NeuroOne Medical Technologies Corporation (NASDAQ:NMTC) Q4 2023 Earnings Call Transcript

NeuroOne Medical Technologies Corporation (NASDAQ:NMTC) Q4 2023 Earnings Call Transcript December 14, 2023

NeuroOne Medical Technologies Corporation beats earnings expectations. Reported EPS is $-0.13, expectations were $-0.17.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the NeuroOne Medical Technologies Corporation Fiscal Fourth Quarter and Full Fiscal Year 2023 Financial Results Conference Call. Today’s call will be conducted by the company’s Chief Executive Officer, Dave Rosa, and 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 the federal — 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 dates. 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 NeuroOne’s corporate update press 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 before I start, just a heads up for everyone that I’m trying to get over a cough and I apologize in advance, if I start to cough, it becomes a nuisance, I’ll just have Ron finish the call. So first and foremost, thanks for joining us this evening. During our fiscal fourth quarter and through today, the Company continued to make significant strides in our objectives relating to commercial progress, product development and regulatory clearances. I would first like to discuss what I believe is the Company’s most significant accomplishment in our history, and that is FDA clearance of our OneRF Ablation System, which is the first FDA-cleared system that has obtained an indication for both recording electrical activity and ablation of nervous tissue, utilizing the same device.

I mentioned last quarter that we had submitted a 510(k) application to the FDA this past June. The FDA responded to the submission with questions that we responded to last month. We were confident in our responses to FDA, and this past Monday, we announced that the FDA provided a 510(k) clearance for the system for the creation of radiofrequency lesions in nervous tissue for functional neurosurgical procedures. We anticipate a commercial launch in the first half of 2024. Currently, we are waiting for hardware components for the RF generators. Once they are available, we will release the product for commercialization. We remain in discussions with two strategic organizations regarding their interest in licensing the technology for these procedures and expect to reach a decision in the near future.

We also remain open to commercializing the device directly if we believe it presents the best option for the Company. In addition, the Company is exploring other applications for the system to treat pain. We believe there are additional market opportunities we may be able to take advantage of with the system, and we’ll provide further updates regarding this in the future. We are extremely excited with this major accomplishment and continue to demonstrate the Company’s ability to execute on our strategic plan. We believe that the addition of the system to our product offering positions us well to compete not only for the ablation business but also for the sEEG electrode sales opportunity. I’d now like to provide an update regarding the expanded launch of our Evo sEEG electrode product line with our commercialization partner, Zimmer Biomet.

In our fourth fiscal quarter, Zimmer continued to strategically open new centers. Feedback remains consistently positive regarding the device performance, and we are seeing increasing usage in recent months. We expect to see a continued ramp in device sales and revenue as the launch expands further and believe that the clearance of our OneRF Ablation System will also have an additional potential positive impact on the Evo sEEG sales. Moving on to our drug delivery program. You might recall that I discussed potential for our sEEG electrode technology to offer the ability to deliver genes or drugs to the brain as well as record the therapy’s impact. During the past quarter, we defined the product requirements for use in both clinical and research, develop prototypes for future studies and were granted a patent by the United States Patent and Trademark Office.

We are currently in contract discussions with a biotech company regarding their interest in using our device in their upcoming clinical studies and have discussions scheduled with other potential partners as well. We are excited with the prospects of this technology and how it may assist the biopharma, biotech industry in their drug or gene therapy delivery development, but also its value clinically in current neurosurgical procedures. If we are able to reach an agreement with our existing contract negotiations, the technology has the potential to add revenue later in calendar year 2024. Regarding our development efforts with our spinal cord stimulation program to treat chronic back pain, members of our Physician Advisory Board successfully placed a 9-millimeter paddle electrode.

Paddle electrodes are very similar in concept to cortical or film electrodes but they were able to place a 9-millimeter paddle electrode utilizing a percutaneous placement approach and a cadaver model. In addition, we completed a histological analysis of a 28-day implanted paddle electrode without any notable concerns. Spinal cord stimulation and pain management remain a priority for the Company, given the market opportunity and potential competitive advantages of our technology. Thank you for your time. And now, I’d like to turn it over to Ron for a more in-depth review of our fiscal fourth quarter and full fiscal year 2023 financial results, highlighting revenue gains, past financing and other key financial metrics. Ron?

Ron McClurg: Thank you, Dave. Product revenue was $742,000 in the fourth quarter of fiscal 2023 and $1,952,000 for the full fiscal year compared to a product revenue of about $69,000 in the fourth quarter of fiscal ’22 and $171,000 for the full fiscal year 2022. The Company had no collaboration revenue in the fourth quarter of fiscal 2023 and $1.45 million for the full year of fiscal 2023, compared to collaboration revenue last year of $1.9 million in the fourth quarter and just slightly below $1.950 million for the full year of fiscal 2022. Collaboration revenue was derived from the Zimmer development agreement and represents a portion of the exclusivity and milestone fee payments that were eligible for revenue recognition during the respective periods.

Our total operating expenses in the fourth quarter of fiscal ’23 were $3.4 million compared to $3.3 million in the same period of the prior year. R&D expenses in the fourth quarter of fiscal 2023 were $1.8 million compared to $1.4 million in the same period of the prior year. SG&A expenses in the fourth quarter of fiscal ’23 were $1.6 million compared with $1.9 million in the prior year period. Total operating expenses for the full fiscal year of 2023 were $13.9 million compared with $11.9 million in the prior fiscal year. R&D expenses for the full fiscal year of 2023 were $6.9 million compared with $4.9 million in fiscal 2022. SG&A expenses for the full fiscal year of 2023 were $6.9 million compared with $7 million in the prior fiscal year.

