EX-10.3: AMENDED AND RESTATED LICENSE, DEVELOPMENT AND COMMERCIALIZATION AGREEMENT

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                                                                    Exhibit 10.3

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                 AMENDED AND RESTATED LICENSE, DEVELOPMENT AND
                            COMMERCIALIZATION AGREEMENT

                                 BY AND BETWEEN

                          BRISTOL-MYERS SQUIBB COMPANY
                            (A DELAWARE CORPORATION)

                                       AND

                            VANDA PHARMACEUTICALS, INC.
                            (A DELAWARE CORPORATION)

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CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH
THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE
OMITTED PORTIONS.

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                                TABLE OF CONTENTS

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ARTICLE 1   DEFINITIONS ..................................................      1
ARTICLE 2   LICENSE GRANT ................................................      8
   2.1   Exclusive License Grant .........................................      8
   2.2   Non Exclusive License Grant .....................................      8
   2.3   Sublicense ......................................................      8
   2.4   No Trademark License ............................................      8
   2.5   No Implied Licenses .............................................      8
   2.6   Marketing Arrangements ..........................................      9
   2.7   Retained Rights .................................................      9
ARTICLE 3   OPTION GRANTS ................................................      9
   3.1   Vanda's Option: Third Party Development Partners ................      9
   3.2   BMS Option Exercisable Upon Completion of Phase III
        Clinical Studies: Commercialization .............................     10
   3.3   Right of First Negotiation to Act as a Co-Promotion Partner in
        Commercialization of a Product By Either Party ..................     11
   3.4   Responsibilities Regulatory Affairs .............................     12
ARTICLE 4   TRANSFER OF BMS KNOW-HOW; ....................................     13
   4.1   Transfer of BMS Compound Know-How ...............................     13
   4.2   Non-Solicitation ................................................     14
ARTICLE 5   DEVELOPMENT ..................................................     14
   5.1   Program Liaison .................................................     14
   5.2   Development .....................................................     14
   5.3   Development Reports .............................................     15
   5.4   Records .........................................................     15
   5.5   Development Responsibilities and Costs ..........................     15
   5.6   Regulatory Responsibilities and Costs ...........................     15
ARTICLE 6   COMMERCIALIZATION ............................................     18
   6.1   Commercializing Party's Responsibilities ........................     18
ARTICLE 7   MANUFACTURE AND SUPPLY .......................................     19
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                               TABLE OF CONTENTS
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   7.1   Responsibility ..................................................     19
   7.2   Provision of Compound ...........................................     19
   7.3   Right to Manufacture Commercial Supply ..........................     19
ARTICLE 8   PAYMENTS .....................................................     20
   8.1   Technology Access Fee ...........................................     20
   8.2   Milestone Payments ..............................................     20
   8.3   Timing ..........................................................     21
   8.4   Development Costs ...............................................     21
   8.5   Royalty Payment .................................................     21
   8.6   Third Party Royalty Payments ....................................     22
   8.7   Royalty Offset for Third Party Royalty Payments .................     22
   8.8   Term for Royalty Payments .......................................     22
   8.9   Sales Reports ...................................................     23
   8.10 Currency Exchange ...............................................     24
   8.11 Tax Withholding .................................................     24
   8.12 Interest Due ....................................................     24
ARTICLE 9   REPRESENTATIONS AND WARRANTIES; DISCLAIMER; LIMITATION OF
        LIABILITY .......................................................     24
   9.1   Mutual Warranties ...............................................     24
   9.2   BMS Warranties and Covenants ....................................     25
   9.3   Vanda Warranties and Covenants ..................................     25
   9.4   DISCLAIMER ......................................................     25
   9.5   Limitation of Liability .........................................     26
ARTICLE 10 PATENT MAINTENANCE; INFRINGEMENT; CONFIDENTIALITY ............     26
   10.1 Inventions ......................................................     26
   10.2 Patent Maintenance; Abandonment .................................     26
   10.3 Enforcement of BMS Patent Rights Against Infringers .............     27
   10.4 Defense of Third Party Claims ...................................     28
ARTICLE 11 NONDISCLOSURE OF CONFIDENTIAL INFORMATION ....................     29
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   11.1   Nondisclosure ..................................................     29
   11.2   Authorized Disclosure ..........................................     29
   11.3   Terms of this Agreement ........................................     30
   11.4   Exception for Disclosure of Tax Treatment ......................     30
ARTICLE 12 INDEMNITY ....................................................     31
   12.1   Vanda Indemnity ................................................     31
   12.2   BMS Indemnity ..................................................     31
   12.3   Indemnification Procedures .....................................     32
   12.4   Insurance ......................................................     32
ARTICLE 13 TERM AND TERMINATION .........................................      33
   13.1   Term ...........................................................     33
   13.2   Termination By BMS .............................................     33
   13.3   Termination by Vanda ...........................................     34
   13.4   Effect of Termination ..........................................     34
   13.5   Survival .......................................................     37
   13.6   Bankruptcy .....................................................     37
ARTICLE 14 MISCELLANEOUS ................................................     38
   14.1   Provisions Contrary to Law .....................................     38
   14.2   Third Party Rights .............................................     38
   14.3   Notices ........................................................     39
   14.4   Force Majeure ..................................................     39
   14.5   Use of Names ...................................................     39
   14.6   Assignment .....................................................     40
   14.7   Further Assurances .............................................     40
   14.8   Waivers and Modifications ......................................     40
   14.9   Choice of Law and Jurisdiction .................................      41
   14.10 Publicity ......................................................     41
   14.11 Entire Agreement ...............................................     42
   14.12 Counterparts ...................................................     42
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                                TABLE OF CONTENTS
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   14.13 Relationship of the Parties ....................................     42
   14.14 Headings .......................................................     42
   14.14 Dispute Resolution .............................................     42
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                                       iv

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                  AMENDED AND RESTATED LICENSE, DEVELOPMENT AND
                           COMMERCIALIZATION AGREEMENT

     THIS AMENDED AND RESTATED LICENSE, DEVELOPMENT AND COMMERCIALIZATION
AGREEMENT (this "Agreement"), effective as of the Effective Date (defined
below), is made and entered into by and between BRISTOL-MYERS SQUIBB COMPANY, a
Delaware corporation headquartered at 345 Park Avenue, New York, New York 10154
USA ("BMS") and VANDA PHARMACEUTICALS, INC., a Delaware corporation having its
principal place of business at 47 Hulfish Street, Suite 310, Princeton, NJ 08542
("Vanda"). Each of BMS and Vanda is referred to herein as a "Party" and BMS and
Vanda are collectively referred to herein as the "Parties."

