Earnings Call Transcript - ENTA Q2 2020

Operator, Operator

Good afternoon, and welcome to Enanta Pharmaceuticals Fiscal Second Quarter Financial Results Conference Call. There will be a question-and-answer session at the end of the prepared remarks. I would now like to turn the call over to Jennifer Viera, Senior Director, Investor Relations. Thank you. 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 fiscal second quarter 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, which may include our plans and expectations with respect to our research and development pipeline 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 these 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. I'd like to take a moment to acknowledge the extraordinary times we are experiencing during the COVID-19 pandemic. Our thoughts are with those who are directly affected. And we are grateful for the heroic efforts of caregivers, first responders and many others who are making great sacrifices for the common good, as we navigate through the worst weeks of this crisis. The safety and well-being of our employees is paramount and we will continue to prioritize it as we move forward. I want to thank our employees for their unwavering dedication to our mission during these last several weeks. In a period of great upheaval and uncertainty, their commitment has allowed us to maintain continuous business operations and momentum that will enable us to execute on our business plans and milestone goals to the best possible extent given the circumstances. This global healthcare crisis has strengthened our resolve to advance novel therapies for unmet needs. And our core expertise in both virology and respiratory diseases positions Enanta to be part of the solution for COVID-19, and other emerging viral threats. To that end, I'll start by highlighting the newest disease program in our respiratory virus pipeline, namely, COVID-19. As you know, in mid-March, we announced that we initiated a program to discover direct-acting antiviral drug candidates for the treatment of patients infected with COVID-19. Based on our proven track record in virology and our capabilities in respiratory diseases, we believe we can leverage our core competencies to discover a potential treatment for COVID-19. That said, we are leveraging our experience and taking a two-pronged approach for our COVID-19 Discovery efforts. Not only are we testing compounds from our antiviral compound library for potential activity against the virus, we are using our background and expertise in direct-acting antiviral mechanisms to discover new candidates to treat COVID-19. We mobilized our virologists and chemists to begin this discovery program, which involves finding leads and ultimately candidates. Among other mechanisms of interest, an initial focus for us are SARS-CoV-2 protease inhibitors. These are direct-acting antivirals. Not a simple endeavor, but this is what Enanta does and what it does well. We'll continue to update our COVID-19 efforts in the coming quarters. I will now turn to our lead respiratory virus program EDP-938 for respiratory syncytial virus or RSV. To remind everyone, RSV is a severe respiratory infection associated with significant morbidity and mortality in infants, the elderly and immune-compromised adults, and a condition for which there is currently no safe and effective therapy. Each year in the United States, approximately 57,000 children below age five and 177,000 older adults are hospitalized for RSV, and about 14,000 die from this respiratory infection. We have completed the RSV season in the United States and are on track with plans to move our Phase 2b study, known as RSVP into the Southern Hemisphere. Given uncertainty is created by the spread of COVID-19 in that region, we're also keeping our North American sites ready for reactivation in the fall and winter RSV season. We are planning to add a substantial number of sites in Europe. If we can complete enrollment for this study in the Northern Hemisphere next winter, we would expect to have data in the third calendar quarter of 2021. As a reminder, RSVP is a randomized double-blind placebo-controlled study of EDP-938 designed to enroll approximately 70 subjects up to the age of 75 years, randomized to receive either 80 milligrams of EDP-938 or placebo for five days. The primary objective of this study is to evaluate the effect of EDP-938 on the progression of RSV infection by assessment of clinical symptoms measured over the course of the 14 days study observation period. Antiviral efficacy will be evaluated as a secondary endpoint. Obviously, the COVID-19 pandemic currently has an impact on any respiratory disease study, and RSVP, we are in the process of modifying our protocol to do testing to exclude the presence of COVID-19 in any potentially eligible patient with RSV. We continue to collaborate with Cepheid on its real-time PCR machines, which can now test for RSV, flu A, flu B, and COVID-19. These are the machines that we've used at our North American testing sites. We're in the process of getting additional machines set out from the Southern Hemisphere sites. We're also on track to initiate two additional Phase II studies, one in pediatric patients and one in adult transplant patients by the end of this year concurrent with the RSVP study. Fortunately, today, it appears that the health effects of COVID-19 in children have not been as severe as in adults. And we anticipate parents will continue to take ill children to the