Document:

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                                                                   EXHIBIT 10.11

      INDEMNIFICATION AGREEMENT dated __________ , between VANDA PHARMACEUTICALS
INC., a Delaware corporation (the "Company"), and _______ (the "Indemnitee").

      WHEREAS, the Company has adopted provisions in its Certificate of
Incorporation and Bylaws providing for indemnification of its officers and
directors to the fullest extent permitted by the DGCL, and the Company wishes to
clarify and enhance the rights and obligations of the Company and the Indemnitee
with respect to indemnification;

      NOW, THEREFORE, in consideration of the Indemnitee's service or continued
service as a director or officer of the Company, the parties hereto agree as
follows:

      1. Service by Indemnitee. The Indemnitee agrees to serve or continue to
serve as a director or officer of the Company so long as the Indemnitee is duly
elected and qualified or appointed and until such time as the Indemnitee resigns
or fails to stand for reelection or is removed from his position. The Indemnitee
may at any time and for any reason resign or be removed from such position in
the sole discretion of the Company (subject to any other contractual obligation
or any obligation or restriction imposed by the Certificate of Incorporation or
Bylaws or otherwise by operation of law), in which event the Company shall have
no obligation hereunder to continue the Indemnitee in any such position.

      2. Indemnification. The Company shall indemnify the Indemnitee as provided
in this Agreement and to the fullest extent permitted by the DGCL in effect on
the date hereof and as amended from time to time (but, in the case of any such
amendment, only to the extent that such amendment permits the Company to provide
broader indemnification rights than such law permitted the Company to provide
prior to such amendment). Without limiting the scope of the indemnification
provided by this Section 2, the right to indemnification of the Indemnitee
provided hereunder shall include, but shall not be limited to, those rights
hereinafter set forth; provided, however, that no indemnification shall be paid
to the Indemnitee:

      (a)   to the extent prohibited by the DGCL, the Certificate of
            Incorporation or the Bylaws;

      (b)   to the extent payment with respect to any indemnifiable matter is
            actually made to the Indemnitee under a valid and collectible
            insurance policy or under a valid and enforceable indemnity clause,
            bylaw or other agreement of the Company or any other Person on whose
            board the Indemnitee serves at the request of the Company; or

      (c)   in connection with an action, suit or proceeding, or part thereof
            (including claims and counterclaims) initiated by the Indemnitee,
            except a judicial proceeding or arbitration pursuant to Section 10
            to enforce the rights under this Agreement, unless the action, suit
            or proceeding (or part thereof) was authorized by the Board.

      3. Indemnification in Proceedings other than Proceedings by or in the
Right of the Company. Subject to Section 2, the Indemnitee shall be entitled to
the indemnification rights provided in this Section 3 if the Indemnitee was, is,
or is threatened to be made, a party to or a

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participant in any Proceeding (other than a Proceeding by or in the right of the
Company) by reason of the Indemnitee's Corporate Status, or by reason of
anything done or not done by the Indemnitee in any such capacity. Pursuant to
this Section 3, the Indemnitee shall be indemnified against all costs,
judgments, penalties, fines, liabilities, amounts paid in settlement by or on
behalf of the Indemnitee, and Expenses (including all interest, assessments and
other charges paid or payable in connection with or in respect of such Expenses)
actually and reasonably incurred by or on behalf of the Indemnitee in connection
with such Proceeding or any claim, issue or matter therein, if the Indemnitee
acted in good faith and in a manner the Indemnitee reasonably believed to be in
or not opposed to the best interests of the Company, and with respect to any
criminal Proceeding, had no reasonable cause to believe the Indemnitee's conduct
was unlawful.

      4. Indemnification in Proceedings by or in the Right of the Company.
Subject to Section 2, the Indemnitee shall be entitled to the indemnification
rights provided in this Section 4 if the Indemnitee was, is, or is threatened to
be made, a party to or participant in any Proceeding brought by or in the right
of the Company to procure a judgment in its favor by reason of the Indemnitee's
Corporate Status, or by reason of anything done or not done by the Indemnitee in
any such capacity. Pursuant to this Section 4, the Indemnitee shall be
indemnified against all costs, judgments, penalties, fines, liabilities, amounts
paid in settlement by or on behalf of the Indemnitee, and Expenses (including
all interest, assessments and other charges paid or payable in connection with
or in respect of such Expenses) actually and reasonably incurred by or on behalf
of the Indemnitee in connection with such Proceeding or any claim, issue or
matter therein, if the Indemnitee acted in good faith and in a manner the
Indemnitee reasonably believed to be in or not opposed to the best interests of
the Company; provided, however, that no such indemnification shall be made in
respect of any claim, issue or matter as to which applicable law expressly
prohibits such indemnification by reason of any adjudication of liability of the
Indemnitee to the Company, unless and only to the extent that the Court of
Chancery of the State of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, the Indemnitee is
entitled to indemnification for such costs, judgments, penalties, fines,
liabilities and Expenses as such court shall deem proper.

