Yesterday, Nexstim announced the full-year results for 2021. The company showed continued momentum in sales with 55.5% YoY, very much in line with our expectations, but reduced the operating loss a bit further than we expected. This was partly due to capitalized development costs (not estimated by us) but also a leaner than anticipated increase in expenses. Cash flow from operations was a bit more negative than expected, partly also affected by operational adjustments related to the component shortage (and thus not necessarily reflecting the underlying momentum in the business).
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NBS
Nexstim’s TMS diagnostics segment, used for pre-surgical mapping of brain tumors, grew roughly 70% YoY. We have been impressed with the recent momentum in the NBS segment, a market where the company’s solid reputation continues to deliver. Nexstim sold and delivered 9 NBS systems during the period. The company also benefited from a one-time delivery of two prototype systems worth EUR 0.9 million. The company also reports a backlog worth EUR 1 million, which we learned from yesterday’s webinar mainly consists of NBS systems. We see good potential for continued growth in 2022. We also expect to soon learn more about how the company could leverage its internal resources further towards the NBS system during the royalty period with Magnus Medical.
NBT
The TMS therapy segment, mainly focused on treating treatment-resistant depression, grew roughly 38% YoY with 51 installed systems worldwide (21 in North America and 30 in Europe and ROW). Net sales increased by 7.1% in H2 compared to the same period in 2020.  In general, the therapy segment has to a greater extent been affected by the pandemic, as patients have not been able to visit depression clinics as much. On the positive side, we also note the increase in combined NBT/NBS systems, which we think could increase utilization in the installed base further.
License Agreement
In February, it was announced that Nexstim will out-license technology used in its NBT-system to Magnus Medical, a new US-based company built on commercializing a new TMS therapy protocol called “SAINT,” developed at Stanford University. The deal consists of an upfront payment of EUR 3.5 million and a technology royalty for a maximum of five years, projected by Magnus Medical to be approximately EUR 13 million. During the royalty period, i.e., the first five years of commercialization of the technology, Nexstim will not directly sell new NBT therapy systems in the US. However, it will keep its recurring revenues from installed systems, continue sales of its NBS diagnostics system (including combined NBS/NBT system), and invest in partner clinics.
We have an overall positive take on the licensing agreement, as the combination of Nexstim’s strong technology and Magnus Medical’s reputation and established treatment protocol creates an increasingly competitive offer compared to other available TMS therapies. At the same time, Nexstim can continue to market the NBT system outside of the US and shift its focus towards its NBS diagnostics system while receiving high margin royalties from Magnus Medical. On the downside, Nexstim trades away some upside potential with the agreement and becomes reliant on the success of Magnus Medical, still an unproven company. We also have little insight into the launch of Magnus Medical’s TMS therapy. As Nexstim will stop new sales in the US when Magnus Medical&#8217;s therapy launches, it will be important to both companies that the sales ramp-up is fast and successful, as Nexstim otherwise could face a period of slow growth in the segment.
Cash Position
Nexstim’s cash position amounted to EUR 5.2 million, close to our expectations. The company also received an upfront payment of EUR 3.5 million from the deal with Magnus Medical in February this year that will be recognized as revenue during 2022. Our overall impression following yesterday’s report and the licensing agreement with Magnus Medical is that Nexstim has sufficient cash for now and in a better situation than expected due to the upfront payment.
Summary
Overall, we are pleased with Nexstim’s FY21 results that indicates that Nexstim is going in the right direction and make some adjustments to our estimates. Overall, we are also positive to Nexstim’s new focus on technology licensing and see further deals, such for the NBS system or other geographies, as an option for further upside.
We raise our base case to SEK 67.5 per share, but could also make further adjustments as we learn more about the launch of Magnus Medical’s TMS therapy.