Enanta Pharmaceuticals Inc (ENTA) 2017 Q4 法說會逐字稿

Good afternoon. My name is Brandy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Enanta Pharmaceuticals Fourth Quarter Financial Results Conference Call. (Operator Instructions)

Ms. Carol Miceli, you may begin your conference.

Thank you, Brandy, and welcome to Enanta Pharmaceuticals Conference Call to review fiscal fourth quarter and year ended September 30, 2017, financial results.

The news release with our financial results was issued this afternoon and is available on our website at enanta.com. On the call today is Dr. Jay Luly, President and Chief Executive Officer; Paul Mellett, our Chief Financial Officer; and other members of Enanta's 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 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 results and uncertainties 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 happy to report that at the end of our fourth fiscal year as a public company, Enanta has executed well on its planned goals and has achieved many financial and clinical milestones.

Enanta has ended the year with approximately $294 million in cash and marketable securities. Our successful partnering strategy has provided Enanta with the funding necessary to support our business operations and to advance our internal pipeline. Enanta is on track this quarter to earn the final regulatory milestone in our 11-year HCV collaboration with AbbVie, which would mean we have successfully earned all clinical and regulatory milestones under the collaboration.

Total cash from AbbVie under the collaboration through this fiscal year ended totaled approximately $500 million. These resources have allowed us to discover and develop our wholly owned programs in NASH, PBC, RSV and HBV, and will allow us to continue to advance them and give us the latitude to look for new opportunities.

Among our wholly owned assets, most advanced is EDP-305, our FXR agonist for NASH and PBC. EDP-305 is a highly selective and potent FXR agonist that successfully completed a Phase I a/b study recently. The objective of this double-blind, placebo-controlled study in adult healthy volunteers and in subjects with presumed, non-alcoholic fatty liver disease was to evaluate the safety, tolerability and pharmacokinetics of single-ascending dose and multiple-ascending dose levels of EDP-305. Pharmacodynamic markers of FXR activity, namely FGF19 and C4 and other parameters such as lipids, were measured in all of those groups.

Last month, we were pleased to announce positive results from this study, indicating EDP-305 was generally safe and well-tolerated over a broad range of single and multiple doses, with PK data supporting once daily oral dosing. We look forward to presenting the detailed results from this study at a future scientific conference. Given the favorable profile of EDP-305, Enanta plans to initiate a Phase II dose-ranging study in PBC patients by the end of 2017 and a Phase II dose-ranging study in NASH patients by early 2018, each utilizing doses selected from the 0.5 to 5 milligram range. I should point out that doses in this range gave positive signals and biomarkers without causing pruritus and without affecting lipids. Previously, EDP-305 was granted fast-track designation from the FDA for the treatment of NASH patients with liver fibrosis. And today, we are pleased to announce that EDP-305 has also received FDA fast-track designation for the treatment of patients with PBC.

In addition to our clinical program with EDP-305, we are identifying new follow-on FXR agonist leads, and we are continuing our ongoing discovery work in a non-FXR mechanism for NASH. Our next compound ready to advance into the clinic is EDP-938, our first clinical candidate for RSV. RSV is a virus that infects the respiratory system and represents a serious unmet medical need in infants and children as well as in immune-compromised individuals and the elderly. There's currently no recommended effective treatment for RSV. EDP-938, our N-inhibitor candidate for RSV, works by blocking the replication machinery of the virus, and may have the potential of being more effective at later stages of infection than fusion inhibitors.

Enanta has presented promising in vitro and in vivo data at several scientific conferences, demonstrating that EDP-938 is a potent inhibitor of both RSV-A and RSV-B activity, and maintains antiviral activity post-infection while presenting a high barrier to resistance. Further, encouraging in vivo data has demonstrated a greater than 4-log reduction in viral load in an animal model challenged with RSV. Based on these results and the compound's preclinical profile, we are planning to begin a Phase I clinical study of EDP-938 before the end of 2017. Upon completion of this study, we plan to move directly to a proof-of-concept challenge study in RSV-infected humans later in 2018.

In HBV, we continue our efforts to discover, characterize and secure patent protection for new core inhibitors, and we hope to announce our first HBV candidate in 2018. The estimated 250 million HBV patients worldwide represent a significant medical need that we believe is still largely unmet.

