When Vanda Pharmaceuticals Inc., a Rockville drug company with no products on the market, reported a successful study of an experimental schizophrenia drug on Dec. 7, its shares soared as much as 85 percent that day.
Four days later, six Vanda insiders, including Chief Executive Officer Mihael H. Polymeropoulos, sold $43 million in stock, or about 7.5 percent of the company, according to regulatory filings.
A venture capital firm whose general partners include Vanda Chairman Argeris N. Karabelas sold $19.3 million in Vanda stock on Dec. 11 and 12.
Neither Vanda nor its backers told investors that the pill previously had been cast aside by three drugmakers, including Novartis AG, Dr. Polymeropoulos' former employer.
Nor did the company disclose that the drug works no better than the least successful of the latest class of schizophrenia medicines on the market, Pfizer Inc.'s Geodon.
Iloperidone belongs to a class of anti-psychotic medicines that includes Eli Lilly & Co.'s Zyprexa and Johnson & Johnson's Risperdal, the two top-selling schizophrenia drugs, with combined sales of $7.7 billion in 2005.
"This is at best a me-too drug," said Dr. Jeffrey A. Lieberman, chairman of the psychiatric department at New York's Columbia University.
In an interview Dec. 7, Polymeropoulos said the four-week study, involving 604 patients, showed iloperidone "works comparably to the other drugs."
Vanda's news release said iloperidone demonstrated "statistically significant efficacy" when tested against a dummy drug.
According to a description of the study in a U.S. database of clinical trials, the research was also designed to test the drug against an "active comparator" medicine.
In a telephone interview Dec. 7, Chip Clark, Vanda's chief business officer, identified the comparable drug as Geodon. He said iloperidone and Geodon showed no difference in effectiveness during the trial. The frequency of side effects was also "identical," he said.
Clark wouldn't comment on the relative magnitude of the adverse events for each drug. "We haven't completed the analysis" of the adverse events, he said. He also declined to say why the company left out any reference to Geodon in its release.
The company's news statement did provide a so-called p- value, a figure that indicates that the drug's superiority over the placebo, or dummy drug, wasn't due to chance.
"The p-value cited in the release to show 'significant efficacy' could mislead investors," said Dr. John M. Davis, a professor of psychiatry at the University of Illinois at Chicago.
"It might sound impressive to the layman, but it's not going to impress anyone who does the math," Davis said after reviewing the results in the news release.
"It's better than placebo, but that's not the goal. Almost all of the last 35 trials for these anti-psychotic drugs had substantially bigger differences from placebo. They're giving a p-value that sounds impressive, but it's real mediocre."
Polymeropoulos sold 150,000 shares at an average of $25.79 on Dec. 11, for $3.9 million. That day, Chief Financial Officer Steven A. Shallcross sold 10,000 shares at $26.45, for $264,500 and Clark sold 15,000 shares at $26.28, for $394,200.
The next day, Phadke Deepak Shripad, vice president of manufacturing, sold 4,720 shares at $25.33, for $119,546.
Shares of Vanda fell 4 cents to $25.27 yesterday in Nasdaq trading.
"My entire net worth is in Vanda," Polymeropoulos said in an interview Tuesday. "Diversification is prudent financial planning."
In an e-mailed statement Thursday, a company spokesman said, "As with any company, inside investors and managers are able to buy and sell stock at various times after major news has been released."
Vanda requires insiders to wait two business days before trading stock after the release of routine information, according to the company's Web site. "A longer period may be necessary for particularly significant or complex matters," according to the site.
Vanda Chairman Karabelas said in an interview that Care Capital, his venture capital firm in Princeton, N.J., still had a "large position" in the drugmaker and that the sale was "just a matter of managing our position for our investors."
"There was a considerable sell-off by officers and the directors' venture capital funds when they obviously had material information that investors would like to have known," said Alan R. Bromberg, a professor of securities law at Southern Methodist University in Dallas.
Vanda was formed in 2003 to develop drugs to treat central nervous system disorders. It went public in April 2006 at $10, raising $53.3 million to develop iloperidone and other drugs, according to a U.S. regulatory filing. The company spent $30.2 million on the study through Sept. 30, Vanda reported in the filing.
Polymeropoulos founded the company after leaving Novartis, Europe's third-largest drugmaker.
In June 2004, the CEO acquired iloperidone from his former employer for an initial payment of $500,000, a fraction of the $17.4 million upfront license payment Novartis paid to get the drug in 1997.
Novartis abandoned development of iloperidone after it failed in two of three clinical trials involving 1,947 patients, according to documents filed by Vanda with regulators. In those two trials, iloperidone failed to outperform placebo pills.