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Edited Transcript of VNDA earnings conference call or presentation 25-Feb-20 9:30pm GMT

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Q4 2019 Vanda Pharmaceuticals Inc Earnings Call ROCKVILLE Mar 10, 2020 (Thomson StreetEvents) -- Edited Transcript of Vanda Pharmaceuticals Inc earnings conference call or presentation Tuesday, February 25, 2020 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Aranthan Jones Vanda Pharmaceuticals Inc. - Chief Corporate Affairs & Communications Officer * James Patrick Kelly Vanda Pharmaceuticals Inc. - Executive VP, CFO & Treasurer * Kevin Moran Vanda Pharmaceuticals Inc. - VP & Controller * Mihael H. Polymeropoulos Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director ================================================================================ Conference Call Participants ================================================================================ * Benjamin Shipman Porter Stifel, Nicolaus & Company, Incorporated, Research Division - Associate * Christopher Lawrence Howerton Jefferies LLC, Research Division - Equity Analyst * Douglas Royal Buchanan JMP Securities LLC, Research Division - Associate * Shawn Michael Egan Citigroup Inc, Research Division - Senior Associate ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by, and welcome to the Vanda Pharmaceuticals Fourth Quarter 2019 Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I'd now like to hand the conference over to your speaker today, Mr. Kevin Moran, Vice President and Controller. Please go ahead, sir. -------------------------------------------------------------------------------- Aranthan Jones, Vanda Pharmaceuticals Inc. - Chief Corporate Affairs & Communications Officer [2] -------------------------------------------------------------------------------- Good afternoon. This isn't Kevin. This is AJ Jones, Chief Corporate Affairs Officer. But thank you so much, Liz, for that setup. I do appreciate it. Good afternoon, everyone, and thank you for joining us to discuss Vanda Pharmaceuticals fourth quarter and full year 2019 performance. Our fourth quarter and full year 2019 results were released this afternoon and are available on SEC's EDGAR system and on our website, vandapharmaceuticals.com. In addition, we are providing live and archived versions of this conference call on our website. Joining me today for this call is Dr. Mihales Polymeropoulos, our President and CEO; Kevin Moran, our Controller and also incoming acting Chief Financial Officer; Tim Williams, our General Counsel; Gunther Birznieks, our Chief Business Development Officer and Member of our R&D committee; and Jim Kelly, our outgoing Executive Vice President and Chief Financial Officer. Following my introductory remarks, Mihales will give an update on our ongoing activities, and Kevin will review our financial results for the fourth quarter and full year 2019. I will then comment on our plans for 2020 before opening the lines for your questions. Before I proceed, I would like to remind everyone that various statements that were made on this call will be forward-looking statements within the meaning of federal securities laws. Our forward-looking statements are based on current expectations that involve risks, changes in circumstances, assumptions and uncertainties. These risks are described in our Risk Factors and Management Discussion and Analysis of Financial Conditions and Results of Operations section in our annual report on Form 10-K for fiscal year ended December 31, 2018, and quarterly report on Form 10-Q for the quarterly ended in September 30, 2019, which are available on the SEC's EDGAR system and on our website. Additional factors may be set forth in those sections of our earning -- our annual report on Form 10-K for the fiscal year ended December 31, 2019, to be filed with the SEC in the first quarter of 2020. We encourage all investors to read these reports and our SEC filings. The information we provide on this call is provided only as of today, and we will undertake no obligations to update or revise publicly any forward-leaning statements. We may also -- we may make on this call on account of new information, future events or otherwise, except by required by law. With that being said, I would now like to turn the call over to our CEO, Dr. Mihales Polymeropoulos. Mihales? -------------------------------------------------------------------------------- Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [3] -------------------------------------------------------------------------------- Thank you very much, AJ. Good afternoon, everyone, and thank you for joining us. 2019 was a transformative year for Vanda. We continue to drive strong growth and position the company for long-term success. As we move in 2020, we are confident in our ability to build on great strides in our efforts to innovate for the benefit of all of our stakeholders, our patients, our employees, our shareholders and the broader communities that we serve. Before I go into our updates, I want to take a moment to highlight some of our key accomplishments in the last year. Looking first to our commercial products. I'm encouraged by the continued growth we see for HETLIOZ and Fanapt, in particular, our ability to achieve double-digit year-over-year product sales growth for HETLIOZ, 6 years now into