[PART I – FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section presents the company's unaudited condensed consolidated financial statements and related disclosures for the interim period [ITEM 1 Financial Statements (Unaudited)](index=5&type=section&id=ITEM%201%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements and notes for the quarter and nine months ended September 30, 2021 [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This statement provides a snapshot of the company's assets, liabilities, and equity at specific points in time Condensed Consolidated Balance Sheets (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $50,522 | $61,031 | | Marketable securities | $355,446 | $306,709 | | Accounts receivable, net | $41,496 | $30,036 | | Total current assets | $461,808 | $409,145 | | Total assets | $579,767 | $533,456 | | Total current liabilities | $71,997 | $65,936 | | Total liabilities | $86,446 | $80,190 | | Total stockholders' equity | $493,321 | $453,266 | - Total assets increased by **$46.3 million (8.7%)** from December 31, 2020, to September 30, 2021, primarily driven by increases in marketable securities and accounts receivable[13](index=13&type=chunk) [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This statement details the company's revenues, expenses, and net income over specific reporting periods Condensed Consolidated Statements of Operations (in thousands, except per share amounts) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net product sales | $70,095 | $60,308 | $200,663 | $180,515 | | Total operating expenses | $59,276 | $52,566 | $167,134 | $163,727 | | Income from operations | $10,819 | $7,742 | $33,529 | $16,788 | | Net income | $7,771 | $5,947 | $26,074 | $15,147 | | Basic EPS | $0.14 | $0.11 | $0.47 | $0.28 | | Diluted EPS | $0.14 | $0.11 | $0.46 | $0.28 | - Net product sales increased by **16%** for the three months and **11%** for the nine months ended September 30, 2021, compared to the same periods in 2020[15](index=15&type=chunk) - Net income increased by **30.7%** for the three months and **72.1%** for the nine months ended September 30, 2021, compared to the same periods in 2020[15](index=15&type=chunk) [Condensed Consolidated Statements of Comprehensive Income](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This statement presents net income and other comprehensive income, reflecting all changes in equity from non-owner sources Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income | $7,771 | $5,947 | $26,074 | $15,147 | | Other comprehensive income (loss), net of tax | $8 | $(217) | $(128) | $130 | | Comprehensive income | $7,779 | $5,730 | $25,946 | $15,277 | - Comprehensive income increased by **35.8%** for the three months and **69.8%** for the nine months ended September 30, 2021, primarily driven by the increase in net income[17](index=17&type=chunk) [Condensed Consolidated Statement of Changes in Stockholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statement%20of%20Changes%20in%20Stockholders'%20Equity) This statement details changes in equity components, including common stock, additional paid-in capital, and accumulated deficit Changes in Stockholders' Equity (in thousands, except share amounts) | Metric | Balances at Dec 31, 2020 | Balances at Sep 30, 2021 | | :-------------------------------- | :----------------------- | :----------------------- | | Common Stock (Shares) | 54,865,092 | 55,708,730 | | Common Stock (Par Value) | $55 | $56 | | Additional Paid-in Capital | $650,300 | $664,408 | | Accumulated Other Comprehensive Income | $239 | $111 | | Accumulated Deficit | $(197,328) | $(171,254) | | Total Stockholders' Equity | $453,266 | $493,321 | - Total stockholders' equity increased by **$40.1 million** from December 31, 2020, to September 30, 2021, primarily due to net income, stock-based compensation expense, and common stock issuance from option exercises and RSU settlements[19](index=19&type=chunk)[21](index=21&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This statement categorizes cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) for Nine Months Ended Sep 30 | Cash Flow Activity | 2021 | 2020 | | :-------------------------------- | :----------- | :----------- | | Net cash provided by operating activities | $37,607 | $32,473 | | Net cash used in investing activities | $(50,698) | $(24,813) | | Net cash provided by financing activities | $2,509 | $4,202 | | Net change in cash, cash equivalents and restricted cash | $(10,572) | $11,903 | - Net cash provided by operating activities increased by **$5.1 million (15.8%)** for the nine months ended September 30, 2021, compared to the same period in 2020[23](index=23&type=chunk) - Net cash used in investing activities significantly increased by **$25.9 million (104.3%)** for the nine months ended September 30, 2021, primarily due to higher purchases of marketable securities[23](index=23&type=chunk) [Notes to the Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20the%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the condensed consolidated financial statements [1. Business Organization and Presentation](index=12&type=section&id=1.%20Business%20Organization%20and%20Presentation) This note describes the company's biopharmaceutical focus, commercial products, and development pipeline - Vanda Pharmaceuticals Inc. is a global biopharmaceutical company focused on developing and commercializing innovative therapies for high unmet medical needs, operating in one reporting segment[26](index=26&type=chunk) - The commercial portfolio includes HETLIOZ® for Non-24-Hour Sleep-Wake Disorder (Non-24) and Smith-Magenis Syndrome (SMS), and Fanapt® for schizophrenia[27](index=27&type=chunk) - The company has several drugs in development, including HETLIOZ® for jet lag, DSPD, ASD, and pediatric Non-24; Fanapt® for bipolar disorder, Parkinson's disease psychosis, and a long-acting injectable formulation; Tradipitant for gastroparesis, motion sickness, atopic dermatitis, and COVID-19 pneumonia; VTR-297 for hematologic malignancies; CFTR activators/inhibitors for dry eye and secretory diarrhea; and VQW-765 for psychiatric disorders[30](index=30&type=chunk) [2. Summary of Significant Accounting Policies](index=12&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and estimates used in preparing the financial statements - Financial statements are prepared in accordance with GAAP for interim financial information, requiring management estimates and assumptions[28](index=28&type=chunk)[30](index=30&type=chunk) - Revenue from net product sales (HETLIOZ® and Fanapt®) is recognized when control of the product is transferred to the customer, net of various allowances (discounts, rebates, chargebacks, service fees, co-pay assistance, product returns)[33](index=33&type=chunk)[76](index=76&type=chunk) - Five major customers each accounted for over **10%** of total revenues and accounts receivable for the nine months ended September 30, 2021, collectively representing **92%** of total revenues and **93%** of accounts receivable[34](index=34&type=chunk) [3. Marketable Securities](index=14&type=section&id=3.%20Marketable%20Securities) This note details the composition and fair value of the company's available-for-sale marketable securities Available-for-Sale Marketable Securities (in thousands) | Category | Sep 30, 2021 Fair Market Value | Dec 31, 2020 Fair Market Value | | :-------------------------------- | :----------------------------- | :----------------------------- | | U.S. Treasury and government agencies | $177,098 | $166,092 | | Corporate debt | $178,348 | $140,617 | | **Total marketable securities** | **$355,446** | **$306,709** | - Total marketable securities increased by **$48.7 million (15.9%)** from December 31, 2020, to September 30, 2021, with all having contractual maturities of less than two years[36](index=36&type=chunk) [4. Fair Value Measurements](index=14&type=section&id=4.%20Fair%20Value%20Measurements) This note explains the company's fair value hierarchy and the classification of assets measured at fair value - The company classifies fair value measurements into a three-tier hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[37](index=37&type=chunk)[38](index=38&type=chunk) Fair Value Measurement as of September 30, 2021 (in thousands) | Asset Type | Total Fair Value | Level 1 | Level 2 | Level 3 | | :-------------------------------- | :--------------- | :------ | :------ | :------ | | U.S. Treasury and government agencies | $177,098 | $177,098 | $— | $— | | Corporate debt | $178,348 | $— | $178,348 | $— | | **Total assets measured at fair value** | **$355,446** | **$177,098** | **$178,348** | **$—** | - All assets measured at fair value as of September 30, 2021, were classified as Level 1 or Level 2, indicating reliance on observable market data[38](index=38&type=chunk) [5. Inventory](index=15&type=section&id=5.%20Inventory) This note provides a breakdown of current and non-current inventory balances and their changes Inventory (in thousands) | Category | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Current inventory | $902 | $1,280 | | Non-current inventory | $7,281 | $5,091 | | **Total inventory** | **$8,183** | **$6,371** | - Total inventory increased by **$1.8 million (28.4%)** from December 31, 2020, to September 30, 2021, primarily due to an increase in non-current raw materials and finished goods[41](index=41&type=chunk) [6. Intangible Assets](index=15&type=section&id=6.