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Calling Shenanigans on Amylin Pharma

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NEW YORK ( TheStreet) -- Strange times at Amylin Pharmaceuticals (AMLN). The diabetes drug company announced a $200 million secondary last month, only a few weeks before management reportedly rejected an offer from Bristol-Myers Squibb (BMY - Get Report) to acquire the company for $22 a share, or a 43% premium to the stock price at that time, according to Bloomberg. Amylin reportedly considered Bristol's bid as too cheap. Now, Amylin's third largest shareholder, Carl Icahn, is suing the company to force the board to initiate a formal sale process.

Meantime, Bydureon -- a once-weekly reformulation of Amylin's Byetta and the company's most important diabetes asset -- continues to flounder commercially. Bydureon is underperforming noticeably the competing launches of Novo Nordisk's (NVO - Get Report) once-daily Victoza and twice-daily Byetta itself.

Perhaps most strange, unsettling (and frankly, unacceptable) Amylin CEO Dan Bradbury and the rest of his management team have said nothing publicly about Byudreon, the stock offering, Bristol's bid or Icahn's legal provocations.

In theory, I can understand why a large pharmaceutical company, especially one with an existing diabetes sales force like Bristol, might be interested in buying Amylin. Obvious synergies exist, especially if most of Amylin's 1,300 employees could be fired, and near-zero interest rates make it attractive for companies to "swap balance sheet for P&L."

But any pharmaceutical company that wants to buy Amylin has to be believe in Bydureon's path to commercial success. How likely is that? Not very, and the disappointing prescription data reported to date support my skepticism.

Bulls might argue that the deal for Amylin makes sense even if Bydureon disappoints, or that Bristol-Myers' more experienced salespeople can change the drug's fortunes. I doubt it, but it certainly wouldn't be the first time a pharmaceutical company has vastly overestimated its marketing prowess.

The key question: Given Amylin's recently struggling share price, former partner Eli Lilly's late-2011 abdication, and lackluster Bydureon scripts, how could an offer valuing the company at a 43% premium be rejected by the company's board and executive team?

Before we dig deeper into this mystery, I want to stress that my views are based on experience and interpretation of publicly available information. I don't have any anonymous sources here. I'm not even convinced there's an investable thesis -- long or short -- in Amylin today. But the dynamics of this story are surely intriguing.

Let's look at the facts:

First, Amylin has said publicly that it plans to secure a new marketing partnership for ex-U.S. rights to Bydureon. Carl Icahn, whose Icahn Capital owns nearly 9% of the company, has repeatedly objected to this plan, expressed faith in Bydureon, and indicated that he wants the company sold. I think Bydureon will miss Wall Street's sales expectations, but I agree that an acquisition would be better for shareholders than another partnership. Unless current prescription trends change dramatically, Bydureon is going to look like a far less attractive asset one year from now. If a suitor does exist, I would sell the company now.

Second, there seems to be internal disagreement about the Amylin's strategy. One of its directors refused to sign the regulatory filing for last month's secondary stock offering, presumably because this director objected to the fund-raising plan. (I agree with his objection and still don't understand why Amylin raised money at those prices, unless management feared the stock would drift even lower.)

Third, Bristol would likely have had to perform at least a modicum of due diligence in advance of any formal proposal, and Amylin's board would have needed to evaluate the terms. Here's where it gets tricky, since a precise timeline hasn't been publicly disclosed. If the Bristol bid came before the secondary offering, it suggests significant resistance by management -- and most of the board -- to a sale, especially given the hefty premium. To me, this implies the company has an overly optimistic view of Bydureon's value. If I were an Amylin bull, that would make me worry.

Could Bristol's bid have come after the secondary offering? Not likely. I don't think that would have allowed enough time for Bristol to conduct due diligence, Amylin's consideration of the offer and its eventual rejection.

Still, I find it odd that Bristol hasn't said anything publicly. If the company really wants to acquire Amylin, why not make a public appeal to shareholders? This hints at another concern. Maybe Bristol isn't really interested in Amylin after all.

Which leads to one, final possibility: What if there isn't a Bristol bid?

I keep wondering about the official silence from both sides, which is particularly awkward for Amylin given that it's pretty shady to leak an acquisition rumor after pricing a secondary at far lower prices. If the company whispers spicy rumors to reporters before we even know whether the investment banks has covered the deal's overallotment, investors deserve to know what's going on.

It's been nearly three weeks since the Bloomberg report, and shareholders remain in the dark. According to my experience and a few executives I spoke with, that's pretty unusual. Any bid with that big of a premium, particularly given the media leak and the near contemporaneous secondary, should be considered a material event. In similar situations, it's common for a company to issue a statement along these lines: "We received and evaluated an acquisition offer, but rejected it for reasons X, Y, and Z."

At this point, Amylin shareholders should demand transparency and a public explanation. Believe it or not, shareholders -- even the small-fry retail investor -- actually own the company.

I'd like to hear what others think about the curious case of Amylin and the mysterious Bristol bid. [Sounds like a Hardy Boys novel.] Please voice your view -- anonymously, if you prefer -- in the comments section below or on Twitter using @natesadeghi and the hash tag #AMLNBid.

Disclosure: Sadeghi has no positions in Amylin or Bristol-Myers Squibb.

Follow Nathan Sadeghi-Nejad on Twitter.
Nathan Sadeghi-Nejad has 15 years experience as a professional health-care investor, most recently as a sector head for Highside Capital. He has worked on the sell side (with independent research boutiques Sturzaļæ½s Medical Research and Avalon Research) and the buyside (at Kilkenny Capital prior to Highside). Sadeghi-Nejad is a graduate of Columbia University and lives in New York. You can follow him on Twitter @natesadeghi.

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