Q3 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.
Presentation
Operator
Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2023 Vanda Pharmaceuticals, Inc. Earnings Conference Call. (Operator Instructions)
I would now like to turn the conference over to Kevin Moran, Vanda's Chief Financial Officer. Please go ahead.
Kevin Patrick Moran
Thank you, Desiree. Good afternoon, and thank you for joining us to discuss Vanda Pharmaceuticals' third quarter 2023 performance. Our third 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. Mihael Polymeropoulos, our President, Chief Executive Officer and Chairman of the Board; and Tim Williams, our General Counsel.
Following my introductory remarks, Mihael will update you on 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. Mihael Polymeropoulos.
Mihael H. Polymeropoulos
Thank you very much, Kevin, and good afternoon, everyone. Thank you for joining us to discuss Vanda's third quarter 2023 results. I will briefly discuss key updates, and then I will ask our General Counsel, Tim Williams, to provide a brief update on litigation matters before I turn the call over to Kevin to discuss our overall progress and financial results.
We have significantly advanced our development pipeline, now expecting FDA decisions on 2 supplemental NDAs for bipolar I disorder in adults and insomnia with PDUFA dates in the first half of 2024.
Additionally, we expect the regulatory decision on our NDA for tradipitant in patients with gastroparesis by approximately mid-2024. We're also pleased with our revenue performance despite the challenges of the at-risk launch of a generic HETLIOZ product.
Over the course of this year, we have taken a number of actions to position the commercial business for continued success, both on existing products and indications as well as potential future products and indications. This includes preparations for the potential near-term expansion of the Fanapt franchise if we receive FDA approval for bipolar I disorder in adults.
Finally, we look forward to increasing and diversifying our future revenue sources, both with these new products and new indications on existing products and also potentially with external business development activities.
With that, I will now ask Tim Williams, our General Counsel, to provide a brief update on litigation matters. Tim?
Timothy Williams
Thank you, Mihaels. I'll start with our HETLIOZ ANDA litigation. As previously disclosed, we intend to file a cert petition with the U.S. Supreme Court to review the Federal Circuit's ruling in our HETLIOZ ANDA litigation. We believe the Federal Circuit applied a flawed obviousness standard to our HETLIOZ patents that is inconsistent with Supreme Court precedent.
Specifically, we believe the Federal Circuit's approach to obviousness deviated materially from the Supreme Court standard articulated in the KSR v Teleflex case from 2007. We believe the Federal Circuit's approach improperly invalidated our patent rights and if unchallenged, this approach could continue to harm pharmaceutical innovation.
We recently filed for an extension of time for our cert petition. The extension was granted by Chief Justice Roberts and we expect to file our cert petition by January 12, 2024.
Separately, in September, we filed suit against the FDA, challenging its approval of MSN Laboratories generic version of tasimelteon. We believe the bioequivalence studies underlying MSN's approval are faulty and the FDA's approval should be revoked. This case is currently pending in the D.C. District Court.
And we continue to pursue our other litigation related to our HETLIOZ patents and generic competition, all of which has been previously disclosed.
I'll shift now to our other regulatory litigation efforts. Since May of this year, we have filed 6 additional FOIA lawsuits against the FDA as part of our ongoing effort to hold regulators accountable to the law. We intend to continue seeking transparency from our regulators, especially the FDA. Details of all of our regulatory cases can be found in our disclosures and in publicly available court records.
And last, we continue to pursue our challenge against CMS' line extension rule at the Fourth Circuit Court of Appeals. Just last week, the Fourth Circuit tentatively scheduled an oral argument to hear our appeal in January 2024.
Back to you, Mihael.
Mihael H. Polymeropoulos
Thank you, Tim. I'll turn now to Kevin Moran to discuss our overall progress and financial results for this quarter. Kevin?
Kevin Patrick Moran
Thank you, Mihales. I'll first discuss key regulatory and clinical updates before providing an update on our commercial progress and financial results. .
Beginning with our upcoming regulatory milestones, we are now expecting FDA decisions on 2 supplemental new drug application filings in the first half of 2024. First, on Fanapt for bipolar I disorder. As previously discussed, in December of last year, we announced positive results in our Phase III clinical study of Fanapt in acute manic and mixed episodes with bipolar I disorder in adults.
Our supplemental new drug application for Fanapt and bipolar I disorder in adults has now been accepted by the FDA, and the target action date has been set as April 2, 2024. We believe that this potential label expansion represents a significant opportunity for the Fanapt franchise, given the high prevalence of bipolar disorder in the United States. The estimated prevalence of bipolar disorder in the U.S. adult population is approximately 3%, a number approximately up to 10x higher than the estimated prevalence of schizophrenia.
On HETLIOZ for insomnia, our supplemental new drug application for HETLIOZ in insomnia also has now been accepted by the FDA, and the target action date has been set as March 4, 2024. We believe that HETLIOZ for insomnia could represent a meaningful commercial opportunity, and provide an exciting therapeutic option for patients.
