NeuroOne Medical Technologies Corporation

Ladies and gentlemen, thank you for standing by and welcome to the NeuroOne Medical Technologies Corporation first quarter fiscal year 2023 financial results conference call. Today's call will be conducted by the company's chief executive officer, Dave Rosa, and 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 four linking statements within the meaning of U.S. federal securities 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. Four-licking 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 NeuroOne's corporate update press 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 four-licking statements. With that said, I'll turn the call over to David Rosa, CEO of NeuroOne. Dave?

Thanks, Operator, and thanks, everyone, for your attendance today. During our first fiscal quarter, we achieved one of the most significant milestones in the company's history when we received FDA 510 clearance for the Evo SCEG electrode for less than 30 days use. Zimmer Biomet is still targeting the end of the first calendar quarter of 2023 to begin a limited commercial launch. We're particularly excited about the synergies that exist between using Zimmer's ROSA robotic platform with our Evo SCEG electrode. The company also shipped the initial Evo SCEG limited market release order to Zimmer Biomet during the first fiscal quarter and continue to manufacture product to meet additional orders for a future full product launch. We also made tremendous progress with our 1RF therapeutic ablation electrode system as we completed a successful animal feasibility study with Dr. Jamie Van Gompel at the Mayo Clinic in Rochester, Minnesota. The results confirm that the system is capable of both recording brain activity and ablating brain tissue using the same electrode. I am also pleased to report that we met our goal of completing the development of the system by the end of calendar year 2022. We are excited that the system is performing to our specifications and our final steps are to complete design validation testing. We also remain on target to submit a 510K application to the FDA early in the second calendar quarter of 2023. Now I'll discuss our efforts in developing electrodes that could be used for chronic stimulation and recording. Our focus remains on treating chronic back pain due to multiple failed back surgeries. Our goal is to offer a percutaneously placed paddle electrode that can be deployed in a comparable manner to existing percutaneous systems while offering an increased stimulation area, improved conformability, and lower energy requirements. We have already developed and tested percutaneous delivery system prototypes that have received positive feedback from key opinion leaders. The company also engaged in discussions with potential strategic partners and are exploring opportunities to expand our offerings to other markets. While there is nothing definitive yet regarding these discussions, I am pleased to see the level of interest in our technology. We are also continuing to explore the potential for our technology to offer the ability to deliver genes or drugs, as well as record the agent's impact to the patient. We expect to conduct preclinical feasibility studies to assess the device's potential but are enthusiastic based on physician feedback to date. The company was also active with poster presentations highlighting the EVO-SEG electrode performance at the following meetings, Congress of Neurological Surgeons, Society of Neuroscience, and the American Epilepsy Society. Our products were also displayed at the Zimmer Biomed booth at the CNS and AES meetings. We will continue to target key society meetings to present our data in an effort to increase our exposure. And relating to increased exposure, I also had the pleasure of being interviewed on the show, Mornings with Maria, during the quarter as well. In addition, the company was invited to ring the NASDAQ stock market closing bell to celebrate the FDA clearance milestone for the Evo SCEG technology. Thanks for your time and attention. I would like to now 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 was $115,000 in the first quarter of fiscal 2023, compared to product revenue of 34,000 in the first quarter of fiscal 22. We had collaboration revenue of 1.46 million in the first quarter of fiscal 23, compared to collaboration revenue of $6,000 in the first quarter of fiscal 22. Collaboration revenue is derived from the Zimmer development agreement and represents the portion of the exclusivity licensing payment that is eligible for revenue recognition as of December 31st, 2022. Total operating expenses in the first quarter of fiscal 23 were 3.2 million compared with 2.8 million in the same period at the prior year. R&D expense in the first quarter was 1.6 million compared with 1.1 million in the same period of fiscal 2022. SG&A expense in the first quarter of fiscal 2023 was 1.66 million compared with 1.74 million in the prior year period. We had a net loss of 1.7 million or 11 cents per share for the first quarter of fiscal 23, compared to a net loss of 2.8 million or 18 cents a share in the first quarter of fiscal 22. As of December 31st of 22, the company had cash and short-term investments of 7.6 million compared to 11.1 million as of September 30th, 2022, our most recent fiscal year end. The company had no debt outstanding as of December 31st, 2022. That concludes my remarks. I'll now pass it back to the operator to open up the call for Q&A.

Thank you. And at this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing these star keys. Our first question comes from the line of Alex Nowak with Craig Hallam Capital Group. Please proceed with your question.

okay great good afternoon everyone i know we were waiting for zimmer to receive fda approval for drill bits and some various accessories uh to go on the rosa robot um and that was all going to be done to commercialize the depth electro so just where does zimmer stand with those 510ks uh yeah um uh regarding zimmer there was only uh one device that required a 510k and that was the drill bit alex and they

They did receive 510K clearance on that.