launch, speaks volumes to the talent and dedication of our experienced sales team as well as the value both blind and sighted patients with Non-24 see in the treatment. For Fanapt, we are pleased with the U.S. Supreme Court decision to deny the petition for a writ of certiorari that was filed by West-Ward Pharmaceuticals, a subsidiary of Hikma, relating to our '610 Patent for Fanapt. This ensures that the protection of the '610 Patent will remain through November 2, 2027. Additionally, we have made excellent progress around the launch of our direct-to-consumer marketing campaign for Fanapt, which is on pace to roll out in the first half of 2020. Turning to our robust product pipeline and our ongoing efforts to propel innovation in clinical development, it is really an exciting time for Vanda with several late-stage indications and a number of critical milestones that are expected over the next 12 to 24 months. That said, I would like to start with tradipitant, our neurokinin-1 receptor antagonist, and provide an update on our ongoing programs. We reported a few minutes ago results of the EPIONE study of tradipitant in the treatment of pruritus in atopic dermatitis. The EPIONE study did not meet its primary endpoint in reduction of pruritus across the overall study population; however, the antipruritic effect of tradipitant was robust in the mild AD study population. Mild AD represents over 60% of the total atopic dermatitis population in the United States. The EPIONE study continue to demonstrate that tradipitant is safe and well tolerated. Although we are disappointed that EPIONE did not meet its primary endpoint, the profile of the efficacy demonstrated in this study potentially addresses a highly unmet need of treating intractable pruritus for a large portion of AD patients. Due to their potent immunosuppressive effects, current systemic therapies for AD are typically only used in moderate to severe AD. The safe profile of tradipitant, coupled with a significant and immediate onset of itch reduction by the first full day of treatment may provide a much needed therapy for the majority of AD patients that experience mild AD lesion severity but still suffer from significant and severe pruritus. EPIONE was a randomized placebo-controlled Phase III study with 341 patients in the intent-to-treat population with severe pruritus with a range of disease severity presentation from mild, 23% of them; to moderate, 64%; and severe, 13% of patients, as determined by the Investigator's Global Assessment scale or IGA. Patients were randomized 1:1 to receive either tradipitant or placebo for a treatment period of 8 weeks. Patients were assessed at baseline and post-randomization with a number of symptomatic and disease severity scales performed at regular intervals. The EPIONE study examined the hypothesis that tradipitant dose at 85 milligrams twice a day offers improvement of the disease symptoms and signs of AD over the evaluation period. At week 8, tradipitant and placebo patients demonstrated significant and meaningful improvement in pruritus as measured by the Worst Itch Numeric Rating Scale, WI-NRS. But while the tradipitant margin of improvement was greater than that of placebo, the difference between treatment groups was not statistically significant. A significant interaction was observed between baseline disease severity, IGA 1 through 4, and treatment, and that was significant with a p-value of 0.0004. This suggests the study participants with different baseline disease severity experienced different treatment outcomes. When accounted for that baseline disease severity and treatment interaction, a significantly larger improvement in WI-NRS was seen with tradipitant at the prespecified endpoint of week 8 in the full trial population, and that was significant with a p-value of 0.0217. Similar effects were seen throughout the treatment periods at all post-randomization visits comprising weeks 2, 4, 6, 8, and these data are summarized in Table 1 of the press release that you can see on our website. Given the observed significant interaction between baseline disease severity and treatment, a subgroup analysis showed that patients with mild disease severity, 23% of the population with IGA scores of 1 and 2, experienced the largest improvement over placebo. Specifically, in the mild AD group, tradipitant significantly improved WI-NRS over placebo at every visit. And this, again, can be reviewed in Table 1 of the press release and the associated Figure 1. The categorical WI-NRS responder analysis where patients are responding by 4 points or more showed that 72.5% of tradipitant patients had a clinically meaningful response as compared to 33.3% of placebo patients, and that difference was significant as seen again in Table 1 with a p-value of 0.0007, highly significant. These results suggest a large and significant antipruritic effect of tradipitant in mild AD and were confirmed with patient daily diary entries. For mild AD patients, a time course of response also showed that the antipruritic effect were seen immediately after the first full day of tradipitant dosing, suggesting a large and immediate therapeutic effect. Similar improvement was observed for nighttime sleep, often disrupted in patients with severe pruritus. Results from the EPIONE study, as shown in Figure 2 of the press release and the scientific literature, suggest