Monday, January 04, 2016

Helius Medical Technologies Targets Brain Trauma

I have to examine Helius Medical Technologies (US ticker HSDT) just to wonder what this medical device company is all about. Here's another small company that went public before it became profitable. Startups often use reverse mergers to raise capital. The successful ones have a minimum viable product ready for regulatory review prior to said merger.

The company's core offering is some kind of tech that facilitates neurological rehabilitation. Their PoNS device electrically stimulates the tongue to prompt brain functions in patients undergoing different forms of rehabilitative activity. It's a cool concept and getting CRADA funding is also cool. I respect anyone who tries to ameliorate mTBI suffering. Doing it outside a research lab means making a product someone actually buys.

The market for mTBI treatments alone makes pursuing any solution a calculated risk rather than just a wild gamble. The NIH's NCBI cites a literature review from 2013 citing a wide range of estimates for the societal cost of TBI. The range of $25,174 to $81,153 for moderate TBI matters most for the types of solutions that will attract US government CRADA funding. Any device seeking market share must be available at a price point far below the low-end TBI cost estimate of $25K. A total addressable market anywhere from $2-4B is worth chasing.

The one data set that jumped in my face was the executive compensation on their Yahoo Finance profile page. I looked at their most recent 10-Q dated November 16, 2015 and it looks like the compensation is stock-based. That's appropriate if they're spending cash on R+D. Cash on hand as of September 30, 2015 was $192K while their net loss was just over $1M for the quarter. A burn rate of over $330K or so per month means Helius must regularly raise new capital. Shareholders can expect dilution after a successful $2M raise in late 2015. The drawdown of a $5M credit facility noted in the 8-K dated December 31, 2015 will also dilute shareholders.

Medical device makers cannot sell a product until the FDA grants approval for distribution. Helius must survive on invested capital until their product has complete regulatory approval. It's too early to tell whether Helius can match its tech's promise to market reality. Patients with mTBI can keep their fingers crossed.

Full disclosure: No position in Helius Medical Technologies at this time.