Enanta Pharmaceuticals, Inc. (NASDAQ:ENTA) Q2 2024 Earnings Call Transcript

Enanta Pharmaceuticals, Inc. (NASDAQ:ENTA) Q2 2024 Earnings Call Transcript May 6, 2024

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Operator: Good afternoon and welcome to Enanta Pharmaceuticals’ Fiscal Second Quarter Financial Results Conference Call. At this time, all participants are on 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 call over to Jennifer Viera, Investor Relations. Please go ahead.

Jennifer Viera: 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. Making 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 Chief Product Strategy Officer will be available during the Q&A portion of this call. Before we begin with our formal remarks, we want to remind you that we will be making forward-looking statements. These statements may include our plans and expectations with respect to our research and development pipeline and financial projections.

All of these statements 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 our 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: Thank you, Jennifer, and good afternoon, everyone. Throughout 2024, Enanta has remained squarely focused on advancing our virology and immunology pipeline to bring important oral therapeutics to market. Our commitment to developing treatments for areas of high unmet need is driven by our mission to transform patients’ lives with curative therapies and we are determined to achieve our milestones to drive near and long-term shareholder value to fulfill this mission. Our focus is critical as we approach meaningful inflection points with the potential to develop the first anti-viral treatment for RSV. With that, today, I’ll begin with an overview of our programs beginning with our respiratory syncytial virus or RSV programs, and then discuss our immunology program for chronic spontaneous urticaria or CSU.

As a reminder, RSV is the 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, asthma, or other high-risk conditions. Despite the availability of prophylactic options such as vaccines and monoclonal antibodies, there’s a clear need for a safe and effective oral RSV anti-viral treatment. Adoption of vaccines has been sub-optimal and breakthrough infections still occur. Additionally, pediatric monoclonal antibodies only provide passive immunity for a few months and not long-term protection against the infection. With this clear need, we have developed a broad clinical program that has the potential to enable multiple opportunities to treat RSV.

The RSV pipeline includes the most advanced clinical replication inhibitors, zelicapavir, formerly known as EDP-938, an N-protein inhibitor as well as EDP-323, an L-protein inhibitor. Zelicapavir is currently being studied in high-risk patient populations in two Phase 2 studies, RSVPEDS and RSVHR. RSVPEDS is a first in pediatrics Phase 2 randomized double-blind, placebo-controlled study in hospitalized and non-hospitalized RSV patients aged 28 days to 36 months. The study which will enroll approximately 90 patients is being conducted in two parts. As this is the first in pediatric study, the objective of the first part is to evaluate the safety and pharmacokinetics of zelicapavir in multiple ascending doses to select the optimal dose for each age group.

The second part of this study will evaluate the antiviral activity of zelicapavir at the selected dose and virology and symptom scores will be assessed throughout the treatment duration. This study was designed as a small proof-of-concept in pediatric patients to show a trend toward improved virology metrics for zelicapavir compared to placebo and to give confidence efficiently into larger registrational studies. The key objective of this study is to show improvement in virology endpoints in patients on zelicapavir compared to placebo, sufficient to allow us to advance into Phase 3. Currently, we have partially enrolled the last age cohort of 20 patients in part two of the study. As this cohort can only enroll patients 28 days to six months of age, the eligible population is narrower and we will need to continue to recruit in the Southern Hemisphere.

As we monitor the RSVPEDs in the Southern Hemisphere, we anticipate reporting data from these studies in a second half of 2024. RSVHR is a Phase 2 randomized double-blind, placebo-controlled study of approximately 180 adults with RSV infection who are at high risk of complications including the elderly, those with congestive heart failure, chronic obstructive pulmonary disease, or asthma. The primary endpoint for RSVHR is time to resolution of RSV lower respiratory tract disease symptoms, as assessed by the respiratory infection, intensity, and impact questionnaire symptom scale. Secondary endpoints include additional clinical efficacy measures and antiviral activity compared to placebo pharmacokinetics and safety of zelicapavir. The primary objective of this study is to show an improvement in time to symptom resolution.

