Solana Company (HSDT) Earnings Call Transcript & Summary

Good day and thank you for standing by. Welcome to the Helius Medical Technologies Business Update Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Trip Taylor, Investor Relations. Please go ahead.

Thank you, operator. Presenting today from the company are Dane Andreeff, Helius Medical's President and Chief Executive Officer; and Jeff Mathiesen, Chief Financial Officer. Please note that this call is being recorded, and access to the webcast can be obtained through the Investors section of the Helius website at www.heliusmedical.com. Before we begin, 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. These forward-looking statements, including statements regarding potential reimbursement pricing and communications and decisions by CMS, involve inherent risks and uncertainties that could cause actual results to differ materially from those indicated, including those identified in the Risk Factors section of our most recent annual report on Form 10-K and our most recent quarterly report, Form 10-Q. Such factors may be updated from time to time in our other filings with the SEC, which are available on our website. All statements made during this call are as of November 18, 2024. 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 Dane.

Good morning, and thank you all for joining us today. Today, we will cover 2 important developments for Helius. I will start with a discussion of our recent progress with CMS in effort to establish appropriate payment rates for reimbursement of our PoNS Mouthpiece and Controller. Then we will discuss our decision to explore strategic alternatives for Helius. We will explain how these are connected and how we are continuing with our mission to improve the lives of people dealing with neurological diseases. Before going into details, I would like to summarize this call as follows: number one, we disagree with the Mouthpiece pricing established by CMS. We believe it should be approximately $5,000, as would be indicated by gap filling from recent market pricing. We have requested a meeting with CMS to occur prior to the January 1 effective date to attempt to correct it. Point two, we again disagree with the methodology used by CMS to establish preliminary pricing for the Controller by mapping it to a TENS device. We believe it should be priced at approximately $11,000 using the gap-filling methodology from established market pricing. Point three, we also believe the timing for the pricing determination and reimbursement implementation for the Controller of April 1, 3 months later than the Mouthpiece, which is in an accessory, is nonsensical and instead should be in tandem on January 1 as well. I will provide a recap of our November 8 CMS public meeting rebuttal to these last 2 points. Point four, the delays by CMS in issuing pricing determination as well as uncertainty created by their incorrect preliminary pricing determinations have delayed access to the PoNS device to qualified MS patients, which has delayed our commercial ramp and thus impeded our ability to finance the company in an orderly manner. Point five, we believe Helius is significantly undervalued by the market. Accordingly, we have hired B. Riley Securities as our financial adviser to proactively explore strategic alternatives to identify how best to achieve a more appropriate valuation. Now I'll provide details on our top corporate priority, establishing appropriate reimbursement for PoNS devices to facilitate market access for approximately 700,000 MS patients, who continue to suffer from gait deficit without the potential benefit of PoNS. Like many novel medical devices and therapies, we believe the health care economic value of the PoNS system, which received breakthrough designation and FDA clearance nearly 4 years ago, far exceeds the price of the PoNS device, yet cash payment is unaffordable by the vast majority of patients who qualify for PoNS therapy. As a result, patient access to the PoNS device is heavily dependent on patients' insurance providers, including Medicare, covering payment for the system. The VA and one major private insurer have recognized fair pricing for the technology, and we have successfully established contract pricing or reimbursement with those organizations. This pricing delivers fair value to all stakeholders involved. While we are proud of this progress, many MS patients with gait deficit fall into Medicare population and thus are covered by Medicare plans. In addition, establishing fair reimbursement by Medicare is a typical gating item for negotiation with third-party payers on a large scale. As a brief recap, HCPCS codes for both the PoNS Controller and Mouthpiece were established by CMS in February 2024 and became effective April 1. At that time, CMS deferred pricing for each until the next 6-month payment cycle. Subsequently, in May, CMS published preliminary payment rates for both the Controller and Mouthpiece to be effective October 1 of this year. As we previously discussed, however, CMS incorrectly set reimbursement for the PoNS Mouthpiece and accessory with a 14-week life on a cap rental basis, and incorrectly set the reimbursement for the PoNS Controller by reference to a different code, the HCPCS code E0745, a neuromuscular stimulator, electric shock unit. Through our efforts in May, CMS public meeting and subsequent communications with CMS, we successfully rebutted both of those determinations. Unfortunately, as a result, CMS August published update did not include the final reimbursement rates for the Mouthpiece or the Controller for the October 1 effective date, but instead, stated that more time was needed to study this complex issue. Finally, on October 7, CMS posted the final fee schedule payment rate for the PoNS Mouthpiece at $2,963.30, scheduled to be implemented January 1, 2025. At the same time, CMS deferred the final national determination of the payment rate for the PoNS Controller to the next payment cycle to be effective April 1, 2025. We