Enanta Pharmaceuticals Inc (ENTA) 2016 Q1 法說會逐字稿

Good afternoon. My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to the Enanta Pharmaceuticals first-quarter financial results conference call.

(Operator Instructions)

Thank you. I will now turn the call over to Carol Miceli, Director of Investor Relations. You may begin your conference.

Thank you, Mike, and welcome to Enanta Pharmaceuticals' fiscal first-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 CEO; 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 our licensed products and our product candidates and financial projections, all of which involve certain assumptions, risks and uncertainties that are beyond our control, and could cause our actual developments and results to differ materially from these statements. A description of these risks is 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. Thank you for joining us today.

Last quarter, I walked you through the key pieces of our business, and pointed out why we believe Enanta's positioned for success in 2016. Today, I'm pleased to report that because of Enanta's disciplined business approach, it's making great progress on all areas of its business operations, so on target to meet our objectives for the year.

Enanta is one of the few biotechs that is sustained by recurring royalty revenues, and we have an advancing pipeline with clinical stage assets and our promising R&D programs in high value disease indications. Last month, at the JPMorgan conference, we announced two new R&D initiatives within our core areas of virology and liver diseases. These initiatives are in hepatitis B virus, and respiratory syncytial virus, also known as RSV.

We now have wholly-owned programs focused on four disease areas, HCV, HBV, RSV, and non-alcoholic steaotohepatitis, also known as NASH. Our goal is to be in multiple new therapeutic areas, and to have multiple therapeutic approaches within each of those areas. I'll go into more details in a few minutes.

To sustain this research, our business is being funded by royalties received from AbbVie on sales of HCV regimens containing our first protease inhibitor, paritaprevir. Paritaprevir is part of multiple HCV combination treatment regimens, now marketed globally by AbbVie in over 60 countries. Our second protease inhibitor, ABT-493, is being developed as part of a 2-DAA HCV treatment that AbbVie plans to have approved in the US in 2017.

To that end, AbbVie recently initiated six global Phase III studies on this regimen, in over 1,600 chronic HCV patients with genotypes 1 through 6, and expects data starting in the second half of 2016. These trials are evaluating the safety and efficacy of an all-oral, once daily ribavirin-free HCV treatment consisting of a co-formulated combination of ABT-493 and ABT-530, AbbVie's next gen NS5A inhibitor.

Marketing approvals of this next generation regimen in major markets would make Enanta eligible for up to $80 million in commercialization milestone payments, as well as additional royalties from this product. So in summary, the collaboration with AbbVie has provided the financial resources on which Enanta can grow, and we have used these resources to make great progress with our internally-developed wholly-owned pipeline.

Two promising candidates I'd like to highlight now are EDP-494 for HCV, and EDP-305 for NASH. In anticipation of resistance arising to DAA HCV therapy that targets viral proteins, we have been developing an alternative host-targeted anti-viral approach. EDP-494 has a high barrier to resistance mechanism, that targets the human host protein, cyclophilin, which is essential for replication of HCV.

The Hepatitis C virus actually depends upon and uses the human cyclophilin protein to complete its replication cycle, and we have developed EDP-494 as a cyclophilin-binding compound that has shown in vitro that it inhibits HCV's ability to use that protein for replication. Since the human cyclophilin protein is not part of the virus, and therefore not directly subject to viral mutation, we've been pleased to find that it has consistent activity across many variants of the Hepatitis C virus.

The cyclophilin inhibiting mechanism of EDP-494 is designed to be part of a pan-genotypic once-daily offering to target RAVs, DAA failures, and other hard-to-treat HCV patient populations. Last month at JPMorgan, we presented excellent pre-clinical data demonstrating pan-genotypic activity and uniform activity of EDP-494 against many of the known RAVs across all of the DAA classes, namely NS5A, NS5B, both nuc and non-nuc and NS3 protease RAVs.

Many of the drugs on the market and currently in development have some level of reduced activity when they encounter many of the known HCV mutations in existence today; however EDP-494 suffers no loss against any of the major HCV mutations, because it's a host target. Because of these properties, we believe a cyclophilin inhibitor could become increasingly important to treat -- for the treatment of RAVs in the growing number of DAA failure patients.

We recently initiated a Phase I study and our next step with the program is to advance into proof of concept studies. Initially we're going to look at GT1, which is the largest patient population, as well as GT3, which is the hardest to treat genotype. After that, we plan to move on to combination studies.

