Good morning, ladies and gentlemen, and welcome to the Third Quarter of Fiscal Year 2019 Earnings Conference Call for Helius Medical Technologies. At this time, all participants have been placed in a listen-only mode.

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 began, I'd 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 marketing authorization of the PoNS device, the success of the company's planned study, the future commercialization of the PoNS treatment, expected future clinical and regulatory time lines, the potential receipt of regulatory clearance of the PoNS device in the United States and projected financial results.

These forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including those identified in the Risk Factors section in our most recent annual report on Form 10-K filed with the SEC on March 14, 2019 and as well as those in the Form 10-Q for the third quarter ended September 30, 2019, which was filed with the SEC this morning..

Thank you very much, operator. Welcome, everyone, to Helius Medical's third quarter of 2019 earnings conference call. I'm joined on the call today this morning by Joyce LaViscount, our Chief Financial Officer and Chief Operating Officer; and by Dr.

Ryan Scott, who is the Clinic Director at Advantage 4 Athletes Training Center and therapy clinic in Markham, Ontario, one of the Canadian clinics that is authorized to provide PoNS treatment. Let me provide you with a quick agenda for today's call. We'll begin today's call by having Dr.

Scott provide you with his perspective on our PoNS treatment and share his experience of one of the initial patients that was treated at his clinic. Following his remarks, I'll provide a brief update on outcomes from the patients that have recently completed PoNS treatment across the Canadian clinics.

And then I'll review our third quarter revenue results and discuss some of the important operational progress that we made during the quarter, including updates on our commercial activities in Canada and our U.S. regulatory strategy.

Joyce will discuss the third quarter financial results in detail and review our guidance for 2019, which we updated in our earnings press release this morning. I'll then provide a few closing thoughts before Joyce and I open the call to questions. With that, let me begin with introducing Dr. Scott.

Thank you, Ryan, for joining us today, and if you could just share your thoughts with the caller or the people on the call..

Great. Hello, everybody. Thank you for having me. I am indeed a chiropractor and have the rehabilitation clinic based in Markham, Ontario, which is in the Greater Toronto area. I have a practice that's focused on concussion management, sport therapy and neurological conditions.

I have been working with a variety of patients with neurological issues stemming from mild-to-moderate traumatic brain injury for over six years. And I'm now also a certified PoNS trainer. I first heard about the PoNS reading Dr. Norman Doidge’s book, The Brain’s Way of Healing.

This was initially of interest to me as my father suffers from Parkinson's disease and I set out to learn as much as I could about the PoNS..

Thank you very, very much Dr. Scott and I really appreciate what you do to help people get better. We'll talk to you later. In addition to some of the positive feedback that we've received from Dr.

Scott and other certified PoNS trainers, we continue to gather anonymized data on the initial mmTBI patients in Canada, as they complete the 14 weeks of PoNS treatment.

We've been pleased to see that the real-world results in Canada remain extremely consistent with the pattern of positive change that we saw in our 5 and 14-week randomized clinical trials in mmTBI.

Patients treated at these clinics continue to demonstrate improvements in their balance and gait, both during the first two weeks of PoNS treatment, which is conducted at the clinic, as well as the following. 12 weeks of treatment which is primarily done at home.

They also demonstrate a meaningful clinical difference in their comfortable gate speed which represents an important indicator of their ability to walk. Additionally, we continue to see high patient adherence to treatment, which means patients adherent with mean patient adherence for treatment and over the 90% range.

Bottom line, we've seen our product work and deliver the results expected based on the intended use and prior clinical evidence and we're pleased to bring it to patients in Canada who need it..

Thanks, Phil. We reported revenue of $150,000 for the third quarter of 2019 compared to no revenue in the prior year period. Our revenue in the third quarter was primarily driven by sales of our PoNS devices to the three new clinics in Toronto, Calgary and Ottawa.

Our gross profit for the quarter – for the third quarter of 2019 was $61,000 compared to no gross profit in the prior year period. Operating expenses for the third quarter of 2019 increased $907,000 or 19% year-over-year to $5.8 million.

The change in operating expenses was primarily driven by an increase of $1.7 million, or 66% in selling, general and administrative expenses. The increase in selling, general and administrative expenses was primarily due to a $1 million increase in stock-based compensation expense.

A non-cash charge resulting from the accelerated vesting on options and severance-related to the elimination of the Chief Commercialization Officer position, as well as an increase of $600,000 due to higher severance costs combined with a higher headcount to support our commercial launch in Canada.

The increase in selling, general and administrative expenses was partially offset by a decrease of $803,000, or 35% year-over-year in research and development expenses, primarily due to reduced product development costs related to the completion of the PoNS device development.

Importantly, our third quarter operating results reflect the early benefits from the cost reduction initiatives, where we have reduced operating expenses approximately 20% compared to the first quarter of 2019.

We expect to continue to reduce our operating expenses in the fourth quarter, which includes salary reductions and deferrals for executive staff compensation, which will reduce our cash burn and extend our remaining runway into the first quarter of 2020.

