Vanda Pharmaceuticals Inc (VNDA) 2007 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Q3 2007 Vanda Pharmaceuticals, Incorporated Conference Call.

(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, Antoine. Good morning, and thank you for joining us to discuss Vanda Pharmaceuticals Third Quarter 2007 performance. Our third quarter results were released this morning and are available on the SEC's Edgar system and on our website, www.vandapharma.com. In addition, we're providing live and archived versions of this conference on our website, and a telephone replay of the call will be available through November 15th.

Joining me on today's call is Dr. Mihales Polymeropoulos, our President and CEO. Following my introductory remarks, Dr. Polymeropoulos will update you on our ongoing activities and plans for 2007 and '08. Then, I will comment on our financial results for the quarter and review our updated 2007 financial guidance before opening the lines 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 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 on current expectations that involve changes in circumstances, assumptions, uncertainties and other risks. These risks are described in the risk factor section of our report on Form 10-Q for the quarter ended June 30, 2007, which is available on the SEC's Edgar systems and on our website. And 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 like to turn the call over to our CEO, Mihales Polymeropoulos.

Thank you, Steve. Good morning, and thank you for joining us. I will provide you with an update on our progress with our clinical programs and our preparation for the commercial launch of iloperidone.

Before I do this, let me address the proposed convertible debt financing of last week. On November 2nd, we announced a decision not to complete the transaction, because despite demand for the notes, the terms of the notes were not acceptable to the company.

As Steve will elaborate later, our cash balance projected for December 31, 2007, is significantly higher than previously communicated, and we expect to end the year with approximately $85 million to $90 million. We previously communicated that our funds would carry us to the middle of 2008. Our improved cash position gives us additional flexibility and options.

Let me turn to iloperidone. The most significant accomplishment was the NDA submission to the FDA on September 27th. The application, as we reported previously, contains data on more than 3,000 patients supporting a claim for the treatment of schizophrenia.

Let me elaborate on the timeline for approval. We expect a positive decision by the FDA on filing the NDA by December of this year, and we expect a PDUFA action date on or around August 2008. To date, our communications with the FDA have not highlighted any deficiencies that would be expected to affect this filing decision. It is still possible that the FDA may convene an Advisory Panel on our filing, but we will not have any indication of this for several months.

We continue to make progress on our four-week injectable formulation of iloperidone for which we already have early Phase II data from a study conducted by Novartis. We believe that due to its good tolerability, safety and efficacy profile, our four-week formulation will offer a significant addition in the armamentarium of physicians.

Now, let me turn to an update on our pre-launch plans and our forecasted activities for next year. There are two major streams of activity, marketing and sales. I am extremely pleased to have hired Al Gianchetti from GlaxoSmithKline. His deep commercial experience with pharmaceutical marketing and sales make him a very welcome addition to our team and the right person to orchestrate these activity streams.

Let me summarize marketing to date first. We have convened several national and regional advisory boards to help us refine our understanding of iloperidone's commercial potential and appropriate development plans. In addition, we have engaged an ad agency with whom we're developing the launch campaign. There are several completed and ongoing streams of market research through which we are developing our positioning, targeting and key messages, as well as our managed care strategy.

As we have previously communicated, we also have a detailed publication and presentation plan. Recently, we presented data at IPS in September and the American Society of Human Genetics in October. At the upcoming American College of Neuropsychopharmacology in December, we will present our Phase III efficacy and safety data.

In parallel, we continue to submit manuscripts to peer-reviewed journals. For 2008, we will continue these activity streams with a goal of increasing brand awareness and finalizing our launch strategy and campaign.

Let me now describe our sales plan. As we prepare for an August PDUFA date, we are finalizing our sales strategy, which will encompass sales force sizing and distribution, developing a hiring plan for 2008 and preparing for a January 2009 launch.

We continue to pursue partnership opportunities for iloperidone. We will not, however, comment on any incremental progress we might make, but will of course update you if and when we have something definitive to announce. The commercial activities previously discussed are consistent with our partnership strategy.

