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Nexstim — Update 27 July 2016

Nexstim — Update 27 July 2016

Nexstim

Analyst avatar placeholder

Written by

Nexstim

FDA de novo filing, funding package

Company update

Healthcare equipment & services

27 July 2016

Price

€0.79

Market cap

€6m

Cash (€m) as at 31 December 2015

6.9

Shares in issue

8.1m

Free float

69%

Codes

NXTMH
NXTMS

Primary exchange

Nasdaq First North
Finland

Secondary exchange

Nasdaq First North
Sweden

Share price performance

%

1m

3m

12m

Abs

17.0

(40.6)

(86.4)

Rel (local)

11.7

(44.1)

(86.2)

52-week high/low

€7.5

€0.6

Business description

Nexstim sells navigated brain stimulation (NBS) technology. NBS is used to plan brain surgery (sold in the US and EU). The therapeutic stimulation system (NBT) may promote rehabilitation after stroke, but Phase III data were inconclusive. Other indications like chronic pain are CE-marked.

Next events

H1 results

17 August 2016

EGM

18 August 2016

Analyst

John Savin PhD

+44 (0)20 3077 5735

Nexstim is a research client of Edison Investment Research Limited

Nexstim has used the data from the Phase III trial, stopped after a futility analysis, to file an FDA de novo 510(k) application for stroke rehabilitation for its Navigated Brain Therapy (NBT) System. This might give some US sales from H217 if the FDA agrees. NBT can already be sold in the EU. Indications for NBT such as depression, clinically validated, could be developed. A chronic pain CE mark has been gained and an EU market strategy is being developed. Funding arrangements should provide cash into 2017, according to management, and need EGM approval.

Year
end

Revenue
(€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/14

2.21

(10.21)

(1.43)

0.0

N/A

N/A

12/15

2.53

(9.55)

(6.22)

0.0

N/A

N/A

12/16e

3.14

(8.54)

(7.25)

0.0

N/A

N/A

12/17e

4.23

(6.96)

(5.95)

0.0

N/A

N/A

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. EPS is estimated after 2016 dilution only.

FDA de novo stroke application filed

Nexstim has Phase III data plus additional occupational therapy on more than 138 patients (out of 199). The Phase III stopped early after a futility analysis showed no difference between the active sham and active therapy arms. Two-thirds of treated patients showed meaningful clinical improvements. Both groups performed better than historical norms. This has encouraged Nexstim to apply to the FDA for a de novo 510(k) for stoke rehabilitation. The FDA review, if accepted, will probably take about nine to 12 months, but further trials and data may be needed. The FDA has approved three other rTMS systems to treat depression.

Chronic pain: CE mark gained

Nexstim has CE marked the NBT system for chronic pain relief. A review in 2013 (Treister et al) found a promising basis for rTMS in pain, but noted that bigger trials were needed and that navigated rTMS should have more consistent results. The Brainsway Deep TMS device is also CE marked for chronic neuropathic pain. The FDA has not approved any rTMS chronic pain indications, but there is an approved TMS device to treat migraine pain. Nexstim is developing an EU strategy.

Valuation: Complex data need a cautious projection

NBT can be sold now in the EU for stroke and depression indications, but the therapy may not be funded on the data available. Our forecast is not based on any specific indication as NBT units can be used to treat several indications. Navigated Brain Stimulation (NBS) is sold for brain mapping in the US and EU. Nexstim will require more cash in Q316. A €5m tranched convertible loan (CBF), a €5m SEDA, a €1.5m Sitra SEDA co-investment and a direct €0.5m Sitra investment are proposed. Warrants will be issued with the CBF and SEDA share issues. Assuming the share price holds, Nexstim could receive €2-3m of funding in 2016, which management estimate is sufficient to last until Q117. Another €8m cash at least might be required in 2017. The potential 2016 dilution indicates a share price of €1.15/share based on an unchanged indicative value of €28.6m.

