Vanda Pharmaceuticals Inc (VNDA) 2007 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome the fourth quarter 2007 Vanda Pharmaceuticals Corporation earnings conference call. My name is Shaquana and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will facilitate a question and answer session towards the end of this conference. (OPERATOR INSTRUCTIONS)

I would now like to turn the presentation over to your host for today's call, Mr. Steven Shallcross, chief financial officer. Please proceed, sir.

Thanks Shaquana. Good morning and thank for joining us to discuss Vanda Pharmaceuticals fourth quarter and full year 2007 performance. The fourth 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 call on our website and a telephone replay of the call will be available through February 21.

Joining me on today's call is Dr. Mihael Polymeropoulos our president and CEO. Following my introductory remarks, Dr. Polymeropoulos will update you on our ongoing activities and plans for 2008. Then I will comment on our financial results for the fourth quarter and full year 2007 and discuss our 2008 financial guidance before opening the lines for your questions.

Before we proceed, I'd like to remind everyone that various statements that we will make on this call will be forward-looking statements within the meaning of federal securities law. 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 and uncertainties and other risks. These risks are described in the risk factor section of our report on form 10Q for the quarter ended September 30, 2007, which is available on the SEC's EDGAR system and on our website. We encourage all investors to read this report and our other SEC filings.

The information we provide on the call is provided only as of today, and we undertake no obligation to update any further forward-looking statements we make on the 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, Mihael Polymeropoulos.

Good morning. Thank you very much for joining us. I would like to review our accomplishments over the last quarter and give you an outlook on our operations over the coming months.

I will start with our lead program, iloperidone for the treatment of schizophrenia which from now on I will refer to by brand name, Fiapta. As we reported, an NDA was submitted on September 27, 2007 and it was accepted and filed by the FDA on November 27, 2007. Under the Prescription Drug User Fee Act, PDUFA 1992, we expect a regulatory action on our filing on or around July 27 of 2008.

Our operational leverage on Fiapta are now focused on prelaunch commercial activities which include the development of our positioning, messaging, targeting and managed care strategies alongside our ongoing publication and presentation efforts.

Over the last quarter of 2007 we have presented at a number of scientific forums and discussed efficacy, safety and pharmacogenetics studies data for Fiapta. We're continuing our publication presentation activities and will be presenting at the upcoming American Psychiatric Association meeting to be held in Washington, D.C. this coming May. We strongly believe that Fiapta will occupy an important place among the (inaudible) place with schizophrenia, a disease with a significant unmet medical need.

I will now turn to VEC-162. I am pleased to announced that we have now completed enrollment in the ongoing phase III study significantly ahead of expectations. This is a study designed to evaluate the efficacy and safety of VEC-162 in patients with the symptoms of chronic insomnia. We have now enrolled 324 patients in three arms of 20 mg, 60 mg and placebo.

The primary and secondary endpoints evaluate sleep onset and sleep maintenance parameters over five weeks of observation using objective outcomes while utilizing sleep recordings in a sleep lab. Along with standard safety data we also collect data on next-day performance.

We are now projecting that we will be able to report top line results of this phase III insomnia study in June of 2008.

Let me remind you that VEC-162 has already completed a phase II and a phase III study in transient insomnia demonstrating significant benefits in sleep onset and sleep maintenance parameters.

Success in this trial will represent significant additional validation of VEC-162 as an important new therapy for sleep disorders for which there is no drug available today offering the optimal balance of efficacy and safety.

The drug will potentially serve all segments of the so-called insomnia market including primary insomnia, secondary insomnia and circadian rhythm sleep disorders. We're also making significant progress on the preclinical aspects of the program and over the next few months we will complete the in-live portion of our two-year carcinogenicity studies in rodents.

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

Thanks Mihael. Overall our company's fourth quarter results reflect the progress we've made on our Fiapta NDA filings, the faster than planned enrollment of the chronic primary insomnia phase III trial for VEC-162 and the advancement of the prelaunch commercial activities for Fiapta.

R&D expenses for the quarter totaled $12.6 million compared to $13.9 million in the third quarter of 2007 and $7.9 million the fourth quarter of 2006. The quarter over quarter decrease is primarily attributable to an increase in VEC-162 phase III chronic insomnia trial costs being offset by a non-reoccurring third quarter milestone charge of $5 million for the Fiapta NDA submission in September of 2007.

