BOSTON (Reuters) - Vanda Pharmaceuticals Inc. said on Wednesday that its experimental insomnia drug proved effective in a late-stage clinical trial, sending its shares up 37 percent in early trading.

A 412-patient Phase III trial showed that those taking the drug, VEC-162, fell asleep significantly faster and stayed asleep longer than those taking a placebo, the company said.

The drug helped patients fall asleep as much as 26.3 minutes faster than those taking a placebo, and helped them sleep as much as 48 minutes longer, Vanda said.

VEC-162, a melatonin receptor agonist, works by regulating the natural sleep/wake cycle and therefore does not appear to have the side effects often associated with hypnotics and sedatives, said Mihael Polymeropoulos, Vanda's chief executive officer.

He said the drug, if approved, should not be regulated as a controlled substance in the way most sedatives are.

Vanda, based in Rockville, Maryland, said circadian rhythm sleep disorders affect millions of Americans in a number of forms.

The market for sleep drugs is likely to grow to $4.4 billion in 2010 from $1.8 billion in 2004, according to analysts at Cowen & Co., and it is highly competitive.

VEC-162 is designed to treat patients with circadian rhythm sleep disorders, or CRSD. These are people such as shift workers whose internal sleep/wake cycle does not match their desired sleep time.

"VEC-162 has been shown to shift the circadian rhythm of sleep and thus targets an underlying cause of insomnia," said Corey Davis, an analyst at Natexis Bleichroeder Inc. "The drug acts on both sleep-promoting melatonin receptors MT1 which affects sleep onset, and MT2, which affects sleep maintenance."

A drug made by Takeda Pharmaceutical Co. of Japan called Rozerem acts on MT1 but not MT2, he said.

Rozerem, approved by U.S. regulators last year, has less risk of dependency than many other sleep aids, but it does not work as well to keep people asleep, analysts say, potentially giving Vanda's drug an advantage.

Vanda shares rose $3.61 to $13.37 in early trading on Nasdaq. The company first sold shares to the public earlier this year.

Source: http://www.ndtvprofit.com/homepage/news.asp?id=276401