Brain+ A/S (“Brain+” or “the Company”) is a Digital Therapeutic company with the mission to restore patients’ independence and quality of life by treating and detecting cognitive decline in Alzheimer’s disease and dementia through Digital Therapeutics (DTx), also known as software-as-a-medicine (SaaM) applications. Brain+ has developed a set of DTx technologies, which enable the Company to create a unique and differentiated product offering. These technologies, combined with a strong clinical pipeline, puts Brain+ in a strong position to grow towards a market leader position in the dementia DTx space. Brain+ is listed on First North Copenhagen since October 7, 2021.
Press releases
Catalysts for Growth Ahead
During the first half of 2023, Brain+ has successfully built upon its initial commercial success with a Danish municipality by securing an extension to the first contract and a second sales contract with another municipality. Given the prolonged and seasonal sales cycles within municipalities, closing two sales contracts in H1-23 not only underscores Brain+’s immediate impact on the market but also sets a promising tone for the second half of 2023 and beyond. Moreover, looking ahead, Brain+ holds considerable triggers in the near term, with anticipated updates from its R&D pipeline in the upcoming quarters, a growing presence in Germany, and the imminent introduction of new product versions. Analyst Group estimates net sales of EUR 3.0m by 2025, and with an applied EV/S multiple, a potential present value per share of DKK 0.91 (1.12) is derived in a Base scenario.
- Steady Progress in H1-23
In the first half of 2023, Brain+ has further established its presence in the digital dementia care market by successfully closing two sales contracts for the first version of its flagship product, CST-Therapist Companion; one for a full municipality and another for use by a dementia care center in another Danish Municipality. This achievement is especially promising considering the typical municipal sales cycle, which spans between 12 to 24 months. Analyst Group views this early success as a strong indicator of Brain+’s potential for future growth. It’s important to note that the Danish municipal sales cycle is unique, with the first half primarily dedicated to exploration and identification of new solutions. Conversely, the latter half focuses on budgeting and executing purchase orders. Brain+’s go-to-market activities since its introduction in Denmark (Q4 2022) and Germany (Q2 2023) bode well for its ability to meet net sales estimates, considering the seasonality inherent in municipal sales cycles.
- Breakthroughs in Dementia Treatments
In July 2023, a transformative moment unfolded in dementia care as the FDA granted full approval to Lecanemab, a groundbreaking treatment for early Alzheimer’s disease. This milestone signifies a remarkable turning point in an industry that has grappled with challenges for decades in developing effective dementia treatments, reigniting interest and investments within the sector. As pharmaceutical companies increasingly acknowledge the potential of merging drugs with digital solutions, this resurgence in the field may position Brain+ and its digital dementia products even more favorably.
- Revised Share Price Range
While our financial forecasts for the forecast period remain unchanged following the H1-report, we have adjusted the share price range slightly downward due to a decreased target multiple. This adjustment is influenced by a contraction in multiples observed among peers and the persistently challenging environment faced by companies with promising future revenue but current incurring losses. The trajectory of Brain+’s share price, its low trading volume, and relatively muted acknowledge of recent achievements collectively suggest that the stock is operating below investors’ radar as of now, which poses an elevated risk. Notably, Brain+ have outstanding warrants set to expire in October 2023, and the capital injection is closely tied to the share price. A shortfall in capital injection may potentially impede planned commercial and R&D activities. Nonetheless, we are still seeing a great upside potential in Brain+ and if the company could secure additional non-dilutive funding through the already submitted grant applications, it would de-risk the case according to Analyst Group.
7
Value drives
2
Historical profitability
8
Management & Board of Directors
8
Risk profile
All analyses of companies from 2020 onwards are rated based on a new rating system - Value Driver, Historical Profitability and Management & Board ranges from 1 to 10, where 10 is the highest rating. The risk profile ranges from 1 to 10, where 10 is to be considered the highest risk. Stock analyses of companies published before 2020 have been rated based on a different model.
Have Laid the Groundwork for Future Commercial Success
In 2022, Brain+ had a successful commercial introduction of its CST-Therapist Companion dementia product in Denmark and secured the first sales contract. Further, Brain+ attracted new talents within DTx and Alzheimer’s, made important advance-ments in R&D pipeline, received positive feedback on core technologies, and secured additional funding. With yet another contract secured in Q2-23, ongoing dialogues with other Danish municipalities and the upcoming market introduction in Germany, Brain+ is now on the path to becoming a commercial business. Analyst Group estimates net sales of EUR 3.0m by 2025, and with an applied EV/S multiple, a potential present value per share of DKK 1.12 is derived in a Base scenario.