                                    ARTICLE 1
                                   DEFINITIONS

For the purposes of this Agreement, the following definitions shall apply, and
the terms defined herein in plural shall include the singular and vice-versa:

     1.1 "AFFILIATE" means any corporation, company, partnership, joint venture
and/or firm which controls, is controlled by, or is under common control with a
specified person or entity. For purposes of this Section 1.1, "control" means
the power, direct or indirect, to direct the management and policies of an
entity, and shall be presumed to exist if one of the following conditions is
met: (a) in the case of corporate entities, direct or indirect ownership of at
least fifty percent (50%) of the stock or shares having the right to vote for
the election of directors, and (b) in the case of non-corporate entities, direct
or indirect ownership of at least fifty percent (50%) of the equity interest
with the power to direct the management and policies of such non-corporate
entities. The Parties acknowledge that in the case of certain entities organized
under the laws of certain countries outside of the United States, the maximum
percentage ownership permitted by law for a foreign investor may be less than
fifty percent (50%), and that in such cases such lower percentage shall be
substituted in the preceding sentence, provided that such foreign investor has
the power to direct the management and policies of such entity. Care Capital LLC
shall not be considered an Affiliate of Vanda and shall be considered a Third
Party if and only if Care Capital LLC (a) is not involved in the Development,
manufacture or Commercialization of a Product and (b) does not Control any
know-how or patent relating to any composition, formulation, method of use or
manufacture of a Compound or a Product that is not Controlled by Vanda and
Vanda's Affiliates (i.e., Care Capital does not Control any know-how or patent
that would be subject to Section 13.4.1(g) if Care Capital LLC was considered an
Affiliate of Vanda).

     1.2 "APPROVAL" means Marketing Authorizations with pricing, labeling, and
reimbursement approvals and any other similar final approvals from the FDA or an


                                       -1-

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equivalent Regulatory Authority of another country necessary to manufacture
and/or Commercialize a Product.

     1.3 "BMS COMPOUND PATENT RIGHTS" means (a) all U.S. patents and patent
applications and their foreign counterparts Controlled by BMS as of the
Effective Date covering the composition or utility of a Compound; (b) any
continuation, continuation-in-part (but only to the extent that such application
includes new data in support of claims previously submitted in a prior
originally filed application), divisional, and continued-prosecution
applications of any such patent applications in (a), and (c) any patents granted
on or issuing from any aforesaid applications in (a) and (b), including any
renewals, extensions, patents of addition, revivals, re-examinations, and
reissues thereof. Such Patent Rights are listed on Schedule 1.3.

     1.4 "BMS COMPOUND KNOW-HOW" means all technical information and know-how
known to and Controlled by BMS as of the Effective Date (including, without
limitation, all biological, chemical, pharmacological, toxicological, clinical,
assay, and related know-how and trade secrets) identified by BMS as directly
relating to, and are reasonably useful for, the Development and/or
Commercialization of a Compound or Product in the manner that the Compound or
Product has been Developed and Commercialized by BMS heretofore.

     1.5 "BMS KNOW-HOW" means the BMS Compound Know-How and the BMS
Manufacturing Know-How.

     1.6 "BMS MANUFACTURING KNOW-HOW" means all technical information and
know-how known to and Controlled by BMS as of the Effective Date (including,
without limitation, all manufacturing data, the percentages and specifications
of ingredients, the manufacturing processes, specifications, technology, assays,
quality control and testing procedures, and related know-how and trade secrets)
identified by BMS as directly relating to, and are reasonably useful for, the
manufacture of a Compound or Product in the manner that the Compound or Product
has been manufactured by BMS heretofore.

     1.7 "BMS MANUFACTURING PATENT RIGHTS" means those U.S. or foreign patents,
if any, Controlled by BMS as of the Effective Date, including any renewals,
extensions, patents of addition, revivals, re-examinations, and reissues
thereof, for which any claim covers the manufacture of a Compound in the same
manner that such Compound has heretofore been manufactured by BMS. Such patent
rights are listed on Schedule 1.7.

     1.8 "BMS PATENT RIGHTS" means the BMS Compound Patent Rights and the BMS
Manufacturing Patent Rights.

     1.9 "BUSINESS DAY" means a day other than Saturday, Sunday or any day on
which commercial banks located in New York are authorized or obligated by law to
close.

     1.10 "COMBINATION PRODUCT" means a Product including at least one
additional active ingredient other than a Compound. For clarity, drug delivery
vehicles, adjuvants,


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and excipients shall not be deemed to be "active ingredients" the presence of
which in a Product would be deemed to create a Combination Product.

     1.11 "COMMERCIALIZING PARTY" has the meaning set forth in Section 6.1.1.

     1.12 "COMPOUNDS" means the compounds identified as BMS-214778 and
BMS-330446 each as specifically described in Schedule 1.3 and including without
limitation metabolites or prodrugs thereof, and any hydrates, conjugates, salts,
esters, isomers, polymorphs or analogues of any of the foregoing.

