UPDATE 1-Vanda shares soar 8-fold on surprise drug approval

* Schizophrenia drug OK comes after July setback

* Shares rise 643 percent

* Vanda sees launch later this year

* Vanda may consider partner (Recasts; adds CEO, analyst comment; updates shares)

By Esha Dey

BANGALORE, May 7 (Reuters) - Shares of Vanda Pharmaceuticals Inc (VNDA.O: Quote, Profile, Research) soared nearly eight-fold on Thursday, after the U.S. approval of its once-rejected schizophrenia drug stunned Wall Street.

The 643 percent jump in Vanda's shares comes a month after fellow biotechnology company Dendreon Corp (DNDN.O: Quote, Profile, Research) saw its stock more than double on positive data for its prostate cancer vaccine -- underscoring the potential bountiful rewards of investing in small pharmaceutical and biotech companies.

The two success stories may provide a spark for small drugmakers, which have struggled over the last year to raise capital because of the weak economy and tight credit markets, combined with concerns about healthcare reform.

"There's a lot less risk in most of these beaten up biotechs at these levels," said John McCamant, editor of the Medical Technology Stock Letter. "With this kind of reward you might want to dip the toes in, create a portfolio of five beaten up biotechs, or 10."