As Intarcia's game plan plays out, what exit for investors?

Everything is falling into place for Intarcia Therapeutics. Six weeks after unveiling two successful pivotal studies of its exenatide-secreting implant ITCA 650 the company delivered a huge ex-US licensing deal with Servier, a transaction that seems to have long been in the game plan (Interview – Intarcia looks for partnership money after trial win, October 3, 2014).

The private company has been ambitiously backed to the tune of $410m in the last two years alone, and the Servier cash, which includes $170m up front and $230m in “early-stage regulatory milestones”, will surely answer its financing needs for some time. Intarcia’s investors, meanwhile, must now be pondering on their own returns, particularly as the company continues – in public at least – to rule out an IPO.

In announcing the Servier deal Intarcia boasted that it was “the highest-valued private biotech company in history, with world class investors”. These include the hedge funds Baupost and Farallon Capital Management and investment firms Franklin Templeton and Foresite Capital, all of which are happy to invest in both private and public companies. Foresite in particular has been a very active “crossover” investor in the past couple of years, helping to bring to market several life science companies, such as Puma Biotechnology, Karopharma and Sage Therapeutics.

It is hard to believe that this group of investors chose to grow a company without at least one eye on the public markets. In fact, assembling this group and then shouting about valuations would seem to be laying the groundwork for such a move.

Still, Kurt Graves, Intarcia’s chief executive, was reported yesterday to have once again denied plans for an IPO; the company had not replied to enquiries from EP Vantage at time of publishing. After pulling an IPO back in 2005, it has not publically filed any documents with the SEC.

None of which means that a flotation next year could not happen, and the company is no doubt not short of offers from banks keen to undertake such an offering.

Making a move

Of course, an IPO is not the only exit route available to Intarcia’s shareholders. Secondary investors could no doubt be found, and there is always the possibility of a clean get away via a takeout. Whether this is less likely now that Servier owns a large slice of global rights is an open question.

In a deal that could see Servier hand over more than $1bn in development, regulatory and sales milestones, the closely held French drugs group now owns global rights to ITCA 650, outside the US and Japan. A separate partner is planned for Japan, with US rights to be retained.

Servier was unlikely to be at the top of many lists of possible partners, but in many ways it makes sense. Its biggest-selling pharmaceutical product is Diamicron, a once-daily sulphonylurea, and without any other novel diabetes product to distract attention the company’s sales teams will be focused on ITCA 650. It also has a strong presence in emerging markets as well as Europe, with operations in every country in Latin America, for example.

Where it does not have a base is the US, which effectively rules Servier out as a potential bidder for the remainder of Intarcia.

This does not preclude the emergence of other interested parties. Astellas Pharma bought OSI Pharmaceuticals for $4bn in 2010, for example, effectively for access to a 50/50 profit share on US sales of the cancer drug Tarceva.

However this does mean that other players are more likely to wait until Intarcia's project has proved its worth. This will take time – Intarcia expects to file for approval in late 2015 or early 2016. And even then its novelty – the product is an implant that releases exenatide, the active ingredient of AstraZeneca's Bydureon, over a year – means it will take time to establish.

Shareholders could well be faced with a choice of a near-term IPO to capitalise on a run of good news, or a possible acquisition a few years down the road just when commercialisation risks are rearing. It is hard to see Intarcia’s investor base leaning towards the latter option.

To contact the writer of this story email Amy Brown in London at AmyB@epvantage.com or follow @AmyEPVantage on Twitter

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