Vanda Pharmaceuticals Inc (VNDA) 2009 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Second Quarter 2009 Vanda Pharmaceuticals, Inc. Earnings Conference Call. My name is Fab and I'll be your coordinator for today. At this time all participants are in a listen-only mode. We will conduct a question and answer session towards the end of this conference.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Stephanie Irish. Please proceed.

Thank you, Fab. Good morning, and thank you for joining us to discuss Vanda Pharmaceutical's second quarter 2009 performance. Our second 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 are providing live and archived versions of this conference call on our website, and a telephone replay of the call will be available through August 17, 2009.

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. Then, I will comment on our financial results for the second quarter 2009 before opening the lines for your questions.

Before we proceed, I would like to remind everyone that various statements that we make on this call will be forward-looking statements within meanings of the federal securities laws. Words such as, but not limited to, believe, expect, anticipate, estimate, intend, plan, target, likely, will, would and could and similar expression of words, will identify forward-looking statements. Our forward-looking statements are based upon current expectations that involve changes in circumstances, assumptions and uncertainties and other risks.

These risks are described in the Risk Factors section of our quarterly report on Form 10-Q for the fiscal quarter ended March 31, 2009, 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 statement we may make on the call or account of new information, future events or otherwise, except as required by law.

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

Thanks, Stephanie. Good morning, and thank you very much for joining us. I would like to review our accomplishments over the last quarter, and give you an outlook of our operations over the coming months. I will start with our lead program, Fanapt. Fanapt was granted US marketing approval by the FDA on May 6, 2009, for the acute treatment of schizophrenia in adults. On June 9, 2009 Vanda submitted its application for patent term restoration under the Hatch-Waxman Act.

The Hatch-Waxman extension provides filing patent term restoration for drug compounds for a period of up to five years, to compensate for time spent in development and regulatory review. Vanda expects that the Hatch-Waxman extension, along with an additional six-month extension for pediatric studies, will lead to intellectual property protection for Fanapt through May 15, 2017.

As Vanda continues to evaluate a number of commercialization and strategic options, we have been preparing Fanapt for commercial availability in the fourth quarter of 2009. Some of the key areas of commercial preparation include; manufacturing of commercial supplies, trade related activities and managed care.

On the manufacturing front, we are proceeding well with the manufacturing campaign of commercial supplies, and are on track for commercial availability in the fourth quarter. With regard to trade related activities, we are in the process of obtaining the required state licenses for drug distribution, and we are working through the supply chain logistics. And as far as managed care is concerned, on July 30, 2009, Vanda signed a Medicaid rebate agreement with the Secretary of Health and Human Services, which will allow Fanapt to be available on state Medicaid formularies within the fourth quarter of 2009.

These commercial preparedness activities are necessary regardless of any strategic or commercialization option Vanda may pursue. And, we're pleased with our progress and confident that Fanapt will be ready for availability to patients and doctors during the fourth quarter of 2009.

I will now briefly turn to tasimelteon, VEC-162. Vanda also continues to evaluate its clinical development plan for tasimelteon for the treatment of circadian rhythm sleep disorders. On June 36, 2009 Vanda met with the FDA to discuss the clinical development plan in an end of Phase II meeting.

Vanda will continue to work with the FDA to characterize the path towards a new drug application for tasimelteon, and will be submitting shortly information to the FDA under the Special Protocol Assessment for (inaudible) evaluation and comment by the agency.

Now, Stephanie will address our financial results for the quarter; I will then provide come concluding remarks prior to opening the call for questions. Stephanie?

Thank you. Overall, our company's second quarter results reflect the progress in the pre-launch commercial activities for Fanapt. Vanda reported a net loss of $12.4 million for the second quarter of 2009, compared to a $6.5 million for the first quarter of 2009 and $13.5 million for the second quarter of 2008. Total expenses for the second quarter of 2009 were $12.4 million, compared to $6.6 million for the fourth quarter of 2009 and $13.9 million for the second quarter of 2008.

Research and development expenses for the second quarter of 2009 were $7.2 million, compared to $2.3 million for the first quarter of 2009 and $5.5 million for the second quarter of 2008. The increase in R&D expenses in the second quarter of 2009 relative to the first quarter of 2009 and the second quarter of 2008 is primarily due to the regulatory consulting fees paid and/or accrued, as a result of the approval of Fanapt iloperidone by the US Food and Drug Administration.

In addition, the Company recorded a $12 million milestone payment due to Novartis as an intangible asset. Of the $12 million milestone payment, $7 million was paid in May of 2009 and the remaining $5 million is due in November 2009. However, Novartis has the right to accelerate the due date at its own discretion.

