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Mail Stop 6010
January 27, 2006
Mihael H. Polymeropoulos, M.D.
Vanda Pharmaceuticals Inc.
9620 Medical Center Drive - Suite 201
Rockville, MD 20850
Re: Vanda Pharmaceuticals Inc.
Form S-1 Registration Statement
File No. 333-130759
Dear Dr. Polymeropoulos:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Comments applicable to the entire filing
1. We note that your filing contains numerous omissions throughout
the prospectus which relate to the offering price range or the
number
of shares you will sell. These omissions include but are not
limited
to:
* Summary Financial Data
* Use Of Proceeds
* Capitalization
* Dilution
* The Option Grants Table
* Shares Eligible For Future Sale
* The Principal Stockholders Table
* Description of Capital Stock
Rule 430A requires you to include this information in your filing
based upon an estimate of the offering price within a bona fide
range
you disclose on the cover page and based upon an estimate of the
number of shares you will sell. We consider a bona fide range to
be
$2 if the price is under $20 and 10% if it is above $20. You
should
include the required information in an amendment prior to
circulating
a "red herring" prospectus.
2. Provide us with copies of all the graphic, photographic or
artistic materials you intend to include in the prospectus prior
to
its printing and use. Please note that we may have comments.
Please
also note that all textual information in the graphic material
should
be brief and comply with the plain English guidelines regarding
jargon and technical language.
3. Although your exhibit index indicates that you are seeking
confidential treatment for a number of exhibits, you do not appear
to
have filed an application for confidential treatment. Please note
that Rule 406 of Regulation C specifies that the application is to
be
filed at the same time the registration statement is filed.
Please
file the application as soon as possible. We will not be in a
position to accelerate effectiveness of your registration
statement
until all issues relating to your confidential treatment request
have
been resolved.
4. In a number of places in your document you have used technical
jargon that is not likely to be understood by your readers.
Technical jargon should not appear in the forefront of the
prospectus. Please refer to Rule 421 of Regulation C. In the
remainder of the prospectus you should minimize the use of jargon.
If you cannot convey information without using jargon, please
explain
what the jargon means at the first place the terms appear. Here
are
some examples of technical jargon that needs to be replaced:
* Small molecule product candidates
* Differentiated new therapy
* Atypical antipsychotic
* Pivotal Phase III trial
* Melatonin agonist
* Injectable depot formulation
To the extent that these terms cannot be replaced by suitable
alternatives, please revise to explain the meaning of these terms
the
first time each one is used.
5. You have created a number of acronyms for use in this document
that are not likely to be familiar to your readers. The use of
acronyms is a convenience for the writer, but it forces readers to
learn a new vocabulary in order to understand the disclosure in
your
document. Please delete all of the acronyms except those which
can
be commonly found in general interest publications. Examples of
acronyms that should be deleted include:
* PG
* WASO
* CRSD
* NCE
* SNP
* PANSS
* BPRS
* LOCF
* MMRM
Prospectus Summary
6. In the last paragraph of page 1, the last paragraph of page 2,
the
first paragraph of page 3 and the fourth paragraph of page 3 you
present statistical and market share information related to your
proposed products. Please provide us with a copy of the
document(s)
containing the information you are relying on as support for these
statements. Mark the copy of the document to show the location of
each piece of information you are relying on. Provide similar
factual support for all similar claims made throughout the
registration statement. We may have additional comments after
reviewing the supporting documents.
7. In the third full paragraph of page 2 you refer to "our market
research." Please provide us with a copy of the research you are
referring to. It should be marked to show the location of the
information you are citing. We may have further comment after
reviewing the documentation.
8. We note your statement that you plan to partner with a global
pharmaceutical company for the development and commercialization
of
VEC-162 worldwide. If you have not yet identified a partner,
please
disclose this information here and in the "Business" section of
your
document. Also, disclose that Bristol Meyers Squibb has the right
to
commercialize VEC-162 on its own if you have not entered into a
partnering arrangement after the completion of your Phase III
program.
9. Similarly, in the summary discussion of the risks associated
with
your business, disclose that your agreements with Novatis provides
Novartis with the ability to terminate your agreements if you fail
to
meet development or commercialization milestones and that your
agreement with Bristol Meyers Squibb allows Bristol Meyers Squibb
to
commercialize VEC-162 on its own if you have not entered into a
partnership arrangement.
