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Joseph Ramelli is an equity analyst and an investor. He is a freethinker and enjoys taking the path less traveled.
  • Don't Be Afraid of the Emisphere 24 comments
    Oct 12, 2010 10:08 AM | about stocks: NVS, EMIS

    When the Data Monitoring Committee came out with a recommendation on July 23, 2010 that there was no need due to efficacy for Novaris (NVS) to continue their Oral Salmon Calcitonin U.S. Phase III trial for Osteoarthritis it really sent Emiphere’s (OTCQB:EMIS) stock into a tailspin.  The stock has suffered a greater than 70% decline from the high set in June of 2010.  On the surface I totally understand the market reaction; the Calcitonin OA program was the huge home run potential for Emisphere; indeed some biotech experts thought that it could be one of the biggest grossing drugs of all time.  A positive nod from the DMC is a good sign for your Phase III trial (we got the green light from the DMC on the virtually identical EU Phase III Calcitonin for OA clinical trial last November); it definitely increases the odds of success but is not highly correlated with a successful outcome.  A negative recommendation from the DMC on the contrary is correlated very highly with a trial failure.  It means that you are not trending towards hitting your trial endpoint(s).  Most of the time a negative recommendation is met with a Roberto Duran style “No más.” from the trial sponsor.  Some very intelligent biotech investors in my network have even characterized the Calcitionin OA program to me as a “zero” after hearing of the DMC recommendation.   I understand the conclusion; it is based on logic and the history of negative DMC reports hanging a R.I.P. sign over a drug candidate.

    I am here to tell you today that the Oral Salmon Calcitonin for OA program is alive and well, and that I am convinced that Novartis will file for approval in EMEA in the next several months and file for approval in the U.S. in 2011 and that the drug will be approved in both EMEA and the U.S.  The EU trial has ended and Novartis should now be analyzing the data according to my timeline.  So you are asking yourself “How could you be so confident if no word has yet come out of Novartis as to the fate of the EU trial and with the U.S. trail still in progress?” You are also probably thinking that I am the type of investor who falls in love with his investments and who looks at the facts through rose colored glasses.  Well just give me a chance and I think that by the end of the article you may be a believer like me, or at the very least you will put the odds of success for Calcitonin for OA at significantly higher than “zero.”

    To understand my reason for enthusiasm about the OA program we have to start at the beginning, or at least at the beginning of the Phase III trials.  Here is a link to download a pdf of a FDA document entitled “Guidance for Industry; Clinical Development Programs for Drugs, Devices, and Biological Products Intended for the Treatment of Osteoarthritis”:

    It is the most comprehensive document that I have found that discusses the structuring of FDA trials for OA drugs and it is definitely worth a read for anyone interested in the Emisphere story.  Stumbling upon this document returned my conviction level in the success of the Calcitonin for OA program back to the high level that it was at before the DMC “no need to proceed for efficacy” announcement for the U.S. trial.   The document was published in 1999 but as far as I can tell there has not been any update in this guidance since.

    The guidance given in the document is that trials should track both the symptoms of the disease (Pain and Function) and the structure of the disease (Joint Space Narrowing, or JSN).   The EU trial and the U.S. trial are both structured in accordance with the guidance (EMA officials must echo this guidance) as you can see  at by clicking on the following links:

    EU Trial

    U.S. Trial

    (The trials differ slightly in their endpoints with the measure of function in the EU trial being a primary endpoint but it being a secondary endpoint in the U.S.) 


    So far the document just validates the structure of the trials, so why even bring it up?  The answer to that question can be found in the following text from page 6:

    “A claim of slowing JSN (i.e., showing structural improvement) might plausibly be dissociated from other claims when the mechanism of action of the product, and/or the size of the effect on slowing of JSN, are suggestive of future clinical benefits. In general, products will not be considered for approval or for separate claims if

    (1) they are not anticipated to have different effects on these parameters, or (2) they show only small improvements in JSN without demonstrated effects in symptoms.”


