, does not create incentives for our executives to take excessive or unnecessary risks that could threaten the value of our company.
We also participate in compensation surveys conducted by Radford each year. The company has access to the resulting Radford reports, which are specific to the pharmaceutical and biotech industry and provide data on salaries, bonuses and equity grants for specific job functions. We use this information when reviewing the salaries and other compensation for all of our employees.
Our Compensation Committee retained Radford to conduct a competitive benchmarking analysis on executive compensation for compensation decisions that were made at this committee’s November 2020 meeting. As an initial step in that process, Radford reviewed the prior year’s criteria and, based on changes in our headcount and market capitalization, recommended changes for determining a peer group of companies that each met some or all of the following criteria, the first three of which were the primary criteria:
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Public biopharmaceutical companies with a product in Phase 2 or Phase 3 clinical development or on the market; |
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Market values generally between $400 million and $4 billion (preference for positive total stockholder returns); |
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Annual revenue between $75 million and $675 million; |
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Research and development expenditures between $40 million and $250 million; and |
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Under 600 employees. |
Radford reviewed the peer group approved by our Compensation Committee in calendar 2019 and determined that the profiles of a number of these companies were well outside of the calendar 2020 criteria. As a result, Acceleron Pharma and Mirati Therapeutics were removed from the peer group, primarily due to their being outside of our market capitalization criteria, and Momenta Pharmaceuticals was removed due to its announced acquisition. Assembly Biosciences, Madrigal Therapeutics and Poseida Therapeutics were then added to our peer group.
Based on the criteria set forth above, the final group of peer companies approved by our Compensation Committee in calendar 2020 was composed of the following companies:
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Akebia Therapeutics Corcept Therapeutics FibroGen ImmunoGen Ligand Pharmaceuticals Omeros Sangamo Therapeutics Vanda Pharmaceuticals
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Arena Pharmaceuticals Dicerna Pharmaceuticals Halozyme Therapeutics Intercept Pharmaceuticals MacroGenics Poseida Therapeutics Supernus Pharmaceuticals |
Assembly Biosciences Esperion Therapeutics Heron Therapeutics Karyopharm Therapeutics Madrigal Therapeutics PTC Therapeutics Theravance Biopharma |
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For purposes of year-end calendar 2021 compensation analysis and determinations, which occurred after the fiscal 2021 data presented in this proxy statement, our Compensation Committee, with the assistance of Radford, made several changes to the peer group in October 2021. At that time, the criteria were adjusted to focus on companies with lead products in Phase 2 or Phase 3 clinical development or on the market, annual revenues in the range of $75 million to $675 million and a number of employees under 600, while changing the range of research and development expense to $50 million to $300 million. Our Compensation Committee removed from the peer group Assembly Biosciences and Esperion Therapeutics based on their market capitalizations. Based on the revised criteria, our Compensation Committee added Xencor to our peer group for 2021.
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Advisory “Say-on-Pay” Vote
At our 2021 Annual Meeting of Stockholders, approximately 83% of the shares voted on our annual “say-on-pay” proposal were cast in favor of the compensation of our named executive officers as disclosed in our 2021 proxy statement. The Compensation Committee considered the results of the 2021 shareholder advisory vote on executive compensation when determining the Company’s 2022 executive and NEO compensation, and will continue to consider the results of shareholder advisory votes on executive compensation when making future decisions relating to our executive compensation programs and compensation for NEOs.
Executive Compensation Elements
The main components of our executive compensation program are:
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Base salary; |
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Annual variable cash compensation; |
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Long-term equity incentives awards consisting of: |
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stock options and restricted stock units with time-based vesting; |
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restricted stock units with two types of performance-based vesting; and |
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Benefits, including 401(k) safe harbor match and medical benefits. |
The following discussion describes how each of these elements of compensation fit into our overall compensation objectives and describes how and why compensation decisions were made by our Compensation Committee with respect to each element based on our compensation consultant’s analysis of competitive market data and our annual review of corporate and individual performance.