Our net loss was $3.1 million for the fourth quarter of fiscal 2023 compared to a net loss of $1.4 million in the prior year period. For the full year, net loss was $11.9 million for fiscal ’23 compared to a net loss of $10 million in fiscal 2022. On July 27th of this year of 2023, the Company consummated an underwritten public offering of its common stock for $6 million in gross proceeds from which the Company received $5.2 million in net proceeds. In addition, the Company sold common stock under the ATM program at an average price of $1.77 per share from which the Company received net proceeds of $2.5 million. As of September 30, 2023, the end of our fiscal year, the Company had cash, cash equivalents and short-term investments of $5.3 million compared to $11.1 million as of September 30, 2022.

We had working capital of $5.5 million at September 30, 2023, compared to working capital of $9.1 million as of September 30, 2022. The Company had no outstanding debt as of September 30, 2023 or 2022. With that, I will turn it back to Dave.

Dave Rosa: Thanks, Ron. Operator, at this time, I think we can open up the call for questions.

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Q&A Session

Operator: [Operator Instructions] Our first question is from Ben Haynor with Alliance Global Partners. Please proceed with your question.

Ben Haynor: Good afternoon, gentlemen. Thanks for taking the questions. And congrats on the FDA clearance. First off for me, just regarding the commercialization, whether it’s you guys or through a partner, I was just curious on how you have kind of scoped out what sort of sales force and activities that might be needed if you do choose to go out alone?

Dave Rosa: Sure. I’ll take that. Thanks for the question, Ben. Good to hear from you. What we see now is that when you look at the number of centers that are really doing the bulk of these procedures, it’s about 50 centers on the upper end. And when you look at what’s reasonable in terms of a sales rep or a distributor in terms of how many accounts they could handle, probably 5 and if you’re pushing it, 6. So, this isn’t a situation like many technologies where you have thousands of hospitals that are licensed to do the procedure, in the U.S. it’s only about 100, it’s roughly about 190, and it’s kind of the old 80-20 rule. 80% of the procedures are being done at 20% of the centers. So, we think with a combination of distributors, and we’ve already had distributors expressed interest in working with us to distribute this product, and a handful of direct people that we could effectively call on those top 50 centers.

And what we’re going to do, Ben, as well, is we would obviously focus on the centers that are already using the product, that have already converted to the product and start there, because those are kind of the low-hanging fruit. They are already believers and adding the ablation procedure would really be a no-brainer.

Ben Haynor: Okay. That makes sense. And I imagined it won’t be too huge number of people, but half a dozen sounds fairly reasonable. And then just curious on any feedback that you’ve received from folks, clinicians and such, now that you — following the FDA clearance.

Dave Rosa: Yes. The feedback is, when can we get a system, which is a nice problem to have. So, there’s been really for the last — since we submitted to FDA, a building enthusiasm from the field. And what’s been happening is in the cases that we’ve been supporting with our Zimmer partners, physicians will bring up the fact that they’re very interested in using the device for ablations. And when will the device be available? And what’s the rollout plan and things like that. So — and now that it’s gotten cleared, I mean, literally, on Monday, the day we put out the announcement, I had e-mails from physicians from our advisory board, neurosurgeons who were already wondering when they were going to be able to get the system. So, it’s exciting for me because this obviously has been in the works for a while and to kind of see the interest and the momentum build, I’m pretty excited to get this product out into the field. I think it’s going to do very well.

Ben Haynor: Okay. That’s helpful. And so, what have you been telling them on when they can get that system? Any better color than first half? Is it March? Is it April? May? February?

Dave Rosa: Yes. The problem is whenever you make a — whenever you throw a date out to physicians, well, really to anybody, then that becomes the expectation. And when that doesn’t happen, there’s a lot of people disappointed. So, what we’ve told physicians is that we’re waiting for parts to come in for the generators. Those parts from a schedule perspective are due in March, but these are parts that had about a 10- to 12-month lead time. So, we ordered these quite a while ago, and we’re completely dependent on the vendor to get those parts in. And as we all know, the reliability of some vendors, not just during COVID, but after has been challenging. Now the good news is this company has been pretty consistent on when they feel they can deliver, but until our vendor that’s making the boxes for us has those parts in hand, we’re going to continue to say, in the first half of the year, we’re confident doing that.

But if we can expedite those time lines by three months, four months, when those units first become available, the product will be available for commercialization. We will not delay. So, I’m hopeful we get them in when they say, but we’ve certainly all been burned before on commitments from vendors when parts are coming in, and that is 100%. So, the devices that we’re actually manufacturing ourselves, the assemblies, the electrodes, we have full confidence in that we could launch this product in January, February, but it’s just the generator parts, a few of them that we’re waiting on.

Ben Haynor: Okay. That’s understandable and fair enough. And then lastly for me, just on drug delivery. What sort of — the clinical trials that the firm that you’re in contact with now, I would presume their earlier stage trials. I mean, is that accurate? And then with the folks that you’re scheduled to talk to or talking to at some point, what’s kind of the right way to think about what sort of stage these trials might be at?

Dave Rosa: Yes. So, it’s — it would be very difficult for a company that has done a Phase 1, Phase 2 without our device to then kind of incorporate that in. That would be, in my mind, a significant change to their protocol. So, it would be very, very unlikely that any of those companies would want to change their protocol because it brings added risk to the FDA. I’ve had this happen personally in other companies where if something goes wrong, then the FDA, the question is, is it your product, or is it this new technology that you introduced? So, these would all be Phase 1 studies that we’re talking about, they haven’t started yet. The protocols are being developed, but the studies with the Company that we’re talking to are expected to start late Q3, early Q4.