10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2005
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 0-19700

AMYLIN PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

Delaware	33-0266089
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
9360 Towne Centre Drive, Suite 110 San Diego, California	92121
(Address of principal executive offices)	(Zip code)

(858) 552-2200

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ý       No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in rule 12b-2 of the Exchange Act)

Yes ý       No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at August 1, 2005
Common Stock, $.001 par value	104,484,995

AMYLIN PHARMACEUTICALS, INC.

TABLE OF CONTENTS

COVER PAGE
TABLE OF CONTENTS
	PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements
	Condensed Consolidated Balance Sheets as of June 30, 2005 (unaudited) and December 31, 2004
	Condensed Consolidated Statements of Operations for the three months ended June 30, 2005 and 2004 (unaudited)
	Condensed Consolidated Statements of Operations for the six months ended June 30, 2005 and 2004 (unaudited)
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2005 and 2004 (unaudited)
	Notes to Condensed Consolidated Financial Statements (unaudited)
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk
ITEM 4.	Controls and Procedures
	PART II. OTHER INFORMATION
ITEM 4.	Submission of Matters to a Vote of Security Holders
ITEM 6.	Exhibits
SIGNATURE

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PART I.  FINANCIAL INFORMATION

ITEM 1.  Financial Statements

AMYLIN PHARMACEUTICALS, INC.

Condensed Consolidated Balance Sheets

(in thousands, except per share data)

	June 30, 2005			December 31, 2004
	(unaudited)			(Note 1)
Assets
Current assets:
Cash and cash equivalents	$	64,966		$	60,583
Short-term investments	336,026			233,173
Accounts receivable, net	10,530			—
Receivables from collaborative partners	257			5,770
Inventories, net	23,430			15,676
Other current assets	15,695			9,156
Total current assets	450,904			324,358
Property and equipment, net	24,859			20,739
Patents and other assets, net	3,106			3,258
Debt issuance costs, net	8,475			9,445
	$	487,344		$	357,800
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable, accrued expenses and other current liabilities	$	46,162		$	37,651
Current portion of deferred revenue	4,286			4,286
Total current liabilities	50,448			41,937
Other liabilities, net of current portion	9,132			7,290
Deferred revenue, net of current portion	13,800			20,943
Convertible senior notes	375,000			375,000
Commitments and contingencies
Stockholders’ equity (deficit):
Common stock, $.001 par value, 200,000 shares authorized, 104,335 and 94,489 issued and outstanding at June 30, 2005 and December 31, 2004, respectively	104			94
Additional paid-in capital	906,892			710,457
Accumulated deficit	(867,694		)	(797,496		)
Deferred compensation	—			(162		)
Accumulated other comprehensive loss	(338		)	(263		)
Total stockholders’ equity (deficit)	38,964			(87,370		)
	$	487,344		$	357,800

See accompanying notes to condensed consolidated financial statements.

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AMYLIN PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

	Three months ended June 30,
	2005			2004
Revenues:
Net product sales	$	8,652		$	—
Revenue under collaborative agreements	38,114			7,559
Total revenues	46,766			7,559
Costs and expenses:
Cost of goods sold	1,522			—
Research and development	26,661			29,932
Selling, general and administrative	42,315			15,691
Collaborative profit sharing	2,866			—
Total costs and expenses	73,364			45,623
Operating loss	(26,598		)	(38,064		)
Interest and other income	2,764			1,147
Interest and other expense	(2,760		)	(2,510		)
Net loss	$	(26,594	)	$	(39,427	)
Net loss per share, basic and diluted	$	(0.26	)	$	(0.42	)
Shares used in computing net loss per share, basic and diluted	104,100			93,889

See accompanying notes to condensed consolidated financial statements.

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AMYLIN PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

	Six months ended June 30,
	2005			2004
Revenues:
Net product sales	$	8,652		$	—
Revenue under collaborative agreements	42,376			14,248
Total revenues	51,028			14,248
Costs and expenses:
Cost of goods sold	1,522			—
Research and development	54,129			57,389
Selling, general and administrative	62,386			31,779
Collaborative profit sharing	2,866			—
Total costs and expenses	120,903			89,168
Operating loss	(69,875		)	(74,920		)
Interest and other income	5,115			1,994
Interest and other expense	(5,438		)	(3,774		)
Net loss	$	(70,198	)	$	(76,700	)
Net loss per share, basic and diluted	$	(0.68	)	$	(0.82	)
Shares used in computing net loss per share, basic and diluted	102,790			93,864

See accompanying notes to condensed consolidated financial statements.

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AMYLIN PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Six months ended June 30,
	2005			2004
Operating activities:
Net loss	$	(70,198	)	$	(76,700	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization	4,486			3,131
Other non-cash expenses	961			61
Changes in operating assets and liabilities:
Accounts receivable, net	(10,530		)	—
Receivables from collaborative partners	5,513			(3,850		)
Inventories, net	(7,754		)	(1,704		)
Other current assets	(6,707		)	(690		)
Accounts payable and accrued liabilities	8,511			(7,020		)
Deferred revenue	(7,143		)	(1,947		)
Other assets and liabilities, net	1,905			586
Net cash flows used for operating activities	(80,956		)	(88,133		)
Investing activities:
Purchases of short-term investments	(248,348		)	(175,638		)
Sales and maturities of short-term investments	145,588			80,939
Purchase of fixed assets, net	(7,563		)	(7,546		)
Increase in patents	(319		)	(61		)
Net cash flows used for investing activities	(110,642		)	(102,306		)
Financing activities:
Issuance of convertible debt, net	—			193,642
Issuance of common stock, net	195,988			3,498
Principal payments on capital leases	(7		)	(6		)
Net cash flows provided by financing activities	195,981			197,134
Increase in cash and cash equivalents	4,383			6,695
Cash and cash equivalents at beginning of period	60,583			76,615
Cash and cash equivalents at end of period	$	64,966		$	83,310

See accompanying notes to condensed consolidated financial statements.

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AMYLIN PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

June 30, 2005

(unaudited)

1.Summary of Significant Accounting Policies

Basis of Presentation

The information contained herein has been prepared in accordance with instructions for Form 10-Q and Article 10 of Regulation S-X.  The information as of June 30, 2005, and for the three-month and six-month periods ended June 30, 2005, and June 30, 2004, are unaudited. In the opinion of management, the information reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results for a full year. The balance sheet at December 31, 2004, has been derived from the audited consolidated financial statements at that date but does not include all information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For more complete financial information, these financial statements should be read in conjunction with the audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2004.

Revenue Recognition

Net Product Sales

The Company sells BYETTA^TM (exenatide) injection and SYMLIN^® (pramlintide acetate) injection to wholesale distributors, who, in turn, sell to retail pharmacies and government entities.  Product sales are recognized when delivery of the products has occurred, title has passed to the customer, the selling price is fixed or determinable, collectibility is reasonably assured and the Company has no further obligations.  The Company records allowances for discounts, distribution fees, and product returns at the time of sale and reports product sales net of such allowances.  The Company must make significant judgments in determining these allowances.  If actual results differ from the Company’s estimates, the Company will be required to make adjustments to these allowances in the future.

The Company reports all BYETTA product sales for sales in the United States.  The Company has determined that it is qualified as a principal under the criteria set forth in Emerging Issues Task Force (EITF), Issue 99-19, “Reporting Gross Revenue as a Principal vs. Net as an Agent,” based on the Company’s responsibilities under its contracts with Eli Lilly and Company, or Lilly, which include manufacture of product for sale in the United States, responsibility for establishing pricing in the United States, distribution, ownership of product inventory and credit risk from customers.

Revenue Under Collaborative Agreements

Amounts received for upfront product and technology license fees under multiple-element arrangements are deferred and recognized over the period of such services or performance if such arrangements require on-going services or performance.  Amounts received for milestones are recognized upon achievement of the milestone, and the expiration of stock conversion rights, if any, associated with such payments. Amounts received for equalization of development expenses are recognized in the period in which the related expenses are incurred.  Any amounts received prior to satisfying these revenue recognition criteria will be recorded as deferred revenue.

Per Share Data

Basic and diluted net loss applicable to common stock per share is computed using the weighted average number of common shares outstanding during the period.  Common stock equivalents from stock options and warrants of 3.1 million and 3.5 million for the three and six months ended June 30, 2005, respectively, and common stock equivalents of 5.2 million and 5.3 million for the three and six months ended June 30, 2004, are excluded from the calculation of diluted loss per share for all periods presented because the effect is antidilutive.  Common stock equivalents from shares underlying our convertible senior notes of 11.2 million for the three and six months ended June 30, 2005, and June 30, 2004, respectively, are also excluded from the calculation of diluted loss per share because the effect is antidilutive.  In future periods, if the Company reports net income and the common share equivalents for our convertible senior notes are dilutive, the common stock equivalents will be included in the weighted average shares computation and interest expense related to the notes will be added back to net income to calculate diluted earnings per share.

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Stock-Based Compensation

The Company records compensation expense for employee stock options based upon their intrinsic value on the date of grant pursuant to Accounting Principles Board, or APB Opinion No. 25, “Accounting for Stock Issued to Employees.” Because the Company establishes the exercise price based on the fair market value of the Company’s stock at the date of grant, the options have no intrinsic value upon grant, and therefore no expense is recorded. Each quarter, the Company reports the potential dilutive impact of stock options in its diluted earnings per share using the treasury-stock method. Out-of-the-money stock options (i.e., the average stock price during the period is below the strike price of the option) are not included in diluted earnings per share.

As required under Statement of Financial Accounting Standards, or SFAS, No. 123 “Accounting for Stock-Based Compensation,” and SFAS No. 148, “Accounting for Stock-Based Compensation Transition and Disclosure,” the pro forma effects of stock-based compensation on net income and net earnings per common share have been estimated at the date of grant using the Black-Scholes option-pricing model.

For purposes of pro forma disclosures, the estimated fair value of the options is assumed to be amortized to expense over the options’ vesting periods.  These pro forma amounts may not be representative of the effects on reported net income (loss) for future periods due to the uncertainty of stock option grant volume and potential changes in assumptions driven by market factors. The pro forma effects of recognizing compensation expense under the fair value method on net income (loss) and net earnings (loss) per common share were as follows (in thousands, except for net loss per share):

	Three months ended June 30,						Six months ended June 30,
	2005			2004			2005			2004
Net loss, as reported	$	(26,594	)	$	(39,427	)	$	(70,198	)	$	(76,700	)
Add: Stock-based employee compensation expense included in reported net loss	—			—			311			—
Deduct: Stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects	9,535			8,450			18,356			15,497
Pro forma net loss	$	(36,129	)	$	(47,877	)	$	(88,243	)	$	(92,197	)
Net loss per share:
Basic and diluted – as reported	$	(0.26	)	$	(0.42	)	$	(0.68	)	$	(0.82	)
Basic and diluted – pro forma	$	(0.35	)	$	(0.51	)	$	(0.86	)	$	(0.98	)

Consolidation

The consolidated financial statements include the accounts of Amylin and its wholly owned subsidiary, Amylin Europe Limited.  All significant intercompany transactions and balances have been eliminated in consolidation.

Recently Issued Accounting Standards

In December 2004, The Financial Accounting Standards Board (“FASB”) issued SFAS 123 (R) “Share-Based Payment,” which requires stock-based compensation for an award of equity instruments, including stock options and employee stock purchase rights, issued to employees to be recognized as a cost in the financial statements.  The cost of these awards are measured according to the grant date fair value of the stock options and is recognized over the period during which an employee is required to provide service in exchange for the award, which is usually the vesting period.  In the absence of an observable market price for the stock awards, the grant-date fair value of the stock options would be based upon a valuation methodology that takes into consideration various factors, including the exercise price of the option, the expected term of the option, the current price of the underlying shares, the expected volatility of the underlying share price, the expected dividends on the underlying shares and the risk-free interest rate.  SFAS 123 (R) permits companies to adopt the new requirements using one of two methods:

1.A “modified prospective” method in which cost is recognized beginning with the effective date (a) based on the requirements of Statement No. 123(R) for all share-based payments granted after the effective date of Statement No. 123(R) and (b) based on the requirements of Statement No. 123 for all awards granted to employees before the effective date that remain unvested as of the effective date; or

2.A “modified retrospective” method that includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under Statement No. 123 for

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purposes of pro forma disclosures either (a) for all prior periods presented or (b) for prior interim periods of the year of adoption.

The requirements of SFAS 123 (R) are effective for the Company beginning January 1, 2006.  The adoption of this standard is expected to increase operating expenses and the Company is currently evaluating the extent of this impact on its financial statements and which method it will use to adopt the requirements of SFAS 123 (R).

2.Investments

The Company’s investments, consisting principally of debt securities are classified as available-for-sale and are stated at fair value, and unrealized holding gains or losses on these securities are carried as a separate component of stockholders’ equity (deficit). The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in interest income. Realized gains and losses and declines in value judged to be other-than-temporary (of which there have been none to date) on available-for-sale securities are included in interest income. The cost of securities sold is based on the specific-identification method.

3.Inventories

Inventories are stated at the lower of cost (FIFO) or market. Raw materials consists of pramlintide acetate and exenatide bulk drug material, work-in-process primarily consists of in process SYMLIN vials and in-process BYETTA cartridges, and finished goods consists of finished SYMLIN drug product in vials for syringe administration and BYETTA drug product in cartridges for pen administration.

Inventories consist of the following (in thousands):

	June 30, 2005			December 31, 2004
Raw materials	$	20,763		$	14,052
Work-in-process	4,173			4,724
Finished goods	1,594			—
Valuation reserve	(3,100		)	(3,100		)
	$	23,430		$	15,676

4.Debt Issuance Costs

Debt issuance costs relate to the $175 million aggregate principal amount of 2.25% convertible senior notes, due June 30, 2008, which were issued in June and July of 2003, and are referred to as the 2003 Notes, and the $200 million aggregate principal amount of 2.5% convertible senior notes, due April 15, 2011, which were issued in April 2004, and are referred to as the 2004 Notes.  Debt issuance costs are being amortized to interest expense in the consolidated statement of operations on a straight-line basis over the contractual term of the notes.  The Company incurred total debt issuance costs of $5.3 million in connection with the 2003 Notes and $6.4 million in connection with the 2004 Notes and recorded $0.5 million and $0.5 million of amortization in the three months ended June 30, 2005, and June 30, 2004, respectively and $1.0 million and $0.7 million of amortization in the six months ended June 30, 2005, and June 30, 2004, respectively.

5.Comprehensive Loss

SFAS No. 130, Reporting Comprehensive Income, requires reporting and displaying comprehensive income (loss) and its components, which, for the Company, includes net loss and unrealized gains and losses on investments.  In accordance with SFAS 130, the accumulated balance of other comprehensive income is disclosed as a separate component of stockholders’ equity.  For the six months ended June 30, 2005, and 2004, the comprehensive loss consisted of (in thousands):

	Six months ended June 30,
	2005			2004
Net loss	$	(70,198	)	$	(76,700	)
Other comprehensive loss:
Unrealized loss on investments:	(75		)	(744		)
Comprehensive loss	$	(70,273	)	$	(77,444	)

6.Convertible Senior Notes

In June and July 2003, the Company issued the 2003 Notes, which have an aggregate principal amount of $175 million

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and are due June 30, 2008, in a private placement.  The 2003 Notes have been registered under the Securities Act of 1933, as amended, or the Securities Act, to permit registered resale of the 2003 Notes and of the common stock issuable upon conversion of the 2003 Notes.  The 2003 Notes bear interest at a rate of 2.25% per year, payable in cash semi-annually, and are convertible into a total of up to 5.4 million shares of common stock at a conversion price of approximately $32.55 per share, subject to customary adjustments such as stock dividends and other dilutive transactions.

The 2003 Notes are redeemable at the Company’s option in whole or in part on or after June 30, 2006, at a redemption price equal to 100% of the principal amount of the notes to be redeemed plus accrued and unpaid interest to the redemption date if the closing price of the Company’s common stock has exceeded 140% of the conversion price for at least 20 trading days in any consecutive 30-day trading period.  At the time of any such redemption, the Company will also make an additional payment on the redeemed 2003 Notes equal to $112.94 per $1,000 principal amount of the 2003 Notes, less interest actually paid or accrued but unpaid on the 2003 Notes.

In April 2004, the Company issued the 2004 Notes, which have an aggregate principal amount of $200 million, and are due April 15, 2011, in a private placement.  The 2004 Notes have been registered under the Securities Act to permit registered resale of the 2004 Notes and of the common stock issuable upon conversion of the 2004 Notes.  The 2004 Notes bear interest at 2.5% per year, payable in cash semi-annually and are convertible into a total of up to 5.8 million shares of common stock at a conversion price of $34.35 per share, subject to customary adjustments for stock dividends and other dilutive transactions.  The Company may not redeem the 2004 Notes prior to maturity.

Upon a change in control, the holders of the 2003 and 2004 Notes may elect to require the Company to re-purchase the 2003 or 2004 Notes.  The Company may elect to pay the purchase price in common stock instead of cash, or a combination thereof.  If paid with common stock the number of shares of common stock a holder will receive will be valued at 95% of the closing prices of our common stock for the five-day trading period ending on the third day before the purchase date.

