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Vanda Pharmaceuticals (NASDAQ:VNDA)

Q4 2013 Earnings Call

February 13, 2014 10:00 am ET

Executives

James Patrick Kelly - Chief Financial Officer, Principal Accounting Officer, Senior Vice President, Treasurer and Secretary

Mihael H. Polymeropoulos - Founder, Chief Executive Officer, President and Director

Analysts

Joshua E. Schimmer - Piper Jaffray Companies, Research Division

Jason N. Butler - JMP Securities LLC, Research Division

Operator

Welcome to the Fourth Quarter 2013 Vanda Pharmaceuticals Earnings Conference Call. My name is Shannon, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Mr. Jim Kelly, Senior Vice President and Chief Financial Officer. Please begin, sir.

James Patrick Kelly

Thank you, Shannon. Good morning, and thank you for joining us to discuss Vanda Pharmaceuticals Fourth Quarter and Full Year 2013 performance. Our fourth quarter and full year 2013 results were released this morning and are available on the SEC's EDGAR system and 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 and CEO. Following my introductory remarks, Dr. Polymeropoulos will update you on our ongoing activities, then I will comment on our financial results for the fourth quarter and full year 2013 before opening the lines to your questions.

Before we proceed, I'd 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 that involve risks, changes in circumstances, assumptions and uncertainties. These risks are described in the risk factors and MD&A and Results of Operations sections of our annual report on Form 10-K for the fiscal year ended December 31, 2012, and our subsequently filed quarterly reports on Form 10-Q, which are available on the SEC's EDGAR system and on our website. 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 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.

Mihael H. Polymeropoulos

Thank you, Jim. Good morning, everyone. As we announced last week, HETLIOZ tasimelteon was approved on January 31 by the U.S. FDA for the treatment of Non-24-Hour Sleep-Wake Disorder. This is a historic moment for blind patients who are suffering with Non-24 and for whom there was no available treatment. Full prescribing information can be seen at www.hetlioz.com or the FDA website. I would like to now discuss our commercial readiness and launch activities. With the on-schedule approval of HETLIOZ by the FDA, we are on target for commercial launch early in the second quarter of this year. After extensive research with the blind community and its advocates, we've designed a commercialization approach to appropriately address the need of our patients in the context of this orphan disorder. When we began our work on Non-24, several years ago, awareness of the disorder was minimum among patients and physicians. Blind patients knew for years of their struggles with sleep-wake schedules and the impact that the distraction had on their lives. They did not know, however, that their symptoms were due to Non-24-Hour Sleep-Wake Disorder. This now has changed and thousands of patients and their families and friends are now familiar with the disorder. There is still a lot to be done, and we're indeed doing the early phase of our campaign, but the early response is encouraging.

We're also working to educate the physicians so that they can appropriately diagnose Non-24 and decide on treatment. Through our hub services, we are collecting information on patient-specific physician preferences so that we can directly target our educational campaign to those physicians first. These physicians will be a mixture of specific patients, primary care doctors, as well as sleep specialists in geographic proximity to our patients. All this information is collected voluntarily through our direct response campaign. Through the same campaign, we also understand patient-specific needs that will aid us in adequate planning. These include need for co-pay support, as well as specific needs for transportation support.

We are committed to identify solutions for these patient-specific needs and address them so that patients are properly diagnosed and treated. Our extended marketing team is in place and is executing on the plan. The field force has been identified and will be soon deployed. Our HETLIOZ solutions hub services have been activated and will include a range of services including Non-24 disease education, physician referral, insurance verification, co-pay support, transportation support, and specialty pharmacy services. We are confident that our comprehensive launch plan will allow for efficient patient identification and a streamlined access to the HETLIOZ product for those who need it.

Our commercial manufacturing campaign is on target to deliver for the launch and it is worth pointing out that HETLIOZ tasimelteon packaging will be the first in the United States to carry blind accessible information through Braille inscription. We're also working with payers to make them aware of our product and the benefits that it can provide to patients with Non-24. We have not yet announced pricing for the product, but we've guided that it will be consistent with other orphan drug products and consistent with a benefit that it provides to patients. We know that there will be many hurdles to overcome during this commercial phase, but we feel that we have in place the right team and the right strategy in order to succeed. With that, I will turn the call to Jim Kelly to discuss the financial results and I will come at the end to answer any questions you may have. Jim?

James Patrick Kelly

Thank you, Mihael. During the full year 2013, Vanda recorded a net loss of $20.3 million as compared to a net loss of $27.7 million for the full year 2012. On a diluted share basis, this reflects a loss of $0.67 per share for the full year 2013 as compared to a diluted net loss per share of $0.98 for the prior year. Turning to our quarterly results, Vanda recorded a net loss of $7.6 million for the fourth quarter of 2013, compared to a net loss of $4.6 million during the same period in 2012. On a diluted share basis, this reflects a loss of $0.23 per share for both the fourth quarter of 2013 and '12. As of December 31, 2013, there were approximately 33.3 million shares of Vanda common stock outstanding.

