What changed in this filing

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Item 9A. Controls and Procedures

2024-02-08 compared with 2023-02-09 · 276 added, 176 removed, 937 unchanged (33% of the section changed)

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OTHER INFORMATION

During the fiscal quarter ended December 31, 2023, none of our directors or officers informed us of the adoption , modification or termination of a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.

Furthermore, during the fiscal quarter ended December 31, 2023, we did not adopt or terminate a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as those terms are defined in Regulation S-K, Item 408.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

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President, Chief Executive Officer and Chairman of the Board of Directors

Pursuant to the requirements of the Securities Act of 1934, this annual report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Pursuant to the requirements of the Securities Exchange Act of 1934, this annual report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name Title Date

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Stephen Ray Mitchell

/s/ Tage Honoré

Director February 8, 2024

Vanda Pharmaceuticals Inc.

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The Company has recorded product revenue allowances of $49.2 million as of December 31, 2023, of which a significant amount relates to allowances for Medicaid Rebates for Fanapt ® .

The principal considerations for our determination that performing procedures relating to Medicaid Rebates for Fanapt ® is a critical audit matter are the significant judgment by management due to the significant measurement uncertainty involved in developing the allowances, as these allowances are based on assumptions developed for estimated patient utilization, primarily payor mix and invoice lag;

The principal considerations for our determination that performing procedures relating to the Medicaid Rebates for Fanapt ® is a critical audit matter are the significant judgment by management due to the significant measurement uncertainty involved in developing the allowances, as these allowances are based on assumptions developed for estimated patient utilization, primarily payor mix and invoice lag;

this in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to the estimated patient utilization assumption.

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/s/ PricewaterhouseCoopers LLP

Baltimore, Maryland

Washington, District of Columbia

February 8, 2024

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Total operating expenses 206,592 248,053 226,517

Income from operations 6,329 42,165 27,239

Income (loss) from operations

( 13,952 ) 6,329 42,165

Other income 20,291 4,971 199

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Change in net unrealized gain (loss) on marketable securities 1,461 ( 1,271 ) ( 472 )

Tax benefit on other comprehensive income (loss) 292 107 24

Other comprehensive loss, net of tax ( 1,018 ) ( 414 ) ( 10 )

Tax benefit (provision) on other comprehensive income (loss)

( 326 ) 292 107

Other comprehensive income (loss), net of tax

1,163 ( 1,018 ) ( 414 )

Comprehensive income $ 3,672 $ 5,257 $ 32,738

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Net income — — — — 2,509 2,509

Other comprehensive loss, net of tax — — — ( 1,018 ) — ( 1,018 )

Other comprehensive income, net of tax

— — — 1,163 — 1,163

Balances at December 31, 2023 57,534,499 $ 58 $ 700,274 $ ( 30 ) $ ( 155,392 ) $ 544,910

10 unchanged sentences

Amortization of premiums and accretion of discounts on marketable securities ( 8,799 ) ( 2,963 ) 1,649

Gains on sales of marketable securities — ( 12 ) ( 229 )

Loss (gain) on sales of marketable securities

Intangible asset amortization 2,090 1,516 1,478

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Cash flows from investing activities

Asset acquisition

( 100,665 ) — —

Purchases of property and equipment ( 383 ) ( 679 ) ( 552 )

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Net cash provided by financing activities

734 3,550 5,634

Effect of exchange rate changes on cash, cash equivalents and restricted cash

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The Company commenced its operations in 2003 and operates in one reporting segment.

The Company’s commercial portfolio is currently comprised of two products, HETLIOZ ® for the treatment of Non-24-Hour Sleep-Wake Disorder (Non-24) and nighttime sleep disturbances in Smith-Magenis Syndrome (SMS) and Fanapt ® for the treatment of schizophrenia.

HETLIOZ ® is the first product approved by the United States Food and Drug Administration (FDA) for patients with Non-24 and patients with SMS.

The Company’s commercial portfolio is currently comprised of three products, HETLIOZ ® for the treatment of Non-24-Hour Sleep-Wake Disorder (Non-24) and for the treatment of nighttime sleep disturbances in Smith-Magenis Syndrome (SMS), Fanapt ® for the treatment of schizophrenia and PONVORY ® , which the Company acquired the U.S.

and Canadian rights to on December 7, 2023, for the treatment of relapsing forms of multiple sclerosis (MS) to include clinically isolated syndrome, relapsing-remitting disease and active secondary progressive disease, in adults.

HETLIOZ ® is the first product approved by the United States Food and Drug Administration (FDA) for patients with Non-24 and for patients with SMS.

In addition, the Company has a number of drugs in development, including:

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

• Fanapt ® (iloperidone) for the treatment of bipolar I 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;

• Portfolio of Cystic Fibrosis Transmembrane Conductance Regulator (CFTR) activators and inhibitors, including VSJ-110 for the treatment of dry eye and ocular inflammation and VPO-227 for the treatment of secretory diarrhea disorders, including cholera;

• VQW-765, a small molecule nicotinic acetylcholine receptor partial agonist, for the treatment of performance anxiety and psychiatric disorders;

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

• Fanapt ® (iloperidone) for the treatment of bipolar I disorder and a long acting injectable (LAI) formulation for the treatment of schizophrenia;

• PONVORY (ponesimod) for the treatment of inflammatory/autoimmune disorders, including but not limited to ulcerative colitis, psoriasis, Crohn's disease, atopic dermatitis, eosinophilic esophagitis and alopecia areata;

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

• VHX-896, the active metabolite of iloperidone;

• Antisense oligonucleotide (ASO) molecules.

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

• VQW-765, a small molecule nicotinic acetylcholine receptor partial agonist, for the treatment of social/performance anxiety and psychiatric disorders;

• Antisense oligonucleotide (ASO) molecules, including VCA-894A for the treatment of Charcot-Marie-Tooth Disease, Type 2S (CMT2S), caused by cryptic slice site variants within IGHMBP2.

Basis of Presentation

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The Company classifies the estimate of such inventory as non-current.

Asset Acquisitions

The Company evaluates acquisitions of assets and other similar transactions to assess whether or not the transaction should be accounted for as a business combination or asset acquisition by first applying a screen to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets.

If the screen is met, the transaction is accounted for as an asset acquisition.

If determined to be an asset acquisition, the Company accounts for the transaction under Accounting Standards Codification (ASC) 805-50, which requires the recognition of assets acquired and liabilities assumed on a relative fair value basis based on the acquisition cost, which includes transaction costs in addition to consideration given.

Any excess consideration transferred over the fair value of the net assets acquired is allocated to the identifiable assets based on relative fair values.

See Note 3, PONVORY ® Acquisition , for further discussion of the Company’s acquisition of the U.S.

and Canadian rights to PONVORY ® from Actelion Pharmaceuticals Ltd.

(Janssen), a Johnson & Johnson Company, which the Company accounted for as an asset acquisition under ASC 805-50.

Intangible Assets

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Obligations for milestone payments to other pharmaceutical companies that may result in a capitalized intangible asset are recognized when it is deemed probable that the milestone event will occur.

In the event a product has been approved by the FDA or an alternative future use exists for a product, patent and license costs are capitalized and amortized on a straight-line basis over the estimated useful economic life of the of the related product patents.

For intangible assets related to HETLIOZ ® , the estimated useful life is through March 2035, which is the estimated economic useful life of the related product patents.

Intangible assets related Fanapt ® have been fully amortized on a straight-line basis to November 2016.