Additionally, on tradipitant for patients with gastroparesis, we expect a regulatory decision on this new drug application by approximately mid-2024. The FDA package is supported by the results of our 3 clinical studies that we believe demonstrate substantial evidence of efficacy of tradipitant in this indication as well as a safety database to support the tolerability of this drug.
The expanded access program continues with multiple patients having been treated for at least 6 months and the longest treated patient for more than 2 years. On the clinical side, continuing with tradipitant, as previously reported, in May of this year, we announced positive results from the first Phase III study of tradipitant in the treatment of motion sickness. We now have initiated a second Phase III study of tradipitant in motion sickness and the study is already over 20% enrolled.
We plan to pursue FDA approval of tradipitant for motion sickness upon completion of the clinical development program. And outside of this update on the tradipitant motion sickness program, we continue to progress a robust clinical development pipeline, which includes multiple products across a wide range of therapeutic areas.
Turning to our commercial progress and financial results. Taking into account the challenging environment due to the at-risk launch of generic tasimelteon, we are pleased with our commercial performance during the first 9 months of the year. On HETLIOZ, despite these challenges, our team delivered solid performance and continues to work tirelessly to support patients on therapy and prescribers.
On Fanapt, we remain focused on driving growth in the currently approved indication of schizophrenia and ensuring Fanapt is well positioned to capitalize on the bipolar market if approved.
On our financial results, I'll begin by summarizing the first 9 months of 2023 before turning to discuss the third quarter of 2023. Total revenues for the first 9 months of 2023 were $147.4 million, a 22% decrease compared to $189.9 million for the same period in 2022.
HETLIOZ net product sales were $79.1 million for the first 9 months of 2023 and saw a 34% decrease compared to $119.6 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 9 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 has resulted in a significant increase of inventory stocking at specialty pharmacy customers throughout 2023.
Turning to Fanapt. Fanapt net product sales of $68.3 million for the first 9 months of 2023 reflect a 3% decrease compared to $70.3 million for the same period in 2022. For the first 9 months of 2023, Vanda recorded net income of $4.9 million compared to a net loss of $0.6 million for the same period in 2022.
Net income for the first 9 months of 2023 included an income tax provision of $3.1 million as compared to an income tax provision of $2.3 million for the same period in 2022. Operating expenses for the first 9 months of 2023 were $154.2 million compared to $190.2 million for the same period in 2022. The $36 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 tradipitant 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 September 30, 2023, was $489.9 million representing an increase of $35.1 million to cash compared to September 30, 2022, and an increase of $23 million compared to December 31, 2022.
Turning now to our quarterly results. Total revenues for the third quarter of 2023 were $38.8 million, a 41% decrease compared to $65.3 million for the third quarter of 2022. HETLIOZ net product sales were $17.5 million for the third quarter of 2023, a 58% decrease compared to $41.3 million in the third quarter of 2022. The at-risk launch of a generic version of HETLIOZ continued to have a significant impact on HETLIOZ performance during the third quarter of 2023. The decrease in net product sales was attributable to a decrease in volume. Our HETLIOZ net product sales as reported for the first quarter of 2023 reflected higher unit sales as compared to recent periods.
The higher unit sales during the first quarter of 2023 resulted in a significant increase of inventory stocking at specialty pharmacy customers throughout 2023. HETLIOZ net product sales during the third quarter of 2023 reflect lower unit sales, which was partially attributable to the continued reduction of the elevated inventory levels at specialty pharmacy customers at the end of the first quarter of 2023.
Turning now to Fanapt. Fanapt net product sales were $21.3 million for the third quarter of 2023, an 11% decrease compared to $24 million in the third quarter of 2022. Fanapt net product sales in the third quarter of 2023 decreased by 11% as compared to $24.1 million in the second quarter of 2023. This decrease between the second and third quarters of 2023 was primarily attributable to destocking of Fanapt inventory at the wholesaler level and unfavorable gross to net adjustments during the period.
Fanapt prescriptions in the third quarter of 2023, as reported by IQVIA Xponent decreased by approximately 4% compared to the second quarter of 2023. For the third quarter of 2023, Vanda recorded net income of $0.1 million compared to net income of $3.3 million for the third quarter of 2022.
Net income for the third quarter of 2023 included an income tax benefit of $0.3 million as compared to an income tax provision of $2.2 million for the same period in 2022. Operating expenses in the third quarter of 2023 were $44.8 million compared to $61.4 million in the third quarter of 2022. The $16.6 million decrease was primarily driven by lower R&D expenses related to our late-stage Fanapt development program and our early-stage ASO program, lower SG&A expenses related to spending on marketing and sales activities for our commercial products, 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 third quarter of 2023 decreased by $4.1 million as compared to $48.9 million in the second quarter of 2023. This decrease was primarily driven by lower SG&A expenses related to spending on sales activities for our commercial products.
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 in future periods. 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 9 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 answer your questions.
Question and Answer Session
Operator
The floor is now open for your questions. (Operator Instructions)
There are no further questions at this time. I would like to turn the call back over to Vanda management for closing remarks.
Mihael H. Polymeropoulos
Thank you all for joining us in this third quarter 2023 call, and we'll see you in future periods. Thank you.
Operator
This concludes today's conference call. You may now disconnect.
