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Why Oramed Pharmaceuticals’ Oral Insulin Drug Could Make It An Acquisition Candidate

|Includes:GSK, IONS, LLY, NVO, Oramed Pharmaceuticals Inc. (ORMP), SNY

Oramed Pharmaceuticals' (NASDAQ:ORMP) oral insulin drug could be the answer to Novo Nordisk's Dream.

ORMP received attention recently when it was mentioned in an articledescribing how Novo Nordisk (NYSE:NVO) is determined to find an alternative to painful and inconvenient needle injections to control blood sugar levels in Type 2 diabetics.

Novo Nordisk, a world leader in diabetes care, has been seeking a pill for diabetes since 2006 and has a prototype in Phase I. Billions of dollars have been spent on this effort but for the large drug maker, it could represent up to $10 billion in sales, making it the greatest revenue producer in Big Pharma's history. The trick is to get the pill past the stomach, where it could be destroyed by gastrointestinal acid.

As we've written in the past, ORMP is working on a similar project and is further along, suggesting that its technology is better. ORMD-0801 is in Phase II trials with good results, which is why we think that sooner or later, Novo Nordisk will come calling.

According to the American Diabetes Association, 25.8 million people in the US, or 12% of the population have diabetes, with 2 million new cases found each year. The cost of treating diabetes in the US was $264 billion last year meaning that treatment, considering just insulin vials and needles alone, runs about $10,000 per person. Worldwide, diabetes affects 366 million adults and children. In 2011, all UN member states made a pledge to seek better treatments for diabetes with targeted goals that will be examined frequently.

These enormous figures account for the strength of Novo Nordisk's financials. Worldwide sales of nearly $7 billion last year increased 11% over 2010. Over 24 million people now use their products. The company stated in its annual report that they are making a strong commitment to research and development, coming at a time when other large drug companies are scaling back. Such is the power of a growing market that is still protected by patents.

And at a sum of $2 billion, Novo Nordisk has the cash to spend. Earlier this month, the company signed a $100 million deal with tiny Caisson Biotech for its unique drug delivery technology that would help its pipeline diabetes injectables last longer in the body.

The farthest any firm has gotten in developing an oral treatment for diabetes has been Diasome Pharmaceuticals, Inc. The Pennsylvania-based clinical stage company was experimenting with a nano-technology based pill for diabetes, but the drug failed in later clinical trials. There is no record of them since 2009, and their website has been taken down.

We'd like to draw our readers' attention to another of ORMP' innovative products for Type 2 diabetes - ORMD-0901, an oral GLP-1 receptor agonist in early stage clinical trials. GLP-1 therapies are becoming a major class of drugs because they lower glucose while significantly reducing the risk of triggering hypoglycemia, and, for most people with diabetes, they also prevent weight gain. Amylin Pharmaceuticals (AMLN) released BYETTA, a novel GLP-1 agonist in 2009. Sales were $667 million that year.

The race to find better treatments for diabetics is on and sales are big. In addition to Amylin, Sanofi (NYSE:SNY) showed revenue last year of its latest product for Type 2 diabetes, Lantus, of $4.9 billion, up 15% from 2010. Sanofi is also pursuing a GLP-1 agonist with trials now ongoing.

Analysts have projected that another unique compound for diabetes, an injectable made by Isis Pharmaceuticals (ISIS) now in Phase II, could generate over $600 million in its second year of sales. On this basis, ORMP's oral insulin drug, expected to reach FDA approval in 2015 (a full year ahead of ISIS) would be well on its way to blockbuster status. Because patients would prefer a pill to a needle, ORMD-0801 would stand a better chance of getting on a health plan's formulary because it will most likely be less expensive.

The treatment clearly preferred by diabetics everywhere would be an oral medication. Competitors in diabetes like Eli Lilly (NYSE:LLY) and GlaxoSmithKline (NYSE:GSK) are not seeking to develop pills for diabetes, so we think it's only a matter of time before Novo Nordisk takes an interest in ORMP.

We see tremendous upside for ORMP at these levels. This stock is trading nealry 30% from its 52-Wk High ($ 0.44 ) and its $20 million market cap appears very much undervalued.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Stocks: ORMP, NVO, GSK, LLY, SNY, IONS