Oramed (NASDAQ:ORMD)

On May 5, 2016, Oramed Pharmaceuticals, Inc. (NASDAQ:ORMP)  announced it would be reporting data from its phase IIb clinical trial in its lead candidate, ORMD-0801, in approximately two weeks’ time. This puts the release date at some point this week.

The Science

The drug is targeting both diabetes type 1 and type 2, but the upcoming trial data release purports only to type 2. Insulin normally works to normalize blood sugar levels. In type 2 diabetes, insulin resistance leads to an inefficient storage of glucose in muscles and fat, and in turn, spikes in blood sugar. Through the administration of extra insulin via injection, diabetes patients manage their blood sugar levels. Injection is obviously painful and annoying, and leads to a number of patients not carrying out effective dosing. Companies have been trying to develop alternative administration methods for quite a while, and ORMD-0801 is an oral administration candidate.

The science behind this one is not all that complicated. Essentially, Oramed has taken insulin and packaged it in some protective compounds to do two things: first, stop the drug from being broken down as it passes through the gastrointestinal tract and second, maximize delivery when it reaches the liver. The latter is aided by the introduction of a protease inhibitor.

Data

In a phase IIa, the company aimed to establish the safety profile of the drug while also establishing an ideal dosing level. Safety proved no issue across the vast majority of patients, though there were some issues associated with one of the dosing levels – specifically, the 16mg gel caps. These were used in patients in a 24mg total dose arm, with administration involving one 8mg and one 16mg cap. The 16mg broke down early, and did not demonstrate effective and consistent release after administration. As such, the company established that the 8mg proved the most effective dose with two caps combined to total the 16mg dose administered in the phase IIb we are looking at this coming week.

Efficacy data to date has been pretty thin on the ground as only secondary endpoints have been considered, but there has been some indication that the drug reduces mean glucose levels in patients. Daytime and nighttime continuous glucose monitoring (CGM) showed a mean reduction in glucose in patients taking the drug versus patients in a placebo arm, and a similar trend arose in a daytime fasting CGM environment.

Market

Type 2 diabetes is one of the most sought after markets in the industry. Analysts expect the industry, which is primarily comprised of oral insulin injection revenues as well as some monitoring equipment revenues, to reach $39 billion annually by 2019. If a company brings an effective oral insulin pill to market, it would very quickly qualify for rapid and expansive market penetration. As such, low double digit billions of dollars (circa $10-25 billion) is not an outlandish estimate for a company like Oramed, if its drug can match the efficacy and safety profiles of the currently available injectables.

Reaction, Valuation and Trading Strategy

Reaction to positive efficacy data will likely inject (no pun intended) an immediate upside into Oramed, and could be a nice quick turnaround trade from a short term speculative perspective. The company’s current market capitalization far from reflects its potential, coming in at just shy of $100 million at last count.

If we see some decent efficacy data, upside potential comes in at between 50-70% as an immediate run, and likely the company will expand upon that in the days following the release as longer term speculative capital absorbs the news and takes a position ahead of a pivotal trial. As ever, downside is severe if the drug doesn’t demonstrate any efficacy. A large portion of the company’s pipeline relies on this oral administration technology being effective, and inefficacy in type 2 will likely indicate the same in type 1. As such, downside will be circa 70-80% if the company can’t prove its drug effective in the upcoming release.

A classic development stage biotech from a risk perspective – that is, it’s a risky play, but one well worth look for the speculative, risk tolerant investor.