UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-K
(Mark One)
☒ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 001-40439
NeuroOne Medical Technologies Corporation
(Exact name of Registrant as specified in its charter)
(Address of principal executive offices) (Zip Code)
952-426-1383
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b)
of the Act:
Title of each class Trading Symbol Name of each exchange on which registered
Common Stock, $0.001 par value per share NMTC The Nasdaq Stock Market LLC
Securities registered pursuant to Section 12(g)
of the Act: None
Indicate by check mark if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐No☒
Indicate by check mark if the registrant is not
required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐No☒
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes☒ No ☐
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.
See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”
and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
Emerging growth company ☐
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐
No ☒
As of March 31, 2022, the last business day of
the registrant’s most recently completed second fiscal quarter, the aggregate market value of shares of the registrant’s common
stock held by non-affiliates of the registrant based upon the March 31, 2022 price at which the common equity was last sold was $17.0
million. The number of outstanding shares of the registrant’s common stock as of December 20, 2022 was 16,238,464.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the Proxy Statement for the Registrant’s
2023 Annual Meeting of Stockholders to be filed subsequently are incorporated by reference into Part III of this Annual Report on Form
10-K.
NeuroOne Medical Technologies Corporation
FORM 10-K
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2022
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS 1
ITEM 1A. RISK FACTORS 27
ITEM 1B. UNRESOLVED STAFF COMMENTS 60
ITEM 2. PROPERTIES 60
ITEM 3. LEGAL PROCEEDINGS 60
ITEM 4. MINE SAFETY DISCLOSURES 60
PART II
ITEM 6. [RESERVED] 61
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 72
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA F-1
ITEM 9A. CONTROLS AND PROCEDURES 73
ITEM 9B. OTHER INFORMATION 74
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS 74
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 75
ITEM 11. EXECUTIVE COMPENSATION 75
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 75
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 76
SIGNATURES 80
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Unless the context requires otherwise, references
in this Annual Report on Form 10-K (this “Annual Report” or “Report”) to “we,” “us,” “the
Company” and “our” refer to NeuroOne Medical Technologies Corporation (the “Company”).
This Annual Report contains forward-looking statements
that involve substantial risks and uncertainties. The forward-looking statements are contained principally in the sections entitled “Risk
Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,”
but are also contained elsewhere in this Annual Report. In some cases, you can identify forward-looking statements by the words “may,”
“might,” “will,” “could,” “would,” “should,” “expect,” “intend,”
“plan,” “objective,” “anticipate,” “believe,” “estimate,” “predict,”
“project,” “potential,” “target,” “seek,” “contemplate,” “continue”
and “ongoing,” or the negative of these terms, or other comparable terminology intended to identify statements about the future.
These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity,
performance or achievements to be materially different from the information expressed or implied by these forward-looking statements.
Although we believe that we have a reasonable basis for each forward-looking statement contained in this Annual Report, we caution you
that these statements are based on a combination of facts and factors currently known by us and our expectations of the future, about
which we cannot be certain. Forward-looking statements include statements about:
● our ability to successfully commercialize our technology in the United States;
● our ability to achieve or sustain profitability;
● our ability to raise additional capital and to fund our operations;
● our future development priorities;
● the impact of the COVID-19 pandemic on our business;
ii
● our ability to comply with applicable regulatory requirements;
● our ability to maintain our intellectual property position;
Forward-looking statements are based on management’s
current expectations, estimates, forecasts and projections about our business and the industry in which we operate, and management’s
beliefs and assumptions are not guarantees of future performance or development and involve known and unknown risks, uncertainties and
other factors that are in some cases beyond our control. You should refer to the “Risk Factors” section of this Annual Report
for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking
statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Annual Report will prove to
be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant
uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any
other person that we will achieve our objectives and plans in any specified time frame, or at all.
These forward-looking statements speak only as
of the date of this Annual Report. Except as required by law, we assume no obligation to update or revise these forward-looking statements
for any reason, even if new information becomes available in the future. You should, however, review the factors and risks and other information
we describe in the reports we will file from time to time with the Securities and Exchange Commission (the “SEC”) after the
date of this Annual Report.
iii
NeuroOne Medical Technologies Corporation
FORM 10-K
PART I
ITEM 1. BUSINESS
Overview
Corporate Overview of NeuroOne Medical Technologies
Corporation
We were originally incorporated as Original Source
Entertainment, Inc. under the laws of the State of Nevada on August 20, 2009. Prior to the closing of the Acquisition, as defined below,
we completed a series of steps contemplated by a Plan of Conversion pursuant to which we, among other things, changed our name to NeuroOne
Medical Technologies Corporation, increased our authorized number of shares of Common Stock from 45,000,000 to 100,000,000, increased
our authorized number of shares of preferred stock from 5,000,000 to 10,000,000 and reincorporated in Delaware. On July 20, 2017, we acquired
NeuroOne, Inc. (the “Acquisition”). Immediately following the closing of the Acquisition, the business of NeuroOne, Inc. became
our sole focus.
Corporate Overview and History of NeuroOne,
Inc.
