SciBase: We are discontinuing coverage

We are discontinuing our coverage of SciBase as the company has terminated the research service agreement. Consequently, we will no longer give the stock a target price (prev. 0.45 SEK) or recommendation (prev. Reduce). SciBase is investing in growing its revenues from the Nevisense device, which has clear advantages over alternative skin diagnostic devices on the market. Growing to a larger commercial scale and cash flow positivity has progressed slowly in recent years, but succeeding in increasing insurance coverage in the US has clear potential to change this in the coming years. In our view, SciBase’s shareholders should especially monitor whether the company can keep its emerging momentum in US revenue growth, as this has a clear impact on how fast cash flow positivity can be reached. The ongoing capital raise, if successful, could provide the company with the financing needed to get there.

Investment case rests on an attractive foundation if faster growth can be unlocked

SciBase's medical device, Nevisense, is primarily used to improve the accuracy of skin cancer diagnosis. We do not yet see any serious competition for the device, and it remains the only FDA-cleared point-of-care product for melanoma detection available in the US. The product has already achieved promising commercial momentum in Germany and initially in the US, the two largest markets for skin cancer detection, but still generates rather limited revenue for the group. SciBase’s high-margin business model is highly recurring and should have the scalability to reach good profitability once a higher level of revenue is reached. In the US, SciBase focuses on expanding insurance reimbursement coverage to unlock faster growth that could bring the company to cash flow positivity.

Pace of progress in the US remains both the key value driver and the main source of uncertainty

SciBase is currently in a negative cash flow investment phase. In our view, the key factors in derisking the investment case are securing capital and improving visibility into revenue growth to allow forecasting cash flow positivity with reasonable accuracy. We view these areas as the most important points for investors to focus on. On the capital side, the company recently announced a capital raise consisting of a directed issue and a rights issue. If fully successful, the net proceeds from the raise and connected TO3 warrants (to be subscribed in late 2025) could be enough to bring in sufficient capital to reach cash-flow positivity. We note that the subscription price (SEK 0.45 per share) above the share price (SEK 0.39 per share) risks leaving the issue only partially covered. On the revenue side, we see revenue growth in the large US market as the main driver for reaching the necessary scale for positive cash flows. Q3’24 was the first quarter where the US skin cancer segment generated meaningful revenue (~20% of SciBase’s revenues), so the momentum has already started improving. However, the company has not provided clear time-bound targets or forward-looking indicators regarding the progress of the US market ramp-up, which keeps the uncertainty high.

We are discontinuing coverage of the stock

Our research coverage for SciBase has been based on a company research service agreement between Inderes and SciBase. Unfortunately, we will no longer offer our investor community and SciBase owners research coverage as the company has terminated the agreement. . We recommend that investors follow SciBase’s reporting and news feed. Alternative research continues to be available via Redeye in English. All of our previously published research on SciBase continues to be available in our service here. We highlight that the high number of TO2 warrants (strike price SEK 0.42) has a significant impact on the valuation of the company and investors should evaluate the warrants’ claim on the company’s equity value when assessing the valuation of the stock.