Dissident shareholders Carl Icahn and Eastbourne Capital Management have managed to snare two seats on Amylin's 12-person board of directors, enough to hold the firm's feet to the fire but not enough to command a major change of course.

Amylin and Biogen Idec are among a number of companies being targeted by Icahn, who bases his credentials for change mainly on a successful experience at ImClone Systems, which was overhauled and then sold to Eli Lilly last year for $6.5 billion (¹ Also see "Lilly Snatches ImClone Away From Bristol" - Pink Sheet, 6 October, 2008.).

Icahn had been pushing to get two directors on the Amylin board, while Eastbourne separately proposed three nominees (² Also see "High Noon At Amylin: Dissident Shareholders Face Ballot Test" - Pink Sheet, 26 May, 2009.).

Weeks of attacks and counterattacks between the dissidents and the firm culminated in a vote at the company's annual shareholder meeting May 27. Early estimates of voting indicated that Eastbourne and Icahn each got at least one nominee on the board. Final results are expected by mid-June.

Eastbourne founder and portfolio manager Richard Barry thanked shareholders for "sending a strong message that the past results are not acceptable."

Not surprisingly, Amylin saw the outcome rather differently, noting that the vote "affirms that shareholders have confidence in the company's plan to build value in 2009 and beyond, having apparently elected only two of the five dissident nominees." Amylin also pointed out in a press release that shareholders defeated Icahn's proposal to move the biotech's incorporation from Delaware to North Dakota.

Winning Some, Losing Some

With two seats on the board, the dissidents can second each others' proposals and ensure a proper hearing by company management. Thus, the result ensures dissidents can air opposing views within the framework of regular company planning sessions.

"This is the best result anyone could hope for. It appears that everybody got a little of what they wanted and a little of what they didn't want," commented David Kliff, publisher of Diabetic Investor. "Eastbourne and Icahn get seats on the board with no overall change in control," he said.

Similarly, Leerink Swann analyst Steve Yoo said the outcome allows all parties involved to claim victory. Even if they had won all of the five seats, they still would not gain the company reins, he said.

J.P. Morgan analyst Cory Kasimov concluded that if the preliminary count holds, it looks like "Amylin has dodged a direct hit from the activist bullets."

"With only two activist directors elected, we suspect it could be hard for Icahn/Eastbourne to effect significant change in company operations going forward," Kasimov wrote in a May 27 note.

On the other hand, the analyst noted, the proxy fight has already arguably forged meaningful change. Amylin recently restructured and laid off 200 sales reps (³ Also see "Amylin Submits Once-Weekly Byetta After Shedding 200 Sales Reps" - Pink Sheet, 5 May, 2009.). As part of the overhaul, Amylin pledged to focus its own sales efforts for type 2 diabetes product Byetta (exenatide) on specialists, leaving primary care sales to partner Lilly.

Dissident Shareholders 'Keep Management Honest'

Before the vote, Eastbourne and Icahn attacked Amylin's management decisions, mistakes they say have caused the stock price to plunge by more than 75 percent since it peaked at $51 in 2007.

They scored a pre-Memorial Day victory when shareholder Peter Schoenfeld came out in favor of all five proposed nominees. And three proxy advisors said they backed some new blood on the board: RiskMetrics, Glass Lewis & Co., and PROXY Governance.

Some believe it is unfair to blame Amylin management entirely for the dismal stock price. But Icahn and Eastbourne together own 22 percent of stock and could bring greater accountability.

"Having two dissidents there will keep them honest," Kliff said.

In other words, it's a partial victory that could appease shareholders without shaking up a company too much.

Whatever one's bias, it seems "hard to object to board representation for holders of 22 percent of Amylin stock," according to Kelly Close, president of Closer Concerns, a San Francisco-based consultancy specializing in diabetes.

Preserving Goose And Golden Eggs

Key to the company's future is once-weekly Byetta LAR (long-acting exenatide), recently filed for FDA approval. Before the vote, Amylin reminded shareholders that a premature sale of the company could throw the promising product off track.