7.Public Offering of Common Stock

On February 1, 2005, the Company completed a public offering of 9.2 million shares of its common stock at a price of $22.00 per share.  This transaction generated net proceeds of $190 million for the Company and was completed pursuant to a $300 million universal shelf registration statement initially filed with Securities and Exchange Commission in December 2003.

ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

Except for the historical information herein, the discussion in this quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties.  These statements include projections about our accounting and finances, plans and objectives for the future, future operating and economic performance and other statements regarding future performance.  These statements are not guarantees of future performance or events.  Our actual results may differ materially from those discussed here.  Factors that could cause or contribute to differences in our actual results include those discussed under the caption “Cautionary Factors That May Affect Future Results,” as well as those discussed elsewhere in this quarterly report on Form 10-Q.  You should consider carefully those cautionary factors, together with all of the other information included in this quarterly report on Form 10-Q.  Each of the cautionary factors, either alone or taken together, could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our common stock.  There may be additional risks that we don’t presently know of or that we currently believe are immaterial which could also impair our business and financial position. We do not undertake and obligation to update the forward-looking information contained in this Form 10-Q.

Overview

Amylin Pharmaceuticals, Inc. is a biopharmaceutical company engaged in the discovery, development and commercialization of innovative medicines to improve the lives of people with diabetes, obesity and cardiovascular disease.  We have two approved products, BYETTA^TM (exenatide) injection, and SYMLIN® (pramlintide acetate) injection, both of which were commercially launched in the United States during the second quarter of 2005.

BYETTA is the first and only approved medicine in a new class of compounds called incretin mimetics.  We began selling BYETTA in the United States in June 2005 after receiving approval from the FDA in April 2005 to market BYETTA as adjunctive therapy to improve glycemic control in patients with type 2 diabetes who are taking metformin and/or sulfonylurea, two common oral therapies, but have not achieved adequate glycemic control.

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We have a global development and commercialization agreement for exenatide, including BYETTA and any sustained-release formulations of BYETTA, including exenatide LAR, with Lilly.  Under the terms of the agreement, operating profits in the United States are shared equally and operating profits outside of the United States are split 80% to Lilly and 20% to us.

SYMLIN is the first and only approved medicine in a new class of compounds called amylinomimetics.  We began selling SYMLIN in the United States in April 2005 after receiving approval from the FDA in March 2005 to market SYMLIN as adjunctive therapy to mealtime insulin to treat diabetes.

We have a fully staffed field force of approximately 400 people dedicated to marketing BYETTA and SYMLIN in the United States.  Lilly is also co-promoting BYETTA in the United States utilizing one of its existing sales forces.  In addition to our sales force, our field force includes a managed care organization actively working with managed care and government payor groups for reimbursement of BYETTA and SYMLIN and a medical science organization supporting broad medical education programs for both products.  Lilly has primary responsibility for developing and commercializing BYETTA, including any sustained release formulations of BYETTA, outside of the United States.

In addition to our marketed products we have a pipeline including a Phase 2 program for each of the therapeutic areas of diabetes, obesity and cardiovascular disease.  Additionally, we have an early stage program and maintain a discovery research program focused on peptide therapeutics and are actively seeking to in-license additional drug candidates.

Since our inception in September 1987, we have devoted substantially all of our resources to our research and development programs. All of our revenues prior to May 2005 have been derived from fees and expense reimbursements under our BYETTA collaboration agreement with Lilly, previous SYMLIN collaborative agreements and co-promotion agreements with each of Lilly and Reliant Pharmaceuticals, Inc.  During the second quarter of 2005, we began to derive revenues from product sales of BYETTA and SYMLIN.  We have been unprofitable since inception and may incur additional operating losses for at least the next few years.  At June 30, 2005, our accumulated deficit was approximately $868 million.

At June 30, 2005, we had approximately $401 million in cash, cash equivalents and short-term investments.  In February 2005 we completed a public offering of our common stock, generating net proceeds to us of approximately $190 million.  We do not expect to generate positive operating cash flows for at least the next few years and accordingly, we may need to raise additional funds from outside sources.  Refer to the discussions under the headings “Liquidity and Capital Resources” and “Cautionary Factors That May Affect Future Results” for further discussion regarding our anticipated future capital requirements.

Research and Development Programs

Our research and development efforts are focused on two approved medicines and four drug candidates for the treatment of diabetes, obesity or cardiovascular disease.

Our research and development expenses are comprised of salaries and benefits, costs paid to third-party contractors to perform research, conduct clinical trials, and develop and manufacture drug materials and delivery devices, and a portion of our facilities costs.  We charge direct internal and external program costs to the respective development programs.  We also incur indirect costs that are not allocated to specific programs because such costs benefit multiple development programs and allow us to increase our pharmaceutical development capabilities. These consist primarily of facilities costs and other internal-shared resources related to the development and maintenance of systems and processes applicable to all of our programs.

The following table provides information regarding our research and development expenses for our major projects (in millions):

	Three months ended June 30,					Six months ended June 30,
	2005			2004		2005		2004
BYETTA	$		4.7	$	11.3	$	10.8	$	22.0
SYMLIN	4.2			3.4		7.9		7.9
Phase 2 programs	6.5			5.2		14.1		8.8
Early stage programs and research	4.8			3.2		8.5		5.8
Unallocated	6.5			6.8		12.8		12.9
	$	26.7		$	29.9	$	54.1	$	57.4

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BYETTA

On April 28, 2005, the FDA approved BYETTA as adjunctive therapy in patients with type 2 diabetes who have not achieved adequate control on metformin and/or sulfonylurea, two common oral therapies.  Our planned 2005 development activities for BYETTA include the continuation of ongoing studies, including those to support regulatory filings outside of the United States and an ongoing study in patients who are currently not achieving target blood glucose concentrations using thiazolidinediones, or TZDs, another common oral therapy used to treat type 2 diabetes.

The timing of material net cash inflows from our BYETTA development program is dependent upon market acceptance following its commercial launch in the second quarter of 2005 and the other factors described in this report.

SYMLIN

On March 16, 2005, the FDA approved SYMLIN to be used in conjunction with mealtime insulin to treat diabetes. Our planned 2005 development efforts include the commencement of a controlled, open-label study to evaluate SYMLIN use in clinical practice in approximately 1,200 patients over two years and the re-initiation of the development of SYMLIN in a disposable pen injection system.

The timing of material net cash inflows from SYMLIN is dependent upon market acceptance following its commercial launch in the second quarter of 2005 and the other factors described in this report.

Phase 2 Programs

We currently have a Phase 2 program in each of the therapeutic areas of diabetes, obesity and cardiovascular disease.  In diabetes, we are studying exenatide LAR, a sustained-release formulation of BYETTA.  We are conducting a Phase 2 multi-dose study of exenatide LAR, utilizing a once-a-week dosing regimen, which is fully enrolled.  This study was initiated following the review of data from a Phase 2 single-dose study completed in early 2005.  We are developing exenatide LAR in collaboration with Lilly and Alkermes.  In obesity, we are studying AC137 (pramlintide acetate), the same compound contained in SYMLIN.  We submitted an IND to the FDA for AC137 in the second quarter of 2005 and following the review of data from a 16-week Phase 2 study completed in 2004, we commenced a 400-patient Phase 2 dose-ranging study of AC137 in the second quarter of 2005, which is fully enrolled.  In cardiovascular disease, we have a Phase 2 program for AC2592 (GLP-1) for the treatment of congestive heart failure.  We submitted an IND for AC2592 in the second half of 2004 and initiated a Phase 2 study in the fourth quarter of 2004.

Early-stage Programs and Research

In addition to our late stage development programs in diabetes and our Phase 2 programs in diabetes, obesity and cardiovascular disease, we also have a research and Phase 1 program studying AC162352 (PYY 3-36) for potential utility as a treatment for obesity.  In the second quarter of 2005, we terminated our collaboration agreement with Sanofi-Aventis for AC3056, a compound we had in a Phase 1 program for cardiovascular disease, and all rights to that compound reverted to Sanofi-Aventis.  We also maintain a discovery research program focused on peptide therapeutics and we are actively seeking to in-license additional drug candidates.

Application of Critical Accounting Policies

Our discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S generally accepted accounting principles. The preparation of these financial statements requires us to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures. On an on-going basis, we evaluate our estimates, including those related to revenue recognition.  We base our estimates on industry averages, the experience of our collaborative partner, historical experience and on various other market-specific assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the amount of net product sales recognized and the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results, however, may differ significantly from our estimates.

Revenue Recognition

We recognize revenue from the sale of our products, license fees and milestones earned and for reimbursement of development costs based on contractual arrangements.

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We sell our products to wholesale distributors, who in turn, sell to retail pharmacies and government entities.  Decisions made by these wholesalers and their customers regarding the level of inventories they hold, and thus the amount of product they purchase, can materially affect the level of our product sales in any particular period.

We recognize revenue from the sale of our products when delivery has occurred and title has transferred to our wholesale customers.  We recognize revenue net of allowances for discounts, distributor fees and product returns at the time of sale.  We are required to make significant judgments and estimates in determining these allowances.  If actual results differ from our estimates, we will be required to make adjustments to these allowances in the future.

We do not offer our customers a general right of return.  However, we will accept returns of products that are damaged or defective when received by the customer or for any unopened product during the period beginning six months prior to and up to 12 months subsequent to its expiration date.  As BYETTA and SYMLIN are new products, we estimate product returns based on industry trends for other products with similar characteristics.  Additionally, we consider several other factors in our estimation process including our internal sales forecasts, the expiration dates of product being shipped and third party data to assist us in monitoring estimated channel inventory levels and prescription trends.

Allowances for product discounts arise from chargebacks and rebates, which currently include mandated discounts to government entities, and discounts for prescription vouchers.  Over time, allowances for product discounts will include discounts under contractual pricing arrangements we plan to enter into with additional third party payors.  Chargebacks are discounts that occur when a contracted customer purchases directly from an intermediary wholesale purchaser.  The contracted customer generally purchases the product at its contracted price, plus a mark-up from the wholesaler.  The wholesaler, in-turn, charges the Company back for the difference between the price initially paid by the wholesaler and the contracted price paid to the wholesaler by the customer.  The allowance for chargebacks is based on expected utilization of these programs and estimated wholesaler inventory levels.  Rebates are amounts owed based on definitive contractual agreements or legal requirements with private sector and public sector (e.g. Medicaid) benefit providers after the final dispensing of the product by a pharmacy to a benefit plan participant.  The allowance for rebates is based on expected patient usage and contractual terms.  Prescription voucher discounts are amounts owed to pharmacies for redemption of vouchers for a free prescription.  We provide prescription vouchers to physicians, who in turn distribute these vouchers to patients.  Patients may redeem the voucher at a pharmacy for a free prescription.  We reimburse the pharmacy for the price it paid the wholesaler for the medicine.  The allowance for prescription voucher discounts is based upon the number of unredeemed vouchers in circulation and the expected utilization rate.

Results of Operations

Three Months Ended June 30, 2005

 Net Product Sales

Net product sales for the quarter ended June 30, 2005, were $8.7 million and primarily consist of initial stocking shipments to wholesale customers of BYETTA and SYMLIN, less distribution service fees and allowances for product discounts and returns.

Revenue Under Collaborative Agreements

Revenue under collaborative agreements for the quarter ended June 30, 2005, increased to $38.1million from $7.6 million for the same period in 2004.  Substantially all of the revenue recorded in these periods consists of amounts earned pursuant to our BYETTA collaboration agreement with Lilly.  During the second quarter of 2005, we terminated our agreement to co-promote Reliant Pharmaceuticals Inc.’s cardiovascular products.  The $30.5 million increase in revenue under collaborative agreements in the current quarter compared to the same period in 2004 primarily reflects an increase in milestone revenue due to $35 million in milestones earned associated with the regulatory approval and commercial launch of BYETTA in the United States, of which $30 million was paid in the second quarter of 2005 and $5 million was paid in the fourth quarter of 2003.  Partially offsetting the increase in milestone revenue was a reduction in cost-sharing payments resulting from lower BYETTA development expenses in the second quarter of 2005 as compared to the same period in 2004.

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The following table summarizes the components of revenue under collaborative agreements for the three months ended June 30, 2005 and 2004 (in millions):

	Three months ended June 30,
	2005		2004
Amortization of up-front payments	$	1.1	$	1.1
Milestone payments	35.0		—
Cost-sharing and co-promotion payments	2.0		6.5
	$	38.1	$	7.6

In future periods, revenues under collaborative agreements will consist of ongoing cost-sharing payments from Lilly to equalize U.S. development costs, possible future milestone payments and the continued amortization of the $30 million portion of the up-front payment.  The amount of cost-sharing revenue recorded will be dependent on the timing, extent and relative proportion of total development costs for the BYETTA development programs incurred by us and by Lilly. The receipt and recognition as revenue of future milestone payments are subject to the achievement of performance requirements underlying such milestone payments and, for certain development milestones, the expiration of stock conversion rights associated with such payments.

Cost of Goods Sold

Cost of goods sold for the quarter ended June 30, 2005, was $1.5 million and is comprised primarily of costs associated with the manufacture of BYETTA and SYMLIN.  There was no cost of goods sold for the quarter ended June 30, 2004, as we did not begin selling BYETTA and SYMLIN until the second quarter of 2005.  Prior to regulatory approval of BYETTA and SYMLIN, certain indirect costs associated with the qualification of our inventory for commercial sale were expensed and recorded as research and development expenses. Beginning in the second quarter of 2005, we began including these costs in inventory and cost of goods sold.

Research and Development Expenses

Research and development expenses decreased to $26.7 million for the quarter ended June 30, 2005, from $29.9 million for the same period in 2004.  The $3.2 million reduction reflects reduced expenditures of $6.9 million for BYETTA and our unallocated research and development expenses, partially offset by an increase of $3.7 million, for our research activities, Phase 2 development programs and SYMLIN development activities.  The reduction in BYETTA development expenses reflects the completion of activities required to support regulatory approval in the United States.  The increase in expenses for our Phase 2 programs reflects costs associated with ongoing clinical trials for our Phase 2 programs in diabetes, obesity and cardiovascular disease.  The increase in our research activities reflects our continued investment in our early stage research programs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $42.3million for the quarter ended June 30, 2005, from $15.7 million for the same period in 2004. This increase primarily reflects costs associated with the commercial launches of BYETTA and SYMLIN during the second quarter of 2005.  These costs include the addition of approximately 300 personnel to our field force, costs associated with increased medical education activities for BYETTA and SYMLIN and increases in our business infrastructure.  We and Lilly are jointly responsible for the co-promotion of BYETTA within the United States, and share equally in sales force costs and external marketing expenses and accordingly our selling, general and administrative expenses will reflect our 50% share of these costs in the United States.

We expect that our selling, general and administrative expenses will continue to increase from current levels during the remainder of 2005 but at a slower rate than we experienced in the second quarter of 2005.  This expected increase relates primarily to increased costs for our fully staff field force, the majority of which was added during the second quarter of 2005 and is not fully reflected in selling general and administrative expenses for that period.

Collaborative Profit Sharing

Collaborative profit sharing was $2.9 million in the quarter ended June 30, 2005, and consists of amounts due to Lilly for its share of the gross margin for BYETTA in the United States.

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Interest and Other Income and Expense

Interest and other income consist primarily of interest income from investment of cash and investments.  Interest and other income increased to $2.8 million for the quarter ended June 30, 2005, from $1.1 million for the same period in 2004.  The increase in 2005 reflects higher average cash balances available for investment and higher average interest rates as compared to 2004.

Interest and other expense consist primarily of interest expense resulting from our long-term debt obligations.  Interest expense in the quarter ended June 30, 2005, consists of interest on our $375 million of outstanding convertible senior notes and the amortization of associated debt issuance costs.  Interest and other expense was $2.8 million for the quarter ended June 30, 2005, compared to $2.5 million for the same period in 2004

Net Loss

Our net loss for the quarter ended June 30, 2005, was $26.6 million compared to a net loss of $39.4 million for the same period in 2004.  The decrease in the net loss primarily reflects the increased revenue under collaborative agreements and the addition of product revenues partially offset by the increases in operating costs and expenses discussed above.

We may incur substantial operating losses for the next few years.  Our ability to reach profitability in the future will be heavily dependent upon the amount of product sales that we achieve for BYETTA and SYMLIN.  We also expect increased expenses associated with the commercialization of BYETTA and SYMLIN, as well as ongoing expenses associated with the continuation and potential expansion of our research and development programs, including our ongoing Phase 2 programs and our earlier stage development programs, and related general and administrative support that may impact our ability to reach profitability in the future.  Operating losses may fluctuate from quarter to quarter as a result of differences in the timing of expenses incurred and revenues recognized.

Six Months Ended June 30, 2005

Net Product Sales

Net product sales for the six months ended June 30, 2005, were $8.7 million and primarily consist of initial stocking shipments to wholesale customers of BYETTA and SYMLIN less distribution service fees and allowances for product discounts and returns.

Revenue Under Collaborative Agreements

Revenue under collaborative agreements for the six months ended June 30, 2005, increased to $42.4 million from $14.2 million for the same period in 2004.  Substantially all of the revenue recorded in these periods consists of amounts earned pursuant to our BYETTA collaboration agreement with Lilly. The $28.2 million increase in revenue under collaborative agreements in the six months ended June 30, 2005, is due to the same factors that influenced the increase in the second quarter discussed above.

