Here are this week’s upcoming technology IPOs:
Coherus BioSciences
Ticker: (NASDAQ: CHRS)
Expected to Trade: Thursday, November 6
Price Range: $12.00-$15.00
Business Description
Coherus BioSciences is a late-stage biotech development company. The company uses a proprietary clinical platform to develop biosimilars, which are essentially just generic and less-costly versions of expensive name-brand biologics. In other words, it makes knockoffs of some of the world’s top-selling medical treatments.
Coherus will be one of the market’s only pure plays in the biosimilar space, and it has unique access to analytics, process science, and clinical and regulatory capabilities. In short, the company’s business model is to efficiently move clinical biosimilar candidates through drug development.
The company’s current pipeline includes three biosimilar candidates focused on various inflammatory indications including, but not limited to, psoriasis, arthritis, Crohn’s disease, and ulcerative colitis:
Coherus’s most advanced biosimilar is a phase III copy of Amgen’s (NASDAQ: AMGN) blockbuster biologic Enbrel, a treatment for rheumatoid arthritis and psoriasis. Coherus won a partnership with Baxter (NYSE: BAX) earlier this year, which will pay up to $246 million for commercial rights in Europe, Canada, Brazil, and other international markets.
Our Take
Generic drugs are in high demand worldwide because of the drastic need to contain escalating health care costs. Biosimilars are especially in demand because the biologics they mimic are, on average, 20 times more expensive than chemical drugs. Biosimilars generally cost 70% to 80% of the price of the original biologic and will offer potential global health care savings in excess of $300 billion by 2029.
Through 2020, 24 different “blockbuster” biologics, each with annual sales in excess of $1 billion, will lose patent exclusivity in one or more major pharmaceutical market. This opens the door wide for the biosimilar market and will bode quite well for companies like Coherus.
Coherus is currently holding $108 million in cash, with an additional $85 million expected from IPO proceeds. At its current burn rate, that would give Coherus another three years before the need for additional financing.
As a late-stage development company, Coherus should be able to get its products to market fast, so three years would be an ample buffer to get a commercial product on the market.
Nevro
Ticker: (NYSE: NVRO)
Expected to Trade: Thursday, November 6
Price Range: $15.00-$17.00
Business Description
Nevro is a medical device company that uses neuromodulation to treat chronic pain. The company’s Senza HF10 system is focused on easing lower back pain through spinal cord stimulation (SCS) using electrical pulses.
Nevro’s Senza system differs from traditional SCS in that it provides relief without the side effect of paresthesia, a constant tingling sensation that is the basis of traditional SCS therapy.
Our Take
In a two-year clinical study evaluating Nevro’s HF10 therapy in patients with chronic back and leg pain, data showed a significant reduction in baseline back pain, as well as decreased morphine use.
On average, patients’ baseline back pain scores were reduced from 8.4 to 3.3 on a 10.0 scale, and leg pain scores were reduced from 5.4 to 2.3. Further, oral morphine dosage decreased from an average of 84 mg. per day to 27 mg. per day, and sleep disturbances were also significantly reduced.
In other words, Senza works, and quite well at that.
Senza is already available for sale in Europe and Australia and has grown Nevro’s revenue from $18 million in 2012 to $23 million in 2013 and to an expected $28 million by the end of 2014. The product is expected to launch in the much-larger U.S. market by early 2016 if approved by the FDA.
We see little reason for this not to happen, as clinical data has so far been consistent with outcomes from the European study.
Still, 2015 could prove rough for Nevro and its investors. The company is incurring $26 million in annual losses and doesn’t expect any more revenue growth from its current markets.
Taken straight from Nevro’s prospectus: “Due to market penetration in Europe and Australia, we expect that our future revenue growth, if any, will be largely from sales in the U.S. market, if we receive FDA approval for Senza.”
This one will be worth another look a year down the road.
