Vanda Pharmaceuticals Inc (VNDA) 2017 Q1 法說會逐字稿

Welcome to the Q1 2017 Vanda Pharmaceuticals Incorporated Earnings Conference Call. My name is Adrean, and I'll be your operator for today's call. (Operator Instructions)

Please note this conference is being recorded. I'll now turn the call over to Jim Kelly, Vanda's Executive Vice President and Chief Financial Officer.

Thank you, Adrean. Good afternoon, and thank you for joining us to discuss Vanda Pharmaceuticals' first quarter 2017 performance. Our first quarter 2017 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 and Gian Piero 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 meanings 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's Discussion and Analysis of Financial Condition and Results of Operations sections of our annual report on Form 10-K for the fiscal year ended December 31, 2016, which is 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. We begin 2017 with a conviction to grow our HETLIOZ and Fanapt revenues and to return the U.S. Fanapt business to growth. During the first quarter of 2017, we advanced our company's strategy on all fronts as we executed our growth strategy, while delivering strong operational and financial results.

HETLIOZ net product sales grew to $20.2 million in the first quarter of 2017, a 5% increase compared to $19.3 million in the fourth quarter of 2016 and a 25% increase compared to $16.2 million in the first quarter of 2016. Importantly, the number of patients on therapy continued to grow quarter-over-quarter.

Fanapt net product sales were $17.2 million in the first quarter of 2017, a 9% decrease compared to $18.9 million in the fourth quarter of 2016 and a 1% increase compared to $17.1 million in the first quarter of 2016.

In the first quarter of 2017, we saw a 4% decline in Fanapt scripts, as reported by Symphony, when compared to the fourth quarter of 2016. We're optimistic that we will be able to solidify and grow the Fanapt business in the coming quarters.

I will now provide you with an update on R&D pipeline progress and then turn it onto GP for an update on the commercial progress. I will update you on clinical development activities for HETLIOZ, Fanapt and tradipitant and then discuss our work on Trichostatin A and the newly acquired CFTR portfolio of compounds.

We believe that further clinical development of HETLIOZ, beyond the current Non-24 indication in adults, has a potential to drive significant revenue growth of this franchise over the coming years. Specifically, studies to develop a pediatric formulation and a randomized study in patients with Smith-Magenis syndrome are currently underway, and we expect results from it in 2018.

Development of a pediatric formulation of HETLIOZ will open new opportunities for indications that extend beyond Non-24 to a broad range of developmental disorders with circadian challenges, including autism spectrum disorders.

Enrollment in the HETLIOZ jet lag disorder randomized study is progressing well, and we expect to have results during the second half of 2017. Globally, each year, over 100 million passengers fly 5 or more eastward time zones. We believe the market opportunity is very large for an effective treatment option for travelers who experience the severe symptoms from jet lag disorder.

On Fanapt, we are evaluating a broad life cycle management plan under which a number of opportunities are currently under consideration. We plan to prioritize and select programs for further development. In Europe, the oral Fanaptum tablets Marketing Authorization Application is under review by the EMA. We expect a decision on the Fanaptum MAA during the second half of 2017, as we continue to evaluate our European strategy for Fanaptum.

Our clinical development pipeline work on tradipitant is ongoing. A tradipitant clinical study in patients with pruritus is ongoing, and enrollment is almost complete. We look forward to completing this study and sharing the pruritus study result in the third quarter of 2017.

A second tradipitant study in patients with gastroparesis started in the fourth quarter of 2016 and is expected to complete in the fourth quarter of 2017. Gastroparesis affects as many as 1.8% of the U.S. population or approximately 6 million people and constitutes a significant unmet medical need.

On Trichostatin A, we are on track for filing an IND in mid-2017 towards initiating clinical work in patients with hematologic malignancy.

At the end of March, we announced the licensing of a portfolio of cystic fibrosis transmembrane conductance regulator, or CFTR, activators and inhibitors from UCSF.

