NeuroOne Medical Technologies Corporation

Good morning, ladies and gentlemen, and welcome to the NeuroOne Medical Technologies Corporation fourth quarter 2021 earnings call. At this time, all participants have been placed on a listen-only mode, and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, James Carbonera. Sir, the floor is yours.

Thank you, Operator. And once again, welcome to the NeuroOne Medical Technologies Corporation fourth quarter and full year fiscal 2021 earnings conference call. Today's call will be conducted by the company's Chief Executive Officer, Dave Rosa, and its Chief Financial Officer, Ron McClurg. Before I turn the call over to Mr. Rosa, I'd like to remind you that this conference call will include forward-looking statements within the meaning of U.S. federal securities law with respect to future operations, financial results, events, trends, and performance, which are based on management's beliefs and assumptions as of today's call or other specified date. Forward-looking statements may involve known and unknown risk. uncertainties, and other factors which may cause actual results to differ materially from those expressed or implied by such statements. Here are earnings release and SEC filings for information regarding specific risks and uncertainties that could cause actual results to differ. Except as required by law, we undertake no obligation to update such forward-looking statements. With that said, I'll turn the call over to Dave Rosa, CEO of NORA1. Dave?

Thanks, Operator, and welcome, everyone. During our fiscal fourth quarter, we continue to make great strides in both our development efforts for our therapeutic technologies as well as progress towards commercializing our second diagnostic product, the Evo SCEG electrode product line. As a reminder from last quarter's call, we have FDA 510K clearance for our Evo cortical diagnostic electrode and currently are marketing the product line through Zimmer Biomet as our exclusive distributor. Our EVO cortical electrodes are a portfolio of high definition strip and grid thin film diagnostic electrodes for recording brain activity, stimulation, and monitoring for less than 30 days. Applications include identifying problematic areas of the brain during epilepsy surgery and intraoperative mapping for brain tumors. This product line represents our smallest opportunity as it relies on more invasive surgical procedures than SCEG electrode technology. I mentioned during last quarter's call that we were targeting commercialization of the SCEG electrodes by year-end, pending 510 clearance. We received clearance for implantation less than 24 hours from FDA in September 2021 for similar indications as our EVO cortical product line. At that time, we decided to conduct additional testing to submit to the FDA for extended use for recording brain activity, stimulation, and monitoring for less than 30 days. I'm pleased to confirm that we submitted this application at the end of November and hope to have clearance from FDA by the first calendar quarter of 2022. SCEG electrodes represent the bulk of diagnostic procedures performed today due to their less invasive placement. This product is expected to be used with Zimmer's ROSA robotic platform, as it also is included in our development and distribution agreement. Zimmer Biomet has already begun to place their initial orders for the product, and our manufacturing has begun. If and when FDA clearance for less than 30-day use has been received, the company will begin to fill the orders. As a reminder, the company has the opportunity to receive additional payments from Zimmer Biomet based on meeting certain performance milestones. Moving to our ablation therapeutic electrode system, we had previously reported we were targeting completion of animal feasibility studies in the fourth quarter with the potential to complete the project by the end of calendar year 2022. As a reminder, the system is being designed to both record brain activity and ablate brain tissue using the same electrode. Currently, two separate hospital visits and surgeries are required to treat these patients that have seizures due to epilepsy or brain tumors that contribute to the seizures. Combining both diagnostic and therapeutic functions in one device is intended to save time, money, and contribute potentially to improve patient outcomes. We also previously reported our intent to market both the electrode and radio frequency generator to offer a complete system to our customers. I'm pleased to report that we signed a partnership agreement with RBC Medical Innovations, a recognized leader in the development and manufacturing of electromechanical therapeutic therapies to both develop and manufacture our RF generator. We also successfully completed an animal feasibility study with the assistance of Dr. Robert Gross, a neurosurgeon at Emory University in Atlanta, Georgia. We also continue to make progress on the testing of our electrodes that would be used for chronic recording and or stimulation. This would apply for both or for indications such as mental health, that is OCD, depression, Parkinson's disease, epilepsy, back pain due to failed back surgeries, and other potential conditions requiring a permanently implanted electrode. Our initial focus is to target the spinal cord stimulation market, which currently represents over $3 billion in the U.S. market alone. The company initiated long-term durability testing in the third fiscal quarter and expects to report on the results next quarter. We also continued work on the development of higher definition electrodes that might be useful for current applications as well as artificial intelligence. We have sent devices for testing to the Mayo Clinic and Carnegie Mellon University and look forward to providing additional updates as we receive those results. Another area of focus for the company has been the effort to generate pre- and post-market clinical data to support our technologies. In the third and fourth fiscal quarters, the company presented at the Congress of Neurological Surgeons, the Society for Neuroscience, and the American Epilepsy Society conferences. In addition, we also successfully completed an equity financing with gross proceeds of $13.35 million after our fiscal year end. I would now like to turn the call over to Ron for a more in-depth review of our fiscal fourth quarter and full year financial results. Ron?

