Thank you for standing by. My name is Hermine, and I will be your conference operator today. At this time I would like to welcome everyone to Q1 2024 Vanda Pharmaceuticals Inc. Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Vanda's Chief Financial Officer, Kevin Moran. Please go ahead.

Thank you, Hermine. Good afternoon, and thank you for joining us to discuss Vanda Pharmaceuticals' first quarter 2024 performance. Our first quarter 2024 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; and Tim Williams, our General Counsel. Following my introductory remarks, Mihaels will update you on our ongoing activities. I will then comment on our financial results before we open 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 most recent annual report on Form 10-K 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. Thank you all for joining us to discuss Vanda's first quarter 2024 results. Let me start by providing details on the progress for our psychiatry portfolio of compounds. Fanapt was approved on April 2 as a first-line therapy for the acute treatment of manic or mixed episodes associated with bipolar I disorder in adults, which -- for this discussion, I will refer to as bipolar I disorder. The results of the study supporting this approval were published in the Journal of Clinical Psychiatry earlier this year. This approval for bipolar I disorder significantly expands the addressable patient population for Fanapt, where patent exclusivity is expected to last at least through late 2027. For milsaperidone the active metabolite of Fanapt, a New Drug Application, NDA, is expected to be submitted to the Food and Drug Administration in early 2025. If approved for marketing for schizophrenia and bipolar I disorder, there are pending patent applications that, if issued, could extend exclusivity into the 2040s. We're currently planning clinical programs to test the efficacy of Fanapt and milsaperidone in the treatment of depressive symptoms, which, if successful, will significantly further expand the addressable patient population. In addition, we are planning to initiate a registration study of the Fanapt long-acting injectable or Fanapt LAI formulation by the end of 2024. Fanapt LAI in earlier studies has demonstrated a profile compatible with a once-a-month administration offering a significant tool to address compliance issues in this disease population. Fanapt LAI could reach the U.S. market after 2026, and their pending patent applications that, if issued, could extend exclusivity into the 2040s. This is a key differentiation from some currently marketed branded antipsychotics for which physical chemical properties or dosing requirements prevent the development of long-acting injectables. Fanapt…

Thank you, Mihaels. I'll begin by summarizing our first quarter 2024 financial results. Total revenues for the first quarter of 2024 were $47.5 million, a 24% decrease compared to $62.5 million for the first quarter of 2023. This decrease was primarily due to the launch of generic versions of HETLIOZ, which we have discussed in detail. Notably, total revenues for the first quarter of 2024 increased by 5% as compared to $45.3 million in the fourth quarter of 2023. HETLIOZ net product sales were $20.1 million for the first quarter of 2024, a 49% decrease compared to $39.6 million in the first quarter of 2023. HETLIOZ net product sales in the first quarter decreased by 5% as compared to $21.1 million in the fourth quarter of 2023. The decrease to net product sales relative to the first quarter of 2023 was attributable to a decrease in volume, partially offset by an increase in price net of deductions. Our HETLIOZ net product sales as reported for the first quarter of 2024 and 2023 included transactions that resulted in higher unit sales as compared to recent prior periods. The higher unit sales during the first quarter of 2024 and 2023 resulted in a significant increase of inventory stocking at certain specialty pharmacy customers. HETLIOZ net product sales during the first quarter of 2024 reflect lower unit sales as compared to the first quarter of 2023 which was partially attributable to lower demand and the continued reduction of the elevated inventory levels at certain of our specialty pharmacy customers during the first quarter of 2024. Turning to Fanapt. Fanapt net product sales were $20.6 million for the first quarter of 2024, a 10% decrease compared to $22.9 million in the first quarter of 2023. Fanapt net product sales in the first quarter of…

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

[Operator Instructions] And your first question comes from the line of Andrew Tsai with Jefferies.

This is AJ for Andrew. First of all, congrats on all the progress, especially Fanapt approval in bipolar. And I guess, firstly for Fanapt, what kind of expenses will you need to launch this effectively? And how are you thinking about the peak sales potential ahead of IP expiry?

