Memorandum

Lilly invests $5 million in Beta Bionics, new public benefit corporation to commercialize BU’s iLet Bionic Pancreas; interview with CEO Dr. Ed Damiano and Lilly’s Deirdre Ibsen – April 1, 2016

Executive Highlights

  • In a wide-ranging interview with Dr. Ed Damiano, we learned that “Beta Bionics” has been incorporated in Massachusetts as a public benefit corporation to commercialize BU’s iLet Bionic Pancreas. The company’s website went live moments ago. Dr. Ed Damiano will serve as Beta Bionics’ President/CEO and retain his faculty position at BU – quite a coup (for them both). The Board of Directors notably includes Lilly’s Global Brand Development Leader Deirdre Ibsen, VP Public Benefit Development & Corporate Strategy Ed Raskin, and Children with Diabetes founder and diabetes advocate Mr. Jeff Hitchcock. Beta Bionics has exclusively licensed all of the bionic pancreas-related IP from BU.
  • Lilly has invested $5 million in Beta Bionics, a meaningful vote of confidence in the team, continuing a greater move into devices, supporting a vehicle for better delivering insulin and glucagon, and expanding the broadest drug portfolio in diabetes.
  • Beta Bionics plans to test a Gen 3 version of the fully integrated iLet dual-chamber pump in a four-site bridging study in 4Q16. A pivotal study of the iLet is expected in 2Q17 and will include insulin-only and insulin+glucagon arms. The team has submitted a proposal to fund the pivotal study through the NIH’s reissued UC4 grant for advanced artificial pancreas studies (“up to $20 million” for 1-3 awards). A score is expected mid-year.

In advance of Dr. Ed Damiano’s presentation today at ENDO, we had a chance to hear his plans to commercialize the Bionic Pancreas via a new public benefit corporation, Beta Bionics. The company’s website went live this morning. We include top highlights from our lengthy interview below, and also include parts of a separate conversation with Lilly’s Global Brand Development Leader Deirdre Ibsen.

1. Beta Bionics was incorporated in October as a Massachusetts public benefit corporation to commercialize BU’s iLet Bionic Pancreas. The unique structure blends advantages from both for-profit and non-profit organizations: (i) the ability to raise capital like a for-profit company; and (ii) a mission-driven focus that supersedes the mandate to maximize returns to shareholders. Dr. Ed Damiano will retain his faculty position at BU and serve as Beta Bionics’ President/CEO. The Board of Directors also includes Benefit Director Jeff Hitchcock, Lilly’s Global Brand Development Leader Deirdre Ibsen, and VP Public Benefit Development & Corporate Strategy Ed Raskin. Dr. Steve Russell remains very closely involved with the development of the bionic pancreas, and is a leading advisor to the company rather than an employee, which enables him to continue to lead the clinical studies. Beta Bionics has exclusively licensed all of the bionic pancreas-related IP from BU.

2. Lilly has invested $5 million in Beta Bionics, a major vote of confidence in the team, continuing a greater move into devices by Lilly (Insulet, Companion Medical, Locemia, Cambridge innovation center), supporting a vehicle for better delivering insulin and glucagon, and expanding the broadest drug portfolio in diabetes. Ms. Ibsen expressed great enthusiasm for the partnership in our interview with her, characterizing the investment as a “a no-brainer” for Lilly. As Lilly Diabetes head Mr. Enrique Conterno put it, "We are very impressed with Ed's work, and his progress made the decision to invest in Beta Bionics an easy one. Finding new and improved ways to deliver insulin and glucagon is an important priority for Lilly and another way to make life better for people with diabetes. We look forward to Beta Bionics' continued progress."

3. Beta Bionics plans to test a Gen 3 version of the fully integrated iLet dual-chamber pump in a four-site bridging study in 4Q16. A recently completed eight-hour feasibility study (n=10) tested a second-gen version of the iLet device in humans for the first time – results were mostly positive but did uncover a problem with the dual cannula infusion set that has now been fixed. Following an FDA discussion and infusion set improvement, this study will be repeated in the coming months. Dr. Damiano first unveiled the fully integrated first-gen prototype iLet device at FFL 2015, which has since been made ~33% smaller and added a glass capacitive touchscreen (picture below).

