COMPANY NOTE EQUITY RESEARCH. OUTPERFORM Price target 0.93 Price Nexstim OYJ (NXTMH-FI) The stroke patient is recovering NEXSTIM OYJ

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1 NEXSTIM OYJ Medical Technology 24 May :58 BST COMPANY NOTE Nexstim OYJ (NXTMH-FI) The stroke patient is recovering OUTPERFORM Price target 0.93 Price 0.18 KEY TAKEAWAY We initiate on Nexstim with an OUTPERFORM recommendation and a target price of This is one of the most attractive Medtech plays in small and mid cap healthcare in Europe, in our view. We see very limited downside risk from current trading levels, but significant upside opportunity. The current innovation drought in both pharmaceuticals and the medical device industry makes this promising medtech player a potential M&A target for companies seeking therapies to treat stroke rehabilitation. The current focus is on E-FIT trial, a trial to prove clinical benefits of using the Navigated Brain Therapy system in improving the efficiency of rehab treatment in trauma patients. We believe that the E-FIT trial is likely to succeed and shares are likely to increase from here until results are released in Q2/ OUTPERFORM. Medtech company with game changing technology for stroke treatment, Nexstim is a Finnish Helsinki-based medical technology company with proprietary technology in navigated trans cranial magnetic stimulation. The technology is already sold as Navigated Brain Stimulation system for pre-surgical mapping of brain. FINANCIAL SUMMARY Net Cash/Debt (M): 3.00 MARKET DATA Price: 0.18 Target Price: Week Range: Total Enterprise Value: 18 Market Cap (M): 15 Shares Out (M): 81.1 Float (M): 81.1 Average Daily Volume: 121,863 Platform for profitable growth The company has already validated the technology in NBS. If the therapy indications for the platform are developed successfully, the company can quickly create a very lucrative repeat business by selling consumable parts to the clinics. The key factors in this expansion is success in increasing the number of outstanding units and increasing the utilisation rate of the units. With the profit margins of the consumables exceeding 80%, Nexstim s business model combines high profit margins and stickiness of customers. Our analysis also suggests that the economics for the customer clinics are sound. History of clinical failure and dilution The share price is at very suppressed levels. This is due to the failure of the pivotal NICHE study in February 2016 and the subsequent financial arrangement. The company was forced to approve extensive dilution to secure financing for the repeat trial. The complex financial arrangements are now largely behind us and for the first time in nearly a year the investors can have good transparency in the number of shares. Key risk is the E-FIT trial - In our view, the company has taken corrective action in the sham arm of the E-FIT trial and the explanation for the failure in NICHE trial (effective treatment also in the placebo arm) is credible. However, this is not a 100% certainty and in case the E-FIT trial fails news expected in Q2/2018 the company would again find itself in a very difficult financial situation. The risk-reward situation is very lucrative - We believe that success is more likely than failure and that the upside in case of success is larger than the downside in case of failure. Based on probability-weighted DCF models, we set our target price at 0.93 and initiate with an OUTPERFORM recommendation. EQUITY RESEARCH MARTIN BRUNNINGER Analyst T +44 (0) martin.brunninger@goetzpartners.com PRICE PERFORMANCE 1 Nexstim OYJ /16 08/16 11/16 02/17 05/17 NXTMH-FI Source: Factset

2 Contents NEXSTIM OVERVIEW... 1 INVESTMENT THESIS SUMMARY... 2 THE INVESTMENT CASE... 3 The base scenario: E-FIT success... 4 The bear scenario: E-FIT failure... 5 HISTORY - WHY IS THE SHARE PRICE IS SO LOW?... 6 COMPANY BACKGROUND - HISTORY UNTIL THE IPO... 7 POST-IPO EVENTS UNTIL FEBRUARY FAILURE OF THE NICHE STUDY AND ENTRY OF BRACKNOR Bracknor a key investor in Nexstim HOW MANY SHARES WILL THERE BE EVENTUALLY? Sitra stand-by equity distribution agreement ( SEDA ) Future number of shares: The technical outcome STRATEGIC FOCUS AND MARKET SIZE STROKE AND REHABILITATION Ischemic and haemorrhagic stroke Epidemiology and economic burden of stroke Prevention and rehabilitation NEXSTIM TECHNOLOGY & PRODUCTS Transcranial Magnetic Stimulator (TMS) Navigated Brain Stimulation (NBS) System Navigated Brain Therapy (NBT) System NICHE STUDY AND THE SUPPLEMENTARY STUDY DESIGN Clinical trial - Phase II NICHE trial design and results Of donuts and cones The non-defective sham device? How to put this right? The E-FIT supplementary trial NEXSTIM MANAGEMENT Martin Jamieson, Chairman and CEO Mikko Karvinen, CFO Jarmo Laine, Vice President, Medical Affairs Gustav Järnefelt, Vice President, R&D FINANCIAL ASSUMPTIONS Sales assumptions - NBS Sales assumptions - NBT Economics And Sensitivity Analysis Balance sheet and cash flow assumptions FINANCIAL MODELS Sales model Profit & Loss Model Cash Flow Statement Balance Sheet... 32

3 Page 1 Nexstim overview The current focus is on improving rehabilitation for stroke patients Nexstim is a Finnish Helsinki-based medical technology company with a new technology in navigated transcranial magnetic stimulation. The current focus is on improving rehabilitation for stroke patients with non-invasive brain stimulation. Nexstim pioneered the technology for brain diagnostics with its Navigated Brain Stimulation ( NBS System ). The same technology platform is currently trialled in stroke therapy with a device called Navigated Brain Therapy ( NBT System ), but same technological principle. CHART 1: Nexstim Transcranial Magnetic Stimulation (TMS) platform Nexstim Diagnostic Navigated Brain Stimulation (NBS) Therapy Navigated Brain Therapy (NBT) Source: goetzpartners Research, Nexstim In February 2016, the share price of Nexstim came under pressure following the negative outcome of the pivotal phase III study on NBT. Unexpected efficacy in the Placebolike simulation device caused failure of the pivotal trial Agreed with the FDA design for a supplementary study with the new sham device While the efficacy observed in the study was in-line with expectations of the company, a better than expected recovery rate emerged in the control group. This unexpected efficacy was caused by a failure of the Placebo-like simulation device in the trial, which displayed activity similar to the device in the experimental arm. During the last 12 months, the company has secured sufficient funding for its clinical trial programs and commercialisation plans. The company has agreed with the FDA design for a supplementary study with the new sham device. Nexstim is an international company with offices in both Europe and the US. It has established a wide network of distributors, which are predominantly located in Europe and Scandinavia. The shares of Nexstim has dual listings in the junior markets Nasdaq First North in Helsinki and Stockholm. CHART 2: Nexstim- Headquarters and distributors HQ Helsinki HQ Chicago HQ Frankfurt Headquarter (HQ) Distributors Stock listing Source: goetzpartners Research, Nexstim

