Vanda Pharmaceuticals Inc.
Q3 2013 Earnings Call Transcript

Published: 7 Nov 2013

[Operator:]

Welcome to the Q3 2013 Vanda Pharmaceuticals, Inc. Earnings Conference Call. My name is Vivian, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now like to turn the call over to Mr. Jim Kelly, Senior Vice President and Chief Financial Adviser. Mr. Kelly, you may begin.

[James Patrick Kelly:]

Thank you, Vivian. Good morning, and thank you for joining us to discuss Vanda Pharmaceuticals' third quarter 2013 performance. Our third quarter 2013 results were released this morning and are available on the SEC's EDGAR system and on our website. In addition, we are providing live and archived versions of this conference call on our website and a telephone replay of this call will be available through November 14, 2013. Joining me on today's call are Dr. Mihael Polymeropoulos, our President and CEO; Bob Repella, our Senior Vice President and Chief Commercial Officer; and Dr. Paolo Baroldi, our Senior Vice President and Chief Medical Officer. Following my introductory remarks, Dr. Polymeropoulos and the management team will update you on our ongoing activities. Then, I will comment on our financial results for the third quarter of 2013 before opening the lines for your questions. Before we proceed, I'd 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 that involve risks, changes in circumstances, assumptions and uncertainties. These risks are described in the Risk Factors and Management Discussion and Analysis of Financial Conditions and Results of Operation sections of our annual report on Form 10-K for the fiscal year ended December 31, 2012, and our subsequently filed quarterly reports on Form 10-Q, which are available on the SEC 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 H. Polymeropoulos:]

Thank you, Jim. Before I start, it is important to clarify for everybody that Jim Kelly is still our Chief Financial Officer and not adviser, as he was introduced. So it's all good. Good morning, everyone, and thank you very much for joining us. Over the last quarter, our organization has been focused on 2 key activities

[Robert Repella:]

Thanks, Mihael. I'd like to take a few minutes this morning to provide you with the brief update on both our market development activities and launch preparation for HETLIOZ and Non-24. During the third quarter, we continued our efforts focused on disorder awareness and education through both direct and indirect channels. These engagements emphasize the direct link between blindness and Non-24; the high prevalence of the disorder among the totally blind; and if Non-24 is a circadian rhythm misalignment, which results in disrupted nighttime sleep, daytime sleep episodes and compromised occupational and social functioning. As part of our communication efforts, in late September, we initiated a direct response radio campaign as a pilot program in 5 cities across the U.S. This program has been very successful at aiding awareness and understanding of the disorder, as measured by a variety of qualitative and quantitative metrics. As a result of this early success, we recently expanded the radio campaign to additional cities, and we are presently evaluating a targeted national program. Turning to our launch preparation efforts. We have made significant progress across all key areas, including marketing, sales, managed markets and trade. I would like to highlight a few examples

[James Patrick Kelly:]

