Enanta Pharmaceuticals Inc (ENTA) 2014 Q4 法說會逐字稿

Good morning. My name is Jackie. I will be your conference operator today. At this time, I would like to welcome everyone to the Enanta Pharmaceuticals' fiscal forth-quarter and year-end financial results conference call.

(Operator Instructions)

I would now like to turn the call over to Carol Miceli, Director of Investor Relations. Please, go ahead.

Thank you, Jackie. Good morning, everyone. Welcome to Enanta Pharmaceuticals' fiscal forth-quarter and year-end financial results conference call. The news release with our financial results was issued this morning at 7:30 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 section of our website.

On the call today is: Dr Jay Luly, President and Chief Executive Officer; Paul Mellett, our Chief Financial Officer; and Dr Yat Sun Or, our Chief Scientific Officer. Before we begin with our formal remarks, we want to remind you that we will be making forward-looking statements including plans and expectations with respect to regulatory and commercial developments for our product candidates, milestone payments and financial projections, all of which involve 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 most recent Form 10-K and other periodic reports filed with the SEC. In addition, Enanta does not undertake any obligation to update any forward-looking statements made during this call. I'd now like to turn the call over to Dr Jay Luly, President and CEO.

Thank you, Carol. I'd like to welcome everyone on the call this morning. On today's call, we'll discuss our financial results for the quarter and fiscal year-end, provide an update focused on our clinical Hepatitis C pipeline and review progress with our early stage proprietary development programs for HCV. There's been much progress during the quarter and over the past year.

We ended the year with $132 million in cash and securities and our lead HCV candidate ABT450, known as paritaprevir, is under regulatory review in the US and the EU. Last week, the CHMP in Europe granted a positive opinion for AbbVie's investigational 3DAA regimen for the treatment of genotype 1 HCV and a positive opinion for the 2DAA regimen for genotype 4 HCV. Upon worldwide regulatory approvals for our partnered HCV assets, we expect to receive up to an additional $155 million in milestones from our partner AbbVie.

If AbbVie's regimen is approved, it will include the first product approved from Enanta's pipeline and will be the beginning of a series of regulatory approvals anticipated over the next few years that includes Enanta candidates. We have a strong HCV pipeline with two partnered protease inhibitors and three wholly-owned clinical and pre-clinical stage HCV programs.

We continue to pursue the growth of our pipeline beyond HCV with ongoing research for candidates in other indications. But before we go into detail about the progress with our pipeline programs, I'd 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 financial results. Paul?

Thank you, Jay. I'd like to remind everyone that Enanta reports on the basis of a fiscal year-end that ends September 30. So we are reporting results for our fourth fiscal quarter and our fiscal year-ended September 30, 2014. Looking at our balance sheet, Enanta ended the year with approximately $132 million in cash and marketable securities as compared to $112 million at our September 30, 2013 fiscal year end.

We expect that our current cash, cash equivalents and short and long term marketable securities will be sufficient to meet our anticipated cash requirements for at least the next 24 months. We have new items on our balance sheet consisting of current and long term deferred tax assets totaling approximately $15 million. These represent tax credits and net operating loss carry-forwards that are available to offset tax liability that may arise in the future. If paritaprevir receives approvals in the coming months, we expect to use substantially all of these assets in FY15.

Moving on to our statement of operations. I'd like to point out that our revenue this past year was generated from two primary sources, collaboration revenue earned under our agreements with AbbVie, as well as Research and Development funding earned under our contract with the National Institute of Allergy and Infectious Disease or NIAD, a division of the NIH.

Revenue for the three-months ended September 30, 2014 was $2.6 million compared to $1.3 million for the three-months ended September 30, 2013, all of which was related to our NIAD contract. For the year-ended September 30, 2014, revenue was $47.7 million compared to $32.1 million for the prior year. The increase in revenue for the FY14 was primarily due to milestone payments totaling $40 million received from AbbVie for the US and European regulatory filings for AbbVie's investigational Hepatitis C treatment regimen containing our lead Hepatitis C candidate ABT450.

We expect that our revenue in the near term will continue to be substantially dependent on our collaboration with AbbVie. We expect the timing and amount of milestone and other payments to vary significantly from period to period. Research and Development expenses totaled $5.2 million for the three-months ended September 30, 2014 compared to $4.3 million for the three-months ended September 30, 2013. For the year-ended September 30, 2014, Research and Development expenses were $18.7 million compared to $16.8 million for the corresponding period in 2013.

