Enanta Pharmaceuticals Inc (ENTA) 2016 Q2 法說會逐字稿

Good afternoon, ladies and gentlemen. Welcome to the Enanta Pharmaceuticals second quarter financial results conference call. My name is Ronnie, and I will be your conference operator today.

(Operator Instructions)

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

Thank you, Ronnie, and welcome to Enanta Pharmaceuticals' fiscal second quarter financial results conference call. The news release with our financial results was issued this afternoon, and is available at our website at www.enanta.com. You can also listen to the webcast or the replay, by going to the Investors 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.

But 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, and thank you for joining us today. I'm pleased to report on Enanta's results, and to update you on our progress, and our R&D efforts. Enanta remains in a very strong position to expand and to execute on our pipeline. Our cash position of $246 million, and a recurring revenue stream from our successful HCV collaboration with AbbVie, allows us to fund our business operations and R&D initiatives for the foreseeable future.

Our HCV protease collaboration with AbbVie continues to progress, with Enanta participating in AbbVie's lead HCV regimens, with our protease inhibitor paritaprevir, and also contributing a second protease inhibitor ABT-493 to AbbVie's latest investigational HCV regimen currently in Phase 3 trials. AbbVie's initial HCV regimens continue to provide substantial royalty flow to Enanta. Enanta received $30 million in royalties for the first half of our fiscal year, and we continue -- and continuing royalty payments flowing to Enanta this year.

Let's shift to ABT-493, our second protease inhibitor. ABT-493 is advancing toward an NDA filing, as part of AbbVie's next-generation HCV co-formulated regimen made up of ABT-493 and ABT-530, which is AbbVie's second NS5A inhibitor. This pan-genotypic all-oral once-daily ribavirin-free HCV treatment continues to demonstrate very high cure rates in HCV patients, often in as little as eight weeks of treatment. Last month, exciting new data from the SURVEYOR 1 and 2 studies using this 2-DAA co-formulation were reported during the EASL meeting in Barcelona.

Data demonstrated that 97% to 98% SVR12 was achieved with only eight weeks of treatment in genotypes 1, 2 or 3 HCV patients without cirrhosis. In patients with genotype 3 HCV with compensated cirrhosis, also known as Child Pugh-A, one of the most difficult to treat populations, 100% SVR12 was achieved with 12 weeks of treatment in patients new to therapy. And in genotypes 4, 5 or 6 HCV patients without cirrhosis, 100% SVR12 was achieved with 12 weeks of treatment, and further study with eight week treatment is ongoing.

In all this 2-DAA next-gen combination is being evaluated in over 2,000 patients in multiple registration trials that cover genotypes 1 through 6, with Phase 3 data reading outs starting later this year. AbbVie has guided toward marketing approvals of this new 2-DAA therapy in the US in 2017. Commercialization, regulatory approval in major markets would make Enanta eligible for up to $80 million in milestone payments, as well as additional tiered double-digit royalties from 50% of the net sales of this product.

I'd now like to discuss our pipeline of wholly-owned assets focused on our four disease areas, HCV, HBV, RSV, and nonalcoholic steatohepatitis also known as NASH. Our most advanced wholly-owned asset is EDP-494, our cyclophilin inhibitor for HCV, now in Phase 1 clinical studies. We are developing EDP-494, which is a host-targeted approach in anticipation of resistance arising to DAA HCV therapy. EDP-494 has a high barrier to resistance mechanism that targets human host protein, cyclophilin, which is essential for HCV replication. Many of the drugs on the market today, and currently in development have some level of reduced activity, when they encounter many of the known HCV mutations that exist today. However, to date, EDP-494 suffers no loss against any of the major HCV DAA mutations, because it's a host target.

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 our cyclophilin inhibitor has consistent activity across many variants of the hepatitis C virus. Earlier this year, and most recently at EASL, we presented excellent preclinical data demonstrated pan-genotypic activity and uniform activity of EDP-494 against many of the known RAVs across all the DAA classes, mainly NS5A very, NS5B both nuc and non-nuc, and NS3A protease RAVs.

The Phase 1 study in healthy volunteers is ongoing, and next quarter we expect to initiate proof-of-concept studies in patients with HCV genotype 1, the largest patient population, and genotype 3 considered the hardest to treat genotype. If these studies demonstrate good results, we would expect to study EDP-494 in combination with one or more DAAs in a pan-genotypic once-daily treatment to target RAVs, DAA failures and other hard to treat HCV patient populations.

Our second most advanced wholly-owned program is for NASH and PBC, where 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 the prevalence estimated to be 9 million to 15 million individuals.

We have spent the last couple of years generating several promising FXR agonist leads. And earlier this year, we presented preclinical data comparing EDP-305 to Intercept's OCA, which is the only clinically validated FXR agonist, and the most advanced NASH candidate in development today.

Preclinical data demonstrate the EDP-305 is a highly selective FXR agonist with more -- excuse me -- with more potent activity in a variety of in vitro and in vivo models compared to OCA. This and other data gives 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. We are also investigating additional series of FXR agonist, and we expect to have further information on these later this year.

