Vanda Shares Slip on Sleep Drug Results
Goal of Trial Met, but Long-Term Benefit Proves Little Better Than a Placebo

Associated Press
Friday, June 27, 2008

Rockville biotechnology company Vanda Pharmaceuticals said yesterday that a late-stage trial for an insomnia drug met its goal, but the drug failed to show a long-term benefit compared with a placebo, sending shares tumbling.

Vanda shares fell 79 cents, or 15.8 percent, to $4.20.

The drug, tasimelteon, was shown in the trial to improve the onset of sleep better than a placebo through the first eight nights, the main goal of the trial.

By the 29th night, however, there was no statistically significant difference between tasimelteon and the placebo. Results showed that patients on tasimelteon did not stay asleep longer than patients taking the placebo by the end of the trial, and only those taking a lower dosage of the drug saw their sleep time increase. Both were secondary goals.

Citi Investment Research analyst Lucy Lu said the "clearly disappointing" results may have jeopardized the company's securing a potential partnership, because the market opportunity for such a limited drug isn't big enough to attract a marketing partner. She also questioned whether Vanda had the financial resources to market the drug on its own, given heavy advertising spending in the sleep market.

Tasimelteon is similar to Takeda Pharmaceutical's Rozerem, which also works by binding to melatonin receptors in the brain, helping to modulate the sleep-wake cycle. However, as Lu pointed out, Rozerem also has not been found to maintain sleep and garners only $100 million in sales annually.

Despite tasimelteon's missing its secondary goals, Friedman Billings Ramsey analyst David Amsellem said insomnia drugs can gain approval based on positive sleep onset data alone. He added that it is unclear how the overall data might impact a partnership, although Vanda would probably need a partner to fund further late-stage studies of the drug.

Amsellem maintained his "Outperform" rating on the stock, as the company awaits a decision from the Food and Drug Administration on its schizophrenia drug iloperidone, which represents a much larger market opportunity.

Vanda and Takeda could not be reached for comment.