Enanta Pharmaceuticals Inc (ENTA) 2015 Q3 法說會逐字稿

Good afternoon. My name is Skinner and I'll be your conference operator today. At this time, I would like to welcome everyone to the Enanta Pharmaceuticals fiscal third quarter financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. I would now like to turn the call over to our host, Ms. Carol Miceli, Director, Investor Relations. Ma'am, you may begin your conference.

Thank you, Skinner, and welcome to Enanta Pharmaceutical's fiscal third quarter financial results conference call. The news release with our financial results was issued this afternoon 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 other members of our senior management team.

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 development, regulatory and commercial developments for our product candidates, milestone payments and financial projections; all of which involves 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. Good afternoon, everyone, and welcome to our fiscal third quarter financial results conference call. Before I begin with my formal remarks, I'd like to welcome our new Chief Medical Officer, Dr. Nathalie Adda, to Enanta's executive team. Nathalie joined the Company in June and brings a wealth of clinical development expertise and experience in virology and liver disease to Enanta. We are very excited to have her on board as we prepare to advance our wholly owned programs in these areas. I'd like to begin by reminding everyone of Enanta's profile. For a company of our size, we have unusually strong financial resources and substantial non-dilutive cash flow to fund our future R&D of our proprietary pipeline, including our HCV and NASH programs and other early stage discovery efforts.

As of the end of our recent quarter, we had approximately $212 million in cash and liquid investments. Those resources are allowing us to advance our discovery programs in HCV and in other disease areas such as NASH without any near-term need for dilutive equity financings. We are expanding our discovery and development capabilities so that as we advance our discovery programs, we'll be ready to move them directly into clinical development. And finally, our financial resources will also allow us to keep our options open for future business development opportunities. Enanta's financial base is driven from milestone payments received for successful development of paritaprevir plus royalties being earned on AbbVie's net sales of paritaprevir containing regimens including AbbVie's 3-DAA and 2-DAA HCV regimens now marketed in the US, Europe, and other territories.

The latest 2-DAA regimen is TECHNIVIE, which was just approved in the US last month in combination with ribavirin for Genotype 4. Later in calendar 2015 we expect a new paritaprevir containing regimen to be approved for Genotype 1 in Japan. This regimen will use the same 2-DAA combination, but without ribavirin. Reimbursement approval in Japan will trigger a $30 million milestone payment to us. These 2-DAA regimens will provide improved economics to Enanta because 45% of the net sales of these will be allocated to paritaprevir sales for purposes of calculating our annually tiered double-digit royalties. I'd like to point out that AbbVie is still in the ramp-up of its HCV sales worldwide so we have yet to see the full picture of the potential for paritaprevir containing regimens.

June 30 marked the end of only the second quarter of sales in the US and other territories including parts of Europe and during this ramp up, Enanta's royalties increased 64% quarter-over-quarter. AbbVie recently reported that it has regulatory approvals in 47 markets and several of those have lead times for full reimbursement approvals, which have not yet been completed. Additionally, regulatory and marketing approvals are not yet in place in significant markets such as Japan. We look forward to seeing the ramp up continue and especially the approval in Japan. Next I'd like to discuss our next generation HCV protease inhibitor ABT-493, which AbbVie is developing in combination with their next generation NS5A inhibitor ABT-530. This promising regimen offers a once-daily ribavirin free all oral pangenotypic regimen.

Recently AbbVie announced interim Phase IIb SVR12 results of 100% in Genotype 1 patients receiving the same dose of this regimen that AbbVie intends to use in its planned Phase III trial. The details of the Phase IIb results are expected to be presented at the AASLD meeting later this year. AbbVie also stated that this next generation regimen is on track to advance into Phase III development later this year and reiterated its 2017 timeline for commercialization. Upon commercialization and regulatory approval in key markets, Enanta is entitled to receive up to $80 million in milestone payments and will also benefit from improved economics because 50% of any net sales of this 2-DAA regimen will be allocated to net sales of ABT-493 for purposes of calculating our annually tiered double-digit royalties for that product.

