Vanda Pharmaceuticals (NASDAQ: VNDA)

March 6, 2009 · 4 Comments

Vanda Pharmaceuticals Inc. (NASDAQ: VNDA) has been added to our ValueHuntr portfolio. According to the latest SEC disclosure, the company had $47.7M in current assets and total liabilities of $3.9M as of December 31, 2008. This means that with a net asset value of $43.8M ($1.64/share) and a market capitalization of $21.4M ($0.80/share) the company is currently trading at a 50% discount to its net asset value.

 

About VNDA

 

VNDA is a biopharmaceutical company focused on the development and commercialization of clinical-stage drug candidates for central nervous system disorders, with exclusive worldwide commercial rights to three product candidates in clinical development. The Company’s product portfolio includes Fiapta (iloperidone), a compound for the treatment of schizophrenia and bipolar disorder; VEC-162, a compound for the treatment of sleep and mood disorders, and VSF-173, a compound for the treatment of excessive sleepiness.

 

Valuation

 

VNDA and its management have not produced any revenues for shareholders since its founding in 2003. For over 5 quarters, the company has been burning cash at an average rate of $45M per year ($11M per quarter).

 

Cash & Cash Equivalents

Cash Equivalents & Short-Term Investments

 

The company is awaiting the FDA’s decision in May 6, 2009, regarding iloperidone, its schizophrenia drug candidate. However, the company’s first try was rejected with the FDA last July. Taking the conservative approach that another FDA rejection is in the horizon, the company will likely run out of cash by the end of 2009. Even assuming FDA approval, it would take years for shareholder to realize this value. Therefore, we believe the company is worth more dead than alive, and that its assets are best valued at how they would sell at a possible liquidation rather than how they are currently carried on the company’s books.

 

liq-val

VNDA's balance sheet

Catalyst

 

On February 13, 2009, shareholder Kevin Tang, Managing Director of Tang Capital Partners LP, filed an amended proxy material urging VNDA’s board to immediately cease operations. The filing states the following:

The stockholders of the Company hereby request that the Board of Directors of the Company promptly take all necessary action to swiftly and orderly liquidate the Company’s remaining assets and return all remaining capital to the Company’s stockholders

Keving Tang disclosed his 15% stake in VNDA along with his associates in the amended 13D notice. Mr. Tang has said he plans to nominate two members to the company’s board. The 13D notice discloses in the Election of Directors Proposal that Kevin Tang himself will be one of the board nominees, along with Andrew D. Levin, a principal at Tang Capital Management, LLC.

Through the filing, TCP has also proposed that the annual stockholders meeting be conducted on April 30, 2009, a week before the FDA’s May 6 response regarding VNDA’s iloperidone drug.

 

The company has responded as follows:

 

The Company believes that, even in the absence of an approval by the FDA for iloperidone, there remains significant unrealized value in the Company’s other compounds. Therefore, the Company does not believe that liquidation is currently in the best interests of the Company or its stockholders and intends to oppose TCP’s proposal to liquidate the Company

 

Conclusion

 

At its $0.80 close yesterday, VNDA is trading at approximately half our estimate of its value in liquidation.  Unfortunately, management has not taken the right steps to increase shareholder value over the years. Given that it has no current sources of revenues and that it has continued operating with negative operating cash flow and earnings, we think shareholders will vote in favor of Kevin Tang’s proposals. We believe that the probability of liquidation before this year’s end is high, even in the case of FDA approval.  Due to its high probability of realization and its steep discount to liquidation value, we are adding VNDA to the ValueHuntr portfolio.

 

 

[Full Disclosure:  We do not have a holding in VNDA. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]
 
 
 
 
 
 
 

 

Categories: Activist · Liquidation · Special Situations
Tagged: Activist, Kevin Tang, Liquidation, Net Cash, Net Net, Special Situations, tang capital, tang partners, Undervalued, Vanda Pharmaceuticals

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