that mild and severe AD types appear to be distinct endotypes with different sets of causative factors and course. The American Academy of Dermatology atopic dermatitis guidelines list pruritus as an essential feature of atopic dermatitis. The significant pruritus associated with a mild type of AD and the worsening of lesions through scratching, along with a sleep disruption, continue to represent a significant unmet medical need. The results of the EPIONE study suggest that tradipitant can produce a large and rapid antipruritic effect in mild AD. Currently, American Academy of Dermatology treatment guidelines indicate and recommend immunomodulatory medications only after topical regimens and phototherapy are found not to adequately control the disease. A well-tolerated systemic antipruritic agent with rapid onset of action, like tradipitant could add significant value to patients and take a primary place in the treatment algorithm of atopic dermatitis patients. The results of the EPIONE study will need to be confirmed in a follow-up study. Vanda is currently conducting EPIONE II, and we plan to reassess the design of this study as we continue to analyze the results of EPIONE and determine next steps. Briefly, I would like to touch upon our other pipeline projects before I turn over the call to Kevin. On gastroparesis, our study of tradipitant in that indication, that's a Phase III study, continues to enroll and randomize patients who suffer from both idiopathic and diabetic gastroparesis. To remind you, following the completion of a Phase II study in our motion sickness program with tradipitant as well, last year, we have now begun to recruit for a large Phase III study of patients with motion sickness. We expect to complete this program in motion sickness and file a new drug application with the FDA, hopefully, by end of the year. In the new year, we are -- we also continue to aggressively drive forward other exciting indications. On HETLIOZ, Vanda has submitted an application for the Smith-Magenis Syndrome, along with a liquid formulation to be accepted by the FDA for review in 2020. For the treatment of Jet Lag Disorder, we continue our engagement with the FDA to resolve the issues that preclude approval, and we remain confident that our supplemental NDA for Jet Lag Disorder demonstrates the significant and clinically meaningful effects of HETLIOZ in the core features of Jet Lag Disorder that are required to demonstrate substantial evidence for approval in that indication. An observational study of delayed sleep phase disorder, DSPD, is ongoing, and we expect to initiate a Phase III intervention study in DSPD in 2020. Briefly to touch upon Fanapt, our atypical antipsychotic in schizophrenia, a Phase III study in bipolar disorder has been initiated as well as the pharmacokinetic study of long-acting injectable formulation on Fanapt is ongoing. I'll stop here with these updates and turn the call over to Kevin. And welcome, Kevin. -------------------------------------------------------------------------------- Kevin Moran, Vanda Pharmaceuticals Inc. - VP & Controller [4] -------------------------------------------------------------------------------- Great. Thank you, Mihales. So I'll begin by summarizing our exceptional full year 2019 financial results before turning to discuss the fourth quarter of 2019. Total revenues for the full year 2019 were $227.2 million, an 18% increase compared to $193.1 million for 2018. HETLIOZ product sales of $143 million were the primary contributor and driver of our 2019 revenues and saw a 23% growth compared to 2018. Fanapt product sales of $84.2 million reflects 9% growth compared to 2018. For the full year 2019, Vanda reported net income of $115.6 million compared to net income of $25.2 million for 2018. The income tax benefit of $86.5 million reflected in the financial results for the full year 2019 includes the favorable impact of the release of Vanda's deferred tax asset valuation allowance, which occurred in the third quarter of 2019. This onetime tax benefit is a noncash item and, therefore, does not have an immediate impact on Vanda's cash balance. Vanda's cash, cash equivalents and marketable securities, referred to as cash, as of December 31, 2019, were $312.1 million, representing an increase of $54.8 million to cash during 2019. Turning now to our quarterly results. Total revenues for the fourth quarter of 2019 were $60.9 million, a 15% increase compared to $53 million in the fourth quarter of 2018. HETLIOZ net product sales were $38.6 million in the fourth quarter of 2019, a 19% increase compared to $32.4 million in the fourth quarter of 2018. The HETLIOZ patients on therapy number grew in the fourth quarter as compared to the third quarter of 2019. During 2019, we saw a downward and favorable Medicaid payer mix trend that resulted in higher net revenue per unit. As of December 31, 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 fourth quarter of 2019 was higher when compared to the third quarter of 2019. The value of this inventory change was approximately $300,000. Fanapt net product sales of $22.3 million in the fourth quarter of 2019 reflect an 8% increase compared to $20.6 million in the fourth quarter of 2018. As of December 31, 2019, wholesalers have increased inventory on hand when compared to the third quarter of 2019. The value of this inventory