Seeking Alpha
, IPOpremium (1,190 clicks)
Value, IPOs, long only
Profile| Send Message|
( followers)  

Based in Raleigh, NC, LipoScience (NASDAQ:LPDX) scheduled a $70 million IPO with a market capitalization of $195 million at a price range mid-point of $14 for Friday, January 25, 2013.

Two IPOs are scheduled for the week of January 21st. The full IPO calendar is available here.

S-1 filed January 10, 2013. LPDX started filing for an IPO with the SEC in 2002.

Manager, Joint Managers: Barclays/UBS Investment Bank/ Piper Jaffray

SUMMARY
LPDX's NMR (nuclear magnetic resonance) LipoProfile test provides a risk assessment for cardiovascular events. The test has been ordered over 8 million times. To date, all of the tests have been run at one location.

LPDX is currently developing a NMR-based diagnostic test for use in the prediction of diabetes, including the assessment of insulin resistance.

For the nine months ended September 2012, LPDX generated $41 million in revenue and $1million in pretax profit, with an 82% gross margin.

In August 2012, LPDX received FDA clearance for the Vantera system, which allows test decentralization. LPDX expects to start delivering the Vantera system to some of its clinical laboratory customers in the March 2013 quarter.

Expect Losses
LPDX "expects to incur significant operating losses for the next several years as we seek to establish the NMR LipoProfile test as a clinical standard of care for managing a patient's risk of cardiovascular disease." S-1, page 47.

OBSERVATIONS
LPDX's tests are essentially a recurring business, a positive.

IPOdesktop believes LPDX will show revenue increases from installation of the Vantera system in 2013, and expects LPDX to maintain gross margins in the 80% range.

CONCLUSION
Because LPDX expects to generate near-term losses as it introduces its Vantera system, IPOdesktop would be surprised if the stock prices at within the $13 to $15 range.

For the longer term, however, IPOdesktop expects LPDX stock to increase.

BUSINESS

LPDX is an in-vitro* diagnostic company pioneering a new field of personalized diagnostics based on nuclear magnetic resonance, or NMR, technology.

*"Diagnosis conducted using components of an organism that have been isolated from their usual biological surroundings in order to permit a more detailed or more convenient analysis than can be done with whole organisms." Source: In vitro

LPDX's first diagnostic test, the NMR LipoProfile test, directly measures the number of low density lipoprotein, or LDL, particles in a blood sample and provides physicians and their patients with actionable information to personalize management of risk for heart disease.

To date, the NMR LipoProfile test has been ordered over 8 million times, and the number of tests ordered has grown at a compound annual growth rate of approximately 30% from 2006 to 2011. The NMR LipoProfile test is reimbursed by a number of governmental and private payors, which LPDX believes collectively represent 150 million covered lives.

LPDX's automated clinical analyzer, the Vantera system, has recently been cleared by the FDA. The Vantera system requires no previous knowledge of NMR technology to operate, and has been designed to significantly simplify complex technology through ease of use and walk-away automation.

LPDX plans to selectively place the Vantera system on-site with national and regional clinical laboratories, as well as leading medical centers and hospital outreach laboratories.

DIABETES
LPDX believes that the inherent analytical advantages of NMR technology will also allow expansion of the diagnostic test menu. LPDX is currently developing a NMR-based diagnostic test for use in the prediction of diabetes, including the assessment of insulin resistance.

TESTS CURRENTLY PERFORMED AT ONE LOCATION
LPDX currently performs all NMR LipoProfile testing at its certified and accredited laboratory facilities in Raleigh, North Carolina.

VANTERA FDA CLEARANCE
In August 2012, LPDX received FDA clearance to market its Vantera system commercially to third-party laboratories, which LPDX believes will facilitate its ability to offer the NMR LipoProfile test and any other diagnostic tests that LPDX may develop.

Decentralize
To accelerate clinician and clinical diagnostic laboratory adoption of the NMR LipoProfile test and future personalized diagnostic tests, LPDX plans to decentralize access to its technology platform through direct placement of the new Vantera system, an automated version of the NMR clinical analyzer, on site at clinical diagnostic laboratories and hospital outreach laboratories.

Agreements & discussions
LPDX has entered into agreements with some of its current clinical diagnostic laboratory customers to place the Vantera system in their laboratories.

