e10vq
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
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(Mark One)
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þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
March 31,
2011
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission File Number:
001-34186
VANDA PHARMACEUTICALS
INC.
(Exact name of registrant as
specified in its charter)
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Delaware
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03-0491827
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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9605 Medical Center Drive, Suite 300
Rockville, Maryland
(Address of principal
executive offices)
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20850
(Zip
Code)
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(240) 599-4500
(Registrants telephone
number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). Yes o No o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
filer o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do not check if a smaller reporting
company)
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
As of May 5, 2011, there were 28,103,441 shares of the
registrants common stock issued and outstanding.
Vanda
Pharmaceuticals Inc.
Quarterly Report on
Form 10-Q
For the Quarter Ended March 31, 2011
INDEX
2
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Item 1.
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Financial
Statements (Unaudited).
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VANDA
PHARMACEUTICALS INC.
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March 31,
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December 31,
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2011
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2010
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(In thousands, except for share amounts)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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52,520
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$
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42,559
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Marketable securities
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142,035
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155,478
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Accounts receivable
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895
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511
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Prepaid expenses, deposits and other current assets
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1,619
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1,843
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Deferred tax asset, current portion
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182
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182
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Total current assets
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197,251
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200,573
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Property and equipment, net
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860
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937
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Intangible asset, net
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9,153
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9,522
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Deferred tax asset, non-current portion
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1,639
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1,639
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Restricted cash
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430
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430
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Total assets
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$
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209,333
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$
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213,101
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LIABILITIES AND STOCKHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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834
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$
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648
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Accrued liabilities
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2,141
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1,324
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Accrued income taxes
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2,272
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2,266
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Deferred revenues, current portion
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26,789
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26,789
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Total current liabilities
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32,036
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31,027
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Deferred rent
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482
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490
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Deferred revenues, noncurrent portion
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137,247
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143,853
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Total liabilities
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169,765
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175,370
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Commitments
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Stockholders equity:
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Preferred stock, $0.001 par value; 20,000,000 shares
authorized and none issued and outstanding at March 31,
2011 and December 31, 2010
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Common stock, $0.001 par value; 150,000,000 shares
authorized as of March 31, 2011 and December 31, 2010;
and 28,103,441 and 28,041,379 shares issued and outstanding
as of March 31, 2011 and December 31, 2010,
respectively
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28
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28
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Additional paid-in capital
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292,946
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291,342
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Accumulated other comprehensive income
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99
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2
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Accumulated deficit
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(253,505
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)
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(253,641
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)
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Total stockholders equity
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39,568
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37,731
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Total liabilities and stockholders equity
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$
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209,333
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$
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213,101
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
VANDA
PHARMACEUTICALS INC.
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Three Months Ended
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March 31,
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March 31,
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2011
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2010
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(In thousands, except for share amounts)
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Revenues:
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Licensing agreement
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$
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6,606
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$
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6,606
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Royalty revenue
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895
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2,067
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Product sales
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3,748
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Total revenues
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7,501
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12,421
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Operating expenses:
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Cost of sales, product
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1,375
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Research and development
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4,267
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2,041
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General and administrative
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2,858
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2,489
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Intangible asset amortization
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369
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369
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Total operating expenses
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7,494
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6,274
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Income from operations
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7
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6,147
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Interest income
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135
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47
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Income before tax provision
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142
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6,194
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Tax provision
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6
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5,665
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Net income
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$
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136
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$
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529
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Net income per share:
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Basic and diluted
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$
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0.00
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$
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0.02
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Shares used in calculation of net income per share:
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Basic
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28,101,418
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27,704,418
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Diluted
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28,936,835
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28,318,754
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
VANDA
PHARMACEUTICALS INC.
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Accumulated
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Additional
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Other
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Common Stock
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Paid-In
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Comprehensive
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Accumulated
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Comprehensive
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Shares
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Par Value
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Capital
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Income
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Deficit
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Income
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Total
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(In thousands, except for share amounts)
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Balances at December 31, 2010
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28,041,379
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$
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28
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$
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291,342
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$
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2
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$
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(253,641
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)
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$
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37,731
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Issuance of common stock from exercised stock options/restricted
stock units
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62,062
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Employee and non-employee stock-based compensation
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1,604
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1,604
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Excess tax benefits from exercise of stock options
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Comprehensive income:
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Net income
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136
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$
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136
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Net unrealized gain on marketable securities
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97
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97
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Comprehensive income
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$
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233
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|
233
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Balances at March 31, 2011
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28,103,441
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$
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28
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$
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292,946
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$
|
99
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$
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(253,505
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)
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$
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39,568
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|
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|
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|
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|
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|
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|
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The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
VANDA
PHARMACEUTICALS INC.
|
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Three Months Ended
|
|
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March 31,
|
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March 31,
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2011
|
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|
2010
|
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(In thousands)
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Cash flows from operating activities
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Net income
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$
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136
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$
|
529
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|
Adjustments to reconcile net income to net cash used in
operating activities:
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Depreciation and amortization
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77
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94
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Employee and non-employee stock-based compensation
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1,604
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1,121
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Loss on disposal of assets
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(23
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)
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Amortization of premiums and discounts on marketable securities
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315
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(4
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)
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Amortization of intangible assets
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369
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369
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Deferred tax benefits
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(1,984
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)
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Changes in assets and liabilities:
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Accounts receivable
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(384
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)
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(2,867
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)
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Inventory
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919
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Prepaid expenses, deposits and other current assets
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224
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|
415
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Accounts payable
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186
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|
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|
(1,556
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)
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Accrued liabilities
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|
817
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|
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|
(969
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)
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Income taxes payable
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|
6
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5,740
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Other liabilities
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(8
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)
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(4
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)
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Deferred revenues
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(6,606
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)
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(6,606
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)
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Net cash used in operating activities
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|
(3,264
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)
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(4,826
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)
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Cash flows from investing activities
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|
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Purchases of marketable securities
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(47,400
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)
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(32,457
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)
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Maturities of marketable securities
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60,625
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Net cash provided by (used in) investing activities
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13,225
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(32,457
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)
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Cash flows from financing activities
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|
|
|
|
|
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Excess tax benefits from stock-based compensation
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|
|
|
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1,910
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Proceeds from exercise of stock options
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23
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Net cash provided by financing activities
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|
|
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1,933
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|
Net change in cash and cash equivalents
|
|
|
9,961
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|
|
|
(35,350
|
)
|
Cash and cash equivalents
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
42,559
|
|
|
|
205,295
|
|
|
|
|
|
|
|
|
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|
End of period
|
|
$
|
52,520
|
|
|
$
|
169,945
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements.
6
VANDA
PHARMACEUTICALS INC.
|
|
1.
|
Business
Organization and Presentation
|
Business
organization
Vanda Pharmaceuticals Inc. (We, Vanda or the Company) is a
biopharmaceutical company focused on the development and
commercialization of products for the treatment of central
nervous system disorders. Vanda commenced its operations in
2003. The Companys lead product,
Fanapt®
(iloperidone), which Novartis Pharma AG (Novartis) began
marketing in the U.S. in the first quarter of 2010, is a
compound for the treatment of schizophrenia. On May 6,
2009, the U.S. Food and Drug Administration (FDA) granted
U.S. marketing approval of
Fanapt®
for the acute treatment of schizophrenia in adults. On
October 12, 2009, Vanda entered into an amended and
restated sublicense agreement with Novartis. Vanda had
originally entered into a sublicense agreement with Novartis on
June 4, 2004 pursuant to which Vanda obtained certain
worldwide exclusive licenses from Novartis relating to
Fanapt®.
Pursuant to the amended and restated sublicense agreement,
Novartis has exclusive commercialization rights to all
formulations of
Fanapt®
in the U.S. and Canada. Novartis is responsible for the
further clinical development activities in the U.S. and
Canada, including the development of a long-acting injectable
(or depot) formulation of
Fanapt®.
Pursuant to the amended and restated sublicense agreement, Vanda
received an upfront payment of $200.0 million at the end of
2009 and is eligible for additional payments totaling up to
$265.0 million upon the achievement of certain commercial
and development milestones for
Fanapt®
in the U.S. and Canada. Vanda also receives royalties,
which, as a percentage of net sales, are in the low
double-digits, on net sales of
Fanapt®
in the U.S. and Canada. In addition, Vanda is no longer
required to make any future milestone payments with respect to
sales of
Fanapt®
or any future royalty payments with respect to sales of
Fanapt®
in the U.S. and Canada. Vanda retains exclusive rights to
Fanapt®
outside the U.S. and Canada and Vanda has exclusive rights
to use any of Novartis data for
Fanapt®
for developing and commercializing
Fanapt®
outside the U.S. and Canada. At Novartis option,
Vanda will enter into good faith discussions with Novartis
relating to the co-commercialization of
Fanapt®
outside of the U.S. and Canada or, alternatively, Novartis
will receive a royalty on net sales of
Fanapt®
outside of the U.S. and Canada. Vanda continues to explore
the regulatory path and commercial opportunity for
Fanapt®
oral formulation outside of the U.S. and Canada. On
November 1, 2010, the Therapeutic Goods Administration of
Australias Department of Health and Ageing, accepted for
evaluation Vandas application for marketing approval for
the
Fanapt®
oral formulation.
Tasimelteon is an oral compound in development for the treatment
of sleep and mood disorders including Circadian Rhythm Sleep
Disorders (CRSD). On January 19, 2010, the FDA granted
orphan drug designation status for tasimelteon in a specific
CRSD, Non-24 Hour Sleep/Wake Disorder (N24HSWD) in blind
individuals without light perception. The FDA grants orphan drug
designation to drugs that may provide significant therapeutic
advantage over existing treatments and target conditions
affecting 200,000 or fewer U.S. patients per year. Orphan
drug designation provides potential financial and regulatory
incentives including study design assistance, waiver of FDA user
fees, tax credits, and up to seven years of market exclusivity
upon marketing approval. On February 23, 2011, the European
Commission (EC) designated tasimelteon as an orphan medicinal
product for the same indication. Vanda initiated two clinical
trials to pursue FDA approval of tasimelteon for the treatment
of N24HSWD in blind individuals without light perception in the
third quarter of 2010. The first trial is a randomized,
double-blind, placebo-controlled study with a planned enrollment
of approximately 160 patients with N24HSWD. The trial has a
six month treatment period and includes measures of both
nighttime and daytime sleep, as well as laboratory measures of
the synchronization between the internal body clock and the
24-hour
environmental light/dark cycle. Vanda also initiated a one-year
safety study of tasimelteon for the treatment of N24HSWD. This
trial is an open-label safety study with a planned enrollment of
approximately 140 patients with N24HSWD. Vanda plans to
conduct additional clinical trials over the next one to two
years to support the use of tasimelteon as a circadian regulator
and the submission of a new drug application (NDA) to the FDA
and a marketing authorization application to the European
Medicines Agency (EMA). On January 6, 2011, an
end-of-Phase II
meeting was held with the FDA to discuss the development plan
for tasimelteon in the treatment of N24HSWD. Vanda is also
evaluating tasimelteon in Major Depressive Disorder (MDD) and
plans to initiate a Phase IIb/III clinical trial of tasimelteon
in patients with MDD. The trial is expected to begin during the
second half of 2011 and will investigate the efficacy and safety
of tasimelteon versus placebo in the treatment of MDD. The study
is expected to include an 8-week
7
VANDA
PHARMACEUTICALS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
treatment period and an optional open-label extension. Given the
range of potential indications for tasimelteon, Vanda may pursue
one or more partnerships for the development and
commercialization of tasimelteon worldwide.
