Semler Scientific IPO Does Not Have The Semblance Of Success

Feb.13.14 | About: Semler Scientific (SMLR)

Semler Scientific (NASDAQ:SMLR), a medical risk-assessment firm with principal offices in Portland, Oregon, plans to raise $10 million in its upcoming IPO on Friday.

The firm will offer 1.2 million shares at an expected price range of $7.50-$9.50 per share. If the IPO can reach the midpoint of that range at $8.50 per share, SMLR will command a market value of $41 million.

SMLR filed on November 15, 2013.
The IPO's sole underwriter is Aegis Capital Corp which is not a major bracket firm.

Summary

SMLR is an emerging medical risk-assessment firm, seeking to develop and market patented products that help determine patients' risk profiles. The firm believes that it has identified an opportunity for its products in the enactment of recent healthcare reforms, which mandate larger payments for the care of sicker patients. SMLR aims to provide inexpensive methods of identifying these patients, allowing care providers to collect the fullest possible reimbursements. The firm's first FDA-approved product, FloChec, allows healthcare providers to measure arterial blood flow in patients' extremities in an office setting. The following figure demonstrates how FloChec works.

(click to enlarge)Click to enlarge
Source: semlerscientific.com/about-us/

Valuation

SMLR offers the following figures in its S-1 balance sheet for the nine months ending September 30, 2013:

Revenue: $1,493,000.00
Net Loss: ($1,707,000.00)
Total Assets: $2,382,000.00
Total Liabilities: $1,963,000.00
Stockholders' Equity: $419,000.00

SMLR has experienced increasing revenue in recent years-and this growth has been accompanied by decreasing net losses. In the first nine months of 2013 SMLR had a total revenue of $1,493,000 and a net loss of $1,707,000. The same period in 2012 yielded a total revenue of $772,000 and a net loss of $2,085,000.

Competition

SMLR believes the primary competition for FloChec is the standard blood pressure cuff ankle-brachial index, or ABI, device. See illustration below.

Source: www.vascularweb.org/vascularhealth/Pages...-)-.aspx

Variations of this device are made by numerous medical device firms-some of which are established companies, far better capitalized than SMLR.

Management

CEO Douglas Murphy-Chutorian, M.D. has served in his current position since October 31, 2012. Dr. Murphy-Chutorian has over thirty years' experience in healthcare, including stints as a clinician, academician, inventor, entrepreneur, CEO, Chairman of the Board, and consultant to financial firms. Since April 15, 2005, he has been Managing Director of Select Healthcare Capital, LLC. In addition he is a named inventor on more than 30 patents. Dr. Murhpy-Chutorian holds his B.A. and M.D. from Columbia University. He completed his Internal Medicine residency at New York University/Bellevue Medical Center and his fellowship in Cardiology at Stanford University Medical Center. He has served as a faculty member in interventional cardiology at both Stanford and Montefiore Medical Center.

Conclusion

We plan to avoid this IPO.

While SMLR's financial situation is improving, it continues to lose money, and its business strategy carries substantial risk as it depends entirely on the Obama healthcare reforms remaining in effect in their current form. Moreover, it's unclear that FloChec will supplant traditional blood pressure cuff measurements in any significant way. The company has provided scant information about future products.

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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.