) --Wrapping up some loose threads and responding to reader questions regarding
A bunch of my readers want to hear more from the
earlier today. Manny R. emails, "Speaking of Amylin, does the short seller expect the price to go lower than where it is now? Or was this what he was expecting and the stock is fairly valued now?"
The short-selling hedge fund manager is not covering his Amylin position just yet, he told me in a follow up instant-messaging chat.
One reason is that the mutual fund giant Fidelity owns 14.98% of Amylin and will not be buying any more since because they won't want to take their stake over 15%. October 29 is the end of the fiscal year for mutual funds so Fidelity and some of the other big institutional owners of Amylin may decide to just cut their losses and sell big chunks of the stock now, he said.
Amylin shares were down $9.56, or 46%, to $10.94 in recent trading.
Via Twitter, @ywsr asks, "What's left for Amylin?"
Bydureon isn't dead, but it is critically injured, so Amylin will work on the recovery. Unfortunately, it's going to take two years, which leaves investors with very little to feel good about.
Analysts are running all kinds of revised valuation models today. ISI Group's Mark Schoenebaum came up with four different scenarios:
If his Bydureon peak sale estimate ($2 billion) remain unchanged, but the drug's launch is pushed out to mid-2012, Amylin is worth $16 a share (based on discounted cash flow model.)
The problem with this "best case" scenario is that Bydureon's delay means the drug loses its first-mover advantage and boosts the prospects of competing drugs.
To account for this reality, Schoenebaum's second scenario lowers Bydureon peak sales to $1.45 billion and makes some limited cuts to expenses, which yields an Amylin fair value of $11 a share.
Next, what happens if Bydureon is never approved? The notion seems farfetched, but so did the idea Tuesday afternoon that FDA would reject the drug. Get rid of Bydureon entirely and Amylin is worth $4 a share, says Schoenebaum.
Lastly, Schoenebaum modeled Amylin as a potential takeover target, mainly because an acquirer might unlock a lot of value in the company. Under this scenario, Amylin is worth $19 a share.
If you throw all these valuations into a pot with different weights, Schoenebaum comes up with a fair value for Amylin of $11.
Keep in mind, too, that Amylin is basically a catalyst-free stock until mid- to late-2011. Quarterly sales of Byetta and Symlin are not enough to entice investors, especially since Byetta sales are expected to fall over time as Novo Nordisk's Victoza gains market share.
One more thing, Schoenebaum had a buy on Amylin and was telling investors that Bydureon was going to be approved this week, a mistake he totally owned up to on a conference call this morning. With that said, his revised valuation metrics run essentially in line with a lot of other analysts today.
Again via Twitter, Topszzz asks, "Re: Amylin, what chance does Biodel stand? Bydureon was supposed to be a shoe in. Per TheStreet contest Biodel only has a 24% chance."
The FDA approval of
fast-acting insulin Linjeta was already under a cloud due to the
India data problem
. If FDA is playing hardball with Amylin, why should the agency be lenient with Linjeta? That's not an unreasonable question to ask, which helps explain why Biodel is trading weakly today.
The same concerns are likely weighing on
The Street consensus did lean heavily towards a Bydureon approval later this week, and
bore this out: 73% of contestants predicted Bydureon's approval, only 18% thought the drug would get a complete response letter.
The skepticism about Biodel was already baked in before yesterday's Bydureon shocker: 57% of contestants expect a Linjet complete response letter vs. 24% predicting full approval.
The FDA is expected to issue its Biodel approval decision on Oct. 30.
A comment from reader David Y., who has some relevant professional experience with FDA:
"Your note this morning entitled 'The Short Seller Who Got Amylin Right' was very instructive. It appears that Amylin/
tried too many shortcuts, especially if they were ignoring the bio-accumulation of depot exenatide with the potential safety issues this might induce.
"From my perspective, if you give the FDA any excuse at all to avoid approval of a new therapy (and extended-release formulations are now often considered new), FDA will take it. Nobody at FDA wants to approve anything that will come back on them from any sort of patient safety perspective. I believe there is an unwritten stall strategy in place. Asking for additional cardiac QTc studies is one of the frequent fallback positions taken by the agency to effect the stall. Innovator drug companies now need to build those extra (more spending, more time) studies into the clinical development plan. The stall is a major 'watch out' and an additional risk for those who wish to invest on drug innovation."
David Kliff, owner and editor of the
newsletter, was a bit more direct with his anger at the FDA's Bydureon decision. Kliff is a longtime Amylin supporter who believes that FDA and other drug safety experts have gone way overboard, especially after the controversy erupted with GlaxoSmithKline's Avandia.
Kliff's penned an update for his newsletter clients last night. It's a great read but I won't post the entire rant here because it's meant only for subscribers. Here, though, are some highlights:
"... Diabetic Investor is now convinced the FDA has lost all touch with reality. This is not paralysis by analysis; this is an agency totally out of touch with reality, which has strayed a million miles from their mission, a mission which states they should use scientific evidence when making their decisions."
"While Bydureon is not a perfect drug, after reviewing all relevant data there is no question the benefits of Bydureon far outweigh possible risks. However, the FDA has once again shown they are actively looking for any issue, no matter how farfetched, not to approve new treatments for diabetes."
"Still there is no excuse for the agency’s action with Bydureon. This is more than a travesty; this is an outright example of how badly our system is broken. Frankly every member of the FDA and those elected officials who are more concerned with how they look on TV should be ashamed of themselves. You can also add to this list Dr.
Steven Nissen and his followers who care more about remaining in the spotlight than helping patients.
Nissen is a well-known, some would say controversial, Cleveland Clinic cardiologist and outspoken drug safety critic.
"The bottom line here is the blood of millions of patients with diabetes is now on the hands of the FDA, those fat cat elected officials who care only about looking like they doing good than actually doing good and Dr. Nissen and his supporters who could care less about helping patients and more about being on TV. This entire group should be ashamed of themselves as they do not know the damage they have created and even worse, they could don’t really care. This is truly a sad day."
--Written by Adam Feuerstein in Boston.
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Adam Feuerstein writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback;
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