Solana Company (HSDT) Q2 2020 Earnings Report, Transcript and Summary

Good evening, ladies and gentlemen, and welcome to the Second Quarter of Fiscal Year 2020 Earnings Conference Call for Helius Medical Technologies. At this time, all participants have been placed on a listen-only mode. Please note that this conference call is being recorded and that the recording will be made 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 timelines, the potential receipt of regulatory clearance of the PoNS device in the United States and projected financial results.

Thank you very much, operator. And welcome, everyone, to Helius Medical's second quarter of 2020 earnings conference call. I'm joined 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 a 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 two peer reviewed clinical trials, which we have outlined in prior calls. And in addition to these two 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.

Thank you, Phil. We reported revenue of $133,000 for the second quarter of 2020 compared to $518,000 prior year period. Product sales represented approximately 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 mouthpieces 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 was designed to reduce upfront patient costs. Our gross profit for the second quarter of 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 benefit 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.

Thank you, Joyce. Joyce 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 to obtain 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 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 requirements are 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, in 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 effects of MS, TBI and possibly other conditions in the future. What's particularly exciting is research of 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 conditions. 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 are happy to take questions from the phone.

Thank you. Our first question comes from Steven Lichtman with Oppenheimer & Company. Please state your question.

Thank you. Hi Phil, hi Joyce. 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?

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 there are varying size and we really focus on these clinics to give access in specific parts of the country. And we’re really focused on developing the network in Southern Ontario to be able to give access. So I 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 chomping it a bit to get back to full business is that 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, compromise, they sort of have a reluctance to be able to go in. Having said all that, what we're trying to do in 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 are 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.

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

Yes. So the first review is really an administrative review and FDA has their own pick 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 kick 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 administrative one. And you can be sure Steve that we will obviously report on any material feedback that FDA gives us one way or the other. And certainly from my perspective, hopefully the next feedback we give you is clearance.

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?

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 $1 million a month is where we’re coming up.

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

Congrats on the submission to the FDA and nicely done on getting five clinics during pretty rough quarter. Just kind of curious on the five clinics that you’ve added. How quickly do they start treating patients? You mentioned that these clinics are chomping a bit to get going and ramp, capacity backed up. But how would you kind of characterize if their enthusiasm for getting into their first PoNS treatments?

Sure, so look the clinics -- neurological clinics -- neurological conditions are a real pain to treat. These poor patients for the most part are fighting an uphill battle. And it's pretty rare that a physical therapist ultimately fight a winning battle. In that most of the care that these clinics are giving these patients are, let me manage and try to slow down your decline. So our data shows -- and this is what has been excited. Our data shows that we're able to reverse the decline that patients are seeing in their gait quality. So as the team is reaching out to these top tier neurological clinics, obviously, they want to review the data. We're able to show them the data. And so they're excited by the opportunity to craft -- to apply their craft and actually help patients actually get better. And it's -- every now and then for those of you who are out there, just visit the website. It's just so -- Canada -- PoNS, Canada.ca -- I'm sorry, PoNStreatment.ca, because it will show you -- you can see some anecdotes there and you'll be sort of figure why they're excited about this. Also rest assured that they don't jump into this lightly. They review the data, they seek advice from their referral physicians. And that's why our team is doing everything they can in the sort of the virtual world to drive that awareness and to drive the patient. So once we're able to sort of close all of those loops, the clinic say wow, I'm in, I want to do this. So, as I said, we were able to design a virtual training program. It used to be that we had -- we used to spend a day in clinic doing all of the PoNS training and authorization process. Now, we do that completely virtually. And so once they get treated, once they get authorized, then they start reaching out to their patients. And let me give you a very tangible example. So let's say a clinic has three treatment rooms, right? So they are able to treat and then the normal treatment is treating patients roughly every half hour, just doing that. So they would be treating three patients half hour, so six patients an hour, eight hours, about 50 patients a day. What the new reality for them is at 50% capacity, those three rooms -- or the three spaces become one and a half space per hour. So it's extremely curtailed. And so they're trying to find a way to select the kinds of patients that are going into clinics, select the kinds of -- and we certainly encourage them that PoNS patients are sort of nice patients to target because ultimately their treatment is an hour in the morning, an hour in evening, it's the same station. So it's perhaps easy for them to fit. And so there's no lack of desire to join the list of authorized clinics. And certainly as their outreach continues, it's just the physical limitations of being able to do this and do this safely, is the biggest deal. I'm sorry for the long winded answer there Ben but I just wanted to make sure that everybody on the phone sort of got a flavor for tangibly what's happening out there.

