FDA (Indirectly) Thwacks Amylin

It's not uncommon to see FDA rulings cause steep drops in stock prices. After all, rejections of marketing approvals or even black-box warnings mean the loss of millions of dollars in sales. But I was kind of surprised by the way recent FDA actions caused a 10%-plus drop in the price of Amylin Pharmaceuticals' (Nasdaq: AMLN) shares over the past few days.

The FDA released draft guidance this week on how trials should be run for drugs that treat diabetes. The new guidance likely stems from the heart problems discovered in patients taking GlaxoSmithKline's (NYSE: GSK) Avandia last year. Clearly, the FDA would prefer to discover safety issues in clinical trials, rather than after it has approved a drug.

I combed through the 30-page document -- you can find it here (in PDF form), but don't operate heavy machinery while reading it -- and the main concern seems to be requiring more stringent clinical trials compared to those used for drugs that treat other long-term conditions. The trials will require more subjects, and a subset of those subjects need to be exposed to the drug for at least 18 months.

Amylin and partners Eli Lilly (NYSE: LLY) and Alkermes (Nasdaq: ALKS) are developing a once-weekly version of its diabetes drug Byetta. So far, the drug looks good and has performed as well as the twice-daily version, but it's not clear whether patients will have been on the drug for the necessary 18 months when the companies are expected to file for their marketing applications next year.

On the other hand, the extended-release version might not be subject to these new regulations (if they're actually approved), since many patients have been on the regular version for well more than 18 months. The drug has been linked to patients developing pancreatitis, but the incidence is so low -- two incidences per 10,000 patients -- that it probably doesn't change much.

The draft guidance does put a cloud of uncertainty over Amylin and other diabetes drug developers, such as Novo Nordisk (NYSE: NVO), but it doesn't seem like the possibility of extending the approval justifies such a drastic drop in stock price.