Okay. So, you know, with that in hand, is there anything else that, I guess, what is the next barrier to doing the commercialization at the end of this calendar year, or is it more or less getting the reps trained, getting the product out there into the field, getting the initial sites trained up? Is there any other roadblocks or barriers to watch for, or is everything pretty much ready to go?

Well, they're still procuring some of the accessories. So, you know, at this time, I'm not aware that they have all the product that they need in terms of the accessories in-house yet. But in terms of regulatory holdups or anything like that, there shouldn't be. And yes, all the other things that you mentioned, field training, site training, The sites have been identified, at least the target sites that they plan on going to. But all that work, you know, really needs to be done in the next six weeks.

Okay, understood. And then so you've got the DEF approved, which is great. Zimmer's, you know, committed to the launch, and they're ready to go with the ROSA robot. So how do we think about that launch? Is this going to be, you know, within the next 12 months, think of it like a hockey stick sort of worldwide launch? You're going to see it being used in a lot of ROSA cases, maybe a majority of ROSA cases, or should we expect it to be a bit more of a pilot rollout to select ROSA users? Just how do we think about modeling this?

Yeah, so it's not going to be a worldwide launch. The device is only going to be commercialized in the U.S., so we don't have OUS clearance, but it will be a controlled rollout. So there are, you know, I... I do think that the first three to six months, we're obviously going to be making sure that everything's fine with the technology, which is really why you do a limited launch. We don't expect that there's going to be any issues based on the experience that we have, but it'll be a very controlled methodical launch, at least in the first to second quarter. And then after that, I would expect I mean, the goal is for the technology to be used in all the procedures, in all the robotic procedures.

And to that point, in the initial KOL discussions that you've had, either yourself or Zimmer together, with the KOL, what was their initial feedback? Did these initial sites intend to replace all their electrodes that they used with your electrode? Is it going to be using kind of like a one-off situation at first and then slowly ramps?

Yeah, so I haven't participated in discussions about how they plan on using it when Zimmer has held the meetings. I mean, we've definitely been able to attend the sessions where these doctors have been, but the feedback that was really requested was on the electrode itself and the feel of it, the tactile feel of it, the features of it, There was definitely no discussion about using this in just select cases. There would be no reason to use any other electrode over our electrode, and at least none of that ever came up in any of the discussions that I participated in or had ever heard of. So, you know, this is intended to be a replacement for all of the SCEG electrodes that are being used today.

Okay, that's great. And then there's just two more questions. The first one is just any update around the pulse generator that you plan on using for the chronic use electrode? I know you've talked about some potentially some strategic partnerships there in the past. Just any update? And then just the second question was with regards to capital, needs for capital, just how to think about that, and should we also think about there could be, whether it be something similar to Zimmer where you have non-dilutive capital come in through a partnership?

Yeah, so I'll answer the capital part first. So, yes, I mean, at some point during the course of 2023, we're going to need capital. But, you know, regarding the ablation technology that I talked about, we'll just say there's been strategic interest in that technology. So the goal here is to explore non-dilutive capital first. And those discussions are happening now. That's always going to be the first option. And if not, obviously there's other ways of generating capital. We have an ATM in place. We can always do a capital raise as well. But our efforts right now are really focused on non-dilutive capital because of the interest in the ablation system that we have. And I'm sorry, but I forgot what your first question was.

That's okay. Just any update around the pulse generator for chronic use?

No, I mean, the same options that we had before, we still have. So there's really nothing new with that. What we are working on, in addition to the electrode, is now we have to start designing the connectors so that the electrode can communicate you know, with the system that we're intending to use. But nothing further on negotiations or anything like that.

Okay, understood. Appreciate the update. Thank you.

Thank you, Alex.

Our next question comes from the line of Ben Hainor with Alliance Global Partners. Please proceed with your questions.

Good afternoon, guys. Thanks for taking the questions. I just wanted to check one thing. Did you say Zimmerman was planning on launching by the end of this calendar quarter, or was it the end of this calendar year? It better not be this calendar year. It would be this calendar quarter. Okay.

I thought I heard that right.

Okay. Just making sure.

Don't scare me.

