Brainsway Ltd. — 2019 Form 20-F Summary
Reporting period: Fiscal year ended December 31, 2019; the filing also reports unaudited quarterly results, including Q4. Financial statements are audited and prepared under IFRS, with amounts in U.S. dollars unless noted.
Business context
Brainsway develops and commercializes non-invasive Deep Transcranial Magnetic Stimulation (Deep TMS) systems. FDA-authorized indications are major depressive disorder (MDD) and obsessive-compulsive disorder (OCD). The United States generated approximately 89% of 2019 revenue. Revenue comes from system sales and leases, including fixed-fee and usage-based risk-share arrangements.
Financial performance and liquidity
| Metric (US$ millions, except per-share data) | 2019 | 2018 |
|---|---|---|
| Revenue | 23.10 | 16.40 |
| Cost of revenue | 5.13 | 3.59 |
| Gross profit / gross margin | 17.97 / 77.8% | 12.81 / 78.1% |
| Operating expenses | 26.45 | 17.92 |
| Operating loss | (8.48) | (5.11) |
| Net loss | (10.33) | (6.48) |
| Basic and diluted loss per share | ($0.50) | ($0.39) |
| Operating cash flow | (7.24) | (3.77) |
| Cash, cash equivalents and short-term deposits at year-end | 21.90 | 9.07 |
Revenue increased 41% year over year. Lease revenue was $13.22 million and sales revenue was $9.88 million. Selling and marketing expense rose 59% to $13.27 million, R&D expense rose 28% to $7.88 million, and G&A expense increased to $5.30 million. Management attributed expense growth largely to U.S. commercial expansion, product development and clinical activity, and U.S. public-company costs. The company remained loss-making; its accumulated deficit was $71.91 million.
For Q4 2019, revenue was $6.29 million versus $4.77 million in Q4 2018; net loss was $2.32 million versus $2.15 million. Q4 operating loss was $1.99 million. The filing cautions that quarterly results can vary and should not be viewed as a reliable indicator of future performance.
Year-end total assets were $38.74 million, total liabilities $14.52 million, and equity $24.22 million. Current assets were $28.83 million and current liabilities $6.72 million. The bank loan was fully repaid in May 2019 following the Nasdaq offering; no bank loan remained at year-end. R&D grant liabilities remained, including up to $12.9 million in future IIA royalties. Net cash from financing was $22.47 million, principally reflecting the April 2019 IPO; net proceeds from share issuance were $26.33 million. Investing cash outflow was $2.45 million, including equipment and system-component purchases.
Material changes and operating developments
- Revenue grew from $16.40 million to $23.10 million, while net loss widened from $6.48 million to $10.33 million; operating cash use increased from $3.77 million to $7.24 million.
- Year-end cash and short-term deposits increased by $12.83 million, principally following the Nasdaq IPO. The company raised approximately $27.5 million gross in the offering.
- The installed base reached approximately 530 systems at year-end, up 42 in Q4; 315 were leased and 215 sold. The company had shipped 173 OCD coils as add-ons to new and existing systems.
- In 2019, Brainsway received Japanese PMDA marketing approval and assumed direct operations in Israel after ending its local distributor agreement. It also developed a proprietary stimulator with FDA clearance for MDD and OCD system modifications.
Outlook, risks and unusual items
Management expected operating losses to continue in the near term and anticipated increased commercialization, R&D and clinical-trial spending. Based on its business plan, it believed cash resources and expected product revenue would fund requirements for at least 24 months from year-end 2019, while noting that further financing might be needed and was not assured.
- Brainsway reported positive results from a completed smoking-cessation pivotal trial and was pursuing a regulatory pathway. Planned or contemplated studies included opioid addiction, multiple-sclerosis fatigue and post-stroke rehabilitation. The company discontinued funding for its PTSD multicenter study after interim results did not sufficiently demonstrate efficacy; alternative parameters may be considered.
- OCD had no third-party reimbursement at the time of filing. MDD reimbursement was subject to payer criteria, and coverage and payment levels could change. The company was seeking broader OCD coverage.
- Management identified the Coronavirus outbreak as a potential material risk to component supply, manufacturing and delivery, customer treatments, clinical-trial recruitment, collections and financing. The impact was uncertain.
- Other significant risks include continued losses and financing needs; competition and market adoption; dependence on suppliers and distributors; regulatory and clinical-trial outcomes; intellectual-property licenses and patent expirations; and geopolitical, currency and operational risks in Israel and internationally.
- An impairment charge of $1.19 million was recorded on property and equipment, primarily related to systems leased to customers and sold. The allowance for doubtful accounts rose to $930,000 from $335,000, including an $835,000 provision for 2019.
Important facts for investors to verify
- Reconcile the filing’s selected financial data, which lists total equity as $38.74 million, with the audited balance sheet, which reports equity of $24.22 million; $38.74 million is reported as total assets.
- Assess collections and receivables quality: net trade receivables were $5.51 million, the allowance was $930,000, and gross receivables over 120 days past due were $1.43 million.
- Track cash burn against management’s 24-month liquidity estimate, and the growth in sales and marketing and R&D spending.
- Monitor MDD reimbursement and OCD coverage progress, as well as regulatory decisions and outcomes from planned or pending indication studies.
- Review the terms and potential cost of IIA royalty obligations, key PHS/Yeda license arrangements, and the effect of supply-chain or Coronavirus-related disruption.