Flex Pharma (Pending:FLKS) expects to raise $74.3 million in its upcoming IPO. Based in Boston, Massachusetts, Flex Pharma is a biotechnology firm that is developing proprietary treatments for the relief of leg cramps and spasms caused by neural misfiring.
FLKS will offer 4,615,000 million shares at an expected price range of $12 to $14. If the underwriters price the IPO at the mid-point of that range, FLKS will have a market capitalization of ~$220,000,000.
FLKS filed for the IPO on December 29, 2014.
Lead Underwriters: Jeffries LLC and Piper Jaffray & Co.
Underwriters: Cantor Fitzgerald, JMP Securities, and Roth Capital Partners
Business Summary: Biotech Firm Developing Treatment for Muscle Cramps
With headquarters in Boston, Flex Pharma is developing an innovative treatment to relieve nighttime leg cramps and spasms, generally caused by severe neuromuscular disorders, such as multiple sclerosis. The company cites recent research that shows muscle cramps are caused by the uncontrolled, repetitive misfiring of certain neurons in the spinal cord. Because the proprietary formula that Flex is developing comes from a combination of ginger extract, cinnamon extract and capsicum, Flex expects the treatment to qualify as a dietary supplement.
If correct, Flex may be able to bypass the FDA's process for approving investigational new drugs.
Flex plans to initiate a placebo-controlled, proof of concept study in the second quarter of 2015. At the same time, the company will be developing an over-the-counter formulation that it hopes to launch in 2016. This consumer brand will target athletes who experience exercise-associate muscle cramps (EAMC). These are relatively common muscle cramps and spasms that have no underlying neurological, metabolic, or endocrine causation, but are associated with high-intensity sports, such as running and cycling. The company notes that branded sports drinks often claim to relieve such conditions; however there is no clinical proof of efficacy. Thus, its products would have that edge in the sports supplements sector.
Executive Management Overview - Strong Business, Academic Credentials
CEO and co-founder Dr. Christoph Westphal has co-founded many companies, including Verastem, Alnara Pharmaceuticals, OvaScience, Sirtris, Alnylam Pharmaceuticals, Acceleron Pharmaceuticals, and Momenta Pharmaceuticals. He serves on the Board of Fellows of Harvard Medical School, and he earned his M.D. from Harvard Medical School and a Ph.D. in genetics from Harvard University.
VP of Research and Development and co-founder Jennifer Cermak has significant experience in new product development, candidate selection and Phase IV clinical trials. Her previous experience includes Sirtris, CombinatoRx, and United Therapeutics. She holds a Ph.D. in pathology from Boston University School of Medicine.
VP of Finance John McCabe came to Flex Pharma from ARIAD Pharmaceuticals. He has held senior positions at Charles River Associates, Biogen Idec, Avonex, Tysabri, Rituxan, and Arthur Andersen & Co. He holds an MBA from the University of Massachusetts at Amherst.
Potential Competition: Xenoport, GW Pharma and PepsiCo
Typically, nocturnal leg cramps have been treated with vasodilators, dietary supplements and calcium channel blockers, although these methods have shown mild benefits. For more severe situations, such as those caused by multiple sclerosis, the current methods of treatment include sedatives, muscle relaxants, and Botox injections. Several other biotechnology firms are currently developing treatments, including Xenoport, which is working on r-Baclofen Prodrug, and GW Pharma, which is working on Sativex.
In the consumer market, Flex Pharma will compete directly against makers of sports drinks, such as PepsiCo's (PEP) Gatorade, and makers of dietary supplements.
Valuation - Losses Typical Of A Pre-Commercial Firm
Flex Pharma provided the following figures from its financial documents for the period from February 26, 2014 to September 30, 2014:
Revenue: N/A
Net Income (Loss): (4,268,811)
Total Assets: $36,749,755
Total Liabilities: $803,307
Stockholders' Equity: ($3,586,495)
Conclusion: Consider Buying In
Flex Pharma's losses are typical for a pre-commercial biotech firm; until the company brings its products fully to market, it will not likely be profitable. The time period for doing so could be short, however, given the firm's potential for bypassing traditional FDA processes--encouraging for many investors.
We are very optimistic on FLKS' management team and the large and growing demand for the company's products--although competition looks stiff.
We are hearing the deal is already oversubscribed-and suggest others consider getting in, as well.
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