Almost all of the news in the obesity race has been made recently by three small biotech companies — Arena Pharmaceuticals (ARNA), Vivus Inc. (VVUS) and Orexigen Therapeutics (OREX), but yesterday it was mid-cap Amylin Pharmaceuticals (AMLN) that signed the first partnership in what was originally perceived to be a three-horse race.

Amylin and Takeda Pharmaceutical Company Limited entered into a worldwide exclusive license, development and commercialization agreement to co-develop and commercialize pramlintide/metreleptin and davalintide, two phase II compounds for the treatment of obesity. As part of the transaction, Amylin will receive a one-time up-front payment of $75 million from Takeda.

Amylin is also eligible to receive additional payments based on development, commercialization and sales-based milestones that could exceed $1 billion. The agreement also provides for future tiered, double-digit royalty payments to Amylin based on global product sales.

In July 2009, Amylin presented phase II data from a phase II study in 149 patients testing pramlintide / metreleptin vs. placebo over a 28-week program. The data show that patients taking the pramlintide / metreleptin combination lost an average of 22 lbs (11% body weight) vs. only 4 lbs (2%) for the placebo. These are clearly impressive results.

An extension study with pramlintide / metreleptin in around 600 patients (six month study) should offer data before the end of the year. Also, management is testing pramlintide in a phase II trial with two commonly used anti-obesity agents, phentermine and sibutramine.

However, we are not convinced that pramlintide / metreleptin will garner significant use because, as of now, it requires four daily injections. If management can figure out how to reduce the required four daily injections down to at worst once a day, we might get more bullish on a pramlintide / metreleptin product. This is where a second-generation analog davlintide (formerly AC2307) comes into play. Davlintide should offer improved dosing over pramlintide. A phase II program should also offer data shortly.

Amylin’s partnership with Takeda is an interesting one, specifically for the three small-cap names above considering the companies have completed phase III programs and are expected to file their respective new drug applications (NDA) shortly. Recently at the annual Obesity Society meeting Arena presented additional data on its phase III candidate, lorcaserin, demonstrating improvement in quality of life factors including body composition, and cardiovascular risk factors including blood pressure and cholesterol levels.

Vivus presented data on its phase III candidate, Qnexa, demonstrating impressive weight loss across a full range of body mass index (BMI) patients. Orexigen has two obesity candidates, Contrave and Empatic, both of which have offered up recent positive data.

Amylin was able to secure $75 million upfront and potentially $1 billion in the future based on only phase II top-line data.  Arena, Vivus and Orexigen all should have active NDA’s and positive phase III data they can offer partners. That means deal sizes may potentially amount to 2-3x that of the Amylin-Takeda deal in terms of the upfront payment.

That creates an intriguing investment opportunity for these names. Arena Pharmaceuticals, for example, is trading with a market value of only $325 million. Orexigen, with two obesity candidates, trades with a market value of only $300 million. That’s significantly less than the $1.5 billion value for Amylin.

For potential pharmaceutical partners it may ultimately be cheaper to acquire the entire company if they are interested in lorcaserin, Qnexa, Contrave and Empatic, rather than shell out huge upfront payments and backend milestones. Nevertheless, the Amylin-Takeda deal looks like just the beginning of what could be an exciting obesity deal-making-frenzy over the next few quarters.

Zacks Investment Research
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