The biotech sector has been full of consolidation and mergers of late, but now we have a new model whereby a smaller company is set to grow by taking a part of a larger company. We cannot exactly call it a reverse merger. Alkermes, Inc. (NASDAQ: ALKS) and Elan Corporation, plc (NYSE: ELN) have signed a definitive pact where Alkermes will merge with Elan’s unit called Elan Drug Technologies.
The drug technologies unit is profitable and is the drug formulation and manufacturing unit. The cash and stock transaction is valued toda at roughly $960 million and Alkermes and the unit will be combined under a new holding company structure that is incorporated in Ireland called Alkermes plc.
Alkermes says this deal will be immediately accretive to cash earnings. It also is said to accelerate Alkermes’ path “to building a sustainably profitable biopharmaceutical company with expertise in developing treatments for central nervous system diseases and a broad, diversified portfolio of products and pipeline based on proprietary science and technologies.”
The deal is a game-changer because on a standalone basis Alkermes was set to have a loss of -$0.31 EPS on $213.27 million in its fiscal year March-2012. The combined company is said to see a growing product, royalty and manufacturing revenues in excess of $450 million annually. Alkermes said it will also become immediately profitable on a cash earnings basis. In short, Alkermes instantly transforms. Now the company will have a revenue stream from 25 commercialized products and its 5 growth products will now be from RISPERDAL CONSTA, INVEGA SUSTENNA, AMPYRA, VIVITROL, and BYDUREON.
For Elan, it gets to cut the debt on its balance sheet and will get to improve its capital structure, increase its operating leverage, and this will allow for additional focus and disciplined investments. It also gets a stake in Alkermes plc that can drive its value ahead.
RISPERDAL CONSTA and INVEGA SUSTENNA are both commercialized by Johnson & Johnson (NYSE: JNJ) as long-acting injectable atypical antipsychotic medications for schizophrenia and bipolar I disorder. Ampyra is an MS drug under Acorda Therapeutics, Inc. (NASDAQ: ACOR). Bydureon is an extended release Typy-II diabetes treatment that Alkermes is in with Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN) and Eli Lilly and Company (NYSE LLY).
Elan is set to receive $500 million plus it will also receive 31.9 million ordinary shares of Alkermes plc common stock. The companies will also enter into a shareholder agreement that contains a lockup, standstill and voting agreement for Elan’s shares of Alkermes plc.
As far as existing Alkermes holders, they will receive one ordinary share of Alkermes plc per each share of Alkermes, Inc. owned at the merger date. The new Alkermes plc shares will be registered in the United States and are expected to trade on NASDAQ. Alkermes plc will be headquartered in Dublin, Ireland The company did note that this transaction is expected to be taxable to existing Alkermes holders and it has obtained a commitment from Morgan Stanley & Co. and HSBC to provide up to $450 million of term loans to finance the transaction.
Revenues are expected to grow in fiscal 2012 and is expected to reach double-digit growth rates in fiscal 2013 and beyond. Pro forma Adjusted EBITDA margins in fiscal 2012 are projected at 15% to 20%, pro forma Adjusted EBITDA is put at $70 million to $90 million, and pro forma adjusted EBITDA margins should expand to 30% to 35% in fiscal year 2013 and beyond. Also noted was that it has identified about $20 million of annual synergies in U.S. operations that can be fully realized by fiscal 2013.
JON C. OGG
Amylin Pharmaceuticals Inc. (NASDAQ: AMLN) is getting pounded this morning. Shares are effectively cut in half after the FDA declined to approve Bydureon as a potential diabetes drug with the request that it and partners need to do more testing..
The FDA requested a thorough QT study to analyze the effect on heart rates. Also requested was the evaluation of the efficacy and the labeling of the safety and effectiveness.
Eli Lilly & Co. (NYSEL LLY) and Alkermes Inc. (NASDAQ: ALKS) plan to respond to the FDA request, however the release said “by the end of next year” and that this was pending FDA discussions. The requirement for this additional data will requiring a six month review.
Amlylin’s Bydureon is the once a week injectable treatment of Byetta.
Amylin also gave preliminary data on revenues showing that revenues were approximately $154 million versus $192.9 million in the same quarter a year ago.
Amylin shares are down a whopping 48% at $10.65, under the 52-week trading range before of $11.01 to $24.21. Eli Lilly is down 4.2% and Alkermes is down 23% at $11.05 in pre-market trading.
JON C. OGG
Alkermes, Inc. (NASDAQ: ALKS) is trading higher on news that the FDA granted the company a wider approval of Vivitrol for treatment of opioid addiction. The drug is already on the market for use in alcoholism, but unfortunately that is a low sales figure.
