A US stock trading at 70% of net-cash value

It's also been FCF positive in 6 of the last 7 years.

I cashed out this stock because I found a better idea.

The management team here were grubby and didn’t really have much consideration for shareholders imo.

That didn’t put me off because the stock was so cheap and the core business seemed pretty decent.

The business started getting ‘wins’ with their new drug pipeline and I was around 80% up on the stock.

When I stumbled across a much better set up I took my cash, and recycled it into that other one.

This was a classic deep-value play.

Cheap stock and a mediocre (but cash-flowing) business that was likely to be around for a few more years.

The outcome here (80% in a year) is pretty standard for this type of set-up.

The lesson here is really to try and find similar ideas that have considerate management teams.

This just tips the odds further in our favour, although it really isn’t essential.

Publish price: $4.15

Exit Price: $7.45

This equated to a a gain of around 80%, which is solid for less than a year.

I left the original post below in case you wanted to read it.

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Original post published on 17th May 2025:

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Every once in a while, a stock comes along that checks all the boxes that deep-value investors secretly pray for:

• Trading near or below net cash.

• Deeply hated by the market.

• Tangible (liquid) assets.

• Optionality from a product pipeline no one is paying attention to.

Here are some quick stats to illustrate the current pricing:

• NCAV Ratio = 0.8

• TBV Ratio = 0.7

• EV/E Ratio = <1 (EV is negative)

• P/FCF Ratio = 8

Today’s stock is currently a net-net. It’s priced below even the value of its net-cash. The market gives zero value to its business, or even its Dollar bills.

This indicates a very simple assumption:

This business will never make any money again, while incinerating all of its cash in the process.

Our job is to figure out how likely this is versus the likelihood of it reverting back to its mean of profitability over the coming years.

Let’s take a look…

Vanda Pharmaceuticals (NASDAQ: VNDA) has a bruised regulatory record, a growing portfolio of treatments for complex CNS conditions, and $340.9 million in cash, Vanda is staring down the barrel of market irrelevance, and that’s exactly why I’m interested.

This isn’t a pre-revenue biotech.

This isn’t a turnaround.

This is a functioning business with gross margins north of 94%, three approved drugs on the market, and a pipeline that, if any of it works, could lead to multi-bagger returns.

What they do

Founded in 2003, Vanda went public in 2006 and has since developed a focused, albeit narrow, product lineup targeting rare and underserved conditions:

Their commercial portfolio includes the following:

Fanapt (iloperidone)

Indicated for schizophrenia.

Recently approved (April 2024) for acute treatment of manic or mixed episodes in Bipolar I disorder.

Represents a stable, if aging, revenue stream.

HETLIOZ (tasimelteon)

Treats Non-24-Hour Sleep-Wake Disorder and nighttime disturbances in Smith-Magenis Syndrome.

Initially hailed as a niche blockbuster, it has plateaued amid regulatory rejection and competition.

PONVORY(ponesimod)

Launched in Q3 2024 for relapsing forms of multiple sclerosis.

Early days, but a promising addition.

These aren’t high-volume, sexy blockbusters. But they’re steady, targeted, and priced for rare diseases, which means insurance pays up and margins stay thick.

While the market is busy writing Vanda off for its failed regulatory submissions, it’s ignoring the early-stage pipeline, which might not be worth much today, but offers significant upside tomorrow:

Tradipitant for atopic dermatitis (Phase II/III)

Motion sickness compound (Phase II)

Charcot-Marie-Tooth disease treatment (preclinical/early trials)

These are not moonshots.

They are incremental improvements in underserved niches. And importantly, Vanda has the cash runway to pursue them without raising capital.

The situation

Here are a few key figures from Q1 2025:

Revenue = $50m (5% YoY growth)

Gross Margin = 94%

Net-loss = -29.5m

Cash and Equivalents = $340m

Debt = $0

To put that into perspective:

You’re buying a business with $341m in cash, $150m in product revenue, high margins and zero debt for less than the value of the cash.

In the real world this is as close to a free lunch as you can get.

Of course, there are reasons for this type of pricing, which we need to consider:

1. Regulatory Failures

The FDA rejected tradipitant (for gastroparesis) in September 2024. This came on the heels of an earlier rejection for expanding HETLIOZ’s indication to insomnia.

