Earnings call transcript: Paxman Q1 2024 sees highest sales, faces forex challenges

Paxman AB, a leader in scalp cooling technology with a market capitalization of $1.99 billion, reported its highest sales to date for Q1 2024 with a 14.5% increase compared to the same quarter last year. This performance aligns with the company’s impressive 22.7% revenue growth over the last twelve months. Despite this growth, the company experienced a net loss due to unfavorable foreign exchange fluctuations. The stock price fell by 3.69% to 75.8 SEK, reflecting investor concerns over these losses. According to InvestingPro analysis, the company appears to be trading below its Fair Value, suggesting potential upside opportunity. The company continues to focus on innovation and market expansion, with significant investments in clinical trials and new product development.

Key Takeaways

• Paxman reported record sales for Q1 2024, with a 14.5% year-over-year increase.
• The company faced a net loss due to foreign exchange fluctuations, impacting investor sentiment.
• Paxman is expanding its product line, with ongoing studies and regulatory submissions for new devices.

Company Performance

Paxman demonstrated strong sales growth in Q1 2024, driven by a 17% increase in the United States market. However, the company’s financial performance was overshadowed by a net loss attributed to currency movements. The merger with Dignitana has expanded Paxman’s global reach, now operating over 3,000 systems worldwide.

Financial Highlights

• Revenue: Increased by 14.5% year-over-year.
• Net Loss: Attributed to foreign exchange fluctuations.
• Cash Flow: Strong operating cash flow, with a cash outflow of 2.6 million SEK due to currency impacts.

Outlook & Guidance

Paxman is focusing on US reimbursement strategies and international growth for 2025. Trading at a P/E ratio of 27.6, the company’s valuation reflects market confidence in its growth prospects. The company plans to launch CPT-1 coding in 2026, which could potentially increase revenue by $30 million through improved system utilization. For detailed analysis of Paxman’s growth potential and comprehensive financial metrics, access the full Pro Research Report available exclusively on InvestingPro. Additionally, Paxman is exploring a breakthrough device designation for its CIPN device.

Executive Commentary

Richard Paxman, CEO, emphasized the company’s commitment to global access to scalp cooling treatment, stating, "Our vision and goal is to make sure that no matter where you are in the world, no matter what your income, no matter what your ethnicity, you have access to scalpel cooling treatment." He also highlighted the potential for faster market acceptance of the CIPN device compared to scalp cooling.

Risks and Challenges

• Currency Fluctuations: Continued forex volatility could impact financial results.
• Regulatory Hurdles: Delays in FDA approvals for new devices could affect growth plans.
• Market Competition: Increasing competition in the scalp cooling and CIPN markets.

Q&A

Analysts inquired about the impact of foreign exchange fluctuations and the dynamics of the Dignitana merger. The company addressed concerns over US tariffs and challenges in entering the China market, indicating ongoing strategic efforts to mitigate these issues.

Full transcript - Paxman AB (PAX) Q1 2025:

Moderator/Interviewer: All right. Welcome, everyone, to this live Q and A with Paxman, which released its Q1 report this morning. I have the pleasure of having Richard Paxman here, CEO of the company. Welcome, Richard.

Richard Paxman, CEO, Paxman: Thank you very much. Great to be here.

Moderator/Interviewer: Yeah. Please go ahead and just give a brief summary of the quarter and the most important things.

Richard Paxman, CEO, Paxman: Brilliant. Will do. And I think we can all agree it’s been an impressive start to the year, not only what we’re producing on a a financial basis, but I think the activity from, yeah, CIPN related news, looking at the recent Dignitana acquisition along with some of the key points, but I’ll share those over over the presentation. So just as a reminder, think it’s always important to keep a clear direction of what our vision is. It’s our vision and and goal to make sure that no matter where you are in the world, no matter what your income, no matter what your ethnicity, you have access to scalpel cooling treatment.

As we progress into the space of further side effect management, we’ll be changing this vision, but with the same goal to supporting as many patients as possible around the world. The people are everything in our organization. I think those of you that have visited us before will see what a wonderful cultural culture we have. An incredibly strong, senior leadership team that continues to drive the business forward, offering shareholder value, but also supporting patients around the world. So very, very proud of what we’re doing.

We continue to add headcount, of course, as we grow. You’ll see from q one twenty twenty four to q one twenty twenty five, there has been some increases, and that will continue to increase at a reasonable steady level to really push and focus on that growth going forward. What’s critical to me is ensuring that we maintain culture, and also keep investing in our people going forward. Looking at the results, very quickly, I think we all know we ended up on a great year last year, 20% growth for the year and a 50,000,000 sec EBITDA, and we’ll continue to push and drive that EBITDA margin. Looking at our growth for the first quarter, we reached our highest sales to date, and we’ll continue to push and and and exceed on that, but with about 14.5% growth on prior year’s quarter.

