Amylin is currently my favorite stock in the biotech world (Those of you who have read my previous articles know that I previously was a big fan of CVTX. They have now been acquired by Gilead for $20/share yielding a healthy profit for me and any who were lucky enough to follow my advice.)

Just a little background:

Amylin makes one drug for diabetes. Byetta (exanitide) is an injectable drug which is given twice a day. It provides very good blood sugar control, has no risk of causing hypoglycemia and seems to cause some weight loss- about 5-10 lbs in most. The drug has been relatively successful, but hasn't reached blockbuster status as a result of the need for frequent injections. Amylin has been working on a follow up drug - Exanitide LAR - the same drug in a long acting formulation which allows for one injection a week. At the same time, Novo nordisk has been working on a similar once a day injectable, liraglutide.

The drug also competes with all of the oral diabetes drugs - including actos, januvia, metformin etc.

Amylin's stock has been pummeled over the past year. About 6 month ago, the FDA announced that there had been some cases of pancreatitis - a few of which were fatal - in patients who had received Byetta. The stock traded down substantially on this news - as it was feared that this would hurt sales of Byetta and the chance for approval of LAR.

Subsequently there has been little news of further problems with pancreatitis and sales have stabilized. Amylin just released a trial of LAR compared to Actos and Januvia showing better efficacy for LAR, more weight loss, and no episodes of pancreatitis. (I believe there were 4 episodes of pancreatitis in the actos arm.) This resulted in a very healthy bump in the stock price. These gains were more than erased by news that came out in the days that ensued. A new oral drug similar to Januvia was recommended by the FDA advisory panel, and then the once a day injectable was rejected by the FDA as a result of some animal studies showing thyroid cancer risk. Both of these things were viewed by the market as bad news for Amylin. The first increasing competition in the market, and the second showing how cautious the FDA has become. I suspect that if the opposite outcomes had happened the market might have responded the same way. I think the market has misinterpreted these events. One very serious potential competitor - Liraglutide - was rejected. This is really good news. The reason for the troubles with this drug centered around the risk of thyroid cancer. As far as I can tell, this seems to be a drug specific risk and not related to the whole class- I could find no data suggesting the same risk with Amylin or LAR. The approval of another oral drug does increase competition and isn't good news, but it will hurt sales much less than the approval of liraglutide (and I guess it could be viewed as good news that the FDA is willing to approval new diabetes drugs even with somewhat limited data.)

So all in all, it seems that the prospects for Byetta and the long acting version are good. Also working in favor of the company is interest from Carl Icahn who owns a sizable stake as well as other Hedge funds. So why is the stock back under $10? I can't figure it out. Just buying hand over fist.