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Buy 1 168 Reduce 0 11 Hold 0 103 IBC 1

Equity Research
May 17, 2018 Medical Technology

Sean Lavin, MD
(212) 527-3570 Helius Medical Technologies, Inc
slavin@btig.com Clear Benefit, Safety, and Unmet Need Tip the Balance
Marie Thibault Against Imperfect Data; Initiating w/a Buy and $14 PT
(212) 527-3557
mthibault@btig.com Helius has the potential to help people with traumatic brain injuries to
regain normal function, balance, and the ability to walk.
Andrea Alfonso
(212) 527-3565   improvement in patients with no other good options. Helius’s
Major
aalfonso@btig.com data shows significant improvement in balance and function in
patients with traumatic brain injury who have stopped progressing
with physical and cognitive therapy. We are not aware of other non-
invasive options available to this group who endure long-term
disability and suffering.
HSDT $11.11  Three compelling and large markets. Helius will target workers’
12 month target
Upsi de
$14.0024.6%
comp, the military, and normal medical insurers. All are multibillion
dollar markets and there are compelling financial benefits for the first
BUY two as workers’ comp may decrease long-term payments and the
52 week range $6.90 - $19.92 military will be able to return highly skilled, valuable soldiers to the
Dividend
Market Yield
Cap (m) $230 field.
Price Performance   be a great media story. We cannot think of many stories that
Should
have more positive public sentiment than helping an injured soldier
regain function and the ability to walk. We expect various media
outlets to pick up on this and help drive adoption and reimbursement.

  we see significant upside we also feel there are two risks that
While
need to be mentioned. 1) Helius missed its primary efficacy endpoint
and the FDA could ask for more data. We find this unlikely since both
the high-frequency and low-frequency pulse (control) groups
improved, falls and headaches improved, and there were no serious
adverse events, but the FDA can be unpredictable. 2) Helius’s need for
more capital is expected to occur around the time the FDA should
offer a response. Any FDA delay could make capital harder to obtain.
Source: IDC  
Valuation: Our rating is Buy. Our $14 PT is based on a DCF, included
on page 21. Risks are discussed below.

Estimates
1Q17 A 2Q17 A 3Q17 A 4Q17 A FY17 A 1Q18 A 2Q18 E 3Q18 E 4Q18 E FY18 E FY19 E
Sales 0 0 0 0 0 0 0 0 0 0 5
Gross Margin (%) - - - - - - - - - - 78.3%
EBIT (5) (6) (6) (6) (23) (5) (5) (5) (5) (20) (35)
Net Income (6) (5) (12) (4) (26) (2) (5) (5) (5) (18) (35)
Diluted EPS (GAAP) (0.32) (0.31) (0.67) (0.19) (1.50) (0.08) (0.23) (0.23) (0.23) (0.75) (1.30)
Source: BTIG Estimates and Company Documents ($ in millions, except per share amount)

Please Read: Important disclosures and analyst’s certification appear in Appendix


Our Helius Medical Technologies Thesis
We see HSDT’s Portable Neuromodulation Stimulator (PoNS) as an important,
effective, low-risk therapy for patients who are not well-served by the current
standard of care. The three markets – workers’ comp, the military, and normal
insurers – are all multibillion dollar opportunities. Both workers’ comp and the
military have significant financial incentives to cover payment and we feel the
military creates a strong media potential to drive use. What better story is
there than helping an injured soldier regain normal function and the ability to
walk?

While the missed primary effectiveness endpoint in the registrational trial may
give some potential investors pause, we see the results as evidence of a strong
clinical response to any level of translingual noninvasive neuromodulation
stimulation (TLNS) and the fact that there were no serious adverse events and
falls and headaches improved should lead the FDA to approve the device. The
FDA is always unpredictable, but we feel it would be a major disservice to
these patients if the FDA delays approval for more data. Neuromodulation
device trials have a history of statistical significance being impacted by a
higher-than-expected response in a sham control arm. We feel FDA is aware of
this issue and will weigh the therapy’s safety against the mixed efficacy data to
grant the PoNS device 510(k) clearance.

If Helius is approved, we expect brisk adoption and strong growth given the
lack of any safety concerns and the seriousness of TBI.

The two biggest risks to this investment are that the FDA could ask for more
data due to the missed primary endpoint and the likelihood that FDA’s
expected response may occur around the time when we expect Helius to need
additional capital.

