Unicorns, Mermaids and Leprechaun’s
Although Diabetic Investor has never seen it there are many who believe there really is a pot of gold at the end of the rainbow. Others swear that Unicorns roam the plains, while still others believe in Mermaids. As Momma Kliff used to say just because you can’t see something with your own eyes does not mean it does not or cannot exist. We thought about Mom today while reading the S-1 for Valeritas who is set to go public. As Diabetic Investor has yet to see an unmet medical need for these non-mechanical patch pumps.
Unlike the OmniPod from Insulet (NASDAQ:PODD) the V-Go® from Valeritas delivers a set amount of insulin over a 24 period, the basal rate, while allowing the patient to administer additional insulin on demand, the bolus. Basically while a system like the OmniPod requires programming and allows for greater dosing flexibility, the V-Go comes preprogrammed and has limitations on dosing options. The two systems are also targeted at different markets as according to the S-1;
“Insulin therapies using syringes, pens and programmable insulin pumps are often burdensome to a Type 2 diabetes patient’s daily routine, which can lead to poor adherence to prescribed insulin regimens and, as a result, ineffective diabetes management. We developed V-Go utilizing our h-Patch platform as a patient-focused solution to address the challenges of traditional insulin therapies. Our h-Patch platform facilitates the simple and effective subcutaneous delivery of injectable medicines to patients across a broad range of therapeutic areas. V-Go enables patients to closely mimic the body’s normal physiologic pattern of insulin delivery by releasing a single type of insulin at a continuous preset background, or basal, rate over a 24-hour period and on demand around mealtime, or bolus dosing. We believe V-Go is an attractive management tool for patients with Type 2 diabetes requiring insulin because it only requires a single fill of insulin prior to use and provides comprehensive basal-bolus therapy without the burden and inconvenience associated with multiple daily injections. V-Go is available in three different dosages depending on the patient’s needs and is generally cost competitive for both patients and third-party payors when compared to insulin pens or programmable insulin pumps.”
Now Valeritas isn’t the only company with a non-programmable patch pump as Johnson and Johnson (NYSE:JNJ) now owns Calibra Medical and let’s not forget about privately held (for the moment) CeQur. Yes for reasons Diabetic Investor has never understood these companies seem to believe that insulin using Type 2 patients prefer patch pumps over insulin pens or syringes. The general theory is patients following multiple daily injection (MDI) therapy prefer these devices as they require less injections but don’t require advanced training like a real insulin pump does.
Well according to the S-1 Valeritas started selling the V-Go back in 2012 and according to the S-1;
“Our revenue increased from $0.6 million in 2012 to $6.2 million in 2013 and to $13.5 million in 2014, reflecting our territorial expansion. Our net loss was $87.6 million and $65.6 million for the years ended December 31, 2013 and 2014, respectively. Our accumulated deficit as of December 31, 2014 was $310.7 million. Since launching V-Go, the total number of prescriptions for, and the number of patients using, V-Go have increased each quarter. Based on prescription data, we estimate that there were approximately 83,000 prescriptions reported for V-Go filled during the year ended December 31, 2014, and we estimate that approximately 13,000 patients with Type 2 diabetes were using V-Go as of December 31, 2014.”
Looking ahead we see a difficult road for Valeritas and not just because they are competing against real insulin pumps, insulin pens and syringes (which just happen to be cheaper than the V-Go). No the issue with Valeritas is actually the same issue facing Asante or CellNovo, two other insulin pump companies one of which who tried and failed to go public and the other who went to France for their IPO. Frankly it’s the same issue facing any insulin pump company no matter what type of pump it is and we’ve said it many times anyone can build an insulin pump it takes real talent to run an insulin pump company.
To fully appreciate the challenges faced by Valeritas examine what the company plans to do with the proceeds from the IPO as the S-1 states:
“We estimate that the net proceeds from our sale of 5,000,000 shares of our common stock in this offering will be approximately $68 million, assuming an initial public offering price of $15.00 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriters’ option to purchase additional shares from us is exercised in full, we estimate that our net proceeds will be approximately $78 million.
We currently anticipate that we will use approximately $54 million of the net proceeds received by us to support ongoing sales and marketing activities for V-Go and to expand our sales and marketing infrastructure.”
Think about that for a moment nearly 70% of the capital will be used to build the infrastructure needed to sell and support the V-Go. And while the V-Go may not require programming or does not have complex mechanics that can and do fail, the system is not bullet proof making patient support just as important as it would be for a real insulin pump company.
Yet perhaps a bigger task for this sales team will be how to position the V-Go as it will be competing with simpler insulin pens and syringes which not only cost less than the V-Go but are well known by primary care physicians who just happen to treat 80% of the diabetes population. But this isn’t the only issue as unlike real insulin pumps the V-Go is squarely targeted at Type 2 patients so it must also compete with Bydureon, Trulicity and Tanzeum. Let’s be honest here these once-weekly GLP-1’s offer everything the V-Go has and more. Besides fewer injections they also offer simple dosing the added benefit of weight loss and little chance of hypoglycemic events.
This is why Diabetic Investor has never understood these so-called pump wannabes. By our way of thinking if a patient wants to wear a device that delivers insulin they might as well go all the way and use a real insulin pump. If on the other hand the goal is fewer injections per day than why not a once-weekly GLP-1. Remember the V-Go’s primary target is insulin using Type 2’s not Type 1 patients who must use insulin. Let’s also keep in mind that many of these patients are already following basal bolus therapy by using Lantus as their basal insulin and either Humalog or Novolog as their bolus insulin, all of which can be delivered via pen or syringe, which as we noted earlier are cheaper options than the V-Go.
Perhaps this is why Valeritas has already instituted the V-Go Instant Savings program which limits the patients out of pocket cost to use the V-Go. A program which just eats into margins.
The way Diabetic Investor sees it companies like Asante and CellNovo actually have it a little easier than Valeritas. Asante and CellNovo know that their primary target are Type 1 patients and their main enemy is Medtronic (NYSE:MDT). Valeritas on the other hand is not just fighting Insulet, but Sanofi (NYSE:SNY), Lilly (NYSE:LLY), Novo Nordisk (NYSE:NVO) and Becton Dickenson (NYSE:BDX). They are also fighting an uphill battle with primary care physicians who are very familiar with real insulin pumps, insulin pens and syringes but aren’t quite sure what to make of these non-mechanical preprogramed devices. And let’s not forget about costs and formulary access.
The reality here is the end game for Valeritas is no different than what Asante, CellNovo and just about any other company in this space wants who isn’t named Medtronic, they want to be acquired. And like Insulet and Tandem (NASDAQ:TNDM) before them they will continue to tap the capital markets until that happens. Let’s just hope for the sake of their stakeholders that they don’t suffer the same fate as Insulet or Tandem and actually have to run the company. We’ll say it again as anyone can make a patch pump but it takes real talent to run a pump company and quite frankly talent is in short supply these days.