Edited Transcript of HSDT.OQ earnings conference call or presentation 12-Aug-20 9:00pm GMT – Yahoo Finance

Q2 2020 Helius Medical Technologies Inc Earnings Call

Aug 13, 2020 (Thomson StreetEvents) -- Edited Transcript of Helius Medical Technologies Inc earnings conference call or presentation Wednesday, August 12, 2020 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Joyce N. LaViscount

Helius Medical Technologies, Inc. - CFO, COO & Secretary

* Philippe Deschamps

Helius Medical Technologies, Inc. - Chairman, CEO & President

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Conference Call Participants

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* Benjamin Charles Haynor

Alliance Global Partners, Research Division - Analyst

* Steven Michael Lichtman

Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst

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Presentation

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Operator [1]

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Good evening, ladies and gentlemen, and welcome to the second 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 including statements regarding the impact of COVID-19 pandemic on the company's operations, the success of the company's planned studies and submissions, the future commercialization of the PoNS treatment, expected future clinical and regulatory time lines, the potential receipt of regulatory clearance of the PoNS device in the United States and projected financial results. 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. Such factors may be updated from time to time in our filings with the SEC, which are available on our website.

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All statements made during this call are as of August 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 as required by law.

I would now like to turn the call over to Mr. Phil Deschamps, Helius Medical's Chief Executive Officer. Please go ahead, sir.

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Philippe Deschamps, Helius Medical Technologies, Inc. - Chairman, CEO & President [2]

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Thank you very much, operator. Welcome, everyone, to Helius Medical's Second Quarter of 2020 Earnings Conference Call. I'm joined on the call this evening, as per usual, by my partner, Joyce LaViscount, our Chief Financial Officer and Chief Operating Officer.

Before we start, let me provide you with a quick agenda for today's call. I'll begin by discussing our regulatory strategy in the U.S. and the progress we've made in recent months. Following this discussion, I'll review our second quarter revenue results and update you on our commercial activities in Canada, including a summary of the disruption that we've seen as a result of the COVID-19 pandemic. Joyce will then discuss our second quarter financial results in detail and expand on the recent progress we've made to secure additional capital and enhance our balance sheet condition. Following Joyce's remarks, I'll conclude by sharing some thoughts on our near-term and longer-term outlook before we open the call for questions.

So with that, let's get started with our review of our U.S. regulatory strategy and the progress we've made in recent months. By way of background, during Q1 of this year, we made important strategic decisions to prioritize the pursuit of an indication in multiple sclerosis, or MS, as the pathway for obtaining our first U.S. clearance of the PoNS device. This strategic decision was based on the quality of the data that was included in our MS submission package to Health Canada for label expansion that led to its clearance there. Specifically, our Health Canada submission included data from 2 peer-reviewed clinical trials, which we have outlined in prior calls. And in addition to these 2 trials, we also generated evidence based on real-world data gathered in our validated database in Canada, which showed statistically significant improvements from baseline in functional gait assessment.

In aggregate, we believe the existing clinical data and real-world evidence are sufficient to demonstrate a favorable risk-benefit profile as required by the de novo regulatory pathway in the U.S. Our decisions to prioritize an indication in MS was also driven by the large patient population that suffers from this disease, which is estimated to be about 1 million individuals in the U.S. alone. Importantly, novel treatments for MS are highlighted as specific interest for the FDA as MS represents a high unmet medical need. Further, a majority of people who suffer from gait symptoms due to their MS, already consume physical therapy to try their -- to keep their symptoms at bay. Given these important considerations, we believe that pursuing an indication in MS represents our most effective and efficient path to obtain our first U.S. clearance for the PoNS device. Now we set out to pursue this regulatory pathway with the goal of submitting a request for de novo classification and clearance in the second half of this year. Beginning in the first quarter, we submitted an application to FDA for breakthrough designation for our PoNS device for the treatment of symptoms of MS. And throughout the second quarter, our team worked diligently to prepare the requisite inputs for meeting this goal.