About 17% growth came from The United States. I think it’s important to understand, you know, we have seen some increases in in operating expenses, and personnel expenses, but that’s about driving that growth, that future growth, the long term sustainable growth that we’re trying to achieve. Taking a look at our, net profit, of course, unfortunately, that was a loss for the quarter, but it’s important to remember that was a forex loss as opposed to related to the activities of the business. If many of you will know, but we have large intercompany loans, and with the volatility of forex at the moment due to different leaders around the world, let’s say, that does affect us, but it is a at the moment in time, it can change. Cash flow.

So we ended the year in a really strong position from perspective, strong operating cash flow throughout the year, and then we started the year with decent operating cash flow too. I think it’s important to understand, though, overall without the investment that we took in March, there was a an outflow of of cash. And and that’s really related to currency outflow of about 2,600,000.0 SEK. We also made continuous investments into CIPN and The US, but also we changed our banking facility. So we’ve reduced our overdrafts and cash availability, and changed our banking facility.

So taking those things away, we’re still showing that positive, cash inflow going forward. We continue to perform well in in all markets, although I think we can do more, and we invest to it continue to invest in those international, markets. And we have a nice order book taking us into the next quarter, which is always good to have that longer term view. ADTR is a great, KPI that we look at. And, again, we’re really showing some strong average daily treatment revenues, and that will continue to be a KPI driven by self pay, income in The United States, and our insurance based billing model.

So 2025 focus, really looking at reimbursement in The United States. That continues to be number one, and we’ll talk about that today. International growth, as I touched on earlier, commercialization of CIPN is critical, and then that transition to a multiproduct company in terms of our positioning and branding. I’ll touch on two things today, which is reimbursement and commercialization of CIPN. So a reimbursement update.

Some of you might have seen our direct provider income or insurance based billing model income was a little bit weaker this quarter. Part of that was a timing situation. We had probably more stock purchased in December, as opposed to q one, and then q two started reasonably strong. If you actually look at number of patients treated in this model, it was higher than q four last year. I do need to see it gaining some more momentum, but I think what’s important is the conversation I’m having around insurance based billing model because of the CPT one codes are becoming much better, much stronger, and there is much more interest.

So I think by the end of the year, we’ll start to really start to see those transitioning sites in preparation for our CPT one coding launch in 2026. Coverage still remains strong, which is great. 74 of patients are getting covered when they’re using our hub services. And what’s really important to myself and my colleagues is that we’re still able to offer a wonderful patient assistance program, making sure this program is equitable for all patients, not just those that can afford. So I always talk about this.

Some of you have seen this slide before, coding, coverage, and payment. Where are we today? We’ve got two CPT three codes. They’re investigational temporary. We need to change that.

Average utilization across our systems at the moment is about seven patients per system installed with an average pay price per patient of about $1,400, giving us that roughly $12,000,000 worth of income give or take. So focusing on the three things, we’ve got the CPT one codes. That was a great effort last year, although it took many, many years, but a good start, and that’s the foundations to what we need to do next. Then looking at our coverage strategy, we’ve already started working, on this this year and last year. We’ve seen positive movement in Palmetto.

We’ve also recently seen a positive published educational article with CGS. That’s Ohio and Kentucky. We’re excited about that. It’s a slightly different take than a CD, but also really confirming that scalp cooling is covered in those particular jurisdictions. We’ve got ongoing work with First Coast, which is Florida, a really good market, not only for Paxman, but actually more so on fully acquired Dignitana, where we should start to see some positive momentum at the back end of the year from an insurance based billing model perspective.

And then our next targets, which we’ve just started are NGF and Novitas. So really moving that needle for Medicare coverage, which then leads into our commercial payer strategy for coverage too. Looking at legislation, this is a very hands off approach But what we’re seeing after the really positive New York bill that was introduced, we’re seeing multiple of estates across the country also introducing bills, which is very exciting. That is taking its own course without too much intervention from Paxman or Dignitana.

And then the third pillar is payment, critical to, making this whole thing work. As you’re aware, we’ve already had conversations with MPFS, which is the Medicare physician fee schedule. That’s all more about the, community oncology sites, office based practices, and then also the outpatient prospective payment system. So both these groups we’re working with, and they’ll, publish their proposed rules in July, a really key milestone for us. So watch this space, and we’re hopeful this will then drive further, payment from commercial payers too.

