3 Stocks to Watch: AMLN, BGP, IKN

Amylin: Four Deaths Too Many

Drug maker Amylin (AMLN) saw shares drop 18% Wednesday after reports of four additional deaths linked to its diabetes drug, Byetta, which it markets with Eli Lilly (LLY). Byetta, used to treat Type II diabetes, is a synthetic version of exendin-4, a hormone in the saliva of the Gila monster, a venomous lizard native to several Southwestern American states. The two companies split $650 million in sales last year.

Complications, including pancreatitis, have been linked to a small number of patients using Byetta since the drug hit the market in 2005. The news comes only a week after the U.S. Food and Drug Administration received reports of two other fatalities involving Byetta. The FDA received 30 reports of pancreatitis tied to the drug in 2007.

Orville Kolterman, head of research and development at San Diego-based Amylin, said the company is working closely with regulators to keep patients and physicians informed.

"It is important to understand that pancreatitis, an inflammatory condition of the pancreas, is a rare event," he said on a Tuesday evening conference call. "Further, the characteristics and complications of the pancreatitis cases in patients on Byetta are consistent with pancreatitis in the general population. We believe Byetta continues to have a positive benefit-risk profile for patients with type 2 diabetes."

Ian Somaiya, an analyst with Thomas Weisel Partners, wrote Wednesday that current data suggests about one in 3,000 Byetta patients develops pancreatitis. These deaths may delay a long-acting release version of the drug, which could be used once a week.

"We remain concerned that the recent issues will prevent acceleration of the LAR timeline and could delay approval if the incidence rate increases or further safety studies are required," he wrote.

The Bottom Line: Hold

Pharmaceutical stocks are volatile and bad publicity causes outsized, short-term drops. Watch the FDA's reaction. But if the extended-release version gets held up, this critter could end up causing more harm than good.

Borders: Bookseller Turning Page

Shares of Borders Group (BGP) made the bestseller list Wednesday after the bookstore chain narrowed its quarterly loss, beating Wall Street expectations and touting its turnaround efforts.

"Building on our first-quarter efforts, we were able in the second quarter to demonstrate that we continue to have the focus and the discipline in place to drive substantial improvement, even in the midst of a very challenging consumer environment," CEO George Jones said on a conference call. "I'm pleased with how far we've come on these important measures in a relatively brief period of time, all while operating in the midst of one of the most challenging times I've experienced in my retail career."

Borders shares have fallen faster than reading comprehension test scores in the age of Twitter, dropping 65% over the past year. With reduced discretionary income a fact of life for most Americans, bread will trump books every time.

Also, as Goldman Sachs analyst Matthew Fassler pointed out on the call, the company's sales comparisons are suffering from the completion of the seven-book Harry Potter saga. "Harry Potter and the Deathly Hallows," the last in the series of junior wizards and spellbound boarding schools, sold 11 million copies world-wide in the first 24 hours after its release in July of last year.

The Bottom Line: Hold

Investors can read the turnaround as a happy ending in the making, but economic weakness and intense competition provide plenty of suspense.

Ikon Office: Sale a Solution

Ikon Office Solutions (IKN) agreed to be bought by Japanese competitor Ricoh for $1.6 billion, which paid an 11% premium in the largest ever acquisition by the Tokyo-based printer and fax maker.

Ikon, based in Malvern, Pa., is the world's largest independent document management systems and services company, and had a longstanding business relationship with Ricoh, the acquiring company said.

"In the extremely competitive U.S. market, Ricoh is committed to further strengthening its sales and support channels," Ricoh said in a press release.

Ikon was ripe for a buyout its shares lost half their value between Jan. 1 and early March of 2007, exposing its vulnerability to a takeover. Though the stock has substantially bounced back and the company has met or beaten Street estimates since, consolidation is a common strategy in a difficult business environment, and worries about corporate spending on business services haven't abated.

The Bottom Line: Sell

Mergers can get fouled up for all sorts of reasons, and Ikon's still got plenty of troubles. Take profits and close the copier lid.