Solana Co (HSDT) 2021 Q1 法說會逐字稿

Good evening, ladies and gentlemen, and welcome to the first quarter Fiscal Year 2021 Earnings Conference Call for Helius Medical Technologies. (Operator Instructions) Please note that this conference call is being recorded and that the recording will be available on the company's website for replay shortly.

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 SEC, which are available on our website. All statements made during this call are as of May 17, 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 Mr. Dane Andreeff, Helius Medical's Interim President and Chief Executive Officer. Please go ahead, sir.

Thank you, operator. Welcome, everyone, to Helius Medical's First Quarter 2021 Earnings Conference Call. I'm joined on the call this evening by Joyce LaViscount, our Chief Financial Officer and Chief Operating Officer; and Mark Leno, Vice President and General Manager of our Canadian operations.

Let me provide you with a quick agenda of what we're going to focus on today as part of our continued strategy to reposition Helius to create shareholder value. I'll begin my remarks with a brief discussion on our progress in the United States and initiatives we are focused on as we prepare for commercialization. Following this discussion, Mark will provide you with an update on our commercial activities in Canada. Joyce will then briefly review our first quarter financial results, discuss the recent progress we have made to secure additional capital and enhance our balance sheet condition and share some thoughts on our expectations. Following Joyce's remarks, I will share some closing thoughts on our near-term initiatives in 2021 and longer-term outlook before we open the call for questions.

With that, let's get started with an update on our recent progress in U.S. During the first quarter of 2021, we made a very strong progress on our U.S. regulatory strategy to pursue an indication in multiple sclerosis or MS, as the pathway for obtaining the first U.S. clearance for our PoNS device. Since we announced the shift in our U.S. regulatory strategy in March of 2020, our regulatory and clinical team worked tirelessly to secure clearance for this high unmet medical need and bring our technology to the approximately 1 million U.S. patients suffering from MS.

Approximately 1 year later, we were proud to secure U.S. marketing authorization for our PoNS device for the short-term treatment of gait deficit due to mild to moderate symptoms from MS. This achievement represents the most significant milestone in the history of Helius Medical, and I would like to personally congratulate our employees, shareholders and the people who conducted and participated in our clinical research for helping to make it possible.

The receipt of our first U.S. clearance is an important validation of the safety and efficacy of our innovative PoNS technology, and we look forward to bringing it to the U.S. patient population quickly and effectively.

To that end, Helius remains committed to commercializing our PoNS device in the U.S. during the first quarter of 2022. And we are continuing to prepare accordingly. Specifically, we are currently focused on the following on 4 initiatives as part of our pre-commercial activities in 2021 to lay the groundwork for successful U.S. commercialization: first, securing the licensing and accreditation required to distribute our PoNS device across the U.S.; second, building a dedicated team to lead and processes to execute our initial U.S. commercialization efforts; third, refining our strategic target, engage and educate potential early adopters; and fourth, pursuing medical coverage for our PoNS treatment.

Let me take a minute to discuss each of these 4 initiatives in more detail, beginning with our efforts to secure licensing and accreditation. During the initial months of 2021, our team has been working to secure required licenses in each state that will enable us to distribute and sell our PoNS device. I'm pleased to report that with the licenses we've already secured to date, we will be able to distribute our product in 24 states. We will continue to pursue additional state licenses in 2021 to expand our coverage of the U.S. market.

In terms of our second initiative, establishing a dedicated U.S.-focused team is a core area of focus and a key component to ensure our key future success. More importantly, we are working to expand and enhance our leadership team with the addition of key personnel to lead our sales and marketing strategy and support our operations in the United States. Late last year, we appointed a new Director of Commercial Operations, who will be instrumental to our efforts. She joins the team with over 20 years of health care experience, including significant expertise in establishing and commercializing medical technologies and products classified as durable medical equipment.

In 2021, she has already proven to be a valuable addition to our team, and we look forward to her future contributions as we prepare for commercialization. On March 15, we expanded our Board of Directors with the appointment of Sherrie Perkins who brings significant experience advising neuromodulation companies on their commercial and marketing activities. Ms. Perkins spent nearly 20 years working with LivaNova and its subsidiaries, and currently serves as a Member of the Venture Mentoring Service at the University of Texas MD Anderson Cancer Center, where she provides guidance on commercialization-related topics for early stage companies.

