Earnings Call Transcript - ENTA Q4 2023

Operator, Operator

Good afternoon, and welcome to Enanta Pharmaceuticals Fiscal Fourth Quarter and Year-End Financial Results Conference Call. At this time, all participants are in a listen-only mode. There will be a question-and-answer session at the end of the prepared remarks. Please be advised that this call is being recorded. I would now like to turn the conference to your host Ms. Jennifer Viera, Investor Relations. Please go ahead.

Jennifer Viera, Investor Relations

Thank you, operator, and thanks to everyone for joining us this afternoon. The news release with our fiscal fourth quarter and year-end 2023 financial results was issued this afternoon and is available on our website. Making formal remarks on today's call are Dr. Jay Luly, President and Chief Executive Officer; and Paul Mellett, our Chief Financial Officer. Dr. Scott Rottinghaus, our Chief Medical Officer; and Dr. Tara Kieffer, our Senior Vice President of New Product Strategy and Development, will be available during the Q&A portion of the call. 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 those statements. A description of these risks is in our most recent Form 10-K and other periodic reports filed with the SEC. Enanta does not undertake any obligation to update any forward-looking statements made during the call. With that, 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, and good afternoon, everyone. In fiscal 2023, Enanta took important steps leading to meaningful progress in addressing the unmet need for treating serious respiratory viruses and advancing our business objectives. As we look toward the future, we continue to assess opportunities that will leverage our expertise to transform the lives of patients by discovering novel treatments for viral infections and other diseases. 2024 is shaping up to be an important year for us with multiple inflection points expected, including potential growth into new therapeutic areas. Today, I'll provide an overview of our progress during the fourth quarter beginning with our respiratory syncytial virus, or RSV, program, and then I will comment on the rest of our pipeline and give a business update. RSV is a severe respiratory infection associated with significant morbidity and mortality that can cause serious disease in infants, children and other high-risk populations, including the elderly and individuals with congestive heart failure, chronic obstructive pulmonary disease or asthma. There remains a significant unmet need for RSV treatments despite the availability of vaccines and prophylactic monoclonal antibodies that reduce the risk of infection for some high-risk populations. Vaccines will inevitably have suboptimal uptake, and as we've seen with other respiratory viruses, even with adoption, breakthrough infections will still occur. Further, while monoclonal antibodies can provide short-term passive immunity for infants, they will only shift the infant's first infection to the next season. We aim to fill this unmet need for an RSV treatment through the advancement of our broad RSV program, which includes EDP-938, the only N-protein inhibitor in clinical development and EDP-323, an L-protein inhibitor, both of which have Fast Track designation from the FDA. As such, we are evaluating EDP-938 in two Phase 2 studies, RSVPEDs and RSVHR as a potential treatment in high-risk patient populations. RSVPEDs is a Phase 2 randomized, double-blind, placebo-controlled study in approximately 90 hospitalized and non-hospitalized pediatric patients with RSV aged 28 days to 36 months. It's a two-part study. Because this is the first time the drug is being dosed in pediatrics, the objective of the first part of the study is to evaluate the safety and pharmacokinetics of EDP-938 in multiple ascending doses in order to select the optimal dose for each age group. The objective of the second part of the study is to evaluate the antiviral activity of EDP-938 at the selected optimal dose. It was designed as a small cohort to show a trend toward improved virology metrics for EDP-938 compared to placebo and to give confidence to move forward efficiently into registrational studies. Additionally, we will evaluate symptom scores assessed through the treatment duration. RSVHR is a Phase 2b randomized, double-blind, placebo-controlled study in adults with RSV infection who are at high risk of complications, including the elderly and individuals with congestive heart failure, chronic obstructive pulmonary disease or asthma. Approximately 180 patients will be treated with 800 milligrams of EDP-938 or placebo for five days and evaluated over a 28-day period thereafter. The primary endpoint of RSVHR is time to resolution of RSV lower respiratory tract