An Approval. Finally.

Amylin Pharmaceuticals' (NAS: AMLN) investors were able to breathe a sigh of relief on Friday, when the Food and Drug Administration approved the company's diabetes drug, Bydureon. Finally.

This wasn't one of those instant doubles on approval because most investors figured a thumbs-up was likely, but given the last attempt at approval, investors were right to be nervous and discount the value slightly. The stock is up 20% today. Surprisingly, Alkermes (NAS: ALKS) is trading lower even though it'll get a nice royalty on the drug's sales. Eli Lilly (NYS: LLY) , which also gets a royalty, is down as well, but Lilly isn't that dependent on the drug.

Bydureon is the once-weekly version of Byetta, which has to be taken twice daily. Eliminating 13 shots from the patient's weekly routine should help sell the new medication, but Bydureon won't just be cannibalizing sales from Byetta. Novo Nordisk's (NYS: NVO) Victoza, which needs to be injected just once a day, not only took sales from Byetta but expanded the market for the class of drugs. Amylin is hoping it can return the favor and continue the trend.

Bydureon is approved as a monotherapy, but only as a second-line indication. That means doctors aren't advised to use Bydureon on a newly diagnosed patient, but could prescribe it for use by itself if patients fail another drug. I don't think that's a major issue, because I doubt there are many doctors who wouldn't try metformin first. Bydureon is arguably a better drug, but "better" may not be necessary in newly diagnosed patients. If the diabetes is controlled -- for the time being -- by a cheap oral generic that's been approved since 1995, there's little reason to give anything stronger. Diabetes is a progressive disease, so Bydureon will get its chance at the patient eventually.

It's also approved for use in conjunction with other oral drugs, so theoretically Bydureon won't have to compete directly with the multi-billion-dollar drugs such as Merck's (NYS: MRK) Januvia. In reality, the branded drugs probably will compete, since doctors won't want to burden patients with two large copays; Bydureon will probably be prescribed with generics most often.

With an approval in hand, investors will have to take another breath and hold it until first-quarter results are announced, where we'll get a look at how well Amylin can sell the improved version of the drug.

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