4 Page 2 Investment Thesis Summary Attractive risk reward profile after stroke trial depression The FDA appears to be very favorable for Nexstim s device We believe Nexstim is significantly undervalued and offers highly attractive risk-reward ratio for new investors. The shares experienced a significant hit after the company released the stroke trial results earlier last year, followed by unfavourable financing. We believe that the failure was due to ill designed control arm and there is significant upside opportunity for new investors. The FDA is favourable with the flawed trial and asked the company to redo a smaller trial to confirm the ill designed sham device and the promising data in the experimental arm. We expect a confirmatory result for the intervention Q Our base scenario assumption is that the currently run 60-patient supplementary trial will confirm the efficacy of the NBT System treatment in stroke patients rehabilitation, and lead to FDA marketing clearance before the end of Under such a scenario, the current fully diluted market cap of 22m would be extremely attractive, even considering the funding needs for US commercialisation. Base case forecasts, leading to the DCF-derived value of 1.27 per share In our base scenario, we believe the share would be worth Our base case forecasts, leading to the DCF-derived value of 1.27 per share, is driven by the following assumptions: Success of the supplementary trial, news out Q NBT's FDA marketing clearance in Q4/ m financing in Q3/2018 at 0.50 per share. Steady growth of the NBS System in Europe and US. Rapid build-up of sales efforts and other costs in , leading to 9m increase in cost base. If the supplementary trial fails, we see limited upside opportunity in the near to midterm for Nexstim shares. However, there is some downside protection from the current sales of the NBS System and additional upside from possible out-licensing the technology. In this the fall-back position scenario, Nexstim would be worth 0.12 per share, almost 40% below the current share price. We believe the base case is most likely outcome, (with 70% probability), in our view. With this assumption, we set our target price at 0.93 per share to reflect the probability-adjusted average from the DCF values under the two scenarios. CHART 3: SOTP per equity value (based on the base scenario) CHART 4: SOTP per share (base scenario) NBS NBT Cast Debt OPEX Source: goetzpartners Research NBS NBT Cast Debt OPEX Source: goetzpartners Research

5 Page 3 The Investment Case Investment case with an asymmetric risk profile downside is fairly protected We believe that Nexstim represents an interesting investment case with an asymmetric risk profile. The downside is fairly protected by an existing business, whereas the upside could be significant. We expect the shares to run up to the E-FIT results in Q We also see the company as an acquisition target. For the first time in almost a year, investors can quantify the dilution and look at the fundamentals of the investment case. Based on the remaining Sitra stand-by facility and the warrants, the number of shares will still go up, but we can now estimate that the relevant share number for new investors is 117.8m. Options for the board of directors and management add maximum 7m shares to this. At the current share price of 0.18, this indicates a market cap of 21m. new technology with significant market potential In our view, the major three shareholders are believers in the upside from the trial result. Hence, there is no large shareholder with interest in selling the shares putting pressure on the stock. Bracknor had to divest the shares they subscribed to and this put serious pressure on the share price. This also benefitted Bracknor since the newly acquired shares would be at even lower valuation, pressing down the average price paid for their remaining stake after the dust settles. After Sitra completes the last bit of their SEDA both Sitra and Bracknor will soon be simply shareholders with warrants at fixed strike price. The board has just been granted Restricted Share Units, RSUs by the AGM. The conversion from the nominal value 12,500 into shares was based on the trade volume weighted average quotation of the company s share on Nasdaq Helsinki Ltd during 20 trading days following the release date of the company s Financial Statements. While new RSUs will be issued next year again, it is likely that the results of the E-FIT trial will be out at that time. Hence, all the shareholders and the management team should now have a clear interest in the share price going up. CHART 5: TOP 100 Nestim shareholders CHART 6: Top 20 Finnish shareholders (16.2% of total shares) CHART 7: Top 20 Swedish Shareholders (18.83% of total shares) Other Avanza Pension Sydbank Nordnet Livsforsikring YAZDANPANAH Nordnet Pens. Henriksson Haapaniemi O.A. Source: Nexstim; fractured shareholdership and high number of retail investors; Full names of shareholders as listed by Nexstim: Avanza Pension; Sydbank A/S; Nordnet Livsforsikring As (N); YAZDANPANAH, MEHDI (N); Nordnet Pensionsförsäkring AB; Henriksson, Joel (N); Haapaniemi, Ossi Antero (N) Ilmarinen Mutual Haapaniemi O.L.O Joensuun Kauppa Ja Kone Oy Haapaniemi O. Other Sitra Source: Nexstim; Full name of shareholders as listed by Nexstim: The Finnish National Fund for Research and Development Sitra; Haapaniemi Ossi; Joensuun Kauppa ja Kone Oy; Haapaniemi O.Law Oy; Ilmarinen Mutual Pension Insurance Company) Other Nordnet Pens. YAZDANPANAH Avanza Pension Sydbank Nordnet Livsforsikring Source: Nexstim; Nexstim; Full names of shareholders as listed by Nexstim: Avanza Pension; Sydbank A/S; Nordnet Livsforsikring As (N); YAZDANPANAH, MEHDI (N); Nordnet Pensionsförsäkring AB ))

