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                                                                    EXHIBIT 10.1






















                           VANDA PHARMACEUTICALS INC.

                           SECOND AMENDED AND RESTATED
                             MANAGEMENT EQUITY PLAN

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                                TABLE OF CONTENTS

                                                                            PAGE
SECTION 1.   Establishment And Purpose..................................      1

SECTION 2.   Administration.............................................      1
     (a)     Committees of the Board of Directors.......................      1
     (b)     Authority of the Board of Directors........................      1

SECTION 3.   Eligibility................................................      1
     (a)     General Rule...............................................      1
     (b)     Ten-Percent Stockholders...................................      1

SECTION 4.   Stock Subject To Plan......................................      2
     (a)     Basic Limitation...........................................      2
     (b)     Additional Shares..........................................      2

SECTION 5.   Terms And Conditions Of Awards Or Sales....................      2
     (a)     Stock Purchase Agreement...................................      2
     (b)     Duration of Offers and Nontransferability of Rights........      2
     (c)     Purchase Price.............................................      2
     (d)     Withholding Taxes..........................................      2
     (e)     Restrictions on Transfer of Shares.........................      2

SECTION 6.   Terms And Conditions Of Options............................      3
     (a)     Stock Option Agreement.....................................      3
     (b)     Number of Shares...........................................      3
     (c)     Exercise Price.............................................      3
     (d)     Exercisability.............................................      3
     (e)     Term.......................................................      3
     (f)     Restrictions on Transfer of Shares.........................      3
     (g)     Transferability of Options.................................      3
     (h)     Withholding Taxes..........................................      4
     (i)     No Rights as a Stockholder.................................      4
     (j)     Modification, Extension and Assumption of Options..........      4

SECTION 7.   Payment For Shares.........................................      4
     (a)     General Rule...............................................      4
     (b)     Surrender of Stock.........................................      4
     (c)     Services Rendered..........................................      4
     (d)     Promissory Note............................................      4
     (e)     Exercise/Sale..............................................      5
     (f)     Exercise/Pledge............................................      5
     (g)     Other Forms of Payment.....................................      5

SECTION 8.   Adjustment Of Shares.......................................      5
     (a)     General....................................................      5


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     (b)     Mergers and Consolidations.................................      5

SECTION 9.   Securities Law Requirements................................      6

SECTION 10.  No Retention Rights........................................      7

SECTION 11.  Duration and Amendments....................................      7
     (a)     Term of the Plan...........................................      7
     (b)     Right to Amend or Terminate the Plan.......................      7
     (c)     Effect of Amendment or Termination.........................      7

SECTION 12.  Definitions................................................      7


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                           VANDA PHARMACEUTICALS INC.
               SECOND AMENDED AND RESTATED MANAGEMENT EQUITY PLAN

SECTION 1. ESTABLISHMENT AND PURPOSE.

            The purpose of the Plan is to offer selected persons an opportunity
to acquire a proprietary interest in the success of the Company, or to increase
such interest, by purchasing Shares of the Company's Stock. The Plan provides
both for the direct award or sale of Shares and for the grant of Options to
purchase Shares. Options granted under the Plan may include Nonstatutory Options
as well as ISOs intended to qualify under Section 422 of the Code.

            Capitalized terms are defined in Section 12.

SECTION 2. ADMINISTRATION.

            (a) COMMITTEES OF THE BOARD OF DIRECTORS. The Plan may be
administered by one or more Committees. Each Committee shall consist of one or
more members of the Board of Directors who have been appointed by the Board of
Directors. Each Committee shall have such authority and be responsible for such
functions as the Board of Directors has assigned to it. If no Committee has been
appointed, the entire Board of Directors shall administer the Plan. Any
reference to the Board of Directors in the Plan shall be construed as a
reference to the Committee (if any) to whom the Board of Directors has assigned
a particular function.

