Vanda reports total revenue of $12.4 million for first-quarter 2010

Vanda Pharmaceuticals Inc.May 4 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 first quarter ended March 31, 2010.

• Vanda records Q1 2010 revenue of $12.4 million
• Fanapt ™ launched in the U.S. by our partner Novartis
• Iloperidone long-acting injectable patent allowed
• Tasimelteon received orphan designation by the Food and Drug Administration for the treatment of Non-24 Hour Sleep/Wake Disorder (N24SWD) in blind individuals with no light perception

Total revenue for the first quarter of 2010 was $12.4 million, compared to $4.5 million for the fourth quarter of 2009 and $0 for the first quarter of 2009. Total operating expenses for the first quarter of 2010 were $6.3 million, compared to $13.8 million for the fourth quarter of 2009 and $6.6 million for the first quarter of 2009. Net income was $0.5 million for the first quarter of 2010 compared to net losses of $9.2 million for the fourth quarter of 2009 and $6.5 million for the first quarter of 2009.  

Vanda's cash, cash equivalents, and marketable securities as of March 31, 2010 totaled approximately $202.4 million.  Approximately 27.9 million shares of Vanda common stock were outstanding as of March 31, 2010. Basic and diluted net income per common share for the first quarter of 2010 was $0.02, compared to a net loss per common share of $0.34 for the fourth quarter of 2009 and $0.24 for the first quarter of 2009.

OPERATIONAL HIGHLIGHTS

On January 11, 2010, Novartis Pharmaceuticals Corporation (Novartis) launched Fanapt™ in the U.S. First quarter sales of Fanapt™ were reported by Novartis to be approximately $21.0 million. As a result, Vanda recorded royalty revenue of approximately $2.1 million for the first quarter of 2010. On February 23, 2010, the U.S. Patent and Trademark Office (USPTO) issued a notice of allowance for Vanda’s patent application of a microsphere, long-acting injectable (depot) formulation of Fanapt™ (iloperidone). The USPTO has informed Vanda that the application is eligible for patent term adjustment of an additional 300 days, making the patent expiration date August 26, 2023. Novartis is responsible for the further development of the depot formulation in the U.S. and Canada. Vanda has retained the rights for the development and commercialization of the depot formulation outside the U.S. and Canada. Vanda continues to explore the regulatory path and commercial opportunity for Fanapt™ outside of the U.S. and Canada.

During the first quarter of 2010, Vanda also made significant progress in evaluating potential opportunities for tasimelteon, Vanda’s compound for the treatment of circadian rhythm sleep disorders (CRSD). On January 19, 2010, the FDA granted orphan drug designation status for tasimelteon in a specific CRSD, Non-24-Hour Sleep/Wake Disorder (N24SWD) in blind individuals with no light perception.  Tasimelteon has already been shown in clinical studies to significantly improve sleep onset and sleep maintenance parameters and to affect the sleep wake cycle.

Vanda plans to conduct additional clinical trials to pursue FDA approval of tasimelteon for the treatment of N24SWD in blind individuals with no light perception beginning in the second quarter of 2010. The first trial will be a randomized, double-blind, placebo-controlled study with an enrollment of approximately 140 patients with N24SWD. The trial will include measures of both nighttime and daytime sleep, as well as laboratory measures of the synchronization between the internal body clock and the environment. Vanda expects to report top-line results for this trial in the fourth quarter of 2011. Vanda anticipates filing a NDA with the FDA for tasimelteon in N24SWD by the first quarter of 2013.

On April 15, 2010, Vanda and Bristol-Myers Squibb entered in an amendment to their amended and restated license, development and commercialization agreement, to, among other things, extend Vanda's deadline for filing a NDA for tasimelteon. A more detailed description and the full text of the amendment are contained in Vanda's Current Report on Form 8-K, filed with the Securities and Exchange Commission on April 19, 2010.

FINANCIAL DETAILS

• Revenues. First quarter 2010 revenue of $12.4 million consisted of $6.6 million in licensing revenue due to the amortization of the upfront payment received from Novartis in the fourth quarter of 2009 under the amended and restated sublicense agreement, $3.7 million in product revenue for inventory sold to Novartis and $2.1 million for royalty revenue based on first quarter 2010 net sales of Fanapt™ in the U.S. by Novartis. Revenue increased by $7.9 million from $4.5 million for the fourth quarter of 2009 due to increases in licensing revenue of $4.0 million and $1.8 million in product revenue coupled with the $2.1 million in royalty revenue.
• Operating Expenses. Cost of sales for the first quarter of 2010 of $1.8 million consisted of $0.4 million resulting from the amortization of the capitalized intangible asset related to the milestone payment to Novartis and $1.4 million for the inventory sold to Novartis, compared to cost of sales for the fourth quarter of 2009 of $2.3 million, consisting of $0.4 million resulting from the amortization of the capitalized intangible asset related to the milestone payment to Novartis and $1.9 million for inventory sold to Novartis.