change was approximately $100,000. Fanapt prescriptions, as reported by IQVIA Xponent, decreased by approximately 3% in the fourth quarter compared to the fourth quarter of 2018. In the fourth quarter of 2019, Vanda reported net income of $4.2 million compared to net income of $10.4 million for the fourth quarter of 2018. Operating expenses in the fourth quarter of 2019 were $56.7 million compared to operating expenses of $43.9 million in the fourth quarter of 2018. The $12.8 million increase was a combination of higher Non-24 awareness, corporate and legal costs. Vanda expects to achieve the following financial objectives in 2020: net product sales from both HETLIOZ and Fanapt of between $240 million and $260 million, HETLIOZ net product sales of between $155 million and $165 million, Fanapt net product sales of between $85 million and $95 million, year-end 2020 cash of greater than $320 million. Of note, our HETLIOZ net product sales guidance is based on our currently approved FDA indication for Non-24. We expect first quarter 2020 HETLIOZ revenue to be impacted by the seasonal Medicare manufacturer contribution and the annual payer disruption linked to new plan years, plan changes and reauthorizations, which we witnessed in prior years. We expect both R&D and SG&A operating expenses to rise in 2020 as compared to 2019 spending levels. The primary contributions to the 2020 growth in spend include commercial DTC programs on Fanapt and HETLIOZ and an increase in R&D activities related to our late-stage clinical programs for tradipitant, Fanapt and HETLIOZ. That said, we expect to continue our trend of adding to our year-end 2020 cash balance while advancing our portfolio of investments in support of patients. I'll now turn the call back to AJ Jones to discuss Vanda's 2020 plans. -------------------------------------------------------------------------------- Aranthan Jones, Vanda Pharmaceuticals Inc. - Chief Corporate Affairs & Communications Officer [5] -------------------------------------------------------------------------------- Thank you, Kevin, and welcome again. In 2020 for HETLIOZ, we will continue to advance the commercialization of HETLIOZ for Non-24 in the U.S. and also in Germany and further execute our commercial plans in new EU markets. For Fanapt, we will continue to expand commercial support for Fanapt for schizophrenia in the U.S. As relates to R&D, we will continue our clinical and commercial activities in support of tradipitant. We will also advance the life cycle management of HETLIOZ, both in R&D and also commercial activities, including SMS, which was mentioned earlier. We will also advance Fanapt's life cycle as well as continued R&D and also commercial activities. For our early stage, both VQW-051, VTR-297, and also CFTR, we will continue to move those along the clinical paths and programs that have been announced. Additionally, we will also have other business objectives related to our IP and portfolio -- our additional IP and portfolio support of all of our products. We will also invest heavily as well in terms of hiring, in terms of human capital to ensure the advancement of our scientific innovation and also to develop core competencies towards our long-term growth as our company. With that being said, I will now turn the call over back to Mihales. Mihales? -------------------------------------------------------------------------------- Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [6] -------------------------------------------------------------------------------- Thank you very much, AJ and Kevin. At this time, we'll be happy to answer any questions you may have. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from the line of Chris Howerton with Jefferies. -------------------------------------------------------------------------------- Christopher Lawrence Howerton, Jefferies LLC, Research Division - Equity Analyst [2] -------------------------------------------------------------------------------- Great. Congrats on the great commercial year last year. So for, I guess, top of mind, given that atopic dermatitis results were released today and that it appears to have a beneficial effect in the mild patients, what would be the realistic outcome here? Do you think that you could change the second Phase III trial to focus more on the mild patients and that would be the regulatory path forward? Or what are some other options that we can think of in terms of consideration of moving forward in that program? -------------------------------------------------------------------------------- Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [3] -------------------------------------------------------------------------------- Yes, certainly. So first of all, the summary of the results are that the hypothesis that tradipitant is a antipruritic agent across the spectrum of severity of AD has not been confirmed. However, for people with a mild type of AD, it appears that tradipitant has a strong antipruritic effect and does so early in a clinically meaningful way. The way we think about these results, Chris, is that they are too significant to ignore. Meaning that while the headline, of course, is unfortunately and disappointingly so, the EPIONE study did not confirm that blocking the actions of substance P through NK-1 receptors will be of significant therapeutic effect to all AD