IPO Preview: ArcherDx Aims For $100 Million U.S. IPO

IPOStreet

ArcherDx (RCHR) intends to raise $100 million in an IPO of its common stock, according to an S-1 registration statement.

The firm provides research use only products for precision oncology applications.

RCHR has grown revenue quickly though it has likely been negatively impacted by the Covid19 pandemic.

I’ll provide a final opinion when we learn more about the firm’s pricing and valuation assumptions.

Boulder, Colorado-based ArcherDx was founded to develop both research use only and in-vitro diagnostic products for a variety of cancer research and clinical use.

Management is led by co-founder, president and CEO Jason Myers, Ph.D, who was previously Chief Scientific Officer at Enzymatics, from which ArcherDX was spun out.

Below is a brief overview video of ArcherDx:

Source: Colorado Director of Photography

The company’s primary offerings include:

Research Use Only:

  • VariantPlex
  • FusionPlex
  • LiquidPlex
  • Immunoverse
  • Personalized Cancer Monitoring

The firm is developing in-vitro diagnostic products for clinical use.

ArcherDx has received at least $110.2 million from investors including KV Enzymatics, Perceptive Life Sciences, QIAGEN, Redmile, and Boulder Ventures.

The company currently sells primarily to biopharma companies, academic laboratories and contract research organizations [CROs] in 40 countries.

Below is a chart indicating the firm’s current and prospective product and service listing:

archerdxproducts
Source: ArcherDx Filing

Sales & Marketing expenses as a percentage of total revenue have been rising even as revenues have increased.

The Sales & Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Sales & Marketing spend, dropped to 1.0x in the most recent reporting period.

According to a 2020 market research report by Grand View Research, the global market of cancer diagnostics was valued at $144.4 billion in 2018 and is expected to reach $249.6 billion by 2026.

This represents a forecast CAGR of 7.0% from 2019 to 2026.

The main drivers for this expected growth are the introduction of new innovations along with an increasing incidence of cancer worldwide as the population ages and the need for early diagnosis.

Major competitive or other industry participants include:

  • QIAGEN (QGEN)
  • Thermo Fisher Scientific (TMO)
  • Illumina (ILMN)
  • Adaptive Biotechnologies (ADPT)
  • Invivoscribe
  • Numerous competitors expected in clinical diagnosis segment

Management says its system can be expanded to pursue additional products as it seeks to 'democratize precision oncology' through pushing capabilities further to end users.

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

  • Growing topline revenue, although at a decelerating rate of growth
  • Increasing gross profit but uneven gross margin
  • Growing operating losses and increased negative operating margin
  • Sharply increased cash used in operations

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

archerdxpl

Source: Company registration statement

As of March 31, 2020, ArcherDx had $36.8 million in cash and $66.3 million in total liabilities.

Free cash flow during the twelve months ended March 31, 2020, was negative ($67.5 million).

ArcherDx intends to raise $100 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 for its research and development activities, regulatory submission and commercialization of its first IVD product, STRATAFIDE, and additional follow-on companion diagnostic claims and commercialization activities for STRATAFIDE and working capital and general corporate purposes.

Management’s presentation of the company roadshow is available.

Listed bookrunners of the IPO are J.P. Morgan, BofA Securities, Stifel, and Evercore ISI.

Commentary

ArcherDx is seeking U.S. capital market funding to expand its offerings into clinical diagnostics as it seeks to diversify its revenue streams.

The company’s financials show the firm has been growing revenue but recently has seen a deceleration.

Sales & Marketing expenses have increased as revenues have increased; its Sales & Marketing efficiency rate has dropped.

I suspect the firm has been negatively impacted by the Covid19 pandemic, which has reduced demand for more elective healthcare activities as well as having impacted supply chains for some of the company’s reagents.

The market opportunity for cancer diagnostics and research tools is expected to grow markedly over the coming years as the rate of cancer incidence increases among an aging global population and new innovations are brought to market enabling greater precision of treatment options.

J.P. Morgan is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 71.7% since their IPO. This is a top-tier performance for all major underwriters during the period.

While RCHR may be temporarily impacted by the Covid19 pandemic, I look forward to learning management’s assumptions on the IPO’s pricing and valuation.

Expected IPO Pricing Date: To be announced.

(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. Information provided is for educational purposes only, may be incomplete or out of date, and does not constitute financial, legal, or investment advice.)

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