From Generex, a Diabetic's Dream?

The Canadian drug company's technology for inhaling normally injected drugs, such as insulin, could be a long-term winner

By Gene Marcial

If you were a diabetic, surely you'd long for a way to get your regular doses of insulin without having to repeatedly inject yourself. That's leading several companies to work on needle-less delivery of drugs, especially insulin. Administering insulin by inhalation is one method. But that approach has run into recent concerns about the potential side effects.

Enter Generex Biotechnology (GNBT ), which is developing a painless delivery system not just for insulin but for other drugs as well. The Toronto (Canada) company has developed what it claims is a superior buccal (by mouth) delivery of large-molecule drugs that, like insulin, have so far been administered only by injection.

The first application for Generex' proprietary technology is an insulin formulation: It's administered as a fine spray into the mouth, using what looks like an ordinary asthma inhaler that the company has named RapidMist. The insulin spray has completed phase two clinical trials in Canada.


  To further its progress, Generex in September, 2000, signed a development agreement with Eli Lilly (LLY ), which has the option to create a number of additional products based on the insulin treatment (see BW Online, 9/12/00, "Why Generex Is a Biotech That Bears Are Watching"). To date, Generex has received from Lilly an initial $1 million payment and should get additional milestone payments.

"We believe Lilly will run its own phase two clinical trials to confirm the potential of the delivery system before it runs a phase three trial," says Albert Rauch, analyst at Ladenburg Thalmann. If the results are satisfactory, he expects Lilly to initiate phase three trials in Canada by mid to late 2002. He also expects Lilly to begin phase three testing in the U.S. and Europe by the third quarter of 2002 and to submit an investigational new-drug (IND) application to the U.S. Food & Drug Administration by the third quarter of 2004.

Assuming that the FDA takes a year for its analysis, the insulin delivery system could be approved and on the market by early third-quarter 2005, figures Rauch.


  "We expect Generex' delivery system for insulin will be the standard in 5 to 10 years," says Robert Holmes, managing partner at Gilford Securities, which has accumulated Generex shares. Holmes started buying the stock two years ago at 5 a share. It ran up as high as 11 last June but has since slid back to 5.

In a recent alliance with Elan (ELN ), a Big Board-listed worldwide drug-delivery and specialty pharmaceutical company based in Ireland, Generex has announced the successful completion of phase one clinical studies in Canada, using the RapidMist technology to deliver morphine as a painkiller.

This clinical study, which involved 16 healthy volunteers, showed that the efficacy of bucally delivered morphine is comparable in results to that of injectable morphine. And it provided faster relief than the morphine tablets commonly used to relieve extreme pain, according to Anna Gluskin, president and CEO of Generex. The company plans to begin "proof of concept" trials on the delivery system for a number of other drugs this year, including Heparin, an anti-blood-clotting drug, she adds.

Generex has filed an IND application with Health Canada for the buccal delivery of morphine for pain treatment. The company will also file a similar IND with the FDA in the U.S.


  Despite the apparent lack of investor interest, as reflected in the recent decline in its stock price, Generex is bound to be a big winner down the road, says Gilford Securities' Holmes. He points out that the insulin market for diabetics is huge. In addition, the potential markets Heparin and morphine are similarly large, says Holmes. He expects Generex to announce new partners to develop its delivery system for other drugs as clinical trials progress.

For example, Generex already has a joint venture with Elan to apply its proprietary buccal delivery technologies to the treatment of prostrate cancer and several other diseases. Generex owns 80% of the joint venture, but Elan has the option to raise its stake to 50% at any time.

"We are encouraged by the expansion of the drug-delivery platform into other therapeutic areas," says C.J. Sylvester, specialty pharmaceutical analyst at UBS Warburg, who rates Generex stock a buy with a 12-month target of 13 a share, based on 13 times his estimated 2006 earnings of $1.65 a share. The company is expected to be in the red until 2006.

In the meantime, Generex will have to go through the burden of having to conduct several clinical trials -- and complete them, successfully.

Marcial is BusinessWeek's Inside Wall Street columnist

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