Q3 2019 Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2019, Vanda Pharmaceuticals earnings Conference call.
At this time all participant lines are in listen only mode.
After the speakers presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
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I would now like the conference over to your Speaker today, Mr., Jim Kelly Executive Vice President and Chief Financial Officer. Please go ahead Sir.
Right. Thank you very much a good afternoon and thank you for joining us to discuss Vanda Pharmaceuticals third quarter 2019 performance or third quarter 2019 results were released this afternoon and are available on the Fccs Edgar system and on our website Www <unk> band.
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In addition, we are providing live and archived version. So this conference call on our website.
Joining me today on on the call is Dr. Mihael Polymeropoulos, our president and CEO .
Following my introductory remarks Mahal US, we'll update you on our ongoing activities.
I will then comment on our financial results before opening the lines for 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 are 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 managements discussion and analysis of financial condition and results of operation sections of our annual report on Form 10-K for the fiscal year ended December 31st 2018 in quarterly report on Form 10-Q for the quarter ended.
At June 32019.
Which is available on Ccs Edgar system and on our website, we encourage all investors to read these reports and our other SCC 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.
But that said I'd now like to turn the call over to our CEO duck him House Polymeropoulos.
Thank you very much Jim good afternoon, everyone and thank you very much for join us.
This is being an excellent quarter for vanda as we reported today.
And is revenue from our commercialized products continue to grow in the third quarter.
Our performance in the third quarter demonstrates the strength of our positioning the market and our ongoing commitment to pursue value enhancing opportunities.
With the objective of driving long term sustainable growth.
We continue to drive growth of HETLIOZ six years into the lungs, and this performance is a testament to our ability to continue to drive awareness for non 24 hours sleep wake disorder, with both patients and doctors in a unique and unprecedented manner.
We continue to see strong demand for new patients in both blind inside the individuals with non 24. In addition to our commercial success on HETLIOZ were preparing a significant direct to consumer marketing campaign for Fanapt. The first of its kind pretty schizophrenia treatment, which.
We'll begin early next year.
We have received very positive feedback on a broad circulation magazine print campaign for Fanapt that was piloted this summer and look forward to expand our fanapt marketing campaign in the coming months.
In the last few months, we've also launched a comprehensive.
Regulatory strategy aimed at driving regulatory changes that appreciate and enabled innovation improve access to drugs in increased competition.
Our intent is to undertake an intensive and collaborative engagement with regulatory authorities on all matters of vendors business.
We believe that this strategy will advance cintas of Vanda and better support our products and the pace since we sir.
An example of his engagement is vadis participation in the common processes for the new draft guidance issued by the FDA when Gastroparesis This summer.
We commented on in number of important issues, including the proposed number of endpoints the length of clinical evaluation and the design of the safety database.
Many of our acute comments were consistent with feedback expressed by others, including XY physicians. The Gastroparesis theoretical research consortium and the American neuro Gastroenterology and with Timothy Society.
Yeah and advocacy organizations of patients.
We're also actively engaging with the FDA on discussions around the appropriate models for preclinical safety evaluations and post marketing safety evaluations as well as when appropriate developing plans for all of our projects.
We have made significant progress on our assets in clinical development and I will discuss a few highlights.
Were advancing rapidly on a number of parallel tracks for all of our projects and we are currently conducting a significant number of clinical trials with numerous planned regulatory submissions in the next 24 months.
When HETLIOZ for the treatment of jet lag disorder, we continuing engagement with the FDA to resolve the issues that precluded approval and we remain confident that our supplemental India for jet lag disorder demonstrates the significant and clinically meaningful effects of HETLIOZ on the essential.
Core features of jet lag disorder, namely insomnia and next day alertness.
Also on HETLIOZ, a pre as Cindy a meeting is scheduled for space again, you syndrome during the fourth quarter.
Our SMB a for me my getting your syndrome will include the largest controlled study ever conducted in the disorder and we'll look forward to working with the FDA to being this important treatment to patients and their families isn't as possible.
Oh, Fanapt, we plan to initiate deciding bipolar disorder in the coming months. In addition, the studies of a long acting injectable formulation of Fanapt our ongoing.
I will now turn to Tradipitant.
This is our new accounting one receptor antagonists, we reported positive results from a phase two study in our motion sickness program with Tradipitant earlier this year.
Glassware phase three study motion sickness are well underway and we anticipate beginning of this study in the fourth quarter.
We plan to meet with the FDA and targeted path for clinical program that supports an NDA filing for motion sickness later in 2020.
