Amylin: life after Lilly

The two drug companies end a rocky 10-year partnership. What's next for Amylin?

By TheStockAdvisors Nov 23, 2011 1:21PM
By John McCamant, The Medical Technology Stock Letter

Amylin (AMLN) made news recently when it was announced that Eli Lilly (LLY) had broken a deal between the companies for two Type 2 diabetes treatments, Byetta and Bydureon. 

Amylin has also settled a marketing lawsuit it filed against Lilly this year alleging anti-competitive activity after Lilly entered into a marketing deal with Boehringer Ingelheim to sell a competing diabetes drug.

The divorce ends a rocky 10-year partnership between the two companies.

  The terms of the breakup are:
  • AMLN will pay Lilly $250 million and assume full responsibility for sales of Byetta and Bydureon. 
  • AMLN will take over U.S. sales of Byetta by the end of this month and in all markets by the end of 2013.  
  • AMLN also will pay Lilly 15% of global sales for Byetta and Bydureon up to $1.2 billion plus interest. That agreement ends if Bydureon doesn't receive U.S. approval by July 2014, in which case AMLN will pay Lilly 8% of global sales.
The big question, of course, is why did Lilly break up the partnership? A few thoughts come to mind. Lilly may have been scared of losing the BI lawsuit. The trial was about to enter the discovery phase, and Lilly may have had something to hide.

Some on Wall Street have speculated that Lilly was afraid of cannibalizing its insulin sales with the Type 2 diabetes exenatide franchise products.  

AMLN’s stock was down sharply initially on the news, but has partially rebounded as investors have seen the upside to this development. The primary reason that the stock was down was Wall Street’s concern regarding AMLN’s ability to sell and market Byetta and Bydureon without Lilly. 

The other concern was perhaps related to reading the tea leaves. It is possible that Lilly believes there will be another regulatory delay for Bydureon in the U.S. 

Considering the European approval and AMLN’s apparent response to the Food and Drug Administration’s cardiac concerns, we still think regulators will approve Bydureon in the first half of 2012.

Concerns about AMLN’s ability to sell and market are more legitimate, although the company said it would have 650 sales reps by February.  

Now that the Lilly partnership is over, the next big move should be a European partnership for AMLN. The sooner a partner is signed, the sooner that AMLN can move beyond this trip-up.

The fact that Bydureon is de-risked in Europe, with approval already in-hand, should help accelerate the discussions. In addition, the recent decision by the UK’s NICE that Bydureon is a cost-effective drug will make it even easier to find a new partner in Europe. We would further posit that any potential European partner will have to consider the increased economics that would come from buying AMLN outright.

The possibility of an acquisition increases now that an acquiring company would gain full rights to exenatide and not have to deal with Lilly.

At the end of the day, we believe that AMLN got the best of Lilly. The only reason the deal came now, in our opinion, is that Lilly was scared of paying significant damages to settle the marketing suit brought by Amylin. 

We would further argue that AMLN was able to pay so little for Byetta/Bydureon as part of Lilly’s payment for the potential lawsuit damages. 

We continue to believe in Amylin and the exenatide franchise, and with Lilly out of the way we expect a European partnership or outright acquisition to occur. AMLN remains a buy under $12. 

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