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Vanda Pharmaceuticals (NASDAQ:VNDA)
Q2 2019 Earnings Call
Jul 31, 2019, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, ladies and gentlemen, and welcome to Vanda Pharmaceuticals second-quarter 2019 earnings conference call. [Operator instructions] I'd now like to introduce one of your hosts for today's conference, Jim Kelly, executive vice president and chief financial officer. You may begin.

Jim Kelly -- Executive Vice President and Chief Financial Officer

All right. Thank you, Tiffany. Good afternoon and thank you for joining us to discuss Vanda Pharmaceuticals' second-quarter 2019 performance. Second-quarter 2019 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 Dr. Mihael Polymeropoulos, our president and CEO. Following my introductory remarks, Mihael will update you on our ongoing activities.

I will then comment on our financial results before opening the line to your questions. Before we proceed, I'd like to remind everyone that various statements that we make on this call will be forward-looking statements within the meaning of federal securities laws. Our forward-looking statements are based upon current expectations that involve risks, changes in circumstances, assumptions and uncertainties. These risks are described in the Risk Factors and Management's 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 31, 2018, and quarterly report on Form 10-Q for the quarter ended March 31, 2019, which are available on the SEC's EDGAR System and on our website.

We encourage all investors to read these reports and our other SEC filings. The information we provide on this call is provided only as of today, and we undertake no obligation to update or revise publicly any forward-looking statements we may make on this call on account of new information, future events or otherwise, except as required by law. With that said, I would now like to turn the call over to our CEO Dr. Mihael Polymeropoulos.

Mihael Polymeropoulos -- President and Chief Executive Officer

Thank you very much, Jim. Good afternoon, everyone, and thank you very much for joining us. As we reported today, Vanda's revenue from our commercialized products reached a new record, while at the same time we showed significant revenue growth, especially for receptors. Our performance in the second quarter demonstrates the strength of our position in the market and our ongoing commitment to pursue value-enhancing opportunities with the objective of driving long-term sustainable growth.

This great performance is also a testament to the hard work of our commercial department and especially our sales force, who continue to increase awareness of our products to both patients and their doctors. We also made significant progress on our assets in clinical development, and I will discuss just a few highlights. We advanced the clinical development of tradipitant, our neurokinin-1 receptor antagonist for all three indications. On gastroparesis, we had a successful end-of-phase two meeting with the FDA and initiated a phase three study.

On atopic dermatitis, the phase three EPIONE study continues enrollment and is on track to report results in the first half of 2020. On motion sickness, we recently reported results from the phase two Motion Sifnos study with tradipitant showed significant and large therapeutic effects in prevention of vomiting in a boat study conducted earlier this year in the Pacific Ocean. We plan to meet with the FDA and talk about of the clinical program toward an NDA filing for motion sickness later in 2020. On HETLIOZ, we reported an update on the FDA review of the supplemental NDA for jet lag.

On July 19, the FDA issued a deficiencies preclude discussion form letter. This letter did not state any specific deficiencies, the PDUFA date remained August 16, and we will wait to hear what the potential deficiencies are and work expeditiously with the FDA toward a successful resolution. The rest of the pipeline projects, including the upcoming regulatory filing for HETLIOZ in the treatment of Smith-Magenis Syndrome patients, the development of a long-acting injectable formulation for iloperidone, and preparations for the conduct of the study in bipolar disorder with oral iloperidone, continue to advance as planned. In summary, we are very excited with the significant progress on our commercial performance, as well as the advancement of our clinical pipeline.

Jim?

Jim Kelly -- Executive Vice President and Chief Financial Officer

All right. Thank you, Mihael. As Mihael highlighted, during the second-quarter of 2019, we saw exceptional sequential and year-over-year revenue growth. Total net product sales for the second quarter of 2019 were $59.1 million, a 24% increase or $11.3 million, compared to $47.7 million in the first quarter of 2019, and a 25% increase compared to $47.4 million in the second quarter of 2018.

