Vanda Pharmaceuticals Inc

Previous wording

Vanda Pharmaceuticals Inc. (we, our or Vanda) is a leading global biopharmaceutical company focused on the development and commercialization of innovative therapies to address high unmet medical needs and improve the lives of patients.

Current wording

Vanda Pharmaceuticals Inc. (we, our, us or Vanda) is a leading global biopharmaceutical company focused on the development and commercialization of innovative therapies to address high unmet medical needs and improve the lives of patients.

Previous wording

•Milsaperidone: We expect to submit a New Drug Application (NDA) for milsaperidone (also known as VHX-896 and P-88), the active metabolite of Fanapt®, in schizophrenia and acute bipolar I disorder to the FDA in early-2025. If approved, there are pending patent applications that, if issued, could extend exclusivity into the 2040s.

Current wording

•Milsaperidone: We expect to submit a New Drug Application (NDA) for milsaperidone (also known as VHX-896 and P-88), the active metabolite of Fanapt®, for the treatment of schizophrenia and acute bipolar I disorder to the FDA in early 2025.

Previous wording

•Fanapt® LAI: We expect to initiate a Phase III program for the LAI formulation of Fanapt® by the end of 2024. Fanapt® LAI could reach the United States (U.S.) market after 2026 and there are pending patent applications that, if issued, could extend exclusivity into the 2040s.

Current wording

•Iloperidone LAI: We expect to initiate a Phase III program for the LAI formulation of Fanapt® by the end of 2024.

Previous wording

•We are currently planning to initiate a HETLIOZ LQ® program in pediatric insomnia. Although exact estimates of prevalence of insomnia in children are difficult to quantify, it is estimated that 20-40% of children experience significant sleep problems. There are currently no approved treatments for pediatric insomnia. If ultimately approved for marketing, the addressable patient population for HETLIOZ LQ® would be significantly expanded and market exclusivity would be expected to last into the 2040s.

Current wording

•We have initiated a HETLIOZ LQ® program in pediatric insomnia. Although the prevalence of insomnia in children is difficult to determine, it is estimated that 20-40% of children experience significant sleep problems. There are currently no approved treatments for pediatric insomnia.

Previous wording

•We announced in March 2024 that we received a complete response letter (CRL) from the FDA related to the supplemental New Drug Application (sNDA) for HETLIOZ® in the treatment of insomnia. We are reviewing the CRL and evaluating our next steps. In addition to insomnia, we continue to pursue FDA approval of HETLIOZ® in the treatment of jet lag disorder where the final agency rejection of our application is being challenged in the U.S. Court of Appeals for the D.C. Circuit.

Current wording

•We continue to pursue FDA approval for HETLIOZ® for the treatment of jet lag disorder and insomnia. We are challenging the FDA’s rejection of our supplemental New Drug Application (sNDA) for the treatment of jet lag disorder in the U.S. Court of Appeals for the D.C. Circuit. We have accepted the opportunity for a hearing with the FDA on the approvability of the insomnia sNDA.

Previous wording

•We announced in April 2024 that the U.S. Supreme Court denied our petition for a writ of certiorari to review the decision of the U.S. Court of Appeals for the Federal Circuit in our HETLIOZ® Abbreviated New Drug Application (ANDA) litigation against Teva Pharmaceuticals USA, Inc. (Teva), Apotex Inc. and Apotex Corp (together, Apotex). The lower court decision held that certain claims of our U.S. Patent Nos. RE46,604; 9,730,910; 10,149,829; and 10,376,487 were invalid. Our suit asserting U.S. Patent No. 11,285,129 will be infringed by Teva’s and Apotex’s generic versions of HETLIOZ® is currently pending in the U.S. District Court for the District of Delaware.

Current wording

•Our lawsuit asserting that U.S. Patent No. 11,285,129 will be infringed by generic versions of HETLIOZ® marketed by Teva Pharmaceuticals USA, Inc. (Teva) and Apotex Inc. and Apotex Corp. (Apotex) is currently pending in the U.S. District Court for the District of Delaware. We announced in July 2024 that the District Court ordered that our HETLIOZ® lawsuit may proceed.

