Oct 14 (Reuters) - Vanda Pharmaceuticals ( VNDA ) on

Monday rejected UK-based Cycle Pharmaceuticals' second takeover

proposal, which values the drugmaker at $8 per share despite a

drop in Vanda's stock following the FDA's rejection of its

stomach condition drug.

The terms of Cycle Pharma's proposal are "economically

identical" to the previously evaluated and rejected offer, Vanda

said in a statement.

WHY IT'S IMPORTANT

Cycle Pharma's $8 per share proposal is an 80% premium to

Vanda's last closing price, valuing the company at $488 million.

The potential offer follows a 4.5% fall in Vanda's shares

after the U.S. Food and Drug Administration declined to approve

its drug for a stomach condition that disrupts digestion.

Vanda in June rejected the first takeover offer from Cycle

Pharma and a revised bid from contract manufacturer Future Pak.

CONTEXT

Vanda in April adopted a shareholder rights plan, known as a

"poison pill", to reduce the likelihood of a hostile takeover.

Vanda has three approved products, sleep disorder treatment

Hetlioz, Fanapt for bipolar I disorder and Ponvory to treat

multiple sclerosis.

KEY QUOTE

Vanda said its board of directors carefully reviewed the second

proposal and "unanimously determined that it substantially

undervalues Vanda and is not in the best interests of the

Company and its stockholders." Accordingly, the board has

determined not to pursue the proposal.

"We stand ready to work immediately with Vanda's board and

management team to reach an agreement that would provide a

compelling premium and certain cash value today for all Vanda

shareholders," Cycle Pharma said in a statement.

MARKET REACTION

Shares of Vanda are up 11.37% at $4.95.