Q1 2021 Helius Medical Technologies Inc Earnings Call

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Okay.

Please standby good evening, ladies and gentlemen, and welcome to the first quarter fiscal year 2021 earnings conference call for Helios Medical technologies.

At this time, all participants have been placed in a listen only mode.

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 though.

And as 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 and our other filings with the SEC.

Which are available on our website.

All statements made during this call are as of May 17th 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 Andrey Helios Medicals and term President and Chief Executive Officer. Please go ahead Sir.

Thank you operator.

And welcome everyone to Helios Medicals first quarter 2021 earnings conference call I'm joined on the call. This evening by Joyce <unk>, Our Chief Financial Officer, and Chief operating Officer, and Mark Nino, Vice President and General manager of our Canadian operations.

Let me provide you with the quick agenda of what we're going to focus on today as part of our continued strategy strategy to reposition helios 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 and Canada.

Joyce will then briefly review our first quarter financial results.

Discuss the recent progress we've made the secure additional capital and enhance our balance sheet condition and share some thoughts on our expectations.

Following choices remarks, I will share some closing thoughts on our near term initiatives and 2021 and longer term outlook before we open the call for questions.

Yes.

With that let's get started with an update on our recent progress and the U S.

During the first quarter of 2021 we made of very strong progress on our U S regulatory strategy to pursue an indication and multiple sclerosis or M. S.

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 and March of 'twenty, 'twenty, 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 MFS.

Approximately one year later, we were proud to secure U S marketing authorization for <unk>.

Pons device for the short term treatment of gait deficit due to mild to moderate symptoms from en masse.

This achievement represents the most significant milestone and the history of Helios medical and I would like to personally congratulate our employee shareholders and the people who conducted and participated in our clinical research for <unk> 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 and Helios remains committed to commercializing our pons device in the U S. During the first quarter of 'twenty 'twenty, two and we are continually to prepare accordingly.

Specifically, we are currently focused on the following for initiatives as part of our pre commercial activities in 2020 one to lay the groundwork for successful U S commercialization.

First securing the.

The licensing and credit Asian required two distributor of Pons device across the U S. SEC.

Building, a dedicated team to lead and processes to execute our initial U S. Commercialization efforts third we're finding our strategic target engage and educate potential early adopters and.

And for pursuing medical coverage for our Pons treatment.

Let me take a minute to discuss each of these four initiatives and more detail beginning with our efforts to secure licensing and accreditation.

During the initial months of 2021 and our team has been working to secure required licenses and each state that will enable us to distribute and sell our pons device.

I am pleased to report that with the licenses we've already secured to date, we'll be able to distribute our product and 2000 for steam.

We will continue to pursue pursue additional state licenses in 2020, one 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 future success.

More importantly, we are working to expand and enhance our leadership team with the addition of key personnel the lead our sales and marketing strategy and our support our operations and the United States.

Late last year, we appointed a new director of commercial operations, who will be instrumental to our athletes shuja.

She joins the team with over 20 years of healthcare experience, including significant expertise and 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 two of her future contributions as we prepare for commercialization.

On March 15th we expanded our board of directors with the appointment of share repurchase who brings significant experience advising neuromodulation companies on their commercial and marketing activities.

MS. Perkins spent nearly 20 years, working with live and Nova and its subsidiaries and currently serves as a member of the venture and 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 and 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.

And the U S. Our commercial effort will focus on two primary audiences.

First we will focus on raising awareness of pons treatment by educating neurologists and other key positions and the neurology community, who we believe will serve as potential prescribers of our Dubai.

And second.

And we intend to engage personnel at key neuro rehab the litigation, where you have per location centers, where we believe our patients will be treated and educated them on how they can now employ the pons and their practice.

We are focused on establishing our processes and our team in order to create demand by engaging these two primary audiences.

With respect to our third initiative, we plan to prioritize targeted development of relationships with select neurologists and neuro rehab 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 MF 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 and late 2020.

Our scientific Advisory Board consists of researchers and clinicians and medical doctors with the body of work and MFS and neuro rehab 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 the 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 and set rule.

As a reminder, and set represents a new CMS pathway for F. D. A designated breakthrough medical devices that achieve U S market authorization to quickly receive nationwide Medicare coverage, we would last for four years from the date of market authorization.

On January 12 of this year, we were pleased to see CMS announced that they were finalized and the world.