6 Page 4 The base scenario: E-FIT success Our base scenario assumes a successful outcome of the E-FIT trial and NBT launch in late Expansion would very fast create a highly profitable service business as the number of outstanding units increases and the high-margin consumable revenue kicks in. We value the company under such a scenario primarily with DCF valuation with 10% discount rate, 2% terminal growth beyond year 2025 and full equity financing - Nexstim is hardly viable for credit financing now. The base scenario DCF model suggests a value of 1.27 per share. We expect strong price tension in running up to the trial results in Q2/2018 While the risk reward profile is attractive with the stroke indication as a free option, most sales will not come before mid of next decade. However, risk adjustments for this huge indication will change dramatically and we predict a strong price tension in running up to the trial results in Q2/2018. Under such circumstance, it is essential to look at the multiples. Although even the EV/Sales multiples are very high now, we believe the company can be very attractively valued on profit multiples already in 2021, if everything goes well. In 2021, we forecast 44.7m sales and 5.9m EBIT for the company, leading to a single digit P/E multiple. More likely, in case of E-FIT success and FDA marketing clearance for NBT, Nexstim could be an acquisition target in our view. Given the innovation dilemma of large cap pharma, we believe that Medtech solutions are in high demand. CHART 8: Nexstim Discounted Cash Flow and multiples m 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E Multiples: Terminal value EPS EV / Sales x EV / EBIT x P/E x Current share price: 0.18 DCF: Free Cash Flow Present value Cumulative, m Cumulatieve DCF Value per shares: Discount rate: 10% Terminal growth: 2% Source: goetzpartners Research estimates

7 Page 5 The bear scenario: E-FIT failure Given the diagnostic franchise of Nexstim, the downside is relatively limited at current trading levels. Stroke is not the only therapy option Our investment case is based on an attractive risk reward profile. However, should NICHE trial not reach the endpoint we would expect Nexstim shares to come under pressure. The company has sales from NBS and is close to profitability with modest sales increase and no investments in NBT. It is clear that in case of E-FIT failure the company value would not offer lucrative upside for investors, but offers a floor and some comfort. Should the stroke trial fail, we point out that there are other therapeutic options for Nexstim s diagnostic technology. CHART 9: Nexstim P&L - Bear scenario m 2015A 2016A 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E Revenue % yoy 14.4% -1.8% 21.2% 56.2% 45.2% 61.5% 14.4% 17.4% 7.0% 5.1% 7.3% COGS Gross profit % of sales 67.5% 72.3% 70.0% 69.4% 69.0% 68.6% 68.7% 68.7% 68.8% 68.9% 68.9% Personnel costs Other costs D&A EBIT EBIT margin % -410% -270% -210% -100% -40% 0% 8% 16% 19% 21% 24% Financial expenses & income Pretax Profit Taxes Tax rate % na na na na na na 0.0% 0.0% 0.0% 0.0% 20.0% Net Profit % yoy 141.0% 26.3% 15.8% -2.7% Source: goetzpartners Research estimates Compared to the base scenario, our Bear scenario differs in the following assumptions NBT has been excluded from sales & COGS calculations. There is still a sales ramp-up in 2018 and 2019 but on a much smaller scale. Increase in sales costs is more than compensated by reduction in clinical trial & other costs. In total, the operational expenses are reduced by 1m over Lower profitability means that the company will not pay tax before The warrants will remain unused (assuming the share price will not rise) and the 5m share issue in 2018 is forced to be done at very dilutive 0.15 value per share. Under the bear scenario, we believe it would be possible for the company to reach break-even profitability in 2020, albeit at much lower sales level and weaker growth prospects. As a result, we would value the remaining business with 2.0x EV/Sales on 2020 estimates, i.e. 17m or 0.12 per share.

8 Share price (in EUR) Page 6 HISTORY - WHY IS THE SHARE PRICE IS SO LOW? The reasons for the share price fall have been cleared Understanding the history of Nexstim as a public company is key to understanding the investment opportunity. The share price chart makes it clear that the company does not have a uniformly successful past and raises questions whether the reasons for the share price fall have been cleared. CHART 10: Nexstim price (LHS) & volume (RHS) development ,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Source: FactSet, goetzpartners Research In particular, the prospective investors will need to understand the answers to two questions: Why did the NICHE study fail in February 2016 (causing the big share price fall) and are there prospects for a better outcome from the ongoing E-FIT trial? What caused the subsequent massive dilution and increase in # of shares, and has this now stopped? How many shares will there be when the dust settles? We believe the NICHE trial failed due to unexpected efficacy in the placebo arm, caused by the thenused sham coil. For the first time for nearly a year, we have transparency on the number of shares as most of the dilution is behind us.

9 Page 7 Company background - history until the IPO The original idea was to add navigation to then emerging transcranial magnetic stimulation Professor Risto Ilmoniemi originally founded Nexstim Oyj in 2000 as Neuroway Technologies Oy. Prof Ilmoniemi worked at the low temperature physics laboratory of the university and collaborated with Helsinki University Hospital. Mr. Pekka Puolakka, a co-founder, had entrepreneurial background and had been involved in many growth companies. The original idea was to add navigation to then emerging transcranial magnetic stimulation ( TMS ) technology to make TMS visible, accurate and reproducible. TMS is a non-invasive procedure that uses magnetic fields to stimulate or suppress nerve cells in the brain. In various forms, it is used to improve symptoms of various indications, including depression, schizophrenia, pain, stroke and amyotrophic lateral sclerosis. CHART 11: Transcranial Magnetic Stimulation. Source: Nexstim, Mayo Clinic Nexstim started developing a device for stroke therapy called Navigated Brain Therapy ( NBT ) system Nexstim added navigation to the traditional TMS procedures that were limited due to unknown stimulation location and based on the same technology platform. The company also started developing a device for stroke therapy called Navigated Brain Therapy ( NBT ) system. NBT focuses stimulation on targeted locations in the brain to enhance and accelerate stroke rehabilitation. Stimulation intensity is calculated from the accurate measurement of brain excitability with the personal resting motor threshold ( MT ) of each patient. The main elements in the history of Nexstim are development and commercialisation of NBS and the ongoing clinical development of NBT. After obtaining the CE-mark in 2003 and FDA clearance in 2009 for NBS, Nexstim s commercial strategy was to target key opinion leaders at leading universities and teaching hospitals to gain revenue and reference customers. Indeed, the company today claims an impressive list of clinics using the tool in pre-surgical mapping.