HETLIOZ net product sales were $37.8 million for the second quarter of 2019, a 31% increase compared to $29 million in the first quarter of 2019, and a 35% increase compared to $28 million in the second quarter of 2018. The HETLIOZ patients on therapy number continues to grow quarter over quarter. In fact, second quarter of 2019, new HETLIOZ patient starts with the highest since launch. As a result, the sequential growth in both patients on therapy and units dispensed to patients in the second quarter of 2019 was the largest since our early launch quarters in 2014.

We plan to revisit HETLIOZ full-year guidance again in the context of third-quarter performance. As of June 30, 2019, the specialty pharmacy channel held less than 2 weeks of inventory as calculated based on trailing demand. Specialty pharmacy's inventory on hand at the end of the second quarter of 2019 was higher when compared to the first quarter of 2019. The value of this inventory change was approximately $0.5 million.

Fanapt net product sales of $21.2 million in the second quarter of 2019 reflect a 13% increase, when compared to $18.8 million for the first quarter of 2019 and a 10% increase, compared to $19.3 million in the second quarter of 2018. As of June 30, 2019, wholesalers have increased inventory on hand when compared to the first quarter of 2019. The value of this inventory change was approximately $100,000. Fanapt prescriptions, as reported by IQVIA exponent, increased 3% compared to the first quarter of 2019.

Prescription trends remain consistent with our full-year 2019 financial guidance. On a non-GAAP basis for the second quarter of 2019, Vanda recorded a non-GAAP net income of $15 million, compared to non-GAAP net income of $7.7 million in the second quarter of 2018. On a non-GAAP basis for the second quarter of 2019, Vanda recorded non-GAAP operating expenses, excluding cost of goods sold, stock-based comp and intangible asset amortization of $39.3 million, compared to $35.1 million in the second quarter of 2018. The $4.2 million increase year over year in non-GAAP operating expenses was primarily the result of the increase spend on corporate and legal activities.

We expect non-GAAP operating expenses to continue to rise as we continue through 2019, driven primarily by R&D activities; of particular note are the new tradipitant phase three studies for gastroparesis and motion sickness. We continue our progress in 2019 with a strong commercial business and a capital position to fund the development of our innovative programs as we seek to drive future growth. Vanda's cash, cash equivalents and marketable securities referred to as cash as of June 30, 2019, were $292.3 million, compared to $267.8 million as of March 31, 2019, representing an increase to cash of $24.8 million during the second quarter of 2019. Vanda reiterates its prior 2019 net product sales guidance and provides an update to year-end 2019 cash and expects to achieve the following financial objectives in 2019: Net product sales from both HETLIOZ and Fanapt of between $215 million and $225 million, HETLIOZ net product sales of between $137 million and $143 million, Fanapt net product sales of between $78 million and $82 million.

Year-end 2019 cash is expected to be greater than $275 million. This compares to prior guidance of greater than $260 million. With that, I'll turn the call back to Mihael.

Mihael Polymeropoulos -- President and Chief Executive Officer

Thank you very much. Jim, happy to answer any questions you may have.

Questions & Answers:


Operator

[Operator instructions] And our first question comes from Jason Butler with JMP Partners. Please proceed.

Roy Buchanan -- JMP Securities -- Analyst

Hi. Great. Thanks for taking the question. It's Roy in for Jason.

Had a couple of pipeline questions, maybe I missed them, sorry. Mihael, just can you provide an update on the end-of-phase two meeting for SMS, and for the bipolar study for Fanapt, what kind of patients are you looking to enroll, I guess the proportion of patients with depression versus mania? Thanks.

Mihael Polymeropoulos -- President and Chief Executive Officer

Yes, sir. As we discussed in the past, on Smith-Magenis Syndrome, the entire program is based on one, the largest in the world crossover study in adult and pediatric patients mixed. We did not have an end-of-phase two meeting for that indication, but we did receive a significant input on the protocol by the FDA. So the plan now is to meet with the FDA in a pre-NDA fashion and submit the NDA short thereafter.

