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Edited Transcript of VNDA earnings conference call or presentation 7-Nov-18 9:30pm GMT

Q3 2018 Vanda Pharmaceuticals Inc Earnings Call

ROCKVILLE Nov 8, 2018 (Thomson StreetEvents) -- Edited Transcript of Vanda Pharmaceuticals Inc earnings conference call or presentation Wednesday, November 7, 2018 at 9:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Gunther Birznieks

Vanda Pharmaceuticals Inc. - SVP of Business Development

* James Patrick Kelly

Vanda Pharmaceuticals Inc. - Executive VP, CFO, Treasurer & Secretary

* Mihael H. Polymeropoulos

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

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Conference Call Participants

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* Derek Christian Archila

Stifel, Nicolaus & Company, Incorporated, Research Division - Director & Senior Biotechnology Analyst

* Esther P. Rajavelu

Oppenheimer & Co. Inc., Research Division - Executive Director & Senior Analyst

* Jason Nicholas Butler

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

* Pete George Stavropoulos

Cantor Fitzgerald & Co., Research Division - Associate Analyst

* Shawn Michael Egan

Citigroup Inc, Research Division - Senior Associate

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Presentation

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Operator [1]

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Hello, and welcome to the Third Quarter 2018 Vanda Pharmaceuticals Inc. Earnings Teleconference. My name is Michelle, and I will be your operator for today's call. (Operator Instructions) Please note that today's conference is being recorded.

I will now turn the call over to Mr. Jim Kelly, Executive Vice President and Chief Financial Officer. Sir, you may begin.

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James Patrick Kelly, Vanda Pharmaceuticals Inc. - Executive VP, CFO, Treasurer & Secretary [2]

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Great. Thank you, Michelle. Good afternoon, and thank you for joining us to discuss Vanda Pharmaceuticals' third quarter 2018 performance. Our third quarter 2018 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. Mihaeles Polymeropoulos, our President and CEO. Following my introductory remarks, Mihaeles 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'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 Operations sections of our annual report on Form 10-K for the fiscal year ended December 31, 2017, and on quarterly report on Form 10-Q for the quarter ended June 30, 2018, 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 like to now turn the call over to our CEO, Dr. Mihaeles Polymeropoulos.

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

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Thank you, Jim. Good afternoon. This quarter marks more than 4 years since the launch of HETLIOZ for Non-24 hours sleep-wake disorder. At this time, we have identified more than 20,000 patients with Non-24, one of the rarest circadian rhythm disorders. Our innovative approach to commercialize HETLIOZ in Non-24 continues to drive significant revenue growth, achieving a 34% year-over-year growth this quarter. We continued building on our success and have now submitted a supplemental New Drug Application to the FDA in order to market tasimelteon for Jet Lag Disorder.

In Smith-Magenis Syndrome, SMS, we have completed enrollment of the study and plan to have top line results by end of the year. At the same time, we are now initiating investigations into delayed sleep phase disorder, one of the most common circadian rhythm sleep disorders affecting about 0.5% of the population or more than 1 million people.

Now on Fanapt. With the conviction on the exclusivity of Fanapt through 2027, we're initiating 2 significant clinical programs. We are currently designing and will soon announce a study in bipolar disorder, in mania and mixed episodes, beginning next year. We have also initiated pharmacokinetic studies for our once-a-month injectable formulation of iloperidone, and we plan to begin efficacy studies for this type of formulation next year. We believe that the proposed indications of bipolar disorder and the further development of the once-a-month injectable formulation can significantly increase the commercial opportunity around our antipsychotic asset.

Tradipitant, the most exciting clinical milestone for Vanda, is coming up in the next few weeks. And it will come from the top line results of our first Phase II study of tradipitant in gastroparesis. Gastroparesis is a common and poorly treated disorder with a significant unmet medical need affecting about 6 million people in the U.S. alone. Our Phase II study, of which we'll report the results next month, is a 150-patient, 2-arm, double-blind tradipitant versus placebo 85-milligram twice a day of tradipitant to evaluate the ability of the drug to improve symptoms of gastroparesis over a period of 4 weeks. The design of the study includes 4 weeks of screening, followed by a 4-week double-blind period. The primary end point would be improvement in the symptom of nausea as measured by patient reported outcomes with daily diaries. Our conviction around the efficacy of tradipitant to improve symptoms of gastroparesis stems from its hypothesized dual mechanism of action in targeting NK1 receptors in areas of the brain responsible for nausea and vomiting as well as NK1 receptors in the stomach responsible for gastric acid.

