IsoPlexis Proposes Terms For $125 Million IPO

Summary

• IsoPlexis has filed to raise $125 million in an IPO.
• The firm sells its single-cell analysis platform to researchers worldwide.
• ISO has grown from a low revenue base but is generating high operating losses and the IPO appears priced for perfection; I'll watch it from the sidelines.
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Quick Take

IsoPlexis (NASDAQ:ISO) has filed to raise $125 million in an IPO of its common stock, according to an S-1/A registration statement.

The firm has developed technologies that enable a fuller view of protein function in the human body.

While the firm has promise and is operating in a fast-growing industry, management will need to prove it can produce much higher revenue numbers to grow into its valuation, so I'll pass on the IPO.

Company & Technology

Branford, Connecticut-based IsoPlexis was founded to create a single cell proteomics platform to provide an end-to-end system to 'help develop more durable therapeutics, overcome therapeutic resistance and predict patient responses for' a variety of therapeutic approaches.

Management is headed by co-founder and CEO Sean Mackay, who has been with the firm since inception and previously worked at Lazard as a consultant to life science and medical device companies.

The company's primary offerings include:

• Instruments

• Chip consumables

• Software

IsoPlexis has received at least $154 million in equity investment from investors including Northpond Ventures, Perceptive Advisors, Spring Mountain Capital, North Sound Ventures, Connecticut Innovations, Danaher Innovation Center and BlackRock.

Customer Acquisition

The firm seeks customers among biopharmaceutical firms, major cancer medical centers and researchers worldwide.

As of June 30, 2021, the company had placed 150 systems through its direct sales team as well as through distributors.

Sales and Marketing expenses as a percentage of total revenue have risen sharply as revenues have increased, as the figures below indicate:

Sales and Marketing	Expenses vs. Revenue
Period	Percentage
Six Mos. Ended June 30, 2021	226.4%
2020	130.1%
2019	100.7%

Click to enlarge

(Source)

The Sales and Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing spend, was stable at 0.2x in the most recent reporting period, as shown in the table below:

Sales and Marketing	Efficiency Rate
Period	Multiple
Six Mos. Ended June 30, 2021	0.2
2020	0.2

Click to enlarge

(Source)

Market & Competition

According to a 2021 market research report by Grand View Research, the global market for single-cell analysis was an estimated $2.2 billion in 2020 and is forecast to reach $7 billion by 2028.

This represents a forecast CAGR (Compound Annual Growth Rate) of 15.0% from 2021 to 2028.

The main drivers for this expected growth are an expected increase in government funding for R&D as well as a growing adoption of single-cell analysis techniques by researchers and clinicians.

Also, below is a chart showing the global single cell analysis market in 2020, by end-use type"

(Source)

Major competitive or other industry participants include:

• Becton, Dickinson and Company

• Thermo Fisher Scientific

• Bio-Rad Laboratories

• Others

Financial Performance

IsoPlexis's recent financial results can be summarized as follows:

• Strong growth in topline revenue

• Sharply increased gross profit and downward trending gross margin

• Growing operating and net losses

• Increased cash used in operations

Below are relevant financial results derived from the firm's registration statement:

Total Revenue
Period	Total Revenue	% Variance vs. Prior
Six Mos. Ended June 30, 2021	$ 7,523,000	103.1%
2020	$ 10,387,000	38.4%
2019	$ 7,505,000
Gross Profit (Loss)
Period	Gross Profit (Loss)	% Variance vs. Prior
Six Mos. Ended June 30, 2021	$ 3,944,000	112.4%
2020	$ 5,413,000	27.5%
2019	$ 4,247,000
Gross Margin
Period	Gross Margin
Six Mos. Ended June 30, 2021	52.43%
2020	52.11%
2019	56.59%
Operating Profit (Loss)
Period	Operating Profit (Loss)	Operating Margin
Six Mos. Ended June 30, 2021	$ (31,820,000)	-423.0%
2020	$ (27,278,000)	-262.6%
2019	$ (18,252,000)	-243.2%
Net Income (Loss)
Period	Net Income (Loss)
Six Mos. Ended June 30, 2021	$ (36,113,000)
2020	$ (23,264,000)
2019	$ (13,626,000)
Cash Flow From Operations
Period	Cash Flow From Operations
Six Mos. Ended June 30, 2021	$ (33,861,000)
2020	$ (22,434,000)
2019	$ (14,958,000)
(Glossary Of Terms)

Click to enlarge

(Source)

As of June 30, 2021, IsoPlexis had $68.9 million in cash and $52.2 million in total liabilities.

