How the Gov Helped Create a $3 to $300 Stock Windfall, and Could Do it Again

February 21, 2019 - One Equity Stocks

- The Human Genome Project changed the scientific landscape completely, spurring major public and private investment into understanding human DNA. We're still benefitting from this effort as the science bears fruit in the form of new healthcare technology and even public market winners: ILMN, for example, has gone from $3 to $300 in the last 15 years

- A newer government-backed effort called the BRAIN Initiative seeks to map the human brain, similar in scope to the Human Genome project. This initiative will fund major progress in neurology in the same way, and it coincides with a recent surge in investor interest in new technology targeting the nervous system

- A wave of companies devoted to ''neurostimulation'' recently came into the public markets to much investor interest: Nuvectra (NVTR), Nevro (NVRO), and ElectroCore (ECOR) are well-known examples. Nexeon Medsystems Inc. (NXNN) is one of the smallest, but as a BRAIN Initiative grant recipient and with some intriguing new neuroscience technology they could come into the spotlight soon

- As a manufacturer of deep brain stimulation devices, Nexeon is playing in one of the hottest areas of healthcare and a space that is dominated by a few large players including Medtronic, St. Jude, and Boston Scientific. NXNN already generates over $7M in annual manufacturing sales and expects their first medical device approval in 2019, and this is only an $8M company. With proper funding and a potentially superior technology, NXNN could offer upside if they bring a newly approved device to market in the next 12-18 months

The Human Genome Project was launched in 1988 to map all of the genes that make up the human genome, our DNA blueprint. Fifteen years and $3 billion later, the project was deemed a success, and we've been reaping the rewards ever since in the form of many new technologies: more gene therapies are in development than ever before, gene editing technology is in development, and we have a better understanding of how cancers are affected by certain genes.

A similar initiative to map the human brain is now underway, also with funding from the NIH, called the BRAIN Initiative (Brain Research through Advancing Innovative Neurotechnologies). Mapping the brain won't be as simple as mapping the genome, but just as the Human Genome Project transformed science and biology, the BRAIN Initiative will transform neuroscience to create better diagnostics and drugs for those suffering from neurological disorders.

Like The Human Genome Project's ambitious funding goals, the BRAIN Initiative provides a bolus of money for neuroscience research. And like the Human Genome Project, there will be many private-sector benefits as well. The Human Genome Project lead to dozens of market successes (and failures) for investors. Over a decade since completion, the undisputed leader in gene sequencing Illumina (ILMN) expects to be able to sequence an entire genome for $100 soon, and its stock has gone from $3 to $300 since 2003.

Could the Next $3 to $300 Trade Be A Product Of The BRAIN Initiative?

The neuroscience space be changed in time too. Already this sector is seeing renewed activity from public and private investors, with recent IPOs ElectroCore (ECOR) and Nuvectra (NVTR) in the sub-sector. In fact, one of the BRAIN Initiatives recent grant recipients is a newly public company called Nexeon Medsystems (NXNN) that's gone undiscovered by investors since listing in 2017. Nexeon is developing two neurostimulation medical devices and software with NIH funding, with plans to go to European and U.S. regulators for approval in 2019. Their neuroscience work is funded partly by the NIH's BRAIN Initiative under a $1.5 million NINDS U44 Cooperative Agreement Award. The company generates revenue already through their medical device manufacturing business, of around $7-9 million annually. Their $8 million market capitalization looks small compared to their revenue and the possibility of an approval in 2019. NXNN could have its own breakout in 2019.

The Coming $16B Market For Neuroscience Devices

Neuroscience is seeing a renaissance as new technology allows us to explore the brain with more precision than ever before. Some prosthetics can pick up on tiny electrical pulses from the brain to move individual motors and fingers. Facebook (FB) is even working on technology to allow a person to ''think'' their thoughts into words on a computer.

