Seeking Alpha

AnPac Bio-Medical Science Begins U.S. IPO Process

|
About: AnPac Bio-Medical Science (ANPC)
by: Donovan Jones
Donovan Jones
IPOs, tech, alternative investments, CEO VentureDeal.com
Summary

AnPac Bio-Medical Science has filed to raise $20 million in a U.S. IPO, although the final figure may differ.

The firm is researching and commercializing cancer tests based on new technologies.

ANPC has grown revenue from a tiny base but that growth is decelerating and operating losses and cash burn are large and increasing.

Quick Take

AnPac Bio-Medical Science (ANPC) has filed to raise gross proceeds of $20 million from a U.S. IPO, according to an F-1 registration statement.

The firm is focused on developing new technologies for early cancer screening and detection.

ANPC is growing revenue at a decelerating rate and producing high increasing losses and cash burn.

I’ll provide a final opinion when we learn more IPO details from management.

Company And Technology

Lishui, China-based AnPac Bio was founded in 2010 to develop ‘next-generation’ methods for early cancer screening and detection through its patented Cancer Differentiation Analysis [CDA] technology.

Management is headed by Co-Founder, Chairman and CEO Chris Chang Yu, who was previously Co-Founder and President at Anji Microelectronics.

AnPac’s CDA technology is capable of detecting and assessing an individual’s overall cancer risk ‘with high accuracy,’ including early stage cancer by focusing on biophysical properties in human blood, such as acoustical, electrical, magnetic, nano-mechanical and optical properties.

The firm’s CDA device has an integrated sensor system that detects certain biophysical signals in blood samples for analysis by the CDA technology and proprietary algorithm, which measures and analyzes these signals at multiple biological levels (such as the protein, cellular and molecular levels) as well as with multiple parameters (such as the overall CDA value, the protein tumor factor [PTF] value, and the cell tumor factor [CTF] value).

Management says that, according to Frost & Sullivan, AnPac Bio-medical is one of the first biotechnology companies worldwide to focus on the detection and measurement of biophysical properties of cancers.

AnPac has a San Jose, California-based laboratory that is equipped to perform CDA-based tests and biochemical tests. Management says it plans to open a second lab in Philadelphia, Pennsylvania in 2020.

The firm has entered into research agreements with US universities and academic medical centers and is in the process of discussing with US hospitals, medical institutions, contract research organizations, managed care companies as well as other health organizations, to conduct research studies on the CDA technology in its San Jose-based lab.

The company sold 19,336 commercial CDA-based tests in 2017, which increased to 41,607 in 2018, and further grew from 29,036 in the nine months ended September 30, 2018 to 41,544 in the same period of 2019.

Investors in AnPac include Zhangjiang Science & Technology Investment. Source: Crunchbase

Customer Acquisition

The firm plans to commence marketing its CDA-based tests as a laboratory-developed test in 2020 through its CLIA-registered laboratory in San Jose.

Sales and marketing expenses as a percentage of revenue have been uneven, per the table below:

Selling & Marketing

Expenses vs. Revenue

Period

Percentage

Nine Mos. Ended Sept. 30, 2019

132.2%

2018

95.9%

2017

114.1%

Source: Company registration statement

The sales & marketing efficiency rate, defined as how many dollars of additional new revenue generated by each dollar of sales & marketing spend, was a low 0.1x in the most recent nine-month period, as shown in the table below:

Selling & Marketing

Efficiency Rate

Period

Multiple

Nine Mos. Ended Sept. 30, 2019

0.1

2018

0.4

Source: Company registration statement

The firm’s average revenue per test performed has dropped by 20% per reporting period, as shown here:

Average Revenue Per

Test

Period

ARPT

Variance

Nine Mos. Ended Sept. 30, 2019

$27.32

-20.7%

2018

$34.47

-20.3%

2017

$43.24

Market And Competition

According to a 2019 market research report by Grand View Research, the global cancer diagnostics market was valued at $144.4 billion in 2018 and is projected to reach $249.6 billion by 2026, growing at a CAGR of 7% between 2019 and 2026.

The main factors driving forecast market growth are the continuous introduction of innovative products, coupled with an increasing need for early diagnosis of various diseases, as well as the increasing prevalence of oncological diseases.