Operating loss for the third quarter of 2019 was $5.7 million compared to an operating loss of $4.9 million for the prior year period. Total other income for the third quarter of 2019 was $148,000 compared to $373,000 in the third quarter of 2018.

The year-over-year decrease in total other income was driven primarily by the change in fair value of derivative financial instruments, which was a gain of $196,000 in the third quarter of 2019 compared to $368,000 in the third 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 third quarter of 2019, we reported a net loss of $5.6 million or $0.21 per basic and diluted common share, compared to a net loss of $4.5 million or $0.19 per basic and diluted common share for the third quarter of 2018.

Our Form 10-Q for the period ending September 30, 2019 includes a reconciliation between basic and diluted net income and loss per common share for the third quarter of 2019 and 2018. As of September 30, 2019, we had approximately $9 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 nine months of 2019 was primarily driven by net cash used in operating activities of $16.5 million and net cash used in investing activities of $0.3 million, offset by $0.2 million of cash provided by financing activities.

Excluding the impact of the Heuro acquisition, we anticipate our fourth quarter cash burn to be in the range of $5.0 million to $5.4 million, which will further reflect our cost reduction efforts.

Subsequent to the end of the third quarter on October 30, 2019, we entered into a share purchase agreement with HTC, the company's commercial development partner in Canada to purchase Heuro Canada. Under the terms of the agreement, a total consideration of approximately CAD2.1 million or US$1.60 million.

The total consideration consists of; one, a little more than half the total consideration was to the repayment of HTC's investment in Heuro's initial commercial infrastructure, including the establishment of the five authorized PoNS clinic across Canada.

Second, approximately 35% of the outstanding receivable of CAD750,000 for exclusivity, which was signed as part of our original agreement with HTC in September of 2018. Third, approximately 25% related to the 55 PoNS devices, which the company provided to HTC.

These amounts were partially offset by the sale of exclusivity rights granted to HTC to provide PoNS treatment in the Fraser Valley in Vancouver Metro regions of British Columbia.

It is important to note that HTC operates one of the founding clinics, which is located in Surrey, British Columbia and will continue to exclusively purchase PoNS devices from Helius.

And finally in connection with the share purchase agreement, the company entered into a clinical research and co-promotion agreement with HTC, whereby, each company will promote the sales of the PoNS treatment and neuro-patch device throughout Canada.

More details on the agreement and related co-promotion agreement are available in our Form 10-Q for the third quarter ended September 30, 2019. Now let me turn to a review of our 2019 revenue guidance, which we updated in our earnings release this morning.

For 2019, we now expect total revenue in the range of U$1.5 million to US$1.6 million, compared to our prior revenue guidance range of US$1.6 million to US$2 million. The updated revenue guidance range contemplates lower revenue contribution from one of the founding PoNS clinics in Surrey, British Columbia.

Specifically, our prior guidance range of $1.6 million to $2 million had assumed contributions from sales to the Surrey Clinic during the second half of 2019 of approximately $500,000.

The expected demand from the Surrey Clinic in the second half of 2019 was included in the total consideration for our new agreement with HTC and thus will not be recognized in our revenue in 2019 as our original guidance had contemplated.

Partially offsetting the impact from the lower-than-expected Surrey revenue in the second half of 2019 is the incremental contribution from the three new clinics that became fully operational in the third quarter. Additionally, for modeling purpose, for the full year 2019, our revenue guidance assumes an exchange rate of CAD1 to $0.75.

We continue to expect our revenue will be generated primarily from contributions by the neuroplasticity clinics that are fully operational in treating patients in Canada. With that, I'll turn the call back over to Phil.

Phil?.

Thank you very much Joyce. In closing, we're encouraged by how quickly we're learning and responding to the dynamics of commercializing PoNS in Canada. Our new team led by Mark Leno has already made tremendous progress including getting the first reimbursed PoNS treatments in Canada to build on.

The early commercialization progress we've made during the first nine months of this year which enabled us to generate $1.3 million in revenue in authorized five clinics is consistent with our expectations other than the change related to the devices included in the Heuro transaction.

Likewise, we're equally pleased with the progress that we've made with respect to our U.S. regulatory strategy where we're pursuing resubmission and inform, efficient, and strategic manner.

In the fourth quarter, we're going to focus our efforts on establishing new authorized clinics and driving our Canadian sales, exploring label expansion in Canada in MS, aggressively pursuing reimbursement for our initial indication in Canada, and continuing our planned U.S. clinical trial work to enable resubmission to FDA.

We look forward to building on these accomplishments and bringing 2019 to a strong close by driving continued execution of our commercial and regulatory strategies with the ultimate goal of providing relief to patients suffering from the symptoms of neurological disease or trauma.

I'd like to thank our employees for their dedication to this goal and for their efforts during the third quarter as well as everyone on this morning's call for their interest and support for Helius Medical Technologies.

