EX-10.1



 Exhibit 10.1 

VANDA PHARMACEUTICALS INC. 

2016 EQUITY INCENTIVE PLAN 

(AMENDED AND RESTATED EFFECTIVE AS OF
JUNE 13, 2018) 







 TABLE OF CONTENTS 

 

							
	 	 	 	  	Page	 
	 ARTICLE 1.
	 	INTRODUCTION	  	 	1	 
			
	 ARTICLE 2.
	 	ADMINISTRATION	  	 	1	 
	 2.1
	 	Committee Composition	  	 	1	 
	 2.2
	 	Committee Responsibilities	  	 	2	 
	 2.3
	 	Committee for Non-Officer Grants	  	 	2	 
			
	 ARTICLE 3.
	 	SHARES AVAILABLE FOR GRANTS	  	 	2	 
	 3.1
	 	Basic Limitation	  	 	2	 
	 3.2
	 	Shares Returned to Reserve	  	 	2	 
			
	 ARTICLE 4.
	 	ELIGIBILITY	  	 	3	 
	 4.1
	 	Incentive Stock Options	  	 	3	 
	 4.2
	 	Other Grants	  	 	3	 
			
	 ARTICLE 5.
	 	OPTIONS	  	 	3	 
	 5.1
	 	Stock Option Agreement	  	 	3	 
	 5.2
	 	Number of Shares	  	 	3	 
	 5.3
	 	Exercise Price	  	 	3	 
	 5.4
	 	Exercisability and Term	  	 	3	 
	 5.5
	 	Effect of Change in Control	  	 	4	 
	 5.6
	 	Modification or Assumption of Options	  	 	4	 
	 5.7
	 	Voting and Dividend Rights	  	 	4	 
			
	 ARTICLE 6.
	 	PAYMENT FOR OPTION SHARES	  	 	4	 
	 6.1
	 	General Rule	  	 	4	 
	 6.2
	 	Surrender of Stock	  	 	4	 
	 6.3
	 	Exercise/Sale	  	 	4	 
	 6.4
	 	Promissory Note	  	 	5	 
	 6.5
	 	Other Forms of Payment	  	 	5	 
			
	 ARTICLE 7.
	 	STOCK APPRECIATION RIGHTS	  	 	5	 
	 7.1
	 	SAR Agreement	  	 	5	 
	 7.2
	 	Number of Shares	  	 	5	 
	 7.3
	 	Exercise Price	  	 	5	 
	 7.4
	 	Exercisability and Term	  	 	5	 
	 7.5
	 	Effect of Change in Control	  	 	5	 
	 7.6
	 	Exercise of SARs	  	 	5	 
	 7.7
	 	Modification or Assumption of SARs	  	 	6	 
	 7.8
	 	Voting and Dividend Rights	  	 	6	 
			
	 ARTICLE 8.
	 	RESTRICTED SHARES	  	 	6	 
	 8.1
	 	Restricted Stock Agreement	  	 	6	 
	 8.2
	 	Payment for Awards	  	 	6	 


  
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	 8.3
	 	Vesting Conditions	  	 	6	 
	 8.4
	 	Voting and Dividend Rights	  	 	7	 
			
	 ARTICLE 9.
	 	STOCK UNITS	  	 	7	 
	 9.1
	 	Stock Unit Agreement	  	 	7	 
	 9.2
	 	Payment for Awards	  	 	7	 
	 9.3
	 	Vesting Conditions	  	 	7	 
	 9.4
	 	Voting and Dividend Rights	  	 	8	 
	 9.5
	 	Form and Time of Settlement of Stock Units	  	 	8	 
	 9.6
	 	Death of Recipient	  	 	8	 
	 9.7
	 	Creditors’ Rights	  	 	8	 
			
	 ARTICLE 10.
	 	PROTECTION AGAINST DILUTION	  	 	8	 
	 10.1
	 	Adjustments	  	 	8	 
	 10.2
	 	Dissolution or Liquidation	  	 	9	 
	 10.3
	 	Reorganizations	  	 	9	 
			
	 ARTICLE 11.
	 	AWARDS UNDER OTHER PLANS	  	 	11	 
			
	 ARTICLE 12.
	 	PAYMENT OF DIRECTOR’S FEES IN SECURITIES	  	 	11	 
	 12.1
	 	Effective Date	  	 	11	 
	 12.2
	 	Elections to Receive NSOs, Restricted Shares or Stock Units	  	 	11	 
	 12.3
	 	Number and Terms of NSOs, Restricted Shares or Stock Units	  	 	11	 
			
	 ARTICLE 13.
	 	LIMITATION ON RIGHTS	  	 	11	 
	 13.1
	 	Retention Rights	  	 	11	 
	 13.2
	 	Stockholders’ Rights	  	 	11	 
	 13.3
	 	Regulatory Requirements	  	 	11	 
	 13.4
	 	Transferability of Awards	  	 	12	 
			
	 ARTICLE 14.
	 	TAXES	  	 	12	 
	 14.1
	 	General Withholding Obligations	  	 	12	 
	 14.2
	 	Share Withholding	  	 	12	 
			
	 ARTICLE 15.
	 	LIMITATION ON PAYMENTS	  	 	13	 
	 15.1
	 	Scope of Limitation	  	 	13	 
	 15.2
	 	Basic Rule	  	 	13	 
	 15.3
	 	Reduction of Payments	  	 	13	 
	 15.4
	 	Overpayments and Underpayments	  	 	14	 
	 15.5
	 	Related Corporations	  	 	14	 
			
	 ARTICLE 16.
	 	FUTURE OF THE PLAN	  	 	14	 
	 16.1
	 	Term of the Plan	  	 	14	 
	 16.2
	 	Amendment or Termination	  	 	14	 
	 16.3
	 	Stockholder Approval	  	 	14	 


  
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 VANDA PHARMACEUTICALS INC. 

