A friend of mine at Bank of America ran this name by me and I decided to profile it because I think it has some serious upside. I haven’t written about many biotechs in the past, but I am impressed by the potential of this stock. The company is called Vanda Pharmaceuticals (VNDA) and it specializes in central nervous system disorders.
Profitability Already
Vanda is on the right track and is even profitable which is rare for a biotech company of its size and age. The company had a strong 2010 as summed up by its CEO:
“2010 has been an exceptional milestone year in the history of our company. Our first product, Fanapt®, reached the U.S. market for the treatment of schizophrenia, we had our first profitable year and we have advanced our second asset, tasimelteon, in Phase 3 studies,” said Mihael Polymeropoulos, M.D., President and Chief Executive Officer. “2011 will be a foundation year for Vanda, as we begin to execute upon our vision of building a world class neuroscience pharmaceutical company.”
Vanda’s schizophrenia drug Fanapt is the company’s crown jewel and should be meaningfully contributing to earnings per share growth within two years. The stock got a huge boost when the drug was approved, but has since had a meaningful pullback, which represents a great time to get back into the stock or establish a new position.
Healthy Balance Sheet
Investors should take solace in the strong financial condition of the company. It has no debt and about $7 per share in cash, which is right about where the stock is trading right now. Additionally, it has a current ratio of 6.46, which indicates it can easily handle its short-term liquidity needs. Cash levels and liquidity concerns are two huge factors that bring down many biotechs, but Vanda is in great shape there. I also love the fact that the company has a strong ROE of 23.7% and an operating margin of 24.8%.
As with all biotech stocks, the road is never smooth, but the potential reward is spectacular. The company is still a microcap with a market cap around $200 million, and the fortunes of the stock will ebb and flow with the success of Fanapt. That being said, there is much more upside than downside given the potential of this drug and the financial health of the company. A reasonable intermediate target is $10 and much more after that if Fanapt succeeds. Thank you Hari for this solid pick.
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