Q2 2023 Vanda Pharmaceuticals Inc Earnings Call
Participants
Kevin Patrick Moran; Senior VP, CFO & Treasurer; Vanda Pharmaceuticals Inc.
Mihael H. Polymeropoulos; Founder, President, CEO & Chairman of The Board; Vanda Pharmaceuticals Inc.
Timothy Williams; Senior VP, General Counsel & Secretary; Vanda Pharmaceuticals Inc.
Lin Tsai; Equity Analyst; Jefferies LLC, Research Division
Presentation
Operator
Good afternoon. My name is Audra, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q2 2023 Vanda Pharmaceuticals Inc. Earnings Call. (Operator Instructions) At this time, I would like to turn the conference over to Kevin Moran, Vanda's Chief Financial Officer. Please go ahead.
Kevin Patrick Moran
Thanks, Audra. Good afternoon, and thank you for joining us to discuss Vanda Pharmaceuticals' second quarter 2023 performance. Our second quarter 2023 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. Mihales Polymeropoulos, our President, Chief Executive Officer and Chairman of the Board; and Tim Williams, our General Counsel. Following introductory remarks, Mihales will update you on our ongoing activities. I will then 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 and assumptions that involve risks, changes in circumstances and uncertainties. These risks are described in the cautionary note regarding forward-looking statements, risk factors and Management's Discussion and Analysis of Financial Condition and Results of Operations, sections of our most recent annual report on Form 10-K as updated by our subsequent quarterly reports on Form 10-Q, current reports on Form 8-K and other filings with the SEC, which are available on the SEC's EDGAR system and on our website.
We encourage all investors to read these reports and our other 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. Mihales Polymeropoulos.
Mihael H. Polymeropoulos
Thank you very much, Kevin, and good afternoon, everyone. Thank you for joining us to discuss Vanda's Second Quarter 2023 results. I will first discuss key highlights from our commercial products and clinical pipeline and then I will ask our General Counsel, Tim Williams, to provide a brief update on litigation matters before turning the call over to Kevin Moran to discuss our commercial products and financial results.
Taking into account the challenging environment due to the at-risk launch of generic tasimelteon, we have had a strong first half of the year. Over the last several months, we have taken a number of steps to position the business for continued success, including the realization of our sales force that will support our current commercial products as well as the potential near-term expansion of the Fanapt franchise if we receive FDA approval for bipolar 1 disorder.
Let's begin with our results for HETLIOZ. Despite the at-risk launch of generic tasimelteon, our team delivered solid performance and continues to work tirelessly to support patients on therapy and prescribers. During the second quarter, we recorded a greater number of HETLIOZ expenses done in the first quarter. Turning to Fanapt. We are focused on driving growth in the currently approved indication of schizophrenia and ensuring Fanapt is well positioned to capitalize on the bipolar market with significantly larger than the schizophrenia market if approved.
This quarter, we recognized slight year-over-year growth for Fanapt in schizophrenia that we will look to build upon as we put into place initiatives intended to drive brand recognition among providers and patients. Building on the previous strong clinical trial results for bipolar disorder, we continue to pursue FDA approval for Fanapt in this indication.
For HETLIOZ, we also continue to pursue FDA approval for in summary. We believe that HETLIOZ for insomnia could present a meaningful commercial opportunity and provide an exciting therapeutic option for this. We're also pursuing FDA approval for Tradipitant in patients with gastroparesis. In support of our new drug application, for [Tradipitant], we will be submitting to the FDA, results of 3 clinical studies that we believe demonstrate substantial evidence (inaudible) Tradipitant in this indication as well as the safety data base to support the tolerability returns.
The expanded access program is ongoing with multiple patients have been treated for at least 6 months and the longest period of patient for more than 2 years. In May, we announced positive results from the Phase III study for Tradipitant in the treatment of motion sickness. We are currently conducting additional studies and plan to apply for marketing approval after the completion of the clinical product. In addition to these late-stage programs, we also announced that the FDA granted orphan drug designation for granted for VCA-894A, our antisense oligonucleotide therapeutics for the treatment of Charcot-Marie-Tooth disease, axonal, type 2S caused by cryptic splice variants with the IGHMBP2. CMT is a rare sub-type of Charcot-Marie-Tooth disease that (inaudible) for which there is no available treatment.
