Executive Summary / Key Takeaways

• Vanda Pharmaceuticals is undergoing a significant transformation, pivoting from past reliance on HETLIOZ to a new growth phase driven by its expanding psychiatry and anti-inflammatory portfolios.
• Fanapt's recent approval for bipolar I disorder is fueling substantial commercial growth, with Q3 2025 net product sales up 31% year-over-year and prescriptions increasing by 35%, supported by an expanded sales force and direct-to-consumer campaigns.
• A robust pipeline, including Bysanti (milsaperidone) for bipolar I disorder, schizophrenia, and major depressive disorder, tradipitant for motion sickness, and imsidolimab for generalized pustular psoriasis, offers multiple near-term regulatory catalysts and significant long-term revenue potential.
• The company's strategic investments in R&D and commercial infrastructure, while impacting near-term cash, are aimed at achieving ambitious 2030 revenue targets of over $750 million from psychiatry alone and over $1 billion in total annual revenue.
• Key risks include ongoing generic competition for HETLIOZ, the impact of Medicare Part D benefit redesign on gross-to-net, and the successful execution of multiple commercial launches and pipeline advancements.

A Strategic Pivot Towards Diversified Growth

Vanda Pharmaceuticals Inc. is a global biopharmaceutical company dedicated to developing and commercializing innovative therapies for high unmet medical needs. Founded in 2003, Vanda has strategically evolved, moving beyond its initial success with HETLIOZ to embrace a diversified portfolio and a robust pipeline. The company's overarching strategy is to enter a new growth phase by expanding its commercial footprint and leveraging its technological differentiators in psychiatric, neurological, and inflammatory disorders. This involves substantial, albeit conditional, investments in commercial infrastructure and research and development, all aimed at securing long-term market leadership and expanding therapeutic impact.

The biopharmaceutical industry, particularly the atypical antipsychotic market, is characterized by its promotional sensitivity, where active marketing and patient support programs significantly influence product uptake. Vanda is acutely aware of these dynamics, committing to a consumer-centric approach for its commercialized and pipeline assets. The company's foundational strengths lie in its targeted R&D approach, often focusing on niche indications, and its commitment to utilizing technologies like genetics and genomics in drug discovery and clinical trials.

Technological Edge and Innovation Driving Future Value

Vanda's pipeline is built on a foundation of diverse and differentiated technologies, each offering unique benefits and addressing specific unmet needs.

Fanapt (iloperidone), a mixed alpha, serotonin, and dopamine receptor antagonist, is currently commercialized for bipolar I disorder and schizophrenia. Beyond its established uses, Vanda has identified an unexpected yet robust benefit in treating hypertension. A meta-analysis of placebo-controlled studies revealed a rapid and sustainable effect in reducing systolic and diastolic blood pressure, particularly in individuals with baseline hypertension. The observed effect size is comparable to other effective antihypertensives. Vanda plans to initiate a study for a Fanapt long-acting injectable (LAI) formulation as a once-a-month treatment for uncontrolled hypertension, aiming to address medication non-adherence, a significant public health risk. This LAI formulation is also in a Phase III study for schizophrenia relapse-prevention, where the oral formulation has already demonstrated success.

Bysanti (milsaperidone), a new chemical entity, represents a significant technological advancement. Discovered by Vanda as an active metabolite of iloperidone, milsaperidone quickly interconverts to iloperidone when administered orally. Clinical studies have demonstrated bioequivalence at both low and high doses. This allows for a once-daily dosing regimen for Bysanti in its ongoing Phase III study for major depressive disorder (MDD), offering potential advantages in convenience and compliance over twice-daily formulations. If approved, Bysanti's exclusivity, including pending patent applications, could extend into the 2040s, providing a long runway for market penetration and revenue generation.

Tradipitant (VLY-686), a small molecule neurokinin-1 (NK-1) receptor antagonist, is being developed for gastroparesis and motion sickness. The motion sickness indication, with a PDUFA target action date of December 30, 2025, addresses a market that has not seen a new treatment in 45 years, highlighting a significant unmet need. Furthermore, Vanda is exploring tradipitant's potential to prevent vomiting induced by GLP-1 analogs like Wegovy (semaglutide), a frequent and severe side effect that often limits the efficacy of these weight-loss drugs.

