10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2010

OR

oTRANSITION 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 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 x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer x	Accelerated filer o
Non-accelerated filer o	Smaller reporting company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes o No x

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

Class	Outstanding on November 1, 2010
Common Stock, $.001 par value	143,995,577

AMYLIN PHARMACEUTICALS, INC.

TABLE OF CONTENTS

COVER PAGE
TABLE OF CONTENTS		2
	PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements	3
	Consolidated Balance Sheets as of September 30, 2010 (unaudited) and December 31, 2009	3
	Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009 (unaudited)	4
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2010 and 2009 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6
ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
ITEM 3.	Quantitative and Qualitative Disclosures about Market Risk	30
ITEM 4.	Controls and Procedures	31
	PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	31
ITEM 1A.	Risk Factors	31
ITEM 6.	Exhibits	44
SIGNATURE		45

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PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

AMYLIN PHARMACEUTICALS, INC.

Consolidated Balance Sheets

(in thousands, except per share data)

	September 30, 2010			December 31, 2009
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	157,630		$	120,825
Short-term investments	380,076			546,944
Accounts receivable, net	52,601			60,732
Inventories, net	120,967			99,700
Other current assets	36,159			78,481
Total current assets	747,433			906,682
Property, plant and equipment, net	814,665			780,058
Other long-term assets	45,090			39,679
	$	1,607,188		$	1,726,419
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	26,864		$	39,146
Accrued compensation	42,585			70,961
Payable to collaborative partner	30,537			49,645
Restructuring liability, current portion	6,771			9,204
Notes payable, current portion	70,313			93,750
Convertible senior notes, current portion	200,000			—
Deferred revenue, current portion	7,500			7,500
Other current liabilities	93,251			95,163
Total current liabilities	477,821			365,369
Deferred revenue, net of current portion	60,625			66,250
Long-term deferred credit	125,000			125,000
Deferred collaborative profit-sharing	81,623			54,570
Restructuring liability, net of current portion	24,312			22,776
Other long-term obligations, net of current portion	22,718			26,158
Convertible senior notes	462,247			643,762
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $.001 par value, 7,500 shares authorized, none issued and outstanding at September 30, 2010 and December 31, 2009	—			—
Common stock, $.001 par value, 450,000 shares authorized, 143,967 and 141,747 issued and outstanding at September 30, 2010 and December 31, 2009, respectively	144			142
Additional paid-in capital	2,434,206			2,371,939
Accumulated deficit	(2,080,998		)	(1,947,867		)
Accumulated other comprehensive loss	(510		)	(1,680		)
Total stockholders’ equity	352,842			422,534
	$	1,607,188		$	1,726,419

See accompanying notes to consolidated financial statements.

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AMYLIN PHARMACEUTICALS, INC.

Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2010			2009 (1)			2010			2009 (1)
Revenues:
Net product sales	$	154,026		$	192,887		$	488,798		$	569,716
Revenues under collaborative agreements	2,075			1,034			5,825			3,177
Total revenues	156,101			193,921			494,623			572,893
Costs and expenses:
Cost of goods sold	12,680			22,624			47,644			65,549
Selling, general and administrative	72,731			80,088			223,640			259,696
Research and development	48,443			35,346			136,265			134,892
Collaborative profit sharing	61,249			78,265			194,056			227,481
Restructuring	6,028			—			9,452			11,376
Total costs and expenses	201,131			216,323			611,057			698,994
Operating loss	(45,030		)	(22,402		)	(116,434		)	(126,101		)
Interest and other expense, net	(5,702		)	(4,257		)	(16,697		)	(9,884		)
Net loss	$	(50,732	)	$	(26,659	)	$	(133,131	)	$	(135,985	)
Net loss per share, basic and diluted	$	(0.35	)	$	(0.19	)	$	(0.93	)	$	(0.97	)
Shares used in computing net loss per share, basic and diluted	143,763			141,308			143,354			140,350

(1) Adjusted for the 2009 change in our method of accounting for reimbursed research and development costs under collaborative arrangements (Note 1).

See accompanying notes to consolidated financial statements.

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AMYLIN PHARMACEUTICALS, INC.

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

	Nine months ended September 30,
	2010			2009
Operating activities:
Net loss	$	(133,131	)	$	(135,985	)
Adjustments to reconcile net loss to net cash used for operating activities:
Depreciation and amortization	42,443			26,587
Amortization of debt discount and debt issuance costs	9,143			6,055
Employee stock-based compensation	27,234			33,947
Benefit plan compensation settled in stock	15,631			15,719
Restructuring	833			—
Other non-cash expenses	4,060			5,876
Changes in operating assets and liabilities:
Accounts receivable	8,131			(14,680		)
Inventories	8,313			11,992
Other current assets	13,526			(28,990		)
Accounts payable and accrued liabilities	(13,823		)	(3,122		)
Accrued compensation	(24,307		)	181
Payable to collaborative partner	(19,108		)	1,269
Deferred revenue	(5,625		)	(3,086		)
Deferred collaborative profit sharing	27,053			40,060
Restructuring liabilities	(897		)	(17,531		)
Other assets and liabilities, net	(3,061		)	(9,921		)
Net cash flows used for operating activities	(43,585		)	(71,629		)
Investing activities:
Purchases of short-term investments	(423,592		)	(582,358		)
Sales and maturities of short-term investments	589,222			659,869
Purchases of property, plant and equipment	(75,560		)	(119,123		)
Decrease in other long-term assets	(1,476		)	(273		)
Net cash flows provided by (used for) investing activities	88,594			(41,885		)
Financing activities:
Issuance of common stock, net	15,233			10,920
Repayment of notes payable	(23,437		)	(23,437		)
Net cash flows used for financing activities	(8,204		)	(12,517		)
Change in cash and cash equivalents	36,805			(126,031		)
Cash and cash equivalents at beginning of period	120,825			237,263
Cash and cash equivalents at end of period	$	157,630		$	111,232
Supplemental disclosure of cash flow information:
Property, plant and equipment additions in other current liabilities	$	572		$	—
Receivable arising from sale of property, plant and equipment	$	6,500		—
Non-cash interest capitalized to property, plant and equipment	$	11,626		$	13,118
Non-cash financing activities:
Shares contributed as employer 401(k) match	$	3,851		$	5,104
Shares contributed to employee stock ownership plan	$	15,848		$	20,250

See accompanying notes to consolidated financial statements.

5

AMYLIN PHARMACEUTICALS, INC.

Notes to Consolidated Financial Statements

September 30, 2010

(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 September 30, 2010, and for the three and nine months ended September 30, 2010 and 2009, is 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, 2009 has been derived from the audited consolidated financial statements at that date, but does not include all information and footnotes required by U.S. generally accepted accounting principles 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 Amylin Pharmaceuticals, Inc.’s (referred to as we, us or Amylin) Annual Report on Form 10-K for the year ended December 31, 2009.

Change in Accounting Policy

During the fourth quarter of 2009, we changed our method of accounting for reimbursed research and development costs under collaborative arrangements from reporting them as revenue to reporting them as a reduction of research and development costs. We believe this method is consistent with industry practice for companies whose primary focus is the commercialization of pharmaceutical products. This change in accounting had no effect on operating loss or net loss.

Consistent with the accounting guidance addressing accounting changes, the effect of the change in accounting method has been made retroactive to the beginning of the earliest period presented with the accompanying consolidated financial statements.

The following tables summarize the impact of the change in accounting for reimbursed research and development costs on the consolidated statements of operations for the three and nine months ended September 30, 2009.  Only the line items affected by the change in accounting are reflected in the tables below (in thousands):

	Three months ended September 30, 2009				Nine months ended September 30, 2009
	As originally reported		As adjusted		As originally reported		As adjusted
Revenues under collaborative agreements	$	18,348	$	1,034	$	44,565	$	3,177
Research and development expenses	52,660		35,346		176,280		134,892

Revenue Recognition

Net Product Sales

We sell BYETTA® (exenatide) injection for the treatment of type 2 diabetes and SYMLIN® (pramlintide acetate) injection for the treatment of type 1 and type 2 diabetes primarily 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, collectability is reasonably assured and we have no further obligations. We record product sales net of allowances for product returns, rebates, wholesaler chargebacks, wholesaler discounts and prescription vouchers at the time of sale and report product sales net of such allowances. We must make significant judgments 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 continue to record allowances related to the United States Department of Defense’s Tricare Retail Pharmacy program pursuant to a final rule that was issued in March 2009 and became effective on May 26, 2009.  In consideration of this final rule we recorded an allowance of $1.1 million and $4.2 million for such rebates in the three and nine months ended September 30, 2010, respectively, and $7.5 million for such rebates in the nine months ended September 30, 2009, of which $4.8 million represents a retroactive rebate assessment recorded in the first quarter of 2009 for sales made during 2008 that became probable of being assessed and paid.

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In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA) as amended by the Health Care and Education Reconciliation Act.  There are a number of provisions in the new legislation that will impact the pharmaceutical industry through increased discounts and an expansion of government funded insurance programs.  The provisions become effective over time, however, certain provisions became effective in the first quarter of 2010.  These provisions are related to increased Medicaid discounts, an increase in the population of patients eligible for Medicaid discounts, and the expansion of the 340(B) Public Health Services drug pricing program, which provides outpatient drugs at reduced rates, to include additional hospitals, clinics and healthcare centers.  These new provisions did not have a material impact on our results for the three or nine month periods ended September 30, 2010.  We are currently evaluating the new legislation to determine its impact on our business and future financial results.  We expect the financial impact of the new legislation to grow over time.

We record all United States BYETTA and SYMLIN product sales. With respect to BYETTA, we have determined that we are qualified as a principal based on our responsibilities under our 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.

Revenues Under Collaborative Agreements

Revenues under collaborative agreements consist of the amortization of product and technology license fees and milestone payments earned.  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. Non-refundable amounts received for substantive milestones are recognized upon achievement of the milestone. Any amounts received prior to satisfying these revenue recognition criteria are recorded as deferred revenue.

Collaborative Profit-Sharing

Collaborative profit-sharing represents Lilly’s 50% share of the gross margin for BYETTA sales in the United States.

AccountsReceivable

Trade accounts receivable are recorded net of allowances for cash discounts for prompt payment, doubtful accounts, product returns and chargebacks. Allowances for rebate discounts and distribution fees are included in other current liabilities in the accompanying consolidated balance sheets. Estimates for allowances for doubtful accounts are determined based on existing contractual obligations, historical payment patterns and individual customer circumstances.  The allowance for doubtful accounts was $1.0 million and $0.7 million at September 30, 2010 and December 31, 2009, respectively.

Investments in Unconsolidated Entities

We use the equity method of accounting for investments in other companies that are not controlled by us and in which our interest is generally between 20% and 50% of the voting shares or we have significant influence over the entity, or both.  Our share of the income or losses of these entities is included in interest and other expense, and the investments, which have a net book value of $3.8 million and $3.2 million at September 30, 2010 and December 31, 2009, respectively, are included in other long-term assets.  We recorded $0.3 million and $1.8 million for our share of equity method investee losses during the three months ended September 30, 2010 and 2009, respectively, and $1.9 million and $2.9 million for our share of equity method investee losses during the nine months ended September 30, 2010 and 2009, respectively.

Fair Value Measurements

In January 2010, we adopted a newly issued accounting standard which requires additional disclosure about the amounts of and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements. This standard also clarifies existing disclosure requirements related to the level of disaggregation of fair value measurements for each class of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and nonrecurring Level 2 and Level 3 measurements. As this newly issued accounting standard only requires enhanced disclosure, the adoption of this standard did not impact our financial position or results of operations. In addition, effective for interim and annual periods beginning after December 15, 2010, this standard will require additional disclosure and require an entity to present disaggregated information about activity in Level 3 fair value measurements on a gross basis, rather than as one net amount.

The authoritative guidance for fair value measurements defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Market participants are buyers and sellers in the principal market that are (i) independent, (ii) knowledgeable, (iii) able to transact and (iv) willing to transact. The guidance prioritizes the inputs used in measuring fair value into the following hierarchy:

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Level 1	Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2	Inputs other than quoted prices included within Level 1 that are either directly or indirectly observable; and
Level 3	Unobservable inputs in which little or no market activity exists, therefore requiring an entity to develop its own assumptions about considerations that market participants would use in pricing.

There have been no transfers of assets or liabilities between the fair value measurement classifications.

The following table summarizes the assets and liabilities measured at fair value on a recurring basis (in thousands):

	Fair value measurements as of September 30, 2010
	Total			Level 1		Level 2			Level 3
Short-term investments	$	380,076		$	380,076	$	—		$	—
Cash and cash equivalents	157,630			157,630		—			—
Derivative financial instrument contracts, net liability	(252		)	—		(252		)	—
	$	537,454		$	537,706	$	(252	)	$	—

Research and Development Expenses

Research and development costs are expensed as incurred and include salaries and bonuses, benefits, non-cash stock-based compensation, license fees, milestone payments due under license agreements, costs paid to third-party contractors to perform research, conduct clinical trials and develop drug materials and delivery devices and associated overhead expenses and facilities costs. Reimbursements for research and development costs under collaborative arrangements are recorded as a reduction to research and development expenses and are recognized in the period in which the related costs are incurred.  Clinical trial costs, including costs associated with third-party contractors, are a significant component of research and development expenses. Invoicing from third-party contractors for services performed can lag several months. We accrue the costs of services rendered in connection with such activities based on our estimate of management fees, site management and monitoring costs and data management costs. Actual clinical trial costs may differ from estimates and are adjusted in the period in which they become known.

Derivative Financial Instruments

We mitigate certain financial exposures, including currency risk and interest rate risk, through a controlled program of risk management that includes the use of derivative financial instruments. Derivatives are recorded on the balance sheet at fair value, with changes in value being recorded in interest and other income and interest and other expense. The fair value of our derivative financial instruments was a net liability of $0.3 million and $2.9 million at September 30, 2010 and December 31, 2009, respectively.  We have determined that our derivative financial instruments are defined as Level 2 in the fair value hierarchy. We recognized net gains of $1.0 million and $0.4 million on derivative financial instruments for the three months ended September 30, 2010 and 2009, respectively, and net gains of $2.6 million and $2.0 million on derivative financial instruments for the nine months ended September 30, 2010 and 2009, respectively.

The following table summarizes the fair value and balance sheet classification of our derivative financial instruments (in thousands):

	September 30, 2010				December 31, 2009
	Fair Value			Balance sheet location	Fair Value			Balance sheet location
Foreign currency derivative contracts	$	401		Other current assets	$	(100	)	Other current liabilities
Interest rate derivative contract, current	(653		)	Other current liabilities	—			Other current liabilities
Interest rate derivative contract, long-term	$	—		Other long-term obligations, net of current portion	$	(2,813	)	Other long-term obligations, net of current portion
	$	(252	)		$	(2,913	)

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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. Shares used in calculating basic and diluted net loss per common share exclude the following common share equivalents (in thousands):

	Three months ended September 30,		Nine months ended September 30,
	2010	2009	2010	2009
Antidilutive options and awards to purchase common stock	1,798	203	1,656	219
Antidilutive shares underlying convertible senior notes	15,238	15,238	15,238	15,238
	17,036	15,441	16,894	15,457

In future periods, if we report 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.

Accounting for Stock-Based Compensation

We utilize the fair value method of accounting for stock-based compensation arrangements.  Accordingly, we expense the estimated fair value of non-cash stock-based awards granted to our employees over the requisite employee service period, which is generally the vesting period. The fair value method of accounting applies to awards granted subsequent to January 1, 2006, the date the fair value method of accounting for stock-based compensation arrangements became effective, and to awards that were outstanding on the effective date and subsequently modified or cancelled. Estimated non-cash stock-based compensation expense for awards outstanding as of January 1, 2006 is being recognized over the remaining service period of the award using the compensation cost calculated for pro-forma disclosure purposes under the former guidance.