On bipolar disorder, we are actually in the final phases of designing the study, and your questions will be better answered once we have completed the design.

Roy Buchanan -- JMP Securities -- Analyst

Great. Thank you. And maybe could I ask for an update on path to resolve the dispute with the FDA on the 9-month tox -- animal tox study for tradipitant? Thanks.

Mihael Polymeropoulos -- President and Chief Executive Officer

Sure. As you know very well, this issue is challenged in court. The litigation is moving along the predetermined and agreed upon schedule with the FDA and it is close to finalization. So that by September 10 all the necessary documents will be in front of the court and the court will review and decide in due course after that.

Roy Buchanan -- JMP Securities -- Analyst

Great. Thank you.

Operator

Thank you. And our next question comes from Chris Howerton with Jefferies. Please proceed.

Chris Howerton -- Jefferies -- Analyst

Great. Thanks for taking the questions and congratulations on the strong quarter for HETLIOZ and Fanapt, certainly. So for, I guess, maybe on the revenue side, just a quick question for you, Jim, would be the year-over-year growth that we saw, what is the relative contribution of price increases, if any, during that period of time?

Jim Kelly -- Executive Vice President and Chief Financial Officer

Hi, Chris, and thanks for the question. As folks know, we had a price increase on January 1st; that is the only price increase that we've taken this year. And since that time, same time Q2 last year. Of that 8%, we realized somewhere in the 5% to 6% range and therefore, when you're looking at 35% year over year what you're seeing is 25% to 30% year-over-year unit growth.

Chris Howerton -- Jefferies -- Analyst

Excellent. OK. Very assuring. OK.

And so maybe a follow-up on the previous question for the resolution of the lawsuit with the FDA regarding the partial clinical hold. We're about one month away from a potential decision from the courts here. So maybe you could help us just understand what the strategy might be in the chronic indications for gastroparesis and atopic dermatitis with a different outcome? So if there was obviously a positive outcome in your favor, it seems pretty clear in terms of how you might move forward, but if there was a delay or a negative decision from the court, how might you respond and how would you communicate that to investors?

Mihael Polymeropoulos -- President and Chief Executive Officer

Yeah. Maybe we separate the two. In regards to the litigation, you understand that we cannot make any comments and we cannot comment on the litigation strategy. But it is fair to discuss our thinking around collecting necessary data for NDA filing in the pursuit indications.

So where we stand out, let's start with gastroparesis, the phase three is beginning. You're going to see that recently we have updated in clinicaltrials.com and I want to emphasize that the numbers there are more placeholders. It says, up to 250 patients and it has a placeholder of one year recruitment for the study. Remind you for that -- for a smaller study before, we had an actual duration of about two years.

So this study, which is larger, it's going to be approximately between 200 and 250 patients. It should be expected to have a duration of one to two years, and we'll see how the recruitment goes. So with the end-of-phase two meeting discussion with the FDA, it is agreed that one additional study, this current study that examines the effect of tradipitant in both diabetic and idiopathic patients could suffice, of course, if it is convincing for an NDA filing. So it depends on the speed of this study.

Whether or not we would have collected the 12-month necessary data post the end of this study. But of course, there is time to think about that. Now, of course, in the case that for some reason this challenge with the FDA has not been resolved on time, we have already indicated to the FDA to begin a discussion around a program where we submit all the safety data, which will include placebo-controlled, three-month studies in several hundred patients and agree on a risk minimization strategy in the post-marketing period. Of course, none of this has been agreed, but we have initiated those discussions.