The following table summarizes the components of revenue under collaborative agreements for the six months ended June 30, 2005, and 2004 (in millions):

	Six months ended June 30,
	2005		2004
Amortization of up-front payments	$	2.1	$	2.1
Milestone payments	35.0		—
Cost-sharing and co-promotion payments	5.3		12.1
	$	42.4	$	14.2

Cost of Goods Sold

Cost of goods sold for the six months ended June 30, 2005, was $1.5 million and is comprised primarily of costs associated with the manufacture of BYETTA and SYMLIN.  There was no cost of goods sold for the six months ended June 30, 2004, as we did not begin selling BYETTA and SYMLIN until the second quarter of 2005. Prior to regulatory approval of BYETTA and SYMLIN, certain indirect costs associated with the qualification of our inventory for commercial sale were expensed and recorded as research and development expenses. Beginning in the second quarter of 2005, we began including these costs in inventory and cost of goods sold.

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Research and Development Expenses

Our research and development expenses decreased to $54.1million for the six months ended June 30, 2005, from $57.4 million for the same period in 2004.  The decrease is due to the same factors that influenced the decrease in the second quarter discussed above, and primarily reflects reduced BYETTA development expenses following the completion of activities to support its regulatory filing in the United States, partially offset by growth in our research capabilities and increased clinical development costs for our Phase 2 programs in diabetes, obesity and cardiovascular disease.

Selling General and Administrative Expenses

Our selling, general and administrative expenses increased to $62.4million in the six months ended June 30, 2005, from $31.8 million for the same period in 2004.  The increase is due to the same factors that influenced the increase in the second quarter discussed above, and primarily reflects growth in our commercial organization and increased business infrastructure required for the commercial launches of BYETTA and SYMLIN in the second quarter of 2005.

Collaborative Profit Sharing

Collaborative profit sharing was $2.9 million in the six months ended June 30, 2005, and consists of amounts due to Lilly for its share of the gross margin for BYETTA in the United States.

Interest and Other Income and Expense

Interest and other income consist primarily of interest income from investment of cash and investments.  Interest and other income increased to $5.1 million for the six months ended June 30, 2005, from $2.0 million for the same period in 2004.  The increase in 2005 reflects higher average cash balances available for investment and higher average interest rates as compared to 2004.

Interest and other expense consist primarily of interest expense resulting from our long-term debt obligations.  Interest expense in the six months ended June 30, 2005, consists of interest on our $375 million of outstanding convertible senior notes and the amortization of associated debt issuance costs.  Interest and other expense was $5.4 million for the six months ended June 30, 2005, compared to $3.8 million for the same period in 2004.  The increase in 2005, as compared to 2004 reflects higher average debt balances following our April 2004 issuance of $200 million of convertible senior notes.

Net Loss

Our net loss for the six months ended June 30, 2005, was $70.2 million compared to a net loss of $76.7 million for the same period in 2004.  The decrease in the net loss primarily reflects the increased revenue under collaborative agreements and the addition of product revenues partially offset by the increases in operating costs and expenses discussed above.

Liquidity and Capital Resources

Since our inception, we have financed our operations primarily through public sales and private placements of our common stock and preferred stock, debt financings, payments received pursuant to our BYETTA collaboration with Lilly, reimbursement of SYMLIN development expenses through earlier collaboration agreements, and as of the second quarter of 2005 through sales of BYETTA and SYMLIN.

At June 30, 2005, we had $401 million in cash, cash equivalents and short-term investments as compared to $293.8 million at December 31, 2004.  The increase principally reflects $190 million in net proceeds from a public offering of our common stock in February 2005, partially offset by cash used to fund our operations.

We used cash of $81.0 million and $88.1 million for our operating activities in the six months ended June 30, 2005, and 2004, respectively.  Our use of cash for operating activities in the six months ended June 30, 2005, includes the receipt of a $30 million milestone payment from Lilly in the second quarter of 2005.  We did not receive any milestone payments from Lilly in the six months ended June 30, 2004.  Investing activities used $110.6 million and $102.3 million in the six months ended June 30, 2005, and 2004, respectively.  Investing activities in both periods consisted primarily of purchases and sales of short-term investments, as well as purchases of fixed assets and increases in patents.  Financing activities provided $196.0 million and $197.1 million in the six months ended June 30, 2005, and 2004, respectively.  These amounts primarily consist of proceeds from the issuance of common stock and convertible senior notes.

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We expect our use of cash to fund our operating activities to increase from current levels during the remainder of 2005.  The rate of this increase will be dependent upon the amount of product sales we achieve and also reflects increased costs associated with the recent expansion of our commercial capabilities to support the commercial launches of BYETTA and SYMLIN, due primarily to the increase in our field force to approximately 400 people, the majority of which was added during the second quarter of 2005.  Additionally, the receipt of a $30 million milestone payment from Lilly positively affected our use of cash for operating activities for the six months ended June 30, 2005.

We may not generate positive operating cash flows for the next few years and our ability to do so will depend on many factors including the market acceptance of BYETTA and SYMLIN, costs to commercialize BYETTA and SYMLIN, costs associated with the continuation of our ongoing development programs, costs for related general and administrative support, and the other factors described in this report, including those discussed under the heading “Cautionary Factors That May Affect Future Results.”

In December 2003, we filed a shelf registration statement with the Securities and Exchange Commission, which the SEC declared effective in February 2004.  In February 2005 we completed a public offering of 9.2 million shares of our common stock pursuant to this shelf registration generating net proceeds to us of approximately $190 million. The registration statement currently allows us to sell up to $98 million of various securities in one or more offerings in the future.  The terms of any offering will be established at the time of sale.

We also have a loan facility available from Lilly that, subject to certain defined development and regulatory events, over time could provide us up to $110 million to fund a portion of our development and commercialization costs for BYETTA.  As of June 30, 2005, $72.5 million of this facility was available to us and there were no amounts outstanding.  Any loans under this facility would be secured by some of our patents and other tangible assets and, at Lilly’s option, are convertible into our common stock if amounts remain outstanding for more than two years.  Additionally, any loans under this facility must be executed prior to May 26, 2006, the first anniversary of BYETTA product launch in the United States, at which point 50% of any outstanding loan amounts become due.

At June 30, 2005, we had outstanding long-term debt of $375 million.  This amount includes $175 million aggregate principal amount of the 2.25% senior convertible notes due 2008, or the 2003 Notes. The 2003 Notes are currently convertible into a total of up to 5.4 million shares of our common stock at approximately $32.55 per share.  Under certain circumstances, the 2003 Notes are redeemable in whole or in part, at our option, on or after June 30, 2006, at specified redemption prices plus accrued and unpaid interest.  The remainder of our long-term debt balance at June 30, 2005 consists of $200 million aggregate principal amount of the 2.5% convertible senior notes due 2011, or the 2004 Notes.  The 2004 Notes are currently convertible into a total of up to 5.8 million shares of our common stock at approximately $34.35 per share. The 2004 Notes are not redeemable at our option.

The following table summarizes our contractual obligations and maturity dates as of June 30, 2005  (in thousands).

	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Long-term debt	$	375,000	$	—	$	175,000	$	—	$	200,000
Interest payments on long-term debt	41,813		8,938		17,875		10,000		5,000
Inventory purchase obligations (1)	158,888		69,276		56,631		32,981		—
Capital lease obligations	21		14		7		—		—
Operating leases	74,654		7,679		20,403		16,935		29,637
Total (2)	$	650,376	$	85,907	$	269,916	$	59,916	$	234,637

(1)Includes $101 million of outstanding purchase orders, cancelable by the Company upon 30 days’ written notice, subject to reimbursement of costs incurred through the date of cancellation.

(2)Excludes long-term obligation of $3.8 million related to deferred compensation, the payment of which is subject to elections made by participants that are subject to change.

Our future capital requirements will depend on many factors, including: costs associated with the commercialization of BYETTA and SYMLIN and our ability to effectively market BYETTA and SYMLIN; costs associated with an increase in our infrastructure, including the increase in the number of our field personnel; our ability to receive milestone payments or obtain access to loan amounts pursuant to our collaboration with Lilly; our ability and the extent to which we establish commercialization arrangements, outside of the United States, if any, for SYMLIN; our ability to progress with our Phase 2 programs and other ongoing and new clinical and preclinical trials; progress in our other research and development programs

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and the magnitude of these programs; the costs involved in preparing, filing, prosecuting, maintaining, enforcing or defending our patents; competing technological and market developments; changes in or new collaborative relationships; costs of manufacturing, including costs associated with obtaining and validating additional manufacturers of our products and scale-up costs for our drug candidates; the costs of potential licenses or acquisitions; and the need to repay existing indebtedness.

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

Except for the historical information herein, this quarterly report on Form 10-Q contains forward-looking statements that involve risks and uncertainties.  These statements include projections about our accounting and finances, plans and objectives for the future, future operating and economic performance and other statements regarding future performance.  These statements are not guarantees of future performance or events.  Our actual results may differ materially from those discussed here. Factors that could cause or contribute to differences in our actual results include those discussed in the following section, as well as those discussed elsewhere throughout this quarterly report on Form 10-Q. You should consider carefully the following cautionary factors, together with all of the other information included in this quarterly report on Form 10-Q. Each of these cautionary factors, either alone or taken together, could adversely affect our business, operating results and financial condition, as well as adversely affect the value of an investment in our common stock. There may be additional risks that we do not presently know of or that we currently believe are immaterial which could also impair our business and financial position.

We have a history of operating losses, anticipate future losses, and may never become profitable.

We have experienced significant operating losses since our inception in 1987, including losses of approximately $70.2 million for the six months ended June 30, 2005, $157.2 million in 2004 and $122.8 million in 2003. As of June 30, 2005, we had an accumulated deficit of approximately $868 million. The extent of our future losses and the timing of potential profitability are highly uncertain, and we may never achieve profitable operations. We have been engaged in discovering and developing drugs since inception, which has required, and will continue to require, significant research and development expenditures. We have derived substantially all of our revenues to date from development funding, fees and milestone payments under collaborative agreements and from interest income. While we recently received FDA approval for the marketing of BYETTA and SYMLIN, we may not succeed in commercializing these drugs, or any other drug candidate. We may incur substantial operating losses for at least the next few years, and we expect that our losses may increase as we continue to expand our commercial function in the immediate future for BYETTA and SYMLIN and our research and development activities for the other drug candidates in our development pipeline. These losses, among other things, have had and will have an adverse effect on our stockholders’ equity and working capital. To achieve profitable operations, we, alone or with others, must successfully commercialize BYETTA and SYMLIN and develop, manufacture, obtain required regulatory approvals and commercialize our drug candidates. If we become profitable, we may not remain profitable.

We will require future capital and are uncertain of the availability or terms of additional funding, and if additional capital is not available or not available on acceptable terms, we may have to reduce the size of our operations.

We must continue to find sources of capital in order to successfully commercialize BYETTA and SYMLIN and to complete the development and commercialization of our drug candidates. Our future capital requirements will depend on many factors, including:

•the costs of marketing and selling BYETTA and SYMLIN;

•our ability, and the ability of any partner, to effectively market, sell and distribute BYETTA and SYMLIN;

•the costs of manufacturing BYETTA, SYMLIN and our drug candidates;

•the continuation of our collaboration with Lilly for the commercialization of BYETTA and the further development of sustained-release formulations of BYETTA, including exenatide LAR;

•our ability to meet milestone objectives under our collaboration with Lilly;

•our access to loan amounts under our collaboration with Lilly;

•progress with our preclinical studies and clinical trials;

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•the time and costs involved in obtaining regulatory approvals for the marketing of any of our drug candidates;

•scientific progress in our other research programs and the magnitude of these programs;

•our ability to establish one or more marketing, distribution or other commercialization arrangements for SYMLIN or our drug candidates;

•the cost of any potential licenses or acquisitions;

•the costs involved in preparing, filing, prosecuting, maintaining and enforcing patents or defending ourselves against competing technological and market developments; and

•the potential need to repay existing indebtedness.

You should be aware that:

•we may not be able to obtain additional financial resources in the necessary time frame or on terms favorable to us, if at all;

•any available additional financing may not be adequate; and

•we may be required to use a portion of future financing to repay existing indebtedness to our current or future creditors.

In the event we are unable to obtain additional financing on acceptable terms, we may have to delay, scale back or eliminate one or more of our development or commercialization programs, or obtain funds by entering into more arrangements with collaborative partners or others that may require us to relinquish rights to certain of our drug candidates or technologies that we would not otherwise relinquish.

Contingent on certain events, Lilly will allow us to borrow up to $110 million under a loan agreement in order to fund a portion of our development and commercialization costs for BYETTA. With the FDA approval of BYETTA, $72.5 million of this facility is now available to us.  If we incur any debt under the Lilly loan agreement, it will be secured debt and will become due beginning May 26, 2006, the first anniversary of the initial commercial launch of BYETTA.

We began selling, marketing and distributing our first products, BYETTA and SYMLIN, in 2005 and we will depend heavily on the success of those products in the marketplace.

Prior to approval of SYMLIN and BYETTA, we never sold our own products.  Our ability to generate product revenue in the foreseeable future will depend solely on the commercialization of these products.  The successful commercialization of BYETTA and SYMLIN will depend on many factors, including the following:

•acceptance of these first-in-class medicines by the medical community, by patients receiving therapy and by third party payors;

•a satisfactory efficacy and safety profile as demonstrated in a broad patient population;

•supplying sufficient quantities of the products to meet demand;

•successfully building and sustaining manufacturing capacity to meet future demand;

•the competitive landscape for approved and developing therapies that will compete with our products; and

•our ability to expand the indications for which we can market our products.

If we encounter safety issues with BYETTA or SYMLIN or any other drugs we market or fail to comply with extensive continuing regulations enforced by domestic and foreign regulatory authorities, it could cause us to discontinue marketing those drugs, reduce our revenues and harm our ability to generate future revenues, which would negatively impact our financial position.

BYETTA and SYMLIN, in addition to any other of our drug candidates that may be approved by the FDA, will be subject to continual review by the FDA, and we cannot assure you that newly discovered or developed safety issues will not arise following any regulatory approval.  With the use of any of our marketed drugs by a wide patient population, serious

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adverse events may occur from time to time that initially do not appear to relate to the drug itself, and only if the specific event occurs with some regularity over a period of time, does the drug become suspect as having a causal relationship to the adverse event.  Any safety issues could cause us to suspend or cease marketing of our approved drug candidates, possibly subject us to substantial liabilities, and adversely affect our ability to generate revenues and our financial condition.

Moreover, the marketing of our approved products will be subject to extensive regulatory requirements administered by the FDA and other regulatory bodies, including adverse event reporting requirements and the FDA’s general prohibition against promoting products for unapproved uses. The manufacturing facilities for our approved products are also subject to continual review and periodic inspection and approval of manufacturing modifications. Manufacturing facilities that manufacture drug products for the U.S. market are subject to biennial inspections by the FDA and must comply with the FDA’s current Good Manufacturing Practices (cGMP) regulations. The FDA stringently applies regulatory standards for manufacturing. Failure to comply with any of these post-approval requirements can, among other things, result in warning letters, product seizures, recalls, fines, injunctions, suspensions or revocations of marketing licenses, operating restrictions and criminal prosecutions. Any of these enforcement actions, any unanticipated changes in existing regulatory requirements or the adoption of new requirements, or any safety issues that arise with any approved products, could adversely affect our ability to market products and generate revenues and thus adversely affect our ability to continue our business.

The manufacturers of our products and drug candidates also are subject to numerous federal, state and local laws relating to such matters as safe working conditions, manufacturing practices, environmental protection, fire hazard control and hazardous substance disposal. In the future, our manufacturers may incur significant costs to comply with those laws and regulations, which could increase our manufacturing costs and reduce our ability to operate profitably.

Our ability to generate revenues will be diminished if we fail to obtain acceptable prices or an adequate level of reimbursement for our products from third-party payors.

The requirements governing product licensing, pricing and reimbursement vary widely from country to country. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after product licensing approval is granted. As a result, we may obtain regulatory approval for a product in a particular country, but then be subject to price regulations that reduce our revenues from the sale of the product. Also, in some foreign markets, pricing of prescription pharmaceuticals is subject to continuing governmental control even after initial marketing approval. With respect to BYETTA, SYMLIN, or any other potential drug candidates, we cannot be certain that the products will be considered cost effective and that reimbursement will be available or will be sufficient to allow us to sell the products on a competitive basis.

The continuing efforts of government, private health insurers, and other third-party payors to contain or reduce the costs of health care through various means, including efforts to increase the amount of patient co-pay obligations, may limit our commercial opportunity. In the United States, we expect that there will continue to be a number of federal and state proposals to implement government control over the pricing of prescription pharmaceuticals. In addition, increasing emphasis on managed care in the United States will continue to put pressure on the rate of adoption and pricing of pharmaceutical products.

