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WeWork may cut IPO valuation to $10 billion

By Joshua Franklin, Anirban Sen and Jessica DiNapoli

WeWork owner The We Company may seek a valuation in its upcoming initial public offering of between $10 billion and $12 billion, a dramatic discount to the $47 billion valuation it achieved in January, people familiar with the matter said on Friday.

If the We Company were to press on with the IPO at such a low valuation, it would represent a major turning point in the venture capital industry’s growth over the last decade that has led to the rise of startups such as Uber Technologies Inc , Snap Inc and Airbnb Inc.

It would mean that the We Company would be valued less than the $12.8 billion in equity it has raised since it was founded in 2010, according to data provider Crunchbase. And it would represent a major blow to its biggest backer, Japan’s SoftBank Group Corp, at a time it is trying to amass $108 billion from investors for its second Vision Fund.

The sources cautioned that no decision has been made and asked not to be identified because the matter is confidential. WeWork did not immediately respond to a request for comment.

Investors have expressed concerns about the We Company’s business model, which relies on a mix of long-term liabilities and short-term revenue, raising questions about how it would weather an economic downturn.

The We Company’s deliberations indicate it does not feel confident that the corporate governance changes it unveiled on Friday, slightly loosening CEO and co-founder Adam Neumann‘s grip on the company, will be enough to woo investors concerned about its lack of a path to profitability.

The changes are largely symbolic in nature, aimed at showing the We Company is listening to investors after being forced to slash its IPO price expectations, corporate governance experts said.

“That change is seemingly cosmetic in nature,” said Charles Elson, a professor of corporate governance at the University of Delaware, referring to the We Company’s announcement it will reduce Neumann’s voting power. “He will still control the composition of the board.”

The office space sharing start-up said it was making the changes “in response to market feedback.” It said Neumann’s superior voting shares will decrease to 10 votes per share from 20, though he will still retain majority control of the company.

Neumann will also give the company any profits he receives from real estate deals he has entered into with We Company. He will also limit his ability to sell shares in the second and third years after the IPO to no more than 10% of his stock.

No member of Neumann’s family will be on the company’s board and any successor will be selected by the board, scrapping a plan for his wife and co-founder Rebekah Neumann, who is chief brand and impact officer, to help pick the successor.

The We Company also disclosed its will list shares on the Nasdaq Stock Exchange. It plans to complete the IPO as early as this month, Reuters has reported.

This is the second effort to repair damage done to its image among investors. Earlier this month added a new member, Frances Frei, to its all-male board and said Neumann would return a $5.9 million payment for use of the trademarked word “We.”

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Pre-IPO Coverage: Cloudflare (NET)

Website infrastructure and security company Cloudflare (NYSE:) is expected to IPO on Friday, September 13. At a price range of $10-$12 per share, the company plans to sell up to $483 million of shares with an expected market cap of ~$3.2 billion. At the midpoint of the IPO price range, NET currently earns our Unattractive rating.

Cloudflare offers a variety of cloud-based services that used to be performed by many different on-premise solutions – such as firewalls, routing, virtual private networks (VPNs), traffic optimization, and load balancing – for businesses and websites. The company’s services have become integral to the operations of millions of websites around the world – but it has struggled to turn that global reach into positive cash flow.

This report aims to help investors sort through Cloudflare’s financial filings to understand the fundamentals and valuation of this IPO.

Paying Customers

Paying Customers

Growing Paid Customers

Like many other recent software-as-a-service (SaaS) IPO’s, Cloudflare operates on a “freemium” model. The company’s free tier protects websites from distributed denial of service (DDoS) attacks, reduces loading times, and protects certain information from malicious attacks. Paying customers get more advanced security offerings, as well as mobile optimization, faster network speeds, and a variety of other customized features.As with any company that pursues this model, Cloudflare’s key challenge is to move its users up the value chain, getting free customers to pay and getting paying customers to pay more. The company currently provides services for over 20 million internet properties, but it only has ~75 thousand paying users.As Figure 1 shows, though, the company has rapidly grown its paying user base over the past two and a half years, especially among its highest paying customers. Total paying customers have more than doubled, from 35 thousand at the end of 2016 to 75 thousand as of June 20, 2019. Customers that pay over $100,000 annually have more than quadrupled over the same time, from 95 to 408.Figure 1: Total and >$100k Paying Customers: 2016-June 30, 2019Sources: New Constructs, LLC and company filingsHowever, as we saw with Slack (NYSE:), growing paid customers doesn’t always lead to positive cash flows. Cloudflare’s revenue grew from $135 million in 2017 to $193 million in 2018, a 43% increase. Its NOPAT, on the other hand, declined from -$8 million to -$83 million.