On atopic dermatitis, as we said, we're on track to conclude the first study in the first half of 2020, and as we indicated before, we will conduct a second confirmatory study and that is one to begin with a small overlap in the first quarter of 2020. So because these studies do take some period of time, the 12-month collection of data will not necessarily be on the critical path. Finally, on motion sickness, as you know, this is an episodic, short-lived albeit chronic condition. And in these cases, and per FDA guidance, we should already have sufficient amount of preclinical data toward in NDA filing and marketing.

So we believe that upon a successful end-of-phase two meeting as soon as possible with the FDA, we can initiate and complete a phase three program in motion sickness with a goal of filing by 2020.

Chris Howerton -- Jefferies -- Analyst

Great. OK. That's very helpful. Thank you.

And then maybe if I could just ask one more question. I think, from my perspective at least, the long-acting injectable work for Fanapt, your iloperidone, is flying under the radar a little bit. So I guess it'd be helpful if you could help us understand what kind of the development path to an approval of that formulation would be and put a sense around what you think that opportunity might be? Thanks.

Mihael Polymeropoulos -- President and Chief Executive Officer

Yeah. Of course, that is not finalized. Right now, we're running an extensive pharmacokinetic study where we identify an optimal ways of delivery, optimal pharmacokinetics and examining dose and tolerability. And this is actually very close interaction with the FDA on development.

Where this study is going to lead is likely a multi-dose pharmacokinetic study. So several sequential periods and beyond that, it is the, what we believe a single phase three study and that would be a relapse prevention type, very similar to the very successful oral iloperidone study that we have reported. So, being very confident on the efficacy of the oral and of course that is on the FDA label now, we will upon completion of the pharmacokinetic study and studies begin that program. So it is a little early to put a timeline around a submission.

But generally, we hope that we are going to be in a position next year to initiate the relapse prevention study. These are rather longer studies. So that would require most probably in excess of a year, but I think it is best to discuss more detail in the future.

Chris Howerton -- Jefferies -- Analyst

OK. All right. Well, thank you very much for taking the questions. Appreciate it.

Mihael Polymeropoulos -- President and Chief Executive Officer

Thanks, Chris.

Operator

Thank you. And our next question comes from Joel Beatty with Citi. Please proceed.

Joel Beatty -- Citi -- Analyst

Hi. Thanks for taking the question. First one is on HETLIOZ, it looks like, I think, based on the prepared remarks there was a high number of new patient starts. Could you talk a little bit about what led to that and any thoughts and whether it looks like that will be sustainable over future quarters?

Mihael Polymeropoulos -- President and Chief Executive Officer

I would let Jim address that.

Jim Kelly -- Executive Vice President and Chief Financial Officer

We are really pleased with the performance of our field sales team and I can say enough about not just the work that's being done to continue to bring HETLIOZ to blind patients with Non-24, but also the work in the psychiatrist's office to make both doctors and patients aware -- sighted patients of how HETLIOZ can help sighted Non-24. So we feel very good about the team productivity and what that means for the prospects of continuing to grow our HETLIOZ business.

Mihael Polymeropoulos -- President and Chief Executive Officer

Yeah. Just to add to that -- of course, we have discussed before that now we have a database of about 30,000 people that have been called us and opted in database, many of them blind, some sighted. And now, we have just begun, about a year ago, the program of exploring the initiation of HETLIOZ trials within the sighted population, especially those with psychiatric conditions understanding the comorbidity. So we actually are very encouraged by the trajectory of new prescriptions especially from psychiatrist indicating that actually there is a potential for significant growth in this patient population.

Joel Beatty -- Citi -- Analyst

Great. Another question related to the partial clinical hold. Can you discuss at what point in the future it seems that the need for 12-month clinical data and patients would become a gating factor?

Mihael Polymeropoulos -- President and Chief Executive Officer

Well, as I was explaining before in the question from Chris, at this juncture, the 12-month collection of data is not yet a gating factor, but it could become in the future. Of course, I cannot pinpoint in detail where would that be, but as I explained the gastroparesis study, if successful within a two-year period of time, the speed of collecting the 12-month data could become a critical factor maybe as early as 12 months from now. Of course, this can change.

