What is the market potential for Nexeon's NNS™? What is the revenue potential for the industry, and what is its growth rate?

The total bioelectronics market is expected to be $7.89 billion by 2020. It was $4.5 billion in 2016. This translates into a 15.07% compound annual growth rate. There are four major areas within this market: Spinal Cord Stimulation, Deep Brain Stimulation (DBS), Sacral Nerve Stimulation (SNS), and Vagus Nerve Stimulation (VNS).

DBS represents the second largest segment within the neuromodulation market. This market segment was valued at ~$390M in 2010, growing at ~8% p.a. to reach ~$590M in 2015. The first FDA approval for DBS systems came in 1997 for the treatment of essential tremor, and then in 2002 for the treatment of Parkinson's disease. Medtronic remained the only major player with both FDA and CE mark approval until recently. St. Jude's Brio System received FDA approval in 2015 for treatment of Parkinson's disease and essential tremor. Boston Scientific entered the EU market in 2013 and is currently undergoing FDA trials.

DBS is a fast growing market segment with a forecasted CAGR of ~9%, growing the market to ~$910M by 2020. This growth rate is above the ~7% forecasted growth of the overall neuromodulation market.

What is the anticipated lifecycle of your product or service offering? What are your current and future plans for R&D investments?

Nexeon controls 100+ current patents and patent applications in its portfolio which are of varying ages. The utility patents on the firm's medical device innovations in both America and Europe last 20 years. The key to Nexeon's business is being an innovation leader in the bioelectronics market and working on new applications for its technology.

The Premarket Approval process for the NNS™ will begin in 2018. This is the first step in the process of getting FDA approval. The company plans continued investment in research and development with the goal of expanding the NNS™ platform technology. The three categories where the platform can expand are in DBS for treatment of obesity, dysphagia, and cognition; VNS for treatment of epilepsy, asthma, and Chronic Obstructive Pulmonary Disease (COPD);

Nexeon plans to spend about $4.8 million on R&D in 2017 and $3.4 million in 2018.

What alliances or partnerships have you entered (e.g. joint ventures, marketing alliances, licensing arrangements, selling/distribution agreements, channel partnerships, software agreements, etc.)?

Nexeon has a manufacturing agreement with GlaxoSmithKline for their bioelectronics company Galvani Bioelectronics. GSK believes that these devices could be programmed to read and correct the electrical signals that pass along the nerves of the body, including irregular or altered impulses that can occur in association with a broad range of diseases. The hope is that through these devices, disorders as diverse as inflammatory bowel disease, arthritis, asthma, hypertension and diabetes could be treated.

Who is the end user of the product or service offering?

The end-user for our DBS technology is the patient who suffers from movement disorders related to Essential Tremor or Parkinson's disease. The goal is to improve the patient's quality of life. The local field potential (LFP) recording is the advancement in our NNS™ product which make reduces frequent doctor visits. Making life easier for doctors is one of the best way to improve the care patients receive.

What drives customer satisfaction for this industry and the product?

Customer satisfaction is primarily driven by the effectiveness of the DBS treatment in improving patient quality of life. For the patient. this effectiveness is determined by reduced motor symptoms with minimal side-effects. To do this, the NNS™ will be able to sense brain signals and more optimally provides closed-loop control of the brain, which reduces side-effects by stimulating only when disease-related signals is present. Additionally, the NNS™ will 3D lead will allow current steering, or more selective stimulation that can be tailored to individual patient anatomy and disease.

The usability of the system is another driver of customer satisfaction for the patient and physician. The battery within the DBS implantable pulse generator (IPG) must be effective and easy to use. The battery within the NNS™ IPG is rechargeable, which limits the need for replacement surgeries. A color screen gives feedback on the implantable pulse generator's battery level using easy to understand icons without text, making the system language independent. It warns the patient when the battery must be charged. To charge the IPG battery, the battery charger (BC) is placed over the implanted IPG using a simple shoulder harness, and the RC is connected to the BC. The RC continuously monitors charging voltage, current, and temperature in the IPG and optimizes the inductive power generated by the BC for efficient charging. Meanwhile the RC battery is charged too.

