A Closer Look at 3 Players in Diabetes Treatments

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Two niche players in diabetes treatments -- Osiris Therapeutics (NASDAQ: OSIR) and MannKind (NASDAQ: MNKD) -- rallied strongly recently, after the two companies announced positive study results regarding their flagship products. Osiris, which uses stem cell treatments for bone and skin grafts, and MannKind, which is the last major company dedicated to producing inhalable insulin, are closely watched by biotech investors since an FDA approval would grant both companies instant monopolies in their respective markets.

One big step for Osiris
Osiris, which focuses exclusively on stem cell based treatments, first caught the market’s attention in May with the Canadian approval of Prochymal, the world’s first approved stem cell drug. Prochymal is used to treat children who have contracted acute graft-vs-host disease and are unresponsive to steroids. In the United States, Prochymal is still undergoing Phase III clinical trials to evaluate its efficacy in treating acute graft-vs-host disease, Crohn’s disease, heart and lung tissue damage, and the protection of pancreatic islet cells in patients with type 1 diabetes.

Osiris’ other major product, Grafix, is aimed at closing wounds quickly, especially in patients with chronic diabetic foot ulcers. Diabetic foot ulcers occur in 15% of diabetic patients and is a precursor to 84% of all lower leg amputations. Diabetes impairs the body’s ability to heal wounds properly, causing a prolonged inflammatory phase.

Overwhelming effectiveness
On Aug. 13, Osiris announced that Grafix showed “overwhelming” effectiveness in treating chronic diabetic foot ulcers. The company stated that 62% of patients administered Grafix achieved complete wound closure, compared to a success rate of 21% in patients who were given standard treatments -- which requires relieving pressure on the wound, cutting away dead or damaged tissue, and the constant re-application of surgical dressings. Grafix uses a flexible membrane composed of living stem cells, which can be assimilated into the body more easily to heal wounds faster.

In addition to Prochymal and Grafix, Osiris also manufactures Ovation, a novel cellular repair matrix derived from placental stem cells, and Cartiform, which is used to treat acute cartilage injuries. In its clinical pipeline, Osiris is also evaluating Chondrogen, for osteoarthritis of the knee, and Osteocel XC, for focal bone regeneration. Osiris is currently unprofitable, but its revenue rose 214.8% year-on-year last quarter, signaling strong demand for its four marketed products.

One giant leap for MannKind
MannKind is an “all-in bet on a game-changing diabetes treatment,” since MannKind’s future is completely dependent on the success of its inhaled insulin Afrezza. Afrezza, an insulin powder that is loaded into an inhaler, is aimed at treating adults with type 1 and type 2 diabetes. If approved, it will be the first treatment of its kind, and could replace insulin injections completely.

Costing only 10% to 15% more than insulin injections, Afrezza could significantly improve the livelihood of diabetes patients at a minimal cost. The FDA initially rejected Afrezza twice in 2010 and 2011, asking the company to perform two more clinical trials to prove the efficacy of its second-generation inhaler.

MannKind recently completed two Phase III trials, and the results were better than what anyone had anticipated. On Aug. 13, MannKind stated that the two studies showed that Afrezza compared favorably to both injected insulin and oral treatments. The first trial demonstrated that Afrezza’s efficacy was comparable to Novo Nordisk’s (NYSE: NVO) injected insulin NovoLog. The second trial proved that Afrezza could reduce blood sugar levels better than existing oral treatments. Both studies also indicated that Afrezza could reduce incidences of hypoglycemia. This positive news caused MannKind to surge more than 15% the following day.

MannKind is notable because it is the last major pharmaceutical company to develop inhaled insulin. Other companies, such as Novo Nordisk/Aradigm and Alkermes/Eli Lilly, gave up on their efforts to revolutionize insulin treatments long ago. MannKind intends to submit the full data from its clinical trials to the FDA in the fourth quarter ending in December.

A more conservative play
For investors who think Osiris and MannKind are too speculative, Novo Nordisk might be worth a look. The company, which is the Nordic region’s largest company by market capitalization, is one of the market leaders in traditional insulin treatments. The company’s primary insulin products include Levemir, NovoLog, and NovoLin R. Last quarter, the company’s earnings and revenue rose 28.3% and 12.6%, respectively.

Novo Nordisk also recently raised its profit and revenue guidance for the third time this year, suggesting very strong demand for its diabetes treatments. The company expects profit to rise 12% to 15%, while revenue is forecast to climb 11% to 13%. However, Novo recently disclosed that it was being investigated in China, after the Chinese government charged pharma giant GlaxoSmithKline with bribery allegations. Novo stated that it had not been accused of any wrongdoing yet, and that it was unclear if the recent visits by Chinese authorities were a routine inspection or related to the GSK charges.

A Foolish parting thought
Diabetes is currently one of the most hotly contested markets in biotech right now, and that feverish trend will continue in the foreseeable future, due to an aging global population and rising cases of diabetes. An estimated 347 million people worldwide suffer from diabetes, with 25.8 million of those cases recorded in the United States. WHO projects that number to continue rising, until diabetes becomes the seventh leading cause of death in 2030.

The front runner in diabetes treatments will undoubtedly be Novo Nordisk, but more adventurous investors should also pay attention to the fringe players, such as Osiris, and the revolutionary ones, such as MannKind, which could profit even more handsomely than the major players.  

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