On March 12th 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 would delay until December 15th 2020 to provide CMS and opportunity to determine appropriate next steps.

While we were obviously disappointed by the delay Helios and 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 pronged 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 M set rule.

Cool.

With approximately 60 million Americans enrolled in Medicare and we continue to view and sit coverage as an important potential tailwind to our initial U S. Commercialization efforts and will continue to closely monitor its development.

Stepping back and we're excited by our progress since we began pursuing an indication and MFS as the pathway to obtain our first U S regulatory clearance of the.

Dedicated strategic execution from our team over the last year culminated and the receipt of marketing authorization at the end of the first quarter consistent with our expectations.

With ponds as the first and only device authorized by the FDA to treat a deficit and MS. Patients. We are highly focused on laying the groundwork. This work this year the support U S adoption and 'twenty 'twenty two and beyond.

We look forward to raising awareness among all important constituents and the M S community, including neurologists administrators, and physical therapist and patience to build awareness of this new and effective opportunity for <unk>.

Treatment.

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

Mark.

Thanks, very much Jean <unk>.

Consistent with the expectations, we shared on our earnings call in March we reported total revenue of $84000 for the first quarter of 2021.

Paired with 207000, and the first quarter of last year our.

Our revenue in both periods was driven by sales to neural therapy clinics in Canada that had been authorized to provide our pons treatment.

As we had anticipated our revenue performance and the first quarter of 2021 remained impacted by the significant business stores disruption and 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 and more detail.

As we've discussed on prior earnings calls, our Pons authorized clinics across Canada had 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 the 50% level due to the added impact of client can pose safety protocols and the effect of the pandemic on patient willingness.

To seek and clinic treatment.

Remember that many Ms patients take disease, modifying medications that suppress the immune systems, placing them at higher risk for contracting COVID-19.

Beginning in late November of 'twenty, and 'twenty, we saw incremental headwinds as Canadian citizen of the cities and provinces implemented Lockdowns and.

And stay at home orders across the country and response to the resurgence and COVID-19 cases.

During the first quarter of 2021, COVID-19 cases, and Canada have remained elevated with the provinces of Ontario, Quebec, British Columbia, and Alberta, all reaching peak levels.

And response local governments impose more severe restrictions on both citizens and businesses during the first quarter.

While our clients across Canada remained open during the first quarter. They were formally restricted to 25% of their normal capacity with capacity as low as 15% and 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 remained.

The practice.

While clinic physician and patient engagement has been very challenging given the severely impacted environment. Our commercial team has done an excellent job under the circumstances working resourcefully to drive progress and position Helios 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 terra our therapy and explain its benefits.

Using the virtual processes that we developed and the second half of 2020. Our team continued to authorized clinics and train their physical therapists to provide our pons treatment.

We were successful and authorizing to new clinic locations. During the first quarter of 2021, expanding our network of Pons authorized clinics for a total of 33 locations.

By quarter and.

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-19 and by working to increase their patient throughput once Canada recovers by educating their base of clinic and clinician prescribers on pons treatment and its potential benefits.

Our Ontario based territory manager of former therapist and clinic director of whom we hired in December of 2020 is working with each clinic to help them raise awareness of pons treatment and the therapeutic benefits by planting educational sessions with their network of referring neurologists psychiatrists and G piece.

And which will be conducted once COVID-19 restrictions ease.

From where things stand today, and the environment, 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 spiking cases during the month of April of limited many clinics 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.

And the interim we will continue to support our existing clients. During this challenging time, while engaging with prospective new clinics to position Helios for a return to growth and Canada as the environment normalizes.

With that.

Please let me now turn it over to Joyce to discuss our first quarter financial results.

Thanks, Mike for the first quarter of 2021, our gross profit decreased by 37000 or 35% year over year to 69000 due to the June 2020 launch of promotional pricing to drive customer access due to COVID-19 operating expenses.

For the first quarter of 2021 decreased by 538 for all of them 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 with $3 5 million compared to 4.0 of millions and 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 one for 35, the first split of our class a common stock in order to regain compliance with the NASDAQ stock market continued listing requirement.

We received written notice from NASDAQ on January 15th 2021, which confirmed our compliance with all applicable listing standards.

Turning to a discussion of our balance sheet condition and recent financing activity.

