Filing summary
Company identity: The supplied filing is Helius Medical Technologies, Inc.’s Form 10-Q, not a filing for Solana Co. It covers the quarter and nine months ended September 30, 2020. Amounts below are U.S. dollars unless noted; financial statement figures are in thousands except per-share data.
Business context
Helius develops non-invasive neurological technologies. Its PoNS device was authorized for sale in Canada for specified multiple sclerosis (MS) and mild-to-moderate traumatic brain injury indications, but remained investigational in the U.S., EU and Australia. The company was pursuing FDA review for an MS indication and had received Canadian authorization for MS in March 2020.
Financial performance and liquidity
| Metric | Three months ended September 30, 2020 | Nine months ended September 30, 2020 |
|---|---|---|
| Revenue | $131; prior year $150 | $470; prior year $1,344 |
| Gross profit / gross margin | $109 / 83% | $283 / 60% |
| Operating loss | $(3,660); prior year $(5,736) | $(11,384); prior year $(18,371) |
| Net loss | $(3,477); prior year $(5,588) | $(11,595); prior year $(4,450) |
| Basic and diluted loss per share | $(0.08); prior year $(0.22) | $(0.30); prior year $(0.17) |
Nine-month product sales were $441, down from $1,295. Management attributed the decline to 2019 pent-up demand, COVID-19 disruption and, to a lesser extent, pricing changes. Lower operating expenses improved operating loss, but the 2019 nine-month net loss was unusually reduced by a $14,033 non-cash gain in the fair value of derivative instruments; the corresponding gain in 2020 was $4.
Nine-month operating cash use was $9,567, versus $16,460 in 2019. Investing activities provided $40, while financing activities provided $6,727, mainly from stock offerings. Cash fell to $2,680 at September 30 from $5,459 at year-end 2019. Current assets were $4,136 and current liabilities $2,565; reported working capital was $1,571. Total liabilities were $2,829, including operating lease liabilities; the filing reports no material conventional borrowing debt. The $323 PPP loan received in April was repaid in May.
Shares outstanding increased to 45.4 million at quarter-end from 30.7 million at December 31, 2019, reflecting ATM and March 2020 offering issuances. After quarter-end, an October private placement generated approximately $3.2 million net proceeds. Management said cash, including those proceeds, was expected to fund operations through most of the first quarter of 2021, while warning that estimates could prove wrong.
Material changes and unusual items
- R&D expense fell to $3,755 for the first nine months from $6,462, and selling, general and administrative expense fell to $7,625 from $12,715, primarily reflecting reduced development, commercial, staffing and stock-compensation costs.
- Q3 SG&A included $2,370; lower than the prior-year $4,291. The company recorded $287 of amortization and a $182 intangible-asset impairment during the nine-month period.
- The company recorded a $110 loss on disposal of property and equipment and a gain on office lease modification. It reduced its office footprint and reported $154 of lease liabilities at quarter-end.
- The former CEO departed in August 2020; accrued severance was approximately $550. Stock-based compensation expense included a $125 reversal related to forfeitures following the departure.
- The company received Canadian authorization for PoNS for MS in March. It submitted an FDA de novo request for the MS indication in August; in October, the FDA requested additional clinical-data analysis and proposed labeling changes, placing review on hold pending the response.
- The prior U.S. de novo request for the traumatic brain injury indication was denied in 2019. The planned TBI-002 trial was temporarily suspended, with funding and timing still under evaluation.
Outlook, risks and contingencies
- Going concern: Management disclosed substantial doubt about the company’s ability to continue as a going concern within one year after filing, citing recurring losses, cash outflows and limited liquidity. Further financing may be needed; failure to obtain it could force reduced operations or other significant actions.
- COVID-19: Canadian clinics had reopened but operated at reduced capacity; patient engagement, clinical experience programs, suppliers and regulatory work were affected. The company said the full impact remained uncertain.
- Nasdaq listing: The company was below the $1.00 minimum bid-price requirement and had until December 3, 2020 to regain compliance, with a possible additional compliance period. Delisting could impair liquidity and access to capital.
- Regulatory and commercialization risk: U.S. marketing depends on FDA clearance; PoNS was not commercially available in the U.S., EU or Australia. Australian review was ongoing, and the EU application had been withdrawn.
- Contingencies: A shareholder securities class action was dismissed without prejudice, with the final order entered July 1, 2020. The filing says the company was not then party to material legal proceedings. A previously disclosed $2.0 million contractual penalty was considered remote after an amendment to the relevant obligation.
Most important facts to verify
- Confirm the issuer: this filing is for Helius Medical Technologies, Inc. (Nasdaq: HSDT), not Solana Co.
- Check subsequent financing, cash burn and whether the stated runway through most of Q1 2021 proved adequate.
- Track FDA response requirements and timing for the PoNS MS application, and any decision to restart the TBI-002 trial.
- Verify Nasdaq bid-price compliance and any extension or reverse-stock-split action.
- Assess whether Canadian clinic capacity, patient demand and PoNS sales recovered from pandemic disruption.
- Review dilution from completed and future equity or warrant issuances; the filing reported 9.3 million warrants outstanding at September 30, 2020.