NeuroOne Medical Technologies Corporation
Q1 2022 Earnings Call Transcript

Published: 14 Feb 2022

[Operator:]

Ladies and gentlemen, thank you for standing by and welcome to the NeuroOne 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 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 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 NeuroOne. Dave?

[Dave Rosa:]

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. I'll start first with diagnostic applications. As you may recall, in September 2021, our EVO sEEG Depth Electrodes received FDA clearance for us 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 signals of the subsurface level of the brain. We submitted responses to questions from the FDA regarding our submission on February 9, 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 in Zimmer Biomet's 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. Shifting 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 and money, and is intended to improve patient outcomes by combining both the diagnostic and therapeutic applications into one device. And ideally, one hospitalization, improving 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 Iinnovations towards the completion of prototypes of the RF generator, which we expect in calendar 3 -- Q3 of this year. Following the completion of the RF generator prototypes, we expect to submit a 510(k) application for FDA clearance in the first calendar quarter of 2023. Now, moving to our chronic use electrode 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 perviation. 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 surgeries, as well as the research markets. We expect to release the results of our accelerated five years 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 Wilhelmy as Vice President of Quality Control and Regulatory Affairs, Mr. Wilhelmy joins NeuroOne from HLT Medical, a subsidiary of the Bracco Group, where he was Vice President of Quality Assurance. Chad's 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 $13.35 million, which Ron Mcclurg will touch on as well. In closing, the company made great progress in fiscal Q1 in 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 applications. 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?

[Ron Mcclurg:]

Thank you, Dave. Product revenue for the first quarter of fiscal 2022 was $34,000 compared to product revenue of $71,000 in the first quarter of fiscal 2021. Collaboration revenue was $6,000 in the first quarter of fiscal '22, compared to collaboration revenue of $22,000 in the first quarter of fiscal '21. 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 the first quarter of fiscal 2022 were $2.8 million, compared to approximately $2.1 million in the same period of the prior year. R&D expense in the first quarter was $1.1 million, compared with proximately $0.9 million in the same period of 2021. SG&A expense in the first quarter fiscal 2022 was $1.7 million, compared with $1.2 million in the prior year period. Our net loss for the first quarter of fiscal '22 was $2.8 million, or $0.18 per share, compared to a net loss of $2 million, or $0.26 per share in the first quarter of fiscal 2021. As of December 31 of 2021, the company had cash of approximately $16.2 million, compared to $6.9 million at September 30, 2021. The cash balance at December 31, 2021 includes proceeds from an underwritten registered public offering of 4,172,000 shares of common stock at a price of $3.20 a share, resulting in gross proceeds of approximately $13.35 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.

[Operator:]

First question is coming from Alex Knopick from Craig-Hallum.

[Alex Knopick:]

Dave, I was hoping you could expand on the questions that came back to you from the FDA on the depth electrode, what were the nature of these questions?

[Dave Rosa:]

Yeah, Alex. So really, there were a few things. One was just some basic questions about the compounds that were found and if we knew where they were coming from, so 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 follow the methodology that they had recommended. 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. But they just wanted a little bit more clarity on that. And then there was just some basic questions about labeling. But the questions on the compounds and methodology were really it.

[Alex Knopick:]

And I know, you've talked about this before, but -- and you just mentioned it again, but just on the bio-comp piece of it. So you're pretty confident regarding the materials that were found. There's no sort of -- there's no sort of questions on whether the job is to move forward, more of just a clarification on their part?

[Dave Rosa:]

Well, keep in mind, the only thing that the FDA is reviewing is the results of the biocompatibility testing. So there's nothing there's nothing outside of these two tests that they were reviewing. And yes, we firmly believe and our consultants that actually put the analysis together, agreed 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.

[Alex Knopick:]

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

[Dave Rosa:]

Well, I think if the FDA -- it's hard to answer, because I'm always basing it off of a full submission. And this is just a submission of two tests. So -- and there weren't a ton of questions. They’re really a handful of questions. So normally, yeah, 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 emailing back and forth. So I think the next step would be much quicker than the previous ones just because the interactivity.

[Alex Knopick:]

And then any updates on how Zimmer is preparing for more commercialization once this is approved, just any updates on -- from the FDA on their own drill bit submission, and then just education with reps in the epilepsy centers?

[Dave Rosa:]

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 those plans, they have been actively planning for the limited release of the product. We haven't started the official training yet, so we're 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 wanted to lay too long. We don't or I should say, in our discussions with them, they've indicated they have not yet heard back from FDA. So there's not much more I can give you on that. But hopefully, in the next week or so, I'm assuming that they should also expect to hear back from FDA on that.

[Alex Knopick:]

And then it looks like you're pretty confident on the ablation electrode in that 510(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 510(k), I would assume that incorporates all the need to generate bench data in animal studies, just how concrete are those submission timelines that you put out today?

[Dave Rosa:]

So I'll take the, I'll answer your first question first on, how confident are we. So the initial analysis done by our regulatory consultant indicated that -- she was very confident that this would be a 510(k). But in addition to that, I believe it was maybe about 30 days ago, we went to a second outside organization, consulting organization that has a lot of experience with this as well. And they also said, look, we think you should submit this as a 510(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's -- there is clearly predicate devices that are out there that we've identified that do RF ablation, of brain tissue. So I was confident as my consultants are and the recommendations that they gave us actually, will earn them less money than if we were to do more work than what they're suggesting. So I feel pretty good about that. And in terms of just the testing itself, or the submission itself, yes, it does factor in the test that we have to perform. So, we still feel that Q1 is the appropriate timeline. Obviously, we've got to get the generator from RBC and do some testing on that, because all of our tests have been done with competitive generators. But where we are now, and even given some of the -- some of the challenges with COVID, and supply chain, everyone still feels good about that timeline.

[Alex Knopick:]

And actually, on that point, is 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 the actual electrode itself?

[Dave Rosa:]

There's 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's still some additional testing that we'll be doing with the electrodes but most of what we're working on now is outside of the electrode, its accessories and hardware.

[Alex Knopick:]

And then just last question from me just maybe expand on the next steps here with the chronic use electrode, just how did it turn out from the accelerated aging data we have here and for commercialized products?

[Dave Rosa:]

Yeah, so that's obviously a longer timeline. 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's 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 a commercial product. We have some ideas about how to enter that market more quickly 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 we would have initially had to do if we designed it ourselves. So we think we can take 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 that we can manufacture these in high volume 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.

[Operator:]

The next question is coming from Ben Haynor from Alliance Global Partners.

[Ben Haynor:]

First off for me just kind of following up on our last question there. On the chronic side of things you mentioned in the press release a week or so ago, entering the research market. And then obviously, you touched a little bit upon the strategic licensee in angle. Can you give us a little more color on what the research might -- market might look like? And then also have you had discussions with strategics on the chronic use upfront?

[Dave Rosa:]

Yes. Ben so your first question on the size -- what we estimate the size of the research market to be. 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 asked questions about, “Hey, can you design an electrode for me for research purposes.” So, there are some companies that literally only provide devices for research purposes. I 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 and $20 million, so which to me is significant from just a recording standpoint. And then I think you'll also hear we're working on something with a program or a project or research project right now with a local institution. Things are not yet finalized. But we are likely to start a project regarding an indication that we're not in now, using these electrodes for research purposes. So stay tuned on the market, we're really trying to scour to see if there's any published information on what the size of that is. And then with respect to strategics, dating back to I think three years ago even before we were a NASDAQ Company, I publicly commented that we had had discussions with strategics. And the common response was, this is nice what you're 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 will increase or I'll say, reappear once we release the results of the chronic testing, which again, expect to happen this quarter.

[Ben Haynor:]

And then just kind of on the R&D front, I think you get some devices for kind of high definition electrodes to -- I think it was Mayo and Carnegie Mellon. Do -- any feedback there or what's the latest on HD electric front?

[Dave Rosa:]

Yeah, so the Mayo did use them. They implanted them in pigs. Unfortunately, the pigs caught infections, and they wound up dying 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 rerun some of those tests so that – we’re not taking these out only a week that we're really pushing these for 30, 60, 90 days. The problem is preventing these animals from getting an infection because keep in mind, these are all open wounds. It's not like the electrodes and the hardware implanted in the animal. So that's been challenging for them to manage. And we have not heard back yet from Carnegie Mellon.

[Ben Haynor:]

And then I guess lastly for me, you were in the Zimmer Biomet booth at the American Epilepsy Society meeting here, what was the feedback on the cortical electrodes at the meeting?

[Dave Rosa:]

So are you talking about from physicians or from the Zimmer sales force?

[Ben Haynor:]

Well, I guess both.

[Dave Rosa:]

All right. I guess that was a dumb question on my part. So the physicians that came by the booth, clearly were intrigued. I think the first thing that that becomes apparent to them is how thin and flexible the film is. It's not something that they've worked for in the past. The challenge that we've had that -- and this is the feedback from the Zimmer sales force is that, hospitals do not want to carry one company's cortical electrodes and another company's sEEG or DEF electrodes, they want one manufacturer and that's it. And until we release the sEEG electrode, until we have FDA clearance, it's more of a special order situation with the cortical electrodes. We all know that that's a low volume product. So, it's easy to kind of forget about that, but there's no question that the doctors get what the value of it is. And then when they hear a little bit about the brain friendly 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 sales force as well as the neurosurgeons that came by, there's a lot of excitement about the sEEG electrodes. And on one hand, it'll allow us to get on the shelf of these hospitals as opposed to a special order. But two, this is really where the volume is in the diagnostic procedures. So a lot of excitement to get that product on both fronts.

[Operator:]

We have no further questions in queue. Okay. Looks like Dave Rosa’s line has dropped. Ron, are you there?

[Ron Mcclurg:]

I am. If there's no further questions we'll turn it back over to you. We thank everybody for the time this afternoon.

[Operator:]

Thank you. 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.