Entries categorized as ‘Activist’

VNDA Surges on FDA Approval; ValueHuntr Closes Position

May 7, 2009 · Leave a Comment

Bookmark and Share

Shares of Vanda Pharmaceuticals Inc. skyrocketed today after the company said the FDA approved its schizophrenia drug Fanapt. Vanda plans to begin shipping the drug to pharmacies later this year. The news sent Vanda shares surging nearly tenfold to $10.00 from $1.08. We purchased the stock at $0.80/share, which translates into a whopping 1150% gain, the best individual gain we have had so far.

VNDA was the very first addition to the ValueHuntr Portfolio. As we discussed in our March 6, 2009 article, our investment in VNDA was a rare win-win scenario because the company, trading below net-cash at the time of our purchase, would have likely been liquidated had the FDA not approved its Fanapt product, which would have resulted in a 100% gain at liquidation.

Fanapt, or iloperidone, was more effective than a sugar pill in controlling symptoms of schizophrenia in clinical testing. The drug is an atypical antipsychotic, a group of relatively new drugs. Other drugs in the group include risperidone, which Johnson & Johnson markets as Risperdal, and Eli Lilly & Co.’s Zyprexa.

Approval for the drug was delayed in July because the Food and Drug Administration concluded Fanapt was too similar to drugs already on the market. The agency also required more testing at the time. The most common side effects for Fanapt in clinical testing were dizziness, dry mouth, fatigue, nasal congestion, sleepiness, low blood pressure, rapid heartbeat, and mild weight gain.

Tang Capital Partners, LP (“TCP”) has ended its proxy contest by withdrawing its nominations of director candidates for election to Vanda’s Board of Directors and its stockholder proposal to liquidate the Company. TCP had previously notified the Company of its intention to solicit proxies for the election of two of its candidates to the Vanda Board at the Company’s 2009 Annual Meeting and for its proposal that the Board take action to liquidate the Company.

Kevin Tang, the managing director of the general partner of TCP, notified Vanda of TCP’s intention not to pursue a proxy contest on May 6, 2009 in an email to Vanda’s Chief Executive Officer, Mihael H. Polymeropoulos, M.D. and Chairman of the Board, Argeris N. Karabelas, Ph.D.

Categories: Activist · Activist Investing · Update · Value Investing
Tagged: Kevin Tang, Vanda Pharmaceuticals, VNDA

Vanda Pharmaceuticals Reports Q1 2009 Results

April 29, 2009 · Leave a Comment

Bookmark and Share

VNDA reported a net loss of $6.5 million for the first quarter of 2009, compared to $7.5 million for the fourth quarter of 2008. Total expenses for the first quarter of 2009 were $6.6 million, compared to $7.7 million for the fourth quarter of 2008. Research and development (R&D) expenses for the first quarter of 2009 were $2.3 million, compared to $3.6 million for the fourth quarter of 2008. The decrease in R&D expenses in the first quarter of 2009 relative to the fourth quarter of 2008 is primarily due to the decrease in regulatory consulting and other professional fees.

As of March 31, 2009, Vanda’s cash, cash equivalents, and marketable securities totaled approximately $42.6 million. As of March 31, 2009, a total of approximately 26.7 million shares of Vanda common stock were outstanding. Net loss per common share for the first quarter of 2009 was $0.24, compared to $0.28 for the fourth quarter of 2008.

OPERATIONAL HIGHLIGHTS

On November 6, 2008, Vanda submitted a Complete Response to the not approvable action letter that the Company received from the U.S. Food and Drug Administration (FDA) on July 25, 2008 regarding iloperidone. The FDA accepted the Complete Response for review and has set a new target action date of May 6, 2009. Pending a response from the FDA, Vanda is concentrating its efforts on the design and evaluation of clinical development options for tasimelteon, its compound for sleep and mood disorders, including Circadian Rhythm Sleep Disorders.