In its anti-inflammatory portfolio, Vanda recently licensed Imsidolimab, an IL-36R antagonist monoclonal antibody. This technology targets the IL-36 cytokine system, which is believed to be underexplored therapeutically in various autoimmune inflammatory conditions. The company expects to submit a Biologics License Application (BLA) for generalized pustular psoriasis (GPP) in Q4 2025, a rare and severe skin disorder. Vanda is also exploring its utility in other inflammatory skin conditions where IL-36 plays a significant role.

Vanda's early-stage pipeline includes VQW-765, an alpha-7 nicotinic acetylcholine receptor partial agonist for acute performance anxiety, and antisense oligonucleotide (ASO) molecules like VCA-894A for Charcot-Marie-Tooth Disease Type 2S (CMT2S) and VGT-1849A for polycythemia vera. These programs underscore Vanda's commitment to addressing rare diseases with no available treatments, leveraging advanced genetic and molecular approaches.

Competitive Landscape and Strategic Positioning

Vanda operates within a competitive biopharmaceutical landscape, facing both larger, diversified players and niche specialists. Its primary direct competitors in psychiatric and neurological disorders include Jazz Pharmaceuticals , Alkermes (ALKS), Johnson & Johnson through its Janssen division, and Bristol-Myers Squibb (BMY).

Vanda's strategy is to carve out a niche by focusing on underserved therapeutic areas and leveraging its agility in innovation. While larger competitors like Johnson & Johnson (JNJ) and Jazz Pharmaceuticals (JAZZ) benefit from immense scale, robust R&D capabilities, and extensive distribution networks, Vanda differentiates itself through targeted efficacy and a patient-centric approach. For instance, HETLIOZ continues to maintain the majority of market share despite the availability of three generic products, a testament to brand loyalty and its unique value proposition for Non-24 and SMS patients.

In the rapidly growing atypical antipsychotic market, Fanapt has emerged as one of the fastest-growing products through the first nine months of 2025, particularly driven by its bipolar I disorder indication. This growth is a direct result of Vanda's expanded sales force (now approximately 300 representatives) and effective direct-to-consumer (DTC) campaigns. The company's ability to efficiently launch and manage DTC campaigns, a track record established with previous products, is a significant competitive advantage in this promotionally sensitive market.

The anticipated launch of Bysanti presents a unique competitive opportunity. As a new chemical entity, Bysanti is expected to have significantly more favorable revenue economics than Fanapt, particularly regarding Medicaid rebates. While Fanapt's Medicaid business currently yields near-zero net revenue due to historical price increases, Bysanti, upon approval, would be subject to a statutory rebate of 23.1% at launch, potentially resulting in a gross-to-net of 25% to 30%. This substantial financial advantage, coupled with potential tolerability benefits over competitors like Caplyta (Intra-Cellular Therapies (ITCI)) in MDD, positions Bysanti as a strong contender in the psychiatry market.

PONVORY, for relapsing forms of multiple sclerosis, is in its early commercialization phase. While its growth is expected to be steady rather than rapid, Vanda is building a dedicated specialty sales force and increasing awareness to capture market share in this specialized area. The company's strategic investments in commercial infrastructure, including targeted sponsorships, aim to support long-term market leadership for its growing portfolio.

Financial Performance and Liquidity

Vanda's financial performance in 2025 reflects its strategic investments and the early successes of its new commercial launches, alongside the challenges of generic competition. For the nine months ended September 30, 2025, total revenues increased by 9% year-over-year to $158.9 million. This growth was primarily driven by Fanapt, which saw net product sales jump 24% to $84.1 million in the same period. HETLIOZ net product sales, however, decreased by 3% to $55.0 million, reflecting the impact of generic competition and inventory dynamics. PONVORY net product sales for the nine months ended September 30, 2025, were $19.8 million, a 7% decrease compared to the same period in 2024.

The company reported a net loss of $79.3 million for the nine months ended September 30, 2025, compared to a net loss of $14.0 million in the prior year period. This increased loss is largely attributable to significant increases in operating expenses. Selling, general and administrative (SG&A) expenses surged by 63% to $175.0 million, primarily due to heightened commercial activities for the Fanapt bipolar disorder and PONVORY RMS launches. Research and development (R&D) expenses also increased substantially by 47% to $80.3 million, driven by the upfront payment for the imsidolimab license and expanded development programs for Fanapt and Bysanti.

