After the Earnings, What's in the Works For Vanda?

Includes: NVS, TTNP, VNDA
by: VFC's Stock House

Vanda Pharmaceuticals (NASDAQ:VNDA) reported earnings last week, and after it was announced that the company had realized a profit for the 4Q 2010, shares moved higher by 10% on Thursday before moving up another three percent on Friday.

The quarterly profit came as a surprise to many as the general consensus had Vanda banking another quarterly loss, with lackluster Fanapt sales being the main culprit. That said, most of the reported $7.3 million revenue came as a result of a Novartis (NYSE:NVS) payment relating to the Fanapt licensing deal, with only just over $500,000 of it coming in from Fanapt royalties.

Additionally, the quarterly profit is more the result of lowered costs than increasing Fanapt sales, so optimism relating to the recent Vanda headlines should be somewhat tempered.

There was good news, however, for Fanapt. Monthly prescriptions increased by 2,000 through the fourth quarter, demonstrating a consistent solid trend of growth, although the sales numbers are still not at levels forecast by the company and analysts.

One item not discussed in the quarterly report is what Vanda intends to do with the money raised from the recently announced shelf offering. The shelf will bring in up to $50 million, but considering that the company is already sitting on nearly $200 million in cash, why the need for the additional shelf?

According to the press release announcing the offering, Vanda will be better positioned and have "greater flexibility to take advantage of acquisition, financing and other business opportunities when and if such opportunities arise."

The mention of a possible acquisition has led to speculation that Vanda may decide to use that route to boost its pipeline. Aside from Fanapt, from which Vanda only collects a royalty of sales until the products get going internationally, there's only the sleep aid Tasimelteon in the pipeline, and many have already labeled it as a "me, too" product.

There's no doubt that Vanda needs a pipeline.

Some speculation has it that Vanda is eyeing Titan Pharmaceuticals (NASDAQ:TTNP). Through a previously existing licensing agreement, Titan rakes in 8% of Fanapt royalties itself - there is the connection - and also has Probuphine, a treatment for opioid addiction (also being tested for pain), nearly completed with late stage trials.

That move could kill two birds with one stone for Vanda, increase revenues generated from Fanapt sales and also boost the pipeline with a late stage product and a potentially lucrative drug delivery technology in ProNeura.

It's questionable, however, whether Vanda could afford Titan with just the cash alone.

Vanda's positive quarterly announcement demonstrates that the company is on the right track, with Fanapt sales increasing at a steady pace. The shelf offering also brings with it enough speculation to keep investors interested until the next report.

Also of note, VNDA rated an upgrade to "accumulate" from "neutral" by Madison Williams and also tagged the stock with a "hold" from a "sel"' following the quarterly release. TheStreet's rating is particularly noteworthy since VNDA has not been held in a positive light from that organization for some time.

In additional analyst coverage, Jefferies & Company maintained its "buy" rating on the stock, but lowered its price target to $10 from $11.

With the positive developments surrounding Vanda, and with the possibility of further news on the way, this could be the time to buy.

What Vanda needs to take a step up to the next level, however, is a pipeline.

Disclosure: I am long TTNP.OB.

Additional disclosure: No position VNDA