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BRRZY: Initiating Coverage of Brain Resource

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Brian Marckx, CFA

We have initiated coverage of Brain Resource ).  See below for access to our full 18-page report on the company which includes our financial model and provides further discussion about the company, their landmark iSPOT trial, current brain health products, market opportunities and growth strategy.         


Brain Resource is a San Francisco headquartered company focused on improving brain health.  The company has established the first and largest standardized and integrated international human brain database which it leverages to provide products for the consumer, employer, and clinical markets.  The company notes that their products have benefitted more than 50k end-users and have been utilized by more 30 multi-national corporate employers and hundreds of clinicians and researchers since the company's founding over a decade ago.  

Brain Resource has two businesses anchored off the same proprietary technology: Personalized Medicine Diagnostics and Brain Health Solutions. They expect to be the first company to lodge a brain biomarker based diagnostic with the FDA for personalized treatment prediction and also are the first company to penetrate U.S. corporates with a brain health offering.

The currently commercialized products include two web-based products, WebNeuro and MyBrainSolutions.  WebNeuro, currently used by insurance providers and clinicians, offers objective reports assessing cognitive strengths and weaknesses to help physicians make more informed decisions regarding patient care.  Brain Resource notes that WebNeuro currently has more than 250 users and generated almost 11k reports in fiscal 2011 (6/30/2011).  MyBrainSolutions online brain training, chiefly targeting the corporate employer market, aims to increase employee performance and productivity.  Per Brain Resource, MyBrainSolutions has over 50k users and has been accessed more than 300k times.  In the company's half-year report (ending December 2011), they list key goals for 2012/2013 , including increasing the user base of its products to 1 million users and a five-fold increase of revenue from their web-products (excluding licensing income, web-based revenue was ~$650k in 2011).  

Brain Resource expects growth in MyBrainSolutions to come from an increase in the number of channel partners and employer clients.  Meanwhile, WebNeuro's functionality is expected to be substantially enhanced with the inclusion of biomarkers related to depression and ADHD.  This will be the catalyst to driving growth of the personalized medicine business, Brain Resource's major focus and the area that is expected to be the impetus to the company's long-term revenue and earnings growth.

Findings from the iSPOT trial will be used to develop these depression and ADHD biomarkers.  iSPOT is the world's largest clinical trial to predict treatment response in depression and ADHD.  iSPOT-D (for depression) has enrolled over 1,700 patients and analysis started on the first 1,000 patients.  Data from iSPOT-D was presented at two major U.S. medical conferences during 2011, including an invitation-only presentation at The American Conference of Neuropsychopharmacology in December and more recently formed a panel of presentations at NCDEU in Arizona.  iSPOT-A (for ADHD), has enrolled approximately 500 patients to-date.  Brain Resource is planning to submit study outcomes to the FDA for approval (likely via PMA) of a depression and an ADHD test in the near-to-mid term (discussions with the FDA regarding the regulatory approval pathway are ongoing).  

Aside from progress with iSPOT, other recent highlights include the sale of $10MM in convertible bonds to a large institutional investor, Och-Ziff Capital Management, the establishment of a joint-venture for the ADHD product which included a $4MM equity contribution from the JV partner (controlled by Och-Ziff), and an agreement with Aetna whereby the insurer will distribute the company's web-products.
                                                                                                                                   

Database Drives Product Ideation…                                                       
Dr. Evian Gordon, Chairman and CEO of Brain Resource, as well as a founder of company, was the visionary behind building a large, robust and dynamic database of studies on the human brain.  Dr. Gordon has over 25 years of experience in brain research which includes the establishment of the Brain Dynamics Center at Westmead Hospital (Sydney, Australia) in 1986.  He pioneered the field of "integrative neuroscience" which uses standardized methods to collect and aggregate information about the brain, body and patient cognition.  This information, including demographics, brain function (measured by EEG/ERP), cognition, brain structure (measured by MRI), and genomics (measured by lab testing of cheek swab) is housed in the company's "Brain Resource International Database" (BRID) and is the basis behind the algorithms powering the company's brain products.    
 
The uniqueness of the company's database has not only to do with it being the largest human brain standardized data repository in the world, but also that it is a perpetual work in progress and is open-access to scientists throughout the world.  In 2003 Brain Resource helped to set up an indpendent 501c3 non-profit foundation called "BRAINnet" (Brain Research And Integrative Neuroscience Network) affording access (for non-commercial purposes) to researchers which often use the datasets in studies and in compiling manuscripts for independent publication.  BRAINnet (www.brainnet.net) currently has 317 participating researchers from 23 countries with over 250 outcomes published on various topics including major depressive disorder (MDD), ADHD, schizophrenia, and Alzheimer's, among others.  The list of publications continues to grow, at a rate of approximately one per week and includes some of the most well-respected journals in brain research including The Journal of Neuroscience, Neuropsychopharmacology, Molecular Psychiatry, The American Journal of Psychiatry, and Biological Psychiatry.                                                                               

The open-access nature of the database has had desired effect of facilitating more and more publications related to the data - and, as publications are typically viewed as the litmus test for credibility in medical science, additional publications should continue to garner further support for the company's research methodology and, ultimately, the effectiveness and utility of their products.

However, development and commercialization of products for mainstream consumer and clinical use was not at the forefront of Brain Resource's strategy initially following the company's IPO in 2001.  Instead, at that time the company was focused on building its fledgling database through clinical data gathered at its own and third-party laboratories and leveraging the related findings to help pharmaceutical companies design better and more efficient clinical trials of CNS drugs.  The company's pharmaceutical client list included some of the majors, namely Pfizer (PFE), Eli Lilly (LLY), Glaxo (GSK) and Merck (MRK), among others.  It was during this period that Brain Resource's initial product, IntegNeuro, was developed to help drug companies determine whether development-stage drug candidates were showing the desired effect and to aid in the go/no-go (i.e. - continue development?) decision.  Use included a large multi-center study by AstraZeneca for schizophrenia (see http://www.astrazeneca-us.com/about-astrazeneca-us/newsroom/4372268?itemId=4372268).   
 
Brain Resource then shifted focus to the commercial marketplace, expanding their product offerings and their target markets.  This included further optimization of IntegNeuro and involved developing a web-based version called WebNeuro which is sold into the clinical practice market and, most recently, the launch of MyBrainSolutions for the corporate brain-health market.  Further commercialization of these two offerings, along with development of products for companion diagnostics of CNS drugs (initially depression and ADHD) using the iSPOT study data, is Brain Resource's current focus.        
 

Please visit Brian Marckx's coverage page at scr.zacks.com for a free copy of the reserach report.

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