Vanda Pharmaceuticals Inc (VNDA) 2010 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2010 Vanda Pharmaceuticals, Inc. earnings conference call. My name is Michael and I will be your coordinator for today. (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 conference, Ms. Stephanie Irish. You may proceed.

Thank you, Michael. Good morning and thank you for joining us to discuss Vanda Pharmaceuticals' second-quarter 2010 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 12, 2010.

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 before opening the lines for your questions.

Before we proceed, I would like to remind everyone that various statements that we make during this call will be forward-looking statements within the meanings 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 and uncertainties and other risks. These risks are described in the Risk Factors section of our Annual Report on the Form 10-K for the fiscal year ended December 31, 2009, and Quarterly Report on the Form 10-Q for the fiscal quarter ended March 31, 2010, 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, except as required by law.

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

Thank you, Stephanie. Good morning and thank you very much for joining us.

First of all, an update on Fanapt. Fanapt is indicated for the acute treatment of schizophrenia in adults, a mental health disorder which affects more than 2.5 million Americans and millions more worldwide.

As a reminder, Fanapt was launched in the US by our partners, Novartis, on January 11, 2010. In late May, the launch was expanded to include the promotional marketing material which was approved by the FDA's Division of Drug Marketing, Advertising and Communications.

Fanapt monthly prescriptions as reported by IMF increased from approximately 500 in February 2010, which was the first full month of sales, to over 4000 in the month of June of 2010. This early trend is very encouraging.

Year-to-date net sales of Fanapt were reported by Novartis to be approximately $21.4 million, comprised of $20.7 million in the first quarter of 2010 and $0.7 million in the second quarter of 2010.

Despite the significant increase in subscriptions, royalty revenues decreased for the second quarter due to the stocking of pharmacies that occurred during the first quarter.

Significant progress is also being made on the payor access front. Under Medicaid, approximately two-thirds of the states are already providing easy or moderately easy access, and Novartis is working hard to secure easy access in the remaining states. A recent example is the inclusion of Fanapt on the preferred drug use formulary for the state of California.

We believe that Fanapt prescriptions will continue to grow as more physicians and patients become aware of the therapeutic options and as our partner Novartis continues its commercial campaign for this product.

I have two more updates to report on Fanapt regarding progress that we've made with respect to both the four-week injectable or depot formulation, as well as with respect to our pursuit of regulatory approval for the oral formulation outside the US and Canada.

First, we had a significant development recently with respect to the four-week injectable or depot formulation of Fanapt. As a reminder, on February 23, 2010, the US Patent and Trademark Office issued a notice of allowance for a patent application of a microsphere long-acting injectable formulation of iloperidone.

Just two days ago, on August 3, 2010, the US Patent and Trademark Office informed us that the patent has been issued, with a patent term adjustment of an additional 605 days, expanding therefore the patent expiration date to June 27, 2026.

Novartis is responsible for the further development of the depot formulation in the US and Canada, while we have retained the right for its development and commercialization outside the US and Canada.

Secondly, as we have previously reported, Vanda has retained exclusive rights to Fanapt outside the US and Canada. Over the last few months, we've continued to make significant progress towards understanding regulatory requirements around the world regarding the commercialization of the oral formulation of Fanapt and began discussions with various foreign and regulatory authorities. We expect to begin regulatory submissions in certain countries during the third quarter of 2010. We also have initiated interactions with the European regulatory authorities.

I will now turn to our second compound, tasimelteon. Over the last quarter, we've made significant progress clarifying the path forward for tasimelteon, our proprietary circadian rhythm regulator in the treatment of non-24-hour sleep-wake disorder in blind individuals with no light perception. This disorder, which affects approximately 8000 Americans, causes significant disability. Individuals that suffer from non-24-hour sleep-wake disorder are not able to rest their body clock -- reset their body clock -- which governs the sleep-wake cycle on a daily basis.

As a result of this inability to reset their circadian rhythm, they have significant difficulty sleeping at night, accompanied by significant difficulty staying awake during the day. These symptoms further compound the disability of blindness and further impact the social and economic difficulties that are prevalent among the blind.

Our prior investigations for the compound in Phase II and Phase III studies have suggested that the compound is able to reset the body clock and may be able to correct the symptoms that are associated with its function, including the difficulty sleeping at night and staying awake during the day.

