Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) Q2 2022 Earnings Conference Call August 3, 2022 4:30 PM ET Company Participants Mihael H. Polymeropoulos - President & Chief Executive Officer Kevin Moran - Senior Vice President & Chief Financial Officer Conference Call Participants Chris Howerton - Jefferies Operator Thank you for standing by, and welcome to the Q2 2022 Vanda Pharmaceuticals, Inc. Earnings Call. [Operator Instructions] Thank you. I would now like to turn the conference over to Kevin Moran, Vanda's ...

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 March 31, 2022 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 ( ...

Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) Q1 2022 Earnings Conference Call May 5, 2022 4:30 PM ET Company Participants Mihael H. Polymeropoulos – President & Chief Executive Officer Kevin Moran – Senior Vice President & Chief Financial Officer Conference Call Participants Operator Ladies and gentlemen, thank you for standing by. And welcome to the Quarter 1 2022 Vanda Pharmaceuticals Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there wil ...

Part I [Business](index=8&type=section&id=Item%201.%20Business) Vanda Pharmaceuticals is a global biopharmaceutical company commercializing HETLIOZ® and Fanapt®, which generated $268.7 million in 2021 net sales - Vanda's business model is centered on developing and commercializing innovative therapies, with a current commercial portfolio of two products: HETLIOZ® and Fanapt®[25](index=25&type=chunk)[27](index=27&type=chunk) - The company's strategy includes maximizing commercial success of its products, entering strategic partnerships, pursuing clinical development of its pipeline (including tradipitant), applying pharmacogenetics, and expanding its product portfolio[28](index=28&type=chunk) - Revenues are highly concentrated, with five major customers (specialty pharmacies and wholesalers) representing **91% of total revenues** for the year ended December 31, 2021[85](index=85&type=chunk) 2021 Net Product Sales | Product | Indication(s) | 2021 Net Sales (in millions) | | :--- | :--- | :--- | | HETLIOZ® | Non-24, SMS | $173.5 | | Fanapt® | Schizophrenia | $95.1 | [Commercialized Products](index=9&type=section&id=1.1%20Commercialized%20Products) Vanda's commercial portfolio includes HETLIOZ® for Non-24 and SMS, and Fanapt® for schizophrenia, generating $173.5 million and $95.1 million respectively in 2021 - HETLIOZ® was approved in the U.S. in January 2014 for Non-24 and in December 2020 for SMS, also approved in the E.U. for Non-24 in totally blind adults[30](index=30&type=chunk)[31](index=31&type=chunk)[33](index=33&type=chunk) - Fanapt® was approved in the U.S. in May 2009 for acute treatment of schizophrenia and in May 2016 for maintenance treatment, with Vanda reacquiring U.S. and Canadian commercial rights from Novartis in late 2014[34](index=34&type=chunk) [Research and Development](index=11&type=section&id=1.2%20Research%20and%20Development) Vanda's R&D pipeline focuses on expanding commercial product indications and developing new therapies, including HETLIOZ®, Fanapt®, and tradipitant, despite a recent Phase III setback for tradipitant - The FDA issued a complete response letter (CRL) for the HETLIOZ® sNDA for jet lag disorder, citing unclear clinical significance of the sleep measures, with Vanda determining its next steps[37](index=37&type=chunk) - The Phase III study of tradipitant for gastroparesis did not meet its primary endpoint on nausea severity at week 12, but the company identified a drug effect in a sub-group analysis and plans to submit data to regulatory authorities[45](index=45&type=chunk) - The FDA requires a nine-month non-rodent chronic toxicity study for tradipitant to treat patients beyond 12 weeks, currently limiting its development for chronic indications[46](index=46&type=chunk) - A Phase III study of tradipitant for motion sickness commenced in Q4 2021 after the FDA agreed the program design was adequate to support an NDA[48](index=48&type=chunk) [License Agreements](index=17&type=section&id=1.3%20License%20Agreements) Vanda's product rights stem from license agreements, including HETLIOZ® (BMS), Fanapt® (Novartis/Sanofi), and tradipitant (Eli Lilly), involving tiered royalties and potential milestone payments - For HETLIOZ®, Vanda pays BMS a **10% royalty** on U.S. net sales, decreasing to **5% in December 2022** and ending in April 2024[62](index=62&type=chunk) - For Fanapt®, Vanda is obligated to pay Sanofi a **6% royalty** on U.S. net sales through November 2026[63](index=63&type=chunk) - For tradipitant, Vanda has remaining milestone obligations to