patients. Nonetheless, the effect is large as it appears from the study. The results of the study would need to be confirmed to be certain that both the result is reproducible and, second, that the magnitude is reproduced as well. If so, we certainly understand from discussions with experts in the field that this could fit a significant unmet medical need in an area that the atopic dermatitis field is not concentrating today. New treatments are concentrating to treat primarily the lesions seen in the moderate and severe patients. But certainly, there is no other effort for a systemic, safe antipruritic treatment for patients with mild disease. So what does that mean for Vanda's program? The EPIONE II study is in early phases, which means it can be efficiently reassessed and adapted to be shifted towards the population that we think the drug likely has the larger effect, and that is the mild population. Another consideration that our experts are urging us to look at is whether the drug would have an effect in the population of 12- to 18-year olds, a population that primarily has a mild type of AD associated with severe pruritus. And for which, there are no approved, safe, systemic treatments. We all know that mild treatment is treated with good skin hygiene, emollients and also local creams, including calcineurin inhibitors and crisaborole. So in that population, a systemic safe antipruritic treatment can play a significant role. So Vanda's plan is to continue to analyze the EPIONE wealth of data, quickly reassess how we can best utilize the ongoing EPIONE II study, which can be streamlined. And by that, I mean that with the results of the markings we see, fewer patients will be needed to evaluate whether or not the results in EPIONE is confirmed. And to be certain that we also answer the regulatory question, what does it mean if you succeeded to confirm this result. I would say it depends. Typically, the regulatory agencies would require 2 confirmatory studies. But of course, it depends on the magnitude of results in -- upon confirmation. So I will leave it there, and I'm sure we'll have more to say about that in the coming quarters. -------------------------------------------------------------------------------- Christopher Lawrence Howerton, Jefferies LLC, Research Division - Equity Analyst [4] -------------------------------------------------------------------------------- Okay. Okay, that makes sense. Absolutely. Okay. And then for -- it was, at least in my mind, conspicuously not mentioned, but there was obviously interaction with the FDA with respect to the long-term toxicology requirement for a 9-month dog study. And clearly, there was a court decision recently with respect to that, so has there been any additional interactions between Vanda and the FDA on this program? And what updates can you provide to us with respect to strategy? -------------------------------------------------------------------------------- Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [5] -------------------------------------------------------------------------------- Yes. So to recap and summarize for all our audience, Vanda has disputed the necessity of an additional 9-month dog study as a preclinical additional toxicology study on top of all the toxicology studies that have been done without any significant safety signals that could inform human studies. Of course, the FDA disagreed with that. Our dispute went to the court. A court decision recently agreed with the FDA that while they have not provided evidence that this study should be required and how is it predictive for human safety, the court nonetheless agreed with the FDA that they have the authority to decide whether to require such study or not. We continued discussions with the FDA. We evaluate a number of options that include regulatory paths but also even additional paths that I'm not going to specifically address today. So the -- our view is that we have a number of options in front of us and we remain optimistic that we will identify a suitable solution. -------------------------------------------------------------------------------- Christopher Lawrence Howerton, Jefferies LLC, Research Division - Equity Analyst [6] -------------------------------------------------------------------------------- Okay. And I certainly respect that you're not prepared to discuss those strategic options right now, but when can we expect more color or information on that strategy? Just, I guess, has progression -- discussions progressed with the FDA? Or is there something internally that needs to happen to kind of be able to put that forward? -------------------------------------------------------------------------------- Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [7] -------------------------------------------------------------------------------- Well, I will say, we'll give the update when we have the update. But certainly, there are a lot of things in process specifically with the FDA that we hope we can make some strides. -------------------------------------------------------------------------------- Christopher Lawrence Howerton, Jefferies LLC, Research Division - Equity Analyst [8] -------------------------------------------------------------------------------- Okay. And then maybe just one last question for me, also regulatory. Maybe you could just describe again what the package