The Business of Diabetes: Are Amylin's Days Really Numbered?

This isn't exactly new news, but back in June, the Indianapolis Star reported that corporate raider Carl Icahn had acquired a $200 million stake in Amylin Pharmaceuticals, Inc., the San Diego-based biotechnology company perhaps best known for its stake in the blockbuster type 2 diabetes drug Byetta. Amylin is also responsible for the company's namesake drug sold under the brand-name Symlin, which is less a drug and more a biosynthtic analogue of the hormone amylin, a hormone which is completely absent in patients with type 1 diabetes.

The long story short is patients have no need to be concerned about Icahn's intentions anyway, as even if Icahn forces Amylin, Inc. into the arms of partner Eli Lilly and Company, their product line will most certainly not disappear. Should investors in Amylin be worried? Most investors and Wall Street analysts apparently don't seem to think so. If anything, Lilly investors should be more concerned. Most investors have already built into their forecasting and valuation models that Amylin would ultimately be acquired by Lilly anyway. David Kliff, the Diabetic Investor, said "I think Lilly is going to buy Amylin. If it doesn't make a move, another company can come in and take Byetta away. I think Lilly is going to follow the same path that they did with the Icos acquisition."

The main question is at what price would Amylin be sold?

Icahn is not a man who is likely to do anything to hurt his own investments, so its in his own best interest to ensure that Amylin sells for the most money possible. The real question, however, is whether Lilly can afford that right now? The consensus at this point seems to be no. Lilly just sold its own research facility to a third-party, has been actively outsourcing the production of its drugs (including Humalog and Humulin R) to third-party manufacturers, and while the company certainly does not have a shortage of cash, the markets are less generous in terms of good financing deals, and as the Indy Star article below indicates, Icahn has his hands full with fights going on at other companies right now, and for the moment anyway, the biotech company he's devoting his time towards is Biogen, not Amylin. It appears that Icahn picked a lousy time to do push for a sale of Amylin. But he may have spotted a company whose shares were selling for discounted prices and saw an opportunity to make some money. However, Icahn may choose to hold on to Amylin shares for a while longer, pushing for a sale when the financial markets are in better shape. However, in spite of that, Icahn can make things incredibly difficult for Amylin's senior executives while he's waiting, so stay tuned for details!!



Who is this guy? And does Eli Lilly need to be afraid of him?
By John Russell and Ted Evanoff, Indianapolis Star
June 15, 2008

Corporate raider Carl Icahn has a long history of shaking up companies. Now the 72-year-old billionaire has grabbed a $200 million stake in Amylin Pharmaceuticals, Lilly's partner in the diabetes drug Byetta. And does Eli Lilly need to be afraid of him?

When shareholder activist Carl Icahn sets his sights on a struggling company, he makes big waves.

He bought distressed airline TWA, sold off its most profitable routes, watched the company slide into bankruptcy and walked away with hundreds of millions of dollars.
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He scooped up shares in video chain Blockbuster and pushed out the longtime chief executive.

He invested in software maker BEA and pressured the company to sell itself to Oracle.

Now, some are wondering if the self-made billionaire, who likes to rock the boat, will soak Indianapolis drug maker Eli Lilly and Co. with his latest move.

Icahn recently bought $200 million worth of stock in one of Lilly's most critical partners, a San Diego biotech called Amylin Pharmaceuticals. The move raises questions about whether Icahn plans to push Amylin for a shakeup or a takeover, and whether that would threaten Lilly's interests in a critical drug.

On the other hand, pressure from Icahn could create an opportunity for Lilly to buy out its partner and get full control of the drug. Such a move would be reminiscent of Lilly's deal last year in buying out its partner in another hot-selling product, the impotence medication Cialis.

Byetta is a rising star for Lilly and Amylin, which developed it together. It's a diabetes drug that is popular with patients [with type 2 diabetes] for helping them lose weight while controlling their blood sugar.

The drug rang up sales of $650.2 million last year, but some analysts say it could become a multibillion-dollar blockbuster if the government approves a new long-acting version of the drug now in clinical trials. The two companies last week released upbeat clinical data on the long-acting version of Byetta, called exenatide LAR, which seems to raise the drug's market prospects.