Let's turn now to our licensed products that are funding our R&D activities. We continue to be very optimistic about the commercial potential for AbbVie's new MAVIRET regimen, which includes glecaprevir, our collaboration's second protease inhibitor. MAVIRET is the only once-a-day, pan-genotypic treatment that works in only 8 weeks for 80% of the HCV patients in the United States. On AbbVie's recent financial results conference call, management stated that they are pleased with the initial launch of MAVIRET and remain confident that MAVIRET will allow AbbVie to grow HCV market share and, ultimately, deliver multibillion dollar peak-year sales. Additionally, they stated that just 9 weeks after the launch, MAVIRET had achieved a market-share position in the United States of over 15%, predominantly driven by the public channel.

Internationally, AbbVie has also stated that it has seen strong uptick in markets where they have launched, including Germany, which achieved the market-leadership position with 40% market share 10 weeks after its launch. Given these early indications, the potential for increased royalties to Enanta from this regimen are significant. I remind you that Enanta is eligible to earn double-digit royalties on 50% of AbbVie's global net sales of MAVIRET. As we look ahead, we continue to focus on advancing our wholly owned programs by using the funding provided by our partnership with AbbVie.

In closing, I'd like to point out that Enanta's wholly owned pipeline is broader and more advanced than it's ever been, and Enanta is in a stronger financial position than it has ever been.

I'll now 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 fourth fiscal quarter and year ended September 30, 2017.

Enanta ended the quarter with approximately $294 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 future royalties revenue stream from our AbbVie agreement will be sufficient to meet our anticipated cash requirements for the foreseeable future.

For the 3 months ended September 30, 2017, revenue was $75.9 million compared to $12.8 million for the same period in 2016. The increase in revenue in the current quarter was primarily due to $65 million in milestone payments earned in the U.S. and EU approvals of MAVIRET. Our revenue in the current quarter included $10.9 million in royalty revenue under our collaboration agreement with AbbVie. Milestone and royalty revenues have varied significantly from period-to-period, and we expect that variability to continue in the future.

Moving on to our expenses. For the 3 months ended September 30, 2017, research and development expenses were $16.5 million compared to $11.5 million for the same period in 2016. The increase in research and development expense was primarily due to increased preclinical and clinical costs associated with the progression of our wholly owned R&D programs in NASH, PBC, RSV and HBV.

General and administrative expense was $5.1 million for the quarter ended September 30, 2017, and $4.4 million for the comparable quarter in 2016. The increase in these expenses was primarily due to increases in compensation expense, driven by increased headcount. Enanta recorded income tax expense for the 3 months ended September 30, 2017, of $18.4 million compared to an income tax benefit of $0.8 million for the same period in 27 -- 2016, primarily due to the net income in the 2017 quarter. The company's effective tax rate for fiscal 2017 was approximately 34%.

Net income for the 3 months ended September 30, 2017, was $36.5 million or $1.86 per diluted common share compared to a net loss of $1.8 million or $0.09 per diluted common share for the same period in 2016.

As stated in our earnings release, our financial guidance for our fiscal year ended September 30, 2018, is as follows: we expect our research and development expenses to be between $90 million and $110 million, and our general and administrative expenses are expected to be between $22 million and $28 million. Further financial details are available in our press release and will be available in our Form 10-K.

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

(Operator Instructions) Our first question comes from the line of Jessica Fye with JPMorgan.

A couple, just digging into that R&D guidance for fiscal 2018, I'm hoping you could sort of outline some of the pushes and pulls that would put your R&D spend at the upper or at the lower end of that range. And then ideally, is there any kind of proportion you could give us for sort of how much of that is devoted to advancing 305 versus RSV versus additional preclinical work?

Jessica, it's Paul. I would say that the bulk of the increase is tied in with the fact we'll be running 3 clinical trials in 2018. One in NASH, one in PBC and one in RSV. And that's really the driver. That associated with the associated CMC cost that go along with those types of trials. In terms of the breakdown, we don't really -- would have any comment on them -- on the splits between them at this point.

And it will be more heavily weighted. This is Jay. It will be more heavily weighted, obviously, to EDP-305, because 2 of those 3 studies are Phase IIs using EDP-305. So they're necessarily going to be a little bulkier than the Phase I for RSV.

Understood. And is there anything you can kind of tell us about what would put you closer to the $110 million versus closer to the $90 million?

Well, this is Jay, again. I think it's -- it really probably -- I'd say, the variation there has more to do with other things in our pipeline, some of the other pipeline programs and the rate at which they proceed. HBV is hanging out there as one that we're really hoping to be bringing in forward pretty soon. And depending upon the ramp of that when manufacturing gets involved with that when we start doing some of the IND-enabling studies, et cetera, et cetera. Same with our follow-on FXR, throw that into that same bucket. So it's things like that depending upon when they hit. And that's a little bit more of the variable part of the equation because when you're still doing the science part of the R&D, it's just a little bit harder to legislate a specific date as to when certain things are going to happen. So I think that's probably the bulk of the variance there.

