What happened

Shares of Vanda Pharmaceurticals (NASDAQ:VNDA) are up 8.7% at 2:35 p.m. EST after the drugmaker gained an expanded Food and Drug Administration (FDA) approval for its sleep drug Hetlioz. The new approval covers patients with Smith-Magenis syndrome (SMS), a rare neurodevelopmental disorder.

So what

One of the hallmarks of SMS is that patients have a hard time sleeping during the night. It's a fairly rare disease -- Vanda estimates that about 15,000 Americans have SMS. Hetlioz works by inhibiting the melatonin receptor. Taking the drug before bed helps reset patients' circadian rhythms.

Hetlioz is also approved to treat non-24-hour sleep-wake disorder, a disease found in blind people who can't sense light, which disrupts their circadian rhythms.

Doctor examining a boy's leg

Image source: Getty Images.

Non-24-hour sleep-wake disorder is a substantially larger indication than SMS, with Vanda estimating there may be up to 95,000 people living with non-24-hour sleep-wake disorder. But reaching those patients and their doctors has been somewhat tough -- Vanda only sold $116.5 million worth of the drug in the first three quarters of this year.

SMS patients may be easier for Vanda to reach because they're likely seeing a specialist for their disease. And there's an advocacy group, Parents and Researchers Interested in Smith-Magenis Syndrome (PRISMS), where Vanda can promote Hetlioz. Without any other approved treatments for SMS, it may also be easier for Vanda to get insurance coverage for the disease.

Now what

The capsule form of Hetlioz, which adult SMS patients will take, is already available since it's the same formulation as the one for patients with non-24-hour sleep-wake disorder. A liquid formulation for children with SMS is expected to launch in the first quarter of 2021.

Even after today's jump, Vanda's market cap is less than three times management's 2020 guidance of around $250 million in sales, which seems fairly cheap for a company that has the potential to accelerate growth with this new indication.

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