A N.I.C.E. Development for Generex Oral-lyn in the U.K.

| About: Generex Biotechnology (GNBT)

The United Kingdom's National Institute for Health and Clinical Excellence (NICE) has recently begun the draft scope for the official Health Technology Appraisal of Generex's (OTCPK:GNBT) novel buccal insulin for the management of type 1 diabetes. Oral-lyn is not yet licensed for sale in the UK. Oral-lyn is in Phase III trials for patients with Type 1 diabetes and Generex is consequently moving closer towards submission to the Medicines and Healthcare products Regulatory Agency MHRA. At present, over 350 patients have been enrolled in the Phase III program at 70 clinical sites around the world.

NICE produces guidance on public health, health technologies and clinical practice for England, Wales, Northern Ireland and Scotland. These are recommendations, based on the best available evidence, on the appropriate treatment and care of people with specific diseases and conditions. NICE does not license drugs or devices. Licensing drugs and devices in the UK is done by MHRA. A recommendation by NICE ends any uncertainty and inequality about prescribing. Once national guidance has been issued by NICE, it replaces local recommendations.

NICE recently entered the first stage to "appraise the clinical and cost effectiveness of buccal insulin within its licensed indication for the management of type 1 diabetes". They began consultation on suggested remit, draft scope and provisional matrix of consultees and commentators on September 21st and this process continues until October 19th. A scoping workshop is scheduled on November 11th in London.

This is not the first time that a needle free insulin delivery system has been appraised by NICE. Early in 2006, NICE ruled that Pfizer (NYSE:PFE) and Nektar's (NASDAQ:NKTR) inhalable insulin, Exubera, not be prescribed to UK patients. NICE was concerned about the value of inhalable insulin and about decreased pulmonary effect after long term use. However, after frenzied appeal from Pfizer, NICE eventually altered their final guidance. NICE remained skeptical, saying that Exubera should not be used as routine treatment. They ruled that diabetic patients in the United Kingdom must prove "needle phobia" before they can be prescribed Exubera. The decision caused a storm of controversy, since patients would first have to be diagnosed with the phobia by a psychologist or psychiatrist.

Basically, Exubera offered an uncompetitive healthcare value proposition, priced at a premium while lacking dosing flexibility combined with significant safety concerns. The negative edict from NICE doomed Pfizer's launch of Exubera in the UK, and the negative publicity played a major role in Exubera's subsequent failure in the US. In 2007, Pfizer chose to abandon Exubera and took a $2.8 billion pretax hit for discontinuing their marketing efforts in one of the drug industry's costliest failures.

One inhalable insulin system remains in development, Mannkind's (NASDAQ:MNKD) Afresa, and while it appears to be a more effective and convenient in comparison to Exubera, questions regarding the safety of inhaling a growth agent like insulin into the lungs persist. For this reason, Afresa's commercial viability is questionable.

Oral-lyn is a new alternative to subcutaneous injections of prandial insulin and is conveniently delivered to the membranes of the oral cavity by a four inch metered device with no pulmonary (lung) deposition. Oral-lyn fully avoids the potential risks of chronic lung tissue exposure and in over a decade of clinical trials there has never been a serious adverse event attributed to usage of buccal insulin.

In NICE's draft scope of the Health Technology Appraisal for Oral-lyn, they state they will evaluate the cost effectiveness in terms of "incremental cost per quality-adjusted life year". They add that the time horizon for estimating clinical and cost effectiveness "should be sufficiently long to reflect any differences in costs or outcomes between the technologies being compared". Costs will be considered from an NHS and Personal Social Services perspective. Evaluating cost in such a fashion is interesting. Quality-adjusted life-year represents the morbidity of diseases by a scale of 0 to 1.0, representing the extremes of death and full health. For instance, if you have diabetes and a foot amputation due to diabetic complications, your quality of life will be reduced by 35%. In other words, your quality-adjusted life-year would be only 0.65.

Evaluating the cost effectiveness of Oral-lyn over a long time horizon should be favorable to Generex. The cost per unit of buccal insulin vs regular injected insulin is higher, but overall long term health care savings may be seen. For instance, a diabetic that would be otherwise hesitant to begin insulin treatment may be more open to utilizing Oral-lyn to lead a more compliant regimen. Further, NICE states in the draft proposal that they intend to appraise Oral-lyn through its Single Technology Appraisal (STA) Process. In November 2005, NICE launched the Single Technology Appraisal process, which is designed to enable assessment of single drugs and devices close to when they are first licensed, allowing NICE’s existing system to be reserved for more complex issues. This shortens the process and final guidance should come quicker.

There are approximately 2.5 million people in England and Wales with diabetes, approximately 10% of whom have type 1 diabetes. Generex's website states that Oral-lyn has been approved in India, Lebanon, Algeria, and Ecuador for the treatment of subjects with Type-1 and Type-2 diabetes. Generex recently announced that the US FDA has granted approval for the treatment use of Oral-lyn in patients with Type 1 or Type 2 diabetes mellitus under the FDA's "Treatment IND" rules. The FDA's Treatment IND program allows companies to provide early access to investigational drugs for patients with serious or life-threatening conditions for which there is no satisfactory alternative treatment. Drugs that are granted approval by the FDA for the Treatment IND program must demonstrate the prospect of efficacy through clinical testing and the FDA deems them as safe.

Generex's continued progress in the development of Oral-lyn is now nearing a few critical milestones. I believe that in time this will have a transforming effect on the value of GNBT shares as well as offer a new paradigm for diabetic care by enabling friendlier access to life saving insulin so diabetics can lead longer and healthier lives. Since NICE's Proposed Technology Appraisal of Oral-lyn is in the preliminary stage, it may be awhile before it becomes material news. But for a shareholder, it is welcome to find undeniable confirmed progress of a new drug in development that we can see. NICE's Proposed Technology Appraisals, including Oral-lyn's, can be found HERE.

The risk and reward proposition of owning stock in a microcap biotech requires careful evaluation. I don't feel an investor should buy shares in any company before they complete their own due diligence. I am not a professional and am sharing my independent opinion. Reading SEC filings and understanding the potential effects of dilution that will arise is essential. I have followed the course of actions of the Generex management team and closely researched the new drug and vaccine candidates in their pipeline.

Disclosure: I am long GNBT with no position in MNKD, PFE or NKTR.