Base Salaries
Base salaries are paid in order to provide a fixed component of compensation for our NEOs and other executive officers to reward the individual value that each executive officer brings to us through experience and past and expected future contributions to our success. At our Compensation Committee meeting on November 18, 2020, the Committee established the base salaries of the NEOs for calendar year 2021 to be within a range that is competitive with salaries paid to executives in the 50th percentile among comparable executives at companies in our peer group. Our Compensation Committee increased the base salary of our CEO by approximately 4%, and each of our continuing NEOs by approximately 3%, for calendar year 2021 from 2020 levels, primarily based on the applicable peer group data for comparable executives. Dr. Kieffer and Mr. Luu were not eligible for increases since they were just starting employment at Enanta in December 2020 and January 2021, respectively.
Annual Variable Cash Compensation
Our variable cash compensation program is intended to reward corporate performance and individual performance by providing our executive officers with an opportunity to receive additional cash compensation. Our CEO’s variable cash compensation is determined solely based on the company’s performance relative to the corporate objectives for the year. In the case of the other executive officers, variable cash compensation is based on both the company’s performance relative to the corporate objectives and our Compensation Committee’s assessment of how well the executive officer performed against his or her individual objectives during the applicable year, based substantially on the assessment of individual performance presented by our CEO. The target variable compensation is then subject to an overall limit of 150% of each NEO’s target amount.
Target Setting. Variable cash compensation targets, which are set as a percentage of base salary for all NEOs and other executive officers, were set within a range that is competitive with annual variable cash compensation paid to executives in the 50th percentile among comparable executives at companies in our peer group. Our Compensation Committee has the discretion to adjust each NEO’s target as it deems appropriate. Potential reasons for adjusting targets for variable cash compensation include considerations of pay equity within Enanta and how the officer’s base salary, upon which the variable cash compensation is based, has increased historically.
Elements of Variable Cash Compensation. For all executive officers other than the CEO, target variable cash compensation is determined based on two components: corporate performance and individual performance with 70% of variable cash compensation based on corporate performance and 30% on individual performance. The target
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percentages and the relative weighting of objectives for the NEOs for the variable cash compensation paid at the end of calendar 2021 were as follows:
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Target % for |
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Relative Weighting |
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Variable Cash |
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Corporate |
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Individual |
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Jay R. Luly, Ph.D. |
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65% |
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100% |
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0% |
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Paul J. Mellett |
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40% |
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70% |
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30% |
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Tara Kieffer, Ph.D. |
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40% |
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70% |
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30% |
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Brendan Luu |
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40% |
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70% |
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30% |
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Yat Sun Or, Ph.D. |
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40% |
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70% |
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30% |
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Corporate Performance Objectives. Near the beginning of each calendar year, our Compensation Committee, after considering the recommendations of management and our overall strategic goals, confirms our corporate objectives for the year and the proportional emphasis placed on each broad category of objectives. These objectives generally relate to categories that our Compensation Committee determines can add the most value to Enanta, such as research and development objectives, which constitute a substantial majority of the weighting of the objectives, and other factors primarily within management’s control. Because the level of sales achieved for our products licensed to AbbVie are outside of management’s control, those sales are not a factor considered in determining annual variable compensation. At the end of the year, our Compensation Committee determines the level of achievement of the corporate objectives for the year. This achievement level is then applied to the portion of each NEO’s target variable compensation determined by corporate performance for that year.
