utah778/iStock via Getty Images

Axonics (NASDAQ:AXNX) is a high-growth medical device company with significant revenue growth opportunities. It has strong growth drivers in place which will support long-term revenue growth. Its SNM systems and Bulkamid products enjoy rising demand in the marketplace, given the products’ unique characteristics. The products will drive the company’s revenue growth at a CAGR of around high teens in the long term. Long-term investors can buy the company’s shares on pullbacks to maximize their gain.

Axonics is a medical technology company that develops and commercializes products to treat urinary and fecal dysfunction, and sells the products in the U.S. and international markets. Axonics has high revenue growth opportunities in the long term because the markets it serves are extremely under-penetrated. Axonics’s rechargeable and non-rechargeable SNM systems compete with Medtronic’s (MDT) similar products, and Axonics has scope to grab market share from Medtronic.

Growth Drivers

SNM System

Axonics’ proprietary rechargeable SNM system (r-SNM System) is the company’s primary growth driver. An SNM system is a sacral neuromodulation (“SNM”) system which treats urinary urge incontinence (“UUI”) and urinary urgency frequency (“UUF”). Together, these diseases are referred to as overactive bladder (“OAB”), fecal incontinence (“FI”), and non-obstructive urinary retention (“UR”). SNM therapy is the third-line therapy for these diseases, which has therapeutic advantages in terms of better efficacy and patient compliance compared to other third-line therapies, such as BOTOX injections and PTNS (percutaneous tibial nerve stimulation).

Axonics’ r-SNM System can last approximately 15 years in the human body. Its only competitors in the market are InterStim II and InterStim Micro products, both offered by Medtronic. Axonics’ r-SNM System performs well in this competitive environment since it is small in size (5cc in volume), it offers broad MRI access, and it offers the longest recharging interval among rechargeable SNM systems. The product is well positioned to capture market share from Medtronic. In addition, the market for Axonics’ system is under-penetrated, and therefore the company has high growth potential.

Urethral Bulking Agent

Axonics’ Bulkamid product, a urethral bulking agent indicated for the treatment of female stress urinary incontinence (“SUI”), is the company’s another growth driver. SUI can afflict women of all ages which leads to leakage of urine during moments of physical activity with increased abdominal pressure. With the SUI market poised for significant and durable growth in the coming years, Bulkamid has the potential to boost Axonics’ revenue growth meaningfully.

For treating women with SUI, legacy bulking agents are often used, and an invasive sling procedure is also employed. Legacy bulking agents contain microparticles, which can induce a chronic inflammatory response in patients. Bulkamid is a non-particulate hydrogel, which can address the shortcomings of particulate-based bulking agents, and therefore it can compete well with legacy bulking agents. Bulkamid can also beat the invasive sling procedure, because employing it is minimally invasive. Due to these reasons, Bulkamid is a significant growth driver of Axonics.

Competition

The markets that Axonics serves are highly competitive primarily due to rapid technological changes and new product introductions. Axonics’ competitors in these markets include Medtronic, AbbVie (ABBV), and Boston Scientific (BSX). Axonics competes with these companies on the basis of product quality, product ease of use, and superior customer service.

Axonics’ proprietary rechargeable SNM system is programmed by and is capable of wirelessly communicating with the clinician programmer, which is the device’s competitive advantage. In addition, the device has an easy-to-use remote control, which makes the competitive advantage stronger. Bulkamid’s competitive advantage is that it can be injected into the urethral wall of the patient. In this way, it restores the natural closing pressure of the urethra, and effectively treats female SUI. The competitive advantages of both these products are capable of driving Axonics’ long-term revenue growth significantly higher.

First Quarter 2022 Financial Results

Axonics reported first quarter 2022 net revenue of $48.42 million, up 41% year-over-year, from $34.4 million in the year-ago period. Net loss came in at $22.7 million in the quarter, compared to net loss of $22.5 million in the year-ago period. Gross margin for the quarter came in at 68.7%, up 15.85% year-over-year, compared to 59.3% in the year-ago period.

