Vanda Pharmaceuticals Inc (VNDA) 2014 Q3 法說會逐字稿

Welcome to the third quarter 2014 Vanda Pharmaceuticals, Inc. earnings conference call. My name is Christine and I will be the operator for today's call.

(Operator Instructions). Please note that this conference is being recorded. I will now turn the call over to Mr. Jim Kelly, Senior Vice President and Chief Financial Officer. You may begin.

All right, thank you, Christine. Good morning and thank you for joining us to discuss Vanda Pharmaceuticals third quarter 2014 performance. Our third-quarter 2014 results were released this morning and are available on the SEC 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 third 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 on current expectations that involve risks, changes in circumstances, assumptions and uncertainties. These risks are described in Risk Factors and MD&A and Results of Operations sections of our Annual Report on Form 10-K for the fiscal year ended December 31, 2013, and our subsequently filed Quarterly Reports on Form 10-Q, which are available on the SEC 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 everyone. With our first full quarter of the HETLIOZ commercial launch, our Company has reached a significant milestone as we are transitioning from a development stage to commercial stage company.

Q3 has been an outstanding quarter for Vanda. I would like to share with you in more detail the progress of the HETLIOZ commercial launch and also discuss our pipeline.

HETLIOZ was approved by the US FDA in January of 2014 and launched in the US in April of this year for the treatment of Non-24-Hour Sleep-Wake Disorder or Non-24, an orphan, debilitating disorder that is common among the totally blind. Non-24 is estimated to affect 80,000 people in the US alone. To date, over 600 patients have received prescriptions for HETLIOZ. We have applied an innovative process in commercializing HETLIOZ, which includes direct to consumer awareness campaigns, patient case management and physician account management.

The majority of the more than 600 scripts received to date are for patients who have responded to our DTC campaign. Our closed loop system between patients and case manager on one hand, and physician and account manager on the other, is driving our commercial engine and the production of new scripts.

We continue to see positive reception by payors and we expect that the vast majority of our scripts will be filled, as we have not experienced any reimbursement blocks. HETLIOZSolutions, our patient and physician service hub, is tasked with benefits investigation, co-pay support, and patient and physician support, and it is successfully facilitating the fulfillment of prescriptions.

Q3 has been a critical quarter in the HETLIOZ commercial launch as we focused on understanding drivers of efficiency. Based on Q3 pilot programs, we have now, starting in October, implemented adjustments in the commercial engine, including the addition of a dedicated case management group and the implementation of a closed communication loop between the case management and account management teams.

We continue to pull through and reach out to the thousands of patients who responded to our awareness campaign in the first half of the year. Our new DTC campaign is revitalizing interest and is creating new patient leads an equally efficient manner.

We remain optimistic on the continuous growth of HETLIOZ revenues as more and more patients are seeking and deriving benefit. While we are pleased with the more than 600 patients who have received HETLIOZ scripts to date, we know that this represents less than 1% of the addressable population in the US, and as such, the opportunity for growth is ahead of us.

Our current success would not have been possible without the amazing professionalism and commitment to patient advocacy of our outstanding account managers and case managers who are striving daily to help patients with Non-24.

Our application for marketing authorization for HETLIOZ in the EU is under review and we expect a decision in the third quarter of 2015. In preparation, we have begun our work with blind advocacy organizations in Europe. We are also laying the groundwork for early commercial preparations including awareness planning, price and reimbursement.

Non-24 is estimated to affect more than 100,000 people in the EU, and as such, it can represent a significant commercial opportunity for HETLIOZ.

In September of this year we launched HETLIOZAccess, our named patient program in the EU and Canada, which is intended to allow patients access to HETLIOZ while the regulatory review is ongoing. We have also begun planning activities for regulatory filings for HETLIOZ in Canada and Japan.

On Fanapt, our atypical antipsychotic for schizophrenia, we reached a significant milestone, recording the first ex-US revenue with the launch of Fanapt in Israel through our local distributor, Megapharm. This week we expect to reach another milestone with the launch of Fanapt in Mexico through our local distributor, Probiomed, bringing Fanapt as an additional option to more than a million patients with schizophrenia.