Previous wording

•Positive results from a Phase II clinical study for PONVORY® in the treatment of psoriasis were previously published in Lancet where PONVORY® demonstrated significant effects in both induction and maintenance of response. We expect to file an Investigational New Drug (IND) application with the FDA for PONVORY® in the treatment of psoriasis. We expect to initiate a Phase III study for PONVORY® in the treatment of psoriasis by the end of 2024. If ultimately approved for marketing, PONVORY® would be the first oral sphingosine-1-phosphate (S1P) analog approved for the treatment of psoriasis and would significantly expand the addressable patient population of PONVORY®, with over 8 million people diagnosed with psoriasis in the U.S.

Current wording

•We expect to file IND applications with the FDA for PONVORY® in the treatment of psoriasis and ulcerative colitis, in 2024.

Previous wording

•The NDA for tradipitant for the treatment of symptoms of gastroparesis is under review by the FDA with a PDUFA target action date of September 18, 2024. Gastroparesis is a significant unmet medical need with the last treatment option approved over 40 years ago and an estimated prevalence in the U.S. of over 6 million individuals.

Current wording

•The NDA for tradipitant for the treatment of symptoms of gastroparesis is under review by the FDA with a PDUFA target action date of September 18, 2024. Although the review is ongoing, the FDA provided a preliminary notice that deficiencies preclude discussion of labeling. Gastroparesis is a significant unmet medical need with the last treatment option approved over 40 years ago and an estimated prevalence in the U.S. of over 6 million individuals.

Previous wording

•The second Phase III clinical study of tradipitant in the treatment of motion sickness is fully enrolled and results are expected in the second quarter of 2024. The efficacy of tradipitant in the treatment of motion sickness has previously been demonstrated in two clinical studies in which tradipitant was effective in preventing vomiting associated with motion. We expect to submit an NDA for the treatment of motion sickness to the FDA in the fourth quarter of 2024. An eventual NDA approval of tradipitant in the treatment of motion sickness would significantly expand the addressable patient population, with approximately 30% of the U.S. population reported to suffer from motion sickness under ordinary travel conditions that include sea, air and land.

Current wording

•In May 2024, we announced positive results from the second Phase III study of tradipitant for the treatment of motion sickness. We expect to submit an NDA for the treatment of motion sickness to the FDA in the fourth quarter of 2024. An eventual NDA approval of tradipitant for the treatment of motion sickness would significantly expand the addressable patient population, with approximately 30% of the U.S. population reported to suffer from motion sickness under ordinary travel conditions that include travel by sea, air and land.

Previous wording

•The Phase I clinical study for VCA-894A in the treatment of a patient with Charcot-Marie-Tooth disease, axonal, type 2S (CMT2S), an inherited peripheral neuropathy for which there is no available treatment, expects to enroll the patient in mid-2024.

Current wording

•The Phase I clinical study for VCA-894A for the treatment of a patient with Charcot-Marie-Tooth disease, axonal, type 2S (CMT2S), an inherited peripheral neuropathy for which there is no available treatment, expects to enroll the patient in mid-2024.

Previous wording

•The Phase I clinical study of VTR-297 for the treatment of onychomycosis, a fungal infection of the nail, was initiated in April 2024.

Current wording

•The Phase I clinical study of VTR-297 for the treatment of onychomycosis, a fungal infection of the nail, was initiated in April 2024. The study is over 75% enrolled and is expected to be completed in the third quarter of 2024.

Previous wording

•VQW-765, an alpha-7 nicotinic acetylcholine receptor partial agonist, is currently in clinical development for treatment of acute performance anxiety in social situations.

Current wording

•VQW-765, an alpha-7 nicotinic acetylcholine receptor partial agonist, is currently in clinical development for the treatment of acute performance anxiety in social situations.

Previous wording

The transaction price is determined based upon the consideration to which we will be entitled in exchange for transferring product to the customer. Our product sales are recorded net of applicable product revenue allowances for which reserves are established and include discounts, rebates, chargebacks, service fees, co-pay assistance and product returns that are applicable for various government and commercial payors. Where appropriate, our estimates of variable consideration included in the transaction price consider a range of possible outcomes. Allowances for rebates, chargebacks and co-pay assistance are based upon the insurance benefits of the end customer, which are estimated using historical activity and, where available, actual and pending prescriptions for which we have validated the insurance benefits. Variable consideration may be constrained and is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the respective underlying contracts. If actual results in the future vary from our estimates, we adjust our estimate in the period identified, which would affect net product sales in the period such variances become known. During the three months ended March 31, 2024 and 2023, we constrained the variable consideration for HETLIOZ® net product sales. The constrained revenue relates to the uncertainties of payor utilization, patient demand and chargeback and rebate amounts, including Medicaid, and other reserves related to transactions that resulted in elevated levels of inventory at specialty pharmacy customers.

