NeurAxis Inc. (NYSE-Amer: NRXS) proves that a smallcap biotech can deliver best-in-market care. That's more than great news for NRXS from a revenue perspective and for its patients from a treatment point of view. It can also be excellent news for NRXS investors, who have an opportunity to invest in an innovative, revenue-generating company at prices lower than its $6 IPO price from August. In fact, once the post-IPO turbulence subsides, the path of least resistance for NRXS shares more likely than not is higher. That's not an exaggerated sentiment.
It's sound reasoning based on NeurAxis genuinely changing the way Functional Abdominal Pain (FAP) associated with Irritable Bowel Syndrome (IBS) gets treated. To call it different is an understatement. Its percutaneous electrical nerve field stimulator (PENFS) IB-Stim technology goes much further than being different. A better description is to call it transformative since, unlike the standard of care that uses off-label pharmaceuticals, can be surgically invasive, and sometimes requires a four to seven-day hospitalization, NRXS is drug-free, non-invasive and can be administered in an outpatient setting. Those differences are advantages. And they are doing as they should by attracting the attention of care providers, parents of pediatric patients, and insurance carriers.
That's contributed to NRXS earning over $9 million in revenue since 2019, with over $7 million earned in 2022 and after. While impressive from having only four major carriers reimbursing for its IB-Stim treatment, expectations are for a sharp steepening of its revenue curve post its August IPO, an intention supported by NRXS now having the resources and capital to expedite introducing its PENFS IB-Stim neuromodulation treatment technology to the masses.
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A Better And Easier Way To Treat FAP And IBS
NRXS wants more than an introduction. They believe its data supports IB-Stim earning front-line designation to treat patients 11-18 years old with functional abdominal pain (FAP) associated with irritable bowel syndrome (IBS). That target may not be overly ambitious given that NRXS is accruing the type of data, company-sponsored and independent, that would lead to it usurping the current standard of care. Couple that with NRXS being better positioned today fundamentally than when its shares became public, reaching that operational milestone may happen sooner rather than later. And better still, NRXS revenues could fall fast toward its bottom line.
That ability is highlighted in its Q2 earnings report published last month. It showed gross margins on sales of 89.5%. That bested its 88.4% score in the same period the previous year. That's more than an impressive number that keeps more revenues in NRXS books; it's the type of metric that paves the road toward profitability. However, since its Q3 earnings will still be affected by significant IPO-related one-time expenses, savvy investors will pay more attention to sales than the bottom line. Also in focus is how quickly NRXS is signing additional insurance carriers, how they are leveraging the value inherent to its FDA De Novo clearance, and how quickly hospitals and care centers, which are its clients, adopt the NRXS technology that is safe, proven effective and requires no hospitalization.
Ironically, despite all those benefits, NRXS stock can be purchased below its IPO price. However, that disconnect may not last much longer. It shouldn't. From any measure, NRXS is currently better positioned than at any time in its history, fundamentally and operationally, to expand its revenue-generating reach. Even appraising NRXS on singular assets can support a valuation higher than its current $17.4 million market cap. But that's not a fair appraisal: the inherent potentials must also be factored into the equation to appropriately value NRXS stock.
A More Appropriate NRXS Appraisal
Accounting for that, the NRXS share price should be significantly higher than its $6 IPO level. Factoring what they've achieved and their direction, NRXS is in an enviable position to capitalize on and maximize their being in a sweet spot of opportunity to capture a sizable share of an estimated $500 billion medical device market. By 2030, that figure is forecast to reach as high as $800 billion, a market size leading Rob Goldman at Goldman Smallcap Research to say that NRXS's post-IPO value presents an opportunity "too compelling to ignore."
That's not all he says. Goldman models for NRXS to reach $14 within six to twelve months, 300% higher than its current price. He supports his case by noting the market size, the fact that NRXS has only about 1.21 million shares O/S, and the likelihood that the company will expand its treatment reach into additional billion-dollar market potentials. Still, before that happens, he expects NRXS to capture a significant share of its market potential to treat FAP and IBS, a bullish case for potentially exponential revenue growth supported by its FDA-cleared device and treatment serving unmet medical needs. He sees revenues reaching $22 million by 2025, an over 144% increase to the combined revenues since 2019. Still, considering that NRXS's PENFS IB-Stim treatment could earn more than one front-line position, that forecast may be conservative.
Growth at that magnitude isn't far-fetched. Considering today's standard of care for pediatric FAP and IBS uses off-label prescription treatments and sometimes surgery, NRXS's solutions ideally position them to inspire a changing of the front-line guard.