Thank you, Dave. Product revenue was $48,000 in the fourth quarter of fiscal 2021 and $178,000 for the full fiscal year compared to no product revenue in the prior year period. Collaboration revenue was $5,000 in the fourth quarter of fiscal 2021 and $65,000 for the full fiscal year compared to collaboration revenue of $1.9 million in the fourth quarter and full year of fiscal 2020. Collaboration revenue for the 2020 periods was derived from the Zimmer development agreement and represented the portion of the upfront initial development fee payment that was eligible for revenue recognition as of September 30th, 2020. Total operating expenses in the fourth quarter of fiscal 2021 were 2.6 million compared with 2.0 million in the same period of the prior year. R&D expenses in the fourth quarter was 1.0 million compared with 0.8 million in the same period of fiscal 2020. SG&A expense in the fourth quarter of fiscal 21 was 1.6 million compared with 1.3 million in the prior year period. Total operating expenses for all of fiscal 2021 were 10.2 million compared with 6.8 million in the prior year. R&D expense for all of fiscal 2021 was 3.9 million compared with 2.1 million in fiscal 2020. SG&A expense for all of fiscal 2021 was 6.3 million compared with 4.8 million in the prior year. Net loss was 2.6 million for the fourth quarter of fiscal 2021 compared to a net loss of 6.6 million in the prior year period. Net loss was 9.9 million for the full fiscal year of 2021 compared to a net loss of $13.6 million in fiscal 2020. As of September 30, 2021, the company had cash of $6.9 million compared to $4 million at September 30, 2020. The cash balance at September 30, 2021 does not include proceeds from an underwritten registered public offering of 4,172,000 shares of its common stock at a price of $3.20 per share, resulting in gross proceeds of approximately $13.35 million received subsequent to year end. The company had no debt outstanding at September 30th, 2021. That concludes my remarks. I'll now pass it back to Dave. Dave?

Thanks, Ron. In looking at the past fiscal year, I want to highlight some of Neuro One's accomplishments. The commercial launch of our first product, the EVO cortical electrode family. 510 clearance of our second product, the EVO SEDG electrodes for less than 24-hour use. Design freeze for the SEDG product line occurred by December 15, 2020, as required for a milestone payment under the Zimmer Biomed distribution and development deal. The appointment of Ron McClurg as CFO, an experienced senior financial executive, and the appointment of Ajaz Harris as Vice President of Marketing, formerly of Medtronic. Completion of a financing for gross proceeds of $12.5 million, in addition to adding prominent institutional investors. A successful NASDAQ uplisting that will help position us to generate even greater interest in the company from leading institutional investment firms across the broader national and international investment community. Partnership with RBC Medical Innovations to develop and manufacture our ablation electrode power source. Successful completion of feasibility study, I'm sorry, of feasibility testing of our ablation electrode facilitated by Dr. Robert Gross at Emory University. Initiation of testing for the company's chronic use electrode platform. Receipt of initial orders for SCEG electrodes from Zimmer Biomet. Establishment of electrode technology development center located in California. Completion of a public offering raising gross proceeds of $13.35 million after year end. In closing, the company made great progress in fiscal 2021 in a wide variety of areas, including commercialization, development, and capital raises, which will allow us to continue to execute our plan with the intent to introduce meaningful advances in electrode technology for a variety of neurological applications. I want to thank you for your time and attention, and operator now will open it up for any questions.

