Top25-SA-Banner
IPOdesktop

About the Author IPOdesktop

During the IPO season Francis Gaskins, editor of IPOdesktop.com & director of research for Equities.com, regularly appears on CNBC TV, Bloomberg, thestreet.com & other financial cable channels. On the day of the Visa IPO he appeared on four cable TV financial shows including Bloomberg & CNBC. Over the past five years he has been quoted over 500 times by such financial media as the Wall Street Journal, Bloomberg, Reuters, Associated Press, USA Today among others. Those quotes are available at IPOdesktop.com. His varied personal interests include violin playing. For example, he is concertmaster of the Palisades Symphony. He also holds an MBA from Harvard Business School (finance) and an AB from Princeton University (economics).

IPO Preview: Asante Solutions


Based in Sunnyvale, CA, Asante Solutions (Pending:PUMP) has scheduled a $49 million IPO on Nasdaq, with a market capitalization of $167 million, at a price range midpoint of $14, for Thursday, February 5, 2015.

The full IPO calendar is available at IPOpremium.

SEC Documents

Manager, Joint-managers: Leerink Partners, Cowen & Company
Co-managers: Wells Fargo Securities, Oppenheimer & Co.

End of lockup (180 days): Tuesday, August 4, 2015
End of 25-day quiet period: Monday, March 2, 2015

Summary
PUMP is a medical device company with the mission of improving and simplifying the management of diabetes patients and healthcare practitioners.

PUMP’s first commercial product, the Asante Snap™ Insulin Pump System, or the Snap system, is the first and only pump featuring a modular design with pre-filled insulin cartridges and disposable pump bodies, intended to be used for up to a week, which are utilized in combination with a slim, lightweight controller intended to be used for four years.

Valuation
Glossary

Accumulated deficit ($mm)..-$51
Per share dilution..-$7.25
——————————————–
Valuation RatiosMrkt. Cap ($mm)Price /SlsPrice /ErngsPrice /BkVluePrice /TanBV% offered in IPO
Annualizing Sept 9 mos.
Asante Solutions$168126.0-5.42.02.129%

Conclusion
Neutral

Insulin pump with pre-filled insulin cartridges

Rev. just starting

P/E of -5.4 indicates heavy cash burn rate relative to market cap

Insiders expected to purchase $17mm in a current private placement

Price-to-book of 2, low

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

Business
PUMP is a medical device company with the mission of improving and simplifying the management of diabetes patients and healthcare practitioners.

PUMP’s first commercial product, the Asante Snap™ Insulin Pump System, or the Snap system, is the first and only pump featuring a modular design with pre-filled insulin cartridges and disposable pump bodies, intended to be used for up to a week, which are utilized in combination with a slim, lightweight controller intended to be used for four years.

Operating plan
The modular design of the product enables the company to offer free trials, $99 upgrades and lower upfront costs.

An insulin pump candidate can try the Snap system for up to 28 days at no cost to them.

Due to the modularity of the Snap system, PUMP’s cost of a free trial is limited to the cost of one month’s supply of disposable pump bodies and infusion sets, and the cost to clean and electronically test the Snap controller.

PUMP also offers patients who have been using the Snap system the ability to upgrade their Snap system controller any time there is a significant Asante product release for only $99.

Although the cost to manufacture an individual controller under the current cost structure currently exceeds the $99 upgrade price, PUMP believes that the revenue and gross margin on disposable pump bodies and infusion sets purchased for use with the updated controller will more than offset this initial loss.

Sales
PUMP currently sells the Snap system primarily through distributors of durable medical equipment and supplies to individuals with diabetes.

In addition, PUMP distributes a minority of Snap system units through distributors that process the Snap system as a pharmacy benefit.

In each case, PUMP’s sales force generates end-user demand, and provides services and support to patients and healthcare practitioners.

Distributors are responsible for physical shipments of product to individuals, contractual relationships with payors and payor adjudication.

PUMP does not have, but plans to pursue, state licenses required to sell durable medical equipment directly.

Obtaining these licenses may be time-consuming and expensive.

In the first half of 2015, presuming successful licensure and accreditation, PUMP expects to begin selling directly.

PUMP expects that over the next five years, the proportion of sales volume attributable to direct sales efforts will approach 50%.

The company believes that contracting directly with payors will allow for a higher average selling price, enhance customer service and improve visibility into patient usage and will allow PUMP to have greater pricing control and lessen reliance on distributors.

