What happened

After it was announced yesterday that the stock would be added to the S&P 600 index, shares in Vanda Pharmaceuticals (NASDAQ:VNDA) jumped on Wednesday and were up 10% at 2 p.m. EDT. 

So what

Vanda Pharmaceuticals will replace Inogen in the S&P Small Cap 600 Index prior to the market open on Oct. 1, so the rally in its shares is likely due to traders moving into the stock ahead of demand from index mutual funds and exchange-traded funds that track that index.

A passenger plane soaring into the sky.

IMAGE SOURCE: GETTY IMAGES.

The addition of Vanda Pharmaceuticals is a reflection of the progress it's made, including the successful launch of Hetlioz, a treatment for non-24, a sleep-wake disorder that affects about 80,000 Americans. In the second quarter, Hetlioz sales totaled $28 million, up 10% from Q1 2018 and 25% higher than in Q2 2017.

When combined with revenue from Fanapt, a schizophrenia drug, Vanda Pharmaceuticals' sales were $47.4 million last quarter, up 13% from $42.1 million in the prior-year period. Thanks to a tight lid on expenses, the revenue growth allowed the company to deliver non-GAAP net income of $7.7 million, or $0.15 per share, in the quarter. 

Now what

Management's guiding for full-year product sales of between $180 million and $200 million in 2018, and it's targeting cash of $225 million to $235 million at year's end.

That should give it plenty of financial flexibility to execute its current R&D plans and potentially launch Hetlioz as a treatment for jet leg. The company has already announced positive phase 3 data in jet lag, and an FDA filing is expected soon. If the FDA OKs expanding Hetlioz's label, then its sales could enjoy additional tailwinds beginning as early as 2019. 

Further back in its pipeline, data for Hetlioz in Smith-Magenis syndrome (a developmental disorder that includes disturbed sleep patterns) and data from a trial evaluating another drug, tradipitant, in gastroparesis (delayed gastric emptying) are expected before the end of 2018, and a phase 3 study of tradipitant for chronic itch in eczema patients is on tap.

Since Hetlioz's sales growth has allowed it to turn the corner to profitability and the company has irons in the fire that could further revenue growth in the future, this is an intriguing stock to consider owning in risk-tolerant, small-market-cap portfolios.

Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.