The most commonly used agent today for gastroparesis is Metoclopramide which, however, has limited efficacy and significant safety concerns. More than 300,000 patients are being prescribed Metoclopramide every month, suggesting 2 things: first, that a large number of patients are seeking and receiving treatment; and second, an even larger number of patients remain untreated. We expect to report results of our Phase II study sometime in December of this year. In the meantime, we are working on the design of open-label studies in the Phase III efficacy program.

On atopic dermatitis. Briefly, the large 500-patient EPIONE Phase III study of tradipitant in atopic dermatitis is currently recruiting patients. We have not communicated the expected completion of this study as we continue to understand the most efficient ways to improve recruitment.

While we continue to be excited in pursuing the additional assets in our development pipeline, including our Trichostatin A program and our early CFTR program, we are focused and excited in the expectation of the results for our gastroparesis and SMS programs next month.

Jim will review in detail our financial results, but I want to repeat and specifically highlight the important accomplishment of this organization in achieving a 34% year-over-year growth of our HETLIOZ revenue 4 years since the launch of the asset in the U.S. market.

Finally, I want to briefly address a regulatory matter. We recently reported the receipt of a warning letter from the FDA relating to a page of our corporate website. While we do not agree with either of the agency's conclusion or the agency's action, we have temporarily removed the material in question, and we're seeking to resolve this issue with the agency.

With that, I will now turn the call over to Jim to discuss our third quarter financial results.

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James Patrick Kelly, Vanda Pharmaceuticals Inc. - Executive VP, CFO, Treasurer & Secretary [4]

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Thank you, Mihaeles. Before I review our third quarter 2018 financial results, I'll remind listeners to refer to our third quarter press release issued this afternoon. On today's call, we will be discussing non-GAAP financial information. The press release we issued this afternoon includes a description of these non-GAAP metrics, why we believe they provide additional insights into the financial aspects of our business and a full reconciliation of GAAP to non-GAAP financial information.

In the third quarter of 2018, our strong financial performance was the result of a combination of continued revenue growth and expense control. Total revenue for the third quarter of 2018 was $49.1 million, a 19% increase, compared to $41.3 million in the third quarter of 2017. HETLIOZ net product sales grew to $29.9 million in the third quarter of 2018, a 34% increase, compared to $22.3 million in the third quarter of 2017. The year-over-year growth seen for HETLIOZ reflects the strongest performance in 2 years. HETLIOZ patients on therapy continues to grow quarter-over-quarter, with monthly new patient growth rates consistent with our full year 2018 financial guidance.

As of September 30, 2018, 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 third quarter of 2018 was slightly higher when compared to the second quarter of 2018.

Fanapt net product sales of $19.2 million in the third quarter of 2018 reflects a less than 1% increase compared to $19.1 million in the third quarter of 2017. Wholesalers inventory on hand at the end of the third quarter of 2018 was down slightly when compared to the second quarter of 2018. Fanapt's prescriptions, as reported by IQVIA exponent, were 27,216 in the third quarter of 2018, a 2% decrease compared to the third quarter of 2017. Prescription trends remain consistent with our full year 2018 financial guidance.

On a non-GAAP basis for the third quarter of 2018, Vanda recorded non-GAAP net income of $10.4 million as compared to non-GAAP net loss of $1.3 million in the third quarter of 2017. The third quarter 2018 results reflect the fourth consecutive quarter of growing non-GAAP net income and a year-to-date non-GAAP net income of $24.7 million. Vanda's non-GAAP operating expenses have been fairly stable over the past 7 quarters, ranging from $33 million to $39 million a quarter, while Vanda has continued to grow its top line revenue over that period. For the third quarter of 2018, Vanda recorded non-GAAP operating expenses of $34.6 million compared to $38.5 million in the third quarter of 2017.

In the third quarter of 2018, we saw an increase of $1.5 million in non-GAAP R&D expense as compared to the second quarter of 2018. This increase was associated with EPIONE, the Phase III clinical study of tradipitant in atopic dermatitis, that was initiated in June 2018 and other clinical development activities. We expect non-GAAP operating expenses to continue to rise in the fourth quarter of 2018, driven by both R&D and commercial activities.

Vanda's cash, cash equivalents and marketable securities, referred to as cash, as of September 30, 2018, were $240.6 million, representing an increase of $9.4 million during the third quarter of 2018.

