| --- | --- | --- | --- | --- | |-------|-------|-------|-------|--------------| | | | | | | | | | | | | | | | | | | | | | | | CORPORATE | | | | | | | | | | | | | | | 2022 | | | | | | | | | PRESENTATION | November 2022 Forward-Looking Statements Various statements in this presentation, including, but not limited to, Vanda's financial guidance for 2022, and statements regarding Vanda's commercial products, plans and opportunities, as well as statements about Vanda's products in development and the related cl ...

[PART I – FINANCIAL INFORMATION](index=6&type=section&id=PART%20I%20%E2%80%93%20FINANCIAL%20INFORMATION) This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the quarter ended September 30, 2022 [ITEM 1 Financial Statements (Unaudited)](index=6&type=section&id=ITEM%201%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements of Vanda Pharmaceuticals Inc. for the quarter ended September 30, 2022, including balance sheets, statements of operations, comprehensive income (loss), changes in stockholders' equity, and cash flows, along with accompanying notes detailing business organization, accounting policies, and specific financial line items [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) The Condensed Consolidated Balance Sheets show the company's financial position as of September 30, 2022, compared to December 31, 2021, indicating an increase in total assets and stockholders' equity, primarily driven by growth in marketable securities and additional paid-in capital Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | Change | % Change | | :-------------------------------- | :----------- | :----------- | :----- | :------- | | Total Assets | $621,788 | $593,792 | $27,996 | 4.7% | | Total Liabilities | $106,131 | $88,864 | $17,267 | 19.4% | | Total Stockholders' Equity | $515,657 | $504,928 | $10,729 | 2.1% | | Cash and cash equivalents | $49,397 | $52,071 | $(2,674) | -5.1% | | Marketable securities | $405,394 | $380,742 | $24,652 | 6.5% | | Accounts receivable, net | $29,352 | $32,467 | $(3,115) | -9.6% | | Total current assets | $507,106 | $478,301 | $28,805 | 6.0% | | Accounts payable and accrued liabilities | $50,125 | $34,438 | $15,687 | 45.6% | | Product revenue allowances | $42,498 | $39,981 | $2,517 | 6.3% | [Condensed Consolidated Statements of Operations](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) The Condensed Consolidated Statements of Operations show a decrease in net product sales and net income for both the three and nine months ended September 30, 2022, compared to the same periods in 2021, primarily due to lower revenues and increased research and development expenses Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (YoY) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | | :-------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Net product sales | $65,318 | $70,095 | $(4,777) (-6.8%) | $189,900 | $200,663 | $(10,763) (-5.4%) | | Total revenues | $65,318 | $70,095 | $(4,777) (-6.8%) | $189,900 | $200,663 | $(10,763) (-5.4%) | | Research and development | $24,857 | $19,653 | $5,204 (26.5%) | $67,316 | $56,032 | $11,284 (20.1%) | | Selling, general and administrative | $29,854 | $32,456 | $(2,602) (-8.0%) | $103,703 | $90,600 | $13,103 (14.5%) | | Income (loss) from operations | $3,908 | $10,819 | $(6,911) (-63.9%) | $(300) | $33,529 | $(33,829) (-100.9%) | | Net income (loss) | $3,270 | $7,771 | $(4,501) (-57.9%) | $(586) | $26,074 | $(26,660) (-102.2%) | | Basic EPS | $0.06 | $0.14 | $(0.08) (-57.1%) | $(0.01) | $0.47 | $(0.48) (-102.1%) | | Diluted EPS | $0.06 | $0.14 | $(0.08) (-57.1%) | $(0.01) | $0.46 | $(0.47) (-102.2%) | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) The Condensed Consolidated Statements of Comprehensive Income (Loss) show a decrease in comprehensive income for the three months ended September 30, 2022, and a shift to a comprehensive loss for the nine months ended September 30, 2022, primarily due to the net loss and increased unrealized losses on marketable securities Condensed Consolidated Statements of Comprehensive Income (Loss) Highlights (in thousands) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (YoY) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | | :-------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | Net income (loss) | $3,270 | $7,771 | $(4,501) (-57.9%) | $(586) | $26,074 | $(26,660) (-102.2%) | | Other comprehensive income (loss), net of tax | $(54) | $8 | $(62) (-775.0%) | $(1,310) | $(128) | $(1,182) (-923.4%) | | Comprehensive income (loss) | $3,216 | $7,779 | $(4,563) (-58.7%) | $(1,896) | $25,946 | $(27,842) (-107.3%) | [Condensed Consolidated Statements of Changes in Stockholders' Equity](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity) The Condensed Consolidated Statements of Changes in Stockholders' Equity detail the movements in equity components, showing an increase in total stockholders' equity from December 31, 2021, to September 30, 2022, primarily due to stock-based compensation expense and net income, despite an accumulated other comprehensive loss Condensed Consolidated Statements of Changes in Stockholders' Equity Highlights (in thousands) | Metric | Dec 31, 2021 | Sep 30, 2022 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Total Stockholders' Equity | $504,928 | $515,657 | $10,729 | | Common Stock (Par Value) | $56 | $57 | $1 | | Additional Paid-in Capital | $669,223 | $681,847 | $12,624 | | Accumulated Other Comprehensive Loss | $(175) | $(1,485) | $(1,310) | | Accumulated Deficit | $(164,176) | $(164,762) | $(586) | [Condensed Consolidated Statements of Cash Flows](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) The Condensed Consolidated Statements of Cash Flows indicate a decrease in net cash provided by operating activities and a decrease in net cash used in investing activities for the nine months ended September 30, 2022, compared to the same period in 2021, resulting in a net decrease in cash, cash equivalents, and restricted cash Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change | | :-------------------------------- | :-------------------------- | :-------------------------- | :----- | | Net cash provided by operating activities | $22,568 | $37,607 | $(15,039) | | Net cash used in investing activities | $(25,503) | $(50,698) | $25,195 | | Net cash provided by financing activities | $129 | $2,509 | $(2,380) | | Net change in cash, cash equivalents and restricted cash | $(2,724) | $(10,572) | $7,848 | | Cash, cash equivalents and restricted cash, End of period | $49,866 | $51,041 | $(1,175) | [Notes to Condensed Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) The notes provide detailed explanations and breakdowns of the financial statements, covering business operations, significant accounting policies, marketable securities, fair value measurements, inventory, intangible assets, accrued liabilities, commitments, contingencies, stock-based compensation, income taxes, earnings per share, and legal matters [1. Business Organization and Presentation](index=12&type=section&id=1.%20Business%20Organization%20and%20Presentation) Vanda Pharmaceuticals Inc. is a global biopharmaceutical company focused on developing and commercializing innovative therapies. Its commercial portfolio includes HETLIOZ® for Non-24-Hour Sleep-Wake Disorder and Smith-Magenis Syndrome, and Fanapt® for schizophrenia. The company also has several drugs in development for various indications - Vanda Pharmaceuticals Inc. operates in one reporting segment, focusing on developing and commercializing innovative therapies[28](index=28&type=chunk) - Commercial portfolio includes HETLIOZ® (Non-24, SMS) and Fanapt® (schizophrenia). HETLIOZ® is the first FDA-approved product for Non-24 and SMS[29](index=29&type=chunk) - Drugs in development include HETLIOZ® (jet lag, insomnia, DSPD, ASD, pediatric Non-24), Fanapt® (bipolar I, Parkinson's disease psychosis, LAI formulation for schizophrenia), Tradipitant (gastroparesis, motion sickness, atopic dermatitis, COVID-19 pneumonia), VTR-297 (hematologic malignancies, oncology), CFTR activators/inhibitors (dry eye, ocular inflammation, secretory diarrhea), VQW-765 (psychiatric disorders), and VHX-896 (active metabolite of iloperidone)[32](index=32&type=chunk) [2. Summary of Significant Accounting Policies](index=12&type=section&id=2.%20Summary%20of%20Significant%20Accounting%20Policies) This section outlines the basis of presentation for the unaudited condensed consolidated financial statements, which adhere to GAAP for interim information. It also details the company's policies regarding the use of estimates, cash and cash equivalents, and revenue recognition from net product sales, noting no material changes from the prior annual report - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions[30](index=30&type=chunk) - No material changes to significant accounting policies previously disclosed in the Annual Report[31](index=31&type=chunk) Cash, Cash Equivalents and Restricted Cash Reconciliation (in thousands) | Metric | Sep 30, 2022 | Sep 30, 2021 | | :-------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $49,397 | $50,522 | | Restricted cash included in Non-current inventory and other | $469 | $519 | | Total cash, cash equivalents and restricted cash | $49,866 | $51,041 | Net Product Sales by Product (in thousands) | Product | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | HETLIOZ® net product sales | $41,335 | $45,615 | $119,554 | $129,467 | | Fanapt® net product sales | $23,983 | $24,480 | $70,346 | $71,196 | | Total net product sales | $65,318 | $70,095 | $189,900 | $200,663 | [3. Marketable Securities](index=14&type=section&id=3.%20Marketable%20Securities) The company's marketable securities, classified as available-for-sale, primarily consist of U.S. Treasury and government agencies and corporate debt, all with contractual maturities of less than two years. The fair market value of these securities increased from December 31, 2021, to September 30, 2022 Marketable Securities Summary (in thousands) | Type | Sep 30, 2022 Fair Market Value | Dec 31, 2021 Fair Market Value | | :-------------------------------- | :----------------------------- | :----------------------------- | | U.S. Treasury and government agencies | $206,485 | $194,719 | | Corporate debt | $198,909 | $186,023 | | Total marketable securities | $405,394 | $380,742 | [4. Fair Value Measurements](index=14&type=section&id=4.