A new sleeping pill? Keep dreaming

A sluggish market is stymied by low-cost generics and a weak pipeline.

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By Aaron Smith, CNNMoney.com staff writer

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NEW YORK (CNNMoney.com) -- Insomnia sufferers have a lot to keep them awake at night: many of the available drugs are loaded with side-effects, and big drugmakers can't seem to get their act together on new treatments.

Up to 70 million Americans suffer from chronic sleep loss and disorders, according to the Centers for Disease Control. They could use a new drug, but the pipeline for sleeping pills recently suffered two big setbacks.

In December, the Food and Drug Administration tossed a wrench at Neurocrine Biosciences' experimental anti-insomnia drug Indiplon, requiring the biotech to do further time-consuming and expensive tests. Neurocrine's (NBIX) one-time partner, Pfizer (PFE, Fortune 500), had earlier backed out of an marketing deal, given Indiplon's difficulty getting approved. Neurocrine is in talks with the FDA to resolve its issues.

In March of 2007, Merck (MRK, Fortune 500) and its Danish partner Lundbeck dropped the experimental sleeping drug gaboxadol because of safety concerns. The drugmakers threw in the towel not long after the FDA announced a safety warning for the entire class of anti-insomnia drugs, based on reports of patients sleep-driving, sleep-eating and sleep-sex while under the influence of these drugs - with no memory of the actions afterward. The FDA also warned of allergic reactions and facial swelling.

The warnings apply to all the sleeping drugs that are currently on the market, including Ambien from Sanofi-Aventis, Sepracor's Lunesta, Sonata from King Pharmaceuticals and Takeda Pharmaceuticals' Rozerem. All these drugs, except for Rozerem, are addictive and work by sedating the patient. Rozerem works by controlling the internal sleep-wake cycle.

A mature market

Meanwhile, the existing market is stuck. "With a mature market like this, we have a lot of players," said Jon LeCroy, analyst for Natixis Bleichroeder. "But there's not a lot of innovation."

Sanofi-Aventis' patent expired on Ambien in 2007, making low-cost anti-insomnia drugs available to the public but flattening sales for Big Pharma. Sanofi's total Ambien franchise, which includes the spin-off drug Ambien CR, lost one-third of its value in 2007, falling below $2 billion. Sepracor's (SEPR) Lunesta sales edged up 6% in 2007 to $600 million. King Pharmaceuticals' (KG) sales for Sonata slipped slightly to $80 million last year.

"The perception is that they're all the same," said Manoj Garg, analyst for American Technology Research.

The perceived sameness is partly why drugmakers have scaled back advertising following the Ambien patent expiration, said Ken Trbovich, analyst for RBC Capital Markets. Advertising wasn't worth the price once a low-cost generic entered the picture, because "you're saturating the market with information on products that really aren't that different from each other."

Takeda Pharmaceuticals' Rozerem works differently from these other drugs, primarily because it's not an addictive sedative. But that drug, launched into the market in 2006, totaled little more than $30 million in 2007 sales.

"Rozerem hasn't done well, and they spent a lot of money" on advertising said Trbovich. The analyst said that Takeda's effort, featuring President Lincoln and a talking beaver as dream characters, was "one of the worst ad campaigns I've ever seen." While amusing, it did not convey a message of restful sleep, he said.

"At the end of the day, Ambien is a pretty good drug," said Garg. "So you have to have something that is demonstrably better."

In the pipeline

Somaxon Pharmaceuticals is waiting on an FDA decision on its experimental anti-insomnia drug Silenor. Somaxon (SOMX) chief financial officer Meg McGilley said it's not addictive, which could give it a competitive edge. A lower-dose generic version of the drug, doxepin, has also been available as an antidepressant since the 1960s, with no history of dangerous side effects, said McGilley.

"I think it's the first time since [Takeda's sleeping drug] Rozerem came out that insomnia patients will have a new drug to choose from," said McGilley.

But an-increasingly cautious FDA has made drugmakers nervous. Somaxon could have a difficult time wooing a marketing partner from Big Pharma.

"There's obviously a certain level of uncertainty, given the lack of willingness for partners to sign deals while these drugs are still in development," said Steven Silver, analyst for Standard & Poor's. "For this company, it's an all-or-nothing proposition. This is essentially what the company is built on."

The FDA is supposed to decide by mid-April whether it has accepted the application for Silenor. If the regulator goes ahead with the review, it could make its final decision by the end of the year. To top of page

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Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer.

Morningstar: © 2014 Morningstar, Inc. All Rights Reserved.

Factset: FactSet Research Systems Inc. 2014. All rights reserved.

Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved.

Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor’s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2014 and/or its affiliates.