Paxman AB (OM:PAX) Research Initiation

Highlights:

• Arrowhead is initiating coverage on Paxman AB with a fair value bracket of SEK 57.1 to SEK 76.5 per share (share price on January 24, 2023: SEK 42.3) based on the Discounted Cash Flow and Relative Valuation methodologies
• Paxman AB is a Sweden-based medical technology company which has been developing scalp cooling technologies for over 25 years. The company develops and markets the patented Paxman Scalp Cooling System (PSCS), Paxman cooling caps and other scalp treatment products, designed to prevent chemotherapy-induced alopecia (CIA)
• Paxman has a presence in more than 60 countries with nearly 5,000 systems and widely leads its nearest competitor in number of installed systems globally
• Paxman received FDA approval in the US for its PSCS system for the prevention of CIA in 2017 with subsequent extension to treat CIA in other solid tumor patients in 2018. The PSCS is one of only three FDA-cleared treatments for CIA patients in the US, the world’s largest cancer treatment market
• In May 2022, the company launched its buy and bill business model in the US (its largest market) and has transitioned nearly 5% of its US customers to that model. The company expects to achieve a 40% transition by end-2023 and a 100% transition by end-2024. The transition to buy and bill model transfers the financial burden to payors, and the providers take on some financial risk, as Paxman is paid up front for the cooling cap kits
• Since 2019, Paxman has been working in partnership with National University Cancer Institute, Singapore (NCIS) and the N.1 Institute for Health at the National University of Singapore (NUS) to develop a portable limb cryocompression system (PLCS) that targets the prevention of CIPN in cancer patients
• Paxman, in collaboration with SWOG Cancer Research Network and the National Cancer Institute, will conduct a phase 3 efficacy study in 2023 to evaluate the effect of PLCS in the prevention of taxane-induced peripheral neuropathy. PLCS is expected to commercialize by 2024-25 in Singapore and by 2025 in the US
• Paxman reported a revenue of SEK 96.2 mn for FY 2021, registering YoY growth of 23%, and an EBITDA of SEK 2.9 mn as compared to an EBITDA loss of SEK 1.0 mn in FY 2020
• In the first 3 quarters of FY 2022, Paxman has posted a revenue of SEK 105.2 mn, up 57% YoY. It also reported an EBITDA of SEK 3.0 mn in 9M 2022, in comparison to an EBITDA loss of SEK 1.4 mn in 9M 2021. In Q3 2022, Paxman reported its strongest quarter since inception with revenue of SEK 41.3 mn, up ~78% YoY. Q3 2022 EBITDA came in at SEK 5.6 mn, a significant improvement over an EBITDA loss of SEK 1.3 mn a year ago, driven by top line growth. Paxman saw a 65% increase in recurring income to SEK 22.4 mn in Q3 2022 from SEK 13.6 mn in the same period last year
• The company had a total of SEK 28.9 mn in net liquid assets at the end of September 2022, compared to a negative SEK 9.9 mn at the end of the September 2021