Lilly Reports – When it comes to diabetes Amylin is the story
When it comes to Lilly’s (NYSE:LLY) future in the diabetes drug market their future is directly tied to their partnership with Amylin (NASDAQ:AMLN). Looking over the first quarter results they released this morning it’s becoming obvious that they while they have stopped the bleeding for their insulin franchise they cannot continue to raise prices as the primary strategy for increasing insulin revenues. With no long-acting insulin and stiff competition from Novo Nordisk (NYSE:NVO), the company will need to look elsewhere if they plan on being a player in the diabetes drug market.
Given this set of circumstances it’s seems just a little strange that Lilly continues to talk up their own GLP-1 analogue. This is even stranger in light of the recent FDA panel for Liraglutide another GLP-1 analogue. As everyone is learning not all GLP-1 drugs are alike and there are notable differences between compounds. Why Lilly continues to back this drug is just one more reminder that the Lilly/ Amylin partnership is a strange one. As Diabetic Investor has reported in the past Lilly’s appears to have a love/hate relationship with Amylin. One day extolling the virtues of Byetta and Byetta LAR, the next touting the benefits of their own GLP-1 compound.
This being said the fact remains that Lilly desperately needs Amylin. Byetta LAR is game changing technology and has the potential to be a mega-blockbuster.
One person who recognizes the fact that Lilly needs to buy Amylin is Carl Icahn, who’s in the midst of a proxy fight with Amylin over control of Amylin’s Board of Directors. Joining Mr. Icahn in this fight is Eastbourne Capital, who combined with Mr. Icahn, own over 20% of Amylin. In what is becoming a battle of letters James N. Wilson, Amylin’s Lead Independent Director sent Mr. Icahn a letter which stated; “You informed us that you intend to leverage your relationship with our partner Lilly to promptly attempt to sell Amylin to Lilly. Amylin’s Board and management believe that a sale of the Company today would dramatically undervalue the opportunity shareholders will have through the approval and launch of exenatide once weekly.”
Based on all available information Diabetic Investor agrees with Mr. Wilson as a sale at this point would severely undervalue Amylin. While Amylin shares have recovered somewhat from recent lows an approval of LAR would provide a dramatic boost to shares and make Amylin an even more attractive target.
Diabetic Investor also believes a sale to Lilly while easier than to a sale to a competitor, Mr. Icahn would be leaving money on the table by not shopping the company. Diabetic Investor has leaned there are at least 5 other major companies interested in Amylin. If nothing else the mere possibility that Amylin could fall into someone else’s hands should boost Amylin’s attractiveness to Lilly.
Diabetic Investor also questions the long term wisdom of selling Amylin to Lilly. As we have noted the Lilly/Amylin relationship isn’t all hugs and kisses. It can be argued that this relationship has actually hurt Amylin as evidenced by Lilly’s continued pursuit of their GLP-1 compound, a compound that Novo could have owned but passed on. It can also be argued that Lilly was contributing factor to the mistakes made when Byetta was first launched and Amylin had to stop sampling Byetta due to a lack of delivery devices which are provided by Lilly. This mistake came at a critical point for Amylin and cost the company valuable market share. There are some who believe that Lilly is more concerned with their stagnant insulin franchise rather than promoting Byetta, which actually has greater potential.
Looking over the diabetes drug market and Lilly’s recent performance here Diabetic Investor believes Amylin would be better off in the hands of a company who living in the present and not in the past. Lilly was slow to recognize the threat posed by Novo Nordisk in the insulin market believing falsely that their reputation alone would prevent share erosion. They were also very slow to recognize the shift towards pen delivery systems and their first attempt in this area was a disaster. While they have since corrected this problem and completely revamped their pen offerings, the damage was already done.
The fact remains that Amylin continues to be the most valuable property in the diabetes drug space and their value will only be enhanced as LAR moves through the regulatory process. Diabetic Investor believes everyone recognizes this fact including Mr. Icahn. Selling to Lilly now would only undervalue Amylin and would be a serious mistake. As has been said on more than one occasion; “Good things happen to those willing to wait.” This is particularly true when it comes to Amylin.