Vanda Pharma: Trading Below Cash With Upcoming Catalysts Expected 2H12

| About: Vanda Pharmaceuticals (VNDA)

Vanda Pharmaceuticals (NASDAQ:VNDA) is focused on the development of treatments for central nervous system (NYSE:CNS) disorders with a summary of the Company's clinical pipeline and marketed drug summarized below.

1.) FANAPT (iloperidone) (atypical anti-psychotic agent) (oral tablets and long-acting one-month injectable depot formulations) is currently awaiting a regulatory decision in Europe and is being evaluated in ongoing Phase 1/2 (pharmacodynamics / pharmacokinetics or PK / PD study of injectable depot formulation) and a Phase 3 (REPRIEVE study for oral tablet formulation) clinical trials being conducted by US partner Novartis (NYSE:NVS).

FANAPT has an EU approval decision that is expected to occur during 2H12 following the Company's reply to the 120-day list of questions in late 2Q12. FANAPT is partnered with Novartis in the US and Canada-receiving FDA approval in May 2009 for the treatment of adults with schizophrenia. In addition, Novartis is developing a long-acting injectable depot formulation of the drug with P1/2 (PD / PK study) results expected 2H12 ( ID NCT01348100) to support the start of a planned pivotal Phase 3 clinical trial in 2013. Also, Novartis is conducting a Phase 3 clinical trial (NCT01291511) for the FDA approved oral tablet formulation to prevent schizophrenia relapse with results expected in late 2014.

2.) Tasimelteon (20 mg oral once-daily capsules) (VEC-162) is the Company's late-stage product candidate that is classified as a Melatonin or MT1 and MT2 agonist that acts as a circadian rhythm regulator and is currently being evaluated in both Pivotal Phase 3 (SET and RESET) and Phase 2b / 3 (MAGELLAN) clinical trials.

Vanda expects to report results from two ongoing pivotal Phase 3 efficacy clinical trials ( IDs NCT01163032 and NCT01218789) by year-end 2012 to support a planned NDA filing mid-2013. Tasimelteon is being developed for Non-24-Hour Sleep / Wake disorder to reset body clock and restore normal sleep cycles with FDA Orphan Drug status for this indication with an estimated prevalence of 65-95,000 individuals (primary blind subjects with no light perception) in the US and an estimated global commercial market of $500 million (NYSE:M) as an unmet medical need with no approved drugs.

In January, Vanda reported initial clinical data from the Phase 3 RESET study which demonstrated the potential of the drug to reset the body clock and restore normal sleep / wake cycles. In addition, if successfully developed for the Orphan Drug indication, the drug may also have the potential to treat other circadian rhythm sleep disorders (CRSDs) such as jet lag and shift work disorder. In September 2011, Vanda began a Phase 2b / 3 clinical trial ( ID NCT01428661) vs. placebo in adults with depression that has top-line results expected during 1H13, and the study will also include a planned 52-week open-label extension phase at the conclusion of the randomized portion of the trial.

Vanda has $265M in potential remaining development and sales-based milestone payments from US/Canada FANAPT marketing partner $NVS which is also responsible for further development of the drug, including the ongoing clinical trials outlined above for the long-acting injectable depot and oral tablets. The oral tablets have patent protection in the US through mid-2017 and 10 years from the time of anticipated EU approval while the long-acting injectable depot has patent protection for about 10 years. Tasimelteon has expected US marketing exclusivity through 2022 in the US and for 10 years from the time of potential approval in Europe.

Below is a summary of the financial highlights for Vanda.

- As of 3/31/12, Vanda reported approximately $157M in cash / investments, no debt and 28.2M shares of common stock outstanding (about 67% of shares are owned by institutional investors), which equates to over $5.50/share in cash.

- Vanda reported 1Q12 total revenue of $8.1M including FANAPT royalties from Novartis of $1.5M vs. $0.9M in the year-ago period.

- FANAPT 1Q12 sales were $15.4M with 35,000 prescriptions written (an increase of 39% over 1Q11 script volume).

- Vanda has an expected cash burn rate of $45-50M during 2012, primarily reflecting the increased costs of the late-stage clinical trials for Tasimelteon.

Vanda represents a unique situation in small-cap biopharmaceutical stocks that is trading below cash along with an approved product that is marketed by a big pharma partner with additional catalysts in the form of late-stage clinical trial results and an EU approval decision expected later this year. In addition, the Company has retained full global rights to Tasimelteon and ex-US/Canada rights to both the oral and injectable formulations of FANAPT, providing potential catalysts in the form of partnerships.

While FANAPT is by no means a blockbuster drug continued growth in prescription volume and royalties to Vanda will help reduce the Company's cash burn rate and fund other R&D initiatives. It is also encouraging that Novartis has devoted additional resources to further the development of the drug, including an ongoing Phase 3 clinical trial and the development of a long-term injectable depot formulation that is expected to enter testing in a single pivotal study next year to support an FDA approval filing.

The Company's strong balance sheet provides about three years of liquidity based on the cash burn rate for this year; however this alone is not likely to trigger a major rally in shares of Vanda. Success in the pivotal study for Tasimelteon, new long-acting injectable formulation and continued growth in Fanapt sales including EU approval / partnership will be the major growth catalysts to watch for Vanda.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.