4. A pivotal study of the iLet is expected in 2Q17 and will include insulin-only and insulin+glucagon arms. Consistent with ATTD, the plan is still to release an insulin-only Bionic Pancreas first, with glucagon to be added later once chronic exposure data is gathered in the pivotal study. We assume an insulin-only FDA submission could occur as early as late 2017, meaning approval of the iLet could come sometime in 2018. The team has submitted a proposal to mostly fund the pivotal study through the NIH’s reissued UC4 grant for advanced artificial pancreas studies (“up to $20 million” for 1-3 awards). A score is expected mid-year. Beta Bionics needs an estimated $35 million to get through the pivotal trial. This should be easier to raise using its new structure than using the nonprofit model, which has several limitations.

5. Beta Bionics has many strengths after ten years developing its algorithm and numerous clinical trials, though there is still much to prove in an increasingly competitive environment. We share below our views of the company’s strengths, weaknesses, opportunities, and threats, followed by an automated insulin delivery competitive landscape. Beta Bionics’ pivotal timing puts it ~18 months behind Medtronic’s MiniMed 670G (pivotal complete) and roughly on par with planned 2017 pivotal studies for Bigfoot Biomedical, Tandem, Insulet, and TypeZero/IDCL.

Top Five Highlights

1. Beta Bionics was incorporated in October as a Massachusetts public benefit corporation to commercialize BU’s iLet Bionic Pancreas (24-hour, hybrid or fully closed loop, insulin-only or insulin+glucagon, dual chambered iLet pump with built-in algorithm, Dexcom CGM, custom dual-cannula infusion set). Beta Bionics holds the exclusive rights to all the intellectual property previously owned by Boston University, including patents on the algorithm, iLet device, and custom infusion set. A contract manufacturer will build the iLet pump and infusion set, while Beta Bionics will submit it for regulatory approval (late 2017 at the earliest) and commercialize the device.

  • The public benefit corporation blends advantages from both for-profit and non-profit organizations: (i) the ability to raise capital like a for-profit company (e.g., VCs, private equity, stock); (ii) a mission-driven focus that supersedes the mandate to maximize returns to shareholders (in this case, Beta Bionics aims to bring the technology to as many type 1s as possible); and (iii) the ability to form strategic partnerships (e.g., with Lilly; see below). The law was first passed in Maryland in 2010 and has now expanded to 30 states. More details on the structure are here. Notably, mission-driven outdoor gear company Patagonia converted to a B Corp a few years ago – this example seems apt.
  • We have long assumed that the Boston team would form a company to commercialize the Bionic Pancreas, and the name Beta Bionics was first mentioned in Dr. Damiano’s dessert with the faculty presentation at Friends for Life 2012. Dr. Damiano trademarked Beta Bionics back in December 2012. The logo is very smart, combining the Greek letters β and α to reflect the dual-hormone design (insulin and glucagon from the beta and alpha cells). Notably, the blue “o” has the three stations of the closed loop paradigm (CGM, pump, algorithm) superimposed on the blue international symbol for diabetes.  

