Vanda Pharmaceuticals Q4 2023 Earnings Call Transcript

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February 7, 2024

There are 5 speakers on the call.

Operator

Good afternoon. My name is Jeannie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 2023 Vanda Pharmaceuticals Inc. Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

Operator

After the speakers' remarks, there will be a question and answer session. Thank you. I would like now to turn the call over to Kevin Moran, Vanda's Chief Financial Officer. Mr. Moran, you may begin your conference.

Speaker 1

Thank you, Jeannie. Good afternoon and thank you for joining us to discuss Mana Pharmaceuticals' 4th quarter and full year 2023 performance. Our Q4 and full year 2023 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 Doctor.

Speaker 1

Mihael Palimirojos, our President, Chief Executive Officer and Chairman of the Board and Tim Williams, our General Counsel. Following my introductory remarks, Mihael will update you on our ongoing activities. Will then comment on our financial results before opening the lines for your questions. 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, Changes in circumstances and uncertainties.

Speaker 1

These risks are described in the cautionary note regarding forward looking statements, risk factors In management's discussion and analysis of financial condition and results of operations sections of our most recent annual report on Form 10 ks As updated by our subsequent quarterly reports on Form 10 Q, current reports on Form 8 ks 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, Doctor. Mihael Palaiimopoulos.

Speaker 2

Thank you very much, Kevin, and good afternoon, everyone. Thank you for joining us to discuss Vanda's Q4 and full year 2023 results. I will briefly discuss key updates, And then I will ask our General Counsel, Tim Williams, to provide a brief update on litigation matters before turning the call over to Kevin Moran to discuss our financial results. We have significantly advanced our development pipeline now with 3 PDUFA action dates in 2024, including our supplemental new drug application or sNDA for bipolar warrant disorder in adults with a PDUFA date in April of 2024 and our new drug application or NDA for gastroparesis with a PDUFA date in September 2024. On our supplemental NDA for HETLIOZ in the treatment of insomnia, as we previously communicated this week, Our sNDA was accepted for filing and is under review by the FDA with the PDUFA target action date of March 4, 2024.

Speaker 2

Earlier this week, we announced that we had received a notification from the FDA stating that the FDA had identified Deficiencies that preclude discussion of labeling and post marketing requirements and commitments at this time. No deficiencies were disclosed by the FDA in the notification, and the FDA stated that the notification does not reflect a final decision on the information under review. However, frequently, such a communication from the FDA is followed by a complete response letter. Subsequent to that development on February 6, 2024, Vanda filed suit in the U. S.

Speaker 2

District Court for the District of Columbia challenging the FDA's conduct In reviewing the insomnia SNDA, Vanda is asking the DC District Court to compel the FDA to adhere to the legally mandated 180 day review period for sNDA and to declare as unlawful and void the regulations the FDA relies upon to issue complete response letters. On Fanapt for bipolar 1 disorder, as previously discussed In December of 2022, we announced positive results in our Phase 3 clinical study of Fanapt in acute manic and mixed episodes with bipolar 1 disorder in adults. Our supplemental NDA for Fanapt in bipolar 1 disorder in adults has been accepted for filing by the FDA and the target action date has been set as April 2, 2024. We believe that this potential label expansion represents a significant opportunity for the Fanapt franchise Given the high prevalence of bipolar disorder in the United States, the estimated prevalence of bipolar disorder in the U. S.

Speaker 2

Adult population is multiple times larger than the estimated prevalence of schizophrenia. Additionally, on Tradipitant, For patients with gastroparesis, our new drug application has also been accepted for filing by the FDA And the target action date has been set as September 18, 2024. The FDA package supported by the results from clinical ethical studies 2,301 and 3,301, which we believe demonstrate substantial evidence of efficacy of predipitant in this indication as well as a safety database to support the tolerability of this drug. The expanded access program continues with multiple patients have been treated for at least 6 months and the longest treated patient for more than 3 years. We're pleased with our revenue performance despite the challenges of the at risk launches of generic HETLIOZ products.

Speaker 2

Over the course of this year, we have taken a number of actions intended to position the commercial business for continued success, both with respect to existing products and indications as well as potential future products and indications. These include preparations for the potential near term expansion of the Fana franchise if we receive FDA approval for bipolar 1 disorder in adults. During the Q4 of 2023, we completed a transformative acquisition As we obtain the U. S. And Canadian rights to Ponvori, Ponnissimod from Actelion Pharmaceuticals Limited, Johnson and Johnson Company for US100 $1,000,000 Volvody is a once a day oral selective sphingosine 1 phosphate receptor 1 modulator approved by the FDA and Health Canada to treat adults with relapsing forms of multiple sclerosis.

