Brainsway Ltd (BWAY) 2020 Q2 法說會逐字稿

Greetings. Welcome to BrainsWay Second Quarter 2020 Earnings Conference Call. (Operator Instructions) Please note, this conference is being recorded.

At this time, I'll turn the conference over to Bob Yedid with LifeSci Advisors. You may now begin.

Thank you, Rob, and welcome to BrainsWay Second Quarter 2020 Earnings Conference Call. With us today are BrainsWay's President and Chief Executive Officer; Christopher von Jako; and Chief Financial Officer, Judy Huber.

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 financials from Judy. Then, we will open up the call for your questions. Earlier today, BrainsWay released financial results for the second quarter ended June 30, 2020. A copy of the press release is available on the company's Investor Relations website.

Before I turn the call over to Chris and Judy, 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 future events or the future performance of BrainsWay, including, but not limited to, any statements related to commercial plans or activities, financial projections, clinical studies, R&D plans and/or anticipated time lines. These statements are only predictions, and BrainsWay cannot guarantee that they will, in fact, occur. BrainsWay does not assume any obligation to update that information.

Investors are cautioned that all forward-looking statements involve risks and uncertainties such as reliance on third parties and shifting market conditions, particularly the COVID-19 pandemic, which may cause actual results to differ from those anticipated by BrainsWay at this time. Additional risks concerning factors that could cause actual events, results or achievements to materially differ from those contained in the forward-looking statements can be found in the company's registration statement on Form 20-F and its other filings with the Securities and Exchange Commission.

With those prepared remarks, it's now my pleasure to turn the call over to Chris von Jako, CEO. Chris?

Thank you, Bob. Welcome, everyone, and thank you for joining us today. Today, we reported second quarter 2020 revenues of $4.8 million, which were below the revenues for the same period last year but are nonetheless on the higher end of the guidance range we provided on our last earnings call and are in line with the analysts' consensus estimates. We are very pleased that this represented a 16% sequential growth over the last quarter despite the impact the pandemic has had on many medtech companies.

As I described in the last earnings call, many clinics continue to progress toward near-normal operations, and most importantly, patients are steadily returning for treatment. Many clinical practices have worked to develop protocols to allow patients back into their offices. A significant number of these clinics are offering our virtual touchless treatment experience.

As continues to be noted in many press reports, the impact of COVID-19 extends far beyond physical health and is having a significant effect on mental health for many people. Unfortunately, this trend has continued to worsen as the pandemic continues. I will highlight just a few of the sobering statistics around this mental health impact. I previously noted the recent Census Bureau survey finding that 1 in 3 Americans are reporting symptoms of depression or anxiety. I would like to add that this is a staggering high rate since this is more than 3x the rate from a similar survey conducted in the first half of 2019.

Young adults especially seem to be struggling. According to a survey by the American College Health Association, 41% of college students reported feelings of depression from March through May of 2020. Consequently, patient visits with psychiatrists are up over 40% during this period versus the pre-COVID period. While a lot of these visits occur via telepsychiatry platforms, this reflects an important increase in access to professional mental health care. This all serves to highlight how important a role BrainsWay needs to play with patients suffering from both depression and OCD and we're trying to do exactly that.

We continue to have an enthusiastic response from our current and potential customers with our increased focus on education and awareness through both digital physician education programs presented by BrainsWay as well as by attending various virtual industry conferences. Specifically, from April through July, about 2,800 registrants enlisted in the 44 webinars presented by BrainsWay. This is up from 31 webinars from our last earnings call, which was just 7 weeks ago.

We attended 2 recent virtual mental health conferences. The Elevate by Psych Congress virtual experience and the Online OCD Conference. The Elevate by Psych Congress included global mental health organizations and industry leaders. And the Online OCD Conference included individuals suffering from OCD, their family members and supporters, and the professionals who treat them. Both of these events were excellent opportunities for us to raise awareness around our innovative Deep TMS treatment.

In addition, we are gaining meaningful traction with our newly launched streamlined website, which is intended to provide a more seamless web experience for both patients and providers. Education materials are now more accessible to meet the heightened need of people seeking treatment.

