Based in Madison, WI, Cellular Dynamics International ($ICEL) scheduled a $51 million IPO with a market capitalization of $204 at a price range mid-point of $13, for Wednesday, July 24, 2013.
Ten other IPOs were scheduled for the week of July 22. The full IPO calendar can be found at IPOpremium.
S-1 filed July 10, 2013
http://www.sec.gov/Archives/edgar/data/1482080/000119312513286414/d559389ds1a.htm
Manager, Joint Managers: J.P. Morgan
Co Manager: Cowen; Leerink Swann
Accumulated deficit of $88 million.
Summary
ICEL develops and manufactures fully functioning human cells in industrial quantities to precise specifications.
Large biopharmaceutical companies are placing initial small orders, see ‘customer concentration’ below. The question, of course, is when and if those companies move from an ‘early adopter’ stage into a full production stage.
The target markets are large and they will, of course, attract competition from the majors, see ‘competition’ below.
Valuation
2.4 times book value is a reasonable price for ICEL.
Conclusion
ICEL is worth a shot on its IPO based on its customer based, large target market and apparently unique product position. ICEL is, however, not profitable at this stage but sales are increasing a rapid rate, see ‘financials’ below.
Business
ICEL develops and manufactures fully functioning human cells in industrial quantities to precise specifications.
The proprietary iCell Operating System (iCell O/S) includes true human cells in multiple cell types (iCell products), human induced pluripotent stem cells (iPSCs) and custom iPSCs and iCell products (MyCell products).
iCell O/S products provide standardized, easy-to-use, cost-effective access to the human cell, the smallest fully functioning operating unit of human biology.
Customers use ICEL’s iCell O/S products, among other purposes, for drug discovery and screening; to test the safety and efficacy of their small molecule and biologic drug candidates; for stem cell banking; and in researching cellular therapeutics.
Scientists need access to cellular models that accurately represent the human biology they want to study. ICEL’s human cells reproduce, rather than approximate, the operation of the fully functioning human cell
Customers
Customers include biopharmaceutical companies, government research institutions, academic and nonprofit research institutions, clinical research organizations and stem cell banks.
In 2012, ICEL sold products to 18 of the top 20 biopharmaceutical companies (based on worldwide revenue) and grew the customer base to 128 from 60 in 2011
Customer concentration
During 2011 and 2012, three of the large biopharmaceutical customers individually accounted for greater than 10% of total revenue in one or both years.
Eli Lilly and Company (Lilly) accounted for 10% of total revenue in 2011 and 18% of total revenue in 2012. Hoffmann-La Roche Inc. accounted for 13% of total revenue in 2011 and GlaxoSmithKline plc accounted for 11% of total revenue in 2012.
During the three months ended March 31, 2013, Lilly and AstraZeneca UK Limited (AstraZeneca) each accounted for 16% of revenue. Typically customers, including these three customers, purchase products pursuant to purchase orders, or purchase under contracts for specified periods of time and which may be terminated by the customer.
A portion of the revenues attributable to Lilly during the periods described above were pursuant to minimum purchase requirements..
Four different cell types
ICEL’s iCell product line currently includes four different cell types: cardiomyocytes, neurons, hepatocytes and endothelial cells.
ICEL is actively developing an additional seven different cell types, and expects to use its platform to continue to expand the iCell product line.
Consumable
iCell products are a consumable designed to be used once and then reordered. ICEL manufactures its iCell products from iPSCs. An iPSC is a cell that has the ability both to replicate indefinitely and to be transformed into any cell type in the human body.
ICEL develops and manufactures its iPSCs from ordinary blood or skin using proprietary techniques that expand upon those pioneered by the founder Dr. James A. Thomson.
Once ICEL produces an iPSC, it becomes a renewable source of starting material for iCell products and stem cell banks.
Target markets
The target markets for ICEL’s products include cells for in vitro drug discovery, toxicity testing and chemical safety; stem cell banking; and in vivo and cell-based therapeutic research.
Total expenditures in these markets were $17.1 billion in 2011 and are expected to increase to $40.5 billion by 2020, according to Adivo Associates.
Cells for in vitro use in drug discovery, toxicity testing and chemical safety
The total spent on cell-based technologies for in vitro use was approximately $10.8 billion in 2011, of which $3.5 billion was spent on cells. By 2020, these markets are expected to grow to $14.7 billion and $5.6 billion, respectively. Customers in this market include: biopharmaceutical companies; government research institutions; academic and nonprofit research institutions; and clinical research organizations.
Stem cell banking
The stem cell banking market was $1.3 billion in 2011, and is expected to grow to $4.4 billion in 2020. Currently, government entities, academic institutions and industry are building banks of iPSCs derived from different genetic backgrounds.
ICEL intends to manufacture iPSCs for this segment of the market.
Stem cell banking grants
In March 2013, the California Institute for Regenerative Medicine (CIRM) awarded ICEL a $16.0 million grant to derive three iPSC (human induced pluripotent stem cells) lines from each of 3,000 different individuals, as required by California’s $32.3 million stem cell banking initiative.
ICEL will also be the primary subcontractor on the $10.0 million grant that the Coriell Institute for Medical Research received from CIRM to store and expand the Coriell iPSC bank.
In addition, ICEL is positioned to augment the product offering of cord blood banks by creating iPSC lines for their existing and prospective customers.
Cells for in vivo and cell-based therapeutic research
The global human stem cell, tissue and organ therapy market was $5.0 billion in 2011 and is expected to grow to $21.4 billion in 2020.
Intellectual property
ICEL owns or licenses a portfolio of intellectual property rights related to its technology that exceeds 700 patents and patent applications in the United States and around the world.
Competition
Currently, iCell and MyCell products face competition from “home-brew,” other pluripotent cell manufacturers and existing cell models.
Home-brew
Currently multiple government, academic and industrial research labs attempt to utilize iPSC technology to make their own stem cell lines and to differentiate them into terminal tissue cells. These labs tend to be small and have not invested in the personnel, industrial capacity, quality control and assurance systems, and intellectual property to permit production of standardized human cells in sufficient quantity, quality and purity.
Other pluripotent cell manufacturers
Some other companies have either announced an interest in or begun to market products based on pluripotent stem cell technology. These companies include Axiogenesis AG, Cellectis, General Electric Co., Life Technologies Corporation, Lonza Group Ltd. and Sigma-Aldrich. These companies have either chosen to base their offerings on human embryonic stem cell technologies or have failed to manufacture cells in comparable quantity, quality or purity as ICEL.
ICEL is unaware of any competitor whose product offerings equal iCell and MyCell products in quality, quantity and purity.
5% Shareholders pre-PO
Tactics II Entities, 42.6
Sixth Floor Investors LP, 13.2%
EGI-Fund (08-10) Investors, L.L.C. and EGI-Fund (11-13) Investors, L.L.C., 7.9%
Use of proceeds
ICEL expects to net $44 million from its IPO.
Proceeds are allocated as follow:
(1) $20 million for research and product development activities;
(2) $8 million for sales and marketing activities, including expansion of the sales force to support the ongoing commercialization of products;
(3) $5 million for property, plant and equipment, including the build-out of a laboratory in California, and intellectual property; and
(4) the remaining proceeds for working capital and other general corporate purposes.
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