Enanta Pharmaceuticals, Inc. (NASDAQ:ENTA) Q3 2016 Results Earnings Conference Call August 8, 2016 4:30 PM ET
Jay Luly - President and CEO
Paul Mellett - SVP, Finance and Administration and CFO
Carol Miceli - Director of IR
Geoff Meacham - Barclays
Ryan Brinkman - JPMorgan
Brian Skorney - Robert Baird
Good afternoon, ladies and gentlemen. My name is Karen and I will be your conference operator today. At this time, I would like to welcome everyone to the Enanta Pharmaceuticals Third 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 would now like to turn today’s call over to Miss Carol Miceli, Director of Investor Relations. You may begin.
Thank you, Karen, and welcome to Enanta Pharmaceuticals' fiscal third 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 Chief Executive Officer; Paul Mellett, our Chief Financial Officer, and other members of our 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 licensed product 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 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 pleased to report on Enanta’s financial results and to update you on our R&D progress.
Enanta remains in a very strong position to advance our pipeline. Our cash position of approximately $245 million and recurring revenue stream from our successful HCV collaboration with AbbVie allow us to fund our business operations and R&D initiatives for the foreseeable future.
Revenues from AbbVie’s initial HCV regimens that continue our protease inhibitor paritaprevir continue to provide substantial royalty cash flow to Enanta. Enanta has earned approximately $45 million in royalties for the first nine months of our 2016 fiscal year.
AbbVie is also developing a pangenotypic next generation regimen, containing our second protease inhibitor, ABT-493 and ABT-530, which is AbbVie’s second NS5A inhibitor. This regimen currently in Phase 3 trials has demonstrated very high cure rates in earlier HCV trials often with this little as eight weeks of treatment.
AbbVie has guided that data from these trials will be reading out later this year and that marketing approval is expected in the U.S. in 2017. As a reminder, commercialization, regulatory approval in major markets would make Enanta eligible for up to $80 million in milestone payments as well as additional tiered double-digit royalties from 50% of the net sales of these 2-DAA product.
Given our strong financial position, we have grown our internal R&D efforts. The most advanced wholly owned asset is EDP-494. This cyclophilin inhibitor is now in a proof of concept study in GT1 and GT3 HCV patients, measuring viral load reduction.
We recognize that current HCV market is very competitive and the next generation of regimens and development is demonstrating very high cure rates. However, we believe there still exists an unmet medical need for those HCV patients who have failed or will fail therapies for those tough to treat patients with specific resistance mutations.
To address this small, but important part of the HCV population, we are developing EDP-494 which is a host targeted approach. Earlier this year, and most recently at EASL in April, we presented excellent pre clinical data demonstrating pan-genotypic activity and uniform activity of EDP-494 against many of the non-resistance associated variants or RAVs across all the DAA classes namely NS5A, NS5B, both nuc and non-nuc and NS3 protease RAVs.
As of today we have completed the SAT [ph] and MAT [ph] portions of the first in-human study among 72 healthy volunteers dosed there were no safety concerns at any dose administered following upto 14 days of dosing.
Next, a proof of concept study of EDP-494 is ongoing in patients with HCV genotype 1, which is the largest HCV patient population and genotype 3 considered the hardest to treat HCVgenotype. If these studies demonstrate good results, we would expect to study EDP-494 in combination with one or more DAAs in a pangenotypic once daily treatment to target RAVs, DAA failures and other hard-to-treat HCV patient populations. We also have research programs in three other high value disease areas. HBV, RSV and non-alcoholic steatohepatitis also known as NASH.
Of these programs our most advanced is for NASH, our first NASH candidate is EDP-305. Preclinical data demonstrate that EDP-305 is a highly selective FXR agonist which shows more potent activity in a variety of in vitro and in vivo NASH models compared to intercepts OCA, which is the most advanced NASH candidate in development today.
We expect to share more comparative pre clinical data regarding fibrosis next quarter in AASLD. Recall that fibrosis has been shown to be the key predictor of clinical outcomes in NASH patients. This and other data give us the confidence to move ahead with EDP-305 and we remain on track to initiate clinical development in the coming months.
We are also advancing additional series of FXR agonist and have generated several other promising FXR agonist leads, both bio asset and non-bio asset based, we expect to have further information on these later this year.
Some of these leads are over 10,000 times more potent than OCA. In addition, our work has resulted in an emerging intellectual property as stated over a dozen patent applications related to FXR agonist.
I would now like to shift to RSV and HBV. We have made significant progress on discovering, characterizing and seeking patent protection for new core inhibitors for HBV and for new non-fusion inhibitors for RSV we expect to have some initial preclinical data later this year consistent with our plan to initiate phase I clinical development in at least one of these new programs in 2017.
In summary, we believe the best way to create value for shareholders is to use our strong balance sheet, and our strong drug discovery expertise to focus on therapeutic areas with high unmet medical need. This approach is already been proven with our success in HCV and we aim to duplicate this success with our earlier pipeline programs, which continue to advance as expected.
We remain on track to initiate a phase 1 study in the coming months with EDP-305, our FXR agonist for NASH and PBC. Next quarter, we expect to announce clinical data in our cyclophilin inhibitor program as well as data from AbbVie’s phase III trials of its next-generation HCV regimen containing our second protease inhibitor ABT-493.
Looking ahead to 2017, as several leads depends within our HBV and RSP programs, we anticipate a phase I start in at least one of these programs and also in 2017 we look forward to U.S. regulatory approval of AbbVie’s pangenotypic next-gen HCV regimen containing ABT-493.
Additionally, our financial resources will allow us to keep our options open for future business development opportunities and also to fund other ongoing programs within our core areas of virology and liver disease.
