Shares of Vanda Pharmaceuticals (VNDA) surged as much as 15% in today's session as Novartis (NVS) has agreed to give the rights of Fanapt, a schizophrenia drug, back to the company. Novartis had high hopes when it first acquired the drug back in 2009 but since then the company has not been happy with its progress. The dispute occurred because Vanda wanted payments for the drug but Novartis refused, causing a legal dispute between the two companies. Vanda Pharmaceuticals demanded Novartis pay $539 million for their end of the deal but Novartis responded with legal action.

Fanapt was developed to treat people with schizophrenia, a mental illness that affects around 2.1 million people in the U.S. alone. Schizophrenia patients are unable to think clearly and distinguish reality from fantasy. Some of the symptoms include hallucinations, delusions, and paranoia. Fanapt had an opportunity to do well but fell short of a lot of expectations, since the schizophrenia market is expected to reach $1.4 billion by the year 2022.

Today's agreement to settle the dispute has allowed Vanda Pharmaceuticals to receive a $25 million investment from Novartis. In addition Vanda will also receive back the rights for Fanapt and will also have use of another schizophrenia drug known as AQW051. The AQW051 drug is Novartis' new schizophrenia drug that is currently underway in phase 2 clinical testing.  

Vanda Pharmaceuticals still has other drugs it is developing in late-stage clinical testing for other diseases. While Fanapt may or may not work out for Vanda, the company is still focused on targeting diseases of the central nervous system. The company is going after diseases that have a huge unmet medical need and for the time being it is in good shape in terms of the long-term value of its pipeline.