ViaCyte announces $20 million rights agreement with Janssen, potential for future transaction – August 27, 2014

ViaCyte announced late last week that it has signed a rights agreement with Janssen for VC-01, ViaCyte’s stem cell-derived islet replacement therapy for type 1 diabetes (pancreatic progenitor cells encapsulated in an implanted immune protective device). ViaCyte received $20 million from Janssen and Johnson & Johnson Development Corporation (JJDC) upon the signing of the agreement, which will help the small company accelerate clinical development. In exchange, Janssen has a “future right to evaluate a transaction” related to VC-01 through the “initial evaluation of clinical efficacy” – we assume this means Janssen has an exclusive option to license/acquire the technology as early studies progress. The $20 million payment included a rights fee and a note convertible into equity at a later date. Notably, JJDC has been a long-standing investor in ViaCyte.

Though there are few specifics on the deal, we think it makes a lot of sense for both companies. For ViaCyte, the company can now move ahead faster on its initial human studies of VC-01 – getting to clinical development alone has required over $55 million, and we imagine the slew of upcoming human studies will be even more expensive. For J&J/Janssen, ViaCyte’s therapy would provide a nice addition to a portfolio that already includes the SGLT-2 inhibitor Invokana, the LifeScan BGM franchise, the Calibra insulin delivery patch, and Animas insulin pumps. This also signals a major vote of confidence in ViaCyte at this early stage of development, given that no human trials have taken place. We assume Janssen’s experienced R&D team could help advise ViaCyte on trial design and regulatory proceedings.

This news follows ViaCyte’s announcement last Tuesday that the FDA has accepted its Investigational New Drug Application (IND) for VC-01. The company plans to “promptly” initiate a phase 1/2 clinical trial to evaluate the device’s safety and efficacy in approximately 40 patients with type 1 diabetes. The trial’s primary efficacy endpoint will be C-peptide levels, and secondary endpoints will relate to the need for insulin administration and rates of hypoglycemia. We assume the trial would be of short duration (e.g., three or six months); it is not yet posted on ClinicalTrials.gov.

• JDRF has highly publicized ViaCyte’s recent updates, putting out its own press releases following the IND filing and the IND acceptance. Said JDRF Interim CEO Mr. Derek Rapp in the latter, “We are hopeful that beta cell encapsulation therapy could one day virtually eliminate the daily management burden for those living with T1D.” JDRF has given ViaCyte over $15 million in funding over the last decade. Notably, The California Institute for Regenerative Medicine (CIRM) has given ViaCyte $40 million.
• ViaCyte is the first of the groups working on encapsulated islets to reach the clinic in the US. It also means they are still on track for their goal of a phase 2b/3 study in late 2016/early 2017, and a BLA in late 2019/early 2020.
• Some of the questions ViaCyte should be prepared to answer in this phase 1/2 trial include:
  
  • Will the device perform similarly in humans as it did in preclinical studies?;
  • No tumor formation – The device is meant to contain a tumor even if it did form, but this is one of the biggest safety concerns;
  • How glucose sensitive will the implanted beta cells be? – Will they in essence serve as a person's basal insulin, or will they also be able to control postprandial spikes as well? What is their hypoglycemia risk?
  • How long will the cells last in the body? – This is especially important for cost effectiveness and patient hassle;
  • How many cells should patients receive? – Too many (especially if they are very glucose responsive) could increase the risk of hypoglycemia, and too few would of course reduce short-term efficacy, as well as potentially shorten treatment durability (due to the increased stress on the beta cells that are there).
  • How does VC-01 impact glucagon levels? Unlike some other groups (like Dr. Doug Melton’s lab, in particular), VC-01 includes both beta and alpha cells. It is up in the air if the alpha cells will be beneficial.
• ViaCyte’s VC-01 product candidate consists of pancreatic progenitor cells (derived from a proprietary human embryonic stem cell line) encapsulated in ViaCyte’s proprietary Encaptra device. When implanted under the skin, the progenitor cells are specifically designed to mature and further differentiate into insulin-producing beta and other endocrine cells.

Close Concerns Questions

Q: Could this be described as an option agreement? – i.e., J&J has a future option to license the ViaCyte technology? The language, “future right to evaluate a transaction” is somewhat confusing and we would love more specifics to the extent you can share them?

Q: Will Janssen help advise ViaCyte on clinical development, study design, and regulatory?

Q: When is it expected that trial results will be shared?

Q: How will patients’ insulin be titrated down? (e.g., would they automatically start at 50% of their normal insulin dose?)

Q: How much will the trial cost?

Q: How long is ViaCyte’s current financial runway?

--by Emily Regier, Adam Brown, and Kelly Close