Let's turn our attention now to VEC-162, our compound for the treatment of sleep and mood disorders. We believe the compound's novel mechanism of action has unique clinical effects that could well position the compound in the market for both conditions.

I am happy to report that we have initiated dosing in our next Phase III trial. This trial is a primary insomnia trial, with five weeks dosing in roughly 400 patients with chronic insomnia. We held a successful investigator meeting this week. We expect to be able to report results by the end of 2008.

We have also continued substantial preclinical and clinical pharmacology work on the compound. We expect completion of the two-year carcinogenicity study in the fourth quarter of 2008. We have also recently completed a thorough QT study, in which VEC-162 demonstrated no propensity to prolong the QT interval. In addition, we continue clinical development program design for both sleep and mood disorders.

As with iloperidone, we continue to consider partnership opportunities for VEC-162 with the objective of out-licensing the compound globally. We cannot predict if, when or what terms we might enter into any such partnerships, but again, we'll provide you with an update as soon as we have something definitive to announce.

Let's turn our attention to our third compound, VSF-173. We recently reported the results of our proof-of-concept study. As you know, we looked at a model of excessive sleepiness, treating 55 healthy volunteers with three doses of VSF-173 50, 100, and 200 milligrams and placebo.

While the primary endpoint of MWT was not significant, we are encouraged by the subsequent findings of significant effects on wakefulness during the recovery sleep period. We plan to continue to analyze the data from this study and to discuss with experts to determine the course and timing of next steps.

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. Our company's third quarter results reflect the ongoing activities related to the completion and submission to the FDA of our NDA for iloperidone, the pre-launch commercial activities for iloperidone, the initiation of the chronic Phase III program for VEC-162, and the completion and reporting of the top line results for the Phase II trial for VSF-173 in excessive sleepiness.

To continue, our R&D expenses for the quarter totaled $13.9 million compared to $10.2 million in the second quarter of 2007 and $9.5 million in the third quarter of 2006. The quarter-over-quarter increase is primarily attributable to a $5 million milestone charge resulting from the submission of the iloperidone NDA, which was partially offset by lower clinical trial costs related to the completion of the long-term open label portion of the Phase III trial for iloperidone that was completed earlier this year.

The increase in R&D expenses for the third quarter of 2007 relative to the third quarter of 2006 was primarily due to the $5 million NDA milestone charge previously mentioned, which was partially offset by lower clinical trial expenses for the company's iloperidone and VEC-162 Phase III trials that were completed primarily in 2006.

General and administrative expenses were $9.6 million in the third quarter, up from $7.4 million in the second quarter of 2007 and up from $3.3 million in the third quarter of 2006. The increase in G&A expense in the third quarter of 2007 relative to the second quarter of 2007 was primarily attributable to an increase in marketing costs associated with the pre-launch commercial activities for iloperidone.

The increase in G&A expense in the third quarter of 2007 relative to the third quarter of 2006 was primarily due to increased marketing costs associated with the pre-launch commercial activities for iloperidone, stock-based compensation charges, insurance, and facility expenses.

We recorded non-cash stock based compensation expense of approximately $5.2 million in the third quarter of 2007. Of this $5.2 million, approximately $4.1 million was recorded as G&A expense and $1.1 million was attributed to R&D.

Our net loss applicable to common stockholders for the third quarter of 2007 was $21.9 million. This compares to a net loss of $16 million in the second quarter of 2007 and $12.1 million in the third quarter of 2006.

Total cash, cash equivalents and marketable securities decreased by approximately $10.3 million in the third quarter. This decrease is primarily attributable to the $21.9 million in operating losses, offset by increases in accrued R&D and accounts payable of $6.4 million, approximately $5.3 million of non-cash depreciation, amortization, and stock-based compensation charges and a net decease of about $100,000 of other changes in working capital.

Our September 30, 2007 balance sheets reflected $109.4 million in unrestricted cash, cash equivalents and marketable securities, down from $119.7 million at June 30, 2007, and up from $31.9 million as of December 31, 2006.

Finally, I'll review our updated financial outlook for the full year of 2007. Please note that these projections are based on our current expectations about the cost and timing of the activities I will describe.