%20Fair%20Value%20Measurements) The company measures certain assets at fair value on a recurring basis using a three-tier hierarchy. As of September 30, 2022, all marketable securities were classified as Level 1 (U.S. Treasury and government agencies) or Level 2 (corporate debt) inputs, indicating observable market data Fair Value Measurement of Assets (in thousands) as of September 30, 2022 | Asset Type | Total Fair Value | Level 1 (Quoted Prices in Active Markets) | Level 2 (Significant Other Observable Inputs) | Level 3 (Significant Unobservable Inputs) | | :-------------------------------- | :--------------- | :---------------------------------------- | :------------------------------------------ | :-------------------------------------- | | U.S. Treasury and government agencies | $206,485 | $206,485 | $— | $— | | Corporate debt | $198,909 | $— | $198,909 | $— | | Total assets measured at fair value | $405,394 | $206,485 | $198,909 | $— | Fair Value Measurement of Assets (in thousands) as of December 31, 2021 | Asset Type | Total Fair Value | Level 1 (Quoted Prices in Active Markets) | Level 2 (Significant Other Observable Inputs) | Level 3 (Significant Unobservable Inputs) | | :-------------------------------- | :--------------- | :---------------------------------------- | :------------------------------------------ | :-------------------------------------- | | U.S. Treasury and government agencies | $194,719 | $194,719 | $— | $— | | Corporate debt | $186,023 | $— | $186,023 | $— | | Total assets measured at fair value | $380,742 | $194,719 | $186,023 | $— | [5. Inventory](index=15&type=section&id=5.%20Inventory) Total inventory increased from **$8.252 million** at December 31, 2021, to **$11.057 million** at September 30, 2022, driven by an increase in non-current work-in-process and finished goods Inventory Breakdown (in thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Current inventory: | | | | Work-in-process | $13 | $30 | | Finished goods | $1,577 | $995 | | Total current inventory | $1,590 | $1,025 | | Non-current inventory: | | | | Raw materials | $1,332 | $2,143 | | Work-in-process | $7,170 | $3,934 | | Finished goods | $965 | $1,150 | | Total non-current inventory | $9,467 | $7,227 | | Total inventory | $11,057 | $8,252 | [6. Intangible Assets](index=15&type=section&id=6.%20Intangible%20Assets) The company's intangible assets primarily consist of capitalized license costs for HETLIOZ®, which are amortized over their estimated useful economic life. The net carrying amount of HETLIOZ® intangible assets decreased slightly from December 31, 2021, to September 30, 2022, due to ongoing amortization - HETLIOZ® intangible assets include **$33.0 million** in regulatory approval and commercial milestones paid to BMS, amortized over the estimated economic useful life of related product patents (March 2035)[45](index=45&type=chunk) HETLIOZ® Intangible Assets (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Gross Carrying Amount | $33,000 | $33,000 | | Accumulated Amortization | $14,056 | $12,919 | | Net Carrying Amount | $18,944 | $20,081 | | Amortization Expense (3 months) | $400 | $400 | | Amortization Expense (9 months) | $1,100 | $1,100 | [7. Accounts Payable and Accrued Liabilities](index=16&type=section&id=7.%20Accounts%20Payable%20and%20Accrued%20Liabilities) Total accounts payable and accrued liabilities significantly increased from **$34.438 million** at December 31, 2021, to **$50.125 million** at September 30, 2022, primarily due to higher research and development expenses and a substantial increase in 'Accounts payable and other accrued liabilities' Accounts Payable and Accrued Liabilities (in thousands) | Category | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Research and development expenses | $14,914 | $10,082 | | Consulting and other professional fees | $8,225 | $8,732 | | Royalties payable | $5,585 | $5,873 | | Compensation and employee benefits | $5,769 | $6,515 | | Operating lease liabilities | $2,199 | $2,311 | | Accounts payable and other accrued liabilities | $13,433 | $925 | | Total accounts payable and accrued liabilities | $50,125 | $34,438 | [8. Commitments and Contingencies](index=16&type=section&id=8.%20Commitments%20and%20Contingencies) This section details the company's various commitments and contingencies, including intellectual property indemnifications, license agreements for HETLIOZ®, Fanapt®, Tradipitant, CFTR activators/inhibitors, and VQW-765, as well as a new research and development agreement with OliPass Corporation - The company has standard intellectual property indemnification agreements with unlimited potential future payments, but has not incurred costs related to these claims since inception[48](index=48&type=chunk) - HETLIOZ® license agreement with BMS: **$37.5 million** paid in upfront and milestone fees, no remaining milestone obligations. Royalty payments are **10%** on U.S. net sales (decreasing to **5%** in December 2022, ending April 2024) and **5%** on ex-U.S. net