Vanda Pharmaceuticals Inc (VNDA) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2008 Vanda Pharmaceuticals Conference Call. My name is Carmen, 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)

As a reminder, ladies and gentlemen, this conference call is being recorded for replay purposes. I would now like to turn the call over to your host for today, Mr. Steve Shallcross, Chief Financial Officer. Please, proceed.

Thanks, Carmen. Good morning, and thank you for joining us to discuss Vanda Pharmaceutical's Second Quarter 2008 performance. Our second quarter results were released this morning and are available on the SEC's EDGAR system and on our website at www.vandapharm.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 September 4th.

Joining me on today's' call is Dr. Mihael Polymeropoulos, our President and CEO. Following my introductory remarks, Dr. Polymeropoulos will update you on recent events. Then I will return to comment on our financial results for the second quarter and discuss our 2008 financial guidance before opening the line for your questions.

Before we proceed, I'd like to remind everybody that various statements we make on this call will be forward-looking statements within the meaning of federal securities laws. Words such as, but not limited to, believes, expects, anticipates, estimates, intends, plans, targets, likely, will, would and could and similar expressions of words to 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 quarterly report on form 10-Q for the quarter ended March 31, 2008, 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 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.

With that said, I would like to now turn the call over to our CEO, Mihael Polymeropoulos.

Good morning, and thank you very much for joining us. First on Iloperidone, our compound for a treatment of schizophrenia, we recently reported that we received a non-approvable letter from the FDA. We remain surprised and disappointed by this decision, and we continue to believe that Iloperidone could become a great option for patients with schizophrenia, a debilitative disease.

We have now filed with the FDA our intent to amend the NDA in order to extend the review cycle and maintain the application [active]. We have also requested a meeting with the agency to fully understand the decision and potential options. It is our expectation that this meeting with the FDA will take place within the next two months.

We'll inform you if and when any material progress is made in this subject. In the meantime, any major Iloperidone activities have been placed on hold pending further review.

In June, we also reported positive results for Tasimelteon Phase III study in patients with chronic insomnia. Tasimelteon significantly improved the ability of patients to fall asleep and this action continued for the four weeks duration of the study. Given the versatility of the compound, we have the option to proceed with either chronic insomnia or a CRSD/jet lag type indications. We are now in the process of finalizing the clinical development plan which will be required for an NDA filing.

I will now turn the call over to Steve, to discus our financial results. Following Steve's comments, I will then provide some concluding remarks before opening the call for your questions. Steve?

Thank, Mihael. Our R&D expenses for the quarter totaled $5.5 million, compared to $11.1 million in the first quarter of 2008, and $10.2 million in the second quarter of 2007. The decrease in R&D expenses in the second quarter of 2008 relative to the first quarter of 2008 is primarily attributable to lower costs and the phase III Tasimelteon chronic insomnia clinical trial to which Vanda reported top line results in June of 2008.

The decrease in R&D expenses in the second quarter of 2008, relative to the second quarter of 2007 is primarily attributable to lower clinical trial costs in the second quarter of 2008, versus the costs from trials conducted in the second quarter of 2007. General administrative expenses totaled $8.5 million in the second quarter of 2008, down from $9 million in the first quarter of 2008, and up from $7.4 million in the second quarter of 2007.

The decrease in G&A expenses in the second quarter of 2008, relative to the first quarter of 2008 are primarily due to lower employee stock based compensation expense. Included in the second quarter G&A expense is approximately $2 million of pre-commercial launch charges for Iloperidone. All commercial activities for Iloperidone have been suspended.

The increase in G&A expenses in the second quarter of 2008, relative to the second quarter of 2008 is primarily due to increased pre-commercial activities for Iloperidone as previously discussed. Employee stock based compensation expense reported in the second quarter of 2008 was $4 million. Of the $4 million of non-cash charges, about $700,000 was recorded in R&D expenses and $3.3 million was recorded in G&A expenses.

For both the first quarter of 2008 and the second quarter of 2007, total stock based compensation was $5.1 million. The decrease in stock based compensation from the second quarter of 2008 compared to the first quarter of 2008, and the second quarter of 2007 is primarily due to a lower fair value -- fair market value of options granted in 2008.