Free cash flow during the twelve months ended June 30, 2021, was negative ($49.7 million).

IPO Details

IsoPlexis intends to raise $125 million in gross proceeds from an IPO of its common stock, offering 8.33 million shares at a proposed midpoint price of $15.00 per share.

Assuming a successful IPO, the company's enterprise value at IPO would approximate $443 million, excluding the effects of underwriter over-allotment options.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 21.45%. A figure under 10% is generally considered a 'low float' stock which can be subject to significant price volatility.

Management says it will use the net proceeds from the IPO as follows:

We intend to use the net proceeds from this offering for general corporate purposes, including working capital, research and development, sales and marketing activities, general administrative matters, operating expenses and capital expenditures.

(Source)

Management's presentation of the company roadshow is available here.

Regarding outstanding legal proceedings, management says the firm is not subject to any legal actions that it believes would have a material adverse effect on its financial condition or operations.

Listed bookrunners of the IPO are Morgan Stanley, Cowen, Evercore ISI and SVB Leerink.

Valuation Metrics

Below is a table of relevant capitalization and valuation figures for the company:

Measure [TTM]	Amount
Market Capitalization at IPO	$582,663,765
Enterprise Value	$442,683,765
Price / Sales	41.02
EV / Revenue	31.16
EV / EBITDA	-9.32
Earnings Per Share	-$1.23
Float To Outstanding Shares Ratio	21.45%
Proposed IPO Midpoint Price per Share	$15.00
Net Free Cash Flow	-$49,711,000
Free Cash Flow Yield Per Share	-8.53%
Revenue Growth Rate	103.10%
(Glossary Of Terms)

Click to enlarge

(Source)

As a reference, a potential partial public comparable to IsoPlexis would be Bio-Rad Laboratories (BIO); below is a comparison of their primary valuation metrics:

Metric	Bio-Rad (BIO)	IsoPlexis (ISO)	Variance
Price / Sales	7.72	41.02	431.3%
EV / Revenue	7.44	31.16	318.8%
EV / EBITDA	30.10	-9.32	-131.0%
Earnings Per Share	$134.05	-$1.23	-100.9%
Revenue Growth Rate	25.6%	103.10%	303.38%
(Glossary Of Terms)

Click to enlarge

(S-1/A and Seeking Alpha)

Commentary

IsoPlexis is seeking public capital market investment to fund its continued ramp up of commercializing its cell analysis platform.

The firm's financials show a high growth rate in topline revenue, strong gross profit increase, but downward trending gross margin, increasing operating and net losses and growing cash used in operations.

Free cash flow for the twelve months ended June 30, 2021, was negative ($49.7 million).

Sales and Marketing expenses as a percentage of total revenue have risen sharply as revenue has increased; its Sales and Marketing efficiency rate was stable at 0.2x.

The market opportunity for single-cell analysis products is substantial and expected to grow at a very fast rate of 15% through 2028.

Management views the market size as at least $12 billion in the coming years.

Morgan Stanley is the lead underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 13.6% since their IPO. This is a mid-tier performance for all major underwriters during the period.

The primary risk to the company's outlook is its ability to continue to penetrate its target markets against large, entrenched competitors.

As for valuation, while it is a stretch to compare ISO to Bio-Rad due to Bio-Rad's larger product scope, ISO's valuation expectations are quite high in revenue multiple terms.

This valuation expectation, combined with the firm's high operating losses and cash burn, means the IPO appears to be priced for perfection despite only generating revenue at a $15 million annual run rate in 2021.

While the firm has promise and is operating in a fast-growing industry, management will need to prove it can produce much higher revenue numbers to grow into its valuation, so I'll pass on the IPO.

Expected IPO Pricing Date: October 7, 2021

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such 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.

Investing in IPOs is an inherently volatile and opaque endeavor. My research is focused on identifying quality IPO companies at a reasonable price, but I’m wrong sometimes. I analyze fundamental company performance and my conclusions may not be relevant for first-day or early IPO trading activity, which can be highly volatile and unrelated to company fundamentals. This report is intended for educational purposes only and is not financial, legal or investment advice.

Comments

[Cambridge STR]

I bought a few shares and don't regret it. I'll likely buy more. I'm a fan of founder-CEO led companies with strong management teams. Long-term this will be a winner for early, loyal buyers.