      5. Indemnification for Costs, Charges and Expenses of Successful Party.
Notwithstanding the limitations of Sections 3 and 4, to the extent that the
Indemnitee is successful, on the merits or otherwise, in whole or in part, in
defense of any Proceeding or in defense of any claim, issue or matter therein,
including, without limitation, the dismissal of any action without prejudice, or
if it is ultimately determined that the Indemnitee is otherwise entitled to be
indemnified against Expenses, the Indemnitee shall be indemnified against all
Expenses actually and reasonably incurred by the Indemnitee in connection
therewith.

      6. Partial Indemnification. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the costs, judgments, penalties, fines, liabilities or Expenses
actually and reasonably incurred in connection with any Proceeding, but not,
however, for the total amount thereof, the Company shall nevertheless indemnify
the Indemnitee for the portion of such costs, judgments, penalties, fines,
liabilities and Expenses actually and reasonably incurred to which the
Indemnitee is entitled.

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      7. Indemnification for Expenses of a Witness and Additional Expenses.
Notwithstanding any other provision of this Agreement, to the maximum extent
permitted by applicable law, the Indemnitee shall be entitled to indemnification
against all Expenses actually and reasonably incurred or suffered by the
Indemnitee or on the Indemnitee's behalf if the Indemnitee appears as a witness
or otherwise incurs legal expenses as a result of or related to the Indemnitee's
service as a director or officer of the Company, in any threatened, pending or
completed legal, administrative, investigative or other proceeding or matter to
which the Indemnitee neither is, nor is threatened to be made, a party.

      8. Determination of Entitlement to Indemnification. Upon written request
by the Indemnitee for indemnification pursuant to Sections 3, 4, 5, 6 or 7, the
entitlement of the Indemnitee to indemnification, to the extent not expressly
provided for pursuant to the terms of this Agreement, shall be determined by the
following person or persons, who shall be empowered to make such determination:
(a) if a Change of Control shall have occurred, by Independent Counsel in a
written opinion to the Board, a copy of which shall be delivered to the
Indemnitee; and (b) if a Change of Control shall not have occurred, (i) by the
Board by a majority vote of Disinterested Directors, whether or not such
majority constitutes a quorum; (ii) by a committee of Disinterested Directors
designated by a majority vote of such directors, whether or not such majority
constitutes a quorum; (iii) if there are no Disinterested Directors, or if the
Disinterested Directors so direct, by Independent Counsel in a written opinion
to the Board, a copy of which shall be delivered to the Indemnitee; or (iv) the
stockholders of the Company. Such Independent Counsel shall be selected by the
Board and approved by the Indemnitee. Upon any failure of the Board so to select
such Independent Counsel or upon the failure of the Indemnitee so to approve,
such Independent Counsel shall be selected upon application to a court of
competent jurisdiction. Such determination of entitlement to indemnification
shall be made not later than 30 days after receipt by the Company of a written
request for indemnification. Such request shall include documentation or
information that is necessary for such determination and which is reasonably
available to the Indemnitee. Any Expenses incurred by the Indemnitee in
connection with a request for indemnification or payment of Expenses hereunder,
under any other agreement, any provision of the Certificate of Incorporation,
Bylaws or any directors' and officers' liability insurance of the Company, shall
be borne by the Company. The Company shall indemnify the Indemnitee for any such
Expense and agrees to hold the Indemnitee harmless therefrom irrespective of the
outcome of the determination of the Indemnitee's entitlement to indemnification.
If the person or persons making such determination shall determine that the
Indemnitee is entitled to indemnification as to part (but not all) of the
application for indemnification, such person or persons shall reasonably prorate
such partial indemnification among the claims, issues or matters at issue at the
time of the determination. If it is determined that the Indemnitee is entitled
to indemnification, payment to the Indemnitee shall be made within seven days
after such determination.

