Towards a goal of transforming treatment of a disease that racks up billions of dollars in healthcare costs around the world, Oramed Pharmaceuticals (NASDAQ:ORMP) took another step forward with the announcement that ORMD-0801, the world's only oral insulin medication, is ready to report safety data in a clinical trial for Type 2 diabetes.
The Phase IIa trial was conducted in the U.S. under the auspices of the FDA and designed to show an overall safety profile. Thirty patients with type 2 diabetes took part in the double-blind, randomized study for one week of treatment under an in-patient setting.
The original investigational new drug (IND) approval for this trial was granted by the FDA in May 2013, where 20 out of 30 patients were given ORMD-0801 in two different doses over one week. Results were well-received by investigators, prompting the company to undertake a bigger trial comprising 150 subjects across multiple locations, to gain more insight into efficacy. This should happen within the next several quarters.
Oramed is running concurrent tests in both Type 1 and Type 2 diabetes, a precedent among those searching for a better treatment, whether they are large drug makers or smaller biotech outfits.
Shares of Oramed have soared recently, and began their spectacular climb late December after reporting pharmacokinetic data in patients with Type I diabetes that showed positive responses at different dosages of ORMD-0801. Observed levels of blood glucose and insulin convinced researchers that efficacy is evident. The dynamics of pharmaceuticals and their effect on the body has become a crucial feature in drug research and development, particularly as pipelines compete for new blockbusters while resources become constrained. Even a compound as old as metformin for Type 2 diabetes has been getting press for its pharmacokinetic studies into the metabolic properties it holds for patients.
Oramed is the only investigator of an insulin pill to attempt to control Type 1 diabetes, encouraged by a peer-reviewed study published in April showing that ORMD-0801 stabilized glucose levels when given before eating. Type 1, the most dangerous of the diabetic diseases, is often characterized by uncontrollable swings in blood sugar where even intensive insulin programs do not work. Oramed's study, although small in size, treated Type 1 diabetics for 10 days with ORMD-0801 taken three times per day before a meal in addition to their usual injected insulin regimen. The results showed good tolerance to the drug and significant average decreases in glucose, particularly during evening hours when hyperglycemia is more prevalent. Future studies will examine different doses to shed light on the full value of ORMD-0801 in stabilizing blood glucose in this patient population
When considering younger biotech firms exploring diabetes therapy, Oramed looks to be a clear winner over MannKind Corp. (NASDAQ:MNKD) not only because I believe oral technology will be better received than an inhaler, but also because MannKind has mishandled its clinical and regulatory steps. Much has been written about the company's multiple FDA failures and I won't belabor those points, but instead draw investors' attention to the fact that it has been five years since MannKind submitted its New Drug Application (NDA) for glycemic control in diabetics, and that's a long time for a Phase III to get anywhere. MannKind, in one of its many tricks with the FDA, had changed the name of its drug from AFRESA to AFREZZA, making it sound more like a hair care product. The inhaler also underwent a manufacturing change, which angered the FDA because it violates regulatory rules.
In June of 2009, MannKind bought up all of Pfizer, Inc.'s (NYSE:PFE) bulk insulin and the license to manufacture it for pulmonary delivery, for $3 million cash. It's no secret Pfizer did not need it, after the failure of Exubera. My question - would MannKind, as a producer of what is touted as a breakthrough diabetes technology, want doctors to know that the product they're using is the same one employed in one of the most disastrous drug/device of the decade?
Oramed has a better idea for diabetics, and it's showing much swifter movement through the FDA with what appears to be a more favorable relationship than MannKind.
Recent Street analysis of Oramed, while flattering, is flawed with respect to valuation of the company's shares. They should be priced higher. For example, when attempting a discounted cash flow for a firm not yet net earnings positive, engaging a comparable company's analysis is inaccurate because that metric works best with firms showing net earnings per share. Using this method to compare enterprise values, where debt is a significant factor and not applicable for biotech firms, only confuses the issue.
The size of the global diabetes market according to Transparency Market Research is expected to reach $114.3 billion in 2016 and continues to grow at over 18% compounded annually. I expect the launch of ORMD-0801 to happen far before 2021 as stated in the report mentioned above, given Oramed's progress and rapid enrollment for diabetic clinical trials (even MannKind may release Afrezza before that). Assuming commercialization by 2017 into a market upwards of $120 billion, with a tiny projected market share rising to only 1% after two years (applying a similar discount rate as the aforementioned analyst with a modest forward P/E ratio and discounted to the present), Oramed should be a $66 stock today.
Primary to Oramed's risks for investors is success in larger clinical trials and, assuming results, medical acceptance. Endocrinologists, like general practitioners, are hesitant to suggest new modalities of treatment in order to protect their referral base among other doctors. Oramed might need a pharmaceutical partner, one that may only come forward after later-stage trials show efficacy. Ongoing studies are expensive and sources may dry up.
Diabetes research is a breeding ground of innovative medicine and Oramed's insulin pill, if effective, would change the therapeutic landscape not only because it mimics a natural insulin response, but also because patients will more easily comply. Unlike its competitors, ORMD-0801 looks capable of treating both Type 1 and 2 diabetes, an attractive proposition from a buyer's standpoint and a bargain at its present value.
Disclosure: I am long ORMP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.