Our annual corporate performance is determined based on achievement of one or more of the key research and development objectives for the year. For calendar year 2020, our CEO proposed objectives primarily focused on the advancement of our research programs, our clinical programs and external opportunities to augment our research and development pipeline. Our Compensation Committee then reviewed and revised these objectives in November 2019 and determined their relative weighting for each category of objectives and the maximum payout for corporate performance, which was 150% of each NEO’s target variable cash compensation. Our Compensation Committee then reviewed and revised these objectives, using a relative weighting for each category of objectives similar to the weighting in calendar 2019, with the same maximum payout of 150% for corporate performance. In November 2020 our Compensation Committee then reviewed our performance against these objectives and determined a corporate performance rating based on objectives related to the following:
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Advancement of preclinical development to enable nomination of EDP-721 as an HBV RNA destabilizer candidate for clinical development; |
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Initiation of the RSVTx phase 2b study of EDP-938; |
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Advancement to enable a phase 2 study of EDP-938 in pediatric patients; |
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Initiation of two phase 1b studies of EDP-514; |
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Initiation and advancement of the ARGON-2 study of EDP-305 in NASH patients; and |
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Advancement of research in new mechanisms of action in our core disease areas. |
Our Compensation Committee, which has full discretion to determine corporate performance against our annual corporate objectives, determined that we had achieved, or would achieve, sufficient results against the calendar 2020 performance objectives, particularly in light of the challenges of the COVID-19 pandemic, which had suspended some of our clinical studies and interrupted our laboratory research during the lock-downs after March 2020, to award a corporate performance rating of 100% for calendar 2020. After reviewing our CEO’s recommendations with respect to the individual performance of the NEOs other than our CEO, our Compensation Committee also determined that our Chief Scientific Officer achieved 100% of his individual objectives, several of which were specific research and clinical development objectives closely tied to the company’s ability to achieve the corporate objectives described above, and that our Chief Financial Officer achieved 100% of his individual objectives related to the performance of his group and his individual responsibilities.
For calendar year 2021, our CEO proposed corporate objectives primarily focused on the advancement of our research programs, our clinical programs and external opportunities to augment our research and development pipeline, using a relative weighting for each category of objectives with a maximum payout of 150% for corporate performance. Our Compensation Committee then reviewed and approved these objectives in December 2020. In November 2021 our Compensation Committee reviewed our performance against these objectives and, in the context of the COVID-19 pandemic, determined a corporate performance rating based on objectives related to the following:
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Nomination of EDP-235 as our first 3CL protease candidate for treatment of SARS-CoV-2 infection and filing of an IND for its clinical development; |
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Investigation New Drug Application filing for HBV RNA destabilizer
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EDP-721 and initiation of Phase 1 study; |
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Nomination of EDP-323 as our first RSV L-inhibitor candidate; |
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Completion of two Phase 1b studies of EDP-514 (NUC-suppressed patients and viremic patients) and publication of data; |
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Delivery of first interim analysis in the ARGON-2 Phase 2b study of EDP-305; and |
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Delivery of topline data from the Phase 1 study of EDP-297. |
Our Compensation Committee determined that we had achieved, or would achieve, sufficient results against the calendar 2021 performance objectives to award a corporate performance rating of 120%. After reviewing our CEO’s recommendations with respect to the individual performance of the NEOs other than our CEO, our Compensation Committee also determined that our Chief Scientific Officer achieved an individual performance rating of 120% for his individual objectives, several of which were specific research and clinical development objectives closely tied to the company’s ability to achieve the corporate objectives described above, and that our Chief Financial Officer, Senior Vice President, New Product Strategy and Development and our Senior Vice President, Business Development achieved individual performance ratings of 95%, 100% and 100%, respectively, for their individual objectives related to the performance of their respective groups and their individual responsibilities.
Given that we have a September 30 fiscal year-end, the “Summary Compensation Table” following this discussion includes information, under the column “Non-Equity Incentive Plan Compensation”, that is a prorated blend of the actual variable cash compensation earned by each NEO in calendar 2021 and 2020 (i.e., the proration in fiscal year 2021 was 25% of variable cash compensation for performance in the calendar year ending December 31, 2020 and 75% of variable cash compensation for the calendar year ending December 31, 2021).