Since nuc inhibitors are also known to enjoy a high barrier to resistance, we plan to combine our cyclophilin inhibitor with an externally-developed nuc to create a combination with two high barrier mechanisms. If it would add to the effectiveness of such a combination, we also have available our NS5A inhibitor, EDP-239 which has completed Phase I and a proof of concept study in HCV patients.

We will aim to have the Phase I data later this year, and to initiate a proof of concept study. Before then, we will present additional pre-clinical data on EDP-494 at EASL in April. Having successfully defined a path forward in all major HCV patient populations with our HCV franchise, we do not plan to conduct further discovery research in HCV. Instead, these resources will be deployed on our newer programs.

Our second most advanced wholly-owned program is for NASH and PBC, and we recently announced our development candidate, EDP-305, which is an FXR agonist. NASH is reported to be the number-one cause of liver disease in western countries, and is associated with diseases related to diabetes, insulin resistance, obesity and hyperlipidemia, and hypertension. The progression of NASH increases the risk of cirrhosis, liver failure, and hepatocellular carcinoma, and is a large problem within the US, with a prevalence estimated to be approximately 9 million to 15 million individuals.

We have spent the last year generating several promising FXR agonist leads, and last month we presented pre-clinical data comparing EDP-305 to OCA, which is the only clinically validated FXR agonist, and the most advanced NASH candidate in development today. Data we presented at JPMorgan shows that EDP-305 is a highly-selective FXR agonist, and shows more potent activity in a variety of in vitro and in vivo models compared to OCA. This and other data give us the confidence to move ahead with EDP-305, and we remain on track to initiate clinical development in the second half of calendar 2016. The data slides for these candidates I just discussed are available to download on the investor section of our website under the JPMorgan conference webcast event.

Keeping with our mandate to diversify our pipeline beyond HCV, I would like to briefly highlight our recently-announced new research and development initiatives in HBV and RSV. RSV is a viral lung infection that is the most common cause of bronchiolitis and pneumonia in children under one year of age in the United States. Each year, 75,000 to 125,000 children in this age group are hospitalized in the US, due to RSV infection. RSV also causes serious complications in immune compromised populations and the elderly. There are currently no safe and effective treatments available.

Now, let's shift to HBV. HBV is a potentially life-threatening liver infection. It is that estimated 15% to 25% of patients with chronic HBV infection will develop chronic liver diseases including cirrhosis, hepatocellular carcinoma, or liver decompensation, leading to more than 780,000 deaths worldwide every year.

We have made significant progress in discovering, characterizing, and seeking patent protection for new core inhibitors for HBV, and new non-fusion inhibitors for RSV, and we expect to initiate Phase I clinical development in at least one of these new programs in 2017.

I'd like to pause here and have Paul Mellett discuss our financials for the quarter. Paul?

Thank you, Jay. I'd like to remind everyone that Enanta reports on a fiscal year schedule. Our fiscal year ended September 30, and today, we are reporting results for our first fiscal quarter ended December 31, 2015.

Enanta ended the quarter with approximately $237 million in cash and marketable securities, as compared to $209 million at our September 30, 2015 fiscal year end. That $237 million balance includes a $30 million milestone payment we received from AbbVie for the reimbursement approval of VIEKIRAX in Japan in November 2015. We expect that these cash resources will be sufficient to meet our anticipated cash requirements for the foreseeable future.

We have now earned all milestone payments related to our first product, paritaprevir. The remaining milestone payments for which Enanta is eligible would be triggered by commercialization regulatory approvals in major markets for AbbVie's next generation HCV regimen that includes ABT-493, our next-generation protease inhibitor. AbbVie is planning for an approval of this regimen in 2017.

Our revenue for our first fiscal quarter ending December 31, 2015 was $48.4 million compared to $77.5 million for the three months ended December 31, 2014. Revenue consisted primarily of $17.9 million of royalty income earned on AbbVie's net sales of paritaprevir containing regimens, as well as the $30 million milestone payment received from AbbVie. Milestone payments, royalties, and other payments from collaborations have varied significantly from period to period, and we expect that this variability will continue.

We expect to have significant royalty cash flow in the near term, which will continue to be dependent on our collaboration with AbbVie. As we did last quarter, we thought it would be helpful to give some guidance as to how to translate AbbVie's future reported sales of VIEKIRA, TECHNIVIE, and other paritaprevir-containing regimens into estimated royalties for Enanta on a one-step basis.

It's important to remember that in January, we started a new royalty year, which means cumulative net sales start at zero for the purposes of determining royalty tiers. For the quarter ending March 31, 2016, we expect royalties to Enanta on reported VIEKIRA sales to be at least 3% of such sales. This calculation includes our expectations for the amounts of VIEKIRA sales allocated to paritaprevir, the net sales adjustment for our collaboration agreement, and the annual royalty tiers under our agreement.

