What changed in this filing

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Item 1. Business

2022-02-24 compared with 2021-02-11 · 167 added, 149 removed, 654 unchanged (33% of the section changed)

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In addition, we have a number of drugs in development, including:

• HETLIOZ ® (tasimelteon) for the treatment of jet lag disorder, pediatric Non-24, delayed sleep phase disorder (DSPD) and autism spectrum disorder (ASD);

• Fanapt ® (iloperidone) for the treatment of bipolar disorder and Parkinson's disease psychosis (PDP) and a long acting injectable (LAI) formulation for the treatment of schizophrenia;

• Tradipitant (VLY-686), a small molecule neurokinin-1 receptor (NK-1R) antagonist, for the treatment of gastroparesis, motion sickness, atopic dermatitis, and COVID-19 pneumonia;

• HETLIOZ ® (tasimelteon) for the treatment of jet lag disorder, delayed sleep phase disorder (DSPD), symptoms of autism spectrum disorder (ASD) and pediatric Non-24;

• Fanapt ® (iloperidone) for the treatment of bipolar disorder and Parkinson ’ s disease psychosis and a long acting injectable (LAI) formulation for the treatment of schizophrenia;

• Tradipitant (VLY-686), a small molecule neurokinin-1 (NK-1) receptor antagonist, for the treatment of gastroparesis, motion sickness, atopic dermatitis, and COVID-19 pneumonia;

• VTR-297, a small molecule histone deacetylase (HDAC) inhibitor for the treatment of hematologic malignancies and with potential use as a treatment for several oncology indications;

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• VQW-765, a small molecule nicotinic acetylcholine receptor partial agonist, with potential use for the treatment of psychiatric disorders;

We were incorporated in 2003 and are headquartered in Washington, D.C.

• VHX-896 (formerly P88), the active metabolite of iloperidone.

We were incorporated in 2002 and commenced operations in 2003.

We are headquartered in Washington, D.C.

Our goal is to further solidify our position as a leading global biopharmaceutical company focused on developing and commercializing innovative therapies addressing high unmet medical needs through the application of our drug development expertise and our pharmacogenetics and pharmacogenomics expertise.

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• Utilize novel and innovative approaches in pursuit of each of these strategies.

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Commercialized Products

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$173.5 United States

Europe (Non-24 Only)

Europe (Non-24 in blind patients only)

Schizophrenia (tablets) $95.1 United States

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Hospitalized individuals with neurological and psychiatric disorders can become insensitive to social cues, which

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may predispose them to the development of Non-24.

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for the treatment of adults and children, respectively, with nighttime sleep disturbances in SMS.

HETLIOZ ® capsules, for adults with SMS, were immediately available after approval and the HETLIOZ LQ™ liquid formulation, for children with SMS, became available in the first quarter of 2021.

SMS is a developmental disorder that is caused by a small deletion of human chromosome 17p.

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Fanapt ® for schizophrenia (tablets)

Fanapt ® is a product for the treatment of schizophrenia.

Fanapt ® is a product approved for the treatment of schizophrenia.

In May 2009, the FDA granted U.S.

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In May 2016, the FDA approved a supplemental New Drug Application (sNDA) for Fanapt ® for the maintenance treatment of schizophrenia in adults.

In July 2017, the EMA’s Committee for Medicinal Products for Human Use (CHMP) issued a negative opinion recommending against approval of Fanaptum ® (oral iloperidone tablets) for the treatment of schizophrenia in adult patients in the E.U.

The CHMP was of the opinion that the benefits of Fanaptum ® did not outweigh its risks and recommended against marketing authorization.

The negative opinion was upheld upon appeal in November 2017.

(See Note 17, Legal Matters, to the consolidated financial statements in Part II, Item 8 of this Annual Report, which is incorporated herein by reference, for information relating to subsequent proceedings in this matter.)

Schizophrenia is a chronic, debilitating mental disorder characterized by hallucinations, delusions, racing thoughts and other psychotic symptoms (collectively referred to as “positive symptoms”), as well as moodiness, anhedonia (inability to feel pleasure), loss of interest, eating disturbances and withdrawal (collectively referred to as “negative symptoms”), and attention and memory deficits (collectively referred to as “cognitive symptoms”).

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See Competition below for a discussion of commonly prescribed atypical antipsychotics in addition to Fanapt ® .

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Research and Development

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Additionally, in September 2018, we announced results from a driving study, which demonstrated that tasimelteon did not impair measures of driving performance.

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The FDA accepted the filing of our sNDA for HETLIOZ ® for the treatment of jet lag disorder in December 2018.

The FDA determined the action target date under the Prescription Drug User Fee Act Amendments of 2017 (PDUFA-VI) to be August 16, 2019, and on that date, we received a complete response letter (CRL) from the FDA.

The FDA determined the action target date under the Prescription Drug User Fee Act Amendments of 2017 (PDUFA) to be August 16, 2019, and on that date, we received a complete response letter (CRL) from the FDA.

The FDA asserted in the CRL that the measures demonstrating improved sleep were of unclear clinical significance.

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HETLIOZ ® for DSPD

A clinical program of HETLIOZ ® in DSPD is ongoing.

A Phase III study of HETLIOZ ® in DSPD is ongoing.

DSPD is a circadian rhythm disorder in which a person’s sleep is delayed beyond the socially acceptable or conventional bedtime.

This delay in falling asleep causes difficulty in waking up at the desired time and affects social and occupational functioning.

DSPD is likely the most prevalent circadian-rhythm sleep disorder, affecting approximately 1% of the population, and there is no FDA approved treatment at this time.

HETLIOZ ® for ASD

A clinical program of HETLIOZ ® for the treatment of sleep disturbances in ASD is expected to be initiated in the first quarter of 2021.

A clinical program of HETLIOZ ® for the treatment of symptoms of ASD is ongoing.

Sleep disturbances in ASD are a high unmet medical need in people with ASD and have been characterized in the literature to include difficulties falling and staying asleep.

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This pharmacokinetic study is ongoing and will serve to inform the dosing for a later clinical study of Fanapt ® LAI for the treatment of schizophrenia.

Fanapt ® for PDP

A clinical program of Fanapt ® in PDP is expected to begin in 2021.

Fanapt ® for Parkinson ’ s disease psychosis

A clinical program of Fanapt ® in Parkinson ’ s disease psychosis is ongoing.

Parkinson ’ s disease is a neurodegenerative disorder that affects predominately dopaminergic neurons in a specific area of the brain called substantia nigra.

People with Parkinson's disease experience a combination of hallucinations and delusions and the disease is associated with significant caregiver burden.

There are approximately one million adults in the U.S.

with Parkinson’s disease.

Between 20% and 40% of persons with Parkinson ’ s disease experience a combination of hallucinations and delusions.

The disease is associated with significant caregiver burden.

Tradipitant for gastroparesis

We announced results in December 2018 from a Phase II randomized clinical study (2301) of tradipitant as a monotherapy in the treatment of gastroparesis.

