Vanda Pharmaceuticals (NASDAQ:VNDA) is a global biopharmaceutical leader, developing and commercializing innovative therapies for unmet medical needs. The company focuses on responsible innovation, using technologies like genetics and genomics in drug discovery. Its commercial portfolio includes treatments for sleep disorders and schizophrenia, with an array of products in development for conditions ranging from jet lag and bipolar disorder to atopic dermatitis, oncology indications, and more.
The following article analyzes Vanda Pharmaceuticals’ Q2 2023 financial performance, highlighting a decline in sales and challenges due to generic competition. It also covers the company’s ongoing legal battles, plans to expand its portfolio, and concludes with a “Hold” investment recommendation.
In Q2 of 2023, Vanda Pharmaceuticals reported a 28% decrease in total net product sales to $46.1 million, driven by a 47% decrease in Hetlioz sales due to the U.S. launch of a generic version. Fanapt sales increased by 4%. Net income for the quarter was $1.5 million, down from $2.6 million in Q2 2022. Cash decreased by 2% compared to March 2023, but increased by 11% compared to June 2022. In the first six months, there was a 13% decrease in total sales, with Hetlioz down by 21% and Fanapt up by 1%. Net income was $4.8 million, compared to a loss of $3.9 million in the first six months of 2022. Due to uncertainties related to Hetlioz patent litigation, Vanda has not provided financial guidance for 2023.
VNDA Stock Faces Challenges Amid Declining Sales and Uncertain Future
It’s apparent from Seeking Alpha data that VNDA stock is currently navigating a challenging period. The company is projected to face negative earnings per share [EPS] in 2024 and 2025, and sales are consistently declining year-over-year. This lack of profitability is reflected in the downward revisions in earnings, indicating analysts’ uncertainty about the company’s future performance.
The valuation of VNDA is mixed. While some metrics like P/E GAAP and price-to-book ratio are measurable, several key valuation metrics are not, possibly reflecting uncertainty in the company’s financial standing. Growth prospects are mixed as well. Although EPS diluted growth is positive, revenue is declining, and there’s a negative compound annual growth rate over three years for both revenue and EPS diluted.
Profitability is a strong area for VNDA, with high gross profit and net income margins, although the return on equity and assets is relatively low. On the momentum front, the stock has been losing steam and has underperformed the S&P 500 across various time frames, with a substantial decline over the past year.
The company’s capital structure shows a market cap of $341.60M and relatively low total debt, coupled with a substantial cash position. This offers some financial flexibility but also leads to a negative enterprise value.
Vanda Pharmaceuticals Fights Legal Battles over Hetlioz Generic Approvals
In December 2022, Teva (TEVA) released a generic version of Vanda’s Hetlioz (tasimelteon) capsules, and shortly after, Apotex obtained FDA approval for its own generic version of Hetlioz. The medication is primarily used to treat non-24-hour sleep-wake disorder in adults and nighttime sleep disturbances in patients with Smith-Magenis Syndrome (SMS) who are 16 years of age or older.
Management at Vanda Pharmaceuticals has expressed determination to vigorously pursue legal action in several matters related to Hetlioz’s patent litigation. The company has appealed a negative decision and is awaiting responses from Teva and Apotex. In addition, Vanda has filed another patent infringement lawsuit regarding Hetlioz and is pursuing a lawsuit against Teva for its generic version’s launch. The company is also challenging the FDA’s approval of generic tasimelteon without braille labeling and has filed two citizen’s petitions concerning what they deem inadequate bioequivalence testing. Lastly, they have sought economic damages for alleged unlawful disclosure of confidential information by the FDA during its review of generic applications. The management’s stance is clear in their commitment to these legal pursuits, reflecting their belief in the impropriety of the FDA’s approvals and other actions.
Expanding Portfolio, Targeting New Therapies
Vanda Pharmaceuticals is actively exploring various opportunities to expand its product portfolio and target new therapeutic areas.
Hetlioz for Insomnia: Vanda is working on obtaining FDA approval for Hetlioz as a treatment for insomnia. This could present a meaningful commercial opportunity since insomnia is a widespread condition that affects millions of people. Current treatments often come with side effects, and Hetlioz may offer a novel option for those struggling with sleep disorders.
Tradipitant for Gastroparesis: Vanda is also pursuing FDA approval for tradipitant in treating patients with gastroparesis. They are in the process of submitting preclinical studies that demonstrate efficacy and tolerability of this drug. Gastroparesis is a condition affecting the stomach muscles and leads to delayed stomach emptying. The market for gastroparesis treatments is growing, reflecting a need for new and effective medications.
Tradipitant for Motion Sickness: The company announced positive results from a Phase III study of tradipitant in treating motion sickness, and they are conducting additional studies towards marketing approval. This offers another avenue for growth, as motion sickness is a common ailment that affects a wide range of people, especially during travel.
VCA-894A for Charcot-Marie-Tooth disease, Type 2S (CMT2S): Vanda received Orphan Drug Designation from the FDA for VCA-894A, a treatment for CMT2S, a rare subtype of Charcot-Marie-Tooth disease. As there is currently no available treatment for this inherited peripheral neuropathy, this presents a unique opportunity to enter a niche market with unmet medical needs.
My Analysis & Recommendation
In conclusion, Vanda Pharmaceuticals Inc.’s Q2 earnings reveal a concerning landscape for investors. The decline in total net product sales, particularly a 47% drop in Hetlioz sales due to the U.S. launch of generic versions, highlights a significant challenge that Vanda is facing.
The battle over Hetlioz’s patent litigation has been spirited, with the firm committed to fighting the generic entrants. However, as an investor, it is evident that they have already lost half the battle as generics achieved approval. While the legal pursuits underscore the firm’s determination, it is pragmatic not to anticipate major legal victories on this front. This scenario leaves the company’s revenue susceptible to further decline due to Hetlioz generics.
Additionally, Vanda’s other drug prospects, such as those targeting insomnia, gastroparesis, motion sickness, and Charcot-Marie-Tooth disease, provide optimism for the future but come with an element of uncertainty. These new therapeutic areas are still in development, and it will take time to see how they are received upon market entry.
Given Vanda’s mixed valuation, declining sales, positive strides in profitability, and the challenging momentum against the backdrop of the S&P 500, the near-term prospects for the company appear complex. Despite some financial flexibility through a substantial cash position and relatively low total debt, Vanda’s overall position appears fraught with challenges.
As an individual who has assessed the various aspects of Vanda’s current standing, my investment recommendation for Vanda Pharmaceuticals is a “Hold.” The rationale behind this recommendation rests in the existing uncertainties and the time required to fully realize the potential of their new therapeutic developments. The decline in revenue due to Hetlioz generics is a pressing concern, and while the firm’s pursuits in other areas are commendable, these are still in early stages. Keeping an eye on Vanda’s legal battles and new drug development progress may provide clearer signals for future investment decisions. But for now, a cautious approach seems warranted.