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Edited Transcript of HSDT.OQ earnings conference call or presentation 12-Nov-20 10:45pm GMT

·17 min read

Q3 2020 Helius Medical Technologies Inc Earnings Call Nov 18, 2020 (Thomson StreetEvents) -- Edited Transcript of Helius Medical Technologies Inc earnings conference call or presentation Thursday, November 12, 2020 at 10:45:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Dane Carl Andreeff Helius Medical Technologies, Inc. - Interim President & CEO and Director * Joyce N. LaViscount Helius Medical Technologies, Inc. - CFO, COO & Secretary * Mark Leno;Vice President and General Manager ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good evening, ladies and gentlemen, and welcome to the Third Quarter of Fiscal Year 2020 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 filing in our other filings with the SEC, which are available on our website. All statements made during this call are as of November 12, 2020. We undertake no obligation to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise, except 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. -------------------------------------------------------------------------------- Dane Carl Andreeff, Helius Medical Technologies, Inc. - Interim President & CEO and Director [2] -------------------------------------------------------------------------------- Great. Thank you, Operator. And hello and welcome, everyone, to Helius Medical's Third Quarter of 2020 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, our 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 strategy to reposition the company to create intermediate and long-term shareholder value. First, as the recently appointed President and CEO of Helius, I'll begin my remarks with a brief introduction. I'll then discuss our U.S. regulatory strategy and progress we have made in recent months. Following this discussion, I'll hand it off to Mark, who will provide you with an update on our commercial activities in Canada. Joyce will then briefly review our third quarter financial results as well as the recent progress we have made to secure additional capital and enhance our balance sheet condition. Following Joyce's remarks, I'll conclude with some thoughts on our near-term and longer-term outlook before we open the call for questions. Before delving into the update for the quarter, I'd like to take a moment to just introduce myself, provide a few summary points on my background and share where I have focused my time since joining the executive leadership team. I joined Helius Medical with over 30 years of experience in the financial industry. The majority of my career has been with Maple Leaf Partners, a value-based hedge fund that I founded in 1996 and subsequently grew to over $2 billion in assets under management. I've also held Board of Director positions for multiple companies in the medical device and medtech subsector, including here at Helius Medical. 3 years ago, I joined the Board of Directors at Helius after conducting my diligence because I was fascinated by the PoNS technology and the opportunities in store for this organization. With its potential to improve the lives of patients with chronic neurological conditions by empowering the natural healing processes of the brain, I believe the PoNS device and treatment, and ultimately, Helius, is uniquely positioned to address one of the last frontiers in healthcare. As the Interim President and CEO, I'm committed to repositioning the company for our next stage of growth, with the goal of building on our recent achievements in Canada and the U.S. for benefit of our customers and patients; and two, driving continued operational progress as efficiently as possible to create value for our shareholders. As Helius pursues its next stage of growth as a organization, I also intend to stand alongside my fellow employees and shareholders. Importantly, I've taken steps to further align my personal financial interest with the shareholders of Helius Medical. Most recently, I participated in the company's private placement in October, where I expanded my beneficial ownership position in the company to approximately 6.3% of the shares outstanding. I also elected to receive no compensation when accepting the role of Interim President and CEO. Since joining the executive leadership team in late August, I've focused on evaluating every aspect of our strategy by meeting with employees, customers, shareholders and patients to obtain their feedback. In my interactions with employees, I've been continually impressed by their level of expertise as well as their commitment and drive towards fulfilling our mission to help patients suffering from chronic neurological conditions. Ultimately, I believe our most undervalued asset at Helius is our team of experienced employees who hold the key to our future successes in creating shareholder value. Importantly, my discussions with our customers and patients have further convinced me of the tremendous potential of the PoNS treatment. I believe we're at an important inflection point in the company's history as we seek regulatory approval to bring this revolutionary technology to the U.S. market. With that as a