    Wait a second; it sounds as if a drug that slows JSN might be considered for approval regardless of the effect on the symptoms??!! It gets even better:

    “A hierarchy of claims for structural outcomes is shown here.

    1. Normalize the x-ray. An x-ray that shows a normalization of JSN is possible, at

    least in principle, and it would be the most convincing outcome of an improvement in structural integrity. But given our current understanding of OA, this outcome does not seem attainable for any currently studied class of products.

    2. Improve the x-ray. An x-ray that shows a reversal in the JSN (i.e., a widening of

    the joint space) at endpoint compared to baseline would reflect new or regrown cartilage (and not the cartilage hypertrophy sometimes seen early in OA). This outcome would be convincing and require no formal parallel evidence of improvement in clinical outcomes. (emphasis added)”


    When I read this I just about fell out of my chair.  The symptom outcomes need to be included in the trial but if the drug slows the Joint Space Narrowing and especially if it widens the joint space through re-growth of cartilage then the drug is approvable based solely on the JSN data regardless of the symptom outcomes.  As I have written in previous articles we are just starting to see the proof of what Nordic and Novartis have known for years; that calcitonin re-grows cartilage.  The following studies out of Nordic Bioscience (our other partner in the trials) show the effects of calcitonin on cartilage even in the very short term:



    We are re-growing cartilage and therefore we can get approval regardless of the other endpoints.  This is something that nobody else on the street has figured out.  The trials are alive and well and I am convinced that we will see a filing for approval in EMEA in the next several months.  Keep in mind that we were trending towards hitting all of our endpoints in this trial at the 1-year interim look, but even if the pain and function endpoints end up missing the mark we still have a drug.  Novartis and Nordic even included a second way of validating the claim of cartilage re-growth and thus joint space widening by including “Disease progression in the knee evaluated by MRI” as a secondary endpoint in both trials.  I am 100% convinced that we will be able to prove cartilage growth and widening of the bone gap and thus given the “Guidance for Industry” and the insanely safe profile for calcitonin (no side effects and never even reached a maximum tolerable dose) we are sitting on a blockbuster drug.


    Novartis has huge plans for Oral Salmon Calcitonin:

    1)   Blockbuster drug for treating osteoporosis.  We will soon hear from the DMC about the 2-year interim look for the OP trial.  We got the positive nod from the DMC at the 1-year mark and there is every reason to believe the trial will be a success at the 2-year mark and that Novartis will file for approval in both EMEA and the U.S. off the 2-year data and continue the trial for the 3rd year for marketing and labeling claims.  The primary endpoint of the trial is a reduction in new bone fractures, which would be absolutely huge if we are allowed to claim that Oral Salmon Calcitonin reduces bone fractures.  Studies are just starting to emerge that show that the most widely prescribed (sales of $4.6 billion in 2007) class of drugs to treat OP, bisphosphonates, actually increase the risk of bone fractures:

    Bisphosphonates have a lot of terrible side effects to boot.  Oral Salmon Calcitonin will win hands down with a claim of reducing fractures and with our extremely safe profile. 


    This is a relatively new understanding of the potential for Oral Calcitonin for OP for me, as I previously viewed us as having a nice market by supplanting the nasal calcitonin and growing that market by having the much more appealing pill as compared to the nasal spray.  I now realize that I dramatically underestimated the potential and I now see this as being a $2-3 billion product in 3 years as it quickly takes market share from bisphosphonates.

    2)   Blockbuster drug for treating osteoarthritis.  Sales could top $8 billion for this indication.  A disease modifying treatment for OA that re-grows cartilage and has no side effects.

    3)   Combination of Oral Salmon Calcitonin and Oral PTH into one pill for OP.  This is definitely further down the road, but a biotech expert friend insists that this has huge potential, as the 2 drugs are very symbiotic; one strengthens bones and prevents fractures and the other helps to heal fractures.  Interestingly Novartis has filed some patents on the combination.  Also of interest is that one of our other partners, Novo, has just demonstrated the ability to deliver two compounds in one pill using our Eligen technology.