     1.13 "COMMERCIALLY REASONABLE EFFORTS" means, with respect to a Product,
the carrying out of obligations in a diligent and sustained manner (using
efforts not less than the efforts a Party devotes to a product of similar market
potential, profit potential or strategic value resulting from its own research
efforts), based on conditions then prevailing. Commercially Reasonable Efforts
requires that each Party: (a) promptly assign responsibility for such
obligations to specific employee(s) who are held accountable for progress and
monitor such progress on an on-going basis, (b) set and consistently seek to
achieve specific and meaningful objectives for carrying out such obligations,
(c) consistently make and implement decisions and allocate resources designed to
advance progress with respect to such objectives, and (d) employ compensation
systems for its employees reasonably calculated to intent such employees to
achieve such objectives.

     1.14 "COMMERCIALIZATION" or "COMMERCIALIZE" means activities directed to
obtaining pricing and reimbursement approvals, marketing, promoting,
distributing, importing or selling a product.

     1.15 "CONFIDENTIAL INFORMATION" means all trade secrets, processes,
formulae, data, know-how, improvements, inventions, chemical or biological
materials, techniques, marketing plans, strategies, customer lists, or other
information that has been created, discovered, or developed by a Party, or has
otherwise become known to a Party, or which proper rights have been assigned to
a Party, as well as any other information and materials that are deemed
confidential or proprietary to or by a Party (including, without limitation, all
information and materials of a Party's customers and any other third party and
their consultants), regardless of whether any of the foregoing are marked
"confidential" or "proprietary" or communicated to the other by the disclosing
Party in oral, written, graphic, or electronic form. In the case of BMS,
"Confidential Information" shall include, without limitation, the BMS Know-How.

     1.16 "CONTROLLED" or "CONTROLS", when used in reference to intellectual
property, shall mean the legal authority or right of a Party hereto (or any of
its Affiliates) to grant a license or sublicense of intellectual property rights
to another Party, or to otherwise disclose proprietary or trade secret
information to such other Party, without breaching the terms of any agreement
with a Third Party, infringing upon the intellectual property rights of a Third
Party, or misappropriating the proprietary or trade secret information of a
Third Party.


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     1.17 "DEVELOPMENT" means non-clinical and clinical drug development
activities reasonably related to the development and submission of information
to a Regulatory Authority, including without limitation toxicology, pharmacology
and other discovery efforts, test method development and stability testing,
process development, formulation development, delivery system development,
quality assurance and quality control development, statistical analysis,
clinical studies (including pre-and post-approval studies and specifically
excluding regulatory activities directed to obtaining pricing and reimbursement
approvals). When used as a verb, "Develop" means to engage in Development.

     1.18 "DEVELOPMENT COSTS" means costs incurred by each Party that were
reasonably necessary for, and that reasonably relate to, the Development of a
Product in accordance with this Agreement and the Development Plan for that
Product, including, without limitation, (a) all reasonable and documented
out-of-pocket costs and expenses incurred, (b) the costs of internal scientific,
medical, technical or managerial personnel directly related to implementing the
Development Plan for that Product, to be determined based on the applicable FTE
Rate, with appropriate allocation in the case of any such personnel devoting
less than full time to such activities, unless another basis is otherwise agreed
by the Parties in writing, (c) the Manufacturing Costs of clinical supplies for
such efforts, (d) direct costs and expenses incurred in connection with
manufacturing process development and validation, manufacturing scale-up and
improvements, stability testing and quality assurance/quality control
development, and qualification and validation of Third Party contract
manufacturers, and (e) any other costs explicitly included in the budgets
included in the Development Plan for that Product.

     1.19 "DEVELOPMENT PLAN" means the drug development plan for a Product
mutually agreed to in writing by the Parties, and as it may be amended by mutual
written agreement from time to time. It shall include, among other things,
budgets for Development of the Product that are planned to be conducted to
achieve each step towards preparation of an NDA for use of the Product in the
Field. The preliminary Development Plan for a Product containing the Compound
identified as BMS-214778 is attached hereto as Schedule 1.19.

     1.20 "DOLLAR" means the lawful currency of the United States of America.

     1.21 "EFFECTIVE DATE" means February 25, 2004.

     1.22 "FDA" means the U.S. Food and Drug Administration or its successor
agency.

     1.23 "FIELD" means the application to any human disease, disorder or
condition, including without limitation sleep disorders such as insomnia and
disorders of circadian rhythm.

     1.24 "FIRST COMMERCIAL SALE" means, with respect to any Product, the first
sale for use or consumption by the general public of such Product in any country
in the


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Territory after Marketing Authorization has been granted, or otherwise
permitted, by the governing health authority of such country.

     1.25 "FTE RATE" means the rates set forth in Schedule 1.25, such rate to be
annually increased on the anniversary of the Effective Date to reflect
adjustment in the CPI, using January 1, 2004 as the base year.

     1.26 "IND" means an Investigational New Drug Application, as defined in the
United States Federal Food, Drug and Cosmetic Act filed with the FDA or its
foreign counterparts.

     1.27 "INDEMNIFICATION CLAIM" has the meaning set forth in Section 12.1.

     1.28 "JOINT INVENTIONS" has the meaning set forth in Section 10.1.

     1.29 "LOSSES AND CLAIMS" has the meaning set forth in Section 12.1.

     1.30 "MAJOR MARKET COUNTRY" means the United States, Japan, Germany, the
United Kingdom, France, Spain and Italy.

