Vanda Pharmaceuticals Inc. Q2 FY2022 Earnings Call

Thank you for standing by, and welcome to the Q2 2022 Vanda Pharmaceuticals, Inc. Earnings Call. Thank you. I would now like to turn the conference over to Kevin Moran, Vanda's Senior Vice President, Chief Financial Officer and Treasurer. Mr. Moran, please go ahead.

Thank you very much, Jack. Good afternoon and thank you for joining us to discuss Vanda Pharmaceuticals second quarter 2022 performance. Our second quarter 2022 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. Additionally, we have Tim Williams, our General Counsel, and Gunther Birznieks, our Senior Vice President of Business Development and R&D Committee Member. 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, change 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 annual report on Form 10-K for the fiscal year ended December 31, 2021, 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 for joining us to discuss Vanda's second quarter 2022 results. We will proceed with Kevin discussing operational highlights and financial results for the quarter. Following that, we will open the line for questions. And I will now turn the call back to Kevin.

Thank you very much, Mihael. I'm excited to discuss the progress we've made on commercial and clinical development initiatives over the past several months, and to provide updates on upcoming milestones that we believe will deliver significant momentum for the business leading into 2023. Looking first at commercial performance, we continue to advance our strategy and remain committed to strong financial execution. For several quarters, we have discussed payer challenges for HETLIOZ, with denial for sighted patients with Non-24 remaining an issue. We are focused on progressing efforts with Medicare and Medicaid, and we have outlined successes with state Medicaid programs specifically in previous quarters. To date, more than 15 states have revised or agreed to revise their Medicaid prior authorization criteria to broaden access to HETLIOZ for patients with Non-24 and nighttime sleep disturbances in Smith-Magenis Syndrome, which is encouraging. On the Medicare side, we are seeing some progress as well. In July 2022, a sighted Non-24 patient secured a key victory in a coverage dispute with a Medicare Part D plan, which had a coverage policy restricting HETLIOZ coverage for Non-24 on the basis of vision status. Following appeal, an administrative law judge held that federal law bars a Medicare Part D plan from limiting HETLIOZ coverage to only those Non-24 patients that are blind. Following this decision, we intend to advocate with other Part D plans to strike down similar policies and improve access to HETLIOZ for Non-24 patients, blind and sighted. Improving access and coverage of our products for patients remains a top priority, and we look forward to providing additional updates over the coming quarters. Turning to SMS for the indication of nighttime sleep disturbances. We continue to work closely with the advocacy organization PRISMS to engage with and support the education of the SMS community. We are looking forward to participating in PRISMS 11th International SMS conference that begins this week. On our clinical pipeline, we are making excellent progress in advancing our late-stage programs along toward near-term milestones. Beginning with our near-term milestone, our Phase III clinical study of Fanapt in acute manic episodes in patients with bipolar disorder is close to fully enrolled, and we expect to report results by the end of 2022. Our team has worked diligently to advance this program and we hope to deliver a new therapeutic option for patients in the near future. Moving to our Tradipitant clinical program, we noted last quarter that the Phase III study in the prevention of motion sickness has resumed enrollment. We are pleased with the pace of enrollment with the study now approximately 30% enrolled. As a reminder, a prior clinical study with tradipitant in motion sickness demonstrated a significantly lower incidence of vomiting in patients treated with tradipitant as compared to placebo treated patients. On tradipitant for gastroparesis, Vanda recently held a pre-NDA meeting with the FDA to discuss the planned NDA submission for tradipitant in the short-term treatment of nausea in gastroparesis. Following the meeting, we intend to move forward with the submission of an NDA for this indication. Vanda is continuing to conduct an open-label study of safety for tradipitant in gastroparesis. We also continue to receive requests from patients regarding access to tradipitant through the Expanded Access program. We have multiple patients that have taken tradipitant for more than a year and remain on therapy, including one patient that has been on therapy for 2 years. Enrollment is ongoing in the clinical development programs of HETLIOZ for the treatment of delayed sleep phase disorder and for sleep disturbances in Autism Spectrum Disorder. Also