Given the study was designed to be a small Phase 2 proof-of-concept study, it is powered based on a 50% reduction in symptom resolution. However, if there are no data showing a statistically significant effect on symptoms in community-acquired RSV adult population with which to benchmark, this reduction likely represents a high bar. Therefore, directional efficacy data that is clinically meaningful would provide us with conviction to move directly into Phase 3. Enrollment is progressing and we will provide additional guidance on the RSVHR study as the Southern Hemisphere RSV season evolves. Also ongoing in our RSV portfolio is a Phase 2 challenge study of EDP-323 which is in development as once a daily oral treatment for RSV. In this randomized double-blind, placebo-controlled study up to 114 healthy adult subjects will be infected with RSV and then randomized one-to one-to-one, 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 symptoms from baseline. The development of EDP-323 is supported by positive Phase 1 results, in which the drug demonstrated favorable safety, tolerability, and pharmacokinetics in healthy volunteers. We anticipate reporting data from this challenge study in the third quarter of 2024. We believe either zelicapavir or EDP-323 would be effective as a monotherapy because they do not have cross-resistance, we could also potentially use them in combination to broaden the treatment window or expand the eligible patient population to harder-to-treat patients. Also, in respiratory virology, data from SPRINT, our Phase 2 study of EDP-235, a 3CL protease inhibitor was presented in April at the ECCMID conference, formerly known as ESCMID.

We are pleased to present this comprehensive data package in a scientific forum for the first time. As a reminder, we will conduct any future COVID-19 work in the context of a collaboration. I’ll now turn to our work in immunology where we are concentrating on indications with a high unmet medical need and a clear clinical development path, including well-defined populations and biomarkers available for early signs of efficacy. Our first immunology indication is CSU, a severely debilitating chronic inflammatory skin disease, which can continue for years before remission. Clinical manifestations include urticaria commonly called hives as well as angioedema, which is characterized by pronounced deep tissue swelling. The disease can be severely disabling, significantly impair quality of life, and affect performance at work or school as patients with CSU can experience symptoms beyond the skin manifestations, including sleep disturbances, fatigue, irritability, anxiety, and depression.

CSU is estimated to affect 0.5% to 1% of the global population at any given time. The standard of care for CSU is antihistamines, but in approximately half patients symptoms are not alleviated and a minority of patients are treated with one indicated biologic. Consequently, there is a substantial unmet need for a new efficacious drug that can be conveniently dosed as an oral agent. Mast cells are the primary driver for disease in CSU as well as being involved in multiple other allergic diseases. In our first immunology program, we are seeking to develop a best-in-disease oral KIT inhibitor treatment that reduces the number of mast cells available to drive pathology in patients suffering from CSU. We are also encouraged by the potential to study KIT inhibition in additional indications.

Currently, our prototype KIT inhibitors in pre-clinical development demonstrate potent inhibition and are highly selective for KIT. We continue to optimize these leads around potency, selectivity, and DMPK properties and we are on track to select a development candidate in the fourth quarter of 2024 and plan to move into the clinic shortly thereafter. We are excited about our pipeline growth into immunology and are confident in the team’s ability to translate the learnings from our previous success with small-molecule drugs to enable our development of a best-in-disease therapeutic for CSU. We are also pursuing additional immunology targets and look forward to introducing a second program this year. Beyond our pipeline, I would also like to take a moment to welcome Matthew Kowalsky as our Chief Legal Officer, who joined last week.

Matt is a strong addition to our team as he brings more than 20 years of experience in the life sciences industry, handling corporate governance, public company reporting, intellectual property, financing, business development, and M&A activities. At Enanta, he will lead all legal and compliance activities for the company and provide strategic guidance and corporate governance oversight. With that, I’d like to conclude by highlighting our upcoming milestones. We anticipate reporting data from the Phase 2a challenge study of EDP-323 in the third quarter and reporting data from the Phase 2 pediatric study of zelicapavir in the second half of this year. Further, we plan to identify a clinical candidate for our CSU program in the fourth quarter, and finally, we also plan to announce a second immunology program this year.

Now I’ll turn the call over to Paul to discuss our financials. Paul?