Total estimated stock-based compensation was as follows (in thousands, except per share data):

	Three months ended September 30,				Nine months ended September 30,
	2010		2009		2010		2009
Selling, general and administrative expenses	$	4,606	$	6,956	$	18,027	$	21,873
Research and development expenses	2,424		3,944		9,207		12,074
	$	7,030	$	10,900	$	27,234	$	33,947
Net stock-based compensation expense, per common share:
Basic and diluted	$	0.05	$	0.08	$	0.19	$	0.24

In all cases non-cash stock-based compensation expense during the three and nine month periods ended September 30, 2010 and 2009 related to stock-based awards consisting of stock options, performance based options and restricted stock units and employee stock purchase rights.  At September 30, 2010, total unrecognized estimated compensation cost related to non-vested stock-based awards granted prior to that date was $43.1 million, which is expected to be recognized over a weighted-average period of 2.1 years.  We issued 0.1 million and 0.6 million shares upon the exercise of stock options in the three and nine months ended September 30, 2010, respectively. Stock-based compensation expense for the three months ended September 30, 2010 includes a reversal of $3.3 million of expense associated with performance based stock options for which vesting is contingent upon FDA approval of BYDUREON by December 31, 2010, of which $2.6 million relates to selling, general and administrative expenses and $0.7 million relates to research and development expenses (see related discussion in “Subsequent Events”).

In addition to the stock-based compensation discussed above, we also recorded expense associated with our Employee Stock Ownership Plan, or ESOP, and our 401(k) plan for the three and nine month periods ended September 30, 2010 and 2009, respectively.  The breakdown of non-cash ESOP and 401(k) expense by operating statement classification is presented below (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2010		2009		2010		2009
Selling, general and administrative expenses	$	2,403	$	2,624	$	8,860	$	8,901
Research and development expenses	1,618		1,768		6,771		6,818
	$	4,021	$	4,392	$	15,631	$	15,719

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Consolidation

The consolidated financial statements include our accounts and those of our wholly owned subsidiaries, Amylin Ohio, LLC, and Amylin Investments, LLC. All significant intercompany transactions and balances have been eliminated in consolidation.

Subsequent Events

On October 18, 2010 we received a complete response letter from the U.S. Food and Drug Administration (FDA) regarding the New Drug Application (NDA) for BYDUREONTM (exenatide for extended release injectable suspension).  In the complete response letter the FDA requested a thorough QT (tQT) study with exposures of exenatide higher than typical therapeutic levels of BYDUREON. A tQT study is intended to determine whether a drug has an adverse pharmacologic effect on cardiac repolarization, as detected by QT/QTc prolongation.  The tQT protocol will be agreed to by the FDA prior to study initiation. Additionally, the FDA has requested the results of the DURATION-5 study, a head-to-head study comparing BYDUREON to BYETTA® (exenatide) injection, to evaluate the efficacy, and the labeling of the safety and effectiveness, of the commercial formulation of BYDUREON. Amylin’s goal is to submit a reply to the complete response letter by the end of 2011, pending discussions with the FDA. Based on the requirements for additional data, this will likely be considered a Class 2 resubmission requiring a six-month review.

This subsequent event resulted in adjustments to estimates related to certain assets and liabilities that were impacted by the delayed launch of BYDUREON.  The impact of these changes in estimates was immaterial to the Company’s financial results for the three and nine months ended September 30, 2010.

Recently Issued Accounting Pronouncements

Effective January 1, 2010, we adopted a newly issued accounting standard which amends the evaluation criteria to identify the primary beneficiary of a variable interest entity and requires a quarterly reassessment of the treatment of such entities.  The guidance also requires additional disclosures about an enterprise’s involvement in a variable interest entity.  The adoption of this standard did not have an impact on our financial position or results of operations.

In October 2009, the FASB issued authoritative guidance that amends existing revenue recognition accounting pronouncements related to multiple-deliverable revenue arrangements. The new guidance provides accounting principles and application guidance on whether multiple deliverables exist, how the arrangement should be separated, and how the consideration should be allocated. This guidance expands the methods under which a company can establish the fair value of undelivered products and services and provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. The new guidance is effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010, which for us means fiscal 2011. Earlier application is permitted as of the beginning of a fiscal year. We are currently evaluating the potential impact of this standard on our financial position and results of operations.

In April 2010, the FASB issued Accounting Standards Update (ASU) No. 2010-17, Revenue Recognition — Milestone Method (ASU 2010-017). ASU 2010-017 provides guidance in applying the milestone method of revenue recognition to research or development arrangements. Under this guidance management may recognize revenue contingent upon the achievement of a milestone in its entirety, in the period in which the milestone is achieved, only if the milestone meets all the criteria within the guidance to be considered substantive. This ASU is effective on a prospective basis for research and development milestones achieved in fiscal years, beginning on or after June 15, 2010, which for us means fiscal 2011. Early adoption is permitted; however, adoption of this guidance as of a date other than January 1, 2011 will require us to apply this guidance retrospectively effective as of January 1, 2010 and will require disclosure of the effect of this guidance as applied to all previously reported interim periods in the fiscal year of adoption. As we plan to implement ASU No. 2010-17 prospectively, the effect of this guidance will be limited to future transactions. We are currently evaluating the potential impact of this standard on our financial position and results of operations.

2.Short-term Investments

Our short-term investments, consisting principally of debt securities, are classified as available-for-sale and are stated at fair value based upon observed market prices (Level 1 in the fair value hierarchy). Unrealized holding gains or losses on these securities are included in other comprehensive loss. The amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. For investments in mortgage-backed securities, amortization of premiums and accretion of discounts are recognized in interest income using the interest method, adjusted for anticipated prepayments as applicable. Estimates of expected cash flows are updated periodically and changes are recognized in the calculated effective yield prospectively as appropriate. Such amortization is included in interest income. Realized gains and losses are included in interest income and declines in value

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judged to be other-than-temporary on available-for-sale securities are included in impairment loss on investments, a component of other expense. In assessing potential impairment of our short-term investments, we evaluate the impact of interest rates, potential prepayments on mortgage-backed securities, changes in credit quality, the length of time and extent to which the market value has been less than cost, and our intent and ability not to sell the security in order to allow for an anticipated recovery in fair value. The cost of securities sold is based on the specific-identification method.  The following is a summary of short-term investments as of September 30, 2010 and December 31, 2009 (in thousands):

	Available-for-Sale Securities
	Amortized Cost		Gross Unrealized Gains (1)		Gross Unrealized Losses (1)			Estimated Fair Value
September 30, 2010
U.S. Treasury securities	$	98,431	$	9	$	—		$	98,440
Obligations of U.S. Government-sponsored enterprises	25,136		280		(46		)	25,370
Corporate debt securities	251,340		752		(23		)	252,069
Asset backed securities	4,192		6		(1		)	4,197
Total	$	379,099	$	1,047	$	(70	)	$	380,076
December 31, 2009
U.S. Treasury securities	$	187,892	$	66	$	(2	)	$	187,956
Obligations of U.S. Government-sponsored enterprises	60,280		47		(453		)	59,874
Corporate debt securities	278,872		917		(99		)	279,690
Asset backed securities	19,963		37		(576		)	19,424
Total	$	547,007	$	1,067	$	(1,130	)	$	546,944

(1) Other comprehensive loss included a net unrealized loss of $0.8 million and $1.6 million on investments underlying our 2001 Non-Qualified Deferred Compensation Plan at September 30, 2010 and December 31, 2009, respectively.

Contractual maturities of short-term investments at September 30, 2010 were as follows (in thousands):

	Fair Value
Due within 1 year	$	321,311
After 1 but within 5 years	34,990
After 5 but within 10 years	209
After 10 years	23,566
Total	$	380,076

For purposes of these maturity classifications, the final maturity date is used for securities not due at a single maturity date. Securities not due at a single maturity date include mortgage-backed securities, which are included in Obligations of U.S. Government-sponsored enterprises in the table above, and asset-backed securities.

The following table shows the gross unrealized losses and fair value of our investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2010 (in thousands):

	Less than 12 Months					12 Months or Greater					Total
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
Obligations of U.S. Government-sponsored enterprises	$	426	$	(2	)	$	8,628	$	(44	)	$	9,054	$	(46	)
Corporate debt securities	27,698		(10		)	5,537		(13		)	33,235		(23		)
Asset backed securities	—		—			208		(1		)	208		(1		)
	$	28,124	$	(12	)	$	14,373	$	(58	)	$	42,497	$	(70	)

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Our investments had gross unrealized losses of $0.1 million and $1.1 million at September 30, 2010 and December 31, 2009, respectively.  During the three and nine months ended September 30, 2010, we recognized a $0.2 million other-than-temporary impairment loss for credit-related losses associated with one security in our portfolio.  During the nine months ended September 30, 2009, we recognized a $1.4 million other-than-temporary impairment loss for credit-related losses associated with two securities in our portfolio.  These impairment losses were based upon the difference between the cost basis and the observed volatility in the markets impacting certain of the classes of securities in which we invest and not a deterioration in credit ratings.  The unrealized losses on our investments in marketable securities are due in most instances to the increased volatility in the markets impacting the classes of securities in which we invest and not deterioration in credit ratings. Our investments have a short effective duration, and since we have the ability and intent not to sell these investments until a recovery of fair value, which may be maturity, we do not consider these investments to be other-than-temporarily impaired at September 30, 2010.

3.             Inventories

Inventories consist of the following (in thousands):

	September 30, 2010		December 31, 2009
Raw materials(1)	$	90,691	$	67,446
Work-in-process	19,720		18,335
Finished goods	10,556		13,919
	$	120,967	$	99,700

(1)  Included in raw materials inventories is $29.6 million of exenatide, the active pharmaceutical ingredient, or API, which we plan to use to manufacture BYDUREON.  We expect that exenatide for BYDUREON could also be used to manufacture BYETTA, subject to certain regulatory requirements.  As of December 31, 2009, we classified balances relating to exenatide in other current assets.   The Statements of Cash Flows contains a non-cash adjustment of $29.6 million related to exenatide previously recorded in other current assets that has been reflected as inventory.

Inventories are stated at the lower of cost (FIFO) or market and net of a valuation allowance for potential excess and/or obsolete material of $1.7 million and $0.3 million at September 30, 2010 and December 31, 2009, respectively. Raw materials consist of bulk drug material for BYETTA, SYMLIN and BYDUREON.  Work-in-process inventories consist of in-process BYETTA cartridges, in-process SYMLIN cartridges and in-process SYMLIN vials.  Finished goods inventories consist of BYETTA drug product in a disposable pen/cartridge delivery system, finished SYMLIN drug product in vials for syringe administration and finished SYMLIN drug product in a disposable pen/cartridge delivery system.

We expense costs relating to the purchase and production of pre-approval inventories as research and development expense in the period incurred until such time as we believe future commercialization is probable and future economic benefit is expected to be realized.  Beginning in the second quarter of 2010 we began capitalizing pre-approval inventory specific to BYDUREON based upon management’s judgment of probable future commercial use and net realizable value.  At June 30, 2010 we had capitalized non-API pre-approval inventories totaling $3.0 million. As discussed in Note 1, “Subsequent Events”, on October 18, 2010 we received a complete response letter from the FDA regarding the NDA for BYDUREON.  The complete response letter has resulted in a delay in the timeline for expected approval and commercialization of BYDUREON, which we continue to believe is probable.  After considering the delay in the expected timing of FDA approval and the expiration dates of capitalized pre-approval inventories as of September 30, 2010, we concluded that the non-API inventories on hand as of September 30, 2010 would expire before expected approval and commercialization of BYDUREON and would therefore not be available for commercial sale. Accordingly, as of September 30, 2010 we have expensed costs relating to the purchase and production of non-API pre-approval inventories as research and development expense, including the $3.0 million of inventories capitalized at June 30, 2010, resulting in a charge of approximately $1.5 million after consideration of Lilly cost-sharing.  If our judgment regarding BYDUREON’s probable future commercialization and future economic benefit expected to be recognized were to change, we expect that the API raw materials currently included in raw materials inventory would be utilized to produce BYETTA, subject to certain regulatory requirements, and therefore would not be at risk of impairment.

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4.Other Current Assets

Other current assets consist of the following (in thousands):

	September 30, 2010		December 31, 2009
Prepaid expenses	$	17,154	$	58,032
Receivable from collaborative partner	4,934		7,924
Interest and other receivables	5,062		5,816
Other current assets	9,009		6,709
	$	36,159	$	78,481

5.Other Current Liabilities

Other current liabilities consist of the following (in thousands):

	September 30, 2010		December 31, 2009
Accrued rebates	$	44,614	$	40,735
Accrued expenses	41,235		34,789
Other current liabilities	7,402		19,639
	$	93,251	$	95,163

6. Collaborative Agreements

We have entered into various collaborative agreements which provide us with rights to develop, produce and market products using certain know-how, technology and patent rights maintained by our collaborative partners. Terms of the various collaboration agreements may require us to make and/or receive milestone payments upon the achievement of certain product research and development objectives and pay and/or receive royalties on future sales, if any, of commercial products resulting from the collaboration.

Amounts due from or to our collaborative partners related to development activities are generally reflected as either a reduction or increase of research and development expenses, as appropriate, and amounts due from or to our collaborative partners related to sharing of commercialization expenses are generally reflected as either a reduction or increase of selling, general and administrative expenses, as appropriate. Milestone payments and up-front payments received are generally reflected as collaborative revenue as discussed above in Note 1, and milestone payments and up-front payments made are generally recorded as research and development expenses if the payments relate to drug candidates that have not yet received regulatory approval. Milestone payments and up-front payments that we make related to approved drugs (of which there have been none to date) will generally be capitalized and amortized to cost of goods sold over the economic life of the product. Royalties received (of which there have been none to date) will generally be reflected as collaborative revenues and royalties paid are generally reflected as cost of goods sold.

For collaborations with commercialized products, if we are the principal we record revenue and the corresponding operating costs in their respective line items within our statement of operations based on the nature of the shared expenses. If we are not the principal, we record operating costs as a reduction of revenue. The principal is the party who is responsible for delivering the product or service to the customer, has latitude with establishing price and has the risks and rewards of providing product or service to the customer, including inventory and credit risk.

Collaboration with Eli Lilly and Company

In September 2002, we and Lilly entered into a Collaboration Agreement for the global development and commercialization of exenatide, or the Lilly Agreement. The Lilly Agreement was amended in 2006 and in 2009.

The Lilly Agreement includes BYETTA and any sustained release formulations of exenatide such as BYDUREON, our once-weekly formulation of exenatide for the proposed treatment of type 2 diabetes. Under the terms of the Lilly Agreement, operating profits from products sold in the United States are shared equally between us and Lilly. In 2005, we received FDA approval for the twice-daily formulation of exenatide, which is marketed in the United States under the trade name BYETTA. The Lilly Agreement provides for tiered royalties payable to us by Lilly based upon the annual gross margin for all exenatide product sales, including any long-acting release formulations, outside of the United States. Royalty payments for exenatide product sales outside of the United States will commence after a one-time cumulative gross margin threshold amount has been met. Lilly is responsible for 100% of the costs related to development of BYDUREON and BYETTA for sale outside of the United States and 100% of the costs related to commercialization of all exenatide products for sale outside of the United States.

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At signing, Lilly made initial non-refundable payments to us totaling $80 million, of which $50 million was amortized to revenues under collaborative agreements prior to 2004. The remaining $30 million was amortized to revenues ratably over a seven-year period which ended in 2009 and represented our estimate of the period of our performance of significant development activities under the Lilly Agreement.

In addition to these up-front payments, Lilly agreed to make future milestone payments of up to $85 million upon the achievement of certain development milestones, including milestones relating to both twice daily and sustained release formulations of exenatide such as BYDUREON, of which $75 million have been paid through September 30, 2010. No additional development milestones may be earned under the Lilly Agreement.

Lilly also agreed to make additional future milestone payments of up to $130 million contingent upon the commercial launch of exenatide in selected territories throughout the world, including both twice-daily and sustained release formulations, of which $40 million have been paid through September 30, 2010. Remaining milestones relate primarily to the commercial launch of BYDUREON in selected territories throughout the world, including $40 million for the launch in the United States.

In December 2005, our wholly-owned subsidiary, Amylin Ohio LLC, purchased an existing building and land to house our BYDUREON manufacturing facility in Ohio and we are responsible for all costs and expenses associated with the design, construction, validation and utilization of the facility. At September 30, 2010 we had capitalized $620.9 million associated with the construction and validation of this facility.  As discussed below, through September 30, 2010 we have incurred $149.5 million in capital expenditures associated with a BYDUREON pen device, which will be funded 60% by Lilly and 40% by us.  Through September 30, 2010, the total combined capital expenditures for the manufacturing facility and pen device is $770.4 million.

In October 2008, we and Lilly entered into an Exenatide Once Weekly Supply Agreement, or the Supply Agreement, pursuant to which we will supply commercial quantities of BYDUREON for sale in the United States, if approved by the FDA. In addition, if Lilly receives approval to market the product in jurisdictions outside the United States, we will be required to manufacture the product intended for commercial sale by Lilly in those jurisdictions.

