CeQur raises $100 million in Series C financing; expects limited EU launch in 2016; potential US launch in 2017 – September 3, 2015

CeQur announced on Tuesday an impressive $100 million round of Series C financing, adding to $80 million raised to date. The funds will last well into 2017 and be used to scale up manufacturing, clinical activities, and commercial operations ahead of an expected 2016 EU launch of the second-gen, three-day-wear, PaQ insulin delivery device (in line with ATTD 2015). Early commercialization will be limited to start, supporting a few thousand patients at leading centers in reimbursement friendly countries (e.g., Sweden, Denmark). This funding is focused on the manufacturing scale and commercial ramp CeQur needs to make PaQ widely available.

Management told us an FDA 510(k) filing is expected in 1Q16, with a full-scale US launch in 2017. This is slightly back from the stated goal of filing in 2015 and launching in 2016 (per ATTD 2015). Two years from now, US competitors will presumably include J&J’s bolus-only Finesse and Valeritas’ V-Go, at minimum. Both BD and Medtronic also reportedly have type 2-focused insulin delivery patch device offerings in the works, though timing is unknown.

PaQ’s cost will vary by market, though CeQur’s ambitious goal is pricing competitive with that of insulin pens. It’s a tall order, but presumably possible with higher manufacturing volumes (and probably required in this reimbursement environment). CeQur is weighing its options on the commercial partner front; we could imagine CeQur coming to market alone in the EU to start, but partnering with a bigger player to get PaQ widely adopted.

Why the slow ramp, given PaQ’s original CE Mark in November 2012? Management emphasized that a lot of thought has gone into optimizing the product for high-volume manufacturing and minimizing cost-of-goods – of course, this is THE major barrier for patch insulin delivery devices! CeQur has also taken the time to gather clinical data, with two trials done and more on the way. More on the second-gen device design and clinical data below.

Two new UK investors participated in this round – Woodford Investment Management and Arthurian Life Sciences – with smaller contributions from existing investors Endeavour Vision, Schroder & Co Banque, and VI Partners. We had not previously heard of Woodford and Arthurian, who do invest in healthcare technology, but don’t have a significant history of diabetes-related investments (more below).

The launch of PaQ is a great step forward for patients who want the convenience and discretion of an insulin pump and the simplicity and price tag of MDI. PaQ’s three-day wear, seven preset basal rates, and large reservoir size (330 units) do offer a competitive advantage over Valeritas’ V-Go (24-hour wear, 76 units; available in the US) and J&J/Calibra’s Finesse (three-day wear, 200 units, bolus-only, available in 2016). Of course, this market is severely underpenetrated, and given the number of MDIs out of control, there is substantial room for several companies to be successful. Still, things are only getting more competitive on the type 2 side, and not just from the obvious device players (e.g., Valeritas and J&J; potentially BD and Medtronic) – SGLT-2s, GLP-1s, and GLP-1s+insulin may delay patients going onto MDI. How will that change the potential market size?

Data talks, and showing benefits in health outcomes and financial savings for PaQ will be critical; CeQur seems to be making moves on that front. Below, we include details on the company’s competition, clinical results to date, and our key questions for this field.

• Management shared a few never-before-heard details on the second-gen PaQ design: (i) improved catheter placement, (ii) superior adhesive, and (iii) more discreet color. From a user perspective, the most noticeable difference is the change in color – from white to grey (more discreet). The first-generation PaQ was bright white and very visible through clothing, whereas the optimized second-generation product is gray and discreet. A small but meaningful change, given the product’s goal to make insulin delivery more discreet. Functionally, the two versions are identical.
  
  • The company received a CE Mark for the first-gen device; however, since the products are functionally equivalent, the company told us that a new CE Mark will be a simple self-certification.
  • As we understand it, the major advantage of the second-gen device is from a cost-of-goods and high-volume manufacturing perspective. We’re not sure what that entails, but it sounds like higher profitability for CeQur and little difference for patients – a win-win. Profitable manufacturing is a major challenge with patch insulin delivery devices, and even veteran Insulet is still working to optimize it (see its 2Q15 call).
• PaQ’s convenient three-day wear, seven preset basal rates, and large reservoir size (330 units) offer a competitive advantage relative to other patch delivery devices – see below for a competitive SWOT analysis. Management told us that PaQ’s seven basal rates (16, 20, 24, 32, 40, 50, and 60 units per day) allow for greater customization in therapy that is expected to fit ~85-90% of all patients with type 2 diabetes. As a reminder, the V-Go offers 20, 30, or 40 units per day, with 2-unit boluses; the Finesse is bolus-only in one or two-unit increments. CeQur’s basal flexibility is a clear advantage, though the large reservoir capacity obviously comes with a larger on-body form factor than the V-Go or Finesse.

