Enanta Pharmaceuticals Inc (ENTA) 2018 Q1 法說會逐字稿

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

It is my now pleasure to introduce your speaker, Ms. Carol Miceli, Director Investor Relations. Ms. Miceli, you may begin your conference.

Thank you, Sarah, and welcome to Enanta Pharmaceuticals First Quarter Conference Call. The news release with our financial results was issued this afternoon and is available on 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 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 risks 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'll begin by providing updates on our key development programs, and then Paul Mellett will discuss our financial results for the quarter. For some of our listeners on the call today who are new to our company, our strategy over the past several years has been to use our drug discovery expertise to develop best-in-class compounds in virology and (inaudible). Our first 2 successes were in HCV, with our protease inhibitors glecaprevir and paritaprevir, developed and commercialized through our collaboration with AbbVie. We are continuing to build on that success by using the royalties provided by that collaboration to fund our wholly owned programs in NASH, PBC, RSV and HBV.

Among these wholly owned assets, the most advanced is EDP-305, our FXR agonist candidate for NASH and PBC. We continue to believe that FXR agonist have the potential to be cornerstone agents in combination therapy for NASH. EDP-305 is a highly selective and potent FXR agonist that successfully completed a Phase I a/b clinical study last year, and was granted fast track designations from the FDA for the treatment of NASH patients with liver fibrosis and for the treatment of PBC patients.

Recently, we initiated a Phase II clinical study of EDP-305 in patients with PBC. This Phase II clinical study named INTREPID is a 12-week randomized, double-blind, placebo-controlled study evaluating the safety, tolerability, pharmacokinetics and efficacy of EDP-305 in subjects with PBC, with or without an inadequate response to ursodeoxycholic acid. The efficacy of EDP-305 will be assessed by evaluating reductions in levels of alkaline phosphatase, or ALP, versus placebo.

Today, we are announcing that we've also recently initiated recruitment of a Phase II dose-ranging clinical study of EDP-305 in NASH patients. This Phase II clinical study named ARGON-1 is a 12-week, randomized, double-blind placebo-controlled study evaluating the safety, tolerability, pharmacokinetics and efficacy of EDP-305 in subjects with NASH. This proof-of-concept Phase II will allow safety and changes in levels of alanine transaminase, or ALT, as a primary endpoint, will also focus on evaluating multiple secondary endpoints, including imaging and noninvasive markers of fibrosis and steatosis at week 12. INTREPID and ARGON-1 studies are using our new tablet formulation that delivers about a twofold greater exposure than the suspension formulation used in our earlier Phase I study, resulting in doses of 1 and 2.5 milligrams in these Phase II studies. We expect to have data from the INTREPID and ARGON-1 studies in 2019.

In addition to our clinical program with EDP-305, we are identifying follow-on FXR agonist leads and we are continuing our ongoing discovery work in a non-FXR mechanism for NASH, anticipating the likely need for a combination therapy in this indication.

Turning to our RSV program, we are excited about EDP-938, a potent non-fusion inhibitor and our first clinical candidate for RSV. This inhibitor of the end protein works by blocking the replication machinery of the virus. And as a result, 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 creating a high barrier to resistance. The Phase I clinical study of this inhibitor is currently ongoing. The objective of the study is to evaluate its safety, tolerability and pharmacokinetics of single ascending dose and multiple ascending dose levels of EDP-938 in approximately 80 healthy volunteers. Upon successful completion of this study, we expect to begin a Phase II proof-of-concept challenge study in RSV infected humans in the fourth quarter of calendar 2018.

We are also focused on HBV, with an estimated 250 million patients worldwide representing a significant unmet medical need. Our discovery program continues to move ahead and is generating promising leads. Preclinical data on EP-027367, one of several HBV compounds we have discovered, was accepted for oral presentation at the 2018 EASL meeting in Paris on April 12. This HBV core inhibitor has potent antiviral activity both in vitro and in a humanized mouse model. Further details on the compound will be available at the time of the presentation.

We will continue our efforts to discover, characterize and secure patent protection for several new core inhibitors of HBV. We hope to announce our first HBV candidate later in 2018.

Let's turn now to our licensed HCV products. 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. On AbbVie's recent financial results conference call at the end of January, they stated that MAVIRET had climbed to 32% market share position in the United States. And internationally, had the #1 position in Germany, Spain and Italy. We look forward to AbbVie continuing to execute its launch of MAVIRET worldwide.

For calendar year 2018, AbbVie management provided global HCV and MAVIRET sales guidance to exceed $2.5 billion. Given this guidance from AbbVie, the potential for increased royalties to Enanta from MAVIRET are significant. And I will remind you that Enanta is eligible to earn double-digit royalties on 50% of AbbVie's global net HCV sales on MAVIRET.