Under the terms of the Supply Agreement, Lilly made a cash payment of $125 million to us, which represents an amount to compensate us for the estimated past and future cost of carrying Lilly’s share of the capital investment made in our manufacturing facility in Ohio, that otherwise would have been included in the cost of product produced at the facility and charged to Lilly through our arrangements with them. In addition to this cash payment, we will recover Lilly’s share of the capital investment in the facility through an allocation of depreciation expense in cost of goods as discussed below. Under the terms of the Supply Agreement, we have agreed not to charge Lilly for Lilly’s share of the interest costs capitalized to the facility or any future financing cost that may be related to financing the facility. Accordingly we have determined that a portion of the $125 million payment, amounting to $43.3 million at September 30, 2010, represents a reimbursement to us of Lilly’s share of interest costs capitalized to the facility that will be credited to Lilly for its share of the amortization of capitalized interest included in the cost of goods sold for BYDUREON as incurred. We have concluded that any excess amount represents deferred collaborative revenue for services to be provided to Lilly under the Supply Agreement that will be amortized ratably over the economic useful life of the BYDUREON product following its commercial launch, if approved. The ultimate allocation of the $125 million payment, which is classified as a long-term deferred credit in the accompanying Consolidated Balance Sheets at September 30, 2010, will be dependent upon the total amount of interest costs capitalized to the facility. Under certain circumstances, including upon an impairment of the BYDUREON manufacturing facility, Lilly may receive a credit for the unearned portion of the $125 million payment which will be applied against Lilly’s share of the impairment charge. The $125 million payment is not refundable to Lilly if BYDUREON does not receive regulatory approval unless such non-approval results in impairment as discussed above.

In addition to the $125 million cash payment, we will recover Lilly’s share of the initial capital investment in the facility, excluding the BYDUREON pen device capital which is subject to a different cost-sharing arrangement discussed below, through an allocation of depreciation to cost of goods sold in accordance with the Lilly Agreement. Subsequent capital investments, including those for the BYDUREON pen device, are subject to separate cost sharing terms, as described below. We retain ownership of the facility and Lilly’s share of the capital investment to be recovered through the sharing of cost of goods sold is initially estimated to be 55% subject to adjustment based upon the allocation of the proportion of product supplied for sale in the United States, the cost of which is shared equally by the parties, and the proportion of product supplied for sale outside of the United States, the cost of which is paid for 100% by Lilly.

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In May 2009, we and Lilly entered into a joint supply agreement for a BYDUREON pen device. We and Lilly agreed to collaborate in the development, manufacturing and marketing of BYDUREON in a dual chamber cartridge pen device. We and Lilly will share the capital and development costs of the pen, including the estimated total capital investment of approximately $216 million which is expected to be incurred over the next few years. We and Lilly have agreed that the estimated cost of the total capital investment will be allocated 60% to Lilly and 40% to us, with Lilly funding its share as the capital expenditures are incurred. Through September 30, 2010, we have incurred $149.5 million in capital expenditures associated with the BYDUREON pen device, which amount is included in construction in progress. We have billed Lilly $81.6 million for these expenditures, of which $80.7 million has been received by us. Capital reimbursements from Lilly, which are included in deferred collaborative profit-sharing in the accompanying consolidated balance sheet, are being deferred and will be amortized to collaborative profit sharing for Lilly’s share of the depreciation included in cost of goods sold for the BYDUREON pen device as incurred.

In October 2008, we and Lilly also entered into a loan agreement pursuant to which Lilly made available to us a $165 million unsecured line of credit that we can draw upon from time to time until June 30, 2011. Any interest due under the credit facility will bear interest at the five-day average three-month LIBOR rate immediately prior to the date of the advance plus 5.25% and shall be due and payable quarterly in arrears on the first business day of each quarter. All outstanding principal, together with all accrued and unpaid interest shall be due and payable the earlier of 36 months following the date on which the loan commitment is fully advanced or June 30, 2014. As of September 30, 2010 we have not drawn upon this credit facility.

The following is a summary of activity related to our collaboration with Lilly and the location in the consolidated statements of operations (in thousands):

	Classification within	Three Months Ended					Nine months Ended
	Consolidated Statements of	September 30,					September 30,
Activity	Operations	2010		2009			2010		2009
Amortization of up-front payments	Revenues under collaborative agreements	$	—	$	943		$	—	$	3,086
Gross margin cost-sharing	Collaborative profit sharing	$	61,249	$	78,265		$	194,056	$	227,481
Development expense cost-sharing payments received from Lilly for BYETTA and BYDUREON development expense	Reduction of research and development expense	$	22,523	$	17,024		$	51,152	$	40,562
Cost-sharing payments due from/(to) Lilly for shared sales force expenses, marketing expenses and other commercial or operational support	Reduction of / (increase to) selling, general and administrative expense	$	4,061	$	(105	)	$	21,873	$	(5,783	)

Collaboration with Alkermes, Inc.

In May 2000, we signed an agreement with Alkermes, Inc., or Alkermes, a company specializing in the development of products based on proprietary drug delivery technologies, for the development, manufacture and commercialization of BYDUREON, or the Alkermes Agreement.

Under the terms of the Alkermes Agreement, Alkermes has granted us an exclusive, worldwide license to its Medisorb® technology for the development and commercialization of injectable sustained release formulations of exendins, such as exenatide, and other related compounds that we may develop. In exchange, Alkermes receives funding for research and development and may earn future milestone payments upon achieving specified development and commercialization goals. Alkermes will also receive royalties on any future product sales.

In October 2005, we and Alkermes Controlled Therapeutics II, a wholly owned subsidiary of Alkermes entered into an Amendment to Development and License Agreement, or the Amendment, which amends the Alkermes Agreement. Under the terms of the Amendment, we will be responsible for manufacturing for commercial sale the once weekly dosing formulation of BYDUREON, if approved. The royalty to be paid from us to Alkermes for commercial sales of BYDUREON was adjusted to reflect the new manufacturing arrangement.

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Collaboration with Takeda Pharmaceutical Company, Ltd

On October 30, 2009, we and Takeda Pharmaceutical Company Limited, or Takeda, entered into a License, Development and Commercialization Agreement, or the Takeda Development Agreement, pursuant to which the companies will co-develop and commercialize pharmaceutical products containing compounds specified in the Takeda Development Agreement for the treatment of human indications including, but not limited to, (i) weight management and/or obesity, (ii) glycemic control and (iii) cardiovascular disease. We received a one-time, nonrefundable cash payment of $75 million from Takeda in connection with the execution of the Takeda Development Agreement. We recorded the up-front payment as deferred revenue in our consolidated balance sheets and will recognize the revenue over the estimated development period of ten years. As of September 30, 2010 deferred revenue associated with the Takeda collaboration equaled $68.1 million, of which $60.6 million is classified as long-term.

The following is a summary of activity related to the Takeda Development Agreement and the location in the consolidated statements of operations (in thousands):

	Classification within	Three Months Ended				Nine months Ended
	Consolidated Statements of	September 30,				September 30,
Activity	Operations	2010		2009		2010		2009
Amortization of up-front payments	Revenues under collaborative agreements	$	1,875	$	—	$	5,625	$	—
Cost-sharing payments due from Takeda for shared development expenses	Reduction of research and development expense	$	3,992	$	—	$	10,175	$	—

7.             Restructuring

In May 2009, we announced a restructuring of our sales force to merge our existing primary care and specialty sales forces into a single organization.  This restructuring reduced the total number of Amylin sales representatives by approximately 200 employees.  We recorded restructuring charges of $11.4 million during the quarter ended June 30, 2009 consisting primarily of employee separation costs which were incurred in the quarter ended June 30, 2009.  No additional restructuring charges were recorded during the quarter ended September 30, 2009.  The following table summarizes the components of the restructuring charges (in thousands):

	Nine months ended September 30, 2009
	Accruals		Non-cash items		Total
Employee separation costs	$	10,629	$	281	$	10,910
Other restructuring charges	466		—		466
	$	11,095	$	281	$	11,376

During the nine months ended September 30, 2010 we reduced our workforce by approximately 60 employees and recorded restructuring charges of $9.5 million consisting of employee separation costs, facilities-related expenses and asset impairments.

The following table summarizes the components of the restructuring charges for the three and nine months ended September 30, 2010:

	Three months ended September 30, 2010							Nine months ended September 30, 2010
	Accruals		Non-cash items			Total		Accruals		Non-cash items			Total
Facilities related charges	$	5,195	$	(1,174	)	$	4,021	$	5,195	$	(1,174	)	$	4,021
Employee separation costs	—		—			—		3,424		—			3,424
Asset impairments	—		1,845			1,845		—		1,845			1,845
Other restructuring charges	—		162			162		—		162			162
	$	5,195	$	833		$	6,028	$	8,619	$	833		$	9,452

The facilities-related charges recorded during the three months ended September 30, 2010 are comprised of $2.3 million related to a reassessment of current market conditions pertaining to our existing lease loss liability and $1.7 million related to estimated losses associated with certain facility leases in our San Diego campus which we no longer use in our operations and which we ceased using in the quarter ended September 30, 2010, net of a non-cash credit related to the reversal of deferred rent associated with the leases. We are continuing to assess our facility requirements for our San Diego campus as a result of this and our prior restructurings and may record additional facilities-related charges over the next several quarters.

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The following table sets forth activity in the restructuring liability for recent restructuring activities for the nine months ended September 30, 2010 (in thousands):

	Employee separation costs			Facilities related charges			Other restructuring charges			Total
Balance at December 31, 2009	$	—		$	31,980		$	—		$	31,980
Accruals	3,424			5,195			833			9,452
Payments	(2,909		)	(8,531		)	(833		)	(12,273		)
Accretion of sub-lease expense	—			1,924			—			1,924
Balance at September 30, 2010	$	515		$	30,568		$	—		$	31,083

The small reduction in the restructuring liability during the nine months ended September 30, 2010 consists primarily of ongoing rental payments for leases associated with vacated facilities, offset by an accrual for facilities-related expenses, an accrual for employee separation costs and the accretion of sub-lease obligation interest expense.

8.Comprehensive Loss

Comprehensive loss includes net loss and unrealized gains and losses on investments. We disclose the accumulated balance of other comprehensive loss as a separate component of stockholders’ equity. For the three and nine months ended September 30, 2010 and 2009, comprehensive loss consisted of (in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2010			2009			2010			2009
Net loss	$	(50,732	)	$	(26,659	)	$	(133,131	)	$	(135,985	)
Other comprehensive loss:
Net unrealized gain on investments	754			2,203			1,170			9,033
Comprehensive loss	$	(49,978	)	$	(24,456	)	$	(131,961	)	$	(126,952	)

9.Convertible Senior Notes

The following table summarizes the principal amount of the liability component, the unamortized discount and the net carrying amount of our convertible senior notes (in thousands):

	September 30, 2010			December 31,2009
2007 Notes — Due June 15, 2014
Principal amount	$	575,000		$	575,000
Unamortized debt discount	(112,753		)	(131,238		)
Net carrying amount	462,247			443,762
2004 Notes — Due April 15, 2011
Principal amount	200,000			200,000
Total convertible senior notes, net	662,247			643,762
Less current portion	(200,000		)	—
Non-current portion	$	462,247		$	643,762

In June 2007, we issued the 2007 Notes in a private placement, which have an aggregate principal amount of $575 million, and are due June 15, 2014. The 2007 Notes are senior unsecured obligations and rank equally with all other existing and future senior unsecured debt. The 2007 Notes bear interest at 3.0% per year, payable in cash semi-annually, and are initially convertible into a total of up to 9.4 million shares of common stock at a conversion price of $61.07 per share, subject to the customary adjustment for stock dividends and other dilutive transactions. We may not redeem the 2007 Notes prior to maturity. In addition, if a “fundamental change” (as defined in the associated indenture agreement) occurs prior to the maturity date, we will in some cases increase the conversion rate for a holder of notes that elects to convert its notes in connection with such fundamental change. The maximum conversion rate is 22.9252 ($43.62 per share), which would result in a maximum issuance of 13.2 million shares of common stock if all holders converted at the maximum conversion rate.  The principal amount of the 2007 Notes exceeds the current if-converted value.

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The 2007 Notes will be convertible into shares of our common stock unless we elect net-share settlement. If we elect net-share settlement, we will satisfy the accreted value of the obligation in cash and will satisfy the excess of conversion value over the accreted value in shares of our common stock based on a daily conversion value, determined in accordance with the associated indenture agreement, calculated on a proportionate basis for each day of the relevant 20-day observation period. Holders may convert the 2007 Notes only in the following circumstances and to the following extent: (1) during the five business-day period after any five consecutive trading day period (the measurement period) in which the trading price per note for each day of such measurement period was less than 97% of the product of the last reported sale price of our common stock and the conversion rate on each such day; (2) during any calendar quarter after the calendar quarter ending March 31, 2007, if the last reported sale price of our common stock for 20 or more trading days in a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter exceeds 130% of the applicable conversion price in effect on the last trading day of the immediately preceding calendar quarter; (3) upon the occurrence of specified events; and (4) the 2007 Notes will be convertible at any time on or after April 15, 2014 through the scheduled trading day immediately preceding the maturity date.

Subject to certain exceptions, if we undergo a “designated event” (as defined in the associated indenture agreement) including a “fundamental change,” such as if a majority of our Board of Directors ceases to be composed of the existing directors or other individuals approved by a majority of the existing directors, holders of the 2007 Notes will, for the duration of the notes, have the option to require us to repurchase all or any portion of their 2007 Notes. The designated event repurchase price will be 100% of the principal amount of the 2007 Notes to be purchased plus any accrued interest up to but excluding the relevant repurchase date. We will pay cash for all notes so repurchased. The 2007 Notes have been registered under the Securities Act of 1933, as amended, to permit registered resale of the 2007 Notes and of the common stock issuable upon conversion of the 2007 Notes. The 2007 Notes pay interest in cash, semi-annually in arrears on June 15 and December 15 of each year, which began on December 15, 2007.

The fair value of the 2007 Notes, determined by observed market prices, was $518.9 million and $453.0 million at September 30, 2010 and December 31, 2009, respectively.  Since we have the option to elect net-share settlement upon conversion of the 2007 Notes, we account for the 2007 Notes in accordance with the authoritative guidance for accounting for convertible debt instruments that may be settled in cash upon conversion.

The carrying amount of the equity component of the 2007 Notes was $180.3 million at September 30, 2010 and December 31, 2009.  At September 30, 2010, the unamortized balance of the debt discount will be amortized over the remaining life of the 2007 Notes, or approximately four years.  The effective interest rate on the net carrying value of the 2007 Notes was 9.3% for both the three and nine month periods ended September 30, 2010 and 2009.

In April 2004, we 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 are senior unsecured obligations and rank equally with all other existing and future senior unsecured debt. 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. We may not redeem the 2004 Notes prior to maturity.

Upon a change in control, the holders of the 2004 Notes may elect to require us to repurchase the 2004 Notes. We 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 trading day period ending on the third day before the purchase date.

The 2004 Notes have been registered under the Securities Act of 1933, as amended, to permit registered resale of the 2004 Notes and of the common stock issuable upon conversion of the 2004 Notes.

The fair value of the 2004 Notes, determined by observed market prices, was $200.0 million and $192.1 million at September 30, 2010 and December 31, 2009, respectively.

The following table summarizes the interest expense we capitalized associated with construction in progress for the three and nine months ended September 30, 2010 and 2009 (in thousands):

	Three months ended September 30,				Nine months ended September 30,
	2010		2009		2010		2009
Coupon interest expense	$	3,007	$	4,192	$	9,448	$	11,701
Non-cash interest from debt discount	3,768		4,764		11,626		13,118
Total capitalized interest	$	6,775	$	8,956	$	21,074	$	24,819

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10.Note Payable

In December 2007, we entered into a $140 million credit agreement with Bank of America, N.A., as administrative agent, collateral agent and letter of credit issuer, Silicon Valley Bank and RBS Asset Finance, Inc., as syndication agents, and Comerica Bank and BMO Capital Markets Financing, Inc., as documentation agents.  The credit agreement provides for a $125 million Term Loan and a $15 million revolving credit facility.  The proceeds of both loans have been used for general corporate purposes.  The revolving credit facility also provides for the issuance of letters of credit and foreign exchange hedging up to the $15 million borrowing limit.  We had an outstanding balance of $70.3 million and $93.8 million under the Term Loan at September 30, 2010 and December 31, 2009, respectively, and had issued $10.5 million and $8.9 million of stand-by letters of credit under the revolving credit facility primarily in connection with office leases, at September 30, 2010 and December 31, 2009, respectively.

