What happened

Shares of Vanda Pharmaceuticals (NASDAQ:VNDA) fell more than 19% today after the company announced it was pursuing legal action against the U.S. Food and Drug Administration. The regulator has placed a partial clinical hold on the company's drug candidate tradipitant and won't allow it to enter human clinical trials lasting longer than 12 weeks until nonrodent animal testing is performed. Toxicology data collected from a nine-month study in dogs would provide more confidence the drug candidate would avoid unnecessary risk to human patients.

Vanda Pharmaceuticals has countered that the animal testing is unnecessary and that it has already provided sufficient safety data to proceed with human clinical trials. The company is suing the FDA in hopes a court will force the regulator to lift the partial clinical hold. Mr. Market doesn't seem very enthusiastic about that course of action.

As of 11:52 a.m. EST, the stock had settled to an 18.9% loss.

A dog with his head tilted to the side.

Image source: Getty Images.

So what

While the company's press release stated it was taking "a stand against unnecessary animal research" that would result in the "death of dozens of dogs," animal testing in rodents, dogs, pigs, zebrafish, and even primates is a routine part of preclinical drug development (sorry, Fido). That said, Vanda Pharmaceuticals may have a case.

The FDA has set guidelines for conducting animal testing. However, if a company provides additional information that demonstrates equivalent data to what might be gained from animal testing, then the regulator is supposed to make an assessment and describe why the data are or are not equivalent. Vanda Pharmaceuticals alleges the FDA didn't do that in this case.

Instead of reviewing numerous preclinical animal studies -- including "a three-month rat study, a six-month rat study, and a three-month dog study at doses up to 300 times the intended human equivalent dose" -- the FDA wants tradipitant to be tested in a nine-month dog study. That recommendation is nonbinding, but it's not an uncommon request. Of course, Vanda Pharmaceuticals would rather not delay the start of robust human clinical trials by nine months.

Check out the latest Vanda Pharmaceuticals earnings call transcript.

Now what

Vanda Pharmaceuticals has the right to sue the FDA and may even have a case, but investors are questioning whether the gamble will pay off. If the court rules against the company, then it will have to conduct a nine-month dog toxicology study anyway. When the time between now and the court's ruling is factored into the equation, the delay would end up being longer than nine months.

That said, a 20% decline in the stock price seems a bit harsh. The business turned profitable in 2018 and should remain so for the foreseeable future. Considering shares are trading at just six times sales, this pharma stock may be worth a closer look.