Financing proposal

The proposal announced on 21 July is based on a convertible loan facility (CBF) and a stand by equity drawdown arrangement (SEDA) with Bracknor Investment, a Dubai-based investment company. These could be worth €10m in total if fully used. The Finnish Innovation Fund (Sitra) has agreed to match a part of this funding, if and when received, up to €1.5m maximum. In addition, Sitra has agreed to make an investment of €0.5m (Directed Issuance); this is assumed to be made down in August. There are warrants to Bracknor and Sitra in respect of the CBF and SEDA.

The deal is complex (Exhibit 1) and as amounts and prices of shares to be issued are mostly uncertain, the impact on dilution is not known, but will be high; management estimates at least 15m new shares. In addition, 0.9m shares are being issued immediately to pay the deal fees.

It is not known how much investment is planned into clinical development over 2016 and 2017. Investment is needed to develop new indications in depression and to invest in the marketing needed to sell product. We estimate that €13m extra cash is required until the end of 2017.

Exhibit 1: Funding deal elements

Funding instrument

Funder

Amount

Terms

Warrants

Fees CBF

Bracknor

€200k

Upfront fee paid in new shares

None

Fees SEDA

Bracknor

€150k

Upfront paid in new shares

None

Fees

Sitra

€60k

Upfront paid in new shares

None

Convertible 18 month interest free Bond

Bracknor

20 tranches of €250k each can be issued: €5m total over 24 months.

Nexstim issues CBF bonds to Bracknor in staged tranches. The price for conversion is 85% of lowest volume-weighted price in preceding 15 days. Bracknor decides the conversion date with any outstanding tranches maturing 18 months after the issue date and converting automatically.

Each tranche is issued after the last one has converted or if not converted, after a cool down period of 20-35 days.

This means that a new bond tranche can be issued immediately that Bracknor converts the previous one. In theory, this could allow very rapid use of the facility. At the slowest, Nexstim can issue one bond tranche per month under the cool down facility.

The CBF warrants have a duration of four years. They are issued for 100% of the loan for the first 10 tranches as each loan is received.

The first tranche has warrants priced at the lower of either: a) the lowest volume weighted price over 15 days preceding 20 July 2016; or b) the lowest volume weighted price over 15 days preceding the first subscription.

The next nine tranches are priced at 110% of the lowest volume-weighted price in the preceding 15 days.

SEDA

Bracknor

€5m facility subscribed in weekly tranches at Bracknor’s discretion

Bracknor sets the terms on Monday each week if it wishes to subscribe. The price is 85% of the previous week’s lowest volume weighted price. The number is set at 500% of average daily volume over the previous 20 days limited to no more than €700k/ month unless Nexstim agrees.

Three-year warrants equal to 35% of the value of SEDA shares issued. The exercise price is the lowest volume weighted price for the five days after 21 July 2016 and no higher than €0.6571/warrant.

SEDA

Sitra

Limited to €1.5m overall

Invests €0.5m for every €2m subscribed by Bracknor (in either the CBF or SEDA) on same basis.

As for Bracknor

Directed investment

Sitra

€0.5m

Assumed to be made directly on EGM approval. Probably provides short term working capital;

None

Termination CBF

Nexstim can terminate the CBF at one month’s notice after 10 tranches issued (€2.5m)

Issued warrants remain in force

Termination SEDA

Nexstim can terminate the SEDA at one month’s notice;

Issued warrants remain in force

Source: Edison Investment Research, company data

Funding and dilution

Nexstim management has commented that this package provides funding until the beginning of 2017 at least. For forecasting purposes, we assume that the Sitra directed issuance of €0.5m and six convertible Bracknor loan tranches (one per month of €250k each so €1.5m) are drawn in 2016. Bracknor can also use the SEDA facility, but this cannot be forecast. Once Bracknor subscribes for €2m (total of the CBF and SEDA combined), Sitra will subscribe for €0.5m. Shares will be issued to Bracknor and Sitra at a price of 85% of the lowest price in the preceding period, depending on the instrument. In total, this as a minimum gives €1.5m in cash in 2016 (four unconverted CBF tranches with cooling off periods in between plus the directed investment but excluding any SEDA use). The amount in 2016 could be over €3m if Bracknor converts the CBF quickly (avoiding cooling off periods) so at least eight tranches are issued (€2m) triggering a Sitra co-investment of €0.5m (plus the direct investment of €0.5m that will probably be made late August).

