Vanda Pharmaceuticals Inc (VNDA) 2013 Q3 法說會逐字稿

Welcome to the Q3 2013 Vanda Pharmaceuticals, Inc. earnings conference call. My name is Vivian and I will be your operator for today's call. (Operator Instructions). Please note that this conference is being recorded.

I would now like to turn the call over to Mr. Jim Kelly, Senior Vice President and Chief Financial Advisor. Mr. Kelly, you may begin.

Thank you, Vivian. Good morning and thank you for joining us to discuss Vanda Pharmaceuticals' third-quarter 2013 performance. Our third quarter 2013 results were released this morning, and are available on the SEC's EDGAR system and on our website. 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 November 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 Dr. Paolo Baroldi, our Senior Vice President and Chief Medical Officer. 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 third quarter of 2013 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. 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 management discussion and analysis of financial conditions and results of operations sections of our Annual Report on Form 10-K for the fiscal year ended December 30, 2012; and our subsequently filed quarterly reports on Form 10-Q, which are available on the SEC 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. Mihales Polymeropoulos.

Thank you, Jim. Before I start, it is important to clarify for everybody that Jim Kelly is still our Chief Financial Officer, and not Advisor, as he was introduced. So, it's all good.

Good morning, everyone, and thank you very much for joining us. Over the last quarter, our organization has been focused on two key activities -- the FDA review of tasimelteon, brand name HETLIOZ, for Non-24; and the commercial preparations for launch. On the regulatory front, we will not give any incremental updates to characterize the FDA review progress.

However, the priority review is ongoing, and is on schedule according to the PDUFA-V timeline. And, as you all know, an Advisory Committee meeting is scheduled for next week, November 14, to discuss our application. We believe that our work over the last 10 years has led to a complete characterization of tasimelteon and its utility in treating patients with Non-24. Our two pivotal efficacy studies do allow the conclusion that tasimelteon is an efficacious agent that addresses the circadian misalignment in Non-24, and delivers meaningful, clinical benefits to the patients.

In addition, our safety database allows the conclusion that tasimelteon's safety profile is also well-characterized, demonstrating an agent that is well-tolerated and suited for chronic use.

We also believe that our continued discussions with the FDA over the last few years, and during this review, will result in an informed and thoughtful assessment of our application that has the potential to advance both the science of circadian rhythm disorders, as well as deliver a therapeutic for this debilitating disorder.

HETLIOZ, if approved, would become the first agent to treat Non-24 in more than 60 years, since the disorder was first described by Dr. Remier in Germany in 1948. For the thousands of blind patients with Non-24, HETLIOZ may offer, for the first time in their lives, the ability to live in sync with a 24-hour world; and, therefore, fully enjoy the opportunities of education, employment, and social interactions in our 24-hour society.

I will now turn to Bob Repella, our Chief Commercial Officer, who will brief you on our commercial preparations for launch. Bob?

Thanks, Mihales. I'd like to take a few minutes this morning to provide you with a brief update on both our market development activities and launch preparation for HETLIOZ in Non-24. During the third quarter, we continued our efforts, focused on disorder awareness and education through both direct and indirect channels. These engagements emphasize the direct link between blindness and Non-24; the high prevalence of the disorder among the totally blind; and that Non-24 is a circadian rhythm misalignment which results in disruptive nighttime sleep, daytime sleep episodes, and compromised occupational and social functioning.

As part of our communication efforts, in late September we initiated a direct response radio campaign as a pilot program in five cities across the U.S. This program has been very successful at aiding awareness and understanding of the disorder, as measured by a variety of qualitative and quantitative metrics. As a result of this early success, we recently expanded the radio campaign to additional cities, and we are presently evaluating a targeted national program.

Turning to our launch preparation efforts, we have made significant progress across all key areas, including marketing, sales, managed markets, and trade. I would like to highlight a few examples. To date, we have conducted a wide variety of primary research projects with healthcare professionals, consumers, and payers. These projects continue to provide us with significant insight into a number of key areas, including brand positioning and messaging, pricing and reimbursement, and patient support programs and services.

Of particular importance are the discussions we are having with payers regarding access and reimbursement for HETLIOZ. Most payers anticipate that HETLIOZ will be premium priced, being a product for a serious orphan condition with no other FDA-approved therapies. We expect, with the appropriate out-of-pocket mitigation and patient assistance programs in place, HETLIOZ will be readily assessable by members of the blindness community.

Another important area of activity is our effort to organize a referral network of physicians, with specific expertise in circadian rhythm disorders and Non-24. This initiative is a collaborative effort guided and directed by opinion leaders in the field of chronobiology, professional medical societies, and advocacy organizations, and supported by Vanda. The goal of this network is to identify physicians with specific interest in treating totally blind patients with Non-24, thereby ensuring efficient and high-quality care.