So if we get all these bits right this year, what we want to see is that improved utilization. We’ve talked about how sites improve utilization when they switch to insurance based billing model. So even if we went from seven patients to 14 patients with a higher average price per patient, we’re looking at up to $30,000,000 per annum. Now I’m not promising a $30,000,000 per annum increase by next year, but I think what you can start to see is that improved utilization drive, stronger drive in revenue than what we’ve seen over the last couple of years. We had a wonderful start to the year with a directed issue.

Thank you for those, investors that, supported this. It was oversubscribed substantially, and great job by Carnegie, but 1.9 new million shares raising proceeds of a hundred and 20,000,000 SEK. That’s really set us up for the next few years with relating to our commercialization of our CIPN device, investment into our new state of the art facility. And as we start to look at these new novel therapies that are causing hair loss, we’ve got the ability to do some basic research into this into these drugs. Following it up, we’re looking at whether we can go colder or using topical interventions and really supporting that future, scalp cooling ability.

So big news, I think, last week, the May 8, where we confirmed our merger, with Dignitana. Absolutely delighted to, welcome Dignitana to our to our new group. I was out in Lund earlier this week, which was fantastic meeting the team, and I’m incredibly excited about what we can do together. We’ll be working over the next weeks and months to see where those synergies are, to see how we can rationalize, and and ultimately make a larger, more profitable group, driving not only shareholder value, but a much better customer and patient service than we do today. We spent the last twenty odd years competing, wasting our energies, speaking to the same people, and now we can collaborate and drive, growth forward, especially with the the oncoming of the, CPT codes.

So very excited about the opportunity, and, again, I welcome all the Dignitana team. New product timeline. So our limb and scalp coolers, we still got the ongoing studies. I was hoping to present the data a little bit earlier, but we’re the plan is to present it a little bit later. We’re very excited about presenting this and want to make a big splash, which will really support our commercialization and expedite our process.

There’s been a little bit of delay in some of our progress. We have now submitted our breakthrough device, pre sub to the FDA. We are building devices at the moment to make sure that we can then send them for regulatory testing in addition to starting clinical trials with Dana Farber. So slight shift in our in our, commercialization date, for us internally, but not particularly externally. So well on track, which is exciting.

And then, nearly coming to a close, but, our new building update, hopefully, some of you have seen this. It’s very exciting. It’s not there yet. 2027 in reality will be a moving date, but this will allow us to deliver on that growth in an appropriate space for our team offering good well-being. We’ll have two production lines, appropriate warehousing, and an r and d facility, which is an exciting opportunity for the future supported by our combined authority in the North Of England.

So thank you very, very much. I’m very excited for the year ahead and look forward to some questions from from yourself and also the audience.

Moderator/Interviewer: Great. Thank you very much, Richard, for a great presentation, as always.

Richard Paxman, CEO, Paxman: Thank you.

Moderator/Interviewer: I received a bunch of questions here. Maybe we can start with CIPN. How big is the market opportunity here compared to scalp cooling?

Richard Paxman, CEO, Paxman: Yeah. I think it’s an interesting question. So you could potentially say it’s smaller than scalp cooling because you’re only really looking at this moment in time taxane based therapies as opposed to all chemotherapies. There are some of the new novel therapies that do cause peripheral neuropathy, but we’re still trying to understand the mechanisms there. So in terms of numbers, smaller.

But actually, I think speed to market, acceptance of the technology and the unmet need will be far greater and faster than scalp cooling based on its debilitating, nature and its cost also in terms of what it costs the health care system and the quality of life burden on the patient.

Moderator/Interviewer: Yes, right. And how much one offs did you have in the quarter related to the Dignitana offer? And maybe if there’s any general dynamics in this acquisition that you would like to talk about?

Richard Paxman, CEO, Paxman: Sorry. How many apologies.

Moderator/Interviewer: How much one offs you had in the quarter

Richard Paxman, CEO, Paxman: related not there’s no yes, there’s no costs associated with the Dignitana takeover in, in in in q one. There may be some slight costing in, in in there, but I I wouldn’t suspect so it will be in q two. That’s when the transaction actually happened.

Moderator/Interviewer: Alright. And what, one offs do you expect in q two?

Richard Paxman, CEO, Paxman: Well, of course, you’ve got the the the legal fees associated with it. So it I I haven’t got an exact finger figure, and I don’t think we should probably talk about it exactly. But it will be it will be negligible in the in the bigger picture of things. It’s an investment, and shouldn’t be, and shouldn’t be overly, concerning. We work with some good good professionals who are supporting us in the right way, cost effective approach.

Moderator/Interviewer: Yeah. Perfect. And when it comes to FX, what do you expect going forward here?

