The Drama Continues At Amylin Pharmaceuticals: Takeover Still Likely

| About: Bristol-Myers Squibb (BMY)

Every so often, a company gets caught up in what seems like a soap opera of drama and intrigue. Analysts and investors try endlessly to decipher what is going on as management stays silent. Currently, Amylin Pharmaceuticals (AMLN) is caught up in just such a drama. However, even as management stays silent for the most part, there are several clues that can reveal what is happening at Amylin.

Since Bloomberg reported on March 28 that Amylin had rejected a takeover offer from Bristol-Myers Squibb (NYSE:BMY) that valued the company at $22 per share, the company has been he subject of much speculation. Management has largely stayed silent, while Carl Icahn has been anything but silent. Icahn had sued Amylin, arguing for an extension to nominate directors to stand for election at the company's annual meeting. And in a letter sent to Amylin's board of directors, Icahn stated outright that he wants the company to be sold, and that it would be a grave mistake for the company to pursue an international partnership for exenatide instead of an outright sale of the company. Recent events have added further fuel to the speculation.

On April 26, Amylin reported its first quarter 2012 earnings. The company posted a GAAP loss of 66 cents per share on revenues of $153.686 million. On a non-GAAP basis, the company posted a loss of 23 cents per share, with the bulk of the difference due to non-cash interest expenses and revenue sharing obligations stemming from the settlement with Eli Lilly (NYSE:LLY). However, it was clear from the conference call that no one really wished to discuss Amylin's actual results for this quarter, due to the immense speculation surrounding the company. On April 23, it was reported that Amylin had decided to sell itself, and had hired Credit Suisse and Goldman Sachs to solicit offers. Sources "familiar with the matter" have stated that Sanofi (NYSE:SNY) is debating whether or not to bid, and that Bristol-Myers remains interested in a deal.

Ever since reports of Bristol-Myers' bid for Amylin surfaced, the company has said nothing other than generic statements that the board of directors is committed to maximizing shareholder value. Unfortunately, that is an empty statement. Every board of directors in the world says that, but how many truly mean it? On the conference call, the same line was repeated. CEO Daniel Bradbury stated on the call that, "before we turn to the Q&A, I want to address the recent rumors and market speculation regarding Amylin. Amylin's Board of Directors is fully aware of its judiciary duties and is committed to always acting in the best interest of stockholders. The board continually considers all options available and is relentlessly focused on creating the greatest value for our stockholders. Furthermore, we are pleased that Carlisle Kent [sic] (Carl Icahn) has withdrawn his lawsuit seeking to extend the direct to nomination deadline for our upcoming annual meeting. With that said, the purpose of today's call is to discuss first quarter results and we can ask you to limit your questions to these results. We will not be commenting further on recent market rumors or matters involving Carlisle Kent [sic] (Carl Icahn)." At least this time, an Amylin executive had made that statement, as opposed to a parade of spokespeople. Amylin executives stated repeatedly that they are in negotiations for an international partnership.

Wall Street analysts, however, do not enjoy being dictated to by corporate executives, and several attempted to steer the call towards discussions about Amylin's future as an independent company, which is what almost everyone listening to and participating on the conference call was most concerned with. Thomas Russo of Baird asked the company to comment on the value of signing an international partnership to accelerate Bydureon's launch versus the strategic value of keeping the asset (exenatide) unencumbered economically (thus making it more pealing to a buyer). CEO Daniel Bradbury responded only with the fact that Amylin wants to sign an international partnership as soon as possible, as well as "efficiently" as possible. ISI Group was more blunt with its questions. The firm asked what the company's thinking is regarding a sale vs. an international partnership and whether or not the two are mutually exclusive. CEO Daniel Bradubury replied that the company has ongoing negotiations about an international partnership, and that he will not say anything more about it at this time. The most interesting development regarding Amylin's takeover prospects, however, did not occur on the conference call. Rather, it occurred the day before, in an attachment buried in one of the company's SEC filings.

On April 25, Amylin filed a SC 13D/A with the SEC, in which it disclosed that Carl Icahn has dropped his lawsuit against the company after discussions with CEO Daniel Bradbury. Carl Icahn's statement was included in the filing. It reads: "Carl C. Icahn today announced that his affiliates had voluntarily dismissed their lawsuit against Amylin Pharmaceuticals which had sought an extension of the deadline to nominate directors at the 2012 annual meeting of shareholders. Mr. Icahn released the following statement: 'The decision to discontinue our lawsuit seeking to extend the director nomination deadline was the result of discussions I had with Daniel Bradbury, Amylin's chief executive officer, that we agreed would not be publicly disclosed.' Mr. Icahn reiterated that he continues to strongly believe that the company should be sold at this time."

Though this statement is short, it speaks volumes about where Amylin is going, in our opinion. Carl Icahn is not someone who backs down easily. He will do everything in his power to make management of a target company go along with his way of thinking. And if they do not, then he will try to change management. For Carl Icahn to drop his lawsuit against Amylin simply because he held discussions with CEO Daniel Bradbury implies that he liked what Daniel Bradbury was saying. Given that Icahn has been quite vocal about his desire to see Amylin sold, it is not a stretch to assume that their discussions implied that Amylin will do something that is to Carl Icahn's liking. For him to back down after simply having discussions with management is not in the style of Carl Icahn. But backing down once management sees his way of thinking is.

We continue to believe that Amylin will be taken over, either by Bristol-Myers or someone else. There is ample potential for synergy, and a company with a larger, more established diabetes franchise or sales force would likely be better able to commercialize Bydureon (Amylin's newest product), far better than Amylin itself could. The next several weeks will likely be filled with more drama, but ultimately, we believe that Amylin's days as an independent company are numbered.

Disclosure: I am long AMLN.