Valeritas 4Q16 – Sales of $4.8 million grow 4% YOY; Files to go public on NASDAQ seeking to raise up to $50M; Just $9.9M in cash remains – February 22, 2017

Executive Highlights

  • Sales of Valeritas’ V-Go insulin delivery device totaled $4.8 million in 4Q16, rising 4% YOY and falling 2% sequentially from 3Q16. Full year sales were within guidance from the previous quarter, growing 8% YOY to $19.6 million.
  • Only $9.9 million in cash remains, reflecting an ~$5.6 million burn in 4Q16. Valeritas filed to go public on the NASDAQ earlier this month (for the second time), seeking to raise up to $50 million – this would provide some much-needed financial breathing room.
  • The capital-efficient sales and marketing strategy (reduced sales force focusing on a smaller number of high-volume insulin prescribers) drove down operating costs for 2016 by 21% relative to 2015. The number of field reps is now expected to increase from 33 to 45 by 2Q17, combined with patient activation initiatives to drive V-Go prescriptions.
  • Valeritas will explore opportunities to commercialize in Europe through a partner. As a reminder, V-Go is already CE marked.

Earlier this week, Valeritas provided it’s 4Q16 financial update in an efficient 20-minute call led by CEO Mr. John Timberlake. No questions were taken since the company filed a registration statement to go public on the NASDAQ for the second time.

Financial Highlights

1. Sales of Valeritas’ one-day wear, fully disposable, basal-bolus insulin delivery device, V-Go, totaled $4.8 million in 4Q16, rising a modest 4% YOY from 4Q15 and down 2% sequentially from 3Q16. Sales for the full year were in line with guidance from the call from 3Q16, growing 8% YOY to $19.6 million. Mr. Timberlake emphasized that the quarterly growth, though very modest, was accomplished with a sales force of less than half the size relative to 4Q15 – a good point.

2. Just $9.9 million in cash remains, down from $15.5 million at the end of 3Q16. Valeritas filed an S-1 Form with the SEC in early February to go public on the NASDAQ (ticker: “VLRX”), seeking to raise up to $50 million to broaden commercialization of the basal-bolus V-Go insulin delivery device. The IPO has not been priced. If successful, this will bring in much needed financial breathing room though it is still a very tough market. This follows the company’s postponed initial NASDAQ IPO filing two years ago, and the subsequent alternative public offering last May that raised $23.7 million. The latter brought Valeritas onto the OTC markets, where its market cap is currently ~$52 million.

3. The new “more capital efficient sales and marketing strategy” that went into effect during 2Q16 drove down operating costs by an impressive 21% in 2016 to just under $41 million. The number of field reps is expected to increase from 33 to 45 by 2Q17, which will drive some expenses back up. Expanded patient activation initiatives are also in the works, designed to educate and motivate type 2s (email, direct mail, search engine-optimization, and other means) to petition their providers for V-Go prescriptions.

4. Valeritas dispensed its 10 millionth V-Go device in October. ~87,500 V-Go prescriptions were filled during 2016, a slight decline year-over-year from ~92,000 prescriptions filled in 2015. The S-1 filing did not give a patient base update, but we assume it’s still around 11,500 V-Go users or slightly fewer, consistent with the 2015 number. 

5. Valeritas announced a week ago that it has reached an agreement with both of its secured creditors (CRG and WCAS Capital Partners IV) to convert $27.5 million of debt (~half of the outstanding $55 million principal) to preferred stock.

Pipeline and Management Highlights

6. Valeritas is exploring partnership opportunities to commercialize in Europe, where V-Go is CE marked. Mr. Timberlake mentioned the V-Go Link (one-way communication to smart devices via Bluetooth) and pre-filled insulin V-Go, though no timing was given. See our deep dive from 2015 for more details. We think the pre-filled device option would be especially great to see.

7. Dr. Joe Mandato, a Managing Director at De Novo Ventures with extensive board and medical device experience, has joined Valeritas’ Board of Directors. Other notable Board members include Aspire Bariatrics CEO and former Animas founder/CEO Dr. Katherine Crothall, and Insulet veterans Mr. Peter Devlin and Mr. Brian Roberts, along with medical expert and highly-regarded investor Dr. Rodney Altman.

8. Mr. Timberlake elaborated on three pieces of clinical data supporting the clinical efficacy of V-Go: (i) a retrospective study published in November ≈; (ii) a nursing home study showing improved glycemic control, reduced nursing staff time, and reduced labor cost for V-Go vs. MDI; and (iii) an e-poster at ATTD showing that patients using V-Go have lower A1c and total daily insulin dose compared to those using pens. We’d love to see this data get more attention as it is so clear that patients benefit from this device – woes have been largely related to reimbursement.

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