(Reuters) -Vanda Pharmaceuticals 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.