Brain+ A/S (“Brain+’” or “the Company”) published its Annual Report for 2022 on April 28. The following are key events that we have chosen to highlight from the report:

• First commercial single institution contract was closed with a Danish municipality – worth DKK 50.000
• Gross profit in line with our estimates
• Positive results obtained in several clinical studies
• Continue to build on its track record of funding via grants
• In March 2023, a unit Right Issue has been announced to provide funding for the company’s commercial build-up and its clinical development programs

First Commercial Sale With a Danish Municipality Institution

On December 31, 2022, Brain+ announced that it had closed the first commercial sales contract for its CST-Therapist Companion dementia product with the Danish municipality of Herning. The contract, worth DKK 50.000, is for the use of one dementia care facility. Shortly after (on March 20), Herning Municipality decided to expand the agreement to a municipal-wide license, as well as extending the contract length from 1 to 1.5 years. The value of the initial contract nearly doubled as a result of the contractual extension, and Analyst Group claims that this clearly illustrates the potential for Brain+ to expand inside a municipality once the first contract has been established. Since the first commercial contract is always the most challenging during the commercialization phase, Brain+’s future contract sales will be somewhat easier now that they have reached this significant milestone. The company is currently in numerous ongoing discussions with more than 30 Danish municipalities that are currently using the non-digital version of CST (Cognitive Stimulation Therapy).

While it is important to consider the uncertainties and variations of pricing associated with introducing a new product in an unestablished market, the contract value of the first commercial sale in 2022 fell below Analyst Group’s expectations (DKK 155.000), even after accounting for the contractual expansion. Analyst Group will reassess prior price assumptions for municipal sales in the upcoming Equity Research Report update in order to account for these uncertainties as well as the pricing level of the Company’s first commercial sale.

An important business activity for Brain+ during 2023 is undoubtedly the commercial introduction of CST-Therapist Companion in Germany during Q2 2023. Brain+ has already made a market entry by partnering with the leading provider of dementia care services in Germany, Malteser Hilfsdienst (“Malteser”), in Q2 2023 through a two-month pilot use of the product. The pilot project covers use in one of Malteser dementia cafés, with the potential to expand CST-TC use across the organization´s 100 dementia cafés. The partnership with Malteser comes after Brain+ joined the Danish-German Care Alliance in Q1 2023 with the intention of developing regional lead customers and pilots, like the aforementioned pilot. The partnership will be an important step for the Company to raise awareness and gather feedback for CST-TC in order to improve its usefulness in the German market, and ultimately achieve the first commercial sale in the country going forward.

Delivers a Gross Profit in Line with Guidance and Our Estimates

Brain+ reported a gross profit of DKK 3.2m (EUR 0.42m) for the full year 2022, matching the upper limit of the previously outlined range of DKK 2-4m. Staff expenses and D&A amounted to DKK 12.7m (EUR 1.65m) and DKK 1.6m (EUR 0.21m), respectively, which resulted in an EBIT of DKK -11.1m. On a Y-Y basis, the gross profit decreased by approx. 19%, mainly due to lower capitalization of development costs during FY2022, and the staff expenses increased by approx. 31%, following the recruitment of new talent to support the Company’s accelerated business activities. The outcome was more or less in line with our estimates for the full year of 2022 on each operational IC-item, and we estimate that the gross profit is set to increase going forward following the advancements in current commercialization of CST-TC in the Danish and German market, while staff expenses are expected to increase as well due to key recruitments during 2022, albeit in a slower pace.

Positive Results in Clinical Studies

In 2022, Brain+ received early positive clinical results on its three core technologies (CST, CTT and Starry Night), and during Q1 2023, Brain’+ was provided with additional validation on its technologies, following promising clinical results for Brain+’s CCT technology for cognitive training, (which we followed up with a comment and an interview with CEO Kim Baden-Kristensen, read here.) With a maturing R&D and product pipeline, together with an increasing support as well as validation for CST (which is Brain+ most matured product technology) from recently published critical policy papers such as the World Alzheimer’s Report 2022, A Blueprint for Dementia (WHO) and a 2^nd systematic Cochrane review, Brain+ is in a unique position to benefit from this positive momentum behind CST as a non-pharmaceutical therapy for Alzheimer’s dementia.

Currently, Brain+ is in two ongoing trials for the Company’s CCT and Starry Night Cognitive test products, with readouts expected in 2023 and 2024. Additionally, Brain+ has three planned trials for the CST product suite during 2023-2024, where the claims trial for the second iteration of CST-TC that Brain+ is developing, will be taking place in 2023. This trial is important, as with the other two planned trials, since a positive readout would not only enable reimbursement coverage of CST-TC, but also facilitate a UK market entry and pave the way for big pharma deals. The results of the aforementioned studies will therefore be closely monitored by Analyst Group moving forward, as they will serve as an indicator of the success of the Company’s commercialization.

Continue to Build on its Track Record of Funding via Grants

In 2022, Brain+ completed the two grant-funded projects Horizon and Eurostars AD Shield in collaboration with partners. The Company’s collaborative approach enables grant-funding of clinical trials, and strategic alliances have also greatly contributed to Brain+’s operations. This approach has provided Brain+ with access to resources and expertise, as well as non-dilutive funding, which increases efficiency and cost-savings. Since the inception of Brain+ in 2014, the Company has raised approximately DKK 100 million in funding, of which DKK 66 million is through innovation grant funded research.

In Q1 2023, Brain+ added to this early strong track record by receiving, along with a consortium of respected dementia experts, a grant worth approx. SEK 0.5m from the EU Joint Programmme – Neurodegenerative Disease Research, that covers the research into the Company’s two main therapeutic technologies (CST and CTT). The grant will also cover the examination of the hypothesized synergy effect of combining CST and CCT, which is a key research step for the third product in Brain+ CST-suite, CST for MCI. The project will be structured into three different groups, all contributing to the development of Brain+s pipeline. Analyst Group is optimistic about Brain+’s ability to secure grant after grant in order to fund the Company’s R&D, as this demonstrates not only the support and interest that exist for Brain+ from the stakeholders within the Alzheimer’s space but also validate the relevance of its offering.

Ongoing Rights Issue will Strengthen the Balance Sheet and Enable Brain+ to Proceed With Outlined Commercial Activities.

Brain+ has historically been largely funded by grants, and by entering the commercialization phase in late 2022, whilst still advancing the product pipeline via clinical trials, additional resources were expected to be required, according to Analyst Group. Hence, the announcement of the rights issue on March 29, came as a no surprise, and the proceeds are necessary for Brain+ to execute on the planned commercial activities to increase sales and make further advancements in R&D. For more information on the Rights Issue and our view on it, we refer to our previous comment on the rights issue here.

The Company’s cash balance at the end of 2022 amounted to DKK 6.4m, a decrease from approx. DKK 10m at the end of 2021, despite a capital injection (net) of approx. DKK 5.5m for warrants of series TO1 in Q4 2022. The ongoing rights issue has been secured to approx. 85%, hence providing Brain+ with sufficient capital to cover up for working capital needs and further investments in R&D, where accompanying warrants of series TO2 and TO3 will play a significant role going forward. Grant financing will continue to be a supplementary source of funding for the Company’s R&D pipeline, as well as allowing Brain+ to make existing cash levels and the upcoming cash injection from the rights issue last for a longer period of time. To summarize, Analyst Group maintains a positive view on Brain+ based on the pipeline’s maturation, improved validation and support for CST via recently published reports, the Company’s newly established partnerships, as well as the first commercial sale that lays the foundation for further commercial success.

We will return with an updated equity research report of Brain+.

On March 29, 2023, Brain+ announced that the Company intends to carry out a preferential Rights Issue of shares and warrants of series TO 2 and TO 3. The Rights Issue compromises a maximum of 15,720,518 units where each unit consists of two (2) shares, two (2) warrants of series TO 2, and two (2) warrants of series TO 3. The subscription price is set to DKK 1.00 per unit, which corresponds to DKK 0.50 per share, and the warrants are issued free of charge. Given a full subscription of the Rights Issue, Brain+ will receive approx. DKK 15.7 million before transaction-related costs. Subsequently warrant exercise of TO 2 and TO 3 can, if fully subscribed, provide the Company with an additional amount of approx. DKK 6.3-25.2 million and DKK 9.4-37.7 million in gross proceeds.  If the Rights Issue is fully subscribed, the Board of Directors has the option to resolve an Over-Allotment Issue of up to 5,821,544, which would correspond to additional issue proceeds (gross) of approx. DKK 5.8 million and thus enable a further acceleration in clinical and commercial activities.