            (b) AUTHORITY OF THE BOARD OF DIRECTORS. Subject to the provisions
of the Plan, the Board of Directors shall have full authority and discretion to
take any actions it deems necessary or advisable for the administration of the
Plan. All decisions, interpretations and other actions of the Board of Directors
shall be final and binding on all Purchasers, all Optionees and all persons
deriving their rights from a Purchaser or Optionee.

SECTION 3. ELIGIBILITY.

            (a) GENERAL RULE. Only Employees, Outside Directors and Consultants
shall be eligible for the grant of Nonstatutory Options or the direct award or
sale of Shares. Only Employees shall be eligible for the grant of ISOs.

            (b) TEN-PERCENT STOCKHOLDERS. A person who owns more than 10% of the
total combined voting power of all classes of outstanding stock of the Company,
its Parent or any of its Subsidiaries shall not be eligible for the grant of an
ISO unless (i) the Exercise Price is at least 110% of the Fair Market Value of a
Share on the date of grant and (ii) such ISO by its terms is not exercisable
after the expiration of five years from the date of grant. For purposes of this
Subsection (b), in determining stock ownership, the attribution rules of Section
424(d) of the Code shall be applied.

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SECTION 4. STOCK SUBJECT TO PLAN.

            (a) BASIC LIMITATION. Not more than 5,489,714 Shares may be issued
under the Plan (subject to Subsection (b) below and Section 8). All of these
Shares may be issued upon the exercise of ISOs. The number of Shares that are
subject to Options or other rights outstanding at any time under the Plan shall
not exceed the number of Shares that then remain available for issuance under
the Plan. The Company, during the term of the Plan, shall at all times reserve
and keep available sufficient Shares to satisfy the requirements of the Plan.
Shares offered under the Plan may be authorized but unissued Shares or treasury
Shares.

            (b) ADDITIONAL SHARES. In the event that Shares previously issued
under the Plan are reacquired by the Company, such Shares shall be added to the
number of Shares then available for issuance under the Plan. In the event that
an outstanding Option or other right for any reason expires or is canceled, the
Shares allocable to the unexercised portion of such Option or other right shall
be added to the number of Shares then available for issuance under the Plan.

SECTION 5. TERMS AND CONDITIONS OF AWARDS OR SALES.

            (a) STOCK PURCHASE AGREEMENT. Each award or sale of Shares under the
Plan (other than upon exercise of an Option) shall be evidenced by a Stock
Purchase Agreement between the Purchaser and the Company. Such award or sale
shall be subject to all applicable terms and conditions of the Plan and may be
subject to any other terms and conditions which are not inconsistent with the
Plan and which the Board of Directors deems appropriate for inclusion in a Stock
Purchase Agreement. The provisions of the various Stock Purchase Agreements
entered into under the Plan need not be identical.

            (b) DURATION OF OFFERS AND NONTRANSFERABILITY OF RIGHTS. Any right
to acquire Shares under the Plan (other than an Option) shall automatically
expire if not exercised by the Purchaser within 30 days after the grant of such
right was communicated to the Purchaser by the Company. Such right shall not be
transferable and shall be exercisable only by the Purchaser to whom such right
was granted.

            (c) PURCHASE PRICE. The Purchase Price of Shares to be offered under
the Plan, if newly issued, shall not be less than the par value of such Shares.
Subject to the preceding sentence, the Board of Directors shall determine the
Purchase Price at its sole discretion. The Purchase Price shall be payable in a
form described in Section 7.

            (d) WITHHOLDING TAXES. As a condition to the purchase of Shares, the
Purchaser shall make such arrangements as the Board of Directors may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such purchase.

            (e) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares awarded or sold
under the Plan shall be subject to such special forfeiture conditions, rights of
repurchase, rights of first refusal and other transfer restrictions as the Board
of Directors may determine. Such restrictions shall be set forth in the
applicable Stock Purchase Agreement and shall apply in addition to any
restrictions that may apply to holders of Shares generally. A Stock Purchase
Agreement may

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provide for accelerated vesting in the event of the Purchaser's death,
disability or retirement or other events.

SECTION 6. TERMS AND CONDITIONS OF OPTIONS.

