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Amylin Pharmaceuticals


received U.S. approval Friday for its diabetes drug Bydureon, setting the stage for a commercial battle against an established rival drug from

Novo Nordisk

(NVO) - Get Report


Bydureon's U.S. approval comes on its third attempt. The U.S. Food and Drug Administration rejected the diabetes drug last in October 2010, asking Amylin to conduct an additional study to assuage concerns about any possible negative effects the drug may have on heart rhythm.

Amylin shares were halted intraday Friday at $12.14. The stock reopened after the market closed, up 14% to $13.89. Amylin shares have lost 26% of their value in the past year.

Bydureon is a longer-acting version of Amylin's current diabetes drug Byetta that will compete against Novo Nordisk's Victoza. Both Bydureon and Victoza belong to the growing GLP-1 class of diabetes drugs that stimulate the release of insulin when a person's blood sugar gets too high. The drug delivery technology that allows Bydureon to be injected once a week comes from


(ALKS) - Get Report

, which receives a royalty on Byudreon's worldwide sales.

Alkermes shares were halted at $19.10 intraday but are now up 5% to $20.95 in Friday's after-hours session.

Bydureon's main advantage is that patients only need to inject the drug once a week. Victoza must be injected once daily.

"Bydureon is the most anticipated new drug launch in diabetes," says David Kliff of Diabetic Investor, an investment newsletter that tracks and covers the diabetes market. "Primary care doctors are already talking about Bydureon and Novo's sales reps are trying to sell against it already. When that happens, you know you have something."

In a statement, Amylin CEO Dan Bradbury said, "As the first and only once-weekly diabetes treatment, Bydureon represents an important milestone in Amylin's promise to bring to market innovative therapies to help improve the lives of people with type 2 diabetes."

Many investors have been less confident in Amylin's ability to succeed with Bydureon because the drug's long-delayed approval has allowed Novo to gain a strong hold of the GLP-1 market. Amylin must also sell Bydureon alone in the U.S. following the departure of its former partner

Eli Lilly

(LLY) - Get Report

. In Europe, where Bydureon is already for sale, Amylin is seeking a new marketing partner to replace Lilly's commercial efforts.

Amylin must rely on Bydureon's convenience to make a dent in Victoza's market share because results from a head-to-head study conducted last year showed Bydureon did not control blood sugar levels as well as Victoza.

Unlike some other high-profile drug launches in the past year like Dendreon's Provenge and Vertex Pharmaceutical's Incivek, investor expectations for the Bydureon launch are more subdued, which could work in Amylin's favor.

Street consensus calls for Bydureon U.S. sales of $105 million in 2012 growing to $940 million in 2016, according to Deutsche Bank biotech analyst Robyn Karnauskas. She notes that before Bydureon's October 2010 rejection, investors were forecasting $2 billion in Byudreon U.S. sales.

Meantime, Novo has done a good job of establishing and expanding the market for GLP-1 diabetes drugs. Victoza global sales are now at a $1 billion-plus annual run rate, with U.S. sales exceeding $600 million just two years into the launch. Total prescriptions for GLP-1 drugs are also higher, says Karnauskas.

"In our opinion, Bydureon's convenience could easily get it to $1 billion U.S. sales," she told clients in a conference call this week.

Eli Lilly's divorce from the Bydureon partnership has also burdened Amylin with a balance sheet bloated with nearly $2 billion in debt, which includes a $1.2 billion debt obligation that Amylin must repay to Lilly. Amylin will need to shore up its relatively low cash position. It remains to be seen how Amylin does that, but raising additional money from investors, refinancing debt or its manufacturing facilities and signing a new international marketing partner are all possible options.

Another option open to Amylin is a sale of the entire company. Amylin is a pure play on diabetes treatment and the market is huge and growing. Approximately 285 million people suffer with diabetes worldwide, including 24 millon Americans. The number of people in the U.S. with diabetes is expected to reach 38 million in 2020.

Most of the large pharmaceutical companies are potential Amylin acquirers include




Bristol-Myers Squibb

(BMY) - Get Report




--Written by Adam Feuerstein in Boston.

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

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