ANALYSIS: AnPac Bio-Medical Science Seeks U.S. IPO for Cancer Diagnostics Growth Plans
AnPac Bio-Medical Science intends to raise $20 million in a U.S. IPO. The firm is growing topline revenue and gross profit within a favorable cancer diagnostics industry growth environment.
AnPac Bio-Medical Science (ANPC) has filed to raise gross proceeds of $20 million from a U.S. IPO, according to an F-1 registration statement.
The firm is focused on developing new technologies for early cancer screening and detection.
ANPC is growing revenue and enjoys a favorable cancer diagnostics industry growth trend backdrop.
Company & Customers
AnPac Bio was founded in 2010 to develop "next-generation" methods for early cancer screening and detection through its patented Cancer Differentiation Analysis (CDA) technology.
Management is headed by co-founder, chairman and chief executive, Chris Chang Yu, who was previously co-founder and president at Anji Microelectronics.
AnPac's CDA technology is capable of detecting and assessing an individual's overall cancer risk ‘with high accuracy,' including early stage cancer by focusing on biophysical properties in human blood, such as acoustical, electrical, magnetic, nano-mechanical and optical properties.
The firm's CDA device has an integrated sensor system that detects certain biophysical signals in blood samples for analysis by the CDA technology and proprietary algorithm, which measures and analyzes these signals at multiple biological levels (such as the protein, cellular and molecular levels) as well as with multiple parameters (such as the overall CDA value, the protein tumor factor (PTF) value, and the cell tumor factor (CTF) value).
Management says that, according to Frost & Sullivan, AnPac Bio-medical is one of the first biotechnology companies worldwide to focus on the detection and measurement of biophysical properties of cancers.
AnPac has a San Jose, California-based laboratory that is equipped to perform CDA-based tests and biochemical tests. Management says it plans to open a second lab in Philadelphia, Pennsylvania in 2020.
The firm has entered into research agreements with U.S. universities and academic medical centers and is in the process of discussing with U.S. hospitals, medical institutions, contract research organizations, managed care companies as well as other health organizations, to conduct research studies on the CDA technology in its San Jose-based lab.
The company sold 19,336 commercial CDA-based tests in 2017, which increased to 41,607 in 2018, and further grew from 29,036 in the nine months ended September 30, 2018, to 41,544 in the same period of 2019.
The firm plans to commence marketing its CDA-based tests as a laboratory-developed test in 2020 through its CLIA-registered laboratory in San Jose.
Sales and marketing expenses as a percentage of revenue have been uneven.
The sales & marketing efficiency rate, defined as how many dollars of additional new revenue generated by each dollar of sales & marketing spend, was 0.1x in the most recent nine-month period.
Market & Competition
According to a 2019 market research report by Grand View Research, the global cancer diagnostics market was valued at $144.4 billion in 2018 and is projected to reach $249.6 billion by 2026, growing at a CAGR of 7% between 2019 and 2026.
The main factors driving forecast market growth are the continuous introduction of innovative products, coupled with an increasing need for early diagnosis of various diseases, as well as the increasing prevalence of oncological diseases.
The Asia-Pacific region is projected to exhibit the highest growth rate due to the availability of skilled technicians at a comparatively lower price, a defined regulatory framework favoring expedited product approvals, as well as the presence of an increasingly large patient pool driving demand.
Major competitors that provide or are developing cancer screening technologies include:
GE Healthcare (GE)
F. Hoffmann-La Roche (SWX: ROG)
Siemens Healthcare (ETR: SHL)
Becton, Dickinson & Company (BDX)
Koninklijke Philips (AMS: PHIA)
Financial Performance & IPO Details
ANPC's recent financial results can be summarized as follows:
Growing topline revenue
Increased gross profit and gross margin
Increasing operating losses and lowered operating margin
Growing use of cash in operations
As of September 30, 2019, the company had $3.4 million in cash and $15.7 million in total liabilities. (Unaudited, interim)
Free cash flow during the twelve months ended September 30, 2019, was a negative ($5.8 million).
ANPC has filed to raise $20 million in gross proceeds from an IPO of its ADSs representing underlying Class A shares. The final amount of the IPO may differ.
Class A shareholders will be entitled to one vote per share, and Class B shareholders, who are company co-founders, will be entitled to ten votes per share and conversion rights. The S&P 500 Index no longer admits firms with multiple classes of stock into its index.
Per the firm's latest filing, the firm plans to use the net proceeds from the IPO as follows:
- for research studies in China and the U.S. and the development of new cancer screening and detection tests and technologies;
- for the expansion of its marketing and sales channels in China and its clinical laboratory expansion in the U.S.; and
- the balance for general corporate purposes.
Management's presentation of the company roadshow is not available.
The sole listed underwriter of the IPO is WestPark Capital.
ANPC is seeking capital from U.S. investors in a difficult IPO market for U.S. companies.
The company's financials show a revenue base that has produced growing revenue. Selling and marketing expenses as a percentage of revenue have been uneven.
WestPark Capital is the sole underwriter and the only IPO led by the firm over the last 12-month period has generated a return of a negative (38.3%) since its IPO.
The market opportunity for cancer diagnostics is large and growing at a robust rate as the demand for new testing capabilities grows worldwide.
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