      9. Presumptions and Effect of Certain Proceedings. The Secretary of the
Company shall, promptly upon receipt of the Indemnitee's request for
indemnification, advise in writing the Board or such other person or persons
empowered to make the determination as provided in Section 8 that the Indemnitee
has made such request for indemnification. Upon making such request for
indemnification, the Indemnitee shall be presumed to be entitled to
indemnification hereunder and the Company shall have the burden of proof in
making any determination contrary

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to such presumption. If the person or persons so empowered to make such
determination shall have failed to make the requested determination with respect
to indemnification within 30 days after receipt by the Company of such request,
a requisite determination of entitlement to indemnification shall be deemed to
have been made and the Indemnitee shall be absolutely entitled to such
indemnification, absent actual and material fraud in the request for
indemnification. The termination of any Proceeding described in Sections 3 or 4
by judgment, order, settlement or conviction, or upon a plea of nolo contendere
or its equivalent, shall not, of itself, (a) create a presumption that the
Indemnitee did not act in good faith and in a manner that the Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, or, with respect to any criminal Proceeding, that the Indemnitee had
reasonable cause to believe that the Indemnitee's conduct was unlawful; or (b)
otherwise adversely affect the rights of the Indemnitee to indemnification
except as may be provided herein.

      10. Remedies of the Indemnitee in Cases of Determination not to Indemnify
or to pay Expenses. In the event that a determination is made that the
Indemnitee is not entitled to indemnification hereunder or if payment has not
been timely made following a determination of entitlement to indemnification
pursuant to Sections 8 and 9, or if Expenses are not paid pursuant to Section
15, the Indemnitee shall be entitled to final adjudication in a court of
competent jurisdiction of entitlement to such indemnification or payment.
Alternatively, the Indemnitee, at the Indemnitee's option, may seek an award in
an arbitration to be conducted by a single arbitrator pursuant to the rules of
the American Arbitration Association, such award to be made within 60 days
following the filing of the demand for arbitration. The Company shall not oppose
the Indemnitee's right to seek any such adjudication or award in arbitration or
any other claim. The determination in any such judicial proceeding or
arbitration shall be made de novo and the Indemnitee shall not be prejudiced by
reason of a determination (if so made) pursuant to Section 8 or 9 that the
Indemnitee is not entitled to indemnification. If a determination is made or
deemed to have been made pursuant to the terms of Section 8 or 9 that the
Indemnitee is entitled to indemnification, the Company shall be bound by such
determination and is precluded from asserting that such determination has not
been made or that the procedure by which such determination was made is not
valid, binding and enforceable. The Company further agrees to stipulate in any
such court or before any such arbitrator that the Company is bound by all the
provisions of this Agreement and is precluded from making any assertions to the
contrary. If the court or arbitrator shall determine that the Indemnitee is
entitled to any indemnification or payment of Expenses hereunder, the Company
shall pay all Expenses actually and reasonably incurred by or on behalf of the
Indemnitee in connection with or in relation to such adjudication or award in
arbitration (including, but not limited to, any appellate Proceedings).

      11 . Non-Exclusivity. Indemnification and payment of Expenses provided by
this Agreement shall not be deemed exclusive of any other rights to which the
Indemnitee may now or in the future be entitled under any provision of the
Bylaws of the Company or other organizational documents of the Company, vote of
stockholders or resolution of directors, provision of law, agreement or
otherwise.

      12. Expenses to Enforce Agreement. In the event that the Indemnitee is
subject to or intervenes in any Proceeding in which the validity or
enforceability of this Agreement is at issue or seeks an adjudication or award
in arbitration to enforce the Indemnitee's rights under, or to recover damages
for breach of, this Agreement, the Indemnitee, if the Indemnitee prevails in

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whole or in part in such action, shall be entitled to recover from the Company
and shall be indemnified by the Company against any actual Expenses incurred by
the Indemnitee.

      13. Continuation of Indemnity. All agreements and obligations of the
Company contained herein shall continue during the period the Indemnitee is a
director, officer, employee, fiduciary or agent of the Company or is serving at
the request of the Company as a director, officer, employee, fiduciary or agent
of any other entity (including, but not limited to, another corporation,
partnership, limited liability company, joint venture, trust, employee benefit
plan or other enterprise) and shall continue thereafter with respect to any
possible claims based on the fact that the Indemnitee was a director, officer,
employee, fiduciary or agent of the Company or was serving at the request of the
Company as a director, officer, employee, fiduciary or agent of any other entity
(including, but not limited to, another corporation, partnership, limited
liability company, joint venture, trust, employee benefit plan or other
enterprise). This Agreement shall be binding upon all successors and assigns of
the Company (including any transferee of all or substantially all its assets and
any successor by merger or operation of law) and shall inure to the benefit of
the heirs, personal representatives and estate of the Indemnitee.

