Amylin – Let’s Not Get Ahead of Ourselves

Amylin – Let’s Not Get Ahead of Ourselves

With all that’s transpired at Amylin (NASDAQ:AMLN) many are beginning to look at the company in whole new light. With their largest shareholder Eastbourne Capital making public they seek to force a sale of the company and Carl Icahn holding a significant stake as well, it would appear that a sale of the company is imminent. Before everyone gets all excited about the prospect for Amylin shares, a little reality check is at hand.

Before any sale can even be contemplated there are several obstacles that must be overcome.

Hurdle #1- Upcoming Label Change for Byetta.

               During their last earnings call the company stated that this issue should be resolved before the end of 2008. Based on all available evidence Diabetic Investor does not see a Black Box warning however, should this occur it would be game over. Why would any company seek to acquire a company whose lead drug is dead in the water? Amylin’s pipeline is solid but here too there are issues. (More on that in a moment.)

Hurdle #2 – Novo Nordisk (NYSE:NVO) March 2nd panel meeting for liraglutide.

               This meeting could well be a double edge sword for Amylin. Should the FDA panel vote to approve the drug all of sudden there is a serious new competitor to Byetta. Novo is already gearing up for a major sales effort and will surly use the once-daily dosing of liraglutide as major selling point against the twice daily administration of Byetta.

               Should, on the other hand, the panel vote against approving the drug it would send a message to the medical community that there’s a problem with all GLP-1’s.  

               Neither scenario is all that great for Amylin.

Hurdle #3 – There is a strong possibility that LAR will not make it to the FDA by mid-2009.

               Everyone understands that LAR is the most valuable product in Amylin’s portfolio. Given the recent setback with the FDA it appears unlikely the company will hit their stated deadline for submitting the drug to the FDA by mid-2009. As Diabetic Investor has already pointed out in previous alerts this would allow Novo time to establish liraglutide in the market.

               The fact is LAR is extremely valuable however any delay in getting this drug to market diminishes its value.

Hurdle #4- The company is already partnered with Lilly (NYSE:LLY).

               Since this relationship was established it was widely anticipated that Lilly would eventually acquire Amylin. Even without the above noted hurdles the chances of this happening anytime soon has been greatly diminished by Lilly’s recent acquisition of ImClone.

 Hurdle #5- These are not ordinary markets.

               Given the current state of the markets financing of any deal could prove problematic. Basically that means whoever acquires the company would more than likely have to do so using their own capital. Just how an acquiring company could justify such an acquisition to their shareholders, with all the hurdles outlined above would be difficult.

As it stands today Diabetic Investor doubts a sale could be done in the near future. Quite frankly, the risk reward profile just doesn’t lend itself to a deal being done at a reasonable price. While it’s true someone could come in and try to steal the company with a lowball offer but this has its own set of issues. It’s true that market conditions have dramatically but that would all the more reason for the company to wait it out and allow the markets to stabilize.

What’s need more than anything is strong leadership at Amylin. The company cannot continue to tout their wins aggressively while at the same time try and bury any negative news. It’s well known that the relationship with Lilly has been a rocky one. Something that goes back to when Byetta first came on the market and the company could not capitalize on demand for Byetta due to lack of delivery devices. This blunder cost the company valuable market share and let Januvia from Merck (NYSE:MRK) establish a base in the type 2 market.

Although Diabetic Investor does not know who made the decision to handle the pancreatitis issue, the company once again faltered in how they handled the news. Instead of dealing aggressively with the issue and pointing out that the incidence of pancreatitis was actually lower in Byetta users than the overall diabetic population, the company admitted two additional deaths not originally disclosed by the FDA. While this was true it made it appear the company had been aware of this and was hiding the information until forced to come clean.

Finally the company buried the news that the FDA rejected data on LAR comparability in an SEC filing just added further fuel to fire. As critical as LAR is to the company’s future they should have immediately and publicly addressed the issue, reassuring everyone that despite this setback they have other options to get LAR to the FDA by mid-2009. Letting the public learn of this development through other sources is like the FDA blindsiding the company on the pancreatitis issue. In effect the company was in control over how this information was received in the market. Just as the FDA provided no context to their actions with Byetta, the company provided no context on what this decision by the FDA really means.

What all these actions add up to is a lack of confidence in the company. Simply put, shareholders have lost faith in the company to provide them with all facts, both good and bad.  This is not unlike what happened to Senator McCain, who in the midst of tightly contested campaign, stated that the economy was fundamentally strong when by all real measures the economy was in crisis. Then just a few days later the Senator in a complete reversal of positions suspends his campaign to deal with the greatest economic crisis since the Great Depression.

Diabetic Investor has long been a supporter of Amylin believing that LAR could well be a paradigm shifting technology that will dramatically improve treatment for millions of type 2 patients. It would be devastating to all involved if this superior technology does not reach its potential because of a company couldn’t deal with adversity in a straightforward manner. There are too many examples of corporate arrogance in the diabetes market that have cost both investors and patients. Exubera and Navigator are just two of the most recent examples that quickly come to mind.

Diabetic Investor isn’t sure who’s to blame here and quite frankly it really doesn’t matter. Amylin and Lilly are in this together and there is more than enough blame to go around. What really does matter is both companies have a huge problem on their hands. Problems that need to be addressed immediately before the situation get’s completely out of control.