Several symptom severity scales were used to assess gastroparesis symptoms, including the Gastroparesis Symptom Index (GCSI), Patients Assessment of Upper Gastrointestinal Disorders-Symptoms

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(PAGI-SYM), and Patient Global Impression of Change (PGI-C) as well as a Clinician Global Impression of Severity (CGI-S).

In December 2018, we announced results from a Phase II randomized clinical study (2301) of tradipitant as a monotherapy in the treatment of gastroparesis.

Several symptom severity scales were used to assess gastroparesis symptoms, including the Gastroparesis Symptom Index (GCSI), Patients Assessment of Upper Gastrointestinal Disorders-Symptoms (PAGI-SYM), and Patient Global Impression of Change (PGI-C) as well as a Clinician Global Impression of Severity (CGI-S).

Tradipitant met the primary endpoint of the study of change in nausea score as measured by patient daily diaries and also met the related endpoint of improvement in the number of nausea free days.

Tradipitant also showed significant improvement in most of the secondary endpoints studied, including several key scales reflecting overall gastroparesis symptoms, specifically GCSI, PAGI-SYM, CGI-S, and PGI-C.

We are currently enrolling patients in a Phase III study of tradipitant in the treatment of both diabetic and idiopathic gastroparesis.

This Phase III study is a 12-week study of similar design to the Phase II study in both target population and endpoints.

Tradipitant also showed significant improvement in

most of the secondary endpoints studied, including several key scales reflecting overall gastroparesis symptoms, specifically GCSI, PAGI-SYM, CGI-S, and PGI-C.

In February 2022, we announced results from our Phase III clinical study, VP-VLY-686-3301, evaluating the efficacy and safety of tradipitant in treating the symptoms of gastroparesis.

The study did not meet its prespecified primary endpoint, which was the difference between drug and placebo on the change of the severity of nausea from baseline at week 12 of treatment.

Both treatment arms showed significant improvements from baseline on nausea as well as the other core symptoms of gastroparesis.

When restricting the analysis in the group of patients that used no rescue medications at baseline and adjusting for poor compliance, we identified strong evidence of a drug effect across a number of symptoms and across the duration of the study, including a significant and meaningful effect at the prespecified primary endpoint of nausea change at week 12.

We plan to continue the analysis of the data of this study and prepare the results for submission to peer review journals as well as prepare the data for submission to regulatory authorities.

The FDA may not view this data as constituting substantial evidence of efficacy for tradipitant in any indication for the treatment of gastroparesis or its symptoms, for any length of treatment.

We believe that tradipitant has a well-established safety profile, as demonstrated by the results of extensive testing in animals and humans.

Despite these results, however, the FDA informed us in December 2018 that in order to treat patients beyond 12 weeks, we will have to conduct a 9-month non-rodent chronic toxicity study, which currently limits our ability to collect safety data in humans for more than 12 weeks.

The non-rodent study required by the FDA necessitates the sacrifice of dozens of animals and we have disputed the necessity of a 9-month non-rodent chronic toxicity study.

Despite these results, however, the FDA informed us in December 2018 that in order to treat patients beyond 12 weeks, we will have to conduct a nine-month non-rodent chronic toxicity study.

This currently limits our ability to collect safety data in humans for more than 12 weeks.

The non-rodent study required by the FDA necessitates the sacrifice of dozens of animals and we have disputed the necessity of a nine-month non-rodent chronic toxicity study.

In February 2019, we filed a lawsuit in the U.S.

District Court for the District of Columbia (DC District Court) challenging the FDA’s position, but ultimately did not prevail.

Despite our disagreement with the FDA, the preclinical package has allowed us to continue to conduct all of the efficacy studies necessary for NDA filing.

Moreover, in July 2020, the FDA approved the use of tradipitant for up to six months with an option of renewal for an individual patient who requested expanded access.

Since then, other patients who experienced a unique benefit in tradipitant studies have requested expanded access.

The expanded access program is ongoing and a number of patients have initiated treatment.

Although this expanded access program is not intended for data collection, we will collect safety data from this cohort of expanded access patients and include this data in its NDA for tradipitant for the treatment of gastroparesis;

however, the FDA may disregard such safety data when reviewing the NDA.

The lack of long-term (>12 weeks in humans) safety data would likely impact the FDA’s willingness to approve tradipitant for a chronic indication.

District Court for the District of Columbia (DC District Court) challenging the FDA’s position, but we ultimately did not prevail.

Despite our disagreement with the FDA, the preclinical package has allowed us to continue to conduct all of the efficacy studies necessary for New Drug Application (NDA) filing.

Moreover, in July 2020, the FDA authorized tradipitant through an expanded access program (EAP) for a single patient.

An EAP allows a patient to request the use of tradipitant, prior to NDA approval, for up to six months with an option to request renewal.

Since then, certain patients who experienced a benefit in tradipitant studies have requested and received expanded access, while others have been denied treatment under the EAP.

The EAP is ongoing and a number of patients have initiated treatment.

Although this EAP is not intended for data collection, we will collect safety data from this cohort of expanded access patients and include this data in the NDA for tradipitant for the treatment of gastroparesis.

The FDA may disregard such safety data when reviewing the NDA.

The lack of long-term (i.e., more than 12 weeks in humans) safety data would likely impact the FDA’s willingness to approve tradipitant for a chronic indication.

However, because long-term safety data is not normally a requirement for short-term indications, and with a preclinical profile that has not precluded clinical development, we believe the package is complete for any NDA filing to treat patients for 12 weeks or less.

In gastroparesis, for example, the FDA has communicated to us that it is considering an indication for the short-term relief of nausea in gastroparesis.

For example, the FDA has communicated to us that it is considering an indication for the short-term relief of nausea in gastroparesis.

While this short-term indication is not preferred, we would consider accepting this limited indication while continuing to pursue a chronic indication.

However, the FDA may not deem the safety information sufficient even for a short-term indication.

Moreover, FDA authorization of an EAP is not a guarantee of or a step in obtaining full FDA approval of an NDA.

Gastroparesis is a serious medical condition characterized by delayed gastric emptying associated with the symptoms of nausea, vomiting, bloating, fullness after meals and abdominal pain, along with significant impairment of social and occupational functioning.

A paper by Rey et al published in the January 2012 Journal of Neurogastroenterology and Motility estimated the prevalence of gastroparesis in the U.S.

to be over 5 million patients, many of whom remain undiagnosed.

to be approximately six million patients, many of whom remain undiagnosed.

Tradipitant for motion sickness

In July 2019, we reported tradipitant was effective in treating motion sickness in a Phase II clinical study conducted in the Pacific Ocean.

In the study, 126 people with a prior history of motion sickness were subjected to sea travel in the Pacific Ocean.

Study participants were randomized to receive either tradipitant or placebo in a blinded fashion.