NeuroOne, Inc. was incorporated under the laws
of the State of Delaware on October 7, 2016. Its predecessor entity, NeuroOne LLC (the “LLC”), was formed on December 13,
2013 and operated as a limited liability company until it was merged with and into NeuroOne, Inc. on October 27, 2016, with NeuroOne,
Inc. as the surviving entity (the “Merger”). As a result of the Merger, all of the properties, rights, privileges and powers
of the LLC vested in NeuroOne, Inc., and all debts, liabilities and duties of the LLC became the debts, liabilities and duties of NeuroOne,
Inc., except for the Exclusive Start-up Company License Agreement, dated as of October 1, 2014, as amended on February 22, 2017, March
30, 2019 and September 18, 2019 (the “Original WARF License”), with the Wisconsin Alumni Research Foundation (“WARF”),
which was not legally transferred until May 2017. The purposes of the Merger were to: change the jurisdiction of incorporation from Minnesota
to Delaware; change the ownership of the LLC’s underlying assets; and convert from a limited liability company to a corporation.
In December 2019, NeuroOne, Inc. was merged with and into the Company, with the Company remaining as the surviving entity.
We are a medical technology company focused on
the development and commercialization of thin film electrode technology for continuous electroencephalogram (cEEG) and stereoelectrocencephalography
(sEEG) recording, spinal cord stimulation, brain stimulation and ablation solutions for patients suffering from epilepsy, Parkinson’s
disease, dystonia, essential tremors, chronic pain due to failed back surgeries and other related neurological disorders. Additionally,
we are investigating the potential applications of our technology associated with artificial intelligence. Members of our management team
have held senior leadership positions at a number of medical technology and biopharmaceutical companies, including Boston Scientific,
St. Jude Medical, Stryker Instruments, C.R. Bard, A-Med Systems, Sunshine Heart, Empi, Don-Joy and PMT.
We are developing our cortical, strip, grid and
depth electrode technology to provide solutions for diagnosis through cEEG recording and sEEG recording and treatment through brain stimulation
and ablation, all in one product. A cEEG is a continuous recording of the electrical activity of the brain that identifies the location
of irregular brain activity, which information is required for proper treatment. cEEG recording involves an invasive surgical procedure,
referred to as a craniotomy. sEEG involves a less invasive procedure whereby doctors place electrodes in targeted brain areas by drilling
small holes through the skull. Both methods of seizure diagnosis are used to identify areas of the brain where epileptic seizures originate
in order to precisely locate the seizure source for therapeutic treatment if possible.
Deep brain stimulation, or DBS, therapies involve
activating or inhibiting the brain with electricity that can be given directly by electrodes on the surface or implanted deeper in the
brain via depth electrodes. Introduced in 1987, this procedure involves implanting a power source referred to as a neurostimulator, which
sends electrical impulses through implanted depth electrodes, to specific targets in the brain for the treatment of disorders such as
Parkinson’s disease, essential tremors, dystonia, and chronic pain. The effects of DBS as a potential treatment for Alzheimer’s
is also being evaluated by researchers. Unlike ablative technologies, the effects of DBS are reversible.
1
NeuroOne Medical Technologies Corporation
FORM 10-K
Radio frequency (RF) ablation is a procedure that
uses radiofrequency under the electrode contacts which is directed to the site of the brain tissue that is targeted for ablation. The
process involves delivering energy to the contacts, thereby heating them and creating a lesion in the brain tissue. The ablation does
not remove the tissue. Rather, it is left in place and typically scar tissue (lesion) forms in the place where the ablation occurs. This
procedure is also known as brain lesioning as it causes irreversible lesions. In August 2021, the Company announced a strategic partnership
with RBC Medical Innovations to develop a RF ablation generator. The following month, our RF ablation technology was tested by representatives
from Emory University in Atlanta Georgia in an animal study. The product remains in development.
Our cortical strip, grid electrode and depth electrode
technology has been tested over the years by both WARF, the owners of our licensed patents, and Mayo Clinic located in Rochester, Minnesota,
in both pre-clinical models as well as through an institutional review board (“IRB”) approval at Mayo Clinic for clinical
research. In December 2020, we announced the first human commercial use of our Evo cortical electrode in a procedure performed at the
Mayo Clinic. Regarding our ablation electrode, the Cleveland Clinic and representatives from Emory University have performed testing in
bench top models and pre-clinical (or animal testing) models. These pre-clinical tests have demonstrated that the technology is capable
of recording, monitoring, ablation and acute stimulation, although our ablation electrode technology remains in product development (meaning
that additional testing will be needed prior to it being submitted for clearance for commercial distribution by the U.S. Food and Drug
Administration (the “FDA”) for recording (or diagnostic) and therapeutic modalities.
We received 510(k) FDA clearance for our Evo cortical
technology in November 2019,in September 2021 we received FDA clearance to market our Evo sEEG electrode technology for temporary (less
than 24 hours) use with recording, monitoring, and stimulation equipment for the recording, monitoring, and stimulation of electrical
signals at the subsurface level of the brain, and in October 2022 we received FDA clearance to market our Evo sEEG electrode technology
for temporary (less than 30 days) use with recording, monitoring, and stimulation equipment for the recording, monitoring, and stimulation
of electrical signals at the subsurface level of the brain.
