IPO Preview: Zosano Pharma

Jul.31.14 | About: Zosano Pharma (ZSAN)

Summary

Clinical stage specialty pharmaceutical company that has developed a proprietary transdermal microneedle patch system to deliver its proprietary formulations of existing drugs through the skin.

2 times book, early stage.

14% of the IPO is spoken for.

Based in Fremont, CA, Zosano Pharma (NASDAQ:ZSAN) scheduled a $70 million IPO on the Nasdaq with a market capitalization of $134 million at a price range midpoint of $11 for Thursday July 31, 2014.

The full IPO calendar is available at IPOpremium

SEC Documents

Manager, Co-Managers: Wedbush PacGrow Life Sciences, Ladenburg Thalmann, Roth Capital Partners

Joint Managers: None

End of lockup (180 days):

End of 25-day quiet period:

Summary

ZSAN is a clinical stage specialty pharmaceutical company that has developed a proprietary transdermal microneedle patch system to deliver its proprietary formulations of existing drugs through the skin for the treatment of a variety of indications.

Valuation

Glossary

Accumulated deficit ($mm)

-$127

Per share dilution

-$5.51

Valuation Ratios

Mrkt Cap ($mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

annualizing Q1 '14

Zosano Pharma

$134

21.0

-14.0

2.0

2.0

52%

Click to enlarge

Conclusion

The rating is neutral

2x book, early stage

14% of the IPO is spoken for

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

Business

ZSAN is a clinical stage specialty pharmaceutical company that has developed a proprietary transdermal microneedle patch system to deliver its proprietary formulations of existing drugs through the skin for the treatment of a variety of indications.

ZSAN's microneedle patch system offers rapid onset, consistent drug delivery, improved ease of use and room-temperature stability, which ZSAN believes often are unavailable using oral formulations or injections.

ZSAN's microneedle patch system has the potential to deliver numerous medications for a wide variety of indications in commercially attractive markets.

By focusing its development efforts on the delivery of established molecules with known safety and efficacy and premium pricing, ZSAN plans to reduce its clinical and regulatory risk and development costs and accelerate its time to commercialization.

ZSAN's short-wear-time transdermal patch consists of an array of titanium microneedles that is coated with its proprietary formulation of an existing drug and attached to an adhesive patch.

When the patch is applied with ZSAN's hand-held applicator, the microneedles painlessly penetrate the skin to a depth of 200 microns or less, resulting in rapid dissolution and absorption of the drug coating through the capillary bed.

ZSAN believes its system enables rapid and consistent delivery of the drug, with therapeutic effect typically occurring within 30 minutes or less, and easy, pain-free administration.

ZSAN focuses on developing specific formulations of approved drugs to be administered by its microneedle patch system, for indications in which rapid onset, ease of use and stability offer significant therapeutic and practical advantages.

ZSAN targets indications with patient populations that ZSAN believes will provides it with an attractive commercial opportunity. ZSAN's lead product candidates, and the indications they are expected to treat, are as follows:

Weekly ZP-PTH, for severe osteoporosis;

ZP-Glucagon, for severe hypoglycemia; and

ZP-Triptan, for migraine.

Dividend Policy

No dividends are planned.

Intellectual Property

As of April 30, 2014, ZSAN held licenses to 22 United States patents and eight United States patent applications, as well as numerous foreign counterparts to many of these patents and patent applications, covering key features of ZSAN's microneedle patch system, such as formulation, coating, array design, patch anchoring, patch application, delivery, manufacturing and packaging.

These patents are foundational and apply generally to each of its lead product candidates and their related applicators.

Competition

Companies marketing or developing products that treat severe osteoporosis that may compete with ZSAN's Weekly ZP-PTH product candidate include Amgen, Inc., Eli Lilly and Company and Radius Health, Inc.

5% stockholders

BMV Direct SOTRS LP 39.58%

New Enterprise Associates 12 34.91%

Vikram Lamba 13.53%

Peter Daddona 6.87%

Use of proceeds

ZSAN intends to use the $64 million in proceeds from its IPO as follows:

$8 million to complete our planned clinical development of our ZP-Glucagon product candidate;

$11 million to complete our planned Phase 2 clinical trial of our Weekly ZP-PTH product candidate;

$5 million to complete a Phase 1 clinical trial and a Phase 2 clinical trial of our ZP-Triptan product candidate;

$7 million to expand and enhance our manufacturing capabilities by purchasing new equipment, enlarging our manufacturing facilities and refining our manufacturing processes and systems to enable commercial-scale production;

$3 million to make required payments of interest and principal as they become due under our term loan facility with Hercules Technology Growth Capital (which bears interest per annum at a floating rate equal to the greater of (NYSE:I) 12.05% and (ii) 12.05% plus the "prime rate" as reported in The Wall Street Journal minus 5.25%, and which matures in June 2017) and under the note payable to the largest stockholder, an affiliate of BioMed Realty Trust (which bears interest at the same rate as the Hercules loan while the Hercules loan is outstanding and otherwise at 8% per annum, and which matures in April 2016 but is not permitted to be repaid while the Hercules loan is outstanding); and the remainder for working capital and general corporate purposes.

Disclaimer: This ZSAN IPO report is based on a reading and analysis of ZSAN'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: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.