In July 2019, we reported tradipitant was effective in treating motion sickness in a randomized double blind placebo controlled Phase II clinical study conducted in the Pacific Ocean.

The study had two primary endpoints:

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The protocol for a pivotal Phase III motion sickness study was discussed with the FDA at the end of Phase II meeting, and the FDA agreed with the adequacy of the program design to support an NDA.

Preparations for this study have begun with the boat trip portion of the study expected to commence as soon as local restrictions related to the COVID-19 pandemic are lifted.

In the fourth quarter of 2021, the boat trip portion of the Phase III study commenced as the lifting of local restrictions related to the COVID-19 pandemic has allowed for boat trips to resume.

Motion sickness is a disorder that arises often as a response to real or perceived movement, as occurring during vehicular travel.

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Tradipitant was shown to improve the intensity of the worst itch patients experienced, as well as atopic dermatitis disease severity.

On the pre-specified primary endpoint of Average Itch Visual Analog

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Scale (VAS), tradipitant showed improvement over placebo, but this improvement was not significant due to high placebo effect and the lack of sensitivity of this measure.

On the pre-specified primary endpoint of Average Itch Visual Analog Scale (VAS), tradipitant showed improvement over placebo, but this improvement was not significant due to high placebo effect and the lack of sensitivity of this measure.

In June 2018, we initiated EPIONE, a Phase III study of tradipitant for pruritus in atopic dermatitis.

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The EPIONE study continued to demonstrate that tradipitant is safe and well-tolerated.

The ongoing EPIONE 2 study was placed on hold due to the COVID-19 pandemic.

The EPIONE 2 study was placed on hold due to the COVID-19 pandemic in 2020.

Atopic dermatitis is a chronic, relapsing inflammatory skin disorder characterized by the symptom of intense and persistent pruritus or itch.

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Tradipitant for COVID-19 pneumonia

In April 2020, we announced the initiation of clinical study, ODYSSEY VLY-686-3501, in hospitalized patients with COVID-19.

In April 2020, we announced the initiation of a Phase III clinical study, ODYSSEY VLY-686-3501, in hospitalized patients with COVID-19.

We received permission from the FDA to proceed with the study for the treatment and prevention of pneumonia associated with COVID-19.

Enrollment in our Phase III clinical study of VLY-686-3501 is ongoing.

Enrollment in the VLY-686-3501 study closed in August 2021 because the study met the pre-defined futility criteria, indicating that the study was unlikely to succeed in its pre-specified primary endpoint.

The study was designed to determine whether tradipitant plus standard of care is superior to placebo plus standard of care in treating hospitalized patients with COVID-19 pneumonia who required supplemental oxygen support.

An independent data and safety monitoring board (DSMB) met to assess the planned interim analysis results and determined that the study is unlikely to show a significant difference between treatment arms at the pre-specified primary endpoint and recommended termination of the study for futility.

The DSMB also determined that there are no safety concerns that contributed to its recommendation.

Vanda will continue the genetics component of the study with the goal of identifying genetic susceptibility factors contributing to the incidence of severe pneumonia among patients infected with COVID-19.

COVID-19 is associated with a lower respiratory tract inflammation that often progresses to acute respiratory distress syndrome requiring mechanical ventilation.

Tradipitant targets the neurokinin-1 receptor, which is coded by the TACR1 gene and is the main receptor for substance P, an 11 amino acid neuropeptide with a diverse set of functions.

It has been shown that the substance P NK-1R system is involved in the neuroinflammatory processes that leads to significant lung injury following a number of insults, including viral challenges.

It has been shown that the substance P NK-1 receptor system is involved in the neuroinflammatory processes that leads to significant lung injury following a number of insults, including viral challenges.

In the fourth quarter of 2018, we initiated a clinical study in patients with hematologic malignancies.

Enrollment in the Phase I/II clinical study (1101) of VTR-297 in hematologic malignancies is ongoing.

VTR-297 is a small molecule HDAC inhibitor with potential use as a treatment for several oncology indications.

The FDA accepted an Investigational New Drug (IND) application for VTR-297 in 2017 and provided authorization to proceed with the treatment of patients with relapsed and/or refractory hematologic malignancies.

We initiated a clinical study in patients with hematologic malignancies in the fourth quarter of 2018.

Enrollment in the Phase I clinical study (1101) of VTR-297 in hematologic malignancies is ongoing.

Portfolio of CFTR activators and inhibitors

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We are evaluating VSJ-110 for the treatment of allergic conjunctivitis.

In November 2020, we initiated a study in human volunteers that will evaluate the acute anti-inflammatory effects of VSJ-110 in an ocular allergic challenge model, and will evaluate the prosecretory effects using standard tear production assessments.

The results from the study will help guide further development of VSJ-110 to treat a variety of ocular inflammatory conditions, including dry eye, which has an estimated worldwide prevalence of 5-20%, with about 16 million affected individuals in the U.S.

VSJ-110 (previously known as CFTRact-K267) is a small molecule nanomolar potency CFTR activator.

VSJ-110 is a small molecule nanomolar potency CFTR activator.

VSJ-110 has shown efficacy in a dry eye model and exhibited anti-inflammatory properties in both in vitro and in vivo assays.

In addition, an early stage CFTR inhibitor program is planned for BPO-27 for the treatment of secretory diarrhea disorders, including cholera.

In the fourth quarter of 2020, we initiated a study at a leading cholera lab at Harvard University.

Other products

VQW-765 is a Phase II alpha-7 nicotinic acetylcholine receptor partial agonist that we licensed from Novartis on December 31, 2014 pursuant to a settlement agreement.

The FDA accepted an IND application for VQW-765 in January 2020 and provided authorization to proceed with clinical development.

In January 2020, the FDA accepted an IND application for VQW-765 and provided authorization to proceed with clinical development.

We are evaluating VQW-765 for the treatment of psychiatric disorders.

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For more detailed information regarding our clinical trial results and regulatory activities for our products please refer to our SEC filings and press releases, which can be found on the SEC Edgar system and on our website www.vandapharma.com.

We initiated a Phase II study of a single-dose treatment to alleviate social/performance anxiety.

VQW-765 is a Phase II alpha-7 nicotinic acetylcholine receptor partial agonist that we licensed from Novartis on December 31, 2014 pursuant to a settlement agreement.

VHX-896 (formerly P88)

In 2021, we initiated a bioequivalence study of Fanapt ® and VHX-896, the active metabolite of iloperidone.

We believe that VHX-896 has the potential to improve the clinical profile of Fanapt ® and create sustained, long-term value in the treatment of psychiatric disorders

For more detailed information regarding our clinical trial results and regulatory activities for our products please refer to our SEC filings and press releases, which can be found on the SEC EDGAR website and on our website www.vandapharma.com.

Information contained on those websites is not incorporated by reference into this Annual Report or any other report or document that we file with the SEC.

License Agreements

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We have no remaining milestone obligations to BMS.