Throughout this quarterly report on
Form 10-Q,
Vanda refers to
Fanapt®
within the U.S. and Canada as its partnered product and
Vanda refers to
Fanapt®
outside the U.S. and Canada and tasimelteon as its
products. All other compounds are referred to as Vandas
product candidates. In addition, Vanda refers to its partnered
products, products and product candidates collectively as its
compounds. Moreover, Vanda refers to drug products generally as
drugs or products.
Basis
of presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with
U.S. generally accepted accounting principles (GAAP) for
interim financial information and the instructions to
Form 10-Q
and Article 10 of
Regulation S-X.
Accordingly, they do not include all the information and
footnotes required by GAAP for complete financial
statements and should be read in conjunction with the
Companys consolidated financial statements for the year
ended December 31, 2010 included in the Companys
annual report on
Form 10-K.
The financial information as of March 31, 2011 and for the
period of the three months ended March 31, 2011 and 2010,
is unaudited, but in the opinion of management all adjustments,
consisting only of normal recurring accruals, considered
necessary for a fair statement of the results of these interim
periods have been included. The condensed consolidated balance
sheet data as of December 31, 2010 was derived from audited
financial statements but does not include all disclosures
required by GAAP.
The results of the Companys operations for any interim
period are not necessarily indicative of the results that may be
expected for any other interim period or for a full fiscal year.
The financial information included herein should be read in
conjunction with consolidated financial statements and notes in
the Companys annual report incorporated by reference in
the
Form 10-K
for the year ended December 31, 2010.
|
|
2.
|
Summary
of Significant Accounting Policies
|
Use of
estimates
The preparation of financial statements in conformity with GAAP
requires management to make estimates that affect the reported
amounts of assets and liabilities at the date of the financial
statements, disclosure of contingent assets and liabilities, and
the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those
estimates.
Cash
and cash equivalents
For purposes of the condensed consolidated balance sheets and
condensed consolidated statements of cash flows, cash
equivalents represent highly-liquid investments with a maturity
date of three months or less at the date of purchase.
Marketable
securities
The Company classifies all of its marketable securities as
available-for-sale
securities. The Companys investment policy requires the
selection of high-quality issuers, with bond ratings of AAA to
A1+/P1.
Available-for-sale
securities are carried at fair market value, with unrealized
gains and losses reported as a component of stockholders
equity in accumulated other comprehensive income/loss. Interest
and dividend income is recorded when earned and included in
interest income. Premiums and discounts on marketable securities
are amortized and accreted, respectively, to maturity and
included in interest income. The Company uses the specific
identification method in computing realized gains and losses on
the sale of investments, which would be included in the
condensed consolidated statements of operations when generated.
Marketable securities with a maturity of more than one year as
of the balance sheet date are classified as long-term securities.
8
VANDA
PHARMACEUTICALS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
Intangible
asset, net
Costs incurred for products or product candidates not yet
approved by the FDA and for which no alternative future use
exists are recorded as expense. In the event a product or
product candidate has been approved by the FDA or an alternative
future use exists for a product or product candidate, patent and
license costs are capitalized and amortized over the expected
patent life of the related product or product candidate.
Milestone payments to the Companys partners are recognized
when it is deemed probable that the milestone event will occur.
As a result of the FDAs approval of the NDA for
Fanapt®
in May 2009, the Company met a milestone under its original
sublicense agreement with Novartis which required the Company to
make a payment of $12.0 million to Novartis. The
$12.0 million is being amortized on a straight line basis
over the remaining life of the U.S. patent for
Fanapt®,
which the Company expects to last until May 15, 2017. This
includes the Hatch-Waxman extension that extends patent
protection for drug compounds for a period of up to five years
to compensate for time spent in development and a
six-month
pediatric term extension. This term is the Companys best
estimate of the life of the patent; if, however, the
Hatch-Waxman or pediatric extensions are not granted, the
intangible asset will be amortized over a shorter period.
The carrying values of intangible assets are periodically
reviewed to determine if the facts and circumstances suggest
that a potential impairment may have occurred. The Company had
no impairments of its intangible assets for the three months
ended March 31, 2011.
Fair
value of financial instruments
The carrying amounts of the Companys financial
instruments, which include cash and cash equivalents, marketable
securities and accounts receivable, approximate their fair
values due to their short nature.
Property
and equipment
Property and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation of property and
equipment is provided on a straight-line basis over the
estimated useful lives of the assets. Amortization of leasehold
improvements is provided on a straight-line basis over the
shorter of their estimated useful life or the lease term. The
costs of additions and improvements are capitalized, and repairs
and maintenance costs are charged to operations in the period
incurred. Upon retirement or disposition of property and
equipment, the cost and accumulated depreciation and
amortization are removed from the accounts and any resulting
gain or loss is reflected in the statement of operations for
that period.
Revenue
Recognition
The Companys revenues are derived primarily from the
amended and restated sublicense agreement with Novartis and
include an up-front payment, product sales and future milestone
and royalty payments. Revenue is considered both realizable and
earned when each one of the following four conditions is met:
(1) persuasive evidence of an arrangement exists,
(2) the arrangement fee is fixed or determinable,
(3) delivery or performance has occurred and
(4) collectability is reasonably assured. Pursuant to the
amended and restated sublicense agreement, Novartis has the
right to commercialize and develop
Fanapt®
in the U.S. and Canada. Under the amended and restated
sublicense agreement, the Company received an upfront payment of
$200.0 million in December of 2009. Pursuant to the amended
and restated sublicense agreement, the Company and Novartis
established a Joint Steering Committee (JSC) following the
effective date of the amended and restated sublicense agreement.
The Company expects to have an active role on the JSC and
concluded that the JSC constitutes a deliverable under the
amended and restated sublicense agreement and that revenue
related to the upfront payment will be recognized ratably over
the term of the JSC; however, the delivery or performance has no
term as the exact length of the JSC is undefined. As a result,
the Company deems the performance period of the JSC to be the
life of the U.S. patent of
Fanapt®,
which the Company expects to last until May 15, 2017. This
includes the Hatch-Waxman extension that provides patent
protection for drug compounds for a period of up to five years
to compensate for time spent in development and a six-month
pediatric term extension. This term is the Companys best
estimate of the life of the
9
VANDA
PHARMACEUTICALS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
patent. Revenue will be recognized ratably from the date the
amended and restated sublicense agreement became effective
(November 27, 2009) through the expected life of the
U.S. patent for
Fanapt®
(May 15, 2017). Revenue related to product sales is
recognized upon delivery to Novartis. The Company recognizes
revenue from
Fanapt®
royalties and commercial and development milestones from
Novartis when realizable and earned.
Concentrations
of credit risk
Financial instruments which potentially subject the Company to
significant concentrations of credit risk consist primarily of
cash, cash equivalents and marketable securities. The Company
places its cash, cash equivalents and marketable securities with
what the Company believes to be highly-rated financial
institutions. At March 31, 2011, the Company maintained all
of its cash, cash equivalents and marketable securities in three
financial institutions. Deposits held with these institutions
may exceed the amount of insurance provided on such deposits.
Generally, these deposits may be redeemed upon demand, and the
Company believes there is minimal risk of losses on such
balances.
Accrued
expenses
Management is required to estimate accrued expenses as part of
the process of preparing financial statements. The estimation of
accrued expenses involves identifying services that have been
performed on the Companys behalf, and then estimating the
level of service performed and the associated cost incurred for
such services as of each balance sheet date in the financial
statements. Accrued expenses include professional service fees,
such as lawyers and accountants, contract service fees, such as
those under contracts with clinical monitors, data management
organizations and investigators in conjunction with clinical
trials, fees to contract manufacturers in conjunction with the
production of clinical materials, and fees for marketing and
other commercialization activities. Pursuant to
managements assessment of the services that have been
performed on clinical trials and other contracts, the Company
recognizes these expenses as the services are provided. Such
management assessments include, but are not limited to:
(1) an evaluation by the project manager of the work that
has been completed during the period, (2) measurement of
progress prepared internally
and/or
provided by the third-party service provider, (3) analyses
of data that justify the progress, and
(4) managements judgment. In the event that the
Company does not identify certain costs that have begun to be
incurred or the Company under- or over-estimates the level of
services performed or the costs of such services, the
Companys reported expenses for such period would be too
low or too high.
Research
and development expenses
The Companys research and development expenses consist
primarily of fees for services provided by third parties in
connection with the clinical trials, costs of contract
manufacturing services, milestone license fees, costs of
materials used in clinical trials and research and development,
cost for regulatory consultants and filings, depreciation of
capital resources used to develop products, related facilities
costs, and salaries, other employee related costs and
stock-based compensation for the research and development
personnel. The Company expenses research and development costs
as they are incurred for compounds in the development stage,
including certain payments made under the license agreements.
Prior to FDA approval, all
Fanapt®
manufacturing-related and milestone costs were included in
research and development expenses. Subsequent to FDA approval of
Fanapt®,
manufacturing and milestone costs related to this product are
being capitalized. Costs related to the acquisitions of
intellectual property have been expensed as incurred since the
underlying technology associated with these acquisitions were
made in connection with the Companys research and
development efforts and have no alternative future use.
Milestone payments are accrued in accordance with the FASB
guidance on accounting for contingencies which states that
milestones payments be accrued when it is deemed probable that
the milestone event will be achieved.
General
and administrative expenses
General and administrative expenses consist primarily of
salaries, other employee related costs and stock-based
compensation for personnel serving executive, business
development, marketing, finance, accounting, information
10
VANDA
PHARMACEUTICALS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
technology and human resource functions, facility costs not
otherwise included in research and development expenses,
insurance costs and professional fees for legal, accounting and
other professional services. General and administrative expenses
also include third party expenses incurred to support business
development, marketing and other business activities related to
Fanapt®.
Employee
stock-based compensation
The Company accounts for its stock-based compensation expenses
in accordance with the FASB guidance on share-based payments
which were adopted on January 1, 2006. Accordingly,
compensation costs for all stock-based awards to employees and
directors are measured based on the grant date fair value of
those awards and recognized over the period during which the
employee or director is required to perform service in exchange
for the award. The Company generally recognizes the expense over
the awards vesting period.
The fair value of stock options granted is amortized using the
accelerated attribution method. The fair value of restricted
stock units (RSUs) awarded is amortized using the straight line
method. As stock-based compensation expense recognized in the
consolidated statements of operations is based on awards
ultimately expected to vest, it has been reduced for estimated
forfeitures. Forfeitures are required to be estimated at the
time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. Pre-vesting
forfeitures on the options granted prior to 2009 were estimated
to be approximately 2%. The forfeiture rate was increased to 4%
in 2009 based on the Companys historical experience.
Total employee stock-based compensation expense recognized
during the three months ended March 31, 2011 and 2010 was
comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Research and development
|
|
$
|
720
|
|
|
$
|
893
|
|
General and administrative
|
|
|
878
|
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense
|
|
$
|
1,598
|
|
|
$
|
1,089
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2011, $8.1 million of total
unrecognized compensation costs related to non-vested awards are
expected to be recognized over a weighted average period of
1.43 years.
