clinical laserthermia systems

Important information: All information regarding limitation of liability and potential conflicts of interest can be found at the end of the report Redeye, Mäster Samuelsgatan 42, 10tr, Box 7141, 103 87 Stockholm. Tel. +46 8-545 013 30, E-post: [email protected]

Update

Equity Research 1 June 2021

KEY STATS

Ticker CLS-B.ST Market First North Stockholm

Share Price (SEK) 3.8 Market Cap (MSEK) 231 Net Debt 21E (MSEK) -29 Free Float 95%

Avg. daily volume (‘000) 123

BEAR BASE BULL 3

8

14

ANALYSTS

Filip Einarsson [email protected] Erik Nordström [email protected]

3 31

Glimpsing the future Redeye resumes coverage of CLS after its SEK 71m financing where Redeye acted as

financial advisor. In light of the company’s revised development timeline, as well as its new

focus areas, stronger financial position and our increased sales estimates, we update our fair

value range and highlight the attractive entry point created by recent underperformance.

Clinical focus bolsters long-term potential

Following a turbulent pandemic year, CLS has also undergone structural changes - a new

acting CEO, a revised timeline for the large multicenter study, and a plan to submit

TRANBERG’s 510(k) application (including Thermoguide) in H2 21. It also has several

studies for its imILT® and FLA/LITT treatment protocols under way or planned. Overall, the

path forward for its innovative TRANBERG Thermal Therapy System is now clear.

Financial position strengthened

The recent cash injection of SEK 71m and long-term warrant financing should keep the

company financed until 2023, we estimate. The strengthened financial position should help

CLS make progress with its goal of eventually commercializing the TRANBERG system.

110% upside

While commercialization is still in an early phase, we identify a number of potential

catalysts to close the gap to our new Base case valuation of SEK 8. This adjusts for dilution

following the capital injection, as well as our updated forecasts. With negative sentiment

having sent the share down in recent months, current levels provide an attractive entry to

the case.

Key financials (SEKm) 2018 2019 2020 2021E 2022E 2023E 2024E

Net sales 1,8 1,4 1,3 2,2 13,1 49,2 133,1

Growth YoY 194,2% -21,1% -6,6% 63,9% 498,5% 276,7% 170,5%

EBIT -33,5 -42,4 -50,5 -54,3 -51,4 -41,6 15,4

Margin (%) -1850% -2970% -3794% -2488% -393% -85% 12%

EV/Sales 125,5 147,6 148,5 95,8 16,0 4,2 1,6

Clinical Laserthermia Systems Sector: Medtech

REDEYE RATING

CLS-B.ST VERSUS OMXS30

FAIR VALUE RANGE

Financials

People

Business

0

2

4

6

8

10

12

01-jun 30-aug 28-nov 26-feb 27-maj

OMXS 30 CLS

REDEYE Equity Research Clinical Laserthermia Systems 1 June 2021

2

Investment thesis Minimally invasive tumor treatment

Minimally invasive treatment has been shown to be less burdensome for patients and less

costly for health care providers.

TRANBERG®Thermal Therapy System includes a small user-friendly laser unit with unique

monitoring capabilities and tailored single-use products, specifically developed to enable safe

and efficient treatment with focal laser ablation (FLA/LITT) and imILT®. The

TRANBERG®Thermal Therapy System can be used for precise laser ablation treatment of

cancer tumors, with all types of image guidance. The Thermoguide Workstation offers real-

time tissue temperature measurements and cell damage calculation.

Laser ablation can also be combined with surgery and chemotherapy.

Exposed to a growing market

The indications that CLS focuses on (imILT® - liver metastases, FLA/LITT - prostate, benign

prostate hyperplasi, brain cancer, and MTL epilepsy) have a potential value of around SEK

40bn per year. We forecast that its sales will scale up rapidly from 2023, reaching SEK 240m

in 2025 and potentially exceeding SEK 1.1bn by 2030.

Integrable and scalable solution

The TRANBERG system, together with Thermoguide, is an integrable system that works well

with MR and US-guided therapies. CLS has already attracted interest from established

partners in its focus markets. These partnerships give it options in several indications and

allow a rapid scale-up for its market launch once regulatory approval and clinical validation

for its technology are in place. Moreover, the bulk of revenues will come from disposables,

creating a scalable business model with high gross margins as volume increases.

