BrainsWay Ltd.
Q4 2020 Earnings Call Transcript

Published: 25 Mar 2021

[Operator:]

Greetings, and welcome to the BrainsWay Fourth Quarter and Full Year 2020 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 Chase Oswald of LifeSci Advisors. Thank you, Chase. You may begin.

[Chase Oswald:]

Thank you all. And welcome to BrainsWay’s fourth quarter and full year 2020 earnings conference call. With us today, our BrainsWay’s President and Chief Executive Officer, Christopher von Jako; and Senior Vice President and General Manager of North America and Interim Chief Financial Officer, Hadar Levy.

[Christopher von Jako:]

Thank you, Chase. Welcome everyone and thank you for joining us today. I’d like to begin by thanking the investors who participated in our recent successfully completed follow-on offering that generated approximately $45 million in gross proceeds for BrainsWay. We were grateful to have the support of many high quality healthcare focused institutional investors in this transaction, which we truly believe provides an important validation of BrainsWay’s innovative technology and growing business. We were successful and attracting these top tier investors because of both the strong performance of our existing business, as well as our future prospect for significant growth. To this end, we achieved record quarterly revenues in the fourth quarter of 2020 of $7.1 million, representing a strong 17% increase over our third quarter and 12% increase over the same period of last year, which of course, was prior to the onset of COVID-19. We are thrilled that our business is now getting back to what we believe will be a significant growth trajectory as it was prior to COVID-19. When, as you may recall, we generate a robust growth of 41% in the full year 2019 over 2018.

[Hadar Levy:]

Thank you, Chris. We’re excited by the momentum in our business and believe we’re well positioned for potential continuous growth in the foreseeable future. We generated fourth quarter revenue of $7.1 million, a 17% increase sequentially from the third quarter of 2020, and a 12% increase from the fourth quarter of 2019. This revenue growth was driven by the increase in our direct channels. Our reoccurring revenue was primarily derived from this $3.4 million consistent with the fourth quarter of 2019. Revenue for full year 2020 was $22.1 million, down 5% when compared to total revenue for 2019, primarily due to the impact of the pandemic on our customers and a lower level of in-person patient visits. As of December 31, 2020, BrainsWay install base totaled 629 Deep TMS system, which reflect quarter-over-quarter increase of 36 systems. Over 2020, even taking into account the impact of COVID-19 for the fourth quarter of 2020, BrainsWay’s install base has increased by 99 system compared to year end 2019 or a solid 19%. Gross profit for the fourth quarter of 2020 was $5.5 million compared to $4.9 million during the prior year period. Gross margin for the quarter was 78% as compared to 77% in the fourth quarter of 2019. Gross margin for full year 2020 was over 77% compared to 78% in 2019.

[Operator:]

Our first question comes from the line of Jayson Bedford with Raymond James. Please proceed with your questions.

[Jayson Bedford:]

Good morning and hope everyone’s well. So I guess, Chris, just to jump off your comment around steady progression of the business in the second half. Can you just comment on first half trends?

[Christopher von Jako:]

Yes. Good morning, Jayson. Thanks. Well, I think our first half – well, we’re now through the first quarter obviously, and we’ve seen similar to things that we saw in the fourth quarter, as far as patients coming in and getting treated. We anticipate that our business will continue to progress as COVID and we feel the second half will be better than the first half of the year. That’s our current thinking.

[Jayson Bedford:]

Okay. But I guess current business conditions would you characterize them as similar to fourth quarter business conditions?

[Christopher von Jako:]

I think from a – you saw probably in the fourth quarter that we had a higher direct sales than we do from a leasing perspective as a percentage. That typically, we have some seasonality in the business, typically fourth quarter and the second quarter, we see a higher direct volume, but again, our business is typically is around that 60%, 40% when you’re looking at least compared to direct. So we’re very pleased at how we finished the fourth quarter with some of those direct sales. But as far as the business, I think we see the similar trends as we saw in the fourth quarter. Obviously we’re cautiously optimistic as we continue to exit the pandemic.

[Jayson Bedford:]

Okay. And just on fourth quarter of the 36 boxes, let’s call them sold in the quarter, how many went to existing users and what was the rough breakout between direct and recurrent?

[Hadar Levy:]

So I would say that roughly around 40% went to existing customers and the other 60% went to new customers.

[Jayson Bedford:]

Okay. In terms of just kind of the 36, how many went to the direct bucket versus the lease bucket roughly?

[Hadar Levy:]

So it was roughly around 50%, 60% between direct and lease.