    4)   Treatment for bone pain.  Some recent studies outside of Novartis and Nordic have shown calcitonin to be a useful treatment for bone pain.  I think that although Novartis is unlikely to do a study for this indication, Oral Salmon Calcitonin could be prescribed off label for this indication.

    It all adds up to over $10 billion in sales to Novartis and over $1 billion in pre-tax income to Emisphere and a greater than $100 stock price for Emisphere in 3-5 years.  What value is being currently given to these Oral Salmon Calcitionin programs?  Zero.  The fully diluted market cap of Emisphere, roughly $73 million as of me writing this, is in my opinion justified by our shot-replacement B12 pill (admittedly the board has taken more time to decide which way to go with the B12 than I anticipated, but I still believe that the future is very bright for this product).

    In the next week or so I anticipate writing about the huge potential of our GLP-1 program with Novo Nordisk and the potential for additional compounds with them.  Oral GLP-1 is early stage, but very exciting.  Stay tuned.








    Disclosure: Long EMIS
    Themes: Biotech Stocks Stocks: NVS, EMIS
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Comments (24)
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  • Very compelling Joe.


    An obvious question: Why do we hear about all this from you and not from Emisphere ?


    Some obvious answers:
    - Incompetent Management (Mike Novinski and Garone)
    - A board controlled by an ethically challenged investor (MHR Capital Management - Mark Rachesky) who appears to be focused on building a massive position by serially diluting shareholders at very low ($1 or lower) prices. It is therefore no surprise that this type of information would be suppressed by Emisphere.
    12 Oct 2010, 11:03 PM Reply Like
  • If sucessful, will NVS buy EMIS and UGNE?
    13 Oct 2010, 09:53 AM Reply Like
  • Author’s reply » Sure Novartis will be chomping at the bit to either buy us outright or buy back the royalty stream for Calcitonin for OA and OP. The board knows what we have here and the price would be very expensive in either scenario!
    13 Oct 2010, 09:56 AM Reply Like
  • How expensive? currently EMIS is hovering around a 1.00/share and Ugne is stagnant at .60/share.
    16 Oct 2010, 08:37 AM Reply Like
  • Well Big are convincing, indeed...i'm back in, in a big way!
    13 Oct 2010, 04:39 PM Reply Like
  • It is a good story... I'll warm a glass of milk and wait by the fire to see what happens... BTW i'm heavily invested in both UGNE and EMIS...


    Lets hope your right...
    13 Oct 2010, 06:30 PM Reply Like
  • Right on the money
    14 Oct 2010, 10:53 AM Reply Like
  • Joe....thanks for taking the lead for all of us on EMIS. I think that your analysis is the most comprehensive and coherent that I've read/discussed. You make the best sense of the available facts and I'm betting with you on the long term prospects well as advising associates to do the same. Building our positions......Keep it coming......
    14 Oct 2010, 05:00 PM Reply Like
  • Great article Joe! Your hard work and research on Oral salmon Calcitionin program was excellent and informative. It gave us a real clarity on the whole process.
    Even though Pacman feels that MHR-Mark Rachesky is a ethically challenged investor, I don't think that he has a 43.9% stake in emis to lose money.
    Keep up the goodwork Joe!
    15 Oct 2010, 06:57 PM Reply Like
  • Dear Joe,


    Thanks for the fine research. If I understand your argument, you're suggesting that the Phase III trial could have provided considerable evidence of joint-space widening (or of significant slowing in the pace of joint-space narrowing), but no evidence of reduction in pain or improvement in function. Based on the FDA document you dug up, significant efficacy on the JSW measure is sufficient to consider a drug for approval. I'm having a hard time understanding the following, though. Why would a Data Monitoring Committee -- presumably expert in Osteoarthritis -- see these results and nevertheless render a judgment of "no efficacy"? Are they as unaware of the FDA standard of approval for osteoarthritis drugs as the biotech analyst community?


