2. Proteon Therapeutics
• Development-stage biotechnology company
• Founded in 2001, IPO’d in 2014
• PRT-201 or “Vonapanitase” designed to improve vascular
access for dialysis patients
• 400k patients in the US plus >500k patients in Japan &
Europe, 2 million globally
– Growing ~100k/patients a year
• Access failures cost >$1 billion/year in the US
• Projected $9,500/dose pricing with >90% margins suggests
>$150m in annual revenues by 2021 - if it works
2
3. Angel Funding
• >$2.7 million in capital raised over 4 years
• >40 angel investors
• Convertible preferred notes
• Key terms:
– 3 year term
– 4.25% interest, cumulative
– Converts to preferred stock
– Acceleration upon acquisition
– Discount to next round, steps up over time
3
Dr. Nicholas Franano
KU ‘89
4. Venture Funding
• $126.5m raised from 13 venture firms
• Notable life science investors
– TVM Capital
– Skyline Ventures
– Intersouth Partners
– Devon Park BioVentures
– Bessemer Venture Partners
– Abingworth
– MPM / Novartis Strategic Fund
• 8 years from Series A to Series D
• Funded the Company’s development from animal studies to
Phase II human trials
4
6. IPO Timeline
6
Action Time
Underwriter selection varies
Create “the Book” 6-8 weeks
File prospectus & SEC comments 4 weeks
Road show (marketing & “book building”) 1-2 weeks
Finalize prospectus / pricing 1-2 weeks
Issue IPO 2 days
Finalize IPO 7 days
Analyst coverage begins 25-40 days after issuance
Lockup period 180 days after issuance
7. 7
Underwriter(s)
• Letter of intent between issuer and underwriter
– Underwriter’s firm commitment
– Cooperation by the company
– Releasing of all available relevant information
– Commitment by the private firm to grant 15% over-allotment
option to the underwriter (“green shoes”)
• Lead manager quarterbacks the process
– Scheduling
– Pricing
– Distribution of new issue
– Assembling a group of underwriters
9. 9
Registration
• Required by the Securities Act of 1933 (Section 5)
• The registration statement consists of two parts
– The prospectus to be given to every purchaser of the
securities
– “Part II” which contains information that need not be
furnished to the public but is made available for public
inspection by the SEC
• The underwriter has a “due diligence” requirement to
verify the information
• SEC cannot block an offering based on the quality of the
securities -- only can require disclosure of material facts
10. S1 Filing
• General terms
• Prospectus summary
• Risk factors
• Use of proceeds
• Dividend policy
• Management discussion &
analysis (“MD&A”)
• Business plan
• Management
• Financial Statements
10
11. 11
Marketing
• Registration statement is transformed into the preliminary
prospectus or “Red Herring”
• Red herring is the basis for marketing the issuer’s shares
• The SEC has 20 days to declare an issue effective
• At that point the red herring becomes a prospectus
• The company and the underwriter promote the IPO through
the “road show”
• Road shows provide important monitoring for the underwriter
on investor demand
12. 12
Road Show
• Underwriter receives orders from individual and institutional
investors – “book building”
– Retail investors typically submit a “market order” in which
only the quantity desired is stated
– Institutions typically submit limit orders where the quantity
demanded is subject to a maximum price
– Retail orders are received earlier than institutional orders
– Institutions submit an order with a commitment to purchase
more shares in the open market if their order is fulfilled
• Rule of thumb: to be successful, issues need to be 3x over-
subscribed
13. Green Shoes
• Over-Allotment Option or “Green Shoe” provision
– Named for the Green Shoe Manufacturing Company in
1919 – now Stride Rite Corporation
– Option granted to an underwriter for a period of 15 to 45
days (usually 30) after the issue date to purchase
additional shares at the original offering price
– Typically, up to 15% of the shares being sold
– Designed to improve price stability for issuers: they can
buy and sell shares with reduced risk to help get an issuer
public and support its stock price
• Proteon’s underwriters had option to buy 916,500 shares
14. Lockup Agreements
• Restricts insiders from selling IPO shares for a specified time
period
• Common, but not legally required
• Stock price tends to drop when the lockup period expires
– Proteon gained 21.5% during first 180 days
– Gained 69% in first 210 days
18. “Favorable Clarity on Regulatory Path
Forward”
New Price Target: $3
18
Stifel’s Assumptions:
Old New
Probability 70% 25%
EPS in 2023 $4.71 $2.18
Discount Rate “30-35%” “40-45%”
19. Parting Thought: Life Sciences Are Different
• The customer is not king
• Decade without revenue is normal
• Regulatory power
• Successful companies often increase costs
• There are no local markets
• IPOs often are for capital raising, not exits
19