Now I'd like to discuss the focus of our wholly owned HCV pipeline, which includes programs in three different mechanisms of action against HCV. Based on growing concerns regarding resistant forms of HCV, we are now focusing special attention on this problem. Given that these so-called resistance associated variants or RAVs can be challenging to treat with approved DAAs, we believe that high barrier to resistance mechanisms are going to be increasingly important for the treatment of HCV patients including those who have failed on current DAA therapies. For that reason, we have prioritized our cyclophilin and nucleotide inhibitor programs. Cyclophilin is an exciting mechanism for HCV inhibition that we have been working on for some time. Cyclophilin inhibitors may have the highest barrier to resistance of any class because cyclophilin is a human target that is non-mutating.

Early data with some of our lead cyclophilin inhibitors show good uniform activity across genotypes and little to know degradation in their activity when tested against DAA RAVs versus wild-type virus. Nuc inhibitors are also known to enjoy a high resistance barrier so we plan to combine a cyclophilin inhibitor with the nuc to create a very high barrier to resistance combination. A goal of this type of combination would be not only to have very good activity across genotypes, but more importantly to have good activity against important RAVs. Several HCV regimens on the market contain NS5A inhibitors that have generated NS5A mutations ultimately leading to treatment failures. We believe that over time real world treatment failures will continue to emerge even for the next generation therapies and that will create an opportunity for a regimen such as a cyclophilin nuc driven combination to potentially be an option for these patients.

We are actively pursuing such a regimen and hope to progress a proprietary cyclophilin candidate into the clinic in 2016. Turning to the NS5A inhibitor EDP-239, abstracts demonstrating promising pharmacokinetic, safety, and efficacy results in both healthy volunteers and HCV patients have been accepted for presentation (technical difficulty) in September and at the AASLD Meeting in November. We currently view NS5A as a potential add-on mechanism if needed in certain populations, but for now an NS5A free cyclophilin and nuc driven combination will be our main focus. Beyond HCV, our initial preclinical work in non-alcoholic steatohepatitis or NASH has generated several promising leads with excellent potency and activity against a clinically validated target FXR. We are still on track to initiate clinical studies with an FXR agonist in 2016. In addition to NASH, we continue to pilot several other programs within our core strengths of virology and liver disease and look forward to sharing those programs with you at a later date.

I'd like to pause here and have Paul Mellett discuss our financials for the quarter and our financial outlook for the remainder of our fiscal year. Paul?

Thank you, Jay. I would like to remind everyone that Enanta reports on a fiscal year schedule. Our fiscal year-end is September 30 and we are reporting results for our third fiscal quarter ended June 30, 2015. Enanta ended the quarter with approximately $212 million in cash and marketable securities as compared to $132 million at September 30, 2014 fiscal year-end. We expect that these resources will be sufficient to meet our anticipated cash requirements for the foreseeable future. Our revenue for our third fiscal quarter ending June 30, 2015 was $11.6 million compared to $42.1 million for the three months ended June 30, 2014. For the nine months ended June 30, 2015 revenue was $146.5 million compared to revenue of $45.1 million for the same period in 2014.

The change in revenue year-over-year for the three and nine month periods was primarily related to the timing and amount of milestone and other payment from our AbbVie collaboration. We expect to have significant [quality] cash flow in the near term, which will continue to be dependent on our collaboration with AbbVie. We continue to expect the timing and amount of milestone and other payments to vary significantly from period to period. As we did last quarter, we thought it would be helpful to give some guidance as to how the directly translate AbbVie's future reported sales of VIEKIRA, TECHNIVIE, and other paritaprevir containing regimens into estimated royalties for Enanta on a one step basis.

For the quarter ended June 30, 2015 our paritaprevir royalties represented approximately 3% of AbbVie's reported VIEKIRA regimen sales and we expect royalties to Enanta on reported VIEKIRA sales in the quarter ending September 30, 2015 would continue to be approximately 3% of such sales. This calculation includes our expectations for the amount of VIEKIRA sales allocated to paritaprevir, the net sales adjustment per our collaboration agreement with AbbVie, and the annual royalty tiers under our agreement which are applied on a calendar year basis. So to be clear, let's walk through an example of the royalty calculation. Under our agreement, 30% of net sales of the 3-DAA regimen approved for Genotype 1 are allocated to paritaprevir. That 30% is the allocated net sales number used to calculate our annually tiered royalties, which are currently in the low double digits.