Amylin, however, has been struggling. Its shares have declined 28% this year, and the company has yet to turn a profit since going public in 1992.

Icahn has disclosed no plans or demands yet for Amylin. But he is known for pushing hard for restructuring and outright sales. He is not a patient, long-term investor. He wants quick results, and often wrangles control of the board away from management's hand-picked supporters to get what he wants.

Over the decades, companies that yielded to Icahn's pressure or paid him dearly include U.S. Steel, Texaco, Gulf & Western and RJR/Nabisco.

Analysts figure that Icahn will at the least rattle Daniel Bradbury, Amylin's chief executive officer, and perhaps push him out of the company, which since 2001 has lost about $900 million.

"His appetite for confrontation and money is insatiable," said Mark Stevens, author of "King Icahn: The Biography of a Renegade Capitalist." "He's not just after the money. It's the confrontation and the contest. He loves to humiliate the other guy."

If the opportunity arises, Lilly could wind up paying a ton of money to snap little Amylin away from Icahn if he decides to force the sale or restructuring of the promising 1,900-employee San Diego drug inventor. Amylin has a market value of about $3.6 billion, with its shares trading in the mid-$20s.

MotleyFool analyst Brian Orelli doesn't think Icahn will push for a sale of Amylin, but simply advocate for management changes. Even so, Icahn can't do much to help management speed up its drug pipeline, he wrote in a recent report.

"Unless he's planning on grabbing a hammer to help build the new plant, I'm not sure how Icahn is going to help management get the drug to market more quickly," Orelli wrote.

Icahn could not be reached for comment, and his management company declined to answer questions. Neither Lilly nor Amylin would speculate on Icahn's goals.

"We have no way of knowing what his plans are," said Alice Izzo, an Amylin spokeswoman. "We share his interest in our shareholder value. We're happy to engage in dialogue with him just like with any other shareholder."

She pointed out that Amylin's strategy is to increase revenues and sales, while remaining independent, and to continue to push forward with the long-acting version of Byetta.

Shaking up stodgy old-line corporations has been Icahn's passion. Shaking up young biotech companies, though, raises questions about whether it helps or hinders the effort to develop new drugs.

"Drug development is almost a black art. There's not much a corporate raider can do," said Les Funtleyder, a drug analyst at Miller Tabak & Co. in New York and author of a forthcoming book, titled "Health care investing: Profiting from changes in pharmaceutical, biotech and health care services."

Lilly said Icahn's interest in its partner would have no ramifications on its part-ownership in Byetta. According to language in its partnership agreement, if Amylin were to have a change in control, Lilly has 90 days to let the new partner know if it wants to end the agreement, and either side could buy out the other's interest. Lilly also could just continue with the partnership, Lilly spokesman Mark Taylor said.

"Based upon the provisions of our agreement, we feel confident that in the event of a change in control at Amylin, Lilly would retain the same interests to the exenatide franchise that we currently have," Taylor wrote in an e-mail. "We anticipate no changes to that relationship{$326}."

Keeping control of Byetta is critical for Lilly as it tries to shore up its revenue base. Lilly hasn't launched a new drug for humans since it launched Byetta three years ago. [Additional editor's comment: Lilly's diabetes business has lost significant market share over the past decade, especially in insulin.]

Several of Lilly's promising late-stage experimental drugs have been shelved, including an inhaled insulin and a drug for treating eye diseases. Meanwhile, Lilly faces an upcoming wave of patent expirations of its top drugs, such as antipsychotic Zyprexa and antidepressant Cymbalta.

But whether Amylin has a bright future, as it is currently set up, is something Icahn almost certainly would have a say in. And he would bring his hard-nose style to any discussion.

The 72-year-old tycoon, who grew up on the low-rent side of Queens, N.Y., has bellied up to corporate America, amassing one of the world's larger personal fortunes. Forbes magazines estimates Icahn's net worth at $14 billion, and ranked him as the world's 46th-richest person last year.

A divorced, wise-cracking, Socrates-quoting philosophy graduate, Princeton Class of 1957, Icahn disdains imperious CEOs.

