Promising progress with NBT
Update | 20 August 2019
Nexstim’s revenues grew by 13% to €1.2m on the back of sales of NBT systems increasing by 170% to €0.6m. The company has only been focused on this marketing NBT in major depressive disorder (MDD) since September 2019. Nexstim increased its installed base of NBT systems by eight to 18 during H119, and appears to be gaining momentum with repeat orders, and progress should be boosted by the White Paper from Island Psychiatry. Sales from NBS systems for pre-surgical mapping were slightly disappointing as sales were pushed back into H219, but careful cost control means that cash burn was as expected. The company had cash of €6.4m on 30 June, and continues to look to strengthen its balance sheet. We value Nexstim at €0.41/share diluted.
|Year-end: December 31||2017||2018||2019E||2020E|
|Net Income (€m)||(7.3)||(6.2)||(7.1)||(6.4)|
20 August 2019
|Shares in issue||35.4m|
|12 month range||€0.09-7.13|
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.
Mick Cooper PhD
+44 (0) 20 3637 5042
+44 (0) 20 3637 5041
Table of Contents
Island Psychiatry, which has three practices in New York, was the first organisation to purchase an NBT system in the US. The clinical results achieved by the first 10 patients to be treated with the devices suggest significantly better results can be achieved using NBT instead of one of the other transcranial magnetic stimulation (TMS) platforms.
Seven of the ten patients (70%) obtained a clinical response and five (50%) were in remission at the end of their treatment programmes, which on average included 37 therapy sessions. A clinical response was defined as a reduction of at least 50% in BDI (Beck’s Depression Inventory) or PHQ-9 Health Questionnaire, patient-reported measures of depression. The number of patients included in the White Paper is limited, but these initial clinical data compare favourably to those seen with other TMS systems. Historically, 41.5%-56.4% of MDD patients treated with TMS achieve a clinical response and 26.5%-28.7% enter remission.
A significant improvement in two measures of clinical depression was also observed, which is notable as there were only 10 patients in the sample group. The mean clinical improvement as measured using the BDI was 49.6% (p<0.01) and using PHQ9 was 46% (p<0.02), as shown in Exhibit 1.
The paper also reports the therapy was well tolerated by the patients. One patient did experience transient ocular migraine after two treatment sessions, but still completed all of his 36 sessions. The limited adverse events associated with NBT therapy is also indicated by the fact that the patients had 37 treatment sessions on average.
The key difference between NBT and other TMS platforms is that Nexstim’s system accurately and reproducibly stimulates the dorsolateral prefrontal cortex (DLPFC). NBT uses Nexstim’s SmartFocus, which can accurately map the different areas of the brain, so that the DLPFC is always stimulated. In comparison, the other TMS systems cannot directly identify the DLPFC and depend on the “5cm rule”, in which the cortex of the brain is stimulated to identify the area that triggers a movement of the thumb (APB location) and then the TMS coils are moved 5cm along the scalp anteriorly (towards the face) to target the DLPFC. Unfortunately, the distance between the two brain areas varies between patients (Exhibit 2), so that there might be sub-optimal stimulation of the DLPFC, which could result in less efficacious treatment of patients, with other TMS systems.
The data in this first White Paper suggests that significantly better clinical outcomes can be achieved for MDD patients if Nexstim’s NBT system is used rather than a TMS system produced by one of its competitors (e.g. Neuronetics or BrainsWay). However, it should be remembered that the data in this paper is only from ten patients and it will be interesting to see if the similar results are achieved in larger patient groups and by different clinics. That said, data such as that reported in this White Paper should differentiate NBT from other TMS systems and increase adoption of Nexstim’s systems.
Our updated model takes into account the strong sales performance of NBT and the weaker than expected NBS sales. From a valuation perspective, the good progress being made with the launch of NBT more than offsets the disappointing NBS sales. Hence, we are increasing our valuation of Nexstim slightly to €19.0m or €0.54/share or €0.41/share diluted (in the money options or warrants only, Exhibit 3) having previously valued it at €18.8m or €0.53/share or €0.40/share diluted. To be conservative, we are forecasting that the delayed sales in H119 will have a knock-on effect on other periods and have not factored in the potential impact of the White Paper from Island Psychiatry. Similarly, we continue to include a financial risk adjustment and note that our valuation would be €39.7m or €0.81/share diluted if it was removed.
We have similarly revised our estimates, as shown in Exhibit 4. As indicated above, we are conservatively forecasting that the delayed NBS sales in H119 will have an impact on H219 and subsequent periods, and that we have increased slightly our forecasts for NBT sales solely due to the sales growth in H119. At this stage, we are not forecasting any potential acceleration in growth following the publication of the White Paper by Island Psychiatry. We estimate that the loss at the EBITDA level will only be slightly greater than before, because of the cost control measures (primarily in administrative costs) that have been implemented during H119 by management.
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