Earnings Call Transcript - ENTA Q3 2020

Operator, Operator

Good afternoon and welcome to Enanta Pharmaceuticals' Fiscal Third Quarter Conference Call. I will now turn the call over to Jennifer Viera, Senior Director of Investor Relations. Please go ahead.

Jennifer Viera, Senior Director, Investor Relations

Thank you, operator, and thanks to everyone for joining us this afternoon. The news release with our financial results for the recent quarter 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, I want to remind you that we will be making forward-looking statements, which may include our plans and expectations with respect to our product candidates and financial projections, all of which involve certain assumptions and risks beyond our control that could cause our actual developments and results to differ materially from those statements. A description of these risks is in our most recent Form 10-Q and other periodic reports filed with the SEC. 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. Jay?

Jay Luly, President and CEO

Thank you, Jennifer. Good afternoon, everyone. Thank you for being with us today. I'm happy to share the progress we've achieved this quarter in our pipeline, which focuses on our areas of expertise: virology and liver disease. Our programs cover respiratory syncytial virus, hepatitis B virus, human metapneumovirus, SARS-CoV-2, and non-alcoholic steatohepatitis. I will go over clinical and preclinical updates regarding our pipeline, and Paul will discuss our financials for the quarter. Before I start my formal comments, I want to welcome Mark Foletta, who we announced as a new Board member in June. We are excited to have Mark on board, chairing the Audit Committee and participating in the Nominating and Governance Committee. He brings extensive experience in finance and governance, having previously served as Chief Financial Officer for various biopharma companies like Amylin Pharmaceuticals. His expertise will be vital as we advance our pipeline of innovative treatments for viral infections and liver diseases. I also want to highlight the resilience of our team at Enanta. Throughout the ongoing COVID-19 pandemic, they have remained dedicated to progressing our business and maturing our pipeline. We currently have clinical studies in progress with three different compounds, we're preparing to advance a fourth compound into the clinic this quarter, and we're continuing our development work for human metapneumovirus and SARS-CoV-2. I'll start with our virology-focused programs, where we are applying our antiviral drug discovery expertise to develop multiple product candidates. Our leading candidate, EDP-514, is currently being tested in both viremic HBV patients and those suppressed by nucleoside treatment. We're committed to finding a treatment for HBV, which impacts over 250 million people globally. In early July, we initiated a Phase Ib clinical trial in viremic HBV patients. This randomized, double-blind, placebo-controlled study is designed to assess the safety, tolerability, pharmacokinetics, and antiviral activity of orally dosed EDP-514 over 28 days. We plan to enroll 24 subjects in this study across clinical trial sites in Hong Kong and Taiwan, regions with a significant unmet need for HBV treatment. As we monitor the effects of COVID-19 in these areas, we expect to see preliminary data from this trial in the first half of 2021. We have also resumed our randomized, double-blind, placebo-controlled Phase Ib study in chronic HBV patients receiving nucleoside reverse transcriptase inhibitors, previously paused due to the pandemic. This study, Part 2 of our Phase Ia/Ib study, will assess the same parameters as the first trial and is also set to enroll 24 subjects. If there are no further disruptions from COVID-19, we anticipate preliminary data by the second quarter of 2021. Don't forget that we will present first-in-human data from Part 1 of our Phase I study and a poster presentation at EASL's Digital International Liver Congress this August. Now, let’s talk about EDP-938 and our program for respiratory syncytial virus, or RSV. RSV is a serious respiratory infection that affects infants, the elderly, and immune-compromised individuals, and there is currently no safe and effective treatment. EDP-938 is a potent non-fusion inhibitor for RSV A and B, and it has shown promising results in a Phase II human challenge study. We are currently setting up sites in the Southern Hemisphere for our ongoing Phase IIb study of EDP-938 and preparing our North American sites to reactivate as RSV season approaches this fall and winter, while also adding new sites in Europe. RSVP is a double-blind, placebo-controlled Phase IIb study set to enroll about 70 subjects up to 75 years old, who will receive either 800 milligrams of EDP-938 or placebo for five days. The primary goal is to evaluate EDP-938's effect on RSV infection progression and secondary assessments will look at viral efficacy. While it is too soon to predict how COVID-19 will affect RSVP timelines, assuming full enrollment this winter in the Northern Hemisphere, we expect data by the third quarter of 2021. Additionally, we plan to launch two more Phase II studies with EDP-938, one involving pediatric patients and the other focused on adult transplant patients, by the end of this year. The pediatric study will be a dose-ranging trial in hospitalized or non-hospitalized infants and children testing positive for RSV. The adult transplant study will investigate EDP-938's effects in adult hematopoietic cell transplant recipients with acute RSV infections. Turning to our work on SARS-CoV-2, we are focused on developing candidates using our strengths in compound optimization and drug development. Our goal is to identify vulnerabilities in the virus to create effective direct-acting antivirals. We are actively advancing our chemistry and biology efforts and hope to achieve important milestones in the coming months. Earlier this year, we also started a drug discovery program for human metapneumovirus, known as hMPV, which similarly affects young children, the elderly, and immunocompromised patients. We are optimizing our current inhibitor leads and are determined to find our first clinical candidate. Looking at our efforts in non-viral liver disease, particularly NASH, we are conducting clinical studies with EDP-305, our first FXR agonist. Following data from ARGON-1, which we will present orally at EASL, we began recruiting for ARGON-2 in July. This is a Phase IIb randomized, double-blind, placebo-controlled study involving about 340 subjects with biopsy-confirmed NASH, aiming to improve fibrosis or achieve NASH resolution without worsening fibrosis. We are testing EDP-305 at doses of 1.5 milligrams and 2 milligrams to ensure strong engagement and a balanced profile regarding efficacy and tolerability. ARGON-2 includes a 12-week interim analysis, which we aim to complete by mid-2021 to better understand dosing for potential combinations in NASH. We are also developing EDP-297, our follow-on FXR agonist candidate for NASH, and are on track to begin a Phase I study later this quarter with data expected in the second quarter of 2021. We are excited about EDP-297 due to compelling preclinical data indicating its high potency and specificity for key tissues compared to other FXR agonists. Specifically, it targets the liver and intestine rather than plasma and skin. We believe that a highly selective and effective FXR agonist can facilitate lower doses and better tolerability. At EASL later this month, we plan to showcase two posters detailing EDP-297's preclinical profile. In conclusion, we look forward to advancing our HBV trial in viremic patients with preliminary data expected in the first half of 2021. We also anticipate preliminary results for our trial in nuc-suppressed HBV patients by the second quarter. Our RSVP trial is progressing in the Southern Hemisphere, and we are prepared to activate our North American sites while adding more in Europe this RSV season. We are eager to initiate our pediatric and adult transplant RSV studies next quarter. Lastly, we are excited to advance our candidates in NASH with the initiation of the ARGON-2 trial for EDP-305 and the upcoming Phase I study for EDP-297 this quarter. I will now hand the call over to Paul for a discussion of our financials for the quarter. Paul?

