Sweet times for investors in Diamyd as diabetes vaccine progresses

Analysis

Last week, when many companies struggled to report any gains in their share prices thanks to the continuing volatility in the markets, one tiny Swedish company, Diamyd Medical, stood head and shoulders above the competition, achieving a 33% rise in its stock.

This gain, which left the stock at SKr99, its highest level for 17 months, also contributed to the impressive 89% rise since the beginning of the year, and could foreshadow the start of partnering talks for Diamyd's lead drug. Diamyd is currently the only company that has a clinical, yet alone a phase III, vaccine for type 1 diabetes; and what also helped to send the shares racing upwards was news that the company had received approval from the Swedish Medical Products Agency (SMPA) to continue to follow the children who participated in its phase II study four years ago, to confirm the vaccine's long-term effect.

Large opportunity

Unlike type 2 diabetes which is primarily caused by the excessive intake of calories and sugar, type 1 diabetes is due to the autoimmune destruction of beta insulin producing cells in the pancreas. What Diamyd’s GAD65 based vaccine, which also shares the name of the company, does is slow the destruction of the beta cells delaying the time that patients start to use insulin.

It is estimated that of 246 million diabetics in the world between 5-10% are type 1 diabetics, making the market opportunity for a vaccine that can both treat and slow the progression of the disease much smaller but still extremely lucrative.

The new (SMPA) study for Diamyd is set to follow the children for seven years, looking at measures such as insulin use, quality of life and diabetic complications, post their vaccination with Diamyd. Previous follow ups of the drug have shown impressive efficacy with beneficial effects lasting 21 months after treatment.

Small field

Diamyd’s achievements, which include getting the vaccine into phase III trials in both the US and Europe on its own, are impressive given its market cap of $123m and staff of 13. The group’s only nearest competitor in terms of a vaccine for the disease is private company Apitope Technology’s Type I diabetes research programme.

However, the table below also shows that there are a number of new treatments outside of insulin that are being developed for sufferers of type 1 and type 2 diabetes, of particular interest are the monoclonal antibodies that are also targeting the underlying autoimmune cause of the disorder.

Phase III candidates to treat Type 1 Diabetes                    
            Annual Sales WW ($m)    
  Rank Product Company Pharmacological Class Indication Summary 2007 2008 2009 2010 2011 2012 2013 2014 Launch WW Launch US
                               
 Phase III 1 Insugen Bayer AG Insulin Diabetes, type I (juvenile onset) [Phase III]; Diabetes, type II (maturity onset) [Phase III] -  -  - - - - - - 31/12/2009 -
  2 TRX4 GlaxoSmithKline/BTG Anti-CD3 MAb Diabetes, type I (juvenile onset) [Phase III]; Psoriasis [Phase I]; Arthritis, rheumatoid [Phase I]; Inflammatory bowel disease (IBD) [Research project] - -  - 14 34 75 124 172 30/06/2010 30/06/2010
  3 Afresa MannKind Insulin Diabetes, type I (juvenile onset) [Phase III]; Diabetes, type II (maturity onset) [Phase III] - - - 87 183 330 504 679 31/12/2010 31/12/2010
  =3 VIAject Biodel Insulin Diabetes, type I (juvenile onset) [Phase III]; Diabetes, type II (maturity onset) [Phase III] - - - - - - - - 31/12/2010 31/12/2010
  5 Saxagliptin & Metformin OSI Pharmaceuticals Dipeptidyl peptidase IV (DPP-IV) inhibitor & biguanide Diabetes, type I (juvenile onset) [Phase III] - - - - - - - - 31/12/2011 31/12/2011
  6 Teplizumab Eli Lilly/MacroGenics Anti-CD3 MAb Diabetes, type I (juvenile onset) [Phase III] - - - - - 35 75 119 30/06/2012 30/06/2012
  - Oral-lyn Bioton Insulin Diabetes, type I (juvenile onset) [Phase III]; Diabetes, type II (maturity onset) [Phase III] - - - - - - - - - -
  - Otelixizumab Tolerx Anti-CD3 MAb Diabetes, type I (juvenile onset) [Phase III]; Psoriasis [Phase I]; Arthritis, rheumatoid [Phase I]; Inflammatory bowel disease (IBD) [Research project]; Other immune indications [Research project] - - - - - - - - - -
Total           - - - 101 217 440 704 969    

Despite the fortunes of the rest of the diabetes market, good news has been flooding into Diamyd and two weeks ago the shares got a boost from news that the FDA had approved a study funded by the National Institute of Diabetes and Kidney Disease (NIDKD) to evaluate the effectiveness of Diamyd in slowing progression of type 1 diabetes when combined with Teva’s Lansoprazole and Merck & Co’s Januvia.

Clever collaborations

The reason why the group says it has managed to get this far despite its relatively small size is the low cost of its overheads. Clever research collaborations like that with the NIDKD have allowed the group to carry out its own mono studies of the drug, while getting other groups to fund alternative studies that can be rolled into its final filing with the FDA.

Diamyd intends to file the drug in 2010, which could mean that if all goes well the first diabetes vaccine could be on the market by the middle of 2011. The drug has also shown itself to be effective in preventing the small percentage of GAD antibody positive patients with type 2 diabetes moving onto insulin. GAD antibody positive patients make up 10% of all type 2 sufferers, presenting another potential blockbuster indication.

But in what could be the most exciting research, Diamyd is also exploring the prophylactic use of the drug, due to the fact that it appears to work more effectively the earlier it is given. If this is successful, and it is a big if, the drug could eventually be a cure for the disease.

Partnering key

With the US and European trials underway, the group, which only has $11m of cash on its balance sheet, is now bound to start to look for partners for the drug. Existing players in the field looking for alternative treatments for type 1 are the obvious suspects. Also, despite its novel approach, the group might also fall foul of the new continuing safety studies that the FDA is now requiring the producers of diabetes drugs to conduct, meaning that a large partner is now almost essential.

If the group manages to secure a deal, the rise in the shares indicates that a deal could be on its way, investors who have already had a brilliant run this year could be even better off. 

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