Modulating the activity of CFTR has a number of applications that could be relevant to diseases that involve fluid secretion. Among those are dry eye, constipation, diarrhea, polycystic kidney disease and cholestasis. We are in the midst of technology transfer and onboarding from UCSF, and we are rapidly planning to move forward in these areas. The CFTR activators and inhibitors are an exciting new platform for Vanda to engage in addressing unmet medical needs. We intend to complete the technology transfer activities from UCSF and initiate IND-enabling studies for several CFTR indications.

In summary, the first quarter of 2017 has been an exceptional busy period for both commercial and clinical activity, as we look towards significant growth for our products over the quarters and years to come. Gian Piero Reverberi, our Chief Commercial Officer, will now update you on our commercial activities.

Thank you, Mihael. I will now update you on the progress of Fanapt in the U.S. and HETLIOZ in the U.S. and Europe. During the first quarter of 2017, we successfully completed the expansion of the Fanapt U.S. field sales team, and the full team is now in the field promoting the benefits of Fanapt for adult schizophrenia patients with a significant increase in frequency to our target physicians audience. The organization is fully committed on the successful commercialization of Fanapt, and we are optimistic on its potential to return to growth in the second part of 2017.

The fundamentals of our HETLIOZ business remains strong, as we consistently add new patients on therapy and are seeing early signs of improved persistency associated with the recent change to our specialty pharmacy network. We recently initiated a new patient outreach program with a dedicated team of nurse educators that is delivering excellent results both in terms of opt-ins and new prescriptions.

At the beginning of April, we also launched a new Non-24 awareness television campaign, and we are monitoring the early impact of this new ad.

In Germany, we are in the early stage of the HETLIOZ commercial launch. We have transitioned our initial clinical trial patients over to commercial HETLIOZ, and we are adding new nonclinical patients. The AMNOG reimbursement process is ongoing, and we expect our final price to be in place by the third quarter. The preparation of the pricing and reimbursement this year are also progressing as planned in other European markets.

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

All right. Thank you, Gian Piero. Total revenue for the first quarter of 2017 was $37.4 million, a 2% decrease compared to $38.2 million in the fourth quarter of 2016 and a 12% increase compared to $33.3 million in the first quarter of 2016.

HETLIOZ net product sales grew to $20.2 million in the first quarter of 2017, a 5% increase compared to $19.3 million in the fourth quarter of 2016 and a 25% increase compared to $16.2 million in the first quarter of 2016. As of March 31, 2017, the specialty pharmacy channel held approximately 2 weeks of inventory as calculated based on trailing demand. Patients on therapy continued to grow quarter-over-quarter, and the recent changes to our specialty pharmacy distribution network appeared to have improved the overall persistency trends for these patients. Similar to the first quarter of 2015 and '16, we saw a reduction in unit refills early in the quarter, which was followed by stronger performance for refills later in the quarter. We attribute this to payer dynamic specific to the start of the year.

Fanapt net product sales were $17.2 million in the first quarter of 2017, a 9% decrease compared to $18.9 million in the fourth quarter of 2016 and a 1% increase compared to $17.1 million in the first quarter of 2016. Wholesalers reduced inventory on hand by an amount that equates to over $2 million in net product sales in the quarter. In the first quarter of 2017, we saw a 4% decline in Fanapt scripts, as reported by Symphony, when compared to the fourth quarter of 2016. We now are looking forward to the coming quarters to better understand the potential to grow the Fanapt business.

In summary, revenue performance for the first quarter was consistent with our expectations, absent the adjustment for Fanapt inventory, and we are reaffirming our revenue guidance for 2017.

Vanda recorded operating expenses of $45.3 million in the first quarter of 2017 compared to $38.9 million in the fourth quarter of 2016 and $45.7 million for the first quarter of 2016. Research and development expenses in the first quarter increased by $3 million compared to the fourth quarter of 2016. This increase reflects the impact of the $1 million upfront payment associated with the recently announced CFTR portfolio licensing agreement and increased activity on the HETLIOZ and tradipitant clinical programs.

