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Archive for the ‘Vanda Pharmaceuticals Inc (NASDAQ:VNDA)’ Category

Update June 16, 2009: SOAP has announced that it proposes to liquidate. See our post below.

Update June 3, 2009: We’ve pinned this post to the front page. Any new posts between now and July 4th will appear below this post.

June 1, 2009 marked the end of Greenbackd’s second quarter. It’s time again to report on the performance of the Greenbackd Portfolio and the positions in the portfolio, discuss the evolution of our valuation methodology and outline the future direction of Greenbackd.com.

Second quarter performance of the Greenbackd Portfolio

The second quarter was nothing short of a blockbuster for the Greenbackd Portfolio, up 74.2% on an absolute basis, which was 52.8% higher than the return on the S&P500 return over the same period. A large positive return for the period is heartening, but our celebration is tempered by the fact that it is difficult to avoid a good return in a market that rises 25.0% in a quarter. Our Q1 performance was -3.7% (see our first quarter performance here), which means that our total return since inception (assuming equal weighting in each quarter) is 67.8% against a return on the S&P500 of 11.6%, or an outperformance of 56.2% over the return in the S&P500.

It is still too early to determine how Greenbackd’s strategy of investing in undervalued asset situations with a catalyst is performing, but we believe we are heading in the right direction. Set out below is a list of all the stocks in the Greenbackd Portfolio and the absolute and relative performance of each from the close of the last trading day of the first quarter, Friday, February 28, 2009, to the close on the last trading day in the second quarter, May 29, 2009:

Greenbackd Portfolio Performance 2009 Q2You may have noticed something odd about our presentation of performance. The S&P500 index rose by 25.0% in our second quarter (from 735.09 to 919.14). Our +74.2% performance might suggest an outperformance over the S&P500 index of 49.2%, while we report outperformance of 52.8%. We calculate our performance on a slightly different basis, recording the level of the S&P500 index on the day each stock is added to the portfolio and then comparing the performance of each stock against the index for the same holding period. The Total Relative performance, therefore, is the average performance of each stock against the performance of the S&P500 index for the same periods. As we discussed above, the holding period for Greenbackd’s positions has been too short to provide any meaningful information about the likely performance of the strategy over the long term (2 to 5 years), but we believe that the strategy should outperform the market by a small margin.

Greenbackd’s valuation methodology

We started Greenbackd in an effort to extend our understanding of asset-based valuation described by Benjamin Graham in the 1934 Edition of Security Analysis. (You can see our summary of Graham’s approach here). Through some great discussion with our readers, many of whom work in the fund management industry as experienced analysts or even managing members of hedge funds, and by incorporating the observations of Marty Whitman (see Marty Whitman’s adjustments to Graham’s net net formula here) and Seth Klarman (our Seth Klarman series starts here), we have refined our process. We believe that what started out as a pretty unsophisticated application of Graham’s liquidation value methodology has evolved into a more realistic analysis of the balance sheet and the relationship of certain disclosures in the financial statements to asset value. Our analyses are now quantitatively more robust than when we started and that has manifest itself in better performance.

Tweedy Browne offers some compelling evidence for the asset based valuation approach here.

Update on the holdings in the Greenbackd Portfolio

There are eleven stocks remaining in the Greenbackd Portfolio:

  1. VXGN (added March 26, 2009 @ $0.48)
  2. DRAD (added March 9, 2009 @ $0.88)
  3. ASYS (added March 5, 2009 @ $2.78)
  4. CAPS (added February 27, 2009 @ $0.60)
  5. DITC (added February 19, 2009 @ $0.89)
  6. SOAP (added February 2, 2009 @ $2.50)
  7. NSTR (added January 16, 2009 @ $1.91)
  8. ACLS (added January 8, 2009 @ $0.60)
  9. MATH (added December 17, 2008 @ $0.68)
  10. ABTL (added December 11, 2008 @ $0.43)
  11. AVGN (added December 1, 2008 @ $0.65)

The future of Greenbackd.com

We are taking a brief vacation. We’ll be back full-time after July 4th, always reserving the right to post interesting ideas in the interum and update our open positions. If you’re looking for net nets in the meantime, there are two good screens:

  1. GuruFocus has a Graham net net screen ($249 per year)
  2. Graham Investor NCAV screen (Free)

Greenbackd is a labor of love. We try to create new content every week day, and to get the stock analyses up just after midnight Eastern Standard Time, so that they’re available before the markets open the following day. Most of the stocks that are currently trading at a premium to the price at which we originally identified them traded for a period at a discount to the price at which we identified them. This means that there are plenty of opportunities to trade on our ideas (not that we suggest you do that without reading our disclosures and doing your own research). If you find the ideas here compelling and you get some value from them, you can support our efforts by making a donation via PayPal.

