Brainsway Ltd (BWAY) 2021 Q2 法說會逐字稿

Greetings. Welcome to the BrainsWay Second Quarter 2021 Earnings Conference Call. (Operator Instructions). Please note this conference is being recorded.

I will now turn the conference over to your host, Brian Ritchie with LifeSci Advisors. You may begin.

Thank you, all, and welcome to BrainsWay's second quarter 2021 earnings conference call. With us today are BrainsWay's President and Chief Executive Officer, Christopher von Jako; and Chief Financial Officer, Scott Areglado. The format for today's call will be a discussion of second quarter trends and business updates from Chris, followed by a detailed discussion of the financials from Scott. Then we will open up the call for your questions.

Earlier this morning, BrainsWay released financial results for the 3 and 6 months ended June 30, 2021. A copy of the press release is available on the company's Investor Relations website.

Before I turn the call over to Chris and Scott, I would like to remind you that this conference call, including both management's prepared remarks and the question-and-answer session, may contain projections or other forward-looking statements regarding, among other topics, BrainsWay's anticipated future operating and financial performance, business plans and prospects, and expectations for its products and pipeline, which are all subject to risks and uncertainties, including shifting market conditions resulting from the COVID-19 pandemic as well as the use of non-GAAP financial information. Additional information regarding these risks are available in the company's earnings release and in its other filings with the SEC, including the Risk Factors section contained in BrainsWay's Form 20-F.

I would now like to turn the call over to Chris.

Thank you, Brian, and welcome, everyone, and thank you for joining us today. We're extremely pleased with our strong performance in the second quarter. We expect that the current operating trends in our business and our most recent achievements, especially on the reimbursement front, will continue to drive further growth and momentum for BrainsWay. I'll discuss all of this further shortly, but first I will provide a brief overview of our key second quarter financial results.

We achieved $7 million in revenue for the second quarter of 2021, which represents a significant 45% increase over our second quarter 2020 and demonstrates the continued resiliency of our business through the pandemic. We have now demonstrated strong year-over-year growth in multiple consecutive quarters and believe the progress we have achieved during this period is sustainable throughout 2021. Importantly, the operating environment continues to improve as we learn to cope with the pandemic. With that said, in light with the recent spread of the delta variant, we will of course continue to closely monitor the situation and work to adapt appropriately.

I noted on our last call that patient treatments with Deep TMS were continuing to increase since the end of 2020. I'm pleased to report that this is once again the case in the second quarter. As I've mentioned in prior quarters, mental health issues continue to rise dramatically as we all live through the impacts of the pandemic. As a result, we have all seen an increase in the prominence of mental health in the media. Moreover, these issues are affecting those at younger ages than historically been the case.

According to a recent article published by the Washington Post, the pandemic has negatively impacted college students' mental health during a year of remote schooling and increased isolation. The article focuses on how a lack of human connection and in-person support has led to an increased stress, anxiety, and feelings of hopelessness for students across the U.S. As more younger individuals are seeking treatment for mental health, raising awareness around newer treatment methods like Deep TMS has become critical as they reach adulthood.

As such, we continue to ramp up our patient awareness initiatives. During the second quarter, we hosted 6 well attended webinars. We have a number of additional webinars throughout the third quarter, including one we are particularly excited about, which will be led by a Deep TMS patient who has benefited tremendously from our technology.

We also continue to leverage our website to educate prospective patients on the benefits of Deep TMS. In continuation of recent trends, we are pleased to report that our organic website traffic has again increased significantly, up over 210% in the first half of 2021 as compared to the first half of last year. We continue to add fresh content and enhance the user experience on our website. Moreover, on MyBrainsWay, our customer portal, we have streamlined navigation and improved the content, including robust insurance, reimbursement, and policy information, thus enabling our customers to have the information they need at the click of a mouse.

I will now briefly review the patient awareness campaign we initiated in May around Mental Health Awareness Month. The goal of this initiative was to reach any patient seeking an alternative to traditional medical management of their mental health. We conducted a social media follower campaign, utilizing micro-to-mid tier influencers to create content in line with BrainsWay's broader message on mental health awareness and the utility of Deep TMS. The campaign resulted in BrainsWay securing hundreds of new followers, including increases of 91% on Facebook and 25% on Instagram.

