Enanta Pharmaceuticals Inc (ENTA) 2017 Q1 法說會逐字稿

Good day, my name is Victoria and I will your conference operator. Welcome to the Enanta Pharmaceuticals' first-quarter financial results conference call.

(Operator Instructions)

I would now like to turn the call over to Carol Miceli, Director of Investor Relations. Ma'am, you may begin your conference.

Thank you Victoria 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.

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 can 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 would like to turn the call over to Dr. Jay Luly, President and CEO.

Thank you, Carol. Good afternoon everyone and take you for joining us today. As we begin a new calendar year, Enanta's business strategy continues to proceed as planned and we remain in a strong position from both a financial and pipeline development perspective.

Our cash position of approximately $244 million at December 31, as well as royalties earned on AbbVie's net sales of our HCV collaboration products are funding our growth discovery efforts and clinical development programs in several high value disease areas. Nonalcoholic steatohepatitis, also known as NASH, primary biliary cholangitis also known as PBC. RSV and HBV. Let's discuss these programs and the catalysts expected this year.

I'll begin with our NASH candidate, EDP-305, which was recently granted fast track designation by the FDA for the treatment of NASH patients with liver fibrosis. We've done extensive preclinical work in the number of in vitro and in vivo models of NASH, PBC and fibrosis and we believe EDP-305 is a promising candidate.

Last month at the NASH-TAG Conference in Park City, preclinical data presentations demonstrated that treatment with a EDP-305 improved pre-established liver injury and hepatic fibrosis in an MCD induced model of steatohepatitis in mice. This data is highly encouraging because fibrosis has been shown to be a key predictor of clinical outcomes in NASH patients. EDP-305 is a highly selective and potent FXR agonist and is currently advancing in Phase 1 clinical development.

In addition to healthy volunteers, the design of our clinical study includes 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.

In the second half of calendar 2017 we are planning to initiate a Phase 2 clinical study in patients with PBC and to perform NASH enabling studies. And then in early 2018 we expect to initiate a Phase 2 clinical study in patients with NASH. We're aiming to report data from the Phase 1 study at an appropriate scientific conference later this year.

In keeping with our goal to have multiple approaches in each of our core therapeutic areas, in NASH we are pursuing research in other classes of FXR agonist and have identified several new follow-on FXR agonist leads, which we continue to characterize and to advance this year. Additionally we have discovery work ongoing in a new non-FXR mechanism for NASH and we hope to have more information to share later in the year.

Our RSV and HBV programs are also progressing. Our program for respiratory syncytial virus or RSV is advancing as expected and last month we selected EDP-938 as our first development candidate. RSV is a virus that infects the lungs and represents a serious unmet medical need in infants and children, as well as immune comprised individuals and the elderly. It is estimated that each year between 75,000 and 125,000 children in the United States are hospitalized due to RSV infection.

EDP-938 is a non-fusion inhibitor approach to target RSV. We believe that this approach is differentiated from fusion inhibitors currently in development by others because our non-fusion inhibitors target the viral replication machinery and have demonstrated high barriers to resistance against the virus in vitro.

Last month at the JP Morgan Healthcare Conference we presented new in vivo efficacy data demonstrating a rapid reduction in viral load in animals treated with EDP-938. This date further builds on previous in vitro data demonstrating that EDP-938 is a potent inhibitor of both RSV-A and RSV-B activity. Given this favorable profile we are planning to begin a Phase 1 clinical study in the fourth quarter of calendar 2017.

In HBV we continue to make progress in discovering, characterizing, and securing patent position for new core inhibitors. We believe the estimated 240 million HBV patients worldwide represent a population with significant medical need that is still unmet. We're pleased with this promising and advancing pipeline and we are also excited by the recent progress of AbbVie's next-gen regime for HCV which contains our second protease inhibitor, glecaprevir. This pan-genotypic, once-daily, ribavirin-free combination known as G/P has been tested on over 2,300 patients for the treatment of genotypes 1 through 6 chronic HCV.

AbbVie has stated that this regimen has demonstrated very high cure rates across these major genotypes of HCV, with just eight weeks of therapy for the majority of patients. Now remember, eight weeks of treatment would be shorter than other approved therapies in all genotypes other than GT1 where a subpopulation of easy-to-treat patients with low viral load can sometimes have an eight week treatment. G/P has demonstrated high SVR rates in several important hard to treat patient populations. Particularly HCV patients with chronic kidney disease in patients who are not cured with previous DAA treatment.