    Thanks for your spadework and persistence!
    16 Oct 2010, 08:38 PM Reply Like
  • Author’s reply » Great question emis_fan.
    The DMC are by no means experts on OA and they do not make judgment calls on the whether or not a drug is approvable. They are statisticians and they tell you whether or not you are trending towards hitting your endpoint(s), nothing more, nothing less. Therefore they would never concern themselves with FDA standards for approval. I hope this is helpful.
    18 Oct 2010, 08:16 AM Reply Like
  • Ah, terrific. And that makes sense: in 99.9% of trials, all of the endpoints matter, so a statistician is all you want. And a statistician who sees the study missing 2/3 of its endpoints is likely to give a thumb's down, even if in this one trial out of a thousand, the third endpoint alone is a viable indicator of efficacy.


    Thanks for the reply!
    18 Oct 2010, 10:34 AM Reply Like
  • My heart says this drug does have a modifying effect on the progression of OA. In order to learn what this effect is – we need the results to tell us. I feel Novartis may have set the bench mark to high for their trials. Maybe if their clinical trial endpoint was only to prove that it halts the progression of OA, maybe at this stage we would be less concerned as to whether or not it will succeed. Instead Novartis have gone all guns blazing, they want this drug to do everything. My brain says that it won't. Come on results – where are you???
    19 Oct 2010, 08:53 AM Reply Like
  • The good news is that if a drug slows the rate of JS narrowing even by 50%, and even with no effects on pain and function, then at least by 1999 standards, the FDA is willing to consider it (and, given very low risk, approve it). The fact that Novartis continues to throw money at the trial suggests that this is not an unreasonable scenario. The somewhat bad news is that an OA drug that cannot make claims on pain and function will have a smaller market than one that can do everything (improve structure, reduce pain, increase function). But even if the market is $2 billion instead of $7 billion, approval for limited claims (on structure) is still obviously a big deal. And the inability to make pain and function claims may have a much smaller effect on market size.


    The other big uncertainty is B-12. What is the reason for the delay in the rollout into medical foods? At the risk of looking idiotic, I'll take the liberty of speculating.


    One possibility is that management and the Board want to build a partnership that stretches across a range of vitamins and minerals, including co-branding, rather than a one-off deal. The reluctance of potential partners to go down this road would explain delay and the recent fundraising may then be dedicated in part to advancing another B-12 - type product to further entice these potential partners (e.g., with animal tests).


    The other possibility is that there are partner doubts about the market for new and improved oral B-12. The case for Eligen B-12 is that it's as good as injections, basically, in raising B-12 levels quickly and efficiently. And, as we all know, lots of people get B-12 injections. The bad news here is that the most B-12 injections are not medically necessary: patients can boost their B-12 levels just as well with large oral doses, using conventional oral formulations; it just takes a week or two rather than an hour or two. See, for example:



    For these patients, Eligen B-12 works faster (B-12 absorbs as fast as injected B-12, practically), but it's not clear how important speed is in the marketplace. If speed is a big deal, and that's the reason people are getting injections (as opposed to doctors maximizing office fees -- which would go away with Eligen), then the market opportunities look excellent (for B-12 and for follow-on products in this category), making the nature of the partnership, rather than doubts about the product, the most plausible explanation for delay.
    19 Oct 2010, 05:10 PM Reply Like
  • Emis_fan you make out that Oral Salmon Calcitonin is no more better than the useless Glucosamine/Chondroitin supplements that tarnish the OA industry. I am sure Novartis believe their product to be better than these supplements. They need to be careful not to fall into the category of these supplements though. Joint supplements are forever getting tested for efficiency and pain relief because the element of doubt which hangs over them – do they or don't they work? If Oral Salmon Calcitonin can only deliver 50% slow down of the progression of OA. It might as well not bother coming to market as we already have lots of products that claim they do this. I believe Oral Salmon Calcitonin has got to work 100% in order to be released and believed.
    20 Oct 2010, 07:53 AM Reply Like
  • Hi, Sturge8 - I don't know about the supplements, but if the market already delivers 50%, you have to be right that OSC has to do better. My only point is that the FDA seems to have set the bar for approval particularly low (likely because OA has proven to be so intractable).
    20 Oct 2010, 10:24 AM Reply Like
  • Supplement manufacturers claim their products slow the joint destruction down and thereby reduce pain and increase function blah blah. They are all pretty harmless (which could be why the FDA approve them), but more importantly pretty useless. If released would OSC just be a harmless useless product made by a big pharma which a doctor can prescribe. Surely Novartis won't make any money from their product which is on par with cheap supplements for efficiency? Wouldn't it be an embarrassment to release a product which doesn't work very well. Also wouldn't it prove difficult to convince a GP who are always up against tight budgets, to prescribe it when the efficiency results are so poor.
    20 Oct 2010, 10:52 AM Reply Like
  • Anyway aren't we forgetting the point here. We are talking about EMIS not Novartis. OSC not working efficiently as Novartis would have liked, doesn't prove that EMIS's technology is a failure. All this trial proves is that human supplementation of Salmon Calcitonin has no modifying effect to the progression of OA.


