Sleep drug awaits FDA wake-up call

NEW YORK (CNNMoney.com) -- Neurocrine Biosciences was set to learn on Wednesday whether federal regulators have approved Indiplon, an experimental short-acting sleeping pill analysts think will have a tough time competing.

Indiplon, if approved by the Food and Drug Administration, would be the newest entrant to the $4 billion U.S. market for sleeping pills. But Indiplon's status as a niche drug, and Neurocrine's lack of a Big Pharma marketing partner, means that the drug faces formidable hurdles in a competitive market.

In fact, analysts believe the drug's annual sales would not rise above $200 million.

Indiplon is a short-acting drug for insomniacs that only works for a short time, rather than the whole night. It would be used to put patients to sleep at the beginning of the night, or back to sleep in the middle of the night if they wake up, without its sedative effects lasting through the morning.

"Some people like the idea of taking a medication only when they need it," said Dr. Thomas Roth, consultant for Neurocrine and director of the Indiplon study that was submitted to the FDA, as well as director of sleep disorders research at the Henry Ford Hospital in Detroit. "This study shows you can take the medicine and not be hung-over the next morning."

Gary Lyons, chief executive of San Diego-based Neurocrine Biosciences (Charts), said in an interview earlier this year that Indiplon takes effect within 15 to 20 minutes and it only lasts for one hour. Lyons said that with longer-acting sleeping pills "you have a woman driving her kids to kindergarten with half the drug still in her system. You don't have that problem with Indiplon."

If approved, Indiplon would enter a sleeping pill industry that is already dominated by Sanofi-Aventis' (Charts) Ambien CR, Sepracor's (Charts) Lunesta, and King Pharmaceuticals' (Charts) Sonata, as well as Takeda's Rozerem, the only one of those drugs that does not use a sedative to put patients to sleep. There is also a generic low-cost version of Ambien.

Of all these drugs, Indiplon would compete directly against Sonata, which is also a short-acting sleeping pill, said Aileen Salares, analyst for Leerink Swann.

But the short-acting niche element to Indiplon is unlikely to make it a big seller, analysts say. Salares and another analyst, Jon LeCroy of Natixis Bleichroeder, believe that annual sales will peak at $150 million.

But the FDA decision could have a big impact on Neurocrine Biosciences, which has no other products on the market.

"The stock should move five bucks either way, depending on the outcome [of the FDA decision,]" said LeCroy. Neurocrine shares were trading at $10.11 a share in midday trade on Wednesday.

Neurocrine had tried to get Indiplon approved for the longer-acting dose, but the FDA shot down that effort in May of 2006. This caused the Neurocrine's stock to plunge, and prompted its Big Pharma partner Pfizer Inc. (Charts, Fortune 500) to sever its partnership to promote the drug.

As for the shorter-acting version of Indiplon, the FDA asked that Neurocrine provide more data about the drug. The FDA decision on Indiplon will be based on this additional data.

Neurocrine's stock activity has been wildly volatile in 2007. Indiplon's rocky road with the FDA has created consternation among investors, says Salares of Leerink Swann.

"We're cautious on this because of the checkered history of Indiplon," said Salares. "The upside is muted, because everyone is concerned about the prospects about the drug and that seems to be the overriding concern. They need a strong partner in order to develop the market."

There don't seem to be any takers from Big Pharma at the moment, said Salares.

The analysts interviewed for this story do not own stock in the companies mentioned here, but Leerink Swann makes a market in Neurocrine.