Okay. Okay, because maybe I misheard it. I apologize. Can you characterize kind of the product forecast on the CEG Electro that you've gotten and, you know, any implications that has for, you know, manufacturing on your end? Yeah, so, I mean, we, you know, we have a forecast that Zimmer's given us over the next 12 months. We're actually manufacturing right now, as I said in my comments, units for the rest of the year. I'm not sure, in essence, if you're wondering what the impact is from a manufacturing capability, is that where you're going or is it something different? Well, yeah. I mean, I know historically, or at least at points historically, you've mentioned that the product forecast that Zimmer has given you may have been increasingly favorable or aggressive. I don't know if this is the right way to characterize it, but just kind of trying to get at what you know, what their outlook is, you know, has that changed any, you know, positively or negatively? And then, you know, does that change, you know, what activities you have to undertake on the manufacturing side? Yeah, well, you know, I think you always have to be concerned with your supply chain being able to meet not just demand or the forecast that you have, but beyond that. So, you know, we've been spending a lot of time with our supply chain to make sure that you know, they can exceed what we're doing. So, you know, in terms of Zimmer and their attitude, I think Zimmer has always been excited about this technology from, you know, the time we signed the contract a few years ago. I mean, this is the technology that's really synergistic with their robot. And, you know, they remain, at least in all the discussions I have with them, just as excited to get going as we are. So I would say there's really no change. I think, you know, there's been this pent-up excitement that all of us have been waiting, you know, for over the last year, and hopefully in the next couple months, you know, we'll be able to, you know, start the show. And then, you know, you mentioned a couple months. You've got the AANS meeting coming up here. You know, are there any activities planned around the EOS-EG Electro that you've been privy to with the Zimmer launch or at that show or, you know, anything special planned that you can share? Yeah, I don't know what the plans are for that show outside of exhibiting. I think we also have to be careful, especially when you're, you know, doing a controlled launch event. that you don't go out and try to bring too many sites on at one time. So, you know, as I said earlier, it's going to be a very controlled methodical launch where, you know, we walk before we run, you know, just to make sure everything's performing the way we need it to and make sure that we have, you know, the product supply that we need, you know, when there's a full launch. But nothing that I'm aware of yet. Okay, no problem. And then a couple on the kind of R&D project. You know, you're going to submit one RF in a couple months here, it sounds like. What's to do beyond the V&V and the additional animal testing there? Yeah, I mean, it's really documentation, you know, beyond that. And it's not trivial. So, You know, we've completed, let's just say we've gone through the heavy lifting. I mean, I'm not trying to minimize the amount of testing that has to be done because it's not trivial. But, you know, once we got the design behind us and the development behind us and some of these additional feasibility studies, I mean, we feel really good about the technology and where we're at that we will be able to submit sometime early in Q2. Now, that's barring anything unforeseen, you know, in this DV testing. I mean, there's always something that could come up. But so far, I mean, the last few months, you know, we've been doing a lot of testing with the system and are really encouraged with the performance. Okay, great. And then on the drug delivery device that can stimulate and record, You know, is that something that you could potentially generate some near-term revenue for, you know, drug trials and such or, you know, research use-only applications? I know you mentioned you plan a pre-clinical study, but, you know, how quickly could there be revenue associated with that device? Well, it's not like you're starting over from scratch to develop this. Now, you know, if you were going to develop your own drug pump, you know, that obviously would add to the time. But what we're trying to do is to really leverage the design that we have now, you know, to be able to do this with an off-the-shelf system, you know, drug pump. So near-term revenue, I mean, it depends on how you define near-term. I mean, this is not expected to be a PMA with, you know, an extremely long development process. But we have to make sure that we can deliver the drug in an efficacious way because there are things that you have to take into consideration in terms of backflow and even drug dispersion that we've only done some initial testing on. So if your question is really like in the next six months, No, I don't think we'll be ready to generate revenue in that timeframe, but the goal here is to expedite this as quickly as we can. And I do think, Ben, that the feedback that we have is that it would not only have a place for research studies, but it could also have a clinical benefit. So, you know, with the device in place, you could deliver a drug theoretically, through the lumen and actually see the impact to the brain tissue that a neurosurgeon is intending to remove. And, you know, depending upon the reaction to that drug, it may inform the surgeon that this may not be a good thing to do to remove this particular tissue. So there's definitely some therapeutic benefit to what this can do clinically as well. And we're investigating whether or not, you know, we can proceed with this with a 510K. Okay. Okay, so stay tuned there. And then the last thing for me, you know, regarding the spinal cords to electrodes, anything we should be on the lookout there for in kind of the near term, maybe on, you know, potential for, you know, partnership agreement? Yeah, that I can't talk about because – I mean, there's a possibility, but, you know, there's really nothing I can report at this time. I do think you'll see some additional reports on just preclinical testing that we're doing and really in particular how we're going about it. But, you know, as far as any strategic discussions and things like that, you know, that's going to take some time, assuming that it continues to move forward. So Really, really can't talk anymore about that. Okay, got it. Thanks for taking the questions, guys, and we've got some progress. Thanks, Ben.

And we have reached the end of the question and answer session, and I'll now turn the call over to Dave Rosa for our closing remarks.

I just want to, again, thank everyone for joining the call today. Please stay tuned for future progress. I think we really think it's going to be an exciting year this year with respect to the new technology that we've been developing. Thanks again, and have a good evening.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.