Speaker 2

Additionally, PONVOY is a potential therapeutic candidate for the treatment of a diverse group of inflammatory and autoimmune disorders ranging from psoriasis to ulcerative colitis. Most recently, the U. S. Patent and Trademark Office issued a notes of allowance for Pulvoyi Patent Application 17, 962,968, which when issued is anticipated to expire on October 10, 2,040 2. On the clinical side, as previously reported, in May of last year, we announced positive results from the 1st Phase III study of Tradipitant in the treatment of motion sickness.

Speaker 2

And subsequent to that, we initiated a second Phase III study, which is now already 50% enrolled. We plan to pursue FDA approval of Tradipitant for motion sickness upon completion of the clinical development program. And outside of this update on the tradipitor motion sickness program, we continue to progress our robust clinical development pipeline, which includes multiple products across a wide range of therapeutic areas. With that, I will now ask Tim Williams, our General Counsel to provide a brief update on litigation matters. Tim?

Speaker 3

Thank you, Mihael. I'll provide a few litigation updates starting with our HETLIOZ ANDO litigation. We filed a cert petition with the Supreme Court in January asking the court to hear our case and clarify important aspects of patent obviousness law for the benefit of lower courts, including the Federal Circuit. The defendants, Teva and Apotex, have waived their opportunity to respond to our petition. And today, the petition was distributed to chambers at the Supreme Court for consideration.

Speaker 3

We await their review. Next, I'll provide an update of our case pending in the U. S. Court of Federal Claims. In May of 2023, we sued the U.

Speaker 3

S. Government for uncompensated taking of our trade secrets and confidential information. This suit alleges a pattern of FDA reviewers improperly disclosing proprietary information to generic companies as part of the review of generic versions of Fanapt and HETLIOZ. The U. S.

Speaker 3

Government moved to dismiss the case. After a January hearing on the matter, the court denied the government's motion to dismiss, allowing us to proceed with fact discovery, which will include document production and depositions of FDA personnel involved in these matters. We've also had positive developments in our cases challenging other agency actions of the FDA. In September of 2022, We sued to compel the FDA to adhere to the procedural and timing requirements of the Food Drug Cosmetic Act with respect to our jet lag In January, the court ruled in our favor by finding that the FDA violated the Food Drug Cosmetic Act and ordering the FDA to take action on our hearing request by March 5th, more than 4 months earlier than FDA had originally proposed to the court. The court found the FDA's conduct to be both unlawful and unreasonable.

Speaker 3

Specifically, the judge noted that the law requires hearings to commence within 300 days after an sNDA is submitted by a sponsor. Yet our sNDA for jet lag has been pending for over 2,000 days And it has been over 500 days since we requested a hearing. As I mentioned, the judge has demanded that FDA act on our hearing request by March 5th and we await FDA's action by that date. Just yesterday, we filed an additional suit challenging FDA's unlawful conduct in reviewing our insomnia sNDA for HETLIOZ. As disclosed earlier this week, We received a notification from the FDA stating that it had identified deficiencies that preclude discussion of labeling even though no deficiencies were identified.

Speaker 3

This communication arrived more than 270 days after our submission, which is well beyond the 180 days prescribed by the statute. Further, by sending us this letter rather than taking the specific actions prescribed in the Food Drug Cosmetic Act, We believe the FDA is seeking to avoid final action that can be reviewed by a court of law. In our suit filed last night, we are asking the court to compel the FDA to adhere to the legally mandated 180 day review period and to declare as unlawful and void the regulations the FDA relies upon avoid judicially reviewable final decisions. We continue to pursue additional litigation related to our HETLIOZ patents, generic competitors, interactions with regulators and various Freedom of Information Act disputes. Details of all of our cases can be found in our disclosures and in publicly available court records.

Speaker 3

Back to you, Mahalos.

Speaker 2

Thank you very much, Tim. I will now turn the call to Kevin Moran, our Chief Financial Officer to discuss our financial results. Kevin?

