Amylin Pharmaceuticals' shares lost nearly half their value on Wednesday, after U.S. regulators declined to approve the company's long-acting diabetes drug until more data is obtained on its potential effect on heart rates.
Shares of drug-development partners Eli Lilly & Co. and Alkermes Inc. also tumbled after the setback for the high-profile medicine, Bydureon, was announced late on Tuesday.
The companies said they would reply to the Food and Drug Administration by the end of next year — meaning the agency is unlikely to make a decision until mid-2012, representing a potential delay of more than 18 months.
Shares of Novo Nordisk, which sells Victoza, a drug similar to Bydureon, rose 9 percent on news of the delay.
The delay stunned analysts, who were expecting an approval this week after an initial response from the FDA earlier this year.
"The news comes as a major surprise," JP Morgan analyst Cory Kasimov said in a research note. "Indeed, investor controversy had been around Bydureon's potential to meet the seemingly aggressive sales estimates and not whether approval was at risk."
Analysts had projected annual sales of more than $1 billion for Bydureon, a once-weekly version of Lilly and Amylin's widely used Byetta treatment for Type II diabetes.
Now, analysts said that even if Bydureon were to win approval in 2012, the competitive landscape would be more daunting.
Victoza had been seen as superior to Byetta but was expected to face a stiffer challenge from Bydureon because of its more convenient dosing.
Now, Victoza will at least have a longer period to gain further traction in the market, while the delay also gives time for potential rivals from GlaxoSmithKline PLC and Sanofi-Aventis to catch up.
Amylin was trading at $11.27 in early afternoon, down $9.22 or 45 percent. Shares earlier fell as low as $9.51.
Canaccord Genuity analyst Adam Cutler said the news creates a "balance sheet overhang" for Amylin, noting the company continues to burn cash, while having $200 million of debt due in 2011 and $575 million due in 2014.
Cutler lowered his price target on Amylin to $8 from $18, saying the delay makes the stock "hard to own."
Lilly shares were down 4.1 percent at $35.91 on the New York Stock Exchange. The Indianapolis drugmaker, which badly needs new drugs to offset looming generic competition for its top-selling Zyprexa schizophrenia drug, has been counting heavily on Bydureon to be approved and become a blockbuster in its own right.
"With Bydureon representing essentially the only meaningful product launch for Lilly over the next several years, we believe today's setback puts further pressure on Lilly's already challenged 2012-2014 earnings profile," JP Morgan analyst Chris Schott said in a research note.
The Bydureon setback comes as Lilly grapples with anemic sales of a new blood-clot drug, Effient, which it had hoped would be a blockbuster. It increases the need for Lilly to strike more deals, said Leerink Swann analyst Seamus Fernandez.
"While this news alone does not affect the sustainability of Lilly's dividend through 2014, the pressure on Lilly to either do a deal and/or partner some of its pipeline products and reduce its cost structure likely will intensify," Fernandez said.
Bydureon uses technology from Alkermes, whose own shares were down at $10.89.
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