Vanda Pharmaceuticals Inc.
Q3 2016 Earnings Call Transcript

Published: 3 Nov 2016

[Operator:]

Welcome to the Q3 2016 Vanda Pharmaceuticals, Inc. Earnings Conference Call. My name is Ashley and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Jim Kelly, Vanda’s Senior Vice President and Chief Financial Officer. Please go ahead, sir.

[James Kelly:]

Thanks, Ashley. Good afternoon and thank you for joining us to discuss Vanda Pharmaceutical’s third quarter 2016 performance. Our third quarter 2016 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. Polymeropoulos, our President and CEO, and Gian Piero Reverberi, our Chief Commercial Officer. Following my introductory remarks, Dr. Polymeropoulos will update you on our ongoing activities. Then I will comment on our financial results before opening the lines to your questions. Before we proceed, I would 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 that involve risks, changes in circumstances, assumptions and uncertainties. These risks are described in the Risk Factors and MD&A of Financial Condition and Results of Operations sections of our annual report on Form 10-K for the fiscal year ended December 31, 2015 and on our subsequently-filed quarterly reports on Form 10-Q, which are available on the SEC's EDGAR system and on our website. We encourage all investors to read these reports and our other SEC 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. Mihael Polymeropoulos.

[Mihael Polymeropoulos:]

Thank you, Jim. Good afternoon, and thank you very much for joining us today. The third quarter has been a transformational quarter for Vanda. As you all know in August 2016, the Delaware District Court ruled that Roxane Laboratories proposed in our equation of Fanapt infringed the assistive claims of the Fanapt 610 and 198 patents. And the court issued an injunction barring Roxane from marketing its product until the expiration of the later expiring 610 patent on November 2, 2017. This event will now allow Vanda to establish and grow it from Fanapt society franchise build a solid engine of revenue growth. The Fanapt and HETLIOZ franchises represent a solid foundation for future growth upon which Vanda will continue to expand its reach in new indications and patient in populations. Looking in more detail this quarter results, Q3 revenue grew by 36% compared to the third quarter of 2016 and it highlights the success Vanda has had commercializing HETLIOZ and Fanapt over the past year. Compared to prior year, HETLIOZ sales grew by 60% and Fanapt sales grew by 19%. On the HETLIOZ most of our new patient demand continues to come from the combination of our direct to consumer and our field base grassroots awareness efforts. In addition, our database of physicians with likely patients has now grown to several thousand doctors. This group of physicians will now become a key target for our sales force to drive additional growth over the coming years. Our European expansion strategy for HETLIOZ is also progressing as planned. In August 2016, HETLIOZ was made available in Germany, representing the first launch of HETLIOZ outside of the U.S. We are currently preparing for the unlock process and we expecting the [indiscernible] to happen this quarter. In other EU markets, the preparation of [indiscernible] is underway. On Fanapt; in October 2016, Vanda settled its Fanapt patent litigation against Taro Pharmaceuticals allowing Fanapt exclusivity to extend in 2028 under certain conditions. We are now committed to significantly expand our Fanapt sales force in the first quarter of 2017. This expansion of our sales and marketing effort will allow for a broader reach into the prescriber base to drive new growth for this product. Update on our pipeline; first, I would like to update you on clinical development activities, ongoing in plant for both HETLIOZ and Fanapt and then discuss our tradipitant clinical studies. We believe that further clinical development with HETLIOZ beyond the current Non-24 indication in adults has the potential of driving significant revenue growth of this franchise over the coming years; specifically studies to develop a pediatric formulation and randomized studies in patients with Smith-Magenis Syndrome and Jet Lag Disorder are currently underway. Development of the pediatric formulation of HETLIOZ will open new opportunities for development in indications that extend beyond Non-24 to a broad range of developmental disorders with circadian challenges, including autism spectrum disorders. On Fanapt, we are evaluating a broad lifecycle management plan under which a number of opportunities are under consideration. These opportunities include indications of bipolar disorder and major depressive disorder, nightmares in post-traumatic stress disorder, irritability in patients with autism, as well as the development of a once-a-month injectable formulation of Fanapt for patients with Schizophrenia. We plan to prioritize and select programs for further developments starting next year. Our clinical development pipeline work on tradipitant and trichostatin is ongoing. On tradipitant, a study in patients with pruritus is ongoing and a second study in gastroparesis patients will start this quarter. Both studies are expected to be completed in 2017. The recent publication of results of the APRON study in basis with gastroparesis further validates the potential role of neurokinin-1 receptor antagonist this disorder. Gastroparesis affects as many as 1.8% of the U.S. population and constitutes a significant unmet medical need. On trichostatin A, we are on track for filing an IND in 2017 for certain oncology indications. In summary, this quarter has been a transformational quarter for Vanda and we look towards significant growth for our products over the quarters and years to come. Jim.