Addressing an investment conference in New York several years ago, Icahn said: "The corporate manager is the guy who used to be president of the fraternity," according to a report in the New York Observer. "He's a good guy, you like having a drink with him, but ... he's gonna make sure the No. 2 guy is dumber than him. And he makes sure the guy under him is dumber. Eventually, you're gonna end up with a bunch of morons."

Gathering notes for his 1993 book, Stevens said he entered Icahn's office and marveled at the investor's technique. Items about companies he was interested in had been snipped from newspapers and reports and pasted on a piece of paper he perused.

"It was like he ... was looking for ideas and strategies to come to mind staring at this ransom note," said Stevens, head of the New York global marketing firm MSCO. "He's a funny guy, but he doesn't like anyone. Carl grew up as a lower middle-class Jewish kid in Queens and he felt the Brahmin patrician society was looking down its nose at him."

Icahn runs few companies these days. He does buy a corporation's stock, often in relatively small amounts, and gains a commanding seat on the board by allying with other big investors like fellow raider T. Boone Pickens and others who are dissatisfied with the stock performance.

"He's really devoted his life to making money and humiliating the CEOs of the world because he feels they came from some kind of privileged background he didn't have," Stevens said.

Winning election to a corporate board, Icahn can push to sell parts of the company or lead it in a new direction that will raise the stock. Not everyone, however, is so sure that Icahn will push Amylin into a corner, forcing Lilly's hand.

"Icahn has had trouble dealing with some companies recently," Funtleyder said. "So from where I sit, I don't think Lilly has anything to worry about."

Yet Lilly needs to keep Byetta to compete against other diabetes drug makers. In recent years, Lilly has lost share in the diabetes drug market to Sanofi Aventis and Novo Nordisk, and is still trying to catch up.

"Lilly needs to keep this drug in the worst way," said David Kliff, publisher of Diabetic Investor, a Chicago newsletter for investors in diabetes companies. No other diabetes drug in the last 10 years has been talked about more or anticipated more than long-acting Byetta. "I think Lilly is going to buy Amylin. If it doesn't make a move, another company can come in and take Byetta away."

Even so, Byetta recently has begun to lose steam. Sales for the first quarter came in tens of millions of dollars below some analysts' expectations. But Lilly is bullish on the drug's future.

Observers say they wouldn't be surprised if Icahn pressed for big changes or a sale of the company. One scenario would be to entertain a move by Lilly to buy out its partner.

Recent history shows that Lilly isn't reluctant to entertain such thoughts. Last year, the drugmaker bought Icos Corp., its partner in Cialis, the world's No. 2-selling drug for treatment of impotence, for $2.6 billion. Shortly after taking 100 percent control of the drug, Lilly closed Icos' headquarters and operations in Bothell, Wash., and laid off most of Icos' 700 employees.

"I think Lilly is going to follow the same path that they did with the Icos acquisition," Kliff said.

Yet, Icahn has his hands full with fights at numerous companies. He is trying to gain control of Yahoo!, the Internet company, through a proxy fight. And after wresting a seat at Motorola last year, he set in motion this year's departure of the CEO. That followed last year's ouster of ImClone's CEO. He just sued Biogen Idec for documents explaining why the company has no buyer in hand.

His goal is to make money -- and to make money for others. Some say Icahn is a natural ally of small investors, who have little voice in a company's future.

"Other shareholders want to have the Carl Icahns around," said Espen Eckbo, founding director of Dartmouth University's center for corporate governance. "They (Icahns) will typically force changes the current management is unwilling to do."

And it can make the Icahns of the world rich.

When a move was afoot in Congress in the 1990s to make Icahn personally liable for the pension obligation of his then-bankrupt airline, TWA, Stevens said he advised the tycoon to squirrel away $50 million in Europe so Congress couldn't make him commit his entire fortune, then at $1.2 billion, to cover the pensions.

"He listened," Stevens said, "and he thought about it and he said, 'My money is my army and I need my army around me.' He has an even bigger army around him now."

How big? About $14 billion big.

And more than likely, analysts say, a few more troops could come his way if he wins a skirmish for Amylin.