Earlier this year, Lexington, MA-based GI Dynamics faced a challenge that’s all too common these days in life sciences: It needed to raise $80 million to get through the next three years, and there are limited options for medical-device companies seeking that much cash. The company is developing a weight-loss device, and the money was vital to commercialize the product overseas and start new U.S. trials.
“The U.S. IPO market was closed,” says Michael Carusi, a general partner at Advanced Technology Ventures (ATV), one of GI Dynamics’ early investors. “And we didn’t want to do two $40 million private rounds.”
So on September 7, GI Dynamics went public on the Australian stock exchange, which, when combined with a simultaneous private offering, brought in all $80 million. Why Australia? First of all, GI Dynamics introduced its device, called EndoBarrier Gastrointestinal Liner, to the Australian market last month. “When companies launch products in a market, investors there hear buzz,” Carusi says. Secondly, he adds, Australian investors have more of a buy-and-hold mentality when it comes to life sciences companies than U.S. investors do.
That patience will likely come in handy for GI Dynamics’ investors. The company hopes to get regulatory approvals around the world to use its device to treat two separate but related epidemics: obesity and Type 2 diabetes. It’s an ambitious plan, especially at a time when the FDA is under pressure to improve its scrutiny of medical devices. Regulatory approval in the U.S. vs. other countries, says GI Dynamics CEO Stuart Randle, “will be a much longer process.”
The EndoBarrier is a two-foot-long device that doctors can implant into the intestine during a minimally invasive endoscopic procedure. It acts as a block along part of the intestine wall, which slows down digestion and intervenes in the metabolic process. The results are improved glucose control and weight loss—similar to the effects of gastric bypass surgery, but without the need for an invasive procedure. And EndoBarrier can be easily removed, too, making it possible to use as a short-term intervention.
After GI Dynamics was founded in 2003, it attracted an impressive slate of investors. Joining ATV were Polaris Venture Partners, Domain Associates, and Cutlass Capital, along with medical device giants Medtronic, and Johnson & Johnson. EndoBarrier was approved in Europe in late 2009 and is also on the market in Chile.
Cash from the Aussie IPO will help GI Dynamics expand its commercial presence overseas and build its internal capabilities to prepare for the U.S. regulatory process, Randle says. The FDA approved plans for a pilot study, which should begin next year, he says. The company has not provided further guidance on what the timeline will be for additional studies or for an FDA application.
GI Dynamics has been working hard to understand exactly how the EndoBarrier promotes weight loss and glucose control. In March, the company released data from three studies. In one study involving 17 obese patients, EndoBarrier boosted levels of two critical gastrointestinal hormones: glucagon-like peptide-1 (GLP-1) and peptide YY (PYY). In another study involving 22 patients, 12 months of EndoBarrier use promoted 39 percent weight loss. Insulin, cholesterol, and triglycerides returned to normal.
In Europe, EndoBarrier is approved for one year of use—which is right in line with how GI Dynamics envisions it should be used, Randle says. “Our intent is for it not to be permanent,” he says.
Lee Kaplan, director of the Obesity, Metabolism and Nutrition Institute at Massachusetts General Hospital, believes short-term treatment with EndoBarrier could be useful in a number of scenarios. Normalizing weight and glucose levels “would be very valuable to a woman wanting to get pregnant,” says Kaplan, who has participated in some of GI Dynamics’ research efforts. No doubt, the diabetes would return when the device was removed, he says, “but that return would be slow.”
For patients who have not yet developed diabetes but are at high risk of the disease, “there’s some evidence that we can rest the pancreas and turn the clock back,” Kaplan says. “We could put the device in at the early stages, take it out, wait five years, and put it back in. I think this is a new paradigm for diabetes therapy.”
Getting the FDA to buy into this new idea will take some time, though. Carusi estimates that on average, the gap between overseas approval of a new medical device and FDA approval has grown from two years to as much as six years. While that makes it hard to attract American investors, he says, it does give GI Dynamics the opportunity to collect more data on how the device is being used, and how it’s working in foreign markets. “That data will make it easier to go to the FDA and have a discussion about what will be required for U.S. approval,” Carusi says.
Australian investors have proven to be a tough audience so far. In little over a week of trading, GI Dynamics’ shares have fallen from 1.10 Australian dollars to 84 cents. But Randle isn’t worried. “We’re positioning a new therapy,” he says. “We expect volatility in the early days.”