Good afternoon, ladies and gentlemen, and welcome to the Second Quarter of Fiscal Year 2019 Earnings Conference Call for Helius Medical Technologies. Please note, that this conference call is being recorded 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 current expectations of management, including statements regarding the potential FDA marketing authorization of the PoNS device, the future commercialization of the PoNS treatment, expected future clinical and regulatory timelines and projected financial results..

Thank you very much, operator. Welcome, everyone to Helius Medical's second quarter of 2019 earnings conference call.

I'm joined on the call today by Joyce LaViscount, our Chief Financial Officer and Chief Operating Officer; as well as a very special guest, Marcos Rodrigues, a Physical Therapist from the Neurotherapy Montreal Clinic, one of our authorized clinics in Canada. Let me provide you with a quick agenda of the topics that we intend to cover today.

I'll provide you with a brief overview of our second quarter revenue results, along with a discussion of the important operational progress that we made during the quarter. This discussion will include updates on our commercial activities in Canada, including Mr.

Rodrigues, giving you some clinical insight about his clinic's direct experience with PoNS treatment in the early phase of our Canadian commercialization. We'll also cover our regulatory strategy in the U.S., Australia and Europe.

Joyce will discuss our financial results for the second quarter ended June 30, 2019 in detail and review our guidance for 2019, which we reaffirmed in our earnings press release this afternoon. I'll then share some additional closing thoughts before Joyce and I open the call for questions.

Since we began our commercialization of PoNS treatment in Canada, we've received a number of questions from investors who've been interested in hearing, well, how's the real world going, what's the experience compared to the results of the clinical trial? And to understand the recent feedback we've received from clinicians and patients.

So with this in mind, we decided to invite Marcos Rodrigues, a physiotherapist experienced in neurological rehabilitation and the Head of Physical Therapy at the Neurotherapy Clinic in Montréal to provide you with his insights on early treatment and experience in one of our initial Canadian clinics.

Marcos?.

Greetings, everyone. Well my name is Marcos Rodrigues, I am a licensed Physical Therapists with a Masters in Rehabilitation Sciences from the School of Physical & Occupational Therapy at McGill University. I'm also a certified PoNS rehabilitation specialist. Actually, I am the rehabilitation coordinator at Neurotherapy Montreal in Montréal, Canada.

I have been treating patients who suffer from chronic balance and gait issues due to mild to moderate TBI for over 10 years. Physical therapy for these patients does help, but some patients will often plateau where recovery no longer progresses.

Therefore, I am excited about being able to offer posttreatment for patients who suffer from chronic balance issues as a result of a mild-to-moderate TBI. While it requires commitment and hard work by the patient, I have seen some and – some make significant gains in the first two weeks of treatment.

For example, one of the patients at our clinic had suffered a mild TBI from a motor vehicle accident. He's a vascular surgeon who had been active – an active tennis player. In the three to six months following his car accident, he begin to notice that his balance was abnormal.

His walking was impaired and in particular, he noticed that his tennis performance was suffering as he began to fell as if he was on stable ground when he was playing. Over the course of the next 1.5 years, his balance and gait began to deteriorate. He tried multiple medical interventions, including prescribed medications but nothing seemed to work.

An expert at a leading academic institution told him that balance and gait training would only accentuate his problems. His attempts at playing tennis were futile. He frequently had double vision, could not track the ball and became nauseous. Simple routine tasks were exhausting.

Movement accentuated his disability, require him to stop any activity that involved movement. These are not uncommon symptoms related to a mild or moderate TBI. He came to our clinic based on a referral from a physical therapist who encouraged him to learn more about electrical stimulation of the tongue and neuroplasticity.

After just the first week in the program, he reported that he was able to attend the Formula One Grand Prix in Montréal and felt that his balance and gait had improved. He also personally shared with us that he was navigating the crowds without difficulty, going up and down the stairs without help and maintaining a more normal energy level.

This was something that he described that he wasn't able to do since his accident. He is now in his week nine of the program, and he feels he has seen real improvement in his gait and balance. He says that even though he does experience dizziness yet, his brain and body seem to be more functional in the face of that dizziness..

Thank you very much, Marcos, for sharing your experience. To complete the picture of the Canadian clinical experience, I also wanted to share some very high-level results about the collective experience of the first TBI patients that completed the 14-week program of PoNS treatment.

Consistent with what we saw in our two randomized clinical trials in MMTBI or mild to moderate TBI, one for five weeks and one for 14 weeks duration, patients in Canada are demonstrating the same pattern of positive change with improvements in balance and gait within the first two weeks, followed by continued improvement over their course of treatment.

The majority of patients show improvements in comfort gait – and comfortable gait speed, a measure of their ability to walk with a meaningful clinical difference at the end of the treatment. And mean patient compliance is over 90%, which is also consistent with what we experienced in our clinical trials.

While the conclusions we can draw from this saw sample of patients are limited, we're encouraged by the preliminary clinical results we're experiencing and look forward to sharing more comprehensive updates on the clinical experience from our systematically gathered data in Canada on future quarterly earnings calls..

Thanks, Phil. We reported revenue of $518,000 for the second quarter of 2019 compared to no revenue in the prior year period. Our revenue in the second quarter was almost exclusively comprised of sales of our PoNS devices to the Surrey and Montréal clinics in Canada.

We also generated $49,000 in fee revenue from franchise agreements that Heuro Canada executed with additional clinics in Canada, which have been engaged to provide PoNS treatment. Our gross profit for the second quarter of 2019 was $306,000 compared to no gross profit in the prior year period.

Operating expenses for the second quarter of 2019 decreased $5.7 million or 48% year-over-year to $6.1 million. The change in operating expenses was primarily driven by a decrease of $5 million or 57% year-over-year in selling, general and administrative expenses.

The decrease in selling, general and administrative expenses was primarily due to a $5.2 million reduction in stock-based compensation expense, which was impacted by the change in the company's functional currency.

During the second quarter of 2018, Helius revalued its outstanding stock options in connection with the change in functional currency from the Canadian dollar to the U.S. dollar. Operating loss for the second quarter of 2019 was $5.8 million compared to an operating loss of $11.8 million for the prior year period.

Total other income for the second quarter of 2019 was $5.6 million compared to an expense of $6 billion in the second quarter of 2018.

The year-over-year increase in total other income was driven primarily by the change in fair value of derivative financial instruments, which was a gain of $5.5 million for the second quarter of 2019 compared to a loss of $6.2 million in the second quarter of 2018.

The change in fair value of the company's derivative financial instruments was primarily attributable to the change in the company's stock price, volatility and the number of derivative financial instruments being measured during the period.

For the second quarter of 2019, we reported a net loss of $186,000 or $0.01 per basic and diluted common share compared to a net loss of $17.8 million or $0.78 per basic and diluted common share for the second quarter of 2018.

Our Form 10-Q for the period ended June 30, 2019 includes a reconciliation between the basic and diluted net income and loss per common share for the second quarters of 2019 and 2018. At June 30, 2019, we had approximately $14.3 million of cash compared to $25.6 million at December 31, 2018; we had no outstanding debt obligations in either period.

The decrease in cash during the first six months of 2019 was primarily driven by net cash used in operating activities of $11.2 million. Let me now turn to a review of our 2019 revenue guidance, which we reaffirmed in our earnings release earlier this afternoon. For 2019, we continue to expect total revenue in the range of $1.6 million to $2 million.

For modeling purposes, for the full-year 2019 our revenue guidance assumes an exchange rate of CAD1 to $0.75. We expect revenue will be generated primarily from contributions by the two founding neuroplasticity clinics that are operational and treating patients in Canada.

Lastly, we anticipate generating revenue of approximately CAD17,000 per device delivered to our Canadian partners in 2019. With that, I'll turn the call back to Phil..

Thank you, Joyce. In summary, we're pleased with the sales performance that we've achieved during the initial month of our commercialization in Canada, and we're reaffirming our fiscal guidance range according until we are better able to gauge the potential contribution of our three new clinics in Toronto, Calgary and Ottawa.

I'm proud of the significant progress that we've made so far this year, and especially with the focus and determination that our team has displayed in the months following the FDA's decision in April. As we enter the second half of 2019 our priorities are clear.

We'll continue to develop and execute our commercial strategy in Canada in order to bring our treatment to the more than 350,000 people living with chronic balance deficit due to mild to moderate TBI and the 13,000 people diagnosed each year.

Specifically, we'll focus on training and authorizing Canadian clinics that our partners Heuro Canada has recently entered into relationships with while continuing to identify and partner with new clinics in key locations to increase the availability of our PoNS treatment across Canada.