LPDX currently expects these placements to begin in the first quarter of 2013. LPDX will retain full ownership of any Vantera analyzers placed in third-party laboratories, and will be responsible for support and maintenance obligations.

TECHNOLOGY PLATFORM
LPDX's technology platform combines proprietary signal processing algorithms and NMR spectroscopic detection into a clinical analyzer to identify and quantify concentrations of lipoproteins and, potentially, small molecule metabolites. NMR detectors, or spectrometers, analyze a blood plasma or serum sample by subjecting it to a short pulse of radio frequency energy within a strong magnetic field.

CUSTOMER CONCENTRATION
For the year ended December 31, 2011, and the nine months ended September 30, 2012, LPDX generated 76% and 88% of revenues, respectively, from clinical diagnostic laboratory customers. Sales to one of these laboratories, Laboratory Corporation of America Holdings, or LabCorp, accounted for 33% of revenues for the year ended December 31, 2010, 33% of revenues for the year ended December 31, 2011, and 29% of revenues for nine months ended September 30, 2012.

Sales to a second laboratory customer, Health Diagnostics Laboratory, Inc., accounted for 21% of revenues for the year ended December 31, 2011, and 32% of revenues for the nine months ended September 30, 2012.

LPDX NEES MORE LABORATORY CUSTOMERS
If LPDX does not establish relationships with additional clinical diagnostic laboratories, LPDX may not be able to increase the number of NMR LipoProfile tests it sells.

CALIFORNIA MARKET
LPDX currently does not generate significant revenue from sales of the NMR LipoProfile test to laboratory customers in the State of California.

Among other things, California law restricts a clinical diagnostic laboratory from charging its customers a mark-up on the price of diagnostic tests performed by a third-party laboratory.

LPDX believes that the FDA clearance for the Vantera system will facilitate its ability to drive conversion in the California market by allowing LPDX's clinical diagnostic laboratory customers to perform the NMR LipoProfile test themselves using the Vantera system.

RISK
There is not currently widespread awareness of the NMR LipoProfile test among clinicians, even though the test has been available since 1999.

COMPETITION
LPDX competes against companies that offer other methods for directly or indirectly measuring cholesterol concentrations, lipoproteins or lipoprotein particles.

For example, measuring apolipoprotein B, or apoB, is an indirect way to approximate LDL-P. ApoB tests are offered by many clinical diagnostic laboratories and are generally less expensive than LPDX's tests. It is possible that apoB, or other competing tests, could be perceived by clinicians as more cost-effective than LPDX's test in providing information useful in managing CHD (coronary heart disease) risk.

INTELLECTUAL PROPERTY ISSUES
A significant amount of LPDX's technology, especially regarding algorithmic processes used in the NMR LipoProfile test, is unpatented.

Additionally, the majority of the technology used in LPDX's Vantera system is unpatented. As a result, LPDX is dependent to a significant degree upon unpatented trade secrets and improvements, unpatented know-how and continuing technological innovation to develop and maintain its competitive position.

The patent covering elements of LPDX's NMR LipoProfile test that LPDX previously licensed from North Carolina State University, or NCSU, expired in August 2011.

The U.S. patent LPDX previously licensed from Siemens Medical Systems expired in 2008.

PATENTS
LPDX owns or co-owns, with one of its licensors, seven issued U.S. patents and 10 pending U.S. patent applications, one of which has a pending counterpart PCT application, and three others of which have pending or issued counterpart foreign patents.

EMPLOYEES
As of December 31, 2012, LPDX had 204 employees.

FACILITIES
Corporate headquarters and operations, including the laboratory facility, are located in Raleigh, North Carolina, where LPDX currently leases 83,000 square feet of office and lab space.

USE OF PROCEEDS
LPDX expects to raise $61 million from its IPO. Proceeds are allocated as follows:

. $5.2 million to pay dividends on the outstanding shares of Series F redeemable convertible preferred stock that will convert into common stock;

$22.6 million to hire additional sales and marketing personnel and to support costs associated with increased sales and marketing activities;

$18.0 million for capital expenditures, including components of the Vantera system and other improvements to the laboratory infrastructure;

$4.8 million to fund research and development programs, including the expansion of the diagnostic test menu based on the Vantera system; and

the balance for other general corporate purposes, including general and administrative expenses, working capital and the potential repayment of indebtedness.

Disclaimer: This IPO report is based on a reading and analysis of LPDX's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Source: IPO Preview: LipoScience