Alkermes had projected the alcohol sales would be what we noted as $25 to $30 million in fiscal 2011. Obviously the opioid addiction market opens this up to a market that has close to $1 billion in total sales in combined drug sales from the companies that treat this area. That in turn can add significantly to prior targets.
An approval was expected here for the drug, although predicting FDA outcomes has been more hope and guesswork than science of late. The market cap of he company is already $1.5 billion, and Alkermes is projected to lose money for the next two fiscal years.
UBS had just given the stock a BUY rating on September 30. Shares are indicated up about 2% right before the open at $15.95 and the 52-week trading range is $7.54 to $16.03.
Unfortunately, the stock also has an average analyst price target just above $16.00.
JON C. OGG
Alkermes, Inc. (NASDAQ: ALKS) is seeing some unusual options trading going into investor presentations this week:
- Bank of America Merrill Lynch S-Mid Cap Conference on Wednesday, June 9, 2010, at 2:30 p.m. EST;
- Jefferies Global Life Sciences Conference on Thursday, June 10, 2010, at 4:30 p.m. EST.
Alkermes (ALKS) with a large bullish covered risk reversal as 5,000 November $10 puts are sold at $1.35 and 5,000 November $12.50/$15 call spreads are bought at $0.95, a net credit of $0.40. Therefore the trader makes $0.40 per spread if shares remain above $10 and can make as much as $2.90 per spread with shares above $15. The trade takes options volume to 7X daily average volume. Alkermes is best known for being partnered with Eli Lilly & Co. (NYSE: LLY) and Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN) for the potential blockbuster diabetes drug Byetta, the FDA decision on October 22nd, so this is a bullish bet on that outcome. Alkermes presents at the Lynch Smid Cap Conf. today and Jefferies Conf. tomorrow. Alkermes also is getting an expedited review of it’s Vivitrol for opioid painkillers. So, we have two major catalysts in October for Alkermes, and these large option trades are bullish. Also, Alkermes becomes an obvious takeover target by one of it’s partners on a successful outcome. Shares have held the $10.50 support level, also the 200 day EMA here.
-Joe Kunkle, OptionsHawk.com
Amylin Pharmaceuticals, Inc. (NASDAQ: AMLN) has a big event on deck this week. This Friday, March 12, is its Prescription Drug User Fee Act (PDUFA) action date for an FDA panel to issue a recommendation on Byetta as the the first once a week treatment for Type II diabetes. The date had been moved due to recent weather closures in February in and around Washington D.C.
Analysts are mixed on the stock with BMO cutting its rating last week, but there were two positive calls from Credit Suisse and Jesup & Lamont.
Options are elevated today, but not overly active. The open interest of stock options is also large enough that the $20 synthetic options straddle would imply that shares have to rise above $24.70 or drop below $15.30 to be profitable.
Byetta is already sold with Eli Lilly & Co. (NYSE: LLY), and Alkermes, Inc. (NASDAQ: ALKS) provides the technology that makes Byetta last longer in the delivery mechanism for a once per week use. Open interest in the Alkermes options is elevated but not astronomical.
There is a risk here for a potential delay on top of what has already been seen. Some feel the FDA will delay this recommendation with a request for more side effect data.
Amylin is currently believed to be the winner of ultimate once-weekly approval, even if a delay comes this week. But that notion also depends upon whom you ask. The most recent short interest data shows about 16.25 million shares (almost 12% of the float) are listed as being in the short interest. The stock is at $20.10 and the 52-week trading range is $7.89 to $20.46. That 52-week high was also hit today.
JON C. OGG
Partners Eli Lilly & Co. (NYSE: LLY) And Alkermes Inc. (Nasdaq: ALKS) announced data Monday that further supports its weekly Byetta candidate, although the FDA still may have questions about the entire class of long-acting diabetes treatments.
The data in the anticipated Duration 3 trial of once-weekly Byetta was solid. The candidate demonstrated better efficacy in a head-to-head comparison to Sanofi Aventis’ (NYSE: SNY) Lantus once-daily injection, the class leader. In a trial involving 467 Type 2 diabetes patients, once-weekly Byetta showed a 1.5 percent reduction in A1c levels vs. the baseline, compared to a 1.3 percent reduction for Lantus.
An added benefit of taking the drug may be weight loss. The mean weight loss for once-weekly Byetta patients was 5.8 pounds during the 26-week trial. Mean weight loss was 3.1 pounds for study subjects taking Lantus.
There were no new safety concerns raised. Common side effects were respiratory infection and nausea.
