Updated from 10:24 a.m. EDT

Hell froze over Wednesday night, right before a squadron of flying pigs took to the sky. These things must be true because the U.S. drug regulators also approved Vanda Pharmaceuticals' ( VNDA) treatment for schizophrenia.

The surprising -- some would say shocking -- approval of Vanda's drug Fanapt by the Food and Drug Administration sent shares of the company leaping more than 800% in Wednesday's after-hours trading session to just under $10 a share.

And no, that's not a typo. 800%. You read that correctly.

Wall Street had long ago left Fanapt for dead after the FDA rejected the drug in July 2008. The "not approvable" letter issued by the FDA at that time raised concerns about the efficacy of Fanapt and asked Vanda to conduct a new clinical trial and collect additional safety data.

Vanda didn't run a new clinical trial for Fanapt, choosing instead to resubmit the drug to the FDA last November with additional data from its existing clinical trials.

To say that investors considered this strategy to be long shot would be an understatement. Vanda's stock price fell well below $1, which valued the company at less than its cash on hand. Analysts either dropped coverage or downgraded the stock to a sell. The company was forced to lay off employees and cut back on other drug research programs.

On top of all that, activist hedge fund Tang Capital Partners bought up 3.96 million Vanda shares, or just under 15% of the company, and started a proxy fight for board seats in order to force Vanda to shut down and liquidate the remaining assets back to shareholders.

Vanda has been resisting Tang's efforts, but after Wednesday, the proxy fight seems moot. Vanda has an approved drug for schizophrenia that will compete in a $23 billion market for antipsychotic drugs, according to IMS Health.

And Tang, instead of fighting for Vanda table scraps, gets to enjoy the whole meal with an extra dessert now that its stake in the company has risen in value exponentially.

Also benefiting from Wednesday's Fanapt approval was RA Capital. The Boston-based hedge fund owns 1.54 million shares of Vanda, or 5.8% of the company, according to Securities and Exchange Commission filings. RA Capital was hit hard last week by the steep drop in the value of genetic test maker Sequenom ( SQNM).

It will be interesting to see if Vanda can sustain the stunning gains made in its stock price Wednesday night given what might be a tough competitive sales environment for Fanapt.

The FDA's approval of the drug was based on two studies in which Fanapt performed better than placebo, but the drug doesn't stack up as well against existing schizophrenia treatments, including Johnson & Johnson's ( JNJ) Risperdal and Pfizer's ( PFE) Geodon.

Risperdal is now sold in a generic form, which means Fanapt faces a low-priced competitor at a time when the recession is forcing patients to cut back on drug spending. And the drug was never compared against AstraZeneca's ( AZN) Seroquel, the leading antipsychotic drug used to treat schizophrenia.

Vanda shares rose 625.9% to $7.84 in Thursday trading.
At the time of publication, Feuerstein's Biotech Select model portfolio had no positions in any stocks mentioned.

Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.