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Initial_Coverage_Neodynamics_2021_04_27

NeoDynamics is a MedTech company that has developed a new generation of breast biopsy instruments. Commercial introduction is underway. Clinical trials are used as traction. Read our investment case (pp. 3-8) and valuation (pp. 32-36) for a shorter overview of the case.

New generation of breast biopsy instruments

NeoDynamics has invented NeoNavia, which is a powered biopsy instrument with three disposable needles that easily cuts through tissue and positions the needle in the correct location with no risk of overshooting the target. Its micro pulse technology is patented. The new proprietary needle type FlexiPulse gives 300 percent larger specimens in a tissue model. It is being evaluated in axillary (armpit) biopsy. Axillae are a sensitive part of the body, full of blood vessels and nerves, for which traditional biopsy instruments are not suited.

The product development is complete and NeoNavia has a CE certification. Commercialization is underway, with the first order having been received during the fourth quarter of 2020. The company is well prepared for the commercialization. Large sums are invested in two clinical trials with around 500 patients between them. The important FDA 510(k) application (for the US market) has been delayed but should be submitted by mid-year 2021. The company’s largest shareholder, who is a Chinese company, will be responsible for clearance and sales in China.

Investment thesis

In our opinion, the investment thesis for NeoDynamics boils down to the company succeeding on the American market. Clinical trials and sales to clinics in Europe will initially be important as testing grounds and for user references. We expect a clinical trial on the US market starting in 2022 together with a simultaneous market introduction. If successful, this could lead to a partnership with a large American company around 2023. This partner should be able to expand US sales quickly, which should lead to NeoDynamics becoming cash flow positive. Over time, the European and Chinese market should gradually catch up with the US market and contribute with growing positive cash flows. A sale of NeoDynamics to a larger MedTech company is likely if commercialization is successful in the USA.

Valuation

We believe that the share is weighed down by the latest directed share issue of about SEK 90m from November last year. We value the company at SEK 5.55 in the base case scenario. Our bear scenario valuation is SEK 2.90, while our bull scenario valuation is SEK 7.76. Compared to a group of similar Swedish MedTech companies, NeoDynamics has a low market cap and enterprise value despite being in a more advanced stage.

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