Vanda Pharmaceuticals Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Q4 2021 Vanda Pharmaceuticals, Inc. earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone keypad. Please be advised that today's conference call is being recorded. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Kevin Moran, Vanda's Chief Financial Officer. Thank you. Please go ahead.

Thank you, Cherry. Good afternoon, and thank you for joining us to discuss Vanda Pharmaceutical's fourth quarter and full year 2021 performance. Our fourth quarter and full year 2021 results were released this afternoon and are available on the SEC's EDGAR system and on our website, www.vandapharma.com. In addition, we are providing live and archived versions of this conference call on our website. Joining me on today's call is Dr. Mahalis Pai-Moropoulos, our President, Chief Executive Officer, and Chairman of the Board, Tim Williams, our General Counsel and Secretary, Gunther Biersnix, our Senior Vice President of Business Development and R&D Committee Member, and independent expert Dr. Thomas Abel from the University of Louisville. Following my introductory remarks, Mahalis will update you on our ongoing activities. I will then comment on our financial results before opening the lines for your questions. Before we proceed, I would like to remind everyone that various statements that we make on this call will be forward-looking statements within the meaning of federal securities laws. Our forward-looking statements are based upon current expectations and assumptions that involve risks, changes in circumstances, and uncertainties. These risks are described in the cautionary note regarding forward-looking statements, risk factors, and management's discussion and analysis of financial condition and results of operations sections of our annual report on Form 10-K for the fiscal year ended December 31, 2020, as updated by our subsequent quarterly reports on Form 10-Q, current reports on Form 8-K, and other filings with the SEC, which are available on the SEC's EDGAR system and on our website. Additional factors may be set forth in those sections of our annual report on Form 10-K for the fiscal year ended December 31, 2021, to be filed with the SEC in the first quarter of 2022. We encourage all investors to read these reports and our other filings. The information we provide on this call is provided only as of today, and we undertake no obligation to update or revise publicly any forward-looking statements we may make on this call on account of new information, future events, or otherwise, except as required by law. With that said, I would now like to turn the call over to our CEO, Dr. Mahalis Polymeropoulos.

Thank you very much, Kevin. Good afternoon, everyone. I appreciate you joining us to discuss our fourth quarter and full year 2021 results, as well as our phase three gastroparesis results and proposed next steps in our development program for tradipitant. As usual, I will discuss our commercial performance and the highlights of our clinical development programs, and then I will turn specifically to the gastroparesis study and tradipitant. On headlifts, we continue to see strong interest with new patient prescriptions, especially for sighted patients with NON24. However, we also saw a significant increase in the rates of payer denial for sighted patients with NON24 that led to a net decline of NON24 patients on treatment. We will discuss in more detail our significant efforts to support patients with NON24 and the progress we're beginning to make, especially for Medicaid-insured patients. We launched HETLIOS and HETLIOS-LQ for the indication of nighttime sleep disturbances in patients with Smith-Mageni syndrome. More than 50 patients with SMS are currently on treatment, and more are awaiting payer approval. We're working closely with advocacy organizations and direct-to-consumer campaign to increase awareness around Smith-Magenius syndrome. We recognize that many patients with SMS remain undiagnosed and are currently treated for various neurodevelopmental disorders. Through our genetics platform, we have recently discovered that up to one in a thousand patients diagnosed with autism actually carry potential pathogenic mutations in the RAI1 gene, which is often deleted or mutated in patients with SMS. We believe that this discovery will aid in the molecular identification of patients with SMS among the autism population of patients and offer them a new therapeutic We look forward to beginning to resolve the access hurdles for sighted patients with NON24, expanding our SMS population of treated patients, and advancing the HETLIOs through the clinical program of delayed sleep-wake phase disorder. We're pleased with the settlement with one of our HETLIOs and defendants and look forward to asserting our HETLIOs franchise against the remaining defendants in the upcoming trial. On FNAPT, we're making progress in our phase three study of bipolar disorder, which is now over 50% enrolled and expected to complete enrollment by the end of 2022, while the alopecia long-acting injectable program is advancing. I will now turn to our recently announced completion and results of our tradipitin gastroparesis study and offer some more insights and discuss our