IPO Launch: Berkeley Lights Finalizes $126 Million IPO Effort

IPOStreet

Berkeley Lights (BLI) intends to raise $126 million in an IPO of its common shares, according to an amended registration statement.

The company performs cell research services for research use only clients worldwide.

BLI is positioned in a growing industry but the firm’s growth trajectory has been hampered by the Covid19 pandemic.

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To listen to an audio version of this report, click the Play button on the graphic below:

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Emeryville, California-based Berkeley Lights was founded to provide a range of cell research services in the areas of antibody therapeutics, cell therapy and synthetic biology.

Management is headed by Mr. Eric Hobbs, Ph.D, who has been with the firm since May 2013 and was previously senior roles at FormFactor, semiconductor technology firm.

Below is a brief overview video of the firm's approach:

Source: NVIDIA

The company’s primary offerings include:

  • OptoSelect chips
  • Reagent kits
  • Advanced automation systems
  • Advanced application and workflow software

Berkeley Lights has received at least $235 million from investors including WRVI Capital, Sequoia Capital, Igor Khandros, and Nikon Corporation.

The company markets its offerings directly to prospective customers via an in-house sales force aimed at research use only [RUO] markets.

Management says it believes there are about 1,600 companies, government entities and academic institutions making its addressable market total $23 billion, comprised of the following:

  • Antibody therapeutics - $6 billion
  • Cell therapy - $15 billion
  • Synthetic biology - $2 billion

Sales & Marketing expenses as a percentage of total revenue have been uneven 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 sharply to 0.4x in the most recent reporting period.

According to a 2019 market research report by MarketsAndMarkets, the global market for cell analysis was an estimated $16 billion in 2019 and is forecast to reach $22.7 billion by 2024.

This represents a forecast CAGR (Compound Annual Growth Rate) of 7.2% from 2019 to 2024.

The main drivers for this expected growth are growing government funding for cell-focused research activities and an increased incidence of chronic and infectious diseases.

Also, the industry is expected to face the twin challenges of the current high cost of its services and not enough skilled workers.

Below is a chart showing the historical and projected growth of the cell analysis industry by region:

blicellanalysis

Major competitive or other industry participants include:

  • Danaher
  • Menarini Silicon Biosystems
  • Miltenyi Biotec
  • Sphere Fluidics

Berkeley Lights’s recent financial results can be summarized as follows:

  • Growing topline revenue, but decelerating in the most recent quarter
  • Increasing gross profit but variable gross margin
  • Uneven operating losses and operating margin
  • Variable cash used in operations

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

blipl

Source: Company registration statement

As of March 31, 2020, Berkeley Lights had $70.3 million in cash and $46.1 million in total liabilities.

Free cash flow during the twelve months ended March 31, 2020, was negative ($25.9 million).

BLI intends to sell 7.4 million shares of common stock at a midpoint price of $17.00 per share for gross proceeds of approximately $126 million, not including the sale of customary underwriter options.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO would approximate $985.6 million.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 12.14%.

Per the firm’s most recent regulatory filing, the firm plans to use the net proceeds ‘for general corporate purposes, including working capital, and funding our research and development and sales and marketing activities.’

Management’s presentation of the company roadshow is available here.

Listed underwriters of the IPO are J.P. Morgan, Morgan Stanley, Cowen, and William Blair.

Commentary

BLI is going public to raise funding for its continued development and commercialization initiatives.

The firm’s financials show the dampening effects of the Covid19 pandemic on its ability to ship and train customers as well as slowing prospect buy decisions and lengthening the sales cycle.

Sales and marketing expenses as a percentage of total revenue have increased and the company’s sales & marketing efficiency ratio has decreased, likely owing to the Covid19 pandemic’s effects.

The market opportunity for various types of cell analysis is large and expected to grow substantially in the coming years, as demand for cell-level analysis and synthetic biology applications increases.

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 76.7% since their IPO. This is a top-tier performance for all major underwriters during the period.

As a comparable-based valuation, compared to industry giant Danaher, BLI is seeking a significantly higher EV / Revenue multiple.

The firm is growing at a faster rate, likely due to its comparatively small size, but is producing operating and net losses as well as increasing cash burn.

While I believe the negative effects from the Covid19 pandemic will be temporary, the question is ‘how temporary’ with a number of U.S. states seeing large increases in cases and those states responding with tightened measures that will have a chilling effect on business.

Given that short- to medium-term uncertainty to the firm’s growth trajectory and loss profile, my opinion on the IPO is NEUTRAL.

Expected IPO Pricing Date: July 16, 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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