Over the last few days, we held our investigator meeting for our Phase III efficacy study. This study will be a randomized, double-blind, placebo-controlled study with an enrollment of approximately 150 patients with non-24-hour sleep-wake disorder.

The trial will have a six-month treatment period and will include measures of both nighttime and daytime sleep, as well as laboratory measures of the synchronization between the internal body clock and the 24-hour environmental light-dark cycle. We expect the results of this study by the end of 2011.

We're also preparing to initiate a one-year safety study of tasimelteon for the treatment of non-24-HSWD, which will be an open-label safety study that will enroll approximately 140 patients with the disorder. We plan to conduct additional clinical trials over the next one to two years to support the US and European regulatory submissions.

The application for orphan designation for the European Medicines Agency is pending. We plan to complete the clinical studies and submit an NDA application for tasimelteon in early 2013.

We believe that tasimelteon can help Vanda create significant value for our shareholders by commercializing a product which addresses an unmet medical need in a differentiated manner and by affecting the mechanisms of the disorder and not just its symptoms.

Now, Stephanie will address our financial results for the quarter ended June 30, 2010. Stephanie?

Thank you, Mihael. We are very pleased to announce that Vanda continued to record positive earnings in the second quarter of 2010. Net income was $1.3 million for the second quarter of 2010 compared to net income of $500,000 for the first quarter of 2010 and a net loss of $12.4 million for the second quarter of 2009.

Basic and diluted net income per common share for the second quarter of 2010 was $0.05 and $0.04, respectively, compared to net income per common share of $0.02 in the first quarter of 2010 and a net loss per common share of $0.46 for the second quarter of 2009. Approximately 28 million shares of Vanda's common stock were outstanding as of June 30, 2010.

Total revenue for the second quarter of 2010 was $8.3 million compared to $12.4 million in the first quarter of 2010. Second-quarter 2010 revenue consisted of $6.7 million in licensing revenue due to the amortization of the upfront payment received from Novartis in the fourth quarter of 2009; $1.5 million in product revenue for inventories sold to Novartis; and $69,000 for royalty revenue based on the second-quarter 2010 net sales of Fanapt in the US by Novartis. The decrease in revenue from the first quarter is primarily due to decreases of $2.1 million in royalty revenue and $2 million in product sales to Novartis.

Despite the significant growth of Fanapt prescription demand in the second quarter, royalty revenue decreased from the first quarter due to the stocking of pharmacies that occurred in the first quarter. In addition, we have sold the remaining inventory to Novartis in the second quarter of 2010.

Cost of sales for the second quarter of 2010 of $1.9 million consisted of $400,000 resulting from the amortization of a capitalized intangible asset related to the milestone payment to Novartis and $1.5 million for the inventory sold to Novartis. This compares to the cost of sales for the first quarter of 2000 of $1.8 million, which consisted of $400,000 resulting from the amortization of the capitalized intangible asset and $1.4 million for inventories sold to Novartis.

Research and development expenses were $2.4 million for the second quarter of 2010 compared to $2 million for the first quarter of 2010 and $7.2 million for the second quarter of 2009. The increase in R&D expenses in the second quarter of 2010 relative to the first quarter is primarily due to the costs incurred in connection with the preparation of the Phase III trials for tasimelteon in non-24-hour sleep-wake disorder.

General and administrative expenses were $2.8 million for the second quarter of 2010 compared to $2.5 million for the first quarter of 2010 and $5 million for the second quarter of 2009. The increase in G&A expenses in the second quarter of 2010 relative to the first quarter of 2010 is primarily due to the higher noncash stock-based compensation costs incurred in the second quarter of 2010.

Vanda recorded a tax benefit of $38,000 in the second quarter of 2010. The tax provision is based on an annualized effective tax rate for 2010 applied to the second quarter's pretax book income, with the addition or subtraction of discrete items. The quarterly tax provision is not indicative of estimated quarterly cash tax payments.

Vanda's cash, cash equivalents and marketable securities as of June 30, 2010, totaled approximately $207.1 million, an increase of $4.7 million compared to $202.4 million as of March 31, 2010.

We are encouraged by the early prescription data for Fanapt as reported by IMF. At this time, however, we cannot forecast future revenues based on sales milestones or royalties.

We've submitted a private letter ruling requests to the IRS in March of 2010 to clarify the application of certain code sections regarding the use of our prior net operating losses that may offset some of the tax liability related to the $197.4 million of deferred revenue for the upfront payment received from Novartis, which will be recognized as income for tax purposes in 2010. Following the determination from the IRS in this matter, we may choose to provide financial guidance for the full year.

At this time, I will now return the call back to Mihael.

Thank you. We would be happy to address any questions at this time.

(Operator Instructions). Corey Davis, Jefferies.

I've got several questions. Let's start with the depot formulation and any update as to where Novartis stands on the clinical development. Have they started studies there? And just remind us what's left to be done before you actually start a real pivotal study on that.

Yes, so the sequence of events is manufacturing of material, early testing of their profiles in preclinical studies, then a short three-month pharmacokinetic study, which informs the Phase III study.

So far, Novartis is manufacturing material. They're conducting the preclinical studies. And they're on track, for about end of year, beginning of the PK study. So if the results of that study are good, then most likely the path will be a single Phase III study, efficacy study, again, for a goal of an NDA filing on the depot sometime by the end of 2013.

NDA filing in 2015?

2013.

2013. And have you and they decided on which of the two formulations you're going to use? And does that patent issuance kind of help guide that decision?

We have not made a decision yet. In fact, this decision will be done after the PK study. So the expectation is that going into the pharmacokinetic study, we'll take [forward off] formulations, the microsphere and the [Crystal].

In regards to the patent, the Crystal patent is under review by the FDA -- by the USPTO, and we are still optimistic that this may be another patent [addition]. The fact that we have the issuance of the microsphere patent and also the added extension of the 605 days, some of it is based on the recent Wyeth case, creates a very interesting proposition, because the depot franchise in the US can be expanded in 2026. So the combination of the clinical data with the formulation (inaudible) situation will play a role.

With respect to the regulatory requirements around the world that you referred to, you were kind of vague about Europe, saying you had just started to talk to regulators there. Can you elaborate on that?

Yes, so just a little clarification here. For some countries, the common technical dossier as submitted to the FDA and was approved is sufficient for the application. One of these countries is Australia. We have been in discussions with them, and we expect to be able to file with Australia in the next few months. That's one example.

In Europe, there is a process of submitting initial requests, review of these initial requests. There is a lot of upfront bureaucracy before you end up with a meeting. We believe that we should be meeting with them sometime in the fourth quarter. And again, the plan is to file with them, either with an existing package or wait for the long-term maintenance study, which Novartis is conducting.

Just to remind everybody, we already have a very large, 1500-patient, positive study of iloperidone compared to the standard typical Haldol over a year, which showed a statistical noninferiority, which is good data and may be acceptable to the Europeans. If, however, there was an objection, we will wait for the completion of the Novartis study, which, again, should be in the timeframe of 2012. So, the oral application could happen earlier, or it can wait for the maintenance study.

Now, just to remind you again of the strategy, that our strategy in Europe also has to leverage the market exclusivity provision, where the applicant gets 10 plus one year from the time of the first release of the chemical entity into the community, which means that if we believe that the depot formulation will be the most significant portion of the value of the oral, it would make sense to file oral and depot in very close time proximity. So, either oral may proceed by a limited time, or it would be a joint filing sometime in 2013.

Right. So even if you have that meeting and they say the current package that you filed with the FDA is sufficient, doesn't it still makes sense to wait for the ongoing maintenance study, to actually file it?

As we all know, many things happen in a year. And it's not exactly the exact time, that we tell you it will take two years. But also, there is a practical consideration point, that physicians in Europe that may be excited to get the depot formulation would want to have experience with Europe. So preceding the oral launch by even a few months may be actually a very good thing. But that decision has not been made yet.

Understood. On tasimelteon, how long do you think it will take to enroll those patients in that Phase III?

Again, we think we're going to enroll, run the study and report the results by the end of 2011. We have done some significant prework by developing a database registry of patients with this disorder. We've been working on that over the last few months. And we've already identified a couple of hundred of potential candidates.

Now, we don't know how many of them will screen and pass the (inaudible) criteria of the study, but that will be a very good start. So we're optimistic that we will meet the guidance and timeline.