Over each of the last -- past 2 months, our organic user volume has increased monthly by 9% and 13%, respectively with July reaching our highest volume in the past 12 months. We are encouraged by these results and believe this strategy will allow us to continue increasing market awareness of our groundbreaking Deep TMS technology.

Turning to our expenses. As clearly seen from the quarter's financial results, we continue to act aggressively to offset the effects of COVID-19 from a financial perspective without diminishing any of our core capabilities. Our significant expense reduction program remains ongoing. However, as we mentioned on our last call in June, our financial results in the second quarter reflect that we are still in a challenging COVID-19 environment where physicians, like most other businesses, are hesitant to make capital expenditures and new financial commitments.

In order to mitigate this, we have put an attractive lease pricing programs in place. I'm pleased to report that we began to see an increase in orders towards the end of the second quarter. We believe this is reflective of an overall increase in the willingness of providers to resume operations and in patients to proceed with treatment plans that were, to some extent, halted early in the quarter with the shelter-in-place restrictions.

That said, we continue to operate in a dynamic and fluid health care environment as we see spikes in COVID-19 infection rates at the various hot spots around the U.S. Therefore, it would be premature to predict a return to normalized business operations. However, it is fair to say that at this point, we are encouraged by the general direction of the trend.

I would like now to provide an update on some of the progress we have achieved recently with reimbursement. Let's begin with depression. As we mentioned on our last earnings call, there has been a recent trend of payers relaxing the reimbursement requirements for patients to allow for Deep TMS coverage after failing just 2 prior antidepressive medications rather than the 4 failures previously required.

Now Health Care Service Corporation continued this trend. They're one of the largest Blue Cross Blue Shield health insured groups in the United States, operating plans in Illinois, Montana, New Mexico, Oklahoma and Texas. I'm pleased to report that on July 1, they reduced their requirement from failing 4 prior antidepressants to 2 before being eligible for Deep TMS coverage. This will increase access to Deep TMS for nearly 16 million Blue Cross Blue Shield members in these 5 states.

These prior treatment failure reductions are an encouraging trend for our business. You may recall in our last call that we announced similar reductions from Cigna and Aetna. We believe that ongoing adoption and implementation will positively impact our business as more patients now have access to Deep TMS or can qualify after fewer treatment failures.

In addition, I'm pleased to announce that PEHP, which serves Utah's public employees, is now for the first time covering BrainsWay Deep TMS for depression. They cover over 170,000 lives.

For OCD, we continue to work with payers in our efforts to secure reimbursement. As I said in our last call, in support of this effort, we recently gathered post-marketing clinical data of 192 patients from 22 Deep TMS sites. Our analysis of this real-world data reveal that about 58% of OCD patients benefited from Deep TMS treatment and that the onset of improvement usually occurred within about 18 sessions. We also saw that extending the treatment course beyond 29 sessions resulted in the continued reduction of OCD symptoms, raising the prospect of examining extended treatment protocols for this hard-to-treat disorder.

Again, we look forward to sharing these further details on the results of this post-marketing study in the future. We're also working to bolster the already robust clinical data surrounding the efficacy of dTMS in depression patients even further, and we look forward to sharing this information with providers, payers and the investment community in the future.

As far as our clinical pipeline, we have discussed on previous calls that in addition to our FDA-cleared treatments for depression in OCD, we have had various ongoing or planned studies in several potential new indications for dTMS. Our discussions with the FDA on our 510(k) application for smoking cessation are ongoing, and we plan to make updates on any progress as it occurs.

Before turning over the call, I want to emphasize that Judy and I have significantly increased BrainsWay's overall outreach to the investment community. We are sharing BrainsWay's compelling growth story as well as continuing to build relationships with both institutional and retail investors that will serve us well.

We've had a great number of virtual one-on-one meetings with investors in the United States, Europe and Israel over the past several months. And we've had several virtual investor conferences on the calendar coming up in September. We look forward to continuing to share our key messages with the investor community.

With that, I will now pass the call to Judy for her review of our second quarter financials. Judy?

Thank you, Chris. We continue to be pleased with the way our business is performing amidst the ongoing COVID-19 pandemic.

