IPO Report: Infraredx (REDX)

Francis Gaskins |

Infraredx_logo.jpgInfraredx (REDX) is a cardiovascular imaging company advancing the diagnosis and treatment of coronary artery disease, the world’s leading cause of death according to the World Health Organization. It is based in Burlington, MA.

11 other companies are scheduled for the week of Jan. 26, 2015.  The full IPO calendar is available at IPOpremium.

Manager, Joint-managers: RBC Capital Markets, Canaccord Genuity, BMO Capital Markets
Co-managers: Oppenheimer, BTIG

REDX scheduled a $56 million IPO with a market capitalization of $199 million at a price range midpoint of $14 for Wednesday, Feb 4, 2015 on Nasdaq.  SEC Documents

Infraredx Overview

REDX is a cardiovascular imaging company advancing the diagnosis and treatment of coronary artery disease, the world’s leading cause of death according to the World Health Organization.

In 2012, REDX  completed a 13-year development effort and began commercializing a U.S. Food and Drug Administration, or FDA, cleared optical catheter that utilizes near-infrared spectroscopy, or NIRS, to determine if a patient has cholesterol-rich, lipid core coronary plaques, or LCPs.

Infraredx Valuation

Glossary

Accumulated deficit (mm)

.

.

-$212

     

Per share dilution

.

.

-$10.05

     

-----------------------------------------------------------------------

     

Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Price /Erngs

Price /BkVlue

Price /TanBV

% offered in IPO

annualizing Sept 9 mos

         

Infraredx (REDX)

$199

40.3

-6.1

3.6

3.5

28%

             

Infraredx Conclusion

Neutral

Building recurring rev from single use catheters

Product rollout plan promising (see report)

Rev +99%

Price-to-sales 40

High cash burn rate relative to market cap: P/E -6.1

Price-to-book of 3.6

No insider indicatiions to purchase on the IPO

Infraredx Business

REDX is a cardiovascular imaging company advancing the diagnosis and treatment of coronary artery disease, the world’s leading cause of death according to the World Health Organization.

In 2012, REDX  completed a 13-year development effort and began commercializing a U.S. Food and Drug Administration, or FDA, cleared optical catheter that utilizes near-infrared spectroscopy, or NIRS, to determine if a patient has cholesterol-rich, lipid core coronary plaques, or LCPs.

REDX’s optical catheter also includes an intravascular ultrasound, or IVUS, that shows the structure of the plaque, while NIRS provides information on the lipid content of the plaque, including the presence or absence of a LCP in an individual patient. LCPs are known to complicate stenting procedures, and are suspected to be the vulnerable plaques that cause most heart attacks.

REDX’s dual-modality NIRS-IVUS True Vessel Characterization Imaging System, or TVC System, is designed to provide physicians with information that has the potential to improve patient clinical outcomes through more tailored treatments.

Infraredx Market

Coronary artery disease, or CAD, is a major global health problem responsible for approximately 7.4 million deaths worldwide in 2012 according to the World Health Organization, and the worldwide frequency of the disease is increasing. In the United States, over 1.0 million heart attacks occur each year, according to the American Heart Association, or AHA, most of which are caused by CAD.

Infraredx Commercialization

REDX employs a dual commercialization model of direct sales and third-party distributors to sell the TVC System.

In the United States, REDX uses a direct sales organization supported by field clinical specialists and customer service support.

In Europe, REDX employs a hybrid commercial strategy combining both a direct sales organization and distributors that specializes in the interventional cardiology market.

In Japan, which represents an estimated 46% of the coronary imaging market in Western Europe, Japan and the United States, according to Millennium Research Group, Inc., REDX has partnered with Nipro Corporation, or Nipro, pursuant to a five-year exclusive distribution agreement that expires in August 2019.

Nipro is a 13.6% stockholder pre-IPO.

In August 2014, Nipro received Shonin approval from the Japanese Pharmaceuticals and Medical Device Agency, or PMDA, to market REDX's TVC System in Japan. Nipro is currently awaiting a national Japanese reimbursement decision with respect to our TVC System, which it expects will be forthcoming in the first half of 2015, and thereafter intends to accelerate its sales efforts.

REDX has also received regulatory clearance to market the TVC System in South Korea and are in the process of seeking regulatory approval to sell product in Canada, which REDX hopes to receive in the first half of 2015.

REDX is also actively engaged in registering the TVC System in China, with the goal of obtaining regulatory approval and entering the Chinese market with a partner in 2016.