The Company has received pre-subscription commitments amounting to approx. DKK 4.4 million, or ~28% of the initial part of the Rights Issue, and guarantee commitments amounting to approx. DKK 8.9 million, or                 ~57%. Hence, the Rights Issue is secured to approximately DKK 13.4 million, or ~ 85 %.

The dilution effect from the Rights Issue, assuming fully subscribed, amounts to approx. 66.7%, and in case of full subscription of the warrants of series TO 2 and series TO 3, additional dilution of approx. 40.0 % and approx.                 28.6 % will occur.

Entering the commercialization phase for the Company’s first product – CST-Therapist Companion – whilst still advancing the Company’s project pipeline of trials is a costly process, and while upcoming commercial launches move Brain+ closer to a break-even point, it is at the same time subject to additional funding, which has been communicated in the Company’s financial reports and announcments. Hence, the announced Rights Issue comes as no major surprise for Analyst Group, however, the recent weak stock performance is resulting in a substantial stock dilution, given the current financial market environment, which is not a positive aspect for the shareholders in the short term Going forward, the proceeds are necessary for Brain+ to execute on planned commercial activities and further advancements in R&D, where the commercial launch in Germany is due in Q2 2023, which ultimately strengthens the revenue outlook for the Company.

Brain+ has showcased a strong operational momentum during the beginning of 2023, for example with the promising study results on the feasibility of  the CCT-technology for cognitive training, an expanding sales contract with the Municipality of Herning, and the securing of an additional EU grant together with respected dementia experts. Together with increased market recognition of the benefits and relevance of CST as a non-pharmaceutical dementia therapy through recent studies and reports, and further market adoption of digital therapeutics through e.g. Germany’s newly established healthcare digitalization strategy “Gemeinsam Digital”, Brain+ is in a good position for not only executing on upcoming events but also to attract new strategic partnerships and grant fundings”, says the analyst at Analyst Group covering Brain+.

About Warrants of Series TO 2

The exercise price in the warrant exercise of series TO 2 will amount to 70% of the average volume-weighted price for the share according to Nasdaq First North Growth Market’s official price statistics during the period of 20 trading days ending two (2) banking days before the exercise period begins. The Company will publish the exercise price the day before the first day of the exercise period. The exercise price shall not exceed DKK 0.80. The exercise price shall not fall below DKK 0.20. One (1) warrant of series TO 2 gives the right to subscribe for one (1) new share in the Company during the exercise period that is planned to be from October 2 – October 16, 2023.

About Warrants of Series TO 3

The exercise price in the warrant exercise of series TO 3 will amount to 70% of the average volume-weighted price for the share according to Nasdaq First North Growth Market’s official price statistics during the period of 20 trading days ending two (2) banking days before the exercise period begins. The Company will publish the exercise price the day before the first day of the exercise period. The exercise price shall not exceed DKK 1.20. The exercise price shall not fall below DKK 0.30. One (1) warrant of series TO 3 gives the right to subscribe for one (1) new share in the Company during the exercise period that is planned to be from March 8 – March 22, 2024.

On March 20, 2023, Brain+ A/S (“Brain+” or “the Company”) announced that the Danish municipality Herning Municipality has decided to expand the already existing agreement, which almost doubles the initial contract value.

Brain+ closed the Company’s first municipal sale of its first CST-product – CST-Therapist Companion – on December 31, 2022, after launching the product on November 1, 2022. The contract covered the use of the “Basic Package” of the CST-Therapist Companion in one training facility for one year at an introductory price of 50.000 DKK. Herning Municipality has now decided to expand the existing contract to a municipal-wide license, which allows all therapist in Herning that works with people with dementia to get access to the basic package. The length of the contract has also been extended from 1 to 1,5 years, and the contract expansion as a whole nearly doubles the existing contract value.

“After roughly two months of market introduction, Brain+ closed the first municipal sale on December 31, 2022, and this contractual expansion clearly shows the potential for Brain+ to grow within a municipality after a first contract has been established, through higher tier packages that include services and broader geographic traction. Given that the municipal sales cycle usually varies between 6-18 months, Analyst Group considers that the fact that Brain+ has in four months not only closed the first sale of its CST-Therapist Companion-product but also expanded the contract value, is a sign of strength within Brain+’s DT-x offering and lays the foundation for further commercial traction going forward. Currently, Brain+ is in ongoing outreach and dialogues with the 30+ Danish municipalities that are using CST and this contractual expansion provides, according to Analyst Group, further commercial evidence and could enhance Brain+’s possibilities to close additional contracts with municipalities in coming quarters”, says the analyst at Analyst Group covering Brain+.

