Enzymotec IPO From Israel Is Exciting

Includes: ABT, ENZY, NEPT
by: Don Dion

Enzymotec, Ltd. (NASDAQ:ENZY), a developer of lipid-based health products, plans to raise $75 million in its upcoming IPO. The Migdal Ha'Emeq, Israel-based firm will offer 4,412,000 shares at an expected price range of $16.00-$18.00. If the IPO can find the midpoint of that range at $17.00 per share, Enzymotec would command a market value of $391 million.

ENZY filed on July 10, 2013.
Joint Managers: Merrill Lynch, Jefferies LLC
Co-Managers: Wells Fargo, Canaccord Genuity Inc, Wedbush Securities Inc

ENZY is a producer of nutritional ingredients that appear in products ranging from infant formula to nutritional supplements. It also produces branded medical foods which are sold only through medical professionals. ENZY's products include bio-functional lipid-based compounds designed to address dietary needs, medical disorders and common diseases. The firm's proprietary technologies allow it to identify and improve the activity and efficiency of specific lipid-modifying enzymes, which are then applied to restructure lipids in natural sources like krill, fish, and milk, allowing the body to accept lipids which it ordinarily would be unable to process sufficiently.

ENZY was founded in 1998 and launched its first product five years later. The firm has since designed, developed, and launched 11 additional products, which have been sold in over 30 countries. ENZY is probably best known for its development of Vayarin, a prescription food designed to address lipid imbalances associated with ADHD.

ENZY offers the following figures in its F-1 balance sheet for the six months ending June 30, 2013:
Net Revenues: $28,709,000
Net Income: $4,690,000
Total Assets: $62,493,000
Total Liabilities: $16,566,000
Stockholders' Equity: $45,927,000

ENZY reported net revenues, adjusted EBITDA and net income for 2012 of $37.9 million, $7.0 million and $4.8 million, respectively. ENZY further reports that it has increased net revenues by a compounded annual growth rate of 37% from 2009 to 2012, and has increased net revenues by 85% in the first half of 2013 compared to the first half of 2012.

ENZY looks to be an exciting buy; the firm has achieved profitability and continues to grow quickly within its niche market. ENZY likely will be able to support continued product development and revenue growth on the strength of its numerous current products. Since its medical foods require prescriptions, they are likely to gain very consistent customers, as those customers will have been given a regular time and quantity to consume by their doctors. The most recent numbers on net revenues and net income make this IPO hard to resist for growth oriented investors.

ENZY's medical food business currently enjoys an environment with little or no competition, though the firm's prospectus indicates that it expects to have company in the market in the future. Several large multi-national nutrition companies have already expressed interest in developing medical foods, including Nestle (NESN), Danone (OTCQX:DANOY), and Abbott Laboratories (NYSE:ABT).

ENZY faces significantly greater competition in its other product segments. The krill oil market includes competitors such as Aker BioMarine AS, Neptune Technologies & Bioressources Inc. (NASDAQ:NEPT) and Rimfrost USA, LLC. Principal competitors in the PS product line include Chemi Nutraceuticals Inc., Lipoid GmbH and Lipogen Ltd.g

As an Israeli company, ENZY relies upon stable international shipping to deliver to its customers, as fewer than one percent of customers are within Israel, and more than half are outside of the United States. The ongoing concerns of Palestine and the constant instability of the Middle East may occasionally endanger and disrupt operations, though ENZY has not yet suffered much from the issue.

President and CEO Dr. Ariel Katz took his position after serving as the head of the VAYA Pharma segment. Before Enzymotec, Dr. Katz worked with the Dead Sea Bromine Group of Israel Chemicals Ltd. for 14 years in research and development, plant management, marketing and business development. Dr. Katz holds a bachelor's degree in chemistry and a master's degree in economic management from Ben-Gurion University of the Negev, Beer Sheva, Israel, and a PhD in engineering in the field of artificial intelligence from Exeter University, UK. The impressive academic background speaks volumes about Dr. Katz and the firm he works for; he's clearly an executive with a very strong understanding of his company's business.

Disclosure: I am long ENZY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article was written for informational purposes and is partly based on the company's F-1. Investors should consult with their financial adviser before making any investment decisions.