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Wednesday, December 05, 2012

Deals of the Year Exit/Financing Nominee: Intarcia Therapeutics

It's time for the IN VIVO Blog's Fifth Annual Deal of the Year! competition. This year we're once again presenting awards in three categories to highlight the most interesting and creative deal making solutions of the year. The categories are: M&A Deal of the Year, Alliance Deal of the Year, and Exit/Financing Deal of the Year. We'll supply the nominations (a half dozen in each category throughout December) and you, the voting public, will decide the winners (by voting early and often, commencing once we've announced all the nominees). Strap yourselves in, it's The Race for the Roger™.


If the sheer size of Intarcia Therapeutics’ $210 million Series C round of equity and debt funding weren’t enough to make it a top candidate for this year’s Roger for exit/financing, the company’s commitment to control of a novel type 2 diabetes treatment surely marks the deal as a late-stage outlier that’s worthy of your consideration for the award.

This is a story about control. My control.
Control of what I say, control of what I do.
And this time I’m gonna do it my way.
I hope you enjoy this as much as I do.
Are we ready? I am. Because this is all about control.
And I’ve got lots of it.


Janet Jackson agrees. Unlike the performer of the 1986 Top Ten hit “Control,” though, Intarcia is no ingenue stepping into adulthood. The company had already raised $135 million in equity and debt since recapitalizing in 2007. That cash allowed it to complete Phase II trials on ITCA-650, a formulation of the approved GLP-1 analog exenatide that can be delivered via a matchstick-sized device implanted under the skin once a year. The company’s prior funding includes a 2011 deal with contract researcher Quintiles that yielded both equity and product funding, along with a clinical services commitment from the CRO

Intarcia chief executive Kurt Graves told “The Pink Sheet” DAILY in November that the company decided against the traditional path of partnering ITCA-650 after proof-of-concept was achieved in Phase II, and instead chose to keep full rights to the drug. “We thought the best thing for us was to get our fair share of value by maintaining control,” he said.

The bet on ITCA-650’s upside represented a strategic shift for Intarcia. Graves said in 2011 that it was unlikely to raise more funding since it had two “finalists” for a partnership in the works. Although he wouldn’t name them, he said Intarcia wanted to keep more than half of the potential value of ITCA-650 if it’s approved and sold, and suggested that both finalists wanted more than that.

Instead, the huge new round consisting of $160 million in equity capital and $50 million in debt gives Intarcia cash to fund Phase III trials on ITCA-650, while maintaining full rights to a compound for which Graves says the regulatory risk is “as close to zero” as any project he’s encountered. Five institutional investors, including hedge fund operator The Baupost Group, debt specialist Farallon Capital management, multinational fund manager Fidelity Investments, and two other unnamed East Coast-based funds, joined existing backers New Enterprise Associates, New Leaf Venture Partners, and Venrock in the round.

If ITCA-650 succeeds in Phase III, an independent, well-funded Intarcia would have the option to go public or partner its programs just before the commercial stage, Graves said. But the company also represents an attractive, clean takeout target, just as diabetes drug developer Amylin enjoyed unencumbered freedom from partnerships in the months between the dissolution of its deal with Lilly and its acquisition by Bristol-Myers Squibb. (Could that takeout, which also included a partnership with AstraZeneca, also be a Deals of the Year candidate? Watch this space.) The comparison isn’t arbitrary; Amylin built its business on exenatide, first introducing the twice-daily injectable Byetta in 2005, then the once-weekly Bydureon early this year. Graves says Amylin lacks a composition-of-matter patent on exenatide, which allows Intarcia to proceed with trials on its version.

The deal also could point the way to other late-stage fundings involving relatively patient crossover investors or other institutional backers who provide an alternative to the difficult IPO process. In fact, osteoporosis drug developer Radius Health – of which Graves is the chairman – is thought to be seeking such a deal presently, after withdrawing its IPO registration last month. “Clearly, there’s a better market for large private investors than the IPO market,” said managing director Ansbert Gadicke of key Radius stakeholder MPM Capital last month. Now that venture dollars are scarce and IPOs are hard to accomplish, Intarcia’s deal may be a bellwether – and one worthy of this year’s Roger.

--Paul Bonanos

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