BTIG upgrading HSDT to Buy with a $14 PT Helius Medical Technologies, Inc
Funding De-risked: Readying for FDA Nod and Canadian Launch; Upgrading to Buy with a $14 TP
When we moved to Neutral, our major concern was that shares might encounter pressure as Helius would likely need more capital before FDA clearance given the filing delay. On November 19, HSDT closed a $17.5M stock offering, alleviating the need for more capital before clearance. Shares also slid from ~$13 in mid-June to ~$8 today.
With this overhang removed, enough cash to fund operations through at least mid-2019, and a much cheaper share price, we are upgrading HSDT to Buy and setting a $14 PT based on a DCF. We think the recent announcement of Clinical Experience Programs (CEP) in the works at two prestigious US neurorehab centers helps validate PoNS therapy. HSDT now has Canadian clearance in hand and is working toward commercialization in Canada. We see both as positives. The next key catalyst is potential FDA clearance, likely over the next 3-4 months. We maintain our view of an 85% chance of clearance without more clinical work as we feel the current data proves both benefit and safety.
The raise ahead of the FDA catalyst was larger than we modeled. We continue to assume another raise post-clearance but believe HSDT should have FDA clearance before needing to go back to the markets.
US outlook: We expect FDA 510(k) clearance for PoNS by Q1 2019. However, we believe CEP centers will initially treat patients to gather clinical and health economic data; these CEP treatments are not likely to generate revenue. We now have conservatively modeled US sales starting in Q3 2019 to account for these CEP programs.
O Canada: With two Heuro Canada clinics under development and set to start treating in Q1 2019, we move up our OUS revenue forecast. Both were part of the PoNS trial and we expect solid patient interest.
Valuation: Our $14 PT is based on a DCF.