is for SMS? And what has been your interactions with the FDA with respect to that package? -------------------------------------------------------------------------------- Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [9] -------------------------------------------------------------------------------- So the packages we discussed before, the core part of that package is the Phase III -- single Phase III study. That was a study that we discussed, a crossover design. The results of this study have been discussed with the FDA in a pre-NDA meeting, and we agreed what we will submit. We have submitted and we're waiting for this package to be filed. And it has 2 components: One is the Phase III clinical data but also a separate sNDA on a liquid formulation. I remind you that, that study was conducted in both adults and children, and it included both the current capsule formulation and the proposed liquid formulation. -------------------------------------------------------------------------------- Operator [10] -------------------------------------------------------------------------------- Our next question comes from the line of Jason Butler with JMP Securities. -------------------------------------------------------------------------------- Douglas Royal Buchanan, JMP Securities LLC, Research Division - Associate [11] -------------------------------------------------------------------------------- It's Roy on for Jason. I had a few on EPIONE, I guess. Can you tell us what the baseline Worst Itch scores were for the mild versus the moderate and severe patients for each treatment groups? And then, I guess, is it possible that any concomitant medications or other treatments confounded the results in the moderate to severe patients? -------------------------------------------------------------------------------- Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [12] -------------------------------------------------------------------------------- So I will answer the last one. We do not believe that any concomitant medications have confounded. So we truly believe that the severity type is actually true and not confounded finding within that population. I would refer you for the first one to the Figure 2 in the press release, and that would be in Box B. You will see some baseline parameters broken by IGA 1, 2 and IGA 3, 4. And your question, Worst Itch-NRS, is that at baseline, all patients were required to have an average Worst Itch score of 7 in a grading 0 to 10 scale. And you can see here that the average was 7.2 in the IGA 1, 2 group and 8.3 in the 3, 4. -------------------------------------------------------------------------------- Douglas Royal Buchanan, JMP Securities LLC, Research Division - Associate [13] -------------------------------------------------------------------------------- Okay, great. And then as far as 2020 guidance for HETLIOZ, it's kind of suggests slowing growth. Can you describe what the main driver or drivers of that is? -------------------------------------------------------------------------------- Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [14] -------------------------------------------------------------------------------- Well, it is true that if you calculate backwards and back out price, which you've done already, that although we guided at the upper end on a double digits growth like we had a double-digit growth this year, it's -- certainly, those numbers are smaller. It is the first quarter. There are many things unknown. We are 6 years into the launch. And as you know, it is very, very unlikely that products are in a rare orphan disorder will continue to grow like we've seen HETLIOZ. However, while we still forecast growth in the Non-24 business, the initiatives that we have ongoing and, hopefully, will expand in the coming quarters, we believe that they can add to that growth. Specifically, I would like to speak towards one of them. As we have discussed in the past, Non-24 disorder can be co-morbid, not only with psychiatric disorders that we've spoken about in the last couple of years, but also in patients with traumatic brain injury. And traumatic brain injury are a large number of patients with mild to severe concussions that have a remaining sleep-wake disorder many times of the Non-24 type. That association with TBI is well-known and described in the Diagnostic and Statistical Manual 5 of psychiatric disorders. What we're doing towards that is we're exploring with neurologists their understanding, interest and awareness around the presence of Non-24 in TBI patients. This is a very early project, but you should expect us that our sales force and marketing will make a significant effort to identify and treat these patients. So that's one example of initiatives. And of course, we are very keen to see if Smith-Magenis Syndrome indication approved, so that will allow us to market directly to the families and patients with SMS. And we said in the past, we appreciate our long-standing multiyear relationship with the organization, PRISMS, the key advocacy organization for several hundred families in the U.S. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- Our next question comes from Derek Archila with Stifel. -------------------------------------------------------------------------------- Benjamin Shipman Porter, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [16] -------------------------------------------------------------------------------- This is Ben on for Derek. Just wondering if you can share when data are expected for this Fanapt PK study. -------------------------------------------------------------------------------- Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [17] -------------------------------------------------------------------------------- The pharmacokinetic study is ongoing, but I can give you the preview that the early data suggest a profile that will be compatible with the long-acting injectable. So while we're continuing to learn and finalize the pharmacokinetic study, we're actually in the early stages of designing a Fanapt schizophrenia efficacy study with a long-acting injectable. -------------------------------------------------------------------------------- Benjamin Shipman Porter, Stifel, Nicolaus & Company, Incorporated, Research Division - Associate [18] -------------------------------------------------------------------------------- Okay. And then one more for us. Just in light of the DTC spend campaign for Fanapt, how should we think about OpEx for this year and then possibly in 2021 as well? -------------------------------------------------------------------------------- Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [19] -------------------------------------------------------------------------------- As you noticed, we have not given a specific number for OpEx. We're guiding for a cash balance at the end of the year to exceed $320 million. Now as we have said, actually, in the past quarter, we expect that the OpEx sequentially will be increased due to an intensified direct-to-consumer campaign, including the Fanapt campaign, but also the number of studies that we're pursuing in R&D. -------------------------------------------------------------------------------- Operator [20] -------------------------------------------------------------------------------- Our next question comes from Joel Beatty with Citi. -------------------------------------------------------------------------------- Shawn Michael Egan, Citigroup Inc, Research Division - Senior Associate [21] -------------------------------------------------------------------------------- This is Shawn Egan calling in for Joel. A few from our team. Following the results from EPIONE, what is the team's current hypothesis on why it could be effective in the mild patients versus the more severe? And I know you mentioned that the mild setting, these patients are typically treated with immunosuppressive agents. Could that be impacting? Or maybe just your high-level views on that? -------------------------------------------------------------------------------- Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [22] -------------------------------------------------------------------------------- Yes. That is actually a question that, of course, there is not a complete answer. However, the prevailing literature today suggests that atopic dermatitis is a complex disorder and heterogeneous. In that, there are different types with different causality and different course. So that mild AD is not an atopic dermatitis with mild symptoms, but rather a distinct what is called endotype. In fact, we have some references in our press release on that. Both patients in mild AD and severe AD, they experience severe pruritus. So while they are characterized clinically by different type of lesions, mild AD has milder lesions. The severe AD has more severe lesions with a higher extent. The symptom of pruritus, nonetheless, is severe in both of them or can be severe in both of them. Now to the -- speaking towards the endotype. What we begin to understand and, in fact, we are conducting a very large analysis in the entire population of over 800 patients that we screened into the AD, looking both at biomarkers, but also the genetics of these individuals having now completed a whole genome sequencing analysis in every patient in the study. What we're identifying, some of it is presented in Figure 2 in the associated press release. In Panel C, you will see the description that it appears that patients with IGA 1 and 2 had a lower eosinophil count as compared to patients than IGA 3 and 4. And what is very significant is that eosinophil count appears to be a marker of a disease, not a marker of a disease stage. So that patients who have high eosinophil count, upon improving, their blood eosinophil count does not become lower. So that is one very interesting endotype. The second one, it comes from genetics. It appears that patients with IGA 1 and 2 do not have an accumulation of filaggrin mutations. This is a protein whose gene has been shown to be mutated frequently in patients with atopic dermatitis, filaggrin constituting a protein in the skin barrier. So what you see in our set and it is beginning to be demonstrated in the literature as well, that patients with 1 and 2 do not have an accumulation of inherited causes of these skin barrier mutations. So it comes down now to the question, why would a NK-1 antagonist work better in IGA 1 and 2 than 3 and 4? The hypothesis here is as follows, that substance P may be a prominent mediator of itch in patients with atopic dermatitis in a skin that does not have the inflammatory response and immune overreaction that you see in IGA 3 and 4. In IGA 3 and 4 in