We are also in the process of building our model and processes for execution of our strategy to raise awareness of the PoNS treatment and facilitate its U.S. adoption. In the U.S., our commercial offer will focus on 2 primary audiences: first, we will focus on raising awareness of PoNs treatment by educating neurologists and other key physicians in the neurology community, who we believe will serve as potential prescribers of our device; and second, we intend to engage personnel at key neurorehabilitation centers where we believe our patients will be treated and educated on how they can now employ the PoNS in their practice.

We are focused on establishing our processes and our team in order to create demand by engaging these 2 primary audiences. With respect to our third initiative, we plan to prioritize targeted development of relationships with select neurologists and neurorehab centers that have the greatest potential to be early adopters of our technology. During our initial U.S. commercialization, our sales team will be tasked with engaging with those potential early adopters and educating them on the benefits of being first to adopt our innovative PoNS treatment, addressing the unmet needs of their MS patients with gait deficit. To refine our approach to engagement and education and inform our overall commercialization reimbursement and market access strategy, we formed a multiple sclerosis scientific advisory board in late 2020.

Our scientific advisory Board consists of researchers, clinicians and medical doctors with a body of work in MS and neurorehab from prominent U.S. medical institutions. Our initial work with our scientific advisory board has been productive, and we look forward to leveraging their expertise and insight to refine our strategy as we prepare for commercialization.

Turning to our fourth and final initiative, pursuing coverage for our PoNS treatment under Medicare. The majority of our initial U.S. customers are expected to be cash pay pending the receipt of widespread reimbursement coverage. As we have discussed on prior earnings call, our initial focus is on pursuing medicare coverage for our PoNS device. With this goal in mind, we have been closely monitoring the development of the Medicare coverage of innovative technology or MCIT rule. As a reminder, MCIT represents a new CMS pathway for FDA designated breakthrough medical devices that achieve U.S. market authorization to quickly receive nationwide Medicare coverage, who would last for 4 years from the date of market authorization.

On January 12 of this year, we are pleased to see CMS announced that they were finalizing the rule. On March 12, CMS delayed the effective date of the final rule for 60 days and provided an additional comment period during this window. This past Friday, the effective date was delayed until December 15, 2020, to provide CMS an opportunity to determine appropriate next steps. While we were obviously disappointed by this delay, Helius is pleased to see that the pathway has not been withdrawn. As we evaluate the recent announcement and its implications, we are continuing to pursue our multi-PoNS strategy to obtain coverage under Medicare. Specifically, with U.S. market authorization for our PoNS device now in hand, we continue to engage CMS to clarify its requirements and work through process of securing, establishing and implementing coverage, which we will pursue regardless of the ultimate outcome of the MCIT rule.

With approximately 60 million Americans enrolled in Medicare, we continue to view MCIT coverage as an important potential tailwind to our initial U.S. commercialization efforts, and we'll continue to closely monitor its development. Stepping back, we are excited by our progress since we began pursuing an indication in MS as a pathway to obtain our first U.S. regulatory clearance. The dedicated strategic execution from our team over the last year culminated in the receipt of marketing authorization at the end of the first quarter, consistent with our expectations. With PoNS as the first and only device authorized by the FDA to treat gait deficit in MS patients, we are highly focused on laying the groundwork this year to support U.S. adoption in 2022 and beyond.

We look forward to raising awareness among all important constituents in the MS community, including neurologists, administrators, physical therapists and patients to build awareness of this new and effective opportunity for treatment.

Mark Leno will now provide you with a review of our first quarter revenue performance and an update on our commercial activities in Canada. Mark?

Thanks very much, Dane. Consistent with the expectations we shared on our earnings call in March, we reported total revenue of $84,000 for the first quarter of 2021 compared with $207,000 in the first quarter of last year. Our revenue in both periods was driven by sales to neurotherapy clinics in Canada that have been authorized to provide our PoNS treatment. As we had anticipated, our revenue performance in the first quarter of 2021 remain impacted by the significant business disruption in Canada related to the COVID-19 pandemic, including restrictions and protocols implemented to protect patient health and safety.

Let me take a moment to update you on these protocols and their impact in more detail. As we've discussed on prior earnings calls, our PoNS authorized clinics across Canada have been constrained by federal and provincial restrictions, which limited their capacity to approximately 50% of normal services through the second half of 2020. Based on surveys of our clinic customers during this period, we also saw that their capacity and productivity was well below this 50% level due to the added impact of clinic and post-safety protocols, and the effect of the pandemic on patient willingness to seek in-clinic treatment.

