Amylin Options Signal 26% Gain After Bristol-Myers Bid: Real M&A

Options traders are betting potential acquirers from AstraZeneca Plc to Bristol-Myers Squibb Co. will have to spend 26 percent more than its current price to buy Amylin Pharmaceuticals Inc.

Amylin, which surged 54 percent to $23.77 yesterday after Bloomberg News reported the company rejected a $22-a-share proposal from Bristol-Myers, could now get offers for as much as $30, according to options data compiled by Bloomberg. Traders who bought Amylin yesterday also sold contracts that give buyers the option to buy Amylin stock for $28 to $30 a share as part of a “collar” strategy, Newedge Group SA said.

“The Bristol bid may be just a starting point,” said Alec Levine, an equity derivatives strategist at Newedge in New York. Some options traders are “hoping that that they will have to increase the offer to seal the deal,” he said.

With the largest drugmakers losing patent protections on their own medicines, the San Diego-based biopharmaceutical company could get $28 to $37 a share in a takeover, according to Piper Jaffray Cos. AstraZeneca and Sanofi may also bid for the maker of the diabetes drug Bydureon, Leerink Swann LLC said.

Alice Izzo, a spokeswoman for Amylin, said it doesn’t comment on market speculation when asked whether it is willing to sell itself or has been approached by other potential buyers.

Shares of Amylin surged by the most in more than a decade yesterday after two people with knowledge of the matter, who declined to be identified because the approach was private, said the company’s board rejected a $3.5 billion unsolicited takeover bid from Bristol-Myers last month.

Takeover Bet

The bid was 43 percent higher than Amylin’s share price of $15.39 before Bloomberg reported the news.

Today, Amylin jumped 4.3 percent to $24.80, the second-biggest advance in the Bloomberg Americas Biotechnology Index.

Bristol-Myers hasn’t approached Amylin since it was rejected and Amylin is speaking with several drugmakers about a partnership for its products outside the U.S., the people said.

Even so, traders are using options, which give the right, without the obligation, to buy or sell a security at a set price by a specific date, to bet on further gains in Amylin as takeover speculation increases.

Call contracts expiring in July to buy Amylin at $28 and $30 a share were among the company’s 10 most actively traded options yesterday, according to data compiled by Bloomberg.

Most of the volume in the $30 call contract came from a trader who sold the calls to finance purchases of lower-priced puts, a strategy known as a “collar,” said Newedge’s Levine and Joe Kunkle, founder of, a Boston-based provider of options-market analytics.

Relative Value

The strategy, which involves buying shares, selling calls and purchasing puts, enables traders to bet on further gains for a company that’s risen on takeover speculation while limiting losses if no deal emerges, said Steve Sosnick, equity risk manager at Timber Hill LLC, the market-making unit of Interactive Brokers Group Inc. in Greenwich, Connecticut.

An investor yesterday sold 10,000 July $30 calls of Amylin and traded $20 and $16 puts expiring in July, according to Henry Schwartz, president of Trade Alert LLC, a New York-based provider of options-market data and analytics.

The transactions, which protect against losses if Amylin falls, indicate that the investor is willing to bet the stock will climb to $30 a share but no further, he said.

“$28 to $30 is a reasonable price” in an acquisition, Terry Wilson, an equity derivatives strategist at Credit Suisse Group AG in New York, said in an e-mail. “It makes sense to cap your upside at $30 in order to help fund some protection between $20 and $15 if no deal materializes.”

Patent Expiration

Acquiring Amylin could help pharmaceutical companies facing a decline in revenue as they lose patent protections on their best-selling treatments. The world’s 10 largest drugmakers by sales, which include AstraZeneca of London and Paris-based Sanofi, have U.S. patents expiring this year or next, according to data compiled by Bloomberg.

“Pharmaceutical companies have either already been through the patent expiry or they’re going to face it in a couple of years,” Ian Somaiya, a New York-based analyst for Piper Jaffray, said yesterday in a telephone interview. “That’s true of really any pharmaceutical company out there.”

By the end of 2014, Bristol-Myers and AstraZeneca will both lose exclusive rights on treatments that accounted for more than 40 percent of their sales last year, data compiled by Bloomberg show. They include Bristol-Myers’ best-selling Plavix blood thinner and AstraZeneca’s Seroquel, for treating schizophrenia.

Sanofi, which co-developed Plavix with Bristol-Myers, will lose that drug and at least three other medicines that generated more than 12 percent of its revenue, the data show.

Diabetes Treatments

Jennifer Mauer, a spokeswoman for Bristol-Myers, said the company doesn’t comment on market speculation, when asked whether it is still interested in acquiring Amylin and would consider increasing its price.

Sarah Lindgreen, a spokeswoman at AstraZeneca, said “we don’t comment on specific rumors or speculation.” Marisol Peron, a spokeswoman for Sanofi, declined to comment on whether it is interested in Amylin.

Amylin is an attractive takeover candidate because it has three drugs that focus on treating diabetes, Piper Jaffray’s Somaiya said. It won regulatory approval for Bydureon, a once-weekly formulation of another diabetes drug Byetta, in January. Revenue from the drugs may reach at least $1.5 billion, he said.

The company also sells Symlin, which is used with insulin to control blood-sugar levels in those with Type 1 or Type 2 diabetes. It accounted for 16 percent of Amylin’s $651 million in sales last year, data compiled by Bloomberg show.

100 Million Chinese

Almost 9 percent of Americans had diabetes as of 2010 and the prevalence of Type 2 diabetes in the U.S. will jump more than 40 percent to 34.9 million people by 2020, according to data compiled by Bloomberg. In China, the world’s most-populous country, almost 100 million people already have the disease. Two-thirds are undiagnosed, the data show.

“The diabetes market is tremendously big because there are tens of millions of patients with diabetes in the U.S. alone and then more beyond that,” Joshua Schimmer, a New York-based analyst for Leerink Swann, said in a telephone interview.

Still, Amylin’s revenue has fallen in each of the last four years. Its diabetes drug Byetta, the twice-daily shot approved by the U.S. Food and Drug Administration in 2005, also competes with Victoza from Novo Nordisk A/S, the world’s biggest maker of insulin. Both encourage the pancreas to make insulin, the hormone that diabetics need to break down sugar that builds up in the blood stream.

Risk-Reward Analysis

“I don’t understand why you would turn down that bid,” from Bristol-Myers, Michael King, a New York-based analyst at Rodman & Renshaw LLC, said in a telephone interview.

He said Amylin faces increased competition for insulin-related treatments and also has a debt burden that could deter other potential buyers.

Amylin has $1.4 billion in net debt, more than 90 percent of biotechnology companies with at least $1 billion in market value, according to data compiled by Bloomberg.

King recommends investors sell Amylin, which he estimates is worth less than $10 a share.

An acquirer that already has a sales force selling diabetes-related drugs can still wring out enough costs to justify paying as much as $31 a share for Amylin, Robyn Karnauskas, an analyst at Deutsche Bank AG, wrote in a report yesterday. Bristol-Myers, AstraZeneca and Sanofi all have units that sell diabetes treatments.

“If you have a diabetes sales force, you can literally get rid of the cost structure of Amylin and realize the synergy,” Piper Jaffray’s Somaiya said. “As an acquirer, you’re taking on no regulatory risk because the drugs are approved globally.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE