Is Carl Smiling?

Is Carl Smiling?

One has to wonder now that Amylin (NASDAQ:AMLN) has been sold to Bristol Myers Squibb (NYSE:BMY) and AstraZeneca (NYSE:AZN) for $31 per share chase plus the assumption of Amylin’s debt, which values the deal at near $7 billion, is Carl Icahn smiling? After all, this is what Carl has wanted all along and now that he got what he wanted it’s logical to wonder if he’s happy. Our guess is Carl is never happy and even though Amylin achieved max value he likely feels he was somehow short changed. He will also claim another victory for shareholders when these same shareholders will never know what would have happened had he kept his mouth shut.

Looking over this deal a few things stand out to Diabetic Investor, Bristol and Astra were getting tired of selling a loser drug like Onglyza and paid dearly to own Bydureon.  The big loser here is Sanofi (NYSE:SNY) who’s own GLP-1 is basically a Victoza copycat and who’s blockbuster Lantus will soon face generic competition. While Diabetic Investor had hoped Merck (NYSE:MRK) would emerge victorious Januvia still has legs to it and the company could well acquire another player to replace Januvia when it goes off patent.

The fact is the success of Januvia and failure of Onglyza, two drugs which compete with Bydureon, made this deal happen. As Diabetic Investor has been stating for some time we now live in a world where being first to market is critical and payors will no longer pay top dollar for copycat drugs from the same class of drugs. In fact Diabetic Investor would go one step further and state that it’s unlikely we will ever see a another situation where you have two blockbusters from the same class of drugs as we did with Avandia and Actos.

The good news here is that Bristol/Astra sales reps are already familiar with the diabetes market and are calling on the same doctors who will prescribe Bydureon.  It will also be a welcome relief for these reps to have a drug which is considered first in class rather than have to sell against an established blockbuster.

The wildcard in this market is Novo Nordisk (NYSE:NVO) who’s had their share of issues lately and now must compete against a new competitor who’s willing to fight. Realistically there was no way Amylin by themselves could have turned Bydureon  into a blockbuster, without a major well capitalized partner the company lacked the resources necessary to compete effectively.  Surly Novo executives must be worried not just because there will be more reps selling Bydureon but these reps don’t have to worry about cannibalizing sales of their lead product Onglyza. Although they would never admit it publicly Novo also wanted Lilly (NYSE:LLY) to remain Amylin’s partner as they knew Lilly reps would face a difficult choice; either sell the new possible blockbuster and risk hurting their existing insulin franchise or remain loyal to the legacy franchise and risk missing out on what likely will be the next major diabetes blockbuster.

It is now Novo who faces this exact situation as they fighting a war on multiple fronts. Their core insulin franchise has been dealt a serious blow now that Degludec and DegludecPlus have been delayed at the FDA. Lilly in desperate attempt to remain relevant has thrown caution to the wind and is now using price to gain share forcing Novo to match these new lower prices or risk losing valuable share. With Bydureon now available they are facing a similar situation with their once-daily GLP-1 Victoza. Do they slash prices to compete or do they try and reposition the drug? Neither choice is all that appealing.

Another interesting aspect of this deal, besides the price, is will it mark the beginning of a new round of acquisitions in the diabetes drug space? The simple fact is the diabetes market, whether it is drugs or devices, requires scale and vast resources if a company is going to compete effectively.  Looking at the landscape as it stands today a company like GlaxoSmithKline (NYSE:GSK), who has a long acting GLP-1 under development, and desperately wants to get back into the diabetes market must be wondering whether it makes financial sense to continue their quest. They know their long-acting GLP-1, even if it reaches the market will be late to the game and by the time it does get here Bydureon will be well established in the marketplace.

We further suspect this deal will cause a company like Sanofi to reexamine their overall diabetes strategy. As we have noted from the beginning Sanofi is trying to pull off something never attempted before and would like to become a one-stop shop. Offering not just the drugs used to treat diabetes and the devices to monitor it; in the process become the first company to offer a fully interconnected diabetes management system that so many believe is the wave of the future.  The harsh reality for the company is they have yet to find a replacement for the goose that lays the golden eggs (Lantus) and cannot seem to get out of their own way. Amylin would have been an excellent acquisition, filling several holes in the Sanofi strategy yet their lack of urgency cost them. The future will tell just how badly.

One thing is certain as we move forward the diabetes landscape will continue to change and evolve. Diabetic Investor sees more deals down the road as everyone looks for the next Januvia or Bydureon. The fact is diabetes continues to grow at epidemic rates and shows no signs of slowing down anytime soon. It’s equally true that patients and the physician’s that treat them are looking for simpler solutions like Bydureon.  That has always been the point everyone missed when it came to Amylin and why Diabetic Investor has long believed in the company. Bydureon is the complete package, solid glucose control, weight loss and dosed just once a week.

As we have said many times Bydureon is not for everyone and the drug will not sell itself. However it does have one huge compelling benefit as it is super patient friendly and will become more so when the pen delivery system gets here. Congrats to the good folks at Amylin who have seen more than their fair share of ups and downs- today is your independence day.