Richard Paxman, CEO, Paxman: Good question. If I knew that, then I’d probably able to do some decent hedging and and make some decent money. I think I think we can all agree there’s some volatility in the market, which is pretty hard to predict at the moment. We’ve seen some weakening then strengthening of the dollar, and the pound’s probably stayed relatively weak. You’ve seen some great strength in the sec.

So trying to manage that forex exposure on what is an intercompany debt is very difficult. So I I can’t give a an appropriate answer. One might go one way and the other might go another way. So it’s hard to give an answer. But we will always look to hedge appropriately if we can, but these are balance sheet items which prove some difficulty in hedging.

All

Moderator/Interviewer: right. And going into the systems here that you have installed, how many do you have installed in The U. S. And globally?

Richard Paxman, CEO, Paxman: So in terms of installed systems for us in The United States, we have over 600 systems. Dignitana has just under 300 systems, I believe 300 locations, should I say, about 470 systems or something like that. And so a nice big increase for The US market, especially if we’re looking at improving that utilization. If you then look at the rest of the world, probably another 3,000. But remember, we don’t generate recurring revenue streams from the most of those systems other than in Canada, Mexico, and Japan.

Hopefully, we’ll change that. Dignitada, on the other hand, does have some product out there, which is generating recurring revenue streams. So we look forward to learning more about that model and implementing it also.

Moderator/Interviewer: Yes. Great. And you’re talking a lot about reimbursement in The U. S, obviously. But outside of The U.

S, how is the reimbursement situation here?

Richard Paxman, CEO, Paxman: Yes, it’s quite different because we look at I won’t talk about Sweden because I’ve got a limited knowledge and we have limited traction, as you all know. But if you look at, The UK, for example, we’ve just sold capital equipment, so it is it is already covered and paid for. And then many other markets, we just sell capital equipment. What we are starting to work on though is some key markets where we’re looking at at reimbursement, where there’s a potential high level of growth, and where we see a potential of some recurring revenue streams. So, watch this space.

It will take some time. But as we can now divert a little bit of attention away from The US, not a lot, don’t worry, we can start to look at France, look at Germany, what does that reimbursement landscape look like. But these are big tasks for small organizations.

Moderator/Interviewer: Yes, yes, makes sense. And can you elaborate more on the currency loss of SEK 11,500,000.0? And are you concerned over the currency fluctuations we have seen?

Richard Paxman, CEO, Paxman: We thought there might be some Forex questions. I’m not concerned, no, because, again, it relates to that balance sheet item. So we raise the money in Sweden in sec. We then lend the English company money, which is then sat in sterling. What we do then is we lend The US entity money, which is then in US dollars, and the the The UK company in the middle manages the forex exposure typically.

What you see is then any shifts either way affecting forex. So there was about a million pounds worth of forex negative on both sides, losses on the dollars, losses on the sec. So what happens is is that debt intercompany debt has a big forex movement. But ultimately, it has real no it has no impact on cash. It has no impact in reality other than the bottom line at a point in time when we when we account for it.

Today, it could be a totally different situation. So I ask people not to be concerned about that. And when we get to a point where we can start to hedge those those intercompany debts and pay them back and move them around, we will do. But it’s likely there’s always going to be some ForEx movement in circumstance.

Moderator/Interviewer: Yes, that’s a great explanation. Do you see it as optimistic or likely that you would receive a breakthrough device designation for your CIPN device?

Richard Paxman, CEO, Paxman: Good question. Well, I’m always optimistic if you’ve heard me speak before, of course. But, yeah, I mean, it’s the key for me is on a breakthrough is this reimbursement pathway. So it’s worth a try. Yes.

I think we are being reasonably optimistic. But if you look at the definition of of what a breakthrough device is, we tick all those boxes. So it’s important we try. And if not, it’s still not the end of the world. We’ll still proceed with the five ten k.

The five ten k is still an expedited route to market. It’s the breakthrough won’t slow us down speed us up in in any way, I don’t believe, but it will give us a faster access to reimbursement. Thankfully, based on our knowledge, both internally and with our external consultants now in reimbursement, I think we’ll have a much quicker pathway to to getting this paid for anyway.

Moderator/Interviewer: Yeah. Great. And what is your overall view of The US tariffs? And how do you plan to minimize the potential impact?

Richard Paxman, CEO, Paxman: The joy as tariff conversation. I’m delighted with them, of course. No. What what we’re doing is I think there’s a couple of things that thankfully, it’s 10% in The UK today. Must be our good relationships with with Donald.

