Vanda Pharmaceuticals Inc. (VNDA) Q2 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to Vanda Pharmaceuticals’ Second Quarter 2019 Earnings Conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded.I’d now like to introduce one of your hosts for today’s conference, Jim Kelly, Executive Vice President and Chief Financial Officer. You may begin.

All right. Thank you, Tiffany. Good afternoon and thank you for joining us to discuss Vanda Pharmaceuticals’ second quarter 2019 performance. Our second quarter 2019 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 and CEO. Following my introductory remarks, Mihael will update you on our ongoing activities. I will then comment on our financial results, before opening the line to 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 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, 2018, and quarterly report on Form 10-Q for the quarter ended March 31, 2019, which are available on the SEC’s 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 now like to turn the call over to our CEO, Dr. Mihael Polymeropoulos.

Thank you very much, Jim. Good afternoon, everyone, and thank you very much for joining us. As we reported today Vanda’s revenue from our commercialized products reached a new record, while at the same time, we showed significant revenue growth, especially for HETLIOZ. Our performance in the second quarter demonstrates the strength of our position in the market and our ongoing commitment to pursue value enhancing opportunities with the objective of driving long-term sustainable growth. This great performance is also a testament to the hard work of our commercial department, and especially our sales force who continue to increase awareness of our products to both patients and their doctors.We also made significant progress on our assets in clinical development, and I will discuss just a few highlights. We advanced the clinical development of tradipitant are neurokinin-1 receptor antagonist for all three indications. On gastroparesis, we had a successful end of Phase II meeting with the FDA and initiated a Phase III study. On atopic dermatitis, the Phase III EPIONE study continues enrollment and is on track to report the results in the first half of 2020.On motion sickness, we recently reported the results from the Phase II Motion Sifnos study were tradipitant, so significant and large therapeutic effects in prevention of vomiting in a both study conducted earlier this year in the Pacific Ocean. We plan to meet with the FDA and [chartered path] [ph] of a clinical program towards an NDA filing for motion sickness later in 2020.On HETLIOZ, we reported an update on the FDA review of the supplemental NDA for jet lag. On July 19, the FDA issued a Deficiencies Preclude Discussion form letter. This letter did not state any specific deficiencies. The PDUFA date remains August 16, and we will [away to hear] [ph] what the potential deficiencies are and work expeditiously with the FDA towards a successful resolution.The rest of the pipeline projects including the upcoming regulatory filing for HETLIOZ in the treatment of Smith-Magenis Syndrome patients. The development of the long acting injectable formulation for iloperidone, and preparations for the conduct of a study in bipolar disorder with oral iloperidone continue to advance as planned.In summary, we’re very excited with a significant progress on our commercial performance as well as the advancement of our clinical pipeline. Jim?

