Vanda Pharmaceuticals Inc (VNDA) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2006 Vanda Pharmaceuticals Inc. Earnings Conference Call. My name is Lisa, and I'll be your Coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference.

[Operator Instructions].

I would now like to turn the presentation over to Mr. Steve Shallcross, Chief Financial Officer. Please proceed, sir.

Thank you, Lisa. Good morning and thank you for joining us to discuss Vanda Pharmaceuticals third quarter 2006 performance. Q3 financial results were released this morning and are available on the SECs EDGAR System or on our website, www.Vandapharma.com. In addition, we're providing live and archived versions of this conference call on our website, and a telephone replay of the call will be available through November 9.

Joining me on today's call is Dr. Mihael Polymeropoulos, our President and CEO. Following my introductory comments, Dr. Polymeropoulos will provide an update on our two ongoing Phase III clinical programs, and give you the expected time line for reporting top-line results, then I will comment on our financial results for the quarter and update our 2006 financial guidance before opening the line for your questions.

Before I 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. Words such as, but not limited to, "believe, expect, anticipate, estimate, intend, plan, target, 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 Factor section of our report on Form 10-Q for the quarterly period ended June 30, 2006 which is available on the SECs EDGAR System and on our website. We encourage all investors to read this report and other SEC filings.

The information we provide on the 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 to turn the call over to our CEO, Mihael Polymeropoulos.

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

As it's been our practice, I will focus my remarks on our most advanced compound, the Phase III compounds, Iloperidone and VEC-162.

Let me start with Iloperidone. Iloperidone is our normal treatment for Schizophrenia and other psychiatric disorders which together create a 13 billion-plus market. We believe our Iloperidone offers efficacy with a differentiated safety profile. With this differentiated profile, Iloperidone can provide value in Schizophrenia treatment and become a commercially successful compound.

In addition to this differentiated profile, we believe Iloperidone has two more unique features. The first is a four-week injectable formulation to address the significant issue of full compliance in the Schizophrenia population. This formulation offers some improvement over the only long-acting branded anto-psychotic [Rizipredel], which is only a two-week formulation.

Second, we are developing a simple generic blood test to help physicians identify optimal Iloperidone respondent patients. Our market research indicates that there will be enthusiasm for these tests. We expect both of the features to enhance the long-term differentiation of Iloperidone.

As we reported on August 30, we concluded enrollment in our Phase III trial with 604 patients. Since this announcement, we have been working closely with our CROs to complete the [phase] close-out and data management activities. I'm now pleased to report that we are confident we will deliver top-line results in December of this year, ahead of our previously reported schedule.

I will remind you that the trial is a randomized, double-blind, placebo-controlled Phase III trial in patients with Schizophrenia. We ran the trial as an in-patient study in nearly 40 centers in the U.S. and India.

Finally, I will remind you that we believe that if it is successful, this will be our last clinical trial before filing our NDA. We plan to make this filing by the end of 2007, and we expect to give you more detailed updates of the filing time-lines on future investor calls.

Let me turn our attention now to VEC-162, our compound for the treatment of sleep disorders. We believe the compound's novel mechanism of action has a unique clinical affect and also will enable us to position it in a commercially unique way.

VEC-162 is a balanced melatonin receptor agonist that works by adjusting to circadian rhythms, in other words, by re-setting the body clock. This feature differentiates VEC-162 and allows it to provide sleep onset and maintenance benefits, as well as to re-set the body clock.

In Phase II, we have already demonstrated the ability of VEC-162 to shift circadian rhythms by several hours. We have also demonstrated that VEC-162 can both help people fall asleep and help them maintain sleep.

The implication of VEC-162's abilities to induce and maintain sleep and shift circadian rhythms is that VEC-162 may be able to treat an important sub-set of sleep disorder patients for whom there is no effective drug treatment

These are patients with circadian rhythm sleep disorders, or CRSD, which have difficulty sleeping due to a misalignment of the circadian rhythm, or where a person's internal sleep/wake cycle does not match the desired sleep time. Examples include shift worker's sleep disorders, delayed sleep phase syndrome, and jet lag. Our ongoing market research suggests that these patients may comprise a significant amount of the overall sleep market.