On to financial guidance. Vanda reiterates its prior 2018 net product sales guidance and provides update to non-GAAP operating expenses and tangible asset amortization and year-end 2018 cash guidance and expects to achieve the following financial objectives in 2018: net product sales from both HETLIOZ and Fanapt of between $180 million and $200 million; HETLIOZ net product sales of between $108 million and $118 million; Fanapt net product sales of between $72 million and $82 million; non-GAAP operating expenses, excluding cost of goods sold, of between $140 million and $150 million, this compares to prior guidance of between $153 million and $163 million. Non-GAAP operating expenses excludes intangible amortization expense of $1.5 million as compared to prior guidance of $1.7 million; and stock-based compensation of between $11 million and $15 million. Year-end 2018 cash is expected to be between $240 million and $250 million as compared to prior guidance of between $225 million and $235 million.

So I'll now turn the call back to Mihaeles.

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

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Thank you, Jim. At this time, we would love to answer any questions you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question in the queue 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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First one on HETLIOZ, can you give us any more color into the dynamics, commercial dynamics, in the quarter? For example, is growth being driven more by a higher rate of patient adds or a lower rate of discontinuations or both? Are you seeing greater growth in the psychiatry efforts versus the plantations? And then just if you could give us a sense today of where you stand, what proportion of the revenue is in the blind versus the psychiatry setting?

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

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Thank you, Jason. I'll pass this question on to Jim. And we can characterize, without getting in too much detail, a couple of significant things, that patient growth continues. In how does that compare to expectations and also try to give you a little color on the HPI versus the PDP side of the business, Jim?

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James Patrick Kelly, Vanda Pharmaceuticals Inc. - Executive VP, CFO, Treasurer & Secretary [4]

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Yes, certainly. Jason, the -- what we're seeing, both in the third quarter and year-to-date, and that I find very impressive is contributions from both our core blind or, as we call it, PDP business for HETLIOZ, plus on new patient scripts and new patient starts from HPI. Without question, the HPI, now that we are a full year into it, has been incredibly successful and has driven significant growth this year. It is fair to say we receive more scripts for HPI than we do for our PDP business, but I would not want to lead you to believe that it is the sole contributor here. Our core business, PDP, is very strong. One of the things that I found most impressive about this quarter, Q3, is that if you think back about prior years, Q3 has been a tough quarter for us. And we were very impressed with our ability to maintain our momentum through the third quarter, which can be a quiet time just based on vacations and other.

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

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And just to characterize HPI further. HPI now is a year old, the program, and what is impressive is the significant, continuous new demand, new scripts written by psychiatrists in the HPI initiative. While Jim is correct that the PDP part of the business, which is mostly blind individuals, these are people we have opted into the database, continues to be a big driver and source. However, in new demand, and that is -- the definition of demand here is new scripts written, HPI continues to significantly outstrip the demand of PDP. So with that, one would have expected to actually saw even bigger growth than the 34%, which is nonetheless impressive. So why we have not seen even bigger growth? The HPI business, as we characterized before, has created a demand 2 to 3x higher than the PDP. However, the resistance by insurers on filling out the scripts, although it is the only indication and there is no other drug available for these patients, continues to be strong. We're working with our patients, we're working with the doctors to impress upon these insurers that this drug is necessary. We're making a lot of progress. But if we were to match the demand generated with fill, of course, these numbers would have been much, much bigger.

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Jason Nicholas Butler, JMP Securities LLC, Research Division - MD and Senior Research Analyst [6]

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Okay. That's great. Two more questions. First, can you, just on tradipitant, give us a sense of how the patient population you've enrolled into this gastroparesis study compares to the EMEND trial, the APRON trial?

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [7]

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Yes. Actually, we are joined also here by Gunther Birznieks who is in charge of the development program and can give you a little color. But the high level is that, in our trial, we have enrolled both patients with idiopathic gastroparesis and diabetic gastroparesis. I'll turn now to Gunther for the comparison with EMEND.