The company reported impressive financial results for the first quarter of 2022. Top-line grew driven by sacral neuromodulation revenue of $39.1 million, and Bulkamid revenue of $9.4 million. Net loss occurred due to reinvestment of profit into revenue growth initiatives. In April, Axonics commercially launched its Axonics F15 long-lived, and recharge-free SNM system, which will perfectly complement the company’s rechargeable SNM system. F15 will drive the company’s sacral neuromodulation revenue to a higher level in the long term, and overall boost the company’s revenue growth.

SNM offers a huge U.S. market opportunity. In the U.S., 40 million people have symptoms of OAB, and 40% or 16 million people (managed population) of this group seeks medical attention. Addressable population with underlying cause of OAB that is treatable with SNM is 6.8 million people. SNM ready population is 1.4 million people, which represents a multibillion-dollar U.S. market opportunity. If Axonics can serve a fraction of this market over the long term, it could have a stunning revenue growth, which would drive its long-term share price significantly higher (more about this in the next section). In addition to the U.S., SNM has a stable market in Europe, and SNM also treats FI and UR, which makes the opportunity even larger.

Valuation

Axonics’ peer group companies include Medtronic, AbbVie, and Boston Scientific.

AXNX

MDT

ABBV

BSX

TTM Price/Sales

11.34x

4.47x

4.74x

4.70x

TTM EV/Sales

10.98x

4.90x

5.81x

5.49x

TTM Price/Book

5.03x

2.70x

16.49x

3.42x

(Data Source: Seeking Alpha)

Axonics is expensive compared to its peer group companies. The company has a strong balance sheet consisting of cash and cash equivalents of $221 million as of December 2021, and zero debt. The company has burnt $50 million of cash last year. From December 2021, the company has 4.5 years of cash runway (cash hoard divided by cash burn), which is impressive. Given the fact that the company’s three main products, which are rechargeable SNM system, recharge-free SNM system, and Bulkamid, are all introduced in the market, the company’s need for cash is now far less compared to the last few years. The company is expensive because it has high growth opportunities going ahead with its three main products. In the last couple of years the company’s revenue has grown at a CAGR of 32%, and I believe revenue will continue to grow at a CAGR of around 18-20% in the next five years. As a result, its stock price will rise significantly in the next five years. I am bullish on the company’s stock in the long term.

Assuming Axonics’ revenue will grow at a CAGR of 18% in the next five years, I will find out the company’s long-term share price. The company’s trailing 12-month revenue is $194.30 million, and at a CAGR of 18% the company’s mid-2027 revenue will be $444.50 million, or $9.44 per share. In the last one year, the company’s shares have traded between the price to sales multiples of 9x and 21x. I expect the company’s price to sales multiple will remain at a high of around 12x in the next five years driven by long-term revenue growth opportunities for the company. Applying a price to sales multiple of 12x on Axonics’ mid-2027 revenue per share, I get $113.28 as the company’s mid-2027 share price.

Risks

Axonics is a loss-making company with the company reinvesting profit for future growth. The company expects that its operating expenses will continue to increase with commercialization initiatives of its rechargeable and recharge-free SNM systems. As a result, the company expects to continue to report operating losses in the foreseeable future. This could prevent the company’s share price to rise beyond a certain level. However, I expect the company’s share price will rise driven by revenue growth, and profit will follow in a few years.

The company’s r-SNM system currently represents the vast majority of its sales, and this product is expected to continue to drive the vast majority of the company’s sales in future. The company’s success is substantially dependent upon the success of its r-SNM system. Successfully commercializing the r-SNM system is a complex and uncertain process. If the company fails to successfully commercialize the product, its revenue growth could be adversely affected.

Conclusion

Axonics is a high-growth company, and the company’s revenue will continue to grow at a CAGR of high teens in the next five years driven by expanding adoption of its r-SNM system. In addition, the company’s recharge-free SNM system and Bulkamid product will perfectly complement the r-SNM system in driving revenue growth. From shareholding perspective, Axonics is a long-term play. Long-term players can buy Axonics’ shares on dips and hold the shares for an extended period of time for making significant profit.