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Edited Transcript of VNDA earnings conference call or presentation 7-Nov-17 9:30pm GMT

Q3 2017 Vanda Pharmaceuticals Inc Earnings Call

ROCKVILLE Dec 12, 2017 (Thomson StreetEvents) -- Edited Transcript of Vanda Pharmaceuticals Inc earnings conference call or presentation Tuesday, November 7, 2017 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* James Patrick Kelly

Vanda Pharmaceuticals Inc. - CFO, EVP and Treasurer

* Mihael H. Polymeropoulos

Vanda Pharmaceuticals Inc. - Founder, CEO, President and Director

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Conference Call Participants

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* Charles Cliff Duncan

Piper Jaffray Companies, Research Division - MD and Senior Research Analyst

* Jason Nicholas Butler

JMP Securities LLC, Research Division - MD and Senior Research Analyst

* Matthew J. Andrews

Jefferies LLC, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Welcome to the Q3 2017 Vanda Pharmaceuticals Inc. Earnings Conference Call. My name is Leslie, and I'll be operator for today. (Operator Instructions) Please note that this conference is being recorded.

I will now turn the call over to Vanda's Senior Vice President and Chief Financial Officer, Jim Kelly. Mr. Kelly, you may begin.

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James Patrick Kelly, Vanda Pharmaceuticals Inc. - CFO, EVP and Treasurer [2]

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Thank you, Leslie. Good afternoon, and thank you for joining us to discuss Vanda Pharmaceuticals third quarter 2017 performance. Our third quarter 2017 results were released this afternoon and are available on the SEC 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; and Gian Piero Reverberi, our Chief Commercial Officer. Following my introductory remarks, Mihael and Gian Piero will update you on our ongoing activities, then I will comment on our financial results before opening the lines for your questions.

Before we proceed, I would like to remind everyone that various statements that we make on this call will be forward-looking statements within the meaning of federal securities laws. Our forward-looking statements are based upon current expectations 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 Operations sections of our annual report on Form 10-K for the fiscal year ended December 31, 2016, and quarterly report on Form 10-Q for the quarter ended June 30, 2017, 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.

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, CEO, President and Director [3]

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Thank you very much, Jim. Good afternoon, everybody, and welcome to our third quarter call. During the third quarter of 2017, we demonstrated the importance of a diverse set of ongoing initiatives to advance our growth strategy: the tradipitant results in atopic dermatitis; early trends from the HETLIOZ to psychiatrists initiative, HPI; and the resolution of the HETLIOZ pricing negotiations in Germany are important milestones for Vanda.

With strong execution, we believe these initiatives have the potential to drive new growth for Vanda that exceeds our previous expectations. I will begin with an update on each of these important initiatives.

The HETLIOZ to psychiatrists initiative, HPI, which was launched in August with less than a third of the U.S. Fanapt field force was expanded to the full Fanapt team in October. We are excited to announce that early results are encouraging and we believe this initiative has the potential to significantly increase the peak sales potential for HETLIOZ.

The positive response from the psychiatric community underscores the significant unmet need of patients with Non-24. We are just at the beginning of understanding the long-term potential for the treatment of this Non-24 patient population.

As a reminder, the approved U.S. HETLIOZ label covers any individual with Non-24, irrespective of vision status.

Epidemiological data are lacking for this disorder, Non-24, and its comorbidity with psychiatric disorders but recent literature suggests that this disorder may be prevalent among patients with mood disorders.

Soon after the initial launch of HETLIOZ to psychiatrists in August 2017, new prescriptions from HPI began to surpass those from our regular channels. We are actively working to adapt our resources to accommodate this new source of patients and address new payor mix and dynamics. We look forward to sharing more on this initiative in the coming quarters as our understanding of the long-term implications come into focus.

In September, Vanda announced results from an 8-week randomized Phase II clinical study of tradipitant as a monotherapy for the treatment of atopic dermatitis. We are extremely pleased with the outcome of this study where significant and clinically meaningful improvements were shown for both itch and disease severity in patients with atopic dermatitis.

In October, these results were presented in a scientific poster at the 2017 World Congress of Itch. The tradipitant poster includes an exploratory analysis that showed patients with high baseline immunoglobulin E, IgE, levels demonstrated a larger tradipitant effect size on both pruritus and disease severity.

