Nexstim is progressing with plans to fully exploit the promise of its SmartFocus TMS system in major depressive disorder (MDD). It recently announced that discussions are underway with a leading California-based academic institution to license their technology to treat hospitalised patients with severe depression who may be suicidal. While disclosure is limited, management have stated that this tie-up could open a new TMS market for treatment resistant depression that is distinct from the current out-patient MDD opportunity. If Nexstim’s NBT TMS system is approved for severe MDD, competition in this market is likely to be limited due to the need for accurate targeting. Based on conservative assumptions, we estimate this could be worth €0.23/share (fully diluted) on top of our current €0.41/share valuation.
| Year-end: December 31 | 2017 | 2018 | 2019E | 2020E |
| Sales (€m) | 2.6 | 2.7 | 3.4 | 5.4 |
| PBT (€m) | (7.3) | (6.2) | (7.0) | (6.4) |
| Net Income (€m) | (7.3) | (6.2) | (7.1) | (6.4) |
| EPS (€) | (2.77) | (1.93) | (0.36) | (0.13) |
| Cash* (€m) | 8.5 | 7.2 | 4.1 | 5.8 |
| EBITDA (€m) | (5.3) | (5.9) | (6.1) | (5.3) |
Update
9 October 2019
| Price | €0.14 |
| Market Cap | €5.0m |
| Enterprise Value | €6.6m |
| Shares in issue | 35.4m |
| 12 month range | €0.07-2.40 |
| Free float | 86.5% |
| Primary exchange | Helsinki |
| Other exchanges | Stockholm |
| Sector | Healthcare |
| Company Codes | NXTMH/NXTMS |
| Corporate client | Yes |
Company description
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.
Analysts
Mick Cooper PhD
mcooper@trinitydelta.org
+44 (0) 20 3637 5042
Lala Gregorek
lgregorek@trinitydelta.org
+44 (0) 20 3637 5041
Table of Contents
Nexstim’s commercial priority is fully exploiting the market potential of its highly accurate TMS (Transcranial Magnetic Stimulation) system as a treatment for major depressive disorder (MDD). Its Navigated Brain Therapy (NBT) platform was approved for MDD in December 2017 and launched in the US in May 2018. Recent activities have been focused on two main areas:
Nexstim has understandably made limited disclosures about the potential market opportunity presented by the possible combination of its NBT TMS technology with that of the Californian academic institute. However, we have used publicly available information to assess the value of this potential opportunity for Nexstim.
We understand that the target patient population is treatment resistant patients with severe depression, who may have suicidal ideation, and have been hospitalised. As this patient group is treated in hospitals (either psychiatric hospitals, or those with inpatient psychiatric units) it is distinct from the subset of MDD patients treated in outpatient clinics where NBT is currently available. Nexstim have indicated, in the press release, that the US market opportunity would cover c650 hospitals treating an estimated 160k patients annually.
We note that no TMS device has been FDA approved for patients with ‘suicide plan or recent suicide attempt’. TMS used in the out-patient setting has a long duration of treatment, typically for 5 days per week over 6 weeks, which means it is not suitable for suicidal MDD patients. Hospital in-patients with severe MDD and possibly suicidal ideation are treated with either anti-depressant drugs, electroconvulsive therapy (ECT), or ketamine. However, it is common for MDD patients admitted to hospital to be refractory to one or more pharmacologic treatments. For rTMS to become more applicable to the hospital setting, a shorter albeit more intensive treatment protocol is needed.
In addition to potential patient benefit (increased remission rate or duration of remission, and better safety/profile), there may be a compelling healthcare economics benefit from TMS therapy in hospitals. Currently, DRG reimbursement for this patient group is 17 hospital days, according to Nexstim. Any therapeutic modality with a shorter treatment period than this would provide a financial incentive to hospitals for adoption, in addition to the economic and patient benefits from enabling more patients to be treated over a specific timeframe.
On the basis of the key assumptions laid out in Exhibit 1, if we also assume Nexstim ultimately captures 20% of the market (equivalent to annual peak sales of €46m) following launch of the new protocol in 2023 and generates €100,000 per NBT system/year (in line with our underlying assumption for our core valuation model), we calculate that the value of the potential hospital opportunity for the company could be worth an additional €0.23/share on an rNPV basis. Summary valuation outputs are shown in Exhibit 2.
Assuming NBT is approved for the treatment of severe MDD in hospitals, it is important to note that any competition Nexstim may face is likely to be limited. A high intensity TMS treatment protocol would probably require the accurate and reproducible stimulation of the appropriate part of the brain (the dorsolateral prefrontal cortex, DLPFC) by the TMS system. Other TMS instruments approved for the treatment of treatment resistant MDD in the out-patient setting, such as those from Neuronetics or BrainsWay, rely on the “5cm rule” (see August 2019 Update) and so are only able to identify the approximate position of the DLPFC.
In contrast, Nexstim’s SmartFocus technology can precisely map the motor cortex, and uses proprietary e-field modelling to account for distortion caused by bone and brain tissue, accurately visualising the exact location, orientation, and magnitude of the stimulation. This means NBT can target the DLPFC (dorsolateral prefrontal cortex) 100% of the time vs 30% with other TMS approaches. This precision is the probable explanation for the interest from the leading California-based academic institution in a collaboration with Nexstim.
Our base case Nexstim valuation, including a financial risk adjustment, is €19.0m or €0.54/share or €0.41/share diluted (in the money options or warrants only). Full details of our valuation methodology are provided in our August 2019 Update.
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