Our domestic subsidiaries, Amylin Ohio LLC and Amylin Investments LLC, are co-borrowers under the credit agreement.  The loans under the revolving credit facility are secured by substantially all of our (including the two domestic subsidiaries) assets (other than intellectual property and certain other excluded collateral).  The Term Loan is repayable on a quarterly basis, with no principal payments due quarters one through four, 6.25% of the outstanding principal due quarters five through eleven, and 56.25% of the outstanding principal due in quarter twelve.  Interest on the Term Loan will be paid quarterly on the unpaid principal balance at 1.75% above the London Interbank Offered Rate, or LIBOR, based on our election of either one, two, three or nine months LIBOR term, and payable at the end of the selected interest period but no less frequently than quarterly as of the first business day of the quarter prior to the period in which the quarterly installment is due.  We have elected to use the three month LIBOR, which was 0.29% and 0.25% at September 30, 2010 and December 31, 2009, respectively.  Interest periods on the revolving credit facility may be either one, two, three or nine months, and payable at the end of the selected interest period but no less frequently than quarterly, and the interest rate will be either LIBOR plus 1.0% or the Bank of America prime rate, as selected by us.  Both loans have a final maturity date of December 21, 2010 and are therefore classified as current liabilities.

The credit agreement contains certain covenants, including a requirement to maintain minimum unrestricted cash and cash equivalents balances, as defined in the agreement, in excess of $400 million, below which certain limitations provided for in the agreement become effective. The credit agreement also contains certain events of default including unrestricted cash and cash equivalents balances, as defined in the agreement, falling below $280 million, nonpayment of principal, interest, fees or other amounts, violation of covenants, inaccuracy of representations and warranties and default under other indebtedness that would permit the administrative agent to accelerate our outstanding obligations if not cured within applicable grace periods. In addition, the credit agreement provides for automatic acceleration upon the occurrence of bankruptcy, other insolvency events and a change in control, as defined in the credit agreement as amended. There is an annual commitment fee associated with the revolving credit facility of 0.25%.

In connection with the execution of the Term Loan, we entered into an interest rate swap with an initial notional amount of $125 million on December 21, 2007 that has resulted in a net fixed rate of 5.717% and matures on December 21, 2010.  We determined that the interest rate swap agreement is defined as Level 2 in the fair value hierarchy.  The fair value of the interest rate swap agreement was a liability of $0.7 million and $2.8 million at September 30, 2010 and December 31, 2009, respectively.  For the three months ended September 30, 2010 and 2009, we recognized a gain on the interest rate swap of $0.6 million and $0.3 million, respectively. For the nine months ended September 30, 2010 and 2009, we recognized a gain on the interest rate swap of $2.2 million and $1.4 million, respectively.  Recognized gains and losses on the interest rate swap are included in interest and other expense.

11.Stockholders’ Equity

In March 2010, we contributed approximately 0.9 million newly issued shares of our common stock, valued at $18.01 per share, to our ESOP for amounts earned by participants during the year ended December 31, 2009.

In March 2010, we contributed approximately 0.2 million newly issued shares of its common stock, valued at $17.83 per share, to our 401(k) plan for amounts earned by participants during the year ended December 31, 2009.

12.Commitments and Contingencies

Other Commitments

We have committed to make potential future milestone payments to third parties as part of in-licensing and development programs primarily related to research and development agreements. Potential future payments generally become due and payable only upon the achievement of certain developmental, regulatory and/or commercial milestones, such as achievement of regulatory approval, successful development and commercialization of products, and subsequent product sales. Because the achievement of these milestones is neither probable nor reasonably estimable, we have not recorded a liability on the balance sheet for any such contingencies.

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As of September 30, 2010, if all such milestones are successfully achieved, the potential future milestone and other contingency payments we could be required to make under certain contractual agreements are approximately $177.0 million in aggregate, of which $7.5 million could be paid within the next 12 months.

We have committed to make future minimum payments to third parties for certain inventories in the normal course of business. The minimum purchase commitments total approximately $7.5 million as of September 30, 2010 and relate to both SYMLIN and BYDUREON. If the FDA approves BYDUREON, upon such approval we will have additional minimum inventory purchases for BYDUREON of $26.1 million.

As of September 30, 2010, commitments to complete construction of our BYDUREON manufacturing facility in Ohio are $1.5 million and commitments associated with capital investments on the BYDUREON pen device are $34.4 million.

13.          Interest and other expense, net

For the three and nine months ended September 30, 2010 and 2009, other income (expense), net is comprised of the following (in thousands):

	Three months ended September 30,						Nine months ended September 30,
	2010			2009			2010			2009
Interest and other income	$	833		$	1,413		$	2,017		$	6,513
Interest and other expense	(6,337		)	(5,670		)	(18,516		)	(15,020		)
Loss on impairment of investments	(198		)	—			(198		)	(1,377		)
Total interest and other expense, net	$	(5,702	)	$	(4,257	)	$	(16,697	)	$	(9,884	)

14.  Litigation

From time to time in the ordinary course of business, we become involved in various lawsuits, claims and proceedings relating to the conduct of our business, including those pertaining to product liability, patent infringement and employment claims.  As of September 30, 2010 we and Lilly were involved in 95 separate product liability cases involving approximately 414 plaintiffs in various courts in the United States.  Forty-three plaintiffs who previously filed cases have subsequently dismissed their cases or claims without prejudice. These cases have been brought by individuals who allege they have used BYETTA.  They generally seek compensatory and punitive damages for alleged injuries, consisting primarily of pancreatitis, and in some cases, wrongful death.  Most of the cases are pending in California state court, where the Judicial Council has granted our petition for a “coordinated proceeding” for all California state court cases alleging harm allegedly as a result of BYETTA use.  We also have received notice from plaintiff’s counsel of additional claims by individuals who have not filed suit.  These matters are at an early stage and, as a result, we cannot reasonably estimate potential losses, if any, at this time.  While we cannot reasonably predict the outcome of any lawsuit, claim or proceeding, we and Lilly intend to vigorously defend these matters.  However, if we are unsuccessful in our defense, these matters could result in a material adverse impact to our financial position and results of operations.

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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 or in our other public disclosures. 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 are not presently aware of or that we currently believe are immaterial which could also impair our business and financial position. We disclaim any obligation to update these forward-looking statements.

Overview

We are a biopharmaceutical company committed to improving the lives of people with diabetes, obesity and other diseases through the discovery, development and commercialization of innovative medicines. We are marketing two first-in-class medicines to treat diabetes, BYETTA and SYMLIN and we are currently seeking approval for BYDUREON, an investigational sustained-release medication for type 2 diabetes that is administered once a week.

Highlights for the nine months ended September 30, 2010 and recent activities include:

·We received a complete response letter regarding the BYDUREON New Drug Application, or NDA, from the FDA, and in May 2010, the FDA classified the complete response as a Class 2 resubmission and assigned a new Prescription Drug User Fee Act, or PDUFA, action date of October 22, 2010. On October 18, 2010 we received a complete response letter from the FDA in which the FDA requested a thorough QT (tQT) study with exposures of exenatide higher than typical therapeutic levels of BYDUREON.  A tQT study is intended to determine whether a drug has an adverse pharmacologic effect on cardiac repolarization, as detected by QT/QTc prolongation.  The tQT protocol will be agreed to by the FDA prior to study initiation.  Additionally, the FDA has requested the results of the DURATION-5 study, a head-to head study comparing BYDUREON to BYETTA (exenatide) injection, to evaluate the efficacy, and the labeling of the safety and effectiveness, of the commercial formulation of BYDUREON.  Amylin’s goal is to submit a reply to the complete response letter by the end of 2011, pending discussion with the FDA. Based on the requirements for additional data, this will likely be considered a Class 2 resubmission requiring a six-month review;

·Our partner, Lilly, received approval of BYETTA in Japan for the treatment of type 2 diabetes mellitus in patients who have not achieved adequate glycemic control while taking certain oral anti-diabetes therapies in addition to diet and exercise;

·Our partner, Lilly, submitted a marketing authorization application to the European Medicines Agency for BYDUREON;

·We initiated our DURATION-6 clinical study, a head-to-head comparison of BYDUREON to liraglutide (Victoza®), a glucagon-like peptide-1 (GLP-1) analog, with results anticipated in the first half of 2011;

·We announced results from DURATION-4, a head-to-head study that compared BYDUREON monotherapy to Januvia® (sitagliptin), Actos® (pioglitazone HCI) or metformin. Results demonstrated that BYDUREON efficacy and tolerability profile extended to monotherapy treatment;

·We completed enrollment in a phase 2 study of a monthly-dosed suspension formulation of exenatide during the third quarter and expect to see data from this study in the first half of 2011;

·We initiated our EXSCEL (Exenatide Study of Cardiovascular Event Lowering) cardiovascular outcomes study, with results expected in 2016; and

·We and our partner, Takeda, announced the combination treatment of pramlintide/metreleptin for obesity will advance toward Phase 3 development.

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BYDUREON

We are working with Lilly and Alkermes, Inc., or Alkermes, to develop BYDUREON, an investigational sustained-release medication for type 2 diabetes that is administered once a week.  In March 2010, we received a complete response letter from the FDA regarding the NDA we submitted for BYDUREON in May 2009.  The key components of the complete response letter that required a response related primarily to the finalization of the product labeling with an accompanying Risk Evaluation and Mitigation Strategy, or REMS, and clarification of proprietary manufacturing processes.  We filed our response to the FDA’s complete response letter in April 2010 and in May 2010 the FDA notified us that they have classified the BYDUREON complete response as a Class 2 resubmission and assigned a new PDUFA action date of October 22, 2010.

On October 18, 2010 we received a second complete response letter from the FDA in which the FDA requested a thorough QT (“tQT”) study designed to evaluate exposures of exenatide higher than typical therapeutic levels of BYDUREON.  In addition, the FDA has now requested the results of the DURATION-5 study to ensure appropriate labeling regarding the safety and effectiveness of the commercial formulation of BYDUREON.  Subject to further discussions with the agency to gain agreement on the design of the BYDUREON tQT study, our goal is to submit a reply to the complete response letter by the end of 2011. Based on the requirements for additional data, this will likely be considered a Class 2 resubmission requiring a six-month review.

Throughout the remainder of 2010 and into 2011, we will work with the FDA to gain agreement on the design of the BYDUREON tQT study requested in the October 18, 2010 complete response letter and will continue to focus on building a superior profile for BYDUREON by continuing our DURATION series of clinical studies designed to compare BYDUREON against competing products.  In June 2010 we announced results from our DURATION-4 study comparing BYDUREON with metformin, sitagliptin or pioglitazone, three oral type 2 diabetes medications commonly prescribed early in the treatment of type 2 diabetes.  The results of DURATION-4 along with the four previously completed DURATION studies have shown consistent clinically meaningful efficacy of BYDUREON. We have initiated DURATION-6 comparing BYDUREON with liraglutide (Victoza®). In addition, we initiated EXSCEL, a cardiovascular outcomes study, to demonstrate BYDUREON’s effect on cardiovascular endpoints and expect this study to complete in 2016. We plan to continue making strategic investments in the exenatide franchise including the development of a BYDUREON pen delivery system and an exenatide suspension formulation.

BYETTA and SYMLIN

BYETTA is the first approved medicine in a class of compounds called GLP-1 receptor agonists. In October 2009, the FDA approved an expanded indication to include BYETTA as a first-line, stand-alone medication (monotherapy) along with diet and exercise to improve glycemic control in adults with type 2 diabetes and changes to the BYETTA label to incorporate updated safety language. Previously BYETTA was approved as an adjunctive therapy to improve glycemic control in patients with type 2 diabetes who have not achieved adequate glycemic control by using metformin, a sulfonylurea and/or a thiazolidinediene (TZD), three common oral therapies for type 2 diabetes. We believe the expanded monotherapy indication and label update present new opportunities for the BYETTA brand. Net product sales of BYETTA were $132.4 million and $171.1 million for the three months ended September 30, 2010 and 2009, respectively, and $422.9 million and $503.9 million for the nine months ended September 30, 2010 and 2009, respectively.

In June 2010 we announced results from the first double-blind, placebo-controlled clinical study to evaluate BYETTA added to insulin glargine. Data from this study showed that the combination of BYETTA and insulin glargine helped patients with type 2 diabetes achieve glucose targets without weight gain or increasing their risk of hypoglycemia. These data suggest that BYETTA may provide a complementary addition to basal insulin for these hard-to-treat type 2 diabetes patients and will form the basis of a supplemental NDA to the FDA that we plan to file by the end of this year.

We have an agreement with Lilly for the global development and commercialization of exenatide. This agreement includes BYETTA and other formulations of exenatide such as BYDUREON. Under the terms of the agreement, operating profits from products sold in the United States are shared equally between Lilly and us, and Lilly will pay us royalties for product sales outside of the United States. Lilly has primary responsibility for developing and commercializing BYETTA outside of the United States, including any sustained release formulations of exenatide such as BYDUREON. As of September 30, 2010, BYETTA was commercially launched in 68 countries worldwide, including the United States.

SYMLIN is the first and only approved medicine in a class of compounds called amylinomimetics. It is approved as an adjunctive therapy to improve glycemic control in patients with either type 2 or type 1 diabetes who are treated with mealtime insulin but who have not achieved adequate glycemic control. We own 100% of the global rights to SYMLIN and are exploring partnering SYMLIN outside of the United States. Net product sales of SYMLIN were $21.6 million and $21.8 million for the three months ended September 30, 2010 and 2009, respectively, and $65.9 million and $65.8 million for the nine months ended September 30, 2010 and 2009, respectively.

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We have a field force of approximately 395 people dedicated to marketing BYETTA and SYMLIN in the United States. Our field force includes our specialty sales force and our managed care organization. Lilly co-promotes BYETTA in the United States. Our specialty sales force brings a specialty approach to endocrinologists and diabetes-focused primary care physicians and is focused on targeting those doctors that write the majority of prescriptions for branded diabetes therapies.

Obesity and related indications

Our long-term growth strategy is focused on making prudent investment decisions based on strong clinical data to advance our obesity program. In October 2009, we entered into a worldwide exclusive license, development and commercialization agreement with Takeda Pharmaceutical Company Limited, or Takeda, to co-develop and commercialize pharmaceutical products for the treatment of obesity and related indications. The agreement includes products to be developed from our product pipeline, including pramlintide/metreleptin, which is a combination regimen currently in phase 2 development for the treatment of obesity. In February 2010 we announced the results of a 52-week phase 2 study of this combination regimen and, based on those results, we and Takeda plan to advance pramlintide/metreleptin toward phase 3 development.

Later this year we plan to submit the clinical and non-clinical sections of a rolling biologics license application, or BLA, for metreleptin as a treatment of severe lipodystrophy, a very rare metabolic condition, followed by the chemistry, manufacturing and controls section of the BLA. Because severe lipodystrophy affects a very small number of patients, metreleptin as a treatment for severe lipodystrophy has received orphan drug designation by the FDA.

Research and Development

We maintain an active discovery research program focused on novel peptide and protein therapeutics. We have also entered into a number of strategic alliances and business initiatives that support our expansion into new therapeutic areas.

Overview Summary

Since our inception in September 1987, we have devoted substantially all of our resources to our research and development programs and, more recently, to the commercialization of our products. All of our revenues prior to May 2005 were derived from fees and expense reimbursements under our exenatide collaboration agreement with Lilly, previous SYMLIN collaborative agreements and previous co-promotion agreements. During the second quarter of 2005, we began to derive revenues from product sales of BYETTA and SYMLIN.  At September 30, 2010, our accumulated deficit was approximately $2.1 billion.

At September 30, 2010, we had $537.7 million in cash, cash equivalents and short-term investments.  Additionally we have availability of $165 million pursuant a loan agreement with Lilly. Although we may not generate positive operating cash flows for the next few years, we have demonstrated strong financial discipline over the last few years and we remain committed to continuing to manage our expenses in-line with expected revenues. Our goal is to continue to aggressively manage our expenses in order to maximize our available cash to maximize revenue for BYETTA and SYMLIN and support the approval and launch of BYDUREON. Additionally, we expect that our use of cash for capital expenditures will continue to be significantly lower than 2009 levels.  Refer to the discussions under the headings “Liquidity and Capital Resources” below and “Cautionary Factors That May Affect Future Results” in Part I, Item 1A for further discussion regarding our anticipated future capital requirements.

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 ongoing basis, our actual results may differ significantly from our estimates.