On January 11, 2023, Brain+ released the findings of a study conducted by Nottingham University as part of the Alzheimer’s Detect & Prevent European Horizon2020 project, which is led by Brain+.

The purpose of the study was to examine the efficacy of Brain+’ Computerized Cognitive Training (CCT) games for individuals with Subjective Cognitive Impairments (SCI). People with SCI are more likely to acquire dementia, making them an important market for Brain+. After an 8-week intervention, individuals who used CCT games to train demonstrated improved cognitive load and transfer effects to a task involving shopping, according to the study. The study is important for early validation of the CCT technology, which is a central ingredient in the company’s upcoming mild cognitive impairment (MCI) product. This MCI product will combine CCT, Starry Night, and Cognitive Stimulation Therapy (CST). MCI is a pre-stage to dementia and is affecting an estimated 150-200 million people worldwide.

In conjunction with the press release, Analyst Group contacted Brain+ to get additional color on the recent study results. The Q&A section can be found below:

Could you elaborate on the specific cognitive load improvements that the study participants experienced after playing the CCT games from Brain+?

The cognitive load improvements were measured using a complex working memory task while using brain imaging technology called near infrared spectroscopy. The brain imaging measures functional blood flow in the brain which is a proxy of mental workload. Brain imaging tests were conducted before and after the eight weeks of training, and the results revealed changes in blood flow that are indicative of a reduction in the amount of mental effort required to complete the challenging working memory task. The working memory task was in fact also a Brain+ technology called Starry Night that has been co-developed with the University of Oxford based on original work done by Oxford University, with a lab-based test which can pick up the very early subtle signs of cognitive decline in Alzheimer’s disease.

Can you elaborate on the pipeline product for Mild Cognitive Impairment that the company is currently developing and how the CCT games will be incorporated into it?

Brain+ is currently developing and researching the CST for MCI* (Mild Cognitive Impairment) product, which combines Cognitive Stimulation Therapy (CST) with our 2^nd Generation Computerized Cognitive Training (CCT) technology for MCI. Our third technology, the Starry Night cognitive test, will be added to the product for the purpose of monitoring cognitive decline or improvements. The CCT games are the central ingredient in the product, and provide training aimed to counteract cognitive decline, the main symptom of MCI, and are design based on the specific pathology seen in Alzheimer’s Disease.  The personalized and adaptive nature of the CCT games ensures that patients receive therapy that is tailored to their specific needs, helping to support continued cognitive improvement.

Can you discuss Brain+’ plans for further research or clinical trials to further validate the effectiveness of the CCT games and the pipeline product?

To further mature our 2^nd Generation CCT technology, Brain+ has since 2021 led a €1.5 million Eurostars grant funded innovation project called ACTTDCS to develop a new mechanism of action for cognitive training targeting people-at-risk of dementia, especially MCI. This project enables collaborations with leading KOL’s such as the University of Gothenburg, the University of Oxford, the University of Nottingham, and game development and software engineering company Nurogames.

In connection with the project, we are currently progressing a pilot open label-controlled study with Århus University to assess cognitive abilities and patient-reported outcomes with MCI patients. The full ACTTDCS project ends in Q4 2023, and we expect the clinical results shortly after.

What distinguishes the adaptive game version from the non-adaptive version of the CCT games, and how are the games customized for each individual player?

The adaptive game version is constantly looking at player performance and adjusting difficulty parameters to optimize the level of challenge. The non-adaptive version is deliberately kept static in terms of difficulty levels to work as a placebo control.

* Science box: Mild Cognitive Impairment (MCI)

Dementia is a significant global health issue, with estimates suggesting that 5-8% of people over the age of 60 are affected by it. In recent years, researchers have been focusing on ways to delay or prevent the onset of dementia, particularly in its preclinical stages. One condition that is often a precursor to dementia is mild cognitive impairment (MCI), which is characterized by a decline in cognitive function that is more severe than normal age-related changes, but not severe enough to be classified as dementia. Studies have shown that 8-15% of individuals with MCI will develop dementia each year, and as many as 80% will progress to dementia within six years. And estimated 3-4 times as many people live with MCI as those with dementia, between 150-200million worldwide.

