Sepracor (NASDAQ:SEPR), which focuses on respiratory and central-nervous-system disorders, has been one of 2006's most volatile pharmaceutical stocks. Despite the shares' ups and downs, the company's most recent earnings suggest that its performance remains admirably steady.

Sepracor shares were first punished by investors' worries about competition to its insomnia drug, Lunesta, from Neurocrine Bioscience's (NASDAQ:NBIX) Indiplon. When Neurocrine failed to gain regulatory approval for Indiplon, Sepracor's stock rocketed back up. Sepracor's shares have also been jostled by rumors that the company might become an acquisition target. This is not the same situation as Serono (NYSE:SRA) or ImClone Systems (NASDAQ:IMCL) are in -- both companies publicly stated their interest in being purchased -- but as the rumors of a takeout have ebbed and flowed, Sepracor shares have followed suit.

For the second quarter, the company reported good revenue growth and earnings. Revenues increased 43% to $264 million year over year. Lunesta, which the company just launched last April, grew sales from $84 million in Q2 2005 to $139 million this quarter. With recent price, sales-force, and marketing increases, the company should be able to continue Lunesta's sales growth; if it maintains its current pace, the drug could eventually do $1 billion in sales.

The other bright spot for Sepracor is the upcoming Oct. 12 FDA review of its drug to treat chronic obstructive pulmonary disease (COPD). COPD affects more than 11 million Americans, so the drug has good sales potential if approved.

Not all is dreamy for Sepracor, though. I really detest that it might have gotten caught up in the stock-option-backdating scandal. In June, the Securities and Exchange Commission sent the company a letter requesting documents related to its stock option grants and practices. The company is investigating itself as well, and will hopefully report its findings soon.

Another negative: Sepracor lowered its guidance for 2006 earnings per share from $1.50 a share to $1.13, and slightly lowered its revenue forecast by $100 million, to $1.18 billion for the year.

The market for drugs to treat insomnia is growing rapidly. In this quarter alone, prescriptions grew more than 25% year over year. With Lunesta, Sepracor has a blockbuster drug on their hands, one which should capture a large part of this market now that the Indiplon competitive threat has eased. Thanks to Lunesta, I expect that for the next couple of years, Sepracor will be able to deliver above-average share-price growth to investors.

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Fool contributor Brian Lawler does not own shares of Sepracor. He welcomes your feedback at The Fool has a disclosure policy .