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Based in Austin, TX, LDR Holding (LDRH) scheduled a $75 million IPO with a market capitalization of $340 million at a price range mid-point of $15 for Wednesday, October 9, 2013.

Seven IPOs are scheduled for this week. The full IPO calendar can be found at IPOpremium.

S-1 filed September 19, 2013

Manager, Joint Managers: Piper Jaffray; William Blair; Bryan Garnier
Co-Managers: Cowen; JMP Securities; Stephens

Summary

LDR is a medical device company providing platforms and products for spinal surgery. In August 2013, LDRH received FDA approval to market a new product targeted towards one of the fastest growing spinal surgery segments.

For the six months ended June 30, 2013, sales were up 16% to $52 million from $45 million for the six months ended June 30, 2012. Losses dropped to $.5 million from $1.5 million and gross profit stayed 84%, a high level.

The 2012 cervical disc replacement market was only $147 million, but is projected to grow to $601 million by 2018.

Valuation

Valuation Ratios

IPO Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing June 6 mos

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

ranked by price-to-sales

LDR Holding (LDRH)

$340

3.3

-35.4

5.3

6.2

22%

Globus Medical (GMED)

$1,600

3.8

29.6

3.8

3.8

Stryker (SYK)

$25,600

2.9

24.8

3.0

6.4

NuVasive (NUVA)

$1,008

1.6

-84.0

1.8

3.4

Glossary

Pro forma, as adjusted accumulated deficit: -$74 million.

Conclusion

Neutral to positive on the IPO because LDRH expects to continue to lose money. It needs to build its own sales force through distributors to sell the new FDA approved product and that could take more time and money than anticipated.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:

Business

LDRH is a global medical device company focused on designing and commercializing novel and proprietary surgical technologies for the treatment of patients suffering from spine disorders.

The primary products are based on the VerteBRIDGE fusion and Mobi non-fusion platforms, both of which are designed for applications in the cervical and lumbar spine.

LDRH believes its VerteBRIDGE and Mobi platforms enable products that are less invasive, provide greater intra-operative flexibility, offer simplified surgical techniques and promote improved clinical outcomes for patients as compared to existing alternatives.

Recent development

In August 2013, LDRH received approval from the U.S. Food and Drug Administration, or FDA, for the Mobi-C cervical disc replacement device, the first and only cervical disc replacement device to receive FDA approval to treat both one-level and two-level cervical disc disease. Industry sources expect that the cervical disc replacement market, which is currently relatively small, will be one of the fastest growing segments of the U.S. spine implant market.

However, "We expect to continue to incur losses in the near term." S-1, page 77.

Clinical trial results

"In the two-level arm of the Investigational Device Exemption (IDE) trial, Mobi-C demonstrated superiority in overall trial success compared to anterior cervical discectomy and fusion (ACDF), which is a standard option for treating cervical degenerative disc disease."

Source: August 28, 2013 press release

Market

LDRH estimates that 30% of U.S. patients indicated for surgery with symptomatic cervical disc disease may be candidates for two-level cervical disc replacement procedures. The cervical disc replacement market had sales of $147 million in 2012 and is estimated by industry sources to grow to $601 million by 2018.

To support the launch of Mobi-C in the United States, LDRH intends to leverage its extensive international experience with Mobi-C, including clinical and commercial knowledge accumulated from more than 17,000 Mobi-C implantations outside the United States.

Highly differentiated according to LDRH

According to the company, LDRH's highly differentiated VerteBRIDGE fusion platform targets the cervical and lumbar spine fusion markets.

While these products only address a specific segment of the overall spine implant market, which segment represented $3.9 billion of sales in 2012, LDRH's VerteBRIDGE products have been used in more than 30,000 device implantations since the introduction of the VerteBRIDGE platform in 2007.

LDRH's Mobi non-fusion platform is highlighted by Mobi-C, a cervical disc replacement device with a patented mobile bearing core facilitating a range of motion similar to a healthy disc.

LDRH estimates that non-captive independent sales agencies drive 35% of total U.S. spine market revenue, and Mobi-C is the only cervical disc replacement device currently available to this large independent sales agency network. In order to take advantage of this large independent sales agency network, LDRH expects to increase its U.S. sales organization by hiring additional sales managers, expanding the independent sales agency network, and recruiting and hiring lead direct sales representatives.

Global

LDRH currently generates revenue in more than 25 countries globally, and revenue from outside of the United States represented 29% of total revenue in 2012.

Intellectual property

As of September 19, 2013, LDRH owned over 300 issued patents globally, of which 26 were issued U.S. patents. As of September 19, 2013, LDRH owned over 100 patent applications pending globally, of which 27 were patent applications pending in the United States.

Issued patents expire between 2020 and 2031, subject to payment of required maintenance fees, annuities and other charges

Competition

Significant competitors include Medtronic Spine and Biologics, DePuy Synthes Spine (a division of Johnson & Johnson), Globus Medical, Nuvasive and Stryker, which together represent a significant portion of the spine market.

Each of these significant competitors compete in both the traditional and non-traditional product markets. In particular, each of these significant competitors have products that directly compete with LDRH's VerteBRIDGE fusion platform.

Several of these significant competitors also have products that directly compete with LDRH's Mobi non-fusion platform, including Prodisc-C from DePuy Synthes Spine, Prestige ST and Bryan from Medtronic, Secure-C from Globus Medical and PCM from Nuvasive.

LDRH also competes with many other spine market participants such as Alphatec Spine, Biomet Spine, Integra, Orthofix International and Zimmer, whose products generally have a smaller market share than the significant competitors listed above but a larger market share than LDRH's products.

5% shareholders pre-IPO

Entities affiliated with Paris Orléans SCA, 21.1%
Austin Ventures VIII, L.P., 18.3%
Entities affiliated with Telegraph Hill Partners, 17.3%
Entities affiliated with PTV Sciences, 11.3%

Use of proceeds

LDRH expects to net $66 million from its IPO. Proceeds are allocated as follows:

. $4.0 million to $6.0 million to launch Mobi-C in the U.S. market;
. $10.0 to $15.0 million to continue to expand U.S. and international sales and marketing efforts;
. $6.5 million to continue to invest in research and development program;
. $17.6 million for Series C preferred stock holders as compensation to force their conversion to common stock
. $12.8 million to repay debt
. Balance for working capital and general corporate purposes.

Disclaimer: This LDRH IPO report is based on a reading and analysis of LDRH'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: LDR Holding