Net loss for the second quarter of 2008 was $13.5 million, this compares to a net loss of $19.2 million in the first quarter of 2008 and $15 million in the second quarter of 2007. Cash and market securities decreased by $11.4 million during the second quarter of 2008.

Changes included $13.5 million of net losses and decreases in accrued R&D expenses in accounts payable of $0.9 million, net increases in prepaid expenses of $0.9 million, fixed asset purchases of $0.3 million, offset by approximately $4.1 million in non-cash depreciation, amortization and stock based compensation expenses and net decreases in other working capital of about $100,000.

Same as cash, cash equivalents, and marketable securities at the end of the second quarter 2008, totaled approximately $65.6 million, compared to approximately $93.2 million as of December 31, 2007.

Just a brief comment on financial guidance. As we've discussed, we've placed Iloperidone related activities on hold and are undertaking steps to minimize our cash burn. We are also evaluating all options for our development pipeline and will provide guidance as soon as our plans are more definitive.

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

Thank you, Steve. Again, we'll have additional information and as we do, we'll update you on our plan. I would like to ask the operator now to address any questions.

(OPERATOR INSTRUCTIONS)

Your first question comes from the line of Corey Davis from Natexis. Please proceed.

Thanks, very much. I guess in the meeting that you have, when you have it, with the FDA, what's ambiguous about the letter that could get resolved at that meeting? It seemed pretty clear to me that Mr. Temple wants another active controlled study comparing it directly to Risperdal, where you'd have to be at least efficacious. I mean, is there -- I can't think of a precedent for this, can you?

Yes.

And, B, is this a game changer? And, C, do you think you can change his mind?

Thank you, Corey. First of all, I want to clarify that this meeting is not a part of the formal appeals process, but rather an informal attempt to understand the contents of the letter and of course, present Vanda's counterpoint.

Just to review things a little bit about the letter. The FDA, while in some different ways has looked at our studies, they conclude that we have to post the study. And in fact, both those is in one study, 12 and 24 are posted, and of course, the last study had the single dose, 24 milligram, is posted as well.

We also agree, that in the last study where with discussions with the FDA we'd included Geodon as the active competitor, they agree that the results are similar. And just to remind you that this discussion and agreements on Geodon came after many discussions with the FDA to understand the comparative effect of Iloperidone using the proper comparator.

In the prior studies where the (inaudible) used Risperdal, Risperdal is the drug that has a different early profile. And what I mean by that is that while Iloperidone retires a titration period, Risperdal requires a very small titration period. And also, while Iloperidone has a mild side effect profile, Risperdal has potentially unblinding side effects. All this leads to bias of the results by patients who drop out in the first or second week of the study.

So, we are confident that Iloperidone isn't in this study, signals the potential of being of equal effectiveness with Risperdal, and this is why we want to sit down with the FDA to understand why are they reaching a different conclusion.

Now, on the requirements. Yes they require that another active study with placebo and another competitor, and as I said, for example the effect of Risperdal should be run. And again, we want to understand what do they think that we learn about the action of this component from that additional study that we don't already know.

So, our expectation for that meeting is to clarify the methodology and the premise other week to week conclusions and offer Vanda's counterpoint. Another part of your question was whether we think this signifies some change in policy or else.

We don't know of any change in any policy, there has not been any guidance. And in fact, this letter does not give us an [infactions] of what the expectations should be for another study [we proceed with a] competitor. So, this is another reason that we want to sit down the FDA and better understand what went on in reaching that conclusion.

Okay. That's all I had, fair enough. Thanks.

Thanks, Corey.

And our next question comes from the line of David Moskowitz from Caris & Company. Please, proceed.

Yes, thanks. Good morning.

Morning, David.

Okay, on -- just last question on Iloperidone, I believe in the contract that you have with Novartis, possibly Titan, they're provisions that if the product doesn't get approved there's a point where -- a point of no return where the product has to be returned, those rights go back to the parent company. So, can you speak to how much longer you'd have with the compound before everything reverts back to the originator companies?

