Vanda Vaults From Dog House to Drug Approval

(MoneyWatch)  If there was one biotech on every banker's list of cash shells, one dog that could make bankruptcy look like a good option, one name synonymous with snickers and snide comments, it was Vanda Pharmaceuticals. Which makes the FDA's approval of Vanda's schizophrenia drug Fanapt (iloperidone) surprising, to say the least.

The Street's Adam Feuerstein said it best:

Hell froze over Wednesday night, right before a squadron of flying pigs took to the sky. These things must be true because the U.S. drug regulators also approved Vanda Pharmaceuticals' treatment for schizophrenia.

Vanda's investors were certainly caught by surprise: they pushed the shares up 626 percent on Thursday. And probably none more so than Tang Capital Partners, which had been pushing Vanda to liquidate before it burned through the $42.6 million in cash it had at the end of the first quarter (Tang reversed its position yesterday, oddly enough).

What makes Vanda's approval so unlikely is that Fanapt received a not-approvable letter last July. The drug had met its endpoints in multiple Phase III trials, showing superior efficacy compared to placebo and non-inferiority compared to Pfizer's Geodon (ziprasidone). But the FDA raised concerns about another study in which Fanapt proved slightly inferior to Johnson & Johnson's Risperdal (risperidone).

The agency asked for more safety data and a new active-comparator trial, which would have cost Vanda in the neighborhood of $35 million. So Vanda decided not to do another trial. Instead, it reanalyzed and resubmitted its existing data and hoped for the best -- a biotech strategy used surprisingly often with an unsurprisingly low success rate.

Vanda's investors were not pleased, and in some quarters the biotech became one of those poster-child examples of a company that should return cash to shareholders instead of wasting it on an endless string of FDA appeals. As evidenced by several recent examples -- the scuttling of reverse mergers between cash shell Progen Pharmaceuticals and private Avexa, or cash shell VaxGen and private Raven Biotechnologies... not to mention the soap-opera-esque struggle between Avigen and the Biotechnology Value Fund, which led to Avigen's liquidation -- biotech investors are running low on the patience that used to allow firms to try, try again.

For Vanda, the bet paid off. But (and there's always a but) as Feuerstein said, it remains to be seen how Fanapt competes commercially against generic risperidone or the leading antipsychotic, AstraZeneca's Seroquel (quetiapine).

And Fanapt, acquired from Novartis and Titan Pharmaceuticals back before Vanda's 2006 IPO, isn't the only Vanda drug facing a competitive market. Insomnia drug tasimelteon improved sleep onset in a Phase III trial but has been less consistent in improving sleep maintenance, a claim it needs to face off against Takeda's Rozerem (ramelteon).

Flying Pig image courtesy of Flickr user Unlisted Sightings, CC 2.0