Our Market Opportunity
Epilepsy Market
We expect to initially target the diagnosis and
treatment of epilepsy. Epilepsy can be caused by a variety of conditions that affect a person’s brain, some of which are: stroke,
brain tumor, traumatic brain injury and central nervous system infections. According to the Centers for Disease Control and Prevention
(the “CDC”) and Citizens United for Research in Epilepsy (“CURE”), there are approximately 3,000,000 patients
annually suffering with epilepsy in the United States, with an additional 200,000 diagnosed every year. The CDC and CURE also estimate
that epilepsy costs the United States $15.5 billion per year. Approximately 720,000 of these patients are not receptive to pharmaceutical
treatment and therefore are appropriate for surgical treatment of this disorder. In addition to poor quality of life, epilepsy also is
associated with fairly high mortality rates. Sudden Unexpected Death in Epilepsy has an annual incidence of 1.16/1000 in epilepsy patients.
Despite the large market opportunity, it is estimated that there are only less than 5K epilepsy surgeries performed each year in the
United States.1
These numbers represent an underpenetrated market
due to the invasiveness of diagnostic procedures. After the diagnostic procedure, a second therapeutic procedure is required and at times
even a third surgery if the seizures persist. We believe patients are unwilling to proceed due to the long diagnostic and treatment procedure
times (one to four weeks in the hospital after a potential craniotomy for diagnosis). As detailed above, after the diagnosis is completed,
if successful, the patient must undergo an additional procedure to have the affected area of brain tissue ablated or removed. The average
cost for the diagnostic technology per procedure could be >$10,000, with ablation devices costing >$15,000. We believe our technology,
once developed, will offer an all-in-one solution with diagnostic and therapeutic capabilities.
2
NeuroOne Medical Technologies Corporation
FORM 10-K
Many leading neurologists believe that the limits
of today’s current technologies are the reason the exact affected area of the brain causing epileptic seizures is not well-determined.
We believe our technology, which has been developed to date by physicians at WARF and Mayo Clinic, will provide a number of advantages
over the current commercially available technologies, including the following:
We expect our technology can ablate through the
electrodes as well as perform brain recording, monitoring and stimulation, allowing for diagnosis and treatment through the same product
and in the same procedure.
Parkinson’s Disease
The Parkinson’s Disease Foundation estimates
that as many as 1,000,000 patients in the United States live with Parkinson’s disease with an additional 60,000 patients diagnosed
per year. Over 10,000,000 patients worldwide are living with Parkinson’s disease. There have not been any drugs introduced that
have been effective at treating all patients with Parkinson’s disease. The average onset is over 60 years old but some people have
been diagnosed as young as 40 years old. Parkinson’s is a disorder of the central nervous system caused by loss of brain cells throughout
various regions of the brain.
Today’s primary treatment for Parkinson’s
disease involves medications that have not proven to be curative but rather ease symptoms. One of the potential treatments for Parkinson’s
patients is Deep Brain Stimulation (DBS). According to the Michael J. Fox Parkinson’s Disease Research Foundation website, patients
that seem to do best with DBS are those that have had the disease for at least four years and have benefited from taking medications prescribed
to control the disease. In addition, DBS seems to help with reducing the issues with motor functions such as tremors, stiffness and slowness
but not for balance issues.
Essential Tremors
Essential tremors are thought to be due to electrical
irregularities in the brain that send abnormal signals to the muscles. It is a progressive condition that worsens over time and is linked
to genetic disorders that typically appear in people who are over 40. Essential tremors usually occur alone and without any other neurological
symptoms or signs. The tremors usually occur when the hands are raised and primarily affect the hands. Muscles in the trunk, face and
neck may also experience symptoms. Sometimes misdiagnosed as Parkinson’s disease, essential tremors are an involuntary rhythmic
shaking of the hands that is not present at rest. It is apparent during activities such as drinking, writing and eating. Symptoms can
worsen due to stress, anxiety, smoking, caffeine, fatigue, etc. Genetics Home Reference estimates that as many as 10,000,000 people in
the United States are affected by the disease. Treatments for the disease include medical therapy, and DBS. DBS, which unlike other therapies,
is reversible and programmable, helping to adjust the settings to maximize patient benefit. Similar to Parkinson’s disease, the
ability to detect this irregular brain activity before it causes a tremor is highly desirable.
Dystonia
Dystonia is a neurological condition recognized
as a motion disorder that involves over activity of a variety of different muscles simultaneously that work against each other. It presents
itself in a variety of symptoms but typically involves repetitive, patterned and often twisting involuntary muscle contractions resembling
tremors. According to the Dystonia Medical Research Foundation, over 300,000 people are affected in the United States and Canada alone.
