Enanta Pharmaceuticals, Inc. (ENTA) Q2 2018 Earnings Report, Transcript and Summary

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 Pharmaceuticals’ Second Quarter Financial Results 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] It is now my pleasure to introduce your speaker, Ms. Carol Miceli. Ms. Miceli, the floor is yours.

Thank you, Sarah, and thanks everyone for joining us this afternoon. The news release with our financial results was issued this afternoon, and is available on our Web site 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-Q 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. We had another productive quarter enhanced by the growing market share of our licensed product included in the AbbVie's MAVIRET regimen for HCV, which I will discuss in a few minutes. But right now I would like to talk about our exciting internal R&D pipeline, including our three wholly-owned clinical-stage programs in NASH, PBC and RSV. Our most advanced programs are for NASH and PBC, where we are conducting Phase 2 clinical studies with EDP-305 or FXR agonist candidate. In NASH, our Phase 2 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. As primary endpoints, this proof-of-concept study will assess safety and changes in alanine transaminase or ALT levels, an important measure of liver entry in NASH. This study will also focus on evaluating multiple secondary endpoints that play a significant role in NASH, including imaging and non-invasive markers of fibrosis and steatosis. In PBC, our Phase 2 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, a currently available chronic treatment for PBC. The efficacy of EDP-305 will be assessed by evaluating reductions in levels of alkaline phosphatase or ALP versus placebo. Those Phase 2 studies are ongoing; we plan to share data from them in 2019. In parallel, we continue preclinical studies to better understand the nuances of EDP-305’s mechanism of action, and recently three poster presentations on EDP-305 were made at the International Liver Congress in April. One focused on efficacy and highlighted new preclinical data demonstrating that EDP-305 favorably regulates the expression of key fibrogenic genes in vitro and in vivo, and the second focused more on safety and showed that EDP-305 had distinct transcriptional and post-transcriptional regulatory mechanisms for LDL receptor and SR-B1 gene expression. The third presented data from your previously released Phase 1 study of EDP-305 highlighting its pharmacokinetics, pharmacodynamics and safety of EDP-305 in healthy and presumptive NAFLD subjects. Our next most advanced program is a Phase 1 clinical study of EDP-938, which is being developed for the treatment of RSV or respiratory syncytial virus infection. RSV infection is an area of high unmet need, particularly in infants less than two years of age and immunocompromised adults. Currently, there are no effective therapeutic treatments for RSV. EDP-938 is a potent inhibitor of the N protein in RSV, and I'm pleased to announce that EDP-938 the only N inhibitor in clinical development today has recently received fast-track designation by the FDA for RSV infection. This inhibitor with the N protein works by blocking the replication machinery of the virus, and as a result, has the potential to be more effective at later stages of infection and fusion inhibitors. We believe this differentiates this class from fusion inhibitors, a mechanism under evaluation by several of our competitors. The Phase 1 clinical study of this inhibitor is currently ongoing. The objective of the study is to evaluate the safety, tolerability, and pharmacokinetics of single-ascending dose and multiple-ascending dose or MAD levels of EDP-938 in approximately 80 healthy volunteers. We recently began dosing the MAD portion of this study and PK data from the study coupled with our preclinical anti-viral data will guide us to the effective dose range for the Phase 1 challenge study. The seven-day duration in the MAD study is comparable to dosing durations for our planned Phase 2a challenge study, and will likely be applicable to Phase 2b studies as well. From a timing perspective, we expect to have top-line data from the Phase 1 study later next quarter, and we expect to begin the Phase 2 proof-of-concept challenge study in RSV-infected humans by the end of calendar 2018. Let's move onto HBV. It's been estimated that 250 million people worldwide are infected with HBV, and there is no effective cure. Our HBV program continues to move ahead and is generating promising inhibitors of the core protein. Core inhibitors sometimes refer to as capsid assembly modulators or core protein allosteric modulators are a new class of HBV inhibitors that can disrupt the assembly and replication of this virus at multiple steps in the viral lifecycle. Preclinical data on EP-027367, one of several core inhibitors we are evaluating in advanced phases of preclinical testing were presented at the 2018 International Liver Congress in Paris on April 12. The data demonstrated that in a chimeric SCID mouse model with human liver cells, EP-027367 reduced viral DNA and RNA levels of HBV by up to three logs from baseline with four weeks of treatment, and demonstrated favorable tolerability and pharmacokinetic profile. This compound also demonstrated potent pan-genotypic anti-HBV activity capable of preventing the establishment of cccDNA in vitro. We will continue to strengthen our patent portfolio, and advance multiple new core inhibitors through preclinical testing and we hope to announce our first HBV candidate later in 2018. I'll now comment on our licensed HCV products. We are very impressed with the high level of sales already achieved by AbbVie with the new MAVIRET regimen, which contains glecaprevir, a protease inhibitor that Enanta invented with its collaboration with AbbVie. On AbbVie's recent financial results conference call, they stated that MAVIRET had climbed to a 45% market share position in the U.S. and internationally had strong position in major countries such as Japan, Germany, Spain, and Italy. As a result, AbbVie increased its global HCV sales guidance for calendar year 2018 to approximately $3.5 billion. In addition, AbbVie provided calendar year second quarter HCV guidance of $950 million. This correlates to Enanta's fiscal third quarter of 2018. Given this guidance from AbbVie, the potential for increased royalties to Enanta from MAVIRET is significant. I'll remind you that Enanta is eligible to earn annually tiered double-digit royalties on 50% of AbbVie's global net sales of MAVIRET. We look forward to AbbVie continue to expand its successful launch of MAVIRET worldwide. In summary, Enanta is in a very strong position as a result of a dedicated group of employees and a disciplined approach to drug discovery and development. Enanta earns royalties on what is now the leading HCV product on the market through its partnership with AbbVie. Enanta also has three clinical stage internally invented and wholly owned programs in areas of high unmet need namely NASH, PBC and RSV. And I would note, all three of these development programs now have fast track designation. I'll stop here and turn the call over to Paul to discuss our financials for the quarter. Paul?

