GLP-1 Scripts continue to grow. Bodes well for eventual Bydureon conversion of Victoza scripts

Competitor Insulin drug Victoza, by Novo, continues to grow the GLP-1 market up 37% since launch in January . According to Barclays, a part of this growth will be converted to Bydureon use when launched. At one large practice they surveyed with 250 eligible GLP-1 users, only 11 started Victoza with the rest waiting for once weekly Bydureon. As expected, Byetta scripts continue to decline as the market awaits Bydureon. Nevertheless, Victoza launch is still lagging Byetta's launch trajectory. Market share is 70% Byetta 30% Victoza. NRx share is 62% to 38%.   The clock is ticking on Bydureon Approval, though the PDUFA date is Oct 22nd, the options market has priced in an earlier approval.

Technically, AMLN, with a relative strength of 93 is pushing out of $18-$20 range its been locked in for 50 trading days. Accumulation/Distribution is surging upward during this sideways price period.

UNDER THE BIG TOP: HOW MUCH LONGER CAN CRUDE LEVITATE?

4, 8 & 12 months ago Crude was where it is right now.  In each of those periods 1) were expectations of future growth in demand for crude up? Yes.  2) Was the Chinese a big inventory buyer foolishly outbidding itself in creating superficial demand? Yes. 3) Was the Carry trade favorable so that Wall St bankers could use Fed funds to buy spot crude, store it in VLCCs then sell the > 1 year forward to lock in huge contango profits? Yes  4) Was money abandoning stock funds & MM funds and pouring into Commodity funds in record amounts to fuel purchases? Yes.  5) Was relentless above expectations inventory rebuilding going to turn into a big draw? Of course.

Flash forward to now.  The answer to each of those 5 points has shifted to NO. No rocket science here about where growth expectations have shifted.  As for Chinese inventory buying, it has slowed to a trickle and accordingly, so have Goldman's front running profits. The contango has flattened considerable but there are still well over 100 VLCCs floating out on the ocean holding Wall St. Crude.  The money pouring into commodities has shifted to a slightly less risky Emerging Market bonds.  And now inventory is building at the fastest rate at a point a draw is typically expected.  Looks like some of those Tankers have reached port.

So why is crude still at $73 and not say $63 or $53 or $43?  We have learned that above all, the norm in a Bernanke market is to expect only delayed reactions to the obvious. In 2007, the market misguidedly made a new high only a month before the recession began instead of the usual 6 months of foresight. It literally didn't see the worst crisis in 80 years coming right around the corner.  In September 2008, the market was down less than 20% despite epic financial failures and a real estate depression.  Such was the faith the Fed would hold the system together.  Then of course, it crashed.  Perhaps the same is lying in wait for crude with supply demand dynamics so far out of whack with only bullish future expectations holding it together.  ~ Eden Rahim

THE IMPORTANCE OF THE S&P 950 13-YEAR PIVOT LEVEL. ARE WE HEADED THERE IN THE 78 WEEK CYCLE?

77-78 WEEK CYCLE POINTING DOWN INTO LATE AUGUST +/- 2 Weeks.

Implied Volatility on Oct vs Jan Calls imply chance of earlier Approval

The implied volatility (vols) on the October At-the-Money (ATM) Call options are 58% vs 48% for the Septembers.  With the PDUFA date of Oct 22nd, a week AFTER the Oct expiry, one would expect a big bump up in the available Jan Vols as seen between the Seps and Octs.  Instead, the Jan vols at 60% - about the same at the Octs.  This would suggest the market is pricing in the possibility of approval before the Octs expire but not before the Seps expire.  Also, because the vols are around 60 and not north of 100 as one might expect for such a binary event, the market clearly expects approval.  The elevated Vol, 60% vs 30% historic, is for the impact of a black box label for pancreatitis which Byetta does not have and trial data does not show as being necessary.  But the FDA being a regulator gets to protect itself from future liability by needlessly slapping on a warning label - even if trial data doesn't back it up.

As an update, the 10-day Call/Put ratio continues to sink, now to the lowest level in a year at 0.64.  Ordinarily investors are giddy piling into Calls of a biotech that is about to get approval for a huge drug - especially in a market where there is a scarcity of big new drugs to be approved for unmet medical needs.  Maybe AMLN should buy a Goldmine in angola, dig for oil under the Eiffel Tower, or manufacture lead paint in china, in order generate some bullish investor interest.

AMLN continues to evoke doubt

Two days ago AMLN pushed to the upside, closing above the 2 month consolidation in the $18-$20 range. So screens lit up, bells range, and investors turned more bullish to buy the breakout, right?  Uh Uh.  It was greeted with 936 Calls to 7,279 Puts or a daily 0.13 Call/Put ratio, taking the 10 day average down to 0.87 - the lowest reading in over 6 months. A contrarian's dream. This is reminiscent of when LCC was beginning its big rally from $3 last December and short interest and the Put/Call ratio rose with the stock through $4, then $5 and so on.  There were occasional sharp pullbacks, but LCC quickly snapped back.