[James Kelly:]

Thanks, Mihael. I'll now update you on the Q3 financial results. Total revenue for the third quarter of 2016 was $38.5 million a 7% increase compared to $36 million in the second quarter of 2016 and a 36% increase compared to $28.3 million in the third quarter of 2015. HETLIOZ net product sales grew to $18.7 million in the third quarter of 2016, a 7% compared to $17.5 million in the second quarter of 2016 and a 60% compared to $11.7 million in the third quarter of 2015. As of September 2016, the specialty pharmacy channel had less than two weeks of inventory as calculated based on trailing demand. Fanapt net product sales grew to $19.8 million in the third quarter of 2016, a 6% increase compared to $18.6 million in the second quarter of 2016 and a 19% increase compared to $16.7 million in the third quarter of 2015. As of September 2016, the wholesalers held more inventory than the prior quarter with a net product sales value of approximately $1 million. During the third quarter of 2016, we saw retail pharmacy demand that aliened with the prescription TRx trends. You will see in our press release that Vanda is offering non-GAAP financial information. We do so, because we believe that non-GAAP financial information can enhance an overall understanding of our financial performance, when considered together with GAAP figures. During 2015 and 2016 Vanda non-GAAP net loss excludes stock based compensation and intangible asset amortization. On a non-GAAP basis during the third quarter of 2016, Vanda recorded non-GAAP net income of $4.6million as compared to a non-GAAP net income of approximately 400,000 for the second quarter of 2016. And compared to a non-GAAP loss of $4.5 million for the third quarter of 2015. On a non-GAAP basis for the third quarter of 2016, Vanda recorded non-GAAP operating expenses excluding cost of goods sold of $27.1 million compared to $29.3 million in the second quarter of 2016 and $26.4 million in the third quarter of 2015. The sequential decline in spend was a result of lower HETLIOZ awareness and legal spend. Vanda cash, cash equivalents and marketable securities referred to as cash as of September 30, 2016 were $142.6 million compared to a $136 million as of June 30, 2016. Reflecting an increase in cash of $6.6 million in the quarter. Vanda reiterates prior 2016 financial guidance and expects to achieve the following financial objectives. Net product sales from both HETLIOZ and Fanapt are between $143 million and $153 million. HETLIOZ net product sales of between and $73 million and $78 million and likely at the lower end of this range. Fanapt our net product sales of between $70 million and $75 million. Non-GAAP operating expenses excluding cost of goods sold between $125 million and $135 million and likely at the lower end of this range. Non-GAAP operating expenses excludes intangible asset amortization expense of $10.9 million and stock based compensation of between $8 million and $10 million. Year-end 2016 cash is expected to be between $123 million and $143 million and likely at the higher end of this range. I will now turn the call back to Mihael.

[Mihael Polymeropoulos:]

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

[Operator:]

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question from JMP, we have Jason Butler.

[Jason Butler:]

Hi thanks for taking the question. First quick one, sorry if I missed this, but Mihael did you say how many reps that you plan on adding for Fanapt next year?

[Mihael Polymeropoulos:]

Thank you Jason. We have not discussed that but I can give you some guidance there. Currently we have 50 territories, clearly, this is not the right number. We are at the final stages of sizing and aligning the new territories. We believe that the final total number for a more effective commercialization of Fanapt to psychiatrist will be a number between 100 and 150. It is not likely that we are going to give a lot of guidance given the fact that this is a competitive field, but generally the number will be a number between a 100 and 150.

[Jason Butler:]

Okay great. And then as you start to think about the next indications to develop Fanapt for example you mentioned bipolar disorder and MDD. How does the clinical profile of Fanapt fit into those various indications, for example, a lack of akathisia, are there any patients settings where you think the drug might be better suited?

