Two major health issues plaguing developed societies today are linked – obesity and type 2 diabetes. Minneapolis-based DiaMedica (DMA.V), a development-stage biopharmaceutical company, may offer a completely new drug that addresses both the disease and its associated conditions.
Diabetes treatments represent a major growth market. There are 380 million people with diabetes in the world. The great majority of them, possibly 90%, have type 2 diabetes, a chronic disease that often leads to additional complications such as high blood pressure and kidney disease. People who develop type 2 diabetes have difficulty producing enough insulin to metabolize sugar (glucose). Overweight people are more susceptible to this form of diabetes.
According to a report from MarketOptimizer, the U.S. held a 58% share of the global diabetes market in 2012, which made it the biggest single market for type 2 diabetes treatments — $16.4 billion for the same year. The figure was explained with the high prices of pharmaceuticals and the high prevalence of the disease.
The number of people diagnosed with type 2 diabetes is growing and the trend is projected to continue at least until 2020, when the market will reach a size of $45 billion, double the figure for 2010, according to estimates by Decision Resources. Other projections for the global diabetes market size put the figure at $58 billion for 2018, up from $35 billion in 2011. Apart from the increasing number of diabetics, market growth will be driven by the emergence of more new drugs and therapies targeting the disease.
The biggest market share in terms of drug types will fall to dipeptidyl peptidase (DPP)-IV inhibitors and glucagon-like peptide (GLP-1) analogs, reaching a combined total share of 47% by 2020, the Decision Resources report predicted in 2011. This latter category of treatments has been seeing stable growth in the last few years, with its market share totaling $2.5 billion in 2010 and expected to reach $7.3 billion by 2020. The leaders in the GLP-1 drug market are currently Novo Nordisk’s Victoza and Vyetta, developed and produced by Amylin Pharmaceuticals and marketed by Astra Zeneca.
DiaMedica plans big
The situation is very favorable for biopharmaceutical developers looking to come up with the next big thing in the treatment of diabetes, meeting a growing need for more efficient drugs.
DiaMedica is taking advantage of these opportunities and combining them with expertise and focused research. During Alpha Deal Group’s initial due diligence call, President and CEO Rick Pauls said the company’s leading drug candidate DM199 has the potential to be the next breakthrough treatment not just for type 1 and type 2 diabetes but also for associated conditions such as kidney disease. The compound, which is a human recombinant protein, has, according to DiaMedica, the ability to restore the body’s natural way of responding to insulin, thus eliminating the insulin resistance that is the main feature of type 2 diabetes.
The company’s portfolio also includes an antibody, DM204, that targets specifically type 2 diabetes patients. The mechanism of this candidate’s action involves activating the function of a receptor that is responsible for insulin sensitivity and insulin secretion. This compound is still at the preclinical stage of development but has shown evidence of a positive effect on hypertension, glucose control and cholesterol levels.
The third product in DiaMedica’s pipeline is a diagnostic assay aimed at predicting the rate of progression for kidney disease, filling a gap left by existing diagnostic tools. The assay detects levels of the protein KLK-1 in the urine and since the levels of this protein have been suggested to be in inverse correlation with the rate of progression of kidney disease, it can predict how quickly the disease will develop, making for a more accurate diagnosis and consequently treatment.
The next breakthrough candidate
DiaMedica’s lead product DM199 is currently in phase 1 and phase 2 trials involving healthy volunteers and patients with type 2 diabetes. The trials are focusing on evaluating the safety, tolerability, efficacy and pharmacokinetics of the compound. Their results will be used to support future filings for clinical trials on both type 1 and type 2 diabetes as well as other related conditions. Results from already completed trials have shown that the drug is well tolerated both by healthy individuals and type 2 diabetes patients and there has been evidence of reduced glucose intolerance in diabetics.
According to the target product profile of DM199, it should outperform its main competitors, GLP-1 analogs, in three aspects, including blood pressure control, kidney protection and the normal function of the blood vessels, since GLP-1 analogs do not influence these features.