Significant uncertainty exists as to the reimbursement status of newly approved health care products such as SYMLIN and BYETTA. Third-party payors, including Medicare, are challenging the prices charged for medical products and services. Government and other third-party payors increasingly are attempting to contain health care costs by limiting both coverage and the level of reimbursement for new drugs and by refusing, in some cases, to provide coverage for uses of approved products for disease indications for which the FDA has not granted labeling approval. Third-party insurance coverage may not be available to patients for BYETTA and/or SYMLIN or any other products we discover and develop. If government and other third-party payors do not provide adequate coverage and reimbursement levels for our products, the market acceptance of these products may be reduced.

We do not manufacture our own drug candidates and may not be able to obtain adequate supplies, which could cause delays or reduce profit margins.

The manufacturing of sufficient quantities of new and/or approved drug candidates is a time-consuming and complex process. We have no manufacturing capabilities. In order to continue to develop our drug candidates, apply for regulatory approvals and successfully commercialize our products, including BYETTA and SYMLIN, we need to contract or otherwise arrange for the necessary manufacturing.

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There are a limited number of manufacturers that operate under the FDA’s cGMP regulations capable of manufacturing for us. If we are not able to arrange for and maintain third-party manufacturing on commercially reasonable terms, or we lose one of our sole source suppliers used for some components of our manufacturing processes for our products or drug candidates, we may not be able to complete development of our drug candidates or market them or our approved products on a timely basis, if at all.

Reliance on third-party manufacturers limits our control regarding certain aspects of the manufacturing process and therefore exposes us to a variety of significant risks, including, but not limited to, risks to our ability to commercialize our products or conduct clinical trials, risks of reliance on the third-party for regulatory compliance and quality assurance, third-party refusal to supply on a long-term basis, the possibility of breach of the manufacturing agreement by the third-party and the possibility of termination or non-renewal of the agreement by the third-party, based on its business priorities, at a time that is costly or inconvenient for us. If any of these risks occur, our product supply will be interrupted resulting in lost or delayed revenues and delayed clinical trials.

If any of our existing or future manufacturers cease to manufacture or are otherwise unable to timely deliver sufficient quantities of BYETTA or SYMLIN, our ability to successfully commercialize and bring these drug candidates to market will be diminished.  Likewise, if any of our existing or future manufacturers cease to manufacture or are otherwise unable to timely deliver sufficient quantities of BYETTA, SYMLIN, exenatide LAR or our other drug candidates, in either bulk or dosage form, or other product components, including pens for the delivery of these products, we may need to engage additional manufacturers, so that we will be able to continue our development and commercialization efforts for these drug candidates. The cost and time to establish these new manufacturing facilities would be substantial. As a result, using a new manufacturer could disrupt our ability to supply our products and/or reduce our profit margins. Any delay or disruption in the manufacturing of bulk product, the dosage form of our products or other product components, including pens for delivery of our products, could harm our ability to generate product sales and harm our reputation in the medical and patient communities.

We have entered into agreements with Bachem California and Mallinckrodt, Inc. for the long term supply of bulk exenatide. We have long-term agreements with CP Pharmaceuticals Ltd., a subsidiary of Wockhardt Ltd., and Baxter Pharmaceutical Solutions LLC, a subsidiary of Baxter, Inc., for the dosage form of BYETTA in cartridges. We have an agreement with Lilly to supply pens for delivery of BYETTA in cartridges. We have long-term agreements with Bachem and UCB S.A. for the commercial manufacture of bulk pramlintide acetate, the active ingredient contained in SYMLIN and used in our AC137 development program. We have a long-term contract with Baxter for the dosage form of SYMLIN in vials.  Now that SYMLIN has been approved by the FDA, Baxter will need to be approved by the FDA to manufacture this drug.  Until Baxter receives this approval, however, we do not have an approved manufacturer established for the commercialization of SYMLIN.  We believe we have sufficient dosage form inventory of SYMLIN to launch and supply our needs until we have obtained FDA approval of Baxter as a manufacturer of SYMLIN, a process which is expected to take up to six months after approval of SYMLIN.  We have a long-term agreement with CP Pharmaceuticals for the dosage form of SYMLIN in cartridges and are working with a manufacturer, Ypsomed AG, for the manufacture of pens for delivery of SYMLIN in cartridges. These manufacturers may not be able to make the transition to commercial production.  While we believe we have sufficient vial inventory of SYMLIN to launch and supply our needs until we have obtained FDA approval of Baxter, if there are delays in obtaining Baxter’s approval, we may not have sufficient inventory to satisfy potential demand for SYMLIN, in which case we may have to curtail our SYMLIN sales efforts.  We have not produced SYMLIN or BYETTA for commercial use for a sustained period of time.  As such, we may encounter additional unforeseeable risks as we develop familiarity and experience with regard to manufacturing our products.  While we believe that business relations between us and our manufacturers are generally good, we cannot predict whether any of the manufacturers that we may use will meet our requirements for quality, quantity or timeliness for the manufacture of bulk exenatide or pramlintide acetate, dosage form of BYETTA or SYMLIN, or pens. Therefore, we may not be able to obtain supplies of products with acceptable quality, on acceptable terms or in sufficient quantities, if at all. Our dependence on third parties for the manufacture of products may also reduce our gross profit margins and our ability to develop and deliver products in a timely manner.

Competition in the biotechnology and pharmaceutical industries may result in competing products, superior marketing of other products and lower revenues or profits for us.

There are many companies that are seeking to develop products and therapies for the treatment of diabetes and other metabolic disorders. Our competitors include multinational pharmaceutical and chemical companies, specialized biotechnology firms and universities and other research institutions. A number of our largest competitors, including AstraZeneca, Bristol-Myers Squibb, Sanofi-Aventis, Lilly, GlaxoSmithKline, Merck & Co., Novartis, Novo Nordisk, Pfizer and Takeda Pharmaceuticals, are pursuing the development or marketing of pharmaceuticals that target the same diseases that we are targeting, and it is possible that the number of companies seeking to develop products and therapies for the treatment of diabetes, obesity, cardiovascular disease and other metabolic disorders will increase. Many of our competitors have

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substantially greater financial, technical, human and other resources than we do and may be better equipped to develop, manufacture and market technologically superior products. In addition, many of these competitors have significantly greater experience than we do in undertaking preclinical testing and human clinical studies of new pharmaceutical products and in obtaining regulatory approvals of human therapeutic products. Accordingly, our competitors may succeed in obtaining FDA approval for superior products. Furthermore, now that we have received FDA approval for BYETTA and SYMLIN, we may also be competing against other companies with respect to our manufacturing and product distribution efficiency and sales and marketing capabilities, areas in which we have limited or no experience as an organization.

Our initial target patient population for BYETTA is people with diabetes who have not achieved adequate glycemic control using metformin or a sulfonylurea, two common oral therapies. Our target population for SYMLIN is people with diabetes whose therapy includes multiple mealtime insulin injections daily. Other products are currently in development or exist in the market that may compete directly with the products that we are developing or marketing. Various products are available to treat type 2 diabetes, including:

•sulfonylureas;

•metformin;

•insulin;

•glinides;

•PPARS;

•alpha-glucosidase inhibitors; and

•thiazolidinediones (TZDs).

In addition, several companies are developing various approaches to improve treatments for type 1 and type 2 diabetes. We cannot predict whether our products will have sufficient advantages to cause health care professionals to adopt them over other products or that our products will offer an economically feasible alternative to other products.  Our products could become obsolete before we recover expenses incurred in developing these products.

We are subject to “fraud and abuse” and similar laws and regulations, and a failure to comply with such regulations or prevail in any litigation related to noncompliance could harm our business.

Upon approval of BYETTA and SYMLIN by the FDA, we became subject to various health care “fraud and abuse” laws, such as the Federal False Claims Act, the federal anti-kickback statute and other state and federal laws and regulations. Pharmaceutical companies have faced lawsuits and investigations pertaining to violations of these laws and regulations. We cannot guarantee that measures that we have taken to prevent such violations, including our corporate compliance program, will protect us from future violations, lawsuits or investigations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of significant fines or other sanctions.

We are substantially dependent on our collaboration with Lilly for the development and commercialization of BYETTA and dependent on Lilly and Alkermes, Inc. for the development of exenatide LAR.

We have entered into collaborative arrangements with Lilly, who currently markets diabetes therapies and is developing additional diabetes drug candidates, to commercialize BYETTA and further develop sustained-release formulations of BYETTA, including exenatide LAR. We entered into this collaboration in order to:

•fund some of our research and development activities;

•assist us in seeking and obtaining regulatory approvals; and

•assist us in the successful commercialization of BYETTA and exenatide LAR.

In general, we cannot control the amount and timing of resources that Lilly may devote to our collaboration. If Lilly fails to assist in the further development of exenatide LAR or the commercialization of BYETTA, or if Lilly’s efforts are not effective, our business may be negatively affected. We are primarily relying on Lilly to obtain regulatory approvals outside the United States for BYETTA and exenatide LAR. Our collaboration with Lilly may not continue or result in successfully commercialized drugs. Lilly can terminate our collaboration at any time upon 60 days notice. If Lilly ceased funding and/or developing and commercializing BYETTA or sustained-release formulations of BYETTA, we would have to seek additional sources for funding and may have to delay, reduce or eliminate one or more of our development programs for these compounds.  We are also dependent on Alkermes for the development of exenatide LAR.  If Alkermes technology is not

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successfully developed to effectively deliver exenatide, or Alkermes does not devote sufficient resources to the collaboration, our efforts to develop sustained release formulations of exenatide could be delayed or curtailed.

If our patents are determined to be unenforceable or if we are unable to obtain new patents based on current patent applications or for future inventions, we may not be able to prevent others from using our intellectual property.

We own or hold exclusive rights to many issued U.S. patents and pending U.S. patent applications related to the development and commercialization of exenatide, including BYETTA and exenatide LAR, SYMLIN and our other drug candidates.  These patents and applications cover composition-of-matter, medical indications, methods of use, formulations and other inventive results.  We do not have a composition-of-matter patent covering exenatide.  We do have issued and pending applications for formulations of BYETTA and exenatide LAR.  We also own or hold exclusive rights to various foreign patent applications that correspond to issued U.S. patents or pending U.S. patent applications.

Our success will depend in part on our ability to obtain patent protection for our products and drug candidates and technologies both in the United States and other countries. We cannot guarantee that any patents will issue from any pending or future patent applications owned by or licensed to us. Alternatively, a third party may successfully circumvent our patents. Our rights under any issued patents may not provide us with sufficient protection against competitive products or otherwise cover commercially valuable products or processes. In addition, because patent applications in the United States are maintained in secrecy for eighteen months after the filing of the applications, and publication of discoveries in the scientific or patent literature often lag behind actual discoveries, we cannot be sure that the inventors of subject matter covered by our patents and patent applications were the first to invent or the first to file patent applications for these inventions. In the event that a third party has also filed a patent on a similar invention, we may have to participate in interference proceedings declared by the U.S. Patent and Trademark Office to determine priority of invention, which could result in a loss of our patent position. Furthermore, we may not have identified all U.S. and foreign patents that pose a risk of infringement.

Litigation regarding patents and other proprietary rights may be expensive, cause delays in bringing products to market and harm our ability to operate.

Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties and preventing others from infringing our patents.  Challenges by pharmaceutical companies against the patents of competitors are common. Legal standards relating to the validity of patents covering pharmaceutical and biotechnological inventions and the scope of claims made under these patents are still developing. As a result, our ability to obtain and enforce patents is uncertain and involves complex legal and factual questions. Third parties may challenge, in courts or through patent office proceedings, or infringe upon, existing or future patents. In the event that a third party challenges a patent, a court or patent office may invalidate the patent or determine that the patent is not enforceable. Proceedings involving our patents or patent applications or those of others could result in adverse decisions about:

•the patentability of our inventions, products and drug candidates; and/or

•the enforceability, validity or scope of protection offered by our patents.

The manufacture, use or sale of any of our products or drug candidates may infringe on the patent rights of others. If we are unable to avoid infringement of the patent rights of others, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, develop or obtain non-infringing technology, fail to successfully defend an infringement action or have infringing patents declared invalid, we may:

•incur substantial monetary damages;

•encounter significant delays in bringing our drug candidates to market; and/or

•be precluded from participating in the manufacture, use or sale of our products or drug candidates or methods of treatment requiring licenses.

Our business has a substantial risk of product liability claims, and insurance may be expensive or unavailable.

Our business exposes us to potential product liability risks that are inherent in the testing, manufacturing and marketing of human therapeutic products. Product liability claims could result in the imposition of substantial liability on us, a recall of products, or a change in the indications for which they may be used. We currently have limited product liability insurance. We cannot assure you that our insurance will provide adequate coverage against potential liabilities. Furthermore, product liability insurance is becoming increasingly expensive. As a result, we may not be able to maintain current amounts

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of insurance coverage, obtain additional insurance or obtain insurance at a reasonable cost or in sufficient amounts to protect against losses that could have a material adverse effect on us.

Delays in the conduct or completion of our clinical trials, the analysis of the data from our clinical trials, or our manufacturing scale-up activities may result in delays in our planned filings for regulatory approvals, and may adversely affect our ability to enter into new collaborative arrangements.

We cannot predict whether we will encounter problems with any of our completed, ongoing or planned clinical studies that will cause us or regulatory authorities to delay or suspend our ongoing clinical studies, delay or suspend planned clinical studies, or delay the analysis of data from our completed or ongoing clinical studies. We also cannot predict whether we will encounter delays or an inability to create manufacturing processes for drug candidates that allow us to produce drug product in large enough quantities to be economical, otherwise known as manufacturing scale-up. If the results of our ongoing or planned clinical studies for our drug candidates are not available when we expect or if we encounter any delay in the analysis of data from our clinical studies or if we encounter delays in our ability to scale-up our manufacturing processes:

•we may be unable to complete our Phase 2 programs for exenatide LAR, AC2592 or AC137;

•we may have to delay or terminate our planned filings for regulatory approval;

•we may not have the financial resources to continue research and development of any of our drug candidates; and

•we may not be able to enter into additional collaborative arrangements;

In addition, Lilly may terminate our collaboration for the development and commercialization of BYETTA and sustained-release formulations of exenatide at any time on 60 days’ notice. Moreover, if the FDA does not accept for filing a new drug application for a sustained-release formulation of exenatide by December 31, 2007, Lilly will have the right to convert a portion of future milestone payments that we may receive under our collaboration into shares of our common stock at a conversion price equal to the fair market value of our common stock at the time of any such conversion.

Any of the following could delay the completion of our ongoing and planned clinical studies:

•ongoing discussions with the FDA or comparable foreign authorities regarding the scope or design of our clinical trials;

•delays in enrolling volunteers;

•lower than anticipated retention rate of volunteers in a clinical trial;

•negative results of clinical studies;

•insufficient supply or deficient quality of drug candidate materials or other materials necessary for the performance of clinical trials;

•our inability to reach agreement with Lilly regarding the scope, design, conduct or costs of clinical trials with respect to sustained-release formulations of BYETTA; or

•serious side effects experienced by study participants relating to a drug candidate.

We may be unable to obtain regulatory clearance to market our drug candidates in the United States or foreign countries on a timely basis, or at all.

Our drug candidates are subject to extensive government regulations related to development, clinical trials, manufacturing and commercialization. The process of obtaining FDA and other regulatory approvals is costly, time-consuming, uncertain and subject to unanticipated delays. Regulatory authorities may refuse to approve an application for approval of a drug candidate if they believe that applicable regulatory criteria are not satisfied. Regulatory authorities may also require additional testing for safety and efficacy. Moreover, if the FDA grants regulatory approval of a product, the approval may be limited to specific indications or limited with respect to its distribution, and expanded or additional

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indications for approved drugs may not be approved, which could limit our revenues. Foreign regulatory authorities may apply similar limitations or may refuse to grant any approval.

The data collected from our clinical trials may not be sufficient to support initial approval of our drug candidates or additional or expanded indications by the FDA or any foreign regulatory authorities.  Biotechnology stock prices have declined significantly in certain instances where companies have failed to meet expectations with respect to FDA approval or the timing for FDA approval. If the FDA’s response is delayed or not favorable for any of our drug candidates, our stock price could decline significantly.

Moreover, manufacturing facilities operated by the third-party manufacturers with whom we may contract to manufacture our unapproved drug candidates may not pass an FDA or other regulatory authority preapproval inspection. Any failure or delay in obtaining these approvals could prohibit or delay us or any of our business partners from marketing these drug candidates.

Consequently, even if we believe that preclinical and clinical data are sufficient to support regulatory approval for our drug candidates, the FDA and foreign regulatory authorities may not ultimately approve our drug candidates for commercial sale in any jurisdiction. If our drug candidates are not approved, our ability to generate revenues may be limited and our business will be adversely affected.

Our ability to enter into and maintain third-party relationships is important to our successful development and commercialization of BYETTA, SYMLIN, and our other drug candidates and our potential profitability.