Dystonia is the third most common problem seen in movement disorder clinics. Because it has many different manifestations, it is often
misdiagnosed. In addition, similar to Parkinson’s disease, there are no specific tests that can positively diagnose dystonia. A
doctor typically will evaluate patient and family history, potentially do genetic testing, EEG testing, blood and urine tests. There are
several treatment options (including medication and Botox) for patients depending on the type of dystonia. DBS may be also an alternative
for certain patient sub-types.
3
NeuroOne Medical Technologies Corporation
FORM 10-K
Spinal Cord Stimulation
Chronic back pain is one of the most prevalent
chronic conditions in the world. According to the CDC, “in 2016, an estimated 20.4% of U.S. adults had chronic pain and 8.0% of
U.S. adults had high-impact chronic pain. Chronic pain has been linked to numerous physical and mental conditions and contributes to high
health care costs and lost productivity”. Failed back surgery syndrome (“FBSS”) is one of leading causes for chronic
lower back/leg pain due to one or more failed back surgeries. Typically, it is related to patients that suffer with pain after surgery
of the lumbar spine for degenerative disc disease. Re-operations are usually not recommended for these patients due to low success rates.
These patients experience greater levels of pain, a lower quality of life, varying levels of disability and higher rate of unemployment.
Spinal cord stimulation works by placing an electrode(s) in a targeted area of the spine which is then connected to an implantable pulse
generator that sends electrical stimulation to the electrode to block the pain signals from reaching the brain.
The back pain market includes the following indications:
FBSS, Ischemic Limb Pain, and Complex Regional Pain Syndrome. Over half of this market is comprised of patients with FBSS. Studies have
indicated a benefit for some patients suffering from chronic back and lower limb pain when they have been treated with electrical stimulation.
Prior to the patient receiving an implant, they undergo a trial period that allows them to determine if they are receiving relief from
the therapy while preventing a surgery to implant the pulse generator that provides the stimulation. If the trial period is successful,
then the device is implanted in a follow-up procedure.
Artificial Intelligence
The brain consists of approximately 100 billion
nerve cells, which are small wires that pass electrical signals to control all of its functions. There have been a number of successful
clinical trials in which small metal wires, known as electrodes, are implanted in the brain to correct nerve damage using wireless communication
between implanted wires to simulate functional nerve cells. In addition to correcting damaged nerve cells, certain scientists have theorized
that if millions of wires could be implanted in the brain, these electrodes could present an opportunity to use artificial intelligence
to create infrared sight, increase hearing or perfect memory recall. However, there currently is no commercially available manufacturing
platform capable of making thousands of wires that can be placed within or on the brain and work reliably for the lifetime of a subject,
and are soft enough to match the tissue of the brain, that avoid damage to the brain.
Limitations of Currently Available Therapies
There are a limited number of currently available
products for diagnosis and treatment for people with neurological disorders such as epilepsy. Although the currently available systems
provide diagnosis and treatment for patients, they have certain inherent limitations and shortcomings that we believe limit their use
and validate the need for improved technology in the market. These limitations include:
4
NeuroOne Medical Technologies Corporation
FORM 10-K
Our Solution
As a result of the inherent limitations and inconvenience
of existing systems, we believe that there is a significant unmet need among people with neurological disorders for cortical strip, grid
and depth electrodes that provide diagnostic capabilities through cEEG and sEEG recording in addition to therapeutic modalities, such
as brain stimulation and ablation, offered as an all-in-one product. In comparison to currently available technologies, we are continuing
to develop applications of our strip, grid and depth electrodes with the goal of providing the following expected advantages:
5
NeuroOne Medical Technologies Corporation
FORM 10-K
Our Strategy
Our goal is to be the global leader in cEEG and
sEEG recording, monitoring, deep brain stimulation and ablation, owning the procedure from diagnosis through treatment.
The key elements of our strategy include:
6
NeuroOne Medical Technologies Corporation
FORM 10-K
7
NeuroOne Medical Technologies Corporation
FORM 10-K
Our Technology
Epilepsy Mapping and Monitoring
Epileptic seizures occur when the neurons in the
brain miscommunicate. This miscommunication typically results in involuntary muscle seizure activities and/or periods of perceptual disconnect
where the individual appears frozen. Modern medical science has advanced the treatment of epileptic seizures by mapping the electrical
communication activity of neurons and understanding their special orientation in the brain. This mapping is accomplished by access to
the cranium (through a craniotomy) and placing conductive contacts on the brain directly. The craniotomy procedure is very invasive, traumatic
to the surrounding tissue, results in high patient down time, and increases the risk of infection.
We seek to leverage scale-able technology and
produce ultra-thin, or paper-thin electrodes that allow for high-resolution and high-definition recordings, which would improve mapping
resolution and signal acquisition. If the Company is able to leverage scale-able technology, it would mean that our technology would be
able to incorporate smaller electrodes and thereby increase the number of electrodes on a given surface area. We expect that this would
increase the imaging resolution so that brain activity is displayed in greater definition. We also believe that the electrodes’
unique thinness and flexibility will provide a less invasive approach to electrode placement. The electrodes would be able to be placed
through a small quarter size hole instead of by an invasive full craniotomy procedure.