The mental health awareness initiative in May was part of our ongoing large-scale digital patient awareness campaign. While still in the initial phases of this campaign, our patient inquiries have grown by nearly 300% in June and July. As pleased as we are with the success of our collective digital efforts, we all know that there's no substitute for in-person interactions. In this regard, I'm pleased to report that our sales professionals' in-person access to customers has increased steadily from the first quarter to the second quarter.

Likewise, we returned to live in-person conferences with our participation at the June 2021 Annual Clinical TMS Society Meeting, an important medical meeting in our space. We had a significant presence at this meeting, including presentations by Professor Abraham Zangen, a co-developer of our Deep TMS technology; and by Dr. Aron Tendler, our Chief Medical Officer. The event also featured 11 poster presentations highlighting important research done in Deep TMS, which represented 25% of all poster displayed at the meeting.

The meeting also included 2 showcase presentations. The first focused on the impressive body of evidence behind Deep TMS treatment for OCD, an important driver behind our recent favorable OCD coverage decisions. The second presentation was delivered by Dr. Shan Siddiqi of the Brigham and Women's Hospital in Boston, whose lab is dedicated to research on brain circuitry. His presentation focused on how BrainsWay's 3 commercially available helmets are specifically designed to broadly engage various anatomical and functional brain circuits.

Looking ahead, we are scheduled to participate in 4 additional in-person industry conferences over the balance of the year, and we are hopeful that the COVID environment will allow these events to proceed as planned.

I now turn to Deep TMS for the treatment of OCD. During the second quarter, we shipped 22 add-on helmets, increasing the total number to 247. This represents over 1/3 of our total installed base that have opted to offer OCD treatment, which we view as a testament to the strong belief of the benefits of Deep TMS treatment for OCD.

I'm very excited to discuss with you today the critical progress we've achieved around OCD reimbursement in the second quarter, which represents an important step in our plan to further expand our market penetration in this key indication. First, Centene, one of the largest health care plans in the U.S., published a positive coverage policy for Deep TMS in this indication. Importantly, the establishment of this policy was the first of its kind in the treatment of OCD.

Centene provides coverage to about 25 million members in all 50 states, including Medicaid and Medicare members as well as to individuals and families served by health insurance marketplace, the TRICARE program and commercial insurance. Centene's new policy specifies that coverage will be exclusive for the treatment of OCD who has in Deep TMS. This decision follows Centene's review of an extensive body of published clinical evidence demonstrating the safety and efficacy of Deep TMS treatment for OCD.

Following this, we announced the first draft Medicare Local Coverage Determination, or LCD, was published proposing coverage applicable to the Deep TMS system for the treatment of OCD. The draft LCD was issued by Palmetto, a Medicare Administrative Contractor, or MAC, whose jurisdiction covers Medicare members in Alabama, Georgia, North Carolina, South Carolina, Tennessee, Virginia and West Virginia, representing over 9 million covered lives. A final policy is expected later this year.

Most recently, Health Care Service Corporation, or HCSC, an independent licensee of Blue Cross Blue Shield Association, issued a positive coverage policy applicable to Deep TMS for the treatment of OCD. HCSC is the largest customer-owned health insurance company and the fourth largest in the U.S., covering approximately 17 million lives. HCSC offers a wide variety of health care plans and related services through its operating divisions and subsidiaries, including Blue Cross Blue Shield of Illinois, Montana, New Mexico, Oklahoma and Texas. Each of these positive reimbursement decisions enhance and streamline access to Deep TMS for OCD. We will, of course, continue to work to drive further coverage to -- further positive coverage developments from other major health clients.

We continue to reach out to payers with our growing body of clinical evidence to support Deep TMS treatments for patients with OCD. Our requests are based on the strength of evidence from our pilot and pivotal studies published in 2018 and 2019 and 9 additional studies published in 2020 and 2021, including our real-world evidence study, which analyzed 219 patients from 22 medical centers.