      14. Notification and Defense of Claim. Promptly after receipt by the
Indemnitee of notice of any Proceeding, the Indemnitee will, if a claim in
respect thereof is to be made against the Company under this Agreement, notify
the Company in writing of the commencement thereof; but the omission so to
notify the Company will not relieve it from any liability that it may have to
the Indemnitee. Notwithstanding any other provision of this Agreement, with
respect to any such Proceeding of which the Indemnitee notifies the Company:

            (a) the Company shall be entitled to participate therein at its own
      expense; and

            (b) except as otherwise provided in this Section 14(b), to the
      extent that it may wish, the Company, jointly with any other indemnifying
      party similarly notified, shall be entitled to assume the defense thereof,
      with counsel satisfactory to the Indemnitee. After notice from the Company
      to the Indemnitee of its election so to assume the defense thereof, the
      Company shall not be liable to the Indemnitee under this Agreement for any
      expenses of counsel subsequently incurred by the Indemnitee in connection
      with the defense thereof except as otherwise provided below. The
      Indemnitee shall have the right to employ the Indemnitee's own counsel in
      such Proceeding, but the fees and expenses of such counsel incurred after
      notice from the Company of its assumption of the defense thereof shall be
      at the expense of the Indemnitee unless, (i) the employment of counsel by
      the Indemnitee has been authorized by the Company, (ii) the Indemnitee
      shall have reasonably concluded that there may be a conflict of interest
      between the Company and the Indemnitee in the conduct of the defense of
      such action, or (iii) the Company shall not within 15 days of receipt of
      notice from the Indemnitee in fact have employed counsel to assume the
      defense of the action, in each of which cases the fees and expenses of the
      Indemnitee's counsel shall be at the expense of the Company. The Company
      shall not be entitled to assume the defense of any Proceeding brought by
      or on behalf of the Company or as to which the Indemnitee shall have made
      the conclusion provided for in (ii) above; and

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            (c) if the Company has assumed the defense of a Proceeding, the
      Company shall not be liable to indemnify the Indemnitee under this
      Agreement for any amounts paid in settlement of any Proceeding effected
      without the Company's prior written consent. The Company shall not settle
      any Proceeding in any manner that would impose any penalty or limitation
      on or disclosure obligation with respect to the Indemnitee without the
      Indemnitee's prior written consent. Neither the Company nor the Indemnitee
      will unreasonably withhold its consent to any proposed settlement.

      15. Payment of Expenses. All Expenses incurred by the Indemnitee in
advance of the final disposition of any Proceeding shall be paid by the Company
at the request of the Indemnitee, each such payment to be made within seven days
after the receipt by the Company of a statement or statements from the
Indemnitee requesting such payment or payments from time to time, whether prior
to or after final disposition of such Proceeding. The Indemnitee's entitlement
to such Expenses shall include those incurred in connection with any Proceeding
by the Indemnitee seeking a judgment in court or an adjudication or award in
arbitration pursuant to this Agreement (including the enforcement of this
provision). Such statement or statements shall reasonably evidence the expenses
and costs incurred by the Indemnitee in connection therewith and shall include
or be accompanied by an undertaking, in substantially the form attached as
Exhibit A, by or on behalf of the Indemnitee to reimburse such amount if it is
finally determined, after all appeals by a court of competent jurisdiction, that
the Indemnitee is not entitled to be indemnified against such Expenses by the
Company as provided by this Agreement or otherwise. The payment of Expenses
shall be made without regard to the Indemnitee's ability to repay the Expenses
and without regard to the Indemnitee's ultimate entitlement to indemnification
under the other provisions of this Agreement. The payment of Expenses shall be
unsecured and interest-free.

      16. Severability: Prior Indemnification Agreements. If any provision or
provisions of this Agreement shall be held to be invalid, illegal or
unenforceable for any reason whatsoever (a) the validity, legality and
enforceability of the remaining provisions of this Agreement (including without
limitation, all portions of any paragraphs of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that are not by
themselves invalid, illegal or unenforceable) shall not in any way be affected
or impaired thereby, and (b) to the fullest extent possible, the provisions of
this Agreement (including, without limitation, all portions of any paragraph of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or unenforceable) shall
be construed so as to give effect to the intent of the parties that the Company
provide protection to the Indemnitee to the fullest enforceable extent. This
Agreement shall supersede and replace any prior indemnification agreements
entered into by and between the Company and the Indemnitee and any such prior
agreements shall be terminated upon execution of this Agreement.