Remember that many MS patients take disease-modifying medications that suppress their immune systems, placing them at higher risk for contracting COVID. Beginning in late November of 2020, we saw incremental headwinds as Canadian cities and provinces implemented lockdowns and stay-at-home orders of the country in response to the resurgence in COVID cases. During the first quarter of 2021, COVID cases in Canada have remained elevated with the provinces of Ontario, Quebec, British Columbia and Alberta, all reaching peak levels. In response, local governments imposed more severe restrictions on both citizens and businesses during the first quarter. While our clinics across Canada remained open during the first quarter, they were formally restricted to 25% of their normal capacity with capacity as low as 15% in Ontario. And we estimate that they were operating significantly below this level as clinic-specific protocols remain in place and patient willingness to seek treatment remain impacted.

While clinic physician and patient engagement has been very challenging given the severely impacted environment, our commercial team has done an excellent job under these circumstances, working resourcefully to drive progress and position Helius for commercial success long term. Most notably, despite restrictions on clinic access through the first quarter. Our team continued to target and engage clinics virtually to introduce our therapy and explain its benefits. Using the virtual processes that we developed in the second half of 2020, our team continued to authorize clinics and train their physical therapists to provide our PoNS treatment. We were successful in authorizing 2 new clinic locations during the first quarter of 2021, expanding our network of PoNS authorized clinics to a total of 33 locations by quarter end. In addition to expanding our clinic network, we continue to support existing clinics by partnering with them to reduce potential barriers to patient engagement during COVID and by working to increase their patient throughput once Canada recovers by educating their base of clinician prescribers on PoNS treatment and its potential benefits.

Our Ontario-based territory manager, a former therapist and clinic director whom we hired in December of 2020, is working with each clinic to help them raise awareness of PoNS treatment and its therapeutic benefits by planning educational sessions with their network of referring neurologists, physiatrist and GPs, which will be conducted once COVID restrictions ease. From where things stand today, the environment in Canada remains very challenging. At present, only 3% of the population has been fully vaccinated. Lockdowns have been extended through the second quarter to date and incremental restrictions following another spike in cases during the month of April have limited many clinics to treating only their most urgent patients.

Given these challenges, we continue to expect that our Canadian business will remain disrupted during the second quarter, but hope to see evidence of progressive improvement as we enter the second half of 2021. In the interim, we will continue to support our existing clinics during this challenging time while engaging with prospective new clinics to position Helius for a return to growth in Canada as the environment normalizes.

With that, please let me now turn it over to Joyce to discuss our first quarter financial results.

Thanks, Mark. For the first quarter of 2021, our gross profit decreased by $37,000 or 35% year-over-year to $69,000 due to the June 2020 launch of promotional pricing to drive customer access due to COVID. Operating expenses for the first quarter of 2021 decreased by $538,000 or 13% year-over-year to $3.6 million, reflecting the continued benefits of the cost reduction initiatives that we implemented during the past year.

Operating loss for the first quarter of 2021 was $3.5 million compared to $4.0 million for the prior year period. And we reported net loss for the first quarter of 2021 of $3.4 million or minus $1.65 per basic and diluted common share compared to net loss of $4.8 million or minus $5.38 per basic and diluted common share for the same period last year.

As a reminder, on December 31, 2020, we completed a 1-for-35 reverse split of our Class A common stock in order to regain compliance with the NASDAQ stock market's continued listing requirements. We received written notice from NASDAQ on January 15, 2021, which confirms our compliance with all applicable listing standards.

Turning to a discussion of our balance sheet condition and recent financing activities. Our average cash burn from operations during the first quarter of 2021 was approximately $1 million per month compared to approximately $1.3 million per month in the first quarter of last year, reflecting the success of our continued efforts to control our expenses and allocate capital prudently. Through the second quarter-to-date -- I'm sorry, given the COVID--related restrictions -- given the COVID -- okay, turning to the discussion of our balance sheet and recent financing conditions. Our average cash burn was $1 million per month compared to approximately $1.3 million in the prior month as a result of our continued conditions.