Okay. That was kind of where I was going with this. You've developed a protocol with I guess lenient enough inclusion/exclusion criteria that there are actually enough patients out there for you to enroll?

Well, I would call the inclusion/exclusion criteria necessary, not characterize them as lenient. But we are confident that there's sufficient number of interested patients out there to be able to enroll and conclude the study in time.

Okay. I'll get back in the queue and ask you some more later. Thanks.

David Moskowitz, Madison Williams.

Thanks for taking the questions. Are you able to tell us what the average price of a Fanapt script is at this point, given that you've seen a fair amount of sales?

Novartis has not reported anything in regards to pricing. Of course, it's public knowledge that retail pricing is a little bit over $600. But if you're modeling, we would say that it is fair to estimate about middle-of-the-pack pricing of $500.

Very good. Appreciate it. That's about right where I am. And can you comment on the destocking? So we had a pretty good amount of stocking the first quarter. We actually anticipated some of that in our model, some of that coming back out this quarter. But can you talk about it? It seems like it's a little bit more aggressive than we had thought. So do you have any comment on that?

No, I don't have much of a comment. There's not a lot of necessarily transparency at that level. But let's make it clear for everybody, when you want the drug, you want pharmacies to have it, so you stock it. And that's what exactly Novartis did. And therefore, in Q1, they received orders for about 21 million, where [our figure] was calculated from.

So this start has to work itself through demand. We see a significant uptake of demand. As I said, the first month of sales in IMS retail were 500 scripts, and now, in June, we are at 4000, and the July early data trends even higher. So of course, pharmacies will have to work through their stocking, and we will receive more invoices hopefully from then on.

Okay. And also, on the tax status that Stephanie mentioned, could you talk about when you expect to hear back from the IRS Review Board? And what is your level of optimism (multiple speakers) an expectation with regard to the tax you might have to pay?

The background is for everybody. As Stephanie mentioned before, about $197 million of the $200 million payment received from Novartis last year is referred as a tax income this year. So this will be a taxable event, but it can be possibly offset by the large net operating losses that the Company has incurred over time.

The question has been, due to potential ownership changes that happened in the 2008 period, if there were any limitations of the net operating losses. So we believe that the methodology of recognizing the upfront payment as a realized built-in gain will result in allowing the Company to recognize the majority of its net operating losses and therefore offsetting a significant portion of the tax event.

So we've gone to the IRS and requested a private letter ruling on the methods by which we characterize the upfront payment. We believe that it should be a recognized built-in gain, and therefore, it would have a positive effect in the utilization of net operating losses. We are in continued discussions with the IRS, but we have not yet received a written ruling, which we'd expect to happen in the next couple of months.

Great. And lastly, on the depot trials, so you said that there's preclinical work being conducted, and the clinic clinical work has not begun yet. And when it does begin, you expect to start in a Phase III trial?

Just repeat your last part, David?

I'm sorry. The clinical status of the depot version, I thought I heard you say that they're still working on preclinical work and pharmacokinetic work, and not in man yet with that product. Is that correct?

Almost. So let's (multiple speakers)

Sorry.

The microsphere depot formulation has been manufactured in the past by Novartis based on their own technology. And this is a patent that [they'll speak to]. It has been in man for a period of up to six months with good results in a Phase II study in the US around [2002].

So what Novartis is doing is remanufacturing, with the same recipe, materials in microspheres and also pursuing the alternative material of Crystal, both of these will be ready to start the pharmacokinetic study, which will lead to the Phase III. But just to be clear, we already have experience in man with the same microsphere with good tolerability, but also a very good release profile over a period of 28 days.

Okay, yes. I didn't mean to imply that. I just was -- I was saying that -- I was just wondering where the current clinical (multiple speakers).

No, no, I understand.

So you expect to be in man again with the I guess updated formulation or the remanufactured formulation when again?

Novartis has not guided. My estimate would be sometime by the end of 2011, again, in time for an early 2013 NDA filing of the depot.

Very good. Thanks so much.

Jon LeCroy, Hapoalim.

Thanks for taking my call. Any help on spending, if not absolute, just kind of trends off of the second quarter for R&D and G&A? And then also, for the cost of product service revenue, is that going to go away, or are there still going to be product sales to Novartis?

