NeuroOne Medical Technologies Corporation — Form 10-Q
Reporting period: Fiscal third quarter and nine months ended June 30, 2022. The filing was signed August 11, 2022.
Business context
NeuroOne is an early-stage medical technology company developing thin-film electrode products for brain recording, monitoring, stimulation and ablation. It has FDA clearance for its Evo cortical technology and for temporary (under 24-hour) use of its Evo sEEG electrodes, but reports limited commercial sales. Zimmer holds exclusive global distribution rights for specified products.
Financial results and liquidity
| Metric | Three months ended June 30, 2022 | Nine months ended June 30, 2022 | Comparable 2021 period |
|---|---|---|---|
| Product revenue | $32,049 | $102,381 | $40,096; $129,810 |
| Collaborations revenue | $0 | $6,374 | $17,451; $59,838 |
| Product gross loss | $(6,413) | $(55,732) | $(21,839); $(80,619) |
| Operating expenses | $2.76 million | $8.58 million | $3.03 million; $7.55 million |
| Net loss | $(2.76) million | $(8.63) million | $(2.95) million; $(7.31) million |
| Basic and diluted loss per share | $(0.17) | $(0.54) | $(0.25); $(0.71) |
For the nine-month period, operating cash use was $8.54 million, investing cash use was $0.21 million, and financing provided $12.02 million, principally from the October 2021 public offering. Cash increased to $10.18 million at June 30, 2022 from $6.90 million at September 30, 2021.
At June 30, 2022, total assets were $11.57 million, total liabilities $0.95 million, and stockholders’ equity $10.62 million. Liabilities included $0.23 million of operating lease obligations; the filing reports no convertible notes outstanding. Accumulated deficit was $49.45 million. No income tax benefit was recorded.
Changes versus prior period
- Third-quarter net loss narrowed by about $0.19 million year over year, as lower SG&A and a smaller product gross loss more than offset higher R&D and the absence of prior-year collaboration revenue.
- Nine-month net loss widened by $1.32 million. Operating expenses rose $1.03 million, while collaboration revenue fell $53,464 and other income fell $264,862 year over year.
- Nine-month product revenue decreased $27,429, although product gross loss improved by $24,887 as cost of product revenue declined more than sales.
- Cash from the October 2021 public offering supported liquidity; common shares outstanding rose from 12.01 million at September 30, 2021 to 16.19 million at June 30, 2022.
Outlook, risks and unusual items
- Going concern: Management says the company lacks adequate liquidity to fund operations without raising additional capital and that substantial doubt exists about its ability to continue as a going concern. It cautions that cash may not fund operating expenses through at least 12 months from the filing date; spending reductions or cessation of operations could be necessary if financing is unavailable.
- Operating outlook: Management expects significant expenses and operating losses to continue, with R&D and SG&A expected to increase. The filing gives no specific financial revenue or earnings guidance.
- Regulatory: The FDA denied the requested 510(k) clearance for sEEG use under 30 days in March 2022 and upheld the decision in May. The company was collecting additional data and expected to resubmit in August 2022; commercialization timing was delayed from the previously expected first quarter of calendar 2022.
- Zimmer agreement: The sEEG Product Availability Date had not occurred by June 30, 2022, giving Zimmer a right to terminate the sEEG distribution license under the agreement. In a subsequent August 2 amendment, Zimmer agreed to pay $3.5 million within 10 business days; NeuroOne issued Zimmer a warrant for up to 350,000 shares at $3.00 per share, exercisable after six months and expiring August 2, 2027.
- Concentration and costs: One customer accounts for all product and collaboration revenue, and one contract manufacturer produces all strip/grid and sEEG products. Management cites continuing supply-chain disruption and inflationary manufacturing costs, as well as COVID-19 and geopolitical uncertainty.
- Litigation: The PMT case remained unresolved, and the company said the outcome could not be estimated. A July 26, 2022 Special Master order struck PMT’s attempted addition of 13 trade-secret claims; trial was scheduled for August 22, 2022.
- Royalties: The WARF license requires a $150,000 minimum annual royalty for 2022 and subsequent years while in effect. Royalties are included in product costs.
Important facts for investors to verify
- Whether the August Zimmer payment was received, the amendment’s full terms, and whether Zimmer retained or exercised relevant termination rights.
- Whether NeuroOne resubmitted the under-30-day sEEG application and the FDA’s subsequent decision and timing.
- Actual cash runway, operating burn, and the company’s ability to raise additional capital on acceptable terms.
- Whether product sales expand beyond the single customer and whether gross margins improve as volume and manufacturing costs change.
- The status and financial consequences of the PMT litigation and the timing and cost of upcoming development and regulatory milestones.