Vanda Pharmaceuticals: A Biotech Stock Worth Watching

May.27.09 | About: Vanda Pharmaceuticals (VNDA)

During Tuesday's broad market rally, the action of a few stocks caught my attention and are worth watching for at least the rest of the week.

Vanda Pharmaceuticals (NASDAQ:VNDA):

Vanda Pharmaceuticals, producer of the schizophrenia drug Fanapt that was recently approved in the US by the Food and Drug Administration, received a positive analysis and a $20 'fair value' price target from the investment website Morningstar.

The Fanapt approval sparked a major rally in the Vanda stock from right around one dollar, where it traded before the surprise approval, to close above thirteen bucks on Tuesday. A year earlier the FDA had refused to approve Fanapt, then known as Iloperidone, until more data on the drug became available.

Morningstar also indicated that they believe, since the antipsychotic market is a fluid one, that Fanapt will eventually become a billion dollar drug before patent expiration in 2016. The worst selling drug in that market is Pfizer's (NYSE:PFE) Geodon, which rakes in $1 billion annually.

With the positive momentum already rolling with the Vanda stock, a $20 price target was not a risky bet on Morningstar's part, and after some consolidation in the current trading range, VNDA should march upwards towards that mark. Should first year sales exceed initial expectations, a price higher than that $20 mark is highly possible.

Vanda is set to launch the product by fourth quarter this year.

VNDA is worth watching right now because the company has received a lot of press lately, and in the trading volatility, any drop to ten dollars would make for a terrific buying opportunity.

Don't expect as quick a ride to twenty, however, as was the ride to ten.

Disclosure: VFC has no shares of VNDA.