At this point, I will ask Tim Williams from General Counsel, to provide a brief update on litigation matters. Tim?
Timothy Williams
Thank you, Mihales. I'll start with our intellectual property and related litigation. As previously disclosed, we appealed the negative decision in our HETLIOZ' ANDA litigation to the Court of Appeals for the Federal Circuit. Back in May, the Federal Circuit panel affirmed the lower court ruling, and we then petitioned the full Federal Circuit Court to rehear the case. Earlier this month, the Federal Circuit requested that Teva and Apotex respond to our petition for rehearing by this Tuesday, August 1.
Separately, we have an additional patent infringement lawsuit pending in Delaware against Teva and Apotex regarding a method of treatment patent for HETLIOZ that was not litigated in the prior case. And finally, we have a pending lawsuit against Teva in New Jersey for violations of the (inaudible) related to Teva's at-risk launch of its generic version of HETLIOZ.
We intend to vigorously pursue our interest in each of these matters. I'll turn now to some of our recent regulatory challenges related to generic product approvals. We continue to challenge the FDA for its approval of generic tasimelteon without braille labeling. We filed suit in Federal Court challenging FDA's approval of Teva's generic tasimelteon, and we filed citizens petitions challenging FDA's approval of both Teva and Apotex's generic tasimelteon, both of which were approved by the FDA without braille labeling.
The FDA responded to these citizens petitions earlier this week rejecting our arguments. We continue to believe that FDA's approvals are improper under law and we intend to continue vigorously pursuing these matters, including our pending litigation. Separately, we continue to challenge other FDA actions undertaken during the review of generic applications. We filed 2 citizens petitions challenging FDA's approval of Teva and ANDA's (inaudible) generic tasimelteon with what we believe to be inadequate bioequivalence testing.
We have not yet received a response from the FDA on these petitions. And last, we filed a lawsuit in the court of federal claims seeking economic damages based on what we believe was FDA's unlawful disclosure of our confidential information and trade secrets to generic ANDA filers during the FDA's review of applications for the generic versions of both HETLIOZ and Fanapt. More detail on this and our other pending litigation matters can be found in our periodic filings and on public docketing systems.
With that, Mihales, I'll turn it back to you .
Mihael H. Polymeropoulos
Thank you very much, Tim. I will now turn the call to Kevin Moran to discuss our commercial progress and financial results. Kevin?
Kevin Patrick Moran
Thank you, Mihales. I'll begin by summarizing our financial results for the first 6 months of 2023 before turning to discuss the second quarter of 2023. Total revenues for the first 6 months of 2023 were $108.6 million, a 13% decrease compared to $124.6 million for the same period in 2022. HETLIOZ net product sales were $61.6 million for the first 6 months of 2023 and saw a 21% decrease compared to $78.2 million for the same period in 2022.
The at-risk launch of a generic version of HETLIOZ had a significant impact on HETLIOZ performance during the first 6 months of 2023. The decrease to net product sales was attributable to a decrease in price net of deductions partially offset by an increase in volume. Our HETLIOZ net product sales for the first quarter of 2023 reflected higher unit sales as compared to recent prior periods and resulted in a significant increase of inventory stocking at specialty pharmacy customers at the end of both the first quarter of 2023 and the second quarter of 2023.
Turning now to Fanapt. Fanapt net product sales of $47 million for the first 6 months of 2023 reflect a 1% increase compared to [$46.1] million for the same period in 2022. For the first 6 months of 2023, Vanda recorded net income of $4.8 million compared to a net loss of $3.9 million for the same period in 2022. Net income for the first 6 months of 2023 included an income tax provision of $3.3 million as compared to an income tax provision of $0.1 million for the same period in 2022.
Operating expenses for the first 6 months of 2023 were $109.4 million compared to $128.8 million for the first 6 months of 2022. The $19.4 million decrease was primarily driven by lower R&D expenses, lower SG&A expenses and lower cost of goods sold. The decrease in R&D expenses was primarily driven by decreases related to our late-stage clinical program for Fanapt and our VQW-765 development program, partially offset by increases related to our trading activities and our early-stage ASO program.
