IPO Preview: Aratana Therapeutics

Jun.12.13 | About: Aratana Therapeutics (PETX)

Based in Kansas City, KS, Aratana Therapeutics (NASDAQ:PETX) scheduled a $51 IPO with a market capitalization of $216 at a price range mid-point of $12 for Thursday, June 13, 2013.

Two other new IPOs are scheduled for the week of June 10th. The full IPO calendar is here.

  • S-1 filed May 23, 2013
  • Manager, Joint Managers: Stifel/ Lazard Capital Markets
  • Co-Managers: William Blair/ JMP Securities/ Craig-Hallum Capital Group

SUMMARY

PETX has licensed most of its intellectual property, intending to develop six products for use in pets.

OBSERVATIONS

PETX is still conducting clinical studies and then intends to conduct clinical trials.

VALUATION

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing March qtr

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

Aratana Therapeutics

$216

none

-16.4

3.5

3.5

24%

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Glossary

CONCLUSION

Avoid the PETX IPO because PETX appears to be a very early stage company. The PETX IPO is essentially a request for venture capital. To put the above conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced earlier:

BUSINESS

Since founding in 2010, PETX has licensed three compounds, AT-001, AT-002 and AT-003, that PETX is developing into six products for use in pets in the United States and Europe.

CLINICAL STUDIES & TRIALS

PETX is conducting clinical studies designed to confirm the safety and effectiveness of selected dose regimens, referred to as dose confirmation studies, for AT-001 for the treatment of pain and inflammation associated with osteoarthritis in dogs and for AT-002 for the treatment of inappetence in both cats and dogs.

Once these studies are complete, PETX intends to start clinical studies intended to provide substantial evidence required for regulatory approval, referred to as pivotal effectiveness studies, and assuming OETX enrolls a sufficient number of client-owned pets in a timely manner, PETX expects to have results from these pivotal studies in late-2013 and 2014.

PETX intends to initiate dose confirmation studies for AT-003 for the treatment of post-operative pain in both cats and dogs in mid-2013.

PETX aims to submit new animal drug applications, or NADAs, for U.S. approval for the majority of these potential products in 2015 and 2016 and to make similar regulatory filings for European approval in 2016 and 2017.

The plan is to commercialize products in the United States through a direct sales force, complemented by distributor relationships, and in Europe and rest of world through commercial partners.

COMPETITION

Potential competitors include large animal health companies, such as Merck Animal Health, the animal health division of Merck & Co. (NYSE:MRK), Inc.; Merial, the animal health division of Sanofi S.A (NYSE:SNY).; Elanco, the animal health division of Eli Lilly and Company (NYSE:LLY); Bayer Animal Health, the animal health division of Bayer AG (OTCPK:BAYZF); Novartis Animal Health, the animal health division of Novartis AG (NYSE:NVS); Boehringer Ingelheim Animal Health, the animal health division of Boehringer Ingelheim GmbH; and Zoetis, Inc. (NYSE:ZTS).

PETX believes it will also compete against several animal health companies in Europe, such as the Virbac Group (OTC:VRBCF), Ceva Animal Health (NASDAQ:CEVA) and Dechra Pharmaceuticals PLC (OTC:DPHAF). PETX is also aware of several smaller early stage companies that are developing products for use in the pet therapeutics market.

At the product level, PETX will face competition for AT-001 from Rimadyl, Deramaxx, Previcox and Metacam. PETX is not aware of any direct competitor for AT-002. We expect AT-003 will compete primarily with the non-steroidal anti-inflammatory drugs from the class of cyclooxygenase inhibitors and injectable anesthetics, such as bupivacaine, which is not approved for non-human use but is widely used by veterinarians.

INTELLECTUAL PROPERTY

As of April 30, 2013, PETX licensed approximately 27 issued patents or pending patent applications covering various composition of matter claims as well as methods of treatment.

The key patent that PETX believes covers the crystalline form of the AT-001 compound expires on February 21, 2027, and the key patent that we believe covers certain methods of producing the AT-002 compound expires on February 1, 2020. Each of these patents may be eligible for an award of up to five years of patent term extension upon FDA approval of a commercial use of the corresponding product.

The key patents that PETX believes cover certain compositions and methods of producing the AT-003 compound expire on September 18, 2018.

PATENTS

PETX currently owns one patent application relating to the AT-002 product candidate that covers a method of treating inappetence using AT-002.

USE OF PROCEEDS

PETX expects to net $45 million from its IPO.

$35.0 million is allocated for the development of commercial infrastructure, including establishing a direct sales organization in the United States, and the remaining balance for the potential in-licensing and development of additional product candidates and other general corporate and working capital purposes.

PETX believes that current cash, cash equivalents and short-term investments, together with amounts available under a credit facility, are sufficient to fund each of the current product candidates through development.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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