Okay, got it. And just on MAVIRET, just on a high-level, it seems like the U.S. is probably going to convert to the 2-DA (sic) [2-DAA] regimen pretty quickly. How should we think about the evolution of that mix of ex-U.S. sales from the sort of the higher-royalty product to the -- from the lower-royalty product to the higher-royalty product?

Sure. So yes, I think it will happen pretty quickly in the United States. VIEKIRA is approved in over 60, 70 countries worldwide right now. So you can imagine that the turnover to MAVIRET is not going to be instantaneous in all of those particular countries. That said, several of the strong ones have come on in Europe and will continue to do so. So I would expect that you would just see sort of an orderly changeover as all these various country approvals and pricing approvals take in. Certainly, AbbVie is ready to roll. So it's just a question of methodically stepping through all those other territories. The good news is, in the meantime, VIEKIRA continues to sell. And as you know, VIEKIRA has sold more ex-U.S. than in-U.S., so that will be a nice transition, I think.

Our next question comes from the line of Brian Abrahams with RBC Capital Markets.

First question is on 305 coming out of the Phase Ib data. I'm just wondering, as you characterize the levels of the changes in C4, FGF19, what are some of the elements that guide your -- the go-forward dose ranges that you're going to be looking at in Phase II?

Yes. So those markers are 2 markers that were, I think, very nice and convenient and easy ones to look at in a Phase I study. Obviously, we are only taking the temperature, if you will, of part of the disease. So there's several other parameters to look at, things to think about. But that said, looking at FGF19 and C4, we saw a reduction in C4 and an increase in FGF19 over a broad dose range. I think the best way to think about it, or at least the way we're thinking about it, is there's probably a threshold level that you want to be above and you probably want to drive those markers, or at least blood levels that result in those markers being driven along with a lot of other things. You probably want to pick a range where you don't either blow out FGF19 elevation or completely shut off C4 synthesis. So the trick here is being above the threshold and below the point where you don't want to exceed. And so I think there's a comfortable range in there, that's why we picked that 0.5 to 5 milligram range. We do see good target engagement without seeing pruritus, again, which we saw a little bit of mild-to-moderate pruritus, but only at the 20 milligram high dose. So -- and very little, if any, at 10. So it really boils down to looking at pharmacodynamics, looking at safety, looking at the PK exposures and feeling like you've got good coverage. That said, we are not prepared to distill it down to a single dose for our first Phase II study. And so we'll be doing some finer tuning of that dose range in Phase II.

Okay, makes sense. And then just a couple of quick questions on 938. From mechanistic standpoint, just wondering where you stand in terms of the characterization of the exact mechanism there. I know the mutation mapping kind of steered you to N protein as the likely mechanism. What's sort of your level of confidence there? And maybe along those lines, if you could remind us of any of the similarities or differences between other approaches with that same target in the past.

Yes. So the N protein, the so-called nucleoprotein, is one of the targets in the replication machinery that you can use for RSV. RSV, actually, has a very small viral genome. So it's -- there is a set of interesting targets that you can approach. But I think that we've gravitated toward the N protein based on the fact that the barrier to resistance, at least with the molecules that we've made targeting in this approach, the barrier to resistance is really, really quite high. We also saw, in addition to the high barrier, since we're taking on a direct-acting antiviral approach where we're going directly into the viral replication machinery, where we're not doing what several other folks are doing, which is the fusion-inhibitor approach. Not that, that's necessarily a bad approach, we just think there might be advantages of the N-inhibitor approach such that we might, at least, possibly be able to get away with a single agent and not have to do a combination. At least, we're not as certain whether or not you will be able to do that if you have only a fusion inhibitor. You may need some other things to back it up since fusions appear to have a fairly low barrier to resistance. So we like - in all the mechanistic studies that we've done to date point to N. And I think that the combination of the fact that we're going after the direct-acting antiviral approach as opposed to fusion, mechanistically, it may allow us to still intervene with the medicine at a later stage of infection. And at least from the virology work we've done in-house, we've been able to do infections and intervene at a later time with our N inhibitor than with fusion inhibitors. So that translates into the clinic. That would actually be a really good advantage. Regarding other N inhibitors out there, I think we're the only one at the development stage that I'm aware of. There was an older one many years ago that was also a member of this mechanism, but we looked at it and it actually wasn't very potent. So we've got men and worked hard to try to optimize -- create a pretty good molecule. So again, 938's preclinically looks really good from a virology -- virologic perspective. It looks exceedingly good in a primate -- nonhuman primate animal model of infection, and it's on track to be in our clinical study by the end of this year.

