Vanda Pharmaceuticals Inc. Q4 FY2020 Earnings Call

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 website, www.vandapharma.com. In addition, we are providing live and archived versions of this conference call on our website.

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. These are patients that all 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. After this very thorough and quite lengthy review, 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. For one of these patients who has completed the six-month portion, they have now been extended another six months with the opportunity for further approval. So it is very clear that these patients recognize the unique benefits that they could not receive from any other treatment they experienced in the past, and certainly they put together a convincing case for the FDA, who appreciates 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 an expanded access program is not one that companies actively advertise. Expanded access is reserved for drugs that are not approved and for patients whose physicians are requesting it as a last resort. So, 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 our conviction about 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 known that discussions with the FDA on the requirement of an additional nine-month study are ongoing. This study has not been 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 issue with the FDA. We believe that regardless of the context of this study, the NDA filing can proceed. That means we will submit the NDA to the FDA. One of the circumstances that the FDA may consider is to limit the duration of treatment in labeling to the three-month duration that the clinical trials now use. But it is our hope and we'll make the argument that this would not be necessary, and certainly we will provide arguments against that at the right time of the NDA filing along with additional data and solutions. 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 to filing this application and completing their review. The third part of your question was about Fanapt in Parkinson's disease psychosis. We are also very excited about that. As many begin to know, and you're right, ACADIA has done a lot of important work, not only bringing a drug to the market for this indication, but also creating 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 antipsychotic that treats psychosis associated with schizophrenia, and we have experience treating patients with it for over 10 years. Two, what we know about Fanapt is that its receptor binding profile and its clinical profile suggest a very mild effect on extrapyramidal symptoms. These are the Parkinson-like symptoms that many antipsychotics produce as a side effect. With the approved drug Nuplazid, of course, they were neutral in creating any Parkinson's disease symptoms, EPS, and we believe Fanapt can be similarly neutral. 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 10-year experience of tolerability of Fanapt will be 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. 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. I have two questions on HETLIOZ. First, what do you see as the biggest driver for HETLIOZ sales in 2021 that will determine whether you hit the lower or higher end of the range? Would that be more related to the resolution of the impact of COVID, or more related to ramping up the existing indication or Smith-Magenis? Second, now that you received approval for Smith-Magenis a couple of months ago, what does the potential look like for adding additional indications in future label expansions? Thanks.

Thank you very much, Joel. So first on the components of the revenue forecast for HETLIOZ. As you know, in 2020 we continued to show growth in the use of HETLIOZ in non-24 patients. I would remind our audience that we have just entered year seven since launch. As many people know, it is extraordinary to continue to grow revenue and your patient base in any indication seven years after launch, which is another testament to the number of patients that are potentially out there untreated. For this year, the forecast derives from a continuous small growth in non-24 patients, but also the addition of SMS patients. Of course, toward 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 is hard to fully predict right now is the steady addition of SMS patients, with the bulk of the annual revenue occurring toward 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 ran in phase events related with jet lag disorder is that HETLIOZ has significant potential in disorders where there is an aberration of the circadian rhythm. As I mentioned earlier, we're evaluating two disorders and work has already started in one of them, delayed sleep phase disorder. As many of you know, this is a more common disorder which affects a significant percentage of adolescents and young adults and remains relatively common in adults. The core issue with DSPD is difficulty falling asleep at a desired time with a common expression where patients initiate sleep in the early morning hours. Once patients fall asleep, they remain asleep for the duration of time that they need. The potential of HETLIOZ to be a useful agent is high, given the technical understanding that HETLIOZ has already shown the ability to shift phase. We have not yet tested delayed sleep phase disorder patients in a controlled study, but this work is starting right now and an open-label clinical observation study is ongoing. The second indication that is very interesting is insomnia in patients with autism. Again, while the mechanism is not very well understood, insomnia and difficulty initiating sleep is one of the most common complaints for patients with autism, 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, with the goal of initiating 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 in 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. This objection is fundamental: Vanda does not believe that unnecessary animal studies, especially in dogs, should be conducted. We're not alone in thinking that; there is an entire movement against conducting unnecessary animal studies. Part of this movement includes work within the FDA itself as they make progress trying to understand alternative technologies that can be used. The FDA understands the limitations of these studies, which may not provide the information that is necessary for safe drugs. Over the last couple years, Vanda has developed sophistication around the utility of alternative studies and other approaches. I will not be discussing those studies in detail today, but Vanda is conducting work and will be providing alternative information to the FDA for their review. The other part of your question was about study outcomes and expectations. To remind everybody, prior to initiation of this Phase III study, Vanda met with the FDA at the end-of-Phase II meeting and discussed the protocol design and the program forward. We have an agreement with the FDA that the study design we followed, the endpoints we are studying, and the population that includes both idiopathic and diabetic gastroparesis patients will be sufficient, if successful, as the pivotal registration study. A little more detail: the primary endpoint is improvement in the symptom of nausea in patients with gastroparesis, and the scale that measures all symptoms of gastroparesis along with the patient global impression scale has been characterized. We're conducting a study with a four-week screening leading to a 12-week treatment, and we will be looking at the effects of the drug in the later exposure period, weeks 11 and 12, and also at weeks three and four as we've done in the prior four-week study. We feel very confident that if successful, this study will be the only study required.

Thanks again for all those helpful details. Maybe just one last point of clarification on the last point: it sounds like you have a fairly extensive agreement with the FDA. But does that mean a p-value of around 0.05 as part of approval?

That has not been a point of specific discussion, but FDA guidance determines the threshold for statistical significance in a predetermined endpoint as a p-value of less than 0.05. So there is no additional special standard we expect to be applied, and we expect we will be held to the same standard. Just to remind this audience, Vanda has 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 on future calls. We're 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.