Clinical advancement and breakthrough orders to close the valuation gap

Our discounted cash flow model suggests a Base case fair value of SEK 8 per share – around

110% above current levels of SEK 3.8. The following drivers should close the valuation gap to

our fundamental valuation.

i) 510(k) approval for TRANBERG with Thermoguide is key. We estimate an

approval in the second half of 2022.

ii) As the regulatory and clinical pieces fall into place, breakthrough orders

confirming a successful launch should act as a powerful catalyst.

iii) Studies to validate the TRANBERG system - most notably, a proof-of-concept

study in imILT® with an expected start in 2022 – should demonstrate clinical

progress and lift the share significantly.

dsfdsf REDEYE Equity Research Clinical Laserthermia Systems 1 June 2021

3

Key risks

Clinical trial challenges

CLS must conduct a large proof-of-concept study with up to 100 patients to validate imILT®

as safe and effective. Clinical trials are time-consuming, expensive and patient recruitment

often takes longer than expected. Moreover, the company may fail to achieve its primary

endpoint. This could significantly delay its commercialization or force CLS to find a new way

forward.

Highly competitive market

The global market for cancer therapies is highly competitive, with new drugs and treatments

constantly in development. If imILT® fails to show efficacy benefits over established

treatments, we expect it to struggle to gain market share.

Dependence on partners

As an early-stage company with limited in-house channels, CLS is somewhat dependent on

its partners to access its focus markets and make clinical progress.

Early commercial stage

CLS has started to generate minor revenues from its FLA/LITT treatments. However, the

company is still in an early commercial stage. We estimate break-even in 2024. CLS has long-

term financing in place, though, which should sustain it until 2023.

CLS – Share price development

Source: Redeye Research, CLS

0

200000

400000

600000

800000

1000000

1200000

1400000

1600000

1800000

2000000

0

1

2

3

4

5

6

7

8

9

10

Total volume Closing price

2020-04-03: CLS acquires EU approval for Thermoguide and updated EC certificate for TRANBERG including Thermoguide

2020-04-29: US Patent covering Non-cooled Diffuser-type Laser Ablation Applicator granted

2020-06-05: Renewed commercial collaboration with Exact Imaging regarding Micro-US FLA

2020-08-24: CLS and Advanced Medical Systems (AMS) form joint venture cooperation to introduce TRANBERG Thermal Therapy

2020-11-06: CEO Lars-Erik Eriksson stepping down, former CCO Dan Mogren step in as acting CEO

2020-12-03: Updated timeline for clinical development plan

2020-02-26:Financing announced

2021-03-30: 510(k) approval for next gen TRANBERG laserapplicators


4

Solid financial position reinforces CLS We revisit our assumptions for CLS following its new financing. We take an optimistic stance

on its current prospects. Since our last update, the company has undergone structural

changes: Dan Mogren is the new acting CEO, schedules for operations during 2021 have

been revised, and the company has communicated a change in its focus areas. The previous

CEO Lars-Erik Eriksson will remain as CFO and a board member.

Alongside the release of its year-end report, CLS announced a capital injection (note: Redeye

is financial advisor) that provides CLS with funding of SEK 71m through a rights issue and a

share issue. It also includes long-term funding through warrants.

The company faces higher costs due to the increased clinical activity necessary for the

successful commercialization of the TRANBERG system. We believe this long-term financing

solution offers CLS a valuable tool plus flexibility, allowing it to focus on commercializing its

innovative technology. We expect CLS’s previous burn rate of roughly SEK 12m per quarter to

rise owing to increased clinical/regulatory activity. Including the funding from the rights and

share issues, we estimate a current cash position of some SEK 70m and see no further need

for capital until the first series of warrants is due in April 2022.

Offering overview and outcome

CLS has gained SEK 71.4m before transaction costs from the offerings. The financing is in

three parts: a rights issue, a directed share issue, and two series of warrants that can raise

another SEK 78-124m for CLS during 2022/23.

The rights issue in the offering was subscribed to 108%, and no guarantee subscriptions

were claimed. The over-allotment subscription was exercised for another SEK 3.7m, meaning

CLS gains a total SEK 51.4m from the rights issue before transaction costs.

Most insiders participated by subscribing for their pro-rata share in the offering. Participating

insiders include Chairman Hans von Celsing, board member Gunilla Savring, acting CEO Dan

Mogren, and CTO Stephan Dymling. Furthermore, two of the largest owners and board

members, Karl-Göran Tranberg and Lars-Erik Eriksson, also participated by subscribing for

part of their pro-rata share and transferring the rest, free of charge, to other CLS employees.

We view this arrangement favorably, especially as we believe insiders participating in

transactions sends a positive signal to investors.

The directed share issue of SEK 10m targeted a group of external investors, including

Modelio Equity, Lubrica Equity, and Formue Nord Markedsneutral A/S. These three investors

guaranteed 80% of the rights issue. The directed share issue also included a SEK 10m over-

allotment option, a large part of which was taken by Khattar Holdings, a Singapore-based

investment company. Khattar Holdings is also an active investor in Advanced Medical

Systems (AMS), CLS’s partner in the joint venture CLS Asia Pacific.

