Oppenheimer NoteHelius Medical Technologies Inc. Lowering Rating to Perform on FDA PoNS Update SUMMARY
We are lowering our rating on HSDT from Outperform to Perform and removing our
$10 target price following yesterday's update on the FDA submission for HSDT's
PoNS (portable neuromodulation stimulator). FDA declined approval, noting that it did
not have sufficient information to determine the relative contribution of PoNS versus
the concurrent physical therapy in the positive improvements seen from baseline in
HSDT's registration trial. More data will be needed for resubmission. While PoNS is
approved in Canada and initial results are promising, US approval is the core driver
of our thesis, and with uncertainty now on approval timing, we lower our rating. Next
key milestones are update on US pathway following another expected FDA meeting
and potential approvals in Europe/Australia (not currently in our estimates).
KEY POINTS
FDA comments. Management indicated that while FDA found PoNS safe and
that patients in the trial (those who had suffered mild-to-moderate TBI with chronic
balance deficit) achieved benefit from baseline, it could not discern the contribution
of PoNS versus PT. As a reminder, study patients were at least one-year post injury
and had plateaued in previous traditional physical rehabilitation therapy alone.
Next steps. The company is evaluating different options for a new trial and will
request another meeting with FDA. While the registration trial took ~2 years from
initiation to data announcement, management believes a new trial would take
much less given the already established centers and fewer patients it believes
needed given the device safety recognized by FDA in the registration trial.
Sales estimates. We lower our estimates for revenue for 2020/2021 from
$14.8M/28.9M to $4.1M/$11.5M. We had not assumed any US revenue in our
2019 estimates. We build in some initial risk-adjusted US estimates in 2021,
though visibility at this point is low as we await information on a new trial.
Near-term focus. Beyond the evaluation of next steps in the US, management will
be ramping commercial efforts in Canada and is awaiting its CE Mark submission
and potential approval in Australia. Launch in Europe (likely the UK initially) and
in Australia are potential upsides to our estimates.
EPS estimates. Management indicated that it will divert resources internally
away from US commercial ramp and toward Canada commercialization and
US regulatory steps. Our '19E EPS rises as we assume lower US expenses,
2020E/2021E EPS lower to ($1.06)/($1.01) from ($1.04)/($0.86) on reduced US
sales. Management continues to believe it has enough cash through year-end '19
as it diverts resources.