Table 1: CeQur PaQ – Strengths, Weaknesses, Opportunities, and Threats (SWOT) Analysis

• PaQ’s indication will be for “patients with diabetes” (not just type 2s); we wonder if some type 1s will be interested. Seven preset basal rates certainly makes type 1 use feasible, though type 2 is obviously CeQur’s goal. Abbott’s FreeStyle Libre is a good example here – the business case is clearly on the type 2 side, but the product has seen strong early enthusiasm in type 1. We wonder if a similar early-adopter, type 1 population would be curious to try PaQ.
• CeQur remains undecided on the go-to-market strategy, through partnership is reportedly in the consideration set. The company sees value in leveraging a partner’s established distribution channels, and we assume conversations are taking place. Of course, the challenge for a small company – CeQur has 54 employees in total – is developing scale and the commercial channels to bring something to market widely. We wonder whether an insulin manufacturer or a pump maker might consider partnership.
• CeQur’s funds came primarily through two new UK investors: Woodford Investment Management and Arthurian Life Sciences. Neither organization has a history of investing in diabetes-related companies, so it’s tough to get a read on their track records. See below for some of their investments in healthcare/life sciences:
  
  • Woodford: Immunocore (oncology), NovaBiotics (anti-infectives), Genomics (genetics), Cell Medica (immunotherapy)
  • Arthurian: Reneuron (stem-cell therapy), Sphere (critical care products)
• Overall, CeQur management estimates the target market size at roughly 6-7 million patients in the US and EU combined. This accounts for ~4 million patients on MDI and ~3 million on premixed insulin. Management suggested that the growing presence of better oral medications does figure to reduce the size of the market by delaying patient transition to insulin; long-term, many will of course move to MDI. Plus, the number of patients already on MDI makes this a very big market for several companies to successfully go after.
• CeQur hopes to come to market with “more clinical data than any patch pump” to date. The team has already completed two small (uncontrolled) but encouraging clinical trials of PaQ – improvements in A1c have been >1.5% across the board (see below). Another small study (n=20) is underway. As a reminder, this improvement is actually better than Medtronic’s OpT2mise study, a larger, more robust RCT comparing traditional pumps to MDI (-1.1% on pump vs. -0.4% on MDI). CeQur plans to begin much larger observational studies and RCTs post-EU launch that will examine glycemic impact and cost-effectiveness vs. MDI.
  
  • CeQur’s first study  (n=19) investigated the feasibility of the transition from MDI to PaQ in patients with type 2 diabetes (Mader et al., Diabetes Care 2014). The vast majority (19/20) of participants successfully transitioned to PaQ and demonstrated the ability to accurately assemble, place, and use the device.
  • CeQur presented encouraging preliminary data from its pilot study of its PaQ insulin delivery device in patients with type 2 diabetes (n=8) at ATTD 2015. The trial consisted of three study periods: baseline MDI (one week), transition from MDI to PaQ (1-2 weeks), and PaQ treatment (12 weeks). Preliminary results indicated that PaQ treatment reduced A1c 1.8% from a baseline of 8.9% (n=6; one patient has yet to report and one patient dropped out of the study). Looking at individual data, it was great to see that every patient who transitioned to PaQ experienced an A1c reduction (i.e., 100% of patients saw some glycemic benefit). No severe hypoglycemic episodes, serious adverse events, or catheter site infections were reported. That is pretty strong pilot data, even in a small, uncontrolled study.
  • CeQur has expanded its second trial to a larger population (n=20) and plans to publish results from this study next year (ClinicalTrials.gov Identifier: NCT02419859). Notably, the three-month study is using blinded CGM to shed more nuanced light on the clinical benefits of patch pump insulin delivery. Yes! Reductions in hypoglycemia, of course, wash out changes in A1c – we see CGM data as critical in these trials of patch devices in type 2.
• Below, we compare some of the available/soon-to-be-available simple patch pump delivery devices (we have excluded full-featured pumps like Insulet’s OmniPod, Tandem’s t:flex, Cellnovo, etc.). Unilife is new on the scene (debuted in July) and is looking to partner with an insulin company. There are scant details on BD and Medtronic’s efforts.

Table 2: Simple Insulin Patch Delivery Device Competitive Landscape

Close Concerns Questions

• Will CeQur achieve pricing competitive with pens? At what manufacturing scale will PaQ be profitable?
• What is the ideal composite product profile for type 2 patients on MDI (i.e., cost, reservoir size, on-body size)?
• How will competitive drug and device offerings affect CeQur’s uptake? Are insulin+GLP-1 combinations a major threat? What about Intarcia’s ITCA 650? 
• Will CeQur partner to commercialize PaQ?
• What clinical data is needed to obtain widespread EU and US reimbursement?
• Will CeQur do any marketing to lower the patient barriers to trying PaQ – e.g., free trial program, money back guarantee, etc.?
• How large is the potential type 1 market for these devices?
• Does CeQur plan to get acquired or go eventually go public?
• Why did Valeritas postpone its IPO? Will it eventually go public?

-- by Ava Runge, Varun Iyengar, Adam Brown, and Kelly Close