- About 1/3 of epilepsy patients fail to respond to drugs, and many of these patients are eligible for potentially curative surgical resection. But most patients won't undergo the extensive diagnostic and surgical process, as it requires invasive access to the brain and long hospital stays, even though this remains one of the most effective treatments
- NeuroOne Medical (NMTC) could flip this completely, making the diagnostic process shorter and the intervention easier and quicker for doctors and patients. The company's core technology, a thin-film electrode, has undergone testing at the Mayo Clinic, which is also a major shareholder in the company
- 2018 and 2019 bring big value inflection events for NeuroOne, and few investors have taken note of this newly public company, despite a reasonable valuation and a rapid approval process for their primary products. NMTC could be worth 3X or more quickly
Epilepsy affects 3 million people in the U.S. according to the CDC, which is why companies that develop successful drugs for this population have been such successful investments. GW Pharmaceuticals (NASDAQ: GWPH) has climbed 1140% in 5 years; Zogenix Inc (NASDAQ: ZGNX) has gone from $10 to $45 in one year; and Sage Therapeutics (SAGE) has rallied by 775% in the last three years!
Pharmaceutical treatments for epilepsies are clearly on fire, but an overlooked company with a substantiating investment from the highly respected Mayo Clinic, NeuroOne Medical Technologies Corporation (NMTC), just splashed onto the scene with a potentiallytransformative core technology.
NeuroOne's thin-film electrode technology has already been used for research purposes at the Mayo Clinic, which has also invested in NeuroOne and owns 10% of the company's outstanding common stock – rare for a company of this size. The company's patented thin-film flexible circuits could capture a significant portion of the estimated $100 million in diagnostic spend yearly for similar, inferior technologies, and they're targeting their first FDA clearance in the next 8-12 months. The company could rapidly penetrate this initial $100m market opportunity, but advancements in their delivery, as well as a Cleveland-clinic partnered diagnostic/treatment combination device, could be the real homerun in the coming years, with a $5 billion market opportunity.
2018 could be a breakout year for NMTC as the little company goes through discovery, and a comparison to peers suggests 300% of upside or more.
Traditional Drugs Only Treat 2/3 of Epilepsy Patients, Yet Drug Market Is Over $4 Billion
Epilepsy is a disorder of the brain that causes seizures unrelated to any temporary underlying medical condition such as a high fever. In epileptic seizures, due to problems within the brain, a group of neurons begin firing in an abnormal and excessive manner. Some seizures can look like staring spells, while others can cause a person to collapse, shake violently, or go into a catatonic state.
About half of the estimated 3 million patients with epilepsy in the United States will be treated successfully with one anti-epileptic drug (AEDs), and two thirds will be successfully treated taking 1-4 of these drugs in combination. Many of these are old, off-patent drugs, available cheaply from many generic companies. Still, the market for epilepsy drugs is enormous, expected to reach $5.5 billion in the US by 2024 according to market research from Grand View.
For Non-Responding Patients, Current Diagnostic & Treatment Options Are Long, Slow & Invasive
But about one-third of epilepsy patients will not respond to well-tested traditional pharmaceutical treatments. In this case, doctors may attempt what's called a resective surgery, where they remove the part of the brain where seizures are happening or being initiated.
Identifying the offending brain tissue (called the epileptogenic zone) is a difficult task, and doctors rely on electroencephalography (EEG) to record the electrical activity of the brain through electrodes placed across the patient's scalp or directly on the brain through a craniotomy. Here, doctors remove a portion of the skull to access the brain directly before implanting strips and grids of electrodes across the brain.
In these "intracranial" EEGs, the electrodes can be applied to the surface of the brain or inserted deeper into the brain through folds in the brain tissue, called "depth electrodes." These act as a map, showing the neurosurgeon where the offending electric activity is during an epileptic fit.
Once the electrodes are in place, a patient often waits weeks for one or multiple epileptic seizures to occur in order to measure brain activity and localize the epileptogenic region. Only then, with precise and repeated measurement, can surgery be planned.
Surgical resection can be curative for an estimated 50% of patients who undergo the treatment. Nevertheless, only 16,000 intracranial EEGs are performed annually in the U.S., despite close to one million patients not responding to drug treatment, and hundreds of thousands of patients eligible for resection.
Why? Identifying the offending brain tissue is long, slow, and painful and often involves a highly invasive and sometimes dangerous craniotomy, exposing the brain. The patient stays in the hospital for weeks at a time, hooked up to cables coming through their skull while OFF of their normal meds, meaning they have more seizures. It's painful, burdensome, and costly for patients and the healthcare system. That's the first step before yet ANOTHER hospital stay for the actual resection. Some patients will require further diagnosis and resection yet again.
Most patients simply refuse the whole diagnosis because of the terrible process today, despite the potential for a curative outcome.
NMTC's Technology Is Quick, Accurate, and Non-Invasive. Pending FDA Clearance, It's Poised to Become The Standard of Care.