     1.31 "MANUFACTURING COST" means (i) where and to the extent a Compound or
Product (or any component thereof) is manufactured, finished or packaged by a
Party, the direct costs and a reasonable allocation of indirect costs (such as
materials, labor and charges in the nature of depreciation, and variable and
fixed overhead) that are necessary for the normal operation of a production
facility that are incurred by such Party and its Affiliates in connection with
the manufacturing, finishing and packaging of the Compound or Product at any
facility of such Party where the Product (or such component) is so manufactured,
finished and packaged, as determined in accordance with U.S. GAAP, consistently
applied from period to period, plus (ii) where and to the extent the Compound or
Product (or any component thereof) is manufactured, finished or packaged by a
Third Party, the actual cost charged to such Party by such Third Party.
Manufacturing overhead (including any idle capacity charges) required to operate
the facility will be allocated based on the amount of capacity that such Party
is reasonably required to reserve to meet expected demand for the Product.
Annual adjustments to variable overhead charges will be based on actual costs,
while fixed overhead will be adjusted annually based on changes from the
previous year to the Producer Price Index-Commodities Index for Drugs and
Pharmaceuticals, as published by U.S. Department of Labor, Bureau of Statistics
(or successor governmental authority). As an example of idle capacity charges,
if a Parry reserves a capacity of five million capsules and actual demand is
three million capsules, then the idle plant for the balance of two million
capsules will be included in the Manufacturing Cost; however, if a Party needs
five million capsule capacity and BMS were to build a new plant for ten million
capsule capacity, then the extra five million capsule idle plant will not be
part of the Manufacturing Cost.

     1.32 "MARKETING AUTHORIZATION" means, with respect to a country, the
regulatory authorization required to market and sell a Product in such country.


                                       -5-

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     1.33 "MGH LICENSE AGREEMENT" means the agreement between The General
Hospital Corporation d/b/a Massachusetts General Hospital ("MGH") and
Bristol-Myers Squibb Company that is currently being negotiated and that will be
entered into after the Effective Date, and as it may be modified or supplemented
after being entered into, under which BMS will be obligated to pay MGH a royalty
on the sales of Products.

     1.34 "NDA" means a New Drug Application, as defined in the United States
Federal Food, Drug and Cosmetic Act and applicable regulations promulgated
thereunder as amended from time to time.

     1.35 "NET SALES" means the gross amounts invoiced by the Royalty Paying
Party, its Affiliates or sublicensees for sales of Product in finished package
form (ready for use by the ultimate consumer) in the Territory to a Third Party,
including, but not limited to, sales to wholesalers or other customers typical
in each country in bona fide, arm's length transactions. In determining Net
Sales, certain deductions may be taken against the gross amount invoiced to the
extent not reimbursed by a Third Party. These allowable deductions are:

          1.35.1 (a) discounts, including cash discounts, discounts to managed
care or similar organizations or government organizations, administrative fees
paid to pharmacy benefits managers, (b) rebates paid or credited, including
government rebates such as Medicaid chargebacks or rebates, and (c) retroactive
price reductions or allowances actually allowed or granted from the billed
amount;

          1.35.2 credits or allowances actually granted upon claims, rejections
or returns of such sales of Products;

          1.35.3 taxes, duties or other governmental charges levied on or
measured by the billing amount when included in billing, as adjusted for
rebates, charge-backs and refunds;

          1.35.4 freight, postage, shipping and insurance charges to the extent
included on the same invoice by the Royalty Paying Party or its sublicensee for
delivery of such Products; and

          1.35.5 the actual amount of any write-offs for bad debt.

A "sale" of a Product is deemed to occur upon the invoicing, or if no invoice is
issued, upon the earlier of shipment or transfer of title in the Product to a
Third Party.

With respect to a Combination Product, Net Sales for such Combination Product
sold by the Royalty Paying Party shall be determined by the Parties to this
Agreement in good faith based on the relative value of the Compound and the
additional active ingredients that are included in the Combination Product.

     1.36 "PHASE II CLINICAL STUDY" means a clinical study of a Product in human
subjects for the purpose of identifying a dose or doses at which there is
evidence of


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efficacy and acceptable safety and tolerability, which shall be deemed commenced
upon the dosing of the first subject in such study.

     1.37 "PHASE III CLINICAL STUDY" means a clinical study of a Product in
human subjects the results of which could be used to establish safety and
efficacy of the Product as a basis for Marketing Authorization of the Product
which shall be deemed commenced upon the dosing of the first subject in such
study.

     1.38 "PRODUCT" means any product or pharmaceutical formulation containing a
Compound as one of its active ingredients (or as the sole active ingredient), in
all dosage forms, formulations, presentations, line extensions, and package
configurations.

     1.39 "REGULATORY AUTHORITY" means any regulatory agency or other
governmental instrumentality that has regulatory authority, anywhere or at any
governmental level, in the Territory over the Development or Commercialization
of the Products.

     1.40 "ROYALTY PAYING PARTY" has the meaning set forth in Section 8.5.

     1.41 "ROYALTY RECEIVING PARTY" has the meaning set forth in Section 8.5.

     1.42 "BMS OPTION" has the meaning set forth in Section 3.2.1.

     1.43 "BMS OPTION PERIOD" has the meaning set forth in Section 3.2.1.

     1.44 "SOLE INVENTIONS" has the meaning set forth in Section 10.1.

     1.45 "SUPPLY AGREEMENT" has the meaning set forth in Section 7.3.

     1.46 "TERRITORY" means any country in the world.

     1.47 "THIRD PARTY" means any business entity other than Vanda, BMS and
their respective Affiliates.

     1.48 "VALID CLAIM" means a claim of an issued and unexpired patent, or a
claim of a pending patent application or a supplementary protection certificate,
which claim has not been held invalid or unenforceable by a court or other
government agency of competent jurisdiction from which no appeal can be or has
been taken and has not been held or admitted to be invalid or unenforceable
through re-examination or disclaimer, opposition procedure, nullity suit or
otherwise, which claim, but for the licenses granted herein, would be infringed
by the sale of a Product; provided, however, that if a claim of a pending patent
application shall not have issued within five (5) years after the filing date
from which such claim takes priority, such claim shall not constitute a Valid
Claim for the purposes of this Agreement unless and until such claim shall
issue.