Our average cash burn from operations during the first quarter of 2021 with approximately $1 billion per month compared to approximately $1 3 million per month, and the first quarter of last year, reflecting the success of our continued efforts to control our expenses and allocate capital prudently.

And with the second quarter to date.

Given the COVID-19 related restrictions.

Given the COVID-19 here.

Okay.

Okay.

Okay.

And to the discussion of our balance sheet and recent financing conditions are average cash burn was the $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 and we make one 8 million of net proceeds for the exercise of warrants and January and closed an underwritten public offering of common stock and warrants for net proceeds of approximately $9 6 million, including a full of 15% over allotment.

On February 1st.

As of March 31, 2020, we had 11 4 million and cash compared to $3 8 million as of December 31, 2020.

Had no outstanding debt obligations in either period.

Looking ahead, while we expect the expenses in 2021 to increase in conjunction with our pre commercialization activities and we will continue to maintain a disciplined approach to spending well evaluating options to strengthen our balance sheet and support our operations, including our U S commercialization efforts.

The reminder, there are currently approximately 594000 warrants with a weighted average price of 16, and 32, which could yield an additional $9 $7 million at Baxter side. Although there is no assurance that these warrants will the exercise in 2021 or ever.

Turning to our outlook in low 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-19 related restrictions and Canada experienced steering.

Experienced during the second quarter to date and the impact on the credit capacity and patient willingness to seek treatment. We currently anticipate second quarter total revenue of approximately $90000. Despite these temporary impacts our Canadian business remains an essential component of our long.

Term commercial and clinical registry and regulatory strategy, we hope to see evidence of the gradually returned to a more normalized environment as we enter the second half of the year.

As a reminder, we expect to begin our commercialization and the U S. During the first quarter of 2020, two and therefore do not anticipate any revenue from the sales of our pons device and 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 and reflecting the majority of the incremental investment related to our pre commercial activities as they prepare for U S commercialization.

Now I'll turn the call back to Dean Inc.

Okay.

Thanks, Joyce and Mark.

In summary, I couldn't be more proud of the dedication and resourcefulness that our team has shown and 2021.

By securing marketing authorization and MFS, we accomplish 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 the $11 million and net proceeds to support our operations and future growth.

We are making progress and building our team and executing efficiently to enter the U S market and early 2020 two and.

And our entire team and Canada continues to perform admirably laying the groundwork for our future of commercial success as the country recovers.

Our operations and 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 Helios and better positioned as an organization to bring our technology to the large underserved population of the MF patients and the U S and Canada as quickly as possible.

Over the remaining months of 2021 and we're 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.

<unk> balance and gait deficit associated with strokes.

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 and todays remarks by once again thanking our employees for their efforts this past quarter in recent years and congratulating them on our recent success.

I'd also like like to thank our new and existing shareholders for their support as well as everyone on tonight's call for their interest and Helios medical technologies and our mission.

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

Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure that your mute function is turned off to allow your signal to reach our equipment. We do ask that you limit yourself to one question and one follow up if you'd like to ask additional.

<unk>, we invite you to add yourself into the queue again by pressing star one we will now take a moment to allow participants to join the queue.

Your first question comes from the line of Jeffrey Cohen with Ladenburg found and please proceed with your question.

Hi, This is actually destiny on for Jeff. Thank you for taking my questions and my first one and it's.

Kind of two part I heard you reference here and marketing strategy is the in regards to the physicians. So I'm. Just curious are you, giving any market development within the MS community moving directly to patients and I know that there are very well educated community and theyre typically on top of regulatory approvals and.

And I'm, just wondering how you're kind of leveraging that and then how are you thinking about the time from investor day, and raising awareness to actual utilization by patients.

Yeah.

And George do you want to take that question.

Sure. So for the first part of the question and working with the neuro rehabilitation centers, Yes, we will be also.

Working with the MS community, you're exactly right. They are a very organized and are very motivated and the you know we feel that that's a huge opportunity for us to.

The 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 and we're going to be focused with the small cross functional team that we have in place already to build out the commercial model and to prove the the go to market strategy and then once we're able to prove out that model, we will continue to expand as we it.

Increase the number of the neuro rehabilitation centers that we pursue and spend the investment that the sum there.

Yeah.

Okay. Thank you and then just for my follow up could you discuss here of supply chain and manufacturing capabilities and if you're making any investments. There ahead of the U S. Commercial launch thank you.