I will let Kevin address some of the parts of this question. But what we do know about this class of drugs is that bipolar I disorder, it presents a significantly larger opportunity than the one in schizophrenia, for which Fanapt was approved up to now. We also know that despite the availability of a number of atypical antipsychotics, there remains a significant unmet medical need where patients are cycling very frequently from one drug to another seeking control of their symptoms. And in terms of the marketing, we know that this class of drugs is significantly sensitive to promotion and increased awareness among prescribers. So it is very important to make significant but efficient investments before you drive growth. But Kevin.

Yes. And AJ, thanks for the question. Obviously, we haven't provided guidance at this time, so -- but I'll give you some kind of general direction on where we see things going. So as a reminder, Fanapt already was approved and in the market for schizophrenia for quite some time. We had established commercial infrastructure and personnel. But that being said, we are in the process of expanding our sales force to meet the opportunity this bipolar I disorder indication presents as well as support it with the appropriate marketing and awareness programs. Some of those activities and increased spend is reflected in the second -- or the first quarter financial results. And some of it will be expected to be seen progressing throughout this year, beginning with the second quarter.

Got it. Okay. So maybe shifting gears a little bit. So for PONVORY, how have sales trended to your expectations? And where could they go in 2024?

Yes. So just to set it up and Kevin can give you more detail. This is the first quarter that we are booking sales without, of course, having any marketing activity. There was no marketing activity from J&J or Vanda because we're in the midst of this transition. Kevin, go ahead.

Yes. And AJ, on that side, as a bit of a reminder on the background here, J&J had kind of decrease their commercial activities towards the end of 2022, beginning of 2023 around PONVORY such that there was limited commercial support for the product during 2023. And so the audited financial statements for PONVORY that we filed subsequent to the acquisition, the annualized run rate of PONVORY was in the neighborhood of $30 million a year, which is in line also with the portion of revenue that we recognized in the fourth quarter. And so the approximately $7 million of revenue that was recognized in the first quarter as we're transitioning the product in-house. And as Mihaels mentioned, towards the third quarter, beginning our commercial activities in full force is essentially flat with what we saw kind of the trajectory being last year with J&J not providing any support. So it's essentially maintaining at where it was, and we'll look to, as we initiate activities resume patients being added in revenue growth in future periods.

Okay. Got it. So is it fair to, I guess, expect potentially a sales inflection in Q3? Or when will those marketing activities really start?

Yes. So those activities, AJ, will start. Some of them have already commenced some of the commercial support activities, and some of them will commence in full effect in the beginning of the third quarter, such that I would expect to see sales inflection in the back half of the year, but it may take a quarter or so to see the results of the activities in the third quarter.

Okay. Understood. And then maybe on tradipitant for gastroparesis. Can you speak to how your FDA discussions have been going? Or what's your level of confidence here in an approval? And how would you expect label to look?

Yes. I would say the FDA is very good, not to give you a signal on this or any other product. However, I would admit that the interactions are continuous and very significant, with a very large number of requests for additional information that we're responding to. So I would characterize it that the review team is very engaged.

Okay. That's very helpful. And then last question here, I just -- I have to ask, so on the shareholder activism front. Are you able to summarize your communications to date? And how do you think you can unlock more value as a stand-alone company?

Yes. The back end of your question, I think what we discussed today presents a good summary of the value proposition, a company with three commercial assets, a significant revenue stream, financially are very prudent of how we make investments and a very deep pipeline with very late-stage assets, some of them that can address very quickly multibillion market opportunities. And in terms of the unsolicited offer, as we've expressed already, the Vanda Board of Directors considers any and all offers, with our independent financial and legal advisers. And in this case, as we said earlier, we had concluded that the offer presented was not in the best interest of the company and its shareholders as it significantly undervalued the company. And as you know, there was a second or an additional revised offer publicly communicated yesterday. And as I expressed a minute ago, this is, again, an offer that the Board will carefully evaluate with our financial and legal advisers, and that is all we can say for now.

Understood. And congrats again on all the good work.

Thank you very much, AJ.

That concludes our Q&A session. I will now turn the conference back over to Vanda's management for closing remarks.

Thank you, much -- everyone, for joining us on this first quarter call. And we look forward to talking to you in future periods.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.