The DBS industry's satisfaction improves when good studies are done which show the benefits of the treatment. A pre-market approval study will begin in 2018. There already has been a successful clinical result where the patient reclaimed normal quality of life. The patient had no adverse effects reported at the 14-month post operation follow up. This data was accepted at the EFFSN conference in September 2012.

When will your company breakeven in terms of profitability and cashflow?

NNS™ commercial sales for the DBS product will launch in Q4 2017 in Europe assuming the Company is able to recertify the previous CE Mark. Nexeon plans to be profitable starting in Q1 2019. The firm plans to earn $2.9 million from continuing operations in 2018..

To achieve this goal the NNS™ needs to be approved by EU regulators and Nexeon needs to hire and train its salesforce. The company will reach profitability while still investing heavily into research and development with long term free cash flow generation for the firm's shareholders being the principle concern.

Does the company have proprietary intellectual property in the form of patents, trademarks, copyrights?

Nexeon controls 100+ patents and patent applications. In America, Nexeon has 13 patents granted and 7 pending approval. In Europe, Nexeon has 68 patents granted and 6 pending approval. Nexeon licenses Siemens' patents for use in all medical device development. These patents are specifically related to self-healing networks and the Internet of Medical Things. The Internet of Medical Things is the collection of medical devices and applications that connect to healthcare IT systems through online computer networks. Nexeon owns Medtronic's patents related to remote monitoring. Finally, Nexeon owns copyrights associated with the design of the system.

What gives your company a competitive advantage?

  • Proprietary patented intellectual property
  • No large capital investment to grow the sales force because of small DBS neurologist community
  • Experienced management team with a successful track record of profitable exits for investors
  • CE mark of approval from the European regulators makes the approval process likely
  • We are entering a large addressable market. 89% of the DBS candidates are untreated.
  • We are entering a growing market. The market for DBS devices used to treat patients with Parkinson's disease is projected to reach $3.21 billion globally by 2020. The global bioelectronics market will pass $7 billion by 2020.
  • There is significant room for expansion after the initial DBS product launch. Neurostimulation with the NNS™'s platform technology can treat patients with other ailments.
  • The NNS™ has attractive economics for the hospital, physician, and manufacturer because of its rechargeable battery, enabling one implant procedure as opposed to multiple.

Who are your competitors?

Our competitors are Medtronic, St. Jude Medical, and Boston Scientific Corporation. Combined these firms only satisfy the needs of 11% of the DBS market, so there is room for additional innovative players.

Currently, the only FDA-approved DBS systems (Medtronic's Activa System and St. Jude Medical's Brio Neurostimulation System) are stimulation-only devices. A new DBS device with a segmented electrode for current steering is undergoing a pivotal clinical evaluation (Boston Scientific's Vercise system); however, this device lacks the capability to record brain activity, which is needed for closed-loop DBS. None of these systems can sense or record disease-related neural activity, which hinders the efficacy of conventional DBS and the adoption of closed-loop DBS. As a significant advantage over current systems, the NNS™ can sense and record neural activity to support the clinical and commercial realization of closed-loop therapy.

What are the primary risks facing this opportunity?

Issue Risk Rationale
Quality System Low ISO 13485 certified, so FDA equivalence will be attained when required since the systems are similar.
R&D Low-Med We have already finished R&D of our NNS™ DBS system. We are currently making minorincremental changes to the system components. The risk is executional not technological.Over time we must continue to invest in R&D with at least 10% of revenues.
Manufacturing Low-Med We are in the process of setting up manufacturing at established contract manufacturers-companies with many years of experience building these types of devices. This reduces our risk and capital requirements, simplifies our management structure
Regulatory / Clinical Med *EU/CE mark - European Medical Directive has recently changed, so although an earlier version of our device has been previously approved, the process is now much more stringent. We are managing this risk by enhancing our quality systems and maintaining close communication with our notified body* US/PMA - we will require a premarket study. Study risk is minimal (since we will only study conventional DBS so that we get something approved). It is primarily an issue of time to US approval, but we can/will get paid for our devices in the study
Reimbursement Low DBS systems are reimbursed worldwide,and we have established the pathway towards reimbursement, we first need to get regulatory approval and in some countries, gather clinical data with our product.
Competitive Med-High We are going up against competitors with significantly greater resources than we have. Since we cannot be everywhere, competitors will focus their efforts on the sites that we target, and probably attempt to outspend us there.

