Vanda Pharmaceuticals Inc (VNDA) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2011 Vanda Pharmaceuticals Inc. earnings conference call. My name is Erika, and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of this conference. (Operator Instructions) I would now like to turn the presentation over to your host for today's call, Mr. Jim Kelly, Senior Vice President and Chief Financial Officer. Please proceed.

Good morning, and thank you for joining us to discuss Vanda Pharmaceuticals fourth quarter and full-year 2011 performance.

Our fourth quarter and full-year 2011 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, which will be available through February 21, 2012. Joining me on today's call are Dr. Mihael Polymeropoulos, our President and CEO, Dr. John Feeney, our Senior Vice President and Chief Medical Officer, Bob Repella, our Senior Vice President and Chief Commercial Officer, and Gunther Birznieks, our Vice President of Business Development. Following my introductory remarks, Dr. Polymeropoulos will update you on our ongoing activities. Then I will comment on our financial results for the fourth quarter and full-year 2011 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 the meaning of federal securities laws. Words such as but not limited to believe, expect, anticipate, estimate, intend, plan, project, target, likely, will, would, and could, or the negative of these terms, and similar expressions or words 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 factors in MD&A of Financial Condition and Results of Operations sections of our annual report on Form 10-K for the fiscal year ended December 31, 2010, and quarterly reports on Form 10-Q, which are available on the SEC's EDGAR system and on our website. We encourage all investors to read these reports 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, Dr. Mihael Polymeropoulos.

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

Over the last quarter, we have been making significant progress on our Tasimelteon program. Tasimelteon is a circadian regulator which is being evaluated in clinical studies for the orphan indication non-24 hour sleep/wake disorder, or non-24, as well as for the treatment of major depressive disorder. Our goal is to assume a leadership position in the development of therapeutics that have the potential of resetting the body clock. Many of our body functions, including the sleep/wake cycle, metabolic processes, mood regulation, homeostatic cardiovascular regulation, to name a few, are governed by the body clock. While a master body clock is located in the brain structure known as the suprachiasmatic nucleus or SCN, the internal tissues are also known to have their own clocks that follow the influence of the master body clock. Tasimelteon is believed to have the ability to reset the body clock and therefore it may have corrective therapeutic properties in disorders where the body clock is aberrant.

The body clock is reset each day through the action of daily light exposure, which sets in motion a number of molecular processes that result in a circadian field of exactly 24 hours in length. For many individuals, without daily exposure to light, the master body clock will run at a circadian field of longer than 24 hours, which is reflected in a population average of about 24.5 hours. Blind individuals with no light perception suffering from non-24 cannot reset the body clock to a 24-hour day, and therefore, will drift at the rate of about half an hour a day. As a result, blind individuals who have suffered from non-24 are often severely misaligned with the standard 24-hour sleep/wake schedule.

Although there is a narrow window in the rotation where such a patient's body clock is correctly aligned, there are many more days in the rotation where they're out of alignment in such a manner that the body clock compels them to sleep during the day and stay awake at night. Such misalignment expresses itself with severely aberrant sleep-and-wake schedules that are incompatible with normal social and occupational functioning, rendering this already disabled individual significantly more impaired. The condition is chronic, and there are no available FDA-approved treatments that can reset the body clock. It is estimated that in the United States, there are approximately 65,000 to 95,000 individuals suffering from non-24, although the awareness of the disorder is believed to be much lower among physicians and patients.

Experts agree that the definitive measure of the period of the body clock is a measurement over time of the night hormone melatonin, which when misaligned to result in a longer than 24 hour body clock, causes this disorder. On average, individuals with non-24 demonstrate the circadian period of melatonin secretion of approximately 24.5 hours, although the exact period length varies from person to person. Vanda has developed a clinical program to evaluate the effects of Tasimelteon in resetting the master body clock in individuals with non-24. Vanda's clinical program is the largest ever conducted and far exceeds any published work in groups of patients with non-24.

