Amylin Pharmaceuticals, Inc. (AMLN)

PDTBiotech (25.59) Submitted: 3/25/08 11:45 AM : Start Price: $29.02 AMLN Score: 5.00

AMLN develops, manufactures, and sells drugs for the treatment of diabetes, obesity, and cardiovascular disease. I’ll dispense with the obligatory “gee-whiz” numbers here, but needless to say whoever can gain a foothold in this field and maintain it stands to make a huge sum of money for as long as anyone can reasonably project.

AMLN currently has two drugs on the market:

Byetta (exenatide) is first in class from a drug family known as incretin mimetics - it mimics the hormone GLP-1, which stimulates insulin release and lowers blood sugar. GLP-1 itself is ineffective as therapy, as it is rapidly degraded, but Byetta has a longer half-life. Byetta also has several other modes of action, including functioning as an appetite suppressant, and may result in inhibition of weight gain and/or promotion of weight loss. It is injected twice daily. Byetta was approved in the US in April 2005, and has since shown impressive sales (2005 $75.2M, 2006 $430.2M, 2007 $636M). As mentioned below, Byetta was recently projected to achieve peak annual sales of $2B. From S&P’s report: “In September 2002, AMLN signed a collaborative agreement with Eli Lilly & Co. for the development and commercialization of exenatide and other versions of the compound, including exenatide LAR. AMLN received $110 million in initial fees and is entitled to additional payments of up to $130 million, depending on the commercial launch of exenatide in the U.S. and other countries. In the U.S., the two companies will split profits equally. Outside the U.S., Lilly is entitled to 80% of profits, with AMLN receiving the remaining 20%. The companies will split development and commercialization costs in the U.S. Outside the U.S., Lilly is responsible for 80% of development funding and all commercialization costs.”

Symlin (pramlintide acetate) is an analog of amylin, a neurohormone released in a similar pattern to insulin after meals; amylin is also deficient in diabetics. It works by decreasing the rate of stomach emptying, inhibiting appetite, and inhibiting glucagon secretion. Symlin is an adjunct treatment for people whose insulin injections do not completely control their blood sugar levels, and is injected at mealtimes. It was approved in March 2005, but has not shown as impressive sales as Byetta (2005 $11.5M, 2006 $43.8M, 2007 $65.5M).

AMLN’s most important product in their pipeline is exenatide LAR, a slow-release version of Byetta that AMLN and LLY are developing with Alkermes’ proprietary Medisorb injectable sustained release drug delivery technology. Byetta LAR would be injected once a week, which would obviously boost the drug’s popularity with patients. Phase II trials indicated that Byetta LAR decreased blood sugar levels and stimulated weight loss. Preliminary data from a Phase III trial was reported in October 2007, and thus far Byetta LAR appears to be a superior treatment to Byetta. An inhalable form of Byetta for patients on diet and exercise regimens is in the pipeline as well, but thanks to Pfizer’s Exubera fiasco I doubt too many people are counting on this as a major revenue booster. AMLN is also investigating the use of pramlintide to control obesity as monotherapy and in combination with other oral medications. They are currently in Phase II trials, and there is no doubt that pramlintide achieves statistically significant weight loss in patients. Given the horrible history of weight-loss agents, major hurdles will include convincing the FDA that it’s a) safe and b) that doctors will keep it out of the hands of abusers.

Financially AMLN is in decent shape, sitting on $1.1B cash/ST investments and generating nice sales/building brand awareness and patient approval of Byetta. They project R&D expenses between $325 million and $375 million, and SG&A costs of between $425 million and $475 million for 2008. Obviously they’re burning up a ton of cash between the clinical trials and banging the drum, but the potential payoff could be huge.
   
In August AMLN hit a closing high of 51.43, and has since steadily slid down to the mid-20s. The price decline really started in mid-October, when AMLN lowered annual guidance at a CC. A week later the FDA announced that there was a possibility that Byetta was associated with acute pancreatitis; while this wasn’t enough to get Byetta yanked it was included on the label. A potential bottom was hit earlier this month when FBR analyst Jim Reddoch predicted peak Byetta sales of $2B and said that Novo Nordisk’s liraglitude seems likely to underperform AMLN’s once-weekly Byetta, with few legitimate contenders set to enter the market any time soon. Reddoch set a price target of $43. If you look at the long term chart, AMLN is very near where it was trading before approval of Byetta and Symlin, and that’s after they have both proven effective and safe in patient populations, with a lot of potential for label expansion and development of LAR versions. I’m putting $65k in my marketocracy tracking port (http://www.marketocracy.com/cgi-bin/WebObjects/Portfolio.woa..., which is equal to about 6.5% of total capital in the fund.

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