Using Neuromodulation Instead Of Drugs And Surgery
Noted above, IB-Stim treatment is non-surgical and drug-free, instead using gentle electrical impulses targeting cranial nerve bundles in the ear that have proven to provide considerable pain relief. Another factor in NRXS's favor is that treatment can be done in an outpatient setting. The IB-Stim device is intended to be used for 120 hours per week for up to 3 consecutive weeks, with NRXS designing the treatment to provide therapeutic value from triggering branches of Cranial Nerves V, VII, IX, and X and the occipital nerves identified by transillumination to aid in reducing pain when combined with other therapies for IBS.
To generate intended responses, the IB-Stim stimulation targets brain areas involved in processing pain and, to date, shows a unique ability to reduce functional abdominal pain associated with IBS. These are critical factors to keep in mind while appraising the market opportunity. However, it's also important to know that NRXS isn't just hoping to get IB-Stim marketed – it already has.
And as medical professionals and care providers become more aware of the device's positive clinical data and health insurance company payor support, their pace of switching to IB-Stim is accelerating as more patients gravitate toward non-drug and non-invasive therapies. That trend should continue, especially with patients finally given an effective option to abandon off-label pharmaceutical treatments, whose side effects can often be worse than the condition itself. Notably, more and more patient parents are leaving testimonials describing how NRXS technology has significantly improved their children's quality of life. As that market develops, NRXS has additional ambitions that put new billion-dollar treatment markets in play.
Post-Concussion Syndrome Market Opportunity
In particular, NRXS is targeting its opportunity to treat children with a different debilitating condition: Post-Concussion Syndrome. That mission is already underway, with NRXS advancing its prospective, randomized, double-blind study for post-concussion syndrome, enrolling up to 100 patients in a clinical trial conducted at Children's Hospital of Orange County, CA. The trial's primary endpoint will evaluate improvements in validated measures, including the Immediate Post-Concussion Assessment, Post-Concussion Symptom Scale, and Balance Error Scoring Symptom compared to placebo. NeurAxis noted that additional sites may join the study, potentially expediting the trial pace. Positive results from the combined efforts could lead NRXS to capitalize on a $1.9 billion market opportunity to treat the estimated 400,000 patients diagnosed annually.
Moreover, it's another unmet need filled. As importantly, the innovative neuromodulation approach to treatment could best those being evaluated by Big Pharma players, including Abbot (NYSE: ABT), Medtronic (NYSE: MDT), and Boston Scientific Corp. (NYSE: BSX). While each has devoted resources to explore neuromodulation, biotech investors know that Big Pharma rarely develops new drugs these days; instead, they acquire them. That could be excellent news for NRXS, noting its late-stage data puts them on the verge of changing milestones reached into catalysts for growth. If so, it would be naive to not think that licensing and/or partnership deals would be in play. First to market means billions in some cases. Thus, it would not be surprising to hear of a deal, even as early as the end of 2023.
Remember, NeurAxis has a robust I.P. portfolio, over 700 patient reports, and several publications supporting its technology as a best-option candidate. Those assets are more than current value drivers; they support the mission of NRXS earning additional approvals through its FDA De Novo clearance. That clearance can lead to a "new device type" designation along with classification, regulation, necessary controls, and product code. That, in turn, could pave an expedited pathway toward earning future treatment approvals from its device eligibility serving as a predicate for new medical devices through an expedited 510(k) process.
A Bullish Appraisal Supports Closing The Valuation Disconnect
All told, at current levels, NRXS stock is ripe for investment consideration. Frankly, anything under its IPO price can be considered a ground floor opportunity, a presumption supported by revenue growth, a game-changing treatment technology, and fresh capital to expedite introducing its IB-Stim technology across the country.
And keep in mind that its IPO price was based on intrinsic and inherent potentials that supported its $6 price tag. At $3.50 today, it's a post-IPO valuation disconnect worth seizing. There is simply too much good happening at NRXS to lead to an expectation of further sustained declines. It simply goes against the grain of an NRXS business plan and the value of its technology that justifies higher share prices. That forecast is made after understanding NRXS technology and its potentially positive impact on millions of patients who want and need a better standard of care.
Thus, worry less about short-term volatility and focus more on operational and product strength. NeurAxis checks both those boxes. And with industry-best leadership, they should check plenty more in the coming weeks and quarters. As long as the fundamentals are strong, that's never a bad place for investors to wait.
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