As of March 31, 2011, the Company had two equity incentive
plans, the Second Amended and Restated Management Equity Plan
(the 2004 Plan) and the 2006 Equity Incentive Plan (the 2006
Plan) that were adopted in December 2004 and April 2006,
respectively. An aggregate of 680,754 shares were subject
to outstanding options granted under the 2004 Plan as of
March 31, 2011, and no additional options will be granted
under this plan. As of March 31, 2011, there were
6,741,579 shares of the Companys common stock
reserved under the 2006 Plan of which 3,703,063 shares were
subject to outstanding options and RSUs issued to employees and
non-employees.
Options are subject to terms and conditions established by the
compensation committee of the board of directors. None of the
stock-based awards are classified as a liability as of
March 31, 2011. Option awards have
10-year
contractual terms and all options granted prior to
December 31, 2006, options granted to new employees, and
certain options granted to existing employees vest and become
exercisable on the first anniversary of the grant date with
respect to 25% of the shares subject to the option awards. The
remaining 75% of the shares subject to the option awards vest
and become exercisable monthly in equal installments thereafter
over three years. Certain option awards granted to existing
employees after December 31, 2006 vest and become
exercisable monthly in equal installments over four years. The
initial stock options granted to directors upon their election
vest and become exercisable in equal monthly installments over a
period of four years, while the subsequent annual stock option
grants to directors vest and become exercisable in equal monthly
installments over a period of one year. Certain option awards to
executives and directors provide for accelerated vesting if
there is a change in control of the Company. Certain option
awards to employees and executives provide for accelerated
11
VANDA
PHARMACEUTICALS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
vesting if the respective employees or executives
service is terminated by the Company for any reason other than
cause or permanent disability.
The fair value of each option award is estimated on the date of
grant using the Black-Scholes-Merton option pricing model that
uses the assumptions noted in the following table. Expected
volatility rates are based on the Companys historical
volatility of its publicly traded common stock blended with the
historical volatility of the common stock of comparable
entities. The expected term of options granted is based on the
transition approach provided by FASB guidance as the options
meet the plain vanilla criteria required by this
guidance. The risk-free interest rates are based on the
U.S. Treasury yield for a period consistent with the
expected term of the option in effect at the time of the grant.
The Company has not paid cash dividends to its stockholders
since its inception and does not plan to pay dividends in the
foreseeable future.
Assumptions used in the Black-Scholes-Merton option pricing
model for employee and director stock options granted during the
three months ended March 31, 2011 and 2010 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
March 31,
|
|
|
2011
|
|
2010
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
|
0
|
%
|
Weighted average expected volatility
|
|
|
73
|
%
|
|
|
68
|
%
|
Weighted average expected term (years)
|
|
|
6.03
|
|
|
|
6.03
|
|
Weighted average risk-free rate
|
|
|
2.46
|
%
|
|
|
2.80
|
%
|
A summary of option activity for the 2004 Plan as of
March 31, 2011, and changes during the three months then
ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise Price at
|
|
|
Remaining Term
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Grant Date
|
|
|
(Years)
|
|
|
Value
|
|
|
|
|
|
|
(In thousands, except for share amounts)
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
680,754
|
|
|
$
|
1.77
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011
|
|
|
680,754
|
|
|
$
|
1.77
|
|
|
|
4.53
|
|
|
$
|
3,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2011
|
|
|
680,754
|
|
|
$
|
1.77
|
|
|
|
4.53
|
|
|
$
|
3,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of option activity for the 2006 Plan as of
March 31, 2011, and changes during the three months then
ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise Price at
|
|
|
Remaining Term
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Grant Date
|
|
|
(Years)
|
|
|
Value
|
|
|
|
|
|
|
(In thousands, except for share amounts)
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
3,324,790
|
|
|
$
|
14.07
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
27,500
|
|
|
$
|
6.88
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(9,750
|
)
|
|
$
|
8.75
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(2,790
|
)
|
|
$
|
11.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2011
|
|
|
3,339,750
|
|
|
$
|
14.03
|
|
|
|
7.78
|
|
|
$
|
1,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2011
|
|
|
1,850,216
|
|
|
$
|
17.67
|
|
|
|
6.92
|
|
|
$
|
982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12
VANDA
PHARMACEUTICALS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
The weighted average grant-date fair value of options granted
during the three months ended March 31, 2011 was $4.52 per
share. For the three months ended March 31, 2011 and 2010,
the Company received a total of $0 and $0.02 million,
respectively, in cash from options exercised under the
stock-based arrangements.
A RSU is a stock award that entitles the holder to receive
shares of the Companys common stock as the award vests.
The fair value of each RSU was based on the closing price of the
Companys stock on the date of grant which equals the RSUs
intrinsic value. As of March 31, 2011, there was
$3.3 million of total unrecognized compensation cost
related to unvested RSU awards granted under the Companys
stock incentive plans.
A summary of RSU activity for the 2006 Plan as of March 31,
2011, and changes during the three months then ended are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Price/Share
|
|
|
Intrinsic Value
|
|
|
|
(In thousands, except for share amounts)
|
|
|
Unvested at December 31, 2010
|
|
|
359,563
|
|
|
$
|
9.75
|
|
|
$
|
3,401
|
|
Granted
|
|
|
9,500
|
|
|
$
|
6.88
|
|
|
|
|
|
Vested
|
|
|
(2,500
|
)
|
|
$
|
0.80
|
|
|
|
|
|
Cancelled
|
|
|
(3,250
|
)
|
|
$
|
8.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at March 31, 2011
|
|
|
363,313
|
|
|
$
|
9.72
|
|
|
$
|
2,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
The Company accounts for income taxes under the liability method
in accordance with the FASB provisions on accounting for income
taxes, which requires companies to account for deferred income
taxes using the asset and liability method. Under the asset and
liability method, current income tax expense or benefit is the
amount of income taxes expected to be payable or refundable for
the current year. A deferred income tax asset or liability is
recognized for future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and tax credits and loss carryforwards. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all
of the deferred tax assets will not be realized. Tax rate
changes are reflected in income during the period such changes
are enacted. Changes in ownership may limit the amount of net
operating loss carryforwards that can be utilized in the future
to offset taxable income.
Net income is calculated in accordance with FASB guidance on
earnings per share. Basic earnings per share (EPS) is calculated
by dividing the net income by the weighted average number of
shares of common stock outstanding, reduced by the weighted
average unvested shares of common stock subject to repurchase.
Diluted EPS is computed by dividing the net income (loss) by the
weighted average number of other potential common stock
outstanding for the period. Other potential common stock
includes stock options and RSUs, but only to the extent that
their inclusion is dilutive.
13
VANDA
PHARMACEUTICALS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
The following schedule presents the calculation of basic and
diluted net income per share of common stock for the three
months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands, except for share amounts)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
136
|
|
|
$
|
529
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding, basic
|
|
|
28,101,418
|
|
|
|
27,704,418
|
|
Stock options and restricted stock units related to the issuance
of common stock
|
|
|
835,417
|
|
|
|
614,336
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding, diluted
|
|
|
28,936,835
|
|
|
|
28,318,754
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income per share
|
|
$
|
0.00
|
|
|
$
|
0.02
|
|
|
|
|
|
|
|
|
|
|
Anti-dilutive securities not included in diluted net income per
share calculation:
|
|
|
|
|
|
|
|
|
Stock options and restricted stock units related to the issuance
of common stock
|
|
|
3,146,805
|
|
|
|
2,738,080
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the Companys
available-for-sale
marketable securities as of March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair Market
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Short-term :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
$
|
40,236
|
|
|
$
|
14
|
|
|
$
|
|
|
|
$
|
40,250
|
|
U.S. corporate debt
|
|
|
101,700
|
|
|
|
85
|
|
|
|
|
|
|
|
101,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
141,936
|
|
|
$
|
99
|
|
|
$
|
|
|
|
$
|
142,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of the Companys
available-for-sale
marketable securities as of December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair Market
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Value
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Short-term :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury and government agencies
|
|
$
|
45,466
|
|
|
$
|
|
|
|
$
|
(11
|
)
|
|
$
|
45,455
|
|
U.S. corporate debt
|
|
|
110,010
|
|
|
|
27
|
|
|
|
(14
|
)
|
|
|
110,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
155,476
|
|
|
$
|
27
|
|
|
$
|
(25
|
)
|
|
$
|
155,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
VANDA
PHARMACEUTICALS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
|
|
5.
|
Prepaid
Expenses, Deposits and Other Current Assets
|
The following is a summary of the Companys prepaid
expenses, deposits and other current assets, as of
March 31, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Prepaid insurance
|
|
$
|
75
|
|
|
$
|
244
|
|
Other prepaid expenses and vendor advances
|
|
|
1,255
|
|
|
|
966
|
|
Accrued interest income
|
|
|
289
|
|
|
|
633
|
|
|
|
|
|
|
|
|
|
|
Total prepaid expenses, deposits and other current assets
|
|
$
|
1,619
|
|
|
$
|
1,843
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Property
and Equipment, Net
|
The following is a summary of the Companys property and
equipment-at cost, as of March 31, 2011 and
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
|
|
|
Useful Life
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
(Years)
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Laboratory equipment
|
|
|
5
|
|
|
$
|
1,273
|
|
|
$
|
1,282
|
|
Computer equipment
|
|
|
3
|
|
|
|
725
|
|
|
|
764
|
|
Furniture and fixtures
|
|
|
7
|
|
|
|
700
|
|
|
|
706
|
|
Leasehold improvements
|
|
|
10
|
|
|
|
844
|
|
|
|
844
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,542
|
|
|
|
3,596
|
|
Lessaccumulated depreciation and amortization
|
|
|
|
|
|
|
(2,682
|
)
|
|
|
(2,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
860
|
|
|
$
|
937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense for the three months ended
March 31, 2011 and 2010 was $0.1 million.
The intangible asset consists of the following as of
March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2011
|
|
|
|
Estimated
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Useful
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Life
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Fanapt®
|
|
|
8 years
|
|
|
$
|
12,000
|
|
|
$
|
2,847
|
|
|
$
|
9,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,000
|
|
|
$
|
2,847
|
|
|
$
|
9,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The intangible asset consisted of the following as of
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
Estimated
|
|
|
Gross
|
|
|
|
|
|
Net
|
|
|
|
Useful
|
|
|
Carrying
|
|
|
Accumulated
|
|
|
Carrying
|
|
|
|
Life
|
|
|
Amount
|
|
|
Amortization
|
|
|
Amount
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Fanapt®
|
|
|
8 years
|
|
|
$
|
12,000
|
|
|
$
|
2,478
|
|
|
$
|
9,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
12,000
|
|
|
$
|
2,478
|
|
|
$
|
9,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15
VANDA
PHARMACEUTICALS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
On May 6, 2009, the Company announced that the FDA had
approved the NDA for
Fanapt®.
As a result of the FDAs approval of the NDA for
Fanapt®,
the Company met a milestone under its original sublicense
agreement with Novartis which required the Company to make a
payment of $12.0 million to Novartis. The
$12.0 million is being amortized on a straight line basis
over the remaining life of the U.S. patent for
Fanapt®,
which the Company expects to last until May 15, 2017. This
includes the Hatch-Waxman extension that provides patent
protection for drug compounds for a period of up to five years
to compensate for time spent in development and a six-month
pediatric term extension. This term is the Companys best
estimate of the life of the patent; if, however, the
Hatch-Waxman or pediatric extensions are not granted, the
intangible asset will be amortized over a shorter period.