Let's turn to our key financial results for the second quarter of 2020. We generated quarterly revenue of $4.8 million, a decrease of 15% over the second quarter of 2019. Our recurring revenues, primarily derived from leases, were $3.4 million, an increase of 4% year-over-year. These recurring revenues was 70% of our total revenue. The recurring reliable nature of the majority of BrainsWay's revenue is a highly attractive feature of our business as well as customers enter into 3-4 year leases for our Deep TMS systems. Revenues for the first half of 2020 were $9 million, a decrease of 17% over the first half of 2019.

As of June 30, 2020, BrainsWay's install base totaled 567 Deep TMS systems, which reflects the quarter-over-quarter increase of 19 units. Over the last 12 months, even taking into account the impact of COVID-19 over the past 2 quarters, BrainsWay's install base have increased by 111 systems or 24%.

As Chris noted, in response to the impact of COVID-19 on our business, we initiated a cash preservation program in late March with the goal of increasing efficiency and managing spend without impeding our growth efforts. This program remained in place throughout the second quarter. This included cuts to sales and marketing activities, temporary employee salary reductions as well as postponing certain product development projects.

That said, the company is still proceeding with its broader growth strategy that's demonstrated by certain recent sales hires. We remain highly focused on profitably balancing our cash preservation and prudently managing our balance sheet during this temporarily challenging period with the need to appropriately invest in the long-term acceleration of our business.

Moving on. Gross profit for the second quarter of 2020 was $3.8 million compared to $4.3 million during the prior year period. Gross margin for the quarter was 79% compared to the second quarter of 2019 gross margin of 76%. This increase was due to lower manufacturing overhead costs as a result of our cost reduction efforts. Gross margin for the first half of 2020 were approximately $7 million or 78% compared to $8.3 million or 77% during the prior year period.

Research and development expenses for the quarter were $1 million as compared to $2.4 million in the second quarter of 2019 and primarily consisted of costs associated with the continued development of our patented Deep TMS technology. Research and development expenses for the first half of 2020 were $2.8 million as compared to $4.1 million in the prior year period.

Sales and marketing expenses for the quarter of 2020 were $2.2 million, a decrease of $1.1 million over the prior year period. The decrease is in line with the company's efforts to enhance efficiency as well as to lower operational expenses given the financial impact of the ongoing COVID-19 pandemic. Sales and marketing expenses were $5.9 million for the first half of 2020 as compared to $6.1 million in the prior year period.

General and administrative expenses for the quarter were $824,000 as compared to $1.4 million in the prior year period, again due to our focus on expense control. G&A expenses for the first half of 2020 were $2.1 million as compared to $2.4 million in the prior year period.

Total operating expenses for the second quarter were $4 million compared to $7 million in the same period last year. Total operating expenses for the first half of 2020 totaled $10.8 million as compared to $12.7 million in the prior year period.

Operating loss for the second quarter was $215,000 compared to $2.7 million for the same period of 2019. Operating loss for the first half of 2020 totaled $3.8 million as compared to $4.3 million in the prior year period.

For the second quarter ended June 30, 2020, we incurred a net loss of $571,000 compared to a net loss of $3.5 million recorded in the second quarter of 2019, a year-over-year improvement of $2.9 million. Our coordinated efforts to reduce costs resulted in BrainsWay's realizing substantial reductions in our net losses both year-over-year and sequentially compared to recent quarters. It should be noted that some of these cost reductions were onetime occurrences, such as furloughs and not expected to continue in subsequent quarters. Net loss for the first half of 2020 totaled $4 million compared to $5.4 million in the prior year period.

As for the balance sheet, we ended the quarter with cash and cash equivalents of $17.8 million compared to $21.9 million as at December 31, 2019. Cash used during the second quarter was in line with our expectations given that most of the COVID-19 cost reduction efforts were implemented in the second quarter. We believe that our strong balance sheet will allow us at the appropriate time to expand our sales and marketing efforts to drive additional adoption of the Deep TMS system and to continue to invest in R&D in order to explore new potential indications for our innovative technology.

