Helius Medical Technologies, Inc.

Thank you all for standing by, and welcome to the Helios Medical Technologies Q3 2021 Earnings Conference Call and Webcast. Please note that all lines will be in listen-only mode until the question-and-answer session of today's conference. Please also note that today's call is being recorded. I'll now turn the call over to your host, Judy DiClemente. Ma'am, you may now begin.

Thank you, Jesse. Welcome to the Q3 2021 Earnings Conference Call for Helios Medical Technologies. This is Judy DiClemente of Insight Communications, Investor Relations for Helios. With me on today's call are Dan Andrews, Helios Medical's President and Chief Executive Officer, and Jeff Matthiessen, Chief Financial Officer. At this time, all participants have been placed in a listen-only mode. Please note that this call is being recorded and access to the webcast can be obtained through the investor section of the Helios website at www.heliosmedical.com. Before we begin, I would like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on the current expectations of management. These forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including those identified in the risk factors section of our most recent annual report on Form 10-K and quarterly report on Form 10-Q. Such factors may be updated from time to time in our other filings with the FCC, which are available on our website. All statements made during this call are as of November 10, 2021. We undertake no obligation to publicly update or revise our forward-looking statements as a result of new information, future events, or otherwise, except as required by law. I would now like to turn the call over to Dane Andrews, President and Chief Executive Officer of Helios. Dane?