      17. Headings; References: Pronouns. The headings of the sections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
References herein to section numbers are to sections of this Agreement. All
pronouns and any variations thereof shall be deemed to refer to the masculine,
feminine, neuter, singular or plural as appropriate.

      18. Definitions. For purposes of this Agreement:

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      "Beneficial Owner" shall have the meaning set forth in Rule 13d-3 under
the Securities Exchange Act of 1934.

      "Board" means the Board of Directors of the Company.

      "Bylaws" means the Bylaws of the Company.

      "Certificate of Incorporation" means Certificate of Incorporation of the
      Company.

      "Change in Control" means the occurrence of any one of the following:

            (a) any Person, including any "group", as defined in Section
      13(d)(3) of the Securities Exchange Act of 1934, (other than any
      shareholders at the 2004 Closing) is or becomes the Beneficial Owner,
      directly or indirectly, of securities of the Company representing a
      majority of the combined voting power of the Company's then outstanding
      securities, excluding any Person who becomes such a Beneficial Owner in
      connection with a Qualifying Business Combination described in paragraph
      (c) below or who becomes such a Beneficial Owner as a result of a change
      in ownership percentage resulting solely from an acquisition of securities
      by the Company; or

            (b) the following individuals cease for any reason to constitute a
      majority of the number of directors then serving on the Board: individuals
      who, as of the 2004 Closing, constitute the Board and any new director
      whose appointment or election by the Board or nomination for election by
      the Company's shareholders was approved or recommended by a vote of at
      least 66-2/3% of the directors then still in office who either were
      directors at the 2004 Closing or whose appointment, election or nomination
      for election was previously so approved or recommended; or

            (c) there is consummated a reorganization, merger or consolidation
      of the Company with, or sale or other disposition of at least 80% of the
      assets of the Company in one or a series of related transactions to, any
      other Person (a "Business Combination"), other than a Business Combination
      that would result in the voting securities of the Company outstanding
      immediately prior to such Business Combination continuing to represent
      (either by remaining outstanding or by being converted into voting
      securities of the surviving entity or any parent thereof) more than 50% of
      the combined voting power of the securities of the Company or such
      surviving entity or any parent thereof outstanding immediately after such
      Business Combination (a "Qualifying Business Combination"); or

            (d) the shareholders of the Company approve a plan of complete
      liquidation or dissolution of the Company or there is consummated an
      agreement for the sale or disposition by the Company of all or
      substantially all the Company's assets, other than a sale or disposition
      by the Company of all or substantially all the Company's assets to an
      entity, more than 50% of the combined voting power of the outstanding
      securities of which is owned by shareholders of the Company in
      substantially the same proportions as their ownership of the Company
      immediately prior to such sale.

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      "Corporate Status" means the status of a person who is or was a director,
officer, employee, fiduciary or agent of the Company or of any other entity
including, but not limited to, another corporation, partnership, limited
liability company, joint venture, trust, employee benefit plan or other
enterprise that such person is or was serving at the request of the Company.

      "DGCL" means the Delaware General Corporation Law.

      "Disinterested Director" means a director of the Company who is not or was
not a party to the Proceeding in respect of which indemnification is being
sought by the Indemnitee.

      "Expenses" includes, without limitation, expenses incurred in connection
with the defense or settlement of any and all investigations, judicial or
administrative proceedings or appeals, court costs, transcript costs, attorneys'
fees, witness fees and expenses, fees and expenses of accountants and other
advisors, expert fees and expenses, duplication costs, printing and binding
costs, telephone charges, postage, delivery service fees, retainers and
disbursements and advances thereon, the premium, security for, and other costs
relating to any bond (including cost bonds, appraisal bonds or their
equivalents), and any expenses of establishing a right to indemnification under
Sections 8, 10 and 12 but shall not include the amount of judgments, fines or
penalties actually levied against the Indemnitee.

