Q3 2022 Neuroone Medical Technologies Corp Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the narrow one medical Technologies Corporation third quarter of fiscal year 2022 financial results Conference call.
Today's call will be conducted by the company's Chief Executive Officer, Dave Rosa.
And Chief Financial Officer, Ron Mcclurg.
Before I turn the call over to Mr. Rosa I'd like to remind you that this conference call will include 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 risk 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 S E 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 during and since the third fiscal quarter the company accomplished.
Great deal with respect to our S. EEG electrodes program development of our one RF ablation system improvements to the balance sheet and cost reductions.
First let's address the progress we made with our <unk> product line.
On our previous call, we discussed that we would appeal the fda's decision to deny clearance to increase the duration of use from less than 24 hours to less than 30 days use with recording monitoring and stimulation equipment for the recording monitoring and stimulation of electrical signals at this.
Subsurface level of the brain.
On May 16th the company issued a press release, stating that the FDA had denied our appeal.
The FDA also stated that the company may submit a new 500 10-K with new evidence specifically as it relates to the sub acute toxicity endpoint to support finding of substantial equivalents the company completed.
Completed the process of collecting this data and submitted a special 500 10-K on August eight.
Which was earlier than previously targeted.
We continue to believe that the design and materials used for the <unk> electrodes are sufficient to meet the FDA guidance for device biocompatibility.
On July 12, we reached a major milestone with our Evo.
<unk> electrode as it was used for the first time clinically at Emory University for intra operative brain mapping at the sub surface level of the brain.
We expect to perform additional similar cases in the near future in an effort to continue to gain more clinical experience with the electorate.
Moving on to our combined diagnostic and therapeutic ablation electrode, which we have named one RF.
Made tremendous progress over the quarter, which allowed us to complete the full system prototypes two months earlier than anticipated.
<unk> the RF generator from RBC medical.
We accomplished another major milestone by successfully completing testing of the full system, including neuro ones electrode and other accessories next.
Next up for the project is to complete additional preclinical testing for use in our five 10-K submission to the FDA.
We are still targeting an FDA submission by the end of the first calendar quarter of 2023.
As mentioned in my opening comments. We are also excited to strengthen our balance sheet through an amendment to our existing agreement with Zimmer biomet, providing the company with an accelerated $3 $5 million payment relating to certain milestones and.
In exchange Zimmer Biomet received a warrant to purchase 350000 shares of neuro <unk> common stock at $3 per share.
This provided additional capital for the company without requiring highly dilutive financing.
We appreciate <unk> interest in supporting neuro, one as we continue to strengthen the partnership.
With respect to cost reduction initiatives and supply chain management, we successfully completed qualification of a second source manufactured electrodes for both the Evo cortical and seg product lines, reducing supply risk for both of the product lines. Additionally.
Additionally, we are currently weighing the potential to bring certain aspects of the manufacturing process in house.
In terms of cost reduction efforts, we successfully validated our new cable assembly manufacturer, which significantly reduces our cost for this component.
We also completed the process to extend the shelf life for the Evo critical product line, three years, which reduces the cost of expired product as well as supply chain risk.
Let's now move to a chronic use electrode program as.
As we continue to develop the technology, we remain focused on developing assistant system for the treatment of chronic back pain due to failed back surgery that provides the capabilities of recording and stimulation in a thin film electrode technology.
We recently established a physician advisory board comprised of leading anesthesiologist and neurosurgeons and have extensive experience with implanting These systems.
Later this month, we will convene the group to begin to develop the framework of the feature set customized to the advantages of our electrode technology.
The company continued to expand its.
Its exposure and presented at the H C Wainwright Global investment conference and the Noble Con 18 Investor Conference. We also established the Evo critical electrode and partnership sorry, We also exhibited the Evo critical electrode partnership with Zimmer Biomet.
At the American Association of neurological Surgeons annual scientific meeting and American Society for Stereotactic and functional neurosurgery biennial meeting.
We're also proud to have our first peer reviewed paper presenting the biocompatibility results for Evo thin film Subdural electrode published in the frontier of Neuroscience Journal This past April .
Also we were recently informed that the Evo SCE G. Implantation accuracy study was accepted as a podium presentation at the biennial meeting of the World Society for Stereotactic and functional neurosurgery to be held in South Korea September 4th through the seventh 2022.
Over the past quarter in early August the company accomplished a number of major milestones I'm thankful for the team of consultants and employees that expedited that process to resubmit the <unk> electrode for FDA clearance for less than 30 days use.
We remain pleased with the test results of the Evo Seg product line and look forward to engaging with FDA in the near future to discuss our recent resubmission and.
In addition, the team also achieved a major milestone for the one RF ablation system by successfully completing functional testing in July much earlier than expected.
Securing $3 $5 million from Zimmer biomet without the need to have to do a highly dilutive financing was also a key accomplishment.
We look forward to building on the exciting momentum we generated over the last quarter in early August as we continue to address both our short term and long term company objectives.
Thank you for your time and attention I would now like to turn the call over to Ron Mccleary, Our CFO for a review of fiscal third quarter financial results Brian .
Thank you Dave.
Product revenue was 32000 in the third quarter fiscal 'twenty, two compared to product revenue of 40000 in the third quarter of fiscal 'twenty one.
Collaboration revenue was delayed in the third quarter of fiscal 'twenty, two due to the FDA decision.
Compared to collaboration revenue of about 17000 in the third quarter of fiscal 'twenty one.
Collaboration revenue is derived from the Zimmer development agreement and represents the portion of the upfront initial development fee payment that is eligible for revenue recognition as of June 32022.
Total operating expenses in the third quarter of fiscal 'twenty, two with $2 8 million compared with $3 million.
Prior year third quarter.
R&D expense in the third quarter of fiscal 2022 was $1 2 million compared with <unk>.
$9 million in the same period of fiscal 2021.
SG&A expense in the third quarter of fiscal 2002 was $1 5 million compared with $2 1 million in the prior year third quarter.
Our net loss for the third quarter of fiscal 2022 was $2 8 million.
Compared with a net loss of $3 <unk> million in the third quarter of fiscal 2021.
As of June 30 of 2022, the company had cash of approximately $10 2 million compared to $6 9 million as of September 32021, which is the end of the company's most recent fiscal year.
Company had no outstanding debt as of June 32022.
That concludes my remarks, I'll now pass back to the operator to open up the call for questions and answers. Thank you.
Thank you at this time, we will be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your hand.
Set before pressing the star keys, one moment, please while we poll for questions.
Our first question comes from Alex Nowak with Craig Hallum Capital Group. Please proceed with your question.
Good afternoon, everyone I know the company was working on several <unk> studies.
Remind us the study that was used here.
Hi, <unk>.
What other animal studies underway in the background.
Alex the last part of your question cut off could you repeat that.
Yes, just the other the other animal studies that are underway in the background.
What the news specify I think.
Mission used for the animal study and then what other animal studies are underway.
Yes sure.
So there was one study that we.
We had to perform in the FDA gave us the option of either.
Redoing, the what's called the exhaust of extraction test to meet this particular endpoint or sub acute toxicity.
So the last time, we performed the test it was an exhaustive extraction.
And this time, we performed sub acute toxicity because sub acute toxicity.
Is really a pass fail test there is no.
Analysis, that's needed to be done.
So that was one of the reasons why we chose that.
And obviously.
FDA Didnt agree with our discussion on on the exhaust of extraction. So it made no sense in my mind to redo that test.
And then sub acute toxicity.
There is no data analysis.
Provides the opportunity to submit under a special 500 10-K.
Whereas if theres any data analysis that needs to be done in the case of exhaust of extraction.
Just the number of pages of analysis for that test it was 144.
From what my memory serves so obviously required.
Got more analysis than a lot more review by FDA.
The test we did with sub acute toxicity.
In terms of other biocompatibility test we've already met all the other requirements. The FDA didn't have any outstanding requirements.
To perform any any additional biocompatibility testing. So when you look at all the testing that we've already done.
On the subdural electrodes.
There isn't a need for us to do to meet any other requirements.
In terms of biocompatibility.
Okay. I think you answered the question there, but the reason to do a special five 10-K, this time versus doing a normal five 10-K, because the first time. It was I think <unk> got move toward normal. So just maybe speak to that rationale a little bit more.
You mean, why we submitted under a special.
Yes, especially when last time I went from specialists to normal anyway.
Yes so.
When the FDA.
Number one the.
Obviously the.
Rationale for wanting to submit under a special is is that it's a 30 day review period as opposed.
To a 90 day cycle under a traditional 500 10-K.
But the FDA came back and said on the first one.
There is a substantial amount of analysis, that's required for exhaust of extraction.
And we will not accepted under that we need to submit it we need to.
Transitioning to a.
A traditional 500 10-K, so technically the FDA has 15 days from the date.
Of receipt.
Which the clock started today as the 11th August nine.
And the last time, they notified us eight days after the submission date debt.
That they were converting it.
To a traditional 500 10-K so.
The FDA is not under any obligation to accept that as a special 500 10-K, but.
Doing doing a sub acute toxicity test because there is no data analysis like there is under exhaust of extraction.
Provides us with a solid argument as to why it should be accepted under a special 500 10-K.
And we did have discussion with FDA.
Got it Okay that is helpful. And then maybe speak to the data I mean, it sounds like its pass fail to understand what the path for the Resubmission, but maybe speak to what some of the commentary that FDA could push back against what the result of that Bud and Bud light.
Yes, so it is pass fail.
And.
I guess without going blow by blow.
We wouldn't be submitting the 500 10-K, we wouldn't have submitted anything if.
We didn't pass the testing so.
No.
In terms of going through exactly what we passed I mean, there is there is a lot to it.
But ultimately.
What you are looking for here is to make sure that.
None of the animals I believe they were roughly about 300 and this testing.
That when exposed to the device over the course of.
29 days that.
There isn't any.
Toxicity associated with the device during that.
Implantation period.
<unk>.
The end results are very short.
It was non toxic or there was some toxicity and in our case.
The independent lab substantiated that it was non toxic and there were no red flags that came out of it so.
Trying to.
Guess as to what the FDA might come back with I haven't been successful doing that than any company I've ever been in to be honest with you. So in this case I would say the same thing I don't know what they could come back with especially since it's past sale, but we'll have to wait and see.
Okay understood that makes sense and then maybe expand on the latest with the Zimmer relationship that was nicely. Okay Myles.
Milestone payment from them. So were there any amended deal terms other than the inclusion of the warrants and then what's the status of <unk> commercialization plans.
Obviously, they're waiting on approval here, but I know they are also waiting on their own approvals such as that.
Yes, so there wasn't anything else in the deal terms with Zimmer. It was just what we reported the.
$3 $5 million payment.
In exchange for the warrants.
So that relationship I've said before that I've always.
At least I felt.
It was always a solid relationship.
I think they stepped that up with the with the transaction.
Action that we did.
It was helpful for us and I think look there the way they look at it is there.
Investing in.
And a platform that they think could help develop growth so.
Helping us is also going to help them.
So I think thats the way both parties looked at it.
And as far as where they are I don't have any extensive information.
As to exactly when.
They expect their drill bit to be cleared I know that they are waiting for.
FTA feedback.
Supposed to come in the next few weeks and I think we'll have a better idea are they will have a better idea.
When that might occur.
The goal here, though is we obviously want to commercialize before the end of the year end.
Is there a possibility for that the answer is for sure.
Except Saar.
Submission under a special slide 10-K.
There's no issues on the data that was the only the only thing left.
That we had not.
Yeah.
Actually resolved with the FDA and Zimbra is able to get this clearance.
Around the same time or maybe early Q4, then we should be in good shape.
At the launch the product this year.
Alright excellent I appreciate the update thanks.
Sure. Thank you.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment. Please while we poll for more questions.
Your next question comes from the line of Ben Hayner with our Alliance Global Partners. Please proceed with your question.
Hey, good afternoon, gentlemen, thanks for taking the questions and congrats on the revised <unk> agreement on the FDA submission.
Just first off for me.
And also congrats on getting the one RF.
Feasibility.
Sure Joey.
Where it where it's at but do you think you can talk about the sorts of testing that youre going to be doing in upcoming months on the one RF system.
To provide an update to investors on that.
Yes, maybe I'll I'll take the second question first so we will keep people updated on the progress.
As to how Thats going.
We were recently.
Rbc's facility.
Where they presented.
The finished prototypes to us.
And then incorporated our electrode and our accessories to actually do bench top testing and these tests are done in egg whites, the traditional way of testing them and what you do is.
When you are connected to the generator that creates the ablation.
You put the electrode and the solution and the U S.
Initiate the device you initiate ablation and what you see is.
A nice lesion, which is basically egg whites.
And a baker.
That's the way we did the best when we started this project years ago at the Cleveland Clinic.
But this was the first time, we had finished prototypes of really the software and hardware as well as all the accessories.
Accessories, and electrodes and it really performed very very well in fact I was expecting.
I wasn't expecting to get to perform as well as it did.
But.
I am thankful it did so what type of testing or are we going to be doing from here, we've already done animal testing not with the.
The actual finished prototypes.
But we piece together a system to demonstrate.
That it worked at Emory University months ago, we're going to be redoing animal studies.
As a way of making sure everything.
It's still performing the way it needs to.
We have an idea of what type of testing we need for FDA submission.
He worked with consultants to determine that.
And the determination has been that it doesn't have to be in live animals, but it will there will be an animal study and again, what you are looking to do is demonstrate that.
You can create a lesion.
Within a certain specified range that you want.
As well as obviously safety data that you are not farming.
The device itself isn't causing harm to the animal.
So that's what we expect to be doing.
And then.
The other piece that we're waiting on is components final components.
Our on order don't expect them in for another couple of months.
This is more of the fund that everybody has experienced with the supply chain delays, but the good news here is that we are.
We're building units for design verification.
Final testing and then a submission to FDA and Thats kind of how we've we've come to our timeline, but they're really hard work in terms of development.
We feel very good is behind US, it's now fine tuning things.
Making sure the software is working the way it needs to Theres no glitches. So I would say, it's more fine tuning than development that's left with the project.
Okay.
And Tony I mean does that give them.
It into the hands of Kols and such or is it mostly just dialing in from.
A technical standpoint.
No. It's it's getting it in the hands of Kols.
We've actually been sharing our progress with the advisory board that we have.
And then in addition, some parties have come to us just because of word of mouth of the <unk>.
System.
But yeah, we will be using.
<unk>.
The advisory board that we have.
And some new physicians as well.
To actually give feedback I mean, they've already been working with us closely for quite a while now so they already know.
How the system functions with.
With the graphic user interface looks like and really the feedback we've been getting is that this system is quite easy to use.
Because obviously you don't want to develop.
A product that's only going to apply to the top 1%.
Customers and.
In this case.
At least early.
Early indications are that we've developed something thats pretty easy for everyone to use.
Okay. That's helpful and then.
Could you maybe provide a little bit share a little bit more on the whole point you add in there for the targeted milestones on partnering with our research organization.
The developer the electric for a new clinical indication.
So from that.
Uh huh.
That's kind of in your existing will also something.
An application is completely different.
Okay.
So its an application thats different for all the things that we've talked about meeting spinal cord stem meaning.
Meaning tissue ablation recording for epilepsy tumors. So this is a different application and the only reason why I don't mention the institutions name.
And really the application is as you can probably appreciate.
Getting contracts signed and the paperwork.
The amount of time it takes to get paperwork signed and these institutions is.
It's not trivial.
So we're still working through.
Both both groups.
Lawyers too.
<unk> come to an agreement.
On what both parties are going to do but it's going to be exciting we have a few things that we're working on that we're not we're not.
Not ready to talk about yet, but I think we will be in the next quarter or two that are different from everything that I've talked to you about today.
Okay.
I wish I could be more.
Okay.
Could you maybe share whether this is a situation where the research organization or organizations.
There is more stuff you're working on.
<unk> kind of seen the technology and approach you with potential applications are something that youre kind of jointly thinking about are you approaching now.
So it's been really both.
So they're the relationship started.
Probably a couple of years ago, where we approach them.
We probably weren't far enough along yet to really do anything and then we kind of moved on to other things, obviously trying to get our S. E G.
Cleared through FDA and our focus really remained on that as well as the ablation program, but more recently, what we're seeing is is and in this particular case them coming to us to say hey.
We'd like to work with you here is what we're trying to accomplish we think you have the technology to do this will you work with us and Thats kind of it.
Initially it was us, but recently, it's been them and other parties as well.
Okay.
Stay tuned for that.
Lastly for me.
Just curious on the every <unk> case.
That go any feedback there color there.
Yes, there is.
Youre not going to get a lot of feedback.
Other than the devices, giving the images that.
High quality images.
No there is no apparent issues with it.
The reason for that Ben is it's not being placed using a robot or or any sort of stereotactic frame because it's a craniotomy has already been done so theyre not passing the electrodes through bone.
It's just being used during the procedure.
Completely map the brain so they're in these cases, the neurosurgeons are using both cortical electrodes.
As well as one or two <unk> electrodes. So that they are able to map deep within the brain as well so it's not getting a fair test, but one of the things I always worry about especially when you have equipment.
That has connections that's electrical based.
Is that youre, not getting shorts that youre getting the images that you.
You expect to get and those are the boxes that were checking now.
But the true test will be when the Zimmer robot.
It used to place these devices.
We're going through the skull and Youre using your anchor bolts youre not having to do that and these procedures that are taking three or four hours, maybe five hours to do.
Okay.
Makes sense.
Thanks for all the color guys and congrats.
Congrats on the progress that's it for me.
Thanks Ben.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr. Dave Rosa for closing remarks.
Okay.
Well, thanks, operator, I just wanted to thank everyone for spending late afternoon listening to our progress and look forward to.
Update updating all of you as we continue to make progress.
Across all platforms have a good evening.
This concludes today's conference you may disconnect your lines at this time. Thank you all for your participation.
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