It is estimated that in the U.S., there are over 4 million drug-treated atopic dermatitis patients. However, at this time, there are very few safe systemic treatments available. We believe that if the Phase II results are further confirmed in future studies, tradipitant has the potential to become a first-line pharmacological option in the treatment of patients with atopic dermatitis in need of an oral treatment.

We believe that the peak revenue potential for this type of atopic dermatitis treatment could exceed $1 billion worldwide. We expect to meet with the FDA in the first quarter of 2018 to further define and confirm the clinical development path towards registration of tradipitant in the treatment of patients with atopic dermatitis. We plan to initiate our Phase III program in the first half of 2018.

On the international front, in October, Vanda reached a HETLIOZ pricing agreement with the German national insurance fund after an arbitration board decision. The agreed ex-factory price in Germany is approximately EUR 69,000 per year, with an effective date of August 1, 2017. This represents a critical milestone for the geographic expansion strategy of Vanda and we are now focusing on the launch preparation in other markets where the preparation of the pricing and reimbursement dossiers are well underway.

We expect to submit pricing and reimbursement dossiers for HETLIOZ in both France and Italy in 2018 and look forward to bringing HETLIOZ to more Non-24 patients across Europe in the near future.

I will now provide you with an update on the progress of our commercial programs.

HETLIOZ net product sales were $22.3 million in the third quarter of 2017, a 1% decrease compared to the second quarter of 2017 and a 19% increase compared to the third quarter of 2016. Importantly, number of patients on therapy continued to grow quarter-over-quarter and the HETLIOZ to psychiatrists initiative, HPI, increases our confidence in the future growth potential of HETLIOZ business for many years to come.

Fanapt net product sales were $19.1 million in the third quarter of 2017, a 3% decrease compared to the second quarter of 2017 and a 4% decrease compared to the third quarter of 2016. Our expectations were to begin to see growth in TRx trends for Fanapt in the third quarter, and this was not the case. While an analysis of territory level performance supports our conviction that the U.S. sales team can return Fanapt to growth, additional time will be required to achieve that goal.

Now I would like to update you on the clinical development activities for tradipitant, HETLIOZ and Fanapt, and then discuss our work on VTR-297, which was previously called Trichostatin A.

In addition to our tradipitant Phase III clinical program for the treatment of atopic dermatitis, we are also running a study of tradipitant for patients with gastroparesis. Results from the randomized clinical study of tradipitant for gastroparesis are expected in mid-2018.

On HETLIOZ in October, we shared the data from the open label study in 12 Smith-Magenis Syndrome patients at the 2017 joint congress of World Association of Sleep Medicine and World Sleep Federation. These data show that parents of children with SMS reported improvement in sleep quality and decrease in aberrant behaviors during treatment with tasimelteon as compared to baseline.

We believe these data are consistent with a clinically meaningful treatment option for patients with SMS. Enrollment in the randomized SMS study is ongoing with results expected in 2018.

We are progressing well with the clinical program for jet lag disorder and we expect to report results from our ongoing randomized study of HETLIOZ for the treatment of jet lag disorder after transmeridian travel, the study 2102, by the end of this year.

A new sleep lab-based 8-hour phase advance, simulated jet lag disorder study was initiated in October 2017 and is on track to be fully enrolled by the end of 2017. Results for this sleep lab-based study are expected in the first quarter of 2018.

We are making good progress with the pharmacokinetic study of a liquid formulation of HETLIOZ in pediatric patients and expect to complete enrollment of the study by end of this year as well.

On Fanapt, we have initiated activities towards the development of the long-acting injectable formulation.

In Europe, the marketing authorization application for Fanaptum received a negative opinion by the CHMP, and we have now requested a reexamination that will come to conclusion shortly.

The FDA has accepted an Investigational New Drug Application, IND, for VTR-297, a small molecule HDAC inhibitor, and has provided authorization to proceed with the treatment of patients with relapsed and/or refractory hematologic malignancies.

The VTR-297 Phase I study, 1101, is expected to start in the first half of 2018. The 1101 study is a dose escalation trial to evaluate drug safety, tolerability and determine recommended clinical treatment regimen and dose.

In summary, the third quarter of 2017 has been exceptional in both the commercial and the clinical setting, and we look forward to providing you with additional updates on our progress in the near future.

I will now turn the call over to Jim Kelly, our Chief Financial Officer, to discuss our third quarter financial results.