It’s hard to compare all the drugs in the class against one another, but it appears based on the efficacy data that once-weekly Byetta may put it at the top of a class that includes Lantus, Novo Nordisk’s (NYSE: NVO) Victoza, and GlaxoSmithKline’s (NYSE: GSK) Avandia.
The big lingering question is the FDA’s view of all the diabetes drug candidates called GLP-1 analogs. The agency is reviewing heart-related safety data of candidates among many of the drugs in the class.
It also may be looking at possible cancer ties. The journal Diabetologia, associated with the European Association for the Study of Diabetes in late June published four studies that made a possible link between Sanofi’s Lantus and cancer. The studies fell short of making a direct link, but they raised plenty of questions. At the time, analysts became concerned that more questions could be asked about many drugs, if not the entire class of long-acting diabetes drugs.
The FDA’s view of Novo Norisk’s candidate could be important to the entire group. In April, its heart-related safety was seen as mostly favorable, based an 8-to-5 FDA panel vote. The decision was split, however, on if it should be put on the market. That company’s earnings report in early August might specify the FDA’s upcoming timeline. The drug received EU approval earlier this month.
The Novo Nordisk FDA timing may provide clues as to whether the FDA want to see more studies for many, if not all drugs in the class, which may extend the approval processes. — Mike Tarsala
Once-weekly Byetta market may be huge, pending potential new diabetes drug safety concerns (AMLN, SNY, LLY, ALKS, NVO)
Amylin Pharmaceuticals Inc. (AMLN) along with partners Eli Lilly & Co. (NYSE: LLY) and Alkermes Inc. (Nasdaq: ALKS) announced its new drug application for a once-weekly version of Byetta for diabetes has been accepted for review by the FDA, a move that may eventually help invigorate growth for the franchise.
The catalyst may be muted, however, as the announcement comes amid safety concerns among other drugs that are long-acting treatments for diabetes. Analysts became concerned last week about potential links between the Sanofi Aventis (NYSE: SNY) Lantus long-acting insulin product — the second-biggest seller in its product lineup — to cancer risk, sending its shares and those of competing manufacturers including Novo Nordisk Inc. (NVO) lower.
The journal Diabetologia, associated with the European Association for the Study of Diabetes in late June published four studies that made a possible link between Sanofi’s Lantus and cancer. The studies fell short of making a direct link, but they raised plenty of questions that were picked up by Wall Street.
Byetta works differently than long-acting insulin treatments including Lantus, but analysts became concerned that more questions could be asked about many drugs, if not the entire class of long-acting diabetes drugs.
Byetta had faced another big safety worry over the past 12 months that arguably held back it sales; a potential link to pancreatitis. But Amilyn and and Eli Lilly announced retrospective study data last month that involved 260,000 patients that did not show an increased risk of pancreatitis for Byetta patients, vs. patients taking other diabetes drugs.
Assuming that Amylin can make a strong case that Byetta is different from other long-acting diabetes treatments for which potential safety concerns have been raised, the new weekly formulation of the drug may help spur recently stagnant sales.
Byetta will not replace insulin in patients whose diabetes requires insulin treatment. But there are 20 million people in the U.S. with Type 2 diabetes, and it’s fair to say that many of them might be interested in a once-weekly drug that can help them control their blood sugar levels, assuming they feel comfortable that it’s safe. – Mike Tarsala
Last night we saw the long-awaited results from Amylin Pharmaceuticals Inc. (NASDAQ: AMLN), Eli Lilly & Co. (NYSE: LLY) and Alkermes Inc. (NASDAQ: ALKS) announce their results from their one-year open-label clinical study for a once/week Byetta treatment in type II diabetes in patients who are taking metformin but still don’t have their blood sugar under control.
The results showed that the durable efficacy sustained a similar improvement in their glucose control compared to those receiving treatment for 30 weeks. The results also showed that patients who switched from a BYETTA injection after 30 weeks to exenatide once weekly also experienced additional improvements in A1C and fasting plasma glucose.
Byetta has been on the market since 2005 and exenatide is not yet approved.
If you have watched Amylin over the last few days, it has been a tough patch for the stock as the diabetes competitor Novo-Nordisk AS (NYSE: NVO) results were far better than Wall Street was expecting. On Friday, shares were north of $32.00 and they closed down at $26.84 yesterday.
While there has been relatively thin volume with under 30,000 shares with 1 hour and 10 minutes to the open, shares are up marginally in pre-market trading but are also already off the highs. Unfortunately with an over an hour and a low-grade reaction to what seems like good news it is hard to see any major reaction so far.
June 10, 2008