Vanda Pharmaceuticals Inc (VNDA) 2006 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2006 Vanda Pharmaceuticals, Inc. Earnings Conference Call. My name is Melanie, and I will be your coordinator for today.

[OPERATOR INSTRUCTIONS].

I would now like to turn the call over to Mr. Steve Shallcross, Senior Vice President and Chief Financial Officer. Please proceed, sir.

Thanks, Melanie. Good morning, and thank you for joining us to discuss Vanda Pharmaceuticals Second quarter 2006 performance. Our Q2 financial results were released this morning and are available on the SEC's EDGAR system or on our website at www.vandapharma.com. In addition, we are providing live and archive versions of this conference call on our website, and the telephone replay of the call will be available through August 10.

Joining me on today's call is Dr. Mihales Polymeropoulos, our President and CEO. Following my introductory remarks, Dr. Polymeropoulos will update the progress for our two ongoing Phase III clinical programs and discuss our recent addition to the senior management team. Then I will comment on our financial results for the quarter and review our 2006 financial guidance, 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. Wordings 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 changes in circumstances, assumptions and uncertainties and other risks. These risks are described in the Risk Factors section of our report on Form 10-Q for the quarterly period ended March 31, 2006, which is available on the SEC's EDGAR system and our website. We encourage all investors to read this report 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 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, Mihales Polymeropoulos.

Good morning, and thank you for joining us on our second quarter 2006 call. I am excited to update you on our activities since the end of the first quarter, as we continue our mission to develop and commercialize meaningful new therapies for diseases that afflict millions of people.

Today I will focus on three areas. First, I will give you an update on our product candidate iloperidone and its Phase III trial. I will then describe VEC-162 and its Phase III trial. Finally, I will update you on a key addition we recently made to our senior management team. Steve will then summarize our financial performance for the second quarter and review our full year financial guidance for 2006.

Iloperidone Update - - Iloperidone is our atypical antipsychotic in development for the treatment of schizophrenia. The compound targets a $13 billion market, and offers a differentiated safety profile, the potential for improved compliance through its 4-week injectable formulation, and emerging pharmacogenetic tools for identifying optimal iloperidone responder patients.

We are nearing the completion of an inpatient Phase III trial in a number of centers across the U.S. and India. I am happy to report that the trial continues to enroll significantly ahead of schedule, with 567 patients as of July 31st versus our target of 600.

The factors we originally identified as potential hurdles to rapid enrollment, such as the traditional summer clinical trial lull and competitive trials, appear not to have had much effect on us. We believe other contributing factors for the current enrollment rate may be investigator interest around iloperidone and the potential benefits that Vanda's genetic diagnostic tools and long-lasting injectable formulation may offer.

As a result of this rapid enrollment we believe we will be in a position to deliver top-line results ahead of our previous guidance. We previously reported that we would announce results by early Q2 of 2007. Instead, we believe we should be able to report results by early Q1 of 2007. We will continue to keep you updated on our reporting schedule as the timing for our site close-out activities becomes more definitive. I will remind you that we believe that, if successful, this will be our last required clinical trial before filing our NDA, by the end of 2007.

VEC-162 update - - As you know we are simultaneously conducting a Phase III trial for VEC-162 in transient insomnia. VEC-162 is our novel melatonin agonist that we believe may have efficacy for both sleep and mood disorders. Before updating you on this compound's Phase III trial, let me briefly remind you how we see it positioned.

We believe the compound can be a differentiated entrant to the sleep disorder market. As a melatonin agonist, 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 channel, 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 a Phase II trial that we completed last year.

We believe that a large, and underappreciated, percentage of patients with sleep disorders owe their sleep problems to a misalignment of the sleep/wake cycle. Examples include jet lag, shift worker sleep disorder, and delayed sleep phase syndrome, which is a misalignment with an individual's sleep/wake cycle and desired morning-rise/evening-sleep schedule.

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

As I said, VEC-162 is currently in a Phase III trial for transient insomnia. This trial closely mirrors transient insomnia trials that have been conducted for other approved hypnotics. The trial endpoints include time to fall asleep and total sleep time, as well as next-day performance and mood. We believe that the results of this trial will be a strong predictor of results for the Phase III chronic insomnia trials that we expect to run next. I am pleased to report that this trial is also enrolling ahead of schedule, with 308 patients enrolled as of July 31st, versus our target of 400.

As a result of the rapid rate of enrollment through July, we should also be able to deliver top-line results ahead of our previous guidance of early Q2 of next year. Specifically, we believe we should be able to deliver top-line results in early Q1 of 2007. We'll provide additional guidance in future calls.

I am extremely proud of our organization for the quality and speed with which they are completing these trials. We are looking forward to reporting the results for both of our trials, and if successful, to filing our NDA for iloperidone by the end of 2007.

