Vanda Pharmaceuticals Inc (VNDA) 2021 Q3 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Third Quarter 2021 Vanda Pharmaceuticals Conference Call. (Operator Instructions) Please be advised that today's conference may be recorded. (Operator Instructions)

I'd now like to hand the conference over to your host today, Kevin Moran, Vanda's Chief Financial Officer. Please go ahead.

Thank you, Liz. Good afternoon, and thank you for joining us to discuss Vanda Pharmaceuticals' third quarter 2021 performance. Our third quarter 2021 results were released this afternoon 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, Chief Executive Officer and Chairman of the Board. Following my introductory remarks, Mihales will update you on our ongoing activities. I will then comment on our financial results 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 and assumptions that involve risks, changes in circumstances and uncertainties. These risks are described in the "Cautionary Note Regarding Forward-Looking Statements", "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" sections of our annual report on Form 10-K for the fiscal year ended December 31, 2020, as updated by our subsequent quarterly reports on Form 10-Q, current reports on Form 8-K and other filings with the SEC, which are available on the SEC's EDGAR system and on our website. We encourage all investors to read these reports and our other 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 very much, Kevin, and good afternoon, everyone. First of all, I would like to say that as we progress towards the end of 2021, we continue to be excited about our ongoing commercial launch of HETLIOZ and HETLIOZ LQ for Smith-Magenis Syndrome, and our late-stage clinical programs, especially the completion of our Phase III gastroparesis study that is expected to report top line results by the end of the year. I will first discuss our commercial performance before moving to highlights of our clinical development programs.

On commercial performance, we see continued year-over-year revenue growth. In the third quarter of 2021, total net product revenue for HETLIOZ and Fanapt was $70.1 million, a 16% increase compared to the third quarter of 2020. Net product revenue for HETLIOZ saw a 15% increase in the third quarter of 2021 compared to the third quarter of 2020, and net product revenue for Fanapt saw an 18% increase compared to the third quarter of 2020.

HETLIOZ demand, measured by prescriptions received, continues to exceed the prescriptions filled. Although demand remains strong, we are experiencing increasing hurdles and resistance from payers to fill HETLIOZ prescriptions for patients with Non-24. We have engaged in discussions with several payers in the hopes of improving access to HETLIOZ for these patients. HETLIOZ is the only FDA-approved treatment available for Non-24.

While we remain optimistic that patient access will improve, the magnitude of the reimbursement challenge and the timing during this calendar year dictates that we lower our full year HETLIOZ forecast range to $170 million to $190 million from the prior guidance of $180 million to $200 million. The lower end of the range assumes that there will be little to no resolution of the patient access issue this year, while the higher end of the range assumes improvement in patient access within this current period.

Smith-Magenis Syndrome launch -- the launch of HETLIOZ and HETLIOZ LQ for the treatment of adults and children, respectively, with nighttime sleep disturbances in Smith-Magenis Syndrome continues to progress. We continue to work with SMS families and the SMS patient advocacy group, PRISMS, to improve awareness.

To date, more than 90 patients with SMS have been prescribed HETLIOZ or HETLIOZ LQ. We plan to extend our awareness campaign with a goal of creating awareness among the community of approximately 15,000 SMS patients in the U.S.

While establishing a trajectory of the number of patients on treatment at this time is difficult, we believe that the clinical profile of HETLIOZ and the degree of unmet medical need for patients with SMS provides a substantial growth opportunity in the future.

Clinical development. Our HETLIOZ life cycle management program is robust. During 2021, we have initiated two large programs that represent important value creation opportunities for Vanda: delayed sleep-wake phase disorder, or DSWPD, and insomnia in autism spectrum disorder.

A Phase III study of Hetlioz in DSWPD has been initiated. DSWPD is likely the most prevalent circadian rhythm sleep disorder, affecting approximately 1% of the population and 7% to 10% of patients with disorders of initiating or maintaining sleep. The prevalence of delayed sleep-wake phase disorder is highest in adolescents and young adults with rates estimated between 3.3% and 4.6% and some as high as 7%.

We believe that HETLIOZ with its circadian regulation mechanism of action addresses the underlying mechanism of symptoms in DSWPD by aligning the internal clock and, therefore, improving sleep at the appropriate and desired time. We are in the process of undertaking a large direct-to-consumer recruitment campaign to aid with the recruitment of the ongoing study, and, at the same time, are beginning to quantify DSWPD patients seeking treatment for the disorder.

