Expected to Trade: Wednesday, September 24
Price Range: $13.00-$15.00
CyberArk is an Internet security company focused specifically on protecting the business and enterprise market. The company is currently a partner to over 35% of the Fortune 500 companies, 17 of the world’s top 20 banks, and 50% of the world’s top pharmaceutical companies, and it’s VC-backed by Goldman Sachs and Jerusalem Venture Partners (JVP).
CyberArk separates itself from traditional cyber-security firms by focusing directly on what are called privileged accounts — essentially the “keys to the kingdom” for any enterprise. Privileged accounts are used by IT departments to manage critical infrastructure/data and can come in the form of service accounts or applications that require specific privileges and data access.
CyberArk protects these accounts by providing an additional security layer, or proxy, that stands between would-be attackers and the access they’re seeking. This additional layer closely monitors privileged activity and detects malicious behavior.
Despite the fact that the threat of cyber security is often exaggerated, there is no question that the increased networking of enterprise has created serious vulnerabilities for just about every large business currently in operation. With the recent adoption of new technologies such as cloud computing and social networking, IT has become increasingly complex, and larger attack surfaces have been created.
Due to this increasing complexity, modern enterprise is facing a never-ending digital arms race, and in many respects, it’s losing. In fact, it’s estimated that 90% of organizations have suffered a cyber-security breach, according to recent data collected by the Ponemon Institute
Because the broad access of privileged accounts represents perhaps the single most vulnerable aspect of IT infrastructure and company data, CyberArk is inarguably focused on a high-need niche market.
This need is evident in CyberArk’s rapid growth in recent years. From 2011 to 2013, the company increased annual revenue sequentially from $36.4 million to $47.2 million to $66.2 million. These figures represent annual growth of 29.8% and 40.1% in 2012 and 2013, respectively.
You can expect CyberArk’s revenue growth to be aggressive, but don’t put too much faith in the bottom line just yet. The company significantly increased its R&D and Sales and Marketing expenses in the fist three months of 2014, pushing it slightly into the red.
Ultimately, this won’t matter much because the market will be focusing heavily on the top line. CyberArk is just hitting the scene, and investors are going to value growth more than anything else.
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Expected to Trade: Wednesday, September 24
Price Range: $11.00-$13.00
Vitae Pharmaceuticals is a development-stage biotechnology company focused on developing therapeutic candidates for a wide range of diseases in unmet markets. The company develops its drug candidates through a proprietary drug discovery platform known as Contour — a software program that uses algorithms for designing and modeling therapeutics.
The company’s lead candidates include VTP-34072, a phase I candidate for the treatment of type 2 diabetes, and VTP-37948, a phase II candidate for the treatment of Alzheimer’s disease. Data for the diabetes trial is expected in the first half of 2015, and data for the Alzheimer’s trial is expected in the second half of 2014.
If nothing else, Vitae’s approach is both unique and exciting. Leveraging computer software to efficiently design drugs definitely comes off as an incredibly innovative and disruptive approach, but of course, the question is, does it really work?
Contour was originally derived from computational chemistry research initiated at Harvard University, so that’s a start. The system operates by creating a 3D representation of molecules that Vitae’s chemists can edit based on the structure of proteins being targeted.
The program selects protein targets whose physical structures are already well understood and then generates tens of thousands of virtual compounds, figuring out which ones are most likely to have the best binding affinity. In other words, Contour’s algorithms optimize drug design by figuring out how well certain compounds fit together and then matching them together like pieces of a puzzle. In the end, only a few of these virtual molecules make the cut, at which time they’re chemically synthesized and tested for further study.
On average, Vitae has been able to use Contour to produce patentable novel leads (virtual models) within two to six months and animal proof-of-concept data in 10 to 16 months or less. For comparison, it typically takes researchers anywhere between one and six years to develop novel drug candidates from scratch.
At its core, Vitae is a lead-generating company with most of its value in the pre-clinical space. Generally speaking, this is a very cost-intensive area, but Vitae has been able to operate for nine years without seeking additional financing or diluting its VC shareholders
Vitae has been able to accomplish this through a) its rapid and low-cost development process and b) high interest from Big Pharma. Thanks to collaborative revenues, Vitae turned a profit in 2012 and 2013, which is quite a feat for any development-stage biotech with no direct product revenue.
The primary risk here is that all expected milestone payments currently come from a single company — Boehringer Ingelheim (BI) — in collaboration with just two product candidates: VTP-34072 and VTP-37948. If Vitae is unable to secure further collaborations, or if these milestones are not met, the company will likely be forced to dilute shares.
The upside is that potential milestone payments for these two projects total over $600 million (over triple Vitae’s current market cap). Additionally, the company would be eligible for royalties in the upper single digits if these products hit the market.
The company reported $18 million in cash in its prospectus and is expected to pull in about $60 million in proceeds from the IPO. Yearly operating expenses are about $20 million, so our worst-case scenario is four quarters before dilution.
With data for its diabetes trial expected in the first half of 2015 and data for its Alzheimer’s trial is expected in the second half of 2014, Vitae is a solid speculative play. Should these trials hit the mark, further milestone payments will put Vitae in a comfortable financial position.