iSpecimen: The Human Biospecimens Marketplace

Almost exactly a year ago I noted that there is a marketplace for everything these days, including human biospecimens.  A year later that marketplace, iSpecimen, has filed to go public.

Yes, a Specimens Marketplace

iSpecimen connects life sciences researchers (buyers) with patients and specimen providers such as hospitals, labs, and biorepositories (suppliers).   These researchers come from companies, academia, and the government  What are these specimens?  I’m sorry you asked:

• “Biofluids — such as whole blood, plasma, serum, urine, saliva, sputum, nasopharyngeal material, and cerebral spinal fluid;
• Solid tissue — such as fresh, fixed, and cryopreserved tissue; and formalin-fixed paraffin-embedded blocks, slides, and curls; and
• Hematopoietic stem and immune cells — such as bone marrow, cord blood, whole blood, or sub-components of these tissues…”

In other words, this is not the kind of stuff you pick up on Amazon.

The Biospecimen Market is Well-Suited for a Marketplace

iSpecimen pegs the biospecimen market at $3-$4 billion in annual revenue.  The market is growing at low double-digit rates due to advances in research and precision treatments. As B2B marketplaces go, it’s a small TAM, bu the market has many favorable attributes for a marketplace.

• Both sides of the market are very fragmented.  Without a marketplace, many providers of specimens and researchers might not find each other.
• Specimens are heterogeneous.
• There’s no highly defined process for buying and selling these regulated goods. (Likely because it is such a niche market).
• A marketplace creates real value for both sides of the transaction.  Researchers receive a searchable database of specimens and a compliant procurement process.  Providers get an additional source of revenue for their specimens and a ready market of buyers.
• The average transaction size is a relatively small $314 per specimen.
• There does not appear to be another marketplace in the market–yet.

But it is Still Early for iSpecimen

While the biospecimens market has many attractive features, iSpecimen is still very early in its development.  In fact, iSpecimen’s S-1 has many “red flags” that probably would have made it impossible to go public in other market environments.  Specifically:

1. iSpecimen is tiny.  For the nine months ended September 30, 2020, iSpecimen generated revenue of $5.5 million.  This represented revenue growth of 82% over the same period in the prior year.  But for all of 2019, the company’s revenue did not grow.  iSpecimen says it cut back on sales and marketing in 2019 due to a bad product release in mid-2018.  Ouch.
2. The company had a loss from operations of $1.5 million in the nine months ended September 20, 2020.
3. iSpecimen acts as a principal between the buyer and suppliers, so it’s not a true marketplace that acts as an agent.  The company receives an order for a specimen then acquires it from a provider.  iSpecimen resells the biospecimen to the researcher.  iSpecimen says it shares 25-50% of revenue with the provider.
4. While the number of providers on the marketplace has grown to 168, this is still a tiny fraction of the market.  In addition, one supplier represented 14.4% of the total cost of revenue.  In 2019, just three providers represented 40% of revenue.
5. The number of customers is similarly constrained.  For the nine months ended September 30, 2020, iSpecimen sold specimens to 162 active customers.  During this period, just two customers represented 35% of revenue.  In addition, the company points out that customers may not always need samples on an on-going basis; the need seems to be project-based.  iSpecimen tells us that through September 30, 2020, 80% of their top 25 2019 customers were active again.  That is about as clear as the retention numbers get.
6. The company’s S-1 provides an extensive analysis of their sales funnel at various stages over the past few years.  I have never before seen this in a prospectus.  It only raised more questions in my mind.

The iSpecimen IPO seems like the right way to start off where we left off in 2020.   It’s a specimen of a very hot IPO market.