This program includes two main efficacy status of Tasimelteon, known as SET and RESET. The goals of the SET study are to evaluate approximately 100 patients with the disorder, and demonstrate the ability of Tasimelteon to reset the master body clock in this individual to a 24-hour period. The study includes a screening period during which the circadian body clock period is measured for each study participant over four weeks. Individuals with a period longer than 24.25 hours are subsequently randomized to either placebo or Tasimelteon for approximately six months. During this randomization period, the clock's period is re-evaluated over a subsequent four-week period. During screening, as well as during randomization, daily reports of nighttime and daytime sleep are recorded.

We have identified approximately 75 of the 100 patients in the target population. We are currently in discussions with the Food and Drug Administration on the most appropriate way to analyze and present data so that the effect of Tasimelteon can be evaluated. In the second study, RESET, we intend to identify 20 patients who respond to the drug after six or more weeks of treatment. After six weeks open label period, individuals are designated as responders if their master body clock period is changed to that of exactly 24 hours. Responders are then randomized to either placebo or Tasimelteon, and their body clock is re-evaluated. This study will allow us to determine whether withdrawal of Tasimelteon from the responder will result in the resumption of non-24.

On January 26, we reported that we have identified the first four responders to randomize in the RESET study. Since it is not expected that the body clock can reset itself continuously, our observation in these four patients demonstrates that Tasimelteon can reset the body clock in patients with non-24. This represents the first time that a drug product candidate has shown body clock resetting properties in humans, and it may offer a new therapeutic arena for circadian regulating drug products. The SET and RESET studies are expected to be completed by year end, and we expect to file a new drug application by mid 2013.

Tasimelteon is also under evaluation in our MAGELLAN study for efficacy in major depressive disorder. This is a 500 patient study comparing the effects of Tasimelteon to placebo in the treatment of symptoms of major depression. It is well established in the scientific literature that one of the functions of the body clock is to control mood and affect. It is further believed that misalignment of the body clock with external daily cues may lead to a development of an affective syndrome. We believe that Tasimelteon's properties to reset the body clock make it a good candidate for this application. In the current study, we're characterizing a number of classical end points of mood and sleep as well as measuring properties of body clock alignment. The recruitment of the study is ongoing in approximately 40 sites in the US. We expect to report top-line results from the study in the first half of 2013.

I will now turn to Fanapt in the United States. Novartis has reported revenues of $16.2 million for the fourth quarter of 2011, bringing the full year 2011 revenues to $44.8 million. Fanapt prescriptions as reported by IMF reached 33,000 in the fourth quarter of 2011, which was approximately equal to the third quarter 2011. On a full-year basis, prescriptions have grown from approximately 55,000 in 2010 to over 120,000 in 2011.

On the research and development front, Novartis is conducting a number of clinical studies including a relapse prevention study in schizophrenia, a (inaudible) study from (inaudible), olanzapine or aripiprazole to (inaudible), a pharmaco-kinetic total ability study in adolescent patients, and a Phase II study of the once a month injectable formulation of [Alprazol]. The expected completion date of all of these studies are updated regularly by Novartis and can be found on clinicaltrials.gov. Outside the US, we continue to pursue registration through our partners in several Latin American countries and Israel. After the present evaluation of the regulatory environment, as well as the commercial opportunity in Singapore and Australia, we have no current plans to pursue registration in those countries.

The review of our marketing authorization application in Europe by EMA is continuing. We have received the initial list of comments from EMA, which among others include questions around the informativeness of the Alprazol long-term maintenance study. We have requested and have been granted a three-month extension of the review cycle in order to better prepare our responses to these questions. If the EMA does not accept the current long-term maintenance study, we may have to await the results of the ongoing study by Novartis, which is expected to be completed by the fourth quarter of 2013, before we can complete the EMA requirements. We will keep you informed of any significant progress at a future time.

I will now turn the call to Jim Kelly, our Chief Financial Officer, to discuss our financials for the fourth quarter and year ended December 31, 2011. Jim?

Thank you, Mihael.