Additionally, we are obligated to make royalty payments on HETLIOZ ® net sales to BMS in any territory where we commercialize HETLIOZ ® for a period equal to the greater of 10 years following the first commercial sale in the territory or the expiry of the new chemical entity (NCE) patent in that territory.

During the period prior to the expiry of the NCE patent in a territory, we are obligated to pay a 10% royalty on net sales in that territory.

The royalty rate is decreased by half for countries in which no NCE patent existed or for the remainder of the 10 years after the expiry of the NCE patent.

Additionally, we are obligated to make royalty payments on HETLIOZ ® net sales to BMS.

The royalty period in each territory where we commercialize HETLIOZ ® is 10 years following the first commercial sale in the territory.

In territories outside the U.S., the royalty is 5% on net sales.

In the U.S., the current royalty on net sales is 10%.

This royalty will drop to 5% in December 2022 and will end in April 2024.

We are also obligated under the license agreement to pay BMS a percentage of any sublicense fees, upfront payments and milestone and other payments (excluding royalties) that we receive from a third party in connection with any sublicensing arrangement, at a rate which is in the mid-twenties.

We have agreed with BMS in the license agreement for HETLIOZ ® to use commercially reasonable efforts to develop and commercialize HETLIOZ ® .

We are obligated to use commercially reasonable efforts to develop and commercialize HETLIOZ ® .

Either party may terminate the HETLIOZ ® license agreement under certain circumstances, including a material breach of the agreement by the other.

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after November 2026.

We may lose our rights to develop and commercialize Fanapt ® if we fail to comply with certain requirements in the Titan license agreement regarding our financial condition, or if we fail to comply with certain diligence obligations regarding our development or commercialization activities.

We may lose our rights to develop and commercialize Fanapt ® if we fail to comply with certain requirements in the Titan license agreement regarding

our financial condition, or if we fail to comply with certain diligence obligations regarding our development or commercialization activities.

Tradipitant (VLY-686)

In April 2012, we entered into a license agreement with Eli Lilly and Company (Lilly) pursuant to which we acquired an exclusive worldwide license under certain patents and patent applications, and other licenses to intellectual property, to develop and commercialize an NK-1R antagonist, tradipitant, for all human indications.

In April 2012, we entered into a license agreement with Eli Lilly and Company (Lilly) pursuant to which we acquired an exclusive worldwide license under certain patents and patent applications, and other licenses to intellectual property, to develop and commercialize an NK-1 receptor antagonist, tradipitant, for all human indications.

Lilly is eligible to receive future payments based upon achievement of specified development, regulatory approval and commercialization milestones as well as tiered-royalties on net sales at percentage rates up to the low double digits.

We have paid Lilly $3.0 million in upfront fees and development milestones, including a $2.0 million milestone payment as a result of enrolling the first subject into a Phase III study for tradipitant in July 2018.

We have paid Lilly $3.0 million in upfront fees and development milestones.

As of December 31, 2021, remaining milestones include a $2.0 million development milestone due upon the filing of the first marketing authorization for tradipitant in either the U.S.

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Either party may terminate the agreement under certain circumstances, including a material breach of the agreement by the other.

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licensed back to Lilly on an exclusive basis, subject to payment by Lilly to us of a royalty on net sales of products that contain tradipitant.

In the event that we terminate the agreement, or if Lilly terminates the agreement due to our breach or for certain other reasons set forth in the agreement, all rights licensed and developed by us under the agreement will revert or otherwise be licensed back to Lilly on an exclusive basis, subject to payment by Lilly to us of a royalty on net sales of products that contain tradipitant.

Portfolio of CFTR activators and inhibitors

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UCSF is eligible to receive future payments based upon achievement of specified development, regulatory approval and commercialization milestones as well as single-digit tiered-royalties on net sales.

To date, we have paid UCSF $1.2 million in upfront fees and development milestones.

We have paid UCSF $1.6 million in upfront fees and development milestones.

As of December 31, 2021, remaining milestones include $11.9 million for development milestones and $33.0 million for future regulatory approval and sales milestones.

Included in the $12.2 million in development milestones is a $350,000 milestone due upon the conclusion of a Phase I study for each licensed product, not to exceed $1.1 million in total for the CFTR portfolio.

In the fourth quarter of 2020, we determined the $350,000 milestone to be probable and accrued it as a current liability as of December 31, 2020.

Included in the $11.9 million in development milestones are $1.1 million of milestone obligations due upon the conclusion of clinical studies for each licensed product, not to exceed $3.2 million in total for the CFTR portfolio.

Either party may terminate the agreement under certain circumstances.

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Hatch-Waxman Protection

We will be able to protect our products from unauthorized use by others only to the extent that our products are covered through regulatory protections or by valid and enforceable patents, either licensed to us by others or generated through our activities internally, that give us sufficient proprietary rights.

our activities internally, that give us sufficient proprietary rights.

Accordingly, securing patents, regulatory data package protection, and other proprietary rights is an essential element of our business strategies.

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In addition, we have filed for patents based on our own discoveries that seek to provide additional protection for HETLIOZ ® and Fanapt ® .

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A comprehensive list of patents for our U.S.

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US 11,141,400 Method of treatment

HETLIOZ LQ TM

US 5,856,529 New chemical entity

US 9,539,234 Method of treatment

US 9,730,910 Method of treatment

US 10,071,977 Drug substance

US 10,149,829 Method of treatment

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US 10,610,510 Method of treatment

Our rights to the NCE patent covering HETLIOZ ® and related intellectual property have been acquired through a license with BMS.

US 10,610,511 Method of treatment

US 10,829,465 Drug substance

US 10,980,770 Method of treatment

US 11,141,400 Method of treatment

US 11,202,770 Drug formulation

US 8,586,610 Method of treatment

US 8,652,776 Method of treatment

US 8,999,638 Method of treatment

US 9,072,742 Method of treatment

US 9,074,254 Method of treatment

US 9,074,255 Method of treatment

US 9,074,256 Method of treatment

US 9,138,432 Method of treatment

US 9,157,121 Method of treatment

HETLIOZ ® and HETLOZ LQ TM

Our rights to the NCE patent covering HETLIOZ ® capsules and oral suspension (HETLIOZ LQ TM ) and related intellectual property have been acquired through a license with BMS.

HETLIOZ ® and its formulations, genetic markers and uses are the subject of numerous patent filings for which protection has been sought in selected countries worldwide.

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Patent and Trademark Office has issued 15 method of treatment patents for HETLIOZ ® that will expire between 2033 and 2035 and two drug substance patents that will expire in 2035.

Additionally, the U.S.

Patent and Trademark Office has issued a drug formulation patent for HETLIOZ LQ TM that will expire in 2040.

We also have other pending patent applications covering methods of treatment and compositions of tasimelteon (HETLIOZ ® active ingredient) oral suspensions.

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Other pending patent applications in Europe, if granted, may offer additional protection for HETLIOZ ® .

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Outside the U.S.

