Memorandum

Valeritas 1Q18 – Record revenue of $6.1 million up 32% YOY; Bluetooth V-Go SIM available in US by 1H19; 15 millionth device sold – May 11, 2018

    Executive Highlights

    • Valeritas reported revenue of $6.1 million for 1Q18, marking three quarters of consecutive record-high sales. Revenue rose 32% YOY on an easy comparison to an 8% decline in 1Q17. Sales increased 5% sequentially from the previous record high of $5.8 million in 4Q17. Management reiterated previous 2018 guidance of $26-$28 million – that doesn’t require much sequential growth at all and seems eminently doable.

    • Cash stood at $14.5 million at the end of 1Q18, reflecting a $11.5 million burn in 1Q18. As of May 7, the company has $36.4 million in cash on hand following net proceeds of ~$24.1 from a public offering that took place after the end of the quarter. Assuming current burn continues, this is enough cash for ~3-4 quarters.

    • Valeritas passed 15 million V-Gos sold in April. It has been nearly 1.5 years since the 10 millionth was sold in October 2016.

    • Management highlighted Valeritas’ recently announced agreement to provide future users of the Bluetooth-enabled V-Go SIM dose capture accessory with free access to Glooko’s platform. V-Go SIM is now slated to launch in the US in 1H19, a slight delay from the previous plan to limited launch by the end of this year.

    • Valeritas signed distribution agreements in Australia and New Zealand, continuing an early international foray. A launch “at some scale” in these countries is expected before the end of 3Q18. V-Go’s launch in Italy is anticipated for after the summer. Management does not expect meaningful revenue generated from Puerto Rico sales until 4Q18, and from international sales at all until 2019.

    Valeritas reported its 1Q18 financial update in a call led by CEO Mr. John Timberlake. The company posted revenue of $6.1 million, marking the third consecutive quarter of record-high sales and the first time breaking $6 million. Revenue grew a whopping 32% YOY on an easy comparison to an 8% decline in 1Q17. Sales increased 5% sequentially from the previous record high of $5.8 million in 4Q17. During Q&A, Mr. Timberlake noted that increased volume drove ~55% of YOY growth, while slightly increased net selling price contributed the remaining ~45%.

    With regard to volume, Valeritas surpassed 15 million V-Go devices shipped, nearly a year-and-a-half after selling number 10 million in October 2016. Most of these devices were presumably sold to targeted accounts, where total and new prescriptions rose 20% and 17% YOY, respectively. In non-targeted accounts, total and new prescriptions fell 10% and 5% YOY, respectively. Management reiterated previous 2018 guidance of $26-$28 million for 2018, assuming continued growth in targeted accounts and no further decline in non-targeted accounts, which have begun to stabilize.

    Valeritas ended the quarter with $14.5 million in cash, reflecting an $11.5 million burn in 1Q18. Following net proceeds of ~$24.1 million from the company’s recent public offering, total cash and cash equivalents more than doubled to $36.4 million as of May 7. During prepared remarks, CFO Mr. Erick Lucera noted that the cash raised will go towards working capital and “other general corporate purposes.” At the current burn rate, the company has ~3-4 quarters of cash on hand.

    Mr. Timberlake highlighted Valeritas’ recently announced agreement with Glooko to provide future users of the Bluetooth -enabled V-Go SIM (Simple Insulin Management) dose capture accessory with free access to Glooko’s cloud-based mobile and web diabetes data platform. He anticipated widespread V-Go SIM availability in the US in 1H19, slightly delayed from February’s guidance for a limited launch by the end of 2018.

    Mr. Timberlake emphasized V-Go SIM’s “very slim profile” – a critical feature in remaining attractive to the type 2 market. He also characterized “simplicity of use” as a “key component” for V-Go SIM, underscoring that the objective is not “to micromanage each dose,” but rather to discretely capture information for patients and providers capable of driving periodic behavior change. Although patients will have free Glooko access, during Q&A, Mr. Timberlake stipulated that cost for providers will be determined “on a physician basis,” as many clinics already use Glooko. As a reminder, BD’s Swatch type 2 patch pump and Insulet/Lilly’s U500 Omnipod – both with connectivity – are expected to launch by “September 2019” (BD) and in “2019” (Insulet). Go-to-market strategy will be critical for all of these products. V-Go and Insulet already derive some of their business through retail pharmacies, and it sounds like BD will strive to do the same with Swatch – this trend should reduce the friction of obtaining pump supplies (relative to DME). Boy is there a lot happening in this field.

    Mr. Timberlake noted that along with Puerto Rico and Italy, Valeritas recently signed V-Go distribution agreements in Australia and New Zealand. A launch “at some scale” is expected in Australia and New Zealand before the end of 3Q18. Puerto Rico sales are not expected to generate meaningful revenue until 4Q18, while a V-Go launch in Italy is anticipated for after the summer. During Q&A, Mr. Timberlake remarked that “meaningful” international revenue is not expected until 2019.

    • There was no mention of Valeritas’ progress on its pre-filled V-Go. In February, Mr. Timberlake noted that of Valeritas’ R&D efforts, V-Go Link (now dubbed SIM) will be first to market, meaning that we shouldn’t expect a pre-filled V-Go launch until at least 2H19. Of course, this could change.

    • During prepared remarks, Mr. Timberlake highlighted new V-Go data presented at the AMCP Managed Care and Specialty Pharmacy Annual Meeting in April. The retrospective, multi-center study (n=283) collected real-world EMR data and found significant improvements in A1c (baseline 9.2%) and total daily dose (TDD) at seven months. 23% of V-Go users achieved an A1c <7%. V-Go also doubled the number with an A1c of <8%, which was 52% with the device vs. 24% at baseline. Mr. Timberlake noted that additional data have been accepted at the upcoming AACE and ADA meetings.

    Valeritas Quarterly Revenue (2Q15-1Q18)

     

    -- by Maeve Serino, Brian Levine, Adam Brown, and Kelly Close