In total, the directed share issue raised SEK 20m for CLS.


5

TO3

The first series of warrants will be exercised on 11-25 April 2022. One warrant allows

subscription for one share, corresponding to 70% of volume weighted average price (VWAP)

of the share ten days prior to 6 April 2022. However, the price will be in an interval of SEK 3.5-

5.25, providing CLS with SEK 35-53m before deduction of transaction costs, depending on

the subscription price.

TO4

The second series of warrants is due on 11-25 April 2023. Like the first series, this allows for

subscription for one share corresponding to 70% of VWAP of the share ten days prior to 6

April 2023. The price interval is SEK 4.2-7.0, providing the company with SEK 43-71m through

these warrants before deduction of transaction costs.

The net proceeds are expected to be distributed accordingly:

• Operating costs: ~15%

• Clinical development: ~35%

• Market development: ~30%

• Further product development: ~20%

Clinical activity

For a company in CLS’s position, we consider clinical validation to be fundamental. A positive

outcome from clinical trials and peer-reviewed publications acts as a substantial driver for

gaining market acceptance and commercial success for a medtech company. We therefore

welcome CLS’s efforts to gather further clinical data from its treatments and we expect

ongoing high clinical activity for the company in the coming years as it tries to facilitate long-

term market uptake. We offer an overview of its current and planned clinical activities below:

CLS – Ongoing studies

Source: Redeye Research, CLS, Clinicaltrials.gov

The study conducted at the Toronto General Hospital in Canada will include another 30

patients in addition to the initial 25 early prostate cancer patients for treatment with MR-

guided focal laser ablation (FLA). In an interview1 with Redeye on 3 March 2021, the company

explained the results so far were "promising." Data from this study is expected to be

disclosed during 2022. We have a positive view on this further patient inclusion as it implies

that everything is on track so far.

The first patient was enrolled in the collaborative phase Ib/IIa study between CLS and

Immunophotonics in November 2020 to examine the treatment of laser ablation or imILT®

combined with Immunophotonics’ novel compound IP-001 to trigger a systemic anti-tumor

response. The study will investigate the safety and tolerability of the treatment. It is financed

by Immunophotonics and its endpoint mainly relates to IP-001. CLS aims to obtain user data

regarding the safety and efficacy of imILT®-treatment. Moreover, CLS is paid for disposables

1 https://www.redeye.se/research/806228/cls-intervju-med-vd-dan-mogren-video

ClinicalTrials.gov Identifier Indication Partner Stage Patients Status Procedure Expected readout

NCT03650595 Prostate cancer University Health Network, Toronto 27 of 55 treated 50 Recruiting FLA/LITT

NCT03993678 Solid tumors Immunophotonics Recruiting patients 39 Recruiting imILT®

2022

2023


6

and for the lease of its laser unit to the study. Data is expected during 2023.

In addition to its current clinical activities, CLS has communicated another three studies with

an expected start this year or next.

CLS – Planned clinical studies

Source: Redeye Research, CLS, Clinicaltrials.gov

Collaborative study

In October 2020, CLS and the Otto-von-Guericke University Hospital Magdeburg announced a

clinical study to be initiated by the hospital. The study aims to treat ten early prostate cancer

patients by ultrasound fusion with the TRANBERG Thermal Therapy System. The study is

expected to start during Q2 2021. The follow-up time for patients is 12 months, and the study

should be finalized 18 months after initiation.

Multicenter study

A second, more extensive study for imILT® is planned, based on the earlier results from

clinical studies into imILT®. This study is expected to include approximately 100 patients and

aims to map the effect of imILT® as an addition to the current standard of care for stage IV

pancreatic cancer. It is planned to be initiated during 2022. The goal is for this study to be

entirely, or at least partially, financed by project funds.

Register study

CLS plans to undertake a register study that is expected to start in H1 2021. The aim is to

allow all clinics that want to treat patients with the TRANBERG-system, both for imILT® and

LITT/FLA, to connect to the study and report patient data according to a study protocol. The

dividing line between a register study and a randomized clinical study is that the former has

no control group. Patients are treated according to local routines, making the study less

comprehensive and less capital-intensive. Its purpose is to identify potential side effects and

to learn the treatment’s function in a clinical environment.

