Vanda Pharmaceuticals Q4 2007 Earnings Call Transcript

| About: Vanda Pharmaceuticals (VNDA)

Vanda Pharmaceuticals Inc. (NASDAQ:VNDA)

Q4 2007 Earnings Call

February 14, 2008 12:30 pm ET

Executives

Steven A. Shallcross - Chief Financial Officer

Mihales H. Polymeropoulos M.D - President and Chief Executive Officer

Analysts

Adam Greene-J P Morgan

Corey Davis-Natexis Bleichroeder

Frank Pinkerton-Banc of America Securities

David Amsellem-Friedman Billings Ramsey

Laurence Bleicher-Noble Financial

Mark McFerrin – [Visium] Asset Management

Operator

Good day, ladies and gentlemen and welcome to the Fourth Quarter 2007 Vanda Pharmaceuticals Inc. Earnings Conference Call. My name is Shaquana and I will be your coordinator for today. At this time all participants are in a listen only mode. We will facilitate a question and answer session towards the end of this conference. (Operator Instructions) I would now like to turn the presentation over to your host for today’s call, Mr. Steven Shallcross, Chief Financial Officer. Please proceed sir.

Steven A. Shallcross

Thanks, Shaquana. Good morning and thank you for joining us to discuss Vanda Pharmaceuticals fourth quarter and full year 2007 performance. Our fourth quarter results were released this morning 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 web site and a telephone replay of the call will be available through February 21. Joining me on today’s call is Dr. Mihales Polymeropoulos our President and CEO. Following my introductory remarks, Dr. Polymeropoulos will update you on our ongoing activities and plans for 2008 and then I will comment on our financial results for the fourth quarter and full year 2007 and discuss our 2008 financial guidance before opening the lines for your questions. Before we proceed I would like to remind everyone that various statements within the meaning of Federal Securities laws. Words such as, but not limited to, believe, expect, anticipate, estimate, intend, plan, target, likely, will, would and could and similar expressions or words will identify forward-looking statements. Our forward looking statements are based on current expectations that involve changes in circumstances, assumptions and uncertainties and other risks. These risks are described in the risk factor section of our report on Form 10-Q for the quarter ended September 30, 2007, which is available on the SEC’s EDGAR system and on our web site. We encourage all investors to read this report and our other SEC filings. The information we provide on the call is provided only as of today and we undertake no obligation to update any further forward-looking statements we will make on the call on account of new information, future events or otherwise, except as required by law.

With that said, I would like to now turn the call over to our CEO Mihales Polymeropoulos.

Mihales Polymeropoulos

Good morning and thank you very much for joining us. I would like to review our

accomplishments over the last quarter and give you an outlook of our operations

over the coming months. I will start with our lead program, Iloperidone for the treatment of schizophrenia which from now on I will refer to by its brand name Fiapta™. As we reported, an NDA was submitted on September 27, 2007 and it was accepted and filed by the FDA on November 27, 2007. Under the Prescription Drug User Fee Act (PDUFA) of 1992, we expect a regulatory action on our filing, on or around July 27, 2008. Our operational efforts in Fiapta™ are no focused on operational activities which include the development of our positioning, messaging, targeting and managed care strategies, alongside our ongoing publication and presentation efforts. Over the last quarter of 2007, we have presented at a number of scientific forums and discussed efficacy, safety and pharmacogenetic studies data for Fiapta™. We’re continuing our publication presentation activities and will be presenting at the upcoming American Psychiatric Association meeting to be held in Washington, DC this coming May.

We strongly believe that Fiapta™ will occupy an important place among the available treatment for schizophrenia, a disease with a significant unmet medical need.

