Glaxo will commercialize the product, which is under review for marketing approval in the European Union, in all markets worldwide excluding the U.S., Canada, Mexico and Japan under the name Lunivia. The company expects approval in the E.U. in the second half of 2008 and estimates the insomnia market in Europe to be around $500 million. Lunesta, which has been available in the U.S. since April 2005, generated product revenue of $566.8 million in 2006.

As part of the agreement, Sepracor will receive an initial payment of $20 million plus subsequent milestone-based payments that could total $155 million. The company will also receive double-digit royalties that will increase in line with sales and compensation for supplying the product to Glaxo.

Sepracor shares rose $1.35, or 4.9%, to $28.74. GlaxoSmithKline edged up 39 cents, or 0.7%, to $53.44.