The images under “Cortical Electrode,”
from bottom to top, are images of our cortical electrode strip, our grid electrode, and the placement of the grid electrode on the brain,
respectively. The images under “High Density Interconnect” are both images of our product that connects our electrodes to
the head box, which is a piece of hardware that connects to electrodes to acquire, amplify, display, store and archive electrophysiological
signals, and is integrated as part of our manufactured electrode product. The images under “Head Box” and “Signal Monitoring
and Mapping” are images of the device which processes information received through the high density interconnect, and a sample output
of data acquisition, respectively, neither of which is one of the Company’s products.
Our technology consists of three primary types
of cortical electrodes: grid electrodes, strip electrodes and dual-sided electrodes. These electrodes have a patented design that utilizes
proprietary processing and materials technology, which we believe will allow the electrodes to have improved features over the current
industry standard recording electrodes.
What sets our technology apart from others is
the integration of state of the art design leveraging the latest in flexible printed circuit technology. We believe our patented designs
will provide the surgeon a higher tactile perspective on electrode placement allowing for ultra-precise neuron recording. We expect the
benefits of our electrode designs to include the ability to detect better defined margins between healthy tissue and resect-able tissue,
less immune-response from the brain and surrounding tissue, better signal acquisition due to superior conformability of the electrode
over the brain, improved flexibility that physicians have requested, which we expect will enable a minimally invasive approach and the
electrodes unique thinness that is unmatched by current products being used.
8
NeuroOne Medical Technologies Corporation
FORM 10-K
The Future of Neurology Mapping with
NeuroOne
We seek to develop superior “scale-able”
technology for future product system iterations in higher density contact placement. This will open the doors to other brain related disease
recording procedures by providing high fidelity, more accurate diagnostic capabilities and also the ability to provide an all-in-one therapy
capable of diagnosis, ablation and/or stimulation. Beyond the brain, we believe our technology under development has applications in other
neurological signal recording disease states related to voluntary or involuntary motor neuron abnormalities, understanding sensory neuro
behavior (pain), limb prosthetics and degenerative muscle disease.
Clinical Development and Regulatory Pathway
Clinical Experience, Future Development
and Clinical Trial Plans
Our Evo cortical electrode technology has received
510(k) clearance from the FDA for recording, monitoring, and stimulating brain tissue for less than 30 days on the surface of the brain.
Our Evo sEEG electrode technology has received FDA 510(k) clearance from the FDA for use (less than 30 days) with recording, monitoring,
and stimulation equipment for the recording, monitoring, and stimulation of electrical signals at the subsurface level of the brain. Our
other products have not received any clearance for commercialization by any U.S. or foreign regulatory body. To date, the Company has
performed a number of bench top (which includes feasibility testing) and pre-clinical tests (which include animal testing of device placement,
ergonomics, performance, ease of use, and other tests required by FDA regulations). As described in “-Government Regulation”
below, the Company will be required to perform additional testing of its technology in connection with seeking additional regulatory clearances
or approvals.
We intend to expand our product offerings to include
less invasive means and all-in-one solutions, thus providing both patients and physicians better options to treat epilepsy, Parkinson’s
disease, dystonia, essential tremors, chronic pain due to failed back surgeries and other related neurological disorders. While we expect
to make modifications to our initial system, we believe that most of our future product development initiatives will involve unique and
transformational next generation technology that should drive further appeal of our products with both physicians and patients.
We are utilizing a number of resources to develop
these technologies. We license three critical patents from WARF that are the foundation of the technology and we are developing and intend
to commercialize and benefit from the thin film technology know-how of Mayo Clinic doctors through our license and development agreement.
WARF, Mayo Clinic (cortical electrodes) and Cleveland Clinic (sEEG electrodes) have been responsible for all pre-clinical studies of our
technology under development to date. See “-WARF License” and “-Mayo Foundation for Medical Education and Research License
and Development Agreement” below. We announced in December 2020, Mayo Clinic doctors used our technology in the first human commercial
application of our Evo cortical electrode technology to perform recording, functional mapping and stimulation of the brain on a human
patient. And more recently, in July 2022, we announced the first clinical case using the Evo sEEG electrode was performed by Dr. Robert
Gross at Emory University. Dr. Gross selected the Evo sEEG electrode for intraoperative brain mapping at the subsurface level of the brain.
9
NeuroOne Medical Technologies Corporation
FORM 10-K
Below we have summarized, for each component of
our technology, the current stage of development or commercial production, the pre-clinical testing done to date by WARF, the Cleveland
Clinic or Mayo Clinic on such component, if any, our plans for further testing or clinical trials and our expectations regarding the requirements
for regulatory clearance or approval and timing of regulatory submissions.
