Brainsway Ltd (BWAY) 2020 Q1 法說會逐字稿

Welcome, ladies and gentlemen. Thank you for standing by, and welcome to the BrainsWay Reports First Quarter 2020 Financial Results and Operational Highlights. (Operator Instructions)

I must also advise you that the conference today, 24th of June, 2020, is being recorded.

I would like now to hand the conference over to your first speaker today, Bob Yedid. Please go ahead, sir.

Thank you all for participating in today's call. With us today are BrainsWay's President and Chief Executive Officer, Christopher Von Jako; and Chief Financial Officer, Judy Huber. Earlier today, BrainsWay released financial results for the first quarter ended March 31, 2020. A copy of the press release is available on the company's website.

Before I turn the call over to Chris and Judy, I'd like to remind you that this conference call, including both management's prepared remarks and the question-and-answer session, may contain projections or forward-looking statements regarding future events or future performance of BrainsWay, including, but not limited to, any statements relating to commercial plans or activities, financial projections, clinical studies, R&D plans and/or its anticipated time lines. These statements are only projections, 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 during 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 results -- 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 in its other filings with the Securities and Exchange Commission.

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

Thank you, Bob, and welcome, everyone, to BrainsWay's First Quarter 2020 Earnings Call. On today's call, as we continue to operate in the midst of the ongoing COVID global health pandemic, I will provide an update on how we have worked to drive the unique set of challenges caused by the virus. I'll then turn the call over to Judy Huber, our new Chief Financial Officer, to discuss our financial results. I will conclude by highlighting our reimbursement progress, clinical trial activities and R&D efforts as well as other key recent achievements and focus areas for the remainder of 2020. We will then open up the call for your questions.

With that, let me begin by discussing our broad response to COVID-19. First and foremost, our top priority is the health and well-being of our loyal and growing customer base, the patients they serve and, of course, our dedicated employees and their families. We remain firmly committed to serving our customers during this difficult period. We fully understand the importance of patients continuing to receive their Deep TMS treatment. Therefore, BrainsWay has remained fully operational in the United States throughout the COVID-19 pandemic. Despite the outbreak, many of our customers have also remained operational during this time. The most impacted states have been along the East and West Coast.

Of course, throughout the country, there were some clinics that temporarily shut down, saw some fewer patients and some closed for a mandatory 2-week period upon learning that a COVID-19 patient had visited the clinic. Many clinics are progressing toward near-normal operations at this time, and have instituted various steps to decrease the risk of spreading the virus. These include social distancing, cleaning and disinfecting the equipment between sessions and other operating measures. It is very important to note that beyond the direct effect of the physical health, we are unfortunately beginning to learn more about the subsequential impact on mental health, these uncertain times are having on a significant number of people. Some sobering statistics. A federal emergency hotline for emotional stress registered a 1000% increase in calls in April 2020 versus April 2019. And Talkspace, which provides online therapy, has logged a 65% increase in new patients.

Moreover, according to Mental Health America, the use of their free screening tools for anxiety and depression are up 370% and 394%, respectively, since January. Indeed, just a few weeks ago, the FDA placed Zoloft, a popular antidepressant drug on its shortage list. This was followed from a report from the Census Bureau data, which revealed that over 1/3 of Americans are showing signs of clinical anxiety or depression. The survey of the U.S. households was done between late April and mid-May. Furthermore, it is thought that OCD may potentially be heightened by the fear of the virus. For example, causing patients to feel an even greater need to wash their hands excessively due to the fear of germs. Also experts are concerned about a rise of suicides, overdose death and substance abuse disorders that historically follow economic downturns in natural disasters.

