NeuroOne Medical Technologies Corporation
Q4 2021 Earnings Call Transcript

Published: 15 Dec 2021

[Operator:]

Good morning ladies and gentlemen and welcome to the NeuroOne Medical Technologies Corporation Fourth Quarter 2021 Earnings Call. At this time, all participants have been placed on a listen-only mode and we will open the floor for your questions and comments after the presentation. It is now my pleasure to turn the floor over to your host, James Carbonara. Sir, the floor is yours.

[James Carbonara:]

Thank you, operator and once again, welcome to the NeuroOne Medical Technologies Corporation fourth quarter and full year fiscal 2021 earnings conference call. Today’s call will be conducted by the company’s Chief Executive Officer, Dave Rosa; and its 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 Securities law 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. There are 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 NeuroOne. Dave?

[Dave Rosa:]

Thanks operator and welcome everyone. During our fiscal fourth quarter, we continue to make great strides in both our development efforts for our therapeutic technologies as well as progress towards commercializing our second diagnostic product, the Evo sEEG Electrode product line. As a reminder from last quarter's call, we have FDA 510(k) clearance for EVO cortical diagnostic electrode and currently, are marketing the product lines through Zimmer Biomet as our exclusive distributor. Our EVO cortical electrodes are a portfolio of high definition strip and grid, thin film diagnostic electrodes for recording brain activity, stimulation, and monitoring for less than 30 days. Applications include identifying problematic areas of the brain during epilepsy surgery and intraoperative mapping for brain tumors. This product line represents our smallest opportunity as it relies on more invasive surgical procedures than sEEG electrode technology. I mentioned during last quarter's call that we were targeting commercialization of the sEEG electrodes by year end, pending 510(k) clearance. We received clearance for implantation less than 24 hours from FDA in September 2021 for similar indications as our EVO cortical product line. At that time, we decided to conduct additional testing to submit to the FDA for extended use for recording brain activity, stimulation, and monitoring for less than 30 days. I'm pleased to confirm that we submitted this application at the end of November and hope to have clearance from FDA by the first calendar quarter of 2022. sEEG electrodes represent the bulk of diagnostic procedures performed today, due to their less invasive placement. This product is expected to be used with Zimmer's ROSA robotic platform, as it also is included in our development and distribution agreement. Zimmer Biomet has already begun to place their initial orders for the product and our manufacturing has begun. If and when FDA clearance for less than 30 day use has been received, the company will begin to fill the orders. As a reminder, the company has the opportunity to receive additional payments from Zimmer Biomet based on meeting certain performance milestones. Moving to our ablation therapeutic electrode system, we had previously reported we were targeting completion of animal feasibility studies in the fourth quarter with the potential to complete the project by the end of calendar year 2022. As a reminder, the system is being designed to both record brain activity and oblate brain tissue using the same electrode. Currently, two separate hospital visits and surgeries are required to treat these patients that have seizures due to epilepsy or brain tumors that contribute to the seizures. Combining both diagnostic and therapeutic functions in one device is intended to save time, money, and contribute potentially to improve patient outcomes. We also previously reported our intent to market both the electrode and radio frequency generator to offer a complete system to our customers. I'm pleased to report that we signed a partnership agreement with RBC Medical Innovations, a recognized leader in the development and manufacturing of electromechanical therapeutic therapies to both develop and manufacture our RF generator. We also successfully completed an animal feasibility study with the assistance of Dr. Robert Gross, a neurosurgeon at Emory University in Atlanta, Georgia. We also continue to make progress on the testing of our electrodes that would be used for chronic recording and/or stimulation. This would apply for both -- or for indications such as mental health that is OCD/depression, Parkinson's disease, epilepsy, back pain due to failed back surgeries, and other potential conditions requiring a permanently implanted electrodes. Our initial focus is to target the spinal cord stimulation market, which currently represents over $3 billion in the U.S. market alone. The company initiated long-term durability testing in the third fiscal quarter and expects to report on the results next quarter. We also continued work on the development of higher definition electrodes that might be useful for current applications as well as artificial intelligence. We have sent devices for testing to the Mayo Clinic and Carnegie Mellon University and look forward to providing additional updates as we receive those results. Another area of focus for the company has been the effort to generate pre and post-market clinical data to support our technologies. In the third and fourth fiscal quarters, the company presented at the Congress of Neurological Surgeons, the Society for Neuroscience, and the American Epilepsy Society Conferences. In addition, we also successfully completed an equity financing with gross proceeds of $13.35 million after our fiscal year end. I would now like to turn the call over to Ron for a more in-depth review of our fiscal fourth quarter and full year financial results. Ron?

