Vanda second-quarter 2010 revenues decrease by $4.1M

Vanda Pharmaceuticals Inc. (Vanda) (Nasdaq: VNDA), a biopharmaceutical company focused on the development and commercialization of products for central nervous system disorders, today announced financial and operational results for the second quarter and six months ended June 30, 2010.

Key Highlights:

• Vanda records year to date revenue of $20.7 million including year to date royalties of $2.1 million.  
• Fanapt® prescriptions continued to increase month-over-month during the second quarter of 2010. Monthly prescriptions of Fanapt®, as reported by IMS, increased from approximately 500 in February 2010 (the first full month of sales) to over 4,000 in June of 2010.
• On August 3, 2010, the U.S. Patent and Trademark Office (USPTO) issued a patent  for a microsphere, long-acting injectable (depot) formulation of iloperidone. The USPTO has informed Vanda that the patent term adjustment included an additional 605 days, making the patent expiration date June 27, 2023.
• Phase III studies of tasimelteon for the treatment of Non-24-Hour Sleep/Wake Disorder (N24HSWD) in blind individuals with no light perception to be initiated in the third quarter of 2010.

Total revenue for the second quarter of 2010 was $8.3 million, compared to $12.4 million for the first quarter of 2010 and $0 for the second quarter of 2009. Total operating expenses for the second quarter of 2010 were $7.1 million, compared to $6.3 million for the first quarter of 2010 and $12.4 million for the second quarter of 2009. Net income was $1.3 million for the second quarter of 2010 compared to net income of $0.5 million for the first quarter of 2010 and a net loss of $12.4 million for the second quarter of 2009.  

Vanda's cash, cash equivalents, and marketable securities as of June 30, 2010 totaled approximately $207.1 million.  Approximately 28.0 million shares of Vanda common stock were outstanding as of June 30, 2010. Basic and diluted net income per common share for the second quarter of 2010 were $0.05 and $0.04, respectively, compared to basic and diluted net income per common share of $0.02 for the first quarter of 2010 and a basic and diluted net loss per common share of $0.46 for the second quarter of 2009.

OPERATIONAL HIGHLIGHTS  

Year-to-date net sales of Fanapt® were reported by Novartis to be approximately $21.4 million comprised of $20.7 million in the first quarter of 2010 and $0.7 million in the second quarter of 2010.  Vanda is encouraged by the continuing growth in total number of monthly prescriptions, as reported by IMS, and by the strengthened promotional launch of Fanapt® since the approval of marketing materials by the FDA in May 2010.  Fanapt® monthly prescriptions, as reported by IMS, increased from approximately 500 in February 2010 (the first full month of sales) to over 4,000 in June of 2010.

On February 23, 2010, the USPTO issued a notice of allowance for Vanda's patent application of a microsphere, long-acting injectable (depot) formulation of iloperidone. Subsequently, on August 3, 2010, the USPTO informed Vanda that the patent has been issued with a patent term adjustment of an additional 605 days, extending the patent expiration date to June 27, 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 iloperidone depot formulation outside the U.S. and Canada. Vanda also continues to explore the regulatory path and commercial opportunity for Fanapt® oral formulation outside of the U.S. and Canada.

With respect to tasimelteon, Vanda is prepared to initiate an efficacy and safety study of tasimelteon in the third quarter for the treatment of Non-24-Hours Sleep/Wake Disorder (N24HSWD) in blind individuals with no light perception.  This trial will be a randomized, double-blind, placebo-controlled study with an enrollment of approximately 160 patients with N24HSWD.  The trial will have a 6-month treatment period and will include measures of both nighttime and daytime sleep, as well as laboratory measures of the synchronization between the internal body clock and the 24-hour environmental light/dark cycle.

Vanda is also prepared to initiate a one-year safety study of tasimelteon for the treatment of N24HSWD.  This will be an open-label safety study that will enroll approximately 140 patients with N24HSWD.  Vanda plans to conduct additional clinical trials over the next one to two years to support U.S. and European regulatory submissions.  Tasimelteon was granted orphan drug designation by the FDA on January 19, 2010. The application for orphan designation from the European Medicines Agency is pending.

FINANCIAL DETAILS

• Revenues decreased by $4.1 million from $12.4 million to $8.3 million for the second quarter of 2010 due to decreases of $2.1 million in product revenue for inventory sold to Novartis and $2.0 million in royalty revenue.  Vanda sold the remaining Fanapt® inventory to Novartis in the second quarter of 2010.  Despite a significant growth of Fanapt® prescription demand in the second quarter, royalty revenue decreased from the first quarter due to stocking of pharmacies in the first quarter.

• Cost of sales for the second quarter of 2010 was $1.9 million, consisting of $0.4 million resulting from the amortization of the capitalized intangible asset related to the milestone payment to Novartis and $1.5 million for the inventory sold to Novartis, compared to cost of sales for the first quarter of 2010 of $1.8 million, consisting 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 inventory sold to Novartis.

Research and development (R&D) expenses were $2.4 million for the second quarter of 2010, compared to $2.0 million for the first quarter of 2010 and $7.2 million for the second quarter of 2009.  The increase in R&D expenses in the second quarter of 2010 relative to the first quarter of 2010 is primarily due to costs incurred in connection with the preparation of the Phase III trials for tasimelteon in N24HSWD.  

General and administrative (G&A) expenses were $2.8 million for the second quarter of 2010, compared to $2.5 million for the first quarter of 2010 and $5.0 million for the second quarter of 2009.  The increase in G&A expenses in the second quarter of 2010 relative to the first quarter of 2010 is primarily due to the higher non-cash stock-based compensation costs in the second quarter of 2010.

Employee stock-based compensation expense recorded in the second quarter of 2010 totaled $1.6 million, compared to $1.1 million for the first quarter of 2010 and $2.8 million for the second quarter of 2009.  The increase in employee stock-based compensation expense in the second quarter of 2010 relative to the first quarter of 2010 is the result of the cancellation of unvested options in the first quarter of 2010, which reduced the first quarter 2010 expense.

• Tax provision: Vanda recorded a tax benefit of $38,000 in the second quarter of 2010. The tax provision is based on an annualized effective tax rate for 2010 applied to the year to date 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 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 June 30, 2010 totaled approximately $207.1 million, compared to approximately $202.4 million as of March 31, 2010. Cash, cash equivalents and marketable securities increased by $4.7 million during the second quarter of 2010. Changes included: $1.3 million of net income, an increase in non-cash items of $2.0 million, the receipt of $5.4 million in amounts due from Novartis for the remaining finished product and royalty revenue, a decrease in inventory of $1.5 million for the final inventory sold to Novartis, a decrease of $6.7 million in the deferred revenue related to the upfront payment received from Novartis in December 2009, an increase in other working capital of $0.5 million and $0.7 million received in financing activities from the exercise of stock options.  

• Net income for the second quarter of 2010 was $1.3 million, compared to net income of $0.5 million for the first quarter of 2010 and a net loss of $12.4 million for the second quarter of 2009.

• Basic and diluted net income per common share for the second quarter of 2010 were $0.05 and $0.04, respectively, compared to basic and diluted net income per common share of $0.02 for the first quarter of 2010 and a basic and diluted net loss of $0.46 for the second quarter of 2009.