Vanda Pharmaceuticals Inc (VNDA) 2014 Q2 法說會逐字稿

Welcome to the second quarter 2014 Vanda Pharmaceuticals Incorporated earnings conference call. My name is Shannon and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Jim Kelly, Vice President and Chief Financial Officer. You may begin, sir.

Thank you, Shannon. Good morning and thank you for joining us to discuss Vanda Pharmaceuticals' second quarter 2014 performance. Our second quarter 2014 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. Joining me on today's call is Dr. Mihales Polymeropoulos, our President and CEO. Following my introductory remarks, Dr. Polymeropoulos will update you on our ongoing activities. Then I will comment on our financial results for the second quarter of 2014 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.

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, 2013 and on our subsequently filed quarterly reports on Form 10-Q, which is available in 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'd now like to turn the call over to our CEO, Dr. Mihales Polymeropoulos.

Thank you very much, Jim. Good morning, everybody. We are encouraged by the early performance of the HETLIOZ launch in the US and we are optimistic about the prospects for future growth. I would like to spend a few minutes and characterize the early launch activity in a bit more detail.

Vanda launched HETLIOZ for the treatment of Non-24 in April of this year. Non-24 affects the majority of totally blind individuals and it is estimated that approximately 80,000 people suffer from Non-24 in the US. Despite the high prevalence of Non-24, we recognized early on and prior to the launch that awareness about Non-24 was very low among blind individuals as well as the physician community. As you're aware, Vanda undertook an extensive direct-to-consumer disease awareness campaign utilizing both radio and TV advertisement. This extensive phase of our Non-24 direct-to-consumer campaign was conducted during the first half of this year and concluded at the end of May.

The awareness campaign was highly effective resulting in more than 9,500 people signing up in our database to learn more about Non-24 and potential treatment. In addition, we believe awareness significantly increased among the average American and that includes healthcare professionals. With the conclusion of this first phase of disease awareness and with the launch of HETLIOZ, we have concentrated our commercial efforts in a pull through effort that is centered around case management. We are systematically re-establishing connections with individuals in our database to engage them into case management, a personal interaction that is designed to facilitate proper diagnosis and treatment.

Our sales force of 24 account managers is exclusively concentrating on educating and assisting the growing pool of Patient Directed Physicians or PDPs. To date, these PDPs are mostly primary care physicians who are already treating the potential patients for other conditions. The potential patients have requested that we contact these PDPs on their behalf to introduce the physicians to Non-24 and HETLIOZ as a treatment option. This is a highly targeted approach to physician outreach and education that over time seeks to facilitate the proper diagnosis and treatment of patients.

As of August 6, over 420 new patients had received HETLIOZ prescriptions. This includes the 68 patients from the previous clinical studies and therefore over 350 are new commercial patients for whom prescriptions have been written. While the majority of the new HETLIOZ patients are individuals who are in our opt-in database, there is a significant percentage of HETLIOZ patients who are not known to us and have independently sought and received treatment. This is very encouraging as it speaks to the effects of our awareness campaign, which is beyond the pool of the over 9,500 opt-in individuals. For those individuals that have received HETLIOZ prescriptions, the majority of the prescribing doctors are from outside the PDP pool of physicians. This is again encouraging and consistent with our view that primary care doctors can easily diagnose Non-24 and prescribe HETLIOZ without a Vanda account manager assisting them.

On the payer side, we are encouraged by the early positive reception and the absence of any prescribing blocks. We have now interacted with a majority of the major insurers successfully. In general, most of the insurers request a prior authorization, which is completed by the prescribing physicians. In summary, we're pleased with the end results of the HETLIOZ launch and look forward in increasing the number of patients who benefit from it.

I would like now to turn and also comment on our pipeline. Our application for HETLIOZ in Non-24 is currently under review with the European Medicines Agency. It is expected that the review will be completed within the next 12 months. In anticipation of an EU approval, we have begun working to increase awareness around Non-24 in the EU, working closely with blind advocacy organizations around the continent.

We are also in the process of establishing an expanded access compassionate use program to serve patients who require and may benefit from HETLIOZ prior to an EU approval. We're continuing our early development work towards a pediatric Non-24 indication for both the US and the EU. In regards to Smith-Magenis syndrome, we have initiated an observational study to better understand the molecular, biochemical, and clinical expression of the disorder prior to designing the clinical intervention program. Families of patients with SMS have been invaluable in helping progress our efforts and we're greatly indebted to them.

