Yesterday, NeoDynamics released its Q1 2023 report. The net sales came in at SEK0.1m (SEK0.1m), and operating expenses amounted to SEK-18.5m (SEK-11.4m) compared to our OPEX estimate of SEK-11.6m. We believe the rise in OPEX is mainly an effect of new employees in the US as well as costs related to the financing plans. Therefore, we expect other external costs to decrease slightly during the year's second half. Moreover, EBIT came in at SEK-23.2m (SEK-16.2m), which was lower than our estimate of SEK-14.9m.

Cash flow from operating activities was SEK-21.4m (SEK-14.1m), and by the end of the quarter, the cash and cash equivalents amounted to SEK5.4m. NeoDynamics has a capital need where we expect capital raisings through rights issues during both 2023 and 2024 of SEK60m and SEK40m (previous estimate: SEK30m in 2024e), respectively. At the beginning of April, the company had an extraordinary general meeting. The board's proposal to, on one or several occasions during the period up to the next annual general meeting, increase the company’s share capital through issues of new shares, warrants, and/or convertible instruments obtained 62% of the votes, which is less than the required two-thirds majority. We do not understand the decision when the company has a clear capital need, even in the short term. However, NeoDynamics’ ordinary general meeting is on the 23^rd of May, where there will be another vote where we expect the decision of capital raisings to be taken. As the cash position at the end of the quarter was SEK5.4m and the company has the opportunity to use an additional SEK7m in loan, we expect a capital raising during Q2 2023.

Overall, the report did not include any major surprises except for higher OPEX than we expected; however, we believe quarterly reports will become much more interesting during 2023 as we expect to see sales ramping up due to the launch in the US.

In February, NeoDynamics announced it had initiated a partnership with the global company Uniphar for distribution and logistics in the US. Uniphar works with over 200 pharmaco-medical manufacturers, delivering products to 160 countries, has more than 2,600 employees, and had revenues of EUR1.8bn in 2021.

Uniphar will support NeoDynamics with its customer service and logistics management, which will help the commercialization process in the US. As NeoDynamics is a relatively small player, we highlight the importance of partners with a much more extensive network, which we believe Uniphar has.

A couple of weeks later, the company announced that the largest shareholder Gryningkust Holdings AB offered NeoDynamics SEK14m in a loan that can be converted into shares in relation to an equity issue. The loan’s maturity date is the 15th of August, 2023, with a fixed interest rate of 8%.

At the beginning of April, NeoDynamics announced it had shipped CorePulse needles to 23 European hospitals with expected arrival during the month. The plan was to start with the CorePulse needle during April and continue with the VacuPulse needle during mid-year.

Last year, we learned that the company had paused its sales and production of NeoNavia following clinical practitioners' feedback on the needles. Since then, NeoDynamics has fine-tuned the offering, and even if the company is behind schedule, we are positive the commercialization is back on track.

We look forward to receiving more information about the hospitals' experience with the needles. Positive feedback could create a ripple effect which is highly essential for a sales ramp-up in Europe.

At the end of April, NeoDynamics announced the US launch of NEONAVIA. The system was introduced at two conferences for breast surgeons and breast imaging professionals, including the ASBrS 24th Annual Meeting and the SBI Breast Imaging Symposium. Additionally, the NEONAVIA PULSE study, evaluating ultrasound-guided lymph node biopsy using NEONAVIA, has been accepted for electronic presentation at the 2023 SBI Breast Imaging Symposium.

Moreover, the data from the company’s PULSE study shows a favorable safety and efficacy profile of NeoNavia for US-guided biopsies in the axillary lymph nodes. The success rate for the biopsies was 93%.

Overall, the report did not include any major surprises as the company continues its launch of NeoNavia in the US. However, operating expenses were significantly higher than anticipated, leading to changes in our OPEX estimates during the forecasting period. For FY 2023, we increase our other external costs estimate from SEK-41m to SEK-46.9m and our personnel costs from SEK-17.1m to SEK-27.8m. Between 2024-2027e, we increase our total OPEX estimates by 7-25%; however, no changes from 2028e.

We have previously anticipated capital raisings of SEK60m during Q2 2023e and SEK30m in 2024e. Due to the increase in our OPEX estimates, we increase our 2024e capital raising estimate to SEK40m. Moreover, we expect the loan of SEK14m from Gryningkust Holdings to be repaid with newly issued shares from the first capital raising. Note that there could be a capital need after 2024 for the company; however, it will be highly dependent on NeoDynamics’ sales, and for now, we have chosen only to include capital raisings for 2023 and 2024e.

NeoDynamics has started the launch of NeoNavia in the US with an initial plan to market the FlexiPulse needle since this is the most innovative product in its offering and to focus on just the axilla biopsy market initially. NeoDynamics also has FDA approval for the VacuPulse needle, which we expect to launch during 2025e, entering the US breast biopsy market. We are positive about this strategy, arguing the axilla biopsy market is more accessible than the breast biopsy market, mainly due to the lower competition and the greater need for innovations. Moreover, the first stage of the company’s strategy is to focus on the leading breast cancer treatment centers at research hospitals in the US.

As mentioned, we assume NeoDynamics will raise SEK60m during Q2 2023 and SEK40m during 2024e and update our estimated subscription price to current share price levels (assuming a 40% discount). Moreover, we update our model with the current cash position. The changes (including changes in our OPEX estimates) change our fair value range with a base case of SEK0.9 (1.3), bull case of SEK1.7 (2.3), and bear case of SEK0.1 (0.25). Note that our valuation of NeoDynamics is highly dependent on our capital-raising assumptions. Therefore, we provide a sensitivity analysis at the end of this update, which shows how our base case is affected by different assumptions.

At Redeye, we approach the valuation of a company’s shares through a set of three scenarios. These provide a more dynamic view of the case. We apply a WACC of 14.5% in all scenarios.

Our SEK0.9 base case for NeoDynamics is built on the assumption that the company will introduce its biopsy instrument in the US during H1 2023. The company will initially focus on the axilla biopsy market, which we value around SEK1bn, and expect a market penetration of 10% by 2030e. Moreover, we believe the company will enter the US breast biopsy market by 2025e (market value: cSEK7bn) and assume a market penetration of 1% by 2030e.

Moreover, in our base case scenario, we expect low sales from the European market, expecting a 5% market penetration by 2030e in the axilla biopsy market (value: cSEK500m) and a 0.5% market penetration in the breast biopsy market by 2030e (value: cSEK1.6bn).

In our bull case scenario of SEK1.7, we assume a faster sales ramp-up in all segments. Our assumptions are summarized in the list below:

In our bull case scenario of SEK0.1, we assume a slower sales ramp-up in all segments. Our assumptions are summarized in the list below:

We have estimated capital raisings of SEK100m during 2023 and 2024e (SEK60m in Q2 2023 and SEK40m in 2024e). As our capital raising assumptions significantly impact our valuation, we provide a sensitivity analysis where one can observe how our base case depends on different assumptions.

As one can observe, our base case highly depends on our capital raisings assumptions, where the SEKm/stock price assumptions give a base case range between SEK0.5-1.3 and discount/stock price assumptions give a range between SEK0.4-1.4.