Finally, I would like to comment on the staffing of our commercial team. At this time, all key leadership positions are filled across marketing, sales, managed markets, and trade. And our current focus is the buildout of the direct customer-facing teams across all groups. In summary, the commercial team is well positioned and continues to prepare for the potential launch in 2014 of HETLIOZ for the treatment of Non-24 in the totally blind.

I'd now like to turn the call over to Jim Kelly, our Chief Financial Officer, to discuss our financial results for the third quarter.

Thank you, Bob. During the third quarter of 2013, Vanda recorded a net loss of $5.4 million, as compared to a net loss of $5.3 million for the third quarter of 2012. On a diluted shares basis, this reflects a net loss of $0.17 per share for the third quarter of 2013, as compared to a net loss per share of $0.19 for the prior year. Total revenues for the third quarter of 2013 were $8.7 million, as compared to $8.3 million for the third quarter of 2012.

In these periods, there were two sources of revenue -- they are licensing revenue and royalty income. Third-quarter 2013 and 2012 revenues each included $6.7 million of licensing revenue related to the amortization of the upfront payment received from Novartis for US and Canadian commercial rights to Fanapt. Third-quarter 2013 revenues included $2 million in Fanapt royalties received from Novartis, as compared to $1.5 million in the same period in the prior year. During each period, Vanda recognized a 10% royalty on Novartis net sales of Fanapt.

US Fanapt prescriptions, as reported by IMS, were approximately 43,600 for the third quarter of 2013. This represents a 13% increase over third-quarter 2012 prescriptions, and a 5% increase versus the second quarter of 2013.

Total operating expenses for the third quarter 2013 were $14.1 million, compared to $13.7 million in the third quarter of 2012. Research and development costs of $8 million in the third quarter of 2013 include $3.5 million in milestones associated with the FDA acceptance of the tasimelteon filing. This compares to $10.2 million in R&D spent in the third quarter of 2012. Excluding the impact of the one-time milestone, the current quarter R&D cost reflects a $5.6 million decrease versus the prior year.

The primary reason for the lower expenses in the third quarter of 2013 was the completion of the tasimelteon Non-24 and Major Depressive Disorder efficacy studies. The speed of the resulting decline in R&D expenses has exceeded our expectations, and we believe this positions us well as we transition towards becoming a commercial-stage company.

General and administrative expenses were $5.7 million for the third quarter of 2013, compared to $3.1 million in the third quarter of 2012. The increase of $2.6 million in the current quarter is reflective of the ongoing preparations for a potential tasimelteon commercial launch in the United States.

On August 7, 2013, Vanda completed the public offering of approximately 4.7 million shares of common stock, resulting in net proceeds of $48.6 million dollars. Vanda's cash, cash equivalents, and marketable securities -- which I will refer to as Cash -- as of September 30, 2013, totaled $142.2 million. Also as of September 30, 2013, there were approximately 33.2 million shares of Vanda common stock outstanding.

Vanda is providing the following financial guidance for the full-year 2013. 2013 expenses are expected to reflect lower research and development spending as compared to 2012, and an increase in commercial spending. Reflecting the recent public offering and year-to-date expenditures, Vanda now expects that it will end the year with between $130 million and $135 million in Cash. Total 2013 operating expenses are expected to be between $50 million and $55 million, and the decrease in Cash, excluding the impact of the recent public offering, is expected to be between $35 million and $40 million.

I will now turn the call back to Mihales.

Thank you, Jim. And before we proceed with our Q&A, just to make a process remark -- given our proximity to the Advisory Committee of November 14, and all the information that comes with that, including the briefing books by Vanda and the FDA, which we understand will become publicly available about 48 hours prior to the November 14 meeting -- it would not be appropriate for us to address any questions to comment on the data, the interactions with the FDA, and the probability of outcomes. So, while we'll take questions, please try to limit your questions in items that do not address directly the Advisory Committee. So, with that, we'll open the line for questions.

(Operator Instructions). Charles Duncan, Piper Jaffray.

Good morning, Mihales, Bob, and Jim. Thanks for taking my questions. I wanted to ask you a little bit about that awareness campaign to see if I could get some additional color. Bob, you mentioned that it was a radio campaign in five cities or so, and you suggested that more could be coming. Could you give us a sense of numbers and actual locations, and perhaps timing?

Yes. Bob will go ahead. Clearly, Charles, you understand we're not going to give any numbers. This is a pilot. But we can characterize its geography, since many of you actually have listened to this radio ad. But maybe it is important to characterize, what are we trying to accomplish? What do the ads look like, for those of you that have not listened to them.

