Rib-X Pharmaceuticals Looks To Inject Cash Through May 9 IPO

Rib-X Pharmaceuticals IPO Pricing

Rib-X Pharmaceuticals (RIBX) is pricing 5.8 million shares at $12.00 to $14.00 per share. The offering will give Rib-X a market cap of $204 million and the company hopes to raise $75 million from the sale. The deal is expected to come on May 9th and is underwritten by Deutsche Bank Securities, William Blair, Lazard Capital Markets and Needham.

Rib-X Pharmaceuticals Is An Emerging Growth Company

Rib-X will be classified as an "emerging growth stock" by Nasdaq and will be subject to different reporting requirements than other stocks. The emerging growth classification is a provision in the JOBS Act (Jumpstart Our Business Start-Ups), which was signed into law in early April of this year. It requires that a company have less than $1 billion in annual gross revenue and companies with less than $75 million of public common equity float have even more relaxed rules.

Some of the benefits of this classification are:

• An emerging growth company only has to file two years of audited financial statements and selected financial data and managements discussion and analysis (MD&A) in its IPO filing. (It is usually three years of statements and MD&A and five years of selected financial statements).

• It does not have to comply with several provisions in the Sarbanes-Oxley Act of 2002. It does not have to comply with any new or revised accounting standards until private companies are required to.

• It does not have to obtain an independent auditors report on the effectiveness of managements internal controls.

• The emerging growth company may submit a confidential IPO registration statement and is allowed to "shop" its IPO to institutional investors at more points in time during the IPO process than more established companies.

All of these new and more relaxed regulations are designed to help smaller companies make the transition from private to public easier. The biggest drawback is this also leaves the door open for abuse.

Rib-X Pharmaceuticals' Business

Rib-X Pharmaceuticals is primarily focused on manufacturing antibiotics. It has a first line antibiotic called Delafloxacin used to prevent and treat bacterial skin infections both intravenously and in oral form. Rib-X is hoping to start phase 3 trials of Delafloxicin in the second half of 2012. Radezolid is its other antibiotic that has been working through phase 2 trials. Three more antibiotics: RX-04, RX-05, and RX-06 are still in the discovery phase.

Rib-X Pharma's research partner is Sanofi (SNY) which has funded a large portion of Rib-X's operation. The two companies have a collaboration agreement which also allows Rib-X to receive compensation for achieving research and development milestones.

Rib-X Pharmaceuticals Financials

Over the past 11 years, Rib-X has funded its operations through government tax credits, research grants, sales of convertible preferred stock and convertible debt. The breakdown of its funding is as follows: $122.4 million from convertible preferred stock sales, $71 million from convertible notes and common stock warrants, $19 million in milestone payments from Sanofi and $2.5 million from government tax credits and research grants.

Rib-X Pharmaceuticals has never sold a product. It recognized contract revenue in the amount of $2.7 million from its collaboration deal with Sanofi. For 2012 Rib-X will recognize $9.0 million in contract revenues from its deal with Sanofi. Rib-X does not expect to receive revenue from product sales for at least another several years.

How To Trade Rib-X Pharmaceuticals

Rib-X stock will be highly speculative and any reward will be years in the making. I've seen many no name pharmaceutical company suddenly have its drug approved by the FDA and the stock doubles or triples. News like that will not come from Rib-X for a long time and there will probably be better entry points than this for the stock. This is not the type of company I like in my personal portfolio and I think the stock value will slowly erode during the research and development phase of its drugs.

Rib-X has also received a letter from its independent financial auditing firm expressing doubts about whether Rib-X will be financially able to continue its business. Additionally, in its S1, Rib-X states that the cash from the IPO is still not enough to complete a phase 3 trial of Delafloxacin. So the company will still have to seek additional financing before its primary drug gets to market, which may dilute the stock further.

Sources: Rib-X Pharmaceuticals S1, Rib-X Website, Nasdaq Market Site, Jobs Act highlights.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.