[Ron Mcclurg:]

Thank you, Dave. Product revenue was $48,000 in the fourth quarter of fiscal 2021 and $178,000 for the full fiscal year compared to no product revenue in the prior year period. Collaboration revenue is $5,000 in the fourth quarter of fiscal 2021 and $65,000 for the full fiscal year compared to collaboration revenue of $1.9 million in the fourth quarter and full year of fiscal 2020. Collaboration revenue for the 2020 periods was derived from the Zimmer development agreement and represented the portion of the upfront initial development fee payment that was eligible for revenue recognition as of September 30th, 2020. Total operating expenses in the fourth quarter of fiscal 2021 were $2.6 million compared with $2.0 million in the same period of the prior year. R&D expenses in the fourth quarter was $1.0 million, compared with $0.8 million in the same period of fiscal 2020. SG&A expense in the fourth quarter of fiscal 2021 was $1.6 million compared with $1.3 million in the prior year period. Total operating expenses for all of fiscal 2021 were $10.2 million compared with $6.8 million in the prior year. R&D expense for all of fiscal 2021 was $3.9 million compared to $2.1 million in fiscal 2020. SG&A expense for all fiscal 2021 was $6.3 million compared with $4.8 million in the prior year. Net loss was $2.6 million for the fourth quarter of fiscal 2021 compared to a net loss of $0.6 million in the prior year period. Net loss was $9.9 million for the full year fiscal 2021 compared to a net loss of $13.6 million in fiscal 2020. As of September 30th, 2021, the company had cash of $6.9 million compared to $4 million at September 30th, 2020. The cash balance at September 30th, 2021 does not include proceeds from an underwritten registered public offering of 4,172,000 shares of its common stock at a price of $3.20 per share, resulting in gross proceeds of approximately $13.35 million received subsequent to year end. The company had no debt outstanding at September 30th, 2021. That concludes my remarks. I'll now pass it back to Dave. Dave?

[Dave Rosa:]

Thanks Ron. And looking at the past fiscal year, I want to highlight some of NeuroOne's accomplishments. The commercial launch of our first product the EVO cortical electrode family, 510(k)K clearance of our second product, the EVO sEEG electrodes for less than 24-hour use; design freeze for the sEEG product line occurred by December 15th, 2020 as required for a milestone payment under the Zimmer Biomet distribution and development deal. The appointment of Ron Mcclurg as CFO and experienced senior financial executive and the appointment of Hijaz Haris as Vice President of Marketing, formerly of Medtronic. Completion of a financing for gross proceeds of $12.5 million, in addition to adding prominent institutional investors. A successful NASDAQ up-listing that will help position us to generate even greater interest in the company from leading institutional investment firms across the broader national and international investment community. Partnership with RBC Medical Innovations to develop and manufacture our ablation electrode power source. Successful completion of feasibility study, -- sorry feasibility testing of our ablation electrode facilitated by Dr. Robert Gross at Emory University. Initiation of testing for the company's chronic use electrode platform. Receipt of initial orders for EEG electrodes from Zimmer Biomet. Establishment of electrode Technology Development Center located in California. A completion of a public offering raising gross proceeds of $13.35 million after year end. In closing, the company made great progress in fiscal 2021 in a wide variety of areas, including commercialization, development, and capital raises, which will allow us to continue to execute our plan with the intent to introduce meaningful advances in electrode technology for a variety of neurological applications. I want to thank you for your time and attention and operator, now, we'll open it up for any questions.

[Operator:]

Certainly. Ladies and gentlemen, the floor is now open for questions. Your first question is coming from Alex Knopick from Craig-Hallum Capital. Your line is live.

[Alex Knopick:]

Great. Good morning everyone. The resubmission of the Depth Electrode was around rerunning the biocompatibility test. Can you just walk through the test results, did anything stood out to you if everything was pretty much solid green light, good to go?

[Dave Rosa:]

So, everything was within the range of acceptance criteria. Alex, it was a very, very detailed analysis and that's just for one of the tests. One of the test was an extraction test, where they analyze any substances that are found in solution while the electrode is placed there over a 30-day period. And the report just for that analysis was just about 140 pages. So, our biocompatibility expert, who's a former FDA biocompatibility reviewer said to me -- it was actually the day after Thanksgiving, he said, I'm working with a number of companies now and I -- I asked him, I said, are there any weaknesses that you see or any potential areas of risk? And he said, of all the companies that I'm working with, you're the only company that had clean data. So -- and he's generally a pessimistic guy, and under promise over deliver individual, so I was really happy to get that feedback from him.

[Alex Knopick:]

No, that's very good to hear. Maybe just on the conversations you've had now with the FDA since submitting the -- resubmitting the 510(k) back here, if I remember correctly, should be a special 510(k), so 30-day review clock. Have you had any conversations with the FDA? I know the FDA is backlogged, so I think your commentary around expecting approval Q1 2022 makes sense. But just any update with the FDA or -- yes, around that?

