Vanda Pharmaceuticals Inc. (VNDA) Earnings Call Transcript & Summary

All right. Good morning, everyone, and welcome to our final day of our BofA Virtual -- BofA Health Care Conference. My name is Olivia Brayer, and I'm on the U.S. biopharma team here at Bank of America. And we're very happy to have with us today, the CEO of Vanda Pharmaceuticals, Mihales Polymeropoulos. We did just launch on Vanda earlier this week, so let us know if you need our model or report. Happy to send either of those. But thanks so much for being with us today, Mihales.

Thank you, Olivia.

Yes. And just quickly before we begin, Vanda does have their latest corporate deck on the webcast. So feel free to check that out during the Q&A. You can also submit questions for Mihales and the Vanda team via the link.

So with that, Mihales, let's just dive right into some questions. Maybe just to kick it off at a higher level, can you give the audience a sense of how you see the company positioned for success this year in 2021? And where you see some of the key drivers for the business?

Yes. Exactly. First of all, thank you very much for the invitation. And we saw your coverage initiation, and thank you for that as well. Vanda just celebrated its 18th year in existence, which is actually the 15th year of being a publicly traded company. And we see Vanda as an innovative company, developing therapeutics in a diverse set of therapeutic areas with 2 products commercialized, of course, HETLIOZ for Non-24 and now SMS, and Fanapt for schizophrenia. Forecasting more than $270 million in revenue this year with operations that include a deep pipeline, both on life cycle management of existing products and others. And the -- our company has been net positive for a number of quarters now. In addition to that, our strong cash position, no debt, gives us a lot of flexibility.

Okay. Great. A lot to work with there and definitely have a lot of follow-up questions on what you just said. But maybe before we dive into that, obviously, COVID has had an impact across the space. And I know Vanda has had some delays with enrollment and study starts. So maybe just give us the latest update on how you're seeing the pandemic impact across the business. And maybe what you guys have been able to do to navigate some of those headwinds this year, but also going forward?

Yes. First of all, early on, Vanda took a position on the relationship between Vanda and the pandemic. Most people saw the question, how does the pandemic influence our company? We, collectively in the company, asked the question, how can we influence the pandemic. And this is not just rhetoric. In fact, Vanda has an ongoing program now, the ODYSSEY study, looking at the potential of our neurokinin-1 receptor antagonist in treating patients with severe COVID. Having said that, of course, significant disruptions in the ability, first of all, of patients to participate in clinical studies and of course, our sales force to get out in the field. But we have been fortunately blessed. We continue to see growth in our revenue throughout this very challenging year. And a number of our clinical studies have returned to recruitment, especially the key gastroparesis study in tradipitant had only a small pause for a couple of months, and then it resumed recruitment. And this is, I would say, more of a testament of the severity of the disease and the unmet medical need.

Okay. And then you guys do still have a number of trials that are paused. I know motion sickness and your second atopic dermatitis. So maybe just give us an update, if there is one there? I know, obviously, we'll have to see how return-to-normal trends play out throughout the rest of the year. But just give us an update on how you guys are thinking about time lines for getting those trials up and running. I imagine they're both still high priority areas for you for the tradipitant program, but it would just be great to get the latest in terms of how you guys are thinking about time lines there.

Yes. On motion sickness, where the next study likely will be the registration study, you recall that this study is to be conducted on boats. And not only it is difficult to plan those studies, we've conducted one before. But secondly, with COVID restrictions off the coast of California, that has been very challenging. However, we feel quite confident that we may be able to resume that program within the next couple of months. And remind you, this is a very quick study. It is one trip. So it's a matter of number of trips scheduled in patients to be able to meet recruitment. In the case of atopic dermatitis, there are 2 parts: One is the availability and willingness of patients to participate on an oral antipruritic treatment in atopic dermatitis and the -- in the situation with pandemic restrictions. But also, it is our evaluation where this program belongs in atopic dermatitis, given the results of the last Phase III study, which I remind you, they were mixed. The primary end point of improving itch in the total population missed. However, what we identified is that patients with milder forms of atopic dermatitis may be served well with tradipitant. So this program is under evaluation whether we will continue or not.

Okay. Great. That's a helpful overview. And then I know you mentioned this, but you guys did give a strong commercial outlook for the year. You've got things like your SMS launch that should start to ramp up and also your Fanapt DTC campaign. So how should we think about those things playing out in terms of revenue recognition over the course of the year? I guess what I'm trying to get at is, how should we think about the cadence of growth, right, for that core commercial business this year?

