BrainsWay Ltd.
Q1 2021 Earnings Call Transcript

Published: 20 May 2021

[Operator:]

Greetings, and welcome to the BrainsWay First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Bob Yedid of LifeSci Advisors. Thank you. You may begin.

[Bob Yedid:]

Thank you, Darryl, and thank you all and welcome to BrainsWay's first quarter 2021 earnings conference call. With us today are BrainsWay's President and Chief Executive Officer, Chris von Jako; and the new Chief Financial Officer, Scott Areglado.

[Chris von Jako:]

Thank you, Bob and welcome everyone and thank you for joining us today. We are extremely pleased with the current operating trends in our business and expect some of our recent achievements to drive further growth in our business. I'll discuss all of this further shortly, but first I will provide a brief overview of our key first quarter financial results. We achieved $6.1 million in revenue for the first quarter of 2021, which represented a significant 47% increase over our first quarter 2020 demonstrating the resiliency of our business following the impacts of the COVID-19 pandemic. Importantly, we believe that the momentum we began generating in our business late last year, which continued into our first quarter of 2021 is expected to be sustained throughout the year.

[Scott Areglado:]

Thank you, Chris. I am pleased to be joining my first BrainsWay earnings call, and I'm thrilled to be a part of this dynamic growing company. Now, I will jump right in with a discussion of our financial results. For the first quarter of 2021, we generated revenue of $6.1 million, a 47% increase compared to the first quarter 2020 revenue of $4.2 million. This year-over-year revenue growth was driven by the increase in our direct sales. Our recurring revenues primarily derived from leases were $3.5 million consistent with the first quarter of 2020. These lease revenues represented 56% of our total revenue, which underscores the recurring nature and predictability of BrainsWay's growing revenues. As of March 31st, 2021, BrainsWay's installed base totaled 652 Deep TMS systems, which reflects a quarter-over-quarter increase of 23 systems and 19% growth year-over-year. Gross profit for the first quarter of 2021 was $4.6 million compared to $3.1 million during the prior year period. Gross margin for the quarter was 75% as compared to 76% in the first quarter of 2020. Moving on to operating expenses. For the first quarter of 2021, research and development expenses were $1.2 million as compared to $1.8 million in the first quarter of 2020 and primarily consisted of costs associated with the continued development of our patented Deep TMS technology.

[Operator:]

Thank you. We'll now be conducting a question-and-answer session. Our first question comes from the line of Steven Lichtman with Oppenheimer. Please proceed with your questions.

[Steven Lichtman:]

Thank you. Good morning, guys. Chris, you mentioned some of the digital marketing activities in 1Q. I was wondering could you talk about what other sales and marketing initiatives we should look for from you guys now with the fortified balance sheet including maybe where you are in terms of sales force expansion?

[Chris von Jako:]

Yes. Sure. Thanks, Steve. I'll take the sales force expansion first. So I think, as we may have mentioned on the last call, we ended with 13 sales professionals at the end of last year. And our goal is to get up to 18 in the short term. At present mode, we have 14. I think as Hadar may have mentioned on the last call, our plan was to get up to 18 by the end of the third quarter. As far as other marketing initiatives that we're doing, we're doing quite a bit. Our real focus is on pushing towards the digital marketing campaigns around patient and patient awareness. And as I mentioned in the prepared remarks, we are doing quite a bit in this month. We actually launched the largest campaign on direct-to-consumer around Deep TMS, highlighting obviously Mental Health Awareness Month.

[Steven Lichtman:]

Okay. Great, great. I was wondering also, if you could give us a sense of any feedback from the sales force and the addition of Theta Burst. Any early comments on how that has impacted commercial interactions with customers?

[Chris von Jako:]

Yes. I think, the initial indication from our sales force was extremely positive. And as I mentioned in the prepared remarks, I think also in our press release, it's immediately available to our customers. And just taking a first look, I think that our current customers roughly around 30% or maybe a little bit more have already started taking utilization of the Theta Burst protocol. So, there's pretty good excitement around it. And we're looking to continue to leverage that.

[Steven Lichtman:]

Great. And then maybe lastly, you mentioned a lot of activity in the first quarter with payers on OCD. I wonder, if you could sort of characterize the meetings generally, any surprises, and just how you're feeling overall coming out of those meetings?

