Fourth-quarter and full-year 2009 results announced by Vanda Pharmaceuticals

Feb 16 2010

Vanda Pharmaceuticals Inc. (Vanda) (Nasdaq: VNDA), a biopharmaceutical company focused on the development and commercialization of clinical-stage products for central nervous system disorders, today announced financial and operational results for the fourth quarter and full year ended December 31, 2009.  

Vanda reported a net loss of $9.2 million for the fourth quarter of 2009, compared to $7.7 million for the third quarter of 2009 and $7.5 million for the fourth quarter of 2008.  Total revenue for the fourth quarter of 2009 was $4.5 million, consisting of $2.6 million in upfront licensing revenue and $1.9 million in product revenue for inventory sold to Novartis Pharma AG (Novartis).  The remaining $197.4 million in deferred revenue relating to the $200.0 million upfront payment received from Novartis pursuant to the Fanapt™ (iloperidone) license agreement will be recognized ratably ($2.2 million per month) through May 2017.  Total expenses for the fourth quarter of 2009 were $13.8 million, compared to $7.7 million for the third quarter of 2009 and $7.7 million for the fourth quarter of 2008.  Research and development (R&D) expenses for the fourth quarter of 2009 were $2.3 million, compared to $2.1 million for the third quarter of 2009 and $3.6 million for the fourth quarter of 2008.  For the full year of 2009, total expenses were $40.5 million, compared to $52.8 million for 2008.  Total 2009 R&D expenses were $13.9 million, compared to $23.9 million during 2008.

As of December 31, 2009, Vanda's cash, cash equivalents, and marketable securities totaled approximately $205.3 million.  As of December 31, 2009, a total of approximately 27.6 million shares of Vanda common stock were outstanding.  Net loss per common share for the fourth quarter of 2009 was $0.34, compared to $0.28 for the third quarter of 2009 and $0.28 for the fourth quarter of 2008. For the full year of 2009, net loss per common share was $1.33, compared to $1.92 for the full year of 2008.  

OPERATIONAL HIGHLIGHTS

During the fourth quarter of 2009, Vanda focused its efforts on the successful transition to Novartis of commercial, regulatory and manufacturing documents, materials and supplies relating to Fanapt™.  On January 11, 2010, Vanda announced that Novartis Pharmaceuticals Corporation had launched Fanapt™ in the U.S.  Vanda has explored, and continues to evaluate, the regulatory path and commercial opportunity for Fanapt™ outside of the U.S. and Canada.

Vanda also continued the clinical, regulatory and commercial evaluation of tasimelteon, its selective melatonin receptor agonist, during the fourth quarter of 2009.  Compounds that bind selectively to melatonin receptors are candidates to treat sleep disorders, including Circadian Rhythm Sleep Disorders (CRSDs), and additionally are believed to offer potential benefits in mood disorders.  Tasimelteon is currently in Phase III stage of development for the treatment of sleep disorders and CRSDs and is ready for Phase II trials for the treatment of depression.  On January 19, 2010, the U.S. Food and Drug Administration (FDA) granted orphan drug designation status for tasimelteon in a specific CRSD, Non-24-Hour Sleep/Wake Disorder in blind persons.  The FDA grants orphan drug designation to drugs that may provide significant therapeutic advantage over existing treatments and target conditions affecting 200,000 or fewer U.S. patients per year.  Orphan drug designation provides potential financial and regulatory incentives, including study design assistance, tax credits, waiver of FDA user fees, and up to seven years of market exclusivity upon marketing approval.  As Vanda continues to explore the path to a New Drug Application (NDA) for tasimelteon, the orphan drug designation in Non-24 Hour Sleep/Wake Disorder has the potential to strengthen the tasimelteon program by offering clinical development and commercialization benefits.

FINANCIAL DETAILS

• Operating Expenses.  R&D expenses of $2.3 million for the fourth quarter of 2009 consisted primarily of $0.9 million of salaries and benefits, $0.5 million of non-cash stock based compensation costs for R&D personnel, $0.3 million in consulting fees and $0.2 million for an on-going carcinogenicity study.  This compares to $2.1 million for the third quarter of 2009 and $3.6 million for the fourth quarter of 2008.  The increase in R&D expenses in the fourth quarter of 2009 relative to the third quarter of 2009 is primarily due to 2009 employee bonus expense.  The decrease in R&D expenses in the fourth quarter of 2009 relative to the fourth quarter of 2008 is primarily due to the regulatory consulting fees relating to Fanapt™ accrued in the fourth quarter of 2008.  For the full year of 2009, total R&D expenses were $13.9 million, compared to $23.9 million for 2008.  Lower R&D expenses resulted from the lower clinical trial costs and related manufacturing costs incurred in 2009.
  

• General and administrative (G&A) expenses of $9.2 million for the fourth quarter of 2009 consisted primarily of $1.3 million of salaries and benefits and $1.9 million of non-cash stock based compensation costs for G&A personnel, as well as $1.2 million of legal fees and $3.7 million of consulting fees and financial advisors fees primarily relating to the transaction with Novartis, and $0.2 million of insurance costs.  This compares to $5.3 million for the third quarter of 2009 and $4.1 million for the fourth quarter of 2008.  The increase in G&A expenses in the fourth quarter of 2009 relative to the third quarter of 2009 and the fourth quarter of 2008 is primarily due to an increase in legal and consulting fees and financial advisor fees accrued in the fourth quarter of 2009 relating to the transaction with Novartis.  For the full year of 2009, total G&A expenses were $23.7 million, compared to $28.9 million for 2008.  The year-over-year decrease in G&A expenses is primarily due to decreased commercial and marketing expenses relating to Fanapt™.
  