The useful life estimate for Fanapt ® was based on the market participant methodology prescribed by Accounting Standards Codification (ASC) 805, and therefore does not reflect the impact of additional Fanapt ® patents solely owned by the Company with varying expiration dates, the latest of which is December 2031.

For intangible assets related to HETLIOZ ® , the estimated useful life is through 2035, which is the estimated economic useful life of the related product patents.

Useful lives for acquired intangible assets accounted for under ASC 805 are generally estimated based on the market participant methodology.

For intangible assets related to PONVORY ® , the estimated useful life is through 2035, which is the estimated economic useful life of the related acquired product patents.

Intangible assets related to Fanapt ® have been fully amortized on a straight-line basis to 2016.

The Fanapt ® transaction represented reacquired rights, and therefore did not reflect the impact of additional Fanapt ® patents solely owned by the Company with varying expiration dates, the latest of which is December 2031.

Property and Equipment

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Impairment of Long-Lived Assets

The Company evaluates if events and circumstances have occurred that indicate the remaining estimated useful life of its long-lived assets, such as identifiable intangible assets, may warrant revision or that the remaining balance of these assets may not be recoverable.

The Company evaluates if events and circumstances have occurred that indicate the remaining estimated useful life of its long-lived assets may warrant revision or that the remaining balance of these assets may not be recoverable.

In evaluating for recoverability, the Company estimates the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition.

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Sales taxes, value add taxes, and usage-based taxes are excluded from revenues.

The Company’s net product sales consist of sales of HETLIOZ ® and Fanapt ® .

The Company’s net product sales consist of sales of HETLIOZ ® , Fanapt ® and PONVORY ® .

Net sales by product for the years ended December 31, 2023, 2022 and 2021 were as follows:

6 unchanged sentences

90,873 94,727 95,146

PONVORY ® net product sales

Total net product sales $ 192,640 $ 254,382 $ 268,682

The Company’s HETLIOZ ® net product sales as reported for the three months ended March 31, 2023 reflected higher unit sales as compared to recent prior periods.

The higher unit sales during the three months ended March 31, 2023 resulted in a significant increase of inventory stocking at specialty pharmacy customers during 2023 and at December 31, 2023.

HETLIOZ ® net product sales during the year ended December 31, 2023 reflect lower unit sales as a result the impact of generic competition.

HETLIOZ ® net product sales may continue to reflect lower unit sales as a result of continued reduction of the elevated inventory levels at specialty pharmacy customers.

Further, HETLIOZ ® net product sales will likely decline in future periods, potentially significantly, related to generic competition in the U.S.

Additionally, the Company constrained HETLIOZ ® net product sales for the year ended December 31, 2023 to an amount not probable of significant revenue reversal.

HETLIOZ ® net product sales could experience variability in future periods as the remaining uncertainties associated with variable consideration related to inventory stocking by specialty pharmacy customers are resolved.

HETLIOZ ® is available in the United States (U.S.) for distribution through a limited number of specialty pharmacies, and is not available in retail pharmacies.

Specialty pharmacy customers include Accredo (a subsidiary of Express Scripts) and

OptumRx (a subsidiary of UnitedHealth Group).

Fanapt ® is available in the U.S.

for distribution through a limited number of wholesalers and is available in retail pharmacies.

Wholesaler customers include AmerisourceBergen Drug Corporation, Cardinal Health, Inc.

and McKesson Corporation.

PONVORY ® is available in the U.S.

for distribution primarily through specialty pharmacies.

The Company invoices and records revenue when its customers, specialty pharmacies and wholesalers, receive product from the third-party logistics warehouse, which is the point at which control is transferred to the customer.

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Percent of Net Product Sales 2023 2022 2021

Distributor A 36 % 40 % 43 %

Distributor B 16 % 18 % 19 %

Distributor C 13 % 12 % 12 %

Distributor D 11 % 10 % 11 %

Distributor E 11 % 11 % 10 %

Customer A 20 % 36 % 40 %

Customer B 16 % 13 % 12 %

Customer C 15 % 11 % 11 %

Customer D 15 % * *

Customer E 14 % 11 % 10 %

Customer F * 16 % 18 %

Total net product sales from major customers

80 % 87 % 91 %

*Represents less than 10% of respective balance.

The following table presents each major customer that represented more than 10% of accounts receivable, net, as of December 31, 2023 and 2022:

Percent of Accounts Receivable, Net 2023 2022

Distributor A 18 % 31 %

Distributor B 13 % *

Distributor C 20 % 17 %

Distributor D 16 % 16 %

Distributor E 14 % 14 %

Customer A * 18 %

Customer B 19 % 20 %

Customer C 21 % 14 %

Customer D 34 % *

Customer E 16 % 16 %

Customer F * 13 %

Total accounts receivable, net from major customers

*Represents less than 10% of respective balance.

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Allowances for rebates, chargebacks and co-pay assistance are based upon the insurance benefits of the end customer, which are estimated using historical activity and, where available, actual and pending prescriptions for which the Company has validated the insurance benefits.

Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

Variable consideration may be constrained and is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur.

Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the respective underlying contracts.

If actual results in the future vary from the Company’s estimates, it adjusts its estimates in the period identified, which would affect net product sales in the period such variances become known.

During the year ended December 31, 2023, the Company constrained the variable consideration for HETLIOZ ® net product sales.

The constrained revenue relates to the uncertainties of payor utilization, patient demand and chargeback and rebate amounts, including Medicaid, related to the elevated levels of inventory on hand at the specialty pharmacies.

Reserves for variable consideration are classified as product revenue allowances on the Consolidated Balance Sheets, with the exception of prompt-pay discounts that are classified as reductions of accounts receivable.

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Uncertainties related to variable consideration are generally resolved in the quarter subsequent to period end, with the exception of Medicaid rebates, which are dependent upon the timing of when states submit reimbursement claims, Medicare inflationary rebates, and product returns that are resolved during the product expiry period specified in the customer contract.

Due to increased inventory stocking at specialty pharmacy customers of HETLIOZ ® in 2023, the time it takes to resolve these uncertainties could be longer than the Company has historically experienced.

The Company currently records sales allowances for the following:

• Prompt-pay:

Specialty pharmacies and wholesalers are offered discounts for prompt payment.

Specialty pharmacies and wholesalers are generally offered discounts for prompt payment.

The Company expects that the specialty pharmacies and wholesalers will earn prompt payment discounts and, therefore, deducts the full amount of these discounts from total product sales when revenues are recognized.

Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program as well as contracted rebate programs with other payors, including the new Medicare Part D inflationary rebate effective October 1, 2022.

Rebate amounts owed after the final dispensing of the product to a benefit plan participant are based upon contractual agreements or legal requirements with public sector benefit providers, such as Medicaid.

The allowance for rebates is based on statutory or contracted discount rates and estimated patient utilization.

The allowances for rebates are based on statutory or contracted discount rates and estimated patient utilization.

• Chargebacks:

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The Medicare Part D prescription drug benefit requires manufacturers to fund approximately 70 % of the Medicare Part D insurance coverage gap for prescription drugs sold to eligible patients for applicable drugs.

Vanda accounts for the Medicare Part D coverage gap using a point of sale model.

The Company accounts for the Medicare Part D coverage gap using a point of sale model.

Estimates for expected Medicare Part D coverage gap are based in part on historical activity and, where available, actual and pending prescriptions when the Company has validated the insurance benefits.