Study type Indication Partner Patients Status Procedure Expected start

Collaborative study Prostate cancer Otto-von-Guericke University hospital Magdeburg 10 Planned FLA/LITT

Multi center study Pancreatic cancer N/A 100 Planned imILT®

Register study Several N/A N/A Planned imILT® & FLA/LITT 2022

2022

2021


7

The path forward Since we initiated coverage on the company, CLS has advanced on several fronts, broadening

its focus through its TRANBERG Thermal Therapy System, including the Thermoguide

workstation.

Thermoguide

During 2020, CLS received an updated EC certificate for TRANBERG including Thermoguide

and is currently awaiting 510(k) approval from the FDA for this system. The Thermoguide

workstation will be used with the TRANBERG Thermal Therapy System to compute FLA/LITT

and imILT® treatments. The software allows CLS’s products to be connected to MR

scanners and to transfer image sequences with minimal delay to measure tissue

temperature. Thanks to this, the calculation of tissue damage can be carried out in real-time

during a procedure. The doctor receives an improved overview of the treatment, reducing the

risk and optimizing the treatment's results.

Thanks to the in-licensing of Siemens Healthineers’ software, the first version of

Thermoguide is suited for Siemens MRI Magnetom scanners. CLS intends to collaborate with

IGT (Image Guided Therapy) to adapt Thermoguide and integrate it with MR equipment from

other leading producers.

The company is also working on adapting Thermoguide for ClearPoint Neuro’s stereotaxic

product for neuro-navigation, ClearPoint®, allowing such procedures to be monitored in the

same interface.

FLA/LITT

In addition to its previous focus on prostate cancer with FLA/LITT, CLS has now increased its

efforts in the neurology field, targeting both brain cancer and epilepsy. To facilitate its

progress in the neurology field, the company has established partnerships with ClearPoint

Neuro. It has also an established partnership with Exact Imaging for prostate cancer.

ClearPoint Neuro

CLS and ClearPoint are collaborating to co-develop the next-generation navigation and laser

ablation platform for use in spine and neurosurgery. Under the agreement, CLS will provide an

exclusive, global license to ClearPoint Neuro and will act as the exclusive manufacturer of

these products. However, CLS still retains the rights for all fields beyond neurology and spine.

This partnership has generated orders for CLS, which are of limited commercial value, but we

are confident that there are more to come. The most recent order communicated was in early

February 2021, when a few customers, the University of Texas Medical Branch foremost

among them, placed orders for SEK 0.75m.

Exact Imaging

Exact Imaging, a leading player in high-resolution micro-ultrasound that enables real-time

images and support for biopsies in the prostate, has signed a memorandum of

understanding with CLS that was renewed in 2020. The two intend to develop a product

optimized for micro-ultrasound lead FLA to treat localized prostate cancer. The parties will

conduct clinical tests and product evaluation. Through this collaboration, hospitals will have

access to a cost-effective ultrasound lead ablation treatment.


8

imILT®

CLS’s own ablation protocol, imILT® (Immune stimulating Interstitial Laser Thermotherapy),

is currently under development, and the company is gathering user data to evaluate the

treatment's safety and efficacy. Its targeted indication is metastases in the liver, one of the

most common secondary cancers. High precision is required for such treatment, making it a

good fit with the imILT® protocol, which has previously shown promising data in the field.

Liver metastases have a significant occurrence from the indications that CLS targets:

pancreatic, breast, skin, lung, prostate CRPC, and kidney cancers. The prevalence of

metastases in the liver varies depending on where the initial tumor is found. Studies show the

prevalence to be notably high in pancreatic (50-79%), lung (35%), and breast cancer (27%).

Consequently, the treatable population for imILT® is found by multiplying the patient

population with the incidence of liver metastases for each indication, numbers are displayed

in the forecasts section.

Geographical expansion ahead

At the end of 2020, CLS reported the establishment of a joint venture with Advanced Medical

Systems (AMS). AMS is an exclusive distributor of medical technology products and services

in the Asia-Pacific region with extensive knowledge and established network within both

neurology and prostate cancer in the region.

Moreover, the largest subscriber of the over-allotment option of the directed share issue,

Khattar Holdings, is also an active owner of CLS’s partner AMS, which owns 50% of the joint

venture CLS Asia-Pacific.

We regard the development in this area as very positive and we expect rich news flow as CLS

establishes itself in the region and starts to conduct studies and its registration processes.

An initial register study is expected to start during H2 2021, and CLS anticipates first product

registration at the end of 2021.

Our forecasts do not currently include any sales beyond the US and Europe. At present, we

consider it too early to include Asia-Pacific in our forecasts. However, we will closely monitor

the company’s efforts and development in the region. Once CLS has established a sufficient

infrastructure with registered products and started its register study, we will take a closer

look at its commercial potential there.


