10-Q: Helius Medical Technologies Reports Q3 2024 Results, Navigates Reimbursement Challenges

Helius Medical Technologies reported a net loss of $3.7 million for the third quarter of 2024, facing challenges with reimbursement pricing and manufacturing transitions.

Summary

• Helius Medical Technologies reported a net loss of $3.7 million for the three months ended September 30, 2024, consistent with the loss in the same period of 2023.
• The company's revenue decreased to $51,000 in Q3 2024 from $143,000 in Q3 2023, primarily due to reduced sales in the U.S. following the termination of the Patient Therapy Access Program and temporary cash pay pricing.
• The cost of revenue was $187,000 for both Q3 2024 and Q3 2023, with adjustments to excess inventory reserves impacting the current period.
• Operating expenses increased to $3.9 million in Q3 2024 from $3.1 million in Q3 2023, driven by higher selling, general, and administrative costs and increased research and development spending.
• The company experienced a significant gain of $0.2 million from the change in fair value of derivative liability due to a decrease in the stock price.
• For the nine months ended September 30, 2024, the net loss was $7.8 million, consistent with the same period in 2023.
• The company's cash and cash equivalents stood at $3.5 million as of September 30, 2024.
• Helius is transitioning its manufacturing to Minnetronix, Inc., expected to be substantially completed by the end of 2024.
• The company is actively working with CMS to establish appropriate reimbursement rates for the PoNS device, with final pricing for the mouthpiece set at $2,963.30 effective January 1, 2025, and a preliminary rate for the controller at $519.80 effective April 1, 2025.
• Helius is conducting clinical trials for stroke and risk of fall programs, with enrollment expected to be completed by the end of 2024 and a submission to the FDA targeted for mid-to-late 2025.

Sentiment

Score: 3

Explanation: The document reveals significant financial challenges, including declining revenue, increasing losses, and uncertainty regarding reimbursement. The company's ability to continue as a going concern is in doubt, and there are risks associated with manufacturing transitions and Nasdaq listing compliance. While there are some positive developments, such as the public offering and clinical trial progress, the overall sentiment is negative due to the financial and operational hurdles.

Positives

• Helius received $5.5 million in net proceeds from a public offering in May 2024, strengthening its financial position.
• The company has secured a final payment rate for the PoNS Mouthpiece from CMS, providing some clarity on reimbursement.
• Helius has established agreements with sales representatives to expand sales to Veterans Affairs facilities.
• The company is actively engaged in clinical trials for stroke and risk of fall programs, which could lead to expanded indications and market opportunities.
• The company is working with CMS to revisit the starting point for the gap filling process for the PoNS Mouthpiece and Controller, which could lead to higher reimbursement rates.
• The company has completed the target enrollment of 30 participants in the company-sponsored open label study (HMI-OLS) on Sep 30, 2024.

Negatives

• Helius reported a net loss of $3.7 million for the third quarter of 2024, indicating ongoing financial challenges.
• Revenue decreased significantly in Q3 2024 compared to Q3 2023, primarily due to the termination of the Patient Therapy Access Program and temporary cash pay pricing.
• The company's gross loss was $136,000 for the three months ended September 30, 2024, compared to a gross loss of $44,000 for the same period in the prior year.
• Operating expenses increased in Q3 2024, driven by higher selling, general, and administrative costs and increased research and development spending.
• The company is facing uncertainty regarding the final reimbursement rate for the PoNS Controller from CMS.
• The company is transitioning its manufacturing to a new contract manufacturer, which could lead to delays or disruptions.
• The company received a notification from Nasdaq regarding non-compliance with the minimum bid price requirement, which could lead to delisting.
• The company has an accumulated deficit of $167.8 million as of September 30, 2024.
• The company's ability to continue as a going concern is in doubt.