planned future direction for this program. We recently reported initial results from the tradipitin clinical study in gastroparesis. In a prior phase two clinical study, tradipitin was shown to improve a host of symptoms in patients with gastroparesis, including nausea and vomiting. The prior phase two study had a four-week duration and enrolled approximately 150 idiopathic and diabetic gastroparesis patients with moderate to severe nausea. These patients were randomized one-on-one on Tredyptanol placebo. The recently completed phase three study enrolled the same patient population and featured two study design differences from the Phase II study. Because we observed a large effect size of response among patients with at least one vomiting episode in the prior Phase II study, patients with no reported vomiting episodes during screening were excluded from this Phase III study. Additionally, to meet FDA guidance, we increased the study duration from 4 to 12 weeks. The phase 3 study enrolled approximately 200 patients who were randomized one-on-one and received Tredipton or placebo. The study had a pre-specified primary statistical endpoint of daily daily reported subjective nausea severity change at week 12 from baseline. Beyond the primary endpoint, other outcomes included the evaluation of other symptoms of gastroparesis, including vomiting, retching, bloating, fullness, and abdominal pain. In addition to the daily diary evaluation, patients also reported that regular intervals, their overall impression of improvement in a six-point scale, ranging from very much improved to no change to very much worsened. The scale acronym is PGIC, or patient global impression change. Patients also reported similar changes for each of the core gastroparesis symptoms, and a weighted overall improvement score was calculated according to patient-reported ranking of symptoms at baseline, referred to as overall patient benefits. Patients were allowed to use certain rescue medications during the course of a 12-week study, a common study design option, and similar to the prior study. Upon unblinding, we observed, first, an imbalance of baseline use of rescue medication with more rescue medication used in patients who eventually randomized to tradipitant. We also observed a much higher use of rescue medication at baseline in this study as compared to the prior study. An imbalance of baseline severity was also observed with higher baseline nausea severity in the tradipitin group. A regular pharmacokinetic analysis sampling also revealed that a number of tradipitin patients were not compliant with therapy. When restricting the study analysis to the population of patients who used no rescue medication and were compliant with treatment, we observed a significant and meaningful effect across most of the core symptoms of gastroparesis, confirming the results of the prior four-week study. We have continued to analyze the data and identified a host of factors pointing to a large placebo response that has confounded the data overall. Placebo response is the therapeutic response to an inert treatment in the course of a clinical study. Placebo response has been observed in almost every clinical study setting, and in particular in those studies where the therapeutic outcome is subjective. As such, large placebo responses are common in clinical studies of psychiatric conditions including depression, pain studies, and studies of therapeutics of gastrointestinal disorders. The observed placebo response has plagued clinical studies for decades and it reportedly appears to be getting larger over time. A growing scientific literature is attempting to address and understand the issue by characterizing the common and potential confounders leading to placebo response. Placebo response has been attributed to a host of factors that include trial design, population selection, and study endpoint issues. A well-understood factor contributing to placebo response is a baseline symptom severity inflation, where the reported baseline symptom severity is inflated, leading to subsequent improvements while patient symptoms actually just return to the undisturbed baseline. Another factor is related to patients expectancy or anticipation of a much desired symptom improvement. Study site variability, such as the possibility of site encouragement, also may contribute to improve placebo responses during the trial. Trial design issues, including length of screening period and length of study, are also correlated with placebo responses. In a study of response rates in nausea studies, a significant increase in placebo response rates was correlated with length of study where studies longer than two weeks showed extraordinary rates of placebo response as high as 70 to 80%. Given these observations, demonstrating a therapeutic effect above and beyond that of placebo becomes exceedingly difficult. Moreover, quote-unquote negative studies of new therapeutics can simply be false negatives, where the tested therapeutic has a therapeutic effect but not significantly larger than the placebo response. This issue constitutes a major question of large public health significance. If placebo response is masking the effectiveness of drugs during clinical studies, important new therapeutics