Analyst Group Comments on Brain+’s Annual Report 2022

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 2nd 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+.