We also continue to achieve incremental reimbursement progress in depression. As a reminder, 4 of the top 10 commercial payers in the U.S., representing approximately 83 million lives, now provide coverage for Deep TMS for depression following 2 failed medication trials. Importantly, the trend of decreasing the number of required prior medication failures before qualifying for Deep TMS is continuing among other payers as well. Again, this trend is important as it further lowers the barriers to access our life-changing approach to patient care.

Recently, several smaller private payers have come down from 4 to 2 or 3 medication failures. Likewise, the recent draft Palmetto LCD reduced the number of required medication treatment failures from 4 to 2. Once the Palmetto LCD is final, 4 of the 7 MACs across the country will provide coverage for our depression therapy after just 1 or 2 failed medication trials. These 4 MACs cover 42 million lives and represent nearly 70% of all Medicare beneficiaries in the U.S.

With that, I would like now to provide a brief update on our controlled market release of Deep TMS for smoking addiction. You will recall that this new commercial offering, the first of its kind, is being launched at phased rollout. We have now completed the first phase, which was a controlled market release designed to engage the customer experience and initial receptiveness among a limited and select group of customers. We are pleased to report excellent early feedback from our customers, including very encouraging anecdotal quick rates from the patients being tracked as part of this phase.

We are now conducting additional consumer market research to further cultivate our messaging around this market offering in preparation for our broader launch, which we intend to execute in 2 additional phases: a limited market release that will make the offering available to a somewhat wider group and then a subsequent full commercial launch.

Turning to Investor Relations. We will be presenting at a number of health care investment conferences during the remainder of 2021 and we will host a KOL event for investors and analysts on August 31 that will highlight the OCD indication. This upcoming virtual event will feature a presentation by Dr. Kimberly Cress, past president of the Clinical TMS Society, who will discuss the current treatment landscape and unmet medical need in treating patients with OCD. In addition, Dr. Tendler will discuss Deep TMS as a well-tolerated and effective treatment for OCD. We look forward to your participation in this informative event.

Finally, as always, I would like to express my gratitude to our hard-working customers on the front line of this mental health crisis. And of course, to the entire BrainsWay team for their continued support and dedication to our mission of boldly advancing neuroscience to improve health and transform lives.

With that, I will now pass the call to Scott for his review of our second quarter 2021 financial results. Scott?

Thank you, Chris. I will jump right in with a discussion of our financial results. Revenue for the second quarter of 2021 was $7 million, a 45% increase compared to the second quarter 2020 revenue of $4.8 million, which was impacted by the pandemic. This year-over-year revenue growth was driven by the increase in our direct sales. On a sequential basis, second quarter revenue of 2021 grew $0.9 million or 14% over the first quarter of 2021.

Our recurring revenues, primarily derived from leases, were $3.6 million. Lease revenue in the second quarter of 2021 represented 51% of our total revenue, highlighting the recurring nature and predictability of BrainsWay's overall revenue. For the first half of 2021, revenues were $13.1 million, representing a 46% or $4.1 million increase compared to revenue of $9 million for the first half of 2020, which, as I mentioned previously, was pandemic impacted.

As of June 30, 2021, BrainsWay's installed base totaled 682 Deep TMS systems, which reflects an increase of 30 systems on a sequential basis. Gross profit for the second quarter of 2021 was $5.7 million compared to $3.8 million during the prior year period. Gross margin for the quarter was 81% as compared to 79% in the second quarter of 2020. Gross profit for the first half of 2021 was approximately $10.4 million or a 79% margin compared to a $7 million gross profit or a 78% margin during the prior year period. Margins can fluctuate slightly. However, we expect margins to be in this range in the back half of 2021.

Moving on to operating expenses. For the second quarter of 2021, research and development expenses were $1.7 million as compared to $1 million in the second quarter of 2020 and primarily consists of costs associated with the continued development of our patented Deep TMS technology. Research and development expenses for the first half of 2021 were $2.6 million as compared to $2.8 million in the prior year period.

Sales and marketing expenses for the second quarter of 2021 were $4.2 million compared to $2.2 million for the second quarter of 2020. For the first half of 2021, sales and marketing expenses were $7.3 million as compared to $5.9 million in the prior year period. As Chris mentioned, we have invested in digital marketing campaigns to create awareness as well as increased sales professionals to drive further growth.

