Solana Co Q2 FY2023 Earnings Call

Good day, and thank you for standing by. Welcome to the Helius Medical Technologies, Inc. Q2 2023 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Michelle Bilski, Investor Relations. Please go ahead.

Thank you, operator. Welcome to the second quarter 2023 earnings conference call for Helius Medical Technologies. This is Michelle Bilski of In-Site Communications, Investor Relations for Helius. With me on today's call are Dane Andreeff, Helius Medical's President and Chief Executive Officer; and Jeff Mathiesen, Chief Financial Officer. At this time, all participants have been placed in a listen-only mode. Please note that this call is being recorded, and access to the webcast can be obtained through the Investors section of the Helius website at www.heliusmedical.com. 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. 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 and our quarterly reports on Form 10-Q. Such factors may be updated from time to time in our other filings with the SEC, which are available on our website. All statements made during the call are as of August 10, 2023. 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 Dane Andreeff, President and Chief Executive Officer of Helius.

Thank you, Michelle. Welcome, everyone, to Helius Medical's second quarter 2023 earnings conference call. I'm happy to report that we saw a significant increase in sales during the second quarter of 2023, with revenue up 115% compared to the prior year quarter and up 131% compared to the first quarter of 2023. Increased U.S. sales of PoNS systems under the favorable pricing offered through the PTAP program, which terminated on June 30, 2023, in part drove the higher revenues as did the ongoing addition of neurologists and trained PoNS certified therapists, recommending PoNS to their patients. PoNS Therapy is a groundbreaking treatment for people suffering from balance and gait impairment. Since the beginning, our goal has been to get this important neuro technology into the hands of as many qualified patients as possible by eliminating barriers to use. We launched PTAP one year ago to give qualified Americans suffering from balance and gait impairment due to MS, the ability to purchase PoNS at a significantly reduced price, lessening the cost burden while we initiated efforts to pursue reimbursement by third-party payers and CMS. PTAP was initially scheduled to expire on December 31, 2022, but due to the program's popularity, we extended it to June 30. PTAP was a great success. By subsidizing PoNS Therapy for participants, we meaningfully reduced the major barrier to use and brought relief to a great number of patients than we otherwise would have. PTAP also enabled us to add to our MS patient registry and collect important health economic information to establish the value of PoNS on key clinical and therapeutic outcomes. This patient registry data is a key element to pursuing reimbursement. Going forward, sales of PoNS systems will be on a cash basis as we continue to aggressively pursue coverage while also helping patients navigate the reimbursement pathway. As I've mentioned before, we believe broad third-party payer reimbursement is needed to achieve our full revenue potential, and we remain very optimistic about CMS' Transitional Coverage of Emerging Technologies Program or TCET, which is a proposed accelerated coverage pathway for new and innovative medical devices. In June, the CMS announced its proposed TCET pathway and provided greater clarification on its approach to coverage reviews and evidence development. The proposed TCET pathway would expedite Medicare coverage of certain breakthrough devices by allowing manufacturers the opportunity for increased premarket engagement with CMS. Through premarket evaluation of technologies and identification of important evidence gaps, TCET aims to reduce uncertainty about coverage options. Under the new guidelines, qualifying breakthrough designations would have temporary coverage within six months after FDA market authorization, allowing companies greater time to gather the necessary clinical data to prove the efficacy of their products and address any evidence gaps. This is great news for Helius as PoNS has breakthrough designations in both MS and stroke in the United States. In addition, PoNS was recently awarded Durable Medical Equipment, Prosthetics, Orthotics and Supplies, or DMEPOS accreditation by the compliance team, which is authorized by CMS to accredit all DMEPOS products and services. Organizations that wish to bill Medicare must have accreditation from an approved agency, and this certification is a key component in achieving coverage under TCET if and when it's passed. As of now, we believe we are on a path toward achieving coverage in mid-2024, and we'll keep you updated on further developments. On our PoNS Therapeutic Experience Program, otherwise known as PoNSTEP, is another way we're bringing our technology to a greater number of patients suffering from balance and gait impairment. As a reminder, PoNSTEP is a company-sponsored open-label observational trial with a targeted enrollment of 50 to 60 patients that was designed to evaluate the impact of subjects' adherence to PoNS Therapy in patients with MS in a real-world setting. Earlier this week, we announced the addition of Montefiore Medical Center in Nyack, New York to PoNSTEP. Dr. Christopher Langston, who is leading the trial, is a renowned clinical researcher of current and advanced topics in MS management and was one of the first PoNS prescribers. We expect Dr. Langston and his team at Madlyn Borelli Multiple Sclerosis Center to be great contributors to the program. We now have six centers of excellence participating in PoNSTEP, with the goal of enrolling five to 10 patients per site. This is higher than the five patients per site we originally envisioned as several of our sites are fully enrolled and interested in adding more patients. Enrollment in PoNSTEP began during the fourth quarter of 2022 and will continue throughout 2023. We recently announced the expansion of our Medical University of South Carolina stroke trial from 12 to 60 patients. This investigator-initiated study evaluates the effects of cranial-nerve non-invasive neuromodulation delivered using PoNS Therapy on gait and dynamic balance in chronic stroke survivors. In Canada, where PoNS is already authorized for stroke, we've seen significant improvement in gait and a reduced risk of falling. This meaningful real-world data and expanded study are significant steps forward in our efforts to leverage the breakthrough designation and pursue approval for stroke in the United States. As a reminder, we previously were able to use results from similar clinical studies in real-world data to receive authorization for MS in the United States. Turning now to our Canadian activities. The timing of some orders and activity originally anticipated in the first half of 2023 have slipped into the second half of 2023, resulting in lower-than-expected Canadian revenues during the first six months of 2023. Having said that, we believe this timing difference will result in a stronger third quarter, which typically experiences seasonal weakness and a strong finish to the year because PoNS is authorized in Canada for three indications: MS, stroke, and TBI. The market could be much larger than the U.S. market in the near term. Now let me turn the call over to Jeff to discuss our second quarter financial results in detail.

