On February 8, 2017, Helius Medical Technologies, Inc. (the Company or
we) issued a press release announcing the commencement of an offering of its Class A Common Stock (the Offering). A copy of this press release is filed as Exhibit 99.1 to this Current Report Form 8-K and is
incorporated herein by reference.
On February 8, 2017, in connection with the Offering, the Company updated its corporate presentation. A copy of
this presentation is filed as Exhibit 99.2 to this Current Report on Form 8-K and is incorporated herein by reference.
On February 8, 2017, in
connection with the Offering, the Company filed a preliminary prospectus supplement to the base prospectus included in the Companys shelf registration statement on Form S-3 (No. 333-215286), filed with the Securities and Exchange Commission
(the SEC) on December 23, 2016 and declared effective by the SEC on January 6, 2017. The preliminary prospectus supplement describes certain elements of the Companys business strategy, certain recent developments and
certain additional risk factors, including those set forth below.
Company Overview
We are a medical technology company focused on neurological wellness. We seek to develop, license or acquire unique and noninvasive platform technologies that
amplify the brains ability to heal itself.
Many patients with brain injury or brain-related disease have disrupted neural networks that result in
their brains being unable to correctly or efficiently carry neural impulses, which are responsible for directing bodily functions like movement control or sensory perception. Our first product in development, the portable neuromodulation stimulator
(PoNS) device, is designed to enhance the brains ability to compensate for this damage. The PoNS device is an electrical pulse generator that delivers controlled electrical stimulation to the tongue, which alters
cranial nerve activity in order to intentionally change and regulate the electrochemical environment of the brain in a process called neuromodulation. When combined with physical or cognitive rehabilitation, we believe that the neuromodulation
induced by the PoNS device enhances neuroplasticity, or the brains ability to reorganize its operation in response to new information sources, new functional needs, or new communication pathways, and may benefit patients experiencing
balance and gait disorders or other movement and sensory challenges associated with neurologic diseases and disorders including traumatic brain injury (TBI), multiple sclerosis (MS), cerebral palsy (CP), stroke,
Parkinsons disease, Alzheimers diseases, depression, attention deficit hyperactivity disorder, and autism, among others. We are currently studying the effectiveness of the PoNS device in balance disorders related to TBI.
According to a study by GBI Research, the neurostimulation market is expected to grow at a compounded annual growth rate of 15.3% from 2011 to 2018, with a
forecasted U.S. revenue of $4 billion in 2018. We believe that, due to the lack of non-invasive devices currently on the market, non-invasive stimulation addresses only approximately 3% of the overall neurostimulation market today, and, if
commercialized, the PoNS device will be the first device that addresses the high unmet needs of brain injury patients with balance and gait disorders.
The PoNS device has not yet received clearance from the U.S. Food and Drug Administration (FDA) for commercialization. As further described
in Traumatic Brain Injury, we are conducting safety and effectiveness clinical trials of the use of the PoNS device for the treatment of TBI-related balance disorders with the U.S. Army.
We have been deemed by the FDA through the pre-submission process a non-significant risk device in the context of
the mild- to moderate-TBI clinical trials for chronic balance deficit and thus do not need to submit an Investigation Device Exemption (IDE) application to FDA or obtain FDA approval of an IDE application to complete such
trials. Such trials are subject to abbreviated requirements under FDAs IDE regulations, which include, among other things, oversight of an Institutional Review Board and compliance with human subjects protection requirements such as
informed consent. Subject to the availability of additional funding and the timing of our device verification activities described in Recent DevelopmentsExpansion of Device Manufacturing and Development Capabilities, we
intend to submit a request for FDA classification as a Class II device and marketing authorization for this indication (the treatment of chronic balance deficit due to mild-to-moderate traumatic brain injury) via FDAs de novo classification
process following the completion of these trials which is anticipated in the second half of 2017. We intend to concurrently submit applications for the clearance of the PoNS device for a CE Mark in Europe and to Health Canada and the
Therapeutic Goods Administration (TGA) in Australia, and we anticipate regulatory clearance in the first quarter of 2018.