Total revenues for the fourth quarter of 2013 was $8.8 million compared to $7.9 million in the same period of 2012. In these periods, there were 2 sources of revenue. They are licensing revenue and royalty income. Fourth quarter 2013 and 2012 revenue each included $6.8 million of the licensing revenue related to the amortization of the upfront payment received from Novartis for U.S. and Canadian commercial rights to Fanapt.

Fourth quarter 2013 revenue included $2 million in Fanapt royalties received from Novartis, as compared to $1.2 million for the fourth quarter of 2012. During each period, Vanda recognized that 10% royalty on Novartis' net sales of Fanapt. Fanapt prescriptions, as reported by IMS, were approximately 43,400 for the fourth quarter of 2013. This represents a 1% decrease versus the third quarter of 2013 prescriptions and a 14% increase over the fourth quarter of 2012 prescriptions. Total operating expenses for the fourth quarter 2013 were $16.5 million, compared to $14.3 million for the fourth quarter of 2012. General and administrative costs of $9.9 million made up the majority of that spend for the fourth quarter of 2013. This compares to $3.2 million for G&A spent in the fourth quarter of 2012, and reflects the increased commercial activity in preparation for the launch of HETLIOZ in the United States. Research and development expenses for the fourth quarter of 2013 were $6.2 million as compared to $10.6 million during 2012. The decrease in cost is primarily related to the completion of the efficacy studies for tasimelteon in Non-24 and Major Depressive Disorder.

Vanda's cash, cash equivalent and marketable securities as of December 31, 2013 totaled $130.4 million, a decrease of $11.8 million since the end of the third quarter in 2013. Regarding 2014 financial guidance, while Vanda will not be providing full year 2014 financial guidance at this time, we will evaluate our ability to provide additional guidance as the year progresses. This will include the appropriate launch metrics for use in discussing the progress at HETLIOZ commercialization during 2014. I will now turn the call back to Mihael.

Mihael H. Polymeropoulos

Thank you. I would now -- I would like to answer any questions you may have.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Josh Schimmer from Piper Jaffray.

Joshua E. Schimmer - Piper Jaffray Companies, Research Division

I was wondering if you could help provide some estimates for the European opportunity, and how we should think about the ease of tapping into that market compared to the U.S.?

Mihael H. Polymeropoulos

[indiscernible] and what we understand specific issues in Europe may be. So we are in the process -- have initiated the process for a European filing. And we hope that we'll be able to file here. So that will lead to 12 to 13 months after filing to the decision by the EMA, and therefore, [indiscernible] of negotiating our price in the reimbursement with different countries. That is -- can be protracted across 6 to 9 months or so. Our philosophy is that for the patients who need the drug, we should be able to negotiate premium orphan pricing very consistent with what others have done in the field. The opportunity can be quite large. The population, of course, is a bit larger than the United States. And the incidence and prevalence of Non-24 appears to be the same. So if you take as an analog, about 80,000 patients estimate in the U.S, it will be over 100,000 in Europe. Of course, the individual differences between EU country members price in the reimbursement creates additional complexity. To remind everyone, we do have currently patients treated in France, several years in the orphan study [ph], about 40 plus patients there. We have patients in Germany and we have specific interest in other major countries. So first things first is the focus on the European filings only to try to complete or begin the filing this year. We're in the process of discussing the results [indiscernible].

Joshua E. Schimmer - Piper Jaffray Companies, Research Division

That's very helpful. Can you also give us a sense of the pace of new patient identifications in the target markets that you've identified with your radio campaign? Do you continue to see a steady pace of new patient identification? Do you tend to see an initial bolus in the decline? Or just a little bit of color to help us extrapolate off of your early success into future success.

Mihael H. Polymeropoulos

Certainly. And just to go back a little bit in time, we've done a lot of field work to understand how this community of blind patients and likely patients with Non-24 operates, what are their preferences, media access, travel. And what we came to recognize is that there could be efficient streamlined ways of reaching patients. And you saw that with the initial pilot in the end of 2013 on the radio, which now, beginning in January has expanded to a -- both local markets and national radio campaign. As well, we will not characterize the numbers of patients spoke [ph] significant [indiscernible] radio campaign. Specifically, to address your question, I can say that we do not believe that we have reached saturation with a radio campaign as we are also exploring additional campaigns, and that we include a digital awareness pilot with television in the spring of this year. So all metrics now of this campaign suggest a steady growth. And certainly, we have not yet tapped the majority of the patients, but we will continue to see the growth.

Joshua E. Schimmer - Piper Jaffray Companies, Research Division

Great. Maybe one last question for me is, there's so much opportunity for development in circadian rhythm space that seems to be an under-addressed area for the pharmaceutical industry. Do you have now, or down the road, any plans to broaden beyond HETLIOZ to target some of those other sleep disorders or even other non-sleep circadian rhythm disorders?

