Neurotech Insider #2: Precision Neuroscience's CEO Michael Mager on BCI Valuations (and more)

Plus: TMS Perceptions, HIFU vs DBS, Next-Gen DBS, Cryptic Crypto, New Deals, More

Welcome to the second edition of Neurotech Insider, an exclusive monthly digest handmade for founders, investors, and leaders of all stages and ages.

Before you scroll! I’m looking for input on economic evidence generation for neurotech startups (vendors/firms, costs, design, timelines). If you’ve worked on one and have some expertise, a quick e-mail back & forth would be great. TY!

1. Precision Neuroscience’s CEO Michael Mager on BCI Valuations

I had the pleasure of a recent discussion with Michael Mager, co-founder and CEO of Precision Neuroscience. It is briefly excerpted below.

This is a paid newsletter, but I’m making this first section available to all Neurotech Futures subscribers because with new BCI companies emerging on a weekly basis, understanding the scale of human impact behind these valuations will become more important for all leaders in the field. Here’s Michael.

What did you learn from your recent Series C fundraise?

This is an industry that is definitely gaining investor interest and traction, and that was much less the case when we started Precision in 2021. The amount of understanding and interest is significantly greater today than it was three or four years ago. I interpret part of that as a result of all the foundational work that's been done over the course of the past two decades in academia, and then even in the private sector, there's been a lot of preparatory work. Now BCI is actually starting to hit the clinic, where we have the early feasibility study from Synchron, the first in-human from Neuralink. We've now done 28 implants at Precision.

So you're not reading about this amazing technology that is on the horizon. You're now starting to get to a point where BCI technology is actually starting to make an impact on people's lives. I think that that is important for investors, just in terms of the timeframe for their investment, but also, seeing is believing. And I think Neuralink has done a great job of popularizing this. Noland is a very articulate advocate for the industry, and they've done a great job giving him a microphone and letting him go. And I think that's been helpful.

How is that guiding you into the new year?

This year we are dialed in on showing the world the capability of the Precision system. First, that means we are hopeful of getting our first FDA clearance in the first half of the year, which will enable us to implant patients, not for hours at a time, like we're doing right now, but for weeks at a time. And so, the amount of data per patient is a completely different order of magnitude. Better data quality, too. We have the highest resolution picture of the awake human brain that's ever been seen. This is incredibly important for what we're building internally. But it's also a huge focus for the company in 2025: How we can share our work in a way that is consumable by the general public.

Let’s talk about that Morgan Stanley Report. I hear from people who struggle to believe the numbers. Many are dismissing BCI as overhyped. How should we think about valuations of BCI companies?

We think that the Morgan Stanley report actually understates the early use case and what the numbers are going to look like. We think it's going to be a $2.5 to $3 billion revenue for paralysis: helping people who can't use their arms and hands by allowing them to control computers with their thoughts. There is a huge increase in quality of life, potentially the opportunity to go back to work, through seamless control of smartphones, tablets and computers.

We think that there are about 400,000 people who fit that description in the United States, and about 30,000 new patients every year. So the stock is 400,000 and the flow is 30,000 a year.

Then the next question is what percent of that group is really going to go for this technology? Adoption rates are really important. We've looked at deep brain stimulation (DBS) and cochlear implants -–both involve elective surgeries that are hugely additive to quality of life, we think they're good proxies for the adoption rates. What you see, especially in cochlear implants, is that people who are newly diagnosed or injured, are much more likely to adopt the technology than the folks who lost function years ago and have learned to live with it. We think that BCI adoption is going to be very similar. So we believe the adoption rate of the 30,000 a year of newly paralyzed people is going to be much higher than the rate of the 400,000 existing people, just in terms of adoption rates. There are dynamics within that as well. For example, we think it's likely that people who have ALS will adopt at a higher rate due to the nature of the condition.

The next critical assumption is, what do companies get paid per device. And here, I think the report is incorrect. There is already precedent for a visual prosthesis–– the Second Sight system, which is the closest proxy to BCI–– receiving $150,000 from CMS, and that was in 2016. If you inflation adjust that figure, that's $190,000 in today's dollars. The systems coming on the market now are generally much more sophisticated and much more expensive to manufacture, than the Second Sight system was a decade ago. Why would the BCI industry achieve less than half of that reimbursement? There are several other medical device examples that have received six figures as well.

So: You take the patient population and the adoption rate to get the procedures per year. We think it's about 18,000 procedures per year for the industry. We think it'll be at least $150,000 per device, and that's how you get to a $2.5 to $3 billion per annum industry. The next question is market structure and multiples, and there we just look at medical device verticals. There are basically two to three companies in each vertical. It's extremely rare for there to be more than three, and it's even more rare for there to be just one. They just tend to be oligopolistic. So maybe there are four in this case, but I think it's two to three more likely, and we intend to be one of them.

Then the last question is what's the multiple? Just look at Axonics, and all the different companies that have been acquired in the past few years. For high growth companies in the space, I'd say it's like eight to 12 times revenue. I just use 10, because the math is easy. So it's a 10 times revenue multiple, which is a software-type multiple. But that's because these are very, very, very resilient businesses. Once you're in market. That means $25 to $30 billion of enterprise value creation shared by two or three companies. So how do we think about it? We think this initial application is going to create a $10 billion company in Precision over the next five, six years, and that has the potential to be like a 20x for investors today.

Your two cents on BCI Valuations?

2. Perceptions: Managed Care & TMS

I asked my colleague (and former boss), a managed care consultant with 20+ years experience in payment policy, about payer perceptions of TMS. It was not particularly revealing, but nonetheless interesting in light of shifting clinical guidelines, new reimbursement models, and other trends,

For context, I shared with him how Independence Blue Cross (IBX) recently (and retroactively) changed their coverage policy for TMS: