Description

Helius is a micro-cap biotech device company which has a product that could potentially generate hundreds of millions of dollars.  The name is not widely followed and has had a rocky past, but given its recent FDA approval a few weeks ago, this name has huge upside with limited downside we believe.  

Investment Summary

Helius has developed a device that significantly reduces balance and walking impairment caused by Multiple Sclerosis and other de-abilitating diseases. The device sends small electric pulses to the brain and is used in conjunction with physical therapy. The only other treatment for this condition is a drug which is minimally effective and has significant side effects, yet generated sales of $500 million/year within a few years of approval. 

We believe the company may be able to generate hundreds of millions of dollars of sales from this device.  While there are many risks to the execution, we believe there may be significant demand for this product from the multiple addressable markets.  

With a market cap of just $37 million, this represents a compelling valuation for a company with this growth potential.

Company Description

Helius Medical Technologies is a neurotech company focused on neurological wellness. The Company’s purpose is to develop, license and acquire unique and non-invasive platform technologies that amplify the brain’s ability to heal itself. The Company’s first commercial product is the Portable Neuromodulation Stimulator (PoNS).

Helius Medical Technologies is a US-based medical device company developing and commercializing the PoNS technology. This first-in-class, non-implantable device is built on the scientific principals and decades of evidence-based research in neuromodulation and neurorehabilitation. Used in conjunction with physical therapy, PoNS is authorized in Canada for the treatment of gait deficit due to mild and moderate symptoms of Multiple Sclerosis (MS) and for the treatment of chronic balance deficit due to mild-to-moderate Traumatic Brain Injury (mmTBI). In Q1 2020, PoNS achieved FDA Breakthrough Device Designation and last month it received FDA approval for the treatment of gait deficit due to symptoms of MS.

Adressable Market

The PoNS device has the potential to be used in many addressable markets.  The first market that will be addressed by Helius in the U.S. will be Multiple Sclerosis (MS).  MS is a disease where the immune system attacks the central nervous system for which there is no cure.  Approximately 1 million adults in the US have MS.  Symptoms of MS vary and can include walking/gait difficulties, tremors, balance, fatigue, cognitive health, speech etc.  Physical therapy can assist with walking and maintaining strength.  Other therapies such as speech and language related therapies can also help.  Electro stimultion can also be used on MS to deliver neurons to the muscles to improve strength and body movement.  Not all MS patients have trouble walking but an overwhelming majority do, approximately 75-80%.  Walking safely and effectively is critical to MS patients to maintain independence and avoid falling and injury.

Proof of Market Demand for MS-  Ampyra is a drug marketed by Acorda Therapeutics which is now available in generic.  Ampyra was approved by the FDA in 2010 to improve gait deficit in MS patients.  Ampyra works by improving the electric signals from the brain along the spinal cord.  The drug is taken in pill form.  In its first year of FDA approval it did $133 million in sales peaking to $543 million in 2017 before generic became available.  Amprya did approximately $3.5 billion in sales since inception.

Tramautic Brain Injury (TBI) is a condition that affects 6.8 million people in the US.  A TBI can disrupt motor function either temporarily or permanently and physical therap is used to improve or restore this function.  It is worth noting that the company submitted to the FDA an application to treat TBI back in 2018 but was denied in 2019.  The reason given was that the FDA wanted to see data to see if the PoNS device would help patients without physical therapy compared to physical therapy alone.    The company has in plans to conduct additional tests that satisfy the FDA.

Stroke affects 7 million people in the US and is a leading cause of disability in the US.  Those who have a stroke are likely to have some physical setbacks either permanently or temporarily.  They are likely to have worse motor function skills and will be in need of physical therapy to rehabilitate.  

Cerebral Palsy affects 764k patients in the US.  

Parkinsons affects about 1 million patients in the US. 

The company will first address the MS market and then seek FDA approval for marketing for the treatment of TBI and Stroke.  

Importance of FDA Breakthrough Designation

Helius was granted Breakthrough Device Designation by the FDA in Q2 2020.  This allowed them to work with the FDA on an expedited basis to achieve FDA clearance.  And equally important, through the Medical Coverage for Innovative Technologies program, Medicare/Medicaid will provide national Medicare coverage as early as the same day as Food and Drug Administration (FDA) market authorization for breakthrough devices and coverage would last for 4 years.  This opens up coverage for the PoNS devive for the 60 million covered under medicare.

This also paves the way for private insurers to cover the PoNS device as well.  

What is the PoNS Device?

The device is worn around the neck and connected via a cord is a mouthpiece.  The mouthpiece rests on the tongue when being used, and it delivers electric stimulation through the tongue and it delivers neuro signals to the brain stem and cerebellum.  It is powered via battery and can be programmed for different intensity and it is managed via software customized for the patient.  Treatment using the PoNS device is to be utilized in conjunction with physical activity.

The device is covered by numerous patents in the US and abroad and there aren't any similar products that I am aware of. 

I estimate the selling price to run about $10,000 for one device, and the cost to manufacture is about $1,000.   An annual prescription of Amprya is well in excess of that during its launch.  

Financials

The company currently has about $10 million on the balance sheet and I anticipate this will take it through next year.  The company also has approximately 800k of options/warrants that are in or close to being in the money with an average strike around $17.  

There are curently 2.2 million shares outstanding with a current market cap of $37mm and no debt.

Modelling is very difficult.  My rough numbers are that is will burn about $1mm/month as the company ramps up sales later this year.  I believe burn will decline to about half of that in 2022.  But the toughest thing to model is revenue.  My feeling is that MS patients will want to try this product particularly given that it is covered under Medicare.  Just 10,000 MS patients (1% of the US MS population) may generate $100mm in product sales.  Even 1/2 of that number is huge.  Between now and then however, the company will burn cash and need to raise more money. 

Valuation

At 16.90/share, the EV is $27mm for a company that could do hundreds of millions.  Given the market opportunity balanced by risk of execution, cash burn etc., I believe the company should be trading closer to $50-100mm valuation, or $35-45/share at this time, with the potential to go a lot higher depending on execution.

RISKS

EXECUTION, BURNING CASH, SMALL, ILLIQUID, NEW PRODUCT, NEEDS NEW CEO

Catalyst

Sales Rollout, FDA submission for TBI and Stroke, getting acquired.