Moving on to G&A. Expenses for the second quarter of 2021 were $1.4 million compared to $0.8 million for the second quarter of 2020 and $2.8 million for the first half of 2021 as compared to $2.1 million in the prior year period. Total operating expenses were $7.2 million for the second quarter of 2021 compared to $4 million for the same period in 2020. The significant change in operating expenses on a year-over-year basis are reflective of cash preservation efforts to mitigate the effects of the pandemic in 2020. Total operating expenses for the first half of 2021 totaled $12.7 million as compared to $10.8 million in the prior year period. We expect to continue to invest in initiatives to drive commercial adoption of our primary indications in depression, OCD and smoking and additional clinical studies, with the Q2 run rate reflective of expenses in the second half of the year.

Operating loss for the second quarter was $1.5 million compared to an operating loss of $215,000 for the same period in 2020, reflecting the cash preservation efforts in the second quarter of 2020. Operating loss for the first half of 2021 totaled $2.3 million as compared to $3.8 million in the prior year period. For the second quarter ended June 30, 2021, we incurred a net loss of $1.9 million compared to a net loss of $571,000 in the second quarter of 2020. For the first half of 2021, net loss was $3.3 million as compared to a net loss of $4 million in the prior year period.

Moving on to the balance sheet. We ended the quarter with cash, cash equivalents and short-term deposits of $55.9 million compared to $17.2 million as of the end of December 31, 2020. We believe that our strong balance sheet allows us to continue our sales and marketing efforts to drive additional adoption of our multi-indication Deep TMS system as well as invest in R&D in order to commercialize additional potential indications of our differentiated, innovative technology. We believe these initiatives and investments will help drive long-term shareholder value.

This concludes our prepared remarks. I will now ask the operator to please open up the call for questions. Operator?

(Operator Instructions) And our first question is from Jayson Bedford with Raymond James.

Congrats on the progress. Just a few questions. First, Chris, you alluded to the delta variant. Have you seen an impact on your business over the last few weeks?

We haven't. And obviously, as you go into Q2 in just looking at procedure volumes, the procedure volumes actually continued to increase in all of Q2 and actually going into Q3 as well. And nothing -- no changes also on the side of the sales front either.

Okay. And then just in terms of the 2Q strength, do you feel confident that this wasn't just a fulfillment of kind of backlogged orders? And I guess it's just -- you talked about seeing continued momentum and maybe that answers the question. But I guess just a commentary on backlog and was 2Q helped by just fulfillment of backup orders?

You mean coming from Q1?

Correct.

Yes. No, I don't think we had any hangover from Q1 at all. I think we continued to build up momentum going into Q2. As you know, we've been increasing sales people this year as well. And I think we've been continuously working on improving our sales force and our talent, and I think that kind of showed through into Q2.

Okay. And then just a couple of OCD questions. Is there a direct correlation between the new OCD reimbursement and OCD helmet placement, meaning are the new coils being placed in settings where there is comparatively heavier coverage from Centene or HCSC?

Yes, that's a great question. I think that probably the news of the first 3 positive coverage policies was definitely more helpful in the second quarter as they started to see the trend continue. So we saw, obviously, with the number of systems that we shipped was a higher number of component of OCD add-on helmets to it. So we're extremely encouraged by this. So it's the highest probably number of OCD helmets with number of systems that we shipped. So we're really excited about that. I mean, obviously the announcement of the coverage determination actually came right after our last earnings call. And I think it ramped up the sales team as well as a number of our customers.

Okay. Just I guess on that and looking on the other side, it looks like only a couple of your existing users added OCD in the quarter, which I'm a bit surprised by. But what's the source of resistance right now for those users who have not yet adopted OCD, which appears to be 2/3 of the base?

Well, I think in general, there are certain practices that are not focused on OCD in particular, right? There are some practices that just don't focus on OCD. And I think others are probably encouraged by the news, but continuing to wait for further expansion of the OCD coverage. Right now, we have probably about 40 million covered lives and we still have some continued work to do. But I think, overall, both from our customer base as well as from our sales force, there's a great deal of excitement and we continue to have great results with our post-marketing efforts as well on understanding how these OCD patients are doing.