There were no significant changes in critical accounting policies from those at December 31, 2009, however the information provided under the heading “Inventories and Related Reserves” is in addition to, and should be read in conjunction with, the inventories and related reserves accounting policy included in Part II, Item 7 of our Annual report on Form 10-K for the year ended December 31, 2009.  The financial information as of September 30, 2010 should be read in conjunction with the financial statements for the year ended December 31, 2009, contained in our annual report on Form 10-K filed on February 26, 2010.

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Inventories and Related Reserves

We expense costs relating to the purchase and production of pre-approval inventories as research and development expense in the period incurred until such time as we believe future commercialization is probable and future economic benefit is expected to be recognized.  With respect to capitalization of unapproved product candidates, we produce inventory in preparation for the launch of the product and in amounts sufficient to support forecasted initial market demand. Typically, capitalization of such inventory does not begin until the product candidate is considered to have a high probability of regulatory approval. This generally will occur only after we have submitted an NDA to the FDA, and only if our assessment of the status of the regulatory review has led us to conclude there is a high probability of receiving regulatory approval.  If we are aware of any specific risks or contingencies that are likely to impact the regulatory approval process or if there are any specific issues identified during our research and development process relating to safety, efficacy and manufacturing of the product candidate, we would not capitalize the related inventory.

We manage the levels of inventory at each stage of the manufacturing process to optimize the shelf life of the inventory and avoid product expiration issues relative to anticipated market demand following launch. On a quarterly basis, we evaluate all inventory, including inventory capitalized for which regulatory approval has not yet been obtained, to determine if any lower of cost or market adjustment is required.  As it relates to pre-approval inventory, we consider several factors including expected timing of FDA approval, projected sales volume, expiration dates of the inventory and estimated selling price.  Projected sales volume is based on several factors including market research, sales of similar products and competition in the market.  Estimated sales price is based on the price of existing products sold for the same indications and expected market demand.

Once we have capitalized inventory for a product candidate that is not yet approved, we will monitor, on a quarterly basis, the status of such candidate within the regulatory approval process.  We could be required to expense previously capitalized costs related to pre-approval inventory upon a change in our judgment of future commercialization and future economic benefit expected to be recognized, due to a denial or delay of approval by the FDA, a delay in the timeline for commercialization or other potential factors.

For a further discussion of our critical accounting policies, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K filed on February 26, 2010.

Results of Operations

Comparison of Three and Nine Months Ended September 30, 2010 to Three and Nine Months Ended September 30, 2009

Net Product Sales

Net product sales consists of shipments of BYETTA and SYMLIN, less allowances for product returns, rebates, wholesaler chargebacks, wholesaler discounts and prescription vouchers.  The following table provides information regarding net product sales (in millions):

	Three months ended September 30,				Increase/			Nine months ended September 30,				Increase/
	2010		2009		(Decrease)			2010		2009		(Decrease)
BYETTA	$	132.4	$	171.1	$	(38.7	)	$	422.9	$	503.9	$	(81.0	)
SYMLIN	21.6		21.8		(0.2		)	65.9		65.8		0.1
	154.0		192.9		$	(38.9	)	$	488.8	$	569.7	$	(80.9	)

The decrease in net product sales for BYETTA for both the three and nine month periods ended September 30, 2010 compared to the same periods of 2009 primarily reflects reduced prescription demand, partially offset by higher prices.

The slight decrease in net product sales for SYMLIN in the three month period ended September 30, 2010, and the slight increase in net product sales for SYMLIN in the nine month period ended September 30, 2010 primarily reflect reduced prescription demand offset by higher net prices during the periods compared to the same periods in 2009.

Sales of our products in future periods may be impacted by numerous factors, including current and potential competition, the potential approval of additional products including BYDUREON, regulatory matters, legislative changes, economic factors and other environmental factors.  In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act (PPACA) as amended by the Health Care and Education Reconciliation Act.  There are a number of provisions in the new legislation that will impact the pharmaceutical industry through increased discounts and an expansion of government funded insurance programs.  The provisions become effective over time, however certain provisions became effective in the first quarter of 2010.  These provisions are related to increased Medicaid discounts, an increase in the population of patients eligible for Medicaid discounts and the expansion of the 340(B) Public Health Services drug pricing program, which provides outpatient drugs at reduced rates, to include additional hospitals, clinics and healthcare centers.  These new provisions did not have a material impact on our results for the three or nine months ended September 30, 2010.  We are currently evaluating the new legislation to determine its impact on our business and future financial results.  We expect the financial impact of the new legislation to grow over time.

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Revenues Under Collaborative Agreements

Revenues under collaborative agreements for the three months ended September 30, 2010 increased to $2.1 million from $1.0 million for the same period in 2009.  Revenues under collaborative agreements for the nine months ended September 30, 2010 were $5.8 million, compared to $3.2 million for the same period in 2009.  Revenues under collaborative agreements consist of amortization of up-front payments received from our collaborative partners and milestone payments from our collaborative partners.  For the three and nine months ended September 30, 2010, the revenues consist largely of amortization of the up-front payment we received from Takeda in late 2009 while the revenues under collaborative agreements for the same periods in 2009 consist of amortization of the up-front payment received in connection with our Lilly collaboration, for which amortization ended in 2009.

For the year ended December 31, 2010 we expect to recognize $7.5 million of collaborative revenue in connection with the ratable amortization of the up-front payment we received from Takeda.  Beginning in 2011, we expect to begin earning royalties on BYETTA product sales outside of the United States, Additionally, if BYDUREON is approved for sale outside of the United States, we expect to earn royalties on BYDUREON product sales outside of the United States following such approval.

Costs and Expenses

The following table provides information regarding our costs and expenses (in millions):

	Three months ended September 30,						Increase/			Nine months ended September 30,						Increase/
	2010			2009			(Decrease)			2010			2009			(Decrease)
Cost of Goods Sold	$	12.7		$	22.6		$	(9.9	)	$	47.6		$	65.5		$	(17.9	)
Gross margin %	92		%	88		%				90		%	88		%
Selling, general and administrative	$	72.7		$	80.1		$	(7.4	)	$	223.6		$	259.7		$	(36.1	)
Research and development	$	48.4		$	35.3		$	13.1		$	136.3		$	134.9		$	(1.4	)
Collaborative profit sharing	$	61.2		$	78.3		$	(17.1	)	$	194.1		$	227.5		$	(33.4	)
Restructuring	$	6.0		$	—		$	6.0		$	9.5		$	11.4		$	(1.9	)

Cost of Goods Sold

Cost of goods sold is comprised primarily of manufacturing costs associated with BYETTA and SYMLIN sales during the period.  The improvement in gross margin for both the three and nine months ended September 30, 2010, compared to the same period in 2009, primarily reflects higher net sales prices and lower unit costs driven by supplier mix, production volumes and operating efficiencies achieved during the current year.  Quarterly fluctuations in gross margins may be influenced by product mix, pricing, the level of sales allowances and the timing and volumes of production.

Selling, General and Administrative Expenses

The decrease in selling, general and administrative expenses for the three months ended September 30, 2010 compared to the same period in 2009 primarily reflects lower business infrastructure costs, the impact of a second quarter 2010 workforce reduction and a reduction in incentive compensation costs, partially offset by pre-launch marketing expenses for BYDUREON. The decrease in selling, general and administrative expenses for the nine months ended September 30, 2010 compared to the same period in 2009 primarily reflects efficiencies driven by our reduced cost structure following our 2009 sales force restructuring, reductions in incentive compensation costs and the absence of costs associated with the 2009 proxy contest.

We, along with 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. Accordingly, amounts due to or from Lilly related to sharing of these expenses are reflected as an increase to or a reduction of selling, general and administrative expenses, as appropriate.

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Research and Development Expenses

Our research and development costs are comprised of salaries and bonuses, benefits and non-cash stock-based compensation; license fees, milestones under license agreements and costs paid to third-party contractors to perform research, conduct clinical trials and develop drug materials and delivery devices; and associated overhead expenses and facilities costs. Reimbursed research and development costs under collaborative arrangements are recorded as a reduction to research and development expenses and are recognized in the period in which the related costs are incurred.  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.

Our research and development efforts are focused on diabetes, obesity and other diseases.  We also maintain an active discovery research program.  In diabetes, we have two approved products, BYETTA and SYMLIN, and we are developing BYDUREON.  In obesity, we are developing a combination regimen for the potential treatment of obesity As part of this program, we intend to conduct additional clinical trials of our drug candidates, or combinations of our drug candidates.

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

	Three months ended September 30,				Increase/			Nine months ended September 30,				Increase/
	2010		2009(1)		(Decrease)			2010		2009(1)		(Decrease)
Diabetes (2)	$	29.9	$	13.4	$	16.5		$	77.4	$	61.4	$	16.0
Obesity	4.6		6.0		(1.4		)	10.6		22.3		(11.7		)
Research and early-stage programs	3.8		5.7		(1.9		)	17.4		17.9		(0.5		)
Indirect costs	10.1		10.2		(0.1		)	30.9		33.3		(2.4		)
Total research and development expenses	$	48.4	$	35.3	$	13.1		$	136.3	$	134.9	$	1.4

(1)  Research and development expenses by major project have been revised to conform to the current presentation with regard to our change in method of accounting for reimbursed research and development costs under collaborative arrangements (see Note 1, “Summary of Significant Accounting Policies” in the notes to the consolidated financial statements).

(2)  Research and development expenses for our diabetes programs consist primarily of costs associated with BYETTA and BYDUREON which are shared by Lilly pursuant to our collaboration agreement.  Cost-sharing payments received by Lilly are recorded as a reduction to research and development costs.  Cost-sharing payments from Lilly for BYETTA and BYDUREON development expenses were $22.5 million and $17.0 million for the three months ended September 30, 2010 and 2009, respectively, and $51.2 million and $40.6 million for the nine months ended September 30, 2010 and 2009, respectively.

The $13.1 million increase in research and development expenses for the three months ended September 30, 2010 as compared to the same period in 2009 primarily reflects increased expenses of $16.5 million for our diabetes development programs offset by decreased expenses in our obesity and research and early-stage programs.  The increased expenses in our diabetes development programs is due primarily to expensed pre-approval inventory for BYDUREON due to the previously discussed FDA complete response letter regarding the NDA for BYDUREON, costs associated with our EXSCEL study, a cardiovascular outcomes study of BYDUREON’s effect on cardiovascular endpoints, and costs associated with development activities for the exenatide suspension formulation.  The decrease in expenses for our obesity programs is due to cost-sharing of development expenses with Takeda.  The decrease in research and early-stage program expense is due to improvements in general operating efficiencies.

The $1.4 million increase in research and development expenses for the nine months ended September 30, 2010 as compared to the same period in 2009 primarily reflects increased expenses of $16.0 million for diabetes development programs offset by decreased expenses of $11.7 million for our obesity development programs and decreased indirect costs of $2.4 million.  The increased expenses in our diabetes development programs is due to pre-approval inventory expenses for BYDUREON, costs associated with our EXSCEL study and costs associated with development activities for the exenatide suspension formulation.  As discussed in the previous paragraph, pre-approval inventory expenses increased as a result of the FDA complete response letter regarding the NDA for BYDUREON. The decrease in expenses in our obesity programs reflects reduced clinical trial expense due to the completion in 2009 of our dose-ranging clinical trial of pramlintide/metreleptin combination therapy development program, the termination of the davalintide development program and cost-sharing of development expenses by Takeda.  The decrease in indirect costs reflects improvements in general operating efficiencies.

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Total research and development expenses for the three and nine months ended September 30, 2010 reflect a reduction of incentive compensation costs associated with the delayed launch of BYDUREON resulting from the previously mentioned FDA complete response letter.

Collaborative Profit Sharing

Collaborative profit sharing consists of Lilly’s 50% share of the gross margin for BYETTA in the United States.

Restructuring

Restructuring charges for the three months ended September 30, 2010 consist primarily of facilities-related charges.  Restructuring charges recorded during the nine months ended September 30, 2010 relate to a workforce reduction of approximately 60 employees during the second quarter of 2010 and further consolidation of our San Diego facilities.  The facilities-related restructuring charges recorded during the three months ended September 30, 2010 relate to recent further consolidation of our San Diego facilities and revised estimated losses associated with facility leases we ceased using in 2008 based upon recently executed sub-lease agreements and a related reassessment of current market conditions.  Restructuring charges recorded during the nine months ended September 30, 2009 were in connection with the May 2009 restructuring of our sales force.  We are continuing to assess our facility requirements for our San Diego campus as a result of our current year and prior year restructurings and may record additional facilities-related charges over the next several quarters, but cannot quantify the amount at this time.

Interest and Other Expense, net

The following table provides information regarding our interest and other expense, net (in millions):

	Three months ended September 30,						(Income decrease or expense increase)/ Expense			Nine months ended September 30,						(Income decrease or expense increase)/ Expense
	2010			2009			decrease			2010			2009			Decrease
Interest and other income	$	0.8		$	1.4		$	(0.6	)	$	2.0		$	6.5		$	(4.5	)
Interest and other expense	(6.3		)	(5.7		)	(0.6		)	(18.5		)	(15.0		)	(3.5		)
Loss on impairment of investments	(0.2		)	—			(0.2		)	(0.2		)	(1.4		)	1.2
Total interest and other expense, net	$	(5.7	)	$	(4.3	)	$	(1.4	)	$	(16.7	)	$	(9.9	)	$	(6.8	)

Interest and other expense, net is comprised of interest and other income and interest and other expense and loss on impairment of investments.

Interest and other income consists primarily of interest income from investment of cash and other investments. Interest and other income for the three months ended September 30, 2010 decreased $0.6 million compared to the same period in 2009.  Interest and other income for the nine months ended September 30, 2010 decreased $4.5 million compared to the same period in 2009.  The decrease for both periods primarily reflects lower average balances available for investment and lower interest rates earned on our short-term investments for the three and nine months ended September 30, 2010 as compared to the same periods in 2009.

Interest and other expense consists of interest on our $775 million par value of outstanding convertible senior notes and our $70.3 million of outstanding note payable, the amortization of associated debt issuance costs and recognized gains and losses associated with recording economic hedge transactions at fair value.  Interest and other expense for the three months ended September 30, 2010 increased due to a decrease in the amount of interest capitalized to our Ohio manufacturing facility partially offset by improvements in losses recognized in connection with our equity investments and an increase in the amount of federal income tax benefit recognized.

Interest and other expense in the nine months ended September 30, 2010 increased due to a decrease in capitalized interest associated with our Ohio manufacturing facility and an increase in recognized gains associated with economic hedge transactions, offset by a decline in the federal income tax benefit.

Loss on impairment of investments consists of realized credit-related losses associated with securities in our portfolio.  The loss recorded in the three and nine months ended September 30, 2010 relates to one security in our portfolio.

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Net Loss

Our net loss for the three months ended September 30, 2010 was $50.7 million compared to a net loss of $26.7 million for the same period in 2009. The increase in net loss primarily reflects the decreased net product sales, increased research and development expenses and increased restructuring expenses, partially offset by decreased selling, general and administrative expenses, decreased collaborative profit-sharing discussed above.

Our net loss for the nine months ended September 30, 2010 was $133.1 million compared to a net loss of $136.0 million for the same period in 2009. The decrease in net loss primarily reflects decreased net product sales, decreased selling, general and administrative expenses and decreased collaborative profit-sharing discussed above, partially offset by increased research and development expenses discussed above.

We may incur operating losses for the next few years.  Although we have gained efficiencies in our business, we believe the unexpected delay in receiving FDA approval for BYDUREON will prevent us from achieving our stated goal of sustainable positive operating cash flows by the end of 2010. However, we remain committed to continuing to aggressively manage our expenses in line with expected revenues in order to maximize our available cash to maximize revenue for BYETTA and SYMLIN and support the approval and launch of BYDUREON.  Additionally, our ability to reach profitability in the future will be heavily dependent upon the level of product sales that we achieve for BYETTA, SYMLIN and BYDUREON, if approved.  Our ability to achieve profitability in the future will also depend on our ability to continue to control our operating expenses, including ongoing expenses associated with the continued commercialization of BYETTA and SYMLIN, costs associated with the development and commercialization of BYDUREON, if approved, and expenses associated with our research and development programs, including our obesity and our early-stage development programs and related support infrastructure. Our operating results may fluctuate from quarter to quarter as a result of differences in the timing of expenses incurred and revenues recognized.

