ENTA - NASDAQ

Good afternoon, and welcome to Enanta Pharmaceuticals' Fiscal Second Quarter Financial Results Conference Call. [Operator Instructions] 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.

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 the 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 the 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 this call. I'd now like to turn the call over to Dr. Jay Luly, President and CEO. Jay?

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 antiviral 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 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, 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 antiviral treatment. Adoption of vaccines has been suboptimal, 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. RSV pipeline includes the most advanced clinical [ antiviral ] replication inhibitors: zelicapavir, formerly known as EDP-938, an N-protein inhibitor as well as EDP-323, an L-protein inhibitor.

Thank you, Jay. I would like to remind everyone that Enanta reports on a September 30 fiscal year schedule. Today, we are reporting results for our fiscal second quarter ended March 31, 2024. For the quarter, total revenue was $17.1 million and consists 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 31 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 recorded as a liability. As such, we continue to record 100% of the royalties earned as revenue and will then amortize the debt liability as 54.5% of the cash royalty payments are paid to OMERS through June 30, 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 from 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 3 months ended March 31, 2024. Moving on to other expenses. For the 3 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 costs 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 3 months ended March 31, 2024, for interest earned on a pending $28 million federal income tax refund compared to an income tax expense of less than $0.1 million for the 3 months ended March 31, 2023. Net loss for the 3 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?

[Operator Instructions] And our first question comes from Akash Tewari from Jefferies.

This is Kathy on for Akash. So I had a question for RSVPEDs. Since RSVPEDs 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 III? 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 RSVHR? And then are you expecting a symptom benefit of like 1 or 2 days?

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

Sure. Yes. So the RSVPEDs study is our proof-of-concept Phase II study in pediatrics. So we have to think about it a little bit differently than our adult study in Phase II because this is the first time that we're dosing children in this young age range of 28 days to 3 years. So we have to first confirm the safety profile and the dose. And so the study has been done two parts. Part one, 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 comments to move into a Phase III 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. So there's one study that we can point to from a company called [ Arc Bio ] that did a Phase III study in pediatrics in China. And they did show a 0.6 log drop at day 4, a statistically significant effect in virology. And they also, in that same study, demonstrated an improvement in symptoms. So we're 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 to tease out these effects.

[Operator Instructions] And our next question comes from Eric Joseph from JPMorgan.

Great. Just a couple of questions related to the immunology program 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, are there -- is there a certain sort of hurdles, kind of milestones you want to see cleared first? And then secondly, just noting that you're looking to expand into or expand with a 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, Eric. This is Jay. So we're working up a few different approaches in parallel to figure out which we might prioritize going forward. So it's a little early to be discussing it. I think you asked were we doubling down on KIT. I mean 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're going to be aiming to get it into the clinic, hopefully, rapidly thereafter. And then Phase I, 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. So 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 populations. So we hopefully won't have the seasonal trends that we experienced 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.

Can I just add one thing to that, Jay, is the biomarker that Jay mentioned we can monitor in Phase I 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 Instructions] And our next question comes from Ed Arce from H.C. Wainwright.

This is Thomas Yip asking a couple of questions for Ed. So first, can you outline what's your estimate of patient population breakdown between the Northern and Southern Hemisphere to date, both for the RSVPEDs study and also for the HR study as well?

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?

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 to have a ballpark [ percentage ].

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.

Yes. Sure. Thanks, Jay. So we've enrolled patients in both Northern and Southern Hemispheres in both the pediatric and the high-risk studies, including in the current season ongoing in the South. So I don't have the exact numbers in front of me either, but we are continuing to enroll actively in both of those studies. And as Jay mentioned on the call, in the pediatric study in particular, we're down to the last cohort and enrolling in the South.

Yes. I -- but I think directionally, maybe your -- the Northern Hemisphere, beyond question, is more highly represented in terms of clinical trial sites than the Southern Hemisphere. I mean we're in many different European countries, many different North American countries. We're in Asia. In the Southern Hemisphere, we're in South Africa, we're in Brazil, we're in Argentina, New

Understood. And then as a follow-up on that, can you remind us how much overlap are there between the Southern Hemisphere RSV season or flu season? And also, do you expect -- to that point for the HR study, do you expect the slate to complete enrolling kind of in line with the conclusion of the Southern Hemisphere RSV season?

Did you -- was the first question about overlap with the flu season?

Yes. How much overlap are there between the RSV season and the flu season?

