Brainsway, a developer of transcranial magnetic stimulation (TMS) technology, has filed for a $30 million dollar IPO under the NASDAQ. Renaissance Capital reports that the Jerusalem-based company will list under the symbol BWAY. The company is already listed on the Tel Aviv stock exchange, where it has a market cap of $97 million. Brainsway has not disclosed how many shares they plan to sell nor at what price.
What is TMS?
In its S-1 report, Brainsway calls itself “a commercial stage medical device company” which uses its Deep TMS system to help treat depression and OCD. TMS is not a new treatment. The first devices were approved by the FDA in 2008, and companies such as Neuronetics or MagVenture sell TMS devices to physicians and psychiatrists today.
The concept behind TMS is fairly similar to electroshock therapy. By using a magnetic coil, the technician can stimulate parts of the brain which are affected by depression or other mental disorders. For example, the brain could be induced to produce more neurotransmitters which can help alleviate depression such as dopamine or serotonin. And in contrast to other treatments, TMS is perfectly safe, with the side effects being little more than a headache.
There are concerns about whether TMS can help cure depression over the long-term, as depression may recur a few months or years after the treatment ends, and TMS will play a secondary role to fighting depression compared to medication or psychotherapy. But TMS presents a safe, potentially effective alternative for those who have been unable to cure depression with those methods.
Brainsway’s Potential
The depression market is expected to reach $18.3 billion by 2023 with a CAGR of 0.9% according to iHealthcareAnalyst. But if there are established TMS companies on the market, how does Brainsway expect to compete?
The first thing to note is that Brainsway is not a clinical IPO which is hoping to get its products through the FDA pipeline. Brainsway’s Deep TMS device has been approved to fight depression and OCD by the FDA, and further tests are being conducted to see if Deep TMS can help with smoking cessation, PTSD, and opioid abuse.
Brainsway argues that its Deep TMS system, which can help log your activity, is superior to its competitors because it “allows for deeper and broader penetration of regions of the brain.” This lowers the chances of the operator missing the planned target and is more comfortable as the patient can more easily move their head during the operation. Furthermore, Brainsway could use Deep TMS to treat a wider variety of illnesses.
Brainsway has been able to find partners as well, though it should elaborate more in its roadshow about its plan for future partnerships. Its first commercial partnership was announced in 2013 according to FierceBiotech, and it also secured a partnership with the U.S. Navy in 2015. The company states that “We estimate that over 90% of the total private insurer covered lives in the United States have coverage for reimbursement of MDD treatment with Deep TMS.”
The Financial Situation
But while Brainsway paints a rosy picture, its financial pictures has some questions. The good news is that Brainsway’s revenue rose from $7.4 million in the nine months ending September 30, 2017 to $11.6 million in the same time period in 2018, and it has made a gross profit. On the other hand, revenue from 2016 to 2017 declined slightly from $11.5 to $11.1 million.
Similarly, Brainsway’s track record in terms of cash on hand is also mixed. The company reports having $10.6 million cash in hand as of September 30, 2018 compared to $14.6 million on December 31, 2017, compared to total liabilities which has remained consistently over $14 million. But Brainsway can point out that much of its liabilities, such as royalty payments for research and development grants, will not come due for another three years.
A Worthy IPO
A final thing to note is that Brainsway nor any other company will be going public until the U.S. government shutdown is over, which gives investor plenty of time to make a decision. But if we assume that Brainsway targets a market cap similar to its Tel Aviv valuation, we could be looking at a P/S ratio of 6 to 7, which is reasonable for a biotech IPO.
Biotech IPOs are often tricky, risky, affairs, and Brainsway has worked hard to elevate itself from its peers and show its value. When the shutdown is over and it releases more information, investors should consider this company.