Let me start from the back end, and Stephanie can [try if I mute it]. We are done selling products to Novartis, so that part will go away. In terms of guidance, we've previously guided bare-bones guidance of about $10 million to $12 million for the year, and we have guided last quarter about $7 million for annual R&D costs. So that's the guidance on costs.

And then that amortization part in cost of product services, that goes away as well?

You mean the amortization of the $200 million income?

Yes, you just have that, I guess, line item in your cost of product service revenue that was amortized as $377 million in the past.

The amortization for the license, that is on the initial $12 million that we paid Novartis. So that will stay until May of 2017. But the product revenue and the related cost of sales is now completed as of the end of the second quarter.

Yes, that was my question, on the end, May 2017. And then any sense of gross sales for Fanapt that Novartis has given you?

No. So there is no particular guidance yet, and again, it's earlier. But what is encouraging, Jon, is that the promotional -- professional promotional launch started the last week of May and on Memorial weekend. And ourselves and Novartis are encouraged with the uptake, which actually suggests that the launch is promotionally sensitive, and we see good reaction by physicians.

Again, there is plenty more to be done with the marketing campaign, ads, etc., which are all are going to be in full force hopefully early this fall.

Okay. And then you may not know this, but do you have any sense of what percentage of scripts IMS misses for Fanapt?

I don't know, and it's kind of early, because IMS is retail. Overall, if you look historically for drugs, it's about two-thirds captured by IMS retail and about one-third by [DBD] for institutional in antipsychotics. Whether this is the case or not on Fanapt yet, I cannot tell you.

Okay. And then finally, any comments on what Novartis' options are for the rest-of-world rights?

The option that Novartis has is that when we inform them of our interest to seek a partner ex-US, they have the option to negotiate in good faith at that time. And that's the extent of their options.

Okay, great. Thanks.

Mark McInerney, Visium.

Thanks for taking my question. Most of my questions have actually been asked already. But I will ask this one final question in terms of just kind of globally, Mihael, can you give us kind of a view of where you see the Company in the next couple of years? Do you see any attractive in-licensing opportunities? I guess it's just kind of an overall question of what your plan is to do with all that cash that you guys have on the balance sheet now.

We think the Company indeed is in a very strong financial position, but very strong and even stronger operational position. We are very optimistic about the growth of Fanapt and the royalty stream in the US, but also very excited for the ex-US opportunities, both with the oral and depot formulations.

On the tasimelteon side, we believe tasimelteon can be a very significant growth opportunity for the Company, not only with the flagship of the open indication we are pursuing, but also with a significant number of other indications, including other circadian rhythm sleep disorders and later depression, disorders that can be pursued and potentially treated by tasimelteon.

So we have the financial ability now to pursue these opportunities while at the same time remain opportunistic about other in-licensing opportunities as we continue to evaluate, as we have done already here.

Corey Davis, Jefferies.

First, on Fanapt, so we were all kind of hanging on the hope that the approval of the new promotional materials back in May would accelerate the rate of share gains. And so, on one hand, the slope of the curves look great. But on the other hand, there wasn't an acceleration in the rate of the uptake.

So my question is, was not having those promotional materials kind of not a gating factor? And was it something like reimbursements through Medicaid, or is it just it needs more time to kind of work its way through the system?

I think it's a combination of all three. So, as I have said before, and Novartis actually has confirmed, the absence of the market preparation, which is promotional material, is one thing. It's good to have a glut of research when you talk to somebody versus [a PI]. But also, it means that you have launch of communications contained, that you have speakers' bureaus, doctors that understand the drug, and they can talk to their colleagues around the country.

That should not be in place, and that is just about to be in place with a large number of physicians around the country. The advertisement campaign, it creates awareness. So it's not just about the promotional material that physicians see.

But I would say the major gatekeeper has been and quickly resolving is reimbursement. Despite the fact that this is a protected class and cannot be excluded from formularies, some of the states are trying to curb costs in this rapidly spiraling atypical antipsychotic drug by putting as many hurdles as possible.

So Novartis has been working diligently state by state. And as you recall, on the last call, I had reported a couple of states, Fanapt is on the PDL. And we've given an example of the large state that has been just been included, Texas. Now, as of early/mid-June, California on the state level is included. But just to give you the degree of complexity, then you have to go county by county, about 60 counties or so, that you have to work yourself through to get to drug on the formulary.