9

Forecasts Our new assessment is still split upon the FLA/LITT and imILT®-treatments. We reduce our

sales expectations for the short term as we take into account the increased clinical efforts.

However, given the scope of indications that CLS is targeting with its FLA/LITT and imILT®-

treatments, our long-term expectations suggest a broader market uptake than before. We

emphasize that our forecasts are dependent on successful clinical outcomes. We also

assume that the company signs further partners, beyond its established channels, to scale its

operations.

Risk adjustment

Despite the high technological functionality of its TRANBERG products and its established

partnerships to facilitate market launch and commercialization, CLS is a small company with

limited in-house channels but global aspirations. We thus consider clinical validation and

established partnerships as fundamental to it achieving competitive market uptake. We

consequently risk-adjust most of the indications to reflect the market opportunities more

accurately and take into account the lack of clinical validation since this leads to greater

uncertainty.

For prostate cancer with FLA/LITT, which accounted for the majority of our previous

forecasts, have we not included any risk adjustment. We base this on the following:

i) FLA/LITT is an established treatment protocol for this indication, and CLS has

received commercial orders for this

ii) CLS currently has ongoing studies for this indication

iii) The company has established relations with the institutions carrying out the

procedure.

Applying the same process for pancreatic cancer with the imILT® protocol, we set our risk

adjustment to 25%. We base it on the following:

i) The imILT® protocol is a novel therapy that has shown promising results in

previous clinical studies but is yet to become an established treatment

ii) CLS has conducted a few smaller clinical studies in this indication

iii) It has been the main indication for imILT®, and the company has established a

collaboration with Hospital da Luz in Portugal.

Although CLS has some clinical validation and established healthcare relationships for this

indication, we acknowledge that, despite its good indications, treatment with the imILT®

protocol is a novel technology and thus carries higher risk than FLA/LITT. Applying the same

process to all of its indications, we arrive at our risk-adjusted patient population for CLS.

We will continuously evaluate CLS to modify our risk adjustments based on further clinical

progress. We will also assess further established partnerships or other factors that we judge

could further increase the likelihood for market uptake for CLS in these indications.


10

CLS – Targeted indications and patient population

Source: Redeye Research, WHO, CLS

FLA/LITT

Our FLA/LITT assessment includes CLS’s neurology indications (brain cancer and epilepsy),

as the company has strengthened its presence and focus in this field since we made our

previous forecasts. CLS has also established a partnership in this field with ClearPoint Neuro.

Due to the high precision required for treatment in the neurology area, we see an

advantageous environment for CLS to reach patients with its FLA/LITT treatments. However,

to account for the company’s broader focus of indications, we also adjust our peak

penetration to 3% (4%).

imILT®

We make some more significant adjustments to our forecasts due to CLS’s focus on treating

liver metastases (LM) from a broad scope of targeted indications with imILT®

Our forecasts are now based on the prevalence of liver metastases for the indications where

CLS has conducted clinical studies, in which it has an established partnership, or that it has

added as a focus area. We use the prevalence rates for liver metastases for each indication

from previous research in the field by leading institutions2 to clarify the patient population

available for imILT® treatment. Our treatable population is calculated by multiplying the

prevalence of liver metastases for each indication with the number of patients in the US and

Europe.

CLS – Sales forecasts for 2021-2030 (SEKm)

Source: Redeye Research, WHO, International Agency for Cancer Research

2 Abha et al. (2015), Smeenk et al. (2005), Oweira et al. (2017), Belhocine et al. (2006), Riihimäki et

al. (2014), Bubendorf et al. (2000), Pinotti et al. (2019)

Prob. Rate Indication Patients'19 LM prev. Adj. Pop Indication

100% Prostate cancer 285 000 N/A 285 000 FLA/LITT

75% Brain cancer 220 000 N/A 165 000 FLA/LITT

75% MTL Epilepsi 600 000 N/A 450 000 FLA/LITT

75% Breast 133 000 27% 26 933 imILT

75% Pancreas 71 000 65% 34 346 imILT

75% Skin 18 000 17% 2 295 imILT

25% Lung 279 000 35% 24 413 imILT

25% Prostate CRPC 72 000 25% 4 500 imILT

25% Kidney 47 000 20% 2 385 imILT

FLA/LITT 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E

Adj. adressable patients 900 000 918 000 936 360 955 087 974 189 993 673 1 013 546 1 033 817 1 054 493 1 075 583

Price per treatment (SEK) 23 100 23 562 24 033 24 514 25 004 25 504 26 014 26 535 27 065 27 607