Beginning January 1, 2025, the Medicare Part D coverage gap discount program will be replaced with a new discounting program under the Inflation Reduction Act.

• Service Fees:

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The Company accrues service fees at the time of revenue recognition, resulting in a reduction of product sales and the recognition of an accrued liability, unless it is a payment for a distinct good or service from the customer in which case the fair value of those distinct goods or services are recorded as selling, general and administrative expense.

• Co-payment Assistance:

Patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance.

• Co-pay Assistance:

Patients who have commercial insurance and meet certain eligibility requirements may receive co-pay assistance.

Co-pay assistance utilization is based on information provided by the Company’s third-party administrator.

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Research and Development Expenses

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 research and development personnel.

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 payments, 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 research and development personnel.

The Company expenses research and development costs as they are incurred for products in the development stage, including manufacturing costs and milestone payments made under license agreements prior to FDA approval.

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Changes in ownership may limit the amount of net operating loss (NOL) carryforwards that can be utilized in the future to offset taxable income.

Tax benefits are recognized from an uncertain tax position only if it is

more likely than not that the position will be sustained on examination by the taxing authorities based on the technical merits of the position.

Tax benefits are recognized from an uncertain tax position only if it is more likely than not that the position will be sustained on examination by the taxing authorities based on the technical merits of the position.

The tax benefit recognized in the financial statements for a particular tax position is based on the largest benefit that is more likely than not to be realized upon settlement.

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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 highly rated financial institutions.

The Company places its cash, cash equivalents and marketable

securities with highly rated financial institutions.

At December 31, 2023, the Company maintained all of its cash, cash equivalents and marketable securities in two financial institutions.

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Recent Accounting Pronouncements

There are no recent accounting pronouncements that are expected to have a material impact on the Company’s consolidated financial statements or related disclosures.

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which is intended to provide enhanced segment disclosures.

The standard will require disclosures about significant segment expenses and other segment items and identifying the Chief Operating Decision Maker and how they use the reported segment profitability measures to assess segment performance and allocate resources.

These enhanced disclosures are required for all entities on an interim and annual basis, even if they have only a single reportable segment.

The standard is effective for years beginning after December 15, 2023, and interim periods within annual periods beginning after December 15, 2024 and early adoption is permitted.

The Company is evaluating this standard to determine if adoption will have a material impact on the Company’s consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures, which is intended to provide enhancements to annual income tax disclosures.

The standard will require more detailed information in the rate reconciliation table and for income taxes paid, among other enhancements.

The standard is effective for years beginning after December 15, 2024 and early adoption is permitted.

The Company is evaluating this standard to determine if adoption will have a material impact on the Company’s consolidated financial statements.

PONVORY ® Acquisition

On December 7, 2023, the Company entered into an Asset Purchase Agreement (the Purchase Agreement) to acquire the U.S.

and Canadian rights to PONVORY ® , Janssen, and the closing of the transaction took place simultaneously with signing.

PONVORY ® is a once-daily oral selective sphingosine-1-phosphate receptor 1 modulator, indicated to treat adults with relapsing forms of multiple sclerosis, to include clinically isolated syndrome, relapsing-remitting disease and active secondary progressive disease.

The total consideration for the acquisition was $ 104.9 million consisting of cash paid to Janssen and acquisition-related transaction costs, of which $ 4.2 million of the consideration was accrued as of December 31, 2023 and recorded in the accounts payable and accrued liabilities balance of the Consolidated Balance Sheets;

the $ 4.2 million is a non-cash investing item in the Consolidated Statement of Cash Flows.

The Purchase Agreement includes customary representations, warranties and covenants, as well as standard mutual indemnities covering losses arising from any material breach of the Purchase Agreement or inaccuracy of representations and warranties.

Janssen has agreed to indemnify the Company against losses arising from its activities prior to the closing, and the Company has agreed to indemnify Janssen against losses arising from the Company’s activities pertaining to PONVORY ® after the closing.

Simultaneously and in connection with the Purchase Agreement, the parties have also entered into certain supporting agreements, including a customary transition agreement, pursuant to which, during a transition period, Janssen will continue PONVORY ® operations and the Company and Janssen will transition regulatory and supply responsibility for PONVORY ® to the Company.

The acquisition of PONVORY ® has been accounted for as an asset acquisition in accordance with ASC 805-50 because substantially all of the fair value of the assets acquired is concentrated in a single asset, the PONVORY ® product rights.

The PONVORY ® products rights consist of certain patents and trademarks, regulatory approvals, marketing assets, and other records, and are considered a single asset as they are inextricably linked.

The total consideration of $ 104.9 million was fully allocated to the acquired intangible asset for the U.S.

and Canada rights to PONVORY ® .

The straight-line method is used to amortize the intangible asset, as disclosed in Note 9.

Marketable Securities

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Total assets measured at fair value $ 331,830 $ 177,170 $ 154,660 $ —

Total assets measured at fair value as of December 31, 2022 and 2021 include no cash equivalents.

Total assets measured at fair value as of December 31, 2023 include $ 63.8 million cash equivalents.

Total assets measured at fair value as of December 31, 2022 include no cash equivalents.

The Company also has financial assets and liabilities, not required to be measured at fair value on a recurring basis, which primarily consist of cash, accounts receivable, restricted cash, accounts payable and accrued liabilities and product revenue allowances, the carrying values of which materially approximate their fair values.

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Total inventory $ 10,205 $ 11,490

The Company’s inventory balance consisted of $ 7.2 million and $ 8.0 million of HETLIOZ ® product and $ 3.0 million and $ 3.4 million of Fanapt ® product as of December 31, 2023 and 2022, respectively.

Property and Equipment

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in Washington, D.C.

The sublease term began in January 2017 and ends in July 2026 but may be terminated earlier by either party under certain circumstances.

The sublease term began in

January 2017 and ends in July 2026 but may be terminated earlier by either party under certain circumstances.

The Company has the right to sublease or assign all or a portion of the premises, subject to standard conditions.

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The Company recognized operating lease cost of $ 2.2 million, $ 2.2 million and $ 2.3 million and short-term operating lease cost of $ 0.4 million for each of the years ended December 31, 2023, 2022 and 2021, respectively.

The Company also recognized $ 1.4 million, $ 1.4 million and $ 1.5 million, respectively, of expense related to non-lease elements, such as building maintenance services and utilities, and executory costs associated with the operating leases.

The Company also recognized $ 1.4 million of expense for each of the years ended December 31, 2023, 2022 and 2021, respectively, related to non-lease elements, such as building maintenance services and utilities, and executory costs associated with the operating leases.

Cash paid for amounts included in the measurement of operating lease liabilities is included in operating cash flows and was $ 2.7 million, $ 2.6 million and $ 2.3 million for the years ended December 31, 2023, 2022 and 2021, respectively.

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(in thousands) Operating Leases

Thereafter 1,099

Total minimum lease payments 11,190

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As a result of the achievement of this milestone, the Company made a payment to BMS of $ 25.0 million in 2018.

These milestone payments were determined to be additional consideration for the acquisition of the HETLIOZ ® and capitalized as an intangible asset and is being amortized on a straight-line basis over the estimated economic useful life of the related product patents.

The following is a summary of the Company’s intangible assets as of December 31, 2022:

These milestone payments were determined to be additional consideration for the acquisition of HETLIOZ ® and capitalized as an intangible asset and are being amortized on a straight-line basis over the estimated economic useful life of the related product patents.

