Who Should Buy Amylin?

Bloomberg, the exclusive media outlet of Amylin Pharmaceuticals' (Nasdaq: AMLN  ) rumor-leaking department, published a report on Friday that Sanofi and Merck (NYSE: MRK  ) have put in bids to buy the biotech.

I've gone from not knowing if Amylin was leaking the information when Bloomberg reported that Bristol-Myers Squibb (NYSE: BMY  ) had made a $22-per-share offer, to being pretty certain once the bidding process began, to being downright certain that Amylin is ultimately responsible for the leaks through its bankers.

The news sent shares up 8% on Friday, but the leak of information by "three people familiar with the process" wasn't designed for investors' ears. Assuming Bloomberg wasn't able to convince three people to risk their jobs talking to the media, the "leak" was a calculated move to let other potential bidders know that they need to top the "at least $25 a share" that Sanofi and Merck reportedly offered.

It could be giant bluff, but in the game of M&A poker, bluffing is dangerous because the companies can talk to each other about the cards they're holding. If Sanofi and Merck didn't make offers, I'd be willing to guess they'd be pissed off enough to inform the other bidders they weren't in the process. They're probably not all that happy about being outed in public about their bid, but Amylin isn't here to make friends, it's trying to get the highest bidder.

Investors aren't actively playing the poker match, and there aren't any cameras to see what cards each company holds, but we can make some educated guesses.

Amylin best fits with Merck, Sanofi and Takeda, with AstraZeneca (NYSE: AZN  ) and Bristol not far behind. This purchase should be more about cutting costs than it is about growing sales of Amylin's diabetes drugs, so the acquirer needs to have an established diabetes franchise. Merck already has sales reps hocking Januvia, Sanofi has insulins Aprida and Lantus, and Takeda sells Actos, making Amylin's Byetta, Bydureon, and Symlin a good fit.

Bristol and AstraZeneca sell Onglyza together and are developing another diabetes drug, dapagliflozin, which isn't quite ready for U.S. approval. It's not really clear to me whether it would be beneficial for either company to buy Amylin separately, but I can see how furthering their joint venture by buying Amylin together would make sense.

For Pfizer (NYSE: PFE  ) and Roche, which have reportedly signed confidentiality, buying looks like a move to build a sales force as they develop the diabetes drugs in their pipelines. Both are well established companies; I doubt they'll pay a premium for the drugs.

Guessing which company might be most interested is relatively easy; guessing what the final price will be is considerably harder. Shares closed Friday near $28, potentially well above the reported offers of "at least $25 a share."

A sale of Amylin looks all but certain at this point, but that doesn't necessarily make it a good buy. Just because investors are bidding up the price doesn't make an even higher price a foregone conclusion. A take-under -- a guaranteed bid at a price under the current price with a contingent value rights, or CVR, based on Amylin's drugs reaching certain sales milestones -- seems like a real possibility at this point.

Fool contributor Brian Orelli holds no position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Pfizer. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 29, 2012, at 1:22 PM, skm1965 wrote:

    Suggest you talk to Steve Yo of Leerink Swann.He said,"Possible candidates are Sanofi and Merck--with price from low 30 to mid 30-unless someone else starts higher bidding.(reported on May 15th on the flyonwall.com

    You will add good information--by talking to one of these analyst.

    What you wrote-nothing new--except your last point about buying-which is your opinion.

    But check with Steve Yo.

    33$ vs.28$ now= 18% gain.

    Look at Motley Fool recommendations lately--none matches 18% in such a short time.

    If you think--there is a better stock that will beat 18% gain in next 2 months-please let us know.

  • Report this Comment On May 29, 2012, at 4:24 PM, SarahKnows wrote:

    I have long appreciated Brian Orelli's articles on the Fool. In general, they seem balanced, informed, and reasonable. For this one, however, I'm coming away a bit perplexed. What Brian meant to say, perhaps, if I can offer an interpretation, is that the acquirer of Amylin should have the infrastructure and complementary portfolio/pipeline to market and sell Bydureon and its once a month successor in a way that allows the formulation to reach its potential. Amylin's sales force and experience are just not adequate to capture the full potential of this drug and its cousins, Byetta and Symlin.

    We know that the diabetes market will grow, that patients will increasingly need the weight loss and blood sugar control that the Exenatide formulation provides, while adding other benefits such as avoidance of adverse cardiovascular effects.

    If you are a pharma shopping to augment your pipeline, you want a demonstrated winner, and your objective is not to cut costs, it is to use your resources to buy a winning race horse and make certain that it realizes its potential. In the process of doing this, you want to avoid unnecessary costs so that you can maximize profits. This certainly includes avoiding acquisition of a compound that may in fact reduce your sales in other areas. Companies having experienced sales forces in the diabetes market with dwindling pipelines will offer great potential for Amylin's drugs and may be willing to pay a premium price to get this, approved, first in class drug with a demonstrated safe track record in their inventory. Will there be competition? Certainly, but those companies with drugs in the pipeline will do well to take note of the ever rising standards being imposed by the FDA on new drug applications in the diabetes market.

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