We'll also expand the focus of our marketing initiatives to target patients and caregivers in proximity to the latest PoNS authorized clinics in order to raise awareness of our innovative therapy and to help facilitate referrals to these clinics and to drive reimbursement activities all throughout the country.

Lastly, and most importantly, we remain committed to obtaining regulatory clearance in the U.S., Australia and Europe in order to provide our innovative PoNS treatment to as many patients as possible.

We continue to take a diligent and deliberate approach to pursuing clearance in each market, relying on the guidance of our internal and external advisers.

I'd like to conclude my prepared remarks this afternoon by thanking our employees for their dedication and hard work during the second quarter as well as everyone on tonight's call for their interest in and support for Helius Medical Technologies and its mission to develop acquired – to develop, acquire or license technologies to provide relief for patients suffering from symptoms of neurological disease and trauma.

Before we open tonight's call for questions, I'd like to apologize to call participants in past earnings calls, seems that I was misinformed about the ability for all call participants to ask questions when only sell-side analysts were allowed through to ask questions. I'm very sorry for my mistake.

Tonight, Joyce and I are happy to take questions from both our investors and covering sell-side analysts. So over to you, operator..

And your first question comes from the line of Steven Lichtman from Oppenheimer..

Good evening, Steve..

Hello, this is Ameer Burshaw filling in for Steve..

Awesome.

How are you Ameer?.

I’m good. Thanks for taking my question. On my first question, I just wanted to touch upon the FDA update on June. So you guys mentioned that in anticipation of required data that Helius initiated a study to generate PT data alone.

Would you guys just be able to provide more detail in terms of the number of patients and timing of when the study will be completed by?.

Yes. So what we announced back in June, Ameer was that essentially, we would start gathering that data immediately. And this is all new information that we knew we would need to supply with FDA. As part of our development, it became very clear that the formal generation of data needs to wait until we have our pre-submission meeting with FDA.

That does not stop us from being able to gather new information from Canada in terms of what's going on. There's always a new published papers that is new information for FDA. And of course, reports that come through from various sources as our clinical support team supports where we – what we want to do.

So at this time, we will – our protocol is all developed. Of course, we submitted it to FDA, and we'll need to wait for their guidance to make sure that we are consistent with their direction to make sure that we answer their questions..

Got it. Makes sense, thank you.

And if I could just sneak in one more just on Canada quickly?.

Sure..

I think you guys briefly touched on it on the 14-week program, but I just wanted to know, so have these centers been – like have been collecting efficacy data essentially? And if so, like would you be able to provide a time line of when we could see that data? Thank you..

Yes. So I – yes, I alluded to the data in our call, Ameer. That's the conclusions that we could reach today. This – the data that we're gathering in Canada is sort of a commercial, real-world data. The data, for example, like SOT data, our sensory organization test data is like a research outcome. And so the correlations are not always exactly the same.

So we do look forward to – on earnings call, especially to be able to share the efficacy data. So right now, what we – let me reiterate what we've learned. The pattern of improvement that we saw in Canada that we're seeing in Canada in all patients is very similar to what we observed.

Early in the first two weeks, people start to improve and continuing to improve as they move forward. Then we also looked at – to make sure that we looked at one of the endpoints that we have on the commercial side is because balance is one thing but the ability to walk is ultimately affected by your balance.

So one of the endpoints that we monitor is a patient's ability to their gait. And we saw improvement in a comfortable gait speed, which is one of the measurements that we have. And then finally, really, for us, the very comforting data was the compliance data.

This is a 14-week program on a pretty intensive physical therapy program, and there was a lot of skeptics around our patients going to want to stick to that level of treatment.

And with the compliance rate that we can measure by looking at the data because our device is smart by – because it records every treatment, we can very accurately say that the patients are sticking to their treatment. And our assumption is that patients are sticking to treatment because they feel they're getting a benefit.

Total assumption on our part, but it's exciting to see..

That’s great. Thank you so much..

And your next question comes from Jeff Porter from Porter Capital..

Hi, Jeff..

Hi guys.

What are we doing tangibly to sort get the word out on the stories of these patients that are having dramatic positive results in terms of patient testimonials? Are you developing a website for that or an infomercial, or what's your thinking about that?.

