Amylin Pharmaceuticals (AMLN) reported a net loss of 28 cents per share in the second quarter of 2010, a cent below the Zacks Consensus Estimate and well below the year-earlier loss of 36 cents. Lower expenses helped the company narrow its loss despite a decline in revenues. Revenues of $164.4 million missed the Zacks Consensus Estimate by $14.6 million.

Quarterly Details

Total revenues for the quarter declined 17.2% mainly due to lower net product sales. Quarterly revenues consisted of $162.5 million in product sales and $1.9 million in collaborative revenues, which consist of the amortization of upfront fees received under the company’s collaboration agreements with Eli Lilly (LLY) and Takeda.

Product revenues comprised $140.7 million in sales of Byetta (exenatide) and $21.8 million in sales of Symlin. Both Byetta and Symlin revenues declined on a sequential as well as year-over-year basis. While Byetta revenues declined 19.6% from the year-earlier period, Symlin declined 2.7% from the year-earlier period. On a sequential basis, Byetta and Symlin declined 6.1% and 3.1%, respectively.

Byetta revenues have been under pressure over the past few quarters due to pancreatitis fears associated with the use of the drug. Amylin is looking to return Byetta to growth now that it is armed with a US Food and Drug Administration (FDA) approval for the use of the drug as a first-line monotherapy for type II diabetes patients. Amylin also intends to expand the label so that Byetta can be used in combination with basal insulin. The company intends to seek approval for the label expansion by year-end.

However, we believe the next few quarters will remain challenging from a growth standpoint. Fears of pancreatitis and new-found fears of glucagon-like peptide-1 (GLP-1) molecules like exenatide potentially causing C-cell malignant carcinoma of the thyroid could keep a lid on growth. In fact, on the second quarter call, management said that they are yet to achieve their revenue generation expectations.

Meanwhile, Amylin’s increased promotional effort behind Symlin should help prescription growth for the candidate to rebound. The company could also strike a partnership deal for Symlin in non-US territories in 2010.

Selling, general and administrative (SG&A) expenses for the quarter declined to $74.2 million from $92.1 million in the year-earlier period. The decrease was mainly due to efficiencies driven by the company’s reduced cost structure and lower sales force expenses. We expect SG&A expenses to increase as the company prepares for the launch of Bydureon (exenatide once-weekly) later this year.

A response on Bydureon’s approvability should be out by Oct 22, 2010. Meanwhile, Lilly has submitted an application seeking regulatory approval in the EU and approval could come in the first half of 2011. The US launch of Bydureon should trigger a $40 million milestone payment from Lilly. Amylin expects to start earning ex-US royalties on Bydureon from 2011.

In the meantime, Amylin is working on developing a pen device for Bydureon. The company hopes to launch this device in late 2012/early 2013.

Research and development (R&D) expenses declined to $46 million in the reported quarter from $52.8 million reported in the prior-year period. The decrease primarily reflects savings driven by the company’s cost sharing agreement with Takeda for the obesity program and lower clinical trial expenses. This was partially offset by higher expenses incurred at the Bydureon manufacturing facility.

Guidance Maintained

Amylin reiterated its financial guidance for 2010, stating that it expects operating loss to improve. The company intends to exit 2010 with positive operating cash flow on a sustainable basis, and expects to achieve profitability in 2011. Amylin is also looking to repay its outstanding secured debt balance of $78 million in 2010.

Pipeline Update

Amylin also provided an update on its pipeline. The company intends to submit the clinical and non-clinical sections of a new drug application for the use of metreleptin for the treatment of severe lipodystrophy.

As far as the diabetes pipeline is concerned, Amylin is working on developing a monthly dose therapy for type II diabetes. The company recently initiated a phase II study of a monthly dose suspension formulation of exenatide. Results should be out in the first half of 2011.

Amylin also started enrolling patients for its cardiovascular outcome study on Bydureon (EXCEL – the Exenatide once weekly study of Cardiovascular Event Lowering). The study is scheduled to complete in 2016.

Neutral on Amylin

We currently have a Neutral recommendation on Amylin which is supported by the Zacks #3 Rank (Hold). We expect investor focus to remain on Byetta’s performance and the approvability of Bydureon. We believe Bydureon will face tough competition once launched. Competitors include Novo Nordisk’s (NVO) Victoza which is a once-daily injection that was launched earlier this year. Potential competitors include GlaxoSmithKline’s (GSK) Syncria (albiglutide).

Looking forward, we are optimistic on Amylin’s mid-stage obesity pipeline. Amylin’s deal with Takeda for the obesity pipeline is a major positive.
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