During the full year 2011, Vanda recorded a net loss of $9.8 million, as compared to net income of $7.2 million for the full year 2010. On a diluted shares basis, this reflects a loss of $0.35 per share for the full year 2011, as compared to net income per share of $0.25 for the prior year.

Turning to our quarterly results, Vanda recorded a net loss of $5.5 million for the fourth quarter 2011, compared to net income of $2.2 million during the same period in 2010. On a diluted shares basis, this reflects a loss for the current quarter of $0.20 per share, as compared to net income of $0.08 per share for the fourth quarter of 2010. As of December 31, 2011, there were approximately 28.1 million shares of Vanda common stock outstanding.

Total revenue for the fourth quarter of 2011 was $8.4 million, compared to $7.8 million in the same period in 2010. In these periods, there were three sources of revenue. They are licensing revenue, royalty income, and grant revenue. The fourth quarter 2011 and 2010 revenue each included $6.8 million of licensing revenue related to the amortization of the upfront payment received from Novartis for US and Canadian commercial rights to Fanapt. Fourth quarter 2011 revenues included $1.6 million in Fanapt royalties received from Novartis as compared to approximately $500,000 for the fourth quarter of 2010.

During each period, Vanda recognized a 10% royalty on Novartis net sales. For fourth quarter 2010, revenue also included a $500,000 grant received under the IRS's therapeutic discovery project credit program. Total operating expenses for the fourth quarter 2011 were $14.3 million. Research and development costs of $10.6 million made up the majority of that spend for the fourth quarter of 2011. This compared to $3.8 million for R&D spent in the fourth quarter of 2010. The increase in R&D expenses over the prior year is the result of costs incurred in connection with the new and ongoing trials for Tasimelteon in non-24 and major depressive disorder. General and administrative expenses were $3.3 million for the fourth quarter of 2011, compared to $2.8 million in the fourth quarter of 2010. Vanda's cash, cash equivalents, and marketable securities as of December 31, 2011, totaled $167.9 million, a decrease of $12.6 million, since the end of the third quarter of 2011.

2012 financial guidance. Vanda will not be providing full-year 2012 financial guidance at this time, as the final total patient enrollment and timing of completion of the ongoing Tasimelteon clinical studies will impact our 2012 operating expenses. However, we do expect our 2012 operating expenses to exceed those of 2011. We will evaluate our ability to provide additional guidance as the year progresses, possibly as early as the earnings call for the first quarter results. I will now turn the call back to Mihael.

Thank you, Jim. At this time, we will be happy to address any of your questions.

(Operator Instructions) Our first question comes from the line of Lauren Gilmore with Morningstar. Please proceed.

I know we're still at least a year away from potential approval, but could you give us a sense of the firm's initial thoughts with regards to commercialization structure? Is Tasimelteon an asset the firm thinks it can market itself? And also how many providers are out there for non-24 hour disorder and what type of sales force would be necessary to reach these patients?

First of all, let me frame it a little bit, the question, and our Chief Commercial Officer, Bob Repella, will be able to make some comments as well. As you know, the initial application that we expect will be for the orphan indication of non-24. And as an orphan indication, it may require a completely rethought commercial strategy applicable to this indication. It is the intent of Vanda to commercialize the product ourselves for this indication. However, for the major depression indication, recently, that if successful in the future, and leading to an application and approval, that it is more likely for Vanda to concentrate on a specialty commercial strategy, while the applicability of promoting the primary care may be pursued through our partners. Having said that, I will turn it over to Bob to discuss further.

Sure. When we look at Tasimelteon for non-24, we see it as a significant opportunity as it relates to an orphan indication. As Mihael mentioned, we're talking about 65,000 to 95,000 potential patients who have a significant unmet medical need, and we anticipate that this could be the first product that would be a true circadian regulator, could reset the body clock, and align these patients' body clock with the 24-hour day/night cycle. Right now, our focus here is on building awareness, and educating patients, caregivers, health care professionals, about non-24, and the fact that it is truly a circadian regulation type of disorder.