I will now turn to VEC-162. I am pleased to announce that we have now completed enrollment in the ongoing Phase III study, significantly ahead of expectations. This is a study designed to evaluate the efficacy and safety of VEC-162 in patients with the symptoms of chronic insomnia. We have now enrolled 324 patients in three arms of 20 mg, 50 mg and placebo. The primary and secondary endpoint evaluates sleep onset and sleep maintenance parameters over five weeks of observation using objective outcomes that is utilizing sleep recordings in a sleep lab. Along with standard safety data, we also collect data on next day performance. We are now projecting that we will be able to report the plan results from this Phase III insomnia study in June of 2008. Let me remind you that VEC-162 has already completed a Phase II and a Phase III study in transient insomnia demonstrating significant benefits in sleep onset and sleep maintenance parameters. Success in this trial will represent significant, additional validation of VEC-162 as an important new therapy for sleep disorders for which there is no drug available today offering the optimal balance of efficacy and safety. The drug will potentially serve all segments of the so called insomnia market, including primary insomnia, secondary insomnia and circadian rhythm sleep disorders. We are also making significant progress on the previous elastics of the program and over the next few months we will complete the in-life portion of our two year customers’ initiatives studies enrollment.

Now Steve will address our financial results for the quarter. I will then provide some concluding remarks prior to opening the call for questions. Steve?

Steven A. Shallcross

Thanks, Mihales. Overall, our company’s fourth quarter results reflect the progress we’ve made on our Fiapta™ NDA filing, the faster than planned enrollment of the chronic primary insomnia Phase III trial for VEC-162 and the advancement of the pre launch commercial activities for Fiapta™.

F&D expenses for the quarter totaled $12.6 million, compared to $13.9 million in the third quarter of 2007 and $7.9 million in the fourth quarter 2006. The quarter over quarter decrease is primarily attributable to an increase in VEC-162 Phase III chronic insomnia trial costs being offset by a non recurring third quarter milestone charge of $5 million for the Fiapta™ NDA submission in September of 2007. The increase in R$D expenses in the fourth quarter of 2007, relative to the fourth quarter of 2006 was primarily attributable to the same VEC-162 clinical trial that was initiated in late 2007. For the full year 2007 total R&D expenses were $47.2 million, down from $52.1 million in the full year of 2006. Lower R&D expenses in 2007 resulted from the substantial completion of the Fiapta™ Phase III clinical program in 2006.

General Administrative expenses totaled $9.5 million in the fourth quarter of 2007, down slightly from $9.6 million in the third quarter of 2007 and up from $4.5 million in the fourth quarter of 2006. The increase in G&A expenses in the fourth quarter of 2007, relative to the fourth quarter 2006 is primarily due to increased Fiapta™ pre launch commercial activities, stock-based compensation charges, salaries and related costs of non-R&D personnel, insurance and facility expenses. For the full year of 2007, total G&A expenses were $32.8 million, up from $13.6 million in the prior year. The increase in G&A expenses is primarily due to increased salaries, benefits and stock-based compensation expense, increased business and commercial development expenses and higher insurance, legal and professional fees associated with being a public company.

Employee stock-based compensation expense recorded in the fourth quarter of 2007 was $5.2 million. Of the total $5.2 million of non-cash charges, $1.0 million was recorded in R&D expenses and $4.2 million was recorded in G&A expenses. In the third quarter of 2007 and the fourth quarter of 2006, total stock-based compensation was $5.2 million and $1.6 million, respectively. For the full year of 2007, total stock-based compensation was $19.5 million, up from $6.1 million in the prior year. The increase in stock-based compensation is primarily the result of the higher fair value of options granted during 2007 compared to the options granted in prior periods.

Net loss for the fourth quarter of 2007 was $20.7 million. This compares to a net loss of $21.9 million in the third quarter of 2007 and $11.9 million in the fourth quarter of 2006. For the full year of 2007, net loss was $74.1 million, up from $63.5 million for the full year of 2006.

Cash and marketable securities decreased by $16.2 million during the fourth quarter. Changes include $20.7 million of net operating losses and decreases in accrued R&D expenses and accounts payable of $2.5 million, offset by $5.3 million in non-cash depreciation, amortization, and stock-based compensation expenses, decreases in prepaid expenses of $1.6 million and net decreases in other working capital of about $100,000.00.

