Earlier this week, news broke that GlaxoSmithKline (GSK) filed with the European Union to bring a new, longer lasting diabetes drug to the market. GSK got the key ingredient that extends the drug's life from Novozymes, and while this made news generally, it hit home for me in a different way. Last week, I wrote an article about Prolor Biotech (PBTH), a development stage pharmaceutical company that also develops ingredients to increase drug life, specifically therapeutic proteins. These two events - one public and one personal - piqued my interest to look into other companies developing technologies that increase drug life. In my extensive research through this field I came across many new and exciting technologies, but the advances that companies like GSK have made in the diabetes field really caught my attention. In this article, I will present my findings in this area, but in order to understand the significance of the different studies currently underway, we will need to take a step back and look at some scientific and market background.
Diabetes Scientific Background
Diabetes comes in two flavors: Type I and Type II. Type I diabetes, or juvenile diabetes, is when the pancreas doesn't produce enough insulin to remove glucose from the bloodstream and into cells. Type II diabetes, or adult onset diabetes, in some cases has a similar pathology to Type I, or occurs when your body produces enough insulin, but your body doesn't respond to it, thus increasing glucose levels in your blood. Type II diabetes accounts for 95% of the diagnosed cases of diabetes.
Any treatment of diabetes will seek to reduce blood sugar levels, and doctors can accomplish this goal through a variety of ways. We can break down these methods in two broad categories - insulin products and non-insulin products. We can further break down the non-insulin products between injectables and those taken orally.
Insulin products seek to supplement the body's natural insulin production with a synthetic insulin. Because insulin is a hormone it cannot enter into the bloodstream through the stomach lining, thus patients must administer the medication through self injection. Type I diabetes patients need to inject themselves with insulin, but those with Type II usually resort to insulin injections as a last measure, and even then in combination with other non-insulin products.
Injectable Non-Insulin Products
Your pancreas has two different types of cells - alpha cells and beta cells. Alpha cells secrete glucagon (glucose used by your body in certain situations) and beta cells, which secrete insulin. When you eat your body produces a hormone called GLP-1, which stimulates insulin production, and suppresses glucagon production. It has been found that patients with Type II diabetes have decreased levels of GLP-1. Doctors can counter this problem by prescribing a synthetic GLP-1 hormone that patients can take to supplement their naturally occurring GLP-1.
Oral Non-Insulin Products
Sometimes patients don't need a hormone supplement to treat their GLP-1 deficiency, rather doctors can prescribe a medicine that inhibits the breakdown of this hormone. Specifically, when your body produces GLP-1, it also produces an enzyme called DPP-IV, which breaks down GLP-1, thus inhibiting normal insulin secretion. By inhibiting the breakdown of DPP-IV the body can maintain more normal levels of GLP-1, and thus more normal blood glucose levels.
Obviously, diabetes treatment encompasses more than the above. However, these treatments represent some of the newest (with the exception of insulin) drugs available. These drugs have come to replace older ones that proved hard for patients and doctors to manage. A large reason for the constant drive to improve treatments is because the rate of diabetes has increased dramatically in the past 30 years.
Diabetes Worldwide Market
As you can see from 1995 to 2010, incidents of diabetes doubled from 135mm to 284mm, and the estimates expect them to nearly double again between 2010 and 2030 - from 284mm to 439mm.
America, reflecting this trend, has seen similar growth:
(click to enlarge)
Again, here we see between 1995 and 2010 a huge spike in diabetes cases, from 7mm in 1995 to over 20mm today.
Unfortunately, no one expects these numbers to slow either worldwide or in the US. As mentioned above, 135mm people worldwide currently have diabetes and that number will grow to 429mm by 2030. In the USA, the CDC predicts by 2030 the diabetes number will grow to 30mm.
However, these unbelievable numbers only tell part of the story. Diabetes cost the US economy $245bn in 2012, a significant increase from previous years. This number takes into account all medication, medical equipment, and importantly costly hospital stays. Of the $245bn, 18%, or close to $50bn got spent on medication. Importantly, this $245bn also only tells part of the story. While we don't have reliable figures from around the world, considering the US only has 15% of the world's diabetes population, we could infer that the total cost worldwide stands at around $1.5tn, and $225bn on medication. While we cannot draw this inference, because the rest of the world doesn't have the wealth to spend on diabetes that the US does, even this weak inference strikes us at a very profound level. Furthermore, these numbers only tell us current statistics, and as we have seen diabetes growth will continue to accelerate worldwide creating an even larger cost burden.