10. Supplementally explain why you believe your PG expertise is
unique and how it will provide you with preferential access to
compounds discovered by other pharmaceutical companies and how it
will allow you to shorten the drug development timeline relative
to
other traditional approaches.
Summary consolidated financial data, page 6
11. Please expand your disclosures in the introductory paragraph
to
clarify that in addition to the pro forma balance sheet you
include
pro forma net loss per share data.
Risk Factors - page 8
We face substantial competition which may result in others
developing
or commercializing products before or more successfully than we
do. -
page 14
12. The information in this risk factor is too generic to be
informative to an investor. Please identify the existing products
that your proposed products will compete with. Also, since you
are
aware of other companies engaged in the development of potentially
competitive products, identify those proposed products and their
manufacturers and indicate, to the extent you are aware, the
development stage of the proposed products.
Product liability lawsuits could divert our resources, result in
substantial liabilities and reduce the commercial potential of our
products. - page 16
13. We note your statement that your insurance may not fully cover
potential liabilities. Please revise to disclose the limitations
on
your insurance coverage. Similarly, revise "If we use hazardous
and
biological materials in a way that causes injury or violates
applicable law, we may be liable for damages."
Our rights to develop and commercialize our product candidates are
subject in part to the terms and conditions of licenses or
sublicenses granted to us by other pharmaceutical companies... -
page
18
14. We note that if you fail to meet milestones described in your
licensing agreements with Novartis, your rights to develop and
commercialize iloperidone and VSF-173 may terminate. Revise to
describe the milestones here and in the description of the
licensing
agreements beginning on page 63.
15. In the next to last sentence of the first paragraph you state
that your rights to develop and commercialize iloperidone may be
impaired if you do not cure breaches by Novartis and Titan of
similar
obligations contained in these sublicense and license agreements.
This suggests that there is an outstanding breach. If so, please
describe it in reasonable detail along with the steps you have
taken
to cure the breach. If there is no breach, please revise the
language to eliminate the suggestion that there is one.
A substantial number of shares of our common stock could be sold
into
the public markets shortly after this offering, which could
depress
our stock price. - page 21
16. Please revise to quantify the number of outstanding shares
that
will be eligible to be sold into the public markets.
Existing stockholders significantly influence us and could delay
or
prevent an acquisition by a third party. - page 23
17. Please expand the risk factor to discuss the risk of
management
entrenchment.
Completion of this offering may limit our ability to use our net
operating loss carryforwards. - page 24
18. Please quantify the disclosure in this risk factor.
Use of Proceeds - page 26
19. Please refer to Item 504 of Regulation S-K. You need to
significantly expand the information included in the second
paragraph
of the discussion to identify the specific research and potential
products that you will use the proceeds for. Disclose the
specific
amounts that you intend to spend on each of "research," "pre-
clinical
development" and "clinical trials" and how far along the
development
spectrum that you anticipate the proceeds will enable you to go.
Disclose whether material amounts of additional funding will be
necessary to achieve the purposes you have identified. If so,
disclose the amounts of other funds that will be necessary and the
sources you will obtain them from.
20. You say that the "balance" of the net proceeds will be used
for
general corporate purposes, including working capital and the
acquisition of pharmaceutical products and businesses that are
complementary to your own. Please be more specific about what
these
purposes are and the amount you will use for each purpose. We may
have additional comments after reviewing your response.
Capitalization, page 27
21. It appears that your pro forma capitalization table should
include the Series B Preferred Stock issued on December 9, 2005.
Please revise your disclosures or disclose, and explain to us, why
the Series B Preferred Stock issued on December 9, 2005 is
excluded
from the pro forma capitalization table. Your pro forma column
should give effect to events that have taken place and the pro
forma
as adjusted column should include events that are contingent on
the
offering.
22. Please refer to your tabular disclosures. It appears that the
solid lines before and after "Accumulated deficit" should be moved
to
the "Total capitalization" line item. Please revise or advise us.
Dilution, page 28
23. It appears that the pro forma net tangible book value amounts
should include the Series B Preferred Stock issued on December 9,
2005. Please revise your disclosure or disclose, and explain to
us,
why the Series B Preferred Stock issuance is excluded from the pro
forma amounts.
