Good afternoon ladies and gentlemen and welcome to the Third Quarter of Fiscal Year 2018 Earnings Conference Call for Helius Medical Technologies. At this time all participants have been placed on listen-only mode. Please note that this conference is being recording and that the recording will be 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 potential FDA approval of the PoNS device, the future commercialization of the PoNS therapy and expected future clinical and regulatory timelines.
These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those indicated, including those identified in the Risk Factors sections of our most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q filed with the SEC.
Such factors may be updated from time to time in our filings with the SEC, which are available on our website. All statements made during this call are as of November 8, 2018. 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 Mr. Phil Deschamps, Helius Medical's Chief Executive Officer. Please go ahead, sir..
Thank you very much, Jesse. Welcome everyone for Helius Medical's third quarter of 2018 earnings conference call, which happens to be the first quarter of the earnings call that we've hosted in our company's history. I'm joined on the call today by Joyce LaViscount, our Chief Medical Officer and COO. We have a lot to cover on today's call.
So let me begin with a quick agenda. I'll begin with an introduction and a high level overview of Helius Medical Technologies, which will include a review of our recent operational progress.
Following these remarks, I'll turn the call over to Joyce to update you on our financial results for the period ending September 30, 2018, and then I'll return to share a few closing thoughts before opening the call for questions.
As this is Helius Medical Technologies' first quarterly earnings call, we thought it would be helpful to provide everyone with a description of our company. Helius Medical Technologies was incorporated in 2014 and is based in Newtown, Pennsylvania.
Helius is best described as a neuro-tech company focused on neurological wellness in the medical device industry. We have developed a noninvasive neuromodulation-based technology, which we call the Portable Neuromodulation Stimulator or PoNS. This is an experimental device that's not been cleared for marketing in the US.
PoNS recently received authorization from Health Canada to be marketed in Canada as a Class 2 medical device. This novel technology is used in combination with physical and/or cognitive therapy to provide what we refer to as PoNS treatment.
PoNS treatment has been demonstrated to help the brain to recover from the symptoms caused by neurological disease and trauma. During treatment, patients wear our PoNS device which provides gentle stimulation to the tongue by a mouthpiece while performing physical and cognitive therapy twice a day.
We believe our treatment stimulates several cranial nerves including the trigeminal nerve and induces a state of neuroplasticity that enhances the brain's ability to restore last neurological function, when combined with physical or cognitive exercise.
We believe that our PoNS treatment has broad potential in treating the symptoms of multiple neurological conditions, including balance deficit in mild-to-moderate traumatic brain injury or TBI, multiple sclerosis, stroke, and cerebral palsy among others.
The first indication that we are seeking from FDA is the balance deficit caused by mild-to-moderate TVI and should we be cleared by FDA the PoNS treatment would be the first and only approved treatment for this indication. Now let me take a couple of minutes to show you why we are focusing on mild-to-moderate TVI and balance deficit.
First balance deficit is not a trivial condition. Balance deficit can severely restrict the person's ability to perform daily activities such as walking, driving, or working. It can lead to further injury by increasing the likelihood of falls and it can have a profound impact in an individual's quality of life and emotional wellbeing.
Second, balance deficit caused by mild-to-moderate TBI represents a large addressable patient population. Around the world, an estimated 50 to 60 million people experience a traumatic brain injury each year. In the US alone, there are approximately 2.1 million people living with balance deficit caused by mild-to-moderate TBI.
And this addressable market opportunity is growing. There is estimated 340,000 US patients developing balance deficit due to a mild-to-moderate traumatic brain injury every year. Third, patients affected by balance deficit are critically underserved by the current treatment options. The standard of care today is physical therapy alone.
Since we only receive physical therapy tend to see modest improvements in their symptoms. However, their balance deficit symptoms tend to drift back to their baseline visibility within a period of two to four weeks once the physical therapy treatment is discontinued.
The scale used to quantify the improvement in balance symptoms is called the Sensory Organization Test or SOT. This scale is scored from 0 to 100 points and it's used commonly in balance research. Importantly, a 10 point change on the scale is clinically significant, but it's a modest change in balance symptoms.
Our PoNS treatment is not invasive and the safety and efficacy for the treatment of balance deficit in mild-to-moderate TBI has been demonstrated in two double blind randomized controlled clinical trials with a combined enrolment of 163 patients.
The studies were similar, of similar design and included patients who had a balance deficit due to an injury suffered at least one year prior to participation in the studies.
Further every patient in both trails had to have completed a physical therapy program to try and correct his or her balance deficit and subsequently was deemed by a health care professional to have plateaued on physical therapy alone.
We also obviously had to continue to have significant balance deficit after completing the physical therapy program alone. The primary endpoint of each of our trials was a responder analysis.
A responder was established when a patient improved by a score of 15 points or higher on the SOT scale which is 50% higher than the expectation in the medical literature for physical therapy alone.