All right. Thank you, Mihael. As Mihael was highlighted during the second quarter of 2019, we saw exceptional, sequential and year-over-year revenue growth. Total net product sales for the second quarter of 2019 were $59.1 million, a 24% increase or $11.3 million compared to $47.7 million in the first quarter of 2019, and a 25% increase compared to $47.4 million in the second quarter of 2018.HETLIOZ net product sales were $37.8 million for the second quarter of 2019, a 31% increase compared to $29 million in the first quarter of 2019, and a 35% increase compared to $28 million in the second quarter of 2018.The HETLIOZ patients on therapy number continues to grow quarter-over-quarter. In fact second quarter 2019 new HETLIOZ patient starts were the highest since launch, as a result of the sequential growth in both patients on therapy and units dispensed to patients in the second quarter of 2019 was the largest since our early launch quarters in 2014. We plan to revisit HETLIOZ full year guidance again in the context of third quarter performance.As of June 30, 2019, the specialty pharmacy channel held less than two weeks of inventory as calculated based on trailing demand. Specialty pharmacies inventory on hand at the end of the second quarter of 2019 was higher when compared to the first quarter of 2019. The value of this inventory change was approximately $0.5 million.Fanapt net product sales of $21.2 million in the second quarter of 2019 reflect a 13% increase, when compared to $18.8 million for the first quarter of 2019, and a 10% increase compared to $19.3 million in the second quarter of 2018. As of June 30, 2019, wholesalers have increased inventory on hand when compared to the first quarter of 2019. The value of this inventory change was approximately $100,000. Fanapt prescriptions as reported by IQVIA Xponent increased 3% compared to the first quarter of 2019. Prescription trends remain consistent with our full year 2019 financial guidance.On a non-GAAP basis for the second quarter of 2019, Vanda recorded a non-GAAP net income of $15 million compared to non-GAAP net income of $7.7 million in second quarter of 2018. On a non-GAAP basis for the second quarter of 2019, Vanda recorded non-GAAP operating expenses, excluding cost of goods sold, stock-based comp and intangible asset amortization, of $39.3 million compared to $35.1 million in the second quarter of 2018. The $4.2 million increase year-over-year, and non-GAAP operating expenses was primarily the result of the increased spend on corporate and legal activities.We expect non-GAAP operating expenses to continue to rise as we continue through 2019 driven primarily by R&D activities of particular note are the new tradipitant Phase III studies for gastroparesis and motion sickness. We continue our progress in 2019 with a strong commercial business and a capital position to fund the development of our innovative programs as we seek to drive future growth.Vanda’s cash, cash equivalents and marketable securities referred to as cash, as of June 30, 2019 were $292.3 million compared to $267.8 million, as of March 31, 2019 representing an increase to cash of $24.8 million during the second quarter of 2019.Vanda reiterates its prior 2019 net product sales guidance, it provides an update to year end 2019 cash and expects to achieve the following financial objectives in 2019. Net product sales from both HETLIOZ and Fanapt of between $215 million and $225 million; HETLIOZ net product sales of between $137 million and $143 million; Fanapt net product sales of between $78 and $82 million. Year-end 2019 cash is expected to be greater than $275 million. This compares to prior guidance of greater than $260 million.With that, I’ll turn the call back to Mihael.

Thank you very much, Jim, happy to answer any questions you may have.

[Operator Instructions] And our first question comes from Jason Butler with JMP Partners. Please proceed.

Hi, great. Thanks for taking the questions. This is Roy on for Jason. I had a couple of pipeline questions, maybe I missed, I’m sorry, Mihael. Just can you provide an update on the end of Phase II meeting for SMS and for the bipolar study for Fanapt. What kind of patients are looking to enroll, I guess, the proportion of patients with depression versus mania? Thanks.

Yeah. Sure. As we’ve discussed in the past on Smith-Magenis Syndrom, the entire program is based on one the largest in the world crossover study in adult and pediatric patients mixed. We did not have an end of Phase II meeting for that indication, but we did receive a significant inputs on the protocol by the FDA. So the plan now is to meeting with the FDA in a pre-NDA fashion, and submit at the NDA short thereafter. On bipolar disorder, we’re actually in the final phases of designing this study and your questions will be a better answer the ones we have completed the design.

Great. Thank you. And maybe could I ask for an update on the path to resolve the dispute with the FDA on the nine-month tox – animal tox study for tradipitant? Thanks.

Sure. As you know very well, this issue is challenged in court. The litigation is moving along the predetermined and agreed upon schedule with the FDA. And it is close to finalization. So that by September 10, all the necessary documents will be in front of the court and the court will review and decide in the course after that.

Great. Thank you.

Thank you. And our next question comes from Chris Howerton with Jefferies. Please proceed.

Great. Thanks for taking the questions, and congratulations on the strong quarter for HETLIOZ and Fanapt certainly. So for, I guess, maybe on the revenue side just a quick question for you, Jim, would be the year-over-year growth that we saw what is the relative contribution of price increases if any during that period of time?

Hi, Chris, and thanks for the question. As folks know, we had a price increase on January 1, that is the only price increase, so we’ve taken this year. And since that time – same time Q2 last year of that 8%, we realized somewhere in the 5% to 6% range. And therefore, when you’re looking at 35% year-over-year, what you’re seeing is 25% to 30% year-over-year unit growth.