Paul Mellett, Chief Financial Officer

Thank you, Jay. I'd like to remind everyone that Enanta reports on a September 30 fiscal year schedule. Today, we are reporting results for our third fiscal quarter ended June 30, 2020. For the quarter, total revenue was $18.7 million and consisted entirely of royalty revenue earned on AbbVie's global HCV net sales of $376 million. This compares to total revenue of $44.4 million for the same period in 2019. The decrease in royalty revenue is a result of AbbVie's lower net sales, which were significantly affected worldwide by the decline in patient volumes due to the COVID-19 pandemic. AbbVie now expects HCV sales of approximately $2.1 billion for calendar year 2020 as treatments remain below pre-COVID levels. Royalty revenue was calculated on 50% of MAVIRET's sales at a royalty rate of 10% after adjustments for certain contractual discounts, rebates, and set-offs, which are now just over 2% of AbbVie's total reported HCV sales. I'll remind everyone that our royalties, which are calculated separately for each product, are determined on a calendar year basis through a tiered schedule of rising royalty rates. The royalty schedule restarted at our lowest royalty rate of 10% in our quarter ending March 31. This means that royalties in the same amount of quarterly MAVIRET sales would typically increase each quarter, with our royalties for the quarter ending December 31 having the highest blended royalty rate. You can review our royalty tier schedule in our 2019 Form 10-K. Moving on to our expenses. For the three months ended June 30, 2020, research and development expenses totaled $34.7 million compared to $34.5 million for the same period in 2019. General and administrative expense for the quarter was $6.8 million compared to $6.2 million for the same period in 2019. This increase is due to an increase in compensation expense for the quarter. Enanta recorded an income tax benefit of $7.1 million for the three months ended June 30, 2020, compared to an income tax benefit of $0.9 million for the same period in 2019. The income tax benefit for the quarter was driven by our net loss for the period, federal research and development tax credits, and a federal net operating loss carryback. Enanta's effective tax rate for the nine months ended June 30, 2020, was approximately 58% compared to less than 1% for the same period in 2019. The effective tax rate for 2020 reflects increasing federal research and development tax credits and a federal net operating loss carryback. Net loss for the three months ended June 30, 2020, was $14.3 million or a loss of $0.71 per diluted common share compared to net income of $7 million or $0.33 per diluted common share for the corresponding period in 2019. Enanta ended the quarter with approximately $435 million in cash and marketable securities, an increase of approximately $35 million from our 2019 fiscal year-end balance of $400.2 million. We expect that these cash resources as well as our continuing royalty revenue will continue to 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 on our Form 10-Q for the quarter when filed. I'd now like to turn the call back to the operator and open up the lines for questions. Operator?