The increases in the 3- and 12-month periods are primarily due to increased spending on Enanta's proprietary research programs. We expect that our Research and Development expenses will increase in the future as we expect to advance our wholly-owned HCV programs and continue our ongoing R&D activities in new disease areas beyond HCV. General and Administrative expenses totaled $2.8 million for the three-months ended September 30, 2014 compared to $1.8 million for the three-months ended September 30, 2013.

For the year-ended September 30, 2014, General and Administrative expenses totaled $10 million compared to $6.2 million for the corresponding period in 2013. The increases in the 3- and 12-month periods primarily reflect increases in stock based compensation expense due principally to increases in Enanta's stock price, as well as additional expenses incurred as a result of operating as a public Company. Net loss for the three-months ended September 30 was $5 million compared to a net loss of $4.4 million for the corresponding period in 2013.

For the year-ended September 30, 2014, net income was $34.4 million compared to net income of $9.6 million for the 2013 year. The increase in net income during the 12-month period ended September 30, 2014 was primarily due to the $40 million in milestone payments received from AbbVie and the reversal of the entire valuation allowance related to Enanta's deferred tax assets, which resulted in an income tax benefit of $15.2 million. Further financial details will be available when we file our 2014 Form 10-K in December. I'd now like to turn the call back to Jay.

Thanks, Paul. I'd like to begin by saying there has never been a more exciting time for Enanta. In the highly competitive field of HCV development, Enanta is one of the very few Companies poised to be part of the first generation of all oral regimens to treat HCV. Enanta along with our partner AbbVie identified the potent protease inhibitor ABT450, which is a key component of AbbVie's regimens on the verge of global regulatory approval. The potential milestone payments and royalties generated by our partner protease inhibitor programs with AbbVie are expected to fund the advancement of our internal programs, which I'll discuss shortly and to enable us to explore new disease areas for growth beyond HCV.

We have previously spoken about multiple waves of opportunity for product launches. The first wave is ABT450 as part of the 3DAA regimen for patients with chronic genotype 1 HCV. This 3DAA regimen is currently under regulatory review in the US and in Europe, where last week, it received a favorable recommendation from the CHMP. AbbVie has announced that they expect a US approval for the 3DAA regimen this year followed by European approvals in early 2015.

Enanta's eligible to receive up to an additional $155 million in regulatory approval milestone payments upon approvals in major jurisdictions. Last month, Enanta and AbbVie finalized the percentage of net sales from the new HCV regimen that will be allocated to our protease inhibitors. These allocated net sales will be used to calculate Enanta's annually tiered double-digit per product royalties. Following regulatory approval and commercialization, 30% of the worldwide net sales of the 3DAA regimen containing ABT450 will be used to calculate royalties.

We believe the opportunity for this 3DAA regimen is large, based on strong Phase 3 clinical data, demonstrating high cure rates of 90% to 100% across all HCV genotype 1 patient populations including in some of the more difficult to treat sub populations. Data was recently presented at the Liver Meeting to support these cure rates in some of the tougher to treat HCV patient populations, such as HCV patients co-infected with HIV as well as in liver transplant recipients. Data from these studies called Turquoise 1 and Coral 1 were presented at the Liver Meeting and demonstrated SBR12 cure rates ranging from 90% to 97%.

For a more thorough look at the data, please review the press releases on our website as well as the Coral 1 study results and transplant patients published online in the New England Journal of Medicine. In addition to the 3DAA regimen, our partner AbbVie is also developing a 2DAA regimen consisting of ABT450 and AbbVie's NS5A inhibitor, ombitasvir, dosed once daily with or without ribavirin. We consider this regimen our second wave of opportunity.

This regimen is currently under review for genotype 4 in the EU and in two Phase 3 studies in Japan. AbbVie has guided that a regulatory filing in Japan is expected in 2015 with an expected approval in 2016. Enanta expects to receive annually tiered royalties ranging from the low double-digits to high teens based on 45% of worldwide net sales of this 2DAA regimen.

Our third wave of opportunity in HCV is ABT493. We have a few developments for this Next Generation protease inhibitor to discuss. Like ABT450, ABT493 is another molecule identified in our AbbVie collaboration. It has been designed to offer a pan-genotypic interferon-free and ritonavir-free, once daily dosing regimen for HCV patients and is expected to be co-formulated with AbbVie's Next Generation NS5A inhibitor ABT530.