severe lesions, we all know now that interleukin 4, interleukin 13 and the presence of other cytokines summon an entire response with secondary agents that increase itch. So besides substance P, you will have histamine, serotonin, NCF and a number of propruritic cytokines. So most probably, the substance P contribution gets flooded by other pruritogenic agents in the 3 and 4, and that is why while, of course, we do see response, the response is not prominent, and it's not significantly better than what you see with placebo. -------------------------------------------------------------------------------- Shawn Michael Egan, Citigroup Inc, Research Division - Senior Associate [23] -------------------------------------------------------------------------------- Maybe another question on HETLIOZ. Just kind of shifting gears a little bit. In the delayed sleep-wake phase disorder, have you done much work kind of understanding the awareness for the indication? And maybe you could help us understand how high the unmet need is? And how these patients are typically treated currently? -------------------------------------------------------------------------------- Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [24] -------------------------------------------------------------------------------- So yes. So DSPD is actually a condition that may affect, in different studies, from a half to several percentages of the population. And as we know, it's more prominent between adolescents -- in adolescents and young adults. What is very interesting, people can self diagnose very quickly, calling themselves night owls or difficulty getting up in the morning and being consistent. Often, people who have trouble getting up to go to school or go out to work, but they have no trouble sleeping 8 or 9 hours when they left to initiate sleep on their own schedule. And typically, that is in the early morning hours, 2:00, 3:00 in the morning. So that's about prevalence and self-diagnosis. When things get worse and DSPD impacts the occupational and social functioning of these patients, they seek treatment. Unfortunately, there is very little to treat them with because sleep agents may help you fall asleep, but they will not do anything to the circadian cycle and, in fact, worsen it. The work we're doing now is also inspired by the work of Michael Young at Rockefeller, who is a Nobel Prize winner a couple of years ago, having discovered a prominent mutation in humans with DSPD mutation, and that is a mutation in the CRY1 gene. And we're actually following up with that with an observational study in Turkey, where these families came from in a collaboration with investigators in Ankara. And we're learning a lot about the expression of DSPD there. And also, we're doing a similar study with DSPD patients in the U.S. Our goal is to conduct an interventional study, both in patients with CRY1 mutation and without CRY1 mutation and begin to characterize the effect of tradipitant in that population. -------------------------------------------------------------------------------- Shawn Michael Egan, Citigroup Inc, Research Division - Senior Associate [25] -------------------------------------------------------------------------------- Perfect. And then my last question is just with Jim leaving, will there be any kind of changes in the corporate strategy at Vanda going forward? -------------------------------------------------------------------------------- Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [26] -------------------------------------------------------------------------------- Everything will be even better. Nothing immediate, but I would like to take the opportunity and really thank Jim for 10 years of tireless work; building a significant part of the company, both on commercially and being -- encouraging the development of our compounds; and, of course, putting up with the communication with all of you guys and doing an excellent job. Thank you, Jim. Jim, why don't you say something? -------------------------------------------------------------------------------- James Patrick Kelly, Vanda Pharmaceuticals Inc. - Executive VP, CFO & Treasurer [27] -------------------------------------------------------------------------------- Alright. Well, I'll now take the moment to thank Mihales for bringing me onboard 10 years ago and being a part of everything that we've built and accomplished. Mihales and this entire team, I will certainly miss all my colleagues, past and present, and I have enjoyed interacting with yourselves, the analysts and the investment community, and look forward to watching great progress here at Vanda in years to come. -------------------------------------------------------------------------------- Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [28] -------------------------------------------------------------------------------- Thanks, Jim. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [30] -------------------------------------------------------------------------------- Yes. Thank you very much all for joining us. Plenty to be discussed on EPIONE in upcoming scientific meetings. And certainly, we look forward to updating you on all our programs next time. Thank you. -------------------------------------------------------------------------------- Operator [31] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.