We continue to operate in a rapidly evolving health care environment. And although most clinics are now open and many patients have returned for treatment, as Chris noted, restoring the necessary commercial confidence of clinical practices to enable them to integrate Deep TMS is a process. With that said, based on the initiatives we put in place to raise awareness of Deep TMS, the progress we've achieved with reimbursement and our ongoing cost-cutting measures, we are confident that significant momentum in our business will emerge once the impact of COVID-19 subsides.

With that, Chris will conclude before taking your questions. Chris?

Thank you, Judy. To conclude, we are proud of the resilience demonstrated by our loyal and growing customer base during this unprecedented period. We're honored to partner with them to provide our groundbreaking treatment to those who need it most.

I would also like to thank our committed employees for their continued support and dedication, which has produced significant achievements during the first half of the year despite the challenging environment we continue to conduct business in.

With that, I will now ask the operator to please open up the call for questions. Operator?

(Operator Instructions) And our first question is coming from the line of Jeffrey Cohen with Ladenburg Thalmann.

So [various adds over '19] to the quarter, can you kind of correlate with us what that looks like as far as patients and treatments and number of centers that are open, trying to get a better understanding of how the lease payments tracked April, May, June and number of centers? And your comments about highest volume in 12 months, is that utilization or patients or number of centers?

Thanks, Jeff. So to talk about the number of centers, I think at the lowest point, I think we may have mentioned that we had probably on the -- a majority of our centers stayed open during the COVID period, probably somewhere in the 60% to 75% range. And we believe that we're probably now up over about -- we're probably close to the 80% to 85% range with centers being open. Did that help answer your question? Or do you have something else specific about that?

So is the open center lease volumes were theoretically down 20% or 30% in April and May, it sounds like, is what you're saying? And then talk about the volume a little bit. Judy, you mentioned the highest volume in 12 months in July. So could you talk about that as far as -- are you referring to number of treatments, number of patients, number of centers or all of the above?

I don't know if we said the highest volume in July, Jeff. Judy, I don't think you said that, right, the highest volume in July?

No, I said we saw increasing orders in -- our highest order volume in June is what we said, end of the quarter.

June, yes.

Okay. Highest order volumes in June, okay, in the past 12 months.

So -- no, no, no. What I said, I was referring to actually web presence, our website visit that might have been what you were talking about, which we saw highest organic growth in our web presence in June. That may have been what you're referring to. But we did have a good number of orders that we got in June. So as you know, our focus really on April and in May was really focused really on education. And things started to open up in June, and we put a number of these things in place regarding special promotions from a leasing perspective. And we saw a very good steady high volume of orders towards the end of June, which I think was -- which was -- which is a great trend, and we obviously hope that continues.

Okay. Got it. And then lastly for me. Judy, talk a little bit about the back half OpEx, what we can kind of expect? I know you had some more specific commentary on the sales force as far as coming back and the resources allocated for the sales and marketing effort. Can you give us a little further color on that, please?

Sure. So we did see a significant reduction in OpEx in Q2 as a result of the efforts that we've made. I think that, as I also noted, some of those were discrete and that they were kind of onetime occurrences, such as the furloughs and the temporary salary reductions. So we don't expect those to continue. And we are looking and continue to review the investments that we're making in the back half of the year to be able to enhance the growth strategies that we have in place.

So I do expect that we will see increases in OpEx in the Q3 and Q4 time line, similar -- not quite as high as probably the Q1 area but definitely higher than what we see in Q2 given the onetime nature of some of the cost reduction measures that we had.

Our next question is from the line of Jayson Bedford with Raymond James.

I hope everyone is doing well. So just a few questions. On the increased order flow at the end of June, can we assume that this has continued in July and early August?

Jayson, what I'll say is that we've had, I think, still good trends happening, probably not to the extent -- again, within our business, and I think we've talked about this in the past. Typically, most of our order volume happens in the last month of the quarter. But we've been pleasantly surprised with the number of orders that we received early in this quarter as well. So we feel pretty positive, but we're cautiously optimistic, I would say.

Okay. And just the order flow in June, was that more a fulfillment of the backlog that had been built? Or was this genuine new order flow?