I’d like to pause here and have Paul Mellett 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 third fiscal quarter ended June 30, 2016.
Enanta ended the quarter with approximately $245 million in cash and marketable securities as compared to $209 million at our September 30, 2015 fiscal year-end. We expect that these cash resources will be sufficient to meet our anticipated cash requirements for the foreseeable future.
Revenue consisted of $14 million of royalty income earned on AbbVie’s net sales of its HCV regimens. Milestone payments, royalties and other payments from collaborations have varied significantly from period-to-period and we expect that variability to continue and to cause us to have a net license on periods such as this quarter.
Moving on to expenses. Research and development expenses were $10.8 million and $6.3 million for the third fiscal quarters ended June 30, 2016 and 2015, respectively. The increase in the recent three-month period was due primarily to increased preclinical and clinical costs associated with our wholly-owned R&D programs.
We expect that our R&D expenses in fiscal 2016 will be within our previously stated guidance of $40 million to $50 million as we continue our cyclophilin inhibitor clinical studies advance our NASH program and expand our R&D capabilities.
General and administrative expense was $4.3 million for the quarter ended June 30, 2016 and $3.6 million for the comparable quarter in 2015. The increase in G&A in the three-month periods is due primarily to higher stock-based compensation expense driven by head count.
We incurred a net loss for the third quarter of $1.1 million as compared to a net income of $2.4 million in the third quarter of 2015. Income tax expense for the three months ended June 30, 2016, was $400,000 compared to a benefit of $400,000 for the corresponding period of 2015.
During the three months ended June 30, 2016 Enanta increased its estimate of its annual effective tax rate for fiscal 2016 to approximately 33% which resulted in an income tax provisions of pre tax loss for the quarter.
Further financial details will be available in our Form 10-Q for this fiscal quarter.
I’d now like to turn the call back to the operator and open up the lines up for Q&A. Operator?
[Operator Instructions]. And your first question comes from the line of Geoff Meacham of Barclays.
Hey guys, thanks for taking the question.
I just wanted to talk a little bit Jay about 305 in the NASH program, maybe just as you initiate phase I just kind of something may be either milestones or kind of what you would view as a successful results when you provided that the phase I looks safe that you get some proof of concept efficacy obviously competitive landscape so I just wanted to know differentiation this early in the game.
Sure. While there is obviously pre clinical differentiation which is about all we can do now and then obviously the real differentiation comes in the clinical arena. We’ll actually have more data on 305 coming out later this year at AASLD who have several abstracts at that conference and I think you’ll begin to see some of the aspects of the FXR arena that were capturing obviously. We want to be highly selectively, highly efficacious, selective not only for traditional FXR receptors that are nuclear receptors; we don’t want cross talk into a whole need of those receptors. But we also don’t want cross talk over into other vial asset receptors like TGR5.
And so I think we’ve dialled all this selectivity into 305, its’ ready to go. We’ve taken a close look at several other models, trying to clean any other things we couldn’t look at preclinically and markers we could capture with the understanding that we would build this into full development plan.
We’ll have more details on the development plan coming up later this year when we roll into clinical studies, but suffices to say I think there will be a lot of things that we will be able to look at and the early development including now the triggering of the receptor itself and looking at various markers from that obviously those are markers that can give you help once it’s around dose selection and even some aspects of CL activity, vis-à-vis you know potentially off target effects that might occur would provide us.
So, you know can safety and efficacy markers dose ranging using those markers to the best of our abilities and other kinds of parameters will be things we’ll be looking for in the early development program.
Got you. Okay, thanks.
And your next question comes from the line of Jessica Fye of JPMorgan.
Yes, this is Ryan on for Jess. Appreciate you taking the question. Maybe on 494, could you talk a little bit in -- the ongoing genotype 1, 3 study. Is it possible we could see some of that data at the liver meeting coming up later this year and I guess what could we be looking for there?
Yes, so we will have the data at the liver meeting at AASLD, exactly how much data we’ll have in HCV patients remains to be seen? You know we just started enrolling a little bit ago and you know we’re not going to break the line prematurely on that study. So at the very least, I think you can look forward to SAT and MAT and if we are able to put some patient data in by then that would be what we would try to do.
Okay. Great. Thank you.
[Operator Instructions] Your next question comes from the line of Brian Skorney of Robert Baird.
Hey good afternoon guys. Thanks for taking my question. My question generally revolves around plans for EDP-494 and also how that may tie into your plans in Hepatitis B. Just wondered if you thought about looking at EDP-494 in Hepatitis B and others, plenty of literature into getting effectiveness [Indiscernible] Hep B. Won’t you see that as a pathway as you progress your preclinical pipeline in hepatitis B, do you think there is utility for that in combination?
Yes, it’s a very interesting question, Brian and one that we have asked here lots and lots of times over the last couple of years even before it became public that we were working on Hep B. There is a threat out there on the use of cyclophilin inhibitors in Hep B, certainly we and others have looked at that I think some of the literature data there is a little bit mixed. But you know what it appears to be that we can say about it and even 494 is sort it appears to be at least an entry inhibitor but I don’t -- we don’t quite yet know if the activity of cyclophilin and Hep B is quote profound enough for us to pursue it.
I think our [Indiscernible] had cyclophilin inhibitors in clinical development, no I’m sorry it wasn’t in clinical development but it had a preclinical program and AbbVie and they ultimately dropped it because they couldn’t convince themselves. You know, believe me, I would love for it to be true if it were because we would have multiple mechanisms that we could carry forward. But suffices to say, we are looking at that, we looked at it reasonably hard, but so far I’m not ready to say that 494 has sort of an alternative path available to it and have be it.
Great. Thanks Jay.
And there are no further questions at this time.
Okay. Thanks everybody for joining us. 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. All participants may now disconnect.
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