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Insomnia's Wake-Up Call
Alert investors have their eyes on Sepracor
and Neurocrine as they bring out new drugs that
battle sleeplessness -- and Sanofi's Ambien
One of the most successful and fastest-growing
drugs of these sleep-deprived times is Ambien.
The prescription sleeping pill, made by French
drug maker Sanofi-Sythelabo (SNY ), generated
$1.65 billion in worldwide sales in 2003, analysts
estimate, and dominates the insomnia market.
Soon, however, Ambien will be competitors. Two
companies -– Sepracor (SEPR ) and Neurocrine
Biosciences (NBIX ) –- have set on introducing
products that could oust Ambien from its top
spot (see BW Cover Story, 1/26/04, "I Can't
Sleep"). Advertisement
Backed by expensive marketing campaigns, new
drugs with fewer side
effects are set to fire up growth in the
insomnia drug market –- to as much as
$5 billion in sales in 2010, by some estimates.
"The market is growing 25% a year,"
says Neurocrine CEO Gary Lyons. "We believe
sleep is today where depression was 20 years
ago," he adds, referring to another area
where treatment and awareness soared as drugs
like Prozac emerged.
"The prevalence of insomnia is massively
large," says Sepracor CFO David Southwell.
Sleep experts figure some 82 million Americans
over the age of 15 have insomnia, and the prospect
of effective prescription drugs that don't lead
to the nightmarish dependencies associated with
sleeping pills of the past is appealing.
SPLITTING THE TAKE. Investors have already
flocked to Sepracor and Neurocrine. Their stocks
have risen, too, but to different heights. Neurocrine's
shares, at $57 as of Jan. 21, are up 17% over
the past 52 weeks. Sepracor stock has risen
around 117% in the same period, to $27. But
both players, with about $2 billion market caps,
could still gain, especially over the long haul,
analysts say.
Because Neurocrine has to share a significant
chunk of revenues –- about 50% -- with
marketing partner Pfizer (PFE ), the benefit
from launching Indiplon may not be a blockbuster.
"Not to say there's limited upside, but
there is profit-sharing there," says Ken
Wahl, analyst at Mehta Partners.
In contrast, Sepracor, which will market its
Estorra drug independently, keeps whatever revenue
it generates. Wahl predicts peak sales of $550
million to $600 million by 2009 for Estorra.
"Of the two companies, I would be more
inclined to invest in Sepracor than Neurocrine,"
says Wahl. (Mehta Partners has a position in
Sepracor in its hedge fund.)
MARKETING MIGHT. Sepracor has timing on its
side as well. Estorra is expected to be approved
in the summer of 2004, about a year ahead of
Neurocine's Indiplon. "That's a huge difference,"
says Weidong Huang, vice-president at TimesSquare
Asset Management. He sees Sepracor stock rising
to $40, a 54% jump, upon approval by the Food
& Drug Administration.
Sepracor will be competing against a highly
successful incumbent in Ambien, but Huang notes
that the challenger is no slacker at marketing.
It sells a "me-too" drug for asthma
called Xopanex that few expected would be a
big seller. But Sepracor boosted sales 37% in
one year, to $260 million in 2003. (TimesSquare
owns shares in Sepracor.)
Huang says Estorra could take about 25% of
Ambien's market share quickly, since its side-effect
profile is better. When Indiplon is launched,
Pfizer and Neurocrine could take another 25%
of the market. By 2006, as Ambien loses patent
protection and becomes available as a generic,
the two newer drugs likely will be splitting
most of the market for brand-name sleep drugs,
says Huang.
PATENT LOSS. Ambien's maker disputes that these
newcomers will be able to make such a big dent
so quickly. To fend off competition from both
upcoming generic copies of Ambien and the new
brand-name rivals, Sanofi is developing a staggered-release
version of Ambien it hopes to have on the market
by the end of 2005 (see BW, 1/26/04, "Exploring
New Paradigms in Sleep").
Still, investors with a long-term outlook might
want to consider the kind of marketing heft
that Pfizer brings to Neurocrine. Indiplon will
be third to reach the market, but with Pfizer
supporting it, some experts say the drug has
real potential to become No. 1 in the market,
with $1 billion in sales as soon as 2008. Neurocrine
is testing two formulations of Indiplon -–
one that's designed to last longer than Ambien
and a second, short-acting version that can
be taken in the middle of the night by people
who have trouble staying asleep.
Pfizer is especially motivated to make Indiplon
a success because many of its brand-name drugs
will be coming off patent soon, and it needs
a blockbuster to help offset those lost sales,
says Kris Jenner, drug analyst at T. Rowe Price.
(T. Rowe Price is a top institutional holder
in Neurocrine.)
STIFF COMPETITION. In the short term, though,
Sepracor is likely to be more attractive, says
Huang. "When I compare valuation and the
timeline on sleep-drug approval, I go with Sepracor,"
he says. Sales of a new metered-dose inhaler
version of Xopanex, along with sales from Estorra,
should boost Sepracor's top line in 2004 by
about 40%, to around $450 million. Sepracor
will file its 2003 results on Jan. 22. Analysts
on average expect a loss of $1.95 per share,
down from a $3.34 per share loss in 2002.
Neurocrine, by contrast, has some early-stage
drugs in the pipeline for cancer and autoimmune
diseases but no established blockbusters yet.
The potential for Indiplon revenues is the main
incentive investors have to buy its shares.
Some analysts compare the coming battle for
the sleep-drug market to the already intense
war over the impotence treatments. Marketing
powerhouse Pfizer has a dominant incumbent in
Viagra, but Eli Lilly's (LLY ) Cialis and Bayer's
(BAY ) Levitra are trying to horn in to the
market. All three companies are spending millions
in advertising and promotional campaigns for
these so-called lifestyle drugs. Expect the
same to happen in the insomnia market the next
year or so.
With reporting by Arlene Weintraub
Tsao covers financial markets for BusinessWeek
Online in New York
Edited by Beth Belton
source:-http://www.businessweek.com
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