%20Intangible%20Assets) This note details the company's intangible assets, primarily HETLIOZ® license costs, and their amortization HETLIOZ® Intangible Assets (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Gross Carrying Amount | $33,000 | $33,000 | | Accumulated Amortization | $12,550 | $11,441 | | **Net Carrying Amount** | **$20,450** | **$21,559** | - Intangible assets primarily consist of capitalized license costs for HETLIOZ®, amortized on a straight-line basis over an estimated useful life ending July 2035[42](index=42&type=chunk)[43](index=43&type=chunk) - Amortization expense was **$0.4 million** for each of the three months and **$1.1 million** for each of the nine months ended September 30, 2021 and 2020[43](index=43&type=chunk) [7. Accounts Payable and Accrued Liabilities](index=16&type=section&id=7.%20Accounts%20Payable%20and%20Accrued%20Liabilities) This note provides a breakdown of the company's accounts payable and accrued liabilities Accounts Payable and Accrued Liabilities (in thousands) | Category | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Research and development expenses | $9,010 | $6,173 | | Consulting and other professional fees | $7,371 | $5,052 | | Royalties payable | $6,061 | $5,817 | | Compensation and employee benefits | $5,434 | $10,951 | | **Total accounts payable and accrued liabilities** | **$31,820** | **$31,509** | - Total accounts payable and accrued liabilities remained stable, with an increase in R&D and consulting fees offset by a decrease in compensation and employee benefits[44](index=44&type=chunk) [8. Commitments and Contingencies](index=16&type=section&id=8.%20Commitments%20and%20Contingencies) This note discloses the company's contractual obligations, license agreements, and potential legal liabilities - The company has intellectual property indemnification agreements with unlimited potential future payments, though no costs have been incurred to date[45](index=45&type=chunk) - License agreements include HETLIOZ® (BMS, **10%** royalty on net sales), Fanapt® (Novartis/Sanofi, **6%** royalty on U.S. net sales through Nov 2026), Tradipitant (Lilly, up to **$97.0 million** in remaining milestones), CFTR activators/inhibitors (UCSF, up to **$45.2 million** in remaining milestones, **$350 thousand** accrued as probable), and VQW-765 (Novartis, tiered royalties up to mid-teens)[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk) - Purchase commitments for clinical development and manufacturing services are generally terminable on **90 days'** notice[51](index=51&type=chunk) [9. Accumulated Other Comprehensive Income](index=18&type=section&id=9.%20Accumulated%20Other%20Comprehensive%20Income) This note details the components of accumulated other comprehensive income, including foreign currency translation and unrealized gains Accumulated Other Comprehensive Income (in thousands) | Component | Sep 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Foreign currency translation | $33 | $81 | | Unrealized gain on marketable securities | $78 | $158 | | **Accumulated other comprehensive income** | **$111** | **$239** | - Accumulated other comprehensive income decreased by **$128 thousand** from December 31, 2020, to September 30, 2021, primarily due to a decrease in unrealized gains on marketable securities[52](index=52&type=chunk) [10. Stock-Based Compensation](index=18&type=section&id=10.%20Stock-Based%20Compensation) This note outlines the company's stock-based compensation plans, outstanding awards, and related expenses - As of September 30, 2021, there were **5,875,098 shares** subject to outstanding options and restricted stock units (RSUs) under the 2006 and 2016 Equity Incentive Plans[53](index=53&type=chunk) - Unrecognized compensation costs for unvested service option awards were **$9.9 million** (weighted average period of **1.4 years**) and for unvested service RSUs were **$25.7 million** (weighted average period of **1.8 years**)[55](index=55&type=chunk)[58](index=58&type=chunk) Stock-Based Compensation Expense (in thousands) | Category | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Research and development | $893 | $853 | $2,970 | $2,864 | | Selling, general and administrative | $3,058 | $2,282 | $8,630 | $7,284 | | **Total stock-based compensation expense** | **$3,951** | **$3,135** | **$11,600** | **$10,148** | [11. Income Taxes](index=20&type=section&id=11.%20Income%20Taxes) This note details the company's income tax expense and the factors influencing its effective tax rate Income Tax Expense (in thousands) | Period | 2021 | 2020 | | :-------------------------------- | :----------- | :----------- | | Three months ended Sep 30 | $3,000 | $2,500 | | Nine months ended Sep 30 | $7,700 | $5,600 | - Income tax expense increased for both the three and nine months ended September 30, 2021, primarily due to the estimated effective tax rate for the year and discrete income tax expenses[61](index=61&type=chunk) [12. Earnings per Share](index=20&type=section&id=12.%20Earnings%20per%20Share) This note presents the basic and diluted earnings per share calculations for the reporting periods Net Income Per Share | Metric | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic | $0.14 | $0.11 | $0.47 | $0.28 | | Diluted | $0.14 | $0.11 | $0.46 | $0.28 | - Basic and diluted EPS increased for both the three and nine months ended September 30, 2021, reflecting higher net income[63](index=63&type=chunk) [13. Legal Matters](index=20&type=section&id=13.%20Legal%20Matters) This note provides an overview of the company's ongoing patent infringement lawsuits, qui tam action, and securities class action - The company is involved in patent infringement lawsuits for Fanapt® and HETLIOZ® against generic manufacturers, with some settlements reached for Fanapt® and HETLIOZ® trials scheduled for March 2022[64](index=64&type=chunk)[65](index=65&type=chunk)[66](index=66&type=chunk) - A qui tam action alleging false claims related to Fanapt® and HETLIOZ® promotion is ongoing, with the company vigorously defending itself after a motion to dismiss was denied[66](index=66&type=chunk) - A securities class action and shareholder derivative complaints were filed, with the derivative cases settled without material impact to the company, while the securities class action continues[66](index=66&type=chunk) [ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations](index=21&type=section&id=ITEM%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition, results of operations, and liquidity [Overview](index=22&type=section&id=Overview) This section provides a high-level summary of the company's business, commercial products, and development pipeline - Vanda Pharmaceuticals is a global biopharmaceutical company focused on developing and commercializing innovative therapies, leveraging genetics and genomics in its processes[67](index=67&type=chunk)[68](index=68&type=chunk) - Commercial products include HETLIOZ® (Non-24, SMS) and Fanapt® (schizophrenia), with a pipeline featuring HETLIOZ® (jet lag, DSPD, ASD, pediatric Non-24), Fanapt® (bipolar disorder, Parkinson's disease psychosis, LAI), Tradipitant (gastroparesis, motion sickness, atopic dermatitis, COVID-19 pneumonia), VTR-297, CFTR activators/inhibitors, and VQW-765[69](index=69&type=chunk)[71](index=71&type=chunk) - Operational highlights include completion of randomized portion of Tradipitant Phase III study in gastroparesis (results expected by end of 2021), FDA approval of HETLIOZ® for SMS in Dec 2020, ongoing Phase III studies for HETLIOZ® in DSPD and Fanapt® in acute bipolar mania, and development of a Fanapt® LAI formulation[69](index=69&type=chunk)[72](index=72&type=chunk) [Critical Accounting Policies](index=23&type=section&id=Critical%20Accounting%20Policies) This section discusses the company's significant accounting policies that require complex judgments and estimates - Revenue from net product sales is recognized when control is transferred to the customer, net of various allowances including discounts, rebates, chargebacks, service fees, co-pay assistance, and product returns[76](index=76&type=chunk) Sales Discounts and Allowance Activity (in thousands) for Nine Months Ended Sep 30, 2021 | Category | Balances at Dec 31, 2020 | Provision related to current period sales | Adjustments for prior period sales | Credits/payments made | Balances at Sep 30, 2021 | | :-------------------------------- | :----------------------- | :-------------------------------------- | :------------------------------- | :-------------------- | :----------------------- | | Rebates & Chargebacks | $26,870 | $62,616 | $(778) | $(56,268) | $32,440 | | Discounts, Returns and Other | $8,873 | $23,163 | $(132) | $(22,937) | $8,967 | | **Total** | **$35,743** | **$85,779** | **$(910)** | **$(79,205)** | **$41,407** | - Research and development expenses are expensed as incurred for products in the development stage, including pre-approval milestone payments, while post-approval manufacturing and milestone payments are capitalized[87](index=87&type=chunk) [Results of Operations](index=26&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including