Bob?

Sure. So we continue to try and identify the most effective ways to connect with the blind community. And we have listened to our advisors; we have listened to the groups that we have interfaced with, and our ambassadors; and, clearly, they've suggested radio. We have looked clearly at where the blind population tends to aggregate in terms of density. I will give you a couple of examples of cities that were in the initial pilot -- St. Louis; Baltimore; Atlanta; Portland, Oregon. And of course, as I mentioned, we continue to expand from there.

We're very pleased. We've looked at qualitative and quantitative metrics, as I mentioned, everything from visits to our website, the time spent on the website, to opt into the database, and, clearly, the results so far have been positive.

And, Bob, I understand that there's never been a drug for Non-24 in the past, but are you anticipating a challenge in identifying patients or awareness? Or has the response been pretty robust and pretty well understood by at least the thought leader community and the advocacy community?

I'll let Bob characterize the last part, but let's talk a little bit about numbers and expectations. We know that by all metrics and research we have done that there are approximately 80,000 blind people in the U.S. with Non-24. But we are also aware that awareness of the disorder itself, among the blind community and among physicians who treat them, is low. So what should we expect here? We should expect that an efficacious agent like HETLIOZ will certainly provide benefit to these thousands of patients with the disorder.

But we should also not underestimate the degree of effort that we have to put forward to create awareness. So, as we're all thinking about the prospects of commercial success that we are very confident in, is that awareness is going to become a pillar of a successful commercial strategy.

On the second part of your question, you're asking advocacy organizations, thought leaders, how are they thinking about the drug and what it has to offer.

And for that, I'll ask Bob to comment.

Sure. I would just say in terms of our strategy, it's really no stone unturned in terms of connecting with the blindness community. As I have mentioned before, we go at it from both a direct and an indirect type of approach. The radio campaign is a great direct example. Kate Holland and her team are basically embedded within the blind community at all different types of programs, in terms of direct connectivity.

Indirectly, I had characterized previously some of the work that we've done with education and rehab entities, or even the ocularists' society, ASO. Which is a great example, because their meeting is coming up, their annual meeting, in the next few weeks, and certainly we will be active at that session. So we are covering the waterfront in terms of making sure that awareness and education amongst the blindness community is strong with regard to Non-24.

And then my last question is, if you could just update us on your thoughts as to, call it, the size of the commercial infrastructure, given that you mentioned that referral network. It seems like you could get some good traction with leveraging that. But what are the number of guys that you think that you'll need to hire if HETLIOZ is approved and you launch it?

Sure. We look at this opportunity as one that can be very productive and efficient, simultaneously. And I think, in the past when we have talked, generally the characterization I provided is when you look at medical affairs and commercial, approximately 50 or so individuals. When you look at our account sales team, our medical science liaisons in the field, and then our in-house staff with respect to brand marketing and medical affairs as well.

So, when we contemplate covering the network, and all the other programs and activities we need to put in place, we think that is an appropriate number for us to effectively launch the product, and have a significant impact in the market.

Thanks, Bob, for the added color.

Jason Butler, JMP Securities.

Hello. Thanks for taking the question. Just a quick one on -- assuming a positive outcome for the panel and approval, how quickly do you think the drug could be available for patients?

So, with the Advisory Committee on schedule on November 14, the PDUFA is scheduled for January 31. That would mean that we are ready to go at the beginning of February. But, of course, there is a lag of a couple of months before you have all your materials, labels, et cetera. So, with an approval on schedule on January 31, it is likely we would be ready to be on the market sometime in April/May of next year.

Okay, great. And then did you expect to have reimbursement in place at the time of launch? Or is that something that's going to take some period of time to fully come aboard?

Right. I'll just make a general comment, and then Bob can explain what we're doing on that front. Our major effort is about access of the drug to patients. We want to make sure that every blind person that needs the drug will be able to get it. And, therefore, there are two activities that we engage in and Bob can describe. One is the payer side in reimbursement, and the other one is patient assistance.

Bob?

Sure. So, we've spent a lot of time with payers, whether it's in focus groups or one-on-one for in-depth interviews and educational interactions. And we are very encouraged by the dialogue and the feedback that we've gotten for HETLIOZ in Non-24. Like all launches, there's going to be that initial period of time where it has to be put into the system, and potentially go to P&T. So, while we expect that we will gain reimbursement upon launch in those plans, there's a little bit of time lag until it seamlessly flows through those health plans. But, overall, we do not anticipate issues, and we think that access and reimbursement will be readily available for the blind community.

Bob, just to follow up on your comment about P&T committees there. Do you expect -- or is there a potential addressable patient population in an in-patient setting here, either in a long-term care facility or something similar that you're thinking about focusing on?