To date, G/P has advanced expeditiously in the regulatory process and leading markets. Having received breakthrough therapy designation in the US in 2016, the NDA for G/P has now been granted priority review and AbbVie anticipates approval in the August timeframe. Also just last month the marketing authorization application for G/P in the European Union was validated, and is being reviewed by the EMA under accelerated assessment. We anticipate a decision in the second half of 2017.

Given that AbbVie had stated that it expects to commercialize G/P this year, we anticipate earning a substantial portion of the $80 million in commercialization regulatory approval milestone payments for glecaprevir in calendar 2017. While there's been a lot of recent discussion about HCV market dynamics, we expect the market to remain a multi-billion dollar opportunity in which G/P should play an increasingly competitive role.

In addition, if G/P is approved than the portion of AbbVie's HCV net sales on which we currently earn most of our royalties would increase from a 30% for the paritaprevir containing three DAA regimen to 50% for the net sales of the G/P combination. As you can see, we are excited by the prospects for what G/P could do to further enhance our financial position.

In summary, 2017 will be an important year for Enanta. We plan to report Phase 1 data from our lead NASH candidate EDP-305 and we are planning to initiate a Phase 2 study of EDP-305 in PBC in the second half of calendar 2017. We are advancing our development candidate for RSV into the clinic, as well as aiming to identify our first candidate for our HBV program.

We expect significant milestone revenue later in the year from the commercialization and regulatory approvals of G/P and there is also good potential for G/P royalty revenue to start in 2017 and to grow in 2018. We have built a solid foundation for the Company and we believe the best way to increase value for shareholders is to continue to advance our pipeline of assets. I would like to stop here and turn the call over to Paul to 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 first fiscal quarter, ended December 31, 2016.

Enanta ended the quarter with approximately $244 million in cash and marketable securities as compared to $242 million at our September 30, 2016 fiscal year end. We expect that these cash resources and our potential future milestone and royalty stream revenue from AbbVie will be sufficient to meet our anticipated cash requirements for the foreseeable future.

For the three months ended December 31, 2016, revenue was $10.4 million compared to revenue of $48.4 million for the same period in 2015. The decrease in revenue in the 2016 period was primarily due to a milestone payment of $30 million earned in 2015 for the reimbursement approval of VIEKIRAX in Japan.

Revenue of $10.4 million in the current quarter consisted exclusively of royalty income earned on AbbVie's net sales of its HCV regimens. Milestone payments, royalties and other payments have varied significantly from period to period and we expect that variability to continue in the future.

Moving on to our expenses, for the three months ended December 31, 2016, research and development expenses were $12.5 million compared to $9 million for the same period in 2015. The increase in research and development expense was primarily due to increased pre-clinical and clinical costs associated with the progression of our wholly-owned R&D programs in NASH, PBC, HBV and RSV.

General and administrative expense was $4.9 million for the quarter ended December 31, 2016, and $3.8 million for the comparable quarter in 2015. The increase in general and administrative expenses was primarily due to increases in stock-based compensation expense, driven by increased headcount and achievement of milestones under existing performance-based restricted stock unit awards.

Enanta recorded an income tax benefit for the three months ended December 31, 2016, of $1.5 million compared to an income tax expense of $9.7 million for the same period in 2015. The Company's estimated annual effective tax rate for FY17 of approximately 24% reflects federal research and development tax credits which currently have reduced the Company's annual effective tax rate below the statutory rate of 35%.

For the three months ended December 31, 2015, the Company's effective tax rate of approximately 27% was also driven by federal research and development tax credits. For the quarter ended December 31, 2016, we incurred a net loss of $5 million or $0.26 per diluted common share. Further financial details will be available in our Form 10-Q for this fiscal quarter. I would now like to turn the call back to the operator and open the lines up for Q&A. Operator?

(Operator Instructions)

Jessica Fye, JPMorgan.

Hello this is Ryan on for Jess, thanks for taking the question, I guess this is for Paul. Now that you have outlined your pipeline goals for the year could you talk a little bit more about your expectations for R&D, the R&D expense trajectory? It sounds like it could be a little bit more backend loaded, but I just wanted to get your thoughts on this.

We've guided previously we expect to spend in the $50 million to $60 million range in R&D for this fiscal year.

I guess what I'm getting at is, with the potential start of a phase 2 with 305 in the second half, is that cost increasing the operating expense relative to the first half of the year, or is there anything you can provide on that?

Typically as you progress through clinical trials the rate does increase. It would be a reasonable -- you could reasonably infer that the spend rate would increase as we progress through the year from the first quarter.

Okay. Great. Thank you.

Liisa Bayko, JMP Securities.