doctor, even if the pandemic continues into the winter RSV season in the Northern Hemisphere. And given their immune-suppressed condition, we would hope that transplant patients will be on high alert for respiratory illness and be willing to participate in a clinical study. However, we recognize there are potentially more challenges for the transplant study depending upon how the pandemic moves later in the fall. Regarding the third respiratory virus in our portfolio, we introduced our discovery program for human metapneumovirus, also known as hMPV at the beginning of the year. hMPV is a pathogen that causes upper and lower respiratory tract infections in young children and the elderly as well as in COPD, asthma and immunocompromised patients. In fact, it's the second most common cause of lower airway infection in children less than five years of age behind RSV that accounts for more than 20,000 hospitalizations in this age group each year. hMPV also presents a significant health challenge in the elderly and immunocompromised individuals with more than 100,000 hospitalizations annually. We continue to perform optimization of our current nanomolar hMPV inhibitor leads as we work toward identifying our first clinical candidate for this indication. I'll now move to our portfolio of products, focused on the treatment of liver-related conditions. First, let me update you on our clinical stage hepatitis B program with EDP-514, our novel class II HBV core inhibitor. Last month, we announced that we are pausing further recruitment in part two of our Phase 1a/1b study of EDP-514 in nuc-suppressed HBV patients in North America, which initiated earlier in this quarter. Nuc-suppressed refers to patients with chronic HBV infection that is being suppressed with nucleoside reverse transcriptase treatment, the current standard of care. We plan to enroll a total of 24 subjects among three escalating dose cohorts with the study drug dosed for 28 days. We're regularly evaluating the circumstances around this study and are hoping to resume enrollment within the next couple of months, depending upon whether enough of our clinical sites are able to open. Given FDA guidance on the conduct of clinical trials during the COVID-19 pandemic, and its emphasis regarding the safety of trial participants and the integrity of clinical trial data conducting short term trials in patients with chronic disease during the pandemic is not practicable nor recommended. As such, we'll continue to follow regulatory guidance to determine when it is safe to resume the study. We're also pleased to be on track to initiate our Phase 1b study this quarter in HBV patients who are not on therapy and who have high levels of the virus in their blood, who are also referred to as viremic. We are optimistic about this study moving forward in viremic patients, given that our sites are in Hong Kong and Taiwan, areas where COVID-19 appears to be under better control than in Western countries, and where there is a large unmet need for HBV treatment. As a reminder, this study will assess the impact of EDP-514 on viral load in patients not on other HBV therapies. We are excited about this study because we expect that it will produce our next clinical data readout, which we are targeting for around year-end. I'll now move to EDP-305, our farnesoid X receptor or FXR agonist in development for both PBC and non-alcoholic steatohepatitis or NASH. But first, let me focus on our efforts in primary biliary cholangitis or PBC. Earlier today, we announced data from our Phase 2a INTREPID study. INTREPID was 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 primary endpoint of the study was to evaluate the proportion of subjects with at least 20% reduction in ALP from pre-treatment value, or normalization of ALP, at week 12. In the intent-to-treat or ITT analysis, treatment with 1 milligram and 2.5 milligrams of EDP-305 resulted in 45% and 46% ALP responses, respectively, compared to 11% in placebo. These response rates, while numerically higher than placebo were not statistically significant. However, in an analysis of the subjects who completed study treatment with no missing value at week 12, the proportions of ALP responders in the 1 milligram and 2.5 milligram arms showed statistically significant response rates of 50% and 62%, respectively, compared to 11% in placebo. Key secondary objectives were to evaluate the safety and tolerability of EDP-305 as well as changes from baseline in the liver enzymes ALT, AST or GGT. Data from the full ITT population showed statistically significant reductions in absolute amounts of these key biomarkers compared to placebo at 1 milligram and 2.5 milligrams of EDP-305. A statistically significant difference in the percent changes from baseline of these key biomarkers at week 12 was also observed in both EDP-305 arms compared to placebo. In terms of safety, EDP-305 was generally well tolerated in subjects with PBC, with the majority of treatment-emergent adverse events or TEAEs being mild to moderate. The most common TEAEs included pruritus, gastrointestinal-related symptoms, headache and insomnia. These TEAEs are consistent with the safety profile observed across more than 400 subjects exposed to EDP-305 for up to 12 weeks. The incidence of treatment discontinuation due to pruritus in INTREPID was approximately 3% for the 1 milligram EDP-305 treatment group, 18% for the 2.5 milligram treatment group and 0% for the placebo treatment group. While we did not meet the primary