Event - Biodel's insulin needs to overcome data hurdle

Analysis

The October 30 approval deadline for Biodel's ultra fast-acting insulin Linjeta is a classic high-risk pharma industry event – a positive decision from the FDA is likely to reward investors handsomely but a “no” will leave them with shares in a company that could struggle to pay the bills.

Optimistic financial analysts believe the company is a good bet and reckon at a minimum a partnership should emerge on approval. Yet recent volatility on the stock market – Biodel shares have fallen 30% since the beginning of the month – suggests not everyone believes a green light will be given.

Product Linjeta 
Company Biodel
Market cap $99m
Product NPV $769m
% of market cap 777%
Event type PDUFA date
Date October 30, 2010

Data troubles

The ultra fast-acting candidate, known formerly as VIAject, aims for better mealtime glucose control than currently marketed fast-acting insulin products such as Eli Lilly’s Humalog, Novo Nordisk’s NovoRapid/NovoLog, or Sanofi-Aventis’ Apidra. Biodel believes the product can avert incidents of post-meal hyperglycaemia and intra-meal hypoglycaemia and, in addition, avoid the weight gain that often accompanies use of regular human insulin. Biodel seeks approval in both type 1 and 2 diabetes.

Clinical work on Linjeta has not been without major bumps. A phase III trial failed to show non-inferiority to regular human insulin among type 1 diabetics, but Biodel argued that resulted from poor data collection at its Indian trial sites (Biodel feeling less than sweet after VIAject disappointment, September 9, 2008). These data are almost certainly included in the package submitted with the new drug application, which means FDA reviewers will need to be satisfied with this explanation.

Investors were not convinced; the announcement led to a loss of sentiment from which Biodel has yet to recover. In early trading today Biodel was at $3.82, compared with $17.04 in early September 2008. The company saw a surge last month to $5.68, which gradually faded away, and data from Nasdaq shows that as of the end of September 18% of its shares were sold short, indicating quite a few investors are betting the stock has further to fall.

On the runway

If approval is not on the cards next week, Biodel is hoping for a short, manageable remit from the FDA. From a cash position of $54.6m as of September 30, 2009, it was down to $17.8m on June 30. It recently made a $9.4m share offering, and in regulatory filings executives have stated that they have sufficient funds to last through the third quarter of 2011 – probably not sufficient to withstand a complete response letter that orders extensive new trials.

Still, there is no doubt that if approved Linjeta could be a transformational product for Biodel. Consensus data from EvaluatePharmaputs in-market sales at $882m in 2016, of which it is assumed that Biodel will collect $113m along with another $108m in royalty income - analysts assume a market partner will be sought in certain markets.

This estimate gives Linjeta a net present value of $769m for Biodel, a whopping eight times its current market capitalisation. Very different ideas about the the value of this asset clearly exist.

A crowded market

Even if Linjeta wins approval the product will face challenges. For one, diabetics tend to only switch medications when they fail to maintain glucose control, meaning new products can only gain share slowly. When confronted with an array of insulins, physicians may consider Biodel’s product useful only for a fairly small subset of patients.

“I think doctors think ultra fast [insulin] is pretty undifferentiated,” said Jack Scannell, an analyst with Bernstein Research.

In addition, Scannell adds that sales representatives from companies such as Lilly, Novo and Sanofi have a market advantage in that they can offer physicians a broad portfolio of insulins rather than the specialised therapy Biodel offers. As such, Linjeta will likely need a partner with established diabetes products if it is to be a success.

Biodel executives and supporters clearly believe they have a winner on their hands – the most bullish analysts have set price targets of more than quadruple the current share price. Linjeta’s success will rest on whether the FDA will be comfortable with the dubious Indian trial data. Right now, investors are sceptical.

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