No, I mean, that color is very helpful and then obviously makes a lot of sense when you think about it. So it sounds like definitely their interest level is there. Do you have a sense of, if these clinics are 30% capacity right now, they need to be at 70% of capacity before you really start -- or X -- what's the X percent capacity where you really think you start seeing patient flow through the clinic for the treatment?

Yes, so it's a great question. So I think that -- just to give you a little more color on the Canadian reopening strategy for the country. Basically as of last week, I think last Thursday was -- there was one more district in Toronto that was still in phase two. Now the whole country is in phase three. And phase three is the permanent new normal until there's a vaccine or a significant treatment. This is what the future looks like, for the foreseeable future. So, these restrictions are going to be in place for the foreseeable future. What we're hoping is that as like everything in life, as time goes by, you start to get -- as I said, necessity is the mother of invention. There is a lot of interest in our treatments. So we hope to think that even with those restrictions, we'll be able to get patients through but the reality is that this is going to be a difficult climate until something happens with respect to the treatment front of COVID.

Thank you. Our next question comes from . Please state your question.

Just a couple of quick questions. The first is, can you give us an idea of how many shares are currently outstanding on a fully diluted basis?

On a fully diluted basis that that number is roughly 58 million.

Alright. And tell me, warrants are currently outstanding and what's the strike on the warrant?

I do have that. So the strike on the warrants is -- hold on a second. I do have that information.

$0.46, I think it's $0.46.

Actually they’re earlier warrants, so that are much higher than I think prior, just going for that sheet, alright?

While you're getting that, why don’t I ask Phil a quick question? Phil, it's great that we've got our application, and the clock is ticking on that. So it'd be great to -- because this is kind of a priority fast track situation, is there any type of historical thing we need to look at the time, this should take from -- what would be the short end to the long end? I mean, we're burning 1.2 million a month, obviously every month is -- if you equate that to number, shares in the dilution is significant. So getting to that point as quickly as possible, obviously is beneficial to all of us, the shareholders, just wondering kind of what the long, short, middle range, what is your expectation level?

Sure. Well, the expectations are really based on the guidance by FDA. And so I'll be able to use their own words. The de novo process is 150 day process for 60% of the files that they review. So that's their goal. And in FDA's own words, they -- as I said, in my sort of prepared remarks, they commit to trying to expedite Breakthrough Designation products. There's no definition of what expedite means though Randy. And so it's really difficult to evaluate. And, as you could imagine, your question we ask to our attorneys all the time and they are giving us -- they give us the same answer that I'm giving you now is that it really depends on the individual submission. But we're hopeful that within that 150 day period we're going to be able to go through the process.

Yes. It seems like they are already familiar with the application for TBI and you think that they would not need nearly that amount of time, but that's never -- we've never had this kind of breakthrough in the past.

I'd like to think they were going to get a break at some point here Randy.