Thanks, Dane. It is a pleasure to be with you today. Total revenue for the second quarter of 2023 was $256,000, an increase of $137,000 compared to the $119,000 in the second quarter of 2022, resulting from increased U.S. sales of PoNS systems, primarily due to the favorable pricing offered through the PTAP, which terminated on June 30. For the second quarter of 2023, the cost of revenue was $184,000 compared to $88,000 for the prior year period, primarily attributable to the higher sales compared to the same period in the prior year. Selling, general and administrative expenses for the second quarter of 2023 were $2.6 million, comparable to the $2.5 million reported in the second quarter of 2022. Research and development expenses for the second quarter of 2023 decreased to $0.7 million compared to $1 million in the second quarter of 2022, driven primarily by a decrease in product development expenses and clinical trial activities as the company transitioned to U.S. commercialization activities. Total operating expenses for the second quarter of 2023 decreased to $3.3 million compared to $3.5 million in the second quarter of 2022. The operating loss for the second quarter of 2023 was $3.2 million compared to a loss of $3.4 million for the prior year period. We reported a net loss for the second quarter of 2023 of $1.6 million or a loss of $0.06 per basic and diluted common share compared to a net loss of $3.8 million or a loss of $0.97 per basic and diluted common share for the same period last year. Our cash burn from operations for the second quarter of 2023 was $2.7 million compared to $3.7 million for the second quarter of 2022, reflecting the results of our focus on managing cash burn and extending our cash runway further into 2024. As of June 30, 2023, we had $8.6 million in cash and no debt. On June 23, 2023, the company entered into an agreement to create an at-the-market offering program or ATM, under which the company may offer and sell shares having an aggregate offering price of up to $2 million, providing Helius the ability to access additional cash opportunistically or as needed. As of June 30, 2023, no issuances of securities have occurred in connection with the ATM. Turning now to our outlook. Management currently expects third quarter and full year 2023 revenue to be above the comparable periods in the prior year with a shift in sales mix to be more heavily weighted in Canada, offsetting an anticipated decrease in the U.S. following the end of the PTAP. Future U.S. sales of PoNS are expected to be at our cash-pay price until we gain reimbursement by CMS and third-party payers.

