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Document and Entity Information - USD ($)	9 Months Ended
Sep. 30, 2011	Nov. 02, 2011	Jun. 30, 2010
Document and Entity Information [Abstract]
Entity Registrant Name	Vanda Pharmaceuticals Inc.
Entity Central Index Key	0001347178
Document Type	10-Q
Document Period End Date	Sep. 30, 2011
Amendment Flag	false
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	Q3
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Public Float			$ 181,889,829
Entity Common Stock, Shares Outstanding		28,103,441

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Sep. 30, 2011	Dec. 31, 2010
Current assets:
Cash and cash equivalents	$ 60,326	$ 42,559
Marketable securities, current	101,122	155,478
Accounts receivable	1,216	511
Prepaid expenses, deposits and other current assets	1,873	1,843
Deferred tax, current portion	182	182
Total current assets	164,719	200,573
Marketable securities, non-current	19,011	0
Property and equipment, net	851	937
Other non-current assets	84	0
Intangible asset, net	8,404	9,522
Deferred tax, noncurrent portion	1,639	1,639
Restricted cash	1,030	430
Total assets	195,738	213,101
Current liabilities:
Accounts payable	1,333	648
Accrued liabilities	3,410	1,324
Accrued income taxes	2,108	2,266
Deferred revenues, current portion	26,789	26,789
Total current liabilities	33,640	31,027
Deferred rent	600	490
Deferred revenues, noncurrent portion	123,816	143,853
Total liabilities	158,056	175,370
Commitments
Stockholders' equity:
Preferred stock, $0.001 par value; 20,000,000 shares authorized and none issued and outstanding at September 30, 2011 and December 31, 2010
Common stock, $0.001 par value; 150,000,000 shares authorized as of September 30, 2011 and December 31, 2010; and 28,110,619 and 28,041,379 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively	28	28
Additional paid-in capital	295,530	291,342
Accumulated other comprehensive income	44	2
Accumulated deficit	(257,920)	(253,641)
Total stockholders' equity	37,682	37,731
Total liabilities and stockholders' equity	$ 195,738	$ 213,101

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Revenues:
Licensing agreement	$ 6,753	$ 6,753	$ 20,037	$ 20,037
Royalty revenue	1,216	493	2,863	2,630
Product sales				5,290
Total revenues	7,969	7,246	22,900	27,957
Operating expenses:
Cost of sales, product				2,891
Research and development	8,174	4,072	18,440	8,516
General and administrative	2,711	2,054	8,141	7,385
Intangible asset amortization	377	377	1,118	1,118
Total operating expenses	11,262	6,503	27,699	19,910
Income (loss) from operations	(3,293)	743	(4,799)	8,047
Interest income	106	156	362	289
Income (loss) before tax provision	(3,187)	899	(4,437)	8,336
Tax provision (benefit)	(113)	(2,285)	(158)	3,343
Net income (loss)	$ (3,074)	$ 3,184	$ (4,279)	$ 4,993
Net income (loss) per share:
Basic	$ (0.11)	$ 0.11	$ (0.15)	$ 0.18
Diluted	$ (0.11)	$ 0.11	$ (0.15)	$ 0.18
Shares used in calculation of net income (loss) per share:
Basic	28,107,363	28,003,453	28,104,749	27,872,542
Diluted	28,107,363	28,466,532	28,104,749	28,429,223

Condensed Consolidated Statement of Changes in Stockholders' Equity (Unaudited) - 9 months ended Sep. 30, 2011 - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Accumulated Other Comprehensive Income	Accumulated Deficit	Comprehensive Income (Loss)
Balance at Dec. 31, 2010	$ 37,731	$ 28	$ 291,342	$ 2	$ (253,641)	$ 0
Balance, shares at Dec. 31, 2010		28,041,379
Issuance of common stock from exercised stock options/restricted stock units	5		5
Issuance of common stock from exercised stock options/restricted stock units, shares		69,240
Employee and non-employee stock-based compensation	4,183		4,183
Comprehensive loss:
Net loss	(4,279)				(4,279)	(4,279)
Net unrealized gain on marketable securities				42		42
Comprehensive loss	(4,237)					(4,237)
Balance at Sep. 30, 2011	$ 37,682	$ 28	$ 295,530	$ 44	$ (257,920)	$ 0
Balance, shares at Sep. 30, 2011		28,110,619

- Definition

The change in equity [net assets] of a business enterprise during a period from transactions and other events and circumstances from non-owner sources which are attributable to the reporting entity. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners, but excludes any and all transactions which are directly or indirectly attributable to that ownership interest in subsidiary equity which is not attributable to the parent.

+ References

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- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

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Appreciation or loss in value (before reclassification adjustment) of the total of unsold securities during the period being reported on, net of tax. Reclassification adjustments include: (1) the unrealized holding gain (loss), net of tax, at the date of the transfer for a debt security from the held-to-maturity category transferred into the available-for-sale category. Also includes the unrealized gain (loss) at the date of transfer for a debt security from the available-for-sale category transferred into the held-to-maturity category; (2) the unrealized gains (losses) realized upon the sale of securities, after tax; and (3) the unrealized gains (losses) realized upon the write-down of securities, after tax.

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- Definition

Number of shares (or other type of equity) issued during the period as a result of any equity-based compensation plan other than an employee stock ownership plan (ESOP), net of any shares forfeited. Shares issued could result from the issuance of restricted stock, the exercise of stock options, stock issued under employee stock purchase plans, and/or other employee benefit plans.