backdrop, let me now provide you with update on our U.S. regulatory strategy and related progress. Earlier this year, our regulatory and clinical team made the strategic decision to prioritize an indication of multiple sclerosis, or MS, as the pathway for obtaining the first clearance for our PoNS device. This strategy was based on multiple factors, including the strength of our existing data and real-world evidence, the size [of] the characteristics of the MS patient population in the U.S.; and, most importantly, the high unmet medical need that MS Represents. Our team set their sights on this regulatory pathway with a goal of submitting a request for de novo classification and clearance in the second half of 2020. Their pace of progress towards our regulatory strategy has been especially notable given the onset of the COVID-19 pandemic and the challenging operating environment that it has caused this year. For months of diligent preparation, we submitted our request for de novo classification and clearance of the PoNS device on August 4 this year, with an indication for the treatment of gate deficit due to symptoms from MS, to be used as an adjunct to a supervised therapeutic exercise program in patients over 18 years of age. During the remaining weeks of the third quarter, we're pleased to see our submission move from the administrative review phase into the substantial review phase. As a reminder, the FDA's stated goal is to provide a decision within 150 days, or 60% of de novo requests that are submitted in 2020. On October 19, approximately 75 days into the review process, we announced the receipt of a request for additional information from the FDA. Specifically, the FDA requested additional analysis of clinical data and proposed certain label modifications. Our Regulatory Affairs team is focused on preparing a formal response to this request as efficiently and thoroughly as thoroughly as possible to enable the FDA to resume its review of our submission. Over the last 3 weeks, they've been conducting an analysis of each aspect of the request with the goal of precisely aligning our response to address the information the FDA has requested. They've made significant progress in the analysis of the FDA's request for information in a short period of time. During the remaining months of 2020, we will continue this effort and focus on preparing our response to the FDA's request, with the goal of submitting it during the first half of 2021. Importantly, we believe our breakthrough designation status will allow us to work efficiently with the FDA as we address their request and plan our formal response. Once we submit our response to the FDA, we expect that the FDA review clock will resume and that the agency will strive to achieve its 150-day goal. We look forward to facilitating the FDA's review of our submission and to providing additional details on our planned commercial strategy as we draw closer to obtaining regulatory clearance. In addition to our recent progress on the regulatory front, I'm also pleased to share that, on November 2, the centers for Medicare & Medicaid Services completed the collection of public comments on a proposed rule regarding Medicare coverage of innovative technology for FDA designated breakthrough medical devices. A formal decision regarding the proposed rule has not been made, but if it were to be finalized as drafted, our PoNS device would be eligible to receive national Medicare coverage on the same day as it receives FDA clearance. This would then last for up to 4 years and provide us with a boost in our U.S. commercialization efforts. Mark Leno will now provide you with a review of our third quarter revenue performance and an update on our commercial activities in Canada. Mark? -------------------------------------------------------------------------------- Mark Leno;Vice President and General Manager, [3] -------------------------------------------------------------------------------- Well, thanks very much, Dan. Good evening, everyone. For the third quarter, we reported a total revenue of $131,000 compared to $150,000 in Q3 of last year. Our revenue in both periods was driven by sales to the neurotherapy clinics in Canada that have been authorized to provide our PoNS treatment. Our third quarter sales performance continued to be impacted by the significant business disruption that is being experienced here in Canada as a result of the COVID-19 pandemic. I'll take a moment now just to provide you with some updates on the business trends we've been seeing during the quarter and in recent months. Entering the third quarter, we were pleased to see that almost all of our PoNS authorized clinics had reopened to outside non-emergency patients. The remaining clinics opened in July. Despite this positive trend, the clinics continued to be constrained by the effects of the pandemic and the protocols implemented to ensure patient health and safety. First and foremost, the clinics continued to be impacted by federal and provincial requirements that limit their capacity to approximately 50% of normal services. In addition to these formal restrictions, we believe that clinic capacity and productivity was significantly lower during the third quarter due to a