Amylin Wins a Battle But the War Goes On

Jul. 8.11 | About: Bristol-Myers Squibb (BMY)

Amylin (AMLN) shareholders got a much-needed bit of good news Thursday evening, as the company reported that an FDA-mandated cardiac safety study of the company's one-weekly diabetes drug Bydureon reported positive results. With this information in hand, Amylin (on behalf of its partners Lilly (NYSE:LLY) and Alkermes (NASDAQ:ALKS)) should be in place to submit a new application with the FDA in the third quarter of 2011, with possible approval as early as the first half of 2012 assuming no additional questions from the FDA.

tQT Looks A-Ok

Among the issues cited by the FDA when it rejected Bydureon back in October of 2010 was the risk that exenatide (the active ingredient) might cause QT prolongation. In simple English, the QT interval is the time that it takes the heart to repolarize (or recharge) between beats. If that interval gets too long, a number of bad things can happen to a person – including palpitations, fainting, and sudden death brought about by ventricular fibrillation and cardiac arrest.

While thorough QT (tQT) studies have been an FDA requirement for most new drugs since 2005, the FDA wanted to see what would happen not only in cases of normal Bydureon administration, but also in cases of higher-than-normal drug concentrations (as might happen in patients with renal disease, a common comorbidity of diabetes).

Fortunately for shareholders in Amylin, Lilly, and Alkermes (ALKS), the tQT study was clean and met the trial endpoints – there was no QT prolongation seen in normal or above-normal exenatide levels, and there was no apparent relationship between the QT interval and the level of exenatide in the blood.

Approval More Likely, But What About Success?

With arguably the FDA's biggest concern resolved, Bydureon's odds of approval look to be a fair bit higher now. The FDA has already approved a twice-daily version of exenatide (marketed as Byetta) and while there have been some concerns about pancreatitis and thyroid cancer since approval, the data does not really support those concerns. Accordingly, and given the demonstrated efficacy of Bydureon, the odds should favor approval on this latest go-around with the FDA.

That said, FDA approval is far from a guarantee of success.

There is a pretty competitive field of drugs out there for diabetes right now, and it is not so obvious that Bydureon will rise to the top. Consider, for instance, that the companies conducted a marketing study (DURATION-6) comparing Bydureon to Novo Nordisk's (NYSE:NVO) once-daily Victoza GLP-1 analog drug. Though the trial was designed to show non-inferiority (or perhaps more ideally superiority for Bydureon), it actually showed that Victoza was more effective. Keep in mind too that Novo Nordisk has its own once-weekly GLP-1 drug in the pipeline, though it is several years from approval at this point.

Beyond Novo Nordisk's Victoza, there is also Merck's (NYSE:MRK) Januvia (which is growing at better than 40% year over year and is already over the $1 billion mark in quarterly sales when combined with Janumet). Bristol-Myers (NYSE:BMY) and AstraZeneca's (NYSE:AZN) have Onglyza and then there is the recently approved Tradjenta which will be marketed by Amylin's own partner Lilly (and has led to an ugly spat between Amylin and Lilly). Of course, there are also many compounds in clinical development as well.

With rampant competition, Amylin and Lilly will be under pressure to convince doctors and patients that it is worthwhile to switch to Bydureon. That will be complicated by issues like the side-effect profile, patient comfort issues (Bydureon uses a somewhat large needle), and the ongoing legal fight between Amylin and Lilly over Lilly's right to market other diabetes drugs that could be seen as competitors.

Amylin Needs A Makeover

Part of the problem facing Amylin shareholders is just how much rests on the success of Bydureon. Byetta has been a relatively successful drug, but it has been supplanted by newer medications and was never able to bring Amylin to profitability. Worse still, the company's drug Symlin has likely maxed out its modest potential and the company's obesity pipeline is not looking as promising as it once did since the company and its partner Takeda (OTCPK:TKPHF) suspended some studies over safety concerns.

Beyond that, the pipeline is rather bare. Alternative formulations of exenatide like a once-monthly injection or nasal spray have some promise, but Amylin is basically just an exenatide company at this point. While there have certainly been successful one-platform biotechs Alexion (NASDAQ:ALXN) and Cubist (CBST) quickly spring to mind), they are the exception rather than the rule and Amylin's scant prospects outside of exenatide are a major risk factor.

Buy, Sell, Or Hope?

I am a longstanding shareholder of Amylin and I have played out some of my angst over these shares in prior pieces. There is a tug-of-war right now between the prospects of Bydureon (and it is still likely to be a billion-dollar drug) and the longer-term prospects for Amylin as a company, especially now that the relationship with Lilly seems to be souring.

While a move into the high teens or above would probably lead me to sell the shares and move on, that's not the case today. In the low or mid teens, Amylin just seems too cheap to abandon yet – that price basically suggests Bydureon is only a modest success and nothing else the company does will work. Success for Amylin is far from certain, and there certainly are better biotechs out there, but shareholders who've hung on this long have a little more reason to hope that better days lie ahead.

Disclosure: I am long AMLN.