UPDATED VALUATION

On February 13, 2009, shareholder Kevin Tang, Managing Director of Tang Capital Partners LP, sent a letter VNDA’s board urging them to immediately cease operations and return all remaining cash to shareholders. Kevin Tang disclosed his 15% stake in VNDA along with his associates in an amended 13D notice. Mr. Tang has said he plans to nominate two members to the company’s board and seeks to replace the company’s CEO. If Tang’s attempt to liquidate the company is successful, shareholders would receive nearly $1.42/share cash return, a potential 40% gain relative to VNDA’s current market price of nearly $1/share.

 

Cash & Cash Equivalents: $42.6M

Total Liabilities: $3.9M

—————————————————————————

Liquidation Value, excluding PPE: $38.7M ($1.42/share)

Current Market Price: $26.2M ($0.98/share)

 

 

 

Disclosure: We do not have an actual position in VNDA.

Categories: Activist · Net Cash · Special Situations · Update · Value Investing
Tagged: Kevin Tang, Liquidation, Net Cash, Update, Vanda Pharmaceuticals, VNDA

New SEC Rules Favor Activist Investors

April 24, 2009 · Leave a Comment

 Bookmark and Share

 An article in today’s Wall Street Journal explores how activist investors will benefit from a change in SEC rules banning brokers to vote on their client’s shares. According to the article, brokers have typically voted in favor of standing management and board members thanks to the rule put in place in 1937. A ban to this practice would give activist investors more power by eliminating these management-friendly votes and would allow them to get closer to a majority.

Source: Change to Win, a labor group that opposes Mr.Lewis's re-election

Source: Wall Street Journal

 

 

SEC Plans to End Broker Vote Rule, in Win for Activists

By KARA SCANNELL and DAN FITZPATRICK

In a major win for activist investors, the Securities and Exchange Commission plans to toss out decades-old rules in a move that will give activists significantly more power to determine who sits on corporate boards.

The rule change centers on a technical issue: Whether brokers are allowed to vote on their clients’ behalf in director elections. Since 1937, the brokers have been able to vote their clients’ shares, and have typically voted in favor of standing managements and boards.

But starting in January, the SEC will change those standards, say people familiar with the matter. The SEC is expected to announce the rule change as early as next week, these people say. Brokers won’t be able to vote their clients’ shares. Since many small shareholders simply don’t vote, that will give more power to institutional and activist shareholders who do.

The change has long been sought by large shareholders and activists who want to make it easier to dump underperforming boards. They have been stymied, however, by the “broker vote” standards, which diluted their influence.

Investors such as Carl Icahn have long used proxy fights to put pressure on companies and their managements. By eliminating broker votes, they will have an easier time at winning the voting majority necessary to throw out board members. The changes will be most acute at companies with large mom-and-pop shareholder bases. The rule change won’t apply to instances where an activist runs a competing slate of directors.

This month’s fight over the fate of Bank of America Corp. Chief Executive and Chairman Kenneth Lewis provides a test case for how the changes might affect a board election. In standing for election, Mr. Lewis faces opposition from several large investors, including teachers pension fund TIAA-CREF. A separate proposal would require the bank to split the chairman and CEO roles, effectively stripping Mr. Lewis of at least one of his titles.

Change to Win, a coalition of labor unions opposed to Mr. Lewis’ re-election, predicts that 22% of votes scheduled to be cast at the bank’s shareholders meeting will be “broker votes,” based on trends established during the prior two years. If Mr. Lewis wins just over a third of the remaining votes at the meeting, he would be re-elected, according to the group’s analysis.

“Ken Lewis and other directors may only be elected as a result of the broker vote,” said Michael Garland, director of value strategies at Change to Win’s investment arm.

Mr. Lewis has defended his performance and told board members he intends to remain as CEO at least until the financial crisis is over. The bank has said it doesn’t believe a split of the top roles is the right move. It declined to comment for this article.

The move is the first of what is expected to be a series of changes under way at the SEC. The broker vote change was first proposed in 2006, but it languished under the previous SEC chief and was never finalized.

Reviving the broker vote proposal was one of SEC Chairman Mary Schapiro’s first moves since taking the helm in January. The issue was delegated to the SEC staff to approve and won’t require the five commissioners to weigh in. The SEC is expected to take up other issues to expand shareholders’ rights next month.