[Chris von Jako:]

Yes, that's a great question. Thanks Steve for asking. I think one of the biggest things that we have and we've countered with the payers is really going through our evidence and describing the difference in our clinical data as compared to traditional TMS, that has sort of muddied the waters for us to a certain extent because, I think the payers just felt all TMS technology is the same. So, we've had to really educate them on the difference of the technology, and also the benefits of our technology because, they were looking at OCD in totality with all TMS. And so, we've had to do a much better job of educating the payers. I think that was really the biggest hurdle for us going into it and sort of an eye-opening for us. But I'd say, beyond that, it's been really positive. Again, it's really hard to characterize, where it's going to go. But as I mentioned, I think on the last call, I was -- I've been pretty positive about the response thus far.

[Steven Lichtman:]

Great. Thanks so much. I’ll jump back in queue. Thanks.

[Chris von Jako:]

Thanks, Steve.

[Operator:]

Our next question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.

[Jeffrey Cohen:]

All right, Chris and Scott, how are you.

[Scott Areglado:]

Hi Jeff.

[Chris von Jako:]

Great, Jeff. Thanks.

[Jeffrey Cohen:]

So two areas I wanted to ask about. So firstly, just on the depression front. Are you seeing an increase in utilization as far as in influx of new patients that are out there? And what are you seeing coming from pharma land and failures in pharma land? I guess, what is the psychiatry market saying? And what are you hearing from the docs?

[Chris von Jako:]

Yes. So, we definitely saw an increase from Q4 to Q1. I think those are all positive as obviously we're continuing to exit COVID. And I think, we'll see -- we'll continue to see increase as the year goes along. As you know and I think, we've mentioned on previous calls, just sort of the effects of COVID, the patients and the effects to those patients, we may not see them jumping into the fray or probably H2 of this year and then going also into 2022. Just because, it's -- most of the reimbursement companies are still at four filled medications that are needed, even though there has been a trend going from four to two. So to come up and down, four medications, you're talking about at least a year minimum, if not two years. And I think, yes, does that answer your question, Jeff?

[Jeffrey Cohen:]

Yes. That's helpful. And secondly, could you talk about now that you have your hands full with three large indications, but could you talk a little bit about some of the studies and any progress in Parkinson's and MS as far as neurodegeneration and also autoimmune? Thanks.

[Chris von Jako:]

Yes. Great. Thanks for that question, Jeff. So, we have obviously three clear indications here in the United States depression; OCD and smoking addiction, which we've talked about. In Europe, we have a number of other indications that are cleared. You mentioned Parkinson's disease. We also have some other neurologic disease that we have there as well. I think as I mentioned on our last call, we are looking to start at least one clinical trial later this year, a pivotal trial later this year. And one of those will probably be in the neurological area specifically around MS, which I think I mentioned on the last call.

[Jeffrey Cohen:]

Yes. Okay. Thanks for taking my questions. Nice readout. Appreciate it.

[Chris von Jako:]

Thanks, Jeff.

[Operator:]

Thank you. Our next questions come from the line of Kyle Mikson with Cantor Fitzgerald. Please proceed with your question.

[Kyle Mikson:]

Hi, guys. Thanks for taking the questions.

[Chris von Jako:]

Thanks, Kyle.

[Kyle Mikson:]

Welcome to the here voice again. Thanks.

[Chris von Jako:]

Yes. Thanks.

[Kyle Mikson:]

Well, a question on the -- of course, a question on the revenue beat our estimate was above Street expectations by closer margin -- actually closer to the 2Q estimates. So I was just wondering if there was any like one-time or non-recurring items you can kind of call out. I'm thinking like delayed orders from 2020 or maybe some multi-Deep TMS system orders as well? I'm just trying to understand that $6.1 billion number if that could be like a run rate going forward. Thank you.

[Chris von Jako:]

So, Kyle, thanks for the question. We were excited to actually, obviously, our direct sales came in probably a little bit higher than we expected. But again, if we have one or two direct sales that's going to tip the number higher so it's nice. I don't know if it actually trickled over from Q4 or not. We obviously -- you saw we had a really great close to Q4. But again, one-time sale -- a direct sale can really tip us in one direction or the other.

[Kyle Mikson:]

All right. Got it. That makes sense. And kind of like on a similar note OCD coils came in lower than they were a year ago to by just a bit. They're actually kind of like at the same level. Anything you can kind of share there why that could have been a little bit weaker, or like could that kind of take back up as you go along here? I know there's a seasonality but wondering if there's anything you could share there if maybe reimbursements kind of more of a headwind to it than you were expecting.

[Chris von Jako:]

Yes. So when it comes to OCD not every clinic that we end up selling actually takes an OCD cure. They may not be focused on OCD in that clinical practice itself. So there, I think, it's usually less than a 50-50 in some case. And then some of our business is to existing customers. And if an existing customer is expanding and they already have an OCD coil, they may not require one at this time. And again, I think, obviously we're pretty proud of what we have already with one-third of the installed base having the OCD coil, and that's even again without reimbursement. And we know as we continue our path to gain reimbursement, we know that those numbers will change.

