October 20, 2011

Dow Jones/VentureWire

Zeltiq Aesthetics Closes Up 19.2% After IPO

The initial public offering of Zeltiq Aesthetics Inc. Wednesday indicated that investors might be willing to take a chance on new U.S. stocks again--at the right price.

Zeltiq, which makes a product that has been approved for killing off fat cells, closed Wednesday on the Nasdaq at $15.50, up 19% from its initial public offering price of $13. A total of 7 million shares were sold at a price below its expected range of $14 to $16.

Advanced Technology Ventures was set to hold a 24.1% stake in Zeltiq post-IPO. Frazier Healthcare Ventures' share was set to be 22.7%, Venrock's 16% and Aisling Capital's 10.4%.

The company is the second deal in a row to show a double-digit percentage increase after cutting its price to draw in buyers. The first, from wireless networking company Ubiquity Networks Inc., rose 16.7% Friday after dropping its asking price to $15 from its original range or $20 to $22. Both stocks debuted after a two-month period in which no IPOs came to market in the U.S.

Zeltiq's sole product is its CoolSculpting system, a device that it markets to plastic surgeons, dermatologists and other physicians to kill fat cells through a non-invasive cooling method, according to the company's prospectus.

The device was approved in September 2010 by the U.S. Food and Drug Administration for use on patients' flanks, otherwise known as love handles. Zeltiq also sells CoolSculpting in 46 international markets, where its use has expanded to include fatty deposits on the abdomen, thighs, back and chest; about a quarter of its total revenue comes from outside North America. It plans to use its proceeds from the offering to further commercialize CoolSculpting domestically and internationally, and to expand its FDA approval for other parts of the body in the U.S.

Although Zeltiq has never been profitable, its revenue is rising quickly and its losses have narrowed. Revenue more than quadrupled in first six months of the year to $31.6 million as more CoolSculpting systems were installed and more procedures were performed. At the same time, operating expenses grew at a slower pace than revenue during that period, and the company's loss was $1.4 million, compared to a loss of $8.5 million at the same point a year earlier.

Prior to Zeltiq and Ubiquiti, there had been an eight-week halt in IPOs. That empty period began as an ordinary summer hiatus in August, but stretched through September during a period of broader market volatility, which makes it difficult to price IPOs.

CoolSculpting can't be broadly used to reduce fat on obese patients. Its target audience is people who aren't obese but have problem areas of their body that they want to reduce. Unlike liposuction, Zeltiq's technique doesn't require the same level of pain, surgical risks or recovery time, the company says.

CoolSculpting also competes against other non-invasive techniques approved in the U.S., such as a laser energy-based product marketed by privately held Erchonia Corp., and an ultrasound-energy based contouring product owned by Solta Medical Inc. It faces even more competition abroad, thanks to looser regulatory requirements, which have allowed many more fat-reduction products and procedures to be marketed than in the U.S.

JPMorgan Chase & Co. and Goldman Sachs Group Inc. managed Zeltiq's offering.