We're also advancing two additional important indications as you're aware for Tradipitant, a topic dermatitis and gastroparesis.
On Gastroparesis in phase three study of patients with both idiopathic end diabetic gastroparesis is enrolling and randomizing patients.
The duration of the studies 12 weeks and we plan to enroll approximately 200 patients.
We're very excited to report significant progress of this idea of to a deep good eight topic dermatitis. We've now completed enrollment of the first phase three study appealing in October and expect to report to result in the first quarter of 2020.
We have also began enrollment in the second phase three study for atopic dermatitis.
By the name a PR need to.
Vanda continue to have a strong presence at the number of scientific meetings, this past quarter, including the United European Gastroenterology, The American College of Gastroenterology Gordon Research crowded biology meetings and also we presented 12 papers at the American Society of human genetics.
These presentations included whole genome sequence analysis of Gastroparesis Smith my game sentiment schizophrenia patients discoveries of novel regions effect in human krona types, and should Kadien peer GLAIC and patterns of homozygotes city across spaces.
We continue to strengthen and defend our IP portfolio, including through the addition of newly issued patents for our products.
In summary, we are very excited by our significant progress both commercially and clinically with strong financial performance a healthy cash balance growing profits in revenue while at the same time progressing our innovative projects at an accelerated.
Pace.
Yes.
All right. Thank you my Hollis.
As Mahal as highlighted during the third quarter of 2019, we saw exceptional year over year revenue growth, which is consistent with our plans total net product sales for the third quarter of 2019 were 59.5 million, 21% increase compared to 49.1 million and.
Third quarter of 2018.
HETLIOZ net product sales were 37.6 million in the third quarter of 2019, 26% increase compared to 29.9 million the third quarter of 2018.
The HETLIOZ patients on therapy number declined slightly from the third quarter as compared to the second quarter 2019.
Reminder, that the second quarter saw record growth with the largest number of new patient addition, seen since the early days of HETLIOZ launch.
As of September 32019, the specialty pharmacy channel held less than two weeks of inventory as calculated based on trailing demand specialty pharmacies inventory on hand at the end of the third quarter of 2019 was lower when compared to the second quarter.
2019, the value of this inventory change was approximately 900000.
Fanapt net product sales of 21.9 million in the third quarter of 2019 reflects a 14% increase compared to 19.2 million in the third quarter of 2018.
As of September 32019, wholesalers have decreased inventory on hand, when compared to the second quarter of 2019 the value of this inventory change was approximately 200000.
Fanapt prescriptions as reported by Q via exponent decreased by 2% compared to the third quarter of 2018.
And prescription trends remain consistent with our full year 2019 financial guidance.
In the third quarter of 2019, Vanda recorded net income of 100.4 million compared to net income of 7.2 million for the third quarter of 2018.
The income tax benefit of 88.1 million reflected in the financial results for the third quarter of 2019.
Includes the favorable impact of the release of Vandas deferred tax asset valuation allowance.
Now this is a onetime tax benefit and a noncash item and therefore does not have an immediate impact on vandas cash balance.
That said the recognition of the deferred tax asset this quarter does reflect management's strong conviction in our business and future profitability.
Income before income tax in the third quarter of 2019 was 12.3 million, 69% increase compared to 7.3 million in the third quarter of 2018.
Operating expenses in the third quarter of 2019 were 48.7 million compared to operating expenses of 42.9 million in the third quarter of 2018.
The increase of 5.8 million was a combination of increased SGN, a cost and an increase to cost of goods sold associated with the higher net product sales.
We expect operating expenses to rise in the fourth quarter of 2019, driven by our commercial DTC spend and R&D project activities.
Particular note are the new Tradipitant phase three studies for Gastroparesis, atopic dermatitis and motion sickness.
Vandas cash cash equivalents and marketable securities referred to as cash as of September Thirtyth 2019 were 299.6 million, representing an increase in cash of 59 million compared to the third quarter of 2018.
Vanda reiterates its 2019 net product sales guidance and expects results in the upper half of the range.
Net product sales from both HETLIOZ and Fanapt of between 215 and 225 million.
HETLIOZ net product sales of between 137 and 143 million.
Fanapt net product sales of between 78 and 82 million.
In addition, vanda is providing an update to year end 2019 cash and expects to achieve the following financial objectives.
Yearend cash it's expected to be greater than 295 million. This compares to prior guidance of greater than 275 million.
I'll now turn the call back to my House.
Thank you very much at this point, we would love to answer your questions.
As a reminder, if you'd like to ask a question you will need to press Star then one on your telephone to withdraw your question press the pound key.