Unique design
The modular design is enabled by several technological innovations, including an innovative pump drive mechanism.

Traditional insulin pumps require users to fill the pump’s reservoir multiple times per week from a vial of insulin with a syringe-type system, which is time-consuming and cumbersome.

The Snap system’s cartridges are pre-filled with 300 units of insulin, and slide directly into the disposable pump body.

The Snap system’s modular design enables a novel, consumer-oriented business model with free trials, $99 upgrades and lower upfront costs.

The Snap system’s use of pre-filled insulin cartridges and its novel interface enable a pump that is simple to learn, set up and use.

For individuals initiating insulin pump therapy
As a result, based on independent market research, PUMP’s own research and analysis and its limited commercial experience to-date, the company believes that the Snap system is an attractive choice as a first pump for individuals initiating insulin pump therapy, as well as for existing pumpers seeking greater ease of use.

510(k) FDA clearance
In January 2013, PUMP received regulatory clearance, which the company refers to as 510(k) clearance, from the U.S. Food and Drug Administration, or the FDA, to market the Snap system.

Currently, the Snap system is only approved for use by adults over the age of 21, and has 510(k) clearance for use only with Humalog insulin cartridges, which represent approximately 50% of the pre-filled insulin cartridge market.

Limited launch
PUMP initiated a limited launch in the second quarter of 2013, and intends to use the proceeds of this offering to accelerate commercialization of the Snap system in the United States.

PUMP developed the Snap system to be a full-featured pump that is easy to use and that addresses several barriers to adoption for patients who have resisted insulin pump therapy in favor of multiple daily injections using a syringe or insulin pen.

These barriers include complexity of pump set-up, complexity of ongoing pump use, high out-of-pocket cost of pump acquisition, inability to try the pump before purchasing and the need to make a four-year commitment to therapy consistent with payor reimbursement cycles.

Intellectual property
As of December 31, 2014, PUMP’s patent portfolio consisted of 89 issued U.S. patents and 46 pending U.S. patent applications.

A majority of these issued U.S. patents relate to the structure and operation of PUMP’s infusion pump system, and a subset of these issued U.S. patents relate to improvements that potentially may be implemented in the company’s future product designs.

PUMP is also seeking patent protection for its proprietary technology in Europe, and it is preserving the opportunity to seek patent protection in other foreign jurisdictions (e.g., China, Canada and Australia) in a number of pending patent applications filed under the Patent Cooperation Treaty, or PCT.

As of December 31, 2014, PUMP had 45 issued foreign patents (predominantly in European countries) and approximately 29 pending patent applications in foreign jurisdictions (including applications pending before the European Patent Office and PCT applications that reserve the opportunity to seek patent protection in foreign jurisdictions, such as China, Canada, Australia and Europe).

Competition
PUMP competes with a number of companies that manufacture insulin delivery devices, such as Medtronic MiniMed, a division of Medtronic, Inc., Animas Corporation, a division of Johnson & Johnson, Roche Diagnostics, a division of F. Hoffman-La Roche Ltd., Insulet Corporation and Tandem Diabetes Care.

5% shareholders pre-IPO
De Novo Ventures III, L.P. 8.8%

Lundbeckfond Invest A/S 25.8%

Novo A/S 27. %

Entities associated with Seed Capital Denmark K/S 12.0%

Sunstone Life Science Ventures Fund I K/S 16.0%

Entities associated with Thomas, McNerney & Partners 12.8%

Peter Benson 16.0%

Casper Breum 25.8%

Joe Mandato 8.8%

Kathleen Tune 12.8%

Dividends
No dividends are planned.

Use of proceeds
PUMP expects to receive $43 million from its IPO and use it for the following:

  • To accelerate commercialization of the Snap system, including by adding to its sales force, filing future 510(k) applications with the FDA and initiating product launches.

PUMP intends to use the remainder of the net proceeds from this offering and the concurrent private placement for general corporate purposes, including working capital, operating expenses and capital expenditures.

It also may use a portion of the net proceeds to acquire complementary businesses, products, services or technologies.

However, PUMP does not have agreements or commitments for any specific acquisitions at this time.

The net proceeds from this offering and the concurrent private placement will be sufficient to address PUMP’s near-term 510(k) applications with the FDA and near-term planned product launches, but will not be sufficient to fund the growth of the company’s business through profitability or cash flow breakeven.

As a result, PUMP expects to need to raise additional funds through the issuance of equity securities or by obtaining debt.