A Closer Look at Vanda

When an executive of a global pharmaceutical firm leaves his position to start a new company and advance some of his old firm's drugs into later-stage testing, there must be a good reason for why he'd risk putting his career on the line.

When the former CEO of the same global pharma invests millions of dollars in the same development-stage drugmaker, then you know something is up. When the start-up that these execs invested in then becomes a publicly traded stock, you know you have a drugmaker that warrants a look.

The development-stage drugmaker in question is Vanda Pharmaceuticals (NASDAQ:VNDA). Vanda's lead compound in development is an atypical antipsychotic drug named iloperidone. Vanda acquired the rights to iloperidone from Novartis (NYSE:NVS) back in 2004; the compound has been in various stages of development since the 1990s.

Later in the year Vanda plans on submitting a New Drug Application to the FDA for iloperidone. With the market for antipsychotic drugs valued at over $16 billion, let's take a look and see if we can get a better idea of whether iloperidone will gain FDA approval.

Effective? Ja!
Testing whether an antipsychotic compound in clinical trials is effective in helping schizophrenics is a difficult task. The most common measure of a drug's efficacy in treating schizophrenia is what is known as the Positive And Negative Syndrome Scale (PANSS).

It's a measure of how much a schizophrenia sufferer's symptoms have changed over time. The lower a PANSS score goes, the fewer symptoms a schizophrenic is experiencing. The bigger the negative number, the more effective a drug is.    

Here is a table detailing how iloperidone has performed at different doses in three six-week phase 3 short-term efficacy studies run by Novartis.

Even though the efficacy of iloperidone was not statistically significant across all doses in the studies presented, there is a fairly clear dose-dependent response in patients (except for the 8 mg/day group). A dose-dependent response is important because it is generally a very good indicator that the drug is having some efficacy effect even if it doesn't reach statistical significance in a particular patient group.

Vanda even gave an explanation that the reason that some of the above drug arms didn't reach statistical significance is the fact that patients were taking the drug in an outpatient setting and possibly not dosing the drug correctly (or at all).

Whether this theory holds water or not will be up to the FDA, but among the agency's requirements for regulatory approval of a drug are "at least two adequate and well-controlled studies, each convincing on its own, to establish effectiveness."

Since most of the four studies above produced mixed efficacy results with some arms of the trials not passing the statistical significance muster, Vanda ran a phase 3 trial with a 24 mg once-a-day dose of iloperidone. In December of last year Vanda announced that this study was a success. On the efficacy endpoint, an average change of -12.0 was seen from a schizophrenic's baseline PANSS score when taking iloperidone. 

With the completion of its successful study, Vanda likely satisfied the FDA's concerns about "two adequate" clinical studies validating the efficacy portion of the drug approval equation. This leaves us to discuss the other important half of a drug's profile, which is safety. This is where iloperidone may run into trouble.

Safety. Safety. Safety.
It only takes a few instances of a deadly disorder to pop up in a clinical trial and potentially be associated with a drug for the FDA to get very nervous.

Just look what happened with Elan and Biogen Idec (NASDAQ:BIIB) after three cases of a rare disease occurred in patients taking their multiple sclerosis treatment Tysabri, or how harshly the FDA reviewed Cephalon's (NASDAQ:CEPH) potential attention-deficit disorder drug, Sparlon, after one patient may have come up with a deadly skin disorder.

How does all this relate to Vanda? In a few patients iloperidone has been associated with a potentially dangerous change in the beating of the heart known as a prolongation of the QTc interval. Prolongation of a heart's QTc interval is sometimes associated with increased risk of such adverse events as seizures or even sudden death.

There are several different thresholds that the FDA uses to determine if a drug's prolongation of the QTc interval is too dangerous. A prolongation of the QTc interval "greater than 500 milliseconds during therapy has been a threshold of particular concern" according to the agency's guidelines. The agency goes on to say that "substantial prolongation of the (QTc) interval, with or without documented arrhythmias, could be the basis for nonapproval of a drug."

Unfortunately for Vanda, two patients in an uncontrolled extension study of iloperidone experienced a greater-than-500 millisecond prolongation of their QTc interval, although no patients in a controlled study experienced this issue.

Vanda's management likes to point out that other antipsychotics have a similar QTc interval prolongation effect on the heart. But a look at other atypicals to gain approval in recent years, like Bristol-Myer's (NYSE:BMY) Abilify, didn't show as much of a negative effect on patients' QTc intervals. Only Pfizer's (NYSE:PFE) Geodon, approved in 2002, had nearly as negative an effect on the QTc interval as iloperidone did, based on a review of publicly available information.  

Adding it all up
Besides its proven efficacy, iloperidone has in its favor that it appears to have other very meaningful benefits associated with it, like a lower incidence of weight gain in patients taking the drug compared to other atypical antipsychotics.

With sales of antipsychotic agents climbing to over $16 billion in 2005 and up to 75% of patients who take these drugs changing medications at least once until they find a suitable treatment, there will undoubtedly be a market for iloperidone if it can gain regulatory approval.

Vanda is targeting a New Drug Application submission by the end of the year, with a regulatory decision likely to come 10 months later. Whether Vanda is able to gain approval for iloperidone likely hinges on the drug's safety data and what the agency thinks of the drug's effects on the QTc interval.

After exhaustively reviewing the thousands of pages of briefing documents and transcripts of numerous FDA advisory panel meetings on atypical antipsychotic drugs in recent years, it's impossible for me to make a call as to whether iloperidone will be able to squeak by the FDA without more detailed information on its QTc interval effects in some patients. Hopefully Vanda is able to present more detailed data of the drug's effects on the heart in an upcoming scientific meeting.

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has a disclosure policy. Pfizer is an Inside Value recommendation. Biogen Idec is a Stock Advisor selection.