Dec. 22 (Bloomberg) -- Vanda Pharmaceuticals Inc., a four- year-old drug company with no marketed products, on Dec. 7 reported a successful study of an experimental schizophrenia drug. Its shares jumped 69 percent, the most ever.

Four days later, six Vanda insiders, including Chief Executive Officer Mihael Polymeropoulos, sold $43 million in stock, or about 7.5 percent of the Rockville, Maryland-based company, according to U.S. filings. Care Capital, a venture firm whose general partners include Vanda Chairman Argeris Karabelas, sold $19.3 million of its shares on Dec. 11 and 12.

An analyst at Bank of America Corp., David Maris, called the drug study ``a major positive,'' helping to propel the shares up as much as 85 percent on Dec. 7. Neither Vanda nor its backers told investors that day that the pill previously had been cast aside by three drugmakers, including Novartis AG. Nor did the company disclose in its statement that the drug fared no better than the least successful of the latest class of schizophrenia medicines on the market, Pfizer Inc.'s Geodon.

``This is at best a me-too drug,'' said Jeffrey Lieberman, chairman of the psychiatry department at New York's Columbia University, about Vanda's iloperidone. ``I assume they picked Geodon because it was one of the weaker antipsychotics.'' Lieberman said he doesn't take consulting fees from competing drugmakers.

Shares of Vanda fell 4 cents to $25.27 at 4 p.m. in Nasdaq Stock Market composite trading. They have dropped 3.4 percent since insiders sold Dec. 11. Shares of Titan Pharmaceutical Inc., which will get royalties if the Vanda drug is marketed, fell 7 cents, or 2.2 percent, to $3.05 on the American Stock Exchange. Titan shares climbed as much as 73 percent on Dec. 7, rising 54 percent to $3.65.

Four-Week Study

Iloperidone belongs to a class of anti-psychotic medicines that includes Eli Lilly & Co.'s Zyprexa and Johnson & Johnson's Risperdal, the two top-selling schizophrenia drugs, with combined sales of $7.7 billion in 2005. In an interview Dec. 7, Vanda CEO Polymeropoulos said the four-week study, involving 604 patients, showed iloperidone ``works comparably to the other drugs.''

Vanda's press release said iloperidone demonstrated ``statistically significant efficacy vs. placebo,'' or a dummy drug, and it provided detailed data showing that the Vanda drug outperformed an inactive pill. According to a description of the study in a U.S. database of clinical trials, the research was also designed to test the drug against an ``active comparator'' medicine.

In a telephone interview Dec. 7, Chip Clark, Vanda's chief business officer, identified the comparator as Geodon. He said iloperidone and Geodon showed no difference in effectiveness during the trial. The frequency of side effects was also ``identical,'' he said.

Could Mislead

Clark wouldn't comment on the relative magnitude of the adverse events for each drug. ``We haven't completed the analysis'' of the adverse events,'' he said. He also declined to say why the company left out any reference to Geodon in the release.

The company's press statement did provide a so-called p- value, a figure that indicates that the drug's superiority over placebo wasn't due to chance. ``The p-value cited in the release to show `significant efficacy' could mislead investors,'' said John Davis, a professor of psychiatry at the University of Illinois at Chicago.

Davis, who analyzes research evaluating schizophrenia drugs, said he doesn't take money from drugmakers.

Insider Sales

``It might sound impressive to the layman, but it's not going to impress anyone who does the math,'' Davis said after reviewing the results in the press release. ``It's better than placebo, but that's not the goal. Almost all of the last 35 trials for these anti-psychotic drugs had substantially bigger differences from placebo. They're giving a p-value that sounds impressive, but it's real mediocre.''

CEO Polymeropoulos, 46, sold 150,000 shares at an average of $25.79 on Dec. 11, for $3.9 million total. Steven Shallcross, 45, chief financial officer, sold 10,000 shares at $26.45, for $264,500, on Dec. 11. Chief Business Officer Clark sold 15,000 shares at $26.28, for $394,200, on Dec. 11. Phadke Deepak Shripad, vice president of manufacturing, sold 4,720 shares at $25.33, for $119,546, on Dec. 12.

``My entire net worth is in Vanda,'' Polymeropoulos said in an interview Dec. 19. ``Diversification is prudent financial planning.''

Polymeropoulos also commented on the sale by Palo Alto, California-based Prospect Venture Partners, which is run by James Tananbaum, a Vanda board member. The firm sold $19.8 million of its Vanda holdings on Dec. 11 and 12.

