A positive start to the 2020-24 strategy
Update | 4 March 2021
Nexstim delivered record revenues in FY20 and its lowest EBIT loss, successfully navigating a challenging year through careful cost control and new efficient ways of digital working which contributed to resilient NBT therapeutic and NBS diagnostic system sales. The company is well-positioned to drive a disruptive shift in depression treatment (and its delivery) with its accurately navigated SmartFocus transcranial magnetic stimulation (TMS) NBT technology; however, with end-December cash of €3.5m, additional funding is needed to execute on its 2020-24 corporate strategy. A key facet of this is the opportunity afforded by novel accelerated rTMS therapy protocols in development for severe depression and chronic neuropathic pain. Promising first data from the ongoing pilot study in severe depression will guide next steps for further development, clarifying cost and timelines.
|Year-end: December 31||2019||2020||2021E||2022E|
|Net Income (€m)||(6.8)||(4.1)||(3.8)||(1.4)|
4 March 2021
|Shares in issue||439.6m|
|12 month range||€0.01-0.12|
Nexstim is a targeted neuro-modulation company that has developed a proprietary navigated rTMS platform for use in diagnostics (NBS) and therapeutics (NBT). NBS is used in planning brain surgery while NBT is focused on depression and chronic pain. FDA approval for depression was given in 2017, and the focus is on commercial roll out in the US, Europe, and Asia.
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Table of Contents
Our risk-adjusted DCF valuation model for Nexstim forecasts NPVs for three revenue streams: NBT (Navigated Brain Therapy) in depression (global), NBT in chronic pain (EU only), and NBS (Navigated Brain Stimulation). Risk adjustments range from a success probability of 100% for pre-surgical mapping to 25% for pain, reflecting its earlier stage. We employ conservative assumptions regarding patient populations, market sizes and growth rates, net pricing, adoption curves, and peak market penetration. As well as considering development, execution, and commercialisation risks, we also specifically include a financial risk adjustment. Exhibit 1 provides a detailed breakdown of our €44.2m valuation, equivalent to €0.10 per share.
MDD accounts for the largest element of Nexstim’s valuation, comprising 80% of total company value. Potential upsides include a more rapid execution of the US commercial strategy, and better rates of clinical adoption and sales progress for MDD in any sizeable geography; however, the major source of potential upside would come from the hospital opportunity combining in-patient NBT treatment with accelerated protocols.
Our current valuation considers Nexstim’s core outpatient business, although we acknowledge that with additional funding and positive preliminary pilot study data with iTBS protocols, the NBT opportunity could be broader. Our March 2021 Lighthouse provides an overview of results to date from the depression pilot study. We most recently outlined our conservative assumptions and indicative rNPV valuation of the potential NBT opportunity in severe MDD patients who are treated in hospital in the US in our December 2020 Update. Based solely on the placing and use of NBT systems for primary treatment in hospitals (ie not capturing any additional revenue that may be generated by maintenance therapy of these same patients in the outpatient setting) and assuming reimbursement in line with conventional TMS therapy, accelerated therapy protocols in MDD could add an incremental €8.8m or €0.02/share to our core Nexstim valuation.
Nexstim delivered a record financial performance in FY20 despite COVID-19 impacts, with net sales growth to €4.11m (FY19: €3.35m), a lower operating loss of €3.33m (FY19: loss of €6.52m) and net loss of €4.12m (FY19: loss of €6.78m).
NBS diagnostics sales increased 28% to €2.0m, with NBT therapy revenues growing to €2.2m (+19%, €1.9m in FY19), despite COVID-19 related movement restrictions and lockdowns dampening the NBT commercial trajectory in particular. Management focus on leveraging the current installed base to generate recurring revenues (in excluding NBT capital system sales) continued to bear fruit with FY20 recurring revenues up 32% to €2.4m (c 56% of total sales). Nevertheless, during H220, nine new NBS systems (3 in the US and 6 in Europe/RoW) and three new NBT systems were installed, adding to the four NBS systems and five NBT systems installed during H120.
Total expenditure in FY20 was lower than the prior year (€6.16m vs €8.36m in FY19) reflecting cost saving measures implemented in Q220, the organisational restructuring, and lower travel and marketing costs as new ways of working remotely were put in place in response to the COVID-19 pandemic. Operating cash flows showed a €2.72m outflow vs €6.68m in FY19.
Financial guidance for FY21 is for continued growth in net sales and a loss expected for the financial year. We broadly maintain our financial forecast, taking reassurance from the positive FY20 result during a challenging year. We continue to recognise that COVID impacts may continue to weigh on revenue growth trajectories although these have been somewhat mitigated by the success of digital marketing and sales initiatives, and pandemic impacts as well as the outcome of the pilot studies may influence the timing and quantum of future spend on further trials with larger patient numbers. We intend to revisit our FY21 and FY22 estimates when more information on potential new studies is available.
Nexstim’s cash balance at end-FY20 was €3.45m (€4.8m at end-H120), including the outstanding Kreos loan of €0.99m (due December 2021). Management have indicated that a further €3m is required to cover working capital for the next 12 months. The EGM on March 1 authorised the potential issuance of up to 220m new shares (equivalent to 33.35% of enlarged share capital assuming all new shares are issued) with a preliminary subscription price of €0.03, equating to gross proceeds of €6.6m. Any issuance would be used for future financing needs, developing the equity structure, minimisation or reduction of debts, possible M&A, and other corporate purposes. We note that preliminary commitments to subscribe for new shares have been secured for c 48% (c €3.15m) of the authorised amount. We have also previously highlighted that Nexstim is evaluating various other funding options, including non-dilutive funding from strategic partnership(s) or agencies (such as the Business Finland loan secured for development and SmartFocus nTMS system optimisation).
Execution on the 2020-24 corporate strategy does require additional funds, and on our forecasts, we believe that a further €10m over the next 18 months (split €6m in FY21 and €4m in FY22) would be ample to achieve near- and mid-term goals for NBT in depression (including further clinical evaluation of accelerated protocols), repay the Kreos loan, and to secure the company’s financial future.
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