Few biotech startups have been as prolific as Intarcia Therapeutics at raising cash from private investors. And even with its implantable diabetes device in the midst of a massive, risky clinical trial, the Boston-based company still isn’t turning to Wall Street yet to keep its coffers full.
Intarcia said late Monday night that it’s closed a $225 million “synthetic royalty financing” from its existing investors—basically, a form of debt financing. A group of the company’s backers—Intarcia didn’t say which ones—have bought convertible notes in the company, and would get royalties on Intarcia’s device, ITCA 650, in return. Those royalties are quarterly payments equal to 1.5 percent of the sales of ITCA 650, and they’d continue until the notes are paid off or mature.
Investors who bought the notes also have a window to convert their debt into an equity stake at a price that values all of Intarcia’s stock at $5.5 billion. The option kicks in should the FDA approve ITCA 650, and expires either two years after or on Dec. 31, 2019, whichever comes first.
The financing mechanism is an unusual maneuver for a startup biotech; with the IPO window swinging back open for the past few years, many companies have taken advantage and gone public to fund themselves, even without much data to show investors. Intarcia is much further along than that—ITCA 650 is in the midst of an extensive Phase 3 program in type 2 diabetes. But even with the need to bankroll those studies, Intarcia hasn’t set its sights on an IPO just yet. Instead, it’s trying to maintain as much control as possible, at least for now. CEO Kurt Graves (pictured above) said in a statement that Intarcia now has enough financial backing to launch and begin selling ITCA 650 in the massive U.S. diabetes market on its own, without the infrastructure and sales force of a pharmaceutical partner. It has one partner in place, Servier, which has rights to ITCA 650 outside of the U.S. and Japan.
Intarcia also is thinking more broadly than just about selling a diabetes device. In March, it cut a deal with Switzerland antibody maker Numab to co-develop long-lasting antibody-based therapies for obesity and autoimmune disorders. Intarcia envisions combining those antibodies with its technology—a method of delivering small amounts of a drug into the body over an extended period of time via an implantable device.
“Our vision and driving belief remains that we can and must discover a new and game-changing way to deliver better medicines, and better health outcomes, with just once- or twice-yearly dosing for chronic diseases,” Graves said in a statement.
To this point, Intarcia has raised over $1 billion in financing and partnership cash privately. That includes today’s financing, a $210 million private round in 2012, a $200 million round in 2014 (which brought in “crossover” investors like RA Capital Management), $171 million in upfront cash from Servier in November, and several undisclosed bridge financings.
The draw is ITCA 650, a tiny, implantable pump that steadily releases the diabetes drug exenatide to keep blood sugar levels in check. The idea is that type of control will help diabetes patients manage their condition better than today’s oral pills or injectable treatments. Because of how those treatments are absorbed into the body, their concentration levels in the blood can wax and wane. Intarcia’s device would be filled and implanted by a clinician once or twice a year.
Intarcia is currently testing ITCA 650 in a slate of four Phase 3 studies that are expected to wrap up in 2016, paving the way for regulatory filings. In 2014, it posted successful data from two of those studies, but the key test is still to come: Intarcia is trying to show in its studies that ITCA 650 is better at managing diabetes than Merck’s sitagliptin (Januvia). The treatment has only been tested against a placebo so far.
“This large and innovative financing announced today is another first-of-its-kind in our industry, and it shows investor confidence in our pivotal data, our partnerships and our overall approach to a huge unmet need and opportunity in type 2 diabetes,” Graves said.