Amylin Pharmaceuticals (AMLN) has always been a feast-or-famine sort of stock, as the company has long experience in surmounting the difficulties of dealing with the FDA (Symlin and Bydureon, most notably), competition, and its own now-former partner Lilly (LLY). Although recent prescription data on Bydureon has been disappointing, Wednesday's news from Bloomberg that a Big Pharma buyer had approached Amylin earlier this year had the stock rocketing in response.
Enter The First Rumored Bidder
Bloomberg reported Wednesday morning that unnamed sources claimed that Bristol-Myers Squibb (BMY) approached Amylin's board with a $22 takeout offer, which Amylin's board rejected last week. According to the report, there has been no follow-up from Bristol-Myers and Amylin remains focused on securing a marketing partner for Bydureon in Europe.
In no way is this much of a surprise. When Amylin got its FDA approval for Bydureon in late January, I predicted that Big Pharma would likely coming knocking on the door, and I suspect that Bristol-Myers is only the first of what could be many potential suitors.
Setting The Bar
While I pegged Amylin's fair value in the low $20's at the time of the approval (with some downside into the high teens if Amylin struggled with its marketing efforts), I do believe that Amylin may be worth even more to an established pharmaceutical company.
Any suitor for Amylin will still have to make payments to Lilly and Alkermes (ALKS) that will take a little juice out of the gross margin, but stripping out redundant corporate costs and integrating the marketing and R&D efforts will produce meaningful synergies. The net effect of all of that is that I believe most Big Pharma companies with existing diabetes franchises could pay $25 and still reap an internal return in the high teens.
What Bristol-Myers has done, then, is set the bar. Assuming that Bydureon prescriptions don't stall out or significantly disappoint, $22 is the place where the bidding starts. With that in mind, I still expect companies including Takeda, Johnson & Johnson (JNJ), Novartis (NVS), Roche (RHHBY.PK), and Sanofi (SNY) to at least consider a bid.
A Slow Start To Bydureon
Counter-balancing the logical rumor of Bristol-Myers' interest is the reality that Bydureon is not off to a blistering start. As of the March 16th IMS data, Bydureon had claimed 3% of the total GLP-1 market, while Novo Nordisk's (NVO) Victoza was the leader at 57% and Amylin's older compound Byetta was second with 40% share. When looking at new scrips, Victoza is the leader as well with 56% share. Byetta is down to 38%, while Bydureon jumped almost a full point in a single week to 7%.
These are very early days, so I don't want to blow these results out of proportion. That said, the 2% weekly decline in the overall GLP-1 category is a little disappointing, as is the fact that Bydureon is lagging the prior trend of the Byetta and Victoza launches.
Certainly there are mitigating factors. Byetta and Victoza both had the support of full-size in-place sales infrastructures, while Amylin is still building theirs out. Moreover, the market is now more crowded and the overall economic environment is less favorable, as more people are out of work (and so many people's health insurance is tied to employment).
All of that said, disappointment is still disappointment. Let me reiterate that I'm not saying Bydureon can't or won't develop into a blockbuster; I'm simply pointing out that the launch is less impressive than hoped so far and other disappointing launches across the biotech spectrum have investors more edgy about this topic.
The Bottom Line
As ISTA Pharmaceuticals (ISTA) recently showed, sometimes it is wise for a board of directors to stick to its guns and insist on a take-out price closer to full fair value. Given the strong efficacy, safety, and convenience of Bydureon, there's definitely a case to be made that this is a very valuable drug.
That said, a takeout seems more like a "when" than an "in". Amylin's pipeline behind Bydureon is scant and unimpressive (apart from a once-monthly GLP-1 formulation) and single-drug companies usually face diseconomies of scale. While Amylin management may be able to drive the price up higher into the $20's (and perhaps even into the $30's), buying this stock today could take some patience if management is determined to prove Bydureon's market potential before taking a bid.
Disclosure: I am long AMLN, ISTA, RHHBY.PK.