     1.49 "VANDA THIRD PARTY DEVELOPMENT OPTION" has the meaning set forth in
Section 3.1.1.


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     1.50 "VANDA THIRD PARTY DEVELOPMENT OPTION PERIOD" has the meaning set
forth in Section 3.1.1.

                                    ARTICLE 2
                                 LICENSE GRANT

     2.1 EXCLUSIVE LICENSE GRANT. Subject to all of the terms and conditions in
this Agreement, BMS hereby grants to Vanda a non-transferable, exclusive
license, with the limited right to sublicense pursuant to Section 2.3, under the
BMS Compound Patent Rights solely to the extent necessary to Develop, make, have
made, use, import, offer to sell, and Commercialize the Products in the Field in
the Territory.

     2.2 NON EXCLUSIVE LICENSE GRANT. Subject to all of the terms and conditions
in this Agreement, BMS hereby grants to Vanda a non-transferable, nonexclusive
license, with the limited right to sublicense pursuant to Section 2.3, (a) under
the BMS Know How solely to the extent necessary to Develop, make, have made,
use, import, offer to sell, and Commercialize the Products in the Field in the
Territory, and (b) in the event Vanda enters into a Supply Agreement with a
Third Party in accordance with Article 7, under the BMS Manufacturing Patents
solely to the extent necessary to have made the Products or Compounds in the
Field in the Territory for sale to Vanda.

     2.3 SUBLICENSE. The rights licensed to Vanda under Sections 2.1, 2.2(a) and
2.2(b) shall be sublicensable only as part of a license of rights to a Product
in the Field and only for use with such Product, and only where (i) the
sublicensee has agreed first in writing to be bound by the terms and conditions
of this Agreement in the same manner as Vanda, (ii) BMS is made an express third
party beneficiary of the sublicensee's obligations under such sublicense that
relate to compliance with the terms and conditions of this Agreement, and (iii)
a copy of the proposed sublicense shall have been provided to BMS for review
(financial terms not relating to this Agreement may be redacted). A copy of the
sublicense shall be provided to BMS promptly after execution. Vanda shall remain
jointly and severally liable with any such sublicensee for any failure by such
sublicensee to perform or observe the terms and conditions of this Agreement.
Each sublicense granted by Vanda to any right licensed to it hereunder shall
terminate immediately upon the termination of the license from BMS to Vanda with
respect to such right.

     2.4 NO TRADEMARK LICENSE. No right or license, express or implied, is
granted to Vanda to use any trademarks, tradenames or trade dress owned or
Controlled by BMS and its Affiliates.

     2.5 NO IMPLIED LICENSES. Only licenses and rights granted expressly herein
shall be of legal force and effect. No license or other right shall be created
hereunder by implication, estoppel or otherwise. Vanda represents, covenants and
warrants that it will use the rights licensed to it hereunder solely in
accordance with the terms and conditions contained in this Agreement.


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     2.6 MARKETING ARRANGEMENTS. In connection with arrangements with Third
Parties whereby such Third Parties would distribute or otherwise Commercialize
Products, Vanda agrees to comply and to cause such Third Parties to comply with
all terms and conditions of this Agreement.

     2.7 RETAINED RIGHTS. All rights not expressly granted hereunder are
reserved by BMS and may be used by BMS for any purpose.

                                     ARTICLE 3
                                  OPTION GRANTS

     3.1 VANDA'S OPTION: THIRD PARTY DEVELOPMENT PARTNERS.

          3.1.1 Vanda Development Option Period. Vanda will have the right,
anytime prior to filing an NDA for a Product ("Vanda Third Party Development
Option Period"), to negotiate an agreement to sublicense Vanda's rights' to
Develop and Commercialize a Product (a "Development and Commercialization
Agreement") with a Third Party in at least one Major Market Country ("Vanda
Third Party Development Option"); provided, however, that with respect to each
Product, upon Vanda locking the database for Vanda's first Phase III Clinical
Study for the Product, Vanda shall have a limited time in which to exercise the
Vanda Third Party Development Option for the Product before the right to
exercise such option is suspended. Vanda shall have 120 days from the date Vanda
locks the database for Vanda's first phase III Clinical Study for the Product to
exercise such option. If Vanda exercises such option during such 120 day period,
BMS shall have a right of first negotiation to enter into a Development and
Commercialization Agreement for the Product with Vanda. BMS shall have a thirty
(30) day review period, from the receipt of Vanda's written notice to seek a
Third Party partner, to elect to enter into negotiations with Vanda. During the
thirty (30) day review period, Vanda shall timely provide BMS with copies of any
reports, data, results or information, material to the Development of the
Product that are or may become available, including but not limited to those
relating to the first phase III Clinical Study for the Product. Thereafter, BMS
will have a ninety (90) day period of exclusivity in which to negotiate and
execute a Development and Commercialization Agreement, and Vanda shall negotiate
in good faith during such ninety (90) day period. During such thirty (30) day
review period and such ninety (90) day period of exclusivity, Vanda shall not
approach any Third Party concerning a Development and Commercialization
Agreement or disclose any of the Phase III Clinical Study data, results or
conclusions to any Third Party that may potentially enter into a Development and
Commercialization Agreement for the Product. If, during the thirty (30) day
review period BMS does not formally notify Vanda in writing of its intention to
enter into a Development and Commercialization Agreement or informs Vanda that
it is not interested in entering into such an agreement or if BMS does notify
Vanda of its intention to enter into such an agreement but does not enter into a
such an agreement for the Product during such ninety (90) day period of
exclusivity, then Vanda shall have 120 days from the end of the thirty (30) day
review period if BMS does not provide Vanda with notice of its intention to