revenue, operating expenses, and net income trends Total Revenues (in thousands) | Period | Sep 30, 2021 | Sep 30, 2020 | Net Change | Percent Change | | :-------------------------------- | :----------- | :----------- | :--------- | :------------- | | Three Months Ended | $70,095 | $60,308 | $9,787 | 16% | | Nine Months Ended | $200,663 | $180,515 | $20,148 | 11% | - HETLIOZ® net product sales increased by **15%** for the three months and **11%** for the nine months ended September 30, 2021, primarily due to price increases[93](index=93&type=chunk)[99](index=99&type=chunk) - Research and development expenses increased by **60%** for the three months and **38%** for the nine months ended September 30, 2021, driven by increased investment in Fanapt® and Tradipitant development programs[93](index=93&type=chunk)[99](index=99&type=chunk) - Selling, general and administrative expenses decreased by **5%** for the three months and **14%** for the nine months ended September 30, 2021, primarily due to reduced spending on marketing activities[95](index=95&type=chunk)[101](index=101&type=chunk) [Liquidity and Capital Resources](index=29&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's ability to meet its short-term and long-term financial obligations and funding sources Total Cash, Cash Equivalents and Marketable Securities (in thousands) | Date | Amount | | :-------------------------------- | :----------- | | Sep 30, 2021 | $405,968 | | Dec 31, 2020 | $367,740 | - The company believes its current cash, cash equivalents, marketable securities, and product sales will be sufficient for at least the next **12 months**, but may seek additional capital[106](index=106&type=chunk) Net Cash Flows (in thousands) for Nine Months Ended Sep 30 | Activity | 2021 | 2020 | | :-------------------------------- | :----------- | :----------- | | Operating activities | $37,607 | $32,473 | | Investing activities | $(50,698) | $(24,813) | | Financing activities | $2,509 | $4,202 | | Net change in cash, cash equivalents and restricted cash | $(10,572) | $11,903 | Non-Cancellable Long-Term Contractual Cash Obligations as of Sep 30, 2021 (in thousands) | Obligation Type | Total | 2021 | 2022 | 2023 | 2024 | 2025 | Thereafter | | :------------------------------------------ | :---- | :--- | :--- | :--- | :--- | :--- | :--------- | | Operating leases | $16,376 | $640 | $2,606 | $2,461 | $2,488 | $2,557 | $5,624 | | Milestone obligation | $350 | $350 | $— | $— | $— | $— | $— | | Purchase commitments | $956 | $475 | $481 | $— | $— | $— | $— | | **Total** | **$17,682** | **$1,465** | **$3,087** | **$2,461** | **$2,488** | **$2,557** | **$5,624** | [ITEM 3 Quantitative and Qualitative Disclosures about Market Risk](index=31&type=section&id=ITEM%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section outlines the company's exposure to market risks, including interest rate, credit, and foreign currency fluctuations [Interest Rate Risks](index=31&type=section&id=Interest%20Rate%20Risks) This note discusses the company's exposure to interest rate fluctuations on its cash and investment portfolio - The company's market risk exposure is confined to cash, cash equivalents, marketable securities, and restricted cash[113](index=113&type=chunk) - Due to the short-term maturities of investments, significant interest rate increases are not expected to materially impact the realized value of investments[113](index=113&type=chunk) [Concentrations of Credit Risk](index=31&type=section&id=Concentrations%20of%20Credit%20Risk) This note identifies significant concentrations of credit risk related to cash, marketable securities, and customer revenues - Cash and marketable securities are held with high-credit-quality financial institutions and consist of investment-grade, liquid, short-term fixed income securities[114](index=114&type=chunk) - Revenues and accounts receivable are highly concentrated, with **five major customers** representing **92%** of total revenues and **93%** of accounts receivable for the nine months ended September 30, 2021[115](index=115&type=chunk) [Foreign Currency Risk](index=31&type=section&id=Foreign%20Currency%20Risk) This note addresses the company's exposure to foreign currency exchange rate fluctuations from international operations - The company is exposed to foreign currency exchange rate risks from its international subsidiaries' operations and the translation of their financial statements into U.S. dollars[116](index=116&type=chunk) - Foreign currency fluctuations have not had a material impact on the company's results of operations, and it does not currently hedge this risk[117](index=117&type=chunk) [Effects of Inflation](index=32&type=section&id=Effects%20of%20Inflation) This note assesses the impact of inflation on the company's financial results and operations - Inflation has not had a material impact on the company's results of operations[118](index=118&type=chunk) [ITEM 4 Controls and Procedures](index=32&type=section&id=ITEM%204%20Controls%20and%20Procedures) This section details management's evaluation of disclosure controls and internal control over financial reporting [Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures](index=32&type=section&id=Conclusion%20Regarding%20the%20Effectiveness%20of%20Disclosure%20Controls%20and%20Procedures) This note presents management's conclusion on the effectiveness of the company's disclosure controls and procedures - The company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective as of September 30, 2021[119](index=119&type=chunk) [Changes in Internal Control over Financial Reporting](index=32&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This note reports on any material changes in the company's internal control over financial reporting during the period - There were no material changes in the company's internal control over financial reporting during the third quarter of 2021[120](index=120&type=chunk) [PART II – OTHER INFORMATION](index=32&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This section provides additional non-financial disclosures and other required information for the interim period [ITEM 1 Legal Proceedings](index=32&type=section&id=ITEM%201%20Legal%20Proceedings) This section refers to Note 13 for detailed information regarding the company's legal proceedings - Information on legal proceedings is incorporated by reference from Note 13 to the condensed consolidated financial statements[121](index=121&type=chunk) [ITEM 1A Risk Factors](index=32&type=section&id=ITEM%201A%20Risk%20Factors) This section reports no material changes to the risk factors previously disclosed in the annual report on Form 10-K - No material changes in risk factors have occurred since the filing of the Annual Report for the fiscal year ended December 31, 2020[122](index=122&type=chunk) [ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds](index=32&type=section&id=ITEM%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports no unregistered sales of equity securities or use of proceeds - No unregistered sales of equity securities or use of proceeds to report[123](index=123&type=chunk) [ITEM 3 Defaults Upon Senior Securities](index=32&type=section&id=ITEM%203%20Defaults%20Upon%20Senior%20Securities) This section indicates no defaults upon senior securities to report - No defaults upon senior securities to report[123](index=123&type=chunk) [ITEM 4 Mine Safety Disclosures](index=33&type=section&id=ITEM%204%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[124](index=124&type=chunk) [ITEM 5 Other Information](index=33&type=section&id=ITEM%205%20Other%20Information) This section reports no other information to disclose - No other information to report[124](index=124&type=chunk) [ITEM 6 Exhibits](index=33&type=section&id=ITEM%206%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including corporate governance documents and certifications - Key exhibits include the Amended and Restated Certificate of Incorporation, Fourth Amended and Restated Bylaws, certifications of the Chief Executive Officer and Chief Financial Officer, and financial information formatted in Inline Extensible Business Reporting Language (iXBRL)[125](index=125&type=chunk) [Signatures](index=35&type=section&id=Signatures) This section contains the signatures of the company's principal executive and financial officers, certifying the report - The report was signed by Mihael H. Polymeropoulos, M.D., President, Chief Executive Officer and Chairman of the Board, and Kevin Moran, Chief Financial Officer, on November 4, 2021[129](index=129&type=chunk)

Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) Q3 2021 Earnings Conference Call November 2, 2021 4:30 PM ET Company Participants Kevin Moran - Chief Financial Officer Mihael Polymeropoulos - President and Chief Executive Officer Conference Call Participants Chris Howerton - Jefferies Olivia Brayer - Bank of America Operator Good day and thank you for standing by. Welcome to the Third Quarter 2021 Vanda Pharmaceuticals Conference Call. At this time, all participant lines are in a listen-only mode. After the speake ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-34186 VANDA PHARMACEUTICALS INC. (Exact name of registrant as specified in its charter) Delaware 03-0491827 (S ...

Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) Q2 2021 Earnings Conference Call July 28, 2021 4:30 PM ET Company Participants Kevin Moran - Chief Financial Officer Mihael Polymeropoulos - President and Chief Executive Officer Conference Call Participants Olivia Brayer - Bank of America Operator Good day and thank you for standing by. Welcome to the Vanda Pharmaceuticals Inc. Second quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] I would now ...

Table of Contents Form 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2021 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-34186 VANDA PHARMACEUTICALS INC. (Exact name of registrant as specified in its charter) UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Delaware 03-0491827 ( ...

Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) Q1 2021 Earnings Conference Call May 5, 2021 4:30 PM ET Company Participants Kevin Moran - Chief Financial Officer Mihael Polymeropoulos - President and Chief Executive Officer Conference Call Participants Chris Howerton - Jefferies Operator Good day and thank you for standing by. Welcome to the Q1 2021 Vanda Pharmaceuticals Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a questio ...

Part I [Cautionary Note Regarding Forward-Looking Statements](index=4&type=section&id=Cautionary%20Note%20Regarding%20Forward-Looking%20Statements) This section warns investors that the report contains forward-looking statements based on current expectations and assumptions, which are subject to risks and uncertainties, explicitly stating that actual results may differ materially and advising readers not to place undue reliance on these statements, with Vanda disclaiming any obligation to update them - Forward-looking statements cover various aspects of the business, including the commercialization of HETLIOZ® and Fanapt®, the impact of COVID-19, dependence on third-party manufacturers, regulatory approval strategies, clinical trial outcomes, and financial trends[13](index=13&type=chunk) - The company cautions that these statements are not guarantees of future performance and are qualified by the risk factors discussed elsewhere in the report[12](index=12&type=chunk)[14](index=14&type=chunk)[15](index=15&type=chunk) [Summary of Principal Risk Factors](index=6&type=section&id=Summary%20of%20Principal%20Risk%20Factors) This section provides a high-level summary of the principal risks and uncertainties facing Vanda's business, categorizing risks into 'Risks Related to our Business and Industry' and 'Risks Related to Intellectual Property and Other Legal Matters,' and directing readers to Item 1A for a more comprehensive discussion - **Business and Industry Risks:** Key risks include dependence on HETLIOZ® and Fanapt®, potential for slow growth, impact of global health crises like COVID-19, uncertainty of regulatory approvals for pipeline products (tradipitant, HETLIOZ® for jet lag), and reliance on third-party manufacturers and distributors[19](index=19&type=chunk)[20](index=20&type=chunk) - **Intellectual Property and Legal Risks:** Major risks involve the adequacy of intellectual property protection, potential for expensive patent litigation, reliance on license agreements, and the risk of third-party infringement claims[22](index=22&type=chunk)[23](index=23&type=chunk) [Business](index=8&type=section&id=Item%201.%20Business) Vanda Pharmaceuticals is a global biopharmaceutical company focused on developing and commercializing therapies for unmet medical needs, with a commercial portfolio including HETLIOZ® (for Non-24 and SMS) and Fanapt® (for schizophrenia) that generated total net sales of $248.2 million in 2020, supported by a robust development pipeline and an outsourced manufacturing model, all subject to extensive government regulation and significant competition [Overview and Strategy](index=8&type=section&id=Item%201.%20Business%20-%20Overview%20and%20Strategy) Vanda is a global biopharmaceutical company focused on innovative therapies for high unmet medical needs, with a strategy involving maximizing the commercial success of HETLIOZ® and Fanapt®, entering strategic partnerships, pursuing clinical development of its pipeline (including tradipitant), applying pharmacogenetics expertise, and acquiring new products - The company's core strategy is to develop and commercialize innovative therapies by applying drug development and pharmacogenetics/pharmacogenomics expertise[27](index=27&type=chunk) - Key strategic elements include maximizing sales of existing products, forming partnerships, advancing the clinical pipeline, and acquiring new assets[27](index=27&type=chunk) [Commercialized Products](index=9&type=section&id=Item%201.%20Business%20-%20Commercialized%20Products) Vanda's commercial portfolio consists of two main products: HETLIOZ® and Fanapt®, with HETLIOZ® generating $160.7 million in net sales in 2020 for Non-24 and newly approved for nighttime sleep disturbances in Smith-Magenis Syndrome (SMS), and Fanapt® generating $87.5 million in net sales for schizophrenia, making HETLIOZ® the first FDA-approved treatment for both Non-24 and SMS 2020 Net Sales by Product | Product | Indication(s) | 2020 Net Sales (in millions) | Geography | | :--- | :--- | :--- | :--- | | HETLIOZ® | Non-24, Nighttime sleep disturbances in SMS | $160.7 | United States, Europe (Non-24 Only) | | Fanapt® | Schizophrenia | $87.5 | United States, Israel | - HETLIOZ® capsules and oral suspension (HETLIOZ LQ™) were approved in the U.S. in December 2020 for treating nighttime sleep disturbances in adults and children with Smith-Magenis Syndrome (SMS), a rare developmental disorder[32](index=32&type=chunk) - HETLIOZ® was first approved in the U.S. in January 2014 for Non-24-Hour Sleep-Wake Disorder (Non-24), a condition affecting a majority of totally blind individuals[29](index=29&type=chunk)[30](index=30&type=chunk) - Fanapt® was approved for the maintenance treatment of schizophrenia in adults in May 2016, expanding on its initial 2009 approval for acute treatment[33](index=33&type=chunk) [Research and Development](index=11&type=section&id=Item%201.%20Business%20-%20Research%20and%20Development) Vanda has a multi-product clinical pipeline, with key programs including expanding HETLIOZ® indications to jet lag disorder, pediatric Non-24, DSPD, and ASD, ongoing Fanapt® development for bipolar disorder, PDP, and a long-acting injectable (LAI) formulation, and Tradipitant in Phase III trials for gastroparesis, motion sickness, and COVID-19 pneumonia, having completed a Phase III study for atopic dermatitis, alongside other early-stage pipeline assets - **HETLIOZ® Pipeline:** sNDA for jet lag disorder received a CRL from the FDA; development is planned or ongoing for pediatric Non-24, Delayed Sleep Phase Disorder (DSPD), and Autism Spectrum Disorder (ASD)[37](index=37&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk) - **Fanapt® Pipeline:** A Phase III study in bipolar disorder is ongoing, and a clinical program in Parkinson's disease psychosis (PDP) is expected to begin in 2021; a long-acting injectable (LAI) formulation is also in development[39](index=39&type=chunk)[40](index=40&type=chunk) - **Tradipitant Pipeline:** Phase III studies are ongoing for gastroparesis and COVID-19 pneumonia; a pivotal Phase III study for motion sickness is being prepared; a Phase III study (EPIONE) for atopic dermatitis did not meet its primary endpoint, but a second study (EPIONE 2) is on hold due to COVID-19[42](index=42&type=chunk)[45](index=45&type=chunk)[49](index=49&type=chunk)[51](index=51&type=chunk) - The FDA has informed Vanda that a 9-month non-rodent chronic toxicity study is required for tradipitant to treat patients beyond 12 weeks, which could impact its approval for chronic indications like gastroparesis[43](index=43&type=chunk) - **Early-Stage Pipeline:** Includes VTR-297 (HDAC inhibitor for oncology), VSJ-110 (CFTR activator for dry eye), BPO-27 (CFTR inhibitor for cholera), and VQW-765 (nicotinic receptor partial agonist for psychiatric disorders)[53](index=53&type=chunk)[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk) [License Agreements](index=16&type=section&id=Item%201.