Any of these factors could change in subsequent quarters. For example, if AbbVie's sales included a higher percentage of 2-DAA regimen sales such as those in Japan, then our royalties would increase, even if total HCV sales stay the same. Given that Enanta's future revenue and cash flow will be 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 ending March 31, 2016.

Moving on to our expenses, research and development expenses were $9 million and $4.5 million, the first fiscal quarters ending December 31, 2015 and 2014 respectively. The increase in the three-month period was due primarily to increased pre-clinical and clinical costs associated with our wholly-owned R&D programs. We expect that our R&D expenses will continue to increase in FY16, as we continue our cyclophilin inhibitor clinical trials, advance our NASH program into the clinic, and increase our R&D capabilities.

General and administrative expense was $3.8 million for the quarter ended December 31, 2015, and $2.8 million for the comparable quarter in 2014. The increase in G&A in the three-month periods is due primarily to higher stock-based compensation expense, as well as additional expenses to support our expanding operations. Net income for the first quarter was $26.2 million, as compared to a net income of $42 million in the first quarter of 2014.

We are revising our effective federal and state tax rate for FY16 to 29%, to reflect the extension of the federal research and development tax credit for calendar 2016. Further financial details are available in our Form 10-Q for this fiscal quarter. I'd like now to turn the call back to Jay.

Thanks, Paul. I'd like to wrap up my formal remarks by reminding everyone that as we begin 2016, Enanta is in a very strong position to expand and execute on its business objectives. We are one of the few profitable biotechs today, and have a recurring revenue stream from our successful HCV collaboration with AbbVie, as well as a strong cash position. This allows us to be able to fully fund our wholly-owned assets, including targets in four high value-disease areas, HCV, HBV, Nash, and RSV.

In 2016, we plan to complete a Phase I study and to initiate a proof of concept clinical study with our cyclophilin inhibitor, EDP-494, in GT1 and GT3 HCV patients. We expect to initiate a Phase I study with EDP-305, our FXR agonist for NASH and PBC. And we plan to advance several leads within our HBV and RSV programs with a goal of a Phase I start in 2016 in at least one of these programs.

In addition, our financial resources will allow us to keep our options open for future business development opportunities and also to fund other ongoing discovery programs within our core areas of virology and liver disease.

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

(Operator Instructions)

Your first question comes from Geoff Meacham from Barclays.

This is Carter on for Geoff. First one is on the Merck label and specifically around the language on the recommendation to test for the resistance of associated polymorphisms. We were wondering how this aligned with your expectations, and if in any way it changed your underlying assumptions around the next generation regimen and what that potential label might look like? And second, real quickly, any chance we get some pre-clinical data on the HBV or RSV programs this year? Thank you.

Thank you. So with regards to the Merck label, I mean we, I think a number of us, sort of saw that one coming, I think it was after EASL, when some of the data came out on the RAVs with that regimen. So to us, it wasn't really surprising at all to see that language show up in the label. We just weren't quite sure how that would be exactly written.

So if those RAVs are present and it's recommended that you have that testing, then it's recommended that you have 16 weeks of therapy, not 12, and it's recommended that you add ribavirin on top of that. Unfortunately, you do need to do that RAV testing, in order to determine that. That's very different than VIEKIRA, that's on the market today, and I think you mentioned how it could impact our next gen. Our next gen is designed to go even where VIEKIRA left off, and as I mentioned we don't need to have the RAV testing with VIEKIRA.

The next gen actually is specifically designed to have good activity, both in the protease member of the regimen as well as NS5A member of the regimen, have good activity against a lot of those known resistance mutations already. So that's something that we expect to have some good data on down the line, as all of this unfurls, just based on how the molecules were designed, and the fact that they're already superior to what is in some of the regimens today including VIEKIRA, so we're looking very much forward to having all that data come out in time.

The other part, I think, of your question was, will we have more to say on pre-clinical data on HBV and RSV this year? I think that the answer is that it's quite possibly possible that we could. We just want to wait until we've got very specific molecules that we want to showcase. We've got a lot of data now, but we will work it up carefully, as we have with all of our other programs, to put data out when it's properly cooked and at the right meetings, and so forth.

Thank you.

Your next question is from Jessica Fye from JPMorgan.

This is Ryan on for Jessica. Thanks for taking our questions. Could you discuss a little bit about how you're thinking about the Phase I study for the FXR inhibitor, 305? Given the increase in competition in NASH and PBC, how do you see 305 differentiating itself from other candidates in development?

