Vanda Pharmaceuticals Inc. Q1 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2020 Vanda Pharmaceuticals Inc. Earnings Conference Call. At this time all participants are in a listen-only mode. (Operator Instructions) I'd now like to hand the conference over to your speaker today, Mr. Kevin Moran, Vanda’s Acting Chief Financial Officer. Thank you sir, you may begin.

Good afternoon. Thank you for joining us to discuss Vanda Pharmaceuticals' first quarter 2020 performance. Our first quarter 2020 results were released this afternoon and are available on the SEC's EDGAR system and on our website, www.vandapharmaceuticals.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 Chief Executive Officer. Following my introductory remarks, Mihael will update 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 we make on this call will be forward-looking statements within the meaning of federal securities laws. Our forward-looking statements are based on current expectations that involve risks, changes in circumstances, assumptions and uncertainties. These risks are described in our 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, 2019, which is available on the SEC's EDGAR system and on our website. Additional factors may be set forth in those sections of our quarterly report on Form 10-Q for the quarter ended March 31, 2020, to be filed with the SEC in the second quarter of 2020. 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 will undertake no obligations 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 being said, I would now like to turn the call over to our CEO, Dr. Mihael Polymeropoulos. Mihael?

Thank you, Kevin. Good afternoon, everyone, and thank you for joining us. This is a very unusual time for all of us, but we at Vanda remain focused on the ways we can innovate to better the lives of the patients we serve. I will first provide an update on our commercial business. We're very happy with the commercial performance for both Fanapt and HETLIOZ in the first quarter. As we reported earlier today, HETLIOZ and Fanapt sales grew by more than 20% in the first quarter over the first quarter of 2019. This is a testament to the value that our products bring and the hard work of our associates. While the method of serving doctors and patients in person has changed due to the COVID-19 pandemic, that has resulted in disruption in patient visits and doctor office availability. In early March, we instructed our sales force to begin serving prescribers remotely and adapt to a teleworking model. Our sales force has shown great flexibility and adaptability as we have found new ways to still extend our services to both our patients and their prescribers while being mindful of the safety of all. Stay-at-home orders and medical office closures are changing the dynamics by which people are seeking and receiving medical services. The disruption in the delivery of medical services may have some impact on new patient starts more than it does on refills of existing prescriptions. On the patient side, with HETLIOZ we experienced better access which may translate to higher adherence. As such, it is unclear at this time whether the expected impact on new starts may be offset by better adherence. Similarly for Fanapt, it is too early to know whether the disruption will have any net negative effect on the number of patients on treatment. This new reality of seeking and receiving medical services, however, is also creating new opportunities for our marketing and sales practices. Vanda has implemented a number of new awareness, patient-proximity and physician-education initiatives, each customized for remote delivery of services. At this time, we remain optimistic that our strong commercial performance momentum in the first quarter positions Vanda well to weather this tremendous disruption and continue towards the goals that we set earlier in the year. Of course, due to the rapidly evolving nature of the COVID-19 pandemic, we're continuously evaluating the impact on business and operations and we will provide future updates as appropriate. Now onto our clinical development pipeline: the pandemic clearly has created new challenges for the conduct of clinical studies. Our primary goal is in assuring the safety of our patients as well as that of our employees and collaborators. As such, after careful evaluation of all of our clinical programs, we decided to pause new screenings and randomizations but continue remote evaluation and the treatment of existing trial participants. This approach has allowed the continuation of our gastroparesis and atopic dermatitis clinical studies with existing patients. Other planned clinical studies, including Tradipitant for motion sickness, Fanapt for bipolar disorder and HETLIOZ for delayed sleep phase disorder, are on hold at this time and we will not begin recruiting patients until we believe it is safe to do so. We very much appreciate the flexibility of study participants as well as that of the investigators and their clinical research teams. On the regulatory front, we continue our discussions with the FDA on our pursuit for approval of HETLIOZ in two new indications, namely the treatment of people with jet lag disorder and Smith-Magenis Syndrome. We're confident in the adequacy and robustness of our data and we're working to identify expedient paths to bring these products to people who need them as soon as possible. Over the last two months, Vanda has led an effort to utilize our scientific expertise to evaluate areas where we may be able to impact the fight against COVID-19. As we previously announced, our ODYSSEY study is a double-blind, placebo-controlled study of Tradipitant in COVID-19 patients with Acute Respiratory Distress Syndrome, or ARDS. The rationale for this study is based on a previously demonstrated role of the NK-1 (neurokinin-1) system in preventing or treating ARDS in animal models of sepsis, smoke inhalation and viral infection–induced ARDS. The study is ongoing and, dependent on rates of recruitment, we expect results in the third quarter. We also announced the initiation of our CALYPSO study. The CALYPSO study aims to study the role that human genetic variations play in COVID-19 infection and disease progression. CALYPSO will be conducted with participation from a number of clinical sites with the goal of enrolling about 1,000 participants and will also involve collaboration with the University of Washington School of Medicine and the Department of Virology. CALYPSO will include both human genome sequencing as well as viral genome sequencing of COVID-19 patients. We hope to gain significant insights, including the potential for novel therapeutic targets. In the spirit of collaboration, we aim to make the primary data publicly available to researchers and scientists across the world as we work to combat the COVID-19 pandemic. Separately, we established a research partnership with the University of Illinois at Chicago aimed at identifying small molecule inhibitors of cathepsin L, a host enzyme critical for processing and enabling the virus in the host cell. Such compounds have the potential of temporarily disabling the host system that enables viral propagation and, as such, slowing down and inhibiting viral replication. In summary, in the midst of these unprecedented and challenging times, Vanda is emerging with strength, with impressive commercial performance, a robust R&D pipeline, a healthy financial position, and a determination to devote the talent of our associates to improving the lives of people as we have always done. I will now turn the call over to Kevin Moran, our Chief Financial Officer, to discuss our first quarter financial results. Kevin?

