Q1 2022 Neuroone Medical Technologies Corp Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Neuro One Medical Technologies Corporation first quarter of fiscal 2022 earnings Conference call. Today's call will be conducted by the company's Chief Executive Officer, Dave Rosa and its Chief Financial Officer, Ron Clark.

Before I turn the call over to Mr. Rosa I'd like to remind you that this conference call will include forward looking statements within the meaning of U S. Federal security laws with respect to future operations financial results events trends and performance, which are based on management's beliefs and assumptions as of today's call or other specified date.

Forward looking statements may involve known and unknown risks uncertainties and other factors, which may cause actual results to differ materially from those expressed or implied by such statements see our earnings release and SEC filings for information regarding specific risks and uncertainties that could cause actual results to differ.

Except as required by law, we undertake no obligation to update such forward looking statements with that said I'll turn the call over to Dave Rosa CEO of neuro one Dave.

Thanks, operator, and good afternoon to everyone.

During and since the first quarter, we continue to make progress in advancing our thin film electrode platform technology with respect to both the diagnostic and therapeutic applications.

Start first with diagnostic applications as you may recall in September 2021, our Evo CTG depth electrodes received FDA clearance for use up to 24 hours.

In fiscal Q1, we submitted to the FDA a request for clearance of the device for temporary use that is less than 30 days use with recording monitoring and stimulation equipment for the recording monitoring and stimulation of electrical.

<unk> of the subsurface level of the brain, we submitted responses to questions from the FDA regarding our submission on February 19, 2022, and the FDA acknowledged receipt of our response on February 10, 2022, if and when FDA clearance for less than 30 day use is received.

The company will begin to fulfill stocking orders that have already been placed by Zimmer biomet, our distribution partner for the Evo family product line.

As a reminder, the company may have the opportunity to receive additional milestone payments from Zimmer biomet.

In addition, we displayed our evo cortical electrode product line and Zimmer Biomet Booth at the American.

Epilepsy Society meeting in December of 2021.

We also presented a poster at the meeting titled first FDA cleared thin film electrode for intracranial recording and monitoring of brain activity.

Device testing and initial clinical use.

<unk> to our combined diagnostic and therapeutic ablation electrodes. We've continued to make progress on this program and as a reminder, this system is expected to save time money.

As intended to improve patient outcomes by combining both the diagnostic and therapeutic applications into one device and ideally one hospitalization.

Proving the way epilepsy and potentially other neurological conditions are treated today.

In addition to providing resources to the program. We continue to work closely with our hardware development partner RBC medical innovations towards the completion of prototypes of the RF generator, which we expect in calendar three Q3 of this year.

Following the completion of the RF generator prototypes, we expect to submit a 500 10-K application for FDA clearance in the first calendar quarter 2023.

Now moving to a chronic use electro development.

During and since fiscal Q1, we continued to make progress with development of this technology.

Most recently, we announced the successful completion of accelerated five year testing, which demonstrated reliable recording without any issues associated with fluid permeation.

This could potentially expand utilization of these electrodes to long term recording for patients suffering from Parkinson's disease epilepsy, chronic back pain due to failed back surgery as well as the research markets.

We expect to release the results of our accelerated five year stimulation testing later this quarter.

Our initial focus with our chronic stimulation program is to target the spinal cord stimulation market, which currently represents over $3 billion in the U S market alone.

We also bolstered our management team in January of 2022, with the appointment of Chad Wilhelmi as Vice President of quality control and regulatory affairs.

After wilhelmi joins neuro one from <unk> medical a subsidiary of the Bronco Group, where he was vice president of quality assurance.

<unk> appointment further strengthens our executive leadership team and deepens our capabilities as we build the platform for future growth and expansion.

On the financial side, we also successfully completed an equity financing during fiscal Q1 with gross proceeds of $13 $3 $5 million, which Ron Mcclurg will touch on as well.

In closing the company made great progress in fiscal Q1, and a wide variety of areas, including commercialization development and raising capital, which will allow us to continue to execute our plan to introduce meaningful advances in thin film electrode technology for a variety of neurological application.

