What's Bad For Bisphosphonates Is Good For Emisphere

| About: Emisphere Technologies, (EMIS)

The FDA convened a special meeting of experts last Friday to discuss safety issues with bisphosphonates. Bisphosphonates are the multi-billion dollar, dominant class of drugs used for treating and preventing osteoporosis (OP). They have been shown to decrease the risk of bone fractures in women with osteoporosis, but the longer that patients have been on bisphosphonates, the more we are adding to and learning about the terrible side effects. The list of side effects include:

· Upset stomach and inflammation and erosions of the esophagus

· Esteonecrosis of the jaw (death of the jaw bone)

· Increase in atypical subtrochanteric and femoral fractures (in October 2010 the FDA mandated a new label warning about this increased fracture risk. Although the risk is small I am still struck by the irony and resulting marketing nightmare of increased risk of a very bad type of fracture by a drug that is prescribed to reduce fractures)

· A 2010 study suggests that the risk of oesophageal cancer doubled with 10 or more prescriptions for oral bisphosphonates and with prescriptions over about a five-year period

The panel voted 17 to 6 in favor of adding additional label information about long-term safety and efficacy. If the FDA follows the panel recommendation (which they usually do) then the label would likely be modified to include a warning about the possible increase in risk of oesophageal cancer with long term use. On the efficacy side, label changes might highlight that while 1-4 years of use show of bisphosphonates show reduction in bone fractures a new study of Fosomax shows no reduction in bone fractures for women taking the drug for five or more year.

The panel stopped short of recommending any specific time limits for bisphosphonate use or for recommending a mandated drug holiday to reduce longer term risks (it is not surprising that a specific drug holiday was not recommended as discontinuation of bisphosphonates increases fracture risks as seen in studies such as “Risk of hip fracture after bisphosphonate discontinuation: implications for a drug holiday” found here).

Defenders of bisphosphonates are certain to argue that the benefits outweigh the risks. Opponents are certain to argue the opposite. At the end of the day I don’t think that the argument matters much, as yet another wave of negative publicity is likely to seriously reduce physician and patient demand for bisphosphonates. Potentially losing billions of dollars in sales of bisphosphonates is bad news for the pharmaceutical companies selling the drugs including Merk (NYSE:MRK), Sanofi Aventis (NYSE:SNY), Roche (OTCQX:RHHBY), and Novartis (NYSE:NVS).

Many readers probably think that delivering a eulogy for bisphosphonates is premature and if another label warning were the only new development then I would definitely agree. However there is another, more important, factor that is almost certain to spell the demise of the bisphosphonates and that is Oral Calcitonin. Novartis and Nordic Bioscience are almost ready to release the results of a 3 year, 4500 patient, Phase III study of using Oral Calcitonin to treat osteoporosis. The last patient was sometime in August so I would expect news out by November at the latest. Some people familiar with treatment options for OP might incorrectly assume that Oral Calcitonin is not a particularly big development as Calcitonin has been prescribed to treat OP for years (first as a shot and then as a nasal spray). I would first point out that any time you take a drug from a nasal spray to a pill you dramatically increase sales, as people hate nasal sprays. I would also point out that Calcitonin has always been prescribed off of studies showing a reduction in bone resorption which in theory means stronger bones, but if the trial was successful this will be the first time that Calcitonin is proven to reduce fractures for women with OP.

If the Oral Calcitonin trial is a success the drug will completely decimate sales of bisphosphonates, as the drug will be at least as efficacious (probably more as bisphosphonates long term efficacy is in doubt) as the bisphosphonates but without any of the side effects. In fact they have never found any real side effects to Calcitonin and have never even reached a maximum tolerated dose.

Emisphere (OTCPK:EMIS) is the silent partner in the Oral Calcitonin program. They supplied the technology that allows Novartis and Nordic Bioscience to deliver Calcitonin orally. If the drug is approved, Emisphere will make 10-12% royalty on sales and there are almost certain to be substantial milestone payments on the filing of the NDA and/or its approval. Novartis is 82% successful with trials that run until completion and I would argue that Oral Calcitonin for OP has a higher odds of success given that it is not a new compound, just a new and improved delivery of the compound.

The vote on Friday recommending more label changes is the perfect disruptive storm for the treatment of OP. If Oral Calcitonin is approved, as I expect, then one has to wonder how any physician could prescribe bisphosphonates with all of their terrible side effects and questionable long term efficacy when Oral Calcitonin at least as effective at reducing fractures with no negative side effects. If Oral Calicitonin is approved and physicians continue to prescribe bisphosphonates when they either know or should know that a better option exists with no side effects and heaven forbid the patient gets on the terrible side effects then I think that not only will the pharmaceutical company that sold the bisphosphonate be sued (it is already happening) but the physician is likely to be sued for malpractice as well.

This perfect disruptive storm is likely to lead to $2 Billion in sales of calcitonin worldwide after 3 years on the market if it is approved and a stock price greater than a conservative valuation of $30, applying a 15 times multiple on pre-tax income and not assuming any valuation for the other drugs in Emisphere’s pipeline.

Disclosure: I am long EMIS.OB.