Side-Effect Talk Floors Amylin Shares

The company wins a key approval of a new diabetes drug, but the stock falls anyway. Why?
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Amylin Pharmaceuticals

(AMLN)

execs jumped for joy after regulators cleared their new diabetes drug, but some investors clearly didn't share their enthusiasm.

Amylin shares slumped 6.6% Friday after the San Diego-based biotech and partner

Eli Lilly

(LLY) - Get Report

secured Food and Drug Administration approval of their co-marketed diabetes drug, Byetta.

The Food and Drug Administration approved the Byetta injection as an adjunctive therapy for type 2 diabetes for patients who have not been able to control blood sugar levels using common oral diabetes drugs. The FDA says the drug is also approvable as a stand-alone therapy. Amylin says Byetta will be in pharmacies by June.

During an Amylin conference call Friday, the company exploded with a collective "woohoo!" But some analysts didn't see much to holler about yet.

Mark Schoenebaum of Bear Stearns is concerned that "twice-daily injections and

side effects such as nausea will be a hindrance to rapid adoption and that the upper end of Street expectations will need to be reined in." Bear Stearns says it's a market maker in Amylin's securities.

On the other hand, another analyst says concerns over side effects such as nausea and hypoglycemia are exaggerated. Lei Zhong, senior biotechnology analyst at Natexis Bleichroeder, explains Amylin's drop as a "typical day of shorts coming into play" in the biotech sector.

Although Amylin says Byetta isn't intended to be used instead of insulin, Zhong wouldn't rule out approval for such use in the future. With the possibility of a weekly injection of exenatide instead of multiple daily injections of insulin, he says Byetta could be a billion-dollar franchise. Natexis Bleichroeder says it receives no investment-banking compensation related to its research coverage.

In its conference call Friday, the company said that trial data show that 75% of Byetta patients had nausea for less than two weeks. The drug is delivered by an injection pen holding 30 days' worth of the solution. The pens come with 5 microgram and 10 microgram doses, and Amylin says doctors should start patients on the 5 microgram dose and, if needed, increase dosage after a few months, suggesting the necessity to control nausea.

Byetta, chemically known as exenatide, is the first drug approved from the class of incretin mimetics drugs, which work by stimulating isulin secretion, lowering blood sugar levels after meals and while fasting. The drug restores the insulin secretion response in the pancreas, which is lost in patients with type 2 diabetes.

Amylin shares were recently down $1.16 to $16.99. Lilly shares were up 44 cents to $58.44.