Enanta Pharmaceuticals Inc (ENTA) 2016 Q4 法說會逐字稿

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

(Operator Instructions)

It is now my pleasure to turn today's conference over to Ms. Carol Miceli, Director, Investor Relations. Ms. Miceli, you may begin your conference.

Thank you, and welcome to Enanta Pharmaceuticals fiscal fourth quarter and year-end 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 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 statement 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 financial results, and to update you on the Company's progress and outlook for the upcoming year. As our fiscal year ends, Enanta's business strategy is proceeding as planned, and we're in a very strong position from both a financial and pipeline development perspective. We built a solid foundation for the Company that is sustainable with strong cash flow to support our internal pipeline.

In particular, Enanta ended the year with approximately $242 million in cash, and with revenues of approximately $88 million. Revenues from AbbVie's HCV regimens that contain our protease inhibitor, paritaprevir, continue to provide substantial royalty cash flow to Enanta.

Enanta has earned approximately $58 million in royalties during our FY16, and we had the opportunity for increasing royalties in 2017, with AbbVie's next generation HCV regimen known as [G/P]. G/P is a pan-genotypic two drug fixed combination containing our next generation protease inhibitor, glecaprevir also known as ABT-493 and AbbVie's next generation NS5A inhibitor pibrentasvir also known as ABT-530. This regimen has demonstrated high cure rates in HCV trials with eight weeks of treatment for treatment naive non-cirrhotic HCV patients.

Top line Phase 3 results in that patient population presented at AASLD last week demonstrated that this regimen can deliver high cure rates of 97.5% across genotypes 1 through 6, which represent all the major HCV genotypes. These high cure rates were achieved with just eight weeks of G/P treatment. AbbVie has guided that it expects to file a New Drug Application for G/P with the FDA by the end of 2016, and to file regulatory applications in Europe, and Japan in early 2017. As a reminder, commercialization of G/P is expected in the US in 2017.

Upon commercialization regulatory approval of G/P in major markets, Enanta would be eligible for up to $80 million in milestone payments, as well as tiered double-digit royalties on 50% of the net sales of this two DAA product. Currently, Enanta receives royalties on approximately 30% of net sales of AbbVie's HCV regimens containing paritaprevir, which by our agreement will be calculated and tiered separately from G/P sales.

If G/P is approved, then the portion of AbbVie's HCV net sales on which we earn royalties would increase from 30% for the three DAA regimen to 50% for G/P. This amounts to a 67% increase. And the higher allocation of G/P net sales to our royalty calculation, also means our royalty rate could move into higher royalty tiers more quickly, creating even more potential for royalty revenue growth.

Now let's turn to the pipeline. During the year Enanta has executed on its goals of advancing its wholly-owned pipeline. We have R&D programs in three new high value disease areas, HBV, RSV and non-alcoholic steatohepatitis also known as NASH. Of these programs, our most advanced is for NASH, and our first candidate, EDP-305 is now in Phase 1 clinical development.

EDP-305 is a potent FXR agonist, and represents a new class of non-bile acid FXR agonists that has been designed to take advantage of increased binding interactions with the receptor. Our double-blind placebo-controlled Phase 1a/b study is designed to evaluate the safety, tolerability and pharmacokinetics of single ascending doses and multiple ascending doses of EDP-305 in healthy adults, and in adults with presumptive nonalcoholic fatty liver disease known as NAFLD. By presumptive NAFLD, we mean adults who are obese, with or without pre-diabetes or type 2 diabetes.

The study will enroll approximately 90 subjects, and is planned to evaluate up five dose cohorts, with EDP-305 administered orally once daily. The current study will include subjects with presumptive NAFLD, in order to obtain initial safety data, and additional data regarding the relationship between EDP-305 plasma concentration levels, and certain pharmacological effects in the context of fatty liver disease. This relationship will be explored by using biomarkers that are relevant to the disease, and to the activity of EDP-305, such as evaluation of lipids, glucose, insulin resistance, and specific markers of FXR activity.

