Amylin/Lilly Split

Amylin/Lilly Split

While it may not get the attention of the Kardashian/Humphries divorce the diabetes drug world is abuzz today with the news that Amylin (NASDAQ:AMLN) and Lilly (NYSE:LLY) have ended their partnership. As Diabetic Investor has previously reported the relationship between the two companies wasn’t all the great to begin with and only got worse after Lilly decided to partner with Boehringer Ingelheim. A deal which as it turns out was the beginning of the end for their partnership with Amylin.

Obviously there are enormous implications from today’s announcement and not just for Amylin and Lilly as the impact of this news will be felt throughout the diabetes drug world. So let’s get right to it and look at how this news has the potential to change the landscape of the diabetes drug world.

Based on the fact that Amylin shares are down nearly 16% in early trading and that Lilly share are up slightly the street seems to believe that Lilly is the major beneficiary of the split. Diabetic Investor doesn’t see it that way and believes this initial decline in Amylin shares has more to do with the uncertainty the news creates for Amylin. Again as Diabetic Investor has stated on several occasions the launch of Bydureon is critical and while the drug has showed solid initial sales in Europe it will not sell self itself when it becomes available here in the US.

That being said Diabetic Investor is actually glad Lilly is no longer in the picture as we were always concerned that Lilly was not enthusiastic about the impact Bydureon would have on their legacy insulin franchise or the drugs coming from the partnership with BI. On multiple occasions we have noted that Bydureon is not just a threat to oral meds, like Tradjenta but will adversely impact insulin sales as well. We also never bought the Lilly corporate line that their deal with BI would actually help the company sell more Bydureon. The simple fact is Lilly had a choice to make for the future of their diabetes franchise; go with Amylin and risk seeing the BI deal become worthless or commit fully to the BI partnership and risk losing out on a potential blockbuster with Bydureon.

The fact that Lilly decided to go with BI rather than Amylin is just one more sign that Lilly once a leader in diabetes will soon become an also ran and non-factor in the space. No matter how they try and spin this, the facts tell the real story of just how bad the BI deal is. Tradjenta, the first product from this partnership is failing miserably in the marketplace and is unlikely to ever meet the low expectations Diabetic Investor envisioned for the drug. The same can said for the products not yet on the market and underdevelopment as they are nothing more than me-too, copycat, late to market drugs that when launched will be competing against well-established competitors.

Frankly Diabetic Investor still does not understand why Lilly even partnered with BI. While Bydureon is not a slam dunk winner its chances of becoming a mega-blockbuster is far greater than any of the drugs coming from the Lilly/BI partnership. As Diabetic Investor has been reporting we are not aware of any diabetes drug coming to market with the advance buzz that Bydureon has. While not yet approved here in the US, reps from Novo Nordisk (NYSE:NVO) are already selling against the drug and very concerned that when Bydureon is approved sales for their once-daily GLP-1 Victoza will tank.

For Amylin this split does place the burden of execution squarely on their shoulders as they now are solely responsible for the Bydureon launch and future sales. Considering that Amylin has never had to go it alone for such an important launch it is understandable that there is some concern in the investment community whether they can pull this off or not. As the company noted in their call this morning, they will adding hundreds of new sales reps for Bydureon, something they have never done before. As any experienced sales and marketing executive will state; it’s one thing to build sales a force but quite another to effectively manage this sales force. However, at least the company does not have to worry about Lilly reps being conflicted as to which drug to sell, the Amylin sales force will be laser focused and compensated to sell Bydureon.

There is also a risk that the FDA could somehow delay or worse not approve Bydureon, although Diabetic Investor believes this risk is very low and Bydureon will be approved on or before the January 28, 2012 PUDFA date.  At the moment we will not venture to guess as to whether or not this will be a clean approval with no adverse labeling or warnings, something that Diabetic Investor sees as unwarranted but possible given the ultra-conservative nature of the FDA. Keep in mind that Victoza was approved and carries a black box warning, a warning that does not appear to be impacting Victoza sales which have done well and shows the potential for the GLP-1 market.

What’s really more intriguing are the doors this announcement opens for Amylin as they can now find a new partner or even better be acquired without having to worry about how an offer would be impacted by their relationship with Lilly. In fact Diabetic Investor believes that sometime within the next 18 months someone will come along and make a run at the company. Consider this possibility; Lantus the world’s number one selling insulin will see its patent expire in 2014 and that while Sanofi-Aventis (NYSE:SNY) does have a once-daily GLP-1 under development, Bydureon could fill the hole and revenue stream once generated by Lantus. Sanofi has made it clear they want to become the world’s number one diabetes company and want to wrestle this crown away from Novo-Nordisk. Add Bydureon to Sanofi’s already aggressive strategy in the diabetes space and it would set up a battle between two heavyweights.

Besides Sanofi there are a host of companies who also have GLP-1’s in their pipelines who could immediately vault themselves into the number one GLP-1 market position with Bydureon. Not to mention the many companies who would like to enter the growing diabetes marketplace and would like nothing better than to enter with a ready-made blockbuster product.

In reality while the Amylin/Lilly partnership is now history, nothing really much has changed for Amylin as the success of the company rests on how Bydureon performs. The only difference, a positive one in the eyes of Diabetic Investor, is they no longer have to worry about Lilly screwing things up or standing in their way. Nor will Amylin have to worry about Lilly’s Jekyll and Hyde attitude and public statements about Bydureon. Before today Diabetic Investor believed the reason Lilly was less than enthusiastic about Amylin was this was their way of keeping Amylin’s share price low so they could eventually buy the company on the cheap. As it turns out Lilly’s attitude towards Amylin was not a clever ruse but a true belief in their eyes that Bydureon could do more harm to their insulin franchise than good for their bottom line.

Based on the history of Amylin and the roller-coaster ride for their shares, investors would be wise to see today’s news as buying opportunity. Yes, there is a great deal of uncertainty however on balance Diabetic Investor believes in the long run shareholders will be amply rewarded. On the flip side, investors would also be wise to question Lilly’s future in the diabetes arena. Mark our words, the company will eventually rue the day they let Amylin slip through their fingers. They will look back and wonder just what the heck they we’re thinking when they decided to pick BI over Amylin. They will wonder, after their diabetes franchise falls into the abyss, how things went so wrong.

Today’s announcement proves beyond a shadow of doubt that not only is the diabetes device world wacky, so too is the diabetes drug world. It also proves to Diabetic Investor that when it comes to diabetes and Lilly there is no cure for stupid.