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Brain Resource AGM Update

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Brain Resource AGM Update

By Brian Marckx, CFA


Brain Resource's () / (BRC.AX) Annual General Meeting (AGM) update provided a status on the progress with the introduction of new products, growth in the customer base, increasing interest and awareness of their various brain training products, and expectations for timing of filing for FDA clearance of their depression treatment test.  We are maintaining our Outperform rating on BRRZY as well as our $3.50 per ADR price target.  See here for our full 19 page report on Brain Resource.  Included in the company's AGM update were;

<> FDA Filing for Depression Test:  Prior to the recent update BRRZY had expected to file for FDA clearance (de novo) of a depression test by the end of calendar 2012.  The test is designed to predict who is most likely to respond to one of the three most widely prescribed antidepressants (the active ingredients in Lexapro, Zoloft, and Effexor).  In late October BRRZY, following further discussions with FDA, updated this timeline noting that they planned on spending more time on their pre-IDE supplement in order to provide more detail in the regulatory submission.  The company now expects to make the FDA filing in 2013.  We note that our outlook and financial model still reflects a more conservative timeline based on our original assumptions that a PMA regulatory pathway (as opposed to de novo, which would likely be less rigorous and less time consuming than PMA) may be required and assumes launch of the product sometime in 2014.  As such, BRRZY's recent update which pushed their expected de novo filing back from 2012 to 2013 does not impact our outlook or model.

Work also continues on a genomic depression test.  As a reminder, Brain Resource hopes to combine a genetic assay (BRRZY had been in discussions with a partner to develop an assay) with their cognitive iSPOT test depression test which will form the basis for a companion diagnostic to aid physicians with prescribing decisions of depression drugs as well as with pharmaceutical companies to aid in drug development.  The company is currently in discussions with third-party payers and pharmaceutical companies in regards to eventual commercialization of both of these tests.  BRRZY hopes to provide a further update on these two products by the end of Q1 2013.     

<> ADHD Product Launched:  BRRZY launched their new online ADHD management tool during the Health 2.0 conference in San Francisco in October.  The product is designed to help manage ADHD in children and includes MyBrainSolutions for Parents, which focuses on assessing the child's strengths and limitations and PoweringUp, which is directed at the child and is designed to enhance attention, concentration and memory.  The product received wide media exposure upon its introduction, was also highlighted at the 24th Annual International Conference on ADHD in San Francisco in November, and was rolled out with a $39/month subscription fee (initially discounted).   

<> Growth In Utilization / User Base:  BRRZY continues to see increasing interest in their current suite of products.  Site log-ins of their brain training products are up 70%, MyBrainSolutions has now been used more than 3.5MM times (up from 2 million through 6/30/11), and their backlog of potential customers continues to grow.  Fueling this growth is increased utilization as well as growth in the user-base, which has increased by approximately 114k since July 2012 to about 500k in total currently.  BRZZY's near-term game plan is to further increase the user base and then transition to focus on turning this user base into significant revenue.  We continue to model a substantial ramp in revenue from these products in fiscal 2013, particularly in the second half. 

<> Corporate Base Increasing:  MyBrainSolutions is currently offered to 9 U.S. corporate and wellness programs covering more than 200k employees.  The potential product reach has expanded to 37 million members and patients which has been facilitated by the recent partnerships with the likes of Aetna, Keas and St' Gregory Treatment Center.  While revenues have been slow to ramp, some of this can be attributed to many of these corporates running pilot programs with MyBrainSolutions - we expect this to turn into revenue generation as these programs are fully implemented.  Other of these corporate partnerships already generate revenue from a per-employee, per-month fee.  A positive sign is that BRRZY notes that adoption rates are relatively high - at about 30% of all employees of these corporate customers, with about 50% of employees using the site at least once/month during the first 6 months and over 30% still using it after the first 12 months. 

<> Facebook and Mobile Apps:  BRZZY's Facebook application allows users to play their brain training games and through this the company has already acquired over 16k e-mail addresses over the first 60 days following its launch.  Their MyCalmBeat mobile app has been downloaded almost 300k times.  BRZZY directs users of the apps to MyBrainSolutions and will also use the e-mail addresses for marketing purposes.  In addition, they expect to begin charging $0.99 for future downloads of MyCalmBeat - all of which is expected to contribute to future revenue growth. 

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