Vanda Pharmaceuticals Inc (VNDA) 2015 Q2 法說會逐字稿

Welcome to the Q2 2015 Vanda Pharmaceuticals, Inc., earnings conference call. My name is Bakiba, and I will be your operator for today's call. (Operator Instructions.)

Please note that this conference is being recorded. I will now turn the call over to James Kelly, Senior Vice President and Chief Financial Officer. Please go ahead, James.

Perfect, thank you, Bakiba. Good afternoon and thank you for joining us to discuss Vanda Pharmaceuticals' second-quarter 2015 performance. Our second-quarter 2015 results were released this afternoon 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. Mihael 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 2015 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 MD&A and Results of Operations sections of our annual report on Form 10-K for the fiscal year ended December 31, 2014, 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 like to now turn the call over to our CEO, Dr. Mihael Polymeropoulos.

Thank you, Jim, and thank you very much for joining us. As we announced earlier today, Vanda had an outstanding performance in the second quarter, evidenced by a strong 25% increase in net revenue over the prior quarter, driven by strong HETLIOZ and Fanapt net product sales growth, resulting in total net revenue for the period of over $27 million.

Specifically, HETLIOZ net product sales increased by 34% over the prior quarter to $10 million. Over this period, we saw continued demand for new HETLIOZ prescriptions and a continuation of the strong refill rates that we have seen in prior quarters. We have strengthened our commercial efforts through the optimization of our direct-to-consumer advertising engine and the launch of our BOOST program aimed at blind rehabilitation facilities around the country.

Our DTC campaign continues to demonstrate strength, still performing in an unsaturated manner, further confirming the prevalence of Non-24 patients in the US and underscoring the significant opportunity for growth. We have strengthened and optimized our commercial engine, both on the case management and the account management sides, further driving demand, both from the legacy patient database as well as the new opt-ins.

Our early parallel efforts with the BOOST program are beginning to bring results with daily generation of new opt-ins and the beginning of new script contribution. With more than 100 programs targeted in this first phase and several hundred potential programs around the country, the BOOST program has the potential to become a significant contributor to new lead generation and revenue.

We believe that continued life cycle management of HETLIOZ will be an important driver of future growth, and I would like to briefly discuss three current areas of focus.

First, HETLIOZ received European approval earlier this month, expanding the opportunity for patients with Non-24 and Vanda on an international scale. We have begun work with advocacy organizations around Europe, and we are making significant progress on the reimbursement front in an effort to ensure rapid and efficient access to HETLIOZ in the near future.

Second, we continue preparations for the Smith-Magenis Syndrome clinical program expected to begin later this year.

Third, we are preparing for the initiation of the jet lag program, also expected to start later this year. We met with the FDA to begin discussions on the requirements for this clinical program, and we believe that along with the two clinical studies already conducted in simulated jet lag, one additional clinical study will be sufficient for filing.

With the expectation that this clinical program will conclude by the end of 2016, we feel that we could be in a position to launch the jet lag indication as early as the first quarter of 2018. We believe that the jet lag indication has the potential to further strengthen and diversify revenue growth and establish HETLIOZ as a significant franchise for Vanda for years to come.

I will now turn to Fanapt. Fanapt contributed more than $17 million in net product sales in the second quarter. We commenced commercial operations for Fanapt with our 28-person sales force in late April, and we have recently increased the national field force to about 40, aiming first toward high prescribers. While it is too early to tell, the initial data points to a stabilization of the numbers of scripts as reported by IMS and a slowing of the decline that we saw in the first quarter of this year. These data are consistent with our assumptions regarding promotional sensitivity of this class of drugs and allow us to be optimistic about the prospects of Fanapt over the coming years. We will continue to evaluate and optimize the resources necessary for a successful relaunch over the next few months.

This last quarter, we announced the results of the Fanapt maintenance study, and we plan to submit a supplemental NDA shortly, which we believe will further enhance the US label as well as provide us with the potential for an additional period of exclusivity.

On the patent exclusivity front, we have filed additional patents in the FDA's Orange Book and expect more will be listed over the next few months. We continue our litigation against Roxane and Inventia and feel confident that we will be able to successfully defend our intellectual property with patent terms that extend into the late 2020s and 2030.

Briefly, finally, on our emerging pipeline, we continue to progress towards the initiation of a tradipitant study later this year and an expected IND filing of trichostatin A in 2016.

At this time, I will turn the call back to Jim.

Thank you, Mihael. You'll see in our press release that Vanda is offering non-GAAP financial information. We do so because we believe that non-GAAP financial information enhances an overall understanding of our financial performance when considered together with GAAP figures.

