Story Stocks®
Updated: 04-Apr-19 09:02 ET
Silk Road Medical off to smooth start as IPO draws strong demand (SILK)
In another sign that the IPO market is revving back up, this
morning featured three solid IPO pricings from each of NGM Biopharmaceuticals
(NGM), Tradeweb Markets (TW), and Silk Road Medical (SILK). Two of these
companies both increased the number of shares offered in their IPOs and boosted
the expected price range higher: Tradeweb Markets and Silk Road Medical.
Our focus for this report turns to SILK, a commercial stage medical device company focused on reducing the risk of stroke. Healthcare related IPOs have been in vogue for some time now, but what stands out about SILK is that it has already secured FDA approval for a new, minimally-invasive procedure that is quickly gaining acceptance and adoption. This is reflected in its impressive triple-digit revenue growth.
As for the deal itself, the company originally was looking to sell 4.7 mln shares within a range of $15-$17. But yesterday morning, the deal was boosted to 6.0 mln shares with an expected price range of $19-$20. That's a very impressive increase, illustrating that demand for this IPO was robust.
This morning, the IPO priced at the high end of the upwardly revised range at $20, for the generation of $120 mln in gross proceeds -- about 60% more than anticipated. SILK is planning to use the proceeds of the IPO mainly for growth purposes, such as for bolstering its sales force, expanding internationally, and increasing its research and development activities. With the deal size being lifted, the company now has $45 mln more to allot for these purposes than it originally expected.
The IPO also had solid underwriters behind it, including JP Morgan and BofA Merrill Lynch, which didn't hurt its cause. Given the very healthy demand, SILK is definitely one to keep an eye on when it opens for trading this morning on the Nasdaq.
Overview
SILK is a medical device company focused on reducing the risk of stroke. The company has pioneered a new approach for the treatment of carotid artery disease called transcarotid artery revascularization (TCAR), which it seeks to establish as the standard of care.
Carotid artery disease is the progressive buildup of plaque causing narrowing of the arteries in the front of the neck, which supply blood flow to the brain. Plaque can embolize, or break away from the arterial wall, travel toward the brain, and interrupt critical blood supply, leading to an ischemic stroke.
TCAR relies on two novel concepts -- minimally-invasive direct carotid access in the neck and high-rate blood flow reversal during the procedure to protect the brain -- and combines the benefits of innovative endovascular techniques with fundamental surgical principles.
SILK notes in its IPO prospectus that it is the first and only company to obtain FDA approvals, secure specific Medicare reimbursement coverage, and commercialize products engineered and indicated for use in TCAR. As of December 31, 2018, more than 7,750 TCAR procedures had been performed globally, including more than 4,600 in 2018.
TCAR is a minimally-invasive solution that addresses the morbidity of carotid endarterectomy (CEA) and the 30-day stroke risk of CAS (transfemoral carotid artery stenting) while providing a reduction in long-term stroke risk. TCAR starts with a small incision in the neck slightly above the collarbone through which its ENROUTE Transcarotid Stent System, or ENROUTE stent, is placed during a period of temporary high-rate blood flow reversal that is enabled by its ENROUTE Transcarotid Neuroprotection System.
The safety, effectiveness, and clinical advantages of TCAR have been demonstrated in multiple clinical trials, post-market studies, and registries that have evaluated outcomes in more than 3,500 patients in the United States and Europe to date. The results of its U.S. pivotal trial, ROADSTER, reflect the lowest reported 30-day stroke rate for any prospective, multi-center clinical trial of carotid stenting of which the company is aware.
In a recent comparative analysis, TCAR demonstrated comparable rates of in-hospital stroke and death relative to CEA despite treating a sicker, older patient population. TCAR patients also had a ten-fold reduction in risk of cranial nerve injury, spent less time in the operating room, and were less likely to have a hospital stay longer than one day.
Financials
For FY18, revenue surged 142% yr/yr to $34.6 mln due to an increase in the number of products sold as it expanded its sales territories, increased the number of new accounts, and trained more physicians in TCAR and as physicians performed more TCAR procedures.
Gross margin increased to 69% compared to 64% in the year ended December 31, 2017. Gross margin increased as its production and ordering volumes increased, and it was able to spread the fixed portion of its overhead costs over a larger number of units produced.