Okay. That's helpful. Maybe just last one for Scott. Gross margin strength in 2Q, your comments suggest that it will continue in the second half. What's the driving force around the step-up in gross margin? Is it just the top line?

Maybe my comment might have been -- yes, I think Q2, in particular, was a little blip there. I think what I was trying to say is that the year-to-date margin is probably more reflective of where we're going to be in the back half. Maybe that didn't come out right. I think we're still going to see 78%, 79% in the back half there. I think Q1 was a bit of a blip.

Our next question is from Steven Lichtman with Oppenheimer.

Congratulations. Chris, how are you thinking about the potential for incremental OCD revenue here in the near term by treatments in the geographic areas where there are new policies? Is that something we could see here in the second half of the year or should we be thinking about that as a more noticeable pickup in 2022?

I think it's probably further down, Steve. Again, we're still in the early phases, right, with Centene and HCSC, right. And obviously, we're really excited about Palmetto. It's only covering a certain number of states and a certain number of covered lives. So I would say probably going into 2022, we'll see probably further momentum around it.

Got it. You talked about sales force investments. Where are you now in terms of number of reps? And what's your latest thinking on where you'd like to end at the end of the year?

Yes. If memory serves me correct, I think at the beginning of the year, we were at 12 and we're up to 16 now. And as I probably mentioned before, our short-term goals right now are to get to 18. And I think probably by the end of Q3, we'll be at 18.

Okay. Great. And then just on the smoking cessation, when are you thinking timing-wise about the limited launch and then the potential full launch?

Yes. So as I mentioned in the prepared remarks, early data has been really extremely good for us in the controlled market release. We have actually split -- we have actually hit our criteria for all of that to head into a limited market launch now. We just -- over the last several weeks, we just finalized our education for the sales force and we're already starting to claw out to a more limited group of customers there. So we're already into the limited market phase and we're looking for probably the full commercial phase to probably start sometime later this year.

Great. And then lastly, obviously, OCD reimbursement has been sort of the headline here in the last few months, but the reduction in number of failed meds on the depression side, as you mentioned, has continued. What have you seen in terms of that driving increased demand for systems for potential new customers as we look back over the last few quarters?

I think it's really impactful when it comes to the small private psychiatrist offices who have these patients already in their waiting room and to be able to go to a patient that has already 2 failed medications as opposed to waiting for an additional -- 2 initial medications, which could push it out another year, 1.5 years to 2 years in time frame before they're applicable to have reimbursement I think is a big difference. And I think that when it happened with a number of our customers, anecdotally I spoke to a number of them in different places in the U.S. and they were very excited. And we -- and they said it's impacting them quite a bit on just looking and understanding of how they're going to be treating these patients moving forward.

Our next question is from Jeffrey Cohen with Ladenburg Thalmann.

Just a couple from our end. I guess, firstly, going back to Jayson's original question or 2. If you could give us a little color perhaps on just your geographic overlay versus some hot spots on the COVID side? We're just trying to get a better quantification of cutting cadence for Q3 and general back half commentary.

Yes. Like I said earlier, we haven't seen any real effects as of recent. I looked at the numbers, we are tracking, from a sales perspective, the number of meetings availed for that. It's steadily progressed in Q1 to Q2 and has increased also into Q3. So we're not seeing any regional effects at this time.

Okay. Great. And then secondly on our end, could you talk a little more about the payer environment and how that reflects pharma sales? You had some commentary that it looks like you're moving a little earlier in the treatment paradigm from 1 or 2 pharma sales as opposed to 3 or 4. Could you provide any commentary there? And what kind of discussion the company is having on the payer side?

Yes. One of the great things, Jeff, is that since we're having all these conversations directly with the payers related to OCD, we also take the opportunity to actually chat and update information about depression as well. And as I mentioned in my prepared comments, more and more, even the smaller payers are now moving from 4 medications down to either 3 or 2, which is I think really exciting. And then as I also mentioned that there are 7 Medicare administrators throughout the United States that cover the whole global area. And now, in fact, with Palmetto moving from 4 down to 2, that makes 4 of the 7, either 2 or 1. In fact, the other 3 Medicare providers are actually at 1 failure. So I think it's -- overall, it's a really good trend. It's going to open up access. It's going to be good for patients and it's going to be good for the providers as well. No one doubt. I think we'll see that continue I hope to be a trend at moving closer, even getting to maybe 1, like some of these Medicare providers are allowing.