I will now turn to our clinical pipeline. We are currently focusing on two key projects for HETLIOZ: a pediatric program for Non-24, and the circadian sleep disorder in patients with Smith-Magenis Syndrome. On the pediatric program for Non-24 we are developing a new liquid formulation of HETLIOZ and are progressing our discussions with both EMA and the FDA on a pediatric clinical development program for HETLIOZ in Non-24.

For Smith-Magenis Syndrome and the associated circadian sleep disorder, we are currently conducting an observational study in order to further characterize both the circadian abnormality as well as the sleep-wake disorder. The results of this study are expected in the first half of 2015.

We're also progressing with our Phase II study for VLY-686 in patients with chronic pruritus in the context of atopic dermatitis. Recruitment is ongoing and we expect topline results in the first half of 2015. Chronic pruritus represents a significant unmet medical need for millions of people worldwide.

I will now turn the call back to our CFO, Jim Kelly.

Thank you, Mihales. During the third quarter of 2014 Vanda recorded a net loss of $1.4 million as compared to a net loss of $21.6 million for the second quarter of 2014. On a diluted shares basis, this reflects a loss of $0.04 per share for the third quarter of 2014 as compared to a net loss per share of $0.64 for the second quarter of 2014.

This strong sequential quarter performance is a result of the impressive first quarter of our HETLIOZ launch in the US, plus a decrease to our Non-24 awareness spending in the third quarter. We believe this gives investors a good picture of our commercial cost structure absent awareness spending, and underscores the favorable financial profile we have for our US HETLIOZ business.

Total revenues for the third quarter of 2014 were $14.8 million as compared to $10.9 million for the second quarter of 2014. During the third quarter of 2014 we had four sources of revenue. They were HETLIOZ product revenue, Fanapt royalty income, Fanapt product revenue from ex-US sales and Fanapt licensing revenue.

HETLIOZ product revenue for the third quarter of 2014 was $5.2 million compared to $1.6 million in the second quarter of 2014. Gross to net adjustments for HETLIOZ product revenue are below 10% for year-to-date sales.

HETLIOZ is sold through the specialty pharmacy channel and the third quarter HETLIOZ product revenues are reflective of underlying prescription demand. As of September 30, 2014, the specialty pharmacy channel held approximately 2 weeks of inventory as calculated based on trailing demand.

Vanda recognized approximately $100,000 in Fanapt product revenue from the sales to our distribution partner Megapharm in Israel. This reflects the first ex-US product sales for Fanapt.

Third quarter 2014 Fanapt royalties received from Novartis were $1.7 million compared to $1.5 million in the second quarter of 2014. During each period Vanda recognized a 10% royalty on Novartis net sales of Fanapt in the US.

Third quarter 2014 Fanapt licensing revenue was $7.8 million, related to the amortization of the upfront payment received from Novartis for US and Canadian commercial rights to Fanapt.

Total operating expenses for the third quarter of 2014 were $16.2 million compared to $32.5 million in the second quarter of 2014. Selling, general and administrative costs or SG&A of approximately $11.3 million made up the majority of the third quarter of 2014 spend, and reflects the commercial activity related to the launch of HETLIOZ in the US and our corporate overhead.

SG&A costs were approximately $17 million lower in the third quarter of 2014 as compared to the second quarter of 2014, and this was the result of the pause to the Non-24 awareness and HETLIOZ branding activities that were ongoing through May of this year.

Research and development costs for the third quarter of 2014 were $3.7 million compared to $3.5 million in the second quarter of 2014.

Vanda's cash, cash equivalents and marketable securities, which I will refer to as cash, as of September 30, 2014 were $56.1 million. This reflects a cash burn for the quarter -- third-quarter 2014, of $7.5 million.

Vanda is providing the following update to its full-year financial guidance. Total 2014 operating expenses are expected to be between $105 million and $110 million, compared to the prior 2014 guidance of $110 million to $120 million. This includes intangible asset amortization expense of $2.3 million and approximately $6 million of non-cash stock-based compensation. Prior guidance for stock-based compensation was $6 million to $8 million.

This full-year guidance translates to a fourth quarter 2014 operating expense guidance of approximately $20 million to $25 million. I will now turn the call back to Mihales.

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

(Operator Instructions). Joshua Schimmer, Piper Jaffray.

