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Glucose is one of the most important chemical structures because it is essential in providing the body with energy. It is integral in the chemical process called aerobic respiration, which generates a usable form of energy. Glycolysis is the beginning of this process, which oxidizes glucose to form CO2, H20 and adenosine triphosphate (ATP). ATP is a chemical structure that stores energy and transfers it throughout the body. When our bodies have trouble regulating the uptake of glucose into the blood stream, not enough energy is created and distributed to important organs, especially the brain. Since glucose is a necessary chemical in our bodies, problems with the uptake of this chemical can cause major issues.

Diabetes is a disease that causes the body to have problems regulating the uptake of glucose in the bloodstream. The uptake of glucose through the blood stream is controlled by a balance between glucose and a peptide hormone released by the pancreas called insulin. The amount of glucose in the blood stream is important because too much glucose can lead to hyperglycemia, but too little can lead to hypoglycemia. Hyperglycemia can lead to blindness, loss of kidney function and nerve damage while hypoglycemia can result in dizziness, fainting, confusion and increased heart rate. Since diabetes has become such a prevalent disease, several biotech companies have created therapies to help patients regulate insulin and glucose in the blood stream.

Biodel (BIOD) is one such biotech company that is developing specialized therapies for diabetes. Biodel's lead drug candidate BIOD-123 is a therapy for patients with Type 1 and Type 2 diabetes. Although still in clinical trials, BIOD-123 has the potential to be a better therapy than those currently on the market. The drug's faster onset of action and non-invasive routes of delivery improve the efficacy, safety, compliance and convenience for the patients.

  • Pipeline: BIOD-123

The goal of diabetic therapies is to help the body's cells uptake the glucose in the blood stream by providing insulin. There are two different types of diabetics who need a constant need for insulin - type 1 and Type 2. In Type 1 diabetes, the body attacks the cells in the pancreas that produce insulin, which is usually caused by a genetic condition. In Type 2 diabetes insulin resistance occurs, causing the body to not produce enough or ignore available insulin. Although Type 2 diabetes has some genetic risk factors, it is predominately caused by lifestyle choices. In both cases, patients require a supplementation of insulin in order to regulate their blood glucose levels.

Biodel's BIOD-123 is a proprietary form of injectable recombinant human insulin (RHI) that is injected to help regulate blood glucose level. It is designed to be an ultra-rapid acting formulation when compared to the current "fast acting" mealtime (prandial) insulin that already exists on the market.

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Although still in early clinical trials, Biodel is taking the next step in insulin-based therapies by developing an ultra-rapid acting therapy. If eventually approved, the ultra-rapid acting insulin formulation would take a majority share of the diabetic market because it would be the superior option, as it addressing several of the market's unmet needs.

  • Improvement Over Current Therapies

There are several advantages of the ultra-rapid acting insulin therapies that would represent a significant upgrade over current therapies. Current insulin "analogs" are synthetic lab-made recombinant forms of human insulin on the market and aren't perfect in performing their desired task. After eating a meal, the body naturally creates insulin within minutes to react to glucose entering the blood stream. This first-phase insulin spike is not easily mimicked by injected insulin, which takes about 120 to 180 minutes to reach peak levels in the blood stream. One of the significant milestones in diabetic treatments was the invention of the rapid-acting insulin analogs, which takes about 50 to 70 minutes to reach peak level, which is a significant improvement over injected insulin.

The major goal of companies who have brought insulin products to market is to mimic that exact function of real insulin release with as little time delay as possible. However, even the most advanced rapid-acting insulin analogs on the market today have a significant time delay before the insulin levels peak in the bloodstream.

The failure of currently marketed insulin products to adequately mimic the first-phase insulin release results in deficient insulin levels at the beginning of a meal and excessive insulin levels between meals. This time lag in insulin delivery can result in excessive glucose levels shortly after eating, leading to hyperglycemia and then, two to three hours later, inadequate glucose levels between meals, which may lead to hypoglycemia. These swings between excessive and inadequate levels of insulin are highly deleterious to the health of people with diabetes.

(click to enlarge)

Ultra rapid-acting insulin has significant advantages, since it most effectively mimics the natural release of insulin in the body that science can provide. The faster the insulin can reach the bloodstream, the better the glycemic control. As seen above, lack of glycemic control can lead to hypoglycemia, weight gain, blindness, kidney disease, nerve damage and amputation. Improvement of insulin absorption and delivery into the bloodstream would be a huge leap for diabetic patients.