Penetration 0,01% 0,1% 0,2% 0,5% 0,8% 1,2% 1,8% 2,1% 2,6% 3,0%

Adj. estimated sales (SEKm) 2 13 44 105 183 304 475 576 728 891

Growth YoY 495% 238% 140% 73% 66% 56% 21% 26% 22%

imILT® 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E 2029E 2030E

Adj. adressable patients 94 872 96 769 98 704 100 678 102 692 104 746 106 841 108 978 111 157 113 380

Price per treatment (SEK) 23 100 23 562 24 033 24 514 25 004 25 504 26 014 26 535 27 065 27 607

Penetration 0% 0% 0% 1% 2% 3% 4% 5% 6% 8%

Adj. estimated sales (SEKm) 0 2 5 28 58 90 115 152 192 235

Growth YoY 420% 108% 56% 27% 32% 26% 22%

Adj. total sales (SEKm) 2 15 49 133 240 394 589 728 920 1 126Growth YoY 573% 235% 170% 81% 64% 49% 24% 26% 22%


11

We forecast sales until 2030 using a top-down approach based on our risk-adjusted patient

population. We assume inflation and patient growth of 2% a year. We estimate a penetration

rate for each year and consequently forecast peak penetration of 3% in 2030, corresponding

to combined sales for FLA/LITT and imILT® of SEK 240m in 2025.

Valuation Our valuation of CLS uses a discounted cash flow model (DCF) and applies a weighted

average cost of capital (WACC) of 13% in each of our scenarios, down from the previous

(14%) in the light of the company’s stronger financial position. The terminal year remains

2030; we apply a terminal growth rate of 2%.

Base case – SEK 8 Our Base case, which represents the likeliest scenario for CLS, includes a balanced risk

adjustment based on the current outlook for the company and its target markets. Our

assumptions justify valuing CLS at SEK 8 per share, suggesting upside of 110% from current

levels and corresponding to a 2023 EV/S multiple of 4.2.

Key assumptions

• Balanced risk adjustment including all targeted indications

• Terminal EBIT margin of 22%

CLS – Base case

Source: Redeye Research

CLS: Base case summary (SEKm)

Assumptions 2021E 2022E 2023E DCF value

Sales 2,2 14,7 49,2 WACC 13%

EBIT -53,7 -50,7 -44,8 PV of FCF 2021-2029 67

PV of 2030 + Terminal value 375

Terminal

Revenue growth 2% EV 483

EBIT margin 22% Net cash 45

DCF value 528

Number of shares 65,8

Fair value per share (SEK) 8


12

Bull case – SEK 14 Our Bull case takes a more optimistic stance towards CLS. Reducing our risk adjustment

increases the total addressable market (TAM) and expected sales significantly. Our valuation

of SEK 13 in this scenario is some 270% above the share’s current levels and corresponds to

a 2023 EV/S multiple of 3.2.

Key assumptions

• All indications included with no risk adjustment

• Terminal EBIT margin of 25%

CLS – Bull case


CLS: Bull case summary (SEKm)


Sales 2,7 19,7 65,7 WACC 13%

EBIT -53,4 -48,5 -38,0 PV of FCF 2021-2029 160

Sales CAGR PV of 2030 + Terminal value 689

Terminal


EBIT margin 25% Net cash 45

DCF value 894

Number of shares 65,8



13

Bear case – SEK 3 Our Bear case takes a more cautious stance towards CLS. Increasing our risk adjustment

decreases TAM and expected sales significantly. Our valuation of SEK 3 in this scenario

suggests 21% downside from current levels and corresponds to a 2023 EV/S multiple of 8.0.

Key assumptions

• We only include Prostate and 75% risk-adjusted brain cancer and Epilepsy for

FLA/LITT. For imILT® we include initial targets Pancreas, Breast and Skin cancer

with 50% risk-adjustment when calculating TAM

• Terminal EBIT margin of 17.5%

CLS – Bear case


CLS: Bear case summary (SEKm)


Sales 1,2 7,8 26,3 WACC 13%

EBIT -54,1 -53,7 -54,3 PV of FCF 2021-2029 -30

Sales CAGR PV of 2030 + Terminal value 168

Terminal


EBIT margin 17,5% Net cash 45

DCF value 183

Number of shares (m) 65,8



14

Appendices CLS – Income statement


Income Statement 2018 2019 2020 2021E 2022E 2023E

Revenues 2 1 1 2 13 49

Y/Y Growth (%) 194,2% (21,1%) (6,6%) 63,9% 498,5% 276,7%

Cost of Revenues - - - 1 7 22

Gross Profit 2 1 1 1 7 27

Gross Profit Margin (%) 100,0% 100,0% 100,0% 45,0% 50,0% 55,0%

Selling Expenses 1 2 1 2 3 5

Administrative Expenses 4 6 8 10 11 15

R & D Expenses 36 38 40 44 46 50

Other Op. Expense / (Income) (6) (5) (1) (3) (4) (5)