On December 7, 2023, the Company acquired the U.S.

and Canadian rights to PONVORY ® , from Janssen.

The total purchase price was allocated to the acquired intangible for the U.S.

and Canada rights to PONVORY ® .

The PONVORY ® intangible asset is being amortized on a straight-line basis over the estimated economic useful life of the related product rights.

See Note 3, PONVORY ® Acquisition , for additional details about the PONVORY ® acquisition.

The following is a summary of the Company’s amortizing intangible assets as of December 31, 2023:

December 31, 2023

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Amortization Net

March 2035 $ 33,000 $ 14,435 $ 18,565

2035 $ 33,000 $ 15,937 $ 17,063

2035 $ 104,894 $ 588 $ 104,306

Total amortizing intangible assets

$ 137,894 $ 16,525 $ 121,369

The following is a summary of the Company’s intangible assets as of December 31, 2022:

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Amortization Net

July 2035 $ 33,000 $ 12,919 $ 20,081

2035 $ 33,000 $ 14,435 $ 18,565

Total amortizing intangible assets

$ 33,000 $ 14,435 $ 18,565

As of December 31, 2023 and 2022, the Company also had $ 27.9 million of fully amortized intangible assets related to Fanapt ® .

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$ 1,502 $ 1,516 $ 1,478

Total amortization expense

$ 2,090 $ 1,516 $ 1,478

The following is a summary of the future intangible asset amortization schedule as of December 31, 2023:

1 unchanged sentence

$ 17,063 $ 1,463 $ 1,463 $ 1,463 $ 1,463 $ 1,463 $ 9,748

104,306 8,741 8,741 8,741 8,741 8,741 60,601

Total amortization expense

$ 121,369 $ 10,204 $ 10,204 $ 10,204 $ 10,204 $ 10,204 $ 70,349

Accounts Payable and Accrued Liabilities

2 unchanged sentences

Research and development expenses $ 15,691 $ 9,474

Consulting and other professional fees 9,241 8,732

Compensation and employee benefits 6,413 6,839

Consulting and other professional fees 4,404 9,241

Royalties payable 2,409 4,979

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Total accounts payable and accrued liabilities $ 38,460 $ 45,551

As of December 31, 2022, the prepaid expenses and other current assets and accounts payable and accrued liabilities balances included $ 11.5 million related to the case Gordon v.

Vanda Pharmaceuticals Inc.

In January 2023, the settlement related to the case was fully and finally approved.

As a result, the Company removed the associated prepaid and liability balances.

Commitments and Contingencies

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In February 2004, the Company entered into a license agreement with BMS under which it received an exclusive worldwide license under certain patents and patent applications, and other licenses to intellectual property, to develop and commercialize HETLIOZ ® .

As of December 31, 2022, the Company has paid BMS $ 37.5 million in upfront fees and milestone obligations, including $ 33.0 million of regulatory approval and commercial milestones capitalized as intangible assets (see Note 8).

As of December 31, 2023, the Company has paid BMS $ 37.5 million in upfront fees and milestone obligations, including $ 33.0 million of regulatory approval and commercial milestones capitalized as intangible assets (see Note 9, Intangible Assets ).

The Company has no remaining milestone obligations to BMS.

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As of December 31, 2023, the Company has paid Lilly $ 5.0 million in upfront fees and development milestones.

As of December 31, 2022, remaining milestone obligations include a $ 2.0 million development milestone due upon the filing of the first application for marketing authorization for tradipitant in either the U.S.

or European Union (E.U.), $ 10.0 million and $ 5.0 million for the first approval of an application for marketing authorization for tradipitant in the U.S.

These payments for upfront fees and development milestones include a $ 2.0 million milestone paid to Lilly during the year ended December 31, 2023 for the filing of the first application for marketing authorization for tradipitant in either the U.S.

or European Union (E.U.).

As of December 31, 2023, remaining milestone obligations include $ 10.0 million and $ 5.0 million milestones for the first approval of an application for marketing authorization for tradipitant in the U.S.

and E.U., respectively, and up to $ 80.0 million for sales milestones.

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In March 2017, the Company entered into a license agreement with the University of California San Francisco (UCSF), under which the Company acquired an exclusive worldwide license to develop and commercialize a portfolio of CFTR activators and inhibitors.

Pursuant to the license agreement, the Company will develop and commercialize the CFTR activators and inhibitors and is responsible for all development costs under the license agreement, including current pre-investigational new drug development work.

Pursuant to the license agreement, the Company will develop and commercialize the CFTR activators and inhibitors and is responsible for all development costs, including current pre-investigational new drug development work.

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

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As consideration for entering into the arrangement, the Company paid OliPass an upfront fee of $ 3.0 million, which was recorded as research and development expense during the three months ended September 30, 2022.

The Company will fund the research and development activities and has the option to license jointly developed intellectual property upon successful development.

The Company is funding the research and development activities and has the option to license jointly developed intellectual property upon successful development.

Purchase Commitments

21 unchanged sentences

Subsequent annual service option awards granted to directors vest and become exercisable in full on the first anniversary of the grant date.

Certain service option awards granted to employees and executive officers provide for partial acceleration of vesting if the employee or executive officer is subject to an involuntary termination, and full acceleration of vesting if the employee or executive officer is subject to an involuntary termination within 24 months after a change in control of the Company.

Service option awards granted to executive officers and certain other employees provide for partial acceleration of vesting if the executive officer or employee is subject to an involuntary termination, and full acceleration of vesting if the executive officer or employee is subject to an involuntary termination within 24 months after a change in control of the Company.

Service option awards granted to directors provide for accelerated vesting if there is a change in control of the Company or if the director’s service terminates as a result of the director’s death or total and permanent disability.

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Expired ( 384,480 ) 11.86

Exercised ( 219,966 ) 3.34 1,579

Outstanding at December 31, 2023 4,792,506 12.95 6.00 —

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The weighted average grant-date fair value of options granted was $ 3.53 , $ 5.18 and $ 8.91 per share for the years ended December 31, 2023, 2022 and 2021, respectively.

The total intrinsic value of options exercised was $ 1.6 million, $ 4.1 million and $ 2.9 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Proceeds from the exercise of stock options amounted to $ 0.7 million, $ 3.6 million and $ 5.6 million for the years ended December 31, 2022, 2021 and 2020, respectively.

There were no options exercised for the year ended December 31, 2023.

The total intrinsic value of options exercised was $ 1.6 million and $ 4.1 million for the years ended December 31, 2022 and 2021, respectively.

There were no proceeds from the exercise of stock options for the year ended December 31, 2023.

Proceeds from the exercise of stock options amounted to $ 0.7 million and $ 3.6 million for the years ended December 31, 2022 and 2021, respectively.

Restricted Stock Units

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The Company has granted RSUs under the Plans with service conditions (service RSUs) that are subject to terms and conditions established by the compensation committee of the board of directors.

Service RSUs granted to employees vest in four equal annual installments provided that the employee remains employed with the Company.

Certain service RSUs granted to employees and executive officers provide for accelerated vesting if the employee or executive officer is subject to an involuntary termination within 24 months after a change in control.

Annual service RSUs granted to directors vest on the first anniversary of the grant date and provide for accelerated vesting if there is a change in control of the Company.

Service RSUs granted to employees and new directors upon their election vest in four equal annual installments.

Subsequent annual service RSUs granted to directors vest on the first anniversary of the date of grant.