Thank you, Jeff. Our first question is from Jonathan Aschoff with ROTH MKM. Please proceed.

Thank you. Good afternoon, guys. I was wondering how exactly does receiving DMEPOS accreditation alter your approach to seeking U.S. reimbursement? I mean you just mentioned it? Or can you deal with payers in any materially different way?

Hi Jonathan, this is Dane. Thank you for the question. Right now, we're actually looking at multiple paths and just being DME accredited and going towards CMS for coding and eventual reimbursement is just one pathway using the DME approach. The other pathway, of course, which we mentioned, is the TCET pathway, and we would also need the DME accreditation towards that. Regarding private payers, right now, given that we are in the process of collecting our codes, we are, and we'll be doing more of going down the reimbursement pathway for patients on a miscellaneous code.

Okay. What can you say about the statistical power with 60 stroke patients in the stroke trial?

So we have a data development plan in place. We're hopeful on increasing the number 60. We just haven't talked through that yet, Jonathan, but we're happy where we are at 60. And hopefully, we could move that number up with our data development plan with the FDA.

Okay. Thank you. And lastly, how many more sites do you wish to add to PoNSTEP, and when will we see any of those results given that the June corporate slide deck on your website looks to be out of date regarding time for PoNSTEP as well as the stroke trial actually.

Yes. We expect at least one to two more, Jonathan. And as you noted and we noted that we're increasing the enrollment at each site, giving patients more than five devices per site now. Thanks Jonathan.

Thank you. Please standby for our next question. Our next question comes from Jeff Cohen with Ladenburg Thalmann & Co. Please proceed.

Hi Dane and Jeff, this is actually Destiny on for Jeff. Thanks for taking our questions. I guess I would like to kind of follow up on the previous question, that's a big step up from 12 patients to 60, and I'm wondering if you can just discuss a bit about the drivers of that increase.

The drivers are really tied to our breakthrough designation in stroke, which is our second one. We are among less than 1% of medical device companies that have achieved two breakthroughs. We believe that the stroke trial with Dr. Steve Kautz at the University of South Carolina has the potential to expand significantly. If that happens, we might be able to leverage this data, along with other information, to pursue our breakthrough designation pathway with the FDA for stroke authorization.

Okay. Got it. Got it. Okay. And then I'm curious, Jeff, maybe this one is for you. That revenue that was pushed into the second half of 2023, is that because of any macroeconomic factors you can call out? Or is it simply just a timing of orders issue?

It's more the timing of orders issue. There's some things that have been worked on in Canada that we had anticipated to play out earlier in the year that have slipped into the second half of the year. But they're still very active, and we still expect them to happen. And so as we had planned out our year, it was just something that ended up slipping into the second half as well.

Okay. Perfect. And then can you talk a little bit about how the funnel looks currently, especially since you're moving away from that subsidized price? Any changes there?

No changes. It's a very active funnel with our e-commerce site partnered with UpScript. The folks are still coming in. There's multiple ways patients interact with us. A lot of inquiries come right to Helius. And of course, then with that interest and those questions answered for the U.S. patients that are on label, they would be directed to the e-commerce platform. And remember, the e-commerce platform does a number of things for the patient. It reduces the patient's time to get an appointment with their neurologists. That's a really big factor these days post-COVID, what we understand the average time to get an appointment with your neurologist is up to three months now, where having the telehealth, telemedicine site, e-prescribing site, we're able to really allow the patient to get PoNS Therapy faster, quicker and start their treatment with their physical therapists.

Okay. Got it. Thank you. And a couple more for me, if that's all right. Can you just remind me the timing on the TCET decision?

We have about 20 more days in the 60-day comment period, which is quite intense. I've been participating in around two calls each week with lobbyists and some of our representatives in Congress. This comment period is crucial for us to potentially modify the policy established by CMS in a way that benefits medical device companies. Currently, without TCET, it takes an average of 5.7 years for a medical device company to receive reimbursement from CMS, according to Scott Whitaker at AdvaMed.