All of this means that BrainsWay needs to be even greater resource than ever for our customers, which treat patients suffering from depression and OCD, and we are trying to do exactly that. We have used this period to enhance awareness from an educational standpoint. For example, since the beginning of April, we have hosted a total of 31 webinars for our current and potential new customers. These have been presented by a wide variety of key opinion leaders, customers, practice success consultants, our Chief Medical Officer, Dr. Aron Tendler, and other BrainsWay employees. In addition, we recently launched a new website, which offers significantly upgraded user friendliness and adds a broad range of our educational information and new webinar content, which is now available on demand. Management has also acted aggressively to offset the effects of the COVID-19 pandemic from a financial perspective.

We have implemented a significant expense reduction program. This includes cutting all non-essential spend, such as on promotional items and events. In addition, we reduced salaries across the board beginning in April. Ranging from 5% for employees and manufacturing to 30% for myself. As previously communicated, our results in the first quarter were impacted due, in part, to certain customers being unable to finalize orders or to accept delivery of ordered systems as a result of the temporary shutdown of certain physician offices and clinics. This trend continued into the second quarter, and we expect a similar impact on our financial results for the current period. However, as I noted earlier, many clinics are nearing the ability to conduct more normalized business operations. With that, I will now pass the call to Judy for her review of our first quarter financial results. Judy?

Thank you, Chris. I'm excited to participate in my first BrainsWay earnings call, and I'm thrilled to have joined this growing and dynamic company. We are proud of the way our business performed in the first quarter amidst the COVID-19 pandemic. Let's turn to our financial results for the first quarter of 2020. We generated quarterly revenue of $4.2 million, a decrease of 20% over the first quarter of 2019. Our recurring revenues, primarily derived from leases, were $3.5 million, an increase of 13% year-over-year. As of March 31, 2020, BrainsWay's installed base totaled 548 Deep TMS systems, which reflects a quarter-over-quarter increase of '18 units. Since the first quarter of 2019, BrainsWay's installed base have increased by 132 systems or over 32%. During the first quarter of 2020, BrainsWay shipped 10 OCD coils to new and existing customers, bringing the company's total OCD coils to 183. As Chris noted, in response to the impact of COVID-19 on our business, we put an expense reduction program in place that remains ongoing. This includes cuts to sales and marketing activities, delays in certain R&D projects and salaries. That said, the company is still considering certain specific sales and marketing hires as part of its broader growth strategy.

It is critical that we balance appropriately managing expenses during this temporarily challenging period with the need to properly invest in the long-term growth of our business. Moving on, gross profit from the first quarter of 2020 was $3.1 million compared to $4 million during the prior year period. Gross margin for the quarter was 76%, which was slightly lower than the first quarter of 2019 gross margin of 78%. This was due to a higher percentage of lease revenues versus direct purchases. Research and development expenses for the quarter were $1.8 million, similar to the same period in 2019 and primarily consisted of costs associated with the continued development of our patented Deep TMS technology. Sales and marketing expenses for the first quarter of 2020 were $3.7 million, an increase of $900,000 over the prior year period. The increase was primarily driven by enhanced marketing activities for depression and OCD and the company's larger sales force when compared to 2019.

General and administrative expenses for the quarter were $1.3 million as compared to $1 million in the prior year period. This increase was driven by an increase in noncash provision for doubtful account. Total operating expenses for the first quarter totaled $6.8 million compared to $5.6 million in the same period last year. For the first quarter ended March 31, 2020, we incurred a net loss of $3.4 million compared to a net loss of $1.9 million recorded in the first quarter of 2019. Moving to the balance sheet. We ended the quarter with cash and cash equivalents of $18.2 million compared to $21.9 million at December 31, 2019. Cash used during the first quarter was in line with our expectations, given that most of the COVID-19 cost reduction efforts were implemented in Q2. 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.

Looking ahead, as Chris noted, many of our customer trends we experienced in the first quarter, we have continued throughout the second quarter. Therefore, we expect a similar impact on our second quarter financial results. While we do not intend to provide quarterly guidance as a standard practice, given the extenuating circumstances caused by COVID '19, we believe it is important that our investors and analysts have a firm and understanding of the current state of our business as possible in this evolving health care environment. Therefore, for the second quarter of 2020, we expect revenues in the range of $4.6 million and $4.9 million. With that, I'd like to turn the call back over to Chris for some further thoughts before we open up the call for the Q&A session. Chris?

