Vanda Pharmaceuticals Inc (VNDA) 2012 Q4 法說會逐字稿

Good day and welcome to the fourth-quarter 2012 Vanda Pharmaceuticals Inc. earnings conference call. My name is Kirsty and I will be your operator for today's call.

At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference is being recorded for replay purposes.

I'll now turn the call over to James Kelly, Senior Vice President and Chief Financial Officer. Please proceed sir.

Thank you. Good morning and thank you for joining us to discuss Vanda Pharmaceuticals' fourth-quarter and full-year 2012 performance. Our fourth-quarter and full-year 2012 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 this call will be available through March 14, 2013.

Joining me on today's call are Dr. Mihales Polymeropoulos, our President and CEO, 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 and the management team will update you on our ongoing activities. Then I will comment on our financial results for the fourth quarter and full year 2012 before opening the lines for your questions.

Before we proceed, I'd 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, goal, 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 and MD&A sections of our annual report on Form 10-K for the fiscal year ended December 31, 2011 and our subsequently filed quarterly reports on Form 10-Q which are available on the SEC's EDGAR system and 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. Mihales Polymeropoulos.

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

The past few months have been an exceptional time here at Vanda. The recent study results have affirmed our belief in Tasimelteon as a unique circadian regulator that can be a meaningful clinical benefit to blind individuals with Non-24-hour disorder. Filing an NDA and related Non-924 market development efforts are the primary focus for Vanda.

As a reminder, Non-24 is a serious, rare circadian rhythm disorder that affects the majority of totally blind individuals who lack light perception and cannot entrain and reset their master body clock to the 24-hour day. Currently, there is no approved treatment for Non-24.

In December 2012 and in January 2013, Vanda announced positive results for two Phase III studies for Tasimelteon in the treatment of Non-24. The SET Phase III study demonstrated that Tasimelteon was able to entrain the master body clock as measured by both the melatonin rhythm and the cortisol circadian rhythm.

Tasimelteon was also seen to significantly improve clinical symptoms across a number of sleep and wake parameters, including measures of total sleep time, nap duration, and timing of sleep. We believe that these results provide robust evidence of a direct and clinically meaningful benefit to patients with Non-24. The RESET Phase III study demonstrated the maintenance effect of Tasimelteon to entrain melatonin and cortisol circadian rhythms in individuals with Non-24. Patients treated with Tasimelteon maintained their clinical benefits while patients receiving placebo showed significant deterioration in measures of nighttime sleep, daytime naps, as well as timing of sleep.

During the study, Tasimelteon was demonstrated to be safe and well tolerated. Vanda plans to meet with the FDA in the first quarter of 2013 for a pre-NDA meeting on Tasimelteon for the treatment of Non-24. And we plan to submit a new drug application, NDA, to the FDA by mid-2013.

Vanda has recently decided to discontinue all activities related to the major depressive disorder, MDD, indication. In January, we announced that the Magellan Phase IIb/III clinical study in major depressive disorder did not meet the primary endpoint of a change from baseline in the Hamilton Depression scale (HAMD-17) after eight weeks of treatment as compared to placebo. These results are disappointing as there is still a significant unmet medical need for patients with MDD.

In the Magellan study, Tasimelteon was shown to be safe and well tolerated, consistent with observations in prior studies. During January of 2013, Vanda formally appealed the EMEA's negative opinion for Fanapt. That is the oral Iloperidone tablets for the treatment of schizophrenia and requested the re-examination of the decision by the European EMA's committee for medicinal products, CHMP. In December 2012, the CHMP had issued a negative opinion recommending against approval of Fanapt for the treatment of schizophrenia in adults in the EU. While we are disappointed with the initial EMEA decision, we continue to be confident with the value that Fanapt can provide for patients with schizophrenia through the good efficacy profile and the differentiated favorable side effects profile in movement and metabolic parameters.

I will now turn the call to our Chief Commercial Officer, Bob Repella, who will provide an update on our market development efforts in support of Tasimelteon for the treatment of patients with Non-24.