10
NeuroOne Medical Technologies Corporation
FORM 10-K
11
NeuroOne Medical Technologies Corporation
FORM 10-K
Mayo Clinic and University of Wisconsin-Madison
Studies
Our cortical technology for the diagnosis of epilepsy
has been tested by doctors at Mayo Clinic in multiple pre-clinical tests conducted from 2012 to 2017. In pre-clinical models, doctors
examined the biological impact on mammalian brains. Polyimide substrate electrodes (NeuroOne technology) were implanted on the pig’s
brain for one week alongside standard competitive electrodes. The tissue underneath the two types of electrodes was removed, fixed, stained,
and examined for immunological responses. The results of a histological (evaluation of brain tissue under a microscope) analysis showed
reduced immunological reaction to prolonged polyimide substrate implants (NeuroOne technology) compared to standard silicone substrate
clinical electrodes. Electrophysiological recordings showed data obtained from polyimide electrodes which demonstrated the feasibility
of high fidelity multi-scale electrophysiology while also displaying easier deployment of polyimide electrodes (NeuroOne technology) through
minimally invasive burr holes.
Additionally, doctors implanted our polyimide
thin film electrodes on five human patients who were undergoing surgery to remove brain tissue for drug resistant epilepsy. Electrophysiological
recordings from the polyimide thin film technology displayed in each of these patients demonstrated micro-seizure activity due to the
high fidelity multi-scale electrophysiology. In December 2020, we announced the first human commercial use of our Evo cortical electrode
to perform recording, functional mapping and stimulation of the brain. In the procedure, performed at the Mayo Clinic, our electrodes
were used to record evidence of pre-seizure activity which may be critical in developing treatments to prevent the onset of seizures.
Conclusions reached by the physicians at Mayo
Clinic were that thin, flexible polyimide electrodes (NeuroOne technology) provided recordings similar to standard clinical electrodes
with reduced immunological response. In addition, Mayo Clinic physicians observed that the flexibility of polyimide electrodes may reduce
pain and swelling associated with implantation of the device, and the single wire exiting the skull may reduce infection risk. The ability
to record micro-seizure and single neuron brain activity may also provide additional useful clinical data. Combined, these properties
suggest that the replacement of current competitive silicone electrodes with polyimide substrate electrodes (NeuroOne technology) for
recording brain activity for epilepsy could provide enhanced clinical value with reduced cost, reduced infection risk, and improved patient
comfort.
In addition, our thin film cortical implant technology
has been tested by researchers at the University of Wisconsin-Madison in multiple pre-clinical animal studies conducted from 2006 to 2016,
which included mice, rats and primates. In these studies, our technology was able to record brain activity from different areas of the
brain, was implanted in a minimally invasive fashion, electrically provided brain stimulation and tissue ablation, and had increased flexibility
compared to existing commercially available technology, which allowed the grids to conform more easily to the brain surface (and may have
reduced pain and swelling, compared to less flexible devices).
12
NeuroOne Medical Technologies Corporation
FORM 10-K
Sales and Marketing
Zimmer Development Agreement
Based on the size and maturity of the U.S. market
and our initial commercial focus, on July 20, 2020, we entered into an exclusive development and distribution agreement (the “Development
Agreement”) with Zimmer, pursuant to which we granted Zimmer exclusive global rights to distribute NeuroOne’s strip and grid
cortical electrodes (the “Strip/Grid Products”) and electrode cable assembly products (the “Electrode Cable Assembly
Products”), including to approximately 188 Level 4 epilepsy centers. Additionally, we granted Zimmer the exclusive right and license
to distribute certain depth electrodes developed by the Company (“SEEG Products”, and together with the Strip/Grid Products
and Electrode Cable Assembly Products, the “Products”). The parties have agreed to collaborate with respect to development
activities under the Development Agreement through a joint development committee composed of an equal number of representatives of Zimmer
and the Company.
Under the terms of the Development Agreement,
we are responsible for all costs and expenses related to developing the Products, and Zimmer is responsible for all costs and expenses
related to the commercialization of the Products. In addition to the Development Agreement, Zimmer and the Company have entered into a
manufacturing and supply agreement (the “MS Agreement”) and a supplier quality agreement (the “Quality Agreement”)
with respect to the manufacturing and supply of the Products.
Except as otherwise provided in the Development
Agreement, we are responsible for performing all development activities, including non-clinical and clinical studies directed at obtaining
regulatory approval of each Product. Zimmer has agreed to use commercially reasonable efforts to promote, market and sell each Product
following the “Product Availability Date” (as defined in the Development Agreement) for such Product.
Pursuant to the Development Agreement, Zimmer
made an upfront payment of $2.0 million to the Company in August 2020.
In August 2022, we entered into an amendment to
the Development Agreement with Zimmer that provided us with a $3.5 million accelerated payment relating to certain milestone events. In
addition, Zimmer received a Warrant to purchase 350,000 shares of our Common Stock, with an exercise price of $3.00 per share.
The Development Agreement will expire on the tenth
anniversary of the date of the first commercial sale of the last of the Products to achieve a first commercial sale, unless terminated
earlier pursuant to its terms. Either party may terminate the Development Agreement (x) with written notice for the other party’s
material breach following a cure period or (y) if the other party becomes subject to certain insolvency proceedings. In addition, Zimmer
may terminate the Development Agreement for any reason with 90 days’ written notice, and we may terminate the Development Agreement
if Zimmer acquires or directly or indirectly owns a controlling interest in certain competitors of the Company.