Joel Beatty -- Citi -- Analyst

OK. Got it. Thank you.

Operator

Thank you. And our next question comes from Derek Archila with Stifel. Please proceed.

Derek Archila -- Stifel Financial Corp. -- Analyst

Hey. Good afternoon, everyone, and thanks for taking my question. So just three for me. First one is for Jim.

And maybe just a little bit more color as far as the growth for HETLIOZ in the quarter. I mean, you talked a little bit about HPI kind of helping the growth, but I don't know if you can kind of give any more qualitative color between sighted and blind patients. And then also what type of -- what was the amount of growth that was kind of just attributed to people coming back on therapy from kind of the seasonality of 1Q?

Jim Kelly -- Executive Vice President and Chief Financial Officer

All right. Well, thanks for the question, Derek. We have not offered on that type of detail except to say both sighted and traditional blind patients with Non-24 continue to contribute to the important growth on the product. What I would highlight is that the productivity of our field team has been excellent and that's what has us really excited about what we can accomplish as we move forward.

The reality is that quarter-in quarter-out, you've got some great quarters and you've got some maybe not so great. This one was great. I mean, there's no question about it. We felt that the team executed exceptionally well on all aspects.

Derek Archila -- Stifel Financial Corp. -- Analyst

Got it. And then just a follow-up to that one, given kind of the performance here in 2Q and kind of the bullishness that can you kind of just stated. So I guess why not raise sales guidance right now? So I guess, are there are some factors that you're tracking that are preventing you from doing it now and you're waiting to 3Q or what's kind of the reason not to?

Mihael Polymeropoulos -- President and Chief Executive Officer

Well, I will let Jim comment on that. All I can say that we're excited with a great quarter. We cannot lead the future with precision. We understand there is seasonality and it is too early to change the guidance, but are we excited about Q2, of course, we are.

Jim Kelly -- Executive Vice President and Chief Financial Officer

Yeah. And we look forward, of course, to giving an update to everybody when we get back together and talk about Q3. I think that the important thing that people should take out of our year-to-date performance is that, HETLIOZ is a growth asset and while we may talk quarter to quarter, the real way to think about HETLIOZ is the years to come, as we continue to grow the program.

Derek Archila -- Stifel Financial Corp. -- Analyst

Got it. And then just last one. This is more modeling question. So from an R&D perspective, you came in a lot lighter relative to our numbers as well as consensus.

So I guess any sort of qualitative kind of guidance as far as how we should be thinking that steps up maybe in the second half, because you're starting some studies or how should we think about that? Thank you.

Mihael Polymeropoulos -- President and Chief Executive Officer

Yeah. You may have heard me mention that we expect to see an increase in R&D as the year progresses and we're incredibly excited about the programs, especially tradipitant in motion sickness and gastroparesis, but any other the programs. We've got a gallon here. Any sort of quarter-to-quarter variability including the one you described from Q1 to Q2 is just the inherent variability as you go quarter to quarter.

I think we have our eye toward continued activity in R&D space as the year progresses and a lot of really exciting studies ongoing.

Derek Archila -- Stifel Financial Corp. -- Analyst

Great. Thanks and congrats on the quarter.

Operator

Thank you. This concludes our Q&A session. I'd like to turn the call back over to Vanda Management for closing remarks.

Mihael Polymeropoulos -- President and Chief Executive Officer

Thank you very much all for joining us and we will talk again soon.

Operator

[Operator signoff]

Duration: 31 minutes

Call participants:

Jim Kelly -- Executive Vice President and Chief Financial Officer

Mihael Polymeropoulos -- President and Chief Executive Officer

Roy Buchanan -- JMP Securities -- Analyst

Chris Howerton -- Jefferies -- Analyst

Joel Beatty -- Citi -- Analyst

Derek Archila -- Stifel Financial Corp. -- Analyst

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