Certainly. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please press star 1 on your phone at this time. We do ask that while posing your question, please pick up your handset, if you're listening on speakerphone, to provide optimum sound quality. Once again, if you have any questions or comments, please press star 1 on your phone. Please hold while we poll for questions. Your first question is coming from Alex Nowak from Craig Hallam Capital. Your line is live.

Great. Good morning, everyone. The resubmission of the depth electrode was around rerunning the bio-compatibility test in saline. Can you just walk through the test results? Did anything stood out to you, or if everything was pretty much just all green light, good to go?

So, everything was within the range of acceptance criteria. Alex, it was a very, very detailed analysis, and that's just for one of the tests. One of the tests was and extraction test where they analyze any substances that are found in solution while the electrode is placed there over a 30-day period. And the report just for that analysis was just about 140 pages. So our biocompatibility expert, who's a former FDA biocompatibility reviewer, said to me, it was actually the day after Thanksgiving, he said, you know, I'm working with a number of companies now, and I asked him, I said, are there any weaknesses that you see or any potential areas of risk? And he said, of all the companies that I'm working with, you're the only company that had clean data. And he's generally a pessimistic guy, you know, an under-promise, over-deliver individual. So I was really happy to get that feedback from him.

No, that's very good to hear. Maybe just on the conversations you've had now with the FDA since submitting the, you know, recently in the 510K back here, if I remember correctly, should be a special 510K, so a 30-day review clock. You know, have you had any conversations with the FDA? I know the FDA is backlogged, so I think your commentary around expecting approval Q1 2022 makes sense, but just, you know, any update with the FDA or Yeah, around that.

Sure. So the FDA has gotten back to us and notified us that they don't require any additional information from us, that the submission was complete with really everything that they were looking for. So that's the good news. And they did tell us and express a desire to get back to us before Christmas, but I think they were a little surprised by the amount of information we submitted. Just maybe taking a step back, the FDA had actually given us an option or a few different options as to how to address the submission for less than 30-day use. And actually, one of them was to simply make an argument as to why we shouldn't have to do additional testing. And we felt that was very high risk and actually conducted a couple of the tests that they recommended, which were very robust test to really demonstrate that the product would meet those biocompatibility requirements. And we were very confident in that, honestly, going into it. So where things stand now is they told us that they've already started the review and, again, would like to get back to us before Christmas. So, you know, given how things are backed up at the FDA, You know, my feeling is that hopefully, you know, we'll get feedback before Christmas. And given that, you know, there was nothing else they were looking for from our submission, you know, I'm still hoping that we hear before the end of the year. But it's probably, you know, just given the environment today, more likely that, you know, it will be in January. But, you know, we'll wait and see. The good news is it's complete. They had no additional requests, and they've already started the review, and they are prioritizing this according to our communication with them.

That's great. That's good to hear. Maybe expand on Zimmer's launch plan once the depth electrode is approved. Just what has been the initial response from the neurocenters that Zimmer has already reached out to? And just given the initial stocking orders, how are you thinking about upon a full commercial launch here with ROSA-1? Just how you think about ordering patterns going forward?

