IPO Preview: ACell Files For $86 Million U.S. IPO

IPOStreet

ACell (ACLL) intends to raise $86.25 million in an IPO of its common stock, according to an S-1 registration statement.

The firm develops and sells various wound care products for post-surgical applications.

ACLL has experienced a drop in sales as the Covid19 pandemic has reduced elective surgeries.

I’ll provide a final opinion when we learn more about the IPO from management.

Columbia, Maryland-based ACell was founded to develop proprietary porcine urinary bladder matrix technologies to assist in the reinforcement of soft tissue that has been damaged.

Management is led by Mr. Patrick McBrayer, who has been with the firm since 2016 and was previously president and Chief Executive Officer of AxioMed Spine until the company's acquisition in 2014.

Below is an overview video of abdominal wall repair using the firm's technologies:

Source: AEGIS Communications

The company’s primary offerings include:

  • MicroMatrix
  • Cytal
  • Gentrix
  • ABRA Abdominal

ACell has received at least $42 million from investors.

Since the firm's commercial launch in 2009, it has sold more than 500,000 units of its urinary bladder matrix products in the U.S.

ACell also has marketing approval in Canada and Saudi Arabia and is pursuing approvals in China, South Korea and the EU.

The company sells its products through a 160-strong direct sales force that sells to hospital operating rooms and intensive care units.

ACell also sells through group purchasing organizations, integrated delivery networks and to the federal government.

Total customer count in 2019 for the firm was 1,900 customers.

Selling, G&A expenses as a percentage of total revenue have been trending upward as revenues have increased.

The Selling, G&A efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling, G&A spend, was 0.0x in the most recent reporting period.

According to a 2018 market research report by Grand View Research, the U.S. market for advanced wound care was $2.46 billion in 2018.

This represents a forecast 4.2% from 2018 to 2026.

The main drivers for this expected growth are a growing incidence of chronic wounds, increasing demand for shorter hospital stays and more surgeries in the U.S.

Also, the chart below shows the historical and forecast U.S. advanced wound care market size:

acellmarket

Major competitive or other industry participants include:

  • Avita Medical
  • Integra LifeSciences (IART)
  • MiMedx Group (MDXG)
  • Organogenesis (ORGO)
  • Osiris Therapeutics (OSIR)
  • Vericel (VCEL)
  • Others

ACell’s recent financial results can be summarized as follows:

  • Slight contraction in topline revenue
  • Reduced gross profit
  • Uneven operating losses and margin
  • Variable cash flow from or used in operations

Below are relevant financial results derived from the firm’s registration statement:

acellpl

Source: Company registration statement

As of March 31, 2020, ACell had $4.6 million in cash and $22.3 million in total liabilities.

Free cash flow during the twelve months ended March 31, 2020, was negative ($1.4 million).

ACell intends to raise $86.25 million in gross proceeds from an IPO of its common stock, although the final amount may differ.

Management says it will use the net proceeds from the IPO ‘to increase awareness of our differentiated technology, products and brand in the markets in which we compete; to fund research, including clinical trials and post-market studies, for our products; to grow our sales force and continue to invest in training to further enhance the experience and skills of our sales and marketing personnel; to invest in upgrades to our Lafayette, Indiana facility; to expand our international sales opportunity; to expand and enhance our product portfolio; and the remainder for working capital and general corporate purposes.’

Management’s presentation of the company roadshow is not available.

Listed bookrunners of the IPO are UBS Investment Bank, Barclays, RBC Capital Markets and SunTrust Robinson Humphrey.

Commentary

ACell is seeking funding for its continued development and growth initiatives.

The firm’s financials have seen the negative impact of the Covid19 pandemic on orders for its products, as healthcare systems have prioritized pandemic response over elective surgeries.

This sales softness will likely continue into Q2 2020 and perhaps later in the year.

Selling, G&A expenses as a percentage of total revenue has been trending upward; its Selling, G&A efficiency rate was reduced to 0.0x in the most recent reporting period.

The market opportunity for wound care products in the U.S. is expected to grow at a moderate rate.

Management hopes to expand internationally to grow its addressable market although such expansion is likely to bring additional costs related to it.

UBS Investment Bank is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of negative (71.7%) since their IPO. This is a bottom tier performance for all major underwriters during the period.

Prior to the negative effects of the Covid19 pandemic on its sales, ACell was growing revenue moderately and had become profitable and operating cash flow positive in 2019.

I suspect the Covid19 pandemic’s effects on its business will be temporary.

When we learn more IPO details from management, I’ll provide an update.

Expected IPO Pricing Date: To be announced.

Glossary Of Terms

(I have no position in any stocks mentioned as of the article date, no plans to initiate any positions within the next 48 hours, and no business relationship with any company whose stock is mentioned in this article. IPO stocks can be very volatile in the days immediately after an IPO. Information provided is for educational purposes only, may be in error, incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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