disease symptoms as assessed by the Respiratory Infection Intensity and Impact Questionnaire, or RIIQ, symptom scale. Secondary endpoints include additional clinical efficacy measures and antiviral activity compared to placebo as well as pharmacokinetics and safety of EDP-938. In this study, we will be looking for an improvement in time to symptom resolution, our primary endpoint, as well as effects on other secondary endpoints such as antiviral activity. Both studies continue to enroll throughout the global footprint with RSVPEDs having over 75 sites across 15 countries and RSVHR over 130 sites across 16 countries. Our goal continues to be completion of enrollment in at least one of these EDP-938 studies with topline data in the third quarter of 2024, assuming we will return to a normal pre-pandemic type of RSV season in the Northern Hemisphere. We are still early in that season, but initial data are consistent with a more normal season. Also advancing our leadership in RSV, today, we announced the initiation of our Phase 2a challenge study of EDP-323, an L-protein inhibitor in development as a once-daily oral treatment for RSV. In this randomized, double-blind, placebo-controlled study, up to 114 healthy adult subjects will be infected with the RSV-A Memphis 37b virus and then randomized 1:1:1 to receive once daily dosing of either 600 milligrams of EDP-323, 200 milligrams of EDP-323 with a loading dose of 600 milligrams on the first day or placebo for five days. Primary and secondary outcome measures include safety, changes in viral load measurements, and changes in baseline symptoms. We plan to report data from this study in the third quarter of 2024. The advancement of EDP-323 is supported by positive Phase 1 results in which EDP-323 demonstrated favorable safety, tolerability, and pharmacokinetics in healthy volunteers. We believe either EDP-938 or EDP-323 would be effective as a monotherapy, but because the mechanism of action of each is different, we also have the opportunity to use them in combination. Preclinically, the combination of EDP-938 and EDP-323 has additive to synergistic activity. A combination approach would allow us to explore potentially broadening the treatment window or providing additional benefit and specific harder-to-treat populations. In hepatitis B, we believe we need an additional mechanism to develop in combination with EDP-514, our potent core inhibitor with FDA Fast Track designation. We think a core inhibitor such as EDP-514 could ultimately be an important component of a successful combination regimen and potentially help us address the high level of unmet need in chronic HBV. I'd like to take a moment to acknowledge that we have made important adjustments to our business this year to significantly reduce our 2024 spending and extend our cash runway through fiscal 2027, which Paul will cover in a moment. As previously disclosed, we made the decision to stop RSVTx, our Phase 2 study in adult hematopoietic cell transplant recipients with RSV infection. We felt it prudent to concentrate our efforts and resources on our pediatric and high-risk adult studies, which comprise the largest patient populations with unmet needs and represent the faster paths to market. Furthermore, we made the decision to pause our hMPV/RSV dual-inhibitor program. While the dual-inhibitor has shown significant promise preclinically, we do not plan to move a third RSV compound into the clinic as long as our other two more advanced candidates continue to progress. And as we've mentioned before, we intend to conduct all future work in COVID-19 in the context of a collaboration. These changes allow us to reallocate our focus and resources to diversify our portfolio into other disease areas. We believe this path forward best aligns with our long-term goal at Enanta to deliver highly differentiated therapeutics through innovative chemistry and positions us to provide significant value to patients and our shareholders. To that end, we are excited about the expansion of our research efforts into non-virology indications that leverage our core strength in small molecule drug discovery. We look forward to providing more insight into our progress and announcing new therapeutic programs starting in early 2024. With that, I'd like to wrap up by highlighting our near-term milestones. We look forward to reporting results from our Phase 2a challenge study of EDP-323 in the third quarter of 2024. And assuming there is a return to a normal pre-pandemic type of RSV season in the Northern Hemisphere, we expect to complete enrollment in one or both of our Phase 2 studies of EDP-938 and to have data in the third quarter of 2024. Finally, we will announce new non-virology therapeutic programs beginning in early 2024.