On a GAAP basis for the second quarter of 2015, Vanda recorded a net loss of $5.4 million, or $0.13 per share, as compared to a net loss of $21.6 million, or $0.64 per share, for the second quarter of 2014. On a non-GAAP basis, for the second quarter of 2015, Vanda recorded a non-GAAP loss of approximately $400,000, or $0.01 per share, as compared to a non-GAAP loss of $27.3 million, or $0.81 per share, for the second quarter of 2014.

Total net product sales for the second quarter of 2015 increased by 25% over the prior quarter to $27.6 million. On a non-GAAP basis for the second quarter of 2015, non-GAAP total revenues, which excludes non-cash Fanapt licensing revenue in prior periods, grew by $24.5 million, or 790%, to $27.6 million as compared to $3.1 million for the second quarter of 2014. This is the result of strong US sales performance for HETLIOZ and the acquisition of the Fanapt product rights at the end of 2014.

HETLIOZ net product sales grew to $10 million in the second quarter of 2015, a 34% increase, compared to $7.5 million in the first quarter of 2015. As of June 30, 2015, the specialty pharmacy channel held less than two weeks of inventory as calculated based on trailing demand.

Fanapt US net product sales grew to $17.6 million in the second quarter of 2015, a 20% increase compared to $14.7 million in the first quarter of 2015.

On a non-GAAP basis for the second quarter of 2015, Vanda recorded non-GAAP operating expenses, excluding cost of goods sold, stock-based compensation, and intangible asset amortization, of $22.3 million compared to $30.2 million for the second quarter of 2014. The non-GAAP operating expenses for the second quarter of 2015 were approximately 4% higher than the first quarter of 2015. Vanda expects to see an increase in non-GAAP operating expenses in the second half of 2015 associated with the previously communicated commercial activities for Fanapt in the US, the EU launch preparations for HETLIOZ, and life-cycle management plans for each product.

Vanda's cash, cash equivalents, and marketable securities as of June 30, 2015, grew to $146.6 million compared to $134.3 million as of March 31, 2015. Year to date, Vanda cash flow benefited from the timing of payments for the Fanapt gross-to-net liabilities and from the final Fanapt royalty payment.

2015 financial guidance -- Vanda is updating its prior 2015 financial guidance and expects to achieve the following financial objectives in 2015. Combined net product sales from both HETLIOZ and Fanapt of between $100 million and $115 million compared to the prior guidance of $95 million to $110 million; HETLIOZ net product sales of between $40 million and $45 million; Fanapt net product sales of between $60 million and $70 million compared to prior guidance of $55 million to $65 million; non-GAAP operating expenses, including cost of goods sold, of between $100 million and $110 million compared to prior guidance of $105 million to $120 million.

This reflects our expectation for continued commercial and R&D efficiencies this year as we deliver our planned activities. Non-GAAP operating expenses also excludes intangible amortization expense of $13 million and stock-based compensation of between $8.5 million and $10.5 million.

I will now turn the call back to Mihael.

Thank you very much, Jim. At this time, I would be happy to answer any questions you may have.

Great, thank you. (Operator Instructions.) Jason Butler, JMP Securities.

This is Harry on for Jason. Congrats on the quarter. I just had two questions regarding HETLIOZ. On the jet lag indication, could you speak a little bit more on the trial design and on the Smith-Magenis indication? Is there any potential for the first trial to be the registration trial?

Thank you very much. On the jet lag program, so first of all, we expect that the NDA filing will have the results of three studies -- two studies that have been previously conducted in simulated jet lag and were successful in demonstrating clinically significant benefits. Those two studies were published a few years ago in the journal Lancet. The third and final study, which will constitute the only remaining study to be conducted, will be a study where volunteers will actually fly from the US to European destinations and the sleep benefit of HETLIOZ will be evaluated, both with objective and subjective measures. So that is on the jet lag side.

On Smith-Magenis, the question was -- can you repeat again?

Sure. Is there any potential for this first trial to be the registration trial or a registration trial?

Yes, it is our full expectation that given the orphan nature of the disorder and the scarcity of patients, that our design will be sufficient for this to be the registration study. However, I will caveat that that we have not yet had the opportunity to meet with the FDA and confirm that. And we expect that we should be able to do that later this year.

Great, thank you.

Corey Davis, Canaccord Genuity.

The first one is how much of the 20% sequential increase in Fanapt was price versus volume? And was there any inventory stocking in the channel in the quarter?

Thank you, Corey. I will actually pass this question along to Jim Kelly.

So while we're not going to go into too much detail on it, I think the feedback that we have given to folks so far is that in May we took about a 10% price increase. And so, of course, not all of that flowed through. You only get part of the quarter with that. And then, of course, there's the gross-to-net implication. And so the feedback we'd share is that we saw some nice, robust sequential growth in units. Now, that said, the forward-looking guidance we gave -- the range -- it really ranges around being able to stabilize at these levels on a full year or perhaps seeing some downtick or uptick. But it's more of a variance around stabilization than growth at this point until we get further experience in the marketplace.