10 Page 8 CHART 12: Clinics using the NBS system Source: Nexstim The sales remain rather modest, the NBS System generates 2.5m revenue annually, including postsale activities such as training, maintenance and the sale of spare and consumable parts. Market potential of NBS as a standalone product remains untested as the company focused on the development of NBT rather than the marketing of NBS The true market potential of NBS as a stand-alone product remains untested as the company focused on the development of NBT rather than the marketing of NBS. Towards the IPO, the company s focus shifted towards developing the much bigger market of stroke therapy for NBT. Indeed, in the IPO the investment story was very much focused on the prospects for NBT in stroke rehab. Year CHART 13: Nexstim company history until the IPO. Event 2000 Company founded by Risto Ilmoniemi and Pekka Puolakka First commercial product launched, first CE mark and first device sold to University of Wisconsin, Madison, USA Winner of the European Information Society Technology (IST) Prize Completion of the first Nexstim NBS System. First unit placed in Germany at Charité Berlin Neurology Department and first motor mapping of brain tumour done followed by surgery Subsidiaries established in the US, UK and Germany First FDA approval received to market NBS System for motor mapping in the US Phase II trial of NBT System in the US launched FDA approval received to market NBS System for speech mapping in the US. FDA's positive response to multi-centre phase III stroke trial pre IDE received. CPT III reimbursement code for pre-surgical mapping made with the NBS System and OPS reimbursement code in Germany Phase II trial of NBT System succesful PSM outcome papers show positive outcomes in clinical patient care. Phase II trial data of NBT System published in February. Phase III multi-centre trial for NBT System launched in the US. The Company was awarded a spot on the Red Herring European Top 100 list and was also included in the Wired UK's hottest startups 2014 list. The Company successfully completed its initial public offering, raising EUR 15.3 million. Trading of Nexstim Plc shares began in both First North Finland and First North Sweden. Chronic Neuropathic Pain Therapy added to the Company's clinical indication pipeline with co- operation agreement with the Walton Center, Liverpool. Source: Nexstim

11 Page 9 The company issued 2,408,339 shares at 6.35 per share subscription price, raising 15.3m The IPO was structured so that the company achieved dual listing in the junior exchanges in both Helsinki and Stockholm (a.k.a. Nasdaq First North in both cities). In the IPO, the company issued 2,408,339 shares at 6.35 per share subscription price, raising 15,3m. By this time Professor Ilmoniemi and Mr Puolakka had become passive shareholders in the company and major shareholders were professional healthcare investors and new management had been recruited. CHART 14: Nexstim after the IPO at Nexstim end of 2014 after the IPO at end of 2014 Number of shares 7,130,758 Share price & Market cap Funds invested into the company Chairman Key management Key shareholders IPO price 6.35, Market Cap of 45.3m 50.3m cumulatively, including the IPO proceedings 15.3m, but excluding public funding (Tekes) Timothy Irish Janne Huhtala (CEO), Mikko Karvinen (CFO) Sitra (21%), HealthCap (est. 25%), Capricorn (est. 5%), Lundbeckfonden (4.7%) Source: goetzpartners Research, Nexstim

12 Page 10 Post-IPO events until February 2016 Post-IPO Nexstim had a clear strategy and over 15m available funds. Although the company had failed to create value over its lifetime (the market cap did not match the capital cumulatively invested into the company) it was a reasonable bet on the very high potential in NBT. During 2015 and 2016 the company faced combined cash burn of over 17m However, the company s life as public company has not been smooth. The chairman resigned over conflicts of interest in the UK health care system and it became soon clear that the cash burn rate was too high. The NICHE trial would not be completed without new capital injection. During 2015 and 2016 the company faced combined cash burn of over 17m. In December 2015, the company elected its new chairman Martin Jamiesson, an industry veteran found via a head-hunter. The temporary chairman, Finnish medtech veteran Mr. Olli Riikkala remained as the vice Chairman. In order to improve the capital situation, the company completed a private placement of newly issued shares. The major shareholders Sitra, HealthCap and Capricon participated in the offering. CHART 15: Nexstim after the share issue in December 2015 Number of shares 8,010,758 Share price & Market cap Share issue at 6.00, Market Cap of 48.1m Funds invested into the company Chairman 55.6m cumulatively, including the private placement proceedings 5.3m and public funding (Tekes) Martin Jamieson Key management Janne Huhtala (CEO), Mikko Karvinen (CFO) Key shareholders Sitra (19,99%), Lundbeckfond (4.1%). Total nominee shareholders over 50%. Source: goetzpartners Research, Nexstim Despite the improved cash situation and some attempts to reduce the burn rate, the company did not gain confidence of the stock markets. Even when the company announced faster-than expected competition of enrolment in the NICHE study, followed by positive first interim analysis, the share price did not react positively. By February 2016 the share price was still below the latest issue price of 6.0 and the IPO price of 6.35.

13 Page 11 Failure of the NICHE study and entry of Bracknor On 28 February 2016, the company announced the failure of the NICHE study. The pre-defined stopping criteria for futility had been met and the study had no chance of meeting its primary endpoint. The Data Safety Monitoring Board had reviewed the interim data and noted that there was no difference between the active and control arms of the patients. No safety issues were detected and both enrolment and treatments had been completed as per scheduled. With the main component of the investment case now evaporated, the share price collapsed over 80% on the news. Shortly thereafter the company announced that the failure was due to both control and active arm treatments having an effect (see later for detailed explanation), but the share did not recover. The CEO resigned shortly after the NICHE results were announced. With another trial needed for FDA marketing clearance, the company did not have sufficient funds for clinical development after all. After the directed share issue, Nexstim had begun year 2016 with over 6.9m in cash and had hoped to complete the phase III trial with existing cash reserves. With a positive result the company could have been able to raise more capital for the FDA marketing clearance process & commercialisation. However, with the failure of the study, the company faced a situation where the cash reserves would end in a couple of months, despite 2.3m cost reductions and cost cuts in the US organisation and the HQ in Helsinki. The negotiation position under such circumstances was understandably weak. Bracknor a key investor in Nexstim Consequently, the company was under pressure to sign a dilutive long-term financing plan in July Main shareholder Sitra supported the transaction and it brought in Bracknor Investment, a Dubai-based alternative investment firm. The deal provided much-needed relief for the acute cash situation, but it also included components that were highly disadvantageous to the pre-existing shareholders who faced massive dilution. The key parts of the deal were the following: 5m convertible bond facility ( CBF ) agreement with Bracknor: Bracknor could convert tranches of convertibles into newly issued shares. The conversion would be at 15% discount to the lowest oneday volume-weighted average price at Nasdaq First North Finland over the pricing period of 15 days preceding the conversion. To activate the CBF, the company had to pay Bracknor 200,000 euros in newly issued shares. At the time of the AGM in March 2017, this facility was 100% used. 5m stand-by equity distribution agreement ( Bracknor SEDA ) with Bracknor: Under this agreement, Bracknor could at any time subscribe to # of new shares equal to 500% of the 20 day average volume preceding the time of subscription. The strike price of the subscription was at 15% discount to the lowest one-day volume-weighted average price at Nasdaq First North Finland over the pricing period of 5 business days preceding the conversion. To activate the Bracknor SEDA, the company had to pay Bracknor 150,000 euros in newly issued shares. At the time of the AGM in March 2017, this facility was 100% used. 1.5m stand-by equity distribution agreement ( Sitra SEDA ) with Sitra: The terms were materially similar to the Blacknor SEDA. To activate the Sitra SEDA, the company had to pay Sitra 60,000 euros in newly issued shares. At the time of the AGM in March 2017, maximum 0.5m of this facility remained unused. 0.5m directed share issuance ( Directed Issuance ) with Sitra. Separate warrants agreement ( Warrants ) with Bracknor and Sitra: In addition to the CBF agreement and the SEDAs, both Blacknor and Sitra received additional warrants where the subscription price was essentially at market level. At the time of the AGM in March 2017, there remained 15m worth of warrants to be used and 0.5m has been used since then. The strike prices range between The share price initially rallied as reaction to the agreement, but as the amount of dilution became clear to the investors, the share price drifted downwards. It is also notable that nothing in the agreements prevented Bracknor or Sitra from selling Nexstim shares in the market. Indeed, we understand Bracknor is unwilling to own over 5% of the shares over the long term and they have had to sell down their holdings after subscribing to new shares issued by the company. Whatever the