I will now turn to tradipitant. The Phase III study of tradipitant in gastroparesis has completed enrollment, and we expect top line results from this study by the end of the year. Following the completion of the study, we plan to meet with the FDA for a pre-NDA meeting and discuss our planned New Drug Application.

As a reminder, the Phase III study aims to enroll approximately equal number of gastroparesis patients with either idiopathic or diabetic etiology. The study is a 12-week, double-blind, placebo-controlled study, which will measure the effect of tradipitant in improving the symptoms of gastroparesis.

This Phase III study follows the successful completion of a four-week Phase II randomized study in the same population. The results of that study were published in the Journal of Gastroenterology in January of 2021.

In that study, tradipitant met the primary prespecified aim and achieved clinically meaningful outcomes in patients with gastroparesis. Tradipitant was shown to be well tolerated with an adverse event profile similar to placebo. The overall benefit/risk profile, if confirmed, is likely to offer advantages over both approved and off-label treatments currently used. The effect of tradipitant in achieving complete response in nausea, but also improving overall symptoms, may suggest a disease-modifying effect through an action to the local neuromuscular network as well as the central nervous system centers for nausea and vomiting.

The ongoing Phase III study is of similar design compared to the Phase II study with a few differences. First, this Phase III study enrolled approximately 200 patients compared to approximately 150 in the Phase II study. Second, the current study has a duration of 12 weeks compared to four weeks in the prior study. Third, in the current study, a vomiting episode during the screening period is required for inclusion. And, finally, in the current study, patients are stratified based on idiopathic or diabetic etiology in order to allow for independent and balanced efficacy analysis in its subgroup.

A separate Phase III, 12-week, open-label study is ongoing and has currently enrolled over 250 patients.

In addition, more than a dozen study participants have requested to continue treatment with tradipitant post completion of the clinical study through an Expanded Access program. The majority of these patients have received FDA approval to continue treatment beyond three months with the longest one of them with exposure currently of 15 months.

Regarding gastroparesis and its prevalence, in a recent review by Camilleri et al, the authors highlight that a population-based study in Minnesota in the United States estimated that the age-adjusted incidence of gastroparesis during a 10-year period was 2.4 patients per 100,000 person-years for men and 9.8 patients per 100,000 person-years for women. Prevalence was estimated to be 9.6 patients per 100,000 men and 37.8 patients per 100,000 women. Some individuals with typical symptoms of gastroparesis may never undergo confirmatory testing. One study estimated that as many as 1.8% of the general population may have gastroparesis, but only 0.2% are diagnosed. The others concluded that presumably, this relates to a lack of awareness of the disorder and existing diagnostic confusion caused by an overlap between the symptoms of gastroparesis and functional dyspepsia.

Given this estimated prevalence, upon successful completion of the program, we see a significant commercial opportunity in creating awareness for both the condition and for tradipitant as a new pharmacological option for patients with gastroparesis.

Our clinical pipeline programs are advancing, including among others, the Fanapt Bipolar and long-acting injectable studies, and the study of tradipitant in motion sickness.

To conclude, we are focused on improving patient access to HETLIOZ for Non-24 as we are increasing awareness for HETLIOZ and HETLIOZ LQ for SMS patients as well. The clinical program of tradipitant is nearing completion, and we look forward to the results of the Phase III study, and continuing discussions with the FDA regarding the regulatory path to approval and preparing for commercial launch.

With this, I'll turn to Kevin.

Thank you, Mihales. I will begin by summarizing our financial results for the first nine months of 2021 before turning to discuss the third quarter of 2021.

Total revenues for the first nine months of 2021 were $200.7 million, an 11% increase compared to $180.5 million for the same period in 2020.

HETLIOZ net product sales of $129.5 million were the primary contributor and driver of our revenues for the first nine months of 2021 and saw an 11% increase compared to $116.5 million for the same period in 2020.

Fanapt net product sales of $71.2 million for the first nine months of 2021 reflect an 11% increase compared to $64 million for the same period in 2020.

