Investors Down Under shied away from weight-loss devices maker GI Dynamics (ASX:GID) today after president & CEO Stuart Randle told shareholders that the company may need to raise new funds in order to support its clinical trials.
Although revenues for GI’s flagship EndoBarrier weight-loss implant are "ramping up," the company estimates that the U.S. clinical trial will cost around $35 million and that approval won’t come until 2016. GID dropped about 3.1% on the Australian Exchange today, where shares closed at 63¢.
GI early this year launched the U.S. clinical trial of its EndoBarrier anti-diabetes weight-loss device, a plastic sleeve designed to line the gut and prevent the absorption of food. The U.S. trial will span 25 U.S. sites, enrolling up to 500 obese patients with uncontrolled Type II diabetes and assessing changes over a period of 12 months.
"This is a big trial… It’s not an inexpensive trial," Randle told shareholders during a conference call today. "When you have the enormous markets with the enormous opportunity, doing it the right way is not trivial and not inexpensive."
Earlier studies demonstrated that the EndoBarrier helps control blood sugar levels and induce weight loss of up to 20% in a year. The device won CE Mark approval in the European Union in 2010 and hit the market in Australia the next year.
The U.S. represents an enormous market for EndoBarrier, but the costly path to FDA approval may keep the company from hitting a cash-flow positive status for another few years. In the mean time, GI Dynamics is "evaluating different scenarios under which we could raise additional capital right now," Randle said.