Intangible assets are amortized over their estimated useful
economic life using the straight line method. Amortization
expense was $0.4 million for the three months ended
March 31, 2011 and 2010. The Company capitalized and began
amortizing the asset immediately following the FDA approval of
the NDA for
Fanapt®.
The following is a summary of accrued liabilities as of
March 31, 2011 and December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Accrued research and development expenses
|
|
$
|
1,593
|
|
|
$
|
1,061
|
|
Accrued consulting and other professional fees
|
|
|
189
|
|
|
|
201
|
|
Employee benefits
|
|
|
315
|
|
|
|
62
|
|
Other accrued expenses
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accrued liabilities
|
|
$
|
2,141
|
|
|
$
|
1,324
|
|
|
|
|
|
|
|
|
|
|
The Companys revenue consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
Revenue
|
|
|
March 31, 2011
|
|
|
|
Deferred Revenue
|
|
|
Recognized
|
|
|
Deferred Revenue
|
|
|
|
(In thousands)
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
Licensing agreement
|
|
$
|
170,642
|
|
|
$
|
6,606
|
|
|
$
|
164,036
|
|
Royalty revenue
|
|
|
|
|
|
|
895
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
$
|
170,642
|
|
|
$
|
7,501
|
|
|
$
|
164,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vanda entered into an amended and restated sublicense agreement
with Novartis on October 12, 2009, pursuant to which
Novartis has the right to commercialize and develop
Fanapt®
in the U.S. and Canada. Under the amended and restated
sublicense agreement, Vanda received an upfront payment of
$200.0 million in December of 2009. Revenue will be
recognized ratably from the date the amended and restated
sublicense agreement became effective (November 27,
2009) through the expected life of the U.S. patent for
Fanapt®
(May 15, 2017). This includes the Hatch-Waxman extension
that provides patent protection for drug compounds for a period
of up to five years to compensate for time spent in development
and a six-month pediatric term extension. This term is the
Companys best estimate of the life of the patent. For the
three months ended March 31, 2011, the Company recognized
$6.6 million of revenue for the licensing agreement. Vanda
recognized royalty revenue of $0.9 million for the three
months ended March 31, 2011. Royalty revenue is based on a
percentage of the quarterly net sales of
Fanapt®
sold in the U.S. and Canada by Novartis and is recorded
when reliably measurable and earned.
16
VANDA
PHARMACEUTICALS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
|
|
10.
|
Commitments
and Contingencies
|
Operating
leases
The Company has commitments totaling $4.1 million under
operating real estate leases for its headquarters located in
Rockville, Maryland, which expires in 2016.
Guarantees
and indemnifications
The Company has entered into a number of standard intellectual
property indemnification agreements in the ordinary course of
its business. Pursuant to these agreements, the Company
indemnifies, holds harmless, and agrees to reimburse the
indemnified party for losses suffered or incurred by the
indemnified party, generally the Companys business
partners or customers, in connection with any U.S. patent
or any copyright or other intellectual property infringement
claim by any third party with respect to the Companys
products. The term of these indemnification agreements is
generally perpetual from the date of execution of the agreement.
The maximum potential amount of future payments the Company
could be required to make under these indemnification agreements
is unlimited. Since inception, the Company has not incurred
costs to defend lawsuits or settle claims related to these
indemnification agreements. The Company also indemnifies its
officers and directors for certain events or occurrences,
subject to certain limits. The Company believes that the fair
value of the indemnification agreements is minimal, and
accordingly the Company has not recognized any liabilities
relating to these agreements as of March 31, 2011.
License
agreements
The Companys rights to develop and commercialize its
products are subject to the terms and conditions of licenses
granted to the Company by other pharmaceutical companies.
Fanapt®. The
Company acquired exclusive worldwide rights to patents and
patent applications for
Fanapt®,
previously known as iloperidone, in 2004 through a sublicense
agreement with Novartis. A predecessor company of
sanofi-aventis, Hoechst Marion Roussel, Inc. (HMRI), discovered
Fanapt®
and completed early clinical work on the compound. In 1996,
following a review of its product portfolio, HMRI licensed its
rights to the
Fanapt®
patents and patent applications to Titan Pharmaceuticals, Inc.
(Titan) on an exclusive basis. In 1997, soon after it had
acquired its rights, Titan sublicensed its rights to
Fanapt®
on an exclusive basis to Novartis. In June 2004, the Company
acquired exclusive worldwide rights to these patents and patent
applications as well as certain Novartis patents and patent
applications to develop and commercialize
Fanapt®
through a sublicense agreement with Novartis. In partial
consideration for this sublicense, the Company paid Novartis an
initial license fee of $0.5 million and was obligated to
make future milestone payments to Novartis of less than
$100.0 million in the aggregate (the majority of which were
tied to sales milestones), as well as royalty payments to
Novartis at a rate which, as a percentage of net sales, was in
the mid-twenties. In November 2007, the Company met a milestone
under this sublicense agreement relating to the acceptance of
its filing of the NDA for
Fanapt®
for the treatment of schizophrenia and made a corresponding
payment of $5.0 million to Novartis. As a result of the
FDAs approval of the NDA for
Fanapt®
in May 2009, the Company met an additional milestone under this
sublicense agreement which required the Company to make a
payment of $12.0 million to Novartis.
On October 12, 2009, Vanda entered into an amended and
restated sublicense agreement with Novartis which amended and
restated the June 2004 sublicense agreement with Novartis.
Pursuant to the amended and restated sublicense agreement,
Novartis has exclusive commercialization rights to all
formulations of
Fanapt®
in the U.S. and Canada. Novartis began selling
Fanapt®
in the U.S. during the first quarter of 2010. Novartis is
responsible for the further clinical development activities in
the U.S. and Canada, including the development of a
long-acting injectable (or depot) formulation of
Fanapt®.
Pursuant to the amended and restated sublicense agreement, Vanda
received an upfront payment of $200.0 million and Vanda is
eligible for additional payments totaling up to
$265.0 million upon the achievement of certain commercial
and development milestones for
Fanapt®
in the U.S. and Canada. Vanda also receives royalties,
which, as a percentage of net sales, are in the low
double-digits, on net sales of
Fanapt®
in the U.S. and Canada. In addition, Vanda is no longer
required to make any future milestone payments with respect to
sales of
Fanapt®
or any future royalty
17
VANDA
PHARMACEUTICALS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
payments with respect to sales of
Fanapt®
in the U.S. and Canada. Vanda retains exclusive rights to
Fanapt®
outside the U.S. and Canada and Vanda has exclusive rights
to use any of Novartis data for
Fanapt®
for developing and commercializing
Fanapt®
outside the U.S. and Canada. At Novartis option,
Vanda will enter into good faith discussions with Novartis
relating to the co-commercialization of
Fanapt®
outside of the U.S. and Canada or, alternatively, Novartis
will receive a royalty on net sales of
Fanapt®
outside of the U.S. and Canada.
Vanda may lose its rights to develop and commercialize
Fanapt®
outside the U.S. and Canada if it fails to comply with
certain requirements in the amended and restated sublicense
agreement regarding its financial condition, or if
Vanda fails to comply with certain diligence obligations
regarding its development or commercialization activities or if
Vanda otherwise breaches the amended and restated sublicense
agreement and fails to cure such breach. Vandas rights to
develop and commercialize
Fanapt®
outside the U.S. and Canada may be impaired if it does not
cure breaches by Novartis of similar obligations contained its
sublicense agreement with Titan for
Fanapt®.
Vanda is not aware of any such breach by Novartis. In addition,
if Novartis breaches the amended and restated sublicense
agreement with respect to its commercialization activities in
the U.S. or Canada, Vanda may terminate Novartis
commercialization rights in the applicable country and Vanda
would no longer receive royalty payments from Novartis in
connection with such country in the event of such termination.
Tasimelteon. In February 2004, the Company
entered into a license agreement with Bristol-Myers Squibb (BMS)
under which the Company received an exclusive worldwide license
under certain patents and patent applications, and other
licenses to intellectual property, to develop and commercialize
tasimelteon. In partial consideration for the license, the
Company paid BMS an initial license fee of $0.5 million.
The Company is also obligated to make future milestone payments
to BMS of less than $40.0 million in the aggregate (the
majority of which are tied to sales milestones) as well as
royalty payments based on the net sales of tasimelteon at a rate
which, as a percentage of net sales, is in the low teens. The
Company made a milestone payment to BMS of $1.0 million
under this license agreement in 2006 relating to the initiation
of its first Phase III clinical trial for tasimelteon. The
Company is also obligated under this agreement to pay BMS a
percentage of any sublicense fees, upfront payments and
milestone and other payments (excluding royalties) that the
Company receives from a third party in connection with any
sublicensing arrangement, at a rate which is in the
mid-twenties. The Company has agreed with BMS in the license
agreement for tasimelteon to use commercially reasonable efforts
to develop and commercialize tasimelteon and to meet certain
milestones in initiating and completing certain clinical work.
The license agreement with BMS was amended on April 15,
2010 to, among other things, extend the deadline by which the
Company must enter into a development and commercialization
agreement with a third party for tasimelteon until the earliest
of: (i) the date mutually agreed upon by the Company and
BMS following the provision by the Company to BMS of a full
written report of the Phase III clinical studies on which
the Company intends to rely for filing for marketing
authorization for tasimelteon in its first major market country
(Phase III report); (ii) the date of the acceptance by
a regulatory authority of the filing by the Company for
marketing authorization for tasimelteon in a major market
country following the provision by the Company to BMS of the
Phase III report; or (iii) May 31, 2013.
If the Company has not entered into such a development and
commercialization agreement with respect to certain major market
countries by the foregoing deadline, then BMS will have the
option to exclusively develop and commercialize tasimelteon on
its own in those countries not covered by such an agreement on
pre-determined financial terms, including milestone and royalty
payments. In addition to the foregoing, pursuant to the
April 15, 2010 amendment, Vandas deadline for filing
a NDA for tasimelteon was extended until June 1, 2013.
Either party may terminate the tasimelteon license agreement
under certain circumstances, including a material breach of the
agreement by the other. In the event that BMS has not exercised
its option to reacquire the rights to tasimelteon and the
Company terminates the license, or if BMS terminates the license
due to the Companys breach, all rights licensed and
developed by the Company under this agreement will revert or
otherwise be licensed back to BMS on an exclusive basis.
Future license payments. No amounts were
recorded as liabilities nor were any contractual obligations
relating to the license agreements included in the condensed
consolidated financial statements as of March 31, 2011,
since the
18
VANDA
PHARMACEUTICALS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
amounts, timing and likelihood of these future payments are
unknown and will depend on the successful outcome of future
clinical trials, regulatory filings, favorable FDA regulatory
approvals, growth in product sales and other factors.
Research
and development and marketing agreements
In the course of its business the Company regularly enters into
agreements with clinical organizations to provide services
relating to clinical development and clinical manufacturing
activities under fee service arrangements. The Companys
current agreements for clinical services may be terminated on no
more than 60 days notice without incurring additional
charges, other than charges for work completed but not paid for
through the effective date of termination and other costs
incurred by the Companys contractors in closing out work
in progress as of the effective date of termination. The Company
has transitioned all outstanding manufacturing purchase orders
for the raw material supply of
Fanapt®
to Novartis.