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and Europe, similar regulatory package protection periods may be available and could protect Fanapt ® from generic competition for varying numbers of years depending upon the country.

Lilly owns an NCE patent as well as patent applications directed to polymorphic forms of, and methods of making tradipitant.

Lilly owns the NCE patent as well as patent applications directed to polymorphic forms of, and methods of making tradipitant.

This patent protection was sought in the U.S.

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These patents and patent applications have been licensed to us.

The NCE patent covering tradipitant expires in April 2023, except in the U.S., where it expires normally in June 2024, subject to any extension that may be received under the Hatch-Waxman Act.

The NCE patent covering tradipitant expires in April 2023, except in the U.S., where it

expires normally in June 2024, subject to any extension that may be received under the Hatch-Waxman Act.

We have filed additional patent applications based on discoveries made during recent studies with tradipitant.

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We plan on filing applications based on discoveries made throughout the development plan of these product candidates.

Novartis owns an NCE patent as well as patent applications directed to methods of using VQW-765, VQW-765 formulations, and combinations of VQW-765 with other active pharmaceutical ingredients.

Novartis owns the NCE patent as well as patent applications directed to methods of using VQW-765, VQW-765 formulations, and combinations of VQW-765 with other active pharmaceutical ingredients.

In connection with the settlement agreement with Novartis relating to Fanapt ® , we received an exclusive worldwide license under certain patents and patent applications, and other licenses to intellectual property, to develop and commercialize VQW-765, a Phase II alpha-7 nicotinic acetylcholine receptor partial agonist.

The NCE patent expires normally in 2023 in the U.S., Europe, and other markets.

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Other patents

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for the treatment of Non-24 in January 2014 and HETLIOZ ® capsules and oral suspension were approved for the treatment of nighttime sleep disturbances in SMS in December 2020.

We commercially launched HETLIOZ ® in the U.S.

in April 2014.

We commercially launched HETLIOZ ® capsules in the U.S.

in April 2014 and the oral suspension in March 2021.

Additionally, HETLIOZ ® capsules were approved in the E.U.

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Major Customers

Our revenues are generated from product sales and are concentrated with specialty pharmacies, including Diplomat Pharmacy, Inc.

(a subsidiary of UnitedHealth Group) and Accredo (a subsidiary of Express Scripts), and wholesalers, including Cardinal Health, Inc., AmerisourceBergen Drug Corporation, and McKesson Corporation.

These 5 major customers each accounted for more than 10% of total revenues for 2020 and, as a group, represented 95% of total revenues for the year ended December 31, 2020.

Our revenues are generated from product sales and are concentrated with specialty pharmacies, including OptumRx (a subsidiary of UnitedHealth Group) and Accredo (a subsidiary of Express Scripts), and wholesalers, including Cardinal Health, Inc., AmerisourceBergen Drug Corporation, and McKesson Corporation.

These five major customers each accounted for more than 10% of total revenues for 2021 and, as a group, represented 91% of total revenues for the year ended December 31, 2021.

The pharmaceutical industry, in particular, is highly competitive and includes a number of established large and mid-sized companies with greater financial, technical and personnel resources than we have and significantly greater commercial infrastructures than we have.

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• For HETLIOZ ® in the treatment of Non-24 and nighttime sleep disturbances in SMS, there are no FDA approved direct competitors.

Sedative-Hypnotic treatments for certain sleep related disorders include, Ambien ® (zolpidem) by Sanofi (including Ambien CR ® ), Lunesta ® (eszopiclone) by Sunovion Pharmaceuticals Inc., Sonata ® (zaleplon) by Pfizer Inc., Rozerem ® (ramelteon) by Takeda Pharmaceuticals Company Limited, Silenor ® (doxepin) by Pernix Therapeutics, Belsomra ® (suvorexant) by Merck & Co., Inc., generic products such as zolpidem, trazodone and doxepin, and over-the-counter remedies such as Benadryl ® and Tylenol PM ® .

Sedative-Hypnotic treatments for certain sleep related disorders include, Ambien ® (zolpidem) by Sanofi (including Ambien CR ® ), Lunesta ® (eszopiclone) by Sunovion Pharmaceuticals Inc., Sonata ® (zaleplon) by Pfizer Inc., Rozerem ® (ramelteon) by Takeda Pharmaceuticals Company Limited, Silenor ® (doxepin) by Currax Pharmaceuticals LLC, Belsomra ® (suvorexant) by Merck & Co., Inc., Dayvigo ® (lemborexant) by Eisai Inc., generic products such as zolpidem, trazodone and doxepin, and over-the-counter remedies such as Benadryl ® and Tylenol PM ® .

The class of melatonin agonists includes Rozerem ® (ramelteon) by Takeda Pharmaceuticals Company Limited, Valdoxan ® (agomelatine) by Servier, Circadin ® (long-acting melatonin) by Neurim Pharmaceuticals Ltd.

and the food supplement melatonin.

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Shift work and excessive sleepiness disorder treatments include Nuvigil ® (armodafinil) and Provigil ® (modafinil) both by Teva Pharmaceutical Industries Ltd.

• For Fanapt ® in the treatment of schizophrenia, the atypical antipsychotics competitors are Risperdal ® (risperidone), including the LAI formulation Risperdal Consta ® and Invega ® (paliperidone), including the LAI formulation Invega ® Sustenna ® , each by Ortho-McNeil-Janssen Pharmaceuticals, Inc., Zyprexa ® (olanzapine), including the LAI formulation Zyprexa ® Relprevv TM , each by Lilly, Seroquel ® and Seroquel XR ® (quetiapine) by AstraZeneca PLC, Abilify ® (aripiprazole) by Otsuka America Pharmaceutical Inc., Abilify Maintena ® (the LAI formulation of Abilify ® ) by Lundbeck/Otsuka America Pharmaceutical Inc., Geodon ® (ziprasidone) by Pfizer Inc., Saphris ® (asenapine) by Allergan plc, Latuda ® (lurasidone) by Sunovion Pharmaceuticals Inc., Rexulti ® (brexpiprazole) by Lundbeck/Otsuka America Pharmaceutical, Inc., Aristada ® (aripiprazole lauroxil) extended-release injectable suspension by Alkermes, plc, Vraylar ® (cariprazine) by Teva Pharmaceutical Industries Ltd., Perseris ® (risperidone) extended-release injectable suspension by Indivior plc, Caplyta ® (lumapteperone) by Intra-Cellular Therapies, and generic clozapine, as well as the typical antipsychotics haloperidol, chlorpromazine, thioridazine, and sulpiride (all of which are generic).

