IPO Preview: Quotient

Apr.15.14 | About: Quotient Limited (QTNT)

Summary

An established, commercial-stage diagnostics company.

Expects operating losses will continue at least for the next several years.

Losses expected due to continuation of its investment in the development and commercialization of MosaiQ™.

Based in Midlothian, United Kingdom, Quotient (NASDAQ:QTNT) scheduled a $75 million IPO on the Nasdaq with a market capitalization of $216 million at a price range midpoint of $15 for Wednesday, April 16, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents
Manager, Joint managers: UBS Investment Bank, Baird, Cowen & Company

Co-Managers: None

End of lockup (180 days): Monday, October 13, 2014

End of 25-day quiet period: Monday, May 12, 2014

Valuation

Glossary

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

Annualizing Dec 9 mos

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

Quotient

$216

10.7

-32.4

3.0

3.1

35%

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Conclusion

The rating on QTNT is neutral.

QTNT expects operating losses will continue at least for the next several years as the company continues its investment in the development and commercialization of MosaiQ™.

Commercial products aren't expected until 2016 and 2017 in, respectively, Europe and the US.

QTNT is priced at 11 times sales and 3 times book.

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

Summary
QTNT is an established, commercial-stage diagnostics company committed to reducing healthcare costs and improving patient care through the development and commercialization of innovative tests for blood grouping and serological disease screening, commonly referred to as transfusion diagnostics.

Revenue
QTNT currently generates revenue from the sale of conventional reagent products directly to hospitals, donor collection agencies and independent testing laboratories in the United States, the United Kingdom and to distributors in Europe and the rest of the world, and indirectly through sales to its OEM customers.

For the nine months ended December '13, revenue increased 38% to $15 million and losses increased to $5 million, or 33% of revenue.

Business

Blood grouping involves specific procedures performed at donor or patient testing laboratories to characterize blood, which includes antigen typing and antibody identification.

Through its subsidiary Alba Biosciences Limited, or Alba, QTNT has over 30 years' experience manufacturing and supplying conventional reagent products used for blood grouping within the $2.8 billion global transfusion diagnostics market.

MosaiQ™

QTNT is developing MosaiQ™, its proprietary technology platform, to better address the comprehensive needs of this large and established market.

If approved for sale, QTNT anticipates full commercial launch for MosaiQ™ in Europe during the second half of 2016 and in the United States during the first half of 2017.

Transformative technology

QTNT believes MosaiQ™ has the potential to be a transformative technology, significantly reducing the cost of blood grouping in the donor and patient testing environments, while improving patient outcomes.

Transfusion medicine

Transfusion medicine demands the highest standard of performance, quality and service.

However, there has not been a major advancement in the automation of transfusion diagnostics over the past two decades.

Consequently, complex and expensive manual testing procedures remain necessary in both donor and patient testing laboratories.

QTNT believes that, if approved for sale, MosaiQ™ will be the first commercially available, fully automated testing platform capable of simultaneously identifying all clinically significant blood-group antigens and antibodies in either donor or patient blood, eliminating manual testing.

MosaiQ™ is also designed to perform all currently mandated serological disease screening tests, such as HIV and Hepatitis, and enable the low cost detection of additional pathogens, thereby increasing the safety of the blood supply.

Growth plan

MosaiQ™ will comprise two separate consumables, one for blood grouping and one for serological disease screening, and initially a high-throughput instrument.

QTNT expects to install the manufacturing system for the consumables and begin formal validation studies of the system by the end of 2014.

Prototype units of the initial MosaiQ™ instrument are also forecasted to be available at this time.

QTNT plans to commence formal field trials for the consumables and the initial MosaiQ™ instrument in the second half of 2015 and expects to file the necessary regulatory submissions to obtain U.S. Food and Drug Administration and other required marketing clearances in the first half of 2016.

QTNT anticipates initial commercial sales of MosaiQ™ consumables, for research use only, in the first half of 2016.

If approved for sale, QTNT anticipates full commercial launch for MosaiQ™ in Europe during the second half of 2016 and in the United States during the first half of 2017.

Dividend Policy

No dividends are planned.

Intellectual Property

QTNT has an issued U.S. patent related to blood typing that expires in September 2027.

This patent provides methods of detecting the presence of red blood cells coated (or sensitized) with host antibody and/or components of the complement system. QTNT received counterpart patents for this U.S. patent in Europe, Australia and Japan, which also expire in September 2027, and filed a counterpart patent application in Canada in September 2007, which is currently pending.

QTNT has recently filed two new UK patent applications.

The first application, filed January 2014, concerns a novel method for cross matching blood using MosaiQ™.

In contrast to prior methods, QTNT's novel cross matching techniques involve fewer steps and QTNT believes these are more efficient.

The second application, filed February 2014, provides a new method for detecting red blood cells, also using MosaiQ™.

The technology finds particular application in immunological assays where it can be used as the basis of positive controls to confirm the addition of red blood cells.

Competition

QTNT currently competes with established diagnostic companies that design, manufacture and market instruments and consumables for blood grouping.

QTNT believes its principal competitors in the transfusion diagnostics market are Ortho, Immucor and Bio-Rad.

5% stockholders

QBDG 42.3%

Galen Partners 52.5%

Paul Cowan 42.6%

Zubeen Shroff 52.5%

John Wilkerson 52.5%

Use of proceeds

QTNT expects to net $67 million from its IPO. Proceeds are allocated as follows:

To invest

(i) $26 million on the conversion of its recently leased MosaiQ™ manufacturing facility in Eysins, Switzerland and the installation of the initial manufacturing system for consumables and

(ii) approximately $28 million on the development of the initial MosaiQ™ consumables and instrument.

QTNT intends to use the balance of the net proceeds of this offering for general corporate purposes.

Based on its current cost estimates, QTNT believes the net proceeds of this offering will be sufficient to complete the conversion of the Eysins facility and the development of the initial MosaiQ™ consumables and instrument.

The remaining net proceeds, together with QTNT's existing capital resources, will be sufficient to fund its remaining expected development costs for MosaiQ™ through the completion of formal field trials.

Disclaimer: This QTNT IPO report is based on a reading and analysis of QTNT'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.

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.