endpoint for PBC in the ITT analysis, we plan to use these data to help inform our development of EDP-305 for NASH. Specifically, we are encouraged that the lower dose of 1 milligram achieved better tolerability in terms of pruritus, without significantly reducing the number of ALP responders and while still having statistically significant effects on key biomarkers of target engagement. We see this as helpful information for the intermediate doses of 1.5 milligrams and 2 milligrams that we plan to use in our ARGON-2 study in NASH patients. We believe that the dose of 1.5 milligrams or 2 milligrams in NASH could potentially achieve an efficacy and tolerability profile comparable to that of the 1.0 milligram dose in PBC. For more information on the INTREPID study, please see the slide deck that we will post on our website after this call. Rather than conducting further dose selection studies with EDP-305 in PBC, a disease for which there is already an approved second-line FXR agonist therapy, and for which generic fibrates are showing benefit in some studies, we intend to focus our future efforts with EDP-305 on NASH. We see NASH as a disease where FXR agonists like EDP-305 have the potential to be important components of drug combinations designed to give maximum benefit to patients. At our NASH program, we remain focused on evaluating EDP-305 in ARGON-2, a Phase 2b randomized, double-blind, placebo-controlled 72-week study in approximately 340 subjects with biopsy-proven NASH. While we were ready to begin dosing ARGON-2 on schedule in March, we decided to pause recruitment and dosing in the study due to the ongoing COVID-19 pandemic. We did this having in mind the safety of our clinical trial participants as well as resource constraints to clinical trial sites. As a reminder, the primary endpoint of ARGON-2 will be improvement in fibrosis without worsening of NASH and/or NASH resolution without worsening of fibrosis. We plan to use doses of 1.5 milligrams and 2 milligrams, which we selected to provide strong target engagement and a balanced profile in terms of efficacy and tolerability. ARGON-2 will include a 12-week interim analysis to generate dose information more quickly for potential combinations with other mechanisms in NASH. We're hopeful that we will be able to resume this trial within the next couple of months, depending upon whether enough of our clinical trial sites for this study are able to open up in the context of the COVID-19 pandemic. Also in our NASH program, we are developing EDP-297, our follow-on FXR candidate. We're excited about the compelling preclinical data we have previously shared that demonstrate the high potency and tissue-targeting characteristics of EDP-297 compared to other FXR agonists in development. Subject to a determination that it is safe to initiate the healthy volunteer study at the trial site in Europe in the context of the COVID-19 pandemic, we now plan to initiate a Phase I study of EDP-297 later in the third quarter, which would likely produce a readout in the second quarter of 2021. Beyond our pipeline, I would like to take a moment to comment on MAVYRET, our treatment for hepatitis C developed in collaboration with AbbVie. AbbVie recently announced that it is experiencing lower new patient volumes of hospital-based treatments in several international markets where hospitals are limiting access to non-emergency, non-COVID-19 patients. If the COVID-19 pandemic continues for a prolonged period, we expect this to adversely affect AbbVie's MAVYRET sales during that period. However, we also expect that those sales will likely shift to subsequent periods, since there is no expectation that existing infections will decline materially other than by eventual treatment. We also note that AbbVie has now guided that it expects its calendar 2020 HCV sales to be approximately $2.3 billion. Also worth noting that the CDC guidelines issued in April 2020 now recommend that all adults ages 18 to 75 be tested for hepatitis C virus. In closing, I'd like to point to a few key takeaways. Despite a challenging backdrop of COVID-19, which could have effects we don't currently expect, Enanta remains well positioned to execute on our business plans and advance our growing pipeline of novel therapies for respiratory viruses and liver diseases. The unusual combination of our strong balance sheet and ongoing royalty revenue allows us to capitalize on the opportunities ahead and to advance our wholly-owned pipeline independent of capital market conditions. We are on track with several milestones. First, our Phase 1b study of EDP-514 in viremic hepatitis B patients is slated to begin this quarter. Second, we are planning to initiate our first in human study of EDP-297 for NASH next quarter. Regarding our RSV program, our two Phase II studies in pediatric patients and adult transplant patients are still on track to begin in the fourth quarter. Finally, we are advancing our RSVP study in the Southern Hemisphere, while also keeping our Northern American sites ready for reactivation for the upcoming fall and winter RSV season. And later this year, we are planning to add a substantial number of sites in Europe. Assuming we can complete the study in the next Northern Hemisphere season, we would expect to have RSVP top line data in the third calendar quarter of 2021. Overall, we are in a very solid position with several opportunities in place. With that, I will now turn the call over to Paul to discuss our financials for the quarter. Paul?

