Key Takeaways

Expansion of Fanapt's sales and marketing efforts is expected to drive significant revenue growth through increased brand awareness and prescriber engagement.
New drug applications and developments in inflammation treatments offer potential diversification and new revenue streams for Vanda Pharmaceuticals.
Generic competition and rising operational expenses threaten Vanda's profitability, while Medicare changes and inventory issues further pressure revenue growth and stability.

Catalysts

About Vanda Pharmaceuticals

A biopharmaceutical company, focuses on the development and commercialization of therapies to address high unmet medical needs worldwide.What are the underlying business or industry changes driving this perspective?

The strong revenue growth for Fanapt, driven by its commercial performance and the launch in new indications such as bipolar I disorder, is expected to positively impact future revenues.
The expansion of the Fanapt sales force from 200 to 300 representatives and the direct-to-consumer advertising campaign initiated in early 2025 are expected to increase brand awareness and prescriber engagement, contributing to further revenue growth.
The long-acting injectable program for Fanapt and the new drug application for Bysanti (milsaperidone) have the potential to expand Vanda's Psychiatry portfolio, potentially increasing future earnings and revenue.
The filing of new drug applications for Tradipitant in motion sickness, and its potential to address gastroparesis and improve tolerability of GLP-1 analogs like Wegovy, could introduce new revenue streams if approvals are secured.
The acquisition and further development of imsidolimab for generalized pustular psoriasis and other inflammatory disorders can diversify Vanda's portfolio and improve future revenue and net margins through new market opportunities in inflammation and dermatology.

Vanda Pharmaceuticals Earnings and Revenue Growth

Vanda Pharmaceuticals Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Vanda Pharmaceuticals's revenue will grow by 24.0% annually over the next 3 years.
Analysts assume that profit margins will increase from -9.5% today to 5.9% in 3 years time.
Analysts expect earnings to reach $22.5 million (and earnings per share of $0.38) by about May 2028, up from $-18.9 million today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 39.4x on those 2028 earnings, up from -13.7x today. This future PE is greater than the current PE for the US Biotechs industry at 20.4x.
Analysts expect the number of shares outstanding to grow by 0.2% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 6.49%, as per the Simply Wall St company report.

Vanda Pharmaceuticals Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

The presence of generic competition for HETLIOZ has led to a significant decrease in net product sales, highlighting the risk of further revenue declines in the face of ongoing or increased competition.
Operational expenses have risen primarily due to higher SG&A costs related to commercial product launches and other corporate activities, which could impact net margins and profitability.
The introduction of the Medicare benefit redesign will negatively affect gross-to-net calculations for Medicare segments, particularly for Fanapt and HETLIOZ, potentially pressuring revenue growth.
Potential sales for HETLIOZ may decline due to elevated inventory levels at specialty pharmacy customers and continued destocking, presenting risks to future revenue stability.
Expanding the sales force in response to competition necessitates significant investment, posing a financial risk if these efforts do not yield sufficient revenue growth to cover the increased costs.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $12.667 for Vanda Pharmaceuticals based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $20.0, and the most bearish reporting a price target of just $5.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $379.1 million, earnings will come to $22.5 million, and it would be trading on a PE ratio of 39.4x, assuming you use a discount rate of 6.5%.
Given the current share price of $4.43, the analyst price target of $12.67 is 65.0% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.