• Employee stock-based compensation expense recorded in the fourth quarter of 2009 totaled $2.4 million.  Of these non-cash charges, $0.5 million was recorded as R&D expense and $1.9 million was recorded as G&A expense.  For the third quarter of 2009 and the fourth quarter of 2008, total stock-based compensation expense was $3.3 million and $0.7 million, respectively.  The decrease in stock-based compensation expense in the fourth quarter of 2009 relative to the third quarter of 2009 is the result of the full vesting of non-qualified options issued at a higher fair market value.  The increase in stock-based compensation expense in the fourth quarter of 2009 relative to the fourth quarter of 2008 is primarily due to a lower stock-based compensation expense resulting from the workforce reduction in the fourth quarter of 2008.  For the full year of 2009, total stock-based compensation was $10.8 million, compared to $13.4 million for 2008.
  

• Cash and marketable securities increased by $184.6 million during the fourth quarter of 2009.  Changes included $9.2 million of net losses, the payment of the $5.0 million balance due to Novartis for the milestone payment relating to the FDA's approval of the NDA for Fanapt™ and increases in other working capital of $1.9 million, offset by increases in the deferred revenue of $197.4 million, $3.0 million in non-cash depreciation, amortization, and stock-based compensation expense and $0.3 million in proceeds from the exercise of employee stock options.
  

• Vanda's cash, cash equivalents and marketable securities as of December 31, 2009 totaled approximately $205.3 million, compared to approximately $46.5 million as of December 31, 2008.
  

• Net loss for the fourth quarter of 2009 was $9.2 million, compared to a net loss of $7.7 million for the third quarter of 2009 and a net loss of $7.5 million for the fourth quarter of 2008.  For the full year of 2009, net loss was $35.9 million, compared to $51.1 million for the full year of 2008.
  

• Net loss per common share for the fourth quarter of 2009 was $0.34, compared to $0.28 for the third quarter of 2009 and $0.28 for the fourth quarter of 2008.  For the full year of 2009, net loss per common share was $1.33, compared to $1.92 for the full year of 2008.  

FINANCIAL GUIDANCE

Vanda's primary objective over the next quarter is to conserve cash while supporting the Fanapt™ launch. In addition, the Company intends to engage in discussions with several foreign regulatory agencies to review their filing requirements with respect to Fanapt™.  Vanda also plans to continue the clinical, regulatory and commercial evaluation of tasimelteon.  Although Vanda incurred transaction-related costs of approximately $6.0 million in the fourth quarter of 2009, which included financial advisor fees, consulting fees, legal expenses and employee bonuses, and $2.0 million in Fanapt™ inventory costs, Vanda's fixed overhead costs are expected to be approximately $10.0 million to $12.0 million annually.  Vanda will recognize revenue of $26.8 million in 2010 for the amortization of the deferred upfront payment received from Novartis.  The forecasted royalty revenue and sales milestones based on sales of Fanapt™ by Novartis can not be determined at this time.  Vanda expects to receive approximately $7.7 million from Novartis for Fanapt™ inventory, of which $2.0 million was recorded as a receivable at year-end.  

Vanda is currently working with its tax advisors to determine its tax liability relating to the receipt of the $200.0 million upfront payment from Novartis in late 2009.  Generally, under the Internal Revenue Code, an accrual basis taxpayer is required to include in taxable income certain cash payments in the year received.  Revenue Procedure 2004-34, however, allows taxpayers a limited deferral beyond the taxable year of receipt for certain advance payments.  For federal income tax purposes, Vanda may avail itself of the provisions of this Revenue Procedure to defer recognition of income on the upfront payment from Novartis.  As a result, only a portion of the $200.0 million upfront payment from Novartis that was received in 2009 is expected to be included in taxable income for the tax year ended December 31, 2009.  Any of the income from the $200.0 million payment that was not recognized in 2009 will be recognized in taxable income for the year ending December 31, 2010 and is expected to create income tax liabilities for the Company.  The timing of the payment of the income taxes due is largely dependent upon when the income is recognized for financial statement purposes, as well as the Company's ability to utilize its carry forward tax attributes in offsetting the income recognized from the receipt of the $200.0 million upfront payment.

As of December 31, 2008, Vanda has approximately $123.7 million of net operating loss carry forwards incurred since 2003, which potentially may be used in part to offset future taxable income and thereby reduce Vanda's U.S. federal income taxes that would otherwise be payable.  Section 382 of the Internal Revenue Code (Section 382), imposes an annual limit on the ability of a corporation that undergoes an "ownership change" to use its net operating loss carry forwards to reduce its tax liability.  As a result of certain changes in Vanda's shareholder base, Vanda's ability to utilize its net operating losses to offset future taxable income in any particular year may be limited pursuant to Section 382.