of note, we are preparing for the submission of an sNDA for HETLIOZ in the treatment of insomnia. Additionally, I want to provide a quick update on VQW-765, our alpha 7 nicotinic agonist. I'm glad to announce that our clinical study of VQW-765 to alleviate social performance anxiety is fully enrolled and we expect results by the end of 2022. To conclude operational highlights, we expect 2022 to be a year in which we advanced several important programs in our pipeline that we believe can contribute to Vanda's long-term growth as we continue to drive forward our commercial products. Moving now to financial results. I'll begin by summarizing our financial results for the first 6 months of 2022 before turning to discuss the second quarter of 2022. Total revenues for the first 6 months of 2022 were $124.6 million, a 5% decrease compared to $130.6 million for the same period in 2021. HETLIOZ net product sales of $78.2 million were the primary contributor and driver of our revenues for the first 6 months of 2022 and saw a 7% decrease compared to $83.9 million for the same period in 2021. The first six months of 2022 reflect the continued reimbursement challenges for prescriptions of HETLIOZ for patients with Non-24. Turning to Fanapt. Fanapt net product sales of $46.4 million for the first 6 months of 2022 reflect a 1% decrease, compared to $46.7 million for the same period in 2021. For the first 6 months of 2022, Vanda recorded a net loss of $3.9 million, compared to net income of $18.3 million for the same period in 2021. Net loss for the first 6 months of 2022, including an income tax provision of $100,000 as compared to an income tax provision of $4.7 million for the same period in 2021. Operating expenses for the first 6 months of 2022 were $128.8 million, compared to $107.9 million for the first 6 months of 2021. The $20.9 million increase was primarily driven by both higher R&D expenses, and higher SG&A expenses. The increase in R&D expenses was primarily driven by increases related to our late-stage clinical program for Fanapt, partially offset by decreases related to our tradipitant activities. The increase in SG&A expenses was primarily driven by higher expenses associated with legal support related to ongoing litigation, DTC awareness campaigns, sales activities, commercial support, and other corporate activities. Vanda's cash, cash equivalents, and marketable securities referred to as cash as of June 30, 2022 were $440.9 million, representing an increase of $44.4 million compared to June 30, 2021, and an increase of $8 million compared to December 31, 2021. Turning now to our quarterly results. Total revenues for the second quarter of 2022 were $64.4 million, a 5% decrease compared to $67.9 million for the second quarter of 2021. HETLIOZ net product sales were $41.2 million for the second quarter of 2022 compared to $44.5 million for the second quarter of 2021. Consistent with the first 6 months of 2022, net sales for the second quarter of 2022 reflect the continued reimbursement challenges for prescriptions of HETLIOZ for patients with Non-24. Turning to Fanapt. Fanapt net product sales for the second quarter of 2022 were $23.2 million, a 1% decrease compared to $23.4 million for the second quarter of 2021. Fanapt net product sales for the second quarter of 2022 were essentially flat as compared to $23.2 million for the first quarter of 2022. Fanapt prescriptions for the second quarter of 2022 as reported by IQVIA Xponent were also essentially flat as compared to the first quarter of 2022. For the second quarter of 2022, Vanda recorded net income of $2.6 million compared to net income of $9.7 million for the second quarter of 2021. Net income for the second quarter of 2022 included an income tax provision of $1.2 million as compared to an income tax provision of $3 million for the same period in 2021. Operating expenses for the second quarter of 2022 were $60.9 million, compared to $55.5 million for the second quarter of 2021. The $5.4 million increase was primarily driven by higher SG&A expenses associated with sales activities, DTC awareness campaigns and commercial support activities. Operating expenses for the second quarter of 2022 were $6.9 million lower as compared to $67.9 million for the first quarter of 2022. This decrease was primarily attributable to lower SG&A expenses associated with legal support related to ongoing litigation, commercial activities, DTC awareness campaigns and other corporate activities. Vanda expects to achieve the following financial objectives in 2022. Net product sales for both HETLIOZ and Fanapt are between $240 million and $280 million. HETLIOZ net product sales of between $150 million and $180 million, Fanapt net product sales of between $90 million and $100 million, and year-end 2022 cash of greater than $440 million. This concludes our commentary regarding operational highlights and financial performance. At this point we'll be happy to answer any questions you may have.