In the first study, patients were treated in a neuro rehabilitation center for two weeks and then were treated at home for three weeks to complete their five-week treatment. In the second study, the long-term treatment study, subjects were treated for two weeks in the clinic and then were treated for 12 weeks at home.
The patients then discontinued treatment and were evaluated for another three months, determined the durability of the treatment post-discontinuation.
In the trials our PoNS treatment was observed to have a significant and lasting effect on the patient's balance; 71.6% of patients were responders in the trial, enabling 53.7% of patients with balance deficit in the trial to recover to normal balance function.
These outcomes are significantly superior to outcomes for physical therapy alone, the current stand of care.
In the long-term study, the active phase of the trial, patients improved by an average of 30 points from base line on the SOT scale, which put the population on average into the normal range of the SOT scale representing a significant improvement in balance symptoms.
Importantly they maintain those gains they experienced in the active phase of the trial during the 12 weeks of washout highlighting the durability of the PoNS treatment and suggesting a permanent restoration of balance.
In summary, we believe our PoNS treatment represents a potentially safe, effective, and innovative approach to the treatment of balance deficit due to mild-to-moderate TBI and we expect to have the first mover advantage with this technology in multiple markets both domestically and abroad.
From a commercialization standpoint, our initial focus is on introducing our PoNS treatment in the United States and Canada. In Canada, we submitted an application to Health Canada in September for a Class 2 medical device license for our PoNS device.
We announced the receipt of this medical device license on October 22, which certifies that the PoNS device meets all Canadian safety, effectiveness, and quality requirements and authorizes us to market the PoNS device as an adjunct to physical therapy for balance deficit in patients with mild-to-moderate TBI.
In the US since our investigation of PoNS device represents a novel technology, we submitted our request to FDA for de novo classification and 510(k) clearance of our PoNS device on August 31, an incredibly important milestone for our company and the products of many years of diligent preparations from our team.
While we don't control the timing of FDA's review process, we believe that our PoNS device is an appropriate candidate for de novo classification and 510(k) clearance. Importantly our request for 510(k) clearance of our PoNS device is supported by two clinical trials we discussed earlier.
We also prepared our request for the de novo classification and 510(k) clearance based on feedback that we received from FDA during multiple pre-submission meetings. According to publicly available draft guidance from FDA, FDA suggests that approximately 90 to 150-day review process for de novo and 510(k) submissions.
Therefore we expect to receive a decision from FDA on our submission during the first quarter of 2019. Since by definition, every traumatic brain injury is an accident. Our near-term commercial strategy for the US and Canada is based on driving a targeted launch into the cash pay, workers' compensations, and long-term disability customer segments.
In advance of securing regulatory clearance in the US and Canada, we have been working hard to establish our commercial infrastructure in each of these markets. We facilitate a smooth transition from pre-clearance developments activities to post-clearance commercialization.
In the US we have been focused on establishing what we call Clinical Experience Programs or CEP for our PoNS treatment in partnership with early adaptor neuro-rehabilitation centers including academic and research institutions, hospital systems, and high volume independent neuro-rehab centers.
The CEPs will allow us to provide our PoNS treatment to patients with balance deficit in advance of FDA clearance as part of an open label clinical study sponsored by Helius Medical and approved by institutional review boards.
Additionally, the CEP represents an important component of our pre-regulatory clearance activities in the US for several other key reasons.
First, the process of treating patients will allow us to gain real world experience in providing our PoNS treatment to patients in a clinical setting which we believe will help us validate our proposed commercial model.
Second, we expect that our CEPs will allow us to accumulate important clinical evidence and healthy economic data which will help support our reimbursement discussions with workers' compensation and long-term disability payers.
And third, our CEPs will help us build relationships with the leading early adaptor neuro-rehabilitation centers that we partner with along with key opinion leaders in the field of TBI.
In September, we announced our first CEP partnership with The Ohio State University Wexner Medical Center, a leading neuro-rehabilitation center located in Columbus, Ohio. In October we announced our second CEP partnership with Northwell Health's Feinstein Institute for medical research in Manhasset, New York.
We expect to begin recruiting and enrolling patients at the participating clinic sites in both The Ohio State University Wexner Medical Center and Northwell Health's Institute for medical research in the fourth quarter of 2018.
Turning to Canada, we recently announced an exclusive strategic alliance and distribution agreement with the Canadian company called HealthTech Connex or HTC. Under the terms of this agreement, HTC established an operating entity called Heuro Canada that will be responsible for engaging neuroplasticity clinics to market our PoNS treatment in Canada.
Heuro Canada has engaged two neuroplasticity clinics to date and we expect them to be operational in the fourth quarter of 2018 and to begin treating patients with our PoNS treatment in the first quarter of 2019.
