UPDATE 1-Generex signs insulin deal with S Korea's Dongsung

(Adds details)

TORONTO, Aug 25 (Reuters) - Generex Biotechnology Corp (GNBT.O) signed a licensing agreement with one of South Korea's biggest drug companies, allowing its oral insulin spray to be sold in the country, which has one of the highest rates of diabetes.

The $1.5 million agreement with Dongsung Pharmaceutical Co (002210.KS) provides for an up-front payment of $500,000, another $500,000 milestone payment once the product is launched and a final $500,000 following the initial order for the drug.

The agreement gives Dongsung full licensing rights for Oral-lyn which is absorbed into the body through the lining of the mouth.

"In Asia, diabetes has become a problem," said Anna Gluskin, chief executive of Generex. "With the economy doing better and people making a lot more money, they are getting all the ills of a developing society."

Shares of the small Toronto-based biotech, which have dropped 42 percent this year following an industry-wide concern over inhaled insulin products, were up 2.7 percent at 75 cents on Nasdaq.

Phase 3 trials of the treatment, which is already approved for sale in India and Ecuador, began last month in the United States, Canada, Russia and Eastern Europe.

The six-month trial will study up to 750 patients with Type-1 diabetes. ($1=$1.05 Canadian) (Reporting by Scott Anderson; editing by Rob Wilson)