Vanda’s cash, cash equivalents, and marketable securities at the end of the fourth quarter of 2007 totaled $93.2 million, compared to $109.4 million as of September 30, 2007, and $31.9 million as of December 31, 2006.

Next I’ll briefly update you with our financial guidance for the near term. We anticipate our current cash balance will be sufficient to fund operations through the Fiapta™ PDUFA action date and into the fourth quarter of 2008. We will continue to focus our efforts primarily on completing and reporting the top-line results for the ongoing VEC-162 chronic insomnia Phase III trial and continuing essential Fiapta™ pre-launch commercial activities.

At this time, I’ll turn the call back to Mihales.

Mihales Polymeropoulos

Thank you, Steve. Let me say it again, that I am pleased with our progress since our last update. I’m extremely proud of our team and the results they have delivered. We’re very pleased with the progress that we have made in advancing our [indiscernible] due in 2007.We look forward to a very exciting 2008 and a very significant milestone, the regulatory action on Fiapta™ and the clinical results of VEC-162. I look forward to providing you with updates and further progress in the near future. We would be happy to address any questions at this time.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Your first question comes from the line of Adam Greene with JP Morgan. Please proceed.

Adam Greene-J P Morgan

Thanks, good morning, happy Valentines Day everyone. Two questions, one I was wondering if you have any thoughts following the Zyprexa Depot panel meeting last week, any take away from that relative to your development and then secondly any update on the Hatch-Waxman action patent registration for Fiapta™?

Mihales Polymeropoulos

Thank you, Adam and happy Valentines Day to you.

Adam Greene-J P Morgan

Thanks.

Mihales Polymeropoulos

The psychopharmacology advisory committee meeting on Zpyrexa Depot formulation was convened on February 6, in particular around the question on the relative safety and benefits ratio for the approval of this four week injectable formulation. Two key messages out of the advisory committee on the conviction by the experts in the field and the FDA, that there remains a significant mass medical need in schizophrenia and second, very interesting, is that not only a very good reason is there, but the need for long term injectables and I wanted to remind you that

Iloperidone has a safety profile and our ongoing efforts long before this injectable formulation will make it a very formidable competitor, in addition to psychiatrists’ choices. Your second question had to do on Hatch-Waxman. This is the customary expansion that adds to the NCA pocket life, you only apply that at the time of approval. And just to remind everybody of the time line, the NCE for Iloperidone is through the end of 2001 and therefore with the expectation of the full Hatch Waxman extension of five years, the NCE would be extended to the end of 2016.

Adam Greene-J P Morgan

Thanks.

Operator

Your next question comes from the line of Corey Davis with Natexis. Please proceed.

Corey Davis-Natexis Bleichroeder

Thanks very much. Mihales, excuse my voice, is the primary endpoint for the VEC-162 study at five weeks or is it some measure over the whole period of time?

Mihales Polymeropoulos

What typically is done is you declare as a primary endpoint, the first week data and then you have to subsequent endpoint in three weeks time and this is exactly how all the drugs in the clinic consumer have been approved.

Corey Davis-Natexis Bleichroeder

So patients are at home for most of the study but just go into the sleep lab for the objective measures once every week, is that correct?

Mihales Polymeropoulos

That is correct.

Corey Davis-Natexis Bleichroeder

And are you looking for the potential for rebound after five weeks as well?

Mihales Polymeropoulos

Yes it is not a specifically rebound study, but we are looking at that measure as well.

Corey Davis-Natexis Bleichroeder

And has there been any indication or communication between you and the FDA about when and if Iloperidone will have a panel meeting?

Mihales Polymeropoulos

Well, first of all we will not know whether we’re going to have an advisory committee meeting panel up until maybe a month or two before the action date, but at this time we have no communication from the FDA whether there will or will not be a panel.

Corey Davis-Natexis Bleichroeder

Okay and then lastly, I know the requirement for the approval of the oral atypicals in schizophrenia are shorter four to six week studies, but how long will the studies have to be for your injectable Depot, because I guess at four weeks it would only be one injection.

