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Vanda's Stock Plunges 73% After FDA Rejects Drug

By Kendra Marr
Washington Post Staff Writer
Tuesday, July 29, 2008

Vanda Pharmaceuticals' stock tumbled 73 percent yesterday after federal regulators rejected the Rockville biotech's schizophrenia treatment, saying it was similar to a drug already on the market.

The action by the Food and Drug Administration cast a shadow over the company's future and its original business plan: take drugs abandoned by other firms and reposition them for sale.

In this case, Vanda paid $500,000 to buy a drug intended for psychiatric conditions from the Swiss company Novartis and hoped the drug, iloperidone, would treat the symptoms of schizophrenia. Recently, it had a similar experience with an insomnia drug that helped patients fall asleep faster but failed to show long-term results.

Yesterday, Vanda's shares fell $2.46, closing at 90 cents, the company's biggest percentage drop since it started trading two years ago.

Vanda has put all development activities related to iloperidone, the schizophrenia drug, on hold.

Earlier, the company had acquired a treatment for sleep and mood disorders from Bristol-Myers Squibb for $500,000, intending to use it as an insomnia drug. Last month, a late-stage trial met its goal of helping patients fall asleep faster but failed to demonstrate long-term benefits compared with a placebo.

The biotech has been trying to gain approval for iloperidone in an already competitive marketplace. Though the FDA found that iloperidone was more effective than placebo pills, the drug had similar results as Pfizer's ziprasidone, which is marketed as Geodon.

In its letter to Vanda announced yesterday, the FDA recommended that the drugmaker perform additional studies to compare iloperidone to current schizophrenia treatments such as Eli Lilly's olanzapine, branded as Zyprexa, or risperidone, marketed by Johnson & Johnson as Risperdal. Vanda would also need to collect additional safety data for another application.

"This came as a shock to us, since we had actually expected a relatively clean approvable letter, and it further indicates the continuing hurdle-raising at the FDA," Corey Davis, an analyst at Natixis Bleichroeder, said in a note yesterday. "Clearly, drugs that aren't really novel or more than incrementally positive are going to face progressively higher hurdles for approval."

Chief executive Mihael Polymeropoulos said Vanda would decide its next move after it sat down with the FDA to discuss the rejection letter and why iloperidone must go through a comparative study.

"The decision is a bit surprising," said Polymeropoulos, who left a senior executive job with Novartis to start Vanda. "Not only are we disappointed, we're puzzled. Iloperidone is being held to different standards than other agents shown to work in a similar way."

Some drugs currently being marketed showed effectiveness only against the placebo, which iloperidone has already done, Polymeropoulos said.

And Vanda's schizophrenia treatment has already been tested in more than 3,000 patients.

Vanda's cash, equivalents and marketable securities totaled about $65.6 million as of June 30. In a call yesterday to investors, Polymeropoulos said, without giving direct guidance, that the efficacy study was identical to a prior study that cost about $35 million.

"Extra tests are not only unnecessary, they would be extremely expensive for a company our size," Polymeropoulos said.

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