NeurAxis: A Vast Unrecognized Market Opportunity
NeurAxis (NYSE: NRXS) is executing its strategic plan. Still, the stock price has remained unchanged over the last year. The stock price movement, or lack thereof, clearly illustrates how the market has given zero credence to NeurAxis’s accomplishments, creating an actionable investment opportunity.
The critical factors for my bullishness that the market has ignored:
The company is commercially introducing an FDA-cleared device that addresses an unmet need.
The FDA has cleared the expanded use of the device by increasing the age group and the number of devices allowed.
The number of insured covered lives has been increasing.
The device has been assigned a Category 1 reimbursement code.
The device has been included as the only FDA-cleared treatment in the pediatric guidelines.
The total addressable market (“TAM”) is vast and larger than the company has projected.
Revenues have been increasing by 40% over the past three quarters, and are expected to ramp up.
The company has secured financing to support its operations for the next 12 months as it aims for profitability.
An FDA-Cleared Solution for an Unmet Need
NeurAxis is a neuromodulation medical technology company offering therapy based on its proprietary Percutaneous Electrical Nerve Field Stimulation ("PENFS") technology. The company's device, the IB-Stim, is the only FDA-cleared medical device for associated functional abdominal pain ("FAP") with irritable bowel syndrome ("IBS") in children.
The FDA cleared the device in 2019 for treating individuals aged 11 to 18 years old with IBS. Late last year, the device was cleared to expand the age group to 8 to 21. At the same time, the FDA cleared the addition of a device during treatment, increasing from 3 devices over 4 weeks to 4 devices over the same period.
Last month, the device was cleared for treating Functional Dyspepsia ("FD") and FD-related nausea symptoms. The increased applications have nearly doubled the TAM for IB-Stim. There is a discussion on the overall TAM below.
Insurance Coverage and Reimbursement
The IB-Stim device gained a Category 1 insurance reimbursement code effective January 2026. The company charges hospitals $4,780 for the course of treatment when it is covered by insurance. The number of covered lives had increased from just 4 million a year ago to 51 million. Management is forecasting 100 million covered lives by the end of this year.
The company has stated that inclusion in the North American Society for Pediatric Gastroenterology, Hepatology, and Nutrition (NASPGHAN) guidelines is a key factor for securing insurance coverage, and announced last week that the device has been included in the NASPGHAN guidelines.
Many investors misunderstood the wording of the guidelines and sold their shares. The main concerns and explanations:
Q: Why was the inclusion in the guidelines “conditional” and not a strong recommendation? A: The guidelines are international. The IB-Stim is only approved in the U.S.
Q: The guidelines cited that more testing will be necessary. Won’t this result in more costly trials, and will insurance companies wait for more trial data before offering coverage? A: This language is included in every guideline issued by NASPGHAN and in just about every medical research publication in the history of time.
Q: Why was only one clinical study conducted? A: The guideline review began almost three years ago. The company has since completed 15 additional clinical studies, with the data now available for insurers to review.
Q; The IB-Stim is costly. A: A Michigan University study showed evidence as to how the device saves money.
Q: Why has the IB-Stim not been assigned a Relative Value Unit (RVU), which is critical for physician reimbursement? A: RVUs are assigned after a new Category 1 code is issued and before the reimbursement code takes effect. The IB-Stim device will receive an RVU code in August.
The TAM
It is crucial to our investment thesis to define the size of the market opportunity. IBS-Stim is intended for moderate to severe cases of FAP associated with IBS. There are numerous studies with various results due to different criteria and study settings. NeurAxis cites the pediatric potential patient population as 600,000 for FAP/IBS and another 400,000 patients disabled by functional dyspepsia, totaling 1,000,000 pediatric patients. With 1 million patients at a treatment cost of $4,780 per patient, this equates to a nearly $4.8 billion market opportunity for the FDA-cleared pediatric treatment alone. The company has a second FDA-cleared device and a pipeline that includes adult FAB/IBS treatment and other pediatric applications.
Dr. Adrian Miranda, NeurAxis’s Chief Medical Officer, explained how he guided the company in calculating its TAM. “The kids with disability (FAP associated with IBS) usually are the ones missing school. In this study, 21% of children with functional disorders missed at least 3 days of school in the previous month, and 5.6% did not attend school at all during that period. That would be 26.6% with disability, and we estimated 10% to be conservative.”
