The Wider View: Could Brainsway be a surprise survivor of COVID-19 fallout?

Transcranial magnetic stimulation company Brainsway finished off 2019 on a strong note. But with other medtech companies bracing themselves to receive a hit from the disruption caused by COVID-19, the micro-cap firm put out an optimistic message on its growth prospects.  

What’s happened

Brainsway, an Israeli company which offers deep transcranial magnetic stimulation (dTMS) for various psychiatric disorders, reported on March 23 strong growth in its Q4 and full-year 2019 financial results. The company provided a bullish outlook for 2020, in spite of the current COVID-19 pandemic and the disruptive impact it is having on businesses in medtech and other industries, and on the economy as a whole.

The wider view 

With the next earnings season kicking off in about three weeks time, investors are waiting with trepidation to hear what damage the COVID-19 pandemic has caused to companies’ top-lines. Disruption to supply chains, the temporary closure of facilities and restricted movement of personnel are very likely affecting companies, big and small, to varying degrees but the halt on elective medical procedures across many healthcare systems around the world would also deepen the wound even more. 

Transcranial magnetic stimulation therapies like dTMS offered by Brainsway, Neuronetics’ NeuroStar system and NexStim’s Navigated Brain Therapy (BNT) system are currently used in the market for mental health disorders, mainly major depressive disorder (MDD) for which these three systems are approved in the US.     

It may not be immediately clear if TMS for MDD is considered to be an elective procedure or a form of critical care, making it difficult to assess the impact of COVID-19 on these companies. NexStim looks to be anticipating the worst; the Finnish company last week said it was putting into action a cost-saving programme, which includes staff layoffs, as it braces itself for a challenging business environment resulting from the pandemic.

Neuronetics, which is believed to be the leader in the TMS for MDD market with over 1,000 NeuroStar systems installed to date, has not issued any statements around COVID-19 so far and in its Q4 earning call on March 3, there were no mention of this subject by the company’s now-departed CEO Christopher Thatcher.     

With Neuronetics not providing any visibility and NexStim’s pessimistic outlook, the comment by Brainsway’s CEO Christopher Jako during its Q4 earnings call that the company remains "fully operational" and his relative optimism for the business' growth prospects this year may come as a surprise. 

Jako told investors that the company has been actively reaching out to its large and small customers and it is seeing that a majority of them are continuing to treat existing patients and "even accepting new patients." "[dTMS] is considered by many [of the customers we've spoken to] as essential treatment, so it really is a medical necessity," said the CEO. He added that the clinics have been taking safety precautions with patients coming in and additional precautions with elderly patients who might be more vulnerable to COVID-19. 

Not all business-as-usual

It hasn't quite been business as usual, though, as Jako acknowledged that the restriction of movement imposed by COVID-19 safety measures means the company's sales team are increasingly having to hold virtual meetings with customers - "but we continue to push forward with our sales efforts."

Furthermore, the firm is also expecting a longer wait to get FDA clearance for its smoking cessation indication. 

Brainsway announced in December that its pivotal multicentre study to assess the safety and efficacy of dTMS as an aid in smoking cessation in adults suffering from chronic smoking addiction met its primary and secondary endpoints with statistical significance. Jako told investors at the earnings call that the firm will be submitting its 510(k) application "in the next few weeks" and is anticipating clearance "within 12 months," and was being particularly conservative with the timeline in view of the current circumstances. Indeed, the FDA issued a letter to the medical device industry on March 23 saying that the day-to-day operations of the Center for Devices and Radiological Health will be impacted by COVID-19 response efforts, and this means there will be delays in its response to market approval applications, among other things.

That said, the company maintained that it has not yet experienced any disruption in its efforts to get dTMS reimbursed for obsessive compulsive disorder (OCD), the second FDA-cleared indication for its therapy. OCD is viewed as a significant growth driver for Brainsway (it is the only company to have FDA clearance for this indication), and the firm said it is "actively having ongoing discussions with consultants and payors," in order to get reimbursement for OCD "as soon as possible."

Brainsway's optimism appears to have given some cheer to investors; the firm's share price is enjoying an uptick, opening at $5.85 the morning it announced its results and rising to as high as $6.58 during trading on March 24.

With the COVID-19 situation rapidly evolving, Brainsway may be forced to change its bullish outlook. If there are grounds for the firm’s belief that the uptake of its therapy will not be as severely impacted due to its "essential" medical nature, this could help buffer the impact of what will be a harsh business environment for medtech companies. 

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