Wednesday, April 04, 2012

The Business of Diabetes: Today, I Believe Amylin's Days Really ARE Numbered

Back in August 2008, I wrote a post entitled "The Business of Diabetes: Are Amylin's Days Really Numbered?" in which I disclosed some early news about Mr. Icahn's acquisition of Amylin shares and what that might mean, or not mean. In my assessment, I didn't think it meant very much at the time. I also did not agree with Diabetic Investor David Kliff (who was interviewed in the Indianapolis Star article I cited) that Lilly would necessarily buy Amylin. However, I posited that even if Amylin disappeared tomorrow, it's products will persist long afterwards. However, my comments were made nearly 4 years ago, and Amylin didn't disappear at that time (Mr. Icahn was busy with Biogen and a few other companies at the time), but a whole lot has changed since that posting.

Today, I really DO believe Amylin's days (as an independent company) are numbered. I would not be surprised at all if Amylin does disappear in the not-too-distant future. The handwriting is on the wall, as they say. Things are different today. The big question is WHO will buy the company? Amylin's management basically told Bristol Myers Squibb to take a hike, but now that the news has leaked to shareholders, including activist shareholder Carl Icahn, all bets are off.

How are things different? For one thing, Lilly dumped Amylin for a competing company, and Amylin then sued them for breach of its partnership agreement. (How many times do I have to say I think Lilly is a downright $#!tty partner, both for nonprofits like JDRF and for companies like Amylin? Management there would push their own mothers under under a bus if it meant fattening Lilly management's compensation. They have proven repeatedly they don't care about anyone but themselves, catch some posts HERE, HERE, and HERE for examples. However, that is a digression. Today's post has little to do with Lilly.) Another thing, Amylin's management, quite frankly, really did screw it's investors with refusing to talk with Bristol Myers Squibb.

Carl Icahn's Blistering Letter

Today, Carl Icahn published a very blistering letter (see HERE) to the Amylin Board of Directors that he thinks the company should be sold -- quickly or risk a proxy fight.

However, this time I think Mr. Icahn's points really ARE valid. Plus, he has a history of trying to embarrass and shame management of companies he thinks are not well-managed, and over the last few years, Mr. Icahn has moved to get at least two Board members that are sympathetic with his point of view on Amylin's Board, but apparently not enough to make sure that shareholders were kept apprised of acquistion offers! Still, a proxy fight would benefit Mr. Icahn because shareholders would evaluate things from the perspective of what their stock is worth, and a compelling case can be made that selling the company would increase the value of Amylin's shares dramatically. Bristol Myers Squibb already put $22/share on the table.

The $#!t has hit the fan with Amylin. Let's see how long this fight takes!!

News was out last week and Amylin's stock spiked when it was reported that Amylin's management had turned down an unsolicited $3.5 billion unsolicited acquisition offer from Bristol-Myers Squibb Co. earlier this year (see HERE). The board turned the offer down in February, said the people (who declined to be identified because the approach was private). The offering price was 43% more than Amylin's closing stock price of $15.39 on March 28, 2012 when the story broke. Amylin's shares then spiked when the news broke, fueled by speculation that an aquisition of the company was very likely as a result.

The logic behind Bristol Myers Squibb's offer makes sense, providing the company doesn't overpay for the acquisition. Bristol Myers Squibb's diabetes business, frankly, is almost non-existent today. Once upon a time, a forerunner to that company known as E. R. Squibb and Sons actually sold insulin just like Lilly and Novo do today. But Squibb insulin wasn't the greatest and they turned to a third-party supplier known as Novo Industries (which later merged with Nordisk) to help it with both supply and and quality problems. Initially, it began as a joint-venture in the U.S. (known as Squibb-Novo), but over time, Squibb ultimately sold it's share of the North American insulin business to Danish insulin giant Novo Nordisk, and they basically left the market back in the 1980's.

Beyond that, Bristol Myers Squibb doesn't really have much for type 2 diabetes, either, having had at least one type 2 treatment fail in clinical trials, so it relies primarily on a product known as Onglyza which is technically co-marketed with AstraZeneca. But aside from its lack of presence in the market, I suspect the company saw Amylin as a mismanaged company that could be picked up for a fair price. But no one anticipated that Amylin's Board would turn down a price that was a 43% premium to where it's shares were trading at that time. Also, management then pushed to sell more shares of stock (Amylin's offering on March 8, 2012 of 13 million shares, or about 10% of shares outstanding, priced at $15.62 apiece, without disclosing the Bristol-Myers offer to shareholders), which further diluted the value of the existing shares already out there.