Single use catheters primary source of revenue

As of December 31, 2012 and 2013, REDX had an installed base of 67 and 98 TVC Systems, respectively.

As of December 31, 2014, REDX had an installed base of 143 TVC Systems.

The current business model includes selling, leasing and placing TVC Consoles to hospitals, which then purchase single-use catheters for each use procedure.

While REDX anticipates increasingly generating revenue from the sale or lease of TVC Consoles, REDX viewS the sale of single-use catheters as the primary revenue driver.

For the year ended December 31, 2013, revenue attributed to TVC Consoles was $0.5 million and revenue attributed to single-use catheters was $2.2 million.

For the nine months ended September 30, 2014, revenue attributed to TVC Consoles was $0.9 million and revenue attributed to single-use catheters was $2.8 million.

Coronary events

There has been considerable progress in understanding the causes of heart attacks precipitated by CAD, specifically linking the accumulation of atherosclerotic plaques within the coronary arteries to coronary events.

The recognition that most coronary events are associated with ruptured coronary plaques has developed over the past 50 years.

In the 1960s, Dr. Paris Constantinides and others established in autopsy studies that a majority of heart attacks were caused by the rupture of LCPs (lipid core coronary plaques).

More specifically, autopsy findings and clinical studies in patients who have experienced a heart attack indicate that at least 60% of these events occur when an atherosclerotic LCP ruptures, leading to a thrombosis, which occludes the flow of blood to the heart muscle.

Dr. James Muller, REDX’s founder and Chief Medical Officer, conducted studies on the relationship between lipid-rich plaques, or LRPs, of which LCPs are now known to be a subset, and heart attacks during his research as a professor of medicine at the Harvard Medical School.

In 1989, along with two colleagues, Dr. Muller introduced the concept that heart attacks occur when a “vulnerable” or “at-risk” LRP ruptures, leading to a thrombosis.

However no prospective trial has confirmed this connection due, in part, to the historical absence of a means to identify LRPs in living patients.

Infraredx Intellectual Property

As of September 30, 2014, REDX owns 48 issued patents globally, of which 33 are issued U.S. patents, five are issued in Japan and 10 are issued in the European Union.

As of September 30, 2014, REDX has eight patent applications pending globally, three of which are patent applications pending in the United States, two are pending in Japan, two are pending under the European Patent Convention and one is a pending Patent Corporation Treaty application.

Subject to payment of required maintenance fees, annuities and other charges, six of REDX’s issued U.S. patents expire between 2021 and 2022, 20 expire between 2023 and 2025, and the remaining seven expire between 2026 and 2030.

REDX also has patents and applications for technologies not currently practiced, but that are either in development or are potentially adjunct or competing technologies.

Additionally, REDX owns material trademarks, trade names or logos that its uses in conjunction with the sale of its product. REDX currently has registered trademarks for Chemogram®, Infraredx®, Intravascular Chemography®, TVC Imaging System®, and TVC Insight Catheter®, among others.

Infraredx Competition

With respect to its TVC System, REDX’s primary competitors are Boston Scientific, Inc., Volcano Corporation, St. Jude Medical, Inc., and ACIST Medical Systems, Inc., a subsidiary of the Bracco Group.

In the Japanese market, REDX will also compete with Terumo Corporation, or Terumo.

Because of the size of the intravascular imaging opportunity, competitors and potential competitors have dedicated, and REDX expects will continue to dedicate, significant resources to aggressively promote their products.

It is likely that new product developments may compete with REDX more effectively because the intravascular imaging market is characterized by extensive research efforts and continuing innovation.

For instance, competitors may develop technologies and products that are safer, more effective, easier to use or less expensive than ours.

REDX has encountered and expects to continue to encounter potential physician customers who, due to existing relationships with REDX’s competitors, are committed to or prefer the products offered by these competitors.

Further, REDX expects that competitive pressures may result in price reductions and reduced margins over time for its TVC System.

REDX’s TVC System may be rendered obsolete or uneconomical by technological advances developed by one or more of its competitors.

Infraredx 5% shareholders pre-IPO

Entities affiliated with Sanderling Ventures          22.3%

Intrepid Maritime, LLC    14.3%    

Eastwood Capital Corp.             14.0%    

Nipro Corporation          13.6%              

Infraredx Dividends

No dividends are planned.

Infraredx Use of proceeds

REDX expects to receive $50 million from its IPO and use it for the following:

$25.0 million to continue to expand its sales and marketing efforts;

$10.0 million to continue to invest in its clinical trials; and

the balance for working capital and general corporate purposes.

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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