New rivals to Lunesta, particularly a generic version of Ambien, prompted David Amsellem of Friedman Billings & Ramsey to downgrade Sepracor this morning. He shaved sales estimates of the sleeping pill, Sepracor’s key drug, by nearly 10 percent. He now looks for the stock, which closed just below $48 last week, to sink to $43, instead of reaching $58, as he forecast previously.

Why the change of heart? Amsellem writes in an investor note that he polled 24 doctors and found 67 percent would switch patients to generic Ambien, once it becomes available. In general, docs say the price of a sleeping pill is an issue: 63 percent say reimbursement and cost is somewhat important to their prescribing choices, and 33 percent say itt’s very important.

He also thinks new prescription growth for Lunesta would be flat once generic Ambien appears. Half of the docs say generic Ambien won’t effect decisions to precribe Lunesta, while the rest were equally divided between prescribing Lunesta more or less. For Sepracor, that’s not a positive.

“The upcoming generic availability of Ambien may prove a bigger challenge to Lunesta than investors are anticipating,” he writes. Wall Street estimates for this year are “looking increasingly unrealistic.” Last year, sales for Lunesta, which cost $2.83 a pill, hit $567 million and the drug grabbed about 11 percent of the retail market for insomnia meds. [tags]Ambien, Lunesta, Merck, Sanofi-Aventis, Sepracor[/tags]