Thank you for your time and attention I would now like to turn the call over to Ron Mcclurg for a more in depth review of our fiscal first quarter financial results Ron.

Thank you Dave.

Product revenue for the first quarter of fiscal 2022 was $34000 compared to product revenue of $71000 in the first quarter of fiscal 2021.

Collaboration revenue was 6000 in the first quarter of fiscal 'twenty, two compared to collaboration revenue of 22000 in the first quarter of fiscal 'twenty one.

Collaboration revenue was derived from our Zimmer development agreement and represented the portion of the upfront initial development fee payment that was eligible for revenue recognition as of December 31 2021.

Our total operating expenses in this quarter in fiscal 2022% to $2 8 million compared.

Compared to approximately $2 1 million in the same period in the prior year.

R&D expense in the first quarter was $1 1 million compared with.

Approximately $9 million in the same period of 2021.

SG&A expense in the first quarter of fiscal 2022.

It was $1 7 million compared with $1 2 million in the prior year period.

Our net loss.

For the first quarter of fiscal 2002 was $2 8 million.

Or <unk> 18 per share compared to a net loss of 2 million or <unk> 26 per share.

In the first quarter of fiscal 2021.

As of December 31, 2021, the company had cash of approximately $16 2 million compared to $6 9 million at September 32021.

The cash balance at December 31, 2021 includes proceeds.

From an underwritten registered public offering of $4 million 172000 shares of common stock at a price of $3 20 a share.

<unk> in gross proceeds of approximately $13 $3 5 million.

Company had no debt outstanding at December 31, 2021.

That concludes my remarks, and I'll now pass it back to the operator to open up the call for Q&A.

Thank you ladies and gentlemen, the floor is open for questions. If you have any questions or comments. Please indicate so by pressing star one on your Touchtone phone lastly, we're posing your question. Please pickup your handset of listing on speaker phone to provide optimum sound quality. The first question is coming from Alex <unk> from Craig Hallum. Your line is live.

Great. Good afternoon, everyone. Dave I was hoping you can expand on the questions that came back from the FDA and the depth electrodes and what were the nature of these questions.

Yes, Alex So really there were a few things one was.

Just some basic questions about the compounds that were found in if we knew where they were coming from.

They wanted us to elaborate more on that.

Which we did.

And then the others were just a little bit on explaining more of the results. They acknowledged in the letter that.

We followed the methodology that they would recommend it but they just had some basic questions just on.

Some of the results and.

Again, we said this before but.

We passed the testing.

Per what the FDA regulations.

Require.

They just wanted a little bit more clarity on that and then there were just some basic questions about labeling but.

The questions on the compounds and methodology.

We're really at.

And I know you've talked about this before but you just mentioned it again, but just on the bio comp piece of it so youre pretty confident regarding the materials that were found there no sort of.

There is no sort of questions on whether that could move forward and it's more of just a clarification on their part.

Yes, so well keep in mind, the only thing that the FDA is reviewing is the result of the biocompatibility testing. So theres nothing theres nothing outside of these two tests that they were reviewing.

And yes.

We firmly believe and our consultants that actually put the analysis together.

I agree that we all fall within the required guidelines.

As it pertains to results for these testing.

So.

Am I confident yes.

We just got to wait for the FDA to come back and if they have any additional clarifications.

Hopefully, we'll find that out in the next couple of weeks and get this done.

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

I think if the FDA.

Hard to answer because I'm always basing it off of a full submission and this is just the submission of two tests.

And there werent.

Tons of questions, they're really a handful of questions. So.

Normally yes, there is some back and forth, but if the FDA came back with questions. They would likely come to us and say look we consider this interactive.

And we would do this over a phone call as opposed to E mailing back and forth. So I think the next step would be much quicker than the previous ones. Just just just because the interactivity.

Understood that makes sense and then any updates on how Zimmer is preparing for commercialization. Once it's approved just any updates on from the FDA on their own drill bit submission and then just education with reps and the epilepsy centers.

Yes, so I'll handle the education piece first.

