Earnings Call Transcript - NMTC Q3 2021

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the NeuroOne Medical Technologies Corporation Third Quarter Fiscal 2021 Earnings 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 read to you the company’s abbreviated safe harbor statement. I’d like to remind you that prepared statements made in this conference call concerning future revenues, results from operations, financial position, markets, economic conditions, product releases, partnerships and any other statements that may be construed as a prediction of future performance or events are forward-looking statements, which 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. Non-GAAP results will also be discussed on the call. The company believes the presentation of non-GAAP information provides useful supplementary data concerning the company’s ongoing operations and is provided for informational purposes only. With that said, I’ll turn the call over to Dave Rosa, CEO of NeuroOne. Dave?

Dave Rosa, CEO

Thank you, operator. First, I would like to welcome everyone to the call today and special thanks to all of our investors, as well as those interested in learning more about the company. Given that this is our first quarterly call since we successfully listed on Nasdaq, I’d like to provide a brief introduction of the company, then turn it over to Ron for financial comments before proceeding to discuss our fiscal third quarter results. In addition, for those of you with access to video, I will show some of the devices I refer to during the call. And we’ll let you know in advance when to turn your camera on. Starting with a brief introduction. Over four years ago, I joined NeuroOne with a vision to develop and commercialize game-changing world-class electrode technology that could improve upon existing treatments and enable future therapies that could benefit from NeuroOne’s unique platform technology. While our initial focus has been on patients suffering from epilepsy, chronic back pain and Parkinson’s disease, we have been approached by a number of physicians and industry leaders regarding potential applications for other areas, such as depression, mood disorders, pain management, and hypertension. I am firmly convinced that our electrode technology has the potential to improve therapies for these indications as well as play a critical role in the future for therapies requiring electrode technology that utilizes artificial intelligence. Some of the potential advantages of our thin film electrode technology include the following: it is a platform electrode technology that’s intended for large multi-billion dollar established neurosurgical markets; second, it utilizes automated manufacturing processes for lower manufacturing costs and reduced lead times; third, it is a thin film, lightweight electrode that may allow for less invasive insertions and less inflammation; four, it has the potential to reduce the number of procedures and reduced hospitalization times based on the ability to perform both diagnostic and therapeutic functions; five, its low impedance, high definition design offers the benefit of improved signal clarity and enhanced precision for physicians; six, the ability to reduce and customize the size of the electrodes may allow for treatment of more complex neurological conditions by placing thousands of electrodes in the brain, similar in concept to Neuralink, Elon Musk’s neurology company. We also believe that we are well positioned to participate in future applications that utilize artificial intelligence. After completing a reverse merger in July 2017 and listing on the OTC market, the company focused its efforts on developing its electrode technology by utilizing intellectual property from the Wisconsin Alumni Research Foundation and technical know-how from the Mayo Clinic. The initial clinical application we focused on was epilepsy. On November 2019, we received our initial FDA 510(k) clearance for our Evo cortical technology intended to be used for recording, stimulating, and monitoring brain tissue for up to 30 days. This technology is used primarily for epilepsy and brain tumor applications. In July 2020, we entered into an agreement with Zimmer Biomet to distribute our first two products, the Evo cortical electrodes, a family of strips and grid electrodes, and the Evo sEEG electrodes both utilized for the same procedure but played through different surgical methods. The Evo sEEG electrodes are not currently cleared by the FDA for commercial use. In addition, Zimmer Biomet agreed to develop the accessories required in order for our electrodes to be used with Zimmer’s ROSA robot platform. The agreement included an upfront $2 million licensing fee payment and also offered additional milestone payments depending on NeuroOne’s delivery of the sEEG electrode. The Evo cortical electrode was launched in December 2020 as part of a limited release to select accounts. 2020 also included other key milestones, such as the company advancing its development of the sEEG diagnostic electrode and ablation electrode. In addition, we are proud to say we eliminated all of our outstanding debt, continued to build the internal infrastructure, and added a second corporate office in California focused on advanced electrode development. Before I move on into fiscal third quarter and year to date operating highlights and updates, I will first turn it over to Ron for a more in-depth view of our third quarter financial results. Ron?