  • Dr. Ed Damiano will retain his faculty position at Boston University and serve as Beta Bionics President and CEO. This is pretty amazing that he could pull this off. The Board of Directors also includes Benefit Director Jeff Hitchcock (what an amazing choice to make sure the company carries out its mission!), Lilly’s Global Brand Development Leader Deirdre Ibsen, and VP Public Benefit Development & Corporate Strategy Ed Raskin. Dr. Damiano has recruited Chief Operating Officer Gibb Clarke (previous experience as a CEO in the neurovascular space, achieved approval and commercialization of devices with CE mark or 510(k) clearance) and Dr. Firas El-Khatib will lead R&D (co-developer of the BU Bionic Pancreas algorithm).  Firas is quite brilliant and makes an incredible team with Ed, as does Dr. Steve Russell of Mass General, who has been the lead endo working with Drs. Damiano and El-Khatib. Dr. Russell is now an advisor to Beta Bionics and is the protocol chair for the pivotal studies. Another T1D parent and attorney, Serafina Raskin, is the Company’s Vice President, General Counsel, and Corporate Secretary. Notably, Dr. Russell has remained very closely involved with the development of the bionic pancreas, but he declined an equity stake in the company and any official position in Beta Bionics so that he was able to continue to lead the clinical studies, which he would not otherwise have been able to do. Dr. Russell would have had to give up his academic career had he formally joined Beta Bionics; it’s very good for patients he is not doing this in our view. The recent iLet feasibility study (see below) was done at MGH in record time as we understand it, and Dr. Russell will be leading the repeat as well.
  • “We’re not wedded to the technology; we’re wedded to people with type 1 diabetes,” emphasized Dr. Damiano in our phone conversation. Beta Bionics will avoid exclusive technology arrangements and is committed and obliged to use every available technology (e.g., we assume it could switch CGMs, pump mechanisms, etc.). Dr. Damiano sees innovation happening on a three-year time scale instead of the slower cycles in traditional med tech.
  • Beta Bionics will be both a public benefit corporation under Massachusetts state law and certified as a “B Corp” by B Lab (www.benefitcorp.net). While the two are sometimes used synonymously, they are different. B Corp is a third party assessment tool and support structure for socially minded business enterprises of all kinds (LLC’s Partnerships, etc.); public benefit corporations exist under state law. Beta Bionics has elected to do both, though the B Corp certification is still “pending” because it is a startup. Once Beta Bionics has been in operation for 12 months, the team expects to be fully certified under B Lab rules. Beta Bionics has exclusively licensed all of the bionic pancreas-related IP from BU.

2. Lilly has invested $5 million in Beta Bionics, a meaningful vote of confidence in the team, continuing a greater move into devices (Insulet, Companion Medical, Locemia, Cambridge innovation center), supporting a vehicle for better delivering insulin and glucagon, and expanding the broadest drug portfolio in diabetes (Tradjenta, Jardiance, Trulicity, Humalog, Basaglar, and Humulin). Lilly’s Global Brand Development Leader Deirdre Ibsen has joined Beta Bionics’ board, and there are presumably future plans for U200 insulin (enabling a smaller size device or longer use) and perhaps stabilized glucagon and ultra-fast lispro. This news caps off a huge year for Lilly following the very positive EMPA-REG CVOT results for Jardiance and strong Trulicity uptake. As Lilly Diabetes head Mr. Enrique Conterno put it, "We are very impressed with Ed's work, and his progress made the decision to invest in Beta Bionics an easy one. Finding new and improved ways to deliver insulin and glucagon is an important priority for Lilly and another way to make life better for people with diabetes. We look forward to Beta Bionics' continued progress." 