are pleased that CMS corrected the reimbursement for the PoNS Mouthpiece as an essential accessory for which payment is made on a lump sum basis versus on a cap rental schedule. However, we strongly disagree with CMS use of temporary discounted cash pay pricing as the starting point for the price determination using the gap-filling method. Instead, market pricing, as evidenced by our contract pricing with the VA, GSA and DoD as well as the reimbursement rate by a major insurance carrier, is the most accurate applicable rate. We have requested a meeting with CMS to attempt to correct the Mouthpiece rate to approximately $5,000 by using true market pricing as the starting point in the gap-filling methodology. Switching to the Controller. On October 8, just one day after CMS stated it needed more time to need -- to evaluate this complex issue, CMS published the preliminary rate of reimbursement for the PoNS Controller at the capped total payment of $519.80, based on its view that the product is comparable to devices reported with HCPCS code E0730 or TENS device, 4 more leads, for multiple nerve stimulation. After successfully rebutting CMS's previous incorrect determination, we again presented our rebuttal to the most recent determination at the public meeting on November 8, 2024, where we further articulated the corrections required and rationale for a more appropriate pricing determination for the PoNS Mouthpiece and Controller. At the highest level, we presented why PoNS Controller is not comparable to a TENS device, a currently existing fee schedule item. We also explained why gap filling using established market pricing, including insurer and federal contact pricing, is most appropriate for the PoNS Controller. I think it is very important today that we provide our perspective and summarize how the PoNS Controller is different than the TENS unit. First, PoNS does not at all involve peripheral stimulation, which is the main mechanism of a TENS unit. It stimulates nerves in a specific layer of the tongue with direct connection to the brainstem and cerebellum. PoNS acts through neuroplasticity, entirely different than TENS, directly upregulating and modulating activity in movement control centers that control gait function mechanisms and consequently, spinal motor pathways. PoNS is not grounded on the gait control theory of pain like a TENS unit is because PoNS stimulation reaches regions of the brain that modulate cognitive mechanisms of gait posture balance control, and PoNS has no connections with the areas of brain that mediate pain transmission. Considering these fundamental differences in the technologies, we are optimistic CMS will realize pricing should be established by gap filling, using the established market price, including insurer and federal contract pricing is most appropriate for the PoNS Controller. Overall, we are disappointed that MS patients covered by Medicare are still being denied access to beneficial health care while this process lingers on. At the same time, we are doing everything we can to determine CMS -- to provide CMS with the information required to come to an appropriate pricing determination. We are hopeful that we are able to finalize fair reimbursement for the PoNS Mouthpiece and Controller with CMS in the near future. Our goal is for the changes to be made as soon as possible to take effect as soon as January 1, 2025. This brings us to the next development -- our next development, initiate a process to explore strategic alternatives. We believe Helius is significantly undervalued by the market and that there is a significant gap between our current market price and market cap of approximately $2 million and the intrinsic value to be realized as PoNS is commercialized. With the current addressable MS market and the anticipated addition of the much larger stroke market as soon as late next year, we believe we're poised for a significant revenue ramp once proper reimbursement is established. With that said, at this time, given the delays in establishing appropriate pricing, reimbursement as previously discussed, have severely impeded the commercialization efforts of the PoNS system. This, in turn, has impaired Helius' access to the public markets and financing options. Finally, our current market cap makes continued Nasdaq and SEC compliance, in the current regulatory environment, increasingly cost prohibitive and it increases our exposure to the growing practice of naked shorting. As our initiatives to achieve fair market access for MS patients continue, we understand that our business model could benefit from adjustments that provide support without raising equity capital in the current circumstances. Therefore, the company has initiated a process to proactively explore a range of strategic alternatives focused on maximizing shareholder value. We have engaged financial and legal advisers to support a comprehensive evaluation of all possibilities for the company and its technology. All potential strategic alternatives to maximize that value include a partnership, acquisition, merger, reverse merger, other business combinations, sale of assets, licensing and other strategic transactions will be explored. We do not expect to provide further updates on the process unless and until the Board of Directors have concluded that disclosure is appropriate and required. To conclude, the deferral of a reimbursement payment determination for PoNS Controller and the inadequate PoNS Mouthpiece pricing has limited our ability to commercialize our products among the large majority of target MS patients in the Medicare population. At the same time, we are continuing our efforts with Lovell Government Services in the VA hospital network and expect to gain traction here in the coming months as we are established in the system. Finally, and encouragingly, we are on track to fully enroll our stroke pivotal study and submit for authorization in the United States in the first half of 2025. With that, operator, please open up the call for questions.