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James Patrick Kelly, Vanda Pharmaceuticals Inc. - CFO, EVP and Treasurer [4]

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Thanks, Mihael. Total revenues for the third quarter of 2017 was $41.3 million, a 2% decrease compared to $42.1 million in the second quarter of 2017, and a 7% increase compared to $38.5 million in the third quarter of 2016.

HETLIOZ net product sales were $22.3 million in the third quarter of 2017, a 1% decrease compared to $22.5 million in the second quarter of 2017 and a 19% increase compared to $18.7 million in the third quarter of 2016. The number of HETLIOZ patients on therapy continued to grow quarter-over-quarter.

As of September 30, 2017, the specialty pharmacy channel held less than 2 weeks of inventory, as calculated based on trailing demand.

Units dispensed to patients by the specialty pharmacy exceeded units sold by Vanda to the specialty pharmacy channel. The approximate net product sales value of this inventory destocking was $400,000. Of note, less than 3% of the units dispensed to Non-24 patients in the third quarter of 2017 were the result of the new HETLIOZ to psychiatry initiative. We expect to begin to see the impact of this initiative in the fourth quarter of 2017 and more fully as we enter 2018.

Fanapt net product sales were $19.1 million in the third quarter of 2017, a 3% decrease compared to $19.5 million in the second quarter of 2017 and a 4% decrease compared to $19.8 million in the third quarter of 2016.

Wholesalers have decreased inventory on hand by an amount that equates to over $1.5 million in net product sales when compared to the second quarter of 2017 and over $2.5 million when compared to year-end 2016.

Fanapt saw favorability of over $2 million in the third quarter of 2017 related to a decline in the Medicaid percent mix of our business. Over the course of 2016 and '17, we have chosen not to renew Fanapt state Medicaid supplemental rebate agreements and believe this is the driving factor of recent favorable trends in payer mix.

Vanda is revising its full year 2017 Fanapt revenue guidance to between $74.0 million and $77.0 million. Prior full year 2017, Fanapt guidance of between $77.0 million and $82.0 million was based on the expectation for TRx growth in the third and fourth quarters of 2017. In the third quarter of 2017, we saw a 2% decrease in Fanapt scripts, as reported by IMS, when compared to the second quarter of 2017.

While an analysis of the territory level performance support our conviction that the U.S. sales team can return Fanapt to growth, additional time will be required to achieve that goal.

That said, the expansion of the U.S. Fanapt team has been an exceptional investment, with return measured by both stabilization of the U.S. Fanapt business and the launch of the HETLIOZ to psychiatrists initiative. We believe the favorable impact of the HETLIOZ to psychiatry initiative more than offsets any potential change to the long-term prospects for Fanapt.

Vanda recorded operating expenses of $46.3 million in the third quarter of 2017 compared to $44.0 million in the second quarter of 2017 and $39.1 million in the third quarter 2016.

SG&A expenses in the third quarter were approximately flat when compared to the second quarter of 2017. Research and development expenses in the third quarter increased by $2.5 million compared to the second quarter of 2017.

In the third quarter of 2017, R&D expense included a $2.0 million milestone accrual related to the tradipitant for atopic dermatitis program. We expect R&D costs to increase in the fourth quarter of 2017 compared to the third quarter, reflecting increased activity on the tradipitant gastroparesis and the HETLIOZ clinical studies.

You will see in our press release that Vanda is offering non-GAAP financial information. We do so because we believe that non-GAAP financial information can enhance an overall understanding of our financial performance when considered together with GAAP figures. Vanda non-GAAP net income excludes stock-based compensation and intangible asset amortization.

On a non-GAAP basis, during the third quarter of 2017, Vanda recorded a non-GAAP net loss of $1.3 million as compared to non-GAAP net income of $1.6 million for the second quarter of 2017 and compared to a non-GAAP income of $4.6 million in the third quarter of 2016.

Vanda's cash, cash equivalents and marketable securities referred to as cash, as of September 30, 2017, were $139.9 million compared to $137.1 million as of June 30, 2017, representing an increase to cash of $2.8 million during the third quarter of 2017.

Vanda is providing an update to its prior 2017 guidance.

Vanda expects to achieve the following financial objectives in the fourth quarter of 2017: net product sales from both HETLIOZ and Fanapt of between $42.0 million and $48.0 million; HETLIOZ net product sales of between $24.0 million and $27.0 million; Fanapt net product sales of between $18.0 million and $21.0 million.