Current wording

The transaction price is determined based upon the consideration to which we will be entitled in exchange for transferring product to the customer. Our product sales are recorded net of applicable product revenue allowances for which reserves are established and include discounts, rebates, chargebacks, service fees, co-pay assistance and product returns that are applicable for various government and commercial payors. Where appropriate, our estimates of variable consideration included in the transaction price consider a range of possible outcomes. Allowances for rebates, chargebacks and co-pay assistance are based upon the insurance benefits of the end customer, which are estimated using historical activity and, where available, actual and pending prescriptions for which we have validated the insurance benefits. Variable consideration may be constrained and is included in the transaction price if, in our judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the respective underlying contracts. If actual results in the future vary from our estimates, we adjust our estimate in the period identified, which would affect net product sales in the period such variances become known. During the six months ended June 30, 2024 and 2023, we constrained the variable consideration for HETLIOZ® net product sales. The constrained revenue relates to the uncertainties of payor utilization, patient demand and chargeback and rebate amounts, including Medicaid, and other reserves related to transactions that resulted in elevated levels of inventory at specialty pharmacy customers.

Previous wording

Medicare Part D coverage gap: The Medicare Part D prescription drug benefit requires manufacturers to fund approximately 70% of the Medicare Part D insurance coverage gap for prescription drugs sold to eligible patients for applicable drugs. We account for the Medicare Part D coverage gap using a point of sale model. Estimates for expected Medicare Part D coverage gap are based in part on historical activity and, where available, actual and pending prescriptions when we have validated the insurance benefits. Beginning January 1, 2025, the Medicare Part D coverage gap discount program will be replaced with a new discounting program under the Inflation Reduction Act.

Current wording

Medicare Part D coverage gap: The Medicare Part D prescription drug benefit requires manufacturers to fund approximately 70% of the Medicare Part D insurance coverage gap for prescription drugs sold to eligible patients for applicable drugs. We account for the Medicare Part D coverage gap using a point of sale model. Estimates for expected Medicare Part D coverage gap are based in part on historical activity and, where available, actual and pending prescriptions when we have validated the insurance benefits. Beginning January 1, 2025, the Medicare Part D coverage gap discount program will be replaced with a new discounting program under the Inflation Reduction Act of 2022.

Previous wording

Product returns: We generally offer direct customers a limited right to return as contractually defined with our customers. We consider several factors in the estimation process, including expiration dates of product shipped to customers, inventory levels within the distribution channel, product shelf life, historical return activity, including activity for product sold for which the return period has past, prescription trends and other relevant factors. We do not expect returned goods to be resalable. There was no right of return asset as of March 31, 2024 or December 31, 2023.

Current wording

Product returns: We generally offer direct customers a limited right to return as contractually defined with our customers. We consider several factors in the estimation process, including expiration dates of product shipped to customers, inventory levels within the distribution channel, product shelf life, historical return activity, including activity for product sold for which the return period has past, prescription trends and other relevant factors. We do not expect returned products to be resalable. There was no right of return asset as of June 30, 2024 or December 31, 2023.

Previous wording

The following table summarizes sales discounts and allowance activity as of and for the three months ended March 31, 2024:

Current wording

The following table summarizes sales discounts and allowance activity as of and for the six months ended June 30, 2024:

Previous wording

The provision of $21.2 million for rebates and chargebacks for the three months ended March 31, 2024 and its ending balance at March 31, 2024 primarily represents Medicaid rebates applicable to sales of Fanapt® and, to a lesser extent, HETLIOZ®. The provision of $7.1 million for discounts, returns and other for the three months ended March 31, 2024 primarily represents wholesaler distribution fees applicable to sales of Fanapt® and estimated product returns of Fanapt®, and co-pay assistance costs and prompt-pay discounts applicable to the sales of both Fanapt® and HETLIOZ®.

