Pharmas Market with Mike Huckman

Novartis Vindicates Vanda

Novartis Headquarters

I like alliteration.  Could you tell?

And who doesn't like a comeback story?

Vanda Pharmaceuticals may go down in industry history as one of the most remarkable turnaround stories.  A few months ago it was literally a dollar stock.  I had once covered the company because it had a unique story of trying to turn other drug companies' trash into treasure. But over the years, the attempted transformation of the products didn't go so well and Vanda fell off of my radar screen because it's market value had become way too small.  The FDA had said VNDA's main developmental drug, Fanapt for schizophrenia, wasn't approvable.  End of story.  Then, out of nowhere, the FDA shockingly approved it.  The stock surged back to life and Vanda once again became a player.

But the drug's backstory makes this an even more compelling tale.  Several years ago, Novartis decided Fanapt wasn't worth pursuing and sold it to Vanda for an undisclosed price.  They don't always try to unload them at junk sales, but drug companies scrap stuff all the time for any number of reasons.

As fate would have it, I was coincidentally doing a live interview with Novartis CEO Dr. Daniel Vasella the morning that Vanda announced the FDA had approved Fanapt.  I asked him whether, in hindsight, it was a mistake to abandon the drug.  I went back and transcribed his answer:

"Based on the data we had we made a decision which we thought was rational.  You also have to take into consideration that we always have several opportunities.  So, we have to make tradeoffs between different drugs we want to develop.  And so, I'm happy for them and I'm happy if it's a good drug for the patients." 

Now, five months later, Dr. Vasella has made another tradeoff.  But this one, to buy back some of the rights to Fanapt, is gonna cost his company a pretty penny.  NVS is paying VNDA $200 million up front and is on the hook for as much as $265 million.  It will also pay Vanda a royalty on sales.  CEO Dr. Mihael Polymeropoulos told me in a "First on CNBC" interview this morning that the royalty will be in the low double-digits. And NVS will be picking up certain expenses.  At first, VNDA shares shot up on the news, but they weakened over the course of the trading day. The stock is up 2,200 percent this year.

Inside the 'Boomerang Deal'

Besides taking profits, investors might also be disappointed it wasn't a straight-up acquisition.  But at least one analyst thinks that could still be in the cards.  David Moskowitz at Caris & Company told clients in a research note today, "This deal has all the hallmarks of a creeping acquisition, in our view, and a strong ramp of Fanapt and the achievement of clinical milestones for Fanapt Depot (a longer-acting, injectable form) are likely triggers for NVS to move on the whole company."  C&C would like to bank VNDA.

The companies say Fanapt could hit the market early next year.

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