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. Because it works through the natural sleep/wake cycle, VEC-162 also appears to lack the side effects associated with hypnotics and sedatives and should not be scheduled as a controlled substance.

As you know, we also announced on August 30 that we concluded enrollment in the VEC-162 Phase III trial [intrangent] insomnia with 412 patients. We now believe that we will report top-line results for this trial sometime this month, November.

This trial closely mirrors trends in insomnia trials conducted for other sleep drugs. The trial end points 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 trials that we expect to run next in CRSD populations.

Finally, I'm extremely proud of our organization for the quality and speed with which they are completing these trials. As I mentioned, we're looking forward to report the results for both of our trials very soon, and if successful, to file our NDA for Iloperidone by the end of 2007.

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

Thanks, Mihael. Overall, our company's third quarter results reflect the exciting progress we continue to see for our two ongoing Phase III trials. Our R&D expenses for the quarter totaled $9.5 million compared to $19.1 million in the second quarter of 2006, and $4.1 million in the third quarter 2005. The quarter-over-quarter decrease was due primarily to a reduction in our clinical trial expenses for our ongoing Iloperidone and VEC-162 Phase III clinical trials

General administration expenses were $3.3 million in the third quarter, up from $3 million in the second quarter of 2006, and up from $1.7 million in third 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 third quarter of 2006. Of this $1.5 million, approximately $1.3 million was recorded as G&A expense, and the remaining 200,000 was attributed to R&D.

Our net loss, applicable to common shareholders for the third quarter of 2006 was $12.1 million. This compares to a net loss of $21.4 million in the second quarter of 2006, and $24.2 million in the third quarter of 2005.

Total cash, cash equivalents, and marketable securities decreased by approximately $17.2 million during the third quarter. This decrease is primarily attributable to our $12.1 million in operating losses, approximately $0.3 million for fixed asset purchases, and the reduction in accrued R&D expenses and accounts payable of approximately $6.7 million.

These numbers further reconcile with our net decrease in cash, cash equivalents, and marketable securities with an off-set for increases of $1.7 million of non-cash depreciation amortization, and stock-based compensation charges, and $.2 million of other items.

Our September 30, 2006 balance sheet showed $43.0 million in unrestricted cash, cash equivalent, and marketable securities; down from $60.2 million at the end of the second 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, remaining 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 our clinical costs for our two ongoing Phase III trials in 2006. The majority of the costs [complete] both of our Phase III trials, have been reflected in our full year 2006 expense and cash projections. In addition, our projections include no incremental sources of capital from finances that we may enter into in 2006.

We are updating our full year 2006 financial guidance to reflect the early completion of our two Phase III clinical trials. For 2006, we expect total cash used from the company's operations to be approximately $55 million to $60 million, or $5 million less than we previously reported. Total cash balance at the end of 2006 is expected to be in the range of $25 million - $30 million.

Total net loss for the year is expected to be between $55 million - $70 million, or $5 million less that we previously reported. Total net loss expected for the year is approximately $4.07 - $4.38 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 to be $7 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 Mihael.

Thank you, Steve. Let me re-emphasize my excitement over the continued progress our teams have made. I'm extremely proud of our team running multiple large-scale Phase III programs ahead of schedule with just 45 employees.

I remain excited about the prospects of moving these compounds to clinical development and closer to commercialization. And I look forward to report the Phase III results for both the compounds in the near future.

We'll be happy to address any questions at this time.

[Operator Instructions].

David Maris with Banc of America Securities.

Good morning. A couple questions on VEC-162 and Iloperidone. Can you give an update on the business development activity for the drugs and any potential deal structures or timing of executing agreements? Any different perspectives, as you're meeting with companies post the data presentation that--has interest increased, what are people waiting for, when should we expect that? And should it be a U.S. partner or European partner, global partner; how should we look at that?

