Vanda Pharmaceuticals Inc.
Q4 2021 Earnings Call Transcript

Published: 23 Feb 2022

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the Q4 2021 Vanda Pharmaceuticals Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference call is being recorded. I would now like to hand the conference over to your speaker today, Kevin Moran, Vanda's Chief Financial Officer. Thank you, please go ahead.

[Kevin Moran:]

Thank you, Cherry. Good afternoon and thank you for joining us to discuss Vanda Pharmaceuticals' fourth quarter and full year 2021 performance. Our fourth quarter and full year 2021 results were released this afternoon and are available on the SEC's EDGAR system and on our website, www.vandapharma.com. In addition, we are providing live and archived versions of this conference call on our website. Joining me on today's call is Dr. Mihales Polymeropoulos, our President, Chief Executive Officer and Chairman of the Board; Tim Williams, our General Counsel and Secretary; Gunther Birznieks, our Senior Vice President of Business Development and R&D Committee Member; and Independent Expert, Dr. Thomas Abell, from the University of Louisville. Following my introductory remarks, Mihales will update you on our ongoing activities. I will then comment on our financial results before opening the lines for your questions. Before we proceed, I would like to remind everyone that various statements that we make on this call will be forward-looking statements within the meaning of federal securities laws. Our forward-looking statements are based upon current expectations and assumptions that involve risks, changes in circumstances and uncertainties. These risks are described in the cautionary note regarding forward-looking statements, risk factors and Management's Discussion and Analysis of Financial Condition and Results of Operations sections of our annual report on Form 10-K for the fiscal year ended December 31, 2020, as updated by our subsequent quarterly reports on Form 10-Q, current reports on Form 8-K and other filings with the SEC which are available on the SEC's EDGAR system and on our website. Additional factors may be set forth in those sections of our annual report on Form 10-K for the fiscal year ended December 31, 2021, to be filed with the SEC in the first quarter of 2022. We encourage all investors to read these reports and our other filings. The information we provide on this call is provided only as of today and we undertake no obligation to update or revise publicly any forward-looking statements we may make on this call on account of new information, future events or otherwise, except as required by law. With that said, I would now like to turn the call over to our CEO, Dr. Mihales Polymeropoulos.

[Mihael Polymeropoulos:]

Thank you very much, Kevin. Good afternoon, everyone. I appreciate you joining us to discuss our fourth quarter and full year 2021 results as well as our Phase III gastroparesis results and proposed next steps in our development program for tradipitant. As usual, I will discuss our commercial performance and the highlights of our clinical development programs and then I will turn specifically to the gastroparesis study in tradipitant. On HETLIOZ, we continue to see strong interest with new patient prescriptions, especially for sighted patients with Non-24. However, we also saw a significant increase in the rates of payer denial for sighted patients with Non-24 that led to a net decline of Non-24 patients in treatment. We will discuss in more detail our significant efforts to support patients with Non-24 and the progress we're beginning to make, especially for Medicaid-insured patients. We launched HETLIOZ and HETLIOZ LQ for the indication of night-time sleep disturbances in patients with Smith-Magenis Syndrome. More than 50 patients with SMS are currently on treatment and more are awaiting payer approval. We're working closely with advocacy organizations in direct-to-consumer campaigns to increase awareness around Smith-Magenis Syndrome. We recognize that many patients with SMS remain undiagnosed and are currently treated for various new developmental disorders. Through our genetics platform, we have recently discovered that up to 100,000 patients diagnosed with autism actually carry potential pathogenic mutations in the RAI1 gene which is often deleted or mutated in patients with SMS. We believe that this discovery will aid in the molecular identification of patients with SMS among the autism population of patients and offer them a new therapeutic solution. We look forward to beginning to resolve the access hurdles for sighted patients with Non-24, expanding our SMS population of treated patients and advancing HETLIOZ through the clinical program of delayed sleep-wake phase disorder. We are pleased with the settlement with one of our HETLIOZ Vanda Defendants and look forward to ascertain our HETLIOZ franchise against the remaining defendants in the upcoming trial. On Fanapt, we're making progress in our Phase III study of bipolar disorder which is now over 50% enrolled and expected to complete enrollment by the end of 2022 while the iloperidone, the long-acting injectable program, is advancing. I will now turn to our recently announced completion and results of our tradipitant gastroparesis study and offer some more insights and discuss our planned future direction for this program. We recently reported initial results from the tradipitant clinical study in gastroparesis. In a prior Phase II clinical study, tradipitant was shown to improve a host of symptoms in patients with gastroparesis, including nausea and vomiting. The prior Phase II study had a 4-week duration and enrolled approximately 150 idiopathic and diabetic gastroparesis patients with moderate to severe nausea. These patients were randomized 1

