Summary
- From the commercialization front, Vanda Pharmaceuticals is taking prudent steps to boost Hetlioz and Fanapt sales.
- The company recently planted long-term growth via the OliPas partnership for ASO development.
- Additionally, Vanda is advancing VPO-227 with UCSF for its first indication as a treatment for cholera.
Does the company have a short-range or long-range outlook in regard to profits? - Phillip Fisher (The Father of Growth Investing)
Author's Note : This article is an abridged version of an article originally published for members of the Integrated BioSci Investing marketplace on October 24, 2022.
As special investments, growth biotech companies are usually hit the hardest amid a bear market. Nevertheless, they rebound the most vigorously during a bullish cycle to give you the strongest alpha returns in the long haul. As such, it made sense for you to focus on growth biotech if you have a long-term investment horizon. As you hold growth bio-stocks, make sure you keep tabs on different growth initiatives (i.e., catalysts) for you to make proper adjustments to your holding.
One such growth stock is Vanda Pharmaceuticals ( VNDA ). During this bear market, the stock is trading near its cash position while the company is turning up all growth engines (both short and long-term). In this research, I'll feature a fundamental analysis of Vanda while focusing on the latest growth catalyst that is centering on an early-phase molecule dubbed VPO-227.
Figure 1: Vanda chart
About The Company
As usual, I'll provide a brief corporate overview for new investors. If you are familiar with the firm, I recommend that you skip to the next section. Operating out of Washington, DC, Vanda Pharmaceuticals is focused on the innovation and commercialization of novel medicines to fill the unmet needs in psychiatry. I noted in the prior research ,
You can see that Vanda is brewing a deep pipeline of highly promising drugs. Interestingly, the two therapeutics (Hetlioz and Fanapt) are already approved and generating strong sales increases. And yet, Vanda is aggressively expanding their label which is indicative of a prudent growth strategy. In other words, growing by label expansion is a risk-deleveraged approach. Based on the vast number of label expansions, there is a good chance that at least one would become an investment bonanza.
Figure 2: Therapeutics pipeline
Advancing In The VPO-227 Franchise
Shifting gears, let us walk through various fundamental developments that are contributing to Vanda's long-term as well as short-term growth. The first is the early-stage franchise named VPO-227. Formerly BPO-27, VPO-227 is a small molecule CFTR inhibitor. As the fruit of the company's pipeline expansion, Vanda in license VPO-227 from the University of California San Francisco (UCSF) back in 2017.
Figure 3: Vanda's early-stage franchises
The UCSF agreement enabled Vanda to develop both activators and inhibitors of CFTR for worldwide commercialization. Hence, that modulation can have broad applications for many diseases. They include chronic dry eye, constipation, polycystic kidney disease, cholestasis, and secretory diarrhea.
Accordingly, Vanda chose to push VPO-227 initially for cholera. As an acute diarrheal disease, cholera is caused by intestinal infection with the bacterial coined vibrio cholerae. Notably, people often get cholera from drinking contaminated water or eating adulterated food. Though only 10% of patients show symptoms, they are quite sick due to complications of water/electrolyte losses. Treatment-wise, the mainstays are rehydration therapy along with antibiotics. With VPO-227's CFTR modulation capability, it can become an important answer for cholera.
As you can appreciate, the FDA seems to believe in the said assertion. On October 21, Vanda disclosed that the agency has granted an Orphan (i.e., Rare) Drug Designation (i.e., OTD) for VPO-227 in treating cholera. As such, Vanda would get assistance in the drug development process. They include tax credits for clinical costs and exemptions from certain FDA fees. There is a seven (instead of the usual six) years exclusivity after approval.
That aside, the OTD enables VPO-227 to get approximately $150K average annual reimbursement in the U.S. While some argue against the premium reimbursement, I believe it's prudent because it fosters innovation for these rare diseases. Given that the therapeutic innovation process takes roughly $1B for a drug to go from bench research to commercialization (in a nearly 10-year-long process), it's prudent to reward companies.
As cholera is an orphan condition in the U.S., its annual occurrence (by definition) is less than 200K cases. Nevertheless, the worldwide number is much larger. That is to say, there are 1.4M to 4M cases on the global scale. Of the 21K to 143K people who die from the disease annually, most are children younger than 5 years old.
