Sepracor's ( SEPR) third-quarter loss narrowed dramatically from a year ago, and the company's results easily beat Wall Street's estimates. The maker of the insomnia drug Lunesta lost $2.2 million, or 2 cents a share, on revenue of $205.7 million for the three months ended Sept. 30. For the same period last year, the Marlborough, Mass., company lost $130.4 million, or $1.40 a share, on revenue of $80.8 million. The latest quarter was aided by a gain of 17 cents a share from selling $18.3 million in Vicuron Pharmaceuticals stock after that drug developer was acquired by Pfizer ( PFE). Analysts polled by Thomson First Call had been expecting a loss of 60 cents a share on revenue of $165.7 million. "This was a great quarter with very strong top-line growth," says Marc Goodman of Morgan Stanley in a Tuesday research note. He has an overweight rating on the stock. He doesn't own shares, but his firm has had a recent investment banking relationship. The news drove Sepracor's stock up $2.13, or 3.9%, to $56.55, and volume was much heavier than normal. During the third quarter Lunesta, which was launched in April, produced sales of $100.9 million, followed by the asthma drug Xopenex with $92.5 million. Last month, another company asked the Food and Drug Administration to approve an application for generic Xopenex. Sepracor is suing the company, Breath Ltd., for patent infringement. Sepracor also said that later this year it expects to begin marketing Xopenex in a device that doesn't require chlorofluorocarbon propellants. The FDA has given the makers of asthma inhalers such as Xopenex until 2008 to remove ozone-depleting CFCs from their products. Although investors are cheering now, a big challenge is looming as Sepracor battles not only the insomnia market leader, Ambien from Sanofi-Aventis ( SNY), but other competitors as well.