14 Page 12 reason for the share price weakness, the share price fell so low that the board ran out of authority when issuing new shares and an EGM had to be arranged in February 2017 to authorise the board for issuance of sufficient number of shares. Because of the agreements, the number of shares has multiplied many-fold and the original shareholders were diluted over time. The dilution from these agreements has now mainly happened and the investment case stands on a more solid ground. In the AGM in March 2017 the company provided an extensive update on the situation. CHART 16: Nexstim situation currently. Number of shares Share price & Market cap Funds invested into the company Chairman Key management 81,130,333 (excluding dilution from Sitra stand-by agreement, warrants and management options) Closing price 15 May => Market Cap of 15m. 68m cumulatively, excluding public funding (Tekes) Martin Jamieson Martin Jamieson (CEO), Mikko Karvinen (CFO) Key shareholders Nominee registered shareholders (76%), Sitra (8%). Source: goetzpartners Research, Nexstim At the date of this initiation report, there were 81.1m shares. After the end of 2016, Bracknor and Sitra invested 2.95m into the company through the SEDA instruments before the AGM. In addition, the balance sheet strengthened somewhat when Bracknor converted capital loans worth 0.85m into shares, and 26 April the company announced that Bracknor had invested further 0.5m into the company, exercising part of the tranche with strike price.

15 Page 13 How many shares will there be eventually? Most of the dilution is now behind us, but the transparency in the market is weak. Few investors have been able to remain updated on the past and future dilution. In the following, we explicitly show the expected total number of shares after both Sitra and Bracknor have used their rights in full. The table below lists the instruments and how much of them have been completed. CHART 17: Current status of the financing instruments Instrument Size, total Funding status Dilution, # shares Note Shares outstanding 81,130,333 Convertible notes 5m Completed Stand-by-Equity Facilities Source: goetzpartners Research, Nexstim 6.5m 92% Funded 1,991,580 Direct share issue 0.5m Completed Warrants 15m All outstanding 34,733,378 Total shares outstanding after the dilution 117,855,291 Max 0.5m from Sitra remains. Sitra has indicated they wish to complete this by end of Q2/2017. See separate table for details The biggest remaining source of dilution are the warrants. The outstanding warrants with the strike price is listed in the table below. If exercised fully, the warrants would add over 34m shares to the total. However, this assumes that the share price will rise to over for the share subscription to be attractive for Sitra and Bracknor. Assuming that, this would also add nearly 14.5m to the financial resources of the company. CHART 18: List of outstanding warrants Warrant Exercise price Max # of warrants Expiry Capital raised (calculated) CBF ,871 August ,518 CBF ,419 September ,549 CBF ,026,947 October ,211 CBF ,231,545 November ,274 CBF ,463,090 November ,294,296 CBF ,033,864 December ,782,390 CBF ,448,117 December ,529 SEDA ,822 November ,262 SEDA ,041 November ,222 SEDA ,564 November ,877 SEDA ,438,228 November ,060 SEDA ,346 January ,509 SEDA ,875,539 March ,860,817 SITRA ,652 August ,361 SITRA ,669 December ,633 SITRA ,233,664 March ,641 Total 34,733,378 14,452,148 Source: goetzpartners Research, Nexstim

16 Page 14 Sitra stand-by equity distribution agreement ( SEDA ) In addition, Sitra has 0.5m remaining from the SEDA agreement. Unlike in earlier cases, the maximum dilution is fixed and the amount of capital raised is variable and depends on the share price - the dilution is capped at 1,991,580 shares, including both the share issue and the new warrants that are created in the process. Assuming that these will be exercised at 0.14, the Sitra SEDA will add / raise The company expects the last Sitra share issue to be subscribed to before the end of Q2/2017. That is when the market is likely to start focusing on during the outcome of the clinical supplementary E-FIT trial. Future number of shares: The technical outcome We believe the relevant number for new investors, when calculating the possible investment returns in successful scenarios, is 117.8m plus dilution from likely new share issue in 2018 after the E-FIT trial is out. However, the warrants are unlikely to be exercised over the next couple of years, meaning that in the near future the number of outstanding shares will be the current number 81,130,333 plus 1,991,580 from the Sitra stand-by agreement. This is the number of shares with which the company will probably go into the outcome of the E-FIT trial, in our view. The financing arrangements were extremely complex and difficult to track for external investors and indeed even for the management who needed the EGM to increase the authorisation for new share issues. In addition to the reduced intrinsic value per share stemming from the dilution, the uncertainty has been a factor in keeping investors out of the share. Now we believe the focus will move back to the fundamentals of the technology, outlook for the clinical development and financial forecasts. Instead of a special situation case, Nexstim can be looked at as a normal investment case again.