If we look at our capsule equipment deployed, relatively low cost transfer transfer price, 10% effect. That 10% amortized over the landed cost of the device. We depreciate it over five years even though we’ve got ten years lifetime of that device. So, yes, it affects our margin, but over a reasonably long time, it’s based on our depreciation as opposed to cost of goods sold. We’d if we then look at our cooling caps that we sell to The US, we sell them at $300, being very open with you to our US company.

That’s a $30 cost. We are then mitigating some of that with a price increase, which unfortunately hits The US consumer, The US patient, which I’m not happy about. But the reality is we must maintain our margins to keep growing and investing. So we are mitigating it appropriately, but don’t foresee it being a major issue for us, thankfully.

Moderator/Interviewer: Right. And as you know, merger with Dignitana, do you see any need for increasing the staff base?

Richard Paxman, CEO, Paxman: I don’t see a need for increasing the staff base in terms of field teams. No. I think we we’re working through a a process of understanding both businesses where the synergies are. So so, no, I don’t see we would be adding adding to the the Dignitana team at this moment in time. But what what I think the huge benefit is is those field team in The United States, those clinical teams, can really support our commercialization of the CIPN device.

So we’ve got a relatively small team in The US at the moment. We will double it with the Dignitana team, and that gives us that really good geographical spread, for 2026.

Moderator/Interviewer: Great. And now that there is a selected partner for the topical solution product, is it possible to give a reasonable time line for when the product can be commercialized? Will any regulatory approvals be required to include this product with scalp cooling?

Richard Paxman, CEO, Paxman: Yes. So we’ve had some back and forth recently, actually. We’ve got our first samples of the formulation. We still need to make a very definitive decision on the on the the regulatory route. We’re believing it’s cosmetic at the moment, so we’re not making claims.

So what’s important is I am not distracted at this moment with a launch of another product. So we’re we’re taking it steady in reality. So 2026 is is when you will see when you will see some more momentum with that.

Moderator/Interviewer: And the news about China comes and goes. You get your hopes up, and then it’s quiet for several quarters. What is the status in China now?

Richard Paxman, CEO, Paxman: I like that question. Gosh. I mean, if you’ve ever been through this process in China, you’ll probably realize why it goes quiet and then and then not. So we had some issues initially with our with our contracting with the inappropriate partner, being very transparent with you all. And I think that you have to be you have to be confident that you’re using the right people.

So we took our time. We’re now then going through the NMPA process, which in itself is is is is difficult. Many people would argue, well, I mean, there’s similar harmonization to the standards, etcetera. There’s so many nuances in with the Chinese regulations that a lot of the things that we’ve already done in so many global markets just don’t apply. So we’ve been going down a route of looking at whether we can show substantial equivalence to our device that we used in clinical trial in The United States to then be able to use the clinical data for, approval, and that’s not possible.

So now we need to, first of all, make some modifications to our device to meet the the regulations in China and then start planning for a clinical trial. So these things take time, and we’ve put a lot of effort into making sure that or trying our best to not have to do a clinical trial because that takes additional additional time. But we believe we’re going to need to do a clinical trial now.

Moderator/Interviewer: All right. Great. And how much does it cost for you to install a system in The US?

Richard Paxman, CEO, Paxman: So we look at a landed cost of about $7,000, a little bit less. That includes making the machine, shipping the machine, and packing well, packing and then shipping, a little bit more now for the, the tariffs, and then the sort of commissioning installation of the machine.

Moderator/Interviewer: Great. That was actually all questions. But maybe you could like wrap it up with key triggers going forward, what you expect in 2025.

Richard Paxman, CEO, Paxman: Yeah. Absolutely. So I think, you know, keep an eye out for what we’ll be doing with Dignitano. We’ll be publishing together in q two, which is really exciting. We’ll keep people updated in terms of what that integration piece looks like.

You know, that cultural fit for me and the people piece is really important at the moment. We’ll do the technology and those sorts of things after. Looking then at at insurance is critical. So July is a key date, but we’ll also be providing some updates throughout talking about coverage, a bit like the max strategy I’ve just talked about. And then November will be the final rule, so that’d be key.

So those are two key milestones that you need to be aware of. And throughout that period as well, hopefully, we’re driving the revenues for IBBN. And then finally, hopefully, q four well, q three and q four will have some information on CIPN. So clinical data for CIPN, which is exciting, And then q four, an update on where we’re at with submissions. So big year, really big year, but very exciting year.

Moderator/Interviewer: A big year, but, even bigger year next year.

Richard Paxman, CEO, Paxman: Yeah. Absolutely. Yeah.

Moderator/Interviewer: Great. Plan. Thank you for joining us, Richard.

Richard Paxman, CEO, Paxman: Thank you very much. Really appreciate it.

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