The other questions would be on the burn rate, could I get a good idea of what R&D and SG&A would look like for the third quarter, perhaps the remainder of the year? What you guys expect to have in cash by the end of the year. And the, also could you comment on any partner discussions with regard to Tasimelteon? Thanks.

Right. Okay, two things, the contract [the] cash burn and [certain] partners. I'm going to address one and three, and I will let Steve talk to you about cash burn and expectations.

On the contracts, I'm not familiar with the detailed language, but we're not at that point. Activities with Iloperidone, the fact that we're pursuing the potential amendment with the NDA keeps Iloperidone fully active in our head, and I'm sure our partners and the originators for the compound are very confident that our efforts are the correct ones.

On the partners, as you can imagine, there is today, no activity on the partnership front, with a compound that has received a rejection letter. We know that if there was a resolution of this very hard decision, right now, that we could reinitiate potential partnership discussions, but there should not be any expectation that any discussions or any -- in any active form today.

I'm sorry, that question was targeted toward Tasimelteon partnership studies.

Oh, I'm sorry. On Tasimelteon, as I said, here and before that we would make a contractual decision. Now that we have a non-approval of Iloperidone and the additional financing for the Company, as you can understand, is prohibited.

What we're doing is we're reformatting the clinical development plan to pursue an indication that we can possibly arrive at an NDA if possible with existing funds. It is too early for us to say that, not just because of our own planning and budgeting, but also in discussions that we will need to have with the agency. So again, before all this is clarified, I would not expect any partnerships to occur.

I'll turn it over to Steve to give the cash burn answer.

So, as we've discussed, we put our Iloperidone related and clinical programs on hold, pending the outcome of what we find out in this FDA meeting. And once we have a little more clarity around that, I think we'll be able to go forward and give you some more definitive guidance.

But specifically as it relates to the next couple of quarters, if you were to take our overhead burn as it exists today, you could use a number of about $5.5 million as a quarter to quarter burn. In addition, what you might want to factor in for the third quarter is approximately $2 million of R&D run out for the manufacturing and preclinical activities that are winding down and then some commercial costs that are winding down as well.

So, by the fourth quarter and going forward, about $5 million to $5.5 million of cash burn and as you could calculate out, that gives us a relatively significant runway, given the fact that we had over $65 million of cash at the end of June.

So that was -- just to clarify, that's $5 million to $5.5 million of burn in the fourth quarter in its entirety, and I assume that that means some very low level of R&D and possible overhead reduction between now and then.

Correct.

Okay. And just to clarify, on the Iloperidone and the potential meetings you have, so -- am I to understand that there is no money being spent going forward on Iloperidone at this point?

Yes, as Steve was explaining, we're winding down all incremental activities and contractual commitments that we have with the very little run off that he explained, there is not major clinical activity, there will be some small spend on manufacturing run out, and a small spend on the Metabolite [questions in this] study that is ongoing.

And based on the numbers that Steve just went through, it doesn't sound like there's really any R&D ongoing and you just mentioned that you may take Tasimelteon forward yourself. So, I'm trying to reconcile that. Are you spending on Tasimelteon, or are you waiting for some other event?

As we said, we reported in June, so we're wrapping up that trial now. And we will be communicating very soon with the FDA on our plan forward for full development plan. The intent is to examine all options, which include continuing the development of VEC-162.

And what we're trying to do here is trying to understand from the possible indications that we can pursue, is there an indication that can allow Vanda to move to an NDA filing with existing cash or close to the existing cash. And that exercise ongoing now and we need the FDA's input.

So, while the cash burns at -- as Steve had explained at $5.5 million, it does not, of course, include the clinical program. You can imagine that the burn will increase if the clinical development program ensues. I cannot give you guidance today, but we hope that very soon, we'll reach the final conclusion of the path forward and communicate that.

Okay, thanks very much.

Thanks, David.

Sir, we have no further questions. I would like to turn the call back over to management for closing remarks.

Thank you. Let's conclude the second quarter investment call. We thank you for your interest and support of Vanda, and we look forward to speaking with you soon.

This concludes the presentation for today, ladies and gentlemen, you may now disconnect. Have a wonderful day.