Vanda Pharmaceuticals Inc (VNDA) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen. Welcome to Vanda Pharmaceuticals first quarter 2006 earnings conference call.

[OPERATOR INSTRUCTIONS]

I will now turn the call over to Mr. Steven Shallcross, Senior Vice President and Chief Financial Officer of Vanda.

Thanks, Steven. Good morning and thank you for joining us to discuss Vanda Pharmaceuticals first quarter 2006 performance.

Our first quarter financial results were released this morning and are available on the SEC's edusystem and on our website at www.vandapharma.com. In addition, we are providing live and archived versions of this conference call on our website and a telephone replay of the call will be available through May 25.

Joining me on today's call is Dr. Mihael Polymeropoulos, our President and CEO. Following my introductory comments, Dr. Polymeropoulos will review our clinical operations and programs and discuss our recently completed initial public offering. Then I will comment on our financial results for the quarter and review our 2006 financial guidance before opening the line 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 the Federal Securities Laws. Words such as, but not limited to, "believe", "expect", "anticipate", "estimate", "intend", "plan", "targets", "likely", "will", "would," and "could" and similar expressions or words will identify forward looking statements. Our forward looking statements are based upon current expectations that involve risks, change and circumstances, assumptions and uncertainties.

Vanda is in the early stage of development and may not ever have any products that generate significant revenue. Important factors that will cause actual results to differ materially from our forward looking statements include, among others, delays in our clinical trials; failure of our product candidates to be demonstrably safe and effective; a lack of acceptance of our product candidates in the marketplace; our inability to obtain the capital necessary to fund our research and development activities; our failure to identify or obtain rights to new product candidates; a failure to develop or obtain sales, marketing distribution resources and expertise, or to otherwise manage our growth; a loss of any of our key scientists or management personnel; a loss of rights to develop and commercialize our products under our license and sub-license agreements; or the increased expenses in administrative workload associated with being a public company.

These and other factors which may cause actual results to differ from our forward looking statements are described in the risk factor section of the final prospectus we delivered in connection our initial public offering. This prospectus was also filed under Rule 424B4 with the SEC and is available on the SEC's edusystem and on our website. We encourage all investors to read this prospectus.

The information we provide in this call is provided only as of today and we undertake no obligation to update 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 now to turn the call over to our CEO, Mihael Polymeropoulos.

Thank you, Steven. Good morning to all. I am pleased to welcome you to Vanda's first investor's call as a public company. We're excited to have completed our initial public offering and excited to be continuing our admission to develop and commercialize our current clinical stage product candidates for central nervous system disorders and to develop other meaningful new therapies through the application of our genetics and genomics expertise.

Today, I will focus on three key topics. First, I will give you an update on iloperidone in its Phase III trial. I will then spend time describing VEC-162 and its Phase III trial. Finally, I will review our recent IPO. Steve will then give you a snapshot of our financial performance for the first quarter and give you some full year financial guidance for 2006.

Iloperidone update. Iloperidone is our atypical antipsychotic. A compound targeting a $50 billion market with a differentiated safety [inaudible - heavily accented], the potential for improved compliance through its four week injectable formulation and emerging from [inaudible - heavily accented] tools for identifying optimal target patients. We're conducting a patient trial for iloperidone in patients with schizophrenia. This is a four week inpatient trial taking place in more than 40 centers in the U.S. and India. I am happy to report that the trial is enrolling currently ahead of schedule. As of April 30 we have enrolled 372 patients or of our target of 600. This creates a possibility that we could complete the trial and report our results earlier in the second quarter of 2007 which is slightly ahead of the original timeline we disclosed in our S1.

While we're working hard to achieve this, there are a couple of factors outside our direct control that could influence the timing. More significantly iloperidone is now competing for patients at many of our investigator sites with another safety compound which has not been the case for the past six months. We have observed a slow down in enrollments at some of these sites and have planned for it in our enrollment circle.

We also planned for and foresee that warm weather will slow enrollment since schizophrenia patients more often avoid inpatient trials where they can be outside comfortably. At our next quarterly call we plan to continue to update you on the trial progress.

