Welcome to the Q1 2016 Vanda Pharmaceuticals Incorporated Earnings Conference Call. My name is Adran, and I’ll 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 this conference is being recorded. I’ll turn the call over to Jim Kelly, Senior VP and Chief Financial Officer. Mr. Kelly, you may begin.

Great. Thank you, Adran. Good afternoon and thank you for joining us to discuss Vanda Pharmaceuticals' first quarter 2016 performance. Our first quarter 2016 results were released this afternoon and are available on the SEC EDGAR system and our Web site, www.vandapharma.com. In addition, we’re providing live and archived versions of this conference call on our Web site. Joining me on today’s call is Dr. Mihael Polymeropoulos, our President and CEO; Gian Piero Reverberi, our Chief Commercial Officer. Following my introductory remarks, Dr. Polymeropoulos will update you on our ongoing activities. Then I’ll comment on our financial results 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, 2015 and on our subsequently filed quarterly reports on Form 10-Q, which are available on the SEC EDGAR system and on our Web site. 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 are under 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 like to turn the call over to our CEO, Dr. Mihael Polymeropoulos.

Thank you very much, Jim, and good evening everybody. During this first quarter, we made significant progress in implementing our commercial strategy. In the U.S., we continued successfully implementing our Group strategy. Let me start with HETLIOZ. HETLIOZ net product sales grew to $16.2 million in the first quarter of 2016, a 7% increase compared to $15.1 million in the fourth quarter of 2015 and a 117% increase compared to $7.5 million reported in the first quarter of 2015. Most of our new patient demand continued being driven by our opt-in database. The main driver of opt-in growth continues to be through our direct to consumer campaign, which is still performing in an unsaturated money. In file, we continued our effort to maximize the opportunity coming from our partnerships, [indiscernible] advocacy groups and rehabilitation centers to continue raising awareness for non-24. During the first quarter, we also identified several opportunities to continue improving the efficiency of our opt-in to dispense processes. Fanapt net product sales were $17.1 million for the first quarter of 2016, a 2% increase compared to $16.7 million in the fourth quarter of 2015, and a 16% increase compared to $14.7 million reported in the first quarter of 2015. In the first quarter, we observed a sequential decline in demand of approximately 6% according to IMS data. In the 50 territories, in which we began promoting Fanapt through our sales force, we observed a significantly lower rate of demand decline as compared to non-promoted territories. As a reminder we increased our field force from a 12 person pilot to a 50% person team in December of 2015. While it is too early to predict future trends, we’re encouraged by these results and a firm of previous guidance for the year. In Germany, we’re on track for the…

Thank you, Mihael. Total revenue for the first quarter of 2016 was $33.3 million, 4% increase compared to $31.8 million in the fourth quarter of 2015 and 50% increase compared to $22.2 million in the first quarter of 2015. HETLIOZ net product sales grew to $16.2 million in the first quarter of 2016. This reflects a 7% increase compared to $15.1 million in the fourth quarter of 2015 and 117% increase compared to 17 -- or $7.5 million in the first quarter of 2015. As of March 31, 2016 the specialty pharmacy channel held less than two weeks of inventory as calculated based on trailing demand. Units dispensed to patients by the specialty pharmacies continue to grow quarter-over-quarter. However, similar to the first quarter of 2015, we saw a reduction in refills in January, which was followed by stronger performance for refills in February and March. We attribute this to payer dynamics specific to the start of the year. Fanapt net product sales grew to $17.1 million in the first quarter of 2016, a 2% increase compared to $16.7 million in the fourth quarter of 2015 and a 16% increase compared to $14.7 million in the first quarter of 2015. Fanapt script sales reported by IMS were 31,240 and reflect 6.2% sequential decline when compared to the fourth quarter of 2015. You will see in our press release that Vanda is offering non-GAAP financial information. We do so, because we believe the non-GAAP financial information can enhance the overall understanding of our financial performance when considered with GAAP figures. During 2015 and ’16, Vanda non-GAAP net loss excludes stock-based compensation and intangible asset amortization. On a non-GAAP basis, during the first quarter of 2016, Vanda recorded a non-GAAP net loss of $7.1 million as compared to a non-GAAP net loss of $10 million in the fourth quarter of 2015, and compared to a non-GAAP loss of $4.1 million in the first quarter of 2015. On a non-GAAP basis, for the first quarter of 2016, Vanda recorded non-GAAP operating expenses of $34.6 million compared to $35.7 million in the fourth quarter of 2015. Vanda’s cash, cash equivalents, and marketable securities referred to as cash, as of March 31, 2016 were $138.3 million compared to $143.2 million as of December 31, 2015. Vanda reiterates its prior guidance and expects to achieve the following financial objectives in 2016. Net product sales from HETLIOZ and Fanapt of between $143 million and $153 million. HETLIOZ net product sales of between $73 million and $78 million. Fanapt net product sales of between $70 million and $75 million. Non-GAAP operating expenses excluding cost of goods sold of between $125 million and $135 million. Non-GAAP operating expenses excludes intangible asset amortization expense of $10.9 million and stock-based compensation of between $9 million and $11 million. Year-end 2016 cash is expected to be between $123 million and $143 million. I’ll now turn the call back to Mihael.