No Economy Of Scale

Cloudflare’s mounting losses raise a key concern. Despite rapid top-line growth, the company does not appear to have achieved any economies of scale. As Figure 2 shows, Cloudflare’s cost of revenue, sales and marketing, research and development, and general and administrative expenses all grew faster than revenue in 2018.

Figure 2: Cloudflare’s Expenses Growing Faster than Revenue: 2018 vs. 2017

Sources: New Constructs, LLC and company filings

Part of the large increase in general and administrative expense comes from unusually high stock-based compensation expense recorded as part of a secondary stock sale, as well as IPO preparation in 2018, but these factors don’t explain all of the increase. The company disclosed that general and administrative headcount increased by 63% last year.

Through the first six months of 2019, cost of revenue, sales and marketing, and research and development expense continued to grow faster than revenue. Only general and administrative grew slower due to the unusual expenses in 2018, but it still represented 25% of revenue compared to 15% in 2017.

It’s not abnormal to see early stage companies such as Cloudflare spending heavily on marketing and R&D. What is highly unusual is the fact that the company’s cost of revenue and general and administrative costs, which should theoretically benefit from scale, are also growing rapidly. The company will need to find a way to reverse these trends in order to achieve profitability.

Tech Giants Could Be Partners, Competitors, or Acquirers

Cloudflare’s relationship with the giants of the tech world could play a major role in determining its future. Amazon (NASDAQ:), Alphabet (NASDAQ:), Microsoft (NASDAQ:) and IBM (NYSE:) all have major cloud platforms, and all but AMZN currently partner with Cloudflare. Google Cloud, Microsoft Azure, and IBM Cloud integrate Cloudflare into their platforms to deliver its services to their customers.However, Cloudflare notes in its S-1 that these partnerships may be temporary. On page 143, it writes:“Today, we work closely with these companies, some of whom are both partners and investors. In the long term, we may increasingly compete with them.”It seems unlikely that these tech giants will want to rely on a third-party for key elements of their cloud platform over the long-term. This disclosure from Cloudflare clearly suggests they expect GOOGL, MSFT, and IBM to try to replicate its services in-house before too long.Alternatively, any of those companies could be a potential acquirer. An acquisition would allow these large public cloud providers to more fully integrate Cloudflare’s technology into their platforms while simultaneously denying that technology to key competitors. In the race to dethrone Amazon’s AWS as the dominant cloud platform, that technological edge could prove decisive. Cloudflare’s $3.2 billion market cap would be little more than a drop in the bucket for any of those companies.

Public Shareholders Have No Rights

While an acquisition could be good for investors, Cloudflare’s poor corporate governance could derail it. The company plans to go public with a dual-class share structure that will give shares held by insiders and early investors 10 times the voting rights of the shares sold to the public. As a result, executives and directors will control 66% of the voting power in the company, preventing public shareholders from having any say in corporate governance.

This dual-class structure could allow executives to block a potential acquisition that would be in the best interest of shareholders simply because they want to remain in charge.

DCF Model Reveals High Expectations

When we use our dynamic DCF model to analyze the future cash flow expectations baked into the midpoint of the IPO price range, we find that Cloudflare must achieve impressive growth and profitability in order to justify its expected valuation.As noted above, Cloudflare’s prospects for profitability as a standalone entity seem poor, so it makes more sense to analyze the company’s potential value to an acquirer.To justify GOOGL paying the midpoint of its IPO range of $11/share, Cloudflare must achieve 18% NOPAT margins – equal to GOOGL and up from its current margin of -43% – and grow revenue by 30% compounded annually for 8 years. See the math behind this dynamic DCF scenario.If Microsoft (NASDAQ:) acquired Cloudflare, and the company achieved Microsoft’s NOPAT margin of 30% while maintaining the same growth rate, the stock is worth $18/share today, a 67% upside to the midpoint of the IPO price range. See the math behind this dynamic DCF scenario.While these scenarios suggest the company could justify or even exceed its IPO valuation, they rely on acquisitions, that may never materialize, to significantly boost margins. If Cloudflare doesn’t get acquired, it becomes much harder to see how this company creates value for its IPO investors.

Critical Details Found in Financial Filings by Our Robo-Analyst Technology

As investors focus more on fundamental research, research automation technology is needed to analyze all the critical financial details in financial filings. Below are specifics on the adjustments we make based on Robo-Analyst[1] findings in Cloudflare’s S-1:

Income Statement: we made $8 million of adjustments, with a net effect of removing $4 million in non-operating expense (2% of revenue). You can see all the adjustments made to NET’s income statement here.

Balance Sheet: we made $115 million of adjustments to calculate invested capital with a net decrease of $27 million. The most notable adjustment was $44 million in operating leases. This adjustment represented 19% of reported net assets. You can see all the adjustments made to NET’s balance sheet here.

