Wednesday, August 27, 2008

Byetta may not be the cause of recent deaths, stock reaction unjustified

On Tuesday August 26, Amylin (AMLN) and its partner Eli Lilly (LLY) announced that four patients had died while on diabetes treatment Byetta.

Both Amylin (down 12%) and Lilly (down 1%) sold off in after hours following repeated headlines saying Byetta responsible for death.

The truth is no one knows what caused the death. The information released mentioned severe pancreatitis as a cause. Needless to say it is possible that pancreatitis, which happens with higher frequency on diabetic patients, was not caused by Byetta. Over a million patients have taken Byetta since it has been launched and the product has a good safety profile.

One patient was morbidly obese while other patients had major other complications such as surgeries.

I had previously recommended not to buy Amylin due to the lackluster uptake of Byetta and the inability of the management to manage expectations and earnings.

This is yet another case of a panic driven sell-off with incomplete set of facts. Once the dust clears, there is a very good chance that Byetta will be cleared.

I am recommending a short term long position in shares of Amylin (AMLN) which could be trading 10-20% higher in the weeks to come.

Disclosure: The author does not have any positions in AMLN of LLY.