BioPharma IPO Tranzyme: Strong Strategic Partners

Includes: BMY, OCRX
by: IPOdesktop

Tranzyme (TZYM) is scheduling a $60 million IPO with a market capitalization of $182 million at the price range mid-point of $12, for Thursday, March 24, 2011.

CONCLUSION -- Tranzyme is a clinical stage biopharma company with strong strategic partners, including Bristol-Myers Squibb (NYSE:BMS) and Norgine. At the price range mid-point of $12, TZYM is priced at 3.8 times tangible book value, in range for companies in their stage of development.

OUTLOOK -- TZYM expects future revenues to increase from historical levels as a result of the deferral and subsequent amortization of the upfront payments received under the collaboration agreement with BMS and the Norgine license agreement and research service revenue being recognized for the collaboration agreement with BMS. In addition, TZYM’s revenue will increase if the company achieves development, regulatory and commercial milestones as specified in agreements.

TZYM Valuation Metrics

TZYM "expects to incur significant operating losses over the next several years as it completes the development of, and seek regulatory approval for, product candidates and develop other product candidates."

BUSINESS -- The company is focused on discovering, developing and commercializing novel, first-in-class small molecule therapeutics for the treatment of gastrointestinal (GI) motility disorders in both the acute (hospital-based) and chronic settings. It is estimated that GI motility disorders, which are sometimes referred to as functional GI disorders, affect two in five people in the United States alone.


Norgine, B.V. -- In June 2010, TZYM entered into a license agreement with Norgine, a leading, GI-focused European specialty pharmaceutical company, to co-develop and commercialize ulimorelin in licensed territories that include Europe, Australia, New Zealand, Middle East, North Africa and South Africa.

Under the terms of the agreement, TZYM received a nonrefundable, upfront license fee of $8.0 million. In addition, Norgine purchased 1,047,120 shares of Series B convertible preferred stock for $1.91 per share, resulting in total net proceeds of $2.0 million.

The agreement contains potential development, regulatory and commercial milestone payments that, if achieved, could provide TXYM with additional cash payments of up to $32.0 million, including the purchase of $1.0 million of additional shares of capital stock.

TZYM may receive sales milestone payments of up to $120.0 million and tiered royalties as a percentage of net sales beginning in the low teens escalating up several tiers to the high twenties on sales of any successfully commercialized products within the licensed territory.

The $8.0 million nonrefundable up-front payment is being deferred and recognized on a straight-line basis over 31 months, the estimated period of time of the core development phase of the collaboration. As of December 31, 2010, TZYM had not received any milestone or royalty payments. Under the agreement, Norgine will share the cost of Phase 3 clinical trials and the cost of procuring clinical manufacturing supply for the trials.

Bristol-Myers Squibb Company -- In December 2009, TZYM entered into a collaboration agreement with BMS to discover, develop and commercialize additional novel compounds discovered using TZYM’s MATCH technology platform.

BMS is funding TZYM’s early lead discovery efforts on these targets and is also primarily responsible for optimizing the identified lead compounds. BMS will be solely responsible for preclinical and clinical development of all product candidates arising from the collaboration and, if successful products are developed, for their commercialization globally.

As part of the agreement, TZYM received a $10.0 million nonrefundable upfront license fee, and TZYM may receive up to $80.0 million in additional development milestone payments, and $30.0 million in sales milestone payments, for each target program if development and regulatory milestones, or commercial milestones, respectively, are achieved. In addition, TZYM would receive single-digit percentage royalties and sales milestone payments on sales of successful products.

The $10.0 million nonrefundable upfront license fee is being deferred and recognized on a straight-line basis over thirty months, the estimated initial research and collaboration period of the agreement

USE OF PROCEEDS -- TZYM will use its $54 million war chest to fund the continued clinical development of ulimorelin, including two Phase 3 clinical trials, to fund the continued clinical development of TZP-102, including the planned 12-week Phase 2b clinical trial and for other general corporate purposes.

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