Mannkind Corporation (MNKD) is one company working on a similar form of ultra-rapid-acting insulin with its product AFREZZA, which is delivered through an inhaler similar to what Asthmatics use. Mannkind believes it can capture a large share of the diabetic therapy market, due to the advantages of its solution over current therapies on the market. If Mannkind can deliver good data, it should be seen as a strong positive for Biodel shareholders, as it proves that ultra-rapid-acting insulin would be a viable therapy to bring to market. Additionally, although Mannkind is further along in clinical trials, there is a significant gap in speculation value between the two companies. As of today, Mannkind has a market cap of about $2.24B, while Biodel has a market cap of about $60M. Also, Mannkind as an investment is significantly riskier, due to its huge debt and traditional problems getting inhaled diabetic therapies approved within the market space.

Eli Lilly and Company (LLY) currently owns one of the blockbuster therapies for rapid acting mealtime insulin injections with Humalog. According to the company's last 10K, Humalog brought in $2.40B in 2012. Other products on the market include Novo Nordisk's Novolog and Sanofi-aventis' Apidra.

Mannkind and Biodel are on the cutting edge of improving diabetic therapies with their ultra-rapid-acting insulin solutions. If Mannkind and Biodel can gain approval for their respective drugs, the opportunity exists for both companies to realize massive revenue and profit.

  • Near-Term Catalysts

The company is expecting top-line Phase II data for BIOD-123 to be released in the third quarter 2013. With the market for these products estimated to be about $10 billion in value, good results for Biodel's product would be a major step for the company and serve as a top-notch catalyst for biotech investors.

Biodel chose Eli Lilly's Humalog as its comparator for BIOD-123 and in Phase I trials has shown very positive results. BIOD-123 showed a better pharmacokinetic profile (PK) than Humalog and an improvement in injection site tolerability. After successful Phase I data, Biodel began a Phase II trial, with results expected in the third quarter 2013, as Biodel CEO Dr. Errol De Souza stated in the second quarter 2013 financial results presentation:

We are pleased to report progress across the breadth of our portfolio of pipeline product candidates. Enrollment is fully complete in our Phase 2 clinical trial of RHI-based ultra-rapid-acting insulin BIOD-123 and more than half of the subjects have finished the study, as we remain on track to report top line data in the third calendar quarter of 2013. On the research front, our new concentrated insulin candidate BIOD-531 has demonstrated an ultra-rapid-acting onset and basal duration profile in diabetic swine which could offer medical practitioners a novel therapeutic to improve prandial coverage while maintaining basal coverage in both severely insulin resistant patients and patients who use premixed insulins.

BIOD-123 will be compared to Humalog with the primary endpoint being HbA1c control, which is a lab test designed to see how well a patient is controlling his blood glucose levels. The secondary endpoints are aimed at demonstrating the superiority of ultra rapid-acting insulin by measuring postprandial glucose control, glycemic variability, hypoglycemic event rate and weight changes. With the company already producing positive Phase II data with its previous formulation Linjecta, it can be speculated that BIOD-123 has a great chance of also producing positive Phase II results.

  • Linjecta: Past Failure Aids Biodel's New Trials

Biodel's first insulin analog, Linjeta, was expected to be approved by the FDA in November of 2010, but instead the company received a Complete Response Letter (CRL), in most part due to tolerability issues relating to localized discomfort (pain) at the site of injection. There was also an issue that occurred at a clinical site in India where some blood samples were compromised. Nonetheless, the CRL came as a shock to a lot of analysts and investors because the product was seen a sure-shot win for approval. After receiving the CRL, the company decided to scrap Linjeta and start working with newer, better formulations of insulin for new trials.

Based upon the complete response letter and subsequent feedback that the FDA provided to us at a meeting in January 2011, we decided to study newer RHI-based formulations in earlier stage clinical trials. After reviewing the results of a Phase 1 clinical trial of two newer formulations, BIOD-105 and BIOD-107, we determined that the overall pharmacokinetic and pharmacodynamic profiles of these formulations did not demonstrate our target product profile. We subsequently conducted a Phase 1 clinical trial of two additional formulations, BIOD-123 and BIOD-125, and announced top-line results from that trial in April 2012. We determined that both formulations achieved our target pharmacokinetic, pharmacodynamic and toleration profiles.