The Asia-Pacific region is projected to exhibit the highest growth rate due to the availability of skilled technicians at a comparatively lower price, a defined regulatory framework favoring expedited product approvals, as well as the presence of a large patient pool.

Major competitors that provide or are developing cancer screening technologies include:

  • GE Healthcare (GE)
  • Abbott (ABT)
  • F. Hoffmann-La Roche (SWX:ROG)
  • Siemens Healthcare (ETR:SHL)
  • Becton, Dickinson and Company (BDX)
  • Illumina (ILMN)
  • Koninklijke Philips (NYSE:PHG)
  • Hologic (HOLX)

Source: Sentieo

Financial Performance

ANPC’s recent financial results can be summarized as follows:

  • Growing top line revenue but at a decelerating rate of growth

  • Increased gross profit and gross margin, also at a decelerating rate

  • Increasing operating losses and worsening operating margin

  • Growing use of cash in operations

Below are relevant financial metrics derived from the firm’s registration statement:

Total Revenue

Period

Total Revenue

% Variance vs. Prior

Nine Mos. Ended Sept. 30, 2019

$ 1,135,000

16.4%

2018

$ 1,434,000

71.5%

2017

$ 836,176

Gross Profit (Loss)

Period

Gross Profit (Loss)

% Variance vs. Prior

Nine Mos. Ended Sept. 30, 2019

$ 538,000

22.1%

2018

$ 640,000

151.3%

2017

$ 254,706

Gross Margin

Period

Gross Margin

Nine Mos. Ended Sept. 30, 2019

47.40%

2018

44.63%

2017

30.46%

Operating Profit (Loss)

Period

Operating Profit (Loss)

Operating Margin

Nine Mos. Ended Sept. 30, 2019

$ (7,601,000)

-669.7%

2018

$ (6,101,000)

-425.5%

2017

$ (6,018,088)

-719.7%

Net Income (Loss)

Period

Net Income (Loss)

Nine Mos. Ended Sept. 30, 2019

$ (8,248,000)

2018

$ (5,917,000)

2017

$ (5,782,353)

Cash Flow From Operations

Period

Cash Flow From Operations

Nine Mos. Ended Sept. 30, 2019

$ (4,561,000)

2018

$ (4,358,000)

2017

$ (3,182,500)

Source: Company registration statement

As of September 30, 2019, the company had $3.4 million in cash and $15.7 million in total liabilities (unaudited, interim).

Free cash flow during the twelve months ended September 30, 2019, was a negative ($5.8 million).

IPO Details

ANPC has filed to raise $20 million in gross proceeds from an IPO of its ADSs representing underlying Class A shares. The final amount of the IPO may differ.

Class A shareholders will be entitled to one vote per share, and Class B shareholders, who are company co-founders, will be entitled to ten votes per share and conversion rights. The S&P 500 Index no longer admits firms with multiple classes of stock into its index.

Per the firm’s latest filing, the firm plans to use the net proceeds from the IPO are as follows:

for research studies in China and the U.S. and the development of new cancer screening and detection tests and technologies;

for the expansion of our marketing and sales channels in China and our clinical laboratory expansion in the U.S.; and

the balance for general corporate purposes.

Management’s presentation of the company roadshow is not available.

The sole listed underwriter of the IPO is WestPark Capital.

Commentary

ANPC is seeking capital from U.S. investors in a difficult IPO market for U.S. companies, let alone Chinese firms with tiny IPOs.

The company’s financials show a small revenue base that has grown but is now decelerating sharply.

Selling and marketing expenses as a percentage of revenue have been uneven and are at their highest in the most recent reporting period. Other selling & marketing efficiency metrics are poor and the firm is generating less revenue per test.

Operating losses are mounting as is cash used in operations, indicating no discernible path to profitability.

The market opportunity for cancer diagnostics is large and growing at a robust rate as the demand for new testing capabilities grows worldwide.

ANPC’s financial metrics look very challenging, so I’m not optimistic about their chances for a meaningful IPO result.

I’ll provide an update when we learn more IPO details.

Expected IPO Pricing Date: To be announced.

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