NeoDynamics: Direct share issue finances next steps

Yesterday evening, NeoDynamics announced its intention to carry out a directed share issue, primarily targeting Cardeon Futuring Finance and the Dutch company Nyenburgh Holding. These have experience from the life science sector and, in our view, bring further strength to NeoDynamics’ ownership base – which previously has been dominated by high net worth private investors with experience in real estate, mainly. Moreover, we emphasize that Cardeon Futuring, with Chairman of the Board Masoud Khayyami, is an interesting new shareholder given his current position as CEO of Spectracure and Chairman of the Board of Lumito.

SEK 90m raised

This morning, the price was set at SEK 3.71 per share – a discount of -13.7% compared to yesterday’s close. Impressive, we say, considering where the stock has been trading for the most part of the year. Moreover, the issuance of the new 24.2 million shares brings in some SEK 90m and, according to the company, will finance its increased activities next year – of which, by the end, we anticipate an additional capital raise.

NeoDynamics share price performance YTD

Source: Bloomberg, Redeye Research

Activities for commercialization

With its strengthened cash position, recently initiated commercialization, coming FDA filing/approval, and potential partnership agreement next year, we see that NeoDynamics transitions into the next phase with its product offering. Given its strong KOL engagement and collaborations with university hospitals in Europe and the US, we see the potential for a relatively quick sales ramp up in the coming years. Though, on the back of the Corona crisis and its impact on the commercialization, we estimate sales this year to reach the SEK 0,1m rather than the SEK 4m we anticipated in our initiation of coverage in September 2019. A significant reduction of the 2020 sales estimates, but not particularly important to the longer term prospects of the case, we argue.

However, our view on its medium-term sales potential remains (sales of SEK 33m in 2021 and SEK 60m in 2022) with caution of its dependency on the expected FDA approval and subsequent US partnership in 21H1. Moreover, the long-term sales potential for NeoDynamics, we argue, is also heavily reliant on its clinical validation. Going forward, the two on-going clinical trials and their published data may therefore ignite revised positive adjustments to the long-term sales prospects and a following change in our valuation of the company.

Adjusted Fair Value Range

The capital raise and its issuance of new shares affect our discounted cash flow models. Our new Base Case is SEK 4 per share, while our Bear and Bull Case are SEK 2 and SEK 8 per share. Though the Base Case is close to today’s price, we argue that the phase NeoDynamics is now transitioning into, and the new investors, may attract attention to the stock. Moreover, with the critical milestone of the FDA filing anticipated this year, even more interest in the company and the stock should follow.