[Mihael Polymeropoulos:]

Absolutely, thanks for this question. Before I answer this question, just to remind everybody that Fanapt is approved for the indication of schizophrenia in adults in the U.S.; I refer everybody for a full discussion of efficacy and safety to www.fanapt.com. Now, the profile of Fanapt is an antipsychotic is differentiated in certain side effects that may appear more or less in other drugs in the category. Specifically on your question on akathisia, the U.S. label describes that Fanapt in the placebo control studies produced a level of akathisia similar to placebo. We know that this profile can be very useful for patients and physicians, especially in the context of other antipsychotics recently approved, where the akathisia is certainly not zero and for some of them at single digit percentages. So, we believe that Fanapt inpatients basis with schizophrenia will be a driver that will used once patients switch from another medication primarily because of tolerability and specifically that specific schizophrenia patient that needs to switch and has experienced drug this akathisia on another drug may be actually a very well suited patients for Fanapt. Now on the question of how we are going to go ahead and prioritize from the potential indications by bipolar depression or in adjunctive treatment in MDD. What we are looking at currently are of course probably built this technical success and generally antipsychotic, when studying these indications have been shown generally to be effective. And therefore, we believe there is clinical development program that one can develop with a reasonably likelihood of success. We are also looking at the commercial opportunity, which is a combination of what we offer to the patients and doctors based on the unique property of Fanapt as will be shown in the clinical studies and what if the competition like in the market place. So we will make this decisions based on that. We also point out that the indications that has not been pursued by other antipsychotics specifically would intrigue by the potential row of an agent like Fanapt in the treatment of nightmares in patients with PTSD or post-traumatic stress disorder. There is a belief in the current literature that antipsychotics or agent with strong alpha-1 adrenoceptor antagonist profile may be particularly useful in quieting the nightmares in patients with PTSD. And I'll remind you that Fanapt as an agent with very significant alpha-1 adrenoceptor antagonistic properties. We of course are always interested in pediatric applications. We know that two other agents in the antipsychotic has been developed for certain symptoms of irritability in children with autism and that is an indication part of the long-term planning for pediatric indication. And finally, we have discussed before that Fanapt and like other antipsychotic, has been already formulated in a once-a-month injectable formulation. This formulation can be particularly useful to address the poor compliance often seen in patients with schizophrenia. So of course, we are not going to be able to do all of that do it right away, so you are going to see us proceed with to be very selective proceed with discipline, but certainly we want to begin some of this clinical programs as soon as possible and very likely next year.

[Jason Butler:]

Great really helpful, thanks Mihael and then just a quick one for Jim, back on to Fanapt prescription trends. Last quarter we saw somewhat of a dissociation between third-party prescription data and what you saw in the channel or through the wholesaler sales. Can you maybe speak to what you saw this quarter. I think you touched on it in the prepared comments, but is IMS this quarter has been it more productive of wholesaler sales?

[James Kelly:]

Thanks for the question Jason. We use symphony data in addition to of course we have access through our wholesalers to their sell through data to the retail channel. What we saw this quarter is that they were very much in line to each other, both showing a very low single-digit decline sequentially.

[Jason Butler:]

Okay great. Thanks a lot for taking the questions and congrats on the quarter.

[Operator:]

Thank you. And next from Jefferies, we have Matthew Andrews.

[Matthew Andrews:]

Hi good afternoon. Thanks for the chance to ask a couple of questions. Jim just following up on Jason's question there; in the 50 key territories, are you specifically describing the overall market trends with the TRx or referring to the 50 territories where you currently detailed Fanapt with the relative correlation between IMS data and the sales?

[James Kelly:]

Thank you for the question Matthew. So what we saw this quarter I'll start with the TRx relative to the retail demand; and they were both approximately the same and I'm describing a 1% to 2% sequential decline. Now on the national TRx there is approximately 2% sequential decline. What we saw when you drill down deeper with our Fanapt 50 and compare that to the white space is they were both about the same this quarter. When we look at that information, my reaction was surprising and that the white space had a less of a decline than we have seen in some of the prior periods. I would love to see that continue, but I wouldn't bet on it.

[Matthew Andrews:]

Okay, thank you for that. Do you have any unique approach to potentially treating Jet Lag Disorder with HETLIOZ. So considering the orphan nature of Non-24 and the pricing considerations there, how does that play into your strategy as you think about developing Jet Lag Disorder in terms of the type of patients you are targeting with the clinical program, potential pricing in JLD, what are you general thoughts relative to JLD and pricing et cetera?