Thanks, David. Let me start with the statement that as you may very well recognize, it is unique for a company of our size to have assets, late assets close to commercialization address a multi-billion dollar market. And, of course, these can be very attractive for a number of companies.

Let me be more specific. On Iloperidone, it is our vision, and we have consistently communicated that Iloperidone in the Schizophrenia market can be commercialized by Vanda alone in the U.S. And this is because of the size of the market and that a relatively small specialty [spill spores] can address this small number, relatively small number, of physicians in an equal footing with the competitors.

Now ex-U.S., it is very clear that we want to identify the partner. But, of course, in the process of identifying the partner, we will not exclude global partnerships and discard fairing the U.S. [in that] conflict.

You asked about timing. It is very clear that we have results coming up in the next couple of months, and I would say this is the pivotal point for more serious partnering discussions around Iloperidone.

Let me turn to VEC-162. VEC-162 is a very exciting compound. I highlighted today the opportunity that this compound may have in treating uniquely patients with sleep disorders. But we have also communicated the ability of this compound, potential ability, of treating patients with major depression.

Now, in this context, it is very clear that these are markets addressed by general practitioners, and the sales forces required are quite large. So, it has been our intent that at the right time, we'll structure the right deal around VEC-162 and most likely on a global setting.

Now, about timing. The VEC-162 Phase III trial is set in insomnia that we'll be reporting out in the next few weeks is, again, the pivotal point for decision making and engaging a number of companies in discussions.

I just have two follow-ups. First, is it fair to say for both products that you've had a significant amount of interest and you've been able to whittle it down to two or three leads, companies for each product as partnerships? Or can you describe at least the level of interest?

And then, separately on the timing for data release and enrollment, was that due to selection of the right centers and enrollment, or was it just more conservative approach in guidance?

Let me address your first question. There are a number of companies that would be in need of either a Schizophrenia drug or a sleep drug. These companies know of the opportunities that Vanda has. And I will reiterate that we are not screening out candidates before results, and they would not screen themselves out either. So, results around the Phase III trials will be the pivotal event of more serious engagement. But the ones who need to know, they know.

And the profiles, as I have discussed, are very attractive; an attractive Schizophrenia profile for what matters today on safety, efficacy that can be differentiated even further with genetic [markers] in a four-week formulation for compliance, a very, unique value proposition. And on VEC-162, a unique way to treat sleep disorder patients.

Your second question had to do of why we're finishing our trials ahead of schedule. I would be happy to say because we're good, but let me give you the details. Enthusiastic investigators have been one of key reasons. Investigators who have been familiar with Iloperidone before, in the previous life of the compound, want to participate. They like our profile, and they want to see us on the marketplace eventually.

The other point is serendipity, fewer trials during this time that we were conducting our trial. And I cannot take anything away from my team on a superb execution. And I think similarly on VEC-162, very interesting proposition, a unique one. We know there are a lot of [other] drugs today, hypnotics and sedatives. And that is what the investigators are studying. We offer a new and unique mechanism of action with the potential to treat patients that do not have a solution today.

Great. Thank you very much.

Thanks, Dave.

Corey Davis with Natexus.

Thanks very much. There's been some confusion over the doses of Iloperidone; the current studies at 24 mgs, and the previous three studies were various doses where some worked and some didn't. So, in the eyes of the FDA, are there any hurdles for approval for a range of doses if you only proved that the 24 mg worked in the current study?

Let me review what are the doses and what we know for them. In the past, three Phase III short-term studies that the previous sponsors had run, we have communicated that for doses at or above 12 milligrams, the drug succeeded. In three out of the four, those arms that were tried, and the one that failed barely missed the end point, in that it was positive for five out of the six weeks of the study.

Your question, "What could be a regulatory position around our selection of 24 milligrams in this study, and what does this mean for the label?" We have discussed those selections for this study with the Agency, and we have reached an agreement that this is an appropriate dose and that we have already demonstrated dose response from 12 milligrams and on.