Recently at AASLD, we had several presentations that demonstrated that EDP-305 is a highly selective FXR agonist, and shows more potent activity in a variety of in vitro and in vivo NASH models, compared to the most advanced NASH candidate in development today, obeticholic acid, or OCA. Data from one of these presentations showed that EDP-305 reduced fibrosis in rodent models of primary biliary cholangitis and NASH.

This data is highly encouraging, because fibrosis has been shown to be the key predictor of clinical outcomes in NASH patients. In addition, we are pursuing research in other classes of FXR agonists, about which we will have more to say in 2017. Our work has resulted in an emerging intellectual property estate of over a dozen patent applications related to FXR agonists.

Let's move on to our RSV and HBV programs. These programs are also progressing well. In September at the 10th Annual Respiratory Syncytial virus conference data was presented on EP-023938, one of our lead non-fusion inhibitors for RSV. Data demonstrated that this lead compound is a potent inhibitor of both RSV-A and RSV-B activity, maintaining antiviral activity post infection, while presenting a high barrier to resistance. Further, it maintained anti-viral potency across all clinical isolates tested, as well virus that was resistant to fusion inhibitors.

This profile is very encouraging, and we believe that our non-fusion inhibitors have the potential to differentiate from fusion inhibitors for RSV currently in development, because these non-fusion inhibitors target the virus replication machinery, and have demonstrated high barriers to resistance against the virus in vitro. Additionally, non-fusion inhibitors have the potential of being effective at later stages of infection. Given this favorable preclinical profile, along with demonstrated synergy with inhibitors of other mechanisms, Enanta is evaluating EP-023938 and other compounds as potential candidates for further development for RSV.

In HBV, we continue to make significant progress in discovering, characterizing and securing patent protection for new core inhibitors. We plan to share more information on this program with you early in 2017. We also have a cyclophilin inhibitor for HCV, EDP-494, which is in Phase 1 clinical development. At AASLD, we reported that EDP-494 had a favorable safety profile and was well-tolerated in healthy subjects receiving a single dose up to 1,200 milligrams qd, or multiple doses up to 1,200 milligrams qd for 14 days. EDP-494 now in a proof-of-concept study in GT1 and GT3 HCV patients measuring viral load reduction.

In summary, we continue to believe the best way to create value for shareholders is to use our strong balance sheet and our drug discovery expertise to focus on therapeutic areas with high unmet medical need. This approach has already been proven with our success in HCV, and we aim to achieve further success with our wholly-owned pipeline programs, which continue to advance as expected. Our drug discovery expertise has led to the initiation of clinical trials for two new home-grown programs in HCV and NASH this year, and we expect to initiate at least one more from RSV or HBV in 2017.

Additionally, we expect to move our FXR program into Phase 2 clinical development. For a Company of our size, we have achieved much success in R&D, and with our financial resources and promising pipeline, we look forward to achieving more in the coming year.

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 year ended, as well as our fourth fiscal quarter ended September 30, 2016.

Enanta ended the quarter with approximately $242 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 and our potential future licensing revenue stream will be sufficient to meet our anticipated cash requirements for the foreseeable future.

For the 12 months ended September 30, 2016, revenue was $88.3 million, compared to revenue of $160.9 million for the same period in 2015. The decrease in revenue in the 2016 period was due to milestone payments of $125 million earned in 2015, compared to milestone payments of $30 million earned in 2016.

The 12-month royalty revenue increased by $23.6 million year-over-year, keeping pace with the increase in our R&D spending for the year. Revenue for the quarter consisted of $12.8 million of royalty income earned on AbbVie's net sales of its HCV regimens. Milestone payments, royalties, and other payments from collaborations have varied significantly from period to period, and we expect that variability will continue.

Moving on to our expenses, for the 12 months ended September 30, 2016, research and development expenses were $40.5 million, compared to $23.2 million for the same period in 2015. For the three-month period, R&D expenses were $11.5 million in 2016, compared to $7 million in the prior year period.

The increases in the recent 12-month and three-month periods were primarily due to increased preclinical and clinical costs associated with our wholly-owned R&D programs. We expect that our R&D expenses in FY17 will be $50 million to $60 million, as we advance our NASH, RSV and HCV programs, and expand our R&D capacities.

