Approval of its diabetes drug has Big Pharma banging on its door

It looks like Amylin Pharmaceuticals (NASDAQ:AMLN) is finally in play. If the Mar. 28 report from Bloombergis accurate, Amylin is surely attracting suitors. The news service said Amylin has rejected a $3.5 billion purchase offer from Bristol-Myers Squibb (NYSE:BMY) for $22 a share.

I’m not surprised by the offer, nor by Amylin�s please-go-away attitude. The stock is a worth a lot more, according to some takeover pros and analysts who follow Amylin.

I had expected Amylin to become a takeover target well before the Bloomberg report. On Feb. 6, I wrote a column at MSN.com, with the headline: �Is Amylin a buyout target?� The story noted that �The company is seen as the next likely candidate in the biotech sector�s takeover hit parade.�

I discussed why Amylin, which is developing treatments for diabetes and obesity, was an attractive buyout target: particularly because in January, the FDA had approved the company�s chief drug, Bydureon, a treatment for Type 2 diabetes.

The green light for Bydureon could very well whet the appetite of Big Pharma, I said in the column. At that time, the stock� popped to $14 a share from $12, which was followed by a further jump to $15 a few days later. When Bloomberg came out with last week’s report, the stock rocketed without hesitation to a 52-week high of $25.70 on Mar. 29.

Predictably, AMLN saw some profit-taking after the stock�s huge ascent, but it continues to trade just under $25. So, has the stock peaked? I very much doubt it. Analysts� valuation of the stock ranges from the high $20s to $31 a share.

�We expect Amylin to be bought this year — with Roche (PINK:RHHBY), AstraZeneca (NYSE:AZN), GlaxoSmithKline�(NYSE:GSK) and Takeda Pharmaceuticals�(PINK:TKPYY) among others, lining up to buy the company,� says John McCamant, editor of the Medical Technology S! tock Let ter, in Berkeley, Calif. He was one of the early bulls on the stock, recommending it when it was trading at just $12 a share.

�We suspect that potential partners and acquirers are now knocking on Amylin�s door to conduct due diligence,� said McCamant when I discussed Amylin with him on Feb. 6.

He expects any one of the suitors to offer $30 a share for Amlyin, which he believes the board would likely accept.

Amylin�s diabetes treatment Bydureon is a longer-acting, once-a-week version of its other drug, Byetta, and it�s expected to compete with Novo Nordisk�s (NYSE:NVO) Victoza. The longer-lasting duration is enabled by the delivery technology that Alkermes (NASDAQ:ALKS) provides for Bydureon. Both Victoza and Bydureon are diabetic drugs that stimulate the release of insulin when a person�s blood sugar level gets too high.

Bydureon�s advantage over Victoza is that diabetic patients need to inject the drug only once a week, compared with daily injections required for Victoza, and twice daily for Byetta. The market for diabetes treatments is huge. Victoza�s global yearly sales top $1 billion, according to McCamant, and Byetta�s sales totaled $461 million in the first nine months of 2011. Bydureon’s potential market could exceed or at least equal that of Victoza, according to analysts.

Analyst Joshua Schimmer of investment firm Leerink Swann, who rates Amylin as outperform, expects a bidder with a higher offer to emerge. He’s bullish on Amylin�s prospects and says that combined with an eventual acquisition, it makes AMLN �attractive at current levels.�

He argues that as Bydureon enters its commercialization phase, Amylin’s stock performance will be primarily driven by the company�s ability to boost consensus revenue estimates for 212 and 2014. Merger-and-acquisition deals in the biotech sector have been on the rise, and Amylin is likely to be involved in the next big deal.