Anticipated
clinical milestones are illustrated below:
(1) Subject to the availability of funding, among other
factors.
Traumatic Brain Injury
According to the Center for Disease Control and Prevention (CDC), an estimated 1.7 million people in the United States sustain a TBI annually.
The CDC estimated in 2015 that approximately 3.2 million to 5.3 million people in the United States were living with a TBI-related disability, based on extrapolations from limited data from 1999. In addition, the Department of Defense
estimates that almost 30,000 active duty soldiers are diagnosed with TBI annually and over 300,000 U.S. military personnel have been diagnosed with TBI since 2000. We estimate that approximately 20-30% of newly-diagnosed TBI injuries result in
chronic symptoms, and the Brain Injury Association of America estimates that 40% of TBI patients complain of balance disturbances.
In partnership with
the U.S. Army pursuant to a cooperative research and development agreement (the CRADA), we are currently conducting a clinical trial of our PoNS device for the treatment of balance disorder in patients with mild- to moderate-TBI.
Assuming 5.3 million people in the United States are living with a TBI-related disability and 40% of them have balance disturbances, we estimate that our PoNS device could assist up to 2.1 million individuals.
We launched a registrational clinical trial of the PoNS device, with concurrent physiotherapy, investigating the safety and effectiveness of the device
for the treatment of balance disorders resulting from mild- to moderate-TBI in August 2015, and intended to support an application to the FDA (via the de novo process) for marketing authorization in the United States, with the support of the U.S.
Army. This double-blind, sham-controlled trial is enrolling 120 patients at multiple study sites. We expect to complete the trial in the second quarter of 2017. The
primary endpoint of this trial is improvement in chronic balance deficit at five weeks in the active group compared to the sham group, as measured by the sensory organization test. The U.S. Army
is also sponsoring a double-blind, sham-controlled non-registrational clinical trial of the PoNS device at the University of Wisconsin-Madison, with concurrent physiotherapy, for the treatment of chronic balance deficits due to TBI. This trial
is fully enrolled with 44 patients and is designed to assess the durability of response of the PoNS device. The primary endpoint of this non-registrational trial is an improvement in balance at 14 weeks of treatment as measured by the sensory
organization test. We expect this trial will be completed in the second quarter of 2017. We intend to include data from the study as supportive information as part of our regulatory submission for TBI.
Multiple Sclerosis
According to the National Multiple
Sclerosis Society, there are approximately 400,000 individuals in the United States living with MS, for an annual economic cost of MS in the United States of approximately $28 billion, many of whom experience balance problems. Studies from several
countries estimate that 50% to 70% of MS patients had reported falls within the past two to six months.
In 2015, we completed a pilot study that
evaluated the effect of the use of the PoNS device with concurrent physiotherapy in 14 patients (7 active, 7 sham) with MS while performing working memory and mental imagery tasks. Patients who used the PoNS device showed statistically
significant differences in neurostimulation (left Primary motor cortex) from baseline, as measured by functional MRI (i.e., via BOLD signals indicating activity). Moreover, patients who used the PoNS device showed a statistically significant
improvement in balance from baseline, as measured by the sensory organization test. The sham group, in contrast, did not reach statistical significance. The active and sham group were not compared head-to-head. The PoNS device also
demonstrated a favorable safety profile in the study. Based on these results we believe a larger study is warranted to explore these findings further.
Subject to the availability of additional funding and classification by the FDA of the PoNS
TM
as a
non-significant risk device if being studied for this indication, we intend to commence a registrational trial of the PoNS device in MS patients with chronic balance and gait deficit in the second quarter of 2017. A registrational trial is a
study of safety and effectiveness intended to support an application for marketing authorization.
Cerebral Palsy
In September 2016, we announced results from a pilot study conducted in Russia where the Company provided the PoNS device. The study was of the
effectiveness of the PoNS device, with concurrent physiotherapy, in treating movement control-related symptoms of CP. In the study, 45 of the 65 patients received neurostimulation via the PoNS technology. The study found a statistically
significant difference between active and control groups in spasticity of the lower limbs and gross motor function. Positive changes in quality of life, cognitive function and social status were also observed. Subject to the availability of
additional funding, we intend to develop a registrational trial of the PoNS device in CP patients with movement control-related symptoms in the second quarter of 2017.
