Intrinsic value of Vanda Pharmaceuticals - VNDA

Previous Close

$16.05

  Intrinsic Value

$6.84

stock screener

  Rating & Target

str. sell

-57%

  Value-price divergence*

+696%

Previous close

$16.05

 
Intrinsic value

$6.84

 
Up/down potential

-57%

 
Rating

str. sell

 
Value-price divergence*

+696%

*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of VNDA stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  32.73
  12.10
  11.39
  10.75
  10.18
  9.66
  9.19
  8.77
  8.40
  8.06
  7.75
  7.48
  7.23
  7.01
  6.80
  6.62
  6.46
  6.32
  6.18
  6.07
  5.96
  5.86
  5.78
  5.70
  5.63
  5.57
  5.51
  5.46
  5.41
  5.37
  5.33
Revenue, $m
  146
  164
  182
  202
  222
  244
  266
  290
  314
  339
  366
  393
  421
  451
  482
  514
  547
  581
  617
  655
  694
  734
  777
  821
  867
  915
  966
  1,019
  1,074
  1,131
  1,192
Variable operating expenses, $m
 
  68
  76
  84
  93
  102
  111
  121
  131
  142
  153
  164
  176
  188
  201
  215
  229
  243
  258
  274
  290
  307
  325
  343
  362
  383
  404
  426
  449
  473
  498
Fixed operating expenses, $m
 
  110
  112
  115
  118
  121
  124
  127
  130
  134
  137
  140
  144
  148
  151
  155
  159
  163
  167
  171
  175
  180
  184
  189
  194
  198
  203
  208
  214
  219
  224
Total operating expenses, $m
  165
  178
  188
  199
  211
  223
  235
  248
  261
  276
  290
  304
  320
  336
  352
  370
  388
  406
  425
  445
  465
  487
  509
  532
  556
  581
  607
  634
  663
  692
  722
Operating income, $m
  -19
  -14
  -6
  2
  11
  21
  31
  41
  52
  64
  76
  88
  101
  115
  129
  144
  159
  175
  192
  210
  228
  248
  268
  289
  311
  334
  359
  384
  411
  440
  469
EBITDA, $m
  -7
  -10
  -2
  8
  17
  27
  38
  49
  61
  73
  85
  99
  112
  127
  142
  157
  174
  191
  209
  227
  247
  267
  288
  311
  334
  359
  384
  411
  440
  469
  501
Interest expense (income), $m
  0
  0
  0
  0
  1
  1
  1
  2
  2
  3
  3
  3
  4
  4
  5
  5
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  15
  16
  17
Earnings before tax, $m
  -18
  -14
  -6
  2
  11
  20
  30
  40
  50
  61
  73
  85
  97
  111
  124
  138
  153
  169
  185
  202
  220
  239
  258
  279
  300
  322
  346
  371
  397
  424
  453
Tax expense, $m
  0
  0
  0
  1
  3
  5
  8
  11
  14
  17
  20
  23
  26
  30
  34
  37
  41
  46
  50
  55
  59
  64
  70
  75
  81
  87
  93
  100
  107
  114
  122
Net income, $m
  -18
  -14
  -6
  1
  8
  15
  22
  29
  37
  45
  53
  62
  71
  81
  91
  101
  112
  123
  135
  148
  161
  174
  188
  203
  219
  235
  253
  271
  290
  310
  330