AMENDED AND RESTATED 2016 EQUITY INCENTIVE PLAN

 ARTICLE 1. INTRODUCTION. 

The Plan was adopted by the Board on April 27, 2016 and approved by the Company’s stockholders on June 16, 2016 at the
Company’s 2016 Annual Meeting of Stockholders. The Plan was further amended and restated by the Board on April 25, 2017, which amendment and restatement became effective upon its approval by the Company’s stockholders at the
Company’s 2017 Annual Meeting of Stockholders on June 15, 2017. The Plan was further amended and restated by the Board on April 26, 2018, which amendment and restatement will become effective upon its approval by the Company’s
stockholders at the Company’s 2018 Annual Meeting of Stockholders on June 13, 2018. The purpose of the Plan is to promote the long-term success of the Company and the creation of stockholder value by (a) encouraging Employees, Outside
Directors and Consultants to focus on critical long-range objectives, (b) encouraging the attraction and retention of Employees, Outside Directors and Consultants with exceptional qualifications and (c) linking Employees, Outside Directors
and Consultants directly to stockholder interests through increased stock ownership. The Plan seeks to achieve this purpose by providing for Awards in the form of Restricted Shares, Stock Units, Options (which may constitute ISOs or NSOs) or stock
appreciation rights. 
 The Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware (except their choice-of-law provisions). 
 ARTICLE 2. ADMINISTRATION.

 2.1 Committee Composition. The Committee shall administer the Plan. The Committee shall consist exclusively of two or
more directors of the Company, who shall be appointed by the Board. In addition, each member of the Committee shall meet the following requirements: 

(a) Any listing standards prescribed by the principal securities market on which the Company’s equity securities are
traded; 
 (b) Such requirements as the Internal Revenue Service may establish for outside directors acting under plans
intended to qualify for exemption under section 162(m)(4)(C) of the Code; 
 (c) Such requirements as the Securities and
Exchange Commission may establish for administrators acting under plans intended to qualify for exemption under Rule 16b-3 (or its successor) under the Exchange Act; and 

(d) Any other requirements imposed by applicable law, regulations or rules. 







 2.2 Committee Responsibilities. The Committee shall (a) select the Employees,
Outside Directors and Consultants who are to receive Awards under the Plan, (b) determine the type, number, vesting requirements and other features and conditions of such Awards, (c) interpret the Plan, (d) make all other decisions
relating to the operation of the Plan and (e) carry out any other duties delegated to it by the Board. The Committee may adopt such rules or guidelines as it deems appropriate to implement the Plan. The Committee’s determinations under the
Plan shall be final and binding on all persons. 
 2.3 Committee for Non-Officer
Grants. The Board may also appoint a secondary committee of the Board, which shall be composed of one or more directors or executive officers of the Company who need not satisfy the requirements of Section 2.1. Such secondary committee may
administer the Plan with respect to Employees and Consultants who are not Outside Directors and are not considered executive officers of the Company under section 16 of the Exchange Act, may grant Awards under the Plan to such Employees and
Consultants and may determine all features and conditions of such Awards. Within the limitations of this Section 2.3, any reference in the Plan to the Committee shall include such secondary committee. 

ARTICLE 3. SHARES AVAILABLE FOR GRANTS. 

3.1 Basic Limitation. Common Shares issued pursuant to the Plan may be authorized but unissued shares or treasury shares. The
aggregate number of Common Shares issued under the Plan shall not exceed (a) 7,100,000 plus (b) the additional Common Shares described in Section 3.2. The number of Common Shares that are subject to Awards outstanding at any time
under the Plan shall not exceed the number of Common Shares that then remain available for issuance under the Plan. All Common Shares available under the Plan may be issued upon the exercise of ISOs. The limitations of this Section 3.1 shall be
subject to adjustment pursuant to Article 10. 
 3.2 Shares Returned to Reserve. If Options, SARs, Restricted Shares or
Stock Units are forfeited, settled in cash (in whole or in part), or terminate for any other reason before being exercised or settled, then the Common Shares subject to such Options, SARs, Restricted Shares or Stock Units shall again become
available for issuance under the Plan. If Restricted Shares or Common Shares issued upon the exercise of Awards are reacquired by the Company pursuant to a forfeiture provision or for any other reason, then such Common Shares shall again become
available for issuance under the Plan. Common Shares that are (a) not issued or delivered as a result of the net settlement of an outstanding Option or SAR or (b) used or tendered by a Participant or withheld by the Company (i) in
payment of the exercise price of an Option or SAR or (ii) in satisfaction of any tax withholding obligation relating to any Award, shall not become available again for issuance under the Plan. 

ARTICLE 4. ELIGIBILITY. 

4.1 Incentive Stock Options. Only Employees who are common-law employees of the Company,
a Parent or a Subsidiary shall be eligible for the grant of ISOs. In addition, an Employee who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company or any of its Parents or Subsidiaries shall not
be eligible for the grant of an ISO unless the requirements set forth in section 422(c)(5) of the Code are satisfied. 

  
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 4.2 Other Grants. Only Employees, Outside Directors and Consultants shall be
eligible for the grant of Restricted Shares, Stock Units, NSOs or SARs. 
 ARTICLE 5. OPTIONS. 

5.1 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 of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The Stock Option Agreement shall specify whether the Option is an ISO or an
NSO. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. Options may be granted in consideration of a reduction in the Optionee’s other compensation. 