Thanks. During the fourth quarter of 2012 and the early part of 2013, the Vanda commercial team continued to make significant progress in our preparation for the potential launch of Tasimelteon to treat Non-24-hour disorder. Our prelaunch efforts continue to focus on a number of key initiatives with our primary emphasis being to increase the awareness and understanding of Non-24 as a circadian rhythm disorder among members of the blind community. We believe that by focusing first and foremost on patient education, we can help the blind community better understand the direct link that exists between total blindness and Non-24 and that those individuals impacted by Non-24 have a circadian rhythm disorder resulting from specific hormones such as melatonin and cortisol being released at times that do not align with the day-night cycle which makes Non-24 different from other conditions such as primary insomnia. And maybe most importantly, help individuals recognize the debilitating clinical symptoms that Non-24 patients may struggle with day in and day out, year after year. This educational effort will continue to be a core focus at Vanda up to and through the launch of Tasimelteon for Non-24.

While we recognize a large knowledge gap exists in the marketplace today, we are confident in our ability to educate the blind community along with advocacy and support organizations, and we are pleased with our progress to date, including the increasing number of individuals that have opted into our database and registry via Non-24.com to receive ongoing educational programming. Through increase knowledge and understanding, blind individuals will be better prepared to initiate a dialogue with a healthcare provider about Non-24 and advocate on their own behalf. We are also encouraged by the growing number of patient ambassadors which represent those blind individuals that are willing to share their story about Non-24 with others, including the impact it has had on their lives and their ability to function.

A second key initiative for the commercial team is ensuring that Tasimelteon is accurately characterized as a circadian regulator based on its demonstrated ability to reset the master body clock and synchronize both the melatonin and cortisol circadian rhythms to the 24-hour day-night cycle. The results from the SET and RESET studies clearly validate the ability of Tasimelteon to synchronize circadian rhythms, resulting in significant clinical benefits such as improved nighttime sleep, a reduction in daytime naps, and other clinical benefits for patients with Non-24. We believe this unique product profile, based on the pivotal trial data, will result in the FDA approving Tasimelteon as the first circadian regulator, which allows Tasimelteon to occupy an exclusive position in the marketplace, in the minds of patients and healthcare professionals, and on the formularies of commercial payors, Medicare Advantage plans and PDPs.

In conjunction with this strong reimbursement position in managed markets, we plan to wrap a comprehensive set of support programs around Tasimelteon with the goal of providing a concierge type of service to the blind community. It makes accessing, initiating, and continuing Tasimelteon therapy a seamless process.

Evaluation and planning is underway for a number of potential components, including benefits verification services, access to nurse educators, copay assistance, transportation services, foundation support and compliance for minors, along with the availability of a national referral network of specialists with specific training in chronobiology and circadian rhythm disorders.

As you can see, our go-to-market strategy is a patient-centric model that will combine comprehensive educational programming with appropriate support initiatives for the blind community. This will be accomplished in a targeted, efficient and cost effective manner, making the Non-24 indication for Tasimelteon a significant standalone commercial opportunity for Vanda.

I will now turn the call over to Jim Kelly, our Chief Financial Officer, to discuss our financial results for the fourth quarter.

Thank you. During the full year 2012, Vanda recorded a net loss of $27.7 million as compared to a net loss of $9.8 million for the full year 2011. On a diluted shares basis, this reflects a loss of $0.98 per share for the full year 2012 as compared to a net loss per share of $0.35 for the prior year.

Turning to our quarterly results, Vanda recorded a net loss of $6.4 million for the fourth quarter of 2012 compared to a net loss of $5.5 million during the same period in 2011. On a diluted shares basis, this reflects a loss for the current quarter of $0.23 per share as compared to a net loss of $0.20 per share for the fourth quarter of 2011. As of December, 31, 2011, there were approximately 28.2 million shares of Vanda common stock outstanding.

Total revenue for the fourth quarter of 2012 was $7.9 million compared to $8.4 million in the same period in 2011. In these periods, there were two sources of revenue. They are licensing revenue and royalty income. For the fourth quarter 2012 and '11, 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 2012 revenues included $1.2 million in Fanapt royalties received from Novartis as compared to $1.6 million for the fourth quarter of 2011. During each period, Vanda recognized a 10% royalty on Novartis net sales of Fanapt.

Fanapt prescriptions, as reported by IMS, were approximately 38,200 for the fourth quarter of 2012. This represents a 1% decrease versus third-quarter 2012 prescriptions and a 13% increase over fourth-quarter 2011 prescriptions.

Total operating expenses for the fourth quarter of 2012 were $14.3 million. Research and development costs of $10.6 million made up the majority of that spend for the fourth quarter of 2012. This was equal to the $10.6 million for R&D spent in the fourth quarter of 2011. In each period, the costs were primarily related to the ongoing trials for Tasimelteon in Non-24 in major depressive disorder.