Please stand by only compiled acuity roster.
Our first question comes from the line of Rogers, along with Jefferies. Your line is now open.
Hey, Thanks for taking my question and so first of all congrats for that.
Pretty good cannot buy through corridor.
My first question related to actually but can you maybe too so so for the the timeline of the hepatitis phase two top $100 alluded to earlier Dan.
Expected to still hall.
Could you can attribute to date.
A quick their enrollment and any related information you can share with that.
Yes, you're correct that are in new sale.
Estimate for compete can decide it was in the first quarter.
And the reason for this is dual.
One is good execution on speed of recruitment.
But also we.
Were able to cap the recruitment that about 375 patients.
Instead of the approximate 500 and this was up there.
Analysis of the blinded data.
So at a very small implementing the powered this study between 375 and.
500.
So that is really the explanation, but we're pretty excited to see this results in the first quarter.
I see great. Okay and next question is are we in the Stan.
On December 13, you will have her motions hearing for today.
Clinical partial hold dispute with the FDA for the summary judgment, so what kind of a potential outcome would you expect in how would you communicate to the street.
Yes.
I will actually passed this question to our.
Turning the call so Tim Williams, who is here with us.
And I will say of course, we cannot make any comments abbvie. All the information is in the public domain, but I will let Tim on CEO , Chris sure. Thanks modeling.
Just to the to set contacts and as a reminder, when we filed our summary judgment motion in the case back in July we did request this oral hearing.
So this is.
We're happy that judge bake Judge Bates granted that request, which he did on Monday of this week. The documentation that is publicly available on the pacer system as well.
So we remain confident in our position on the case and we're looking forward to the hearing apart from that I Echo what Mahalo said, we won't speculate on.
Strategy or outcomes are response to that here.
Sure Yeah.
Maybe one last question from me as the.
What have been the key consideration for phase three motion sickness.
Study given their learning from our positive effect true.
Yes, as we said too in the phase two of course very strong results.
Basically if can protection of pace since I took so dividend over those that two placebo.
One of the key learnings is that we learned that.
Rough seas matter.
And way Pride matters and these will be.
Controlled into next study I don't mean, we're going to make weather.
But we will at least.
Randomized patients with certain certain sea conditions are achieved.
But I want to underscore also that.
We soon we'll plan to request an end of phase two meeting with the FDA.
To formally to view the result, and the upcoming.
Clinical studies.
Got it. Thank you Yep that's off on me Congrats again.
Thank you.
Our next question comes from Joel Beatty with Citi. Your line is now open.
Hi, Thanks for taking my question for the first one is on Dtcs funding if I heard right earlier in the call you mentioned, some increasing opex for additional DTC spending and I think that doesn't area. If I remember you cut back a little bit on earlier. This year. So could you talk about me, which products that would be folks.
Stein.
Well, if what gives you confidence that.
Everybody that this funding will lead to increased scripts.
Yes, that's a fair question first of all I wouldn't say that.
We're not prepared now to discuss specific spend targets, but I'll give you a little bit.
The.
Thinking behind it and also where a confidence around did you see comes from.
I will first.
Speaks to our expands our experience has been.
A.
Patrick performance of our direct to consumer campaign, our own HETLIOZ.
In the first.
Three to four years.
With a very significant dry before situation.
And now with our smaller reminder campaign.
It is that DTC campaign that is driven now the creation of a database of approximately 30000.
He sends.
Interested in learning more about non 24.
And continue to drive our growth so there the return on investment.
Has been fantastic.
No.
The question is what additional DTC campaign will do in for what product as I mentioned.
We're now planning a direct to consumer television campaign for Fanapt.
And the thinking behind it is that.
These category of drugs.
Cottage are actually quite sensitive.
To direct to consumer promotion.
Fanapt did not have any.
The other brands that are.
Available today of and psychotic drugs do have a strong.
Essence of direct to consumer campaign behind that.
The goal of this campaign for Vanda will be consistent with the principles under which we operate.
Which is.
Make basins, where and empower them and at the same time, we will be likely the first company ever to advertise drive for schizophrenia.
All our competitors have advertise it projects.
Not for their first indications because of venue, but rather for bipolar disorder and major depression.
We think that does very little to these stigmatized this quick disease and from our daily pilots and pain.
We're getting very significant positive responses vandas efforts.
Actually being towards schizophrenia in front of Americans, the stigma dies, it and offer from that as in other treatment that patients who discussed we there.
Doctors. So we're very excited about that but also I want to point out.
Joel that Tom.