Operator, Operator

Your first question comes from Eric Joseph with JPMorgan.

Eric Joseph, Analyst

Just a couple from us. First on EDP-514. Jay, I was just wondering if you can sort of frame expectations for us in the Phase Ib in nuc-suppressed patients with data expected in the second quarter. How should we be thinking about data that would be established in a go-forward dose regimen there? And what compelling results would look like in terms of viral? Well, sorry, yes, what the objectives there are in terms of establishing a go-forward dosing in that study.

Jay Luly, President and CEO

Sure, thanks, Eric. This is Jay. Yes, the nuc-suppressed study is one of the two studies we have currently underway. Let me compare the two studies as I respond to your question to give you a sense of both. They are both 28-day studies, but they differ significantly. The participants in the nuc-suppressed study are already on an existing nuc therapy, meaning their DNA levels are already reduced. The key aspects we aim to assess in the nuc-suppressed study include safety, tolerability, and pharmacokinetics in the context of nuc therapy. Nucs are the current standard of care for hepatitis B treatment, and this study primarily focuses on ensuring that 514 is compatible with nucs. We will also gather some antiviral data, including RNA and s antigen and e-antigen information, although we should keep our expectations in check due to the study's 28-day duration. For the viremic study, the approach is somewhat different. It is also a 28-day study, but we will focus on patients who have not received HBV therapy for at least a year and have significantly elevated DNA levels, representing a different patient population. In this case, we will conduct dose-ranging to evaluate safety, tolerability, and pharmacokinetics of the drug on its own. We will also examine virologic markers such as DNA, RNA, s antigen, and e-antigen, again over a 28-day timeframe. Ideally, we are looking for a solid 2-log decrease or more in that viremic study to indicate that 514 is performing well. We will compile all this information to determine the appropriate doses moving forward.

Operator, Operator

Your next question is from Brian Skorney with Baird.

Brian Skorney, Analyst

Just when we sort of think about the ARGON trial design and post when we get that data, kind of your thoughts on how you think about kind of Phase III and what the regulatory hurdle is here. I mean we've all seen OCA, the first FXR agonist, get a rejection by the FDA, although seemingly hitting what's within the FDA guidance. Just interested in getting your thoughts, Jay, on your view of that outcome and how we should be thinking about the development of FXR for a U.S. approval in the future.

Jay Luly, President and CEO

Certainly. The broader community, including key opinion leaders, Wall Street, and some of Intercept's competitors, appeared surprised by the complete response letter. We need more information regarding the Phase III studies to better understand the FDA's perspective on Intercept's submission. I understand that Intercept is having discussions with the agency, which should lead to greater transparency over time regarding the situation and potential future developments for Intercept and other companies. This is a complex issue that will require observation as it unfolds, but it is certainly a compelling development for us. Our approach is clear; we are not currently engaged in or beginning a registration study. If there are any changes in the regulatory framework or other influences on the path forward, we will have ample opportunity to assess and integrate that into our future studies. For the ARGON study, specifically ARGON-2, it focuses on adjusting the doses we evaluated in ARGON-1. We are increasing the lower dose and decreasing the upper dose while closely monitoring target engagement and tolerability. This is a refinement of our dose selection. We will conduct an interim analysis around the middle of next year, which will provide us with insight into how those doses perform and guide our future decisions. Furthermore, while you didn't inquire about molecule 297, it's progressing well on a parallel track, and we aim to initiate Phase I this quarter. We'll assess key parameters, starting with healthy subjects to evaluate both target engagement and tolerability, and to determine if our design thesis for the follow-on FXR agent is validated in clinical settings. This should be an exciting development to follow in the upcoming quarters, with data on the 297 molecule expected in the second quarter of next year.

