The Shot Heard Around the World: Inion goes Public
BY JOHN MCCORMICK, DECEMBER 6, 2004
Europe stole the headlines last week when Finnish implant manufacturer Inion (LSE: IIN LN) went public raising £30 million (US$58 million) on the London Stock Exchange. Immediately following the offering, valuation shot up 30% to a staggering 19x estimated 2004 revenues. According to the Company, the issue was 6 times oversubscribed. This historic IPO is yet another validation of how the public markets reward technology innovators in orthopedics. Examples abound such as Kyphon and Nuvasive. Now we have Inion.
Inion - A Snapshot
This five year old company's core competence is the design and manufacture of biodegradable orthopedic implants. Inion's strategy is to continue to extend this competence in areas such as craniomaxillofacial (CMF), dental, trauma, sports medicine and others. An impressive feature to Inion's products utilize the Company's OPTIMATM technology for familiar plates, screws and pins used to repair broken bones, torn cartilage and ligaments. Inion has even developed a biodegradable mesh (OPTSTM) used for bone harvest repair. The Company's central argument for patients is that, unlike metal implants, their products completely biodegrade into carbon dioxide and water over a period of 1-4 years.
Inion's HexalonTM ACL Screw
Although biodegradable polymers have been around for decades, investors are eyeing Inion's product portfolio that centers on its proprietary compounds, composite materials adjusted for specific clinical uses and the Company's second generation bioactive compounds which are geared to promote healing.
Inion has production, research and development facilities at the corporate headquarters in Tampere, Finland, and a US office in Oklahoma City, OK. The Company's products are sold in more than 35 countries through its numerous international distribution agreements through partners that include Stryker, Aesculap and Citagenix.
Innovation in Europe Gets the Gold
While USA gets plenty of credit for developing and financing innovative orthopedic technologies such as Kyphoplasty, we note that a number of key developments that are getting the market's attention these days are coming from Europe. Inion's IPO last week is just one of many examples. Another is the recent $60 million sale of Spine Next to Abbot in October. Spine Next has a dynamic stabilization device for the spine with virtually no revenues. Although dynamic stabilization for the spine could be well over a $2.5 billion market in years to come, few US companies are pushing the envelope in this area. Other European companies leading the technology curve in orthopedics include industrial ceramics powerhouse Ceramtech which produces materials for joint prostheses and Invibio which is the leading worldwide manufacturer of PEEK plastic used in spinal implants.
Valuation - Think Fast
Below is a summary of the Inion's funding history we obtained from public documents and VentureSource:
Source: Company documents, VentureSource HealthpointCapital, LLC Research
As shown in the exhibit above, Inion has cumulatively raised over €77 million or well over US$100 million based on current exchange rates. Inion's CEO Auvo Kaikkonen has made it clear to the public that Inion plans to use part of the IPO proceeds set up a research and development laboratory in Cambridge, England, to test the efficacy of its bioactive devices and run clinical trials. The lab is expected to be operational in Q3:05, according to Kaikkonen. Investors in the Company's prior venture capital rounds include Sweden's HealthCap, Finland's BioFund, Finnish-Swedish fund CapMan/Swedestart and the U.S.-Nordic firm POD Holding. Other backers are Finnish institutional investors Pohjola, Suomi and Tapiola.
Although the IPO price was set at an indicative market capitalization of approximately £90 million or €129 million, investor demand for innovative orthopedic technologies drove the price up 30% immediately following the offering. The higher market capitalization £117 million or €169 million suggests a 19x revenue multiple if one uses a 2004 revenue estimate that simply extrapolates the 2003 - 2004 growth shown in the company's prospectus.
Source: Company documents/2004 revenue estimate by HealthpointCapital, LLC Research
Clearly the Inion IPO is another feather in the cap for the orthopedics industry. It is yet another example of how the market recognizes the industry's tremendous growth potential and gives due credit to innovative companies that deliver forward thinking products to the surgeons. This success story is also a validation of the important role that European companies play in the evolution of orthopedic medical device technology.