17 Page 15 Strategic focus and market size The future strategic focus of Nexstim is in therapeutic applications for NBT. Pre-screen mapping of the brain ahead of surgery with NBS has been an important source of revenue and credibility to the company & technology. But although this business may still grow substantially, we don t see this use as substantial enough to justify investment at the current share prices. Instead, the use of the NBT technology in various neurological indications lies in the heart of Nexstim strategy. In particular, the company draws attention to Stroke Rehabilitation Therapy. Other possible indications in the future include chronic pain, depression, schizophrenia, aphasia and tinnitus. CHART 19: Brain sections possibly relevant for future indications Source: Nexstim Since there are no near-term plans to enter the other indications, we leave them out of our financial model and forecasts. If the E-FIT trial is successful and the company gains enough financial resources, these could become central to the investment case going forward.

18 Page 16 Stroke and rehabilitation Ischemic and haemorrhagic stroke A stroke occurs, when poor blood flow to the brain causes cell death. There are two main types of stroke, which are ischemic stroke and haemorrhagic stroke. Ischemic strokes are due to a lack of blood flow, while haemorrhagic strokes are caused by bleeding. Either way, the brain is deprived of oxygen. This causes damage to the brain tissue and the worst affected brain cells die. The clinical effects of stroke depend on the area of the brain affected. If the stroke occurs toward the back of the brain, for instance, it s likely that some disability involving vision will result. The severity of the effect depends on the extent of the brain tissue affected and the duration of the oxygen deprivation. 50% of stroke survivors will have upper limb paralysis with few available treatment options. Strokes can occur at any age, but are more common in elderly than among the young. Due to the high prevalence and the ageing population in the Western markets, stroke is a large and rapidly growing market. Epidemiology and economic burden of stroke Every year approximately 795,000 people suffer from a stroke out of which about 600,000 strokes are first time strokes in the US with a total of an estimated 16m first time strokes worldwide. Stroke is the third leading cause of death in the US with more than 140,000 people dying each year from stoke in the US alone with an estimated 5.7m deaths being attributed to stroke worldwide. Furthermore, stroke is the leading cause of long-term disability in the US. While most stroke sufferers are above the age of 65, stroke can affect people of any age with one fourth of people being below the age of 65 at the time of their first stroke (U.S. Centre for disease control and prevention; strokecentre.org; Di Carlo, 2009). Stroke is a costly disease both in terms of economic as well as human burden. In the US alone the direct and indirect cost of stroke was estimated to be $65.5bn in 2008 (DiCarlo, 2009), a figure which we expect has considerably increased since the estimation was made. In the UK, the cost to society was estimated to be 8.9bn a year. Out of this, 49% were direct costs, 24% indirect costs and 27% informal care. This calculation puts the direct cost of cancer in the UK at 4.4bn representing approximately, 5.5% of the total UK national health expenditures (DiCarlo, 2009). Prevention and rehabilitation In otherwise healthy people there is currently no recommended primary prevention for stroke, while there is some evidence pointing at aspirin being able to lower the risk of recurrence of stroke and furthermore may be beneficial in higher risk groups. Stroke rehabilitation is aimed at returning patients to a normal life. Rehabilitation is typically a multi-disciplinary approach combining physical therapy, occupational therapy and speech-language pathology. Stroke has been a difficult indication for the pharmaceutical industry and multiple drugs have failed in the late stage trials, both in ischemic and haemorrhagic stroke. There are several non-invasive rehabilitation methods currently in development such as transcranial magnetic stimulation (TMS and transcranial direct-current stimulation to augment physical therapy (Frengi, Pascual-Leone et al., 2007). Stroke rehabilitation is most commonly used during the first 3 month period after the stroke and this is the period when Nexstim is using NBT in the clinical trials and at the early stages of commercialisation.

19 Page 17 CHART 20: Data on stroke incidence (million people) 2015 Incidence stroke 2015 Incidence stroke Europe 1.2 Europe 8 USA 0.8 China 2.5 USA 6.5 China 15 Source: Nexstim

20 Page 18 Nexstim technology & products At the heart of Nexstim technology is the combination of transcranial magnetic stimulator ( TMS ), an established technology, and a navigation system driven by proprietary software algorithms. This core is combined to other established technologies including electromyography ( EMG ) and Magnetic Resonance Imaging ( MRI ). Transcranial Magnetic Stimulator (TMS) In TMS, a magnetic field is used to produce small electric currents in the brain. The physical phenomenon is called electromagnetic induction. In more general terms, this means the production of electricity in a target via dynamic interaction with a quickly changing magnetic field. In the specific case of applying magnetic field to the neural tissue, an electric field is created which in turn causes a change in the transmembrane current of the neuron and the firing of an action potential. During a TMS session, an electromagnetic coil is placed against the scalp. The electromagnetic field delivers a magnetic pulse that stimulates nerve cells in the region of the brain close to the coil. The stimulated region and evoked response is recorded and a causal relation between brain activation and behaviour is recorded. Navigated Brain Stimulation (NBS) System Navigated Brain Stimulation ( NBS ) by Nexstim is the only CE marked and FDA cleared non-invasive solution to pre-surgical mapping of the motor cortex. The company was originally founded around this concept. The founders of Nexstim believed that adding brain sector-specific navigation to TMS toolkit would be crucial for the technology to become a useful clinical tool for patient treatment. The NBS system creates a map of the eloquent cortex superimposed on an MRI. NBS accurately locates the stimulating electric field in the cortex and the muscle responses are recorded with EMG technology. An EMG detects the electric potential generated by muscle cells when they are neurologically activated. From the operational and patient perspective, NBS is superior to the more commonly used direct cortical stimulation ( DCS ) which involves placing electrodes directly on the brain tissue. This is done during surgical operation with the scull open, prior to brain tissue resection. This is a challenging procedure, requiring the patient to be awake while electric stimulation is applied directly to the brain. CHART 21: NBS system Source: Nexstim