Liquidity and Capital Resources

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

At September 30, 2010, we had $537.7 million in cash, cash equivalents and short-term investments, compared to $667.8 million at December 31, 2009.  We have debt maturities of $70.3 million in the fourth quarter of 2010 and $200 million in the second quarter of 2011, and we have $165 million of cash available to us pursuant to the loan agreement with Lilly described below. We have demonstrated strong financial discipline over the last few years and we remain committed to continuing to manage our expenses in-line with expected revenues, however, we believe the unexpected delay in receiving FDA approval for BYDUREON will prevent us from achieving our stated goal of sustainable positive operating cash flows by the end of 2010.  We remain committed to continuing to aggressively manage our expenses to maximize our available cash to maximize revenue for BYETTA and SYMLIN and support the approval and launch of BYDUREON.  Our current business plan does not contemplate a need to raise additional funds from outside sources however we may evaluate opportunities to refinance existing indebtedness from time to time.  If we require additional financing in the future, we cannot assure you that it will be available to us on favorable terms, or at all. Although we have previously been successful in obtaining financing through our debt and equity securities offerings, there can be no assurance that we will be able to do so in the future, especially during times in which economic and credit conditions are adverse.

We used cash of $43.6 million and $71.6 million for our operating activities in the nine months ended September 30, 2010 and 2009, respectively.  Our cash used for operating activities in the nine months ended September 30, 2010 included uses of cash due to decreases in accounts payable and accrued liabilities, accrued compensation and payable to collaborative partner of $13.8 million, $24.3 million and $19.1 million, respectively. The decrease in accounts payable and accrued liabilities primarily reflects lower expense levels for the nine months ended September 30, 2010 compared to the same period of 2009.  The decrease in accrued compensation primarily reflects the payment of annual compensation accruals in the nine months ended September 30, 2010.  The decrease in the payable to collaborative partner reflects a reduced net payable to Lilly which resulted from higher cost-sharing payments due from Lilly as well as lower collaborative profit sharing due to Lilly.  The higher cost sharing payments due from Lilly was caused by increased development expenses for BYDUREON in the nine months ended September 30, 2010; the lower collaborative profit sharing is the result of lower BYETTA sales.

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Our primary sources of cash for our operating activities include an increase in deferred collaborative profit sharing of $27.1 million and decreases in accounts receivable, other current assets and inventories of $8.1 million, $13.5 million and $8.3 million, respectively.  The increase in deferred collaborative profit sharing reflects payments due to us from Lilly for its 60% share of the capital expenditures we have made for the BYDUREON pen device which relate to future collaborative profit sharing expenses.  The decrease in accounts receivable is primarily due to lower product sales.  The decrease in other current assets is due to declines in prepaid expenses.  The decrease in inventories reflects reductions in raw materials, work-in-process and finished goods inventory due to the timing and volume of production for BYETTA and SYMLIN.  As indicated in Note 3 to the Consolidated Financial Statements, inventories as of September 30, 2010 includes $29.6 million associated raw materials specific to BYDUREON which amount is entirely comprised of exenatide, the active pharmaceutical ingredient for BYDUREON.  As of December 31, 2009 the exenatide balance was previously recorded in other current assets because exenatide for BYDUREON can also be used to manufacture BYETTA.  We are currently manufacturing BYDUREON to support Lilly’s requirements for launches outside of the United States.  Lilly expects an action by the European Medicines Agency in the first half of 2011.

Working capital changes may fluctuate from quarter to quarter due to timing of inventory and other current asset purchases and the timing of payments of accounts payable, accrued compensation and other current liabilities.

Our investing activities provided cash of $88.6 million for the nine months ended September 30, 2010 and used cash of $41.9 million for the nine months ended September 30, 2009.  Investing activities in both periods consisted primarily of purchases and sales of short-term investments and purchases of property, plant and equipment, net.  Purchases of property, plant and equipment, net decreased to $75.6 million for the nine months ended September 30, 2010 from $119.1 million for the nine months ended September 30, 2009.  The decrease in purchases of property reflects a reduction in purchases associated with our BYDUREON manufacturing facility, offset by costs incurred in connection with the BYDUREON pen device.  Through September 30, 2010, we had expended $620.9 million associated with the construction of the BYDUREON manufacturing facility, which includes costs associated with the construction of the facility, purchase and installation of equipment and capitalized labor and materials required to validate the facility.  The initial capital investment for the pen is expected to be $216.0 million over the next few years, which will be funded 60% by Lilly and 40% by us.  Through September 30, 2010 we have incurred $149.5 million in capital expenditures associated with the BYDUREON pen device and incurred total combined capital expenditures for the manufacturing facility and the pen device of $770.4 million.  We have billed Lilly $81.6 million for its share of expenditures for the pen device, of which $80.7 million has been received to date, and is included in cash used for operating activities as discussed above.  Additionally, we expect that our use of cash for capital expenditures will continue to decrease and will be principally focused on strategically investing in exenatide life cycle management, of which Lilly shares 60% of the costs.  We will continue to evaluate potential additional investments in our Ohio manufacturing facility during the product lifecycle for BYDUREON, if approved.

Financing activities used cash of $8.2 million and $12.5 million for the nine months ended September 30, 2010 and 2009, respectively.  Financing activities in the nine months ended September 30, 2010 include $23.4 million in principal payments of our term loan, offset by proceeds of $15.2 million from the exercise of stock options and proceeds from our employee stock purchase plan.  Financing activities for the nine months ended September 30, 2009 include $23.4 million in principal payments of our term loan, offset by proceeds of $10.9 million from the exercise of stock options and proceeds of from our employee stock purchase plan.

At September 30, 2010, we had $200 million in aggregate principal amount of convertible senior notes due April 15, 2011, or the 2004 Notes, and $575 million of the convertible senior notes due June 15, 2014, or the 2007 Notes, outstanding. 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 and are not redeemable at our option. The 2007 Notes are currently convertible into a total of up to 9.4 million shares of our common stock at approximately $61.07 per share and are not redeemable at our option.

In December 2007, we entered into a $140 million credit agreement. The credit agreement provides for a $125 million term loan and a $15 million revolving credit facility. The revolving credit facility also provides for the issuance of letters of credit and foreign exchange hedging up to the $15 million borrowing limit. At September 30, 2010 we had an outstanding balance of $70.3 million under the term loan and had issued $10.5 million of standby letters of credit under the revolving credit facility. Both loans have a final maturity date of December 21, 2010. Interest on the term loan is payable quarterly in arrears at a rate equal to 1.75% above the London Interbank Offered Rate, or LIBOR, of either one, two, three or nine months LIBOR term at our election. We have entered into an interest rate swap agreement which resulted in a net fixed interest rate of 5.717% under the term loan. The interest rate on the credit facility is LIBOR plus 1.0% or the Bank of America prime rate, at our election.

In October 2008, we entered into a loan agreement with Lilly pursuant to which Lilly made available to us a $165 million unsecured line of credit that we can draw upon from time to time until June 30, 2011. As of September 30, 2010 we had not drawn upon this line of credit.  Any interest due under this credit facility will bear interest at the five-day average three-month LIBOR rate immediately prior to the date of the advance plus 5.25% and shall be due and payable quarterly in arrears on the first business day of each quarter. All outstanding principal, together with all accrued and unpaid interest, shall be due and payable the earlier of 36 months following the date on which the loan commitment is fully advanced or June 30, 2014.

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The following table summarizes our contractual obligations and maturity dates as of September 30, 2010 (in thousands):

	Payments Due by Period
Contractual Obligations	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
Long-term convertible debt	$	775,000	$	200,000	$	—	$	575,000	$	—
Interest on long-term convertible debt	71,500		19,750		34,500		17,250		—
Long-term note payable	70,313		70,313		—		—		—
Interest on long-term note payable, net of swap transactions (1)	1,005		1,005		—		—		—
Inventory purchase obligations(2)	93,409		32,835		54,034		6,540		—
Construction contracts	36		10		26		—		—
Operating lease obligations	199,504		27,000		55,466		51,767		65,271
Total(3)	$	1,210,767	$	350,913	$	144,026	$	650,557	$	65,271

(1)   The interest payments shown were calculated using a rate of 5.717%, the combined net rate of the term loan and interest rate swap, on the outstanding principal balance of the term loan.

(2)   Includes $32.9 million of outstanding purchase orders, cancelable by us upon 30 days’ written notice, subject to reimbursement of costs incurred through the date of cancellation.

(3)   Excludes long-term obligation of $8.3 million related to deferred compensation, the payment of which is subject to elections made by participants that are subject to change.

In addition, under certain license and collaboration agreements we are required to pay royalties and/or milestone payments upon the successful development and commercialization of related products.  We could be required to make development milestone payments up to $7.5 million associated with licensing agreements in the next 12 months.  Additional milestones and other contingency payments of up to approximately $169.5 million could be paid if development and commercialization of all our early stage programs continue and are successful.  The significant majority of these milestones relate to potential future regulatory approvals and subsequent sales thresholds.  Given the inherent risk in pharmaceutical development, it is highly unlikely that we will ultimately make all of these milestone payments; however, these payments would signify that the related products are moving successfully through development and commercialization.

Our future capital requirements will depend on many factors, including: the level of product sales we and Lilly achieve for BYETTA and, if approved, BYDUREON, net of profit sharing payments to Lilly, and product sales for SYMLIN; costs associated with the continued commercialization of BYETTA and SYMLIN and the commercialization of BYDUREON, if approved; costs associated with the operation of our BYDUREON manufacturing facility; costs of potential licenses or acquisitions; the potential need to repay existing indebtedness; our ability to receive or need to make milestone payments; our ability, and the extent to which we establish collaborative arrangements for SYMLIN or any of our product candidates; progress in our research and development programs and the magnitude of these programs; costs involved in preparing, filing, prosecuting, maintaining, enforcing or defending our patents; competing technological and market developments; and costs of manufacturing, including costs associated with establishing our own manufacturing capabilities or obtaining and validating additional manufacturers of our products; and scale-up costs for our drug candidates.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that are currently or reasonably likely to be material to our consolidated financial position or results of operations.

ITEM 3.Quantitative and Qualitative Disclosures about Market Risk

We invest our excess cash primarily in United States Government securities, asset-backed securities, and debt instruments of financial institutions and corporations with investment-grade 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 due to changes in interest rates as interest rates on our debt are fixed.  The fair value of our 2004 Notes and 2007 Notes at September 30, 2010 was approximately $200.0 million and $518.9 million, respectively.  We have entered into an interest rate swap in connection with our $125 million term loan.  The fair value of the interest rate swap at September 30, 2010 was a liability of $0.7 million.  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.

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ITEM 4.Controls and Procedures

As of September 30, 2010, an evaluation was performed under the supervision and with the participation of our management, including our President and Chief Executive Officer (referred to as our CEO) and our Senior Vice President, Finance and Chief Financial Officer (referred to as 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 September 30, 2010.

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 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.

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

From time to time in the ordinary course of business, we become involved in various lawsuits, claims and proceedings relating to the conduct of our business, including those pertaining to product liability, patent infringement and employment claims.  As of September 30, 2010, we and Lilly were involved in 95 separate product liability cases involving approximately 414 plaintiffs in various courts in the United States.  Forty-three plaintiffs who previously filed cases have subsequently dismissed their cases or claims without prejudice. These cases have been brought by individuals who allege they have used BYETTA. They generally seek compensatory and punitive damages for alleged injuries, consisting primarily of pancreatitis, and in some cases, wrongful death. Most of the cases are pending in California state court, where the Judicial Council has granted our petition for a “coordinated proceeding” for all California state court cases alleging harm allegedly as a result of BYETTA use. We also have received notice from plaintiff’s counsel of additional claims by individuals who have not filed suit. While we cannot reasonably predict the outcome of any lawsuit, claim or proceeding, we and Lilly intend to vigorously defend these matters. However, if we are unsuccessful in our defense, these matters could result in a material adverse impact to our financial position and results of operations.

Item 1A.  Risk Factors

CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS

The following sets forth cautionary factors that may affect our future results, including clarifications to the cautionary factors included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2009.

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 $133.1 million for the nine months ended September 30, 2010, $186.3 million in 2009, $321.9 million in 2008 and $216.5 million in 2007. As of September 30, 2010, we had an accumulated deficit of approximately $2.1 billion. The extent of our future losses and the timing of potential profitability are 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 derived substantially all of our revenues prior to 2005 from development funding, fees and milestone payments under collaborative agreements and from interest income. BYETTA and SYMLIN may not be as commercially successful as we expect and we may not succeed in commercializing any of our other drug candidates. We may incur substantial operating losses for at least the next few years. These losses, among other things, have had and will have an adverse effect on our stockholders’ equity and working capital. Even if we become profitable, we may not remain profitable.

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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 and, if approved, BYDUREON, in the marketplace.

Prior to the launch of BYETTA and SYMLIN in 2005, we had never sold or marketed our own products. Our ability to generate product revenue for the next few years will depend solely on the success of these products and, if approved, BYDUREON. The ability of BYETTA, SYMLIN and, if approved, BYDUREON to generate revenue at the levels we expect will depend on many factors, including the following:

·the ability of patients in the current uncertain economic climate to be able to afford our medications or obtain health care coverage that covers our products;

·our ability to obtain approval for BYDUREON and the timing of the commercial launch of BYDUREON, if approved;

·acceptance of and ongoing satisfaction with these first-in-class medicines in the United States and foreign markets by the medical community, patients receiving therapy and third party payers;

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

·successfully expanding and sustaining manufacturing capacity to meet demand;

·safety concerns in the marketplace for diabetes therapies;

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

·our ability to expand the indications for which we can market the 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. With the use of any of our marketed drugs by a wide patient population, serious 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. Some patients taking BYETTA have reported developing pancreatitis. We are working to better understand the relationship between BYETTA and pancreatitis described in some spontaneously reported cases. In keeping with our focus on patient safety, we continue to pursue our drug safety program that includes thorough investigation of individual spontaneous case reports along with clinical and epidemiologic studies. Within the detection limits of an initial epidemiology study which we provided to the FDA, we have not observed an increased incidence of pancreatitis associated with BYETTA compared to other treatments for diabetes and thus believe a definite causal relationship between BYETTA and pancreatitis has not been proved. In addition, since BYETTA was introduced, we have received other reports of adverse events, including rare reports of acute renal failure in patients using BYETTA, and in pre-clinical studies of BYDUREON, observations were made of C-cell tumors in animals.  Although direct relationships have not been established, it may be difficult to rule out any particular direct relationship at any point in time for these or other reports of adverse events or observations that may be made.  Any safety issues could cause us to suspend or cease marketing of our approved products, cause us to modify how we market our approved products, subject us to substantial liabilities, and adversely affect our revenues and financial condition.

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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 United States market, whether they are located inside or outside the United States, are subject to biennial inspections by the FDA and must comply with the FDA’s current good manufacturing practice, or 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, local and foreign 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.

We currently do not manufacture our own drug products or some of our drug candidates and may not be able to obtain adequate supplies, which could cause delays, subject us to product shortages, or reduce product sales.

The manufacturing of sufficient quantities of newly-approved drug products and drug candidates is a time-consuming and complex process. We currently have no manufacturing capabilities for our two marketed drug products. In order to successfully commercialize our products, including BYETTA and SYMLIN, and continue to develop our drug candidates, including BYDUREON, we rely on various third parties to provide the necessary manufacturing.

There are a limited number of manufacturers that operate under the FDA’s cGMP regulations capable of manufacturing for us. In addition, there are a limited number of bulk drug substance suppliers, cartridge manufacturers and disposable pen manufacturers. 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 our existing products or for some components of our manufacturing processes for our products or drug candidates, we may not be able to market our products or complete development of our drug candidates on a timely basis, if at all.

Reliance on third-party suppliers limits our ability to control 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, or at all, 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. In addition, reliance on single-source suppliers subjects us to the risk of price increases by these suppliers which could negatively impact our operating margins. If any of these risks occur, our product supply will be interrupted resulting in lost or delayed revenues and delayed clinical trials. Our reliance on third-party manufacturers for the production of our two commercial products is described in more detail below.

We rely on Bachem and Mallinckrodt to manufacture our long-term commercial supply of bulk exenatide, the active ingredient in BYETTA. In addition, we rely on single-source manufacturers for some of our raw materials used by Bachem and Mallinckrodt to produce bulk exenatide. We also rely on Wockhardt and Baxter to manufacture the dosage form of BYETTA in cartridges. We are further dependent upon Lilly to supply pens for delivery of BYETTA in cartridges.