Speaker 1

Thank you, Maoz. And as Maoz mentioned, I'll begin by highlighting the acquisition of the U. S. And Canadian rights to Pivori from Actelion Pharmaceuticals Limited or Janssen, Johnson and Johnson Company for $100,000,000 that was completed in December of 2023 and where the transition is ongoing. PEMVORIA is a once daily oral selective S1P1R modulator approved by the FDA and Health Canada to treat adults with relapsing forms of multiple sclerosis.

Speaker 1

During this transition period, Janssen will continue to operate the business pursuant to a customary transition agreement, while Vanda and Janssen transition regulatory and supply responsibility 4pinbori II Vanda. This acquisition represents a significant milestone for Vanda expanding our commercial portfolio, diversifying our sources of revenue and providing Vanda the opportunity to develop a potential therapeutic candidate for the treatment of a diverse group of inflammatory and autoimmune disorders ranging from psoriasis to ulcerative colitis. Turning now to our financial results, I'll first discuss the results for the full year 2023 before turning to discuss the Q4 of 2023. Total revenues for the full year 2023 were 192,600,000 a 24% decrease compared to $254,400,000 for the same period in 2022. HETLIOZ net product sales were $100,200,000 for year 2023 and saw a 37% decrease compared to $159,700,000 for the same period in 2022.

Speaker 1

The at risk launch of generic versions of HETLIOZ had a significant impact on HETLIOZ performance during 2023. The decrease in net product sales was attributable to a decrease in price, net of deductions and a decrease in volume. Our HEPIOS net product sales for the Q1 of 2023 reflected higher unit sales as compared to recent prior periods and has resulted in a significant increase of inventory stocking at specialty pharmacy customers throughout 2023. Turning now to Fanapt. Fanapt net product sales of $90,900,000 for the full year 2023 reflect a 4% decrease compared to $94,700,000 for the same period in 2022.

Speaker 1

PONVARI net product sales were 1 point $6,000,000 for the full year 2023. These net product sales reflect the revenue generated during the period between the product acquisition date of December 7, 2020 3 and the year end on December 31, 2023. For the full year 2023, Vanda recorded net income of $2,500,000 compared to net income of $6,300,000 for the same period in 2022. Net income for the full year 2023 included an income tax provision of 3,800,000 as compared to an income tax provision of $5,000,000 for the same period in 2022. Operating expenses for the full year 2023 were 200 $6,600,000 compared to $248,100,000 for the same period in 2022.

Speaker 1

The $41,500,000 decrease primarily driven by lower R and D expenses, lower SG and A expenses and lower cost of goods sold. The decrease in R and D expenses primarily driven by decreases related to our late stage Fanapt development program, partially offset by increases related to our Tradipitant and VHX-eight ninety six, also referred to as PDA development programs. The decrease in SG and A expenses was primarily driven by lower expenses associated with marketing, sales and commercial support activities for our commercial products. The lower cost of goods sold is due to lower HETLIOZ net product sales and the decrease in the royalty rate owed to BMS on HETLIOZ net product sales from 10% to 5% effective in December 2022. Landa's cash, cash equivalents and marketable securities referred to as cash as of December 31, 2023 was $388,300,000 representing a decrease of $101,600,000 compared to cash as of September 30, 2023 and a decrease of $78,600,000 compared to 31, 2022.

Speaker 1

The change in cash during both the Q4 of 2023 and the full year of 2023 reflect the completed acquisition of Pivori from Janssen for 100,000,000. Turning now to our quarterly results. Total revenues for the Q4 of 2023 were 45,300,000, 30% decrease compared to $64,500,000 for the Q4 of 2022. Total revenues for the quarter of 2023 increased by 17% as compared to $38,800,000 in the Q3 of 2023. HETLIOZ net product sales were $21,100,000 for the Q4 of 2023, a 47% decrease compared to $40,100,000 in the Q4 of 2022.

Speaker 1

HETLIOZ net product sales in the 4th quarter increased by 20% as compared to $17,500,000 in the Q3 of 2023. The at risk launch of a generic version of HETLIOZ continued to have a significant impact on HETLIOZ performance during the Q4 of 2023. The decrease in net product sales relative to the Q4 of 2022 was attributable to a decrease in volume. Our HETLIOZ net product sales as reported for quarter of 2023 reflected higher unit sales as compared to recent prior periods. The higher unit sales during the Q1 of 2023 resulted in a significant increase of inventory stocking at specialty pharmacy customers throughout 2023.