General and administrative expense was $4.4 million for the quarter ended September 30, 2016, and $3.7 million for the comparable quarter in 2015. For the 12 months ended September 30, 2016, general and administrative expenses were $17 million, compared to $13.5 million for the same period in 2015. The increase in the 3- and 12-month periods primarily reflects increases in stock-based compensation expense driven by increased headcounts.

For the quarter ended September 30, 2016, we incurred a net loss of $1.8 million, or $0.09 per diluted share. For the year, net income was $21.7 million, or $1.13 per diluted common share. We recorded an income tax benefit for the three months ended September 30, 2016 of $800,000, compared to a $1.6 million benefit for the corresponding period in 2015.

For the FY16, we reported income tax expense of $10.9 million, representing an annual effective tax rate of 33.5%, compared to $46.5 million, which represents an annual effective tax rate of 37% for FY15. The reduction in our effective tax rate for FY16 was due to an increase in R&D tax credits for that period.

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 up the lines for Q&A. Operator?

(Operator Instructions)

Your first question comes from the line of [Jessica Fye] from JPMorgan. Your line is open. Please go ahead.

Hey, there. Thanks for taking my question. I wanted to follow up on your FXR, and some of the results that you presented at AASLD. Can you elaborate a little bit on what you think you're seeing, in terms of differentiation from OCA?

Sure. Thanks for the question. So we had five different posters at the liver meeting, and they were on a variety of different topics. But just drilling down at a high level, I think we showed the overall profile of EDP-305 versus OCA in many accounts, and demonstrated improved potency, enhanced selectivity. We also looked at different models in fibrosis, for example, where we saw differential effects, seeing a much more robust effect in a few different animal models of fibrosis.

So I would say, those are some of the key points, potency, selectivity, and enhanced in vivo activity. We also had further characterization, looking at a number of in vitro markers for inflammation and fibrosis where, again, EDP-305 came out very nicely. So we're anxious to progress these preclinical findings, and do the proper clinical investigations to hopefully corroborate the good profile we've seen so far.

Okay. So it's with those kind of selectivity and potency findings, it sounds like you are expecting potential differentiation on efficacy. But what about on tolerability, is that something that we should look for as well?

Well, from a tolerability standpoint, we -- what comes to mind usually, in the field of FXR is pruritis and lipid effects. We -- there aren't a lot of good I think, predictive in vivo models on the pruritis side, but there has been, I think a thread of evidence out there that, preclinically at least, FXR, may be implicated in itch. I'm sorry, not FXR, TGR5 which is an off-target bile acid receptor. And so, when I say, selectivity, not only do we want to maximize our potency and efficacy on target on FXR, but we want to basically dial out activity for other off-target receptors that could be offending, such as FXR. So that we have done. And again, I think we'll just progress in the clinic, and see how clinical data plays out with regards to pruritis with time.

And then the other is with lipid. So I mean, we've done some work, but there's was also some work at the liver meeting, where we showed some preclinical effects on lipid profile, in terms of up-regulation of LDL receptor, for example, which is one of the mechanisms by which you reduce LDL in the body. So that was pointed in the right direction. We also saw a degradation or a reduction in enzymes that are sometimes responsible for the degradation of HDL. And so, that again, that is in the favor that you generally would be thinking about.

So I think from a preclinical characterization standpoint, we've looked about as hard as we can at lipids, and off-target receptors that could be implicated in pruritis. We've looked at a number of different efficacy markers and read-outs, both in vitro and in vivo. And so, in the aggregate, that's the package around 305, that I think is very interesting and, again, about which we're starting to study in the clinic.

Okay. Got it. And maybe just one on the kind of R&D trajectory for the coming year? You gave kind of an overall guidance range, but should we expect this to be a smooth and steady increase, is there anything that's going to drive a step-up in a particular quarter?

Well, we're not going to point to any sort of quarter by quarter yet. I think what -- in general, I think our guidance for this year was $40 million to $50 million, and we came in, in that range. We're dialing it up to $50 million to $60 million simply because we anticipate FXR moving into Phase 2 next year. We expect at least one of either HBV or RSV to move into the clinic next year.

