2nd UPDATE: FDA Rejects Amylin Diabetes Drug, Seeks More Info

The U.S. Food and Drug Administration denied approval of a long-acting version of diabetes drug Byetta, sold by Amylin Pharmaceuticals Inc. (AMLN) and Eli Lilly & Co. (LLY), because the agency needs more information about the drug's product label, risk-management plan and manufacturing process.

Amylin said it aims to submit its response to the FDA "in the next few weeks." Despite the delay in approval, the FDA letter was seen as good news by the market because the agency didn't request any additional clinical data or analysis of already submitted data.

"We have a predictable regulatory pathway and remain confident in our submission," Chief Executive Daniel Bradbury said during a conference call Monday.

The drug, injected once a week as opposed to the twice-daily version on the market, faces heavy competition in the diabetes market and the timing of its launch is seen as crucial to its eventual success. It was developed using technology from Alkermes Inc. (ALKS).

The treatment--commonly referred to as Byetta LAR, with a proposed brand name of Bydureon--is vital for Amylin's future growth and hopes for a profit. It also is important for Lilly as it tries to offset a massive patent cliff for many of its major drugs.

Shares of Amylin recently were ahead 9.5% to $22.18. The stock rose as high as $22.84, a new year high. Alkermes also hit a new 52-week high at $14.19. The stock recently was up 9.4% to $13.36; meanwhile, Lilly was unchanged at $35.93.

Amylin's stock is up more than 42% this year, but it remains well below its all-time high of $50.81 from 2007. Short interest has almost doubled since November, with 11.2% of shares outstanding being bet that the stock will drop, which could add volatility to trading.

Amylin executives downplayed the seriousness of the agency's requests, noting that manufacturing questions relate only to "technical details" and that it doesn't expect the discussions about the risk-management plan to be "a major issue."

"The complete response letter looks fairly benign," analyst Yaron Werber with Citigroup wrote in a note to clients. Werber recommended that clients buy the stock on any weakness related to the news.

The FDA letter also seeks "clarification" related to the manufacturing process but doesn't contain requests related to a December inspection of its Ohio manufacturing facility by the agency. All the concerns raised by the FDA from that visit have been addressed and the company doesn't expect that the site will be reinspected.

After Amylin submits its response to the agency, the agency will determine the nature of its review, something on which the company declined to comment during the call.

Under a Class 1 resubmission, which involves minor changes, clarifying information and updates, the cycle is generally 60 days. A Class 2 resubmission is more cumbersome, including more clinical information and items needing a review by an advisory committee, resulting in a six-month review.

Expectations for the drug are high. Credit Suisse analyst Catherine Arnold recently projected sales of $2.1 billion for the drug in 2015, and Barclays analyst Jim Birchenough sees sales eventually exceeding $3 billion in the U.S. alone.

There were once high hopes for the sales trajectory of Byetta, which proved to be disappointing following its 2005 launch, and investors have been looking forward to the new version ever since. Amylin has never turned a profit and is unlikely to do so until the launch of Byetta LAR.

Byetta had sales of $797 million in 2009. For both versions of Byetta, profits are split for the U.S., and Lilly pays a royalty for sales overseas. Alkermes collects about a 7% royalty on sales.

-By Thomas Gryta, Dow Jones Newswires; 212-416-2169; thomas.gryta@dowjones.com

Amylin Pharmaceuticals, Inc. (MM) (NASDAQ:AMLN)
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