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Gunther Birznieks, Vanda Pharmaceuticals Inc. - SVP of Business Development [8]

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Yes, absolutely. Thank you, Mihaeles. So we're -- in the -- in our study, we -- as with the EMEND study, we are -- we recruit, as Mihaeles mentioned, the similar mix of idiopathic and diabetic gastroparesis patients. In terms of some differences, which we feel are improvements of finding a signal in a study of gastroparesis, we explicitly recruited patients who had an objective diagnosis of gastroparesis. So the EMEND study had a mixed population of individuals who not only had gastroparesis as diagnosed by scintigraphy but also those who had suspected gastroparesis as some percentage of the population. For our study, we only recruited patients who had demonstrated delayed emptying either via a scintigraphy gastric, otherwise known as a gastric emptying study, and -- or a breath test.

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Jason Nicholas Butler, JMP Securities LLC, Research Division - MD and Senior Research Analyst [9]

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Okay, great. And then just my last question, Mihaeles, wondering if you could give us any insights into what has driven this decision now to move into bipolar disorder with Fanapt. I know this is something that you've talked about a number of times since you clarified the IP durability a little over a year ago. But is there anything you're seeing in terms of the marketplace or progress with the LAI, for example, but -- that is triggering the decision -- the go decision today?

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [10]

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Yes. The go decision is that now we have not only more than a year past the District Court decision but we have clarity on the Court of Appeals. So the only step that is left for our generic contender is to petition the Supreme Court of the United States. And I'm pretty sure they will do that. But we also recognize that Fanapt can potentially have a place in the psychiatry armamentarium beyond the already approved indication of schizophrenia. So the fact that we have a once-a-month injectable formulation is actually exceptional in that not all antipsychotics can develop once-a-month injectables. A great example of that is the very useful drug of AstraZeneca, Seroquel, quetiapine, now generic. A great product that has helped a lot of patients in different indications. It cannot be formulated as a once-a-month injectable. So we are pursuing that. And the goal for the bipolar is actually driven by the further conviction that we have exclusivity, we can make these investments. And also, our hypothesis that Fanapt should successfully treat patients with manic and mixed episodes.

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Operator [11]

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The next question in the queue comes from Joel Beatty with Citi.

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Shawn Michael Egan, Citigroup Inc, Research Division - Senior Associate [12]

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This is Shawn calling in for Joel. My first question is regarding tradipitant. How will the Phase II study results roll out? How do you define success? And if positive, what could the pivotal study look like in your view?

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [13]

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Yes. Thank you. First of all, on the timing, as we said, it's going to be next month. The primary end point of the study is change from baseline and the contrast with placebo on the measure of nausea as measured on patients' sleep diaries. We have not defined a cutoff criterion of what constitutes clinically meaningful. But of course, this is a Phase II study. The most important is to see, number one, whether the drug improves nausea; whether it affects any other of the secondary symptoms in gastroparesis and clearly learn what is that effect size. And again, this being a Phase II study, we will learn quite a few things the first time with these patients with gastroparesis that can further define what the Phase III program can look like. We have discussed before that one of the designs we are thinking about in the Phase III program is actually a randomized withdrawal study where we stabilize patients with gastroparesis on tradipitant and then create a randomized withdrawal period and measuring percent of patients relapsing and time to relapse. But of course, we're going to learn much more once we unblind this study both, to answer your question of the size of the effect, the percent of patients responding to the primary endpoint of nausea but also, as I said, the secondary end points.

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Shawn Michael Egan, Citigroup Inc, Research Division - Senior Associate [14]

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Great. And then just briefly as a follow-up for HETLIOZ indication, with potentially 2 new indications on the horizon, Smith-Magenis Syndrome and jet lag, can you provide some color on commercial strategy, launch expectations and any color on your -- that which you feel providing?

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [15]

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Yes. So I would say for Smith-Magenis Syndrome, it's a little premature given the fact that we will, for the first time, see the results in December. However, that -- the preliminary launch strategy on SMS is actually a more classic orphan indication strategy where you begin with the advocacy organization. In this case, it's a wonderful organization, PRISMS, that represents quite a few of the families. And they have worked diligently with us over the years to identify new patients. So that's the more classic model of commercializing in an orphan indication and alongside some diagnostic centers that eventually these patients get their DNA diagnosis, one of them being Baylor College. On jet lag, we believe we have a very exciting launch plan that we are working vigorously in anticipation of an approval later next year. We are not going to be saying today that plan, and we'll have to wait for a later point.

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Operator [16]

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The next question in the queue comes from Esther Rajavelu from Oppenheimer.

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Esther P. Rajavelu, Oppenheimer & Co. Inc., Research Division - Executive Director & Senior Analyst [17]

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First, can you talk about the R&D expense in the quarter? They are lower than what we would have expected given the ongoing clinical trials, so maybe if you can talk about what the trends were and where you spent the money, that'd be helpful.