VEC-162 update, we're proud to be running another Phase III program simultaneous to that for iloperidone. VEC-162 is our novel melatonin [inaudible - heavily accented] for sleep and mood disorders. Before updating the other compounds Phase III trial, let me briefly remind you how we feel it positions.

We believe the compound can be differentiated by intent to the sleep disorder market. As a melatonin [inaudible - heavily accented] the compound appears to exert its strongest effect on sleep through the natural sleep-wake cycle which is governed by melatonin. Because it facilitates sleep through the body's natural sleep funnel, it appears to lack the side effects associated with hypnotics and sedatives and should not be scheduled as a controlled substance.

VEC-162 has also demonstrated a statistically significant effect on both sleep onset and sleep maintenance in its Phase II trial. We believe that a large and under appreciated percentage of patients with sleep disorders owe their sleep problems to a misalignment on the sleep-wake cycle. Examples include jet lag, shirt worker sleep disorder, and delayed sleep phase syndrome, which is a misalignment within an individual sleep-wake cycle and desired morning rise, evening sleep schedule.

We believe VEC-162 is the only compound with the proven ability to modify the sleep-wake cycle and could be the first choice for these insomnia patients. We believe that our strong efficacy and safety will also allow us to compete for the remainder of insomnia patients who are currently treated with hypnotic and sedatives.

VEC-162 is in a Phase III trial for [inaudible - heavily accented] insomnia. This is the first pivotal trial in the program and closing mirrors [inaudible - heavily accented] insomnia trials previous run by companies with approved [inaudible - heavily accented] hypnotics. The trial will measure sleep efficiency and time to fall asleep as well as next day performance and mood.

We believe that the results of this trial will be a strong predictor for the additional Phase III chronic insomnia trial that will be required for an insomnia indication. The trial is a randomized, double blind, placebo controlled study in which we expect to enroll approximately 400 [inaudible - heavily accented] volunteers from approximately 20 U.S. sleep centers.

We just started the trial in February and can report that enrollment is on schedule. We expect that we will complete the trial and report the results in the first half of 2007. At our next quarterly call we expect to provide you further detail on our patient [inaudible - heavily accented].

Let me take a few moments to inform you that the investigators from the VEC-162 trial will present the clinical data at two conferences in the near future. The first will be an oral presentation of the Society for Research and Biological [inaudible - heavily accented], SRBR, meeting on May 24 in Florida. The primary focus of this presentation will be on the ability of VEC-162 to effect a meaningful shift on trial participants circadian rhythm as measured by [inaudible - heavily accented] on the first night of treatment. We believe this will provide further color on the way in which VEC-162 appears to facilitate sleep.

The second will be also an oral presentation and will take place at the Annual Associated Professional Sleep Societies meeting, APSS, in Salt Lake City. The conference runs from June 17 to 22. APSS has not yet finalized the speaking slots and so we do not yet know the exact date of the presentation. The primary focus of this presentation will be on the sleep benefits of VEC-162.

We are pleased to see our data given a prime speaking slot at what is perhaps the preeminent conference on sleep disorders.

On the IPO, finally, I would like to talk some of our recent finances before turning the call over to Steve Shallcross. As you know, we raised net receipts of just over $53 million in our IPO last month. We were pleased to raise money at the evaluation we achieved in such a difficult market. We're excited about moving our products candidate further through clinical development and closer to commercialization.

As explained previously, we believe that the proceeds of this financing will allow us to achieve the following near term milestones: the completion and reporting of the current iloperidone Phase III trial, the completion and reporting of current VEC-162 Phase III trial, and the initiation of a Phase II trial for VSF-173 for excessive sleepiness.

Now Steve will address our financial results for the quarter and then I will provide conclusion remarks prior to opening the call to questions. Steve?

Thanks Mihael. Overall our company's first quarter results reflect the exciting progress in our clinical development activities and the strengthening of our financial position. Our R&D expenses for the quarter totaled $15.5 million compared to $5.2 million in the fourth quarter of 2005 and $3.9 million in the first quarter of 2005.