Valuation: we made $258 million of adjustments with a net effect of increasing shareholder value by $258 million. You can see all the adjustments made to NET’s valuation here.

This article originally published on September 10, 2019.

Disclosure: David Trainer, Kyle Guske II, and Sam McBride receive no compensation to write about any specific stock, style, or theme.

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Cramer On WeWork IPO: Go Away And Come Back When Things Are Better

Jim Cramer has a simple piece of advice for WeWork ahead of its initial public offering: “Go away.”

What Happened Today

WeWork’s valuation may have fallen from $47 billion to a range of $10 billion to $12 billion, sources told CNBC’s David Faber.

WeWork also introduced a handful of corporate governance changes ahead of its IPO, including that no member of CEO Adam Neumann’s family will sit on the board of directors and his superior voting shares will drop from 20 votes per shares to 10 votes.

Invest in IPO shares before the stock hits the market with ClickIPO. Check it out here

Not At Any Price

Even at $10 billion to $12 billion, the company’s valuation is too much and the WeWork IPO shouldn’t proceed at “any price,” Cramer said Friday morning. The high-profile IPO has the potential to “take the air out” of the current favorable sentiment and “screw up the market.”

Cramer’s second piece of advice for WeWork? Admit the company and valuation is “awful” and come back to the public market when it’s “good again.”

Bradley Tusk: CEO Wants An IPO

WeWork had no choice but to implement changes if it wants to proceed as a public company, Tusk Ventures founder and CEO Bradley Tusk also said on CNBC. Granted, the company needs to raise $3 billion from the public market to satisfy some debt covenants, but at the end of the day Neumann will greatly benefit.

“Whether he makes $2 billion or $4 billion, if you’re him and you just get past all of the normal chatter, of course he is driving this to an IPO,” Tusk said. “Why wouldn’t he?”

Meanwhile, WeWork has a side business that has potential to become a meaningful driver of growth. The company’s WeLive co-living concept addresses real problems like a rapidly urbanizing world at a time when social norms among the younger generation is improving.

“If they can really build that out, to me that is a really interesting business,” Tusk said. “The WeWork commercial real estate model as it is, not so much.”

Related Links:

WeWork’s We Company To List On Nasdaq

Management Pro: Too Much Is Wrong With WeWork

Photo by Ajay Suresh via Wikimedia.

© 2019 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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SoftBank to Buy at Least $750 Million of WeWork Parent Shares in IPO – The Wall Street Journal

SoftBank Group Corp. plans to buy at least $750 million of the shares in WeWork’s impending IPO, one of a series of moves by the office-sharing company to shore up an offering that has been plagued by tepid investor demand.

The Japanese technology conglomerate, already the biggest investor in WeWork’s parent, would end up with 25% or more of the shares sold in an offering that is expected to raise at least $3 billion and value the startup at between $15 billion and $20 billion, according to people familiar with the matter….

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Sebi bans former officials for up to 3 years in Dr Datsons Labs IPO case

Regulator Friday barred ex-officials of Dr Datsons Labs from securities for up to three years for not utilising IPO proceeds as stated in the offer documents.

has prohibited Kashi Vishwanathan, who was chairman of the company, and Kannan Vishwanatth, who was managing director, for three years. Prabhat Goyal and Shashikant B Shinde, who were whole time executive directors, have been restricted for one year, as per the regulator’s order.

The Securities and Exchange Board of India (Sebi) conducted an investigation in the matter of initial public offer (IPO) by Datsons (formerly known as Aanjaneya Lifecare) in 2011 to ascertain any possible violation of regulations.

The company came out with an initial share-sale in May 2011 to raise Rs 117 crore.

Pursuant to investigation, found,”the company and its directors have not utilised the IPO proceeds for the objects stated in the RHP (offer document) and have utilised the IPO proceeds for other undisclosed purposes”.

“Thus, the noticees (the four former directors), by resorting to unfair means behind the back of innocent investors have concealed material information from them and have deliberately published misleading information in the offer document,” it added.

By indulging in such activities, they have violated the provisions of SEBI Act, PFUTP (Prohibition of Fraudulent and Unfair Trade Practices) norms and ICDR (Issue of Capital & Disclosure Requirements) Regulations.

Accordingly, the regulator has restrained these individuals from capital for period varying from one year to three years. Further, during the period of restraint, the existing holding of securities of these individuals units of mutual funds, will remain frozen.

Also, they have been barred from associating themselves with any public listed company and further restrained from holding any key managerial position in any other listed company or any registered intermediaries.

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Exclusive: WeWork considers dramatic valuation cut in IPO – Reuters

(Reuters) – WeWork owner The We Company may seek a valuation in its upcoming initial public offering of between $10 billion and $12 billion, a dramatic discount to the $47 billion valuation it achieved in January, people familiar with the matter said on Friday.