couple of factors - the impact of clinic specific protocols that have been implemented to ensure social distancing, and the impact of COVID on patient willingness to seek in-clinic treatment. Specifically, it's important to note that multiple sclerosis patients often take disease-modifying medications, which can suppress their immune systems, and this potentially could increase their risk of being infected with COVID. So therefore, as a result of these factors, we estimated on our earnings call in August that the average clinic across our network was currently operating at about 30% of their normal capacity. In this challenging environment, we focused our efforts on expanding access to PoNS treatment by building a broad foundation and positioning Helius to drive strong growth once the situation begins to normalize. So as a result, we began 2020 with an enhanced commercial strategy to drive 3 things: awareness, credibility and access to our PoNS treatment in Canada. As a part of this strategy, we are focused on expanding our network of PoNS clinics in the most densely populated areas of Canada by authorizing clinics that fit our targeting criteria - first and foremost, established clinical excellence and a commercial focus on neuro-rehabilitation; 2, existing referral networks with hospital systems; and 3, reimbursement expertise and established payer relationships for the treatment of neurological conditions, specifically MS and traumatic brain injury. Given the onset of COVID, we quickly began engaging with potential new clinics via virtual means. In recent months, our team also developed a virtual authorization and training process via a series of live online modules to provide PoNS training to the therapists. Our shift to a virtual engagement, training and authorization, along with the dedicated efforts of our commercial team, has enabled us to continue to expand our clinic network at a strong pace, and we intend to continue the virtual engagement strategy, going forward. You may recall that we began the year with 7 PoNS authorized clinic locations, which we quickly doubled to 14 locations in March. And despite the COVID-related disruption, I'm pleased to report we now have a total of 27 authorized clinic locations. That's nearly a fourfold increase in our clinic network in less than a year. Looking ahead, we expect the federal and provincial capacity restrictions will remain in place for the foreseeable future as the recovery in Canada continues to be a dynamic situation. While restrictions vary by region, clinics continue to be restricted to approximately 50% of their normal capacity as a result of these federal and provincial restrictions. Importantly, we believe that their productivity remains below this level due to additional COVID-related factors. For example, as I mentioned, clinics continued to cite issues with patients' willingness to seek treatment, particularly those for whom COVID represents a higher risk due to their age and any existing health conditions further impacting the clinic's productivity. While the environment remains in the early stages of recovery, we will continue to focus heavily on finding, vetting and onboarding highly skilled neurotherapy clinics in key geographic areas, with the goal of increasing our clinic network to a total of 30 clinic locations by the year-end. As we head into 2021 and our recently authorized clinics work through their initial patient treatments, we believe this expanded clinic network will position us well for the future by helping us to increase the pace of adoption of our PoNS treatment here in Canada once the effects of the COVID-19 pandemic subside. So with that, please let me turn it over to Joyce for a brief review of our Q3 financial results. Joyce? -------------------------------------------------------------------------------- Joyce N. LaViscount, Helius Medical Technologies, Inc. - CFO, COO & Secretary [4] -------------------------------------------------------------------------------- Thanks so much, Mark, and good evening, everyone. Since Mark covered our revenue results, I'll begin my remarks by continuing down the P&L. Our gross profit for the third quarter of 2020 increased by $48,000, or 79% year-over-year, to $109,000 due to a temporary reduction in manufacturing activity in the current quarter primarily resulting from resource availability. Operating expenses for the third quarter of 2020 decreased by $2 million, or 35% year-over-year to $3.8 million, reflecting the continued benefits of the cost reduction initiatives that we have implemented during the past year. Operating loss for the third quarter of 2020 was $3.7 million compared to $5.7 million for the prior year period. And lastly, we reported net loss for the third quarter of 2020 of $3.5 million, or minus $0.08 per basic and diluted common share compared to a net loss of $5.6 million, or $0.22 per basic and diluted common share for the same period last year. Turning to a discussion of our balance sheet condition and recent financing activities. As of September 30, 2020, we had $2.7 million of cash compared to $5.5 million as of December 31, 2019. We had no outstanding debt obligations in either period. The change in cash during the third quarter