5.2 Number of Shares. Each Stock Option Agreement shall specify the number of Common Shares subject to the Option and shall
provide for the adjustment of such number in accordance with Article 10. Options granted to any Optionee in a single fiscal year of the Company shall not cover more than 500,000 Common Shares, except that Options granted to a new Employee in
the fiscal year of the Company in which his or her Service as an Employee first commences shall not cover more than 1,000,000 Common Shares. The limitations set forth in the preceding sentence shall be subject to adjustment in accordance with
Article 10. 
 5.3 Exercise Price. Each Stock Option Agreement shall specify the Exercise Price; provided that the
Exercise Price shall in no event be less than 100% of the Fair Market Value of a Common Share on the date of grant. This Section 5.3 shall not apply to an Option granted pursuant to the assumption of, or substitution for, another option in a
manner that complies with section 424(a) of the Code (whether or not the Option is an ISO). 
 5.4 Exercisability and Term.
Each Stock Option Agreement shall specify the date or event when all or any installment of the Option is to become exercisable; provided that the Option will not become exercisable prior to the Optionee completing at least one year of Service
following the Vesting Commencement Date of such Option. The Stock Option Agreement shall also specify the term of the Option; provided that the term of an Option shall in no event exceed 10 years from the date of grant. A Stock Option Agreement
may provide for accelerated exercisability in the event of the Optionee’s death, disability, retirement or Involuntary Termination and may provide for expiration prior to the end of its term in the event of the termination of the
Optionee’s Service. Options may be awarded in combination with SARs, and such an Award may provide that the Options will not be exercisable unless the related SARs are forfeited. 

5.5 Effect of Change in Control. The Committee may determine, at the time of granting an Option or thereafter, that such Option
shall become exercisable as to all or part of the Common Shares subject to such Option in the event that a Change in Control occurs with respect to the Company or in the event that the Optionee is subject to an Involuntary Termination after a Change
in Control. However, in the case of an ISO, the acceleration of exercisability shall not occur without the Optionee’s written consent. In addition, acceleration of exercisability may be required under Section 10.3. 

  
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 5.6 Modification or Assumption of Options. Within the limitations of the Plan, the
Committee may modify, extend or assume outstanding options. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair his or her rights or obligations under such Option. Notwithstanding
anything in this Plan to the contrary, and except for the adjustments provided in Article 10, neither the Committee nor any other person may, without the approval of the Company’s stockholders: (a) decrease the exercise price for any
outstanding Option after the date of grant, (b) cancel or allow an optionee to surrender an outstanding Option to the Company in exchange for cash or as consideration for the grant of a new Option with a lower exercise price or the grant of
another type of Award the effect of which is to reduce the exercise price of any outstanding Option or (c) take any other action with respect to an Option that would be treated as a repricing under the rules and regulations of the NASDAQ Stock
Market (or such other principal U.S. national securities exchange on which the Common Shares are traded). 
 5.7 Voting and
Dividend Rights. The holders of Options shall have neither voting rights nor a right to receive dividends or dividend equivalents. 

ARTICLE 6. PAYMENT FOR OPTION SHARES. 

6.1 General Rule. The entire Exercise Price of Common Shares issued upon exercise of Options shall be payable in cash or cash
equivalents at the time when such Common Shares are purchased, except that the Committee at its sole discretion may accept payment of the Exercise Price in any other form(s) described in this Article 6. However, if the Optionee is an Outside
Director or executive officer of the Company, he or she may pay the Exercise Price in a form other than cash or cash equivalents only to the extent permitted by section 13(k) of the Exchange Act. 

6.2 Surrender of Stock. With the Committee’s consent, all or any part of the Exercise Price may be paid by surrendering, or
attesting to the ownership of, Common Shares that are already owned by the Optionee. Such Common Shares shall be valued at their Fair Market Value on the date when the new Common Shares are purchased under the Plan. 

6.3 Exercise/Sale. With the Committee’s consent, all or any part of the Exercise Price and any withholding taxes may be
paid by delivering (on a form prescribed by the Company) an irrevocable direction to a securities broker approved by the Company to sell all or part of the Common Shares being purchased under the Plan and to deliver all or part of the sales proceeds
to the Company. 
 6.4 Promissory Note. To the extent permitted by section 13(k) of the Exchange Act, with the
Committee’s consent, all or any part of the Exercise Price and any withholding taxes may be paid by delivering (on a form prescribed by the Company) a full-recourse promissory note. 

6.5 Other Forms of Payment. With the Committee’s consent, all or any part of the Exercise Price and any withholding taxes
may be paid in any other form that is consistent with applicable laws, regulations and rules. 

  
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 ARTICLE 7. STOCK APPRECIATION RIGHTS. 

7.1 SAR Agreement. Each grant of an SAR under the Plan shall be evidenced by an SAR Agreement between the Optionee and the
Company. Such SAR shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various SAR Agreements entered into under the Plan need not be identical.
SARs may be granted in consideration of a reduction in the Optionee’s other compensation. 
 7.2 Number of Shares. Each
SAR Agreement shall specify the number of Common Shares to which the SAR pertains and shall provide for the adjustment of such number in accordance with Article 10. SARs granted to any Optionee in a single fiscal year shall in no event pertain
to more than 500,000 Common Shares, except that SARs granted to a new Employee in the fiscal year of the Company in which his or her Service as an Employee first commences shall not pertain to more than 1,000,000 Common Shares. The limitations set
forth in the preceding sentence shall be subject to adjustment in accordance with Article 10. 
 7.3 Exercise Price. Each
SAR Agreement shall specify the Exercise Price; provided that the Exercise Price shall in no event be less than 100% of the Fair Market Value of a Common Share on the date of grant. 

7.4 Exercisability and Term. Each SAR Agreement shall specify the date when all or any installment of the SAR is to become
exercisable; provided that the SAR will not become exercisable prior to the Optionee completing at least one year of Service following the Vesting Commencement Date of such SAR. The SAR Agreement shall also specify the term of the SAR; provided that
the term shall not exceed 10 years. An SAR Agreement may provide for accelerated exercisability in the event of the Optionee’s death, disability, retirement or Involuntary Termination and may provide for expiration prior to the end of its term
in the event of the termination of the Optionee’s Service. An SAR granted under the Plan may provide that it will be exercisable only in the event of a Change in Control. 