Were the We Company to press on with the IPO at such a low valuation, it would represent a major turning point in the venture capital industry’s growth over the last decade, that has led to the rise of startups such as Uber Technologies Inc, Snap Inc and Airbnb Inc.

It would mean that the We Company would be valued less than the $12.8 billion in equity it has raised since it was founded in 2010, according to data provider Crunchbase. And it would represent a major blow to its biggest backer, Japan’s SoftBank Group Corp, at a time it is trying to amass $108 billion from investors for its second Vision Fund.

The sources cautioned that no decision has been made and asked not to be identified because the matter is confidential. WeWork and SoftBank did not immediately respond to requests for comment.

Investors have expressed concerns about the U.S. office-sharing start-up’s business model, which relies on a mix of long-term liabilities and short-term revenue, raising questions about how it would weather an economic downturn.

The We Company’s deliberations indicate it does not feel confident that the corporate governance changes it unveiled on Friday, slightly loosening CEO and co-founder Adam Neumann’s grip on the company, will be enough to woo investors concerned about its lack of a path to profitability.

The WeWork brand is strongly tied to Neumann, a flamboyant, freewheeling 40-year-old Israel-born entrepreneur who has said that the We Company’s mission is “to elevate the world’s consciousness.” His wife Rebecca serves as the We Company’s chief brand officer and is a powerful figure inside the company.

The We Company’s corporate governance changes are largely symbolic, aimed at showing the We Company is listening to investors after being forced to slash its IPO price expectations, corporate governance experts said. Last month, it was considering an IPO valuation of around $20 billion.

“That change is seemingly cosmetic in nature,” said Charles Elson, a professor of corporate governance at the University of Delaware, referring to the We Company’s announcement it will reduce Neumann’s voting power. “He will still control the composition of the board.”

The office space sharing start-up said it was making the changes “in response to market feedback.” It said Neumann’s superior voting shares will decrease to 10 votes per share from 20, though he will still retain majority control of the company.

Neumann will also give the company any profits he receives from real estate deals he has entered into with We Company. He will also limit his ability to sell shares in the second and third years after the IPO to no more than 10% of his stock.

No member of Neumann’s family will be on the company’s board and any successor will be selected by the board, scrapping a plan for his wife and co-founder Rebekah Neumann, who is chief brand and impact officer, to help pick the successor.

The We Company also disclosed its will list shares on the Nasdaq Stock Exchange. It plans to complete the IPO this month, and its IPO investor roadshow could launch as early as next week, Reuters has reported.

This is the second effort to repair damage done to the company’s image among investors. Earlier this month, it added a new member, Frances Frei, to its all-male board and said Neumann would return a $5.9 million payment for use of the trademarked word “We.”

“For all the attention being given to ‘governance reform’ at the We Company, entrenchment through unequal voting rights remains firmly in place,” said Glenn Davis, director of research at the Council of Institutional Investors.

FILE PHOTO: The WeWork logo is displayed on the entrance of a co-working space in New York City, New York U.S., January 8, 2019. REUTERS/Brendan McDermid/File Photo

TUSSLE WITH SOFTBANK

SoftBank chief Masayoshi Son has been pushing Neumann to delay the We Company’s IPO, but has so far failed to persuade him, Reuters has previously reported.

Were the We Company to delay its IPO, it would have to find debt financing to replace a $6-billion loan package it clinched from banks last month. This debt deal is contingent on the We Company raising at least $3 billion in its IPO. SoftBank has so far resisted replacing this arrangement by offering the We Company more funding.

The last time SoftBank invested in the We Company was in January at a $47 billion valuation, injecting $2 billion of cash in the New York-based startup, far less than the $20 billion investment that the We Company had hoped for.

Reporting by Joshua Franklin in New York, Anirban Sen in Bangalore and Jessica DiNapoli in Washington, D.C., Additional reporting by Herbert Lash in New York; Editing by Jason Neely and Nick Zieminski

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Warburg Pincus-backed ESR refiles application to join HK IPO rush

HONG KONG (Reuters) – ESR Cayman Ltd (1821.HK), a logistics real estate developer backed by private equity firm Warburg Pincus, is readying a relaunch of its Hong Kong IPO three months after pulling a deal worth up to $1.24 billion, company documents show.

The company joins a list of initial public offering (IPO) hopefuls aiming to take advantage of improving markets in the Asian financial hub, including a planned $5 billion listing of giant brewer Anheuser-Busch InBev’s (ABI.BR) Asian operations and an over $1 billion float of consumer lender Home Credit.