We haven't spent a lot of time, honestly, when it comes to the long-term care segment. And we think that most of our patient population will be either commercial or Part D Medicare in terms of their reimbursement. And then just going back to what was mentioned earlier around co-pay support, we will have that in place for commercial insured individuals. In addition, we will have the appropriate foundation support, as well, to make sure that anyone that's Medicare Part D also has an opportunity to mitigate their out-of-pocket costs. And we know that, in the blindness community, there is a higher percentage of individuals that have Medicare because of their ability to qualify for Social Security Disability Insurance, even if they are under the age of 65.

Great.

Yes, Jason, in some areas the expectation, to be clear, is reimbursement at launch will be present. And a seamless process with commercial and government plans alike should occur very soon.

Great. That's helpful. Thanks, Mihales, and looking forward to next week.

Sure.

Oren Livnat, Jefferies.

Hello. Thanks for taking the question, guys. I know you're going to yell at me, but I'm going to ask anyways -- something about the Ad Com coming up. Obviously you can't comment on the review, but I'm curious if you are willing to comment at all about what sort of issues you've been preparing for as most likely? I don't want to say contentious but the area that you think will most likely have some education or confusion on the panel that you'd be prepared to address most thoroughly.

As you were speaking, Oren, I could not resist thinking to list five issues and start going through them. But I don't have any, and neither would I tell you if I did. So, let's actually try to answer your question. It's a very important question. The way that we are preparing is to ensure that the Advisory Committee has all the necessary information and appreciation of the intricacies of this disorder, the endpoints, and the benefits that tasimelteon has been shown to have for patients.

At the end of the day, when the committee votes, we believe that an informed committee will be our best ally. So, this is exactly the significant effort we have undertaking during our preparation. Our briefing book will demonstrate that as well. And hopefully our presentation and Q&A will demonstrate our efforts to educate the committee in this new disorder -- admittedly, for everyone -- in front of the FDA.

So, while the disorder is known for 60 years, awareness is low. And never has there been a sponsor that has brought a drug before the FDA or any regulatory agency in the world. And, therefore, it is imperative that being first, Vanda will have actually historic responsibility to do it right; inform the committee; and have a thoughtful discussion.

I appreciate that. Talking about OpEx, you lowered your cash burn guidance I think a solid $10 million for the year, and I'm just curious -- you mentioned lower R&D, and that was apparent in the quarter. But have there been any changes to the timing or the speed of pre-commercials ramp spending that you've had since last quarter?

So, first of all, I would never complain about lowering our cash spend for the year, but here it is. As you know, historically Vanda and its management team has been extremely prudent with cash over the last 10 years of the existence of the Company. And, therefore, what we have done here is a very thoughtfully decreased the R&D spend and focused all our spend on commercial efforts. Now, the commercial efforts themselves, you should expect that they're going to have changes in the rate of how we spend as we understand the best return on investment in the different programs.

So, as Bob mentioned, there's several programs he highlighted; one of them, the radio campaign in piloting. Once some of these things are shown to be very strong on the ROI, you will see the spend increasing. So we believe that this reduction of our $10 million in Cash puts us in an exceptionally good position to thoughtfully and efficiently spend for the commercials campaign. There has been no decrease in the speed by which we prepare for the commercial launch.

All right. If I may, just one more. You speak to the educational and awareness efforts that will be necessary, certainly, to build this market, and also the strategy of a referral network and how you see a lot of leverage there. I'm just curious, aside from the bigger penetration potential -- just early on, at the very outset, can you comment on maybe what sort of pent-up demand you think is already there with coming out of your trials. You obviously have a large patient registry, and a database that's accumulated. So, I'm just curious, out of the gates, aside from reimbursement hurdles that may or may not exist, how much patient demand do you think could be there? And what sort of doctors do you have in place already, or referred doctors, to deal with that demand?

No, we're not going to give any numbers now. But we are aligned with every circle that has interest here. But we need to have this pre-launch awareness campaign. So, when the drug becomes available in 2014, a number of patients will be ready to go to the referral network. But what is important is, as we launch, and the first quarter and second quarter roll in, that we are showing that the demand is continuous, and that we have an increase in what really matters -- new patients starting, and patient scripts, month after month.

So, of course, we are doing our own preparations, calculations, but I would like everybody to focus on one number. The population that we need to reach, and tell them that there is a drug available to them, is 80,000 people. And we're not going to stop our awareness campaign until we are certain that each one of the blind people who may need the drug for Non-24 know about it.

All right, thanks so much.

Okay. Let us conclude this conference call. We thank you for your interest and support in Vanda. And please all tune in on the November 14 Advisory Committee for a lot more. Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.