Amylin Pharmaceuticals (AMLN) engages in the discovery, development, and commercialization of drugs to combat diabetes and obesity. The company’s primary diabetes product is Bydureon, a long-acting version of its Type II diabetes fighter, Byetta. Bydureon’s recent FDA approval has not only given Amylin a potentially lucrative source of income in the exclusive and more-effective GLP-1 receptor agonist market for Type II diabetes, but it has also put it on the buyout radar for larger pharmaceutical companies with rapidly aging drug portfolios.
What Makes Bydureon So Different?
Amylin has been trying to get Bydureon approved in the United States for years. It was cleared for a European launch in June 2011. The last time Amylin attempted to gain FDA approval was in October 2010. At that time, the FDA rejected it, and asked the company to conduct an additional study to assuage concerns about any possible negative effects the drug may have on heart rhythm. The company has since addressed this concern to the FDA’s satisfaction, and a domestic commercial launch is already under way.
Bydureon is a long-acting version of AMLN’s diabetes drug Byetta and belongs to the exclusive GLP-1 class of diabetes drugs, which stimulates the release of insulin when a diabetic’s blood sugar gets too high. This is different from the introduction of artificial insulin via daily injections. But the major advantage is that Bydureon is a once-weekly injectable, as opposed to other diabetes treatments, which are generally administered once-daily. The longer-lasting dosage technology was created by Alkermes (ALKS), which will receive 8% of profits from Bydureon. Both Byetta and Bydureon contain the active ingredient, exenatide, a synthetic version of a hormone found in the saliva of the gila monster, a venomous lizard. Exenatide encourages the production of insulin in pancreatic beta cells when blood sugar is too low, and regulates excess insulin to bring down elevated blood sugar levels. The only other diabetes drug of any significance in the GLP-1 receptor agonist class is NovoNordisk’s (NVO) Victoza, which has global annual sales of over $1 billion. Given the huge and growing market for Type II diabetes (285 million patients worldwide, including 24 million Americans, which will likely rise to 38 million by 2020), Victoza’s substantial revenue tally augurs well for Bydureon, which has the significant advantage of convenience (once-weekly injections) over Victoza (once-daily). Victoza, does, however, have the advantage of a well-known spokeswoman (Paula Dean, the Food Network Chef). In our opinion, European and U.S. sales of Bydureon could top $600 million in 2013, and Wall Street estimates this will rise to over $1 billion within three years of its domestic release, depending upon how well it is marketed.
Amylin Needs a Marketing Partner or a Suitor
For many years, Eli Lilly (LLY) was Amylin’s marketing partner. The duo first submitted Bydureon to the FDA in the spring of 2009. The FDA requested further clinical trials to ensure the drug didn’t carry abnormally high cardiac risks. After their second submission on October, 2010, the relationship between LLY and AMLN turned sour, leading to a lawsuit, and a subsequent settlement, that entitles Lilly to royalties from the sale of Bydureon. Saddled with high long-term debt (68% of total capital), and relatively low cash levels, Amylin needs another marketing partner to help it fund the expensive marketing costs associated with getting Bydureon in front of physicians. In addition, a merger with a large pharmaceuticals company would seem logical, as many of these enterprises face material patent expirations. Such a company would probably have to have an existing diabetes infrastructure, namely production facilities and a sales and marketing force that focus on the disease. In our opinion, possible suitors could be Roche (RHHBY), Bristol-Myers Squibb (BMY) and Takeda (TKPYY). And it’s not out of the realm of possibility to think that Eli Lilly itself would make an offer, considering the pair’s history.
Conclusion
Bydureon has a substantial advantage over other Type II diabetes medications because of its once-weekly administration, and because it is in an elite class of more effective GLP-1 diabetes drugs. The recent FDA approval was a big boost to the stock, and we think the equity will continue to trade higher on takeover speculation, and from materialization of growing sales of Bydureon, which targets a vast disease market.
At the time of writing, the author didn’t have any positions in any of the companies mentioned.
