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4 Cutting Edge Biotechs Racing Toward a Function Cure of Diabetes: GUTS VRTX SNY SEOVF

4 Cutting Edge Biotechs Racing Toward a Function Cure of Diabetes: GUTS VRTX SNY SEOVF
Written by
Chris Sandburg
Published on
May 21, 2024
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The main themes driving the markets are AI powered chips by Nvidia (NASDAQ: NVDA) and the GLP-1 obesity drugs.  The boom in the diabetes market is a result of easy to take weekly injectables to treat diabetes. Drugs like Novo Nordisk’s (NYSE: NOVO) Ozempic and Eli Lilly’s (NYSE: LLY) Mounjaro are dominating the landscape but they have run into capacity constraints and the realization that rapid weight loss also leads to an undesirable loss of muscle mass. This means the door is wide open for other therapeutic solutions that equate to a functional cure or solutions with little to no side effects and big pharma is willing to pay up.  As a teaser,  Sanofi Adventis (NYSE: SNY) acquired ProventionBio, Inc in April 2023 for $2.9 billion in order to expand its pipeline of Type 1 diabetes drug candidates. Small pharma’s that prove out the science are going to be gobbled up.   

A number of biotechs are looking for even better and more novel ways to treat both type 1 and type 2 diabetes. Identifying these companies can put much needed alpha into your portfolio because this is still a huge market with room for dozens of players.  Consider that diabetes is on the rise with an estimated 422 million people living with diabetes worldwide.  Every year there are 1.5 million lives lost to the disease, not to mention the complications due to the disease that can cause blindness, heart attacks, stroke, kidney failure, and lower limb amputation.   

Diabetes has exceeded epidemic proportions, and some may consider it the next pandemic, but there are a number of biotechs striving to develop new diabetes treatments. In this article, we take a look at four diabetes biotech companies looking to change the lives of patients. 

Fractyl Health (NASDAQ: GUTS)  is pioneering a gene therapy capable of competing with drugs like Ozempic and Wegovy designed to manage blood sugar for diabetics without the need for daily insulin injections. The essence behind this gene therapy treatment is to get better patient compliance than the  weekly shot. The dramatic rise of weekly injectable GLP-1 blockers demonstrated there is a huge market looking for an easier to take solution.  A one and done shot is the holy grail of solutions, but this gene therapy is still in the early stages of testing. 

The strategy encompasses delivering an artificial gene to the pancreas which activates the continuous production of the GLP-1 hormone. The challenge is getting the therapy to the pancreas in a minimally invasive manner. Fractyl came up with an endoscopic procedure that essentially involves the insertion of a slender needle attached to a catheter that is positioned down the throat and goes through the gastrointestinal tract.   

In animal trials, the company evaluated the efficacy of their gene therapy approach. The treated group of mice was given one shot versus a weekly shot of semaglutide in the control group. The objective of the study was to gauge the therapy's impact on reducing fasting blood sugar levels. After a 10-week observation period, results revealed that the gene therapy led to a remarkable 70 percent decrease in fasting blood sugar, surpassing the effectiveness of semaglutide by a slight margin.  With a $335 million market cap, GUTS and a successful proof of concept it's hard not to see the potential in this biotech. 

Vertex Pharmaceuticals (NASDAQ: VRTX) is evaluating cell therapies using stem cell-derived, fully differentiated, insulin-producing islet cells to replace the insulin-producing islet cells that are destroyed in people with T1D.  The goal is a one-time functional cure for this disease. In September 2019 with the purchase of privately held Semma for $920 million for its stem cell derived islet program and in july 2022 with the purchase of ViaCyte, they entered the space.  ViaCyte happens to be partnered with CRISPR Therapeutics (NASDAQ: CRSP). The intellectual property was the primary purpose of the $320 million acquisition of privately held ViaCyte.  

Their multi pronged approach uses a combination of differentiated stem cells from embryonic stem cell lines coupled with immunosuppression.  They have 3 ongoing trials. Their first approach infuses islet cells into the portal vein of the liver.  The clusters of islet cells will get trapped in the filtration matrix of the liver where they will be nourished by the proximity to blood flow.  The islet cells will produce the insulin needed by the body.  This concept is essentially a spin off of bone marrow transplants which also require anti rejection medicines.  The company is close to completing its 17 patient clinical trial and plans to present updated Phase 1/2 data at the American Diabetes Association Conference in June 2024.  The trial was briefly halted  after 2 deaths in the trial, but the safety committee indicated it was unrelated to the drug use. The encouraging part of the study is that one of the patients that died was credited as the first person “cured” of T1D in June 2021. 

Their next study was a combination of their embryonic stem cell line encapsulated in a immunoprotective device. They are in part B of their phase 1A/B study.  No data has come from the study or their 3rd study that uses CRISPR gene editing to cloak the cells from the immune system. To give perspective on this approach, accomplishing this feat of cloaking is considered the “holy grail” of CRISPR.  The only drug to reach this hallmark is a monoclonal antibody made by CytoDyn Inc (NASDAQ: CYDY) which demonstrated that 100% of mice injected with human stem cells lived while taking leronlimab and 0% of the mice in the control lived in this proof of concept Graft versus Host Disease (GvHD) study.  The concept of long term immunosuppression is quite viable for VRTX, but will they be able to find and assemble all the parts?  One of the big risks with their approach is the ethical use of embryonic stem cells and how the public will ultimately view this therapy.  

