SciBase Q3’24 preview: Focus on added visibility to insurance coverage expansion

SciBase will release its Q3 report on Tuesday at 8:00 am CEST. We expect revenue to have continued to grow at a still low absolute level, with earnings continuing to fall further into the red. Once again, we'll be looking for additional visibility on commercialization progress and timelines, especially for the expansion of insurance coverage in the U.S., as we see this as a key driver for achieving cash flow neutrality and reducing risks to the investment case. As we expect the next equity raise in the coming months, additional visibility would provide critical positive share price drivers to limit dilution.

Revenue increasing as Nevisense usage trends upwards

We expect SciBase's Q3 revenue to have grown by 12% to 8.1 MSEK, mainly driven by increased usage of Nevisense and related consumables sales (Q3'24e: 7.4 MSEK, +10% y/y) in Germany/DACH and the US. The lower growth is explained by a strong comparative period. We emphasize that quarterly sales volatility due to order timing is normal and adds to the imprecision of the estimate. As long as the revenue growth continues, we consider the exact revenue level to be trivial at this point. The faster commercialization of SciBase in the large US market is still behind the insurance coverage ramp-up. Consequently, the current level of revenue growth is not in line with what the company should be able to achieve from around 2025, which we believe is more relevant to the investment case.

Earnings still decreasing before faster revenue growth turns the tide

We expect SciBase's adjusted EBIT for Q3 to have remained clearly negative at a low absolute level of -14.3 MSEK or approximately -176 % of revenue. The decrease from last year's level (Q3'23: -12.7 MSEK) is due to increased fixed costs. SciBase continues to make upfront investments in the commercialization of Nevisense, especially in the US, which means that the company is carrying additional fixed costs that keep profitability negative before high-gross margin revenue increases sufficiently. We expect SciBase to burn approximately 15 MSEK per quarter in 2024. The estimated net cash position at the end of Q3'24 of ~27 MSEK (Q2'24: 43 MSEK) should provide a cash runway until around Q1'2025. We therefore expect the company to raise further capital (~60 MSEK) in the coming months and a similar amount again in 2026.

Seeing a path and progress to faster growth remains vital

SciBase is still in an early growth phase. In our view, the investment case hinges on a successful, significant increase in US sales, which could bring the company into cash flow positivity (2027 in our estimates). This requires an increase in Nevisense's insurance coverage in the US, which we expect to be more clearly reflected in revenue around 2025-2026. The company has not provided any targets or details on how coverage expansion is progressing, and the visibility on the success of faster growth remains weak at present. Therefore, we are eager to hear any commentary on this.

With limited news, the share price has risen 12% to SEK 0.48 since our August 22 update, implying a 36% increase in the company's equity value (calculated with the exercise value of the significant number of warrants with a strike price of SEK 0.42/share). The company is still priced within the broad fair value range (SEK 0.33-0.67/share) that we updated at the end of August, but we note that the valuation level for upcoming increases has a significant impact on investment returns and fair value. We therefore interpret that market expectations have been significantly raised ahead of the Q3 report, especially in terms of getting more visibility on the success of US growth (primary focus on insurance coverage expansion, secondary focus on sales pipeline). We believe that additional visibility would help the company to raise capital at a better valuation due to a lower risk level, while the lack of additional visibility would have the opposite negative effect.