To market any of our products in the United States or elsewhere, we must develop internally or obtain access to sales and marketing forces with technical expertise and with supporting distribution capability in the relevant geographic territory. With respect to sales, marketing and distribution outside the United States, we will be substantially dependent on Lilly for activities relating to BYETTA and sustained-release formulations of BYETTA, including exenatide LAR. We believe that we will likely need to enter into marketing and distribution arrangements with third parties for, or find a corporate partner who can provide support for, the development and commercialization of SYMLIN or our other drug candidates outside the United States. We may also enter into arrangements with third parties for the commercialization of SYMLIN or any of our other drug candidates within the United States. With respect to BYETTA and, if approved, exenatide LAR, Lilly will be co-promoting within the United States. If Lilly ceased commercializing BYETTA or, if approved, exenatide LAR for any reason, we would likely need to either enter into a marketing and distribution arrangement with a third party for those products or significantly increase our internal sales and commercialization infrastructure.

We may not be able to enter into marketing and distribution arrangements or find a corporate partner for SYMLIN or our other drug candidates. If we are not able to enter into a marketing or distribution arrangement or find a corporate partner who can provide support for commercialization of our drug candidates as we deem necessary, we may not be able to successfully perform these marketing or distribution activities. Moreover, any new marketer or distributor or corporate partner for our drug candidates, including Lilly, with whom we choose to contract may not establish adequate sales and distribution capabilities or gain market acceptance for our products, if any.

We have a significant amount of indebtedness. We may not be able to make payments on our indebtedness, and we may incur additional indebtedness in the future, which could adversely affect our operations.

We have substantial indebtedness outstanding and have the potential borrowing capacity under our collaboration with Lilly of up to $110 million. In June and July 2003, we issued $175 million of 2.25% convertible senior notes due 2008. In April 2004, we issued $200 million of 2.50% convertible senior notes due 2011. Our ability to make payments on our debt, including the notes, will depend on our future operating performance and ability to generate cash and may also depend on our ability to obtain additional debt or equity financing. During each of the last five years, our operating cash flows were negative and insufficient to cover our fixed charges. We may need to use our cash to pay principal and interest on our debt, thereby reducing the funds available to fund our research and development programs, strategic initiatives and working capital requirements. Our ability to generate sufficient operating cash flow to service our indebtedness, including the notes, and fund our operating requirements will depend on our ability, alone or with others, to successfully develop, manufacture, obtain required regulatory approvals for and market our drug candidates, as well as other factors, including general economic, financial, competitive, legislative and regulatory conditions, some of which are beyond our control. Our debt service obligations increase our vulnerabilities to competitive pressures, because many of our competitors are less leveraged than we are. If we are unable to generate sufficient operating cash flow to service our indebtedness and fund our operating requirements, we may be forced to reduce our development programs, sell assets or seek additional debt or equity financing, which may not be available to us on satisfactory terms or at all. Our level of indebtedness may make us more vulnerable to

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economic or industry downturns. If we incur new indebtedness, the risks relating to our business and our ability to service our indebtedness will intensify.

We may be required to redeem our convertible senior notes upon a designated event.

Holders of our 2.25% convertible senior notes due 2008 and our 2.50% convertible senior notes due 2011 may require us to redeem all or any portion of their notes upon the occurrence of certain designated events which generally involve a change in control of our company. We may not have sufficient cash funds to redeem the notes upon a designated event. We may elect, subject to certain conditions, to pay the redemption price in our common stock or a combination of cash and our common stock. We may be unable to satisfy the requisite conditions to enable us to pay some or all of the redemption price in our common stock. In addition, although there are currently no restrictions on our ability to pay the redemption price under our existing debt agreements, future debt agreements may prohibit us from repaying the redemption price in either cash or common stock. If we are prohibited from redeeming the notes, we could seek consent from our lenders to redeem the notes. If we are unable to obtain their consent, we could attempt to refinance the notes. If we were unable to obtain a consent or refinance, we would be prohibited from redeeming the notes. If we were unable to redeem the notes upon a designated event, it would result in an event of default under the indentures governing the notes. An event of default under the indentures could result in a further event of default under our other then-existing debt. In addition, the occurrence of a designated event may be an event of default under our other debt.

If our research and development programs fail to result in additional drug candidates, our ability to generate revenue will be substantially limited.

Our research and development programs for drug candidates are at an early stage and will require significant research, development, preclinical and clinical testing, manufacturing scale-up activities, regulatory approval and/or commitments of resources before commercialization. We cannot predict whether our research will lead to the discovery of any additional drug candidates that could generate revenues for us.

Our future success depends on our ability to retain our chief executive officer and other key executives and to attract, retain and motivate qualified personnel.

We are highly dependent on Ginger L. Graham, our President and Chief Executive Officer, and the other principal members of our executive and scientific teams. The loss of the services of any of these persons might impede the achievement of our research, development and commercialization objectives. Recruiting and retaining qualified sales, marketing, scientific and other personnel and consultants will also be critical to our success. We may not be able to attract and retain these personnel and consultants on acceptable terms given the competition between numerous pharmaceutical and biotechnology companies. We do not maintain “key person” insurance on any of our employees.

We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

In order to protect our proprietary technology and processes, we rely in part on confidentiality agreements with our corporate partners, employees, consultants, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

Our activities involve the use of hazardous materials, which subject us to regulation, related costs and delays and potential liabilities.

Our research and development involves the controlled use of hazardous materials, chemicals and various radioactive compounds. Although we believe that our safety procedures for handling and disposing of these materials comply with the standards prescribed by state and federal regulations, the risk of accidental contamination or injury from these materials cannot be eliminated. If an accident occurs, we could be held liable for resulting damages, which could be substantial. We are also subject to numerous environmental, health and workplace safety laws and regulations, including those governing laboratory procedures, exposure to blood-borne pathogens and the handling of biohazardous materials. Additional federal, state and local laws and regulations affecting our operations may be adopted in the future. We may incur substantial costs to comply with, and substantial fines or penalties if we violate, any of these laws or regulations.

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  We have implemented anti-takeover provisions that could discourage or prevent an acquisition of our company, even if the acquisition would be beneficial to our stockholders, and as a result our management may become entrenched and hard to replace.

Provisions in our amended and restated certificate of incorporation and bylaws, as amended, could make it more difficult for a third party to acquire us, even if doing so would benefit our stockholders. These provisions include:

•allowing our board of directors to elect a director to fill a vacancy created by the expansion of the board of directors;

•allowing our board of directors to issue, without stockholder approval, up to 5.5 million shares of preferred stock with terms set by the board of directors;

•limiting the ability of holders of our outstanding common stock to call a special meeting of our stockholders; and

•preventing stockholders from taking actions by written consent and requiring all stockholder actions to be taken at a meeting of our stockholders.

Each of these provisions, as well as selected provisions of Delaware law, could discourage potential takeover attempts, could adversely affect the trading price of our securities and could cause our management to become entrenched and hard to replace. In addition to provisions in our charter documents and under Delaware law, an acquisition of our company could be made more difficult by our employee benefits plans and our employee change in control plan, under which, in connection with a change in control, stock options held by our employees may become vested and our executive officers may receive severance benefits. We also have implemented a stockholder rights plan, also called a poison pill, which could make it uneconomical for a third party to acquire us on a hostile basis.

Our executive officers, directors and major stockholders control approximately 37% of our common stock.

As of June 30, 2005, executive officers, directors and holders of 5% or more of our outstanding common stock, in the aggregate, owned or controlled approximately 37% of our outstanding common stock. As a result, these stockholders are able to influence all matters requiring approval by our stockholders, including the election of directors and the approval of corporate transactions. This concentration of ownership may also delay, deter or prevent a change in control of our company and may make some transactions more difficult or impossible to complete without the support of these stockholders.

Substantial future sales of our common stock by us or our existing stockholders or the conversion of our convertible senior notes to common stock could cause the trading price of our common stock to fall.

Sales by existing stockholders of a large number of shares of our common stock in the public market or the perception that additional sales could occur could cause the trading price of our common stock to drop. Likewise, the issuance of shares of common stock upon conversion of our convertible notes or redemption of our convertible notes upon a designated event, or upon additional convertible debt or equity financings or other share issuances by us, including shares issued in connection with potential future strategic alliances and the uncertain number of additional shares that we may be required to issue under our agreements with Lilly, could adversely affect the trading price of our common stock. Our convertible notes are currently convertible into a total of up to approximately 11.2 million shares. In addition, the existence of these notes may encourage short selling of our common stock by market participants.

Significant volatility in the market price for our common stock could expose us to continued litigation risk.

The market prices for securities of biopharmaceutical and biotechnology companies, including our common stock, have historically been highly volatile, and the market from time to time has experienced significant price and volume fluctuations that are unrelated to the operating performance of these biopharmaceutical and biotechnology companies. Since January 1, 2003, the high and low sales price of our common stock varied significantly, as shown in the following table:

	High		Low
Year ending December 31, 2005
Third Quarter (through August 1, 2005)	$	23.47	$		18.50
Second Quarter	21.73		14.50
First Quarter	24.95		17.15
Year ended December 31, 2004
Fourth Quarter	$	24.01	$		18.80
Third Quarter	23.25		16.48
Second Quarter	26.80		19.69
First Quarter	25.63		18.49
Year ended December 31, 2003
Fourth Quarter	$	30.40	$	21.30
Third Quarter	30.75		20.95
Second Quarter	26.86		15.47
First Quarter	17.95		13.73

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Given the uncertainty of our future funding, the commercialization of SYMLIN and BYETTA and the regulatory approval of our other drug candidates, we may continue to experience volatility in our stock price for the foreseeable future. In addition, the following factors may significantly affect the market price of our common stock:

•announcements of revenues received;

•announcements of additional clinical study results;

•announcements of determinations by regulatory authorities with respect to our drug candidates;

•developments in our relationships with current or future collaborative partners;

•our ability to successfully implement our commercialization strategies;

•fluctuations in our operating results;

•developments in our relationships with third-party manufacturers of our products and other parties who provide services to us;

•public concern as to the safety of drugs that we are developing;

•technological innovations or new commercial therapeutic products by us or our competitors;

•developments in patent or other proprietary rights; and

•governmental policy or regulation.

Broad market and industry factors also may materially adversely affect the market price of our common stock, regardless of our actual operating performance. Periods of volatility in the market price of our common stock expose us to securities class-action litigation, and we may continue to be the target of such litigation as a result of market price volatility in the future.

We are exposed to potential risks from recent legislation requiring companies to evaluate internal controls over financial reporting.

The Sarbanes-Oxley Act requires that we report annually on the effectiveness of our internal controls over financial reporting. Among other things, we must perform systems and processes evaluation and testing. We must also conduct an assessment of our internal controls to allow management to report on, and our independent registered public accounting firm to attest to, our assessment of our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. These requirements became effective for the first time for our fiscal year ended December 31, 2004, and neither we nor our independent registered public accounting firm had previously performed an evaluation of our internal controls over financial reporting under these new rules. In connection with our Section 404 compliance efforts, we have incurred or expended, and expect to continue to incur or expend, substantial accounting and other expenses and significant management time and resources. We have implemented certain remediation activities resulting from our ongoing assessment of internal controls over financial reporting. Our future assessment, or the future assessments by our independent registered public accounting firm, may reveal material weaknesses in our internal controls. If material weaknesses are identified in the future we would be required to conclude that our internal controls over financial reporting are ineffective and we could be subject to sanctions or investigations by the SEC, the Nasdaq National Market or other regulatory authorities, which would require additional financial and management resources and could adversely affect the market price of our common stock.

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ITEM 3.Quantitative and Qualitative Disclosures about Market Risk

We invest our excess cash primarily in U.S. Government securities, asset-backed securities and debt instruments of financial institutions and corporations with strong credit ratings. These instruments have various short-term maturities. We do not utilize derivative financial instruments, derivative commodity instruments or other market risk sensitive instruments, positions or transactions in any material fashion. Accordingly, we believe that, while the instruments held are subject to changes in the financial standing of the issuer of such securities, we are not subject to any material risks arising from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices or other market changes that affect market risk sensitive investments. Our debt is not subject to significant swings in valuation as interest rates on our debt are fixed.  The fair value of our 2.25% and 2.5% senior convertible notes at June 30, 2005 was $166.9 million and $181.3 million, respectively.  A hypothetical 1% adverse move in interest rates along the entire interest rate yield curve would not materially affect the fair value of our financial instruments that are exposed to changes in interest rates.

ITEM 4.Controls and Procedures

As of June 30, 2005, an evaluation was performed under the supervision and with the participation of our management, including our President and Chief Executive Officer (our “CEO”) and our Vice President, Finance and Chief Financial Officer (our “CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures.  In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  Based on that evaluation, our management, including our CEO and CFO, concluded that our disclosure controls and procedures were effective at a reasonable level of assurance as of June 30, 2005.

Our management does not expect that our disclosure control and procedures or our internal control over financial reporting will prevent all error and all fraud.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, or misstatements due to error, if any, within the company have been detected.  While we believe that our disclosure controls and procedures and internal control over financial reporting are and have been effective, in light of the foregoing we intend to continue to examine and refine our disclosure controls and procedures and internal control over financial reporting.

An evaluation was also performed under the supervision and with the participation of our management, including our CEO and CFO, of any change in our internal control over financial reporting that occurred during our last fiscal quarter and that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.  That evaluation did not identify any change, except as described below, in our internal control over financial reporting that occurred during our latest fiscal quarter and that has materially affected, or is reasonably likely to affect, our internal control over financial reporting.

During the second quarter of 2005, in connection with the commercial launches of BYETTA and SYMLIN, we implemented new processes related to the accounting for and reporting of product sales, accounts receivable, inventories and cost of goods sold.  We contract with a third party to distribute our products to our wholesale customers.  Accordingly, we rely, in part, on controls in place at this third party distribution agent with respect to order entry, order fulfillment, invoicing, and application of cash receipts.

PART II.  OTHER INFORMATION

ITEM 4.  Submission of Matters to a Vote of Security Holders

Our Annual Meeting of Stockholders was held on May 25, 2005.  At the Annual Meeting, the stockholders of the Company (i) elected each of the persons listed below to serve as a director of Amylin until the next annual meeting or until his/her successor is elected, (ii) approved an increase in the number of shares authorized for issuance under Amylin’s 2001 Employee Stock Purchase Plan, as amended, and (iii) ratified the selection of Ernst & Young LLP as our independent auditors for the fiscal year ending December 31, 2005.

We had 104,153,002 shares of common stock outstanding and entitled to vote as of April 18, 2005, the record date for the Annual Meeting.  At the Annual Meeting, 93,768,401 shares of common stock were present in person or represented by proxy for the three proposals indicated above.  The following sets forth detailed information regarding the results of the voting at the Annual Meeting:

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Proposal 1:  Election of Directors

Director	Votes in Favor	Votes Withheld
Vaughn D. Bryson	89,518,864	4,249,537
Joseph C. Cook, Jr.	92,527,669	1,240,732
Ginger L. Graham	92,760,884	1,007,517
Howard E. Greene, Jr.	77,280,345	16,488,056
Terrance H. Gregg	89,759,554	4,008,847
Jay S. Skyler, M.D.	92,357,701	1,410,700
Joseph P. Sullivan	93,496,233	272,168
Thomas R. Testman	93,504,953	263,448
James N. Wilson	89,441,778	4,326,623

Proposal 2:  Approve an increase in the aggregate number of shares of common stock authorized for issuance under the 2001 Employee Stock Purchase Plan by 7,000,000 shares.

Votes in Favor:	44,211,902
Votes Against:	23,844,044
Abstentions:	106,752
Broker Non Vote:	25,605,703

Proposal 3:  Ratification of selection of Ernst & Young LLP as Independent Auditors of the Company

Votes in Favor:	93,152,790
Votes Against:	274,212
Abstentions:	121,398

ITEM 6.  Exhibits

The following exhibits are included as part of this report:

Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation (filed as an exhibit to our registration statement on Form S-1 (File No. 333-44195) or amendments thereto and incorporated herein by reference)
3.2	Second Amended and Restated Bylaws (filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, and incorporated herein by reference)
3.3	Certificate of Amendment of Amended and Restated Certificate of Incorporation (filed as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 and incorporated herein by reference)
4.1	Specimen Common Stock Certificate (filed as an exhibit to our registration statement on Form S-1 (File No. 333-44195) or amendments thereto and incorporated herein by reference)
4.2	Rights Agreement, dated as of June 17, 2002, between the registrant and American Stock Transfer & Trust Company (filed as an exhibit to our Current Report on Form 8-K filed on June 18, 2002 and incorporated herein by reference)
4.3	First Amendment to Rights Agreement dated December 13, 2002, between the registrant and American Stock Transfer & Trust Company (filed as an exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2002 and incorporated herein by reference)
4.4	Form of Rights Certificate (filed as an exhibit to our Current Report on Form 8-K filed on June 18, 2002 and incorporated herein by reference)
4.5	Certificate of Designation of Series A Junior Participating Preferred Stock (filed as an exhibit to our Current

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	Report on Form 8-K filed on June 18, 2002 and incorporated herein by reference)
10.1	Registrant’s 2001 Deferred Compensation Plan, as amended June 28, 2005 (filed as an exhibit to our Current Report on Form 8-K filed on July 1, 2005 and incorporated herein by reference)
10.48	Commercial Supply Agreement dated June 28, 2005 between the Registrant and Bachem California*
31.1	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
31.2	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended
32.1	Certifications Pursuant to U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

*Confidential treatment has been requested with respect to certain portions of this exhibit.  Omitted portions have been filed separately with the Securities and Exchange Commission.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Amylin Pharmaceuticals, Inc.
Date: August 8, 2005	By:	/s/ MARK G. FOLETTA
		Mark G. Foletta,
		Vice President, Finance and
		Chief Financial Officer
		(on behalf of the registrant and as the
		registrant’s principal financial and accounting officer)

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EX-10.48

Exhibit 10.48

*** Text Omitted and Filed Separately

Confidential Treatment Requested

Under 17 C.F.R. 200.80(b)(4)

And 240.24b-2

Commercial Supply Agreement for Pramlintide

This Agreement, effective as of June 21, 2005, is made by and among Amylin Pharmaceuticals, Inc. (“Amylin”) having a principal place of business at 9360 Towne Centre Drive, San Diego, CA 92121, and Bachem, Inc., a California corporation (“Bachem”), having a principal place of business at 3132 Kashiwa Street, Torrance, CA 90505.  References to any of Amylin or Bachem includes reference to their respective Affiliates.