During the first quarter of 2021, we raised $1.3 million in net proceeds through the exercise of warrants in January and closed an underwritten public offering of common stock and warrants for net proceeds of approximately $9.6 million, including a full 15% over-allotment on February 1. As of March 31, 2020, we had $11.4 million in cash compared to $3.3 million as of December 31, 2020. We had no outstanding debt obligations in either period.

Looking ahead, while we expect our expenses in 2021 to increase in conjunction 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. As a reminder, there are currently approximately 594,000 warrants with a weighted average price of $16.32, which could yield an additional $9.7 million, if exercised. Although there is no assurance that these warrants will be exercised in 2021 or ever.

Turning to our outlook. In lieu of formal fiscal year guidance, we would like to share some thoughts on our expectations for second quarter sales performance and operating expense trends. Given the COVID-related restrictions in Canada experienced during the second quarter to date, and impact on the clinic capacity and patient willingness to seek treatment, we currently anticipate second quarter total revenue of approximately $90,000. Despite these temporary impacts, our Canadian business remains an essential component of our long-term commercial and clinical regulatory strategy.

We hope to see evidence of a gradual return to a more normalized environment as we enter the second half of the year. As a reminder, we expect to begin our commercialization in the U.S. during the first quarter of 2022. And therefore, do not anticipate any revenue from the sales of our PoNS device in the U.S. during 2021. In terms of our operating expenses, we anticipate expenses to increase modestly in the second quarter on a quarter-over-quarter basis, with the second half of 2021 reflecting the majority of the incremental investment related to our pre-commercial activities as we prepare for U.S. commercialization.

With that, I'll turn the call back to Dane. Dane?

Thanks, Joyce, and Mark. In summary, I can't be more proud of the dedication and resourcefulness that our team has shown in 2021. By securing marketing authorization in MS, we accomplished the most important milestone required to bring our technology to the U.S. market, where nearly half of all diagnosed MS patients reside. We raised $11 million in net proceeds to support our operations and future growth. We are making progress in building our team and executing efficiently to enter the U.S. market in early 2022. And our entire team in Canada continues to perform admirably, laying the groundwork for our future commercial success as the country recovers.

Our operations in Canada continue to remain an integral component of our overall clinical, regulatory and commercial strategy, and we look forward to continuing to leverage the skill set and expertise of our Canadian team as we return to growth and pursue longer-term strategic objectives. As a result of our recent progress, Helius is better positioned as an organization to bring our technology to the large underserved population of MS patients in the U.S. and Canada as quickly as possible.

Over the remaining months of 2021, we are committed to continuing our strong pace of execution with these goals in mind, which we continue to believe represents the best path to creating value for our shareholders. Longer term, based on the success of our U.S. regulatory strategy, our existing clinical data and capabilities demonstrated by our regulatory and clinical affairs team, we look forward to leveraging the potential of our PoNS device as a platform technology to treat multiple disease states, including balancing gait deficit associated with stroke, traumatic brain injury, cerebral palsy and Parkinson's disease. With this in mind, we aim to continue our efforts to pursue new indications for use and expand its applications.

I would like to close today's remarks by once again thanking our employees for their efforts this past quarter and recent years, and congratulating them on our recent success. I would also like to thank our new and existing shareholders for their support as well as everyone on tonight's call for their interest in Helius Medical Technologies and our mission.

With that, operator, let's now open up the call for questions.

(Operator Instructions) Your first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann.

This is actually Destiny on for Jeff. My first one is kind of 2 part. I heard you reference your marketing strategy in regards to the physicians. So I'm just curious, are you doing any market development within the MS community, meaning directly to patients? I know that they're very well educated community, and they're typically on top of regulatory approvals. So I'm just wondering how you're kind of leveraging that. And then how are you thinking about the time from investing and raising awareness to actual utilization by patients?

Joyce, do you want to take that question?

Sure. So the first part of the question, working with the neurorehabilitation centers, yes, we will be also working with the MS community. You're exactly right. They are very organized, they're very motivated, and we feel that, that's a huge opportunity for us to partner with them. With respect to the investment that we're making in developing our sales and marketing strategy, as this is a novel technology that we are using, we are going to be focused with a small cross-functional team that we have in place already to build out the commercial model and to prove the go-to-market strategy. And then once we're able to prove out that model, we will continue to expand as we increase the number of neurorehabilitation centers that we pursue and make the investments further from there.

