NeuroOne Medical Technologies Corporation

Ladies and gentlemen, thank you for standing by and welcome to the NeuroOne Medical Technologies Corporation first quarter of fiscal 2022 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 security laws 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 risks, uncertainties, and other factors, which may cause actual results to differ materially from those expressed or implied by such statements. See our 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 NeuroOne. Dave?

Thanks, Operator, and good afternoon to everyone. During and since the first quarter, we continue to make progress in advancing our thin-film electrode platform technology with respect to both the diagnostic and therapeutic applications. I'll start first with diagnostic applications. As you may recall, in September 2021, our EVO-SEG depth electrodes received FDA clearance for use up to 24 hours. In fiscal Q1, we submitted to the FDA a request for clearance of the device for temporary use, that is less than 30 days use, with recording, monitoring, and stimulation equipment for the recording, monitoring, and stimulation of electrical signals of the subsurface level of the brain. We submitted responses to questions from the FDA regarding our submission on February 9th, 2022, and the FDA acknowledged receipt of our response on February 10th, 2022. If and when FDA clearance for less than 30-day use is received, the company will begin to fulfill stocking orders that have already been placed by Zimmer Biomet, our distribution partner for the Evo family product line. As a reminder, the company may have the opportunity to receive additional milestone payments from Zimmer Biomet. In addition, we displayed our evocortical electrode product line in Zimmer Biomet's booth at the American Epilepsy Society meeting in December of 2021. We also presented a poster at the meeting titled First FDA Cleared Thin Film Electrode for Intracranial Recording and Monitoring of Brain Activity, Device Testing, and Initial Clinical Use. Shifting to our combined diagnostic and therapeutic ablation electrodes, We've continued to make progress on this program. And as a reminder, this system is expected to save time, money, and is intended to improve patient outcomes by combining both the diagnostic and therapeutic applications into one device. And ideally, one hospitalization, improving the way epilepsy and potentially other neurological conditions are treated today. In addition to providing resources to the program, we continue to work closely with our hardware development partner, RBC Medical Innovations, towards the completion of prototypes of the RF generator, which we expect in calendar three, Q3 of this year. Following the completion of the RF generator prototypes, we expect to submit a 510K application for FDA clearance in the first calendar quarter of 2023. Now moving to our chronic use electrode development, During and since fiscal Q1, we continued to make progress with development of this technology. Most recently, we announced the successful completion of accelerated five-year testing, which demonstrated reliable recording without any issues associated with fluid permeation. This could potentially expand utilization of these electrodes to long-term recording for patients suffering from Parkinson's disease, epilepsy, chronic back pain due to failed back surgeries, as well as the research markets. We expect to release the results of our accelerated five-year stimulation testing later this quarter. Our initial focus with our chronic stimulation program is to target the spinal cord stimulation market, which currently represents over $3 billion in the US market alone. We also bolstered our management team in January of 2022 with the appointment of Chad Wilhelmi as Vice President of Quality Control and Regulatory Affairs. Mr. Wilhelmi joins NeuroOne from HLT Medical, a subsidiary of the Bracco Group, where he was Vice President of Quality Assurance. Chad's appointment further strengthens our executive leadership team and deepens our capabilities as we build the platform for future growth and expansion. On the financial side, we also successfully completed an equity financing during fiscal Q1 with gross proceeds of $13.35 million, which Ron McClurg will touch on as well. In closing, the company made great progress in fiscal Q1 in a wide variety of areas, including commercialization, development, and raising capital, which will allow us to continue to execute our plan to introduce meaningful advances and thin-film electrode technology for a variety of neurological applications. Thank you for your time and attention. I would now like to turn the call over to Ron McClurg for a more in-depth review of our fiscal first quarter financial results. Ron?

Thank you, Dave. Product revenue for the first quarter of fiscal 2022 was $34,000. compared to product revenue of $71,000 in the first quarter of fiscal 2021. Collaboration revenue was 6,000 in the first quarter of fiscal 22 compared to collaboration revenue of 22,000 in the first quarter of fiscal 21. Collaboration revenue was derived from our Zimmer development agreement and represented the portion of the upfront initial development fee payment that was eligible for revenue recognition as of December 31st, 2021. Our total operating expenses in the first quarter of fiscal 2022 were $2.8 million compared to approximately $2.1 million in the same period of the prior year. R&D expense in the first quarter was $1.1 million compared with approximately $0.9 million in the same period of 2021. SG&A expense in the first quarter of fiscal 2022 was 1.7 million compared with 1.2 million in the prior year period. Our net loss for the first quarter of fiscal 22 was 2.8 million or 18 cents per share compared to a net loss of 2 million or 26 cents per share in the first quarter of fiscal 2021. As of December 31st of 2021, the company had cash of approximately 16.2 million compared to 6.9 million at September 30th, 2021. The cash balance at December 31st, 2021 includes proceeds from an underwritten registered public offering of 4,172,000 shares of common stock at a price of $3.20 a share resulting in gross proceeds of approximately $13.35 million. The company had no debt outstanding at December 31, 2021. That concludes my remarks, and I'll now pass it back to the operator to open up the call for Q&A.

