2023-06-06 08:07:09 ET
Summary
- We put Vanda Pharmaceuticals in the spotlight today as this small biopharma concern just received Orphan Drug status on Friday for one of its pipeline assets.
- The company's franchise drug has had litigation setbacks. However, Vanda has other assets and sells for less than the net cash on its balance sheet.
- Time to buy the dip in the equity? An investment analysis follows in the paragraphs below.
Never interrupt your enemy when he is making a mistake ." - Napoleon Bonaparte
Today, we take a deeper look at Vanda Pharmaceuticals ( VNDA ) . The company. The stock has taken some substantial hits recently from litigation losses around its primary compound on the market. However, the stock has one other approved drug, some assets in its pipeline and the shares sell for less than the net cash on its balance sheet.
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Company Overview:
Vanda Pharmaceuticals is based in Washington, DC. The company is focused on the development and commercialization of therapies to address high unmet medical needs worldwide. The stock currently trades around six bucks a share and sports an approximate market capitalization of $350 million.
November Company Presentation
HETLIOZ Franchise Under Pressure:
The stock has fallen largely due to legal setbacks around its primary approved drug HETLIOZ. This compound is approved for the treatment of non-24-hour sleep-wake disorders as well as for a treatment of nighttime sleep disturbances in Smith-Magenis Syndrome or SMS for adults and children.
VNDA fell over 30% late in December after the company lost its IP case against Teva Pharmaceutical ( TEVA ) and Apotex which invalidated four patents for HETLIOZ and opened the way for generic competition. HETLIOZ accounts for nearly two thirds of the company overall sales, so the reaction in the market was justified. Four weeks ago, management announced that it is considering options after a federal appeals court upheld this lower court ruling.
The company has one other drug on the market called Fanapt which is approved for the treatment of schizophrenia. In addition, the company has posted positive Phase 3 study results around Fanapt to treat acute manic and mixed episodes associated with bipolar I disorder in adults. Leadership will soon file a Supplemental New Drug Application or sNDA to have Fanapt approved for that indication. Submission should occur before the end of this month.
November Company Presentation
The company was in the early stages of the launch of HETLIOZ to treat SMS and was developing the drug for other indications. As can be seen above, Vanda is pursuing new potential indications for Fanapt and has several other pipeline assets in development as well. Vanda Pharmaceuticals is currently working on the submission of a sNDA for the addition of the bipolar indication to the Fanapt label. This could add significantly to Fanapt's potential market as the number of patients with bipolar disorder far exceed that for patients with schizophrenia.
November Company Presentation
Management plans to submit a NDA for a compound called tradipitant to patients with gastroparesis by end of this month. In addition, a Phase III study of tradipitant for the treatment of motion sickness is now fully enrolled and initial results should be out sometime soon.
November Company Presentation
Last week the company announced that the FDA had granted Orphan Drug Designation for its compound VCA-894A as a potential treatment for a type of ultra rare nerve disorder called Charcot-Marie-Tooth disease ((CMT)).
First Quarter Results:
On May 3rd, the company posted its first quarter numbers . Vanda produced a GAAP profit of six cents a share as revenues rose nearly four percent on a year-to-year basis to $62.5 million. The company had net income for the quarter of $3.3 million, a nice turnaround from the prior year period where Vanda posted a net loss of $6.4 million. HETLIOZ accounted for $39.6 million of those sales, up seven percent from 1Q2022. Fanapt sales came in at $22.9 million, down $300,000 from the same period a year ago.
Management stated it could not provide forward guidance due to the unknowns around HETLIOZ litigation and entry of generic versions of the drug into the market.
Analyst Commentary & Balance Sheet:
Despite a decent market cap, I can find no analyst firm ratings on the stock over the past 12 months. Quite possibly because the company has no need to raise capital. Just over five percent of the outstanding float is currently held short. Several insiders have sold approximately $650,000 worth of stock collectively so far in 2023. There have been no insider purchases since 2015. The company ended the first quarter with just over $500 million in cash and marketable securities on its balance sheet. Vanda Pharmaceuticals carries no long-term debt.
Verdict:
The current analyst firm consensus has the company losing 44 cents a share in FY2023 as sales drop 16% to just over $210 million. They see losses rising to 95 cents a share on a further 13% deterioration in revenues in FY2024.
Obviously, there are a lot of unknowns here among them how fast HETLIOZ sales fall and what are the potential revenues from approval of Fanapt for bipolar disorder and the approval of tradipitant to treat gastroparesis. Vanda could end up being a solid 'sum of the parts' story given its non-HETLIOZ assets. It certainly seems to a be logical buyout target given a larger player to acquire the company with a decent buyout premium to equate to the net cash on the balance sheet and acquire all the assets of the company for 'free'.
My view is the ideal way to bet on Vanda Pharmaceuticals would be via covered call orders. Unfortunately, liquidity with the options against the equity is quite poor making this simple strategy non-viable. A small ' watch item ' holding for aggressive investors seems the right investment advice on VNDA until more clarity about the company's future is available.
We learn from failure, not from success! " - Bram Stoker
For further details see:
Vanda Pharmaceuticals: Uncharted Waters Ahead