We are updating our full year 2007 financial guidance as a result of favorable variances from expected spending levels and a later-than-planned initiation of the VEC-162 trial in chronic primary insomnia.

The company now expects to show full-year cash used in operations to be approximately $55 million to $60 million, or $25 million to $30 million less than previously reported. The total cash balance at December 31, 2007, is now expected to be in the range of $85 million to $90 million. We anticipate that the current funds will be sufficient to continue the pre-launch activities for iloperidone, the ongoing VEC-162 Phase III trial for chronic sleep disorders and additional R&D activities.

Net loss for the year is expected to be between $70 million and $75 million, or approximately $2.66 to $2.84 per share. Non-cash charges for 2007, consisting primarily of stock-based compensation expense and depreciation and amortization, are expected to be approximately $20 million. Per share figures were computed on a weighted average basis of approximately 26.3 million shares of common stock outstanding at the end of the year.

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

Thank you, Steve. Let me state again that I am very pleased with our progress since our last update. I am extremely proud of our team and the results they have delivered. I do look forward to providing you with updates on further progress in the near future. And we would be happy to address any questions at this time.

(OPERATOR INSTRUCTIONS) Your question comes from the line of Corey Davis with Netaxis. Please proceed with your question.

Thanks, very much. I'm going to ask about VSF-173 first of all. How predictive, Mihales, would you say that that study that you did in healthy volunteers will be, how it behaves in actual narcoleptics or shift sleep disorder, et cetera? And maybe, elaborate a little bit more on the clinical significance of the numbers. The difference from placebo, at first glance, don't really appear to be that large.

Thank you, Corey. This -- let me remind everybody about the design of the study. The design of the study was a proof-of-concept, excessive sleepiness study in healthy volunteers. So simply what happened is, healthy volunteers come into a sleep lab and during their sleep period, before that, they're administered the drug. And what we measured throughout the night is the propensity to sleep or the opposite to the, the maintenance of wakefulness.

So, this is a good model that can launch you into other activities of excessive sleepiness including with narcoleptics, but also people with excessive sleepiness due to sleep apnea, shift work, et cetera. What we saw in our clinical trial on the MWTs is an improvement in three doses of a placebo in the range of about two minutes.

Now of course, for everybody, this may seem a very small number. But, I want to remind everyone that in the context of things for MWT, two minutes is exactly the size of effect that was observed with the approved drug Provigil for excessive sleepiness treatment in patients with narcolepsy during the pivotal program.

Now in terms of the additional data, when we said a dose attendant increase in wakefulness due to the recovery sleep, what we do after the night of studying excessive sleepiness, we have a recovery sleep period that starts at 2 p.m. the next day, and patients are instructed to sleep from 2 to 10. At the same time, we collect polysomnography data.

What we saw is that especially in the first third of the night that patients treated with VSF-173 had significantly higher wakefulness scores, measured by the typical WASO, Wake after sleep onset. and smaller sleep efficiency and, of course, smaller numbers of total sleep time. Also what we saw is, for the entire recovery eight-hour period, a significant end-dose dependent increase in awakening throughout the night.

So just in summary, we believe these are important data but certainly, we've created a wealth of data that we continue to analyze to evaluate what would be the correct next model to move on. It is quite possible the next study is a proof-of-concept study in patients with narcolepsy.

Great, thanks. And then for Steve I guess, I heard you say, $85 million, $90 million by the year-end and enough to get you to continue the pre-launch expenses in the VEC-162 study. But, is that enough to get you through to, say, the PDUFA date on iloperidone?

Corey, just on -- to reiterate that we have not changed the run rate on our guidance. We understand that this increased cash position creates a lot of flexibility and options to the company. We're not prepared yet to actually put a runway up to that number.

Okay, yes. Fair enough, thanks guys.

Thank you.

Your next question comes from the line of Adam Greene with JPMorgan. Please proceed with your question.

