Small Caps | May 20 2011
– Brain Resource has world's largest standardised brain database
– Company is targeting offerings for mental health and brain training
– Southern Cross ascribes a Spec Buy rating
By Chris Shaw
Brain Resource ((BRC)) owns the Brain Resource International Database, the world's largest standardised brain database. The database offers substantial utility in diagnosing and managing mental disorders, as well as in maintaining brain fitness.
According to Southern Cross Equities, the database opens up a huge market opportunity in the “brain wellness” space, as evidenced by the release of commercial products such as WebNeuro and MyBrainSultions.
Given this potential, Southern Cross rates Brain Resource as a Speculative Buy, with a price target of $0.85. This reflects the upside from trends in healthcare in the US in particular, where for example e-health is becoming a more important element of the market.
The other attraction for Southern Cross is Brain Resource is pioneering personalised medicine with respect to treating mental health issues. An example here is the soon to be completed iSPOT trial, the largest ever clinical study of treatment response to depression and ADHD.
The iSPOT trial will give medical professionals for the first time objective, evidence-based measures on which to base personalised treatment for these major mental health disorders.
The aim is to identify which drugs would work for particular depression and ADHD patients. The upside is significant, as Southern Cross notes currently only around one-third of depression patients receive the right drug the first time.
With respect to current products, Brain Resource's WebNeuro product allows doctors to objectively and efficiently evaluate the metal health of their patients in a way that healthcare payers will reimburse. At the same time, the product offers improved work flow efficiencies for clinicians.
This makes the product attractive for both the patient and the doctor, Southern Cross estimating WebNeuro is entering a potential market for evaluating depression in the US alone of US$2 billion annually.
MyBrainSolutions is an online and scalable offering for companies, offering “brain training” solutions for employees that help boost productivity. Southern Cross estimates this market is worth at least US$300 million and is growing quickly.
Using base case assumptions Southern Cross generates a valuation of $0.69 for Brain Resource. With rising earnings from WebNeuro and MyBrainSolutions and scope for a big contribution from iSOFT from FY13, a target price above this base case valuation is justified in Southern Cross's view.
The other investment attraction of Brain Resource according to Southern Cross is the company is now profitable and should remain so. This is significant as unlike many other biotech and life sciences companies, Brain Resource is unlikely to need to raise new equity to fund its growth options.
Management is also well regarded, Southern Cross noting the group has significant experience both in Brain Resource itself and in the industry and commerce in general.
Southern Cross is forecasting earnings in earnings per share (EPS) terms for Brain Resource of 0.4c this year and 1.7c in FY12, before a jump to 8.3c in FY13. Comparisons are difficult to find as the FNArena database shows no coverage of Brain Resource.
Brain Resource shares today are higher and as at 11.00am the stock was up 1.5c at $0.315. Over the past year Brain Resource has traded in a range of $0.19 to $0.38.
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