We actually have a meeting later this month with them to go over all the details for this so.

So those plans they have been actively planning for the limited release of the product.

We haven't started the official training yet.

So we are waiting for a little bit more direction from them, but again when you go back and look at the fact that they have placed orders.

Already multiple orders this is not something that.

I think they want a delayed too long.

We don't or I should say in our discussions with them. They have indicated they have not yet heard back from FDA. So theres not much more I can give you.

On that but hopefully and.

The next week or so I am assuming that they.

They should also expect to hear back from FDA on that.

Okay got it and then it looks like you are pretty confident on the ablation electrode and that being a five 10-K, just what's the chance that that could morph into a PMA as you move forward here and then on the submission timelines for the 500 10-K.

I would assume that incorporates all of the need to generate fence data animal studies, just how concrete are those submission timelines that you put out today.

Yes, so I'll take the I'll answer your first question first on how confident ROE. So.

The initial analysis done by our regulatory consultant.

<unk> indicated that.

She was very confident that this would be a 500 10-K.

But in addition to that I believe.

It was maybe about 30 days ago.

Went to a second outside.

Organizational consulting organization that has a lot of experience with this as well.

They also said look we think you should submit this as a 500 10-K, it's pretty black and white so.

I don't know that.

I would consider myself, an expert with FDA and what they would do but.

I rely on companies consulting companies.

That have been successful with this before so I mean, there is there is clearly predicate devices that.

That are out there that we've identified that do RF ablation.

Brain tissue.

So I'm as confident as as my consultants are and.

The recommendations that they gave us actually will.

We will earn them less money than.

And then if we were to do more work than what they are suggesting so.

I feel pretty good about that and.

And in terms of just the testing itself or the submission itself, yes. It does factor in.

The test that we have to perform.

We still feel that Q1 is the appropriate timeline.

Obviously, we've got to get the <unk>.

<unk> from RBC in and do some testing on that because all of our tests have been done with <unk>.

Competitive generators, but.

Where we are now and even given some of the <unk>.

Some of the challenges with Covid and supply chain.

Everyone's still feels good about that timeline.

And actually on that point any of the design and development work that you need to do is that solely on the RF generator or is there any more work that needs to be done on the actual <unk> itself.

There is work that needs to be done on some of the accessories that would be used with the electrode.

But the majority of the real work is the generator.

There is still some additional testing that we will be doing with the electrode.

But most of what we're working on now is outside of the electrode its accessories and hardware.

Got it and then just last question for me just maybe expand on the next steps here with the chronic use electro just had it turned that from the accelerated aging data we have here.

Virtualize product.

Yes, so that's obviously a longer timeline, what what I think really opens the door for us in terms of therapeutic applications is the set of data that we'll be releasing next.

Which is stimulation.

It's a little bit harder to predict how much time, it's going to take to what I'll say perfect. The manufacturing process. Because there is there is still a fair amount of time associated with that.

It's not something that you should expect to see in the next 12 up to 24 months in terms of.

Commercial product.

We have some ideas about how to enter that market more quickly by.

By partnering with a company that has an already approved pulse generator for chronic stimulation. So that should really help with the timeline in terms of having to.

Redo some of the testing that.

That we would have.

<unk> had to do if we designed it ourselves. So we think we can save some time, but I think probably the bigger question is going to be how long is it going to take us to perfect. The manufacturing process. So.

So that we can manufacture these in high volume.

With with high yields and.

We don't have the answer to that but I'm, hoping that at our next call we have better clarity on that.

Okay. That's great appreciate the update thank you sure.

Sure.

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

Hey, good afternoon, guys. Thanks for taking the questions.

First off for me just kind of following up on.

<unk>.

The last question there.

On the chronic side of things you mentioned in the press release.

So ago entering the research market and then obviously you touched a little bit on the strategic.

Licensing angle.

Can you give us a little color more color on what the research market might look like and then also have you had.

Discussions with strategics on that.

The chronic use upfront.

Yes.

And then so.

Your first question on the.

The size, what we estimate the size of the research research market to be not not sure yet, but I can tell you that.