So it's a combination. I think that there is -- we definitely had a fair number of new orders in June that we've received. But given the fact that a lot of the centers were closed in April and May, we had -- we definitely had some fulfillment of orders from either the end of the Q1 or the first part of Q2. So I think that the majority of orders that we received in Q2 were new.

Okay. And I apologize, I missed the exact comment, but you alluded to some favorable pricing terms. Is that something that will continue? And are you seeing a direct impact from pricing?

Yes. We're not getting favorable pricing terms. I think what we're doing is -- so we're not reducing our ASPs or anything like that. What we're doing is we're working with our financial partner just to make the ease at least in the beginning as they acquire the technology a bit easier. So pushing old payments out a little bit, that's what we're doing.

Okay. Got it. Got it.

Yes, so to be specific there.

That's fair. And then just a couple of others. The gross margin strength, you mentioned lower manufacturing overhead and I realize it's going to jump around a bit. But is this kind of high 70s a working level going forward?

I think we remain optimistic that we will continue that. Obviously, this quarter, again, we were -- given the fact that we did have some temporary salary reductions and furloughs, which was a direct impact on the manufacturing overhead, it does -- we do see that impact in this quarter. But I think that we should be in the upper 70s going forward as well.

Okay. And then maybe lastly on the pipeline. On OCD, when are we going to see the publication of the post-market -- post-approval data? And then can you just talk about maybe the influence that may have on getting reimbursement?

Yes. So I think we mentioned that on the last earnings call. I think we're hopeful that we'll see in the fall publication -- the publication. I can't dictate, obviously, what's happening with the journals and how their review processes happen. But I think we'll probably see in early fall.

I think it's additional ammunition that we could use talking to the payers, and they're always looking for more data and obviously, seeking peer-reviewed data is the best. So I mean that's basically where we stand right now.

Our next question is from the line of Steve Lichtman with Oppenheimer & Co.

Chris, it sounds like you're getting a lot of participation in the webinars. Any color, either qualitatively or quantitatively, you can provide on sort of how that's been feeding the pipeline of new customers?

Steve, great question. No, we started this effort, I think, probably very quickly and probably quicker than some other medtech companies. And it's been amazing because we've gotten some of our customers involved in this process, and we really started it probably in April and we continue that efforts all the way even through last week. I think I mentioned we did about 44 of them to date. We still have more that are planned.

It has helped move the pipeline during this period where we're continuing to educate potential customers that are unaware of sort of the benefits of Deep TMS, and it's been really good. And we've done everything from like education about Deep TMS, we've talked about how to start up a center. So there's been all different types of different education. And we do track that on our pipeline statistics. I don't have the numbers in front of me. But I know that it's been a great effort in moving along our pipeline in getting orders, and it's made a very good difference for us.

Great. And then just on OCD, as you await reimbursement, I'm wondering, in your discussions with customers, how has having that indication have been a positive driver from a pull-through perspective for your efforts in bringing on new customers, I guess, particularly during this time?

Yes. No, it's -- I think the data that we have from our randomized control study is really vital in this, in kind of showing the benefits of what our Deep TMS product is doing with OCD. We have a number of centers that -- again, we don't have reimbursement. And we do have people that are doing cash pay, and we have some centers that are able to get reimbursement when they go back a number of times between the insurance companies. It is definitely a differentiator that we've had with our product. And I think it will continue to be a differentiator, especially when we start getting specific information back about the real-world data that we have coming out in this publication that I spoke about.

So as you know, it's an extremely complex disorder. And to date, there are only 5 medications that are out there. So really, the other -- there's not a lot of other options for a psychiatrist to go after. And I think this is -- Deep TMS is definitely an excellent choice for them to give that to the patients.

Got it. And then lastly, Chris and Judy, the OpEx reductions were better than our thinking. I think on the last call, you talked about still thinking about adding sales force. Can you talk about that a little bit about how you may sort of be more aggressive on that front even while you're keeping OpEx down?

Yes. Thanks, Steve. Great question. So in fact, we have added 2 additional salespeople in the last -- since the last earnings call. So now, we're up to 14 salespeople. So we're continuing to kind of watch that balance. And currently, today, we still have some additional salespeople in our forecast for the second half of the year. But again, we're watching that balance.

