Emisphere (NASDAQ:EMIS): Improving Drug Delivery Print E-mail
Thursday, 04 June 2009 19:54
Emisphere (NASDAQ:EMIS) is an emerging bio-pharma company specializing in the development of a drug delivery technology platform for the oral administration of therapeutic compounds which are either poorly absorbed or must be given through alternative routes such as injections.

On 6/1/09, EMIS announced that Novartis (NYSE:NVS) and Nordic Bioscience have completed recruitment for the planned second multi-center Phase 3 study exploring the safety and efficacy of an oral formulation of salmon calcitonin using Emisphere's proprietary Eligen Technology to treat patients with osteoarthritis of the knee. This study, which is intended to be used to support a FDA regulatory approval filing in the U.S., includes more than 900 patients between the ages of 51-80 with a medical history and symptoms of knee osteoarthritis. The study is being conducted in Europe and the U.S., as well as other countries, and is a two year study.

Oral calcitonin is also being investigated using Eligen Technology in a Phase 3 study for osteoporosis. Both indications for the compound are in Phase 3 development with over 6,000 patients enrolled in three clinical studies. The osteoporosis trial is a three year trial initiated in February 2007 and the two year osteoarthritis trial beginning in May 2007 with the second two year trial for osteoarthritis initiated in June 2008.

On 5/26/09, EMIS announced data from a clinical study designed to assess the effect of oral administration of two peptides (GLP-1 and PYY3-36) utilizing Emisphere's Eligen Technology on appetite suppression. The randomized, double-blind, placebo-controlled trial was conducted in 16 normal weight males between the ages of 18-40. The study concluded that these orally administered peptides, when delivered with Emisphere's SNAC carrier, were rapidly absorbed from the gastrointestinal tract, leading to concentrations several times higher than endogenous hormone levels achieved after a standard test meal.

Specifically, results showed that oral GLP-1 (2 mg tablet) alone and the combination of oral GLP-1 (2 mg tablet) plus PYY3-36 (1 mg tablet) induced a significant reduction in calorie intake although there was no synergistic effect when the two peptides were used in combination. The data was encouraging and will warrant further investigation in clinical trials for appetite suppression and

the results further validate the Company's Eligen Technology and

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SNAC carrier's ability to improve the oral absorption of peptides.

In June 2008, EMIS announced an exclusive deal with Novo Nordisk (NYSE:NVO) to develop and

commercialize oral formulations of the latter's proprietary GLP-1 receptor agonists for the potential treatment of Type 2 diabetes. Previously conducted clinical trials have confirmed that the Company's SNAC drug delivery technology allows for the safe and rapid oral absorption of GLP-1.

On 5/21/09, EMIS received a $500,000 milestone payment from MannKind (NASDAQ:MNKD) in connection with that Company's recent FDA filing and acceptance of a NDA for Afresa as an inhaled, ultra rapid-acting insulin. In early 2008, EMIS sold the rights to certain drug delivery patents to MNKD for an initial payment of $1.5M, and an additional payment of $500,000 remains to be paid to EMIS no later than 10/5/10.

In early May, EMIS reported 1Q09 financial results, which included a net loss of $5.1M and an operating loss of $4.7M compared to a net loss of $3.9M and an operating loss of $6.5M in the year-ago periods. Total operating expenses during 1Q09 were $4.7M versus $6.6M in the year-ago period. At the end of 1Q09, EMIS reported a cash/restricted cash balance of $4.2M, with sufficient capital resources through August 2009 as the Company evaluates both non-dilutive and traditional financing options. Additionally, EMIS achieved a key milestone as part of its cost cutting initiatives with a goal of reducing the Company's cash burn rate to a level of $7-8M per year.

Another important milestone achieved in early May occurred when the Company was informed by an independent expert panel of scientists that its SNAC carrier was provisionally designated as Generally Recognized as Safe (GRAS) for its intended application in combination with nutrients added to food and dietary supplements. Following a comprehensive evaluation of research and toxicology data, Emisphere's SNAC was found to be safe at a dosage up to 250 mg per day when used in combination with nutrients to improve their dietary availability.

Achieving final GRAS status will allow EMIS to bypass the FDA as it seeks to commercialize its drug delivery technology to improve the oral absorption of vitamins and other nutritional supplements, such as the Company's first target - vitamin B12. EMIS expects to achieve final GRAS status following the publication of two peer reviewed papers describing the toxicology of SNAC, currently scheduled for July/August in the International Journal of Toxicology.