Excellent. Okay. So maybe a follow-up on the previous question for the resolution of the lawsuit with the FDA regarding the partial clinical hold, we’re about a month away from a potential decision from the courts here. So maybe you could help us just understand what the strategy might be in the chronic indications for gastroparesis and atopic dermatitis with the different outcomes, so if there was obviously a positive outcome and your favor it seems pretty clear in terms of how you might move forward, but if there was a delay or a negative decision from the court how might you respond and how would you communicate that to investors?

Yeah. Maybe we separate the two, in regards to the litigation, you understand that we cannot make many comments and we cannot comment on the litigation on our strategy. But it is fair to discuss our thinking around collecting necessary data for NDA filing in the pursuit indications. So where we stand out, let’s start with gastroparesis, the Phase III is beginning. You’re going to see that recently we have updated a ClinicalTrials.gov. We’re now going to emphasize that the numbers there are more placeholders. It says up to 250 patients [in which is a] [ph] placeholder of one year recruitment for this study. Remind you for that for a smaller study before we had an actual duration of about two years.So this study, which is larger, it’s going to be approximately between 200 and 250 patients, it should be expected to have a duration of one to two years, I will see how the equipment goes. So with the end of Phase II meeting discussion with the FDA, it is agreed that one additional study, this current study that examines the effects of tradipitant in both diabetic and idiopathic patients could suffice, of course, if it is convincing for an NDA filing. So it depends on the speed of this study whether or not we would have collected the 12 months necessary data post at the end of the study. But of course, it is time to think about that.Now, of course, in the case that for some reason, these talents with the FDA has not been resolved on time. We have already indicated to the FDA to begin a discussion around a program, where we submit all the safety data which will include placebo-controlled three month studies in several 100 patients, and agree on a risk optimization strategy in the post marketing period, of course, none of does – this has been agreed, but we have initiate those discussions.On atopic dermatitis, as we said we’re on track to conclude the first study in the first half of 2020. And as we indicated before, we will conduct a second confirmatory study and that is wanted to begin with a small overlap in the first quarter of 2020. So because these studies do take some period of time, the 12-month collection of data will not necessarily be on the critical path.Finally, on motion sickness, as you know this is an episodic short-lived [indiscernible] chronic condition. And in this case is in pair FDA guidance, we should already have sufficient amount of preclinical data towards in NDA filing and marketing. So we believe that upon a successful end of Phase II meeting and as soon as possible with the FDA, we can initiate and complete a Phase III program in motion sickness with the goal of filing by 2020.

Great. Okay. That’s very helpful. Thank you. And then maybe if I could just ask one more question. I think, from my perspective at least the long acting injectable work for Fanapt iloperidone is flying under the radar a little bit. So I guess, it’d be helpful if you could help us understand what kind of the development path to an approval of that formulation would be and put a sense around what do you think that opportunity might be? Thanks.

Yeah. Of course, that is not finalized. Right now, we’re running an expensive pharmacokinetic study where we identify an optimal ways of delivery, optimal pharmacokinetics, and examining those and tolerability. And this is actually a very close interaction with the FDA on development, where this study is going to lead is likely a multi-dose pharmacokinetics study, so several sequential periods. And beyond that it is the – what we believe a single Phase III study and that would be a relapse prevention type very similar to the very successful oral iloperidone study that we have reported.So being very confident on the efficacy of the oral, and of course, that is the FDA label now. We will upon completion of the pharmacokinetic study and studies begin that program. So it is a little early to put a timeline around the submission. But generally, we hope that we’re going to be in a position next year to initiate the relapse prevention study. These are [live longer] [ph] studies, so that would require most probably in excess of the year. But I think it is best to discuss more detail in the future.

Okay. All right. Well, thank you very much for taking the questions. I appreciate it.

Thanks, Chris.

Thank you. And our next question comes from Joel Beatty with Citi. Please proceed.

Hi, thanks for taking the question. First one is on HETLIOZ, it looks like – I think based on the prepared remarks there was a high number of new patient starts. Can you talk a little bit about a lot of that and any thoughts on whether it looks like there will be sustainable over future quarters?

Yeah. I’ll let Jim to address that.