SG&A expenses in the first quarter increased by $6.4 million compared to the fourth quarter of 2016. The most significant contributor to this increase was the expansion of the Fanapt U.S. field force during the quarter. The full cost impact of the Fanapt field force expansion will be seen in the second quarter.

You will see in our press release that Vanda is offering non-GAAP financial information. We do so because we believe that the non-GAAP financial information can enhance an overall understanding of our financial performance when considered together with GAAP figures. Vanda non-GAAP net loss excludes stock-based compensation and intangible asset amortization.

On a non-GAAP basis, during the first quarter of 2017, Vanda recorded a non-GAAP net loss of $4.9 million as compared to non-GAAP net income of $3.6 million for the fourth quarter of 2016 and compared to non-GAAP loss of $7.1 million in the first quarter of 2016.

Vanda's cash, cash equivalents and marketable securities, referred to as cash, as of March 31, 2017, were $137.8 million compared to $141.3 million as of December 31, 2016, representing a decrease to cash of $3.6 million during the first quarter.

Vanda reiterates its prior guidance and expects to achieve the following financial objectives in 2017: net product sales from both HETLIOZ and Fanapt of between $165 million and $175 million; HETLIOZ net product sales of between $88 million and $93 million; Fanapt net product sales of between $77 million and $82 million; non-GAAP operating expenses, excluding cost of goods sold, of between $162 million and $172 million; non-GAAP operating expenses excludes intangible asset amortization expense of $1.7 million and stock-based compensation of between $9 million and $12 million. Year-end 2017 cash is expected to be between $121 million and $141 million.

So I'll now turn the call back to Mihael.

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

(Operator Instructions) And we have Jason Butler from JMP Securities in line with a question.

First on HETLIOZ, you mentioned the increase in persistence, can you just talk about what you're seeing there in terms of the changes you made and how that's also -- is it having any effect on the net patient adds per month?

Jason, I will pass this on to Jim.

Yes. Well, Jason, you might remember that we talked about, in the second half of 2016, we migrated from what we described as the poorest performer in our specialty network to the highest performer in our specialty network a good portion of the patients, perhaps approaching as much as 1/3. What we're seeing in the first quarter is an improvement in the persistency of that patient group. So we're certainly happy to see that, and your question about its impact on net patient adds is the right next step to take with this. We believe we are seeing some improvements in our ability to grow patients in the period.

Great. And then on Fanapt, acknowledging that it's still early to see anything in terms of the impact to the sales force, are you hearing anything at least anecdotally or seeing anything in certain geographic pockets the supports that you're seeing or going to see a return on that investment?

Yes, maybe I can describe it a little bit the sales force approach. This is a sales force that covers the majority of the geography of the United States, leaving only a small percent is whitespace. And that is a big departure of the much smaller 50 person sales force we had last year, which left a very significant whitespace open. I would say it is very early to have a reading given the fact that most of our new sales force representatives were retained and put in place only over the last few weeks. So what we should expect is that over this current quarter time will be spent talking to the target physicians and introducing or reintroducing Fanapt and hopefully start generating activity. And it is the back end of the year, Q3 and Q4, we are consisting with what GP described before, we hope we can return to growth.

Great, and then just the last one from me, a pipeline question. Can you talk about the CFTR transaction you did? What led you to pursue that transaction? What is it that attracted you to the target? And what can you learn from other people's experiences with this target?

Yes. So maybe I'll briefly discuss our business development activity, and we have with us today Gunther Birznieks, the Head of Business Development, and he may want to comment on the specifics of the CFTR portfolio and the attractiveness to us. So in terms of business development, over the years, Vanda has been very active scouting for opportunities that meets certain very strict thresholds; and that is a scientific interest, developability and addressing unmet medical needs. And while we've been scouting, as you know very well, we have conducted very few transactions over the history of the company the last 14 years. This one, on the CFTR portfolio, we found exceedingly attractive on the science, the early evidence, the ability to develop and the range of indications that can be treated. Maybe briefly, Gunther can discuss a little bit about the mechanism and the types of indications that can be addressed.