Doctors and patients want better options. A shorter, simpler diagnostic process would significantly increase the number of eligible patients who elect to undergo the resection process, and it could result in more patients being virtually cured of their epileptic seizures.
NeuroOne is developing a proprietary thin-film electrode technology with a more brain-friendly material that can reduce inflammation and improve electrical signal clarity for better diagnosis. This offers high-resolution EEG recording to increase the accuracy of diagnostics, improving resection planning and outcomes - it's like comparing the high-definition television displays of today to older tube technology of the 70's. The tech also utilizes disposable, sterile cables, saving EEG techs time and extensive costs related to cable management, which is part of the process today. And most importantly to many patients, the technology may be implanted through non-invasive methods, without the need for a craniotomy.
Their first two planned products are a cortical electrode, for use on the brain, and a depth electrode, for use deeper in the brain tissue.
In a nutshell, NMTC's technology could transform the diagnostic and treatment process for the nearly 1 million epilepsy patients in the US, and millions more globally, who do not respond to drug treatment. The company is developing a combination diagnostic/therapeutic, combining the company's proprietary depth electrode with an ablation technology to "resect" the offending tissue at the site. This single-stage procedure could revolutionize the resection diagnosis and surgery process further, taking it from a 2-3 month process to a 1-week or shorter and substantially opening up the number of eligible patients opting for treatment.
Some of America's Best Hospitals Have Invested in NMTC's Technology and Have Already Used It In Patients
The esteemed Mayo Clinic is a partner in the development and utilization of the company's thin-film technology and minimally invasive surgical approach and owns 11% of NeuroOne's outstanding stock. Researchers from the Mayo Clinic, in fact, presented results from using this very technology at the American Epilepsy Society's annual meeting in December of 2017, and two of the clinic's physicians are on NMTC's advisory board already.
NeuroOne has also brought Dr. Jorge Gonzalez of the Cleveland Clinic onto their advisory board. Few physicians are more well-known for their work with depth electrodes and depth EEG technology than Gonzalez and the Cleveland Clinic based on a cursory look at the published literature - clearly, the company is making smart advisory board acquisitions.
The proof is in the pudding, and this technology clearly has validation from some of the most respected healthcare centers in the world.
The Endgame? What Could NMTC's Technology Portfolio Be Worth & What Could That Mean For Investors?
The lowest hanging fruit, and the company's first priorities are the cortical surface electrode and depth electrode. The company expects to file a 510k application with the U.S.FDA for the cortical product around mid-year and expects an FDA clearance by year-end. The depth electrode will be just behind, with a 510k clearance possible before mid-2019.
Combined, cortical and depth EEGs are an estimated $112 - $116 million market opportunity today based on 16,000 procedures yearly in the U.S. and a $7,000 to $10,000 per-patient cost. This is the tip of the iceberg, as this number is low specifically BECAUSE patients don't like the process. NeuroOne believes that a simpler, better process could increase the number of patients to 700,000 yearly in the U.S. (around 25% of the overall epileptic population), or a more than $5 billion market opportunity at $7,000 per procedure!
The company also applied for a NIH grant in February and should hear back in the coming months, setting up a possible non-dilutive financing event for this lean operating company yet this summer.
NeuroOne is new to the public markets and will need to access capital to further their business. That's a risk to an investment in the stock, and NMTC, as a micro-cap, could fail to execute properly. As with most micro-caps, this is a high-reward and high-risk opportunity that could be worth nothing, and investors should be aware of the substantial headwinds facing the company, including medical device competition from larger companies.
Peers in the medical instruments and supplies segment trade at high valuations, with Price/Sales multiples in the 3-5X range, even for small companies. NYU Stern cites an average multiple of 4.35X for healthcare products. This is why $15-30 million in revenue in the coming years based solely on their first approvals with the cortical/depth electrodes could rapidly justify a higher valuation for NMTC, of $90 to $150 million or 3 to 5 times today's prices. That's not considering the upside if/as the market expands due to ease-of-use, nor the opportunity for the diagnostic/ablation device in the coming years.
With a loaded 2018 for NMTC, including a near-term FDA filing, the stock could be poised for its first big move since going public in 2017.
About One Equity Stocks
One Equity Stocks is a leading provider of research on publicly traded emerging growth companies. Our team is comprised of sophisticated financial professionals that strive to find the companies and management teams that will outperform the market and deliver investment returns to our subscribers. We are not a licensed broker-dealer and do not publish investment advice and remind readers that investing involves considerable risk. One Equity Stocks encourages all readers to carefully review the SEC filings of any issuers we cover and consult with an investment professional before making any investment decisions. One Equity Stocks is a for-profit business and is usually compensated for coverage of issuers we cover as well as other advisory work we perform. In the case of NMTC, we are reimbursed for actual costs we incur and anticipate to receive up to 250,000 shares of restricted stock from NMTC for Business Development, Capital Markets, and Research Services. Please contact us at [email protected] for additional information or to subscribe to our intelligence service.