We've made great progress with our programs in NASH, PBC, RSV and HBV. We'll continue to advance our 3 clinical programs, add additional mechanisms of actions and discover follow-on compounds to supplement our programs, all to broaden our footprint in these disease areas.

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 ended September 30, and today, we are reporting results for our first fiscal quarter ended December 31, 2017. Enanta ended the quarter with approximately $298 million in cash and marketable securities as compared to $294 million at our September 30, 2017, fiscal year-end. We expect that these cash resources and our future royalty revenue stream from our AbbVie agreement will be sufficient to meet our anticipated cash requirements for the foreseeable future.

For the 3 months ended December 31, 2017, revenue was $38.1 million compared to revenue of $10.4 million for the same period in 2016. The increase in revenue in the current quarter was primarily due to a $15 million milestone payment received for the reimbursement approval of MAVIRET in Japan, as well as an increase in royalties earned on AbbVie's global net sales of hepatitis C virus regimens due to the launch of MAVIRET in major markets in the second half of 2017.

Royalty revenue in the current quarter was $23.1 million based on AbbVie's global HCV sales of MAVIRET and VIEKIRA totaling $510 million.

Moving on to our expenses. For the 3 months ended December 31, 2017, research and development expenses were $18 million compared to $12.5 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 expenses for the quarter was $5.8 million versus $4.9 million for the comparable quarter in 2016. The increase in these expenses was primarily due to an increase in headcount. Enanta recorded income tax expense of $3.6 million for the 3 months ended December 31, 2017 compared to an income tax benefit of $1.5 million for the same period in 2016.

Income tax expense for the 3 months ended December 31, 2017 includes a $3.8 million noncash revaluation charge that decreased our deferred tax assets to reflect the reduced federal corporate income tax rate as a result of the enactment of the U.S. Tax Cuts and Jobs Act in December 2017.

Net income for the 3 months ended December 31, 2017 was $11.7 million or $0.59 per diluted common share, compared to a net loss of $5 million or $0.26 per diluted common share for the corresponding period in 2016. Note that net income for the 3 months ended December 31, 2017 reflects the $3.8 million or $0.19 per diluted common share noncash revaluation charge I previously discussed. Further financial details are available in our press release and will be available in our Form 10-Q for the quarter when filed.

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 Brian Abrahams with RBC Capital Markets.

My first question is on 305. Question about your dose selection for the Phase IIs. Just curious if you could talk about some of the factors that guided your dose selection there. Obviously, there's some inherent variability based on variability patient to patient and diurnal variation in the C4 and FGF19 biomarkers. So I'm wondering sort of how you put all that data together from the Phase I study combined with some of the tolerability data to arrive at the -- and obviously, the new formulation to arrive at the 1 and the 2.5 mg dose.

Sure. So thanks for the question, Brian. So this is Jay. We went through the data -- we presented the Phase I data. We top lined it last fall and we presented it at NASH-TAG early this year. And we showed how we had looked at a number of different factors: safety, biomarkers, et cetera, et cetera, PK exposure. Our goal is to give very good once daily dosing coverage. We also wanted a good safety profile. As you know, at the high 20-milligram dose sort of we got into the nonlinear range on the PK and the exposures popped up a bit. And that's the dose where we saw the predominant amount of pruritus. At doses below 10 milligrams, we didn't see that. Also in that dose range, we saw no effects on LDL. And so from a perspective of safety and tolerability and looking at pruritus and lipids and also looking at sort of PD markers of efficacy "of FGF19 and C4," we saw good target engagement that doses well below that top dose those. So coming down from there, picking a dose below 10, we started thinking about our 5 milligram dose of a suspension, which as we pointed out -- we've pointed out previously, but also just in the remarks, that our new tablet suspension gives us basically twofold extra exposure versus the suspension. So we could essentially get 5 milligrams of the suspension covered by our 2.5 milligram tablet. So at 1 and 2.5 milligram tablet equivalents, again, we seek the target engagement. We don't see effects on lipids, we don't see pruritus and we just felt 2 solid doses to explore in these 2 Phase II studies.

Got it. No. That makes a lot of sense. And then can you talk a little bit more about the endpoint that you're looking at in NASH? Maybe the predictive value of ALT and some of -- what are kind of the most important noninvasive metrics and imaging measures that you're going to be looking at in the 12-week NASH study?