Lilly of up to **$97.0 million** ($2.0 million on filing, $15.0 million on approval, $80.0 million on sales) plus tiered royalties[65](index=65&type=chunk) [Patents and Proprietary Rights](index=18&type=section&id=1.4%20Patents%20and%20Proprietary%20Rights) Vanda protects its intellectual property through patents and regulatory exclusivity, with HETLIOZ® method of treatment patents extending to 2035 and Fanapt® patents to 2031, actively defending its portfolio - The U.S. NCE patent for HETLIOZ® expires in December 2022, but Vanda holds 15 U.S. method of treatment patents expiring between 2033-2035 and a formulation patent for HETLIOZ LQ™ expiring in 2040[75](index=75&type=chunk)[271](index=271&type=chunk) - The NCE patent for Fanapt® has expired, but the product is protected by multiple U.S. method of treatment patents, with expiration dates extending to December 2031[76](index=76&type=chunk) - The NCE patent for tradipitant expires in June 2024 in the U.S., subject to potential Hatch-Waxman extension[77](index=77&type=chunk)[78](index=78&type=chunk) [Government Regulation and Pharmaceutical Pricing](index=26&type=section&id=1.5%20Government%20Regulation%20and%20Pharmaceutical%20Pricing) Vanda operates under extensive FDA and foreign regulations covering drug development, approval, and marketing, facing complex fraud and abuse laws, and significant pricing and reimbursement pressures from government programs and healthcare reforms - The company must navigate a complex FDA approval process, including preclinical studies and three phases of clinical trials, to demonstrate safety and efficacy before marketing a new drug[93](index=93&type=chunk)[94](index=94&type=chunk)[100](index=100&type=chunk) - Vanda is subject to numerous fraud and abuse laws, including the Anti-Kickback Statute and the False Claims Act, which constrain business arrangements and marketing practices, with violations leading to significant civil and criminal penalties[129](index=129&type=chunk)[130](index=130&type=chunk)[132](index=132&type=chunk) - Sales depend heavily on coverage and reimbursement from third-party payors, with the company facing cost-containment pressures and healthcare reforms like the ACA increasing rebate liabilities and introducing new fees[144](index=144&type=chunk)[146](index=146&type=chunk) - In Europe, Vanda is subject to the GDPR for data privacy and faces strict government price controls, which can delay commercial launches and impact profitability[141](index=141&type=chunk)[143](index=143&type=chunk)[249](index=249&type=chunk) [Risk Factors](index=40&type=section&id=Item%201A.%20Risk%20Factors) Vanda faces significant risks including dependence on HETLIOZ® and Fanapt® commercial success, increasing payor denials, clinical and regulatory uncertainties for pipeline products, supply chain disruptions, intense competition, and ongoing litigation - The company is substantially dependent on the commercial success of its two products, HETLIOZ® and Fanapt®[164](index=164&type=chunk) - A key risk is the increasing rate at which third-party payors refuse to cover or reimburse prescriptions for HETLIOZ®, which could limit its commercial success[173](index=173&type=chunk) - There is significant uncertainty regarding the FDA's acceptance and approval of tradipitant for gastroparesis, especially after the Phase III study did not meet its primary endpoint[174](index=174&type=chunk) - The company is, has been, and may continue to be involved in expensive and time-consuming patent infringement lawsuits to protect its products from generic competition[269](index=269&type=chunk)[270](index=270&type=chunk) - The COVID-19 pandemic poses ongoing risks, potentially disrupting sales activities, clinical trial enrollment and operations, and supply chains[180](index=180&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) [Properties](index=71&type=section&id=Item%202.%20Properties) Vanda leases its principal executive offices in Washington, D.C. (43,462 sq. ft.) and London, England (2,880 sq. ft.), which management deems adequate for near-term needs - The company's principal executive offices are leased, consisting of **43,462 sq. ft.** in Washington, D.C. and **2,880 sq. ft.** in London, England[303](index=303&type=chunk) [Legal Proceedings](index=71&type=section&id=Item%203.