The long drama around the Amylin Pharmaceuticals (AMLN) looks like it has reached its end - Bristol-Myers Squibb (BMY) announced the acquisition of Amylin late Friday night in a deal that will pay Amylin shareholders $31 per share in cash. While some sources have reported the size of the deal as $5.3 billion, it's actually larger than that (about $7 billion) as Bristol-Myers will also be taking on over half a billion in Amylin debt and over $1 billion in financial obligations to Lilly (LLY).
Bristol-Myers is also bringing a partner into this deal. While it technically won't take place until the Bristol-Amylin merger closes, AstraZeneca (AZN) will be buying in as part of the existing diabetes drug partnership between the two companies. For $3.4 billion, AstraZeneca will be getting a 50% interest in Amylin's products and the option to chip in another $135 million for the right to equal say in the management and strategic planning of the collaboration.
A Reasonable Deal For All Involved
I have been writing for some time now that I thought Amylin's stand-alone value maxed out somewhere in the low-to-mid $20s, as the launch of Bydureon has been underwhelming due to insufficient marketing resources at Amylin and the lack of a European partner. What's more, Novo Nordisk (NVO) remains a strong rival with its once-daily Victoza, while companies like Lilly and Sanofi (SNY) hope to break into the market soon with their own GLP-1 drugs.
To a larger partner, though, I thought fair value on Amylin shares could, and should, exceed $30 a share. Along those lines, $31 is not a bad price - especially as the recent IMS prescription data on Bydureon has not been especially encouraging (Bydureon continues to lag the prior launch trajectories of Byetta and Victoza, and by a meaningful amount). What's more, Amylin has seen some recent negative news regarding delays in the dual-chamber Bydureon pen, delays with its lipodystrophy drug, and accusations that the company hid a negative heart safety study on Byetta.
This is also a logical deal for both Bristol-Myers and AstraZeneca. After a series of missteps and bad outcomes, AstraZeneca badly needs to refill its pipeline, and this deal gives it access to a drug that is already approved and ready for wider marketing support. Bristol-Myers started this all along with its initial rumored bid of $22 back in late March, and the addition of a good GLP-1 drug fills an obvious gap in Bristol-Myers' diabetes drug platform.
Have We Heard The Last?
While the deal between Amylin and Bristol-Myers requires that Amylin not solicit any competing bids, that doesn't mean that this is the end of the story. I have long believed that Sanofi was the most logical potential acquirer of Amylin from an operational synergy perspective, and I still believe that to be true. It would not be unthinkable, then, for Sanofi to contemplate a higher bid.
While possible, I don't think this is likely. Sanofi's management is pretty disciplined and there would be quite a bit of incremental risk in winning Amylin through a higher hostile bid. What's more, while the structure of the Bristol-Myers is intriguing, it's worth pointing out that neither wanted to take 100% of the risk of buying this company - though it's also fair to rebut that by saying that the preservation and continuation of the preexisting Bristol-Myers-AstraZeneca diabetes partnership probably required this sort of structured deal.
The Bottom Line
Nothing's over until it's over, but I do believe that Amylin shareholders should look at this $31 all-cash bid as the beginning of the end. It may seem like a poor final outcome for a stock that once traded above $50, but it's a fair price. And yes, I know there are Amylin bulls out there who believe that Bydureon was going to become a category-killing super drug, that the lipodystrophy drug was going to be a very successful orphan drug, and that the company was somehow going to figure out a workable obesity drug. Suffice it to say, I think those are unrealistically bullish views, and I'm glad that Amylin management didn't ruin a reasonable takeout bid by trying to get a buyer to go along with that.
With Amylin now more or less gone, there's surprising little out there in the diabetes drug space. There are companies like MannKind (MNKD) and Biodel (BIOD) trying to make a go of it, and there are companies like Halozyme (HALO) and Isis (ISIS) with diabetes drugs in the pipeline, but it's slim pickings otherwise in biopharmaceuticals. Of course, there are also device-oriented stocks like DexCom (DXCM) and Insulet (PODD).
Sooner or later, it's likely that the size of the market will bring a few new ideas and companies into the market. In the meantime though, while Amylin shareholders may want to wait a week or two to see if there's any competing bid, it's probably time to start thinking about the next idea.
Disclosure: I am long AMLN.