On January 1, 2007, the Company adopted the FASB guidance
relating to accounting for uncertainty in income taxes. The
adoption of this guidance did not have a material effect on the
Companys financial position or results of operations. In
addition, the Company has not recorded any liabilities due to
uncertain tax positions. The Company accounts for income taxes
using the asset and liability method. Deferred income taxes are
recognized by applying enacted statutory tax rates applicable to
future years to differences between the financial statement
carrying amounts of existing assets and liabilities and their
respective tax bases and operating loss and tax credit
carryforwards. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period
that includes the enactment date. The measurement of deferred
tax assets is reduced, if necessary, by a valuation allowance
for any tax benefits for which future realization is uncertain.
The Company recorded a tax provision of $0.01 million and
$5.7 million for the three months ended March 31, 2011
and 2010, respectively. At March 31, 2011, the Company
reflected a net deferred tax asset of $1.8 million
associated with the Companys ability to carryback current
taxable losses to recover income taxes paid in 2010. During the
three months ended March 31, 2010, the Company released
$2.0 million of valuation allowance due to the possibility
of offsetting the current year tax provision through the
carryback of losses generated by the future reversal of
temporary differences. The remaining net deferred tax assets at
March 31, 2011 and March 31, 2010 were offset by a
valuation allowance since realization of any future benefit from
deductible temporary differences and net operating losses could
not be sufficiently assured.
|
|
12.
|
Fair
Value Measurements
|
FASB guidance establishes a three-tier fair value hierarchy,
which prioritizes the inputs used in measuring fair value. These
tiers include:
|
|
|
|
|
Level 1 defined as observable inputs such as
quoted prices in active markets
|
|
|
|
Level 2 defined as inputs other than quoted
prices in active markets that are either directly or indirectly
observable
|
|
|
|
Level 3 defined as unobservable inputs in which
little or no market data exists, therefore requiring an entity
to develop its own assumptions
|
19
VANDA
PHARMACEUTICALS INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited) (Continued)
As of March 31, 2011, the Company held certain assets that
are required to be measured at fair value on a recurring basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
March 31, 2011
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Description:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$
|
142,035
|
|
|
$
|
40,250
|
|
|
$
|
101,785
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
142,035
|
|
|
$
|
40,250
|
|
|
$
|
101,785
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, the Company held certain assets
that are required to be measured at fair value on a recurring
basis.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
December 31, 2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Description:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities
|
|
$
|
155,478
|
|
|
$
|
45,455
|
|
|
$
|
110,023
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
155,478
|
|
|
$
|
45,455
|
|
|
$
|
110,023
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
20
|
|
Item 2.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Various statements in this report are forward-looking
statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements may
appear throughout this report. Words such as, but not limited
to, believe, expect,
anticipate, estimate,
intend, plan, targets,
likely, will, would, and
could, or the negative of these terms and similar
expressions or words, identify forward-looking statements.
Forward-looking statements are based upon current expectations
that involve risks, changes in circumstances, assumptions and
uncertainties. Important factors that could cause actual results
to differ materially from those reflected in our forward-looking
statements include, among others:
|
|
|
|
|
the extent and effectiveness of the development, sales and
marketing and distribution support
Fanapt®
receives;
|
|
|
|
our ability to successfully commercialize
Fanapt®
outside of the U.S. and Canada;
|
|
|
|
delays in the completion of our clinical trials;
|
|
|
|
a failure of our products, product candidates or partnered
products to be demonstrably safe and effective;
|
|
|
|
our failure to obtain regulatory approval for our products or
product candidates or to comply with ongoing regulatory
requirements;
|
|
|
|
a lack of acceptance of our products, product candidates or
partnered products in the marketplace, or a failure to become or
remain profitable;
|
|
|
|
our expectations regarding trends with respect to our costs and
expenses;
|
|
|
|
our inability to obtain the capital necessary to fund our
research and development activities;
|
|
|
|
our failure to identify or obtain rights to new products or
product candidates;
|
|
|
|
our failure to develop or obtain sales, marketing and
distribution resources and expertise or to otherwise manage our
growth;
|
|
|
|
limitations on our ability to utilize some or all of our prior
net operating losses and research and development credits;
|
|
|
|
a loss of any of our key scientists or management personnel;
|
|
|
|
losses incurred from product liability claims made against
us; and
|
|
|
|
a loss of rights to develop and commercialize our products or
product candidates under our license and sublicense agreements.
|
All written and verbal forward-looking statements attributable
to us or any person acting on our behalf are expressly qualified
in their entirety by the cautionary statements contained or
referred to in this section. We caution investors not to rely
too heavily on the forward-looking statements we make or that
are made on our behalf. We undertake no obligation, and
specifically decline any obligation, to update or revise
publicly any forward-looking statements, whether as a result of
new information, future events or otherwise.
We encourage you to read the discussion and analysis of our
financial condition and our condensed consolidated financial
statements contained in this quarterly report on
Form 10-Q.
We also encourage you to read Item 1A of Part II of
this quarterly report on
Form 10-Q
entitled Risk Factors and Item 1A of
Part I of our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010 which contain a
more complete discussion of the risks and uncertainties
associated with our business. In addition to the risks described
above and in Item 1A of Part II of this report and
Item 1A of Part I of our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010, other unknown
or unpredictable factors also could affect our results.
Therefore, the information in this report should be read
together with other reports and documents that we file with the
Securities and Exchange Commission from time to time, including
Forms 10-Q,
8-K and
10-K, which
may supplement, modify, supersede or update those risk factors.
There can be no assurance that the actual results or
developments anticipated by us will be realized or, even if
substantially realized, that they will have the expected
consequences to, or effects on, us. Therefore, no assurance can
be given that the outcomes stated in such forward-looking
statements and estimates will be achieved.
21
Overview
We are a biopharmaceutical company focused on the development
and commercialization of products for the treatment of central
nervous system disorders. We believe that each of our products
and partnered products will address a large market with
significant unmet medical needs by offering advantages over
currently available therapies. Our product portfolio includes:
|
|
|
|
|
Fanapt®
(iloperidone). We have developed
Fanapt®,
and will continue to develop it outside the U.S. and
Canada, to treat schizophrenia. On October 12, 2009, we
entered into an amended and restated sublicense agreement with
Novartis. We had originally entered into a sublicense agreement
with Novartis on June 4, 2004 pursuant to which we obtained
certain worldwide exclusive licenses from Novartis relating to
Fanapt®.
Pursuant to the amended and restated sublicense agreement,
Novartis has exclusive commercialization rights to all
formulations of
Fanapt®
in the U.S. and Canada. On January 11, 2010, Novartis
launched
Fanapt®
in the U.S. Novartis is responsible for the further
clinical development activities in the U.S. and Canada,
including the development of a long-acting injectable (or depot)
formulation of
Fanapt®.
Pursuant to the amended and restated sublicense agreement, we
received an upfront payment of $200.0 million and are
eligible for additional payments totaling up to
$265.0 million upon the achievement of certain commercial
and development milestones for
Fanapt®
in the U.S. and Canada. We also receive royalties, which,
as a percentage of net sales, are in the low double-digits, on
net sales of
Fanapt®
in the U.S. and Canada. In addition, we are no longer
required to make any future milestone payments with respect to
sales of
Fanapt®
or any future royalty payments with respect to sales of
Fanapt®
in the U.S. and Canada. We retain exclusive rights to
Fanapt®
outside the U.S. and Canada and we have exclusive rights to
use any of Novartis data for
Fanapt®
for developing and commercializing
Fanapt®
outside the U.S. and Canada. At Novartis option, we
will enter into good faith discussions with Novartis relating to
the co-commercialization of
Fanapt®
outside of the U.S. and Canada or, alternatively, Novartis
will receive a royalty on net sales of
Fanapt®
outside of the U.S. and Canada. We continue to explore the
regulatory path and commercial opportunity for
Fanapt®
oral formulation outside of the U.S. and Canada. On
November 1, 2010, the Therapeutic Goods Administration of
Australias Department of Health and Ageing, accepted for
evaluation our application for marketing approval of the
Fanapt®
oral formulation.
|
For the three months ended March 31, 2011 we incurred
$0.3 million in research and development costs directly
attributable to our development of
Fanapt®.
As a result of the FDAs approval of the new drug
application (NDA) for
Fanapt®
in May 2009, we met a milestone under the original sublicense
agreement which required us to make a payment of
$12.0 million to Novartis. The $12.0 million was
capitalized and will be amortized over the remaining life of the
U.S. patent for
Fanapt®,
which we expect to last until May 15, 2017. This includes
the Hatch-Waxman extension that extends patent protection for
drug compounds for a period of up to five years to compensate
for time spent in development and a six-month pediatric term
extension.
|
|
|
|
|
Tasimelteon. Tasimelteon is an oral compound
in development for the treatment of sleep and mood disorders,
including Circadian Rhythm Sleep Disorders (CRSD). The compound
binds selectively to the brains melatonin receptors, which
are thought to govern the bodys natural sleep/wake cycle.
Compounds that bind selectively to these receptors are thought
to be able to help treat sleep disorders, and additionally are
believed to offer potential benefits in mood disorders. We
announced positive top-line results from our Phase III
trial of tasimelteon in transient insomnia in November 2006. In
June 2008, we announced positive top-line results from the
Phase III trial of tasimelteon in chronic primary insomnia.
The trial was a randomized, double-blind, and placebo-controlled
study with 324 patients. The trial measured time to fall
asleep and sleep maintenance, as well as
next-day
performance. On January 19, 2010, the FDA granted orphan
drug designation status for tasimelteon in a specific CRSD,
Non-24-Hour Sleep/Wake Disorder (N24HSWD) in blind individuals
without light perception. The FDA grants orphan drug designation
to drugs that may provide significant therapeutic advantage over
existing treatments and target conditions affecting 200,000 or
fewer U.S. patients per year. Orphan drug designation
provides potential financial and regulatory incentives,
including study design assistance, tax credits, waiver of FDA
user fees, and up to seven years of market exclusivity upon
marketing approval. On February 23, 2011, the European
Commission (EC) designated tasimelteon as an orphan medicinal
product for the same indication. We initiated two clinical
trials to pursue FDA approval of tasimelteon for the treatment
of N24HSWD in blind individuals without light perception in the
third quarter of 2010. The first trial is a randomized,
double-blind, placebo-controlled study with a planned enrollment
of approximately 160 patients with N24HSWD. The trial has a
|
22
|
|
|
|
|
six month treatment period and includes measures of both
nighttime and daytime sleep, as well as laboratory measures of
the synchronization between the internal body clock and the
24-hour
environmental light/dark cycle. We also initiated a one-year
safety study of tasimelteon for the treatment of N24HSWD. This
trial is an open-label safety study with a planned enrollment of
approximately 140 patients with N24HSWD. We plan to conduct
additional clinical trials over the next one to two years to
support the use of tasimelteon as a circadian regulator and the
submission of a NDA to the FDA and a marketing authorization
application to the European Medicines Agency (EMA). On
January 6, 2011, an
end-of-Phase II
meeting was held with the FDA to discuss the development plan
for tasimelteon in the treatment of N24HSWD. We are also
evaluating tasimelteon in Major Depressive Disorder (MDD) and
plan to initiate a Phase IIb/III clinical trial of tasimelteon
in patients with MDD. The trial is expected to begin during the
second half of 2011 and will investigate the efficacy and safety
of tasimelteon versus placebo in the treatment of MDD. The study
is expected to include an 8-week treatment period and an
optional open-label extension. Given the range of potential
indications for tasimelteon, we may pursue one or more
partnerships for the development and commercialization of
tasimelteon worldwide. For the three months ended March 31,
2011, we incurred $3.7 million in direct research and
development costs directly attributable to our development of
tasimelteon.
|
Since we began our operations in March 2003, we have devoted
substantially all of our resources to the in-licensing and
clinical development of our compounds. Our ability to generate
revenue and achieve profitability largely depends on
Novartis ability to successfully commercialize
Fanapt®
in the U.S. and to successfully develop and commercialize
Fanapt®
in Canada and upon our ability, alone or with others, to
complete the development of our products or product candidates,
and to obtain the regulatory approvals for and manufacture,
market and sell our products and product candidates. The results
of our operations will vary significantly from
year-to-year
and
quarter-to-quarter
and depend on a number of factors, including risks related to
our business, risks related to our industry, and other risks
which are detailed in Item 1A of Part II of this
quarterly report on
Form 10-Q,
entitled Risk Factors and in Item 1A of
Part I of our Annual Report on
Form 10-K
for the year ended December 31, 2010.
