Vanda Pharmaceuticals Inc (VNDA) 2016 Q1 法說會逐字稿

Welcome to the Q1 2016 Vanda Pharmaceuticals Incorporated Earnings Conference Call. My name is Adriane 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 turn the call over to Jim Kelly, Senior VP and Chief Financial Officer. Mr. Kelly, you may begin.

All right, thank you Adriane. Good afternoon and thank you for joining us to discuss Vanda Pharmaceuticals' first quarter 2016 performance. Our first quarter 2016 results were released this afternoon and are available on the SEC EDGAR system and on our Web site, www.vandapharma.com. In addition, we are providing live and archived versions of this conference call on our Web site.

Joining me on today's call is Dr. Mihael 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 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 that involve risks, changes in circumstances, assumptions and uncertainties. These risks are described in the risk factors and MD&A 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 EDGAR system and on our Web site. 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.

Thank you very much Jim and good evening everybody. During this first quarter we made significant progress in implementing our commercial strategy. In the U.S. we continued successfully implementing our growth strategy. Let me start with Hetlioz. Hetlioz net product sales grew to $16.2 million in the first quarter of 2016, a 7% increase compared to $15.1 million in the fourth quarter of 2015 and a 117% increase compared to $7.5 million reported in the first quarter of 2015.

Most of our new patient demand continued being driven by our opt-in database, the main driver of opt-in growth continues to be through our direct-to-consumer campaign which is still performing in a unsaturated manner.

In parallel we continue our effort to maximize the opportunity coming from our partnerships, with local advocacy groups and rehabilitation centers to continue raising awareness for Non-24. During the first quarter we also identified several opportunities to continue improving the efficiency of our opt-in to dispense processes.

Fanapt net product sales were $17.1 million for the first quarter of 2016, a 2% increase compared to $16.7 million in the fourth quarter of 2015 and a 16% increase compared to $14.7 million reported in the first quarter of 2015. In the first quarter we observed a sequential decline in demand of approximately 6% according to IMS data. In the 50 territories in which we began promoting Fanapt through our sales force, we observed a significantly lower rate of demand decline as compared to non-promoted territories. As a reminder, we increased our field force from a 12-person pilot to a 50-person team in December of 2015. While it is too early to predict future trends, we are encouraged by these results and affirm our previous guidance for the year.

In Germany we are on track for the implementation of our launch strategy of Hetlioz for Non-24 and we plan to launch in the third quarter of this year. In other key EU countries, we are continuing our efforts on pricing and reimbursement activities as well as awareness for Non-24.

Our lifecycle management and clinical development activities continued progressing at full speed. Vanda is pursuing a number of new indications for Hetlioz including Pediatric Non-24, Smith-Magenis Syndrome (SMS) and Jet Lag Disorder. SMS is a rare genetic disorder that among other symptoms it expresses itself as a sleep-wake disorder characterized by an inversion of the circadian rhythm.

Enrollment in the SMS open label intervention study is ongoing. The aim of this study is to further characterize the clinical expression of the disorder and the effect of tasimelteon as compared to baseline parameters. An SMS placebo controlled Phase III study is expected to begin in the second half of 2016.

The Pediatric Non-24 program of Hetlioz was initiated this quarter consistent with our stated plan with the European regulatory authorities. In this program, we initiated a pharmacokinetic study of the Hetlioz liquid formulation and a Phase III study is expected to begin in 2017.

For Jet Lag Disorder, a Phase II proof of concept study is planned for the second half of 2016 leading to an expected Phase III program in 2017. The observational study that was completed in the last quarter has allowed us to further define our clinical development plan based on both a five-hour and an eight-hour phase advance transcontinental travel.

Enrollment for a Tradipitant Phase II proof of concept study for the treatment of chronic pruritus in patients with atopic dermatitis began in the first quarter of 2016. This trial builds on results of a Phase II study conducted last year where post-hoc analysis had suggested higher efficacy among patients with higher exposures and examines efficacy under a twice-a-day dosing schema.

On Fanapt, the U.S. Food and Drug Administration review of the supplemental New Drug Application for Fanapt that includes data for the maintenance treatment of schizophrenia in adults is ongoing. The FDA has set a PDUFA goal date of May 27, 2016. Additionally, iloperidone is under review by the EU regulatory authorities for the indication of schizophrenia.

I would like now to provide an update on Fanapt litigation with generic companies. In the first quarter we had a court hearing in the Delaware District Court covering the '198 and '610 patents versus Roxane. The case is expected to be decided some time in the fall of this year.

We had also filed a number of lawsuits among the other four generic companies regarding the '432 and '610 patents and with Roxane on the '432 patent. Recently, the parties met with the Delaware District Court where it was decided that all these remaining cases would be consolidated with a bench trial being scheduled for May 15, 2017.

Earlier in this quarter, Roxane also submitted a petition for Inter Partes Review, referred to as IPR, on the '432 patent on which we had previously sued them in Delaware. IPR is a relatively new process in which the validity of a patent can be challenged under certain limited sections of the patent act. We do not believe the petition has any merit and we will be submitting our formal response by early June. We expect that the patent trials and Appeal Board will make a decision whether to institute or deny the IPR review by September. If instituted, a final decision could be expected in the second half of 2017.

I will now turn the call over to Jim Kelly, our Chief Financial Officer to discuss our first quarter financial results.

Thank you Mihael. Total revenue for the first quarter of 2016 was $33.3 million, a 4% increase compared to $31.8 million in the fourth quarter of 2015 and a 50% increase compared to $22.2 million in the first quarter of 2015.

Hetlioz net product sales grew to $16.2 million in the first quarter of 2016. This reflects a 7% increase compared to $15.1 million in the fourth quarter of 2015 and a 117% increase compared to $7.5 million in the first quarter of 2015.

As of March 31, 2016, the specialty pharmacy channel held less than two weeks of inventory as calculated based on trailing demand. Units dispensed to patients by the specialty pharmacies continued to grow quarter-over-quarter. However, similar to the first quarter of 2015, we saw a reduction in refills in January which was followed by stronger performance for refills in February and March. We attribute this to payor dynamics specific to the start of the year.

Fanapt net product sales grew to $17.1 million in the first quarter of 2016, a 2% increase compared to $16.7 million in the fourth quarter of 2015 and a 16% increase compared to $14.7 million in the first quarter of 2015. Fanapt scripts as reported by IMS were 31,240 and reflect a 6.2% sequential decline when compared to the fourth quarter of 2015.

You will see in our press release that Vanda is offering Non-GAAP financial information. We do so because we believe the Non-GAAP financial information can enhance the overall understanding of our financial performance when considered 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 first quarter of 2016, Vanda recorded a Non-GAAP net loss of $7.1 million as compared to a Non-GAAP net loss of $10.0 million in the fourth quarter of 2015 and compared to a Non-GAAP loss of $4.1 million in the first quarter of 2015.

On a Non-GAAP basis for the first quarter of 2016, Vanda recorded Non-GAAP operating expenses of $34.6 million compared to $35.7 million in the fourth quarter of 2015. Vanda's cash, cash equivalents and marketable securities, referred to as Cash, as of March 31, 2016 were $138.3 million compared to $143.2 million as of December 31, 2015.

Vanda reiterates its prior guidance and expects to achieve the following financial objectives in 2016. Net product sales from both Hetlioz and Fanapt of between $143.0 and $153.0 million. Hetlioz net product sales of between $73.0 and $78.0 million, Fanapt net product sales of between $70.0 and $75.0 million. Non-GAAP operating expenses, excluding cost of goods sold, of between $125.0 and $135.0 million. Non-GAAP operating expenses excludes intangible asset amortization expense of $10.9 million and stock-based compensation of between $9.0 and $11.0 million. Year-end 2016 Cash is expected to be between $123.0 and $143.0 million.

I will now turn the call back to Mihael.

Thank you very much Jim. At this point we'd be happy to answer any questions you may have.

Thank you, we'll now begin the question and answer session. (Operator instructions.) And our first question is from Jason Butler with JMP Securities, please go ahead.

Hi, thanks for taking the question and congrats on a great quarter. Mihael, could you just maybe give us some more color on the efforts you're continuing to make to improve the efficiency of the Hetlioz commercial process?

Yes, certainly. I can give you an overview, I'm not going to go into specific details. There are three key things that we are putting a lot of effort in trying to better understand and then improve.

The first one is the timing that it takes from the time a patient gets a script until they get their first fill. We have made very significant improvements based on processes instituted in the fourth quarter and now we start being able to see measurable effects of decreasing the time to fill the first script and that, as you can understand Jason, is very important as these patients have made a significant step towards treatment and the last thing they want is to be waiting for a long period of time until the insurance clears the approval of the script.

The second part is the actual number of scripts that are being filled. That is improving and it is part of the same effort of decreasing the time to approval by better understanding the requirements by payors on prior authorization requirements, working with physicians to make sure that they timely complete this information and provide any information necessary to continue to improve the process.

The third part, which is becoming now quite important, is that of the refill. While after six months or so on treatment, refills continue to be very strong. Patients are refilling with frequencies in the upper 90 percentile. It is very important because there is a compounding effect of attrition, although small. So we're implementing now and testing the ways to further improve that refill rate.

Okay, great, that's very helpful. And then just in terms of the Smith-Magenis program, can you talk a little bit about what data we might see from the pilot study, what information that might give us in terms of looking forward to the Phase III program and then when we might get that data?

Yes, there are two components in this clinical data which we compared to baseline. One is an objective component and has to do with analysis of the sleep-wake daily data based on actigraphy and the second one is the subjective rating by the parents of these patients on the quality of the nightly sleep.

So what we would expect is that tasimelteon will have an effect of improving both subjective and objective measures. While we're doing that, of course, we're learning a lot about the disorder and its expression. I want to point out there has never been a clinical development program in this disorder and therefore there is a dual challenge, not only to identify whether the drug works, but also to identify what is important to measure.

As I said, the recruitment in this study is ongoing. I would say we're about halfway with recruiting patients and as soon as we understand this data we want to do two things: one is to further improve the design of a pivotal study and equally important to reach a common understanding with the FDA on the types of endpoints that should be used in the pivotal study.

Okay, helpful, thanks. And thanks for taking the questions.

Sure.

And your next question comes from Chris Howerton from Jeffries, please go ahead.

Jim, I just wanted to confirm for the Q1 numbers, I think historically you've mentioned in the past that gross to net margins are a little bit higher in the first quarter. Has that been the same experience with this first quarter of 2016? I think it's just striking given that the growth that we've seen at Hetlioz sales quarter over quarter given that expectation.

Hi Chris, yes that is the correct expectation and that is what we see. Every Q1 we see that specific to Medicare the coverage gap liability plays a pretty important role in a sequential increase in our gross to net from Q4 to Q1.

Okay, okay great. And then I'm just curious if you could give us any more color around the launch in Germany, has pricing been set there and are you able to articulate anything else about the strategy in terms of targeting patients within that territory?

So that's actually a perfect question for Gian Piero Reverberi. Actually I want to welcome Gian Piero -- this is his first call as officially our Chief Commercial Officer but of course as you all know, he's the General Manager in Europe. So, he'll be happy to review our activities in Germany, Gian Piero?

Thank you Mihael. Hi Chris. So yes, as you know we have been working on our launch preparation in Europe now for almost one year. Our first priority is Germany and we are well on track for our launch in Germany in the third quarter of this year. We will have 12 months of free pricing after launch during which we will progress with the pricing and reimbursement negotiations with the GBA. After Germany, we will continue assessing and looking for other opportunities. Our priority market, of course the U.K., France and Italy and we have already started our effort to start raising awareness and going through the pricing and reimbursement dossier preparation.

Overall we continue keeping our investment well under control until we have more clarity about the potential, particularly under the pricing and reimbursement point of view. For the smaller European markets, we are considering looking into a potential distribution partnership but these are not considered our priority right now and we'll probably progress with those later on this year.

Got it and you know, just to kind of press on that a little bit, is it fair to say that your efforts, as of now, are to increase disease awareness with the hopes that that will then increase demand for Hetlioz?

Yes, Chris, you were asking whether the primary effort marketing in Germany is based on awareness. That is correct and I'll just point out, the other thing that the team is doing in Europe is trying to really understand what is the best system of identifying doctors who will be the prescribers. You remember in the U.S., at the beginning, there was a debate who are the prescribes. We found out, the primary care doctors are not. Sleep doctors are the primary prescribers.

It is not clear yet in Germany whether this is going to be in centers of excellence, whether they're going to be Circadian experts or a mixture with primary care doctors. And the complexity, you know, beyond this call now has also to do with individual doctors budgets for medication; something that is unique in Germany and not applicable to the U.S.

I see, okay. All right, you know, I'll go ahead and hop back in the queue and let others ask questions. Thank you.

Sure.

We have no further questions at this time and I'll now turn the call back over to Vanda management for closing remarks.

Actually, we have Chris and there may be others in the queue.

Thank you. As a reminder, please press Star 1. And Chris is back in the queue.

Okay, hey there. So I guess just the last kind of question I had was anymore information you might be able to give us on the Tradipitant study in terms of specific learning's that we had from the last Phase II outside of just the twice a day dosing? Do you expect it to be a similar endpoint, have you identified different patients that you think will be better responders or anything of that nature?

The patient characteristics are relatively the same with one difference. The similarities that their patients with atopic dermatitis resistant to other treatment of a degree of severity similar to the previous study. A key difference is that the study is now conducted in the U.S., in multiple sites, versus the German study with just two sites before. Otherwise, there are improvements in the design and the timing of evaluations with learning's from the prior study.

Got it, got it. Right, so when you're testing patients basically when you expect them to have higher drug levels, if I remember correctly?

Yes, just to be very clear with everybody, what we identified in the first Phase II study, is that the improvements were mostly seeing among patients that had higher levels of the drug in their bloodstream at the time of evaluation. And this was an interesting phenomenon because this is a drug that could be compatible with once a day dosing. However, there is a bias in reporting for patients who score their degree of itch on a digital analog scale instead of the question of how were your symptoms over the last 24 hours, they're more likely to report how they feel at the time of the question. And that is why making sure that patients are evaluated during a specific window during the day and that there is a constant drug level in their bloodstream without intra-day variations became very important in the design of this study.

Got it. Okay, all right, well great. Thanks for the added information.

Sure.

And your next question comes from Difei Yang from Brean Capital, please go ahead.

Thank you and good afternoon, thanks for taking my question. Just a quick one on Fanapt. So we have a maintenance therapy indication for schizophrenia coming up on May 27. Could you talk to us about the implication of this approval, let's assume it is approval, to the pending litigation.

Thank you very much for the question. Just to frame for everybody, this supplemental NDA provided the FDA with substantial clinical data including data for the maintenance indication of schizophrenia and this data was discussed before. They're from the Reprieve study which further confirms and enhances our understanding of efficacy, of iloperidone for the treatment of schizophrenia especially in the prevention of relapse.

It is unrelated to the ongoing litigation, the patents are not involving specifically a maintenance indication, but I wanted to point out that if approved, this sNDA would qualify for a three-year data protection exclusivity from the time of approval as a new indication and this is consistent with exclusivity that the FDA has awarded under similar circumstances in other drugs. So it is our full expectation that upon approval we should be awarded a three-year exclusivity for this additional clinical data that include the maintenance indication.

Thank you for the clarification. Then let me just ask a follow-up question still in the case, if you get this approval and get the three-year market exclusivity, so in the case of generic entry, so the generic can really only go after the acute treatment of schizophrenia not for this indication so somehow the two indications have to be split.

Thank you very much for this question Difei, and it is actually a very important one. It has been our position that we do not believe that a generic can edit and part the current U.S. label and therefore we believe that this sNDA with this additional data should provide a three-year exclusivity across the entire iloperidone label. Of course that is to be decided by the FDA and we'll find out.

Thanks for the clarification.

I will now turn the call back over to Vanda management for final remarks.

Well, thank you very much all for joining us for this first quarter call. Thank you for your questions and we look forward to talking to you next quarter. Thank you.

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