There was €6.9m cash in December 2015 stated to last until the end of Q316. The Edison model indicates that at least €2m is required from these arrangements in H2 2016 to leave €0.25m by the end of 2016. This forecast assumes H2 expenditure reductions as the main stroke trial ended in H1. For forecast purposes, we have assumed that €3m is received. This illustrates the action of the Sitra co-investment and is feasible if Bracknor converts CB tranches quickly to obtain the warrants or if the SEDA is used. This could give over €1m cash at the year end.

In the last three months, monthly volumes on the Helsinki exchange have been in the range 230,000-300,000 with net selling apart from in June. The Stockholm exchange has lower volumes ranging from 78,000 in May to 204,000 in June. The value of trading is therefore, at €0.80/share (assumed average price for illustrative purposes) around €250k per month of buyers and sellers. It may therefore be a struggle to place €3m of shares in the last four months of 2016 if Bracknor is planning to convert the loan tranches quickly and sell the shares or use the SEDA. Bracknor can hold each tranche for up to 18 months before conversion; this would create a share overhang. With each month’s price being 85% of last month’s lowest price, the potential for share price erosion is high. Bracknor is likely to prefer the CBF given the warrant gains (100% on the first ten tranches with a four year period) relative to the SEDA (35% of the value and three year period). The seniority of the convertible loans is not disclosed.

Impact on shares in issue

The recent lowest price was €0.73 (volume 9,800 shares) on 22 July. Exhibit 2 is a scenario for the impact of funding in 2016. This assumes the current price (€0.78) holds till late August when fees and the directed issuance occur. The CBF tranches are priced at 85% of the recent lowest price (€0.73 x 85% = €0.62). Warrants are at 110% of this price so €0.80. SEDA use is not estimated.

Exhibit 2: Potential share impact 2016

To Dec 2016

Value (€000)

Price (€k)

Shares (m)

Price

Warrants (m)

Total (m)

Total fees

-410

0.78

0.53

Directed issuance

Sitra

500

0.78

0.64

CBF

Bracknor

2000

0.62

3.22

0.80

2.49

CBF

Sitra

500

0.62

0.81

0.80

0.62

Totals

5.20

3.11

8.31

Source: Edison Investment Research. Note: Fees are paid in shares so are non-cash. The 2017 position is too uncertain to estimate.

Valuation

We have valued Nexstim at €28.6m, unchanged from previous forecasts, Exhibit 3. This gives €1.15/share fully diluted. However, share dilution in in 2017 is uncertain and may be higher.

Exhibit 3: Indicative valuation using a 2016 dilution scenario

 

 

 

Values

Equity value 2016 (€m)

 

 

28.6

Additional funding need 2017 (€m)

 

 

-8.0

Overall value including further funding need (€m)

20.6

Shares in issue June 2016 (m)

 

8.1

New shares due to CBF and fees in 2016 (m)

5.2

Warrants on CBF 2016 (m)

 

3.1

Options (m) (inc 700k new options from May 2016)

 

1.5

Total shares, options and warrants

17.9

Diluted value at current share price (€)

 

 

1.15

Source: Edison Investment Research

Exhibit 4: Financial summary

2014

2015

2016e

2017e

Year end 31 December

FAS

FAS

FAS

FAS

PROFIT & LOSS

Revenue

 

 