Long-term Equity Incentive Awards
Equity awards have the potential to be a significant component of each NEO’s compensation package. We emphasize equity awards to motivate our NEOs to drive the long-term performance of Enanta and to align their interests with those of our stockholders. We believe this emphasis is appropriate as these officers have the greatest role in establishing Enanta’s direction and should have a significant proportion of their compensation aligned with the long-term interests of stockholders. Our Compensation Committee has established two types of equity awards, each of which now has two components, to serve these long-term incentives.
Equity Awards with Time-Based Vesting. Our Compensation Committee has traditionally made annual awards of stock options to provide a certain amount of equity to officers that will vest as long as the officer continues to work at Enanta. These grants align the interests of our NEOs with those of our stockholders because the grants will only have value if the market value of our common stock increases from the date of grant. To encourage retention and focus our executives on building long-term value for our stockholders, we structure our annual stock option awards so that they vest over a service period of four years. The size of stock option awards for our NEOs is then set within a range that is competitive with the Black-Scholes value of equity awards granted to comparable officers at companies in our peer group. The number of shares subject to each NEO stock option is based primarily on Radford’s determination of the Black-Scholes value of equity awards granted to executives in the 50th percentile of executives in comparable roles in our peer group companies, and then using that value to determine a number of shares of our common stock based on our Black-Scholes formula used to value our stock options in our financial statements. In November 2020, based primarily on a determination to provide a portion of annual awards as full value awards that would not lose substantially all perceived value in a downturn of the price of our common stock, our Compensation Committee decided to replace one third of the target value of what would otherwise have been stock option awards with an award of restricted stock units, or RSUs, that vest annually over four years. The number of full-value RSU awards is based on the Black-Scholes value of the target number of stock options that the RSUs are replacing, using the same formula inputs as are used to value our stock options in our financial statements. Our Compensation Committee makes final adjustments to the specific number of shares after receiving recommendations from our CEO.
On November 20, 2020, our Compensation Committee granted to each of our NEOs (i) non-statutory stock options vesting over four years in equal quarterly installments with respect to a designated number of shares as follows: Dr. Luly, 107,800 shares, and each of Dr. Or and Mr. Mellett, 30,800 shares; and (ii) RSUs vesting over four years in equal annual installments with respect to a designated number of shares as follows: Dr. Luly, 26,500 shares, and each of Dr. Or and Mr. Mellett, 7,600 shares.
Dr. Kieffer and Mr. Luu were not eligible for annual equity awards with time-based vesting in November 2020 because they were receiving new-hire non-statutory stock option awards when they started their employment in December 2020 and January 2021, respectively. As with all new-hire awards, their stock option awards vest as to 25%
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of the shares after one year and as to the balance of the shares in equal quarterly installments over the following three years. The numbers of shares in their awards were based primarily on Radford’s determination of the Black-Scholes value of new-hire equity awards granted to executives in the 50th percentile of executives in comparable roles in our peer group companies, which was then used to calculate a number of shares of our common stock using the same formula described above for the annual awards.
Restricted Stock Units with Performance-Based Vesting. To provide additional incentive for longer-term performance that can allow our executive officers to achieve levels of equity awards, when aggregated with their time-based equity awards, at or above the 75th percentile of executives in comparable roles in our peer group companies, our Compensation Committee also makes annual awards of performance share units, or PSUs, and relative total stockholder return units, or rTSRUs, to each of our executive officers. Half of these units are designed to vest based on high levels of performance against specific research and development and non-financial business objectives of Enanta over a two-year period. The other half are designed to vest if there is a high relative total stockholder return on our common stock versus the stocks of the other companies in the Nasdaq Biotechnology Index when comparing a two-month period at baseline to the comparable period two years later.
Our Compensation Committee has determined that a 2-year performance period is appropriate because, unlike more mature companies that have performance units vesting based on improving financial performance with numerically precise criteria, value in Enanta (whether directly measured by our stock price or events that affect that price) is created based on non-financial advances in our research and development programs, none of which has advanced yet beyond phase 2. In addition, the performance criteria for PSUs need to be precisely and rigorously defined even though they are subject to non-financial metrics. General experience in research and development in biotechnology has demonstrated that over a period of two years these types of early-stage programs rarely progress exactly as planned, primarily due to matters outside of management’s control, such as failures in preclinical testing or unexpected side-effects or lack of efficacy in early-stage human studies. As a result, trying to set objective targets more than two years ahead would likely fail to provide any effective incentive during the full performance period since the chances would significantly increase that the objective would become unattainable well before the end of the performance period.
