Beyond bringing Intarcia yet more instant cash, the $225m royalty financing the private group pulled off this week looks like an unusual way of putting a real valuation both on itself and its key asset, the exenatide-secreting implant ITCA 650.
The unnamed investors who bought into the 1.5% royalty deal have endorsed a $15bn valuation for Intarcia’s interest in ITCA 650, as well as betting on the group one day being worth over $5.5bn. If nothing else this lends credibility to Intarcia’s bold claim to being the highest-valued private biotech company in history.
Intarcia’s management had made this boast when signing a lucrative ex-US licensing deal over ITCA 650 with Servier (As Intarcia's game plan plays out, what exit for investors?, November 13, 2014). That had been worth $171m up front plus $880m in development, regulatory and sales milestones, and tiered double-digit royalties.
Upping the ante
Monday’s so-called synthetic royalty financing ups the ante further, giving a select group of investors 1.5% of future global ITCA 650 net revenues in return for an immediate $225m.
A simple calculation implies that the underlying asset is being valued at $15bn – and to achieve a return the investors will presumably be banking on it reaching a yet higher valuation. And what is being valued is not all of ITCA 650 but just Intarcia’s remaining share, net of the interest licensed to Servier.
Of course, Intarcia being private no sellside expectations are available for ITCA 650. But just what a bullish bet is being made can be illustrated by looking at the NPV of consensus forecasts for the industry’s main GLP-1 inhibitors combined, which according to EvaluatePharma data comes to $14.6bn.
|A benchmark for Intarcia: the key GLP-1s|
True, the above reflects the current value of future cash flows, while the Intarcia investment relates to ITCA 650’s topline contribution, but even so it illustrates how huge the phase III asset is expected to become by some – in a diabetes market that is, after all, being genericised.
ITCA 650 releases exenatide, the active ingredient of AstraZeneca's Bydureon, over a year. Intarcia’s backers must presumably be assuming that their group and Servier alone can grab major market share from some of the industry’s biggest hitters, as well as hoping for overall market expansion.
And it does not end there. A separate aspect of the financing allows the select investor group to convert their 1.5% royalty interest into equity at an Intarcia valuation of a cool $5.5bn.
That would imply a significant return for the venture capitalists who pumped $410m into the firm over the past three years or so. The last equity round, a $200m raise in April 2014, was understood to have been done at a $1.8bn valuation, though Intarcia did not reply to a request to confirm this.
These are clearly some pretty chunky numbers, but the importance of Monday’s financing is that it sets the stage for further cash injections, which if done at an even higher valuation would endorse the bullish bet being placed.
In the meantime Intarcia says it is focused on developing and commercialising ITCA 650 in the US, where it retains sole rights; since the shelving of an IPO back in 2005 there do not appear to have been any plans to take the business public.
None of this means that either a US deal or an IPO cannot still happen, but what Intarcia has done is to put a valuation floor on future transactions.