ESR, which manages property-focused funds and vehicles as well as its own directly held property investments, refiled a draft prospectus with the Hong Kong stock exchange late on Thursday.

It is tentatively looking to begin informal investor meetings in early October after China’s one week-long National Day holiday and looks to launch the IPO in the same month, said one person with knowledge of the matter, declining to be named as the information was private.

ESR declined to comment on the timetable.

AB InBev is planning to relaunch the IPO of its Asian operations as soon as next week, sources said, after shelving the float worth up to $9.8 billion in July.

Prague-based Home Credit, which has a sizeable Chinese business, is also expected to launch its IPO as soon as this month.

The benchmark Hang Seng Index .HSI has risen more than 6% since Hong Kong leader Carrie Lam formally withdrew an extradition bill last week, part of measures she hoped would help the city move forward after months of political unrest.

ESR, which had planned to raise between $1.16 billion and $1.24 billion, said in June that it had postponed the launch of what would have been one of Hong Kong’s biggest IPOs this year “in light of the current market conditions”.

Sources told Reuters that the company had targeted a relatively aggressive valuation of between $5.6 billion and $6 billion prior to the float that had made the deal a hard sell amid challenging market conditions.

ESR was formed in 2016 by the merger of the Japan-centric Redwood Group and China-focused e-Shang, which was co-founded with Warburg Pincus in 2011.

It made a net profit of $84 million on revenue of $156 million in the first six months of 2019, up 32% and 66% year-on-year, respectively, according to the latest prospectus.

CLSA and Deutsche Bank are joint sponsors for the IPO.

Reporting by Julie Zhu; Editing by Muralikumar Anantharaman

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IPO Update: Monopar Therapeutics Proposes Terms For IPO

Quick Take

Monopar Therapeutics (MNPR) intends to raise $40 million in an IPO of its common stock, per an S-1/A registration statement.

The company is developing a pipeline of treatment candidates for various cancers and related conditions.

MNPR is ready to initiate a Phase 3 trial for its lead candidate which has already produced promising results in its completed Phase 2 trial.

Company & Technology

Wilmette, Illinois-based Monopar was founded in 2014 to develop treatments for patients suffering from various cancers through the licensing and acquisition of oncology therapeutics in late preclinical and clinical development stages.

Management is headed by Co-Founder, CEO and Director Chandler D. Robinson, who previously founded Tactic Pharma where he still serves as a manager.

The firm’s lead drug candidate Validive is a mucobuccal tablet [MBT] of clonidine based on the Lauriad mucoadhesive technology and designed for period use with the intent to reduce the incidence, delay the time to onset, and decrease the duration of severe oral mucositis [SOM] in patients undergoing chemoradiotherapy for oropharyngeal cancer.

SOM represents a painful inflammation and ulceration of the mucous membranes lining the oral cavity and oropharynx that occurs in response to chemoradiation.

Management claims that SOM is the most common and debilitating side-effect that the majority of patients receiving chemotherapy for oropharyngeal cancer develop.

Additionally, treatment could offer various benefits, such as reduced treatment discontinuations and overall patient survival, less mouth and throat pain and need for additional medication, decreased long-term and often permanent debilitation that arises from difficulties with swallowing, spasms in the neck and throat areas, as well as lung complications due to food aspiration.

Below is the current status of the company’s drug development pipeline:



Source: Company registration statement

Market & Competition

According to a 2019 market research report by Market Study Report, the global oral mucositis market is projected to grow from $400 million in 2019 to $640 million by 2024, growing at a CAGR of 8% between 2019 and 2024.

Oral mucositis [OM] drugs are widely used for chemotherapy OM and radiotherapy OM that usually occur after 5 to 10 days of the chemotherapy process in cancer patients.

The North American region held the largest share of the market in 2017 with 47%.

Major competitors that provide or are developing treatments include:

  • 3M Healthcare (MMM)

  • GlaxoSmithKline (GSK)

  • Pfizer (PFE)

  • Colgate-Palmolive (CL)

  • Norgine

  • Bausch Health [TSE:BSH]

  • Camurus [STO:CAMX]

  • Clinigen Group [LON:CLIN]

  • Midatech Pharma [LON:MTPH]

  • Alliance Pharmaceuticals

Source: Sentieo

Financial Status

Monopar’s recent financial results are typical of development stage biopharma firms in that they feature no revenue and significant R&D and G&A expenses associated with advancing its treatment candidates through clinical trials.

Below are the company’s financial results (Audited PCAOB for full years):



Source: Company registration statement

As of June 30, 2019, the company had $5.1 million in cash and $468,272 in total liabilities. (Unaudited, interim)

IPO Details

MNPR intends to sell 4.44 million shares of common stock at a midpoint price of $9.00 per share for gross proceeds of approximately $40.0 million, not including the sale of customary underwriter options.