Absolutely. Thank you, Mihael. So just to touch upon the CFTR and attractiveness, the chloride channel that the CFTR regulates is very straightforward, epithelial fluid retention and absorption mechanism where depending on the system, whether it's intestinal for constipation or diarrhea or in the epithelial of the eye for dry eye, represents a very straightforward mechanism of action. We've seen, for example, on the dry eye that there is data that indicates that in an eye drop formulation preclinically up to 8 hours one of the CFTR activators is capable of producing increased volume of tear secretion in the mouse eye over an extended period of time. That work as well as the other work that's been done on the CFTR activators and inhibitors was done in Dr. Verkman's lab in UCSF.

And our next question comes from Joshua Schimer from Piper Jaffray.

This is Steven on for Josh. Two on HETLIOZ. First, can you maybe just comment on the patient adoption in Germany so far and how you're thinking about the rest of Europe? And second, maybe on the specific timing of the Smith-Magenis study, given that the trial has been slow to enroll and the rationale for only 3 clinical trial sites?

Yes. On the adoption in Germany, again, as GP mentioned, we're early in the launch in Germany. We do see, however, patients coming into treatment month after month. But again, the emphasis there is the negotiation with the German authorities on pricing, which will conclude in the third quarter. And post that, we'll be able to unfold a full strategy -- commercialization strategy in Germany, and hopefully we can talk more about expectations of that kind. The question on the SMS study, we have mentioned in the past that while there is a significant interest and support by the community of Smith-Magenis syndrome families, conducting any study in this population is very challenging, given the behavioral neurodevelopmental comorbidities in these adults with SMS. So we are evaluating alternative paths on more conveniently enrolling patients in the study. And you are correct to point out that at this time there are 3 active sites. But again, all that equipment is done through Vanda with the support of the Smith-Magenis advocacy organization, PRISMS. We are evaluating a concept of a virtual site where you can actually accommodate the execution of the study at patients' home or near patients' homes without the burden of long-distance travel.

And our next question comes from Derek Archila from Oppenheimer.

And just following up on a question from Jason and talking about kind of the Fanapt and some of your comments around the kind of relaunch starting to really hit full stride in the second half. I mean, should we assume kind of in the second quarter Fanapt sales kind of flattish, as you guys kind of start to see a little bit of traction, but mostly it's going to be in the second half? And then I have a follow-up.

Derek, yes indeed, our expectation is to stop the decline and flatten the sales within this quarter and then begin to stabilize this flattening and return to growth in the back half of the year.

Okay. And then just maybe you can discuss some of the pushes and pulls relative to your HETLIOZ guidance and some of the variables that we should be thinking about that get you to the bottom or the top of the guidance range?

Well, I will let Jim take the difficult question. But maybe what I will characterize is that this quarter performance is indeed meeting our expectations, and what we talked about persistence and what we talked about the early signs of a continuous addition on patients on therapy, this is all very encouraging. But I am mostly encouraged by our ability to continue to identify new patients through the awareness campaigns, and that is plural, since the direct-to-consumer campaign now is beginning to be supplementing in a meaningful way through the outreach programs. But I will pass it on to Jim.

Sure. So the way it's probably best to think about our guidance range is that the midpoint of guidance implies about 6.5 new patient adds per month, and that is consistent with how we grew in 2016. And our ability to grow, therefore, becomes a function of adding at that rate, which of course incorporates both new patient identification plus persistency. What you just heard Mihael's reference is we continue to see very nice results in our ability to find new patients, and also with some of the changes we recently made with our distribution network, we feel very good about our ability to hold onto these patients and keep them on therapy. The next piece to consider is likely the gross-to-net and how that plays out through the year. What we've discovered is that the first quarter tends to be the highest period for our gross-to-net, and it has to do with the number of patients who are on Medicare and the coverage gap liability that hits early in the year. For that reason, Q1 tends to be the highest; and then it downticks for Q2, 3 and 4. And the feedback I've given everyone is gross to net rate is around 12-plus-or-minus percent. So stepping back what you're hearing is things appear on track with our expectations that we set back in January. We're finding the patients, persistency is equal to better and I'd say our gross-to-net is playing out the way we thought.