Sure so from a supply chain and manufacturing capability. So what we have our manufacturing key Tronic center located in Minnesota, and we have full scale manufacturing and already in place and right. Now we are working to make some minor and.

Modifications to our products to ensure safety reliability and improve our yields and as we move through we will be able to manufacture and ample product to support the demand forecast that we are building at this time.

Okay. Thank you.

Your next question comes from the line of Joe Gomes with Noble capital. Please proceed with your question.

Good evening and thanks for taking my questions.

Yeah.

Sure.

Welcome Joe.

First question just kind of wanted to look at the the CMS delay and do you think that has one of the peer so but any impact on the company's U S timeline here.

Going into 2022.

And though we do not feel that that will significantly delay our timeline, what we what our expectation is is that our first customers will be cash pay.

And the processes that we've already started and place to.

Establish the the coating and the reimbursement are very similar whether we are going to matter and set a would be in place or not so we're continuing our processes and it just any of the potential delay with the exit rule means that we would have to less and more time.

And doing our negotiations out of jurisdiction level, rather than that the national level that the second of all what has provided us that opportunity, but we have already started those efforts and and the you know we.

<unk> to be able to continue to move forward effectively.

Okay. Thank you for that and for my follow up and in the U S. And I was wondering if you could give us a little more detail here on setting up this network.

If I look and Canada.

You've got you've got 33 clinics.

<unk> taken a number of years to get there.

You know.

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 your timing and any additional color. There is appreciated. Thank you.

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 and the U S. We're focusing on both the clinic side as well as the neurologists.

And as we reach out to the neurologist and he will be looking at where they already treat MF patients. They are.

And we will refer them across to neuro rehabilitation centers, and we will work with those neuro rehabilitation centers, where they're already exist the relationship between the neurologist and that center.

And we expect that patients will get the prescription and from the neurologist and go to the centers, we anticipate having a 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.

And Ah patient starts working with the P. T Center. There is already exists the link between the P T and the neurologists to make decisions with respect to how the treatment is going and and teacher treatment cycles from there.

Yeah.

As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.

We do ask you to limit yourself to one question and one follow up one moment, please while we pull for more questions.

Your next question comes from the line of Mitch Swergold with Swergold Advisory. Please proceed with your question.

Hi, Dave and team congrats on really advancing this thing so well.

I was wondering if you could.

I was wondering if you can talk a little bit about how the hiring process is going for C level executives and then I'll follow up.

Yeah. So.

Thanks, Mitch it's of Great question, a couple of a couple of answers to that we've.

And engaged multiple search firms as well as our.

Net net work internally to search out the best candidates.

For each individual position and.

And that not only includes the C suite, but as you drop down below that as well so and.

Also with the C suite, we've got a very active and engaged board of directors and they bring a wealth of the experience knowledge and contacts that were leveraging that experience and wisdom as well.

Okay.

Yeah, the thing over and ask you about was I'm, sorry bear with me and when all of that question Oh, Yeah.

Can you talk about what your plans are for.

For.

And both Inc.

International where we are with that because I know the China or the straw.

The other hereof and so on and then also in terms of expansion to other applications through other FTA approval processes, where do we stand.

All of those different items and.

Yeah. So we are.

You know right now Hum our application has been in Australia, and Australia right now at the T G, a and that application and spending.

And also with the authorization by the FDA, we have a.

And agreement with the China metal medical as well.

So that we could take.

And our documentation.

Of our clearance and with there.

With that agreement and the Kid a partner.

And.

And proceed to and application and and and hopefully clearance as well and for provinces in China.

But right now Mitch you know 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 for the FDA for those.

So definitely we have a platform technology again.

One of the most common symptoms of cross neurological diseases, and trauma is balanced and keep deficit and given our M. S clearance.

As well, we're also cleared by health Canada for M S.

And traumatic brain injury.

We expect because of our ability and our clinical data.

We have the opportunity to approach the FDA again and Oh.

A multifaceted approach not only and stroke, but T b I and cerebral palsy.

And expand our English and the feel for where we are in the process.

And at the moment Mitch.

It's and it's.

Part of our company strategy, right, now and and right now and we cannot reveal that.

Okay. Thanks, a lot of great work and keep it up.

Thanks, Mitch for your questions.

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.

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