Service RSUs granted to executive officers and certain other employees provide for accelerated vesting if the executive officer or employee is subject to an involuntary termination within 24 months after a change in control.

Service RSUs granted to directors provide for accelerated vesting if there is a change in control of the Company.

As of December 31, 2023, $ 13.8 million of unrecognized compensation costs related to unvested service RSUs are expected to be recognized over a weighted average period of 1.5 years.

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Other tax rate changes ( 23.4 ) % 1.7 % ( 0.2 ) %

Other changes in state deferred taxes

12.7 % — % — %

Uncertain tax positions 41.0 % 24.5 % 4.0 %

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Settlements 2.7 % 2.6 % — %

Non-deductible items

5.5 % 0.3 % 0.4 %

Other items ( 0.3 ) % 0.2 % 0.1 %

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The Company has NOL and other tax credit carryforwards in several jurisdictions.

As of December 31, 2022, the Company has $ 6.1 million of deferred tax assets relating to U.S.

federal NOL carryforwards, along with deferred tax assets of $ 17.9 million and $ 24.5 million related to U.S.

As of December 31, 2023, the Company has utilized all of its U.S.

federal NOL carryforwards.

The Company has deferred tax assets of $ 16.1 million and $ 22.5 million related to U.S.

federal research and development credits and orphan drug credits, respectively.

These tax attributes will begin to expire in 2031 and 2030 , respectively.

In addition, the Company has $ 7.7 million of

deferred tax assets relating to other U.S.

In addition, the Company has $ 5.9 million of deferred tax assets relating to other U.S.

NOL carryforwards, which primarily relate to the District of Columbia.

NOLs for the District of Columbia will begin to expire in 2032 and state NOLs will begin to expire in 2034 .

Cash paid for income taxes was $ 3.6 million for the year ended December 31, 2023.

Cash paid for income taxes for the years ended December 31, 2022 and 2021 were not material.

Cash taxes in 2023 include federal tax payments as a result of utilizing the Company’s remaining federal net operating loss carryover.

tax purposes, utilization of the Company’s tax credits is limited to 75 percent of federal income tax each year.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows:

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Settlements — ( 270 ) —

Statute lapses

$ ( 95 ) $ — $ —

Unrecognized tax benefits at the end of the year $ 18,312 $ 15,485 $ 12,935

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Unrecognized tax benefits are not expected to change materially over the next 12 months.

Generally, the tax years 2019 through 2021 remain open to examination by the major taxing jurisdiction to which the Company is subject.

Generally, the tax years 2020 through

2022 remain open to examination by the major taxing jurisdiction to which the Company is subject.

To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service, or state or foreign tax authorities, to the extent utilized in a future period.

As of December 31, 2022, the Company is not under examination by any federal or state tax jurisdiction.

Certain tax attributes of the Company, including NOLs and credits, would be subject to a limitation should an ownership change as defined under the Internal Revenue Code of 1986, as amended (IRC), Section 382, occur.

The limitations resulting from a change in ownership could affect the Company’s ability to utilize its NOLs and credit carryforward (tax attributes).

Ownership changes occurred in the years ending December 31, 2014 and December 31, 2008.

The Company believes that the ownership changes in 2014 and 2008 will not impact its ability to utilize NOL and credit carryforwards;

Certain tax attributes of the Company, including NOLs and credit carryforwards, would be subject to limitation under Section 382 and 383 should an ownership change as defined under Section 382 of the Internal Revenue Code of 1986, as amended (IRC) occur.

The limitation resulting from a change in ownership could affect the Company’s ability to utilize its NOLs and credit carryforwards (tax attributes) to offset future taxable income.

An ownership change occurred in the year ended December 31, 2014.

The Company believes that the ownership change in 2014 will not impact its ability to utilize NOL and credit carryforwards;

however, future ownership changes may cause the Company’s existing tax attributes to have additional limitations.

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Diluted EPS is computed by dividing the net income by the weighted average number of shares of common stock outstanding, plus potential outstanding common stock for the period.

Potential outstanding common stock includes stock options and shares underlying RSUs, but only to the extent that their inclusion is dilutive.

Potential outstanding common stock includes stock options and shares underlying RSUs, but only to the extent that their inclusion is dilutive, as calculated using the treasury stock method.

The following table presents the calculation of basic and diluted net income per share of common stock for the years ended December 31, 2023, 2022 and 2021:

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Legal Matters

In 2014 and 2015, Roxane Laboratories, Inc.

(Roxane) and its affiliates, West-Ward Pharmaceuticals International Limited and West-Ward Pharmaceuticals Corp (West-Ward), Inventia Healthcare Pvt.

(Inventia), Lupin Ltd.

and Lupin Pharmaceuticals, Inc.

(Lupin), Taro Pharmaceuticals USA, Inc.

and Taro Pharmaceutical Industries, Ltd.

(Taro), and Apotex Inc.

and Apotex Corp.

(Apotex) (collectively, the Fanapt ® Defendants) each submitted an Abbreviated New Drug

Application (ANDA) to the FDA seeking approval to market generic versions of Fanapt ® prior to the expiration of certain of the Company’s patents covering Fanapt ® , including U.S.

8,586,610 (‘610 Patent) and U.S.

9,138,432 (‘432 Patent).

In response, the Company filed separate lawsuits in 2014 and 2015 against each of the Fanapt ® Defendants in the U.S.

District Court for the District of Delaware (Delaware District Court) for patent infringement.

In August 2016, the Delaware District Court ruled in the Company’s favor, permanently enjoining Roxane from manufacturing, using, selling, offering to sell, distributing or importing any generic iloperidone product described in Roxane’s ANDA until the expiration of the ‘610 Patent in November 2027, or May 2028 if the Company obtains pediatric exclusivity.

This ruling was affirmed on appeal by the U.S Court of Appeals for the Federal Circuit (Federal Circuit) in April 2018.

West-Ward, having replaced Roxane as defendant following the acquisition of Roxane by West-Ward’s parent company, Hikma Pharmaceuticals PLC (Hikma), petitioned the U.S.

Supreme Court for a writ of certiorari, which was denied in January 2020.

The Company entered into separate license agreements with each of Taro, Apotex and Lupin resolving these lawsuits in October 2016, December 2016 and July 2020, respectively.

The license agreements grant Taro, Apotex and Lupin non-exclusive licenses to manufacture and commercialize a version of Fanapt ® in the U.S.

effective as of the expiration of the ‘610 Patent or earlier under certain limited circumstances.

The Company entered into a license agreement with Hikma regarding the ‘432 Patent in September 2022.

The license agreement grants Hikma a non-exclusive license to manufacture and commercialize a version of Fanapt ® in the U.S.

effective as of the expiration of the ‘610 Patent.

The Company entered into a confidential stipulation with Inventia regarding any potential launch of its generic version of Fanapt ® , but the Company’s lawsuit against Inventia regarding the ‘610 and ‘432 Patents remains pending.

Between April 2018 and March 2021, the Company filed numerous Hatch-Waxman lawsuits in the Delaware District Court against Teva Pharmaceuticals USA, Inc.

Between April 2018 and March 2021, the Company filed numerous Hatch-Waxman lawsuits in the U.S.

District Court for the District of Delaware (Delaware District Court) against Teva Pharmaceuticals USA, Inc.

(Teva), MSN Pharmaceuticals Inc.

and MSN Laboratories Private Limited (MSN) and Apotex (collectively the HETLIOZ ® Defendants) asserting that U.S.

and MSN Laboratories Private Limited (MSN) and Apotex Inc.

and Apotex Corp.

