Novartis said it expects to launch the drug in the U.S. early next year.
In May, Vanda pulled off an upset by winning U.S. regulatory approval to sell a drug most investors had abandoned. The U.S. anti-psychotic market is about $14 billion.
Shares of the tiny Rockville, Md., company jumped 14% to $13 after-hours. The stock is up more than 10 times in the past year.
Novartis shares rose 1 cent to $50.63 in after-hours trading. That stock is up 15% in the past year.
Under the agreement, which amended a prior deal between the companies, Novartis will have exclusive rights to commercialize Fanapt for the U.S. and Canada. Novartis will develop and commercialize a long-acting injectable version of the drug.
Vanda will receive an upfront payment of $200 million and will be eligible for more payments totaling up to $265 million at certain milestones. Vanda also will receive royalties on the U.S. and Canadian net sales of Fanapt.
The deal is expected to receive the required approvals by the end of the year.
Vanda will retain rights to commercialize Fanapt oral and depot formulations outside the U.S. and Canada. At Novartis' option, the companies will discuss the commercialization of Fanapt outside of the U.S. and Canada or Novartis will receive a royalty on net sales.
"With the launch of Fanapt in early 2010, we will broaden our presence in psychiatry and build on the heritage of Novartis in offering innovative treatments for devastating psychiatric diseases," said Ludwig Hantson, chief executive of Novartis Pharmaceuticals Corp.