For the first nine months of 2021, Vanda recorded net income of $26.1 million compared to net income of $15.1 million for the same period in 2020. Net income for the first nine months of 2021 included an income tax provision of $7.7 million as compared to an income tax provision of $5.6 million in the same period in 2020.

Vanda's cash, cash equivalents and marketable securities, referred to as cash, as of September 30, 2021, were $406 million, representing an increase of $57.4 million compared to September 30, 2020.

Turning now to our quarterly results. Total revenues for the third quarter of 2021 were $70.1 million, a 16% increase compared to $60.3 million for the third quarter of 2020.

HETLIOZ net product sales were $45.6 million for the third quarter of 2021, a 15% increase compared to $39.6 million in the third quarter of 2020.

Fanapt net product sales in the third quarter of 2021 were $24.5 million, an 18% increase compared to $20.7 million in the third quarter of 2020. Fanapt net product sales in the third quarter of 2021 increased by 5% as compared to $23.4 million in the second quarter of 2021. Fanapt prescriptions in the third quarter of 2021, as reported by IQVIA Xponent, were essentially flat as compared to the second quarter of 2021.

For the third quarter of 2021, Vanda recorded net income of $7.8 million compared to net income of $5.9 million for the third quarter of 2020. Net income for the third quarter of 2021 included an income tax provision of $3 million as compared to an income tax provision of $2.5 million for the same period in 2020.

Operating expenses in the third quarter of 2021 were $59.3 million compared to operating expenses of $52.6 million in the third quarter of 2020. The $6.7 million increase was primarily driven by higher R&D expenses related to the late-stage tradipitant, HETLIOZ and Fanapt development programs as well as our early-stage development programs, partially offset by lower SG&A expenses related to awareness and branded DTC campaigns.

Vanda is providing an update to its prior 2021 guidance. Vanda expects to achieve the following financial objectives in 2021: Net product sales from both HETLIOZ and Fanapt of between $260 million and $290 million. This compares to prior guidance of between $270 million and $300 million. HETLIOZ net product sales of between $170 million and $190 million. This compares to prior guidance of between $180 million and $200 million. Fanapt net product sales of between $90 million and $100 million. Year-end 2021 cash of greater than $400 million.

Vanda is revising its full year 2021 HETLIOZ net product sales guidance to between $170 million and $190 million. Prior full year 2021 HETLIOZ net product sales guidance of between $180 million and $200 million was based on key assumptions around HETLIOZ demand and payer approval rates, among others. HETLIOZ demand, measured by prescriptions received, has been consistent and continues to far exceed the prescriptions filled. Payer approval rates were expected to be in line with historical trends; however, reimbursement challenges from payers to fill HETLIOZ prescriptions for patients with Non-24 have increased significantly. Vanda is working with patients in an effort to improve their access to the only FDA-approved treatment for their condition.

Given these challenges and the timing during the year, we've revised downward our full year 2021 HETLIOZ net product sales guidance. The lower end of the revised guidance range assumes minimal to no improvement in patient access and reimbursement challenges in the fourth quarter, while the high end of the revised guidance range assumes improvement during the period.

With that, I'll now turn the call back to Mihales.

Thank you very much, Kevin. At this point, we would be happy to answer any questions you may have.

(Operator Instructions) Our first question comes from Chris Howerton with Jefferies. Chris, your line may be on mute.

I was. I was -- I had some great questions you didn't hear. Thanks so much for taking them. I guess the two from me would be, Mihales and Kevin, if you can just give us a little more color around what the specific reimbursement challenges are? Are there just not being reimbursed at all? Are there more prior authorizations? I guess just what exactly are some of the challenges that you're facing there?

And then the second question I have is respect to the gastroparesis readout. One of the key changes that you highlighted, Mihales, was the increased duration of treatment from the prior -- I think it was 4 weeks to 12 weeks currently. I guess talk to us about why do you think that there would be an improvement of the drug effect over time or alternatively, maybe just the difference between the placebo arm over time?

Yes. Thank you very much, Chris. I'm happy to answer part of your first question. I'll also let Kevin give more color.

But, the challenges with payers, of course, are not new, and what is new is they've escalated. And what the effect primarily is an increased number of denials among Non-24 patients with light perception, while the reimbursement rates for blind patients with Non-24 remained at near their historical norms. And we began seeing actually a good coverage on SMS as well.