(Apotex, and collectively with Teva and MSN, the HETLIOZ ® Defendants) asserting that U.S.

RE46,604 (‘604 Patent), 9,060,995, 9,539,234, 9,549,913, 9,730,910 (‘910 Patent), 9,844,241, 10,071,977, 10,149,829 (‘829 Patent), 10,376,487 (‘487 Patent), 10,449,176, 10,610,510, 10,610,511, 10,829,465, and 10,611,744 will be infringed by the HETLIOZ ® Defendants’ generic versions of HETLIOZ ® for which they were seeking FDA approval.

In January 2022, the Company entered into a license agreement with MSN and Impax Laboratories LLC (Impax) resolving the lawsuits against MSN.

The license agreement grants MSN and Impax a non-exclusive license to manufacture and commercialize MSN’s version of HETLIOZ ® in the U.S.

As initially disclosed in the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on January 14, 2022, in January 2022, the Company entered into a license agreement with MSN and Impax Laboratories LLC (Impax) resolving the lawsuits against MSN (the MSN/Impax License Agreement).

The MSN/Impax License Agreement grants MSN and Impax a non-exclusive license to manufacture and commercialize MSN’s generic version of HETLIOZ ® in the U.S.

effective as of March 13, 2035, unless prior to that date the Company obtains pediatric exclusivity for HETLIOZ ® , in which case the license will be effective as of July 27, 2035.

MSN and Impax may enter the market earlier under certain limited circumstances.

The MSN/Impax License Agreement also provides that MSN and Impax may launch a generic version of HETLIOZ ® earlier under certain limited circumstances.

In January 2023, MSN and its commercial partner, Amneal Pharmaceuticals, Inc., informed the Company of their belief that such circumstances have occurred and have since launched their generic version.

The Company disagrees with this position and continues to aggressively defend its legal rights to exclusivity for HETLIOZ ® .

The consolidated lawsuits against the remaining HETLIOZ ® Defendants were tried in March 2022.

On December 13, 2022, the Delaware District Court ruled that Teva and Apotex did not infringe the ‘604 Patent, and that the asserted claims of the ‘604, ‘910, ‘829 and ‘487 Patents were invalid.

On December 14, 2022, Vanda appealed the Delaware District Court’s decision to the Federal Circuit and requested an injunction prohibiting market entry by Teva and Apotex while the appeal is pending.

On December 16, 2022, the Federal Circuit granted a temporary injunction to prohibit market entry by Teva and Apotex until the Federal Circuit entered its order on the Company’s motion for a stay pending appeal.

On December 28, 2022, the Federal Circuit denied the Company’s request for an injunction, which therefore lifted the stay pending appeal.

The oral argument for the Company’s appeal is scheduled for March 14, 2023.

On December 27, 2022, the Company filed patent infringement lawsuits, including Hatch-Waxman Act claims, against each of Teva and Apotex in the U.S.

In December 2022, the Delaware District Court ruled that Teva and Apotex did not infringe the ‘604 Patent, and that the asserted claims of the ‘604, ‘910, ‘829 and ‘487 Patents were invalid.

In December 2022, the Company appealed the Delaware District Court’s decision to the U.S.

Court of Appeals for the Federal Circuit (Federal Circuit) and an oral argument for the appeal was held in March 2023.

In May 2023, a three-judge panel of the Federal Circuit affirmed the Delaware District Court’s ruling, and in June 2023, the Company requested a rehearing or rehearing en banc from the Federal Circuit.

In August 2023, the Federal Circuit denied the Company’s petition for a rehearing.

In January 2024, the Company filed a petition for a writ of certiorari with the U.S.

Supreme Court to review the Federal Circuit’s decision.

In December 2022, the Company filed patent infringement lawsuits, including Hatch-Waxman Act claims, against each of Teva and Apotex in the U.S.

District Court for the District of New Jersey (NJ District Court) asserting that U.S.

11,285,129, a method of administration patent that was not litigated in the Delaware District Court cases (‘129 Patent), will be infringed by Teva’s and Apotex’ generic versions of HETLIOZ ® , each of which was approved by the FDA.

The Company has asked the NJ District Court to, among other things, order that the effective date of the FDA’s approval of Teva’s and Apotex’ generic versions of HETLIOZ ® be a date that is no earlier than the expiration of the ‘129 Patent, or such later date that the NJ District Court may determine, and enjoin each of Teva and Apotex from the commercial manufacture, use, import, offer for sale and/or sale of their generic versions of HETLIOZ ® until the expiration of the ‘129 Patent, or such later date that the NJ District Court may determine.

On December 28, 2022, the Company filed a similar lawsuit against Apotex in the U.S.

District Court for the Southern District of Florida asserting the same claims and seeking the same relief against Apotex as are asserted and sought in the litigation pending before the NJ District Court.

The Company asked the NJ District Court to, among other things, order that the effective date of the FDA’s approval of Teva’s and Apotex’ generic versions of HETLIOZ ® be a date that is no earlier than the expiration of the ‘129 Patent, or such later date that the NJ District Court may determine, and enjoin each of Teva and Apotex from the commercial manufacture, use, import, offer for sale and/or sale of their generic versions of HETLIOZ ® until the expiration of the ‘129 Patent, or such later date that the NJ District Court may determine.

In February 2023, the case was transferred to the Delaware District Court, where the Company’s lawsuit remains pending.

In January 2023, the Company filed a lawsuit in the NJ District Court against Teva challenging Teva’s advertising and marketing practices related to its at risk launch of its generic version of HETLIOZ ® for the single indication of Non-24.

1 unchanged sentence

The Company seeks to, among other things, enjoin Teva from engaging in false and misleading advertising and recover monetary damages.

In December 2023, the case was transferred to the Delaware District Court.

In January 2023, the Company filed a lawsuit in the U.S.

District Court for the District of Columbia (DC District Court) against the FDA challenging the FDA’s approval of Teva’s ANDA for its generic version of HETLIOZ ® capsules under the Administrative Procedure Act, the Food, Drug, and Cosmetic Act (FDCA), and FDA regulations.

District Court for the District of Columbia (DC District Court) against the FDA challenging the FDA’s approval of Teva’s Abbreviated New Drug Application (ANDA) for its generic version of HETLIOZ ® capsules under the Administrative Procedure Act, the Food, Drug, and Cosmetic Act (FDCA), and FDA regulations.

Under the FDCA, every ANDA must contain information to show that the labeling proposed for the generic drug is the same as the labeling approved for the listed drug.

additionally, the generic drug must have the same conditions of use as the listed drug.

The Company believes that Teva’s approved labeling does not comply with these requirements.

The Company has asked the DC District Court to, among other things, vacate the FDA’s approval of Teva’s ANDA, declare that the approval of the ANDA was unlawful, arbitrary, and capricious and compel the FDA to order Teva to recall its shipments or sales of its generic HETLIOZ ® product.

In February 2023, Teva filed a motion with the DC District Court to intervene as a defendant in the lawsuit.

Vanda did not oppose Teva’s motion.

The labeling and packaging for HETLIOZ ® includes Braille, but Teva’s generic version does not.

On this basis, the Company believes that Teva’s approved labeling does not comply with applicable requirements.

In February 2023, Teva intervened in the lawsuit as a defendant.