The decrease in SG&A expenses was primarily driven by lower expenses associated with marketing, sales and commercial support activities for our commercial products. The lower cost of goods sold is due to lower HETLIOZ net product sales and the decrease in the royalty rate owed to BMS on HETLIOZ net product sales from 10% to 5% effective in December 2022. Vanda's cash, cash equivalents and marketable securities, referred to as cash, as of June 30, 2023, was $489.4 million, representing an increase of $48.5 million to cash compared to June 30, 2022, and an increase of $22.5 million compared to December 31, 2022.
Turning now to our quarterly results. Total revenues for the second quarter of 2023 were $46.1 million, a 28% decrease compared to $64.4 million for the second quarter of 2022. HETLIOZ net product sales were $22 million for the second quarter of 2023, a 47% decrease compared to $41.2 million in the second quarter of 2022. The at-risk launch of a generic version of HETLIOZ continued to have a significant impact on HETLIOZ performance during the second quarter of 2023. The decrease to net product sales was attributable to a decrease in volume and a decrease in price net of deductions, partially offset by the recognition of $4.8 million of net product sales related to a change in estimate on revenue constrained during the first quarter of 2023.
Our HETLIOZ net product sales as reported for the first quarter of 2023 reflected higher unit sales as compared to recent prior periods. The higher unit sales during the first quarter of 2023 resulted in a significant increase of inventory stocking at specialty pharmacy customers at the end of both the first quarter of 2023 and the second quarter of 2023. HETLIOZ net product sales during the second quarter of 2023 reflect lower unit sales as a result of the reduction of the elevated inventory levels at specialty pharmacy customers at the end of the first quarter of 2023.
Turning to Fanapt. Fanapt net product sales were $24.1 million for the second quarter of 2023, a 4% increase compared to $23.2 million in the second quarter of 2022. Fanapt net product sales in the second quarter of 2023 increased by 5% as compared to $22.9 million for the first quarter of 2023.
Fanapt prescriptions in the second quarter of 2023 as reported by IQVIA Xponent, increased by less than 1% compared to the first quarter of 2023. For the second quarter of 2023, Vanda recorded net income of $1.5 million compared to net income of $2.6 million for the second quarter of 2022. Net income for the second quarter of 2023 included an income tax provision of $1.1 million as compared to an income tax provision of $1.2 million for the same period in 2022.
Operating expenses in the second quarter of 2023 were $48.9 million compared to $60.9 million in the second quarter of 2022. The $12 million decrease was primarily driven by lower SG&A expenses related to spending on marketing and sales activities for our commercial products, lower R&D expenses related to our late-stage Fanapt development program and our VQW-765 development program, partially offset by expenses related to our early-stage ASO program and lower cost of goods sold due to lower HETLIOZ net product sales and the decrease in the royalty rate owed to BMS on HETLIOZ net product sales from 10% to 5% effective in December 2022.
Operating expenses in the second quarter of 2023 decreased by $11.6 million as compared to $60.5 million in the first quarter of 2023. The decrease was primarily driven by lower SG&A expenses related to ongoing litigation and other corporate expenses and lower R&D expenses related to our tradipitant development program.
Given uncertainties surrounding the U.S. market for HETLIOZ for the treatment of Non-24 as a result of the ongoing HETLIOZ patent litigation and the at-risk launch of a generic version of HETLIOZ, Vanda is unable to provide 2023 financial guidance at this time. Vanda will continue to evaluate its ability to provide financial guidance as the year progresses. HETLIOZ net product sales will likely decline in future periods, potentially significantly related to the at-risk launch of a generic version of HETLIOZ in the U.S.
Additionally, the company constrained HETLIOZ net product sales for the first 6 months of 2023 to an amount not probable of significant revenue reversal. As a result, HETLIOZ net product sales could experience variability in future periods as the remaining uncertainties associated with variable consideration are resolved. With that, I'll now turn the call back to Mihales.
Mihael H. Polymeropoulos
Thank you very much, Kevin. At this point, we will be happy to open the line to any questions you may have. .
Question and Answer Session
Operator
(Operator Instructions)
We'll take our question from Andrew Tsai at Jefferies.