- First (and second) B2B Sale to a Danish Municipality Secured
Shortly after Brain+ introduced its first dementia product CST-Therapist Companion to the Danish market for dementia care in November 2022, the first sales contract was established with the Danish municipality of Herning in late December 2022. The contract, worth DKK ~50,000, has since been expanded, both in terms of accessibility and length, which nearly doubled the contract value. As this on one hand illustrates the potential for contractual expansion once a first contract has been established, the first contract value, even after the expansion, fell below are expectations. Hence, we have revised our price assumptions for municipal sales. However, yet another important step was made during Q2-23 with the closing of the Company’s second sales contract for CST-TP with a dementia care center in the Danish municipality of Gladsaxe.
- Upcoming Capital Injection Enables Intensified Commercial Activities
Brain+ announced on March 29, 2023, the intention to carry out a Rights Issue of units, consisting of shares warrants of series TO2 and TO3. Upon full subscription, Brain+ will receive gross proceeds of approx. DKK 15.7m, where accompanied warrants can, if fully subscription, provide additional funding of approx. DKK 15.7-62.9m in total during October 2023, and March 2024. The Rights Issue will provide Brain+ with important fundings to accelerate the commercialization of the CST-TC product as well as support the ongoing development of current pipeline products, CST-Home Care and CST for MCI.
- Revised Share Price Range
Based on the advancements in the R&D pipeline, enhanced validation and support for CST through recently published publications, the Company’s newly formed collaborations, as well as the two commercial deals that lays the groundwork for future commercial success, Analyst Group retains a bullish outlook on Brain+. However, due to a slight delay in the expected time to market for the CST-Home Care and CST for MCI products compared to our previous estimates, we have based our valuation on 2025 financial figures, instead of 2024 as previously. Analyst Group argues that 2025 is a more appropriate time period to value Brain+ because by that time, its product would have been on the market for at least two years, and thus reflect a more matured Brain+ that has started to generate meaningful revenues. We maintain our previous Enterprise Value valuation range for the target year; however, the share price range has been updated in all scenarios due to the capital injection from the rights issue and the subsequent dilution effect.
7
Value drives
2
Historical profitability
8
Management & Board of Directors
7
Risk profile
All analyses of companies from 2020 onwards are rated based on a new rating system - Value Driver, Historical Profitability and Management & Board ranges from 1 to 10, where 10 is the highest rating. The risk profile ranges from 1 to 10, where 10 is to be considered the highest risk. Stock analyses of companies published before 2020 have been rated based on a different model.
Analyst Comments
Analyst Group Comments on Brain+’s Annual Report 2022
2023-05-02
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+.
Share price
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Valuation Range
2023-09-11
Bear
0.27 DKKBase
0.91 DKKBull
1.40 DKKDevelopment
Principal shareholder
Analyst Group Comments on Brain+’s Semi-Annual Report 2023
2023-09-01
Brain+ A/S (“Brain+’” or “the Company”) published its Semi-Annual Report for 2023 on August 31. The following are key events that we have chosen to highlight from the report:
Focus on Increasing Market Awareness in H1-23.
In the first half of 2023, Brain+ closed two sales contracts for the company´s digital dementia product, CST-Therapist Companion, which, considering the municipal sales cycle of between 12-24 months, is a promising sign for the future according to Analyst Group. Further, it’s crucial to understand the unique nature of the Danish municipal sales cycle. Typically, the first half is primarily a period of exploration, during which municipalities actively seek and identify new products or service solutions. In contrast, the latter half of the year is more intensive in budgeting and executing purchase orders. Our projected net sales for FY2023 stand at DKK 0.4m (EUR 0.06m), a forecast that considers this seasonality. Given Brain+’s amplified go-to-market efforts since its introduction in Denmark (Q42022) and Germany (Q22023), we remain optimistic in Brain+ meeting our net sales estimates, given the back-heavy sales cycle within municipalities.
Lower Capitalized Costs Caused a Decline in Gross Profit
The gross profit reached DKK 1.6m (corresponding to EUR 0.21m) in H1-23, which on a Y-Y comparison means a 15 % decline, primarily due to lower capitalized costs. Staff expenses stood at DKK 6.1m (EUR 0.8m), corresponding to a Y-Y decrease of approx. 6 %, reflecting Brain+’s increased cost consciousness and the fact that most of the recruitments for the near- and medium-term were made during 2022. D&A increased with DKK 1.2 m (EUR 0.16m) on a Y-Y-basis to DKK 2.0m (EUR 0.26m). In 2022, Brain+ completed several grant funded innovation projects, which increased the value of completed development projects on the balance sheet and correspondingly decreased the value of development projects in progress by the same amount. The increase in D&A reflects this and has been modeled for in our estimates, given higher amortizations. Due to higher D&A, EBIT came in at DKK 6.6m (EUR -0.9m), which is lower than H1-22 (EUR -0.7m), however, on an EBITDA-basis, the results were more or less flat Y-Y (EUR -0.59m vs EUR 0.60m).