Thank you, Mihael. I will begin by summarizing our first quarter 2020 financial results. Total revenues for the first quarter of 2020 were $58 million, a 22% increase compared to $47.7 million for the first quarter of 2019. HETLIOZ net product sales were $35.3 million, a 22% increase compared to $29 million in the first quarter of 2019. The year-over-year growth of the HETLIOZ business was driven by a combination of unit demand and net price favorability. Consistent with trends observed in 2019, the first quarter of 2020 saw a favorable Medicaid payer mix trend as compared to the first quarter of 2019 that resulted in higher net revenue per unit. HETLIOZ net product sales in the first quarter of 2020 decreased by 8% as compared to $38.6 million in the fourth quarter of 2019. HETLIOZ patients on therapy declined in the first quarter of 2020 as compared to the fourth quarter of 2019. Consistent with prior years and expectations in early 2020, we saw a decline in our HETLIOZ patients on therapy attributable to the annual payer disruption linked to new plan years, plan changes and reauthorizations. As expected, this early first-quarter decline reversed and patient demand subsequently grew in the remainder of the first quarter consistent with our full-year 2020 plans. As of March 31, 2020, the specialty pharmacy channel held less than two weeks of inventory as calculated based on trailing demand. Specialty pharmacy inventory on hand at the end of the first quarter of 2020 was lower when compared to the fourth quarter of 2019. The value of this inventory change was approximately $100,000. Fanapt net product sales were $22.7 million, a 21% increase compared to $18.8 million in the first quarter of 2019. As of March 31, 2020, wholesalers have increased inventory on hand when compared to the fourth quarter of 2019. The value of this inventory change was approximately $200,000. Fanapt net product sales in the first quarter of 2020 were approximately flat as compared to $22.3 million in the fourth quarter of 2019. Fanapt prescriptions in the first quarter of 2020, as reported by IQVIA Xponent, decreased by 2% compared to the first quarter of 2019. For the first quarter of 2020, Vanda recorded net income of $500,000 compared to a net loss of $600,000 for the first quarter of 2019. Operating expenses in the first quarter of 2020 were $58.1 million compared to operating expenses of $49.8 million in the first quarter of 2019. The $8.3 million increase was a combination of higher R&D expenses related to our late-stage clinical programs and higher commercial expenses related to Non-24 awareness and Fanapt marketing efforts. We will continue to assess the impact of the rapidly evolving COVID-19 pandemic on our business and operations and will provide future updates to our financial guidance as necessary. The financial guidance we communicated on February 25, 2020 included the following financial objectives: net product sales from both HETLIOZ and Fanapt are between $240 million and $260 million; HETLIOZ net product sales are between $155 million and $165 million; Fanapt net product sales are between $85 million and $95 million; and year-end 2020 cash is greater than $320 million. Given the uncertainties around the global COVID-19 pandemic, we are taking actions to protect and continue to grow our commercial business, as well as moderate our expenses in light of restrictions affecting certain of our commercial and clinical activities. We have a strong capital position with over $312 million on our balance sheet at the end of the first quarter, which we believe positions us well to continue the pursuit of our business strategies in the face of the pandemic. I'll now turn the call back to Mihael.

