Where Does Vanda's Deal With Novartis Leave Titan Pharmaceuticals?

Written by Vinny Cassano

Monday, 12 October 2009 19:07

The question regarding of who would market Vanda Pharmaceuticals' recently FDA approved schizophrenia drug, Fanapt, was answered on Monday evening when it was announced that Novartis would purchase the US and Canadian rights to Fanapt for an up-front payment of $200 million.

According to the press release, Vanda stands to rake in an additional $265 million if certain developmental and commercial milestones are met. Vanda will also receive a royalty on sales of the product, although the royalty percentage has not yet been made public.

The news of who would take Fanapt to market has been long-awaited by anxious investors and although Monday's announcement made a murky situation clearer, there is still more of the story to be told, in my opinion - mainly involving the fate Titan Pharmaceuticals (TTNP.pk).

It has long been my opinion that an investment in Titan Pharmaceuticals was better than one in Vanda because of the greater upside potential of TTNP. My opinion has not changed and it would not surprise me to see an additional release detailing a buyout of Titan by Novartis - now that we know Novartis is, in fact, the mystery player.

Due to a previously existing licensing agreement with Vanda, Titan is due to receive 8% in royalties on net sales of Fanapt up to the $200 million mark and will receive 10% on all sales thereafter. With the new Vanda deal in place, Novartis is now on the hook to pay Titan those royalties and it may be deemed more financially beneficial for the company to simply purchase Titan.

That move on the part of Novartis would possibly save the company from having to pay out hundreds of millions of dollars over the years and it would also give them Probuphine, Titan's Phase III drug to treat opioid addiction (also in Phase II trials for the treatment of chronic pain), and Titan's ProNeura drug delivery system. Titan, unlike Vanda, has the more vibrant pipeline, when compared to that of Vanda's, and it is possible that Novartis would rather make a buyout play for Titan based on that fact.

Of course, this is just purely my own speculation.

Of note, Titan is also the recent recipient of a grant from the NIH; the grant being awarded to advance Probuphine through the pipeline. The grant not only alleviates the need for Titan to seek outside funding for Probuphine, but it validates the potential of both Probuphine and the ProNeura delivery system.

Whether Titan Pharmaceuticals ends up being purchased by Novartis or not, Monday's announcement is huge news for a company that was on the brink of disaster only six months ago. Now, things have never looked brighter.

Novartis is a huge player in the pharmaceutical market and there is little doubt that the company - with all of its weight and infrastructure - will be able to maximize the sales potential of Fanapt in quick time. Since the schizophrenia market in the United States is a $14 billion market, that bodes extremely well for Titan's bottom line.

Additionally, with the rate of frequency that schizophrenia patients switch medications, Novartis has a chance to immediately steal significant market share upon commercial launch of Fanapt, which is now due to occur early next year.

For Vanda, that company will now have the funds to advance Fanapt to market internationally and possibly try to also advance through the pipeline Tasimelteon, the company's clinical stage drug to treat sleep disorders.

Also mentioned in Monday's press release was the development of an injectible form of Fanapt, although that product is at least a year out.

Shares of Vanda traded to the upside by 20% during after hours trading on Monday, but the bigger gains, in my opinion, will eventually be had by Titan. Titan's current market cap of roughly $90 million no longer does justice to the potential of Probuphine or ProNeura when also considering the sales potential of Fanapt while being marketed by powerhouse Novartis. It has been a volatile market of late - especially in the bio-pharmaceutical sector - so it would not surprise me if TTNP traded with volatility for the remainder of the week.

That being said, I think the long run is going to prove that any purchase of shares of Titan Pharmaceuticals for under three dollars was a dang good one.

Disclosure: VFC is long TTNP, no position VNDA.

Vinny Cassano also authors the popular stock investing website VFC's Stock House.

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