Thank you, Bob. During the third quarter of 2013, Vanda recorded a net loss of $5.4 million, as compared to a net loss of $5.3 million for the third quarter of 2012. On a diluted shares basis, this reflects a net loss of $0.17 per share for the third quarter of 2013, as compared to a net loss per share of $0.19 for the prior year. Total revenues for the third quarter of 2013 were $8.7 million, as compared to $8.3 million for the third quarter of 2012. In these periods, there were 2 sources of revenue. They are licensing revenue and royalty income. Third quarter 2013 and 2012 revenues each included $6.7 million of licensing revenue related to the amortization of the upfront payment received from Novartis for U.S. and Canadian commercial rights to Fanapt. Third quarter 2013 revenues included $2 million in Fanapt royalties received from Novartis, as compared to $1.5 million in the same period in the prior year. During each period, Vanda recognized a 10% royalty on Novartis net sales of Fanapt. U.S. Fanapt prescriptions, as reported by IMS, were approximately 43,600 for the third quarter of 2013. This represents a 13% increase over third quarter 2012 prescriptions and a 5% increase versus the second quarter 2013. Total operating expenses for the third quarter 2013 were $14.1 million, compared to $13.7 million in the third quarter of 2012. Research and development cost of $8 million in the third quarter of 2013 include $3.5 million in milestones associated with the FDA acceptance of the tasimelteon filing. This compares to $10.2 million in R&D spent in the third quarter of 2012. Excluding the impact of the one-time milestone, the current quarter R&D cost reflects a $5.6 million decrease versus the prior year. The primary reason for the lower expenses in the third quarter of 2013 was the completion of the tasimelteon Non-24 in Major Depressive Disorder efficacy studies. The speed of the resulting decline in R&D expenses has exceeded our expectations, and we believe this positions us well as we transition towards becoming a commercial-stage company. General and administrative expenses were $5.7 million for the third quarter of 2013, compared to $3.1 million in the third quarter of 2012. The increase of $2.6 million in the current quarter is reflective of the ongoing preparations for a potential tasimelteon commercial launch in the United States. On August 7, 2013, Vanda completed the public offering of approximately 4.7 million shares of common stock, resulting in net proceeds of $48.6 million. Vanda's cash, cash equivalent and marketable securities, which I'll refer to as cash, as of September 30, 2013, totaled $142.2 million. Also, as of September 30, 2013, there were approximately 33.2 million shares of Vanda common stock outstanding. Vanda is providing the following financial guidance for the full year 2013. 2013 expenses are expected to reflect lower research and development spending as compared to 2012 and an increase in commercial spending. Reflecting the recent public offering and year-to-date expenditures, Vanda now expects that it will end the year with between $130 million and $135 million in cash. Total 2013 operating expenses are expected to be between $50 million and $55 million and a decrease in cash, excluding the impact of the recent public offering, is expected to be between $35 million and $40 million. I will now turn the call back to Mihael.

[Mihael H. Polymeropoulos:]

Thank you, Jim. And before we proceed with our Q&A, just to make a process remark, given our proximity to the Advisory Committee of November 14 and all the information that comes with that, including the written books by Vanda and the FDA, which we understand will become publicly available about 48 hours prior to the November 14 meeting, it will not be appropriate for us to address any questions, to comment on the data, the interactions with the FDA and the probability of outcomes. So while we'll take questions, please try to limit your questions in items that do not address directly the Advisory Committee. So with that, we'll open the line for questions.

[Operator:]

[Operator Instructions] And our first question comes from Charles Duncan from Piper Jaffray.

[Charles C. Duncan:]

I wanted to ask you a little bit about that awareness campaign to see if I could get some additional color. Bob, you mentioned that it was a radio campaign in 5 cities or so. And you suggested that more could be coming. Could you give us a sense of numbers, the actual locations and perhaps, timing?

[Mihael H. Polymeropoulos:]

Yes. Bob, we will go ahead. Clearly as long as you understand, we're not going to give any numbers as to the pilot, but we can characterize the geography, since many of you actually have listened to this radio ad. But maybe it is important to characterize what we are trying to accomplish, what do the ads look like for those of you that have not listened to that. Bob?

[Robert Repella:]

Sure. So we continue to try and identify the most effective ways to connect with the blind community. And we've listened to our advisers. We've listened to the groups that we've interfaced with and our ambassadors. And clearly, they suggested radio. We've looked clearly at where the blind population tends to aggregate in terms of density. I'll give you a couple of examples of cities that were in the initial pilot

[Charles C. Duncan:]

And, Bob, I'm just -- I understand that there's never been a drug for Non-24 in the past. But are you anticipating a challenge in identifying patients or awareness? Or has the response been pretty robust and pretty well understood by at least the thought leader community and the advocacy community?

[Mihael H. Polymeropoulos:]

I will let Bob characterize in the last part. Let's talk a little bit about numbers and expectations. We know that by all metrics and research we have done that there are approximately 80,000 blind people in the U.S. with Non-24. But we're also aware that awareness of the disorder itself among the blind community and among physicians who treat them is low. So what should we expect here? We should expect that an efficacious agent like HETLIOZ will certainly provide benefit to these thousands of patients with the disorder. But we should also not underestimate the degree of effort that we have to put forward to create awareness. So as we're all thinking about the prospects of commercial success that we are very confident in, is that awareness is going to become a pillar of a successful commercial strategy. For the second part of your question, you're asking advocacy organizations, thought leaders, how are they thinking about the drug and what it has to offer. And for that, I'll ask Bob to comment.

[Robert Repella:]

Sure. I would just say, in terms of our strategy, it's really no stone unturned in terms of connecting with the blindness community. And I've mentioned before, we go at it from both a direct and an indirect type of approach. The radio campaign is a great direct example. Kate Holland and her team are basically embedded within the blind community at all different types of programs in terms of direct connectivity. Indirectly, I've characterized previously some of the work that we've done with education and rehab entities, or even the Ocularist Society, ASO, which is a great example because their meeting is coming up, their annual meeting, in the next few weeks and certainly, we'll be active at that session. So we're covering a waterfront in terms of making sure that awareness and education amongst the blindness community is strong with regard to Non-24.

[Charles C. Duncan:]

And then my last question is, if you could just update us on your thoughts as to call it the size of the commercial infrastructure, given that you mentioned that referral networks seems like you could get some good traction with leveraging that. But what are the number of guys that you think that you'll need to hire when -- if HETLIOZ is approved and you launch it.

[Robert Repella:]

Sure. We look at this opportunity as one that can be very productive and efficient simultaneously. And I think in the past when we've talked, generally, the characterization I've provided is, when you look at medical affairs and commercial, approximately 50 or so individuals, when you look at our account sales team, our medical science liaisons in the field and then our in-house staff with respect to brand marketing and medical affairs as well. So when we contemplate covering the network and all the other programs and activities we need to put in place, we think that's an appropriate number for us to effectively launch the product and have a significant impact in the market.

[Operator:]

And our next question comes from Jason Butler from JMP Securities.

[Jason N. Butler:]

Just a quick one on -- assuming a positive outcomes in the panel approval, how quickly do you think the drug could be available for patients?

[Mihael H. Polymeropoulos:]

So with the Advisory Committee on schedule on November 14, the PDUFA is scheduled for January 31. That would mean that we're ready to go at the beginning of February. But of course, that is lag of a couple of months before you have all of your materials, labels, et cetera. So with an approval on schedule on January 31, it is likely, we would be ready to be on the market sometime in April, May of next year.

[Jason N. Butler:]

Okay, great. And then did you expect to have reimbursement in place at the time of launch? Or is that something that's going to take some period of time to fully come on board?

[Mihael H. Polymeropoulos:]

Great. I'll just make a general comment and then Bob can explain what's within that front. Our major effort is about access of the drug to patients. We want to make sure that every blind person that needs the drug will be able to get it. And therefore, there are 2 activities that we engage in and Bob can describe, one is the payers' side and reimbursement and the other one is patient assistance. Bob?

[Robert Repella:]

Sure. So we spent a lot of time with payers, whether it's in focus groups or one-on-one for in-depth interviews and educational interactions. And we're very encouraged by the dialogue and the feedback that we've gotten for HETLIOZ in Non-24. Like all launches, there's going to be that initial period of time where it has to be put into the system and potentially go to P&T. So while we expect that we will gain reimbursement upon launch in those plans, there's a little bit of time lag until it seamlessly flows through those health plans. But overall, we don't anticipate issues, and we think that access and reimbursement will be readily available for the blind community.

[Jason N. Butler:]

Just a follow-up on your comment about P&T communities there. Did you expect -- is there a potential addressable patient population and inpatient setting here either in a long-term care facility? Or something similar that you're thinking about focusing on?

[Robert Repella:]

We haven't spent a lot of time, honestly, when it comes to the long-term care segment. And we think that most of our patient population will be either commercial or partly Medicare in terms of their reimbursement. And then just going back to what was mentioned earlier around co-pay support, we will have that in place for commercial insured individuals. In addition, we will have the appropriate foundation support as well to make sure that anyone that's Medicare Part D also has an opportunity to mitigate their out-of-pocket costs. And we know that in the blindness community, there's a higher percentage of individuals that have Medicare because of their ability to qualify for Social Security Disability Insurance even if they're under the age of 65.

[Mihael H. Polymeropoulos:]

In summary, the expectations to be clear, is that the reimbursement at launch will be present. And a seamless process with commercial and government plans and the like should occur very soon.

[Operator:]

And our next question comes from Oren Livnat from Jefferies.

[Oren G. Livnat:]

I know you're going to yell at me, but I'm going to ask anyway, something about the Ad Comm coming up. Obviously, you can't comment on the review, but I'm curious if you are willing to comment at all about what sort of issues you've been preparing for as most likely -- I'm not going to say contentious but on the area do you think will most likely have some education or confusion on the panel, but you'd be prepared to address most thoroughly.

[Mihael H. Polymeropoulos:]

As you were speaking, Oren, and I could not resist thinking to list 5 issues and start going through them. But I don't have any, and neither would I tell you, if I did. So let's actually try to answer your question, it's a very important question. The way that we're preparing is to ensure that the Advisory Committee has all the necessary information and appreciation of the intricacies of the disorder, the endpoints and the benefits that tasimelteon has been shown to have for patients. At the end of the day when the committee votes, we believe that an informed committee will be our best ally. So this is exactly the significant effort we have undertaking during our preparation. Our briefing book will demonstrate that as well, and hopefully, our presentation and Q&A will demonstrate our efforts to educate the committee in this new disorder admittedly for everyone in front of the FDA. So while the disorder is known for 60 years, awareness is low and never has there been a sponsor that could brought a drug before the FDA or any regulatory agency in the world. And therefore, it is imperative that being first, Vanda, will have actually historical responsibility to do it right, inform the committee and have a thoughtful discussion.

[Oren G. Livnat:]

All right. I appreciate that. It's on the OpEx, you lowered your cash burn guidance, I think a solid $10 million for the year. And I'm just curious, you mentioned lower R&D and now it's apparent in the quarter. But have there been any changes to the timing or the speed of pre-commercials ramp spending that you had since last quarter.

[Mihael H. Polymeropoulos:]

So first of all, I would never complain about lowering our cash spend for the year, but here it is. As you know, historically, Vanda and its management team has been extremely prudent with cash over the last 10 years of existence of the company. And therefore, what we have done here is very thoughtfully decrease the R&D spend and focused all our expanded commercial efforts on the commercial efforts. Now the commercial efforts themselves, you should expect that it's going to have should changes in the rate of how we spend as we understand the best return on investment in the different programs. So as Bob mentioned, there's several programs. He highlighted one of them, radio campaign and piloting. Once some of these things are shown to be very strong with the ROI, you would see the spend increasing. So we believe that this reduction of $10 million in cash puts us in an exceptionally good position to thoughtfully and efficiently spend for the commercial campaign. There has been no decrease in the speed by which we prepare for the commercial launch.

[Oren G. Livnat:]

All right. If I may, just one more. I guess you speak to the educational and awareness efforts that will be necessary certainly to build this market. And also, I guess, this strategy of a referral network and how you see a lot of leverage there. I'm just curious, aside from the bigger penetration potential, just early on at the very outset, can you comment on maybe what sort of pent-up demand, you think, is already there with coming out of your trials, you obviously have a large patient registry and a database that's accumulated. So I'm just curious out of the gates, aside from reimbursement hurdle that may or may not exist, how much patient demand do you think could be there? And what sort of doctors do you have in place already or referred doctors to deal with that demand?

[Mihael H. Polymeropoulos:]

No, we're not going to give any numbers now. But we're aligned with every circle that's interest here, But we need to have this prelaunch awareness campaign. So when the drug becomes available early in 2014, a number of patients will be ready to go to the referral network. But what is it important is, as we launch in first, the second quarter rolled in, that we are showing that the demand is continuous; and we that we have an increase is what really matters, new patient starting, and patient scripts month after month. So of course we're doing our own preparation, calculations, but I would like everybody to focus on one number. The population that we need to reach and tell them that there's a drug them's the drug is available to them is 80,000 people. And we're not going to stop our awareness campaign until we are certain that at each one of the blind people who may need the drug for Non-24 know about it.

[Mihael H. Polymeropoulos:]

Okay, let us conclude this conference call. We thank you for your interest and support in Vanda, and please all tune in on the November 15 Advisory Committee for a lot more. Thank you.

[Operator:]

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