Q4 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 Jeannie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q4 2023 Vanda Pharmaceuticals Inc. Earnings Conference Call. (Operator Instructions)
I would like now to turn the call over to Kevin Moran, Vanda's Chief Financial Officer. Mr. Moran, you may begin your conference.
Kevin Patrick Moran
Thank you, Jeannie. Good afternoon, and thank you for joining us to discuss Vanda Pharmaceuticals Fourth Quarter and Full Year 2023 performance. Our fourth quarter and full year 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. Mihaels Polymeropoulos, our President, Chief Executive Officer and Chairman of the Board; and Tim Williams, our General Counsel. Following my introductory remarks, Mihaels 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. Mihaels Polymeropoulos.
Mihael H. Polymeropoulos
Thank you very much, Kevin, and good afternoon, everyone. Thank you for joining us to discuss Vanda's fourth quarter and full year 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 measures before turning the call over to Kevin Moran to discuss our financial results.
We have significantly advanced our development pipeline now with 3 PDUFA action dates in 2024, including our supplemental new drug application or sNDA for bipolar I disorder in adults with a PDUFA date in April of 2024 and our New Drug Application, or NDA, for gastroparesis with a PDUFA date in September 2024.
On our supplemental NDA for HETLIOZ in the treatment of insomnia, as we previously communicated this week, our sNDA was accepted for filing and is under review by the FDA with a PDUFA target action date of March 4, 2024. Earlier this week, we announced that we had received a notification from the FDA stating that the FDA had identified deficiencies that preclude discussion of labeling and post-marketing requirements and commitments at this time. No deficiencies were disclosed by the FDA in the notification, and the FDA stated that the notification does not reflect a final decision on the information under review. However, frequently, such a communication from the FDA is followed by a complete response letter. Subsequent to that development on February 6, 2024, Vanda filed suit in the U.S. District Court for the District of Colombia, challenging the FDA's conduct in reviewing the insomnia sNDA. Vanda is asking the District Court to compel the FDA to adhere to the legally mandated 180-day review period for sNDAs and to declare as unlawful and void the regulations the FDA relies upon to issue complete response letters.
On Fanapt, for bipolar I disorder, as previously discussed in December of 2022, 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 NDA for Fanapt in bipolar I disorder in adults has been accepted for filing by the FDA, and the target action date has been set is 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 multiple times larger than the estimated prevalence of schizophrenia.
Additionally, on tradipitant for patients with gastroparesis, our new drug application has also been accepted for filing by the FDA, and the target action date has been set as September 18, 2024. The FDA package supported by the results from clinical efficacy studies 2301 and 3301, which 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 have been treated for at least 6 months and the longest-treated patient for more than 3 years.
We're pleased with our revenue performance despite the challenges of the Atrius launches of generic HETLIOZ products. Over the course of this year, we have taken a number of actions intended to position the commercial business for continued success, both with respect to existing products and indications as well as potential future products and indications. These include preparations for the potential near-term expansion of the Fanapt franchise if we received FDA approval for bipolar I disorder in adults.
During the fourth quarter of 2023, we completed a transformative acquisition as we obtained the U.S. and Canadian rights to PONVORY, ponesimod from Actelion Pharmaceuticals Limited, a Johnson & Johnson Company for USD 100 million. PONVORY is a once-a-day oral selective sphingosine-1-phosphate receptor 1 modulator, approved by the FDA and Health Canada to treat adults with relapsing forms of multiple sclerosis.
Additionally, PONVORY is a potential therapeutic candidate for the treatment of a diverse group of inflammatory and autoimmune disorders ranging from psoriasis to ulcerative colitis. Most recently, the U.S. Patent and Trademark Office issued a notice of allowance for PONVORY patent application, 17/962,968, which when issued, is anticipated to expire on October 10, 2042.
On the clinical side, as previously reported, in May of last year, we announced positive results from the first Phase III study of tradipitant in the treatment of motion sickness. And subsequent to that, we initiated a second Phase III study, which is now already 50% 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 will continue to progress our robust clinical development pipeline, which includes multiple products across a wide range of therapeutic areas.
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 provide a few litigation updates, starting with our HETLIOZ ANDA litigation. We filed a cert petition with the Supreme Court in January, asking the court to hear our case and clarify important aspects of patent obviousness law for the benefit of lower courts, including the Federal Circuit. The defendants, Teva and Apotex have waived their opportunity to respond to our petition. And today, the petition was distributed to chambers at the Supreme Court for consideration. We await their review.
