1-Star Stocks Poised to Plunge: Vanda?

Based on the aggregated intelligence of 135,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, small-cap biopharmaceutical Vanda Pharmaceuticals (Nasdaq: VNDA  ) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at Vanda's business and see what CAPS investors are saying about the stock right now.

Vanda facts

Headquarters (founded)

Rockville, Md. (2002)

Market Cap

$302 million

Industry

Biotechnology

Trailing-12-Month Revenue

$0

Management

Founder/CEO Dr. Mihael Polymeropoulos

CFO Stephanie Irish

Return on Equity (average, last five years)

(50.7%)

2-Month Return

960%

Competitors

Johnson & Johnson (NYSE: JNJ  )

Pfizer (NYSE: PFE  )

CAPS members bearish on VNDA also bearish on

Citigroup (NYSE: C  )

Ford Motor (NYSE: F  )

CAPS members bullish on VNDA also bullish on

General Electric (NYSE: GE  )

Apple (Nasdaq: AAPL  )

Sources: Capital IQ, a division of Standard & Poor's, and Motley Fool CAPS.

Over on CAPS, fully 75 of the 104 All-Star members who have rated Vanda -- some 72% -- believe the stock will underperform the S&P 500 going forward. These bears include vanguardtrader and UltraLong, who is currently ranked fourth in all of CAPS.

Late last month, vanguardtrader brought the stock's seemingly insane price run -- fueled by the recent FDA approval of its antipsychotic, Fanapt -- to our community's attention:

[Vanda] has a mediocre drug that surprised investors with FDA approval. Even though it is being mixed into a billion dollar market, Vanda has no money and will have to partner and license out its drug. From my experience it will get in the low double digits to high single digits in royalties. Vanda is way over priced at this point.

In a pitch from last week, UltraLong expands on the craziness:

First I'd like you to meet your competitors … Johnson & Johnson with Risperdal, Pfizer with Geodon and AstraZeneca with SeroQuel. Notice something in common with these companies? Thats right, they sneeze more cash per day than you have in your entire cash pile! Does Vanda really expect to be able to compete with these juggernauts? Oh wait... I forgot the best part... there are already generic drugs out there of the aforementioned companies that make Fanapt look like the Evian water of drugs. Can we say being priced out of the market before even getting to market?

I mean I understand the schizophrenia market is a 23 billion dollar industry, give or take a billion here or there, but Vanda hasn't shown me any reason to believe they will make this a successful drug. Vanda could still potentially die before they even get this drug to a profitable stage.

Definitely too many unknowns here given the 1000% run we've seen over the past month.

What do you think about Vanda, or any other stock for that matter? Make your voice heard on Motley Fool CAPS today. More than 135,000 investors are waiting to hear what you have to say. CAPS is 100% free, so simply click here to get started.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Apple is a Motley Fool Stock Advisor selection, Johnson & Johnson is an Income Investor pick, and Pfizer is a recommendation of Inside Value. The Fool's disclosure policy always gets a perfect score.


Read/Post Comments (2) | Recommend This Article (16)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 19, 2009, at 4:07 PM, valuepicker wrote:

    I do not agree with this article... the stock has a lot of potential

  • Report this Comment On June 29, 2009, at 7:10 PM, GregJInSeattle wrote:

    1 star, based on what? This is an R&D company, forget the fundamentals. Here's a few facts about VNDA.

    * The schizophrenia drug market is worth over $20 billion in 2009.

    * 3 of the top 10 prescription drugs globally were schizophrenia drugs with revenues of $3 billion or more. Each.

    * As recently as 2008, Merck paid Addex Pharmaceuticals $702 million to help *develop* a schizophrenia drug. Vanda's Fanapt is already approved and ready to market.

    * In the last 2 months, both Lundbeck and Schering-Plough have had setbacks with their schizophrenia pipeline.

    * With their FDA approval, Vanda stands a very good chance at becoming the new king of schizophrenia drugs. AstraZeneca and Lilly have had a lot of bad press and legal issues. That's if they're not bought out.

    That's the drug, let's talk about Vanda. There are only 26 million shares outstanding. That's not a lot for an R&D company, which shows how well management has handled the balance sheet. Almost half of the 26 million shares are held by SAC (Steven Cohen), Fidelity and Kevin Tang. Longs are in pretty good company.

    Vanda also has an injectable form of Fanapt which is only administered once every four weeks. This will be a huge benefit to patients that are challenged by taking daily doses of the tablet form.

    Morningstar has given VNDA a 4-star rating with a $20 fair value estimate and a $50 sell target. Not too shabby for a stock that was trading at less than a dollar just two months ago.

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