sales[50](index=50&type=chunk)[51](index=51&type=chunk) - Fanapt® license agreement: Obligated to pay Sanofi a **6%** royalty on U.S. net sales through November 2026 for non-manufacturing know-how[51](index=51&type=chunk) - Tradipitant license agreement with Lilly: Paid **$3.0 million** in upfront and development milestones. Remaining milestones include **$2.0 million** for first marketing authorization application filing (U.S./E.U.), **$10.0 million** for U.S. approval, **$5.0 million** for E.U. approval, and up to **$80.0 million** for sales milestones. Tiered royalties up to low double digits on net sales[51](index=51&type=chunk) - CFTR activators/inhibitors license agreement with UCSF: Paid **$1.6 million** in upfront and development milestones. Remaining milestones include **$11.9 million** for development and **$33.0 million** for regulatory approval and sales milestones. Single-digit royalties on net sales[52](index=52&type=chunk) - VQW-765 license agreement with Novartis: No milestone obligations, but Novartis is eligible for tiered royalties on net sales up to the mid-teens[53](index=53&type=chunk) - New agreement with OliPass Corporation in September 2022 for joint development of ASO molecules, with an upfront fee of **$3.0 million** recorded as R&D expense[54](index=54&type=chunk) [9. Accumulated Other Comprehensive Loss](index=19&type=section&id=9.%20Accumulated%20Other%20Comprehensive%20Loss) The accumulated other comprehensive loss increased significantly from **$(175) thousand** at December 31, 2021, to **$(1,485) thousand** at September 30, 2022, primarily due to an increase in unrealized losses on marketable securities Accumulated Other Comprehensive Loss (in thousands) | Component | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Foreign currency translation | $(51) | $32 | | Unrealized loss on marketable securities | $(1,434) | $(207) | | Accumulated other comprehensive loss | $(1,485) | $(175) | [10. Stock-Based Compensation](index=19&type=section&id=10.%20Stock-Based%20Compensation) The company recognized **$3.888 million** in stock-based compensation expense for the three months ended September 30, 2022, and **$12.496 million** for the nine months ended September 30, 2022. Unrecognized compensation costs for unvested service option awards and RSUs are expected to be recognized over weighted average periods of **1.3** and **1.7 years**, respectively - As of September 30, 2022, **6,398,112 shares** were subject to outstanding options and restricted stock units (RSUs) under the 2006 and 2016 Equity Incentive Plans[58](index=58&type=chunk) - Unrecognized compensation costs for unvested service option awards totaled **$8.2 million**, expected to be recognized over **1.3 years**[60](index=60&type=chunk) - Unrecognized compensation costs for unvested service RSUs totaled **$22.4 million**, expected to be recognized over **1.7 years**[63](index=63&type=chunk) Stock-Based Compensation Expense (in thousands) | Category | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Research and development | $981 | $893 | $3,040 | $2,970 | | Selling, general and administrative | $2,907 | $3,058 | $9,456 | $8,630 | | Total stock-based compensation expense | $3,888 | $3,951 | $12,496 | $11,600 | [11. Income Taxes](index=21&type=section&id=11.%20Income%20Taxes) The company recorded income tax expense of **$2.2 million** for the three months and **$2.3 million** for the nine months ended September 30, 2022, a decrease compared to the prior year, primarily driven by the estimated effective tax rate and discrete income tax expenses Provision for Income Taxes (in thousands) | Period | Income Tax Expense | | :-------------------------------- | :----------------- | | 3 Months Ended Sep 30, 2022 | $2,191 | | 3 Months Ended Sep 30, 2021 | $2,951 | | 9 Months Ended Sep 30, 2022 | $2,273 | | 9 Months Ended Sep 30, 2021 | $7,680 | [12. Earnings per Share](index=21&type=section&id=12.%20Earnings%20per%20Share) Basic and diluted EPS decreased significantly for both the three and nine months ended September 30, 2022, reflecting the decrease in net income (or shift to net loss) compared to the prior year. For the nine months ended September 30, 2022, the net loss resulted in basic and diluted loss per share being equivalent due to the anti-dilutive effect of potential securities Net Income (Loss) Per Share (in thousands, except per share amounts) | Metric | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) | $3,270 | $7,771 | $(586) | $26,074 | | Basic EPS | $0.06 | $0.14 | $(0.01) | $0.47 | | Diluted EPS | $0.06 | $0.14 | $(0.01) | $0.46 | | Weighted average shares outstanding, basic | 56,574,503 | 55,668,156 | 56,397,805 | 55,467,528 | | Weighted average shares outstanding, diluted | 56,969,033 | 57,040,736 | 56,397,805 | 56,818,295 | | Antidilutive securities excluded | 5,238,283 | 2,233,806 | 5,199,487 | 2,194,547 | [13. Legal Matters](index=22&type=section&id=13.