may be precluded from coming to the market, harming patients, and leading to tremendous social and economic costs. During this initial evaluation of our phase 3 study results, and in response to the large placebo effect seen in the study, VANDER has developed an analysis approach that aims to reduce the placebo effect and allow a better estimate of the true treatment effect. A baseline severity inflation is a common factor cited as a driver of placebo response. This study would be particularly susceptible because the severity threshold was pre-specified for nausea as well as a minimal threshold for vomiting. While these thresholds are meant to enroll patients with adequate severity who are less prone to spontaneous improvement during the study, we can also inflate the reported baseline severity. According to the principle of migration to the mean, patients with inflated baseline severity are likely to experience improvement regardless of treatment assignment, leading to a significant placebo effect. We have developed a method to adjust for possible baseline severity inflation. When adjusting for baseline severity inflation, or BSI, and introducing BSI as a parameter in the statistical model, we observed a significant interaction between baseline severity inflation and treatment, so that the decrease of treatment on clinical outcomes is different between different groups of patients according to their BSI status. Patients were classified in two classes of high or low BSI. Patients with low BSI showed a robust treatment effect across most of the clinical outcomes, including the patient-reported core symptoms of gastroparesis in the pre-specified endpoint of nausea severity at week 12. Significant improvement was also observed across the global impression scale, the patient-reported global impression change, and the overall patient benefit evaluation. While we're continuing the evaluation of the study data, we believe that the evidence produced so far constitutes a substantial evidence of efficacy to support an efficacy claim for in the treatment of patients with gastroparesis. The statutory substantial evidence standard is inherently flexible. It generally requires sufficient evidence that a reasonable mind, considering the record as a whole, might accept as adequate to support a conclusion, even though other reasonable persons may disagree. This is less demanding than the other evidentiary standards, such as preponderance of the evidence. It is important for the FDA industry and academia to work constructively with drug innovators to ensure that tools like placebo control are employed thoughtfully with consideration and development of new designs and analytic tools to account for the placebo response rates and do not cause the abandonment of effective therapeutics. Treatment for gastroparesis is an unmet medical need, which has not seen any significant therapeutic innovation in 40 years. it is important that we acknowledge and overcome methodological challenges and bring new drugs to patients as soon as possible. We believe that the current clinical study designs required by the FDA for regulatory approval in gastroparesis are especially prone to large placebo responses, which can effectively impede the discovery of any new therapeutic. This has been true for a number of promising drugs in gastroparesis which have shown initial effects in four-week studies, but failed to separate from placebo in longer 12-week studies, where a very large placebo response rate was seen. Besides the placebo response effect, it is important to recognize that these clinical programs are not experiments that can be easily repeated, given extraordinary recruitment challenges. Despite diligent and large advertisement efforts The tradipitin program has taken over six years to recruit approximately 350 patients into randomized placebo control studies. We believe it is imperative that we use the existing evidence to inform the regulatory approval of new drugs, including tradipitin. For the community of patients with gastroparesis, we believe that our proposed approach may bring a host of new innovative treatments forward, which have been already tested in adequate and controlled studies, which, however, fail to meet the regulatory pre-specified endpoint for the reasons discussed above, but for which the totality of the evidence would satisfy the regulatory standard of substantial evidence of efficacy. Moreover, we believe that the adoption of our analytic approach could answer a new era of therapeutics, especially in disorders that depend on subjective patient reporting and where placebo response rates are exceedingly high, including depression, pain, and other gastrointestinal disorders. Beyond novel analytic tools, research in new trial designs should be investigated, and FDA guidance for the development of drugs in these indications should be revisited. Vanda intends to collaborate with the FDA, underscoring the need for review of tradipitant in accord with the calibrated standard that Congress purposefully enacted. We hope that the FDA will work cooperatively in asserting the proper application of the Substantial Evidence Standard in this context. I will now turn the call over to Gunther Birnieks to introduce Dr. Abel. Gunther?