VANDA PHARMACEUTICALS INC. EMPLOYMENT AGREEMENT

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EXHIBIT 10.16

VANDA PHARMACEUTICALS INC.

EMPLOYMENT AGREEMENT

This Employment Agreement (this "Agreement") is entered into as of

May 27, 2005, by and between Thomas L. Copmann (the "Employee") and Vanda

Pharmaceuticals Inc., a Delaware corporation (the "Company").

1. DUTIES AND SCOPE OF EMPLOYMENT.

(a) POSITION. For the term of his employment under this

Agreement ("Employment"), the Company agrees to employ the Employee in the

position of Vice President Regulatory Affairs. The Employee shall be subject to

the supervision of, and shall have such authority as is delegated to him by, the

Company's Chief Executive Officer. The Employee hereby accepts such employment

and agrees to undertake the duties and responsibilities normally inherent in

such position and such other duties and responsibilities as the Board shall from

time to time reasonably assign to him.

(b) OBLIGATIONS TO THE COMPANY. During the term of his

Employment, the Employee shall devote his full business efforts and time to the

Company. During the term of his Employment, without the prior written approval

of the Company's board of directors (the "Board"), the Employee shall not render

services in any capacity to any other person or entity and shall not act as a

sole proprietor or partner of any other person or entity or as a shareholder

owning more than five percent of the stock of any other corporation. The

Employee shall comply with the Company's policies and rules, as they may be in

effect from time to time during the term of his Employment.

(c) NO CONFLICTING OBLIGATIONS. The Employee represents and

warrants to the Company that he is under no obligations or commitments, whether

contractual or otherwise, that are inconsistent with his obligations under this

Agreement. The Employee represents and warrants that he will not use or

disclose, in connection with his employment by the Company, any trade secrets or

other proprietary information or intellectual property in which the Employee or

any other person has any right, title or interest and that his employment by the

Company as contemplated by this Agreement will not infringe or violate the

rights of any other person or entity. The Employee represents and warrants to

the Company that he has returned all property and confidential information

belonging to any prior employers.

2. CASH AND INCENTIVE COMPENSATION.

(a) SALARY. The Company shall pay the Employee as compensation

for his services a base salary at a gross annual rate of not less than $200,000.

Such salary shall be payable in accordance with the Company's standard payroll

procedures. (The annual compensation specified in this Subsection (a), together

with any increases in such compensation that the Company may grant from time to

time, is referred to in this Agreement as "Base Compensation.")

(b) INCENTIVE BONUSES. The Employee shall be eligible to be

considered for an annual incentive bonus with a target amount equal to 28% of

his Base

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Compensation (the "Annual Target Bonus"). Such bonus (if any) shall be awarded

based on objective or subjective criteria established in advance by the Board.

The determinations of the Board with respect to such bonus shall be final and

binding.

(c) STOCK OPTIONS. Subject to the approval of the Board, the

Company shall grant the Employee an incentive stock option covering 75,000

shares of the Company's Common Stock. Such option shall be granted as soon as

reasonably practicable after the date of this Agreement. The per-share exercise

price of such option shall be equal to the fair market value of one share of the

Company's Common Stock on the date of grant. The term of such option shall be 10

years, subject to earlier expiration in the event of the termination of the

Employee's Employment. The Employee shall vest in 25% of the option shares after

the first 12 months of continuous service and shall vest in the remaining option

shares in equal monthly installments over the next three years of continuous

service. The vested and exercisable portion of the option shall be determined by

adding 12 months to the Employee's actual period of service if, after a Change

in Control, (i) the Employee's Employment is terminated by the Company for

reasons other than Cause or (ii) the Employee's Employment is terminated by the

Employee for Good Reason. The grant of such option shall be subject to the other

terms and conditions set forth in the Company's stock plan governing the option,

and the Company's standard form of stock option agreement.

For purposes of the foregoing:

"Change in Control" shall mean (i) the consummation of a

merger or consolidation of the Company with or into another entity, if persons

who were not stockholders of the Company immediately prior to such merger or

consolidation own immediately after such merger or consolidation 50% or more of

the voting power of the outstanding securities of each of (A) the continuing or

surviving entity and (B) any direct or indirect parent corporation of such

continuing or surviving entity; or (ii) the sale, transfer or other disposition

of all or substantially all of the Company's assets. A transaction shall not

constitute a Change in Control if its sole purpose is to change the state of the

Company's incorporation or to create a holding company that will be owned in

substantially the same proportions by the persons who held the Company's

securities immediately before such transaction.

"Cause" shall mean (i) an unauthorized use or disclosure of

the Company's confidential information or trade secrets, which use or disclosure

causes material harm to the Company; (ii) a material breach of any agreement

between Employee and the Company; (iii) a material failure to comply with the

Company's written policies or rules; (iv) conviction of, or plea of "guilty" or

"no contest" to, a felony under the laws of the United States or any state

thereof; (v) gross negligence or willful misconduct which causes material harm

to the Company; or (vi) a continued failure to perform assigned duties after

receiving written notification of such failure from the Board.

"Good Reason" shall mean any of the following events, if such

event occurs without the Employee's consent: (i) the Employee's receipt of

notice that his principal workplace will be relocated more than 30 miles; or

(ii) a reduction in the Employee's base salary by more than 10%, unless pursuant

to a Company-wide reduction affecting all employees proportionately.

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3. VACATION AND EMPLOYEE BENEFITS. During the term of his

Employment, the Employee shall be eligible for 25 paid vacation days each year

in accordance with the Company's standard policy for similarly situated

employees, as it may be amended from time to time. During the term of his

Employment, the Employee shall be eligible to participate in any employee

benefit plans maintained by the Company for similarly situated employees,

subject in each case to the generally applicable terms and cond