Vanda Pharmaceuticals Inc (VNDA) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the first quarter 2011 Vanda Pharmaceuticals Inc. earnings conference call. My name is Marcella, and I will be your operator for today. (Operator Instructions).

As a reminder this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Jim Kelly, Senior Vice President and Chief Financial Officer. Please proceed, Sir.

Good morning and thank you for joining us to discuss Vanda Pharmaceutical's first quarter 2011 performance. Our first quarter 2011 results were released this morning and are available on the SEC's EDGAR system and 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 June 3, 2011. Joining me on today's call is Dr. Mihaelos 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 first quarter 2011 before opening the lines for your questions.

Before we proceed, I would like to remind everyone that various statements we make on this call will be forward-looking statements within the meaning of the federal securities laws. Words such as, but not limited to, believe, expect, anticipate, estimate, intend, plan, targets, likely, will, would and could or the negative of these terms and similar expressions or words will identify forward-looking statements.

Our forward-looking statements are based upon current expectations that involve risks, changes in circumstances, assumptions and uncertainties. These risks are described in the Risk Factor section of our annual report on Form 10K for the fiscal year ended December 31, 2010, which is available on the SEC's EDGAR system and 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 or revise publicly 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, Mihaelos Polymeropoulos.

Thank you, Jim. Good morning everyone and thank you very much for joining us. Let me start our first quarter 2011 review by saying that we believe the prospects for our company have never been better. We are well underway in building towards our vision of a CNS specialty pharmaceutical company with both clinical development and commercial capabilities. Vanda's current pipeline could potentially address the unmet medical needs of millions of people who suffer from severely debilitating disorders.

Our new product, Fanapt, was introduced a year ago in the US market for the treatment of schizophrenia through a partnership with Novartis. Fanapt is in the class of a typical antipsychotic which commands a multi-billion worldwide market. Fanapt has a desirable profile for the treatment of schizophrenia. It addresses the symptoms of the disorder, and at the same time, it offers a mild side-effect profile in regards to metabolic and movement disorder side effects. Fanapt also differentiates itself from many other drugs in the class in that it exhibits placebo-like effects of akathesia. Many other drugs in the class produce the side effects of akathesia, a feeling of inner restlessness and a need for constant movement that has been associated even with suicide.

Fanapt lacks this negative activating feature, and therefore it can provide a very desirable alternative to other existing treatments. We continue to see increased awareness of the benefits of Fanapt amongst US physicians reflected by the increase in subscription trends as reported by IMS. Despite the slowing of street growth over the past quarter, we believe the prospects for growth of Fanapt scripts and revenues in the US continue to be promising. Given the desirable chemical profile of the product, we remain optimistic that an increasing number of patients will derive benefits from Fanapt, leading to continued commercial success.

We are also excited with the start of the clinical program of the Fanapt long-acting injectable formulations. Long-acting injectable formulations are very desirable in the treatment of schizophrenia as they address efficacy while at the same time they enhance compliance. The program with our partner Novartis has just recently initiated in the US plans to compare two distinct long-acting formulations of Fanapt to compare their pharmacokinetic properties as well their safety. The goal is to establish a lead formulation for the Phase 3 program which will test the efficacy of a Fanapt long-acting formulation in patients with schizophrenia.

Fanapt has a strong intellectual property portfolio in the US with expiration of the [SC] patent expected in mid 2017 and the long-acting injectable formulation in early to mid 2020.

We are also making significant progress with registrations of Fanapt outside of the US and Canada. We have already filed in Australia and Singapore and are in the process of filing in Latin America and Israel. We are also now planning a submission in the European Union by the end of the year. Marketing authorization in countries outside the US and Canada over the next few years will create the potential for a revenue stream above and beyond what we receive as royalties in the US.

We are currently considering a number of options for the commercialization of Fanapt outside of the US and Canada including potential distribution agreements and partnerships. We believe that the strong chemical profile of Fanapt, supplemented in the future by the long-acting injectable formulation, has the potential to provide Vanda with a foundation of revenue for years to come.

Let me now turn to our second most advanced asset, tasimelteon. Tasimelteon is an exceptional pharmacological tool in the class of Circadian regulators. Circadian rhythm is the body's daily periodic cycle that governs a plethora of body functions including the sleep/wake cycle, mood, metabolic functions and circulatory regulation to name a few. We have designed an unparalleled clinical development plan for tasimelteon and have begun to execute upon that vision.