[Kyle Mikson:]

All right. That's fair, Chris. And Chris you actually mentioned this in the last -- in the prior question, the European indication. So recently we saw that MagVenture secured some CE Mark approvals for indications like addiction, OCD, depression and anxiety. Could you talk about the competitive positioning of BrainsWay in Europe and how you kind of see that evolving over the next couple of years? It's a pretty important market for you and it grew on the top line over 30% last year. So I would love to hear your thoughts.

[Chris von Jako:]

Yes. Again, our focus is really a bit on the US commercial market. We are looking at the international business as a growth opportunity, but right now we're still, I would say, opportunistic in Europe around what we do in the rest of international. But I think there are unique opportunities that we leveraged. I mean, you mentioned we had greater than 30% sales last year OUS, which is quite nice, and I think we can continue to leverage some of those. As far as the indications, again, we have a wide broad range of indications in Europe already, including addiction treatments and things like that, and as I think Jeff asked about Parkinson's earlier. So I think that helps us internationally. But where we have challenges internationally is more around reimbursement. Our focus has been primarily internationally in Japan. And Japan, as you know, we have clearance there, but we've been waiting on reimbursement in Japan. And COVID has really set us back there. But we're looking as we exit COVID to, hopefully that we will get reimbursement in Japan. And we can start our commercial launch there. And have an active focus on that.

[Kyle Mixon:]

Okay, makes sense. Thanks, Chris. And if I could just squeeze one last one, in here. I know it's very early in the smoking rollout. But, have you begun any of the reimbursement work for that indication? And I guess, like if not, which is probably likely, what is that process really going to be like? Is that going to be kind of revolving around generating, some clinical data this year? I think you mentioned that in your remarks.

[Chris von Jako:]

Are you talking about smoking, or -- sorry?

[Kyle Mixon:]

Yeah, smoking addiction. Thanks.

[Chris von Jako:]

Yeah. Yeah, so as part of our controlled market release. As I mentioned, we have 10 sites now that are up installed. We put a pretty robust tracking system in there, to gain post-marketing data. And we'll be using that obviously that post-marketing data, in trying to understand the reimbursement landscape. It's a little bit different with smoking, than obviously for depression or OCD. And we're continuing to explore that. But it's really paramount for us to ensure, that we're collecting that post-marketing data. And we've set up a really robust system. The team did an amazing job thus far. And we're collecting that.

[Kyle Mixon:]

Make sense. All right, thanks. Congrats in a quarter.

[Chris von Jako:]

Thanks, Kyle. I appreciate it.

[Operator:]

Thank you. Our next question comes from the line of Jason Wittes with Northland Capital Markets. Please proceed with your questions.

[Jason Wittes:]

Hi. Thanks for taking my questions. Just a follow-up maybe on smoking cessation, obviously it's going to take a while to see -- to assess the waters on reimbursement, from the payers. But do you also anticipate there could be a large out-of-pocket market for this as well?

[Chris von Jako:]

Jason thanks. Thanks for the question. That's a very important thing. And that's one of the things that we're testing, in our control market release. With the 10 systems that we've already installed and we plan now to install four more systems, those are specifically the things that we're looking at, how cash pay can be a little bit more robust. We know with OCD, it's been difficult on the cash pay side, but there are some advantages, I think we can take with smokers in general, if they really wanted to quit. But also it's less treatments right? So about, half the number of treatments that, you would do for say, OCD. So the cost would be a little bit less. But I think, to-date, we've probably done about a dozen maybe a dozen patients at those 10 systems -- at those 10 sites. And we have some good anecdotal data about how the treatments are going. And there is some excitement there. And we're continuing to learn about it, as we kind of expand out. And refine our marketing message around it.

[Jason Wittes:]

Okay, great. And related to that, it also seems like it would be pretty susceptible I guess would be the word for it to OTC marketing. It's kind of a unique approach. There's quite a few -- there's, quite a lot of desperate smokers out there, but there's also quite a few options. Obviously, a lot of them don't work. In this rollout, are you also supporting with some OTC, either local or just Internet, or could you explain kind of your thinking there in terms of how the OTC drive might shape-up?

[Chris von Jako:]

Yeah. So great question. So obviously it's part of our big launch this year with the direct-to-consumer market, we had done as part of our control market release. We're also doing digital marketing around smoking, as well to kind of test what really the what kind of response would they be doing, how would they be working? So. we've been working with several of our customers around that as well. And again, that's again to hone in our messaging.