[Operator Instructions] Our first question is going to come from the line of Anthony Vendetti with Maxim Group.

So Dane, I guess -- obviously very disappointed in CMS's decision. You referenced that they went back to your cash pay program, I guess, in retrospect, probably regret offering that and since they decided to use that. Going forward, though, in terms of the process with CMS, what is the actual step-by-step process? I know you're appealing the decision, but when would we -- when will they decide if what you're appealing is something they'll reconsider? And is there any precedent for them to change it? And if so, when do you think that could happen? What's your best timeline on that?

Yes. Anthony, thanks for your multiple questions. We also have Jeff Mathiesen on the call, our Chief Financial Officer, to chime in as well. But right now, we're looking to set up another meeting before year-end to really discuss the January 1 date not only the pricing for the Mouthpiece, which is finalized according to them, but also, hopefully, bringing the Controller back into the January 1 date with the proper pricing of $11,000, based off the VA, DoD and the reimbursement by the major payer. If that doesn't happen, the Mouthpiece will not be affordable, and it's really nonsensical to offer a Mouthpiece and not the Controller starting January 1. So we would have to wait for the Controller to be properly priced and decided on in the mid- to late February time frame for April 1 effectively. So that the whole system would go effective based off this third schedule that we're in with CMS, so that the system would be fully effective for reimbursement under CMS for April 1.

Okay. And I don't know if Jeff wants to jump in, but also your comments about having difficulty accessing the public markets at this point and paying for the continued listing, is there a point in time where -- or is it on the schedule where if you don't pay for the listing, you expect to be delisted? And if so, when? And then I'll turn it back.

Sure. Thanks, Anthony. This is Jeff talking. So with that comment, the issue is we're a $2 million market cap company and to be able to access anything of significance capital-wise based off that market cap is very difficult because of baby shelf limitations and just trying to raise money at or in excess of your current market cap. So again, we believe a $2 million market cap makes no sense for a company that has an approved product and is about to establish reimbursement with the second indication to be approved within roughly the next year. So the cost of being public aren't really the cost of the Nasdaq fee. It's all the attorneys, the accounting fees, the cost of compliance, the D&O insurance, everything that goes along with being a public, which probably is getting close -- the annual cost of that is probably getting close to what our current market cap is. So if you look at our cash burn and try to break it down, there's a lot of costs that go into just being a public company, and we're obviously not getting the love in the marketplace that seems to warrant that. And the ability to access the market, which you usually want from being a public company, isn't really at the level that allows us to do orderly financings to keep the company adequately capitalized.