            (a) STOCK OPTION AGREEMENT. Each grant of an Option under the Plan
shall be evidenced by a Stock Option Agreement between the Optionee and the
Company. Such Option shall be subject to all applicable terms and conditions of
the Plan and may be subject to any other terms and conditions which are not
inconsistent with the Plan and which the Board of Directors deems appropriate
for inclusion in a Stock Option Agreement. The provisions of the various Stock
Option Agreements entered into under the Plan need not be identical.

            (b) NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Shares that are subject to the Option and shall provide for the
adjustment of such number in accordance with Section 8. The Stock Option
Agreement shall also specify whether the Option is an ISO or a Nonstatutory
Option.

            (c) EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price. The Exercise Price of an ISO shall not be less than 100% of the
Fair Market Value of a Share on the date of grant, and a higher percentage may
be required by Section 3(b). The Exercise Price of a Nonstatutory Option to
purchase newly issued Shares shall not be less than 30% of the Fair Market Value
of a Share on the date of grant. Subject to the preceding two sentences, the
Exercise Price under an Option shall be determined by the Board of Directors at
its sole discretion. The Exercise Price shall be payable in a form described in
Section 7.

            (d) EXERCISABILITY. Each Stock Option Agreement shall specify the
date when all or any installment of the Option is to become exercisable. No
Option shall be exercisable unless the Optionee has delivered an executed copy
of the Stock Option Agreement to the Company. The Board of Directors shall
determine the exercisability provisions of any Stock Option Agreement at its
sole discretion. All of an Optionee's Options shall become exercisable in full
if Section 8(b)(iv) applies.

            (e) TERM. The Stock Option Agreement shall specify the term of the
Option. The term shall not exceed 10 years from the date of grant, and in the
case of an ISO a shorter term may be required by Section 3(b). Subject to the
preceding sentence, the Board of Directors at its sole discretion shall
determine when an Option is to expire. A Stock Option Agreement may provide for
expiration prior to the end of its term in the event of the termination of the
Optionee's Service or death.

            (f) RESTRICTIONS ON TRANSFER OF SHARES. Any Shares issued upon
exercise of an Option shall be subject to such special forfeiture conditions,
rights of repurchase, rights of first refusal and other transfer restrictions as
the Board of Directors may determine. Such restrictions shall be set forth in
the applicable Stock Option Agreement and shall apply in addition to any
restrictions that may apply to holders of Shares generally.

            (g) TRANSFERABILITY OF OPTIONS. An Option shall be transferable by
the Optionee only by (i) a beneficiary designation, (ii) a will or (iii) the
laws of descent and

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distribution, except as provided in the next sentence. If the applicable Stock
Option Agreement so provides, a Nonstatutory Option shall also be transferable
by gift or domestic relations order to a Family Member of the Optionee. An ISO
may be exercised during the lifetime of the Optionee only by the Optionee or by
the Optionee's guardian or legal representative.

            (h) WITHHOLDING TAXES. As a condition to the exercise of an Option,
the Optionee shall make such arrangements as the Board of Directors may require
for the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with such exercise. The Optionee shall
also make such arrangements as the Board of Directors may require for the
satisfaction of any federal, state, local or foreign withholding tax obligations
that may arise in connection with the disposition of Shares acquired by
exercising an Option.

            (i) NO RIGHTS AS A STOCKHOLDER. An Optionee, or a transferee of an
Optionee, shall have no rights as a stockholder with respect to any Shares
covered by the Optionee's Option until such person becomes entitled to receive
such Shares by filing a notice of exercise and paying the Exercise Price
pursuant to the terms of such Option.

            (j) MODIFICATION, EXTENSION AND ASSUMPTION OF OPTIONS. Within the
limitations of the Plan, the Board of Directors may modify, extend or assume
outstanding Options or may accept the cancellation of outstanding Options
(whether granted by the Company or another issuer) in return for the grant of
new Options for the same or a different number of Shares and at the same or a
different Exercise Price. The foregoing notwithstanding, no modification of an
Option shall, without the consent of the Optionee, impair the Optionee's rights
or increase the Optionee's obligations under such Option.

