Biotech Boost in Diabetes

09/25/2002 12:00 am EST


John McCamant

Editor, Medical Technology Stock Letter

When it comes to biotechnology there are few individuals that are as well-informed and well-connected as John McCamant. Through year-end 2001, his Medical Technology Stock Letter was rated by the Hulbert Financial Digest as the top performing newsletter for the prior five years. One of his favorite biotechheld in both his model portfolio and aggressive portfoliojust reported "great news." Here’s his update.

"Amylin Pharmaceuticals (AMLN NASDAQ) has established a worldwide partnership with Eli Lilly for the development and marketing of AC2993 for the treatment of Type 2 diabetes. Under the terms of the deal, AMLN will receive $80 million upfront. This is non-refundable. They are also getting a $110 million convertible loan from Lilly following the completion of the Phase III studies (and certain other undisclosed events). Eli Lilly will also buy $30 million of AMLN stock at $18.69 per share."

"In the US, AMLN and Lilly will equally co-promote the product, and split the development and commercialization costs down the middle. Thus, the US profits on sales of AC2993 will be split 50/50. Amylin will book all revenue in the US. Outside the US, Lilly will be the exclusive marketer of AC2993. In addition, Lilly will pay for 80% of ex-US development costs, and the profits on sales will be split 80/20 in favor of Lilly. Lilly will book all revenue outside the US."

"Another important facet of the deal not to be overlooked is that for a certain undisclosed amount of time before AC2993 is commercialized, AMLN gets the right to co-promote in the US. Lilly's recombinant human hormone drug, Humatrope. The appeal of this is that it gives AMLN a chance to ramp up a sales force when it comes time to market Symlin, which is their lead product and will likely be the first to be approved. Symlin is in late-stage development for treatment of diabetes. Humatrope is promoted primarily to endocrinologists, which is a perfect fit, because this is whom AMLN will be selling Symlin to. Thus, they will already have relationships with physicians in place."

"One further item of note: AC2993's biggest competition was from Eli Lilly's GLP-1 analog. In the conference call that followed the announcement of the partnership, AMLN reported that Eli Lilly is dropping the GLP-1 analog development program, based on recent Phase II results, in favor of AC2993. This is huge validation. Overall, this is a great partnership for AMLN on many fronts. The profit structure is superb, and they are getting significant funds up front, and large potential milestone payments, not to mention the credit facility. They are also getting a chance to establish an experienced sales force before the launch of their fist product. Finally, Eli Lilly is the world's leader in this area, and partnering up with their expertise is a great move by AMLN."

"AMLN, one of our better-performing stocks over the last tumultuous year, continues to deliver to their shareholders. We have felt that this stock would be one of the leaders when the biotech rally resumes. If there was any doubt, this news is pretty solid confirmation of that. In sum, this is a seminal event for AMLN. They are beginning their transition to a fully integrated biopharmaceutical company, complete with research, development, manufacturing, and sales capacity."

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