Revenues. Our revenues are derived primarily
from our amended and restated sublicense agreement with Novartis
and include an up-front payment, product sales and future
milestone and royalty payments. Revenue is considered both
realizable and earned when each one of the following four
conditions is met: (1) persuasive evidence of an
arrangement exists, (2) the arrangement fee is fixed or
determinable, (3) delivery or performance has occurred and
(4) collectability is reasonably assured. Revenue from the
$200.0 million upfront payment will be recognized ratably
on a straight-line basis from the date the amended and restated
sublicense agreement became effective (November 27,
2009) through the expected life of the U.S. patent for
Fanapt®,
which we expect to last until May 15, 2017. This includes
the Hatch-Waxman extension that extends patent protection for
drug compounds for a period of up to five years to compensate
for time spent in development and a six-month pediatric term
extension. We recognize revenue from
Fanapt®
royalties and commercial and development milestones from
Novartis when realizable and earned and product revenue upon
delivery of our products to Novartis.
Research
and development expenses
Our research and development expenses consist primarily of fees
paid to third-party professional service providers in connection
with the services they provide for our clinical trials, costs of
contract manufacturing services, costs of materials used in
clinical trials and research and development, costs for
regulatory consultants and filings, depreciation of capital
resources used to develop our products, all related facilities
costs, and salaries, benefits and stock-based compensation
expenses related to our research and development personnel. We
expense research and development costs as incurred for compounds
in development stage, including certain payments made under our
license agreements prior to FDA approval. Prior to FDA approval,
all
Fanapt®
manufacturing-related and milestone costs were included in
research and development expenses. Subsequent to FDA approval of
Fanapt®,
manufacturing and milestone costs related to this product are
being capitalized. Costs related to the acquisition of
intellectual property have been expensed as incurred since the
underlying technology associated with these acquisitions were
made in connection with the Companys research and
development efforts and have no alternative future use.
Milestone payments are accrued in accordance with the FASB
guidance on accounting for contingencies which states that
milestone payments be accrued when it is deemed probable that
the milestone event will be achieved. We believe that
significant investment in product development is a competitive
necessity and plan to continue these investments in order to
realize the potential of our products and product
23
candidates and pharmacogenetics and pharmacogenomics expertise.
For the three months ended March 31, 2011, we incurred
research and development expenses in the aggregate of
$4.3 million, including stock-based compensation expenses
of $0.7 million. We expect our research and development
expenses to increase as we continue to develop our products and
product candidates. We expect to incur licensing costs in the
future that could be substantial, as we continue our efforts to
develop our products, product candidates and partnered products
and to evaluate potential in-license product candidates or
compounds.
The following table summarizes our product development
initiatives for the three months ended March 31, 2011 and
2010. Included in this table are the research and development
expenses recognized in connection with the clinical development
of
Fanapt®
and tasimelteon.
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Direct project costs(1)
|
|
|
|
|
|
|
|
|
Fanapt®
|
|
$
|
349
|
|
|
$
|
616
|
|
Tasimelteon
|
|
|
3,685
|
|
|
|
1,018
|
|
|
|
|
|
|
|
|
|
|
Total direct project costs
|
|
|
4,034
|
|
|
|
1,634
|
|
|
|
|
|
|
|
|
|
|
Indirect project costs(1)
|
|
|
|
|
|
|
|
|
Facility
|
|
|
155
|
|
|
|
158
|
|
Depreciation
|
|
|
42
|
|
|
|
55
|
|
Other indirect overhead
|
|
|
36
|
|
|
|
194
|
|
|
|
|
|
|
|
|
|
|
Total indirect project costs
|
|
|
233
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
Total research and development expenses
|
|
$
|
4,267
|
|
|
$
|
2,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Many of our research and development costs are not attributable
to any individual project because we share resources across
several development projects. We record direct costs, including
personnel costs and related benefits and stock-based
compensation, on a
project-by-project
basis. We record indirect costs that support a number of our
research and development activities in the aggregate. |
General
and administrative expenses
General and administrative expenses consist primarily of
salaries and other related costs for personnel, including
stock-based compensation, serving executive, finance,
accounting, information technology, marketing and human resource
functions. Other costs include facility costs not otherwise
included in research and development expenses and fees for
legal, accounting and other professional services. General and
administrative expenses also include third party expenses
incurred to support business development, marketing and other
business activities related to
Fanapt®.
For the three months ended March 31, 2011, we incurred
general and administrative expenses in the aggregate of
$2.9 million, including stock-based compensation expenses
of $0.9 million.
Interest income. Interest income consists of
interest earned on our cash and cash equivalents, marketable
securities and restricted cash.
Critical
Accounting Policies
The preparation of our condensed consolidated financial
statements requires us to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of
our financial statements, as well as the reported revenues and
expenses during the reported periods. We base our estimates on
historical experience and on various other factors that we
believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying
value of assets and liabilities that are not apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions.
24
Our significant accounting policies are described in the notes
to our audited consolidated financial statements for the year
ended December 31, 2010 included in our annual report on
Form 10-K.
However, we believe that the following critical accounting
policies are important to understanding and evaluating our
reported financial results, and we have accordingly included
them in this quarterly report on
Form 10-Q.
Accrued
expenses
As part of the process of preparing financial statements we are
required to estimate accrued expenses. The estimation of accrued
expenses involves identifying services that have been performed
on our behalf, and then estimating the level of service
performed and the associated cost incurred for such services as
of each balance sheet date in the financial statements. Accrued
expenses include professional service fees, such as lawyers and
accountants, contract service fees, such as those under
contracts with clinical monitors, data management organizations
and investigators in conjunction with clinical trials, fees to
contract manufacturers in conjunction with the production of
clinical materials, and fees for marketing and other
commercialization activities. Pursuant to our assessment of the
services that have been performed on clinical trials and other
contracts, we recognize these expenses as the services are
provided. Our assessments include, but are not limited to:
(1) an evaluation by the project manager of the work that
has been completed during the period, (2) measurement of
progress prepared internally
and/or
provided by the third-party service provider, (3) analyses
of data that justify the progress and (4) managements
judgment. In the event that we do not identify certain costs
that have begun to be incurred or we under- or over-estimate the
level of services performed or the costs of such services, our
reported expenses for such period would be too low or too high.
Revenue
Recognition
Our revenues are derived primarily from our amended and restated
sublicense agreement with Novartis and include an up-front
payment, product revenue and future milestone and royalty
revenues. Revenue will be recognized ratably from the date the
amended and restated sublicense agreement became effective
(November 27, 2009) through the expected life of the
U.S. patent for
Fanapt®,
which we expect to last until May 15, 2017. This includes
the Hatch-Waxman extension that extends patent protection for
drug compounds for a period of up to five years to compensate
for time spent in development and a six-month pediatric term
extension. We recognize revenue related to
Fanapt®
royalties and commercial and development milestones as they are
realizable and earned, and product revenue upon delivery of our
products to Novartis. Our revenues are also derived from grant
income which is recognized when it is received.
Stock-based
compensation
We currently use the Black-Scholes-Merton option pricing model
to determine the fair value of stock options. The determination
of the fair value of stock options on the date of grant using an
option pricing model is affected by our stock price as well as
assumptions regarding a number of complex and subjective
variables. These variables include the expected stock price
volatility over the expected term of the awards, actual and
projected employee stock option exercise behaviors, risk-free
interest rate and expected dividends. Expected volatility rates
are based on our historical volatility of our publicly traded
common stock blended with the historical volatility of the
common stock of comparable entities. The expected term of
options granted is based on the transition approach provided by
FASB guidance as the options meet the plain vanilla
criteria required by this method. The risk-free interest rates
are based on the U.S. Treasury yield for a period
consistent with the expected term of the option in effect at the
time of the grant. We have not paid cash dividends to our
stockholders since our inception and do not plan to pay
dividends in the foreseeable future. The stock-based
compensation expense for a period is also affected by expected
forfeiture rate for the respective option grants. If our
estimates of the fair value of these equity instruments or
expected forfeitures are too high or too low, it would have the
effect of overstating or understating expenses.
25
Total employee stock-based compensation expense related to all
of our stock-based awards during the three months ended
March 31, 2011 and 2010 was comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Research and development
|
|
$
|
720
|
|
|
$
|
893
|
|
General and administrative
|
|
|
878
|
|
|
|
196
|
|
|
|
|
|
|
|
|
|
|
Employee stock-based compensation expense
|
|
$
|
1,598
|
|
|
$
|
1,089
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
On a periodic basis, we evaluate the realizability of our
deferred tax assets and liabilities and will adjust such amounts
in light of changing facts and circumstances, including but not
limited to future projections of taxable income, the reversal of
deferred tax liabilities, tax legislation, rulings by relevant
tax authorities and tax planning strategies. Settlement of
filing positions that may be challenged by tax authorities could
impact our income taxes in the year of resolution.
In assessing the realizability of deferred tax assets, we
consider whether it is more likely than not that some portion or
all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during the period in
which those temporary differences becomes deductible or the NOLs
and credit carryforwards can be utilized. When considering the
reversal of the valuation allowance, we consider the level of
past and future taxable income, the reversal of deferred tax
liabilities, the utilization of the carryforwards and other
factors. Revisions to the estimated net realizable value of the
deferred tax asset could cause our provision for income taxes to
vary significantly from period to period.
Recent
Accounting Pronouncements
In September 2009, the FASB issued new accounting guidance
related to the revenue recognition of multiple element
arrangements. The new guidance states that if vendor-specific
objective evidence or third party evidence for deliverables in
an arrangement cannot be determined, companies will be required
to develop a best estimate of the selling price to separate
deliverables and allocate arrangement consideration using the
relative selling price method. The accounting guidance will be
applied prospectively and became effective during the first
quarter of 2011. We adopted this guidance beginning
January 1, 2011, with no material impact to our financial
statements.