But in the healthcare field, devices that can alter the way our central nervous system communicates are seeing a rapid uptake in all sorts of fields. They've been used for years to treat Parkinson's disease through Deep Brain Stimulation, and ablation devices have helped people with epileptic seizures find relief from their symptoms. Other less invasive neurostimulation products are even treating common pains. According to Global Markets Insight, the global market for these neurostimulation devices will exceed $16.6 billion by 2024 as patients and doctors move towards smaller and better devices, many of which require no surgery. As a result, investors have gobbled up recent investment opportunities in this sector.

Investors Pouring Money Into Neuro Device Companies, With Generous Values

In the last few years, companies with medical devices that affect the central nervous system have received great attention from public and private investors alike.

ElectroCore (ECOR) raised $75 million in a NASDAQ IPO in 2018 that valued the company at almost $400 million based on their newly approved gammaCore device. Gammacore can treat the pain of headaches with a slight electrical stimulation current, and sales are just getting started. In the third quarter of 2018, they had only $150K in revenue.

The Greatbatch (private) spinoff Nuvectra Corporation (NVTR) has a market value of $250 million based on sales of their neurostimulation device Algovita for pain. The company is selling about $60 million annually of the product, and growing.

Meanwhile Nevro Corp. (NVRO) has a $1.50 billion market cap with $380 million in annual sales from their spinal neurostimulation portfolio.

There's appetite for these products among doctors and patients as neurostimulation comes of age. Acceptance has improved, and it's a good time to be bringing these types of devices to the market.

Unknown NXNN Has Revenue And A Possible Approval In 2019

Nexeon Medsystems (NXNN) is a smaller and newer entrant into this market. The company's subsidiary MediLine already manufactures medical devices for a host of larger companies, and they generated $7.66 million in sales during the first nine months of 2018.

More importantly, Nexeon is developing two of their own in-house neurostimulation devices which they hope to get approved by European and U.S. regulators in the next two years.

The first is an advanced DBS device called Viant. The platform is based on Synapse, a previous joint venture that included mega pharma Glaxo-Smith Kline (GSK) and Google (GOOG). The device includes a rechargeable battery to reduce the need for follow-on battery replacement surgeries for patients after the device is implanted. And, Viant is intended to record local field potentials (LFPs) of the neuronal activity where known biomarkers of diseases can be detected. These recordings can then be used to create self-adjusting algorithms that automatically optimize the therapy. Stimulation is delivered using a bi-directional DBS system instead of static parameters. Like a pacemaker dynamically adjusts to keep the heart at a healthy, appropriate rate, the Viant system is intended to keep the brain in an optimally functioning state. The device faces stiff competition from established medical device companies like Boston Scientific and Medtronic, but these advancements could enable penetration of the global $1.03 billion market for DBS products according to Global Market Insights.

Nexeon plans to file for a CE Mark clearance in Europe during Q3 2019 and begin selling there, followed by a FDA filing during the fourth quarter of 2019.

The company's second product is an auricular vagus nerve stimulator, a non-invasive stimulation device that could hold promise in opioid withdrawal treatment and atrial fibrillation, where a pilot study is already underway with findings to be released during early 2019.

Sentiment Changes Can Happen Fast And Nexeon Could Have A Big 2019

Sentiment shifts around entire industries can happen fast, and we may be at the beginning of a wave for public neurology and neurostimulation companies. Consider how fast the marijuana industry took off, from a handful of nobodies in 2010 to a multi-billion dollar industry today, companies like OrganiGram Holdings Inc (OGI.V)(OTCQX: OGRMF) and Emerald Health Therapeutics Inc. (EMH.V)(OTCQX: EMHTF) have gone mainstream in the media.

As this shift happens, what could NXNN be worth? Based on their publicly trading peers like ECOR, NVTR, and NVRO, Nexeon's public market valuation is quite small. Nevro and Nuvectra both have Price-to-Sales ratios of 4X based on their 2018 sales figures. Based on a similar 4X ratio, NXNN's $9 million in estimated 2018 sales could be worth $36 million in market value. At $3.00, the company has a market capitalization of about $8 million. Based on this one metric, there's a case to be made that NXNN is under-followed and could move higher as investors realize the existing fundamentals and market opportunity are going overlooked.

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