R&D plays a big role in the medical devicendustry. It is expected that the Company's R&D activities and related expenses will increase significantly in the future as we increase the scope and rate of such efforts and begin more expensive development activities, including clinical trials and similar studies as required by the relevant regulatory authorities in our targeted jurisdictions (i.e. the United States).

The successful completion of the requisite clinical trials and studies to bring our contemplated medical devices to the U.S. and E.U. markets is highly uncertain. We cannot reasonably estimate or know the nature, timing, and estimated costs of the related efforts, nor can we make any assurances as to the period, if any, in which material net cash inflows from sales of our medical devices may commence.

Unfavorable developments with respect to any of the foregoing could mean significant changes in the cost and timing associated with our ability to bring our medical device to market and begin generating revenues.

What gives your company a competitive advantage?

Nexeon MedSystems has thoroughly analyzed the patents, products, and therapies that may be considered competitive to the proposed system. Nexeon MedSystems is committed to protecting its proprietary positions by continuing to file patent applications related to technology, inventions, and improvements to enhance its business and competitive advantages. As development of new products and prosecution of pending patent applications progresses, Nexeon MedSystems will continue to strategically file additional applications to protect new developments.

In addition to seeking patent protection, Nexeon MedSystems has utilized other available intellectual property rights to protect its developments. Nexeon utilizes copyrighted software, manuals, and reports. Nexeon MedSystems also maintains a number of trade secrets that are essential to its business. Nexeon MedSystems has implemented procedures to maintain such secrecy required of such trade secrets. Finally, Nexeon MedSystems has filed for and obtained several trademark registrations related to the branding of its products. This multifaceted approach provides Nexeon MedSystems with the maximum protection available for its developments.

How do you know that your business has high growth potential?

Our revenue growth will come from taking share in this $650M market, and secondarily by increasing the average price of each system. The DBS market is currently $650M worldwide and growing at high single digits to low double digits. We only have to take a very small share of this to be successful.

Beyond share, there is price. The NNS system is rechargeable. Rechargeable systems sell for 30-50% more than non-rechargeable systems, so this will increase the ASP in the short term. (It is true that in the long term this effect will be a wash because patients will not need to have their IPGs replaced. The replacement IPG market (defined as patients who already have a successful implant but need to get a new one because the battery has drained) is currently about half of all IPGs, and therefore a little under half the value-since you don't need new leads/extensions/remote controller for the second system.)

What is it about your management team that makes them uniquely capable of executing on this business plan?

Will Rosellini, CEO and Chairman of Nexeon MedSystems, holds five master's degrees in addition to a law degree. He is a 15-year veteran of the neurotechnology space and has expertise in accelerating the development of emerging technologies with minimal at-risk capital. He previously founded and led Lexington Technology Group, LLC, a database company commercializing a database solution with an exit to ("DSS" NYSE) Sarif Biomedical LLC, a stereotactic microsurgery company exit to ("MARA" NSDQ). He became a board member of Marathon Patent Group ("MARA") in 2013. Rosellini also founded Microtransponder in 2006. In 2012, Rosellini left his position as CEO at Microtransponder after temporarily losing his voice to thyroid cancer. He has since been acquiring technology and intellectual property, launching preclinical and clinical programs, and raising non-dilutive and at-risk capital to support the launch of Nexeon's next generation of viable medical technology products and associated remote management software platforms.

Dr. Mark Bates, MD, Founder and Chief Innovator of Nexeon, is a practicing interventional cardiologist and is considered a thought-leader in his field. He has authored over 100 book chapters and peer-reviewed manuscripts. He is on several editorial boards and has done thousands of cardiac and vascular procedures over the past 25 years of his career. He founded one of the first true multidisciplinary vascular centers in the US that now includes, vascular surgeons, cardiologists, vascular interventional specialists, vascular medicine, preventive medicine physicians, and neurointerventional radiology all working together in a patient centered model. He continues to mentor the team of vascular physicians at the CAMC Vascular Center of Excellence in Charleston as a part-time Professor of Medicine and Surgery in the West Virginia University Department of Surgery. His passion in the field of endovascular surgery has also resulted in key innovative advances, including intellectual property and patents in the arenas of embolic protection, nanotechnology, stent design, cell therapy, catheter design, guide-wire design, drug eluting balloons, and local drug delivery. He has founded several medical start-up companies and has authored over 50 issued or pending US patents.