Thanks for taking the question and congrats on a very strong quarter. Two questions for me. One is maybe if you can describe the cadence of prescriptions since the last update. Are you starting to see any decline that is pushing you towards relaunching the DTC campaign sooner than later?

Then the second question is, is that it is unusual to see this type of fluctuating spending during a launch. So, maybe you can help explain your strategy for why it is so up and down, and why it hasn't been smoother. And should we expect this kind of volatility in the spend going forward on a quarter to quarter basis in 2015? Thank you.

Thank you, Josh. On the first question, we will give you a little more color of what we see with prescriptions. The headline is, for every month since launch, we have seen a demand over 80 new scripts per month. The only exception was the month of September, with about 50-script demand, and that was the month where we retooled our commercial organization.

Now, having launched our closed-loop system with case management and account management, we see now in October tracking again towards the over 80 scripts per month. We believe that there is a continuous and steady addition of scripts month over month.

Now, to your question of operational expenses and the fluctuation, as Jim provided more detail, the Q3 did not have expenses in the large DTC campaign which was conducted in the first half of this year. As we have communicated before, we specifically planned to have that large awareness campaign early, before and during the first month of launch, so that we can create awareness feeding through the opt-in database into demand for scripts.

Now, almost each one of the scripts that we have today are a product of the previous awareness campaign. We had planned and we are executing a much smaller streamlined, efficient DTC campaign this month. We actually started with television campaign on the week of October 13, and that is a campaign that will last for about five weeks.

What we do see in this campaign is, again, no decrease in the rate of acquisition of opt-ins per $1 spent. And, therefore, that would suggest that we are driving demand from a much larger pool of people, as we'd expected, with a prevalence of about 80,000 people in the US.

The answer to both questions in summary is there is no change in the rate of script acquisition, as that includes the new data in October. And the OpEx most probably will become less volatile, but we would expect changes quarter over quarter as we are adjusting and optimizing our awareness campaign.

Josh, what you can see -- since our guidance really hasn't changed all that much since the very original guidance we gave, the point you should take away is that our spend profile in awareness is exactly as we mapped it early on in the launch. And so we are just simply executing against the previously stated plan.

Got it, thank you very much.

Jason Butler, JMP Securities.

Thanks for taking the questions. Just wondering if you could give us any updates on the average time you are seeing from a prescription being written to being dispensed by the specialty pharmacy. Then, if you are able at this point to give us any color quantitatively or qualitatively on the dropout or persistent rates for -- or patients refilling prescriptions?

Yes, so, from script to fill, the early numbers are 8 to 12 weeks, which is generally consistent with other orphan drugs. And we are aiming over this quarter and as we go forward to decrease the time from fill to script.

Your next question was about gazing into dropouts or what we call the eventual chronic patient. The early data we have now are quite encouraging on both early refill rates and compliance, even past the first three months, which is the general recommendation how long one should try the drug for.

This data would suggest that our expectation and guidance that more than half the patients eventually will be chronic patients continues to hold true. Today this number is much higher than 50%, but, of course, over time it would expect to normalize.

The guidance we're giving is that from new scripts in, the long-term expectation is at least more than half the patients will become chronic patients.

Okay, that's helpful. Then just another question on the expense guidance, and I guess thinking a little bit further out, and acknowledging you're not going to guidance for 2015 at this point, can you give us some idea of how you think about your current cash runway and an update on your views on cash needs over the longer-term?

Yes, Jason, we are not going to give guidance. But now that you have seen a quarter without the awareness campaign, and almost now explicitly you have a quarter guidance, this fourth quarter guidance can be used as a going forward estimate. However, 2015 guidance we cannot give at this time.

Okay. Then just last question on the European regulatory review, can you just give us any more details there on whether you have received the 120-day questions from CHMP yet, if there is anything in there that is notable that gives you more encouragement or concern about the potential for approval in Europe?

All I can say is that we did receive the day 120 questions. And we do not give incremental updates on regulatory filings, but we remain optimistic for a successful outcome early in the third quarter of 2015.

Okay, great, thanks for taking the questions, and congrats again on the strong launch.

I will now turn the call -- we have no further questions at this time -- I will now turn the call back to Dr. Polymeropoulos for closing remarks.

Thank you very much. Thanks for your questions and comments. This concludes our third-quarter call, and we look forward to talking to you soon.

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