Friday, June 29, 2012

Bristol-Myers to buy Amylin for $31 per share

Amylin acquisition at $31 per share is below our  expectations,  but is in line with BMY's tradition of stealing great value buys. Medarex and Zymogenetics are the other examples that exemplify BMY's ability to close acquisitions at prices, which very much leaves value for their shareholders. The most precious asset in Amylin’s portfolio is Exenatide, around which it has three formulations, two in the market and one under development.  The once monthly suspension is in PhIII, while the twice daily (Byetta) and once weekly versions (Bydureon) has reached the market.

AstraZeneca alliance with BMY will help Bydureon franchise peak sales
With AstraZeneca and BMY likely to copromote the diabetes portfolio of Amylin, we could expect further upside in peak sales. We forecast $4b in peak sales for exenatide franchise primarily coming from Bydureon once monthly version. AstraZeneca by carving a deal with BMY has been derisked itself to a great extent, but yet could very much get a fair share of the upside. AZN was in dire need of an asset that could aid its cash flow.

We see Bydureon emerging as a major force in the non-insulin dependent anti diabetes patients -Safety and tolerabiltiy are the necessary attributes of a front line treatment. With Exenatide having the largest base of real world evidence on its safety, it is poised well to be used  in the earlier setting, especially in the obese patients. Availabity of once monthly Bydureon would catalyze this transition of GLP-1 usage to earlier settings. Solid efficacy, weight loss, no hypoglycemia, make GLP-1's as an ideal treatment for diabetes.  Ongoing CV safety trials if successful would further reinforce its position as preferred treatment in the earlier setting.

Amylin's Bargaining power was limited as
  1. Increasing Scarcity of Cash with Large Pharma companies Exenatide franchise is the key lever of Amylin’s valuation. To get the buyer and seller reconcile on the valuation , was an onerous task due to the wide gap in the peak sales estimate that one can build for a product like Bydureon. One might sound equally convincing on a $6billion peak sales estimate as someone else estimating $1billion because of the vast variety of forces that could impact the peak sales. For the large pharma companies, both global and Japanese, Cash now is a scarce asset, and with patent expiry pressure at its peak, it is unlikely that they would risk this precious asset.
  2. Availability of competing assets limited the upside There are buyers in the market, for whom Amylin kind of an acquisition could put them back on driving seat, but with so many uncertainties around the peak sale potential, they may not find it wise to stretch themselves too much.  The extent to which Amylin shareholders can bargain is also  limited by the availability of alternate assets that a buyer may be willing to pursue. Intarcia implants (once in six months) and Hanmi's pharmaceuticals long acting GLP-1 (once monthly) were the one's that could have limited Amylin's bargaining power.
  3. Availability of Fixed dose combination of GLP-1's with insulin  - example - Lyxumia+Lantus and IdegLira( Degludec +Liraglutide), limit Bydureon penetration in insulin patients, which restricts its peak sales potential