The increase in R&D expenses in the fourth quarter of 2007 relative to the fourth quarter of 2006 was primarily attributable to the same VEC-162 clinical trial that was initiated in late 2007.

For the full year 2007 total R&D expenses were $47.2 million down from $52.1 million in the full year of 2006. Lower R&D expenses in 2007 resulted from the substantial completion of the Fiapta phase III clinical program in 2006.

General and administrative expenses totaled $9.5 million in the fourth quarter of 2007, down slightly from $9.6 million in the third quarter of 2007 and up from $4.5 million in the fourth quarter of 2006.

The increase in G&A expenses in the fourth quarter of 2007 relative to the fourth quarter of 2006 is primarily due to increased Fiapta prelaunch commercial activities, stock-based compensation charges, salaries and related costs of non-R&D personnel, insurance and facility expenses.

For the full year of 2007 total G&A expenses were $32.8 million, up from $13.6 million in the prior year. The increase is G&A expenses is primarily due to increased salaries, benefits and stock-based compensation expense, increased business and commercial development expenses and higher insurance, legal and professional fees.

Employee stock-based compensation expense recorded in the fourth quarter of 2007 was $5.2 million. Of the total $5.2 million of non-cash charges, $1 million was recorded in R&D expense and $4.2 million was recorded in G&A expenses.

In the third quarter of 2007 and the fourth quarter of 2006, total stock-based compensation was $5.2 million and $1.6 million respectively.

For the full year of 2007 total stock-based compensation was $19.5 million, up from $6.1 million in the prior year. The increase in stock-based compensation is primarily the result of the higher fair value of options granted during 2007 compared to the options granted in the prior period.

Net loss for the fourth quarter of 2007 was $20.7 million. This compares to a net loss of $21.9 million in the third quarter of 2007 and $11.9 million in the fourth quarter of 2006.

For the full year of 2007 net loss was $74.1 million, up from $63.5 million for the full year of 2006.

Cash and marketable securities decreased by $16.2 million during the fourth quarter. Changes include $20.7 million of net operating losses and decreases in accrued R&D expenses and accounts payable of $2.5 million offset by $5.3 million in non-cash depreciation, amortization and stock-based compensation expenses, decreases in prepaid expenses of $1.6 million and net decreases in other working capital of about $100,000.

Vanda's cash, cash equivalents, and marketable securities at the end of the fourth quarter of 2007 totaled $93.2 million, compared to approximately $109.4 million as of September 30, 2007, and $31.9 million as of December 31, 2006.

Next I'll briefly update you with our financial guidance for the near term. We anticipate our current cash balance will be sufficient to fund operations through the Fiapta PDUFA action date and into the fourth quarter of 2008. We will continue to focus our efforts primarily on completing and reporting the top line results for the ongoing VEC-162 chronic insomnia phase III trial and continuing essential Fiapta prelaunch commercial activities.

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

Thank you Steve. Let me say again that I am pleased with our progress since our last update. I'm extremely proud of our team and the results they have delivered. We're very pleased with the progress we have made in advancing our (inaudible) during 2007. We look forward to a very exciting 2008 and the very significant milestones, the regulatory action on Fiapta and the clinical results in VEC-162.

I look forward to providing you with updates from further progress in the near future.

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

Thank you. (OPERATOR INSTRUCTIONS) Please stand by while we compile a list. Your first question comes from the line of Adam Greene with JPMorgan. Please proceed.

Thanks. Good morning. Happy Valentine's Day to everyone. Two questions. One, I was wondering if you have any thoughts following the Zyprexa/DEPO panel meeting last week, any takeaways from that relative to your development? And then secondly, any update on the Hatch-Waxman patent registration for Fiapta.

Thank you, Adam, and Happy Valentine's Day to you.

Thanks.

The psychopharmacology advisory committee meeting on Zyprexa/DEPO formulation was convened on February 6 in particular around the question on the relative safety and benefit-risk ratio for the approval of these four-week injectable formulations.

Two key messages out of the advisory committee are the conviction by the experts in the field and the FDA that there remains a significant unmet medical need in schizophrenia and second, very interesting is that not only their condition is there but the need for long-term injectables.

And I want to remind you that our patient safety profile and our ongoing efforts on the four-week injectable formulation will make it a very formidable competitor and addition to psychiatrists' choices.

Your second question had to do on Hatch-Waxman. This is the customary extension that adds to the [NCE] patent life. You only apply that at the time of approval. And just to remind everybody, the time line, the NCE for iloperidone is through the end of 2011 and therefore with the expectation of the full Hatch-Waxman extension of five years, the NCE will be extended to the end of 2016.

Thanks.

Your next question comes from the line of Corey Davis with Natixis. Please proceed.

Yes, thanks very much. Mihael, the--excuse my voice--is the primary endpoint for the VEC-162 study at five weeks or is it some measure over the whole period of time?

What typically is done is you declare as a primary endpoint the first week data and then you have the subsequent endpoint through week five. It is exactly how all the drugs in the current consumer category have been approved.

So patients are at home for most of the study but just go into the sleep lab for the objective measures once every week, is that correct?

That is correct.

And are you looking for the potential for rebound after five weeks as well?

Yes. It is not a specifically bound study but we are looking at that measure as well.

And has there been any indication or communication between you and the FDA about when and if iloperidone will have a meeting?

Well, first of all we will not know whether we're going to have an advisory committee panel up until maybe a month or two before the PDUFA action date but at this time we have no communication from the FDA whether there will be or will not be a panel.

Good. And then lastly I know the requirement for the approval of the oral atypicals in schizophrenia is the shorter four to six week studies but how long will the studies have to be for your injectable DEPO because I guess four weeks would only be one injection.

Yeah. So that actually has gone very well from the (inaudible) on Zyprexa. Their data, the required data for the efficacy of the Zyprexa four week injectable was an eight-week study and the study of the other atypical antipsychotic, Risperdal Consta, was at 12 weeks. So we're very confident it's going to be in that range.

And also the [PDAC] informed a little bit of the requirement but [Temple] explained at one point to the panel that for oral formulations you typically need two positive studies. I want to remind everyone that we're submitting four studies; two of them are regulatory policies and two supporting.

And for the DEPO formulation is a followup formulation to an approved oral. The requirement is for a single phase III study.

Great. And last question, just how are you going to release the VEC-162 data? Is it just going to be top line data in the press release then followed up by a medical meeting?

Most probably yes.

Great. Thanks very much.

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

Good morning and thanks for taking the question. When I look at VEC-162, of course that's a drug we've written about in the past and spoken of potentially partnering. With this data coming up from the phase II trial released in June, would that offer another chance to go back to a partnering side or is this a drug that is kind of going to be internally developed going forward?

Thank you. So first of all let me step back for a second and talk about the opportunities surrounding the development of VEC-162. Due to its novel mechanism of action, the dual melatonin agonist, a unique regulator of the sleep-wake cycle, there are a number of options in the clinical development and therefore in the markets it can possibly address.

And that includes the primary insomnia, the circadian rhythm sleep disorders, sleep-wake cycle abnormalities, secondary insomnia as insomnia that you see alongside depression and anxiety, and finally the application for the regulation of mood disorder symptoms like major depression.

Just enumerating this opportunity it has become very clear that the development plan can be lengthy and costly to evaluate all these opportunities. And that is why the presence of a partner alongside development will help enhance the development plan and accelerate the development of indications, exercising the full potential of VEC-162.

At the same time on the commercial side, the presence of a partner is important since all these indications that I mentioned, the majority of them, are that not only by specialty physicians but also general practitioners.

Now in regards to the data of the 3104 phase III study to report in June, the data are very important because they are discussing for the first time how does the drug work in a disease population with chronic insomnia. And certainly the presence of this data enhances the [packets] that we will discuss with prospective partners.

Great. Thank you.

Your next question comes from the line of David Amsellem with Friedman Billings Ramsey. Please proceed.

Hi, thanks for taking my questions. So first can you talk about what abstracts that you've submitted for the APA meeting?

I can tell you the general theme but I don't think I can tell you the specifics. There are about ten abstracts and address data, long-term and short-term safety data, data around the DEPO formulation, the clinical data there and as well as pharmacogenetic data.

Okay and you will have an abstract on the phase III study that you conducted for the oral?

That phase III study was fully reported at the American College of Neuro-Psycho Pharmacology meeting in December and the full abstract is on our web page.

Okay. And then can you elaborate on your prelaunch plans for iloperidone and give us a sense of when you're going to start hiring field reps and then related to that what the SG&A ramp is going to look like during the year?

Yeah, we're not going to give a specific forecast of the SG&A on the commercial side but I can give you the idea of what we are working on now and a little bit of the time in the filing.

So in the prelaunch preparations, very important to understand your market, the need, the profile of the compound and the size, the required sales force and field forces that will address the commercial setting, alongside the publication and presentation plan that increase awareness of the compound. So this prelaunch marketing of the compound is well underway and it is [stuck].

Now in terms of increasing the hiring of the sales forces, the majority of that will happen post approval and therefore the spend, you would expect it to be a relatively small expense prior to the PDUFA date and an accelerated spend post approval.

Okay and then one last question if I may, if you do get an advisory panel meeting, do you expect that it will be a dual overview of both iloperidone and [ozenipine] and would that surprise you if that turned out to be the case?

You mentioned ozenipine and all we know is that most probably we have filed around the same time. We did not announce the time of submission. If the FDA was to ask for a panel, it is possible the [ADCA] advised on both drugs but I do not see a specific issue that they would like to ask this question at this time. But you know, I cannot predict whether the FDA will or will not ask for a panel.

Okay. Thank you.

Your next question comes from the line of LaurenceBleicher with Noble Financial Group. Please proceed.

Hello Mihael. Hi Steve. A number of questions. I'm wondering if you could expand on what pharmacogenomic data is going to be at APA.

Steve, with regard to the cash guidance, I'm wondering if you're referring specifically to cash or to cash and short-term marketable securities lasting through fourth quarter.

And you mentioned, Mihael, that sales force build would occur after approval. What sort of assumptions about the costs of prelaunch expenses in between the PDUFA date and the fourth quarter are built into that cash burn guidance.

And finally with regard to moving ahead on VSF and additional VEC-162 trial and the rest of the opportunities for iloperidone, what--how--what are the gating factors on those with regard to if you do launch this product yourselves in the U.S., how much revenue you need to see before you're able to aggressively move into those additional opportunities for the company, etcetera.

So let me start from the bottom. Questions three and four we're not going to be able to address today. We're not going to discuss that. And just to reiterate, the majority of the spend around the commercial is related as you would expect around the sales force and we only plan to significantly increase that spend in hire post PDUFA.

On your first question, which had to do with what pharmacogenetic data we'll present at APA, I'm not certain I can discuss this now but I'll tell you that the pharmacogenetic data that we have already presented are in two major categories.

The pharmacogenetic markers of safety and efficacy that were prospected and validated in the last phase III study and the exploratory analysis or the whole genome analysis of efficacy genetic markers were the first presented at the American Society of Hemogenetics meeting last October.

As I said before, we have presented a number of these data and at the American Psychiatric Association meeting. Most likely the data to be presented there will have to do with the prospectively validated efficacy genetic markers.

Okay, great and my second question, Steve, with regard to the cash guidance, is that strictly speaking to cash or is that cash and marketable securities?

It's everything. It's cash and marketable securities. The investments are incredibly short duration so when we speak of cash we speak of total cash plush marketable securities.

Yes, great. Thank you very much guys.

Thanks.

Your last question comes from [Mark McInferez] with [Visum] Asset Management. Please proceed.

Good morning guys. Just one quick question on VEC-162. On the phase III study, aside from the PSG measurements, are you going to be measuring any subjective WASO, LPS?

Thanks Mark. Yes. We are collecting subjective data. And just to remind you that in the last phase III transient insomnia study we also collected not only objective polysomnographic data but subjective data on the time to fall asleep and the time asleep. And both these subjective data, sleep onset and maintenance, were significantly different than placebo, which was consistent with the objective polysomnographic data.

Thanks.

Okay.

At this time I would now like to turn the over to Mr. Mihael Polymeropoulos for closing remarks.

This concludes this fourth quarter investment call. We thank you for your interest in and support for Vanda and we look forward to speaking with you again next quarter.

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