Vanda Pharmaceuticals Inc (VNDA) 2016 Q3 法說會逐字稿

Welcome to the Q3 2016 Vanda Pharmaceuticals Inc. earnings conference call. My name is Ashley and I'll be your operator for today's call. (Operator Instructions) 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. Mr. Kelly, you may begin.

Thank you, Ashley. Good afternoon, and thank you for joining us to discuss Vanda Pharmaceuticals' 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. 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 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 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.

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 generic version of Fanapt infringed the asserted 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, 2027.

This event will now allow Vanda to establish and grow its Fanapt psychiatry franchise, building 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 populations.

Looking in more detail at this quarter's results, Q3 revenue grew by 36% compared to the third quarter of 2015, 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 HETLIOZ, most of our new patient demand continues to come from the combination of our direct-to-consumer and our field-based 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 US. We are currently preparing for the AMNOG process, and we are expecting the oral hearing with the G-BA to happen this quarter. In other EU markets, the preparation of the P&R dossiers is underway.

On Fanapt, in October 2016, Vanda settled its Fanapt patent litigation against Taro Pharmaceuticals, allowing Fanapt exclusivity to extend into 2028 under certain conditions. We are now committing 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 and planned, 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 a 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 life cycle 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 treating patients with schizophrenia. We plan to prioritize and select programs for further development, 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 patients with gastroparesis further validates the potential role of neurokinin-1 receptor antagonists in this disorder. Gastroparesis affects as many as 1.8% of the US 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.

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 $36.0 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% increase compared to $17.5 million in the second quarter of 2016, and a 60% increase compared to $11.7 million in the third quarter of 2015. As of September 30, 2016, the specialty pharmacy channel held less than 2 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 30, 2016, the wholesalers held more inventory than the prior quarter, with a net product sales value of approximately $1.0 million. During the third quarter of 2016, we saw retail pharmacy demand that aligned 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 $4.6 million, as compared to a non-GAAP net income of approximately $0.4 million 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's cash, cash equivalents and marketable securities referred to as cash, as of September 30, 2016 were $142.6 million, compared to $136.0 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 of between $143.0 million and $153.0 million. HETLIOZ net product sales of between $73.0 million and $78.0 million, and likely at the lower end of this range. Fanapt net product sales of between $70.0 million and $75.0 million. Non-GAAP operating expenses, excluding cost of goods sold, of between $125.0 million and $135.0 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 $8.0 million and $10.0 million. Year-end 2016 cash is expected to be between $123.0 million and $143.0 million, and likely at the higher end of this range.

I will now turn the call back to Mihael.

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

(Operator Instructions) Jason Butler, JMP.

Thanks for taking the questions. 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?

Thank you, Jason. We have not discussed that, but I can give you some guidance there. Currently we have 50 territories, 50 reps. 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 psychiatrists would be a number between 100 and 150. It is not likely that we're 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 100 and 150.

Okay. Great. And then, as you start to think about the next indications to develop Fanapt in -- for example, you mentioned bipolar disorder and MDD -- how does the clinical profile of Fanapt fit into those various indications? For example, the lack of akathisia. Are there any patient settings where you think the drug might be better suited?

Absolutely. Thanks for this question. Just before I answer this question, just to remind everybody that Fanapt is approved for the indication of schizophrenia in adults in the US. I refer everybody for a full discussion of efficacy and safety to www.fanapt.com.

Now, the profile of Fanapt as 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 US label describes that Fanapt, in the placebo-controlled 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, in patients with schizophrenia, will be a drug that will be 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-induced akathisia on another drug may be actually a very well-suited patient for Fanapt.

Now, on the question of how we're going to go ahead and prioritize from the potential indications -- bipolar depression, or an adjunctive treatment in MDD -- what we're looking at carefully are, of course, probability of technical success. And generally, antipsychotics, when studied in these indications, have been shown generally to be effective. And therefore, we believe there is a clinical development program that one can develop with a reasonable likelihood of success.

We're also looking at the commercial opportunity, which is a combination of what we offer to the patients and doctors, based on the unique properties of Fanapt, as will be shown in the clinical studies, and what is the competition like in the marketplace. So, we will make these decisions based on that.

We also point out that there are indications that have not been pursued by other antipsychotics. Specifically, we're intrigued by the potential role 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 agents with a strong alpha-1 adrenergic receptor antagonist profile may be particularly useful in quieting the nightmares in patients with PTSD. And I remind you that Fanapt is such an agent with very significant alpha-1 adrenergic antagonistic properties.

We, of course, are always interested in pediatric applications. We know that two other agents in the antipsychotic space have been developed for certain symptoms of irritability in children with autism, and that is an indication part of the long-term planning for a pediatric indication.

And finally, we have discussed before that Fanapt, unlike other antipsychotics, has been already formulated in a once-a-month injectable formulation. These formulations can be particularly useful to address the poor compliance often seen in patients with schizophrenia. So, of course, we're not going to be able to do all of that and do it right away. So, you're going to see us proceed with -- to be very selective, proceed with discipline; but certainly, we want to begin some of these clinical programs as soon as possible, and very likely next year.

Great. Really helpful. Thanks, Mihael. And then just a quick one for Jim. Back onto 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 are -- is IMS this quarter -- has it been more predictive of the wholesaler sales?

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.

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

Matthew Andrews, Jefferies.

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

Yes. Thank you for the question, Matthew. So, what we saw this quarter was... I'll start first with the TRxs relative to the retail demand. They were both approximately the same, and I'm describing a 1% to 2% sequential decline.

Now, on the national TRxs, this 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 in that the white space had less of a decline than we've seen in some of the prior periods. I would love to see that continue but I wouldn't bet on it.

Okay. Thank you for that. You have a 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're targeting with the clinical program, potential pricing in JLD -- what are your general thoughts relative to JLD and pricing, et cetera?

Yes. Thank you, Matthew. And this is a very important question because, of course, our first priority is to not disturb our current orphan Non-24 premium-priced 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 daytime functioning.

So the pricing we envision is actually identical with the price per pill with the orphan indication. And to remind you, approximately, the daily price for Fanapt is in the order of $400 -- HETLIOZ, I'm sorry -- or so per day. So, our view is that, for treating jet lag, the price will be par pricing. The number of nights that we're testing that we think will be necessary for treatment of the jet lag symptoms will be three nights. So, the total package for the trip is between $1,000 or $1,200, something very consistent with one-day per-diem expenses of a business traveler.

Okay. Great. Thank you. I'll get back in the queue. Appreciate it.

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

No, I'll let others if necessary. Thanks.

Jason Butler.

Thanks for taking the follow-up. Just wanted to ask a question about the -- you mentioned the APRON data were just presented in gastroparesis. Can you speak to what your learnings from that trial were, and the results, and how that informs your development of tradipitant in the indication? Thanks.

Yes. Thank you very much, Jason. Just for everybody on the phone, gastroparesis is a very common indication that can affect up to, in some prevalence studies, 1.8% of the US population; or that translates to about 6.0 million people. There is very little available to treat this condition, and it is considered by patients and specialty gastroenterologists as a significantly unmet medical need that carries significant morbidity, and at times mortality. It lends its name to the physiological observation of delayed stomach emptying and presents itself with nausea, frequent episodes of vomiting, postprandial fullness, abdominal pain, et cetera.

So, the APRON study was an NIH-sponsored study using a neurokinin-1 receptor antagonist, aprepitant, which 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 through acting in chemoreceptors of the brain, but actually likely a local effect in the stomach neuromuscular environment, that would make this agent not just offering symptomatic relief but probably disease-modifying or mechanism-modifying.

So, we have taken these learnings from the APRON study and the results, as we're in the final design now of our questionnaires, surveys and endpoints that will be included in our gastroparesis study. So, our view here is that, if successful, tradipitant can become the first approved agent from this class for the treatment of gastroparesis to not only address the symptom of nausea, but many other of the symptoms that are described in the syndromic features of gastroparesis.

Great. And then, if I may, just one more on HETLIOZ. You said you've now started enrollment in the Smith-Magenis placebo-controlled trial, and the primary endpoint according to clinicaltrials.gov is sleep parameters. Could you maybe discuss a little bit more about how those sleep measurements compared to what you did for the Non-24 indication, whether you're looking in any more detail at sleep architecture, and what your views on what might be necessary for or acceptable for regulatory submission for the indication? Thanks.

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 defect. 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 periods -- significant periods of awakening -- as islands of awakening, in the middle of the night.

So, the intent here is to examine whether tasimelteon administered at bedtime will improve both the subjective reports by the parents on the daily diaries of the quality of sleep, but also the surrogate, through actigraphy, and our own internal analysis of these islands of wakefulness. So, soon, we will be reaching out to the FDA to meet with them, share the results of the observational study, and begin a discussion on the optimal endpoint. But it will be likely a combination of the subjective data by parents on a daily basis and the objective actigraphy data.

Great. Thanks for taking the follow-ups, and for the additional color.

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

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

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