Several companies, including General Electric Co., Pfizer Inc., J.P. Morgan Chase & Co. and Exxon Mobil Corp., recently wrote letters to the SEC urging the agency to hold off on eliminating the broker vote rule change until the agency undertakes a broader review of proxy rules.

Some companies say eliminating broker votes will make it harder to establish a quorum at shareholder meetings and require costly efforts to encourage voter turnout. Investors call that a red herring.

Under current rules, investors must instruct their brokers on how to vote at least 10 days before the election.

If there are no instructions, brokers are entitled to vote however they wish on “routine” items. Generally brokers vote for management, on the theory that any shareholder who opposed the company’s position would give instructions. In the U.S., about 80% of investors’ stocks are held at brokerage accounts.

Until now, uncontested director elections have been considered “routine.” The SEC rule change is expected to say that such elections are no longer routine items and brokers can’t vote the stock either way without shareholder instructions.

“This is a huge victory for the investor community,” said Ann Yerger, executive director of the Council for Institutional Investors, a Washington organization that represents pension funds holding $3 trillion in assets.

 

 

 

 

 

Categories: Activist · Activist Investing · News
Tagged: Activist, SEC, Shareholder Rights

Facet Biotech Corporation (NASDAQ: FACT)

April 15, 2009 · 3 Comments

We are adding Facet Biotech Corporation to our ValueHuntr Portfolio. FACT is a company with a market cap of $239M ($9.72/share) with $295M ($12.00/share) of net-cash as of December 31, 2008. On December 18, 2008, Facet Biotech completed its spin-off from PDL BioPharma, Inc. (PDL). PDL capitalized Facet with $405 million in cash and cash equivalents and contributed to Facet its biotechnology operations and related assets, including four clinical-stage programs, research and development capabilities and protein engineering technology assets.  Our estimates indicate FACT is worth at least $14/share at liquidation, which means the company is currently trading at a substantial discount to its intrinsic value.

 

About

 

FACT is a biotechnology company focused on developing therapeutics for cancer and immunologic diseases. Its products include Daclizumab, Volociximab, Elotuzumab, PDL192, and PDL241. Daclizumab is a humanized monoclonal antibody, with a potential in a range of inflammatory diseases, including multiple sclerosis. It can be used as a maintenance therapy for organ transplant. Volociximab is a chimeric monoclonal antibody, with a potential in treating a range of solid tumors and its role in angiogenesis also aid in the treatment of age related macular degeneration (AMD). Elotuzumab is a humanized monoclonal antibody used to treat multiple myeloma. PDL192 is a humanized monoclonal antibody used to treat tumor indications including pancreatic, colon, lung, renal, breast, head, and neck cancers. PDL241 is a humanized monoclonal antibody, with a potential in immunologic diseases. In January, following the completion of a previously announced strategic business review, Facet announced that it would restructure to focus in the therapeutic area of oncology and significantly reduce its operating costs.

 

Valuation

 

On December 18, 2008, Facet Biotech completed its spin-off from PDL BioPharma, Inc. (PDL). PDL capitalized Facet with $405 million in cash and cash equivalents. However, the company is burning cash at a very rapid rate. The company anticipates cash utilization of approximately $95 to $100 million for 2009, which is a reduction from the $110 million previously announced in January of 2008. FACT management also anticipates 2009 total costs and expenses of $140 to $160 million, which includes $22 to $25 million of anticipated depreciation, amortization and stock-based compensation, as well as approximately $4 million in anticipated employee-related restructuring charges related to the company’s previously announced restructuring activities. We estimate that the company is worth at least $14/share at liquidation, which indicates a potential 46% gain at liquidation relative to the company’s current market price.

 

fact_balance 

 

Catalyst

In a conference call with Facet’s management on March 26, 2009, Roderick Wong expressed dissatisfaction over the company’s business plan and burn rate, and suggested dividend payment of up to $15 per share and sale of the remaining assets of the company. Additionally, Wong proposed the appointment of an alternate slate of five directors, including Wong himself, Philip R. Broenniman, Robert L. Chapman, Jr., David Gale, and Bradd Gold.  The five nominees collectively own 124,828 shares of Facet, or about 0.5% of the company, and would replace the entire 5-member board FACT currently has in place.

