Nexstim: Business & Clinical Update for Q3
2022-10-24
10:53
Redeye reiterates its positive stance to Nexstim following last week’s Q3 update.
Fredrik Thor
Last week, Nexstim announced a few highlights for Q3 2022 relating to business- and clinical activities (ie no financial figures). The company states that it has delivered 4 new NBS systems and one new NBT system in the quarter, as well as a backlog of two NBS systems by the end of Q3. The company now has 62 installed systems with therapy capability (NBT systems + NBS 5+ systems with installed NBT software). By the end of H1’22, the company had 57 installed systems, and by the end of H2’21 51 installed systems. This net increase in systems was quite aligned with our estimates, and we thus reiterate our projections for the full year of 2022 at this stage (see our latest research update here).
In October, Nexstim also announced updated clinical outcomes from its registry data, now with over 400 patients (n=403). Approximately 50% were in remission by the end of the period, and 76% had a clinical response – similar efficacy as presented with a smaller number of patients (n=203). Overall, we remain impressed by the good efficacy of Nexstim’s therapy system and that it clearly holds up in a more significant patient population (not always obvious). Having superior efficacy and control is to us one of Nexstim’s best competitive advantages, and this bodes well both for Nexstim’s own sales as well as the potential efficacy when included in Magnus Medical’s upcoming system (that just recently was approved in the US).
The approval of Magnus Medical’s TMS system came a bit faster than we expected, but our impression is that it still will take some time to start the commercialization. According to Magnus Medical, it will launch its system on a limited basis either in late Q3 or Q4 2023 – which is in line with our projections, although we have little insight into the time to a broader launch. Our impression is that the gap to launch relates to scaling up production of the system and working with reimbursements for the SAINT protocol, which offers a more intense treatment schedule than current TMS treatments. Nexstim states that its internal projections for the 5 year royalty period are based on Magnus Medical’s public announcement. The commercialization of Magnus Medical’s system will be important for Nexstim going forward – and additional newsflow on its launch will be important to the investment case in Nexstim.
| EURm |
2022E |
2023E |
2024E |
| Revenues |
10.46 |
8.22 |
9.55 |
| Gross Profit |
9.02 |
6.55 |
7.6 |
Case
TMS Diagnostics market leader with KOL support
We see a significant upside (50%+) in Nexstim following a strong year for the company – further strengthened by this year’s therapy licensing agreement with the US based startup Magnus Medical, which we think will let Nexstim focus on its diagnostic segment where it has a stronger comparative advantage and less competition, while it can retain its high margin recurring revenues and add technology royalties with gross margins of, we assume, 90%+. Overall, argue that Nexstim is maturing as a company and thus on a solid path towards long-term profitability.
Evidence
Precision positions ‘navigated’ TMS well
Nexstim’s NBS diagnostics system benefits from the support of key opinion leaders and leading university hospitals for the use of navigated TMS (transcranial magnetic stimulation) in pre-surgical mapping of brain tumors. More than 100 academic publications regarding the system have been published. As Nexstim will focus its in-house resources towards the NBS system, we think it can further leverage the strong momentum to add profitable top-line growth… We also expect increased use in other areas following Nexstim’s launch of an NBS system with a therapy software update option.
Supportive Analysis
Nexstim’s system is the only TMS method that delivers precision on a par with invasive techniques, thus allowing for precise documentation before surgery. The benefit of the NBS system’s pre-surgical planning has been shown by researchers in a vast array of clinical trials spanning more than 100 academic articles. Nexstim has a strong standing amongst key opinion leaders within neurosurgery and neurology. Its system is used at leading university hospitals such as the Mayo Clinic in the US, Karolinska University Hospital in Sweden, and Charité Hospital in Germany Nexstim’s software constructs a multi-spherical 3D model of the patient’s brain based on an MRI and Nexstim’s proprietary software. This brain model accounts for the composition and shape of the individual’s brain, such as the gray and white matter and cerebrospinal fluid. Nexstim’s e-field navigation differs from line-based navigation in that it visualizes the coil location and the electrical field induced. It re-calculates the e-field location when the operator moves or tilts the coil so that the operator can directly see that the correct hotspot is stimulated. Coil navigation based on rule-of-thumb or a simpler spherical model can mainly observe if the right spot was stimulated by observing the outcome.Today, Nexstim has the only FDA-approved product on the market with the ability to locate and visualize the TMS e-field and hotspot using information about the inside of the patient’s brain.
Challenge
Dependent on Success of Magnus Medical
Nexstim trades away some upside potential with the technology licensing agreement and becomes reliant on the success of Magnus Medical, still an unproven company. We also have little insight into the launch of Magnus Medical’s TMS therapy. As Nexstim will stop new sales in the US when Magnus Medical’s therapy launches, it will be important to both companies that the sales ramp-up is fast and successful, as Nexstim otherwise could face a period of slow growth in the segment.
Challenge
Unprofitable TMS Market
Despite sales that are 10-20x Nexstim’s in TMS therapy, market leaders Neuronetics and Brainsway remain unprofitable, with their strong focus on market expansion and R&D and the overall new and immature market for TMS therapy contributing to these difficulties. While we believe that Nexstim has laid an increasingly credible path towards profitability following its technology licensing deal with Magnus medical and in-house focus on its diagnostics system, the TMS market conditions add some uncertainty to the case.
Valuation
Transformation after Magnus Medical Deal Pivotal
Our Base Case for Nexstim is SEK 67.5 per share. Overall, we are pleased with Nexstim’s recent progress that indicates that Nexstim is going in the right direction. We are also positive to Nexstim’s new focus on technology licensing and see further deals, such for the NBS system or other geographies, as an option for further upside. To close the valuation gap, we think that additional news on the launch of Magnus Medicals therapy and continued profitable growth is needed.
Redeye hieman positiivisempi kun Inderes. Tavoitehinta 67,5 sek.6,10 euroina. 50pinnan nousuvara.
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