Whereas, Bachem previously manufactured for Amylin a compound referred to as pramlintide acetate (also known as AC137).

Whereas, Amylin wishes to engage Bachem to manufacture clinical trial, regulatory registration and commercial supplies of pramlintide acetate on behalf of Amylin.

Whereas, Bachem desires to manufacture for Amylin clinical trial, regulatory registration and commercial supplies of pramlintide acetate; and

Now, Therefore, in consideration of the premises and the mutual covenants and agreements contained herein, Bachem and Amylin agree as follows:

1.Definitions

As used in this Agreement, the following words and phrases shall have the following meanings:

1.1 “Affiliate” of a party hereto means any entity which directly or indirectly, through one or more intermediaries, controls, is controlled by or is under common control with such party where “controlling,” “controlled” and “under common control” means the direct or indirect beneficial ownership of at least fifty percent (50%) of the stock, or a fifty percent (50%) or greater interest in the income, of such party or entity, as applicable.

1.2 “Applicable Laws” shall mean all applicable statutes, ordinances, regulations, rules, or orders of any kind whatsoever of any governmental authority (including any amendments thereto), applicable to the import, export, manufacture, packaging, labeling, and distribution of Product, including, without limitation, the applicable regulations and guidelines of the FDA and all applicable current good manufacturing practices, including, without limitation, the cGMPs.

1.3 “Bachem Technology” means all technical information, whether tangible or intangible and whether or not patentable, including patents, and any method, procedure, process, assay,

1

composition of matter, trade secret, invention, technology, information or other subject matter, including license application materials and all supporting documents, specifications for materials (including purification techniques), data, information (including information contained in registration dossiers, drug master files and other documents filed with Regulatory Authorities), quality control, validation and equipment necessary or useful for the manufacture, production, scale-up, processing or formulation of Product, which (a) Bachem conceived, reduced to practice, developed or obtained (or which Bachem has the ability to license or sublicense), or (b) is otherwise necessary or useful in the manufacture of the Product.

1.4 “Batch Production Records” means the lot production records for the batches manufactured by Bachem pursuant to this Agreement.

1.5 “cGMPs” shall mean then-current Good Manufacturing Practices as specified in ICH Guideline Q7A, the United States Code of Federal Regulations, or equivalent laws, rules, or regulations of an applicable Regulatory Authority at the time of manufacture.

1.6 “Contaminant” means any substance contained in the Product that (A) causes the Product to fail to meet any Product Specifications, (B) causes the Product to be adulterated within the meaning the Act, (C) is present in the Product at a level that exceeds the level allowed under Applicable Laws.

1.7 “DMF” shall mean a drug master file for Product in the United States (as such term is defined in 21 C.F.R. Part 314.420) or Europe.

1.8 “Effective Date” means the date first written above.

1.9  “Facility” means the facility in Torrance, California where Product is manufactured by Bachem under this Agreement.

1.10  “FDA” means the United States Food and Drug Administration and any successor entity.

1.11  “Hidden Defect” means a defect in any shipment of Product that could not reasonably be expected to have been found by diligent and adequate inspection by Amylin pursuant to Section 4.1, such as the presence of any Contaminant or failure to follow cGMPs.

1.12  “Materials” shall mean, collectively, all raw materials, ingredients and packaging components required to produce Product in accordance with the Product Specifications.

1.13  “NDA” means one or more New Drug Application(s) to make and/or sell commercially Product, filed with the FDA (as more fully defined in 21 C.F.R. Part 314.5 et seq.) or with a Regulatory Authority in any jurisdiction outside of the United States, and all amendments and supplements thereto filed therewith.

1.14  “Product” means the bulk drug substance, pramlintide acetate, manufactured under this Agreement.

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1.15  “Product Specifications” means the written specifications for Product set forth in Appendix A, as amended from time to time in accordance with the Quality Agreement.

1.16  “Purchase Order” means Amylin firm orders for Product under this Agreement issued on Amylin’s form of purchase order.

1.17  “Quality Agreement” means that certain Quality Agreement dated as of June 14, 2005, between Amylin and Bachem containing, identifying and outlining the specifications, and certain of the technical and compliance terms and conditions, for the manufacture of Product under this Agreement.  The Quality Agreement is incorporated into and made a part of this Agreement.

1.18  “Regulatory Approval” means (a) in the United States, approval by the FDA of an NDA for the Product, and satisfaction of any related applicable FDA registration and notification requirements, if any, and (b) in any country other than the United States, approval by Regulatory Authorities having jurisdiction over such country of a single application or set of applications with respect to a Product comparable to an NDA, and satisfaction of any related applicable regulatory and notification requirements, if any, including pricing approvals where applicable, together with any other approval necessary to make, use, import, package, label, market, and sell Product commercially in such country.

1.19  “Regulatory Authority” means the FDA in the United States, or the applicable regulatory agency or entity having the responsibility, jurisdiction, and authority to approve the manufacture, use, importation, packaging, labeling, marketing, and sale of Product in any country other than the United States.

2.Purchase and Sale of Product

2.1           Bachem agrees to manufacture Product using the process described in the Batch Production Records, subject to the terms and conditions of this Agreement.

2.2           Bachem agrees to manufacture and supply Product in quantities set forth in Purchase Orders submitted by Amylin in accordance with this Agreement.  The following table sets forth the quantities of Product that Amylin estimates, as of the Effective Date, that it will purchase for delivery during the period commencing January 2006 and ending December 31, 2011. 

2006	2007	2008	2009	2010	2011
[***]kg-	[***]kg –	[***] to	[***] to	[***] to	[***] to
[***]kg	[***]kg	[***]kg	[***]kg	[***]kg	[***]kg

The quantities listed are indicative in nature, are not intended to be binding on the parties and can be revised periodically to reflect better knowledge of Product demand. However, Bachem guarantees that it will be able to manufacture said quantities of Product, provided such Product is ordered in accordance with the terms of this Agreement.

* Confidential Treatment Request(ed)

3

Commencing on the Effective Date Amylin will supply to Bachem rolling [***] non-binding forecasts containing its estimated requirements of Product, by [***]. This may be a fixed amount or a range of quantities.  Amylin shall update such forecasts every [***] ([***]) months.  Amylin shall submit Purchase Orders specifying the quantity of Product ordered, the required delivery date, and any special instructions.  Any Purchase Order(s) for delivery of up to the first [***]kg quantity of Product by [***] in a given [***] will be issued to Bachem by no later than [***]of the [***].  Following the issuance of any Purchase Order(s) for delivery of up to the first [***]kg quantity of Product in a given [***], any Purchase Order(s) covering any subsequent quantity of Product for delivery by [***] that [***] must be issued to Bachem no later than [***] of the [***]. Exact delivery schedules of individual batches will then be determined between Seller and Buyer, but in no event shall any batch of Product be delivered to Amylin after the delivery date specified in the applicable Purchase Order.  The Purchase Orders issued in accordance with this Section 2.2 will be binding on both Bachem and Amylin.

2.3The price for the Product shall be based on [***] as set forth below and includes the costs of Materials and analytical release testing.  If Materials’ costs or waste disposal costs change by more than [***] % over [***], the price for the Product may be adjusted, subject to the parties’ mutual written agreement, to reflect the change in such costs.

2.4Prices will be the following:  The first [***]kg of Product ordered in any [***] will cost $[***]/g.  The next [***]kg of Product ordered in [***] will cost $[***]/g. Any additional orders for Product in [***] will cost $[***]/g.

2.5Potential Product overages will be tabulated after the delivery of the last batches made to satisfy total [***] Product orders.  Bachem will determine the quantity of batches needed to fulfill the total Product Purchase Order(s). Any Product produced in excess of the total quantity of Product ordered by Amylin pursuant to Product Purchase Order(s) will be considered as Product overages.  Amylin may elect, in its sole discretion, to purchase said overages of Product for the following prices: The first [***]g of  Product overage at a price of $[***]/g, the next [***]g of Product overages at $[***]/g and any overages of Product in excess of [***]g will cost $[***]/g.

•Prices are based on current Product Specifications.  The parties agree that changes to the Product Specifications that are set forth in Exhibit 1 as of the Effective Date to reflect requirements for commercial supply will not result in any change to the prices set forth above; provided, however that, if such changes to the Product Specifications reflect process capabilities that are outside the process capabilities demonstrated by Bachem in manufacturing validation batches, then the parties will discuss whether such prices would require adjustment as a consequence.  Any change in pricing would require the written consent of both parties.

•Pricing also includes stability testing of one single lot per calendar year, according to the protocol given in Appendix A.

2.6           Any federal, state, county of municipal sales or use tax, excise or similar charge, or other tax assessment (other than that assessed against income), license fee or other charge lawfully assessed or charged on the manufacture, sale or transportation of Product sold pursuant to this Agreement shall be paid by Amylin, provided evidence of such charge is provided to Amylin in

* Confidential Treatment Request(ed)

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writing.

3.Manufacture of Product

3.1 Changes in the manufacturing site or the materials, equipment, process, or procedures used to manufacture the Products shall be handled by the parties as stated in the Quality Agreement. Bachem shall obtain Amylin’s prior written approval before it implements any such change.  Amylin shall have the right to raise with Bachem any perceived deficiencies regarding any aspect of Bachem’s manufacture of Product.  In the event that Amylin raises with Bachem any such deficiency both parties will engage in negotiations regarding remedial action.  Upon mutual agreement, (A) Bachem shall, at its sole cost, promptly submit to Amylin a written plan to correct any such deficiency and promptly correct any such deficiency to Amylin’s satisfaction, (B) Amylin shall reimburse Bachem for any reasonable incremental one­-time costs associated with such changes while any ongoing costs associated with such changes shall be reviewed by the parties and allocated between Amylin and Bachem as mutually agreed upon by the parties at such time. If such corrections are required to bring the Facility into compliance with Applicable Laws, then Bachem shall bear all associated costs.

3.2  Product Specifications may be modified from time to time by written agreement of the parties without the necessity of amending this Agreement. However, no changes in the Product Specifications will be made unless made in accordance with the terms and conditions of the Quality Agreement. If Amylin requests a change in the Product Specifications that would result in a material increase in Bachem’s cost of manufacture, the parties shall discuss what impact, if any, such change should have on the price of Product. If either Bachem agrees to implement such change without additional charge, or Amylin agrees in writing to a proposed price increase to implement such change, the price change shall become effective only with respect to those orders of Product that are manufactured in accordance with the modified Product Specifications. If a Regulatory Authority requires a change in the Product Specifications that would result in a material increase in Bachem’s cost of manufacture, the parties shall discuss what impact, if any, such change should have on the price of Product and Amylin shall bear the increased cost.

3.3  Bachem and Amylin shall comply with the terms and conditions of the Quality Agreement.  Bachem shall manufacture, package, label, and supply Product in accordance with the Product Specifications, cGMPs, the NDA, DMF or other applicable Regulatory Approvals, and all Applicable Laws.  Bachem’s responsibilities and obligations with respect to the manufacture of Products as set forth in this Section 3.3 are hereinafter referred to as the “Manufacturing Requirements.”  Bachem shall perform such quality control testing prior to shipment of Product to Amylin as is required to ensure that the Products delivered to Amylin under this Agreement comply with the Manufacturing Requirements and warranties described in Section 8, which testing shall include, without limitation, the performance of all required release testing and stability testing using the Amylin Test Methods (as defined below) and other tests designated by Amylin as found in Appendix A of this Agreement.  Bachem shall perform such tests itself or, with Amylin’s prior written consent, cause to be tested by a third party, each lot of Product before delivery, and shall provide to Amylin (A) a certificate of analysis containing the quality control test results for each such lot, and confirming that each such lot of Product conforms to the Product Specifications (the “Certificate of Analysis”), (B) a Certificate of Conformance confirming that such lot of Product was made in accordance with cGMPs and the process defined

5

in the approved master batch record for such Product, and (C) copies of documents detailing any deviations from any manufacturing processes then in effect (the documents and information described in (A), (B) and (C), the “Bachem Release Documents”). Upon completion of the manufacture and testing of each lot of Product ordered by Amylin under this Agreement, Bachem shall send all the Bachem Release Documents to Amylin. Amylin is entitled to rely on the Bachem Release Documents for all purposes of this Agreement.

3.4 Bachem shall be responsible for obtaining any Materials required for the manufacture of Product, in reasonable quantities consistent with Amylin’s orders for Product and in accordance with the requirements of Section 8.1(H).  Bachem shall use and rotate all stock of Materials on a first-in, first-out basis as required by cGMPs.  Amylin shall assign lot numbers and retest dates to each lot of Product, and Bachem shall imprint such lot numbers and retest dates on each unit of Product shipped as required by cGMPs.

3.5 Bachem shall keep complete, accurate, and authentic accounts, notes, data, and records pertaining to its manufacture, processing, testing, packaging, storage and distribution of Product, including, without limitation, master production and control records and Product complaint files, in accordance with Applicable Laws.  In addition, Bachem shall retain samples of Products and isolated intermediates of each lot manufactured pursuant to this Agreement for a period of five (5) years after Amylin’s acceptance of such lot.  The sample size shall be twice the size necessary to conduct quality control testing.  Bachem shall retain such records and samples for a period of five (5) years following the date of manufacture, or longer if required by Applicable Laws, and, upon request, shall make available to Amylin copies of such records and portions of the samples.  After such time period, Bachem shall notify Amylin prior to destroying such records and samples and, at Amylin’s request and expense, shall provide such records and samples to Amylin.  Bachem shall provide Amylin and its representatives with access during reasonable business hours and after reasonable notice to those areas of Bachem’s manufacturing facilities where Product is manufactured, stored and handled and to manufacturing records, and testing and control records (including without limitation release and stability records), of Product manufactured by Bachem, so that Amylin and its representatives may perform a quality assurance audit of such facilities and activities. Use of all information gained in the course of audits is restricted to the purpose of quality assurance. Likewise, Bachem shall grant similar access to governmental regulatory agencies upon reasonable notice so that such agencies can perform inspections of its facilities.

3.6 Bachem shall promptly advise Amylin of any notice or request it receives from a Regulatory Authority or other governmental agency regarding inspection of its facilities relating to its manufacture of Product, and shall permit Amylin and its representatives to attend such inspection.  Bachem shall provide to Amylin all correspondence and reports that it receives from a Regulatory Authority or other governmental agency in connection with the manufacture of Product or with respect to the facility(ies) at which Bachem manufactures Product.  Bachem shall retain the right to delete information from these reports that would breach a confidentiality provision with any third party.

3.7 Bachem shall, at its own expense, obtain and maintain the necessary permits required for its manufacture and supply of the Products in accordance with this Agreement, including all

6

required facility licenses.

3.8 Bachem further agrees to use its commercially reasonable efforts to assist Amylin in obtaining FDA approval of its NDA with respect to Product, as well as Regulatory Approvals from any other Regulatory Authority.  Bachem specifically agrees to cooperate with any inspection by the FDA or other Regulatory Authority, including but not limited to any inspection prior to approval of Amylin’s NDA.  Bachem shall, on a timely basis, provide Amylin with information in Bachem’s possession relevant to its role as the manufacturer of Products that is reasonably necessary for and relevant to Amylin’s efforts to obtain and maintain Regulatory Approvals for Product.  Without limiting the generality of the foregoing, Bachem agrees to establish and maintain a DMF for the Product in accordance with the requirements of the FDA and any other applicable Regulatory Authorities, and to provide Amylin with letters of access to, and rights to reference, the DMF and any other comparable files.  Bachem shall file and establish the DMF in a timely manner to support Amylin’s NDA filing, and shall provide to Amylin such documentation, data and other information relating to Products as Amylin may require for submission to Regulatory Authorities.  Bachem shall also provide, upon request by Amylin, information concerning its production processes and quality control procedures with respect to Products.

3.9 Each party shall promptly advise the others of any safety or toxicity problem of which such party becomes aware regarding the Product.

3.10 Bachem shall promptly notify Amylin of any problems, supply, or other situations that are likely to adversely affect the production of any Product, or its timely delivery to Amylin in accordance with the Purchase Order therefore.  Amylin may participate in the resolution of any such problem or production situation unless Amylin agrees with Bachem that such participation is unnecessary.