It is the Non-24 patients that are sighted or they had light perception. And, there, what we see is not some new criteria or some alternative treatments because no alternative treatment exists. It is just from some payers a flat-out denial, pretty much a denial is that we don't reimburse you because you're sighted.

And, of course, this is of a tremendous issue for the patients, but also it's contrary to what the FDA label is and the clarification by Dr. Woodcock in 2020 in a long letter where she explained that the indication is for Non-24 without a consideration to visual acuity. So pretty much that's the content, and maybe I will let Kevin add more color on timing versus flat-out denial.

Yes. That's exactly right, Mihales. What I would layer on to that is as I highlighted in my script, we continue to see consistent strong demand from patients and prescribers. So not a demand issue here, simply an access issue.

And as this has began to escalate in recent periods, there's been a fairly significant backlog of patients who are seeking access to the drug, which could be very meaningful if even a fraction of that is able to convert in either the fourth quarter or in future periods.

And, so, in working, as Mihales mentioned, engaging with these payers to understand their objections and find a path forward given the significant backlog and folks needing access to this important treatment.

And just to add, for Vanda, this is a very important issue out of principle. We believe we developed these innovations to help people. If people cannot access the drugs, the innovations are actually wasted.

And it is important that we stand up for patient access, we do our part and have a reasonable discussion with the payers because as a community, it will not be sustainable if payers just of whatever financial interest they would refuse to pay for a drug that is the only option for these patients. And, Vanda is very often to discuss conditions even value-based contracting, which are becoming popular for expensive drugs to make sure we provide access to the patients.

So the issue escalated. It was not new. We're definitely doing everything that needs to be done to make sure these patients get on treatment and, as a result, Vanda benefits, of course, through the revenue. I don't know if you had any follow-up on this, Chris. Otherwise, I will switch to the gastroparesis study.

No, that's clear. No, I appreciate all the extra information there, yes. Thank you.

Good. Of course. Okay. On the gastroparesis, your question was one of the different design is between the four-week and the 12-week study, correct?

Yes. And I think -- I mean, maybe I'm putting words in your mouth, but intimating that the drug effect would be improved over time or perhaps the difference between the placebo and the drug would improve over time. And again, maybe I'm putting words in your mouth, excuse me.

Okay. Well, the interest is that for a condition that is not lasting a few days, it is important to understand the durability of the effect. And therefore, while we're measuring the effect of the drug at four weeks, we're also measuring at 12 weeks.

What we know from the screening data is that the condition does not often dissipate very quickly over a short period of time. So to answer the question, whether we expect an increased placebo effect over time, the answer is likely not because of the nature of the disorder.

And, the other side of the question, do we expect dissipation of the effect of the drug? And, the answer is likely not because mechanistically, binding the neurokinin-1 receptor is not anticipated that you will develop tachyphylaxis meaning that you take the drug, but at some point, it stops working.

So the answer is likely we're not going to see much difference of effect between four and 12. And maybe for some people that takes a little longer to improve the symptoms, we could see continuous improvement beyond the four weeks to 12 weeks.

Okay. Very good. And I guess, I mean, maybe if you would entertain a follow-up on the other kind of topic of discussion. I think I just went and browsed the label. There were no sighted patients in the pivotal trial for Non-24. So is that kind of what payers point to? Or what are some of the things that they point to to say that sighted individuals should not be covered or reimbursed from their perspective?

Yes. Well, I -- what is all disappointing is that they say why they don't cover it because you're sighted, right? But, we have not seen really in writing these objections to have a reasonable discussion.

But, anecdotally, just decided -- there were not sighted patients in the study and decide a guidelines before the drug was actually placed in the market that they're silent about the existence of tasimelteon, HETLIOZ. But more importantly, the answer comes directly from several sources.

First one is the expert of the advisory committee, who advised the FDA on approval. The division at the time of the FDA who actually gave us the label of Non-24 despite the fact that the clinical study for control reasons was conducted in totally blind individuals.

And, finally, the answer by the FDA is Dr. Woodcock as a head of CDER at the time in 2020, she actually responded to a citizen's petition who is petitioning the FDA to change the indication for HETLIOZ from Non-24 to Non-24 and blind people, giving some rationale. The FDA and Dr. Woodcock signed it, explained the reasons why this is not true.