Yeah. We are really pleased with the performance of our field sales team, and I can’t say enough about not just the work that’s being done, they continue to bring HETLIOZ to blind patients with Non-24, but also the work in the psychiatrist’s office to make doctors and patients aware side of patients of how HETLIOZ can help [sight] [ph] at Non-24. So we feel very good about the team productivity and what that means for the prospects of continuing to grow our HETLIOZ business.

Yeah. Just to add to that, of course, we’ve discussed before that now we have a database of about 30,000 people that have called us and opted [ph] in our database, many of them blind, some sighted. And now we have just begun about a year ago, the program of exploring the initiation of HETLIOZ trials within decided population, especially those with psychiatric conditions, understanding the comorbidity. So we actually are very encouraged by the trajectory of new prescriptions, especially from psychiatry indicating that actually that is a potential for significant growth in this patient population.

Great. Another question related to the partial clinical hold. Can you discus what point in the future it seems the need for 12-month clinical data and patients will become or getting back there.

Well, as I was explaining before in the question from Chris. I’ve got this juncture the 12 months collection of data is not yet a gating factor, but it could become in the future, of course, I cannot pinpoint in detail, where would that be. But as I explained the gastroparesis study if successful within a two-year period of time. The speed of collecting the 12 months data could become a critical factor maybe as early as 12 months from now, of course, this contained.

Okay. Got it. Thank you.

Thank you. And our next question comes from Derek Archila with Stifel. Please proceed.

Hey, good afternoon, everyone, and thanks for taking the question. So just three for me, and first one is for Jim. And maybe just a little bit more color as far as the growth for HETLIOZ in the quarter, I mean, you talked a little bit about HPI kind of helping the growth. But I don’t know, if you can kind of give any more qualitative color between sighted and blind patients? And then also what type of – what was the amount of growth that was kind of just attributed to people coming back on therapy from kind of the seasonality of 1Q?

All right. Well, thanks for the question, Derek. We have not offered that type of detail except to say both sighted and traditional blind patients with Non-24 continue to contribute to the important growth on the product. What I would highlight is that the productivity of our field team has been excellent, and that’s what has us really excited about what we can accomplish as we move forward. The reality is that quarter in, quarter out, you’ve got some great quarters and you’ve got some maybe not so great. This one was great, I mean, there’s no question about it. We felt that the team executed and exception well in all our aspects.

Got it. And then just a follow-up to that one, given kind of the performance here in 2Q and kind of the bullishness that you kind of just stated, so I guess, why not raise sales guidance right now. So I guess, are there some factors that you’re tracking that are preventing you from doing it now and you’re waiting the 3Q or what’s kind of the reason not to?

[Well, I’ll let Jim come into that] [ph]. I like and say that we’re excited with a great quarter. We cannot did the future with precision. We understand there is a seasonality and it is too early to take the guidance. But are we excited about Q2, of course we have.

Yeah. And we look forward of course to giving an update to everybody, when we get back together and talk about Q3. I think, that’s the important thing that people should take out of our year-to-date performance is that HETLIOZ is a growth asset, and while we may talk quarter-to-quarter, the real way to think about HETLIOZ is the years to come, as we continue to grow the program.

Got it. And then just last one, this is more modeling question, so from an R&D perspective, you came in a lot lighter relative to our numbers as well of consensus. So I guess, any sort of qualitative kind of guidance as far as how we should be thinking that stepped up maybe in the second half, because you’re starting some studies? Or how should we think about that? Thank you.

Yeah. You may have heard we mention that we expect to see an increase in R&D as the year progress, and we’re incredibly excited about the programs especially tradipitant motion sickness and gastroparesis, but any of the programs we’ve got to go in here. Any sort of quarter-to-quarter variability, including the one you describe from Q1 to Q2 is just the inherent variability as you go quarter-to-quarter. I think, we have our eye towards continued activity R&D space since the year progresses, and a lot of really exciting studies ongoing.

Great. Thanks and congrats on the quarter.

Yeah.

Thank you. This concludes our Q&A session. I’d like to turn the call back over to Vanda management for closing remarks.

Thank you very much all for joining us, and we’ll talk again soon.

Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the program. You may now disconnect. Everyone have a great day.