Thank you, Judy. I would like now to provide an update on some of the progress we have achieved recently with reimbursement both in major depression and OCD. Let's begin with depression. At the end of the first quarter, we received reimbursement coverage for Deep TMS from Humana, a major national health care plan, which had not previously covered dTMS. This plan includes approximately 20 million covered lives, many of whom will now be eligible for Deep TMS. Also in the first quarter, Cigna reduced its requirement from failing 3 prior antidepressants to 2 before being eligible for Deep TMS coverage.

Likewise, last month, Aetna reduced its requirement from 4 to 2 and also reduced the patient minimum age requirement from 21 to 18. For OCD, we continue to work with payers on securing reimbursement and continue to collect post-marketing data in support of our efforts to expand coverage to include this indication. In support of our reimbursement efforts in OCD, the results of 192 patient post-marketing clinical study from 22 Deep TMS sites was submitted to a peer review journal in April. In this real-world clinical study, the majority of OCD patients benefited from Deep TMS treatment, and the onset of improvement usually occurred within 20 sessions. The authors also saw that extending the treatment course beyond 29 sessions resulted in the continued reduction of OCD symptoms, raising the prospective benefit of extending treatment protocols in nonresponders.

We look forward to sharing further details on the results of this post-marketing study once we have additional information on the timing of the publication. I'd like now to discuss our ongoing efforts to ramp up our R&D initiatives. We have a robust clinical pipeline in addition to our FDA-cleared treatments for depression and OCD, we have various ongoing or planned studies in several potential new indications for dTMS. Following final positive results from our multicenter smoking cessation study last year, we submitted a 510(k) application to the FDA in April for this potential indication. If we receive FDA clearance, we expect to execute a controlled market release in early 2021.

As a reminder, approximately 38 million U.S. adult smoke cigarettes, and 480,000 die from smoking each year. So this is obviously a serious public health issue. There are limited treatment options that exist today in this area, and dTMS may be able to address the significant unmet medical need. Our current objective is to initiate at least 1 additional clinical trial by the end of this year, and we're currently working with our collaborators and the FDA and clinical trial design. This trial will likely be another addiction disorder, specifically for opioid abuse disorder. In opioid abuse, please recall that BrainsWay was selected by the FDA as part of its innovation challenge and received a breakthrough device designation from the agency.

I'd like to highlight that May was Mental Health Awareness month. As part of this initiative, we organized a social media sweepstakes called Stand Against the Stigma, with the goal of encouraging conversation around mental health among the general public. Through this engaging campaign, many people share their own personal mental health experiences, helping us to work towards the goal of destigmatizing mental illness. To help kick off the campaign and start conversation, we've tapped into Deep TMS patient advocates who recorded short videos talking about their own mental health journey. We received many entries in this campaign, and we recorded over 1 million audience impressions, serving to significantly enhance awareness around mental health generally and BrainsWay specifically.

Let's now turn to some recently announced management hires and promotions that position BrainsWay for long-term success. In May, we were pleased to promote Hadar Levy to Senior Vice President and General Manager of North America. Hadar now oversees many aspects of our North American business. He is an integral leader at BrainsWay and has been a key contributor to our strong growth. Simultaneously with Hadar's promotion, we also announced Judy Huber's appointment as CFO. Judy has more than 30 years of financial and strategic experience, and we're excited to have her on board to further enhance our financial infrastructure. We also promoted Amit Ginou to Vice President and Site Manager in Israel. Amit is a long-term employee of BrainsWay and has been a valuable asset in the development and execution of the important Deep TMS clinical trials that have directly fueled our growth. And most recently, we appointed Chris Boyer as Vice President of Global Marketing in May. Chris has more than 15 years of medical device marketing and business development experience in both privately held and multibillion-dollar publicly-traded medical device companies.