Yes. I mean, at some point it seems like, maybe we'll get a break. I guess my next question, if you don't mind, if I ask one quick question. Obviously with what's happening with Canada, it's not like we're going to -- if we do get the clearance like we can declare victory here. It seems like there's a lot of work that still will go into, once it's cleared to start attracting customers, worrying about the reimbursability of the product, because it is a very expensive product and how that will play out. I mean we're all -- the end result is always what we're looking at is this is the stock price and a lot of us have been holding for years and years and we're in at a very high average cost. And now we are here and we've got this application filed, where we're trying to determine, do we buy more shares and whether the stock keep drifting lower as time goes on over the months while we wait. Because really, there should be no -- there really shouldn't be any significant news coming out of the company until we hear more about the clearance.

Look, I think we're -- as I mentioned, again, in my prepared remarks, we are continuing to do science and there is an enormous amount of interest in our product. So we're trying to work with hospital systems to do further research and the research is exciting and certainly when some of that research is about to be published -- obviously, I can't mention what it is until it is, but we do expect that we'll be able to further the science for the investment community. So we do expect that there'll be some news. Obviously, sometimes the news generates upside, sometimes it doesn't. But we will certainly -- this is not the only thing that we got going. To answer your other question in terms of the U.S. commercialization is, we've already started to that. And it's -- just a really hard juxtaposition for the two positions that you said. On the one hand, in a perfect world, we'd love to be able to start driving our U.S. commercialization effort, but we're in a position where we want to really make sure that we do right. And as Joyce said we were able to move the $1.2 million down to $1 million and we're trying to -- we're going to try to do even better than that. But -- so that we do the things responsibly and once things get more clearer from FDA, then perhaps we'll start to evolve differently. So that’s the circumstance we find ourselves in.

Okay, all right, super thanks.

Joyce, so did you want to have -- I'm sorry, Randy to answer question.

Yes. So in response to your other question. So in total there's about 9.3 million warrants out there. There's about 646,000 that expires December 28, 2020. And they are at 12 and a quarter. There's about 2.4 million that expire on April, 2021, and they are at 12 and a quarter as well. And the most recent warrants from the registered direct we did in March is about 6.3 million at $0.46 a share. Those warrants from the March registered direct, they can begin to be exercised on September 20, 2020. And they last until March of 2025. Okay?

Our next question comes from . Please state your question.

Hi, excuse me if I misunderstood something I thought I heard earlier. Did you say that the cost of the PoNS to the user decreased this year?

Yes. Joyce, do you want to describe it?

Yes. So the cost of the PoNS to the user, what we had done is we had put a program in place that allowed the patient to pay over time. It would allow them to put up -- the benefit can tell us a patient will be a responder within the first month. Under the program, they made an upfront payment for the first month and then an evaluation at the four week mark would determine if they were a responder and they would continue on for the balance of the treatment.

Okay. So for the patient to continue after the initial 14 weeks, that the continuing use of the PoNS has not been reduced?

Yes. The continuing use of the PoNS is essentially renewing the mouthpiece. And so that right now is a decision that's made by the patient and the doctor. And right now patients between now and the end of September are able to have a reduced price of the PoNS. And since we provide the PoNS mouthpieces to the clinics and obviously in the free market economy, there are different prices that the clinics charge. So I can't tell you exactly what it is. But if you know somebody or somebody who needs to do it, now is a particularly good time to visit the clinics to sign up for treatment.

Well, actually, besides being a stockholder, I’m a PoNS user and I am in abate. So I went up to BC last year and I've been using it and I expect I will have to use it the rest of my life is what I am thinking and it's not cheap.

Yes. No, I appreciate that.

For someone who -- is -- has to afford it for self. So yes, it would be nice if you could reduce the fee considerably. But I didn't know that each clinic priced at their own way. I wasn't aware of that. They didn't make me believe that was true. I thought it came from the home office.

No, essentially we -- like most manufacturers we just deliver, they buy it from us and then they resell it to their customers.

Okay. Well, I have more information than I had before. Thank you.

You're very welcome. Good luck to you.

Thank you. We are currently showing no additional participants in the queue. That does conclude our conference call for today. Thank you all for your participation.

You bet. Thank you very much.

Thank you very much.

Thank you. Have a good day.