7.5 Effect of Change in Control. The Committee may determine, at the time of granting an SAR or thereafter, that such SAR shall
become fully exercisable as to all Common Shares subject to such SAR in the event that the Company is subject to a Change in Control or in the event that the Optionee is subject to an Involuntary Termination after a Change in Control. In addition,
acceleration of exercisability may be required under Section 10.3. 
 7.6 Exercise of SARs. Upon exercise of an SAR, the
Optionee (or any person having the right to exercise the SAR after his or her death) shall receive from the Company (a) Common Shares, (b) cash or (c) a combination of Common Shares and cash, as the Committee shall determine. The
amount of cash and/or the Fair Market Value of Common Shares received upon exercise of SARs shall, in the aggregate, be equal to the amount by which the Fair Market Value (on the date of surrender) of the Common Shares subject to the SARs exceeds
the Exercise Price. If, on the date when an SAR expires, the Exercise Price under such SAR is less than the Fair Market Value on such date but any portion of such SAR has not been exercised or surrendered, then such SAR shall automatically be deemed
to be exercised as of such date with respect to such portion. 

  
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 7.7 Modification or Assumption of SARs. Within the limitations of the Plan, the
Committee may modify, extend or assume outstanding SARs. The foregoing notwithstanding, no modification of an SAR shall, without the consent of the Optionee, alter or impair his or her rights or obligations under such SAR. Notwithstanding anything
in this Plan to the contrary, and except for the adjustments provided in Article 10, neither the Committee nor any other person may, without the approval of the Company’s stockholders: (a) decrease the exercise price for any outstanding
SAR after the date of grant, (b) assume, cancel or allow an optionee to surrender an outstanding SAR to the Company in exchange for cash or as consideration for the grant of a new SAR with a lower exercise price or the grant of another type of
Award the effect of which is to reduce the exercise price of any outstanding SAR or (c) take any other action with respect to an SAR that would be treated as a repricing under the rules and regulations of the NASDAQ Stock Market (or such other
principal U.S. national securities exchange on which the Common Shares are traded). 
 7.8 Voting and Dividend Rights. The
holders of SARs shall have neither voting rights nor a right to receive dividends or dividend equivalents. 
 ARTICLE 8. RESTRICTED
SHARES. 
 8.1 Restricted Stock Agreement. Each grant of Restricted Shares under the Plan shall be evidenced by a
Restricted Stock Agreement between the recipient and the Company. Such Restricted Shares shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the
various Restricted Stock Agreements entered into under the Plan need not be identical. 
 8.2 Payment for Awards. Restricted
Shares may be sold or awarded under the Plan for such consideration as the Committee may determine, including (without limitation) cash, cash equivalents, property, full-recourse promissory notes, past services and future services. If the
Participant is an Outside Director or executive officer of the Company, he or she may pay for Restricted Shares with a promissory note only to the extent permitted by section 13(k) of the Exchange Act. Within the limitations of the Plan, the
Committee may accept the cancellation of outstanding options in return for the grant of Restricted Shares. 
 8.3 Vesting
Conditions. Each Award of Restricted Shares shall be subject to vesting. Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Restricted Stock Agreement; provided that, the Restricted Shares will
not vest prior to the holder completing at least one year of Service following the Vesting Commencement Date of such Award. The Committee may include among such conditions the requirement that the performance of the Company or a business unit of the
Company for a specified period of one or more fiscal years equal or exceed a target determined in advance by the Committee. The Company’s independent auditors shall determine such performance. Such target shall be based on one or more of the
criteria set forth in Appendix A. The Committee shall identify such target not later than the 90th day of such period. In no event shall more than 500,000 Restricted Shares that are subject
to performance-based vesting conditions be granted to any Participant in a single fiscal year of the Company, subject to adjustment in accordance with Article 10. A Restricted Stock Agreement may provide for accelerated vesting in the event of
the Participant’s death, disability, retirement or Involuntary Termination. The Committee may determine, at the time of granting Restricted 

  
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Shares or thereafter, that all or part of such Restricted Shares shall become vested in the event that a Change in Control occurs with respect to the Company or in the event that the Participant
is subject to an Involuntary Termination after a Change in Control. 
 8.4 Voting and Dividend Rights. The holders of
Restricted Shares awarded under the Plan shall have the same voting, dividend and other rights as the Company’s other stockholders. A Restricted Stock Agreement, however, shall require that the holders of Restricted Shares invest any cash
dividends received in additional Restricted Shares until such time as the Restricted Shares are no longer subject to a right of repurchase and forfeiture. Such additional Restricted Shares shall be subject to the same conditions and restrictions as
the Award with respect to which the dividends were paid. 
 ARTICLE 9. STOCK UNITS. 

9.1 Stock Unit Agreement. Each grant of Stock Units under the Plan shall be evidenced by a Stock Unit Agreement between the
recipient and the Company. Such Stock Units shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various Stock Unit Agreements entered into under
the Plan need not be identical. Stock Units may be granted in consideration of a reduction in the recipient’s other compensation. 

9.2 Payment for Awards. To the extent that an Award is granted in the form of Stock Units, no cash consideration shall be
required of the Award recipients. 
 9.3 Vesting Conditions. Each Award of Stock Units shall be subject to vesting. Vesting
shall occur, in full or in installments, upon satisfaction of the conditions specified in the Stock Unit Agreement; provided that, the Stock Units will not vest prior to the recipient completing at least one year of Service following the Vesting
Commencement Date of such Award. The Committee may include among such conditions the requirement that the performance of the Company or a business unit of the Company for a specified period of one or more fiscal years equal or exceed a target
determined in advance by the Committee. The Company’s independent auditors shall determine such performance. Such target shall be based on one or more of the criteria set forth in Appendix A. The Committee shall identify such target not
later than the 90th day of such period. In no event shall more than 500,000 Stock Units that are subject to performance-based vesting conditions be granted to any Participant in a single fiscal
year of the Company, subject to adjustment in accordance with Article 10. A Stock Unit Agreement may provide for accelerated vesting in the event of the Participant’s death, disability, retirement or Involuntary Termination. The Committee
may determine, at the time of granting Stock Units or thereafter, that all or part of such Stock Units shall become vested in the event that the Company is subject to a Change in Control or in the event that the Participant is subject to an
Involuntary Termination after a Change in Control. In addition, acceleration of vesting may be required under Section 10.3. 