And we are excited to leverage his extensive experience leading and growing commercial organizations. We have an extremely strong leadership team in place and we know the role that our industry plays is more essential than ever. We at BrainsWay are proud to be deeply engaged with our customers and providing the tools, support and services and most importantly, hope to the many who depend on them in their daily lives. Before turning it over to the Q&A, I'd like to thank our talented and dedicated employees for their continued support and commitment, which has produced significant achievements this quarter despite the challenging environment we are all find ourselves in. Our team is focused on improving people's lives with our game-changing product.

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

(Operator Instructions) We will now be taking our first question from the line of Jayson Bedford from Raymond James.

Can you hear me okay?

Sure. Perfect, Jayson.

So a few questions here. Just on the 2Q expectation of $4.6 million to $4.9 million, not many companies seeing a sequential improvement. So I just wanted a little bit more detail. Is the 2Q number just fulfilling the first quarter backlog? Or have you seen progress throughout the last couple of months of 2Q?

So Jayson, if I understand you correctly, are you saying, is some of the orders that -- from the backlog from Q1? Was that your question? I mean, from the end of the year?

The question, I guess, is more, in 2Q, because obviously, there's an implied sequential increase from 1Q to 2Q. Is underlying demand increasing here in 2Q relative to 1Q? Or is the 2Q expectation just a fulfillment of the deferrals in 1Q?

It's probably a combination of the both. There was some systems in Q1 that we were -- that obviously we had orders for and we couldn't fulfill during that time period, and then -- those obviously leaked into Q2. But we do see, as I mentioned in my prepared statements, there is opening up. We have been getting orders in some places and haven't been able to ship in some places. And now we're having that additional ability to now ship some of those orders now.

Okay. And when you look back at 1Q, were there orders that were, in fact, canceled, or were they largely just deferred, whether it be just into 2Q or 3Q?

Yes. Just deferred. Just deferred.

Okay. And can we assume that most of the new installs in practices are new to TMS, or are you displacing others at this point?

It's a -- again, with us, it's a combination typically of our current customers that are expanding and also new customers.

Okay. And then just maybe a last one for me, and this is a little bit more qualitative. But given COVID and kind of the current state of the world and your comments around the unfortunate increase in anxiety and depression, have your discussions with psychiatrists changed? Or have you seen more interest around Deep TMS?

Thanks, Jayson. I'd say, in general, yes, most of the psychiatrists that we've spoken to understand that with COVID and the pandemic, like we're hearing you're seeing in the media quite a bit and also in my prepared statements, that anxiety and depression are on the rise. There's no question. And we feel, obviously, that we have a major role to play in that. And we're obviously happy that we could play that role.

So we will now be taking our next question from the line of Steven Lichtman from Oppenheimer & Co.

Chris, you mentioned a lot of positive movement on TMS reimbursement in the quarter. I guess two questions on that. One, was there a particular publication that drove these changes? And two, have you seen an increase in interest yet from potential customers, given that it can be used earlier now in the treatment paradigm?

Thanks, thanks for the question, Steven. In general, I'm not sure if there was a publication that really spun that on. I think that we have seen over the last several years that some of these payers maybe with just, in general, the data becoming better and better around TMS and more knowledge around TMS that they have been reducing that. So I think overall, it's generally a very good trend. I think it's also a very good trend with COVID as well, to have the ability of another treatment -- potential treatment for depression, I think, is valuable and it's important. And Steven, I don't think I got your second question. I'm sorry, I kind of focused on the first one. Can you repeat the second part of that question?

Yes, sure. No problem. Given that you're on a lease model and not on a per-click model, just wondering what the positive impact could potentially be here from the improved reimbursement. Are customers yet giving -- showing more interest, given that it can be used earlier in sort of their treatment paradigm? I mean what's the positive impact you think you might see from this sort of improved reimbursement environment for TMS?