[Dave Rosa:]

Sure. So, the FDA has gotten back to us and notified us that they don't require any additional information from us that the submission was complete with really everything that they were looking for. So, that's the good news. And they did tell us and expressed a desire to get back to us before Christmas. But I think they were a little surprised by the amount of information we submitted. Just maybe taking a step back, the FDA had actually given us an option -- or a few different options as to how to address the submission for less than 30 day use. And actually one of them was to simply make an argument as to why we shouldn't have to do additional testing. And we felt that was very high risk and actually conducted a couple of the tests that they recommended with it, which were very robust test, to really demonstrate that the product would meet those biocompatibility requirements. And we were very confident in that -- honestly, going into it. So, where things stand now is they told us that they've already started the review. And again, would like to get back to us before Christmas. So, given our things are backed up at the FDA, my feeling is that, hopefully, we'll get feedback before Christmas. And given that there was there was nothing else they were looking for from our submission. I'm still hoping that we hear before the end of the year, but it's probably, just given the environment today, more likely that, it'll be in January, but we'll wait and see. The good news is it's complete. They had no additional requests. And they've already started the review and they are prioritizing this according to our communication with them.

[Alex Knopick:]

That's great. That's good to hear. Maybe expand on Zimmer's launch plan, once the Depth Electrode is approved, just what has been the initial response from the neuro centers that Zimmer has already reached out to. And just given the initial stocking orders, how are you thinking about upon a full commercial launch here with gross one. just anything about ordering patterns going forward?

[Dave Rosa:]

Yes, so that's a fair question. I think we've been definitely encouraged by the fact that without going into details that Zimmer has been increasing their forecast ahead of launch. I think we've mentioned before that they also, as part of our agreement with them, are providing accessories that will allow our electrode to be used with the robot. So, once those accessories are ready, and we have clearance from FDA to ship the product, the process will begin. So, it's really waiting on FDA and ensuring that they have enough inventory and they're ready with their accessories. So, in terms of enthusiasm, there's a great deal of enthusiasm, Tremendous amount of planning, especially compared to the cortical launch, which we were just about done with the product, it was very late in the game, and then we got clearance and they had to launch so there wasn't the preparation time that they have now. And they are spending a lot of time and have invested a lot of -- I'm assuming dollars as well as personnel to really ramp this up as quickly as possible. Now, all that being said, as a company, I've always run into in these launches, making sure that we walk before we run. So, we never want to get into a situation where you launch the product to every center, and then find that there's something unexpected that occurred. And that's just a matter of practice. So, there's expected to be a limited launch initially, but Zimmer really would like to ramp this up as quickly as we're able to provide additional product. So, as far as ordering patterns, it's been a little irregular, because they keep increasing the quantity, so remains to be seen. That'll continue throughout this year or next year.

[Alex Knopick:]

Yes. Okay. And then just two more questions and just you walk through the necessary actions to get FDA approval of the ablation electrode, and then just what are the key items to watch there?

[Dave Rosa:]

Yes, so we're planning on having a pre-submission meeting with them to get further clarification. On the status, I think we've discussed before that we're approaching it as a 510(k). There are other ablation technologies that have 510(k) clearance, but we want to make sure that the FDA is in agreement with our plan. So, I think in the February, we're still waiting to hear back from FDA, but it's probably going to be in the February-March timeframe. Really assuming that they agree with our strategy and our plan, then really it's getting the development done to the system, the testing done. But at this stage, we're not anticipating that there'll be any clinical data required. But that's what we want to confirm with the FDA. So, this -- we're treating this as it would be a standard 510(k) submission that would give us the ability to add an indication to our current -- or what we expect to be our 30-day indication for diagnostic purposes, but simply adding the ability to perform ablation procedures with the device. So, it will be better to wait until we get further clarification from FDA, but we feel confident that we have a strong argument in our strategy and are really marching in that direction.

[Alex Knopick:]

Yes, understood. And then just last question, and this one's a longer term question here. But can you work this the game plan around a chronic electrode, just how to get that ready for use and whether or not spinal cord stem or deep brain stem? Just a little bit the game plan there?

[Dave Rosa:]

Yes, so, the first thing we feel we have to do is demonstrate that the electrodes will have the durability that's required to last at least five years. So, when you look at historically, the issues with thin film technologies like ours, it's always revolved around fluid getting in between the layers of the film and shorting the circuit. Or imagine the fact that these are a lot less thinner, so there's less metal that's involved with the electrodes. And imagine just pushing through current through these electrodes and stimulating 24/7, whether it's in the brain or in the spine, what happens over time is the metal eventually degrades at some point and there's obviously the potential to lose the ability to stimulate in that area. So, step one is with the technology that we have will it last? And I really anticipate we'll be releasing the information in probably the February timeframe, which is when all the samples will reach a five-year time limit in terms of testing. So, that's step one. And then step two more to your question is okay, so where do you go from there? And for me, getting to the market as quickly as possible is really critical aspect here. And we have an opportunity to license a pulse generator technology, which had previous clearance from FDA for spinal cord stimulation. And assuming that the electrode's ready, we would make some tweaks to that system, license it, make some changes, but be able to really avoid all the development and testing that's required to go to FDA. We'll still have to, obviously -- or we still anticipate that we'll have to have clinical data demonstrating that the device will do what we say it will do, but be able to avoid or minimize the testing required and the development time is just huge. So, that's why we're really prioritizing spinal cord stimulation. It's already generating a significant amount of revenue, it's the highest among any indication. And given that we can gain access to a pulse generator that's already been cleared by FDA is a huge time savings for us and cost savings.