Paul Mellett: 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 fiscal second quarter ended March 31st, 2024. For the quarter, total revenue was $17.1 million and consisted of royalty revenue earned on AbbVie’s global MAVYRET net product sales. This compares to total revenue of $17.8 million for the same period in 2023. As a reminder, our royalties are calculated on a calendar year basis. Therefore, royalties for our fiscal first quarter ending December 31 were calculated at 12%, the highest royalty rate for the year, and royalties for our fiscal quarter ending March 31st are calculated at 10%, our lowest royalty tier. Of note, 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, the royalty buyer in our April 2023 royalty sale transaction.

For financial reporting purposes, the sale transaction was treated as debt with the upfront purchase payment to us of $200 million reported as a liability. As such, we continue to record 100% of the royalties earned as revenue and will then amortize the debt liability at 54.5% of the cash royalty payments are paid to OMERS through June 30th, 2032, subject to a cap of 1.42x the purchase payment, after which point 100% of the cash royalty payments will be retained by Enanta. Interest expense for the debt will be recorded in Enanta’s consolidated statement of operations based on an imputed interest rate. Interest expense was $2.6 million for the three months ended March 31, 2024. Moving on to other expenses. For the three months ended March 31, 2024, research and development expenses totaled $35.6 million compared to $43.5 million for the same period in 2023.

The decrease was primarily due to a decrease in cost associated with our COVID-19 program, as we previously announced that plans to pursue any future COVID-19 efforts would be in the context of a collaboration. This was partially offset by increased costs associated with our RSV program and our recently announced immunology programs. General and administrative expense for the quarter was $14.2 million, compared to $13.8 million for the same period in 2023. This increase was primarily due to an increase in legal expenses related to our patent infringement lawsuit against Pfizer. Enanta recorded an income tax benefit of $0.4 million for the three months ended March 31, 2024, for interest earned in a pending $28 million federal income tax refund, compared to an income tax expense of less than $0.1 million for the three months ended March 31, 2023.

Net loss for the three months ended March 31, 2024, was $31.2 million or a loss of $1.47 per diluted common share, compared to a net loss of $37.7 million or a loss of $1.79 per diluted common share for the corresponding period in 2023. At this fiscal year midpoint, we are updating our expense guidance. We now expect our research and development expense to be between $125 million and $145 million and our general and administrative expense to be between $50 million and 60 million. The research and development expense increase reflects the impact of our new immunology program as well as additional efforts to accelerate our RSV clinical studies. The general and administrative expense increase is due to additional stock compensation expense and costs associated with pursuing our patent infringement lawsuit.

Enanta ended the quarter with approximately $300 million in cash and marketable securities. We expect that our current cash, cash equivalents, and short-term marketable securities as well as our retained portion of ongoing royalties will continue to be sufficient to meet the anticipated cash requirements of our existing business and development programs through the third quarter of fiscal 2027. Further financial details are included in our press release and will be available in our 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?

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Q&A Session

Operator: Thank you. [Operator Instructions]. And our first question comes from Akash Tewari from Jefferies. Your line is now open.

Unidentified Analyst: Hi, this is Kathy on for Akash. I had a question for RCVs. Since RCVs isn’t explicitly powered to hit on viral loads or symptoms, what will you be looking at in terms of the data to inform your design for Phase 3 and as such, how should we think about gauging efficacy or safety? And then how much of a read-across do you believe the data will have for our RSVHR? And then are you expecting a symptom benefit of like one or two days? Thank you.

Jay Luly: Thanks for the question. This is Jay. I think I’ll hand it over to Tara Kieffer to talk about how we are going to be viewing the data set coming out of PEDs. Tara?

Tara Kieffer: Sure. Yes. RSVPEDs study is our proof of concept Phase 2 study in pediatrics. We have to think about it a little bit differently than our adult study in Phase 2 because this is the first time that we’re dosing children in this young age range of 28 days to three years. So, we have to first confirm the safety profile and the dose. The study has been done in two parts. Part 1, the primary endpoint is safety and PK, and done in a dose-ascending fashion and we select the optimal dose from that part, which has been studied in Part 2 and in that part, the primary objective is to look at the virology endpoints. So, we’re primarily, again, looking for improvement, in virology endpoints between the patients on 938 or zelicapavir and placebo, with directional data that would give us the confidence to move into a Phase 3 study.