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [18]

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Jim?

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James Patrick Kelly, Vanda Pharmaceuticals Inc. - Executive VP, CFO, Treasurer & Secretary [19]

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Esther, thanks for asking. And what you saw in the quarter was a sequential uptick in R&D. It's up about $1.5 million from $9 million or so to about $11 million. And so what your -- the underlying trends for those include completing the full enrollment of gastroparesis with tradipitant, plus the beginning of the Phase III program also for gastroparesis. So that's what's driving the uptick. Now with that said, there's been some other expenses that have rolled off. Jet lag, earlier in the year, we had some activities there. And so you see sort of some projects ending, new projects coming online. And it's our expectation that as we continue to head down the path of enrolling more and more patients in the atopic dermatitis study, that you will see a continued increase in R&D in coming quarters as we execute that study.

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Esther P. Rajavelu, Oppenheimer & Co. Inc., Research Division - Executive Director & Senior Analyst [20]

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Got it. And then following up on your comment regarding access for HETLIOZ patients who are not blinded, what steps are you taking to increase access? And is pricing a consideration in these discussions with payers?

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [21]

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No, actually we're not having any conversations with payers, and price is not a point of consideration. We need to recognize that Vanda has priced the drug appropriately. There are many insurance organizations that gladly provide the drug for those that suffer from Non-24. However, as you can imagine, not everybody behaves the same way. The objections by insurance companies is not that the price is high, some of the objections are not very logical. For example, we have seen objections by insurance companies where they deny patients with Non-24 the drug for the following reasons, and I quote, "You have been properly diagnosed with Non-24. HETLIOZ is a drug for Non-24. You have Non-24 and, therefore, we deny you coverage." I know it sounds silly, yes. But this is exactly what patients are suffering through. Unfortunately, very few people know the reality of how insurance companies behave. But as I said, we work diligently with the patients and doctors to overcome these objections and allow patients to get access to the drug.

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Esther P. Rajavelu, Oppenheimer & Co. Inc., Research Division - Executive Director & Senior Analyst [22]

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So I'd be curious to know who the insurance company is, but I am sure you won't disclose that, but...

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [23]

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And of course, I'm not going to tell you. And they're more than one, more than one. There are some bad actors, there are some great actors. But hopefully, some logical people within these organizations eventually will prevail.

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Esther P. Rajavelu, Oppenheimer & Co. Inc., Research Division - Executive Director & Senior Analyst [24]

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So -- but in terms of increasing access or working with patients and prescribers, do you anticipate that you can actually increase access without compromising on price?

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

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Absolutely, absolutely. We're making a continuous progress. And the very important thing is for our patients and patients on any drug to remember that on this one, the lawmakers I think have gotten it right. People do not know necessarily their rights that even as soon as you know, you have a right to appeal, you have a right to an external appeal, you have the right to go to an administrative law judge. And if you do this and if you need the drug and the drug is good for you, or at least to try, you will get the insurance to cover the drug. Unfortunately, with all these hurdles the insurance provide, some of the patients, they get discouraged just because they don't know. But more and more of our patients and doctors are actually doing the drug, and those that do, succeed.

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Esther P. Rajavelu, Oppenheimer & Co. Inc., Research Division - Executive Director & Senior Analyst [26]

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Got it. And then lastly, on gastroparesis, have you seen any preliminary data on the Phase II study? Or is management completely blinded to the data yet?

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

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The unblinding of this study will be at the conclusion in December. So we cannot really give any insights. We all hope that it's going to be a good study, and we'll learn a lot.

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Operator [28]

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The next question in the queue comes from Derek Archila with Stifel.

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Derek Christian Archila, Stifel, Nicolaus & Company, Incorporated, Research Division - Director & Senior Biotechnology Analyst [29]

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I just have one, and I'm sorry if -- sorry, I just have one. So I guess, can you guys give some color on N24 and then the rates filled of different -- I guess, different patient groups there? And that's it.