Well, okay. Excellent.

Yes, that's a big number. Yes. So TCET is very important, not only for commercializing in MS and our reimbursement. But if you think about it, our second breakthrough in stroke, about 90% of stroke patients are covered by Medicare, by CMS.

Okay. All right. Got it. And then lastly, can you call out any scientific conferences you'll be attending in the second half of '23 and maybe the first half of 2024?

Yes. We have one scheduled, but it's on the neurological physical therapy side. We will not be presenting any data there, but we'll be in the right place with neurologists and their neuro PTs.

Excellent. Thank you so much for taking our questions.

Thank you, Destiny.

Thank you. Please standby for our next question. Our final question comes from Anthony Vendetti with Maxim Group. Please proceed.

Thanks. Hi, Dane and Jeff. Just in terms of - can you talk about the distribution agreement that you signed with HealthTech Connex? How is that going? Is that starting to bear fruit? Can you just talk about where that's at, at this point? And then I have one follow-up.

Sure. This is Jeff. I'll take that question. We previously had an agreement with them, which has now been replaced by a new one. The new agreement grants them exclusive distribution rights in the Western Canada area, and things are going well with that. We have a solid relationship with them. The agreement includes purchase requirements that they need to meet, and they also collaborate with us to promote PoNS. As we work on establishing additional programs and reimbursement in Canada, we are partnering with them to engage insurance companies about reimbursing PoNS in Canada. They are a strong partner, and the agreement is progressing well.

Okay. Great. Can you tell me how you track the traffic on the e-commerce platform? This information is clearly valuable for managing reorders. What trends are you noticing on that platform?

Yes. In our funnel, we monitor around 12 steps, Anthony. We receive numerous inquiries where potential patients complete a questionnaire to determine if they have MS or a gait deficit. This extensive questionnaire helps guide them toward a telemedicine appointment. Some may already have prescriptions, and we utilize our online e-prescribing system to deliver the product if they do. If they request an appointment and qualify, a doctor can send them an e-prescription, which they can fill. We ship the product the same day, so they receive it at home within two days. As Jeff mentioned, we anticipate a slower second half until we secure reimbursement, but the flow of inquiries remains steady. These inquiries come through our Helius website, phone, email, and our partnership with UpScript for order fulfillment. We meticulously track our Google searches and brand awareness, analyzing what potential patients are looking for. The primary search trend centers on viable treatments for balance and gait deficits, commonly associated with neurological conditions like MS. Helius Medical and PoNS Therapy consistently show up in Google searches, leading to ongoing inquiries that allow us to educate patients.

Okay. But the point being is until there's reimbursement, you wouldn't be surprised if clicks to the site or visits to the site slowed a little bit in the second half?

I would say it would be constantly growing through the second half because you're talking about really getting through the first part of the funnel. Once we collect that inquiry and see whether they're willing to pay cash, of course, or go down the reimbursement pathway, remember, we view that patient as a future PoNS patient. It just might be delayed three to six months if they are unable to pay cash or go down the reimbursement pathway.

They will still be visiting the site. The follow-through will depend on whether they choose to pay cash or wait for reimbursement. When that happens, we will be able to reach out to those who are waiting since we are tracking various metrics.

Correct. That's correct. Yes.

Anthony, before you go, I want to revisit your initial question. I’d like to highlight that when you examine the 10-Q and the sales breakdown in Canada for the U.S., we noticed that sales in Canada were lighter than anticipated, and you inquired about the agreement with HTC. However, it's important to mention that Canadian sales in the second quarter exceeded double those of the first quarter and also surpassed the same quarter from the previous year. So we are observing positive trends there. We just had some other plans that have shifted to the second half of the year.

That's helpful color. Thanks, Jeff.

Thank you. At this time, I would now like to turn the conference back to Dane for closing remarks.

Great. Thank you, Hope, and thank you, everyone, for following Helius Medical Technologies. We look forward to keeping you updated as we pursue coverage, reimbursement and continue to bring PoNS Therapy to the millions who need it. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect. Have a great evening.