[Gunther Birznieks:]

Thank you, Mihales. With that, I want to introduce Dr. Thomas Abell, a Professor of Medicine at the University of Louisville and the Arthur M. Schoen, M.D., Chair in Gastroenterology. Dr. Abell has expertise in gastrointestinal motility, gastroparesis and endoscopic device development. He was an investigator in both of Vanda's Phase II and Phase III gastroparesis studies and is a co-author on the Phase II manuscript published in 2020 titled, Efficacy and Safety of Tradipitant in Patients With Diabetic and Idiopathic Gastroparesis in a Randomized, Placebo-Controlled Trial. He is joining us today to discuss why increasing the length of studies in gastroparesis to a 12-week period may affect outcomes in gastroparesis studies and the impact on the placebo effect. Dr. Abell, I will now turn the call over to you. Thank you.

[Thomas Abell:]

Thank you, Gunther. This is Tom Abell, a GI doctor in Kentucky, at the University of Louisville. As mentioned earlier, I was in the two previous spans of studies as an investigator. I want to mention again, I'm not a consultant and have no stock in Vanda and the opinions here are my own based on 40 years of research and practice. Our clinic here in Kentucky specializes in patients that were like those in the past two Vanda studies and our teams see several hundred new patients like this every year. These patients are often quite ill. They suffer from GI complaints, including chronic nausea and vomiting and often have disorder of gastric emptying. Sometimes, we think we know the reason for the symptoms, including disorders like diabetes. Other times, we don't know and we call those idiopathic gastroparesis. The patient symptoms are recorded by a standardized scale called patient reported outcomes or PROs. And one of those was used for this study. What was discussed today was the latest study from Vanda on tradipitant, a drug that involves blocking the NK1 receptors. This newest study and the previous study compared the active drug to placebo or an active drug. This newest study differed from the previous study and it was for 12 weeks which was much longer than the previous study. As with the first study, the primary endpoint was severity of nausea using a standardized patient outcome and there were additional symptom measures as other endpoints that have been mentioned. One of the issues is on length of the study. In our experience, it does not take 12 weeks to know if a medication will work in this population. Often a matter of weeks, for example, 4 weeks is enough to see an effect. A related issue is the patients in the study were moderately to severely ill and many patients depend on rescue medications to enable them to stay in the study. I wish I could convey how ill these people are. Many patients and -- have poor quality of life and are often desperate. Most individuals have experienced nausea and vomiting briefly with a flu-like illness but imagine living like that every day. There are not a lot of options for these patients. A study of 12-week duration may make it hard for some of these patients to continue, especially if they're receiving a placebo. This concern about length of studies has been previously mentioned by several of my colleagues nationwide and communicated to groups involved in designing studies for this population. While 12 weeks may be satisfactory with patients for some GI disorders, such as irritable bowel syndrome, it may not be the optimal duration for patients with gastroparesis and related disorders. While it was concerning that the study did not meet endpoints as described, we were interested in the role that excluding some areas like rescue medication and compliance may have when reanalyzing the data. There may be other factors which we've heard which will emerge on further analysis of the data from this study. The need for effective and safe medications for this group of gastroparetic patients and for patients with folate conditions remains high. The study presented today shows promise but the results presented raised questions as to what is the most effective study design, including the duration of the study. Those of us who see these patients are hoping that this and other medications can move forward towards FDA approval. Thank you.

[Kevin Moran:]