9.4 Voting and Dividend Rights. The holders of Stock Units shall have no voting rights. Prior to settlement or forfeiture, any
Stock Unit awarded under the Plan may, at the Committee’s discretion, carry with it a right to dividend equivalents. Such right entitles the holder to be credited with an amount equal to all cash dividends paid on one Common Share while the


  
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 Stock Unit is outstanding. Dividend equivalents may be converted into additional Stock Units. Settlement of
dividend equivalents may be made in the form of cash, in the form of Common Shares, or in a combination of both. Dividend equivalents shall be subject to the same terms, vesting conditions and restrictions as the Stock Units to which they attach.

 9.5 Form and Time of Settlement of Stock Units. Settlement of vested Stock Units may be made in the form of (a) cash,
(b) Common Shares or (c) any combination of both, as determined by the Committee. The actual number of Stock Units eligible for settlement may be larger or smaller than the number included in the original Award, based on predetermined
performance factors. Methods of converting Stock Units into cash may include (without limitation) a method based on the average Fair Market Value of Common Shares over a series of trading days. Vested Stock Units may be settled in a lump sum or in
installments. The distribution may occur or commence when all vesting conditions applicable to the Stock Units have been satisfied or have lapsed, or it may be deferred to any later date. The amount of a deferred distribution may be increased by an
interest factor or by dividend equivalents. Until an Award of Stock Units is settled, the number of such Stock Units shall be subject to adjustment pursuant to Article 10. 

9.6 Death of Recipient. Any Stock Units Award that becomes payable after the recipient’s death shall be distributed to the
recipient’s beneficiary or beneficiaries. Each recipient of a Stock Units Award under the Plan shall designate one or more beneficiaries for this purpose by filing the prescribed form with the Company. A beneficiary designation may be changed
by filing the prescribed form with the Company at any time before the Award recipient’s death. If no beneficiary was designated or if no designated beneficiary survives the Award recipient, then any Stock Units Award that becomes payable after
the recipient’s death shall be distributed to the recipient’s estate. 
 9.7 Creditors’ Rights. A holder of
Stock Units shall have no rights other than those of a general creditor of the Company. Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Stock Unit Agreement. 

ARTICLE 10. PROTECTION AGAINST DILUTION. 

10.1 Adjustments. In the event of a subdivision of the outstanding Common Shares, a declaration of a dividend payable in Common
Shares or a combination or consolidation of the outstanding Common Shares (by reclassification or otherwise) into a lesser number of Common Shares, corresponding proportionate adjustments shall automatically be made in each of the following: 

(a) The number of Common Shares available for grant subject to Awards under Article 3; 

(b) The limitations set forth in Sections 5.2, 8.2, 8.3 and 9.3; 

(c) The number of Common Shares covered by each outstanding Option and SAR; 

  
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 (d) The Exercise Price under each outstanding Option and SAR; or 

(e) The number of Stock Units included in any prior Award that has not yet been settled. 

In the event of a declaration of an extraordinary dividend payable in a form other than Common Shares in an amount that has a material effect on the price of
Common Shares, a recapitalization, a spin-off or a similar occurrence, the Committee shall make such adjustments as it, in its sole discretion, deems appropriate in one or more of the foregoing. Except as
provided in this Article 10, a Participant shall have no rights by reason of any issuance by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class,
the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class. 
 10.2
Dissolution or Liquidation. To the extent not previously exercised or settled, Options, SARs and Stock Units shall terminate immediately prior to the dissolution or liquidation of the Company. 

10.3 Reorganizations. In the event that the Company is a party to a merger or consolidation, all outstanding Awards shall be
subject to the agreement of merger or consolidation. Such agreement shall provide for one or more of the following: 
 (a)
The continuation of such outstanding Awards by the Company (if the Company is the surviving corporation). 
 (b) The
assumption of such outstanding Awards by the surviving corporation or its parent, provided that the assumption of Options or SARs shall comply with section 424(a) of the Code (whether or not the Options are ISOs). 

(c) The substitution by the surviving corporation or its parent of new awards for such outstanding Awards, provided that the
substitution of Options or SARs shall comply with section 424(a) of the Code (whether or not the Options are ISOs). 

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

  
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 (e) The cancellation of outstanding Options and SARs and a payment to the
Optionees equal to the excess of (i) the Fair Market Value of the Common Shares subject to such Options and SARs (whether or not such Options and SARs are then exercisable or such Common Shares are then vested) as of the closing date of such
merger or consolidation over (ii) 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. Except to
the extent it would cause the Award to become subject to additional tax under Code Section 409A, such payment may be made in installments, may be deferred until the date or dates when such Options and SARs would have become exercisable or such
Common Shares would have vested, and/or may be subject to vesting based on the Optionee’s continuing Service, provided that the vesting schedule shall not be less favorable to the Optionee than the schedule under which such Options and SARs
would have become exercisable or such Common Shares would have vested. If the Exercise Price of the Common Shares subject to such Options and SARs exceeds the Fair Market Value of such Common Shares, then such Options and SARs may be cancelled
without making a payment to the Optionees. For purposes of this Subsection (e), the Fair Market Value of any security shall be determined without regard to any vesting conditions that may apply to such security. 

