By Paritosh Bansal and Greg Roumeliotis
NEW YORK (Reuters) - Activist investor Carl Icahn made a profit of more than 35 percent on his investment in Amylin Pharmaceuticals Inc, a source familiar with the situation said on Monday, higher than an earlier estimate of a 22 percent return based on his publicly disclosed filings.
Bristol-Myers Squibb Co said late on Friday it would buy Amylin, in which Icahn is the third-largest shareholder with an 8.8 percent stake, for about $5.3 billion in cash to extend its portfolio of diabetes treatments. Bristol-Myers also struck a deal with AstraZeneca Plc, under which AstraZeneca will pay it $3.4 billion and collaborate on developing Amylin's products.
Icahn became an investor in Amylin in early 2008 and was instrumental in driving the company's management to consider a sale. Although his efforts in 2009 to engineer a sale to its then diabetes drug partner, Eli Lilly and Co, failed, he won a proxy fight against the company at the time.
Icahn's returns from his Amylin investment beat the S&P healthcare index, which is up 22.16 percent over the last four years. But it took more work, including a bitter proxy fight and litigation, for Icahn to make his profit.
Icahn's average cost for the stake was about $23 per share, the source said, and added that he boosted his profits further by borrowing about 80 percent of the money for the investment. Bristol agreed to pay $31 per share for Amylin. It wasn't clear exactly by how much the leverage increased Icahn's returns.
"It's not great. But if you margin it, then it is pretty good," the source said, referring to the returns, and who declined to be identified because the material was confidential.
Earlier, a Reuters analysis showed that his average cost for his Amylin stake was likely to be around $25.40 per share. The Reuters analysis is based on his disclosed holdings and the average Amylin share price in each of the quarters the disclosures were made.
The actual returns disclosed by the source differ from the estimate because of variations in the stock price during any given quarter. The price at which an investor buys into a stock is not typically disclosed in U.S. Securities and Exchange Commission filings, making the average price in a quarter a proxy for such estimates.
For Icahn, whose healthcare investments have generated more than $2 billion in profits over the past six years, the returns on Amylin are a far cry from his triumph with ImClone Systems Inc, for example, where he engineered a $6.5 billion sale to Eli Lilly in 2008. The billionaire investor has said he made a 112 percent return on ImClone, in which he first showed interest in 1995.
His returns on Amylin will add to the debate about Icahn's record as a stock picker and the effect he has on a company he targets. It could also play into the dynamics of his next high-profile battle in the healthcare sector with Forest Laboratories Inc.
In a letter to Forest on Monday, Icahn touted his record at Amylin, ImClone and other biotech companies, arguing that "without our candidates' presence on the boards of these companies these stellar results would not have been obtained."
Icahn said Amylin's stock had returned more than 175 percent since his representatives first joined the board in June 2009. He said the share prices of Biogen, Genzyme Corp, and ImClone increased by about 180 percent, 48 percent, and 132 percent, respectively, since the date his representatives joined - or announced they were joining - those boards.
The Amylin deal again shows that Icahn is persistent and proves that eventually he often gets what he wants. Last year, for example, after a lengthy battle in which Icahn agitated for change and a sale of Genzyme Corp, the company was sold to Sanofi SA for about $20 billion. The deal was the second-largest ever in the sector.
Amylin's price tag meets Icahn's earlier stated expectations.
"I do not sell cheaply and would certainly not recommend selling Amylin unless we were offered at least over $30 per share, at which time I might recommend selling it," Icahn wrote in a letter to Amylin's top management in April 2009.
If the deal goes through at $31 per share, Icahn's returns will be down to timing. He bought 44 percent of his current stake in the first quarter of 2008 when the average share price was $33.11, according to Reuters data and SEC filings.
Other investors who bought Amylin's shares later are in for much more lucrative returns. Even before the deal was announced on Friday, the company's shares had already more than tripled in value from a low of nearly $8 last October.
The Amylin investment could have turned out worse for Icahn. In a survey of investors carried out by Mark Schoenebaum, an analyst at ISI Group, 53 percent of the respondents said Bristol-Myers overpaid, while 45 percent said it paid about the right price.
With Amylin in the bag, the focus of Icahn followers is likely to turn to Forest, where the 76-year-old financier recently started round two of a war after losing a proxy battle last year. So far he has not said what he wants Forest to do, but has criticized the company mostly over corporate governance issues, including succession planning and asked for more information on other issues.
Icahn owns about 26.4 million shares, or 9.92 percent, of Forest, making him the second-largest investor in the U.S. drugmaker.
In a lawsuit against the company, he revealed his Forest stake cost him around $912 million, implying an average price of about $34.55 per share. Forest shares closed at $34.99 on Friday, meaning the investor is just above water in his Forest investment.
Icahn has struck a deal with Eric Ende, his nominee to lead the proxy battle against Forest, to share 1 percent of his profits above $47.50 per share under certain conditions, including Ende's election to the board of Forest. Ende can share in Icahn's profits for up to two-and-a-half years after Forest's annual meeting next month.
At $47.50, Icahn will make a profit of roughly $340 million, or a 37 percent return. But the unusual arrangement with Ende could also raise governance questions and play into the hands of Forest as it formulates its defense.
(Reporting by Paritosh Bansal and Greg Roumeliotis in NEW YORK; Additional reporting by Toni Clarke in BOSTON; Editing by Matt Driskill, Bernard Orr)