Based in Boston, MA, Flex Pharma (NASDAQ:FLKS) scheduled a $60 million IPO on Nasdaq with a market capitalization of $221 million, at a price range midpoint of $13 for Thursday, January 29, 2015. Priced at $16, no change in conclusion.

The full IPO calendar is available at IPOpremium

SEC Documents

Manager, Joint-managers: Jefferies, Piper Jaffray
Co-managers: JMP Securities, Cantor Fitzgerald, Roth Capital Partners

End of lockup (180 days): Monday, February 23, 2015
End of 25-day quiet period: Tuesday, July 28, 2015

Summary
FLKS is a biotechnology company that is developing innovative and proprietary treatments for nocturnal leg cramps and spasms associated with severe neuromuscular conditions.

FLKS’ founders’ novel insights regarding neuromuscular physiology form the basis of the company’s development efforts.

Valuation
Glossary

Accumulated deficit ($mm) . . -$4
Per share dilution . . -$6.27
——————————————–
Valuation Ratios Mrkt. Cap ($mm) Price /Sls Price /Erngs Price /BkVlue Price /TanBV % offered in IPO
Annualizing Sept 9 mos.
Flex Pharma $221 n/a -25.7 2.5 1.9 27%
Note: Accounting inconsistency. Price-to-book is always the same or less the price-to-tangible book

Conclusion
Neutral plus

Treatment for nocturnal leg cramps and spasms

Proof-of-concept study planned for Q2 ’15

Relatively low cash burn rate: P/E of -26

Price-to-book of 2.5

Insiders may purchase $24mm, 40%

3rd-party reimbursement not expected

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business
FLKS is a biotechnology company that is developing innovative and proprietary treatments for nocturnal leg cramps and spasms associated with severe neuromuscular conditions.

FLKS’ founders’ novel insights regarding neuromuscular physiology form the basis of its development efforts.

The company believes that activation of certain receptors in primary sensory neurons reduces the repetitive firing, or hyperexcitability, of alpha-motor neurons, thereby preventing or reducing the frequency and intensity of muscle cramps and spasms.

FLKS also believes that it is the only company developing products based on this mechanism of muscle cramp inhibition.

FLKS intends to initially focus its drug development efforts on developing a product to treat nocturnal leg cramps.

There is no drug product currently available in the United States that has been approved to treat nocturnal leg cramps.

FLKS does not expect any third-party payors to cover and reimburse for its consumer products.

Market
FLKS estimates, based on independent third-party survey results, that four million U.S. adults over the age of 65 suffer from nocturnal leg cramps on a daily basis.

Nocturnal leg cramps are muscle cramps that occur during sleep, and can cause distress, interrupted sleep, reduced quality of life and interference with activities of daily living.

The prevalence of nocturnal leg cramps is widespread and increases with age.

FLKS believes its primary target patient population will include individuals that suffer from nocturnal leg cramps daily or weekly and, based on independent third-party survey results, estimate that approximately four million U.S. adults over the age of 65 suffer from nocturnal leg cramps on a daily basis.

Nocturnal leg cramps also affect people younger than 65, and FLKS believes there is an opportunity to serve this patient population as well.

Studies
FLKS has conducted three randomized, blinded, placebo-controlled cross-over studies of its proprietary treatment, which have shown a statistically significant reduction in the intensity of muscle cramps induced in healthy, normal volunteers.

Proof-of-concept study
In the second quarter of 2015, FLKS intends to initiate at least one human proof-of-concept study of its proprietary treatment for individuals with nocturnal leg cramps.

The protocol for FLKS’ proposed study in the United States has been accepted by an institutional review board, or IRB, and FLKS has submitted a protocol to a local ethics committee in each of the United Kingdom and Australia.

Muscle cramps, spasticity
A muscle cramp is a sudden, painful contraction of a muscle that can last several minutes and, in many instances, results in soreness lasting several days.