3.11  The conditions under which Product is manufactured shall be provided to Amylin for inclusion in Amylin’s regulatory filings.  Bachem further agrees to provide to Amylin all information regarding any aspect of manufacture of Product that is necessary and related to Amylin’s regulatory filings.  Bachem also agrees to authorize the FDA, or other Regulatory Authorities, to inspect any aspect of Bachem’s manufacture of Product.

3.12  The parties agree that Amylin shall be the sole and exclusive owner of all right, title and interest in and to any NDA filed with the FDA and the other Regulatory Authorities outside of the United States, and that Amylin shall be the sole and exclusive owner of any Regulatory Approvals related to Product.  Bachem shall assist Amylin in the preparation of all documents necessary to effectuate Amylin’s rights in each NDA and Amylin’s rights to such Regulatory Approvals, and agrees to transfer, effect, confirm, perfect, record, preserve, protect and enforce all rights, title and interests transferred hereunder, at the reasonable request and expense of Amylin.

3.13  Amylin shall disclose to Bachem, or provide Bachem with access to, the test methods specified in the Product Specifications (“Amylin Test Methods”) for Bachem’s use solely to perform its obligations under this Agreement.  Bachem understands and agrees that the Amylin Test Methods shall be the sole and exclusive property and Confidential Information (as defined

7

in Section 10) of Amylin.  Any and all inventions or discoveries, including without limitation, information, processes, improvements, innovations, suggestions and ideas, whether or not patentable, conceived or reduced to practice by Bachem, alone or with others, that are related to any or all Amylin Test Methods, shall be owned solely and exclusively by Amylin.  The terms “conceived” and “reduced to practice” shall be given the meaning of those terms as used and interpreted for 35 U.S.C. § 102 (g).  Bachem will promptly notify Amylin of any such invention or discovery and shall transfer, effect, confirm, perfect, record, preserve, protect and enforce all rights, title, and interests therein to Amylin.

3.14    During the term of this Agreement, Bachem shall not manufacture any products containing pramlintide acetate or derivatives covered by an Amylin patent for any party other than Amylin.

4.  Acceptance of Product

4.1 Not later than [***] days after Amylin’s receipt of all Bachem Release Documents, Amylin shall examine the Bachem Release Documents for the Product’s compliance with the Product Specifications and other warranties in Section 8.  Amylin may reject any shipment of Product (or part thereof) that does not conform to the Product Specifications or other warranties in Section 8.  If Amylin believes that any such shipment does not comply with the Product Specifications or other warranties, or is otherwise deficient, Amylin shall promptly, but not later than [***] days after receipt of all Bachem Release Documents, notify Bachem. Any such notice of rejection shall be in writing and shall indicate the reasons for such rejection.  The invoice for any rejected Product shall be cancelled.  If no such notice of rejection is received, Amylin shall be deemed to have accepted such shipment upon the expiration of such [***]-day period. Notwithstanding the foregoing, if there is subsequently found to be a Hidden Defect in any shipment of Product, Amylin and Bachem shall enter into discussions in good faith as to the handling and disposal of the defective shipment, having due regard to where responsibility for such defect lies, with the understanding that Bachem shall be responsible with respect to matters existing prior to delivery of Product to Amylin. Bachem shall promptly notify Amylin in writing if it becomes aware that any Products manufactured by Bachem are defective or do not conform to the Product Specifications or other warranties in Section 8, which notice shall identify in reasonable detail the nature of the defect or non-conformity and the lot or batch of Products affected.

4.2 After any notice of rejection is given, Amylin shall cooperate with Bachem in determining whether rejection is necessary or justified.  Bachem will evaluate process issues and other reasons for such non-compliance.  Bachem shall notify Amylin as promptly as reasonably possible whether it accepts Amylin’s basis for any rejection.  If Bachem in good faith disagrees with Amylin’s determination that certain Product does not meet the Product Specifications, such Product shall be submitted to a mutually acceptable third party laboratory.  Such third party shall determine whether such Product meets the Product Specifications, and the Parties agree that such third party’s determination shall be final and determinative.  The party against whom the third party tester rules shall bear all costs of the third party testing.  Whether or not Bachem accepts Amylin’s basis for rejection, promptly on receipt of a notice of rejection of Product, Bachem shall replace such rejected Product, at its cost, within [***] ([***]) days.  If the third party tester rules that the lot meets Product Specifications and the other warranties in Section 8, Amylin shall purchase that lot at the agreed-upon price, irrespective of whether Bachem has already replaced

* Confidential Treatment Request(ed)

8

it. All replacement product shall be invoiced as well and Amylin is to pay for such product as otherwise provided under the terms of this Agreement.  Amylin may not destroy any lot of Product until it receives written notification from Bachem that Bachem does not dispute that the lot fails to meet Product Specifications and that Bachem does not request return of the Product.  Upon authorization from Bachem to do so, Amylin shall destroy the Product received in the rejected delivery promptly at Bachem’s cost and provide Bachem with certification of such destruction.  Amylin shall, upon receipt of Bachem’s request for return, promptly return said Product or quality control sample to Bachem, at Bachem’s cost.

4.3 In the event Amylin shall be required or requested by any Regulatory Authority (or shall voluntarily decide in good faith) to recall any Product, Amylin shall coordinate such recall.  If a recall arises due to Bachem’s negligence, willful misconduct or breach of this Agreement, and does not result from Amylin’s negligence, willful misconduct or breach of this Agreement, then Bachem shall reimburse Amylin for (i) the purchase price paid by Amylin to Bachem for such recalled Product, and (ii) all of Amylin’s other direct reasonable costs and expenses actually incurred by Amylin in connection with the recall including, but not limited to, costs of retrieving Product already delivered to customers, costs of replacement Product, costs and expenses Amylin is required to pay for notification, shipping and handling charges, and all other costs reasonably related to the recall.  If a recall is due to any reason other than one that is attributable to Bachem’s negligence, willful misconduct or breach of this Agreement, Amylin shall pay all of the costs and expenses of the recall.

5.Shipment and Delivery

5.1. Bachem agrees to use its commercially reasonable efforts to ensure that Product ordered by Amylin hereunder shall be delivered on the scheduled delivery dates set forth in the relevant Purchase Orders.  Bachem shall prepare Product for shipment and arrange for shipment of Product to a location designated in writing by Amylin. Shipment terms are FCA Bachem’s Facility (Incoterms 2000). All shipments must be accompanied by a packing slip which describes the articles, states the purchase order number and shows the shipment’s destination. Bachem agrees to promptly forward the original bill of lading or other shipping receipt for each shipment in accordance with Amylin’s instructions.  In accordance with Amylin’s written instructions and at Amylin’s expense, Bachem will arrange for the shipment of Product by the carrier designated by Amylin and for appropriate shipping insurance, and Bachem shall ship Product to Amylin in containers reasonably sufficient for delivery of Product in accordance with the Product Specifications.

5.2. Each delivery of Product shall be governed by the terms of this Agreement, and none of the conflicting terms or conditions of Amylin’s purchase order or Bachem’s purchase order form, acknowledgment or invoice form shall be applicable, except those specifying special shipping instructions and invoice information consistent with this Agreement.

6.Invoice

6.1 Bachem shall invoice Amylin with a single invoice concurrently with shipment of all Bachem Release Documents to Amylin.  Product accepted by Amylin shall be shipped by

9

Bachem to Amylin’s designated ship to address immediately upon Amylin’s acceptance of such Product. Amylin shall pay Bachem net sixty (60) days from the date of receipt of invoice.

7.Term and Termination

7.1 This Agreement shall commence on the Effective Date and, unless earlier terminated in accordance with this Article 7, shall continue in effect for a period of six (6) years thereafter, and shall automatically renew thereafter from year to year unless terminated by either party upon at least two (2) years prior written notice given to the other party at any time after the expiry of four (4) years from the Effective Date.

7.2 This Agreement may be terminated as follows:

a) Either party may terminate this Agreement by written notice to the other party immediately (i) upon the institution by such other party of voluntary proceedings in bankruptcy or insolvency, or (ii) sixty (60) days after the filing of an involuntary petition under any bankruptcy or insolvency law (unless such petition is dismissed or set aside within such 60-day period) against the other party, or (iii) sixty (60) days after the appointment of a receiver or trustee for the assets of business of the other party (unless such appointment is dismissed or set aside within such 60-day period);

b) Either party may terminate this Agreement by giving the other party ninety (90) days’ prior written notice upon or after the breach of any material provision of this Agreement by the other party if the breach is not cured within the ninety (90) day period following written notice of termination by the non-breaching party. Failure to supply all quantities of Product ordered on the dates specified in an issued Purchase Order shall be considered a material breach.

c) Amylin may terminate this Agreement (A) by giving Bachem sixty (60) days’ prior written notice upon notice by the FDA or other Regulatory Authority that Bachem is not an approved commercial supplier of Product or failure of Bachem to successfully complete its Pre-Approval Inspection (PAI) or the foreign equivalent in applicable jurisdictions outside of the United States where Product may be distributed, marketed or sold, or (B) by giving Bachem thirty (30) days’ prior written notice in each of the following situations:  (i) the FDA notifies Amylin that it will not approve any NDA directed to the Product, or must withdraw the Product from the market, (ii) Amylin withdraws any NDA directed to the Product or (iii) Amylin withdraws the Product from the market. If Amylin terminates this Agreement under any of Section 7.2(c)(B)(i), (ii) or (iii), then Amylin agrees to reimburse Bachem for its reasonable and documented out-of-pocket costs for Materials and for the direct costs associated with all work in progress related to open Purchase Orders issued by Amylin on or before the effective termination date.

7.3 Termination, expiration, cancellation or abandonment of this Agreement through any means or for any reason shall not relieve the parties of any obligation accruing prior thereto and shall be without prejudice to the rights and remedies of either party with respect to any antecedent breach of any of the provisions of this agreement.  The provisions of Sections 3.5, 3.6, 3.12, 3.13, 4.3, 7.3, 7.4 and 7.5 and Articles 1, 8, 9, 10, 11, 12, 13, 14 and 15 shall survive termination or

10

expiration of this Agreement. 

7.4 In the event that this Agreement is terminated by Amylin pursuant to Section 7.2(a), 7.2(b) or 7.2(c)(i) following the applicable cure period provided in such sections, or in the event of a Force Majeure occurrence that causes Bachem to be unable to supply Products in such quantities as Amylin shall request and in compliance with the delivery periods set forth in issued Purchase Orders and Amylin provides written notice to Bachem of its intent to terminate this Agreement if this situation is not remedied within the ninety (90) day period following such written notice by Amylin, then Bachem shall provide reasonable assistance to Amylin, at Bachem’s expense, to implement the transfer of manufacturing and testing responsibility for Product to Amylin or its designee.  Such reasonable assistance shall include all processes, procedures, know-how and data required to perform all aspects of the site transfer as defined by the FDA under the Changes to an Approved NDA or ANDA guidelines, including assistance of Bachem personnel in compiling and transferring this information, but shall not include the direct efforts of a team of Bachem on-site at the new manufacturing facility.  If such on-site personnel commitments are required by Amylin to effectuate the transfer of manufacturing responsibility, then Amylin shall reimburse Bachem for the reasonable and direct expenses of providing such personnel.  For purposes of this Section 7.4, Bachem grants to Amylin an irrevocable, exclusive, worldwide fully paid-up royalty-free license to use the Bachem Technology, with the right to grant sublicenses, to make and have made Product, effective upon termination of this Agreement under the circumstances described in the first sentence of this Section 7.4.

7.5  In the event that this Agreement is terminated by Bachem pursuant to Section 7.2(a) or 7.2(b), then Bachem shall provide reasonable assistance to Amylin, at Amylin’s expense, to implement the transfer of manufacturing responsibility for the Products to Amylin or its designee as described in the preceding paragraph.

8.Representations and Warranties

8.1 Bachem represents and warrants to Amylin, and agrees that, at the time of delivery to Amylin, all Product delivered hereunder: (A) shall be manufactured in compliance with cGMPs, relevant Regulatory Approvals filed by Amylin; (B) shall conform to the Product Specifications in effect at the time of delivery; (C) will not be adulterated within the meaning of the Federal Food, Drug and Cosmetic Act, as amended, or within the meaning of any applicable state or municipal law or other Applicable Law in which the definitions of adulteration are substantially the same as those contained in the Federal Food, Drug and Cosmetic Act, as such Act and such laws are constituted and effective at the time of delivery or contain any Contaminant; (D) will not be an article which may not, under the provisions of Sections 404, 505 of 512 of such Act, be introduced into interstate commerce; (E) shall conform to all Bachem Release Documents associated with the shipment of the Product; (F) shall be packaged, labeled and shipped in accordance with the Product Specifications in effect at the time of delivery and the terms of this Agreement; (G) shall be free and clear of any lien or encumbrance; and (H) shall be manufactured using amino acid derivative starting materials that are synthetic or of plant origin, as confirmed in certification provided to Amylin by Bachem; provided that Product may be manufactured using amino acid derivative starting materials that are not synthetic or if plant origin if Bachem obtains the written approval of Amylin to use such starting materials prior to

11

their use, and provides Amylin certification regarding use of such starting materials that contains additional information regarding extraction, hydrolysis procedures, organs, type of tissue and country of origin of any animal origin amino acids.  Bachem represents and warrants that it shall comply with all Applicable Laws.  In addition, Bachem represents and warrants that (A) Bachem and its employees, affiliates and agents have never been debarred, or convicted of a crime for which a person can be debarred, under subsection (a) or (b) of 21 U.S.C. § 335a, and Bachem agrees that it does not now and will not in the future use in any capacity the services of any person debarred under subsection (a) or (b) of 21 U.S.C. § 335a, and, if during the term of this Agreement, Bachem or any other person performing services hereunder becomes debarred or disqualified, or receives notice of an action or threat of an action with respect to debarment or disqualification, Bachem shall immediately notify Amylin, and (B) to the best of Bachem’s knowledge as of the Effective Date, the use of the Bachem Technology as contemplated herein does not infringe any intellectual property rights owned by any third party.  Except as set forth in this Agreement, Bachem makes no warranties, expressed or implied, with respect to Product, and all other warranties, expressed or implied, including, without limitation, the implied warranties of merchantability and fitness for a particular purpose, are hereby disclaimed by Bachem. 

8.2  Each party hereby represents and warrants to the other party that: (a) such party is duly organized, validly existing and in good standing under the laws of the state or other jurisdiction in which it is organized; (b) such party has the power and authority and the legal right to enter into this Agreement and to perform its obligations hereunder; (c) this Agreement has been duly executed and delivered on behalf of such party, and constitutes a legal, valid, binding obligation, enforceable against such party in accordance with its terms; (d) all necessary consents, approvals and authorizations of all governmental authorities and other persons required to be obtained by such party in connection with this Agreement have been obtained, except for those which cannot be obtained prior to the filing and approval of the NDA; and (e) the execution and delivery of this Agreement and the performance of such party’s obligations hereunder (i) do not conflict with or violate any law, regulation, order or other requirement of any governmental body, court or administrative or other agency having jurisdiction over such party and (ii) do not conflict with, or constitute a material default or require any consent under, any agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound. 

8.3  IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES INCURRED BY THE OTHER PARTY, WHETHER IN CONTRACT OR TORT OR BASED ON A WARRANTY, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.  This paragraph shall not be construed to limit a party’s obligations under Article 9 of this Agreement or damages available for breach of the obligations under Article 10.

9.Indemnification

9.1 Amylin shall defend, indemnify and hold Bachem and its Affiliates and their respective employees, directors, officers, shareholders and agents (each, an “Amylin Indemnitee”) harmless against any liability, judgment, demand, action, suit, loss, damage, cost and other expense (including reasonable attorney’s fees) (“Liability”) incurred by such Amylin Indemnitee resulting from any third party claims made or proceedings brought against Bachem or other

12

Amylin Indemnitee to the extent such Liability arises from (i) Amylin’s negligence or willful act or omission in the possession, use, importation, marketing or sale of Product, (ii) Amylin’s material breach of this Agreement, (iii) Amylin’s breach of any representation or warranty set forth in Article 8, or (iv) any repackaging or use by or on behalf of Amylin of Product after delivery to Amylin by Bachem hereunder, in each case, except to the extent Bachem is obligated to indemnify any Amylin Indemnitee for such claim or proceeding under Section 9.2 below.

9.2 Bachem shall defend, indemnify and hold Amylin and its Affiliates and their respective employees, directors, officers, shareholders and agents harmless against any Liability incurred by any of them resulting from any third party claims made or proceeding brought against Amylin or any such indemnitee to the extent that such Liability arises from (i) Bachem’s negligence or willful act or omission in the manufacture, storage or delivery of Product; (ii) Bachem’s material breach of this Agreement; or (iii) Bachem’s breach of any representation or warranty set forth in Article 8.