The target number of these performance units is determined as follows:
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To initially bracket the number of units, Radford determines the difference in the dollar values of the annual equity awards for executives in the 50th percentile and the 75th percentile of comparable executives in our peer group companies; |
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Radford then converts that differential value into a preliminary number of full value shares of our common stock based on our Black-Scholes formula used to value our stock options in our financial statements; |
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Our Compensation Committee then adjusts those numbers of shares to determine a target number of total units for each NEO, based in part on considerations of pay equity and the relative roles of the NEOs; and |
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The resulting target number of units is then split evenly between PSUs and rTSRUs for each NEO. |
These unit awards have a performance period of two years, ending on December 31 of the second year. Our Compensation Committee determines the level of performance achieved, but the Committee does not exercise broad discretion to adjust any of the performance criteria. For example, the Committee did not make any adjustment to the performance milestones for the PSUs with performance periods ending in 2020 or 2021, despite the delays and other material impacts of the COVID-19 pandemic that affected our ability to achieve several of the research and development milestones. Once the level of performance is determined, and provided that the NEO is still employed at Enanta, the underlying shares that have vested then settle and are issued to the NEO in the February following the end of the second year.
In the case of the PSUs awarded in fiscal 2021, unit vesting will be based on achievement of research and development milestones in each of three categories of activities: (i) advancement of clinical programs; (ii) advancement of research programs; and (iii) other value-driving opportunities generally involving assets outside of our research and development programs. These milestones, which relate to our key programs, are weighted based on our Compensation Committee’s assessment of the relative value of the milestones. Each milestone is considered to be challenging to achieve, meaning that the likelihood of success during the performance period is possible, but not high. This also means that the chances that multiple milestones are achieved is even lower than for any single milestone. In the case of program milestones, every development activity for the particular program will have to progress substantially as planned in order to achieve the two-year objective for that program. Early-stage programs often experience delays. In addition, the failure rate is quite high for compounds in the early stages of discovery and preclinical and early clinical development. In the case of milestones for assets outside of Enanta, achievement will require success in identifying an available asset, validating the potential of the asset and its value to Enanta, and negotiating and completing a transaction on terms acceptable to all parties, much of which is outside of Enanta’s control. For these reasons we call the PSU milestones “stretch goals” because they are hard to reach, i.e., achieve, as has been the case in each of the past three
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years. In calendar years 2021, 2020 and 2019 we achieved PSU milestones that earned our executives 15%, 0% and 15%, respectively, of their target number of PSU shares that were eligible for vesting at the end of those years.
On December 18, 2020, our Compensation Committee awarded our executive officers PSUs with milestones in each of the three categories:
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• Clinical milestones: |
Specific clinical milestones for each of EDP-938 (RSV), EDP-514 (HBV), EDP-305 (NASH), EDP-297 (NASH) and EDP-721 (HBV), as well as the possibility of in-licensing and advancement of an external compound. |
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• Research milestones: |
Specific research milestones for SARS-CoV-2 and hMPV and for additional RSV, HBV and liver disease compounds, as well as advancement of any new mechanism of action or candidates for a new disease area. |
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• Other value-driving milestones: |
In-licensing and advancement of a novel compound or identification and advancement of a combination therapy into a clinical study. |
Achievement of one of the clinical milestones will vest 70% of each NEO’s target number of PSU shares and achievement of a second clinical milestone will vest an additional 50% (reflecting a vesting of 120% of the target number of PSU shares), achievement of up to two research or other value-driving milestones will each vest 15% of the target number of PSUs per milestone (reflecting a vesting of 30% of the target number of PSU shares), but achievement of more than two milestones in those two categories or more than two clinical milestones will not vest any additional shares. If one milestone in each of the three categories is achieved by December 31, 2022, then 100% of each NEO’s target number of PSU shares will vest; if up to one additional research or other value-driving milestone in each category is achieved then an additional 15% of each NEO’s target number of PSU shares will vest; and if instead an additional clinical milestone is achieved, then 150% of each NEO’s target number of PSU shares will vest. The maximum payout for PSUs awarded in fiscal 2021 is capped at 150% of each NEO’s target number of PSU shares.
