Vanda Pharmaceuticals Inc. (VNDA) Q4 2020 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen, and welcome to the Q4 2020 Vanda Pharmaceuticals Inc. 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 follow at that time. . As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kevin Moran, Vanda’s Chief Financial Officer. Thank you. Please go ahead.

Thank you, Sadie. Good afternoon and thank you for joining us to discuss Vanda Pharmaceuticals fourth quarter and full year 2020 performance. Our fourth quarter and full year 2020 results were released this afternoon and are available on the SEC's EDGAR system and on our Web site, www.vandapharma.com. In addition, we are providing live and archived versions of this conference call on our Web site.

Thank you, Kevin. Good afternoon, everyone, and thank you very much for joining us. We are pleased with our financial performance as we navigated the pandemic this last year and continue to drive strong growth during the year in line with our original forecast in February of 2020. Full year revenue for both products was 248.2 million, a 9% increase compared to 2019. Despite the slowdown in late spring, since then we have seen a significant increase in new HETLIOZ scripts as the business has recovered and adapted to the new ways of promotion. This demand fueled HETLIOZ growth in the fourth quarter and led us with positive momentum into 2021. HETLIOZ fourth quarter revenue was 44.2 million, a sequential growth of 11%. Our forecast for 2021 is HETLIOZ revenue of 180 million to 200 million and projected year-over-year growth of 12% to 24%.

Thank you, Mihael. I'll begin by summarizing our full year 2020 financial results before turning to discuss the fourth quarter of 2020. Total revenues for the full year 2020 were 248.2 million, a 9% increase compared to 227.2 million for 2019. HETLIOZ net product sales of 160.7 million were the primary contributor and driver of our 2020 revenues and saw 12% growth compared to 2019. The year-over-year growth of the HETLIOZ business was driven by a combination of unit demand and net price favorability.

Thank you very much, Kevin. At this time, we'll be happy to answer any questions you may have.

. For our first question, it’s from Chris Howerton from Jefferies. Chris, your line is open.

Great. Thank you very much. Congratulations on the quarter. And thanks for taking the questions. So I guess the first one for me would be on the expanded access program for tradipitant in gastroparesis. I don't know if I missed it or if you didn't say. Could you provide some information in terms of how many patients have been rolled over to that program would be the first question? And then a second question would be also on tradipitant in gastroparesis. One of the questions that I've heard from investors is what's the risk of getting a refuse to file letter, even if you basically have at a high level an agreement with the FDA regarding kind of what the shape of the submission package might look like in the absence of a long-term toxicology study? So that would be question two. And then I guess question three is with respect to Fanapt in PDP. I find that very intriguing given that I do follow ACADIA, so the competitor in this space. And so I guess how is it that you see Fanapt differentiating, and certainly with respect to kind of the other atypicals that have been tried in that space? Thanks.

