The Business of Diabetes: Biodel IPO

Not too long ago (on May 11, 2007) Biodel, Inc. (BIOD) had its initial public offering, and the stock initially sold for $15/share, and although jumped initially, after some initial enthusiasm that typically occurs with any IPO, the stock closed yesterday just over $17/share, and has been hovering around $19/share today. Based on limited Wall Street analyst coverage (derived from a mere 3 analysts), the consensus is that the stock is rated a BUY, and the price targets range from $23 to $29 with the median being $24, which suggests there is likely to be some upside based on current share price.

Recent Biodel Trading Activity



Who is Biodel? According to the company, Biodel is biopharmaceutical drug delivery company based in Danbury, CT (not too far from where I grew up) that develops drug delivery technologies which increase drug efficacy, enhance drug performance, and make drugs easier for patients to take. The company develops its product candidates by applying proprietary formulation technologies to existing drugs in order to improve their therapeutic results. Biodel's initial development efforts are focused on peptide hormones, and its two key areas of focus are treatments for endocrine disorders including diabetes and osteoporosis.

Biodel's most advanced product candidate is VIAject (which was highlighted at the ADA), a proprietary injectable formulation of recombinant human insulin designed to be absorbed into the blood faster than currently marketed rapid-acting insulin analogs. A key difference, however, is that unlike analogs, which are not technically insulin and lack long-term efficacy studies (some studies have suggested that by manipulating the insulin molecule in the manner that analogs have been altered increases the likelihood for various forms of cancer), Biodel's product would be plain old regular insulin (similar to the stuff discovered in 1922 by Banting and Best) with proprietary additives to enable the insulin to reach the bloodstream much more rapidly. Another benefit is that VIAject demonstrates "lower variability in action than both Humulin Regular and Humalog", which is without a doubt, one of the most frustrating elements of trying to manage type 1 diabetes.

As of May 2007, the company was conducting two pivotal Phase III clinical trials for VIAject (one in patients with type 1 diabetes, and another in patients with type 2), and the results seemed to be going quite well based on the data released at the ADA. Phase III studies are usually the last phase of trials required before going to market and are randomized, controlled trials on large patient groups (300-3,000+, depending upon the condition) aimed at being the definitive assessment of the efficacy of the new therapy relative to whatever the current "gold standard" treatment happens to be. In the case of insulin, that is currently Regular rDNA Synthetic "Human" insulin, although some doctors at the ADA Scientific Sessions debated whether it was time to consider rapid-acting insulin analogs as the the current "gold standard". Regardless, Phase III trials are the most expensive, time-consuming and difficult trials to design and run, especially in therapies for chronic conditions. Once a drug has proven satisfactory over Phase III trials, the trial results are then normally combined into a large document containing a comprehensive description of the methods and results of human and animal studies, manufacturing procedures, formulation details, and shelf life. This collection of data makes up the "regulatory submission" that will be provided for review to various regulatory authorities (in the U.S., submitted to the FDA) for marketing approval.

In addition to VIAject, the company also developing VIAtab, a sublingual, or below the tongue, tablet formulation of insulin which seems to be aimed primarily at the type 2 market, although that product is only in early trial phases and is likely years behind VIAject. Biodel's preclinical product candidates for the treatment of osteoporosis are VIAmass and VIAcal. VIAmass is a sublingual rapid-acting formulation of parathyroid hormone 1-34, or PTH 1-34. VIAcal is a sublingual rapid-acting formulation of salmon calcitonin.

I have posted on Biodel previously, for example, the first time being back in my 2006 Year-End Summary. Most recently, I commented when the company released results at the American Diabetes Association's Scientific Sessions in Chicago a few weeks ago.

Personally, I'm a bull on this particular stock. My reasons are as follows:

First, members of Biodel's Board of Directors own a combined 81% of the company (the stake held by Chairman and CEO Dr. Solomon Steiner is 37%). This means there is scarcity value to the stock, which generally bodes well (thus, a big reason for share buybacks by many public companies is to increase the value of their stock).

Another reason I like Biodel is like many biopharmaceutical startups (I'm thinking of Amylin, for example), Biodel intends to manufacture its product candidates by contracting with third-parties which operate manufacturing facilities. This would likely be with a big global pharmaceutical player like Eli Lilly and Company or Novo Nordisk, or possibly with a foreign player, which might also include companies in Poland or Argentina. Regardless, this positions Biodel as a possible acquisition target down the road, and typically, shareholders get handsome premiums for their shares when a big pharma player buys a small, startup with more focus on a particular therapeutic category.

Finally, while most of the pharmaceutical market is targeting the massive type 2 market, there is really nothing in development aimed at the type 1 market today from the major pharmaceutical players, and clearly, this market is under-served. That is, unless you consider the next phase products from Novo Nordisk, whose next-generation insulin product is a basal insulin analog which differs from Levemir primarily because it does not cause weight-gain. (Call me underwhelmed with Novo's latest), and rival Eli Lilly and Company has nothing in its product pipeline, thus the reason its pushing its insulin pen devices. Both of these patterns suggest that fierce competition could come from these players for Biodel's contract manufacturing business, thus the outlook for Biodel would appear to be quite bright!