Operator, Operator

Your next question is from Roy Buchanan with JMP Securities.

Douglas Buchanan, Analyst

I had a few questions about RSV. Can you provide details on how the RSV season is shaping up in the Southern Hemisphere? Additionally, how many sites are you planning to target in Europe? I also have a couple of questions regarding the Phase II trials you are planning for pediatric and transplant patients. Will those trials be exclusively in the U.S.? I have one more follow-up question.

Jay Luly, President and CEO

Regarding RSV in the Southern Hemisphere, winter is just beginning, and it will be interesting to observe how things develop. Australia and New Zealand opened up earlier after their lockdowns, but we are monitoring the flu numbers as the flu season is arriving late in the Southern Hemisphere. There was a significant travel ban that prevented many people from the Northern Hemisphere from visiting just before their winter. They could learn from the Northern Hemisphere's experiences and implement some best practices for prevention early. As they continue to open up and move into winter, we will see if there will be a typical cold and flu season and RSV season or if it will be somewhat reduced. We can't know for certain yet, and we'll have to see how it evolves over the coming months. We anticipated this situation during our planning phase, which is why we intend to return to the Northern Hemisphere, where we already have multiple sites in North America and plan to add more in Europe. Overall, with sites in the U.S., Canada, and Europe, we expect to have over 100 locations. We are also considering additional closures in Asian countries if appropriate. The team has done an excellent job navigating the current challenges with respiratory viruses. We believe we are well-equipped and prepared, including having the necessary testing equipment for diagnostics. Did I address your question about pediatrics?

Douglas Buchanan, Analyst

I was just wondering if the pediatric and transplant trials will only be conducted in the U.S.

Jay Luly, President and CEO

So we'll be starting in the Northern Hemisphere. But ultimately, we'll be adding on other ex-U.S. sites as well.

Douglas Buchanan, Analyst

Okay. Great. I actually had a follow-up, and you somewhat addressed it with your response about the Southern Hemisphere. The RSV season in the U.S. last year seemed to decline rapidly, and I was curious if that could be due to people getting tested for COVID and not following up when the results were negative, or if social distancing reduced the bystander effect.

Jay Luly, President and CEO

It actually came and went before COVID was a term, which was surprising. Typically, RSV in the Northern Hemisphere peaks around January and February, continuing into March and sometimes into Q2. However, last year was unusual; it peaked in December and declined rapidly and unexpectedly. I hope this is just an anomaly. The difference between this year and last year is notable. Last year, we were finishing the challenge study and quickly starting the RSVP study, with expectations that January, February, and Q2 would be significant periods, which they mostly were. This year, we still have all the previous sites and are supplementing with several European locations and will work on expanding into the Southern Hemisphere. We will continue to monitor the situation while adding more sites.

Operator, Operator

Your next question is from Brian Abrahams with RBC Capital Markets.

Leonid Timashev, Analyst

This is Leo on for Brian. I have one on the human metapneumovirus. So you guys have hinted at some of the leads you've identified. Can you remind us what the timelines are for this program to enter the clinic and perhaps what the ultimate opportunity you see for this program? And how much work is going to need to be done to educate physicians and patients about this respiratory virus? And I guess, will there be any synergy with the RSV program there?

Jay Luly, President and CEO

Thank you for the question. I anticipated that human metapneumovirus would be discussed, and it certainly should be. Everyone is well aware of RSV and the threat it poses to various patient groups, especially the young, elderly, and immunocompromised. In certain seasons, RSV can be quite severe, comparable to flu in some demographics. Human metapneumovirus is the second leading cause of illnesses similar to those caused by RSV. It primarily affects the same patient groups and presents with similar symptoms and patient journeys. It begins as an upper respiratory condition but can progress to lower respiratory issues, including pulmonary inflammation and cytokine storms. This virus is less recognized because it was first identified about 20 years ago. However, at respiratory infection conferences, human metapneumovirus is frequently acknowledged by healthcare professionals. Given its relative novelty and the recent absence of new treatments for human respiratory viruses, there will be greater focus on human respiratory viruses, especially with the emergence of EDP-938, which offers a different approach than the small molecules used for RSV. Additionally, with COVID-19 complicating diagnostics, there's an increasing drive to correctly identify these viruses when patients present with symptoms, which fuels our interest in developing strategies for human respiratory viruses. We initially focused on human metapneumovirus considering it as a complementary area to our work on RSV from a commercial standpoint. Diagnosing and treating these conditions makes sense, as a successful drug for one could translate to the other. The only other company considering this similarly is likely Moderna, although their approach involves vaccines, which have historically struggled with RSV. Our aim is to introduce a novel class of drugs for a treatment where no effective options currently exist. As for our progress, we announced our drug discovery program in January at the JPMorgan conference, and we have identified promising nanomolar molecules. We're currently refining these leads, optimizing them to meet the criteria for a successful clinical candidate. I hope to share more developments soon, but we need to ensure that we check all essential boxes. This program aligns well with our other initiatives.

