Business Overview and History

Vanda Pharmaceuticals was incorporated in Delaware in 2002 and commenced operations in 2003. The company's commercial portfolio currently consists of three products: Fanapt, HETLIOZ, and PONVORY. Fanapt was first approved by the FDA in 2009 for the acute treatment of schizophrenia in adults. In 2014, Vanda acquired the U.S. and Canadian commercial rights to Fanapt from Novartis. HETLIOZ, a treatment for Non-24-Hour Sleep-Wake Disorder, was approved by the FDA in 2014 and later approved by the European Commission in 2015 for the treatment of Non-24 in totally blind adults. In 2020, HETLIOZ was also approved by the FDA for the treatment of nighttime sleep disturbances in Smith-Magenis Syndrome.

In December 2023, Vanda acquired the U.S. and Canadian rights to PONVORY, a treatment for relapsing forms of multiple sclerosis, from Actelion Pharmaceuticals Ltd., a subsidiary of Johnson & Johnson. PONVORY was first approved by the FDA and Health Canada in 2021.

Over the years, Vanda has faced several challenges in commercializing its products. For HETLIOZ, the company has been involved in patent litigation against generic competitors since 2018. In December 2022, the U.S. District Court for the District of Delaware ruled in favor of certain generic drug companies, which has resulted in the launch of generic versions of HETLIOZ in the U.S. market. Additionally, Vanda encountered reimbursement challenges with third-party payors refusing to cover or reimburse prescriptions for HETLIOZ.

Despite these challenges, Vanda has made progress in diversifying its commercial portfolio and advancing its product pipeline. The company submitted marketing authorization applications for Fanapt in Europe and HETLIOZ in Europe for Smith-Magenis Syndrome in 2024. Vanda has also been developing new product candidates, such as the long-acting injectable formulation of Fanapt and Bysanti (milsaperidone), the active metabolite of Fanapt.

Financial Performance and Ratios

For the full year 2024, Vanda reported total revenues of $198.8 million, a 3% increase compared to $192.6 million in 2023. This revenue growth was primarily driven by increased Fanapt sales due to the bipolar I disorder commercial launch and the introduction of Ponvory revenue following the company's acquisition of the product in December 2023, partially offset by decreased Hetlioz revenue due to generic competition.

The company reported a net loss of $18.9 million for the full year 2024, compared to net income of $2.5 million in 2023. This net loss was largely attributable to increased operating expenses, which grew from $206.6 million in 2023 to $239.4 million in 2024, driven by higher selling, general, and administrative (SG&A) expenses related to the commercial launches of Fanapt and Ponvory, as well as increased legal and other corporate activities.

In the fourth quarter of 2024, Vanda reported revenue of $53.2 million, representing a year-over-year growth of 17%. The net loss for Q4 2024 was $4.9 million. Operating cash flow for the full year 2024 was negative $15.8 million, while free cash flow was negative $16.3 million.

Liquidity

As of December 31, 2024, Vanda had cash, cash equivalents, and marketable securities of $374.6 million, representing a decrease of $13.6 million compared to the end of 2023. The company's current ratio stood at 4.39, indicating a strong liquidity position, while the quick ratio was 4.37. The debt-to-equity ratio was 0.02, reflecting a low level of leverage with total debt of $12.4 million and stockholders' equity of $538.6 million.

Fanapt Commercial Performance

Fanapt was approved in the second quarter of 2024 for the acute treatment of manic or mixed episodes associated with bipolar I disorder, in addition to its existing approval for the treatment of schizophrenia. Vanda initiated the commercial launch of Fanapt for the bipolar I disorder indication in the third quarter of 2024.

In the fourth quarter of 2024, Fanapt net product sales increased by 18% compared to the same period in 2023, driven by an increase in prescription volume and inventory stocking at wholesalers. New patient starts, as reflected by new-to-brand prescriptions (NBRx), increased by over 160% in the fourth quarter of 2024 compared to the same period in 2023.

For the full year 2024, Fanapt net product sales were $94.3 million, an increase of 4% compared to 2023. This increase was attributable to both an increase in price net of deductions and volume growth.

Vanda has been expanding its Fanapt sales force to support the commercial launch, with the team now consisting of over 200 representatives. The company plans to further expand the sales force to 300 representatives to increase reach and frequency with prescribers. Additionally, Vanda has initiated direct-to-consumer advertising to increase awareness of Fanapt among patients with bipolar I disorder.

Hetlioz Faces Generic Competition

Hetlioz has faced significant challenges due to the entry of generic competition in the U.S. market. In December 2022, the U.S. District Court for the District of Delaware ruled in favor of certain generic drug companies in Vanda's patent litigation, allowing them to launch their generic versions of Hetlioz. Teva Pharmaceuticals, Apotex, and MSN Pharmaceuticals have since launched their generic products, leading to a 23% decrease in Hetlioz net product sales in 2024 compared to 2023.

For the full year 2024, Hetlioz net product sales were $76.7 million, down from $100.2 million in 2023. The decrease was attributable to a decline in volume, partially offset by an increase in price net of deductions, including the impact of changes in constrained revenue.