%20Business%20-%20License%20Agreements) Vanda's product rights are primarily derived from license agreements, including an exclusive worldwide license for HETLIOZ® from Bristol-Myers Squibb (BMS) with ongoing royalty obligations, acquired U.S. and Canadian rights to Fanapt® from Novartis with royalty obligations to Sanofi, and an exclusive worldwide license for tradipitant from Eli Lilly involving potential future milestone and royalty payments, alongside other key agreements with UCSF for a CFTR portfolio and Novartis for VQW-765 - **HETLIOZ® (BMS):** Vanda pays BMS a 10% royalty on net sales in territories with an active NCE patent, and a lower rate thereafter; all milestone obligations to BMS have been paid[59](index=59&type=chunk) - **Fanapt® (Novartis/Sanofi):** Vanda has an obligation to pay Sanofi a 6% royalty on U.S. net sales through November 2026[60](index=60&type=chunk) - **Tradipitant (Lilly):** Vanda has paid $3.0 million in upfront/milestone fees; remaining obligations include up to $17.0 million in development/regulatory milestones and up to $80.0 million in sales milestones, plus tiered royalties[61](index=61&type=chunk) - **CFTR Portfolio (UCSF):** Vanda has paid $1.2 million in upfront/milestone fees; remaining obligations include $12.2 million for development milestones and $33.0 million for regulatory/sales milestones, plus single-digit royalties[64](index=64&type=chunk) - **VQW-765 (Novartis):** Vanda has no milestone obligations but is required to pay tiered royalties up to the mid-teens on net sales[66](index=66&type=chunk) [Patents and Proprietary Rights](index=17&type=section&id=Item%201.%20Business%20-%20Patents%20and%20Proprietary%20Rights) Vanda protects its products through patents, regulatory exclusivity, and trade secrets, with the U.S. New Chemical Entity (NCE) patent for HETLIOZ® expiring in December 2022 but also protected by multiple method-of-treatment patents expiring between 2033 and 2035, while the NCE patent for Fanapt® has expired but is protected by method-of-treatment patents with the latest expiring in December 2031, and the NCE patent for tradipitant expires in June 2024 in the U.S., subject to potential extension - The U.S. NCE patent for HETLIOZ® expires in December 2022; the company also holds 12 U.S. method-of-treatment patents for HETLIOZ® expiring between 2033 and 2035[71](index=71&type=chunk) - The NCE patent for Fanapt® has expired; however, it is protected by multiple U.S. method-of-treatment patents, with expiration dates extending to December 2031[73](index=73&type=chunk) - The NCE patent for tradipitant expires in June 2024 in the U.S., subject to potential Hatch-Waxman extension[74](index=74&type=chunk) - In Europe, HETLIOZ® is protected by 10 years of data exclusivity from its 2015 approval, with potential for extensions[71](index=71&type=chunk) [Marketing, Sales, and Major Customers](index=21&type=section&id=Item%201.%20Business%20-%20Marketing,%20Sales,%20and%20Major%20Customers) Vanda commercially launched HETLIOZ® in the U.S. in April 2014 and in Germany in August 2016, and Fanapt® in the U.S. in January 2010, with its revenues highly concentrated among five major customers (specialty pharmacies and wholesalers) accounting for 95% of total revenues in 2020 - Revenues are highly concentrated with 5 major customers: Diplomat Pharmacy (UnitedHealth), Accredo (Express Scripts), Cardinal Health, AmerisourceBergen, and McKesson[81](index=81&type=chunk) - These 5 customers collectively represented 95% of total revenues for the year ended December 31, 2020[81](index=81&type=chunk) [Competition](index=21&type=section&id=Item%201.%20Business%20-%20Competition) The pharmaceutical industry is highly competitive, with HETLIOZ® facing no direct FDA-approved competitors for its indications but competing indirectly with sedative-hypnotics like Ambien® and Lunesta®, and melatonin agonists like Rozerem®, while Fanapt® competes in the crowded atypical antipsychotics market against products like Risperdal®, Zyprexa®, Seroquel®, and Abilify®, many of which have generic versions available - **HETLIOZ® Competition:** While there are no direct FDA-approved competitors for Non-24 or SMS, it faces indirect competition from sedative-hypnotics (e.g., Ambien®, Lunesta®), other melatonin agonists (e.g., Rozerem®), and over-the-counter remedies[83](index=83&type=chunk) - **Fanapt® Competition:** Competes with a large number of atypical antipsychotics, including Risperdal®, Zyprexa®, Seroquel®, Abilify®, Latuda®, and Vraylar®, as well as their generic equivalents[84](index=84&type=chunk) [Manufacturing](index=23&type=section&id=Item%201.%20Business%20-%20Manufacturing) Vanda operates a virtual manufacturing model, relying entirely on third-party contractors for the production of its commercial and clinical trial supplies, with manufacturing agreements primarily with Patheon (a subsidiary of Thermo Fisher Scientific) for HETLIOZ® capsules and Fanapt® tablets, and a separate non-exclusive agreement established in December 2020 for the manufacturing of HETLIOZ LQ™ oral suspension - Vanda does not own manufacturing facilities and uses a virtual supply chain, contracting with third parties for all manufacturing[85](index=85&type=chunk) - Key manufacturing partner is Patheon (Thermo Fisher Scientific) for HETLIOZ® capsules and Fanapt® tablets[87](index=87&type=chunk) - A new non-exclusive manufacturing agreement for HETLIOZ LQ™ was signed in December 2020[88](index=88&type=chunk) [Government Regulation](index=24&type=section&id=Item%201.%20Business%20-%20Government%20Regulation) Vanda is subject to extensive regulation by the FDA in the U.S. and comparable authorities abroad, covering the entire product lifecycle from research and development to manufacturing (cGMP), approval (NDA), labeling, marketing, and post-approval monitoring, in addition to compliance with fraud and abuse laws (e.g., Anti-Kickback Statute, False Claims Act), pricing regulations (e.g., Medicaid Drug Rebate Program), and data privacy laws (e.g., HIPAA, GDPR), with healthcare reform like the ACA also significantly impacting pricing and reimbursement - The FDA drug development process involves preclinical testing, an IND application, and three phases of human clinical trials (Phase I, II, III) before an NDA can be submitted for review[91](index=91&type=chunk)[93](index=93&type=chunk)[100](index=100&type=chunk) - The FDA offers programs to expedite development and review for drugs treating serious conditions, such as Fast Track, Priority Review, and Breakthrough Therapy designation[111](index=111&type=chunk)[113](index=113&type=chunk)[115](index=115&type=chunk) - The Hatch-Waxman Act provides marketing exclusivity for new drugs, including five years for New Chemical Entities (NCEs) and three years for new indications, and governs the process for generic drug (ANDA) approval and patent challenges[117](index=117&type=chunk)[120](index=120&type=chunk)[123](index=123&type=chunk) - The company is subject to numerous fraud and abuse laws, including the federal Anti-Kickback Statute, which prohibits remuneration to induce purchases of healthcare items, and the False Claims Act, which prohibits false claims for payment from government funds[125](index=125&type=chunk)[128](index=128&type=chunk) - The Affordable Care Act (ACA) has significantly impacted the industry through measures like increased Medicaid rebates, a new Medicare Part D discount program, and an annual fee on branded prescription drug manufacturers[142](index=142&type=chunk)[143](index=143&type=chunk) [Human Capital and Corporate Information](index=35&type=section&id=Item%201.%20Business%20-%20Human%20Capital%20and%20Corporate%20Information) As of December 31, 2020, Vanda had 292 full-time employees, an increase from 284 in the prior year, considering its employee relations to be good and focusing on attracting, training, and retaining employees to support innovation, with the company incorporated in Delaware in 2002 and headquartered in Washington, D.C - The company had 292 full-time employees as of December 31, 2020[151](index=151&type=chunk) - Vanda's human capital objectives include attracting, training, and retaining employees to foster innovation[151](index=151&type=chunk) [Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) This section details the significant risks that could materially affect Vanda's business, financial condition, and operating results, categorized into business and industry, intellectual property and legal matters, and general risks, with key concerns including heavy dependence on HETLIOZ® and Fanapt®, COVID-19 impact, uncertainty of clinical trial outcomes and regulatory approvals, reliance on third-party manufacturers, intense competition, potential patent litigation, stock price volatility, and activist stockholder actions [Risks Related to Business and Industry](index=36&type=section&id=Item%201A.