Okay. And then just for my follow-up. Could you discuss your supply chain and manufacturing capabilities? And if you're making any investments there ahead of the U.S. commercial launch?

Sure. So from a supply chain and manufacturing capability. So we have our manufacturer, Key Tronic, and they're located in Minnesota. We have full-scale manufacturing already in place. And right now, we are working to make some minor modifications to our product to ensure safety, reliability and improve our yields. And as we move through, we will be able to manufacture ample product to support the demand forecast that we are building at this time.

Our next question comes from the line of Joe Gomes with NOBLE Capital.

First question, just kind of wanted to look at the CMS delay. And do you think that has, wouldn't appear so, but any impact on the company's U.S. time line here going into 2022?

No, we do not feel that, that will significantly delay our time line. What we've -- what our expectation is, is that our first customers will be cash pay. And the processes that we've already started in place to establish the coding and the reimbursement are very similar, whether we are going to -- whether MCIT would be in place or not. So we're continuing our processes. It's just the potential delay with the MCIT rule means that we would have to spend more time doing our negotiations at a jurisdiction level rather than the national level that the MCIT rule would have provided us that opportunity. But we have already started those efforts, and we expect to be able to continue to move forward effectively.

Okay. And for my follow-up, in the U.S., I was wondering if you could give us a little more detail here on setting up this network. If I look in Canada, you've got 33 clinics, taken a number of years to get there. What are your expectations, at least in the near-term for the number of clinics you would have here in the U.S.? How big of a network do you think you can finally get to? And what kind of is your timing? Any additional color there is appreciated.

Okay. So as we look at the U.S. opportunity, the big difference between the U.S. and Canada is that in the U.S., it's a prescription product. So in Canada, while our initial focus was on the clinic side, in the U.S., we're focusing on both the clinic side as well as the neurologist. And as we reach out to the neurologists, we will be looking at where they already treat MS patients. They will refer them across to neurorehabilitation centers. And we will work with those neurorehabilitation centers where there already exists the relationship between the neurologists and that center.

We expect that patients will get the prescription from the neurologist and go to the centers. We anticipate having a customer care support center that will help the patient with their payment and also getting the clinics identified and get their treatment. And then once the MS patient starts working with the PT center, there is already exists the link between the PT and the neurologist to make decisions with respect to how the treatment is going and future treatment cycles from there.

(Operator Instructions) Your next question comes from the line of Mitch Swergold with Swergold Advisory.

Congrats on really advancing this thing so well. I was wondering if you could talk a little bit about how the hiring process is going for C-level executives. And then I'll follow-up with another.

Yes. So thanks, Mitch. It's a great question. A couple of answers to that. We've engaged multiple search firms as well as our network internally to search out the best candidates for each individual position. And that not only includes the C-suite, but as you drop down below that as well. So also with the C-suite, we've got a very active and engaged board of Directors. And they bring a wealth of experience, knowledge and contacts that we're leveraging that experience and wisdom as well.

Okay. The other thing I wanted to ask you about was -- sorry, there was no second. What was the question? Oh, yes. Can you talk about what your plans are for both international? Where we are with that? Because I know there's China, there's Australia, there's Europe and so on. But then also in terms of expansion to other applications through other FDA approval processes, where do we stand with those different items?

Yes. So we are -- right now, our application has been in Australia right now at the TGA, and that application is pending. Also with the authorization by the FDA, we have an agreement with China Medical as well, so that we could take our documentation of our clearance and with their -- with that agreement, we could partner and proceed to an application and hopefully, clearance as well in 4 provinces in China. But right now, Mitch, our focus clearly is on the U.S. market.

Okay. And what about the second part of that question relating to other potential applications and applying to the FDA for those?

Yes. So definitely, we have a platform technology. Again, one of the most common symptoms across neurological diseases and trauma is balancing gait deficit. And given our MS clearance, as well, we're also cleared by Health Canada for MS and traumatic brain injury. We expect, because of our ability and our clinical data, we have the opportunity to approach the FDA again in a multi-facet approach, not only in stroke but TBI and cerebral palsy and expand our...

And can you provide a feel for where we are in that process?

At the moment, Mitch, it's part of our company strategy right now. And right now, we cannot reveal that.

Ladies and gentlemen, we are currently showing no additional participants in the queue. That does conclude our conference call for today. Thank you all for your participation.

Thank you.

Thank you.

Thank you, everybody.