Sepracor Inc. (SEPR), headquartered in Marlborough, Massachusetts, is a research-based pharmaceutical company focused on the treatment of respiratory and central nervous system disorders. The company's business fundamentals have been mixed over the past several quarters. Lunesta growth has been a disappointment, and with several new sleep medications coming to the market in the next few years, we see little that can be done to re-accelerate trends in the U.S.

As such, we find it hard to believe Sepracor's stock will outperform while Lunesta treads water. Thankfully, we are pleased to see management looking to move beyond Lunesta and expanding its respiratory franchise with the recent additions or two new products and several technology licensing deals. Additionally, the mid-stage pipeline is progressing nicely. Near term, the best opportunity to re-accelerate the topline could come with the approval of eslicarbazepine acetate in early 2010.

We are excited to see Sepracor starting to put its cash to work. Management should exit 2008 with roughly $810 million in cash on hand. This is a significant amount and affords management the ability to seek more deals in the coming quarters. Beside these small positive steps forward, Sepracor is very attractively valued at only 9x our 2008 EPS forecast of $1.36. This should help support the stock at the current level. Our near-term target predicts movement back to the $15 level.