No existing shareholders have indicated an interest to purchase shares in the IPO, as of the initial filing. It is typical for life science IPOs to have at least some investor support for the IPO by purchasing some shares at the IPO price, so the absence of this element is a negative signal for prospective IPO investors.

Assuming a successful IPO at the midpoint of the proposed price range, the company’s enterprise value at IPO would approximate $118.5 million.

Excluding effects of underwriter options and private placement shares or restricted stock, if any, the float to outstanding shares ratio will be approximately 32.36%.

Per the firm’s most recent regulatory filing, it plans to use the net proceeds as follows:

approximately $20-25 million to advance our global Phase 3 clinical program for Validive, including building our clinical, regulatory and manufacturing team to support the program. Proceeds from this offering are intended to progress Validive past the interim results of the adaptive design clinical trial, and potentially through the initiation of the confirmatory second clinical trial for registration.

approximately $5-10 million for manufacturing and support of the GEIS-sponsored Phase 2 clinical trial for camsirubicin and for further development of MNPR-101.

the remainder for general corporate purposes.

Management’s presentation of the company roadshow is not available.

The sole listed underwriter of the IPO is JonesTrading.

Commentary

Monopar is seeking public funding for its lead candidate’s Phase 3 trial, which it intends to begin in Q4 2019.

Its lead candidate has been given fast track designation in the U.S. and orphan drug designation in the EU.

The market opportunity for oral mucositis is relatively small in comparison to other typical biopharma IPO candidates, which tend to pursue multi-billion-dollar market opportunities.

MNPR has licensed Validive from Onxeo, S.A., which had developed the drug through its Phase 2 clinical trial. That trial had ‘demonstrated clinically meaningful efficacy signals with the 64-patient OPC population…[with a reduction of incidence of SOM of] 26.3%.’

So, the drug has produced promising Phase 2 results.

As to valuation, management is asking investors to pay an enterprise valuation of approximately $118.5 million at IPO, which is lower than typical biopharma IPOs, which have usually ranged between $200 million and $450 million at IPO.

Monopar appears to have a promising drug for a small market, although the IPO looks to be bargain-priced accordingly.

For life science investors with a hold time-frame of at least 18-24 months, the Monopar IPO looks promising and reasonably priced.

Expected IPO Pricing Date: Week of September 23, 2019.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Recession Fears Rile Corporate Bond, IPO Markets

Corporate America appears to be rushing to get the most out of the decade-long bull market in stocks and bonds before a possible recession and election-year stock market volatility slam the IPO and credit windows shut.

Approximately 70 companies have registered with the U.S. Securities and Exchange Commission to go public, according to estimates from Renaissance Capital, while $72 billion in investment-grade corporate debt – a figure nearly as large as the total issuance in August – was issued last week, according to data from Dealogic.

The rash of new deals comes as the U.S.-China trade war weighs on the global economy, helping push 30-year Treasury yields to record lows and increasing fears of a global economic slowdown. U.S. manufacturing activity contracted for the first time in three years in August, while construction spending barely rose in July, helping send business confidence lower, according to the Institute for Supply Management.

As a result, even companies like Apple Inc and Walt Disney Co that have billions of cash on hand are taking on new corporate debt, taking advantage of the opportunity to lock in historically low borrowing costs while investor demand for yield remains high.

“Companies might as well take advantage while they can. Corporations are getting in while the credit window remains wide open as you just never know when it slams shut,” said Greg Peters, head of multisector and strategy at PGIM Fixed Income, which oversees more than $809 billion in assets under management.

The increase in corporate debt on the heels of a 24% decline in borrowing in 2018 will likely be a key topic of discussion at the Federal Reserve’s policy meeting scheduled to begin Sept. 17. While the market is currently predicting a 91% chance that the Fed cuts interest rates, according to data from the CME Group, signs that corporate lending remains robust may undermine the economic need for lower rates, fund managers and analysts say.

“From where I sit obviously money is very cheap right now and bond prices reflect a full-blown recession, but I don’t think that’s in the offing,” said Eddy Vataru, a portfolio manager at the Osterweis Total Return fund. “We are going through a weak patch now but it feels like as the days pass and it’s clear that inflation is not obsolete, the market will have to re-price for that.”

IPO FEVER

Expectations for increased stock market volatility and a desire for liquidity on the part of venture capital and private equity firms are helping fuel the packed slate of upcoming IPOs through the end of the year, said Kathleen Smith, principal at Renaissance Capital, a provider of institutional research and IPO ETFs. Food delivery company Postmates Inc and fitness startup Peloton Interactive are among the companies expected to go public by the end of 2019.