Our next question is from the line of Kyle Mikson with Cantor Fitzgerald.

Just given the recent uptick in COVID cases in certain regions, I was wondering if you had a sense of whether there is a risk of prolonged or permanent customer shutdowns. And also, is there any chance for customers, in this type of situation, who would return their system? And I guess, how would that affect your economics?

Yes. Thanks, Kyle. So we -- I think we're -- I don't want to call it a new normal, but we're in the state where we've seen patients really come back from our -- to our providers, and it's been kind of steadily education with patients over the last couple of months.

So again, April and May was really very quiet. They were continuing to treat the patients that were on treatment, but they were definitely taking less patients on. And that started to really change in June and continues in July. So we're starting to take on new patients. We haven't had any -- I guess, to answer your specific question around returns, hoping that -- we haven't had anything like -- Judy, I don't know if you want to comment there?

No, Kyle, we haven't had any specific returns relating to any customer shutdowns at this point. However, we have experienced a slowdown in some payments for customers due to the inability for them to reopen their practice. So for these customers, we have stopped recognizing revenue, which has hampered our recurring revenue growth, although we expect that many of these centers will open back up and the revenues will resume. So we're not having any impact from returns.

And Kyle, I'll just add, on the positive note there, we have had, over the last several weeks, customers that currently have systems that have reopened and are looking to expand as well or have stayed open the whole time and have wanted to expand because of the heightened nature of what's happening with depression and around OCD. So it's been on the other side as well.

Yes. That's extremely helpful. And I know you did talk about volume and I guess, the flow recently. But can you talk about specifically new patient starts and how that kind of trended towards the end of June and maybe more recently in July, if you can? I know Greenbrook posted some impressive metrics in this area recently. I'm just wondering what you guys saw.

Yes. We saw very similar things to what Greenbrook was presenting on their earnings call last week as well. The data that we have shows exactly sort of the upward trend as well. So I think, again, in this -- sort of this new normal with COVID, patients -- this particular thing, I mean, it is a medical necessity. I think it was pointed out also last week on their call, patients really need this treatment and they are going and seeking the treatment, which is great, and they're just learning sort of this new normal of how to go. And I think our customers have been amazing about the way they have been really stepping up and allowing sort of this virtual -- or sorry, like touchless experiences of the way they're going into the clinics and getting their treatments completed. So I think it shows really good progression.

Okay. It's pretty helpful. And also going back to Greenbrook, they mentioned on their earnings call that they don't anticipate OCD TMS treatment getting reimbursement in 2020. I'm just -- that's reasonable, obviously, but is that also your expectation? And I'm just wondering what's kind of holding it back? Is COVID the main culprit?

Yes. No, that's -- I saw Bill's comments around that. I think we could have -- and again, I don't want to jump in front of myself here, but we could have some experiences with some insurance companies. But obviously, widespread, it's going to take a little bit more time. People are looking for additional data. But at the same time, we have centers that have had -- have worked with denials and have received reimbursement. It's just an effort to get it there. So we're hopeful. We're excited about the data getting published and we'll continue to move forward with the number of insurance companies that we've been speaking with.

Yes. Okay. That's fair. And then a housekeeping question on OCD. How many coils were placed in the quarter?

Judy?

So we're up to a total of 185 coils currently.

Our next question is a follow-up from the line of Jeffrey Cohen with Ladenburg Thalmann.

I wanted to jump back on the OCD bandwagon as far as the MagVenture approval yesterday for OCD. Do you think that, that helps the landscape as far as 2 corporations out there now, presumably driving data and pressing on the payers?

Yes. Jeff, thanks for that. Yes, we saw that announcement yesterday. It's obviously too soon to really kind of understand what MagVenture did. But of course, if there are several companies that have it, it always helps with insurance companies. But again, I'm looking forward to kind of seeing sort of the data that they have with their OCD approval.

At this time, we've reached the end of our allotted time for question and answers, and I'll turn the floor back to management for closing remarks.

Thanks so much. In conclusion, I'd like to thank all the investors and the other participants for their interest in BrainsWay. And with that, please enjoy the rest of your day.

This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.