UPDATE 1-EU agency recommends against Takeda's Ramelteon

(Adds background on drug)

LONDON, June 2 (Reuters) - The European Medicines Agency has recommended against approval of Takeda Pharmaceutical Co Ltd's (4502.T) insomnia drug Ramelteon for adults, the London-based watchdog said on Monday.

The decision is a fresh setback for a drug that analysts have widely viewed as a commercial failure. It was approved for sale as Rozerem in the United States in 2005.

The treatment has a smaller risk of abuse and dependency than other sleep drugs but is less effective. It generated $88 million in sales in the some $4 billion-a-year U.S. insomnia drug market in the nine-month period to December.

Last year Takeda applied for the right to sell the drug in Europe, hoping to enter a market led by Sanofi-Aventis's (SASY.PA) Ambien. In February, it also sought marketing approval for the treatment in Japan. (Reporting by Michael Kahn; Editing by David Holmes)