2. Revenue Concentration Risk

In 2023, over 99% of revenue came from just two products: Fanapt and HETLIOZ. These drugs are profitable, yes, but Fanapt loses exclusivity in 2027, and HETLIOZ already faces generic competition and declining growth.

3. Q1 Miss

Analysts expected $61 million in Q1 revenue. Vanda delivered $50 million. It wasn’t a disaster, but in biotech, even minor misses feed the bear narrative.

4. M&A Fatigue

Cycle Pharmaceuticals reportedly offered $8/share in 2024. Vanda’s board rejected it.

This frustrated shareholders who saw the bid as a way out. Vanda’s board insists it’s worth more.

I happen to agree with them about the valuation, but their lack of negotiation does indicate some level of indifference to shareholders, which is worth watching.

The opportunity

Here’s what makes this interesting to an old deep-value investor like me:

1. Cash as Downside Protection

Vanda’s cash balance covers ~70% of the share price. The business, the pipeline, the drug IP, all of it comes nearly free.

If they shut down R&D and just ran Fanapt and HETLIOZ for cash, the company could likely return all capital in 3-4 years.

You’re not relying on FDA miracles. You’re getting paid to wait.

2. Real Assets, Not Vaporware

Unlike many small-cap biotechs with dreams and press releases, Vanda has real, marketed products:

It booked $194 million in revenue in 2023.

Its gross margins are better than most software companies.

It has a real sales team and distribution.

This isn’t Theranos. This is a cash-generating entity being valued like a call option.

3. Pipeline Optionality for Free

Vanda’s R&D team continues to develop new indications and products. Will all of them succeed? No. But:

Tradipitant still has potential in other indications.

Motion sickness and dermatology are large, underserved verticals.

Charcot-Marie-Tooth is a rare disease, a space where FDA and insurers are supportive.

And again: the company has the resources to run these trials without dilution.

4. Strategic Appeal: Someone Will Want This

Vanda rejected an $8/share all-cash bid. That implies at least one buyer sees value 100% higher than current levels.

And that’s not an isolated case. Several mid-cap pharmas are looking to acquire:

Revenue-generating orphan drug portfolios,

Cash-rich biotechs with late-stage candidates,

Targets with clean balance sheets and low burn.

Vanda is all three.

The catalysts and risks

There are several upcoming events that could unlock the value and see the stock price soar:

1. Product Diversification by 2026

Vanda projects six commercial products by 2026. That dramatically reduces the single-product dependency that’s dragged its valuation.

2. FDA Approvals or Trial Progress

Even early-stage trial updates can move the needle. The market isn’t pricing in any success from the pipeline.

3. Renewed Takeover Bids

With cash covering most of the stock, it’s not hard to imagine another bidder stepping up, especially if shares stay cheap.

4. Activist Involvement

Boards rejecting takeovers often attract activist investors. With such a simple capital structure, Vanda is ripe for a shake-up.

Of course, we have to consider the risks too:

Execution Risk: The company is burning cash. If R&D fails to deliver, time will run out.

Competition: Fanapt and HETLIOZ are vulnerable to generic erosion.

FDA Volatility: Another failed trial would hurt sentiment further.

Management Distrust: The rejected buyout bid makes investors question if management is acting in shareholders’ best interests.

This isn’t a stock for everyone. But it doesn’t need to be.

My personal take on this is to simply track the cash burn and progress. It’s already priced far below liquidation value so being patient is unlikely to cost much.

Final take

Vanda is a rare opportunity where price disconnects completely from fundamentals.

The biotech space is littered with pre-revenue darlings trading at 10x EV/Revenue.

Vanda?

Has revenue.

Has gross margins >90%.

Has zero debt.

Has ~$340M in cash.

Trades at ~1x EV/Revenue.

You don’t have to believe in the pipeline.

You just have to believe cash is still worth par and that a functioning company is worth more than liquidation value.

Vanda is not a “story stock.” It’s a deep value stub that could:

Double on a buyout.

Triple if its pipeline hits.

And even if nothing happens, return 30–50% as the market re-prices the balance sheet.

No narrative needed. Just cash, margin, and pessimism.

I currently have 5% of my portfolio in the stock and will likely maintain that ratio. I don’t plan to buy more but I do plan to hold patiently.

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