IPO Launch: Aziyo Biologics Pursues $50 Million IPO


Aziyo Biologics (AZYO) intends to raise $50 million in an IPO of its Class A common stock, according to an S-1 registration statement.

Silver Spring, Maryland-based Aziyo was founded to develop a portfolio of products that assist the body in regenerating faster from operations in the cardiovascular, orthopedic and surgical site soft tissue reconstruction functions.

Management is headed by president and Chief Executive Officer Mr. Ronald Lloyd, who has been with the firm since June 2018 and was previously EVP and president of Hospital Therapies of Mallinckrodt Pharmaceuticals (MNK).

Below is a brief overview video of the firm's pacemaker envelope technology:

Source: Aziyo Biologics

The company's core products and non-core service are described in the table below:


Source: Company S-1 Filing

Investors in the firm have invested at least $45 million and include HighCape Partners and KeraLink International.

Sales and Marketing expenses as a percentage of total revenue have increased as revenues have fluctuated.

The Sales and Marketing efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Sales and Marketing spend, swung to negative (0.2x) in the most recent reporting period due to providers postponing procedures as a result of the Covid-19 pandemic.

According to a 2018 market research report by MarketsAndMarkets, the company's primary market is a derivative of the overall pacemaker market, which was an estimated $4.4 billion in 2018 and is expected to reach $4.9 billion by 2023

This represents a forecast CAGR (Compound Annual Growth Rate) of CAGR of 2.0% from 2018 to 2023.

In one respect, the market is divided between implantable and external pacemakers.

In 2019, the company estimates that there were 'more than 600,000 procedures in the United States to install or replace implantable electronic devices, such as pacemakers...which represents an estimated $600 million opportunity.'

Also, The firm's focus is on the implantable pacemaker market for its envelope product. However, it has since expanded its total addressable market by offering other orthopedic and soft tissue reconstruction products.

Major competitive vendors that provide or are developing treatments include:

The company's various products face competition from a number of companies:

  • Medtronic (MDT)
  • Gore
  • Terumo (TRUMF)
  • Smith & Nephew
  • MTF
  • NuVasive (NUVA)
  • Vivex Biologics
  • LifeNet Health
  • AbbVie (ABBV)
  • Surgalign (SRGA)
  • Stryker (SYK)
  • Ethicon

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

  • Contracting topline revenue
  • Reduced gross profit but increased gross margin
  • Increased operating losses and higher negative operating margin
  • Growing cash flow used in operations

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


Source: Company registration statement

As of June 30, 2020, the company had $990,000 in cash and $26.1 million in total liabilities. (Unaudited, interim)

Free cash flow for the twelve months ended June 30, 2020 was negative ($12.4 million).

Aziyo intends to raise $50 million in gross proceeds from an IPO of 2.9 million shares of its Class A common stock, offered at a midpoint price of $17.00 per share.

Certain existing shareholders have indicated an interest to purchase shares of up to $20.0 million in the aggregate at the IPO price. This is a positive signal of support from the investor.

Class B shares will be non-voting and convertible into Class A shares, subject to certain ownership limitations.

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $198.9 million, excluding the effects of underwriter over-allotment options.

Management says it will use the net proceeds from the IPO as follows:

approximately $7.9 million to hire additional sales personnel and expand our marketing programs;

approximately $10.6 million to fund product development and clinical research activities; and

the remainder for working capital and other general corporate purposes.

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

Listed bookrunners of the IPO are Piper Sandler, Cowen, Cantor and Truist Securities.


Aziyo is seeking public investment to hire more sales reps as it builds out its direct sales group and invests in channel partnerships for its various product rollouts.

The company has been negatively impacted by the Covid-19 pandemic and patients and healthcare providers have cancelled and delayed procedures that use Aziyo’s products.

I expect revenue to bounce back as these procedures are completed.

The market opportunity for regenerative medical products is significant but doesn’t have a high expected growth rate.

However, these new generation products require time to get into the hands of surgeons as they learn the benefits and begin to include them in their workflows.

Piper Sandler is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of negative (40.9%) since their IPO. This is a bottom-tier performance for all major underwriters during the period.

As to valuation, compared to NuVasive, the IPO appears to be overpriced in most every major respect, so that is a concern.

While I like AZYO’s regenerative product approach and future prospects, its short-term trajectory may continue to be affected by the Covid-19 pandemic and the IPO looks pricey.

My opinion on the IPO is NEUTRAL.

Expected IPO Pricing Date: October 7, 2020.

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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