SECTION 7. PAYMENT FOR SHARES.

            (a) GENERAL RULE. The entire Purchase Price or Exercise Price of
Shares issued under the Plan shall be payable in cash or cash equivalents at the
time when such Shares are purchased, except as otherwise provided in this
Section 7.

            (b) SURRENDER OF STOCK. At the discretion of the Board of Directors,
all or any part of the Exercise Price may be paid by surrendering, or attesting
to the ownership of, Shares that are already owned by the Optionee. Such Shares
shall be surrendered to the Company in good form for transfer and shall be
valued at their Fair Market Value on the date when the Option is exercised. The
Optionee shall not surrender, or attest to the ownership of, Shares in payment
of the Exercise Price if such action would cause the Company to recognize
compensation expense (or additional compensation expense) with respect to the
Option for financial reporting purposes.

            (c) SERVICES RENDERED. At the discretion of the Board of Directors,
Shares may be awarded under the Plan in consideration of services rendered to
the Company, a Parent or a Subsidiary prior to the award.

            (d) PROMISSORY NOTE. At the discretion of the Board of Directors,
all or a portion of the Exercise Price or Purchase Price (as the case may be) of
Shares issued under the Plan may be paid with a full-recourse promissory note.
The Shares shall be pledged as security

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for payment of the principal amount of the promissory note and interest thereon.
The interest rate payable under the terms of the promissory note shall not be
less than the minimum rate (if any) required to avoid (i) the imputation of
additional interest under the Code and (ii) the recognition of compensation
expense (or additional compensation expense) with respect to the Option for
financial reporting purposes. Subject to the foregoing, the Board of Directors
(at its sole discretion) shall specify the term, interest rate, amortization
requirements (if any) and other provisions of such note.

            (e) EXERCISE/SALE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to a securities broker approved by the Company to sell Shares and to deliver all
or part of the sales proceeds to the Company in payment of all or part of the
Exercise Price and any withholding taxes.

            (f) EXERCISE/PLEDGE. To the extent that a Stock Option Agreement so
provides, and if Stock is publicly traded, payment may be made all or in part by
the delivery (on a form prescribed by the Company) of an irrevocable direction
to pledge Shares to a securities broker or lender approved by the Company, as
security for a loan, and to deliver all or part of the loan proceeds to the
Company in payment of all or part of the Exercise Price and any withholding
taxes.

            (g) OTHER FORMS OF PAYMENT. At the discretion of the Board of
Directors, the Purchase Price or Exercise Price of Shares issued under the Plan
may be paid in any other form permitted by the Delaware General Corporation Law,
as amended.

SECTION 8. ADJUSTMENT OF SHARES.

            (a) GENERAL. In the event of a subdivision of the outstanding Stock,
a declaration of a dividend payable in Shares or a combination or consolidation
of the outstanding Stock into a lesser number of Shares, corresponding
adjustments shall automatically be made in each of (i) the number of Shares
available for future grants under Section 4, (ii) the number of Shares covered
by each outstanding Option and (iii) the Exercise Price under each outstanding
Option. In the event of a declaration of an extraordinary dividend payable in a
form other than Shares in an amount that has a material effect on the Fair
Market Value of the Stock, a recapitalization, a spin-off, a reclassification or
a similar occurrence, the Board of Directors at its sole discretion may make
appropriate adjustments in one or more of (i) the number of Shares available for
future grants under Section 4, (ii) the number of Shares covered by each
outstanding Option or (iii) the Exercise Price under each outstanding Option.

            (b) MERGERS AND CONSOLIDATIONS. In the event that the Company is a
party to a merger or consolidation, all outstanding Options shall be subject to
the agreement of merger or consolidation. Such agreement shall provide for one
or more of the following:

                  (i) The continuation of such outstanding Options by the
      Company (if the Company is the surviving corporation).

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                  (ii) The assumption of such outstanding Options by the
      surviving corporation or its parent in a manner that complies with Section
      424(a) of the Code (whether or not such Options are ISOs).