[Jayson Bedford:]

Okay. And then just maybe jumping over to OCD reimbursement. I think you said, you hope prepare coverage in the next several months. Just kind of what – is there been any indication there? Just trying to gauge your confidence level there?

[Christopher von Jako:]

Yes. Jayson, thanks for the question. So I think that my confidence level has improved. We’ve been having some really good meetings with a lot of the payers over the last couple of months and they’ve been very receptive not only to these particular OCD patients who is, you may remember it’s a much more complex disorder than depression and they only have a limited amount of alternatives with only five medications. I’m not giving any guidance, I’m feeling a lot better than a year ago about where we’re heading with reimbursement. And particularly because we’re leveraging this new study that got published last year and the payers have been very receptive to meet with us. And I think that in general, I wouldn’t be surprised that later this year that we started getting some payers to actually cover us.

[Jayson Bedford:]

Okay. Last question and I’ll jump back in queue. Any commentary on OpEx levels here in 2021 versus 2020?

[Hadar Levy:]

We do anticipate the OpEx to go high specifically on the sales and marketing line. That should be our main focus for this year. But I wouldn’t except to see some dramatic growth, but it will grow as compared to 2020.

[Christopher von Jako:]

Jayson?

[Jayson Bedford:]

Is there any way to just quantify the spend in OpEx in 2021?

[Hadar Levy:]

We’re not providing any guidance. But I think that we’re going to go back to the similar OpEx that we had prior to COVID with roughly burn rate of up to $2 million per quarter.

[Jayson Bedford:]

Okay. Thanks.

[Operator:]

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

[Kyle Mixon:]

Hi guys. Thanks for taking the questions. Congrats on a nice year and always saw a Phase 2. I want to start with OCD reimbursement also. I was wondering if you could just tell me what’s the typical demographic is of these OCD patients, like I’m thinking like age, sex, et cetera. And as you think about the max and the private payers coming on with reimbursement in the near-term, next one with hopefully, which of these groups could come first, because obviously Medicare, private, commercial payers, different reimbursement rates. So just curious if you can provide some comments there?

[Christopher von Jako:]

Yes. Thanks, Kyle. I appreciate your comments about the year. So with OCD in particular, I mean, you can look at the onset is typically in the early teams. And most of the time these patients actually don’t seek treatment until they get into their 30’s and 40’s, which is obviously not a great thing. From a payer perspective, we’ve actually met with some of the largest payers already and we’ve met with actually all of the Medicare max with OCD, depending on how severe the OCD is. These patients actually could be disabled and they could be covered under Medicare even if they’re under the age of 65. So I think for us, we’re right now or out there presenting to is many of the payers that we can set up meetings with and we’re sending tremendous amounts of coverage request letters out. And I’ve been on a lot of these calls myself with our Head of Market Access, as well as our Chief Medical Officer. So the comments that we’re getting back, they were very receptive and I’m quite hopeful as we continue for the year that we’ll start achieving reimbursement from some of these payers.

[Kyle Mixon:]

All right, thanks. That’s helpful. And obviously the sales force expansion is positive, it was in the past, to hear the in ascend will increase in that area and that bucket in 2021 is great. So I guess Hadar, can you just talk about the progression throughout the year in terms of the hiring and obviously – or I guess smoking cessation is going to kind of be the rollout a little bit, muted early on and then maybe pick up in the second half. And so I’m thinking that it could be little bit stronger hiring in the second half of the year. Can you just confirm that and maybe talk about how you kind of get to that 18 territory level in this year? Thanks.

[Hadar Levy:]

Yes. So our plan is to complete all the recruitment on the missing territories by the end of Q3. So our main goal, if we can do it even earlier, the better, but it might take for the next two quarters just to hire the missing position that we are looking to hire in the next six months or so.

[Christopher von Jako:]

So you have a specific question about smoking on the rollout with that as well.

[Kyle Mixon:]

I mean, as part of that trajectory, if cadence going to be driven by smoking? It kind of sounded like it based on your prepared remarks.

[Christopher von Jako:]

Yes. No, I mean, obviously the drive right now is for obviously expansion of the current depression and OCD products.

[Kyle Mixon:]

Okay. Yes, no, of course. Thank you. And I’m just looking at the model. The lease side declined dramatically in 2020. I’m sure that was due to some of the pricing arrangements that we talked about in the past. But is the expectation in 2021 going to beat that ASP, Chris back up to where it was pre-COVID, or could we see this lower level stick around for the next year or so?

[Hadar Levy:]

I believe we’re going to keep the ASPs similar to the rates that we have seen in 2020. And we asked some good reason to believe that we we’re going to keep it that way. We see a very good momentum and good demand specifically with our OCD platforms. So I believe that we will be able to keep the margin and the ASPs similar to direct that we’ve seen in the past.