  • Ms. Ibsen expressed great enthusiasm in our interview: “For us, this investment was a no-brainer.” She remarked on how fast the iLet platform has evolved. That said, Ms. Ibsen characterized this as a “hands-off partnership” from Lilly’s perspective: “It’s all about what Ed is trying to do for patients.” Lilly has been talking to Ed for a while and has provided him with Humalog and reconstituted glucagon for some of his studies. Why the Bionic Pancreas over other automated insulin delivery groups? It’s our impression that Lilly chose this for two reasons: (i) the unique dual-hormone approach; and (ii) one of the most tested and proven algorithms out there. The Mass General endocrinology partnership has also been a very meaningful part of the system, of course.
  • This deal speaks to a potential interest in glucagon by Lilly. Lilly does make the glucagon kit and has licensed Locemia’s phase 3 intranasal glucagon for severe hypoglycemia (FDA submission within the next ~13 months). The company has a phase 1 candidate for hypoglycemia, which could presumably be a stable glucagon though Lilly has never commented on this. The Bionic Pancreas team has talked about using Xeris and Zealand glucagons, and perhaps those could be licensed to Lilly. Alternatively, Lilly may be content with providing insulin alone. The most recent Bionic Pancreas update at ATTD in February suggested the iLet will be released earlier as an insulin-only device (glucagon chamber capped off), with glucagon to be added once the pivotal study extension gathers chronic exposure data. 
  • This investment aligns very well with the strategic direction in which Lilly has been moving: the convergence of technology and biotechnology. Indeed, Lilly has ramped up its work in devices of late, including: (i) the new Trulicity pen designed with IDEO; (ii) an investment in Companion Medical last May (Bluetooth-enabled insulin pen); (iii) establishing a new Cambridge, MA-based Innovation Center with a device innovation focus (also announced last May), led by the very insightful Justin Wright (see our South by Southwest coverage in which Kelly Close led a panel of which Justin was part); and (iv) expanding the Insulet OmniPod partnership to include U200 insulin, in addition to the ongoing work with U500. Lilly’s press release on the Cambridge center said that revenues from device-enabled products would double by 2020 – this partnership fits in nicely with that goal.
  • “The bionic pancreas is a platform that makes a great drug better,” emphasized Dr. Damiano. Indeed, automated insulin delivery studies have repeatedly shown that insulin needs vary dramatically from day to day and night-to-night. It is ludicrous to expect flat glycemia every day with the manual, static insulin dosing protocols used today in type 1 diabetes; we love that automated insulin delivery can adapt to that variability seamlessly. The Bionic Pancreas algorithm, in particular, is highly adaptive – it only requires body weight to initialize and carb counting is eliminated (meals are qualitative: is this a typical, less than typical, or greater than typical meal?). Today, many devices still prompt far more work from healthcare providers – the magic will be if this prompts less work.
  • Lilly is the first of the three big insulin players to publicly invest in closing the loop, though it continues greater recent pharma interest in technology. Novo Nordisk is partnered with IBM Watson, while Sanofi is partnered with Verily (formerly Google Life Sciences). We’re glad to see pharma thinking more about digital health and technology, since the two have so much to offer each other: scale vs. fast iteration; medical experience vs. consumer mindsets; drug experience vs. hardware and software; etc. We see these partnerships as a natural progression to enhance the efficacy of diabetes drugs – as peptide innovations become more challenging and the bar for new drugs rises, there is great potential to improve outcomes through technology and data, and to improve access by providing payers with real world data demonstrating value.

3. Beta Bionics plans to test a Gen 3 version of the fully integrated iLet device and custom infusion set in a four-site bridging study in 4Q16. The study will occur at MGH, Stanford, Colorado, and Nemours and use the planned commercial iLet device (dual-chamber pump, built-in Bionic Pancreas algorithm, a Tidepool-developed user interface, and built-in Bluetooth communication with the Dexcom G5 CGM). The goal is to show the iLet performs similarly to the previous brick-like iPhone-driven research platform (two Tandem pumps, two infusion sets, iPhone hardwired to a Dexcom receiver). As a reminder, this bridging study has been funded with $1.5 million from NIH initial UC4 grant for advanced artificial pancreas studies (first disclosed at DTM 2015).

  • A recently completed eight-hour feasibility study (n=10) tested a second-gen version of the iLet device in humans for the first time. Results were positive but uncovered an issue with the custom dual-lumen infusion set (a snake bite configuration with side-by-side tubes for insulin and glucagon to flow separately). Dr. Damiano assured us that the team has a fix for this problem, and following an FDA discussion, plans to repeat this study in the coming months. Wearability and reliability with the dual-cannula infusion set are going to be very key, particularly with Medtronic/BD’s new MiniMed Pro Set with FlowSmart launching in the coming months.
  • Dr. Damiano first unveiled the fully integrated first-gen prototype iLet device at FFL 2015, and the team has since made it~33% smaller and added a glass capacitive touchscreen to improve the user experience and reduce size (see picture below). While the FFL device was very prototype – it couldn’t fit in a pocket and had resistive touchscreen – the third-gen configuration is the device Beta Bionics plans to commercialize. Dr. Damiano called the Gen 3 iLet a “beautiful piece of electronics,” and at 17 mm thin, it will fit in a pocket and be just slightly larger than Tandem’s t:slim (15 mm). We are not aware of any cloud connectivity or smartphone app, but assume this could easily be added (presumably the iLet has Bluetooth to talk to the Dexcom G5).