Paul Mellett, Chief Financial Officer

Thank you, Jay. I would like to remind everyone that Enanta reports on a September 30th fiscal year schedule. Today, we are reporting results for our second fiscal quarter ended March 31, 2020. For the quarter, total revenue was $27.6 million and consisted entirely of royalty revenue earned on AbbVie's global HCV product sales. This compares to total revenue of $39.6 million for the same period in 2019. AbbVie stated that its lower HCV sales were due to a decline in treated patient volumes in select international markets and increased competition affecting pricing and market share within the US Managed Medicaid segment. Royalty revenue for the quarter was calculated on 50% of MAVIRET sales at a royalty rate of 10% after adjustments for certain contractual discounts and rebates, which historically have been approximately 1.6% of AbbVie's total reported HCV product sales. As a reminder, our royalties are calculated on a calendar year basis. Therefore, royalties for our fiscal second quarter ending March 31 are calculated at the lowest royalty rate tier for our fiscal year. You can review our royalty tier schedule in our 2019 Form 10-K. Moving on to our expenses. For the three months ended March 31, 2020, research and development expenses totaled $32.6 million, compared to $34.2 million for the same period in 2019. The decrease was primarily due to a decrease in clinical trial expense due to the timing of costs in the prior year for Phase II studies in NASH and PBC. General and administrative expense for the quarter was $6.9 million compared to $6.8 million for the comparable quarter in 2019. Enanta recorded an income tax benefit of $3.9 million for the three months ended March 31, 2020 compared to an income tax benefit of $3.2 million for the same period in 2019. In the current quarter, we recorded an income tax benefit driven by our pre-tax loss and increased research and development tax credits. In the prior year, Enanta recorded an income tax benefit despite reporting a pretax income due to tax deductions from employee stock award-related activity during the quarter. Net loss for the three months ended March 31, 2020 was $6 million, or a loss of $0.30 per diluted common share, compared to net income of $4.1 million, or $0.20 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 million. We expect that these cash resources as well as our continuing royalty revenue 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 quarterly report on Form 10-Q when filed. I'd now like to turn the call back to the operator and open up the lines for questions.

