Why Vanda Pharmaceuticals Inc. Shares Surged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Vanda Pharmaceuticals , a biopharmaceutical company focused on developing therapies to treat schizophrenia and sleep disorders, surged as much as 25% after announcing that its non-24-sleep-wake disorder drug Hetlioz was accepted for marketing authorization evaluation by the European Medicines Agency.

So what: According to Vanda's press release, the EMA -- what is essentially the Food and Drug Administration of Europe -- accepted Hetlioz for review. Hetlioz is designed to regulate the circadian rhythm of blind people with no light perception so they can stay on a regular sleep schedule. Many of us use the sun as our gauge of time perception, but the blind don't have this luxury; thus, their sleep habits are often erratic. Although estimates vary wildly, an approval in Europe would boost its annual peak sales potential from somewhere in the $300 million-$350 million range to perhaps as a high as $600 million. Vanda estimates that approximately 130,000 people in the EU have this disorder.

Now what: Scratching your head as to why Vanda shot higher by 25% on the mere acceptance of its marketing authorization application? Don't worry, you're not alone, because I'm not exactly understanding why shares would move this much higher on this news, either. Although Hetlioz was approved by the FDA in January of this year, it will still need to woo the EMA into an approval in Europe, so shareholders would be wise not to count their chickens before they're hatched. In addition, Vanda's only other FDA-approved therapy, Fanapt, for schizophrenia, is widely regarded as a poorly managed drug launch, with Vanda selling the licensing rights to Novartis for $200 million, and only now receiving a pittance of royalty revenue on a quarterly basis. In other words, Vanda's previous efforts have done nothing to inspire confidence that it understands how to launch and manage a newly approved drug. I would suggest sticking to the sidelines, especially with Vanda's current lofty valuation, and allow its top- and bottom-line figures to do the talking to lure you back in.

Vanda shares may have soared today, but it'll likely be no match to keep pace with this top stock over the long run
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The article Why Vanda Pharmaceuticals Inc. Shares Surged originally appeared on Fool.com.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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