Why Biodel Is Breathing Easy, Part 2

by: Joseph Krueger

So to ask the same question of VIAject that I asked of Afrezza in my first article: Why bother? In the case of VIAject, the answer is simple: VIAject delivery is without question safe, more readily accepted by patients, and provides improvements over currently marketed fast acting insulins, and equivalent efficacy in all aspects to Afrezza. VIAject's FDA approval route is more straightforward because its ingredients are GRAS and it is seeking the 505(b)(2) route- compared to the risker 505(b)(1) route of Afrezza. There will be no "black box" warnings or REMs strategy proposed for VIAject like there is likely to be for Afrezza. With Biodel, the risk is very low and the reward is very high.
BIOD is an incredible value right now. Unexpected news about the VIAject clinical trials has driven BIOD stock to extremely undervalued levels: Biodel went public 3 years ago and its shares traded at around $18. But in late 2008 the stock took a nose dive into a $4 range, when the company announced the preliminary efficacy results from its Phase III clinical trial of VIAject in India. The Indian trial results did not compare to the previously released trial results from patients in the United States and Germany.
Biodel identified probable causes for the variance in the data from India with the assistance of regulatory consultants and presented the results to the FDA in its pre-NDA briefing package. Among the causes noted in the briefing package, an identifiable subset of blood samples from patients in India was found to be compromised due to excessive heat exposure in transit to a central laboratory. These anomalous results from India killed the company’s stock price and it has never since recovered.
However, when the compromised samples are accounted for in the efficacy analysis, non-inferiority in both the Type 1 and Type 2 trials is achieved. Upon recommendation by FDA advisors, the company continued to file the NDA, accounting for the data from heat damaged samples. On March 1st 2010, Biodel announced that the FDA accepted for review the VIAject NDA. The FDA expects the Prescription Drug User Fee Act (PDUFA) action date for this NDA to be October 30, 2010.
I believe that FDA’s nod in accepting the NDA for review as after a pre-NDA discussion addressing the Indian data suggests that the FDA is willing to account for the anomalous data in the analysis. This is a positive sign for the FDA's belief in the primary outcome of the Phase III trail results demonstrating non-inferiority. Given the breadth of data with VIAject showing equivalancy (even accounting for the anomalous Indian data), its components being GRAS, and its 505(b)(2) route, I anticipate approval on the first try.
Wedbush Securities has continued to reiterate an OUTPERFORM rating on the stock, even after the Indian trial fiasco, and a fair value of $17. Wedbush also commented:

We believe a partnership announcement with $500 million in milestones and double-digit royalties could have a significant impact on BIOD valuation. With Biodel having what we believe is a differentiated mealtime insulin candidate potentially reaching peak sales over $900 million is trading at less than $100 million market capitalization.

VIAject is likely to capture a large market share because it offers distinct advantages over the other injectable insulins without any paradigm shift. I believe that this conservative sales estimate and market penetration is easily achievable even in the face of Afrezza approval given the potential problems with REMS and patient acceptance of Afrezza.
Given VIAject has equivalent in efficacy to Afrezza, without the marketing and regulatory risks, my bet is placed with Biodel. Investors have already given MNKD a market capitalization of nearly 1 billion dollars, banking on approval of Afrezza. Assuming FDA approval of VIAject, and successful commercialization, and the potential sales of over $900 million, that should put the market capitalization for Biodel at well above $3 billion (given a fair value market capitalization of 4 to 5 times the annual revenues). This is a shocking 30 times larger than the current market capitalization of about $100M.
Apart from Afrezz (if it can get through its numerous hurdles), there are no other potential novel drugs for diabetes ready for commercialization other than Biodel’s VIAject. Given the slow approval of Afrezza and its still unclear path, and nature of VIAject and the 505(b)(2) route of VIAject, I expect that VIAject will gain approval before Afrezza. Investors have not flocked to BIOD stock anticipating the October PDUFA date for VIAject, but when they begin to, I expect the market capitalization of $100M to grow very fast.
Biodel also has a pipeline of innovative Diabetes drugs in various phases of development. Biodel is currently recruiting for two phase II trials investigating the use of VIAject with insulin pumps. Biodel is also developing two adjustable basal insulin products, all to be developed through the 505(b)(2) route.
Generex (OTCPK:GNBT) investors should note that BIOD is investigating Oral Sublingual Insulin (VIAtab) using their delivery platform (given the management and science involved, I see a better likelyhood of success with VIAtab compared to Oralyn). There are clear indications that Biodel is preparing for commercial launch of VIAject: Recently, the current CEO Solomon stepped down as CEO to act as the Chief Scientific Officer, with Errol De Souza replacing him as CEO. Dr. Steiner stated:

As Biodel prepares for the potential approval and commercialization of our first product, VIAject, I welcome Dr. Errol De Souza as Biodel’s new CEO to manage the company’s next phase of growth and development.

Biodel is very well positioned financially with over $40M in Cash and cash equivalents, and no long term debt. With the current outstanding common shares of less than 24 million (out of which 50% are held by institutions and 20% of insiders) the outstanding 7 million share float is very small. The most recent short report sates that there are more than 1.5 million shares shorted with an astounding 13 days to cover.
Traders should recognize that any small increase in the normally thin volume momentum could send shorts covering and the share price soaring....significant price action on BIOD may not wait until a closer time frame the PDUFA date for VIAject. In my opinion, for traders and long term investors, BIOD offers the opportunity for much larger and safer returns on investment than MNKD.
Disclosure: Author long Biodel

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