as compared to $5.3 million at June 30 represents an average cash burn from operations of approximately $900,000 per month, reflecting our continued efforts to control our expenses and allocate capital prudently. Subsequent to quarter end, on October 26, 2020, we closed the private placement, resulting in net proceeds of approximately $3.2 million, which was led by Dane and myself and included participation from existing and new shareholders. We believe the proceeds raised from this transaction, along with existing cash, will be sufficient to fund our operations throughout most of the first quarter of 2021. Looking ahead, we'll continue to maintain a disciplined approach to spending while evaluating multiple options to secure additional capital to strengthen our balance sheet and support our operation. Turning to our 2020 guidance. Given the uncertainties associated with the COVID-19 pandemic, we are not providing any updated financial outlook for the full year 2020 at this time. Like many companies in the medical device industry, we're currently not able to estimate the duration and impact of COVID-19 on our operations and financial results at this time. With that, I'll turn the call back to Dane. Dane? -------------------------------------------------------------------------------- Dane Carl Andreeff, Helius Medical Technologies, Inc. - Interim President & CEO and Director [5] -------------------------------------------------------------------------------- Thank you, Joyce. [Stepping back], I couldn't be more proud of our team's ability to rise above the challenges presented by COVID and continue to drive strong progress on our regulatory and commercial initiatives. While the near-term environment is likely to remain challenging, Helius is committed to operating as efficiently as possible and driving continued progress on our key growth initiatives, working towards obtaining regulatory clearance in the U.S. and facilitating the commercial adoption of our PoNS treatment in Canada. Success in pursuing these 2 key initiatives would position us to bring our PoNS treatment to the large underserved population of MS patients in the U.S. and Canada, which we believe represents the best path to creating value for our shareholders. Longer-term, we look forward to leveraging the potential of our PoNS device as a platform technology and continue our important work on the last frontier of healthcare by expanding its existing indications for use, pursuing new indications in stroke and cerebral palsy and exploring new potential applications, including applications in wellness, cognitive development and human performance. Before we open up the call for questions, I would like to thank our existing and new shareholders, including those that participated in our October private placement. We appreciate your confidence and support as we reposition Helius for our next phase of growth to create shareholder value. I'd also like to thank our employees for their hard work and continued dedication to our mission, our customers and existing shareholders and everyone on tonight's call for their interest in Helius Medical technology. With that, Operator, let's now open the call up for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question today is from [Mary Peroni], a private investor. -------------------------------------------------------------------------------- Unidentified Participant, [2] -------------------------------------------------------------------------------- As a PoNS user myself as well as a shareholder, I'm wondering why you haven't considered Parkinson's, the PoNS for Parkinson's. -------------------------------------------------------------------------------- Dane Carl Andreeff, Helius Medical Technologies, Inc. - Interim President & CEO and Director [3] -------------------------------------------------------------------------------- Joyce, do you want to take that, please? -------------------------------------------------------------------------------- Joyce N. LaViscount, Helius Medical Technologies, Inc. - CFO, COO & Secretary [4] -------------------------------------------------------------------------------- Sure. Yes. So we're working through -- as we've seen, there's a lot of potential with the PoNS device. And Parkinson's is certainly on the list of those items that are under consideration, going forward. We're tending to focus right now the indications that we named are the ones that we have a lot of current data on from treatments that we have and the scientific research that's been done historically. But certainly, that is something that we will continue to put on the list. And hopefully, at some point in time, we won't have to approach every single disease state separately; rather, we would be able to get a broader indication across multiple disease states. But that would be something that we could work towards in the future. -------------------------------------------------------------------------------- Operator [5] -------------------------------------------------------------------------------- (Operator Instructions) We are currently showing no additional participants in the queue. That does conclude our conference call for today. Thank you for your participation.