Deal augurs a new wave of acquisitions by pharmaceutical and biotech companies.

Months of courtship paid off for Bristol-Myers Squibb when the pharma giant announced its $5.3 billion acquisition of Amylin Pharmaceuticals. The deal, announced over the weekend, expands BMS’ reach into the growing diabetes market, and appears to augur a new wave of acquisitions by pharmaceutical and biotech companies.

The value of the deal swelled to $7 billion when Amylin’s net debt and a contractual payment obligation to Eli Lilly & Company totaling $1.7 billion is included.

In addition, BMS announced with AstraZeneca that the two companies would enter into collaborations for development and commercialization of Amylin’s portfolio of products, in return for AZ paying BMS about $3.4 billion cash.

Amylin makes diabetes drugs Byetta, a twice-daily injectable form of exenatide now on the market, and Bydureon, a once-a-week injectable form of Byetta approved by FDA for Type 2 diabetes on Jan. 27, and launched to market in February. Byetta is Amylin’s flagship product, generating $517.7 million in 2011 – accounting for 83% of the company’s $621.6 million in total net product sales. Those sales are down 7% from the $559.3 million racked up by Byetta in 2010, when Amylin generated $651.1 million in net product sales.

Bydureon last year contributed $15 million to Amylin’s coffers, through a milestone payment tied to the launch of the drug in the European Union. Amylin received another $10 million in milestone revenue in 2010, when Bydureon was launched in Japan.

Amylin ended a marketing partnership on Bydureon and Byetta with Eli Lilly in November, and had sought a partner to sell the medicine outside the U.S. The company began pursuing acquisition suitors after rejecting a $3.5 billion, $22-a-share offer from BMS in February, people familiar with the matter said earlier this year. In May, Bloomberg News reported that Amylin weighed offers from BMS and up to six other potential acquirers – AZ, Merck & Co., Pfizer, Roche, Sanofi, and Takeda.

“We saw a lot of interest in Amylin because it’s diabetes and there aren’t a lot of diabetes assets out there. It is increasingly strategic to be in that market,” Mark Schoenebaum, an analyst at ISI Group, told Bloomberg.

Diabetes has become a key target for pharmaceutical companies due to rising obesity rates and the aging of Baby Boomers. About 346 million people globally have the illness, and the number of deaths may double from 2005 to 2030, according to the World Health Organization.

BMS went shopping for Amylin after BMS’ own experimental diabetes product, dapagliflozin, failed to win U.S. marketing approval in January, when the Food and Drug Administration asked for more data to assess its risks and benefits. Dapagliflozin, which is being developed jointly with AstraZeneca, is approved in Europe.

Another factor in BMS pursuing Amylin: A scramble to recoup sales expected to be lost this year since the blood thinner Plavix faced generic competition for the first time in May.  Plavix was BMS’ top seller last year with $7.1 billion in sales.

Seamus Fernandez of Leerink Swann told Bloomberg that because of the biopharma industry’s lack of revenue growth, “We are on the cusp of the next consolidation wave.” The BMS-Amylin deal is the fifth this year in which a company changed hands for more than $1 billion, compared with three deals in 2011 and 2010.

BMS’ acquisition of Amylin ended years of efforts by activist shareholder Carl Icahn to maximize his return on Amylin shares. Icahn, Amylin’s third-largest shareholder with an 8.8% stake, touched off a proxy war in March with Amylin’s board, after its rejection of BMS’ February offer. At the time, Icahn criticized the Amylin board for failing to disclose the BMS offer while agreeing to a public offering last month of 10% of company shares at $15.62 per share, with options for the company’s top executives that could be exercised at $16.02 per share.

Reuters estimated that the BMS deal will net Icahn a 22% return on his shares in Amylin, based on the $31 per share BMS agreed to pay for Amylin shares – 10% above the June 29 closing price — plus an estimate that his average cost base for his Amylin stake was likely around $25.40 per share, based on his disclosed holdings and the average Amylin share price in each of the quarters the disclosures were made.

Amylin’s price tag fits into Icahn’s price expectation expressed three years ago:  “I do not sell cheaply and would certainly not recommend selling Amylin unless we were offered at least over $30 per share, at which time I might recommend selling it,” Icahn wrote in a letter to Amylin’s top management in April 2009.


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