Enanta Pharmaceuticals Inc (ENTA) 2013 Q4 法說會逐字稿

Good morning. My name is Lisa and I will be your conference operator today. At this time I would like to welcome everyone to the Enanta Pharmaceuticals fourth-quarter and year-end financial results conference call. (Operator Instructions)

Ms. Carol Miceli, Director of Investor Relations, you may begin your conference.

Thank you, Lisa. Good morning, everyone, and welcome to Enanta Pharmaceuticals' fourth-quarter and fiscal year-end September 30, 2013, financial results conference call. The news release with our financial results was issued this morning at 7:30 AM and is available on our website at www.Enanta.com. You can also listen to the webcast or the replay by going to the Investor Relations section of our website.

On the call today is Dr. Jay Luly, President and Chief Executive Officer; Paul Mellett, Senior Vice President, Finance and Administration and Chief Financial Officer; and Dr. Yat Sun Or, Chief Scientific Officer.

Before we begin with our formal remarks, we want to remind you that we will be making (technical difficulty) certain assumptions, risks and uncertainties that are beyond our control and could cause our actual results to differ materially from these statements. A description of these risks can be found in our latest SEC disclosure documents and recent press releases.

In addition, Enanta does not undertake any obligation to update any forward-looking statements made during this call. I would now like to turn the call over to Dr. Jay Luly, President and CEO.

Thank you, Carol. I would like to welcome everyone to Enanta Pharmaceuticals inaugural financial results conference call this morning. Going forward, we plan to hold conference calls around our midyear and year-end results.

(technical difficulty) 2014 guidance, we will provide an update on our hepatitis C development pipeline, and we will review progress on our early-stage proprietary development programs.

For those of you new to Enanta, we are discovering and developing novel inhibitors designed for use against the hepatitis C virus. Those inhibitors include ABT-450, our lead protease inhibitor; ABT-493, our next-generation protease inhibitor, both partnered with AbbVie; ADP-239, an NS5A inhibitor partnered with Novartis; and molecules from two proprietary programs, namely nucleotide polymerase inhibitors as well as host-targeted antivirals aimed at cyclophilin.

In addition, we have an ongoing interest in antibiotics and have invented a new class of antibiotics called bicyclolides for the treatment of multi-drug-resistant bacteria. Our focus in the area is on developing intravenous and oral treatments for hospital and community MRSA, or MRSA infections. MRSA stands for methicillin-resistant Staphylococcus aureus and our MRSA bicyclolide candidate EDP-788 is nearing clinical development.

As I look back, 2013 was a transformational year for Enanta. Financially we are very strong, having completed our initial public offering in March which provided us with $59.9 million in net proceeds. The Company ended the year with approximately $112 million in cash and no debt.

On the clinical side, our partners, AbbVie and Novartis, continue to advance our three clinical-stage collaboration compounds for HCV spanning from Phase 1 trials to Phase 3 data. We will give more detail in a few minutes, but now I would like to stop here and turn the call over to Paul Mellett, our Chief Financial Officer, for a review of our fourth-quarter and year-end results. Paul?

Thank you, Jay. As Jay said earlier, Enanta completed its initial public offering in March of this year. We issued 4.6 million shares at $14 a share and began trading on the NASDAQ Global Select Market under the symbol ENTA on March 21, 2013. As of September 30, 2013, our fiscal year-end, we had 17.9 million shares outstanding.

Looking at our balance sheet, Enanta entered the year with approximately $112 million in cash and marketable securities as compared with $45.4 million at September 30, 2012. We expect that our current cash, cash equivalents, and marketable securities will be sufficient to meet our anticipated cash requirements for at least the next 24 months.

Moving on to our statement of operations, I would like to point out that our revenue is generated from two primary sources: collaboration revenue earned under our agreements with AbbVie and Novartis, as well as research and development funding earned under our contract with NIAID, the National Institute of Allergy and Infectious Diseases, a division of the National Institutes of Health.

Our revenue for the fourth quarter 2013 was $1.3 million compared to $1.9 million for the three months ended September 30, 2012. The fourth-quarter 2013 revenue consisted of $1 million in research and development funding earned under our NIAID contract, as well as $300,000 in research funding earned under our Novartis collaboration. Fourth-quarter 2012 revenue consisted of $1.4 million in research and development funding earned under our NIAID contract as well as $500,000 (technical difficulty) Novartis agreement.