I'd also like to particularly thank the executive staff for compromising their -- and deferring some of their salary and to help support the effort of making sure that our cash last as long as we possibly can. Joyce and I are happy to take questions now.

If everyone has any questions following the call, please feel free to submit them to our Investor Relations' e-mail address at investorrelations@heliusmedical.com. Alternatively, if you'd like to set up individual sessions, we'd be happy to accommodate you. With that, operator, I'll let you open it for call -- for questions right now..

Thank you. . And our first question will come from the line of Steven Lichtman with Oppenheimer & Company..

Thank you. Hi. Hi, guys.

So you talked about marketing efforts and I mentioned a number of metrics, can you talk about increased traffic at the open PoNS centers in Canada as a result of some of the online work that you've done? Any sort of trend that you can provide what you're seeing on the ground here over the last several months would be helpful?.

Sure. As I indicated in the script, about 356 different engagements were had in the clinics. The dynamics of those engagements where people are essentially identifying and saying well this is potentially good for me is a mix of people who are early adopters, who basically say find me up.

There's also a group of people who say okay, I'm looking forward to seeing how the first group of people do. And based on the results that we see, we may take and partake in this. And other people, since this right now is an out-of-pocket expense, basically say, while I'd love to do this. But right now I can't afford to do that.

So I'll wait for reimbursement. So those are the kinds of dynamics that we get through all of our clinics. And with a continued effort on the reimbursement front, we hope to help drive the ability for those interactions to turn into more and more PoNS treatments in sales..

Okay, great.

And then I guess, for my follow-up just on that reimbursement, can you talk about the reimbursement levels that you were able to establish I think in those two instances that you mentioned? And then, how you think the experience there may help in terms of opening up some broader reimbursement?.

Sure. So the reimbursement amounts were between $22,000 and $30,000 for the two treatments that were provided by two separate private insurers.

So what we've done through our reimbursement specialists that we now have on the ground is we've analyzed those cases and figured out exactly what kind of language and what kind of pattern of reimbursement for example, splitting up the demand with respect to initial evaluations then the PoNS device then the PT.

And by splitting them up that way, that's how these two insurance companies were able to or saw their way through to be able to reimburse.

So now we're templatizing those kinds of things and having further discussions with both those companies to continue to expand in those companies since they've already accepted and then use that experience to visit other companies to be able to convince them to do this. Both these reimbursements were different clinics. And so that's also encouraging.

It wasn't the sort of the same person being successful. And that's also the pattern of how reimbursement happens. Every patient, so everybody knows, every patient that goes upon treatment, there is an insurance submission that is paid.

So that's the way we get the profile of our treatment into the insurance companies and then when we get positive reimbursement then we use those to continue to drive that reimbursement in other companies. It typically takes between a year and two years to get broader reimbursement.

So I want to set the proper expectations here, but it's certainly very encouraging to have these first two under our belt..

Got it. Thanks, Phil..

You bet..

Your next question will come from the line of Jeff Porter with Porter Capital..

Good morning, Jeff..

Hi. This one is actually for Joyce. You mentioned cost-cutting efforts are you deferring of executive salaries.

Could you give us a range of what the burn is expected to go down to here in Q4?.

Excluded from that would be any of the costs associated with the Heuro acquisition that we took everybody through today..

Okay. Thanks a lot.

And in terms of getting the burn down, have you identified areas where you can sort of get duplicate functionality out of certain physicians in the company and just getting more efficiency out of the labor?.

Yeah. Absolutely. We have -- the workforce that we have, everybody wears a number of -- no stones unturned here in terms of the nature of the investment. We've learned a lot throughout the third quarter in terms of the commercial activities and what works and what doesn't.

And thankfully or luckily, whatever way you want to look at it, some of the more expensive activities like doing direct media is something that doesn't drive as well as some of the other conference attendance and building the key opinion leaders and everything else is where we're experiencing the success.

So it’s a combination of every angle of the business both internal in our infrastructure expenses here in Newtown as well as what we're doing and how we're market facing activities that we are undertaking..

Okay. Thank you..

Thank you, Jeff..

. Your next question comes from the line of Anthony Lamport with Lambda Fund..

Any comment about how you would finance the company during 2020? Because if and where the reduction in expenses, obviously, you'll need some more money?.

Yep. So Tony, of course, we are looking at every possible way in which we could raise money. And especially, with a focus on our fiduciary duties to protect our existing shareholders. We're not at liberty to share the specifics of that right now, but we are engaged in those activities right now.

And we'll certainly communicate them as they become transparent over the next several weeks and months..

All right. I should point out by the way there have been about three dropouts in the telephone conversations, once we got into the question period. For instance, I missed a good deal of what Joyce said about reducing expenses. So, you should have somebody on the call who can log these, so you can work with your conference operator..

Of course, I apologize for that technical glitch.

Other questions, Tony? Operator?.

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

Thank you very much everyone..

Thank you..