Importantly, on May 12, we were excited to announce that on May 7, our PoNS device received breakthrough designation, the breakthrough designation we were seeking. As detailed by the FDA, the breakthrough device program is intended for medical devices that provides the potential for more effective treatment of life-threatening or irreversibly debilitating diseases and conditions. Yet, the goal is to provide patients and providers with timely access to these devices by speeding up their development, assessment and review. While it doesn't change the requirements for FDA clearance, it does offer device manufacturers several different program options to interact with the FDA experts to efficiently address important topics, obtain feedback -- FDA feedback more quickly and identify areas of agreement. Device manufacturers can also expect their submission for regulatory clearance to be received -- to receive a priority review. Building on this accomplishment, we continue to aggressively pursue our U.S. regulatory strategy, and we're pleased to see that our progress on this front was not significantly impacted by COVID-19 pandemic.

Last week, we announced the submission of our request for de novo classification and clearance of the PoNS device for the treatment of gait deficit due to symptoms from MS, to be used as an adjunct to supervise therapeutic exercise programs in patients over 18 years of age. For these patients, our PoNS treatment represents a non-drug, non-implantable treatment option with the potential to improve their ability to walk. FDA is currently performing an initial administrative review of the submission, and if found acceptable, it will proceed into the substantive review phase. With the achievement of this major milestone of the de novo submission, we've taken an important step forward on the path to expanding our addressable market to include the U.S. and bringing our PoNS treatment to the aid of patients with gait deficit due to MS symptoms. We certainly look forward to the FDA review of our submission, and to providing additional details if required on our planned commercial strategy as we progress through the year.

Now let's turn to our revenue performance for the second quarter. We reported total revenue of $133,000 during the second quarter of 2020 compared to $518,000 in the prior year period. Our revenue in both periods was driven by sales to neuroplasticity clinics in Canada that have been authorized to provide our PoNS treatment. Like many in our industry, our operational and financial results during the second quarter were significantly impacted by the disruption caused by the COVID-19 pandemic and the restrictions that have been enacted to slow its spread.

I'll now take a minute to discuss this disruption and its impact in greater detail. As we discussed in our first quarter earnings call, in March, provincial and territorial Governments in Canada implemented policies to restrict performance of non life-saving medical treatments and limit the activities of their citizens. In an effort to comply with these policies, the PoNS-authorized clinics that provide our treatment began suspending new patient treatments with the exception of emergency services for select patients. By the end of March, all of the PoNS authorized clinics in Canada were effectively closed. We continue to experience this unprecedented level of disruption throughout April and most of May as clinics remained effectively closed. During the period, patients who had completed their 2-week in-clinic portion of the PoNS treatment program prior to COVID-19 shutdown, were able to continue with the 12-week at home portion of the treatment with the support of their clinics via virtual means.

In late May and throughout the month of June, we were pleased to see clinics begin to reopen after the Government policies that had initially impacted them were partially lifted. We estimate approximately half of the PoNS authorized clinics had reopened to outside non-emergency patients by the end of May, and almost all were reopened by the end of June. However, clinics productivity had been impacted by the federal and provincial requirements, limiting their capacity to 50% of normal services. We believe their overall productivity was well below this level in May and June due to the need to physical distance in clinic and as mandated by the Provincial Governments for safe reopening.

Clinics also cited challenges relating to staffing as well as patients' willingness to come into clinic for treatment, especially for patients for who from -- from whom COVID represents a higher risk due to their age and existing health condition. With these factors in mind, despite the recent trends in clinic reopenings, we believe we remain at the very early days of recovery with respect to the patient's treatment part.

So with our ability to treat patients significantly curtailed in Q2, we focused on engaging with new neuro clinics to increase our access and capacity for when things open up more fully. As a reminder, we began 2020 with an enhanced commercial strategy to drive awareness, credibility and access to our PoNS treatment in Canada. And our commercial strategy included improving our targeting of -- targeting criteria for the clinics that we engage and authorize. This targeting criteria prioritized clinics with large, existing commercial focus on neuro rehabilitation, established referral networks with public hospital systems for the treatment of patients with neurological conditions and significant reimbursement experience and payer relationships related to the neurorehabilitation treatments. Under this enhanced commercial strategy, our internal team in Canada made impressive progress during the first quarter by doubling our Canadian clinic network from 7 to 14 clinical locations. Since necessity is the mother of invention, and the Canadian team could not visit new clinic locations during the pandemic, they reached out virtually to top-tier neurological clinics and made the compelling case for clinics to join the ranks of the PoNS-authorized Canadian clinics based on the huge opportunity of our new MS indication in Canada. Our team then developed a virtual authorization process, so that we can continue to increase our clinic capacity despite the COVID-19 disruption. As a result of these efforts, during the quarter, we authorized another 5 clinics for a total of 19 clinics now authorized in Canada. We believe this expanded clinic network positions us well for the future and will help us continue to increase the pace of adoption of our PoNS treatment in Canada as the effects of COVID-19 pandemic subside.

So in summary, Q2 was undoubtedly very challenging quarter with respect to revenue. We did, however, achieve important progress in the pursuit of our U.S. regulatory clearance and continue to build access, credibility and awareness for our PoNS treatment through our Canadian operations. We did so while raising additional capital and maintaining strict financial discipline in order to continue to support our pursuit of these activities.

I'll provide you with an update on our near-term and longer-term outlook later on today's call. But first, let me turn it over to Joyce for a detailed review of our second quarter financial results. Joyce?

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Joyce N. LaViscount, Helius Medical Technologies, Inc. - CFO, COO & Secretary [3]

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Thank you, Phil. We reported total revenue of a $133,000 for the second quarter of 2020 compared to $518,000 in prior year period. Product sales represented proxy 95% of total revenue in the second quarter of 2020 compared to 91% of total revenue in the second quarter of 2019. Both -- product sales in both periods were generated through sales of the PoNS devices and mouth pieces to PoNS-authorized neuroplasticity clinics in Canada.

As Phil mentioned, our operational and financial results in the second quarter were significantly impacted due to the disruption caused by the COVID-19 pandemic, including the closure and reduced productivity of PoNS-authorized clinic locations across Canada. During the second quarter of 2020, our product sales benefited from a large order from one of our clinics during the month of June, along with payments received from existing clinic patients under the revised pricing model that we implemented at the beginning of this year, which is designed to reduce upfront patient cost.

Our gross profit for the second quarter 2020 was $69,000 compared to $306,000 in the prior year period. Operating expenses for the second quarter of 2020 decreased $2.3 million or 38% year-over-year to $3.8 million, reflecting the continued benefits of the cost reduction initiatives that we implemented during the past year. By line item, the change in operating expenses was driven by selling, general and administrative expenses, which decreased $1.5 million or 38% year-over-year, and research and development expenses, which decreased $1 million or 43% year-over-year. The decrease in SG&A expenses was primarily due to reduced commercial operations expense associated with the U.S. launch planning activities that were terminated following the FDA denial in the second quarter of 2019, and reduced wages and salaries due to lower headcount. The decrease in research and development expenses was primarily due to lower medical affairs expenses as well as reduced product development costs due to the completion of the PoNS device development in 2019.

Operating loss for the second quarter of 2020 was $3.7 million compared to $5.8 million for the prior year period. Total other income for the second quarter of 2020 was $361,000 compared to $5.6 million in the second quarter of 2019. The year-over-year change in total other income and expense was primarily driven by the change in the fair value of derivative financial instruments, which was a gain of $1,000 in the second quarter of 2020 and compared to a gain of $5.5 million in the second quarter of 2019. The change in fair value of the company's derivative financial instruments was primarily attributable to the change in the company's stock price, the volatility and the number of derivative financial instruments being measured during the period. For the second quarter of 2020, we reported a net loss of $3.4 million or $0.08 per basic and diluted common share compared to a net loss of $186,000 or $0.01 per basic and diluted common share for the second quarter of 2019.