In September 2023, the Company amended its lawsuit to request that the DC District Court set aside the FDA’s July 2023 denial of the Company’s citizen petition, originally filed with the FDA in January 2023.

The Company’s lawsuit remains pending.

In September 2023, the Company filed a lawsuit in the DC District Court against the FDA challenging the FDA’s approval of MSN’s ANDA for its generic version of HETLIOZ ® capsules under the APA, the FDCA, and FDA regulations.

The Company believes that MSN’s underlying approval data, particularly its bioequivalence studies, are faulty.

On this basis, the Company has asked the DC District Court to, among other things, vacate the FDA’s approval of MSN’s ANDA, declare that the approval of the ANDA was unlawful, arbitrary, and capricious and compel the FDA to order MSN to recall its generic HETLIOZ ® product.

In December 2023, the Company filed a motion for summary judgment.

In January 2024, the FDA opposed the Company’s motion and moved to waive the administrative record, following which the court held an oral argument on the cross-motions.

The DC District Court has issued an order compelling the FDA to serve the administrative record and setting deadlines for further proceedings.

The Company’s lawsuit remains pending.

Other Matters .

In February 2019, a securities class action, Gordon v.

Vanda Pharmaceuticals Inc.

, was filed in the U.S.

District Court for the Eastern District of New York (New York District Court) naming the Company and certain of its officers as defendants.

An amended complaint was filed in July 2019.

The amended complaint, filed on behalf of a purported stockholder, asserted claims on behalf of a putative class of all persons who purchased the Company’s publicly traded securities between November 4, 2015 and February 11, 2019 (the Class), for alleged violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder.

The amended complaint alleges that the defendants made false and misleading statements and/or omissions regarding Fanapt ® , HETLIOZ ® and the Company’s interactions with the FDA regarding tradipitant between November 3, 2015 and February 11, 2019.

In March 2020, the Company filed a motion to dismiss the complaint.

In March 2021, the motion to dismiss was granted in part and denied in part.

In May 2022, the parties executed a stipulation of settlement for $ 11.5 million to resolve the claims asserted with no admission of wrongdoing by any defendant.

The settlement was preliminarily approved by the New York District Court in September 2022.

Payment of the settlement amount was made by the Company’s insurers into an escrow account and is recognized in the Consolidated Balance Sheet as of December 31, 2022 in prepaid and other current assets and accounts payable and accrued liabilities.

In January 2023, the New York District Court fully and finally approved the settlement and issued its final judgment and order of dismissal with prejudice, thereby resolving the class action with respect to all plaintiffs other than three individuals who requested exclusion from the Class.

The settlement is not expected to have a material adverse effect on the Company’s business, results of operations or financial condition.

In April 2022, the Company filed a lawsuit in the DC District Court against the FDA to compel the FDA to produce, as required by the Freedom of Information Act (FOIA), certain records relating to its denial of the Company’s supplemental NDA for HETLIOZ ® in the treatment of jet lag disorder.

The Company has repeatedly attempted to obtain these records from the FDA pursuant to a FOIA request submitted by the Company in December of 2019, but the FDA has refused to provide them, claiming an exemption under FOIA.

The Company does not believe that the exemption claimed by the FDA applies to the records requested.

From April 2022 to February 2024, the Company filed fourteen lawsuits in the DC District Court against the FDA to compel the FDA to produce records under the Freedom of Information Act (FOIA) regarding, among other matters:

the FDA’s denial of the Company’s supplemental New Drug Application (sNDA) for HETLIOZ ® in the treatment of jet lag disorder;

cases in which the FDA waived its putative requirement of a 9-month non-rodent toxicity study before drugs can be tested on human patients for extended durations;

communications external to and within the FDA relating to tradipitant, HETLIOZ ® and Fanapt ® ;

a warning letter that the FDA sent to the Company concerning its webpages for HETLIOZ ® and Fanapt ® ;

the FDA’s removal of a clinical trials design presentation from its website;

discipline reviews relating to the FDA’s evaluations of the Company’s sNDA for HETLIOZ ® and a third-party sNDA for jet lag;

internal standard operating procedures or guidance relating to the FDA’s processing of incoming FOIA requests;

and bioequivalence and other study reports submitted relating to the FDA’s consideration of tasimelteon ANDAs.

Three of these lawsuits were resolved in the Company’s favor in June 2023, August 2023, and January 2024, respectively, one is pending resolution and the other ten remain outstanding.

FDA has failed to respond and provide the requested documents within the statutory timeframe with respect to each of these ten outstanding requests.

The Company has asked the DC District Court to, among other things, compel the FDA to comply with its obligations and declare that its lack of compliance violates FOIA.

In April 2022, the Company filed a lawsuit in the U.S.

District Court for the District of Maryland (the MD District Court) against the Centers for Medicare & Medicaid Services (CMS) and the Administrator of CMS challenging CMS’ rule broadly interpreting the defined terms “line extension” and “new formulation” under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (ACA), which went into effect in January 2022 (the Rule).

District Court for the District of Maryland (MD District Court) against the Centers for Medicare & Medicaid Services (CMS) and the Administrator of CMS challenging CMS’ rule broadly interpreting the defined terms “line extension” and “new formulation” under the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010 (ACA), which went into effect in January 2022 (the Rule).

The Company believes that the Rule is unlawful and contrary to the intent of Congress when it passed the ACA.

Under the Rule, certain of the Company’s products would be treated as line extensions and new formulations subject to enhanced rebates, despite the statutory text and CMS’ own long-standing practice, under which such products would not constitute line extensions or new formulations.

The Company seeks to, among other things, have the MD District Court set aside the definitions of “line extension” and “new formulation” in the Rule, declare the Rule unlawful and void and enjoin CMS from enforcing, applying, or implementing the Rule as applied to require the Company to treat these products as line extensions.

In May 2022, the Company filed a lawsuit in the DC District Court against the FDA to compel the FDA to produce, as required by FOIA, certain records relating to cases in which the FDA waived its putative requirement of a 9-month non-rodent toxicity study before drugs can be tested on human patients for extended durations.

The Company attempted to obtain these records from the FDA pursuant to a FOIA request submitted by the Company in January of 2020, but the FDA has failed to respond to the request.

In March 2023, the MD District Court ruled that CMS’ interpretation of the terms was reasonable and consistent with Congress’ intent.

In April 2023, the Company appealed the ruling to the U.S.

Court of Appeals for the Fourth Circuit (Fourth Circuit).

In January 2024, the Fourth Circuit held an oral argument.

The Company’s lawsuit remains pending.

In May 2022, the Company filed a lawsuit in the DC District Court against the FDA challenging the FDA’s denial of Fast Track designation for tradipitant.

1 unchanged sentence

The FDAMA provides for expedited development and review of drugs that receive Fast Track designation from the FDA.

Under the FDAMA, the FDA must designate a drug as a Fast Track product if it both (1) is intended to treat a serious or life-threatening

disease or condition and (2) demonstrates the potential to address unmet medical needs for such disease or condition.

Under the FDAMA, the FDA must designate a drug as a Fast Track product if it both (1) is intended to treat a serious or life-threatening disease or condition and (2) demonstrates the potential to address unmet medical needs for such disease or condition.

Although Fast Track designation is non-discretionary when the criteria are satisfied, the FDA denied the Company’s request for Fast Track designation.

2 unchanged sentences

The Company has asked the DC District Court to, among other things, set aside and vacate the FDA’s denial.

