BrainsWay, the Israeli medical technology company renowned for its Deep Transcranial Magnetic Stimulation (Deep TMS) platform, recently unveiled its first-quarter earnings for 2024, showcasing impressive figures. Revenue skyrocketed by 37% year-over-year, propelled by the delivery of 57 Deep TMS systems and a surge in demand for the company's OCD treatment coil. Profitability remained robust, with positive net income for the second consecutive quarter and a healthy cash flow from operations.

At first glance, everything appears promising. BrainsWay is reaffirming its full-year revenue guidance of $37 million to $40 million, indicating a healthy growth trajectory. The company is expanding its global footprint, making notable progress in Korea, Taiwan, and India. They're even venturing into accelerated TMS protocols, potentially reducing treatment durations.

However, beneath CEO Hadar Levy's optimistic pronouncements, a subtle shift in language hints at a more substantial strategic maneuver. While BrainsWay has traditionally concentrated on organic growth, Levy explicitly alluded to a newfound commitment to inorganic growth through acquisitions and in-licensing.

This is more than a casual remark. It's a deliberate declaration of intent, bolstered by a financial war chest of nearly $48 million in cash and no debt. It suggests that BrainsWay, recognizing a favorable juncture in the rapidly evolving TMS market, is gearing up for a bold move.

The question then becomes, where will BrainsWay focus its efforts? Levy's comments provide some clues. He highlighted "very interesting opportunities" in the addiction and neuro spaces, domains where BrainsWay already has a presence but lacks FDA clearance in the United States.

Potential Acquisition Targets

Hypothesis 1: The Addiction Gambit

For several years, BrainsWay has been actively seeking a U.S. partner for its smoking cessation helmet, the H4 coil. Could the company be growing impatient with the sluggish progress? It's plausible that they're aiming to acquire a company possessing an established sales force and regulatory expertise in the addiction field, circumventing the need for a partner and expediting their entry into this lucrative market.

Imagine BrainsWay acquiring a company like Pear Therapeutics, a digital therapeutics company specializing in substance use disorders. Pear already has FDA-cleared products for opioid use disorder and chronic insomnia, providing a solid foundation for BrainsWay's H4 coil. This move would establish a TMS powerhouse in the addiction space, merging cutting-edge technology with proven digital therapies.

Hypothesis 2: The Neuro Expansion

BrainsWay's recent publications on Deep TMS in Parkinson's disease and late-life depression underscore the company's aspirations beyond its core MDD and OCD indications. These publications demonstrate the potential of Deep TMS in extensive, underserved patient populations.

Rather than undertaking protracted and costly FDA trials for each neuro indication, BrainsWay could acquire a company with existing neurology-focused products. This would enable them to leverage their Deep TMS platform for immediate commercialization in these new markets.

Consider a hypothetical acquisition of a company like Neurolief, also based in Israel. Neurolief has developed a non-invasive neuromodulation device for treating migraine and neuropathic pain. BrainsWay could integrate Neurolief's technology into their platform, offering a comprehensive suite of neurological treatments and establishing themselves as a leader in this rapidly expanding sector.

Financial Performance

Revenue and System Placements

BrainsWay's aggressive growth targets – 16% to 26% revenue growth in 2024 – suggest that organic growth alone may not suffice. To attain these ambitious goals, the company needs to penetrate new markets and harness its technology for broader applications.

The steady growth in their installed base, averaging 50 to 60 systems per quarter, signifies consistent organic growth. However, a significant revenue surge necessitates a bolder strategy. An acquisition, particularly one with recurring revenue streams, could provide the requisite impetus to propel BrainsWay toward its 2024 targets.

Conclusion

BrainsWay's first-quarter earnings report is undeniably impressive, but the most compelling aspect lies in the subtle shift toward inorganic growth. The company is poised for a strategic pivot, potentially through a major acquisition or in-licensing agreement. This maneuver, fueled by their robust financial standing and ambitious growth objectives, could significantly reshape the TMS landscape and solidify BrainsWay's position as a dominant force in the field.

"Fun Fact: The inspiration for BrainsWay's Deep TMS technology originated from the physics of magnetic levitation trains. Avner Hagai, the company's founder, was captivated by the ability of magnetic fields to generate precise, non-invasive forces. This fascination led to the development of Deep TMS, a technology that utilizes magnetic fields to stimulate specific brain regions with exceptional depth and precision."