• For Fanapt ® in the treatment of schizophrenia, the atypical antipsychotics competitors are Risperdal ® (risperidone), including the LAI formulation Risperdal Consta ® and Invega ® (paliperidone), including the LAI formulation Invega ® Sustenna ® , each by Ortho-McNeil-Janssen Pharmaceuticals, Inc., Zyprexa ® (olanzapine), including the LAI formulation Zyprexa ® Relprevv TM , each by Lilly, Seroquel ® and Seroquel XR ® (quetiapine) by AstraZeneca PLC, Abilify ® (aripiprazole) by Otsuka America Pharmaceutical Inc., Abilify Maintena ® (the LAI formulation of Abilify ® ) by Lundbeck/Otsuka America Pharmaceutical Inc., Geodon ® (ziprasidone) by Pfizer Inc., Saphris ® (asenapine) by AbbVie Inc., Latuda ® (lurasidone) by Sunovion Pharmaceuticals Inc., Rexulti ® (brexpiprazole) by Lundbeck/Otsuka America Pharmaceutical, Inc., Aristada ® (aripiprazole lauroxil) extended-release injectable suspension by Alkermes, plc, Vraylar ® (cariprazine) by AbbVie Inc., Perseris ® (risperidone) extended-release injectable suspension by Indivior plc, Caplyta ® (lumapteperone) by Intra-Cellular Therapies, Lybalvi (olanzapine and samidorphan) by Alkermes, Inc., and generic clozapine, as well as the typical antipsychotics haloperidol, chlorpromazine, thioridazine, and sulpiride (all of which are generic).

Our ability to compete successfully will depend in part on our ability to utilize our pharmacogenetics and pharmacogenomics and drug development expertise to identify, develop, secure rights to and obtain regulatory approvals for promising pharmaceutical products before others are able to develop competitive products.

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Manufacturing

We currently utilize a virtual supply manufacturing and distribution chain in which we do not have our own facilities to manufacture commercial or clinical trial supplies of drugs and we do not have our own distribution facilities.

Additionally, we do not intend to develop such facilities for any product in the near future.

Instead, we contract with third parties for the manufacture, warehousing, order management, billing and collection and distribution of our products and product candidates.

We currently utilize a virtual supply manufacturing and distribution chain, meaning that we do not have our own facilities to manufacture commercial or clinical trial supplies of drugs, and we do not have our own distribution facilities.

Instead, we contract with third parties to source critical raw materials and for the manufacture, warehousing, order management, billing and collection and distribution of our products and product candidates.

We expect to continue to rely solely on third-party manufacturers to manufacture drug substance and final drug products for both clinical development and commercial sale.

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Patheon is responsible for manufacturing the Fanapt ® 1, 2, 4, 6, 8, 10 and 12 mg tablets, conducting quality control and stability testing, and packaging the Fanapt ® tablets.

The Fanapt ® manufacturing agreement has an initial term of five years and will automatically renew after the initial term for successive terms of one year each, unless either party gives notice of its intention

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to terminate the agreement at least 12 months prior to the end of the then current term.

Either party may terminate the Fanapt ® manufacturing agreement under certain circumstances upon specified written notice to the other party.

In December 2020, we entered into a non-exclusive manufacturing agreement for the manufacture of commercial supplies of HETLIOZ LQ TM .

In December 2020, we entered into a non-exclusive manufacturing agreement for the manufacture of commercial supplies of both 48 and 158 mL HETLIOZ LQ TM bottles.

The HETLIOZ LQ TM manufacturing agreement has an initial term of five years and automatically renews after the initial term for successive terms of one year each, unless either party gives notice of its intention to terminate the agreement at least 12 months prior to the end of the then current term.

Government Regulation

Government authorities in the U.S., at the federal, state and local levels, and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and import of pharmaceutical products.

Government authorities in the U.S.

at the federal, state and local levels and in other countries extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing and export and import of pharmaceutical products.

A new drug must be approved by the FDA through the NDA process before it may be legally marketed in the U.S.

The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.

Moreover, failure to comply with applicable regulatory requirements may result in, among other things, warning letters, clinical holds, civil or criminal penalties, recall or seizure of products, injunction, disbarment, partial or total suspension of production or withdrawal of the product from the market.

Any agency or judicial enforcement action could have a material adverse effect on our business.

The process of obtaining regulatory approvals and the subsequent compliance with applicable federal, state, local and foreign laws and regulations require the expenditure of substantial time and financial resources.

Moreover, failure to comply with applicable requirements may result in, among other things, warning letters, clinical holds, civil or criminal penalties, recall or seizure of products, injunction, disbarment, partial or total suspension of production or withdrawal of the product from the market.

Any judicial, administrative or other governmental enforcement action could have a material adverse effect on our business.

government regulation

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Failure to comply with the applicable U.S.

requirements at any time during the product development process, approval process or after approval may subject an applicant to administrative or judicial sanctions.

requirements at any time during the product development process, approval process or post-approval may subject an applicant to administrative or judicial sanctions.

These sanctions could include the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement or civil or criminal penalties.

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Some preclinical testing may continue even after the IND is submitted.

The IND automatically becomes effective 30 days after receipt by FDA, unless FDA, within the 30-day time period, places the clinical trial on a clinical hold.

automatically becomes effective 30 days after receipt by the FDA, unless the FDA, within the 30-day time period, places the clinical trial on a clinical hold.

Clinical holds also may be imposed by the FDA at any time before or during clinical trials due to safety concerns about on-going or proposed clinical trials or non-compliance with specific FDA requirements, and the trials may not begin or continue until the FDA notifies the sponsor that the hold has been lifted.

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Human clinical trials are typically conducted in three sequential phases that may overlap or be combined in certain cases:

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The compound is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion and, if possible, to gain an early indication of its effectiveness.

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Similarly, an IRB can suspend or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected, serious harm to study subjects.

In addition, clinical trials may be overseen by an independent group of qualified experts organized by the sponsor, known as a data safety monitoring board or committee.

Depending on its charter, this committee may determine whether a trial may move forward at designated check points based on access to certain data from the trial.

In addition, clinical trials may be overseen by a DSMB, an independent group of qualified experts organized by the sponsor.

Depending on its charter, the DSMB may determine whether a trial may move forward at designated check points based on access to certain data from the trial.

Post-approval trials may also be conducted after a drug receives initial marketing approval.

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Meetings at other times may be made upon request.

Concurrent with clinical trials, companies typically complete additional, animal or other non-clinical studies, develop additional information about the chemistry and physical characteristics of the drug, and finalize a process for manufacturing the product in commercial quantities in accordance with the FDA’s current Good Manufacturing Practices (cGMP) requirements.

product in commercial quantities in accordance with the FDA’s current Good Manufacturing Practices (cGMP) requirements.

The manufacturing process must consistently produce quality batches of the drug and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final drug.

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Disclosure of clinical trial results can often be delayed until the new product or new indication being studied has been approved.

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review and approval process

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The FDA reviews NDAs to determine, among other things, whether the product is safe and effective for its intended use and whether it is manufactured in a cGMP-compliant manner, which will assure and preserve the product’s identity, strength, quality and purity.

Under PDUFA-VI, the FDA has a goal of 10 months from the date of “filing” of a standard, completed NDA for a new molecular entity to review and act on the submission.