(f) The cancellation of outstanding Stock Units and a payment to the Participants equal to the Fair Market Value of the Common
Shares subject to such Stock Units (whether or not such Stock Units are then vested) as of the closing date of such merger or consolidation. 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. Except to the extent it would cause the Award to become subject to additional tax under Code Section 409A, such payment may be made in installments, may be deferred until the
date or dates when such Stock Units would have vested, and/or may be subject to vesting based on the Participant’s continuing Service, provided that the vesting schedule shall not be less favorable to the Participant than the schedule under
which such Stock Units would have vested. For purposes of this Subsection (f), the Fair Market Value of any security shall be determined without regard to any vesting conditions that may apply to such security. 

ARTICLE 11. AWARDS UNDER OTHER PLANS. 

The Company may grant awards under other plans or programs. Such awards may be settled in the form of Common Shares issued under this Plan.
Such Common Shares shall be treated for all purposes under the Plan like Common Shares issued in settlement of Stock Units and shall, when issued, reduce the number of Common Shares available under Article 3. 

ARTICLE 12. PAYMENT OF DIRECTOR’S FEES IN SECURITIES. 

12.1 Effective Date. No provision of this Article 12 shall be effective unless and until the Board has determined to
implement such provision. 

  
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 12.2 Elections to Receive NSOs, Restricted Shares or Stock Units. An Outside
Director may elect to receive his or her annual retainer payments and/or meeting fees from the Company in the form of cash, NSOs, Restricted Shares or Stock Units, or a combination thereof, as determined by the Board. Such NSOs, Restricted Shares
and Stock Units shall be issued under the Plan. An election under this Article 12 shall be filed with the Company on the prescribed form. 

12.3 Number and Terms of NSOs, Restricted Shares or Stock Units. The number of NSOs, Restricted Shares or Stock Units to be
granted to Outside Directors in lieu of annual retainers and meeting fees that would otherwise be paid in cash shall be calculated in a manner determined by the Board. The Board shall also determine the terms of such NSOs, Restricted Shares or Stock
Units. 
 ARTICLE 13. LIMITATION ON RIGHTS. 

13.1 Retention Rights. Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to
remain an Employee, Outside Director or Consultant. The Company and its Parents, Subsidiaries and Affiliates reserve the right to terminate the Service of any Employee, Outside Director or Consultant at any time, with or without cause, subject to
applicable laws, the Company’s certificate of incorporation and by-laws and a written employment agreement (if any). 

13.2 Stockholders’ Rights. A Participant shall have no dividend rights, dividend equivalent rights, voting rights or other
rights as a stockholder with respect to any Common Shares covered by his or her Award prior to the time when a stock certificate for such Common Shares is issued or, if applicable, the time when he or she becomes entitled to receive such Common
Shares by filing any required notice of exercise and paying any required Exercise Price. No adjustment shall be made for cash dividends or other rights for which the record date is prior to such time, except as expressly provided in the Plan. 

13.3 Regulatory Requirements. Any other provision of the Plan notwithstanding, the obligation of the Company to issue Common
Shares under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatory body as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the issuance of such Common Shares, to their registration, qualification or listing or to an exemption from registration, qualification or listing. 

13.4 Transferability of Awards. The Committee may, in its sole discretion, permit transfer of an Award in a manner consistent
with applicable law and for no consideration. Unless otherwise determined by the Committee, Awards shall be transferable by a Participant only by (a) beneficiary designation, (b) a will or (c) the laws of descent and distribution;
provided that, in any event, an ISO may only be transferred by will or by the laws of descent and distribution and may be exercised during the lifetime of the Optionee only by the Optionee or by the Optionee’s guardian or legal
representative. 

  
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 ARTICLE 14. TAXES. 

14.1 General Withholding Obligations. To the extent required by applicable federal, state, local or foreign law, a Participant
or his or her successor shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with the Plan. The Company shall not be required to issue any Common Shares or make any cash
payment under the Plan until such obligations are satisfied. 
 14.2 Share Withholding. To the extent that applicable law
subjects a Participant to tax withholding obligations, the Committee may permit such Participant to satisfy all or part of such obligations by having the Company withhold all or a portion of any Common Shares that otherwise would be issued to him or
her or by surrendering all or a portion of any Common Shares that he or she previously acquired. Such Common Shares shall be valued at their Fair Market Value on the date when they are withheld or surrendered. 

14.3 Code Section 409A Matters. To the fullest extent applicable and unless otherwise expressly indicated in
an applicable Award agreement, Awards granted under this Plan are intended to be exempt from the definition of “nonqualified deferred compensation” under Code Section 409A in accordance with one or more of the exemptions available
under the final Treasury regulations promulgated under Code Section 409A and the terms of the Plan and the applicable Award agreement shall be interpreted and administered in a manner consistent with that intent. To the extent that an Award is,
or becomes subject to, Code Section 409A either intentionally or due to a failure of an individual Award to qualify for an exemption from the definition of nonqualified deferred compensation in accordance with Code Section 409A, such Award
is intended to comply with the applicable requirements of Code Section 409A to the maximum extent possible and with respect to any such Award, the terms of the Plan and the applicable Award agreement shall be interpreted and administered in a
manner consistent with that intent. In no event will the Company be liable for any taxes, penalties or interest that may be imposed with respect to an Award under Code Section 409A or under any other similar provision of state tax law, or for
any damages for an Award’s failing to comply with Code Section 409A, any other similar provision of state tax law, or the provisions of this Section 15.3. 

ARTICLE 15. LIMITATION ON PAYMENTS. 

15.1 Scope of Limitation. This Article 15 shall apply to an Award only if: 

(a) The independent auditors selected for this purpose by the Committee (the “Auditors”) determine that the after-tax value of such Award to the Participant, taking into account the effect of all federal, state and local income taxes, employment taxes and excise taxes applicable to the Participant (including the excise
tax under section 4999 of the Code), will be greater after the application of this Article 15 than it was before the application of this Article 16; or 

(b) The Committee, at the time of making an Award under the Plan or at any time thereafter, specifies in writing that such
Award shall be subject to this Article 15 (regardless of the after-tax value of such Award to the Participant). 