Lin Tsai
Appreciate all the updates. So the first question for us is on HETLIOZ existing sales. Just curious what were the organic sales in Q2 in terms of price and volume outside of inventory fluctuations. So just trying to gauge how much inventory drawdown there was in Q2 or if there was a buildup. And we're also trying to see whether Q3 sales could potentially increase quarter-over-quarter, assuming this quarter did see some type of inventory drawdown?
Mihael H. Polymeropoulos
Yes. Thank you very much, Andrew. I will let Kevin answer this question.
Kevin Patrick Moran
Yes. Thanks for the question, Andrew. So a couple of different pieces there, and I'll provide the detail where we provided it in the release. So what we saw in the second quarter was a drawdown of the inventory stocking or a portion of the inventory stocking that we saw in the first quarter. But inventory levels at the end of the second quarter were still elevated relative to recent prior periods.
So not as high as the first quarter. but still higher than we've seen in recent prior periods. So there's still some inventory to work through before they would return to historic levels.
Lin Tsai
Very clear. And so speaking of the ongoing, I guess, litigation versus the generics, I think it sounded like you've petitioned to rehear the case -- court case -- and I think you've mentioned Teva and the other party has until next Tuesday to respond. So what would be the next steps after that? And how quickly can we get a potential resolution?
Mihael H. Polymeropoulos
Yes. I would let Tim Williams handle this. And maybe I think we can discuss a little bit about the procedure with the Federal Circuit. .
Timothy Williams
Yes. Happy to do that, Mahales. These petitions for rehearing can be decided by the Federal Circuit without any response from the other parties. In certain instances, the Federal Circuit may request a response because one or more of the judges sitting on the Federal Circuit are interested to learn a little bit more information about the case to hear from the other parties.
So that's what occurred in this case. And so there's really not a set procedure from here in terms of required next steps. If the request from the court holds in terms of timing, then Teva and Apotex would need to file this response with the court, like I mentioned, on Tuesday of next week. And after that, we may have an opportunity to provide additional reply, but there's not a definite procedure around that. The timing is likewise, there's no prescribed timing in the -- either the Federal Circuit court rules or the rules of (inaudible) procedure.
So it's a little bit unclear what the timing would look like and what the resolution would be.
Lin Tsai
Got it. Very clear though, nonetheless. So speaking about the pipeline, as we think about the next 6 to 12 months, there does seem to be potentially a good set of catalysts. And so the question would be -- have you filed the NDA or sNDA for HETLIOZ and insomnia, tradipitant for gastroparesis, Fanapt for bipolar, and if not, what are the gating steps to those filings? And feel free to talk about your confidence on all 3 potential approvals later in 2024.
Mihael H. Polymeropoulos
Yes. We do not give specific details and interim updates such as when we submit where the FDA files and what the PDUFA date is. But what we can tell you, it is that all 3 applications are progressing without -- there's certainly telling you which ones have been submitted, filed or to be submitted. But given where we are, we expect that a regulatory decision should be able to be vendor in each one and all of them within the next 12 months.
Lin Tsai
Got it. And maybe one more question, last one is just as we think about your existing cash almost $500 million. How do you foresee to spend that cash? Specifically, I ask in the context of business development. Are you open to that? And secondly, if you are, what kind of deal structure, what indication areas are you looking for? Are you looking to buy immediate revenues? Or are you thinking more about building out the earlier stage pipeline?
Mihael H. Polymeropoulos
Yes. Certainly, the cash we have, the marginal profitability allows us to have a lot of flexibility to look at potential business development opportunities from the outside. And we have a number of them ongoing. And in terms of types, we're very focused to first diversify our revenue and support our commercial presence as our own organic pipeline, as we discussed just a minute ago, is actually acceptable with new filings ongoing.
So we believe that we can be generally agnostic in the types of indications where compound with maybe already commercial presence exists. But we think we are keen to understand opportunities that can be synergistic with our already existing commercial infrastructure. But again, we're more agnostic on indications and more focused on late-stage and potential diversification of revenue sources.
Operator
And that does conclude the question-and-answer session. I'd like to turn the conference back to Vanda management for closing remarks.
Mihael H. Polymeropoulos
Yes. Thank you very much, and thank you all for joining this quarterly call. Looking forward to talk to you in future periods. Thank you.
Operator
And this concludes today's conference call. Thank you for your participation. You may now disconnect.