Ron Mcclurg, CFO

Thank you, Dave. Product revenue was $40,000 in the third quarter of fiscal 2021 and collaboration revenue was $17,000 compared to no revenue in the prior year period. Our total operating expenses in the third quarter of fiscal 2021 were $3 million compared with $1.6 million in the same period of the prior year. R&D expenses in the third quarter of fiscal 2021 were $2.1 million compared to $1.1 million in the same period of fiscal 2020. SG&A expenses in the third quarter of fiscal 2021 were $900,000 compared to $0.5 million in the prior year period. Our net loss was $3 million for the third quarter of fiscal 2021 compared to a net loss of $7.1 million in the prior year period. The company ended the quarter with approximately $9 million in cash balances prior to $4 million at September 30, 2020, which is the end of the company’s most recent fiscal year. The company had no outstanding debt as of June 30, 2021. That concludes my remarks. I’ll now pass it back to Dave.

Dave Rosa, CEO

Thanks, Ron. During our fiscal third quarter and year to date, we made significant progress across our product portfolio. I’ll remind everyone that our portfolio is composed of next-generation electrode technology for neurological disorders across both diagnostic and therapeutic indications. The two therapeutic categories include tissue ablation and chronic stimulation. At a high level, we started the year with one FDA approved product in diagnostics. Pending timely FDA clearance, we expect to commercialize our second product also in diagnostics before the calendar year end. We are targeting commercialization of our third product, as we launch into therapeutics approximately at the end of calendar year 2022. Additionally, we expect data on our fourth electrode product family for chronic use later this calendar year. I’ll now take a deeper dive on the technology. And at this point, please turn on your video if you would like to see the products. Starting with diagnostics and our first FDA cleared product, our Evo cortical diagnostic electrodes. 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 intra-operative mapping for brain tumors. Now I’ll show you the product and how it is placed. So this represents a model of the brain. This is the brain tissue that I’m showing right here. The way these cortical electrodes are placed is the surgeon will remove the top part of the skull, take the electrode. Hopefully you can see that this is an example of one of them. And then place it on the brain depending upon which area they’re looking to map. They’ll place it on the brain, they’ll leave the product in for up again, up to 30 days with the sole purpose of being able to identify the problem areas of the brain or the borders of the tumor. I’m not sure you can appreciate how thin this film is, which is one of its distinguishing characteristics. But it’s very thin and very lightweight compared to other commercially available electrodes on the market. Next, during our current fiscal year, we announced the first human commercial use of our Evo cortical electrode at the Mayo Clinic in Rochester, Minnesota. The procedure was performed by Dr. Jamie van Gompel over a period of four days on a patient that had drug-resistant epilepsy. The NeuroOne Evo electrode technology was utilized to perform recording, monitoring, and stimulation of the brain. Three NeuroOne electrodes were used during the procedure and also recorded evidence of pre-seizure activity, which may be critical in developing future treatments to prevent the onset of seizures. After years of development, it was exciting to witness the initial validation of our Evo cortical electrode technology at the Mayo Clinic. We’re grateful to all the institutions that helped provide valuable guidance along the way and have been focused on making our technology available to a multitude of centers through our distribution and development partner Zimmer Biomet. Continuing with the diagnostics line, we’ll move to our second product, the Evo sEEG depth electrodes, which we expect to be commercialized by the end of the calendar year and in timely regulatory clearance. The Evo sEEG depth electrodes are our portfolio of high definition thin film depth electrodes used for the same indications as the Evo Cortical Electrode technology. Potential advantages include increased signal clarity and reduced noise, better tactile feedback during insertion into brain tissue, and faster order fulfillment due to an automated manufacturing process. We view the total addressable market for the Evo family of electrodes to exceed a $100 million. Please turn on your video cameras now to see the Evo sEEG diagnostic electrodes. This may be a little bit more difficult to see, but this is the electrode right here