The mechanism of action of the drug and the disease is such that the FDA understands that studies are conducted in populations where there is a better control of the action of the drug and that HETLIOZ is approved for the full indication without any consideration of visual acuity. And finally, that's something, Chris, that we have not really talked much.

Over the last several years, 4,000 doctors have written prescriptions for about 10,000 Non-24 patients who are not blind. So it is hard to have a reasonable discussion with a payer who believes that they know better than the advisory committee, the FDA division, Dr. Woodcock and the 4,000 doctors who have prescribed the drug.

So I -- we're optimistic that we're going to get down to a reasonable dialogue. And, we understand that there are concerns about cost and absolutely, we appreciate that. And, we're open to do anything it takes to make sure these patients are on drug, and they're not disincentivized to seek treatment because that's not a sustainable outcome.

Very good. Well, Mihales, I really appreciate it. Thank you and I will hop back in the queue.

Thank you, Chris.

Our next question comes from Olivia Brayer with Bank of America.

Congrats on the quarter. I wanted to ask about your development plans for Fanapt in bipolar and whether there have been any discussions so far with FDA around potentially needing a second Phase III confirmatory study. Is the second trial something that you're planning for at this point? Or do you really feel confident that one trial is enough for a complete filing package down the road? And, then I've got a couple of follow-ups.

Yes. Thank you very much, Olivia. Correct that we believe that a successful study of Fanapt in improving the symptoms of bipolar disorder in this large study can provide the substantial evidence of efficacy required to support this indication.

And, I would remind you that the FDA guidance anticipates for drugs that are approved in different indications, they treated a lot of people, that additional indications could be pursued by a single trial.

Of course, the results of the trial play a big role on that decision. So, I would say we wait for the trial results, and we're optimistic that if the results are convincing that this evidence will suffice.

Okay. Great. Thanks. And then we're obviously getting pretty close, Mihales, to your gastroparesis data. I know that trial has been fully enrolled for about two months now.

So can you just give us a sense of how long it could take between the close of that study to the actual disclosure of the data? And, as a follow-up to that, how you're thinking about turnaround time in terms of a pre-NDA meeting and then official filing.

Yes. Thank you very much. Just to finish, I remember you had another part on your bipolar question about FDA discussions. And we're continuously having our protocols reviewed and adjusted based on advice of the FDA on the bipolar study. And they have actually provided very thoughtful and useful comments on the development of the long-acting injectable as well.

On tradipitant, yes, the enrollment finished about last patient in two months ago. And, since this is a three-month, 12-week study, we expect the last patient to complete really at the end of this month. And, then hopefully, with a quick turnaround of monitoring and closing the data, we can lock the database sometime towards the end of December. And, we can report top line results by the end of the year. That's certainly our goal. It's a very tight time line.

Now in terms of preparing towards NDA application, we will be in very short order requesting an NDA meeting right after we see the data, a pre-NDA meeting, which hopefully can be granted sometime in the first quarter. And, we have already initiated the path towards pre-NDA meeting for the manufacturing section of this application. So, that's where it stands with this timing.

Okay. Great. And, then just one last one for me on BD. I know you guys get asked a lot about cash deployment, and you obviously have a lot of programs to manage internally. But, is there an area where you feel like you'd maybe benefit most from in-licensing another asset that's in clinical development?

Yes. At this time, I would say that we have a few things in clinical development, and we want to do them well. However, we are always looking for in-licensing.

I remind you that we have a program with the in-licensing from the University of California in San Francisco on the CFTR inhibitors and activators. We have a program in social phobia with in-license the Alpha-7 nicotinic program, the VQW from Novartis. So there are things in the pipeline, but we are always trying to be mindful.

In terms of business development, we're certainly thinking of how to strengthen our presence with our sales force on the commercial setting and always looking for complementary products that will not detract from our own calls, but at the same time, give us additional time and offerings to the physicians we serve.

Okay. Perfect. Thank you very much.

Thanks, Olivia.

That concludes today's question-and-answer session. I'd like to turn the call back to Vanda management for closing remarks.

Yes. Thank you very much, all. And I'm sure we're going to be talking soon around exciting results on the tradipitant program. Thank you very much.

This concludes today's conference call. Thank you for participating. You may now disconnect.