Finally, I would like to touch on another exciting piece of news that we recently announced - - the hiring of Dr. Paolo Baroldi as our Chief Medical Officer. I worked with Paolo during my days at Novartis, where he was the Global Head of Clinical Pharmacology, and I am very pleased that he has agreed to join our exciting organization. The depth and breadth of his expertise in clinical pharmacology and clinical development is a great addition for Vanda.

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

Steve?

Thanks, Mihales. Overall, our company's second quarter results reflect the exciting progress we continue to see for our two ongoing Phase III trials and the strengthening of our financial position with the completion of our initial public offering in April.

Our R&D expenses for the quarter totaled $19.1 million, compared to $15.5 million in the first quarter of 2006 and $3.7 million in the second quarter of 2005. The quarter-over-quarter increase was due primarily to an increase in our clinical trial expenses for our ongoing iloperidone and VEC-162 Phase III clinical trials.

General and administrative expenses were $3 million in the second quarter, up from $2.9 million in the first quarter of 2006, and up from $1.9 million in the second quarter of 2005. The increase in G&A expenses in this past quarter was primarily due to increased insurance expense and professional fees associated with becoming a public company.

We recorded non-cash stock-based compensation expense of approximately $1.5 million in the second quarter of 2006. Of this $1.5 million, approximately $1.4 million was recorded as G&A expense and the remaining $100,000 was attributed to R&D.

Our net loss applicable to common stockholders for the second quarter of 2006 was $21.4 million. This compares to a net loss of $18.1 million in the first quarter of 2006, and $5.5 million in the second quarter of 2005.

Total cash and marketable securities increased by approximately $40.1 million during the second quarter. This increase is primarily attributable to our increase in net cash proceeds of $53.3 million received in our initial public offering, less $21.4 million in operating losses and approximately $0.5 for fixed asset purchases.

These numbers further reconcile with our net increase in cash and marketable securities with offsets for increases in accrued R&D and other expenses of approximately $5.9 million, primarily related to our two ongoing Phase III clinical trials, decreases in prepaid expenses and deposits of $1.1 million and $1.6 million of non-cash depreciation, amortization, and stock-based compensation charges.

Our June 30, 2006 Balance Sheet showed $60.2 million in unrestricted cash, cash equivalents and marketable securities, up from $20.1 million at the end of the first quarter of 2006 and $31.2 million at December 31, 2005.

Finally, I'll review 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 about the cost and timing of our ongoing Phase III iloperidone and VEC-162 clinical trials.

Also note that we plan to incur the majority of the clinical costs for our two ongoing Phase III trials in 2006. The costs to complete both of our phase III trails have been reflected in our full year 2006 expense and cash projections. In addition, our projections include no incremental sources of capital from financings, collaborations or partnerships that we may enter into in 2006. As previously discussed last quarter, for 2006, we expect total cash used from the Company's operations to be approximately $60 to $65 million. Our total cash balance at the end of 2006 is expected to be in the range of $20 to $25 million.

Total net loss for the year is expected to be between $70 to $75 million, or approximately $4.38 to $4.69 per fully 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 15,968,501 common shares outstanding at the end of the year.

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

Thank you, Steve. Let me emphasize my excitement over the continued progress of our team that we have made and what we believe will be a tremendous commercial opportunity with multiple late stage products.

In iloperidone we have a differentiated compound for a large market, and enrollment is ahead of schedule for what we believe will be iloperidone's final clinical trial required to file an NDA. In VEC-162 we have another differentiated Phase III compound that is enrolling ahead of schedule for its transient insomnia Phase III trial.

We remain excited about moving these product candidates through clinical development and closer to commercialization.

I look forward to giving your further updates on our progress in the near future. Thank you.

We would be happy to address any questions at this time.

[OPERATOR INSTRUCTIONS].

Geoff Meacham, JP Morgan.

Morning, guys, and congratulations on rapid enrollment in both programs. Just curious what steps are left in the iloperidone NDA. Should we read into this as being just a final clinical results, the only thing that has to be written here or are you guys preparing this from start to finish, beginning with the end of the Phase III study?

I think for your question, Jeff, let me understand a little better the question. So, this clinical trial is what we believe to be the last Phase III efficacy trial. And if positive, that will be the missing piece in the complete package for the NDA filing. And of course, we are already in preparations for the [inaudible] filing, which we expect to file by the end of 2007.

Okay. I guess my question was just more, what part of that has already been written - - CNC , pre-clinical, etc., etc.? It sounds like most of it has.

Well, we are actually in the process now of compiling all the pieces of it. A large number of studies have been conducted, both pre-clinical and clinical and, as you said, finalizing the CNC piece. And that usually is a very long process. That will take a number of months, and that is why we maintain end of 2007 for filing date.

Okay. And just a final question on VEC-162. Given the acceleration of the current trial, what are your plans to accelerate the chronic trial for VEC?

I think we have to come back and notify the street on that. As soon as we have the results, we will understand better how to inform the design of the future studies. So, for now, we maintain that we will begin additional Phase III chronic second studies by the end of 2007.

Okay, great. Thanks.