that I have in my hand, you can see how thin it is and the way this device is placed instead of removing the top part of the brain for the cortical electrodes, the physician will use tools that could be a robot. It could be a stereotactic platform that pre-drills holes into the brain tissue. This is actually a picture of the electrode in place, and you can see how less invasive this procedure is. So that’s the Evo sEEG diagnostic electrode. During the fiscal year, the current fiscal year, we made significant progress regarding commercialization of our sEEG electrode portfolio. In fact, in February, we announced that we successfully met the first performance milestone and the distribution and development agreement that was signed with Zimmer Biomet on July 20, 2020. This agreement provided the exclusive global distribution rights to NeuroOne’s Evo patented cortical and sEEG diagnostic electrode technology. As a reminder, this partnership also offers a potential for NeuroOne to earn back-end milestone payments if certain events are met within a specified timeframe. Our next corporate milestone for the Evo sEEG Depth Diagnostic Electrodes are potential 510(k) clearance and commercialization by the end of the calendar year. Turning to therapeutics, we’ll move to our third product, the Ablation Therapeutic Electrodes. Ablation Therapeutic Electrodes are our proprietary sEEG electrodes that are designed to both record brain activity and ablate tissue using the same device. Currently, two separate hospital visits and surgeries are required to treat patients that have seizures due to epilepsy or brain tumors that contribute to seizures. The combining of the diagnostic and the therapeutic functions in one device is expected to save time, money, and contribute potentially to improve patient outcomes, especially since the patient will be able to get both procedures done with the same device and part of the same procedure that would require only one hospital visit. We also intend to market hardware and software in addition to the electrode, allowing us to provide the entire system needed for the procedure. Underscoring its potential, in June, we announced the formation of a six-member Advisory Board of leading neurosurgeons to assist in the completion and development of this technology. Our next milestones for the Ablation Electrodes are to complete animal studies in early Q4 of calendar year 2021, submit for FDA clearance in late 2022, and potentially complete the project by the end of calendar year 2022. Shifting to the Chronic Use category, we’ll move to our fourth product, which are electrodes for Chronic Use. Please turn your cameras on at this point. I’m going to show you the electrode that I showed you earlier. This is the Evo Cortical Electrode. There are 16 points of contact. It may be a little bit difficult to see on this electrode. What we’re able to do is reduce the size of these contacts to provide the ability to pack more contacts in the brain. I’m now going to show you a picture of an electrode that has the same footprint as the Evo Cortical Electrode, and this film that looks like a mesh film has 900 contacts in the same area as the Evo Cortical Electrode. One other picture just to show you how small these devices can be manufactured, so this is the Evo Cortical Electrode that I’m pointing to right here. That’s the mesh electrode. And then this tiny strip here, as well as this electrode right here, all have the same number of contacts as this electrode right here. But you can see how much smaller we’re able to build these devices. You can now turn your cameras off. Electrodes for Chronic Use include applications for deep brain stimulation for Parkinson’s disease, epilepsy, and other brain-related disorders. In addition, it also includes chronic stimulation or chronic back pain. Our initial focus is to offer a system for chronic back pain, given the $3 billion plus penetrated size of the U.S. market by offering thin-film percutaneously placed electrodes as well as the hardware and software required for spinal cord stimulation, because of the potential to be placed percutaneously, NeuroOne spinal cord stimulation electrodes may be used for both the trial period and permanent implant, saving an additional procedure. Finally, given the ability to scale the electrodes down in size, we also offer the potential to more precisely provide stimulation for the targeted tissue. The deep brain stimulation line has applications for Parkinson’s disease, epilepsy, and essential tremors, and represents the current total addressable market of over $500 million with a potential of $6 billion. Additional applications for our platform electrode technology include psychiatric and cognitive disorders, urinary incontinence, pain