Vanda expects to achieve the following financial objectives for the full year 2017: net product sales from both HETLIOZ and Fanapt of between $163.0 million and $169.0 million. This compares to prior guidance of between $165.0 million and $175.0 million. HETLIOZ net product sales of between $89.0 million and $92.0 million. This compares to prior guidance of $88.0 million to $93.0 million. Fanapt net product sales of between $74.0 million and $77.0 million. This compares to prior guidance of between $77.0 million and $82.0 million. Non-GAAP operating expenses, excluding cost of goods sold, between $150.0 million and $157.0 million. This compares to prior guidance of between $162.0 million and $172.0 million. Non-GAAP operating expenses excludes intangible asset expense of $1.7 million and stock-based compensation of between $9.0 million and $12.0 million. Year-end 2017 cash is expected to be between $131.0 million and $141.0 million. This compares with prior guidance of between $121.0 million and $141.0 million.

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

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, CEO, President and Director [5]

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Thank you very much, Jim. Happy to answer any questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Jason Butler with JMP Securities.

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Jason Nicholas Butler, JMP Securities LLC, Research Division - MD and Senior Research Analyst [2]

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Just a couple. First off on HETLIOZ. You saw patient growth in the quarter, but sales were essentially flat when you adjusted for the destocking. Any additional color you can give us there about the dynamics there, are you seeing any changes in the drop-off rate, for example?

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, CEO, President and Director [3]

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I will answer the persistency question. That has not changed at all. And for the dynamics, Jim will explain.

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James Patrick Kelly, Vanda Pharmaceuticals Inc. - CFO, EVP and Treasurer [4]

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Hey, certainly. We continued to add quarter-over-quarter. There were 2 pieces to the puzzle that resulted in, I'd call it some headwinds on the sequential growth front. One was the destocking in the U.S. that I mentioned and then the second one was the change in our German pricing. Now while our German revenue is not of a significant magnitude in its total, we only had July at our launch price. And then August and September were at a 30% discount to that price, which was also therefore at least a $100,000 or more impact on the quarter and on our run rate.

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Jason Nicholas Butler, JMP Securities LLC, Research Division - MD and Senior Research Analyst [5]

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Okay. Great. And then, for the patients -- the psychiatry patients. Can you just talk about the reimbursement dynamics there? Have you seen any pushback or any debate around the sighted versus blinded patients in terms of reimbursement approvals?

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, CEO, President and Director [6]

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Yes. So we did have experience before with sighted patients with Non-24 that have spontaneously come into the program. And what we've seen in the past is that payers block more scripts that come out of sighted Non-24 patients than blind. Of course, we do not agree with that attitude; but nonetheless, it is a fact. Now as we are looking at the significant volume of new patient prescriptions that have come in since the beginning of August, the percent of scripts filled within the first few weeks of treatment is generally comparable to what we have seen for sighted patients in the past. Now Jason, this exact activity that we are monitoring within Vanda of the fulfillment of scripts for sighted Non-24 patients, you can imagine it is an activity that has taken significant focus of the organization, as it has the highest potential of immediate patient growth. But just to add, however, that due to this HPI, and despite any headwinds with filling of prescriptions by payers, we are now growing significantly the base of patients with HETLIOZ. We are very early in this activity, but we have reasons to be very optimistic that this program will change the trajectory of the HETLIOZ business in the near future.

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Jason Nicholas Butler, JMP Securities LLC, Research Division - MD and Senior Research Analyst [7]

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Okay. Great. And then last question for me again on HPI. Have you thought about or do you have any plans to -- for clinical studies in sighted Non-24 patients in the psychiatric setting? Any thoughts on whether new data could enhance the commercial opportunity, either in terms of reimbursement or in terms of adoption?

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, CEO, President and Director [8]

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Yes. I would say adoption is where the initial focus will be. And we're actually quite pleased by the large response of the psychiatric target base where physicians identify these patients and initiate treatment. We want to support this program with additional data gathering. And most probably, that would be understanding better the epidemiologic nature and the comorbidity with other disorders.

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Operator [9]

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Our next question comes from Charles Duncan with Piper Jaffray.

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Charles Cliff Duncan, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [10]

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Yes. It was pretty hard to hear Mihael over the course of the call, but I think he mentioned that he felt that it was an exceptional quarter or year thus far. And I'm just kind of wondering if he could provide a little bit more color on that, because if you look Q-on-Q sequential versus year-on-year it really -- the optics are pretty strained or constrained a little bit. So I'm wondering, as you think about the HPI and its impact, you said in the near future, do you have any goals, like for the next 6 months or 12 months, how you think the HETLIOZ revenue or new patients and persistence can change over the course of the next year or so?