Yes. So just to go back in the numbers. As I mentioned in the introduction, we are forecasting over $270 million combined revenue for both products, which speaks to 180 -- north of $180 million for HETLIOZ and north of $90 million for Fanapt. The first quarter that we just reported is similar to proportion of revenue with other quarters in prior years. And everybody talks about challenges in the first quarter, and it's not really important to mention here the drivers. However, we believe that the cadence will be increased in subsequent quarters. However, we're not guiding quarter-to-quarter given that there is variability from quarter-to-quarter. But we still feel very confident that our forecasted revenue will be met.

Okay. Great. So Mihales, let's switch gears to some of your pipeline opportunities that you mentioned earlier. Obviously, you've got a lot of opportunities to move HETLIOZ and Fanapt into areas like bipolar, DSPD, Parkinson's and a few others. Obviously, we'll have to see what those data look like. But are there indications that are maybe more of a priority for Vanda or more exciting when you think about accelerating that top line growth, whether it's near term or over time?

Yes. Before I get to the pipeline, really, it is important to remind our audience the success with HETLIOZ in Smith-Magenis Syndrome that was approved, both for oral capsules for adults and liquid formulation for children last December. And this is in the midst of its launch. It can be a very significant opportunity in that there are only 15,000 patients, but this is plenty in this orphan space. And these patients, the majority of them would have been already diagnosed a difference from Non-24, where we have a very large awareness campaign. So committing to the orphan space and HETLIOZ is one facet of developing the franchise around these potent circadian regulator. Another area that we've started working on right now is delayed sleep phase disorder or delayed sleep-wake phase disorder or, as we call it now, delayed sleep. So we can all communicate on the same disorder. This is a disorder that is a prototypical circadian rhythm disorder and most likely the most common. While it is more common in late adolescence and early adulthood, overall, it is estimated that about 1% of the U.S. general population suffers from delayed sleep, which is a chronic difficulty initiating sleep at the desired time. And to initiating sleep much later in the day, ending up after a full night's sleep, waking up in the middle of the morning late for most people to go to work and school. There is no approved drug for delayed sleep, and we're working now with the FDA to optimize our protocol, which has already begun recruiting. We're extremely excited, of course, to be able to provide a solution to this unmet medical need. But also compared to our orphan indications, that market is vast. So that's HETLIOZ, and we can communicate a little later when we're further along on our efforts for HETLIOZ in sleep disorders in autism spectrum disorders. Sleep problems in people with autism is one of the most common and recurring and devastating symptom. No specific treatment has been developed. We're now in the final stages of the protocol and, hopefully, we'll begin recruiting in the next couple of months. So that's the summary of -- yes, go ahead.

Yes. I was just going to ask as a follow-up to that. Obviously, it sounds like SMS and delayed sleep are definitely some of the key drivers. So is the expectation that HETLIOZ should make up a bigger proportion? I know it's already a bigger drug in terms of revenues. But is the expectation that it should make up a growing -- an increasingly large proportion of the revenue base versus Fanapt going forward? Or are there other opportunities in Fanapt that you think can really, from a life cycle management perspective, accelerate that business as well?

Yes. I would characterize it as we think about it in the company, not as a proportion of the company revenue, but rather a significantly increasing revenue. You can imagine that adding indications, like DSPD, is successful in autism. And even if we find a path forward with jet lag, it can actually spell increase in multiples of the current revenue of HETLIOZ. Now for your question about Fanapt, we're committed to the Fanapt franchise. So far, it has been a steady revenue producer. However, we are committed to add more indications and formulations. Bipolar disorder study is ongoing as we speak, and the pharmacokinetic study of the long-acting injectable formulation is underway. And hopefully, pivotal study can start by the end of the year, beginning of next. We spoke also for the first time on the call of our commitment to the schizophrenia franchise with now examining the potential utility of P88, the active metabolite of haloperidol and, of course, the franchise around that with both solid and injectable formulations. So it is our hope that Fanapt can also be a growing franchise for years to come. And just to mind our audience that the currently listed patents in the audience book for HETLIOZ last in the mid-2030s, and for Fanapt in late 2027, 2028. So there's plenty of time for us to continue the efforts to increase the size of those franchise.

Yes. Absolutely. I mean clearly, a lot of different opportunities for growth there between both of those assets. I did want to switch gears to tradipitant, which is your lead pipeline program. That's obviously, I think, for us, one of the biggest inbounds probably for you guys recently, just given the proximity to the registrational data later this year and hopefully a filing by early 2020 -- 2022, excuse me. So maybe just give us an update on what's the latest with that program. How has your confidence in that program, specifically gastroparesis, changed over time? And just give us a feel for how you guys are feeling heading into that readout in a few months.

