TheraSense IPO Has Promise

With only one IPO in the queue, this week is not big. But it's important because there are lots of people watching the calendar to see if it falters or builds momentum. I'm comfortable placing my bet on the latter.

The sole deal this week is TheraSense (proposed symbol THER:Nasdaq). The proposed terms are 6 million shares at $18 to $20. The syndicate group, led by U.S. Bancorp Piper Jaffray, includes SG Cowen and Thomas Weisel. That takes care of the basics, so what does the company do? Let me fill you in.

TheraSense develops, manufactures and sells easy-to-use glucose self-monitoring systems. Its first product, named FreeStyle, received FDA clearance in January 2000 and began selling in the U.S. in June 2000. As of July 31, 2001, the company had shipped more than 390,000 meters and more than 79 million test strips.

For the quarter ended June 30, 2001, total revenue was $17.8 million. Meter and test-strip shipments for the quarter ended June 30, 2001, increased 72% and 71%, respectively, compared with the preceding quarter. The company is also developing a continuous monitoring system for people with diabetes.

The revenue tells the story best. Sales for the six months ended June 30, 2000, were $511,000. Total revs for the year ended Dec. 31, 2000, were $5.5 million. That's a tenfold increase in just six months. But it doesn't stop there. Revenue for the six months ended June 30, 2001, came in at $25.5 million. Go back and read this paragraph again and you'll understand why I like this deal so much.

I came up with a great comp for THER in a company named MiniMed, a supplier of diabetes treatment devices. MiniMed was purchased by Medtronic(MDT Quote) in August 2001 for approximately $3.4 billion in cash. A contact at MiniMed spoke with me briefly about TheraSense and indicated that they are taking THER "very seriously."

As you already know, IPOs of medical device makers have generally been relatively strong. Because of this and because of the MiniMed deal, this IPO packs a high level of performance potential. My feeling is that there is a 30% to 50% premium right away over and above the issue price, and a very real likelihood that the stock price advances through the quiet period and beyond. Remember, the IPO market loves a strong sector and good comps. If there was one time this year that I wish I was permitted to buy a deal, it is right now.

Have a great week.