We rely on Bachem and Lonza to manufacture our commercial supply of bulk pramlintide acetate, the active ingredient contained in SYMLIN. In addition, we rely on Baxter to manufacture the dosage form of SYMLIN in vials. We rely on Wockhardt for the dosage form of SYMLIN in cartridges and Ypsomed AG to manufacture the components for the SYMLIN disposable pen. We also rely on Sharp Corporation for the assembly of the SYMLIN pen.

If any of our existing or future manufacturers cease to manufacture or are otherwise unable to timely deliver sufficient quantities of BYETTA or SYMLIN, in either bulk or dosage form, or other product components, including pens for the delivery of these products, it could disrupt our ability to market our products, subject us to product shortages, reduce product sales 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 also harm our reputation in the medical and patient communities. In addition, we may need to engage additional manufacturers so that we will be able to continue our commercialization and development efforts for these products or drug candidates. The cost and time to establish these new manufacturing facilities would be substantial.

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Our manufacturers have produced BYETTA and SYMLIN for commercial use for approximately five years, however, unforeseeable risks related to environmental, economic, technical or other issues may be encountered as we, together with our manufacturers, continue to develop familiarity and experience with regard to manufacturing our products. Furthermore, we and the other manufacturers used for our drug candidates may not be able to produce supplies in commercial quantities if our drug candidates are approved. 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 necessary 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.

In order to manufacture BYDUREON on a commercial scale we must complete final validation of the manufacturing process and obtain approval for our manufacturing facility from the FDA. We have never established, validated, and operated a manufacturing facility and cannot assure you that we will be able to successfully establish or operate such a facility in a timely or economical manner, or at all. The FDA has inspected our manufacturing facility and has made a number of observations all of which we believe have been addressed. Although we are working diligently to qualify the commercial-scale manufacturing process at this facility, we cannot be assured that we will be able to demonstrate comparability of product manufactured at development scale and product manufactured at commercial scale. If we are unable to demonstrate comparability of product, we may not be able to commercially launch BYDUREON in a timely manner or at all. In addition, we are dependent on Alkermes to supply us with commercial quantities of the polymer required to manufacture BYDUREON. We also will need to obtain sufficient supplies of diluent, solvents, devices, packaging and other components necessary for commercial manufacture of BYDUREON. If BYDUREON is approved, we will be dependent upon Mallinckrodt and Lonza to manufacture our long-term commercial supply of bulk exenatide, the active ingredient in BYDUREON, and upon single suppliers to produce components for packaging BYDUREON.

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 payers.

The continuing efforts of government, private health insurers and other third-party payers 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, the Federal government recently passed health care reform legislation.  Many of the details regarding the implementation of this legislation have yet to be determined and implementation may ultimately adversely affect our business.  Further, 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 health care products. Third-party payers, including Medicare, are challenging the prices charged for medical products and services. Government and other third-party payers increasingly are attempting to contain health care costs by limiting both coverage and the level of reimbursement for new drugs and by refusing 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, including BYDUREON. If government and other third-party payers do not provide adequate coverage and reimbursement levels for our products, the market acceptance of these products may be reduced.

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, GlaxoSmithKline, Lilly, Merck & Co., Novartis, Novo Nordisk, Pfizer, Sanofi-Aventis, Roche and Takeda, 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 and other metabolic disorders will increase. Many of our competitors have substantially greater financial, technical, sales force, 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.

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Our target patient population for BYETTA includes people with diabetes who have not achieved adequate glycemic control with diet and exercise or by using metformin, sulfonylurea and/or a TZD, three common oral therapies for type 2 diabetes. Our target population for SYMLIN includes people with either type 2 or type 1 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 other products are available or in development to treat type 2 diabetes, including:

·sulfonylureas;

·metformin;

·insulins, including injectable and inhaled versions;

·TZDs;

·glinides;

·DPP-IV inhibitors;

·incretin/GLP-1 receptor agonists;

·insulin sensitizers, including PPARs;

·alpha-glucosidase inhibitors; and

·sodium-glucose transporter-2 (SGLT-2) inhibitors.

In addition, several companies are developing various approaches, including alternative delivery methods, 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.

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 of our products, 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 to delay or suspend our ongoing and planned clinical studies, delay the analysis of data from our completed or ongoing clinical studies or perform additional clinical studies prior to receiving necessary regulatory approvals. 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 sufficient 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 development programs for BYDUREON or our obesity clinical trials;

·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, if we chose to do so, any additional collaborative arrangements.

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;

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·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 BYETTA, BYDUREON or an exenatide suspension formulation; or

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

We are substantially dependent on our collaboration with Lilly for the development and commercialization of BYETTA and dependent on Lilly and Alkermes for the development of BYDUREON.

We have entered into a collaborative arrangement 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 BYDUREON. 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, if approved, BYDUREON.

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 BYDUREON or the commercialization of BYETTA, or if Lilly’s efforts are not effective, our business may be negatively affected. We are relying on Lilly to obtain regulatory approvals for and successfully commercialize BYETTA and BYDUREON outside the United States. Our collaboration with Lilly may not continue or result in additional successfully commercialized drugs. Lilly can terminate our collaboration at any time upon twelve months’ notice. If Lilly ceased funding and/or developing and commercializing BYETTA or BYDUREON, we would have to seek additional sources for funding and may have to delay, reduce or eliminate one or more of our commercialization and development programs for these compounds. If Lilly does not successfully commercialize BYETTA outside the United States, we may receive limited or no revenues from them. In addition, we are dependent on Alkermes to successfully develop and transfer to us its technology for manufacturing BYDUREON. If Alkermes’ technology is not successfully developed to effectively deliver exenatide in a sustained release formulation, 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. If we are unable to obtain licenses to third party patent rights for required technologies, we could be adversely affected.

We own or hold exclusive rights to many issued United States patents and pending United States patent applications related to the development and commercialization of exenatide, including BYETTA and BYDUREON, 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 have issued and pending applications for formulations of BYETTA and BYDUREON, but we do not have a composition-of-matter patent covering exenatide. We also own or hold exclusive rights to various foreign patent applications that correspond to issued United States patents or pending United States 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 challenge or 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. For example, our SYMLIN and BYETTA products are subject to the provisions of the Drug Price Competition and Patent Term Restoration Act of 1984, also known as the “Hatch-Waxman Act,” which provides data exclusivity for a certain period of time. Beginning one year before expiration of the data exclusivity period, the Hatch-Waxman Act allows generic manufacturers to file Abbreviated New Drug Applications, or ANDAs, requesting the FDA’s approval of generic versions of previously-approved products. For example, generic pharmaceutical manufacturers could file an ANDA for SYMLIN as of March 2009 and for BYETTA as of April 2009. If an ANDA is filed for one of our approved products prior to expiration of the patents covering those products, it could result in our initiating patent infringement litigation to enforce our rights. We can provide no assurances that we would prevail in such an action or in any challenge related to our patent rights.

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In addition, because patent applications in the United States are maintained, in general, in secrecy for 18 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. Third parties have filed, and in the future are likely to file, patent applications on inventions similar to ours. From time-to-time we have participated in, and in the future are likely to participate in, interference proceedings declared by the United States Patent and Trademark Office to determine priority of invention, which could result in a loss of our patent position. We have also participated in, and in the future are likely to participate in, opposition proceedings against our patents in other jurisdictions, such as Europe and Australia. Furthermore, we may not have identified all United States and foreign patents that pose a risk of infringement.

We also rely upon licensing opportunities for some of our technologies. We cannot be certain that we will not lose our rights to certain patented technologies under existing licenses or that we will be able to obtain a license to any required third-party technology. If we lose our licensed technology rights or if we are not able to obtain a required license, we could be adversely affected.

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

Our drug candidates, including BYDUREON, 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 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. Unexpected changes to the FDA or foreign regulatory approval process could also delay or prevent the approval of our drug candidates.

The data collected from our clinical trials may not be sufficient to support 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 or any foreign regulatory authority’s response is delayed or not favorable for any of our drug candidates, including BYDUREON, our stock price could decline significantly.

Moreover, manufacturing facilities operated by us or 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.

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.

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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.

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.

Our financial results will fluctuate, and these fluctuations may cause our stock price to fall.

Forecasting future revenues is difficult, especially since we launched our first products in 2005 and the level of market acceptance of these products may change rapidly. In addition, our customer base is highly concentrated with four customers accounting for most of our net product sales. Fluctuations in the buying patterns of these customers, which may result from seasonality, wholesaler buying decisions or other factors outside of our control, could significantly affect the level of our net sales on a period to period basis. As a result, it is reasonably likely that our financial results will fluctuate to an extent that may not meet with market expectations and that also may adversely affect our stock price. There are a number of other factors that could cause our financial results to fluctuate unexpectedly, including:

·product sales;

·cost of product sales;

·achievement and timing of research and development milestones;

·collaboration revenues;

·cost and timing of clinical trials, regulatory approvals and product launches;

·marketing and other expenses;

·manufacturing or supply issues; and

·potential acquisitions of businesses and technologies and our ability to successfully integrate any such acquisitions into our existing business.

We may require additional financing in the future, which may not be available to us on favorable terms, or at all.

We intend to use our available cash for:

·Commercialization of BYETTA and SYMLIN and, if approved, the launch and commercialization of BYDUREON;

·Establishment of additional manufacturing sources, including our Ohio manufacturing facility;

·Development of BYDUREON and other pipeline candidates;

·Our other research and development activities;

·Other operating expenses;

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·Potential acquisitions or investments in complementary technologies or businesses; and

·Other general corporate purposes.

We may also be required to use our cash to pay principal and interest on outstanding debt, including a term loan with a current balance of approximately $70.3 million due in 2010, referred to as the Term Loan, and $775 million in outstanding principal amount of convertible senior notes, of which $200 million is due in 2011, referred to as the 2004 Notes, and $575 million is due in 2014, referred to as the 2007 Notes.

If we require additional financing in the future, we cannot assure you that it will be available to us on favorable terms, or at all. Although we have previously been successful in obtaining financing through our debt and equity securities offerings, there can be no assurance that we will be able to so in the future, especially given the current adverse economic and credit conditions.

Our investments in marketable debt securities are subject to credit and market risks that may adversely affect their fair value.

We maintain a portfolio of investments in marketable debt securities which are recorded at fair value. Although we have established investment guidelines relative to diversification and maturity with the objective of maintaining safety of principal and liquidity, credit rating agencies may reduce the credit rating of our individual holdings which could adversely affect their value. Lower credit quality and other market events, such as increases in interest rates, and further deterioration in the credit markets may have an adverse effect on the fair value of our investment holdings and cash position.

Our business has a substantial risk of product liability claims, and insurance may not be adequate to cover these claims.

Our business exposes us to potential product liability risks that are inherent in the testing, manufacturing and marketing of human therapeutic products. As of September 30, 2010, we were involved in 96 product liability cases which have been brought by individuals who have used BYETTA and generally seek compensatory and punitive damages for alleged injuries, consisting primarily of pancreatitis, and in a few cases wrongful death. We have also been notified of other claims of individuals who have not filed suit. We currently have limited product liability insurance coverage for existing claims and any future related claims and we expect to be largely self-insured for any future product liability risks that are not covered by existing insurance.  Product liability claims could result in the imposition of substantial defense costs and liability on us, a recall of products, or a change in the indications for which they may be used. We cannot assure you that our insurance will provide adequate coverage against potential liabilities.

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 to our potential profitability.

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 BYDUREON, if approved. 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, BYDUREON, Lilly is co-promoting within the United States. If Lilly ceased commercializing BYETTA or, if approved, BYDUREON, 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.

With respect to our obesity product candidates, we will generally be dependent upon Takeda for development activities beyond phase 2 for approval in the United States and all development activities outside the United States. We will also be dependent upon Takeda for commercializing approved products that result from our co-development activities, if any, in and outside the United States. If Takeda were to terminate our collaboration with them, we would likely need to find a third party collaborator to continue developing our obesity program, which we may be unable to do.

We may not be able to enter into marketing and distribution arrangements or find a corporate partner for SYMLIN or our other drug candidates as we deem necessary. 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 and Takeda, with whom we choose to contract may not establish adequate sales and distribution capabilities or gain market acceptance for our products, if any.

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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.

In April 2004, we issued $200 million of the 2004 Notes and in June 2007, we issued $575 million of the 2007 Notes. In December 2007, we entered into the $125 million Term Loan, of which approximately $70.3 million is currently outstanding and due in 2010. Our ability to make payments on our debt, including the 2004 and 2007 Notes and the Term Loan, 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 four of the last five years, our operating cash flows were negative and insufficient to cover our fixed costs. 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 2004 and 2007 Notes and the Term Loan, 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 or defer 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 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 or repay the Term Loan upon an event of default.

Holders of the 2004 and 2007 Notes 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. The lenders under the Term Loan may require us to repay outstanding principal and accrued interest due under the Term Loan upon the occurrence of an event of default, which could include, among other things, nonpayment of principle and interest, violation of covenants and a change in control. We may not have sufficient cash funds to redeem the 2004 and 2007 Notes upon a designated event or repay the Term Loan upon an event of default. We may elect, subject to certain conditions, to pay the redemption price for the 2004 Notes 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 for the 2004 Notes in our common stock. If we are prohibited from redeeming the 2004 or 2007 Notes, we could seek consent from our lenders to redeem the 2004 or 2007 notes. If we are unable to obtain their consent, we could attempt to refinance the 2004 or 2007 Notes. If we were unable to obtain a consent or refinance, we would be prohibited from redeeming the 2004 or 2007 Notes. If we were unable to redeem the 2004 or 2007 Notes upon a designated event, it would result in an event of default under the indentures governing the 2004 or 2007 Notes. An event of default under the indentures could result in a further event of default under our other then-existing debt, including the Term Loan. In addition, the occurrence of a designated event may be an event of default under our other debt. Further, an event of default under the Term Loan could result in an event of default under the indentures governing the 2004 or 2007 Notes.

If our research and development programs fail to result in additional drug candidates, the growth of our business could be impaired.

Certain of 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 additional revenues for us.

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

We are highly dependent on our chief executive officer, and the other principal members of our executive and scientific teams. The unexpected 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, regulatory, manufacturing, 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, manufacturers, 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 our trade secrets and proprietary information.

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

Our research and development and our planned manufacturing activities involve the controlled use of hazardous materials, chemicals and various radioactive compounds. Although we believe that our research and development 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. In addition, as part of the development of our planned manufacturing activities, we will need to develop additional safety procedures for the handling and disposing of hazardous materials. 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.

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

The Sarbanes-Oxley Act requires that we report annually on the effectiveness of our internal control over financial reporting. Among other things, we must perform systems and processes evaluation and testing. We must also conduct an assessment of our internal control to allow management to report on, and our independent registered public accounting firm to attest to, our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. 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 control over financial reporting. Our future assessment, or the future assessments by our independent registered public accounting firm, may reveal material weaknesses in our internal control. If material weaknesses are identified in the future we would be required to conclude that our internal control over financial reporting is ineffective and we could be subject to sanctions or investigations by the Securities and Exchange Commission, the NASDAQ Stock Market or other regulatory authorities, which would require additional financial and management resources and could adversely affect the market price of our common stock.

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 certificate of incorporation and bylaws 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 severance plan, under which, in connection with a change in control and termination of employment, stock options held by our employees may become vested and our 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.

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Our executive officers, directors and major stockholders control approximately 51% of our common stock.

As of September 30, 2010, executive officers, directors and holders of approximately 5% or more of our outstanding common stock, in the aggregate, owned or controlled approximately 51% 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, could adversely affect the trading price of our common stock. Our convertible notes are currently convertible into a total of up to 15.2 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 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 quarterly operating performance of these biopharmaceutical and biotechnology companies. Since January 1, 2008, the high and low sales price of our common stock varied significantly, as shown in the following table:

	High		Low
Year ending December 31, 2010
Fourth Quarter (through October 29, 2010)	$	21.95	$	9.51
Third Quarter	$	22.09	$	17.81
Second Quarter	$	24.21	$	14.85
First Quarter	$	23.93	$	14.13
Year ending December 31, 2009
Fourth Quarter	$	15.63	$	11.01
Third Quarter	$	15.69	$	11.73
Second Quarter	$	14.30	$	8.56
First Quarter	$	14.13	$	7.89
Year ended December 31, 2008
Fourth Quarter	$	20.47	$	5.50
Third Quarter	$	35.00	$	18.55
Second Quarter	$	33.22	$	25.30
First Quarter	$	37.38	$	23.75

Given the uncertainty of our future funding, whether BYETTA and SYMLIN will meet our expectations, 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:

·our financial results and/or fluctuations in our financial results;

·safety issues with BYETTA, SYMLIN or our product candidates;

·clinical study results;

·determinations by regulatory authorities with respect to our drug candidates, including BYDUREON;

·our ability to validate our Ohio manufacturing facility and the commercial manufacturing process for BYDUREON;

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

·our ability to successfully execute our commercialization strategies;

42

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

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

·developments in patent or other proprietary rights; and

·governmental policy or regulation, including with respect to pricing and reimbursement.

