For Now, Diabetics Must Keep on Waiting to Inhale


By Amy Tsao For the 100 million diabetics around the world who need regular doses of insulin to lead normal lives, daily injections remain the best treatment. But "best" is a word that comes with a lot of qualifications, since doctors and patients have long sought to administer the sugar-regulating hormone in a way that doesn't involve the pain and inconvenience of shots and needles, as well as long-term potential side effects like heart attacks, blindness, and kidney damage

Now, a solution seems likely to hit the market over the next two or three years: Insulin that can be taken via an inhaler. "Something that would improve quality of life [for diabetics] is important. There are a lot of reasons why inhaled insulin could be useful, provided it's safe," says Robert Sherwin, President of the American Diabetes Assn. and professor of medicine at Yale University.

Several companies are working on the new approach, including Eli Lilly (LLY) with Alkermes (ALKS) and Danish drugmaker Novo Nordisk with Aradigm (ARDM). But the leader at this point is Inhale Therapeutic Systems (INHL), which is working with marketing partners Pfizer (PFE), the world's largest drug company, and Franco-German drugmaker Aventis (AVE). The big question: When will the company's innovative treatment hit the market?

WORRYING NEWS. Inhale Therapeutic, which is ahead of competitors by at least two years, has shown that its product works as well as injected insulin. The company and its partners have completed large-scale testing and expect to file an application to market the drug, called Exubera, with the Food & Drug Administration by the end of 2001. Among Inhale Therapeutic's big achievements is reducing the size of insulin particles so patients can puff their medicine from an aerosol device. Exubera's other advantage is that it is a dry powder and can be kept at room temperature, which makes it more convenient in the eyes of many analysts than the liquid-based inhaled therapies that are also being developed.

Efficacy data from Exubera's Phase III trial will be unveiled at the annual meeting of the American Diabetes Assn., which runs June 22 to 26. "Proof [that Exubera works] is right around the corner. It's an exciting time for this story," says Faraz Naqvi, portfolio manager with Dresdner RCM Biotechnology Fund.

There are, however, some question marks. Doubts about Exubera arose when Aventis revealed that a diabetic patient who received the experimental therapy had been diagnosed with pulmonary fibrosis, a condition that scars the lungs and eventually leads to death. Typically affecting people between the ages of 40 and 70, pulmonary fibrosis can cause respiratory failure, heart attacks, blood clots in the lungs, strokes, and lung infections. The lungs stiffen, making breathing difficult and, over time, the scarring reduces their ability to transfer oxygen to the blood. Life expectancy after the onset of symptoms is seldom more than six years.

RAVE REVIEW. Inhale Therapeutic has a lot riding on Exubera. As development costs for the drug soared, its losses more than doubled last year to $94.4 million, or $1.17 per share, on revenues that increased 24% to $51.6 million. Analysts expect the company to lose $1.45 per share in 2001. The consensus forecast is that the company will finally move into the black in late 2003, and earn $0.13 per share. But that, of course, assumes a successful launch of Exubera.

If the drug is further delayed or fails to win approval, the San Carlos (Cal.)-based company has little in the way of other products to take up the slack. It has only a few early-stage projects in the pipeline, including a deal to make an inhalable version of Avonex, Biogen's (BGEN) multiple-sclerosis drug. And it's just in the midst of diversifying its offerings to drug-delivery technologies other than inhalation.

Of course, it's entirely possible that Exubera had nothing to do with the patient's problem. Reports from most doctors involved in studies of the product are, by and large, encouraging. Francine Kaufman, head of the division of endocrinology at Children's Hospital, Los Angeles, is studying the drug in pediatric patients with the more severe form of the disease -- Type 1 or insulin-dependent diabetes. "Our data have been incredibly impressive," she says, adding: "We've seen no evidence of safety issues."

MARKET CONFIDENCE. Meanwhile, Aventis has told analysts that the incidence of pulmonary fibrosis in the population at large is one in 1,000. The companies working on Exubera have data on 1,200 patients, so a single incidence of the disease might not be that unusual. "That [case] was reported to the FDA and, at this point, we don't see any causal relationship with the product," says Vanessa McGowan, a Pfizer spokesperson.

So far, the market has taken the news in its stride. Inhale Therapeutic's shares, which traded as high as $60 a share last spring, dipped about 15% to $24 when news of the test subject's diagnosis first hit the wires, but they have since recovered to trade above $30. Most analysts and investors have downplayed the possible side effect, and few have changed their investment opinions.

"I'm positive but tempered," says Deutsche Banc Alex. Brown analyst David Steinberg, who is maintaining his "strong buy" rating on Inhale Therapeutic, despite the added uncertainty. "I think you have to handicap the situation," Steinberg says. "If no other cases appear, I have to assume the likelihood that it will be approved."

GO FIGURE. There are a few skeptics, however, who fear that Exubera may face more substantial problems. Prudential Securities analyst Tim Anderson, for example, downgraded Inhale Therapeutic to "hold" after learning of the test subject's pulmonary fibrosis. "They can't say it was and they can't say it wasn't [drug-related]," says Anderson, who adds that the incidence of the disease is hard to track.

Since patients who participated in the Exubera studies were prescreened for pulmonary fibrosis, he says, "for a case to show up after being on drug therapy is bothersome." According to Anderson's analysis, the ballpark incidence of pulmonary fibrosis in the general population is 1 in 3,000, and may even be as low as 1 in 5,000. "This would indicate that the one case...might [represent a higher incidence] than the underlying rate for the disease," he says.

Inhale Therapeutic and its partners insist they are still on track to file an application to market Exubera by the end of the year. But the regulatory process is likely to be drawn out and complicated. "We're concerned about a complex filing process with the FDA that could be compounded by the new safety findings," Anderson says. If the companies file by end of 2001, it would be late in 2002 at the earliest before Exubera could be approved, with most observers anticipating approval sometime in 2003. However the chronology works out, analysts expect the FDA to slap a substantial amount of safety precautions and monitoring criteria on the drug.

PROCEED WITH CAUTION. Still, if no more problems crop up, Exubera's potential is huge. Other inhaled-protein drugs have been approved in the past, but Exubera would be the first protein intended to go beyond the lungs. "This is very new ground. The FDA has to focus on what the clinical benefits are and what the safety issues are," Naqvi says. Adds Liu-er Chen, portfolio manager at Evergreen Healthcare Fund: "I think it will still be approved because it's such a huge progress in terms of delivery of insulin. Injection becomes a big deal for diabetic patients after a few years. It gets really messy."

True enough. But no one can say how long approval will take. "Insulin has such a broad effect on human cells," Chen frets, "the FDA is going to be really careful." For now, neither diabetics nor investors can breathe easy about inhalable insulin. Tsao covers biotech for BusinessWeek Online in New York


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