[Mihael Polymeropoulos:]

Thank you Matthew. And this is a very important question, because of course our first priority is to not defer our current orphan Non-24 premium price franchise. And we believe there is a path forward to that if we were successful on the clinical development program with Jet Lag. So the way you should be thinking about that is that our target patient is a frequent business traveler with significant problems, because of Jet Lag with night time sleep, and day time functioning. So the pricing we envision is actually identical with the price per [PO] (Ph) with the orphan indication; and to remind you approximately the daily price for HETLIOZ is in the order of $400 or so per day. So, our view is that for treating Jet Lag, the price will be our pricing, the number of nights that we are testing will be necessary for - our treatment of the Jet Lag symptoms will be three nights, so the total package for the treat is between a $1000 or $1200. Something very consistent with one day per [DM] (Ph) expense of a business traveler.

[Matthew Andrews:]

Okay great thank you. I’ll get back in the queue, I appreciate it.

[James Kelly:]

Matthew if you would like to ask another question, please feel free.

[Matthew Andrews:]

No, I’ll let others if necessary, thanks.

[Operator:]

Thank you and we have another question from Jason Butler.

[Jason Butler:]

Hi thanks for taking the follow-up. Just wanted to ask a question about the, you mentioned the APRON data we just presented in gastroparesis, can you speak to what your learning from that trail were and the result and how that informs your development of tradipitant any indication? Thanks.

[Mihael Polymeropoulos:]

Thank you very much Jason, just for everybody on the phone gastroparesis is a very common indication that can effect up to in some prevalent studies 1.8% of the U.S. population or that translates about six million people. There is very little available to clear this condition and it is considered by patients and specialty gastroenterologist as significantly unmet medical needs that carry significant morbidity and at times mortality. It lends its name to the physiological observation of the late summer campaign and present itself with nausea, frequent episodes of vomiting, post postprandial fullness, abdominal pain et cetera. So the APRON study was an NIH sponsored study, used in a neurokinin-1 receptor antagonist applicant who has been approved for the treatment of chemotherapy induced nausea and vomiting. And this study showed something very interesting that not only the drug was able to treat the symptom of nausea as would have been expected. But also it had effect in almost all the other symptoms of gastroparesis including postprandial fullness, satiety and even abdominal pain. That would suggest that the effect of neurokinin-1 receptor antagonist in this setting is not simply an improvement of nausea flu acting in chemo receptor of the brain, but actually likely a local effect in the stomach near the muscular environment that would make these agents not just offering systematic relief. But probably disease modifying or mechanism modifying. So we have taken this learning’s from the APRON study and the results as we are in the final design of our questioners service and end points that will be included in our gastroparesis study. So our view here is that it’s successful. Tradipitant can become the first approved agents from this class for the treatment of gastroparesis to not only address the symptoms of nausea but many other of the symptoms that are described between the syndromic features of gastroparesis.

[Jason Butler:]

And then if I may just one more on HETLIOZ. You said you have now started enrollment in the Smith-Magenis placebo control trial and the primary end point according to [indiscernible] is its sleep parameters. Could you maybe discuss a little bit more about how those sleep measurements compare to what you did for the Non-24 indication, whether you are looking in any more detail at sleep architecture and what are your views on what might be necessary for or acceptable for regulatory submission for the indication? Thanks.

[Mihael Polymeropoulos:]

Yes thank you and that will remain an open question as you know no one has developed today a drug to address the cardinal feature, clinical feature of SMS, which is sleep disorder. And just to remind you what we learned from the extensive study and the observational study, is characterizing further the sleep effect, we confirmed one, that the sleep disorder is associated with an inversion of the circadian rhythm that of melatonin that is secreted in these patients during the day instead of the night. And second, by using daily actigraphy and parent reported diaries, we are now able to describe the sleep deficit as significant periods of awaking as islands of awakening in the middle of the night. So intent here is to examine whether tasimelteon administered at day time will improve both the subjective reports by the parents on the daily diaries of the quality of sleep; but also the surrogate flu actigraphy and our own internal analysis of these islands of wakefulness. So soon, we will reach now to the FDA to meet with them, share the results of the observational study and begin a discussion on the optimal end point. But it will be likely a combination of the subjective data by parents on a daily basis and the objective actigraphy data.

[Jason Butler:]

Great. Thank you for taking the follow-up and the additional color.

[Mihael Polymeropoulos:]

Thanks Jason.

[Operator:]

Thank you. We have no further questions. At this time I would like to turn the call over to Dr. Polymeropoulos for final remarks.

[Mihael Polymeropoulos:]

Thank you very much all for joining the third quarter call; and we look forward to seeing you in the future calls. Thank you very much.

[Operator:]

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.