                  (iii) The substitution by the surviving corporation or its
      parent of new options for such outstanding Options in a manner that
      complies with Section 424(a) of the Code (whether or not such Options are
      ISOs).

                  (iv) Full exercisability of such outstanding Options and full
      vesting of the Shares subject to such Options, followed by the
      cancellation of such Options. The full exercisability of such Options and
      full vesting of the Shares subject to such Options may be contingent on
      the closing of such merger or consolidation. The Optionees shall be able
      to exercise such Options during a period of not less than five full
      business days preceding the closing date of such merger or consolidation,
      unless (A) a shorter period is required to permit a timely closing of such
      merger or consolidation and (B) such shorter period still offers the
      Optionees a reasonable opportunity to exercise such Options. Any exercise
      of such Options during such period may be contingent on the closing of
      such merger or consolidation.

                  (v) The cancellation of such outstanding Options and a payment
      to the Optionees equal to the excess of (A) the Fair Market Value of the
      Shares subject to such Options (whether or not such Options are then
      exercisable or such Shares are then vested) as of the closing date of such
      merger or consolidation over (B) their Exercise Price. Such payment shall
      be made in the form of cash, cash equivalents, or securities of the
      surviving corporation or its parent with a Fair Market Value equal to the
      required amount. Such payment may be made in installments and may be
      deferred until the date or dates when such Options would have become
      exercisable or such Shares would have vested. Such payment may be subject
      to vesting based on the Optionee's continuing Service, provided that the
      vesting schedule shall not be less favorable to the Optionees than the
      schedule under which such Options would have become exercisable or such
      Shares would have vested. If the Exercise Price of the Shares subject to
      such Options exceeds the Fair Market Value of such Shares, then such
      Options may be cancelled without making a payment to the Optionees. For
      purposes of this Paragraph (v), the Fair Market Value of any security
      shall be determined without regard to any vesting conditions that may
      apply to such security.

SECTION 9. SECURITIES LAW REQUIREMENTS.

            Shares shall not be issued under the Plan unless the issuance and
delivery of such Shares comply with (or are exempt from) all applicable
requirements of law, including (without limitation) the Securities Act of 1933,
as amended, the rules and regulations promulgated thereunder, state securities
laws and regulations, and the regulations of any stock exchange or other
securities market on which the Company's securities may then be traded.

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SECTION 10. NO RETENTION RIGHTS.

            Nothing in the Plan or in any right or Option granted under the Plan
shall confer upon the Purchaser or Optionee any right to continue in Service for
any period of specific duration or interfere with or otherwise restrict in any
way the rights of the Company (or any Parent or Subsidiary employing or
retaining the Purchaser or Optionee) or of the Purchaser or Optionee, which
rights are hereby expressly reserved by each, to terminate his or her Service at
any time and for any reason, with or without cause.

SECTION 11. DURATION AND AMENDMENTS.

            (a) TERM OF THE PLAN. The Plan, as set forth herein, shall become
effective on the date of its adoption by the Board of Directors, subject to the
approval of the Company's stockholders. If the stockholders fail to approve the
Plan within 12 months after its adoption by the Board of Directors, then any
grants, exercises or sales that have already occurred under the Plan shall be
rescinded and no additional grants, exercises or sales shall thereafter be made
under the Plan. The Plan shall terminate automatically 10 years after the later
of (i) its adoption by the Board of Directors or (ii) the most recent increase
in the number of Shares reserved under Section 4 that was approved by the
Company's stockholders. The Plan may be terminated on any earlier date pursuant
to Subsection (b) below.

            (b) RIGHT TO AMEND OR TERMINATE THE PLAN. The Board of Directors may
amend, suspend or terminate the Plan at any time and for any reason; provided,
however, that any amendment of the Plan shall be subject to the approval of the
Company's stockholders if it (i) increases the number of Shares available for
issuance under the Plan (except as provided in Section 8) or (ii) materially
changes the class of persons who are eligible for the grant of ISOs. Stockholder
approval shall not be required for any other amendment of the Plan. If the
stockholders fail to approve an increase in the number of Shares reserved under
Section 4 within 12 months after its adoption by the Board of Directors, then
any grants, exercises or sales that have already occurred in reliance on such
increase shall be rescinded and no additional grants, exercises or sales shall
thereafter be made in reliance on such increase.