Management`s discussion and analysis of financial condition and
results of operations
Overview, page 32
24. We note that while you are unable to estimate the specific
timing
and future costs of your clinical development program, your Phase
III
trials for Iloperidone began in November 2005 and you expect them
to
be completed by early 2007. If these trials are successful, you
believe that the related data will support US and European
regulatory
filings. Please disclose the following information for your
research
and development activities related to Iloperidone:
a. The nature, timing and estimated costs of the efforts necessary
to
complete this project;
b. The consequences to operations, financial position and
liquidity
if this project is not completed timely;
c. The period in which material net cash inflows from this project
are expected to commence assuming successful filings with US and
European regulators.
Regarding a., disclose the amount or range of estimated costs and
timing to complete the phase in process and each future phase. To
the
extent that information is not estimable, disclose those facts and
circumstances indicating the uncertainties that preclude you from
making a reasonable estimate. Please revise your contractual
obligations and commitment disclosures starting on page 44, as
appropriate.
Critical accounting policies
Revenue recognition, page 48
25. We note that you discuss revenue earned under research and
development contracts. It appears that these types of contracts
are
no longer material since you disclose that Vanda completed its
obligations under these types of consulting agreements during the
year ended December 31, 2004, and no longer seeks such
arrangements.
Please clarify why revenue earned under research and development
contracts is a critical accounting policy to explain this
inconsistency. If you believe this revenue recognition policy is
critical, it appears that an output-based approach is the
appropriate
model to estimate performance under the contract rather than using
an
input measure, such as cost. If costs incurred compared to total
estimated costs over the development period approximates the
proportion of the value of the services provided compared to the
total estimated value over the development period, please clarify
your disclosure. Revise your disclosures in Note 2 to the
consolidated financial statements, as appropriate.
Business - page 51
Potential advantages of iloperidone - page 54
26. In the carryover paragraph at the top of page 55 you reference
"market research we conducted with LEK Consulting." Rule 436 of
Regulation C indicates that where a report of an expert is
summarized
in the registration statement, the written consent of the expert
summarized in the document shall be filed as an exhibit to the
registration statement. Please include the written consent of LEK
Consulting in your first amendment to the registration statement.
Also, please provide us with a copy of the document you are
summarizing.
License Agreements - page 63
27. We note that you have not yet filed the license agreements
described under this heading. Please file them with your first
amendment. We may have comments regarding the disclosure about
these
agreements once we review them.
28. We note your use of BMS` right to commercialize VEC-162 on its
own if you have not entered into a partnering arrangement after
the
completion of the Phase III program as an example of BMS` rights
with
respect to VEC-162. All of BMS` material rights and obligations,
as
well as your material rights and obligation, should be described
in
this discussion. Please revise to describe all rights and
obligations or revise to clarify that this in BMS` only material
right under the agreement.
Patents and proprietary rights; Hatch-Waxman protection - page 69
29. Please explain what a "new chemical entity" patent is and
differentiate it from other patents.
Management - page 72
Executive compensation - page 76
30. Please update this disclosure to include 2005 compensation
information, as well as the 2004 information.
Principal stockholders - page 86
31. Please identify the natural person holding voting and
ownership
control over the shares owned by each non-natural person included
in
the ownership table.
32. Please refer to footnotes 10-14 in which a number of your
directors disclaim beneficial ownership of securities held by non-
natural persons "except to the extent of his pecuniary interest
therein." Item 403(a) of Regulation S-K requires directors to
disclose their beneficial ownership interest in the registrant.
Accordingly, please revise the footnotes to disclose the amount of
each named person`s pecuniary interest in the securities of the
registrant.
Consolidated Financial Statements
Statements of Changes in Stockholders` Equity, page F-5
33. You disclose in Note 1 to the consolidated financial
statements
that Vanda was founded in November 2002 and commenced operations
on
March 13, 2003. Please disclose, and explain to us, why Vanda was
founded and commenced operations with no stock. Please confirm
that
Capital Care LLC did not incur any expenses on your behalf from
the
date you were founded through the date you commenced operations.