In general, the financial performance aligns well with our FY2023 estimates, as we anticipate more business activities and commercial milestones in H2-22 as a result of the seasonality.
Cash at hand and Upcoming Funding Events Equip Brain+ for Commercial and R&D Pursuits
By the close of June 2023, Brain+’s cash and cash equivalents totaled DKK 5.3m (EUR 0.69). This represents a minor decline of DKK 1.1m (EUR 0.144m) from the figures reported in 2022’s Annual Report. During Q2-23, Brain+ executed a rights issue, which infused the company with DKK 14.3m before accounting for transaction-related expenses. An encouraging development post the completion of the rights issue was the decision made by some of the guarantors in the offering to receive their guaranteed compensation in new units (new shares and warrants) instead of cash. This strategic move resulted in a 2.2% dilution. However, it has a silver lining: it allowed Brain+ to preserve more of the proceeds in cash, DKK 0.42m to be precise, ensuring that these funds can be allocated and utilized more effectively in other crucial areas of the business.
Furthermore, it’s essential for investors to note the upcoming funding event with the warrants of series TO 2. These can be traded in the market until 12 October 2023 and be exercised between 2 and 16 October 2023. The exercise price will be set at 70% of VWAP over 20 trading days, ending two days before the exercise starts and will be announced a day before the exercise period begins. Each TO 2 warrant offers the chance to subscribe for one new Brain+ share.
Breakthrough-Moment in the Dementia-space
In July 2023, the US FDA granted full approval to Lecanemab, a groundbreaking treatment for early Alzheimer’s disease. This significant development, coming after decades of pharmaceutical setbacks in dementia treatments, marks a potential turning point in the industry. The approval of Lecanemab is expected to rejuvenate interest and investments in dementia treatment, paving the way for a more comprehensive approach that combines pharmaceuticals with digital therapeutics.
For a DTx-company like Brain+, this evolving landscape presents a great opportunity. As pharmaceutical companies increasingly recognize the potential of combining drugs with digital solutions, Brain+ is uniquely positioned to offer its evidence-based digital products. These products not only complement the emerging drug treatments but also enhance their efficacy, offering a holistic solution to dementia care. The growing acknowledgment of digital solutions by policymakers and pharmaceutical giants further amplifies the potential for Brain+ to forge strategic partnerships and co-development opportunities, solidifying its role in the future of dementia treatment.
Recent Grant Applications Emerges as a Promising Catalyst for Future Growth
Brain+ has a long and successful history of receiving grants for its R&D activities, with over DKK 70 million raised through innovation grant funded research. During August 2023, Brain+ has taken new ambitious steps to further its commitment to better dementia care. The company submitted new public grant applications aiming to raise up to DKK 67 million to further develop and scale its digital dementia products. These applications include:
Public 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 issued warrants last for a longer period of time. Further, it is not only positive for the shareholders, as soft funding is non-dilutive, but it also allows Brain+ to partner with experts within the industry and potential future customers. The responses from the applications are expected during Q4 and will be interesting events to keep an eye on for investors.
Brain+ Gears Up for a Noteworthy H2-23 and 2024
At present, Brain+ is actively engaged in pilot studies for its CCT and Starry Night Cognitive test offerings, with results anticipated in 2023 and 2024. Furthermore, the company has charted out three clinical trials for its CST product suite for 2023-2024. Notably, the claims trial for Brain+’s enhanced version of CST-TC is scheduled to start in the fourth quarter of 2023. A successful conclusion would not only pave the way for reimbursement of the product but would also pave the way for a push into the UK market and prospective cooperation with big pharmaceutical firms. The results of these studies will continue to be closely monitored by Analyst Group, as they are pivotal in gauging the company’s commercial trajectory.
To summarize, Analyst Group maintains a positive view on Brain+ based on the pipeline’s maturation, the advancements made in the dementia field, the company’s ongoing efforts to increase market awareness, and recent grant applications, all of which make the second half of 2023 particularly interesting to watch.
We will return with an updated equity research report of Brain+.