Last week, Bloomberg News REPORTED that Amylin's executive management felt that the offering price, reported to be $22/share was "too low" for the company, in spite of the fact that Amylin hadn't been making a lot of money, and also lost it's partner last summmer when Eli Lilly and Company signed a deal with Boehringer Ingelheim, which had a competitor to Byetta in development as well as some long-acting (like Lantus) insulin formulations in development which Lilly desparately needs. Amylin sued Lilly to get out of it's contract and the courts agreed that Lilly was in violation and should therefore release Amylin from it. Lilly's move with Boehringer Ingelheim was driven by that company's need to shore up a business it had mismanaged for over a decade. The Amylin-Lilly product for type 2 known as Byetta has been losing share to Novo Nordisk's Victoza, and today, Lilly is pretty much a one-trick pony when it comes to insulin, selling only Humalog and some first-generation insulin varieties like Regular and NPH. Those still make money for the company, but Lilly has struggled to get on formularies for insurance companies because they don't offer a full portfolio of insulin analogue products, while Novo Nordisk and Sanofi do. Much of that is because the company failed to invest in the diabetes business after Humalog, pouring most of its R&D money into nuerosciences and other disease treatments like Erectile Dysfunction (like Pfizer couldn't handle that itself?). Anyway, Amylin's stock surged following the Bloomberg News report that it declined the Bristol Myers Squibb acquisition offer, based largely on the presumption that another big pharma player would likely step in to buy Amylin and push the share price even higher. Also, there was speculation that Amylin investor Carl Icahn would push the company to sell itself, which is exactly what happened.

Carl Icahn to Amylin: Begin the Sale Process Right Away

Today, Carl Icahn, a man best known for pushing companies to sell themselves and embarrassing management at the same time, seems to be agitating for an outright sale of Amylin, and the chances are looking pretty good that he'll succeed. Amylin's stock has lagged and the company hasn't exactly been a winner for shareholders. Aside from the senior execs who are on the board, as well as the puppets on the board who basically do what management wants, Mr. Icahn has pushed to get people who are of a similar mindset on the board over the last few years, and he's managed to get two on the Board. The other question is how much management is willing to struggle to go it alone? As Mr. Icahn's letter states:

"In my view, a proxy contest at this time would be a costly distraction – but I would not shy away from that possibility if I felt that the Board was not pursuing seriously the opportunity to sell the company. While I am hopeful that the Board is cognizant of doing the right thing for shareholders and that all strategic alternatives will be considered, in light of the reported Bristol-Myers Squibb offer, I am (and I believe other shareholders should be) unwilling to sit idly by with the mere wish that the Board will fulfill its fiduciary duties."

Basically he's telling the Amylin Board and management team "Now, you are ADVISED to play nice, or I WILL call for a proxy contest. Care to bet who will likely win that?"

In the meantime, several possible suitors have been named by Wall Street analysts. They've put together lists, including AstraZeneca, Merck, Forest Laboratories, Takeda Pharmaceutical, Sanofi and, of course, Bristol-Myers. Some of these companies would be better positioned to "achieve significant synergies," namely those that already shop products in Amylin's key market, diabetes. And they could afford to pay more than the $22/share that Bristol-Myers reportedly bid. Some analysts believe the company could fetch as much as $31/share if it is sold.

Let the posturing and fighting begin!!

Follow-Up: On Monday, April 9, 2012, Mr. Icahn filed a legal complaint in a Delaware court seeking an extension of the nomination deadline for directors, and also make proposals at the 2012 annual meeting of Amylin shareholders. The full press release can be viewed at

1 comment:

Anonymous said...

Scott, a well written piece of information. I think you are right on with each point. Though I think Merck may not really be a possibility.

Unfortunately, this kind of thing happens in business all the time, as I'm sure you're aware. It really sucks that with these people, it's only about how much money they can skim off for themselves. It sucks even more that it affects much more than just the shareholders too.