[Kyle Mixon:]

Perfect. Thanks, Hadar. Just a last question for me. Just looking at the record revenues in the quarter, was there any, like pent up demand from the second or third quarters that converted to sales this quarter? And I guess, thinking about that, like what was demand looking like exiting 2020, and then early 2021 recently. And then also if you could comment on the pipeline maybe at the end of the year or currently, I mean, that’d be really helpful too.

[Christopher von Jako:]

So I think as I mentioned earlier, obviously, Q4, we have some seasonality in the business. Q4 and Q2, we tend to drive additional direct revenue as opposed to lease revenue there. It has a dramatic effect on the business and that’s for a number of different reasons with that seasonality. I think we had a really great demand and that demand sometimes slips down a little bit into the first quarter as we entered the first quarter. We’re trying to tie up a lot of things at the end of the year. But we feel very strong about and bullish about where we’re heading right now.

[Kyle Mixon:]

Okay. And Chris, just the pipeline, how does that help the pipeline at this point?

[Christopher von Jako:]

The pipeline is extremely healthy and continues to grow. I think that, obviously, as we continue to exit the pandemic, things are coming back to normal. We see obviously very strongly with our current businesses that are increasing their success and are looking to add either systems at their current locations or other locations. But our salespeople are – every day, they’re getting more and more face to face meetings, which is very strong for us.

[Kyle Mixon:]

All right. Perfect. I appreciate that, Chris. Thanks guys for the questions, again.

[Christopher von Jako:]

Thanks.

[Operator:]

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

[Jeffrey Cohen:]

Hi, Chris and Hadar, how are you?

[Christopher von Jako:]

Great. How are you doing?

[Jeffrey Cohen:]

Just fine. So few questions, you’ve talked about the 12 sites with the smoking coils. Can you walk us through the logistics there being that is the third helmet offering? How is it being a fixed to the actual unit?

[Christopher von Jako:]

That’s a great question. So we actually developed a independent stand for the customers that may already have two helmets already with their current system. And in fact, the first several systems that we deployed this quarter needed that third stand, because those customers already had both depression coil as well as a – or helmet as well as a OCD. A great question.

[Jeffrey Cohen:]

Okay. So one would be detached for the smoking coil to be attached.

[Christopher von Jako:]

No. So there is actually a separate stand that holds an additional coil or additional helmet in essence, that can be – it’s mobile can be rolled around.

[Jeffrey Cohen:]

Okay. Interesting. Okay. I got it. And Hadar, any read into lease versus purchase trends. I know there was a previous question about that from fourth quarter or generally speaking, any commentary on lease versus purchase going forward.

[Hadar Levy:]

We are in the process of lease to direct purchase versus the in a year is about 60-40. I believe that’s a very healthy for our growth and I believe it’s going to remain the same. I don’t see any specific changes, obviously, there is another piece around it, but I believe it might even increase a little bit higher that the lease as compared to the direct purchase, but usually comes from the – on the fourth quarter. But I believe that, most of our customers still prefer just to list the machine rather than to just bite outright.

[Jeffrey Cohen:]

Okay. Got it. And then spark cash and shares, it sounded like $17.2 million plus $41.9 million to $59.1 million in Q1 approximately sort of good estimate.

[Christopher von Jako:]

Yes. Before the burn.

[Jeffrey Cohen:]

Yes.

[Christopher von Jako:]

We haven’t looked at the number, right. It’s in that ballpark.

[Hadar Levy:]

It’s in the ballpark, yes.

[Jeffrey Cohen:]

Okay. And then commentary on shares. Please for end of year as well as currently, can you give us a estimate there?

[Christopher von Jako:]

I mean, we – Jeff, I don’t think we know the number of hand, to be honest with you. I can get back to you on that.

[Jeffrey Cohen:]

Okay. Got it. And then, I guess, lastly for me, Chris, could you comment a little bit on what you’re seeing generally speaking from the macro environment on drugs versus energy delivery and treatment paradigms and energy getting earlier in the space? I know that, historically you’ve made commentary about two failures on drugs prior to TMS.

[Christopher von Jako:]

Yes, really good question. So as I mentioned, I think in the prepared remarks, last year, we saw a number of the large payers relaxing their reimbursement and where a majority of the payers still today continued to be at about four medication failures. But we saw that relaxing down to from four down to two with some of those payers. And even some – I think at least one Medicare MAC has one failure another Medicare MAC has two failures. We hope to see that trend continue. I think that the alternative for our technology, we’re showing really great results with these patients that have – they’re the most difficult patients, right. Because they’re treatment resistive and if we can get them early in their paradigm, it’s only getting better for them. Because after they failed that first medication, it becomes even more likely that they’ll fail a second and a third medication. So I think the trends are hopefully leaning towards bringing the TMS paradigm earlier in the treatments.

