IPO Report: Inogen (INGN)

Francis Gaskins |

Inogen (INGNbelieves it is the only portable oxygen concentrator manufacturer that employs a direct-to-consumer marketing strategy in the United States

Seven other companies are scheduled for the week of February 10, 2014.  The full IPO calendar is available at IPOpremium.

The manager and joint managers are J.P. Morgan, Leerink Partners.  The co-managers: William Blair, Stifel.  SEC Filings

On the Nasdaq, INGN scheduled a $75 million IPO with a market capitalization of $306 million at a price range midpoint of $17 for Friday, February 14, 2014.

Overview

Revenue increased 59% for the nine months ended September ’13 to $56 million.  Profit increased 600% to $3.5 million.  Gross profit increased to 52% from 49%. 

Shareholders are selling 25% of the IPO.

Valuation
Glossary

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing

Cap (mm)

Sls

Erngs

BkVlue

TanBV

in IPO

Inogen (INGN)

$306

4.0

262.3

3.5

3.5

24%

             

Conclusion
INGN has a unique value add proposition resulting in excellent top line revenue growth, 40% of which is rental income.

Price-to-book is a reasonable 3.5, although the annualized P/E for the nine months ended September ’13 is a high 262.

The rating on INGN is neutral.

Business

INGNis a medical technology company that develops, manufactures and markets innovative portable oxygen concentrators used to deliver supplemental long-term oxygen therapy to patients suffering from chronic respiratory conditions.

Traditionally, these patients have relied on stationary oxygen concentrator systems for use in the home and oxygen tanks or cylinders for mobile use.

The tanks and cylinders must be delivered regularly and have a finite amount of oxygen, which limits patient mobility and requires patients to plan activities outside of their homes around delivery schedules.

Additionally, patients must attach long, cumbersome tubing to their stationary concentrators simply to enable mobility within their homes.

INGNrefer to this traditional delivery approach as the delivery model.

Competitive Advantage
INGN believes it is the only portable oxygen concentrator manufacturer that employs a direct-to-consumer marketing strategy in the United States, meaning INGN advertises directly to patients, processes their physician paperwork, provides clinical support as needed and bills Medicare or insurance on their behalf.

Growth plan
(1) Expand sales and marketing channels
(2) Invest in product offerings to develop innovative products.   
(3) Secure contracts with healthcare payors and insurers  
Based on the patient population, INGN estimates that at least 30% of oxygen therapy patients are covered by non-Medicare payors, and that these patients often represent a younger, more active patient segment.

By becoming an in-network provider with more insurance companies, INGN can reduce the co-pay for patients, which INGN believes will allow the company to attract additional patients to  Inogen One solutions.

Inogen One
INGN’s proprietary systems are portable devices that concentrate the air around them to offer a single source of supplemental oxygen anytime, anywhere.

Using INGN’s systems, patients can eliminate their dependence on stationary concentrators and tank and cylinder deliveries, thereby improving quality-of-life and fostering mobility.

In May 2004, INGN received 510(k) clearance from the U.S. Food and Drug Administration, or the FDA, for INGN’s Inogen One G1.

Since INGN launched the Inogen One G1 in 2004, through 2008, INGN derived its revenue almost exclusively from sales to healthcare providers and distributors.

Comfort Life Medical Supply Acquistion
In December 2008, INGN acquired Comfort Life Medical Supply, LLC in order to secure access to the Medicare rental market and began accepting Medicare reimbursement for INGN’s oxygen solutions in certain states.

At the time of the acquisition, Comfort Life Medical Supply, LLC had an active Medicare billing number but few other assets and limited business activities.

Direct to consumer marketing strategy
In January 2009, following the acquisition of Comfort Life Medical Supply, LLC, INGN initiated its direct-to-consumer marketing strategy and began selling Inogen One systems directly to patients and building its Medicare rental business in the United States.

In April 2009, INGN became a Durable, Medical Equipment, Prosthetics, Orthotics, and Supplies accredited Medicare supplier by the Accreditation Commission for Health Care for INGN’s Goleta, California facility for Home/Durable Medical Equipment Services for oxygen equipment and supplies.

Intellectual property
As of January 1, 2014, INGN had 24 issued U.S. patents, one issued Canadian patent and six additional pending U.S. patent applications.

INGNanticipates it will take several years for the most recent of these U.S. patent applications to result in issued patents, if at all.

INGN’s patent portfolio contains three principal sets of patents and patent applications. The first set relates to the construction and design of specific Inogen products. For example, U.S. Patent Nos. 8,440,004; 8,366,815; 8,377,181; and 8,568,519 are directed to design elements of the Inogen One G2 portable oxygen concentrator.

Competition

INGN’s significant manufacturing competitors are Invacare Corporation, Respironics (a subsidiary of Koninklijke Philips N.V.), AirSep Corporation and SeQual Technologies (subsidiaries of Chart Industries, Inc.), Inova Labs, Inc. and DeVilbiss Healthcare.

Lincare Inc., Apria Healthcare, Inc. Rotech Healthcare, Inc. and American HomePatient, Inc. have been among the market leaders in providing oxygen therapy for many years, while the remaining oxygen therapy market is serviced by local providers.

5% stockholders

Novo A/S  42.15%

Entities affiliated with Versant Ventures  26.08%

Entities affiliated with Arboretum Ventures 15.07%

Avalon Ventures VII, L.P.  6.50%

AMVPartners I, L.P  5.95%       

Use of proceeds

25% of IPO procees are going to selling shareholders.  INGN itself expects to net $53.4 million from its IPO. Proceeds are allocated as follows:

.  $15 million of the net proceeds from this offering for investments in rental assets;

.  $5 million of the net proceeds for sales and marketing activities, including expansion of INGN’s sales force to support the ongoing commercialization of its products;

.  $3 million of the net proceeds for research and product development activities;

.  $11 million of the net proceeds for facilities improvements or expansions and the purchase of manufacturing and other equipment; and

.  the remainder of the net proceeds for working capital and other 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

Companies

Symbol Name Price Change % Volume
INGN Inogen Inc 65.05 -0.33 -0.50 114,772
ITPG Itp Energy Corp 0.02 0.00 0.00 0

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