Valeritas Holdings (NASDAQ: VLRX) Interview with CEO John Timberlake


Valeritas Holdings
CEO: John Timberlake



WSA:  Good day from Wall Street, today, we are joined by John Timberlake, CEO of Valeritas Holdings.  The company trades on NASDAQ, ticker symbol is VLRX,  and they are commercial-stage medical technology company and the maker of V-Go® which is the first and only daily disposable wearable Insulin Delivery Device for patients with type 2 diabetes.  John, it’s great to have you on.

John Timberlake:  Well, thank you, Juan, for giving me the opportunity to share our story today.

WSA:  Certainly, so I want to start by giving our investor audience the idea of the market the Valeritas is addressing and why there is such potential for your technology versus what’s on the market already.

John Timberlake:  Sure.  Now we believe our flagship product which we call V-Go fills a critical need of patients with type 2 diabetes, who can benefit from a simple, more discrete, and a cost-effective way to deliver their insulin, and thereby eliminate the need for them to take multiple daily shots of insulin.  In fact as you mentioned, it is the first and only FDA approved mechanical insulin delivery device that provides both a basa,l which is a continuous background flow of insulin as well as a bolus for an immediate on-demand at mealtime insulin delivery.

The V-Go is small,  it’s easy to use.  And it’s an insulin delivery device that’s worn like a patch.  It’s a pushbutton device that enables the patient to administer insulin continuously over 24-hours and to give themself additional insulin very freely when they eat a meal or they have a snack by simply pushing a button right through their clothing.  Now as I mentioned, it’s worn for 24 hours, has no electronics, it is water resistant.  So, the patient can go about their normal daily activities.

Now as you may know, it’s very important for patients who have type 2 diabetes to manage their blood glucose and to reach their target A1C glucose goal.  AlC is a measurement of blood glucose control because if they don’t keep that glucose levels in check, they can be at a higher risk for serious diabetes complications or cardiovascular disease which obviously is a problem for both them, the patient and their health insurance provider.

Juan Costello:  Sure.

John Timberlake:  Yeah.  So now with respect to size, the market size for the product is really enormous.  Unfortunately, there are a lot of people in United States with diabetes.  In fact, there are over 22 million patients with type 2 diabetes of which about 5.8 million of them are already prescribed insulin every day.  Now of that 5.8 million, about 80% of them or nearly 4.5 million of them have A1C, as I described earlier, that are below their goal.  They are not meeting their goals.  So if we translate that there is an addressable untapped potential $15 billion annual market for V-Go in United States alone.

Juan Costello:  Great.  And John, can you give us a brief history of Valeritas and a synopsis of your recently announced Q1 results?

John Timberlake:  Oh, yeah, of course.  First let me share that V-Go is approved for adults in both United States as well as the European Union.  Now we launched V-Go in United States when we were a private company with a very small team during the second half of 2012.  We took the company public in 2016.  And we subsequently uplisted to NASDAQ in April 2017.  It’s also important to note there has been a substantial amount of capital invested into the company.  And there are significant cost and ethical barriers to entry for any competitors, especially for a product aimed at the type 2 patient population, which can be witnessed by the many disposable devices and companies who have failed or failed to bring it to market.

Now making a device such as a V-Go, a disposable type product on the bench is one thing.  Being able to produce it at commercial scale is a whole another thing.  But we have done that at Valeritas.  In fact, we have had over 15 million of our V-Go devices used by patients since we introduced the product in United States.  So, in 2016 – in the second half of 2016, we did began to move to what we call a more cost-efficient sales and marketing approach.  And today, we have about 50 direct sales representatives in United States, who call on and provide to physicians support and services to a group of physicians that we believe have a high potential to become volume writers of the product.

Now currently we are only calling about 1000 – one thousand of these high volume insulin prescribers with our direct sale force plus a few others that we use in inside sales team.  So we are just scratching the surface and only touching a fraction of the nearly 14,000 doctors in United States, who write a lot of insulin.  So regarding our financial results, we most recently announced our first quarter results.  And I am really proud to say it was our third consecutive quarter of record revenue.  In fact, for the first quarter 2018, we reported revenue of 6.1 million, which was a 32% increase over first quarter of 2017.

We also had a substantial improvement in our gross margins which grew to a record 47.6%, which is a 10% increase compared to our gross margins in the first quarter of 2017.  And we believe there is a significant scale in our business model.  In fact, as our sales volumes grow, we expect to see gross margins continue to increase.  And we believe gross margins can reach 80% in United States as the business model continues to scale.  But very importantly, we also believe it can be profitable well before reaching the 80% margin.

Now with respect to the first – excuse me, full year 2018, we believe and expect revenue for the full year to be between 26 and $28 million.  We also expect our quarterly gross margins to increase.  And we expect to end the year with gross margin in the fourth quarter above and excess of 50%.  And finally in the first quarter, we expanded the availability of V-Go to be used by the patients with diabetes globally by partnering with companies that we believe to be the best distributors in each country or market.  So today we have signed agreements with partners to sell or market V-Go in Puerto Rico, Italy, Austria, Germany, Australia, and New Zealand.  And we expect to see meaningful revenue from these new relationships starting in 2019.  And we continue to look for additional agreements that we can expand the availability of V-Go globally.