[Jeffrey Cohen:]

Okay. Got it. And then lastly, for me on seasonality of the year, I know you talked about back half being strong relative to front half, Q4 and Q2 are generally speaking being stronger versus Q1 to Q3. And you read into the reimbursement out-of-pocket you expect this year that that will have a greater or lesser severity on the on the first quarter?

[Christopher von Jako:]

I think generally with our business, like I said, we do have the seasonality, because we have a lot more direct purchases, like I said, in Q4 and in Q2. So typically, we’ll see that as go into Q1. The direct purchaser will be a little bit less. I don’t think it has much of an effect on deductibles or copays and things like that for the patients in particular on what the drive will be. Again, our customers would be opening up a completely new offering within their office, right. If they’re offering Deep TMS or for example, if an existing customer is expanding, just because their business continues to expand. And I think that with the pandemic starting roughly about a year ago, Hadar and I work together on this fall about a year ago during that period, we’re going to start seeing an increase in bolus of patients probably in the second half of the year. Specifically, because it takes at least one year, if everything goes well to get up and down for medication failures. So our customers – our current customers understand this and they already know how to run the TMS business. So they’ve been very bullish about the business itself.

[Jeffrey Cohen:]

Okay. Got it. Thanks for answering the questions. I appreciate it, Chris and Hadar. Have a good day.

[Christopher von Jako:]

Yes, you too, Jeff. Thanks.

[Operator:]

Thank you. Our next question is comes from the line of Steven Lichtman with Oppenheimer. Please proceed with your question.

[Steven Lichtman:]

Thank you. Good morning guys. Just building on the NDD wins – reimbursement wins last year, wondering how that’s impacted conditions on the ground so far. Are you seeing increased interest from psychiatrists’ offices given the potential to use Deep TMS earlier in the treatment paradigm?

[Christopher von Jako:]

Yes. So I think that’s – it’s definitely a great driver for us and it’s a great message when we’re speaking to psychiatrists that are in those regions or that take that specific insurance carrier. I know having spoken to a number of our customers over the last six months that it is really great for them. I mean, if you may remember most patients that have an onset of depression, we’ll get that primarily anti-depressant medication coming from their general practitioner or maybe say an OB-GYN, if you’re related to postpartum. And now what you’re doing is you’re getting those patients going to a psychiatrist after at least one failure, if not two. So if they’re now in the psychiatrists office was already two failures and they have the ability to now use TMS, as opposed to try another medication. It’s been really beneficial to this particular physician. So that message I think, is definitely resonated with our customers and our sales force is obviously using that message with new potential customers as well.

[Steven Lichtman:]

Got it. On smoking cessation, should we expect a similar playbook in terms of data collection to support reimbursement? Are there plans for a post-marketing study here in 2021?

[Christopher von Jako:]

Yes. So that’s what we’re – that’s one of the aims of our controlled market release right now. Obviously, the goal is to get these 12 centers up and running and treating patients and understanding the market and working together with them on particularly on the cash pay and trying to see what resonates and see how we can repeat this business at multiple places. And that’s really the goal. But the other part of the goal that we’re looking at for the controlled market release is to ensure that we’re collecting the data correctly. So equally important on both those things. So and we – as part of this, obviously we’ve already began collecting post-marketing data.

[Steven Lichtman:]

Got it. And then lastly, Chris, if you start thinking longer term in potential new indications, any update you can provide on the next areas, you think maybe target for add on indications.

[Christopher von Jako:]

Yes, sure. So unfortunately, the pandemic had slowed down some of the work that we were doing around a future indication. We have a number of clinical trials that are going on now. Most of them are pilot trials that are going on now. And we were looking last year to launch a couple of new studies for new indications and we plan to do that later this year. I’m not giving any public guidance on what those indications would be, but we have those listed, obviously in our deck that shows that likely be an addiction, likely be one of the neurological indications, probably MS fatigue, hopefully starting one, if not a multiple of those later this year.

[Steven Lichtman:]

Okay, great. Thanks, Chris. Thanks, Hadar.

[Christopher von Jako:]

Thanks, Steven.

[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.

[Christopher von Jako:]

Thank you so much. In conclusion, I would like to thank all of the investors and our participants for their interest in BrainsWay and look forward to keeping you up-to-date on our progress throughout 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.