Yes. Thank you, Chris. I will start off with the expanded access program. We're not giving a specific number. It's only a few patients. And these are patients that all of them had experience with tradipitant, either in a randomized open label portion of the current study or prior studies. What is remarkable, however, is that the FDA paid a lot of attention, as they always do for expanded access, to each individual patient. They were interviewed. Their doctors provided a lot of material and so did the company on behalf of these patients, any information we had on our clinical responses. And after this very thorough and quite lengthy view, now all patients that had applied for expanded access or almost all have so far been approved. And as I said, the initial duration of approval has been for each patient six months. And for one of these patients who have completed the six month portion, now they have extended another six months with the opportunity for approval. So it is very clear that these patients recognize the unique benefits that they cannot receive from any other treatment they experienced in the past. And certainly they put together a convincing thesis for the FDA who is appreciating that indeed, tradipitant for these individual patients is the only drug that provides substantial relief of their symptoms. I want to also point out that in expanded access program, program is not one that actively the company or any company is advertising expanded access reserved for drugs that are not approved by patients and their physicians are requesting is the last resort. So with that, again, I underscore this is not an advertised program. And that is why it is mostly patients that could come from the clinical studies. Of course, we're collecting longitudinal data for these patients. And these data will also be submitted to the FDA as part of the New Drug Application review. The second question you asked is what is our conviction of the FDA filing our application upon submission? We actually feel very confident that we would be providing a complete package both from the clinical but also the preclinical information that will allow substantial review. Of course, it is well discussed by the company and known that a discussion with the FDA on the requirement of yet an additional nine-month old study is ongoing. This study has not being completed. Vanda has explained the reasons that we believe this study not to be necessary in this context. And we're continuing actively to discuss this appeal with the FDA. We believe that regardless of the context of this study, the NDA filing can proceed. That means not only we submit by the FDA files. And one of the circumstances that the FDA may consider is to limit the duration of treatment to the three-month duration with the clinical trials now are allowed to. But it is our hope and we'll make the argument that this would not be necessary, and certainly will provide arguments against that at the right time of the NDA filing additional data and solutions towards that. So in summary, the company believes that the preclinical and clinical package will be complete for substantial review at the time of submission. And we believe that the FDA would be amenable point of view to file this application and complete their review. The third part of your question was something that we are also very excited, Fanapt in Parkinson's disease psychosis. And as many began to know and you're right, ACADIA has done a lot of good work, not only bringing a drug to the market for this indication, but also create an awareness among patients and their physicians for Parkinson's disease psychosis which can be devastating in the face of an already debilitating disorder. We believe that Fanapt’s profile may actually be quite competitive for two reasons. One, Fanapt is a well established anti-psychotic that treats psychosis associated with schizophrenia. And, of course, we have experience treating patients for over 10 years now. But also what we know about Fanapt is that its receptor binding profile and its clinical profile as a result suggests a very mild effect on extrapyramidal symptoms symptoms. These are the Parkinson's like symptoms that many antipsychotics produce as a side effect. And you see with the approved drug Nuplazid, of course, they are neutral in creating any Parkinson's disease symptoms, EPS, but we believe Fanapt can do so as well. And, of course, you always need more than one solution for any disorder. The exact clinical profile and other competitive advantages of Fanapt will remain to be seen in the clinical program. But we believe we will have a place in the treatment of Parkinson's disease psychosis. We believe the profile with a 10-year experience of tolerability of Fanapt will be very important, and we believe we'll have a very good commercial standing for the treatment of PDP.

Okay. Well, that's very, very helpful. I appreciate the answers, Mihael. And I guess I have other questions, but I'll hop back on the line and defer to my colleagues.

Sure, of course. Thanks, Chris.

For our next question, we have Joel Beatty from Citi. Joel, your line is open.

Great. Hi. Thanks for taking the questions and congrats on the progress. First questions are on HETLIOZ, like there's two. One is what do you see as the biggest driver for HETLIOZ sales for 2021 that will impact whether you hit the lower end or higher end of the range? And I guess I'm curious to hear if it would be more related to the resolution of the impact of COVID or more related to ramping up the existing indication or Smith-Magenis? So that's question one. And then question two would be -- now that you've gotten a couple of months ago the approval for Smith-Magenis for HETLIOZ, what does the potential look like for adding on additional indications in future label expansions? Thanks.

Thank you very much, Joel. So first on the components of the revenue forecast of HETLIOZ. As you know in 2020, we continue to show growth in the use of HETLIOZ in non-24 patients and remind our audience that we have just entered year seven since launch. And as many people know, it is extraordinary to continue to grow revenue and your patient base in any indication seven years after launch, which actually is another testament to the number of patients that are potentially out there untreated. So for this year, the forecast derives from a continuous small growth on non-24 patients, but also the addition of SMS patients. Of course, towards in the later part of the year as we identify these patients, they meet with their physicians and they go through the slow progress that we've seen with payer responses. So a component will be the growth in non-24 and a growing component whose trajectory it's hard to fully predict right now is the addition – steady addition of SMS patients but creating the bulk of the annual revenue towards the end of the year. You asked about additional indications. What we've learned from the non-24 experience, the SMS experience and also the extensive program that we run in phase events related with jet lag disorder is that HETLIOZ has a significant potential in disorders where there is an aberration of the circadian rhythm. And as I mentioned in the script, we're evaluating two disorders and work actually is -- clinical work has already started in one of them. That is delayed sleep phase disorder. As many of you know, this is a more common disorder which affects a significant percentage of people of the adolescent or early adulthood that still remains a common disorder in -- relatively common disorder in adults. The issue with DSPD, the core issue is difficulty falling asleep at a desired time with common expression where patients initiate sleep in the early morning hours. Once you fall asleep, you remain asleep for the duration of time that you need. So the potential of HETLIOZ to be a useful agent is high, given the technical understanding that HETLIOZ has already shown the ability to phase events. We have not yet tested delayed sleep phase disorder patients, but this work is starting right now and a clinical observation study, open label study is ongoing. The second indication that is very interesting is the insomnia in patients with autism. And then, again, while the mechanism is not very well understood, there is insomnia of sleep initiation is one of the most common complaints for patients with autism disorder, with about 80% of them reporting it and requiring treatment. There, it is believed that a circadian deregulation may cause this difficulty with sleep latency. So that's a program that is in the late stages of protocol design and discussions with the FDA for initiation of clinical work hopefully in the first half of this year.

