ITEM 1A. RISK FACTORS 26
ITEM 1B. UNRESOLVED STAFF COMMENTS 58
ITEM 2. PROPERTIES 58
ITEM 3. LEGAL PROCEEDINGS 58
ITEM 4. MINE SAFETY DISCLOSURES 58
PART II
ITEM 6. [RESERVED] 59
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 69
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA F-1
ITEM 9A. CONTROLS AND PROCEDURES 70
ITEM 9B. OTHER INFORMATION 71
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS 71
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 72
ITEM 11. EXECUTIVE COMPENSATION 72
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES 72
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES 73
SIGNATURES 77
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 maintain regulatory clearance for our RF ablation system;
● 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;
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, Nuwellis, Inc., formerly known as Sunshine Heart, Empi, Don-Joy and PMT.
We
are developing our cortical sheet and depth electrode technology to provide solutions for diagnosis through cEEG recording and sEEG recording
and treatment through spinal cord stimulation, 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 tremor, dystonia, and chronic pain. Alzheimer’s
is another indication evaluating the effects of DBS. 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 that is directed to the site
of the brain tissue that is targeted for removal. The process involves delivering energy to the contacts, thereby heating them and destroying
the brain tissue. The ablation does not remove the tissue. Rather, it is left in place and typically scar tissue 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 OneRF ablation system
was tested by representatives from Emory University in Atlanta Georgia in an animal study. During the second fiscal quarter of 2023,
we successfully completed summative usability testing for OneRF with 15 neurosurgeons, and completed execution of internal device verification/validation
protocols for the final OneRF ablation system.
Failed
back surgery syndrome (“FBSS”) is a condition that produces 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 one or more electrodes in
a targeted area of the spine and then connected to an implantable pulse generator that sends electrical stimulation to the electrode
to block the pain signals from reaching the brain. During the second fiscal quarter of 2023, we completed an initial animal implant of
novel thin film paddle leads for spinal cord stimulation (“SCS”). The devices are intended for the treatment of patients
with chronic back pain due to multiple failed back surgery syndrome, intractable low back, and leg pain. A percutaneous (through a needle)
delivery system for paddle leads is also under development and has been successfully bench-tested. According to a 2020 Market Insights
report, the total global addressable market for spinal cord stimulation is estimated to be greater than $3 billion.
Our
cortical sheet electrode and depth electrode technology have 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, ablation and acute stimulation.
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.
We
submitted a 510(k) application to the FDA for the OneRF ablation system in June 2023 and responded to FDA comments on November 6, 2023.
On December 6, 2023, we received 510(k) FDA clearance to market the OneRF ablation system for creation of radiofrequency lesion in nervous
tissue for functional neurosurgical procedures.
We
intend to develop our Evo sEEG electrode technology for drug delivery applications in the next 12 months. This device is intended
to deliver neurological drugs or gene therapy that are FDA approved or that are currently planned for clinical trials or in development
to allow for monitoring, recording and stimulation and drug delivery for less than 30 days. In addition to having the capability
of delivering a drug through the center lumen, it will also be able to record brain activity before, during, and after drug delivery.
2
NeuroOne
Medical Technologies Corporation
FORM 10-K
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.
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 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.
3
NeuroOne
Medical Technologies Corporation
FORM 10-K
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, electroencephalogram (“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.
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”. 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.
4
NeuroOne
Medical Technologies Corporation
FORM 10-K
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:
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.
8
NeuroOne
Medical Technologies Corporation
FORM 10-K
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.
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 that 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.
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.
13
NeuroOne
Medical Technologies Corporation
FORM 10-K
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.
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.
14
NeuroOne
Medical Technologies Corporation
FORM 10-K
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 at this time the manufacturers we currently utilize have sufficient capacity to meet our requirements. 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 $6.9 million and $4.9 million for the years ended September 30, 2023 and 2022,
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.
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.
15
NeuroOne
Medical Technologies Corporation
FORM 10-K
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 an 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