Yeah, so that's a fair question. I think we've been definitely encouraged by the fact that, without going into details, that Zimmer has been increasing their forecast ahead of launch. I think we've mentioned before that they also, as part of our agreement with them, are providing accessories. that will allow our electrode to be used with their robot. So once those accessories are ready and we have clearance from FDA to ship the product, the process will begin. So it's really waiting on FDA and ensuring that, you know, they have enough inventory and they're ready with their accessories. So in terms of enthusiasm, there's a great deal of enthusiasm. a tremendous amount of planning, especially compared to the cortical launch, which, uh, you know, we were just about done with the product. It was very late in the game. And then, uh, we got clearance and they had the launch. So there wasn't the preparation time that they have now. And, uh, um, they are spending a lot of time and, uh, have, have invested, um, a lot of, I'm assuming dollars as well as personnel to really ramp this up as quickly as possible. Now, all that being said, you know, as a company, I've always run into in these launches making sure that, you know, we walk before we run. So you never want to get into a situation where you launch the product to every center and then find that there's something unexpected that occurred. That's just a matter of practice. There's expected to be a limited launch initially, but Zimmer really would like to ramp this up as quickly as we're able to provide additional products. As far as ordering patterns, it's been a little irregular because they keep increasing the quantity. remains to be seen, you know, if that will continue, you know, throughout this year or next year. Yep.

Okay. And then just two more questions. Can you walk through the necessary actions to get FDA approval of the ablation electrode and then just what are the key items to watch there?

Yeah, so we're planning on having a pre-submission meeting with them to get further clarification on the – So I think we've discussed before that we're approaching it as a 510 . There are other ablation technologies that have 510 clearance. But we want to make sure that the FDA is in agreement with our plan. So I think in the February, we're still waiting to hear back from FDA, but it's probably going to be in the February, March timeframe. really assuming that they agree with our strategy and our plan, then really it's getting the development done of the system, the testing done. But at this stage, we're not anticipating that there'll be any clinical data required. But that's what we want to confirm with the FDA. So we're treating this as it would be a standard 510 submission. that would give us the ability to add an indication to our current or what we expect to be our 30-day indication for diagnostic purposes, but simply adding the ability to perform ablation procedures with the device. So, you know, it would be better to wait until we get further clarification from FDA, but we feel confident that we have a strong argument in our strategy are really marching in that direction.

Yep, understood. And then just last question, this one's a longer-term question here, but can you walk through the game plan around the chronic electrodes, just how to get that ready for use in whether or not spinal cord stem or deep brain stem, just a little bit of the game plan there.

Yeah, so, you know, the first thing we feel we have to do is demonstrate that the electrodes will have the durability that's required to last at least five years. So when you look at, historically, the issues with thin film technologies like ours, it's always revolved around fluid getting in between the layers of the film and shorting the circuit, or imagine the fact that these are a lot less thinner, so there's less metal that's involved with the electrodes, and imagine just pushing through current, you know, through these electrodes and stimulating 24-7, whether it's in the brain or in the spine, what happens over time is, you know, the metal eventually degrades at some point and there's obviously the potential to lose the ability to stimulate in that area. So, step one is, with the technology that we have, will it last? And I really anticipate we'll be releasing the information in probably the February timeframe, which is when all the samples will reach a five-year time limit in terms of testing. So that's step one. And then step two, more to your question, is okay, so where do you go from there? And for me, getting to the market as quickly as possible is really, critical aspect here. And we have an opportunity to license a pulse generator technology which had previous clearance from FDA for spinal cord stimulation. And assuming that the electrode's ready, we would make some tweaks to that system, license it, make some changes, but be able to really avoid all the development and testing that's required to go to FDA. We'll still have to obviously, or we still anticipate that we'll have to have clinical data demonstrating, you know, that the device will do what we say it will do. But to be able to avoid or minimize the testing required in the development time is just huge. So that's why we're really prioritizing spinal cord stimulation. It's already generating a significant amount of revenue. It's the highest among any indication. And given that we can gain access to a pulse generator that's already been cleared by FDA is a huge time savings for us and cost savings.