Current wording

The provision of $41.5 million for rebates and chargebacks for the six months ended June 30, 2024 and its ending balance at June 30, 2024 primarily represents Medicaid rebates applicable to sales of Fanapt® and, to a lesser extent, HETLIOZ®. The provision of $14.8 million for discounts, returns and other for the six months ended June 30, 2024 primarily represents wholesaler distribution fees applicable to sales of Fanapt® and estimated product returns of Fanapt®, and co-pay assistance costs and prompt-pay discounts applicable to the sales of both Fanapt® and HETLIOZ®.

Previous wording

As a result of the unfavorable events and subsequent developments in 2022 and 2023 related to the HETLIOZ® patent litigation (see Note 14, Legal Matters, to the condensed consolidated financial statements included in Part I of this Quarterly Report) we performed impairment reviews for our HETLIOZ® asset group in those years and determined, based upon our review of undiscounted cash flows, that the carrying value of our HETLIOZ® asset group, inclusive of the intangible asset, is recoverable. Accordingly, we have not recorded an intangible asset impairment charge in any period. The litigation and subsequent developments do not affect the sale of HETLIOZ® in the E.U. and there is no generic litigation pending outside of the U.S. with respect to HETLIOZ®. Furthermore, the litigation and subsequent events do not relate to the HETLIOZ LQ® oral suspension formulation. Our expected cash flows continue to support our estimated useful economic life of the intangible asset through 2035.

Current wording

As a result of the unfavorable events and subsequent developments in 2022 and 2023 related to the HETLIOZ® patent litigation (see Note 14, Legal Matters, to the condensed consolidated financial statements included in Part I of this quarterly report on Form 10-Q (Quarterly Report)) we performed impairment reviews for our HETLIOZ® asset group in those years and determined, based upon our review of undiscounted cash flows, that the carrying value of our HETLIOZ® asset group, inclusive of the intangible asset, is recoverable. Accordingly, we have not recorded an intangible asset impairment charge in any period. The litigation and subsequent developments do not affect the sale of HETLIOZ® in the E.U. and there is no generic litigation pending outside of the U.S. with respect to HETLIOZ®. Furthermore, the litigation and subsequent events do not relate to the HETLIOZ LQ® oral suspension formulation. Our expected cash flows continue to support our estimated useful economic life of the intangible asset through 2035.

Previous wording

See Note 2, Summary of Significant Accounting Policies, to the condensed consolidated financial statements included in Part I of this quarterly report on Form 10-Q (Quarterly Report) for information on recent accounting pronouncements.

Current wording

See Note 2, Summary of Significant Accounting Policies, to the condensed consolidated financial statements included in Part I of this Quarterly Report for information on recent accounting pronouncements.

Previous wording

We anticipate that our results of operations will fluctuate for the foreseeable future due to several factors, including our and our partners’ ability to continue to successfully commercialize our products, including activities related to the recent approval of Fanapt® for the acute treatment of manic or mixed episodes associated with bipolar I disorder in adults and recently acquired rights to PONVORY® in the U.S. and Canada, any possible payments made or received pursuant to license agreements, progress of our research and development efforts, the timing and outcome of clinical trials and related possible regulatory approvals and the status of existing and future potential litigation involving our products and intellectual property.

Current wording

We anticipate that our results of operations will fluctuate for the foreseeable future due to several factors, including our and our partners’ ability to continue to successfully commercialize our products, including activities related to the approval of Fanapt® for the acute treatment of manic or mixed episodes associated with bipolar I disorder in adults in April 2024 and acquired rights to PONVORY® in the U.S. and Canada in December 2023, any possible payments made or received pursuant to license agreements, progress of our research and development efforts, the timing and outcome of clinical trials and related possible regulatory approvals and the status of existing and future potential litigation involving our products and intellectual property.