[Alex Knopick:]

That's great. Really appreciate the update. Thank you.

[Dave Rosa:]

Thank you.

[Operator:]

Thank you. Your next question is coming from Ben Haynor from Alliance Global Partners. Your line is live.

[Ben Haynor:]

Hey good morning, gentlemen. Can you hear me okay?

[Dave Rosa:]

Sound great, Ben.

[Ben Haynor:]

Good deal. Congrats on all the progress and thanks for all that color here. I was just wondering on the Zimmer forecasts, you mentioned how they've been consistently increasing those. Is it safe there to presume that that's based upon the feedback and the reception that they've got in, kind of, feeling out the market and the potential market for the product?

[Dave Rosa:]

Yes, so they -- I can't disclose, obviously, what Zimmer's actually doing specifically, but look they clearly have spent a lot of time and diligence in talking to physicians to get feedback on the electrode. We've provided them with samples, they've had discussions as recently as the American Epilepsy Society Meeting earlier this month. And the short response to all this is, there is definitely enthusiasm in the community and the confidence level that the product will perform and be accepted and desired, so to speak, by neurosurgeons. So, that -- we still have to get the product out there, get some use, which is why -- hence, we're doing a limited launch, at least initially, but the early response has been very positive and very encouraging.

[Ben Haynor:]

Okay, great. That's helpful. And then just on the accessories on their end -- on Zimmer's end, do you have a sense of when those will be ready? I mean you guys can -- obviously, only control your side of things, and then on your side, given the increasing forecasts, how does your ability to kind of ramp-up manufacturing stand?

[Dave Rosa:]

Well, we are going back to our vendors and increasing our orders. But it's like any other product launch, especially, of a new product, you can't start out building high volumes, day one; you want to make sure that everything's going fine in the manufacturing process, and gain confidence, so that you can go to higher volume. So, we are pushing all our vendors to produce really as much as we've ever asked them -- it's more than we've ever asked them to produce. And the fact that we're anticipating commercialization, being commercial-ready in really Q1, they have some time, obviously to start building at least some inventory, way out in front of when we expect to really commercially launched the product. So, we'll have to see, our vendors have expressed confidence that they can manufacture the product. The -- it really is going to depend on the quantities and how quickly they're able to catch up to what Zimmer's requirements are. Right now, we feel we can meet their annual requirements over the course of 2022 starting out slower and then ramping up. So, that's the game plan for now, but so far, so good. COVID is definitely having an impact. It's interesting that for -- really two years, we had no impact and now it seems like just companies are increasing their orders on our suppliers and that's got the potential to slow the process down. But the fact is we got out in front of it. So, we'll have to see, but that's really probably the biggest wildcard is the potential impact of COVID if things don't change. I'm just kind of surprised that it took two years to see any impact.

[Ben Haynor:]

The color there is helpful. And then just kind of on the clinical data front, anything we should be on the lookout for their -- I know you have the recent kind of presentation publications. And then do you have a strategy that you're kind of developing for the ablation electrode in terms of publications or clinical data that you're planning to get out there?

[Dave Rosa:]

Yes, I think there's still some more things we can do on the diagnostic side even with cortical electrodes. So, there's traumatic brain injury procedures that are done where physicians would -- or neurosurgeons would love to be able to put an electrode in, they do this already, but there's no thin film electrode whereby they can make it very tiny incision and insert the electrode. So, having some conversations and see if we can put together a small post-market study just demonstrating the ability to use our current strip electrodes for that purpose. The -- clearly the establishment of the Ablation Advisory Board with the neurosurgeons that we added, the intent is as we get closer to the finish line is really utilizing those key thought leaders to help us develop post-market data will have animal data, but ultimately, I really want human data. So, we'll be using those centers to really help us generate supporting clinical data.

[Ben Haynor:]

Okay, great. Well, that's all I had gentlemen. Thanks for taking the questions.

[Dave Rosa:]

All right guys. Any other questions?

[Operator:]

Thank you. There are no further questions in the queue. Thank you everyone for joining today's call. You may now disconnect your lines.

[Dave Rosa:]

Thanks very much.