Next, I'll provide an update of our case pending in the U.S. Court of Federal Claims. In May of 2023, we sued the U.S. government for uncompensated taking of our trade secrets and confidential information. This suit alleges a pattern of FDA reviewers in properly disclosing proprietary information to generic companies as part of the review of generic versions of Fanapt and HETLIOZ. The U.S. government moved to dismiss the case. After a January hearing on the matter, the court denied the government's motion to dismiss, allowing us to proceed with fact discovery, which will include document production and depositions of FDA personnel involved in these matters.
We've also had positive developments in our cases, challenging other agency actions of the FDA. In September of 2022, we sued to compel the FDA to adhere to the procedural and timing requirements of the Food, Drug, Cosmetic Act with respect to our Jet Lag sNDA for HETLIOZ. In January, the court ruled in our favor by finding that the FDA violated the Food, Drug, Cosmetic Act and ordering the FDA to take action on our hearing requests by March 5, more than 4 months earlier than FDA had originally proposed to the court. The court found the FDA's conduct to be both unlawful and unreasonable. Specifically, the judge noted that the law requires hearings to commence within 300 days after an sNDA is submitted by a sponsor. Yet our sNDA for Jet Lag has been pending for over 2,000 days and it has been over 500 days since we requested a hearing. As I mentioned, the judge has demanded the FDA act on our hearing request by March 5, and we await FDA's action by that date.
Just yesterday, we filed an additional suit challenging FDA's unlawful conduct in reviewing our insomnia sNDA for HETLIOZ. As disclosed earlier this week, we received a notification from the FDA stating that it had identified deficiencies that preclude discussion of labeling even though no deficiencies were identified. This communication arrived more than 270 days after our submission which is well beyond the 180 days prescribed by the statute. Further, by sending us this letter rather than taking the specific actions prescribed in the Food, Drug, Cosmetic Act, we believe the FDA is seeking to avoid final action that can be reviewed by a court of law.
In our suit filed last night, we are asking the court to compel the FDA to adhere to the legally mandated 180-day review period and to declare as unlawful and void the regulations the FDA relies upon to avoid judicially reviewable final decisions.
We continue to pursue additional litigation related to our HETLIOZ patents, generic competitors, interactions with regulators and various Freedom of Information Act disputes. Details of all of our cases can be found in our disclosures and in publicly available court records.
Back to you, Mihaels.
Mihael H. Polymeropoulos
Thank you very much, Tim. I will now turn the call to Kevin Moran, our Chief Financial Officer, to discuss our financial results. Kevin?
Kevin Patrick Moran
Thank you, Mihaels. And as Mihaels mentioned, I'll begin by highlighting the acquisition of the U.S. and Canadian rights to PONVORY from Actelion Pharmaceuticals Ltd or Janssen, a Johnson & Johnson Company for $100 million that was completed in December of 2023 and where the transition is ongoing. PONVORY is a once-daily oral selective S1P1R modulator approved by the FDA in Health Canada to treat adults with relapsing forms of multiple sclerosis. .
During this transition period, Janssen will continue to operate the business pursuant to a customary transition agreement, while Vanda and Janssen transition regulatory and supply responsibility for PONVORY to Vanda. This acquisition represents a significant milestone for Vanda expanding our commercial portfolio, diversifying our sources of revenue and providing Vanda the opportunity to develop a potential therapeutic candidate for the treatment of a diverse group of inflammatory and autoimmune disorders ranging from psoriasis to ulcerative colitis.
Turning now to our financial results. I'll first discuss the results for the full year 2023 before turning to discuss the fourth quarter of 2023. Total revenues for the full year 2023 were $192.6 million, a 24% decrease compared to $254.4 million for the same period in 2022. HETLIOZ net product sales were $100.2 million for the full year 2023 and saw a 37% decrease compared to $159.7 million for the same period in 2022. The at-risk launch of generic versions of HETLIOZ had a significant impact on HETLIOZ's performance during 2023. The decrease to net product sales was attributable to a decrease in price net of deductions and a decrease in volume.
Our HETLIOZ's 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 now to Fanapt. Fanapt net product sales of $90.9 million for the full year 2023 reflect a 4% decrease compared to $94.7 million for the same period in 2022. PONVORY net product sales were $1.6 million for the full year 2023. These net product sales reflect the revenue generated during the period between the product acquisition date of December 7, 2023, and the year-end on December 31, 2023.
For the full year 2023, Vanda recorded net income of $2.5 million compared to net income of $6.3 million for the same period in 2022. Net income for the full year 2023 included an income tax provision of $3.8 million as compared to an income tax provision of $5 million for the same period in 2022.
Operating expenses for the full year 2023 were $206.6 million compared to $248.1 million for the same period in 2022. The $41.5 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 Fanapt development program, partially offset by increases related to our tradipitant and VHX-896 also referred to as PDA development programs.