Thanks, Judy. And welcome, everyone, to the Helios Medical's third quarter 2021 earnings conference calls. It's an exciting time for the company as we head toward Q1 2022 commercial launch of our PONS therapy for gait deficit due to mild to moderate symptoms of multiple sclerosis. With approximately 1 million Americans suffering with MS, there is a high unmet need, and PONS is the only medical device for this indication approved in the United States. A few days ago, we received market authorization from the Australian Therapeutic Goods Administration, or the TGA, for the sale of PONS as a Class 2A medical device. We have since confirmed the authorization is for short-term use by healthcare professionals as an adjunct to therapeutic exercise programs to improve balance and gait. And this is the broadest possible scope. We are thrilled that we will be able to introduce this groundbreaking therapy to patients in Australia who need to improve their balance and gait. We'll now begin pursuing the pathway toward commercialization in Australia with the objective of leveraging it to help fund our US commercialization launch. Earlier this week, we announced the launch of our Therapeutic Experience Program, or TEP, with NYU Langone Health as the first of 10 to 12 planned centers of excellence. The TEP study is designed to assess adherence to the portable neuromodulation stimulator, PONS, therapy in patients with multiple sclerosis and will go a long way toward helping Helios and clinicians assess patients' adherence to the PONS therapy in advance of commercialization. We also expect these centers to be among the first commercial sites to offer PONS. For those who may be new to HeLaS, let me provide some background on this innovative therapy that we believe has the potential to improve dynamic gait and balance deficits across a variety of indications. First, PONS stands for portable neuromodulation stimulator. It is the first and only patented therapy combining trigeminal nerve neurostimulation via the tongue with physical therapy to reduce symptoms of neurological disease or trauma. The pond's mouthpiece electrodes stimulate the tongue's surface, sending signals to the brain. This stimulation is believed to help strengthen the neural connections associated with balance and walking when combined with physical rehabilitation. The mechanism of action works through neuromodulation or the modification of the nervous system by targeted stimuli. PONS is designed to induce translingual neurostimulation, that is, trigeminal nerve neuromodulation via the tongue. The device delivers 25 million pulses per 20-minute session. To the patient, it feels like champagne or carbonated water bottles, water bubbles. Another advantage is that there's no procedure or implant involved with PONS. it simply sits on your tongue. Gait deficit is a disabling condition impacting the function, independence, and quality of life for people with MS. And until now, non-pharmaceutical interventions have had limitations. In subjects with gait deficit due to mild to moderate symptoms of MS, 14 weeks of PONS therapy has shown significant gait improvement, compared to physical therapy alone, meaning it's both safe and effective. You can see why we're excited about this groundbreaking therapy. I'll provide more color about our prelaunch strategy, including TEP in a moment, but first I wanted to share another piece of exciting news. In August, PONS was granted a second FDA breakthrough designation, this time for the treatment of dynamic gait and balance deficits resulting from a stroke. This is a significant milestone for Helios, as an estimated 7 million Americans suffer from stroke complications, and that's seven times the number afflicted with MS. Let's take a minute to cover these highlights in more detail. As I mentioned, we plan to bring PONS therapy for treatment of MS-related gait deficits to the market during first quarter 2022. Our commercial efforts in the U.S. will focus on raising awareness upon therapy by engaging three primary audiences. First, neurologists and other physicians who may prescribe our therapy. Second, personnel at key neurorehabilitation centers where likely patients will be treated. And third, MS patients themselves through information campaigns and social media. An important launching pad for commercialization is our therapeutic experience program, or TEP, which I mentioned at the start of this call. TEP is an open-label, interventional, observational, outcome research study, which will be conducted at 10 to 12 centers of excellence, beginning with NYU Langone Health, one of the nation's premier academic medical centers, and Dr. Lee Chevret. In addition to NYU, we plan to partner with neurologists and neurorehab centers, which identified as having the greatest potential to be early adopters of our technology, and initial efforts will focus on the 10 states that comprise more than 50% of the targeted MS patients. Through TEPP, we can establish the relationship between patient's adherence to PONS therapy program, which combines the PONS device with a 14-week physical therapy program and functional improvement. In addition to informing the commercial launch, TEP will enable key opinion leaders in the management of MS to build their knowledge of PONS therapy. We expect to treat 50 to 60 patients in our study. Our other pre-commercial activities, including building inventory, finalizing our distribution model, identifying and onboarding neuro-rehab clinics currently treating MS patients, creating patient access programs, and engaging with KOLs and potential strategic partners. During the quarter, we introduced U.S. PONS treatment website, ponstreatment.com, to expand our online resources for U.S.-based clinicians and patients. We'll also be presenting at several conferences, including ACTRIM, which is the America's Committee for Treatment and Research in Multiple Sclerosis in February 2022, and which is the American Academy of Neurology in April, and then finally the CMSC, the consortium of multiple sclerosis centers in March. We will launch in the U.S. with cash pay customers first while actively pursuing coverage under commercial and government reimbursement programs. Last quarter, we mentioned that we hope to obtain Medicare coverage for our PONS therapy in the United States through the proposed Medicare coverage of the innovative technology or the MSIT rule. which was due to go into effect in December and had the potential to provide FDA-designated breakthrough medical devices and expedited pathway to obtaining nationwide Medicare coverage. On September 15th, CMS published a proposal that would repeal the MSIP pathway. A 30-day comment period was part of the proposal, and while we will continue to monitor this We also remain focused on building out our reimbursement strategy for both commercial and government payers. We are also engaging with commercial payers to establish PONS pricing in line with pricing for comparable devices used in the neurorehabilitation space. Turning now to a brief update on our commercial activities in Canada. Following a period of increased restrictions due to a spike in COVID cases, we are pleased to see Canada making progress toward recovery. An important market in its own right, commercial activities in Canada greatly inform our U.S. commercial launch, providing valuable insight about the PONS therapy. In Canada, PONS is authorized for the treatment of gait deficit due to symptoms of MS, and chronic balance deficit due to traumatic brain injury. We have now established 36 clinics throughout the country of Canada. As excited as we are about the commercialization of ponds for MS in the U.S. and Canadian markets, we see an even bigger opportunity for stroke patients. Of the estimated 7 million Americans who suffer from the physical effects of stroke, 80% experience gait impairment. With breakthrough designation now granted, a pivotal trial of PONS therapy in stroke patients is planned for second quarter 2022 with the aim of obtaining clearance and a second indication. If approved, we are targeting launch commercially during the first half of 2024. With that, let me turn the call over to Jeff to discuss our third quarter financial results.

