Dumping Amylin ups stakes for Lilly

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Eli Lilly and Co. divorced one diabetes darling in favor of a new flame last week, but no analysts cheered. And a few booed.

Lilly and its San Diego-based partner Amylin Pharmaceuticals Inc. decided to go their separate ways, with Amylin agreeing to pay Lilly to gain full rights to the diabetes medicines Byetta and Bydureon.

Lilly will instead focus on its new diabetes drug Tradjenta, which was developed by Germany-based Boehringer Ingelheim GmbH, as well as three others Lilly and Boehringer are developing together.

The move puts ever more pressure on Lilly’s pipeline to deliver new drugs—something it has struggled mightily to do ever since the approval of Byetta in 2005.

“In our view, today’s news represents yet another pipeline disappointment for LLY,” wrote Jami Rubin, a pharmaceutical analyst for Goldman Sachs Group Inc. She acknowledged that the deal gives Lilly more flexibility than it appeared to have, given the legal contention with Amylin.

“However,” she added, “LLY’s outlook now rests even more on the rest of its pipeline, for which we have seen minimal data.”

The break-up comes after Amylin sued Lilly unsuccessfully this year to force it to use separate sales forces for Byetta and Tradjenta, saying the drugs would compete against each other. Amylin had vowed to keep fighting Lilly even after a federal judge ruled in Lilly’s favor.

The divorce also comes just months before Bydureon’s expected approval in the United States (it was approved earlier this year in Europe). And that spooked investors in Amylin, who traded down the company’s stock price 11 percent on Nov. 8, the day the break-up was announced.

"Did AMLN Just Take Control of a Sinking Ship?” was the title of Collins Stewart analyst Salveen Richter’s report on the deal, which referred to Amylin by its ticker symbol. With the U.S. Food and Drug Administration scheduled to render a ruling on Bydureon on Jan. 28, he wondered if Lilly’s willingness to let go of the product signals that the company has low expectations for its potential.

Byetta was the first of a new series of drugs called glucagon-like peptides, or GLP-1s. Bydureon is based on the same drug compound, exenatide, but is supposed to be more convenient, since it requires an injection only once a week instead of twice a day, as Byetta does.

But in the meantime, Denmark-based Novo Nordisk A/S has launched its own GLP-1, called Victoza, which in clinical trials has shown better results at lowering diabetics’ blood sugar levels than either Byetta or Bydureon. Those developments, as well as FDA concerns about Byetta's contributing to pancreatitis in some patients, have dampened Byetta sales as well as expectations for Bydureon.

Through the first nine months of this year, Byetta and Bydureon recorded worldwide sales of $508 million, down 5 percent from the same period a year earlier.

In its deal with Boehringer Ingelheim, signed in January, Lilly got rights to Tradjenta, an oral diabetes medication, a type that has proved popular with patients. Lilly is also developing another GLP-1, called dulaglutide, which is soon to enter Phase 3 clinical trials and could reach the market within a few years.

Lilly investors largely shrugged about the break-up with Amylin, since Lilly will get a $250 million upfront break-up fee, and royalties up to $1.2 billion over the life of Byetta, Bydureon and one other medicine the two companies were developing.

“Given the comments from LLY, we view this as an essentially neutral financial development for the company,” wrote Deutsche Bank analyst Barbara Ryan, in a Nov. 8 note to investors, referring to LLY by its ticker symbol.

Other analysts thought the deal might be a slight negative for Lilly, but emphasized that clearing up the cloud of litigation is a good thing.


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