Three day mono-therapy data were recently presented at the Liver Meeting, in which 493 demonstrated mean maximal viral load reductions of 3.8 to 4.3 [logs], which were comparable between non-cirrhotic and cirrhotic patients. AbbVie recently initiated a Phase 2b combination study and guided to a potential commercialization of this regimen in the 2017-2018 timeframe. Enanta's entitled to receive $80 million in approval milestones and annually tiered double-digit per product royalties based on 50% of the worldwide net sales of the 2DAA regimen.

Our agreement with AbbVie regarding 493 included an option where we could share in funding the development and commercialization of the NextGen program in the United States in return for a percentage of the US profits. After a careful strategic and financial evaluation, Enanta announced in October that it had decided not to exercise its co-development option for ABT493. Therefore, per the original collaboration agreement signed in December 2006, Enanta will be eligible for up to $80 million in certain regulatory approval milestones as well as royalties on net sales allocable to ABT493 from worldwide sales of any ABT493 containing regimens.

We believe the development and commercialization of our HCV protease assets, ABT450 and ABT493 are in good hands with the expertise and resources of AbbVie and have decided it's better to use our financial resources generated by these partnered assets to fund and to advance our internal proprietary candidates for HCV, including our newly reacquired NS5A program and to pursue the growth of our pipeline beyond HCV with additional candidates in infectious disease and other indications.

But I'd also like to remind everyone that the most important driver of Enanta's royalties whether for ABT450 or ABT493 will be the total size of the HCV market and the portion of the market that any AbbVie/Enanta combination therapy is able to capture. We believe this market is large and that worldwide sales of HCV therapies could increase to $15 billion to $20 billion in the next few years.

Now let's talk about our wholly-owned programs, which represent our fourth wave of HCV opportunity. We've recently regained rights to EDP239, our NS5A inhibitor, as a result of Novartis' decision that HCV was no longer a strategic focus for them. NS5A is the only HCV inhibitor class that is common to all significant combinations being developed today. This mechanism will continue to be a powerful combination ingredient going forward. Novartis is transitioning a proof of concept study to Enanta during calendar Q4. We will then be responsible for all development activity going forward. We are currently evaluating our development plan and will provide more details at a later date.

Turning to our pre-clinical cyclophilin and nucleotide polymerase programs in HCV. Our discovery in pre-clinical activities are continuing. We have now targeted 2015 for select pre-clinical candidates to advance in one or both of these programs. The mechanisms of these classes share high barriers to resistance and scarcity of clinical stage inhibitors in the development landscape.

Enanta now has programs in all the major HCV classes: protease, NS5A, cyclophilin and NS5B polymerase inhibitors. With that foundation and four waves of HCV opportunity, we are now expanding our pipeline beyond HCV. We are evaluating a few pilot programs in other disease areas in which we feel there is a commercial opportunity and medical need where we could improve upon the current standard of care. This work is in its initial phase. We plan to provide additional information during the first half of next year.

To wrap up, our most important near term milestone in 2014 is the anticipated US approval of AbbVie's 3DAA regimen containing ABT450. Looking ahead to calendar 2015, we have a number of clinical and financial milestones to look forward to. Commercial regulatory approval for the 3DAA regimen in Europe is expected in early 2015, which will generate additional milestone payment and royalties to Enanta.

Phase 3 regulatory filings are expected in Japan for the ABT450 containing 2DAA regimen. Phase 2b data from Next Generation 2DAA regimen is expected in 2015 with Phase 3 trials beginning next year as well. We expect to select a candidate from one or more of our proprietary HCV programs and identify a new development candidate in an area beyond HCV. I'd like to stop here now and open up the call to Q&A. Operator?

(Operator Instructions)

Jessica Fye, JPMorgan.

Maybe just more of a longer term question, but I'm trying to see how you think about making investments in your internal pipeline as it relates to the progression of ABT493? So I guess what I'm getting at is, given the economics on that combo, to the extent you get greater visibility on the potential success of that asset and the cash it could throw off, just how does that factor into your spend decisions? I guess you can't put things on hold, but just how you think about that?

To be clear you're talking about ABT493?

Yes.

Yes. So ABT493, based on the decision we made last month, we will not be spending our internal dollars for the development and commercialization of that asset, since we elected to not opt-in to that path. So instead, AbbVie will fund 100% of the development of 493 in the combination studies and commercialization and launch costs. We will have a worldwide double-digit royalty.