Risks

• The company's ability to continue as a going concern is in doubt due to ongoing operating losses and an accumulated deficit of $167.8 million.
• There is a risk that CMS may not change its position on the reimbursement rates for the PoNS Controller and Mouthpiece, which could negatively impact sales and profitability.
• The transition of manufacturing to a new contract manufacturer could lead to delays or disruptions in the supply of the PoNS device.
• The company is not in compliance with Nasdaq's minimum bid price requirement, which could lead to delisting and negatively impact the stock price.
• The company's success depends on securing contracts with rehabilitation clinics, obtaining national Medicare coverage, and building a commercial infrastructure.
• Global economic conditions, including supply chain disruptions, labor shortages, and increased inflation, could adversely affect the company's business and access to capital.
• The company's ability to generate product revenues sufficient to achieve profitability will depend heavily on the successful commercialization of PoNS Therapy in the U.S.

Future Outlook

The company expects to continue to incur operating losses and net cash outflows until it generates sufficient revenue to support its cost structure. Helius intends to fund ongoing activities by utilizing its current cash and cash equivalents, cash received from the sale of its PoNS device, and by raising additional capital through equity or debt financings. The company anticipates that it will take at least 24 months to obtain broad coverage and reimbursement among government and private payers from the date that the HCPCS codes became effective. The company is targeting a submission to the FDA for stroke indication in mid-to-late 2025.

Management Comments

• The company has requested to meet with CMS prior to PoNS Mouthpiece pricing taking effect on January 1, 2025 to request that they revisit the starting point for the gap filling process.
• The company is scheduled to discuss the preliminary decision regarding the PoNS Controller at the HCPCS public meeting on November 8, 2024 where it plans to present the differences between the PoNS Controller from TENS devices.
• The company will request that CMS set pricing for the PoNS Controller using the gap filling methodology that works off the government contract and insurance.

Industry Context

The medical device industry is facing increasing scrutiny on reimbursement rates, particularly for innovative technologies. Helius's challenges with CMS reimbursement highlight the difficulties companies face in securing adequate coverage for new devices. The company's focus on clinical trials and expanding indications is consistent with industry trends towards evidence-based medicine and value-based healthcare.

Comparison to Industry Standards

• Helius's revenue of $51,000 for the quarter is significantly lower than many established medical device companies, which often report revenues in the millions or billions.
• The company's net loss of $3.7 million for the quarter is also substantial, indicating a need for significant revenue growth or cost reductions to achieve profitability.
• Compared to companies like Insulet (PODD) or Dexcom (DXCM) which have established reimbursement pathways for their devices, Helius is still in the early stages of securing coverage and reimbursement.
• The company's reliance on self-pay and VA patients in the short term is similar to other early-stage medical device companies that are working to establish reimbursement pathways.
• The company's clinical trial program for stroke is comparable to other companies seeking FDA approval for new indications, such as ReWalk Robotics (RWLK) which is also working on expanding its indications.
• The company's transition to a new contract manufacturer is a common practice in the medical device industry, but it carries risks of delays and disruptions, similar to what other companies have experienced during such transitions.

Stakeholder Impact

• Shareholders face the risk of further stock price decline due to the company's financial challenges and potential delisting from Nasdaq.
• Employees may be affected by potential cost-cutting measures or restructuring if the company's financial situation does not improve.
• Patients may experience delays in accessing the PoNS device due to manufacturing transitions or reimbursement challenges.
• Suppliers may face uncertainty regarding future orders and payments due to the company's financial instability.
• Creditors face the risk of non-payment if the company is unable to secure additional funding or achieve profitability.

Next Steps

• The company will continue to work with CMS to establish appropriate reimbursement rates for the PoNS device.
• The company will continue to transition its manufacturing to Minnetronix, Inc.
• The company will continue to conduct clinical trials for stroke and risk of fall programs.
• The company will monitor the closing bid price of its Common Stock to regain compliance with Nasdaq's minimum bid price requirement.
• The company will seek additional funding through the sale of equity or debt financing to continue to fund its operations after 2025.

Key Dates

Keywords

PoNS, neuromodulation, reimbursement, CMS, medical device, gait deficit, balance deficit, clinical trials, manufacturing, Medicare, stroke, multiple sclerosis, FDA