Company Overview: Next Science Limited (ASX: NXS) is a medical technology company headquartered in Sydney, Australia. Incorporated in 2012, the company started trading on ASX in 2019 and is developing and commercialising its proprietary Xbio technology to reduce the impact of biofilm-built diseases in human health.

NXS Details

 

NXS Rides on Strategic Agreements & Geographical Expansion: Despite the challenging scenario led by the COVID-19 outbreak, the company has made decent progress in Q3FY21, ensuring the implementation of a robust commercial strategy for its direct to market products such as XPerience^TM, BlastX, and SurgX.

Sneak Peek at Q3FY21 Results (Period Ending September 2021):

• Rise in Revenues: During the quarter, the company reported revenues of US$2.2 million, depicting a growth of ~29% on a quarter over quarter basis. Unaudited revenues on a YTD stood at US$6 million, compared to FY20 revenues of US$3.4 million. The rise in top-line was mainly due to recovery in US surgery volumes and contribution from new product sales.
• Regulatory Clearances: The company received a 510(k) clearance of Torrent X Wound Wash, which was launched in Q1FY21. In a recent update, the company informed the market that Therapeutic Goods Administration (TGA) has approved and cleared NXS’ XPerience^TM Surgical Solution to be marketed in Australia. The company had earlier received a 510(k) clearance from the US FDA to commercialise XPerience^TM No-Rinse Antimicrobial Solution as a medical device in the US.
• Distribution Agreements: The company inked a multi-year distribution deal with a medical technology company, TELA Bio, for the supply of NXS’ XPerience^TM No Rinse Antimicrobial Solution in the US. The company expects the first shipment to take place in November 2021. NXS also entered another distribution deal signed for BlastX^TM in Taiwan, with regulatory submission underway.
• Liquidity Position: During Q3FY21, the company witnessed a rise in cash spent on sales and marketing, depicting enhanced marketing focus to support the release of XPerience^TM The company ended the period with a cash balance of US$9.8 million.

Revenue Trend; Analysis by Kalkine Group 

Quick Look at 1HFY21 Highlights:

• Top & Bottom-Line Details: The company reported revenue of US$3.91 million in H1FY21, up 271% year over year. The company has delivered a net loss after tax of US$4.44 million in H1FY21 against a loss of US$6.89 million in H1FY20. The company expects a further rise in revenues as the rate of surgeries increases, which use NXS’s products, along with the gradual opening of wound care clinics.
• Cash Rich Company: At the end of 30 June 2021, the company’s total cash balance (including cash and cash equivalent and short-term deposits) stood at ~US$13.2 million, with total debt amounting to ~US$0.39 million. Cash receipts in 1HFY21 stood at US$4.64 million, up from US$2.54 million reported in 1HFY20.

Key Metrics: In 1HFY21, the gross margin of the company stood at 78.6%, higher than the industry median figure of 67.9%.  The debt-to-equity ratio in 1HFY21 came in at 0.02x, lower than the industry median figure of 0.08x.

Leverage & Liquidity Profile; Analysis by Kalkine Group  

Top 10 Shareholders: The top 10 shareholders together form around 53.49% of the total shareholdings, while the top 4 constitutes the maximum holding. Auckland Trust Company Ltd. is the entity holding maximum shares in the company at 28.3%. Walker Group Holdings Pty. Ltd. is the second-largest shareholder, with a holding of 10.97%, as also highlighted in the chart below: 

Top 10 Shareholders; Analysis by Kalkine Group 

Key Risks:  

• Mounting Losses: NXS’s has incurred a consistent net loss in the past few years. Hence, these mounting losses may throw tough challenges at the company’s overall functioning and may dampen margins in the future.
• Failure of Clinical Trials: The clinical trial process is designed to assess the safety and efficacy of a medical device before commercialisation. A failure to achieve the desired results may hamper the company’s financial 
• The company is exposed to the risk of uncertainties associated with COVID-19 that might constrain NXS to quantify any degree of future certainty regarding the impact on revenues, costs, or commercialising of its flagship products.
• It operates in a highly competitive market and is prone to the risk of losing existing and new market share.
• Any adverse movement in foreign exchange price may impact the financial performance of the company. The company is exposed to a complex regulatory landscape in the healthcare space.

Outlook: Given regulatory pathways, the company expects to commence its first sale of TorrentX^TM, XPerience^TM, and SurgX^TM in Singapore, Malaysia, Thailand, Hong Kong in 2023. In addition, it expects to remain committed to the successful implementation of its XPerience^TM launch. The move fortifies NXS’ mission to offer the product to healthcare professionals and patients across different geographies, thereby reducing the impacts of biofilms on human health. The company launched TridentX Wound Wash in 1QFY21 and unveiled XPerience^TM at the end of April. With these launches, a dedicated ordering portal, and an integrated supply chain system, the company expects to bolster its top-line growth in FY21. The company has also made over 200 Value Assessment Committee (VAC) submissions and received 58 VAC approvals as of 30 September 2021, thus fortifying its mission to become standard of care in preventing surgical site infection.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative) 

Source: Analysis by Kalkine Group 

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks. 

Stock Recommendation: The stock of the company has been corrected by ~20.49% in the past six months. Currently, the stock has a 52-week high and low level of A$2.06 and A$1.1, respectively. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount as compared to its peers, considering the foreign currency risk, COVID-19 led uncertainties, consistent losses, and strict regulatory approval, etc. For the purpose of valuation, peers such as Nanosonics Ltd (ASX: NAN), Mayne Pharma Group Ltd (ASX: MYX), and others have been considered. Considering the aforesaid fact, rise in top-line, regulatory clearances, enhanced product distribution in the US, healthy balance sheet, geographical expansion, decent long-term outlook, current trading levels, indicative upside in valuation, and key risks associated with the business, we recommend a “Speculative Buy” rating on the stock at the closing market price of A$1.28 as on 10 November 2021.

 

NXS Daily Technical Chart, Data Source: REFINITIV 

Technical Indicators Defined:-

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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