That's great. Really appreciate the update. Thank you.

Thank you. Thank you. Your next question is coming from Ben Hainor from Alliance Global Partners. Your line is live.

Good morning, gentlemen. Can you hear me okay?

You sound great, Ben.

Good deal. You know, congrats on all the progress, and thanks for all the color here. I was just wondering on the Zimmer forecast, you know, you mentioned how they've been consistently increasing those. Is it safe there to presume that – You know, that's based upon the feedback and the reception that they've got in, you know, kind of feeling out the market and the potential market for the product.

Yeah, so they, I can't disclose, obviously, what Zimmer's actually doing specifically. But, look, they clearly have spent a lot of time and diligence in talking to physicians about, to get feedback on the electrode. We've provided them with samples. They've had discussions as recently as the American Epilepsy Society meeting earlier this month. The short response to all this is there is definitely enthusiasm in the community and a confidence level that the product will perform and and be accepted and desired, so to speak, by neurosurgeons. So that, you know, we still have to get the product out there, get some use, which is why, hence, we're doing a limited launch, at least initially. But the early response has been very positive and very encouraging. Okay, great.

That's helpful. And then just on the accessories on their end, on Zimmer's end, Do you have a sense of when those will be ready? You guys can obviously only control your side of things. On your side, given the increasing forecasts, how does your ability to ramp up manufacturing stand?

We are going back to our vendors and increasing our orders, but it's like any other product launch, especially of a new product. You can't start out building high volumes day one. You want to make sure that everything's going fine in the manufacturing process and gain confidence so that you can go to higher volumes. We are pushing all our vendors to produce really as much as we've ever asked them. It's more than we've ever asked them to produce. And the fact that we're anticipating commercialization, being commercial ready in really Q1, they have some time, obviously, to start building at least some inventory way out in front of when we expect to really commercially launch the product. So, um, you know, we'll have to see, um, you know, our vendors have expressed confidence that they can manufacture the product. Um, uh, you know, the, it really is going to depend on the quantities and how quickly, um, you know, they're able to catch up to, uh, what Zimmer's requirements are right now. You know, we feel we can meet their annual requirements, uh, over the course of 2022. starting out slower and then ramping up. So that's the game plan for now. But so far, so good. COVID is definitely, you know, having an impact. It's interesting that for really two years, we had no impact. And now it seems like just companies are increasing their orders on our suppliers. And, you know, that's, that's got the potential to slow the process down. But, you know, the fact is we got out in front of it, so, you know, so we'll have to see. But that's really probably the biggest wild card is the potential impact of COVID if things don't change. I'm just kind of surprised that it took two years to see any impact.

Yeah, that's – The color there is helpful. Just kind of on the clinical data front, you know, anything we should be on the lookout for there? You know, I know you had the recent kind of presentation publication. And then do you have a strategy that you're kind of developing for the ablation electrode in terms of publications or clinical data that you're planning to get out there?

Yeah, so I think there's still some more things we can do on the diagnostic side, even with cortical electrodes. So there's, you know, there's traumatic brain injury procedures that are done where physicians would or neurosurgeons would love to be able to, you know, put an electrode in. They do this already, but there's no thin film electrode whereby they can make a very tiny incision and insert the electrode. No, having some conversations to see if we can put together a small post-market study just demonstrating the ability to use our current strip electrodes for that purpose. Clearly, the establishment of the ablation advisory board with the neurosurgeons that we added, the intent is as we get closer to the finish line, is really utilizing those key thought leaders to help us develop post-market data. We'll have animal data, but ultimately, you know, I really want human data. So we'll be using those centers to really help us generate supporting clinical data. Okay.

Great. Well, that's all I had, gentlemen. Thanks for taking the questions.

All right, guys. Any other questions?

Thank you. There are no further questions in the queue. Thank you, everyone, for joining today's call. You may now disconnect your lines.