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's net product sales and the decrease in the royalty rate owed to BMS on HETLIOZ's 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 December 31, 2023, was $388.3 million representing a decrease of $101.6 million compared to cash as of September 30, 2023, and a decrease of $78.6 million compared to December 31, 2022. The change in cash during both the fourth quarter of 2023 and the full year of 2023 reflect the completed acquisition of PONVORY from Janssen for $100 million.
Turning now to our quarterly results. Total revenues for the fourth quarter of 2023 were $45.3 million, a 30% decrease compared to $64.5 million for the fourth quarter of 2022. Total revenues for the fourth quarter of 2023 increased by 17% as compared to $38.8 million in the third quarter of 2023. HETLIOZ's net product sales were $21.1 million for the fourth quarter of 2023, a 47% decrease compared to $40.1 million in the fourth quarter of 2022. HETLIOZ's net product sales in the fourth quarter increased by 20% as compared to $17.5 million in the third quarter of 2023.
The at-risk launch of a generic version of HETLIOZ continued to have a significant impact on HETLIOZ's performance during the fourth quarter of 2023. The decrease in net product sales relative to the fourth quarter of 2022 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 prior 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 fourth quarter of 2023 reflect lower unit sales as compared to the fourth quarter of 2022, which was partially attributable to the continued reduction of the elevated inventory levels at specialty pharmacy customers from the end of the first quarter of 2023.
Turning now to Fanapt. Fanapt product sales were $22.6 million for the fourth quarter of 2023, a 7% decrease compared to $24.4 million in the fourth quarter of 2022. Fanapt net product sales in the fourth quarter of 2023 increased by 6% as compared to $21.3 million in the third quarter of 2023. Fanapt prescriptions in the fourth quarter of 2023 as reported by (inaudible), decreased by approximately 3% compared to the third quarter of 2023.
PONVORY net product sales were $1.6 million for the fourth quarter of 2023. Again, these net product sales reflect the revenue generated during the period between the product acquisition date of December 7, 2023, and year-end on December 31, 2023.
For the fourth quarter of 2023, Vanda recorded net loss of $2.4 million compared to net income of $6.9 million for the fourth quarter of 2022 and net income of $100,000 in the third quarter of 2023.
The net loss for the fourth quarter of 2023 included an income tax provision of $0.7 million as compared to an income tax provision of $2.8 million for the same period in 2022. And an income tax benefit of $0.3 million in the third quarter of 2023.
Operating expenses in the fourth quarter of 2023 were $52.4 million compared to $57.9 million in the fourth quarter of 2022. The $5.5 million decrease was primarily driven by lower SG&A expenses related to spending on sales activities for our commercial products and legal expenses 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's net product sales from 10% to 5% effective in December 2022, partially offset by higher R&D expenses related to our tradipitant program, including the NDA filing fee and the milestone payment made upon acceptance of the NDA for filing and manufacturing expenses associated with our VHX-896 program.
Operating expenses in the fourth quarter of 2023 increased by $7.6 million as compared to $44.8 million in the third quarter of 2023. This increase was primarily driven by onetime expenses, including $2.4 million of expense recorded for the tradipitant NDA filing fee, $2 million for the associated NDA milestone payment to Eli Lilly, and $3 million of VHX-896 manufacturing costs.
Given uncertainty surrounding the U.S. market for HETLIOZ for the treatment of Non-24 as a result of the ongoing HETLIOZ's patent litigation and the at-risk launch of generic versions of HETLIOZ, Vanda is unable to provide 2024 financial guidance at this time. Vanda will continue to evaluate its ability to provide financial guidance in future periods. HETLIOZ's net product sales will likely decline in future periods potentially significantly related to the at-risk launch of generic versions of HETLIOZ in the U.S.
Additionally, the company constrained HETLIOZ's net product sales for the full year 2023 to an amount not probable of significant revenue reversal. As a result, HETLIOZ's 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 Mihaels.
Mihael H. Polymeropoulos
Thank you very much, Kevin. At this point, we will be happy to answer any questions you may have.
Question and Answer Session
Operator
(Operator Instructions) And your question comes from Andrew Tsai with Jefferies.
Lin Tsai
Congratulations on the acquisition of PONVORY. So maybe a couple of questions on that asset. First, what do you guys think you can do that J&J might not have been able to do in terms of driving sales growth of PONVORY? And then secondly, why is this differentiated from the other multiple sclerosis drugs out there? What's the appeal here?
Mihael H. Polymeropoulos
Thank you very much, Andrew. First of all, to give a background here for everyone. PONVORY ponesimod belongs in the class of sphingosine-1-phosphate receptor analogs. And their mechanism of action is by sequestering or preventing the egress of lymphocytes from peripheral lymph nodes so that they can have wide applications in disorders where you have autoimmune attack on a system or organ of the body. In the case of multiple sclerosis, this is central nervous system.
