2nd UPDATE: FDA Again Denies Approval For Long-Acting Byetta

The U.S. Food and Drug Administration has again declined to approve a long-acting version of diabetes drug Byetta, currently sold by Amylin Pharmaceuticals Inc. (AMLN) and Eli Lilly & Co. (LLY), substantially delaying an approval that was widely expected this week.

The news is a major setback for the two companies, which are developing the new formulation using technology from Alkermes Inc. (ALKS), as the regulatory agency wants new clinical data in order to reconsider letting the drug on the market. The companies aim to file their response with the FDA by the end of 2011 and expect a six-month review from the agency.

Bydureon is key to the future of Amylin, which hasn't reported a profit since going public in 1992, and the approval was expected to be a positive development for Lilly, a company working to develop enough new drugs to offset looming generic competition to its top products.

Shares of both Amylin and Alkermes were halted late Tuesday, while Lilly shares traded down 2.5%, to $36.50 in afterhours trading. Amylin closed at $20.49 and Alkermes at $14.50.

ISI Group analyst Mark Schoenebaum expects Amylin shares to drop 50% on Wednesday.

"The only catalyst we see in the next 15 months could be an earlier than expected resubmission...however, we have zero visibility on this right now," he wrote in a note to clients.

Bydureon, a once-a-week version of twice-daily Byetta, was originally submitted for approval in May 2009. The FDA was expected to issue a decision on Bydureon by Friday, after asking for more details on the treatment in March.

The prior FDA request focused on product labeling, along with risk mitigation and manufacturing information and didn't request additional studies.

The most recent letter requests a QT study, which aims to determine potential heart arrhythmia caused by a drug. The study would use higher exposure than typical therapeutic levels, the companies said.

It also asked for results from the companies' Duration-5 clinical study to evaluate the effectiveness and the labeling of the commercial formulation of Bydureon. The study--which was completed last December according to an Alkermes spokeswoman--tests Bydureon in comparison to Byetta.

Later Tuesday, Amylin reported preliminary third-quarter product sales of $154 million, down 20% from a year earlier, and cancelled its quarterly conference call that was set for Wednesday. It said it will report results in the next few weeks instead.

Prior to the news, most estimates of Bydureon's eventual annual sales exceeded $1 billion, but there was broad uncertainty as to how fast it could get to that level in the competitive diabetes-treatment market.

Deutsche Bank recently projected sales of $1.4 billion by 2014, hitting $3 billion in 2020.

For Lilly, the pharmaceutical company's size means that Bydureon's performance would have less impact on its revenue than it would on that of the other two companies. Despite that, the delay for Bydureon is a disappoint for a company that has had a number of recent setbacks and is facing the patent expiration of drugs generating about three-fourths of sales in coming years.

Under their partnership, Amylin and Lilly share U.S. operating profits and costs from Bydureon equally. Lilly covers overseas development and marketing costs, while paying Amylin an undisclosed royalty after a "one-time cumulative gross margin threshold," a spokeswoman for both companies said last week.

Alkermes will collect an 8% royalty on global sales and pay no marketing costs.

Byetta had sales of $797 million last year but faced its first competition when Novo Nordisk A/S (NVO, NOVO-B.KO) won approval of Victoza in January, a once-daily treatment. The drugs, similar to a hormone in the digestive track known as GLP-1, boost the production of insulin in order to regulate blood-sugar levels.

Other drug makers are developing drugs in the class, including Roche Holding AG (ROG.VX, RHHBY), which recently suspended development of its candidate due to side effects. Lilly has another such drug in late-stage development, unrelated to Byetta or Bydureon.

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

(Joan E. Solsman and Peter Loftus contributed to this story)

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