                                       -9-

<PAGE>

negotiate during such thirty (30) day period, or 120 days from the date BMS
notifies Vanda that it is not interested in entering into a Development and
Commercialization Agreement for the Product or 120 days from the end of the
ninety (90) day period of exclusivity if BMS does notify Vanda of its intention
to enter into such an agreement but the parties do not enter into a such an
agreement during such ninety (90) day period, as the case may be, to negotiate
and enter into a Development and Commercialization Agreement with a Third Party
for the Product. If Vanda does not enter into such an agreement with a Third
Party during such 120 day period, then the Vanda Third Party Development Option
shall be suspended from the end of such 120 day period (the Option Suspension
Date) until the end of the BMS Option Period for the Product. The Vanda Third
Party Development Option is exercisable by written notice from Vanda to BMS of
Vanda's intention to seek a Third Party partner. Such option shall be
exercisable on a Product-by-Product and on a Major Market Country by Major
Market Country basis. For the avoidance of doubt, rights to Develop and
Commericalize a Product in non-Major Market Countries may be included in the
Development and Commercialization Agreement for a Major Market Country. With
respect to a Product, the Major Market Countries together with all other
countries that are not included in a Development and Commercialization Agreement
for the Product shall be referred to as the "Remaining Countries."

          3.1.2 Option Exercise. Except as provided in Section 3.1.1 for the
period following the locking of the database after the first Phase III Clinical
Study for a Product, in the event that Vanda exercises its Vanda Third Party
Development Option for a Product in a particular Major Market Country in the
Vanda Third Party Development Option Period, BMS shall have a right of first
negotiation to enter into a Development and Commercialization Agreement for that
Product in that Major Market Country. BMS shall have a thirty (30) day review
period, from the receipt of Vanda's written notice to seek a Third Party
partner, to elect to enter into negotiations with Vanda. During the thirty (30)
day review period, Vanda shall timely provide BMS with copies of any reports,
data, results or information, material to the Development of a Product that are
or may become available. Thereafter, BMS will have a sixty (60) day period of
exclusivity in which to negotiate and execute a Development and
Commercialization Agreement for the Product, and Vanda shall negotiate in good
faith during such sixty (60) day period. If during the thirty (30) day review
period BMS does not formally notify Vanda in writing of its intention to enter
into such an agreement or informs Vanda that it is not interested in entering
into such an agreement or if BMS does not enter into such an agreement during
the sixty (60) day period of exclusivity, then Vanda may enter into a
Development and Commercialization Agreement for the Product with a Third Party.
The Parties will use reasonable efforts to make decisions earlier than the final
day of each period allowed by this section 3.1.2 to the extent practicable. In
the event that Vanda enters into one or more Development and Commercialization
Agreements for a Product pursuant to the provisions of Section 3.1.1 and/or this
Section 3.1.2 prior to the Option Suspension Date, then BMS will surrender the
BMS Option with respect to the Product in those countries that are included in
such Development and Commercialization Agreements but retain the BMS Option with
respect to the Remaining Countries.


                                      -10-

<PAGE>

          3.1.3 Vanda Third Party Development Option Not Exercised. In the event
Vanda does not exercise its Vanda Third Party Development Option for a Product
or enter into any Development and Commercialization Agreements for the Product
prior to the Option Suspension Date for the Product, then BMS will have an
opportunity to exercise its BMS Option for the Product in all countries on the
terms and conditions described in Section 3.2.

     3.2 BMS OPTION EXERCISABLE UPON COMPLETION OF PHASE III CLINICAL STUDIES:
COMMERCIALIZATION.

          3.2.1 BMS Option Period. The BMS Option Period for a Product will
commence for the Remaining Countries (providing Vanda has not entered into one
or more Development and Commercialization Agreements for the Product which when
taken together include all of the Major Market Countries prior to the Option
Suspension Date for the Product) on the date that (1) Vanda provides BMS with a
full written report of the Phase III Clinical Studies, including the results and
conclusions thereof, on which Vanda intends to rely for filing for Marketing
Authorization for the Product in the first Major Market Country and (2) both
Parties agree in writing is the commencement date for the BMS Option Period. The
BMS Option Period shall terminate ninety (90) days later ("BMS Option Period").
At any time during the BMS Option Period, BMS may provide Vanda with written
notice that either: (a) it does not wish to Develop or Commercialize the Product
in the Remaining Countries; or (b) it wishes to reacquire all rights to the
Product in the Remaining Countries ((b) shall be referred to as the "BMS
Option"). Such option shall be exercisable on a Product-by-Product basis. For
the avoidance of doubt, if BMS does not exercise the BMS Option for the
Remaining Countries within the BMS Option Period, then upon completion of the
BMS Option Period, the Vanda Third Party Development Option shall be exercisable
for the Remaining Countries for the remainder of the Vanda Third Party
Development Option Period.

          3.2.2 BMS Option Diligence Materials. Vanda shall provide to BMS on or
prior to the commencement of the BMS Option Period, any additional data
(including without limitation, copies of all case report forms, if requested by
BMS) or information relating to the Development of the Product that is in
Vanda's possession which BMS reasonably believes to be necessary or useful for
its review of the opportunity. At 30-day intervals during the BMS Option Period,
Vanda will promptly provide any reports, data, results or information, material
to the Development of a Product that may become available.

