Paxman, a Compelling Investment Opportunity in the Medical Device Sector

Discover this hidden Swedish micro-cap gem

Paxman is a leader in managing chemotherapy side effects, specializing in innovative scalp cooling systems that help chemotherapy patients retain their hair. With expertise rooted in the refrigeration industry, Paxman has pioneered this life-changing technology.

Despite its industry leadership, Paxman remains a small company with a market cap just over $100 million. Is its current growth rate sustainable? What are its potential markets, optionalities, and risks? And what kind of return can investors expect? Discover insights on Paxman's future potential and challenges in this article.

Company overview

The Paxman Scalp Cooling System features a compact refrigeration unit that circulates a specially formulated liquid coolant through a lightweight, medical-grade silicone cap. This cold cap is designed to lower scalp temperature, helping reduce hair loss during chemotherapy.

Engineered with flexibility in mind, the cap ensures close contact with the patient’s scalp for optimal hair retention. An outer neoprene cover insulates the inner cap, providing a snug, consistent fit for enhanced comfort and effectiveness.

Scalp cooling is the only clinically proven method for effectively preventing and managing chemotherapy-induced hair loss (alopecia). While efficacy varies with different chemotherapy regimens, studies show that, on average, patients have a 50% chance of retaining at least half of their hair with scalp cooling.

Backed by extensive clinical research, Paxman recently achieved a significant milestone recently: new CPT Category I codes from the American Medical Association. This marks a new step forward in the U.S. reimbursement process, positioning scalp cooling closer to becoming a standard of care. These codes are critical in the U.S. healthcare system, enabling providers to accurately track, report, and seek reimbursement for this essential treatment.

The business model

Paxman generates revenue through both one-time equipment sales and recurring payments, depending on the market. Here’s a breakdown of their revenue model in different countries:

• United States. Paxman finances equipment and installation costs, receiving payments directly from patients for self-pay treatments or from healthcare systems for each treatment and cooling cap sold under the new buy-and-bill model.

• Canada. The company finances equipment and installation, with payments made by patients for each treatment. Paxman also provides scalp cooling services through its own technicians at major cancer centers.

• Mexico. Paxman finances the equipment and installation costs and receives royalties from its partner, which earns revenue from healthcare systems on a pay-per-treatment basis.

• Japan. Paxman sells equipment to distributor CMI, which pays for each cooling cap sold for single patient use. This market thus combines capital sales with consumable income, contributing to recurring revenue.

The recurring revenue stream is a key strength for Paxman, with approximately 55% of its revenue coming from recurring sources since 2021. This share is expected to increase as the company focuses on further developing its recurring revenue model.

Half of Paxman’s revenue is generated from the US, with Europe and the UK each contributing around 15%. The remaining revenue is distributed across Asia, Oceania, and South America.

The company installs approximately 150 systems each quarter, bringing the total to around 6,000 installations currently. As the number of installations increases, the Average Daily Treatment Revenue (ADTR) also rises, driving further growth.

Patient awareness

While recognition from professional partners and regulators serves as the primary growth driver for Paxman, increasing patient awareness is equally essential for boosting growth. Organizations like HairToStay in the US play a significant role in raising awareness about scalp cooling.

Additionally, the launch of the website coldcap.com in October 2023 has shown promising growth signs, further contributing to patient education and outreach.

Additional applications

Paxman is exploring additional innovative applications that could enhance its business model. One noteworthy example is the treatment of chemotherapy-induced peripheral neuropathy (CIPN). This condition presents as deficits in sensory, motor, and autonomic functions and can severely impact a patient's quality of life. The prevalence of CIPN symptoms is highest within the first month after chemotherapy completion, affecting approximately 68.1% of patients, with around 30% continuing to experience symptoms six months later and beyond. Currently, there are no known treatments to prevent or reverse CIPN.

However, both cryotherapy and compression have shown significant promise in preventing CIPN, with preventative cryotherapy gaining traction. Research indicates that cryotherapy could be an effective tool in this context, highlighting an urgent need for a medical device capable of delivering consistent cooling.

Recognizing this need, and leveraging decades of expertise in cryotherapy for side-effect management, Paxman has developed a compact cryocompression system designed to provide consistent and measurable cooling along with compression to enhance patient comfort. The Paxman Limb Cryocompression System (PLCS) has been the result of years of collaboration and development. To date, PLCS devices have been deployed across 22 study sites, with 120 patients currently enrolled in the study.

Market size and future growth potential

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