Now that we have the appropriate scientific and economic background we can turn our attention to our more specific nook of the diabetes industry - the effort to make longer lasting insulin injections. In this next section we will examine one company making significant advances in this area, and we will see how they have carved out a niche in this tremendous market.
Longer Lasting Injectables
Above, we discussed two different types of injectable diabetes medications - insulin and GLP-1. The GSK diabetes medication mentioned in the introduction seeks to elongate the life of GLP-1. Work on this front has already been undertaken - the original GLP-1 hormone, Eli Lilly's (LLY) Byetta, required twice daily injection, before getting upstaged by Novo Nordisk's (NVO) once daily Victoza, and finally the most recent improvement coming way of Bristol Myer's (BMY) and AstraZeneca's (AZN) once weekly Bydureon (part of the Amylin acquisition). We should also note that Prolor Biotech also has a longer lasting GLP-1 injection under development.
However, the progress made in the GLP-1 injectable market - steadily reducing the number of injections - has not been matched in the insulin space. Currently, the two top selling insulin drugs - Sanofi Aventis' (SNY) Lantus ($6bn in sales), and NVO's Levemir ($2bn in sales) both require daily injections. Recently, NVO's application for its long lasting insulin drug, Ryzodeg, was rejected by the FDA, sending its shares lower by a whopping 12.5%, with some estimating that the drug will not come to market until 2017-8.
Into this yawning chasm between demand (increased diabetes patients) and supply (current insulin market) enters a new company - AntriaBio (OTC:ANTB). ANTB, which recently conducted a reverse merger to take itself public, began building its technology by buying the intellectual property of PR Pharmaceuticals, which went bankrupt in 2008 when it couldn't access the capital markets. PR invested more than $100mm in bringing the proven technology called PEGylation, which increases the life of therapeutic proteins, to the insulin space. ANTB bought this technology and has begun taking it from preclinical development to phase 1 testing.
Considering the current stage of the company - still in preclinical development - anyone considering investing in the company needs to go in with his/her eyes wide open. Early investors will have to contend with many bumps along the road including but not limited to, liquidity risks, equity dilution risks, and most importantly scientific/regulatory risks. However, despite all this investors can take solace in three elements - the significant investment made by PR pharma in ANTB's IP, ANTB's strong management team, and other products in ANTB's pipeline.
We already discussed the value of ANTB's IP, so let's move to their management team. Two members of ANTB's management team - Nevan Elan and Hoyoung Huh - both have previously sold companies to big pharma, with Mr. Huh selling his company BiPar Sciences to Sanofi for $500mm.
Moving to ANTB's other products we find that ANTB, beside having a longer lasting insulin ingredient moving from preclinical to phase 1 trial, they also have an ingredient in preclinical trials that seeks to reduce the number of injections of GLP-1 from weekly to monthly (see above). While this drug too has risks, nonetheless we see that ANTB has other products in their pipeline, further insuring them from the risks associated with development stage companies.
Valuing a company so early in development is nearly impossible, but I would make two points. First, as mentioned, PR Pharma invested $100mm in the technology currently owned by ANTB, yet ANTB only has a $44mm market cap. Second, as the global diabetes epidemic continues to spread we could look for catalysts to the stock beyond the standard regulatory approvals. Specifically, we could look for one of the big pharma players to look in and either buy the company or make a strategic partnership with ANTB. Remember, Sanofi currently has the market lead in the insulin market, and Mr. Huh sold his previous company to Sanofi.
Amylin: An Instructive History
Most healthcare investors know the Amylin story. Amylin had two drugs in its portfolio - Symlin and Bydureon, Symlin had already been approved, but Bydureon -- which we mentioned above because of its revolutionary improvement in GLP-1 injections, decreasing injections from once daily to once weekly - still had not received approval. Bidding for the company lasted four months, ending only after BMS and AstraZeneca doubled their original bid paying $7bn for the company. However, what many investors might not know is that Amylin almost went bankrupt in 1999, only getting saved after a cash infusion from a software entrepreneur. Thus began their long road, from development company, to almost bankrupt, to getting sold for $7bn to two of the biggest pharmaceutical companies in the world. ANTB has taken the first two steps of the same journey, and only time will tell if they'll complete the long trip ahead.