Exchange Rate Differences - - - - - -

EBITDA (33) (40) (48) (52) (50) (38)

EBITDA Margin (%) (1839%) (2782%) (3568%) (2367%) (381%) (76%)

Depreciation 0 3 3 2 4 2

Amortization - - - - - -

Amortization of Right-to-Use Assets - - - - - -

EBIT (33) (42) (51) (54) (54) (39)

EBIT Margin (%) (1850%) (2970%) (3794%) (2453%) (415%) (80%)

Associated Income / (loss) 1 0 - - - -

Interest Income 0 - 0 0 1 0

Interest Expenses 0 1 6 0 1 1

Interest Expenses, Lease Liabilities - - - - - -

Exchange Rate Differences - - - - - -

Non-recurring Income / (Expenses) - - - - - -

EBT (33) (43) (56) (53) (55) (41)

Income Tax Expenses - - - - - -

Effective Tax Rate (%) 0,0% 0,0% 0,0% 0,0% 0,0% 0,0%

Non-Controlling Interests - - - - - -

Net Income (33) (43) (56) (53) (55) (41)

Non-Recurring Items / (Loss), Post Tax - - - - - -

Recurring Net Income (33) (43) (56) (53) (55) (41)

Net Income Margin (%) (1817,4%) (3041,7%) (4222,3%) (2447,7%) (418,4%) (82,3%)


15

Summary Redeye Rating The rating consists of three valuation keys, each constituting an overall assessment of several factors that are rated

on a scale of 0 to 1 points. The maximum score for a valuation key is 5 points.

Rating changes in the report

People: 3

CLS has an experienced Board and Management team with good knowledge of the industry. Several members of the Board and

the Management team are found among the ten largest shareholders.

Business: 3

CLS utilizes a razor and blade business model where the lion's share of revenues will be recurring. The company is operating in a

profitable market and has a strong patent portfolio. CLS started to generate sales in 2017 and has established partnerships that

have begun to bear fruit.

Financials: 1

CLS is currently conducting clinical trials to validate its imILT® method, and the company is not yet generating any profits.


16

Redeye Rating and Background Definitions Company Quality

Company Quality is based on a set of quality checks across three categories; PEOPLE, BUSINESS, FINANCE. These

are the building blocks that enable a company to deliver sustained operational outperformance and attractive long-

term earnings growth.

Each category is grouped into multiple sub-categories assessed by five checks. These are based on widely

accepted and tested investment criteria and used by demonstrably successful investors and investment firms. Each

sub-category may also include a complementary check that provides additional information to assist with

investment decision-making.

If a check is successful, it is assigned a score of one point; the total successful checks are added to give a score for

each sub-category. The overall score for a category is the average of all sub-category scores, based on a scale that

ranges from 0 to 5 rounded up to the nearest whole number. The overall score for each category is then used to

generate the size of the bar in the Company Quality graphic.

People

At the end of the day, people drive profits. Not numbers. Understanding the motivations of people behind a business

is a significant part of understanding the long-term drive of the company. It all comes down to doing business with

people you trust, or at least avoiding dealing with people of questionable character.

The People rating is based on quantitative scores in seven categories:

• Passion, Execution, Capital Allocation, Communication, Compensation, Ownership, and Board.

Business

If you don’t understand the competitive environment and don’t have a clear sense of how the business will engage

customers, create value and consistently deliver that value at a profit, you won’t succeed as an investor. Knowing

the business model inside out will provide you some level of certainty and reduce the risk when you buy a stock.

The Business rating is based on quantitative scores grouped into five sub-categories:

• Business Scalability, Market Structure, Value Proposition, Economic Moat, and Operational Risks.

Financials

Investing is part art, part science. Financial ratios make up most of the science. Ratios are used to evaluate the

financial soundness of a business. Also, these ratios are key factors that will impact a company’s financial

performance and valuation. However, you only need a few to determine whether a company is financially strong or

weak.