General and administrative expenses were $3.2 million for the fourth quarter of 2012 compared to $3.3 million for the fourth quarter of 2011. Vanda's cash, cash equivalent and marketable securities as of December 31, 2012 totaled $120.4 million, a decrease of $14 million since the end of the third quarter of 2012. The full-year 2012 change in cash of $47.5 million is consistent with our guidance for 2012 of $45 million to $50 million.

While Vanda will not be providing full-year 2013 financial guidance at this time, we will evaluate our ability to do so and provide additional financial 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 Mihales.

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

(Operator Instructions). Jason Butler, JMP Securities.

Thanks for taking the questions. Just wanted to talk about your commercial preparedness efforts. You talked about the effort to educate patients and also the knowledge gap. Can you talk about what the perspective of patients who are aware and who are not aware is? And for those who are not aware, is this because they don't think that their symptoms -- they don't recognize the symptoms or they don't have a view that the symptoms have a meaningful impact on their lives?

Good morning Jason. And I will frame a little bit the answer and I'll pass it on to Bob for more insight.

The lack of awareness is part of two things. One is the absence of treatment, and two, that physicians and patients alike are not trained to recognize the symptoms of this rare in the population circadian disorder. So although it is well described in the literature, I have to remind everybody the disorder was first described in the '70s, so not very long ago. And in the absence of our treatment, there has been very little attention to differentiate the symptoms of the disorder from disorders of sleep-and-wake cycle that are unspecified. I would like Bob to tell you a little bit on the basin perspective.

So we've been holding focus groups with totally blind individuals on a regular basis, and the feedback that we get from them is clearly the majority of those individuals that are totally blind struggle with sleepless nights and daytime napping, but what stands out most is that they don't make initially the direct link between total blindness and Non-24 and the symptoms that they're struggling with. And once you kind of walk them through that direct link of being totally blind, not having light perception, and the impact it has on their circadian rhythms and downstream how that affects their nighttime sleep and their daytime napping patterns, the light bulb goes on in that sense and many of them will just communicate that, hey, I feel I may have that or I think that could be me. Because in the blind community, oftentimes people will speak out pretty verbally and aggressively in a forum like a focus group. That's just a normal environment interaction. So, we've been very encouraged by the discussions and the reaction that we've gotten from patients because the symptoms they are struggling with, and when you kind of walk them through the direct link, they realize very quickly this could be them, and then they want to follow up and understand more.

Great, thanks Bob. Then just a question for Jim on the spending in 2013. I understand you're not giving formal guidance yet, but could you maybe talk, at least in terms of trends, how you expect spending to progress throughout the year given that you finished the pivotal trials but you still have some extension studies and you're also preparing to file an NDA?

Certainly. You're right, we are going to give some more formal guidance; we're talking about next quarter. But the way I think people should look at it now is they should expect that with the conclusion of studies at the end of last year into January, you'll see a downtick year-over-year on the R&D front. But as what you've also heard on this call is we are beginning to initiate the commercial spend in support of some of the market development and launch preparations. And so it's really going to be a downtick on one side and then a call it intelligently gated uptick on the other.

Great, thank you very much.

Josh Schimmer, Lazard Capital Markets.

Thanks for taking my question. Bob, I'm wondering if you can give me any color in terms of how many patients have signed up for the registry on Non-24.com, and if you wouldn't mind elaborating on specifically which patient advocacy and support organizations you're able to tap into? What percent of the no light perception patients in the country do you feel as though you're going to be able to access over the course of this year and next? Thanks.

I will take on the first part, the registry. And Bob can address more the question of outfits and the advocacy groups.

The registry was conceived and developed to support equipment in the clinical studies. So the majority of the activity of that registry was between the years of 2010 and mid-2012. In that registry, we had approximately something between 1500 and 2000 people, the majority of them totally blind, which failed eventually the clinical studies.

Now, the vision is to increase the numbers of the registry and develop a patient database for the purposes of the commercial awareness effort which eventually will feed the funnel of patients into the commercial launch. I'll let Bob answer the back end of the question.