%20Legal%20Proceedings) Vanda is involved in ongoing patent infringement litigation against generic manufacturers for Fanapt® and HETLIOZ®, a qui tam action, and a securities class action lawsuit - The company is engaged in Hatch-Waxman patent litigation against several generic drug manufacturers regarding both Fanapt® and HETLIOZ®[486](index=486&type=chunk)[488](index=488&type=chunk) - A qui tam action filed by a former employee, alleging violations of the False Claims Act related to the marketing of Fanapt® and HETLIOZ®, is ongoing after the court denied the company's motion to dismiss in March 2021[488](index=488&type=chunk) - A securities class action lawsuit is pending, alleging false and misleading statements between November 2015 and February 2019, with the company's motion to dismiss partially denied in March 2021[488](index=488&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=71&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Vanda's common stock trades on The Nasdaq Global Market under 'VNDA', with no history or current intention of paying cash dividends - The company's common stock is listed on The Nasdaq Global Market under the trading symbol 'VNDA'[307](index=307&type=chunk) - Vanda has never paid cash dividends and does not plan to pay them in the foreseeable future[308](index=308&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=73&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In 2021, total revenues grew **8% to $268.7 million**, driving net income to **$33.2 million**, supported by revenue growth and reduced SG&A despite increased R&D, with strong liquidity of **$432.8 million** [Results of Operations](index=77&type=section&id=7.1%20Results%20of%20Operations) In 2021, total net product sales increased **8% to $268.7 million**, driven by HETLIOZ® and Fanapt® growth, while R&D expenses rose **36%** and SG&A decreased **12%**, leading to a **55%** increase in income from operations Financial Performance Comparison (2021 vs. 2020) | Metric | 2021 (in millions) | 2020 (in millions) | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total Net Product Sales | $268.7 | $248.2 | +$20.5 | +8% | | HETLIOZ® Net Sales | $173.5 | $160.7 | +$12.8 | +8% | | Fanapt® Net Sales | $95.1 | $87.5 | +$7.6 | +9% | | R&D Expenses | $75.4 | $55.6 | +$19.8 | +36% | | SG&A Expenses | $124.0 | $140.5 | -$16.5 | -12% | | Income from Operations | $42.2 | $27.2 | +$15.0 | +55% | | Net Income | $33.2 | $23.3 | +$9.9 | +42% | [Liquidity and Capital Resources](index=79&type=section&id=7.2%20Liquidity%20and%20Capital%20Resources) Vanda maintained a strong liquidity position with **$432.8 million** in cash, cash equivalents, and marketable securities as of December 31, 2021, generating **$64.2 million** in operating cash flow, sufficient to fund operations for at least the next 12 months Cash and Marketable Securities | (in thousands) | Dec 31, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $52,071 | $61,031 | | Marketable securities | $380,742 | $306,709 | | **Total** | **$432,813** | **$367,740** | Cash Flow Summary (Year Ended Dec 31) | (in thousands) | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $64,214 | $51,775 | | Net cash used in investing activities | ($76,696) | ($41,499) | | Net cash provided by financing activities | $3,550 | $5,634 | - The company believes its current capital resources are sufficient to fund operations for at least the next 12 months[344](index=344&type=chunk) [Qualitative and Quantitative Disclosures about Market Risk](index=82&type=section&id=Item%207A.%20Qualitative%20and%20Quantitative%20Disclosures%20about%20Market%20Risk) Vanda's primary market risks are interest rate fluctuations on investments and foreign currency exchange rates from international operations, neither of which are currently hedged or deemed materially impactful - Market risk is confined to cash, cash equivalents, and marketable securities, which are subject to interest rate risk[350](index=350&type=chunk) - The company is exposed to foreign currency exchange rate risk from its international subsidiaries but does not currently hedge this risk[352](index=352&type=chunk) [Financial Statements and Supplementary Data](index=82&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents Vanda's audited consolidated financial statements for FY2021, including an unqualified audit opinion from PricewaterhouseCoopers LLP, which identified Medicaid Rebates for Fanapt® as a Critical Audit Matter [Report of Independent Registered Public Accounting Firm](index=86&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) PricewaterhouseCoopers LLP issued an unqualified audit opinion on Vanda's FY2021 financial statements and internal controls, identifying 'Medicaid Rebates for Fanapt®' as a Critical Audit Matter due to estimation uncertainty - The audit firm issued an unqualified opinion, stating the financial statements are presented fairly in all material respects[379](index=379&type=chunk) - A Critical Audit Matter was identified