Vanda has continued to pursue legal remedies, including filing additional patent infringement lawsuits and challenging the FDA's approval of the generic versions. However, the company expects Hetlioz net product sales to continue declining in future periods due to the ongoing generic competition. Hetlioz net product sales may also reflect lower unit sales in future periods due to the reduction of elevated inventory levels at specialty pharmacy customers or may be variable depending on when specialty pharmacy customers need to purchase again.

Ponvory Acquisition and Commercial Launch

In December 2023, Vanda acquired the U.S. and Canadian rights to Ponvory from Actelion Pharmaceuticals, a subsidiary of Johnson & Johnson. Ponvory is an oral treatment approved for the treatment of relapsing forms of multiple sclerosis.

Vanda initiated the commercial launch of Ponvory in the third quarter of 2024. Ponvory net product sales were $27.8 million for the full year 2024, including approximately $3 million of variable consideration that may be subject to dispute but that the company believes is not probable of significant revenue reversal.

The company has established a specialty sales force to promote Ponvory to neurology prescribers across the U.S. and Canada. Vanda sees significant potential for Ponvory, as it continues to build awareness and drive adoption of the product among healthcare providers and patients.

Pipeline Advancements and Regulatory Milestones

In addition to its commercial products, Vanda has made progress in advancing its pipeline of drug candidates:

• Fanapt LAI: Vanda initiated a Phase 3 program for the long-acting injectable (LAI) formulation of Fanapt in the fourth quarter of 2024 for the treatment of schizophrenia.

• Bysanti (milsaperidone): Vanda expects to submit a New Drug Application (NDA) for Bysanti for the treatment of acute bipolar I disorder and schizophrenia to the FDA in the first quarter of 2025.
• Hetlioz: Vanda has initiated clinical programs for Hetlioz in pediatric insomnia, delayed sleep phase disorder (DSPD), and has a pending Marketing Authorization Application (MAA) in Europe for the treatment of Smith-Magenis syndrome (SMS).
• Tradipitant: Vanda submitted an NDA for Tradipitant for the treatment of motion sickness in the fourth quarter of 2024 and has accepted the opportunity for a hearing with the FDA on the approvability of the NDA for the treatment of gastroparesis.
• Imsidolimab: In February 2025, Vanda announced an exclusive global license agreement with AnaptysBio to develop and commercialize Imsidolimab, an IL-36R antagonist, for the treatment of generalized pustular psoriasis (GPP). Vanda expects to submit a Biologics License Application (BLA) for Imsidolimab in GPP in 2025.

Guidance and Outlook

For the full year 2025, Vanda expects total revenues from Fanapt to be between $210 million and $250 million, representing growth of 6% to 26% compared to 2024. The company noted that the quarterization of revenue in 2025 may be impacted by the implementation of the Medicare benefit redesign under the Inflation Reduction Act, which is expected to negatively affect the gross-to-net for the Medicare payer segment of Vanda's products.

Looking further ahead, Vanda is targeting annual revenue from its psychiatry portfolio (including Fanapt, Bysanti, and Fanapt LAI) to exceed $750 million by 2030. The company also expects its total annual revenue to surpass $1 billion by 2030, driven by the potential approval and successful commercialization of its growing pipeline.

Vanda is not providing 2025 cash guidance at this time but noted that quarterization of cash balances will be impacted by various items.

Risks and Challenges

Vanda faces several risks and challenges that could impact its future performance:

1. Continued generic competition for Hetlioz in the U.S. market, which could further erode the product's revenues.
2. Uncertainties around the regulatory approval and commercial success of its pipeline candidates, including Tradipitant, Bysanti, and Imsidolimab.
3. Potential reimbursement and pricing pressures from third-party payers, especially in light of the Medicare benefit redesign under the Inflation Reduction Act.
4. Reliance on third-party manufacturers and the potential for supply chain disruptions or quality issues.
5. Ongoing legal battles and patent litigation related to its products, which could result in unfavorable outcomes.

Geographic Markets and Product Distribution

Vanda Pharmaceuticals operates primarily in the United States, with some international presence. Fanapt is sold in the U.S. and Israel, and the company is seeking approval in Europe. Hetlioz is sold in both the U.S. and Europe. Ponvory is currently marketed in the U.S. and Canada. The company does not provide a detailed breakdown of performance by geographic market.

Conclusion

Vanda Pharmaceuticals has demonstrated its ability to navigate a diverse product portfolio and pipeline, even in the face of significant challenges, such as generic competition for its flagship product Hetlioz. The company's successful commercial launch of Fanapt in bipolar I disorder and its acquisition and launch of Ponvory have helped offset some of the Hetlioz headwinds, positioning Vanda for potential long-term growth.

With a robust pipeline of late-stage and earlier-stage drug candidates, including Bysanti, Tradipitant, and Imsidolimab, Vanda is well-positioned to continue expanding its therapeutic offerings and driving value for shareholders. However, the company will need to successfully navigate the regulatory and commercial hurdles associated with its pipeline, while also addressing the ongoing generic threat to Hetlioz, in order to achieve its long-term revenue and profitability goals.

Overall, Vanda Pharmaceuticals remains a diversified biopharmaceutical company with a promising future, but it will need to continue executing on its strategic initiatives and addressing the various risks and challenges it faces in order to deliver sustainable growth and value for its stakeholders.