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Oramed Pharmaceuticals Is Poised For A Home Run In The Huge Diabetes Market --But You'd Never Know From Its Stock Price.

|About: Oramed Pharmaceuticals Inc. (ORMP), Includes: ACAD, LLY, NVO, SNY

Oramed stock is now selling below $4 a share, even though the firm is the closest of any firm to getting an oral insulin pill on the market.

New GLP-1 drugs are getting more attention. But while these may allow some diabetics to put off insulin injections, their effectiveness declines over time.

If a current test of the insulin pill confirms earlier results, Oramed is likely to get the green light for Phase 3 testing--the last before market approval.

That could cause Oramed's stock price to skyrocket.

Oramed Pharmaceuticals Is Poised for a Home Run in the Diabetes Market (But You’d Never Know from its Stock Price)by Jack Kahn

Chances are you’d be excited to find a small biotech company that:1) has a drug candidate that’s already completed Phase 1 and Phase 2 trials—with flying colors. 2) has a stream of revenue from a committed Chinese partner (with deep pockets).3) has a patented technology with applications for other drugs.4) is on-track to bring a true blockbuster to market in 2023.

All of this is true of Oramed Pharmaceuticals (ORMP), a 12-year-old Israel-based firm. It is far closer than any competitor to marketing an oral insulin pill: the perennial “holy grail” in the diabetes market. So why is its stock price so weak? In fact, ORMP is now below $4 a share—down from $9 a year ago.

I contend that ORMP’s slide reflects Wall Street’s over-enthusiasm concerning some new GLP-1 diabetes drugs. And it’s highly possible that the market’s negative view of Oramed will soon reverse. Here’s why:

Oral Insulin: 80 Years in the MakingInsulin has been the primary treatment for both Type 1 and Type 2 diabetes for the past eight decades.Until now, diabetics have had little choice but to inject their insulin. Taking a pill would be far more pleasant and much safer. However, until recently, all attempts to develop an effective insulin pill failed. The reason: insulin is a peptide that’s quickly broken down in the stomach, before it can reach the bloodstream. But after 25 years of research, a team led by Oramed co-founder Dr. Miriam Kidron came up with a drug-delivery system that lets insulin (and other) medications pass through the stomach intact. Oramed was formed to capitalize on that breakthrough—and immediately used the technology to begin developing its experimental insulin pill: ORMD-0801. That’s given Oramed a big head-start over Big Pharma rivals and Harvard Medical School, which recently claimed to have developed its own insulin pill; that pill is still in pre-clinical animal studies).

Oramed’s pill has already had successful results in Phase One and Phase Two tests. They showed significant reductions in blood glucose levels with few side effects. Oramed recently announced that it is halfway through a three-month Phase 2-B test to provide further evidence of its efficacy for both Type One and Type Two diabetes. That should set the stage for Phase Three trials—the final stage in the approval process. And two analysts who follow Oramed (for Wainwright and Zacks) are optimistic: they set the chances of FDA approval of its oral insulin pill at 70 and 75 percent!Surprisingly, Wall Street hasn’t paid attention. It seems more intrigued by the potential of GLP-1 drugs that stimulate the body to produce more of its own insulin. These drugs--like Ozempic and Tresiba-- are the current focus of such big pharma players as Novo Nordisk, Eli Lilly and Sanofi. And earlier this year, Novo’s stock price jumped when that firm released positive Phase Three results on an oral semaglutide GLP-1 pill. (Like insulin, current GLP-1 medications must be injected).

But while GLP-1 drugs have tremendous promise for treating early-stage Type 2 diabetes, their effectiveness declines as the disease progresses. (They also are useless for Type 1 diabetics). Ultimately, many diabetics on GLP-1 medications must switch over to regular insulin treatment. So even if Novo Nordisk’s GLP-1 pill goes on the market soon, millions of diabetics will still face the unattractive prospect of having to inject insulin. That’s why Oramed Vice President Mark Hasleton says the need for an oral insulin pill isn’t going away.

Oramed hopes to get FDA approval of that pill in 2023 and there is little doubt about its commercial potential. The number of diabetics worldwide is 450 million and growing fast. With such a huge market, Wainwright analyst Ram Selvaraju projects that Oramed’s insulin pill will achieve peak annual sales of roughly $2.1 billion! (Oramed also has its own oral GLP-1 drug in the works—an oral version of Exanitide, better known as Byetta. It has also showed positive results in early trials).

Winning the race for a marketable insulin pill could give Oramed a 12-year monopoly on its U.S. sales. And since diabetes knows no borders, Chinese pharma giant HTIT has entered into a $50 million deal with Oramed. This is already bringing Oramed significant revenues, through milestone payments that are triggered each time the insulin pill shows successful test results. HTIT has also obtained exclusive rights to distribute the pill in the Chinese market, should it obtain Chinese government approval. That would bring Oramed an additional stream of revenues from royalties on Chinese sales. If the insulin pill is approved for release in the U.S. market, Oramed plans to line up a big pharma partner to distribute and market it. At that point, the consensus of analysts is that ORPH stock will reach $15 a share. But that could be conservative.Consider Acadia Pharmaceuticals. When its ground-breaking drug Neuplazid (for Parkinson’s-related psychosis) went on the market, its stock shot up to $33 a share. That happened when Acadia had 124.8 million shares outstanding—eight times more than Oramed’s current level. And Oramed’s potential market for its insulin pill is far greater! Of course, even with a 70 percent chance of success, the insulin pill could still stumble in the next round of tests. That would likely cause Oramed’s stock to fall back to $2 or below, jeopardizing its ability to raise additional funds to continue its drug testing and research.

But I think Oramed will avoid that fate. For one thing, it has about $20 million of working capital, enough to maintain operations for another year. That should keep it afloat at least until the results of the current Phase Two-B test are released in late 2019. And based on the findings of a very similar earlier test, there are good reasons to expect positive results.

Even if they disappoint, Oramed will still hold a very valuable asset: its patented oral drug-delivery technology, which has applications for numerous non-diabetes drugs. This could make Oramed a tempting takeover target if its stock goes lower. (At $4 a share, the firm’s market value is under $70 million—a pittance compared to other recent Biotech takeovers).

If I’m right, that makes Oramed’s downside far less than generally believed. And as I’ve noted, good news could quickly send its stock much higher. Bottom line: the potential rewards of owning ORMP far outweigh the risks—and make the stock a great buy at current levels.                                                           ##

Disclosure: I am/we are long ORMP.