In an email to employees, Facet CEO Faheem Hasnain shared his views regarding Wong’s proposal and it is clear that he disagrees with Wong’s plans:

Dear Facet Team Members,

As you may have seen, a press release was issued by one of our stockholders yesterday. The stockholder proposed an alternate slate of directors for the Facet board, in advance of our annual stockholder’s meeting in May, and called for the company to issue a substantial cash dividend followed by a sale of the company.  Late last week, we also received a letter from this stockholder that included his alternate director slate.  We issued a press release earlier this morning indicating we had received the nomination notice.  It is our policy to listen to all of our stockholders and our Board is in the process of evaluating the notice. Although we thoughtfully evaluate stockholder input, we believe we are headed in the right direction strategically and do not believe these proposals are currently in the best interests of the company and our stockholders.

Given all that you have endured over the last couple of years, I realize that this information may be unsettling to many of you. But let me assure that we have a solid strategy in place — our goal for Facet is to build an oncology-focused biotech company that is committed to developing drugs to improve patient lives — and we have the support of our board of directors.  The most important thing we can do is to continue to focus on our day-to-day responsibilities while working to achieve our goals.

FACT responded to Roderick Wong with the following letter:

Dear Dr. Wong:

 

We are in receipt of your letter dated March 26, 2009 and the accompanying notice of your intent to nominate directors at our 2009 Annual Meeting of Stockholders.  We welcome the input of our stockholders, and our Board has considered the suggestions articulated in your letter and March 30, 2009 press release.

 

Our Board and management remain firmly committed to increasing the value of the Company to our stockholders.  To this end, our Board has regularly evaluated the Company’s business plan as well as strategic alternatives to create value for our stockholders since the Company’s spin-off less than four months ago.  In this regard, we note the following:

 

-          Facet has undergone a rigorous analysis of its strategy, both in connection with our recent spin-off and subsequently.

 

-          Our goal has been to focus on therapeutic areas that we believe hold the greatest opportunity for us to create meaningful value for our stockholders.  As a result of our continued review and analysis, we are focusing our efforts on oncology.

 

-          We believe our development programs and technology capabilities represent substantial potential value for our stockholders.  Indeed, our collaborations with Bristol-Myers Squibb and Biogen Idec on certain of our development programs validate the value of these programs.  We firmly believe that by continuing to advance these and other programs, as well as our proprietary protein engineering technology platform, we can enhance value for our stockholders.

 

-          Furthermore, in an effort to maintain strict financial discipline, we have aggressively lowered our cost structure.  In particular, as we recently announced, we have reduced our headcount and our overall anticipated cash utilization in 2009, thereby extending the time period for which we have funding.

 

We believe that our current Board, comprised of four independent directors and Faheem Hasnain, our President and Chief Executive Officer, and the management of the Company have a record of working to advance the interests of all stockholders, consistent with their fiduciary duty.

 

Based on our strategic review and ongoing analyses, the Board believes that our current strategic plan is the right plan to build value for our stockholders.  Since we are committed to considering all alternatives to creating value, we have reviewed your proposal for the liquidation of the Company.  We have, however, unanimously concluded that the interests of our stockholders are best served by continuing to focus on executing our current strategy.  Moreover, the Board believes that the assumptions stated in your March 30 press release with regard to the Company’s ability to distribute a significant cash dividend do not properly take into account, among other things, the Company’s significant lease and other obligations, which are detailed in the Company’s 2008 Annual Report on Form 10-K.  Further, we believe that in this current economic environment, your proposals would significantly impair the Company’s ability to realize appropriate value for its existing assets.

 

Accordingly, we do not believe that your suggestions are in the best interests of our stockholders.  We intend to maintain an open and active dialogue with our stockholders as we continue to work to enhance stockholder value.

 

Sincerely,

 

Brad Goodwin

Chairperson of the Board

 

Furthermore, Seth Klarman, managing director of The Baupost Group, nearly doubled his stake on the company from 2.7M to 4.4M shares following Wong’s proposal according to a 13D filed on April 8, 2009. Baupost is now 17.8% owner of FACT.