I guess what I'm saying is just, if that product is successful and AbbVie converts the franchise to a combo that you have better economics on and you've got more cash coming in the door, does that affect how you invest in your internal assets?

Well, it will certainly help augment our spend and in a very non-dilutive way. We expect the first revenues to be coming from the ABT450-driven regimens, first the 3DAA, then the 2DAA and then 493 would be part of that third wave. By then, I think some of our internal programs will have advanced to -- further into clinical development. As those costs ramp up, we expect to cover a good chunk of them through the cash flow that will be coming from ABT493-driven regimens.

That was a big part of why we made the opt-in decision the way we did, so that we would have -- rather than plowing our revenues from AbbVie on the first couple of regimens back into the third, we elected to take those revenues and plow it into internal pipeline development, HCV and other areas. So we think it will just lead for a very smooth progression.

Thanks.

Howard Liang, Leerink.

I have a question regarding the sort of the presentation of the products. It's for 3D. I think basically, the European recommendation, it looks like there are actually two products, EXVIERA, the PI plus NS5A and ritonavir, the combination single pill, as well as VIEKIRAX, which is the remaining component. Can one buy these two separately? Therefore, would EXVIERA be priced roughly in line with your revised agreement with AbbVie? That is maybe perhaps roughly about two-thirds of the total cost of the 3D?

Yes, so obviously the pricing and pricing strategy and discussions around that haven't been disclosed by AbbVie. In fact, they control setting that price, as you probably know. To answer the first part of your question, they will be sold separately in Europe. They will be approved and sold separately. That will allow them to be combined in a 3D regimen for HCV genotype 1 and then to be broken out as appropriate for other kinds of indications including genotype 4, obviously for the 2D regimen.

Okay. A follow-up question on 493/530 combo. When should we expect Phase 2b data?

Yes. So the 2b data is -- the 2b study is ongoing now. We expect to put that data out next year. We haven't indicated yet at what meeting, but I think you can expect that it will be presented at a scientific conference in calendar 2015. We also expect to press right into Phase 3s next year as well.

Thank you.

You're welcome.

(Operator Instructions)

Brian Skorney, Robert W Baird.

This is Morgan on for Brian this morning. I just had a quick question regarding the NS5A from Novartis. Can you just kind of clear up the timeline that you all have with that in terms of the proof of concept study? Then what's next after that? Thanks.

Sure. The proof of concept study is wrapping up the final subjects, literally right now. As part of the return of that asset to Enanta, we get -- the IND was initially -- our IND, we assigned it to Novartis. That will be reassigned back to us. The data sets will transfer over to us and drug, et cetera. Then we expect that migration of asset back to us to be pretty much wrapping up by the end of this year. We're in the thick of defining the development plan next steps for this program. We're not ready to talk about that yet today but we do expect we will be talking about that early next year.

Okay, great. You said that the POC study is wrapping up right now. Is Novartis just finishing that up and then handing the data over? Or are you going to finish it up yourselves?

They are wrapping it up and then it will be handed over to us. It's like the best way to do it, rather than a transfer at the very end of a trial, just doesn't make sense.

Okay, great. Thanks.

As part of the logistics we're going through. Yes.

Jessica Fye, JPMorgan.

Just to follow-up on that. I guess realizing you're going to update us on the development plans for 293, just trying to kind of think about R&D spend for next year? Even maybe with more details on that. But I know you said it's going to be up. But is there just anymore color you can put around how to think about that expense for next year?

So 239 development will add to that and that will be obviously incremental over what we had spent this year, so it is going to go up. I'm somewhat reluctant to put a figure out there now, while we have a development plan moving around a little bit. So I think we can give better guidance on that next year.

Okay. Is that going to be the main kind of driver of R&D spend sort of incremental expense there?

Well, we have a number of programs. Sometimes -- as anything that moves into the IND enabling stage, we'll clearly add to that. Sometimes IND enabling studies can cost as much or more than Phase I studies, just given all the things you need to do. So it would be typical and ordinary kinds of things for us as we see it right now.

Thanks.

You're welcome.

At this time, we appear to have no further questions.

Okay. Thank you everyone for taking the time to join us on the call today. We hope to provide you with more updates on approvals of the ABT450 containing regimens in the near future. Thank you.

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