Great. Thanks for those great details. And if I could finish up by asking two questions about tradipitant. One would be what do you think you need to show an efficacy for FDA to be agreeable to approval? Would it be a kind of standard 0.05 P value on the primary endpoint or is it a higher bar than that given I think originally an additional Phase III study was planned that's no longer planned? And then the second question is regarding the nine-month non-rodent animal studies. I know those haven't been completed, but have they been started or is there any way to start those before getting clarity from whether FDA will accept the filing or not or if you're granted a refuse to file, would that begin a nine-month study at that time? Thanks.

Yes, I'll start with the last one. No, we are not conducting these studies now. We've been very clear with the FDA that this is not a study that we'll undertake. And this objection is fundamental that Vanda does not believe that unnecessary animal studies, especially in dogs should be conducted. And we're not alone thinking that. There is an entire movement of not conducting unnecessary animal studies. And part of this movement is the FDA themselves and they are making a lot of progress trying to understand alternative technologies that can be used. Those that the FDA understands the limitations of these studies that may not provide the information that is necessary for safe drugs. So I would say, over the last couple of years, Vanda has developed a sophistication around the utility of starting other studies as well as alternative studies, but I will not be discussing today, but studies that Vanda is conducting and will be providing information to the FDA for their review as well. The other part of your question was about study outcomes and expectations. So just to remind everybody that we have discussed that Vanda prior to initiation of this Phase III study met with the FDA at the end of Phase II meeting and discussed the protocol design and the program forward. So we have an agreement with the FDA that this study with the FDA accepted design that we're following and the endpoints that we're studying and the population that includes both idiopathic and diabetic gastroparesis patients will be sufficient if successful as the pivotal registration on the study. And just a little more detail. What the primary endpoint is improvement in the symptom of nausea in patients with gastroparesis while at the same time the scale that measures all symptoms of gastroparesis along with global impression scale has been characterized. And we're looking this study to refine the design as a four-week screening leading to a 12-week treatment, and we will be looking at the effects of the drug in the latter part of the exposure weeks 11, 12 and also at weeks three and four as we've done in the prior four-week study. So we feel very confident that if successful, this study will be the only study required.

Thanks again for all those helpful details. And maybe just one last point of clarification on the last point, all that sort of -- it sounds like you have a fairly expensive agreement with FDA. But does that mean a P value of around 0.05 as part of approval?

That has not been a point of discussion, but FDA guidance determines the threshold as a statistical significant in a predetermined endpoint is a value of less than 0.05. So there is no additional discussion on that and we expect that we will be held to the same standard. And just to remind this audience here that Vanda has certainly met and exceeded that statistical significance in the smaller Phase II study with similar endpoints.

Great. Thank you very much.

Thank you, Joel.

. I am showing no further questions at this time. I would like to turn the conference back to Vanda management for the closing remarks.

Thank you, operator. And thank you very much all of you for joining us, and we'll see you in future calls, looking forward to an exciting year both on the commercial and clinical front. Thank you very much.

Ladies and gentlemen, this concludes today’s conference call. Thank you all for participating. You may now disconnect.