Okay. Got it. And then one more quick one. Cadence and rollout as you're kind of planning and expecting on the nicotine addiction side, that kind of looks similar to the OCD coils and as we saw in '18, the original 58 and getting toward the 200 a couple of years later.

Yes. I think it's probably too early to kind of give some numbers around that this time. I mean, as I mentioned probably on the last call, we rolled out to 10 of our customers with our new smoking addiction helmet or as we call it internally an H4 system. And then over the second quarter, we rolled it out to additional 5. So we're at 15 customers right now that have the technology. And once we'll get into a limited market, we'll continue to kind of provide insight in later quarters.

Our next question is from Jason Wittes with Northland.

So for OCD, you guys, it seems have done a pretty good job of making sure that, if I'm correct, that the reimbursement is specific to deep brain. Is that the strategy or has that been the strategy and the case in terms of most of your discussions with the insurers? And secondly, does that help in terms of copycats trying to sneak in, even though I know they don't necessarily have direct OCD approval?

Yes, you're right. That has been the strategy for us. I think as I mentioned on prior calls, when we're meeting with these payers, it's really a primary focus for us to make sure they understand the difference between Deep TMS and traditional TMS and the benefits of Deep TMS. Us going deeper and broader makes a huge difference, especially in the outcomes of the patients. And as you know, we're very, very particular about the way we do our research and conduct our clinical trials. And in that way, we've shown really the benefits of what Deep TMS is doing, particularly for these OCD patients. And we have been very particular, as you mentioned, in getting Deep TMS as to be the provider of this OCD technology or treatment as you mentioned. So it has been an important part of the strategy.

Yes. No, helpful. And also related to that, the MAC decision to go from 4 to 2 failed therapy attempts, that's specific to all deeper or stimulation? Or is that specific to deep brain stimulation? Just a clarification on that.

That's for all TMS, whether for us with Deep TMS or traditional TMS.

Okay. And then I know it's still early in smoking cessation, so you may have limited comments. But the big question I have, and I think a lot of investors have, is it seems like there's a big out-of-pocket opportunity here. Has that been tested yet? Can you comment on how big or how realistic that opportunity might be?

Yes. No, that's been a big part of our focus with the controlled market release to try to understand how we're marketing to patients. Are there opportunities for other reimbursements associated around the treatment as well? We -- in fact, just a couple of weeks ago, we brought all of our controlled market release customers together and had a call with them. It was really helpful to kind of understand thoughts specifically -- best practices around patient targeting, patient messaging, insurance billing and treatment protocol. So we're learning a lot. And we look forward to kind of share further information as we continue down this path. But I think, as I mentioned in the prepared remarks, early and total evidence was very good about the treatments. We probably treated around a couple of dozen patients to date and it's been very well receptive so far.

Okay. Helpful. And then on OCD, I know that you talked about different pricing strategies. Is there a separate -- is it still basically a leasing type agreement? Or is there actual additional payments related to OCD from the further year installed base that has opted to get the helmet?

Yes. So traditionally in the past, we were more on a fee-per-use, but we've kind of opened it up with all of our 3 strategies. So doing what we call like a risk share model, which is a fee-for-use. We also sell the helmet directly, and we also lease the helmet as an uptick on increased -- if they're getting depressions system and then they can also lease the helmet as well.

Okay. Is there an incremental piece of OCD in those revenue numbers that you supply to that today? Or is that -- I guess it's just not something you're breaking out at the moment?

Yes. So we don't break it out, but certainly there's incremental revenue associated with the additional helmet.

And it also obviously drives additional sales overall as system sales, right, because of the differentiation of the technology between us and other traditional TMS systems.

Okay. And then maybe last question. I think you mentioned your goal is to get to 18 sales reps in the U.S.

Yes.

It seems like you can go bigger, especially -- are you -- or is that something that maybe you reevaluate after you look -- you kind of complete your evaluation of the smoking cessation trials or commercial trial that is?