Quarter over quarter increases due primarily to an increase in our clinical trial expenses for our ongoing iloperidone and VEC-162 Phase III clinical trials. General administrative expenses were $2.9 million in the first quarter up from $2 million in the fourth quarter of 2005 and up from $2.1 million in the first quarter of 2005.

The increase in G&A expense in the past quarter was primarily due to increased [inaudible] compensation charges, insurance, and facility expenses.

As you may be aware, new accounting rules for stock based compensation, SFAS 123R, went into effect on January 1, 2006. As a result, we recorded non-cash stock base compensation expense of approximately $1.5 million in the first quarter of 2006. Of this $1.5 million, approximately $1.1 million was recorded as G&A expense and the remaining $100,000.00 was attributed to R&D.

Our net loss applicable to common shareholders for the first quarter of 2006 was $18.1 million, down from $21.9 million in the fourth quarter of 2005 and $5.9 million in the first quarter of 2005.

Line net loss applicable to common shareholders for the fourth quarter of 2005 included a $15 million non-cash deemed dividend preferred shareholders that resulted from the beneficial convergent future due to the December 2005 sale of preferred stock.

Total cash and marketable securities decreased by approximately $11 million during the first quarter. This decrease is attributable to $18.1 million in operating losses and approximately $300,000.00 attributable to fixed asset purchases.

These losses reconciled with our $11 million decrease in cash and marketable securities due to increases in accrued R&D and other expenses of approximately $5.8 million primarily related to our two ongoing Phase III clinic trials and $1.6 million of non-cash depreciation, amortization, and stock based compensation charges.

Our March 31, 2006 balance sheet showed $20.1 million in unrestricted cash, cash equivalents, and marketable securities, down from $31.2 million at the end of 2005 and $12.5 million at March 31, 2005.

As you know, our IPO went effective on April 12. We issued 5,964,188 shares of common stock in our IPO, including an underwriter's over allotment option of 214,188 shares at a purchase price to the public of $10.00 per share.

As Mihael said, the IPO generated approximately $53.1 million of proceed to the company net of underwriting discounts and commissions as well as estimated offering expenses. As of April 30, 2006, we had approximately $69 million in cash, cash equivalents, and short term investments on hand.

Finally, I'll update our outlook for the company's financial performance for the full year of 2006. Please note that these projections are based on our current expectations and assumptions related to the cost and timing of our ongoing Phase III iloperidone and VEC-162 clinical trials and include no incremental sources of capital from financing, collaborations, or partnerships that we may enter into in 2006.

For 2006, we expect total cash used from the company's operations to be approximately 60 to $65 million. Total cash balance at the end of 2006 is expected to be in the range of 20 to $25 million. Our total net loss per year is expected to be between 70 to $75 million or approximately $4.38 to $4.69 per diluted common share.

Non-cash charges for 2006 consisting primarily of stock based compensation expenses and depreciation and amortization are expected to be approximately $8 million. Per share figures were computed on a weighted average basis of 15,986,501 common shares outstanding at the end of the year.

At this time, I'll turn the call back to Mihael.

Thank you, Steve. To summarize, I will repeat my excitement about the Vanda story and our positioning. In iloperidone, we have a differentiated compound for a large market and enrollment is ahead of schedule for what we believe could be iloperidone's final clinical trial required to file a new drug application with the FDA.

In VEC-162 we have another differentiated Phase III compound that is enrolling on target for [inaudible - heavily accented] insomnia Phase III trial. We also have defects with the [inaudible - heavily accented] Pharmaco genetics and Pharmaco genomics, which we believe will allow us a competitive advantage in acquiring and developing other promising compounds.

Thank you and we would be happy to address any questions at this time.

[OPERATOR INSTRUCTIONS]

Our first question comes from Jeff [Miachan] of JP Morgan.

Hi, guys. Thanks for taking the question. Question for you on the Pharmaco genomics test. I'm trying to get a sense of the addressable population and of the 372 enrolled in the iloperidone study, how many of those were actually screened out using your test?

Let me clarify. So, on the Pharmaco genetic test for efficacy, 70% of the schizophrenia patients carry this marker. In this trial we're examining superiority of iloperidone over placebo without excluding any patients at all. The Pharmaco genetics efficacy market is a secondary objective that will allow us to identify whether indeed, in a prospective [inaudible - heavily accented], a large portion of the patients we want to carry this marker, have an even better response from the other patients.