            (c) EFFECT OF AMENDMENT OR TERMINATION. No Shares shall be issued or
sold under the Plan after the termination thereof, except upon exercise of an
Option granted prior to such termination. The termination of the Plan, or any
amendment thereof, shall not affect any Share previously issued or any Option
previously granted under the Plan.

SECTION 12. DEFINITIONS.

            (a) "BOARD OF DIRECTORS" shall mean the Board of Directors of the
Company, as constituted from time to time.

            (b) "CODE" shall mean the Internal Revenue Code of 1986, as amended.

            (c) "COMMITTEE" shall mean a committee of the Board of Directors, as
described in Section 2(a).

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            (d) "COMPANY" shall mean Vanda Pharmaceuticals Inc., a Delaware
corporation.

            (e) "CONSULTANT" shall mean a person who performs bona fide services
for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding
Employees and Outside Directors.

            (f) "EMPLOYEE" shall mean any individual who is a common-law
employee of the Company, a Parent or a Subsidiary.

            (g) "EXERCISE PRICE" shall mean the amount for which one Share may
be purchased upon exercise of an Option, as specified by the Board of Directors
in the applicable Stock Option Agreement.

            (h) "FAIR MARKET VALUE" shall mean the fair market value of a Share,
as determined by the Board of Directors in good faith. Such determination shall
be conclusive and binding on all persons.

            (i) "FAMILY MEMBER" shall mean (i) any child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or
sister-in-law, including adoptive relationships, (ii) any person sharing the
Optionee's household (other than a tenant or employee), (iii) a trust in which
persons described in Clause (i) or (ii) have more than 50% of the beneficial
interest, (iv) a foundation in which persons described in Clause (i) or (ii) or
the Optionee control the management of assets and (v) any other entity in which
persons described in Clause (i) or (ii) or the Optionee own more than 50% of the
voting interests.

            (j) "ISO" shall mean an employee incentive stock option described in
Section 422(b) of the Code.

            (k) "NONSTATUTORY OPTION" shall mean a stock option not described in
Sections 422(b) or 423(b) of the Code.

            (l) "OPTION" shall mean an ISO or Nonstatutory Option granted under
the Plan and entitling the holder to purchase Shares.

            (m) "OPTIONEE" shall mean a person who holds an Option.

            (n) "OUTSIDE DIRECTOR" shall mean a member of the Board of Directors
who is not an Employee.

            (o) "PARENT" shall mean any corporation (other than the Company) in
an unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.

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            (p) "PLAN" shall mean this Vanda Pharmaceuticals Inc. Second Amended
and Restated Management Equity Plan.

            (q) "PURCHASE PRICE" shall mean the consideration for which one
Share may be acquired under the Plan (other than upon exercise of an Option), as
specified by the Board of Directors.

            (r) "PURCHASER" shall mean a person to whom the Board of Directors
has offered the right to acquire Shares under the Plan (other than upon exercise
of an Option).

            (s) "SERVICE" shall mean service as an Employee, Outside Director or
Consultant.

            (t) "SHARE" shall mean one share of Stock, as adjusted in accordance
with Section 8 (if applicable).

            (u) "STOCK" shall mean the Common Stock of the Company, with a par
value of $0.001 per Share.

            (v) "STOCK OPTION AGREEMENT" shall mean the agreement between the
Company and an Optionee that contains the terms, conditions and restrictions
pertaining to the Optionee's Option.

            (w) "STOCK PURCHASE AGREEMENT" shall mean the agreement between the
Company and a Purchaser who acquires Shares under the Plan that contains the
terms, conditions and restrictions pertaining to the acquisition of such Shares.

            (x) "SUBSIDIARY" shall mean any corporation (other than the Company)
in an unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.

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