Vanda's Fanapt Deal Just Okay: BioBuzz

ROCKVILLE, Md. ( TheStreet) -- Vanda Pharmaceuticals ( VNDA) found a partner willing to sell its schizophrenia drug Fanapt, but is this the deal the company and its shareholders really wanted?

Novartis ( NVS) is the logical choice to sell Fanapt in the U.S., probably the only choice, since the Swiss drug maker used to own the Fanapt, licensed the drug to Vanda in 2004 but still controls significant financial rights.

An outright sale of Vanda to Novartis was the deal Vanda bulls dreamed about, which is why the stock traded as high as $16 a share this year.

But Monday's licensing deal is more problematic. The $200 million in cash Vanda receives from Novartis supports a base valuation of about $7 a share, but upside from there is now almost totally dependent on Fanapt sales.

Vanda won't disclose its sales royalty but hinted that it was in the mid-teens range. If you assume 15% and peak Fanapt sales ranging from $200 million to $400 million, Fanapt is worth between $4 a share and $8 a share to Vanda.

Add that to the cash from this licensing deal and Vanda's stock is worth $11-$15 a share.

Vanda shares were up 10% to $12.65 in recent Tuesday trading.

Let's give Vanda credit for its accomplishments. The company got Fanapt approved, a feat no one thought possible. And the company made the best deal possible for the drug's commercialization. Fanapt is launching into a very tough competitive environment for schizophrenia drugs, including lower-cost generics, but if the drug does very well, Vanda stands to gain more from an additional $265 million in milestone payments from Novartis.

Meantime, Titan Pharmaceuticals ( TTNP.PK) is essentially in the same boat. Titan gets about a 10% royalty on Fanapt sales, payable by Novartis. Titan doesn't receive any milestone payments.

Using the same peak sales estimate for Fanapt as above, Titan is fairly valued between $1.50 a share to $3 a share. The stock currently trades around $1.49.

J&J Tops Third-Quarter Earnings View

(At 7:58 AM EDT)

Johnson & Johnson ( JNJ) said Tuesday that third-quarter earnings rose 2.6% to $1.20 a share on total revenue of $15.1 billion.

Analysts, on average, were expecting third-quarter earnings of $1.13 a share, although Johnson & Johnson's revenue came in a bit lighter than consensus of $15.2 billion.

The diversified health care giant raised guidance for 2009 earnings to a range of $4.54 to $4.59 a share from its previous forecast range of $4.45 to $4.55 a share.

-- Reported by Adam Feuerstein in Boston

Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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