For the fiscal year ended September 30, 2013, revenue was $32.1 million compared to $41.7 million for the fiscal year ended September 30, 2012. The 2013 revenue consisted of a $15 million milestone payment received from AbbVie for the initiation of a Phase 3 clinical trial containing protease inhibitor ABT-450, an $11 million milestone payment received from Novartis for the initiation of a Phase 1 clinical trial containing NS5A inhibitor EDP-239, as well as $1.7 million in research funding earned under our Novartis partnership, and $4.4 million in research and development funding earned under our NIAID contract.

The 2012 revenue consisted of $35.6 million, including an upfront payment of $34.4 million, both earned under our Novartis partnership, as well as $6.1 million earned in connection with our NIAID contracts.

The differences in revenue for the three- and 12-month periods are primarily related to the timing and amount of milestones and other payments from collaborations, which have varied significantly from period to period and are expected to continue to do so. Research and development expense was $4.3 million for each of the fourth-quarter periods. For the year ended 2013 research and development totaled $16.8 million as compared to $15.1 million for fiscal 2012.

The increase year over year is due to increased preclinical costs associated with our internal HCV programs, as well as the antibiotic program with NIAID.

General and administrative expense was $1.7 million for each of the fourth-quarter periods. For the full 2013 year, general and administrative expense was $6.2 million compared to $5.3 million. The increase in G&A is due primarily to higher stock-based compensation expense associated with option grants to employees, as well as additional expenses incurred as the result of operating as a public company.

Net loss for the 2013 fourth quarter was $4.4 million compared to $4.1 million in the fourth quarter of 2012. Net income for the year ended September 30, 2013, was $9.6 million compared to $21.4 million for the prior year. Further details on our financial results will be available next month when we will file our Form 10-K for our fiscal year ended September 30.

I would now like to turn the call back to Jay for a discussion of our clinical programs and upcoming milestones for the year. Jay?

Thanks, Paul. I would now like to review in a little more detail the clinical progress made with our HCV candidates, as well as our contract with NIAID for our antibiotic program. Our protease collaboration with AbbVie on ABT-450 is our most advanced program.

This is an extremely exciting time for us as we are beginning to see validation of our discovery capabilities and collaboration efforts with AbbVie as the data from six Phase 3 registrational studies are beginning to come in. ABT-450 is part of AbbVie's investigational three direct acting antiviral, or 3D, regimen consisting of boosted protease inhibitor ABT-450, NS5A inhibitor ABT-267, and non-nucleoside polymerase inhibitor ABT-333. This all-oral, interferon-free registrational program is the largest Phase 3 program focused on genotype 1 HCV patients and is being conducted in over 2,000 patients in over two dozen countries.

Last week AbbVie and Enanta announced successful top-line results from the SAPPHIRE-1 study conducted by AbbVie for treatment-naive patients with genotype 1 HCV infection. The study enrolled 631 patients and the 3D regimen demonstrated a sustained (technical difficulty). The majority of patients were genotype 1a, considered the more difficult to treat subtype, and SVR rates of genotype 1a and 1b were 95% and 98%, respectively. These results were based on an intent-to-treat analysis.

The rate of virologic relapse and breakthrough was low, occurring in 1.7% of patients receiving the 3D regimen. The treatment regimen was also well tolerated with 0.6% of patients discontinuing treatment due to the adverse events in both the active and placebo arms. Detailed results from the SAPPHIRE-1 study are expected to be disclosed by AbbVie at future scientific congresses and in publications.

AbbVie has announced that results from the remaining five ABT-450 containing studies in the Phase 3 program will be available in the coming months, supporting their regulatory submissions starting in the second quarter of calendar 2014. As a reminder, AbbVie funds all development, commercialization, and manufacturing of ABT-450. This means the upside opportunity for Enanta around regulatory and global commercial success for the program is significant.

We are eligible to receive an additional $195 million upon AbbVie's achievement of regulatory filing and approval milestones, $40 million of which could be earned upon regulatory filings targeted for the second quarter of calendar 2014.

In addition, Enanta is eligible to receive double-digit royalties worldwide on revenue [applicable] to the collaboration's protease inhibitors. These royalties should begin after the anticipated 2015 approval and launch.

Furthermore, the 3D regimen containing ABT-450 is just the first wave of opportunity in our collaboration with AbbVie. ABT-450 is also part of a 2DAA regimen that is being studied in various Phase 2b studies, including patients with HCV genotypes 1b and 4. Additionally, in Japan this 2DAAj regimen is being studied in genotypes 1b and 2.

