September 26, 2008
Dow Jones Venture Wire Alert
Staff Reporter

The next fitness craze might not involve any diets, muscles or sweat. Instead, the gray and white matter in our heads could be doing the workout.

If several venture-backed start-ups have their way, people will be flexing their brains using special software that can improve memory and other mental tasks. Companies like Dakim Inc., Lumos Labs Inc. and Posit Science Corp. are stepping out with brain-fitness products, encouraged by research that suggests computer-aided exercises could help stave off the onset of mental conditions like dementia or even Alzheimer’s disease.

But for these companies looking to appeal to an aging baby boomer population and others hoping to boost brain power, they must validate their products’ effectiveness in order to make money in this market.

“Nobody’s really tested yet if playing games or cognitive exercises can proactively delay Alzheimer’s,” said Michael Scanlon, co-founder of Lumos Labs. “I don’t feel comfortable saying, “Play this game to put off the effects of Alzheimer’s.”

Lumos Labs and others are hoping to draw from the success of Nintendo Co. Ltd., the current market leader with a gaming product called “Brain Age.” The company, which sells two versions of the game for its portable DS platform, sold 11.8 million units total of the two versions during the fiscal year ended in March 31. While Brain Age’s activities are based on the work of neuroscientist Ryuta Kawashima, who first published a popular brain-training book in Japan in 2003, Nintendo does not claim proven scientific effects for its products.

In part because of Nintendo’s influence, brain-fitness industry research group SharpBrains sees the most growth for this industry in the consumer sector, followed by health care, according to a report published in March. SharpBrains expects U.S. revenue in this space to grow from $225 million in 2007 to about $2 billion by 2015.

Different Approaches
On the lower end of the market is San Francisco-based Lumos Labs, which is marketing online games to consumers for a subscription fee of $10 per month. The company launched its site,, broadly to consumers in June 2007, and serves an undisclosed number of consumers nationally. Its customers include children, starting from about nine years of age, to the elderly, with concentration of customers in their 20s and 30s.

Lumos Labs took in a $3 million funding round in May co-led by FirstMark Capital and Norwest Venture Partners to enhance its products and games as well as for continued research. Lumos Labs’ games target different areas of cognitive function through a variety of activities such as name recognition, symbol matching and virtual bird watching that tests visual attention. Scores keep track of performance for each activity and how an individual player improves over time.

Another company targeting consumers, as well as retirement communities and adult education programs, is Posit Science, which was founded in 2003 using the science of brain plasticity research pioneer Michael Merzenich, previously the founding chief executive of early market entrant Scientific Learning Corp. That company, which raised $27 million from venture backers before going public in 1999, is a shareholder in Posit Science after initially licensing technology to the company.

San Francisco-based Posit Science, backed by more than $30 million from Aberdare Ventures, Draper Fisher Jurvetson, Dupont Capital Management and VSP Capital, provides software for both PC and Macintosh computers ranging from $295 for one-person to $395 for two-person packages. The company’s two products include an auditory processing program named Classic, which works to gradually build auditory processing skills, and a second visual processing program called InSight that aims to strengthen observation skills by simultaneously presenting a series of visual stimuli.

Since launching in January 2006, Posit Science has sold to hundreds of thousands of customers, according to Zimman. One of those customers, Anna Catalano, a former head of marketing at BP PLC who serves on the boards of several publicly traded companies, said she doesn’t have to write as much down after using the program for a year and a half. “With each module, you have a moment where you realize this is actually helping you,” said Catalano, 49, who was inspired to pick up her own brain fitness practice with Posit’s classic software after her father’s stroke led her to discover new brain fitness research.

On the higher end of the market is Dakim, which is backed by Galen Partners and sells a brain-fitness software device directly to more than 170 senior living communities nationally. The device, called mPower, sells for $5,995, though the company plans to sell a consumer version for $2,995. MPower consists of a large touch-screen monitor. Each activity aims to exercise several cognitive categories at once, such as answering a series of questions after a presentation on celebrities or a trip to the grocery store.

When Dakim founder and Chief Executive Dan Michel’s father was suffering from Alzheimer’s disease for more than 12 years he regularly did activities with him like playing cards to boost his awareness. The more his father did those activities, Michel said, the greater improvement he saw in his father’s condition.

“I noticed immediately changes in his attention and mood,” said Michel, who got the idea for Dakim’s technology from that experience.

Proving efficacy
While there is lots of anecdotal evidence that brain-fitness software appears to improve cognitive ability, research on the health benefits is still inconclusive. So companies in this space have a unique challenge in convincing customers that these exercises have long-term benefit.

Dakim’s Michel points to early evidence such as a University of Kentucky study on 678 nuns that showed that keeping active could delay the onset of conditions like Alzheimer’s. To Michel, that means that a technology like Dakim’s mPower could have potentially pushed out the effects of his father’s Alzheimer’s for ten years.

“What the cognitive reserve allows you to do is essentially put a stop to the debilitating symptom, which is dementia,” said Michel, whose company continuously works closely with its scientific advisory board.

Other companies, meanwhile, like Posit Science and Lumos Labs, are pursuing clinical studies to prove the medical efficacy of their products, though they are not required to prove anything to the Food and Drug Administration prior to marketing.

Posit Science has conducted 30 studies of its technology on its own, Zimman said, most recently a study on breast-cancer patients who had undergone chemotherapy. After 19 women used the technology for 40 hours each, 94% of the participants showed positive benefit, according to the company. Posit Science plans to also use its technology for applications ranging from Iraq war veterans, schizophrenics, AIDS-related dementia and advanced Lyme’s disease, among others. That science today is what helps set the company apart from the rest, investors said.

“We know we have something that works because we’ve done control blinded trials,” said Aberdare Managing Partner Paul Klingenstein, who has used the visual application to strengthen his skills as a pilot. “We expect that will make a difference in the market place.”

Lumos Labs, meanwhile, is working with third parties including universities to handle the trials of the company’s product, Scanlon said. Most recently, Lumos Labs has begun working with a researcher at Stanford University involved with child cancer survivors who have undergone chemotherapy. And while the company also plans to address multiple treatment areas with its product, Scanlon is reluctant to make claims beyond what science can currently prove.

If these companies can sort out the clinical trials, they may begin to attract more customers and show the success needed to generate returns for their investors. SharpBrains co-founder and Chief Executive Alvaro Fernandez said the firm doesn’t expect to see many IPOs in this space but instead acquisitions by education or health care companies. “It will probably take two or three years,” Fernandez said. “This is a small category for the bigger players to take seriously.”

But backers of companies like Posit Science still see their companies achieving the status of an independent public industry leader, investors said.

“We’re trying to stay independent as long as we can,” said Draper Fisher Jurvetson Managing Director Steve Jurvetson, with future strategy possibly including the pursuit of an FDA approval using its research or aggressively going for the consumer market. “These are questions where we sort of have an embarrassment of opportunity.”