Vanda Comment

``The VCs invest in companies to get results,'' Polymeropoulos said. ``Once the results come in, they have every right to take profits.''

In an e-mailed statement yesterday, a company spokesman said, ``As with any company, inside investors and managers are able to buy and sell stock at various times after major news has been released.''

Vanda requires insiders to wait two business days before trading stock after the release of routine information, according to the company's Web site. ``A longer period may be necessary for particularly significant or complex matters,'' according to the site.

Vanda's chairman Karabelas said in an interview yesterday that Princeton, New Jersey-based Care Capital, his venture firm, still had a ``large position'' in the drugmaker and that the sale was ``just a matter of managing our position for our investors.''

Securities Law

``There was a considerable sell-off by officers and the directors' venture capital funds when they obviously had material information that investors would like to have known,'' said Alan Bromberg, a professor of securities law at Southern Methodist University in Dallas. ``This is the sort of situation I'd expect the Securities and Exchange Commission's enforcement division's insider trading group to examine closely.''

Vanda was formed in 2003 to develop drugs to treat central nervous system disorders. It went public in April 2006 at $10, raising $53.3 million to develop iloperidone and other drugs, according to a U.S. regulatory filing. The company spent $30.2 million on the study through Sept. 30, Vanda reported in the filing.

Polymeropoulos founded the company after leaving Basel, Switzerland-based Novartis, Europe's third-largest drugmaker. In June 2004, the CEO acquired iloperidone from his former employer for an initial payment of $500,000, a fraction of the $17.4 million upfront license payment Novartis paid to get the drug in 1997.

Titan

South San Francisco-based Titan Pharmaceuticals previously paid $9.5 million up front to buy rights to the drug in 1997 from Hoechst Marion Roussel Inc., which discontinued researching it in 1996. Hoechst is now part of Paris-based Sanofi-Aventis.

In November 1997, Titan licensed the drug to Novartis in exchange for that $17.4 million upfront payment, a $5 million investment in Titan and a cut of any future sales. Novartis began the first of three Phase III clinical trials in August 1998.

Investors scooped up Titan shares after hearing tidbits of good news from the Novartis trial. On Sept. 25, 2000, Titan shares soared 21 percent after it announced ``positive safety and efficacy data'' for iloperidone. The stock peaked on Dec. 21, 2000, at $65.30.

Less than a year later, on July 24, 2001, Titan shares dropped $15.75, or 57 percent, to $11.75 after Titan and Novartis said their application for FDA approval of iloperidone would be delayed because more clinical trials were needed.

On July 22, 2002, Titan shares plunged 58 percent to a record low of $1.63 after the company said iloperidone's side effects among people with irregular heartbeats were about the same as for Geodon. The shares have since traded as low as $1.19 and have lost more than $1.5 billion in market value since the good news announcement from the Novartis trial.

Jailed Researcher

Novartis abandoned development of iloperidone after it failed in two of three clinical trials, in 1,947 patients, according to documents filed by Vanda with regulators. In those two trials, iloperidone failed to outperform placebo pills.

The author of the most successful trial of the drug was Richard Borison, then chairman of the psychiatry department at the Medical College of Georgia in Augusta. He conducted the test for Hoechst in 1995. A U.S. inspection report in 1997 described how Borison used untrained employees to administer experimental drugs, evaluate side effects and decide when to increase dosages.

Borison was convicted in 1998 of stealing more than $10 million of research money from clinical trials and sentenced to 15 years in state prison. The government report didn't involve a review of his iloperidone trial.

Non-Evidence

In its Dec. 7 press release Vanda said a key study finding was the greater reduction in symptoms for patients with a certain genetic profile. While the medicine ``works comparably to the other drugs, the response is even greater in those who have the genetic marker,'' Polymeropoulos said.

``People got excited about this non-evidence,'' said Robert Rosenheck, a professor of psychiatry at Yale University in New Haven, Connecticut. ``There's not enough information here for any pharmacologist or psychiatrist to express any opinion.''

Rosenheck said he takes consulting fees from drugmakers.

On Dec. 18, Vanda filed to sell 3.5 million new shares to the public to finance continuing operations. The company said it needs $46 million to develop iloperidone, to fund a U.S. Food and Drug Administration submission, and to launch the drug.

To contact the reporter on this story: David Evans in Los Angeles davidevans@bloomberg.net

Last Updated: December 22, 2006 16:11 EST