We will investigate markets outside of the U.S.
with the assistance of Zimmer and formulate a plan to enter those markets with the support of Zimmer.
For more information regarding the Development
Agreement, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Financial Overview-Collaborations
Revenue” and “Note 7 - Zimmer Development Agreement” included in “Item 8 - Financial Statements and Supplementary
Data” in this Report.
13
NeuroOne Medical Technologies Corporation
FORM 10-K
Reimbursement
Coverage in the United States
Reimbursement from private third-party healthcare
payors and, to a lesser extent, Medicare will be an important element of our success. Although the Centers for Medicare and Medicaid Services
(“CMS”) and third-party payors have adopted coverage policies for our targeted indications, there is no guarantee this will
continue at the same levels or at all in the future. Current Procedural Terminology, or CPT, is a medical code set that is used to report
medical, surgical and diagnostic procedures and services to entities such as physicians, health insurance companies and accreditation
organizations.
Applicable diagnostic CPT codes for mapping (diagnosing)
the brain for diagnostic procedures are as follows:
Regarding ICD-10 codes, the International Classification
of Diseases, Tenth Edition (ICD-10) is a clinical cataloging system that went into effect for the U.S. healthcare industry on October
1, 2015, after a series of lengthy delays. Accounting for modern advances in clinical treatment and medical devices, ICD-10 codes offer
many more classification options compared to those found in its predecessor, ICD-9. Within the healthcare industry, providers, coders,
IT professionals, insurance carriers, government agencies and others use ICD codes to properly note diseases on health records, to track
epidemiological trends and to assist in medical reimbursement decisions.
ICD-10 codes for epilepsy are as follows:
● G40.3 Generalized idiopathic epilepsy and epileptic syndromes;
● G40.A Absence epileptic syndrome;
● G40.4 Other generalized epilepsy and epileptic syndromes;
● G40.50 Epileptic seizures related to external causes, not intractable;
● G40.80 Other epilepsy; and
● G40.82 Epileptic spasms.
14
NeuroOne Medical Technologies Corporation
FORM 10-K
We believe that many of the indications we are
pursuing with our technologies are currently reimbursed on a widespread basis by Medicare, Medicaid and private insurance companies.
Medicare, Medicaid, health maintenance organizations
and other third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement
of new medical devices, and, as a result, their coverage policies may be restrictive, or they may not cover or provide adequate payment
for our products. In order to obtain reimbursement arrangements, we may have to agree to a net sales price lower than the net sales price
we might charge in other sales channels. Our revenue may be limited by the continuing efforts of government and third-party payors to
contain or reduce the costs of healthcare through various increasingly sophisticated means, such as requiring prospective reimbursement
and second opinions, purchasing in groups, or redesigning benefits. Our future dependence on the commercial success of our technologies
makes us particularly susceptible to any cost containment or reduction efforts. Accordingly, if government and other third-party payors
do not provide adequate coverage and reimbursement for our products and the related insertion and removal procedures, our financial performance
will be negatively impacted.
Manufacturing, Supply and Quality Assurance
We currently outsource the supply and manufacture
of all components of our prototypes of our technology under development. We plan to continue with an outsourced manufacturing arrangement
for the foreseeable future. Our third-party manufacturers are recognized in their field for their competency to manufacture the respective
portions of our system and have quality systems established that meet FDA requirements. We believe the manufacturers we currently utilize
have sufficient capacity to meet our requirements; however, see “Risk Factors-Risks Related to Our Business-The COVID-19 pandemic
has adversely impacted, and may continue to impact, our business”. We believe that as we increase our demand in the future, our
per-unit costs will decrease materially. We have also identified capable second source manufacturers and suppliers in the event of disruption
from any of our primary vendors.
Our suppliers meet the latest ISO 13485 certification,
which includes design control requirements. As a medical device developer, the facilities of our sterilization and other critical suppliers
are subject to periodic inspection by the FDA and corresponding state and foreign agencies. We believe that our quality systems and those
of our suppliers are robust and achieve high product quality. We plan to audit our suppliers periodically to ensure conformity with the
specifications, policies and procedures for our devices.
Research and Development
Our research and development team, which includes
our Director of Electrode Development, utilizes advice from leading experts in the neurotech field on our scientific advisory board and
is focused on the development of thin film cortical grid and strip electrodes and depth electrodes for recording, ablation and chronic
stimulation for brain related disorders as well as stimulation for spinal cord stimulation for back related pain. Our research and development
expenses were $4.9 million and $3.9 million for the years ended September 30, 2022 and 2021, respectively.
Competition
In the market for Epilepsy diagnosis, our cortical
strip, grid and depth electrode technology will likely compete with Integra Life Science’s Integra Epilepsy Strip, Grid and depth
electrodes, which provide a similar function to our diagnostic technologies. These products are well established in the marketplace and
Integra has greater resources than us, which could allow them to innovate faster. Ad-Tech Medical Instrument Corporation’s Epilepsy/LTM
(subdural grid, strip and depth) electrodes, which have become the market leaders for diagnostic mapping in epilepsy, and PMT’s
Cortac Strips and grid electrodes and Depthalon depth electrodes are used for recording brain activity similar to other competitive technologies.
