By: Tomas Ronolski - AllPennyStocks.com News

Tuesday, April 9, 2013

In the medical world, there is probably no greater opportunity for biotechnology companies than that of diabetes. It is the world’s most expensive chronic disease and affects more people worldwide than most other diseases or conditions combined. The simple fact is that diabetes has reached epidemic level globally and the treatment options are still very limited to date outside of insulin injections or the drug metformin to help control sugar level, both have which done virtually nothing to slow the rapid spread of the disease. Take a look at some of the numbers attached to diabetes. The American Diabetes Association estimated in March that the cost of diabetes in the United States in 2012 was $245 Billion. The ADA also estimates that 23.6 million U.S. citizens have diabetes with another 57 million people being classified as “pre-diabetic.” The International Diabetes Federation said in 2011 that about 366 million people worldwide have diabetes and that number will grow to 552 million by 2030. Even more staggering is the number of people that don’t even know that they have the disease. For example, the IDF says that about 80 percent of the population of Africa has the disease, but it is undiagnosed. These are mind-numbing figures that constitute one of the greatest areas of unmet medical need today.

Within the diabetes population, there are a plethora of subcategories of people that are afflicted with different conditions that have no strong viable options for treatment either. Diabetic ulcers are one of these debilitating conditions that start small and mushroom out of control. The Advanced Medical Technology Association reports that more than 1.5 million diabetic foot ulcers occur each year, leading to more than 82,000 amputations at a cost between $20,000 to $60,000 per patient. Even taking the middle figure of $40,000 equates to an associated cost of $3.3 billion, just for the amputation, without considering the millions of workdays lost, permanent claims and more.

Now, this is not an exercise aiming discount at the importance of finding a cure for a disease such as cancer, obviously that is extremely important. But from an investor standpoint, companies that can develop and garner FDA approval for therapeutics in the diabetes space – no matter what component of it – have a tremendous upside.

Johnson & Johnson (NYSE:JNJ) made some big headway about a week ago with the FDA’s approval of Invokana (canagliflozin), a first-in-class type 2 diabetes drug that lowers the amount of sugar absorbed into the bloodstream from food. The JNJ drug was facing intense scrutiny after Foxiga (dapagliflozin), a drug co-developed by Briston-Myers Squibb (NYSE:BMY) and AstraZeneca (NYSE:AZN) was rejected by the FDA in 2012 because of serious concerns of side effects, such as potential liver damage and different types of cancer.

Known as a SGLT2 (sodium-glucose co-transporter-2) inhibitor, the drug is expected to generate over $1 billion in annual sales initially as it breaks into the competitive market, although it may take some time for physicians to fully embrace writing prescriptions because it brings along elevated risks of heart problems.

That’s the new from a drug standpoint in diabetes.

Other investors are looking at the direction of regenerative medicines in the diabetes space.

Shire plc (Nasdaq:SHPG) is entrenched in the diabetes space through a couple angles in addition to extensive pipeline studies and many other indications. First and foremost, the Dublin, Ireland-based company markets Dermagraft, a cryopreserved human fibroblast-derived dermal substitute composed of fibroblasts, extracellular matrix, and a bioabsorbable scaffold used to treat diabetic foot ulcers.

Dermagraft is indicated for use in combination with standard wound care regimens for diabetic foot ulcers that are older than six weeks and extend through the dermis without tendon, muscle, joint capsule or bone exposure. Proper perfusion (blood supply) to the foot is also required, along with some other limitations which can restrict use. A 12-week regime costs about $11,600.

Shire has also just begun enrollment of patients in two Phase II clinical trials to evaluate the safety and efficacy of SRM003 (Vascugel) in improving Arteriovenous Fistula (AVF) maturation and AV Graft (AVG) patency to facilitate hemodialysis in patients with End Stage Renal Disease (ESRD). While this may not seem like a diabetes treatment, it does put Shire in the ballpark because diabetes is the leading cause of ESRD worldwide, including about 40 percent of all U.S. patients with the disease. Sure, wiping-out diabetes prevalence will cut into future potential, but in the meantime, it is an advanced and irreversible condition in dire need of new therapies.

Shire should be looking over its shoulder in the diabetic foot ulcer industry because it may be in for some stiff competition to its Dermagraft product from Sanuwave Health Inc. (OTCBB:SNWV) in the mid-term. Sanuwave’s lead product candidate is dermaPACE, founded on its Pulsed Acoustic Cellular Expression (PACE) that utilizes high-energy acoustic pressure waves in the shock wave spectrum to produce compressive and tensile stresses on cells and tissue structures to elicit a series of biological responses. The responses are well-documented through a series of Sanuwave clinical trials demonstrating increase in perfusion and arteriogenesis, biofilm disruption, a pro-inflammatory response, cytokine and chemokine effects, growth factor upregulation, angiogenesis (new blood vessel formation) and the subsequent regeneration of tissue such as skin, musculoskeletal and vascular structures.

What this means is stimulating the regenerative process of the body to provide deep healing benefits in diabetic foot ulcers, in addition to a host of other potential uses for the device.

The dermaPACE device is available for use in Europe and Canada where it is gaining traction. Sales in 2012 totaled $762,217 with a gross profit of $548,960.

A recent approval by the Australian Therapeutic Goods Administration in March was immediately followed by distribution agreements for the commercial launch of dermaPACE throughout Australia and New Zealand, which will add to sales and earnings in 2013. More than 500,000 Australians are affected by chronic wounds annually with costs in excess of AU $3 billion, according to the Australian Wound Management Association and Australian Medical Association.

With sales internationally starting to grow, the home run for Sanuwave could come from the FDA recently granting Sanuwave full approval for its Investigational Device Exemption, or IDE, to move forward with a pivotal Phase III clinical trial researching dermaPACE in a large-scale study for diabetic foot ulcers. The data collected will build upon research collected during a first Phase III trial that showed dermaPACE benefited patients receiving the therapy. In the latest study, patients will receive additional treatments compared to the first trial, which is expected to show a statistically significant clinical response that should bode very well towards eventually garnering FDA approval to commercialize domestically and put Sanuwave in the heart of the multi-billion dollar industry.

Why should industry peers consider Sanuwave a threat? Namely because its product is expected to produce more robust results and do so at a significantly lower price. In fact, at about $3,700 for a 12-week regime, it is 68 percent less expensive than Shire’s Dermagraft. Compared to Kinetic Concepts’ Negative Pressure Wound Therapy VAC System, a far more uncomfortable treatment, dermaPACE is about 74 percent less costly.

While the focus of this article has been on dermaPACE, it should also be duly noted that Sanuwave is not a “one-trick-pony.” The company also has orthoPACE, which is CE marked for international markets for orthopedic and musculoskeletal indications, and OssaTron, an FDA-approved device for multiple orthopedic conditions that have been unresponsive to conservative treatment. It’s presumable that the company will push sales efforts on these assets as dermaPACE becomes a bit more self-sustained in the revenue generation stage.

At AllPennyStocks.com, we see value in companies at many levels, but our core competency is spotting juniors that are well positioned to make a stronger move. Sanuwave shares started an uphill trek at the beginning of 2013 just over a dime each and haven’t looked back since as more investors discover this revenue generating company in a multi-billion-dollar industry with only a $32 million market cap that could become a legitimate player in diabetes. The opportunity is there. The products are there. If the company continues to execute, it will be there too. Proper due diligence is, as always, encouraged.

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