We look forward to bringing you the best undervalued asset situations we can dig up in the next quarter.

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Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) yesterday announced that the US Food and Drug Administration (FDA) had granted marketing approval following its Phase III clinical study of Fanapt™ (iloperidone). Tang Capital Partners has ended its proxy contest by withdrawing its nominations of director candidates for election to VNDA’s Board of Directors and its stockholder proposal to liquidate VNDA. We are closing our position too. The stock ran 900% on the announcement to $10.00 in after-hours trade and closed yesterday at $7.84. We opened the position on March 12, 2009 at $0.78, so we’re up 905.1% on an absolute basis. The S&P500 Index closed at 721.36 on the same day, and closed yesterday at 907.39, which means we’re up 881.7% on a relative basis.

We started following VNDA (see our post archive here) because it was trading below its net cash value and Tang Capital Partners (TCP) had called for the company to “cease operations immediately, liquidate [VNDA]’s assets and distribute all remaining capital to the Stockholders.” TCP had filed a preliminary proxy statement for the 2009 Annual Meeting urging stockholders to support TCP’s slate of two director nominees, Kevin C. Tang and Andrew D. Levin, M.D., Ph.D. We estimated VNDA’s net cash value to be around $38.6M or $1.45 per share, and believed that the investment turned on TCP’s ability to get control of the board at the Annual Meeting. It seems we were wrong about that. The big run up in the stock occurred because the FDA granted marketing approval of Fanapt™, which demonstrates one of the great things about investing in liquidation plays: good surprises. We generally ascribe zero value to the intangibles, because more often than not, that’s what they’re worth. Very occassionaly, however, the  intangibles are worth something, and purchasers below liquidation value have a free option on them. We’re not going to pretend that we thought it was a real possibility in this instance. As Lefty Gomez liked to say, “I’d rather be lucky than good.”

Here’s the text of the announcement of the FDA approval:

FDA Approves Vanda Pharmaceuticals’ Fanapt for the Treatment of Schizophrenia

Rockville, MD. (May 6, 2009)— Vanda Pharmaceuticals Inc. (NASDAQ: VNDA) announced today that the US Food and Drug Administration (FDA) has granted marketing approval of Fanapt™ (iloperidone) for the acute treatment of adult patients with schizophrenia. The approval was supported by two placebo-controlled Phase III clinical studies comparing Fanapt™ to placebo and active control in patients with schizophrenia, as well as safety data from more than 3,000 patients.

Fanapt™ is a mixed dopamine D2 / serotonin 5HT2A receptor antagonist, and belongs to the class of atypical antipsychotics.

“The approval of Fanapt™ marks a new opportunity for many patients with schizophrenia, who experience only partial responses to current therapies, to achieve better control of their symptoms,” remarked Dr. Peter J. Weiden, Professor of Psychiatry and Director of the Psychotic Disorders Program at the University of Illinois at Chicago. “Having Fanapt™ available is a major help for our patients in offering an effective antipsychotic with an excellent side effect profile across a wide range of major tolerability problems associated with other antipsychotic therapies.”

The efficacy of Fanapt™ for the treatment of schizophrenia was supported by two placebo-controlled short-term (4- and 6-week) trials. Both trials enrolled patients who met the DSM-III/IV criteria for schizophrenia, and Fanapt™ was shown to be superior to placebo in controlling symptoms of schizophrenia across doses of 12mg to 24mg per day. The recommended target dose range of Fanapt™ is 12mg to 24 mg per day. Titration to the target dose of 12mg per day can be achieved in 4 days.

Vanda plans to make Fanapt™ available in pharmacies later this year.

