IPO Report: Auspex Pharmaceuticals (ASPX)

Francis Gaskins |

Auspex Pharmaceuticals ($ASPX)  is a biopharmaceutical company focused on the development and commercialization of novel medicines for the treatment of orphan diseases.

13 other companies are scheduled to IPO this week.  The full IPO calendar is available at IPOpremium.com

ASPX scheduled a $61 million IPO on the Nasdaq with a market capitalization of $231 million at a price range midpoint of $11 for Wednesday, February 5, 2014.

Manager, Joint managers: Stifel, BMO Capital Markets

Co-Managers: Baird, William Blair, Ladenburg Thalmann & Co.
SEC Documents

Overview
ASPX’s pipeline includes product candidates to address unmet medical needs in hyperkinetic movement disorders, such as chorea associated with Huntington’s disease, tardive dyskinesia and Tourette syndrome, as well as other orphan indications.

If ASPX meets the primary endpoint of the First-HD Phase 3 clinical trial, ASPX anticipates submitting a Section 505(b)(2) new drug application, or NDA, for SD-809 to the FDA in the fourth quarter of 2014 and, if approved, expect to launch commercial sales in 2015.

Valuation

Glossary

Cash burn rate:  when a company loses money with minimal depreciation & amortization (think biopharmas), the negative Price/Loss ratio is an indication of cash burn rate.  The higher the loss the lower the absolute (negative) ratio.  The lower the loss the higher the absolute (negative) ratio.

 

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing Sept 9 mos

Cap (mm)

Sls

Erngs

BkVlue

TanBV

in IPO

Auspex Pharmaceuticals (ASPX)

$231

n/a

-21.7

2.9

4.7

35%

 

 

 

 

 

 

 

Conclusion

Buy on the IPO, in phase 3 trials, shareholders not buying, low cash burn rate.

Business
ASPX is a biopharmaceutical company focused on the development and commercialization of novel medicines for the treatment of orphan diseases.

ASPX’s pipeline includes product candidates to address unmet medical needs in hyperkinetic movement disorders, such as chorea associated with Huntington’s disease, tardive dyskinesia and Tourette syndrome, as well as other orphan indications.

Lead product candidate
ASPX’s lead product candidate, SD-809, is in a Phase 3 registration clinical trial for the treatment of chorea (abnormal involuntary movements) associated with Huntington’s disease.

Tetrabenazine is the only therapy approved by the U.S. Food and Drug Administration, or FDA, for this indication. ASPX hs made chemical modifications at specific positions in the tetrabenazine molecule to create the novel drug candidate SD-809 (dutetrabenazine).

Clinical trials
ASPX has initiated a Phase 3 registration clinical trial of SD-809, which we refer to as First-HD.

First-HD is a randomized, double-blind, placebo-controlled, parallel-group trial of SD-809 in 90 patients with chorea associated with Huntington’s disease and is designed to evaluate, and generate label information for, the safety, tolerability and efficacy of SD-809 for treating chorea associated with Huntington’s disease.

In addition, ASPX has initiated an open-label clinical trial, which refered to as ARC-HD, that will evaluate long-term safety as well as provide guidance on how to switch patients who are currently on tetrabenazine to SD-809.

If ASPX meets the primary endpoint of First-HD, ASPX anticipates submitting a Section 505(b)(2) new drug application, or NDA, for SD-809 to the FDA in the fourth quarter of 2014 and, if approved, expect to launch commercial sales in 2015.

ASPX is also planning a Phase 2/3 efficacy clinical trial of SD-809 for the treatment of tardive dyskinesia, and expects to report data from this clinical trial by mid-2015.

In addition, ASPX is in the process of initiating an open-label preliminary efficacy and safety Phase 1b clinical trial of SD-809 in adolescent patients with tics associated with Tourette syndrome. ASPX anticipates data from this clinical trial will be available in 2014.

Historical financing
From inception to September 30, 2013, ASPX  has raised net cash proceeds of approximately $61.4 million from the sale of convertible preferred stock, convertible notes and warrants and $3.3 million of proceeds from the sale and license of certain patent rights and the sale of equipment.

In addition, ASPX has borrowed $15.0 million under its credit facility with Oxford, of which ASPX used $5.0 million to repay borrowings under a credit facility with Square 1, and ASPX plans to use the balance for working capital.

In December 2013, ASPX issued 11.3 million shares of Series E convertible preferred stock to new and existing investors at a price of $1.724 per share for gross proceeds of $19.5 million.  The mid-point of the price range is $11, less than two months later.

Patent assignment

In September 2011, ASPX entered into a patent assignment agreement with Concert Pharmaceuticals, Inc., or Concert, pursuant to which Concert assigned to ASPX a U.S. patent application relating to deuterated pirfenidone.

Under the terms of the agreement, Concert receives certain royalty payments, or Royalty Payments, equal to a percentage in the low single digits of net sales in the United States invoiced by ASPX or any of its affiliates with respect to certain pharmaceutical products containing deuterated pirfenidone.

Intellectual property

ASPX has been building and continues to expand its intellectual property portfolio relating to its product candidates, including SD-809.

ASPXstrives to protect and enhance the proprietary technologies that it believes are important to its business and seek patent protection, where appropriate, in the United States and internationally for its product candidates, their methods of use and any other inventions that are important to the development of ASPX’s business.

ASPX’s SD-809 patent portfolio currently includes an issued composition of matter patent in the United States (US 8,524,733) and a European counterpart (EP 2326643). The issued U.S. composition of matter patent is expected to expire in March 2031, while the European patent is expected to expire in September 2029.

The SD-254 patent portfolio currently includes issued composition of matter (US 7,456,316) and method of treatment (US 8,138,226) patents in the United States.

Competition
ASPX anticipates that, if approved, SD-809 will compete primarily against Xenazine and, potentially in the future, generic tetrabenazine, for the treatment of chorea associated with Huntington’s disease.

In addition, there are several product candidates in clinical development for the treatment of Huntington’s disease.

These include Huntexil (prodipidine), which is being developed by Teva Pharmaceutical Industries; PBT2, which is being developed by Prana Biotechnology Ltd.; SEN0014196 (selisistat), which is being developed by Siena Biotech S.p.A.; Procysbi (cysteamine), which is approved for the treatment of nephropathic cystinosis and is being developed for Huntington’s disease by Raptor Pharmaceuticals, Inc; OMS824, which is being developed by Omeros Corporation; and PF-2545920, which is being developed by Pfizer Inc.

5% stockholders

Thomas, McNerney & Partners II, L.P. and affiliates  34.6%

CMEA Ventures VII, L.P. and affiliates  25.8%

Panorama Capital, L.P. 15.7%

Deerfield Management Company, L.P.  8.3%

Pratik Shah, Ph.D.  7.1%

Use of proceeds

ASPXexpects to net $53. 9 million from its IPO. Proceeds are allocated as follows:

$11 million to fund the clinical development of SD-809 for the treatment of chorea associated with Huntington’s disease;

$6 million to fund the planned Phase 2/3 clinical trial of SD-809 for the treatment of tardive dyskinesia;

$1 million to fund the planned Phase 1b clinical trial of SD-809 for the treatment of tics associated with Tourette syndrome;

$29 million to fund future clinical and regulatory expenses related to SD-809 and related to the launch and commercialization of SD-809, if approved; and

the remainder for research and development, working capital and other general corporate purposes, including making monthly principal and interest payments on ASPX’s credit facility and the additional costs associated with being a public company.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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