Vanda Pharmaceuticals built a company now valued at more than $750 million from three compounds acquired for $500,000 each in up-front payments.

Vanda, of Rockville, Md., said Friday it grossed $103.7 million in a follow-on offering of 3.8 million shares at $27.29 each, a per-share price increase of 173 percent from the company's initial public offering at $10 per share nine months earlier.

The stock, which gained full momentum in December on positive Phase III data from a trial of iloperidone in schizophrenia, continued its climb Friday, as shares (NASDAQ:VNDA) gained another $2.81 to close at $30.10.

"The demand for the offering was extraordinary," Steven Shallcross, senior vice president and chief financial officer at Vanda," told BioWorld Today. "As a result, we were able to complete a transaction on favorable terms. Having relatively late-stage assets and well-thought-out clinical programs - and executing on them with positive results - can certainly translate into a nice response in the financial markets."

Vanda got rights to iloperidone and its third product candidate, VSF-173, from Novartis Pharma AG, of Basel, Switzerland, for up-front payments of $500,000 each. It paid Bristol-Myers Squibb Co., of New York, the same amount for rights to its second candidate, VEC-162. In each case, the pharmaceutical company would get royalties on resulting sales and is entitled to milestone payments related mostly to commercialization goals.

Based on the 604-patient Phase III schizophrenia data reported on iloperidone in December, Vanda expects to file a new drug application with the FDA by the end of the year. The oral compound demonstrated statistically significant improvement of symptoms vs. placebo, as well as statistical significance on other measures of efficacy.

Vanda plans to create a sales force of 150 to 200 people to commercialize iloperidone in the U.S., Shallcross said. A partner will be sought for commercialization outside the U.S. Novartis would get a royalty rate in the mid-20s, he said, along with potential milestones of less than $100 million.

Iloperidone is a 5HT2/D2 antagonist that may have the advantage of producing fewer side affects than other atypical antipsychotic agents, Vanda said. It also is being developed for bipolar disorder and other psychiatric conditions. A long-acting injectable formulation also is under development.

The positive data on iloperidone followed news in November that a second compound, VEC-162, met the primary endpoint of latency to persistent sleep in a Phase III trial in transient insomnia. It also demonstrated statistical significance in secondary endpoints. Vanda plans to begin at least one more Phase III trial in chronic sleep disorders in the second half of 2007.

VEC-162, a melatonin agonist, was acquired from Bristol-Myers, which would be entitled to royalties in the mid-teens on any eventual sales.

BMS also is eligible to receive sales-related milestone payments of less than $50 million, Shallcross said. Vanda plans to find a partner for worldwide development and commercialization of VEC-162.

Vanda's third drug candidate, VSF-173 for treating excessive sleepiness, is expected to begin a Phase II trial in mid-2007. Novartis would be entitled to royalties in the low double digits on that product. Like iloperidone, Vanda intends to commercialize that product in the U.S. and partner it for development and sales elsewhere.

Net proceeds from the follow-on offering were expected to total $96.2 million. JPMorgan Securities and Morgan Stanley & Co. are joint book-running managers for the offering. Banc of America Securities LLC and Natexis Bleichroeder Inc. are co-managers. Underwriters have an option to purchase up to 570,000 additional shares to cover overallotments.

Vanda expected to end 2006 with $25 million to $30 million in cash and equivalents, to which it now is adding $96.2 million. It has about 25.93 million shares outstanding.

The financing, Shallcross said, "gives us two things. It gives us the ability move forward with the clinical programs we currently have under development, and it also puts us in position of strength for potential partnership discussions we may enter into sometime this year. The focus right now is developing these three products."

Vanda was one of four biotechnology companies that went public in 2006 and ended the year with returns of greater than 100 percent on its stock price. It priced in April at $10 per share and closed the year at $24.65, a gain of 147 percent.

The other companies that closed the year with gains of better than 100 percent on their IPOs were Omrix Biopharmaceuticals Inc., of New York, (203 percent); Acorda Therapeutics Inc., of Hawthorne, N.Y., (150 percent); and Osiris Therapeutics Inc., of Baltimore, (130 percent).