 

Disclosure:  The ValueHuntr portfolio does not represent an actual portfolio, and it is tracked for informational and educational purposes only. We do not have an actual holding in FACT. This is not a recommendation to either buy or sell any securities.

Categories: Activist · Activist Investing · Liquidation · Net Cash · Special Situations · Value Investing
Tagged: Activist, baupost group, facet biotech, FACT, roderick wong, seth klarman, shareholder activism, Value Investing

VNDA Update – Tang Capital Partners submits SEC proxy statement

April 7, 2009 · 1 Comment

Tang Capital Partners LP, a major VNDA shareholder, has officially nominated two directors to the company’s board and indicated that it will propose a shareholder resolution to liquidate the company at the annual meeting. We started following VNDA on March 6, 2009, when we estimated the company’s liquidation value to be nearly $1.64/share.

 

In order to appoint 2 directors to the board, no voting threshold needs to be reached, so Tang’s resolution can be approved simply by having more “for” votes than “against”. We expect Tang’s resolution to pass since the top 10 institutional investors alone account for nearly 47% of the company’s voting shares. Insiders hold approximately 37% of the voting shares.

 

vnda_owners

 

According to the regulatory filing, shareholder Kevin Tang, managing director of Tang Capital Partners LP, has a 15% stake in the company, and has nominated himself and Andrew Levin for election to VNDA’s board. In February, VNDA rejected calls by Kevin Tang to liquidate the company, saying it still saw value in its development slate.

 

Relevant sections of the proxy statement can be found below.

 

  

BACKGROUND AND REASONS FOR THE SOLICITATION

 

 

Tang Capital has engaged in discussions with the Company and the Board with regards to the strategic direction of the Company.  We believe that in order to maximize value for all stockholders, the Company must cease operations immediately, liquidate the Company’s assets and distribute all remaining capital to the Company’s stockholders.

 

Since the Company continues to operate as of the date of this Proxy Statement and has not publicly announced any plan of liquidation and dissolution, we believe the Board has rejected our proposal to immediately cease all operations, liquidate the Company’s assets and distribute all remaining capital to the Company’s stockholders.  In light of the foregoing, and in order to preserve and maximize the diminishing value of the Company’s assets for the benefit of all stockholders, Tang Capital has nominated Kevin C. Tang and Andrew D. Levin, M.D., Ph.D. for election to the Board at the Annual Meeting and proposed a stockholder resolution to be voted on at the Annual Meeting whereby the stockholders will request that the Company cease operations immediately, liquidate the Company’s assets and distribute all remaining capital to the Company’s stockholders.

 

On February 13, 2009, Tang Capital delivered a letter (the “Letter”) to the Nominating and Governance Committee of the Company recommending Mr. Tang and Dr. Levin as nominees for election to the Board at the Annual Meeting. On the same date, Tang Capital also delivered a notice (the “Notice”) to the Company of its intention to, among other things, nominate Mr. Tang and Dr. Levin for election to the Board and propose the stockholder resolution described herein. 

 

Since delivery of the Letter and Notice, the Board has failed to engage with Tang Capital in a dialogue on the merits of its recommendations. Tang Capital therefore decided to embark on this solicitation of proxies to elect the Nominees and approve the resolution described herein.  See the information under the heading “Proposal 1 – Election of Directors” beginning on page • for additional information about the Nominees.  Further, Tang Capital believes that the proposed resolution is the best way for the stockholders to let the Board know what the stockholders consider to be the best direction for the future of the Company in a manner that is quantitative, clear and indisputable.

 

 

VOTING AND PROXY PROCEDURE

 

 

Quorum

 

The conduct of business at the Annual Meeting requires a quorum. According to the bylaws of the Company, the holders of a majority of all of the shares of stock entitled to vote at the Annual Meeting, present in person or by proxy, shall constitute a quorum for all purposes. Under applicable law, abstentions and “broker non-votes” count toward the quorum. A “broker non-vote” occurs when shares held of record by a bank, broker or other holders of record for a beneficial owner are deemed present at the meeting for purposes of a quorum, but are not voted on a particular proposal because that record holder does not have discretionary voting power for that particular proposal and has not received voting instructions from the beneficial owner on how to vote on such proposal.

