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Vanda Pharmaceuticals (VNDA): Tomorrow's Headline Stock

|Includes: AZN, BMY, GSK, JNJ, LLY, PFE, Vanda Pharmaceuticals Inc. (VNDA)

 After the close the FDA announced the approval of Vanda (NASDAQ:VNDA) Fanapt, an anti psychotic drug for treatment of schizophrenia, sending share 800% higher in after hours trading, from $1 to $9.70.

Vanda (VNDA) shares were trading at 0.68x cash value, and I wish I had known the PDUFA data was 5/6 because the opportunity was glaring.

This is a potential giant market for Vanda if it can steal market share, and also makes Vanda a likely takeover target for a large Pharma. At more than a $15 billion market in 2007 and growing faster than many other markets, if Vanda can steal just 10% of this market, it makes for $1.5 billion in sales, and with 26.7 million shares outstanding, Vanda would price around $56, $28 if it takes just 5% of sales.  

By 2012, 4 of the top 6 drugs lose patents, making room for generic competition, although if Vanda's drug can show less side effects, we could see it dominate the market.

Vanda is not a one hit wonder, and has Tasimelteon in the pipeline for the treatment of sleep disorders.  Vanda has 5 Analysts covering it and I expect a multitude of upgrades to come.  Shares were at $32.50 in early 2007 and I see no reason why shares cannot return to that level.  Tang Capital recently called for liquidation of the company, and it will be interesting to see how that shakes out, as Tang can probably find a buyer for the firm now with a much higher value on a potential discounted cash flow basis.

You can also short some of the other names in sympathy, especially JNJ which is having issues with the FDA and its drug. Schering Plough (SGP) also has a drug in the pipeline, Saphris, and could see selling.

View of the market:


Disclosure: I own VNDA Shares