Vectoring Back In On Vanda Pharmaceuticals

Summary

• Today we revisit a small biopharma play called Vanda Pharmaceuticals for the first time in many years.
• The company is achieving good sales growth from its two primary products and has other potential candidates in its pipeline.
• A full investment analysis follows in the paragraphs below.
• I do much more than just articles at The Biotech Forum: Members get access to model portfolios, regular updates, a chat room, and more. Learn More »

Photo by sanjeri/E+ via Getty Images

"If you are out to describe the truth, leave elegance to the tailor."― Ludwig Boltzmann

Today we are going to revisit Vanda Pharmaceuticals (NASDAQ:VNDA) for the first time in just over three years. When we last looked at Vanda in December of 2018, we thought the shares were a bit pricey in the mid $20s. That turned out to be a good call as the shares have drifted down some 40% since then. However, a lot can change in over that time span. Given that, it is time to reassess Vanda. A full analysis follows below.

Source: TradingView

Company Overview:

Vanda Pharmaceuticals is located in Washington, D.C. The company is focused on the development and commercialization of therapies to address high unmet medical needs and has several products already on the market. The stock currently trades just south of $16.00 a share and sports an approximate market capitalization of $825 million.

The company has two primary products on the market. The first is HETLIOZ which is approved for the treatment of non-24-hour sleep-wake disorders. The other product is called Fanapt for the treatment of schizophrenia. Total net product sales from HETLIOZ and Fanapt combined were $248.2 million for FY2020. Despite the impacts of the pandemic, that was up 9% over net sales in FY2019. The company is guiding towards a range of $270 million to $300 million in FY2020 currently. This projects an approximate 15% rise in net sales this year in the mid-point of this range. HETLIOZ should contribute approximately two thirds of overall net sales.

Late last year the FDA approved HETLIOZ for the treatment of nighttime sleep disturbances in Smith-Magenis Syndrome or SMS for adults and children. HETLIOZ is the first FDA approved medication for patients with SMS and Vanda is targeting some 15,000 SMS afflicted individuals in the United States.

Source: Company Website

The company also has several potential pipeline products in development. The most important potential new product is called tradipitant. Vanda is advancing this compound in a Phase III study for the treatment of both diabetic and idiopathic gastroparesis. The company expects to have this trial to be fully enrolled by the end of the first half of this year with results and NDA submission for tradipitant to treat gastroparesis done by the end of this year. FDA approval could follow in the second half of next year.

Source: Company Presentation

The estimated prevalence of gastroparesis in the U.S. is over 5 million patients, most of which remain undiagnosed. Females make up approximately 80% of the gastroparesis cases. The only approved product on the market for this affliction is Metoclopramide, which garnered FDA approval back when Jimmy Carter was in White House. This product has a black-box warning and has significant limitations. Still, there are some three million prescriptions annually in the U.S. for Metoclopramide.

Phase 3 development of tradipitant for motion sickness remain on pause at the moment. A study evaluating tradipitant to treat severally ill COVID-19 pneumonia patients is ongoing and interim results should be released sometime this summer. Fanapt and HETLIOZ are being develop for other indications which can be seen in the previous pipeline chart.

Analyst Commentary & Balance Sheet:

Over the past year, I can find only two analyst firms that have chimed in on Vanda Pharmaceuticals. On February 11th, right after the company fourth quarter results, Citigroup maintained its Neutral rating but did lift its price target from $14 to $18 a share. Here is the commentary from Citi's analyst at the time.

The most notable takeaway from earnings is new financial guidance for 2021, which includes guidance for year-end cash of greater than $400 million. The analyst believes this suggests a "meaningful commitment to keep opex controlled during 2021." The analyst also increased the probability of approval of tradipitant for gastroparesis to 30% from 10%."

Five days later, Jefferies reissued its Buy rating and raised its price target from $18 to $24 a share. Here is their analyst's view on tradipitant.

Instead of opting to run the long-term animal study, the Co will likely (at least initially) receive an abbreviated, but still clinically acceptable, Tx window on its label (12-week Tx). It will supplement its safety profile through its expanded access program (data which it plans to submit along with its NDA). Our view is that weakness resulting from this uncertainty is overdone and LT implications of its decision are likely to be negligible. Tradipitant has a substantial safety record, a safe MoA, and could still gain approval w/ a successful Ph3. Existing options for gastroparesis are few and often ineffective. New entrants to the market have received positive feedback (Gimoti; intranasal version of generic SOC) but still have serious side effects that limit use (tardive dyskinesia). Our view is that adoption for T will be strong regardless of the Tx window described on the label."

Insiders don't seem that sanguine on Vanda's prospects based on multiple insiders selling just over $5 million of their shares in March. The last insider buying in this name was all the way back in 2015.

The company ended FY2020 with just over $365 million in cash and marketable securities on the balance sheet and leadership guided they currently expect to end FY2021 with just over $400 million in cash.

Verdict:

When we last looked at Vanda, the stock was selling significantly higher. Annual net sales were running at an approximate $190 million pace and its cash on hand was around $240 million. The company should do approximately $100 million more in net sales in FY2021 and end the year with $160 million more in cash than it possessed in late 2018.

Vanda seems like a solid bargain at current prices. I will be opening up a starter position in VNDA in the coming week. Most likely via covered call orders as this is not a 'home run' stock and option premiums seem solid on this name.

"A common man marvels at uncommon things. A wise man marvels at the commonplace."― Confucius

Bret Jensen is the Founder of and authors articles for the Biotech Forum, Busted IPO Forum, and Insiders Forum

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in VNDA over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.