Insulin control has already been evidenced in tests of DM199, while the effects on weight loss are still to be determined. The drug could be administered just once a week, compared to two times daily for some GLP-1 analogs. DM199 is also unique the first drug in the class of insulin sensitizers.
An additional advantage of DiaMedica’s candidate is its indication for kidney disease, and more specifically diabetes-related kidney disease. Estimates show that around 40% of diabetics have kidney disease, with their numbers at between five and ten million in the US alone. There is currently no treatment for diabetic kidney disease aside from drugs for controlling high blood pressure.
The cost of dialysis for a single patient can reach as much as $100,000 annually and the need for dialysis itself has a devastating effect on patients’ quality of life. What’s more, GLP-1 and other diabetes treatments have contraindications for kidney disease. All these factors reinforce DM199’s unique position on the market.
Preclinical tests have shown the compound can bring sustained kidney protection and the company is now planning phase 2 trials that will involve between 50 and 150 people to be treated for three or six months. The clinical endpoints identified are kidney function biomarkers and levels of the KLK-1 protein.
A gene therapy focusing on KLK-1 has been reported to improve blood pressure levels, as well as creatinine and microalbumin levels, resulting in improvement of the renal function. This is the point when DM199 converges with DiaMedica’s diagnostic assay that is based on KLK-1 level tracking. One of the specific properties of this tool is that it could identify patients that are most likely to respond to treatment and, moreover, patients who are best suited for a therapy with DM199.
Financials
DiaMedica reported a net loss of $1.36 million for the third quarter of 2013, the latest financial results available, and $6.41 million for the nine months since the start of the year. The respective figures for the two corresponding periods of 2012 were $2.54 million and $6.96 million. Loss per share for the third quarter of 2013 was $0.02, against $0.05 a year earlier. Loss per share for the nine-month period was $0.12, versus $0.14 for the first nine months of 2012. Cash and cash equivalents at the end of September last year stood at $1.1 million, down from $2.33 million at the end of December 2012. Total assets were $1.53 million, down from $3.83 million nine months earlier.
DiaMedica share price
Source: Thomson Reuters Eikon/StarMine
The company had a market capitalization of $49 million as of April 21, with 58 million total outstanding shares. Total liabilities were $993,200, compared with $1.57 million at end-December. Total equity stood at $538,300, versus $2.25 million nine months earlier. The figure included $33.694 million in equity capital, $886,524 in warrants, $3.998 million in contributed surplus and a deficit of $38.040 million.
DiaMedica financial strength
Source: Thomson Reuters Eikon/StarMine
Competition and Risks
The market leader in type 2 diabetes treatments is pharma giant Novo Nordisk with its Victoza, which is administered on a daily basis. Another major in this playing field is Eli Lilly, which earlier this year announced the results from clinical trials for its candidate dulaglutide, to be administered in once-weekly doses. The drug was found to be relatively equal and no superior in effect to Novo’s product. Dulaglutide was submitted for approval to the FDA and a decision is expected in September.
DM199’s stated advantages over current therapies would give the company a definitive competitive edge over its much bigger direct rivals, should these advantages be proved in future trials. However, DiaMedica is very much resource-constrained when compared with the other two. Its narrow portfolio could be seen both as positive, in that it allows for much better targeting in research and development, but also as risky, in case planned clinical trials yield pessimistic results down the line.
Conclusion
DiaMedica has a very streamlined pipeline of drug candidates targeting a market with significant growth potential. So far, preclinical and clinical data has been optimistic, fueling optimism that the company could offer the growing population of diabetes patients an entirely new treatment that is superior to all existing ones, supported by a novel diagnostic tool that may potentially bring significant improvement to current diagnostic practices in kidney disease. However, there is much more work to be done before its most promising candidate reaches the market, and this makes long-term prospects unclear. In light of our initial due diligence, we view this as ideal entry point for long-only value market players.
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