The stock in the spotlight:‎ ‎BrainsWay ‎


Sponsor Editoriial Board

“The transition to focusing on the leasing business model helps us continue increasing the revenues we receive from the major depression treatment market, quarter over quarter.”

‎The Sponsor website team asked the Company’s CEO Mr. Yaacov Michlin several questions. ‎

BrainsWay has changed its sales model. ‎Could you please explain the ‎new company’s sales model and tell us why you think that the leasing model will better serve the company’s needs?

Mr. Michlin: ‎The increasing international recognition of non-invasive magnetic stimulation in ‎general, and the clinical advantage of our systems in particular – including the wide coverage ‎of our systems at treatment sites in the United States – has created an ideal situation for the transition to a leasing contracts model with our clients.‎

‎Our leasing model focuses on leasing the BrainsWay systems in two ways:‎ first, leasing and billing ‎according to user fees, where the fee is correlated the number of the treatments which are conducted with the ‎system, while a minimal leasing fee is guaranteed; and second, leasing with unlimited use, so ‎that the client pays a fixed annual leasing fee regardless of the number of ‎treatments conducted. ‎‎The contracts that BrainsWay signs with its clients are usually for a period of ‎three or four years, therefore the new leasing model creates a consistent long-term revenue stream. Also, it allows BrainsWay to better forecast based on increased usage of the systems. This should provide flexibility in the future, if and when our coils are approved for treating additional diseases.‎

‎By focusing mainly on a leasing business model in the US, BrainsWay successfully creates a stable revenue ‎model, with visibility and high business certainty, and with guaranteed ‎revenues, which will continue to increase as long as the use of the leased systems ‎increases as well.‎

‎We believe that the new model better meets the market demands, both from the perspective of the ‎growing use of the BrainsWay’s system, and as an effective solution for patients as compared ‎with other treatment solutions on the market, including regular TMS treatments resellers.‎

As part of the transition to implementing BrainsWay’s leasing model, the company published its minimal expected leasing fees revenue until 2022.‎‎What do you think can be deduced from this forecast, and what is the certainty level of the company regarding the ‎model and the contracts that were signed?

Mr. Michlin: ‎The fact that approximately 50% of the patients with major depressive disorder are not ‎responding to the first drug treatment, combined with the wide insurance coverage of TMS ‎treatments in the US (more than 90%), provide BrainsWay, now more than ever, with a business ‎opportunity for the leasing model and gives us confidence regarding the implementation of ‎the new growth model.‎ ‎As for the end of the second quarter of 2017,the company ‎registered the total amount of all the company’s leasing contracts as $19.1 million USD, a 27% ‎increase compared to the order total reported at the end of first quarter of 2017. It should be ‎emphasized that the order total which we reported does not include the changing users’ fees, ‎which might increase during the leasing period as a result of the use, and also does not include ‎the extensions on existing leasing contracts. ‎ ‎

‎The data, which indicates the total increase of orders of about $4 million USD ‎between the first and the second quarters of the year, matches our early expectations and ‎reflects the business potential of the company. ‎We have managed to identify the increasing ‎market’s preference for leasing the BrainsWay systems, and for expanding our large customer base ‎solutions service to better address their needs. ‎ ‎This way we have created a long-term income ‎perspective and an impressive growth in the minimal leasing fees which the company ‎expects to receive in the coming years.‎ ‎In our opinion, the new model also allows the ‎company’s shareholders to better estimate the current and expected increase of BrainsWay’s business, while ensuring high transparency.‎ ‎An interesting illustration of the impact of our model can be found in the company’s valuation which was made as part of the analysis ‎(conducted on behalf of Tel Aviv Stock Market) by Frost & Sullivan which ‎published an update following the publication of our 2017 second quarter results.‎

BrainsWay has grown significantly; however now, due to the change in the sales model, an interim period is expected during which the leasing fees and the user ‎fees will not be enough to compensate for the decrease in revenues from sales of ‎systems. ‎‎When will the company continue to experience growth again, in your opinion?Does the ‎company have a target to reach that goal?‎

Mr. Michlin: ‎BrainsWay indeed grew impressively in the last few years and increased its revenue from ‎‎$3.4 million USD in 2014 to approximately $11.5 million USD in 2016.‎ ‎The transition to ‎focusing on the systems’leasing to the clients instead of a single sale creates, naturally, a ‎short-term gap. However, we estimate that it assists the mid-term and long-term growth of the ‎Company. ‎ ‎ Taking the second quarter of 2017, as an example, we presented leasing revenues ‎which are 70% of the total income as compared with 44% of the total income(which were the ‎leasing revenues during the second quarter of 2016). As we see it, this is healthier growth ‎for the company and for the investors, such that it will decrease the risks of the company’s ‎businesses and will leverage the success of the company with the increase in market ‎share and the increased use because of leasing more systems.‎ ‎While comparing ‎a company whose main revenues come from repetitive lease payments and increase from quarter to ‎quarter, to a company whose revenues come from system sales with no certainty that such sales ‎can be repeated on a quarterly basis, in our opinion, it is clear that the status of the ‎company with revenue primarily derived from leasing is better, and this is what we are aiming for with our leasing model.‎ ‎I ‎agree that during the transition between the models there is a short period when a person, ‎who is not sufficiently aware of the new model implementation and does not understand it ‎properly, may think that the company growth is slowed. However, BrainsWay believes in its ‎continuing development, in increasing revenues and in increasing total system orders. ‎

