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Obesity is now a disease. Last week the American Medical Association (AMA), recognizing that one in three Americans are too fat, have declared being overweight is more than just a social stigma. It's expected that doctors will take a closer look at their heavy patients and insurers will pony up dollars for treatment. This new classification is essential to fighting Type 2 diabetes and heart disease, because both are so closely linked to obesity. Pharmaceutical funding of innovative alternatives to current diabetes treatments should follow.

The obesity ruling is likely to force desperate drug companies to look to acquisitions of smaller firms with new approaches, especially since their research and development budgets have been flat-to-declining in recent years, causing industry-wide outsourcing for drug discovery and have not produced much besides add-on indications for already branded drugs and, in some case, drugs with grave problems.

Drug companies with diabetes treatments need help. Novo Nordisk A/S (NVO) earlier this year angered and embarrassed the FDA in its quest to seek approval for Tresiba, a long-acting insulin injectable that was shown to cause cardiovascular events. Sanofi's (SNY) Lantus, another contender to treat diabetics quickly and easily is a multi-billion dollar drug troubling to users that find they need to take more than one shot per day. Bristol-Myers Squibb's (BMY) Byetta and Bydureon, purchased from Amylin Pharmaceuticals for an obscene amount of money, has tort lawyers fighting for relief over claims of pancreatitis leading to cancer. Merck & Co.'s (MRK) Januvia, a once high-flying non-insulin drug for Type 2 diabetics, caused severe allergic reactions restricting breathing and is now itself linked with pancreatic cancer. Last month, Merck reported a drop in sales of Januvia and cut its own profit forecast. Analysts tried to spin that the drug is mature, but doctors are shying away from prescribing it and litigation is brewing.

I believe acquisitive drug companies scrambling for a new and better treatment for diabetes will consider Oramed Pharmaceuticals (ORMP). Oramed's technology is orally-delivered insulin, an unprecedented treatment among major drug manufacturers. This up-and-comer has a drug already in Phase II with excellent data and good early results for its GLP-1 analog for Type 2 diabetics. An oral remedy to replace frequent shots is the hopeful goal for any diabetic who is insulin dependent and until Oramed, drug makers have failed to get insulin in pill form past stomach acids.

Analysts have speculated that Mannkind Corp. (MNKD) would be a prime take-out candidate because of its inhalable drug Afrezza for diabetes. This problem compound, touted and coddled by Al Mann, has dragged through the FDA for years at great cost, sapping the company of funds. Al did do well with Minimed, owned by Medtronic, Inc. (MDT), but an insulin pump is still a far cry from something breathed into the lungs. Mannkind just announced the completion of a 353-person Phase III study, the second of two requested by the FDA after yet another complete response letter. Resubmission to the agency for approval of Afrezza is expected this fall. I don't hold out much hope; inhaled medicine is and always will belong to respiratory diseases like asthma. Mannkind is not cash-rich with only $28 million on its most recent balance sheet, and its long-running clinical trials have been funded by Mann himself, leaving me to question whether this is a pursuit of science or ego.

Buy-outs in the diabetes drug market space are vital because Big Pharma keeps missing the mark. The best they can do is to toy with the action of insulin injected into the body. Types of insulin include rapid-, short-, intermediate-, and long-acting, the most popular being Eli Lilly & Co.'s (LLY) $2.4 billion Humalog pen injector that works within 15 minutes so it can be taken at mealtime. Lilly has over $4 billion in cash but has been quiet on the spending front, a situation they have to address as major products like Cymbalta for depression and Evista for osteoporosis go off-patent. Humalog left patent protection last month with only one hopeful new product in its wake -injectable dulaglutide for Type 2 diabetics, still in Phase III.

Bristol-Myers has metformin for non-insulin dependent Type 2s, a generic that is marginally effective. It made a huge mistake with its $5.3 billion purchase of Amylin, and AstraZeneca PLC (AZN) was no smarter for agreeing to pay Bristol a 50/50 split of profits from sales of the Amylin drugs, now deemed dangerous due to potential cardiovascular events. What's more ludicrous is that Merck, Sanofi, Pfizer (PFE), Takeda Pharmaceuticals (OTCPK:TKPHF) and Roche Holdings (OTCQX:RHHBY) made bids for the bad Amylin drugs. Bydureon carries a black box warning amid thyroid cancer concerns and is certainly no blockbuster, posting anemic first quarter sales of $52 million.

In a desperate strategic move, Merck, with its dangerous Januvia pill and Pfizer, with its badly-designed inhalation device Exubera recently announced a joint effort to make a new drug based on speculative medicine that excretes glucose through the urine. This compound, if it makes it to market, would add to the 11 or so class of drugs approved in the US for blood glucose control, shrinking the possibility of insurers granting payment for 'me-too' medicines.

Novo Nordisk remains a strong candidate as a buyer of innovative diabetic technology. Victoza, a big-selling contemporary of Byetta and Bydureon based on popular GLP-1 receptor medicine, brought in sales of almost $2 billion in 2012 but angered FDA watcher Public Citizen who demanded a drug recall after suggestions of thyroid and pancreatic cancer in addition to kidney failure, clouding Victoza's outlook and instigating the tort lawyers.

Oral medication is clearly important to Novo as their three-year partnership with Emisphere Technologies (OTCQB:EMIS) was redone to include a $10 million upfront payment in lieu of development milestones for Phases II and III. However, the compound has not yet ventured past Phase I, putting it far behind ORMD-0801. Investors might recall that this leader in diabetes research once halted development of inhaled insulin in its final testing phase, and who's CEO went on record to state that insulin in an inhaled form would pose no new significant clinical benefit.

Given the choice between a purchase of Mannkind or Oramed to fund a pipeline of new diabetes drugs and in light of the bad choices pharma firms have made, Oramed emerges as a clear winner. Diabetics want a pill and will be wary of an inhalable product after the Exubera fiasco. Further, business development folks within the pharmaceutical industry are very likely skittish about staking their career on another Pfizer-like misstep. Oramed needs money but pulled its $13 million financing, citing market conditions. I believe that it is more plausible that something better is in the works, like talks with a corporate partner or a pharmaceutical buyer.

I believe that big pharmaceutical companies need to prop up their fading pipelines and will be in a rush to chase after these huge markets. The cost of treating obesity in the US approaches $200 billion and the Center for Disease Control recognizes that Type 2 diabetes and heart disease are the top two consequences of being overweight. The size of the American diabetes and heart disease markets are staggering, the kind of money too tempting for pharmaceutical firms to ignore. Diabetes drug companies have ample funds to spend to acquire compounds with real clinical value, their pipelines are not robust, and they have mostly failed in their quest for treatments that work well and don't hurt people in the process. Because of these factors, and the new medical focus on obesity and its clinical consequence of diabetes, I believe that it is only a matter of time before Oramed is the buy-out target of choice.

Source: New AMA Obesity Ruling Should Push Big Pharma To Find Acquisitions