Tuesday, November 24, 2009

Amylin Pharmaceuticals (NASDAQ:AMLN): Upgraded to Overweight at Barclays, target raised to $22

Barclays is upgrading Amylin Pharmaceuticals (NASDAQ:AMLN) to Overweight from Equal-Weight with a $22 price target (prev. $16).

According to the firm, AMLN shares have been under pressure for several years, which they attribute to concerns regarding flattening Byetta trends, increasing competitive visibility, perceived regulatory risk for exenatide LAR, excess cash burn and limited pipeline visibility. Since reaching a peak share price of $51 on October 5, 2007 AMLN shares are off -76% as compared to the BTK that is up +3.2% over the same period of time. At current levels, with an enterprise value (EV) of $1.95B, AMLN shares are trading at 2x current year revenues and 4x AMLN share of revenues and appear to reflect limited sustainable growth for Byetta, low likelihood of exenatide LAR approval, heavily discounted earnings prospects and no value for its obesity assets.

Recently, however, AMLN has made significant progress towards addressing concerns with stabilization of Byetta trends, Byetta label expansion, operating expense reduction and global partnership for obesity assets. With focus on exenatide LAR as a primary value driver, however, uncertainty has persisted regarding approvability in the context of FDA concerns expressed regarding the long acting GLP-1 class. With FDA action on Novo Nordisks liraglutide as a potential nearer term proxy for FDA approach to the long acting GLP-1 class there has been an assumption that as goes liraglutide as will go AMLN.

- Barclays thinks exenatide LAR prospects may be better than expected irrespective of liraglutide action. In reviewing implications of Byetta label expansion, better than expected labeling for pancreatitis risk, differences in preclinical carcinogenicity profile, post-marketing experience with Byetta and efficacy data for Exenatide LAR the firm believes that a more constructive view regarding LAR approvability is appropriate.

- With over 1 million patients exposed to the exenatide molecule and with no major safety issues emerging Barclays believes that the Byetta safety database provides significant support for exenatide LAR approval in the event that FDA maintains a line extension designation for the product. With approval of the Byetta frontline monotherapy claim they believe that office of drug safety has had an opportunity to fully review the safety profile of the exenatide molecule and with better than expected Byetta labeling believe that a line extension designation would serve exenatide LAR well. In addition, with significant focus on cardiovascular risk for diabetes drugs they believe that the trend in favor of Byetta with hazard ratio (HR) of 0.70 could also serve to benefit exenatide LAR under a line extension designation.

- In assessing longer term value of AMLN obesity assets it may be tempting to consider market capitalizations for later stage obesity companies like Orexigen, Arena Pharmaceuticals and Vivus which range from $350-750M. They would note, however, that both Orexigen and Arena were valued in excess of $1B on phase II data and have lost considerable value on concerns regarding inferior weight loss to Vivus’s QNexa, potential for CNS adverse events, uncertainty on longer term intellectual property protection and in particular on the inability to secure a partnership. With 2 separate biologic products, efficacy on par with Vivus’s QNexa, a peripheral mechanism of action and a $1B collaboration with Takeda Barclays believes that AMLN obesity assets should command incremental value beyond current Vivus valuation and in excess of prior phase II value for other obesity targeting companies.

Firm is introducing long term estimates for AMLN from 2011-2020 which assume exenatide LAR approval and launch in the US by 3Q10 and by 3Q11 in Europe. In the US they estimate 2011-2020 exenatide molecule sales of $750M, $1.1B, $1.25B, $1.4B, $1.55B, $1.7B, $1.9B, $2.1B, $2.25B, $2.375B and $2.5B. EPS estimates for 2011-2020 are ($0.43), $0.91, $1.71, $2.24, $2.76, $3.34, $3.84, $4.20, $4.45 and $4.71, respectively.

Barclays arrives at their new $22 price target by applying a 25x multiple vs 16x multiple previously to 2014 EPS estimate of $2.24 as compared to prior 2012 EPS estimate of $1.70 and discounting at the same 25% discount rate. They believe that 2014 earnings are more representative of aggregate business opportunity for Byetta and exenatide LAR in the US and Europe and that the higher multiple is appropriate given the 35% EPS CAGR estimated for the period of 2012-2017.

Notablecalls: This is a fairly significant call for AMLN as Barclays is one of the first firms to come off their Neutral/Negative stance on the stock. Pull up a 2 year chart and you can see there has been very little reason to be positive on the stock. Yet now the stock is up 50% from its $8 low and that's usually the level where big players start to get interested again. The downtrend may be broken and catalyst lurk in the horizon. Also, if you look at Barclays' rec. history, they have down a pretty good job in AMLN, downgrading it to Underweigh in the mid-$40's and gradually turning more positive as the stock fell out of bed.

I was positively surprised to see the Byetta label expansion in light of the pancreatitis risk, which seems to indicate LAR is approvable. PDUFA date is set for March 2010.

When it comes to iraglutide, Novo continues to expect a formal update from the FDA before the end of 2009. This may create volatility in AMLN but the situation may end up as a win-win for AMLN as neg. iraglutide news means competition is pushed back and positive news will make a lot of people believe LAR is outright approvable.

So any way you slice it, it looks pretty positive.

Short interest still stands around 22%, which is significant enough to create a short squeeze on any positive developments.

Oh, and Barclays' $22 target is the new Street high.

All in all, I think AMLN will have legs today. The $13 level will break for sure with $13.50+ not out of the question.


meg said...

perhaps AMLN would have acted better for the past 15 months if Birchenough hadn't planted the false scare over pancreatitis in the first place. Generally he's a decent analyst but some of his commentary is rather disingenous at best.

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