‎Regarding the company’s target for achieving the balance, and without getting into forecasts, ‎we estimate that this process will become possible with the continued revenue growth and a ‎continued streamlining of the operational expenses conducted by the Company.‎ ‎It is ‎important to emphasize that our cash burn rate during the second quarter of 2017 decreased ‎to approximately $1.2 million USD as compared to approximately $1.9 million USD during the ‎first quarter of 2017. ‎‎Internally we definitely set a deadline for achieving ‎operational balance andprofitability. ‎

In my opinion, additional evidence for the increasing security of BrainsWay financial ‎results and the company’s stability was BrainsWay’s recent receipt of a ‎line of credit of up to $6 million USD from the Mizrahi-Teapot Bank for a period of 42 ‎months.‎ ‎Obtaining the bank line of credit for an Israeli biomedical company is not a usual ‎thing,and we are happy that the Mizrahi Bank acknowledged the changes that the company has ‎implemented and the huge business potential of our business.‎ ‎The bank’s line of ‎credit, in addition to the cash that the company has,will assist in achieving the company’s ‎targets, without shareholder dilution. The structure of the credit agreement was planned in ‎such a manner that we will begin repaying the credit line only at the end of the first quarter of 2019 and ‎obviously we did that very carefully and thoughtfully. ‎

BrainsWay has recently announced its success in treating obsessive compulsive disorder ‎‎(OCD) and its intention to submit to the FDA an application to approve the marketing of the system for this indication. When,according to your estimation, will the company ‎start its first sales? Does the company have plans to enter markets outside of the US with this indication?   And what is the business potential that you estimate from this indication?

Mr. Michlin: ‎We are getting ready to submit the application to the FDA for the approval of the ‎company’s system marketing also for treating obsessive compulsive disorder (OCD), and ‎we expect to submit it soon.‎ ‎Subject to,and depending upon, the time of receiving the FDA ‎approval for marketing the coil designated for treating OCD,we hope that in 2018 ‎we would be able to benefit from the marketing revenues of the system for treating ‎OCD patients in the US.‎ ‎That, of course, is in addition to the increasing sales growth in the ‎field of treatment for major depressive disorder.‎ ‎The OCD market in the US has broad potential ‎with approximately 50% of the patients not responding adequately to existing treatments, ‎and this is a disease that at least 1% of the population suffers from in the US.‎ ‎We estimate ‎that there are more than 400,000 OCD patients in the US for whom the pharmaceutical ‎treatment that they receive is insufficient and they will constitute our main future target ‎audience. ‎‎If BrainsWay receives the marketing approval in the US, we will be the only ‎company with a non-invasive,clinically effective device for treating OCD. ‎ ‎

‎It is important to mention that we also intend to market the OCD coil in Europe and in other ‎markets in which we already have an approval (such as Israel) and we intend to start this in ‎the near future.

‎Our success in the OCD clinical trial, and obviously subject to receiving the FDA approval, will enable ‎us to present for the first time in the US a therapeutic platform for brain disorders. ‎ ‎Beyond ‎the addition of the indication (which is significant in itself) we hope that a client who is ‎interested in leasing a new system will take into account that we can provide a solution for ‎several indications while the competitors provide a solution for depression only. ‎ ‎

In addition to the future of BrainsWay’s coil for the treatment of obsessive compulsive disorder, what other clinical trials does the company conduct, and what are the clinical and developmental targets that you have set for the company for 2018? 

Mr. Michelin: ‎BrainsWay offers a range of non-invasive treatments for common brain disorders with a wide range of indications.‎ ‎The company currently manages 3 multicenter trials for additional FDA potential indications:‎ for smoking cessation treatment, for treating post-traumatic stress disorder (PTSD) and for treating depression in patients with bipolar disorder (manic depression).‎ ‎We estimate that we can analyze and report the results of the clinical trial for smoking cessation during 2018. It should be noted that the BrainsWay system is approved in Europe and in Israel to market coils for a wide range of indications, including Major Depressive Disorder, post-stroke rehabilitation, pain treatment, Obsessive Compulsive Disorder (OCD), Post-Traumatic Stress Disorder (PTSD), Smoking Cessation, Chronic Diabetic Pain, Stroke, Multiple Sclerosis (MS), Bipolar Depression, Schizophrenia – Negative Symptoms, Parkinson’s Disease (with anti-Parkinsonian medications), Autism and Asperger’s Disorder and Alzheimer`s Disease.

We plan to initiate clinical trials for potential neurological indications, in addition to the psychiatric indications. ‎

‎In parallel to the clinical research and development activities, we continue to prepare for launching ‎the next generation of our stimulator.‎ ‎Our next generation stimulator will feature upgrades to the operator ‎experience, and enhancements to the device features, enabling  improved patient follow-up ‎and control post treatment.‎ ‎In the future we hope also to incorporate the ‎use of markers that we are working on (using EEG); if and when this is realized it will be a ‎unique product in the TMS field. The following upgrade will include what we refer to as a ‎multi-channel stimulator. ‎ ‎This will allow us to deliver various stimulations to different areas ‎of the brain and we hope that this will provide us with even a wider therapeutic range. ‎It will be a much more advanced product from the research and clinical point of ‎view as compared to what is offered on the market today.

‎We expect 2018 to be a significant year on our path to fulfilling our vision to lead the entire ‎non-invasive magnetic stimulation field, both in the clinical aspect and in the capabilities of ‎the device that we market.‎

‎Wishing a Happy New Year and may all the Biomed investors, the physicians, the patients ‎and all of Israel be inscribed for a good year in the Book of life.‎