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

(Operator Instructions) And we have our first question coming from Mr. Derek Archila from Stifel.

Hey, great. Thanks, guys. This is Ben on for Derek. Thanks for taking my call. Just wondering if you can provide an update on the sNDA for Smith-Magenis Syndrome? And then can you also remind us what data the FDA was asking for there?

Yes, of course. Just to remind everyone, we filed our sNDA at the end of last year. After the initial review, the FDA issued a refusal to file. In this refusal to file, they asked for additional information regarding manufacturing, which we have since provided. They are also asking for a bridge study on clinical pharmacology between the product formulation and the liquid formulation. The liquid formulation has provided adequate data in part, and so we're going to be meeting with them in a Type A meeting to discuss that and find a path forward.

Okay, thanks. Next one would be—I know you had briefly spoken to this, but is there any more color you can share about how COVID could impact OpEx going forward, both in respect to R&D and to SG&A as well?

Yes, I would say we do not expect to have a material impact on OpEx, but I would like Kevin to address that in more detail.

Yes, obviously, given the challenges that prevail in conducting our clinical trials, we might see a decrease in some of our existing operating expenses as a result of the pandemic, but we also expect to see some additional operating expenses tied to our COVID-19 responses. Again, we haven't provided guidance from an operating expense perspective, but we have provided you with guidance around our 2020 ending cash, which we previously communicated. We expect to be at greater than $320 million.

Okay, great. Thank you. Last one for us would be, could you just expand a bit more on the rationale for tradipitant as a therapy for COVID-19? Thanks, guys.

Yes. Of course. COVID-19 impacts the respiratory system and can result in Acute Respiratory Distress Syndrome. The precise mechanism is not fully clear. However, what is known from our preclinical work is that the neurokinin-1 (NK-1) receptor system is involved in modulating respiratory changes and inflammatory responses in several models. In these animal models, mice that lacked the NK-1 receptor pathway or wild-type mice treated with a neurokinin-1 receptor antagonist have been protected from ARDS induced by sepsis, smoke inhalation, and viral infection. Based on this rationale and the body of knowledge around neurogenic inflammation, the hypothesis is that intervention with an NK-1 receptor antagonist may dampen the inflammatory response and improve outcomes in COVID-19–induced pneumonia.

Okay, very helpful. Thanks for taking my questions, guys.

Yeah. Thanks.

And our next question comes from the line of Esther from Oppenheimer.

Hey, guys. Thank you for taking my question. On the study for COVID-19, some of the prior studies related to lung disease or some of the ongoing studies are using an inhalation method versus oral dosing. So can you maybe talk about the rationale there and help us understand the pros and cons of an oral dose versus an inhaled dose of tradipitant?

I'm glad you asked. We have a lot of experience with the oral formulation and administration of tradipitant. From prior animal experiments, we know that the drug distributes systemically and reaches the lung, so there is no reason to believe that oral administration will not achieve relevant exposure in lung tissue. Also, at this stage, we do not fully understand the exact localization and timing of the inflammatory response in COVID-19. Given those uncertainties and our existing safety and PK experience with the oral formulation, we proceeded with an oral dosing strategy.

And in terms of enrollment for that trial, you’re only running the trial in one location as I understand it. So how is that affecting enrollment? And do you plan to—since in New York infection rates are declining, do you plan to expand that study to other geographies?

Absolutely. We are now in discussions with a number of sites around the country, and we expect to open additional sites to facilitate enrollment. You are correct that infections have declined in the New York area, and expanding the study geographically should allow us to complete enrollment in a timely manner.

Understood. Thank you.

Thanks.

And we do not have any further questions at this time. And I will now hand the call back over to the Vanda management for closing remarks.

Okay. Well, thank you very much all for joining, and we’ll be talking to you soon. Thank you.

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