NeuroOne Medical Technologies Corporation — Form 10-Q
Reporting period: Fiscal second quarter and six months ended March 31, 2022; balance-sheet comparisons are to September 30, 2021. Financial statements are unaudited. All amounts are U.S. dollars.
Business context
NeuroOne is an early-stage medical-device company developing brain electrode technologies for recording, monitoring, stimulation and ablation. Its Evo cortical technology and sEEG electrodes for temporary use under 24 hours had FDA 510(k) clearance; commercial sales remain limited. Zimmer has exclusive global distribution rights for specified products. One customer accounted for all product and collaboration revenue, and one contract manufacturer produced all Strip/Grid and sEEG products.
Key financial metrics
| Metric | Three months ended March 31, 2022 | Six months ended March 31, 2022 | Comparable 2021 period |
|---|---|---|---|
| Product revenue | $36,584 | $70,332 | $18,240 / $89,714 |
| Collaboration revenue | $0 | $6,374 | $20,113 / $42,387 |
| Product gross loss | $(36,223) | $(49,319) | $(21,123) / $(58,780) |
| Operating expenses | $3.02 million | $5.83 million | $2.39 million / $4.52 million |
| Net loss | $(3.06) million | $(5.87) million | $(2.39) million / $(4.35) million |
| Basic and diluted loss per share | $(0.19) | $(0.37) | $(0.21) / $(0.46) |
Cash flow and liquidity: Cash was $12.87 million at March 31, 2022, up from $6.90 million at September 30, 2021. For the six months, operating cash use was $5.90 million, investing cash use was $0.15 million, and financing provided $12.02 million, principally from the October 2021 public offering. Current assets were $13.44 million and current liabilities $0.81 million.
Debt and obligations: No convertible notes were outstanding in the current period. Total liabilities were $0.97 million, including operating lease liabilities of $0.26 million; the company reported no material borrowings. The accumulated deficit was $46.69 million. Product gross losses mean product sales did not cover product costs.
Material changes versus prior periods
- Second-quarter product revenue increased by $18,344 year over year, but no Zimmer collaboration revenue was recognized, compared with $20,113 in the prior-year quarter. Six-month product revenue fell by $19,382 and collaboration revenue fell by $36,013 year over year.
- Six-month operating expenses rose by $1.30 million, including increases in SG&A of $1.05 million and R&D of $0.25 million. Management attributed higher SG&A principally to investor-relations and legal costs, sales and marketing, insurance and other operating expenses.
- Six-month net loss increased by $1.51 million. The prior-year period included approximately $0.19 million of PMT litigation proceeds in other income; the current period did not.
- The October 2021 public offering generated approximately $13.35 million gross proceeds before offering costs and increased common shares outstanding to 16,191,169 at March 31, 2022, from 12,010,019 at September 30, 2021.
Outlook, risks and unusual items
- Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern. It said existing cash may not fund operating expenses for at least 12 months from the filing date and that additional capital is needed. Further equity or debt financing may not be available on acceptable terms or at all; spending reductions or cessation of operations may result if funding cannot be secured.
- FDA setback: The FDA denied the November 2021 510(k) application seeking use of the Evo sEEG electrode for up to 30 days, citing insufficient evidence of substantial equivalence based on extraction-testing methodology. NeuroOne appealed; the filing says the submission was on hold pending the FDA’s decision and that additional time was expected. The FDA indicated resubmission could be possible with supporting biocompatibility data.
- Zimmer uncertainty: The SEEG Product Availability Date had not occurred. If it did not occur by June 30, 2022, Zimmer had a right to terminate the SEEG distribution license and would then have no related maintenance-fee obligation. NeuroOne said it did not intend to deliver saleable product to Zimmer until it obtained expanded regulatory clearance. Potential Zimmer payments and royalties are uncertain.
- Development plans: Management targeted completion of a diagnostic/ablation depth-electrode hardware prototype in the third calendar quarter of 2022 and an FDA-clearance submission in early 2023. These are targets, not guaranteed outcomes. Management expected R&D and SG&A expenses to increase and continued losses for the foreseeable future; no profitability or revenue guidance was provided.
- Operational risks: COVID-19-related and broader supply-chain disruptions, staffing issues, shipping delays, product shortages of polyimide film and inflation could delay development, trials and commercialization, or increase costs.
- Litigation: PMT litigation remained unresolved; trial had been postponed to August 2022. The company intended to defend itself and pursue its counterclaim, but the outcome of claims against it was not estimable.
- Listing risk: The filing reported that the stock’s closing price had been below $1.00 since April 25, 2022, and warned of potential Nasdaq minimum-bid-price noncompliance and delisting.
Important facts for investors to verify
- Whether the FDA appeal was resolved, whether expanded sEEG clearance was obtained, and what additional testing or resubmission is required.
- Cash runway, subsequent operating cash use, and the availability, timing and dilution or repayment terms of any additional financing.
- Whether Zimmer maintained the SEEG distribution license, whether product-availability milestones were met, and whether any additional fees became payable.
- Progress against prototype, regulatory-submission and commercialization targets, including supply-chain and manufacturing capacity.
- Developments and financial exposure in the PMT litigation, and Nasdaq bid-price compliance.
Filing note: The subsequent-events note is marked “TBD”; the provided filing text does not give a clear subsequent-events disclosure there.