Merck's Snoozer of a Drug

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You're getting sleepy, very sleepy. Or maybe you're not. 

If you're in the second group of folks who aren't getting sleepy, Merck (NYSE: MRK  ) might soon have just the thing you need. The big pharma announced last week that the Food and Drug Administration accepted its New Drug Application for insomnia drug suvorexant. 

What are the prospects that suvorexant can put insomniacs to sleep but wake up Merck's stock, which has been drifting off over the past month? Let's take a look.

Rousing results
Merck's phase 3 study results showed suvorexant helps people fall asleep better than reading the U.S. tax code. The company conducted one of the longest insomnia studies ever, with 781 patients. Those patients taking suvorexant fell asleep faster and slept more soundly than patients taking placebo.

When the patients who took suvorexant stopped taking the drug, they found sleep more hard to come by. The study found that discontinuation of suvorexant resulted in patients taking almost 15 minutes longer to get to sleep and receiving nearly 22 minutes less sleep per night than when the patients took the drug.

If suvorexant is approved, it will be the first orexin receptor antagonist drug to hit the market. The brain produces chemicals called orexins to help it stay awake. Orexin receptor antagonists work by blocking these chemicals, which in turn allows individuals to sleep.

Eyes wide open
The National Institutes of Health estimates that as many as 70 million Americans experience problems falling asleep or staying asleep. Biopharmaceutical analysis firm Decision Resources projects that the worldwide insomnia drug market will top $5.6 billion in 2013.

The biggest players in the branded drug market currently include Ambien CR from Sanofi (NYSE: SNY  ) , Lunesta from Dainippon Sumitomo Pharma, and Sonata from Pfizer (NYSE: PFE  ) . However, generic products abound.

To win market share, Merck will need to show that suvorexant either works better than the main rivals, or as well as the other drugs but without addictive tendencies or withdrawal problems. Merck's studies so far only compare suvorexant against placebo, so it's difficult to know if the drug works better than its competitors.

However, the company found little problems for patients in withdrawing the usage of suvorexant. That could give Merck an edge over others that have drugs that are habit-forming or have withdrawal side effects. Merck also reported results from another study that showed patients taking suvorexant performed better in a driving test compared to patients taking zoplicone. Less next-day grogginess provides another possible marketing advantage for Merck.

You snooze, you lose
GlaxoSmithKline  (NYSE: GSK  ) is also in phase 2 with an orexin receptor antagonist. However, Merck has an opportunity to get to market first and potentially establish a strong presence. 

It could also benefit if Glaxo stumbles in its testing. Glaxo abandoned an earlier insomnia drug, almorexant, in 2011 after phase 3 studies didn't meet tolerability expectations.

At this point, Merck appears to be in good shape to succeed with suvorexant. A big win could mean pleasant dreams for shareholders.

For nearly 100 years, Merck's cutting-edge research has led to a number of medical breakthroughs. Today, however, this pharma stalwart is staring down a steep patent cliff and facing generic competition for its top-selling drug. Will Merck crumble under its own weight, or will it continue to pay dividends to investors for another century? To find out if this pharma giant has the stamina to keep its Bunsen burners alight, grab your copy of our brand new premium research report today. Our senior biotech analyst Brian Orelli, Ph.D., walks you through both the opportunities and threats facing Merck, and the report comes with a full 12 months of updates. Claim your copy now by clicking here.

Editor's note: A previous version of this article incorrectly stated that patients taking suvorexant performed better in a driving test compared to those taking eszopiclone (Lunesta). The Fool regrets the error.

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