“The IPO market hasn’t shut down, and won’t shut down until returns are poor,” she said, as companies such as plant-based meat maker Beyond Meat Inc and video conferencing company Zoom Video Communications Inc have helped send Renaissance Capital’s IPO-focused ETF up nearly 30% for the year to date.

Jordan Stuart, a client portfolio manager at Federated Kaufmann who focuses on newly-public companies, said that any volatility around the 2020 presidential election could weigh on healthcare companies that have their stock market debuts next year, prompting some companies to go public by the end of this year instead. Healthcare is widely seen as the industry most likely affected by a Democratic victory in the presidential election.

Yet more companies are making the call that they have a “window of liquidity” through the end of this year, and are rushing at the chance to take it, Stuart said.

“These companies are looking for capital to grow and they’re reasonably certain that they can get it now,” he said.

The pushback on IPO valuations in the wake of the disappointing performance of hyped debuts from Uber Technologies Inc and Lyft Inc is also putting pressure on companies to go public now because they do not expect to get a better deal in the future, said Kevin Landis, a portfolio manager at Firsthand Funds.

The We Company, for instance, could go public with a valuation as low as $18 billion, roughly a third of the $47 billion the company was valued at in a previous private funding round.

“There’s a natural bias towards taking the money when it’s available,” he said. 

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7 Upcoming IPOs for September – Yahoo Finance

As expected, August was fairly slow for IPOs, which happens every year during the summer holidays.

INMD), up 87% and Kura Sushi USA (NASDAQ:KRUS), which gained 60%.” data-reactid=”12″>There were only seven deals in the month and all but one rose in value. Among the top performers were Inmode (NASDAQ:INMD), up 87% and Kura Sushi USA (NASDAQ:KRUS), which gained 60%.

SNDL), which dropped 30% from its debut.” data-reactid=”13″>Which company lost money? It was Sundial Growers (NASDAQ:SNDL), which dropped 30% from its debut.

InvestorPlace – Stock Market News, Stock Advice & Trading Tips” data-reactid=”14″>InvestorPlace – Stock Market News, Stock Advice & Trading Tips

So what should you expect for upcoming IPOs in September? Well, as should be no surprise, there will continue to be offerings from red-hot areas like cloud software operators, and there will be some deals from traditional companies.

First: What’s an IPO, Anyway?

For many people, IPOs are kind of a mystery. After all, it does seem kind of strange for a company’s stock to zoom on the first day of trading, right?

Here’s a quick explanation of IPOs: An IPO is when a company issues its shares to the public on an exchange, such as the Nasdaq Composite or New York Stock Exchange (NYSE). Often this process results in raising a large amount of money, say over $100 million.

Getting to this point is not easy. Upcoming IPOs need to have audited books, a strong financial infrastructure and an experienced management team. There will also need to be advisors — called investment bankers or underwriters — who will provide guidance through the process. This involves putting together a disclosure document called an S-1, and having a roadshow, in which management makes presentations to investors.

Advisors will generally undervalue the shares, allowing for the pop. It’s a way to reward investors. Yet these investors are usually institutions, hedge funds, and wealthy people.

AMZN), Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and Facebook (NASDAQ:FB) — regardless of if they got the shares at the offering price.” data-reactid=”24″>Yes, it’s kind of unfair, but the system has seen little change over the decades. Despite this, individual investors have still made lots of money from IPOs like Amazon (NASDAQ:AMZN), Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) and Facebook (NASDAQ:FB) — regardless of if they got the shares at the offering price.

Let’s take a look at the seven upcoming IPOs for the month:

SmileDirectClub (SDC)

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Among the upcoming IPOs, SmileDirectClub might garner the most interest. This company is the pioneer of the direct-to-consumer market for teeth straightening systems. SmileDirectClub leverages innovative teledentistry technology and has a fully integrated platform.

UNH) and CVS Health (NYSE:CVS).” data-reactid=”46″>While a orthodontist may charge $5,000 to $8,000 for a procedure, SmileDirectClub charges generally below $2,000. The company also has a financing program and reimbursement relationships with UnitedHealth Group (NYSE:UNH) and CVS Health (NYSE:CVS).

From fiscal 2017 to 2019, revenues soared nearly 200% to $423.2 million. And since 2014, the company has served over 700,000 customers.

JPM), Bank of America (NYSE:BAC), Jefferies, UBS (NYSE:UBS) and Credit Suisse (NYSE:CS). The shares will be listed on the Nasdaq under the ticker of SDC.” data-reactid=”50″>The SmileDirectClub IPO is expected to involve the issuance of 58.5 million shares at a range of $19 to $22. The lead underwriters include JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC), Jefferies, UBS (NYSE:UBS) and Credit Suisse (NYSE:CS). The shares will be listed on the Nasdaq under the ticker of SDC.