Mihael H. Polymeropoulos

So first of all, HETLIOZ, we're actively committed to explore what we consider a very large opportunity in Non-24-Hour Disorder [indiscernible]. So let me be clear about that. We also have communicated that we want to expand our strategy to the pediatric blind population with Non-24. There's significant need there. And we also have discussed our imminent plans to begin a program in the Smith-Magenis syndrome, the rare developmental chromosomal disorder where patients have inversed circadian rhythms. But just a broader question, our level of commitment in understanding circadian biology and develop across the Pacific [ph], absolutely are committed, as pioneers in this field, of developing the first circadian regulator to understand other ways to address circadian rhythms. And as we have discussed before, while we concentrated on the rhythm of the [indiscernible] cycle in the countries of Non-24, circadian rhythms affects number of peripheral blocks [indiscernible] including cardiovascular and metabolic disorders. And there is a growing understanding in the biology and a growing supply of new [indiscernible] that will address this peripheral clocks. But we're absolutely committed to understand this. But just caution, these are all a bit early, and the immediate success of Vanda is around the Non-24 Hour Disorder opportunity.

Operator

Our next question comes from Jason Butler from JMP Securities.

Jason N. Butler - JMP Securities LLC, Research Division

Seems like you've been making good progress with the -- with building awareness in education with patients, maybe could you talk to us a little bit more about the work you're doing with physicians and how you're building the referral network. And maybe if possible, quantify how many physicians you feel could be early adopters when the drug is launched?

Mihael H. Polymeropoulos

Thank you, Jason. So just a little bit on our evolving strategy, the physician education and engagement. First of all, sleep doctors, there are about 2,000 of them in few tranches around the country, are fully aware of our circadian rhythm disorders, and certainly, are aware of Non-24. However, as expected for a rare disorder and in the absence of any therapeutic, historically, they have treated very few patients. But their ability to recognize the patients, blind patients with sleep-wake disorder and place in the differential diagnosis Non-24, is very high. So the specific awareness of the disorder is high among physicians. Now that there is a solution, things are a bit simpler. However, we want to be very targeted. And therefore, with a small footprint of the sales force and education campaign physicians being -- physicians are to speed, not only with the disease awareness already in there, but also with what HETLIOZ brings and how it can be used. To that effect, as I mentioned earlier in my remarks, we're looking at a dual strategy, while broad awareness can happen with a number of initiatives that we have and we will launch. We're also extremely interested to identify these specific doctors that our potential patients are telling us they rather see. And there's only 2 classes. Either it is a preference where a primary care doctor that's in this space for other issues for many years. But also, most of patients are very keen to see a sleep specialist in the area. And we had significant opportunity of targeting because we know who the patients are, we know where they are geographically located, we know who the physician preference is and we know who the sleep doctors in that area are. And therefore, as we are launching, it creates an opportunity to, in fact, have very targeted and specific education to physicians that will soon see these blind patients with potentially Non-24 [indiscernible].

Jason N. Butler - JMP Securities LLC, Research Division

That's helpful, great. And obviously, you said you haven't given pricing yet. When do you expect to disclose what the price of the drug is? Is it when you launch the drug or could it be earlier than that?

Mihael H. Polymeropoulos

We intend to discuss our pricing prior to the launch. So we can get all the peers ready, and in fact, do some pre work in prequalified patients, so they're ready. As soon as the drug becomes available, we'll discuss with pharmacies to access it. So the pricing communication will likely be in advance of drug availability.

Jason N. Butler - JMP Securities LLC, Research Division

Okay, great. And then just a quick one for Jim. Obviously, you're not giving financial guidance right now. But could you maybe talk to us about what specifically was in the R&D expense line for fourth quarter '13, and whether there are any one-time items, and what the right way to think about a run rate in 2014 is?

James Patrick Kelly

Right. Thanks for the question. When you look at -- of course, we're not going to be able to give the forward-looking expectation, but I can talk a little bit about what is in the fourth quarter number. So in the fourth quarter in R&D, you've got a combination of, of course, the people plus you've got the facilities, the classic overhead, your office. But I think the meaningful part in terms of activities are really 2 things. One is the trailing safety studies that we have ongoing for HETLIOZ. So as Mihael mentioned earlier, we're doing studies in Europe. We've got one that is a safety study in France. And then we also have the U.S. based. So that's one piece. The second piece is we have an ongoing proof of concept study for our VLY-686, which is in pruritus in treatment-resistant atopic dermatitis. So those are the components. The expectation, of course, is that the VLY study continues into next year. And then, as we move into 2014, there will be a conclusion at some point during the year of the safety extensions for the HETLIOZ studies, that of course, those patients, we'd love to find an appropriate way for them to convert to commercial patients.

Jason N. Butler - JMP Securities LLC, Research Division

Great. And then just one last follow-up there. Could you tell us, in the U.S., how many patients are actually currently receiving drug in the safety study?

Mihael H. Polymeropoulos

Yes. The patients in the U.S. are just a bit over 70. And the patients in France a little bit over 40.

Operator

At this time, I would now like to turn the call back to Dr. Mihael Polymeropoulos for closing remarks.

Mihael H. Polymeropoulos

Thank you very much, all, for joining us. And of course, we thank you for all your interest and support of Vanda. Thank you.

Operator

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for your participation. You may now disconnect.

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