When drugmakers test an extended-release formula of their drug, it's usually sufficient for the drug to perform as well as its parent compound. After all, the drug should sell better, given that it has to be taken less often, and the company usually gets a patent extension as well.

Investors in Amylin Pharmaceuticals (NASDAQ:AMLN) seem to be getting a little greedy. Its stock has slipped more than 6% since the company announced that the long-acting-release (LAR) formula of its diabetes drug, Byetta, developed using Alkermes' (NASDAQ:ALKS) microsphere technology, was actually slightly better at lowering glucose levels than its older brother.

The problem really revolves around the fact that Byetta, which Amylin markets with Eli Lilly (NYSE:LLY), doesn't have any direct competitors. Novo Nordisk (NYSE:NVO) has a competing drug in clinical trials, but it's still more than a year away from being on the market. Thus, to increase sales, Amylin and Eli Lilly need to expand their own market by getting type 2 diabetes patients onto the drug earlier in their disease progression. Switching patients from regular Byetta to the LAR isn't going to cut it.

Investors were hoping that the LAR would increase weight loss more than Byetta, but the weight loss seen in both groups was pretty comparable. However, the weight loss in the Byetta patients was actually better than has been reported in previous trials. That's possibly a product of the fact that the trial was open-label -- the subjects knew they were taking Byetta and would likely lose weight. Thus, some subjects may have changed their diets more drastically than they would have in a placebo-controlled trial.

The question comes down to whether lowering the number of needle sticks from 14 per week to just one per week will be enough to drive sales. Byetta had $460 million in sales in the first nine months of the year, an increase of 57% over the same period last year, but it could be reaching market saturation -- sales were up just 28% year over year in the most recent quarter. Investors will have to wait a while to see if the LAR can extend the market, since the drug probably won't receive FDA approval until early 2010.

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Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. Eli Lilly is a selection of the Income Investor newsletter. The Fool has a disclosure policy.