21 Page 19 The NBS system includes the full set-up of necessary equipment arranged around a chair where the patient is seated during the operation. Nexstim uses third-party providers of much of the equipment (Sanmina Corporation, Innokas Medical are used), but the assembling and final configuration is done by the company in Finland. Integration of ntms into the surgical workflow improves pre-operative planning, patient counselling, and surgical procedures, leading in turn to clinical benefits. Most impressively, adding NBS to DCS has clearly increased the progression-free survival time of the patients. The clinical benefits are summarised in two recent publications. CHART 22: Progression-Free Survival data. Progression-Free Survival (Months) NBS+Direct Cortical stimulation 46% Increase in PFS in Low Grade Gliomas Direct Cortical Stimulation Source: goetzpartners Research. Navigated transcranial magnetic stimulation improves the treatment outcome in patients with brain tumours in motor eloquent locations. Frey D, P Vajkoczy, T Picht, et. al, Neuro-Oncology 2014, Jun 12. Preoperative motor mapping by navigated transcranial magnetic brain stimulation improves outcome for motor eloquent lesions Krieg SM, Ringel F, el. al, Neuro-Oncology, 2014 Feb 9. Pre-surgical planning with NBS enabled execution of a more aggressive surgical strategy in more than 75% of the cases. Localisation of motor function by NBS was a key element in the decision to resect rather than biopsy. The confidence in anatomical location of motor eloquent tissue potentially offers the capability to deploy less extensive DCS, leading to significantly smaller craniotomies. NBS as an adjunct to DCS results in a 35% increase or greater in the rate of gross total resection. Pre-surgical mapping with NBS led to more complete resections resulting in a seven month (46%) extension in progression free survival in low grade gliomas (p=.05)

22 Page 20 Navigated Brain Therapy (NBT) System 1 The device approach could be both more efficiently from a health economic point of view In NBT systems, Nexstim attempts to use the navigated TMS therapeutically. Stimulation or inhibition of targeted brain areas could prove more effective and more convenient than the current drug approaches in clinical practice. Compared to biochemical interventions, the main benefit is lack of systemic side effects when the drug does not need to be given via gastrointestinal route or intravenously. NBT workstation looks almost identical with the NBS workstation, but with one screen instead of two. CHART 23: NBT station unit. Source: Nexstim When used in stroke, NBT seeks to improve rehabilitation of hand and arm movement, which affects the vast majority of the patients. In the Western world rehab treatment is commonly given, but the effectiveness is reduced by the after-effects of stroke. The motor cortices in the left and right hemispheres of human brain are strongly interconnected, with each side naturally inhibiting the activity of the other side. Normally a natural balance is achieved where inhibitory effects cancel each other. In stroke, however, one side is lesioned as its activation is decreased and its inhibition to the other side is reduced, leading to increased activation in the non-lesioned side. At the same time, the non-lesioned side still provides inhibitory signals to the lesioned side, even more than in the prior healthy balance situation. This mismatch leads to a condition where the lesioned hemisphere cannot easily deliver action potentials to the lower motor neuron and the corresponding muscles. As result, the effect of rehab treatment is compromised and the recovery is slowed down. 1Note: Nexstim's NBT System is not approved by the Food and Drug Administration for therapy in commercial use in the United States and is available to select physician for investigational use only.

23 Page 21 CHART 24: NBT: How it works Source: Nexstim Nexstim s key innovation is to use TMS to modulate the regional excitability of the brain. This will, in turn, improve the effectiveness of rehab therapy. Two approaches have been proposed where either the non-lesioned side is inhibited with 1Hz stimulation or, alternatively, the lesioned side is excited with higher-frequency (10 Hz) stimulation. Nexstim chose the first approach for the trial.

24 Page 22 NICHE study and the supplementary study design At the time of the IPO, Nexstim was a promising medtech company with a very encouraging treatment option in phase III trial. The trial in question was called NICHE. The study was started in mid-2014 and it was a two-year, multi-centre clinical trial at twelve rehabilitation sites in the US. However, the NICHE trial failed to meet its primary endpoint. We argue, that the trial did not fail to demonstrate efficacy, but failed due to a faulty sham device increasing the recovery rate in the placebo group beyond what would have been expected. This view is supported by the FDA, which encouraged Nexstim to run a further trial to establish an accurate base level with a redesigned sham device. This means that the new clinical trial has a higher than usual likelihood of succeeding, in our view. 80% 70% 60% 50% 40% 30% 20% 10% CHART 25: Unexpected efficacy of sham device resulted in clinical trial failure 0% Statistical significance expected 50% No statistical significance 67% 65% 67% Sham 1 NBT 2 Sham 3 NBT 4 Expected (based on Phase II trial) Phase III Source: goetzpartners Research, Nexstim Clinical trial - Phase II Prior to going to phase III, Nexstim had a convincing phase II data under their belt. In a proof-ofconcept (Phase II) trial, the use of NBT in conjunction with occupational therapy produced a threefold improvement in upper body movement over a six-month period. In the 30-patient trial, 84% of patients with sub-acute stroke receiving 1Hz TMS together with rehabilitation attained clinically important improvement of at least 5 points on the upper extremity Fugl-Meyer scale while in the sham group 50% did the same. CHART 26: Summary of the Phase II trial & results Description Primary outcome measure Concomitant therapy Proportion of patients showing minimal clinically important improvement, defined as an increase of 5 points on the upper-extremity Fugl-Meyer score Standard task-oriented motor rehabilitation # patients 30 Control Timeline Sham coil with low e-field. 6 months Results Source: Abstract presented at International Stroke Conference Harvey RL et al 84% of patients on the active treatment attained clinically important improvement while in the sham-rtms group 50% did the same (p<0.02). The mean point increase was 13.8 and 7.1 in patients receiving active TMS and sham-rtms, respectively. No serious adverse events were reported. Reducing the comparability of the phase II results to the NICHE trial, the sham group treatment included a field with very low bell curve shape, very different from the shape in NICHE trial. However, as we argue below, the shape in the phase II trial was most likely the better placebo and Nexstim should not have changed it.