WSA:  Right.  And so, John, can you speak to some of the currents trends or themes that are driving the sector?

John Timberlake:  Yeah, of course.  I think first it’s very important to realize that non-compliance and the ability to remain adherent to insulin injection regimen is a real challenge out there, especially for patients with type 2 diabetes because they are likely to have many comorbidity or chronic diseases such as high blood pressure, high glucose or high lipids, and other diseases that they are dealing with.

Now third-party studies have shown that some of the main reasons for non-compliance with insulin injection therapy are due to the social stigma surrounding type 2 diabetes where patients are simply too embarrassed or self-conscious to administer insulin injection out in the public.  Additionally, there is a significant amount of inconvenience for patients with type 2 diabetes, who need to be taking multiple daily shots in that they are asked to carry around with them insulin vials or syringes or insulin pens, alcohol wipes in order for them to take an injection during mealtime.

Another published third-party study came out and stated that over 70%,  seven zero percent of all patients of type 2 diabetes were supposed to be taking injections throughout the day including mealtime.  They admitted – those patients admitted that they don’t take insulin outside of their home.  So, obviously these patients are missing a lot of injections around their mealtimes and snacks.  And finally, I think we believe that the all day and all night wearable V-Go a provides solution that addresses both of these really challenging issues.

Patients no longer need to carry all their supply, syringes and pens with them.  They can leave their house with all insulin they need for the day inside their V-Go that they are wearing and it’s worn under clothing, and therefore, allows them to very easily and very discreetly without anybody even noticing to give himself additional insulin by just pushing a button right through the clothing while they at a dinner table or the cafeteria, so no more embarrassment, no more taking shots outside their home.

WSA:  Sure.  And so do you have any clinical data regarding how well V-Go works?

John Timberlake:  Well, we do in fact.  I think we have published a significant amount of clinical data which really validates V-Go’s ability to deliver a very relevant reduction in A1C that glucose level I talked about while also reducing significantly the amount of insulin that they use per day versus taking injections.  In fact, the company just presented new data with the ENABLE Study that – it’s our largest study of V-Go patient to date and we presented at the American Diabetes Association meeting in June and demonstrated significant clinical benefits of V-Go.

That study showed that patients who had type 2 diabetes when they switched from taking insulin injection with pens and syringes and they switched to V-Go, they not only reduced and lowered their blood glucose significantly, they also did so with a lot of less insulin.  The study also very importantly demonstrated that V-Go reduced by over 50% the number of patients with what was considered high risk A1C levels.  That means they had A1Cs above 9% at the beginning of study.

And just in May of this year, Kaiser Permanente presented their own data at the American Association of Clinical Endocrinologist where they demonstrated how they reduced the number of patients with high risk A1Cs by 63%.  And finally, I think it’s very important to note that patients, who have switched from insulin shots to the V-Go, continue to rate the V-Go significantly better in terms of ease of use as well as treatment satisfaction.

WSA:  Well, good.  And so, John, can you please address the cost for type 2 patients and any existing reimbursements insurance coverage?

John Timberlake:  Yeah, I think that’s a great question.  I think obviously cost is in the news a lot today.  And it’s very important to both the patient and the provider.  So unlike many other insulin delivery devices, the majority of the commercial insurance plans reimburse the V-Go as a pharmacy benefit, so that’s more like a drug, so the patient can actually take a prescription and go to a retail pharmacy and pick it up and pay a monthly co-payment.  And this also includes patients who have Medicare where V-Go is actually reimbursed under part D.  That’s D as in drug, so they too go to the pharmacy and pay a co-pay.

So the net of all this is the vast majority patient when they switch from taking insulin shots using pen or syringes, the V-Go is actually cost neutral to the patient on a monthly basis.  And we have shown we can actually reduce the cost to the insurance payers of the plans.

WSA:  Great.  So, yeah, John, certainly appreciate the overview.  And before we conclude, is there anything else our investors should know about Valeritas?

John Timberlake:  Juan, I first of all I want to really appreciate the opportunity to share our story with your audience.  I’ll conclude by saying a few things, okay?  I think and we really believe that V-Go has a potential to really become the insulin delivery method of choice to the millions of patients who have type 2 diabetes and need insulin.  And the revenue potential for Valeritas is substantial.  V-Go is a proven product with significant clinical and economical benefits.  It has established reimbursement both commercial and also Medicare and it being produced at commercial scale.

So just an example, if we can secure just 15 that’s one five percent of the type 2 patients who use mealtime insulin in just the doctors with our current sales force footprint, we can generate $75 million of revenue annually.  Now, with a larger national sales footprint over time, capturing just 15 again one-five percent share of those patients already in the mealtime insulin that will generate $700 million of annual revenue.  And now when you factor in our pipeline of our V-Go related products which we haven’t talked about yet, capturing a 15 or one-five percent share of all type 2s who are currently on any insulin would generate over $1.6 billion annual revenue for V-Go.  So we are very excited about the potential for Valeritas and V-Go to really help a lot of patients with type 2 diabetes.

WSA:  John, once again I would like to thank you for taking the time to join us today and update our audience on Valeritas.  It was great having you on.

John Timberlake:  Thank you again.

WSA:  So, we have been speaking with Mr. John Timberlake, CEO of Valeritas Holdings which trades on NASDAQ, ticker symbol VLRX.

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