Operator, Operator

Your first question is from the line of Yasmeen Rahimi with Roth Capital Partners.

Yasmeen Rahimi, Analyst

Hi, team. Thank you for all the updates. Two questions for you. The first one is, can you kindly shed some light on why the INTREPID study may have missed on its primary endpoint? Is there any reason that maybe you could have recruited more severe PBC patients that could contribute or we also noticed that the placebo response was higher than we had hoped for. Any color in that regard could be helpful for us. And then the second question is, can you give us an update on where you are in regards to your antiviral development against SARS-CoV-2? How much progress has been made just since the announcement was made a few weeks ago? And thank you so much for taking our question.

Jay Luly, President and CEO

Thanks, Yas. This is Jay. I'll address the COVID question and then ask Nathalie to discuss the INTREPID question. Regarding COVID, we announced our program in March after observing the coronavirus escalate, which quickly became evident as distinct from other coronaviruses that had previously garnered less attention. Unlike SARS1, which diminished on its own, and MERS, which occurs sporadically in particular regions mostly linked to camels, COVID has shown a different pattern. We mobilized our team a few weeks ago and are employing a multifaceted strategy. Our primary focus is to prepare key elements from our library for testing. Over the years, we've worked on numerous viruses, exploring various mechanisms, and have built a robust library containing a variety of molecules applicable to different tumor types. This external effort is ongoing, though there is a backlog at many facilities equipped for the required biosafety level for SARS-CoV-2. We are addressing that, which is a more passive phase where we hope to discover a promising chemical starting point. To ensure we leave nothing to chance, we are also pursuing a targeted approach, similar to our work on other viruses. This involves analyzing the virus to identify key vulnerabilities and targets, ultimately aiming to develop highly potent, safe, and convenient oral treatments. We are focusing on various targets, including protease, which may not be surprising given our background with hepatitis C. Although we are still in the early weeks under challenging circumstances due to COVID, our teams are actively engaged. We do not have any significant results to share this quarter, but we will keep you updated as the year unfolds. Nathalie, would you like to comment on the INTREPID?

Nathalie Adda, Analyst

Sure. Thank you for your question, Yasmeen. So, maybe a few considerations I can point you out. The choice of the endpoint, as you can notice, we used the proportion of patients with more than 20% reduction, which for a proof-of-concept study of 12 weeks was setting up a primary endpoint as a high bar. So I think it's important just to notice that. If we look at the change over time for ALP, we had a nice reduction over time that was statistically significant. So I believe that there are a few considerations that I can comment on missing the endpoint here. There is probably a lack of power of the study. We decided while back to pause the recruitment because we figured that we had sufficient data that could help us to meet the endpoint with the number of 68 subjects. You are right to absolutely point out the fact that we had a higher placebo effect than other studies. And I think the other consideration in a small sample size was the fact that we had a little bit higher rate of discontinuation that we anticipated because we calculated our sample size and power. That could have also contributed to missing the endpoint. From a numerical standpoint, we have a nice difference even from the placebo. And I think given the small sample size and the randomization ratio that we had for 3 to 1, one subject can make a huge difference as far as expressing significant p-value. So this is what I can share today. We obviously will be looking further to the entire data set, and I hope to bring more color to the result.

Yasmeen Rahimi, Analyst

Thank you, Nathalie, and thank you, Jay, for the color.

Operator, Operator

Your next question is from the line of Brian Skorney with Baird.

Unidentified Analyst, Analyst

Hi, how is it going? Thanks for taking the call. We were wondering about the COVID clinical plans and how they relate to other programs and their varying levels of patient severity, including prophylactic, mild to moderate, and severe cases. How does this influence your outlook on entering clinical development in the future? Thanks.