Brian Blischak, President and Chief Commercial Officer, joined the Nexeon team with over 20 years of experience in the medical device field and 16 years of experience in neuromodulation serving in senior commercial operations and executive roles for ImThera Medical and St. Jude Medical. He joined from ImThera Medical, Inc., a developer of an implantable neurostimulation system for sleep apnea, where he served for four years as Senior Vice President of Sales and Marketing. Prior to that, Mr. Blischak spent twelve years in the St. Jude Medical Neuromodulation Division (SJM), where he led the commercialization and launch of two major deep brain stimulation (DBS) product families consisting of over 20 products in more than 15 countries, including the patient recruitment efforts for two pivotal Investigational Device Exemption (IDE) studies for Parkinson's disease and essential tremor and two IDE feasibility studies for major depressive disorder.

Chris Miller, Chief Financial Officer, has 15 years of experience serving as CFO, treasurer and interim CFO for a wide variety of early-stage and non-profit organizations. Since 2002, Miller has been providing financial and business development consulting and interim CFO services, with a focus on early-stage companies. From 2006 to 2008, he provided public company valuation, financial modeling, and due diligence services to Doherty & Company, LLC, a Los Angeles based broker-dealer specializing in venture capital, private equity funding, mergers and acquisitions advisory, and valuations for early-stage companies. He specializes in start-up financing, industry research, concept feasibility, business plan and investment memorandum development, private and public company valuations, audit management, due diligence, and corporate action plan execution.

What is the industry issue that Nexeon is addressing and how is it addressing it?

Nexeon is reducing the DBS programming time for the benefit of both the patient and the physician. DBS programming is typically time-consuming because clinicians can only rely on clinically observable patient behavior to select therapeutic parameters. Patients are therefore required to attend weekly programming sessions lasting 1-3 hours, which can cumulatively last over 40 hours over the course of a single year. Programming time continues to increase as the market adopts DBS systems with more advanced stimulation capabilities that take longer to optimize. The LFP recordings in the NNS™ enable clinicians to directly monitor the effects of the DBS therapy in real-time to converge on highly effective DBS parameters in minimal time.

Nexeon is creating a DBS platform that can be customized to the patient to deliver more effective stimulation and reduce disease symptoms. For the last two decades, DBS treatment for PD has involved empirically selected parameters delivered continuously without adjusting for the patient's disease state, medication status, or side effects. This is a brute force approach intended to overcome an overall lack of understanding of the mechanism of DBS and a lack of sophisticated tools necessary to respond to a dynamic situation. Stimulating in this continuous, brute force manner may promote habituation and side-effects such as impairment of verbal fluency, neuropsychiatric symptoms, and worsening of motor functioning, in addition to reducing battery life of the device. Instead of flooding the brain with electrical stimulation regardless of the dynamics of the underlying pathophysiology, the NNS™ DBS system will listen to the brain's dynamics and automatically drive the relevant neural circuits to the desired state in a closed-loop fashion.

Why would someone be "compelled" to purchase your product or service? What specific needs does it address?

DBS is a rapidly growing therapy for PD that is replacing levodopa medical therapy. There is a large subset of patients that do not respond optimally to levodopa medication and are considered candidates for DBS therapy.

Our NNS™ DBS platform has advantages over our competitors because it offers LFP recording capabilities to enable patient monitoring, closed-loop stimulation that adapts to patient disease state, remote monitoring capabilities, and a segmented electrode that provides more precise brain stimulation to avoid off-target effects.

The NNS™ offerings are compelling to the physician because LFP recordings and remote monitoring will reduce the time needed for post-operative programming visits. LFP recordings will provide quantitative feedback on patient therapy to supplement qualitative analysis of observable patient behavior.

The NNS™ is compelling to patient family members and caregivers because remote monitoring of symptoms will provide them with comprehensive information on the patient that they can leverage to improve care. Remote monitoring will also reduce the burden on caregivers.

What makes your business different or unique?

