Given the merry-go-round of announcements generated daily by the pharmaceutical industry, investors’ heads must spin trying to determine those developments that are going to make a meaningful impact on a company’s share price and prospects.
On Tuesday, Eli Lilly (NYSE:LLY) kicked to the curb Amylin Pharmaceuticals (Nasdaq:AMLN) and the companies’ nine-year partnership to develop a drug that lowers the blood sugar of diabetics. Once heralded as the example of another model collaboration between Big Pharma and small biotech that would yield blockbusters at lower costs, the Lilly-Amylin deal was plagued by many issues. Maybe the straw that broke the camel’s back was when Lilly evidently found a more attractive playmate.
In January, the Indianapolis-based company inked a deal with Germany’s Boehringer Ingelheim to develop diabetes drugs, including a pill called Tradjenta that is also given to patients who are having trouble controlling their blood sugar but haven’t yet gone on insulin. A couple of months later, Amylin sued Lilly for breach of partnership.
Rather than fight it out in court, the two companies settled. Amylin agreed to fork over $250 million to Lilly upfront and as much as $1.2 billion more from sales of a molecule called exenatide that lowers the blood sugar of diabetics. That molecule is in the drug Byetta. And it would be the basis for a longer-acting version, Bydureon, which was recently approved in Europe and is up for U.S. approval early next year.
Amylin gets the full U.S. rights on Nov. 30, and the rights outside the U.S. sometime between late 2012 and the end of 2013. Until then, Lilly will continue sales outside the U.S. The agreement also settles outstanding litigation between the two companies.
Amylin CEO Daniel Bradbury thinks he got a good deal, pointing to the more than $1 billion in sales from Bydureon. “We could have continued to work through” the differences with Lilly, he said, according to an article in the Wall Street Journal. But “at the end of the day we believed the agreement we came to actually gives the molecule the greatest opportunity to realize its value. “
Investors had another take on the deal, thinking it’s risky for Amylin. They noted that Byetta sales have accounted for nearly 80% of the company’s revenue during the first nine months of this year. And analysts are concerned about whether Amylin has the cash needed to pay Lilly and commercialize the drugs by itself. Amylin shares are down 12% since their Monday close.
Lilly seems happy as a lark about the split. The president of Lilly Diabetes, Enrique Contemnor, said resolution of the matter gives Lilly the chance to focus on the products from its partnership with Boehringer and on Lilly’s own diabetes drugs, including a therapy that is in phase III testing. It “was not, to put it mildly, the ideal situation” to be fighting Amylin in court while trying to launch Bydureon together, Conterno said, according to The Wall Street Journal.
As of this writing, Barry Cohen did not own a position in any of the aforementioned stocks.