Jay Luly, President and CEO

Yes, I believe that this is a new challenge for people to address. It will develop over time. Initially, during a crisis, patients are treated at advanced stages of infection, possibly too late. By that point, COVID has progressed from affecting the upper airways to the lower airways, leading to significant inflammation, cytokine storms, and other complications, which is not ideal. Considering antiviral treatments for late-stage disease is quite a lot to expect from any region, including those that have been tested so far. It's understandable why this approach is being taken, as there may not be other options during a crisis. While awaiting more optimized products or vaccines, there's not much else to do. We are not involved in vaccine development and are not looking to treat patients at later stages of their illness. We are thinking somewhat like we do with RSV. Ideally, we want to move toward a situation where patients present similarly to how they do in our RSV study. If they show symptoms for a few days, they can visit a clinic, and rapid diagnostic tests would be available. If the test is positive for COVID, they would receive one treatment; if it’s positive for RSV, another treatment; and for flu, a different treatment. We are likely some distance from managing COVID this way, but it is an aspiration for us to make a significant impact. As we’ve been saying about RSV for a while, early diagnosis and timely treatment are crucial for changing the trajectory of respiratory viral infections. This idea is increasingly understood in the context of COVID, with challenges remaining in testing and managing the later stages of the disease. However, we hope to reach a more stable phase where patient management can improve.

Unidentified Analyst, Analyst

Okay. Thank you so much.

Operator, Operator

Your next question is from Akash Tewari with Wolfe Research.

Akash Tewari, Analyst

Hi. First on RSV, both J&J and ReViral are assessing combo approaches using an F-inhibitor as well as an L or an N-inhibitor due to some synergistic effects and to combat any potential resistance to one MoA. How do you think your monotherapy approach would compare to those kinds of results in regards to safety or efficacy? And would you ever consider a combo approach in later trials? And then, secondly, we know Enanta has a history of success with protease inhibitors, and we recently saw Pfizer identified a coronavirus C3-L inhibitor with minimal or affinity. What do you think would be some of the theoretical pros and cons to targeting this protease in COVID versus some of the other antiviral MoAs like NUCs?

Jay Luly, President and CEO

Sure. Let me address your first question. At the start of our RSV program, we had a fresh opportunity. We could have chosen entry inhibitors or nucleoside analogs, but we opted for the nucleoprotein approach along with other mechanisms. Initially, we set aside the fusion approach, which we are currently developing with EDP-938. There was significant excitement around the F protein approach, especially with Synagis, a monoclonal antibody targeting it. This strategy makes sense for prophylaxis, as the monoclonal antibody can be present before the virus, effectively blocking entry. However, in cases of an active infection where the virus has already invaded many cells, it may be too late for fusion inhibitors to have their maximum effect, especially if patients are treated later in the infection. Hence, we focused on a non-fusion approach with an N inhibitor, which has a very high barrier to resistance. We have demonstrated this preclinically and shown solid virology data supporting it. While fusion inhibitors are promising, they tend to have a low barrier to resistance, which is why it makes sense to combine them with other treatments to prevent resistance mutations. A fusion inhibitor might need an N inhibitor, but the N inhibitor could stand alone. That said, we can't dismiss the potential benefits of combining treatments. We are exploring other RSV approaches to identify mechanisms that could enhance efficacy beyond what we see with N alone. Regarding the protease inhibitor for SARS, as I mentioned, we are interested in direct-acting antivirals. There are various strategies to target the virus, and the protease is a significant target. It’s logical for us to focus on these types of targets. Nucleoside analogs are not without their challenges, so it’s essential to refine their profiles to ensure safety and optimal pharmacokinetics along with antiviral effects. At this stage, we find all direct-acting antiviral targets intriguing as we enhance our understanding of the virus.

Akash Tewari, Analyst

Awesome. Thank you.

Jay Luly, President and CEO

You're welcome.

Operator, Operator

There are no further questions. I will turn the call back over to Jennifer.

Jennifer Viera, Senior Director, Investor Relations

Thank you, everyone, for joining us today. If you have additional questions, feel free to give us a call in the office. Take care.

Operator, Operator

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