If Neurocrine (NASDAQ:NBIX) were a boxer, the FDA would have delivered it a crushing uppercut this week. In a decision that Neurocrine described as "disturbing," "totally unanticipated," and "unprecedented" in a conference call, the FDA decided to issue Neurocrine's insomnia treatment indiplon a second approvable letter.

Neurocrine has been trying to get indiplon approved to help insomniacs fall asleep. It would compete with drugs like Sanofi-Aventis' (NYSE:SNY) Ambien franchise and Sepracor's (NASDAQ:SEPR) Lunesta in the multibillion-dollar sleep-drug market.

Following a May 2006 approvable letter, Neurocrine spent about a year meeting with the FDA and working on correcting the deficiencies the agency had cited, although it did not run any additional clinical trials.

According to Neurocrine, this week's approvable letter asked for a lot of new data not mentioned in the previous letter, including a study in elderly patients, a preclinical-level pregnancy study, and a safety study comparing indiplon to an already-approved insomnia drug. This unexpected shift in the approval hurdles for indiplon explained Neurocrine's executives' surprise.

Indiplon is definitely down for the count if Neurocrine needs to do so much trial work to get the drug past the FDA. Neurocrine said that it could do the pregnancy study in about six months and the study on the elderly in 18 months, but that the safety study would require "a massive, long-term trial."

If Neurocrine's assessment of what the FDA wanted for Indiplon approval was accurate, then the future seems similarly murky for nearly any other insomnia drug candidate, including Vanda Pharmaceuticals' (NASDAQ:VNDA) melatonin agonist.

With cash and investments expected to be around $165 million at the end of the year, and long-term debt of $53 million, Neurocrine's $185 million market capitalization is only approximately $73 million above its net cash level. However, the company also has multiple midstage drugs in its pipeline, and other valuable assets on its books.

As a result, Neurocrine shares will likely slowly inch upward over the next month, after a couple of days of selling pressure. Some investors who took a tax loss on their shares yesterday will eventually come back, once they reevaluate Neurocrine's pipeline assets. Without indiplon, though, Neurocrine faces a much longer and more difficult road toward any successful Rocky-like comeback.

More Foolish thoughts on the FDA's strong right hook:

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Fool contributor Brian Lawler does not own shares of any company mentioned in this article. The Fool has an A+ disclosure policy.