Amylin Deal Signals Diabetes Space is Hot
Tony is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The bidding war for Amylin Pharmaceuticals (NASDAQ: AMLN) is over with a successful joint bid for the company by Bristol-Myers Squibb (NYSE: BMY) and AstraZeneca PLC ADR (NYSE: AZN). In a two-part transaction, Bristol-Myers will first pay $5.3 billion cash to Amylin stockholders. It will also assume debt and royalties payable to Amylin's partner Eli Lilly for another $1.7 billion.
But then Bristol-Myers will fold the company into its joint venture with AstraZeneca, which will in turn pay half of the $7 billion cost. The partnership means the companies will share both the risk and the reward of potential diabetes treatments from Amylin's drug pipeline.
Two diabetes drugs from Amylin have already received FDA approval. These are the twice-daily diabetes injection Byetta, with $518 million in sales last year, and a longer acting formulation of the drug, Bydureon, which is taken weekly. Bydureon competes directly with the best selling drug of this kind, Victoza from Denmark's Novo Nordisk.
From the standpoint of the diabetes drug market, the deal makes sense for Bristol-Myers and AstraZeneca since there are few targets left in the diabetes space. And it is a growth market. The World Health Organization has stated that 350 million people around the world have the disease and that number is climbing yearly.
But the deal for Amylin is also important for another standpoint. It is the harbinger of more deals to come in the sector. The Amylin transaction is already the fifth deal in 2012 valued at more than $1 billion. The previous two years saw only three such deals.
The reason behind the expected pickup in M&A activity is the same old one...patent expirations on a number of blockbuster drugs occurring at the same time as drug pipelines are thinning out at the major pharmaceutical companies. Drug companies last year lost patent protection on products worth an estimated $34 billion in annual sales. According to Bloomberg, this figure is expected to swell to an incredible $147 billion by 2015.
So where should investors look for more deals? One likely area is in the aforementioned lucrative diabetes market.
Another fellow UK company already on the prowl in that space is GlaxoSmithKline PLC ADR (NYSE: GSK). It is looking for quality diabetes assets and has already made a $2.6 billion hostile offer for Human Genome Sciences (NASDAQ: HGSI). Among the medicines in its pipeline is diabetes drug Albiglutide (they share potential royalties with GSK) along with heart disease medication Darapladib. Phase III testing on Albiglutide has been quite positive making the company quite alluring. As an analyst for ISI Group, Mark Schoenebaum, said “there aren't a lot of diabetes assets out there. It is increasingly strategic to be in that market.”
Human Genome Sciences has opened itself up to bids from other suitors. That may elicit responses from the losers in the bidding for Amylin. Do not be surprised if Eli Lilly, Merck, Sanofi or Pfizer or even Roche jumps into the bidding for HGSI. With the aging of the baby boomers and rising affluence (eating more junk food) around the globe, the diabetes space will remain a hot sector for years to come.
tdalmoe has no positions in the stocks mentioned above. The Motley Fool owns shares of AstraZeneca plc (ADR) and GlaxoSmithKline. Motley Fool newsletter services recommend GlaxoSmithKline. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.