Under PDUFA, the FDA has a goal of 10 months from the date of “filing” of a standard, completed NDA for a new molecular entity to review and act on the submission.

This review typically takes 12 months from the date the NDA is submitted to the FDA because FDA has 60 days to make a “filing” decision after the application is submitted.

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Under the PREA, original NDAs and supplements must contain a pediatric assessment unless the sponsor has received a deferral or waiver.

The required assessment must evaluate the safety and effectiveness of the product for the claimed indications in all relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective.

The required assessment must evaluate the safety and effectiveness of the product for the claimed indications in all

relevant pediatric subpopulations and support dosing and administration for each pediatric subpopulation for which the product is safe and effective.

The sponsor or the FDA may request a deferral of pediatric clinical trials for some or all of the pediatric subpopulations.

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Marketing approval may be withdrawn for non-compliance with REMS or other regulatory requirements, or if problems occur following initial marketing.

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Post-approval requirements

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The first NDA applicant to receive FDA approval for a particular active ingredient to treat a particular disease with FDA orphan drug designation is entitled to a seven-year exclusive marketing period in the U.S.

for that product, for that indication.

product, for that indication.

During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug for the same disease, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity.

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Any product submitted to the FDA for approval, including a product with a fast track designation, may also be eligible for other types of FDA programs intended to expedite development and review, such as priority review and accelerated approval.

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A product is eligible for priority review if it is intended to treat a serious condition, and if approved, would provide a significant improvement in safety or efficacy compared to currently marketed products.

The FDA will attempt to direct additional resources to the evaluation of an application for a new drug designated for priority review in an effort to facilitate the review.

The FDA endeavors to review applications with priority review designations within six months of the filing date, as compared to 10 months for review of NDAs under its current PDUFA-VI review goals.

The FDA endeavors to review applications with priority review designations within six months of the filing date, as compared to 10 months for review of NDAs under its current PDUFA review goals.

In addition, a product may be eligible for accelerated approval.

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An NCE is a drug that contains no active moiety that has been approved by the FDA in any other NDA.

An active moiety is the molecule or ion, excluding those appended portions of the molecule that cause the drug to be an ester, salt, including a salt with hydrogen or coordination bonds, or other noncovalent, or not involving the sharing of electron pairs between atoms, derivatives, such as a complex (i.e., formed by the chemical interaction of two compounds), chelate (i.e., a chemical compound), or clathrate (i.e., a polymer framework that traps molecules), of the molecule, responsible for the therapeutic activity of the drug substance.

by the chemical interaction of two compounds), chelate (i.e., a chemical compound), or clathrate (i.e., a polymer framework that traps molecules), of the molecule, responsible for the therapeutic activity of the drug substance.

During the exclusivity period, the FDA may not accept for review or approve an Abbreviated New Drug Application (ANDA) or a 505(b)(2) NDA submitted by another company that contains the previously approved active moiety.

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Pediatric exclusivity provides for an additional six months of marketing exclusivity attached to another period of exclusivity if a sponsor conducts clinical trials in children in response to a written request from the FDA.

The issuance of a written request does not require the sponsor to

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undertake the described clinical trials.

The issuance of a written request does not require the sponsor to undertake the described clinical trials.

In addition, orphan drug designation, as described above, may offer a seven-year period of marketing exclusivity, except in certain circumstances.

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There are a number of statutory exceptions and regulatory safe harbors protecting certain common activities from prosecution or other regulatory sanctions, however, the exceptions and safe harbors are drawn narrowly.

Failure to meet all of the

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requirements of a particular statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute, but the legality of the arrangement will be evaluated on a case-by-case basis based on the totality of the facts and circumstances.

Failure to meet all of the requirements of a particular statutory exception or regulatory safe harbor does not make the conduct per se illegal under the Anti-Kickback Statute, but the legality of the arrangement will be evaluated on a case-by-case basis based on the totality of the facts and circumstances.

Violations of the Anti-Kickback Statute are punishable by imprisonment, criminal fines, civil monetary penalties and exclusion from the participation in federal healthcare programs, such as Medicare and Medicaid.

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Actions under the False Claims Act may be brought by the government or as a qui tam action by private individuals who may receive financial awards if their claims are successful.

False Claims Act liability is potentially significant in the healthcare industry because the statute provides for treble damages and monetary penalties of $5,500 to $11,000 per false claim or statement, which increased to a range of $11,665 to $23,331 in June 2020, with respect to violations occurring after November 2, 2015.

False Claims Act liability is potentially significant in the healthcare industry because the statute provides for treble damages and monetary penalties of $5,500 to $11,000 per false claim or statement, adjusted for inflation as applicable, with respect to violations occurring after November 2, 2015.

Violations of the False Claims Act are also punishable by exclusion from participation in federal healthcare programs, such as Medicare and Medicaid.

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These companies may be required, however, to enter into corporate integrity agreements with the government, which may impose substantial costs on companies to ensure compliance.

The Health Insurance Portability and Accountability Act of 1996 (HIPAA), includes federal criminal statutory provisions that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services.

HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act (HITECH) and their implementing regulations, impose certain requirements and restrictions on certain types of individuals and entities relating to the privacy and security of individually identifiable health information.

Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable not only to covered entities (e.g.

health care providers and health plans), but also to business associates, i.e., independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity.

Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable not only to covered entities (e.g., health care providers and health plans), but also to business associates (i.e., independent contractors or agents of covered entities that create, receive, maintain or transmit protected health information in connection with providing a service for or on behalf of a covered entity).

HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil actions.

Physician Payment Sunshine Act

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value” made to physicians and teaching hospitals, and requires applicable manufacturers and group purchasing organizations to report annually to CMS ownership and investment interests held by physicians and their immediate family members and payments or other “ transfers of value ” to such physician owners.

The Physician Payment Sunshine Act requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program to report annually (with certain exceptions) to Centers for Medicare & Medicaid Services (CMS) information related to payments or other “transfers of value” made to physicians and teaching hospitals, and requires applicable manufacturers and group purchasing organizations to report annually to CMS ownership and investment interests held by physicians and their immediate family members and payments or other “ transfers of value ” to such physician owners.

Failure to report relevant data may result in civil fines and/or penalties.

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However, the foreign equivalent of an IND is not a prerequisite to performing pilot studies or Phase I clinical trials.

regulatory systems, we may submit Marketing Authorization Applications (MAAs) either under a centralized or decentralized procedure.

regulatory systems, we may submit Marketing Authorization Applications either under a centralized or decentralized procedure.

The centralized procedure, which is available for drugs produced by biotechnology or which are highly innovative, provides for the grant of a single marketing authorization that is valid for all E.U.

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We face the risk that the resulting prices would be insufficient to generate an acceptable return to us.

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Foreign fraud and abuse laws and other regulatory matters

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member states may make their own additional laws and regulations in relation to the processing of genetic, biometric or health data, which could result in differences between member states, limit our ability to use and share personal data or cause our costs to increase, and harm our business and financial condition.

