Three Medical IPOs Ahead This Week: BioHorizons, Epocrates, Tornier B.V.

Includes: BHZN, EPOC, TRNX
by: IPOdesktop

Miscellaneous medical stocks on tap include BioHorizons (BHZN), Epocrates (NASDAQ:EPOC) and Tornier B.V. (NASDAQ:TRNX). Nine others totaling $1 billion are scheduled -- see IPO calendar & valuation summaries.

BioHorizons' $88 million IPO with a market capitalization of $320 million at the price range mid-point of $16 is scheduled for Thursday, February 3, 2011.

SUMMARY & CONCLUSION – BHZN is speculative, and has lost money for the past three years. 67% of IPO proceeds are to pay debt to BHZN’s largest shareholder, a red flag in view of the financial track record. Sales were flat from 2009 relative to 2008, and increased 20% for the nine months ended September 2010 versus the year earlier period. Gross margin is only 30% (BHZN Valuation Metrics).

Business – manufactures and markets dental implants, plus soft tissue regeneration products for the replacement of missing teeth. According to iData Research Inc., or iData, the worldwide dental implant market, including implants, final abutments and biologics, was $3.7 billion in 2009 and is expected to grow to $7.9 billion by 2015, with a compounded annual growth rate of 13% expected for the market.

Laser Lok Tech Platform -- BHZN’s implant products are based on a proprietary Laser-Lok platform technology as well as enhanced biomechanically-engineered threads. BHZN believes that its proprietary Laser-Lok platform technology is the only technology on the market today for which there is clinical data that supports reduced bone and soft tissue loss which are frequent complications associated with conventional dental implant procedures.

Use of proceeds -- 63mm from sale of 4.7mm shares. Shareholders plan to sell .9mm shares. $42mm (67%( to pay debt held by HealthpointCapital, the principal and largest stockholder, as of September 30, 2010. Balance for general corporate purposes.

Epocrates' (EPOC) $75 million IPO with a market capitalization of $312 million at the price range mid-point of $14 is scheduled for Wednesday, February 2, 2011.

CONCLUSION -- EPOC looks expensive based on low top line revenue growth and very high annualized Price/Earnings ratio of 213. 80% of proceeds going to shareholders. The challenge for EPOC is to monetize free apps used by doctors.

Slow top line revenue growth: revenue up 10% comparing September nine months for 2010 and 2009; revenue up 13% comparing 2009 with 2008 (EPOC Valuation Metrics).

Business -- provides mobile drug reference tools to healthcare professionals and interactive services to the healthcare industry. EPOC believes its products help healthcare professionals make more informed prescribing decisions, enhance patient safety and improve practice productivity. Has worked with all of the top 20 global pharmaceutical companies by sales and over 350 individual pharmaceutical brands to engage with healthcare professionals through EPOC’s interactive services.

User network & platforms -- user network consists of over one million healthcare professionals, including over 300,000, or over 45% of, U.S. physicians. U.S. mobile platforms include Apple (NASDAQ:AAPL) (iPhone, iPod touch and iPad), Android, BlackBerry, Palm and Windows Mobile devices.

Use of proceeds -- $44mm from sales of 3.6mm shares. Shareholders intend to sell 1.8mm shares. $29mm (66%) to pay deferred dividends. Balance for general corporate purposes

Tornier B.V.'s $175 million IPO with a market capitalization of $766 million at the price range mid-point of $20 is scheduled for the week of January 31, 2011.

CONCLUSION -- Expensive leveraged buyout that’s not producing `results. Only 15% top line annual revenue growth since 2009. 19% loss on revenue for the nine months ended September 2010. Adjusting for IPO proceeds debt repayment the loss is still very high, 14% of revenue (TRNX Valuation Metrics).

Business -- global medical device company focused on surgeons that treat musculoskeletal injuries and disorders of the shoulder, elbow, wrist, hand, ankle and foot, referred to as extremity specialists. TRNX sells a broad line of joint replacement, trauma, sports medicine and orthobiologic products to treat extremity joints. Currently sells over 70 product lines in 35 countries.

Income statement adjustment for IPO proceeds
Paying off $115 at 8% reduces interest payment by $9.2mm annually.

Intellectual property -- as of December 27, 2009 filed more than 117 patent applications, with over 305 applications claiming priority to such applications throughout the world and 126 patents issued throughout the world, approximately 85 of which are U.S. patents.

Private equity owned -- Acquired in 2006 by an investor group led by Warburg Pincus (Bermuda) Private Equity IX, L.P., and medical device investors, including The Vertical Group, L.P., Split Rock Partners, L.P., and Douglas W. Kohrs, TRNX’s Chief Executive Officer.

Use of proceeds -- $156mm. Repay $115mm of debt. Balance for general corporate purposes

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.