Thanks. So, right, so we are looking at two components, database and registry. As Mihales described, the registry is already in place going back to the clinical trials. The database is a bit more broad and certainly could be totally blind individuals, but it could be family members, friends, caregivers, because we want to reach out and educate all stakeholders in the community. And we are using a variety of different platforms to populate the database, like Non-24.com, and will continue to expand efforts in that regard with other kinds of direct response programs in the future. And we'll certainly update you on those as we build them out and expand them.

With respect to the advocacy organizations, we are working closely with all of the key advocacy organizations, whether it's NFB, AFB, ACB, NIV. I mean, we are engaged with all of them. We're working with them to communicate to their members and constituents. You get different estimates in terms of what percentage of the totally blind or legally blind community are members of these organizations. Some people estimate in the single digits; others estimate 20% or more. So it's really hard to characterize that specifically. We've gotten a pretty broad range and certainly we are trying to refine that number a bit better. But that's what we've received in terms of feedback from them.

What's the strategy for getting the other 80% of patients who wouldn't be in those advocacy groups?

Excellent question, and I think it ties right back to what I mentioned during the prepared remarks, that it's a patient centric focus, and everything that we are doing is to drive individuals to become more educated and aware, whether it's through our non-branded website and eventually branded website, social media sites, direct response campaigns, whether it's radio, print and so forth, as we move forward. So, it's really about getting people engaged in a meaningful way.

And I think I mentioned this previously, but one of the things that you find about the blind community is they're very tech savvy. So when we are at the state organization meetings, when we've been at the national meetings for HCB and NFB, what you find is the vast majority of exhibitors are tech companies. And the blind community is dialed in and savvy when it comes to using iPads and other mechanisms, (inaudible) readers, so they are on the Internet as much if not more than you and I. And so information is flowing out there. They are accessing and they are reading and they are comprehending and then asking additional questions and we're going to be there connected to them to make sure they understand Non-24 and the benefits potentially that Tasimelteon will offer to them in the future.

Just to summarize this, we are mindful that the advocacy of engagements for the blind represent directly only a small slice of the patient groups that can benefit from Tasimelteon in Non-24. Therefore our campaign is informed by the advocacy groups, but certainly it's focusing on that 80% other that requires a lot more groundwork.

And there are other mechanisms and entities that we are engaged with to try and get to that other percent, whether it's rehab organizations, vision services and other ancillary groups that engage with the blind community, which is -- may or may not be those individuals, may or may not be included in the NFB or AFB. So there's a lot of different points of entry, and we are tapping into all of them because of the importance of making sure that these individuals have the opportunity to get educated about Non-24.

Got it. Thank you.

Corey Davis, Jefferies.

Hi guys. It's Oren Livnat on for Corey. I had a few questions actually. I am curious. How long has the FDA now been in possession of the SET data? I assume that obviously RESET is much shorter, but going into this I guess later Q1 pre-NDA meeting, do you think that they've had more time to crunch that SET data than the last time we spoke? And have you had any -- can you characterize the dialogue you've had with some sort of heading into this meeting? Do you think you know what points of clarification or concern they might have as you head into this meeting?

Good morning. So for the FDA, when they had the SET data, what did they have, what could they have done? We, upon their request, gave them the topline SET data that all of you already have through our press release in order for them to assess whether or not they will grant the pre-NDA meeting. So the format that the division follows is that the grant pre-NDA meetings, when they are confident that a first efficacy study at least has shown efficacy that may support an NDA application, because they don't want to waste their time given pre-NDA meetings to people who's drugs have failed. So, we have to assume, since they granted us a pre-NDA meeting after they reviewed these topline data, that it satisfied their efficacy indication requirements for granting a pre-NDA meeting. Of course, that does not mean that we have any certainty on filing, because that determination will be made only after submission in the first 60 days after submission of an NDA.

Now you ask what we may think in a pre-NDA meeting that will be points of clarification? I just want to clarify for everybody that the pre-NDA meeting is something that we requested, so we actually have formulated the questions that we want to ask from the FDA. All these questions have to do with content and format. And the content is quantitative content and not qualitative. The qualitative content on efficacy and safety is typically done during the review period. And in fact, between submission and filing, they look whether all the boxes have been checked that would allow that review.