In summary, Helius has made considerable progress in recent months with respect to both our regulatory strategy, as well as the key activities we are pursuing to prepare for the launch of our PoNS treatment in Canada and post-FDA clearance here in the US.
Our commercial model developed and launched planning in both the US and Canada is ongoing and in July we announced the appointment of Jennifer Laux to lead these efforts as our Chief Commercial Officer.
Jennifer previously headed commercial launch and new products strategy at Inovio Pharmaceuticals and her 20 plus years of experience in health care industry have also included marketing leadership positions at Boehringer Ingelheim and Merck.
We look forward to the successful commercialization of our PoNS treatment in the US and Canada under her leadership. Let me now turn the call over to Joyce to walk you through our third quarter financial results.
Joyce?.
Yeah, thanks, Phil. Operating expenses for the third quarter 2018 decreased $1.1 million or 18% year-over-year to $4.9 million compared to $6 million for the third quarter of 2017.
The change in operating expenses was driven by $1.5 million decrease in research and development expenses, which was due to the reduced clinical trial expenses and product development costs.
This offset partially by an increase of $0.4 million or 19% year-over-year in general and administrative expenses primarily due to higher wages and salaries as well as increased consulting expenses relating to our commercial infrastructure build out.
Loss from operations for the third quarter of 2018 was $4.9 million, compared to a loss from operations of $6.0 million for the prior year period. Total other income expense for the third quarter of 2018 increased $7.3 million year-over-year to an income of $0.4 million compared to an expense of $7 million in the third quarter of 2017.
The year-over-year increase in total other income expense was driven primarily by the change in fair value of derivative financial instrument, which was a gain of $0.4 million for the third quarter of 2018 compared to a loss of $6 million in the third quarter of 2017.
The change in fair value of derivative financial instrument was primarily attributable to the change in our stock price, the volatility and the number of derivative financial instruments being measured during the period as we request non-employee stock options previously recorded as derivative financial instrument to equity.
The increase in total other income expense was also driven by the change in foreign exchange gain/loss, which resulted in a gain of 1000 for the third quarter of 2018 compared to a loss of $1 million in the third quarter of 2017.
The change in foreign exchange gain/loss was primarily due to the amount of Canadian dollars held at the end of each reporting period, coupled with the change in functional currency from the Canadian to the US dollar. The change in functional currency was accounted for prospectively from April 1, 2018.
Our financial statements prior to and including the period ended March 31, 2018, have not been restated for the change in functional currency. Our net loss for the third quarter 2018 was $4.5 million or $0.19 per share compared to a net loss of $12.9 million or $0.67 per share for the third quarter of 2017.
Turning to the balance sheet, at September 30, 2018, we had approximately $12.4 million of cash compared to $5.6 million at December 31, 2017. We had no debt obligations in either period.
The increase in cash during the first nine months of 2018 was driven primarily by $21.7 million of cash provided by financing activities, which was comprised of $17.1 million in net proceeds received in connection with the sale of common stock and accompanying warrants in a public offering in April 2018 and $4.6 million in proceeds from the exercise of stock options and warrants.
The increase in cash during the period was partially offset by net cash used in operating activities of $14.5 million and net cash used in investing activities of $0.4 million. With that, I'll turn the call back to Phil.
Phil?.
Thank you, Joyce. Overall we are really pleased with the significantly progress that our company has achieved in the recent months.
As we look ahead to the remainder of the year and 2019, we'll continue to focus on the key activities that are outlined to begin commercializing the PoNS treatment in Canada and to prepare for potential commercialization in the US.
Specifically we expect to build our commercial and operating infrastructure through our exclusive strategic and distribution alliance with HealthTech Connex in Canada, while continuing to advance our clinical experience programs in the US in anticipation of FDA clearance.
In addition we intend to submit applications from marketing authorization in Europe and Australia by the end of 2018 which represents future long-term opportunities for commercialization. Since the inception of the company, we have been working on our intellectual property portfolio.
Today we received over 50 patents for the PoNS in the US and around the world. This includes method patents that protect the method of delivery of our treatment. We believe our IT portfolio will present a significant better year to entry competition.
We believe that our focus and execution with respect to our key activities will position Helius to bring our innovative PoNS treatment to market efficiently and effectively, improve the lives of patients and their family and address the large global unmet need for the effective treatment of balance deficit due to TBI in addition to delivering long-term value to our shareholders.
With that, operator, let's open it up for questions..
Thank you. [Operator Instructions] We are currently showing no participants in the queue. I will now turn the call back to the speakers..
Okay. Thanks, operator. Then in closing I would like to profoundly thank our employees, shareholders for their support, as well as everyone on today's call for their interest in Helius and as always if you have any questions, please feel free to email us at our Investor Relations mailbox info@heliusmedical.com. Thank you very much everyone..
That does conclude our conference call for today. Thank you for your participation..