 

Proposal 1: Election of Directors

 

The two nominees for election to the Board who receive the most votes cast in favor of their election at the Annual Meeting (also known as a “plurality” of the votes) will be elected. Abstentions, broker non-votes and withheld votes will have no effect on the outcome of director elections.

 

With respect to Proposal 1, the accompanying WHITE proxy card will be voted in accordance with the stockholder’s instructions on such WHITE proxy card.  Stockholders may vote for the Nominees by marking the proper boxes on the WHITE proxy card.  If no instructions are given with respect to this item, the WHITE proxy card will be voted FOR all Nominees.

 

Proposal 2: Approval of Stockholder Resolution

 

Proposal 2 will be approved by the stockholders if the votes cast FOR Proposal 2 exceed the votes cast AGAINST Proposal 2.  Abstentions and broker non-votes will have no effect on the outcome of the vote on Proposal 2.

 

With respect to Proposal 2, the accompanying WHITE proxy card will be voted in accordance with the stockholder’s instructions on such WHITE proxy card.  Stockholders may vote on the approval of the stockholder resolution by marking the proper box on the WHITE proxy card.  If no instructions are given with respect to this item, the WHITE proxy card will be voted FOR the stockholder resolution.

 

 

PROPOSAL 1 – ELECTION OF DIRECTORS

 

 

Tang Capital is seeking your support at the Annual Meeting to elect the Nominees.  The Board currently consists of seven members who are divided into three classes.  We are seeking your support at the Annual Meeting to elect the Nominees in opposition to the two individuals nominated by the Company.  If elected, each Nominee would hold office for a term expiring at the 2012 annual meeting of stockholders and will remain in office until his successor has been duly elected and qualified (or until the director’s death, resignation or removal).

 

Set forth below are the name, age, business address, present principal occupation, employment history and directorships of publicly held companies of each Nominee for at least the past five years.  Each of the Nominees is a citizen of the United States of America.  Each of the Nominees is independent under the independence standards applicable to the Company under paragraph (a)(1) of Item 407 of Regulation S-K.

 

Kevin C. Tang. Kevin C. Tang, is the Managing Director of Tang Capital Management, LLC, an investment firm focused on the health care industry that he founded in August 2002.  From September 1993 to July 2001, Mr. Tang held various positions at Deutsche Banc Alex. Brown, Inc., an investment banking firm, most recently serving as Managing Director and head of the firm’s life sciences research group.  Mr. Tang currently serves as a director of Ardea Biosciences, Inc. and A.P. Pharma, Inc. and serves on the board of two privately held companies.  Mr. Tang received his B.S. degree in Psychology from Duke University.  Mr. Tang’s business address is 4401 Eastgate Mall, San Diego, CA 92121.  Mr. Tang is 42 years old.

 

Andrew D. Levin, M.D., Ph.D.  Andrew D. Levin, M.D., Ph.D. has served as a Principal at Tang Capital Management, LLC, an investment firm focused on the health care industry, since April 2008.  From July 2007 to April 2008, Dr. Levin served as a Business Development Manager at Genzyme Corporation, a pharmaceutical company.  Dr. Levin received a B.S.E. degree in Mechanical Engineering from Princeton University, a Ph.D. in Bioengineering from the Massachusetts Institute of Technology and an M.D. from Harvard Medical School.  Dr. Levin’s business address is 4401 Eastgate Mall, San Diego, CA 92121.  Dr. Levin is 32 years old.

 

Under Delaware corporate law, the Board is charged with the management of the Company, including determining its strategic direction.  Tang Capital believes, therefore, that if the Nominees are elected they would be in a position, as directors of the Company, to influence the strategic direction of the Company in accordance with their fiduciary duties.