%20Risk%20Factors%20-%20Risks%20Related%20to%20Business%20and%20Industry) Vanda's business is substantially dependent on the commercial success of HETLIOZ® and Fanapt®, with growth potentially limited by competition, safety issues, or lack of market acceptance, while the COVID-19 pandemic poses risks to revenue, supply chains, and clinical trials, and significant uncertainty exists regarding FDA approval for pipeline products like tradipitant and new indications for HETLIOZ®, further compounded by reliance on limited specialty pharmacies and wholesalers for distribution, and on third-party manufacturers for its entire product supply, with failure to comply with complex government regulations, including fraud and abuse laws and pricing rules, potentially resulting in severe penalties, and the company also facing substantial competition from larger firms and potential generic entrants - The company's future success is substantially dependent on the commercial success of HETLIOZ® and Fanapt®[160](index=160&type=chunk) - The COVID-19 pandemic may adversely impact business through curtailed sales force access, disruptions to clinical trials, and supply chain interruptions[170](index=170&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk) - The FDA's requirement for a 9-month non-rodent chronic toxicity study for tradipitant may impact its approval for chronic indications, limiting it to short-term use[177](index=177&type=chunk)[179](index=179&type=chunk) - The company relies on a limited number of specialty pharmacies for HETLIOZ® distribution and wholesalers for Fanapt®, creating concentration risk[202](index=202&type=chunk)[203](index=203&type=chunk) - Vanda depends completely on a small number of third-party manufacturers (like Patheon) for its product supply, exposing it to risks of production disruption and lack of direct oversight[238](index=238&type=chunk)[239](index=239&type=chunk) - Healthcare reform measures, such as the ACA and other legislative proposals, may increase rebate liabilities and put downward pressure on drug prices, adversely affecting business[249](index=249&type=chunk)[250](index=250&type=chunk)[251](index=251&type=chunk) [Risks Related to Intellectual Property and Other Legal Matters](index=55&type=section&id=Item%201A.%20Risk%20Factors%20-%20Risks%20Related%20to%20Intellectual%20Property%20and%20Other%20Legal%20Matters) Vanda's ability to compete depends on protecting its intellectual property, with its rights partly based on licenses from third parties that could be terminated, and its patents potentially challenged, circumvented, or found invalid or unenforceable, particularly through ANDA litigation by generic competitors, leading to expensive and time-consuming lawsuits to enforce its patents for both Fanapt® and HETLIOZ®, while failure to obtain patent term extensions under the Hatch-Waxman Act could also harm the business, and third-party claims of IP infringement could lead to costly litigation and block product commercialization - The company's rights to its products are subject to license agreements that can be terminated, which would cause the rights to revert to the licensor[257](index=257&type=chunk)[258](index=258&type=chunk) - Patents may be challenged or designed around by competitors, and trade secrets may be disclosed or independently developed[260](index=260&type=chunk)[261](index=261&type=chunk) - The company is, has been, and may continue to be involved in expensive and time-consuming lawsuits to protect or enforce its patents against generic drug manufacturers filing ANDAs[263](index=263&type=chunk)[265](index=265&type=chunk) - Failure to obtain patent term extensions under the Hatch-Waxman Act or similar foreign legislation could materially impair the ability to prevent generic competition[266](index=266&type=chunk)[267](index=267&type=chunk) [General Risk Factors](index=59&type=section&id=Item%201A.%20Risk%20Factors%20-%20General%20Risk%20Factors) This subsection outlines general risks, including the high volatility of the company's stock price, which can be influenced by clinical trial results, regulatory decisions, and broader market fluctuations, the potential for litigation including securities class actions, the risk of significant sales of common stock by large institutional holders depressing the stock price, potential dilution from future equity offerings, the disruptive and costly nature of activist stockholder actions, anti-takeover provisions in the company's charter, and potential cybersecurity breaches that could compromise sensitive data and disrupt operations - The company's stock price has been and may continue to be highly volatile due to a variety of factors including clinical trial results, regulatory outcomes, and competitor announcements[273](index=273&type=chunk)[274](index=274&type=chunk) - A small number of institutional investors hold a significant amount of common stock, and substantial sales by them could cause the stock price to decline[277](index=277&type=chunk) - Anti-takeover provisions in the company's charter and Delaware law could prevent or delay a change in control, even if beneficial to stockholders[283](index=283&type=chunk)[286](index=286&type=chunk) - The company is increasingly dependent on IT systems and is vulnerable to cybersecurity breaches, which could expose sensitive data, result in liability, and damage its reputation[291](index=291&type=chunk)[292](index=292&type=chunk) [Unresolved Staff Comments](index=64&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments - Not applicable[294](index=294&type=chunk) [Properties](index=64&type=section&id=Item%202.%20Properties) Vanda's headquarters is located in Washington, D.C., where it leases 43,462 square feet of office space with lease terms expiring between 2026 and 2028, and the company also leases 2,880 square feet of office space in London, England, with a lease term ending in 2023, believing these facilities are adequate for its near-term needs - The company's headquarters consists of 43,462 square feet of leased office space in Washington, D.C[295](index=295&type=chunk) - An additional 2,880 square feet of office space is leased in London, England[295](index=295&type=chunk) [Legal Proceedings](index=64&type=section&id=Item%203.%20Legal%20Proceedings) This section incorporates by reference the information on legal proceedings found in Note 17 of the consolidated financial statements, detailing key legal matters including ongoing patent infringement lawsuits against generic manufacturers for both Fanapt® and HETLIOZ®, a qui tam action, a securities class action, and a shareholder derivative complaint - Information regarding legal proceedings is detailed in Note 17 to the consolidated financial statements[296](index=296&type=chunk) [Mine Safety Disclosures](index=65&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company reports that this item is not applicable - Not applicable[297](index=297&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=65&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity,%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Vanda's common stock trades on The Nasdaq Global Market under the symbol 'VNDA', with seven holders of record as of February 4, 2021, and the company has never paid cash dividends nor plans to do so in the foreseeable future, with the report including a five-year stock performance graph comparing VNDA to the Nasdaq Composite and Nasdaq Biotechnology Indexes - The company's common stock is traded on The Nasdaq Global Market under the symbol 'VNDA'[299](index=299&type=chunk) - Vanda has never paid cash dividends and does not intend to pay them in the foreseeable future[300](index=300&type=chunk) [Selected Consolidated Financial Data](index=67&type=section&id=Item%206.