Turning to a discussion of our balance sheet condition and recent financing activities. As of June 30, 2020, we had $5.3 million of cash compared to $5.5 million at December 31, 2019. We had no outstanding debt obligations in either period. The decrease in cash during the first 6 months of 2020 was primarily driven by net cash used in operating activities of $7 million and net cash used in investing activities of $51,000, partially offset by $6.7 million of cash provided by financing activities. Net cash provided by financing activities during the 6 months ended June 30, 2020, included proceeds from the following activities. During the period, we sold and issued 8.1 million shares of common stock under our ATM agreement at an average price of $0.62 per share, which resulted in net proceeds of $4.8 million. On March 20, we raised net proceeds of approximately $1.9 million from a registered direct offering and concurrent private placement of warrants. We continue to evaluate multiple options to secure additional capital and strengthen our balance sheet and support our operations.

On April 13, the company was granted a $323,000 loan under the Paycheck Protection Program, established under the Coronavirus Aid Relief and Economic Security or CARES Act of 2020. And the company planned to use the proceeds from the PPP loan for covered payroll costs, rent and utilities, in accordance with the relevant terms and conditions of the CARES Act. Based upon subsequent guidance issued by the Federal Government, including a presumption that no publicly traded companies are eligible for the PPP loan, the company returned the PPP loan proceeds in May.

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 of the companies in the medical device industry, we are 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 you, Phil. Phil?

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Philippe Deschamps, Helius Medical Technologies, Inc. - Chairman, CEO & President [4]

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Thank you, Joyce. So as Joyce has just mentioned, the duration and impact of COVID-19 on our performance remains uncertain, and that's very, very frustrating. Given the uncertainty, we're continuing to monitor our business trends and on feedback from our clinic customers to assess the ongoing impact of the pandemic. And while it's not our typical practice to provide details on current quarter trends, we appreciate the investment community's focus on how companies are faring in this time.

So in the interest of transparency, we felt it would be appropriate to provide an updated view on what we've seen in the recent weeks.

By the end of July, we were pleased to see that all of the PoNS-authorized clinics had in fact reopened to outside non-emergency patients. But despite this positive trend, however, clinics continue to be impacted by the federal and provincial requirements, limiting their capacity to 50% of normal services. So that didn't change. Their overall productivity remains below level due to the factors that I just mentioned. While the level of productivity varies from clinic-to-clinic, at present, we estimate that the average clinic across our network is operating at about 30% capacity. With this as a backdrop, we believe we continue to remain in the very early days of recovery, and unlikely to see material improvements in business trends until the federal and provincial requirement lifted and the clinic productivity increases.

While our outlook in the near-term remains uncertain, we're incredibly proud of the performance of both our regulatory and commercial teams and their ability to execute our regulatory strategy and to pivot quickly in Canada in response to the challenging circumstances, ultimately to do everything we can to position the company for success in the future.

As we enter the second half of 2020, we remain focused on continuing to pursue our commercial and regulatory strategies as efficiently and effectively as possible for the benefit of both our patients and shareholders.

Most importantly, we remain convinced that our PoNS technology represents a truly revolutionary approach to the treatment of neurological disease and trauma, with the ability to improve the lives of patients suffering from the effect of MS, TBI and possibly other conditions in the future.

What's particularly exciting is research of neuromodulating -- neuromodulation effects through electrical stimulation of the surface of the tongue continues to significantly progress. The cascade of neuromodulation of trigeminal nerve activity may enable changes to the brain, which continue to show promise in treating other kinds of neurological condition. This work produced through clinical studies sponsored by Helius and through independent research has been submitted for publication and after peer review would potentially eliminate the true breadth of our PoNS technology. So we look forward to those publications.

