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scheduled to open week of 9/25/00...looks attractive as its the first hardware maker specifically aimed at proteomics sector...from WFN: CIPH, 5 million, $14-$16, SG Cowen Pre-Offering Analysis The DNA biochip has been instrumental in the genomics revolution. However, a similar capability has not been available to the new and potentially more lucrative science of proteomics. Protein analysis has been limited to slow and labor intense chromatography, mass spectrometry, and 2-D gel electrophoresis methods. This is the first firm to introduce the efficiencies of biochip technology to the complex world of proteomics. As a result, research formerly requiring months has the potential of being completed in days. The firm’s products consist of laser based chip readers, analysis software, and disposable single use protein biochips. Consequently, there is an opportunity for on-going revenue from each installation. The firm is also creating a series of research centers, in collaboration with leading labs, to conduct fee-based research. The firm will retain rights to any protein biomarker discoveries made at these centers. Although a “beta” version of the system was introduced in 3Q’97, the first commercial version did not become available until 5/00. Early reception has been positive but guarded. A new technology, it is being thoroughly tested and validated before any widespread adoption. The firm reports about 100 customers that include all of the leading pharmaceutical and biotech firms, as well as leading government and academic research labs. It has formed a joint venture with Sumitomo for distribution in Japan, and has also developed a global sales force that includes 15 PhD biologists. Typical of the high technology and biotech industries, the firm is currently in a dispute over the scope of its rights to the underlying technology, originally discovered at Baylor University. At issue is the intended fee based research services of its planned centers. Performance has been encouraging but guarded. Despite some revenues generated during the beta testing stage, it only really emerged in 5/99. So growth comparisons may be misleading. Between ’98-’99 revenues increased by 70.8% to $5 million, with a 65.9% gross margin and a $7.6 million operating loss. Reflecting the 5/99 commercial introduction, between 6m’99 and 6m’00 revenues soared by 103.5% to $3.6 million, with a 60.5% gross margin and a $6.3 million operating loss (adjusted for equity charges). The introduction and ramp-up of commercial operations accounts for the apparent decline in 6m’00 operating performance. Valuations are uncertain because this is the first product of its kind. Other firms addressing proteomics research tend to be large and diversified operations. Some loosely related competitors would include Quiagen, which recently traded in the upper half of its 52-week trading range and PE Biosystems, which recently traded around the midpoint. Comparisons with genomic DNA biochip makers are not considered appropriate since they don’t have the same functionality and cannot be used in proteomics. That segment is also being hit with sharp competition following the entry of Corning and Agilent. A recent IPO for a firm using current generation proteomic technology may add some further limited perspective: · Bruker Daltronics, a mass spectrometer maker, was a $104 million deal offered on 8/4/00. Offered at $13, it closed at $23.06 for a 77.4% first day. It recently traded at $34, adding 47.4% in the aftermarket. Reflecting the promise of this new technology and the generally favorable biotech sector valuations, pre-offering demand is reported to be very heavy (Street Scoop: 4 stars). Conclusion: This firm has the kind of breakthrough technology that typically drives early IPO valuations. It has the potential of doing for proteomics what the DNA biochip did for genomics. So the outlook is apparently optimistic. However, the key word is “apparent”. While promising, this is new science that requires further validation before widespread acceptance. The prospects of litigation also add uncertainties. Undoubtedly, this is a speculative, momentum play driven more by promise and the current market enthusiasm for the biotech than fundamentals. A relatively small deal in terms of shares, the impact of a limited number of early motivated buyers may drive early valuations. For similar firms in this position we would anticipate a warm initial reception (e.g., 30+%) with some mild aftermarket appreciation potential. For investors interested in an in-depth examination of the biotech industry, including the proteomic and biochip sectors, a comprehensive Biotech Industry Analysis is available from Worldfinancenet.com. | ||||||||||||
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