Memorandum

Valeritas 2Q18 – Record sales of $6.5 million rise 36% YOY; V-Go launches in New Zealand; V-Go coming to Australia, Italy in 2018 – August 7, 2018

Executive Highlights

  • Valeritas reported record revenue of $6.5 million, up 36% YOY on an easy comparison to a 2% decline in 2Q17. This marks the largest YOY growth recorded in our model to date, and also marks four consecutive quarters of YOY increases. Sales rose 7% sequentially from the previous record revenue of $6.1 million. Growth was driven by a strong 22% increase in Valeritas’ targeted prescriptions. The business has some nice momentum relative to where things were a year ago.

  • At the current ~$11 million quarterly burn rate, Valeritas has approximately three quarters of cash on hand. Cash stood at ~$33 million as of 2Q18: $14.5 million at the start of 2Q18, ~$30 million raised from stock offerings, and an ~$11 million burn.

  • Earlier this month, V-Go launched in New Zealand – the first international launch excluding Puerto Rico. Subsequent launches in Australia and Italy are expected this year, and new distribution agreements for the commercialization of V-Go in Austria, Germany, the Czech Republic, and Slovakia were signed in August.

  • Previous launch timing on Valeritas’ connected dose capture accessory, V-Go SIM, was confirmed: “by the end of 1H19.” This will launch with Glooko integration He also mentioned V-Go’s recent addition to the Cigna HealthSpring Part D plan. There was no mention of the pre-filled V-Go; in February, it was not expected until after the commercialization of V-Go SIM.

    Valeritas reported 2Q18 financial results in a call today led by CEO Mr. John Timberlake. Record-high revenue of $6.5 million rose a strong 36% YOY on an easy comparison to a 2% decline in 2Q17. This marks the largest YOY growth recorded in our Valeritas model to date (stretching back three years), two straight quarters of >30% YOY growth, and four consecutive quarters of positive YOY growth. Sequentially, sales rose a solid 7% from the previous 1Q18 record revenue of $6.1 million. The graph below shows the strongest momentum we’ve seen on the revenue side since Valeritas went public ~2.5 years ago.

    The increase in revenue was driven by strong growth in Valeritas’ targeted prescriptions. Total and new prescriptions in targeted accounts grew 22% and 18% YOY, respectively – the first time prescription YOY growth has exceeded 20%. Overall total prescriptions, which include non-targeted accounts, increased a softer 10% YOY, but still marked the first double-digit YOY growth in total prescriptions in over three years. The results, management said, are evidence of continued V-Go demand. (They also imply better sales force targeting.)

    Profitability is also improving: gross margin increased to 48% in 2Q18, up a whopping ~10 percentage points from 38% in 2Q18.

    Still, cash is a concern: the current ~$11 million quarterly burn rate leaves roughly three quarters of cash on hand. Valeritas ended the quarter with ~$33 million in cash, reflecting $14.5 million going into the quarter, ~$30 million raised in from stock offerings, and the $11 million burn. Revenue is rising nicely, so raising more money in the public markets should be more doable.

    The call reiterated 2018 guidance of $26-$28 million in full-year revenue (+29%-39% YOY), expecting a 4Q18 gross margin above 50%. Guidance assumes continued growth of targeted accounts and no further decline in non-targeted accounts.

    Mr. Timberlake underscored Valeritas’ growing international reach during prepared remarks. Earlier this month, V-Go launched in New Zealand through an exclusive distribution agreement with NZMS Diabetes. While Mr. Timberlake stipulated that “meaningful revenue” is not expected from the partnership in the near term, this news marks the international launch of V-Go (excluding Puerto Rico). Mr. Timberlake expects a launch in Australia “this calendar year,” and for the company’s Italian distributor to begin marketing to prescribers “sometime in the Fall.” Also in August, Valeritas signed a distribution agreement for the commercialization of V-Go in Austria and Germany, which combined have an estimated 8 million adults living with diabetes. Earlier this week, the distribution agreement was expanded to include commercialization in the Czech Republic and Slovakia. Launches in these four countries are not expected until 2019. Mr. Timberlake noted that Valeritas “continues to look for additional partners” for further expansion. We wonder why these particular markets were chosen – Easier to cover? Better distribution agreements? Less competition? 

    • Mr. Timberlake briefly mentioned the connected V-Go SIM (Simple Insulin Management) accessory, confirming widespread availability in the US “by the end of 1H19.” As a reminder, future users of the Bluetooth-enabled dose capture accessory will have free access to Glooko’s cloud-based mobile and web diabetes data platform. This is an important foray for the company into connectivity and dose capture, though the tradeoff will be adding some thickness to the already-large V-Go with an accessory sleeve. On the plus side, the design allows Valeritas to add dose capture while keeping the same core disposable device, the same manufacturing, and the current V-Go cost profile. Whether V-Go SIM will accelerate demand remains to be seen; perhaps the greatest asset it could have is on the payer side, and perhaps to help HCPs titrate doses.

      • Also in 2019, we expect to see launch of CeQur’s newly-acquired bolus-only Calibra Finesse (mid-2019), BD’s Swatch type 2 patch pump (by September 2019), and Insulet/Lilly’s U500 Omnipod (“2019”). Along with V-Go, all of these devices will target similar populations – type 2s on MDI – though not identical populations. The biggest segmentation points will come on customizability, reservoir size, on-body size, and access. There’s clearly room for all four players in this important space, and we’re glad to see an effort to cut down on the friction of taking insulin through injections.

    Valeritas Quarterly Revenue (2Q15-2Q18)

    • Mr. Timberlake highlighted V-Go’s recent addition to the Cigna HealthSpring Part D plan, underscoring “lower monthly copays without any additional paperwork or time.” As a reminder, all Medicare Part D beneficiaries have access to V-Go through retail pharmacies, with the majority accessing V-Go as a formulary benefit and the remainder through the medical exemption process.

    • Mr. Timberlake detailed the launch of Valeritas’ newly integrated CRM (customer relationship management) software, intended to improve patient engagement and extend the company’s reach. In Q&A, Mr. Timberlake explained that this first phase provides personalized interactions with potential V-Go users, aiming to guide patients identified by physicians through the V-Go initiation decision process. Mr. Timberlake expects a Q3 iteration of the system to help current V-Go users with “additional personalized follow-up” especially in the early weeks of use, as “the first month really drives engagement.”

    • Mr. Timberlake highlighted V-Go data presented at ADA from Valeritas’ ENABLE study. The 283-patient, retrospective, uncontrolled, real-world study examined electronic medical records in patients who switched from insulin pens and syringes to V-Go. From a baseline A1c of 9.2%, V-Go drove a 1% reduction in A1c at both three and seven months (p<0.001). From a baseline of 76 units per day, total daily dose declined by 14 units at the seven-month mark – a strong 18% reduction, especially given the robust change in A1c. The caveat, of course, is that the study was uncontrolled, though the real-world nature is encouraging and certainly backs previous posters. During Q&A, Mr. Timberlake noted that the results have been “well-received” by physicians and that the company is working towards publication.

    • There was no mention of the pre-filled V-Go. In February, Mr. Timberlake mentioned that of Valeritas’ R&D efforts, the Bluetooth-enabled V-Go SIM sleeve would be first to market. Prefilled will presumably require a partnership with an insulin company, a fairly long-road unless things are happening behind the scenes.

     

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