–snip–

And TCP’s withdrawal of its director nominees:

Vanda Pharmaceuticals Announces Withdrawal of Director Nominees and Proposal to Liquidate Submitted by Tang Capital

Rockville, MD. (May 7, 2009) — Vanda Pharmaceuticals Inc. (NASDAQ: VNDA) (“Vanda” or the “Company”) announced today that Tang Capital Partners, LP (“TCP”) has ended its proxy contest by withdrawing its nominations of director candidates for election to Vanda’s Board of Directors and its stockholder proposal to liquidate the Company. TCP had previously notified the Company of its intention to solicit proxies for the election of two of its candidates to the Vanda Board at the Company’s 2009 Annual Meeting and for its proposal that the Board take action to liquidate the Company.

Kevin Tang, the managing director of the general partner of TCP, notified Vanda of TCP’s intention not to pursue a proxy contest on May 6, 2009 in an email to Vanda’s Chief Executive Officer, Mihael H. Polymeropoulos, M.D. and Chairman of the Board, Argeris N. Karabelas, Ph.D. TCP’s withdrawal of its nominations and stockholder proposal follows Vanda’s announcement that the U.S. Food & Drug Administration had granted marketing approval of its product, Fanapt™ (iloperidone), for the acute treatment of adult patients with schizophrenia.

[Full Disclosure:  We do not have a holding in VNDA. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) has reported its results for the first quarter ended March 31, 2009.

We’ve been following VNDA (see our post archive here) because it’s trading below its net cash value and Tang Capital Partners (TCP) has called for the company to “cease operations immediately, liquidate [VNDA]’s assets and distribute all remaining capital to the Stockholders.” TCP has now filed a preliminary proxy statement for the 2009 Annual Meeting urging stockholders to support TCP’s slate of two director nominees, Kevin C. Tang and Andrew D. Levin, M.D., Ph.D. The stock is up 29.5% since we initiated the position to close yesterday at $1.01, giving the company a market capitalization of $24.3M. We initially estimated the net cash value to be around $42.6M or $1.60 per share. We’ve now reduced our estimate of the net cash value to $38.6M or $1.45 per share. The company continues to hemorrhage cash, so the investment turns on TCP’s ability to get control of the board at the Annual Meeting and staunch the bleeding. If TCP cannot get onto the board quickly, the company will continue to burn cash and the investment will be a dud. VNDA has a staggered board, which makes TCP’s task difficult.

The value proposition updated

In the first quarter of 2009 VNDA burned through $3.8M in cash, which reduces our estimate of the net cash value from $42.6M to $38.6M or $1.45 per share (the remaining difference is due to the slight increase in shares on issue). Set out below is our summary balance sheet  (the “Book Value” column shows the assets as they are carried in the financial statements, and the “Liquidating Value” column shows our estimate of the value of the assets in a liquidation):

vnda-summary-2009-12-31

Conclusion

VNDA continues to be an interesting play. While the stock is up nearly 30% since we initiated the position, it is still trading at a 45% discount to our estimate of its $1.45 per share net cash value. That value is of course deteriorating rapidly, and the challenge for investors is to determine which of two outcomes is more likely: If TCP can get on the board quickly, stop the cash burn and liquidate the company, we’re likely to see a good return. If TCP cannot get onto the board quickly or at all, the company will continue to burn cash and the investment will be a dud. VNDA has a staggered board, so this will make TCP’s task difficult. We’re inclined to maintain our position and see how this plays out.

[Full Disclosure:  We do not have a holding in VNDA. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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Tang Capital Partners has filed a preliminary proxy statement for the Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) 2009 Annual Meeting of Stockholders urging stockholders to support Tang Capital Partners’ slate of two director nominees, Kevin C. Tang and Andrew D. Levin, M.D., Ph.D.

We’ve been following VNDA (see our post archive here) because it’s trading below its net cash value and Tang Capital Partners (TCP), has called for the company to “cease operations immediately, liquidate [VNDA]’s assets and distribute all remaining capital to the Stockholders.” The stock is up 16.7% since we initiated the position from $0.78 to close yesterday at $0.91, which gives the company a market capitalization of $24.3M. We estimate the net cash value to be around 75% higher at $42.6M or $1.60 per share. The company is hemorrhaging cash, so the investment turns on TCP’s ability to get control and staunch the bleeding. If TCP cannot get onto the board quickly or at all, the company will continue to burn cash and the investment will be a dud. VNDA has a staggered board, so this will make TCP’s task difficult.