Upland Software
Ticker: (NASDAQ: UPLD)
Expected to Trade: Thursday, November 6
Price Range: $12.00-$14.00
Business Description
Upland provides a family of cloud-based enterprise work-management software. In short, its applications help businesses allocate employees, time, and money more effectively.
Upland’s software focuses on technology, marketing, finance, and professional service aspects of a business. Its product family offers a wide range of applications including web content management, time and expense tracking, financial management, document and workflow automation, project management and collaboration, and so forth.
Our Take
There are many reasons to like Upland, but here’s the gist of it:
- By the start of 2014, Upland had over 1,200 customers in a wide variety of industries.
- The company has a diversified family of software applications (similar to the Microsoft Office Suite model).
- Its software-as-a-service (Saas) model brings in recurring subscription revenue.
- It has proven M&A capability (six acquisitions completed since 2012).
- The cloud-based platform means lower operational expenses and the ability to release upgrades quickly and efficiently.
- Its customer annual net dollar retention rate was 90% in fiscal 2013.
Most importantly, though, Upland is growing revenue at a rapid pace, which is exactly what you want to see from any young technology company.
From 2012 to 2013, sales increased from $22.7 million to $41.92 million. In the first half of 2014, Upland reported $31.8 million on the top line, up from $18.7 million in the same period of 2013. Upland is on track for a $65 million year, nearly triple its top line in 2012 and 50% greater than 2013.
The company will eventually need to reel in operating costs to make its way out of the red, but the market will most likely be looking at top-line growth in the short term. We like Upland out of the gates.
INC Research Holdings
Ticker: (NASDAQ: INCR)
Expected to Trade: Friday, November 7
Price Range: $17.00-$20.00
Business Description
INC Research Holdings is a global contract research organization (CRO), which means it provides support to the biotechnology industry in the form of outsourced research services on a contract basis. INC focuses on phase I to phase IV clinical development, with particular strength in central nervous system (CNS), oncology, and other complex diseases.
Our Take
CROs are a particularly attractive way to play the biotech industry because they can allow you to sidestep the volatility surrounding major catalyst events such as data releases and regulatory decisions. CROs benefit from high research demand but are not adversely affected when a trial goes wrong.
Additionally, the CRO market is projected to reach $23.6 billion by the end of 2014 and is predicted to grow at a 7.9% CAGR from 2014 to 2018.
INC Research ranked as the “Top CRO” in 2013, according to an industry-wide survey by CenterWatch, a third-party publisher in the clinical trials industry. It has a diversified customer base with several major pharma partners and has grown revenue substantially over the last three years.
INC Research pulled in $655.9 million, $868 million, and $995.1 in 2011, 2012, and 2013, respectively. It posted $13 million in profit in the first half of 2014 (up from a $27 million loss in the first half of 2013) and is well on track for its first billion-dollar year.
All said and done, INC is a company well worth owning.
Sky Solar Holdings, Ltd.
Ticker: (NASDAQ: SKYS)
Expected to Trade: Friday, November 7
Price Range: $10.00-$12.00
Business Description
Sky Solar is a global independent power producer (IPP) that develops, owns, and operates solar parks around the world. It generates revenue primarily by selling electricity.
Sky Solar has a wide geographic reach, owning and operating 51.8 megawatts (MW) of solar parks, including 23.0 MW in Greece, 18.6 MW in Japan, 5.6 MW in the Czech Republic, 3.7 MW in Bulgaria, and 0.9 MW in Spain. The company plans to expand operations into Chile and Uruguay in the short term.
Our Take
Despite our generally bullish outlook on the solar industry right now, Sky Solar isn’t the company to buy in this space. Not only did it lose $53 million in 2013, but its revenues are far too erratic to hint at any form of sustainable growth.
Sky Solar generated $83.1 million in 2011, $203.7 million in 2012, and then $36.5 million in 2013. 2014 looks even worse, with just $14.4 million in revenue for the first half of the year compared to $23.7 million in the same period in 2013.
We highly recommend avoiding Sky Solar’s IPO.