One last question and I'll hop back in the queue. Just wondering if there's any particular pharmacodynamic measures we should be looking for in the 938 Phase I study? And also wondering kind of how quickly you could potentially get an efficacy read out of the subsequent challenge study? I know those Phase II studies, I think, tend to move pretty rapidly in this field.

Sure. So nothing fancy on the Phase I. It's not like we did with 305 where we're looking at LPs and we're looking at subjects with presumed NAFLD or some other sort of population and looking at biomarkers at every dose and every parameter. So we're -- it's much more of a straightforward Phase Ia and b SAD, MAD study. We want to chip through that as quickly as we can so that we can move on to what should be a very interesting and derisking step, which is the ultimate test to -- in humans against the virus. So the good news is, we know that quantifying virus is a great marker for an indication like this. And we will be -- at first challenge study, will actually be in healthy volunteers who become infected with RSV and then are subsequently treated by EDP-938. So our goal is to get over Phase I, figure out dose ranges and exposure and tolerability ranges as quickly as we can and then get into that challenge study later next year. We'll have more to say about the timing and the design of that next year.

(Operator Instructions) Our next question comes from the line of Liisa Bayko with JMP Securities.

Just wanted to drill down a little bit more on your concept of raising the LDL receptor with respect to your FXR mechanism. And what you think the potential benefits of that may be and any potential issues you foresee and how comfortable you are with that -- the evidence for that? And then also, just when we might hear a little bit more about your next NASH mechanism?

Sure. So thanks, Liisa, The LDL receptor is an interesting story. We and others, obviously, have thought about FXR in the context of lipids, Intercept's LDL elevation in their study. And so we wanted to understand whether or not that would be an observation we'd have to worry about and think about how to handle going forward. So we looked at lipids. We did a lot of interrogation preclinically, and then, ultimately, in our Phase I study. Preclinically, animal models, they are a little bit tricky. They all seem to deal with the lipid regulation in different ways or at least in some of these animal models that are -- it's hard to come up with perfect models in that regard. That said, when we look down at expression levels, looking at RNA and protein, and then, ultimately, function, we did see that EDP-305 differentially versus OCA had an up regulation of LDL receptor preferentially by EDP-305. So for those of you who don't know, LDL receptor is one of the proteins that's substantially responsible for reducing and circulating LDL levels. So if you have LDL receptor expression go up, you see circulating LDL go down. And that would be viewed as a good thing. So when we saw, differentially, a -- an up regulation of LDL receptor by 305 versus OCA, we thought that was an interesting observation, but it certainly needed to be borne out clinically. Under steatotic conditions, not to make it more confusing, but under steatotic conditions, we saw no change in LDL receptor levels, but we saw that OCA reduced LDL receptor levels. So the relative differences were preserved. So when we went into the clinic, we looked at lipids very carefully, not only in healthy volunteers across our entire dose range, but also in presumed NAFLD subjects, and we didn't see any dose-related increases in LDL at all, even at the highest dose of 20 milligrams, which we know gave better-than-linear pharmacokinetic. So there was a very, very large exposure in those subjects at the 20-milligram dose. So that's -- those were the observations we saw at least -- had a clinical [repair-up]. The clinical rationale that we found preclinically, and then, at least, in Phase I so far, the -- it's borne out.

And what happens to the cholesterol at that point? If you're increasing the receptor, I mean, is there anything to worry about downstream or...

I don't think so. I mean, one of the things if you look into PCSK9 literature, PCSK9 inhibitors work by actually preserving LDL receptor from being degraded. So you essentially have a similar net effect, which is elevation of LDL receptor versus what it would have been. And that's, again, a proven mechanism for reducing LDL cholesterol that's, I think, fairly well-understood.

Okay, great. And then if you could give us any sense of timing on when we might learn more about the next [NASH...]

Sorry, timing on the other target?

No, the next [NASH.]

Yes. The target that we haven't yet disclosed, we'll probably remain in that status for a while longer. I think we just want to run it out a little bit further where we've got the science and assays and chemical matter and patents and all kinds of stuff going on, but we're just not quite there yet in terms of being ready to disclose what we're doing.

There appear to be no further questions at this time. I'll turn the call back over to Ms. Carol Miceli for closing remarks.

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

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.