Washington Editor

Vanda Pharmaceuticals Inc.'s positive Phase III results on the investigational schizophrenia drug iloperidone were well received by every measure, with the company's stock value soaring 68.7 percent Thursday, fueled by both the data and buyout rumors.

The shares (NASDAQ:VNDA) gained $10.65 to close at $26.15 on far heavier than normal volume. In just the past couple of months, Gilead Sciences Inc. paid $2.5 billion for Myogen Inc. and Genzyme Corp. spent $584 million for AnorMED Inc., both premium purchases, and more consolidation is expected.

"I don't think you can overstate" Vanda's attractiveness these days, said Corey Davis, a senior analyst with Natexis Bleichroeder Inc. in New York. "There's a tremendous scarcity of new drugs, in general, in the biopharma world."

Noting that Vanda's pipeline features both iloperidone and a Phase III insomnia drug, VEC-162, he said it "could be a tremendous acquisition candidate," particularly among "the bigger drug companies that are pipeline starved." Vanda, of Rockville, Md., not only has worldwide rights to both drugs, but also has composition-of-matter patents on them, offering protection for iloperidone from generic competition for another 10 years and until 2023 for VEC-162.

"We feel blessed," Vanda President and CEO Mihael Polymeropoulos told BioWorld Today, acknowledging the enviable position his firm currently occupies with multiple business opportunities before it. "What we are trying to do here is build a company, and we have now begun to prove that our approach to the research and development of drugs is working."

Davis told BioWorld Today that he projects iloperidone to potentially generate $500 million in annual sales as a schizophrenia treatment, and an equal amount for bipolar disorder further down the road, and he expects VEC-162 to bring in between $700 million and $800 million every year for primary insomnia.

The nearest-term market upside comes from iloperidone, and Vanda plans to file for FDA approval in the fourth quarter of next year. A meeting with the agency is scheduled for next quarter.

Top-line Phase III findings showed that the atypical antipsychotic produced a statistically significant improvement compared to placebo on the positive and negative symptom scale (PANSS), the 604-patient trial's primary endpoint (p=0.006). The drug effect proved even better in a secondary endpoint, a measure of efficacy in a genetic subpopulation with a polymorphism that occurs in about 70 percent of patients thought to be associated with the pathogenesis of schizophrenia and apparently related to iloperidone response (p=0.002).

Additionally, iloperidone demonstrated positive efficacy on the positive symptom subscale of PANSS (p=0.0009) and the negative (p=0.027), and exhibited equivalent efficacy to the active arm, which Davis speculated to be Geodon (ziprasidone, Pfizer Inc.).

Collectively, he labeled the data "very impressive," and also pointed out that iloperidone's safety profile proved consistent with previous Phase III trials. While the company has not yet publicized the drug's impact on four out of five side effects common in this class of drugs - extra-parametal symptoms, prolactin elevation, diabetes and weight gain - Davis said it's "pretty clear" that iloperidone has "minimal" bearing on those potential adverse outcomes.

With regard to another well understood side effect of atypical antipsychotics, QT interval, no patients experienced them in excess of 500 milliseconds, the threshold of concern to the FDA. The QTc change from baseline averaged 11.4 milliseconds across all patients, and Vanda also confirmed with an additional genetic marker that the QT prolongation was shorter in the majority of patients who are good iloperidone metabolizers, 10.4 milliseconds compared to 15 milliseconds among poor metabolizers.

That kind of pharmacogenetic profiling clearly is part of the company's plans to give physicians and patients information to help personalize their antipsychotic therapy. A psychiatrist by training, Polymeropoulos said market research has shown that physicians have "tremendous excitement" for such a predictor, given the "trial-and-error" prescribing that is common today, and said such a diagnostic test would be ready to pair with the drug's launch. Davis noted that providing an option for doctors to predict which patients might best respond and which might be at risk for QTc elongation represents "a nice little differentiator" from other drugs in this market.

Vanda plans to hire a "relatively small" sales force to commercialize the drug to U.S. psychiatrists, the bulk of prescribers of these drugs, Polymeropoulos said, and find a partner to handle overseas marketing. He added, though, that the company wouldn't be averse to a global deal.

In the aggregate, the positive efficacy and safety profiles provide a "clear differentiation" to separate iloperidone from its competitors in the space, Davis said, "a highly underserved but huge market."

The randomized, double-blind trial was conducted for four weeks in an inpatient setting. It tested 12 mg of iloperidone twice per day. The company, which licensed iloperidone in 2004 from Basel, Switzerland-based Novartis Pharma AG, plans to release more specific data at a future scientific or investor conference "in the near future," Polymeropoulos said.

The other drug in Vanda's pipeline that's generating high interest of late is VEC-162, a melatonin agonist in development for insomnia and circadian rhythm sleep disorders, as well as mood disorders like depression. Licensed from New York-based Bristol-Myers Squibb Co. in 2004, it recently exhibited positive efficacy across multiple measures in a Phase III trial. Those findings boosted Vanda's stock by $5.14 last month to $14.90. (See BioWorld Today, Nov. 16, 2006.)

Another Phase III study in insomnia is under way, and given the marketing expense for such a drug, Davis said Vanda would need a partner with a general practice sales presence, and predicted a deal could come by the middle of next year if there's not a buyout before then. Should Vanda not get sold before a VEC-162 partnership comes along, the company would be "much less saleable," he added, save for the new partner, so look for movement in the next six months.

"There are a lot of deals getting done out there," said Davis, whose firm makes a market in Vanda, "and people aren't going to let this one sit idle for too long."