Cognition
In December 2016, we announced that we intend
to expand our pilot study, sponsored by HealthTech Connex Inc., of the PoNS device to test the hypothesis, in healthy subjects, that PoNS use may contribute to improved cognitive function, based on preliminary encouraging results. Subject to
the availability of additional funding, we intend to complete the expanded study in the first quarter of 2017.
Recent Developments
Expansion of Device Manufacturing and Development Capabilities
In January 2017, we entered into an agreement with Cambridge Consulting, LLC (Cambridge), pursuant to which Cambridge agreed to assume
responsibilities for the performance of the engineering and design verification testing of the PoNS device and documentation support for the FDA submission, and to assist in the identification of and transition to our scale manufacturer. Our
current manufacturer, Ximedica, LLC, agreed to continue to manufacture the PoNS device for use in our ongoing clinical trials and design verification testing and may assist in manufacturing early commercialization devices. The addition of a
second development partner is intended to mitigate our risk by adding back-up capabilities for our manufacturing process and improve the quality of our planned FDA submission. We will, however, remain ultimately responsible for the compliance of our
submissions and products, and activities performed on our behalf.
ISO 13485 Certification
In December 2016, we received ISO 13485 certification for the PoNS device from LRQA, an independent certifying agency.
Change in Fiscal Year
On January 4, 2017, we
changed our fiscal year-end from March 31 to December 31 in order to align our business cycle more closely with that of our customers and peer companies.
Change in Independent Registered Public Accounting Firm
On January 4, 2017, we engaged BDO USA LLP to serve as our independent registered public accounting firm for the year ended December 31, 2016.
Contemporaneous with the determination to appoint BDO USA LLP, we dismissed BDO Canada LLP from the role.
Cash Position
We estimate that our cash and cash equivalents balance as of December 31, 2016 was $2.7 million. This financial information has not been audited and
is subject to completion of our year-end closing procedures and the audit of our financial statements as of and for the nine months ended December 31, 2016, which will not be completed until after this offering is complete, and our actual
balance of cash and cash equivalents may differ from this estimate. Our independent registered accounting firm, BDO USA LLP, has not audited or reviewed, and does not express an opinion with respect to, this estimate.
Business Uncertainties and Going Concern Risk
To date we
have not generated any revenue from the sales of products or services. There are a number of conditions that we must satisfy before we will be able to generate revenue, including but not limited to successful completion of the TBI clinical studies,
FDA, CE Mark, Health Canada or TGA clearance of the PoNS device for balance disorder associated with moderate TBI, and the manufacture of a commercially-viable version of the PoNS device and demonstration of safety and effectiveness
sufficient to generate commercial orders by customers for our product, if cleared for commercialization. In addition, given the importance of the U.S. Army to our early commercial plans, if the U.S. Army were to eventually decide not to purchase our
product, we would need to replace those sales in the civilian market which would lower our early commercialization opportunities. To date, we have not achieved any of these conditions, and the successful achievement of such conditions will require
significant expenditures. Because we have not generated any revenues, we are significantly dependent on funding from outside investors. There is no guarantee that such funding will be available at all or in sufficient amounts to satisfy our required
expenditures. Furthermore, even if we were able to raise sufficient capital to manufacture a commercially-viable version of the PoNS device and to receive FDA, CE Mark, Health Canada or TGA clearance, we do not currently have any contract or
other arrangement to sell the PoNS device. Accordingly, we may never be able to generate any revenue from the sales of products or services. Due to these risks, as well as our recurring net loss, accumulated deficit, and cash used in
operations, there is a substantial doubt about our ability to continue as a going concern. For a discussion of additional risks associated with our business and this offering, please see the Risk Factors sections of this prospectus
supplement, the related base prospectus and our Annual Report on Form 10-K for the fiscal year ended March 31, 2016.