Hi, this is John on for Liisa, thanks for taking the question. Just a couple of questions on EDP-305. It seems like a lot of companies now have their own unique FXRs in development, I was wondering if you could talk a little bit about what characteristics you've seen so far with your data that kind of differentiates and sets it apart from some of the competition?

Sure. So this is Jay speaking. There are a few others who are also working on the target out there. And what I would say about our molecule is that we've aimed for an optimization of a number of different characteristics.

So what I mean by that? We aim to come up with the best balance of potency against the target while having high selectivity versus other off target receptors that some molecules that typically bind to FXR might bind to. So FXR is a bile acid receptor. In the body it binds bile acids for a living.

There are other bile acid receptors in the body as well such as TGR5. We aim to be very selective for FXR versus TGR5. We also are coming forward with a non-bile acid class that does not contain a carboxylic acid that could potentially be conjugated and subject to enterohepatic recirculation and so forth.

There is a number of different characteristics that we've changed in the molecule, trying to optimize on target, on tissue activity while minimizing as many off target liabilities as we can do. So the rest of it, we've done lots of further characterization and models of NASH and PBC and fibrosis. There is probably no one best model, I think is a safe thing to say at this point.

We manage that uncertainty by looking at lots and lots of different models. So we've reported on several models so far. And there will undoubtedly be more data from additional models coming in.

Uniformly what we see is a very good anti-fibrotic effect. We've done this in multiple animal models. Multiple species, multiple outside investigators.

And the data line very consistently that we have good activity against fibrosis and other readouts in these models. So I feel like we've done about as much as we can do pre-clinically and I think the real question is how are these going to compare clinically.

We've designed our phase 1 to try to capture as much information along those lines as you could capture in a phase 1, by looking not only at healthy volunteers but also looking at presumed NAFLD patients in the same study. Where we can, again, gather information about PK safety and tolerability as well as biomarkers that could be regulated by an FXR agonist. So time will tell and we will have data coming on later this year as we wrap up that study.

Great. And speaking a little bit to your other mechanisms you're looking, what you think would pair well with an FXR agonist and is that kind of your goal as a combination, or are you looking to develop these independent programs?

Obviously we have placed the first flag with FXR and the first molecule with EDP-305 and as I said earlier, we're trying to bring along other molecules that are also FXR agonist. Again, just making sure we've got backup molecules in place and looking for molecules that might have even further benefit over the existing data that we know about. But it's always been our mission for each of our therapeutic areas to come up with not just one approach, but multiple.

Today we are, I guess announcing that we are working on additional non-FXR approaches in this area, we are not quite ready to say today what that is. But I think it is highly likely that NASH will come down to being combination therapy and we will have multiple approaches, multiple approaches that we could combine together, combine in other ways down the line, just gives you increasing optionality. It is a combination game, certainly that we played in hepatitis C and we see that broad overlay applying to several of our other therapeutic areas including NASH.

Just one more from me. What other NASH enabling work has to be done prior to starting the phase 2 in 2018?

You typically look at hepatic impairment and you want to do DDI studies looking for dose adjustments if any that need to be with concomitant meds that NASH patients could be on. That sort of thing, really.

Fairly straight fairly straightforward things. And again we'll be substantially working on those in the second half, also looking at formulation studies and so forth.

Thanks for taking the questions.

(Operator Instructions)

Brian Skorney, Robert Baird.

When we think about expectations around what we will see for phase 1 for EDP-305, are you guys going to be looking at LDL in these patients and what should our expectation be for 305's effect on LDL? Do you think it is on mechanism and we should see similar impact that we see with Ocaliva? And also on the [Perida] side it doesn't seem to be as big of an issue in non-PBC patients, but there does appear to be some signal.

So likewise would we also expected that you would see a similar signal with 305 around [pruritus], or do you think that structurally you may circumvent this issue?

They're all exactly the right question to be asking. We have designed as many things as we can sort of pre-clinically to look at this. The real answer is truly going to come out of the clinical trials.

And we really have -- there is a little bit of data, early data from Novartis and Gilead. But as you know the majority of the data really comes from a single compound that's been studied much more extensively than the others and that is Intercept's OCA. I think we're going to -- these are studies that we're going -- that we'll interrogate all of these questions and I think the dataset will be the beginning of the story.

Obviously we'll be moving into PBC patients assuming everything is fine in phase 1, we will go into the PBC study, which as you point out is a patient population that is more vulnerable, if you will, to exacerbations in pruritus. And I think that would be a really interesting study for us as well. So we'll just look at the aggregate of the clinical data as it comes out and we'll reported it out later this year.

Okay great, thanks.

You are welcome.

(Operator Instructions)

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

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

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