Chris Howerton with Jefferies. Your line is open.

Thank you for taking the questions. I would like to know what evidence supports the strategy for HETLIOZ in treating insomnia. Additionally, how do you expect a potential approval for insomnia to affect the pricing of HETLIOZ? Also, concerning the development of tradipitant for gastroparesis, were the non-human toxicology studies, such as the dog studies, discussed in the pre-NDA meeting, and what was decided regarding the safety database and approval in that context? Thank you.

Thank you very much, Chris, for the questions. I will start off with the question of insomnia. Your question had to do on what evidence supports the indication. And second, if approved, what could be the pricing strategy. On the first part, as you know, Tasimelteon has been approved for a chronic indication of Non-24. And of course, more recently, for Smith-Magenis Syndrome. We have shown that Tasimelteon has a significant and large effect on improving sleep in two types of studies. One type of studies is the transient insomnia model based on phase events. There are three studies, a smaller one and two large studies with 5-hour and 8-hour phase events where we're showing a very significant effect improving key parameters. The second study is a study, a 4-week duration study in patients with chronic insomnia characterized by difficulties with sleep function. Again, there, Tasimelteon was shown to be effective both in the beginning period. This was defined as Stage 1 and 9, as well as 4 weeks later, in significantly improving sleep persistence, or sleep function as compared to placebo. The combination of this evidence plus the significant experience for now almost over 8 years, chronically using Tasimelteon for Non-24, we believe supports the indication of treating chronic insomnia with sleep disturbances, likely supporting the short-term indication, given that we have the 4-week study data, but also an opportunity for insomnia disorder with a specification of changes in the sleep schedule, and specifically phase events. So we will be preparing this for submission as a supplemental NDA and we will continue the discussions with the FDA as we prepare. Finally, I will turn to your question on gastroparesis. As you know, Vanda has conducted a very large group of studies from preclinical toxicology. The profile of the drug has been established well in short-term and long-term studies, including 6-month studies and other 2-year studies in mice. The FDA states that the 9-month dog study is recommended through the guidance, but not required. That said, our evaluation to date suggests that it is not necessary. We at Vanda object to conducting toxicology studies in animals, especially in dogs, if they are not necessary. Of course, there is a significant trend in public opinion to support that, especially with the recent court decision and the raid by the U.S. Department of Agriculture in a facility in Virginia, where these dogs were being kept in very difficult conditions. We believe that we have sufficient and adequate information for the FDA to conduct the review. In terms of safety, we have significant data with exposures up to 3 months and some data with exposures of 6 months. We have patients that have been on therapy for over a year through the Expanded Access Program. We believe the combination of this information would classify as adequate to file and conduct review. However, the FDA will not commit either way until the application has been submitted and a 60-day review period on the fileability of the application has been concluded. As for your question about if the indication was granted, what would that mean for pricing? Of course, we all know that HETLIOZ is now indicated for two orphan indications. It has a significant price tag that we have discussed in the past. Our hope was that we can identify other indications where this useful therapeutic can be used, increasing the access and making the drug more affordable. So that's where I would stop this commentary. But then this vision is to make drugs available to patients that need them. And do so while making them more reasonably priced, given the much larger population of patients that can benefit. Now, what we find intriguing is that well, for many years, insomnia drugs, especially for sleep onset insomnia, have been seen as sleep-promoting agents. We think that there is an opportunity with a circadian regulator like tasimelteon to actually establish a new thinking that a large number of patients with poor sleep onset insomnia may actually have a change in their sleep schedule due to a circadian challenge. This may explain why this drug has worked so well in the 4-week insomnia studies. I know this is a longer answer, but please let me know if you have any follow-up.

Yes. No, very, very much appreciated, Mihael. I do have a follow-up and with respect to the plan for submission for insomnia, could you give us maybe an overview of what a timeline might be expected and have you or do you plan to meet with the FDA regarding this submission before you actually do so?

We have already met with the FDA and we will continue the discussions. As I said, there are potentially two indications, one being the short-term treatment of chronic insomnia characterized by disturbances of sleep onset. The second one is what is indicated in the DSM 5 for insomnia disorder characterized by changes in sleep schedule. These discussions will continue. This is a different mechanism of action than what the FDA has approved, but I remind everyone that the indication for the first short-term treatment is exactly what the indication reads for NBN. So there's nothing new there. We expect to have some significant discussions with the FDA as we proceed. In terms of timing, of course, this supplemental NDA, unlike an NDA, does not require putting together the entire package, preclinical safety, manufacturing, all of this information is there. Therefore, we believe it's a bit more straightforward and it will take less time to prepare. I cannot commit to timing right now as we want to continue these discussions with the agency.

Okay, no, that's fantastic. And I guess, if I may just ask one more question. I don't know if it would be directed to you, Mihael or Kevin. But with respect to some of the changes that you have observed in Medicare Part D coverage? Did that impact your financial guidance? Or like how did that weigh into your thinking for the revenues for this year?

Yes, I'll start off by briefly saying that this is an emerging story. The highlight that Kevin gave about a single sighted patient who actually won the administrative law judge ruling shows the positive energy by the patient and adjudicators to do the right thing. They are sticking to the FDA label to improve access for patients. However, this is just the beginning. Starting back in December this past year, we had several successes with state Medicaid agencies revising the criteria to allow access to sighted patients. But I will let Kevin discuss the impact.

Yes, thanks, Mihael. And Chris, just as a reminder, our guidance on HETLIOZ was $150 million to $180 million. What we had spoken to on that was the lower end of the range assumes that we continue to see payer challenges that result in a decline in patients on therapy, and the upper end reflects improvement in those dynamics and a return to growth in patients on therapy. Obviously, we've affirmed guidance as of our Q2 release, and we appear to be trending towards somewhere in the middle of those two forecasts. As Mihael mentioned, this is recent news that we're continuing to evaluate. We'll see what the impact will be going forward and look to have that guidance taken into account by other Medicare plans for patients seeking treatment. So that is breaking news you want to continue to monitor and evaluate.

Thank you very much, Chris.

There are no further questions at this time. I would like to turn the call back over to Vanda management for closing remarks.

Thank you. Thank you very much for joining us today. We look forward to speaking with you again soon.

This concludes the Q2 2022 Vanda Pharmaceuticals Inc. earnings call. We thank you for your participation. You may now disconnect.