I mean, generally, they're somewhat correlated. But even in any given year, they can deviate a little bit one way or the other. Flu could come on a little earlier or a little later, come on twice. RSV has been -- and flu, but especially RSV have been substantially impacted by the pandemic years in terms of just only more recently starting to settle down into what we would call more normal seasonality. So I think, again, we follow -- we track the RSV season much more closely than flu. As it relates to HR, my guess is we'll need to come back to the Northern Hemisphere, given that we, again, have just much stronger footprint there. We made excellent strides in the Northern Hemisphere this year. That's why, especially in the United States, it was a very nice season for us. So we may need some of that as well. We'll -- again, we'll be tracking this and reporting progress later this summer when we're well into the Southern Hemisphere season. And we'll be able to forecast a little bit better based on more current data. But that's my expectation.

[Operator Instructions] And the next question comes from Roy Buchanan from Citizens JMP.

Just a couple on RSV. Jay, for the RSVHR, I think I heard you say that it's powered for a 50% reduction in symptoms. It's probably a high bar. Just wondering where that, I guess, conclusion about it being a high bar comes from. I think that challenge trial, you had a 75% reduction in symptoms. And are you just interpolating between that and RSVPEDs? Or is there something you're seeing in the trial?

Yes. So to be clear, we're talking about time to resolution of symptoms. So it's different than in the challenge. We're looking at the number of days improvement in time to resolution of symptoms versus placebo. I mean I can give a little color on that. I think, for example, with flu, in a placebo study and Tara can correct me if I'm wrong, there's about a 4-day time period for a time to resolution, and Tamiflu will shorten that by a day. So it's a 3-day time -- so it's a 1-day shortening out of 4 days. That's a 25% improvement in time to resolution. And so the way this was powered with HR and in order to keep it a relatively small study of only just under 200 patients, it was powered on a 50% effect. Have we powered it on a 25% effect that the study would be even much larger. So it's that fine balance of running a Phase II that is enabling of a pivotal trial, keeping it at a manageable size. And we felt with a couple of hundred patients, even though it's a high bar to reach a [ stat ] on the way it was powered, we should be able to make good decisions based on a clinically meaningful improvements. And again, shortening time to resolution of symptoms by one or more days would be clinically meaningful.

Okay. Makes sense. And then for the 323 challenge, what are you hoping to see there? We've said many times that zelicapavir data is probably best-in-class. Are you expecting to see something similar? Do you need to see something similar? Just help us think about that.

Yes.

[Operator Instructions] And our next question comes from Roanna Ruiz from Leerink Partners.

This is [ Mick ] on for Roanna. Maybe first on RSV. Could you give us a sense of how close you are to completing enrollment of the younger age cohort of RSVPEDs? Maybe how long do you think it could take to analyze and ultimately share the data afterwards?

Yes. Again, so there are two parts to the study. Part one is completed in all age cohorts. Part two of the study is done in the older age cohorts, and we're down to the final cohort of 20 patients. It's the youngest children from age 28 days to 6 months. And we've been actively recruiting that cohort. So we're in the home stretch. And we just -- unfortunately, we can -- our pool of patients is now only 1/6 of what it was based on age groups. So it's a narrower pool, and any older children, we really have to -- we can't enroll in the study any more. So we're just really zeroed in, focused on getting the remaining young children to fill out this cohort.

Got it. And then maybe on CSU, curious, what are you hoping to see in a future Phase I for your oral KIT inhibitor in terms of safety? Maybe how should we think about frequency of administration for this asset? Is it a once daily, twice daily? How should we think of that?

Well, we're still finalizing the candidate again. We were targeting to have the finalist in Q4. But suffice it to say, we're very much zeroed in on QD dosing. We've made molecules that are very potent. They're very selective. We're optimizing DMPK profiles, tissue distribution, a number of other sorts of parameters like that to make it the kind of candidate that we typically bring forward. So we've already shown data on a strong prototype. And we continue to -- the chemists are very busy, well, not just chemists, but the chemists and all the biology people who are doing the characterization. And our DMPK and safety team are working very, very diligently on this. So we would be aiming for a QD candidate that would be -- have the best safety profile we can provide as well as good potency in selectivity.

[Operator Instructions] And our next question comes from Brian Skorney from Baird.

This is Luke on for Brian. For EDP-323, can you remind us of your current thoughts on potentially entering a Phase IIb in otherwise healthy adults as opposed to starting with the high-risk and pediatric populations like you've done with zelicapavir? And would you wait for RSVPEDs or RSVHR data to make this decision?