When total sales allocated to paritaprevir are at the low end of the tiers, then 10% of that allocated piece is our royalty. So 10% of 30% gets to 3%, which is the shorthand we use for projecting royalties we expect to earn in our fourth fiscal quarter. Due to the contractual adjustments and mix of regimen sales, this is an approximate number. Given that the vast majority of Enanta's revenue and cash flow is dependent upon AbbVie's commercialization efforts, we offer this guidance to provide our investors a simpler way to estimate the expected royalty flow to Enanta for the quarter ended September 30, 2015. Moving on to our expenses. Research and development expense was $6.3 million and $4.6 million for the third fiscal quarters ending June 30, 2015 and 2014 respectively. For the nine months ended June 30, 2015 research and development totaled $16.1 million compared to $13.5 million for the same period in 2014.

The increases year-over-year are due primarily to increased internal and external preclinical costs associated with our proprietary research programs, which include our internal HCV programs. We expect that our research and development expenses will continue to increase modestly over the remainder of our fiscal 2015 year as we advance our independent HCV programs and continue our preclinical research on our NASH program. For our full fiscal year ending September 30, 2015 we expect to incur approximately $26 million of expenses associated with research and development, which is exclusive of expenses incurred by AbbVie in developing our licensed product candidates, paritaprevir and ABT-493. General and administrative expense was $3.6 million for the quarter ended June 30, 2015 and $2.6 million for the same quarter in 2014.

For the nine months ended June 30, 2015 general and administrative expense was $9.9 million compared to $7.3 million for the same period in 2014. The increase in G&A is due primarily to higher stock-based compensation expense as well as additional expenses to support our expanding operations. Net income for the third quarter was $2.4 million as compared to a net income of $50.1 million for the third quarter of 2014. For the nine months ended June 30, 2015 net income was $73.2 million compared to $39.5 million for the same period in 2014. We expect that our effective tax rate for the remainder of fiscal 2015 will reflect full applicable US federal and state statutory tax rates. This represents a tax rate of approximately 40% for the current quarter and the remainder of our fiscal year. Further financial details will be available when we file our Form 10-Q for the quarter.

I'd now like to turn the call back to Jay.

Thanks, Paul. I'd like to wrap up by reminding everyone that we have several milestones to look forward to. Within our partner HCV program, AbbVie has guided that they anticipate later this year that additional Phase IIb data will be released at AASLD and the Phase III trials will begin on the next generation combination containing protease inhibitor ABT-493. In Japan we expect AbbVie to gain regulatory approval for the 2-DAA regimen containing paritaprevir in the second half of calendar 2015. Upon reimbursement approval in Japan, which we expect in the quarter ending December 31, 2015, we will be entitled to receive a $30 million milestone payment from AbbVie.

We also expect to concentrate our internal HCV efforts on high barrier to resistance mechanisms anticipating growing resistance problems in the future. Finally, within our NASH program, we expect to initiate clinical studies in 2016. In summary, we see a bright future ahead for Enanta; one that is built on a strong financial footing already established with payments we have received for the approval and commercialization of paritaprevir, our prospects for additional and growing royalties from paritaprevir sales, and the advancement of our next generation protease inhibitor ABT-493 and our proprietary programs.

I'd like to stop now and open the call to Q&A. Operator?

(Operator Instructions) Jessica Fye, JPMorgan.

This is Ryan on for Jess. First, can you talk about your expectations for the next gen combo with 493 and where do you see that fitting in with the evolving HCV market?

So, our expectations on the next gen combo are actually multifold. First of all, we're looking at it as being a good addition to being an all oral pangenotypic offering. We're expecting that it would be ribavirin free as well once daily dosing so that we should be able to offer a very good cure in a convenient form and over a reasonable period of duration that we think will be competitive. The cure rates that we've seen to-date have been quite high in the data that has been reported and as I mentioned before, we expect to put a lot more data out at the AASLD conference. The regimen also has pretty good activity against some of the known resistance mutations that are out there in the respective mechanisms of protease and NS5A. So, there are studies in place that will explore that clinically as well and that data will be out eventually too. So, overall a pretty competitive offering we think.