Thanks, Dane. It is a pleasure to be with you today. Total revenue was $109,000 for the third quarter of 2021 compared to $131,000 in the third quarter of last year. Product sales in the third quarter of 2021, however, increased sequentially by $39,000 from the second quarter of this year. Revenue in both periods was driven by sales to neurotherapy clinics in Canada that have been authorized to provide our PONS therapy and remain impacted by the significant business disruption in Canada related to the COVID-19 pandemic, as well as temporarily reduced COVID pricing. For the third quarter of 2021, our gross profit decreased to $23,000 versus 109,000 in the prior year, driven primarily by overhead costs, including wages and salaries of employees involved in the management of supply chain. Operating expenses in the third quarter of 2021 increased by 0.6 million or 17% year over year to 4.4 million. Expenses during the quarter of the current year included $900,000 of one-time severance costs related to our former chief operating officer, including $500,000 of non-cash expenses related to the acceleration of vesting and the extension of the exercise period of options outstanding. Operating expenses other than these one-time charges were $3.5 million during the current quarter. Operating loss for the third quarter of 2021 was $4.4 million compared to $3.7 million for the prior year period. We reported net loss for the third quarter of 2021 of $4.7 million or a loss of $2.01 per share, basic and diluted, compared to net loss of $3.5 million or a loss of $2.70 per basic and diluted common share for the same period last year. Turning to a discussion of our balance sheet condition and recent financing activities, our cash burn from operations for the first nine months of 2021 was approximately $9.9 million, compared to $9.6 million during the first nine months of 2020. Current year cash burn added $3.2 million during the third quarter. As of September 30, 2021, we had $4.7 million of cash compared to $3.3 million as of December 31st of 2020. We also had $14.4 million available under our equity line of credit with Lincoln Park Capital, subject to terms and conditions therein, ensuring a source of equity capital if and as needed, which could greatly extend our cash runway. We had no outstanding debt obligations in either period. This morning, the company announced the pricing of a $9.6 million underwritten registered public offering, which is scheduled to close this Friday, subject to customary closing conditions. Shortly before this call, we received notice of the underwriter's intent to exercise the over allotment option in full. which will add another $1.4 million in gross proceeds. Following the closing, this brings our September 30, 2021 pro forma cash balance to $14.5 million. Looking ahead, while we expect our Q4 expenses to sequentially increase in connection with our pre-commercialization activities, we will continue to maintain a disciplined approach to spending while evaluating options to strengthen our balance sheet and support our operations, including our U.S. commercialization efforts. Turning to our outlook, until we are able to better assess the impact of the loosened COVID restrictions in Canada, we are not currently anticipating fourth quarter revenues to be significantly different from third quarter levels. As Dane mentioned, we expect to begin our commercialization in the U.S. during the first quarter of 2022, and therefore do not anticipate any revenue from sales of ponds in the U.S. during 2021. In terms of operating expenses, we expect fourth quarter 2021 to reflect the incremental investment related to our pre-commercialization activities as we prepare for U.S. commercialization. With that, operator, Let's now open the call for questions.

Participants, we will now begin the question and answer session. As a reminder, you may press star 1 from your telephone keypads to ask a question over the phone. Otherwise, you may press the pound key to withdraw your request. Speakers, our first question is from Joe Gomez of Noble Capital. Your line is now open.

Good evening, Dane and Jeff.

Good evening, Joe.

So I wanted to start out here maybe, Dane, to provide a little more color. You talked about the therapeutic experience that you're just starting up here. We're going to be at 10 to 12. You've got the one, Langone. You're going to begin enrollment late in the fourth quarter. I think you said 50 to 60 people. but you're still looking at a first quarter 22 commercial launch. And I just wonder if you can kind of walk us through the process of why you still think the 1Q22 commercial launch will occur if the study really is not going to start until sometime in the first quarter.

Yeah. So, again, the TEP experience program is there. to really expand MindShare with these MS experts like Dr. Lee Chevret at NYU. It's there to not only expand MindShare, but to educate them on the PONS therapy. So, you know, what we'd like to do is start these patients in these sites, these centers of excellence, and, you know, our team is preparing students you know, and we've always stated that we would launch in the first quarter. So with this new program, it really is an adoption study that we're offering to these MS experts to bring them along to show them, you know, how great our PONS therapy is for their MS patients. And we really are confident that commercialization, you know, in these sites and in these centers of excellence will progress not only in the first quarter but for the full year. So it is a very targeted launch that we're starting out with.

Okay. And it sounded on the call, and I want to put words in your mouth that, you know, the Medicare coverage under the MSIT rule is really looking like it's not going to happen. So how far advanced are you with other ways of getting insurance coverage? Who are you talking to for insurance coverage for the product?

I'm going to hand that one over to Jeff at the moment.

Yes. Hi. So as far as, uh, you're saying, um, targeting, uh, the insurance companies to pay for it, is that I didn't catch that question.

Yeah.

Yeah. So initially, go ahead.

I was just going to say, um, you know, just, it looks like, you know, getting coverage under M set is not going to happen here from, from what I'm reading. Um, and so just trying to figure out, You know, where are you guys in the process? Who are you talking to? How far along are you? What do you need to do or prove to the insurance companies in order for some of them to give you coverage?