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, CEO, President and Director [11]

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Charles, this is Mihael. I hope the connection is a little better. I'll keep my answer short and pass it on to Jim Kelly. The characterization of exceptional is actually the very significant and quick response that we have seen from psychiatrists, identifying and willing to treat patients with Non-24. Unfortunately because we have only 3 months of data, and in fact only 1 month with the full sales force, it is hard to project. And the caution here is that it is very hard to see this very significant activity impact revenue immediately because there is a significant lag time from script to fill. And I would let Jim give you more color.

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James Patrick Kelly, Vanda Pharmaceuticals Inc. - CFO, EVP and Treasurer [12]

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Hey, certainly. Charles, you heard me mention that within the current quarter less than 3% of the dispensed -- the HETLIOZ units dispensed were to patients as a part of this initiative. However, beginning in mid-August, the number of new prescriptions that we're receiving through the HPI initiative became more than half of the total scripts coming in. And therefore, what we're witnessing is an exceptionally important new source of patient acquisition to drive growth. Our expectation is that our ability to find new patients and then convert them through reimbursement, and not just have them diagnosed but actually receive treatment, that number of new patients, month in and month out, will rise. The specifics of how much that's going to rise is going to be learned, I believe, in the coming months, as we get more experience with the full field force. And so that's why we're incredibly excited about this initiative. But also coming back to you very soon on exactly what we're seeing and how it's going to drive the trajectory of our business.

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Charles Cliff Duncan, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [13]

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Okay, that's helpful. Additional color in terms of the relative percentage of new scripts coming in through that initiative. If I could ask just a quick question on the pipeline and growth opportunities there. On HETLIOZ, you mentioned the jet lag disorder trial perhaps even yet this year, and then you also started a new 8-hour advance, simulated jet lag disorder. I'm just kind of wondering, if you consider those 2 studies, how are they really different or what really drove that new simulated jet lag study relative to the ongoing jet lag disorder? And what would you anticipate out of that jet lag disorder study yet to read out perhaps this year?

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, CEO, President and Director [14]

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Thank you very much, Charles, for this question. So just to rewind for a second, we have learned from 2 prior studies, study 2101 and 3101, that tasimelteon has basically regulatory properties in a simulated sleep lab 5-hour phase advance study, with significant improvement in relevant clinical parameters. Our efforts have been to supplement those trials with data from additional 5-hour and 8-hour flight, actual flights flying from the U.S. to Europe, to understand in actual travelers the effect of tasimelteon to suppress the symptoms of jet lag. The reason we added an 8-hour sleep lab study is that during the observational phase that leads into the flight study, we understood something very significant that despite every effort made to block confounders, and these are most probably homeostatic sleep drive, variable light conditions, in the actual flight, these confounders cannot be stopped. So what happens is that people that are screened in and have a significant impairment in a sleep laboratory phase advance study, when they travel that effect of disturbance is significantly smaller. So immediately that would suggest that flight -- actual flight studies would be very hard to detect the signal between drug and placebo, because if placebo and drug are confounded by the drive to sleep through unsatisfied homeostatic drive, then the primary analysis of difference between drug and placebo can be interpreted. Understanding that very early, we continued the flight study and we'll have 20-or-so patients complete the randomized portion. But we decided to supplement our file with an 8-hour study to give a fuller picture to the regulatory agencies of the effects of the drug for this disorder.

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Charles Cliff Duncan, Piper Jaffray Companies, Research Division - MD and Senior Research Analyst [15]

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Okay, that's helpful. It makes sense. Last question on tradipitant. The upcoming end of Phase II meeting with the agency, have you asked for that? And do you have a date? Is it roughly first half of the quarter coming up? And if not, are there any additional experimental results that you're looking forward to before you request that study or any other gating items before you request that meeting.

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, CEO, President and Director [16]

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Yes. We are in the process of requesting the meeting right now. We do not need any additional experimental data; however, we want to be very thoughtful as we approach now the development of an oral agent for atopic dermatitis. I cannot specify exactly when the course of this meeting is going to be. And actually, we typically refrain from giving those exact regulatory calendars. However, it is our commitment to get a common understanding with the FDA and proceed as soon as possible with a Phase III program.

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Operator [17]

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Our next question is from Matthew Andrews with Jefferies.