So the expectation for the pre-NDA meeting is that while certainly there will be some discussion around the efficacy content and presentation, it is unlikely that it will become a review discussion of the quality and adequacy of the efficacy and the resulting claims. So, we see the pre-NDA meeting for what is it usually is, a checkbox and content. And of course all of us are focused on efficacy appropriately, but for the FDA point of view, the pre-NDA meeting extends to questions of the safety database and the adequacy of that. The preclinical and the advocacy of that, which includes toxicology customers in Phase III studies, etc., and then an array of clinical pharmacology studies, including drug-drug interaction studies, etc. And I want to remind everyone that the manufacturing meeting pre-NDA meeting has preceded this pre-NDA meeting that was back in the fall.

All right. And if you don't mind me continuing, I know you don't want to get ahead of yourselves, but in theory, if all goes well, I guess we are not really actually that far away time wise from markets. I'm just wondering if you've had any refinement in your thinking about pricing. I don't know if you could give us a specific number but sort of in the grand spectrum of orphan drug pricing, do you have an idea of sort of the daily or annual cost bucket you think you put yourself in?

We are not ready to discuss this, but we are doing a lot of work in research. But the headline is given the strength of the data in both Phase III studies and the resultant direct clinical meaningful effect, I think we are going to be in a strong position to negotiate premium pricing consistent with other successful orphan brands in similar space.

Thanks, I'll jump back in.

Lauren Migliore, Morningstar.

Good morning everyone. With Tasimelteon's plans in MDD now off the table, does the Firm have any plans to pursue any type of partnering arrangements at this time, or is that aimed at the go it alone for Tasimelteon in the near term?

Good morning. So MDD, as we said, has terminated as a program, so no additional clinical studies, etc., there. We are confident that the Non-24 indication is an indication that will be best pursued by Vanda alone. So at this time, we will not be actively pursuing any partnership for the Non-24 indication.

Okay, thank you.

Corey Davis.

It's Oren again. Just curious on the reimbursement front, do you have any reason at this stage to believe that you would face any kind of quirky hurdles for the reimbursement side with regards to, I don't know, establishing a formal Non-24 I guess disease state in the patient? Obviously you believe your label is going to be pretty general for Non-24 circadian rhythm disorder or something along the lines. Do you think a doctor is going to need sleep data for sleep lab data, for example, to establish that this patient is a good candidate?

I'll pass this question on to Bob. There are two components to it -- the mechanics of classifying drugs for the purpose of reimbursement, and then how does this reimbursement work once this charge code is in. So Bob?

I think there's a couple of things. When you look at the prevalence of Non-24 among individuals that are totally blind with a sleep complaint, you know you're in the range of 70%. So I think that as physicians see patients and understand Non-24, the likelihood of them having a challenge with a payor in terms of diagnosis is pretty minimal. And we are working on a variety of tools and instruments that might be able to assist them in quickly screening patients that are totally blind with respect to their challenge of sleeping at night or napping during the day.

The other area that's important is of course being characterized as a circadian regulator, which will put us in a unique space in terms of the marketplace, which we think will not only help differentiate us from competitors, but also make us a unique offering to payors in terms of how they position us on formularies. So between the data that's available for Tasimelteon being characterized as a circadian regulator, the debilitating nature of the disorder, the fact that there is nothing available for these individuals today, and that it's a disabled population, we believe payors will be very willing to provide Tasimelteon to patients with Non-24.

Could you just remind us, are you planning to do -- I think you're planning to do a specialized centralized distributorship -- I don't know if that's a word -- model similar to maybe what Xyrem is doing. Obviously for different reasons, it is not going to be a highly controlled substance, I imagine, but with regards to sort of centralizing the reimbursement help and patient interaction?

Sure. So, we are looking at a variety of different platforms and again, talking to the blind community in a variety of different forums and focus groups to understand what they prefer. I'm thinking right now we have specialty pharmacy having a number of entities handling Tasimelteon, and this will make it easier to wrap around the concierge services that I described earlier such that we can support individuals through a variety of different programs, whether it's benefits verification or compliance and so on.

I think, if you look in the marketplace, there's examples of other products, whether it's Xyrem or others that have done a good job in terms of how they have distributed their product. So we are looking at whole host of different examples to reference, and then kind of blending that in with the feedback that we get from our advocacy organizations and patients themselves. So, I think, when we take that all together, we will have a platform that really makes it seamless and easy for individuals to access Tas and make sure that they continue it on a chronic basis.

Thanks a lot.

We have no further questions queuing for you. I'd now like to turn the call over to Dr. Mihales Polymeropoulos. Please go ahead for closing remarks.

Thank you. Let us conclude this conference call. We thank you very much for your interest and support for Vanda and 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. Good day.