Interim data from AbbVie's PEARL 1 study using the 2DAA (technical difficulty) presented at the AASLD meeting earlier this month. In an intent-to-treat analysis, the once-daily regimen consisting of boosted protease ABT-450 and AbbVie's NS5A inhibitor, ABT-267, produced SVR12 results of 95% in genotype 1b treatment naive HCV patients and 90% in prior (technical difficulty) responders without the use of interferon or ribavirin. This program is expected to move into Phase 3 studies in 2014, so we are very interested and excited about the 2DAA combination as well as the 3D combination.

The third wave of potential opportunity with AbbVie is centered on ABT-493, our next-generation protease inhibitor that is (technical difficulty) generation NS5A inhibitor ABT-530. We expect ABT-493 to begin dosing in HCV patients later this year.

The goal of this next-generation program was to come up with a profile for a once-daily fixed dose combination with broad genotypic activity. And ABT-493 not only has pan-genotypic activity, but it also has good activity against many of the key resistant mutants. AbbVie has indicated that commercialization of the next-generation compounds could occur in the 2017 timeframe.

As you may know, our agreement with AbbVie includes an option we can share in the funding of development and commercialization of the next-gen program in return for a percentage of the profits. Given our strong cash position, we intend to carefully consider the strategic benefits of exercising this option.

Turning to our Novartis collaboration on NS5A inhibitors, Phase 1 is complete and proof-of-concept studies are now ongoing in genotype 1 HCV patients. We have approximately $395 million in aggregate milestones remaining with the next milestone of $15 million due at the start of Phase 2 combination studies. We will provide further details of the study design and timing when we release more information with our partner.

Our contract with NIAID is focused on Enanta's lead bicyclolide antibiotic candidate, EDP-788. Under the contract NIAID has agreed to fund preclinical and early clinical development for use against biodefense pathogens. The initial award was $14.3 million in funding with the possibility of up to a total of $42.7 million in funding if each of six option periods is exercised by NIAID. Recently NIAID exercised two such options, increasing the contract award to $23.5 million.

In addition to the NIAID contract, Enanta is focused on the potential use of EDP-788 for the treatment of infections caused by MRSA and other drug-resistant bacteria. IND-enabling studies are now complete and initiation of Phase 1 is planned for the first half of calendar 2014.

Looking ahead, we have a number of significant milestones to look forward to in our programs. We expect to report data from the remaining five of six Phase 3 studies in AbbVie's registrational program for the 3D regimen containing ABT-450 later this year and into early 2014.

We expect AbbVie will submit for regulatory approvals for the 3D regimen in the second quarter of calendar 2014. We expect the 2DAA regimen containing ABT-450 to move into Phase 3 starting with Japan in early 2014 and in the West in 2014 as well. We expect our next-generation protease inhibitor with AbbVie, ABT-493, to begin dosing in HCV patients by the end of 2013.

We have targeted 2014 to select preclinical candidates to advance in our internal proprietary cyclophilin inhibitor and nucleotide polymerase inhibitor programs, both of these mechanisms share high barriers to resistance and scarcity of clinical stage inhibitors in the development landscape. Lastly, we are on track to initiate phase 1 studies of our antibiotic ADP-788 in the first half of calendar 2014.

In summary, Enanta is utilizing a partnering strategy in order to maximize our chances for success in the highly competitive HCV arena. By using this approach with AbbVie, we have a clearly defined path to market and a very competitive timeframe. Enanta is positioned to be one of just a few companies with the potential to benefit from these new all-oral interferon-free regimens for HCV genotype 1 patients by early 2015.

We have three waves of opportunity for commercial success across multiple regimens containing ABT-450 and ABT-493. Our NS5A program with Novartis continues to advance, giving us yet another set of shots (technical difficulty) currently and partners providing non-diluted fundings that include significant potential milestone and royalty payments, we are well positioned to advance our own internally-developed compounds for HCV and drug-resistant bacterial infections.

This ends our prepared remarks. I would now like to open up the call to Q&A. Operator?

(Operator Instructions) Ravi Mehrotra, Credit Suisse.

Good morning. Perhaps I can actually ask a slightly offbeat question about your next-gen PIs which you talked about. Could you just remind us of your options to opt in and give us any more granularity over and above what you gave us from a financial perspective?