In September 2022, the Company filed a lawsuit in the DC District Court against the FDA to compel the FDA to comply with two separate nondiscretionary obligations under the FDCA and its implementing regulations:

an obligation to publish a notice of an opportunity for a hearing on Vanda’s supplemental New Drug Application (sNDA) in the Federal Register within 180 days of the filing of the sNDA, and a separate obligation to publish the same notice within 60 days of the request for a hearing.

An oral argument was held in January 2023.

In August 2023, the DC District Court ruled against the Company.

In September 2023, the Company appealed the ruling to the U.S.

Court of Appeals for the District of Columbia Circuit, where the Company’s lawsuit remains pending.

In September 2022, the Company filed a lawsuit in the DC District Court against the FDA to compel the FDA to comply with two separate non-discretionary obligations under the FDCA and its implementing regulations:

an obligation to publish a notice of an opportunity for a hearing on the Company’s sNDA for HETLIOZ ® in the treatment of jet lag disorder in the Federal Register within 180 days of the filing of the sNDA, and a separate obligation to publish the same notice within 60 days of the request for a hearing.

The FDA published the notice of an opportunity for a hearing on October 11, 2022.

The Company has asked the DC District Court to, among other things, compel the FDA to comply with its obligations and declare that its lack of compliance violates the FDCA and the FDA regulations.

In October 2022, the Company filed a lawsuit in the DC District Court against the FDA to compel the FDA to produce, as required by FOIA, documents responsive to the Company’s request seeking communications external to the FDA from 11 specified FDA employees relating to tradipitant.

The FDA has failed to respond and disclose the requested documents within the statutory timeframe.

The Company has asked the DC District Court to, among other things, compel the FDA to comply with its obligations and declare that its lack of compliance violates FOIA.

In November 2022, the Company filed a lawsuit in the DC District Court against the FDA to compel the FDA to produce, as required by FOIA, documents responsive to the Company’s request seeking communications within the FDA relating to tradipitant.

The FDA has failed to respond and disclose the requested documents within the statutory timeframe.

The Company has asked the DC District Court to, among other things, compel the FDA to comply with its obligations and declare that its lack of compliance violates FOIA.

In December 2022, the Company filed a lawsuit in the DC District Court against the FDA to compel the FDA to produce, as required by FOIA, documents responsive to the Company’s request seeking communications external to the FDA from specified FDA employees relating to HETLIOZ ® .

The FDA has failed to respond and disclose the requested documents within the statutory timeframe.

The Company has asked the DC District Court to, among other things, compel the FDA to comply with its obligations and declare that its lack of compliance violates FOIA.

The FDA has failed to respond and disclose the requested documents within the statutory timeframe.

The Company has asked the DC District Court to, among other things, compel the FDA to comply with its obligations and declare that its lack of compliance violates FOIA.

In January 2024, the DC District Court held an oral argument on dispositive cross-motions, following which the DC District Court granted the Company’s motion for summary judgment.

The DC District Court ruled that the FDA violated the statute and ordered the FDA to either finally resolve the Company’s application or commence a hearing on or before March 5, 2024.

The Company’s lawsuit remains pending.

In May 2023, the Company filed a lawsuit in the U.S.

Court of Federal Claims (Federal Claims Court) against the federal government for the uncompensated taking and misuse of the Company’s trade secrets and confidential information.

The Company believes that the FDA violated the Fifth Amendment’s due process clause by improperly providing confidential details from the Company’s drug master files for HETLIOZ ® and Fanapt ® to generic drug manufacturers during the FDA’s review of the manufacturers’ ANDAs.

The Company has asked the Federal Claims Court to, among other things, declare that the FDA’s disclosure of the Company’s confidential commercial information constitutes a taking for purposes of the Fifth Amendment and award just compensation.

The federal government filed a motion to dismiss the complaint, which the Company opposed.

In January 2024, the Federal Claims Court held an oral argument on the motion to dismiss, following which the Federal Claims Court issued a decision denying in part the government’s motion, allowing the Company’s takings claim to proceed.

The Company’s lawsuit remains pending.

In February 2024, the Company filed a lawsuit in the DC District Court against the FDA to compel the FDA to comply with its statutory obligations under the FDCA and its implementing regulations, and to challenge the FDA’s complete response letter and 60-day filing regulations, which the Company believes do not absolve the FDA of its statutory responsibilities.

Under the FDCA, the FDA has an obligation to either approve the Company’s sNDA for HETLIOZ ® in the treatment of insomnia characterized by difficulties with sleep initiation within 180 days of the filing of the sNDA or give the Company a notice of an opportunity for a hearing.

The Company submitted the sNDA on May 4, 2023.

The Company has asked the DC District Court to, among other things, compel the FDA to comply with its obligations, declare that its lack of compliance violates the FDCA and the FDA regulations and declare the FDA’s complete response letter and 60-day filing regulations unlawful.

VANDA PHARMACEUTICALS INC.

4 unchanged sentences

333-130759) on March 17, 2006 and incorporated herein by reference).

3.2 Fourth Amended and Restated Bylaws of the registrant, as amended and restated on December 17, 2015 (filed as Exhibit 3.1 to the registrant’s current report on Form 8-K (File No.

3.2 Amended and Restated Bylaws of the registrant, as amended and restated on December 13, 2023 (filed as Exhibit 3.1 to the registrant’s current report on Form 8-K (File No.

001-34186) on December 15, 2023 and incorporated herein by reference).

66 unchanged sentences

333-272522) on June 8, 2023 and incorporated herein by reference).

10.24† Form of Notice of Stock Option Grant and Stock Option Agreement under Amended and Restated 2016 Equity Incentive Plan (filed as Exhibit 10.2 to the registrant’s registration statement on Form S-8 (File No.

333-218774) on June 15, 2017 and incorporated herein by reference).

10.25† Form of Restricted Stock Unit Award Agreement under Amended and Restated 2016 Equity Incentive Plan (filed as Exhibit 10.3 to the registrant’s registration statement on Form S-8 (File No.

333-218774) on June 15, 2017 and incorporated herein by reference).

10.24† UK Sub Plan under the Amended and Restated 2016 Equity Incentive Plan (filed as Exhibit 10.4 to the registrant’s registration statement on Form S-8 (File No.

333-218774) on June 15, 2017 and incorporated herein by reference).

10.27† Form of Stock Option Grant and Stock Option Agreement under the UK Sub Plan under the Amended and Restated 2016 Equity Incentive Plan (filed as Exhibit 10.5 to the registrant’s registration statement on Form S-8 (File No.

333-218774) on June 15, 2017 and incorporated herein by reference).

10.28† Form of Restricted Stock Unit Award Agreement under the UK Sub Plan under the Amended and Restated 2016 Equity Incentive Plan (filed as Exhibit 10.6 to the registrant’s registration statement on Form S-8 (File No.

333-218774) on June 15, 2017 and incorporated herein by reference).

Number Description

Manufacturing Agreement, dated May 6, 2016, by and between Patheon Pharmaceuticals Inc.

8 unchanged sentences

001-34186) on February 17, 2017 and incorporated herein by reference).

Number Description

License Agreement, dated December 7, 2016, by and between Apotex, Inc.

19 unchanged sentences

001-34186) on May 6, 2022 and incorporated herein by reference).

10.39† Form of Restricted Stock Unit Award Agreement for U.S.

Employees under the Amended and Restated 2016 Equity Incentive Plan (filed as Exhibit 10.1 to the registrant's quarterly report on Form 10-Q (File No.