With the new formulation, Biodel aimed to address several of the problems the FDA had with Linjecta. The company relocated the trials to the United States, so that there would not be a discrepancy between any data reported. The company also addressed the issue with injection site tolerance in the Phase I clinical trials for BIOD-123. From its 10-K, Biodel explains the Phase I results and details how tolerance was measured:

Both RHI-based formulations and Humalog® were well tolerated, with injection site toleration generally perceived by patients to be similar to that of their usual mealtime injections used at home. As measured on a 100 mm visual analog scale, or VAS, in which 100 mm is defined as the worst possible injection discomfort, local toleration was not significantly different for BIOD-123 compared to Humalog® (BIOD-123 mean VAS 3.6 ± 2.1 mm, Humalog® 1.8 ± 1.1 mm, p=NS). The VAS score for BIOD-125 was slightly higher as compared to Humalog® (mean VAS 6.8 ± 2.9 mm, p < 0.05).

What is most significant from these results is that the site injection profile is at least as good if not better to that of Humalog's. Absorption rates of BIOD-123 and BIOD-125 were significantly faster than that of Humalog® as indicated by 64% and 54% reductions, respectively, in mean times to half maximal insulin concentrations (p < 0.001 for both BIOD-123 and BIOD-125 compared to Humalog).

The company has done some major restructuring in regard to its clinical trial design as well as a major overhaul with its actual drug candidates. Out of four formulations, the two best formulations were chosen for development in drug programs, and it seems that Biodel has put some major thought into advancing development of its best and most effective RHI products. BIOD-125, which was previously Linjeta, has been modified to enhance injection tolerability and BIOD-123.

Instead of trying to get Linjecta approved again, Biodel smartly chose to address the concerns the FDA had with the previous trials and now should have a greater chance at obtaining approval in the future. Instead of going forward with an inferior drug and trying to gain approval, Biodel decided to design a new formulation and a revamped trial, which should be beneficial for the company. With such a large market opportunity, it is worth the company's time and money to successfully bring to market a drug that could generate billions in revenue.

  • Partnerships and Patent Protection

Biodel has patented its ultra rapid-acting insulin in a variety of ways. The company has protection in the United States and the European Union, which will expire in 2026 and 2025, respectively. The patents protect ultra rapid-acting insulin formulations that include: RHI-based, analog-based, subcutaneous delivery, sub-lingual delivery, non-hexameric insulin, and multiple combinations of excipients. With several large pharmaceuticals looking to either capture a larger share of the diabetes market or protect its existing products, a partnership with Biodel would be seen as a smart decision for a larger pharma, as we see referenced in Elly Lilly's most recent 10-Q:

The U.S. patent for Humalog expires in May 2013. Humalog is currently protected in Europe by formulation patents. We do not currently expect the loss of patent protection for Humalog to result in a rapid and severe decline in revenue. To date, no biosimilar version of Humalog has been approved in the U.S. or Europe. However, we are aware that other manufacturers have efforts under way to develop biosimilar forms of Humalog, and it is difficult to predict the likelihood, timing and impact of biosimilars entering the market.

Since Humalog generates over $2B in revenues for the company, Elly Lilly will be looking for ways to keep competitors from stealing market share. A partnership with Biodel could be a smart option for the future. Additionally, Cymbalta accounts for about $4.9B in revenues and it too will have a patent expiration this year. These two patent expirations seem to signal that Elly Lilly will be very active in leveraging itself to make sure it doesn't lose any of its $22.6B in revenue.

There also might be some competition to receive a partnership because of Biodel's BIOD-250 program. Biodel's technology was added to several of the existing drugs on the market including Elly Lilly's Humalog, Novo Nordisk's Novolog and Sanofi's Apidra. In January, management announced positive trial results in converting existing insulin analog drugs into ultra rapid-acting insulin. With several of these large pharmaceutical's patents expiring in 2013 and 2014, Biodel might receive a partnership. At these current stages, partnering with Biodel would be seen as a value add and a small price to pay to help protect future revenue. Since Biodel currently has such a small market cap, any partnership with a large pharmaceutical would be seen as another key milestone for the company.