Thanks, Jay. I'd like to remind everyone that Enanta reports on a fiscal year schedule, our year-end at September 30 and today we are reporting results for our second fiscal quarter ended March 31, 2018. For the three months ended, March 31, 2018 revenue was $44 million compared to revenue of $9 million for the same period in 2017. The increase in revenue in the current quarter was due to an increase in royalties earned on AbbVie's $919,000 in global sales of Hepatitis-C virus regimens including royalties on 50% of $850 million of MAVIRET sales in the quarter. Moving on to our expenses for the three months ended March 31, 2018, research and development expenses increased to $21.5 million, compared to $13.0 million for the same period in 2017. The increase was primarily due to greater preclinical and clinical costs associated with progression of wholly owned R&D programs in NASH, PBC, RSV, and HBV. General and administrative expense for the quarter was $5.7 million versus $5.5 million for the comparable quarter in 2017. Enanta recorded income tax expense of $5.4 million for the three months ended March 31, 2018 compared to an income tax benefit of $3.6 million for the same period in 2017. The company's estimated annual effective tax rate for fiscal 2018 of 27.1% includes the impact of the non-cash revaluation charge against 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. Net income for the three months ended March 31, 2018, was $12.6 million or $0.61 per diluted common share compared to a net loss of $5.4 million or $0.28 per diluted common share of the corresponding period in 2017. Enanta end of the quarter was approximately $289 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, our receivables for the royalties earned this quarter and our future royalty cash flow from MAVIRET will be sufficient to meet our anticipated cash requirements for the foreseeable future. Further financial details are available in our press release, and will be available in our Form 10-Q for the quarter when it is filed. I would now like to turn the call back to the operator and open up the lines for Q&A. Operator?

Thank you [Operator Instructions] Your first question comes from the line of Brian Abrahams with RBC Capital Markets.

Hi, Jay and team. This is Bill Miller on for Brian, and congrats on the successful quarter and the strong MAVIRET launch. I have a couple of questions on EDP-305. Turning [ph] to EASL, can you speak to some of the data you presented on 305's potential for decreased effects on LDL, and if these data increased your confidence on potential for differentiation in the clinic versus data for the other FXR-related mechanisms that were presented? And then I have a quick follow-up.

Sure. So, this is Jay. I think one of the things we did at EASL is we looked at -- drilled down further on observation that we had made previously, and that in a nutshell is that EDP-305 seems to cause an up-regulation of LDL receptor, particularly when we compare it against another FXR agonist, which is OCA. And so, mechanistically we are very intrigued by this. Of course LDL receptor is the body's way of sponging up excess LDL that you have in the body, and so an up-regulation of LDL receptor then should help mitigate an effect you might otherwise see with an FXR agonist. And so, that was certainly the observation that we had made preclinically. It was born out in Phase 1 and studies where we didn't see an increase in LDL during the course of our Phase 1 study. And so, really what we have done is just taken that biology and dug deeper into how that whole regulatory process is happening, so that we can inform future decisions about candidate selection and also just better understand EDP-305, the molecule that we have under development today.

Thanks. And we also saw a data from Novartis' FXR that showed compounding effects in ALP reduction due to FXR -- ALP gene transaction in PBC. And can you speak to your buyers potential for transcriptional effects on the ALP gene and if you anticipate just to have a similar result in your PBC study and how it reconcile these two effects?

Sure. So, just maybe to back up a little bit; in Intercept's PBC study, they used alkaline phosphatase decreases as a marker for efficacy, and in fact that's the FDA approved endpoint for registration. What is known is that alkaline phosphatase is a protein that can be regulated by FXR. In fact there are FXR response elements in the alkaline phosphatase gene. So what you have is a sort of a potential anyway for a confounding situation, where clinically you may see an increase in alkaline phosphatase at some dose level because you induce the alkaline phosphatase transcription. On the other hand, you may have a beneficial effect in a disease where you have such as PBC where you have a lot of liver damage going on, and you do as a cause or as a consequence of the disease progression, pathological increases of alkaline phosphatase. So, a drug in theory could reduce alkaline phosphatase as it improves the course of the disease, but it could also in theory cause the up-regulation of the very endpoint that you are looking at. And so, I think that tug of war is a theoretical possibility going on. Clearly, Intercept did showed not a decrease in alkaline phosphatase, as did Novartis. I think two of their three doses -- well, all of their doses they saw decreases in alkaline phosphatase. They saw a less robust decrease with their highest dose, and so that lead to a lack of a dose response. When you look at GGT and other liver marker, they saw a dose-related change in GGT. So I think that possibility is out there as a confounding influence, but I do believe that it is certainly possible in the study design types that we are looking at to be able to demonstrate a net decrease on alkaline phosphatase.

Thanks very much Jay.

You are welcome.

[Operator Instructions] We have a follow-up question from Brian Abrahams.

Yes, I'm also curious on your HBV candidates. This is Bill Miller again. I'm just curious what are the gaining factors for moving this or other candidates into the clinic this year? And can you maybe speak to some of the data you presented at the conference at EASL? And how this has differentiated from some of the other cores that are in development? Thanks.