Speaker 1

HETLIOZ net product sales during the Q4 of 2023 reflect lower unit sales as compared to the Q4 of 2022, which was partially attributable to the continued reduction of the elevated inventory levels at specialty pharmacy customers from the end of the Q1 of 2023. Turning now to Fanapt. Fanapt net product sales were $22,600,000 for the Q4 of 2023, a 7% decrease compared to $24,400,000 in the Q4 of 2022. Fanapt net product sales in the Q4 of 2023 increased by 6% as compared to $21,300,000 in the Q3 of 2023. Fanapt prescriptions in the Q4 of 2023 as reported by Equivya X Monin decreased by approximately 3% compared to the Q3 of 2023.

Speaker 1

Convory net product sales were $1,600,000 for the Q4 of 2023. Again, these net product sales reflect the revenue generated during the period between the product acquisition date of December 7, 2023, and year end on December 31, 2023. For the Q4 of 2023, Vanda reported net loss $2,400,000 compared to net income of $6,900,000 for the Q4 of 2022 and net income of $100,000 in the Q3 of 2023. The net loss for the Q4 of 2023 included an income tax provision of $700,000 as compared to an income tax provision of 2,800,000 for the same period in 2022 and an income tax benefit of $300,000 in the Q3 of 2023. Operating expenses in the Q4 of 2023 were $52,400,000 compared to $57,900,000 in the Q4 of 2022.

Speaker 1

The $5,500,000 decrease was primarily driven by lower SG and A expenses related to spending on sales activities for our commercial products and legal expenses and lower cost of goods sold due to lower HETLIOZ net product sales and the decrease in the royalty rate owed to BMS on HETLIOZ net product sales from 10% to 5% effective in December 2022, partially offset by higher R and D expenses related to our Tradipitant program including the NDA filing fee and the milestone payment made upon acceptance of the NDA for filing and manufacturing expenses associated with our VHX-eight ninety six program. Operating expenses in the Q4 of 2023 increased by $7,600,000 as compared to $44,800,000 in the Q3 of 2023. This increase is primarily driven by one time expenses including $2,400,000 of expense for the Tradipitant NDA filing fee, dollars 2,000,000 for the associated NDA milestone payment to Eli Lilly and $3,000,000 of VHX-eight ninety six manufacturing costs. Given uncertainty surrounding the U. S.

Speaker 1

Market for HETLIOZ for of non-twenty four as a result of the ongoing HETLIOZ patent litigation and the at risk launch of generic versions of HETLIOZ, Vanda is unable to provide 2024 financial guidance At this time, Vanda will continue to evaluate its ability to provide financial guidance in future periods. HETLIOZ net product sales will likely decline in future periods potentially significantly related to the at risk launch of generic versions of HETLIOZ in the U. S. Additionally, the company constrained HETLIOZ net product sales for the full year 2023 to an amount not probable of significant revenue reversal. As a result, HETLIOZ net product sales could experience variability in future periods as the remaining uncertainties with variable consideration are resolved.

Speaker 1

With that, I'll now turn the call back to Miles.

Speaker 2

Thank you very much, Kevin. At this point, we will be happy to answer Any questions you may have?

Operator

And your question comes from Andrew Tsai with Jefferies. Your line is open.

Speaker 4

Hey, good afternoon. Thanks for taking my questions and big congratulations on the acquisition of So maybe a couple of questions on that asset. First, what do you guys think you can do that J and J might not have been able to do in terms of driving sales growth at Ponglori? And then secondly, Why is this differentiated from the other multiple sclerosis drugs out there? What's the appeal here?

Speaker 2

Thank you very much, Andrew. First of all, to give the background here for everyone, punvoryponassimod belongs in the class of sphingosine 1P phosphate receptor analogs. And their mechanism of action is by sequestering or preventing the egress of lymphocytes from peripheral lymph nodes so that they can have wide applications in disorders where you have autoimmune attack on a system or organ of the body. In the case of multiple sclerosis, this is central nervous system. As you also know, this class of drugs has several members.

Speaker 2

It started some years ago with fingolimod or Gilenya, now generic and has expanded with additional members in the class. We believe that punesimod Due to its receptor specificity and quick reversibility of effect can play a critical role for the treatment of multiple sclerosis for many groups of patients, especially for those that require a specificity avoiding side effects and Quick reversibility. It has been clear that this drug may be attractive, especially to women of childbearing age as they contemplate family planning. In that, the drug will come out of the circulation within a short period of time in a matter of days. And the same is true about the recovery of the lymphocytes.