So I'm going to add one more thing to Jeff's comment and basically my comment as well. So we're battling CMS right now for the appropriate pricing for both the Controller and the Mouthpiece of the system. I just want to remind everyone that about 25% to 30% of the 1 million MS patients are covered by Medicare. Now with the stroke program going on, and it will be fully enrolled by year-end, we not only have not one FDA device designation, which we are very successful on for gait deficit due to MS, but our second one is with stroke. And to have 2, it's highly unusual. And that allows us a very good relationship with the FDA. We're hoping that our stroke data will come out in late March. Our secondary endpoint to that stroke data is reducing the risk of falling and potentially, there will be a third one as well. So this time next year, stroke is -- most stroke patients, if not over 90% are covered by Medicare, with the standard of care just being physical therapy by itself. So that's why the employees' reimbursement, we're fighting hard. We're fighting this battle to make sure not only MS patients get market access and have this PoNS Therapy given our PoNSTEP data that came out, which was outstanding, a month ago that also for stroke patients, this time next year, will have market access and reimbursement as well.

Okay. But in the interim, I guess, just -- I know I had a lot of questions initially, Dane, but maybe any precedent for CMS changing reimbursement? I mean, is it -- if they feel like it was just an error, maybe they would do it. But if they feel like they -- it wasn't an error that was what they thought was appropriate. I'm just curious what's the -- I don't know the likelihood, have there been challenges before where you've seen CMS reverse their decision? If so, what is that process? And then just to -- Jeff outlined some of the financial stuff, but if the process is not to pay for these costs to be a public company, what is the timeline or likelihood that you'll be delisted? Is that before the end of the year? Or is that a different timetable? Maybe those 2 questions...

Yes. And Anthony, let me maybe go with the second one first because I didn't want to leave the wrong impression with my comments. So we have no intent of becoming delisted. There's value in being a public company. We want to maintain that to the degree we can. There's just an imbalance there right now, which is why we're pursuing strategic alternatives. But we are looking at is there a partnership relationship? Are there other relationships that help leverage the benefits of being public, but also make the cost then more in line with being that way? So to address your question, I don't want anyone to come away from the call thinking that we're looking to not be public, we're looking to look at what alternatives are out there that make the most sense for us and do it in a proactive way because continuing to do recap financings to keep the company moving forward, which is obviously an alternative we have is there. But is that really what's best right now for shareholders? Is that the best way to make PoNS available to the market? That's why we've hired B. Riley to help us determine what other type of arrangements, partnerships, licensing arrangements or whatever that might make sense to really have Helius be valued, which we think to be more in line with what our belief that it should be, and therefore, that then opens the door for many other things.

Yes. And to go back to CMS and the process and potential revenue ramp, Anthony, again, whether it's January 1 or April 1, and if we get the corrected appropriate pricing and we are cautiously optimistic given our rebuttal on November 8, and anyone can listen to that recording with our Chief Medical Officer, Hogan Lovells as well as Dr. Salvatore Napoli, they did an outstanding job answering the questions and really explaining why PoNS Therapy is needed now, not only for MS, but again the future ramp and the largest balancing gait market and reducing the risk of falling is stroke. And whether it's stroke or MS, the standard of care is physical therapy, and our data shows a significant upside to your improvement from gait deficit in both indications.

So you're hopeful then, Dane, that after they review the data and review your appeal, that CMS will reconsider?

Absolutely. The question, Anthony, the thing we don't know is it for January 1, or is it for the full system, April 1.

And I would now like to hand the conference back over to Dane Andreeff for closing remarks.

I just want to thank everyone right now for joining us. We truly appreciate your time and consideration and look forward to updating you when we have more news following. So thank you very much.

This concludes today's conference call. Thank you for participating. You may now disconnect.