The Background and reasons for the solicitation in the preliminary proxy statement is set out below:

Tang Capital has engaged in discussions with the Company and the Board with regards to the strategic direction of the Company. We believe that in order to maximize value for all stockholders, the Company must cease operations immediately, liquidate the Company’s assets and distribute all remaining capital to the Company’s stockholders.

Since the Company continues to operate as of the date of this Proxy Statement and has not publicly announced any plan of liquidation and dissolution, we believe the Board has rejected our proposal to immediately cease all operations, liquidate the Company’s assets and distribute all remaining capital to the Company’s stockholders. In light of the foregoing, and in order to preserve and maximize the diminishing value of the Company’s assets for the benefit of all stockholders, Tang Capital has nominated Kevin C. Tang and Andrew D. Levin, M.D., Ph.D. for election to the Board at the Annual Meeting and proposed a stockholder resolution to be voted on at the Annual Meeting whereby the stockholders will request that the Company cease operations immediately, liquidate the Company’s assets and distribute all remaining capital to the Company’s stockholders.

On February 13, 2009, Tang Capital delivered a letter (the “Letter”) to the Nominating and Governance Committee of the Company recommending Mr. Tang and Dr. Levin as nominees for election to the Board at the Annual Meeting. On the same date, Tang Capital also delivered a notice (the “Notice”) to the Company of its intention to, among other things, nominate Mr. Tang and Dr. Levin for election to the Board and propose the stockholder resolution described herein.

Since delivery of the Letter and Notice, the Board has failed to engage with Tang Capital in a dialogue on the merits of its recommendations. Tang Capital therefore decided to embark on this solicitation of proxies to elect the Nominees and approve the resolution described herein. See the information under the heading “Proposal 1 – Election of Directors” beginning on page • for additional information about the Nominees. Further, Tang Capital believes that the proposed resolution is the best way for the stockholders to let the Board know what the stockholders consider to be the best direction for the future of the Company in a manner that is quantitative, clear and indisputable.

[Full Disclosure:  We do not have a holding in VNDA. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) is trading below its net cash value and an investor, Tang Capital Partners (TCP), has called for the company to “cease operations immediately, liquidate [VNDA]‘s assets and distribute all remaining capital to the Stockholders.” At the company’s $0.78 closing price yesterday, VNDA has a market capitalization of $20.8M. We estimate the net cash value to be more than 100% higher at $42.6M or $1.60 per share. The company is hemorrhaging cash, so the investment turns on TCP’s ability to get control and staunch the bleeding. We think they’re a fair bet, so we’ve added VNDA to the Greenbackd Portfolio.

About VNDA

VNDA is “is a biopharmaceutical company focused on the development and commercialization of small molecule therapeutics, with exclusive worldwide commercial rights to two product candidates in clinical development for various central nervous system disorders.” The company’s investor relations website is here.

The value proposition

VNDA is rapidly burning through its cash. It consumed $7.5M in the December quarter, which brings its cash burn for the twelve months to December 31, 2008 to $46M (that’s right, forty-six million dollars). Its cash burn predominantly consists of salaries and related costs for R&D personnel of $3.8M and $4.8M in G&A expenses. The company has a substantial holding of cash and equivalents (the “Book Value” column shows the assets as they are carried in the financial statements, and the “Liquidating Value” column shows our estimate of the value of the assets in a liquidation):

vnda-summaryWe estimate the net cash value to be $42.6M or $1.60 per share. If VNDA burns through the same amount of cash in this quarter as the last quarter, this number will be reduced by $7.5M to $35.4M or $1.33 per share.

Off-balance sheet arrangements and contractual obligations

According to the company’s most recent 10Q (for the September quarter), it has no off-balance sheet arrangements. The contractual obligations as at December 31, 2008 totaled $5.8M and represents operating lease payments for the company’s headquarters through to 2016.