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James Patrick Kelly, Vanda Pharmaceuticals Inc. - Executive VP, CFO, Treasurer & Secretary [30]

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Hey, I'll take that one. This is a question that we've gotten from time to time, which is when you think about the PDP or blind patients as compared to the sighted patients with psychiatric comorbidities who develop Non-24, what might their differences look like whether it's fill rates or whether it's persistency or even, at the very front of the funnel, the intakes. What you -- and I'll kind of be happy to walk you through each of the pieces. At the top of the funnel, you heard Mihaeles mentioned earlier, that intakes for sighted patients with Non-24 are orders of magnitude higher month in and month out than for our traditional PDP business. However, reimbursement is continuing to be a struggle with that crowd. That said, we've seen very meaningful contributions from both parts of our business to our month in, month out new patient starts. When you look at the persistency rates, what we've seen is, after adequate trial, we've been impressed with the sighted -- the ability of sighted patients to benefit from HETLIOZ. It's slightly lower than the blind patients in our study but still very, very good.

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [31]

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Just to clarify when Jim says the percent of people to benefit, in fact, we're using the surrogate of what percent of people continue to refill there.

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James Patrick Kelly, Vanda Pharmaceuticals Inc. - Executive VP, CFO, Treasurer & Secretary [32]

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That's right. Yes, that's exactly right because there's no reason to believe that one group should benefit more or different than the other. And one of the reasons why that and then subsequent persistency becomes so important is that -- what we found is that for these patients that remain persistent on HETLIOZ, whether they're sighted or blind, they show a very high, high loyalty. And that's critical because these are the foundational patients from which we will continue to grow our business.

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Operator [33]

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And the last question in the queue comes from Charles Duncan with Cantor Fitzgerald.

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Pete George Stavropoulos, Cantor Fitzgerald & Co., Research Division - Associate Analyst [34]

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This is Pete Stavropoulos on for Charles. I've got 1 question about gastroparesis. What would you expect the next steps to be? And any specific patient population that you may choose to focus in on?

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [35]

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Yes. Thank you, Pete. So the -- what we are preparing now, we're preparing for success, which means we're optimizing our ongoing open-label study, and we are in the final steps of designing a Phase III program. And as I discussed before, this program will likely include a randomized withdrawal type of design. In terms of patients to focus, as Gunther explained earlier, we have enrolled both patients with idiopathic gastroparesis and diabetic gastroparesis. We have no reason to expect that one group will behave differently than the other, but we'll have to wait and see the results. And just to remind the audience that I mentioned earlier that gastroparesis today, the approved drug is Metoclopramide. Unfortunately, the label suggests it can only be used for 3 months because of potential significant side effects of extrapyramidal symptoms. And that indication is for diabetic gastroparesis patients. Of course, idiopathic are using the off-label. But it is our hope not only that tradipitant will be effective but it can be effective regardless of the causality of gastroparesis, but we'll have to wait and see.

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Pete George Stavropoulos, Cantor Fitzgerald & Co., Research Division - Associate Analyst [36]

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And a question for HETLIOZ. So you had a study where it showed that did not cause driving impairment. Is there any way you can exploit this to sort of uniquely position HETLIOZ in additional indications?

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [37]

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Yes. Thank you. So of course, that was a positive surprise for us. Just to remind the rest of our audience here that in the course of submitting the sNDA for Jet Lag Disorder to the FDA, one of the requirements is to conduct a driving performance study. And that is required for any drug that is being given to treat any symptoms of sleep. So patients are taking the drug before bedtime, and then 9 months -- 9 hours later, are doing a controlled driving simulator study to measure performance. These studies also have a control, and the control is zopiclone. Zopiclone is racemic mixture. And in the U.S., we're more familiar with zopiclone as Lunesta. That is used as a positive control because zopiclone is known to have a significant impact on driving performance. The positive surprise here was that tasimelteon did not impair next day's driving performance on a number of measures that have been predetermined. So we are actually -- we'll be proposing to include this information on our label. And that is not specific, of course, to jet lag, but any indication that tasimelteon is syndicated. And we believe that is of extreme significance for the patients who take it. As to our knowledge, there is no other sleep aid or sleep-promoting drug available today that does not impair driving performance next day. So we think it is a very, very important feature of tasimelteon. But of course, this data have been submitted now to the FDA for review.

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Operator [38]

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And as that was our last question, I will now turn the call back over to our CEO, Dr. Mihaeles Polymeropoulos. Sir?

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Mihael H. Polymeropoulos, Vanda Pharmaceuticals Inc. - Founder, President, CEO & Director [39]

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Thank you very much for your questions and your attention. And I am sure we will be talking again next month with the results on the 2 studies, SMS and gastroparesis. Thank you very much.

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Operator [40]

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