If this Article 15 applies to an Award, it shall supersede any contrary provision of the Plan or of any Award granted under the Plan. 

  
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 15.2 Basic Rule. In the event that the Auditors determine that any payment or
transfer by the Company under the Plan to or for the benefit of a Participant (a “Payment”) would be nondeductible by the Company for federal income tax purposes because of the provisions concerning “excess parachute payments” in
section 280G of the Code, then the aggregate present value of all Payments shall be reduced (but not below zero) to the Reduced Amount. For purposes of this Article 15, the “Reduced Amount” shall be the amount of the Payment,
expressed as a present value, which provides the greatest economic benefit to the Participant without causing any of the Payments to be nondeductible by the Company because of section 280G of the Code, provided that if more than one manner of
reduction of the Payments necessary to arrive at the Reduced Amount yields the greatest economic benefit to the Participant, the Payments shall be reduced pro rata. Neither the Participant nor the Company shall have the authority to specify the
order of reduction of the Payments. 
 15.3 Reduction of Payments. If the Auditors determine that any Payment would be
nondeductible by the Company because of section 280G of the Code, then the Company shall promptly provide the Participant appropriate notice to that effect, including a copy of the detailed calculation thereof and of the Reduced
Amount, and details regarding the manner in which the reduction provided for under Section 15.2 shall be effected. For purposes of this Article 15, present value shall be determined in accordance with section 280G(d)(4) of the Code.
All determinations made by the Auditors under this Article 15 shall be binding upon the Company and the Participant and shall be made within 60 days of the date when a Payment becomes payable or transferable. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay or transfer to or for the benefit of the Participant such amounts as are then due to him or her under the Plan and shall promptly pay or transfer to or for the benefit
of the Participant in the future such amounts as become due to him or her under the Plan. 
 15.4 Overpayments and
Underpayments. As a result of uncertainty in the application of section 280G of the Code at the time of an initial determination by the Auditors hereunder, it is possible that Payments will have been made by the Company which should not
have been made (an “Overpayment”) or that additional Payments which will not have been made by the Company could have been made (an “Underpayment”), consistent in each case with the calculation of the Reduced Amount hereunder. In
the event that the Auditors, based upon the assertion of a deficiency by the Internal Revenue Service against the Company or the Participant that the Auditors believe has a high probability of success, determine that an Overpayment has been made,
such Overpayment shall be treated for all purposes as a loan to the Participant that he or she shall repay to the Company, together with interest at the applicable federal rate provided in section 7872(f)(2) of the Code; provided, however, that
no amount shall be payable by the Participant to the Company if and to the extent that such payment would not reduce the amount that is subject to taxation under section 4999 of the Code. In the event that the Auditors determine that an
Underpayment has occurred, such Underpayment shall promptly be paid or transferred by the Company to or for the benefit of the Participant, together with interest at the applicable federal rate provided in section 7872(f)(2) of the Code. 

  
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 15.5 Related Corporations. For purposes of this Article 15, the term
“Company” shall include affiliated corporations to the extent determined by the Auditors in accordance with section 280G(d)(5) of the Code. 

ARTICLE 16. FUTURE OF THE PLAN. 

16.1 Term of the Plan. The Plan shall remain in effect until the earlier of (a) the date when the Plan is terminated under
Section 16.2 or (b) the 10th anniversary of the date when the Board adopted the Plan. 

16.2 Amendment or Termination. The Board may, at any time and for any reason, amend or terminate the Plan. No Awards shall be
granted under the Plan after the termination thereof. The termination of the Plan, or any amendment thereof, shall not affect any Award previously granted under the Plan. 

16.3 Stockholder Approval. An amendment of the Plan shall be subject to the approval of the Company’s stockholders only to
the extent required by applicable laws, regulations or rules, including the listing requirements of the primary securities exchange or over-the-counter market where the
Common Shares are listed for trading. However, section 162(m) of the Code may require that the Company’s stockholders approve the performance criteria set forth in Appendix A not later than the first meeting of stockholders that
occurs in the fifth year following the year in which the Company’s stockholders previously approved such criteria. 
 DEFINITIONS. 

“Affiliate” means any entity other than a Subsidiary, if the Company and/or one or more Subsidiaries own not less than 50% of such
entity. 
 “Award” means any award of an Option, an SAR, a Restricted Share or a Stock Unit under the Plan. 

“Board” means the Company’s Board of Directors, as constituted from time to time. 

“Cause” means: 
 An
unauthorized use or disclosure by the Participant of the Company’s confidential information or trade secrets, which use or disclosure causes material harm to the Company; 

A material breach by the Participant of any agreement between the Participant and the Company; 

A material failure by the Participant to comply with the Company’s written policies or rules; 

The Participant’s conviction of, or plea of “guilty” or “no contest” to, a felony under the laws of the United States
or any State thereof; 
 The Participant’s gross negligence or willful misconduct; 

  
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 A continuing failure by the Participant to perform assigned duties after receiving written
notification of such failure from the Board; or 
 A failure by the Participant to cooperate in good faith with a governmental or internal
investigation of the Company or its directors, officers or employees, if the Company has requested the Participant’s cooperation. 

“Change in Control” means: 

The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if persons who
were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization own immediately after such merger, consolidation or other reorganization 50% or more of the voting power of the outstanding securities of
each of (i) the continuing or surviving entity and (ii) any direct or indirect parent corporation of such continuing or surviving entity; 

The sale, transfer or other disposition of all or substantially all of the Company’s assets; 

A change in the composition of the Board, as a result of which fewer than 50% of the incumbent directors are directors who either: 

Had been directors of the Company on the date 24 months prior to the date of such change in the composition of the Board (the “Original
Directors”); or 
 Were appointed to the Board, or nominated for election to the Board, with the affirmative votes of at least a
majority of the aggregate of (A) the Original Directors who were in office at the time of their appointment or nomination and (B) the directors whose appointment or nomination was previously approved in a manner consistent with this
Paragraph (ii); or 
 Any transaction as a result of which any person is the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing at least 50% of the total voting power represented by the Company’s then outstanding voting securities.
For purposes of this Subsection (d), the term “person” shall have the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act but shall exclude (i) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or of a Parent or Subsidiary and (ii) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the
Company. 
 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. 