 

Categories: Activist · Activist Investing · Special Situations · Update · Value Investing
Tagged: Activist, Liquidation, Special Situations, Vanda Pharmaceuticals, VNDA

Soapstone Networks (NASDAQ: SOAP)

March 9, 2009 · 6 Comments

Soapstone Networks Inc. (NASDAQ: SOAP) has been added to our ValueHuntr portfolio. According to the latest SEC disclosure, the company had $90.1M in current assets and total liabilities of $3.0M as of December 31, 2008. This means that with a net asset value of $87.0M ($5.88/share) and a market capitalization of $42.5 ($2.85/share) the company is currently trading at a nearly 48% discount to its net asset value and a 49% discount to its net cash value.

 

About SOAP

 

Soapstone Networks is at the forefront of the movement to Carrier Ethernet by developing resource and service control systems that realize NGN software-provisioned services in the new Carrier Ethernet transport network. Soapstone’s common control framework decouples services from underlying network technologies. The Soapstone solution is designed to dynamically provision precise, SLA-quality services, continuously optimizing utilization of network resources to bring orderly, predictable business-driven behavior to service provider networks.

 

Valuation

 

SOAP is an unprofitable business with currents assets completely in cash and virtually no short-term or long-term commitments. With an average ROIC of -27% for the past 5 years, it is our view that the company does not have the ability to create shareholder value with the exception of special cash returns or liquidation. Therefore, we value the company at how they would sell at a possible liquidation rather than future earnings expectations or how the assets are currently carried on the company’s books.

 

With a net-cash value of $86.0M ($5.8/share) and a market capitalization of $42.5 ($2.85/share) the company is currently trading at a 49% discount to the cash the company has in its books. We estimate its value at liquidation at $87.3M ($5.7/share), a 51% discount to the company’s present market value.

 

  

SOAP's Balance Sheet

SOAP's Balance Sheet

 

 

Catalyst

On February 19, 2009, the company announced that is has engaged Morgan Stanley as its advisor to assist the company in exploring strategic alternatives for enhancing shareholder value. The press release indicated the following:

 

Soapstone Networks Inc. has engaged Morgan Stanley & Co. Incorporated (“Morgan Stanley”) as its advisor to assist the Company in exploring strategic alternatives available to the Company for enhancing shareholder value, including but not limited to, continued execution of the Company’s business plan, the payment of a cash dividend to the Company’s shareholders, a repurchase by the Company of shares of its capital stock, the sale or spin off of Company assets, partnering or other collaboration agreements, a merger, sale or liquidation of, or acquisition by, the Company or other strategic transaction.

 

A sale is a likely, but we believe the board of directors will only approve such option if the sale price is higher than the value shareholders would realize through an auction or liquidation. Liquidation of the company would result in a nearly 100% return to shareholders due to the discrepancy between market value and cash assets. However, the current economic climate makes it difficult to approximate the value that the company’s non-cash assets would attract from interested buyers. Furthermore, Bill Leighton, the company’s CEO stated the following during the February 12, 2009 earnings call:

 

Like many companies in this macro-economic environment, we have heard from certain of our shareholders that, for their particular interests, a near-term cash return from the Company is desirable. With the help of our outside advisors, we will carefully consider this expressed interest in a cash return, within the process of evaluating a range of alternatives, understanding that our goal is, as always, to provide enhanced value to all of our shareholders

 

It is obvious that cash-stripped shareholders have been pushing management for a quick cash return. Thus, we consider a special cash dividend to be the most likely scenario. The company has the ability to declare up to $2 per share in special dividends without affecting the company’s operational goals for this year.

 

 

Conclusion

 

At its $2.85 close yesterday, SOAP is trading at approximately half our estimate of its value in liquidation.  Fortunately, management is taken the right steps to increase shareholder value. We believe that the probability of a special dividend is high, followed by the liquidation of the company.  Due to its high probability of realization and its steep discount to the value that could be realized through auction or liquidation, we are adding SOAP to the ValueHuntr portfolio.

 

 

[Full Disclosure:  We do not have a holding in SOAP. 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, Ben Graham, Explore Strategic Alternatives, Liquidation, Net Cash, Net Net, Soapstone Networks, Special Situations, stock

Vanda Pharmaceuticals (NASDAQ: VNDA)

March 6, 2009 · 3 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