A Prenatal Testing IPO from Ariosa Diagnostics
In a previous article, we highlighted Natera, a non-invasive prenatal testing (NIPT) company that has strong financial backing and a test that is said to consistently demonstrate high sensitivity and specificity for all major aneuploidies beyond Down syndrome. Although Sequenom (NASDAQ:SQNM) is the market leader in NIPT with more than 60% market share, there is plenty of growth to go around. A report published this year by Transparency Market Research, stated that the global NIPT market was just $220 million in 2012 but is expected to grow at a CAGR of 37.6% from 2013 to 2019 to finally reach $3.62 billion in 2019.
About Ariosa Diagnostics
Founded in 2010, San Jose based Ariosa Diagnostics emerged from stealth mode in January 2012. In the same month, Ariosa secured more than $50 million in Series C funding from existing investors Venrock and Domain associates along with a new investor, Meritech Capital Partners. Venrock is the biggest shareholder of Ariosa at 39% with Domain following next at 24%. The executive chairman of Ariosa is John Stuelpnagel who co-founded Illumina (NASDAQ:ILMN). Mr. Stuelpnagel served 12 years at Illumina as the company’s first CEO and most recently as COO. Ariosa has cash on hand of $14 million and an accumulated deficit of around $40 million. Ariosa’s revenue growth is impressive, going from zero to $50 million in revenues in just 2 years with revenue increasing +343%, from 2012 to 2013:
The commercial launch of their only test offering, a prenatal test-marketed under the brand name Harmony, took place in March 2012. Since then, Ariosa has tested over 185,000 pregnant women, including over 45,000 women in the quarter ended December 31, 2013. This is a relatively small number compared to the potential market. Ariosa estimates that there are approximately 4 million births annually in the USA and approximately 130 million births annually outside the US. This means Ariosa had captured only 4.5% of the potential US market in their last quarter.
Ariosa’s only test, Harmony, is a prenatal blood test that assesses the risk for chromosome conditions including Down syndrome (T21), Edwards Syndrome (T18), and Patau syndrome (T13). The test also includes an option to determine the gender of the fetus and also analyze sex chromosome (X,Y) conditions.
Harmony is offered in over 90 countries with approximately 25% of 2013 revenues generated in international markets. Ariosa has a non-exclusive agreement with LabCorp to provide logistics and sales and marketing support for Harmony in the United States and Canada. For 2012 and 2013, 98% and 73% of Ariosa’s revenue was from LabCorp. Ariosa does not have any issued patents covering Harmony but instead, exclusively licenses 6 patents that cover technologies for non-invasive prenatal testing. As of March 1, 2014, Ariosa’s patent estate included 37 patent applications pending in the United States, 31 of which are published. An article today by GenomeWeb discusses various legal encounters Ariosa has had in the past, in particular, one with competitor Sequenom. The federal court’s ruling last year invalidated US Patent No. 6,258,540 (Non-invasive prenatal diagnosis), which underlies Sequenom’s MaterniT21 Plus test which competes directly with Harmony. This was seen as a victory, a least temporarily, for Sequenom’s competitors.
Ariosa currently purchases the materials used in their laboratory process from Illumina (NASDAQ:ILMN). Given the executive chairman’s prior experience as an Illlumina co-founder, it seems likely he will be able to negotiate favorable pricing and maintain a strong relationship going forward with Illumina, a key supplier for Ariosa. With a rapidly growing market to address, strong proven leadership, and a fresh injection of capital soon to come, Ariosa is setting themselves up nicely to become a major player in NIPT. Ariosa intends to offer $69 million and trade under the symbol “AROS”.