Operator, Operator

Your next question is from Jay Olson with Oppenheimer.

Jay Olson, Analyst

I'm curious about the work you're doing on SARS-CoV-2, and I'm wondering if there's any recent research on the virus itself or any of the work that's been published on therapeutic antibodies or vaccines that has informed your discovery efforts for DAA. And then maybe if you could comment on how close you are to nominating a candidate.

Jay Luly, President and CEO

Sure. Thanks for the question. Fortunately, there are many people working to solve this problem, and we can only hope that vaccines are effective and can reach as many individuals as possible. However, our strategy hasn’t been shaped by the vaccine approach. While others are exploring spike proteins and various targets to develop biologics, what we are doing is somewhat different but aligns with our respiratory viral programs. We believe that regardless of vaccine availability or effectiveness, there will always be individuals with infections, especially since SARS-CoV-2 doesn’t appear to be diminishing as previously hoped. If we look ahead a few years, even with vaccines, there will still be a significant need for therapeutics, and we want to address these needs in a targeted manner. Imagine a scenario where individuals are symptomatic, get tested for COVID or RSV or human metapneumo in a clinic, and then receive a direct-acting antiviral that can quickly reduce viral load and alter the course of their infection. We have already demonstrated this with RSV, where patients showed significant improvements within 24 hours of starting the medication. If we can achieve similar results with COVID, patients could recover more quickly, avoid spreading the virus to others, and return to work sooner. Our focus is on early intervention with an oral treatment to effectively manage the virus, offering a crucial opportunity that may not be receiving as much attention as vaccines at this time.

Operator, Operator

Your next question is from Akash Tewari with Wolfe Research.

Amy Li, Analyst

This is Amy Li on for Akash. I just had a couple on your RSV program. First, on your powering and RCP, can you go over your assumptions in general on how you accounted for the differences in time to administration between the Phase IIa and Phase IIb given that patients in Phase IIb will likely be administered drug later into their course of disease? Also, will your powering allow you to properly stratify for baseline factors and endpoints such as time to symptom onset, baseline viral titer, different cuts of symptom/benefit, et cetera? And then in regards to the pediatric and adult HSCT RSV trials, will you also have a 48-hour symptom cut-off like RCP? And what type of clinical endpoints would you be evaluating in these studies? Anything you can share on the design would be very helpful.

Jay Luly, President and CEO

I'm sorry. Can you share any information about the design of the pediatric or transplant studies? Is that what you meant?

Amy Li, Analyst

Yes.

Jay Luly, President and CEO

Yes. I'll start with that question first. I'm not sure we'll be able to cover all the different powering discussions right now as my biostatisticians aren't available at the moment. However, I assure you that they have carefully considered the challenge study and made further assumptions related to the outpatient study, where we will assess subjects within 48 hours and have structured the study according to those parameters. Regarding the pediatric study, we will focus on hospitalized or non-hospitalized infants and children aged 28 days to 24 months. Safety will be our top priority, alongside pharmacokinetics. We will also gather virologic parameters early on. As for timing, for the outpatient non-hospitalized subjects, we are looking within a 48-hour timeframe, while for the hospitalized pediatric group, we have set a 72-hour timeframe. With the hematopoietic cell transplant population, we will recruit individuals who have acute RSV infections of the upper respiratory tract. Our goal is to evaluate the incidence of lower respiratory tract complications, along with secondary endpoints including safety and pharmacokinetics, while also monitoring virologic parameters. We will focus on including individuals who present within 3 days of symptom onset since these patients typically have compromised immune systems, leading to persistent symptoms.

Operator, Operator

There are no further questions in queue at this time. I will now turn the call back over to Ms. Jennifer Viera.

Jennifer Viera, Senior Director, Investor Relations

Thank you, everyone, for joining us this afternoon. If you have any additional questions, please feel free to give us a call in the office or email me. Thanks again. Have a good evening.

Operator, Operator

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