In the case of the rTSRUs awarded on December 18, 2020, these awards will vest and result in the issuance of shares of our common stock based upon the relative ranking of the total stockholder return, or TSR, of Enanta’s common stock in relation to the TSR of the component companies in the Nasdaq Biotechnology Index using a comparison of average closing stock prices over the 60-day period ended December 31, 2020 compared to the 60-day period ending December 31, 2022. The rTSRUs are intended to reward increases in the relative market value of our common stock that might not relate directly to specific long-term objectives of internal research and development efforts reflected in the PSUs but that nonetheless are reflected in our market value and our returns for our stockholders over the performance period. The number of market-based rTSRUs awarded represents the target number of shares of common stock that may be earned; provided, however, that the actual number of shares that may be earned ranges from 0% to 150% of the target number, depending on Enanta’s ranking in that index. No rTSRU shares will vest if there is no increase in the value of Enanta’s stock during the period, nor will any rTSRU shares vest if Enanta’s stock is ranked below the 65th percentile. The rTSRUs will vest as to 50%, 100% or 150% of the target number of rTSRU shares if the stock is ranked at the 65th, the 75th or at or above the 85th percentiles, respectively. If our ranking falls between the 65th and 85th percentiles, there will be interpolation between the fixed vesting amounts of the 65th, 75th and 85th percentiles based on the relative ranking of our stock.
These PSU and rTSRU performance awards are designed to provide an opportunity to vest additional equity compensation in aggregate amounts equal to the difference between the Black-Scholes value of awards in the 50th percentile and those in the 75th percentile of our peer group companies. These awards vest only as to one half of the differential if Enanta achieves high levels of performance against the company’s longer-term research and development objectives, and as to the other half if the value of Enanta’s stock increases more relative to at least 65% of the traded stocks of other public biotechnology companies in the Nasdaq Biotechnology Index. The following table shows the percentage of the target numbers of PSU and rTSRUs shares that were paid out in each of the two-year performance periods ending in the three most recent calendar years, demonstrating that in the past three years no more than half of the performance awards have vested in any given year.
|
|
|
Percent of Target Number of Shares |
|
||||||||
|
|
|
2018-2019 |
|
|
|
2019-2020 |
|
|
|
2020-2021 |
|
|
PSU shares earned |
|
15% |
|
|
|
0% |
|
|
|
15% |
|
|
rTSRU shares earned |
|
90% |
|
|
|
0% |
|
|
|
59% |
|
|
Total % of Target Shares earned |
|
53% |
|
|
|
0% |
|
|
|
37% |
|
Benefits
Health and Welfare Benefits. Our NEOs are eligible to participate in all of our employee benefit plans, including our medical, dental, vision, group life and disability insurance plans, in each case on the same basis as other employees.
32
We believe that these health and welfare benefits help ensure that we have a productive and focused workforce through reliable and competitive health and other benefits.