No, we can definitely go bigger. We just wanted to do it in a kind of a phased approach. So our goals for this year was 18. Those were going to probably most definitely increase going into 2022. But right now, our short-term efforts are to get to 18.

(Operator Instructions) Our next question is from Raghuram Selvaraju with H.C. Wainwright.

Congratulations on a really solid quarter here. Firstly, I wanted to drill down a little bit further into what you envisage to be the long-term plan, the long-term goal for expansion of the number of sales reps in the field? And if you could please relate that to the target prescriber base because it seems as though the prescriber base is enormous relative to the number of sales reps you currently have. And I just wanted to know kind of what's the ultimate goal, what's the ultimate sales rep number objectives that you have relative to the prescriber base that you're targeting?

So in general, we were at 12 and our goal was to grow by 50% in a systematic way. We think probably over time, in the short term, probably up closer to around 40 is where we're thinking to kind of cover the complete territories that we're looking at. But that can change. Obviously, depending on our rollout of smoking, which is we may go in a number of other different areas with smoking as well as an indication. Obviously, we know it's outside of psychiatry as well. So I think just to give you kind of a short-term thought, that's sort of the thinking.

Okay. And then just a couple of questions regarding the evolving reimbursement picture. Are you seeing an evolution in the thinking among reimbursement agencies regarding coverage of Deep TMS procedures in patients who may already have had the Deep TMS applied once -- at least once in their prior treatment history? Or are you seeing that remaining effectively static? And then the second question is whether you are seeing any changes in the thinking among reimbursement agencies with respect to prior authorizations, the number of prior treatments, for example, in the context of MDD.

So as your first question I assume is also related to depression, correct?

Correct, yes.

Yes. So in general, without getting too technical and too deep, there are a couple of things that when your depression patients come in, they look for response and someone to get to remission. And if somebody has a response on the technology, the payers will continue to actually pay for TMS treatments in the future, which I think is important. And we've shown in a head-to-head study that our response rates are actually higher than traditional TMS. So I think that's an important indicator. So -- and remember that depression is episodic. So as soon as someone gets to remission, if they come back and have another episode of depression, as long as they respond to the technology, currently the payers are paying again.

And then to your second question, as I mentioned, initially when TMS started getting reimbursed by payers on a broader, wider scale, they started at 4 failed medications. And the recent trends, starting in about late 2019, has been moving down from 4 down to 2. We've seen, as I mentioned in my prepared remarks, that that trend continues of going down from 4, down to 2, and in some cases even 1, which I think is just extremely helpful with all the details around where medications end. And after the first medication, there's only roughly about a 50% chance that there will be a response and then it just gets worse and worse after the next medications. So getting it down closer to 1 failed treatment I think is going to be a continued trend that happens.

Okay. And then on the reimbursement front also, I wanted to ask if you expect any additional draft LCDs before the end of this year?

I mean, we're hopeful to it. I can't give guidance around it. I was -- in my last couple of calls, including the last one that we had, I was very hopeful that we would end up getting at least 1 coverage, just from the receptiveness of the conversations we were having around OCD and then boom the day after the call, we got 1. And then a couple of years later, we got another 1, and then the third one. So I'm hopeful, but I can't give guidance on it. It's really very hard to predict. But I think one additional thing there, Raghuram, is that we've actually met with all the Medicare providers, all the MACs and introduced all the information to them already.

Great. And then with respect to the smoking cessation controlled launch, can you just give us a bit more color on how the kinetics of the launch are going to dovetail with what you expect to be evolution in the reimbursement picture there?

Yes. Again, it's probably too early to kind of predict how that will go. Obviously, we have done a bunch of work around understanding the reimbursement landscape in smoking and also trying to understand exactly what our strategy is moving forward. I think it's really important, as we've done with OCD, to be focused on gathering post-marketing data and also making sure that we're publishing that data in an appropriate way to give us further evidence to support any reimbursement efforts moving forward.

And we have reached the end of the question-and-answer session. I will now turn the call over to Chris von Jako for closing remarks.

Thank you so much. I'd like to thank all the investors and other participants for their interest in BrainsWay. With that, please enjoy the rest of your day.

This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation.