Vanda Pharmaceuticals Inc.
Q2 2015 Earnings Call Transcript

Published: 29 Jul 2015

[Operator:]

Welcome to the Q2 2015 Vanda Pharmaceuticals Inc. Earnings Conference Call. My name is Bakiva, 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 James Kelly, Senior Vice President and Chief Financial Officer. Please go ahead James.

[Jim Kelly:]

All right. Thank you, Bakiva. Good afternoon and thank you for joining us to discuss Vanda Pharmaceuticals' second quarter 2015 performance. Our second quarter 2015 results were released this afternoon and are available on the SEC EDGAR system and on our website, www.vandapharma.com. In addition, we’re providing live and archived versions of this conference call on our website. Joining me on today’s call is Dr. Mihael Polymeropoulos, our President and CEO. Following my introductory remarks, Dr. Polymeropoulos will update you on our ongoing activities. Then I will comment on our financial results for the second quarter of 2015 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 MD&A and results of operations sections of our annual report on Form 10-K for the fiscal year ended December 31, 2014 and on 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 like to now turn the call over to our CEO, Dr. Mihael Polymeropoulos.

[Mihael Polymeropoulos:]

Thank you, Jim and thank you very much for joining us. As we announced earlier today Vanda had an outstanding performance in the second quarter, evidence by a strong 25% increase in net revenue over the prior quarter, driven by strong HETLIOZ and Fanapt net product sales growth, resulting in total net revenue for the period of over $27 million. Specifically, HETLIOZ net product sales increased by 34% over the prior quarter to $10 million. Over this period, we saw a continued demand for new HETLIOZ prescriptions and a continuation of the strong refill rates that we had seen in prior quarters. We've strengthened our commercial efforts through the optimization of our direct-to-consumer advertising campaign and the launch of our Boost Program aimed at blind rehabilitation facilities around the country. Our DTC campaign continues to demonstrate strength, still performing in an unsaturated manner, further confirming the prevalence of Non-24 patients in the U.S. and underscoring the significant opportunity for growth. We've strengthened and optimized our commercial lending, both of the case management and the account management side, further driving demand, both from the legacy base and database as well as the new opt-ins. Our [indiscernible] parallel efforts with the Boost Program are beginning to lay in the results with daily generation of new opt-ins and the beginning of new discreet contribution. We've more than one transient programs targeted in this first phase and several hundred potential programs around the country, the Boost program has the potential to become a significant contributor to a new lead generation end revenue. We believe that continued lifecycle management of [set years] [ph] will be an important driver of future growth and I would like to briefly discuss three current areas of focus. First, HETLIOZ received European approval earlier this month, expanding the opportunity for patients with Non-24 in Vanda on an international scale. We've begun work with advocacy organizations around Europe, and we're making significant progress on the reimbursement front in an effort to ensure rapid and efficient access incentives in the end. Second, we continue preparations for the Smith-Magenis Syndrome clinical program expected to begin later this year. Third, we're preparing for the initiation of the program also expected to start later this year. We met with the FDA to begin discussions of the requirements for this clinical program and we believe that alone with two clinical studies already conducted in simulated jet lag one of this clinical study will be sufficient for filing. With the expectation that this clinical program will conclude by the end of 2016, we feel that we could be in a position to launch the jet lag indication as early as the first quarter of 2018. We believe that the jet lag indication has the potential to further strengthen and diversify revenue growth and the sub-initiatives as a significant franchise for Vanda for years to come. I will now turn to Fanapt. Fanapt contributed more than $70 million in net product sales in the second quarter. We commence commercial operations for Fanapt with our 28% sales force in late April, and we’ve recently increased the national field force to about 40 came in first toward high prescribers. While it is too early to tell the usual data points through a stabilization of the numbers of script as reported by the IMS and the slowing of the decline that we saw in the first quarter this year, this data are consistent without assumptions regards promotional sensitivity for this class of drugs and allow us to be optimistic about the prospects of Fanapt over the coming years. We will continue to evaluate and optimize the resources necessary for a successful re-launch over the next few months. This last quarter we announced the results of the Fanapt maintenance study and we plan to submit a supplemental NDA shortly which we believe will further enhance the U.S. label as well as provide us with a potential from an addition period of [civilization] [ph]. On the patent exclusivity front, we have filed additional patents in the FDA’s Orange Book and expect more will be listed over the next few months. We continue our litigation against Roxane and Inventia and feel confident that we will be able to successfully [understand] [ph] our intellectual property with patent terms that extent into the late 2020s and 2030. Briefly, finally on our emerging pipeline, we continue to progress towards the initiation of a tradipitant study later this year and an expected IND filing of Trichostatin A in 2016. At this time, I’ll turn the call back to Jim.

[Jim Kelly:]

Thank you, Mihael. You will see in our press release that Vanda is offering non-GAAP financial information. We do so because we believe that non-GAAP information enhances the overall understanding of our financial performance when considered together with GAAP figures. On a GAAP basis, from second quarter of 2015, Vanda recorded a net loss of $5.4 million or $0.13 per share as compared to a net loss of $21.6 million or $0.64 per share in the second quarter of 2014. On a non-GAAP basis, for the second quarter of 2015, Vanda recorded a non-GAAP loss of approximately $400,000 or $0.01 per share. This is compared to a non-GAAP loss of $27.3 million or $0.81 per share for the second quarter of 2014. Total net product sales for the second quarter of 2015, increased by 25% over the prior quarter to $27.6 million. On a non-GAAP basis for the second quarter of 2015 non-GAAP total revenues, which excludes non-cash finance licensing revenue in prior periods grew by $24.5 million or 790% to $27.6 million as compared to $3.1 million in the second quarter of 2014. This is the result of strong U.S. sales performance for HETLIOZ and the acquisition of the Fanapt product likes at the end of 2014. HETLIOZ net new product sales grew to $10 million in the second quarter of 2015, a 34% increase compared to $7.5 million in the first quarter of 2015. As of June 30, 2015, the specialty pharmacy channel held less than two weeks of inventory as calculated based on trailing demand. Fanapt U.S. net product sales grew to $17.6 million in the second quarter of 2015, a 20% increase compared to $14.7 million in the first quarter of 2015. On a non-GAAP basis, for the second quarter of 2015, Vanda recorded non-GAAP operating expenses excluding cost of goods sold, stock-based compensation and intangible asset amortization of $22.3 million compared to $30.2 million for the second quarter of 2014. The non-GAAP operating expenses for the second quarter of 2015 were approximately 4% higher than the first quarter of 2015. Vanda expects to see an increase in non-GAAP operating expenses in the second half of 2015 associated with the previously communicated commercial activities for Fanapt in the U.S, the EU launch preparations for HETLIOZ and lifecycle management plans for each product. Vanda’s cash, cash equivalents and marketable securities as of June 30, 2015, grew to $146.6 million compared to $134.3 million as of March 31, 2015. Year-to-date Vanda cash flow benefited from the timing of payments for the Fanapt gross net liabilities and from the final Fanapt royalty payment. 2015 financial guidance, Vanda is updating its prior 2015 financial guidance and expects to achieve the following financial objectives in 2015. Combined net product sales from both HETLIOZ and Fanapt of between $100 million and $115 million compared to the prior guidance of $95 million to $110 million, HETLIOZ’s net product sales of between $40 million and $45 million, Fanapt net product sales of between $60 million and $70 million compared to prior guidance of $55 million to $65 million, non-GAAP operating expenses including cost of goods sold of between $100 million and $110 million compared to prior guidance of $105 million to $120 million. This reflects our expectation for continued commercial and R&D efficiencies this year as we deliver our planned activities. Non-GAAP operating expenses also excludes intangible amortization expense of $13 million and stock-based compensation of between $8.5 million and $10.5 million. I will now turn the call back to Mihael.

[Mihael Polymeropoulos:]

Thank you very much Jim. At this time, I’ll be happy to answer any questions you may have.

[Operator:]

Great, thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question is going to come from Jason Butler from JMP Securities. Please go ahead. Q - Harry Jenq Hi this is Harry on for Jason. Congrats on the quarter. Just had two questions regarding HETLIOZ. On the Jet lag indication, could you speak a little bit more on the trial design and on the Smith-Magenis indication, is there any potential for the first trial to be your registration trial?

[Mihael Polymeropoulos:]

Thank you very much, Jason. On the jet lag program, so first of all we expect that the NDA filing will have the results of two studies, two studies that have been previously conducted in a simulated jet lag and we are successful in demonstrating clinical significant benefits. Those two studies were published a few years ago in the Journal [Lancer] [ph]. The third and final study will constitute the only remaining studies to be conducted will be a study where volunteers will actually fly from the U.S. to European destinations and sleep benefit of this will be evaluated both with objective and subjective measures. So that is on the jet lag side. The question was -- can you repeat again?

[Harry Jenq:]

Sure. Is there any potential for this first trial to be the registration trial?

[Mihael Polymeropoulos:]

Yes, it is our full expectation that given the orphan nature of the disorder and the scarcity of patients, that our design will be sufficient for these to be registration study. However, I will caveat that that we've not yet had the opportunity to meet with the FDA and confirm that and we expect that we should be able to do that later this year.

[Harry Jenq:]

Great, thank you.

[Mihael Polymeropoulos:]

Thank you.

[Operator:]

Thank you. Our next question is going to come from Corey Davis with Canaccord Genuity. Please go ahead.

[Corey Davis:]

Thanks very much. First one is how much of the 20% sequential increase in Fanapt was price versus volume was there any inventory stocking in the channel in the quarter?

[Mihael Polymeropoulos:]

Thank you, Corey. I will actually pass this question along to Jim Kelly.

[Jim Kelly:]

Hi Corey. Hey, so while we’re not going to go into too much detail on it, I think the feedback that we have given the folks so far is that in May we took about a 10% price increase and so, of course not all of that flow through. Of course you only get part of the quarter with that and then of course there is the gross to net implication and so the feedback we share is that, we saw some nice robust sequential growth in units. Now that said, the forward looking guidance we gave, the range it really ranges around being able to stabilize at these levels on a full year or perhaps seeing some downtick or uptick, but it's more of a variance around stabilization than growth at this point until we get further experience in the marketplace.

[Mihael Polymeropoulos:]

Yeah, so that is on the revenue side in the units sold by Vanda, but it is important to point out that in Q1 when we first got the product from Novartis, we saw a sequential decline in IMS report script of about 6% from the fourth quarter of 2014. What we see now in the second quarter of 2015 a sequential decline of about 2.5% or so and in fact the early analysis of that, that most of the decline was on the front of the second quarter before our re-launch. So all these are perhaps sign that this launch is stabilizing the scripts and we should look forward on a robust Q3 as well.

[Jim Kelly:]

And then Corey to answer your question about the channel, the units purchased as compared to the downstream sale out of the wholesalers were approximately the same.

[Corey Davis:]

Okay. And second question is how important is it for you to think about profitability in 2016 with all these new launches and trials starting, it sounds like the spending might grow faster than the revenue at least in '16 on non-GAAP basis?

[Mihael Polymeropoulos:]

Yes I'll answer in general this question maybe Jim has a comment on that as well. First of all the high level is we're not talking about profitability at this point and we're not guiding. However, we are extremely excited that we see very strong and robust revenue growth on both assets and we also see that the team is being to accomplish that with a lot of discipline. Hence the efficiencies on the commercial side and the R&D side and our today's guidance will be little lower OpEx than expected. I think and then I'll leave it there.

[Corey Davis:]

Okay. And the third one would be again high level, how successful you think HETLIOZ can be in Europe?

[Mihael Polymeropoulos:]

Well, we're at the beginning phase. Of course just approved we know that as it was in the U.S. awareness of Non-24 among patients with Non-24 in Europe is low least diagnosed, under diagnosed. So significant amount of work we needed to be done on awareness. However lessons learned from the U.S. for example working very closely with blind advocacy organizations leasing understand how blind individuals receive the information not just overall here, but individual lookout is going to be extremely important. We believe that the European opportunity can be quite big just based on the numbers of course, they're about the same prevalent will be U.S. their population I think we guided of approximately 120,000 people in Europe with Non-24. But of course, we don’t know that the European environment is environment on pricing and that is something that we’re looking at very carefully. However, what is encouraging Corey is that the reception we get from patients who are potential patients continues to be very strong in Europe as it has been in the U.S. because this disorder indeed causes tremendous pain and suffering and impairment of this patient and participate in a 24-hour society. So the summary is Europe will be challenging because of awareness. Also pricing will have to considered in that equation. So we remain highly optimistic that there is a big opportunity. However, we need to be patient with the time. As you know with an approval just in June it is not uncommon for 12 to 18 months to lapse before you start seeing robust reimbursement across the company.

[Corey Davis:]

Okay. Great. Thank you.

[Mihael Polymeropoulos:]

Sure.

[Operator:]

Thank you. Our next call question is going to come from Steven Breazzano from Piper Jaffray. Please go ahead.

[Steven Breazzano:]

Hi thanks this is Steven in for Josh. I was just wondering if you could provide any more detail on some of the ongoing pricing work in Europe as to follow through what you said and any other feedback you’ve maybe got and what sort of expectation should be there. Thanks.

[Mihael Polymeropoulos:]

Thank you, Steven. We cannot comment on pricing prospects in Europe, but I can tell you a little bit about the progress in the process. We had done a lot of groundwork over the last few months to be able to file the necessary dossier in the respective organizations. And specifically we have chosen to begin in Germany not an uncommon place to go for earlier investment and we have begun significant work on the pharmacoeconomic modeling for the nice organization in the U.K. As a general guidance is that we believe U.S. can bring a lot of value to the organizations with Non-24 in Europe and as such and commensurate with that benefit, we believe we can commence certain pricing not very much different than what is happening in the U.S. now. So it would be too early to comment any further.

[Steven Breazzano:]

Got it. Thanks.

[Mihael Polymeropoulos:]

Sure.

[Operator:]

Thank you. And our next question is going to come from Stefan Quenneville from Morningstar. Please go ahead.

[Stefan Quenneville:]

Hi, thanks for taking my question. I was just wondering if you could sort of size out the increased cost that are going to come from the trials you planning on starting in the fourth quarter just maybe give me a sense of the number of patients and maybe what the incremental spend that’s going to do in your R&D cost?

[Mihael Polymeropoulos:]

Right. So we’re not going to be in a position to comment exactly on the size of the study and the design. I would say several hundred patients, but on the specifics of OpEx related to the R&D spend and what does that do to the forecast, I would let Jim Kelly address.

[Jim Kelly:]

Yes so Stefan, at this time what we’re doing is we’re going you the total OpEx and we weren’t really breaking it out by R&D versus SG&A and so I think as a starting point is all the activities that you're hearing certainly fall within the guidance that we’ve given to-date. When you think about the things that are beginning this year there are actually some of the smaller items and that’s things like the Smith-Magenis study and even the beginning of the VOY Pruritus study. We don’t expect the Jet leg study to have meaningful expense hit us until next year and so I think it’s going to give a little bit of time for us to continue to work through and finalize protocol design and come back and be able to communicate some of the specifics.

[Stefan Quenneville:]

Great. Thanks.

[Operator:]

Thank you. And at this time, we have no further questions. I will now turn the call back over to Dr. Polymeropoulos. Please go ahead.

[Mihael Polymeropoulos:]

Thank you very much all for joining us and all your continued interest in Vanda. I hope we talk to you next -- in our next quarter call. Thank you very much.

[Operator:]

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