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Oramed Gaining Strength in Oral Diabetes Market

- By George Ronan

On March 24, development-stage biotech company Oramed Pharmaceuticals Inc. (ORMP) closed out the session with EPS at $5.87 a share. At market close on April 26, the company traded for $8.35 - a 42% gain across the four-week period.

Oramed is a company that repeatedly gets a mention in the diabetes sector - the space on which its lead assets currently focus - but from a wider market perspective, has long been under the radar. The gains seen over the last month or so suggest Oramed might finally be stepping into the spotlight and picking up wider market speculative attention.


It is also one I have looked at in the past, pointing out that if it clears some of its regulatory hurdles, it could see a dramatic upside revaluation as 2017 matures and beyond.

A few key developments look to be driving the recent run, but before getting into that, an overview of the company is necessary.

As mentioned, Oramed is a diabetes company working to bring oral formulations of diabetes drugs (insulin and Glucagon-like peptide-1, or GLP-1) to market. Its lead development assets are ORMD-0801, which is the oral insulin asset it is developing as a capsule-type administration drug for both Type 1 and Type 2 diabetes sufferers, and ORMD-0901, which is the same administration type, but GLP-1, and targeting just Type 2 patients.

Oral insulin has long been a holy grail of the healthcare space, but, for a number of reasons, it has yet to become a reality. Primarily, these reasons are rooted in the fragility of insulin as a molecule and, by proxy, its inability to survive the journey through the gastrointestinal tract post-administration.

Using a proprietary combination of a protective layer (an enteric coating to fend off stomach acid), protease inhibitors (which stave of attacks from enzymes that would break down insulin in an unprotected form) and absorption enhancers (which promote the permeation of proteins and peptides across the intestinal membrane and into the bloodstream), Oramed believes it has overcome the barriers to this sort of treatment becoming a reality - and there is extensive evidence in place from early stage and phase II trials to support this belief.

At the present time, markets are looking for one thing (primarily) from Oramed, and that is the initiation of a phase III study for the ORMD-0801 asset. With the phase II data in place, and with said data highly suggestive of clinical benefit, a pivotal that can reproduce the data in a wider patient population could (should) be enough to underpin a registration application with the Food and Drug Administration in the U.S. and the European Medicines Agency. As such, the initiation of said trial is a major upside catalyst and one that shareholders are eagerly awaiting.

There are a couple of loose ends that need tying up, however, before any such pivotal is begun. The first is a six-month toxicology study looking at impact in an extended use population. This began in March 2017, and management reported in a recent prospectus that data from the trial should come in the third quarter of this year. The second is a dose finding study, designed (as its name suggests) to help Oramed determine an optimal dose for ORMD-0801 for use in the pivotal study. This one should read out any time now, with management putting a second-quarter guidance on the data release.

So things are starting to fall into place, feeding into market interest surrounding the company. But what has driven the substantial run we have seen as of late?

The company announced at the end of March it appointed Dr. Ronald Law to the newly created position of chief strategy officer. According to the release that announced the appointment:


"As we head towards a Phase III trial for our oral insulin capsule, ORMD-0801 and position Oramed for eventual commercialization of oral insulin... Dr. Law will play a vital role in helping to guide Oramed through our upcoming milestone events."



This is a strong hint that Law's initial remit will be to get things moving toward phase III initiation, which suggests said initiation is not too far off.

A second piece of news that has driven its recent performance came on April 20, when the company announced it picked up a patent from the European Patent Office concerning a combination treatment that it is developing alongside its primary assets. The combination treatment is basically the above-mentioned ORMD-0801 and ORMD-0901 squeezed into the same protective and absorption-enhancing capsule technology that each incorporates in its single therapy form.

If the company can get its single therapies to market, a follow up with a combination asset would be a logical next step. It could have a pretty smooth ride to commercialization if its two component assets have already picked up a regulatory green light.

Both of these updates are important in their own way. The first points toward the phase III initiation as being near term, which is going to pique market interest in the stock ahead of the trial. The second has longer-term implications, but it is an important early step in that program's development nonetheless.

Based on this, is the stock likely to keep gaining strength?

Oramed has dipped from its highs of $8.35 and currently trades for $7.95 - a close to 5% discount on its mid-week peak. We expect this is just a correction, however, as the shorter-term operators pull profits off the table subsequent to the April run up. In turn, we expect current levels to serve as a floor to the correction and that the company will see a return to the upside momentum heading into May.

Why?

Because as the phase III pivotal trial nears, traders and investors are going to want to load up in anticipation of a successful outcome. With both the two above-mentioned loose ends tied up and in hand by the third quarter at the outside, there is the potential for said pivotal to kick off before the end of the year (this is an estimate based on the ongoing studies' finish dates, management has not offered much in the way of guidance for getting the phase III started yet).

At last count, Feb. 28, Oramed had $1.42 million in cash, $35.6 million in short and long-term bank deposits and $4.63 million of marketable securities. Management expects that based on cash deposits, as well as investment and milestone payments from a deal with Hefei Tianhui Incubator of Technologies Co. Ltd. (HTIT) related to the company's ORMD-0801 Chinese rights, it is funded for the next 12 months minimum. This removes any near-term dilution risk.

Disclosure: The author does not own any of the stocks discussed in this article and does not intend to open a position in any stocks discussed within the next 30 days.

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