+ References + Details

- Definition

Value of stock (or other type of equity) issued during the period as a result of any equity-based compensation plan other than an employee stock ownership plan (ESOP), net of stock value of such awards forfeited. Stock issued could result from the issuance of restricted stock, the exercise of stock options, stock issued under employee stock purchase plans, and/or other employee benefit plans.

+ References + Details

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Cash flows from operating activities
Net income (loss)	$ (4,279)	$ 4,993
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization	284	258
Employee and non-employee stock-based compensation	4,183	3,647
Loss on disposal of assets		(23)
Amortization of premiums and discounts on marketable securities	774	(12)
Amortization of intangible asset	1,118	1,118
Deferred tax benefit		(1,554)
Changes in assets and liabilities:
Accounts receivable	(705)	2,670
Inventory		2,399
Prepaid expenses, deposits and other current assets	(114)	190
Accounts payable	685	(2,128)
Accrued liabilities	2,086	(545)
Accrued income taxes	(158)	3,235
Other liabilities	110	(13)
Deferred revenue	(20,037)	(20,037)
Net cash used in operating activities	(16,053)	(5,802)
Cash flows from investing activities
Purchases of property and equipment	(198)
Proceeds from sale of property and equipment		66
Purchases of marketable securities	(140,637)	(124,028)
Maturities of marketable securities	175,250	24,500
Change in restricted cash	(600)
Net cash provided by (used in) investing activities	33,815	(99,462)
Cash flows from financing activities
Excess tax benefits from stock-based compensation		1,662
Proceeds from exercise of stock options	5	775
Net cash provided by financing activities	5	2,437
Net change in cash and cash equivalents	17,767	(102,827)
Cash and cash equivalents
Beginning of period	42,559	205,295
End of period	$ 60,326	$ 102,468

Business Organization and Presentation

9 Months Ended

Sep. 30, 2011

Business Organization and Presentation [Abstract]

Business Organization and Presentation

1. Business Organization and Presentation

Business organization

Vanda Pharmaceuticals Inc. (Vanda or the Company) is a biopharmaceutical company focused on the development and commercialization of products for the treatment of central nervous system disorders. Vanda commenced its operations in 2003. The Company’s lead product, Fanapt® (iloperidone), which Novartis Pharma AG (Novartis) began marketing in the U.S. in the first quarter of 2010, is a compound for the treatment of schizophrenia. On May 6, 2009, the U.S. Food and Drug Administration (FDA) granted U.S. marketing approval of Fanapt® for the acute treatment of schizophrenia in adults. On October 12, 2009, Vanda entered into an amended and restated sublicense agreement with Novartis. Vanda had originally entered into a sublicense agreement with Novartis on June 4, 2004 pursuant to which Vanda obtained certain worldwide exclusive licenses from Novartis relating to Fanapt®. Pursuant to the amended and restated sublicense agreement, Novartis has exclusive commercialization rights to all formulations of Fanapt® in the U.S. and Canada. On January 11, 2010, Novartis launched Fanapt® in the U.S. Novartis is responsible for the further clinical development activities in the U.S. and Canada, including the development of a long-acting injectable (or depot) formulation of Fanapt®. Pursuant to the amended and restated sublicense agreement, Vanda received an upfront payment of $200.0 million at the end of 2009 and is eligible for additional payments totaling up to $265.0 million upon the achievement of certain commercial and development milestones for Fanapt® in the U.S. and Canada. Vanda also receives royalties, which, as a percentage of net sales, are in the low double-digits, on net sales of Fanapt® in the U.S. and Canada. In addition, Vanda is no longer required to make any future milestone payments with respect to sales of Fanapt® or any future royalty payments with respect to sales of Fanapt® in the U.S. and Canada. Vanda retains exclusive rights to Fanapt® outside the U.S. and Canada and Vanda has exclusive rights to use any of Novartis’ data for Fanapt® for developing and commercializing Fanapt® outside the U.S. and Canada. At Novartis’ option, Vanda will enter into good faith discussions with Novartis relating to the co-commercialization of Fanapt® outside of the U.S. and Canada or, alternatively, Novartis will receive a royalty on net sales of Fanapt® outside of the U.S. and Canada. Novartis has chosen not to co-commercialize Fanapt® with Vanda in Europe and certain other countries and will instead receive a royalty on net sales in those countries. These include, but are not limited to, the countries in the European Union, as well as Switzerland, Norway, Liechtenstein, and Iceland. Vanda continues to explore the regulatory path and commercial opportunity for Fanapt® oral formulation outside of the U.S. and Canada. On November 1, 2010, the Therapeutic Goods Administration of Australia’s Department of Health and Ageing, accepted for evaluation Vanda’s application for marketing approval for the Fanapt® oral formulation. On July 22, 2011, the European Medicines Agency (EMA) notified Vanda that it had accepted for evaluation the Marketing Authorization Application (MAA) for oral iloperidone tablets. Vanda has entered into agreements with the following partners for the commercialization of Fanapt® in the countries set forth below:


Country		Partner
Mexico		Probiomed S.A. de C.V.
Argentina		Biotoscana Farma S.A.

Tasimelteon is an oral compound in development for the treatment of sleep and mood disorders including Circadian Rhythm Sleep Disorders (CRSD). On January 19, 2010, the FDA granted orphan drug designation status for tasimelteon in a specific CRSD, Non-24-Hour Sleep-Wake Disorder (N24HSWD) in blind individuals without light perception. The FDA grants orphan drug designation to drugs that may provide significant therapeutic advantage over existing treatments and target conditions affecting 200,000 or fewer U.S. patients per year. Orphan drug designation provides potential financial and regulatory incentives including, study design assistance, waiver of FDA user fees, tax credits, and up to seven years of market exclusivity upon marketing approval. On February 23, 2011, the European Commission (EC) designated tasimelteon as an orphan medicinal product for the same indication. Vanda initiated four clinical trials to pursue FDA approval of tasimelteon for the treatment of N24HSWD in blind individuals without light perception. Two of the clinical trials were initiated in the third quarter of 2010, the third was initiated in the third quarter of 2011 and the fourth was initiated in October 2011. The first clinical trial (3201) is a randomized, double-blind, placebo-controlled study with a planned enrollment of approximately 100 patients with N24HSWD. The trial has a six month treatment period and includes measures of both nighttime and daytime sleep, as well as laboratory measures of the synchronization between the internal body clock and the 24-hour environmental light/dark cycle. The second clinical trial (3202) is a one-year safety study of tasimelteon for the treatment of N24HSWD. This trial is an open-label safety study with a planned enrollment of up to 140 patients with N24HSWD. The third clinical trial (3203) is a placebo-controlled, randomized withdrawal study to examine the maintenance of effect of tasimelteon for the treatment of N24HSWD. Patients will be observed for 8 weeks during which nighttime and daytime sleep as well as synchronization of their internal body clock to the 24-hour day will continue to be evaluated. The fourth clinical trial (3204) is a two year open-label, multicenter, study in blind subjects with N24HSWD to assess the safety of tasimelteon. Vanda plans to conduct these clinical trials over the next one to two years to support the use of tasimelteon as a circadian regulator and the submission of a new drug application (NDA) to the FDA and a marketing authorization application to the EMA. Vanda initiated a Phase IIb/III clinical trial to study the efficacy of tasimelteon for the treatment of Major Depressive Disorder (MDD) in the third quarter of 2011. The clinical trial is a randomized, double-blind, placebo-controlled study with planned enrollment of approximately 500 patients with MDD. The trial has an eight-week treatment period, followed by an optional one-year open-label extension, and includes measures of depression and anxiety symptoms, nighttime and daytime sleep, as well as laboratory measures of the internal body clock. Given the range of potential indications for tasimelteon, Vanda may pursue one or more partnerships for the development and commercialization of tasimelteon worldwide.

Throughout this quarterly report on Form 10-Q, Vanda refers to Fanapt® within the U.S. and Canada as its partnered product and Vanda refers to Fanapt® outside the U.S. and Canada and tasimelteon as its products. All other compounds are referred to as Vanda’s product candidates. In addition, Vanda refers to its partnered products, products and product candidates collectively as its compounds. Moreover, Vanda refers to drug products generally as drugs or products.

Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2010 included in the Company’s annual report on Form 10-K. The financial information as of September 30, 2011 and for the three and nine months ended September 30, 2011 and 2010, is unaudited, but in the opinion of management, all adjustments, consisting only of normal recurring accruals, considered necessary for a fair statement of the results of these interim periods have been included. The condensed consolidated balance sheet data as of December 31, 2010 was derived from audited financial statements but does not include all disclosures required by GAAP.

The results of the Company’s operations for any interim period are not necessarily indicative of the results that may be expected for any other interim period or for a full fiscal year. The financial information included herein should be read in conjunction with the consolidated financial statements and notes in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

- Definition

The entire disclosure for organization, consolidation and basis of presentation of financial statements disclosure.

+ References

Reference 1: http://www.xbrl.org/2003/role/presentationRef
-Publisher AICPA
-Name Accounting Research Bulletin (ARB)
-Number 51
-Paragraph 2-6
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+ Details

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2011

Summary of Significant Accounting Policies [Abstract]

Summary of Significant Accounting Policies

2. Summary of Significant Accounting Policies

Use of estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates that affect the reported amounts of assets and liabilities at the date of the financial statements, disclosure of contingent assets and liabilities, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents

For purposes of the condensed consolidated balance sheets and condensed consolidated statements of cash flows, cash equivalents represent highly-liquid investments with a maturity date of three months or less at the date of purchase.

Marketable securities

The Company classifies all of its marketable securities as available-for-sale securities. The Company’s investment policy requires the selection of high-quality issuers, with bond ratings of AAA to A1+/P1. Available-for-sale securities are carried at fair market value, with unrealized gains and losses reported as a component of stockholders’ equity in accumulated other comprehensive income/loss. Interest and dividend income is recorded when earned and included in interest income. Premiums and discounts on marketable securities are amortized and accreted, respectively, to maturity and included in interest income. The Company uses the specific identification method in computing realized gains and losses on the sale of investments, which would be included in the condensed consolidated statements of operations when generated. Marketable securities with a maturity of more than one year as of the balance sheet date, and for which the Company does not intend to sell within the next twelve months are classified as non-current. All other marketable securities are classified as current.

Intangible asset, net

Costs incurred for products or product candidates not yet approved by the FDA and for which no alternative future use exists are recorded as expense. In the event a product or product candidate has been approved by the FDA or an alternative future use exists for a product or product candidate, patent and license costs are capitalized and amortized over the expected patent life of the related product or product candidate. Milestone payments to the Company’s partners are recognized when it is deemed probable that the milestone event will occur.

As a result of the FDA’s approval of the NDA for Fanapt® in May 2009, the Company met a milestone under its original sublicense agreement with Novartis which required the Company to make a payment of $12.0 million to Novartis. The $12.0 million is being amortized on a straight line basis over the remaining life of the U.S. patent for Fanapt®, which the Company expects to last until May 15, 2017. This includes the Hatch-Waxman extension that extends patent protection for drug compounds for a period of up to five years to compensate for time spent in development and a six-month pediatric term extension. This term is the Company’s best estimate of the life of the patent; if, however, the Hatch-Waxman or pediatric extensions are not granted, the intangible asset will be amortized over a shorter period.

The carrying values of intangible assets are periodically reviewed to determine if the facts and circumstances suggest that a potential impairment may have occurred. The Company had no impairments of its intangible assets for the nine months ended September 30, 2011.

Fair value of financial instruments

The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, marketable securities and accounts receivable, approximate their fair values due to their short term nature.

Property and equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is provided on a straight-line basis over the estimated useful lives of the assets. Amortization of leasehold improvements is provided on a straight-line basis over the shorter of their estimated useful life or the lease term. The costs of additions and improvements are capitalized, and repairs and maintenance costs are charged to operations in the period incurred. Upon retirement or disposition of property and equipment, the cost and accumulated depreciation and amortization are removed from the accounts and any resulting gain or loss is reflected in the Company’s statement of operations for that period.

Revenue Recognition

The Company’s revenues are derived primarily from the amended and restated sublicense agreement with Novartis and include an up-front payment, product sales and future milestone and royalty payments. Revenue is considered both realizable and earned when each one of the following four conditions is met: (1) persuasive evidence of an arrangement exists, (2) the arrangement fee is fixed or determinable, (3) delivery or performance has occurred and (4) collectability is reasonably assured. Pursuant to the amended and restated sublicense agreement, Novartis has the right to commercialize and develop Fanapt® in the U.S. and Canada. Under the amended and restated sublicense agreement, the Company received an upfront payment of $200.0 million in December of 2009. Pursuant to the amended and restated sublicense agreement, the Company and Novartis established a Joint Steering Committee (JSC) following the effective date of the amended and restated sublicense agreement. The Company expects to have an active role on the JSC and concluded that the JSC constitutes a deliverable under the amended and restated sublicense agreement and that revenue related to the upfront payment will be recognized ratably on a straight-line basis over the term of the JSC; however, the delivery or performance has no term as the exact length of the JSC is undefined. As a result, the Company deems the performance period of the JSC to be the life of the U.S. patent of Fanapt®, which the Company expects to last until May 15, 2017. This includes the Hatch-Waxman extension that provides patent protection for drug compounds for a period of up to five years to compensate for time spent in development and a six-month pediatric term extension. This term is the Company’s best estimate of the life of the patent. Revenue will be recognized ratably on a straight-line basis from the date the amended and restated sublicense agreement became effective (November 27, 2009) through the expected life of the U.S. patent for Fanapt® (May 15, 2017). Revenue related to product sales is recognized upon delivery to Novartis. The Company recognizes revenue from Fanapt® royalties and commercial and development milestones from Novartis when realizable and earned.

Concentrations of credit risk

Financial instruments which potentially subject the Company to significant concentrations of credit risk consist primarily of cash, cash equivalents and marketable securities. The Company places its cash, cash equivalents and marketable securities with what the Company believes to be highly-rated financial institutions. At September 30, 2011, the Company maintained all of its cash, cash equivalents and marketable securities in three financial institutions. Deposits held with these institutions may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand, and the Company believes there is minimal risk of losses on such balances.

Accrued expenses

The Company’s management is required to estimate accrued expenses as part of the process of preparing the financial statements. The estimation of accrued expenses involves identifying services that have been performed on the Company’s behalf, and then estimating the level of service performed and the associated cost incurred for such services as of each balance sheet date in the financial statements. Accrued expenses include professional service fees, such as lawyers and accountants, contract service fees, such as those under contracts with clinical monitors, data management organizations and investigators in conjunction with clinical trials, fees to contract manufacturers in conjunction with the production of clinical materials, and fees for marketing and other commercialization activities. Pursuant to management’s assessment of the services that have been performed on clinical trials and other contracts, the Company recognizes these expenses as the services are provided. Such management assessments include, but are not limited to: (1) an evaluation by the project manager of the work that has been completed during the period, (2) measurement of progress prepared internally and/or provided by the third-party service provider, (3) analyses of data that justify the progress, and (4) management’s judgment. In the event that the Company does not identify certain costs that have begun to be incurred or the Company under- or over-estimates the level of services performed or the costs of such services, the Company’s reported expenses for such period would be too low or too high.

Research and development expenses

The Company’s research and development expenses consist primarily of fees for services provided by third parties in connection with the clinical trials, costs of contract manufacturing services, milestone license fees, costs of materials used in clinical trials and research and development, costs for regulatory consultants and filings, depreciation of capital resources used to develop products, related facilities costs, and salaries, other employee related costs and stock-based compensation for the research and development personnel. The Company expenses research and development costs as they are incurred for compounds in the development stage, including certain payments made under the license agreements prior to FDA approval. Prior to FDA approval, all Fanapt® manufacturing-related and milestone license costs were included in research and development expenses. Subsequent to FDA approval of Fanapt®, manufacturing and milestone license costs related to this product are being capitalized. Costs related to the acquisition of intellectual property have been expensed as incurred since the underlying technology associated with these acquisitions were made in connection with the Company’s research and development efforts and have no alternative future use. Milestone license payments are accrued in accordance with the FASB guidance on accounting for contingencies which states that milestone payments be accrued when it is deemed probable that the milestone event will be achieved.

