By Mary Welch

In a deal worth up to $50 million, Aradigm Corp. and Novo Nordisk A/S will jointly develop the AERx Diabetes Management System, which delivers insulin to the bloodstream without using needles. The inhalant system should be ready for Phase II trials by the end of the year.

Aradigm, of Hayward, Calif., could receive up to $50 million in milestone payments and equity investments from Novo. Aradigm, which posted first-quarter 1998 revenues of $2.7 million, received $4 million in cash up front. Novo, of Bagsvaerd, Denmark, also purchased 300,000 Aradigm shares for $5 million and agreed to buy another $5 million worth of stock in the future.

Aradigm's President and CEO Richard Thompson said the company has 11.7 million shares outstanding.

As part of the agreement, Novo has an option to develop the inhaler technology in two undisclosed therapeutic areas outside diabetes. The Danish company also holds the exclusive rights to worldwide marketing of any products resulting from the partnership.

Novo will fund all product development costs, and the two firms will co-fund the final development of the AERx diabetes system. Initially, Aradigm will be the manufacturer of all products, and will receive a share of the overall gross profits resulting from sales.

Of the nearly 16 million diabetes patients— or about six percent of the U.S. population — almost 5.4 million people are unaware they have the disease. The most common form is Type II, which is caused by impairment in the body's ability to efficiently manufacture or properly use insulin. Although patients try diet modification, weight loss and exercise to control the disease, it is not unusual for patients ultimately to need daily insulin shots to manage their blood sugar levels.

Type I diabetes is much more severe and requires three or more daily insulin shots to stabilize blood sugar levels. Many of these patients eventually suffer eye, kidney, circulation and nerve problems.

AERx To Address Insulin Delivery Problems

Adding to the discomfort of injecting insulin is the inconvenience of having to inject an hour prior to eating in order to have the insulin in the body at about the same time the glucose from the food circulates. Glucose is brought into body's bloodstream from digested food, and the insulin, which reduces the sugar level, must also be present in the bloodstream to counteract the glucose and maintain the body's sugar equilibrium.

The timing of the injection is important. For example, if a diabetic takes an insulin injection expecting to eat in an hour at a restaurant, but the dinner reservation is delayed, the body's sugar rate will get too high. Potentially, the person could pass out.

The AERx system would eliminate that problem. The insulin is in the form of small liquid tablets that are inserted into the electronic inhaler. The patient controls how many doses or tablets are taken. The patient puts the inhaler into the mouth and breaths. A red light signals the breathing is too fast; when the green light comes on, the dosage is fired quickly through the inhaler and released into the mouth as an aerosol.

The company is working on an audio system for visually impaired patients — blindness is a side effect of severe diabetes.

It is important that the patient breathe slowly and deeply otherwise the dosage will not get into the lower part of the lungs and therefore will not be fully absorbed into the bloodstream. Since the insulin is released almost immediately into the bloodstream, a diabetic can take the dosage right before eating, eliminating any timing problem as well as the injection.

"This system is reliable and delivers the insulin in the proper dosage deep into the lungs where it instantly enters the blood system," said Thompson. "We all know that insulin is an approved drug, and there have been no reported side effects from inhaling the insulin. We expect to have no problems in our upcoming Phase II trials, and going into Phase III and going through the process with the FDA for approval. We have no timetables for Phase III or filing with the FDA."

Other Products Attack Pain, Asthma

The system also has a memory device that registers how many times the patient used the inhaler and at what doses. "This is the first time a doctor can truly monitor a patient's insulin regime and determine how well the therapy is working," Thompson said.

Aradigm is currently in Phase II trials to test the AERx Pain Management System in collaboration with London-based SmithKline Beecham plc to deliver morphine sulfate for severe pain. The company's SmartMist Respiratory Management System, which is FDA approved, uses an inhaler to give medication to asthma sufferers. The company is currently seeking a distribution partner.

Wall Street reaction was muted as Aradigm's stock (NASDAQ:ARDM) Wednesday went down $0.687 to $13.937. Novo's shares (NYSE:NVO) ended the day at $77.25, down $0.625. *