Amylin Gets Its Yes; Now For The Hard Work

| About: Bristol-Myers Squibb (BMY)

Amylin Pharmaceutical (AMLN) investors got some long-awaited good news Friday afternoon, as the FDA finally granted approval to market Bydureon, an extended-release of Amylin's one-time blockbuster Byetta. Obviously this is a positive development for the company, but now the hard work begins. Amylin's market cap already assumed approval of this drug and now the company has to convince skeptical analysts and investors that it can steer itself to greatness (or buyout) as largely a one-product company.

Don't Tell Me About The Labor Pains, Just Show Me The Baby

Amylin has been working on getting approval of Bydureon since May of 2009, when the company first submitted a New Drug Application (NDA) to the FDA. The first FDA rejection came about a year later when the FDA wanted data on labeling and a risk mitigation strategy. The company resubmitted its response to these fairly routine questions only to get a second rejection in October of 2010 and a request from the FDA for a new trial to assess potential cardiac risk.

During that interim, Amylin saw its Byetta franchise slowly whittled down by the launch of rival drugs, including Novo Nordisk's (NYSE:NVO) once-daily Victoza and DPP-IV inhibitors like Merck's (NYSE:MRK) Januvia and Bristol-Myers' (NYSE:BMY) Onglyza. The long delay in approval also closed a bit of the gap that Bydureon was once expected to have on rival long-acting GLP-1 drugs under development at Glaxo (NYSE:GSK) and Lilly (NYSE:LLY), and arguably helped to increase tensions between former partner Lilly and Amylin to a point of no return, leading the two companies to dissolve their partnership.

And Now For The Hard Work...

Even though Bydureon is injected just once a week (versus once a day for Victoza), expectations for this drug have been dropping. Once seen as a drug with $2 billion or more a year in early sales potential, expectations are now for generally less than $900 million.

Not that there aren't good reasons for some added skepticism. The loss of Lilly leaves sole marketing responsibility with Amylin and no drug sells itself. Amylin already has a salesforce of its own, but those are going to be some hard-worked marketers as the company has to balance the benefits of hiring more reps with its strained balance sheet and eventual payment obligations to Lilly.

Bydureon expectations were also hit by a failed marketing study (DURATION-6) that the company conducted a little while ago. Intended to show that Bydureon offered superior glucose control to Victoza, the study failed to show non-inferiority to Victoza. You can bet that Novo Nordisk's sales force will hammer that point in their calls on doctors, though Bydureon did show some substantial "lifestyle" benefits in terms of side-effects

Still, no one should forget that the older drug Byetta still holds more than 40% share of new GLP-1 prescriptions and it requires twice-daily injections. Amylin management (and its salesforce) is going to have to work harder than ever before, but I believe the dosing profile and overall efficacy and quality of life benefits will make Bydureon a winner with potential closer to that $2 billion figure.

Also helping matters is a relatively benign FDA letter and label. The company is going to have to do numerous post-approval cancer studies in mice, as well as a long-term cardiovascular outcomes study, but these are hardly surprising. Likewise, the label includes a boxed warning about cancer risk (basically the same as for Victoza), but not pancreatitis, and no real surprises.

And The Bottom Line

With approval in hand, I believe Amylin shares are worth somewhere in the high teens to low $20s per share. Biotech investors have seen a lot of examples of disappointing launches in recent months, though, so it's fair to assume that there will be great scrutiny on prescription trends almost immediately.

Investors should also realize that Amylin licenses technology from Alkermes (NASDAQ:ALKS) for Bydureon and that Alkermes stands to gain a fairly respectable royalty based on Bydureon sales.

Looking a little longer term, Amylin is almost certainly in play. Big Pharma may want to de-risk a potential deal even further by waiting a bit and seeing how the initial roll-out goes, but the weak pipeline at Amylin should make management a motivated seller. Figure on a company like Roche (OTCQX:RHHBY), Novartis (NYSE:NVS), Johnson & Johnson (NYSE:JNJ), or Takeda kicking the tires, particularly as the latter could be anxious to replace sales as a different diabetes blockbuster, Actos, goes off patent.

Disclosure: I am long AMLN, OTCQX:RHHBY.