Results
of Operations
We have a limited history of operations. We anticipate that our
results of operations will fluctuate for the foreseeable future
due to several factors, including any possible payments made or
received pursuant to licensing or collaboration agreements,
progress of our research and development efforts, the timing and
outcome of clinical trials and related possible regulatory
approvals and our and our partners ability to successfully
commercialize our products, product candidates and partnered
products. Our limited operating history makes predictions of
future operations difficult or impossible. Since our inception,
we have incurred significant losses. As of March 31, 2011,
we had a deficit accumulated of $253.5 million.
Three
months ended March 31, 2011 compared to three months ended
March 31, 2010
Revenues. Revenues were $7.5 million for
the three months ended March 31, 2011 compared to revenues
of $12.4 for the three months ended March 31, 2010.
Revenues for the three months ended March 31, 2011 included
$6.6 million recognized from Novartis related to
straight-line recognition of up-front license fees and
$0.9 million in royalty revenue based on first quarter 2011
sales of
Fanapt®.
Novartis launched
Fanapt®
commercially in the U.S. in January 2010.
Intangible asset amortization. Intangible
asset amortization was $0.4 million for the three months
ended March 31, 2011 compared to intangible amortization of
$0.4 million for the three months ended March 31,
2010. Intangible
26
amortization for the three months ended March 31, 2011 and
2010 consisted of $0.4 million resulting from the
amortization of the capitalized intangible asset related to the
$12.0 million payment to Novartis in May 2009.
Research and development expenses. Research
and development expenses increased by $2.2 million, or
109.1%, to $4.3 million for the three months ended
March 31, 2011 compared to $2.0 million for the three
months ended March 31, 2010.
The following table discloses the components of research and
development expenses reflecting all of our project expenses for
the three months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Direct project costs:
|
|
|
|
|
|
|
|
|
Clinical trials
|
|
$
|
1,525
|
|
|
$
|
2
|
|
Contract research and development, consulting, materials and
other direct costs
|
|
|
895
|
|
|
|
50
|
|
Salaries, benefits and related costs
|
|
|
894
|
|
|
|
706
|
|
Stock-based compensation
|
|
|
720
|
|
|
|
876
|
|
|
|
|
|
|
|
|
|
|
Total direct costs
|
|
|
4,034
|
|
|
|
1,634
|
|
Indirect project costs
|
|
|
233
|
|
|
|
407
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,267
|
|
|
$
|
2,041
|
|
|
|
|
|
|
|
|
|
|
Direct costs increased $2.4 million for the three months
ended March 31, 2011 compared to the three months ended
March 31, 2010 as a result of increases in clinical trial
costs, contract research and development, consulting, materials
and other direct costs and salaries, benefits and related costs
partially offset by lower stock based compensation. Clinical
trials costs increased by $1.5 million for the three months
ended March 31, 2011 relative to the three months ended
March 31, 2010, primarily due to costs related to the
tasimelteon trials for the treatment of N24HSWD in blind
individuals without light perception which began in the third
quarter of 2010. Contract research and development, consulting,
materials and other direct costs increased $0.8 million for
the three months ended March 31, 2011 relative to the three
months ended March 31, 2010, primarily due to costs related
to the tasimelteon trials for the treatment of N24HSWD in blind
individuals without light perception which began in the third
quarter of 2010.
General and administrative expenses. General
and administrative expenses increased by $0.4 million, or
14.8%, to $2.9 million for the three months ended
March 31, 2011 from $2.5 million for the three months
ended March 31, 2010.
The following table discloses the components of our general and
administrative expenses for the three months ended
March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Salaries, benefits and related costs
|
|
$
|
529
|
|
|
$
|
571
|
|
Stock-based compensation
|
|
|
878
|
|
|
|
196
|
|
Marketing, legal, accounting and other professional expenses
|
|
|
888
|
|
|
|
1,061
|
|
Other expenses
|
|
|
563
|
|
|
|
661
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,858
|
|
|
$
|
2,489
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation expense increased by $0.7 million
for the three months ended March 31, 2011 compared to the
three months ended March 31, 2010, as a result of the
reversal of expense related to the cancellation of unvested
options due to executive departures during the first quarter of
2010. Marketing, legal, accounting and other professional costs
decreased by $0.2 million for the three months ended
March 31, 2011 compared to the three months ended
March 31, 2010 due to a decrease in marketing expenses
relating to
Fanapt®
for the three months ending March 31, 2011.
27
Interest income. Interest income in the three
months ended March 31, 2011 was $0.1 million compared
to $0.05 million in the three months ended March 31,
2010.
Liquidity
and Capital Resources
As of March 31, 2011, our total cash and cash equivalents
and marketable securities were $194.6 million compared to
$198.0 million at December 31, 2010. Our cash and cash
equivalents are deposits in operating accounts and highly liquid
investments with an original maturity of 90 days or less at
date of purchase and consist of time deposits, investments in
money market funds with commercial banks and financial
institutions, and commercial paper of high-quality corporate
issuers. Our marketable securities consist of investments in
government sponsored enterprises and commercial paper. As of
March 31, 2011, we also held a non-current deposit of
$0.4 million that is used to collateralize a letter of
credit issued for our current office lease in Rockville,
Maryland which expires in 2016.
As of March 31, 2011, we maintained all of our cash and
cash equivalents in three financial institutions. Deposits held
with these institutions may exceed the amount of insurance
provided on such deposits, but we do not anticipate any losses
with respect to such deposits.
We entered into an amended and restated sublicense agreement in
2009 with Novartis to commercialize
Fanapt®
in the U.S. and Canada. Novartis is responsible for the
further clinical development activities in the U.S. and
Canada, including the development of a long-acting injectable
(or depot) formulation of
Fanapt®.
Pursuant to the amended and restated sublicense agreement, we
received an upfront payment of $200.0 million, and are
eligible for additional payments totaling up to
$265.0 million upon the achievement of certain commercial
and development milestones for
Fanapt®
in the U.S. and Canada. We will recognize the
$200.0 million upfront payment ratably from the date the
amended and restated sublicense agreement became effective
(November 27, 2009) through the expected life of the
U.S. patent for
Fanapt®,
which we expect to last until May 15, 2017. This includes
the Hatch-Waxman extension that provides patent protection for
drug compounds for a period of up to five years to compensate
for time spent in development and a six-month pediatric term
extension. We also receive royalties, which, as a percentage of
net sales, are in the low double digits, on net sales of
Fanapt®
in the U.S. and Canada. During the three months ended
March 31, 2011, we recorded $6.6 million in licensing
revenue. Through March 31, 2011, we had recognized product
revenue of $5.3 million from product sold to Novartis and
$4.0 million in royalty revenue. We recognize product
revenue on the sale of the existing
Fanapt®
product to Novartis upon delivery to Novartis and royalty
revenue when realizable and earned. Other than participation in
the Joint Steering Committee established following the effective
date of the amended and restated sublicense agreement with
Novartis, we have no control over the progress of Novartis
commercial plans. We cannot forecast with any degree of
certainty the achievement of milestones and royalties under this
agreement.
We expect to continue to incur substantial expenses relating to
our research and development efforts, as we focus on clinical
trials and manufacturing required for the development of our
active product candidates. We initiated two clinical trials to
pursue FDA approval of tasimelteon for the treatment of N24HSWD
in blind individuals without light perception beginning in the
third quarter of 2010. The first trial is a randomized,
double-blind, placebo-controlled study with a planned enrollment
of approximately 160 patients with N24HSWD. The trial has a
six month treatment period and includes measures of both
nighttime and daytime sleep, as well as laboratory measures of
the synchronization between the internal body clock and the
24-hour
environmental light/dark cycle. The second trial is a one-year
safety study of tasimelteon for the treatment of N24HSWD. This
trial is an open-label safety study with a planned enrollment of
approximately 140 patients with N24HSWD. The duration and
cost of clinical trials are a function of numerous factors such
as the number of patients to be enrolled in the trial, the
amount of time it takes to enroll them, the length of time they
must be treated and observed, and the number of clinical sites
and countries for the trial. In addition, orphan clinical trials
create an additional challenge due to the limited number of
available patients afflicted with the disease. We are also
evaluating tasimelteon in MDD and plan to initiate a Phase
IIb/III clinical trial of tasimelteon in patients with MDD. The
trial is expected to begin during the second half of 2011 and
will investigate the efficacy and safety of tasimelteon versus
placebo in the treatment of MDD. The study is expected to
include an 8-week treatment period and an optional open-label
extension. We plan to assess the antidepressant and circadian
effects of tasimelteon, as well as further characterize the
safety profile of the compound.
We must receive regulatory approval to launch any of our
products commercially. In order to receive such approval, the
appropriate regulatory agency must conclude that our clinical
data establish safety and efficacy and that our products
28
and the manufacturing facilities meet all applicable regulatory
requirements. We cannot be certain that we will establish
sufficient safety and efficacy data to receive regulatory
approval for any of our drugs or that our drugs and the
manufacturing facilities will meet all applicable regulatory
requirements.
Because of the uncertainties discussed above, the costs to
advance our research and development projects are difficult to
estimate and may vary significantly. We expect that our existing
funds, primarily consisting of the upfront payment received
under the Novartis contract and investment income will be
sufficient to fund our planned operations. Our future capital
requirements and the adequacy of our available funds will depend
on many factors, primarily including the scope and costs of our
clinical development programs, the scope and costs of our
manufacturing and process development activities, the magnitude
of our discovery and preclinical development programs and the
level of our pre-commercial launch activities. There can be no
assurance that any additional financing required in the future
will be available on acceptable terms, if at all.
Cash
Flow
The following table summarizes our cash flows for the three
months ended March 31, 2011 and 2010:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Net cash provided by (used in)
|
|
|
|
|
|
|
|
|
Operating activities
|
|
$
|
(3,264
|
)
|
|
$
|
(4,826
|
)
|
Investing activities
|
|
|
13,225
|
|
|
|
(32,457
|
)
|
Financing activities
|
|
|
|
|
|
|
1,933
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
$
|
9,961
|
|
|
$
|
(35,350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operations was $3.3 million and
$4.8 million for the three months ended March 31, 2011
and 2010, respectively. Adjustments to reconcile net income to
net cash used in operating activities included non-cash charges
for depreciation and amortization of $0.8 million and
stock-based compensation of $1.6 million, decreases in
prepaid expenses and other assets and other liabilities of
$0.2 million, increases in accounts receivable, accrued
expenses, accounts payable and accrued income taxes of
$0.6 million, and decreases in deferred revenue of
$6.6 million. Net cash provided by investing activities for
the three months ended March 31, 2011 was
$13.2 million and consisted primarily of net maturities of
marketable securities.
Effects
of Inflation
Our most liquid assets are cash and cash equivalents and
marketable securities. Because of their liquidity, these assets
are not directly affected by inflation. We also believe that we
have intangible assets in the value of our intellectual
property. In accordance with generally accepted accounting
principles, we have not capitalized the value of this
intellectual property on our balance sheet. Due to the nature of
this intellectual property, we believe that these intangible
assets are not affected by inflation. Because we intend to
retain and continue to use our equipment, furniture and fixtures
and leasehold improvements, we believe that the incremental
inflation related to replacement costs of such items will not
materially affect our operations. However, the rate of inflation
affects our expenses, such as those for employee compensation
and contract services, which could increase our level of
expenses and the rate at which we use our resources.