%20Selected%20Consolidated%20Financial%20Data) This section presents a five-year summary of Vanda's selected consolidated financial data, including key figures from the statements of operations and balance sheets from 2016 through 2020, showing total revenues grew from $146.0 million in 2016 to $248.2 million in 2020, with the company reporting net income of $23.3 million in 2020, compared to a net loss of $18.0 million in 2016, and total assets growing to $533.5 million as of year-end 2020 Selected Consolidated Financial Data (2016-2020) | (in thousands) | 2020 | 2019 | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | :--- | :--- | | **Total revenues** | $248,168 | $227,188 | $193,118 | $165,083 | $146,017 | | **Income (loss) from operations** | $27,239 | $22,810 | $21,738 | $(16,903) | $(18,571) | | **Net income (loss)** | $23,337 | $115,553 | $25,208 | $(15,567) | $(18,010) | | **Total assets** | $533,456 | $483,748 | $332,130 | $205,425 | $210,374 | | **Total stockholders' equity** | $453,266 | $410,945 | $275,422 | $131,387 | $131,330 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=68&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2020, Vanda's total revenues grew 9% to $248.2 million, driven by a 12% increase in HETLIOZ® sales and a 4% increase in Fanapt® sales, resulting in net income of $23.3 million, while R&D expenses rose 14% to $55.6 million due to increased clinical trial activity, and SG&A expenses increased 8% to $140.5 million, primarily from marketing campaigns, with the company's liquidity remaining strong at $367.7 million in cash, cash equivalents, and marketable securities at year-end, which management believes is sufficient to fund operations for at least the next 12 months [Overview](index=68&type=section&id=Item%207.%20MD%26A%20-%20Overview) This overview reiterates Vanda's position as a global biopharmaceutical company with two commercial products, HETLIOZ® and Fanapt®, and a broad development pipeline, highlighting the recent FDA approval of HETLIOZ® for SMS and providing updates on key pipeline programs, including the expected initiation of Phase III studies for HETLIOZ® in DSPD and ASD, and for Fanapt® in PDP in the first quarter of 2021, with the NDA filing for tradipitant in gastroparesis projected for the second half of 2021 - In December 2020, the FDA approved HETLIOZ® for nighttime sleep disturbances in Smith-Magenis Syndrome (SMS)[312](index=312&type=chunk) - A New Drug Application (NDA) filing for tradipitant in gastroparesis is projected for the second half of 2021[312](index=312&type=chunk) - Clinical programs for HETLIOZ® in DSPD and ASD, and for Fanapt® in PDP, are expected to be initiated or begin in the first quarter of 2021[312](index=312&type=chunk)[313](index=313&type=chunk) [Results of Operations](index=73&type=section&id=Item%207.%20MD%26A%20-%20Results%20of%20Operations) For the year ended December 31, 2020, total revenues increased 9% to $248.2 million from $227.2 million in 2019, with HETLIOZ® net sales growing 12% to $160.7 million and Fanapt® net sales growing 4% to $87.5 million, while cost of goods sold decreased 5% to $23.4 million, R&D expenses increased 14% to $55.6 million driven by clinical trial costs for Fanapt® and COVID-19 programs, SG&A expenses rose 8% to $140.5 million due to increased marketing including a direct-to-consumer campaign for Fanapt®, and the company recorded an $8.3 million tax provision in 2020 compared to an $86.5 million tax benefit in 2019 due to the release of a valuation allowance Revenues by Product (2020 vs. 2019) | (in thousands) | 2020 | 2019 | Net Change | Percent Change | | :--- | :--- | :--- | :--- | :--- | | HETLIOZ® net product sales | $160,686 | $142,980 | $17,706 | 12% | | Fanapt® net product sales | $87,482 | $84,208 | $3,274 | 4% | | **Total net product sales** | **$248,168** | **$227,188** | **$20,980** | **9%** | R&D Expenses by Project (2020 vs. 2019) | (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | HETLIOZ® | $9,518 | $8,672 | | Fanapt® | $7,669 | $5,516 | | Tradipitant | $23,540 | $21,290 | | Other Direct Costs | $7,636 | $6,788 | | Indirect Costs | $7,214 | $6,383 | | **Total R&D Expense** | **$55,577** | **$48,649** | - Selling, general and administrative (SG&A) expenses increased by $10.8 million (8%) to $140.5 million in 2020, primarily due to marketing activities for commercial products, including the Fanapt® direct-to-consumer campaign[330](index=330&type=chunk)[331](index=331&type=chunk) - The company recorded an $8.3 million provision for income taxes in 2020, compared to an $86.5 million benefit in 2019, which was primarily due to the reduction of the tax valuation allowance in 2019[333](index=333&type=chunk) [Liquidity and Capital Resources](index=75&type=section&id=Item%207.%20MD%26A%20-%20Liquidity%20and%20Capital%20Resources) As of December 31, 2020, Vanda had $367.7 million in cash, cash equivalents, and marketable securities, up from $312.1 million at the end of 2019, with net cash provided by operating activities at $51.8 million in 2020, and the company believes its current capital resources are sufficient to fund operations for at least the next 12 months, with future capital needs dependent on revenue generation, R&D program costs, and potential acquisitions, and contractual obligations totaling $19.8 million, primarily consisting of operating leases - Total cash, cash equivalents, and marketable securities were $367.7 million as of December 31, 2020[334](index=334&type=chunk) Cash Flow Summary (2020 vs. 2019) | (in thousands) | 2020 | 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $51,775 | $45,947 | | Net cash used in investing activities | $(41,499) | $(68,309) | | Net cash provided by financing activities | $5,634 | $6,264 | - Management believes existing cash and future cash from product sales will be sufficient to fund operations for at least the next 12 months[336](index=336&type=chunk) Contractual Obligations as of Dec 31, 2020 | (in thousands) | Total | 2021 | 2022-2023 | Thereafter | | :--- | :--- | :--- | :--- | :--- | | Operating leases | $18,032 | $2,290 | $5,073 | $10,669 | | Milestone obligation | $350 | $350 | $0 | $0 | | Purchase commitments | $1,447 | $966 | $481 | $0 | | **Total** | **$19,829** | **$3,606** | **$5,554** | **$10,669** | [Critical Accounting Policies](index=69&type=section&id=Item%207.%20MD%26A%20-%20Critical%20Accounting%20Policies) Vanda's critical accounting policies involve significant estimates and judgments, including estimating variable consideration for revenue recognition (rebates, chargebacks, product returns), valuing stock-based compensation using the Black-Scholes-Merton model with assumptions about volatility and term, estimating accrued clinical trial costs based on services performed by third parties, and making significant judgments regarding the realizability of deferred tax assets and the need for a valuation allowance - **Revenue Recognition:** Net product sales are recorded net of variable consideration, including rebates, chargebacks, co-pay assistance, and returns; these allowances are estimated using the most likely amount method based on historical data and prescription trends[316](index=316&type=chunk)[318](index=318&type=chunk) - **Research and Development Expenses:** R&D costs are expensed as incurred; a significant portion of accrued clinical expenses is estimated based on assessments of work completed by third-party service providers[321](index=321&type=chunk)[322](index=322&type=chunk) - **Income Taxes:** The company assesses the need for a valuation allowance against deferred tax assets based on projections of future taxable income; in 2019, the company concluded it was more likely than not that substantially all U.S. deferred tax assets were realizable, leading to a release of the valuation allowance[324](index=324&type=chunk) [Qualitative and Quantitative Disclosures about Market Risk](index=77&type=section&id=Item%207A.%20Qualitative%20and%20Quantitative%20Disclosures%20about%20Market%20Risk) Vanda's market risk exposure is primarily related to interest rate risk on its short-term, high-quality cash, cash equivalents, and marketable securities, minimizing impact from rate changes, while facing significant credit risk concentration with 5 major customers accounting for 95% of total revenues in 2020, mitigated through ongoing credit evaluations, and foreign currency risk exists due to international operations but has not had a material impact on results - Market risk is confined to cash, cash equivalents, and marketable securities; due to their short-term nature, interest rate changes are not expected to have a significant impact[344](index=344&type=chunk) - Significant credit risk concentration exists with 5 major customers representing 95% of total revenues and 90% of accounts receivable in 2020[346](index=346&type=chunk) - The company is exposed to foreign currency risk from its international subsidiaries, but it does not currently hedge this risk and the impact has not been material[347](index=347&type=chunk)[348](index=348&type=chunk) [Financial Statements and Supplementary Data](index=78&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the company's audited consolidated financial statements for the fiscal year ended December 31, 2020, and the report from