Thank you very much, Dr. Abell. I will now turn to discuss our financial results for the fourth quarter and full year 2021. I'll begin by summarizing our full year 2021 financial results before turning to discuss the fourth quarter of 2021. Total revenues for the full year 2021 were $268.7 million, an 8% increase compared to $248.2 million for the same period in 2020. HETLIOZ net product sales of $173.5 million were the primary contributor and driver of our 2021 revenues and saw 8% growth compared to 2020. The year-over-year growth of the HETLIOZ business was driven by net price favorability, partially offset by lower unit sales, primarily as a result of increased payer resistance to HETLIOZ coverage. Fanapt net product sales of $95.1 million for the full year 2021 reflect 9% growth compared to 2020. For the full year 2021, Vanda recorded net income of $33.2 million compared to net income of $23.3 million for 2020. Net income for the full year 2021 included an income tax provision of $9.2 million as compared to an income tax provision of $8.3 million for 2020. Vanda's cash, cash equivalents and marketable securities, referred to as cash, as of December 31, 2021, were $432.8 million, representing an increase of $65.1 million compared to December 31, 2020. Turning now to our quarterly results. Total revenues for the fourth quarter of 2021 were $68 million, a 1% increase compared to $67.7 million for the fourth quarter of 2020. HETLIOZ net product sales were $44.1 million for the fourth quarter of 2021 compared to $44.2 million for the fourth quarter of 2020. Fanapt net product sales in the fourth quarter of 2021 were $24 million, a 2% increase compared to $23.5 million in the fourth quarter of 2020. Fanapt net product sales in the fourth quarter of 2021 decreased by 2% as compared to $24.5 million in the third quarter of 2021. Fanapt prescriptions in the fourth quarter of 2021, as reported by IQVIA Xponent, decreased by approximately 2% compared to the third quarter of 2021. For the fourth quarter of 2021, Vanda recorded net income of $7.1 million compared to net income of $8.2 million for the fourth quarter of 2020. Net income for the fourth quarter of 2021 and included an income tax provision of $1.5 million as compared to an income tax provision of $2.7 million for the same period in 2020. Operating expenses in the fourth quarter of 2021 were $59.4 million compared to $57.2 million in the fourth quarter of 2020. The $2.2 million increase was primarily driven by higher R&D expenses related to the late-stage Fanapt development program, partially offset by lower SG&A expenses, primarily related to awareness and branded DTC campaigns. Operating expenses in the fourth quarter of 2021 were essentially flat as compared to $59.3 million in the third quarter of 2021. Vanda expects to achieve the following financial objectives in 2022

[Timothy Williams:]

Great. Thanks, Kevin. As Mihales and Kevin both mentioned, we're continuing to address reimbursement delays in improper denials for HETLIOZ patients and we've made significant progress in the past quarter, particularly with state Medicaid programs. In November of last year, a HETLIOZ patient filed a federal lawsuit challenging Colorado Medicaid's prior authorization criteria which limited HETLIOZ coverage to totally blind patients. In response to this lawsuit, Colorado promptly changed it's criteria to cover HETLIOZ for all Non-24 patients and to no longer restrict HETLIOZ coverage on the basis of vision status. Following this lawsuit, Vanda recognized 18 other states with a similar restriction and requested immediate coverage changes in those states. Since that time, 10 of those 18 states have revised their criteria to eliminate the blindness requirement, including Florida, Pennsylvania, Ohio, North Carolina, Michigan, Maryland, Oklahoma, Iowa, West Virginia and most recently, Wisconsin. Of the remaining 8 states, 4 more states have agreed to discuss their criteria in upcoming Drug Review Committees. These include New York, Minnesota, Nevada and Alaska. And the remaining 4 states are actively reviewing our request and these include Georgia, New Jersey, Mississippi and Vermont. In addition to this Medicaid activity, we're continuing to develop strategies to challenge the similar payer criteria with Medicare and commercial plans in hopes of securing HETLIOZ access for all Non-24 patients, regardless of vision status. With that, I will turn the call back to Mihales.

[Mihael Polymeropoulos:]

Thank you very much, Tim. At this point, we will be happy to answer any questions you may have.

[Operator:]

Your first question comes from the line of Chris Howerton from Jefferies. Your line is now open.

[ChrisHowerton:]

Hey, thanks so much for taking the questions. I guess the two for me would be with respect to the revenue guidance that you provide for next year, do you anticipate any more price increases in calendar year 2022? I'm sorry if I missed that if you already said something, Kevin. I apologize. And then the second question that I would have is, maybe for Mihales, is that what would be kind of the expectation of palatability of kind of the baseline adjustments that you're kind of proposing here? Has this been discussed in the past? Would there be certain kind of champions internally at the FDA that share this viewpoint that it's very important to control for these things?

[Mihael Polymeropoulos:]

Sure. Thanks, Chris. Kevin, do you want to take the first question? I'll take the second.

[Kevin Moran:]

Yes. Yes. No problem. So yes, Chris, just to clarify, you've said any more price increases in 2022, so we haven't taken any price increases in 2022. And it's something that we obviously continually monitor and evaluate based on facts and circumstances but nothing that we've communicated as planned at this point.

[Chris Howerton:]

That's clear.

