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Amylin's Diabetes Drug Debacle

FDA rejects Amylin's diabetes drug Bydureon, a surprise decision that will send the company's stock price into a tailspin.

Updated with stock prices.

SAN DIEGO (

TheStreet

) --

Amylin Pharmaceuticals

(AMLN)

shares will suffer a major shellacking Wednesday after U.S. regulators denied approval of the company's diabetes drug Bydureon, citing the need for additional clinical studies.

The collateral damage from Bydureon's shocking blowup -- investors were widely expecting the drug to be approved on Friday -- will also cut into

Alkermes

(ALKS) - Get Report

and

Eli Lilly

(LLY) - Get Report

, both partners of Amylin's on Bydureon's development.

Bydureon isn't likely to reach the market now until 2012.

That makes the biggest winner Wednesday

Novo Nordisk

(NVO) - Get Report

and its diabetes drug Victoza, which no longer needs to worry about competition from Bydureon.

Amylin shares opened for trading in Wednesday pre-market session at around $10, or a 50% haircut from Tuesday's close of $20.49 before the stock was halted on news of the Bydureon rejection.

The Short-Seller Who Got Amylin Right >>

Alkermes shares were bidding at $10.69 in Wednesday's pre-market session, down from Tuesday's close of $14.50.

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Novo Nordisk shares were already up $7, or 7%, to $98 in Tuesday's after-hours session.

The U.S. Food and Drug Administration, in its complete response letter denying Bydureon's approval, instructed Amylin and Lilly to conduct a new clinical trial study assessing the drug's effect on the electrical signaling of the heart -- known medically as a thorough QT study.

The FDA also wants Amylin and Lilly to submit data from an ongoing study that compares Bydureon to Byetta, an already-approved diabetes drug sold by the two companies.

The companies, in a statement, said the need to collect new data meant Bydureon wouldn't be ready for resubmission to the FDA before the end of 2011. Assuming another six-month review period, the next FDA approval decision would come in mid-2012.

Bydureon and Byetta, an already-approved diabetes drug, share the same active ingredient. Amylin and Lilly have long cited this as reason for why Bydureon's path to approval was to be relatively straightforward. The biggest and most important difference between the two drugs is that Bydureon uses Alkermes technology to allow once-weekly dosing. By comparison, Byetta requires injections twice a day.

The FDA decision to deny Byudreon's approval and the relatively onerous request for additional data suggests regulators view Bydureon and Byetta as very different drugs.

Amylin and Lilly originally submitted Bydureon to the FDA in May 2009. In March 2010, FDA issued its first complete response letter, asking for additional information. The companies responded to that request in April, setting up what was supposed to an FDA approval decision on Friday, Oct. 22.

The FDA, however, surprised everyone by both rejecting Bydureon for a second time and doing so three days earlier.

Almost 90% of buy-side investors believed Bydureon would be approved, according to a survey conducted last month by ISI Group biotech analyst Mark Schoenebaum.

"Even bears on Amylin generally expected approval, so this is a major downside surprise," he said Tuesday night in his email to clients.

--Written by Adam Feuerstein in Boston.

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Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;

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