Sanofi Adventis (NYSE: SNY) bought the rights to TZIELD which is an approved injection in adults and pediatric patients over 8 years old who have stage 2 type 1 diabetes. The TZIELD injection is expected to delay stage 3 of type 1 diabetes. The preservation of the beta cells means the patients will be less dependent on insulin shots to reduce their HbA1c levels.  The endpoint was the avoidance of ketoacidosis which is a life-threatening complication of diabetes. Peak sales are expected to be $1.2 billion by 2030.   

For SNY this looks like a first to market play to mark their territory, but it’s realistic that they are still looking for a better option.  SNY lost the bidding war for Horizon Therapeutics which would have given them a rare disease franchise so it looks like they settled for doubling down on the diabetes space.  Provention Bio barely made it through the approval process as the FDA cited a small study and safety data of the drug from another indication, but there were warning signs in 2020 that this was a very weak asset.  In 2017 Provention Bio in-licensed the technology from Janssen and found out that Janssen didn't want the rights back in 2020 for $50 million after a mid-stage trial flop in Crohn's disease.     

The merits of the TZIELD tech are weak and it remains to be seen if SNY can recoup their $2.9 billion investment but what seems evident is that they cannot afford to ignore any hot opportunities in the diabetes space. There could very well be another M&A candidate for SNY if clinical trials support such a move.   

Sernova Corp (OTCMKTS: SEOVF) has a credit card sized cell pouch device that is inserted deep under the skin to create a highly vascularized environment that mimics a small organ for the placement of donor islets or stem cell derived islets. Over a period of time the device becomes fully vascularized, enabling the placement of highly specialized pancreatic cells called islet cells. Nourished from the highly vascularized region of the device the cells contained in the pouch are able to release insulin and other hormones needed to control blood glucose.  What makes the cell pouch system so special is that its porous design allows the body to assimilate the device encouraging a vascularization density rivaling that of a small organ.  The body is essentially tricked into thinking this is just another organ.  Other attempts of inserting a device into a body have been stymied by the body’s natural fibrotic response which walls off foreign objects with scar tissue which contains little to no vascularization to support islet cells. On a side note, this is the third approach, mentioned early in the article that VRTX is taking in their T1D development.  

In May 2022, Sernova and Evotec (NASDAQ: EVO) announced an exclusive global strategic partnership to develop a best-in-class cell therapy treatment for people with type 1 diabetes. The partnership allows Serova to use their iPSC derived islets in their device for both type 1 and type 2 diabetes. Since the starting cell lines are manufactured from cord blood instead of embryonic stem cells there are no ethical hurdles with this cell line which represents a significant competitive advantage over VRTX’s technology.    

In Sernova’s current clinical trial using donor islets, the results show that 5 out of 6 patients in a first patient cohort using a smaller 8 channel pouch achieved 100% insulin dependence.  The 6th patient in the cohort is experiencing a decreasing insulin dose and achieved HbA1c levels in the non-diabetic range.  It's extremely rare to get 100% responders rate in clinical trials Sernova is now assessing patients in a second cohort with the 10 channel pouch that can hold significantly more islets. Sernova’s cell pouch is already significantly derisked from a functional perspective relative to other device technologies. 

There are some really interesting equity relationships that could result in a buyout or bidding war for this asset.  EVO has a 7% stake in SEOVF and NovoNordisk (NYSE: NVO) has a 10% stake in EVO.  NovoNordisk with its GLP-1 agonist Ozempic wants to own the diabetes space but  SEOVF just announced a collaboration with Astra Zeneca (NYSE: AZN) and as stated earlier SNY is waiting in the wings ready to bid on the next best mouse trap.  Investors can look forward to Sernova’s ongoing clinical trial results and next steps toward the clinic in their collaboration with EVO for their stem cell derived islet program.   

There are also expansion possibilities to the thyroid to treat a condition called hypothyroidism.  Sometimes the thyroid needs to be taken out for benign reasons and that negatively impacts the body’s ability to self-regulate multiple bodily functions resulting in depression, weight gain, and lethargy. Why not take those viable sections and place them in a SEOVF’s cell pouch to avoid the regulatory complications from the lack of a thyroid.  Sernova has announced success in preclinical studies proposed advancement towards the clinic of this exciting novel clinical application. 

Investment Summary

It's pretty easy to see that all these companies have facets of their T1D strategy that stand out, but one easily rises to the top as best in breed.  GUTS has a great data that rivals the injectables, but the question remains will patients want to undergo such an invasive procedure for such little gain.  At a $300 million market cap the risk reward ratio is favorable.  SNY has first mover advantage but will they be able to claw back enough revenue before a more disrupting tech makes them obsolete or will they join in a bidding war for the next generation T1D solution.  VRTX is the perceived leader but the ethics of embryonic stem cells use and the cloud of deaths in their trial may be enough to keep investors on the sidelines.  The best of breed in T1D is SEOVF with the only proven vascularized device in clinical trials and the ability to scale their payload size with larger pouches.  They currently have a $70 million market cap.  The exit for SEOVF is a buyout over the $2.9 billion that SNY paid for an inferior asset.  If there is no buyout they will be able to license to a number of pharma’s looking for an approved delivery vehicle for their stem cell lines as well as use of EVO’s stem cell derived islets.  We see the big pharma’s such as AZN, SNY, NVO  are circling SEOVF as the company progresses.  T1D is a huge market and buying best of breed in biotech can be a rewarding strategy. 


Disclosure: Insider Financial and its owners do not have a position in the stocks posted and have posted this article for free without editorial input. A guest contributor wrote this article and solely reflects his opinions.

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