IPO Launch: Biodesix Prepares For $75 Million IPO

IPOStreet

Biodesix (BDSX) intends to raise $75 million in an IPO of its common stock, according to an S-1 registration statement.

Boulder, Colorado-based Biodesix was founded to develop and commercialize diagnostic tests for lung cancer and more recently for the SARS-CoV-2 virus.

Management is headed by president and CEO Scott Hutton, who has been with the firm since March 2018 and was previously SVP and General Manager of the Vascular Intervention division at Spectranetics (SPNC).

Below is a brief overview video of the firm's Nodify lung testing system:

Source: Biodesix

Notably, the company says it has 'significant payer concentration,’ with Medicare reimbursements accounting for 60% of its diagnostic test revenue.

The company’s primary offerings include:

  • Nodify XL2 and Nodify CDT tests
  • GeneStrat and VeriStrat tests
  • Worksafe Covid-19 testing program

The firm runs various tests through its Diagnostic Cortex, a proprietary AI/machine learning system that seeks to provide a 'holistic view of each patient's dynamic disease state.'

To accomplish this, Biodesix uses a variety of assay techniques, as shown in the graphic below:

biodesixprofile

Biodesix has received at least $194 million from investors including Jack Schuler, John Patience, Life Sciences Alternative Financing, Robert Crawthorn and Lawrence Kennedy Jr.

The firm pursues client relationships with biopharmaceutical companies and research institutions via a direct sales force.

Biodesix also has developed a partnership with Bio-Rad Laboratories (BIO) for its Covid-19 testing system.

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

The Selling, Marketing and G&A efficiency rate, defined as how many dollars of additional new revenue are generated by each dollar of Selling, Marketing and G&A spend, swung to negative (0.2x) in the most recent reporting period.

According to a 2017 market research report by Grand View Research, the global market for the treatment of non-small cell lung cancer [NSCLC] is expected to reach $12 billion by 2025.

This represents a forecast CAGR of 7.5% from 2016 to 2025.

Since Biodesix' primary set of offerings is to detect, quantify and monitor treatment of NSCLC, the rise in the prevalence, as the chart shows below, is likely to result in increasing demand for its testing and monitoring services:

biodesixmkt

Also, management estimates that there are currently over 700,000 testing opportunities in the U.S. each year for early stage lung cancer and over 3 million opportunities annually to monitor and guide decision making for advanced lung cancer conditions.

Major competitive or other industry participants include:

  • Guardant Health (GH)
  • Foundation Medicine
  • Lab Corporation (LH)
  • Quest Diagnostics (DGX)
  • Adaptive Biotechnologies (ADPT)
  • Personalis (PSNL)
  • Veracyte (VCYT)

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

  • Contracting topline revenue in 2020
  • Reduced gross profit and gross margin
  • Increased operating losses and negative operating margin
  • Fluctuating cash used in operations

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

biodesixpl

Source: Company registration statement

As of June 30, 2020, Biodesix had $11.7 million in cash and $98 million in total liabilities.

Free cash flow during the twelve months ended June 30, 2020, was $21.5 million.

Biodesix intends to raise $75 million in gross proceeds from an IPO of 4.2 million shares of its common stock, offered at a midpoint price of $18.00 per share.

Assuming a successful IPO, the company’s enterprise value at IPO would approximate $512.8 million, excluding the effects of underwriter over-allotment options.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 15.77%.

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

(1) to support our commercial expansion of sales, marketing, reimbursement, customer support and business development; (2) to support our product pipeline and research and development; (3) for our Integrated Diagnostics acquisition milestone payment; and (4) for working capital and general corporate purposes.

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

Listed bookrunners of the IPO are Morgan Stanley, William Blair, Canaccord Genuity and BTIG.

Commentary

Biodesix is pursuing an IPO to fund its R&D and continued expansion activities.

The company’s financials show the short-term negative effects of the Covid-19 pandemic on its customer demand, producing contracting topline revenue and worsening other major metrics.

Selling, Marketing and G&A expenses as a percentage of total revenue have been trending upward; its Selling, Marketing and G&A efficiency rate has swung into negative territory.

The market opportunity for detection and treatment decision support services for NSCLC and potentially other cancers is large and expected to grow materially as the global population ages and cancer incidence increases.

Morgan Stanley is the lead left underwriter and IPOs led by the firm over the last 12-month period have generated an average return of 45.7% since their IPO. This is a top-tier performance for all major underwriters during the period.

As to valuation, compared to Guardant Health, the BDSX IPO appears reasonably valued, taking into account its likely temporary revenue contraction due to the Covid-19 pandemic.

The question for firms such as Biodesix is how quickly their revenues will bounce back, especially given the recent growth in Covid-19 cases in the U.S. and expected continued rise throughout the winter season ahead.

My concern is that the firm’s revenue growth trajectory will not return in force until the latter half of 2021.

While the IPO appears reasonably priced, my opinion is NEUTRAL.

tstNEUTRAL

Expected IPO Pricing Date: October 27, 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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