As of September 30, 2025, Vanda's cash, cash equivalents, and marketable securities stood at $293.8 million, a decrease from $374.6 million at December 31, 2024.

Cash flows used in operating activities for the nine months ended September 30, 2025, were $80.0 million, reflecting the net loss and changes in operating assets and liabilities. Despite the cash burn, management believes its current liquidity will be sufficient for at least the next 12 months, based on current operating plans. However, the company acknowledges that future cash requirements may necessitate additional capital through debt, equity, or partnerships, which could potentially dilute existing stockholders.

Outlook, Guidance, and Strategic Milestones

Vanda's management has provided updated financial guidance for 2025, reflecting both the strong performance of Fanapt and the substantial investments being made. Total revenues from Fanapt, HETLIOZ, and PONVORY are now expected to be between $210 million and $230 million for 2025. Year-end 2025 cash is projected to be between $260 million and $290 million. This revised guidance, narrowed to the lower end of the original revenue range, accounts for strong Fanapt growth, potential variability or decline in HETLIOZ revenue due to generic competition, and the impact of significant R&D and commercial investments.

Looking further ahead, Vanda has set ambitious 2030 revenue targets, aiming for over $750 million from its psychiatry portfolio alone and exceeding $1 billion in total annual revenue. These targets are predicated on the successful approval and commercialization of Bysanti for bipolar I disorder, schizophrenia, and MDD, as well as Fanapt LAI.

Several key regulatory and clinical milestones are anticipated in the near term:

• Tradipitant NDA for motion sickness: PDUFA target action date of December 30, 2025, with a potential market launch as early as January 1, 2026.
• HETLIOZ sNDA for jet lag disorder: Expedited re-review by the FDA with a decision expected by January 7, 2026.
• Bysanti NDA for bipolar I disorder and schizophrenia: PDUFA target action date of February 21, 2026, with a potential commercial launch in Q3 2026 if approved.
• Imsidolimab BLA for generalized pustular psoriasis: Expected submission in Q4 2025, likely benefiting from a 6-month priority review.
• Tradipitant GLP-1 analog vomiting study results: Expected in Q4 2025.
• Bysanti Phase III MDD study results: Expected in 2026.

Risks and Challenges

Despite the promising outlook, Vanda faces several pertinent risks. The continued generic competition for HETLIOZ poses a significant threat, with potential for further declines in net product sales due to inventory fluctuations and market erosion. The Medicare Part D benefit redesign, effective January 1, 2025, is expected to negatively impact gross-to-net revenue for the Medicare payer segment of Fanapt and HETLIOZ.

Operational challenges include the inherent complexities of clinical trials, as evidenced by the Institutional Review Board's (IRB) objection to a placebo-controlled design for the Fanapt LAI schizophrenia study, which could necessitate a more complex design or bridging study. Furthermore, the uptake of PONVORY revenue is expected to be steady rather than rapidly accelerating, requiring sustained commercial effort. The ongoing legal proceedings related to tradipitant for gastroparesis and HETLIOZ generic approvals introduce regulatory uncertainty and potential litigation costs. Finally, the significant R&D and commercial investments, while strategic, contribute to near-term cash burn and highlight the need for successful execution to translate these expenditures into future revenue growth.

Conclusion

Vanda Pharmaceuticals is at a pivotal juncture, strategically transforming its business model to drive future growth. The company's narrative is one of calculated investment in a diversified portfolio, leveraging its technological strengths to address high unmet medical needs. The robust performance of Fanapt, coupled with the promising pipeline of Bysanti, tradipitant, and imsidolimab, underpins a compelling investment thesis centered on significant expansion in psychiatry and new opportunities in anti-inflammatory conditions. While substantial commercial and R&D investments are impacting near-term profitability and cash flow, these are foundational to achieving Vanda's ambitious 2030 revenue targets. The successful navigation of regulatory hurdles, effective commercial execution against established competitors, and the realization of favorable economics from new product launches will be critical determinants of Vanda's long-term success and its ability to deliver on its growth potential.