The company also has the following amounts due:

Consulting fees

We have engaged a regulatory consultant to assist us in our efforts to obtain FDA approval of the iloperidone NDA. We have committed to initial consulting expenses in the aggregate amount of $2.0 million pursuant to this engagement, $122,000 of which was expensed in the third quarter of 2008, and the remainder of which will be expensed in the fourth quarter of 2008. In addition, we may retain the services of the consultant on a monthly basis from and after January 1, 2009 through December 31, 2010. In the event that the iloperidone NDA is approved by the FDA, we will be obligated to pay the consultant a success fee of $6.0 million, which amount will be offset by the aggregate amount of all monthly retainer fees previously paid to the consultant (Success Fee). In addition to these fees, we are obligated to reimburse the consultant for its ordinary and necessary business expenses incurred in connection with its engagement. We may terminate the engagement at any time; however, we will remain obligated to pay any remaining Success Fee if the iloperidone NDA is approved by the FDA following such termination.

Clinical research organization contracts and other contracts

We have entered into agreements with clinical research organizations responsible for conducting and monitoring our clinical trials for iloperidone and tasimelteon, and have also entered into agreements with clinical supply manufacturing organizations and other outside contractors who will be responsible for additional services supporting our commercial activities and our ongoing clinical development processes. These contractual obligations are not reflected in the table above because we may terminate them on no more than 60 days notice without incurring additional charges (other than charges for work completed but not paid for through the effective date of termination and other costs incurred by our contractors in closing out work in progress as of the effective date of termination).

License agreements

In February 2004 and June 2004, we entered into separate licensing agreements with Bristol-Myers Squibb and Novartis, respectively, for the exclusive rights to develop and commercialize our two compounds in clinical development. We are obligated to make payments under the conditions in the agreements upon the achievement of specified clinical, regulatory and commercial milestones. If the products are successfully commercialized we will be required to pay certain royalties based on net sales for each of the licensed products. Please see the notes to the condensed consolidated financial statements included with this report for a more detailed description of these license agreements.

As a result of the successful commencement of the Phase III clinical study of tasimelteon in March 2006, we met the first milestone specified in our licensing agreement with Bristol-Myers Squibb and made an associated milestone payment of $1.0 million. During March 2007, we met our first milestone under the license agreement with Novartis for VSF-173 relating to the initiation of the Phase II clinical trial and made an associated milestone payment of $1.0 million. On November 3, 2008, we received written notice from Novartis that this license agreement had terminated in accordance with its terms as a result of our failure to satisfy a specific development milestone within the time period specified in the license agreement. Please see Item 5 “Other Information” of Part II of this quarterly report on Form 10-Q for a more detailed description of the termination of this license agreement. In November 2007, the Company met a milestone under the license agreement with Novartis for iloperidone relating to the acceptance of the NDA for iloperidone in schizophrenia and made a license payment of $5.0 million to Novartis. No other amounts were recorded as liabilities nor were any other contractual obligations relating to the license agreements included in the condensed consolidated financial statements as of September 30, 2008, since the amounts, timing and likelihood of these payments are unknown and will depend on the successful outcome of future clinical trials, regulatory filings, favorable FDA regulatory approvals, growth in product sales and other factors. For a more detailed description of the risks associated with the outcome of such clinical trials, regulatory filings, FDA approvals and product sales, please see the section “Risk Factors” of this quarterly report on Form 10-Q.

The catalyst

TCP disclosed its intial 21.1% holding in VNDA in a 13D notice dated October 6, 2008. The amended 13D notice dated November 17, 2008 disclosed a smaller 14.3% holding, which might suggest that TCP had reduced its holding. This was not the case. In fact, TCP was a purchaser throughout the relevant period. Unfortunately for TCP, some of its VNDA holdings were held in an account at Lehman Brothers International (Europe) (from the amended 13D notice):

On September 15, 2008 LBIE [Lehman Brothers International (Europe)] was placed into administration under United Kingdom law and four partners of PriceWaterhouseCoopers LLP were appointed as joint administrators (the “Joint Administrators”). The Joint Administrators have advised us that most of TCP’s shares were rehypothecated. The Joint Administrators and UK counsel have further advised that LBIE’s customers will not be able to recover rehypothecated shares, but instead will be entitled to a general unsecured claim with respect to such shares. Accordingly, TCP in this filing has reduced the number of shares of [VNDA] held by TCP to the extent such shares were held at LBIE. By making this filing, TCP does not waive any argument that it is entitled to recover such shares and expressly reserves such arguments.

Since the date of the last filing on Schedule 13D, on November 7, 2008, Tang Capital Partners, LP purchased 560,000 shares of Vanda Pharmaceuticals, Inc.’s common stock through the open market for $0.8291 per share.