%20Legal%20Matters) The company is involved in several legal proceedings, including patent infringement lawsuits related to Fanapt® and HETLIOZ® against generic manufacturers, a securities class action lawsuit that was preliminarily settled for **$11.5 million**, and multiple lawsuits against the FDA and CMS regarding regulatory decisions and rule interpretations - Fanapt® patent infringement lawsuits: Settlements reached with Taro, Apotex, Lupin, and Hikma, granting non-exclusive licenses effective upon '610 Patent expiration (November 2027, or May 2028 with pediatric exclusivity). Lawsuit against Inventia remains pending[71](index=71&type=chunk)[72](index=72&type=chunk) - HETLIOZ® patent infringement lawsuits: Settlement with MSN and Impax grants license effective March 13, 2035 (or July 27, 2035 with pediatric exclusivity). Consolidated lawsuits against remaining defendants (Teva, Apotex) were tried in March 2022, with an opinion expected in Q4 2022[72](index=72&type=chunk) - Securities class action (Gordon v. Vanda Pharmaceuticals Inc.): Preliminarily settled for **$11.5 million** in May 2022, with payment made by insurers into an escrow account. Final settlement hearing scheduled for January 2023[72](index=72&type=chunk) - Lawsuits against FDA: Filed to compel production of records related to HETLIOZ® jet lag sNDA denial (FOIA), records on 9-month non-rodent toxicity study waivers (FOIA), and challenging denial of Fast Track designation for tradipitant[72](index=72&type=chunk)[75](index=75&type=chunk)[76](index=76&type=chunk)[78](index=78&type=chunk) - Lawsuit against CMS: Challenging CMS' rule broadly interpreting 'line extension' and 'new formulation' under the ACA, which could subject certain products to enhanced rebates[74](index=74&type=chunk) [ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=ITEM%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of Vanda's business, operational highlights, critical accounting policies, and a detailed analysis of its financial performance for the three and nine months ended September 30, 2022, compared to the prior year. It highlights decreased revenues, increased R&D and SG&A expenses, and changes in cash flows, while also discussing the company's liquidity and capital resources [Overview](index=24&type=section&id=Overview) Vanda Pharmaceuticals Inc. is a global biopharmaceutical company focused on developing and commercializing innovative therapies, utilizing technologies like genetics and genomics. Its commercial portfolio includes HETLIOZ® and Fanapt®, with several other drugs in various stages of development - Vanda is a global biopharmaceutical company focused on developing and commercializing innovative therapies for high unmet medical needs[80](index=80&type=chunk) - The company's commercial portfolio includes HETLIOZ® (Non-24, SMS) and Fanapt® (schizophrenia)[82](index=82&type=chunk) - Key drugs in development include HETLIOZ® (jet lag, insomnia, DSPD, ASD, pediatric Non-24), Fanapt® (bipolar I, Parkinson's disease psychosis, LAI formulation for schizophrenia), Tradipitant (gastroparesis, motion sickness, atopic dermatitis, COVID-19 pneumonia), VTR-297, CFTR activators/inhibitors, VQW-765, and VHX-896[84](index=84&type=chunk) [Operational Highlights](index=24&type=section&id=Operational%20Highlights) Operational highlights include preparing for sNDA submission for HETLIOZ® in insomnia, full enrollment of a Phase III study for Fanapt® in bipolar I disorder, ongoing safety studies and NDA preparation for tradipitant in gastroparesis, and progress in early-stage programs like VQW-765 and a new research agreement with OliPass Corporation - HETLIOZ®: Preparing for sNDA submission for insomnia treatment by end of 2022[82](index=82&type=chunk) - Fanapt®: Phase III clinical study for acute manic episodes in bipolar I disorder is fully enrolled, with results expected by end of 2022[84](index=84&type=chunk) - Tradipitant: Continuing open-label safety study in gastroparesis; preparing for NDA submission for short-term treatment of nausea in gastroparesis in H1 2023; Phase III study for motion sickness is **~40% enrolled**, results expected by mid-2023[85](index=85&type=chunk) - Early-Stage Programs: Phase II clinical study of VQW-765 for social/performance anxiety is fully enrolled, results expected by end of 2022. Research and development agreement with OliPass Corporation to jointly develop ASO molecules. VPO-227 granted Orphan Drug Designation for cholera, IND submission expected in 2023[90](index=90&type=chunk) [Critical Accounting Policies and Estimates](index=25&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) The company's critical accounting policies involve significant estimates and assumptions, particularly for revenue recognition from net product sales, stock-based compensation, research and development expenses, intangible assets, and income taxes. These policies require management's judgment, and actual results may differ from estimates - Revenue from net product sales is recognized when control of the product is transferred to the customer, net of applicable product revenue allowances (discounts, rebates, chargebacks, service fees, co-pay assistance, product returns)[89](index=89&type=chunk)[90](index=90&type=chunk) - Reserves for variable consideration are based on historical activity, contractual agreements, and estimated patient utilization, with uncertainties generally resolved in the subsequent quarter, except for Medicaid rebates and product returns[91](index=91&type=chunk)[92](index=92&type=chunk) Sales Discounts and Allowance Activity (in thousands) for Nine Months Ended Sep 30, 2022 | Category | Rebates & Chargebacks | Discounts, Returns and Other | Total | | :-------------------------------- | :-------------------- | :--------------------------- | :---- | | Balances at December 31, 2021 | $31,854 | $9,601 | $41,455 | | Provision related to current period sales | $65,913 | $22,706 | $88,619 | | Adjustments for prior period sales | $(2,355) | $946 | $(1,409) | | Credits/payments made | $(60,681) | $(24,277) | $(84,958) | | Balances at September 30, 2022 | $34,731 | $8,976 | $43,707 | - Stock-based compensation expense is measured at grant-date fair value using the Black-Scholes-Merton model and recognized over the service period, with estimates for forfeitures[100](index=100&type=chunk) - Research and development expenses are expensed as incurred for development-stage products, including third-party service fees, manufacturing costs for clinical trials, and pre-approval milestone payments[101](index=101&type=chunk) - Intangible assets (capitalized license costs for approved products) are amortized straight-line over their useful economic life. Impairment is assessed when events indicate carrying value may not be recoverable[103](index=103&type=chunk)[104](index=104&type=chunk) - Income taxes involve assessing the need for a valuation allowance against deferred tax assets based on historical and projected taxable income[105](index=105&type=chunk) [Results of Operations](index=28&type=section&id=Results%20of%20Operations) The company's results of operations for the three and nine months ended September 30, 2022, show a decline in total revenues and net income (or a shift to net loss) compared to the prior year. This was primarily driven by decreased HETLIOZ® and Fanapt® net product sales due to volume decreases and increased research and development expenses, particularly for the Fanapt® development program and other initiatives Total Revenues (in thousands) | Period | 2022 | 2021 | Net Change | Percent Change | | :-------------------------------- | :--- | :--- | :--------- | :------------- | | Three months ended Sep 30 | $65,318 | $70,095 | $(4,777) | (7)% | | Nine months ended Sep 30 | $189,900 | $200,663 | $(10,763) | (5)% | Net Product Sales by Product (in thousands) | Product | 3 Months Ended Sep 30, 2022 | 3 Months Ended Sep 30, 2021 | Change (YoY) | 9 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2021 | Change (YoY) | | :-------------------------------- | :-------------------------- | :-------------------------- | :----------- | :-------------------------- | :-------------------------- | :----------- | | HETLIOZ® net product sales | $41,335 | $45,615 | $(4,280) (-9%) | $119,554 | $129,467 | $(9,913) (-8%) | | Fanapt® net product sales | $23,983 | $24,480 | $(497) (-2%) | $70,346 | $71,196 | $(850) (-1%) | - Decrease in HETLIOZ® net product sales was due to decreased volume, partially offset by increased price, with volume decrease attributed to reimbursement challenges for Non-24 patients[108](index=108&type=chunk)[115](index=115&type=chunk) Research and Development Expenses (in thousands) | Period | 2022 | 2021 | Net Change | Percent Change | | :-------------------------------- | :--- | :--- | :--------- | :------------- | | Three months ended Sep 30 | $24,857 | $19,653 | $5,204 | 26% | | Nine months ended Sep 30 | $67,316 | $56,032 | $11,284 | 20% | - Increase in R&D expenses was associated with tradipitant and Fanapt® development programs and other development programs, including a **$3.0 million** upfront fee for a research and development agreement in Q3 2022[109](index=109&type=chunk)[115](index=115&type=chunk) Selling, General and Administrative Expenses (in thousands) | Period | 2022 | 2021 | Net Change | Percent Change | | :-------------------------------- | :--- | :--- | :--------- | :------------- | | Three months ended Sep 30 | $29,900 | $32,500 | $(2,600) | (8)% | | Nine months ended Sep 30 | $103,700 | $90,600 | $13,100 | 14% | - Decrease in SG&A for three months due to decreased marketing, offset by increased sales force costs. Increase for nine months due to ongoing litigation, corporate activities, and sales/commercial support[112](index=112&type=chunk)[118](index=118&type=chunk) Other Income (in thousands) | Period | 2022 | 2021 | Net Change | | :-------------------------------- | :--- | :--- | :--------- | | Three months ended Sep 30 | $1,600 | $(100) | $1,700 | | Nine months ended Sep 30 | $2,000 | $200 | $1,800 | - Other income increased due to higher yields on marketable securities[113](index=113&type=chunk)[119](index=119&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) As of September 30, 2022, Vanda's total cash, cash equivalents, and marketable securities were **$454.8 million**. The company believes its current liquidity and cash from product sales will be sufficient for at least the next **12 months**, but acknowledges potential needs for additional capital to fund future operations and expansion Liquidity Resources (in thousands) | Metric | Sep 30, 2022 | Dec 31, 2021 | | :-------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $49,397 | $52,071 | | Marketable securities | $405,394 | $380,742 | | Total cash, cash equivalents and marketable securities | $454,791 | $432,813 | - The company believes its cash, cash equivalents, marketable securities, and cash from product sales will be sufficient for at least the next **12 months**, based on current operating plans[126](index=126&type=chunk) - Future cash requirements depend on revenue generation, commercial/manufacturing activities, R&D programs, and potential costs for acquiring/licensing new products. The company may seek additional capital through debt, equity, or collaborations[126](index=126&type=chunk) [Cash Flow](index=34&type=section&id=Cash%20Flow) Net cash provided by operating activities decreased by **$15.0 million** for the nine months ended September 30, 2022, primarily due to a decrease in net income and non-cash charges, partially offset by favorable changes in operating assets and liabilities. Net cash used in investing activities decreased by **$25.2 million**, while net cash provided by financing activities decreased by **$2.4 million** Net Cash Flows (in thousands) for Nine Months Ended Sep 30 | Activity | 2022 | 2021 | Net Change | | :-------------------------------- | :--- | :--- | :--------- | | Operating activities | $22,568 | $37,607 | $(15,039) | | Investing activities | $(25,503) | $(50,698) | $25,195 | | Financing activities | $129 | $2,509 | $(2,380) | | Net change in cash, cash equivalents and restricted cash | $(2,724) | $(10,572) | $7,848 | - Decrease in operating cash flow reflects a **$26.7 million** decrease in net income and a **$6.1 million** decrease in non-cash charges, partially offset by a **$17.7 million** increase from net change in operating assets and liabilities (primarily accounts payable and accrued liabilities, and accounts receivable)[127](index=127&type=chunk) [ITEM 3 Quantitative and Qualitative Disclosures about Market Risk](index=34&type=section&id=ITEM%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company's market risk exposure is primarily confined to its cash, cash equivalents, marketable securities, and restricted cash. It does not hedge interest rate or foreign currency exposure, and does not use derivative financial instruments for speculation. While deposits may exceed insurance limits, no losses are anticipated. Foreign currency fluctuations have not materially impacted results - Market risk exposure is confined to cash, cash equivalents, marketable securities, and restricted cash[130](index=130&type=chunk) - Investments are generally investment grade, liquid, short-term fixed income securities and money-market instruments denominated in U.S. dollars, with maturities of **two years or less**[131](index=131&type=chunk) - The company does not hedge interest rate or foreign currency exposure and does not use derivative financial instruments for speculation[130](index=130&type=chunk)[133](index=133&type=chunk) - Foreign currency fluctuations have not had a material impact on results of operations[133](index=133&type=chunk) [ITEM 4 Controls and Procedures](index=35&type=section&id=ITEM%204%20Controls%20and%20Procedures) As of September 30, 2022, the company's management, including the CEO and CFO, concluded that its disclosure controls and procedures were effective. There have been no material changes in internal control over financial reporting during the third quarter of 2022 - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2022[134](index=134&type=chunk) - No material changes in internal control over financial reporting occurred during the third quarter of 2022[135](index=135&type=chunk) [PART II – OTHER INFORMATION](index=35&type=section&id=PART%20II%20%E2%80%93%20OTHER%20INFORMATION) This section provides additional information including legal proceedings, risk factors, equity sales, defaults, and exhibits [ITEM 1 Legal Proceedings](index=35&type=section&id=ITEM%201%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 13 to the condensed consolidated financial statements, detailing patent infringement lawsuits, a securities class action, and regulatory challenges - Legal proceedings information is incorporated by reference from Note 13, Legal Matters, in Part I of this report[136](index=136&type=chunk) [ITEM 1A Risk Factors](index=35&type=section&id=ITEM%201A%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's annual report on Form 10-K for the fiscal year ended December 31, 2021. These factors could materially and adversely affect the business, financial condition, operating results, and stock price - No material changes in risk factors since the filing of the Annual Report for the fiscal year ended December 31, 2021[137](index=137&type=chunk) [ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds](index=35&type=section&id=ITEM%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) There were no unregistered sales of equity securities or use of proceeds to report for the period - None to report[138](index=138&type=chunk) [ITEM 3 Defaults Upon Senior