BrainCool AB (publ) - Financial Report for Q3 2024

Group
The period in brief

Jon Berg, CEO comments

BrainCool has continued to develop in a positive direction during the third quarter. The business is continuously improving and our clinical studies, COTTIS 2 and PRINCESS 2, which started in the first half of the year, are progressing with the inclusion of new patients.

BrainCool delivered 27 BrainCool™ System during the third quarter of 2024, which generated SEK 8.9 million in sales during the period. Sales included deliveries of single-use cooling pads, which amounted to 2,324 pieces, compared to 2,606 in the second quarter. The lower volume is due to seasonal variations, including holiday periods during the period.

One of our main focus areas is to reduce production costs and increase the production capacity of our single-use products for the BrainCool™/IQool™ System, especially silicone cooling pads, which account for the largest cost item. We have initiated two major projects to improve the manufacturing process.

The first project replaces manual gluing with a gluing robot, which lowers cost as well improves quality and increases capacity. Currently, half of all sizes of the cooling pads are manufactured with the gluing robot. The program has already had some effects in terms of lower costs and an improved gross margin. The gross margin for BrainCool™ System including cooling pads increased from 16 per cent in the first quarter to 20 per cent in the second and to 23 per cent in the third quarter. We expect to see further increase in margins. Please note that the margins for last year are not comparable as there has been accounting changes and a change in the business model which is explained under the section accounting policies in this report.

The second project involves replacing the current method of compression moulding with injection moulding, which enables faster production and reduced rework. We plan to start injection moulding of the first cooling pads before the end of the year. Injection moulding will both lower the production cost and raise the quality of our disposable products.

The two projects will significantly lower cost and gradually improve gross margins over the coming quarters, as existing inventory must be converted before the effects become visible. The positive effects on BrainCool™ System and its consumables´ gross margin is estimated to be more pronounced from the second quarter 2025 with the aim to reach around 50 per cent during 2026.

The production of the BrainCool™/IQool™ System is carried out in collaboration with the Finnish company Scanfil, and our project to increase production capacity has now been completed. We are thus in a strong position to meet our sales forecasts for the coming years. In addition, we are working together with Scanfil to implement further cost reductions, which are expected to take effect at the end of 2025. To take into account any production disruptions during the process, we have built up our inventories to secure delivery capacity for the coming period. Inventories, that amounted to SEK 33 million (SEK 16.3 million) by the end of the quarter, will be reduced to more normal levels in the coming quarters.

The COTTIS 2 and PRINCESS 2 clinical studies started to enroll patients in the second quarter. For COTTIS 2, where BrainCool is the sponsor, we have intensified the work together with our German partner to gradually include more hospitals and increase the rate of intake of patients. In October, two more German hospitals signed agreement to participate in COTTIS 2. After training staff, they are expected to be able to enroll patients before the end of the year. The rate of inclusion is estimated at 2-5 patients per month and per hospital. The aim is to have at least 5 hospitals in the study in 2025. In that case, the first interim analysis in COTTIS 2 will be possible during the second half of 2025.

In the PRINCESS 2 study, which is sponsored by Karolinska Institutet, we continue to support the study with our expertise. So far, 27 patients have been treated, which is in line with Karolinska's expectations.

BrainCool's therapy to counteract oral mucositis during chemotherapy, the Cooral® System, was approved by the US FDA in the end of 2022. We are working to secure insurance compensation from U. S. insurance companies for this treatment. We have also received approval of the application for approval of Cooral® System under the MDR (Medical Device Regulation) in the EU. The process of proceeding to obtain a market approval for Cooral® System is expected to take up to 18 months. As previously communicated, BrainCool is currently considering how the company best can capitalize on Cooral® System.

For the RhinoChill® System, we are actively preparing for future series production and are working to obtain MDR approval.

Our agreement with ZOLL® came into force on April 1 this year. In September, ZOLL® and BrainCool had a joint workshop in Boston USA, with the aim of further promoting the collaboration. The companies continue to agree on gradually increasing deliveries of BrainCool™ System that ZOLL® will order every quarter within our previously communicated distribution agreement of at least SEK 100 million in total order value.

In conclusion, BrainCool is on track to lower cost and improve gross margins. Volumes may vary from quarter to quarter but long-term deliveries to ZOLL® will increase. That will have a positive effect on the result as our projected cost of goods sold will be gradually lower, whilst our sales increase.