General and administrative expenses of $5 million for the second quarter of 2009 consisted primarily of $0.5 million of salaries and benefits, $2.2 million of non-cash stock-based compensation costs for G&A personnel, as well as $0.6 million of legal fees, $700,000 of commercial cost and $200,000 of insurance cost. This compares to $0.2 million for the first quarter of 2009, and $8.5 million for the second quarter of 2008.

The increase in G&A expenses in the second quarter of 2009 relative to the first quarter of 2009 is primarily due to an increase in professional fees, and the commercial costs related to Vanda's participation at the American Psychiatric Association's annual meeting that was held in May of 2009. The decrease in G&A expenses in the second quarter of 2009 relative to the second quarter of 2008 is primarily due to the lower stock-based compensation and commercial expenses.

Employee stock-based compensation expense recorded in the second quarter of 2009 totaled $2.8 million. Of these non-cash charges, $600,000 was recorded as R&D expense and $2.2 million was recorded as G&A expense. For the first quarter of 2009 and the second quarter of 2008, total stock-based compensation expense was $2.3 million and $4.0 million respectively.

The increase in stock-based compensation expense in the second quarter of 2009 relative to the first quarter of 2009 is a result of the issuance of additional nonqualified stock options in the second quarter, as well as the expense related to the vesting of restricted stock units upon the approval of Fanapt by the FDA. The decrease in stock-based compensation expense in the second quarter of 2009 relative to the second quarter of 2009 is primarily due to the lower stock-based compensation expense, resulting from the workforce reduction in the fourth quarter of 2008.

Cash and marketable securities decreased by $13.6 million during the second quarter of 2009. Changes included $12.4 million of net losses, increases of $1.3 million in inventory and $7 million in intangible assets.

These were offset by increases in accrued expenses and accounts payable of $2.9 million, $3.4 million in non-cash depreciation, amortization and stock-based compensation expense, $0.9 million in proceeds from the exercise of employee stock options, and $0.1 million of other working capital outflows. Vanda's cash and cash equivalents and marketable securities as of June 30, 2009 total approximately $29 million, compared to approximately $46.5 million as of December 31, 2008.

Net loss for the second quarter of 2009 was $12.4 million, compared to a net loss of $6.5 million for the first quarter of 2009 and a net loss of $13.5 million for the second quarter of 2008. Net loss per common share for the second quarter of 2009 was $0.46 compared to $0.24 for the first quarter of 2009 and $0.51 for the second quarter of 2009 -- 2008, excuse me.

Next, I will briefly update you with our financial guidance for the near term. Based on its current operating plan, Vanda believes that existing cash, cash equivalents and marketable securities will be sufficient to meet anticipated operating needs through 2009. However, given the recent approval by the FDA of the NDA for Fanapt, Vanda is currently evaluating alternative commercial strategies for the product.

These strategies include, in addition to Vanda launching Fanapt on its own, entering into one or more partnerships, other collaboration agreements, or strategic transactions that may provide capital to support Vanda's operations.

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

Thank you, Stephanie. Let me say it again that I'm pleased with our progress since the FDA approval of Fanapt in May of 2009, and I'm extremely proud of our team and the results they have delivered. I look forward providing you with updates on further progress in the near future.

We would be happy now to address any questions.

Thank you.

(Operator Instructions)

And our first question will come from the line of Corey Davis from Natixis. Please proceed.

Thank you. Good morning. I have a few questions. The first is, was there anything in J&J's INVEGA injectable label that makes you more or less optimistic on your own sub-Q injectable program?

Well, let me actually just address our injectable formulation. So, just for clarity, the approval we have from the FDA now, it is for the oral formulation -- tablet formulation for the treatment of schizophrenia in adults. In addition, we are developing a long term once a month injectable formulation.

Just again to remind everyone, this formulation has already been in man in patients with schizophrenia in the US, and performed well for a period up to six months. We're actually very excited about this formulation because, as you understand, in these patient populations, compliance is a very big issue. And having a solution beyond the oral formulation for something that you can give a patient to last for a month, it's actually very important.

But also we're excited beyond the clinical, on the commercial opportunity as well. Just to underscore that the only other atypical antipsychotic that is on the market today is RISPERDAL CONSTA and, in fact, it is delivered once every two weeks. And despite that, it has been a very large commercial success, with sales of $1.3 billion worldwide; $1 billion of that coming from Europe and $300 million from the US.

So it is in our plans part of the lifecycle management of our Fanapt franchise to bring forward the development of the depot formulation and into the clinic. In terms of timelines, it is not certain now but most probably will be in the order of three years or so behind the oral approval.

And in terms of the things that you'd have to do for a pivotal program on the injectable, how massive or minimal would a program have to be in terms of things like the number of injection cycles you'd have to go through? Would you need a positive control? What kind of dosing thing would you anticipate? Have you even worked that out yet?

The FDA consistently has asked for only one pivotal Phase III study for a different formulation. So, our expectation is that we'll proceed soon with production of clinical supplies and a pharmacokinetic study, which is in a few patients for a period of 12 weeks or so, and then the single Phase III pivotal study. That study evaluates patients for a period of three months, so these are 12 week studies. So, patients will take a total of three injections.

And in terms of size of the study, will be a typical Phase III size, like the one we were on before for the oral of about 500, 600 patients, so in a way to the streamlined path forward given that the oral formulation has been approved. When we evaluated the depot formulation, in the past, in the Phase II study. It performed actually quite well, released as expected, and the side effect profile was similar or even better than the oral formulation.

Okay. Last question. In talking to all these other companies about things these days, how large a role does tasimelteon play? Are others willing to give it value, or is it really not a focus at all in any of your discussions?

Well, I'm not going to be able to give you -- to comment of how potential partners or strategic partners look at the relative value of our asset. But, of course, you have to understand that the main attraction here is that we have an approved asset, the oral formulation of Fanapt. So I would say all assets have relative value, but of course the immediate and largest component of value comes from the approved product.

Okay, great. Thanks, Mihael.

Thanks, Corey.

Our next question will come from the line of David Moskowitz from Caris & Company.

Good morning, and thanks for taking my questions. The first question is I'm trying to understand why you didn't have to pay Novartis the full $12 million fee. Can you let us know why they enabled you to do that?

Good morning, David.

Morning.

Well, as you know we owed $12 million upon approval to Novartis. So when we got this approval, we asked them, in order to maximize our finances here in the short term to be able to have this arrangement and they were kind enough to allow us to do that.

Okay. And also, I noticed in the press release this morning, and certainly in the numbers there really doesn't appear to be any spending with regard to selling resources behind Fanapt. So, could you talk about that?

And also go over sort of your plans for the cash outlays, I guess, as you think about how are you going to use your limited resources going forward in terms of R&D for Fanapt and tasimelteon; spending on the preparation for the launch ramp would be kind of category two in terms of inventory and other discussions. And then three, the launch ramp from a selling and marketing resources perspective. Thanks.

Thanks, David. So, a little bit on the -- focus of a basis now on spending. Clearly, what is most important and in the critical path of a launch of any drug, including Fanapt, are the other activities beyond the sales force and fielding of a sales force and the intense marketing activities entailed in a launch plan. So, our focus has been in activities that have a smaller expenditure, but yet are in the critical path.

As I outlined, number one is, production of commercial supply. Commercial supplies are needed for the launch, whether Vanda is doing the launch, or a partner is doing the launch, or an acquiring company is doing the launch. The same thing goes with managed care. Our rebate agreement with the Secretary of Health and Human Services that will allow Fanapt to be on the safe drug formularies in the fourth quarter will have to happen regardless of who is doing the launch, and that has been accomplished.

In terms of fielding the sales force, that is a later activity and it is exactly this scenario of the launch that we're looking very carefully at all our alternatives. And as I have repeatedly said, Vanda is prudent to understand alternatives that maximize shareholder value. We're evaluating right now a number of options. And as soon as we have concrete answer on the direction, we'll provide everyone with this information.

Okay. And one final question. Can you talk to us about any pricing decisions that have been made, or how should we think about pricing of the product?

No final pricing decision has been made, but we've done work on the price environment. And the important thing here to remember is relative to the other drugs in the class, the profile of Fanapt, as indicated by the label, is favorable. And therefore, you should be thinking about pricing well within the range of other antipsychotics, and that range now centers around $450 per month.

And also, it is important to understand that this is a protected class under CMS and therefore the atypical antipsychotics, all of them, the entire class, cannot be excluded from formularies and will be available.

Something also about the demographics in terms of third party payor for these patients. Schizophrenia patients primarily belong to the class that are reimbursed through Medicaid or Medicare Part D, and our application now with CMS for signing up with the rebate agreement along for the formulary will allow a large portion of the patients to have immediate access of the drug.

I forgot that this was a protected class. That's a great reminder. Thank you. Appreciate it.

Thanks, David.

(Operator Instructions)

And our next question will come from the line of [David Honigstock] from Morgan Stanley.

Hi. What is the likelihood of you announcing a secondary -- I'm sorry, before a strategic partnership?

We have not made any decisions on fundraising at this time.

All right. So, we shouldn't anticipate any decisions this week?

I will not comment. All if will say is we have not made any decisions on this drug.

Okay, thank you.

And there are no further questions in the queue. I would now like to turn the call back over to management for closing comments.

Let's conclude the second quarter investor call. We thank you for your interest in and support for Vanda, and we look forward to speaking to you again next quarter or sooner.

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