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 fourth quarter and full year ended September 30, 2023. For the quarter, total revenue was $18.9 million and consisted of royalty revenue earned on AbbVie's global MAVYRET net product sales. This compares to total revenue of $20.3 million for the same period in 2022. For the 12 months ended September 30, 2023, total revenue was $79.2 million compared to $86.2 million for the same period in 2022. The decrease in the quarter and year-over-year revenue is due to a decline in AbbVie sales of MAVYRET. Beginning in the quarter ended September 30, 2023, 54.5% of Enanta's ongoing royalties from AbbVie's net sales of MAVYRET that are included in our revenue are being paid to OMERS, one of Canada's largest defined benefit pension plans pursuant to a royalty sale transaction in April 2023. For financial reporting purposes, the transaction was treated as debt with the upfront purchase payment to us of $200 million recorded as a liability. Enanta will continue to record 100% of the royalties earned as revenue and will then amortize the debt liability proportionately as 54.5% of the cash royalty payments are paid to OMERS, until a cap of 1.42 times the purchase payment is met, after which point, 100% of the cash royalty payments will be retained by Enanta. Non-cash interest expense for the debt will be recorded in Enanta's consolidated statement of operations as a non-operating expense based on an imputed interest rate. Interest expense was $3.2 million for the three months ended September 30, 2023, and $5.1 million for the 12 months ended September 30, 2023. Moving now to our operating expenses. For the three months ended September 30, 2023, research and development expenses totaled $36.2 million compared to $34.8 million for the same period in 2022. The slight increase was due to an increase in the timing of clinical trial costs, offset by a decrease in preclinical and manufacturing costs. For the 12 months ended September 30, 2023, research and development expenses were $163.5 million compared to $164.5 million in 2022. General and administrative expenses totaled $13.8 million for the three months ended September 30, 2023, compared to $12.6 million for the three months ended September 30, 2022. For the 12 months ended September 30, 2023, general and administrative expenses were $52.9 million compared to $45.5 million in 2022. The increases in both periods were primarily due to an increase in legal fees related to our patent infringement suit against Pfizer. Other income net totaled $4.7 million for the three months ended September 30, 2023, compared to $0.7 million for the three months ended September 30, 2022. For the 12 months ended September 30, 2023, other income net totaled $11.4 million compared to $1.7 million in 2022. The increases in both periods were primarily due to an increase in investment income due to an increase in our average invested cash balance from the receipt in April '23 of $200 million from the sale of our MAVYRET royalty as well as increases in interest rates year-over-year. Enanta recorded an income tax benefit of $1.4 million for the three months ended September 30, 2023, compared to an income tax expense of less than $0.1 million for the three months ended September 30, 2022. Enanta recorded an income tax expense of $2.8 million for the 12 months ended September 30, 2023, compared to an income tax benefit of $0.4 million for the 12 months ended September 30, 2022. Despite recording a financial reporting loss before taxes during the 12 months ended September 30, 2023, we recorded tax expense driven by the receipt of the $200 million from the royalty sale agreement, which is treated as income for federal and state income tax purposes. This taxable income and its related income tax expense was substantially offset by net operating loss carryforwards, research and development tax credit carryforwards and a deduction for foreign-derived intangible income. Net loss for the three months ended September 30, 2023, was $28.1 million or a loss of $1.33 per diluted common share compared to a net loss of $26.3 million or a loss of $1.27 per diluted common share for the corresponding period in 2022. For the 12 months ended September 30, 2023, net loss was $133.8 million or a loss of $6.38 per diluted common share compared to a net loss of $121.8 million or a loss of $5.91 per diluted common share for the corresponding period in 2022. Enanta ended the quarter with approximately $370 million in cash and marketable securities. We expect that our current cash, cash equivalents and short-term marketable securities, as well as our ongoing retained portion of royalties, will continue to be sufficient to meet the anticipated cash requirements of our existing business and development programs through fiscal 2027. Regarding guidance for fiscal '24, we expect our research and development expense to be between $100 million and $120 million, and our general and administrative expense to be between $45 million and $50 million. This is reduced from research and development expense of $163.5 million and general and administrative expense of $52.9 million in fiscal 2023. This general and administrative expense includes an increase in legal fees associated with our patent infringement suit against Pfizer. Further financial details are included in our press release and will be available in our annual report on Form 10-K when filed. I'd now like to turn the call back to the operator and open up the lines for questions.