Yes, so that is on the revenue side and the units sold by Vanda. But it is important to point out that in Q1 when we first got the product from Novartis, we saw a sequential decline in IMS-reported scripts of about 6% from the fourth quarter of 2014. What we see now in the second quarter of 2015 is sequential decline of about 2.5 or so percent, and in fact, the early analysis suggests that most of the decline was on the front of the second quarter before our relaunch.

So all these are perhaps telltale signs that the relaunch is stabilizing the scripts, and we should look forward to a robust Q3 as well.

And then, Corey, to answer your question about the channel, the units purchased as compared to the downstream sales out of the wholesalers were approximately the same.

Okay. And the second question is how important is it for you to think about profitability in 2016 with all these new launches and trials starting, and it sounds like the spending might grow faster than the revenue, at least in 2016? I'm talking about a non-GAAP basis.

Right. Yes. I'll answer in general this question. Maybe Jim has a comment on that as well. First of all, the high level is we're not talking about profitability at this point, and we're not guiding. However, we are extremely excited that we see very strong and robust revenue growth on both assets, and we also see that the team has been able to accomplish that with a lot of discipline. Hence, the efficiencies on the commercial side and the R&D side and today's guidance of a little lower OpEx than expected. I think we're going to leave it there.

And the third one would be -- again, high level -- how successful do you think HETLIOZ can be in Europe?

Well, we're at the beginning phase, of course, just approved. We know that as it was in the US, awareness of Non-24, among patients with Non-24 in Europe, is low -- misdiagnosed, under-diagnosed -- so a significant amount of work will need to be done on awareness. However, lessons learned from the US -- for example, working very closely with blind advocacy organizations -- leads to an understanding how blind individuals receive that information, not just overall in Europe but individual locales, is going to be extremely important.

We believe that the European opportunity can be quite big, just based on the numbers. Of course, they're about the same prevalence with the US. It's a larger population. I think we guided of approximately 120,000 people are in Europe with Non-24. But of course, we all know that the European environment is a challenging environment on pricing, and that is something that we're looking at very carefully.

However, what is encouraging, Corey, is that the reception that we get from patients or potential patients continues to be very strong in Europe as it has been in the US, because this disorder indeed causes tremendous pain and suffering and impairment of these patients in participating in a 24-hour society.

So the summary is Europe will be challenging because of awareness. Also, pricing will have to be considered in that equation. So we remain highly optimistic that there is a big opportunity. However, we need to be patient with the time because with an approval just in June, it is not uncommon for 12 to 18 months to lapse before you start seeing robust reimbursement across the Continent.

Okay, great, thank you.

Steven Breazzano, Piper Jaffray.

This is Stephen in for Josh. I was just wondering if you could provide any more detail on some of the ongoing pricing work in Europe as a follow-on to what you said and any of the feedback you've maybe gotten and what sort of expectations should be there. Thanks.

Thank you, Steven. We cannot comment on pricing prospects in Europe. But I can tell you a little bit about the progress and the process. We have done a lot of groundwork over the last few months to be able to file the necessary dossiers with the respective organizations, and specifically we have chosen to begin in Germany, not an uncommon place to go for reimbursement.

And we have begun significant work on pharmacoeconomic modeling for the NICE organization in the UK. As a general guidance, we believe HETLIOZ can bring a lot of value to blind patients with Non-24 in Europe, and with that and commensurate with that benefit, we believe we can command some pricing not very much different than what is happening in the US now. But it would be too early to comment any further.

Got it. Thanks.

Thank you. Stefan Quenneville, Morningstar.

I was just wondering if you could size out the increased costs that are going to come from the trials you're planning on starting in the fourth quarter -- just maybe give me a sense of the number of patients and maybe what the incremental spend that's going to do in your R&D costs.

Right. So we're not going to be in a position to comment exactly on the size of the study and the design. I would say several hundred patients. But on the specifics of OpEx related to the R&D spend and what does that do to the forecast, I will let Jim Kelly have that.

Yes, so Stefan, at this time what we're doing is we're giving you the total OpEx. We weren't really breaking it out by R&D versus SG&A. And so I think as a starting point is all the activities that you're hearing certainly fall within the guidance that we've given to date.

When you think about the things that are beginning this year, they're actually some of the smaller items, and that's things like the Smith-Magenis study, and even the beginnings of the VLY-686 pruritis study. We don't expect the jet lag study to have meaningful expense hit us until next year. And so I think it's going to give a little bit of time for us to continue to work through and finalize protocol design and come back and be able to communicate some of the specifics.

Great, thanks.

Thank you. And at this time, we have no further questions. I will now turn the call back over to Dr. Polymeropoulos. Please go ahead.

Thank you very much, all, for joining us, and all your continuing interest in Vanda. I hope we talk to you next in our next quarter call. Thank you very much.

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