Fisher Wallace Laboratories is raising on a valuation of $40 million with no discount. This remarkably high valuation is a reflection of the company’s early and impressive success in revenue and market access, as well as its access to a manufacturing process that has significantly reduced operating costs. The valuation in this raise is a significant step up from their last raise, where their valuation sat at $15 million. Despite this increase, the company has faced significant operational challenges over the past year, resulting in a decline in revenue, and the technology has yet to be definitively proven.

The U.S. healthcare market is an absolutely massive one. The United States spends 17.8% of its GDP on healthcare for its residents, more per capita than any other country. This comes out to an estimated $2.48 trillion in revenue in 2019. Fisher Wallace Laboratories’ total addressable market (TAM) is somewhat smaller, but still quite large. The U.S. mental health market is sitting at $18.1 billion in 2020. Global revenues from antidepressants alone were around $14.1 billion in 2017 and are projected to reach $16.0 billion by 2023. Assuming that Fisher Wallace’s ongoing clinical trials result in FDA approval, the company may be able to start carving a sizable chunk out of this market. The company has expanded its market access beyond the U.S., getting over-the-counter approval for the product in Europe. Additionally, the planned expansion into data analysis and digital support verticals could expand its TAM.

The COVID-19 pandemic may also expand the health care market significantly, as restrictions on movement and financial strain lead to more mental health problems in the U.S. and worldwide. The neurostimulator is relatively cheap compared to long-term drug courses. It is also simple enough to operate that it can be shipped to consumers and used without professional monitoring, Fisher Wallace is well-situated to adapt to economic and logistical challenges posed by the global pandemic. 

Fisher Wallace is led from the top by Kelly Roman and Charles “Chip” Fisher, who co-founded the company in the late 2000s. Both are graduates of Harvard University. Roman, CEO, has served as an executive in digital advertising and SaaS industries and brings a level of business savvy to his role. Fisher — who acquired the technology’s intellectual property and serves as chairman — is the son of Avery Fisher of Fisher Radio. He has built on that lifelong familiarity with electronics manufacturing. They make for a solid leadership team with a good track record overall as well as relevant industry experience.

Fisher Wallace is unusual for a startup, in that it was taking in revenue even before its initial raise. It also holds patents for its Stimulator, which has FDA-clearance ahead of its approval. This heightens barriers to entry for possible competitors. With the release of Version 2.0, Fisher Wallace plans to expand their offerings with digital support services and data analytics.

While seven forms of Transcranial Magnetic Stimulation, or TMS, have been FDA-approved ahead of Fisher Wallace for similar effects, Fisher Wallace’s device is simple enough to be used directly by consumers at home. This distinction allows them to appeal directly to potential patients, which is simply not possible for manufacturers of more complex devices. Fisher Wallace’s Stimulator also shows improvement on patients with insomnia and anxiety, while TMS devices do not. Overall, Fisher Wallace’s product is well-differentiated at this time.

In the long term, Fisher Wallace has seen tremendous progress for a startup, securing necessary patents and starting up a reliable revenue stream. The company has $23.3 million in lifetime revenues through sales to more than 60,000 patients. The securing of cheaper manufacturing processes also bodes well for future profits. It must be noted, however, that the company has faced operational challenges recently, which cut revenue down from $4.7 million of net revenue in 2018 to $3.9 million in total revenues in 2019. Fisher Wallace will need to obtain full FDA approval for its devices in order to make up for these losses and keep growing.

Investors should bear in mind that, as of this writing, Fisher Wallace has yet to secure FDA approval for its technology. It still needs to complete its three clinical trials — while early studies have been promising, the technology is technically unproven. This means that, for now, health insurance does not cover the product — a significant obstacle to cash-strapped consumers. Should clinical trials uncover previously unnoticed side effects or a lack of effectiveness, FDA approval could be withheld, effectively tanking future sales and cutting into current revenues. Even effectiveness levels significantly lower than the preliminary results of 70% effectiveness may cut into product sales, given the availability of clinic-based TMR products that achieve similar results. The trials, for which Fisher Wallace has partnered with ProofPilot, are still ongoing, though we may see the depression study completed by the end of November.

Investors should remember that the company saw a decline in revenue last year which, while not disqualifying, is a concerning sign for an emerging technology company. Pending FDA approval and revenue declines are both risks that investors should be aware of.

Fisher Wallace already has a record as a proven medical technology company and is on track to build on its early successes to deliver massive profits in the coming years. Clinical depression, insomnia, and anxiety are common maladies across the developed world. With an FDA-approval pending, the Fisher Wallace Stimulator may soon be offered to consumers across the U.S. as a cheap (insurance-covered) and more effective alternative to prescription drugs. As the company develops its Version 2.0 and expands on its offerings with digital healthcare support, it is well-positioned to carve out a slice of the $18 billion mental health care market.

Fisher Wallace Laboratories has been rated a Deal to Watch because of its past and near-future successes, having established an ongoing revenue stream and a reliable product that seems likely to soon acquire FDA-approval. The company has shown an impressive rate of patient-level outreach, selling more than 60,000 units. The Stimulator is simple and easy to use by consumers at home, and its price point is cheaper than expensive prescription drug courses, even prior to FDA approval. The device may also be used in conjunction with traditional therapy and prescription drugs.

Fisher has successfully secured a manufacturing center that will reduce product costs, but as yet have not completed work on Version 2.0 of their product. Future scalability will depend on whether they can meet this milestone and continue to innovate on a user-interface side.

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Analysis written by Benjamin Potts.