Biopharmaceutical Companies Developing Insulin Pills May Bring High Profits

Includes: BMY, NVO, ORMP
by: Glen S. Woods

Diabetes, a chronic disease that occurs when the pancreas does not produce enough insulin or when the body cannot effectively use the insulin it produces, affects 347 million people worldwide. People with Type 1 diabetes require regular injections of insulin; people with Type 2 diabetes can be treated with oral medication; however, during late stages of Type 2 diabetes, when the pancreas can no longer produce insulin, they too will require insulin injections. However, today a variety of companies are developing and testing a pill that would replace the pain of taking daily injections. The difficulty of creating an insulin pill is developing one that is strong enough to withstand the body's acid during digestion while being nimble enough to pass the filter of the gut wall to reach the liver. Today there are biopharmaceutical companies that are testing new therapies in delivering the much needed insulin orally instead of via injections. Financially, there is good reason for these companies to develop an insulin pill; according to analyst Vincent Meunier, at Exane BNP Paribas in Paris, if successful, such a pill could reach peak sales of from $5 billion to $10 billion.

Bristol-Myers Squibb (NYSE:BMY), the global pharmaceutical giant, signed a worldwide licensing agreement to option an oral insulin drug that is currently in Phase II studies - IN-105, which is being developed by India's Biocon Ltd. Bristol's option is for the company to take over worldwide development of IN-105 and run the commercialization everywhere except in India, where Biocon will maintain all rights. Biocon stands to gain a license fee, milestone payments and royalties from Bristol if the company does choose to license the product. Biocon's Chairman and Managing Director, Kiran Mazumdar-Shaw, commented; "This agreement is one huge step closer to bringing oral insulin to market."

Bristol is a $60.8 billion market cap company. Its stock has risen 13% year-to-date. The company had revenues of $4.19 billion for the previous quarter beating consensus estimates of $4.14 billion. Though the company has a high P/E ratio compared to its competitors, I still see plenty of room for the stock to rise whether or not it develops IN-105. Analysts at the Jefferies Group recently raised its target price from $39 to $41 per share. I am long on Bristol.

Novo Nordisk (NYSE:NVO), the Danish Pharmaceutical giant, is spending up to $2 billion to develop an insulin pill strong enough to deliver insulin to the bloodstream. NN1953, one of its insulin products in development, has successfully completed its first round of clinical tests in animal studies and an experimental version in 100 people, faring better than an earlier version of the product, NN1952 that was abandoned after failing early tests. Just five years ago, the odds of developing such a drug were a long shot; however, Novo Chief Science Officer Mads Krogsgaard Thomsen says the odds have narrowed, and he sees it now as "50-50 scenario." Mr. Thompson further explained that the pill would not replace injections entirely but it would allow for earlier treatments as doctors wouldn't wait to prescribe a pill like they do with injections.

Novo, a $92 billion market cap company has seen its stock pull back over 10% in the last week of trading, after the FDA rejected the approval of the company's new long-acting insulin drug, Tresiba, requesting Novo to perform additional tests to asses potential heart risks. Novo closed at $171.36 on February 18th, down from its February 6th high of $194.44. To me, I see the pullback as a buying opportunity for Novo, which over the years has demonstrated solid gains and a strong dividend. Novo is still the biggest insulin supplier, and it will probably receive FDA approval on Tresiba at some point; however, if the company does, in fact, develop an insulin pill, I could see the stock rise considerably higher.

Bristol, Biocon, and Novo are not the only companies developing an oral insulin therapy, Oramed Pharmaceuticals Inc. (NASDAQ:ORMP), a small development-stage pharmaceutical company, based in Jerusalem, Israel, has been developing its own oral insulin drug delivery systems. The drug being developed, ORMD-0801 is a pill designed to eliminate multiple daily insulin injections for many with Type 2 diabetes. On February 15th, the company announced that, after discussions with the U.S. Food and Drug Administration (FDA), it was one step closer to be able to proceed with the planned clinical trials on its new oral insulin drug, ORMD-0801. The FDA requested Oramed perform a sub study in a controlled in-patient setting for up to a one-week period, which Oramed will comply and submit a new Investigational New Drug with a clinical protocol for the sub study. Nadav Kidron, CEO of Oramed commented on the FDA's request: "We are very pleased to be in close and positive communications with the FDA, as well as having a clear path which meets the FDA's input. This positions us for imminent clearance from the FDA to proceed with our planned clinical studies."

ORMD-0801, which has moved into Phase II trials, is also designed to help slow the progression of Type 2 diabetes, with goals of reducing the severity and onset of life threatening and debilitating conditions associated with insulin-dependency, which will hopefully lead to patients living longer and healthier lives. Current research has shown that administration of insulin at earlier stages of Type 2 diabetes has positive effects, and is now beginning to be included in standard treatment regimens. Oramed's oral insulin is indicated for the early stages of Type 2 diabetes when it can still slow the rate of degeneration of the disease by providing additional insulin to the body and allowing pancreatic respite. The oral insulin has the added benefit of mimicking insulin's natural location and gradients in the body by first passing through the liver before entering the bloodstream. Mr. Kidron commented; "We wanted to do more than just replace injections - we wanted to provide an alternative oral medication as an earlier treatment that can extend the second phase [of disease prognosis] and prevent patients from becoming insulin dependent."

Oramed, though new to the Nasdaq, has been operating since 2006, and has a foundation of over 25 years of medical research at Hadassah University Medical Center in Jerusalem. The company has a market cap of $64 million, and closed on Monday, February 18th at $8.87, on light trading. I like the potential of Oramed and its insulin drug. Small Israeli companies have been on the forefront of technological and pharmaceutical advancements for years, and Oramed appears to be a candidate for another successful Israeli company. It will be interesting to see if Oramed, to bring the product to the next level, finds a collaborative partner that has the financial wherewithal and the commercial know-how to bring the product to a worldwide market. Oramed is a very risky investment, but if successful, the stock could soar; however, if any setbacks occur, the stock could drop beyond its $2.76 low.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.