Vanda Sinks on FDA Rejection (Update)

Updated from 1:44 p.m. EDT

Vanda Pharmaceuticals (VNDA Quote) said Monday that the Food and Drug Administration rejected its lead drug, iloperidone, and will require another clinical trial and more safety data before it can approve the antipsychotic drug.

Shares plummeted $2.46, or 73%, to 90 cents in recent trading as investors stomach a possible multiyear delay and thin resources.

On a conference call Monday, CEO Mihael Polymeropoulos said he was very surprised by the FDA's request.

Specifically, the FDA was concerned about the drug's efficacy in schizophrenia patients relative to Johnson & Johnson's (JNJ Quote) Risperdal, a standard drug used comparatively to gauge efficacy. The agency wants a trial comparing iloperidone to placebo and an active comparator such as Eli Lilly's (LLY Quote) Zyprexa or J&J's Risperdal.

The agency also said it would require Vanda to obtain more safety data on iloperidone, marketed as Fanapta, for patients at a dose range of 20 to 24 mg per day.

Polymeropoulos said the efficacy study is similar to the one the company already completed -- which cost roughly $35 million -- and would take at least a year and a half, while the chronic safety data could take two years to complete.

Under the capital available to the company today, it would not be able to conduct both the additional efficacy study and the additional safety exposures, Polymeropoulos said.

The CEO said Vanda will have to examine a number of options, including potential partnerships and assets to divest, but it will first establish further clarity with the FDA regarding the non-approvable letter.