The Financial rating is based on quantitative scores that are grouped into five separate categories:

• Earnings Power, Profit Margin, Growth Rate, Financial Health, and Earnings Quality


17

Redeye Equity Research team

Management Björn Fahlén

[email protected]

Tomas Otterbeck

[email protected]

Technology Team Jonas Amnesten

[email protected]

Henrik Alveskog

[email protected]

Fredrik Nilsson

[email protected]

Tomas Otterbeck

[email protected]

Viktor Westman

[email protected]

Forbes Goldman

[email protected]

Mark Siöstedt

[email protected]

Danesh Zare

[email protected]

Mattias Ehrenborg

[email protected]

Jesper Henrikson

[email protected]

Douglas Forsling

[email protected]

Editorial Mark Siöstedt

[email protected]

Joel Karlsson

[email protected]

Life Science Team Gergana Almquist

[email protected]

Oscar Bergman

[email protected]

Anders Hedlund

[email protected]

Niklas Elmhammer

[email protected]

Mats Hyttinge

[email protected]

Filip Einarsson

[email protected]

Fredrik Thor

[email protected]

Johan Unnerus

[email protected]

Christian Binder

[email protected]

Kevin Sule

[email protected]


18

Disclaimer Important information Redeye AB ("Redeye" or "the Company") is a specialist financial advisory boutique that focuses on small and mid-cap growth companies in the Nordic region. We focus on the technology and life science sectors. We provide services within Corporate Broking, Corporate Finance, equity research and investor relations. Our strengths are our award-winning research department, experienced advisers, a unique investor network, and the powerful distribution channel redeye.se. Redeye was founded in 1999 and since 2007 has been subject to the supervision of the Swedish Financial Supervisory Authority. Redeye is licensed to; receive and transmit orders in financial instruments, provide investment advice to clients regarding financial instruments, prepare and disseminate financial analyses/recommendations for trading in financial instruments, execute orders in financial instruments on behalf of clients, place financial instruments without position taking, provide corporate advice and services within mergers and acquisition, provide services in conjunction with the provision of guarantees regarding financial instruments and to operate as a Certified Advisory business (ancillary authorization). Limitation of liability This document was prepared for information purposes for general distribution and is not intended to be advisory. The information contained in this analysis is based on sources deemed reliable by Redeye. However, Redeye cannot guarantee the accuracy of the information. The forward-looking information in the analysis is based on subjective assessments about the future, which constitutes a factor of uncertainty. Redeye cannot guarantee that forecasts and forward-looking statements will materialize. Investors shall conduct all investment decisions independently. This analysis is intended to be one of a number of tools that can be used in making an investment decision. All investors are therefore encouraged to supplement this information with additional relevant data and to consult a financial advisor prior to an investment decision. Accordingly, Redeye accepts no liability for any loss or damage resulting from the use of this analysis. Potential conflict of interest Redeye’s research department is regulated by operational and administrative rules established to avoid conflicts of interest and to ensure the objectivity and independence of its analysts. The following applies:

• For companies that are the subject of Redeye’s research analysis, the applicable rules include those established by the Swedish Financial Supervisory Authority pertaining to investment recommendations and the handling of conflicts of interest. Furthermore, Redeye employees are not allowed to trade in financial instruments of the company in question, from the date Redeye publishes its analysis plus one trading day after this date.

• An analyst may not engage in corporate finance transactions without the express approval of management and may not receive any remuneration directly linked to such transactions.

• Redeye may carry out an analysis upon commission or in exchange for payment from the company that is the subject of the analysis, or from an underwriting institution in conjunction with a merger and acquisition (M&A) deal, new share issue or a public listing. Readers of these reports should assume that Redeye may have received or will receive remuneration from the company/companies cited in the report for the performance of financial advisory services. Such remuneration is of a predetermined amount and is not dependent on the content of the analysis.

Redeye’s research coverage Redeye’s research analyses consist of case-based analyses, which imply that the frequency of the analytical reports may vary over time. Unless otherwise expressly stated in the report, the analysis is updated when considered necessary by the research department, for example in the event of significant changes in market conditions or events related to the issuer/the financial instrument. Recommendation structure Redeye does not issue any investment recommendations for fundamental analysis. However, Redeye has developed a proprietary analysis and rating model, Redeye Rating, in which each company is analyzed and evaluated. This analysis aims to provide an independent assessment of the company in question, its opportunities, risks, etc. The purpose is to provide an objective and professional set of data for owners and investors to use in their decision-making. Redeye Rating (2021-06-01)

Duplication and distribution This document may not be duplicated, reproduced or copied for purposes other than personal use. The document may not be distributed to physical or legal entities that are citizens of or domiciled in any country in which such distribution is prohibited according to applicable laws or other regulations. Copyright Redeye AB.

Rating People Business Financials

5p 20 15 3 3p - 4p 97 77 37 0p - 2p 6 31 83 Company N 123 123 123

CONFLICT OF INTERESTS

Filip Einarsson owns shares in the company : No Erik Nordström owns shares in the company : No Redeye performs/have performed services for the Company and receives/have received compensation from the Company in connection with this.

clinical laserthermia systems

Documents