More than 400 million individuals suffer from diabetes, or about 5.5% of the world's population. One in every five dollars spent on healthcare in the US goes towards diabetes treatment. It's reached epidemic levels as global sugar intake increases, and its incidence rate keeps going up. It's also an area in which treatment options are not only limited, but terribly outdated.
Injectable insulin, which is far and away the most widely used treatment for both diabetes type I and II, has been widely available since 1923. One serious issue with injectable insulin is not that it doesn't work, but that it cannot be naturally regulated by the human body. Insulin directly to the blood needs to be regulated by the user in combination with various technological release modulators that chemically alter the insulin in order to make it either fast or slow-acting, depending on the user's choice. In healthy non-diabetics by contrast, insulin is delivered through the portal vein directly to the liver, which regulates its release and activation naturally.
There is a way to get insulin to the portal vein and directly to the liver, and that is through the small intestine, and the only path through there is oral. Unfortunately, for nearly 100 years, no company has figured out how to effectively deliver oral insulin without it being destroyed by the digestive system before it can act therapeutically. That is, until now.
Several companies are still working to develop oral insulin in pill form. Some of these companies are industry behemoths - Novo Nordisk A/S (NYSE:NVO) and AstraZeneca plc (NYSE:AZN) since taking over Bristol-Myers Squibb Co's (NYSE:BMY) diabetes portfolio to name two. The front runner in oral insulin is far from being an industry giant, however. It's an Israeli development stage biotech with a market capitalization of $102 million called Oramed Pharmaceuticals, Inc. (NASDAQ:ORMP).
Oramed is developing a drug called ORMD-0801 - an oral administration insulin pill based on its own proprietary delivery system. The company reported Phase IIB data back in May that establishes good starting evidence for the viability of oral insulin delivery, up to now thought impossible. Investors should keep in mind though that Oramed has not proven clinical outcomes by a long shot, only that oral insulin does have a measurable effect on blood sugar.
As yet, Oramed remains relatively under the radar. For a company that is one pivotal trial away from targeting a market worth an estimated $15 billion, it looks undervalued. Of course, this isn't necessarily a bad thing. For investors looking to gain an exposure to this multi billion-dollar market potential, it's an opportunity to do so at what looks like a major discount.
With this in mind, here's a look at Oramed's lead candidate, and what the latest data reveals about its prospects.
The science behind ORMD-0801 is not overly complicated, but to understand exactly how it works it's important to take a quick look at why oral insulin has proven elusive to date. It's rooted in bioavailability. Any tablet or pill taken orally must travel through the upper gastrointestinal tract. For some drugs this isn't an issue - say, aspirin for example. Aspirin is absorbed through the stomach intestinal walls through passive infusion, and as it is absorbed, remains in its active form.
Insulin, however, cannot be taken orally straight up for three reasons. First, it degrades quickly when exposed to the acidic environment in the stomach. Second, even if it does get through the stomach by protective coating, proteases in the intestine break down insulin there before it ever reaches the liver to affect blood sugar. Third, even if the proteases in the intestine are blocked, it is still difficult for the intestinal wall to absorb insulin molecules. For all these reasons, current administration is intravenous. Oramed's insulin pill attempts to protect the insulin from the GI tract and stomach, and helps it get through the intestinal wall to reach the liver in an active state.
Consistent with the three problems mentioned above, ORMD-0801 contains four primary ingredients - regular unaltered human insulin, protease inhibitors, absorption enhancers, and a protective enteric coating. Enteric coating is a common part of many oral drugs designed to remain intact as they pass through the acidic GI environment. Where ORMD-0801 differentiates itself is in the protease inhibitors and absorption enhancers. Proteases digest proteins and peptides including insulin. The protease inhibitors in ORMD-0801 are essentially decoys that bind to the proteases before they can bind to the insulin that the pill releases. Oramed does not explain exactly how its absorption enhancers work for proprietary reasons.
As for the data, in May the company reported data from a Phase IIB in type II diabetes patients. The trial investigated the safety and efficacy of ORMD-0801 in 180 patients in the US. The trial met its primary endpoint of a mean night-time reduction in glucose levels, with the data showing a reduction of 6.5% compared to placebo. Safety and efficacy proved a non issue, as was expected based on the already well established safety profile of insulin.
The importance of this result is that for the first time a company has evidence that oral administration of insulin is possible and does have a measurable effect on blood glucose. What that effect is exactly will be determined in a Phase III trial.
So what's next? Oramed has, as mentioned, planned an end of trial meeting with the FDA, and at this meeting the company should be able to outline a roadmap for Phase III. Specifically, we should get some information on when the pivotal phase III will begin, and perhaps more importantly, what endpoints the company will be measuring against. Beyond that, if Oramed can demonstrate efficacy to the degree it did in the just completed Phase IIb, there should be a viable path to commercialization.
Investors should keep in mind that oral insulin is not just an improvement for convenience sake. Because it delivers insulin directly to the liver without first entering the blood stream, it could end up obviating the need for artificial regulation for timed insulin release.
Financially, the company has plenty of runway. With over $25 million in liquidity plus another $6.5 million in cash from a milestone payment it just got for successful completion of its Phase IIB, Oramed has over $31 million to work with. An average yearly cash burn rate of $5.7 million gives the company about 5 and a half years to continue development until any refinancing is needed. Phase III may end up speeding up its burn rate, but even if it doubles it, there is still more than 2 and a half years on the clock.
The biggest downside risk is that oral insulin proves inferior to intravenous in terms of absorption. The FDA is very unlikely to reject ORMD-0801 on safety grounds, but it could on efficacy grounds if it proves inferior. If that happens, the company's market cap could quickly dive to lows below $4.
That said, the takeaway here is that while Oramed is a small company from a market cap perspective, it has just established proof of concept in a market worth tens of billions of dollars, for a medication that has been around since 1923. It's financially stable and very frugal. Beyond diabetes, its technology could also apply to a host of other indications where oral administration is advantageous but as yet impossible. So if the diabetes indication proves successful, its work does not end there.
Disclosure: I am/we are long ORMP.
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.