Retirement Savings. All of our full-time employees, including our NEOs, are eligible to participate in our 401(k) plan. Pursuant to our 401(k) plan, employees may elect to reduce their current compensation by up to the statutorily prescribed annual limit (which was $19,000 in calendar 2019 and $19,500 in calendar 2020 and 2021), with additional salary deferrals not to exceed $6,000 available to those employees 50 years of age or older, and to have the amount of this reduction contributed to our 401(k) plan. In addition, in fiscal 2021, 2020 and 2019 we made company contributions in the amount of 6% of base salary, up to a maximum of $17,100, $16,800 and $16,500, respectively, per year. This was based on our policy of making profit-sharing contribution to each employee’s account in amounts ranging from 3% to 6% of base salary and bonus compensation paid in the calendar year, regardless of whether the employee makes a contribution to the 401(k) plan in that year. The percentage of the profit-sharing contribution above 3% is based on Enanta’s performance for the year. The 401(k) Plan currently does not offer the ability to invest in our securities.
Perquisites. We do not provide significant perquisites or personal benefits to our NEOs. We do, however, pay the premiums for term life insurance for NEOs.
Severance and Change of Control Benefits
Pursuant to employment agreements, our NEOs are entitled to specified benefits in the event of the termination of their employment under specified circumstances, including termination without cause or for good reason.
We believe that severance protections, particularly in the context of a change of control transaction, can play a valuable role in attracting and retaining executive officers, are an important part of an executive’s total compensation package and are consistent with competitive practices. We believe that the occurrence, or potential occurrence, of a change of control will create uncertainty regarding the continued employment of our NEOs. This uncertainty results from the fact that many change of control transactions result in significant organizational changes, particularly at the senior executive level. Our practice, in the case of our employment agreements, has been to structure these change of control benefits as “double trigger” benefits. In other words, the change of control does not itself trigger benefits; rather, benefits are paid only if the employment of the NEO is terminated during the 12-month period after the change of control. We believe a “double trigger” benefit maximizes stockholder value because it prevents an unintended windfall to executives in the event of a friendly change of control, while still providing them appropriate protections as incentives to cooperate in negotiating any change of control in which their jobs may be at risk. Because we believe that a termination by the executive for good reason is conceptually the same as a termination by us without cause, and that in the context of a change of control potential acquirers would otherwise have an incentive to constructively terminate the executive’s employment to avoid paying severance, we provide severance benefits in these circumstances. We have provided more detailed information about these benefits, along with estimates of their value under various circumstances, under the caption “— Potential Payments Upon Termination, Including Termination After a Change in Control Transaction” below.
Corporate Policies Covering Executive Compensation
Policy Against Hedging
As part of our securities trading policy, all employees, including executive officers, and members of our Board of Directors are prohibited from engaging in hedging transactions involving our securities, including short sales, including short sales “against the box,” and purchases or sales of puts, calls or other derivative securities.
Policy Against Pledging
Our insider trading policy also prohibits pledges of our securities by all employees, including executive officers, and members of our Board of Directors, including purchases of our securities on margin, borrowing against our securities held in a margin account or pledging our securities as collateral for a loan.
Policy Against Repricing Stock Options
We have a consistent policy against the repricing of stock options without stockholder approval.
Compensation Clawback Policy
Our Board of Directors has adopted a Compensation Clawback Policy that is applicable to our executive officers, and such other of our senior executive team as may be determined by the Compensation Committee. If we determine that we must restate our financial results as reported in a periodic or other report filed with the SEC to correct an accounting error due to material noncompliance with any financial reporting requirement under the U.S. securities laws, we will be able to recover incentive compensation, both cash and equity-based, awarded or paid to an executive officer covered by the policy to the extent the officer’s fraud or intentional misconduct was a material contributing factor to the
33
need for the restatement and a lower award or payment would have been made to such officer based on the restated financial results.
Equity Incentive Awards - Mechanics and Timing
Our Compensation Committee approves all equity awards to NEOs, including the CEO.
For annual option awards, the grant date is the Friday of the week during November when our Compensation Committee and the full Board of Directors meet. This schedule permits the annual awards to NEOs to be effective on the same date that all our employees receive their annual equity awards. Our Compensation Committee’s procedure for timing of stock option awards assures that grant timing is not being manipulated for employee gain. This grant date timing coincides with Enanta’s calendar-year-based employee review cycle, allowing managers to deliver the equity awards close in time to performance appraisals, which increases the impact of the awards by strengthening the link between pay and performance.
The exercise price for all stock options to the NEOs (including the CEO) is the fair market value of our common stock on the date of the grant. The fair market value of our common stock as of any particular date is defined by our Compensation Committee as the closing price of our common stock on that date.
Our Compensation Committee does not grant equity awards in anticipation of the release of material nonpublic information. Similarly, we do not time the release of material nonpublic information about the company based on equity award grant dates.
Federal Tax Considerations under Section 162(m)
Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code, generally disallows a tax deduction to public companies for compensation in excess of $1 million paid to each of a company’s chief executive officer, chief financial officer and the three most highly compensated executive officers (other than the chief executive officer and chief financial officer), as well as any officer who was treated as a covered employee under Section 162(m) of the U.S. Internal Revenue Code of 1986, as amended, for any year beginning after December 31, 2016. All compensation in excess of $1 million paid to each of the executives described above (other than certain grandfathered compensation in effect before November 2017) will not be deductible by us.
While our Compensation Committee considers the deductibility of awards as one factor in determining executive compensation, our Compensation Committee may also look at other factors in making its decisions and retains the flexibility to award compensation that it determines to be consistent with the goals of our executive compensation program even if the compensation is not deductible by us for tax purposes.
This Compensation Committee has reviewed the Compensation Discussion and Analysis and discussed that analysis with management. Based on its review and its discussions with management, this Compensation Committee recommended to our Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
By the Compensation Committee,
Kristine Peterson, Chair
Bruce L.A. Carter, Ph.D.
Yujiro S. Hata
Terry C. Vance
January 21, 2022
34
The following table sets forth information regarding compensation paid to our NEOs:
|
Name and Principal Position |
|
Year |
|
Salary ($)(1) |
|
|
Bonus ($)(2) |
|
|
Stock Awards ($) (3) |
|
|
Option Awards ($) (4) |
|
|
Non-Equity Incentive Plan Compensation ($) (5) |
|
|
All Other Compensation ($) (6) |
|
|
Total ($) |
|
|||||||
|
Jay R. Luly, Ph.D. |
|
2021 |
|
|
693,188 |
|
|
|
— |
|
|
|
1,778,616 |
|
|
|
2,283,872 |
|
|
|
518,822 |
|
|
|
19,211 |
|
|
|
5,293,709 |
|
|
President and Chief Executive Officer |
|
2020 |
|
|
667,063 |
|
|
|
— |
|
|
|
497,039 |
|
|
|
3,598,848 |
|
|
|
415,716 |
|
|
|
19,171 |
|
|
|
5,197,837 |
|
|
|
|
2019 |
|
|
641,825 |
|
|
|
— |
|
|
|
457,603 |
|
|
|
3,027,598 |
|
|
|
337,326 |
|
|
|
19,151 |
|
|
|
4,483,503 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brendan Luu |
|
2021 |
|
|
254,795 |
|
|
|
75,000 |
|
|
|
296,203 |
|
|
|
1,757,805 |
|
|
|
119,813 |
|
|
|
1,350 |
|
|
|
2,504,966 |
|
|
Senior Vice President, |
|
2020 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Business Development |
|
2019 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tara L. Kieffer, Ph.D. |
|
2021 |
|
|
305,137 |
|
|
|
— |
|
|
|
256,227 |
|
|
|
1,350,304 |
|
|
|
128,250 |
|
|
|
2,438 |
|
|
|
2,042,356 |
|
|
Senior Vice President, New Product |
|
2020 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Strategy & Development |
|
2019 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yat Sun Or, Ph.D. |
|
2021 |
|
|
486,525 |
|
|
|
— |
|
|
|
609,830 |
|
|
|
652,535 |
|
|
|
224,010 |
|
|
|
19,211 |
|
|
|
1,992,111 |
|
|
Senior Vice President, Research & Development, |
|
2020 |
|
|
472,075 |
|
|
|
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