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 be the target of such litigation as a result of market price volatility in the future.

43

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 Registrant’s registration statement on Form S-1 (File No. 333-44195) or amendments thereto and incorporated herein by reference)
3.2	Fourth Amended and Restated Bylaws (filed as an exhibit to Registrant’s Current Report on Form 8-K filed on December 8, 2008 and incorporated herein by reference)
3.3	Certificate of Amendment of Amended and Restated Certificate of Incorporation (filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001 and incorporated herein by reference)
3.4	Certificate of Amended and Restated Certificate of Incorporation (filed as an exhibit to Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2007 and incorporated herein by reference)
4.1	Specimen Common Stock Certificate (filed as an exhibit to Registrant’s 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 Registrant’s 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 Registrant’s 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 Registrant’s 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 Registrant’s Current Report on Form 8-K filed on June 18, 2002 and incorporated herein by reference)
10.1	Second Amendment to Commercial Supply Agreement for Exenatide, between Registrant and Bachem Inc.
10.2	Third Amendment to Commercial Supply Agreement for Exenatide, between Registrant and Bachem Inc.*
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
101	The following financial statements and footnotes from the Amylin Pharmaceuticals, Inc. Quarterly Report on Form 10-Q for the quarter ended September 30, 2010 formatted in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations; and (iii) Consolidated Statements of Cash Flows; and (iv) the notes to the consolidated financial statements (tagged as blocks of text).

* 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.

44

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: November 8, 2010	By:	/S/ MARK G. FOLETTA
		Mark G. Foletta, Senior Vice President, Finance and Chief Financial Officer (on behalf of the registrant and as the registrant’s principal financial and accounting officer)

45

EX-10.1

Exhibit 10.1

CONFIDENTIAL

AMENDMENT TO COMMERCIAL SUPPLY AGREEMENT FOR EXENATIDE

THIS AMENDMENT (“Amendment”) is effective as of April 29, 2010 and is by and between AMYLIN PHARMACEUTICALS, INC., a Delaware corporation (“Amylin”), having a place of business at 9360 Towne Centre Drive, San Diego, California 92121 and BACHEM, INC., a California corporation (“Bachem”), with an address of 3132 Kashiwa Street, Torrance, CA 95050.  References to any of Amylin or Bachem includes reference to their respective Affiliates.

WHEREAS, Amylin and Bachem entered into an Agreement effective as of December 23, 2003, directed to the manufacturing and supply of Exenatide (the “Supply Agreement”);

WHEREAS, Amylin and Bachem have agreed to change the retest dating period for Product;

WHEREAS, Amylin and Bachem wish to make certain amendments to the Supply Agreement to clarify the meaning of definitions and warranties related to the retest period;

NOW, THEREFORE, in consideration of the premises above and the terms and conditions set forth below, the parties agree as follows:

1.Paragraph 1.12 is hereby deleted and replaced with the following:

1.12“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.  For clarity, it shall not be considered a Hidden Defect if Product conforms to the representations and warranties in Section 8.1 hereof at the time of delivery to Amylin, but fails to meet the Product Specifications at any time after Amylin acceptance of Product.

2.The last sentence of Paragraph 8.1 is hereby deleted and replaced with the following:

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, fitness for a particular purpose and Product stability supporting the assigned retest date, are hereby disclaimed by Bachem.

3.Except as expressly stated above, the Agreement remains in full force and effect in accordance with its terms.  Unless otherwise stated in this Amendment each defined term herein shall have the same meaning ascribed to such term in the Agreement.

4.The terms and conditions of this Amendment are hereby incorporated into and made a part of the Supply Agreement.

1

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date written above.

Bachem, Inc.		Amylin Pharmaceuticals, Inc.
By:	/s/ Alex Fässler	By:	/s/ David Banks
Name:	Alex Fässler	Name:	David Banks
Tltle:	President & COO	Title:	VP, MFG

2

EX-10.2

***Text Omitted and Filed Separately

Confidential Treatment Requested

Under 17 C.F.R §§ 200.80(b)(4)

And 240.24b-2

Exhibit 10.2

CONFIDENTIAL

THIRD Amendment to Commercial Supply Agreement for Exenatide

THIS THIRD AMENDMENT (“Amendment”) is effective as of September 20, 2010 and is by and between AMYLIN PHARMACEUTICALS, INC., a Delaware corporation (“Amylin”), having a place of business at 9360 Towne Centre Drive, San Diego, California 92121 USA and BACHEM AMERICAS, INC., a California corporation, having a place of business at 3132 Kashiwa Street, Torrance, CA 95050 USA and BACHEM INC, a California corporation, having a place of business at 3132 Kashiwa Street, Torrance, CA  90505 (collectively “Bachem”).

WHEREAS, Amylin and Bachem entered into an Agreement effective as of December 23, 2003, directed to the supply of commercial scale Exenatide, as amended (the “Commercial Supply Agreement”));

WHEREAS, Amylin and Bachem have agreed to modify the pricing and exclusivity provisions of the Commercial Supply Agreement;

WHEREAS, Amylin and Bachem have mutually agreed to modify the Specifications; and

NOW, THEREFORE, in consideration of the premises above and the terms and conditions set forth below, the parties agree as follows:

1.Paragraph 2.3 is hereby deleted and replaced with the following:

2.3The price for the Product shall be based on minimum order volumes of [***] per order, or the [***], whichever is less, and shall be [***] ($[***]), which price shall include the costs of Materials and analytical release testing.  If Materials’ costs or waste disposal costs change by more than [***] percent ([***]%) over the [***], the price for the Product may be adjusted, subject to the parties’ mutual written agreement, to reflect the change in such costs.

The price is based on current specifications.  The parties agree that changes to the Product Specifications that are set forth in Exhibit 1.1 attached herein and incorporated by this reference dated June 16, 2010, will not result in any change to the price 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 price would require adjustment as a consequence.

If certain process improvements can be identified, Bachem and Amylin will jointly decide on a course of action, provided that no change to the manufacturing process for Product may be implemented without Amylin’s prior written approval.  Bachem will quote for the work that implementation of changes involves.  Amylin can then elect to pursue this option.  Any cost savings that insue from the implementation of these changes would be [***] between the parties.

2.Paragraph 3.14 is hereby deleted in its entirety and not replaced.

***Confidential Treatment Requested

1

3. Under Article 12, “Notices” of the Agreement, contact information is hereby deleted and replaced with the following:

If to Amylin:	Amylin Pharmaceuticals
	9360 Towne Centre Drive
	San Diego, CA 92121
	Telefax No: 858-552-2212
	Attn: Paul Marshall, Senior Vice President, Operations
With a copy to:	Amylin Pharmaceuticals
	9360 Towne Centre Drive
	San Diego, CA 92121
	Telefax No.: 858-552-1936
	Attn: Marcea Bland Lloyd, Senior Vice President and General Counsel
If to Bachem	Bachem Americas, Inc.
	3132 Kashiwa Street
	Torrance, CA 90505
	Telefax No. 310-539-9428
	Attn: Philip Ottiger, President & Chief Executive Officer
With a copy to:	Bachem, Inc.
	3132 Kashiwa Street
	Torrance, CA 90505
	Telefax No. 310-530-2426
	Attn: Alex Fässler, Chief Operating Officer

4. Except as expressly stated above, the Agreement remains in full force and effect in accordance with its terms.  Unless otherwise stated in this Amendment each defined term herein shall have the same meaning ascribed to such term in the Agreement.

5. The terms and conditions of this Amendment are hereby incorporated into and made a part of the Supply Agreement.

2

IN WITNESS WHEREOF, the parties have caused this Amendment to be executed as of the date written above.

Bachem Americas, Inc.		Amylin Pharmaceuticals, Inc.
By:	/s/ Philip Ottiger	By:	/s/ Paul Marshall
Name:	Philip Ottiger	Name:	Paul Marshall
Tltle:	President & CEO	Title:	Senior Vice President, Operations

Bachem, Inc.
By:	/s/ Alex Fässler
Name:	Alex Fässler
Tltle:	Chief Operating Officer

3

EXHIBIT 1.1

4

CONFIDENTIAL

[Amylin logo]

CONFIDENTIAL — Do Not Reproduce

Document Approval Sheet

Document Type:	Specification
Document Number:	SPEC-111
Title:	Specification for AC2993 Drug Substance (Bachem)
Revision Number:	10
Supersedes:	[***]
Dept. Owner:	[***]
Quality Program:	[***]

Approvals

Rami Nagola	/s/ Rami Nagola	LQA	16 June 2010
Initiator (print name)	Signature	Dept.	Date
Sharon Ho Burns	/s/ Sharon Ho Burns	Mfrg	16 June 2010
Approver (print name)	Signature	Dept.	Date
James Shanley	/s/ James Shanley	PQ	16 June 2010
Quality Mgmt (print name)	Signature	Dept.	Date

***Confidential Treatment Requested

5

[Amylin logo]

Title:  Specification for AC2993 Drug Substance (Bachem)

Corporate Specification for AC2993 Drug Substance, Supplier: Bachem

Description:    N/A

ATTRIBUTE	ALERTLIMIT(1)	SPECIFICATION	METHOD
[***](5)	None	[***]	[***](2)
[***] by [***]
[***]	None	[***] mole ratio
[***]	None	[***] mole ratio
[***]	None	[***] mole ratio
[***]	None	[***] mole ratio
[***]	None	[***] mole ratio
[***]	None	[***] mole ratio
[***]	None	[***] mole ratio
[***]	None	[***] mole ratio
[***]	None	[***] mole ratio	[***](2)
[***]	None	[***] mole ratio
[***]	None	[***] mole ratio
[***]	None	[***] mole ratio
[***]	None	[***] mole ratio
[***]	None	[***] mole ratio
[***]	None	[***] mole ratio
[***]	None	[***] mole ratio
[***] by [***]	None	[***] ± [***]	[***](3)
[***] by [***]	None	Consistent with reference standard	[***](2)
[***](5)	NMT [***]%	NMT [***]%	[***](2)
[***](5)	None	NMT [***]%	[***](4)
[***] by [***]	NMT [***]%	Not required	[***](4)
[***](5)	NLT [***]%	NLT [***]%	[***](2)
[***] by [***](5)	NMT [***]%	NMT [***]%	[***](2)
[***] by [***](5)	None	NMT [***]%	[***](2)
[***] by [***](5)	None	NMT [***]%	[***](2)
[***] by [***](5)	None	NMT [***]%	[***](2)
[***](5)	NLT [***]%	NLT [***]%	[***](2)

SPEC-111, Rev. 10 Effective: 18 Jun 2010 Page 1 of 5

***Confidential Treatment Requested

6

[Amylin logo]

Title:  Specification for AC2993 Drug Substance (Bachem)

Corporate Specification for AC2993 Drug Substance, Supplier: Bachem

Description:    N/A

ATTRIBUTE	ALERTLIMIT	SPECIFICATION	METHOD
[***] by [***](5)	NMT [***]%	NMT [***]%	[***](2)
[***](5)	None	NMT [***]%	[***](2)
[***](5)	None	NMT [***]%	[***](2)
[***](5)	None	NMT [***]%	[***](2)
[***](5)	None	NMT [***]%	[***](2)
[***](5)	None	NMT [***]%	[***](2)
[***](5)	None	NMT [***]%	[***](2)
[***](5)	None	[***]% - [***]% of [***]	[***](8)

Page 2 of 5

***Confidential Treatment Requested

7

[Amylin logo]

Title:  Specification for AC2993 Drug Substance (Bachem)

Corporate Specification for AC2993 Drug Substance, Supplier: Bachem

Description:    N/A

ATTRIBUTE	ALERTLIMIT	SPECIFICATION	METHOD
[***]	None	NMT [***]% ([***])
[***]	None	NMT [***]% ([***])	[***](2)
[***]	None	NMT [***]% ([***])	[***](2)
[***]	None	NMT [***]% ([***])
[***](6)	[***] ppm	Not required	[***]
[***](6)	[***]/mg	Not required	[***]
[***]	None	[***]/g	[***](9)
[***](6)	Report Results	Not required	[***](2)
[***](6)	Report Results	Not required	[***](7)

(1) [***]

(2) [***]

(3) [***]

(4) [***]

(5) [***]

(6) [***]

(7) [***]

(8) [***]

(9) [***]

NMT = Not more than

NLT = Not less than

Storage Temperature:Store at NMT [***]

Shipping Temperature:Ship at NMT [***]

Retest period:[***]

Page 3 of 5

***Confidential Treatment Requested

8

[Amylin logo]

Title:  Specification for AC2993 Drug Substance (Bachem)

Corporate Specification for AC2993 Drug Substance, Supplier: Bachem

Description:    N/A

ATTRIBUTE	SPECIFICATION	METHOD
[***]	[***]	[***](1)
[***]
[***]	[***] mole ratio
[***]	[***] mole ratio
[***]	[***] mole ratio
[***]	[***] mole ratio
[***]	[***] mole ratio
[***]	[***] mole ratio
[***]	[***] mole ratio
[***]	[***] mole ratio	[***](1)
[***]	[***] mole ratio
[***]	[***] mole ratio
[***]	[***] mole ratio
[***]	[***] mole ratio
[***]	[***] mole ratio
[***]	[***] mole ratio
[***]	[***] mole ratio
[***]	[***] mole ratio
[***] by [***]	[***] ± [***]	[***](2)
[***] by [***]	Consistent with reference standard	[***](1)
[***]	NMT [***]%	[***](1)
[***]	NMT [***]%	[***](3)
[***] by [***]	NLT [***]%	[***](1)
[***] by [***]	NMT [***]%	[***](1)
[***] by [***]	NMT [***]%	[***](1)
[***] by [***]	NMT [***]%	[***](1)
[***] by [***]	NMT [***]%	[***](1)
[***] by [***]	NMT [***]%	[***](1)
[***] by [***]	NMT [***]%	[***](1)
[***] by [***]	NMT [***]%	[***](1)

Page 4 of 5

Title:  Specification for AC2993 Drug Substance (Bachem)

***Confidential Treatment Requested

9

[Amylin logo]

Corporate Specification for AC2993 Drug Substance, Supplier: Bachem

Description:    N/A

ATTRIBUTE	SPECIFICATION	METHOD
[***] by [***]	NMT [***]%	[***](1)
[***] by [***]	NMT [***]%	[***](1)
[***] by [***]	NMT [***]%	[***](1)
[***] by [***]	NMT [***]%	[***](1)
[***] by [***]	NMT [***]%	[***](1)
[***]	[***]	[***](4)
[***]	NMT [***]% ([***])
[***]	NMT [***]% ([***])	[***](1)
[***]	NMT [***]% ([***])	[***](1)
[***]	NMT [***]% ([***])
[***]	NMT [***]/g	[***](5)

(1) [***]

(2) [***]

(3) [***]

(4) [***]

(5) [***]

NMT = Not more than

NLT = Not less than

END OF DOCUMENT

Page 5 of 5

***Confidential Treatment Requested

10

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 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 report;

3.Based on my knowledge, the financial statements, and other financial information included in this 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 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 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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 (or persons performing the equivalent functions):

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: November 8, 2010
	By:	/S/ MARK G. FOLETTA
		Senior Vice President, Finance and Chief Financial Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Daniel M. Bradbury, certify that:

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

2.Based on my knowledge, this 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 report;

3.Based on my knowledge, the financial statements, and other financial information included in this 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 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 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 (the registrant’s fourth fiscal quarter in the case of an annual report) 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 (or those performing similar functions):

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: November 8, 2010
	By:	/S/ DANIEL M. BRADBURY
		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), Daniel M. Bradbury, the President and Chief Executive Officer of Amylin Pharmaceuticals, Inc. (the “Company”), and Mark G. Foletta, the Senior Vice President, Finance and Chief Financial Officer of the Company, each hereby certifies that, to the best of his knowledge:

1.The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2010, 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:  November 8, 2010

/S/ DANIEL M. BRADBURY	/S/ MARK G. FOLETTA
Daniel M. Bradbury	Mark G. Foletta
President and Chief Executive Officer	Senior Vice President, Finance and Chief Financial Officer