[Mihael Polymeropoulos:]

Okay. And Chris, I understand your question to be if we propose to adjust for these baseline severity inflation and then look at the results under that prism, who would be receptive to that. Well, first of all, the -- a large community of experts has discussed in the literature these approaches, especially in the context of failed studies, "failed studies in depression" and have recognized that baseline severity inflation is something very real. It is something that's been repeated in clinical studies and something that must be adjusted and controlled. Specifics on adjustments and cut-offs have been discussed in major depression, where a lot more therapeutics and large studies are being developed. However, this is not a new proposal. The proposal that when you specify on your inclusion criteria a certain degree of severity, that this may lead to baseline inflation, is actually well established across many indications. Our proposal is to correct for that if there is a true interaction between baseline severity and treatment effect. Well, that concept of statistical interaction is not new at all. It's been described in the statistical literature for over 50 years. So the concept there is that the expectation of the plain statistical models is that the effect of the treatment would be linear across a severity continuum. But that is not always true and there will be circumstances where at the bottom or at the very top of the baseline severity, because of inflationary pressures, the effect may be looking different. So what I discussed and of course, we're going to put all this in publications, in peer review channels, is that we observed a statistically significant interaction between baseline severity inflation and treatment effect. This actually gives the license and the obligation to look for subpopulations that would have benefited. And the subpopulation, of course, is the one with the low baseline inflation. When we look in that population of patients, then the study shows very significant evidence across a number of symptoms, as I said, including the primary endpoint and also across the entire set of patient reported outcomes of overall benefit but also individual symptom severity. Another part of your question was would there be champions at the FDA. Well, we hope so, right? Of course, we don't know that. And we hope so for the benefit of patients. And as I was discussing in my script, this is a major issue of public health significance, in that the FDA, over many years, has done a great job weeding out false positives, drugs that may appear to have an effect but actually don't have the effect. And while they have optimized their tools of review to do that, this, many times, is being done at the expense of the false negative. We know of no FDA guidance that actually discusses how to deal with placebo effect while the placebo effect is real and it is confounding many trial results. And many folks like yourself, like you have covered companies that develop psychiatric drugs, like drugs in major depression, you will know that there is a common theme that you need to run two or three studies to get one positive, right? But that should not be happening. This is not a situation where we should be gambling to find an effect of the drug.

[Chris Howerton:]

Yes. I mean I hear you. I guess my -- whatever, I don't have to respond. Yes. No, that totally makes sense. And I guess, one other question that I would ask with respect to the tradipitant kind of program moving forward, would you wait for kind of feedback from regulators on kind of the status of the current clinical package? Or are you planning on embarking on additional clinical studies prior to that?

[Mihael Polymeropoulos:]

Yes. Certainly, it is too early to answer this question. All I can say, we're committed to bring tradipitant to the market. And of course, we cannot do that ourselves. They have to be very involved discussions with regulators but also with experts because the experts are the ones who bring this information to the regulatory agencies. Now in terms of can we do additional clinical experiments where actually we can advance and confirm the thesis that we're developing. Potentially, yes but of course, we need to develop these designs. So the design, as I said, that the FDA has in their guidance for development of drugs of gastroparesis requires a 12-week study. And also, it requires that you prespecify one of the symptoms as a primary endpoint. Well, you heard from Dr. Abell today about the concerns across an entire set of experts in the literature and actually voiced to the FDA that the 12-week study is not very workable for many reasons. But also, there are other elements, as I said, specifying the primary endpoint as one symptom, change of nausea severity from the baseline, may not be reflective of exactly how these drugs work and what the patients need. And I don't think the simple answer is prespecify an endpoint, get the p value less than 0.05 and only then we have a drug. I think this kind of monolithic approach may be actually hurting the development of many drugs, including drugs for gastroparesis and affecting many, many patients. Recently, another company's drug failed to meet the primary endpoint in the 12-week study, where it had succeeded in the 4-week study for gastroparesis. This drug was discontinued and so was another one. So it is very likely, as I said and that's my hope, on behalf of the patients and developments in this field, that all these drugs are being revisited and the approach that Vanda is taking becomes a license to take another look and for the FDA and regulators to actually rethink what I call a monolithic approach and drive development of this very, very much in-need patient population.

[Chris Howerton:]

Okay, all right. That's very clear and I appreciate it. Okay. Well, thank you, Mihael, and thank you for taking the questions.

[Mihael Polymeropoulos:]

Of course. Thanks, Chris.

[Operator:]

I am showing no further questions at this time. I would now like to turn the conference back to Vanda management.

[Mihael Polymeropoulos:]

Yes. Thank you very much all for joining us and your interest in Vanda and we'll talk to you soon. Thank you.

[Operator:]

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