I'm following the "buy the busted stocks" instead of breakouts methodology, but breaking a rule on buying individual biotech stocks with today's purchase of Amylin Pharmaceuticals (AMLN). This is one of the few biotechs I know pretty well, and have followd for quite a while - mostly due to its diabetes drug Byetta. Which is the cause of the recent ruckus - on Monday the FDA warned that Byetta might be linked to 6 severe cases of pancreatitis.

• U.S. health regulators warned of more cases of dangerous pancreas inflammation in patients taking Amylin Pharmaceuticals Inc's (AMLN) diabetes drug, Byetta, pounding company shares on fears of lower sales and doubts about a new version of the medicine.
• The Food and Drug Administration said on Monday it received six reports of hemorrhagic or necrotizing pancreatitis requiring hospitalization, including two deaths. The four others were recovering at the time of the reports.
• It was not immediately clear if the FDA would order new so- called "black box" warnings, the strongest type available, and representatives for the agency did not immediately return calls seeking comment.
• The new reports follow an earlier warning last October, when the FDA cited 30 reports of pancreatitis in Byetta patients. At the time, it said the drug was suspected in some of the cases, and Amylin agreed to add information about the risk to its drug label and to alert doctors about the problem.
• Analysts said on Monday the additional cases could pressure doctors into discontinuing use of the drug, which has already seen prescription growth slacken in recent months, in part because of difficulty adhering to twice-daily injections.
• Pancreatitis is an inflammation of the pancreas, which helps aid in digestion by releasing vital hormones. The condition usually subsides within a week, according to the National Institutes of Health.

The stock dropped by nearly 20% - and this is exactly why I usually do not gamble in individual biotech names: "FDA risk". But, since this came after the fact I am going to take a flier here. The stock was beaten down a bit more yesterday and is down a few more % this morning to the $27s range; there is no "great" reason to buy here but we are in day 3 of a purge which I believe is a bit of an overreaction from reading what people with a lot more knowledge than I have believe. The stock did fill a gap created July 31st in the mid $28s with this fall, and there is a lot of support in the $24s/$25s so if the stock does fall to that level we'll add there. But once again if you bought the "technical breakout" which this stock did once it closed over $33 you were demolished in under a week - it's a tough market.

The company is unprofitable and does have a 2nd drug, Symlin which is doing well, but Byetta is 90% of sales. It has to be administered twice a day which is a big pain but the future here is for a different version of Byetta; an "extended use" type which only needs to be taken 1x a week. The approval process for this version will extend well into next year - probably spring to summer.