General and administrative expenses

General and administrative expenses consist primarily of salaries, other employee related costs and stock-based compensation for personnel serving executive, business development, marketing, finance, accounting, information technology, marketing and human resource functions, facility costs not otherwise included in research and development expenses, insurance costs and professional fees for legal, accounting and other professional services. General and administrative expenses also include third party expenses incurred to support business development, marketing and other business activities related to Fanapt®.

Employee stock-based compensation

The Company accounts for its stock-based compensation expenses in accordance with the FASB guidance on share-based payments which were adopted on January 1, 2006. Accordingly, compensation costs for all stock-based awards to employees and directors are measured based on the grant date fair value of those awards and recognized over the period during which the employee or director is required to perform service in exchange for the award. The Company generally recognizes the expense over the award’s vesting period.

The fair value of stock options granted is amortized using the accelerated attribution method. The fair value of restricted stock units (RSUs) awarded is amortized using the straight line method. As stock-based compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Pre-vesting forfeitures on the options granted prior to 2009 were estimated to be approximately 2%. The forfeiture rate was increased to 4% in 2009, which has been utilized for all subsequently granted options based on the Company’s historical experience.

Total employee stock-based compensation expense recognized during the three and nine months ended September 30, 2011 and 2010 was comprised of the following:


	Three Months Ended				Nine Months Ended
	September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
*(in thousands)*
Research and development	$	558	$	429	$	1,896	$	1,983
General and administrative		704		368		2,278		1,547


Stock-based compensation expense	$	1,262	$	797	$	4,174	$	3,530

As of September 30, 2011, $6.3 million of total unrecognized compensation costs related to non-vested awards are expected to be recognized over a weighted average period of 1.21 years.

As of September 30, 2011, the Company had two equity incentive plans, the Second Amended and Restated Management Equity Plan (the 2004 Plan) and the 2006 Equity Incentive Plan (the 2006 Plan) that were adopted in December 2004 and April 2006, respectively. An aggregate of 677,145 shares were subject to outstanding options granted under the 2004 Plan as of September 30, 2011, and no additional options will be granted under this plan. As of September 30, 2011, there were 6,741,579 shares of the Company’s common stock reserved under the 2006 Plan of which 3,859,230 shares were subject to outstanding options and RSUs issued to employees and non-employees.

Options are subject to terms and conditions established by the compensation committee of the board of directors. None of the stock-based awards are classified as a liability as of September 30, 2011. Option awards have 10-year contractual terms and all options granted prior to December 31, 2006, options granted to new employees, and certain options granted to existing employees vest and become exercisable on the first anniversary of the grant date with respect to 25% of the shares subject to the option awards. The remaining 75% of the shares subject to the option awards vest and become exercisable monthly in equal installments thereafter over three years. Certain option awards granted to existing employees after December 31, 2006 vest and become exercisable monthly in equal installments over four years. The initial stock options granted to directors upon their election vest and become exercisable in equal monthly installments over a period of four years, while the subsequent annual stock option grants to directors vest and become exercisable in equal monthly installments over a period of one year. Certain option awards to executives and directors provide for accelerated vesting if there is a change in control of the Company. Certain option awards to employees and executives provide for accelerated vesting if the respective employee’s or executive’s service is terminated by the Company for any reason other than cause or permanent disability.

The fair value of each option award is estimated on the date of grant using the Black-Scholes-Merton option pricing model that uses the assumptions noted in the following table. Expected volatility rates are based on the Company’s historical volatility of its publicly traded common stock blended with the historical volatility of the common stock of comparable entities. The expected term of options granted is based on the transition approach provided by FASB guidance as the options meet the “plain vanilla” criteria required by this guidance. The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The Company has not paid cash dividends to its stockholders since its inception and does not plan to pay any such dividends in the foreseeable future.

Assumptions used in the Black-Scholes-Merton option pricing model for employee and director stock options granted during the nine months ended September 30, 2011 and 2010 were as follows:


	Nine Months Ended
	September 30, 2011			September 30, 2010
Expected dividend yield		0	%		0	%
Weighted average expected volatility		73	%		68	%
Weighted average expected term (years)		6.03			6.03
Weighted average risk-free rate		2.42	%		2.38	%

A summary of option activity for the 2004 Plan as of September 30, 2011, and changes during the nine months then ended is presented below:


*(in thousands, except for share amounts)*	Number of Shares			Weighted Average Exercise Price at Grant Date		Weighted Average Remaining Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2010		680,754		$	1.77
Exercised		(3,609	)	$	0.33
Forfeited		—			—
Cancelled		—			—

Outstanding at September 30, 2011		677,145		$	1.78		4.03	$	2,145

Exercisable at September 30, 2011		677,145		$	1.78		4.03	$	2,145

A summary of option activity for the 2006 Plan as of September 30, 2011, and changes during the nine months then ended is presented below:


*(in thousands, except for share amounts)*	Number of Shares			Weighted Average Exercise Price at Grant Date		Weighted Average Remaining Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2010		3,324,790		$	14.07
Granted		184,500		$	7.09
Exercised		(3,569	)	$	1.02
Forfeited		(26,764	)	$	9.24
Cancelled		(2,790	)	$	11.66

Outstanding at September 30, 2011		3,476,167		$	13.75		7.38	$	431

Exercisable at September 30, 2011		2,168,193		$	16.42		6.65	$	307

The weighted average grant-date fair value of options granted during the nine months ended September 30, 2011 was $4.63 per share. For the nine months ended September 30, 2011 and 2010, the amounts received by the Company in cash from options exercised under the stock-based arrangements were not material.