4. A pivotal study of the iLet is expected in 2Q17 and will include insulin-only and insulin+glucagon arms. Consistent with ATTD, the plan is still to release an insulin-only Bionic Pancreas first, with glucagon to be added later once chronic exposure data is gathered in the pivotal study (no hardware or firmware changes will be needed – the dual-hormone approach is already baked into the device). We assume an insulin-only FDA submission could occur as early as late 2017, meaning approval of the iLet could come sometime in 2018.

  • The team has submitted a proposal to mostly fund the pivotal study through the NIH’s reissued UC4 grant for advanced artificial pancreas studies (“up to $20 million” for 1-3 awards). A score is expected mid-year and Dr. Damiano shared the team’s application was much better this second time around. As a reminder, Cambridge won the largest grant the first time around [$6.4 million], followed by DREAM [$2.0 million].
  • Beta Bionics needs an estimated $35 million to get through pivotal trials ($15 million in 2016, $20 million in 2017). Presumably additional fundraising will be needed beyond the Lilly investment and any awards from NIH. Dr. Damiano has proven a master fundraiser to date and we assume the public benefit corporation structure will make this easier.
  • Remarkably, the BU team has done everything since 2006 on a shoestring $18.5 million in total. Said Dr. Damiano, “No medical device company and no pharma company can come close to being that productive on less than $20 million.”

5. Beta Bionics has some serious strengths after 10 years developing its algorithm and many ambitious clinical trials, though there is still much to prove in an increasingly competitive environment. We list below our perception of the company’s strengths, weaknesses, opportunities, and threats, followed by an automated insulin delivery competitive landscape.

  • The pivotal timing is consistent with the previous “early 2017” plan, putting Beta Bionics about 18 months behind Medtronic’s MiniMed 670G (pivotal complete) and roughly on par with planned 2017 pivotal studies for Bigfoot Biomedical, Tandem, and Insulet. TypeZero/IDCL consortium are also ahead of Beta Bionics, assuming the planned 2016 IDCL study can indeed support a PMA submission.

Beta Bionics’ Strengths, Weaknesses, Opportunities, Threats

Strengths

- Deep clinical trial experience and outstanding results to date published in respected journals

- Dr. Damiano’s drive, personal stake, media savvy

- Lilly investment, Jeff Hitchcock on Board of Directors

- Strong FDA relationship

- Dexcom CGM, Tidepool-designed iLet user interface

 - Weight-based algorithm initialization, qualitative meal bolusing, and adaptiveness

- B Corp structure opens fundraising channels but retains mission-focus

Weaknesses

- No experience manufacturing pumps or infusion sets

- No existing customer support, distribution infrastructure, or sales force

- Small team with limited available funding

- Limited clinical testing of iLet device

- Beta Bionics leadership team has not previously commercialized a PMA device

- B Corp structure is a new model in med tech – will it work?

Opportunities

- iLet device improvements: U200, faster-acting insulin

- Most type 1s not at goal, and those are have to put in lots of work

- Tremendous costs of severe hypoglycemia and high A1cs

- Highly underpenetrated pump and CGM market

- Insulin-using type 2s

Threats

- Fundraising

- FDA approval taking long than expected

- Later to market than insulin-only Medtronic MiniMed 670G and perhaps others

- Glucagon adds additional complexity and cost – is the incremental advantage high enough? Can Xeris or Zealand secure approval for chronic use? If Beta Bionics remains insulin alone, can it compete with others?