    EMIS have proven that their technology works for oral B-12, so lets focus on that.
    20 Oct 2010, 12:25 PM Reply Like
  • Hi, Joe,


    Any thoughts on the recent CEO news? I can only think of two reasons for the switch - one is very bad for shareholders who are not connected with MRH and its two (out of four) board members.


    1) Not bad: Novinski was moving too slowly to close deals (e.g., B-12!!!).
    2) Bad: Novinski wanted to move quickly to close deals, making it more likely that EMIS would be able to pay off its note to MRH. MRH and its EMIS board members opposed this since the beest way for them to take over the whole company for essentially nothing is to hold up all deals for another few months, until its note falls due, EMIS defaults and MRH gets the whole enchilada.


    7 Mar 2011, 10:12 AM Reply Like
  • Hi Joe, I'm also interested on your latest thoughts on emis and their ceo news. With regards to emis-fans comment on mhr getting emis to default on their note so they can take over the whole company is quite disturbing to me as a shareholder. is this a possibility?
    Joe, your response would be appreciated.


    thank You,
    10 Mar 2011, 08:21 PM Reply Like
  • Hi, tge,


    Sorry to create unnecessary anxiety. I went back and checked; the MRH note is not due until September 2012. Even MRH wouldn't let the company tread water that long.


    I also checked the Loan Agreement and amendments to the by-laws that were made in connection of the loan. It turns out that MRH has had, since 2005, significant control over the Board, out of proportion to its shares. For example, no MRH-appointed Board member can be removed unless 85% of the shares agrees (MRH, even then, had many more than 15%). Also, MRH must agree to the selection of one of the independent (non-MRH, non-management) Board members. This could explain why one of the board members (Levensohn) resigned in 2005.


    I conclude that non-MRH shareholders will not be "zeroed out" by MRH, but we should expect future re-financings to be just as (un)favorable to non-MRH shareholders as the ones in the past. Still, these have left some chips on the table for us.
    22 Mar 2011, 03:21 PM Reply Like
  • thanks for the update emis-fan, there should be enough chips here for mhr and its shareholders to go around.
    Patiently awaiting news from Emis on B12 and Osc. Positive news on Osc from Ugne this past week, hopefully emis is not far behind with their own good news.
    26 Mar 2011, 11:47 AM Reply Like
  • Good news for EMIS would be fantastic for Ugne, since NVS uses the Ugne salmon Calcitionin mfg process and EMIS needs 4 times the Calcitonin than Ugne's tablet to get the same outcome.
    27 Mar 2011, 09:47 AM Reply Like
  • It's true that the Phase 3 UGNE trial used only 200 microg of SC and the NVS P III trials use 800. I don't think there is any basis for claiming that the NVS formulation is only 1/4 as effective, though. At any rate, the endpoints in the much larger and longer NVS study are entirely different and more clinically relevant (rates of fracture) than those in the UGNE study (increases in bone mass). If the NVS study succeeds, NVS will be able to label its high dosage product as "reducing fractures". This claim will not be available to UGNE, I don't think.
    28 Mar 2011, 11:13 AM Reply Like
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