And if you wouldn't mind, can you kind of remind us what we can expect to see at AASLD in addition to this combo data?

Well, we haven't yet disclosed all of the abstracts obviously for the conference. There will be a number of them not only for the next gen, but obviously for the more mature paritaprevir containing program. But suffice it to say, it will go well beyond the SVR4 and initial SVR12 data sets that have been presented in very topline forms. So, there will be a quite extensive amount of information.

Okay. And I guess one more question, if I may. As you guys think about your development pipeline with the HCV assets and the NASH drug, how do you think about prioritizing those development pipelines? Thanks.

Well, right now we're prioritizing them effectively equally. I think they're not too far off in terms of the stage, but they're at the stage where we're expecting that we could have an HCV molecule as well as a NASH molecule in the clinic next year. We'll certainly do everything in our power to move those as quickly and as carefully as we can. But right now, we're pushing them both with equal intensity.

Great. Thanks for taking my questions.

Bill Dezellem, Tieton Capital Management.

First of all, could we circle back to the royalty tiers, please and I know you don't want to talk a lot about them, but are each of the tiers of equal size?

I'll go back to the beginning part of your question, which is it's not that we don't want to talk a lot about them, we're prevented from talking a lot about them because they are redacted deal terms. So, again all we can really say is what the royalty range is. It's a tiered setup so there are five tiers and they range from the low end of low double-digits at 10% and the highest tier is at 20%. So, you can sort of imagine numbers that would tuck into three other tiers in between those goalposts. So, that's really what we're allowed to say. We can't really disclose greater specificity than that at this time.

Jay, I don't think I asked my question very well, my apologies. I was thinking not in terms of the royalty percentage, but the dollar tiers, dollar levels at which those percentages came into play. Are those roughly equal dollar increments?

Those numbers were also redacted so we're unable to really comment on that. I think eventually as our numbers grow and the ramp continues to occur, there will be more indirect insight into that from watching how our royalties build over time, but we can't really get into specifics around what those break points in sales look like that trigger the next tier.

And let me now try a question that maybe is more answerable. You've mentioned that R&D will directionally be drifting upwards in the coming quarters. Would you say that the same would apply to G&A or would you anticipate that that you would be holding more constant?

This is Paul Mellett. I think the G&A will drift up, but nowhere near the expected drift up of the R&D spending. The R&D spending as we advance our programs, particularly as we get into external spend, can ramp up fairly significantly in short order. The G&A will be much more stable.

And finally, I think you mentioned this earlier, but I missed it, why the tax rate was lower than your expected norm in the quarter?

We had the benefit of certain R&D credits that we took this quarter. However, for the full year we expect to be at roughly the 40% rate.

Great. Thank you both for your time.

(inaudible).

Had a question on timing In Japan. AbbVie on their call indicated they're looking for a full quarter of Japan sales this year potentially even more than a full quarter which would mean approval tomorrow I guess or at some point really soon. It looks like you're looking for a little bit of a leaner timeframe. Can you help clarify that?

Our milestones are actually triggered by commercialization approval and so that may not be exactly at the same time as the drug is approved. Again weeks one way or the other could shift things into one quarter or another, but the ultimate timing of the actual payment may lag just a bit from the actual event of the approval in Japan.

Okay. I would just say that AbbVie talked about having a full quarter plus of sales so I assume that everything they need for a commercial launch in place [pre] calendar Q4, but I guess a matter of weeks is not [big] one way or the other. Just if you can help clarify that at some point?

We're merely talking about our payment that results from that trigger. So, there's a little bit of a difference between the two events, but we think it should be very close to being in that time. That's a likely timing and it will all depend on when the actual timing of the approval is.

One follow-up question on the next generation if I can and that is at AASLD, will we be seeing data in other genotypes as well in addition to Genotype 1 from AbbVie?

I don't think we've disclosed that publicly. So, you have to wait a little bit further down the line for more information on exactly what's going to be at AASLD.

Great. Thanks.

And at this point we have no further questions, I'd like to turn the call back to Carol Miceli.

Thank you, everyone, for joining us. We'll be in the office if you have any additional questions. Thank you.

This does conclude the conference call for today. You may now disconnect. Thank you.