      "Independent Counsel" means a law firm or a member of a law firm that is
experienced in matters of corporation law and neither currently is nor in the
past three years has been retained to represent: (a) the Company (or any
majority stockholder thereof) or the Indemnitee or any affiliate of either
thereof in any matter material to either such party, or (b) any other party to
the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or the Indemnitee in an action to determine the Indemnitee's right to
indemnification under this Agreement. The Company agrees to pay the reasonable
fees of the Independent Counsel referred to above and to fully indemnify such
counsel against any and all Expenses, claims, liabilities and damages arising
out of or in relation to this Agreement or its engagement pursuant hereto.

      "Person" means an individual, a partnership, a joint venture, a
corporation, an association, a trust, an estate or other entity or organization,
including a government or any department or agency thereof.

      "Proceeding" includes any threatened, pending or completed investigation,
action, suit, arbitration, alternate dispute resolution, mechanism, inquiry,
administrative hearing or any other proceeding, whether brought by or in the
right of the Company or otherwise, against the Indemnitee, for which
indemnification is not prohibited under Sections 2(a), (b), (c) and (d) and
whether of a civil, criminal, administrative or investigative nature, including,
but not limited to, actions, suits or proceedings in which the Indemnitee may be
or may have been involved as a party or otherwise, by reason of the fact that
the Indemnitee is or was a director, officer, employee, fiduciary or agent of
the Company, or is or was serving, at the request of the Company, as a director,
officer, employee, fiduciary or agent of any other entity, including, but not
limited to, another corporation, partnership, limited liability company, joint
venture, trust,

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employee benefit plan or other enterprise, or by reason of anything done or not
done by the Indemnitee in any such capacity, whether or not the Indemnitee is
acting or serving in such capacity at the time any liability or expense is
incurred for which indemnification, reimbursement or advancement of expenses can
be provided under this Agreement.

      "2004 Closing" means September 28, 2004.

      19. Miscellaneous. (a) This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware.

      (b) This Agreement may be executed in one or more counterparts, each of
which shall for all purposes be deemed to be an original but all of which
together shall constitute one and the same agreement. Only one such counterpart
signed by the party against whom enforceability is sought need be produced as
evidence of the existence of this Agreement.

      (c) This Agreement shall not be deemed an employment contract between the
Company and the Indemnitee who is an officer of the Company.

      (d) Upon a payment to the Indemnitee under this Agreement, the Company
shall be subrogated to the extent of such payment to all the rights of the
Indemnitee to recover against any Person for such liability, and the Indemnitee
shall execute all documents and instruments required and shall take such other
actions as may be necessary to secure such rights, including the execution of
such documents as may be necessary for the Company to bring suit to enforce such
rights.

      (e) No supplement, modification or amendment of this Agreement shall be
binding unless executed in writing by both parties hereto. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.

      (f) The Company shall not be liable under this Agreement to make any
payment which is prohibited by applicable law, including, without limitation,
any liability of the Indemnitee to the Company under Section 16(b) of the
Securities Exchange Act of 1934.

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      IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.

                                   VANDA PHARMACEUTICALS INC.

                                   By:/s/ M. H. Polymeropoulos
                                      ------------------------------------------
                                      Name:  M. H. Polymeropoulos
                                      Title: CEO

                                   INDEMNITEE

                                   ---------------------------------------------
                                   Name:
                                   Title:

                                       10<PAGE>

                                                                   EXHIBIT 10.12

                           VANDA PHARMACEUTICALS INC.
                              EMPLOYMENT AGREEMENT

            This Employment Agreement (this "Agreement") is entered into as of
February 10, 2005 by and between Mihael H. Polymeropoulos (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 Chief Executive Officer. The Employee shall be subject to the
supervision of, and shall have such authority as is delegated to him by, the
board of directors of the Company (the "Board"), consistent with his position as
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 consistent with his position as Chief Executive
Officer.

                  (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 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 $362,250.
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 40% of
his Base

<PAGE>

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 918,400
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 option shall accelerate and become vested with respect to 100% of
the option shares 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 me 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; (ii) a
reduction in the Employee's base salary by more than 10%, unless pursuant to a
Company-wide reduction affecting all employees proportionately; or (iii) a
change in Employee's position with the Company that materially reduces his level
of authority or responsibility (including without limitation failure to nominate
him as a director of the Company).

                                       2
<PAGE>

            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 conditions of the
plan in question and to the determinations of any person or committee
administering such plan.

            4. BUSINESS EXPENSES. During the term of his Employment, the
Employee shall be authorized to incur necessary and reasonable travel,
entertainment and other business expenses in connection with bis duties
hereunder. The Company shall reimburse the Employee for such expenses upon
presentation of an itemized account and appropriate supporting documentation,
all in accordance with the Company's generally applicable policies.

