Neurocrine Biosciences (NASDAQ:NBIX) is having a tough year. That's nothing new to many companies in the boom-and-bust biotech sector, but investors might reasonably have expected something better this year. This is the year, after all, that Neurocrine, founded in 1991, was expected to finally get its first product to the market. And that product, insomnia drug Indiplon, looks destined for major commercial success -- so much so that back in 2002, the company attracted no less than Pfizer (NYSE:PFE) as its marketing partner. Yet Neurocrine's shares trade near a two-year low.

Why should that be? I don't think it's earnings -- the company missed expectations for the fourth quarter by $0.05, yadda yadda yadda, but that's really not important to anyone but analysts -- or even delays in approval. I suspect that history is at work here, including the history of ICOS (NASDAQ:ICOS) and its product, erectile dysfunction drug Cialis. I'll explain what I mean in a moment, but first let's take a look at how the battle lines are being drawn over the new insomnia drugs.

Neurocrine is going for approval of two forms of Indiplon -- Indiplon-IR, an immediate-release version meant to help get users to sleep initially, and Indiplon-MR, a modified-release version to help users maintain sleep throughout the night. There were problems with the new drug application for Indiplon-IR submitted last October, requiring Neurocrine to reformat and resubmit the application.

Earlier this month, the company said it will get the application for Indiplon-IR back to the Food and Drug Administration late in the first quarter or in the second quarter. Assuming a typical 10-month review, that would push an approval to the beginning of 2006. Indiplon-MR should get the thumbs up or down around the same time.

Investors had been hoping for a late 2005 launch, and the delay will cost Neurocrine valuable time in its battle with Sepracor (NASDAQ:SEPR), which received FDA approval for its competing insomnia drug, Lunesta, on Dec. 15. But Neurocrine's delays really just level the playing field somewhat from last year, when Sepracor had its own setbacks.

The new drug application for Lunesta (which was known as Estorra) was submitted on Jan. 31, 2003. Bright-eyed optimists might have hoped for a late 2003 approval, but it wasn't until February 2004 that the FDA issued an "approvable" letter to Sepracor, asking for more data. Actual approval didn't come until last December, and Sepracor still has not been able to launch the drug because of issues about how prescriptions will be controlled by the Drug Enforcement Administration, or DEA (Lunesta is a Schedule IV controlled substance, as Indiplon likely will be). A report just this week suggests that this final roadblock may soon be removed: According to industry newsletter The Pink Sheet, Lunesta will be limited to five refills in a six-month period, which shouldn't pose much of a limitation to patients.

Nevertheless, Sepracor has yet to announce a firm launch date, and what once looked like a 18-month head start for Lunesta over Indiplon now looks to be closer to a year.

Competition sneaks up
The delays faced by the two companies help out some competitors hoping for late entry into the burgeoning insomnia market. While market-leading drug Ambien will lose patent protection as soon as October 2006, Sanofi-Aventis (NYSE:SNY) is looking to protect its franchise with its own continuous-release drug for sleep maintenance. Ambien CR could be approved by the middle of this year. Meanwhile, a drug called Ramelteon, aka TAK-375, from the Japanese pharmaceutical company Takeda was submitted for approval last September and could beat Indiplon to market. Moreover, this drug works with a different mechanism than Lunesta, Ambien, or Indiplon and may not be a DEA scheduled drug -- a significant potential marketing advantage. Another drug called Gaboxadol, being developed by Merck (NYSE:MRK) and Danish company H. Lundbeck, probably won't reach the market until 2008 but no longer looks like such a distant threat.

This mad rush to a consumer-driven market seems a little familiar to me. Neurocrine has started reminding me in many ways of ICOS, which makes me wary of investing in Neurocrine at this stage.

What do I mean? Well, ICOS' Cialis entered the market after some delays as a third-in-class drug -- the best-case scenario now facing Neurocrine. Cialis, like Indiplon, has some pretty clear benefits over the market leader (Viagra or Ambien) and some more arguable advantages over the second entry (Levitra or Lunesta). (In this case, I think Neurocrine has a weaker argument than ICOS for having the best-in-class drug, but we'll give it the benefit of the doubt for the moment.) Like Neurocrine, ICOS co-markets and shares profits with a large pharmaceuticals partner, Eli Lilly (NYSE:LLY). ICOS has had to rely on aggressive, expensive consumer advertising campaigns to promote its product, just as Neurocrine will. Both are targeting large markets that are arguably undertreated and have room for substantial expansion.

When I tally up the similarities and look at financials, I can't help but be struck by the fact that both companies have market caps around $1.5 billion. (Neurocrine is actually valued slightly higher than ICOS.) The big difference is that ICOS has been hawking Cialis for well over a year, and the company's shares have lost 49% of their value since Cialis was approved. And the kicker is that Cialis hasn't been a disappointment in any way. Worldwide sales in 2004 were $552 million, and the drug is well on its way to reaching or exceeding the $1 billion in peak sales that many analysts originally hoped for.

Obviously, these companies aren't identical, and I don't mean to push comparisons further than warranted. Neurocrine has a much more interesting looking pipeline to me than ICOS, for instance. Also, while Lilly ICOS, the joint venture that sells Cialis, is expected to become profitable for the first time this year, ICOS itself will continue to lose cash. Neurocrine is predicting profitability in 2006, the first year Indiplon is on the market.

On the positive side, I think there is a fairly low risk that Indiplon won't get approval, and I believe the drug will find a significant niche in the important and growing sleep aid market. But Neurocrine's $1.3 billion enterprise value and its similarities with ICOS suggest to me that there is relatively little upside to the company until we hear more about progress in the pipeline.

Now Sepracor, on the other hand, looks mighty expensive with a market cap of $6.2 billion and an enterprise value over $6.5 billion. To be fair, this is a whole different animal than Neurocrine -- Sepracor is pulling in healthy revenues and royalties from a series of approved products. But expectations for Lunesta are running high, and while analysts are projecting profitability for the company in 2006, the premium Sepracor enjoys over Neurocrine is pretty striking. Owning Neurocrine right now might make me toss and turn a bit, but Sepracor would keep me up at night.

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Fool contributor Karl Thiel does not own any of the stocks discussed in this article. If it put you to sleep, he may seek FDA approval. The Motley Fool has a disclosure policy.