Vanda Pharmaceuticals (NASDAQ: VNDA) fell as much as 9% today after the FDA rejected the company’s experimental therapy, tradipitant.
The therapy is aimed at treating gastroparesis, a stomach paralysis-related medical condition.
The FDA has asked Vanda Pharmaceuticals to conduct further studies before resubmitting its application.
However, VNDA isn’t holding back with the criticism as it feels hard done by the regulatory authority.
The company believes the FDA’s decision does not conform to the Food Drug and Cosmetic Act (FDCA). The company said:
The FDCA requires that the FDA review a new drug application and, within 180 days of submission, provide either an approval or an opportunity for a hearing. In this case, the FDA failed to do either.
The company also alleges that the FDA refused to hold an AdCom meeting with the company, despite it repeatedly asking for it.
An AdCom meeting is one where the FDA takes external advisors’ opinions on a drug and uses that advice to finalize its decision.
Big blow to Vanda’s already weak product pipeline
Vanda only has a few products under its belt so far. Fanapt, its drug for treating bipolar disorders, has 5 competitors.
One of those, Abilify, costs only $5 a month and is preferred for years by physicians over its counterparts.
Even though the product successfully reached the market, it is struggling to recover the costs of its clinical development.
Similarly, the company’s oral modulator for multiple sclerosis, Ponvory, is struggling.
It acquired Ponvory from Johnson & Johnson for $100 million.
However, generic drugs dominate the market and the company is left with an expensive acquisition that is unlikely to add to its profits.
Vanda’s own Hetlioz is fast becoming a victim of generic competition, with revenues nearly halving YoY.
In such circumstances, the rejection of tradipitant has dealt a serious blow to the company.
Some analysts believe that even if the drug is approved by the FDA, it is going to be ineffective in the market, just like the company’s other drugs.
Vanda’s strong cash position despite struggles
Vanda is sitting on $103 million in cash as of June 30th, 2024. Its total current assets add up to $439 million.
It also generated $641,000 in operating cash flow in the first half of the year, meaning the business is sustainable without needing external cash.
The company’s current market cap stands at $270 million.
This is a huge discount and any sign of an activist shareholder coming near the company will cause the stock to skyrocket.
Thanks to this strength, Vanda has also received two buyout offers this year.
The company has rejected both offers even though they were well above its current share price.
The persistent interest from other companies shows there is value in acquiring the company’s assets.
However, as long as the management is unable to utilize these assets to their full potential, shareholders are unlikely to receive any significant benefits.
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