Each indemnified party agrees to give the indemnifying party prompt written notice of any matter upon which such indemnified party intends to base a claim for indemnification (an “Indemnity Claim”) under Article 9. The indemnifying party shall have the right to participate jointly with the indemnified party in the indemnified party’s defense, settlement or other disposition of any Indemnity Claim. With respect to any Indemnity Claim relating solely to the payment of money damages and which could not result in the indemnified party’s becoming subject to injunctive or other equitable relief or otherwise adversely affect the business of the indemnified party in any manner, and as to which the indemnifying party shall have acknowledged in writing the obligation to indemnify the indemnified party hereunder, the indemnifying party shall have the sole right to defend, settle or otherwise dispose of such Indemnity Claim, on such terms as the indemnifying party, in its sole discretion, shall deem appropriate, provided that the indemnifying party shall provide reasonable evidence of its ability to pay any damages claimed and with respect to any such settlement shall have obtained the written release of the indemnified party from the Indemnity Claim. The indemnifying party shall obtain the written consent of the indemnified party, which shall not be unreasonably withheld, prior to ceasing to defend, settling or otherwise disposing of any Indemnity Claim if as a result thereof the indemnified party would become subject to injunctive or other equitable relief or the business of the indemnified party would be adversely affected in any manner.

9.3  Each party shall at all times comply, through insurance, with all statutory workers’ compensation and employers’ liability requirements covering any and all employees with respect to activities performed under this Agreement.  In addition to the foregoing, each party shall obtain and maintain, occurrence-based or claims made Broad Form Comprehensive General Liability (“BFCGL”) Insurance with a reputable and financially secure insurance carrier(s) having at least an Excellent rating (A- rating or above by A.M. Best).  Upon a party’s request, the other party shall provide to such requesting party written evidence reasonably satisfactory to such requesting party of the sufficiency of such other party’s insurance program.

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10.Confidential Information

Confidential Information will be as defined by and treated in accordance with the Confidential Disclosure Agreement dated February 15, 2002 between Amylin and Bachem, a copy of which is attached hereto as Exhibit 2, which shall remain in full force and effect in accordance with its terms.  The parties, however, agree that the following shall apply to Confidential Information disclosed under this Agreement:  (A) each party shall use the other party’s Confidential Information solely for the purposes contemplated under this Agreement, (B) the non-disclosure and confidentiality obligations shall remain in effect during the term of this Agreement and for a period of five (5) years thereafter, and (C) Amylin shall have the right to disclose Bachem’s Confidential Information, without Bachem prior consent, to Regulatory Authorities in accordance with Article 3.

11.Force Majeure

If the performance by either party of any obligation under this Agreement, other than the payment of money, is prevented or impaired by Force Majeure for any cause beyond the reasonable control of the defaulting party, such party shall be excused from performance so long as such situation continues to prevent or impair performance, provided the party claiming such excuse shall have promptly notified the other party of the existence, nature, duration and other details of such cause and shall at all times use its reasonable efforts consistent with its normal business practices to resume a complete performance. If either party anticipates that a Force Majeure may occur, that party shall notify the other immediately and explain the nature, details and expected duration thereof.

The affected party will advise the other from time to time as to the progress in remedying the situation and as to the time when the affected party expects to resume its obligations and shall notify the other as to the expiration of any Force Majeure as soon as the affected party knows the date thereof.

“Force Majeure” shall mean fire, flood, sabotage, shipwreck, embargo, explosion, accident, riot, act of governmental authority (including, without limitation, acts relating to raw material or product allocation), acts of God, acts of war, and acts of terrorism and similar events beyond the reasonable control of the applicable party.

In the event of a Force Majeure affecting Bachem, Bachem may prorate and allocate manufacturing capacity among its Affiliates, Amylin and Bachem’s other customers, in proportion to purchases of products by such Affiliates, Amylin and other customers during the 12-month period preceding such Force Majeure event.

Notwithstanding the occurrence of a Force Majeure event, if Bachem shall be unable to supply Products in such quantities as Amylin shall request and in compliance with the delivery periods set forth in this Agreement, Amylin shall be permitted (with no obligation to Bachem) to exercise its rights under Section 7.4 and have another source manufacture Product on Amylin’s behalf using the process described in the master batch records for the Product, and Amylin shall thereafter have no obligation to purchase Products from Bachem until any contractual obligations that Amylin has assumed in connection with obtaining a substitute supply of Products shall have terminated. Amylin shall have no obligation to affirmatively terminate any such contractual

14

arrangements.

12.Notices

All notices hereunder shall be in writing and shall be delivered personally, mailed by overnight delivery, registered or certified mail, postage prepaid, or given by facsimile and confirmed by any of the foregoing, as follows:

If to Amylin	Amylin Pharmaceuticals 9360 Towne Centre Drive San Diego, CA 92121 Telefax No: (858) 552-2212 Attn. John Grove Senior Director, VRM and Strategic Sourcing
	with a copy to the attention of Lloyd A. Rowland, Vice President and General Counsel, at the same address as stated above, Telefax No: 858-552-1936.
If to Bachem	Bachem California 3132 Kashiwa Street Torrance, CA 90505 Attn. Phillip Ottiger Telefax No: 310 530 15 71
	Bachem Americas 3132 Kashiwa Street Torrance, CA 90505 Attn. José de Chastonay Telefax No: 310 530 15 71

13.          Binding Effect

This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective assigns and successors in interest. 

14.          Applicable Law

This Agreement shall be construed, interpreted and governed by the laws of California, excluding its conflicts of laws principles.

15

15.          Assignment

Neither party shall assign this Agreement or any part thereof without the prior written consent of the other party; provided, however, that either party, without such consent, may assign or sell the same in connection with the transfer or sale of substantially its entire business to which this Agreement pertains, whether by merger, sale of stock, sale of assets, consolidation with another company or otherwise. Any permitted assignee shall assume all obligations of its assignor under this Agreement. No assignment shall relieve any party of responsibility for the performance of any accrued obligation which such party then has hereunder.

16.          Entire Agreement

This Agreement constitutes the entire agreement between the parties concerning the subject matter hereof and supersedes all written or oral prior agreements or understandings with respect thereto.  No subsequent amendment, modification or addition to this Agreement shall be binding upon the parties hereto unless reduced to writing and signed by the respective authorized officers of the parties.

17.          Severability

This Agreement is subject to the restrictions, limitations, terms and conditions of all applicable governmental regulations, approvals and clearances. If any term or provision of this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other term or provision hereof, and this Agreement shall be interpreted and construed as if such term or provision, to the extent the same shall have been held to be invalid, illegal or unenforceable, had never been contained herein.

18.          Waiver – Modification of Agreement

No waiver or modification of any of the terms of this Agreement shall be valid unless in writing and signed by authorized representatives of both parties hereto. Failure by either party to enforce any rights under this Agreement shall not be construed as a waiver of such rights nor shall a waiver by either party in one or more instances be construed as constituting a continuing waiver or as a waiver in other instances.

19.          Publicity

In the absence of specific agreement between the parties, neither party shall originate any publicity, news release or other public announcement, written or oral, whether to the public press, to stockholders or otherwise, relating to this Agreement or to performance hereunder, save only such announcement as in the opinion of legal counsel to the party making such announcement is required by law to be made.

16

20.          Exhibits

All Exhibits referenced herein are hereby made a part of this Agreement.

21.          Counterparts

This Agreement may be executed in any number of separate counterparts, each of which shall be deemed to be an original, but which together shall constitute one and the same instrument.

In Witness whereof, the parties have caused this Agreement to be executed by their duly authorized representatives on the later date written below.

- BACHEM Americas -	- Bachem, Inc. -
José de Chastonay	Philip Ottiger
Name	Name
/s/ José de Chastonay 6/22/05	/s/ Philip Ottiger  6/21/05
Signature	Signature
President	President & COO, BACHEM, Inc.
Title	Title

   -  Amylin Pharmaceuticals, Inc. -

 Gregg Stetsko, Ph.D.

 Name

/s/ Gregg Stetsko   6/28/05

 Signature

Vice President Operations

 Title

17

Exhibit 1/Appendix A

Contractual Specification for Pramlintide Acetate (AC137) Drug Substance

SEQUENCE: [***]

TEST	SPECIFICATION	METHOD
1.   [***]	[***]	[***]
2.   [***]	[***]	[***]
3.   [***]	[***]    [***] to [***] mole	[***]
	[***]    [***] to [***] mole
	[***]    [***] to [***] mole
	[***]    [***] to [***] mole
	[***]    [***] to [***] mole
	[***]    [***] to [***] mole
	[***]    [***] to [***] mole
	[***]    [***] to [***] mole
	[***]    [***] to [***] mole
	[***]    [***] to [***] mole
	[***]    [***] to [***] mole
	[***]    [***] to [***] mole
	[***]    [***] to [***] mole
	[***]    [***] to [***] mole
	[***]    [***] to [***] mole
	[***]    [***] to [***] mole
4.   [***]   ([***])	[***]% to [***]%	[***]
5.   [***]   ([***])	£ [***]%	[***]
6.   [***]	³ [***]%	[***]
7.   [***]	£ [***]%	[***]

* Confidential Treatment Request(ed)

18

8.   [***]  ([***])†	£ [***]%	[***]
9.   [***]  ([***]) †	£ [***]%	[***]
10. [***]  ([***])†	£ [***]%	[***]
TEST	SPECIFICATION	METHOD
11. [***] ([***])	£ [***]%	[***]
12. [***]	³ [***]%	[***]
13. [***]	£ [***]%	[***]
14. [***] ([***]) †	£ [***]%	[***]
15. [***] ([***]) †	£ [***]%	[***]
16. [***] ([***]) †	£ [***]%	[***]
17. [***] ([***])	£ [***]%	[***]
18. [***]	[***]º to [***]º	[***]
19. [***]   ([***])	[***]	[***] ([***])
20. [***]	£ [***]%	[***]
21. [***]	[***]% to [***]%	[***]
22. [***]	£ [***]%	[***]
23. [***]	[***]                                   £ [***] ppm	[***]
	[***]                                   £ [***] ppm
	[***]     £ [***] ppm
	[***]     £ [***] ppm
24. [***]	£ [***] CFU/g	[***]

* Confidential Treatment Request(ed)

19

25. [***] ([***])	£ [***] Daltons	[***] ([***])
26. [***]   ([***])	< [***] AU	[***]
27. [***]   ([***])	[***]% - [***]%	[***]

* Confidential Treatment Request(ed)

20

Exhibit 2

C O N F I D E N T I A L

CONFIDENTIAL DISCLOSURE AGREEMENT

THIS AGREEMENT is entered into as of February 15, 2002 by and between AMYLIN PHARMACEUTICALS, INC., a Delaware corporation (“AMYLIN”), having a place of business at 9373 Towne Centre Drive, Suite 250, San Diego, California 92121, and BACHEM, INC.,a California corporation (“RECIPIENT”), with offices at 3132 Kashiwa Street, Torrance, California.

RECITALS

WHEREAS AMYLIN owns or is in possession of certain proprietary information relating to its products and research efforts, including therapy for and diagnosis of Type I and Type II diabetes mellitus, obesity and dyslipidemia and other metabolic and cardiovascular disorders, and compounds, procedures and processes related thereto (collectively, the “Products and Research”); and

WHEREAS RECIPIENT desires to be made aware of, and AMYLIN is willing to disclose on a confidential basis, certain information relating to the Products and Research solely to allow RECIPIENT to evaluate one or more mutual business relationships (each an “Evaluation”) which the parties have agreed to discuss; and

NOW, THEREFORE, in consideration of the foregoing, and of the mutual covenants, terms and conditions hereinafter expressed, RECIPIENT and AMYLIN agree as follows:

AGREEMENT

1.             “Confidential Information” shall mean information whether written or oral, relating to the Products and Research, financial, business and other information of AMYLIN, including patent disclosures, patent applications, structures, models, techniques, trade secrets, know-how, processes, compositions, compounds, apparatuses, projections, customer information, and business and marketing plans disclosed by AMYLIN or its agents, to RECIPIENT or obtained by RECIPIENT through observation or examination, but only to the extent that such foregoing information is identified or marked as “confidential”.

2.             RECIPIENT agrees the Confidential Information is proprietary information of AMYLIN and that for a period of five (5) years from the date of disclosure, RECIPIENT will not disclose any of the Confidential Information to any third parties, without the written consent of AMYLIN (except in accordance with the terms of Section 4 or Section 6 below).  RECIPIENT agrees not to use any of the Confidential Information at any time except for the purposes of an Evaluation and not to make any chemical analysis of any material without the written consent of AMYLIN.

3.             The obligations of confidentiality and non-use shall not apply to information which, as established by written records:

a.             is publicly known prior to disclosure or has become publicly known, without fault on the part of RECIPIENT, subsequent to disclosure hereunder; or

b.             is otherwise known by RECIPIENT prior to disclosure hereunder or is generated for RECIPIENT by persons who have not had access to or knowledge of the Confidential Information;  or

21

c.             is hereafter received by RECIPIENT at any time from a source other than AMYLIN or its agents, lawfully having possession of such information and under no obligation of confidentiality with respect to such information.

4.             RECIPIENT agrees that any disclosure of the Confidential Information will only be to employees or agents of RECIPIENT on a need to know basis; provided that (i) such employees and agents are bound by written agreements to maintain in confidence and not use the Confidential Information under terms at least as restrictive as the terms of this Agreement, and (ii) RECIPIENT will remain liable for any breach by its employees or agents of any obligations hereunder.  RECIPIENT further agrees, upon request, to identify to AMYLIN those persons to whom the Confidential Information was disclosed.  Confidential Information disclosed prior to the date of this Agreement for purposes of an Evaluation shall be deemed to fall within the scope of this Agreement.

5.             RECIPIENT agrees to promptly return to AMYLIN all tangible items relating to the Confidential Information, including all written materials, photographs, models, or samples and the like and all copies thereof, upon completion of an Evaluation (except for a single archive copy which may be retained for the sole purpose of determining the scope of the obligations under this Agreement).

6.             In the event that RECIPIENT is required by law, regulation, or court order to disclose any Confidential Information, RECIPIENT agrees to  promptly notify AMYLIN of such demand prior to such disclosure and to give AMYLIN a reasonable opportunity to contest such disclosure.  Such disclosed information shall remain Confidential Information.

7.             This Agreement may not be assigned by RECIPIENT and shall not be construed to grant any license or other rights to the Confidential Information to RECIPIENT.

8.             RECIPIENT’s evaluation of the Confidential Information shall be at its own risk and RECIPIENT agrees to hold harmless and to indemnify AMYLIN against any and all claims, judgments, costs, awards, expenses (including reasonable attorneys’ fees), and liabilities of every kind arising from any use of the Confidential Information by RECIPIENT.

9.             RECIPIENT shall not disclose the name of AMYLIN, the existence of this Agreement, or the subject matter hereof in any publicity, advertising, or public announcement without AMYLIN’s written consent.

10.           This Agreement sets forth the entire agreement between AMYLIN and RECIPIENT, and fully supersedes any and all prior and contemporaneous agreements or understandings pertaining to the subject matter hereof.  No modification to this Agreement shall be effective unless in writing and signed by both parties.

11.           The failure of AMYLIN to insist upon strict performance of any provision of this Agreement or to exercise any right hereunder shall not constitute a waiver of that provision or right under this Agreement or of any other provision or right under this Agreement.  If any provision of this Agreement is declared invalid, illegal or unenforceable, such provision shall be severed and all remaining provisions shall continue in full force and effect.

12.           This Agreement shall be construed and enforced in accordance with the laws of the State of California (except its choice of law rules), and RECIPIENT hereby submits to the jurisdiction and venue of the California courts, both state and federal.  RECIPIENT acknowledges that improper disclosure could cause irreparable harm to AMYLIN and agrees that AMYLIN may seek injunctive relief to enforce this Agreement.

13.           This Agreement shall be effective as of the date first written above, and shall remain in full force and effect until terminated by either party on thirty (30) days written notice; provided that the terms of this Agreement shall remain in effect with respect to any Confidential Information disclosed prior to such termination date.

22

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the day and year above written.

AGREED AND ACCEPTED:				AGREED AND ACCEPTED:
Bachem, Inc.				Amylin Pharmaceuticals, Inc.
By:	/s/ Jose de Chastonay			By:	/s/  Lloyd A. Rowland
Name:			Jose de Chastonay	Name:	Lloyd A. Rowland
Title:		President		Title:	Vice President and General Counsel

23

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Mark G. Foletta, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Amylin Pharmaceuticals, Inc.;

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; and

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2005
	By:	/s/ MARK G. FOLETTA
		Vice President, Finance and Chief Financial Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Ginger L. Graham, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Amylin Pharmaceuticals, Inc.;

2.Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3.Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; and

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2005
	By:	/S/      GINGER L. GRAHAM
		President and Chief Executive Officer

EX-32.1

Exhibit 32.1

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350, as adopted), Ginger L. Graham, the President and Chief Executive Officer of Amylin Pharmaceuticals, Inc. (the “Company”), and Mark G. Foletta, the Vice President and Chief Financial Officer of the Company, each hereby certifies that, to the best of his or her knowledge:

1.             The Company’s Quarterly Report on Form 10-Q for the period ended June 30, 2005, to which this Certification is attached as Exhibit 32.1 (the “Periodic Report”), fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and

2.             The information contained in the Periodic Report fairly presents, in all material respects, the financial condition of the Company at the end of the period covered by the Periodic Report and results of operations of the Company for the period covered by the Periodic Report.

Dated:   August 8, 2005

/s/ GINGER L. GRAHAM	/s/MARK G. FOLETTA
Ginger L. Graham	Mark G. Foletta
President and Chief Executive Officer	Vice President, Finance and Chief Financial Officer