Previous wording

For HETLIOZ®, the FDA has approved ANDAs for Teva and Apotex, both of which have since launched their generic versions of HETLIOZ® at risk in the U.S. In December 2022, the U.S. District Court for the District of Delaware (Delaware District Court) ruled in favor of Teva and Apotex in our patent litigation relating to their filing of ANDAs for generic versions of HETLIOZ® in the U.S. The Federal Circuit affirmed this ruling, and the U.S. Supreme Court denied our petition for a writ of certiorari in April 2024. See Note 14, Legal Matters, to the condensed consolidated financial statements in Part I of this Quarterly Report. The FDA has also approved the ANDA for MSN Pharmaceuticals, Inc. and MSN Laboratories Private Limited (MSN). The license agreement that we entered into when we settled our patent litigation with MSN (MSN/Impax License Agreement) grants MSN and Impax Laboratories LLC (Impax) a non-exclusive license to manufacture and commercialize MSN’s generic version of HETLIOZ® in the U.S. effective as of March 13, 2035, unless prior to that date we obtain pediatric exclusivity for HETLIOZ®, in which case the license will be effective as of July 27, 2035, or earlier under certain limited circumstances. In January 2023, MSN and its commercial partner, Amneal Pharmaceuticals, Inc., informed us of their belief that such circumstances had occurred and have since launched their generic version. In April 2024, we filed litigation against MSN, Impax, and Amneal alleging fraudulent inducement of the license agreement. See Note 14, Legal Matters, to the condensed consolidated financial statements in Part I of this Quarterly Report. HETLIOZ® could face even more competition from other generic companies in the U.S. in the near term in light of the patent litigation rulings against us. In addition, sales of generic versions of HETLIOZ® have resulted in and could continue to result in a reduction in the demand for HETLIOZ® and/or the price at which we can sell it and/or create volatility in net product sales in future periods, which could have a material impact on our revenues and results of operations.

Current wording

For HETLIOZ®, the FDA has approved ANDAs for Teva and Apotex, both of which have since launched their generic versions of HETLIOZ® at risk in the U.S. In December 2022, the U.S. District Court for the District of Delaware (Delaware District Court) ruled in favor of Teva and Apotex in our patent litigation relating to their filing of ANDAs for generic versions of HETLIOZ® in the U.S. The Federal Circuit affirmed this ruling, and the U.S. Supreme Court denied our petition for a writ of certiorari in April 2024. The FDA has also approved the ANDA for MSN Pharmaceuticals, Inc. and MSN Laboratories Private Limited (MSN). The license agreement that we entered into when we settled our patent litigation with MSN (MSN/Impax License Agreement) grants MSN and Impax Laboratories LLC (Impax) a non-exclusive license to manufacture and commercialize MSN’s generic version of HETLIOZ® in the U.S. effective as of March 13, 2035, unless prior to that date we obtain pediatric exclusivity for HETLIOZ®, in which case the license will be effective as of July 27, 2035, or earlier under certain limited circumstances. In January 2023, MSN and its commercial partner, Amneal Pharmaceuticals, Inc., informed us of their belief that such circumstances had occurred and have since launched their generic version. In April 2024, we filed litigation against MSN, Impax, and Amneal alleging fraudulent inducement of the license agreement. See Note 14, Legal Matters, to the condensed consolidated financial statements in Part I of this Quarterly Report. HETLIOZ® could face even more competition from other generic companies in the U.S. in the near term in light of the patent litigation rulings against us. In addition, sales of generic versions of HETLIOZ® have resulted in and could continue to result in a reduction in the demand for HETLIOZ® and/or the price at which we can sell it and/or create volatility in net product sales in future periods, which could have a material impact on our revenues and results of operations.

Previous wording

Revenues. Total revenues decreased by $15.0 million, or 24%, to $47.5 million for the three months ended March 31, 2024 compared to $62.5 million for the three months ended March 31, 2023. Revenues were as follows:

Current wording

Revenues. Total revenues increased by $4.4 million, or 10%, to $50.5 million for the three months ended June 30, 2024 compared to $46.1 million for the three months ended June 30, 2023. Revenues were as follows:

Previous wording

In December 2023, we purchased the right to market and sell PONVORY®in the U.S. and Canadian markets from Actelion Pharmaceuticals Ltd. (Janssen), a Johnson & Johnson Company. PONVORY® net product sales were $6.8 million for the three months ended March 31, 2024.

Current wording

In December 2023, we completed the acquisition of the U.S. and Canadian rights to PONVORY® from Actelion Pharmaceuticals Ltd. (Janssen), a Johnson & Johnson Company. PONVORY® net product sales increased by $1.8 million, or 26%, to $8.6 million for the three months ended June 30, 2024 compared to $6.8 million for the three months ended March 31, 2024. The increase in net product sales was attributable to an increase in price net of deductions, partially offset by a decrease in volume. We initiated the commercial launch of PONVORY® in relapsing forms of MS in the third quarter of 2024.