Sure. Good morning, Ravi. The opt-in on our next-gen protease inhibitor program is an option wherein we can elect to pay for a portion of the R&D cost and commercialization cost in exchange for profits rather than the royalty stream. It is an option that we are considering and it is something that we would make a decision on prior to Phase 2b.

Is it possible for you to give us any granularity on the financial terms of that with regards to how much you would share?

Sure. You know, the way to think about it is the protease inhibitor, ABT-493, is part of what will be a two-drug regimen. We are responsible for 40% of the cost of the development and commercialization of the next-gen protease inhibitor in exchange for 40% of the profits associated with that protease inhibitor. Again I will remind you this is in the US territory. Ex-US we have the royalty arrangement, just like we do with ABT-450.

As you know, the development costs, the 40%, and the commercialization costs actually would be a fraction of that given that AbbVie is putting in a next-generation NS5A into the mix. So it is a 2DAA combo. We are expecting that we would pay for approximately half of those development costs, half of the 40%, and receive half of the profits accordingly.

Perfect, thank you.

(Operator Instructions) Geoff Meacham, JPMorgan.

Good morning, guys. Thanks for taking the question. Jay, just wanted at a higher level to get a sense from you, with these success of 2D regimen for ABT-450, kind of how you see that versus 493. Aside from 493 being pan-genotypic, how do you view the profile and the opportunity of those two protease?

Sure and good morning, Geoff. The 2D regimen that we have with ABT-450 right now is once daily. It is two identical pills, fixed dose combination, with a boosted protease inhibitor, ABT-450, and AbbVie's NS5A ABT-267.

As you know, it is ritonavir boosted. It is once a day. It is two identical (technical difficulty) interesting Phase 2b, which we expect will be again explored in Phase 3 next year.

Turning to our next-gen ABT-493, as you mentioned one of the key attributes that we looked for was again preserving once-daily dosing. We view that as key. We looked at and considered ritonavir boosting, but it behaves just fine without ritonavir boosting so it is a non-boosted next-generation PI, has good pan-genotypic activity, and importantly, it has activity, very strong activity against certain key resistant mutants that are known to be out there.

This, in turn, is married with AbbVie's next-gen NS5A, which is ABT-530. So after the original ABT-450 2DAA regimen was advancing along along with the 3D regimen containing ABT-450 the Company stepped back and polished the apple, so to speak, a little bit more on some of these other characteristics, particularly pan-genotypic activity and activity against resistant mutants. ABT-493 has very strong virology in that regard and I expect we will see that ABT-530 is a very good partner.

(technical difficulty) we will be providing more data on the virology of that next year.

That is helpful. Then just on 239, the NS5A with Novartis, this obviously went into the clinic about a year or so ago. What is your sense; I know there running the program, but what is your sense in terms of the next step? And what do you view as a hurdle for the NS5?

I mean obviously there are a lot of them out there among different companies, but want to get a sense from you in terms of what you think the next steps are and what you think the efficacy in Phase 1 that you have to show just to be competitive.

So the ADP-239 Phase 1 is now complete. Dosing in HCV genotype 1 patients is ongoing. The dose-ranging studies sort of pairing virologic load reduction versus dose is ongoing now, again getting ready for potential combination studies.

Again, we haven't reported the data on that yet, but the preclinical data with ADP-239 is actually quite good. Not only good virology, but very good PK. And we view, obviously, the marriage of PK, good exposure, once-daily dosing characteristics, and good virology to be quite a solid molecule.

I think with regards to the broader landscape of NS5As, one can't really look at NS5As in isolation because they are never really dosed in isolation. You look at it in connection with what the combination partners will be.

We will be describing more about the regimen of that and the characteristics of that later with Novartis, but we have seen and others have reported some very interesting combination data with EDP-239. In fact, there was some very nice combination data presented at the liver meeting by Novartis and an academic investigator looking at EDP-239 and synergy with alisporivir. So I think there will be more to talk about this in the future as we disclose those further details with our partner.

Okay, thanks.

We have no further questions in queue. I will turn the call back to our presenters.

Okay. So just concluding then, thank you very much. We have had a tremendous year in 2013 and have even bigger things to look forward to with the potential commercial regulatory filings for ABT-450 program and with continued advancement of our other partnered and proprietary programs.

Thank you, everyone, for taking time to join us on the call today. We look forward to providing additional updates as our programs progress. Thank you.

This concludes today's conference call. You may now disconnect.