The market for insomnia medications becomes more crowded and more fierce in a few months, thanks to the U.S. approval of a

Takeda Pharmaceuticals

drug that has several marketing advantages over existing products.

However, some analysts say they can't predict what effect the Japanese pharmaceutical giant's drug will have on competing products because it has certain disadvantages, too. Takeda expects to make the drug, Rozerem, available in late September. The Food and Drug Administration approved it Friday after markets had closed.

Rozerem's biggest advantage over major insomnia drugs Ambien, Sonata and Lunesta is that it isn't considered a controlled substance by the Drug Enforcement Administration. Even though the DEA has branded them as the mildest form of controlled substance, Takeda wins a marketing edge.

And like Lunesta's label, the Takeda label doesn't contain recommended limits on how long the drug should be prescribed. That's a marketing advantage over Sonata and Ambien, whose labels say they should be prescribed for seven to 10 days. (Doctors are allowed to prescribe these medications for longer periods of time, but the companies can't advertise them for long-term use.)

The FDA acted on a Takeda application that had been submitted in September. Rozerem is approved for adults based on clinical trials involving more than 4,200 patients.

Market Impact

Although Takeda isn't formally traded in the U.S. except on the pink sheets, shares of some insomnia-drug competitors traded vigorously on Monday.

The biggest impact was on

Sepracor

( SEPR), the maker of Lunesta, whose stock was down $2.68, or 4.9%, to $51.81 in heavier than average trading.

Lunesta entered the U.S. market April 4, and its sales sparked a

big revenue gain for the second quarter. Lunesta made a big splash because it was the first U.S. insomnia drug without the FDA-endorsed labeling restriction of short-term use.

Rozerem has "some novelty ... and some baggage," said Robert Hazlett of SunTrust Robinson Humphrey in a Monday report to clients. The drug works differently from other drugs, and it isn't a controlled substance, but "it has a narrow indication," he says.

The label says the Takeda drug is approved for "insomnia characterized by difficulty with

sleep onset, Hazlett says, "which is similar to the label of Sonata, sold by

King Pharmaceuticals

( KG).

Sonata has only 5% of the insomnia market, Hazlett says, as measured by total prescriptions tracked by IMS Health. Lunesta has 11%, and Ambien, from

Sanofi-Aventis

(SNY) - Get Report

has 84%. Ambien was approved by the FDA in December 1992; Sonata was approved in August 1999.

Dueling Labels

By contrast, Lunesta's label says the drug is approved "for insomnia without limitations

because it approves onset and sleep maintenance," says Hazlett, who reaffirmed his buy rating on Sepracor. Ambien has a similar label to Lunesta, except that Ambien's label calls for short-term use.

Hazlett also notes that Rozerem's label warns of potential fertility risks, such as decreased testosterone. "The possibility of decreased libido, lowered fertility and longer-term issues should provide plenty of ammunition for the Sepracor sales force," said Hazlett, who doesn't own shares and whose firm is a market maker in Sepracor's stock. "In sum, Rozerem is a novel but weak product."

A different view comes from David Woodburn of Prudential Equity Group who told clients on Monday that he was keeping his underperform rating on Sepracor. He dropped his rating from neutral earlier this month.

"We don't anticipate Rozerem having a significant negative effect" on Lunesta prescriptions immediately, he says. "The Rozerem label is not ideal, but still provides the product with more differentiation from market leader Ambien" than Sonata or Lunesta.

"Lunesta bulls will highlight that Rozerem is not indicated for sleep maintenance," he adds. "However, the safety/tolerability profile is best-in-class."

Woodburn's major concerns about Sepracor is that it must engage in an expensive fight with Takeda, Sanofi-Aventis and

Pfizer

(PFE) - Get Report

, which is helping

Neurocrine Biosciences

(NBIX) - Get Report

develop Indiplon.

Indiplon is now before the FDA, and Woodburn predicts it could reach the market in mid-2006. In addition, Sanofi-Aventis received conditional approval in April from the FDA for an extended release insomnia drug called Ambien CR. Sanofi-Aventis

didn't describe the conditions set by the FDA, and it didn't offer a timetable for meeting those conditions.

Woodburn predicts Ambien CR could get FDA approval in a few weeks. Until then, it cannot be determined if Ambien CR will have a more liberal label than Ambien, which will lose patent protection in October 2006.

Also in the hunt, although trailing the others, is

Merck

(MRK) - Get Report

, which is testing an experimental product, gaboxadol, which acts differently than other insomnia drugs. Merck has licensed the compound from Denmark's

H. Lundbeck

and is in late-stage clinical trials with the drug.

"The revenue expectations for Lunesta are too high and the expectations for promotional expense in 2006 and beyond are too low," says Woodburn, who doesn't own shares and whose firm is a market maker in the shares of Neurocrine Biosciences and Sepracor.

On Monday, shares of Neurocrine Biosciences lost 30 cents to $51.50. King added 1 cent to $10.90, Sanofi-Aventis gained 9 cents to $42.39, and Pfizer lost 4 cents to $26.46.