So ALT, I think if you go back and you look at the FLINT study, I mean, ALT was one of the key parameters looked at. So I think, especially for a 12-week study, again, this is a shorter duration study. We want to take a look at ALT reductions. As you know, we'll be looking at patients who already have elevated ALTs. They've either been phenotypically characterized as having NASH or have logically been characterized as having NASH. In fact, you can look on clinicaltrials.gov for a lot more information on this because we have just recently posted this week the trial design. But ALT is a great surrogate to look at for NASH activity. And of course, we'll -- you'll see from our inclusion criteria that we're looking at fat, steatosis and -- so you can imagine we're using imaging as secondary endpoints, et cetera, also biomarkers of fibrosis. So I think it'll be a compact 12-week study that should give us a lot of information. I think we've picked 2 interesting doses to explore. And we're going to now have that up and running alongside the PBC study. And again, both those studies are targeted to read out in 2019.

Got it. One last question if I may, more of a housekeeping question. Congrats on the strong uptick of the HCV -- of the new HCV cocktail. Just wondering if you might be able to break out for us, the hep C royalties that are deriving from MAVIRET versus VIEKIRA versus some of the other cocktails? And I'll hop back in the queue.

Yes. I think we can't give that breakdown right now. So just to be clear, we get royalties on VIEKIRA and VIEKIRAX and TECHNIVIE and all the paritaprevir-containing regimens. All of those sales go into 1 bucket and MAVIRET sales into another bucket and we get royalty streams on each of those buckets. But certainly from the VIEKIRA, some of that are 3-DAA regimens. The majority of the VIEKIRA's AA regimens, but there's also some 2-DAA in there where we get a different blend. And then in a separate bucket, we've got MAVIRET where we get a double-digit royalty on 50% of those sales. So this has all gotten aggregated together. And let's just say we won't get any more granular than AbbVie does in terms of reporting out those various sales. What I can say is it's a pretty reasonable expectation that, going forward, MAVIRET is going to be the key driver in the HCV growth. And I think it's at a very exciting time. You can see just after -- MAVIRET was basically launched in the EU and only part of the EU starting in July and then the U.S. in August. So to see that kind of calendar Q4 performance in such a short period of time, I think, is just -- is really impressive. And so while others are reporting declines in their HCV revenues, I think Enanta has the potential to be, sort of, the growth story for hepatitis C, at least in the near term.

Your next question comes from Jessica Fye with JPMorgan.

Just a few for me and maybe just to follow up on a prior question. Do you have a sense of how quickly the international markets will convert over to MAVIRET? It seems like that's happening very rapidly in the U.S. I'm curious if there are any reasons to think the international markets will proceed differently. I also wanted to just talk about the cadence of pipeline readouts over the next 12 to 24 months. So specifically, the RSV sees one data. Is that midyear we should think about that or more like 3Q? And then with the RSV challenge data, if that study starts in 4Q, when could we expect to hear an update on those results? And lastly, what about the timing within 2019 for those Phase II readouts for 305? And just the last one on the tax rate, is it safe to assume a 21% tax rate going forward or is there -- are there any other factors we should think about that might affect that?

Okay. So that was 6 questions, I think. Let's start -- let's go all the way back to the HCV 1. So on the ramp there, I think -- VIEKIRA is sold in dozens and dozens of countries. It's well over 50 countries globally. And so I think there's just a part of getting MAVIRET in every nook and cranny around the world. So VIEKIRA sales will be, obviously, continuing until -- well, probably continuing even as MAVIRET comes into a particular territory. But given the profile and the simplicity and the overall efficacy of MAVIRET, it's reasonable to assume that, that transfer what happened very quickly in all the various territories just as it has happened in the United States. So they're continuing to launch globally very aggressively. I pointed out some of the key territories in Europe that they commented on. Well, the other thing I'm excited to see, the -- MAVIRET was just approved in Japan in September, but it didn't get pricing approval until November. So any Japan contribution for calendar Q4 was not -- certainly not a full quarter baked in there. So we'll see in calendar Q1 just how Japan could potentially add to all of this. So -- anyway, I think MAVIRET switchover will be pretty seamless. But in the meantime, VIEKIRA will continue to sell. So thinking about RSV, I mean, we just started the Phase I a few weeks ago. And these things usually take a few quarters to conduct and then we'll pull down the topline data and analyze it. So I would say maybe sometime in the Q3 timeframe. But we'll give an update on that as we progress the study. Then Q4, we would plan to start the challenge study. Having our dose planning well in line to get that done. So data from that, obviously, will also flow into the 2019 timeframe. And there, it's just a question -- at the end, I think it's a little hard to answer your Phase II question about RSV fully until we see the PK profile from our Phase I study. I think we'll want to look at the PK and safety and so forth. We wanted to make sure we come up with the right doses or dose regimen to give good coverage so that we put ample pressure on the virus throughout the conduct of the study. And so we'll really need to see how that PK profile plays out so that we understand how many cohorts we might include in that Phase IIa challenge study. And depending upon how many cohorts we have, of course, the time -- the conduct of the study will depend on that. So give us a little bit of time and we'll give an update on that as we are progressing through our Phase I studies. And then getting to now Phase II PBC or the INTREPID study and Phase II NASH, which is the ARGON-1 study. They're almost tracking now side by side. Obviously, PBC got just a little bit few weeks head start. But it's really going to boil down to recruitment. We're hoping to conduct a study predominantly this year. And then it'll obviously, depending upon when the last patient is, we'll have 12 weeks after that an analysis of the data, et cetera, et cetera. So it's pointing somewhere probably more toward the mid range. So stay tuned for an update as we progress. But somewhere down that line. It's really a question, too, of where -- when and where we will put out that data. So it really boils down to recruitment. Tax question, I'll defer to Paul.

