Analyst Group Comments on Brain+’s Semi-Annual Report 2023

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:

  • First half of 2023 has been mostly about gaining market awareness and secure a solid ground for the future.
  • Cash at hand and Upcoming Funding Events Equip Brain+ for Commercial and R&D Pursuits
  • Breakthrough-Moment in the Dementia-space
  • Recent Grant Applications Emerges as a Promising Catalyst for Future Growth
  • Brain+ Gears Up for a Noteworthy H2-23 and 2024

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:

  • A Danish InnoBooster grant of DKK 3 million, targeting the completion of the CST-Therapist Companion v2.0.
  • A CO-PI grant of DKK 4 million, which will support the implementation of the CST-Therapist Companion in both Denmark and the UK, as well as its integration into official CST education.
  • An EU EIC Accelerator grant, seeking DKK 17 million, complemented by DKK 43 million in equity funding from the European Central Bank. This substantial funding is earmarked for the development, marketing, and commercial scaling of Brain+’s next in line digital CST-based product, CST-Home Care, designed to bring CST (Cognitive Stimulation Therapy) to the homes of dementia patients.

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+.