Operator, Operator

Thank you. Our first question comes from the line of Roanna Ruiz of Leerink Partners. Your line is open.

Roanna Ruiz, Analyst

Hi. Afternoon, everyone. So, I wanted to ask about one of your RSV programs for 323 with the challenge study. I was curious, assuming that's successful, how fast could you proceed to Phase 3? And what sort of measures are you considering for a Phase 3 design like symptoms or virology endpoints?

Jay Luly, President and CEO

Hi Roanna, this is Jay. We're planning to complete the challenge study and report the data in Q3. We have additional preparations for the next phases beyond just the challenge study. We'll also monitor the 938 studies and leverage insights from at least one of those data sets in pediatric or high-risk populations to guide the development of 323 moving forward. It's a bit early to provide specifics. I want to examine the data from the challenge study, which involves a potent molecule with great pharmacokinetics. We've established various dosing regimens, including a high dose taken once daily and a loading dose on the first day followed by a lower dose. We will aggregate the data to compare it with 938 and the challenge study data as much as possible. We’re also considering how to position either of these products in the market. Both could function as standalone treatments, but due to their different mechanisms, they might also be effective in combination without cross-resistance, and we believe we have established good barriers to resistance with the chosen mechanisms and dosing. There are numerous potential options, but it’s too early to discuss 323 in detail just yet.

Roanna Ruiz, Analyst

Yes. Understood. And my second question, I just wanted to ask about the dual-inhibitor program for human metapneumovirus and RSV. I was curious, is the pause in development there? Is it more just to prioritize your other more later-stage RSV trials? Or was there any new data that informed this decision?

Jay Luly, President and CEO

No, the data continues to look very interesting in terms of the profile. We have a lot of projects underway, but we are making good progress with two advanced RSV molecules in development. When you break it down, the dual therapy does target human metapneumovirus, which we believe is advantageous. However, human metapneumovirus represents only a small segment of the RSV market. While it is not negligible, it is still a part of the overall market. Having RSV included in the dual therapy is crucial since it constitutes a significant portion of the market. Reviewing our ongoing studies and the resources required, we have two candidates advancing well that address the larger segment of the market, which is RSV. We still have some minor activities ongoing, but our main focus will be on observing the clinical data from our two leading candidates. We also have another molecule set aside as a reserve.

Roanna Ruiz, Analyst

Got it. Thanks.

Jay Olson, Analyst

Thanks for taking the question. And recognizing that it's early, maybe just a follow-up on 323. I guess, what are you hoping to see in the Phase 2a challenge study? What extent of viral load reduction would be clinically meaningful? And how do you plan to differentiate 323 from 938? Thank you.

Jay Luly, President and CEO

Thank you, Jay. I always look forward to this opportunity each quarter. The challenge study is valuable because it has been conducted across various classes of compounds in a consistent manner. We have a robust data set from EDP-938 that serves as an internal benchmark for comparison. The data we gather focuses on both viral load and symptoms, specifically comparing against a placebo. Everyone involved is infected right from the inoculation day, and we observe how viral loads begin to increase, which can vary by individual. Once we see the viral loads rising, we start dosing the next day. Our findings with EDP-938 indicate that dosing leads to an immediate change in the infection’s trajectory. While those on placebo experience rising viral loads that peak and then decline over several days, those who receive our test agent show a rapid halt and decline in viral loads. This allows for a comparison of the area under the curve of drug treatment to that of the placebo. Our results with EDP-938 demonstrated about a 70% reduction in this area. Concurrently, we monitor symptom scores across a range of symptoms, and the trends are similar, with placebos showing an upward trajectory that plateaus before a slow decline, whereas treatment with our drug rapidly decreases symptom scores. This also provides a comparative analysis of the area under the curve of the drug treatment versus placebo. With EDP-938, we have shown strong figures regarding percent inhibition. We aim for similar data with 323, and while we need to conduct the study for definitive results, preclinical evidence indicates it is a potent inhibitor. 323 appears to exert even greater pressure on the virus, based on exposure data, compared to 938, which has shown good results. We will assess the data closely; it may be challenging to differentiate the two at that point, but we do believe 938 has the strength to be effective as a standalone treatment for most patients, though we need to validate that with Phase 2 trials. In considering potential combinations or varying the use of one drug over the other for different patient populations, having both mechanisms available will provide us with numerous strategic options.

Jay Olson, Analyst

Great. Thank you, Jay, for the comprehensive explanation. And if I could ask just one follow-on. You have various non-virology programs at early stages, discovery stage of development. Can you just talk about what disease areas you're interested in for those non-virology programs? Thank you.

Jay Luly, President and CEO

Yes, not today. As I indicated, we'll begin to talk about that early next year.

Ed Arce, Analyst

Hi, Jay and Paul. Thank you for addressing our questions. I also want to congratulate you on starting the Phase 2a challenge study for 323. I have a follow-up question related to that, specifically regarding improvements measured as AUC with both virology and symptoms compared to placebo. You mentioned that the previous asset, 938, demonstrated about a 70% reduction in AUC in virology. What level do you consider competitive and clinically meaningful? In other words, what specific reduction defines success for the study in order to move forward with further development? I also have a follow-up question.