            5. TERM OF EMPLOYMENT

                  (a) BASIC RULE. The Company agrees to continue the Employee's
Employment, and the Employee agrees to remain in Employment with the Company,
from the date of this Agreement until the date when the Employee's Employment
terminates pursuant to Subsection (b) or (c) below. The Employee's Employment
with the Company shall be "at will," meaning that either the Employee or the
Company may terminate the Employee's Employment at any time, with or without
cause. Any contrary representations which may have been made to the Employee
shall be superseded by this Agreement This Agreement shall constitute the full
and complete agreement between the Employee and the Company on the "at will"
nature of the Employee's Employment, which may only be changed in an express
written agreement signed by the Employee and a duly authorized officer of the
Company.

                  (b) TERMINATION. The Company may terminate the Employee's
Employment at any time and for any reason (or no reason), and with or without
cause, by giving the Employee notice in writing. The Employee may terminate his
Employment by giving the Company 14 days' advance notice in writing. The
Employee's Employment shall terminate automatically in the event of his death.

                  (c) PERMANENT DISABILITY. The Company may terminate the
Employee's Employment due to Permanent Disability by giving the Employee 30
days' advance notice in writing. For all purposes under this Agreement,
"Permanent Disability" shall mean that the Employee, at the time notice is
given, has failed to perform his duties under this Agreement for a period of not
less than 90 consecutive days as the result of his incapacity due to physical or
mental injury, disability or illness. In the event that the Employee
satisfactorily resumes the performance of substantially all of Ms duties
hereunder before the termination of bis Employment under this Subsection (c)
becomes effective, the notice of termination shall automatically be deemed to
have been revoked.

                  (d) RIGHTS UPON TERMINATION. Except as expressly provided in
Section 6, upon the termination of the Employee's Employment pursuant to this
Section 5, the Employee shall only be entitled to the compensation, benefits and
reimbursements described in Sections 2, 3 and 4 for the period preceding the
effective date of the termination. The payments under this Agreement shall fully
discharge all responsibilities of the Company to the Employee.

                                       3
<PAGE>

                  (e) TERMINATION OF AGREEMENT. This Agreement shall terminate
when all obligations of the parties hereunder have been satisfied. The
termination of this Agreement shall not limit or otherwise affect any of the
Employee's obligations under Section 7.

            6. TERMINATION BENEFITS.

                  (a) GENERAL RELEASE. Any other provision of this Agreement
 notwithstanding, Subsections (b) and (c) below shall not apply unless the
 Employee (i) has executed a general release (in a form prescribed by the
 Company) of all known and unknown claims that he may then have against the
 Company or persons affiliated with the Company and (ii) has agreed not to
 prosecute any legal action or other proceeding based upon any of such claims,

                  (b) SEVERANCE PAY. If, during the term of this Agreement, the
Company terminates the Employee's Employment for any reason other than Cause or
Permanent Disability, or the Employee terminates his Employment for Good Reason,
then the Company shall pay the Employee;

                        (i) BASE COMPENSATION. His Base Compensation for a
period of 12 months following the termination of his Employment (the
"Continuation Period"). Such Base Compensation shall be paid at the rate in
effect at the time of the termination of Employment and in accordance with the
Company's standard payroll procedures.

                        (ii) BONUS COMPENSATION. A bonus (the "Severance Bonus")
in an amount determined as follows:

                              (A) If the Employee's Employment is terminated
prior to the first anniversary of the date of this Agreement, the Severance
Bonus shall be equal to a pro-rata portion of the anticipated first-year Annual
Target Bonus as determined by the Board in good faith.

                              (B) If the Employee's Employment is terminated on
or following the first anniversary of the date of this Agreement and prior to
the third anniversary of the date of this Agreement, the Severance Bonus shall
be equal to the greater of (I) the most recent Annual Target Bonus and (II) the
average of Annual Target Bonuses awarded for the prior years.

                              (C) If the Employee's Employment is terminated on
or following the third anniversary of the date of this Agreement, the Severance
Bonus shall be equal to the greater of (I) the most recent Annual Target Bonus)
and (II) the average of Annual Target Bonuses awarded for the prior three years.

Such Severance Bonus shall be payable in accordance with the Company's standard
payroll procedures.