Thanks, good morning everyone. Just -- was hoping to get some color on VEC-162, the second Phase III trial in clinic insomnia, when we could expect to see that, and is the first-half '09 NDA expectation still realistic at this point? And then following up on Corey's question, any sense of where R&D would -- what R&D would like in '08? Is it going to be higher or lower just factoring in all those different things that you have going on?

Adam, actually I heard only the first part of your question on the second Phase III study. You were coming in and out on the two other additional questions.

When you would start the second Phase III, and is the NDA filing for first-half '09 for VEC-162 still a good assumption at this point? And R&D for '08, what it look like directionally.

Okay, thank you. So, as we said, we had just started the Phase III study in patients with chronic insomnia, primary insomnia. This is a five-week study, two doses of VEC-162 and placebo. This study, we just had the investigator meeting in Miami this week, and we expect to be able to report the results by end of 2008.

On the timing of NDA filing, we have not updated that. But, since we do recognize that there will be additional studies needed, the first half of '09 NDA submission is not realistic.

So just to give you the updates on the 2008 R&D plans, clearly a very large effort goes towards supporting the commercial launch of iloperidone. We will continue the VEC-162 Phase III primary insomnia study with the results, as I said, end of '08. And we are considering options for VSF-173.

So just to follow up, one -- the additional study is for 162. Is there any plan to start those in the next quarter or two quarters? When should we expect to see those start?

Yes. So, let me tell you a little bit what is -- this is today, what would be required for a primary insomnia submission. Just to remind you that one, we have finished last year the Phase III in transient insomnia study, which is built out for the label. We're conducting now the five-week study, and we know that we would need an additional primary insomnia study after that with a duration of 12 weeks to 6 months.

So, this will be the necessary minimum package for submission. We cannot guide you yet whether or not we will start the second Phase III study prior to the completion of the current study. But I would say, at this point it is unlikely that the two studies will overlap.

Also the study that's on VEC-162, we are designing a proof-of-concept study for major depression. And again, the timing of initiation of this study has not yet been committed to.

Thank you.

Thank you.

Your next question comes from the line of Michael Rockefeller with Morgan Stanley. Please proceed with your question.

Hi, thanks for taking the question. Do you guys plan to hold a conference call and/or put out a press release with the iloperidone Phase III data that you'll be presenting at the ACNP in December?

Thanks, Mike. Yes, just to clarify for everybody, the ACNP meeting is a very prestigious meeting with the leaders in the field, the main psychiatrists that is held in December of every year. We plan to present there the data from all the four short-term Phase III studies and present both efficacy and safety data.

The ACNP is also a -- kind of a closed society, because this is a college and it's the by invitation meeting. So, we're working with the college to identify the correct route to make the data available to the public [for] the meeting. And we do consider [multiple indicating] the data to our investors.

Okay, thanks. And then Mihales, you had mentioned that you expect to have an advisory panel around iloperidone. I'm just wondering what kind of issues you think the FDA is going to want to bring up during that advisory panel? Thanks.

Yes. Thanks Mike, let me clarify. We did not say that we expect to have an advisory panel. We said that it is possible that the FDA may decide to have an advisory panel, and we will not be aware or notified of that by several from today. I cannot guess how the FDA decides to have an advisory panel or not.

But, one of the potential issues may want to ask advice is how to deal with the novelty that our program presents with a potential inclusion of genetic markers on the label that address efficacy and safety. But again, the division makes the decisions.

Okay, great. Thanks for the clarification.

Thank you.

Your next question comes from the line of Frank Pinkerton with Banc of America Securities. Please proceed with your question.

Great. Thanks for taking the questions. The first one is on the VEC-162. And just refresh me, I know you've got one Phase III study done in about 400 and -- or, 400, 420 patients. But, were those healthy volunteers, or were those insomnia? And there are any other differences we're looking at end points between the first Phase I and the second -- and excuse me, first Phase III and second Phase III studies?

So, just to clarify again, a typical package for submission for primary insomnia includes three trials. These three Phase III trials, the first one is in a model of transient insomnia, typically in healthy volunteers. The other two Phase III studies are in patients with primary insomnia. And typically, one of them is relatively short in duration, four to five weeks, and the next one is longer, 12 weeks to 6 months.

So what we have completed already is a 400 healthy volunteers transient insomnia study where we demonstrated significant effects on both benefits of onset and maintenance of sleep. The study that we're running now is the first of the next two Phase III studies needed for primary insomnia, and it is a five-week study in patients with chronic insomnia.

Okay. And then I guess, refresh my memory, or can you speak to -- because I know you in-licensed this, or got the rights for the drug here from Bristol-Meyers, how does the term of the contract or the agreement you have with Bristol-Meyers related to the ability for them to bring that drug back? Is there a cut-off point after Phase III? Is it after filing or approval? What are the terms in that agreement with your ability in the future to go out and get potential partnerships for the product here?

Yes. The contract is -- allows full flexibility to pursue partnerships around the compound. And the clause for BMS is, after we've finished the entire Phase III program, if we do not -- have identified a partner, then BMS can license the compound back at pre-specified terms, which are commensurate with the level of development and what we decide to build in this field. So, we have complete flexibility to do this up until completion of the Phase III program.

Okay. And I know you've said you've -- you're starting second Phase III, but the third longer Phase III trial, will you start that before a partner is in place? Or, does it make any difference whether you have a partner in place to keep going with the program?

Thank you. We are considering all options, but we're concentrating today in the execution of the prime insomnia Phase III study. As I said before, while things can be done in a simultaneous fashion to accelerate filing, we are not today considering a overlapping of the two studies.

Thank you.

Okay, thank you.

Your next question comes from the line of Laurence Bleicher with Noble Financial. Please proceed with your question.

Two questions, first question is the increase in the year-end cash balance guidance, which you attributed to the cost control and the slight push-out in the VEC-162 Phase III timing. Were these causes -- did cost control and the push-out, did these arise because you felt that you were making progress on a deal and therefore had the luxury of delaying certain expenses? Did they arise because you realized you weren't making progress on a deal and need to control expenses a bit better?

And regardless, you've alluded to increased flexibility, you don't yet want to attribute that to -- you don't want -- yet want to nail that down to how that might change the timing of how long the cash would last. Can you speak qualitatively about the sorts of events and movements that this increased flexibility might enable you to make? That's the first question.

Thank you. So, just to say that increased cash position is a result of prudent financial planning and exercising efficiencies in different cost variances, and it is unrelated to our examination of partnership opportunities. But, the strong cash position that the company finds itself today and projects for the end of the year gives us a number of opportunities, not only have the flexibility to examine options in partnerships but also examine options in additional fund-raising.

Your next question comes from the line of [Tim Ackerman] with SAI Healthcare. Please proceed with your question.

Hi, thanks for taking my questions. My first question is this. What will a representative say from either your company or perhaps from your partner's company when they walk into a psychiatrist's office about the genetic testing? What's your message there that you'll say to the standard psychiatrist? And the second question is, are there any parallel trials going on right now with VEC-162?

Thank you. First of all, let me address your question that has to do with what is our positioning about our sales details to the psychiatrist's office around iloperidone.

We clearly can tell you that there are many of these [physician statements] that we're examining carefully on market research today. But hopefully, you can understand that we will almost never discuss our positioning by our sales reps, either to -- on this call or in the future calls for very obvious competitive reasons.

You asked a question about ongoing VEC-162 studies. Just to clarify it, we have one Phase III study going on now in chronic insomnia.

Your next question is from the line of [Todd Munn] with [WIC Partners]. Please proceed with your question.

Yes, hi. Can you please elaborate on your reasons for issuing and then canceling your convertible offering?

Yes. Cash is always good, and while we had a strong cash position, additional cash increase flexibility of an organization. However as we said, the terms that were in front of us despite demand were not acceptable. And the company continues to have many options and flexibility to pursue them.

There are no further questions at this time. I would now like to turn the call back over to the company for any closing remarks.

Thank you. Let's conclude this third Quarter Investor Call. We know that the Vanda team has the commitment, the passion and the skill to continue in our course. We thank you for your interest and support for Vanda, and we look forward to speaking with you again next quarter. Thank you.

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