A diabetes drug taken weekly and being developed by Eli Lilly & Co. (LLY), Amylin Pharmaceuticals Inc. (AMLN) and Alkermes Inc. (ALKS) suffered another setback as it failed to prove as effective as a different once-daily treatment.

The drug, called Bydureon, failed to reduce blood-sugar levels at its maximum-approved dose as well as Victoza, made by Novo Nordisk A/S (NVO, NOVO-B.KO), missing the study's primary goal of "non-inferiority."

Victoza, already on the market, has benefited as Bydureon has had multiple regulatory setbacks. Bydureon is a long-acting version of Byetta, a twice daily drug from Lilly and Amylin that was approved in 2005 and has been losing market share to Victoza's introduction last year.

The news sent shares of Amylin down 22.65% to $11.61, while Alkermes lost 12% to $12.40. Lilly rose 11 cents to $34.39; because of its larger size, Lilly feels the impact from the setback less. American depositary shares of Novo Nordisk recently rose 2.6% to $127.83 after previously hitting a new all-time high of $128.95

The class of 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.

In the study, which tested Bydureon and Victoza over 26 weeks in about 900 patients, Bydureon was less effective at its maximum approved dose in reducing blood sugar levels than Victoza. Bydureon patients showed a 1.3 percentage point reduction in a blood-sugar benchmark known as HbA1c, compared to a drop of 1.5 percentage points for Victoza.

Victoza patients reported more frequent gastrointestinal side effects, but injection-site reactions occurred more often in Bydureon patients.

Citigroup analyst Yaron Werber noted that the data likely won't effect the potential approval of Bydureon, but said the data are a "major win" for Novo Nordisk.

"From a marketing prospective, this is a setback as this study was intended to provide a knockout punch against Victoza as Bydureon is already more convenient and similar to better efficacy would have been a major advantage," he wrote in a note to clients.

The FDA declined to approve Bydureon early last year and made the same move in October, asking for more clinical data. The companies expect to submit that data by year-end and have projected a six-month review. Bydureon was originally submitted for approval in May of 2009.

The initial FDA delays came from requests on details that didn't require additional studies. But the latest rejection requested a QT study, which aims to determine potential heart arrhythmia caused by a drug. That study was started last month.

Deutsche Bank analyst Robyn Karnauskas said the results of the QT study will likely be more important than Thursday's data, because the QT data will determine if the drug actually makes it to the market.

She stressed that dosing convenience of Bydureon -- weekly compared to daily Victoza -- will be the biggest sales driver if it is approved. She notes that oral drugs are usually used prior to injectable for this reason. She models an 85% probability that peak sales will hit $2.5 billion by 2020.

The success of Bydureon is key to the future of Amylin, which hasn't reported a profit since going public in 1992. The drug would be a positive development for Lilly, a company looking for new drugs to offset looming generic competition to its top products.

Under their partnership, Amylin and Lilly share U.S. operating profits and costs from Bydureon equally. Alkermes' drug-delivery technology makes the drug longer-acting and that company will collect an 8% royalty on global sales and pay no marketing costs.

A previous study of Victoza showed that it improved blood sugar control in patients that switched from Byetta. The drug has been steadily chipping away at Byetta's position as the sole drug in the class since its launch in 2005.

Barclays Capital reported last month that Victoza had about 40% share of total U.S. prescriptions in the class. Global sales of Byetta dropped 11% to $710 million last year.

The market for such drugs is likely to get more crowded in coming years as multiple drug makers are developing similar treatments.

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