(If you’re interested, you can read more about “rehypothecation” here.) In a further amended 13D notice dated February 18, 2009, TCP disclosed an increased 14.9% holding and discussed its nomination of two candidates to the board VNDA:

Since the date of the last filing on Schedule 13D, Kevin C. Tang has continued to have discussions with [VNDA] and its Board of Directors in regards to the strategic direction of [VNDA]. Mr. Tang has expressed his opinion and proposed to [VNDA] and its Board of Directors that in order to maximize value for all Stockholders, [VNDA] must cease operations immediately, liquidate [VNDA]‘s assets and distribute all remaining capital to the Stockholders.

Since [VNDA] continues to operate as of the date of this filing and has not publicly announced any plan of liquidation and dissolution, the Reporting Persons believe [VNDA]‘s Board of Directors has rejected their proposal to immediately cease all operations, liquidate [VNDA]‘s assets and distribute all remaining capital to the stockholders. In light of the foregoing, and in order to preserve and maximize the diminishing value of [VNDA]‘s assets for the benefit of all Stockholders, the Reporting Persons determined to nominate certain individuals to be elected to [VNDA]‘s Board of Directors at the 2009 Annual Meeting of Stockholders, and propose certain resolutions to [VNDA]‘s Stockholders, as discussed in more detail below.

On February 13, 2009, Tang Capital Partners, LP delivered a letter (the “Letter”) to the Nominating and Governance Committee of [VNDA] recommending the following individuals (the “Nominees”) as nominees for election to [VNDA]‘s Board of Directors at the 2009 Annual Meeting of Stockholders:

Kevin C. Tang
Andrew D. Levin, M.D., Ph.D.

On the same date, Tang Capital Partners, LP also delivered a notice (the “Notice”) to [VNDA] of its intention to take the following actions at the 2009 Annual Meeting of Stockholders, or any other meetings of stockholders held in lieu thereof, and any adjournments, postponements, reschedulings or continuations thereof:

(1) nominate the Nominees as candidates for election to [VNDA]‘s Board of Directors;

(2) propose resolutions of the stockholders of [VNDA] to amend the Bylaws to (i) provide that [VNDA]‘s Annual Meetings of Stockholders for each year commencing in 2010 be held on April 30th or, if April 30th is not a business day, on the first business day following April 30th and (ii) provide that certain matters requiring the approval of [VNDA]‘s Board of Directors require a unanimous vote for such approval; and

(3) propose resolutions of the stockholders of [VNDA] to request that the Board of Directors promptly take all necessary action to swiftly and orderly liquidate [VNDA]‘s remaining assets and return all remaining capital to [VNDA]‘s stockholders.

A copy of TCP’s letter nominating Messrs Tang and Levin to the board is set out below:

February 13, 2009

VIA HAND DELIVERY AND ELECTRONIC MAIL (ir@vandapharma.com, chip.clark@vandapharma.com)

William D. Clark
Corporate Secretary
Vanda Pharmaceuticals Inc.
9605 Medical Center Drive, Suite 300
Rockville, MD 20850

Re: Recommendations for Candidates for Election as Directors at the 2009 Annual Meeting of Stockholders of Vanda Pharmaceuticals Inc. (the “Company”)

Ladies and Gentlemen:

Tang Capital Partners, LP, a Delaware limited partnership (“TCP” or the “Investor”), and its affiliates collectively control 3,965,852 shares of Common Stock and have beneficially owned 5% or more of the Common Stock, based on the number of shares reported outstanding by the Company in its Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, for at least four months. Please refer to Exhibit A, attached hereto, for information regarding the Investor’s holdings.

The Investor believes that it would serve the best interests of the Company and its stockholders for the Nominating/Corporate Governance Committee of the Company (the “Committee”) to nominate the following two candidates (each a “Candidate” and together the “Candidates”) to the Board of Directors of the Company (the “Board”) at the 2009 Annual Meeting of Stockholders of the Company (the “2009 Annual Meeting”):

1. Kevin C. Tang
2. Andrew D. Levin, M.D., Ph.D.

Biographical and background materials relating to each Candidate are set forth in Exhibits B and C attached hereto. In addition, the Candidates are prepared to complete any D&O questionnaire reasonably requested by the Company in connection with their nomination as directors.

