VNDA (2021 - Q3)

Good day and thank you for standing by. Welcome to the Third Quarter 2021 Vanda Pharmaceuticals Conference Call. At this time, all participant lines are in a listen-only mode. After the speakers’ presentation, there will be a Question-And-Answer Session. I would now like to hand the conference over to your host today, Kevin Moran, Vanda’s Chief Financial Officer. Please go ahead. Kevin Mo

Thank you, Luz. 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. Mihael Polymeropoulos, our President, Chief Executive Officer and Chairman of the Board. Following my introductory remarks, Mihael 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. Mihael 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 3 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 were $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, the 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 resistance for payers to HETLIOZ prescriptions for patients with non-24. We have engaged in discussions with several payers and 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 investment 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 it would be little to no resolution of the patient access is 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 night time 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 the trajectory of the number of patients on treatment, at this time it 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 lifecycle 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. The has been initiated. DSWPD is likely the most prevalent Circadian rhythm sleep disorder affecting approximately 1% of the population and in 7% to 10% of patients with disorders of initiating or maintaining sleep. The prevalence of the late sleep wake phase disorder is highest in adolescence 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 syndromes in the SWPD 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 we are beginning to quantify DSWPD patients who can complete for this disorder. I would now turn to tradipitant. The Phase 3 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 this study, we plan to meet with the FDA for a pre-NDA meeting and discus 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 measures the effect of tradipitant in improving the symptoms of gastroparesis. This Phase III study follows the successful completion of a 4-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 pre-specified 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 effects 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 studies 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 4 weeks in the prior study. Third, in the current study, a vomiting episode during the staying 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 each 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 request 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 highlighted that a population based study in Minnesota in the United States estimated that the age of the incidence of gastroparesis during the ten year period was 2.4 patients per 100,000 person-years for men and 9.8 patients per 100,000 persons-years for women. Prevalence was estimated to be 9.6 patients per 100,000 men and 37.8 patients per 100,000 women. Some in the results 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 exists diagnostic confusion caused by lapse 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 in 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 with 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 continued discussions with the FDA regarding the regulatory partial approval and preparing for the commercial launch. With this, I will turn it to Kevin.

Thank you, Mihael. I'll 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, a 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 a 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, reflects 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’s 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 nothing 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 on HETLIOZ demand and payer approval rates among others. HETLIOZ demand is 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 for filled HETLIOZ prescriptions for patients with non-24 have increased significantly. Vanda is working with patients in an effort to improve their access t 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 with the high end of the revised guidance range assumes improvement during the periods. With that, I’ll now turn the call back to Mihael.

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

Our first question comes from Chris Howerton with Jefferies. Chris, your line maybe on mute.

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 Mihael 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 are more prior authorizations, I guess, just to what exactly are some of the challenges that you are facing there? And then, the second question I have is with respect to the gastroparesis read out. One of the key changes that you highlighted Mihael was the increased duration of treatment from the prior – I think it was four 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? Thank you.

Yes. Thank you very much, Chris. Happy to answer part of your first question and 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 are the effects primarily is a increased number of denials among non-24 patients with light perception. While the reimbursement for blind patients with non-24 remain at near their historical norms and we began seeing actually good coverage on SMS, as well. It is the non-24 patients that are cited or they have light perception. And there what we see is, not some new criteria or some alternative treatments because no alternative treatment it is. It is just from some payers it led out to denial, pretty much the denial is that we don’t reimburse you because you are 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 whereas he explain 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 the timing versus flood out denials.

Yes. That’s exactly Mihael. And 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 has been a fairly significant backlog of patients who are seeking access to the drug, which could be very meaningful fraction of that is able to convert in either the fourth quarter or in future periods. And so, working as Mihael 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 it payers just to whatever financial into this they would refuse to pay for drugs that is beyond the option for these patients. And Vanda is very often to discuss conditions in the 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 are definitely doing everything that needs to be done to make sure these patients get on treatment and as a result, Vanda benefits of course to the revenue. I don’t know if you have any follow-up on this, Chris? Otherwise I will switch to the gastroparesis question.

No, that’s clear. And I appreciate all the extra information that you gave. Thank you.

Good. Of course. Okay on the gastroparesis, your question was what are the difference in the design is between the four weeks and the 12 weeks study, correct?

Yes. And I think, I mean, maybe I am 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 am putting words in your mouth, excuse me.

Okay. Alright. Well, the intimacies that for the condition that is not lost in a few days. It is important to understand the durability of the effect. And therefore, while we were measuring the effects of the drug at four weeks, we are 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 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 are not going to see much difference of the effects between 4 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 – pardon me – what are some of the things that they point you to say that sighted individuals should not be covered or reimbursed from their perspective.

Yes. Well, what is all disappointing is that, they say why they don’t cover it, because you are sighted, right. But we have not seen really in writing this objections to have a reasonable discussion. But anecdotally, yes, the sighted they were not sighted patients in the study. And they cite a guidelines before the drug was actually placed in the market that they are silent about the existence of But more importantly, the answer comes is actually from several sources. First one is the experts of the advisory committee, who advise 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 controller reasons was conducted in total blind individuals. And finally, the answer by the FDA is Dr. Woodcock as the head of CDER at the time in 2020, she actually responded to a citizen’s petition who has petitioned in the FDA to change the indication for HETLIOZ from non-24 to non-24 in blind people given some rational. The FDA and Dr. Woodcock signed it, explained the reasons why this is not through. The mechanism of action of the drug in the disease is such that the FDA understands that studies are conducted in populations where there is better control of the action of the drug and that HETLIOZ is approved for the full indication without any consideration of visual activity. And finally, and that 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 the 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, we are optimistic that we are going to get down to reasonable dialogue and we understand that there are concerns about costs and absolutely we appreciate that and we are open to do anything it takes to make sure these patients are on drug and they are not disincentivized to seek treatment because that’s not a sustainable outcome.

Very good. Well, Mihael, 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.

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

Yes. Thank you very much, Olivia. Correct that we believe that a successful study of Fanapt in improving the – of bipolar disorder in this large study can provide the substantial evidence of efficacy required to support this indication. And I will remind you that the FDA guidance anticipates for drugs that are approved in different indications, it treats a lot of people that additional indications could be pursued by a single channel. 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 are optimistic that if the results are convincing, that this evidence will suffice.

Okay. Great. Thanks. And then, we are obviously getting pretty close, Mihael, 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 are 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 are continuously having our protocols reviewed and adjusted based on advice of the FDA on the bipolar study. And they have action provided very thoughtful and visual 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 the quick turnaround of monitoring and closing the data, we can lock the database sometime towards the end of December and we can report the planned results by the end of the year. That’s certainly our goal. It’s very tight timeline. 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 is 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 the 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 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 developments and we want to do them well. However, we are always looking for in-licensing, remind you that we have a program with the in-licensing from the University of California San Francisco on the CFTR inhibitors and activators. We have a program in social phobia with an in-licensed alpha-7 nicotinic program to VQW from Novartis. So they are things in the pipeline, but we are always trying to be mindful. In terms of business development, we are certainly thinking of how to strengthen our prevalence with our sales force on the commercial setting and always looking for complementary products that will not detract from our own course, but at the same time, give us additional time and offerings to the physicians we search.

Okay. It’s terrific. 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 am sure we are going to be talking soon around exciting results of the year and progress. Thank you very much.

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