Thank you, ladies and gentlemen. The floor is open for questions. If you have any questions or comments, please indicate so by pressing star 1 on your touchtone phone. Lastly, while posing your question, please pick up your handset if listening on speakerphone to provide optimum sound quality. The first question is coming from Alex Nowak from Craig Hallam. Your line is live.

Great. Good afternoon, everyone. Dave, I was hoping you could expand on the questions that came back to you from the FDA and the depth electrode. What were the nature of these questions?

Yeah, Alex. So really there were a few things. One was just some basic questions about the compounds that were found and if we knew where they were coming from. So they wanted us to elaborate more on that, which we did. And then the others were just a little bit on explaining more of the results. They acknowledged in the letter that we followed the methodology that they had recommended. But they just had some basic questions just on some of the results. And, you know, again, we've said this before, but we passed the testing per what the FDA regulations require. But they just wanted a little bit more clarity on that. And then there were just some basic questions about labeling. But, you know, the questions on the compounds and methodology were really it.

And I know you've talked about this before, and you just mentioned it again, but just on the Biocomp piece of it, so you're pretty confident regarding the materials that were found there. There's no sort of questions on whether this could move forward. It's more of just a clarification on their part.

Yeah. So, well, keep in mind, the only thing that the FDA is reviewing is the results of the biocompatibility testing. There's nothing outside of these two tests that they were reviewing. And yes, we firmly believe and our consultants that actually put the analysis together agreed that we all fall within the required guidelines as it pertains to results for these testing. So am I confident? Yes. You know, we just got to wait for the FDA to come back, and if they have any additional clarifications, you know, hopefully we'll find that out in the next couple weeks and get this done.

Yeah, I was just going to say on that point, you know, given your experience in other medical devices and these rounds of questions, do you think another back and forth is going to be needed with the FDA?

Well, I think if the FDA, it's hard to answer because I'm always basing it off of a full submission, and this is just a submission of two tests. So, and there weren't, you know, a ton of questions. There were only a handful of questions. So, you know, normally, yeah, there is some back and forth, but if the FDA came back with questions, they would likely come to us and say, look, we consider this interactive, and we would do this over a phone call, you know, as opposed to emailing back and forth. So, you know, I think the next step would be much quicker than the previous ones, just because of the interactivity.

Understood. That makes sense. And then any updates on how Zimmer is preparing for commercialization once this is approved? Just any updates from the FDA on their own drill bit submission? And then just education with reps in the epilepsy centers?

Yeah, so I'll handle the education piece first. We actually have a meeting later this month with them to go over all the details for this. So those plans, they have been actively planning for the limited release of the product. We haven't started the official training yet. So we're waiting for a little bit more direction from them. But again, you know, when you go back and look at the fact that they have placed orders, you know, already multiple orders, this is not something that I think they want to delay too long. We don't, or I should say in our discussions with them, they've indicated they have not yet heard back from FDA. So there's not much more I can give you on that. But hopefully, you know, in the next week or so, I'm assuming that they should also expect to hear back from FDA on that.

Okay, got it. And then it looks like you're pretty confident on the ablation electrode and that being a 510K. Just what's the chance that that can morph into a PMA as you move forward here? And then on the submission timelines for the 510K, I would assume that incorporates all the need to generate bench data, animal studies. Just how concrete are those submission timelines that you put out today?

Yeah, so I'll take the – I'll answer your first question first on how confident are we. The initial analysis done by our regulatory consultant indicated that she was very confident that this would be a 510K. But in addition to that, I believe it was maybe about 30 days ago, we went to a second outside organization, consulting organization that has a lot of experience with this as well. And they also said, look we think you should submit this as a 510 K it's pretty black and white so I don't know that you know I would consider myself an expert with FDA and what they would do but you know I rely on you know companies consulting companies that have been successful with this before so I mean there's there is clearly predicate devices that that are out there that we've identified and that do RF ablation of brain tissue. So I'm as confident as my consultants are. And the recommendations that they gave us actually will earn them less money than if we were to do more work than what they're suggesting. So I feel pretty good about that. And in terms of just the testing itself or the submission itself, yes, it does factor in the tests that we have to perform. So we still feel that Q1 is the appropriate timeline. Obviously, we've got to get the generator from RBC in and do some testing on that because all of our tests have been done with competitive generators. But where we are now, and even given some of the challenges with COVID and supply chain, Everyone still feels good about that timeline.

And actually on that point, any of the design and development work that you need to do, is that solely on the RF generator? Or is there any more work that needs to be done on the actual electrode itself?

There's work that needs to be done on some of the accessories that would be used with the electrode. But the majority of the real work is the generator. You know, there's still some additional testing that we'll be doing with the electrode, but most of what we're working on now is outside of the electrode. It's accessories and hardware.

Got it. And then just last question from me, just maybe expand on the next steps here with the chronic use electrode, just how to turn that from the accelerated aging data we have here into a commercialized product.