Total operating expenses jumped by 64% to $45.1 mln, including at 71% spike in SG&A costs driven by the personnel-related expenses due to the continued commercialization of its products. As a result, SILK had an operating loss of ($21.4) mln for the year. Furthermore, the company expects to continue incurring operating losses for the foreseeable future.
Our focus for this report turns to SILK, a commercial stage medical device company focused on reducing the risk of stroke. Healthcare related IPOs have been in vogue for some time now, but what stands out about SILK is that it has already secured FDA approval for a new, minimally-invasive procedure that is quickly gaining acceptance and adoption. This is reflected in its impressive triple-digit revenue growth.
As for the deal itself, the company originally was looking to sell 4.7 mln shares within a range of $15-$17. But yesterday morning, the deal was boosted to 6.0 mln shares with an expected price range of $19-$20. That's a very impressive increase, illustrating that demand for this IPO was robust.
This morning, the IPO priced at the high end of the upwardly revised range at $20, for the generation of $120 mln in gross proceeds -- about 60% more than anticipated. SILK is planning to use the proceeds of the IPO mainly for growth purposes, such as for bolstering its sales force, expanding internationally, and increasing its research and development activities. With the deal size being lifted, the company now has $45 mln more to allot for these purposes than it originally expected.
The IPO also had solid underwriters behind it, including JP Morgan and BofA Merrill Lynch, which didn't hurt its cause. Given the very healthy demand, SILK is definitely one to keep an eye on when it opens for trading this morning on the Nasdaq.
Overview
SILK is a medical device company focused on reducing the risk of stroke. The company has pioneered a new approach for the treatment of carotid artery disease called transcarotid artery revascularization (TCAR), which it seeks to establish as the standard of care.
Carotid artery disease is the progressive buildup of plaque causing narrowing of the arteries in the front of the neck, which supply blood flow to the brain. Plaque can embolize, or break away from the arterial wall, travel toward the brain, and interrupt critical blood supply, leading to an ischemic stroke.
TCAR relies on two novel concepts -- minimally-invasive direct carotid access in the neck and high-rate blood flow reversal during the procedure to protect the brain -- and combines the benefits of innovative endovascular techniques with fundamental surgical principles.
SILK notes in its IPO prospectus that it is the first and only company to obtain FDA approvals, secure specific Medicare reimbursement coverage, and commercialize products engineered and indicated for use in TCAR. As of December 31, 2018, more than 7,750 TCAR procedures had been performed globally, including more than 4,600 in 2018.
TCAR is a minimally-invasive solution that addresses the morbidity of carotid endarterectomy (CEA) and the 30-day stroke risk of CAS (transfemoral carotid artery stenting) while providing a reduction in long-term stroke risk. TCAR starts with a small incision in the neck slightly above the collarbone through which its ENROUTE Transcarotid Stent System, or ENROUTE stent, is placed during a period of temporary high-rate blood flow reversal that is enabled by its ENROUTE Transcarotid Neuroprotection System.
The safety, effectiveness, and clinical advantages of TCAR have been demonstrated in multiple clinical trials, post-market studies, and registries that have evaluated outcomes in more than 3,500 patients in the United States and Europe to date. The results of its U.S. pivotal trial, ROADSTER, reflect the lowest reported 30-day stroke rate for any prospective, multi-center clinical trial of carotid stenting of which the company is aware.
In a recent comparative analysis, TCAR demonstrated comparable rates of in-hospital stroke and death relative to CEA despite treating a sicker, older patient population. TCAR patients also had a ten-fold reduction in risk of cranial nerve injury, spent less time in the operating room, and were less likely to have a hospital stay longer than one day.
Financials
For FY18, revenue surged 142% yr/yr to $34.6 mln due to an increase in the number of products sold as it expanded its sales territories, increased the number of new accounts, and trained more physicians in TCAR and as physicians performed more TCAR procedures.
Gross margin increased to 69% compared to 64% in the year ended December 31, 2017. Gross margin increased as its production and ordering volumes increased, and it was able to spread the fixed portion of its overhead costs over a larger number of units produced.
Total operating expenses jumped by 64% to $45.1 mln, including at 71% spike in SG&A costs driven by the personnel-related expenses due to the continued commercialization of its products. As a result, SILK had an operating loss of ($21.4) mln for the year. Furthermore, the company expects to continue incurring operating losses for the foreseeable future.
