Vanda Pharmaceuticals (NASDAQ: VNDA), an early-stage biotech company, has been urged by one of it's largest shareholders (approx. 14%) to liquidate and distribute the proceeds to shareholders.
Vanda Pharmaceuticals recently received notice from the FDA that their schizophrenia drug iloperodone was not approved for production and distribution. This drug has been the company's main focus over the course of the last 8 years. The company has still not earned a dollar of drug sales since its inception. Instead, like most development stage pharmaceutical companies it has been bleeding away shareholders dollars on RND and other expenses. Needless to say, the picture painted is quite bleak. There is no sustainable revenue stream in sight. Because of this, the liquidation request is quite likely to succeed.
The company is currently trading in the market for about $20 M. It has $51 M in cash and marketable securities, and only $4.5 M total liabilities. Therefore, net working capital is $46.5 M. This leaves about a 50% margin of safety under the estimated liquidation value, if an investor were to buy shares today. A forced liquidation will fully realize the value of this cash. Therefore, a position in this company is a WIN-WIN.
The hedge fund (Tang Capital Partners) involved in this liquidation has recently taken part in a similar event in the liquidation of Northstar Neurosciences (NASDAQ: NSTR). That event turned out successfully.
Coat-tailing these type of events can be extraordinarily profitable. An investor should buy shares in VNDA and hold until the result of the shareholder vote on the liquidation is concluded.
FOR MORE INFORMATION:
Communication from Tang Capital Partners to Vanda Pharma:
Shareholder Communication
Vanda Pharm Recent Quarterly Report:
Quarterly Report
UPDATE Feb. 23 2009
The board of Vanda Pharmaceuticals has responded to Tang Capital Partners request to liquidate. The board will fight the proposal and does not believe this type of action is necessary. I still believe that this event will occur, however, because the board in aggregate owns only about 5% of outstanding shares, while Tang Capital owns 14%. Not to mention there are other majority owners who will vote in favour of Tang should a proxy battle be necessary. Therefore, I am currently maintaining my position.
Disclosure: I own shares of VNDA.
SG
Monday, February 23, 2009
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today vanda was selling at $.79 per share. Total number of shares in the company stand at 26.65 million.
ReplyDeleteIndeed, you are right, the company is trading at only $21.0535 million which is far under the $46 million in equity. With a liquidation you'd be looking at around around $1.72 per share, a hefty gain. Since the company now is on its last leg, the management is basically going to start burning through the cash to make final tuneups until the reevaluation from the FDA takes place at the beginning of may. Most likely they won't be spending a lot of cash, but you can make an estimate of what 3 million a month till may. That's still 40 million in equity if the FDA makes its decision at the beginning of May, so still pretty good payout of 1.50 per share.
This is very unusual to see such a position form in the market. If the numbers are right on the publicly availalbe information, you can't come out with less than what you paid (assuming you paid less than 1.5-1.7 per share) and if the FDA realizes this drug does work, the payout can be substantially bigger...
Kudos to SG for finding this position, in such an "efficient market"