Drug pricing is a drawing a lot of column space across both mainstream and financial news media right now, and some of the bigger players in the pharmaceutical and healthcare spaces are taking a hit as a result. It's an industry wide pressure factor, but there is particular focus right now on the diabetes market leaders including Sanofi SA (NYSE:SNY), Novo Nordisk A/S (NYSE:NVO) and Eli Lilly and Co. (NYSE:LLY). All of them are under investigation as part of a lawsuit rooted in allegations of price-fixing for insulin products.
How the suit will play out is anyone's guess.
It's going to be tough to prove anything as the very definition of "price-fixing" is quite ill defined and subjective anyway. Nonetheless, if prosecutors do manage to bring something to the table and the ruling goes against the companies in question, while for any one company the ramifications may be minimal, they are likely to be big for the direction of the diabetes industry as a whole.
Investors are picking up on this as a number of smaller diabetes plays are drawing increased speculative volume as the bigger players come under increased pressure. If these smaller companies can play their cards right, now could be a great time to wrestle some speculative attention away from the more established entities, and for smaller players to gain strength near to medium term.
One company that is attempting to do exactly that right now, and that looks to have an attractive pitch, is Oramed Pharmaceuticals Inc. (NASDAQ:ORMP).
The company's CEO, Nadav Kidron, featured on CNBC's Squawk Box earlier this week and highlighted both the potential impact of the company's insulin product on the treatment landscape, and the way that product plays into the great insulin pricing debate that now rages. Both sides of the story reinforce an already intriguing investment pitch, and make Oramed a compelling contender in the insulin/diabetes space going forward.
A quick introduction
Oramed has spent the last twelve months or so slowly crawling out from under the radar in the biotech space. The firm is an Israeli biotech that has developed a technology capable of enabling oral delivery for compounds that wouldn't normally be viable orally because of their pharmacologic composition and the pharmacokinetics associated with their administration. Oramed's flagship candidate is oral insulin, and with Novo Nordisk recently dropping out of the oral insulin space, Oramed is now pretty much all alone.
There are a few problems with oral insulin as a concept, and these problems are the root of the fact that no company has been able to bring an oral insulin to market to date.
The first is that insulin is very unstable in its naked form, and as a result, it is extremely difficult to get it to the liver without it being broken down along the way. Our gastrointestinal tract is built to break things down, and even the most resilient of material falls foul to enzymes in the stomach. On its own, insulin doesn't stand a chance. The second is that even if insulin does get past the stomach, uptake and absorption through the intestine are very tough to achieve. Without intestinal absorption through to the liver, the insulin is essentially useless.
Oramed's drug candidate ORMD-0801 has a built in combination of protease inhibitors and absorption enhancers to try and get the insulin through intact. As has been noted in past coverage of this company, the technology behind the absorption enhancers is unclear, with Oramed holding its cards close to its chest on the proprietary tech that underpins the process. What we can assume with relative certainty, however, is that the protease inhibitors distract the enzymes (the proteases) that would normally break down the insulin, while the absorption enhancers enhance intestinal permeability to facilitate uptake and get the insulin where it needs to be.
From there, ORMD-0801 employs the portal vein to get the insulin to the liver. This vein is the same transport route taken by naturally-produced insulin in its journey from the pancreas to the liver. By mimicking this route, the theory is that the liver can regulate the insulin administered similar to what happens in a normal healthy person. Intramuscular insulin needs to be measured manually each time it is injected with overdoses and underdoses a chronic problem, since the insulin cannot be regulated automatically.
Many will read this and say that oral insulin isn't going to replace injectable insulin, as this sort of delivery doesn't facilitate long-acting insulin administration. That's true, but there's a key point here that many who have looked at this company and denounced its prospects have missed - Oramed isn't trying to replace long acting (basal) insulin; at least not right now and not with ORMD-0801.
Application to type 1 diabetes
Type I diabetes patients will generally inject long-acting insulin daily, and also rapid acting insulin (bolus) before meals. The goal of this bolus administration is to stabilize blood sugar levels before meals. The problem is that administering both types of insulin through injection results in a large number of daily injections, and it's a really unpleasant and tough regimen to stick to. The latter administration type, the bolus admin, is what Oramed is trying to replace with ORMD-0801, with the goal (at least at the beginning) being to reduce the daily injection count.
And the data that the company has collected to date supports this replacement.
Patients that took one capsule of 8mg insulin before meals, three times daily, demonstrated an 11.5% reduction in mean glucose pretreatment to post treatment. In a Phase IIa study that followed up on this data, across 21 type 1 patients, Oramed was able to show a consistently lower blood glucose level (as measured by ΔFPG) in dosed patients compared to placebo.
Application to type 2 diabetes
In type II diabetes, the drug has shown a similar promise. Again, here, Oramed is not trying to replace current standard of care. Instead, it's trying to delay the point at which patients need to start administering standard of care. Type II diabetes treatment is lifestyle-based initially, and then moves on to active injection therapy. Oramed is trying to add a middle stage between these two points with ORMD-0801, to reduce insulin resistance and stimulate insulin secretion with the goal of a delay in onset of severity.
And this takes us full circle to the price-fixing issue in diabetes treatment. It's this delay that the CEP pointed to as potentially providing cost-saving to the consumer and market as a whole in the interview linked above. This could become a key point in the ongoing conversation about insulin and drug-pricing as a whole.
Again, data is in place that supports this hypothesis. In a Phase IIa designed to confirm safety and tolerability across 30 type 2 patients, ORMD-0801 demonstrated a reduction not just in fasting glucose levels, but also in nighttime mean glucose levels and daytime glucose levels, when compared to placebo.
A follow up to this, a Phase IIb, replicated these results, but to a more impressive degree. Against a primary endpoint of a reduction in mean nighttime glucose, ORMD-0801 hit across a patient population of 180 patients. The dose was one pill, nightly, for a month.
There's a licensing deal in place right now with a Chinese entity that brought in a little over $600K revenues for the last quarter and that promises to bring in up to $38 million in milestone payments related to ORMD-0801's development. There's also the promise of 10% royalties on what amounts to a 500 million patient population of prediabetic Chinese patients. Remember, this is a prophylaxis target, not a responsive one at core.
The primary risk right now is the standard development stage biotechnology company risk - operational cash. Cash on hand was $2.3 million as of November 30, 2016, but as per the most recent company presentation, here, this had risen to $44 million by start Feb, 2017. Even with this degree of cash on hand, however, chances are we are going to see some degree of dilution near term unless Oramed can complete a direct offering, especially as the company moves towards the initiation of a registration trial in the type II target later this year. Pivotal trials are expensive, especially in an indication like type 2 diabetes, and the company will have one eye funding commercialization as and when the trial closes and an NDA submission follows.
If data comes out as supportive of an efficacy thesis, however, and ORMD-0801 reaches commercialization, this dilution should have minimal impact on an early stage holding.
So where are the catalysts coming from?
The primary catalyst is the initiation of a phase III trial in the type 2 indication. Based on company communication, the type 2 target is the first that will move into a registration study, and initiation is expected at some point during late 2017.
During the same timeframe, Oramed also intends to initiate a phase II multi site study to investigate the efficacy of its GLP-1 analogue, which is built on the same technology as the insulin assets.
Both events are value creating.
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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.
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