the independent registered public accounting firm, PricewaterhouseCoopers LLP, with the financial statements including the Consolidated Balance Sheets, Statements of Operations, Statements of Comprehensive Income, Statements of Changes in Stockholders' Equity, and Statements of Cash Flows, along with detailed notes providing further explanation of the company's financial position and performance [Report of Independent Registered Public Accounting Firm](index=82&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) PricewaterhouseCoopers LLP issued an unqualified opinion, stating that Vanda's consolidated financial statements are presented fairly, in all material respects, in conformity with U.S. GAAP, and also opined that the company maintained effective internal control over financial reporting as of December 31, 2020, identifying the estimation of Fanapt® Medicaid rebates as a critical audit matter due to the significant management judgment and measurement uncertainty involved - The auditor, PricewaterhouseCoopers LLP, issued an unqualified (clean) opinion on the financial statements and the effectiveness of internal controls[374](index=374&type=chunk) - The audit identified Fanapt® Medicaid rebates as a Critical Audit Matter due to the significant judgment and estimation uncertainty involved in calculating the allowance[383](index=383&type=chunk) [Consolidated Financial Statements](index=84&type=section&id=Consolidated%20Financial%20Statements) The consolidated financial statements detail Vanda's financial position and performance, showing total assets of $533.5 million and total liabilities of $80.2 million as of December 31, 2020, and for the year, the company generated $248.2 million in revenue and reported net income of $23.3 million, or $0.42 per diluted share, with net cash from operations at $51.8 million Consolidated Balance Sheet (Assets) | (in thousands) | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | **Total current assets** | $409,145 | $354,136 | | Property and equipment, net | $4,136 | $3,864 | | Intangible assets, net | $21,559 | $23,037 | | Deferred tax assets | $81,516 | $87,680 | | Other non-current assets | $17,100 | $15,031 | | **Total assets** | **$533,456** | **$483,748** | Consolidated Balance Sheet (Liabilities & Equity) | (in thousands) | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | **Total current liabilities** | $65,936 | $59,505 | | **Total liabilities** | $80,190 | $72,803 | | **Total stockholders' equity** | $453,266 | $410,945 | | **Total liabilities and stockholders' equity** | **$533,456** | **$483,748** | Consolidated Statement of Operations (Year Ended Dec 31) | (in thousands) | 2020 | 2019 | 2018 | | :--- | :--- | :--- | :--- | | Total revenues | $248,168 | $227,188 | $193,118 | | Total operating expenses | $220,929 | $204,378 | $171,380 | | Income from operations | $27,239 | $22,810 | $21,738 | | **Net income** | **$23,337** | **$115,553** | **$25,208** | [Notes to Consolidated Financial Statements](index=89&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes provide detailed disclosures supporting the financial statements, covering key areas such as significant accounting policies (Note 2), commitments and contingencies including license agreements (Note 10), income taxes (Note 15), and legal matters (Note 17), with Note 17 detailing ongoing patent litigation against generic challengers for Fanapt® and HETLIOZ®, a qui tam lawsuit, a securities class action, and a shareholder derivative suit, and Note 15 explaining the company's tax position, including the 2019 release of its valuation allowance and the status of its NOL carryforwards - **Note 17 (Legal Matters):** The company is engaged in patent infringement lawsuits against Teva, MSN, and Apotex regarding HETLIOZ®, with a trial scheduled for March 2022; it has settled some Fanapt® patent lawsuits but others remain pending[483](index=483&type=chunk)[485](index=485&type=chunk) - **Note 17 (Legal Matters):** A qui tam action filed by a former employee alleging improper promotion of Fanapt® and HETLIOZ® was dismissed without prejudice in May 2020, but the plaintiff filed a second amended complaint in June 2020[485](index=485&type=chunk) - **Note 15 (Income Taxes):** As of Dec 31, 2020, the company has $35.2 million of deferred tax assets from U.S. federal NOL carryforwards and $37.7 million from R&D and orphan drug credit carryforwards[477](index=477&type=chunk) - **Note 10 (Commitments):** The company has significant future milestone and royalty obligations under its license agreements, including up to $97 million in potential milestones for tradipitant and $45.2 million for the CFTR portfolio[456](index=456&type=chunk)[457](index=457&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=78&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports that there were no changes in or disagreements with its accountants on accounting and financial disclosure - None[351](index=351&type=chunk) [Controls and Procedures](index=78&type=section&id=Item%209A.%20Controls%20and%20Procedures) Based on an evaluation as of December 31, 2020, the company's Chief Executive Officer and Chief Financial Officer concluded that its disclosure controls and procedures were effective, and management also concluded that its internal control over financial reporting was effective as of the same date, a conclusion audited and concurred with by PricewaterhouseCoopers LLP, with no material changes to internal controls reported during the fourth quarter of 2020 - Management concluded that disclosure controls and procedures were effective as of December 31, 2020[352](index=352&type=chunk) - Management's assessment concluded that internal control over financial reporting was effective as of December 31, 2020, and this was audited by PricewaterhouseCoopers LLP[353](index=353&type=chunk) [Other Information](index=78&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[355](index=355&type=chunk) Part III [Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Principal Accountant Fees](index=79&type=section&id=Items%2010,%2011,%2012,%2013,%20and%2014) This part of the report, covering Items 10 through 14, incorporates information by reference from the company's definitive Proxy Statement for the 2021 Annual Meeting of Stockholders, relating to directors and executive officers, executive compensation, security ownership by certain beneficial owners and management, certain relationships and related transactions, director independence, and principal accountant fees and services - Information required for Items 10, 11, 12, 13, and 14 is incorporated by reference from the company's 2021 Proxy Statement, which will be filed with the SEC within 120 days of the fiscal year-end[357](index=357&type=chunk)[358](index=358&type=chunk)[359](index=359&type=chunk)[360](index=360&type=chunk)[361](index=361&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=79&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists the consolidated financial statements and all exhibits filed as part of the Form 10-K report, including corporate governance documents, material contracts such as license and manufacturing agreements, and certifications required by the Sarbanes-Oxley Act - This section contains the index to the consolidated financial statements and a list of all exhibits filed with the annual report[363](index=363&type=chunk)

Start Time: 16:30 January 1, 0000 5:13 PM ET Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) Q4 2020 Earnings Conference Call February 10, 2021, 16:30 PM ET Company Participants Mihael Polymeropoulos - President and CEO Kevin Moran - SVP, CFO and Treasurer Conference Call Participants Chris Howerton - Jefferies Joel Beatty - Citi Operator Good afternoon, ladies and gentlemen, and welcome to the Q4 2020 Vanda Pharmaceuticals Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. La ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 001-34186 VANDA PHARMACEUTICALS INC. (Exact name of registrant as specified in its charter) Delaware 03-04918 ...

Call Start: 16:30 January 1, 0000 5:15 PM ET Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) Q3 2020 Earnings Conference Call October 28, 2020 04:30 PM ET Company Participants Mihael Polymeropoulos - President and Chief Executive Officer Kevin Moran - Senior Vice President and Chief Financial Officer Conference Call Participants Chris Howerton - Jefferies Joel Beatty - Citi Operator Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter 2020 Vanda Pharmaceuticals Earnings Conference Call ...