Pursuant to the guidelines outlined in the Company’s public filings with the Securities and Exchange Commission, the Investors are hereby submitting these two candidates to the Committee for review and consideration. Both Candidates meet the criteria and attributes said to be considerations of the Company’s Nominating/Corporate Governance Committee as described in the Company’s proxy statement for its 2008 Annual Meeting of Stockholders, including:

· ability to read and understand basic financial statements;
· general understanding of the Company’s industry;
· relevant expertise upon which to be able to offer advice and guidance to management;
· ability and sufficient time to devote to the affairs of the Company;
· excellence in his field;
· ability to exercise sound business judgment;
· commitment to vigorously represent the long-term interests of the Company’s stockholders; and
· an absence of factors that would preclude the Board from making a determination that the candidates are independent directors as defined in Rule 4200(a)(15) of the rules of the NASDAQ Stock Market.

In addition, we believe that the backgrounds and qualifications of these Candidates, when considered as a group with the other directors of the Company, will provide a balance of knowledge, experience and capabilities that will allow the Board to fulfill its responsibilities. Moreover, the affiliation of each of the Candidates with a holder of significant shares of the Company will align their interests with those of stockholders generally.

In a separate letter to the Corporate Secretary of the Company, the Investor is simultaneously submitting a Stockholder’s Notice of Nomination of Persons for Election as Directors and Other Proposed Business at the 2009 Annual Meeting of Stockholders of Vanda Pharmaceuticals Inc., dated February 13, 2009 (the “Notice”). If the Board determines to nominate either of the proposed Candidates, recommends his election and includes his name in the proxy card for the 2009 Annual Meeting, the Investor will not directly nominate such Candidate at the 2009 Annual Meeting. If we do not hear from you by the close of business on February 28, 2009, we will pursue any and all courses of action that we determine to be appropriate for the election of our Nominees at the 2009 Annual Meeting.

Please address any correspondence or questions to Tang Capital Management, LLC, Attention: Kevin C. Tang, telephone (858) 200-3830, facsimile (858) 200-3837 (with a copy to Cooley Godward Kronish LLP, 4401 Eastgate Mall, San Diego, CA 92121, Attention: Ethan E. Christensen, Esq., telephone (858) 550-6076, facsimile (858) 550-6420).

Very truly yours,

Tang Capital Partners, LP
By: Tang Capital Management, LLC, its general partner
By: /s/ Kevin C. Tang
Kevin C. Tang
Managing Director

VNDA responded by issuing the following press release:

VANDA PHARMACEUTICALS RESPONDS TO ANNOUNCEMENT AND FILING BY A GROUP LED BY TANG CAPITAL PARTNERS, LP

ROCKVILLE, MD. – February 23, 2009 – Vanda Pharmaceuticals Inc. (NASDAQ: VNDA) (“Vanda” or the “Company”) today issued the following statement regarding two letters sent to Vanda by Tang Capital Partners, LP (“TCP”) and a SEC filing by TCP stating its intent to, among other things, nominate two directors to stand for election at Vanda’s 2009 Annual Meeting of Stockholders and submit proposals at the 2009 Annual Meeting to amend Vanda’s bylaws and request that the Board of Directors of Vanda take action to liquidate the Company.

In accordance with Delaware law and the Company’s bylaws, the Company’s Board of Directors is divided into three classes of approximately equal sizes. The members of each class are elected to serve a 3-year term with the term of office of each class ending in successive years. The two current directors of the Company whose terms expire at the 2009 Annual Meeting of Stockholders are its current Chief Executive Officer, Mihael H. Polymeropoulos, M.D. and its current Chairman of the Board, Argeris N. Karabelas, Ph.D. Dr. Polymeropoulos is a founder of Vanda and has served as President and Chief Executive Officer and a Director of Vanda since May of 2003. Dr. Karabelas has served as a Director and Chairman of the Board since 2003, when he co-founded Vanda with Dr. Polymeropoulos. The Company intends to nominate both of these individuals for reelection at the 2009 Annual Meeting of Stockholders. Vanda believes that its current Board of Directors has the independence, the knowledge and the commitment to successfully implement the Company’s business plan and to deliver value for the Company and its stockholders.