We are currently projecting a full-scale development plan in the indication of non-24-hour Sleep/Wake Disorder in totally blind individuals. N24HSWD is commonly found among individuals with no light perception. Light is used to synchronize our Circadian clock to a 24-hour cycle. In the absence of the light cue, the internal clock begins to drift, creating a significant misalignment of the sleep/wake cycle. It is often described that for people who suffer from this disorder the symptoms are worse than blindness itself.

Due to the chaotic sleep/wake cycle, patients [who participate] also experienced significant social and occupational problems. Study 3201 is well underway and seeks to examine the ability of tasimelteon to correct the periodic sleep problems of these individuals by addressing the mechanism of the disorder. We believe that tasimelteon will be able to act to reset the circadian clock and by that normalize the sleep/wake cycle of these patients.

Non-24 is an [orphan medication] that effects approximately 80,000 people in the US and about 250,000 individuals worldwide. As such, the recruitment of individuals for our study continues to be challenging. However, due to the significant efforts of our team, our investigators and [blind support organizations] for the blind around the country and the world, we have now developed a successful network that we are confident will allow us to complete our growing clinical program in the US, France and Germany now in a timely fashion.

We continue to plan for an NDA filing in the US in the first half of 2013 and shortly after that in the EU as well. We are excited about the development of tasimelteon for the treatment of non-24. We are also very excited about the beginning of clinical studies to examine the properties of tasimelteon as an antidepressant.

Over the years, a significant body of scientific literature suggests that aberrations of the circadian rhythm may be critical in the reduction of the symptoms of major depression. To date, the available treatments have centered around the neurotransmitter hypothesis with emphasis on norepinephrine serotonin. This has led to the development of a number of treatments commonly referred to as SRIs or SSRIs aimed at increasing the level of [produced] transmitters and improving the symptoms of depression.

While some of these drugs can address the symptoms of depression for some people, many patients feel only partial benefits. In addition, these drugs require the presence of constant levels in the bloodstream, and therefore a number of troubling side effects are commonly seen including; sexual dysfunction, insomnia and weight gain. Due to its differentiated mechanism of action as a circadian regulator, tasimelteon has potential to uniquely address the symptoms of major depression. Tasimelteon has the potential for faster onset of action and a mild side effect profile including improvement in sleep function, no sexual side effects and no weight gain. It is worth pointing out that tasimelteon has a short half-life of about 2.5 hours, allowing patients to experience its therapeutic effect without a constant presence of the drug in the bloodstream and therefore likely with minimal side effects.

Our Phase 2B/3 study would be initiated in the latter part of the year and it will examine the antidepressant effects as well as the safety of tasimelteon in patients with major depression. If tasimelteon can be shown to achieve the desired profile we believe it will represent a significant advance in the treatment of major depression which is a multi-billion worldwide market. As such, we believe tasimelteon may have the potential to transform Vanda into a world-class CNS specialty company.

We believe Vanda is well positioned through our pipeline of marketed and in-development clinical assets, through the strength of our financials and through our exceptional team to make significant progress over the next 12 to 24 months towards building a premiere CNS specialty pharmaceutical company.

Now Jim will address our financial results we reported ended March 31, 2011. Jim?

Thank you, Mihaelos. We are pleased to announce positive first quarter 2011 results. Net income was approximately $100,000 for the first quarter 2011, compared to approximately $500,000 in the same period in 2010. Basic and diluted earnings for the current quarter were $0.00 per share as compared to $0.02 per share in the fourth quarter of 2010. As of March 31, 2011, there were approximately 28.1 million shares of Vanda common stock outstanding.

Total revenue for the first quarter 2011 was $7.5 million compared to $12.4 million in the same period of 2010. First quarter 2011 revenue includes $6.6 million linked to the amortization of the upfront payment received from Novartis for US and Canadian commercial rights. First quarter 2011 revenues also reflect $900,000 related to Fanapt royalties received from Novartis as compared to $2.1 million for the first quarter of 2010. As a reminder, Q1 2010 was the launch quarter for Fanapt. The higher first quarter 2010 royalty revenue was a result of initial wholesaler stocking at launch. The first quarter 2010 revenue also included one-time product sales to Novartis of $3.7 million.

Research and development expenses were $4.3 million for the first quarter 2011 compared with $2 million for the first quarter of 2010. The increase in R&D expenses over the prior year is primarily due to costs incurred in connection with the initiation of Phase 3 trials for tasimelteon in Non-24-hour Sleep/Wake Disorder.

