Vanda Pharmaceuticals (VNDA) may not be a household name, but it could boost your net worth. The specialty pharma's two marketed drugs generated sales totaling $227.2 million in 2019 and $58 million in the first quarter of 2020, a 22% increase over the prior year.
Its strategy is to expand the approved indications for those drugs and complete development of drug candidates tradipitant and VTR-297. Vanda just launched a phase 3 clinical trial with tradipitant to treat patients with COVID-19 acute respiratory distress syndrome.
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Expanding use
Vanda's biggest money maker, Hetlioz, gained approval in 2014 to treat non-24-hour sleep-wake disorder, a condition whereby a person's body clock will not regulate to a normal 24-hour night and day cycle. The FDA has not approved any other drugs for that specific use.
Vanda met with the FDA at the end of 2019 and filed a supplementary application for approval of Hetlioz to treat Smith-Magenis syndrome, a rare developmental condition affecting one out of every 25,000 people worldwide. Vanda expects the FDA decision in 2020.
The pharma stock stumbled in its initial efforts to expand Hetlioz's use to jet lag, which affects tens of millions of people annually. The FDA issued the feared complete response letter last August. Vanda subsequently met with the FDA to discuss the outstanding issues and plans to pursue an approval.
Shifting gears
Vanda's recent leap into the coronavirus fray makes the company an interesting speculative investment idea. Three phase 3 trials were already under way with tradipitant, involving, respectively, the skin disorder atopic dermatitis, motion sickness, and gastroparesis, a painful condition caused by the stomach's delayed emptying into the small intestines.
New enrollment in the phase 3 trials has been halted due to COVID-19. What better time to switch gears to a COVID-19-specific trial? Vanda began enrolling 300 patients with inflammatory lung damage due to severe COVID-19. The double-blind, placebo-controlled trial -- the most rigorous type -- began in April, and is treating patients twice daily over 14 days. Vanda predicts results will be available in the third quarter.
You may be asking yourself, "How can a drug for a skin condition and motion sickness benefit a patient with severe lung problems caused by the coronavirus?" According to Vanda, tradipitant targets the neurokinin-1 receptor, which is involved in the neuroinflammatory process leading to lung injury. Therefore, it seemed reasonable to explore its anti-inflammatory activity in patients hospitalized with severe COVID-19.
Beyond COVID-19
Vanda provided revenue guidance for 2020 of between $240 million and $260 million. It expects to end the year with more than $320 million in cash. Even with COVID-19-related reductions in revenue, Vanda has sufficient capital to ride out the pandemic. This is important, as the company's filings to gain FDA approval in additional indications will likely be delayed.
According to Nasdaq, 198 institutional investors own 95% of Vanda's outstanding shares. That number, however, is based on holdings as of Dec. 31, 2019. The stock dropped nearly 50% this year and has since recovered to show a loss of roughly 32%. My guess is that a number of those institutions sold some or all of their positions during the first quarter's coronavirus-fueled market sell off.
Investors with over $100 million under management must report their March 31 positions to the Securities and Exchange Commission by May 15. We will see which investors held firm and which did not. I expect to see a drop in the number of investors as well as the percentage of stock owned by institutions.
What's to like?
Vanda trades at a valuation of roughly $600 million. With over $300 million in cash on the balance sheet and revenues to reach around $250 million this year, the stock appears quite attractive. Many pharmas and biotechs trade at significant multiples of sales. Further, pharma investors will learn the outcome of the tradipitant trial in the third quarter. This is like a free option that could provide meaningful upside. If it fails, downside is likely limited, as the trial in severe COVID-19 patients is something of a flier.