Speaker 2

So directly to Yigir's question, the increased specificity and quick reversibility both in amount and lymphocyte count make this drug differentiated and attractive. Your second part of your question was what can we do different from J and J. And the simple answer is we plan to market it. J and J, for their own business reasons, had decided to remove their market in support of the product, while they were in the process of identifying a partner to divest it to. So we believe there is a significant opportunity both with neurologists and multiple cirrhosis centers and consumers to be able to increase the awareness of the existence of this potentially quite useful product.

Speaker 2

And beyond that, As we have learned, this type of mechanism of action can be useful in an array of autoimmune disorders. In front of us, of course, are the examples of The effect in ulcerative colitis and the BMS compound has been successfully addressing that as well as Pfizer's compound, interestingly not approved for multiple sclerosis, did not pursue it, but actually directly being approved now for ulcerative colitis. And we think our drug Punvori is well positioned from the mechanism of action with very Key similarities to the receptor binding effects that both the BMS compound and the Pfizer compound have, both of them successful in ulcerative colitis to give us reasons to believe that could be successful in that indication. In addition, Actelion, a J and J company had conducted a Phase 2 large study in psoriasis, which was successful. And we are evaluating now a path to continue the development in that indication as well.

Speaker 2

And as I said, the opportunities around the once day oral, sphingosine 1 phosphate analog like, convoy are just beginning to be realized and likely they will be white. We're developing our plans now. We're in the midst of the transition period and we'll be able to talk more about these plans in the future.

Speaker 4

Thanks. That's very helpful. Thank you for the color. And then shifting gears to the HETLIOZ for insomnia news. What would be the realistic scenario here?

Speaker 4

Do you start hiring the sales force or do you wait until approval? How does this all work out? Thank you.

Speaker 2

Andrew, let me clarify. Are you Asking about the insomnia in HETLIOZ or the bipolar in FanaQ?

Speaker 4

HETLIOZ and insomnia?

Speaker 2

Yes. For HETLIOZ and insomnia, of course, we think given the Negative letter by the FDA of deficiencies, although not named, preclude label negotiations, we think the most historical likely outcome is that it will be followed by a complete response letter. We cannot imagine what the deficiencies are for this melatonin agonist now marketed for 10 years in circadian rhythm disorder indications and with a file that clearly and ambiguously supports the effect of the drug in sleep onset insomnia. We are not expanding the healthier sales force and we're not planning any immediate marketing plans there.

Speaker 4

Got it. And then maybe just speaking of the Fanapt for bipolar then Or as well as your dividend for gastroparesis. My final question is, is your confidence in those applications the same despite the insomnia development? And second to that is, are you hiring ahead of potential PDUFA decisions? Thank you.

Operator

[SPEAKER DOCTOR.

Speaker 2

MICHAEL KAUFFMAN:] Michael Kauffman:] Yes. So just to talk about confidence, Of course, we're optimistic because we believe in science and the robustness of our packages that we have already communicated with you all. But of course, we're the experience with the agencies that We are prepared for unpredictable results. And having said that, we're cautiously working towards being ready to expand the already existing Fanapta sales force. And I will let Kevin give you a little more color of how we think about cadence of operational expenses there.

Speaker 2

And the same thing holds true For Tradipitant and gastroparesis, we have done work prelaunch to understand the market and develop a commercial plan. But of course, we're quite a few months away from an agency action in September of 2018. And yet again there, we are proceeding very cautiously with the expenditures ahead of that decision. I will let Kevin give you more color.

Speaker 1

Yes. And thanks, Andrew. On the Fanapt side, Specifically, as Miles mentioned, we have a very well established commercial infrastructure given Fanapt's history on the market and as well as HETLIOZ' history on the market and the supporting activities and infrastructure associated with those. That being said, we've certainly taken actions to be prepared expand quickly on positive news. So I'd expect from a cadence perspective that there will be some preparation costs that we've began to execute against in the Q1, but more so it would be upon a positive development that we would see a kind of cadence change.

Speaker 4

Okay, very good. Thank you all for the developments.

Speaker 2

Thank you very much, Andrew. Thank you.

Operator

There are no further questions at this time. I will now turn the call back over to Vanda Management for closing remarks.

Speaker 2

Thank you very much all for joining us on this call. Thank you.

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