Vanda Pharmaceuticals(VNDA) - 2021 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and related disclosures for the interim period ITEM 1 Financial Statements (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 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] Condensed Consolidated Statements of Operations 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] - 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] Condensed Consolidated Statements of Comprehensive Income 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] Condensed Consolidated Statement of Changes in Stockholders' Equity 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][21] Condensed Consolidated Statements of Cash Flows 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] - 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] Notes to the Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements 1. Business Organization and Presentation 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] - The commercial portfolio includes HETLIOZ® for Non-24-Hour Sleep-Wake Disorder (Non-24) and Smith-Magenis Syndrome (SMS), and Fanapt® for schizophrenia[27] - 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] 2. Summary of Significant Accounting Policies 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][30] - 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][76] - 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] 3. Marketable Securities 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] 4. Fair Value Measurements 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][38] 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] 5. Inventory 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] 6. Intangible Assets 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][43] - 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] 7. Accounts Payable and Accrued Liabilities 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] 8. Commitments and Contingencies 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] - 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][48][49][50] - Purchase commitments for clinical development and manufacturing services are generally terminable on 90 days' notice[51] 9. Accumulated Other Comprehensive Income 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] 10. Stock-Based Compensation 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] - 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][58] 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 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] 12. Earnings per Share 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] 13. Legal Matters 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][65][66] - 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] - 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] ITEM 2 Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, results of operations, and liquidity 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][68] - 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][71] - 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][72] Critical Accounting Policies 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] 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] Results of Operations 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][99] - 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][99] - 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][101] Liquidity and Capital Resources 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] 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 This section outlines the company's exposure to market risks, including interest rate, credit, and foreign currency fluctuations Interest Rate Risks 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] - Due to the short-term maturities of investments, significant interest rate increases are not expected to materially impact the realized value of investments[113] Concentrations of Credit Risk 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] - 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] Foreign Currency Risk 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] - 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] Effects of Inflation 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] ITEM 4 Controls and Procedures This section details management's evaluation of disclosure controls and internal control over financial reporting Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures 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] Changes in Internal Control over Financial Reporting 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] PART II – OTHER INFORMATION This section provides additional non-financial disclosures and other required information for the interim period ITEM 1 Legal Proceedings 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] ITEM 1A Risk Factors 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] ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds 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] ITEM 3 Defaults Upon Senior Securities This section indicates no defaults upon senior securities to report - No defaults upon senior securities to report[123] ITEM 4 Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[124] ITEM 5 Other Information This section reports no other information to disclose - No other information to report[124] ITEM 6 Exhibits 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] 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]