Vanda Pharmaceuticals: 2 Bidders, Entrenched Management, Upcoming Business Catalysts

Vanda Pharmaceuticals (VNDA) (~$365MM market cap) is a biopharma company with a number of drugs either already being commercialized, on the cusp of commercialization or in late stage trials.  I have no idea if any of these are valuable franchises (as always, if you have any insights, please share them):

• Hetlioz -- commercial treatment for the treatment of Non-24-Hour Sleep-Wake Disorder in the U.S., it is facing generic competition as of December 2022 and has a few legal battles in its attempt to get additional approved indications
• Fanapt -- recently approved for biopolar disorder, launching commercialization in Q3 2024
• Ponvory -- recently acquired from Johnson & Johnson (this came from Actelion Pharmaceuticals) for $100MM, treatment for multiple sclerosis, launching commercialization in Q3 2024
• Tradipitant -- treatment for gastroparesis, PDUFA date set for 9/18/24
• Misaperidone -- treatment for schizophrenia and bipolar disorder, new drug application expected to be submitted in early 2025

On top of that grab bag of drugs (to my untrained eye, they don't appear to have a coherent strategy), Vanda has approximately $5.40/share of net cash and marketable securities on the balance sheet after subtracting out all liabilities (shares currently trade under $6/share).  Where things get a bit interesting, Vanda has received two unsolicited bids from potential buyers, both of which have received the cold shoulder from the board, as a result the buyers went public trying to get shareholders to exert pressure:

5/7/2024: Vanda Pharmaceuticals Confirms Receipt of Revised Unsolicited Takeover Proposal from Future Pak -- offer was for $7.25-$7.75 in cash per share, plus a CVR.  Future Pak seems like an odd buyer as the company is a privately held pharma contract manufacturer and packaging business that has the financial backing of private credit provider Colbeck Capital Management.  The board rejected the proposal:

Vanda Pharmaceuticals Inc. (Vanda) (Nasdaq: VNDA) today announced that the Company’s Board of Directors (the “Board”) carefully reviewed the revised unsolicited proposal from Future Pak, LLC (“FP”) to acquire the Company for $7.25 to $7.75 per share in cash plus certain Contingent Value Rights (“CVRs”) and, after having consulted with the Company’s independent financial and legal advisors, unanimously concluded that the proposal substantially undervalues the Company, creates significant risk and uncertainty and is not in the best interests of the Company and its shareholders. Accordingly, the Board has rejected the proposal.

In reaching its conclusion, the Board evaluated all aspects of Vanda’s business, including its clinical development pipeline, expanding commercial presence and significant cash balance, as well as the speculative nature of the CVRs given the uncertainty surrounding the achievement of the commercial milestones under FP’s management. The Board believes the revised unsolicited proposal is yet another opportunistic attempt to purchase the Company’s shares at a discount to Vanda’s intrinsic value.

The Board and management team remain confident that Vanda’s robust revenue, strong cash position and efficient operations position the Company well for significant long-term growth and value creation far in excess of the consideration offered by FP.

6/6/2024: Vanda Pharmaceuticals Confirms Receipt of Unsolicited, Non-Binding Indication of Interest from Cycle Group Holdings -- offer is for $8 in cash per share with no CVR component.  Cycle seems a little more credible than Future Pak, they have a few commercial drugs in the market already, in their press release, they included the following explanation for making their bid public:

Cycle issued the following statement regarding its proposal:

“Our proposal for Vanda delivers immediate, compelling and certain cash value for Vanda shareholders with a highly attractive premium. Cycle’s proposal represents a better outcome for shareholders, who would receive all-cash upfront value exceeding that of Future Pak’s cash portion of its latest offer announced May 7, 2024. It would also benefit patients, as Cycle has a proven commercial strategy in the U.S., a strong distribution footprint and an established track record of delivering medicines and individualized support to patients suffering from conditions with high unmet medical need.

While we would have preferred to reach an agreement privately, Cycle is publicly disclosing our proposal for the benefit of Vanda shareholders and to encourage Vanda shareholders to express their views on this proposal to the independent directors of the Vanda Board of Directors.

Given our familiarity with Vanda, its brands and our extensive knowledge of the industry, we believe we can efficiently and quickly complete our diligence. Once we receive access to the required information, we believe that we can complete our due diligence within 2-3 weeks and reach a definitive agreement shortly thereafter.

We stand ready to work immediately with Vanda’s Board and management team to reach an agreement that would provide a compelling premium and certain cash value today for all Vanda shareholders.”

Vanda has acknowledged receipt of the offer, but as of this writing haven't rejected it yet.

Why isn't the board engaging?  Management seems very entrenched here, the co-founder (Mihael Polymeropoulos) is the CEO and Chairman of the Board.  He employs a number of family members at Vanda and does own 3+% of the stock.  Given the near term regulatory catalysts, it could be argued that these are opportunistic bids, but if they run a full a process, maybe they can get an even higher number or Polymeropoulos could partner with a firm that would back a bid for him to take it private.  I've sized this relatively small, it could be more attractive at a higher price if VNDA's board does the right thing and engages with the bidders.

Disclosure: I own shares of VNDA