2,210

2,528

3,140

4,231

Cost of Sales

(638)

(821)

(685)

(1,381)

Gross Profit

1,572

1,707

2,456

2,850

EBITDA

 

 

(7,422)

(9,984)

(7,915)

(6,751)

Operating Profit (before GW and except)

 

(7,568)

(10,096)

(7,925)

(6,761)

Intangible Amortisation

(231)

(274)

(250)

(250)

Exceptionals

-

-

-

-

Operating Profit

(7,800)

(10,370)

(8,175)

(7,011)

Other

-

-

-

-

Net Interest

(2,646)

544

(610)

(200)

Profit Before Tax (norm)

 

 

(10,214)

(9,552)

(8,535)

(6,961)

Profit Before Tax (FRS 3)

 

 

(10,445)

(9,826)

(8,785)

(7,211)

Tax

-

(1)

-

-

Profit After Tax (norm)

(10,214)

(29,670)

(37,438)

(43,075)

Profit After Tax (FRS 3)

(10,445)

(9,827)

(8,785)

(7,211)

Average Number of Shares Outstanding (m)

7.1

8.0

9.2

13.3

EPS - normalised (c)

 

 

(143)

(622)

(725)

(595)

EPS - FRS 3

 

 

(1.46)

(3.74)

(4.12)

(3.25)

Dividend per share (c)

0.0

0.0

0.0

0.0

Gross Margin (%)

71.1

67.5

78.2

67.4

EBITDA Margin (%)

-335.8

-394.9

-252.1

-159.6

Operating Margin (before GW and except.) (%)

-342.4

-399.4

-252.4

-159.8

BALANCE SHEET

Fixed Assets

 

 

979

974

974

974

Intangible Assets

527

631

631

631

Tangible Assets

442

333

333

333

Other

10

10

10

10

Current Assets

 

 

13,014

8,233

2,488

3,352

Stocks

247

421

421

421

Debtors

930

659

550

1,004

Cash

11,484

6,875

1,240

1,643

Other

354

277

277

283

Current Liabilities

 

 

(1,928)

(2,417)

(2,557)

(2,732)

Creditors

(1,382)

(1,084)

(1,125)

(1,300)

Short term borrowings

(134)

(384)

(484)

(484)

Short term leases

0

0

0

0

Other

(412)

(948)

(948)

(948)

Long Term Liabilities

 

 

(3,475)

(3,245)

(3,145)

(11,045)

Long term borrowings

(3,405)

(3,197)

(3,097)

(10,997)

Long term leases

0

0

0

0

Other long term liabilities

(71)

(47)

(47)

(47)

Net Assets

 

 

8,590

3,545

(2,240)

(9,452)

CASH FLOW

Operating Cash Flow

 

 

(7,146)

(9,065)

(7,765)

(7,037)

Net Interest

(640)

(544)

(610)

(200)

Tax

0

0

0

0

Capex

(860)

(380)

(260)

(260)

Acquisitions/disposals

0

0

0

0

Financing

18,818

5,280

3,000

0

Dividends

0

0

0

0

Other

300

100

0

7,900

Net Cash Flow

10,473

(4,609)

(5,635)

403

Opening net debt/(cash)

 

 

2,529

(7,945)

(3,293)

2,342

HP finance leases initiated

-

-

-

-

Other

0

(43)

-

(7,900)

Closing net debt/(cash)

 

 

(7,945)

(3,293)

2,342

9,839

Source: Edison Investment Research, Nexstim accounts. Note: FAS = Finnish Accounting Standards. Average number of shares and EPS for 2016 and 2017 are estimates based on the share issue scenario in Exhibit 2. The amounts and timings of new issues are uncertain and represented in 2017 by illustrative debt of c €8m.

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Germany

London +44 (0)20 3077 5700

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United Kingdom

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245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

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Wellington +64 (0)48 948 555

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Prima BioMed — Update 27 July 2016

Prima BioMed

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