Developing a first-of-its-kind product puts a company in a class of risk that few U.S. public investors or venture capitalists are prepared to bear these days. But Lexington, Mass.-headquartered GI Dynamics Inc., which is developing EndoBarrier as the first endoscopic device treatment for diabetes, was fortunate enough to be able to call on a group of international investors. In July, the company raised 57.5 million Australian dollars ($53.2 million) from undisclosed investors in countries including Australia, Hong Kong, Singapore, the U.K. and the U.S. [See Deal].

Previously, GI Dynamics raised $AU80 million when it went public on the Australian stock exchange in August 2011. The funds are needed to provide the significant development resources needed to complete drug-like clinical trials for its device [See Deal]. The Australia-based financing strategy relied on stent-developer REVA Medical Inc. as a model, says Stuart Randle, president and CEO. GI Dynamics shared board members with REVA, which had successfully gone public in Australia in December 2010 [See Deal]. HeartWare International Inc. was actually the first U.S. medtech company to debut on the Australian exchange. (See Also see "REVA: In Bioresorbable Stents, As Things Change, Will The Value Remain The Same?" - In Vivo, 30 November, 2011..)

“Two U.S. medtech companies had already done it and there were investors and bankers who knew the drill,” Randle said in an interview. “They had a well-established playbook for a process that was kinder and gentler than the U.S. process.” Australia is also a good market for obesity devices; the country was an early adopter of Allergan Inc.’s gastric band, Lap Band, Randle notes.

After 10 years in existence, GI Dynamics has advanced EndoBarrier, a novel treatment for patients with type 2 diabetes and/or obesity (depending upon the particular market) to its final stages of development. In January 2013, the company launched pivotal clinical trials in the U.S., where EndoBarrier will be studied in obese patients with a body mass index in the range of 30-50 who also have type 2 diabetes. The recent financing round will fund the company through pivotal trials, while it markets the device in Europe, where it has been CE marked since 2010; Australia, where it was approved in 2011; and in other countries.

A Nonsurgical, Nonpharmaceutical Device

EndoBarrier is endoscopically placed in the gastrointestinal tract using a procedure that can be as short as 15 minutes. It can remain in place for up to one year, before it is removed. The device forms a barrier between food and the intestinal wall, preventing food from mixing with digestive enzymes and achieving some of the effects of the Roux-en-Y gastric bypass surgical procedure.

EndoBarrier has been shown to achieve dramatic reductions in blood glucose levels, even in advance of weight loss, and weight loss of approximately 20 percent within 12 months. This is roughly the degree of weight loss achieved by minimally-invasive gastric banding devices.

Some of the biological mechanisms by which the device achieves these outcomes are now understood. Randle says the company has published human data that shows that the device leads to an immediate and sustained increase in GLP-1, a hormone released from the gut when food is present, and which stimulates the release of insulin. GLP-1 agonists also happen to be a class of diabetes drugs that have been under recent scrutiny by FDA, which is looking into safety risks that might include cancer and pancreatitis. Members of the class include the popular drugs Byetta (Bristol-Myers Squibb Co.), Victoza (Novo Nordisk AS), and Januvia (Merck & Co.). Randle explains that EndoBarrier also results in the immediate and sustained release of Peptide YY, a hormone believed to regulate the satiety response, that is, whether or not patients feel hungry.

Indeed, these pharmaceutical-like effects have piqued the interest of drug companies. In January 2013, GI Dynamics entered into a research collaboration with GlaxoSmithKline, the manufacturer of the embattled diabetes drug Avandia, which once had revenues between $3-4 billion. Avandia was pulled off the market in Europe and is undergoing investigation in the U.S. due to the potential cardiovascular side effects. GlaxoSmithKline has an interest in the hormonal effects of EndoBarrier. GI Dynamics has a separate agreement with Medtronic Inc., which wants to know how EndoBarrier impacts continuous glucose levels.

To cope with the drug-like nature of its product and the challenges that brings, GI Dynamics recently hired David Maggs as chief medical officer. Maggs is a physician and a former research executive at the diabetes company Amylin Pharmaceuticals Inc., where he was responsible for the first amylin and GLP-1 drugs to gain FDA approval. Maggs will focus on outreach to the endocrinology community, which controls the patients eligible for EndoBarrier.

The Hand-to-Hand Combat Of Reimbursement

GI Dynamics still has some road to travel; Randle expects enrollment for its pivotal trial to go on through the middle of next year. A 12-month endpoint puts the expected trial completion date to late 2015. Randle estimates the company will submit its data to FDA for a panel meeting in late 2016 or early 2017.

Several risks have been taken out of the equation, however. Randle says the company is comfortable with device performance. “We have now treated more than 1,000 patients; 500 in clinical studies and 500 commercial patients, so the clinical profile is well known.”

The challenge that remains is reimbursement, and the company is exerting a lot of effort on a country-by-country basis. Its initial reimbursement strategy revolves around patients with the greatest medical need; those with both diabetes and obesity, which are very expensive to health care systems. “We are making progress,” Randle says. “When we went public, we didn’t have reimbursement in any country on the planet and now we have at least some reimbursement in each country we are operating in.” The company is progressing on that front in France, where, after an initial study was successful, the government announced the funding of a larger study, the second stage of the reimbursement process, Randle explains. Things are at a similar stage in the U.K., and in the Netherlands, a private insurer is paying for EndoBarrier.

Randle says the company will also offer a self-pay option; the procedure would cost patients approximately $10,000 out of pocket.

But how long does the treatment effect have to last for the economics to work? Randle says the company is reaching the point where it has long-term data, and it’s finding that the effects of EndoBarrier are sustained up to a year after device removal. In various models comparing the costs of EndoBarrier with the medical treatment of patients that have both type 2 diabetes and obesity (using the U.K. Prospective Diabetes Study, a 30-year database on patients with diabetes), the economics were favorable, Randle says, even before the company had the post-removal data. “It’s a question of when, not if, reimbursement will happen,” Randle believes.

Diabetes and obesity continue to grow at rapid rates around the world; patients with these diseases are expensive to health care systems. Randle says, “There is a recognition by most of the clinical community that no treatment is permanent and that these patients need different interventions at different times in their disease state.” GI Dynamics, he says, offers a very effective tool for some of these patients and operates in a very big market.

GI Dynamics Goes Down Under To Fund First Endoscopic Treatment For Diabetes

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