IPO Launch: NLS Pharmaceutics Proposes IPO Terms
NLS Pharmaceutics Ltd. (NLSP) aims to raise $20 million from the sale of units comprising its common stock and warrants in an IPO, according to an amended registration statement.
Stans, Switzerland-based NLS was founded to develop treatments for central nervous system disorders.
The firm's current area of focus is developing single molecules for the treatment of rare hypersomnia (excessive or uncontrollable daytime sleepiness, narcolepsy) and attention deficit hyperactivity disorder, or ADHD.
Management is headed by Chief Executive Officer Mr. Alexander Zwyer, who has been with the firm since 2015 and was previously at Viforpharma AG.
Below is a brief overview video of narcolepsy:
The firm's primary candidates, Quilience for narcolepsy and Nolazol for ADHD, use a molecule Mazindol in a controlled release formulation.
Mazindol has been used for the treatment of obesity and off-label for narcolepsy.
NLSP intends to seek entrance into an accelerated approval pathway for Phase 2 / 3 trials for Quilience in Q4 2020 and Phase 3 trials in Q4 2021 for Nolazol.
Investors in the firm have invested at least $20.5 million and include Magnetic Rock Investment and various individuals.
According to a 2019 market research report by Allied Market Research, the market for narcolepsy treatment was $2.4 billion in 2018 and is forecast to reach $5.4 billion by 2026.
This represents a forecast CAGR (Compound Annual Growth Rate) of 10.3% from 2019 to 2026.
Key elements driving this expected growth are The narcolepsy drug market is segmented into the following parts:
- Central nervous system stimulants (NLS’s candidates are in this category)
- Tricyclic antidepressants
- Sodium oxybate
- Selective serotonin reuptake inhibitors [SSRIs]
North America accounts for the most demand and is expected to continue to do so due to increasing numbers of narcolepsy and other sleep disorder cases.
However, the Asia Pacific region is expected to grow at the highest rate of growth through 2026.
Major competitive vendors that provide or are developing treatments include:
- Ligand Pharmaceuticals
- Harmony Biosciences
- Takeda Pharmaceuticals
- Addrenex Pharmaceuticals
- Teva Pharmaceutical Industries
- Arena Pharmaceuticals
- Jazz Pharmaceuticals
- Graymark Healthcare
NLS’s recent financial results are typical of a biopharma firm in that they feature no revenue and material R&D and G&A expenses associated with its development efforts.
Below are the company’s recent financial results:
Source: Company registration statement
As of June 30, 2020, the company had $145,404 in cash and $7.97 million in total liabilities. (Unaudited, interim)
NLSP intends to sell 3.6 million units consisting of one share of common stock and one warrant at a midpoint price of $5.50 per unit for gross proceeds of approximately $20 million, not including the sale of customary underwriter options.
No existing shareholders have indicated an interest to purchase shares at the IPO price, a common feature of life science IPOs.
Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO would approximate $58.7 million.
Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 34.32%.
Per the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:
approximately $14 million to further develop Quilience (which may also benefit, in part, our development, if any, of Nolazol), to conduct pre- and non-clinical trials for Quilience and potentially reach the interim review of our Phase 2 dose-finding clinical trial;
approximately $0.834 million, of which $0.223 million was incurred subsequent to June 30, 2020, in the aggregate to pay the deferred compensation of our Chief Executive Officer (including interest) and other interim executive officers;
approximately $0.262 million (CHF 248,400) to repay the COVID-19 Loan (as defined in this prospectus);
approximately $1.566 million, including $0.657 million of convertible debt, in the aggregate to repay [various types of indebtedness], each of which is scheduled to mature on December 31, 2020.
payment to our Interim Chief Business Officer pursuant to the terms of his consulting agreement with us (to receive 1% of the net proceeds actually received by us in an initial public offering) (approximately $176,722 if we receive the Estimated Net Proceeds) (also referred to herein as the Transaction Fee); and
the remainder, if any, for working capital and general corporate purposes.
Management’s presentation of the company roadshow is not available.
Listed underwriters of the IPO are Maxim Group and Brookline Capital Markets.
NLSP is seeking U.S. investment to advance its pipeline of narcolepsy and ADHD candidates into later stage trials.
For its lead candidate, its trial efforts have been delayed and management is still seeking approval for an expedited trial process.
The market opportunity for treating sleep disorders and ADHD is large and expected to grow at a reasonably strong CAGR and aging world populations encounter greater sleep disorders.
NLSP has disclosed no commercial collaborations. I like to see at least one collaboration, but given the preexisting approval status of the drug for a different condition, perhaps this isn’t an important consideration in this case.
Maxim Group is the lead left underwriter and there is no data on IPOs led by the firm over the last 12-month period.
As to valuation, the IPO is valued significantly below the typical range for a biopharma firm.
NLSP is thinly capitalized and appears to be spending little on R&D work, so is not a typical biopharma firm that I see attempting to go public in the U.S.
Given its unusual presentation, my opinion on the IPO is to AVOID it.
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. 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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