Nexeon also has minimal capital requirements to reach breakeven profitability. This is because of two factors. The first is there will be a quick 2017 launch in Europe of our NNS™ product because it has achieved prior CE approval for treatment of certain movement disorders, such as Parkinson's, Essential Tremor, and Dystonia. The second is the limited salesforce needed to achieve our sales goals. Our targeted sales approach means there is limited upfront costs.

The innovation within the NNS™ technology is the key differentiator for Nexeon. The DBS market is still dominated by traditional open-loop therapies, and the DBS community is calling for a closed-loop solution that adapts to patient needs. LFP recordings enable closed-loop therapy and allow clinicians to directly monitor the effects of the DBS therapy in real-time to converge on highly effective DBS parameters quickly. The NNS™'s ability to record brain activity with high signal-to-noise ratio allows for objective selection of electrode contacts, faster programming, better monitoring disease progress and therapy efficacy. These are features needed in a closed loop system

The NNS™ device is combines and builds on the advantages of our competitor sin one comprehensive platform. The NNS™ will have the ability to stimulate with a segmented electrode like Boston Scientific, record as well as Medtronic's Activa PC+S and be deployed on an iOS platform like St. Jude all on a rechargeable platform.

The second advantage is the NNS™'s targeted stimulation using current steering. This is enabled by our segmented electrodes and16-controllable current sources with multiple stimulation frequencies. This innovation allows for more selectivity in the stimulation of tissue so that non-target tissue is not affected. This selectivity gives doctors more options to tailor stimulation for each patient and limits any potential side effects.

The company has much potential in developing its technology and utilizing its 100+ patents related to implantable medical devices and internet of medical things technology. The differentiating factor that allows companies to realize their potential is the strength of the leadership team. The experience of Nexeon's management team drives the ability for potential innovation to become reality. Management experience not only increase the upside potential through innovation, it also lowers the risk the company faces which would be caused by executional problems. Our leadership has a combined 8 profitable exits to shareholders.

Chairman and CEO, Will Rosellini has 6 advanced degrees related to translational medicine, has 15 years-experience in the industry, and been involved with 3 successful med-tech exits. President, Chief Commercial Officer, Brian Blischak is a neuroengineer with 20 years in the industry. Brian has led 3 neurostimulation product launches from new product to US FDA approval. Chief Financial Officer, Chris Miller has 15 years of experience serving as a CFO, treasurer, and interim CFO for a wide variety of public and private early-stage and non-profit organizations.

How do you plan to acquire customers?

Our strategy for sales and distribution will vary depending on product line and region. At this time, we expect to utilize a targeted sales approach for the NNS DBS product, first in Europe in early 2018, then in the United States following FDA approval. Territories in the United States and European Union not targeted by our sales force will be covered using a distributor/agent to reduce upfront costs. This approach would likely be altered if we formed a strategic partnership with an existing medical device company prior to our first sales.

Does the company have proprietary intellectual property in the form of patents, trademarks, copyrights, etc.?

Nexeon MedSystems possesses a strong patent portfolio ensuring the freedom to operate which is critical to successful commercialization the NNS™ Deep Brain Stimulation Platform. Maintaining a focus in the internet of medical things allows Nexeon MedSystems to utilize issued and pending patents for maximum commercial benefit and growth. Since its inception, Nexeon MedSystems has actively pursued patent coverage of the proprietary systems and methods of delivering therapy. The patents have been deliberately written to provide broad and specific protection.

The Company has acquired a portfolio from Medtronic, Siemens and renowned inventor Dr. Mark Bates including previously issued patents, pending patent applications, and a freedom to operate analysis issued in 2016. Issued and pending US and foreign method and technology patents protect this intellectual property (IP) (Figure Below).

What are the probable exit scenarios?

Nexeon anticipates investors will be receive returns on an acquisition once the technology achieves substantial market share or with the increase in the value of the shares of the Company. Currently, the U.S. Securities and Exchange Commission has declared that Nexeon's Form 10 was effective. This allows the company to report as public company and trade on the OTC Market QX Exchange. It will begin trading on the OTC exchange in February. By trading on the market, investors can see immediate valuation increases when positive announcements are made. Because of this slow IPO, Nexeon anticipates having a successful IPO in 2018. The company can be acquired at any time during the duration of its trading on the OTC market or public exchanges by a larger firm in the health care sector. Here is a list of comparable companies to Nexeon.