Seeking Alpha • Jul 12
BrainsWay's Shares Look Attractive
The company boasts state-of-the-art technology with multi-usable helmets for different indications and more indications likely to be approved.
International sales are another growth opportunity where the company has hardly scratched the surface.
The shares are modestly valued, given 30%+ revenue growth and 75%+ gross margins, even if there is little in the way of operational leverage and profits are not near.
The company isn't without competition though, and these are not sitting still either.
BrainsWay (BWAY) has interesting technology called TMS or transcranial magnetic stimulation, which has been shown to be helpful in the treatment of a number of conditions and is already FDA approved for several of these.
The company has a more sophisticated and efficient device compared to the competition and this enables it to rapidly scale revenues. Given that the company still has a lot of cash, for now, it is prioritizing growth over profits.
Growth opportunities are plentiful still in already approved treatments both in the US and abroad, but there are a host of additional conditions that are likely to receive FDA approval, significantly increasing the company's TAM.
Roughly half of the company's revenue comes from high-margin recurring revenue and the company enjoyed a 78% gross margin in 2021.
FinViz
The TMS technology
From the March 2022 IR presentation:
BWAY IR presentation
There are several different coils for different indications
BWAY 10-K
There are multiple advantages of the therapy:
Non-invasive
No anesthesia required
Well tolerated
3-20-minute sessions
Easy to administer
There are a lot more of these slides in the linked IR presentation that explain the workings further, as well as the treatment and cost-effectiveness and the advantages over the competition:
BWAY IR presentation
Business model
Sales
Fixed-fee lease
Risk share
The last two models generate a recurring revenue stream. Since OCD and smoking cessation are only offered in the risk share or fixed lease models, recurring revenues are set to rise as a percentage of revenue.
Growth
There is a steady 30%+ or so revenue growth that was interrupted by the pandemic:
Data by YCharts
The main growth vectors are:
Additional customers
Additional reimbursement
Additional applications
International expansion
Applications
The company's TMS technology is approved for three types of disorders:
MDD major depressive disorder (2013), including 3-minute Theta Burst protocol (2021).
OCD obsessive-compulsive disorder (2018)
Smoking addiction (2020)
Anxious depression (2021), although this is usually subsumed under MDD
These are large markets:
BWAY IR presentation
And the TAM from the already approved treatments is very large, $11B:
BWAY IR presentation
Progress in getting more of the TAM is dependent on several dimensions:
Education, marketing, and sales
Reimbursement
Competition
Education and market awareness
Before one can sell relatively new medical devices one has to educate the market and convince potential adopters of the advantages. The company does this with the help of a multi-pronged approach:
BWAY IR presentation
Market awareness is increased through Industry partnerships with advocacy groups and professional organizations, as well as digital marketing campaigns:
BWAY IR presentation
Its organic web traffic increased 46% in Q1 and they apply an innovative web chatbot H-Coil which logged nearly 50 sales meetings with clinics and 1200 engagements with interested parties, 20% of which led to further inquiries. Management will also increase its use of social media and participate in medical conferences on-site and online.
Marketing and sales
BWAY IR presentation
The company hired the experienced Eric Hirt as their new Vice President of Sales
The company is building out the sales infrastructure by going from two regions with 18 territory sales managers to three regions with 21 territory sales managers.
They have 8 Practice development consultants and 11 field clinical engineers supporting their 21 territory sales managers.
Reimbursement
BWAY IR presentation
There are already 3 CPT codes for the three approved treatments, but there is still progress to be made for reimbursement. For MDD, already some 6.3M out of 7M treatment-resistant patients are eligible for reimbursement, that is, 90% of the addressable population.
Management believes OCD will achieve a similar ratio, and a significant step was taken at the beginning of Q1 with ((PR)):
a final Local Coverage Determination (LCD) has been published providing coverage applicable to the BrainsWay Deep TMS™ system for the treatment of obsessive-compulsive disorder (OCD). The final LCD was issued by the Medicare Administrative Contractor ((MAC)) Palmetto GBA, which covers Medicare patients in Alabama, Georgia, North Carolina, South Carolina, Tennessee, Virginia, and West Virginia, representing over 9 million covered lives.
This brings the total number of lives eligible for OCD reimbursement on the company's device to roughly 60M. Palmetto also increased the population for reimbursement for depression and anxious depression as it reduced the requirement of four failed medications to so now 60%+ of Medicare patients are eligible.
There was further good news on the reimbursement front from Highmark BCBS (6.8M lives covered) and Israel.
The company is also launching a customer support program in May with respect to reimbursement. Smoking cessation isn't yet reimbursed and this isn't guaranteed to arrive anytime soon, or even at all either.
Additional applications
There are more to come:
BWAY IR presentation
The one recent approval (apart from anxious depression, which is subsumed under depression) is smoking cessation. Not even mentioned is Parkinson's disease, despite a first study showing considerable effectiveness, although lacking longer-term follow-up data.
Smoking cessation
BWAY IR presentation
After an initial phase, smoking addiction is now in full market release although much will depend on positive reimbursement decisions for which the company is gathering additional data. There is data available indicating the effectiveness of their TMS interventions:
BWAY IR presentation
Widespread reimbursement isn't guaranteed though as TMS is fairly expensive and in line with other cessation methods like nicotine replacement therapies (especially in combination with behavioral therapy) but it could catch reimbursement for patients who do not respond to alternatives.
Even without reimbursement, there is likely a market for their helmets as there are pay-per-use models that make adoption easier, although the market will be much smaller.
What does this all add up to? SA contributor Richard Durant has produced a useful calculation of the company's TAM:
Richard Durant calculation
We have to note though that this is much less than what the company argues in its 20-F, take for instance MDD (our emphasis):
approximately 6.3 million or more are currently eligible to receive reimbursement for Deep TMS from either governmental or private insurers. Assuming a course of treatment per patient of 33 treatment sessions and a price paid to us per treatment session of $70 (which is our benchmark price per treatment session), we believe our total annual addressable market opportunity for MDD in the United States is approximately $14.6 billion.