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

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question is from Jason Butler from JMP Securities. Please go ahead.

Hi. Thanks for taking the question and congrats on a great quarter. Mihael, could you just maybe give us some more color on the efforts you’re continuing to make to improve the efficiency of the HETLIOZ commercial process?

Yes, certainly. I can give you an overview. I’m not going to go to specific details. There are three key things that we are putting all of the effort in fact to better understand and then improve. The first one is the timing that it takes from the time a patient gets a script until they get their first fill. We have made very significant improvements based on processes instituted in the fourth quarter, and now we start being able to see measurable effect of decreasing the time to feel the first script, and that is going to [indiscernible] that is very important. These patients who’ve made a significant step towards treatment and the last thing they want, is to be waiting for a long period of time until the insurance clears the approval of the script. The second part is the actual number of script that are being filled, and that is improving and it is part of the same effort of decreasing the time to approval of better understanding the requirements by payers on prior authorization requirements, working with physicians to make sure that they timely complete this information and provide any information necessary to continue to improve the process. The third part which is becoming now quite important is that of refill. Well after six months or so on treatment, refills continue to be very strong. Patients are refilling with frequencies in the upper 90 percentile. It is very important because there is a compounding effect of attrition although small. So we’re implementing now and testing ways to further improve that refill rate.

Okay, great. That’s very helpful. And then, just in terms of the Smith-Magenis program. Can you talk a little bit about what data we might see from the pile of study? What information that might give us in terms of looking forward to the Phase III program and then when we might get that data?

Yes. There are two components in this clinical data which we compare to baseline. One is a objective component, and has to do with analysis of the sleep-wake daily data based on actigraphy. And the second one is, the subjective rating by the patents of these patients on the quality of the nightly sleep. So what we would expect is that, thus melatonin will have an effect of improving both subjective and objective measures. While we’re doing that of course we’re learning a lot about the disorder in its expression since I want to point out, there has never been a clinical development program in this disorder. And therefore there is a dual challenge not only to identify whether the drug works, but also identify what is important to measure. As I said the recruitment in this study is ongoing. I would say we’re about half way with recruiting patients, and as soon as we understand this data we want to do two things. One is, further improve the design of a pivotal study and equally important to reach a common understanding with the FDA on the types of endpoints that should be used in the pivotal study.

Okay, helpful. Thanks, and thanks for taking the questions.

Sure.

And your next question comes from Christopher Howerton from Jefferies. Please go ahead. Chris, your line is open.

Sorry about that, I was muted there. I apologize. I apologize again. Jim, I just wanted to confirm for the 1Q numbers. I think historically you have mentioned in the past that gross to net margins are a little bit higher in the first quarter. Has that been the same experience with this first quarter of 2016? I think its just striking given that the growth that we’ve seen at HETLIOZ sales quarter-over-quarter given that expectation.

Hi, Chris. Yes, that is the correct expectation and that is what we see. Every Q1, we see that specific to Medicare the coverage gap liability plays a pretty important role in sequential increase in our gross to net from Q4 to Q1.

Okay, great. And then, I was just curious if you could give us any more color around the launch in Germany. Has pricing been set there and have you -- are you able to articulate anything else about the strategy in terms of targeting patients within that territory?

So, that’s actually a perfect question for Gian Piero Reverberi. Actually I want to welcome, Gian Piero. This is his first call as our -- officially our Chief Commercial Officer. But of course as you’ll know, he’s the General Manager in Europe. So he’ll be happy to review our activities in, Germany. Gian Piero.

Hi, Chris. So, yes, we -- as you know we’ve been working on our launch preparation in Europe now for almost one year. Our first priority is Germany and we are well on track for a launch in Germany in the third quarter of this year. We will have 12 months of free pricing after launch during which we’ll progress with the pricing reimbursement and negotiation with GBA. After Germany we continue assessing and looking for other opportunities. Our priority markets are of course the UK, France and Italy, and we have already started our effort to start raising awareness and going through the pricing and reimbursement, you will see a preparation. Overall, we continue keeping our investment well under control until we have more clarity about the potential, particularly under the pricing reimbursement point of view. And for the smaller European market, we are considering and looking to potential distribution partnership, but these are not considered our priority right now. I would probably progress with those later on to share.