Sure. This is Paul, Jessica. Our effective rate for the quarter was 24%. But I'd say at this point, we're not going to provide guidance for the rate for the full year, since it's ultimately going to be a function of revenues and how that impacts the bottom line. And also the level of R&D credits generated by our spending this year. So for those reasons, we'll perhaps consider guidance down the road, but not at this time.

(Operator Instructions) Your next question comes from Liisa Bayko with JMP Securities.

I was wondering if you could dig a little bit more into your NASH study in particular. Just because we haven't -- I guess, from Intercept, for example, we haven't seen a tremendous amount of early data for that program. Of course, we have for Novartis and stuff. So I guess, benchmark for us and tell us what kind of magnitude of change are you looking for with respect to ALT and some of the other markers. You're looking at fibrosis and steatosis that what -- first of all, what they are specifically and then also what kind of magnitude of change are you looking to see to feel good about this compound?

Sure. So, yes, to the extent we have benchmarks -- or there may be benchmarks in the future from Novartis and Gilead, we'll be comparing ourselves to them for sure. Really, the only benchmark that we have right now is -- in this type of study is ALT. And I think if you go back to FLINT, it was sort of in the 20% to 30% reduction range over that time course. So I think we would be looking to do at least that. And then with regards to biomarker and imaging data, I think there's not a lot of strong data for comparisons there yet. Certainly, not out of Intercept. So we'll be waiting for Gilead and Novartis to put that data out. And then likely, we don't know exactly everything that they're measuring. But likely, there will be an intersection of some of our markers and some of theirs as well with regards to imaging and other things that we'll be able to line up some comparisons. It is a short-term duration -- short-duration study. I'd also point out, again, this is sort of a 12 week. So this isn't a 50- or a 72-week or 1-year long study. But it's meant to drive key relevant markers, help us gain confidence on efficacy and dose selection and then to build the stage for moving on to later stage studies.

Yes. That's why I was asking that question. I just was trying to understand what you were trying to see with the FXR approach on some of these things in such a short period of time, vis-à-vis some of the other mechanisms that may be directly focusing on reducing fat that we might expect a big change on that in 12 weeks.

Well, FXR already does have a lot of things. It's certainly -- it certainly has -- if you look at fibrosis and inflammation and gluconeogenesis and fat, you can -- there's certainly a strong mechanistic rationale for why FXR is tied into all of them. Which is going to be the most profound driver in the end is something that we're going to have to figure out. So some drugs that focus more purely on steatosis has one dimension. We'll have to see how an FXR will stack up against them, against that dimension. But again, we're looking at FXR as being sort of a central regulator of many of the different mechanisms. And so it's the aggregate of the approaches that I think make FXR really compelling.

Jay, where do you kind of -- what's your thinking with respect to FXR being the backbone of NASH therapy that was originally thought to be the case and now there's a lot of mechanism development? Just curious how you see kind of the...

Yes. There could well be more than 1 backbone before it's all over. I mean, again, I'm just looking at it from a perspective of how many mechanisms have true validation in a NASH sighting. And the list is relatively few. There can be multiple other backbones, so I'm not excluding others. But we think that FXR is going to be a key one. And we're happy to think about adding other mechanisms onto that. So I don't mean to imply that FXR will be the only such one. As you know, there were few HCV analogy. There were some backbones that were nuke related, and then others that weren't. And early on, people, I think, incorrectly assumed that one backbone would be the only backbone you would ever find. I think there's -- especially in something like NASH that has so many factors going on, I think there's different ways to think about the problem and different ways to approach it.

There are no further questions at this time. Ms. Miceli, do you have any further remarks?

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

This does conclude today's conference call. You may now disconnect.