Sure. So, the -- as we said, we are targeting to announce finalist candidate later this year. What we did at EASL was put up a representative molecule that's -- you know, I would call it a contender, but not yet a finalist sort of as a calibration of the sort of state-of-play of the Enanta program. We have a sort of a 20-dimensional problem that you're trying to solve and at any time when you are coming up with the finalist candidate in terms of optimizing lots of preclinical activities, lots of activities across multiple species in terms of pharmacokinetics and metabolism, metabolite profiling, safety, synthesis, scalability, CMC-related matters. And so, all of that's beyond just the basic virology, which in itself has a lot of different dimensions to it. So we are -- I think the molecule that we showed at the EASL 367 is a very fine representative, but quite honestly, we got that one in a bake off with some other molecules, and we are very close to wrapping up that very comprehensive exercise. And then out of that, if it's not 367, we hope it will be a molecule that's even better than that. So getting back to what we showed at EASL, we showed just really good potent virology, looking at a number of different cell lines, some people characterize activity in one or another of the cell lines, and we sort of wind them all up and profiled our molecule across all of them, so that we could benchmark our molecule to every other one that's been reported. And if you look at that dataset, and that will be up in our presentation, I think later today if it's not already posted on our Web site, you'll see that 367 compares virologically really well across many of the core protein inhibitors that people have talked about today and further we put this one through really rigorous animal model where you basically take out the immune system of mouse and so that you can reconstitute the liver with human hepatocytes. And so, it's an immune-compromised mouse model, we test the drug in that model and then when you're doing that study, you're seeing a pure drug effect, you're not getting any help from the immune system obviously. So it's a very high standard that we put that molecule through and in fact achieve the best results that anybody has reported in that particular model which we think is the hardest one has been, so we've got effectively the best data in that model. So the virology is lining up, I think really well and we know that HBV is a tough virus and it's not likely to be a single mechanism that's going to take it down but the beauty is and others are starting to show this, you can go in and do some very basic viral kinetic studies over a few weeks of dosing, we are seeing with other core inhibitors, the mechanism is validated, and so now the next question is if you add that on top of sort of a combination that you get for free by just using already on the market nukes, can a two drug combination of core on top of a nuke provide some real advancement for HBV patients. And so we'll be looking at that data very carefully as we're bringing our first molecule forward announcing later this year and into the clinic in 2019, we have more to say about that at a future time. Q – Bill Miller: Thanks again.

You are welcome.

Your next question comes from the line of Liisa Bayko with JMP Securities.

Hi Jay, sorry I joined a little bit late. But I was wondering if you could maybe give an update on your program for RSV, I thought it was particularly interesting one would be the kind of next look at data and then also any planned reveal for your other NASH molecule? Thanks.

So thanks for the question Liisa. So RSV is going on track, we're as I said in the prepared remarks, we're now dosing the MAD portion of this study and we expect to report top line data on this Phase 1 study next quarter and then in the fourth calendar quarter, we expect to start our Phase 2 in humans infected with RSV. So what we like about the way the plan is shaping up so far as I indicated and maybe kind of cost over a little too quickly is in Phase 1 we're dosing the MAD portion for seven days, it's really unusual that in Phase 1 that you capture the duration of treatment of most of your Phase 2 studies and so I think that becomes really interesting at least for us de-risking exercise in terms of looking at safety and PK over the course of the seven day course in the Phase 1 gives us a tremendous amount of information and sort of confidence building as we head into Phase 2 of an equal duration of therapy. The other thing is that with the most viruses and I'll set HBV off to the side for the moment but with most viruses and certainly bacteria if you have good potency in the lab in terms of knocking down the particular bug and if you deliver good exposure in humans, there is a pretty good chance that things are going to demonstrate into desired effect of knocking down the bug in the human. So again we're looking forward to this Phase 1 dataset next quarter and we'll try to put it all together with our antiviral potency which is quite good as you know and then get on with that Phase 2 study in calendar Q4. The other question I think you had, was about our other NASH programs, we have obviously we've got a follow-on FXR program that's extremely active and we've got another program that we haven't really disclosed the target on. so I think we probably won't say too much more about those today but I think we will be later in the year.

Thanks, Jay.

You are welcome.

[Operator Instructions] And currently there are no further questions. Ms. Miceli, do you have any closing remarks?

Yes, 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 everyone.

This does conclude today's conference call. We thank you for joining. You may now disconnect.