concerning the estimation of Medicaid Rebates for Fanapt®, due to the high degree of judgment required for assumptions like payor mix and invoice lag[386](index=386&type=chunk) [Consolidated Financial Statements](index=88&type=section&id=Consolidated%20Financial%20Statements) As of December 31, 2021, Vanda reported total assets of **$593.8 million**, total liabilities of **$88.9 million**, and net income of **$33.2 million** for the year Key Financial Data (as of Dec 31, 2021) | Metric | Amount (in thousands) | | :--- | :--- | | **Balance Sheet:** | | | Total Assets | $593,792 | | Total Liabilities | $88,864 | | Total Stockholders' Equity | $504,928 | | **Income Statement (FY 2021):** | | | Total Revenues | $268,682 | | Income from Operations | $42,165 | | Net Income | $33,152 | [Notes to Consolidated Financial Statements](index=93&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail significant accounting policies, including **$115.1 million** in 2021 revenue allowances, future milestone and royalty obligations, **$74.9 million** in net deferred tax assets, and ongoing legal matters - Product revenue allowances, including rebates and chargebacks, are a significant estimate, with the provision for these allowances related to 2021 sales totaling **$115.1 million**[325](index=325&type=chunk) - The company has potential future milestone payments of up to **$97.0 million** for tradipitant and **$44.9 million** for its CFTR portfolio, in addition to ongoing royalty obligations for its commercial products[457](index=457&type=chunk)[458](index=458&type=chunk) - As of Dec 31, 2021, the company had net deferred tax assets of **$74.9 million**, supported by **$35.5 million** in NOL carryforwards and **$39.9 million** in R&D and orphan drug credit carryforwards[479](index=479&type=chunk) [Controls and Procedures](index=82&type=section&id=Item%209A.%20Controls%20and%20Procedures) As of December 31, 2021, Vanda's management, including the CEO and CFO, concluded that both disclosure controls and internal control over financial reporting were effective, a conclusion affirmed by PricewaterhouseCoopers LLP - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[355](index=355&type=chunk) - Management's assessment concluded that internal control over financial reporting was effective as of December 31, 2021, which was also audited by PricewaterhouseCoopers LLP[356](index=356&type=chunk) Part III [Directors, Executive Officers, Corporate Governance, Executive Compensation, and Other Matters](index=83&type=section&id=Items%2010-14) Information for Items 10-14, covering directors, executive compensation, and related matters, is incorporated by reference from the forthcoming 2022 Proxy Statement - Information regarding Directors, Executive Officers, Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership (Item 12), Certain Relationships and Related Transactions (Item 13), and Principal Accountant Fees and Services (Item 14) is incorporated by reference from the forthcoming 2022 Proxy Statement[362](index=362&type=chunk)[363](index=363&type=chunk)[364](index=364&type=chunk)[365](index=365&type=chunk)[366](index=366&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=83&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section provides an index of consolidated financial statements and a comprehensive list of all exhibits filed with the Annual Report, including material contracts and certifications - This section provides an index of the consolidated financial statements and a comprehensive list of all exhibits filed with the 10-K report[368](index=368&type=chunk)[489](index=489&type=chunk)

Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) Q4 2021 Earnings Conference Call February 23, 2022 4:30 PM ET Company Participants Kevin Moran - Senior Vice President & Chief Financial Officer Mihael Polymeropoulos - President & Chief Executive Officer Gunther Birznieks - Senior Vice President of Business Development Thomas Abell - Professor of Medicine, University of Louisville Timothy Williams - Senior Vice President & General Counsel Conference Call Participants Chris Howerton - Jefferies Operator Ladies and ge ...

2021 CORPORATE PRESENTATION November 2021 Forward-Looking Statements Various statements in this presentation, including, but not limited to, Vanda's financial guidance for 2021, are "forward-looking statements" under the securities laws. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Forward-looking statements are based upon current expectations and assumptions that involve risks, changes in circumstances and uncertainties. If the risk ...

[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 ...