UPDATE 3-Icahn calls on Amylin chairman to step down

* Icahn calls for resignation of Amylin chairman

* Amylin partially settles shareholder lawsuit

* Amylin welcomes meeting with Icahn, Eastbourne

* Amylin shares rise 5 pct
(Adds Amylin comments, updates share price)

By Toni Clarke

BOSTON, April 15 (Reuters) - Ratcheting up the heat in a
proxy battle with Amylin Pharmaceuticals Inc (AMLN.O),
billionaire investor Carl Icahn called on Wednesday for the
resignation of Joseph Cook, the company's chairman and former
chief executive.

Amylin said in response that it had engaged in discussions
with both Icahn and Eastbourne Capital Management and welcomed
the opportunity to meet with them again, either separately or
together.

The company also said it had partially settled a lawsuit
brought by the San Antonio Fire and Police Pension Fund, under
which the plaintiff agreed to withdraw allegations that
Amylin's board had not acted in good faith.

Icahn told Cook in a letter that the chairman had overseen
the destruction of shareholder value through poor strategic
decisions and should be the first to go in any shakeup of the
board.

"Like an 'imperial' chairman you have taken steps to
entrench yourself that we believe to be unconscionable," Icahn
said in the letter.

Representatives from Amylin, which makes the diabetes drug
Byetta in a 50-50 partnership with Eli Lilly & Co (LLY.N), did
not immediately respond to requests for comment.

Amylin's shares have fallen roughly 70 percent over the
past eight months amid concern Byetta, the company's most
important product, may increase the risk of pancreatitis -- an
inflammation of the pancreas that can be deadly.

The drug, which was launched in 2005, is a member of the
GLP-1 class of drugs designed to stimulate the release of
insulin in diabetics when glucose levels become too high.

As shareholder pressure on Amylin increases -- Eastbourne
Capital Management has put up its own five-person slate of
nominees -- fractures are emerging on the board itself, with
internal bickering bursting into the open.

Last week Howard Greene, Amylin's co-founder and former
chief executive, resigned after the board decided not to
nominate him for re-election.

In his resignation letter, Greene decried the decision and
shot back at Cook.

"The obvious and appropriate choice to not stand for
election would be our chairman, who has presided over the loss
of shareholder value that sparked the proxy fight," he said.

'LUDICROUS, ARROGANT'

The battle over Amylin is shaping up to be as colorful as
Icahn's battle for biotechnology company ImClone Systems, which
Icahn seized and ultimately sold to Lilly for $6.5 billion. It
is clear Icahn hopes to bring some of the same tactics -- and
team -- to bear in his fight with Amylin.

"It is ludicrous and arrogant for you to contend that my
highly qualified nominees, who were among those responsible for
such wonderful results at ImClone, cannot be beneficial to
Amylin," he said.

Among Icahn's criticisms of Amylin's strategy is its
relationship with Lilly. Amylin and Lilly share expenses to
market Byetta, a drug designed for a big, primary care market
that requires a large, expensive sales force.

"Amylin never should have undertaken to spend enormous
amounts of money to maintain a large commercial operation in
primary care diabetes sales -- an absurd commercial effort for
a small biotech company," he said.

"Had we been on the board of Amylin when its deal with
Lilly was consummated, we would have fought for a royalty
paying arrangement with an option to co-promote Byetta," he
said.

Amylin, which has a market value of $1.4 billion, posted a
loss of $315.4 million in 2008 on revenue of $840 million.

Icahn also criticized a "poison put" provision in the
company's credit agreements that would require San Diego-based
Amylin to accelerate repayment of more than $900 million in
debt if there is a change of control of the board.

Amylin said in its filing that partial settlement of the
San Antonio suit should put to rest any assertions that it
initiated the inclusion of those provisions in the debt
agreement.

Icahn also condemned a "poison pill" provision that
prevents shareholders acting in concert or jointly hashing out
strategy.

"Even in dictatorships dissidents are allowed to
communicate with each other," he said.

Amylin's shares rose 51 cents or 5.1 percent to close at
$10.51 on the Nasdaq.
(Reporting by Toni Clarke, additional reporting by Deena
Beasley, editing by Dave Zimmerman and Matthew Lewis)