We're working with the opinion leaders, advocacy organizations. We're also helping to support information dissemination by other platforms, like the internet, and as we move through the pre-launch process, we will make the determination as to the best way to commercialize the asset. We're looking at all different possibilities, whether a small sales force would be the right option, MSL is a potential possibility, and then of course, utilizing technology to ensure that we're reaching out to our target audience across all stake holders, to communicate effectively, and ensure that patients that can benefit from this product, from this disease, will realize the therapy.

Excellent. Thank you. That's really helpful. But just if you could give me a little bit of a better sense as to what type of providers treat the disorder, and how many of them are out there?

I think generally, we would characterize it as a pretty broad base of providers so when you look at blind patients, they don't concentrate generally among any specific physician specialty. They do have visits to certain specialists more frequently than others, like sleep specialists and in some instances, psychiatry as well, but for the most part they're seeing generalists, family practice doctors and internist's because they are also being managed for a variety of other conditions that go beyond their basic challenge of being blind.

Okay. I appreciate it.

And just to underscore that non-24 is a very serious disorder, leading to tremendous impairment with the patients. And our hope is that Tasimelteon will provide not just a circadian resetting, but actually eventually be proven to improve the functioning of these patients. And providing such a benefit will believe that will drive the commercial success and adaptation of the product.

Our next question comes from the line of Greg Savanna with Jefferies. Please proceed.

I jumped on late, so my apologies if my questions are slightly repetitive. But could you just provide an update on how enrollment in that Tasimelteon trial is going and timing on when we might be able to see data? And then the second question has to do with just your progress on ex-US initiatives with Synapse.

So first of all, on the Tasimelteon program, the two key efficacy studies are SET and RESET. The SET study aims to identify 100 patients with the disorder, and the RESET study is the one that aims to identify 20 patients that are responding to the drug. In the 100 patient SET study, what we said earlier is that we have identified approximately 75 patients which are either already randomized or eligible to be randomized in the study. We believe that we can get close to the 100-patient mark by mid year, and since this is approximately a six-month study, top line results could be reported by year end. The RESET study is (fared) by patients who also come from the main efficacy study. And since the aim is to identify about 20 patients, we also believe that the RESET study can actually enroll and report by end of year 2012.

All of this will be in time to allow us to file the NDA, as has been reported previously, by mid 2013. Just to remind everyone that the other study that is ongoing, the Phase II/III study with 500 patients with major depressive disorder is also ongoing. It is recruiting across 40 sites in the US, and it is expected to complete a report by the first half of 2013.

The second part of your question had to do with the rest of the world Fanapt. What we discussed earlier, Greg, is that we're pursuing registration in a number of Latin American countries, Argentina, Mexico, and also Israel through our partners in those countries. We have made the determination that the two applications in Singapore and Australia we will no longer pursue after we have fully evaluated both the regulatory environment, and also the size of the commercial opportunity and rather focus in the partnered countries as well as the pursuit of a European registration.

In Europe, the EMA review is ongoing. We have received a number of initial comments as expected. And one of them has to do with whether or not the Novartis original long-term maintenance study, which compares iloperidone and haloperidol, would be sufficient for the EMA requirements. So we have engaged in discussion. We plan to pursue this further with the Europeans. We have asked and have granted a three-month extension in order to prepare these answers. And what I said earlier in the call is that it is possible that EMA may not accept the older study as definitive for maintenance review. If it is so, then we would have to await the results of the ongoing maintenance study, which Novartis is running, which is the classic placebo randomization relapse prevention study.

That study is expected to report by Novartis sometime by the end of 2013. So if that's the case, there would be some delay with the European filing. Now, this could still be okay, because the protection in Europe is driven exclusively by the European 10-year data protection, so that clause starts by the time of the first approval in any formulation. So even though the European filing may be delayed, we don't believe that the commercial impact of this delay would be of any significance.

(Operator Instructions)

Thank you very much. Let us conclude this conference call. We of course thank you for your interest in and support for Vanda, and we look forward to speaking with you again soon. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. Everyone may now disconnect. And have a great day.