So all of that is remaining, that the drug is still on the depot, not on the PDL. And it requires prior authorizations, like [Safisa] in that case does as well. So there are a couple of still big states, like Florida, where Novartis is working itself through.

So until the reimbursement is still resolved, the launch itself does not receive the maximum potential. So I am quite encouraged that it is [commercially sensitive]. I'm encouraged that Novartis is making significant progress with Medicaid. And I think it is too early to say how big the drug actually will be, but that it will be a significant asset. I think we are very pleased about that.

Okay. So I'm assuming that most of the uses that you are seeing right now is coming from second-, third- or fourth-line therapy. So, A., is that correct? And B., how does that get used in practice? So you have to titrate this thing up. But if a patient is coming off another therapy, do you just stop that other therapy and then titrate them up? And does that put the patient at risk when they are not at fully efficacious dose of an atypical? Or can you titrate down the previous atypical while at the same time adding iloperidone and coming up with that one?

Well, first of all, the titration is one in the -- type of titration we have for Fanapt is turning out to be one of the benefits and attractions [that we can see]. We have a titration pack that gets you to efficacious dose in four day, well organized, unique, and other drugs like the market leader in prescription Seroquel that requires a lengthy titration, they don't have a similar titration commercial path.

Now, to answer your question of what happens [in practice], what you said about switching from a drug, yes, all the patients for Fanapt [are futures]. But the reality is that patients with schizophrenia switching to another antipsychotic are most of the time noncompliant. So, yes, in the perfect world, somebody will titrate down a given drug and titrate up the next one. But bottom line is, patients come in subtherapeutic levels of the previous drug more than 90% of the time.

They are just not taking the old drug.

Exactly. So it is as if we start new. So there is no issue there at all.

The last question I've got, tasi, you mentioned starting some, quote, other studies over the next one to two years. Can you elaborate a little more on that? And I guess I heard you say something about depression, but at some point, does it make sense to set up for a full-blown insomnia claim on this product?

The only clients with the immediate clients we have now are for the two studies, the Phase III efficacy that is starting now, and the year-long safety study that will start very soon. What we guide is that the potential other studies will have to remain to be seen after we go to the FDA for these indications.

In regards to what makes sense for a franchise, we believe that the best first indication is the non-24 sleep-wake disorder, not only from the clinical scientific point of view, but also from the commercial and the investment front. But the design works for insomnia and works, actually, for [chronic] insomnia and helps with the sleep-onset insomnia, we have proven in a Phase III study. So it is not a matter of just the science and the ability of the results to control the symptoms, but also what makes sense from the commercial and the investment point of view.

I guess where I'm going with this is just from a cost perspective, are these additional other studies, things like just doing it in hepatically impaired patients for purposes of the filing, or are they kind of bigger Phase II exploratory efficacy studies for additional indications down the line?

We do not plan at this time to do any exploratory studies in other indications. And any study that we are guiding are studies, necessary requirement for the NDA filing on this indication only.

And again, just for everybody, the guidance we have given is that we think we can operate these NDA filings within a budget of a total budget of $30 million over the next two years. That includes the $7 million or so that we guided for this year. And to remind everyone, we believe that the entirety of this $30 million, the majority of this $30 million, will be eligible for the orphan tax credit for 50% of that.

Great, so $30 million over the next three years, including this year total, gets you to NDA filing?

Correct, this year's R&D costs, yes.

Great. That's all I had. Thanks.

Jon LeCroy, Hapoalim.

Just two quick follow-ups. So on the potential tax liability, do you know what rate that would be taxed at?

If there was any remaining liability after we subtract our net operating losses, it would be at the regular corporate rate of 35% plus state.

Okay. And then what state is that in? Sorry.

It would be primarily Maryland.

Okay. And then just following up on the cost guidance again, does that include noncash, the options?

No, it does not.

Okay. All right, thanks.

I would now like to turn the call over to Dr. Mihael Polymeropoulos for closing remarks.

Thank you. Let's conclude this conference call. I would like to also take the opportunity to thank Stephanie Irish. This will be the last quarter call with us. We wish her well. We thank you all for your interest in and support of Vanda, and we look forward to speaking with you again soon.

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