Yeah, so that's obviously a longer timeline. What I think really opens the door for us in terms of therapeutic applications is this set of data that we'll be releasing next, which is stimulation. It's a little bit harder to predict how much time it's going to take to, what I'll say, perfect the manufacturing process because there's still a fair amount of time associated with that. It's not something that you should expect to see in the next 12 up to 24 months in terms of a commercial product. We have some ideas about how to enter that market more quickly by partnering with a company that has an already approved pulse generator for chronic stimulation. So that should really help with the timeline in terms of having to redo some of the testing that we would have initially had to do if we designed it ourselves. So we think we can save some time, but I think, you know, probably the bigger question is going to be how long is it going to take us to perfect the manufacturing process so that we can manufacture these in high volume, you know, with high yields. And we don't have the answer to that, but I'm hoping that at our next call we have better clarity on that.

Okay, that's great. Appreciate the update. Thank you.

Sure. The next question is coming from Ben Hainer from Alliance Global Partners. Your line is live.

Good afternoon, guys. Thanks for taking the questions. First off, for me, just kind of following up on Alex's last question there, on the chronic side of things, you mentioned in the press release a week or so ago, entering the research market and then, you know, obviously you touched a little bit upon the strategic licensing angle. Can you give us a little more color on, you know, what the research market might look like and then also, you know, have you had discussions with strategics on, you know, the chronic use front?

Yeah, Ben, so... your first question on the size, what we estimate the size of the research market to be. Not sure yet, but I can tell you that I've been with the company five years and the research market has come up multiple times and it seems every time we put out a release, even much like the one that we recently put out where we were able to do recording with the electrodes for five years, we start getting asked questions about, hey, can you design an electrode for me for research purposes? So there are some companies that literally only provide devices for research purposes. I can't tell you if that market's 50 million, 20 million, but I personally believe just from what I've heard from companies that are in the space that it could be somewhere between $10 and $20 million, which to me is significant from just a recording standpoint. And then I think you'll also hear we're working on something with a program or a project, a research project right now with a local institution. Things are not yet finalized, but we are likely to start a project uh, regarding an indication that we're not in now, uh, using these electrodes for research purposes. Um, so, you know, stay tuned on the market. We're, we're really trying to scour to see if there's any, uh, published information, uh, on what the size of that is. And then with respect to strategics, I, you know, dating back to, I think three years ago, the, even before we were a NASDAQ company, um, I publicly, um, commented that we had had discussions with strategics and the common response was this is nice what you're doing but you know for chronic applications you know we would like to see some data that the electrodes will be able to perform so you know the short answer to your question is I think those discussions or any discussions will increase or I'll say reappear once we release the results of the chronic testing, which, you know, again, I expect to happen this quarter.

Okay, great. That's helpful. And then, you know, I guess kind of on the R&D front, I think you guys sent some devices for kind of the high-definition electrodes to, I think it was Mayo and Carnegie Mellon. Any feedback there or what's the latest on the HD electrode front?

Yeah, so the Mayo did use them. They implanted them in pigs. Unfortunately, the pigs caught infections and they wound up dying before the timeframe expired that we were looking to test that. We don't have that raw data yet, although the Mayo has said that they are going to analyze it and send it to us. But I'd really like to rerun some of those tests so that we're not taking these out only a week, that we're really pushing these for 30, 60, 90 days. The problem is preventing these animals from getting an infection, because keep in mind, these are all open wounds. It's not like the electrodes and the hardware are implanted in the animal. So That's been challenging for them to manage. And we have not heard back yet from Carnegie Mellon. Okay.

Got it. And then I guess lastly for me, you know, you were in the Zimmer Biomed booth at the American Epilepsy Society meeting in the air. You know, what was the feedback on the cortical electrodes at the meeting? Okay.

So are you talking about from physicians or from the Zimmer sales force?

Well, I guess both. All right.

I guess that was a dumb question on my part. So the physicians that came by the booth clearly were intrigued. I think the first thing that becomes apparent to them is how thin and flexible the film is. It's not something that they've worked for in the past. You know, the challenge that we've had, and this is the feedback from the Zimmer sales force, is that hospitals do not want to carry one company's cortical electrodes and another company's SEG or depth electrodes. They want one manufacturer, and that's it. And until we release the SEG electrode, until we have FDA clearance, it's more of a special order situation with the cortical electrodes. We all know that's a low-volume product, so it's easy to kind of forget about that. But there's no question that the doctors get what the value of it is. And then when they hear a little bit about the brain-friendly properties of the device that it has, it appears to have less inflammation or cause less inflammation than traditional electrodes, they're even more intrigued by it. But I can tell you that if you package the Zimmer Salesforce as well as the neurosurgeons that came by, there's a lot of excitement about the SEG electrodes. And, and, you know, on one hand, it'll allow us to get on the shelf of these hospitals as opposed to a special order. But two, this, this is really where the volume is and the diagnostic procedures. So, you know, A lot of excitement to get that product on both fronts.

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

All righty. Thank you very much.

We have no further questions in queue.

Okay. It looks like

Dave Rose's line has dropped. Ron, are you there? I am. If there's no further questions, we'll turn it back over to you. We thank everybody for their time this afternoon.

Thank you. Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.