“The Board is disappointed that Tang Capital has opted to conduct an election contest, particularly when the Company is so close to receiving a response from the FDA regarding its lead compound, iloperidone. Instead of working with us to maximize stockholder value, Tang Capital has chosen to create unnecessary costs and distractions for the Company at this important time,” said Brian K. Halak, Ph.D., a member of the Company’s Board of Directors and Chairman of its Nominating/Corporate Governance Committee. Vanda believes the best interests of its stockholders will be better served by re-electing Drs. Polymeropoulos and Karabelas, and by continuing to move forward with its current business plan. Vanda therefore intends to oppose TCP’s nominees and to work actively to re-elect Drs. Polymeropoulos and Karabelas.

Vanda carefully reviewed TCP’s proposals to amend its bylaws and determined that such amendments would not be beneficial to the Company and its stockholders. Vanda believes that the proposed amendments requiring unanimous Board consent to approve certain transactions would, in the Company’s opinion, severely restrict the ability of the Company and its Board of Directors to conduct business. In addition, Vanda believes that the proposed amendment requiring the Company to hold its Annual Meeting on April 30 of each year would create unnecessary timing constraints and would not allow the Company enough time to prepare and file its annual proxy statement in a careful, thoughtful and thorough manner. Consequently, Vanda intends to oppose TCP’s proposal to amend the Company’s bylaws.

In addition, the Company does not believe that it is currently in the best interests of Vanda or its stockholders for the Company to “cease ongoing operations” and liquidate the Company, as has been suggested by TCP. Vanda’s Board of Directors and management regularly review all of the strategic options for managing the company to create the greatest value for its stockholders. Vanda’s Board of Directors and management team have been and remain intensely focused on acting in the best interest of the Company and creating value for all of its stockholders. In connection with this goal, Vanda’s management team has been working diligently over the past several months with the Food & Drug Administration (“FDA”) to reevaluate its response to Vanda’s New Drug Application (“NDA”) for iloperidone for the treatment of schizophrenia. In September of 2008, management met with the FDA to discuss the FDA’s not-approvable letter relating to the NDA and submitted a complete response on November 6, 2008, at the request of the FDA. The FDA accepted the complete response for review and has set a new target action date of May 6, 2009. The Company believes that, even in the absence of an approval by the FDA for iloperidone, there remains significant unrealized value in the Company’s other compounds. Therefore, the Company does not believe that liquidation is currently in the best interests of the Company or its stockholders and intends to oppose TCP’s proposal to liquidate the Company.

TCP has previously criticized Vanda’s spending in general and specifically its spending since the receipt of the not-approvable letter from the FDA. However, Vanda has substantially reduced spending and dramatically reduced its employee headcount in the wake of the FDA letter. The Company has been working on a reduced budget and has curtailed all non-essential expenditures. Vanda believes that this approach will allow it to continue to minimize any reduction in stockholder value based on the Company’s cash assets while it awaits the FDA’s reply to its complete response. Unfortunately, due to the course of action taken by TCP, the Company will now need to expend significant unanticipated amounts in connection with its 2009 Annual Meeting of Stockholders.
Moreover, under Delaware law, the Board of Directors is given the power to determine, in the first instance, whether the Company should be dissolved. The only exception to the clear statutory scheme involves unanimous approval of liquidation by all stockholders, which, given the Board’s perspective, is extremely unlikely. The Company’s Board of Directors has determined that it remains to be in the best interests of the Company to continue its operations.

Vanda has previously met with TCP to discuss its proposals and would be willing to meet with them again in the future.

Conclusion

VNDA is an interesting play. With its stock closing yesterday at $0.78, the company has a market capitalization of $20.8M. We estimate the net cash value to be around 100% higher at $42.6M or $1.60 per share. This value is of course deteriorating rapidly, and the challenge for investors is to determine which of two outcomes is more likely: If TCP can get on the board quickly, stop the cash burn and liquidate the company, we’re likely to see a reasonably good return. If TCP cannot get onto the board quickly or at all, the company will continue to burn cash and the investment will be a dud. VNDA has a staggered board, so this will make TCP’s task difficult. We’re inclined to take a position now and see how this plays out, although we’re going to keep a close eye on the proceedings.

VNDA closed yesterday at $0.78.

The S&P500 Index closed yesterday at 721.36.

Hat tip to manny.

[Full Disclosure:  We do not have a holding in VNDA. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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