Eye on Vanda Pharmaceuticals

Jan.19.07 | About: Vanda Pharmaceuticals (VNDA)

Pharmacogenomics is the study of how an individual's genetic inheritance affects the body's response to drugs, and holds the promise that drugs might one day be tailor-made for individuals and adapted to each person's own genetic makeup. Environment, diet, age, lifestyle, and state of health all can influence a person's response to medicines, but understanding an individual's genetic makeup is thought to be the key to creating personalized drugs with greater efficacy and safety. One Company working in this area is Vanda Pharmaceuticals (NASDAQ:VNDA).

Vanda was founded in 2003 by an executive who ran the Novartis (NYSE:NVS) global Pharmacogenetics department, one of the industry leaders. The Company strategy is built on the premise that a given drug will not just affect the target/receptor for which it was initially developed, but will interact with many systems within the body, or will affect different people differently. Vanda knows that most drugs have side effects. These typically result from a drug's interaction not just with its intended target, but also with targets either within the organ of interest or totally remote from the intended organ or site.

Vanda's lead product candidate, iloperidone, is a compound for the treatment of schizophrenia and bipolar disorder and is in a Phase III clinical trial. Vanda's second product candidate, VEC-162, is a compound for the treatment of insomnia and depression and is currently in a Phase III clinical trial. Vanda's third product candidate, VSF-173, is a compound for the treatment of excessive sleepiness and is ready for a Phase II clinical trial.

The company went public in April 2006 at a price of $10. The stock is currently nearing $30.

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Investment Thesis

Vanda uses a new approach to drug development which takes advantage of the large increase in pharmacogenomic information in the past ten years. The Company has does no drug discovery and only considers licensing compounds which candidates which have already tested in Phase I clinical trials, thus reducing the risk of candidates with a poor safety profile. The therapeutic markets involved are huge. The first areas in later stage trials are schizophrenia and sleep disorders. Schizophrenia affects more than 2.2 million people in the US. There are a number of drugs on the market, most have medium to severe side affects. J and J and Eli Lilly are the big players in this therapeutic arena. Patient compliance is one of the issues in the treatment of this disease and the longer acting medications are preferred a possible disadvantage of ANDA's drug. Positive Phase III results have already been obtained for compounds in both these areas, a significant hurdle in drug development. An FDA filing is expected in late 2007.

Vanda has very experienced management in pharmacogenomics drug development and the Company has strong IP. It is not a one compound company as mentioned above, with a good second compound for insomnia. These candidate drugs could be approved and on the market in 2008/2009 resulting in a potential valuation of well over $2billion by end of 2008 or four times its current valuation; that is if the company is not acquired before then. According to recent reports SAC Capital Advisors, LLC now owns over 6% of VNDA. This holding has been acquired since the end of the third quarter. We expect interesting things from this stock in 2007.

Disclosure: Author has no position in VNDA.