[Jason Wittes:]

Okay. And then I might have just missed this in the release, but did you break out the lease versus sale on breakout on the revenues? And related to that do you think COVID is still having any impact on the direct sales piece of the revenue?

[Scott Areglado:]

So, this is Scott. So, our lease revenue was about 56% of the mix this quarter. I do think there's still some lingering COVID impacts from the end of the year and into the first quarter on our business. And as Chris mentioned in his comments we see positive trends about that starting to relieve.

[Jason Wittes:]

Okay. And then also just again maybe in terms of how you're thinking you just had a successful raise. You have a bit of a war chest now. You're going to 13% to 18% which is certainly a decent increase, in terms of sales reps still puts you behind some of your competitors. So I guess the question is, when you talk about ramping up on revenue or excuse me on expenses it sounds like a large percentage of that is going to be for DTC-type and Internet-type advertising. Am I thinking about this right? I'd be curious to know kind of how you think the best way to attack this market since there's so much -- yes.

[Scott Areglado:]

It's a good point. I think it's a two-pronged approach here, right? We have to just create awareness right? That's -- I think that's the biggest driver for us. And then we're going to put feet on the street. We have planned to go to 18% and I would expect as those ramp up we'll look opportunistically at where the other territories could be and potentially add sales where necessary. But at least our plans are only go to 18% right now, but I -- firstly I think and just coming in here awareness is a huge driver and everything we can do to create patient awareness in all these geographies is going to help pull-through the -- for us to help our sales team.

[Jason Wittes:]

Okay. Great. Thanks. I will jump back in queue.

[Scott Areglado:]

Thanks Jason.

[Operator:]

Thank you. Our next question comes from the line of Jayson Bedford with Raymond James. Please proceed with your question.

[Unidentified Analyst:]

Hi guys. This is Tom Scarvy on for Jayson Bedford. I just wanted to ask about trends exiting the quarter and what the trends look like for the rest of the first half and for the year, now that COVID seems to be less of an issue.

[Chris von Jako:]

Yes. Very good question. And I think as I remember remarking on last quarter, we'd expect the trends to continue to get improvement. And our initial thoughts are obviously as we go into the second half of the year it's going to continue to expand. So we're pretty positive with the results we're seeing. And I think overall just talking to the sales force and getting their feedback, they're getting more face-to-face meetings which I think is quite exciting.

[Unidentified Analyst:]

Great. Thank you. And if you guys, could elaborate on the three-minute protocol a little bit more? Does this protocol require a new piece of hardware? And also in terms of like why -- what type of patients that the shorter protocol is suited for as opposed to the standard protocol? Just a few more details on like what potential patient population how it could be different than what the standard protocol would be great?

[Chris von Jako:]

Yes. Thanks for that question. So our system -- our latest and greatest system was actually built with this in mind. So it is the -- I would say, most powerful stimulator on the market for any TMS company that's out there. So it's in fact immediately available to all of our customers. There's nothing that's needed at all. It's ready to roll. And our customers have been -- like I said, they had -- earlier I said roughly about 30% or greater of our customers have already started utilizing this. Again it's more -- I would say, its physician dependent. We want the physician to decide what's best for the patient. And we've given some guidelines out. But anecdotally I've heard from physicians just that maybe you have like an elderly patient that's not maybe well suitable to tolerate the 19-minute treatment. So in that case maybe a three-minute treatment is more suitable.

[Unidentified Analyst:]

Got it. So other than a patient being older what is preventing the 30% from -- I mean, I would think that most people would want a shorter treatment as opposed to longer treatment. What's preventing greater adoption at this? And in terms of average like ASP per procedure is it different than the standard, or are you guys still getting reimbursed the same amount for the standard as well as the new protocol?

[Chris von Jako:]

So from a reimbursement percentage -- certain insurance companies will obviously reimburse protocol for Deep TMS for depression. And some -- maybe some of the insurance companies call out Theta Burst or they don't. But I think in general, we would really want to leave it up to the customers to decide let them have the flexibility of what's more appropriate for their patients.

[Unidentified Analyst:]

Got it. Thank you very much.

[Chris von Jako:]

Thank you.

[Operator:]

Thank you. There are no further questions at this time. I would like to turn the call back over to management for any closing comments. Thank you. So in conclusion, I would like to thank all of our investors and other participants for their interest in BrainsWay and we look forward to keeping you up-to-date on our progress throughout the remainder of the year. With that please enjoy the rest of your day.

[Operator:]

Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.