Pharmaceutical giants Bristol-Myers Squibb (BMY) and AstraZeneca (AZN) announced that it will combine to acquire Amylin Pharmaceuticals (AMLN) on Saturday. The deal is valued at $31 per share and will cost a total of $7 billion as the firms will have to pay a $1.7 billion contractual obligation to Eli Lilly (LLY). Amylin’s current drug portfolio and pipeline is focused on diabetes drugs, including BYDUREON, BYETTA, and SYMLIN. We do not think the deal changes Bristol-Myers Squibb’s intrinsic value.
Amylin has struggled with both revenue and profitability over the past several years. Revenue has fallen steadily, and the company has failed to earn any net income over the past five years (though its loss last year isn’t bad when excluding the reacquisition of economic interests in its exenatide products). Presumably, the Bristol-Myers Squibb/AstraZeneca collaboration will be able to consolidate some of Amylin’s SG&A expenses and make this acquisition accretive to earnings. The firms remain optimistic about the market potential of BYDUREON, which is a once-weekly medication used to improve blood sugar levels in adults with Type-2 diabetes.
Regardless, we continue to believe shares of Bristol-Myers are overvalued on both an absolute and relative-value basis. We prefer Pfizer (PFE), which sports higher upside potential from current levels, in our view.