I've been with the company five years and the research market has come up multiple times and it seems every time, we put out a release even much like the one that we recently put out where we were able to do recording with the electrodes for five years, we start getting ask questions about hey can you design.

In electrode for me for research purposes. So there are some companies that.

Literally only provide devices for research.

Purposes.

Can't tell you if that markets $50 million.

$20 million.

But.

I personally believe just from what I've heard from companies that are in the space that it could be somewhere.

Between $10 million to $20 million so.

Which to be a significant.

Just a recording standpoint.

And then I think Youll also hear we're working on something.

With.

A program or a project a research project.

Right now with a local institution.

Things are not yet finalized but.

We were likely to start.

Our project.

Regarding an indication that we're not in now.

Using these electrodes for research purposes.

So stay tuned on the market, where we're really trying to scour to see if there was any published information.

Information on what the size of that is and then with respect to strategics.

Dating back to I think three years ago be even before we were a NASDAQ company.

Publicly.

Commented that we had had discussions with strategics.

Strategics.

And the comment or response was.

This is nice what youre doing but.

For chronic applications.

We would like to see some data that the electrodes will be able to perform so.

The short answer to your question is I think those discussions or any discussions.

We will increase or I'll say.

Reappear once we release the results of the.

The chronic testing, which again.

I expect to happen this quarter.

Okay, Great. That's helpful. And then I guess kind of on the R&D front I think you've got some devices for.

Kind of the high definition electrodes to.

I think it was mail and Carnegie Mellon.

Any feedback there.

Whats the latest on the HD electric truck.

Yes, so the Mayo did use them.

The implanted them in pigs.

Fortunately the pigs.

Caught infections.

And they wound up dying before.

Before the timeframe.

Expired.

That we were looking to test that so we don't have that raw data yet although the Mayo has said that they are going to analyze it and send it to us, but I'd really like to re run some of those tests. So that we were not taking these out only a week that we are really pushing these for 30 60 90 days the problem is preventing it.

These animals from getting an infection because.

Keep in mind. These are all open wounds.

Not like the electrodes.

And the hardware implanted in the animals. So that's that's been challenging for them to manage.

And we have not heard back yet from Carnegie Mellon.

Okay got it and then I guess lastly for me you're in Zimmer Biomet Biomet.

Yes.

Eric in Epilepsy Society meeting in the air.

<unk>.

What was the feedback on the critical electrodes.

At the meeting.

So are you talking about from physicians or from the Zimmer sale.

Our sales force.

Well I guess I guess Paul.

Alright.

I guess that was a dumb question on my part.

So the.

Physicians that came by the Booth clearly, we're intrigued I think the first thing that they.

It becomes apparent to them as how thin and flexible. The film is it's not something that they have worked for in the past.

The challenge that we've had that.

The feedback from.

The Zimmer Salesforce is that.

Hospitals do not want to carry one company's cortical electrodes and another companies.

G or depth electrodes, they want one manufacturer and that's it and until.

We released the seg electrode until we have FDA clearance.

It's more of a special order situation with the critical electrodes and we all know that that's a low volume product. So.

It's easy to kind of forget about that but.

There is no question that the doctors get what the value of it is and then when they hear a little bit about the.

The.

The brain friendly proper.

Properties of the device that it has it appears to have less inflammation than or cause less inflammation than traditional electrodes, they're even more intrigued by it but I can tell you that if you package the Zimmer salesforce.

As well as the neurosurgeons that came by there is a lot of excitement.

About the SEC <unk> electrodes.

And on one hand, it will allow us to get on the shelf for these hospitals as opposed to a special order.

But to this this is really where the volume is in the diagnostic procedure. So.

A lot of excitement to get that product on both fronts.

Yes, okay.

Well, that's all I had gentlemen, thanks for taking the questions.

Already.

Thank you very much.

We have no further questions in queue.

Okay, It looks like <unk>.

<unk> his line has dropped.

Brian are you there.

I am if theres no further questions.

We will turn it back over to you.

We thank everybody for the time this afternoon.

Thank you.

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

Okay.