- Market of patients willing to get on automated insulin delivery may be too small to support more than a few companies

- Downward pressure on cost

- Better basal insulins in MDI, SGLT-2s in type 1, Abbott’s FreeStyle Libre

- Lack of HCP understanding, general HCP “inertia,” poor reimbursement for HCPs’ time

Automated Insulin Delivery Competitive Landscape

Company / Academic Group

Product

Latest Timing

Recent Coverage

Medtronic

- MiniMed 670G/Enlite 3 (hybrid closed loop)

- Fully automated closed loop (includes the algorithm licensed from DreaMed Diabetes)

- Pivotal study complete; FDA PMA submission before end of June; US launch expected by April 2017

- Following 670G

Pivotal study complete (March 2016)

Medtronic 4Q15 (March 2016)

ATTD 2016 (February)

Tandem

 

- Predictive low glucose suspend with Dexcom CGM

- Hypoglycemia-Hyperglycemia Minimizer with Dexcom CGM

- Pivotal trial in 2016, launch in 2017

- Pivotal study in 2017, potential launch by end of 2018

Tandem 4Q15 (February 2016)

International Diabetes Closed Loop (IDCL) Consortium (TypeZero, UVA, and nine other academic institutions)

Cellnovo + other undisclosed pump companies

Commercial grade version of DiAs hybrid closed loop algorithm that can be embedded in a pump or reside on smartphone. Will use Dexcom CGM. Trial will use multiple pumps; Cellnovo has signed on thus far.

International Diabetes Closed-Loop Trial slated to begin in 2016 at ten international sites

Six-months per person, n=240, commercial-grade DiAs vs. sensor-augmented pump therapy. FDA submission could occur after first six months of the 2.5-year study.

ATTD 2016 (February)

NIH Funded $12.7 million International Diabetes Closed Loop Trial designed with a PMA submission in mind (January 2016)

Beta Bionics

Bionic Pancreas iLet device (24-hour hybrid or fully closed loop; insulin-only or insulin+glucagon; dual chambered pump with built-in algorithm; Dexcom CGM). May launch as insulin-only product, with glucagon to be added later.

Pivotal trial to start in 2Q17

Enclosed

ATTD 2016 (February)

Bigfoot Biomedical

Asante pump body (disposable), custom built, durable, Bluetooth-enabled controller (no screen or buttons) that talks to Dexcom CGM and includes a control algorithm. Smartphone to serve as the window to the system and complete user interface.

Pivotal study in 1H17, FDA submission by the end of 2017; commercial launch by the end of 2018.

JPM 2016 (January)

Insulet

OmniPod with Mode AGC hybrid closed loop algorithm (commercial version of UCSB algorithm), built-in Bluetooth, paired with smartphone app and/or backup PDM handheld. Will use Dexcom CGM.

On-body clinical trials starting later this year, pivotal study “toward the end of 2017.”

Insulet 4Q15 (February 2016)

Animas

Hypoglycemia-Hyperglycemia Minimizer with Dexcom CGM

Currently planning pivotal study; no timing or device specifics

Animas currently planning pivotal study of hypoglycemia-hyperglycemia minimizer with FDA (March 2016)

Cambridge

Upcoming long-term studies will use Medtronic’s MiniMed 640G/Enlite 3 + Android phone running Cambridge’s MPC.

Commercialization plans unknown. Three upcoming studies ranging from three to 24 months in length.

ATTD 2016 (February)

Cellnovo

- IDCL Consortium Partner

- Diabeloop consortium partner

 

- See above

- First clinical trials were expected to start at the end of 2015, and development and CE marking programs will run until 2018

ATTD 2016 (February)

Cellnovo 4Q15 (January 2016)

Roche

Working internally on a new CGM, with future potential application to an artificial pancreas device

“On our agenda”

CGM expected to launch in EU in 2016

ATTD 2016 (February)

Close Concerns Questions

Q: How might an insulin-only Bionic Pancreas stack up against the MiniMed 670G?

Q: How much will glucagon add (lower mean glucose, less hypoglycemia, lower user demands) relative to its drawbacks (higher costs, larger device, more complexity)?

Q: What is the pump like? How much manufacturing and reliability risk is there? What about the infusion set?

Q: Will NIH fund the iLet pivotal trial?

Q: How risky is the B Corp structure? Will it work?

Q: Aside from the investment, what is the biggest upside from the Lilly partnership: U200, glucagon, board representation, etc.

Q: How will Beta Bionics build up manufacturing, distribution, and customer service?

Q: How much regulatory uncertainty is there?

Q: Will Xeris or Zealand come through with a stable glucagon?

-- by Adam Brown and Kelly Close