Previous wording

Cost of goods sold. Cost of goods sold decreased by $1.3 million, or 28%, to $3.4 million for the three months ended March 31, 2024 compared to $4.8 million for the three months ended March 31, 2023. Cost of goods sold includes third-party manufacturing costs of product sold, third-party royalty costs and distribution and other costs. Third-party royalty costs were 6% of Fanapt® net product sales and 5% of HETLIOZ® net product sales in Germany. Third-party royalty costs on HETLIOZ® net product sales in the U.S. decreased from 10% to 5% in December 2022 and are expected to end in the second quarter of 2024. We evaluate the risk of excess inventory and product expiry by evaluating current and future product demand relative to product shelf life and build demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance, patient usage, and generic competition. Our inventory balance consisted of $2.7 million and $3.0 million of Fanapt® product and $7.3 million and $7.2 million of HETLIOZ® product as of March 31, 2024 and December 31, 2023, respectively.

Current wording

Cost of goods sold. Cost of goods sold decreased by $0.8 million, or 22%, to $2.7 million for the three months ended June 30, 2024 compared to $3.5 million for the three months ended June 30, 2023. Cost of goods sold includes third-party manufacturing costs of product sold, third-party royalty costs and distribution and other costs. Third-party royalty costs were 6% of Fanapt® net product sales and 5% of HETLIOZ® net product sales in Germany. Third-party royalty costs on HETLIOZ® net product sales in the U.S. decreased from 10% to 5% in December 2022 and ended in April 2024. We evaluate the risk of excess inventory and product expiry by evaluating current and future product demand relative to product shelf life and build demand forecasts by considering factors such as, but not limited to, overall market potential, market share, market acceptance, patient usage, and generic competition. Our inventory balance included $2.2 million and $3.0 million of Fanapt® product as of June 30, 2024 and December 31, 2023, respectively, and $7.2 million of HETLIOZ® product as of June 30, 2024 and December 31, 2023.

Previous wording

Selling, general and administrative expenses. Selling, general and administrative expenses decreased by $6.0 million, or 17%, to $30.1 million for the three months ended March 31, 2024 compared to $36.1 million for the three months ended March 31, 2023. The decrease in selling, general and administrative expenses was primarily the result of a decrease in spending on sales and other corporate activities.

Current wording

Selling, general and administrative expenses. Selling, general and administrative expenses increased by $11.1 million, or 39%, to $39.5 million for the three months ended June 30, 2024 compared to $28.4 million for the three months ended June 30, 2023. The increase in selling, general and administrative expenses was primarily the result of an increase in spending on commercial activities related to our commercial launches of Fanapt in bipolar disorder and PONVORY® in relapsing forms of MS, as well as legal and other corporate activities. During the first half of 2024, we commenced a host of commercial activities, including an expansion of our sales force, primarily in the second quarter of 2024, as well as the development of prescriber awareness and comprehensive marketing programs in preparation for the launches of Fanapt® in bipolar disorder and PONVORY® in relapsing forms of MS which were initiated in the third quarter of 2024. Selling, general and administrative expenses may increase in future periods as a result of the ongoing commercial launches of Fanapt in bipolar disorder and PONVORY® in relapsing forms of MS.

Previous wording

Intangible asset amortization. Intangible asset amortization was $2.0 million and $0.4 million for the three months ended March 31, 2024 and 2023, respectively. Amortization expense increased in 2024 due to amortization on the intangible asset from the rights to PONVORY® in the U.S. and Canada which were acquired in December 2023.

Current wording

Intangible asset amortization. Intangible asset amortization was $1.8 million and $0.4 million for the three months ended June 30, 2024 and 2023, respectively. Amortization expense increased in 2024 due to amortization on the intangible asset from the rights to PONVORY® in the U.S. and Canada which were acquired in December 2023.

Previous wording

Other income. Other income was $4.6 million for the three months ended March 31, 2024 compared to $3.5 million for the three months ended March 31, 2023. Other income primarily consists of investment income on our marketable securities.

Current wording

Other income. Other income was $4.6 million for the three months ended June 30, 2024 compared to $5.5 million for the three months ended June 30, 2023. Other income primarily consists of investment income on our marketable securities.