As the MCI indication often leads Dementia diagnosis, which frequently is not diagnosed until 1 year into dementia disease progression, Brain+ is working to extend therapeutic reach to leverage the benefits of early intervention.

On the 14^h of December 2022, Brain+ A/S (“Brain+” or the ”Company”) announced that the Company has successfully completed the implementation of an ISO 13485-compliant Quality Management System (QMS). The latest WHO report also points to Cognitive Stimulation Therapy (CST) and digital solutions as means to help solve the global dementia burden, which gives Brain+ dementia products further attestation.

ISO 13485 specifies requirements for a quality management system (QMS) where an organization needs to showcase the ability to provide medical devices and related services that ensure, on a consistent basis, patient safety and process quality along the product life cycle, as well as meet applicable regulatory requirements. The completed implementation of the ISO 13485 QMS provides Brain+ with an important quality stamp. However, ISO 13485 is effectively required for getting a medical device to market under the MDR framework and, as such, this implementation by Brain+ takes the company one step further into CE-marking and the ongoing commercialization. ISO 13485 is also important when attracting payers, including Germany´s DiGA and DiPA reimbursement schemes, as they are relying on this certification as proof of quality. The goal for Brain+ is to get their upcoming product launches of CST-Home Care and CST-Stand Alone reimbursement, which ISO 13485 certification enables. The QMS-certification means that Brain+ has incorporated a quality best practice that ensures that its software products meet all the general safety and performance requirements (GSPR), which not only assure regulatory compliance and enables product reimbursement at scale, but also attract large pharma partnership, which paves the way for a continued successful launch going forward.

World Health Organization (WHO) recently published a report – A Blueprint For Dementia Research – in which the specialized agency in international public health addressed dementia as one of the greatest health challenges of our generation. In the report, WHO points out that insufficient numbers and an under-skilled workforce are barriers to the provision of good-quality dementia care today on a global basis. At the same time, WHO validates that rehabilitative interventions such as Cognitive Stimulation Therapy (CST), among others, can improve cognition, function, stability, and/or the quality of life of people with dementia. Furthermore, WHO also mentions that some psychological interventions are effective tools when delivered digitally, for instance, through websites, apps, and telehealth. This report is the second of its kind* that has been released in 2022 that endorses CST which, in turn, gives not only increased validation for Brain+ digital dementia offerings, but also wider recognition for companies like Brain+, which paves the way for faster adoption of these types of DTx-products and improves the long-term outlook for Brain+ ongoing commercialization.

Read our latest equity report of Brain+ here.

*In October 7, 2022, the World Alzheimer Report was published, which highlighted CST as cost-effective evidence-based therapy for people with mild-to-moderate dementia that should be researched and implemented globally.

On the 19^th of October 2022, Brain+ A/S (“Brain+” or the ”Company”) announced that the Company has been selected and featured as a 2022 TMC-Denmark Biobridge Partner in the new Texas Medical Center (TMC) new 2022 Biobridge e-book, hence building early traction within the US market.

Back in 2019, TMC – the world’s largest medical city – and the Danish Ministry of Health entered a collaboration and multi-faceted global life science Biobridge partnership to advance commercial and clinical innovation, to enable research collaborations and knowledge transfer. The Biobridge intends to serve as a marketplace for innovative life science technologies focused on digital & telehealth, medical devices, and operations.

By being a part of the TMC-Denmark Biobridge Partnership, Brain+ gains not only increased brand awareness at TMC and the US market as a whole, but also get access to valuable know-how and go-to-market research that opens up doors to explorative dialogues with American market participants within the healthcare space. Increased brand awareness within the US is of great importance for Brain+ in terms of future strategic partnerships and with the number of +USD 100m licensing/partnership deals that have been made during recent years, it is clear that life science participants are on the outlook for new partners, creating an opportunity for Brain+ going forward.

The US is the biggest healthcare market in the world and more than seven million people in the ages 65 or older had dementia in 2020. The price/reimbursement levels are also significantly higher than the rest of the world, roughly three times higher than in Europe, where prices could be beyond EUR 1,000 per treatment. Thus, the US market is highly attractive, and while Analyst Group has not explicitly modeled any revenues in the US within our forecast period, as the commercialization phase is estimated to be several years away, we consider the recent early signs of progress in the US as highly positive.

Read our latest equity report of Brain+ here.