Please expand your disclosures in selected consolidated financial
data section to clarify why a December 31, 2002 balance sheet is
not
presented. If Vanda had no (or nominal) assets or liabilities as
of
December 31, 2002, please include a statement to disclose this
fact.
Notes to Consolidated Financial Statements
Note 6. Commitments, page F-23
34. We note that amounts paid to clinical research organizations
and
other outside contractors represented approximately 80% of direct
costs for 2004 and the nine months ended September 30, 2005.
However,
related disclosure appears to be limited. Please disclose the
principal terms of the related clinical agreements, including
compensation arrangements, duration and contingent obligations. We
note that you excluded amounts related to the agreements with
clinical organizations from the table of contractual obligations
because these arrangements can be terminated without penalty.
Explain
more specifically your obligations under these termination
provisions.
Note 8. Preferred and Common Stock, page F-24
Conversion, page, page F-25
35. Please disclose, and explain to us, how the $1.23 conversion
price per share for the Series B Preferred Stock will be subject
to
adjustment from time to time, e.g. amount of adjustment, frequency
and triggering events. Tell us how these adjustments were
considered
in your accounting for these instruments.
Note 9. Beneficial Conversion Feature-Series B Convertible
Preferred
Stock, page F-26
36. You concluded that the issuances of Series B Convertible
Preferred Stock in September and December 2005 resulted in a
beneficial conversion feature. However, it appears that you
concluded
that the issuance of Series B Convertible Preferred Stock in
September 2004 did not result in a beneficial conversion feature
despite your retroactive fair value reassessment of your common
stock
for all options granted after December 2003. You indicate that
this
reassessment was based on discussions with your investment
bankers,
which began in November 2005. Please explain this apparent
inconsistency.
Note 10. Management Equity Plan, page F-28
37. We note that you have not disclosed an estimated offering
price.
We are deferring a final evaluation of stock compensation and
other
costs recognized until the estimated offering price is specified
and
we may have further comment in this regard when the amendment
containing that information is filed. In order for us to fully
understand the equity fair market valuations reflected in your
financial statements, please provide an itemized chronological
schedule covering all equity instruments issued since January 1,
2004
through the date of your response and provide the following
information separately for each equity issuance:
a. The date of the transaction;
b. The number of shares issued or options granted;
c. The exercise price or per share amount paid;
d. Management`s fair market value per share estimate and how the
estimate was made;
e. An explanation of how the fair value of the convertible
preferred stock and common stock relate;
f. The identity of the recipient, indicating if the recipient
was
a related party;
g. Nature and terms of concurrent transactions; and,
h. The amount of any compensation or interest expense element.
Also, progressively bridge management`s fair market value
determinations to the current estimated IPO price range. Please
reconcile and explain the differences between the mid-point of
your
estimated offering price range and the fair values included in
your
analysis. Provide us with a chronology of events leading to the
filing of your IPO including when discussions began with potential
underwriters.
Additionally, please provide the disclosures suggested by the
AICPA
Audit and Accounting Practice - Valuation of Privately-Held-
Company
Equity Securities Issued as Compensation.
* * * * *
As appropriate, please amend your registration statement in
response
to these comments. You may wish to provide us with marked copies
of
the amendment to expedite our review. Please furnish a cover
letter
with your amendment that keys your responses to our comments and
provides any requested supplemental information. Detailed cover
letters greatly facilitate our review. Please file your cover
letter
on EDGAR under the form type label CORRESP. Please understand
that
we may have additional comments after reviewing your amendment and
responses to our comments.
We direct your attention to Rules 460 and 461 regarding requesting
acceleration of a registration statement. Please allow adequate
time
after the filing of any amendment for further review before
submitting a request for acceleration. Please provide this
request
at least two business days in advance of the requested effective
date.
You may contact Frank Wyman at (202) 551-3660 or Don Abbott,
Senior
Staff Accountant, at (202) 551-3608 if you have questions
regarding
comments on the financial statements and related matters. Please
contact Mary Fraser at (202) 551-3609, or me at (202) 942-1840
with
any other questions.
Sincerely,
Jeffrey P. Riedler
Assistant Director
Cc: Jay K. Hachigian
Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP
610 Lincoln Street
Waltham, MA 02451
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Mihael H. Polymeropoulos, M.D.
Vanda Pharmaceuticals, Inc.
January 27, 2006
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