A pharmacokinetic study conducted by EMIS demonstrated that mean vitamin B12 peak blood levels were more than 10X higher for the Eligen B12 5mg formulation compared to a 5mg commercial formulation. In addition, the Eligen formulation was absorbed much quicker as it reached a peak concentration in just 30 minutes versus 6.8 hours for the standard commercial formulation. The overall absorption of B12 was increased by about 240% for the Eligen formulation compared to the standard formulation.

On 4/1/09, Par Pharma (NYSE:PRX) announced that its wholly-owned subsidiary focused on the development of proprietary drug products, Strativa Pharma, acquired the global rights to Nascobal (Cyanocobalamin) Nasal Spray from QOL Medical, LLC. Nascobal Nasal Spray is an FDA approved prescription vitamin B12 supplement indicated to treat vitamin B12 deficiency, and the product represents the first and only once-weekly, self-administered alternative to B12 injections. Strativa Pharma paid $54.5M for the worldwide rights to Nascobal, which equates to nearly 7X the $8M in sales for the product during 2008.

Based on the PRX acquisition, EMIS would be undervalued at its current market cap around $35M based on the potential for an orally available, high-dose B12 product only. A prescription strength B12 formulation that could be taken by mouth would quickly become the market leader as patients would prefer this route to an injection or a squirt up the nose. Other near-term opportunities are possible for poorly absorbed and widely used mineral supplements such as iron.

Of course, EMIS has more than just the near-term opportunity for improved oral delivery of vitamins and nutritional supplements with three ongoing Phase 3 trials for oral calcitonin funded and being conducted by Novartis for the treatment of conditions with major commercial potential in osteoporosis and osteoarthritis. In addition, there is minimal risk of failure or toxicity in the trials since the effects of calcitonin are well characterized and EMIS is simply improving upon the delivery of the drug.

Outstanding issues weighing on the share price include the obvious need for some type of funding or financing by August, submitting additional information by 6/26/09 to maintain the Company's NASDAQ listing, two outstanding notes, and litigation related to the proprietary technology for the oral administration of vitamin B12 against a former consultant/employee of EMIS. In February 2009, the defendants filed a countersuit against EMIS and the Company believes the counterclaims are without merit and plans to further litigate the matter.

Two outstanding notes payable include a $12.1M Novartis Note which matures on 12/1/09 and currently bears interest at a rate of 7%. EMIS may convert the Novartis Note at any time prior to maturity into a number of shares of its common stock equal to the principal, accrued, and unpaid interest to be converted divided by the then market price of our common stock, provided certain conditions are met. At the end of 1Q09, a portion of the Novartis Note was convertible into 7.54M shares of EMIS common stock.

Conditions affecting this note include that the number of shares issued to Novartis, when issued, does not exceed 19.9% of the total shares of the Company's common stock outstanding, that at the time of such conversion no event of default under the Note has occurred and is continuing, and that there is either an effective shelf registration statement in effect covering the resale of the shares issued in connection with such conversion or the shares may be resold by Novartis pursuant to SEC Rule 144.

EMIS also has $18.85M in outstanding MHR Convertible Notes. The Convertible Notes are due on 9/26/12 and bear interest at 11% and are secured by a first priority lien in favor of MHR Institutional Partners on substantially all of the Company's assets. Interest is payable in the form of additional Convertible Notes issued monthly through March 31, 2007 and then semi-annually beginning June 30, 2008, rather than in cash and we have the right to call the Convertible Notes after September 26, 2010 if certain conditions are satisfied.

Further the Convertible Notes provide MHR with the right to require redemption in the event of a change in control, as defined, prior to September 26, 2009. Such required redemption would be at 102% and 101% of the then outstanding principal and interest in the years through September 26, 2008 and 2009, respectively. The Convertible Notes are convertible, at the sole discretion of MHR or any assignee thereof through September 25, 2010, into shares of our common stock at a price per share of $3.78. At March 31, 2009, the Convertible Notes were convertible into 5.5M shares of EMIS common stock.

Despite the issues outlined above which are weighing on the current stock price, EMIS has a promising drug delivery with little in the way of pipeline risk for its Phase 3 oral calcitonin clinical trials since they involve the improved oral delivery of an already used hormone. In addition, the PRX acquisition at 7X sales ($54.5M) for a B12 nasal spray product is similar to the current enterprise value for EMIS ($60M). EMIS should be viewed as a call option trade at its current stock price just north of $1/share, with the potential for multi-bagger gains if the risk factors outlined above are resolved successfully.

Disclosure: No positions.

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