Yes. We – thanks for the question, Jeff. We do feel very passionately about making sure that these stories get out. The first part was making sure that in order for us to be able to report on these findings, we wanted to make sure that we validated the database.

And I know that sounds weird but in order for us to be able to use it in these – in the kinds of things that you suggested, the database has to be validated, and that's mostly related to privacy laws and privacy rules. So we've done all of that now.

And I believe that if not today or tomorrow, very early next week, the first testimonials will start appearing on the website and over the next two or three weeks, we'll be evolving our website to be able to accommodate more comprehensive stories on how this goes – on how the patients are performing.

The next part, of course, is patients are free to tell their own stories. So they are telling them on their own social media. And the clinics are also posting some of these stories today on their own websites. So it has already begun.

And if you visit ponstreatment.ca is where all of that is going to appear as we continue to make sure the – to make sure that people are able to see this. Now one point that Joyce just pointed out to me is since we're only approved in Canada the results will only be available to Canadian IP addresses.

So it will be Canadians who'll be doing this so that we don't run afoul of any FDA regulations here..

Okay.

Will there be things on the Helius Medical company website in terms of videos of patients and testimonials and things of that nature?.

So again, Jeff, on the – on our corporate website, since it's available all over the world and including in the U.S., that would be considered pre-approval promotion in the U.S.

So all of these testimonials and all of these success stories, if I can call them that, will be posted on our ponstreatment.ca website, and then visible to all Canadians, so that they can see what's going on up there..

Okay. Thank you..

All right..

And the next question comes from Sebastian van Berkom from Van Berkom and Associates..

Hi, good afternoon, Philippe. I wanted to ask you two questions. Further, with respect to the FDA, you mentioned that you did submit a strategy in August. Let's assume that they accept the strategy in the fall.

What is your best guesstimate as to how long that process will take for you to put together all of the information that's needed, present the new submission and then get a possible decision by the FDA? Is this a six-month, 12-month or 18-month process or longer?.

Boy, I wish I had that crystal ball, Sebastian. The major issue is that forecast will be much, much easier. And in fact, the only way we could ever make that forecast is after we meet in a submission meeting with FDA. We have a very solid strategy, supported by people that I mentioned.

So – and it's a strategy that sort of looked at what is the highest possibility of success, combined with trying to make it as efficient and effective as possible. And when FDA is able to give us their feedback with respect to size, with respect to those things.

We've done all of the statistical forecasts on our own, to say, we think that it's this but ultimately, FDA is going to be the ones that will guide that. And we want to work hand-in-hand with them. So I would certainly suspect that on our third quarter call we will have that information and be able to better forecast that..

Okay. The second question I have is, you did mention that you've opened three new clinics in the second quarter, Toronto, Calgary and Ottawa.

For the balance of the year, is – what is the ramp-up in terms of further clinics?.

So we feel quite passionately that we're going to continue to aggressively open clinics for the balance of the year. We're now hyper-focused on those three to get them fully operational. As I mentioned briefly in the call, these are new clinics to PoNS treatment. So they don't have the experience.

So based on – but now – but they actually have to hire staff because these PT clinics are – operate very efficiently for their existing customers. So they have to build their infrastructure. And so they're just now starting to treat patients. And right now, for us, priming quality is above all else.

We want to continue to generate the incomes like – the outcomes, sorry, like Marcos described in his, and as we're seeing in the overall data that we're reviewing now. And so immediately after those are up to speed, we'll continue to expand. Now it's not a black and white process.

Of course, we are – we've already identified several clients across our several clinics across the country that we want to identify. We just want to make sure that we're deliberate about the quality in terms of getting the outcomes before we open them up..

All right.

Can I ask you one other question?.

Very quickly..

Australia and Europe timing roughly?.

So what's encouraging in those is we're in active discussions. Neither of those jurisdictions guide, what – when they come back. And so in Australia, we're – we've answered their administrative questions. So I can't tell you whether it's a week, a month or six months, but it seems that we're engaged in active discussions there.

Europe is a little more complicated because of their change to the – they're making a major change in their regulatory process and Brexit also, it's causing a little bit of havoc on that side. So while we're deeply engaged with the regulators there, it's much harder for me to predict something there that will happen.

So obviously, we'll report as soon as we hear. But so far, so good..

Great. Thank you very much, Phil..

You’re welcome..

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