Our earlier stage pipeline involves our initiatives in RSV and HPV. We have made significant progress in discovering, characterizing, and seeking patent protection for new core inhibitors for HBV, and for new non-fusion inhibitors for RSV, and we expect to have some initial preclinical data later this year, consistent with our plan to initiate Phase 1 clinical development in at least one of these new programs in 2017.

In summary, we continue to execute on our business strategy, and have made progress in advancing our wholly-owned programs. During 2016, we plan to complete our Phase 1 study, and to initiate a proof-of-concept study next quarter, with our cyclophilin inhibitor EDP-494 in genotype 1 and genotype 3 HCV patients. We remain on track to initiate Phase 1 study with EDP-305, our FXR agonist for NASH and PBC later this calendar year.

Looking forward to 2017, as several leads advance with our HBV and RSV programs, we anticipate a Phase 1 start in 2017, in at least one of these programs. Also in 2017, we look forward to US regulatory approval of AbbVie's pan-genotypic next gen HCV regimen containing our second protease inhibitor ABT-493. I want to remind you that commercialization regulatory approvals in major markets would generate up to an aggregate of $80 million in milestone payments to us, as well as tiered double-digit royalties on 50% of net sales. Additionally, our financial resources will allow us to keep our options open for future business development opportunities.

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 end is September 30, and today we are reporting results for our second fiscal quarter ended March 31, 2016.

Enanta ended the quarter with approximately $246 million in cash and marketable securities, as compared to $209 million at our September 30, 2015 fiscal year-end. We expect that these cash resources will be sufficient to meet our anticipated cash requirements for the foreseeable future. Revenue consisted of $13 million of royalty income earned on AbbVie's net sales of paritaprevir containing regimens.

Milestone payments, royalties, and other payments from collaborations have varied significantly from period to period, and we expect that variability to continue. I do want to note that this quarter is the first in our new royalty year under our AbbVie agreement, for purposes of determining applicable royalty tiers. The amount of Viekira sales allocated to paritaprevir, particularly whether they are sales of 3-DAA or 2-DAA regimens containing paritaprevir, as well as the net sales adjustments, and the annual royalty tiers under our agreement are all factors that contribute to the amount of actual royalties we earn on AbbVie's HCV sales. If any of these factors could change in subsequent quarters -- any of these factors could change in subsequent quarters. For example, if AbbVie's sales include a higher percentage of 2-DAA regimen sales such as those in Japan, then our royalties would increase, even if AbbVie's total HCV sales stayed the same.

Moving onto expenses, research and development expenses were $9.1 million and $5.4 million for the second fiscal quarters ending March 31, 2016 and 2015, respectively. The increase in the recent three-month period was due primarily to increased preclinical and clinical costs associated with our wholly-owned R&D programs. We expect that our R&D expenses will continue to increase in fiscal 2016, as we continue our cylcophilin inhibitor clinical trials, advance our NASH program into the clinic, and increase our R&D capabilities.

General and administrative expense was $4.4 million for the quarter ended March 31, 2016, and $3.4 million for the comparable quarter in 2015. 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. We incurred a net loss for the second quarter of $1.6 million, as compared to a net income of $28.7 million in the second quarter of 2015.

During the three months ended March 31, 2016, the Company increased its estimate of its annual effective tax rate for fiscal 2016 from 27% to 31.5%, primarily due to a lower projected research and development tax credits. This resulted in an income tax provision of $1.55 million, despite a pretax loss for the quarter, as the entire catch-up is recorded in the current quarter. Further financial details will be available in our Form 10-Q for this fiscal quarter.

I'd now like to turn the call back to the operator, and open the lines up for Q&A. Operator?

(Operator Instructions)

Your first question comes from the line of Geoff Meacham with Barclays.

This is Evan Seigerman on for Geoff. Thanks for taking the questions. So just a quick question regarding some recent HCV guidance that we saw published, I think it was last week. So do you believe that -- and I'm just wondering how this impacts your development strategy for 494, the cyclophilin inhibitor. Does this even apply?

Well, the guidance doesn't particularly bear on host factors, with regards to some of the words that were in there. Again, it is a draft guidance. I think where it might potentially apply to us down the road, would be, if we're in combinations with other DAAs.

Okay. And then kind of just following up, with the cyclophilin inhibitor. We saw data from yours, and data from Scripps at EASL. I'm just wondering if you can help me better understand some of the benefits and drawbacks of each approach?

Well, we -- when you say with regard to Scripps --?

Scripps Research had a cyclophilin inhibitor that they presented data on. It was PS-003.

Yes, I don't have that information right in front of me. I know they did have a poster, I think, that talked about some effects on the ability to reinfect cells, after they had been exposed to cyclophilin inhibitors and so forth. But that's a little bit different than our molecules, and what we have been pursuing. I can't specifically make a comparison between the two.

