Vanda Pharmaceuticals Enters into an Exclusive License Agreement for the Commercialization and Development of Fanapt in the U.S. and Canada for the Treatment of Schizophrenia ROCKVILLE, MD

Vanda Pharmaceuticals Enters into an Exclusive License Agreement for

the Commercialization and Development of Fanapt in the U.S. and

Canada for the Treatment of Schizophrenia

ROCKVILLE, MD October 12, 2009 Vanda Pharmaceuticals Inc. (NASDAQ: VNDA) announced today that it

has entered into an agreement with Novartis Pharma AG to commercialize and develop Fanapt

(iloperidone), Vanda s anti-psychotic, in the U.S. and Canada. Fanapt was approved by the U.S.

Food and Drug Administration on May 6, 2009 for the acute treatment of schizophrenia in adults.

Fanapt is a mixed dopamine D2 / serotonin 5HT2A receptor antagonist. The U.S.

anti-psychotic market is approximately $14 billion.

Under the terms of the agreement, which amended and restated a prior agreement among the parties,

Novartis will have exclusive commercialization rights to Fanapt for the U.S. and Canada. Novartis

will be responsible for the further clinical development activities in these territories, including

the development and commercialization of a long-acting injectable (or depot) formulation of

Fanapt . Vanda will retain rights to commercialize Fanapt oral and depot formulations outside the

U.S. and Canada. At Novartis option, the parties will enter into good faith discussions relating

to an agreement for the co-commercialization of Fanapt outside of the U.S. and Canada or,

alternatively, Novartis will receive a royalty on net sales.

Under the agreement, Vanda will receive an upfront payment of $200 million and will be eligible for

additional payments totaling up to $265 million upon the achievement of certain development and

commercial milestones for Fanapt in the U.S. and Canada. Vanda will also receive royalties on the

U.S. and Canadian net sales of Fanapt . The consummation of the transaction is subject to the

receipt of customary regulatory approvals, which are expected by the end of 2009.

I am very excited about our agreement with Novartis, as we now have one of the premier

pharmaceutical companies in the world to commercialize the oral formulation and further develop and

commercialize the depot formulation of Fanapt in the U.S. and Canada said Mihael H.

Polymeropoulos, M.D., Vanda s Chief Executive Officer. This agreement allows Vanda to utilize

current and future data generated by Novartis on the oral and depot formulations to pursue

regulatory approvals outside the U.S and Canada.

Cowen and Company, LLC acted as financial advisor to Vanda.

Schizophrenia is a chronic debilitating disorder which affects more than two million Americans, and

millions more worldwide. While significant progress has been made in understanding the disease and

developing treatments, there remains a significant unmet medical need.

Important Safety Information

Fanapt is indicated for the acute treatment of schizophrenia in adults.

Increased Mortality: Elderly patients with dementia-related psychosis treated with antipsychotic

drugs are at an increased risk of death compared to placebo. FanaptTM is not approved

for the treatment of patients with dementia-related psychosis.

QT Prolongation: In an open-label QTc study in patients with schizophrenia or schizoaffective

disorder (N=160), FanaptTM was associated with QTc prolongation of 9 msec at an

iloperidone dose of 12 mg twice daily. This affect was augmented by the presence of CYP450, 2D6 or

3A4 metabolic inhibition. The use of FanaptTM should be avoided in combination with

other drugs that are known to prolong QTc. Caution is warranted when prescribing

FanaptTM with drugs that inhibit FanaptTM metabolism.

Neuroleptic Malignant Syndrome (NMS): A potentially fatal symptom complex, has been reported in

association with administration of antipsychotic drugs. Clinical manifestations include

hyperpyrexia, muscle rigidity, altered mental status, and evidence of autonomic instability

(irregular pulse or blood pressure, tachycardia, diaphoresis and cardiac dysrhythmia). Additional

signs may include elevated creatine phosphokinase, myoglobinuria (rhabdomyolysis) and acute renal

Tardive Dyskinesia (TD): The risk of developing TD and the likelihood for it to become irreversible

are believed to increase as the duration of treatment and the total cumulative dose increases.

