Amylin Dissidents Ought to Win Proxy Fight, Influential Advisory Firm Says

Xconomy San Diego — 

The investors who want to shake up the boardroom of San Diego-based Amylin Pharmaceuticals have made a convincing argument, and three of the five directors they have nominated ought to win election against the company’s slate of directors, according to RiskMetrics, an influential firm that advises institutional investors on proxy votes.

The recommendation from RiskMetrics, formerly known as Institutional Shareholder Services, is a coup for Eastbourne Capital and billionaire Carl Icahn, who are pushing for a shakeup at Amylin (NASDAQ: AMLN). Eastbourne, which owns a 12.5 percent stake in Amylin, has nominated three directors to the company’s 12-member board, and two of them were recommended—Kathleen Behrens and Charles Fleischman. Icahn has also nominated two other directors of his own to the Amylin board, and one, Alex Denner, received a recommendation from RiskMetrics. The election is scheduled for May 27.

“We strongly agree with RiskMetrics’ summary that Amylin has ‘not fired on all strategic pistons,’ and that nominees from Eastbourne and Icahn will likely add long-term value to the Board,” said Rick Barry, founder and portfolio manager at Eastbourne, in a statement.

Not surprisingly, Amylin said in a statement late today it was “disappointed” that RiskMetrics came down in favor of the Eastbourne slate of directors.

“We are disappointed that RiskMetrics has recommended three dissident nominees to our annually-elected board,” Amylin said. “The company urges shareholders to vote FOR Amylin’s highly-qualified director nominees who have extensive experience in biopharmaceuticals and diabetes, as well as the valuable sales and marketing expertise necessary to most effectively guide Amylin.”

Amylin is coming off a very rough year. Sales of its biggest-selling product, exenatide (Byetta) for diabetes, fell 8 percent in the fourth quarter to $162.7 million. Demand fell off for the drug in August, when the FDA warned physicians of several cases of patients who took the drug and developed pancreatitis, including two patients who died from the condition. Amylin shares fell 71 percent during 2008.

The company announced two significant rounds of cost cuts—cutting 340 jobs in November, and another 200 employees earlier this month—in an attempt to turn cash-flow positive by the end of 2010. It is also pinning its hopes for a turnaround on the introduction of a new version of exenatide that can be injected far less frequently—once a week instead of twice each day.

The company’s strategy to maximize sales, and manage the future prospects of exenatide, haven’t been good enough that shareholders should elect the company’s recommended nominees, RiskMetrics said.

In its analysis, RiskMetrics made a series of points (released by Eastbourne) about why it recommends shareholders vote in favor of the dissidents, who contend that Amylin needs to make more cuts, and renegotiate more favorable terms of its commercial partnership on exenatide with Eli Lilly.

—“Most of the Amylin shareholders to whom we spoke, even the shareholders that are likely to support the company, acknowledge that Amylin has not fired on all strategic pistons,” RiskMetrics said.

—Amylin underperformed a relevant index and its peer group over the five-year period even before the FDA issued its warning in August.

—Amylin “appears to have had some difficulty controlling sales, general and administrative expense,” RiskMetrics said.

—The company has taken some shareholder-friendly actions lately, like removing some anti-takeover provisions known as “poison puts” and a “poison pill,” but that only happened in the heat of a high-profile proxy battle. Those actions “bolster the case for supporting at the dissident as a way to help to ensure that the board continues to be responsive to shareholder concerns.”

—Kathleen Behrens, one of the Eastbourne nominees, “would bring significant venture capital experience to the board, as well as significant experience in the scientific public sector, a factor that may become more important as the new administration attempts to retool public healthcare,” RiskMetrics wrote. Another Eastbourne nominee, Charles Fleischman, has significant dealmaking experience with large drugmakers and experience with the FDA.