Obviously, that entails a lot of preclinical and IND enabling steps, and CMC clinical trial supply, manufacturing, et cetera. So we'll see as our pipeline progresses, a stage appropriate uptick in the R&D expense. But I think it's a good, manageable progression.

Okay. Thank you.

You're welcome.

Your next question comes from the line of Liisa Bayko from JMP Securities. Your line is open. Please go ahead.

Hi, this is John on for Liisa. Thanks for taking the questions. Just a couple. I believe you mentioned that you're expecting $80 million in milestone payments for the next gen combo. Should we be expecting all those next year with the approval, or are they spread out over the different markets? How should we be thinking about that?

Yes, so the $80 million in approval milestones that we have are in association with approvals in major world markets. Unfortunately, even now these specifics are not publicly disclosed. But what I can say, is how we achieved those milestones with VIEKIRA, just as a data point to think about. So with, VIEKIRA, which was our first product approved, we -- or with paritaprevir I should say, paritaprevir approval, there was $155 million in approval milestones total, and roughly half of that was in the US. The other half was split between the EU and Japan, and EU was the bigger part of that. So the way the numbers broke down for paritaprevir was $75 million for the US, $50 million for the EU, and $30 million for Japan.

So we're talking about -- now we're moving on to our second product, obviously, glecaprevir. The milestones are $80 million. We haven't disclosed formally what territories those milestones are in, or what the breakdown is, but you can imagine that there will be recognition in the major world markets.

So we're expecting AbbVie to file the NDA by the end of the year, based on their guidance. We have received a Breakthrough Therapy Designation for that regimen, and AbbVie has also guided that there would be filings for the US -- or I'm sorry, for the EU and Japan in early 2017. So the milestones will be staged according to the approvals in the various world markets, but three major world markets should be filed on shortly. And we'll look forward to approvals, certainly starting in 2017, per AbbVie's guidance.

That's helpful. Thank you. And then, a couple questions on 305. You mentioned that you will be looking at some efficacy in the presumptive NAFLD patients. I was wondering what exactly will you be measuring? When can we expect data? And any kind of details you can give on the differentiation between 305 and your next gen FXR would be great as well?

So the first question, as I mentioned a few minutes ago, we'll be measuring a lot of different biomarkers in the study, obviously, looking at safety tolerability, pharmacokinetics, and then various markers that are relevant to the activation of the FXR receptor. There are certain sort of efficacy markers that you can look at.

And whereas I -- as we have mentioned, we're not only doing that in healthy volunteers, but we're rolling straight into presumptive NAFLD patients to try to get even more clarity on many of those same markers in a population that basically is -- has fatty liver. So I think we'll get a lot of information out of that.

The study is aiming to wrap up in the first half of calendar 2017, so we would expect to have data starting around that time. And then obviously, we'll find a good suitable venue or mechanism to release that information sometime right after that. With regards to other programs in FXR, EDP-305 -- I'm sorry, your question was about next gen FXR, is that what you said?

Yes, yes.

So we, what we've been focused on is getting a very strong molecule out there first. And then, again, we're looking -- which is EDP-305. And then sort of tearing a page out of the Hep-C playbook, we're thinking about this as a very long area to pursue in a very, very large market. So we're thinking about it, playing sort of the long game on this, which necessarily means you want to be in the mode of having back-ups, and next generations, et cetera, et cetera. So we're focusing on those other activities.

Obviously, the minute 305 was advanced into the later preclinical stages, the work began on other classes of molecules. And so, we did prototype one molecule at the liver meeting. It was one that was over 10,000 times more potent than OCA, of a different class, and we continue to innovate other chemo types and profiles here at Enanta. So again, the goal is to find strong back-up, and then potential next generation molecules after that. We'll have more to say on some of those efforts in 2017.

Terrific. Thanks for the update and for taking the questions.

You're welcome.

(Operator Instructions)

As there are no further questions on the phone lines at this time, I would return the call to Ms. Carol Miceli.

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.

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