We haven't tested the other agent. But what we have shown pretty convincingly, is really interesting pan-genotypic activity, very uniform pan-genotypic activity from a potency perspective across TT-1 through 6, and amazingly good activity against all the RAVs. In fact, you can see a little bit of that data in the corporate presentation that we posted last week, showing on NS5A Resistant-Associated Variants, which is where many of the problems with current therapies are -- their current therapies encountering with the NS5A RAVs.

So we wind up, pretty much every NS5A that's on the market or in development, line them up and compared all the resistance mutations that they have issues with, and our cyclophilin inhibitor pretty much knocks them down, as though they were wild-type, across every mutation that we've seen. So whether that's NS5A or NS5B or also protease. So what we've been really focusing on, is establishing that really strong high barrier to resistance mechanism. We've been fleshing it out with regards to being pan-genotypic. And again, we are pretty much done with Phase 1, we're just nearing the end of that, and we're on track to again, get in patients next quarter. So we're very excited to get going on that, so that we can get some combinations to really prove that principle that we've seen preclinically.

Great. Thanks for taking the questions.

Thank you.

Thank you. Your next question comes from the line of Bryan Skorney with Robert Baird.

Guys, thanks for taking the questions. I guess, one kind of off the prior question, in terms of the revised draft FDA guidance, do you think that there's any risk, in terms of the time line for ABT-493 approval? I don't think there's, currently, outside of a Japanese study, a head-to-head study with a 493 based regime? And then I have one on the FXR agonist after?

Okay. Yes, thanks, Brian. So the -- there are other head-to-heads. So the Japanese studies that you mentioned are head-to-head trials, comparator trials, Endurance 3 in genotype 3 is also a comparative study. So again, and AbbVie's had extensive discussions with FDA, all along the way into Phase 2 meetings, and throughout the design of Phase 3, and they feel pretty comfortable with those discussions. And the fact that, again, the comparator trials that are ongoing.

Okay. And then in terms of the FXR agonist, I'm just wondering if we had the OCA, FDA AdCom this quarter? And I was just wondering if you guys have any takeaways from that AdCom, anything you learned from the OCA preclinical profile, and where you think your asset might potentially be able to differentiate?

Yes. So not a lot of learnings, I would say, from that AdCom. It was obviously a fairly straightforward one for Intercept. There didn't seem to be a lot of controversy, and there was a unanimous vote, at least in PBC going forward, so at least recommendations.

So I think what we continue to do, is focus on the potency in selectivity. Again, with our first agent, we've tried to make it very, very selective across all other nuclear receptors, and really dialed out TGR5 which is another receptor that FXR agonists can sometimes bind to.

It has been that we've implicated preclinically in pruritus, I don't know if that is a situation. I think people are going to be sorting a lot of that out clinically. But we've been doing a lot of characterization. Not a lot of it unfortunately yet has been put out there into the public domain for some -- a variety of reasons. Some of it is competitive, and some of it's we're still working up final data out of several different models. So we will be putting out more information later this year, and we are reiterating our target of being in the clinic later this year, as well.

Great. Thanks.

You're welcome.

(Operator Instructions)

Your next question comes from the line of Jessica Fee with JPMorgan.

This is Ryan on for Jess. Appreciate you taking the questions. Maybe going to 494, the cyclophilin inhibitors. As you progress towards moving into the proof-of-concept, maybe taking a step back, as you think about the mechanism of action, I think you were talking earlier about how it had pretty good activity against some of the NS5A RAVs. Is that your expectation that it would probably be, it would pair well using in NS5A? Or what mechanisms do you think are the most promising, in terms of the combinations to pair the agent with?

Sure. So we actually have looked at combinations with every mechanism of action, and have generated a lot of interesting data combination-wise, showing additivity to mild synergy, depending upon the mechanism and the combination. So we feel like every combination partner is possible.

As you know, we have a Phase 2 ready NS5A ourselves called EDP-239, that we finished a proof-of-concept study on. But we're actually thinking that to marry our cyclophilin inhibitor with another really high barrier mechanism would be one of the most intriguing things, I think, in terms of new combinations to come forward. So to that end, we do like the nuc mechanism, which also has a pretty high barrier.

I think cyclophilins are probably higher. But -- so to state it another way, if we could achieve what we wanted to achieve, without having an NS5A in the regimen, I think that's what we'll try to do, if we can make it as simple as a 2-DAA regimen. If we need extra horsepower as it turns out, once we do the clinical studies, and determine we could use a little bit more power, then we certainly have an NS5A that we can add to the mix. But right now, we want to try to make it as simple as possible, and as high a barrier to resistance as possible.

Great, and as -- would you have some data to present possibly by -- at like a medical conference later this year?

I think that's very likely. Yes, we'll be aiming to put some data out later this year.

Okay. Thanks for taking my questions.

You're welcome.

There are no more questions at this time. I would like to turn the call back over to Carol Miceli.

Okay. Thank you everyone for joining us today. If you have any additional questions, feel free to give us a call in the office. Thank you.

Thank you for participating in today's conference call. You may now disconnect.