So, we’ll look at a number of different virology endpoints. We’ll also look at the clinical endpoints as well but primarily, we’ll be looking at virology. It’s hard to give a specific threshold or a bar in terms of what we’re looking at because there’s not a lot of data out there in RSV for naturally acquired RSV in children. But there’s one study that we can point to from a company called Arc Bio that did a Phase 3 study in pediatrics in China. They did show a 0.6 log drop at day four, a statistically significant effect in virology and they also, in that same study, demonstrated an improvement in symptoms. So we are not able to really give any kind of a bar that we’re looking for, but we’re really interested in the totality of the data and showing those trends and directional data that would give us the confidence to move into a larger, more well-powered study to able tease out these effects.

Operator: Our next question comes from Eric Joseph from JPMorgan. Your line is now open.

Eric Joseph: Great. Thank you. Just a couple of questions related to the immunology program, I guess for this KIT development candidate. Can you talk a little bit about your strategic plans with respect to clinical development there? I guess to the extent you might be seeking a strategic partner at some point along the way, there is a certain sort of hurdles or kind of milestones you’d want to see cleared first. And secondly, just to expand into or expand with the second immunology program. Can you give us a bit of a preview there, in terms of either target, you might be pursuing? Are you perhaps doubling down on KIT? Thanks very much.

Jay Luly: Thanks, Eric. This is Jay. So, we are working up a few different approaches in parallel to figure out which we might prioritize going forward. It’s a little early to be discussing that. I think you asked, where we doubling down on KIT. We have one major KIT program now. I think we’re looking to broaden beyond that. And so, we’ll provide more detail as the year progresses and after we’ve generated more data in-house, made more molecules in-house, filed intellectual property, and so forth. So, stay tuned on that front. With regards to, I wasn’t quite sure on your the first part of your question. You were talking about strategic partnering. I mean, our plan just in a nutshell initially at least is to again identify the candidate in the fourth quarter.

We are going to be aiming to get it into the clinic hopefully rapidly thereafter. And then Phase 1, I think should be fairly straightforward and healthy. The nice thing is with this mechanism you can get sort of surrogate readouts of target engagement by looking at tryptase changes. That will help a lot having the biomarker available to us. And then, the clinical development in CSU, I think is actually pretty straightforward. So, we would be thinking about progressing to a fairly straightforward proof-of-concept study. It’s a defined accessible and large patient population. So, we hopefully won’t have the seasonal trends that we experience in RSV, and are looking very much forward to progressing that first program in immunology and then, again, bringing on additional targets and mechanisms as time goes on.

Tara Kieffer: Can I just add one thing to that, Jay, is, the biomarker that Jay mentioned we can monitor in Phase 1 in healthy volunteers is serum tryptase. There’s a lot of data out there generated from some of the monoclonal antibodies against KIT from CellDex that have nicely been able to show a tight correlation with impacts on that biomarker and ultimate clinical outcomes. So, I think it’s something that really can derisk the program early on in those Phase I studies.

Operator: And our next question comes from Ed Arce from H. C. Wainwright. Your line is now open.

Unidentified Analyst : Hi, good afternoon, everyone. This is Thomas asking a couple of questions for Ed. So, thank you for taking our questions. So, first, can you outline what’s your estimate of the patient population breakdown between the Northern and Southern Hemisphere, to date, in both for the RSVPED study and also for the REVHR study as well?

Jay Luly: Are you making reference to numbers of sites? You say patient population, but are you talking about markets? Are you talking about clinical trial conduct?

Unidentified Analyst: More on the clinical trial conduct, so perhaps the number of sites, so both the number of sites or the number of patients enrolled, just a ballpark sandwich?

Jay Luly: Yes. I don’t have the exact figures in front of me. We have, I mean, maybe Scott, maybe I’ll just let you amplify on that.