Spasticity is an abnormal, involuntary tightness of muscles, including uncontrolled movement, muscle stiffness, difficulty straightening joints, reduced mobility, limb weakness, shaking and pain.

FLKS believes that muscle cramps and spasms result from the hyperexcitability of alpha-motor neurons.

Proprietary treatment
FLKS’ proprietary treatment, which forms the basis of both its drug product and consumer product development efforts, activates the transient receptor potential, or TRP, cation channel receptors in primary sensory neurons in the spinal cord, which enhances overall inhibitory tone in motor neurons throughout the body.

In doing so, FLKS believes its proprietary treatment reduces alpha-motor neuron hyperexcitability, thereby preventing muscle cramps and spasms.

FLKS believes the results from the studies of its proprietary treatment in healthy normal volunteers have validated its approach of using TRP activators to relieve muscle cramps and spasms.

Stretching and systemic treatments, including dietary supplements, vasodilators and calcium channel blockers, have shown some limited benefit in treating nocturnal leg cramps, but these treatments lack durable evidence of clinical efficacy.

Intellectual property
As of January 12, 2015, FLKS owns one pending U.S. utility patent application and one European patent application directed to compositions for preventing, treating or ameliorating muscle cramping.

A patent based on these applications, if issued, would have a statutory expiration in the United States in July 2031 and in Europe in July 2031.

FLKS also owns four U.S. provisional patent applications. Its provisional patent applications are directed at various aspects of its work, including influencing neuromuscular activity by stimulating a TRP channel or acid-sensing ion channel, or ASIC, in the nerve ending of a sensory neuron.

The provisional patent applications include methods for preventing and treating various muscle-related conditions and disorders, and methods of diagnosing and selecting a patient for treatment.

The provisional patent applications also include various uses of TRP or ASIC activators, formulations, compositions of chemical matter, and enabling technology such as the electrical stimulation technique for inducing muscle cramps.

While FLKS seeks broad coverage for its patents, there is always a risk that an alteration to the formulation of its drug product candidates and consumer products may provide sufficient basis for a competitor to avoid infringement claims by FLKS.

Competition
For nocturnal leg cramps, systemic treatments such as dietary supplements, vasodilators and calcium channel blockers have shown some benefit, but the company does not believe any medication has shown evidence of clinical efficacy.

Quinine is taken by some individuals outside the United States, but the FDA banned the over-the-counter use of quinine for the treatment of nocturnal leg cramps in 1994; quinine is presently available only for the prescription treatment of malaria, and its labeling contains a boxed warning against use in treating nocturnal leg cramps.

For patients suffering from MS spasticity, the current treatments include muscle relaxants, sedatives and Botox injections.

Some other biotechnology companies are currently developing drug products to treat MS spasticity, including Xenoport, Inc., which is developing a r-Baclofen Prodrug, and GW Pharma, which is developing Sativex.

Botox injection is the most commonly used treatment for cervical dystonia.

SCI spasticity is treated with physical therapy, including surface electrical stimulation, surgery or drug therapy, including muscle relaxants, sedatives or Botox injections.

FLKS believes its consumer product for the prevention of EAMCs will compete against traditional beverage companies, sports beverage companies and companies developing dietary supplements.

FLKS believes the principal elements of competition in the consumer product industry will be price, brand recognition, distribution channel offerings and the effectiveness of the product.

5% shareholders pre-IPO

Longwood Fund II, L.P. 19.22%

Entities affiliated with Bessemer Venture Partners 9.82%

Christoph Westphal, M.D., Ph.D. 31.46%

Dividends
No dividends are planned.

Use of proceeds
FLKS expects to receive $54 million from its IPO and use it for the following:

$30.1 million to fund research and development efforts of its drug product candidates for the treatment of nocturnal leg cramps and spasms associated with severe neuromuscular conditions;

$11.1 million for the sales and marketing efforts to launch its consumer brand and products; and

the remainder to fund working capital and general corporate purposes, which may include the acquisition or licensing of drug product candidates, technologies, compounds, other assets or complementary businesses.