Yes, that's a good question. I mean the short answer is we won't do another RSV study in otherwise healthy adults. They just -- we found out from our RSVPED trial that they're -- otherwise healthy folks just resolve the -- self-resolve the infection so quickly on their own. So they're really not in need of a therapy. We would only focus on high-risk patient populations. And we're hoping to have an abundance of data here in the second half. We'll have 323 data. We'll have PEDs data. We'll be able to look at the totality of the information and figure out how best to position 323. So for us, it's been about bringing another strong mechanism forward. We've been working on this from the beginning. I guess we've been working on it for a few years now to bring forward another differentiated asset in RSV. And that could give us the potential for doing combination therapy down the road and particularly hard-to-treat patient populations. Potentially it could help widen the treatment window where we to go after a patient with two drugs rather than one. So it's just part of our strategy overall to try to build a leadership position in RSV as a therapeutics company. And the more sort of cards we have to play, I think we can come up with ways to leverage another asset over time. So the key is getting it up to a strong threshold on the challenge study data first.

[Operator Instructions] And our next question comes from Liisa Bayko from [ EVR ].

This is Tina on for Liisa. I have a question on the 323 program. What doses of 323 are you testing in Phase IIa human challenge study?

Yes. So we're looking at a couple of different dose regimens. So the first is 600 milligrams straight across for 5 days. The other is 600 milligram loading dose on day 1, followed by 200 milligrams on each subsequent day. It's kind of like in antibiotics, they do that sometimes. They give you a loading dose on day 1 and then a lower maintenance dose for a few days thereafter. So we just look both of them in. And I think in theory, either at least based on calculations and modeling, either has a good chance of demonstrating the activity we want. One obviously is a lower dose and has different cost of goods ramifications, et cetera, et cetera. So we're just -- the challenge study is just such a wonderful way to tease all those kinds of questions out because you don't have to wait for the season. You can just [ infect ] human volunteers, line cohorts up every few weeks and dose them. So does that answer your question?

Yes. That's helpful. I have a second question, the patent against -- the case against Pfizer because [indiscernible] said that Paxlovid doesn't infringe the patent because Paxlovid has [indiscernible] group, which is not described in your patent. So if you can comment on that.

Yes. I really can't get into the discussion on our ongoing patent litigation. The only -- but the only thing I can say is that assuming that it were to go to trial, we would expect a trial around the end of the year.

[Operator Instructions] And our next question comes from Jay Olson from Oppenheimer.

On the immunology program, what are the most important differentiators you're looking for with your oral KIT inhibitor candidate versus other oral KIT inhibitors in development? And how are you thinking about positioning oral KIT inhibitors versus other oral therapies for CSU such as BTK inhibitors?

Thanks for the question, Jay. I'll let Tara speak to that.

Sure. So I think some of the data that's been generated from the monoclonal antibodies against KIT, that would be from Celldex and then an earlier program with Jasper have indicated that this target -- inhibiting this target has some of the best-in-disease efficacy at least from the Phase II trials that have been run. So that gives us confidence in the target. And what we're really hoping for our program is to match or even exceed potentially that efficacy with a good safety profile just with an oral route of administration. So that's the goal of our program. As you mentioned, there's other companies working on this as well. They're all early. They're all preclinical at the moment. There's really only preclinical data at the moment. So it's hard to sort of say what would be differentiated. But I can tell you what our program is looking to achieve, and that would be something that is able to be dosed QD, orally, something that is very potent against KIT but selective. And so leading to a good safety profile and just balancing that potency and selectivity so that the efficacy and safety profile could potentially be something that you would have as best-in-class. And then I would just say that the oral inhibitors be more tunable. I think this is something that remains to be proven in the clinic. But whether they're able to be dosed and tuned more finally than a monoclonal antibody, you can certainly have a little bit more flexibility over that. So I think it remains to be determined but one potential strategy as well.

Okay. Great. And then can you just talk about how you're thinking about additional indications in your development plan beyond CSU?

Sure. You mean for the KIT inhibitor?

Yes.

Yes. So the reason that we're interested in KITs is it obviously is a key driver for mast cells. And we know that mast cells have been implicated in a number of different indications. So certainly, chronic inducible urticaria or [ CINDU ] is something that's also been studied with this target, and there's some good data from the monoclonal antibodies here. EOE or eosinophilic esophagitis is also another indication we'd be interested in, PN as well and even potentially asthma is something that one could think about with these types of inhibitors.

And I am showing no further questions. I would now like to turn the call back over to Jennifer Viera for closing remarks.

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