Fanapt Sales Growth Highlights Vanda, Titan Pharmaceuticals as Acquisition Candidates

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

It's always a significant event for both Vanda (NASDAQ:VNDA) and Titan Pharmaceuticals (NASDAQ:TTNP) when Novartis (NYSE:NVS) announces its quarterly earnings, since Novartis is the big-pharma commercial partner who is marketing Vanda's schizophrenia drug, Fanapt. Titan, through a long-existing licensing agreement for Fanapt, also receives an 8% cut of sales.

Novartis released its first quarter earnings numbers this week, and in the report it was revealed that Fanapt sales totalled nine million dollars for the opening quarter of 2011.

Although down significantly from the twenty one million number of Q1 2010, nine million dollars in sales is eighty percent higher than the fourth quarter of 2010; that's quite a noteworthy demonstration of growth on a quarter-over-quarter basis.

Fanapt's commercial launch also took place during the first quarter of last year, so the inflated number was mainly due to pharmacies stocking the shelves. This year's numbers more accurately reflect the actual prescription growth.

While the initial sales projections for Fanapt were slow to take hold in a market that is estimated to be worth more than ten billion dollars per year, it's looking like the Novartis pharmaceutical influence finally has new prescriptions gaining momentum.

The encouraging sales numbers, while insignificant to a big player like Novartis, mean a whole lot more to both Vanda and Titan.

Vanda now has the firm backing of Novartis to move forward with a depot version of Fanapt, for which the company just announced the initiation of a Phase I trial.

The longer-lasting injection should be looked at as a step forward for the development of the Fanapt treatment, since patients will gain the stability of not having to take the medication orally on daily basis.

For Titan, the nine million dollar number means that a check to the tune of over $700,000 is going to be in the mail pretty soon. For a company still developing its pipeline, that is a significant amount of money. With Probuphine Phase III results expected to be announced during the near term, the influx of free cash (Titan expends nothing to receive this royalty revenue) only strengthens Titan's value in the eyes of a potential partner.

Titan did forego 2.5% of the Fanapt royalty in a recent financing deal, but it's unlikely that the deal would be applied retroactive to the first quarter.

The sales growth of Fanapt could be the icing on the cake for any potential acquirer of either Vanda or Titan, as I believe that both companies are buyout candidates.

Fanapt's sales growth boosts the potential of the depot formulation for the future and Vanda also has a sleep-aid drug in the later stages of development.

Titan, on the other hand, in my opinion offers the better value to a potential buyer. The late-stage status of Probuphine could provide market moving moments for TTNP over the short term, and the significant long term potential of the ProNeura drug delivery technology is only just being tapped.

It's a merger and acquisition mood in the sector right now, and now that it's all but a given that Vanda has some fairly significant revenue potential, one or both of these companies could go before year's end.

Add TTNP.OB and VNDA to the list of buyout candidates such as AMRN and HGSI, although unlike the other two, Titan and Vanda are still trading at prices where a significant premium could be offered.

Vanda shares traded flat on the Fanapt news, but shares of Titan closed Wednesday up by four percent on heavy volume.

Disclosure: I am long TTNP.