Paxman

* High dependence on a single product line subject to FDA/EMA approvals, limiting revenue diversification.
* Potential for regulatory interference due to products being regulated and reimbursed by government entities.
* Industry profitability (ROIC) has historically been low, though improving.
* May require significant investment for expansion into new business areas, potentially impacting working capital.
* Operates in a highly regulated environment, which could pose risks to operational flexibility and growth.

* Strong market position with recurring revenue and growth potential in scalp cooling industry, only reaching 2-3% of estimated TAM.
* Clear market leader with installed base of over 6,000 units, creating significant barriers to entry and switching costs.
* Benefiting from increasing desire to mitigate chemotherapy side effects, with potential for expansion into CIPN market.
* Products contribute to greater good by reducing adverse effects of chemotherapy, potentially increasing treatment adherence.
* High employee satisfaction and close collaboration with customers for product innovation and improvement.

* Lack of clear, consistent dividend policy, though this may be appropriate given the company's growth stage and reinvestment opportunities.
* Recent insider selling activity, albeit to facilitate new institutional ownership and increase liquidity, which may raise some concerns about long-term commitment.
* Limited female representation in leadership, with less than one-third of the board being female, potentially missing out on the benefits of greater gender diversity.
* No established sustainability-related performance incentives reported, which may be a missed opportunity to align with ESG trends and mitigate future risks.

* Strong, visionary leadership with CEO Richard Paxman demonstrating deep industry knowledge, long-term commitment, and a focus on innovation and value creation beyond financial gains.
* Lean, decentralized organization with clear accountability and a management team that consistently delivers on promises, executing a well-defined strategic plan.
* Effective capital allocation, with investments generating attractive returns and a focus on long-term business value, supported by transparent and timely investor communication.
* Significant insider ownership, including founder involvement and substantial stakes held by management and board members, aligning interests with shareholders.
* Board of directors with diverse expertise, deep understanding of the value creation process, and ability to challenge management, indicating strong corporate governance.

Paxman turned in a quarterly report that was a bit weaker than expected. We primarily overestimated sales outside the US and expected a bit more traction there. The costs were also a bit higher than we anticipated. Net sales outcome in Q4 was SEK 66.2m v.s our 68.9m. The EBITDA amounted to SEK 11.5m, thus below our estimate of SEK 17.5m for the quarter. The deviation is primarily from the higher OPEX level, and the slight sales miss relative to our expectations. The recurring revenue continues to improve and shows a 39% increase y/y, reaching SEK 39.0m in the quarter, 58.9% of total sales.
The cost levels were a bit higher, with other operating costs increasing. However, the levels are not a concern, especially as the company is ramping up for a new scalp cooling device and the now-known timeline for CIPN, which require some investments in regulatory work.
The average daily treatment revenue (ADTR) for the quarter improved to USD 45.6 t per day compared to USD 35.2 t in Q4’23, representing an increase of 29.5% y/y.
We will adjust our estimates after the report, which came in lower than our expectations. However, we are convinced the company will look quite different in terms of sales and margin levels in a few years. The quarterly reports will be volatile, but given the recent positive news regarding CMS rates in the US in 2025 and, more importantly, for the long term, the CPT 1 codes open the path to becoming a standard of care. As a whole, we do not waiver in our long-term view, and given that there is additional optionality in CIPN, it is now confirmed to be commercialized in 2026, and we expect that regulatory testing and submission to FDA and EMA and others will be submitted during 2025e. There is much to be optimistic about, even with a slightly weaker performance against our expectations. The sales figure is still the highest that the company has achieved in a single quarter. At this point, we do not see anything significant that will change our view of the company, as the underlying trend for the scalp cooling industry is very positive.
We do not expect to make any significant changes to our fair value range or Base case on this quarterly report. However, the news of CIPN will warrant a deeper dive into that scenario when we have more information from the company.