management, and hypertension. In terms of an artificial intelligence line, given there are billions of neurons in the brain, researchers believe that to treat more complex neurological conditions, such as paralysis will require more points of contact or more information from the brain. NeuroOne’s electrode technology has the ability to scale or reduce the size of the electrodes to enable the placement of thousands of more electrodes in the brain based on its scalable design. If successful, this may enable the ability to use artificial intelligence to treat these complex clinical cases. Our next milestone for chronic use electrodes is to generate accelerated aging testing data by the end of calendar year 2021. In summary, while the diagnostic market alone is sizable for NeuroOne, the therapeutic market is exponentially larger representing the multi-billion dollar opportunity for NeuroOne. We’ve accomplished a great deal in the first nine months of our fiscal year and to June 30, 2021, and believe exciting near and long-term opportunities lie ahead. Proof points of that include new and existing partners, talent, and prominent institutional investors that we’ve attracted. For example, the Mayo Clinic has served as a critical partner for the company. Since 2015, they have provided technical know-how and support, in addition to being a top shareholder of the company since 2017. World-renowned Mayo neurologist, Dr. Greg Worrell chairs the NeuroOne Scientific Advisory Board and leading Mayo neurosurgeon, Dr. Jamie Van Gompel is also a member of the Physician Advisory Board. Next, Zimmer Biomet, one of the world’s most highly respected medical device manufacturers has also been an important partner for developing distribution. Zimmer has exclusively development and distribution rights of NeuroOne’s Evo diagnostic electrode technology per an agreement signed in July 2020, which included that $2 million upfront payment with additional milestone payments for the Evo sEEG product family. Zimmer is a worldwide leader in robotic technology used in minimally invasive neurosurgeries and the Evo electrode product line is complementary to Zimmer’s ROSA brain platform. Additionally, this partnership enables efficient deployment into the market and has allowed NeuroOne to focus on development and pursue additional therapeutic applications for the technology. Moving to the current fiscal full year, we announced the launch of our first commercial product, the Evo Cortical Electrode family, the submission of the FDA for our second product, the Evo sEEG Electrode product family, we successfully met the first performance milestone in the Zimmer distribution and development deal. The appointment of Ron McClurg, our CFO, an experienced senior financial executive with over 30 years of experience as CFO of public and private companies, including Orthomet, Video Sentry Corporation, Insignia Systems, and Incisive Surgical. We also announced the appointment of Hijaz Haris as Vice President of Marketing, who joined us after a 20-year distinguished career at Medtronic, where he was Senior Global Marketing Director for Brain Modulation and helped to refresh the Deep Brain product pipeline that led the business through a period of new competitive entries, new product launches, and various distribution partnerships. Additionally, we closed our first institutional round of financing, a $12.5 million capital raise adding certain prominent institutional investors, further validating and providing additional support to our company. Another critical milestone completed was our successful Nasdaq listing that we believe will help us generate even greater interest in our company from leading institutional investment firms across the board nationally, as well as in the international investment community. In closing, we have a substantial multi-billion dollar market opportunity, disruptive patented platform technologies, industry-leading management, partners, and investors. We have a platform technology potential for multiple applications, including both diagnostic and therapeutic capabilities for epilepsy, Parkinson’s disease, spinal cord stimulation for chronic back pain, and other neurologic disorders. While most of our future competitors have focused on the hardware and software for these therapies, we believe the electrode technology is just as, or more critical to the success of the therapy. We are confident that our electrode technology assesses meaningful advantages versus those currently on the market. I could not be more proud of what we have accomplished as well as what lies ahead. Thank you all for your time and attention. Have a wonderful day, and I look forward to providing future updates on our progress. This concludes our call.

Q, Analyst