25 Page 23 NICHE trial design and results In phase III, Nexstim decided to design a study not only for FDA marketing clearance, but also for generating enough health economic data for marketing. However, the primary endpoint was the same as in phase II and the company expected little problems in achieving the intended result. CHART 27: Summary of the NICHE trial design. Description Note Study objective To determine whether inhibition of the hand muscle 1Hz frequency used. areas on the healthy brain hemisphere has a beneficial effect on the motor recovery of the corresponding stroke-affected muscles. Concomitant therapy Standard task-oriented motor rehabilitation # patients 199 2:1 randomisation Primary outcome measure Proportion of patients showing minimal clinically important improvement, defined as an increase of 5 points on the upper-extremity Fugl-Meyer score The upper extremity Fugl-Meyer Scale measures the functionality of hand and arm movement on a scale of 0-66, where 0 corresponds to no movement and 66 to full functionality. Control Sham coil with donut -shape field. The sham coil caused similar auditory and sensory scalp responses as the active TMS coil. Equal frequency and length as the active coil (900 pulses at 1Hz). The shape of the sham field is important - we will discuss this in mode detail later. Timeline 6 months Measurements at baseline and 6 months post-treatment Inclusion criteria (summary) Over 18 years of age An ischemic or hemorrhagic one-sided stroke suffered 3-12 months prior to the study; upper extremity paresis No other known brain abnormalities by history; A Chedoke McMaster Stroke Assessment arm stage and hand stage of 3-6 for the affected limb Blinding Source: Clinicaltrials.gov, Nexstim, goetzpartners Research Double-blinded. The patient and all study personnel involved in treatment were blinded, except for the person administering rtms at the study site. Neither the patient nor the study personnel knew whether the patient was receiving active treatment or sham. An obviously crucial component in phase III pivotal trials is blinding. Both the patients and the study personnel should be kept as much unaware of the randomisation as possible, i.e. not knowing whether the patient receives active treatment or placebo. In TMS process, sound and muscle movements resulting from activation can reveal the randomisation status of an individual patient. Putting more focus in blinding than in the phase II trials, the pivotal NICHE trial used a new coil that did not differ in the level or type of noise generated and created patient experience that was similar between the arms. The sham coil created a field like the active one did, but its shape was different - there was a hole in the middle and the field resembled a donut. The idea was to avoid affecting the exact target area, but direct the field in the areas surrounding the focus area. This was intended to create similar affects otherwise, but no impact on the brain area important for the treatment effect. After one successfully passed interim analysis, Nexstim announced the shock news on 28 February 2016, that the NICHE trial had failed.

26 Page 24 CHART 28: NICHE trial results Primary outcome measure Results: Description Proportion of patients showing minimal clinically important improvement, defined as an increase of 5 points on the upper-extremity Fugl-Meyer score The study was stopped prematurely. 173/199 patients had gone through the full 6 month follow-up while the remaining had only had the follow-up visit at 3 months. Primary endpoint: Clinically important improvement was reached by 67% of subjects in the active arm and 65% in the sham arm. The difference was not anywhere near statistically significant. The average improvement on UEFM was 8.2 points. Source: Nexstim Secondary endpoints: Action Research Arm Test; Wolf-Motor Function Test; Stroke Impact Scale; National Institute of Health Stroke Scale; Chedoke McMaster Stroke Assessment for Hand and Arm and the quality of life instrument ED-5Q, demonstrated a statistically significant improvement from baseline to 6 months after end of trial therapy in both trial arms (P<0.001). No serious adverse events were reported. At the time of the interim analysis, the management had been happy to note that the overall patient population was doing well, assuming that the active arm was doing really well and the placebo patients unchanged from the baseline. In fact, there was nearly no difference between the arms, although the patient population as a whole was doing well compared to the baseline, including many secondary endpoints of the trial.

27 Page 25 Of donuts and cones The non-defective sham device? It is possible that the active NBT works as intended, but that the placebo arm had similar effect, against company expectations. In other words, the treatment possibly works even if the study failed. The explanation likely lies in the field shape. The active coil creates a magnetic field to induce a highly focal cone-shaped strong electronic field. The head of the cone penetrates relatively deep into the brain. In the NICHE trial, the sham coil created a donut-shaped electronic field without a head but instead a lower ring-shaped field. The assumption was that lack of sharp head in the shape would lead to lack of efficacy. CHART 29: Shapes of the active and sham coil in NICHE trial. Source: Nexstim Source: Nexstim Unnoticed by the company or the investors, during the phase III trial scientific articles came out that suggested that the stimulation may oscillate within the neural tissue, i.e. in the case of Nexstim from the donut ring to the target area in the middle, i.e. the centre of the donut. CHART 30: Mechanism how the ring of the donut may affect the target area. Source: Nexstim. Understanding the Effects of Repetitive Transcranial Magnetic Stimulation on Neuronal Circuits. Matheson et al, Front Neural Circuits 2016 Aug; 10:67. In addition, it was suggested that even a minimally weak signal can cause inhibition in the target area by increasing the activity of interneurons around the target area. The interneurons are naturally inhibitory and increased activity in them leads to reduced activity in the target neurones, just like the active coil would.

28 Page 26 How to put this right? The E-FIT supplementary trial. Nexstim now faces the burden of proof to show that the active sham theory is correct. With this in mind the company created a new active coil, one that creates an electric field even lower than the one used in the successful Phase II trial. A graphical comparison suggests that any potential issue caused by the donut shape in NICHE trial should not be repeated with the new sham coil. CHART 31: Shapes of the fields in phase 2, NICHE trial and the E-FIT trial. Source: Nexstim With the new coil, Nexstim discussed the situation with the FDA who encouraged the company to run a new supplementary trial. In February 2017 Nexstim initiated E-FIT, a multi-centre study conducted in five leading centres in the US, including Rehabilitation Institute of Chicago, the site of Principal Investigator Dr Richard L. Harvey. CHART 32: Summary of the E-FIT trial design Description Note Study objective To determine whether inhibition of the hand muscle 1Hz frequency used. areas on the healthy brain hemisphere has a beneficial effect on the motor recovery of the corresponding stroke-affected muscles. Concomitant therapy Standard task-oriented motor rehabilitation # patients 60 (planned) 1:1 randomisation Primary outcome measure Upper-extremity Fugl-Meyer score Control Nexstim new sham coil creating a lower-than before e-field (blue line in the graph above) Timeline 6 months Estimated completition: March 2018 Source: Nexstim, clinicaltrials.gov The Nexstim investment case essentially depends on the outcome of the E-FIT trial. In our view, success of E-FIT is more likely than failure. The phase II trial results were very positive and, in our view, the explanation for phase III failure is credible. In case of success, we believe that Nexstim would be the only company with clinical proof of treatment of motor and speech cortices with an ntms device.