In addition, Dixie Medical has launched a product line of depth electrodes and CorTec has launched a cortical electrode product line called
AirRay. Today’s success rates for seizure free post-operative conditions remain at 50%, which has limited patients’ willingness
to undergo the currently highly invasive surgical procedure. We will also compete against other companies in early stages of development
of thin film technologies.
In the neuro-ablation market, we expect to compete
with Medtronic’s Visualase guided-laser ablation technology and Monteris Medical’s NeuroBlate technology, which use MRI guided
laser surgical ablation for use to ablate, necrotize or coagulate soft tissue through interstitial irradiation or thermal therapy in medicine
and surgery in the discipline of neurosurgery with 1064 nm lasers. Their website claims it is used for ablation in the brain for soft
tissue and tumors. We believe there are other laser-based systems in development that will compete with these technologies.
15
NeuroOne Medical Technologies Corporation
FORM 10-K
In the neurostimulation market, we expect to compete
with NeuroPace’s RNS system approved for epilepsy, Medtronic’s Activa system approved for Parkinson’s disease, Boston
Scientific Vercise (indicated for Parkinson’s, dystonia and essential tremors), Abbott/St. Jude Medical’s Infinity DBS system
(approved for Parkinson’s disease and essential tremors), Liva Nova/Cyberonic’s VNS therapy intended for patients suffering
with epilepsy.
Although we will face potential competition from
many different sources, we believe that our technology, knowledge, experience and scientific resources will provide us with competitive
advantages. For a discussion of the key competitive factors that we believe will impact the success of our cortical strip, grid electrodes
under development, if successfully developed and approved, see “Our Solution” above.
Many of the companies against which we may compete
in the future have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing,
conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Mergers and acquisitions in the
pharmaceutical, biotechnology and diagnostic industries may result in even more resources being concentrated among a smaller number of
our competitors. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements
with large and established companies. These competitors also compete with us in recruiting and retaining qualified scientific and management
personnel and establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies complementary
to, or necessary for, our development.
WARF License
In January 2020, we entered into the Amended and
Restated Exclusive Start-Up Company License Agreement, dated as of January 21, 2020, as amended on June 15, 2020 (the “WARF License”)
with WARF, which amended and restated in full the Original WARF License. Pursuant to the WARF License, WARF has granted to us an exclusive
license to make, use and sell, in the United States only, products that employ certain licensed patents for a neural probe array or thin-film
micro electrode array and method. We have agreed to pay WARF a royalty equal to a single-digit percentage of our product sales pursuant
to the WARF License, with a minimum annual royalty payment of $50,000 for calendar year 2020, $100,000 for calendar year 2021 and $150,000
for calendar year 2022 and each calendar year thereafter that the WARF License is in effect. The minimum annual royalty payment for calendar
year 2020 in the amount of $50,000 was paid in January 2021. If we or any of our sublicensees contest the validity of any licensed patent,
the royalty rate will be doubled during the pendency of such contest and, if the contested patent is found to be valid and would be infringed
by us if not for the WARF License, the royalty rate will be tripled for the remaining term of the WARF License.
WARF may terminate this license on 30 days’
written notice, if we default on the payments of amounts due to WARF or fail to timely submit development reports, actively pursue our
development plan or breach any other covenant in the WARF License and fail to remedy such default in 90 days or in the event of certain
bankruptcy events involving us. WARF may also terminate the WARF License (i) on 90 days’ notice if we had failed to have commercial
sales of one or more FDA-approved products under the WARF License by June 30, 2021 or (ii) if, after royalties earned on sales begin to
be paid, such earned royalties cease for more than four calendar quarters. The first commercial sale occurred on December 7, 2020, prior
to the June 30, 2021 deadline. The WARF License otherwise expires by its terms on the date that no valid claims on the patents licensed
thereunder remain. We expect the latest expiration of a licensed patent to occur in 2030.
In addition, WARF reserves the right to grant
non-profit research institutions and government agencies non-exclusive licenses to practice and use the inventions of the licensed patents
for non-commercial research purposes, and we grant WARF a non-exclusive, sub licensable, royalty-free right and license for non-commercial
research purposes to use improvements to the licensed patents. In the event that we discontinue use or commercialization of the licensed
patents or improvements thereon, we must grant WARF an option to obtain a non-exclusive, sub-licensable, royalty-bearing license to use
the improvements for commercial purposes.
16
NeuroOne Medical Technologies Corporation
FORM 10-K
See “Risk Factors- Risks Related to Our
Business-We depend on intellectual property licensed from WARF for our technology, including our technology under development, and the
termination of this license would harm our business” for additional information regarding the WARF License.
Mayo Foundation for Medical Education and
Research License and Development Agreement
In May 2017, we entered into the Amended and Restated