GI Dynamics Inc. faced an all-too-common challenge: It needed $80 million to get through the next three years, but there are limited options for medical device companies seeking that much cash. The Lexington company is developing a weight-loss device, and the money was vital to commercialize the product overseas and start new US trials.
“The US IPO market was closed,’’ said Michael Carusi, a general partner at Advanced Technology Ventures, one of GI Dynamics’s early investors. “And we didn’t want to do two $40 million private rounds.’’
So on Sept. 7, GI Dynamics went public in Australia. Combined with a simultaneous private offering, that brought in $80 million.
Why Australia? GI Dynamics introduced its EndoBarrier Gastrointestinal Liner to the Australian market last month.
“When companies launch products in a market, investors there hear buzz,’’ Carusi said. Secondly, he added, Australian investors have more of a buy-and-hold mentality than US investors do.
That patience may come in handy. The company hopes to get regulatory approvals around the world to use its device to treat two related epidemics: obesity and type 2 diabetes. It’s an ambitious plan, especially with the Food and Drug Administration under pressure to improve its scrutiny of medical devices.
The 2-foot EndoBarrier can be implanted in the intestine during a minimally invasive endoscopic procedure. It acts as a block, slowing digestion and intervening in metabolism. The results are improved glucose control and weight loss - similar to the effects of gastric bypass surgery, but without an invasive procedure. The EndoBarrier can be easily removed.
EndoBarrier was approved in Europe in 2009 and is also on the market in Chile.
Cash from the Australian IPO will help GI Dynamics expand overseas and prepare for the US regulatory process, said Stuart Randle, chief executive. The FDA approved plans for a pilot study that should begin next year.
GI Dynamics has been working to understand exactly how the EndoBarrier works. In March, it released data from three studies. In one involving 17 obese patients, EndoBarrier boosted levels of two critical gastrointestinal hormones: glucagon-like peptide-1 (GLP-1) and peptide YY (PYY). In a study of 22 patients, 12 months of EndoBarrier use promoted 39 percent weight loss. Insulin, cholesterol, and triglycerides returned to normal.
Lee Kaplan, director of the Obesity, Metabolism, and Nutrition Institute at Massachusetts General Hospital, said short-term treatment with EndoBarrier could be useful. For example, normalizing weight and glucose levels “would be very valuable to a woman wanting to get pregnant,’’ said Kaplan, who has participated in some of GI Dynamics’s research efforts. No doubt, the diabetes would return when the device was removed, he said, “but that return would be slow.’’
Just about all the major pharmaceutical companies have their own venture capital funds to invest in biotech start-ups, and now one of the real biggies, Merck & Co., has joined the club.
Merck, based in Whitehouse Station, N.J., has established the Merck Research Venture Fund with $250 million to invest around the world, according to In Vivo, an industry publication.
The new operation is led by senior vice president David Nicholson. Merck also has set up a Global Health Innovation Fund with another $250 million.
The Merck Research fund “is making strategic LP investments in a small number of geographically diverse life-science venture firms. While we expect to make direct investments in biotech companies in the future, we are not yet doing so,’’ spokesman Ian McConnell said.
Big pharma companies are struggling to come up with new products to replace aging blockbusters that are losing patent protection as generic competitors emerge. That need has helped create an opening for Big Pharma VC firms to invest in biotech start-ups, particularly as traditional biotech VC firms have been stuck by the lack of an IPO market to provide a reward for their efforts.
Pfizer Inc., GlaxoSmithKline PLC, Novartis AG, Eli Lilly & Co., Roche, Johnson & Johnson, and AstraZeneca PLC have all found themselves in a position to fill some of the void in early-stage biotech investing in the past few years.
According to In Vivo, the Merck Research Venture Fund will enable Merck to invest in early-stage start-ups, offer its scientists as advisers, and provide Merck’s dealmakers with an inside track in negotiations when it’s time for the small company to strike a partnership.
■NABsys Inc., a Providence gene-sequencing start-up, has closed a $10 million Series C investment led by return investor Stata Venture Partners, the Needham firm founded by Analog Devices Inc. cofounder and chairman Ray Stata. The new money, which brings total financing to $21 million, will go to development and commercialization of the company’s solid-state electronic systems for single-molecule DNA sequencing.
■Genentech, of South San Francisco, Calif., is seeking FDA approval for vismodegib, a new drug for people with a deadly type of skin cancer that can’t be surgically removed. The drug, which Genentech developed in collaboration with Lexington-based Curis Inc., was shown to shrink tumors significantly in 43 percent of patients who had basal cell carcinoma that had spread in the vicinity of a skin lesion, and for 30 percent of patients whose disease had spread throughout the body.
Last month, Genentech won approval for another new cancer drug, vemurafenib (Zelboraf) for patients with a different kind of skin cancer, metastatic melanoma. That drug was developed with Plexxikon Inc.
This report was compiled by the editors of Xconomy. For more New England coverage, visit www.Xconomy.com/boston.