By Ransdell Pierson

NEW YORK (Reuters) - U.S. biotechnology company Sepracor Inc (SEPR.O) on Wednesday suffered a double setback as its experimental depression drug failed a mid-stage study and U.S. regulators halted two pediatric studies of its blockbuster Lunesta insomnia pill, sending shares down 15 percent.

The biotechnology company said its experimental depression medicine, called SEP-225289, failed to reduce symptoms of depression following eight weeks of treatment in a Phase II study involving 514 patients.

Sepracor said the levels of the drug that reached the bloodstream were lower than expected and well below those seen in earlier trials. Moreover, side effects of the drug were inconsistent with those seen in the earlier studies, the company said.

"While we are clearly disappointed with the findings from the analysis of the preliminary study results, we are in the process of further analysis of the dose response and secondary endpoints to determine how or if we will take this novel mechanistic approach forward," Mark Corrigan, Sepracor's executive vice president of research and development said in a release.

The depression drug is a member of a fairly new class of medicines designed to maximize the presence in the brain of three messenger chemicals: serotonin, norepinephrine and dopamine. Standard medicines maximize only serotonin or serotonin and norepinephrine.

The other setback involved Lunesta, the company's top-selling medicine, with annual revenue of over $500 million.

The Marlborough, Massachusetts-based company had already completed two pediatric studies of Lunesta in 2008 and 2009, aimed at winning a 6-month extension of its U.S. patent on the sleeping pill.

It began two additional pediatric studies in April at the request of the FDA, but those studies have been put on "clinical hold" due to FDA concerns about non-clinical data that could be relevant to use of the medicine in children, Sepracor said.

Sepracor, in its release, did not identify the issues. Company officials could not immediately be reached for comment.

The company said the clinical hold does not relate to any findings observed in the pediatric studies, nor does it affect any ongoing trials of the medicine in adults.

Shares of Sepracor fell to $15.60 in after-hours trading, from their closing price Wednesday of $17.89 on the Nasdaq.

(Reporting by Ransdell Pierson; editing by Gunna Dickson)

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IT is unsettling to see the degree to which many in the business community are coming out in support of health-care reforms that further centralize control in the federal government.

Businesses in general, and small businesses in particular, have every reason to be concerned about the increasing burden of health care. However, the idea that more government control is the solution could not be further from the truth.

President Obama has made health care a priority issue for his administration. This is not the first time health care has been a federal priority. Since the attempts of the Clinton administration in the early 1990s, many states increased their efforts at health-care reform. The Obama administration can benefit from the experiences of these state programs.

Government-managed state reform plans like those tried in Washington, Oregon, Tennessee, Hawaii, Massachusetts and Maine have provided a clear indication of reforms that do not work. These programs used price controls, penalties for employer nonparticipation, mandates, and business and sin taxes among other things in an effort to centralize control of health-care costs and availability. In every case, the effects of these reforms were devastating. These states experienced an exodus of health-insurance companies, less competition from health-care providers, an increase in health-care premiums, a decrease in the quality and availability of care, and an increase in the number of uninsured.

Specifically, in Massachusetts lawmakers dramatically underestimated the cost of their "connector" system. Within two years, program costs doubled from $630 million to $1.3 billion per year, leading to a significant increase in both taxes and health-care premium rates. In January, Hawaii abandoned its children's health-coverage program after costs exceeded projections and no additional dollars could be found. Last November, voters in Maine repealed the excessive taxes needed to support their attempts at health-care reform, which cost $164 million to cover roughly 5,000 people.

During the same period, Florida, Georgia and Indiana enacted reforms that promoted market competition rather than centralized control. These states streamlined regulations; legalized economical, low-cost health-care coverage; encouraged voluntary small-business participation; and provided tax incentives for health-care-savings plans. In each case, these states experienced increased competition from health-care providers, price stabilization, expanded access to coverage for the uninsured, greater cost transparency and more involvement by participants in making decisions about their health-care needs.

These examples indicate that more government control, top-down mandates and price controls do not work. In fact, these reforms are detrimental to the quality, availability and cost of health care. Tragically, such reforms make it impossible for many small businesses to provide health-care benefits to their employees and force others to reduce the level of coverage they do provide. Unfortunately, early indications show the Obama administration leaning heavily toward centralized control.

The Obama administration can benefit from the lessons learned regarding health-care reform if it is willing to step away from centralized control, limit the role of government, and enact reforms that facilitate more consumer and market participation.

Employers can benefit from these lessons as well. The idea that the federal government can save small businesses from the burden of health care by providing a government-run system is completely without merit. These examples indicate that government does not do health care well. With this in mind, it would be a mistake to give government even greater control over health care.

The business community should support reforms that improve the quality, availability and affordability of health care by promoting competition, transparency and consumer participation.

Don Conant is general manager of Valley Nut & Bolt in Olympia. Judy Coovert is co-owner of PrintCom, Inc., a printing company in Burien. Both serve on the board of the Association of Washington Business, Washington state's chamber of commerce.