And that has employed in the past.
Very good metrics to understand performance of.
DTC campaign, even before long before revenues come and I will not common specifically.
What we plan to do with Fanapt.
But we will have the opportunity to know very quickly what is the effects of this campaign.
And what the of the spend should be.
So of course, we're doing this.
The increase of revenue.
And we will make sure we understand the metrics of a positive ROI.
Okay, I really appreciate all the detail and one more question.
Trevor dance.
Could you discuss after your willingness to approve tradipitant.
For any indication.
Oh, it's completing any additional animal preclinical work and I guess, what I'm getting out there.
It seems clear for for certain indications.
FDA wants additional preclinical work, but some other indications may be shorter term use such as motion sickness and does that seem to change the way that you would consider proving it at all for those indications that could be shorter term.
Yeah. That's a fair question, so I'll take one indication at the time.
For motion sickness, you're right. This is a incidental intermittent treatment.
Were having.
Long term safety data into spaces.
We'll be certainly outside of recommendations of ice age guidance. So it is our full expectation.
At this part of the database would not be.
Required.
Of course, the FDA doesn't tell you what is required and feel you file and maybe they tell you than later.
However, on the motion sickness, I would say that we should feel very confident.
This.
Database that already exists of preclinical data will be well within requirements. Now we also feel confident about our plan.
To produce a safety database in the plan that will enhance the safety of the program above and beyond what if da's doing now.
We don't spend in two months time on this.
I will actually guide you to Vandas comment on the Gastroparesis guidance its publicly available in regulations Dot Gov. You can search for Gastroparesis any you'll see the vendor comment within these vanda comments.
You will see our proposal to the FDA of.
A very comprehensive.
Safety database creation.
Where we call submission of our placebo controlled study data in the.
Okay.
12 week placebo controlled study data.
For the safety database acted time approval and then distribute the drug through a specialty pharmacy program and a complete registry.
That will continue on for up to 10000 patient reporting and analyzing continuously to the FDA.
By the way. This is a proposal that vanda is advancing to enhance safety of all drugs, we believe that.
The current systems required by the FDA and I see age guidance that drags that made threed thousands or millions of people are really is the market with databases over 100 patients exposed for 12 months is grossly inadequate and delays detection of signals.
We believe that our proposal certainly city adopted and it has the potential of transform and improve safety of human drugs.
Got it thank you.
Our next question comes from Jason Butler with JMP Securities. Your line is now open.
Hi, Thanks for taking the questions.
First one can you give us anymore color on the patient dynamics for a for HETLIOZ from from Twoq to Threeq you.
Yes ill characterize it a little bit and may be deemed wants.
To add something.
We are continuing to see growth in the patience added per month.
And the growth comes from the combination of fall both our PDP program, which is the pacing directed physician program.
And the.
Eight spy program, which is the HETLIOZ psychiatry.
Initiative.
And we continued to see.
Very significant addition of.
New demand.
Every month, Jim do you want to add something sure.
Hi, Jason.
You heard me mention earlier that the second quarter was wrecking record quarter of growth for HETLIOZ. It was exceptional in terms of new patient adds and getting driving patients on therapy.
We held that.
Effectively in the third quarter, which is in in of itself an amazing feat I think you know as we head into summer on than we do a little less DTC and such.
Third quarter.
It's a little extra work for us so as we look at the shape of the business.
We think that maintaining a strong patient on therapy impeaching demand in the third quarter on the heels of a record second quarter is exceptional and so we're really looking forward to build in the business from here.
Yes, just want to point out.
Jason that.
It is exceptional.
For the product in this space.
To continue to grow.
Six years into the launch.
And again.
Very proud of our team.
And the efforts in ingenuity to continue to grow these.
Product, but it happens actually.
Because vanda Navy gave up to try to identify patients that will benefit.
What we're learning now from basin stories everyday.
Is that.
Vanda has given them in answer to that peculiar disorder that they were missed diagnosed and treated for many years non 24.
And we see basins that that lives have been transformed.
Benight unblind or cited and we see.
Doctors that all of decide to not a light and.
With the effects of the Dragon some of our patients.
Only to mention a.
Email I received this last week, where one of our sales representatives walked into a doctor's office only to be hybrid.
To say thank you.
What HETLIOZ has done to one of.
Sure patients.
That was a mail piece inside it.
With peculiar sleep issues.
Because of our awareness is this and recognize that maybe non 24 and now he has successfully treated this basin. So I just thought is actually.
Make us think that vanda is doing the right thing.
And we will continue to drive growth.
