UPDATE 3-Biodel shares dive as diabetes study disappoints

(Updates shares, adds details)

LONDON, Sept 8 (Reuters) - Shares of Biodel Inc (BIOD.O) plunged nearly 70 percent on Monday after a late-stage clinical trial cast doubt on its experimental diabetes drug VIAject.

A study of people with Type 2 diabetes met a Phase III trial goal after six months by showing that VIAject was as effective in controlling blood sugar as Eli Lilly and Co's (LLY.N) Humulin.

But a separate Phase III study of volunteers with Type 1 diabetes would not have met the same goal if the company had not excluded data from India.

U.S.-based Biodel, which plans to meet with the U.S. Food and Drug Administration to discuss the findings, also said 24 people had dropped out of the two trials due to pain where the drug was injected.

The problems in India could make investors wary about how the FDA would view the drug, Bank of America Equity Research analyst William Ho said in a note to investors.

"We are unsure how the FDA will respond to the analysis of the Type 1 study or if it will result in a delay in regulatory filing," Ho wrote.

Leerink Swann analyst Jonas Alsenas said the FDA could require a repeat of the Type 1 study, leading to a delay for the launch of the drug for at least a year.

"We remain confident of the ultimate clinical and commercial prospects of VIAject and believe the problems are eminently fixable, though they could results in significant delays," Alsenas said in a research note.

VIAject is designed to be absorbed into the blood more rapidly than currently marketed insulins, according to Biodel.

The two studies aimed to show that VIAject was as effective as Humulin at controlling blood sugar levels in people with diabetes.

In a study of people with Type 1 diabetes in 60 centers in the United States, Germany and India, the findings were based on 131 volunteers on VIAject and 140 on Humulin.

The decrease in levels of HbA1c -- a standard measure of glucose control -- was comparable among the two groups with an adjusted difference between them of 0.1 percent, Biodel said.

But due to unexplained anomalies, it said it excluded the Indian results in its initial analysis. If the company had included them, it said the trial would have failed.

RATING CUT

Natixis Bleichroeder analyst Corey Davis said he believed the variability in the Indian data was a fluke.