“Code” means the Internal Revenue Code of 1986, as amended. 

“Committee” means a committee of the Board, as described in Article 2. 

  
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 “Common Share” means one share of the common stock of the Company. 

“Company” means Vanda Pharmaceuticals Inc., a Delaware corporation. 

“Consultant” means a consultant or adviser who provides bona fide services to the Company, a Parent, a Subsidiary or an Affiliate as
an independent contractor. Service as a Consultant shall be considered employment for all purposes of the Plan, except as provided in Section 4.1. 

“Employee” means a common-law employee of the Company, a Parent, a Subsidiary or an
Affiliate. 
 “Exchange Act” means the Securities Exchange Act of 1934, as amended. 

“Exercise Price,” in the case of an Option, means the amount for which one Common Share may be purchased upon exercise of such
Option, as specified in the applicable Stock Option Agreement. “Exercise Price,” in the case of an SAR, means an amount, as specified in the applicable SAR Agreement, which is subtracted from the Fair Market Value of one Common Share in
determining the amount payable upon exercise of such SAR. 
 “Fair Market Value” means the market price of one Common Share as
determined by the Committee in good faith on such basis as it deems appropriate. Whenever possible, the determination of Fair Market Value by the Committee shall be based on the prices reported in The Wall Street Journal. Such determination
shall be conclusive and binding on all persons. 
 “Involuntary Termination” means the termination of the Participant’s
Service by reason of: 
 The involuntary discharge of the Participant by the Company (or the Parent, Subsidiary or Affiliate employing him or
her) for reasons other than Cause; or 
 The voluntary resignation of the Participant following (i) a material adverse change in his or
her title, stature, authority or responsibilities with the Company (or the Parent, Subsidiary or Affiliate employing him or her), (ii) a material reduction in his or her base salary or (iii) receipt of notice that his or her principal
workplace will be relocated by more than 30 miles. 
 “ISO” means an incentive stock option described in section 422(b) of
the Code. 
 “NSO” means a stock option not described in sections 422 or 423 of the Code. 

“Option” means an ISO or NSO granted under the Plan and entitling the holder to purchase Common Shares. 

“Optionee” means an individual or estate who holds an Option or SAR. 

“Outside Director” means a member of the Board who is not an Employee. Service as an Outside Director shall be considered employment
for all purposes of the Plan, except as provided in Section 4.1. 

  
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 “Parent” means 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. 

“Participant” means an individual or estate who holds an Award. 

“Plan” means this Vanda Pharmaceuticals Inc. 2016 Equity Incentive Plan, as amended and/or restated from time to time. 

“Restricted Share” means a Common Share awarded under the Plan. 

“Restricted Stock Agreement” means the agreement between the Company and the recipient of a Restricted Share that contains the
terms, conditions and restrictions pertaining to such Restricted Share. 
 “SAR” means a stock appreciation right granted under
the Plan. 
 “SAR Agreement” means the agreement between the Company and an Optionee that contains the terms, conditions and
restrictions pertaining to his or her SAR. 
 “Service” means service as an Employee, Outside Director or Consultant. 

“Stock Option Agreement” means the agreement between the Company and an Optionee that contains the terms, conditions and
restrictions pertaining to his or her Option. 
 “Stock Unit” means a bookkeeping entry representing the equivalent of one Common
Share, as awarded under the Plan. 
 “Stock Unit Agreement” means the agreement between the Company and the recipient of a Stock
Unit that contains the terms, conditions and restrictions pertaining to such Stock Unit. 
 “Subsidiary” means 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. 

“Vesting Commencement Date” means (i) with respect any Award granted to a Participant upon the commencement of his or Service,
the date on which his or her Service commences and (ii) with respect to any other Award, the date on which such Award is granted. 

  
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 APPENDIX A 

PERFORMANCE CRITERIA FOR RESTRICTED SHARES AND
STOCK UNITS 
 The performance goals that may be used by the Committee for such awards may consist of: (a) operating
profits (including EBITDA); (b) net profits; (c) earnings per share; (d) profit returns and margins; (e) revenues; (f) stockholder return and/or value; (g) stock price; (h) working capital; (i) regulatory achievements
(including submitting or filing applications or other documents with regulatory authorities or receiving approval of any such applications or other documents and passing pre-approval inspections (whether of
the Company or the Company’s third-party manufacturer) and validation of manufacturing processes (whether the Company’s or the Company’s third-party manufacturer’s)); (j) clinical achievements (including initiating clinical
studies, initiating enrollment, completing enrollment or enrolling particular numbers of subjects in clinical studies, completing phases of a clinical study (including the treatment phase), or announcing or presenting preliminary or final data from
clinical studies in each case, whether on particular timelines or generally); and (k) other measurable objectives. 
 Performance goals may be measured
solely on a corporate, subsidiary or business unit basis, or a combination thereof. Further, performance criteria may reflect absolute entity performance or a relative comparison of entity performance to the performance of a peer group of entities
or other external measure of the selected performance criteria. 
 Profit, earnings and revenues used for any performance goal measurement may exclude:
gains or losses on operating asset sales or dispositions; asset write-downs; litigation or claim judgments or settlements; accruals for historic environmental obligations; effect of changes in tax law or rate on deferred tax liabilities; accruals
for reorganization and restructuring programs; uninsured catastrophic property losses; the cumulative effect of changes in accounting principles; and any extraordinary non-recurring items determined in
accordance with generally accepted accounting principles and/or in management’s discussion and analysis of financial performance appearing in the Company’s annual report to stockholders for the applicable year.