The U.S. Food and Drug Administration approved Amylin Pharmaceuticals Inc.'s (AMLN) diabetes drug Bydureon following a prolonged regulatory process in which the agency required extra testing to alleviate safety concerns.

The agency approved the drug to treat adults with type 2 diabetes, the most common form of diabetes, according to a letter posted on the FDA website Friday afternoon. An FDA spokeswoman confirmed the approval.

The FDA-approved prescribing label for Bydureon has a prominent warning stating that the drug caused thyroid C-cell tumors at clinically relevant exposures in testing in rats, according to the FDA website.

The warning notes that it's unknown whether the drug causes such tumors in humans. But it says Bydureon shouldn't be used in patients with a personal or family history of medullary thyroid carcinoma.

Bydureon is a once-weekly injection to treat type 2 diabetes. It's an extended-release version of Amylin's older diabetes drug, Byetta, which is injected twice daily. Bydureon, which uses exenatide as its active ingredient, was approved for sale by European regulators in June.

The drug is designed to work by helping the body to make more insulin, which can reduce high blood-sugar levels.

Some analysts have estimated Bydureon sales could reach nearly $2 billion annually by the end of this decade. But it will face a crowded market, as drug companies have responded to the rising incidence of diabetes worldwide by developing new treatments.

Bydureon's road to FDA approval was a bumpy one, along which Amylin severed its longstanding diabetes-drug partnership with Eli Lilly & Co. (LLY). Amylin first began working on Bydureon in 1999.

The original plan was for Lilly and Amylin to co-promote Bydureon in the U.S., with Lilly handling markets outside the U.S. The companies had a similar arrangement for Byetta, which was approved by the FDA in 2005.

Lilly and Amylin submitted Bydureon for FDA approval in May 2009, based on clinical-trial data showing it improved measures of blood sugar versus Byetta. Addressing heightened FDA scrutiny of heart-related effects of diabetes drugs, the companies said at the time that an analysis showed no increased risk of cardiovascular events to be associated with exenatide.

The FDA initially declined to approve it, asking in March 2010 for more information about the drug's prescribing label and the companies' risk-management plan to ensure the drug's benefits outweigh its risks. Amylin and Lilly were optimistic they would get FDA approval later in 2010 after providing the requested information.

However, in October 2010, the FDA dropped a bombshell by rejecting Bydureon again. This time the agency asked for a new study to test the effect of a high dose of the drug on heart rhythm.

The companies ran the required test and in June said results showed Bydureon wasn't associated with a clinically relevant prolonged measure of heart rhythm. The results increased optimism that the drug would finally get an FDA green light.

Amid the delay, the partnership between Lilly and Amylin deteriorated, and ultimately was terminated. In January 2010, Lilly formed a new diabetes-drug partnership with Boehringer Ingelhiem GmbH, prompting Amylin to file a lawsuit alleging breach of its own contract with Lilly.

In November, Lilly and Amylin settled the dispute by agreeing to return global development and commercialization rights for Byetta and Bydureon to Amylin. Lilly will receive royalties on sales of Byetta and Bydureon up to a cap.

Amylin is manufacturing Bydureon with extended-release technology provided by Alkermes Inc. (ALKS).

Shares of Amylin and Alkermes were halted Friday in advance of the agency decision.

Spokesmen for Amylin and Alkermes couldn't immediately be reached.

-By Peter Loftus, Dow Jones Newswires; 215-982-5581; peter.loftus@dowjones.com

(Jennifer Corbett Dooren contributed to this article.)

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