Enanta Pharmaceuticals, Inc. (ENTA) Q2 2017 Earnings Report, Transcript and Summary

Hello and welcome to Enanta Pharmaceuticals Second Quarter Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I'd now like to turn today's conference over to Ms. Carol Miceli, Director of Investor Relations. Please go ahead.

Thank you. 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 on 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 Enanta 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 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 would 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. Enanta's business strategy continues as planned and we remain in a strong financial position. At the end of our second fiscal quarter, we had approximately $241 million in cash and securities. In addition, we continue to earn royalties on AbbVie's net sales of our HCV collaboration products. For the first six months of our fiscal year, we earned approximately $19 million in royalty revenue on those products. We're using those royalties to fund our drug discovery efforts and clinical development programs in several high value disease areas within our core expertise of virology and liver disease, specifically nonalcoholic, steatohepatitis known as NASH, primary biliary cholangitis, known as PBC; respiratory syncytial virus known as RSV and HBV. Our strategy of diversifying our portfolio has produced several programs that are advancing this year. Our Nash candidate EDP 305 is a highly selective and potent FXR agonist currently in Phase 1 clinical development. At the International Liver Congress last month, three posters were presented. Enanta made a presentation that showed efficacy data for EDP 305 in an animal model of NASH. Additional presentations from two independent researchers Dr. Brian Fuchs from the Massachusetts General Hospital and Dr. Yuri Popov from the Beth Israel Deaconess Hospital, demonstrated that EDP 305 reduced fibrosis progression in animal models of PBC and primary sclerosing cholangitis also known as PSC. These results are highly encouraging because fibrosis has also been shown to be the key predictor of clinical outcomes in NASH patients. The EDP 305 Phase 1 study is advancing as we dose the MAD portion in healthy volunteers and presumed NAFLD subjects. We're aiming to announce the data from this study including pharmacodynamic biomarker data at AASLD in October. Additionally, we plan to conduct NASH-enabling clinical studies in the second half of this year to begin Phase 2 studies in NASH in early 2018. Before that in PVC, we expect to start a Phase 2 study in the fourth -- in PBC in the fourth quarter of this year. Our long-term commitment to Nash therapies has led us to conduct additional discovery and preclinical activities and we've identified several new follow-on FXR leads, which we will continue to characterize this year. In addition, we have discovery work ongoing in non-FXR mechanism for NASH and we hope to have more information to share on that effort later in 2017. In addition to NASH, we are very excited about our RSV program, which is progressing as planned. 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. It is estimated that each year between 75 and 125,000 children in the U.S. are hospitalized due to RSV infection. EDP-938 is our first candidate from our non-fusion inhibitor approach to targeting RSV. Compared to fusion inhibitors, currently in development by others, our non-fusion inhibitors are targeted at the viral replication machinery of RSV and have demonstrated high barriers to resistance against the virus in vitro. EDP-938 has demonstrated a rapid reduction in viral load in RSV infected animals. This data further builds on previous in vitro data, demonstrating that EDP-938 is a potent inhibitor of both RSV-A and RSV-B activity. On June 25 in Berlin, Germany, at the 19th International Symposium on respiratory viral infections Enanta will present additional data on its RSV candidate EDP-938 in an oral presentation. We're planning to begin a Phase 1 clinical study of EDP-938 in the fourth quarter of calendar 2017 and will share additional information later in the year. In HBV, we continue to make progress in discovering, characterizing and securing patent protection for new core inhibitors, We believe the estimated 250 million HBV patients worldwide represent a significant medical need that is still unmet. Turning now to HCV, our partner AbbVie has made great progress with our second protease inhibitor glecaprevir and we continue to be excited about its therapeutic and commercial potential. In April, AbbVie presented new data from its investigational pangenotypic ribavirin free hepatitis C virus treatment, consisting of glecaprevir, paritaprevir combination known as GP at the recent International Liver Congress. In an oral presentation, data from the Expedition 1 study of GP demonstrated that 99% of chronic HCV infected patients with genotypes one, two, four, or five or six and compensated cirrhosis achieved sustained virologic response at 12 weeks posttreatment, which is considered a cure. This high cure rate is compensated cirrhotic patients was seen following 12 weeks of GP treatment without ribavirin. Remember that in noncirrhotic patients, AbbVie studies have demonstrated high SVR12 rates across the major genotypes with only eight weeks of treatment. Also presented at the ILC was data from the ENDURANCE-3 study. This study demonstrated that 95% of patients with challenging to treat genotype 3 chronic HCV infection without cirrhosis, achieved SVR12 after only eight weeks of treatment with GP. The MAA for GP has been granted accelerated assessment by the European Medicines Agency and NDAs have received priority review designations by the U.S. Food and Drug Administration and the Japanese Ministry of Health Labor and Welfare. AbbVie has stated that GP remains on track for regulatory approvals in the U.S., EU and Japan later this year and based on AbbVie's guidance, we anticipate earning a substantial portion of the $80 million in commercialization, regulatory, approval milestone payments for glecaprevir in calendar 2017. If GP is approved, then the portion of AbbVie's HCV net sales on which we currently earn most of our royalties, would increase from 30% for the paritaprevir containing three DAA regimen to 50% for the two DAA GP combination. What this would mean for Enanta is that for a given amount of AbbVie's HCV sales, Enanta's royalties on sales of GP would increase at least 67% compared to royalties on sales of the existing three DAA paritaprevir containing regimens. We look forward to providing you further updates following anticipated approvals for GP, the first of which is anticipated in August. Looking ahead highlights for the next few quarters, we are targeting to announce clinical data from our lead NASH candidate EDP-305 in both healthy volunteers and in presumed NAFLD subjects at the AASLD Meeting on October and we plan to initiate a Phase 2 study of EDP-305 in PBC in the fourth quarter of calendar 2017 and a Phase 2 study in NASH in early 2018. We're also planning to advance our development candidate for RSV into the clinic in the fourth quarter as well as aiming to identify our first candidate for our HCV program. We expect significant milestone revenue later this year from the commercialization and regulatory approvals of GP and its also good potential for GP royalty revenue to start in 2017 and to grow in 2018. I'll now turn the call over to Paul to discuss our financials for the quarter, Paul?