Previous wording

Provision for income taxes. An income tax benefit of $0.5 million and a provision for income taxes of $2.3 million was recorded for the three months ended March 31, 2024 and 2023, respectively. The income tax expense (benefit) for each of the three months ended March 31, 2024 and 2023 was primarily driven by the estimated effective tax rate for the year as well as discrete income tax expense of $0.5 million and $1.1 million, respectively.

Current wording

Provision for income taxes. An income tax benefit of $1.0 million and a provision for income taxes of $1.1 million was recorded for the three months ended June 30, 2024 and 2023, respectively. The income tax expense (benefit) for each of the three months ended June 30, 2024 and 2023 was primarily driven by the estimated effective tax rate for the year as well as discrete income tax expense of $0.2 million and $0.8 million, respectively.

Previous wording

HETLIOZ® net product sales decreased by $19.6 million, or 49%, to $20.1 million for the three months ended March 31, 2024 compared to $39.6 million for the three months ended March 31, 2023. The decrease to net product sales was attributable to a decrease in volume, partially offset by an increase in price net of deductions. The Company’s HETLIOZ® net product sales as reported for the three months ended March 31, 2023 reflected higher unit sales as compared to recent prior periods. The higher unit sales during the three months ended March 31, 2023 resulted in a significant increase of inventory stocking at specialty pharmacy customers at March 31, 2023. During the remainder of 2023, HETLIOZ® net product sales reflected lower unit sales as a result of the continued reduction of the elevated inventory levels at specialty pharmacy customers. During the three months ended March 31, 2024, net product sales for HETLIOZ® reflected higher unit sales as compared to the most recent three quarters of 2023. The higher unit sales during the three months ended March 31, 2024 again resulted in an increase of inventory stocking at specialty pharmacy customers at March 31, 2024. During 2023 and the three months ended March 31, 2024, inventory levels at specialty pharmacy customers have remained elevated relative to inventory levels prior to the entrance of generic competition. Going forward, HETLIOZ® net product sales may reflect lower unit sales as a result of reduction of the elevated inventory levels at specialty pharmacy customers. Further, HETLIOZ® net product sales will likely decline in future periods, potentially significantly, related to continued generic competition in the U.S. We constrained HETLIOZ® net product sales for the three months ended March 31, 2024 and 2023 to an amount not probable of significant revenue reversal. The amount of revenue recognized during the three months ended March 31, 2024 related to changes in estimates on revenue constrained during 2023 was not material. HETLIOZ® net product sales could experience variability in future periods as the remaining uncertainties associated with variable consideration related to inventory stocking by specialty pharmacy customers are resolved.

Current wording

HETLIOZ® net product sales decreased by $22.8 million, or 37%, to $38.8 million for the six months ended June 30, 2024 compared to $61.6 million for the six months ended June 30, 2023. The decrease to net product sales was attributable to a decrease in volume, partially offset by an increase in price net of deductions. Our HETLIOZ® net product sales as reported for the three months ended March 31, 2023 reflected higher unit sales as compared to recent prior periods. The higher unit sales during the three months ended March 31, 2023 resulted in a significant increase of inventory stocking at specialty pharmacy customers at March 31, 2023. During the remainder of 2023, although there was continued destocking at specialty pharmacy customers, inventory levels remained elevated relative to inventory levels prior to the entrance of generic competition and remained elevated at March 31, 2024 and June 30, 2024. Going forward, HETLIOZ® net product sales may reflect lower unit sales as a result of reduction of the elevated inventory levels at specialty pharmacy customers or may be variable depending on when specialty pharmacy customers need to purchase again. Further, HETLIOZ® net product sales will likely decline in future periods, potentially significantly, related to continued generic competition in the U.S. We constrained HETLIOZ® net product sales for the six months ended June 30, 2024 and 2023 to an amount not probable of significant revenue reversal. The amount of revenue recognized during the six months ended June 30, 2024 related to changes in estimates on revenue constrained during 2023 was $1.6 million. HETLIOZ® net product sales could experience variability in future periods as the remaining uncertainties associated with variable consideration related to inventory stocking by specialty pharmacy customers are resolved.

Previous wording

Research and development expenses. Research and development expenses increased by $1.9 million, or 10%, to $21.2 million for the three months ended March 31, 2024 compared to $19.2 million for the three months ended March 31, 2023. The increase was primarily due to an increase in expenses associated with our CFTR development program.