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Matthew J. Andrews, Jefferies LLC, Research Division - Equity Analyst [18]

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Mihael and Jim, can you give us some sense of what gives you confidence you're going to be able to grow Fanapt scripts. Obviously, they declined sequentially, maybe reaching a bottom here. What evidence have you seen in your analyses that suggests you can actually get it to growth either by the end of this year or perhaps early in '18?

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, CEO, President and Director [19]

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Well, Matthew, I'll quickly answer and let Jim give more color. Having forecasted growth in Q3, not having seen it. Actually, we're not very confident when this growth can happen. There are some telltale signs that may suggest internally that we're on the right track, but nothing to write home yet. But I will let Jim talk about it.

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James Patrick Kelly, Vanda Pharmaceuticals Inc. - CFO, EVP and Treasurer [20]

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Yes, Mihael. What we're seeing is, as you look at the quarter-over-quarter growth profile of our territories, we see the following, and this is looking back over 8 quarters. As we put more resources on Fanapt, we see that more and more territories grow than not. And as we looked at the last few quarters, the number of territories that decline greater than 5% continued to shrink. And therefore, this is what is happening on a more granular level beneath what you're seeing, Matthew, on a national level, which is a slowing of the decline and what appears now to be approaching really a stabilization point. Although, this quarter we saw just under 2% sequential decline. So as we look at, for example, 90% of our territories, we see growth there. However, when we layer on the bottom, for example, 10%, it takes us to a decline. And that puts us in the position to continue to try to turn those tough territories, in addition to doing the right things in our existing growth territories, to drive the business. Now that said, I'm going to echo Mihael's prior comment. If we came into this year saying we had the conviction that we could predict the timing of when this could happen, we were unable to do so. We thought it would happen in the third and fourth quarter. So while we continue to believe there are tactics to grow this business, I think we've got to take a wait-and-see approach here and come back to you when we see the tangible evidence that we can turn this corner and fully return Fanapt to growth.

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Matthew J. Andrews, Jefferies LLC, Research Division - Equity Analyst [21]

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Interestingly, you didn't discuss life cycle management for Fanapt with the oral program, or many comments on the subQ formulation. Is that tied in with the guidance now where you're spending $12 million to $15 million less on the operating expense side? What are you foregoing, at least temporarily, with that reduction in spending of $12 million to $15 million?

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, CEO, President and Director [22]

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Jim, would you like to answer those?

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James Patrick Kelly, Vanda Pharmaceuticals Inc. - CFO, EVP and Treasurer [23]

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Yes. So good question. The Fanapt life cycle management was not a part of the 2017 guidance; and therefore, underspend was in other parts, well, really across the business both in R&D and SG&A.

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Matthew J. Andrews, Jefferies LLC, Research Division - Equity Analyst [24]

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Transitioning over to tradipitant, what was the feedback coming out of the itch meeting in Poland a few weeks ago as it relates to the data set from meetings with clinical advisers and key opinion leaders?

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, CEO, President and Director [25]

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Well, it's hard to quantify this. But yes, it's hard to quantify. However, there is a significant excitement on the potential of an oral safe agent that could be available to treat the significant effects of pruritus, but also treat the underlying disorder atopic dermatitis. Of course, these are not Phase III study results, and clinicians typically get more excited with more patients, more numbers. But I would say, there is significant interest today in the mechanism of action of this compound and the robustness of the results in this rather small atopic dermatitis study.

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Matthew J. Andrews, Jefferies LLC, Research Division - Equity Analyst [26]

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And then just lastly on your thoughts on the Phase III program. Is there anything which you can share with us at this time, thoughts on around what the primary endpoint may be, actual length of the study, size and any details on the patient population you target. Or would those be items that really have to be finalized with the FDA?

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, CEO, President and Director [27]

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Matthew, I think, a better time to discuss these items to be more concrete would be after we have concluded what we want to do and also have concluded discussions with the FDA, what does the FDA want to see. But do expect us that we'll design the program that can answer prospectively both questions. Does the drug improve pruritus in patients with atopic dermatitis? And does the drug show effect in the underlying severity of disease? So both endpoints would be heavily considered.

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Operator [28]

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We have no further questions at this time. I will now turn the call back over to Vanda's President and CEO, Dr. Polymeropoulos.

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, CEO, President and Director [29]

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Thank you very much for joining us for the third quarter of 2017 call, and we look forward talking to you in the near future. Thank you.

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Operator [30]

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Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.