          3.2.3 Option Exercised. In the event BMS exercises its BMS Option for
a Product, then, among other things,

               (a) LICENSE GRANT. The licenses granted to Vanda pursuant to
Section 2.1 and 2.2 will immediately terminate with respect to the Product in
the Remaining Countries without further action on the part of either Party, and
Vanda shall cease all use of the BMS Patent Rights, and BMS Know-How with
respect to the Product in the Remaining Countries;


                                      -11-

<PAGE>

               (b) TRANSFER OF DATA, INFORMATION AND REGULATORY FILINGS. Vanda
shall promptly assign to BMS all rights, title and interests in any INDs,
Marketing Authorizations, and Approvals that it shall have filed in the
Remaining Countries with respect to the Product and the Compound contained in
the Product and all data generated by it with respect to the Product and the
Compound contained in the Product in the Remaining Countries, and will promptly
transfer to BMS originals or copies of all pertinent documents relating to same
as requested by BMS. In the event that Vanda fails to effectuate the transfer of
the foregoing within thirty (30) days after the date that BMS exercises its BMS
Option, then, in addition to any other recourse or remedy that BMS may be
entitled to at law or in equity, BMS shall be entitled to specific performance
of the foregoing obligation and the Parties acknowledge and agree that BMS may
obtain an order for same from any court of competent jurisdiction without
posting of bond. BMS will reimburse Vanda for any out-of-pocket expenses
incurred in connection with such assignment. Within ninety (90) days following
any such assignment to BMS, the Parties will finalize and enter into a Data
Safety Exchange covering such matters as adverse event reporting, data safety
exchange and response to physician inquiries so that BMS may fulfill its
reporting responsibilities on a timely basis to Regulatory Authorities;

               (c) DEVELOPMENT BMS will thereafter be solely responsible for any
further Development activities needed to achieve Approvals in the Remaining
Countries for the Product, and will use Commercially Reasonable Efforts to
achieve same;

               (d) COMMERCIALIZATION. Provided the United States is included in
the Remaining Countries, as soon as reasonably necessary, and in no event later
than six months prior to the anticipated First Commercial Sale of the Product in
the United States, BMS will advise Vanda in writing whether it intends to seek a
co-promotion partner in the United States for the Product. In the event that BMS
seeks a co-promotion partner in the United States, and provided that Vanda is
able to meet the requirements established by BMS at that time for a co-promotion
partner, the Parties will have ninety days in which to negotiate a mutually
acceptable co-promotion agreement in accordance with Section 3.3; and

               (e) OTHER TERMS. The provisions of Section 13.4.1(e), (g), (h)
and (i) shall also apply as though set forth herein. It is understood and agreed
that BMS shall be entitled to specific performance as a remedy to enforce the
provisions of this Section 3.3.4(e), in addition to any other remedy to which it
may be entitled by applicable law.

          3.2.4 BMS Option Not Exercised. In the event that BMS does not
exercise its BMS Option for a Product with respect to the Remaining Countries,
Vanda will, subject to Section 3.3, Develop and Commercialize the Product in the
Remaining Countries pursuant to the terms and conditions set forth in this
Agreement.

     3.3 RIGHT OF FIRST NEGOTIATION TO ACT AS A CO-PROMOTION PARTNER IN
COMMERCIALIZATION OF A PRODUCT BY EITHER PARTY.


                                       -12-

<PAGE>

          3.3.1 Vanda's Right to Co-Promote. If BMS is Developing and/or
Commercializing a Product in the U.S. pursuant to this Agreement and decides to
co-promote the Product with a Third Party marketing partner in the U.S., BMS
shall promptly notify Vanda in writing of its intention to co-promote the
Product with such Third Party marketing partner in the U.S. Vanda will have
sixty (60) days from the date BMS notifies Vanda of its intention to co-promote
the Product with such Third Party marketing partner to provide written notice of
its intent to exercise its option to co-promote the Product with BMS in the U.S.
and demonstrate that it has, or is reasonably likely to have at the time
required, the capabilities to undertake such co-promotion effort, including
without limitation, sufficient numbers of Vanda employees with sufficient
experience as sales representatives and sales and marketing managers and
executives to allow it to fulfill the obligations established by BMS for the
co-promotion partner (including without limitation minimum number of details,
minimum primary detail equivalents, sales force size and training, advertising
and promotional spend requirements, etc.). Vanda may not delegate or subcontract
such co-promotion responsibilities to a Third Party, unless such Third Party (a)
has been an alliance partner of Vanda's for at least twenty-four (24) months
prior to the date Vanda receives notice under this Section 3.2.1 from BMS of
BMS' intention to co-promote the Product with a Third Party marketing partner,
and (b) has the capabilities to undertake such co-promotion effort, including
without limitation, sufficient numbers of employees with sufficient experience
as sales representatives and sales and marketing managers and executives to
allow it to fulfill the obligations established by BMS for the co-promotion
partner (including without limitation minimum number of details, minimum primary
detail equivalents, sales force size and training, advertising and promotional
spend requirements, etc.). If Vanda exercises its option and demonstrates to
BMS' satisfaction that it can meet, or is reasonably likely to be able to meet
at the necessary time, such capabilities and fulfill such obligations by itself
or with such an alliance partner, the Parties will, for a period not longer than
ninety (90) days after Vanda's exercise of the option, exclusively negotiate
with each other in good faith a Co-Promotion Agreement on commercially
reasonable terms and conditions reflective of those used in the contract sales
organization industry. If after such ninety (90) day period, the Parties have
not entered into a co-promotion agreement, BMS would be free to enter into an
arrangement with a Third Party marketing partner.

          3.3.2 BMS' Right to Co-Promote. If Vanda is Commercializing a Product
pursuant to this Agreement and decides to co-promote the Product with a Third
Party marketing partner, Vanda shall promptly notify BMS in writing of its
intention to co-promote the Products with such Third Party marketing partner.
BMS will have sixty (60) days from the date Vanda notifies BMS of its intention
to co-promote the Product with such Third Party marketing partner to provide
written notice of its intent to exercise its option to co-promote the Product
with Vanda. If BMS exercises its option, the Parties will, for a period not
longer than sixty (60) days after BMS' exercise of the option, negotiate
exclusively with each other in good faith a co-promotion agreement on
commercially reasonable terms and conditions reflective of those used in
pharmaceutical partnerships. If after such sixty (60) day period, the Parties
have not entered into a co-promotion agreement, Vanda would be free to enter
into an arrangement with a Third Party marketing partner.