Sure, so the Phase I data for FXR, I mean, substantially, it will be a healthy volunteer study. I think we'll be looking at certain kinds of other read-outs and markers, and anything that we can reasonably help complete a picture on the profile of the molecule in a healthy volunteer study. But with regards to the differentiation, we put out some of the data that we've started to accumulate. It's not everything that we have, but what we have shown is that it's a highly, highly selective agent, and it's -- FXR is a nuclear receptor, so you need to think about other nuclear receptors, and we've paneled them extensively.

Other agents, OCA is a bio-acid derivative, and combined not only to FXR, but it can in theory, is a derivative like that combined to TGR5. We've looked at selectivity with our molecules extensively in that regard, and 305 is again highly selective for FXR over TGR5. We've done a lot of other selectivity work in other receptor panels, GPCRs, ion channels, a whole slew of things you would be working on.

So we like the profile that we've come up with. There's a lot of pre-clinical work and PK and other kinds of things that give us good characteristics on the molecule that are favorable as well. And then we took it in, as we showed at JPMorgan, into a variety of different in vitro and in vivo models. And again looking at FXR driven read-outs in human hepatocytes and animal models and NASH models.

And in every instance, we saw more potent activity than OCA, and again, I think we're good that -- or we're feeling pretty good about the molecule in terms of having a solid profile. So we plan to take it in later this year in clinical studies, we're very much on track with that, and we'll have more to say on that program as the year progresses as well; so anyway, yes. I'll leave it at that.

Maybe just to follow-up. So is it possible that you will present some of that pre-clinical data later this year?

Yes, I think we'll be, as I mentioned, we'll have more to say on the program as the year unfolds.

Great, thank you.

(Operator Instructions)

The next question is from Bill Dezellem from Tieton Capital.

First of all, did you have any revenues that fell into the second tier this quarter?

So, this is Jay speaking. We can't, I've answered this similar question, I think, on previous calls. We can't get into the discussions around where the break points are for the royalty tiers, so until or unless we have permission to do that in the future, we really can't comment on that.

Thank you. And then secondarily, will you break out the dollars that were in the 30% bucket, and those that were in the 45% bucket?

Yes, the 3D break down and the 2D break down?

Yes.

Yes, so that unless that's disclosed by AbbVie, we won't disclose it. But what can I say? So, as you know, the sales in the 2D bucket are quite helpful to us overall, because we do get a double-digit royalty on 45% of that. That then brings in a sales, net sales numbers faster to us, and helps us rise through the tiers.

So there's a couple of factors that can be helpful over time, which is an enrichment of 2D over 3D in those sales, which we're again hoping to see that begin, based on Japan sales, which the quarter we're in now will be the first full quarter of sales to the 2D regimen in Japan. So the 2D blend will ultimately give us a chance to rise, and as will the royalty tiers, so but unfortunately I can't give you that granularity. Whether it's one or the other, you'll know when it happens, because you'll be able to see changes in the percentage over time.

Understood, and in addition to Japan, if I recall correctly, there are some European countries where you do have the 45% on the 2-DAA. Which countries are the important countries are those again?

Well we've got the 2D, so VIEKIRAX is approved in numerous countries in Europe, so and all the major countries and major European countries. And where you would think about that is in the GT4 indication, so VIEKIRAX, in particular the 2D regimen in Europe, is indicated for use in GT4, so that's increasingly a problem. A lot of people think that it's really restricted to Egypt and parts of the Middle East, but it's actually, through immigration, moved into Europe and France and Italy and Germany. And so some of the major markets, GT4 is not largest genotype, but it's not horribly small either, so it will contribute.

We also have that label in the US for GT4, again not as much GT4 in the US, but it's sold as -- the 2D regimen is called TECHNIVIE in the US. I really do think that the largest of the 2D markets is actually going to be Japan, where that is the principal regimen that will be sold, and it's for genotype 1B and genotype 1, but predominantly in Japan it's genotype 1B. So I think that it's a pretty competitive offering, given that it's once a day, ribavirin-free, has very high cure rates.

And so we're looking, we're really looking forward to how things start to roll out in Japan. Gilead has obviously had tremendous success there this last quarter, which I think was their first full quarter pulling in, I think it was about $1.4 billion in Japan alone, so stay tuned, and we'll see how it goes.

There are no further questions at this time. I will turn the call back over to Carol Miceli for closing remarks.

Thank you for joining us today. Feel free to contact us if you have any additional questions. We'll be in the office.

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