Our efforts in chronic pruritus are continuing with a Phase II study of the VLY-686 in Germany. VLY-686 is our NK1 antagonist and it is our hypothesis that blocking the activity of substance P through the NK1 receptors may have beneficial effects in treating chronic pruritus, a devastating clinical expression of a number of dermatological conditions representing a significant unmet medical need. We expect to have results of this study in mid-2015.

Before I conclude this update, I would like to highlight our new method of use patent for HETLIOZ, which was recently issued by US Patent and Trademark office and is now listed in the FDA's Orange Book. This patent referred to as '492 is expected to expire in 2033 and therefore potentially extending the exclusivity of HETLIOZ in the US beyond the already existing new chemical entity protection expected to last through 2022.

With that, I will now turn the call back to Jim.

Thank you, Mihales. During the second quarter of 2014, Vanda recorded a net loss of $21.6 million as compared to a net loss of $26.5 million in the first quarter of 2014. On a diluted share basis, this reflects a loss of $0.64 a share for the second quarter of 2014 as compared to a net loss per share of $0.79 for the first quarter of 2014. As of June 30, 2014 there were approximately 33.9 million shares of Vanda common stock outstanding. Total revenue for the second quarter of 2014 were $10.9 million as compared to $9.1 million for the first quarter of 2014. During the second quarter of 2014, there were three sources of revenue. They were HETLIOZ product revenue, Fanapt royalty income, and Fanapt licensing revenue. HETLIOZ product revenue for the second quarter of 2014 was $1.6 million. Gross-to-net sales adjustments for HETLIOZ product revenue were in the mid-teens for the quarter. HETLIOZ is sold through the specialty pharmacy channel and the second quarter HETLIOZ product revenues are reflective of underlying prescription demand.

Second quarter 2014 Fanapt licensing revenue was $7.8 million as compared to $7.5 million during the first quarter of 2014. During each period, Vanda recognized a 10% royalty on Novartis' net sales of Fanapt. Second quarter 2014 Fanapt royalties received from Novartis were $1.5 million compared to $1.6 million in the first quarter of 2014.

Total operating expenses for the second quarter 2014 were $32.5 million compared to $35.7 million in the first quarter of 2014. Selling, general and administrative costs of $28.1 million made up the majority of the spend for the second quarter of 2014 and reflects the commercial activity related to the April launch of HETLIOZ in the United States. Research and development costs for the second quarter of 2014 were $3.5 million compared to $7.3 million for the first quarter of 2014. First quarter 2014 R&D included a $2 million milestone payment associated with the HETLIOZ approval in the US.

Vanda's cash, cash equivalents, and marketable securities, which I'll refer to as cash as of June 30, 2014 totaled $63.6 million.

So, we're also affirming our existing financial guidance for the full-year of 2014 that we originally provided back in May. Total 2014 operating expenses are expected to be between $110 million and $120 million. This includes intangible asset amortization expense of $2.3 million and $6 million to $8 million of non-cash stock-based compensation expense.

I will now turn the call back to Mihales.

Thank you very much, Jim. With that, we'll be happy to address any of your questions.

(Operator Instructions) Joshua Schimmer, Piper Jaffray.

Congrats, really impressive execution on the launch. One, with regard to the direct-to-consumer advertising, how do you think about when is the right time to re-engage on that front? What are kind of the parameters or variables you're looking for there that will tell you that it's time to go back and return to that?

So first of all, thank you very much Josh for joining us and the question. As we discussed the awareness campaign, the large DTC campaign in the first half has been very successful making patients aware, engaging them in contacting us, and now fueling this launch. We believe there are thousands more of patients that can become aware and therefore can continue to fuel our operation. We do plan in the fourth quarter to have a smaller targeted DTC campaign optimizing things and being more effective knowing all we know now from our first half. Just to be clear, the extent of that direct-to-consumer campaign in the fourth quarter is within our operational guidance of OpEx of $110 million to $120 million.

Got it. And I know you probably can't say too much about the arbitration with Novartis on Fanapt, but can you give us a sense of the process itself or the timing for how that arbitration might work?

I appreciate you noting that arbitration proceedings are private proceedings and we'll honor that. As you know, Novartis disclosed that an arbitration is ongoing and Vanda indeed has initiated this arbitration in regards with the Fanapt license. So, that's been much the extent of our disclosure there. Now in general, arbitrations take a cycle of about 12 months or so and therefore it is a rather expedient way to try to solve contractual disputes between companies. So, we do expect this arbitration to approximately take that course.