[Jeff Craig], Bank of America.

Morning, guys. I am actually traveling, so I apologize for any bad reception. I do not know whether or not this question has been asked already [inaudible] post-trial enrollment completion for the iloperidine trial between the [inaudible] the top-line data out and what the timing might be for those things, as well?

And then secondly, we have a pharmacogenetic [inaudible] as part of the top-line data release as well? Thank you.

Jeff, actually the connection is pretty bad, but if I understood the question, number one was, you were asking timing from finishing enrollment to reporting. And number two was whether the pharmacogenetics testing will be part of the top-line results.

On the first question, last patient enrolled does not mean last patient/last visit because it includes the four weeks plus a few days trial. And then the entire process of closing out all the sites, they find the data, clean the data, compile your data base, analyzing the data, and finally, reporting the top-line. This is a long process, but we are confident to report by early Q1.

Your question on whether top-line results will include the pharmacogenetics testing or not, we have not decided that yet and it will depend on how long it will take us to compile this additional data without delaying the primary objective and we will issue guidance on that as soon as we can.

Just another follow-up if I could. How would you envision the genetics [inaudible] potentially impacting the usage of the drug, differentiating iloperidone from the competition?

We believe, first of all, that the compound with a strong safety profile has a very significant place in the [inaudible] of psychiatrists for treatment of schizophrenia and, eventually, bipolar disease and other psychotic disorders. Now the pharmacogenetics offers a unique differentiation because it stops the trial and error decision in medication profile of these patients.

Our hope and belief is that the introduction of this genetic marker in the treatment of these patients will become a big differentiator, identifying iloperidone as the first-line treatment for this population of patients that carry this marker. And just to remind you, the marker we are testing today, more than 70% of schizophrenic patients do carry this marker.

Thank you very much.

Don Ellis, Thomas Weisel Partners.

This is [Ju May] for Don Ellis. I just have a couple of questions. The first one is, on May 11, your shares out were 21.9 million. I was wondering if you could tell me where they are now. And also, for the 19 million in R&D this quarter, is this a good run rate for the rest of the year?

Steve, do you want to address this question?

Yes. The 21.9 million shares - - basically, the only shares that are out there now in the float are about approximately 6 million net were issued in the IPO. The remaining shares are held by our original investors.

And to answer your second question, what you should start to see happen in Q3 is that the quarterly burn for R&D starts to decrease a bit and then decrease even further by Q4. We are still standing by the full-year guidance that we just discussed.

Okay, great. Thank you very much.

[Operator Instructions]. Corey Davis, Natexis.

Thanks, good morning. Another way to ask Jeff's question is, what has to happen in between the iloperidone data in Q1 and the NDA filing by the end of the year? It sounds like a long time to go from final data set to NDA filing.

Good morning, Corey. Thanks for your question. So, maybe it will be more clear with that. It is customary with such a large packet that we have now, it is not unlikely that even 12 months lapse between last patient/last visit and the CTD filing. We are taking steps now to prepare for the CTD filing and reduce this timing from last patient/last visit in top-line results so that we will be able to file before the end of 2007.

The usual steps are the close-out of the study, the final study report, which lags usually by a quarter from last patient/last visit. Then finishing all the CNC required data, stability data that need to be accumulated. And finally, the preparation of the CTD also includes a meeting with the FDA as an official pre-NDA meeting to discuss all format and content, and that will happen sometime in Q1 of 2007.

Okay, great. And then secondly, how are you thinking about the depression opportunity on VEC-162? How much pilot work have you done already and what can you do before, maybe, the results of the first insomnia study or is it just a matter of being resource constrained right now?

First of all, let me put a little context, and thanks for this question. It is very clear that compounds that regulate the sleep/wake cycle are anticipated to have a great year for mood disorders, where you do see the interplay between sleep/wake and mood. And we understand that work from others in the class suggest that [inaudible] may have a great potential in treating major depression and so would VEC-162. What we know so far from pre-clinical models of depressions is that VEC-162 has shown a lot of promise for working major depression.

As you suggested, yes, it is constrained to resources to develop proof of concept studies in depression, and we expect to fully discuss and do that post the results of the current clinical trial. And we will be able to give more guidance in the future.

And then lastly, is there any chance to call back the outgoing royalty stack in iloperidone?

Just to remind everybody that we licensed iloperidone from Novartis and we owe a royalty stack, which is in the mid-20s. Of course, the compound, even with this royal stack, because of its very low cost of good and very high margin profits in this very large market, still can be a very profitable compound to market in the U.S. and the world.

But of course, it has not escaped our attention, but creating circumstances along the royalty reduction, etc., can make this compound even more profitable.

Great. Thanks very much.

Gentlemen, there are no further questions in the queue at this time. I would now like to turn the call over to Mihales for any closing remarks. Please proceed, sir.

Thank you. This concludes our Second Quarter Investor Call. We thank you for your interest in and support for Vanda, and we look forward to speaking with you again at our next quarterly update. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.