Sometimes you have to take one for the team.

Inhale Therapeutic


was sporting a black eye Tuesday after partner


(PFE) - Get Pfizer Inc. Report

acknowledged a

delay in the development of Exubera, the highly anticipated and experimental inhaled diabetes drug produced by the two companies and a third partner,




The delay could also mean good news for a rival inhaled diabetes drug from



and partner

Novo Nordisk

(NVO) - Get Novo Nordisk A/S Sponsored ADR Class B Report


Pfizer is the world's largest drug maker, so a major setback for a single drug -- Exubera is now likely a full year behind schedule -- barely causes a ripple of concern. Pfizer shares closed up 71 cents to $38.58 Tuesday,

bolstered by strong-second quarter earnings.

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But Inhale -- tiny by comparison -- is feeling the pain. Shares of the San Carlos, Calif.-based biotech firm dropped $1.64, or 8.2%, to $18.27 Tuesday, recovering slightly from earlier in the day, when shares were off almost 20%. The company's stock has now fallen almost 35% since concerns about Exubera first surfaced at the end of June.

An Old Story

In some respect, Exubera's delay is an old story -- blame it on

persnickety regulators at the

Food and Drug Administration

, who are turning downright miserly when it comes to approving new drugs. Pfizer was expected to push Exubera to the agency for approval by the end of the year. But early Tuesday, the drug maker said conversations with FDA regulators put that timing in jeopardy and that additional testing might be required. In typical big-pharma fashion, Pfizer executives refused to offer any more details.

But later Tuesday, Inhale Chairman Robert Chess acknowledged that Exubera isn't likely to be filed with the FDA until the second half of next year. And in true team fashion, he insisted that the delay was actually a good thing.

"Given that the FDA is being picky about filings, Pfizer and Aventis are taking the right course of action. What's important is when the product is approved, not when it's filed; a strong filing will increase our chances for approval," he says.

In other words, here's a steak for that eye, Bob; thanks for being a team player.

Most Wall Street insiders were not surprised by today's news. Last month, Pfizer, Inhale and Aventis reported mixed results from late-stage testing of the drug, which is a first-of-its-kind dry insulin powder inhaled into the lungs using a special device. Exubera is supposed to replace traditional insulin injections.

At a medical conference last month, the companies said that Exubera patients were four times more likely to develop antibodies against their insulin than those taking injected insulin. Antibodies are proteins that the body creates to destroy foreign invaders, which led some analysts to suggest that Exubera's effectiveness might diminish over time.

This troubling news followed an earlier disclosure from Aventis that one patient in a 1,000-patient Exubera study suffered from scarring of the lungs.

Robertson Stephens analyst Robert Hazlett downgraded Inhale to market outperform from buy Tuesday, after previously advising clients that Exubera's launch was going to be delayed based on the mixed test results. Hazlett's firm has a banking relationship with Inhale.

Pain May Equal Rival's Gain

But Inhale's pain might be Aradigm's gain. The Hayward, Calif.-based biotech firm is partnered with Danish drug maker Novo Nordisk on a rival product dubbed the AERx insulin delivery system. Novo, the world's largest maker of insulin, is experimenting with an Aradigm-engineered device that diabetics use to take a mist form of liquid insulin into the lungs.

Last month, the two companies released positive results from midstage testing of the system. Late-stage testing is expected to start later this year.

"Exubera looks like it will be delayed for at least a year, which put a big dent in its lead over Aradigm and Novo," says Matt Kaplan, biotech analyst at Punk Ziegel.

Kaplan, who rates Aradigm a buy, says the company and partner Novo will also benefit because they can devise a late-stage testing program that will sidestep the FDA concerns that are now delaying Exubera.

"You can make the argument that Aradigm and Novo might be able to design a testing program that expedites the product's approval because they'll learn from Pfizer's mistakes," he says. Kaplan's firm doesn't have a banking relationship with Aradigm or Novo, and he has no rating on Inhale or Pfizer.

And investors might want to give Aradigm a try, based solely on the company's relatively cheap valuation. At $5.40 a share, the company sports a lightweight $104 million

market cap. The company's shares are trading at just above its 52-week low of $4.19 a share, and well off the year high of $27.44.

By comparison, Inhale, even with its recent selloff and efforts to diversify its portfolio beyond Exubera, is still valued at just under $1 billion. At that valuation, Inhale trades at a pricey 16 times 2001 sales of $61 million. Inhale is expected to lose $1.44 a share this year.