Before we open up the call to questions, I'd like to close by thanking our employees for their important contributions to our recent progress, our customers and, of course, our shareholders for their support and everyone on tonight's call for your interest in Helius Medical Technologies.

Joyce and I am happy to take questions from the phone.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Steven Lichtman with Oppenheimer & Company.

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Steven Michael Lichtman, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [2]

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So just on the Canadian centers that you have open. Obviously, the volumes today are not reflective of what they could be. But just trying to get a sense of the size of the clinics you're in. And what sort of the patient run rate you think those centers that you're in have on a monthly or annual basis? Just trying to get a sense of the size of centers that you're currently in.

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Philippe Deschamps, Helius Medical Technologies, Inc. - Chairman, CEO & President [3]

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Yes. So Steve, these clinics are all private neurological clinics. So as we mentioned, we pivoted in the late fall, in January, to really focus on these kinds of clinics. And they're varying size. And we really focus on these clinics to give access in specific parts of the country, and we really focused on developing the network in Southern Ontario to be able to give access. So I'd literally have to go through every clinic to give you the details on where they go. The biggest issue that the clinics are having, and they're obviously, champing at the bit to get back to full business. As you can imagine that PT clinics are by design clinics that are providing services where people are working hard and breathing hard. And it's difficult for them to do it while wearing masks. So the kinds of things are very, very difficult. So that, combined with the difficulty of patients, especially MS patients who are -- if they're on drug therapy, immunocompromised, they sort of have a reluctance to be able to go in. Having said all that, what we're trying to do and working with them is to try to build tools for them to be able to do this remotely. As I mentioned on the call, we were trying -- we were able to move our authorization process to a full virtual and we're trying to see whether elements of that program could be put in to be able to increase the capacity for patients. So right now, they're -- everybody is trying to find a way to drive the patient count. And we're just trying to reconcile what's happening on the ground. I'm, in fact, in Canada right now, and we'll have the benefit of -- I'll be in the Toronto area tomorrow, and we'll actually be visiting several of our clinics. So perhaps we could touch base next week, and I can give you a much firsthand look at what's actually happening. All of this, of course, is based on the aggregate reporting we're getting from our team.

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Steven Michael Lichtman, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [4]

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And just on FDA, about when do you think you'll kind of hear back on the first review here? And will you alert that -- alert investors of that or no?

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Philippe Deschamps, Helius Medical Technologies, Inc. - Chairman, CEO & President [5]

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Yes. So the first review is really an administrative review. And FDA has their own tick sheet. And of course, we've worked with very sophisticated attorneys to help us prepare this. And I assure you that from an administrative standpoint, every element of the requirement for the de novo submission has been completed. So we were able to tick off the same sheet. So we fully expect that this is going to be a formality. And very often, in fact, in our TBI work, FDA didn't even notify that they were going forward. So this first step is really an administrative one. And you could be sure, Steve, that we'll obviously report on any material feedback that FDA gives us, one way or the other. And certainly, from my perspective, I hope the next feedback we give you is a clearance.

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Steven Michael Lichtman, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [6]

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Absolutely. Okay. And then, Phil, and Joyce, just lastly, on the state of the balance sheet. Can you give us some thoughts as to cash burn in the back half, I mean, just directionally, perhaps from the second quarter levels?

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Joyce N. LaViscount, Helius Medical Technologies, Inc. - CFO, COO & Secretary [7]

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Yes. So we have previously communicated, Steve, about $1.2 million a month was our expected burn. We have been able to identify opportunities to further reduce that burn, and we're looking like closer to about a $1 million a month is where we're coming out.

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Operator [8]

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Our next question comes from Ben Haynor with Alliance Global Partners.

Excerpt from:
Edited Transcript of HSDT.OQ earnings conference call or presentation 12-Aug-20 9:00pm GMT - Yahoo Finance