Would you rather pop a pill in your mouth or get a shot in the arm?

Dumb question, but it explains the interest in Emisphere Technologies ( EMIS). For the last 10 years, the small biotech firm has toiled over a technology that turns injectable drugs into pill or liquid form. The company says it's finally on the cusp of its first real breakthrough -- a cheap and easy-to-take liquid form of the widely used blood-thinning drug heparin.

If Emisphere succeeds with oral heparin, it could grab a sizeable chunk of a $2 billion market. But the real prize is still out there for the taking: the use of Emisphere's oral drug carrier technology to develop insulin in a pill form. That's right, diabetics might just be able substitute an easy-to-swallow pill for some -- not all -- of their daily insulin shots.

"This oral insulin product has the potential to make an enormous improvement in the lives of patients," says Emisphere's CEO Michael Goldberg. "There are 150 million diabetics worldwide and the market is growing. We want to get our product out as soon as possible," he adds, hinting that a lucrative deal with a big pharmaceutical partner is in the works.

But Emisphere has its doubters. There are good reasons why so many drugs are given by injection rather than orally. The large molecular structure of these drugs, combined with the inhospitable environment of the digestive tract, renders them inert or blocks them from entering the bloodstream. Emisphere's technology can't overcome these obstacles with enough reliability to meet the standards required for Food and Drug Administration approval, critics say.

Looking for Friends

And because Emisphere is a relatively small company, it needs bigger partners to turn any of its products into commercial successes. Yet its history on this front is lackluster, at best. The fact that Emisphere is still single, despite making what it claims is significant progress with its "oral carrier technology," indicates that Big Pharma doesn't have much confidence.

Shares of Emisphere reached a 52-week high of $33.20 per share on Dec. 31, but since have fallen 45% to $18.39. And the short interest in the stock has grown to 2.25 million shares, or 13% of outstanding shares, in January from 1.5 million shares in December.

Oral heparin is Emisphere's most advanced product, so as a proof of concept, its success or failure largely will determine the company's fortunes. Results from a completed late-stage test in almost 2,300 patients will be released in the second quarter. A second but smaller, late-stage test is starting soon.

Heparin is most commonly given to surgery patients -- think elderly people getting a hip joint replaced -- to temporarily thin the blood and prevent dangerous blood clots from forming. The most widely prescribed form of the drug is Aventis' ( AVE) Lovenox, which is given as a daily injection for about two or three weeks after surgery. Patients, once they leave the hospital, inject themselves or use the services of a visiting nurse.

In its clinical trials, Emisphere must prove that a more convenient oral heparin -- taken three times a day for 30 days -- is superior to Lovenox, measured by the number of hip replacement patients who end up with blood clots in their legs.

Test results are still under wraps, but in recent corporate presentations, Emisphere executives have expressed optimism because the rate of overall serious adverse events in both arms of the trial is very low. Goldberg explains that the study is blinded, but if oral heparin wasn't working, some patients in the study would be showing up with blood clots. That's not happening.

"I think we're showing that oral heparin is more convenient to take and therefore we're able to get better patient compliance," he says.

J.P. Morgan biotech analyst Corey Davis, Wall Street's biggest Emisphere bull, says in a recent report that "we view the data that have been generated so far from the Phase 3 liquid heparin trial to be extremely favorable," saying that an approval application for the drug should be filed with the FDA by early next year and a marketing partner for the product will be signed within the next 12 months. Davis rates Emisphere a buy and his firm has a banking relationship with the company.

Proceed With Caution

But there are some important red flags to consider. Emisphere's oral heparin liquid combines the company's unique drug carrier with common unfractionated heparin to allow the correct dose to pass through the digestive tract into the bloodstream. Most importantly, the company claims that all patients can take the same dose of oral heparin without the need for monitoring.

To some, such claims don't make scientific sense. Unfractionated heparin is notoriously difficult to control, so patients taking it must be monitored frequently to make sure they're receiving the correct dose. By comparison, Lovenox is a low molecular weight heparin and can be given as a standard dose without worry.

"Unfractionated heparin is highly variable in terms of potency, so my big concern with what Emisphere is doing is whether their technology can demonstrate the ability to deliver a consistent and correct dose for each patient," says Dr. William Colman, assistant professor of orthopedic surgery at the University of California, San Francisco. (He has no investment position in Emisphere.)

Like most surgeons, Colman routinely prescribes Lovenox to his patients. He doesn't encounter many problems with his patients adhering to this regimen, and doesn't see how taking an oral heparin three times a day instead will vastly improve compliance.

"Taking something three times a day is tough to do even for the most vigilant patient," he says. "And with this product, if you forget, that's a problem."

There were also problems encountered during the recently completed Emisphere clinical trial. Patient enrollment was slower than expected and the drop-out rate was a remarkably high 32%. This forced the company to change the trial's protocol -- a classic biotech red flag -- as well as move much of the patient testing into Russia and other Eastern European countries, where the quality of test data might not meet stricter FDA standards.

And Emisphere has a very tough hurdle to leap: Oral heparin must prove itself statistically superior to Lovenox, not just equivalent, in order for the trial to be deemed a success.

Finally, Emisphere's Goldberg has a reputation for making partnership promises he can't keep. In the spring of 2000, Emisphere had investors buzzing -- and its stock jumping -- on expectations of a lucrative Big Pharma deal for oral heparin. But Goldberg disappointed Wall Street by signing a flimsy deal with Dupont Pharmaceuticals -- since acquired by Bristol-Myers Squibb ( BMY) -- that was dead on arrival and eventually disbanded.

Now, Goldberg is back insisting that Big Pharma is very interested in Emisphere's oral insulin product, which is still in early stage testing. He wouldn't confirm rumors that a joint venture of Pfizer ( PFE) and Aventis is one of the interested parties, but he wouldn't exactly deny it either.

But the pharmaceutical industry's enthusiasm for entering into deals with biotech companies developing risky or unproven technology certainly has been dampened because of the imbroglio between Bristol-Myers Squibb and Imclone Systems ( IMCL).

"Emisphere is going to have a real problem finding a partner because there are just too many unanswered questions about its technology," says one hedge fund manager, who's been short Emisphere. "And even if they do sign a Big Pharma partner, I think the terms of the deal won't be lucrative for the company until it actually proves itself."