Okay. Thanks for the clarification. And then a question on VEC-162. For the size of this Phase II program, how many patients would you expect to enroll in the chronic study and how would that total number of [inaudible] patients compare to other drugs in the insomnia class?

Yes. Thank you, Jeff. On the question of how many patients one may need up until you file, we know that several thousand patients, between 2 and 4,000 patients, are required for the safety database. Also on the efficacy side, it is not just one more Phase III study plus this one. Typically in chronic insomnia programs, there are very big trends in insomnia study like we are now, plus in at least two more additional Phase III programs in chronic insomnia. This may satisfy the full number of patients for the 2 to 4,000 target.

Okay. Thanks.

Our next question is from Don Ellis. Please go ahead.

Thank you. Good morning. Couple of questions. I'll ask them one at a time. Do you have any intelligence on how the mechanism of action of VEC-162 compares to [inaudible]?

Yes. First of all let me face the clinical side. VEC-162 has already demonstrated efficacy on both sleep onset and sleep maintenance. [Inaudible] has only demonstrated, as we know on the label, only sleep onset. No effect on sleep maintenance.

The mechanism of [inaudible - heavily accented], we believe, there are two drivers. VEC-162 is a balanced binder for the two melatonin receptors, MT1 and MT2. [Inaudible] is not. It prefers MT1 over MT2 by ten fold. Now, this could be crucial because it is believed MT1 governs sleep onset where MT2 is necessary for sleep maintenance.

The other issue is that VEC-162 is a bio-available compound, that means from [inaudible - heavily accented] a large portion of that ends in the bloodstream. [Inaudible] is not. In the label it says that only less than 2% is a bio-availability which means less than 2% of the [inaudible - heavily accented] ends up in the bloodstream.

Okay. Next question. Can you just walk through the intellectual property on Iloperidone and VEC-162?

All these drugs have NC patent. First of all on iloperidone, the U.S. patent is VNC 3211 and we expect a full five year patent restoration to take us to 2016. This is under the subsection of the [inaudible - heavily accented] that allows recovery of development time and time in review.

On VEC-162, VNC patent is 2018 and on that we also expect the full five year patent restoration.

Okay. Last question's regarding iloperidone. Are you planning one or two Phase III trials?

The current Phase III study that we've enrolled already 272 out of the 600 patient is the last Phase III study before filing with the agency.

Okay. Lastly, what is it in the design of your Phase III trials that gives you the confidence that the results will be different than the Novartis pivotal trials?

Two key differences. We know that an important aspect for these patients is compliance. If they do not take the medication the drug will not work. We have taken two steps. One, we administer the drug inpatient. The study is an inpatient study contrary to the previous Novartis studies which were primarily outpatient studies. Increased compliance this way. Number two, administer the drug as a simple, one pill twice a day versus a far more complicated administration than Novartis had before.

Great. Thank you very much.

Our next question comes from Kirk Ferrington of Gunner Allen Financial.

Congratulations, guys, on [inaudible - background noise]

Because if it is approved, you're probably going to need to move a large pharmaceutical to manufacture and distribute it, am I correct?

First of all we can't give a disclosure on [inaudible]. We have already disclosed that, first of all, we had fully in license, a drug from Novartis Pharmaceuticals and any obligations that Novartis has to other parties they had entered a license agreement that [inaudible - heavily accented] Novartis to execute. We have already discussed in the S1 in a mid-20s [loyalty] which still makes the compound very profitable and very attractive for Vanda Pharmaceuticals.

Just on your question manufacturing, we are manufacturing as we have disclosed in the S1 the product now for commercial launch with a contract manufacturer.

That's terrific. Good luck and I guess we'll see you next quarter.

Thank you.

[OPERATOR INSTRUCTIONS]

There are no further questions, sir.

Great. Thank you. This concludes our first quarter investor call. We thank you for your interest and support for Vanda, and we look forward to speaking with you again at our next quarterly update.

Ladies and gentlemen, this concludes the conference. You may now disconnect. Have a good day.