Got it. And just to kind of press on that a little bit is, is it fair to say that your efforts as of now are to increase disease awareness with the hopes that that will then increase demand for HETLIOZ?

Yes. Chris, you are asking whether the primary effort marketing in Germany is based on awareness. That is correct. And just to point out the other thing that the team is doing in Europe is trying to really understand what is the best system of identifying doctors who will be the prescribers. You remember in the U.S. [indiscernible] there was a debate for the prescribers we found out that primary care doctors are not, sleep doctors are the primary prescribers. It is not clear yet in Germany whether this is going to be in centers of excellence, whether they’re going to be [indiscernible] experts or a mixture with primary care doctors. And the complexity beyond this call now has also to do with individual doctor’s budget for medication something that is unique in Germany and not applicable to the U.S.

I see, okay. All right. I’ll go ahead and hop back in the queue and let others ask questions. Thank you.

Sure.

We have no further questions at this time. And I’ll now turn the call back over to Vanda management for closing remarks.

Actually we have Chris, and then maybe others in the queue.

Thank you. [Operator Instructions] And Chris is back in the queue.

Okay. Hi, there. So, I guess just the last set of question I had was, anymore information you might be able to give us on the Tradipitant study in terms of specific learnings that we had from the last phase to outside of just the twice a day dosing. Do you expect it to be a similar endpoint? Have you identified different patients that you think will be better responders or anything of that nature?

The patient characteristics are relatively the same with one difference. The similarity is that there are patients with atopic dermatitis, resistant to other treatment of a degree of severity similar to the -- on the pivotal study. A key difference is that the study is now conducted in the U.S. in multiple sites versus the German study with just two sides before. Otherwise there are improvements in the design and the timing of evaluations which are learnings from the prior study.

Got it. So when you’re testing patients basically when you expect them to have higher drug levels if I remember correctly?

Yes, just to be very clear with everybody, what we identified in the early, in the first Phase II study is that the improvements we’re mostly seeing among patients that had higher levels of the drug in their bloodstream at the time of evaluation. And this was an interesting phenomenon, because this is a drug that could be compatible with once a day dosing. However, there is a bias in reporting for patients who have scored their degree of itch on a digital-analog scale instead of the question of how were your symptoms over the last 24 hours. They are more likely to report, how they feel at the time of the question. And that is why making sure that patients are evaluated to a specific window during the day and that there is a constant drug level in their bloodstream without intraday variations became very important in the design of this study.

Got it, okay. All right. Well, great. Thanks for the added information.

Sure.

And the next question comes from Difei Yang from Brean Capital. Please go ahead.

Thank you, and good afternoon. Thanks for taking my question. Just a quick on Fanapt. So we have maintenance therapy indication for schizophrenia coming up on May 27. Could you talk to us about the implication of this approval, let’s assume it is approval to the pending litigation.

Thank you very much for the question. Just to frame for everybody, this supplemental NDA provided the FDA with substantial clinical data including data for the maintenance indication of schizophrenia. And this data were discussed before, they are from the REPRIEVE study, which further confirm and enhance our understanding of efficacy of other patient for the treatment of schizophrenia especially in the prevention of relapse. It is unrelated to give growing litigation, the patents are not involving specifically a maintenance indication. But I wanted to point out that if approved, this sNDA would qualify for a three-year data protection exclusivity from the time of approval as a new indication and this is consistent with exclusivity that the FDA has awarded under similar circumstances in other drugs. So it is our full expectation that upon approval we should be awarded a three-year exclusivity for this additional clinical data that include the maintenance indication.

Thank you for the clarification. Then let me just ask a follow-up question still, in the case if you get this approval and get the three-year market exclusivity. So in the case a generic entry, so the generic can really only go after the acute treatment of schizophrenia, not for this indication. So somehow the two indication has to be splitted?

Thank you very much for this question, Difei, and it is actually a very important one. It has been our position that we do not believe that a generic can edit and parse the current U.S. label. And therefore we believe that this sNDA with this additional data should provide a three-year exclusivity across the entire Aloperidin [ph] label. Of course that is to be decided by the FDA, and we’ll find out.

Thanks for the clarification.

I’ll now turn the call back over to Vanda management for final remarks.

Well, thank you very much all for joining us with this first quarter call. Thanks for your questions, and we look forward talking to you next quarter. Thank you.

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