By identifying patients that are under diagnosed today.
Great.
That's helpful. And then just one more question I'm on the bipolar disorder study for Fanapt can can you give give us any more details.
And at a high level on how you're thinking about trial design and whether you expect us to be a registration study. Thanks.
I would start from the bottom, yes, it will be registration study.
And.
Hi, otherwise, it's pretty boring.
It would be a three week in pace and three or four week in basin study yeah were debating that.
We have the classic endpoints.
That all successful studies with Avidan Psychotics.
Yes.
Great. Thanks for taking questions.
Of course.
Our next question comes from the line of Derek Ocular with Stifel. Your line is now open.
Hey, good afternoon, guys and thanks for taking the questions. So I'll just a few from US I guess first we didn't see any non-GAAP reconciliation figures in the press release. So just wanted to get a sense of where the stock based comp.
Figure kind of was for the quarter in the breakdown of that so they were going to start there that I have a couple of follow ups.
Sure Derek and in fact, you will see all the stock based comp you tail and its breakout between their sheehan a and.
R&D in the 10-Q, so that data will still be there.
This quarter, we decide to remove that schedule simply because our guidance. We gave this year, we no longer guide on non-GAAP Opex, we had stopped that this year and so it just didn't seem to make sense to continue and especially since all the data you need is right there in the Q.
Okay Fair enough and then just on R&D expense. So it seems like through the good portion of this year.
You know kind of been on the low side relative to consensus and at least our estimates as well so.
It sounds like the R&D should start ramping up the started or at least sounds like we're going to be starting some study so.
Can you just kind of give a sense you know maybe the magnitude and then obviously the without giving 2020 guidance.
How should we be thinking about you know the again a variety of different studies, what that that cost could look like over into the next 12 to 18 months.
Mhm.
Alright, well I think one of the important things you heard from the house a little bit earlier is our ability to operate incredibly efficient way I mean, we've found that for example in a topic dermatitis, the we feel really confident and.
Completing enrollment at approximately I think of numbers 370 375.
Opposed the original 500 and get us to the answer quicker and for less and you know in this business. That's that's pretty impressive. So we're happy with the R&D execution.
Also on the heels of great motion sickness results. The part we're going to be initiating studies soon and as you heard the gastroparesis is up and going we're coming into a window here, where we do expect a step up in R&D expense and you are going to hear more from us.
About guidance as we get into next year, but.
I wouldn't want to jump in front of that.
Okay.
All right. So just moving on the HETLIOZ so.
As we think about some of the comments it sounded like you were talking about a small.
Sequential decline in the number of patients on therapy from Twoq to Threeq you. So yeah, I guess to Q was that more record setting type of volume. So can you just give us a sense, maybe the split between volume and price as we kind of stepped into three the third quarter.
Yeah.
So the first thing I would share is that on the heels of record growth. We were thrilled just even maintain that patient on therapy number in Q3.
When we all know Q3 s can be quite or whether its docs vacation patient vacation loan less DTC.
So were exceptionally happy I think you remember in Q2, we saw 9 million sequential step up so holding it and then having a nice setup for the go forward.
We're thrilled.
Okay, and I guess again, if we're talking about volume that issue I think.
Yeah, if you think about Q2 versus Q3.
And and you just sort of step back.
View them as flattish and we're thrilled to move from here.
Okay. So I mean, I guess your comments said that there was a sequential decline, but now it's flattish. So I just want to make sure that we got that straight as we model. This.
Well remember, there's a couple of pieces I shared with you.
Small slight decline in patients on therapy about 900000 in de stocking.
So I mean, clearly there's some moving pieces, but if you're thinking about Jim talked me about where the businesses going when I would tell you as you as you think about it from an investors point of view is that on the heels of an exceptional second quarter Vanda held their position in Q3, and we're looking forward to building from here.
Okay, and then I guess last question here on H. pie we've.
Gone through many months now in a quarter. So I guess, where do you think we are in terms of what inning were in H.P.I. and ultimately.
You guys continue to talk about kind of growth from here. So again, where do you think this can go.
Well I can answer that.
We continue to find strong demand.
Month after month, so we do not see any signs of saturation of the new demand.
On the HP.
And in fact, when in the midst of.
Reorganizing our sales force and activities to even emphasize more HETLIOZ hills.
Great. Thanks for taking my questions.
Yes.
I'm showing no further questions in queue at this time I'd like to turn the call back to Dr. Polymeropoulos for closing remarks.
Yes. Thank you very much will join us on this call I appreciate all your questions and.
We'll talk to you soon.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Oh.