- Medical device maker Nexeon MedSystems (NXNN) is a revenue generating company with plans to have two of their own devices approved by the U.S. FDA and Europe over the next 12 to 24 months. This newly public company, that has done manufacturing for the likes of GE, J&J, and GSK, has a solid manufacturing business that’s gone overlooked so far.
- Nexion's first proprietary device targets the $700 million market for deep brain stimulation in Parkinson's Disease. The opportunity for a slice of this market and to grow the market in the U.S. is exciting, and it may take a few short years for this potentially superior product to be doing tens of millions in annual revenue.
- Comparable companies like electroCore (ECOR) and Nuvectra Corporation (NVTR) show just how big NXNN could become, as this new company is valued at only a fraction of these more well-known peers. New devices could close the valuation gap, and 4X isn't out of the question.
Neurostimulation: A $16B Market In The Making
NEW YORK, NY / ACCESSWIRE / November 14, 2018 / Drugs have always been the mainstay of treatment for neurological disorders. But another option has gained traction as well: new neurostimulating devices that have been especially helpful in certain movement disorders like Dystonia, Essential Tremor, and Parkinson's Disease.
Three companies have recently gone public with neurostimulator device platforms, some with lofty stock valuations as investors are excited about the prospects. ElectroCore (ECOR) and Nuvectra (NVTR) each employ neurostimulatory devices, called gammaCore and Algovita, for the treatment of migraines and chronic pain. Nuvectra was spun out of GreatBatch Inc in 2016 and has sales of over $14 million quarterly already as the stock trades at $21. ElectroCore raised $78 million in their June 2018 IPO.
Neurostimulation involves the electrical stimulation of neural tissues, most often in these disorders using Deep Brain Stimulation (DBS), where an electrode is placed in the brain and used to stimulate activity through a remote control device. For many seriously sick patients, the outcomes are life-changing.
According to Global Markets Insight, the global market for neurostimulation devices will exceed $16.6 billion by 2024, including a wider variety of applications throughout the body. These devices can vary, but the biggest demand so far has been in DBS, and the revenue opportunity for DBS devices should eclipse $1.4 billion by 2020 according to Global Markets.
These stocks have been well-received as neurostimulation has seen a surge in investor interest akin to that of the widespread acceptance of the cannabis industry in the last two years. Small companies are building an entire industry from the ground up, with leaders like Aphria Inc. (APHA), The Green Organic Dutchman Holdings (TSX:TGOD.TO) and Canopy Growth Corporation (WEED.TO) getting acceptance from even mainstream investment institutions.
Nexeon MedSystems Is An Experienced Manufacturer In The Medical Device Industry
Another small company hasn't received as much attention as these larger peers, even though their management team has extensive experience in this industry and the company is already generating revenue; they could have two of their own neurostimulation products approved within a year, which is where the exciting upside resides.
Nexeon Medsystems (NXNN) is a small company that does medical device manufacturing for large healthcare companies through their subsidiary Medi-Line: $7.4 million in sales in the company's fiscal 2017. Their two biggest clients are General Electric (GE) and Johnson & Johnson (JNJ). The business has been growing steadily since Nexeon's ownership, with their fiscal Q2 revenues of $2.8 million, an increase of 82% compared to $1.5 million for the prior year quarter.
Two Value Inflections In Next 18 Months?
Now, Nexeon is making headway on two of their own in-house medical devices that will enter the growing neurostimulation market, possibly by the end of 2019.
Nexeon's first device is called Viant, a Deep Brain Stimulation device of which an older version was cleared for sale in Europe (called a CE Mark) by the previous owners. Viant has been revamped and improved, and now uses newer technology to streamline how doctors might use the device: directional leads and LFP recording basically are intended to let the device tune itself over time, avoiding repeat doctor visits for the patient.
DBS is a large market (growing to $1.4B by 2020), but with only a few real players, including Medtronic (MDT), Boston Scientific and Abbott (formerly St. Jude Medical). Most of their devices don't include LFP, though Boston Scientific is working on its own advanced device.
Nexeon plans to complete their European CE Mark technical file by the end of 2018 (with the exception of some longer-duration shelf life tests) and they expect to receive a CE Mark in the first half of 2019 and be on the market later in the year for the three largest DBS indications: Essential Tremor, Dystonia, and Parkinson's. They're working towards a clearance by the U.S. FDA in 2019 for Parkinson's.
The company's sales and marketing team, with a deep background in the medical device industry, believe that 10% penetration of this market should be achievable fairly quickly, which could mean over $100 million in sales within a few years for NXNN. This is a big market, and DBS is seeing increased adoption by healthcare providers.
Their second device also in development is an auricular vagus nerve stimulator called Zero Point, somewhat similar to ElectroCore's gammaCore device. Nexeon is in the early stages of clinical investigation but believes that Zero Point could provide an effective and rapid improvement in acute opioid withdrawal symptoms for those suffering from acute symptoms. This fall Nexeon submitted an application for the FDA's early involvement in the regulatory plan for Zero Point, called the Innovation Challenge, with the goal of making Zero Point available over-the-counter (available without a prescription). Opioid addiction is a priority for the FDA, and they actually cleared another vagus nerve stimulator in late 2017 for prescription use in this setting, called the NSS-2 Bridge. This older device requires needles to work properly. With no needles, Nexeon hopes that Zero Point could be sold over-the-counter as a Class II device due to decreased risk to the user.
The opportunity here is obviously immense and the FDA is making opioids a priority; the de novo approval pathway could speed an FDA approval along quickly in the next year or two, and word on the Innovation Challenge could be yet another catalyst for NXNN stock. This could be a catalyst that puts a major spotlight on this underfollowed company as they make headway with Zero Point.
Valuations For Approved Neurostimulation Devices Point to Upside for NXNN
As evidenced by ElectroCore and Nuvectra, investors have an appetite for neurostimulation devices - the revenue opportunity is quite large, and these therapeutics are being tested in all sorts of new neurological settings.
ECOR has almost no sales to date, yet has a $308 million market valuation after their IPO!
NVTR is on track for sales of around $50 million in 2017, and has a market valuation of $375 million, or about 7.5X their sales. By comparison, NXNN is on track for over $8 million in sales, yet has only a $15 million market capitalization. Part of this is due to a lack of awareness, as the public stock is not very liquid since their going public transaction. That could change, and at a similar 7X Price-to-Sales ratio as Nuvectra, the company would have a market capitalization of $56 million, or 4X from recent prices. While this is a risky small-cap stock, as are many healthcare companies, the history of execution at Medi-Line, and two devices approaching FDA and European approval could make this an attractive 2019 holding.
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