Thank you, Jay. I would 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 second fiscal quarter ended March 31, 2017. Enanta ended the quarter with approximately $241 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 milestones and royalty revenue stream from AbbVie will be sufficient to meet our anticipated cash requirements for the foreseeable future. For the three months ended March 31, 2017 revenue was $9 million compared to revenue of $13 million the same period in 2016. Revenue in the current quarter consisted exclusively of royalty income earned on AbbVie's net sales of its HCV regimens, which declined over the 2016 period. Milestone and royalty payments that vary 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 March 31, 2017, research and development expenses were $13 million compared to $9.1 million 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, HBV and RSV. General and administrative expense was $5.5 million for the quarter ended March 31, 2017 and $4.4 million for the comparable quarter in 2016. The increases in these expenses was primarily due to increases in stock-based compensation expense, driven by increased headcount. Enanta recorded an income tax benefit for the three months ended March 31, 2017 of $3.6 million compared to an income tax expense of $1.6 million the same period in 2016. The company's estimated annual effective tax rate for fiscal 2017 of approximately 33% reflects federal research and development tax credits, which reduced the company's annual effective tax rate slightly below the statutory rate of 35%. For the quarter ended March 31, 2017, we incurred a net loss of $5.4 million or $0.28 loss per diluted common share. For 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 up the lines for Q&A, operator?

[Operator instructions] Your first question comes from the line of Jessica Fye with JPMorgan.

Hey there. Thanks for taking my questions. Just curious with respect to the Phase 1 data coming at AASLD, is there any chance of you toplining that ahead of the conference or are we going to be waiting for the Medical meeting? And then second curious if you could give any broad strokes about how to think of R&D trends we move towards 2018 when you're starting up both the Phase 2 studies, thank you?

Sure. So, this is Jay. Thank you for your questions. So, with regards to the data announcements around the Phase 1 study, we really are targeting AASLD. I think we're going to finish up dosing by midyear. We'll move on to data cleaning, database lock, un-blinding analysis and so forth and it's really going to put us on a trajectory toward AASLD. So, I think right now that's what I would be pointing people to. With regards to R&D trends, did you say for 2018 is where you referring to.

Yeah exactly, financially yes.

So, we have, Paul, do you want to comment on our this year's guidance and then the trends probably going into next year.

The guidance for fiscal '17 was $55 million to $65 million and we expect that's been rate to increase as the programs advance to the clinic and external spend increases proportionately. And so, they’ll trend upward. We'll have greater clarity around that as we late certainly not the Phase 2 plans later in the year.

Okay. And at this point based on what you're seeing so far in Phase 1, it sounds like you're still -- you keep reiterating these Phase 2 timeline. Should we take that to mean that you like what you're seeing so far in Phase 1.

I just take it to mean we're very much on track and pushing the trial as expected.

Okay. Thank you.

[Operator instructions] Your next question comes from the line of Liisa Bayko with JMP Securities.

Hi, this is Jon on for Liisa. Thanks for taking the question. Just couple quick ones, we're now going to get an AASLD, can you give us a little bit of guidance on what kind of data we should expect or is it going to be primarily safe, there is going to be any outcomes data that we can look forward two? And then my second question for the non-FXR mechanism you're stating, is this something that you're going to be pursuing in combination with an FXR agonist or is this going to be something that you're going to be pursuing as a single agent?

Sure, so regarding AASLD, so we've actually got a few different datasets pulled together here. So, we'll have data for both healthy volunteers and in presumed NAFLD. This should be final data and we will have data that relates obviously to safety and tolerability. We'll have -- we should have full PK. We'll also be going and having a component effectively a pharmacodynamic portion of this studies looking at a variety of different biomarkers. We should be in a position to compare all of that data in the healthy population and make direct comparisons to the patient population who is presumed to have NAFLD. So, I think there be a lot of information. It's again a little bit of a larger study. We're doing full dose ranging in both patient populations or both populations, the healthy and the presumed NAFLD. So, makes this trial a little bit bigger than certainly your normal Phase 1 or probably about close to 150 subjects data. So, I think hopefully will be an interesting study where we've comparisons across populations. The second question relating to combinations were certainly looking forward to not only having EDP-305 moving ahead looking at follow-on FXRs as they come along, but also as I think we mentioned last quarter, we branched out into other non-FXR areas. So, we want to think about combinations clearly with FXR and/or with other agents. Of course, before you move into combinations you look at any mechanism individually first. So, we'll do that but the anticipation would be longer-term. We would be aiming towards combinations.

Perfect. Thank you very much.

You're welcome.

[Operator instructions] And there are no further questions at this time.

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