Neola Medical Q4: Vital clinical data incoming
Research Update
2025-02-13
07:00
Analyst Q&A
Closed
Gustaf Meyer answered 1 question.
Redeye provides an update following Neola Medical’s Q4 2024 report. The report aligned with our expectations, and we look forward to an important 2025, including clinical validation of the Neola device. We make some model adjustments based on the report, rendering an updated fair value range.
Gustaf Meyer
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Sales during the third quarter amounted to SEK0m (SEK0m) as the Neola device has not reached the market yet. Furthermore, operating expenses amounted to SEK-4.9m (SEK-4.9m), which can be compared to our estimate of SEK-5.5m. The operating expenses mainly consisted of other external costs (SEK-2.4m) and personnel costs (SEK-2.3m). Overall, we were slightly high on all line items; however, within the margins and there are no line items that stick out from our expectations. Lastly, EBIT came in at SEK-2.7m (SEK-2.1m) compared to our estimate of SEK-2.8m. Overall, the report aligned with our expectations, and we argue that we have an interesting year ahead of us because of clinical studies in Sweden and the US that will be important for the upcoming FDA application.
Neola Medical announced a couple of days ago that it had received approval from the Swedish Medical Product Agency (Läkemedelsverket) and the Swedish Ethical Review Authority (Etikprövningsmyndigheten) to initiate a clinical pilot study in Sweden for its Neola device in preterm born infants. The study will assess the device’s safety and performance and serve as a preparatory step for the pivotal clinical trial in the US. It will be conducted at a Swedish hospital, enrolling 10 preterm born infants with a gestational age of at least 28 weeks and a weight between 1–3 kg. The study is expected to run for approximately four months, starting in 2025.
Based on the report, we do not change any estimates. However, we make some model adjustments because of the rollover to 2025 and updated capital-raising assumptions. This renders an updated fair value range based on our DCF valuation, covering 2025e-2037e. Our valuation includes a base case of SEK3.2 (3.1), a bull case of SEK6.1 (5.7), and a bear case of SEK0.9 (1.0). In the upcoming 12 months, we view clinical validation of the Neola device and an FDA application as catalysts for the share that could close the gap to our base case.
| Key Financials | |||||
|---|---|---|---|---|---|
| SEKm | 2023 | 2024 | 2025e | 2026e | 2027e |
| Net Sales | 0.0 | 0.0 | 0.0 | 7.3 | 36.1 |
| Operating Expenses | -17.9 | -19.7 | -25.2 | -29.4 | -35.6 |
| EBITDA | -8.0 | -9.3 | -13.8 | -12.0 | -16.0 |
| EBIT | -9.6 | -10.8 | -15.8 | -14.4 | -19.0 |
| EBIT Margin | nm. | nm. | nm. | -196% | -52.7% |
Case
Advancing neonatal lung monitoring with strong growth potentia
Neola Medical focuses on neonatal intensive care and developing advanced medical technologies. Its flagship product, the Neola (Neonatal Lung Analyzer), represents an innovative solution, offering continuous, non-invasive lung monitoring tailored for preterm born infants. While still in its clinical validation phase, we identify a set of catalysts we think will induce share price re-ratings in the medium term - namely, results from the company’s clinical validation (2025e/2026e), regulatory submissions and subsequent approvals (in 2026e/2027e). Once in the commercialisation phase, we argue that a re-take on the company’s sales outlook could be demanded, as we hope to have seen more progress increasing our confidence until then.
Evidence
Addressing an unmet need
We believe the current standard of care is inadequate, often involving time-consuming processes that fail to provide comprehensive data on an infant's lung status. Neola Medical addresses this gap by developing an innovative technology that enables continuous monitoring of lung function using a biomedical method known as "GASMAS", which measures gases within the body. A previous study demonstrated that the Neola device achieves a 100% success rate in measuring oxygen levels in preterm born infants and is considered safe and well-tolerated. Additionally, the device continuously monitors relative lung volume, addressing a significant unmet need identified in our discussions with key opinion leaders (KOLs). If further clinical evidence confirms the Neola device's advantages over standard care methods, we believe it could emerge as a crucial tool in neonatal care.
Challenge
Establishing a new technology
The medical device industry tends to be conservative, as new technologies must demonstrate clear benefits in performance and cost-effectiveness to gain acceptance. This underscores the importance of forthcoming clinical data that must showcase the Neola device as an essential tool in neonatal care. Additionally, the significant investment required for a Neola device of USD70,000-100,000 (Redeye estimate) may pose a financial barrier for hospitals, potentially leading to extended pilot launches and slower sales growth. Consequently, we believe that effectively establishing the Neola device in the market in the early stage will be the company's primary challenge.
Raising funds until profitability
As a pre-revenue company, Neola Medical relies on capital raises to support its operations. The company’s shareholder list tells of a strong, long-term oriented group of investors (the top four owners own c70%), which could be vital when securing additional capital in the current market climate. We estimate the current cash position will cover the business until Q3 2025e, including a SEK30m raising in 2025e followed by SEK20m in 2026e.
Valuation
Significant upside potential with several near-term catalysts
Our valuation of Neola Medical is based on a discounted cash flow (DCF) model covering the period from 2024e to 2037e, applying a WACC of 19% derived from the Redeye quality rating model. We set our base case to SEK3.2, followed by a bull and bear case of SEK6.1 and SEK0.9, respectively. Furthermore, we estimate the current cash position will sustain the business until Q3 2025e (assuming SEK30m and SEK20m raises in 2025e and 2026e, respectively). The company still has a couple of years before its commercialisation phase, which carries a risk of delay; however, we identify several key drivers that could significantly influence Neola Medical’s share price and help close the valuation gap over the next 12-24 months: solid clinical results, regulatory submissions, and subsequent regulatory approvals.
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