Founded in 2008, EndoChoice is a medical device company that designs cutting edge products for gastrointestinal (GI) caregivers. The company serves over 2,500 GI departments that perform endoscopic procedures. Its range of products and services are comprised of single-use devices and infection control products along with pathology and imaging systems designed to improve clinical outcomes and GI specialists productivity.
EndoChoice’s flagship product is Fuse, a full spectrum endoscopy system allowing GI specialists to see more than twice the anatomy at any one time compared to standard, forward-viewing colonoscopies and has been clinically shown to detect 69 percent more pre-cancerous polyps than standard colonoscopies. The company’s plan going forward is to leverage its product platform, established customer relationships, commercial infrastructure and Fuse® technology to create a benchmark of care for the global GI market.
EndoChoice estimates the global market for its GI endoscopy products and services to be over $6 billion with more than 70 million GI endoscopes performed each year in the U.S., Japan, and Europe. The GI endoscopy products and services market is projected to grow at 7 percent annually driven by increased attention on the screening, prevention, and treatment of colorectal cancer, an aging population worldwide, and changing dietary habits.
The company believes that the GI endoscopy market is highly fragmented and most companies that currently service this segment, focus on only one or two areas of the GI procedure cycle. EndoChoice feels the needs of GI specialists are under-served due to the lack of a well-rounded provider.
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Revenue for the first three months of 2015 was $16.7 million, up 17.3 percent from $13.8 million in 2014. 2014 revenue was $61.4 million compared with $50.9 million in 2013. The company derives revenue from the sales of its GI equipment and supplies, as well as its GI pathology services with the majority going towards the former. ECPM’s business is cyclical in nature due to weather conditions and the resetting of annual patient healthcare insurance plan deductibles, which tends to occur in the first quarter and can delay patients’ procedures.
The company’s operating costs include R&D expenses, SG&A, and amortization of intangible assets have continued to weigh down the company’s net income. The majority of costs are towards sales and marketing. The company spent $27.6 million in 2014 up from $18.1 million a year earlier. The spending was used to increase awareness for its products at events, like trade shows, to build its international distributor base.
The company’s net losses continue to mount due to increased spending and support of Fuse commercialization efforts. For the first quarter of 2015, its net loss grew to $15.2 million from $10.9 million in 2014. ECPM’s net losses increased 124 percent to $23.9 million in 2013 from $53.6 million in 2014.
At the end of March 2015, the company reported $33 million in cash and an accumulated deficit of ($112.4) million compared with $13.8 million in cash in December 2014 and an accumulated deficit of ($97.2) million. The company believes that a successful IPO combined with its borrowings, current forecasts and anticipated market conditions, it expects to fund its liquidity needs into 2019.
The company entered into a credit agreement with Triple Growth Capital for $40 million and has since tapped the full amount. The interest was set at 8.50 percent and matures in February 2018.
Conclusion and Pricing Info
Given the company’s history of net losses, competitor’s products being on the market for the past 20 years, and the IPO pricing at the low end of its range, investors should tread carefully on trading this IPO on the first day. In order for the company to progress towards its success, its needs to ramp up its products sales and provide results of more clinical studies.
EndoChoice expects the net proceeds of this offering to be $89.5 million and use them in the following manner:
$29 million for the expansion of its sales and marketing activities.
$27 million to increase working capital requirements related to accounts receivable and inventory.
$17 million for capital expenditures for new product demonstration equipment.
$4 million to expand its manufacturing capacity for its Fuse® system and future products.
The remainder for general corporate purposes and to acquire businesses and/or products or service should the opportunity arise.