As you also know, this class of drugs has several members. It started some years ago with fingolimod from Gilenya, now generic and has expanded with additional members in the class. We believe that ponesimod due to its receptor specificity and quick reversibility of effect can play a critical role for the treatment of multiple sclerosis for many groups of patients, especially for those that require a specificity avoiding side effects and quick reversibility. It has been clear that this drug may be attractive, especially to women of childbearing age as they contemplate family planning. In that the drug will come out of the circulation within a short period of time in a matter of days. And the same is true about the recovery of the lymphocytes.
So directly to (inaudible) question, the increased specificity and quick reversibility both in amount and lymphocyte counts make this drug differentiated and attractive.
Your second part of your question was what can we do different from J&J. And the simple answer is we plan to market it. J&J for their own business reasons had decided to remove their market in support of the product, while they were in the process of identifying a partner to divest it to. And so we believe there is a significant opportunity, both with neurologists and multiple cirrhosis centers and consumers to be able to increase the awareness of the existence of this potentially quite a useful product.
And beyond that, as we have learned, this type of mechanism of action can be useful in an array of autoimmune disorders. In front of us, of course, are the examples of the effect in ulcerative colitis. And the BMS compound has been successfully addressing that as well as Pfizer's compound interestingly, not approved for multiple sclerosis do not pursue it, but actually directly being approved now for ulcerative colitis.
And we think our drug PONVORY is well positioned from the mechanism of action with very key similarities to the receptor binding effects that both the BMS compound and the Pfizer compound we have, both of them successful in ulcerative colitis to give us reasons to believe that could be successful in that indication.
In addition, Actelion, a J&J company, had conducted a Phase II large study in psoriasis, which was successful. And we are evaluating now a path to continue the development in that indication as well. And as I said, the opportunities around the once day oral sphingosine-1-phosphate analog like PONVORY are just beginning to be realized and likely there will be [wide]. We are developing our plans now. We're in the midst of the transition period, and we'll be able to talk more about these plans in the future.
Lin Tsai
That's very helpful. And then shifting gears to the HETLIOZ for insomnia news. What would be the realistic scenario here? Do you start hiring the sales force? Or do you wait until approval? How does this all work out?
Mihael H. Polymeropoulos
Andrew, let me clarify. Are you asking about the insomnia in HETLIOZ or the bipolar and Fanapt.
Lin Tsai
HETLIOZ for insomnia.
Mihael H. Polymeropoulos
Yes. For HETLIOZ in insomnia, of course, we think given the negative letter by the FDA of deficiencies, although not named, preclude label negotiations. We think the most historical likely outcome is that will be followed by a complete response letter. We cannot imagine what the deficiencies are for this melatonin agonist now marketed for 10 years in (inaudible) disorder indications and with the file that clearly and ambiguously supports the effect of the drug in sleep onset insomnia. We are not expanding the HETLIOZ sales force and we're not planning any immediate marketing plans there.
Lin Tsai
Got it. And then maybe just speaking of the Fanapt for bipolar then or as well as tradipitant for gastroparesis, my final question is, is your confidence in those applications the same despite the insomnia development? And second to that is, are you hiring ahead of the potential PDUFA decision.
Mihael H. Polymeropoulos
Yes. So just to talk about confidence. Of course, we're optimistic because we believe in science and the robustness of our packages that we have already communicated with you all. But of course, where the experience with the agencies that we are prepared for unpredictable results. And having said that, we're cautiously working towards being ready to expand the already existing Fanapt sales force. And I will let Kevin give you a little more color of how we think about cadence of operational expenses there. And the same thing holds true for tradipitant in gastroparesis. We have done work prelaunch to understand the market and develop a commercial plan. But of course, we're quite a few months away from an agency action in September of 2018. And yet again there, we are proceeding very cautiously with the expenditures ahead of that decision.
But I will let Kevin give you more color.
Kevin Patrick Moran
Yes. And thanks, Andrew. On the Fanapt side, specifically, as Mihaels mentioned, we have a very well-established commercial infrastructure given Fanapt's history on the market and as well as HETLIOZ' history on the market in the supporting activities and infrastructure associated with those. That being said, we've certainly taken actions to be prepared to and expand quickly on positive news. So I'd expect from a cadence perspective that there will be some preparation costs that we've began to execute against the first quarter, but more so, it would be upon a positive development that we would see a kind of cadence change.
Operator
There are no further questions at this time. I will now turn the call back over to Vanda management for closing remarks.
Mihael H. Polymeropoulos
Thank you very much all for joining us on this call. Thank you.
Operator
This concludes today's call. You may now disconnect.