However, the syndrome can develop, although much less commonly, after relatively brief treatment

periods at low doses. Given these considerations FanaptTM should be prescribed in a

manner that is most likely to minimize the occurrence of tardive dyskinesia.

Hyperglycemia and Diabetes Mellitus: Hyperglycemia, in some cases extreme and associated with

ketoacidosis, hyperosmolar coma or death, has been reported in patients treated with atypical

antipsychotics including FanaptTM. Patients with risk factors for diabetes mellitus who

are starting treatment with atypical antipsychotics should undergo fasting blood glucose testing at

the beginning of and during treatment. Any patient treated with atypical antipsychotics should be

monitored for symptoms of hyperglycemia including polydipsia, polyuria, polyphagia and weakness.

Patients who develop symptoms of hyperglycemia during treatment with atypical antipsychotics should

also undergo fasting blood glucose testing. In some cases, hyperglycemia has resolved when the

atypical antipsychotic was discontinued; however, some patients required continuation of

anti-diabetic treatment despite discontinuation of the suspect drug.

Weight Gain: Based on the pooled data from the four placebo-controlled, 4- or 6-week, fixed- or

flexible-dose studies, the proportions of patients having a weight gain of 7% body weight was 12%

for FanaptTM 10-16 mg/day, 18% for FanaptTM 20-24 mg/day, and

13% for FanaptTM (combined doses) versus 4% for placebo.

Seizures: In short-term placebo-controlled trials (4- to 6-weeks), seizures occurred in 0.1%

(1/1344) of patients treated with FanaptTM compared to 0.3% (2/587) on placebo. As with

other antipsychotics, FanaptTM should be used cautiously in patients with a history of

seizures or with conditions that potentially lower the seizure threshold.

Orthostatic Hypotension and Syncope: FanaptTM can induce orthostatic hypotension and

syncope. FanaptTM should be used with caution in patients with known cardiovascular

disease, cerebrovascular disease, or conditions that predispose the patient to hypotension.

Leukopenia, Neutropenia, and Agranulocytosis: In clinical trial and postmarketing experience,

events of leukopenia/neutropenia have been reported temporally related to antipsychotic agents.

Agranulocytosis (including fatal cases) have been reported. Patients with a pre-existing low white

blood cell count (WBC) or a history of leukopenia/neutropenia should have their complete blood

count (CBC) monitored frequently during the first few months of therapy and should discontinue

FanaptTM at the first sign of a decline in WBC in the absence of other causative

Hyperprolactinemia: As with other drugs that antagonize dopamine D2 receptors, FanaptTM

elevates prolactin levels. Galactorrhea, amenorrhea, gynecomastia and impotence have been reported

in patients receiving prolactin-elevating compounds.

Body Temperature Regulation: Disruption of the body s ability to reduce core body temperature has

been attributed to antipsychotic agents. Appropriate care is advised when prescribing

FanaptTM for patients who will be experiencing conditions which may contribute to an

elevation in core body temperature.

Dysphagia: Esophageal dysmotility and aspiration have been associated with antipsychotic drug use.

Aspiration pneumonia is a common cause of morbidity and mortality in elderly patients, in

particular those with advanced Alzheimer s dementia.

Suicide: The possibility of suicide attempt is inherent in psychotic illnesses, and close

supervision of high-risk patients should accompany drug therapy. Prescriptions for

FanaptTM should be written for the smallest quantity of tablets consistent with good

patient management in order to reduce the risk of overdose.

Priapism: Three cases of priapism were reported in the pre-marketing FanaptTM program.

Severe priapism may require surgical intervention

Potential for Cognitive and Motor Impairment: FanaptTM, like other antipsychotics, has

the potential to impair judgement, thinking, or motor skills. Patients should be cautioned about

performing activities requiring mental alertness, such as operating hazardous machinery or

operating a motor vehicle, until they are reasonably certain that FanaptTM therapy does