Off-balance
sheet arrangements
We have no off-balance sheet arrangements, as defined in
Item 303(a)(4) of the Securities and Exchange
Commissions
Regulation S-K.
29
Contractual
Obligations and Commitments
Operating
leases
Our commitments under operating leases shown below consist of
payments relating to our real estate leases for our current
headquarters located in Rockville, Maryland, which expires in
2016.
The following table summarizes our long-term contractual cash
obligations as of March 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Payments Due by Period
|
|
|
|
|
|
|
April to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Total
|
|
|
2011
|
|
|
2012
|
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2015
|
|
|
|
(In thousands)
|
|
|
Operating leases
|
|
$
|
4,100
|
|
|
$
|
545
|
|
|
$
|
749
|
|
|
$
|
771
|
|
|
$
|
795
|
|
|
$
|
818
|
|
|
$
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
4,100
|
|
|
$
|
545
|
|
|
$
|
749
|
|
|
$
|
771
|
|
|
$
|
795
|
|
|
$
|
818
|
|
|
$
|
422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Clinical
research organization contracts and other
contracts
Other contracts. We have entered into
agreements for tasimelteon with clinical supply manufacturing
organizations and other outside contractors who will be
responsible for additional services supporting our ongoing
clinical development processes. These contractual obligations
are not reflected in the table above because we may terminate
them on no more than 60 days notice without incurring
additional charges (other than charges for work completed but
not paid for through the effective date of termination and other
costs incurred by our contractors in closing out work in
progress as of the effective date of termination).
License agreements. In February 2004 and June
2004, we entered into separate licensing agreements with BMS and
Novartis, respectively, for the exclusive rights to develop and
commercialize tasimelteon and
Fanapt®.
On October 12, 2009, we entered into an amended and
restated sublicense agreement with Novartis. We are obligated to
make (in the case of tasimelteon and, in the case of
Fanapt®
in the U.S. and Canada, are entitled to receive) payments
under the conditions in the agreements upon the achievement of
specified clinical, regulatory and commercial milestones. If the
products are successfully commercialized we will be required to
pay certain royalties (and in the case of
Fanapt®
in the U.S. and Canada, will be entitled to receive certain
royalties) based on net sales for each of the licensed products.
See the notes to the consolidated financial statements included
with this report for a more detailed description of these
license agreements.
As a result of the successful commencement of the Phase III
clinical study of tasimelteon in March 2006, we met the first
milestone specified in our licensing agreement with BMS and
subsequently paid a license fee of $1.0 million.
As a result of the acceptance by the FDA of the NDA for
Fanapt®
in October 2007, we met a milestone under our original
sublicense agreement with Novartis and subsequently paid a
$5.0 million fee. As a result of the FDAs approval of
the NDA for
Fanapt®
in May 2009, we met an additional milestone under the original
sublicense agreement with Novartis which required us to make a
payment of $12.0 million to Novartis. The
$12.0 million was capitalized and will be amortized over
the remaining life of the U.S. patent for
Fanapt®,
which we expect to last until May 15, 2017. This includes
the Hatch-Waxman extension that provides patent protection for
drug compounds for a period of up to five years to compensate
for time spent in development and a six-month pediatric term
extension. This term is the Companys best estimate of the
life of the patent; if, however, the Hatch-Waxman or pediatric
extensions are not granted, the intangible asset will be
amortized over a shorter period. No amounts were recorded as
liabilities relating to the license agreements included in the
consolidated financial statements as of March 31, 2011,
since the amounts, timing and likelihood of these payments are
unknown and will depend on the successful outcome of future
clinical trials, regulatory filings, favorable regulatory
approvals, growth in product sales and other factors.
Pursuant to the amended and restated sublicense agreement,
Novartis has exclusive commercialization rights to all
formulations of
Fanapt®
in the U.S. and Canada. Novartis is responsible for the
further clinical development activities in the U.S. and
Canada, including the development of a long-acting injectable
(or depot) formulation of
Fanapt®.
Pursuant to the amended and restated sublicense agreement, we
received an upfront payment of $200.0 million and are
eligible for additional payments totaling up to
$265.0 million upon the achievement of certain commercial
and development milestones for
Fanapt®
in the U.S. and Canada. We also receive royalties, which,
as a percentage of net sales, are in the low double-digits, on
net sales of
Fanapt®
in the U.S. and Canada. In addition, we are no longer
required to make any future
30
milestone payments with respect to sales of
Fanapt®
or any royalty payments with respect to sales of
Fanapt®
in the U.S. and Canada. We retain exclusive rights to
Fanapt®
outside the U.S. and Canada and have exclusive rights to
use any of Novartis data for
Fanapt®
for developing and commercializing
Fanapt®
outside the U.S. and Canada. At Novartis option, we
will enter into good faith discussions with Novartis relating to
the co-commercialization of
Fanapt®
outside of the U.S. and Canada or, alternatively, Novartis
will receive a royalty on net sales of
Fanapt®
outside of the U.S. and Canada.
|
|
Item 3.
|
Quantitative
and Qualitative Disclosures about Market Risk.
|
Interest
Rates
Our exposure to market risk is currently confined to our cash
and cash equivalents, marketable securities and restricted cash.
We currently do not hedge interest rate exposure. We have not
used derivative financial instruments for speculation or trading
purposes. Because of the short-term maturities of our cash and
cash equivalents and marketable securities, we do not believe
that an increase in market rates would have any significant
impact on the realized value of our investments.
Marketable
securities
We deposit our cash with financial institutions that we consider
to be of high credit quality and purchase marketable securities
which are generally investment grade, liquid, short-term fixed
income securities and money-market instruments denominated in
U.S. dollars.
|
|
Item 4.
|
Controls
and Procedures.
|
Conclusion
Regarding the Effectiveness of Disclosure Controls and
Procedures
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we evaluated the effectiveness of the design
and operation of our disclosure controls and procedures (as
defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act) as of March 31, 2011. Based upon
that evaluation, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures
are effective as of March 31, 2011, the end of the period
covered by this quarterly report, to ensure that the information
required to be disclosed by us in the reports that we file or
submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the SECs
rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosures.
Changes
in Internal Control over Financial Reporting
There has been no change in our internal control over financial
reporting (as defined in
Rules 13a-15(f)
and
15d-15(f) of
the Exchange Act) during the first quarter of 2011 that has
materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
|
|
Item 1.
|
Legal
Proceedings.
|
None.
In our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2010, filed with the
SEC on March 10, 2011, we identify under Item 1A
important factors which could affect our business, financial
condition, results of operations and future operations and could
cause our actual results for future periods to differ materially
from our anticipated results or other expectations, including
those expressed in any forward-looking statements made in this
31
Form 10-Q.
There have been no material change in our risk factors
subsequent to the filing of our
Form 10-K
for the fiscal year ended December 31, 2010.
|
|
Item 2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds.
|
None.
|
|
Item 3.
|
Defaults
Upon Senior Securities.
|
None.
|
|
Item 4.
|
Removed
and Reserved.
|
|
|
Item 5.
|
Other
Information.
|
None.
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
31
|
.1
|
|
Certification of the Chief Executive Officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of the Chief Financial Officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification of the Chief Executive Officer (Principal
Executive Officer) and Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer), as required
by Section 906 of the Sarbanes-Oxley Act of 2002.
|
The certification attached as Exhibit 32.1 that accompanies
this Quarterly Report on
Form 10-Q
is not deemed filed with the Securities and Exchange Commission
and is not to be incorporated by reference into any filing of
Vanda Pharmaceuticals Inc. under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended,
whether made before or after the date of this Quarterly Report
on
Form 10-Q,
irrespective of any general incorporation language contained in
such filing.
32
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Vanda
Pharmaceuticals Inc.
/s/ Mihael
H. Polymeropoulos, M.D.
Mihael H. Polymeropoulos, M.D.
President and Chief Executive Officer
(Principal Executive Officer)
May 9, 2011
James P. Kelly
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
May 9, 2011
33
VANDA
PHARMACEUTICALS INC.
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
31
|
.1
|
|
Certification of the Chief Executive Officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
31
|
.2
|
|
Certification of the Chief Financial Officer, as required by
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32
|
.1
|
|
Certification of the Chief Executive Officer (Principal
Executive Officer) and Chief Financial Officer (Principal
Financial Officer and Principal Accounting Officer), as required
by Section 906 of the Sarbanes-Oxley Act of 2002.
|
The certification attached as Exhibit 32.1 that accompanies
this Quarterly Report on
Form 10-Q
is not deemed filed with the Securities and Exchange Commission
and is not to be incorporated by reference into any filing of
Vanda Pharmaceuticals Inc. under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended,
whether made before or after the date of this Quarterly Report
on
Form 10-Q,
irrespective of any general incorporation language contained in
such filing.
34
exv31w1
EXHIBIT 31.1
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002
I, Mihael H. Polymeropoulos, certify that:
1. I have reviewed this quarterly report on
Form 10-Q
of Vanda Pharmaceuticals Inc.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I
are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act Rules
13a-15(f)
and
15d-15(f))
for the registrant and have:
a. designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being prepared;
b. designed such internal control over financial reporting,
or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d. disclosed in this report any change in the
registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal
control over financial reporting; and
5. The registrants other certifying officer(s) and I
have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of the registrants board
of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial reporting.
/s/ Mihael
H. Polymeropoulos, M.D.
Mihael H. Polymeropoulos, M.D.
Chief Executive Officer
(Principal Executive Officer)
Date: May 9, 2011
exv31w2
EXHIBIT 31.2
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002
I, James P. Kelly, certify that:
1. I have reviewed this quarterly report on
Form 10-Q
of Vanda Pharmaceuticals Inc.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I
are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act Rules
13a-15(f)
and
15d-15(f))
for the registrant and have:
a. designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being prepared;
b. designed such internal control over financial reporting,
or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c. evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d. disclosed in this report any change in the
registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal
control over financial reporting; and
5. The registrants other certifying officer(s) and I
have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of the registrants board
of directors (or persons performing the equivalent functions):
a. all significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial reporting.
James P. Kelly
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
Date: May 9, 2011
exv32w1
EXHIBIT 32.1
Certification
Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a)
and (b) of Section 1350, Chapter 63 of
Title 18, United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(subsections (a) and (b) of section 1350,
chapter 63 of title 18, United States Code), each of
the undersigned officers of Vanda Pharmaceuticals Inc., (the
Company), does hereby certify, to the best of such
officers knowledge, that:
The Quarterly Report on
Form 10-Q
for the quarter ended March 31, 2011 (the
Form 10-Q)
of the Company fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, and the information contained in the
Form 10-Q
fairly presents, in all material respects, the consolidated
financial condition and results of operations of the Company.
/s/ Mihael
H. Polymeropoulos, M.D.
Mihael H. Polymeropoulos, M.D.
Chief Executive Officer
(Principal Executive Officer)
Date: May 9, 2011
James P. Kelly
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
Date: May 9, 2011
A signed original of this written statement required by
Section 906 has been provided to the Company and will be
retained by the Company and furnished to the Securities and
Exchange Commission (SEC) or its staff upon request. This
certification accompanies the
Form 10-Q
to which it relates, is not deemed filed with the SEC and is not
to be incorporated by reference into any filing of the Company
under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended (whether made before or after
the date of the
Form 10-Q),
irrespective of any general incorporation language contained in
such filing.