                                      -13-

<PAGE>

     3.4 RESPONSIBILITIES REGULATORY AFFAIRS. Following the date that the IND,
Marketing Authorization or Approval in a given country for a Product has been
assigned to BMS, BMS shall have sole responsibility for preparing, all
regulatory filings and related submissions with respect to the Product and the
Compound contained in the Product in such country and making all final decisions
relating thereto. BMS shall be the primary interface with and otherwise handle
all interactions with Regulatory Authorities concerning the Product and the
Compound contained in the Product. Pursuant to Section 14.7, Vanda shall be
obliged to render whatever assistance BMS may reasonably request to allow BMS to
fulfill its obligations under this Section 3.4. To the extent not prohibited by
law or regulation, in the event that BMS is Developing and Commercializing a
Product in the United States, Vanda shall have the right to have one
representative participate in all material meetings pertaining to Development of
the Product between representatives of BMS and the FDA. BMS will provide Vanda,
at least five (5) business days before any such meeting, with copies of all
documents, correspondence and other materials in its possession which are
relevant to the matters to be addressed at any such meeting. BMS will provide
Vanda with draft and final copies (which may be wholly or partly in electronic
form) of all material correspondence with the Regulatory Authorities in each of
the Major Market Countries relating to the Product, including any draft
Marketing Authorizations and Approvals, for Vanda's review and comment within a
reasonable time prior to filing with the appropriate Regulatory Authority. BMS
shall give due consideration to Vanda's comments, however, BMS shall not be
bound thereby.

                                    ARTICLE 4
                            TRANSFER OF BMS KNOW-HOW;

     4.1 TRANSFER OF BMS COMPOUND KNOW-HOW.

          4.1.1 TRANSFER. During the three (3) month period following the
Effective Date, BMS shall provide Vanda with the assistance of certain BMS
employees having knowledge relevant to the Compounds to provide Vanda with a
reasonable level of technical assistance and consultation in connection with the
transfer of BMS Know-How (provided that BMS shall only be required to make a
good faith effort to provide the BMS Know How but shall not be in default
hereunder for inadvertent failure to disclose all or non-material information).
Vanda shall be responsible for ensuring that its personnel who receive such
assistance are appropriately qualified and experienced for such purpose.

          4.1.2 COPIES OF DOCUMENTS. BMS shall provide Vanda with one copy of
all documents, data or other information Controlled by BMS to the extent that
such documents, data and information are the subject of the BMS Know-How
licenses and are, in BMS' good faith judgment, reasonably necessary for the
Development, manufacture or Commercialization of the Compounds and are
reasonably available to BMS without undue searching; provided however, the
foregoing shall in no event require BMS to provide copies of laboratory
notebooks or manufacturing run records required to be maintained by FDA. The BMS
Know-How provided by BMS shall not be used by Vanda for any purpose other than
Development, manufacture or Commercialization of


                                      -14-

<PAGE>

the Compounds and Products and is Confidential Information of BMS. Vanda shall
assume full responsibility and liability to BMS for any unauthorized use or
disclosure of Confidential Information of BMS. BMS shall be responsible for the
cost of providing one set of copies only, and in addition to paper and other
tangible copies, BMS shall, upon Vanda's request and where already available to
BMS, also provide to Vanda electronic copies of such documents, data and other
information, provided, that BMS shall have no obligation to reformat or
otherwise alter or modify any such materials in order to provide them to Vanda.

          4.1.3 ON-SITE CONSULTING. BMS shall not be obligated to provide more
than forty (40) hours of consulting advice or on-site consulting advice
(including travel time) over the term of this Agreement, as may be requested by
Vanda, with respect to the transfer of any BMS Know-How. BMS will be reimbursed
by Vanda for its fully-burdened costs (including out-of-pocket costs) incurred
to provide such advice or services. In the event that Vanda requires
consultation with BMS over and above the forty (40) hours provided here, Vanda
will submit its request for consultation to BMS, in writing, stating in
sufficient detail the subject matter, and the number of hours required. BMS will
consider each such request in good faith, and will inform Vanda in a timely
manner if BMS will be able to provide the consulting time requested, with the
understanding that BMS shall not obligated to provide more than forty (40) hours
of consulting advice or on-site consulting advice (including travel time) over
the term of this Agreement.

          4.1.4 IND. As soon as reasonable practicable after the Effective Date,
BMS will promptly effectuate the assignment of IND 54,776 (the active IND for
the Compound currently identified as BMS-214778) to Vanda. Vanda will reimburse
BMS for any personnel and other expenses incurred in connection with such
assignment.

     4.2 NON-SOLICITATION. During the term of this Agreement, and for [*] years
thereafter, each Party and its Affiliates shall not solicit, directly or
indirectly, any employee of the other Party or of an Affiliate of the other
Party, wherever located, who is or was involved in the performance of this
Agreement; provided, that the foregoing restriction on solicitation shall not
apply to advertisements run in trade journals or other publications or on the
Internet that are targeted to qualified individuals generally for the position
in question.

                                    ARTICLE 5

                                   DEVELOPMENT

     5.1 PROGRAM LIAISON. As soon as practicable after the Effective Date, each
Party will provide the other, in writing, with the name of its "Program
Liaison." The Program Liaison will act as the primary liaison in coordinating
the activities under this Agreement. The Program Liaisons will review and agree
on the suitability of the Development Plan set forth in Schedule 1.19. Before
Vanda begins Development of a Product under a Development Plan other than the
Development Plan in Schedule 1.19, the Program Liaisons will prepar