The current insomnia market suffers from under-diagnosis, as only 20% of an estimated 36 million American adults affected by insomnia are ever diagnosed and treated each year. According to IMS Health, the United States insomnia market was $1.7 billion in 2002. The market leader, Ambien by Sanofi-Aventis, generated an estimated $1.7 billion in worldwide sales in 2003. Ambien accounted for 82% of worldwide sales in 2002. We feel Lunesta (if approved) will take significant market share from Ambien in the coming years and will grow to be the number one insomnia treatment within our coverage universe.

CURRENT TREATMENTS

The benzodiazepines have traditionally been recognized as the mainstay of therapy for the treatment of insomnia. Although the benzodiazepines have been useful in treating insomnia, they are associated with many adverse effects, particularly with long-term use of high doses. They pose problems such as altering sleep architecture, rebound insomnia when discontinued, possible hangover effects and abuse potential, as well as development of tolerance to the drug. Consequently, benzodiazepines are usually recommended for short-term use for insomnia.

Two newer non-benzodiazepine insomnia drugs, Ambien (Sanofi-Aventis) and Sonata (King Pharmaceuticals), have taken significant market share from the benzodiazepines because of their improved side effect profiles due to higher receptor selectivity. An advantage of these agents over some benzodiazepines is their rapid onset of action and short elimination half-life. These drugs have a better tolerability profile than then benzodiazepines, but treatment with these drugs still involves a risk of addiction. Typical side effects are drowsiness, dizziness, and headache (morning hangover effect). Consequently, both drugs are approved only for short-term (7-10 days) treatment of insomnia. In practice, given the risks of untreated insomnia, there is significant off-label use of the non-benzodiazepines beyond recommended duration of use. It is estimated that the mean duration of use per patient per year for Ambien and Sonata are 111 and 51 days, respectively.

DRUGS IN DEVELOPMENT

There is a significant unmet need for new insomnia drugs that are indicated for long-term use. The FDA is expected to approve two new drugs with such a potential.

Sepracor received an approvable letter from the agency in February for its benzodiazepine receptor agonist, Lunesta, for the treatment of insomnia characterized by difficulty falling asleep and/or difficulty maintaining sleep during the night and early morning in adults and older persons. For the first time, the indication cited in the approvable letter for a sleep aid does not limit the drug to short-term use.

Although its mechanism of action is similar to that of Sonata and Ambien, Lunesta has a longer half-life than either of these agents. Lunesta's extended duration of action helps people fall asleep and stay asleep.

Lunesta is not alone in attempting to unseat Ambien as the market leader. Neurocrine Biosciences is currently at the NDA stage with Indiplon IR and Indiplon MR for the insomnia market. Both Lunesta and Indiplon help trigger sleep onset and have been found to help people maintain sleep longer than Ambien. Both also appear to avoid the “hangover” effect some patients feel with Ambien.

Sepracor has an approval timing advantage. It will also market Lunesta alone and not share revenues with a partner. Neurocrine is also developing two formulations of Indiplon. The Indiplon MR version is designed to last as long as Lunesta and will compete directly with it. A shorter-acting version, Indiplon IR, can be taken in during the night by people who are having trouble staying asleep.

Lunesta, Indiplon, and Gaboxadol (Merck; Phase III stage), are all non-benzodiazipine drugs that, if approved, will overcome the adverse effects and treatment duration limitations of existing treatments for insomnia. These approvals will result in significant market share loss for Ambien.

REVENUE MODELS

Ambien-Sanofi-Aventis
Ambien has been the leader in the insomnia market for several years, however we predict this leadership to face stiff competition and an expired U.S. patent in 2006. We currently project peak U.S. revenue of $1.52 billion to occur in 2005 and revenues to dramatically drop down to $255 million by 2010.

Sonata-King Pharmaceuticals
Like Ambien, Sonata has been approved for several years, but has not had the success of Ambien. We currently project Sonata’s revenue to decline after 2005, with peak U.S. revenue occurring in 2005 at $137.5 million.

Lunesta-Sepracor
We are currently predicting Estorra to have the highest revenue potential in our insomnia universe. We project peak U.S. revenue of $1.74 billion in 2012. Sepracor plans to market Lunesta alone, but will have a time to market advantage over the similar drug Indiplon MR.

Indiplon MR-Neurocrine Biosciences
After Lunesta, we predict Indiplon MR to have the largest revenue potential, reaching peak U.S. revenue of $1.17 billion in 2012. Indiplon and Lunesta’s marketing battle should be interesting to watch, as Indiplon will have Pfizer behind its marketing efforts.

Indiplon IR-Neurocrine Biosciences
Indiplin IR addresses a smaller market than the MR version and looks more similar to Sonata. We currently project peak U.S. market share of $170.7 million in 2012. The two Indiplon versions should reach $1.35 billion in 2012 combined revenue.

Ambien CR-Sanofi-Aventis
Ambien CR should help Sanofi-Aventis fend off the severe revenue lost in Ambien, but it will still lag behind Lunesta and Indiplon MR. We currently project peak U.S. revenue of $600.0 million to occur in 2012. Combined with Ambien, total U.S. insomnia revenues for Sanofi-Aventis will be $900 million in 2012.

Gaboxadol-Merck
With Merck behind Gaboxadol, it has the potential to achieve significant revenues, though should trail both Lunesta and Indoplin in market share. We currently project peak U.S. revenue to occur in 2014 at $950.3 million.