General and administrative expenses were $2.9 million for the first quarter of 2011 compared to $2.5 million in the prior year. The increase in G&A expenses in 2011 relative to 2010 is primarily due to higher employee related costs. Intangible asset amortization for the first quarter of 2011 was approximately $400,000 and is in line with the amount reported in the prior year. Vanda's cash, cash equivalents and marketable securities as of March 31, 2011 totaled $194.6 million, a decrease of $3.5 million as compared to $198 million as of year-end 2010.

2011 financial guidance. Vanda is providing an update to our previously disclosed guidance to investors for the full-year 2011. The revision is linked to our recently announced plans to expand the tasimelteon program and initiate a Phase 2B/3 study in patients with major depression. For the full-year 2011, general and administrative expenses are expected to be between $10 million and $12 million. This is consistent with the 2010 G&A expense of $10.1 million.

Research and development expenses are expected to be between $30 million and $34 million. This reflects a $4 million to $5 million increase over prior guidance for 2011. Total US GAAP operating expenses are expected to be between $41 million and $47 million. This includes $1.5 million related to amortization of an intangible asset and $5 million to $6 million of stock based compensation.

I will now turn the call back to Mihaelos.

Thanks Jim. We would be happy to address any questions at this time.

(Operator Instructions). Your first question comes from the line of Corey Davis with Jefferies. Please proceed.

Thanks and good morning. First, I just wanted to ask for some clarification on Fanapt. I think if my memory is correct last quarter you said that Fanapt demand sales were running about $10 million to $12 million. If I use that calculation it looked like demand in Q1 should have been $12 million and yet you said it was closer to $9 million. If you could address that apparent discrepancy.

Sure. Thanks for the question, Corey. You know when we spoke last quarter we highlighted our belief that during 2011 we felt that the end-user prescription demand would normalize and fall in line with, or vice versa, with the sales from Novartis to the wholesaler chain. What we are witnessing is it is getting closer, but it hasn't completely normalized to be one-to-one and it likely never will. There is usually some give and take on a quarter-by-quarter basis, but you are exactly right. If you compare end-user demand which would approximate $12 million for the quarter, that compares to about $9 million in terms of what Novartis sold into the channel. The gap is certainly closing and we will expect it to normalize and perhaps even get a little closer over the year.

I just want to make sure it was a wholesaler inventory shipping thing and not a miscalculation on the gross to net discounts on the value per script. It sounds like that is your assertion, that it is just shipments to wholesalers, correct?

That is correct.

And a second question, could you expand a little bit more about the planned trial design in depression? What I am thinking of is, what kinds of patients are you going to try to include, or more importantly exclude, from the study? Would you prefer to get treatment nave patients with the tradeoff probably being it is going to be hard to find those patients?

First of all let me describe the major depression patients as there are two types. There are people with major depression and as you said, very clear [they have tried something] and there is another class of major depression patients that are somewhat treatment resistant. We are focusing in the overall major depression population. The design is set as a mono-therapy so it is designed to compare tasimelteon and placebo in patients with major depression. We are not excluding anyone or any category of major depression patients and examine it again as a mono-therapy. We plan approximately 400 to 500 patients in the study, in two [arms] starting tasimelteon most likely one dose of 20 mg versus placebo and that is going to be a typical eight week study. Alongside improvement in depression scale we will likely examine at baseline and later Circadian parameters and targets.

Do you know yet whether or not as a primary end point you are going to use the MADRS scale or the HAMD scale?

It is very like we will use MADRS scale. As many know in this field, it appears that MADRS is the one that more accurately reflects the action of antidepressants and recently several programs have successfully shown that MADRS may be a more sensitive scale to do so.

I'm sorry, this is probably a silly question but I had to drop off the call for a second. Did you say that an EU filing for Fanapt is expected in the second half of this year? If so, does that mean you don't need to do the maintenance study?

Correct. First of all the question is not silly, Corey. It is by the end of the year. It is true that based on the new guidance that the Europeans put out this spring, it would suggest that our existing maintenance study which is aloperidone versus Haloperidol for 12 months where we showed a statistical noninferiority would be sufficient for the review.

So this filing you are doing completely on your own?

Correct.

That is all I have for now. I will get back in the queue if there are others.

You have no more questions at this time. I would like to turn the conference back to Dr. Mihaelos. Please proceed.

Right. Well, thank you very much for joining us on our first quarter call. We thank you for your interest and support for Vanda and we look forward to speaking with you again soon.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.