Securities](index=35&type=section&id=ITEM%203%20Defaults%20Upon%20Senior%20Securities) There were no defaults upon senior securities to report for the period - None to report[138](index=138&type=chunk) [ITEM 4 Mine Safety Disclosures](index=35&type=section&id=ITEM%204%20Mine%20Safety%20Disclosures) Mine safety disclosures are not applicable to the company's operations - Not applicable[138](index=138&type=chunk) [ITEM 5 Other Information](index=36&type=section&id=ITEM%205%20Other%20Information) There is no other information to report for the period - None to report[139](index=139&type=chunk) [ITEM 6 Exhibits](index=37&type=section&id=ITEM%206%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including organizational documents, certifications from the CEO and CFO, and financial information formatted in Inline XBRL - Exhibits include Amended and Restated Certificate of Incorporation, Fourth Amended and Restated Bylaws, CEO and CFO certifications (Sections 302 and 906 of Sarbanes-Oxley Act), and financial information in iXBRL format[140](index=140&type=chunk) [Signatures](index=38&type=section&id=Signatures) The report is duly signed on behalf of Vanda Pharmaceuticals Inc. by its President, Chief Executive Officer, and Chairman of the Board, Mihael H. Polymeropoulos, M.D., and its Senior Vice President, Chief Financial Officer, and Treasurer, Kevin Moran, on November 3, 2022 - Report signed by Mihael H. Polymeropoulos, M.D. (President, CEO, and Chairman) and Kevin Moran (SVP, CFO, and Treasurer) on November 3, 2022[144](index=144&type=chunk)

Financial Data and Key Metrics Changes - Total revenues for the first nine months of 2022 were $189.9 million, a 5% decrease compared to $200.7 million for the same period in 2021 [19] - Net loss for the first nine months of 2022 was $600,000 compared to net income of $26.1 million for the same period in 2021 [20] - Operating expenses for the first nine months of 2022 were $190.2 million, an increase from $167.1 million for the same period in 2021 [21] - Total revenues for the third quarter of 2022 were $65.3 million, a 7% decrease compared to $70.1 million for the third quarter of 2021 [22] - Net income for the third quarter of 2022 was $3.3 million, down from $7.8 million for the third quarter of 2021 [23] - Cash balance as of September 30, 2022, was $454.8 million, representing a 3% increase compared to June 30, 2022 [25] Business Line Data and Key Metrics Changes - HETLIOZ net product sales for the first nine months of 2022 were $119.6 million, an 8% decrease compared to the same period in 2021 [19] - Fanapt net product sales for the first nine months of 2022 were $70.3 million, reflecting a 1% decrease compared to the same period in 2021 [20] - HETLIOZ net product sales for the third quarter of 2022 were $41.3 million, a 9% decrease compared to $45.6 million for the third quarter of 2021 [22] - Fanapt net product sales for the third quarter of 2022 were $24 million, a 2% decrease compared to $24.5 million for the third quarter of 2021 [23] Market Data and Key Metrics Changes - Continued reimbursement challenges for prescriptions for patients with non-24 have impacted net sales for both HETLIOZ and Fanapt [22][23] Company Strategy and Development Direction - The company is focused on enhancing the performance of its current commercial products and advancing clinical programs to position for long-term growth [6] - Ongoing clinical programs include studies for Fanapt in bipolar mania and performance anxiety, with results expected by the end of the quarter [7] - The company is preparing for a new drug application for gastroparesis, with FDA submission expected in the first half of 2023 [8] - A supplemental NDA for HETLIOZ in the treatment of insomnia is planned for submission this quarter [11] Management's Comments on Operating Environment and Future Outlook - Management highlighted the importance of ongoing litigation to hold regulators accountable and protect the company's interests [14][15] - The company expects to achieve net product sales from both HETLIOZ and Fanapt between $240 million and $270 million for 2022, slightly adjusted from prior guidance [25][26] Other Important Information - The company announced a research and development agreement with OliPass to develop antisense oligonucleotides [12] - The FDA granted orphan drug designation for VPO-227 for the treatment of cholera, with an investigational new drug application expected in 2023 [11] Q&A Session Summary Question: What led to the decision to file an sNDA for HETLIOZ and for insomnia now? - Management clarified that the sNDA has not been filed yet but is planned for this quarter, and the application will include the 2008 study along with additional studies [30] Question: Will you be using the 2008 study or is there new data being submitted? - Management confirmed that the chronic insomnia four-week study is the 2008 study, and two additional studies will support the application [30]

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, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION 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 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 ...