Jay Luly, President and CEO

Sure. Well, I think no one really knows yet and hopefully, we'll be the first to show is the what level you really need to drive efficacy in the real-world infection. We've looked at all the challenge study models that have been done. And EDP-938 is basically as good as it gets in terms of driving those kinds of numbers in a challenge model. So, we're hopeful that those are at least adequate numbers to do that translation in the real world. And in terms of what we're aiming for, I mean, obviously, 938 is some sort of a standard, I would aim to be in the ballpark of 938 like efficacy which, again, you can't translate this preclinically to clinically perfectly, but I think we used the same sort of criteria metrics, thresholds to pass preclinically for 323 as we did for 938. So, we'll see how that translates. But 938 like efficacy and the challenge is very strong. And I'm hoping we can do about that well with 323, the high bar.

Ed Arce, Analyst

Right. Great. And then, staying with 323, I wanted to ask also, given that you're testing two different doses, one with a loading dose in the first day and another one which is uniform throughout the treatment. If both of those show positive encouraging results, what would be the rationale to continue to study both doses, especially given the differential populations that might ultimately be treated with 323?

Jay Luly, President and CEO

Yes, that's a good question, Ed. The short answer is that we hope to establish a dose from the challenge study and move forward. The 600 mg and once daily for five days has more strength than we might actually need. In infectious disease, a loading dose is often used to reach a steady state more quickly. We are really asking whether a lower maintenance dose after the high loading dose is sufficient. There are significant differences in the cost of goods for each option, so it is worth exploring. We aim to find a clear answer that will help guide our future studies.

Ed Arce, Analyst

Okay. Great. And actually, one last one, if I may. Also, as has been asked before on the non-virology indications. I recognize that you're not prepared at this moment to discuss specifics. But just in terms of timing, early 2024, would that necessarily be around JPM? And also, given your expertise with these new candidates necessarily be small molecule assets? Thanks so much.

Jay Luly, President and CEO

You are correct. Our historic skill set has been in small molecule drug discovery and development, which remains our main focus. Regarding timing, it will be early next year.

Eric Joseph, Analyst

Hi. Good evening. Thank you for taking my question. For the Phase 2 RSV high-risk study with EDP-938, could you clarify whether this study is open to patients who have received either of the commercial RSV vaccines? Do you anticipate that prior immunization will represent a significant portion of the study's enrollment? Additionally, I am interested in your thoughts on how prior RSV vaccination should be addressed in the Phase 3 study design. Specifically, how important is it to evaluate activity in that context for a registrational trial? Thank you.

Jay Luly, President and CEO

Well, I'll answer part of the question and then hand it over to Scott Rottinghaus, our Chief Medical Officer. With regards to current state of immunization, I think less than 5% of the adult population has been immunized. And so, it's not a significant factor in the current backdrop of RSV recruitment today. I'll let Scott talk about inclusion, et cetera.

Scott Rottinghaus, Chief Medical Officer

Thanks, Jay. So, hi, Eric, it's Scott Rottinghaus. We're not currently studying vaccinated patients in our Phase 2 study. Obviously, we'll have to see how things are going for Phase 3 when we design that study going forward.

Jay Luly, President and CEO

Yes, both agents are progressing rapidly into registration studies for each. We're moving them forward. A significant part of the reduction came from narrowing our focus on current activities, which includes not taking a third RSV molecule into the clinic, even though it means we may be missing out on some hMPV opportunities for now. A major factor in our decision was the choice not to pursue COVID development outside of a partnership, as COVID was pivotal not only for development but also for our other ongoing discovery activities. Additionally, we concentrated 938 development on the two largest patient populations: pediatric patients as the priority and high-risk adults as the second. This doesn’t exclude the possibility of expanding to a broader label later on, including transplants, but it helps us manage our resources and budget more effectively.

Operator, Operator

Thank you. One moment, please. I'm showing no further questions at this time. I'd like to turn the call back over to Jennifer Viera for any closing remarks.

Jennifer Viera, Investor Relations

Thank you, operator, and thanks, everyone, for joining us today. If you have additional questions, feel free to contact us by e-mail or calling the office. Thanks, and have a great night.

Operator, Operator

Thank you. Ladies and gentlemen, this does conclude today's conference. You may now disconnect. Have a great day.