Mihales Polymeropoulos

Yes. That actually is going very well from the feedback on Zyprexa. Their data, the required data for the efficacy of the Zyprexa, four-week injectable was an eight week study and the study of the other typical psychotic risks of [belcasa] was at twelve weeks, so we’re very confident it’s going to be in that frame. And also the feedback informed a little bit on the requirements, but temple explained at one point to the panel that for oral formulations you typically need two full six week studies. I want to remind everyone that we’re submitting four studies, two of them are basically positive and two supporting. And for the Depot formulation there is a follow up formulation that has been approved orally, the requirement is for a single Phase III study.

Corey Davis-Natexis Bleichroeder

Great and the last question, how are you going to release the VEC-162 data? Is it just going to be top line data in the press release and then followed up by a medical meeting?

Mihales Polymeropoulos

Most probably, yes.

Corey Davis-Natexis Bleichroeder

Okay, great, thanks very much.

Operator

Your next question comes from the line of Frank Pinkerton with Banc of America Securities. Please proceed.

Frank Pinkerton-Banc of America Securities

Good morning and thanks for taking the question. When I look at VEC-162, of course that’s a drug we’ve written about in the past and spoken of, of potentially partnering. Would this data coming up from the Phase III trial released in June, would that offer another chance to go back to a partnering side, or is this a drug that is kind of going to be internally developed going forward?

Mihales Polymeropoulos

Thank you. So, first of all let me step back for a second and talk about the opportunities that surround the development of VEC-162. Due to its novel mechanism of action, it’s a dual melatonin avenue; I make a unique regulator of this sleep wake cycle. There are a number of options in the clinical development and therefore in the market [indiscernible] and that includes the primary insomnia, the circadian rhythm sleep disorder, sleep wake cycle abnormality. Secondary insomnia is insomnia that we see along side depression and anxiety and finally the application for the regulation of mood disorder symptoms like major depression. Just enumerating these opportunities it becomes very clear that the development plan can be incorporated to develop all these opportunities and that is why the present or the partner alongside development will help enhance the development plan and accelerate the development communications exercising the free potential of VEC-162. At the same time, on the commercial side, the presence of a partner is important, since all these indications already mentioned and the majority of them are a drug not only by specialty, specialist physician, but also general practitioners. Now in regards to the data, the 3104 Phase III studies we report in June, the data are very important because they are discussing, for the first time, how does the drug work in a disease population with chronic insomnia; and certainly the presence of the data enhances the positive side we potentially discuss with prospective partners.

Frank Pinkerton-Banc of America Securities

Great, thank you.

Operator

Your next question comes from the line of David Amsellem with Friedman Billings Ramsey. Please proceed.

David Amsellem-Friedman Billings Ramsey

Hi, thanks for taking my questions. So first, can you talk about what abstracts that you’ve submitted for the APA meeting?

Mihales Polymeropoulos

I can tell you the general theme, but I don’t think I can tell you the specifics. There are about ten absolutes and they address data, long-term and short-term safety data, data around the Depot formulation, the clinical data there and as well as pharmacogenetic data.

David Amsellem-Friedman Billings Ramsey

Okay and you will have an abstract on the Phase III study that you conducted for the oral?

Mihales Polymeropoulos

That Phase III study was fully reported at the American College of Neuropsychopharmacology meeting in December and the full abstract is on our web page.

David Amsellem-Friedman Billings Ramsey

Okay and then can you elaborate on your pre launch plans for Iloperidone and give us a sense of when you’re going to start hiring field reps, and then, related to that, what the SG&A ramp is going to look like during the year?

Mihales Polymeropoulos

Yes, we’re not going to give you a specific forecast of the SG&A on the commercial side, but I can give you the idea of what they’re working on now and a little bit of the timing of hiring. So, in the pre launch preparations, it is really important to understand your market, the needs, the profile of the compound and size, the required sales force and field forces that will address the commercial presence along side the publication and presentation plan that increase awareness of the compound. So this pre launch marketing of the compound is well under way and it is stuck. Now, in terms of increasing the hiring of the sales forces, the majority of that will happen first approval and therefore the spend, you would expect it to be a relatively small expense, prior to the PDUFA date and then accelerated spend post approval.