Yeah, okay. Thank you. So it'll be, you know, basically, you know, we'll be going out on a cash pay basis. And with the experience that we get from both the TEP program and with those patients that are on cash pay, It'll be, you know, kind of case-by-case basis going to carriers, third-party carriers looking for reimbursement. And, you know, we'll initially target regional third-party payers and then, you know, looking to expand from there. And so as we go out through the year, it's going to take some time to build the data that we can bring to those payers to get reimbursement. And it's just a process that plays out over time. And so we're expecting by the end of the year to have some regionals signed up and then into next year getting national payers and by then also looking to get CMS to reimburse us for Medicare patients.

Okay, thanks for that. Maybe you could give us a little more color on the Australian market. Can you size it for us? Again, it's cash pay first, the same model, cash pay first, insurance later. What's kind of the timing there in terms of getting a commercial launch there?

Joe, it's early. We just received authorization from It's the broadest label you could receive. It's for balancing gait deficit. There's no indication attached. So you could basically use this. It would be up to the neurologist, the caregiver, the neurophysical therapist. So there's 30 million people that live, roughly 30 million people that live in Australia and about 35 million in Canada. So, you know, in Canada we have two indications, both MS and traumatic brain injury. But if you think about this label, it's not only for MS patients with gait deficit or traumatic brain injury with balance and gait deficit. It's also for stroke, cerebral palsy, potentially Parkinson's disease and the like. So it's actually a much larger market than Canada

Because of the label that we did receive from the TGA Okay, and one more if I may You know today's announcement about the raise I was just wondering if you could kind of walk me through your thought process and I'm looking at a chart of the company and on a price chart, and the stock's never traded as low as $8. And, you know, we were in the middle of last week. It was at $14, started to slide back some, and then it got priced at $8, which just seems to be a fairly significant discount to where the stock was trading. So I was wondering if you could kind of walk us through your thought process as to why that price was chosen.

Yeah, go ahead, Jeff. You can start.

Right. So, as you're probably well aware, the price that was chosen is dictated by the investors coming into it. As you said, it's traded pretty nicely over the last year, been fairly steady, but we have very little liquidity. And so... as we look to bring in institutional investors, name institutional investors, fundamental ones, we wanted to have a straight stock offering. And so we went out to basically looking at the future, making sure that we have a cash runway that allows us to go through commercialization and And, you know, at the end of the day, when you're doing a financing like this, you know, it's our investors that set the price. And, you know, we needed to consider, you know, what we need from a cash standpoint. And we see a huge opportunity out there. And, you know, this is, you know, a price of getting from here to there.

And just to continue that, this was our first clean just stock-only deal after the last three deals had either a half warrant or a full warrant attached. Second, we feel we brought in a whole new group of healthcare institutional investors into the this deal as well. So the investor group, we believe, was much stronger. Third, again, like the last two financing rounds, I personally invested in this round as I also bought stock in September in the open market at a much higher price up in the 14 range. So As you can see, Joe, I'm a big believer in keeping our head down, keep hitting our milestones, and I believe our launch into next year and our pivotal trial into stroke will provide investors optimal value for their stock.

Thanks for that insight. Much appreciated.

And Joe, just if I may go back to your first question. And, you know, one thing I didn't mention in there is that, you know, we obviously as we go out there, there's no really no other device out there like ours. And so, you know, initially we'll have a generic code, but we are looking at getting HCPCS code set up as well. And we've, you know, that's something that's been in process. And we've got some activities around that set up here in the fourth quarter. And if all goes as expected, April 1st, shortly thereafter, we'll have HCPCS code that we'll be using until we get something approved beyond that.

Thank you.

Thank you, participants. I'll now turn it back over to Dane Andree for closing remarks.

Dane Andree Thank you, operator, and thank you, everyone. Receiving our second breakthrough designation from the FDA for PONDS is a significant accomplishment for Helios, our team, and our stakeholders, as was the market authorization from the TGA, the Australian Therapeutic Goods Administration. With multiple validations of our innovative technology, we are looking forward to the U.S. commercial launch and furthering our studies of PON therapy in stroke patients. Internally, we have strengthened our leadership team and are well-positioned to execute our plans. Our platform technology has the potential to help a large population across a variety of indications, including MS, stroke, Parkinson's disease, cerebral palsy, and traumatic brain injury. We continue to believe in our ability to unlock the full potential of neuromodulation and become the standard of care for gait deficit in the U.S. and Canada while bringing value to our shareholders. Again, thank you for your time today and for your interest in Helios Medical Technologies.

That concludes today's conference call. Thank you all for joining. You may now disconnect.