Got it. Thanks very much and congrats again.

Jason Butler, JMP Securities.

Let me add my congratulations on a great launch so far. Maybe I could just start by asking about the prescriptions written versus those dispensed, you didn't give the metrics there, but maybe I could ask. Can you talk about the dynamics of that process from prescription being written to the patient actually getting the drug? Has anything changed versus the last update you gave? Are you seeing any increased hurdles or any increased roadblocks that would stop a patient getting a prescription or delays in getting a prescription?

Thank you, Jason, and thanks for the question. So first of all no, we do not see any prescription blocks. We see the same process that we saw early on in the launch; benefits investigation, followed by request for prioritization, completion of that prioritization, and fill. The time is variable from patient to patient and the key factors are incomplete intake forms, signature is missing, and things that take time to obtain. And then the normal process of insurer request and prioritization, physician filling it out, and moving on. It continues to be our expectation that the vast majority of prescriptions written will ultimately be filled. Now on the second part of your question, it is true that in our June 4 update we gave more specifics of percent of scripts triaged to specialty pharmacies and percent of them being filled. We felt that these metrics were not useful. However, I can tell you that these metrics are significantly improving and that of course is a function of time. So from the 420 scripts written, a larger percent than what was reported in June is triaged and a larger percent of what was reported in June is filled. So, we're moving on the right direction.

Okay, great. That's very helpful. And then just looking forward, I know it's still very early in the launch. Given that you have these patient direct-to-physician sales calls, , can you talk about what visibility if any you have into prescriptions that may or may not be or could potentially be written in coming weeks?

I'm trying to see how to answer this question. What is impressive about this process and we're actually impressed daily is how targeted and precise it is because it starts with a patient who is engaged, interested, and wants to find a solution for the problem they believe is Non-24 and on the other hand, we have a specific physician that knows the patient over periods of time and they want to help. And all it needs is the two parties to connect based on common information, which we're happily providing to both of them, resulting in a proper diagnosis and if necessary treatment. So, we do have pretty good visibility of the pool of these pairs of physicians and PDPs and we do have very good visibility as we evolve over time getting to the physician's office.

What has been impressing us is that it is early days of launch, the things are not fully efficient; we are learning, we are adopting, we are seeing this steady demand. As you recall back in June 4 we reported 220 scripts, 68 clinical and 150 or so commercial demand. Now we are at 420 and if you just divide it over these two months, it's about 80 or 100 scripts per month. The amazing interesting thing is this steady rate of scripts coming in even if we're not at our most efficient. In fact, I would say we are in the early days of getting case management to work and adding to the efficiency of this engine.

That's helpful. Thanks, Mihales. Just last question maybe for Jim. You said that your revenue recognition is reflective of underlying patient demand. Maybe could I just ask you to clarify when exactly you are recognizing revenue, is it when a prescription is written or when the prescription is actually dispensed to the patient or a different period?

Thanks for the question. So, we're recognizing revenue upon sale to the specialty pharmacies.

Just to add to that. What we understand from specialty pharmacies is that they hold very little stock, it's usually 30 days or around there. And therefore because they have full visibility into the written scripts, that is why what they hold is a close reflection to the true demand that they fully understand.

Okay. Thanks, Mihales. Thanks a lot for taking my questions.

Stefan Quenneville, Morningstar.

Most of my questions have been asked, but maybe I should follow-up on your I guess strategy for the launch in Europe. Specifically I was just curious if there are any constraints on direct-to-consumer advertising in the major European countries and if that's going to impact your launch strategy there?

Thank you very much, Stefan. The direct-to-consumer advertising for pharmaceuticals is completely different between the US and Europe. In fact DTC of pharmaceutical products is not permitted almost across most of the European countries. We do not plan to do that. But similarly to the US, we are exploring disease awareness campaigns. These are allowed almost in an identical fashion like they are in the US. Our strategy is actually proceeding with a few cautious steps. One is we want to understand what do the patients want, what do the patients need, whom and what do the patients listen to. And the only sources for that are the patients themselves through their advocacy organizations around Europe. We are placing significant efforts now to connect with these organizations and understand these dynamics of patient influencing points and also patients' request. It is possible that if these are similar to the US that a direct-to-consumer awareness campaign in Europe may be appropriate. We just don't have all the data to determine that today.

Great. Thank you.

At this time, I would like to turn the call back to Dr. Polymeropoulos for closing remarks.

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

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