Premium for Amylin Not Warranted
Tuesday April 22, 2:09 pm ET
By Jason Napodano, CFA
Sales of Byetta have disappointed over the past several quarters. Specially, the first quarter 2008 was very weak, albeit in part due to wholesaler de-stocking. However, the Amylin Pharmaceuticals, Inc. (NasdaqGS: AMLN - News) story is tied to the success or failure of phase III potential blockbuster, exenatide LAR. Data on LAR from the DURATION-1 was presented in October 2007. We classified the data as good, but not great. Additional data from the DURATION program is expected in 2009.
At this time the valuation on Amylin is not attractive. The stock is trading at 21x our 2012 EPS estimate well above the peer-group at 10x and that estimate assumes LAR posts sales over $1.5 billion. In the meantime, there are few catalysts and operating expenses are soaring. Amylin currently trades at 21x our 2012 EPS estimate of $1.31.
The 2012 multiple is a 100% premium to the large-cap pharma / biotechnology peer-group average of 10x 2012 EPS. The peer-group consists of several large-cap bellwethers including Eli Lilly & Co. (NYSE: LLY - News)(8x), Merck & Co., Inc. (NYSE: MRK - News)(7x), Genentech, Inc. (NYSE: DNA - News)(9x), Amgen, Inc. (NasdaqGS: AMGN - News)(6x), Biogen Idec, Inc. (NasdaqGS: BIIB - News)(11x), Gilead Sciences, Inc. (NasdaqGS: GILD - News)(12x), Celgene Corp. (NasdaqGS: CELG - News)(13x), and Genzyme Corp. (NasdaqGS: GENZ - News)(11x).
We believe this premium by Amylin is not warranted given significant questions that surround the future growth of Byetta. As we have noted above, sales of Byetta are not yet to a level that generates profitability, and we see little chance to reach profitability until the LAR product launches in 2010. And, even with $1.6 billion in LAR sales in 2012 and a 15% tax rate Amylin's operating margin of only 10% is about half that of the peer-group. We are still at a level where we believe the name is substantially over-valued. We see far better and cheaper opportunities in biotech today. We would avoid the name. Our target is $25.
surf's up......crikey
