November 8, 2011 / 1:06 PM / 8 years ago

UPDATE 4-Amylin, Lilly to end longtime diabetes partnership

* Amylin to pay Lilly $250 mln up front for Byetta rights

* Lilly also to pay up to $1.2 bln in revenue sharing

* Amylin shares fall 11 pct, Lilly up 1.7 pct (Updates with additional CEO comment, background))

By Lewis Krauskopf and Toni Clarke

Nov 8 (Reuters) - Amylin Pharmaceuticals Inc is ending its nearly decade-long diabetes partnership with Eli Lilly and Co, potentially paying up to $1.6 billion to take back rights to its drugs and settle a legal dispute over a rival deal.

Amylin shares sank more than 11 percent to close at $9.73 as investors were concerned the smaller biotechnology company would not be able to successfully market the products on its own.

Amylin and Lilly introduced the Byetta diabetes drug in 2005 to a promising start and planned to launch a longer-acting version called Bydureon that could be taken once a week. Both contain the active ingredient exenatide.

Byetta sales have since stalled due to safety concerns and new rivals, while Bydureon suffered repeated regulatory delays. The partnership soured after Lilly made a deal to market a potential rival, Tradjenta, from Germany’s Boehringer Ingelheim. Amylin sued Lilly in May.

The agreement announced on Tuesday settles their legal dispute. For the rights to sell the drugs, Amylin will pay $250 million up front and up to $1.35 billion in the future.

“The lack of profit sharing will help Amylin’s bottom line,” J.P. Morgan analyst Cory Kasimov said in a research note. “But we believe Amylin is also taking on significant risk without a larger, more experienced partner.”

By the end of November, Amylin will be solely responsible for selling the medicines in the United States and will seek a new partner for marketing them elsewhere. In Europe, Lilly will transfer commercialization for Byetta and Bydureon to Amylin on a market-by-market basis in 2012 and 2013.

Amylin is waiting for U.S. approval of Bydureon, with a decision from the Food and Drug Administration due by Jan. 28. It plans to double its U.S. sales force to 650 representatives by February to help launch the drug.

SINGLE FOCUS

Amylin’s chief executive officer, Daniel Bradbury, said in an interview he is “very confident” Bydureon will be approved, although some investors are concerned the end of the partnership suggests Lilly has lost faith in the products.

“It is important for people to appreciate the value of having a single organization with focus and accountability for the launch of a new product and the efficiency that that will bring,” Bradbury said.

Byetta was the first in a class of diabetes medicines called GLP-1s, which stimulate insulin release when glucose levels become too high.

Joshua Schimmer, an analyst with Leerink Swann, said potential partners could include any big drugmaker with a primary care sales force and an interest in endocrine disorders, other than direct competitors with GLP-1 drugs such as Novo Nordisk , Sanofi SA and GlaxoSmithKline Plc .

The dispute between Amylin and Lilly also highlights the tensions inherent in marketing deals between big drugmakers and small biotechnology companies. Biotech companies sometimes question whether their deep-pocketed partners give their products the support they deserve.

“We’ve been frustrated by Lilly’s positioning of Byetta relative to its other assets,” Schimmer said.

He added that investors are likely to see Amylin as a potential takeover target now that it has disengaged from Lilly.

Amylin’s future payments to Lilly include $1.2 billion from revenue sharing and $150 million if Bydureon gets U.S. approval. If Bydureon is not approved, the revenue sharing drops from 15 percent of exenatide sales to 8 percent.

Diabetes is one of the major therapeutic areas for Lilly, which is among the world’s biggest sellers of insulin. Anthony Butler, an analyst at Barclays Capital, said the divorce should help Lilly improve its focus on other diabetes assets. Lilly shares rose 1.7 percent to close at $38.99.

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