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  141
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  210
  89
  99
  109
  120
  132
  144
  157
  170
  184
  198
  213
  228
  244
  261
  278
  296
  315
  334
  354
  375
  397
  420
  444
  469
  495
  523
  551
  581
  612
  645
Adjusted assets (=assets-cash), $m
  69
  89
  99
  109
  120
  132
  144
  157
  170
  184
  198
  213
  228
  244
  261
  278
  296
  315
  334
  354
  375
  397
  420
  444
  469
  495
  523
  551
  581
  612
  645
Revenue / Adjusted assets
  2.116
  1.843
  1.838
  1.853
  1.850
  1.848
  1.847
  1.847
  1.847
  1.842
  1.848
  1.845
  1.846
  1.848
  1.847
  1.849
  1.848
  1.844
  1.847
  1.850
  1.851
  1.849
  1.850
  1.849
  1.849
  1.848
  1.847
  1.849
  1.849
  1.848
  1.848
Average production assets, $m
  39
  43
  48
  53
  59
  64
  70
  76
  83
  90
  97
  104
  111
  119
  127
  136
  144
  153
  163
  173
  183
  194
  205
  217
  229
  242
  255
  269
  283
  299
  315
Working capital, $m
  124
  -16
  -18
  -20
  -22
  -24
  -27
  -29
  -31
  -34
  -37
  -39
  -42
  -45
  -48
  -51
  -55
  -58
  -62
  -65
  -69
  -73
  -78
  -82
  -87
  -92
  -97
  -102
  -107
  -113
  -119
Total debt, $m
  0
  1
  10
  19
  29
  40
  51
  62
  74
  86
  99
  112
  126
  141
  156
  171
  187
  204
  222
  240
  259
  279
  299
  321
  343
  367
  391
  417
  444
  472
  501
Total liabilities, $m
  79
  80
  89
  98
  108
  119
  130
  141
  153
  165
  178
  191
  205
  220
  235
  250
  266
  283
  301
  319
  338
  358
  378
  400
  422
  446
  470
  496
  523
  551
  580
Total equity, $m
  131
  9
  10
  11
  12
  13
  14
  16
  17
  18
  20
  21
  23
  24
  26
  28
  30
  31
  33
  35
  38
  40
  42
  44
  47
  50
  52
  55
  58
  61
  64
Total liabilities and equity, $m
  210
  89
  99
  109
  120
  132
  144
  157
  170
  183
  198
  212
  228
  244
  261
  278
  296
  314
  334
  354
  376
  398
  420
  444
  469
  496
  522
  551
  581
  612
  644
Debt-to-equity ratio
  0.000
  0.080
  0.990
  1.770
  2.440
  3.020
  3.520
  3.960
  4.350
  4.700
  5.010
  5.290
  5.540
  5.760
  5.970
  6.160
  6.330
  6.490
  6.630
  6.770
  6.900
  7.010
  7.120
  7.220
  7.320
  7.410
  7.490
  7.570
  7.640
  7.710
  7.770
Adjusted equity ratio
  -0.145
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  -18
  -14
  -6
  1
  8
  15
  22
  29
  37
  45
  53
  62
  71
  81
  91
  101
  112
  123
  135
  148
  161
  174
  188
  203
  219
  235
  253
  271
  290
  310
  330
Depreciation, amort., depletion, $m
  12
  4
  5
  5
  6
  6
  7
  8
  8
  9
  10
  10
  11
  12
  13
  14
  14
  15
  16
  17
  18
  19
  21
  22
  23
  24
  25
  27
  28
  30
  31
Funds from operations, $m
  -19
  -10
  -2
  7
  14
  21
  29
  37
  45
  54
  63
  72
  82
  93
  103
  115
  126
  139
  151
  165
  179
  194
  209
  225
  242
  260
  278
  298
  318
  339
  362
Change in working capital, $m
  -11
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
Cash from operations, $m
  -8
  -8
  0
  9
  16
  23
  31
  39
  47
  56
  65
  75
  85
  96
  106
  118
  130
  142
  155
  169
  183
  198
  213
  229
  246
  264
  283
  303
  323
  345
  368
Maintenance CAPEX, $m
  0
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -21
  -22
  -23
  -24
  -25
  -27
  -28
  -30
New CAPEX, $m
  -1
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
Cash from investing activities, $m
  -10
  -9
  -9
  -10
  -10
  -12
  -12
  -13
  -14
  -15
  -16
  -17
  -17
  -19
  -20
  -21
  -23
  -23
  -24
  -26
  -27
  -29
  -30
  -33
  -34
  -36
  -37
  -39
  -42
  -43
  -46
Free cash flow, $m
  -18
  -17
  -9
  -1
  5
  12
  18
  26
  33
  41
  50
  58
  67
  77
  86
  97
  107
  119
  130
  142
  155
  169
  183
  197
  213
  229
  246
  263
  282
  302
  322
Issuance/(repayment) of debt, $m
  0
  1
  9
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
Issuance/(repurchase) of shares, $m
  8
  23
  7
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  8
  24
  16
  10
  10
  10
  11
  11
  12
  12
  13
  13
  14
  14
  15
  16
  16
  17
  18
  18
  19
  20
  21
  22
  23
  24
  25
  26
  27
  28
  29
Total cash flow (excl. dividends), $m
  -10
  7
  8
  8
  15
  22
  29
  37
  45
  54
  62
  72
  81
  91
  101
  112
  124
  135
  148
  161
  174
  188
  203
  219
  235
  252
  270
  289
  309
  330
  352
Retained Cash Flow (-), $m
  2
  -23
  -7
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
Prev. year cash balance distribution, $m
 
  131
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  115
  0
  7
  14
  21
  28
  36
  44
  52
  61
  70
  80
  89
  100
  110
  122
  133
  146
  159
  172
  186
  201
  216
  233
  250
  267
  286
  306
  327
  348
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  110
  0
  6
  11
  16
  20
  24
  27
  30
  32
  33
  34
  34
  33
  32
  31
  29
  27
  24
  22
  19
  17
  14
  12
  10
  8
  6
  5
  4
  3
Current shareholders' claim on cash, %
  100
  50.0
  43.4
  43.4
  43.4
  43.4
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Vanda Pharmaceuticals Inc., a biopharmaceutical company, focuses on the development and commercialization of products for the treatment of central nervous system disorders. The company’s marketed products include HETLIOZ (tasimelteon), a product for the treatment of non-24-hour sleep-wake disorder; and Fanapt (iloperidone), a product for the treatment of schizophrenia. Its clinical development products include Tradipitant (VLY-686), a small molecule neurokinin-1 receptor antagonist that is under the clinical development for the treatment of chronic pruritus in atopic dermatitis and gastroparesis; Trichostatin A, a small molecule histone deacetylase inhibitor, which is in development for the treatment of hematologic malignancies; and AQW051, a Phase II alpha-7 nicotinic acetylcholine receptor partial agonist. The company markets its products in the United States, Canada, Europe Union, Israel, and Mexico. Vanda Pharmaceuticals Inc. was incorporated in 2002 and is headquartered in Washington, the District of Columbia.

FINANCIAL RATIOS  of  Vanda Pharmaceuticals (VNDA)

Valuation Ratios
P/E Ratio -39.2
Price to Sales 4.8
Price to Book 5.4
Price to Tangible Book
Price to Cash Flow -88.3
Price to Free Cash Flow -78.5
Growth Rates
Sales Growth Rate 32.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -66.7%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets -8.5%
Ret/ On Assets - 3 Yr. Avg. -5.5%
Return On Total Capital -13.6%
Ret/ On T. Cap. - 3 Yr. Avg. -7.1%
Return On Equity -13.6%
Return On Equity - 3 Yr. Avg. -7.1%
Asset Turnover 0.7
Profitability Ratios
Gross Margin 82.9%
Gross Margin - 3 Yr. Avg. 86.4%
EBITDA Margin -4.1%
EBITDA Margin - 3 Yr. Avg. 6.1%
Operating Margin -13%
Oper. Margin - 3 Yr. Avg. -3.1%
Pre-Tax Margin -12.3%
Pre-Tax Margin - 3 Yr. Avg. -2.9%
Net Profit Margin -12.3%
Net Profit Margin - 3 Yr. Avg. -2.9%
Effective Tax Rate 0%
Eff/ Tax Rate - 3 Yr. Avg. 0%
Payout Ratio 0%

VNDA stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the VNDA stock intrinsic value calculation we used $146 million for the last fiscal year's total revenue generated by Vanda Pharmaceuticals. The default revenue input number comes from 2016 income statement of Vanda Pharmaceuticals. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our VNDA stock valuation model: a) initial revenue growth rate of 12.1% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for VNDA is calculated based on our internal credit rating of Vanda Pharmaceuticals, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Vanda Pharmaceuticals.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of VNDA stock the variable cost ratio is equal to 41.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $107 million in the base year in the intrinsic value calculation for VNDA stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for Vanda Pharmaceuticals.

Corporate tax rate of 27% is the nominal tax rate for Vanda Pharmaceuticals. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the VNDA stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for VNDA are equal to 26.4%.

Life of production assets of 10 years is the average useful life of capital assets used in Vanda Pharmaceuticals operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for VNDA is equal to -10%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $131 million for Vanda Pharmaceuticals - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 44.191 million for Vanda Pharmaceuticals is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Vanda Pharmaceuticals at the current share price and the inputted number of shares is $0.7 billion.

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COMPANY NEWS

▶ Vanda Pharmaceuticals preps for jet lag study results later this year   [Aug-04-17 04:29PM  American City Business Journals]
▶ Vanda reports 2Q loss   [Aug-02-17 05:41PM  Associated Press]
▶ Vanda Pharmaceuticals expands into cystic fibrosis, blood cancer   [May-04-17 05:09PM  American City Business Journals]
▶ Vanda reports 1Q loss   [May-02-17 06:10PM  Associated Press]
▶ Vanda reports 4Q loss   [05:26PM  Associated Press]
▶ D.C.-area biotech stocks fall on Trump's tough talk on industry   [Jan-11-17 11:10PM  at bizjournals.com]
▶ Is Perficient, Inc. (PRFT) A Good Stock to Buy?   [Dec-12-16 05:09PM  at Insider Monkey]
Stock chart of VNDA Financial statements of VNDA
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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