Evidently, with AMLN this move above $20 is greeted as the selling opportunity of a lifetime.  My premise remains that with a bedrock of skepticism from both analysts and traders despite a relative strength (RS) of 86,  in the face of reasonable fundamentals, with the bonus of AMLN being an increasingly scarce and desirable asset to large foreign pharma, particularly those armed with a strong Yen that want access to the US market with a big drug  in an unmet medical need and a sales force, sets up a favorable risk-reward position.

http://stockcharts.com/c-sc/sc?s=AMLN&p=D&yr=0&mn=3&dy=0&i=t23263972693&r=2692

My response to Birinyi's pollyannaish "Invest Like its 1982" in the WSJ

http://online.barrons.com/article/SB127687523498807499.html#top-of-comments

Eden Rahim wrote: (your comment)

In 1982, Birinyi cites October 3rd Times, but that was only 6 weeks after the August 16th market low and still 3 months BEFORE the economy actually bottomed and recession ended. So in some ways the Times article was justified. The equivalent period this cycle would be early May 2009 - six weeks after the market low - not 15 months after the market low that he's invoking now.

Secondly, in 1982 unlike now, after economy bottomed in December 1982 & 5 months after the market lifted off, the unemployed #s began to plunge, falling 1.7 million people in 8 months in 1983. Now however, 15 months after the low, the decline in unemployment remain elusive. In fact 15 million remain unemployed. There is perhaps good reason this time to suspect the system is broken and cause for concern.

http://research.stlouisfed.org/fred2/series/UNEMPLOY?cid=12

Amylin 18 month chart

Upside channel projects about $25

The Price to Sales of prior biotech takeovers

AMLN is trading at 2.7X 2011 est. sales of $1.07 Bil. Giant problem ridden GENZ with negative sales growth will be taken out at about 5X sales. Here are the specific FY+1 Price/Sales of comparable takeovers of pure recombinant biotechs

DNA by Roche 7.6X 27% prem
MEDI by Astra Zeneca 10.6X 70% prem
MLNM by Takeda 15.6X 86% prem
IMCL by BMY 9X 73% prem
OSIP by Astellas 8.1X 68% prem
MOGN by Eisai 9.5X 37% prem
PHRM by CELG 10.8X 53% prem
ABII by CELG no sales 60% prem
MYOG by GILD no sales 50% prem
MEDX by BMY no sales 93% prem
CGRB by JNJ no sales 19% prem
FACT by ABT 10X 75% prem
SIRT by GSK no sales 91% prem
IDEV by ENDP 6.6X 232% prem

Remarkable skepticism about Amylin (AMLN) despite 20 biotech takeouts since 2007

The skepticism is such that 10 of 17 analysts have a HOLD rating; the 10 day Call/Put ratio is 0.98, the lowest since early January just prior to a run from $16 to $24. The $ Put premium was 3X Call premium yesterday. The short interest has surged to 17.6 mm shares or 13% of float - the highest in 19 months, up from 14mm a month ago and less than 10mm in January. Not only is there NO speculation of a buyout in AMLN as seen in below average Call buying volume, but there is an overt bearish bet. 

Clearly they are betting that a) LLY, viewed as the natural buyers,  will not be stepping up to take them out, or b) competitive drug Victoza,launched in January, will dominate the GLP-1 market for T2-diabetes as its more convenient dosing and needle prevails gaining 26% market share of GLP-1 market from AMLN, or 3) Thyroid cancer risk as assigned a blackbox label to Victoza will also be viewed as an issue with the FDA when reviewing Bydureon. 

But there are offsetting positives: 1) the FDA does not require further trials for Bydureon, 2) no unusual incidence of Pancreatitis or Thyroid cancer has be seen in P3 trial data that has been filed, 3) Best in class phase 3 data for 1X weekly Bydureon with weight loss benefit, that should make the October PDUFA straightforward given what is already known about 2x daily Byetta that is on the market and selling at a $700 mm pace, 4) Roche's Taspoglutide recently had a set back that delays additional competition past 2013 after pre-filled Bydureon hits the market that overcomes the needle issue.  In the meantime, frenetic takeover activity in mid-cap biotech has been unabated.  Since the 2007 bull market top, i've counted 20 biotechs gone: DNA, MEDI, MLNM, IMCL, OSIP, MOGN, TLCR, VMSI, PHRM, ABII, SEPR, MEDX, CVTX, SCRX, CGRB, FACT, SIRT, IDEV, OMTI and now GENZ. Every single pure recombinant biotech were taken out at a median of 9X sales.  You would think this trend and resulting scarcity of mid cap biotechs with commercial blockbusters and in-house technology would create a frenzy of speculation. Yet it's been anything but that for AMLN.

AMLN has traded in a narrow $18-$20 range above the 50-day and 200-day MA for 30 days, consolidating the impulse volume surge from $15 to $20.  The volatility bands have tightened to $1.75 from $7 a month ago and RS is in the top quartile at 81. A breakout of that range is simmering.

http://finance.yahoo.com/q/ta?s=AMLN&t=3m&l=on&z=l&q=c&p=b,e50,e200,v&a=&c=

http://www.schaeffersresearch.com/streetools/stock_quotes.aspx?Ticker=AMLN