A RSU is a stock award that entitles the holder to receive shares of the Company’s common stock as the award vests. The fair value of each RSU is based on the closing price of the Company’s stock on the date of grant which equals the RSUs intrinsic value. As of September 30, 2011, there was $2.9 million of total unrecognized compensation cost related to unvested RSU awards granted under the Company’s stock incentive plans.

A summary of RSU activity for the 2006 Plan as of September 30, 2011, and changes during the nine months then ended are as follows:


*(in thousands, except for share amounts)*	Number of Shares			Weighted Average Price/Share		Aggregate Intrinsic Value
Unvested at December 31, 2010		359,563		$	9.75	$	3,401
Granted		34,000		$	7.11
Vested		(2,500	)	$	0.80
Cancelled		(8,000	)	$	9.57

Unvested at September 30, 2011		383,063		$	9.56	$	1,896

Income taxes

The Company accounts for income taxes under the liability method in accordance with the FASB provisions on accounting for income taxes, which requires companies to account for deferred income taxes using the asset and liability method. Under the asset and liability method, current income tax expense or benefit is the amount of income taxes expected to be payable or refundable for the current year. A deferred income tax asset or liability is recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credits and loss carryforwards. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Tax rate changes are reflected in income during the period such changes are enacted. Changes in ownership may limit the amount of net operating loss carryforwards that can be utilized in the future to offset taxable income.

Recent Accounting Pronouncements

In June 2011, the FASB issued an Accounting Standards Update which eliminates the option to report other comprehensive income and its components in the statement of changes in stockholders’ equity. It requires an entity to present total comprehensive income, which includes the components of net income and the components of other comprehensive income either in a single continuous statement or in two separate but consecutive statements. This pronouncement is effective for financial statements issued for annual and interim periods within the first annual period beginning after December 15, 2011. The Company believes the adoption of this pronouncement will not have a material impact on its financial position or results of operations.

Commitments and Contingencies

9 Months Ended

Sep. 30, 2011

Commitments and Contingencies [Abstract]

Commitments and Contingencies

10. Commitments and Contingencies

The following table summarizes our long-term cash commitments as of September 30, 2011:


	Cash payments due by period
*(in thousands)*	Total		October to December 2011		2012		2013		2014		2015		After 2015
Operating leases	$	15,202	$	181	$	749	$	1,547	$	1,847	$	1,897	$	8,981
Consulting fees		3,600		900		2,700		—		—		—		—

Total	$	18,802	$	1,081	$	3,449	$	1,547	$	1,847	$	1,897	$	8,981

Operating leases

The Company’s commitments related to operating leases shown above consist of payments relating to real estate leases for its current headquarters located in Rockville, Maryland, which expires in 2016, and its future headquarters located in Washington, D.C., which expires in 2023. On July 25, 2011, the Company entered into a lease with Square 54 Office Owner LLC (the Landlord) for Vanda’s future headquarters, consisting of 21,400 square feet at 2200 Pennsylvania Avenue, N.W. in Washington, D.C. (the Lease). Under the Lease, which will have an 11 year term commencing on April 1, 2012, the Company will pay $1.6 million in annual rent over the term of the Lease; however, rent will be abated for the first 12 months. The Landlord will provide the Company with an allowance of $1.9 million for construction of the premises to the Company’s specifications. Subject to the prior rights of other tenants in the building, the Company will have the right to renew the Lease for five years following the expiration of its original term. The Company will also have the right to sublease or assign all or a portion of the premises, subject to standard conditions. The Lease may be terminated early by the Company or the Landlord upon certain conditions. The Company paid a security deposit of $0.5 million upon execution of the Lease. The Company will likely incur costs of between $1.0 million to $1.5 million in connection with an early termination of the lease for the Company’s current headquarters in Rockville, Maryland. These costs include a termination fee and other lease exit costs. As of September 30, 2011, the Company had not incurred any of these costs. These costs are not included in the table above; however, in the event that the Company exits the lease for its current headquarters in Rockville, Maryland, its contractual cash obligations included in the table above would be reduced by $2.4 million between 2013 and 2016. In the event that the Company does not sublease its current headquarters, it expects to have completed the exit of the lease by June 30, 2013.

Consulting fees

The Company has engaged a regulatory consultant to assist in the Company’s efforts to prepare, file and obtain FDA approval of a NDA for tasimelteon. During the initial 15-month term of the engagement, the Company is obligated to pay consulting fees in the aggregate amount of up to $3.6 million, of which $0.9 million will be expensed in the fourth quarter of 2011, and the remainder of which will be expensed between January 1, 2012 and December 31, 2012. As part of this engagement, and subject to certain conditions, the Company will be obligated to make milestone payments in the aggregate amount of $2.8 million upon the achievement of certain milestones, including $2.0 million in the event that a tasimelteon NDA is approved by the FDA. In addition to these fees and milestone payments, the Company is obligated to reimburse the consultant for its ordinary and necessary business expenses incurred in connection with its engagement. The Company may terminate the engagement at any time upon prior notice; however, subject to certain conditions, the Company will remain obligated to make some or all of the milestone payments if the milestones are achieved following such termination.

Guarantees and indemnifications

The Company has entered into a number of standard intellectual property indemnification agreements in the ordinary course of its business. Pursuant to these agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners or customers, in connection with any U.S. patent or any copyright or other intellectual property infringement claim by any third party with respect to the Company’s products. The term of these indemnification agreements is generally perpetual from the date of execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company also indemnifies its officers and directors for certain events or occurrences, subject to certain conditions. Since inception, the Company has not incurred costs to defend lawsuits or settle claims related to these indemnification agreements. The Company believes that the fair value of the indemnification agreements is minimal, and accordingly the Company has not recognized any liabilities relating to these agreements as of September 30, 2011.

License agreements

The Company’s rights to develop and commercialize its products are subject to the terms and conditions of licenses granted to the Company by other pharmaceutical companies.

Fanapt®. The Company acquired exclusive worldwide rights to patents and patent applications for Fanapt® (iloperidone), in 2004 through a sublicense agreement with Novartis. A predecessor company of sanofi-aventis, Hoechst Marion Roussel, Inc. (HMRI), discovered Fanapt® and completed early clinical work on the compound. In 1996, following a review of its product portfolio, HMRI licensed its rights to the Fanapt® patents and patent applications to Titan Pharmaceuticals, Inc. (Titan) on an exclusive basis. In 1997, soon after it had acquired its rights, Titan sublicensed its rights to Fanapt® on an exclusive basis to Novartis. In June 2004, the Company acquired exclusive worldwide rights to these patents and patent applications as well as certain Novartis patents and patent applications to develop and commercialize Fanapt® through a sublicense agreement with Novartis. In partial consideration for this sublicense, the Company paid Novartis an initial license fee of $0.5 million and was obligated to make future milestone payments to Novartis of less than $100.0 million in the aggregate (the majority of which were tied to sales milestones), as well as royalty payments to Novartis at a rate which, as a percentage of net sales, was in the mid-twenties. In November 2007, the Company met a milestone under this sublicense agreement relating to the acceptance of its filing of the NDA for Fanapt® for the treatment of schizophrenia and made a corresponding payment of $5.0 million to Novartis. As a result of the FDA’s approval of the NDA for Fanapt® in May 2009, the Company met an additional milestone under this sublicense agreement which required the Company to make a payment of $12.0 million to Novartis.

On October 12, 2009, Vanda entered into an amended and restated sublicense agreement with Novartis which amended and restated the June 2004 sublicense agreement with Novartis. Pursuant to the amended and restated sublicense agreement, Novartis has exclusive commercialization rights to all formulations of Fanapt® in the U.S. and Canada. Novartis began selling Fanapt® in the U.S. during the first quarter of 2010. Novartis is responsible for the further clinical development activities in the U.S. and Canada, including the development of a long-acting injectable (or depot) formulation of Fanapt®. Pursuant to the amended and restated sublicense agreement, Vanda received an upfront payment of $200.0 million and Vanda is eligible for additional payments totaling up to $265.0 million upon the achievement of certain commercial and development milestones for Fanapt® in the U.S. and Canada. Vanda also receives royalties, which, as a percentage of net sales, are in the low double-digits, on net sales of Fanapt® in the U.S. and Canada. In addition, Vanda is no longer required to make any future milestone payments with respect to sales of Fanapt® or any future royalty payments with respect to sales of Fanapt® in the U.S. and Canada. Vanda retains exclusive rights to Fanapt® outside the U.S. and Canada and Vanda has exclusive rights to use any of Novartis’ data for Fanapt® for developing and commercializing Fanapt® outside the U.S. and Canada. At Novartis’ option, Vanda will enter into good faith discussions with Novartis relating to the co-commercialization of Fanapt® outside of the U.S. and Canada or, alternatively, Novartis will receive a royalty on net sales of Fanapt® outside of the U.S. and Canada. Novartis has chosen not to co-commercialize Fanapt® with Vanda in Europe and certain other countries and will instead receive a royalty on net sales in those countries. These include, but are not limited to, the countries in the European Union as well as Switzerland, Norway, Liechtenstein, and Iceland. Vanda has entered into agreements with the following partners for the commercialization of Fanapt® in the countries set forth below:


Country		Partner
Mexico		Probiomed S.A. de C.V.
Argentina		Biotoscana Farma S.A.

Vanda may lose its rights to develop and commercialize Fanapt® outside the U.S. and Canada if it fails to comply with certain requirements in the amended and restated sublicense agreement regarding its financial condition, or if Vanda fails to comply with certain diligence obligations regarding its development or commercialization activities or if Vanda otherwise breaches the amended and restated sublicense agreement and fails to cure such breach. Vanda’s rights to develop and commercialize Fanapt® outside the U.S. and Canada may be impaired if it does not cure breaches by Novartis of similar obligations contained its sublicense agreement with Titan for Fanapt®. Vanda is not aware of any such breach by Novartis. In addition, if Novartis breaches the amended and restated sublicense agreement with respect to its commercialization activities in the U.S. or Canada, Vanda may terminate Novartis’ commercialization rights in the applicable country and Vanda would no longer receive royalty payments from Novartis in connection with such country in the event of such termination.

Tasimelteon. In February 2004, the Company entered into a license agreement with Bristol-Myers Squibb (BMS) under which the Company received an exclusive worldwide license under certain patents and patent applications, and other licenses to intellectual property, to develop and commercialize tasimelteon. In partial consideration for the license, the Company paid BMS an initial license fee of $0.5 million. The Company is also obligated to make future milestone payments to BMS of less than $40.0 million in the aggregate (the majority of which are tied to sales milestones) as well as royalty payments based on the net sales of tasimelteon at a rate which, as a percentage of net sales, is in the low teens. The Company made a milestone payment to BMS of $1.0 million under this license agreement in 2006 relating to the initiation of its first Phase III clinical trial for tasimelteon. The Company is also obligated under this agreement to pay BMS a percentage of any sublicense fees, upfront payments and milestone and other payments (excluding royalties) that the Company receives from a third party in connection with any sublicensing arrangement, at a rate which is in the mid-twenties. The Company has agreed with BMS in the license agreement for tasimelteon to use commercially reasonable efforts to develop and commercialize tasimelteon and to meet certain milestones in initiating and completing certain clinical work. The license agreement with BMS was amended on April 15, 2010 to, among other things, extend the deadline by which the Company must enter into a development and commercialization agreement with a third party for tasimelteon until the earliest of: (i) the date mutually agreed upon by the Company and BMS following the provision by the Company to BMS of a full written report of the Phase III clinical studies on which the Company intends to rely for filing for marketing authorization for tasimelteon in its first major market country (Phase III report); (ii) the date of the acceptance by a regulatory authority of the filing by the Company for marketing authorization for tasimelteon in a major market country following the provision by the Company to BMS of the Phase III report; or (iii) May 31, 2013.

If the Company has not entered into such a development and commercialization agreement with respect to certain major market countries by the foregoing deadline, then BMS will have the option to exclusively develop and commercialize tasimelteon on its own in those countries not covered by such an agreement on pre-determined financial terms, including milestone and royalty payments. In addition to the foregoing, pursuant to the April 15, 2010 amendment, Vanda’s deadline for filing a NDA for tasimelteon was extended until June 1, 2013.

Either party may terminate the tasimelteon license agreement under certain circumstances, including a material breach of the agreement by the other. In the event that BMS has not exercised its option to reacquire the rights to tasimelteon and the Company terminates the license, or if BMS terminates the license due to the Company’s breach, all rights licensed and developed by the Company under this agreement will revert or otherwise be licensed back to BMS on an exclusive basis.

Future license payments. No amounts were recorded as liabilities nor were any contractual obligations relating to the license agreements included in the condensed consolidated financial statements as of September 30, 2011, since the amounts, timing and likelihood of these future payments are unknown and will depend on the successful outcome of future clinical trials, regulatory filings, favorable FDA regulatory approvals, growth in product sales and other factors.

Research and development and marketing agreements

In the course of its business the Company regularly enters into agreements with clinical organizations to provide services relating to clinical development and clinical manufacturing activities under fee service arrangements. The Company’s current agreements for clinical services may be terminated on no more than 60 days notice without incurring additional charges, other than charges for work completed but not paid for through the effective date of termination and other costs incurred by the Company’s contractors in closing out work in progress as of the effective date of termination.

- Definition

The entire disclosure for commitments and contingencies.

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+ Details

Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Fair Value Measurements [Abstract]

Fair Value Measurements

12. Fair Value Measurements

FASB guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include:

•

Level 1 - defined as observable inputs such as quoted prices in active markets

•

Level 2 - defined as inputs other than quoted prices in active markets that are either directly or indirectly observable

•

Level 3 - defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions

Marketable securities classified in Level 1 and 2 at September 30, 2011 and December 31, 2010 include available-for-sale marketable securities. The valuation of Level 1 instruments is determined using a market approach, and is based upon unadjusted quoted prices for identical assets in active markets. The valuation of investments classified in Level 2 also is determined using a market approach based upon quoted prices for similar assets in active markets, or other inputs that are observable for substantially the full term of the financial instrument. Level 2 securities primarily include commercial paper, corporate notes and government agency notes that use as their basis readily observable market parameters.

As of September 30, 2011, the Company held certain assets that are required to be measured at fair value on a recurring basis.


	Fair Value Measurements at Reporting Date Using
*(in thousands)*	September 30, 2011		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Description:
Available-for-sale securities	$	120,113	$	55,762	$	64,371	$	—

Total	$	120,113	$	55,762	$	64,371	$	—

As of December 31, 2010, the Company held certain assets that are required to be measured at fair value on a recurring basis.


	Fair Value Measurements at Reporting Date Using
*(in thousands)*	December 31, 2010		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Description:
Available-for-sale securities	$	155,478	$	45,455	$	110,023	$	—

Total	$	155,478	$	45,455	$	110,023	$	—

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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+ Details

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares	Sep. 30, 2011	Dec. 31, 2010
Stockholders' equity:
Preferred stock, par value	$ 0.001	$ 0.001
Preferred stock, shares authorized	20,000,000	20,000,000
Preferred stock, shares issued
Preferred stock, shares outstanding
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	150,000,000	150,000,000
Common stock, shares issued	28,110,619	28,041,379
Common stock, shares outstanding	28,110,619	28,041,379