David Amsellem-Friedman Billings Ramsey

Okay and then one last question if I may. If you do get an advisory panel meeting, do you expect that it will be a do over of both Iloperidone and Azenapine and would that surprise you if that turned out to be the case?

Mihales Polymeropoulos

You mentioned Azenapine and all we know is that most probably we have filed around the same time, we did not announce the time of submission. If the FDA was to ask for a panel, it is possible they ask advice on both drugs, but I do not see a specific issue that, you know, they would like to ask these questions at this time. But, you know, I cannot predict whether the FDA will or will not ask for a panel.

David Amsellem-Friedman Billings Ramsey

Okay, thank you.

Operator

Your next question comes from the line of Laurence Bleicher with Noble Financial group. Please proceed.

Laurence Bleicher-Noble Financial

Hello Mihales, Hi Steve, a number of questions. I’m wondering if you could expand on what pharmacogenomic data is going to be at APA? Steve, with regard to the cash guidance, I’m wondering if you’re referring specifically to cash or to cash and short-term marketable securities lasting through fourth quarter and you mentioned how that sales force build would occur after approval. What sort of assumptions about the cost of pre launch expenses in between the PDUFA date and the fourth quarter are built into that cash burn guidance? And finally, with regard on moving ahead on VSF and additional VEC-162 trial and the rest of the opportunities for Iloperidone, what are the gaiting factors on those with regard to if you do launch this product yourselves in the US, how much revenue you need to see before you’re able to aggressively move into those additional opportunities for the company etcetera.

Mihales Polymeropoulos

So, let me start from the bottom. Questions three and four we’re not going to be able to address today, we’re not going to discuss that. And just to reiterate, the majority of the standard on the commercial is related, as you would expect, around the sales force and we only plan to significantly increase our spend in, higher post PDUFA. On your first question, which tended to what pharmacogenetic data we’ll present at APA; I’m not sure that I can discuss this now, but I’ll tell you that the pharmacogenetic data that we have already presented are in two major categories: the pharmacogenetic market of safety and efficacy that we’re prospecting live data in the last Phase III studies and the exploratory analysis of the whole geno analysis of efficacy genetic markets where first presented the American Cytogenetics meeting last October. There is, I said before, we have presented a number of this data at the American Psychiatric Association meeting; most likely the day that we present there, we’ll have to deal with the prospectively validated efficacy genetic market.

Laurence Bleicher-Noble Financial

Okay, great and my second question, Steve, with regard to the cash guidance, is that strictly speaking to cash or is that cash and marketable securities?

Steven A. Shallcross

It’s everything, it’s cash and marketable securities. The investments are incredibly short duration, so when we speak of cash, we speak of total cash plus marketable securities.

Laurence Bleicher-Noble Financial

Yes, great. Thank you very much guys.

Mihales Polymeropoulos

Thank you.

Operator

Your last question comes from the line of [Mark McFerrin with Visium] Asset Management. Please proceed.

[Mark McFerrin-Visium] Asset Management

Good morning, guys. Just one quick question on VEC-162, on the Phase II study, aside from the PSG measurements, are you going to be measuring any subjective WASO LPS?

Mihales Polymeropoulos

Yes, we are collecting subjective data. And just to remind you, that in the last Phase III transient insomnia study we also collected not only objective personal data that suggested data on the time to fall asleep and the time asleep and, both the subjective data sleep onset and maintenance were significantly different than placebo, which was consistent with the objective for the sub graphic data.

[Mark McFerrin-Visium] Asset Management

Thanks.

Mihales Polymeropoulos

Okay.

Operator

At this time, I would now like to turn the call over to Mr. Mihales for closing remarks.

Mihales Polymeropoulos

This concludes the fourth quarter investor call. We thank you for your interest in and support of AVANDA and we look forward to speaking with you again next quarter.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect and have a good day.

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