Research and development (R&D) expenses of $2.0 million for the first quarter of 2010 consisted primarily of $0.7 million of salaries and benefits, $0.9 million of non-cash stock based-compensation costs for R&D personnel and $0.2 million for overhead allocated to R&D. This compares to $2.3 million for the fourth quarter of 2009 and $2.3 million for the first quarter of 2009. The decrease in R&D expenses in the first quarter of 2010 relative to the fourth quarter of 2009 is primarily due to the completion of the carcinogenicity study for Fanapt™ during the fourth quarter of 2009.

General and administrative (G&A) expenses of $2.5 million for the first quarter of 2010 consisted primarily of $0.6 million of salaries and benefits and $0.2 million of non-cash stock based compensation costs for G&A personnel, as well as $0.5 million of legal fees, $0.3 million of audit and tax-related costs and $0.2 million of insurance costs. This compares to $9.2 million for the fourth quarter of 2009 and $4.2 million for the first quarter of 2009.  The decrease in G&A expenses in the first quarter of 2010 relative to the fourth quarter of 2009 is primarily due to lower consulting fees and advisor fees, primarily relating to the transaction with Novartis completed in the fourth quarter of 2009, and lower non-cash stock-based compensation costs in the first quarter 2010.

Employee stock-based compensation expense recorded in the first quarter of 2010 totaled $1.1 million. Of this non-cash charge, $0.9 million was recorded as R&D expense and $0.2 million was recorded as G&A expense. This compares to total employee stock-based compensation expense of $2.4 million and $2.3 million for the fourth quarter of 2009 and the first quarter of 2009, respectively. The decrease in employee stock-based compensation expense in the first quarter of 2010 relative to the fourth quarter of 2009 is the result of the cancellation of unvested options, in the first quarter of 2010.

• Tax provision: Vanda recorded a tax provision of $5.7 million in the first quarter of 2010. The tax provision is based on an annualized effective tax rate for 2010 applied to the first quarter's pre-tax book income with the addition or subtraction of discrete items.  The quarterly tax provision is not indicative of estimated quarterly cash tax payments. The tax provision rate applied in the first quarter of 2010 was determined primarily based upon a net increase in valuation allowance for excess of the deferred revenue recorded from the $200.0 million upfront milestone payment received from Novartis at the end of 2009 over the existing tax attributes utilized. The provision also includes the impact of tax credits relating to the orphan drug designation for tasimelteon. Vanda will continue to evaluate its qualified expenses for the orphan drug tax credit and, to the extent that actual qualified expenses vary significantly from Vanda's estimates, Vanda's effective tax rate will increase or decrease accordingly.

• Vanda's cash, cash equivalents and marketable securities as of March 31, 2010 totaled approximately $202.4 million, compared to approximately $205.3 million as of December 31, 2009. Cash, cash equivalents and marketable securities decreased by $2.9 million during the first quarter of 2010. Changes included: $0.5 million of net income, a decrease in non-cash items of $0.4 million, an increase of $2.9 million in amounts due from Novartis for the remaining finished product, a decrease in inventory of $1.0 million, a decrease of $6.6 million in the deferred revenue related to the upfront payment received from Novartis in December 2009, a decrease in accounts payable and accrued expenses of $2.5 million, a decrease in other working capital of $0.4 million and an increase of $1.9 million in financing activities for the excess tax benefits from the exercise of stock options.
• Net income for the first quarter of 2010 was $0.5 million, compared to net losses of $9.2 million for the fourth quarter of 2009 and $6.5 million for the first quarter of 2009.

• Basic and diluted net income per common share for the first quarter of 2010 was $0.02, compared to a basic and diluted net loss per common share of $0.34 for the fourth quarter of 2009 and $0.24 for the first quarter of 2009.

FINANCIAL GUIDANCE  

Vanda is encouraged by the early prescription data for Fanapt™ as reported by IMS. At this time, however, Vanda cannot forecast future revenues based on sales milestones or royalties. Vanda expects that R&D expenses related to the initiation of the tasimelteon program in N24SWD will increase by approximately $7.5 million for the full year 2010. Vanda anticipates that approximately 75 percent of these expenses will qualify for the orphan drug tax credit.

Vanda submitted a private letter ruling request to the Internal Revenue Service (IRS) in March of 2010 to clarify the application of certain code sections regarding the use of prior net operating losses that may offset some of the tax liability related to the $197.4 million of deferred revenue for the upfront payment received from Novartis which will be recognized as income for tax purposes in 2010.  Following the determination of the IRS on this matter, Vanda may choose to provide financial guidance for the full year.