"I think everyone was smart enough to realize that now is not the time to rock the boat when the goose that lays the golden eggs is sitting at FDA," Kliff said.

In a May 28 report, Closer Concerns associates noted that they were surprisingly impressed by the dissidents at the shareholder meeting. Eastbourne's Barry identified himself as someone who has type 2 diabetes and spoke of how Byetta had improved his life.

"Showing none of the rancor of the proxy fight, he addressed his comments to three groups - Amylin employees, Amylin shareholders and Amylin management. He dismissed any suggestion that he favored a quick sale," Closer Concerns reported.

Icahn Partners Managing Director Alex Denner also reportedly denied that a sale of Amylin was a priority.

Biogen Idec Up Next

Alarm about pressure for a quick exit if dissidents are elected is also an issue at Biogen Idec, of Cambridge, Mass. On June 3, shareholders of that company will decide whether to accept Icahn's proposal to place Denner and three other nominees on the board, expanding the team's size to 14 (⁴ Also see "Why Carl Icahn May Not Get His Way At Biogen Idec" - Pink Sheet, 13 May, 2009.).

Icahn failed to sway shareholders in a similar bid last year (⁵ Also see "Carl Icahn Pitches Nominees for Biogen Idec Board" - Pink Sheet, 28 May, 2008.). But this time around, he has done much more homework to bolster his case about management failures, all meticulously documented in a 50-plus page presentation. However, some analysts point out that Denner's experience lies mainly in the hedge fund world, implying plans for a quick exit, whereas current management has significantly more experience in running biotech long-term.

At a recent Windhover conference, Denner asserted that if Icahn wins the proxy fight at Biogen Idec, its agenda will be to fix up that company, and not to sell right away (⁶ Also see "Shareholder Activism As Public Venture Capital? In Some Cases, It’s Icahn’s Approach" - Pink Sheet, 16 April, 2009.).

Among other things, Icahn's presentation charges that the company's total equity value of $15 billion is a sign of "lack of management continuity." But even though the firm's valuation is down, some biotech analysts have had doubts about Icahn's prospects for victory.

Icahn owns only about 5 percent of Biogen Idec stock, in contrast with the 22 percent he controls with Eastbourne at Amylin. Icahn criticizes Biogen Idec for floating overly aggressive projections for additional Tysabri patients, but some analysts chalk up disappointing results mainly to reports of the brain disorder progressive multifocal leukoencephalopathy (⁷ Also see "Biogen Idec Says Tysabri Patient Counts Are On The Upswing" - Pink Sheet, 17 April, 2009.).

"That's Mother Nature's doing, not Biogen's management. It's hard to point to specific managerial decisions that destroyed value at Biogen," said Cowen & Company analyst Eric Schmidt.

Also, Icahn's proposal to split the company in two to attract potential buyers has received mixed reviews. According to the billionaire's plan, one company would focus on neurology and the other on oncology and autoimmune diseases.

In a May 26 letter, Biogen Idec urged shareholders to vote against Icahn, arguing, among other things, that the proposal to split the company in two would create "significant operational inefficiencies" and result in the loss of competitive advantages and synergies achieved through the merger of Biogen and Idec.

Siding with management are two major proxy advisors - Glass Lewis & Co. and PROXY Governance. But on May 28, the RiskMetrics Group (formerly Institutional Shareholder Services) announced its support for two of Icahn's nominees, having concluded that the presence of dissident shareholders was in the company's long-term interest. Consequently, Deutsche Bank analyst Mark Schoenebaum believes Icahn has a good shot at getting two seats on the board and said "It's the most likely outcome, but it's not a slam dunk."

Schmidt, however, pointed out that two out of three proxy advisors are siding with the company and says it is difficult to say at this point whether Icahn will get some of the seats he is seeking.

- Emily Hayes (e.hayes@elsevier.com)

Icahn And Eastbourne Win Some, Lose Some In Amylin Match

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