Pharma stocks drop amid news of deaths

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

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

The truth is no one knows what caused the deaths. 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 had other major 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, which could be trading 10%-20% higher in the weeks to come.

ABOUT THE AUTHOR

A. Reza Saadat

A. Reza Saadat has over 14 years of experience in the pharmaceutical industry as a scientist and in finance/business development capacities. He obtained his Masters degree in Pharmacology from Northeastern University and MBA from Babson College. He is the managing partner at Centius, a life science software and consulting firm located in Boston, Massachusetts. His investment opinions on publicly traded biotechnology and pharmaceutical companies can be found at http://www.biotechnology-stock.blogspot.com/.

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