"There are at least two disadvantages of iloperidone Fanapt over other SGAs at this time," the manual entry states. First, patients are required to start treatment with Fanapt at low doses, gradually building up to the maximum dose, in order to avoid problems with low blood pressure. Second, Fanapt has been shown to cause irregular heart rhythm, according to the manual's summary of Fanapt.

The authors of the manual conclude, "It is unclear to us exactly where iloperidone is going to fit in the treatment of schizophrenia. It is not going to be a first-line agent because of the dosing and QTc issues. Iloperidone is going to be more expensive than either first-generation drugs or generic SGAs. Patients who cannot tolerate or respond to other SGAs might be a candidate for iloperidone."

Adds Madison Williams analyst Moskowitz, "The manual's commentary on Fanapt isn't any different from what we're finding in our own research and conversations and surveys with doctors. The safety of these drugs is the first consideration, more than efficacy, so commentary like this will give doctors pause."

Moskowitz downgraded Vanda to "reduce" from "buy" last month and cut his Fanapt sales forecast due to evidence suggesting that Novartis' launch efforts were failing.

Jefferies analyst Corey Davis retained his buy rating on Vanda but cut his price target from $20 to $15. "With Fanapt launching slowly, and reorganization at Novartis, we're a bit more cautious," he wrote.

Fanapt isn't the only new schizophrenia drug to launch in recent months. Merck ( MRK) is also now selling a drug known as Saphris. Both Fanapt and Saphris compete against existing schizophrenia drugs from Johnson & Johnson ( JNJ), Pfizer ( PFE) and AstraZeneca ( AZN), as well as low-cost generics.

Vanda shares are down 3% to $7.93 in recent trading.

-- Reported by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

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