                  (c) HEALTH INSURANCE. If Subsection (b) above applies, and if
the Employee elects to continue his health insurance coverage under the
Consolidated Omnibus Budget Reconciliation Act ("COBRA") following the
termination of his Employment, then the Company shall pay the Employee's monthly
premium under COBRA until the earliest of (i) the

                                       4
<PAGE>

close of the Continuation Period, (ii) the expiration of the Employee's
continuation coverage under COBRA and (iii) the date when the Employee is
offered substantially equivalent health insurance coverage in connection with
new employment or self-employment.

            7. NON-SOLICITATION, NON-DISCLOSURE AND NON-COMPETITION, The
Employee has entered into a Proprietary Information and Inventions Agreement
with the Company, which agreement is incorporated herein by reference.

            8. SUCCESSORS.

                  (a) COMPANY'S SUCCESSORS. This Agreement shall be binding upon
any successor (whether direct or indirect and whether by purchase, lease,
merger, consolidation, liquidation or otherwise) to all or substantially all of
the Company's business and/or assets. For all purposes under this Agreement, the
term "Company" shall include any successor to the Company's business and/or
assets which becomes bound by this Agreement.

                  (b) EMPLOYEE'S SUCCESSORS. This Agreement and all rights of
the Employee hereunder shall inure to the benefit of, and be enforceable by, the
Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.

            9. MISCELLANEOUS PROVISIONS.

                  (a) NOTICE. Notices and all other communications contemplated
by this Agreement shall be in writing and shall be deemed to have been duty
given when personally delivered or when mailed by overnight courier, U.S.
registered or certified mail, return receipt requested and postage prepaid. In
the case of the Employee, mailed notices shall be addressed to him at the home
address which he most recently communicated to the Company in writing. In the
case of the Company, mailed notices shall be addressed to its corporate
headquarters, and all notices shall be directed to the attention of its
Secretary.

                  (b) MODIFICATIONS AND WAIVERS. No provision of this Agreement
shall be modified, waived or discharged unless the modification, waiver or
discharge is agreed to in writing and signed by the Employee and by an
authorized officer of the Company (other than the Employee). No waiver by either
party of any breach of, or of compliance with, any condition or provision of
this Agreement by the other party shall be considered a waiver of any other
condition or provision or of the same condition or provision at another time.

                  (c) WHOLE AGREEMENT. No other agreements, representations or
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement and the
Proprietary Information and Inventions Agreement contain the entire
understanding of the parties with respect to the subject matter hereof.

                  (d) WITHHOLDING TAXES. All payments made under this Agreement
shall be subject to reduction to reflect taxes or other charges required to be
withheld by law.

                                       5
<PAGE>

                  (e) CHOICE OF LAW. The validity, interpretation, construction
and performance of this Agreement shall be governed by the laws of the State of
Maryland (except their provisions governing the choice of law).

                  (f) SEVERABILITY. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision hereof, which shall remain in full force
and effect.

                  (g) ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement or the breach thereof, or the Employee's Employment
or the termination thereof, shall be settled in the State of Maryland, by
arbitration in accordance with the National Rules for the Resolution of
Employment Disputes of the American Arbitration Association. The decision of the
arbitrator shall be final and binding on the parties, and judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. The parties hereby agree that the arbitrator shall be empowered to
enter an equitable decree mandating specific enforcement of the terms of this
Agreement The Company and the Employee shall share equally all fees and expenses
of the arbitrator. The Employee hereby consents to personal jurisdiction of the
state and federal courts located in the State of Maryland for any action or
proceeding arising from or relating to this Agreement or relating to any
arbitration in which the parties are participants.

                  (h) NO ASSIGNMENT. This Agreement and all rights and
obligations of the Employee hereunder are personal to the Employee and may not
be transferred or assigned by the Employee at any time. The Company may assign
its rights under this Agreement to any entity that assumes the Company's
obligations hereunder in connection with any sale or transfer of all or a
substantial portion of the Company's assets to such entity.

                  (i) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

                  [REMAINDER OF PAGE LEFT BLANK INTENTIONALLY]

                                       6
<PAGE>

            IN WITNESS WHEREOF, each of the parties has executed this Agreement,
in the case of the Company by its duly authorized officer, as of the date first
written above.

                                   /s/ Mihael H. Polymeropoulos
                                   ---------------------------------------------
                                   Mihael H. Polymeropoulos

                                   VANDA PHARMACEUTICALS INC.

                                   By: /s/ A. Karabelas
                                   ------------------------------------------
                                   Title: Chairman

                                       7

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