Yes. So I think overall, it's generally -- it's very good, very good for the patients. It's very good for our customers, who can open up more access to the treatment to their patients. I think in general, these things just -- these 2 occurrences just happened in the last couple of months. But I think it's -- overall, it's a very positive sign. As you know, most of our business model is based on leasing. We do, do in some cases payments per patient, which is a positive effect for that for us. But I think in general, it's positive for the patients and also for our customers.

Okay. Got it. And then on OCD, have you seen yet interest in more out-of-pocket payments from patients, given the impacts you spoke about from COVID-19? Are you seeing more interest in people be paying out-of-pocket even before reimbursement? Or is it not yet?

Yes. I don't think we see that yet. We know that there are pockets in areas in the country where there has been reimbursement, that obviously takes some time and effort on our customer standpoint, working together with us to try to do the appeals and get reimbursement. But we know that there's also, in general, there is out-of-pocket pay for OCD as well. So we haven't actually seen the trend yet. I think it's probably too early to see that trend. But obviously, I mean, the main thing for us is to continue to work on our reimbursement efforts, and I'm just delighted today to kind of share this 192-patient study that was done and was submitted to a journal. So I'm very excited to get that out into the public domain as well.

Yes. Chris and then lastly, can you talk about the rollout of smoking cessation? Can you remind us, just in general, will it look similar to OCD in terms of sort of the coil placement and then it will be more on a per-patient basis? Is that the intention?

So yes. So we're really looking forward, obviously, to rolling that out and depends really obviously kind of -- we're working with the FDA on that to try to figure out when we can get premarket clearance for that. So the goal would be to roll into a controlled-market release, hopefully, towards the end of this year, the beginning of next year. And I'm really excited to have Chris Boyer on staff now. He and I worked together in the past, and we've done similar types of rollouts in the past. We haven't finalized actually the commercial roll up, how we're going to do it. And so we're hoping to share that with you on probably the next earnings call, the one after that. But I could say it may be similar in the way as we've done OCD, but we need to finalize that.

We will now be taking our next question from the line of Jeffrey Cohen from Ladenburg Thalmann.

So a couple of questions. So firstly, on the OCD indication, it looks like you said you placed 10 units, taking the total up to 183 for the quarter. On the other units, you're talking about 548 for Q1. I'm a little off that number at around 525, I think I'm thinking about, what did I have, 202 sold, commercialized and around 324 as far as the lease program. Any insight there as far as where on the low? Or for the quarter, how many were commercialized and were they purchased or leased?

So I'm not sure where you may be low. I think that we had a strong placement of the 18 systems. The majority of those were on the lease side. And as you can see from the numbers, we only had about 17% of direct purchase deals in the first quarter.

Okay. Got it. And since -- on the smoking cessation, since your submission, in April, has there been any discussion with the FDA since or nothing that you're waiting to hear back?

No. Yes. No, we've had some discussions with the FDA, Jeff, of their sort of ongoing discussions right now with the FDA.

Okay. All right. In running this study and interacting with some of these physicians out there, has there been any discussion about varenicline and any combo studies or head-to-head studies?

Sorry, say it again, Jeff, I missed it.

Has there been any discussion with any of the docs or centers as far as Chantix, varenicline and doing some studies as comparisons?

Yes. No, we haven't actually got to that point. There has been no discussions around that as of now.

There are no further questions on the phone.

Sorry. Say it again, sorry, operator, I didn't hear you.

Sorry. There are no further questions on the phone. Please go ahead.

Okay. So thanks. In conclusion, I want to thank all of the investors and other participants for the interest in BrainsWay for joining today's call. I'd also like to thank the customers for partnering with BrainsWay and for their unrelented dedication to patient wellness. With that, please enjoy the rest of your day. Operator, you can end the call.

That does conclude our conference for today. Thank you for participating. You may all disconnect.