And our next question comes from Difei Yang from Aegis Capital.

This Matthew McLaughlin on for Difei. I did just have one more for some color on the Fanapt front. It appears to us that the Fanapt prescription trend seems to be stabilizing, and the 2 pieces to that are persistency and new patients with persistency being filled by the specialty pharmacy replacements and the new patient piece being filled by the increase -- improved sales force. And then from there, you have another piece added in, and that's the g-to-n. And now if we look at it from a seasonality perspective, is that g-to-n piece the only seasonality portion of it? Or are there some other pieces in there that might have an effect going forward?

Thanks for the question. I will ask Jim to address it, but I just wanted to clarify the front end. Did I hear you correctly you talked about new patients and persistency with specialty on Fanapt or you meant HETLIOZ?

Fanapt.

Right, just to clarify that Fanapt there is no specialty pharmacy. So we will not have this data of persistency. However, HETLIOZ is only operate through a specialty pharmacy.

Okay. Yes, thank you for clarifying that. But the -- in terms of gross-to-net and seasonality for Fanapt? Yes.

I will let Jim address that for both products.

Certainly. When we think about the seasonality that we've seen over the last few years, it is primarily related to the first quarter, and this is true on both products. We certainly see some payer headwinds early in the quarter as patients either migrate to new insurance or have deductibles to address. However, we have year in and year out seen strength in the back half of the first quarter that launches us on our way to the rest of the year. That would be the feedback on seasonality really for both products. That would be the only component with respect to demand. When it comes to gross-to-net, you heard me mention the coverage gap liability on HETLIOZ, which was specific to the first quarter, I wouldn't describe any other seasonality items on HETLIOZ with respect to gross-to-net. Looking to Fanapt, there's very little, if any, seasonality to our gross-to-net. And so we sit here now at what I think is the best part of the year. It's our launchpad to growth.

I did have one more in relation to the tradipitant for pruritus. Could you remind us what's the minimum efficacy bar for the Phase 2 study?

So just to remind everybody, this is a 2-arm, placebo-controlled study, tradipitant administered 85 milligrams twice a day versus placebo. There is no specified cutoff of improvement. However, there are several measurements taken during the study, the visual analog scale of itch and supplemented by the VRS scale and also scales specific for atopic dermatitis and itch, including the SCORAD scale that includes itch and nighttime sleep measurements and EASI. But there is no predetermined cutoff of efficacy on the VAS itch scale.

Okay. And if I may, just maybe one more in relation to tradipitant. In terms of the current treatment landscape, and if we consider the current drugs in development, where precisely do you see tradipitant fit in?

Yes. So the effort here with tradipitant in chronic pruritus, or chronic itch, the study is conducted in patients with atopic dermatitis. We estimate there are about 900,000 to 1 million Americans who suffer from chronic itch due to atopic dermatitis. And as you know, the current solutions are few, topical antihistamines, topical or systemic steroids or UV radiation. Now, of course, there is a pipeline of drugs trying to address the causality of atopic dermatitis. Tradipitant does not do that. Tradipitant aims to improve itch in these conditions. Now what is not clear if we succeed with the anti-itch activity of tradipitant whether there may be secondary benefits. As you may already know, people with atopic dermitis experience the feeling of itch, and one of the solutions is a mechanical scratching, which actually creates evolution of lesions and worsening of the underlying disease. So see tradipitant as a oral symptomatic relief of itch.

This concludes the question-and-answer session. I'll now turn the call back over to Dr. Polymeropoulos for final remarks.

Thank you very much, and thank you all for joining us. We'll see you again next quarter. Thank you.

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