Valeritas files to go public on NASDAQ, seeks to raise up to $90 million – February 17, 2015

On Thursday, Valeritas filed to go public on the NASDAQ (symbol: VLRX), seeking to raise up to $90 million in its initial public offering. We had been expecting the IPO filing ever since the company’s JPM 2014 presentation, though it came a bit later than the original “2H14” expectation. The full S-1 form is posted here, and from it, we learned many details about Valeritas’ business and plans for the V-Go disposable insulin delivery device:

• Approximately 12,000 patients with type 2 diabetes were using the V-Go as of September 30, 2014.
• There were approximately 58,000 V-Go prescriptions filled during the first nine months of 2014. Since regionally launching the V-Go in the US in 2012, the total number of prescriptions and patients using the device has increased each quarter.
• Sales in the first nine months of 2014 totaled $9.5 million, nearly triple sales of $3.6 million during the same time period in 2013. Sales were $0.6 million in 2012, the first year of the V-Go’s commercialization. The US rollout has been regional thus far.
• More than 70% of commercially insured lives in the US and more than 60% of lives insured by Medicare are covered for V-Go. V-Go is not considered DME and is therefore not subject to Medicare Part B. Instead, it is reimbursed like a drug under Part D.
• V-Go is available through retail and mail order pharmacies (unlike many other insulin delivery devices). Over 90% of V-Go prescriptions are filled by pharmacies.
• Net loss was $49.7 million in the first nine months of 2014, a 17% improvement from $60 million in the first nine months of 2013.
• Valeritas has 125 employees, including 87 in its commercial organization.
• A next-gen pre-filled V-Go is in development. This will feature a separate, pre-filled insulin cartridge that can be inserted by the patient into the V-Go, eliminating the current need to manually fill the device with insulin each day.

We’d note that this news comes just one week after Asante’s planned IPO was postponed. For comparison, Valeritas has filed to go public at a later commercial stage than Asante (sales of $9.5 million vs. $1 million for Asante 1Q-3Q14), but at an earlier stage than Tandem ($18.7 million in sales 1Q13-3Q13 before going public in 4Q13). Below, we discuss the company’s plans and upside (including a SWOT analysis) and detail the increasingly competitive insulin delivery landscape for type 2 diabetes.

• The IPO funds will be used to advance Valeritas’ short-term objectives: (i) add sales representatives for continued US regional expansion; (ii) increase marketing efforts to drive awareness; (iii) expand third-party reimbursement; and (iv) leverage scalable manufacturing operations to improve gross margin.
• The company’s longer-term objectives include: (i) establish a national US footprint and explore international expansion; (ii) capture improved economics through the commercialization of the Pre-Fill V-Go (e.g., revenue from selling insulin, expanding market to non-insulin users); and (iii) advance its drug delivery technologies into other therapeutic areas (i.e., similar to Insulet’s approach).
• We believe Valeritas has potential to expand the number of patients on more physiologic insulin delivery, especially type 2s struggling on MDI. Valeritas believes its near-term target market is ~4.6 million US patients on insulin that have not been able to achieve an A1c <7%. The figure comes from its estimate that that of the ~5.8 million US type 2s on insulin, 79% are not able to reach their glycemic goal, per a 27,897-patient database study presented at the 2012 Annual Meeting of the American College of Clinical Pharmacy – we’re not sure of the specifics of this study and whether 79% is the best number to use. Of course, the exact number is less important than the bigger point: Valeritas has a ~12,000-patient base and there are millions who need help. Longer-term, Valeritas believes “the majority” of the 12.8 million US adults on more than one daily oral or an injectable diabetes medicine can benefit from V-Go.
• The V-Go does have a slew of advantages that make it an attractive option for type 2 patients and payers: very low cost (often competitive with insulin pens) and reimbursement like a drug (non-DME, unlike insulin pumps); disposable, with low manufacturing costs (all mechanical) and high potential to scale; higher simplicity of use vs. MDI and full-featured pumps; higher discretion vs. MDI (on-device bolus button works through clothing); retail/mail-order pharmacy distribution; the need for only one type of insulin (vs. MDI); and some encouraging early clinical data (AACE 2014).
• That said, the V-Go does have some drawbacks: 24-hour wear is a greater hassle compared to traditional pumps (though likely lower hassle than MDI), and along with it, the need to manually feel insulin each day (to be solved with the Pre-Fill V-Go). As we understand it, many see the 24-hour wear as a benefit when compared to pens. Valeritas explored this very early in development and chose 24-hours very specifically. Some have also criticized the maximum 76-unit/day reservoir size as too small for many type 2s; of course, there are a sizeable number of MDI patients for whom that size is just fine.

Table 1: Valeritas’ Strengths, Weaknesses, Opportunities, and Threats

Table 2: Type 2 Insulin Delivery Device Landscape

• The type 2 insulin delivery marketplace gets more competitive by the day. Near-term, it will be interesting to see how Tandem rolls out its recently FDA approved t:slim with a larger 480-unit reservoir. Meanwhile, an EU launch of CeQur’s PaQ is expected this year, and launch of J&J/Calibra’s Finesse is expected in 2016. Longer-term, Insulet has an ongoing partnership with Lilly to develop a U-500 insulin OmniPod (clinical study to commence in mid-2015). Bigger unknowns are Medtronic (a newly created type 2 business unit and partnership with Sanofi) and BD (investing in patch technology internally).

• As a reminder, the V-Go is a disposable, wearable insulin delivery device that operates for 24 hours without electronics, batteries, infusion sets, or programming. It received FDA 510(k) clearance in 2010 and a CE Mark in 2011. Each day prior to applying V-Go, a patient fills it with insulin using a filling accessory (“EZ Fill). V-Go uses a single type of fast-acting insulin (Humalog or NovoLog), and is available in a preset basal rate to continuously deliver 20, 30 or 40 units of insulin in one 24-hour period and on-demand bolus dosing in two unit increments (up to 36 units per 24-hour time period) = maximum reservoir of 76 units.
  
  • A patient adheres V-Go to his or her skin and presses a button that inserts a small needle to commence a continuous preset basal rate of insulin (20, 30, or 40 units per day). At mealtimes, a patient can discreetly press the bolus-ready button through clothing to unlock V-Go’s bolus function and another button to deliver on-demand bolus dosing. After 24 hours of use, the push of a button retracts the needle and allows removal of V-Go from the skin. It is disposed and replaced with a new insulin-filled V-Go for the next 24 hours.

Close Concerns Questions

Q: To what extent will the following therapies impact uptake of the V-Go: MannKind/Sanofi’s Afrezza, SGLT-2 inhibitors, improved GLP-1 agonists, and GLP-1/insulin combinations (Xultophy, Lixi-Lan)?

Q: Should Valeritas partner to leverage an existing sales force, rather than building its own?

Q: How much upside is there to be gained from the Pre-Fill V-Go vs. other innovations Valeritas could take on (e.g., smaller form factor, longer wear time, etc.)?

Q: How many patients with type 2 diabetes will be willing to wear a delivery device on the body?

Q: Will Valeritas’ IPO actually hit the market? Will Asante end up going public following the postponed IPO?

Q: Can the market support seven public companies selling insulin delivery devices? (Medtronic, Insulet, J&J, Roche, Tandem, Asante, and Valeritas)

-- by Adam Brown and Kelly Close