New CPT Code And Adult Trial Risks Will Challenge Neuromodulation Outlook Yet Offer Some Promise

Catalysts

About NeurAxis

NeurAxis develops neuromodulation devices such as IB-Stim and RED to treat functional gastrointestinal disorders in pediatric and adult populations.

What are the underlying business or industry changes driving this perspective?

• Although the new Category 1 CPT code for IB-Stim effective January 1, 2026, should simplify reimbursement and support wider adoption, hospitals may be slow to adjust workflows and allocate procedure time. This could delay the expected acceleration in revenue and margin expansion.
• While growing prevalence and diagnosis of functional abdominal pain and dyspepsia create a larger addressable market, payers could remain hesitant to update medical policies quickly. This may limit conversion of discounted Financial Assistance Program volumes into higher priced, fully reimbursed sales and thereby constrain revenue growth and gross margin recovery.
• Although broader FDA indications into older adolescents and adults expand the potential device use per patient and per episode of care, the lack of large, dedicated adult trials today means adult coverage decisions could lag for several years. This may cap upside to long term revenue and earnings from the adult segment.
• While the company is investing in R&D and clinical evidence, including a planned randomized controlled trial in adults and ongoing indication expansion, these projects increase operating expenses ahead of definitive coverage and utilization gains. This may pressure operating losses and delay the path to sustainable net profitability.
• Although entry into the Veterans Administration via an anticipated Federal Supply Schedule contract and cross selling of RED alongside IB-Stim could open new institutional channels, slow physician habit change, entrenched alternatives like ARM and potential reimbursement changes for RED may limit procedure volumes and keep overall net margins below management’s longer term targets.

Assumptions

This narrative explores a more pessimistic perspective on NeurAxis compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming NeurAxis's revenue will grow by 103.6% annually over the next 3 years.
• The bearish analysts are not forecasting that NeurAxis will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate NeurAxis's profit margin will increase from -247.6% to the average US Medical Equipment industry of 13.1% in 3 years.
• If NeurAxis's profit margin were to converge on the industry average, you could expect earnings to reach $3.7 million (and earnings per share of $0.29) by about December 2028, up from $-8.3 million today.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.1x on those 2028 earnings, up from -3.4x today. This future PE is lower than the current PE for the US Medical Equipment industry at 29.2x.
• The bearish analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.72%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• National payer coverage for IB-Stim may take longer than expected to materialize even after the Category 1 CPT code is effective. This would slow the transition of discounted Financial Assistance Program volumes into fully reimbursed sales and limit long term revenue growth and gross margin expansion.
• RED faces entrenched competition from ARM and uncertainty around a new CPT code in 2026. Practice flow changes and potentially less favorable reimbursement could keep procedure adoption low and constrain incremental revenue and overall net margin improvement.
• Adult market expansion for IB-Stim is based on extrapolated adolescent data. If the upcoming adult randomized controlled trial or VA rollout underperforms, payers may withhold coverage for years and reduce the anticipated long term earnings contribution from the larger adult and veteran patient populations.
• Operating expenses are rising materially due to increased sales and marketing, higher R&D investment and new long term incentive plans while the company remains loss making. If revenue growth does not accelerate meaningfully post 2026, sustained cash burn could necessitate dilutive equity raises and put pressure on net income and earnings per share.
• The company’s limited cash balance and roughly 1.5 million dollars quarterly free cash flow burn, combined with additional obligations from the Masimo license reacquisition and legal settlement, mean any delay or disappointment in uptake following CPT and coverage changes could tighten liquidity faster than expected and negatively impact earnings and shareholder value.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for NeurAxis is $3.0, which represents up to two standard deviations below the consensus price target of $5.0. This valuation is based on what can be assumed as the expectations of NeurAxis's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $7.0, and the most bearish reporting a price target of just $3.0.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be $28.4 million, earnings will come to $3.7 million, and it would be trading on a PE ratio of 13.1x, assuming you use a discount rate of 7.7%.
  
• Given the current share price of $2.67, the analyst price target of $3.0 is 11.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.