Inside Wall Street: Is Amylin a buyout target?

The company is seen as the next likely candidate in the biotech sector's takeover hit parade.

By MSN Money Partner Feb 6, 2012 4:09PM
Image: Insurance Money (© Comstock Images/Jupiterimages)By Gene Marcial

Recent buyouts have invigorated the biotechnology industry, and the predictable question is which company is the next likely target?
Amgen's (AMGN) acquisition of Micromet (MITI) for $1.61 billion, along with Celgene's (CELG) purchase of privately held Avila Therapeutics and Gilead's (GLD) acquisition of Pharmasset, have sparked renewed investor interest in the biotechs.

As a group, they have rallied strongly. The BTK Index of biotech stocks climbed a healthy 25% over the past 12 months. 
Who's next? Some pros are betting on Amylin Pharmaceuticals (AMLN), which is developing treatments for diabetes and obesity. At the end of January, the Food and Drug Administration approved the company's chief drug, Bydureon, a treatment for type 2 diabetes. This could very well whet the appetite of Big Pharma. The stock quickly popped to $14 from $12 on the news, and then continued to advance further. It closed above $17 on Friday.
Usually, a stock's jump after such positive news gives way to profit-taking, before settling back down a bit. But in Amylin's case, the upward momentum has continued. Why? There was plenty of short-selling in the stock for months before the FDA news. So short-covering decisively drove the stock up. And then there is buyout chatter.
"The FDA's approval of Bydureon makes Amylin an extremely attractive asset for a Big Pharma," says John McCamant, editor of the Medical Technology Stock Letter in San Francisco, who has long been a bull on the stock. "We suspect that potential partners and acquirers are now knocking on Amylin's door to conduct due diligence," he adds.
Bydureon is a longer-acting, once-a-week version of Amylin's diabetes drug Byetta. It is expected to compete with Novo Nordisk's (NVO) Victoza. The longer-lasting duration is enabled by a delivery technology that Alkermes (ALKS) provides for the use of Bydureon. Both Victoza and Bydureon are in the class of diabetic drugs that stimulates the release of insulin when a person's blood sugar gets too high. But Bydureon's big advantage is that diabetes patients only need to inject the drug once a week, compared with daily injections for Victoza, and twice daily ones for Biyetta. The once-a-week dosage could be a major advantage in terms of compliance, notes McCamant.
One factor potential acquirers of Amylin will also focus on is how much revenue such a drug could bring in. Victoza's global yearly sales are currently more than $1 billion, and Byetta's sales totaled $461 million for the first nine months of 2011. Bydureon has attracted some positive comments. The, for one, described Bydureon as "the most anticipated new drug launch in diabetes."
The approval of Bydureon removes the big risk factor hanging over the drug, which now makes Amylin a logical takeover candidate, says McCamant. Who would be interested? McCamant says his "best guess" is Roche, which discarded its own drug candidate in 2010. However, McCamant makes clear that he doesn't know that any deal is imminent, but other suitors are expected to surface.
McCamant says Amylin has adopted a "very aggressive pricing strategy for Bydureon, charging $323 for a month's supply," which he notes is a significant discount compared to  Victoza's $421. McCamant doesn't think Bydureon will cannibalize sales of Byetta because the latter is used in combination with insulin glargine, a specific use for which neither Bydureon nor Victoza are indicated.
Amylin's current advantage over other biotechs is that it has a potentially huge product. Mergers and acquisitions are hot in the biotech sector, says McCamant, who is definitely gung-ho on Amylin.

Gene Marcial wrote the column “Inside Wall Street” for Business Week for 28 years and now writes for MSN Money’s Top Stocks. He also wrote the book "Seven Commandments of Stock Investing," published by FT Press.

Feb 6, 2012 8:05PM
Great analysis. Another caveat, Icahn owns a substantial amount of stock and is unlikely to wait while Amylin gets it's act together.  Any potential partner is going to demand significant control of sales strategy since the sales team has failed to deliver so far.  This would make a buyout much more likely.
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