  • Top Institutional Holders

Holder

Shares

% Out

Value*

Reported

Sabby Management, LLC

1,371,214

9.63

3,894,247

Mar 31, 2013

Jay, Jeffrey R.

1,350,400

9.48

3,835,136

Mar 31, 2013

VHCP Management, LLC

1,274,000

8.94

3,618,160

Mar 31, 2013

Baker Brothers Advisors, LLC

540,000

3.79

1,533,600

Mar 31, 2013

Goldman Sachs Group, Inc.

450,064

3.16

1,278,181

Mar 31, 2013

Orbimed Advisors LLC.

2,874,153

20.18

8,162,594

Mar 31, 2013

Artal Group S.A.

290,740

2.04

825,701

Mar 31, 2013

Vanguard Group, Inc. (The)

131,045

0.92

372,167

Mar 31, 2013

Wellington Management Company, LLP

82,472

0.58

234,220

Mar 31, 2013

Klingenstein, Fields & Company, LLC

82,195

0.58

233,433

Mar 31, 2013

Baker Brothers Advisors holds 540,000 shares of Biodel, which is a bullish sign to me. Baker Brothers have had good success this year with several small cap biotechs, realizing huge gains in a short time frame.

Vanda Pharmaceuticals (VNDA) has seen a huge appreciation in its stock price recently, hitting a 52-week high of $13.30 on June 12th. I wrote about Vanda in August of 2012, believing it was undervalued and gave it a one year target price opinion of $10 a share. The recent huge run with Vanda began when its developmental drug tasimelteon successfully completed a Phase III clinical trial for the treatment of a circadian rhythm sleep disorder. The stock has more than doubled since April of this year. Baker Brothers Advisors holds 5,745,000 share of the company, which is now a huge winning position for them.

Clovis Oncology (CLVS) has been on an epic run over the past year, rallying from $11.19 in November 2012, to a recent 52-week high on June 3rd of this year. The company presented positive results at the American Society of Clinical Oncology (OTC:ASCO) Annual Meeting in Chicago, from its ongoing Phase I/II trials for both CO-1686 and rucaparib. Rucaparib is a potent poly ADP ribose polymerase (PARP) inhibitor active in patients with ovarian, breast and pancreatic cancers, while CO-1686 is designed to treat non-small cell lung cancer (NSCLC).

Baker Brothers Advisors are very intelligent when it comes to small cap biotech investing. Seeing them with a position in Biodel is a very good sign. Also worth noting is Orbimed's 2,874,153 shares in Biodel, with 1,478,643 of those recently added. Orbimed is also known to have a very good record with investing in small cap biotechs.

Financial and Share Structure

Balance Sheet

Total Cash (mrq):

27.90M

Total Cash Per Share (mrq):

1.96

Total Debt (mrq):

0.00

Total Debt/Equity (mrq):

N/A

Current Ratio (mrq):

14.75

Book Value Per Share (mrq):

1.62

Biodel burns roughly $5M a quarter, so the company has enough cash to get through the next year.

  • Chart

(click to enlarge)

The chart above looks very solid, with the uptrend resuming after being initially overbought as indicated by the MACD histogram (yellow indicator). I see a nice pattern of continuation with lower highs and higher lows. Because this is a low float stock, the price movement can be very sudden and drastic.

  • Conclusion

With a current market cap of about $60M and products in development for the multi-billion-dollar diabetes market, Biodel is significantly under speculated. So far, it seems evident that the company has addressed the issues the FDA had with Linjecta and the company is ready to move forward with BIOD-123. With catalysts looming, speculation of partnerships, and a large market opportunity, it is my opinion that Biodel will see a significant run in the coming months.

My short-term target is $6.00. If positive data is announced, then I expect the stock to double from current levels to between $8 and $9.

Source: Biodel Primed To Capitalize On Next Generation Treatments In The $10B Diabetes Market

Additional disclosure: Disclaimer: This article is intended for informational and entertainment use only, and should not be construed as professional investment advice. They are my opinions only. Trading stocks is risky - always be sure to know and understand your risk tolerance. You can incur substantial financial losses in any trade or investment. Always do your own due diligence before buying and selling any stock, and/or consult with a licensed financial adviser.