Further, the U.K.’s exit from the E.U.

in January 2020, with a transition period that ended on December 31, 2020, often referred to as Brexit, has created uncertainty with regard to data protection regulation in the U.K.

Further, the U.K.’s exit from the E.U., often referred to as Brexit, has created uncertainty with regard to data protection regulation in the U.K.

While the transition period has now concluded, decisions are still to be made on how data transfers to and from the U.K.

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• an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs and biologic agents, apportioned among these entities according to their market share in certain government healthcare programs, although this fee does not apply to sales of certain products approved exclusively for orphan indications;

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• expansion of eligibility criteria for Medicaid programs by, among other things, allowing states to offer Medicaid coverage to certain individuals with income at or below 133% of the federal poverty level, thereby potentially increasing a manufacturer’s Medicaid rebate liability;

• expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for both branded and generic drugs and revising the definition of “average manufacturer price,” (AMP), for calculating and reporting Medicaid drug rebates on outpatient prescription drug prices and extending rebate liability to prescriptions for individuals enrolled in Medicaid managed care plans;

• expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum rebate for both branded and generic drugs and revising the definition of “average manufacturer price,” for calculating and reporting Medicaid drug rebates on outpatient prescription drug prices and extending rebate liability to prescriptions for individuals enrolled in Medicaid managed care plans;

• addressed a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected;

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Additionally, in December 2018, a Texas District Court judge ruled that the ACA is unconstitutional in its entirety because the individual mandate was repealed by Congress.

Further, in December 2019, the U.S.

Court of Appeals for the 5th Circuit upheld the Texas District Court ruling that the individual mandate was unconstitutional and remanded the case back to the Texas District Court to determine whether the remaining provisions of the ACA are invalid as well.

In March 2020, the U.S.

Supreme Court granted the petitions for writs of certiorari and held oral arguments in November 2020.

In July 2021, the U.S Supreme Court ruled that the states and individuals that brought the lawsuit did not have standing to challenge the ACA, and therefore, the Court did not reach the merits of the lawsuit.

Accordingly, we continue to evaluate the effect that the ACA has on our business.

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The Department of Health and Human Services (HHS), has solicited feedback on some of these measures and implemented others under its existing authority.

The FDA also released a final rule in September 2020 providing guidance for states to build and submit importation plans for drugs from Canada.

The FDA also released a final rule in

September 2020 providing guidance for states to build and submit importation plans for drugs from Canada.

Further, in November 2020, HHS finalized a regulation removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Medicare Part D, either directly or through pharmacy benefit managers, unless the price reduction is required by law.

The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers.

These modifications to the safe harbors are being challenged in court and HHS has delayed their implementation until January 1, 2023;

however, the rule may be repealed through legislative action before such time.

In July 2021, President Biden issued an executive order pertaining to drug pricing, which expressed support for legislation allowing direct negotiation in Medicare Part D and inflationary rebates and directed various executive branch agencies to take actions to lower drug prices and promote generic competition.

In response to President Biden’s executive order, in September 2021, HHS issued a Comprehensive Plan for Addressing High Drug Prices that identified potential legislative policies and administrative tools that Congress and the agency can pursue in order to make drug prices more affordable and equitable, improve and promote competition throughout the prescription drug industry, and foster scientific innovation.

Several pending or proposed legislative efforts incorporate these drug pricing reforms in addition to inflationary rebates on Part B and Part D drugs that would be payable on commercial and governmental program utilization, policies aimed at redesigning the Medicare Part D benefit and adopting drug price transparency measures.

Drug manufacturers who are unwilling to negotiate with Medicare would be subject to additional excise taxes.

Additionally, the plan would impose tax penalties on drug manufacturers that increase the prices of drug products faster than the rate of inflation.

If elements of these prescription drug pricing plans become law, our pricing strategy and commercial prospects may be adversely affected.

Additionally, in December 2020, CMS issued a final rule that materially modifies current Medicaid Drug Rebate Program regulations by, among other things, broadening the definitions for “line extension” and “new formulation”, the key term within the line extension definition.

A “line extension” drug is subject to a higher Medicaid rebate, thereby reducing the amount the manufacturer is paid with respect to such product.

These new definitions will become effective as of January 1, 2022.

A “line extension” drug may be subject to a higher Medicaid rebate, thereby reducing the amount the manufacturer is paid with respect to such product.

These new definitions became effective on January 1, 2022.

Other legislative changes have been proposed and adopted since the ACA was enacted.

These new laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect

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the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.

These changes include the Budget Control Act of 2011, which, among other things, led to aggregate reductions to Medicare payments to providers of up to 2% per fiscal year that started in 2013 and will stay in effect through 2024 unless additional congressional action is taken, the American Taxpayer Relief Act of 2012, which, among other things, reduced Medicare payments to several types of providers and increased the statute of limitations period for the government to recover overpayments to providers from three to five years and the American Rescue Plan Act of 2021, which will eliminate the statutory Medicaid drug rebate cap, currently set at 100% of a drug’s average manufacturer price, for single source and innovator multiple source drugs, beginning January 1, 2024.

These new laws may result in additional reductions in Medicare and other healthcare funding and otherwise affect the prices we may obtain for any of our product candidates for which we may obtain regulatory approval or the frequency with which any such product candidate is prescribed or used.

Further, there have been several recent U.S.

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20037, and our telephone number is (202) 734-3400.

Our website address is www.vandapharma.com and the information contained in, or that can be accessed through, our website is not part of this Annual Report and should not be considered part of this Annual Report.

Our website address is www.vandapharma.com, and the information contained in, or that can be accessed through, our website is not incorporated by reference in this Annual Report and should not be considered a part of this Annual Report.

Available Information

We file annual, quarterly, and current reports, proxy statements, and other documents with the Securities and Exchange Commission (SEC) under the Securities Exchange Act of 1934 (Exchange Act).

The SEC maintains a website at

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www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC.

The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers, including us, that file electronically with the SEC.

We also make available free of charge on our Internet website at www.vandapharma.com our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and, if applicable, amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.

Our code of ethics, other corporate policies and procedures, and the charters of our Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee are available through our Internet website at www.vandapharma.com.

Our code of business conduct and ethics, other corporate policies and procedures, and the charters of our Audit Committee, Compensation Committee and Nominating/Corporate Governance Committee are available at our corporate website at www.vandapharma.com.

To access these documents from the main page of our website, click on “Investor” at the top of the page, then click on “Learn More” under “Corporate Governance” and then click on the desired document.

We intend to satisfy the disclosure requirements under Item 5.05 of Form 8‑K regarding amendments to, or waivers from, provisions of our code of business conduct and ethics by posting such information on the website address and location specified above.

None of the information contained on our website or www.sec.gov is incorporated by reference into this Annual Report or any other report or document filed with the SEC unless expressly stated otherwise therein.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business