Risk Factors
If we fail to comply with healthcare laws, we could face substantial penalties and financial exposure, and our business, operations and financial
condition could be adversely affected.
We do not have a product candidates available for sale. If, however, we achieve this goal, the availability
of payments from Medicare, Medicaid or other third-party payors would mean that many healthcare laws would place limitations and requirements on the manner in which we conduct our business, including our sales and promotional activities and
interactions with healthcare professionals and facilities. In some instances our interactions with healthcare professionals and facilities that occurred prior to commercialization (e.g., the granting of stock options) could have implications at a
later date. The laws that may affect our ability to operate include, among others: (i) the federal healthcare programs Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving,
offering or paying remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare
programs such as Medicare or Medicaid, (ii) federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid, or other
third-party payors that are false or fraudulent, and which may apply to entities like us if we provide coding and billing advice to customers, or under theories of implied certification where the government and
qui tam
relators
may allege that device companies are liable where a product that was paid for by the government in whole or in part was promoted off-label, lacked necessary clearance or approval, or failed to comply with good manufacturing practices or
other laws; (iii) transparency laws and related reporting and/or disclosures such as the Sunshine Act; and/or (iv) state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to
items or services reimbursed by any third-party payor, including commercial insurers, many of which differ from their federal counterparts in significant ways, thus complicating compliance efforts.
If our operations are found to be in violation of any of the laws described above or any other governmental regulations that apply to us, we may be subject to
penalties, including civil and criminal penalties, exclusion from participation in government healthcare programs, damages, fines and the curtailment or restructuring of our operations. Any penalties, damages, fines, curtailment or restructuring of
our operations could adversely affect our ability to operate our business and our financial results. The risk of our being found in violation of these laws is increased by the fact that their provisions are open to a variety of evolving
interpretations and enforcement discretion. Any action against us for violation of these laws, even if we successfully defend against it, could cause us to incur significant legal expenses and divert our managements attention from the
operation of our business.
Our communications regarding products candidates, even while in development, are subject to extensive government
scrutiny. We may be subject to governmental, regulatory and other legal proceedings relative to advertising, promotion, and marketing, and communications with study subjects and healthcare professionals, that have a significant negative effect
on our business.
We are subject to governmental oversight and associated civil and criminal enforcement relating to drug and medical device
advertising, promotion, and marketing, and such enforcement is evolving and intensifying. Communications regarding our products in development and regarding our clinical trials may subject us to enforcement if they do not comply with applicable
laws. In the U.S., we are potentially subject to enforcement from the FDA, the U.S. Federal Trade Commission, the Department of Justice, other divisions of the Department of Health and Human Services and state and local governments. Other parties,
including private plaintiffs, also are commonly bringing suit against pharmaceutical and medical device companies. We may be subject to liability based on the actions of individual employees and third-party contractors carrying out activities on our
behalf.
Non-compliance with laws and requirements unique to our government contracts could subject us to substantial penalties and financial
exposure, and our business, operations, and financial condition could be adversely affected by any non-compliance or the governments discretionary exercise of its rights under our government contracts.
We perform contracts awarded by federal governmental entities. Doing business in the public sector is very different than doing business in the commercial
marketplace. For example, unlike commercial contracts, federal government contracts are governed by an array of statutes and regulations that define the way in which government contracts are conceived,
structured, competed, awarded, performed, and ultimately completed. Due to the highly regulated nature of our business with the government, we have heightened responsibilities and compliance
risks under those contracts. Non-compliance could result in significant civil liability and, in egregious cases, criminal prosecution.
In addition to
presenting heightened compliance risks, our government contracts include terms that afford the government special rights that, if exercised at the governments discretion, could adversely affect our business, operations, and financial
condition. For example, our sole source contract with the U.S. Army incorporates a clause allowing the government to terminate the contract for convenience of the government, in whole or in part, without any advance notice to us. A
termination of this contract, or any other exercise of special governmental rights, could cause our business to suffer.
(d) Exhibits
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Exhibit
Number
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Exhibit Description
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99.1
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Press Release dated February 8, 2017.
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99.2
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Corporate Presentation dated February 8, 2017.
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