Perhaps we spoke too soon

Perhaps we spoke too soon

It wasn’t that long ago that Diabetic Investor believed that we had more than enough candidates for our annual Corporate Frog Awards.  If there is one thing that can be said about 2013 the wacky world of diabetes is that this year has been wackier than normal and that’s saying something. Of course, Diabetic Investor has said this before and it’s likely 2014 will equally as wacky as 2013 yet the latest rumor making the rounds makes us feel that 2013 will be tough to top.

In the interest of protecting everyone’s health, Diabetic Investor strongly suggests that before reading any further that you are sitting down and not near any sharp objects. Ready …. here it comes …. word is that after paying over $7 billion to acquire Amylin Bristol Myers Squibb (NYSE:BMY) is getting set … wait for it … to exit the diabetes drug market and will sell their diabetes drug portfolio to partner in the Amylin deal AstraZeneca (NYSE:AZN). In a report written by Citigroup analyst Andrew Baum, he states “Citi believes Bristol could seek to sell its share in the ex-U.S. part of the joint venture to AstraZeneca for around $4 billion to $6 billion, using the proceeds for work in core specialist driven areas and acquisitions”. This possible divestiture of the diabetes franchise gained credibility when Bristol announced their shift in R&D spends with diabetes being one of the areas which would be eliminated.

Ok let’s see if we have this right, back when this deal was originally announced Lamberto Andreotti, Bristol’s chief executive officer stated; “Amylin’s innovative diabetes portfolio, talented people and state-of-the art manufacturing facility complement our long-standing leadership in metabolics. We are pleased to be able to strengthen the portfolio we have built to help patients with diabetes by building on the success Amylin has had with its GLP-1 franchise. The acquisition of Amylin by Bristol-Myers Squibb is also a unique way for Bristol-Myers Squibb and AstraZeneca to expand the alliance between the two companies, and it demonstrates Bristol-Myers Squibb’s innovative and targeted approach to partnerships and business development.”

Today barley one year after the deal was announced Bristol no longer believes the portfolio is innovative or that the diabetes is not growing at epidemic rates or that Bydureon is not the potential blockbuster product many seem to believe it is.  Keep in mind at this very moment Bristol is adding additional sales people for their diabetes franchise which would seem to indicate all this speculation about a possible divestiture is just that speculation. However, Diabetic Investor believes it would be a mistake to discount the possible on this one fact alone. The fact is if there is one thing Bristol has done very well since they acquired Amylin is screwing up what could have been a very good thing.

For months after the acquisition based on their public comments one wasn’t even sure they actually acquired Amylin or had a potential blockbuster product in Bydureon. It was almost as if the company made the deal and then had no idea what to do with the portfolio they had just spent $7 billion for. Only recently has the company even acknowledged the existence of Bydureon and even then the excitement level has been equal to watching grass grow. No mention of when the Bydureon pen delivery system would be available or the progression of the once-monthly version of Bydureon which we believe is still under development, although at this point we’re not so sure.

Although we have no direct knowledge of this but Amylin’s former partner Lilly (NYSE:LLY) must be sitting somewhere in Indy having a good laugh. Just as Lilly seemed to have a Jekyll and Hyde relationship with Amylin when the two were partners this schizophrenic relationship was passed onto Bristol when the Lilly partnership ended and they acquired Amylin. As much as Diabetic Investor wishes we were making all this up, the fact is the truth is all too often stranger than fiction.

Now here comes the real stunner, while the analyst community seems to be applauding this possible divestiture, Lilly Amylin’s former partner was recently downgraded by a Goldman Sachs analyst to their lowest rating going from neutral to sell. According to a report issued by analyst Jami Rubin, “(Lilly’s) brightest pipeline prospects (namely diabetes) face pricing and reimbursement challenges. Dynamics of this market are worsening as competitors vie for market share through price competition.” While Diabetic Investor agrees with Ms. Rubin’s views on the diabetes drug market, we think she is failing to grasp how Lilly just might have the perfect strategy for diabetes given how market dynamics have changed.

Listen there was a reason we warned everyone to be sitting down while reading this, who would have thought that after years of bashing Lilly Diabetic Investor would actually be defending their diabetes strategy. If that’s not conclusive proof of just how wacky 2013 has been then we don’t know what is.

Getting back to the possible divestiture of the Bristol diabetes franchise, Diabetic Investor would also applaud the move but not for the same reasons as Wall Street.  As long time readers of Diabetic Investor know we have long believed that Bydureon has the potential to become a mega-blockbuster, if and this is a big if in the wacky world of diabetes, whoever owned the drug knew what to do with it. As we have predicted the GLP-1 market is growing and will continue to grow in the future. As we predicted Victoza the once-daily GLP-1 from Novo Nordisk would do better than expected as a once-daily injection would trump the standard at the time, Byetta which is injected twice-daily.  It makes perfect sense that once-weekly Bydureon would trump once-daily Victoza, especially when the Bydureon pen delivery system became available.

The problem with Bydureon and its subpar performance to date is not the drug itself rather how poorly Bristol has managed the drug. Diabetic Investor is beginning to believe that if Bristol had in advance the winning numbers for the Mega Millions or Powerball lottery games written on a dry erase board in their corporate headquarters a member of their brilliant management team would erase the board without writing down the numbers first. This fact alone should earn Bristol the top prize in the 2013 Corporate Frog awards however given the way this year is going and since it’s only early November we’re taking a wait and see approach.

Perhaps we should just ditch giving out individual Corporate Frog awards this year and just give one award to the entire wacky world of diabetes. Honestly the competition is so fierce this year it will be difficult to crown a champion.  RIBIT!!!!!!