So, we are confident that on the eventual label of the drug, doses from 12 milligrams on to 24 milligrams will be available to a physician and allow flexibility in dosing of these compounds in schizophrenia patients.

Okay, great. And then, one quick on VEC-162; are transient patients in this study phase-shifted? I presume not. So, if this study works, wouldn't it be evident that the drug can still put people to sleep that don't have abnormal circadian rhythms, because I'm still a little bit confused over whether or not the drug would only work in those that are phase-shifted or not.

Great question. So, we are communicating that the science of the action of VEC-162 points to its ability to induce sleep and to reset the clock. The combination of the two activities offers several potential indications. The one that we are pursuing first is CRSD, where patients need both an onset but also a tracer. That does not mean that the drug will not work for primary or secondary insomnia. In fact, we anticipate that the actions of the compound on the [sub-perific] end phases and activities could help a lot of patients on the primary and secondary.

You asked whether this trial was a trial with a phase shift. Actually, it was a trial with a phase shift, the transient insomnia with a first night effect and phase advance. And just to remind you that very recently [Somax] has reported their data in an almost-identical design which they described also as a transient insomnia with first-night effect and phase advance.

Okay, great. Thank you.

Thanks, Corey.

Geoff Meacham with JPMorgan.

Hi. Actually this is Chris Dimitropolis for Geoff Meacham. Good morning. First question was regarding the time lines for filing the NDA. You've advanced the time for data release for both trials. For the Iloperidone filing, is there any potential up-side to year-end guidance for the filing, given data release is ahead of schedule?

Thanks, Chris. The common technical dossier that needs to be filed for Iloperidone is a huge dossier with thousands of patients in a very large number of studies. We have guided that we will file an NDA by end of 2007. And at this time, we will not update the timeline. However, in the first quarter as we get closer in the understanding of the extent of the common technical dossier and we finalize the run forward, we may be able to give more specific specificity on the timing.

That's helpful, thank you. And then, in terms of R&D spend, Steve, should we look conceptually at the fourth quarter as more in line with Q3 where trials were ramping down, or Q2 spend? And also conceptually when we look at 2007, will that be more reflective of Q3 or Q2?

Yes, I think what you want to do for Q4 is we've given you our revised year-end guidance, and you can actually kind of back into it. But the R&D spend will be more in line with Q3, and then G&A maybe slightly ahead of Q3 as we start to commit some additional funds for some commercial activities.

Okay.

And then for '07, we'll be more prepared to talk more thoroughly about that a little bit later in early next year.

Great, thank you.

Donald Ellis with Thomas Weisel Partners.

Good morning, I have a couple of questions. The first one, is there anything related to the Rozerem launch that makes you guys more or less optimistic about the market potential for VEC-162?

Thanks, Don. So, let me clarify one key difference between Rozerem and VEC-162. Rozerem can help patients fall asleep, sleep onset. It cannot help patients with sleep maintenance. We have already shown for VEC-162 that we can achieve both sleep onset and sleep maintenance. Now, the reasons behind that are mechanistic and the poor [revival] ability of Rozerem.

So, while Rozerem's launch has been rather lukewarm, it is more of a reflection of the number of patients that they can take and address in only one side of the coin of the insomnia market.

Okay, and my last question that already has been asked is a more subjective question. Is there anything that's changed in the anti-psychotic market that impacts your market size forecasts or your competitive position within those markets?

Thanks for the question. There are actually three things since our last call. J&J's Paliperidone, which is the active metabolized of the well-known drug Risperidone, has received an approvable letter. We see that as a positive for the anti-psychotic market and Iloperidone, in that it will protect price erosion through the genetic Risperidone which is scheduled to be released sometime in 2008. That's number one.

Number two, Wyeth, in their analyst call a couple of weeks ago, gave us the first update on bifeprunox, their anti-psychotic. And they told us that it does not work as well as competitors, that they have problems with tolerability. Patients are severely nauseated at the beginning of the study. And they also told us that they were not able to demonstrate the dose response on efficacy. But they stuck very well on the weight gain question for this class. So, we think that compound and its profile is actually not very competitive for Iloperidone.

And number three update is the very recent development of Solvay and Pfizer. Pfizer's new compound Asenapine was scheduled to file for an NDA early in 2007, and now, Pfizer has told us that due to mixed results in the Schizophrenia study, they will not file in 2007. So, three good news.

Terrific. Thank you very much.

Navdeep Jaikaria of Rodman & Renshaw.

Thank you. My question has been answered.

Okay.

Tim Ackerman with SAI.

Hi, this is Tim Ackerman with SAI. I had a question on VEC-162. I was wondering exactly what type of label you would expect on 162 in terms of indications and circadian rhythm disorders? My understanding is that the FDA doesn't have any specific guidance right now for CRD, and I was just wondering what kind of discussions you've had with the FDA around language and indications for CRD?

Yes, let me clarify. CRSD is not a new indication in the community of physicians, and it is not a new indication for the FDA. In fact, the FDA has approved, already, the drug for one of the symptoms of CRSD, and that is excessive sleepiness for shift workers [sleep disorder]. So, it's now new at all. And actually, they very much welcomed the American [of action] to treat CRSD. So, just to be very clear, the compounds that have already approved for CRSD is Providgel, [Sefalone's Providgel].

And what other indications do you think you'll be able to get a label for? Will you be able to get a label for primary insomnia and chronic insomnia?

As I stated before, the sleep onset and sleep maintenance effects of this compound, while it makes it uniquely positioned for CRSD, at the same time, they can make it a very attractive solution for primary insomnia and secondary insomnia in the context because of anxiety and depression.

Now, our focus for Vanda has been CRSD because of the uniqueness of the profile and also resources; provided resources, provided a strong partnership which can actually uncover all the strong effects this compound can have for primary insomnia and secondary insomnia in addition to CRSD.

Thank you very much.

Thank you.

David Maris with Banc of America Securities.

Hi, this is actually [Jeff Craig] with [David Stein]. Just a follow-up on the melatonin role in depression. Have you learned anything new about the Agomelatine product that Novartis end licensed recently that lends itself to a better understanding of how these drugs may be used in depression?

And a follow-up to that, also, [inaudible] trial. When might we see on the genetic screening portion of the trial? Is that going to be something with the top line data, or will that stay under wraps until the NDA is filed?

Thanks, Jeff. Just a little bit of an update on Agomelatine. Agomelatine is the other balanced melatonin agonist developed by Servier, and they pursued major depression, they run clinical studies head-to-head with Paxil and against placebo, and they show that it works as good as Paxil, with faster answers, with fewer side effects.

They have filed in Europe. As you know, Novartis announced a global commercialization deal with Servier. We know that they heard back from the European agency that additional chronic, not short-term, chronic studies may be required. So, as far as we are aware, this compound is moving into the global markets for positioning for major depression.

You asked me a question on the direction of Iloperidone in regards to results?

Right.

The top-line results will focus primarily on the separation of a compound from placebo. We will examine at that point if we have the time to understand the actions of the genetic side, we'll make the determination then.

Thank you.

You're welcome.

[Patrick Marotti] with Fortis.

Hi, good morning. Thank you for taking my question. Regarding the VEC-162, what additional trials would be necessary for a regulatory filing, and when would you expect to have those complete?

Thank you. So, the first trial that we will be reporting in the next few weeks is a Phase III pivotal study for transient insomnia; that would be on the label.

Typically, what is required are at least two additional Phase III studies. They usually are the one-month and six-month durations. We plan to initiate these studies in the second half of 2007. And just to reiterate, with additional resources and potentially a partnership, these studies can run quite fast and they can run simultaneously.

Great, thank you.

There are no additional questions at this time. This concludes the Q&A session. I would now like to turn the conference back over to Dr. Polymeropoulos. Please proceed, sir.

Let's conclude this third quarter investor call. We thank you for your interest and support for Vanda, and we look forward to speaking with you again in the coming weeks.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.