Current wording

Research and development expenses. Research and development expenses increased by $1.9 million, or 5%, to $37.8 million for the six months ended June 30, 2024 compared to $35.9 million for the six months ended June 30, 2023. The increase in research and development expenses was associated an increase in expenses associated with our PONVORY® and CFTR development programs, partially offset by a decrease in expenses associated with our other development programs, which include expenses incurred on product discovery such as ASO.

Previous wording

As of March 31, 2024, our total cash and cash equivalents and marketable securities were $394.1 million compared to $388.3 million at December 31, 2023. 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 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 and corporate enterprises and commercial paper.

Current wording

As of June 30, 2024, our total cash and cash equivalents and marketable securities were $387.7 million compared to $388.3 million at December 31, 2023. 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 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 and corporate enterprises and commercial paper.

Previous wording

In the normal course of our business, we regularly enter into agreements with third-party vendors under fee service arrangements which generally may be terminated on 90 days’ notice without incurring additional charges, other than charges for work completed or materials procured 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. Our non-cancellable purchase commitments for agreements longer than one year are not material. Various other long-term agreements entered into for services with other third-party vendors, such as inventory purchase arrangements, are cancellable in nature or contain variable commitment terms within the agreement that are within our control.

Current wording

In the normal course of our business, we regularly enter into agreements with third-party vendors under fee service arrangements which generally may be terminated on 90 days’ notice without incurring additional charges, other than charges for work completed or materials procured 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. Our non-cancellable purchase commitments for agreements longer than one year primarily relate to commitments for data services. Various other long-term agreements entered into for services with other third-party vendors, such as inventory purchase arrangements, are cancellable in nature or contain variable commitment terms within the agreement that are within our control.

Previous wording

Based on our current operating plans, which include costs and expenses in connection with our continued clinical development of tradipitant and our other products, pursuit of regulatory approval of tradipitant, U.S. commercial activities for Fanapt®, HETLIOZ® and PONVORY®, pursuit of further regulatory approvals of Fanapt®, HETLIOZ® and PONVORY® , and payments due upon achievement of milestones under our license agreements, we believe that our cash, cash equivalents and marketable securities and cash received from product sales will be sufficient for at least the next 12 months. Our future cash requirements and the adequacy of our available funds will depend on many factors, primarily including our ability to generate revenue, the scope and costs of our commercial, manufacturing and process development activities, the magnitude of our discovery, preclinical and clinical development programs, and potential costs to acquire or license the rights to additional products.

Current wording

Based on our current operating plans, which include costs and expenses in connection with our U.S. commercial activities, continued clinical development of tradipitant and our other products, pursuit of regulatory approval of tradipitant, pursuit of further regulatory approvals of our current approved products and payments due upon achievement of milestones under our license agreements, we believe that our cash, cash equivalents and marketable securities and cash received from product sales will be sufficient for at least the next 12 months. Our future cash requirements and the adequacy of our available funds will depend on many factors, primarily including our ability to generate revenue, the scope and costs of our commercial, manufacturing and process development activities, the magnitude of our discovery, preclinical and clinical development programs, and potential costs to acquire or license the rights to additional products.

Previous wording

The following table summarizes our net cash flows from operating, investing and financing activities for the three months ended March 31, 2024 and 2023:

Current wording

The following table summarizes our net cash flows from operating and investing activities for the six months ended June 30, 2024 and 2023:

Previous wording

Investing Activities: Cash flows used in investing activities during the three months ended March 31, 2024 were $18.2 million, a decrease of $205.5 million compared to cash flows provided by investing activities of $187.3 million during the three months ended March 31, 2023. The change in investing activities primarily reflects the timing of net reinvestment of available cash and cash equivalents in our portfolio of marketable securities. Additionally, the $2.7 million asset acquisition cash flow during the three months ended March 31, 2024 relates to the payment of consideration for the PONVORY® acquisition that was accrued as of December 31, 2023.

Current wording

Investing Activities: Cash flows used in investing activities during the six months ended June 30, 2024 were $33.5 million, an increase of $29.9 million compared to $3.6 million during the six months ended June 30, 2023. The change in investing activities primarily reflects the timing of net reinvestment of available cash and cash equivalents in our portfolio of marketable securities. Additionally, the $4.2 million asset acquisition cash flow during the six months ended June 30, 2024 relates to the payment of the remaining consideration for the PONVORY® acquisition that was accrued as of December 31, 2023.