Patersons' commentary on NXS's Investor Presentation

I love the last sentence:

We have a bullish case valuation scenario of $3.88 / share. Given the positive momentum in the business, even at this early stage post-listing, we will be reviewing our valuation post this week’s roadshow.
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Event

• NXS released a market update this morning and we note several highlights.
• There are currently four products in the market with one to commence sales in 2HCY19. NXS has provide some sales data for BlastX and Bactisure but not SurgX or TorrentX as these only commenced sales in the last few months.
• Sales for BlastX (distributed by 3M) for the four months to April are c.US$1.4m, up nearly 7x on yoy basis and sales of Bactisure (distributed by Zimmer) are up c.63% yoy to c.US$0.25m.
• NXS report that in the transition from the internal sales force to 3M, all 24 BlastX customers were maintained and the customer base grew. The use of Bactisure is increasing outside of the core Orthopaedics’ sector e.g. Breast reconstruction.
• NXS has announced a new distribution agreement with Grace Medical – a global leader in the ENT (ear, nose, throat) market place. It is an exclusive distribution agreement for five years with five year options and six months’ termination notice. The agreement relates to NXS’ Sinus Lavage (wash) product which is subject to FDA clearance as a device, and is expected to be on the market by the end of CY19, with submissions to be filed in the US and Europe in 3QCY19.
• There were two scientific presentations tabled, one relating to wound healing, and the other relating to addressing an emerging super-bug Candida auris and other Candida species.
• NXS also noted that a new product submission has been made to the US EPA in regard to a Hard Surface Disinfectant. This is expected to be approved in 1HCY20.
• The patent portfolio has expanded to 49 application spending, up from 40 at the last update and 17 are currently granted.
• NXS expect to commence geographic sales expansion outside the US in 3QCY19 – Canada and 4QCY19 – Australia for existing products with submissions or the CE mark in Europe also on track.
• In Australia, the acne gel product sold through AST should commence in 2HCY19, as well as BlastX and Bactisure.
• TorrentX and SurgX currently have distribution agreements under negotiation, with sales currently occurring via NXS’ own sales team.

Impact

• The new distribution agreement with Grace Medical is a key highlight of the trading update and again demonstrates NXS’ appeal in the market and the capacity to attract quality partners / distributors. The Chronic Rhinosinusitis (CRS) market has c.40m patients in the US and c.35m in Western Europe. In the US there are c.0.55m surgeries, in addition to a less invasive procedure known as balloon sinusplasty. Biofilm is a key feature within CRS and biofilms have been shown to be prevalent anywhere form c.45% to c.100% of CRS patients.
• From a sales perspective, the 3M partnership appears to be working well with a significant yoy increase in sales. We have heavily back ended our sales forecasts to 2HCY19. While revenues this year do matter, this is a foundational year for NXS as a listed entity and the more important understanding is how well NXS is set up to attack CY20, when we forecast the business to be profitable, via approvals, distribution agreements, as well as expanding the scope of existing products.
• The scientific development in regard to the Candida superbug, is likely to be well received by the market as a further validation of NXS’ technology platform.
• We have a bullish case valuation scenario of $3.88 / share. Given the positive momentum in the business, even at this early stage post-listing, we will be reviewing our valuation post this week’s roadshow.

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