Amylin Has Yet to Crack Tough Diabetes Market

Diabetes is a tough market to compete in for any company. Insulin is the standard therapy for most patients with severe Diabetes. It is a naturally occurring hormone and it exists as both short acting and long acting therapy. It requires close monitoring as it may have dangerous side effects. This is the hurdle that any product entering the market has to pass. The new product would have to be safer and more efficacious than insulin to get wide acceptance.

One of the serious side effects of any potent therapy is the drop of blood sugar levels below safe levels or hypoglycemia. If a product is equally safe and efficacious, it will have a tough time beating Insulin unless it is more convenient. This is an over simplification of the many problems these patients face but it may be useful as a set of guiding principles when picking a stock.

In 2006 I suggested buying shares of Amylin Pharmaceuticals (AMLN) because I thought Byetta with its unique mechanism of action would result in a good alternative to insulin. Here is a link to that recommendation. The price then was around $40 a share. After three years on the market, the product has not helped the share price and the stock is trading today around $26. Some of this lack of performance could be management's inability to turn a profit.


In June, Amylin announced widely anticipated results of its long acting version of Byetta called Exanatide. After one year of treatment, patients saw a significant drop in blood sugar levels and in weights. Analysts are applauding this result and, despite heavy competition from Roche (RHHBY.PK), are recommending investing in Amylin at these levels.

When I began writing this article, I was tempted to recommend shares of Amylin at these levels based on the potential of Exanatide to be a multi billion dollar product. Also, the recent failures of inhaled versions of insulin removed some potential competitive factors. However, given the risks of competition from other similar products and regulatory hurdles involved, I will hold off on recommending investing in AMLN unless it is done with speculative money. I have learned over the last few years that large institutional money flows into Biotechnology stocks only after uncertainties and risks are removed. Just because a stock is cheap does not mean it will move higher anytime soon.

Another reason I am holding off on AMLN is the management factor. At some point, you just have to consider that great products are necessary but not sufficient in producing profits and therefore stock price gains. The promise of Byetta (whether imagined or real) never came to fruition. It is hard to identify the factor or factors that led to these results; maybe the recommendations were made too early and could be filed under irrational exuberance. It is OK to try to hit home runs with stock picking if you realize that you will strike out a lot. Therefore, I recommend waiting until a winner emerges in this battle. By then, the results may be a single or a double but the higher probability of success would make it an investment grade decision instead of speculation.

Diabetes is a tough market!

Disclosure: Author does not have any long positions in AMLN.

Comments

[jimmy Turano:]

Dear Mr. Saadat,Your precise frank report on diabetes and amln is greatly appreciated. As an investor it is difficult to separate the froth & sometimes hype from research firms to make the proper decisions.
If as you say DIABETES IS A TOUGH MARKET, then how will biotech companies have a chance through RNAI in the next 10 years?
To me this is a gray area yet and may take a decade of testing and approvals. So when certain Biotech companies are solely dependent
on RNAI, promoting RNAI, doesn't the cost factor involved, and the time of potential approvals, far exceed the potential reward when companies are at their earliest stages?
Lastly, why do you think so many investors speculate huge amounts of money in companies that have failed in partnerships, failed in generating income, buy stocks when insiders sell the most stocks in a given year, buy into a stock just because it's down 85% from the year before, and have a blind eye to the research firms who have over touted over shot their target prices for several years in a row?
You and your article are rational in thinking, but others are just compulsive gamblers, and the SEC should post signs like at the Racetracks, that 'GAMBLING IS A DISEASE'.

2008 Jun 24 08:37 AM

[turd furgeson:]

The only way for AMLN to succeed is a buyout, which should happen. The management team is a complete atrocity.

2008 Jun 24 06:06 PM

[KteacherinCal:]

I figure now is a time to buy... with the FDA possibly approving Byetta for use in non-diabetics who need to lose weight... and this stuff works.... I think the shares will surge back up.....

2008 Jul 01 12:25 AM

[turd furgeson:]

Byetta is not going approved for weight loss any time soon in non-diabetics. Where on earth have you heard that, the tooth fairy? The obesity "pipeline" Amylin is working on is with Symlin, alone and in various combinations. I wouldn't put one ounce of confidence in that, either. LAR plant/early submission is what you need to worry about if you are going to buy AMLN. You better pray that Icahn can get someone to force Lilly's hand with a bid for this dog, or it goes below 20.

2008 Jul 01 02:04 PM