Our review of available data confirmed that NeurAxis is conservative in its assessment of the target market outlook. We estimate the pediatric total addressable market for the FDA-cleared applications to be approximately 2 million patients, double the company’s claim.
The IB-Stim is expected to gain FDA clearance before the end of the year for treating adult patients with FAP associated with IBS. The adult TAM dwarfs the pediatric TAM by a factor of five. Applying the company’s modest pediatric total addressable market estimate to the adult total addressable market results in almost $15 billion. This is a modest estimate but still higher than the $12 billion cited in the company’s investor deck.
Financial
Revenues have been growing at a healthy 40% rate over the last three quarters. The growth rate is expected to increase next year as insurance coverage becomes the norm for the IB-Stim, following the implementation of the reimbursement code in January.
The company secured financing for the next 12 months last month by issuing approximately 1.5 million shares at $3.25 per share, raising roughly $5 million. An additional $1 million was raised through the conversion of warrants. The company now has a cash position of $6.8 million. There is no debt. Fully diluted, including warrants, options, and preferred shares, there are 17.3 million shares.
Management has not provided revenue guidance but aims to achieve profitability by the end of 2026. Unfortunately, we haven’t been able to gain more clarity from management regarding this forward projection. It is too early to predict how quickly insurance companies will agree to add reimbursement coverage and incorporate it into the policy. Medical practitioners will also need to ramp up to add the IB-Stim into everyday practice rather than on a case-by-case basis.
The quandary arises from management guidance on profitability that does not specify the required revenue amount. Management has provided us with a clue as to the expected burn rate, which is approximately $6 million. A minimum of 1,256 FAP/IBS pediatric patients with full insurance reimbursement is necessary to reach $6 million in revenue. Approximately 1,000 patients received the IB-Stim in 2024, with a portion receiving it on at a reduced rate due to a lack of insurance coverage. Profitability appears likely, as inclusion in the guidelines and the new Cat 1 code is expected to increase the number of fully reimbursed procedures.
There is also a second device. NeurAxis received FDA clearance for a Rectal Expulsion Device ("RED") for testing and evaluation of patients with chronic constipation due to pelvic floor dyssynergia who are unlikely to improve with increased laxative use. RED is the first FDA-cleared treatment for this ailment, which affects about half of the patients who are suffering from constipation. The company cites that RED has a TAM that exceeds $2 billion. The device already has an associated Category 1 code, and soft commercial rollout has begun. The company uses the same sales team for both devices.
Risks
The investment thesis is based on the assumption that insurance coverage for the IB-Stim device will lead to widespread acceptance. Everything is now in place, with FDA clearance, a Category 1 reimbursement code, and inclusion in the guidelines. We will closely monitor new insurance coverage to ensure timely updates. A lack of updates may be indicative of a lack of progress.
RVUs factor in physician work, practice expense, and malpractice expense. It is essential for the company’s success to receive an attractive RVU code.
It is too early to read the market acceptance of the newly approved RED device.
Conclusion
The company has made incredible progress over the last 12 months in bringing to market a device to treat an unmet need. The market has met the progress made with a yawn. Perhaps investors are unaware of the vast total addressable market or are under the impression that the company lacks the necessary credentials to secure widespread insurance reimbursement coverage. We sized up the total addressable market, which will be hugely increased later this year with the inclusion of the adult population. We also see that the company does not have to increase sales dramatically to reach profitability, but the potential to scale into double-digit billions of revenue points to a much larger bottom line than just achieving profitability.
References:
Irritable bowel syndrome in children: Current knowledge, challenges and opportunities. World J Gastroenterol 2018; 24(21): 2211-2235 [PMID: 29881232 DOI: 10.3748/wjg.v24.i21.2211]
Medline: Abstract for Reference 21,22 of 'Chronic abdominal pain in children and adolescents ‘
PubMedCentral: Evidence-based clinical practice guidelines for functional dyspepsia
National Institute of Health: Irritable Bowel Syndrome in Children and Adolescents
US Pharmacist: Epidemiology of functional gastrointestinal disorders in children and adolescents
Interesting pitch! Thanks for the write up