Vanda Pharmaceuticals (NASDAQ:VNDA) received a very important FDA approval today for its drug Hetlioz, a melatonin receptor agonist that treats non-24 hour sleep wake disorder in the blind, for people who cannot see sunlight and thus have their circadian rhythms affected. The stock was initially up 15% on the news, but came back down to earth to close out the day up only 5%.

In this segment, Motley Fool health-care analyst David Williamson discusses the potential patient population for this orphan disorder, and how that potential market for the drug represents a disconnect with the company's $455 million market capitalization. He also points to the limited efficacy of the drug, and how it will have to compete with cheap melatonin, and why the commercial success of the drug is still in question. His advice to investors: Stay away until the company is able to demonstrate sales traction.

David Williamson has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.