Certainly. So tradipitant, to remind everyone, is a neurokinin-1 receptor antagonist. And this field of investigation of the utility of NK1 antagonist is still embryonic. The only types of compounds that have been approved so far are -- the most well-known is Emend, aprepitant from Merck for the treatment of chemotherapy-induced nausea and vomiting. We approached it from the position of, let's identify other disease entities that the compound may be having utility. So the most advanced program we have now with tradipitant is the one in gastroparesis. Gastroparesis is a motility disorder of delayed stomach emptying presenting with commonly nausea, vomiting, reflux, satiation, abdominal pain. The last drug approved was about 40 years ago, metoclopramide, and it is compromised unfortunately by a common side effect of developing extrapyramidal symptoms, which can be permanent. So with the estimation that maybe 6 million Americans may have gastroparesis, it occurs both as an idiopathic, unknown etiology, or diabetic gastroparesis. 600,000 Americans are estimated to have been already diagnosed with gastroparesis. What makes us at Vanda particularly excited are 2 things: One is the very robust results of the smaller 150-patient Phase II study that we reported 1.5 years ago that led to the Phase III program, which is now nearing completion. And that, what it showed is a very significant effect. And as we published in the journal, Gastroenterology, in January, for those responders, you see an almost complete response. Nausea goes to almost 0, and the nausea-free days approach 100%. So that is one part, is the data. But the second one that made it very real, it is the demand by former participants in these clinical studies to extend their treatment for what they call this life-altering drug. These folks fought with the FDA to approve the access to tradipitant under an expanded access program. So we got to meet a lot of them. We spent time talking to them and their doctors and truly, their experience is life altering. So this combination of the science and the testimonies of patients make us extremely excited because we know that if we're successful in this Phase III program, potentially, we have an extremely useful drug uniquely positioned in a vast market. So we spoke about HETLIOZ and Fanapt and the growth of these franchises. We see the potential of tradipitant in gastroparesis eclipsing the other 2.

Yes. So Mihales, how do you think about positioning in the gastroparesis market? You've got medications, like Reglan, that have been around for a long time, and now a nasal spray version that's on the market as well. So what's the strategy when you consider positioning that therapy versus what's been a pretty well-established standard of care for the last several years?

Yes. It is true that regular metoclopramide is the treatment, the only treatment approved and available. However, as we speak to gastroenterologists, I will not say the majority. I would say all of them suggest that metoclopramide on itself is not the answer. It is not tolerated well by a vast portion of patients. And the community and the market is hungry for the next well-tolerated, effective drug, and tradipitant is that. So we are confident that if we reproduce the results of the Phase II study, we will be a first-line treatment for gastroparesis.

Okay. Well, perfect segue into my next question. And obviously, Phase III data is coming later this year like we've talked about. But just maybe help the audience with what some of those key metrics that you're looking for are. I know it's a similar trial design to the Phase II, and you're hoping to replicate the Phase II. But just thinking about any sort of internal bar that's been set for success. Or how you're just -- broadly, how you're thinking about competitive advantages, both with your assets, but also with the trial design of that Phase III?

Yes. So first of all, the key primary end point is change of nausea from baseline. The patients in this study have been selected to have moderate to severe nausea. So this is the population in most need. And a secondary end point will be the categorical nausea-free days, certainly, a responder analysis that cannot be argued with nausea phase, nausea free. Now as it compares to published information on the small studies conducted on metoclopramide 40 years ago, our results are, in the Phase III study, are already superior to that. And it is unfair to compare the 2, given that metoclopramide studies were done 40 years ago. But what is known today is that the type of data and the magnitude that we're presenting certainly are unique.

Okay. Great. And then hopefully, you guys will be submitting that data later this year or early next. Mihales, are there any sort of preparations that you guys can proactively do in the next 6 or so months to help get ready for that transition from more of a clinical conversation to more regulatory-based discussions with the FDA?

