As NeurAxis gears up for its upcoming IPO, we took a deep dive into the company and spoke to company management, including CEO Brian Carrico, to see if NRXS is worth adding to your investment portfolio.
 

Images from Neuraxis.com
 

NeurAxis (NASDAQ: NRXS)  is a start up company looking to challenge the status quo in the treatment of irritable bowel syndrome (IBS). Alexander  Capital is the lead underwriter in their $15 million IPO. The funding will allow them to complete their 510(k) approval of their device and give them the funds necessary to build out their sales and marketing team once the final approval is granted. Their lead product is called IB Stem and is currently approved for the treatment of Pediatric Functional abdominal Pain. Due to the first approval of the device they have a clear regulatory pathway for other indications and the commercialization of their product. IB stem is the platform to treat a number of related types of ailments. It uses sensors to send signals to the brain that interfere with the processing of the pain signal that originates from the amygdale.

IB Stem is both able to compete with existing solutions including gammaCore, Transcranial Magnetic Stimulation, Roo and Sparrow therapy devices cleared for neonatal and adult opiod withdrawal, as well as Drug treatments such as Rifaximinm, Amitiza, Linzess, Plecantide, and Eluxadoline is used in treating adult IBS. Unlike other remedies IBS doesn’t require a surgical solution and avoids the use of drugs to achieve its success. Furthermore it has strong clinical data supporting it and has a low capital expenditure fit the suggested price coming in at $1,195 and $4,780 per patient. Neuraxis believes this sort of treatment can get approval for functional abdominal pain, chronic nausea, post-concussion, Chemotherapy induced nausea and vomiting, and cyclic vomiting targeting the pediatric market. Although this is a good market to start being a $9 million market in a $14 billion market for pediatrics. I believe that it can grow into the adult market over time.

IB Stem is not only a solution for these problems but is addressing a market for which there is no FDA approved treatment just ways to lessen or alleviate the pain and discomfort associated with the ailments the patients find themselves in. Furthermore the company has been working with the FDA and has gotten IB Stem for functional abdominal pain in cleared children. Approvals by the FDA are not determined but may differ in duration and outcome.

IB Stem is not only a solution for these problems but is addressing a market for which there is no FDA approved treatment just ways to lessen or alleviate the pain and discomfort associated with the ailments the patients find themselves in. Furthermore the company has been working with the FDA and has gotten IB Stem for  functional abdominal pain in cleared children. Approvals by the FDA are not determined but may differ in duration and outcome. 

Regarding financial modeling, Neuraxis forecasts both conservative and reasonable growth only in the pediatric market to start which they are in the process of getting approval for by the FDA. Growth margins should stay above 20 percent for the foreseeable future with room to grow both in gross margins and profitability. I personally believe that gross margins for this product can be more in line with the company’s historical average in excess of 30% margin. 

In order for you to better understand the technology involved the company has US patents for the technology lasting through 2039. Neuromodulation acts upon the nerves by delivering electrical stimulation to the affected areas. Unlike requiring surgery the technology can alleviate pain without surgery and/or an implanted device. According to market research the market for neurostimulation for  pain alone can grow into the already $1.8billion market to 13.3 billion in 2022. Neuromodulation techniques are expected to touch people’s lives and dramatically improve their livelihood as a method of enhancing their brain activity and decreasing that activity that causes pain without major surgical procedures. This field is new and is expected to grow logarithmically over this and the next decade. In this case it is done via the amygdale in the ear.

Clearly the forecast for the company are both reasonable and attainable given their product and their network working with desired partners. 

In Addition they have an established and seasoned management structure, collaborative manufacturing partner, and a clear go to market strategy. Although there is risk involved in any start up I believe the company has targeted the right product in a market unaffected by current market growth jitters. Couple that with a strong management team and a strong go to market strategy targeting good partners I believe that it deserves the funding it is asking for.  

Financial Analysis

The company currently has 3.903 million shares issued and after the offering that goes up to million issued and outstanding with the addition of 1.875 million from the IPO. Their offering should

price at a valuation between $40 to $50 million. The company has no formal projections but has a

marketing plan that is going to target 260 children’s hospitals that are existing customers and an

additional 50 children’s hospitals. If the company averages just one sale per hospital that comes to  $1.55 million in revenue assuming $5000 sales price. Averaging 10 machines per hospital and it moves up to $15.5 million in revenues. This should give investors an idea of how quickly sales could ramp especially if they get approval for additional indications like functional nausea, cyclic vomiting syndrome, and post concussion syndrome. If investors look at the Total Available Market (TAM) it equates to $9 billion. With the right marketing team the stock would be trading at an extreme discount of .5% the TAM

Investment Summary

When it comes to investing in MedTech the key ingredient is the management team. This management team is uniquely qualified for the market. They have accomplished much together and currently have the device approved and now looking for an expansion into larger disease indications. They have a really good marketing plan that is planning on leveraging existing client relationships once approved. Let this statistic resonate “95% of adolescents stated they would recommend the treatment to family or friends.” There is potential for this news to spread quickly in the community. The sales of these devices are at a reasonable entry point which means private pay or financing might not be out of the question. The final ingredient is that the device needs to be safe and it was tested in 1200 adult patients without any SAE’s and minimal side effects.

Competitors

Major competitive vendors that provide or are developing related treatments include the following public companies:  Abbvie (ABBV), Bristol-Myers Squibb (BMY), Amgen (AMGN), Arena Pharmaceuticals (ARNA), Gilead Sciences (GILD), Pfizer (PFE), Takeda Pharmaceuticals (TAK).

Summary

In summation, this company has a good innovative product and is in a market that is set to grow regardless of what the upcoming two years will reveal. The one major consideration that can’t be alleviated is the FDA approvals. That being said, there are indications that approval will occur, however, there are no guarantees. There is only the clear need for their product in the market and people working hard to make it so. 

Related Article:
NeurAxis: Should You Buy This IPO?

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