IPO Report: Zosano Pharma (ZSAN)

Zosano Pharma (ZSAN) is a clinical stage specialty pharmaceutical company that has developed a proprietary transdermal microneedle patch system to deliver its proprietary formulations of existing drugs through the skin for the treatment of a variety of indications. It is headquartered in Fremont, CA.

Nineteen other companies are scheduled for the week of July 28, 2014.  The full IPO calendar is available at IPOpremium.

The manager and co-managers are Wedbush PacGrow Life Sciences, Ladenburg Thalmann, Roth Capital Partners.

ZSAN scheduled a $70 million IPO with a market capitalization of $134 million at a price range midpoint of $11 for Thursday July 31, 2014 on the Nasdaq.  SEC filings

Overview

ZSAN is a clinical stage specialty pharmaceutical company that has developed a proprietary transdermal microneedle patch system to deliver its proprietary formulations of existing drugs through the skin for the treatment of a variety of indications.

Valuation

Glossary

Pre-IPO grade-score summary
http://gaskinsco.com/scr-rate.htm
Many IPOs in today’s environment are graded C+ and scored 7.
If the pre-IPO grade is below C+ or the score is below 7, then our analysts may have some concerns about the company’s outlook and/or its market segment.
If the pre-ipo grade is above C+ or the score is above 7, then our analysts believe the company’s overall business outlook is very favorable.
C = unprofitable, C+ = profitable

Conclusion

The rating is neutral.

2x book, early stage.

14% of the IPO is spoken for.

Business

ZSAN is a clinical stage specialty pharmaceutical company that has developed a proprietary transdermal microneedle patch system to deliver its proprietary formulations of existing drugs through the skin for the treatment of a variety of indications.

ZSAN’s microneedle patch system offers rapid onset, consistent drug delivery, improved ease of use and room-temperature stability, which ZSAN believes often are unavailable using oral formulations or injections.

ZSAN’s microneedle patch system has the potential to deliver numerous medications for a wide variety of indications in commercially attractive markets.

By focusing its development efforts on the delivery of established molecules with known safety and efficacy and premium pricing, ZSAN plans to reduce its clinical and regulatory risk and development costs and accelerate its time to commercialization.

ZSAN’s short-wear-time transdermal patch consists of an array of titanium microneedles that is coated with its proprietary formulation of an existing drug and attached to an adhesive patch.

When the patch is applied with ZSAN’s hand-held applicator, the microneedles painlessly penetrate the skin to a depth of 200 microns or less, resulting in rapid dissolution and absorption of the drug coating through the capillary bed.

ZSAN believes its system enables rapid and consistent delivery of the drug, with therapeutic effect typically occurring within 30 minutes or less, and easy, pain-free administration.

ZSAN focuses on developing specific formulations of approved drugs to be administered by its microneedle patch system, for indications in which rapid onset, ease of use and stability offer significant therapeutic and practical advantages.

ZSAN targets indications with patient populations that ZSAN believes will provides it with an attractive commercial opportunity. ZSAN’s lead product candidates, and the indications they are expected to treat, are as follows:

Weekly ZP-PTH, for severe osteoporosis; ZP-Glucagon, for severe hypoglycemia; and

ZP-Triptan, for migraine.

Dividend Policy

No dividends are planned.

Intellectual Property

As of April 30, 2014, ZSAN held licenses to 22 United States patents and eight United States patent applications, as well as numerous foreign counterparts to many of these patents and patent applications, covering key features of ZSAN’s microneedle patch system, such as formulation, coating, array design, patch anchoring, patch application, delivery, manufacturing and packaging.

These patents are foundational and apply generally to each of its lead product candidates and their related applicators.

Competition

Companies marketing or developing products that treat severe osteoporosis that may compete with ZSAN’s Weekly ZP-PTH product candidate include Amgen, Inc., Eli Lilly and Company and Radius Health, Inc.

5% Stockholders

BMV Direct SOTRS LP  39.58%

New Enterprise Associates 12    34.91%

Vikram Lamba  13.53%

Peter Daddona  6.87%                        

Use of Proceeds

ZSAN intends to use the $64 million in proceeds from its IPO as follows:

– $8 million to complete our planned clinical development of our ZP-Glucagon product candidate;

– $11 million to complete our planned Phase 2 clinical trial of our Weekly ZP-PTH product candidate;

– $5 million to complete a Phase 1 clinical trial and a Phase 2 clinical trial of our ZP-Triptan product candidate;

– $7 million to expand and enhance our manufacturing capabilities by purchasing new equipment, enlarging our manufacturing facilities and refining our manufacturing processes and systems to enable commercial-scale production;

– $3 million to make required payments of interest and principal as they become due under our term loan facility with Hercules Technology Growth Capital (which bears interest per annum at a floating rate equal to the greater of (i) 12.05% and (ii) 12.05% plus the “prime rate” as reported in The Wall Street Journal minus 5.25%, and which matures in June 2017) and under the note payable to the largest stockholder, an affiliate of BioMed Realty Trust (which bears interest at the same rate as the Hercules loan while the Hercules loan is outstanding and otherwise at 8% per annum, and which matures in April 2016 but is not permitted to be repaid while the Hercules loan is outstanding); and

– The remainder for working capital and general corporate purposes.