Yes. So a couple of things: the regulatory and then a little bit about the market. On the regulatory side, certainly, we're having continuous discussions with the gastroenterology division. Not only the discussions around the design of the study, the primary end points, but we have reached a common understanding there, what is that we're looking at. But more importantly, the FDA does have now a sneak preview of how the drug works and how it's received by patients and their doctors. Because they're looking for every single patient that applies to expanded access. They spend a lot of time reviewing all the data, interviewing the patients, the doctors, the medical records, and they can see for themselves that those that report effect on tradipitant is actually undeniably accurate and the need is satisfied. We are also set towards the commercialization and launch. We're extremely excited to do that. And one key metric that we've already seen is the following: In preparation of recruitment, accelerating recruitment, late last year, we began a TV direct-to-consumer campaign for recruiting, which is kind of unique, but Vanda has a lot of experience with media direct-to-consumer. We had an overwhelming response with thousands of patients calling in and expressing interest in this ongoing clinical study. And since not everybody who has a disorder wants to participate in a clinical study, you can understand that thousands responding to just a few weeks of DTC suggests actually, and it is a testament, of the unmet medical need. So we look forward to working with the FDA, get the drug approved, get it out to patients and then make sure, in a beautiful direct-to-consumer campaign likely, get everybody to know of the option they have.

Yes, absolutely. We're definitely looking forward to that data and, hopefully, that launch next year. Mihales, you guys are looking at a few other indications. I know we mentioned motion sickness. You did have that atopic dermatitis trial, COVID pneumonia, things like that. So I'm curious whether you'd characterize tradipitant as more of a pipeline within a product. I know you've already got a lot going on between 4 different potential indications. But I guess my first question is, one, would you characterize it as more of a pipeline within a product? And then as a follow-up to that, if you do, are there other potential opportunities that you think the biologic rationale supports moving into down the road?

Yes. We view all our products as chemical entities with utility yet to be discovered. So we see every pipeline asset that we have, first of all, focused in ways that we can get it to the market as quickly as possible. You saw HETLIOZ has been Non-24 and then followed with SMS, hopefully DSPD, hopefully autism. And on Fanapt, of course, there, our obvious studies is on schizophrenia and bipolar disorder. But what Vanda did is we made sure we, first of all, confirm our extended protection, patent protection. And we fought the patent protection all the way to the Supreme Court of the United States. And now having established that this is a product that we can develop around, you see the different indications -- and would be amiss not to mention the program that we will investigate now on Parkinson's disease psychosis. And our audience is familiar with another company with a very successful asset in this space, but also the recognition that this is a space with the unmet medical need. When it comes to tradipitant, we know very little about neurokinin-1 receptors and their physiological function, their function in disease. Certainly, they appear to play a role in central nervous system disorders, and motion sickness is one of them, and the central recognition of response between audiovisual perceptions. We believe that the gastroparetic effect is actually at the neuromuscular junction in the gut. So what other intestinal disorders could be treated will remain to be seen. You saw us exploring in COVID-19 pneumonia, which can be a flu pneumonia if we were to be successful there. So it is actually the premise of the company to investigate carefully all potential options and then focus and prioritize for first to market.

Okay. Great. And you do have a few assets in Phase I and Phase II development. So maybe just give us an overview of those more mid-stage -- of that more mid-stage pipeline. How much of a priority is it to have a multiple-shots-on-goal approach? I know that's obviously been the case for HETLIOZ, Fanapt and now tradipitant. But even beyond that, you do have a more mid-stage pipeline. So just trying to get a better sense of how you guys think about prioritization there and just opportunities for more and more shots on goal down the road.

Yes. So the way we see this early pipeline is investigate, confirm, prioritize and then commit. So there are a lot of cheaper early investigations that can be done. But I will leave you a little bit with the vision of the CFTR pipeline. This is -- CFTR is the gene mutated in cystic fibrosis. Activators of that are being tested now by us in allergic conjunctivitis, which can evolve to a dry eye disorder -- concept. And the inhibitors, we're evaluating them now in animal models of cholera. And while we don't have much cholera here, it's endemic in other parts of the world. And this is a program that can qualify for tropical disease vouchers beyond just serving millions of people.

Okay. Got you. That makes sense. I think we probably only have one -- time for one last question. So Mihales, you guys do have a very healthy balance sheet. Curious how you guys are thinking about your capital allocation strategy. Obviously, you have a lot of different late-stage studies up and running or soon to be. But are there some opportunities to add value, either through BD or partnerships down the road outside of what you guys have in the pipeline already?

Yes. We're looking continuously for things that make sense. And the way we view ourselves now is commit and never underfund commercial launches and near-term commercial revenue. At the same time, have a healthy and focused pipeline with the highest probability of success. But we're looking at the environment around us all the time.

Okay. Perfect. That sounds great. We'll definitely looking forward to some of the readouts and seeing what's next for the company. Obviously, a lot of good stuff going on. So it should be a great year. We are about out of time. So I just want to thank you so much for the discussion today. Really happy to have you guys participate and, hopefully, see you guys live in Vegas next year.

Thank you, Olivia.