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Gila Monster Hopes Lift Amylin

Investors like what they see from a trial of a once-a-week version of a diabetes drug.

Shares of two medical companies climbed Tuesday after the preliminary results of a small clinical trial showed big promise for a more convenient delivery of a new diabetes drug.

The companies are

Amylin Pharmaceuticals




(ALKS) - Get Alkermes Plc Report

. They're working with

Eli Lilly

(LLY) - Get Eli Lilly and Company Report

to make a once-a-week version of a diabetes drug that must be injected twice a day.

The news sent Amylin's shares up $5.75, or 26.2%, to $27.68, surpassing the 52-week high by nearly $3. The stock rose as high as $28.79. By early afternoon, trading volume was seven times greater than the average daily trade for the last three months.

Alkermes' stock was up $1.32, or 8.3%, to $17.15 on trading volume that was more than five times the daily average. The stock, which rose as much as $18.27, topped its 52-week high.

Lilly's stock joined the party at a more modest level -- up 78 cents, or 1.5%, to $53.49.

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The experimental drug, known as Byetta long-acting release, or Byetta LAR, contains the same compound as Byetta, which Amylin isolated from the saliva of the Gila monster. Lilly and Amylin sell Byetta, which was approved by the Food and Drug Administration on April 28.

The big knock on Byetta has been the need to inject it twice a day. Alkermes, which specializes in improving drug delivery, was enlisted to make the product more convenient.

Test Results

The midstage clinical trial of Byetta LAR, the preliminary results of which were announced Monday after the markets had closed, showed that 12 of 14 patients met the study's goals of maintaining blood sugar levels over 15 weeks. None of the 14 patients receiving a placebo achieved these goals.

The drug group had an average weight loss of 9 pounds vs. the placebo group. The nausea rate for the drug group was 20% vs. 7% for the placebo group.

The preliminary results were issued earlier than analysts had expected, prompting two investment banking firms to raise their ratings on Amylin. Still, there's considerably more research to be done. The clinical trial, which is examining 45 patients, also requires a 12-week follow-up for each patient.

If the final results prove successful, the companies will move to late-stage clinical testing, involving more patients over a longer period of time. This trial could start next year. Under a best-case scenario, the drug could reach the market by late 2008 or 2009.

"Given the convenience of this formulation and the fact that most diabetics are overweight, we expect that if these results hold up in the larger trials,

the drug will be an important treatment for both those failing other medications and patients starting out on treatment," says a Tuesday report from Sagient Research Systems of San Diego, whose BioMedTracker report analyzes biotech products and companies. The firm doesn't own shares of the companies it covers.

Big Market

"A long-acting version of Byetta could have great market potential with type-2 diabetic patients as first line therapy and gain significant share of this $10 billion market," says Albert Rauch, of A.G. Edwards in a Tuesday research report.

Type-2 diabetes is the most common form of the disease, in which the body fails to make enough insulin to convert sugar (glucose) into fuel or the body's cells don't absorb the glucose. Too much sugar over time can damage the heart, kidneys, nerves and eyes.

Rauch notes that Byetta is off to a "muted" start because the drug isn't available at large retail drugstores, but he adds that physicians are "excited about the product, and we expect acceleration" in the number of prescriptions over the next few weeks. Rauch has a buy rating on Lilly, but he doesn't cover the other companies. His firm doesn't have an investment banking relationship.

Byetta LAR is "a game changer with a multi-billion potential," says Mark Schoenebaum, of Bear Stearns, who raised his rating for Amylin on Tuesday to outperform from peer perform.

"The primary criticism of the data will be the small sample size and lack of longer-term follow-up," he says in a research report. Despite the small sample, the results are "highly compelling."

Schoenebaum predicts the companies will conduct another midstage clinical trial, then start a more extensive, long-term trial next year or in early 2007. His best-case scenario calls for FDA approval in 2009. He doesn't own shares, but his firm is a market maker and has had a noninvestment banking relationship with Amylin.