Cloudflare (NET)

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Cloudflare develops technologies to deliver highly robust and secure internet connectivity. The company is trying to disrupt the traditional approaches, which rely heavily on legacy on-premise software.

From 2016 to 2018, revenues have gone from $84.8 million to $192.7 million. Keep in mind that the company counts 10% of the Fortune 1,000 as paying customers. In fact, about 18% of the top 10,000 websites use at least one product from Cloudflare.

GS), Morgan Stanley (NYSE:MS), JPM, Jefferies, Wells Fargo (NYSE:WFC) and RBC.” data-reactid=”76″>As for the upcoming IPO, the company expects to offer 35 million shares at a range of $10 to $12 on the NYSE (the proposed ticker is NET). The lead underwriters are Goldman Sachs (NYSE:GS), Morgan Stanley (NYSE:MS), JPM, Jefferies, Wells Fargo (NYSE:WFC) and RBC.

Datadog (DDOG)

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For upcoming IPOs, Datadog is likely to be red-hot. The company is a developer of technologies for monitoring and analytics for cloud systems. Some of the benefits include IT migration, collaboration, the acceleration of time-to-market for apps and better problem resolution.

Founded in 2010, Datadog has been highly capital-efficient. It has raised $92 million – and still has $63.6 million in the bank.

What’s more, last year revenues shot up 97% to $198.1 million. The company has about 8,800 customers, up from 5,400 on a year-over-year basis.

BCS), Jefferies, and RBC. The company will list its shares on the Nasdaq under the ticker of DDOG.” data-reactid=”101″>Datadog plans to issue 24 million shares at $19 to $22 and the lead underwriters include MS, GS, JPM, CS, Barclays (NYSE:BCS), Jefferies, and RBC. The company will list its shares on the Nasdaq under the ticker of DDOG.

Ping Identity Holding (PING)

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Ping Identity builds technologies that allow for secure access to any web service or API from any device. At the core of this is sophisticated AI (Artificial Intelligence) and ML (Machine Learning) that analyzes data in real-time, whether from the cloud, hybrid cloud, or on-premise systems.

In terms of growth, the company’s revenues have jumped from $172.5 million in 2017 to $201.6 million in 2018, up about 17%. More than half of the Fortune 100 use the software.

Ping Identity IPO expects to issue 12.5 million shares at a range of $14 to $16 and the lead underwriters include GS, BAC, RBC, Citigroup (NYSE:C), BCS, CS, Deutsche Bank (NYSE:DB) and WFC. The company will list on the NYSE under the ticker of PING.

Envista Holdings (NVST)

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Envista is one of the largest dental product companies, with strong positions in categories like implants, digital imaging, and orthodontics. The company owns a variety of brands like Nobel Biocare Systems, Ormco and KaVo Kerr. They have over one million dentists across 150 countries. Last year, Envista posted revenues of $2.86 billion.

A key to the success of the company is a strong focus on innovation. To this end, it spent about $172 million on R&D last year.

Regarding the upcoming IPO, Envista plans to issue 26.8 million shares at a range of $21 to $24 and the lead underwriters include JPM, GS, MS, Baird, Evercore ISI and Jefferies. The company will list on the NYSE under the symbol of NVST.

10x Genomics (TXG)

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Why Xenetic Biosciences Just Surged 28 Percent

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10X Genomics develops instruments, consumables, and software to help analyze biological systems at scale, such as for oncology, immunology, and neuroscience.

Last year, revenues spiked from $71.1 million to $146.3 million. The company also has an extensive intellectual property portfolio, with ownership or exclusive licenses on over 175 patents (about 470 are pending).

As for this upcoming IPO, 10X Genomic expects to offer 9 million shares at a range of $31 to $35 and the underwriters include JPM, GS, and BAC. The company will list its shares on the Nasdaq under the ticker of TXG.

SpringWorks Therapeutics (SWTX)

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PFE) — the company has been able to get two drugs into late-stage trials. For example, Nirogacestat is an oral GSI (gamma secretase inhibitor) that is for desmoid tumors (there are no FDA approved drugs for this).” data-reactid=”193″>SpringWorks Therapeutics is a biotech company, which is focused on precision medicine to create oncology treatments. By leveraging partnerships – such as with Pfizer (NYSE:PFE) — the company has been able to get two drugs into late-stage trials. For example, Nirogacestat is an oral GSI (gamma secretase inhibitor) that is for desmoid tumors (there are no FDA approved drugs for this).

In terms of the IPO, the company expects to offer 7.4 million shares at a range of $16 to $18 and the lead underwriters include JPM, GS and Cowen. SpringWorks Therapeutics will list its shares on the Nasdaq under the ticker SWTX.

Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.” data-reactid=”195″>Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical IntroductionFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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