Despite the larger occurrence worldwide, you can project that VPO-227 (if approved and launched in the future) won't generate substantial sales outside the USA due to the low reimbursement. Nevertheless, the potential launch in the U.S. in the future should absorb that cost to ensure a healthy margin. Beyond the money, this drug is lifesaving.
Recent OliPas Deal
As you recall, there is another early-stage catalyst in the recent month. Precisely speaking, Vanda entered into a research/development partnership deal with OliPas back on September 29. The partnership will jointly advance a set of "antisense oligonucleotide molecules" (i.e., ASO) using OliPass' proprietary peptide nucleic acids ("OPNA"). I noted in the prior article ,
Essentially, they are set to develop ASO drugs for diseases where there are "altered gene-expression." As such, they would edit/modify the gene expression of those conditions to ameliorate the disease... Here, Vanda/OliPass is harnessing the power of the positively-charged molecule OPNA to improve the penetration and binding to nucleic acids (i.e., DNA/RNA). Notably, all that is designed to improve the diseases outcomes. As a testament to their potential, their OPNAs already demonstrated therapeutic efficacy in animal models at very low dosage (i.e., 10 ng/kg).
Other Growth Catalysts
Aside from the long-term growth, Vanda is focusing on increasing product sales in the short/intermediate terms. Specifically, the company is boosting revenue by increasing reimbursement and product penetration into additional markets. Therefore, you can anticipate more label expansion for the lead medicine Hetlioz for DSPD. Consequently, that would substantially move the sales needle. As I shared in the prior article,
Similarly, the label expansions of Fanapt for Bipolar I and its long-acting formulation would gap up revenues. Furthermore, the upcoming approval of tradipitant for gastroparesis would significantly increase sales results. Given that all these programs are in their advanced-stages, you don't have to wait as long as the OliPass partnership.
Figure 4: Upcoming catalysts (Source: Vanda )
Financial Assessment
Just as you would get an annual physical for your well-being, it's important to check the financial health of your stock. For instance, your health is affected by "blood flow" as your stock's viability is dependent on the "cash flow." With that in mind, I'll dig deeper into the 2Q2022 earnings report for the period that concluded on June 30. Given that you also saw a detailed analysis in the prior article , we'll briefly go over the pertinent findings here.
Accordingly, Vanda procured $64.3M in revenues compared to $67.9M for the same period a year prior. That aside, the research and development (R&D) for the respective periods registered at $21.4M and $20.2M. Additionally, there were $2.5M ($0.05 per share) net income compared to $9.6M ($0.17 per share) net gains for the same comparison. Regarding the balance sheet, there were $440.9M in cash, equivalents, and investments. Against the modest $60.9M quarterly OpEx and on top of the $64.3M quarterly revenue, there is no concern about the cash runway.
Figure 5: Key financials
Potential Risks
Since investment research is an imperfect science, there are always risks associated with your stock regardless of its fundamental strengths. More importantly, the risks are "growth-cycle dependent." Asides from the risks that the OliPass partnership might not bear fruits, I previously wrote ,
At this point in its life cycle, the biggest concern for Vanda is whether the company can continue to ramp up sales for Hetlioz and Fanapt. There is a risk that the company won't be able to fix the reimbursement issues. The ongoing legal battles might incur higher costs and thereby cut into the net profits. That aside, there is a high risk that tradipitant won't gain FDA approval for gastroparesis on its first round to the FDA. In such a situation, Vanda shares are likely to tumble by 30% and vice versa. [Another risk is that VPO-227's development might flop].
Conclusion
In all, I maintain my buy recommendation on Vanda Pharmaceuticals with the 4.8/5 stars rating. As Hetlioz and Fanapt sales are plateauing, Vanda is ramping growth on both long-term and short/medium-term catalysts. In the immediate horizon, the company is embarking on various initiatives to boost reimbursement and thereby sales growth. As to the long haul, Vanda recently fostered a partnership with OliPas for OSA-molecules development. Moreover, the company is advancing VPO-227 for cholera.
That aside, there is a Phase 3 study for Fanapt label expansion for Bipolar is poised that is poised to post results by yearend. At the same time, you can anticipate the Phase 2 study of VQW-765 for anxiety to release data soon. Additionally, the company is still pursuing approval of Hetlio for jet lag . Furthermore, you can expect the tradipitant NDA to be filed for gastroparesis in the coming months.
For further details see:
Vanda: VPO-227 Advancement Signals More Upsides