Reasons to Buy
Large market opportunity in a highly visible patient
population that has no other treatment options.
HSDT’s PoNS device will first be used to treat patients with chronic balance
deficit from mild-to-moderate traumatic brain injury (mTBI). There are
between 3.2-5.3 million people in the United States who have a disability from
TBI, according to the Centers for Disease Control and Prevention (CDC).
Medical literature reports that 30-65% of TBI patients have balance disorders
during recovery. If we estimate that approximately 40% of TBI patients suffer
from chronic balance deficit, this equates to a staggering 1.3-2.1 million
potential patient population, just in the United States. In addition, there were
2.8 million new TBI-related cases seen in the United States in 2013, according
to a Morbidity and Mortality Weekly Report published by the CDC. This is
another 1.1 million potential new patients each year (40%) for the PoNS
device’s first indication.

Management plans to first introduce the PoNS device to patients who are part
of workers’ compensation programs. A company-commissioned analysis by
L.E.K. Consulting found that 4% of patients with balance deficits due to mild or

BTIG LLC Sean Lavin, MD (212) 527-3570 www.btigresearch.com


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moderate TBIs are in the workers’ comp population – as many as 84,800
patients from the chronic TBI population and another 17,920 new patients
added annually.

The company’s initial commercial plan is to set pricing for the PoNS device and
accompanying therapy at ~$30,000 per patient. Using this price, we arrive at
an estimate of $2.5B (84,800 patients * $30,000) for the workers’
compensation market opportunity – a sizable potential first market for HSDT.
Even after removing the rehabilitation component, it is a multibillion dollar
market.

In addition to those patients who are hurt on the job, TBI-related balance
deficits are frequently experienced by members of the military and athletes at
all levels. In recent years, lawsuits, media attention, advocacy and outreach,
and scientific research have led to a brighter spotlight on traumatic brain injury
and its related side effects. This has led to increased visibility and awareness of
this vulnerable patient population.

Lastly, this targeted population has failed (not gaining further improvement
from) physical and cognitive therapy. They have no other meaningful
treatment options, which should lead to brisk adoption of the PoNS
treatment. We also think the military component will bring significant media
opportunities. An injured soldier regaining his or her ability to walk and
function normally is a heartwarming human interest story that should help
drive awareness and adoption of the treatment.

Compelling data in a patient population with limited


treatment options.
Both high and low-frequency pulse from the PoNS device elicited a meaningful
improvement in patients who had previously plateaued with physical and
cognitive therapy and had no other good, non-invasive treatment options.
Though the headline data from the PoNS Registrational Trial in TBI were not
perfect (see our “Review of PoNS Registrational Trial Data” section below),
results from the combined trial arms showed a 71.6% response rate among all
patients. At baseline, these patients had scores of ~40 on the Sensory
Organization Test (SOT) scale. The SOT scale ranges from 0 to 100, with 0
correlating to someone who cannot stand on their own and 100 being a perfect
balance score. A person who achieves a SOT score in the 70-80 range would
have normal balance and be able to perform daily activities without any issues.

All the patients in the 122-patient trial had been injured at least one year prior
to entering the study, had undergone physical rehabilitation, and had seen the
improvement in their balance stall. Though the medical literature shows that
patients are often able to improve their SOT scores by ~8-10 points during
months of physical therapy, the benefit often recedes after physical therapy
ends.

In the PoNS trial, a patient was termed a “responder” if his or her SOT score
increased by more than 15 points. We find it impressive that 71.6% of patients
in both arms saw this level of functional improvement. Patients receiving
PoNS high-frequency pulse (HFP) stimulation experienced a mean SOT score
increase of 20.3 points after two weeks of HFP and physical therapy; the mean

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improvement was 27.6 points after five weeks of treatment. Since these HFP
patients had a baseline SOT score in the low-40s, they were nearly able to
reach the lower boundary of the SOT score range (70-80) that is considered
normal balance.

We also point to clinical results from a smaller, double-blind, randomized,


controlled trial (43 patients) examining the impact of long-term treatment.
Patients undergoing HFP with physical therapy experienced a mean SOT
improvement of 29.7 points after 14 weeks of treatment – enough to bring
them into the normal balance range. Following the 14-week course of
treatment, which included 2 weeks in a clinical lab and 12 weeks in the home
setting, the patients stopped receiving PoNS stimulation for 12 weeks. On
average, the mean SOT score at 26 weeks was 33.8 points above baseline,
indicating that functional gains were maintained even after the 12-week
washout period. We find this very encouraging when compared with the
transient effects of physical therapy.

Importantly, there were no major safety issues or major adverse events.

Low-risk, non-invasive device has a strong safety profile.


The PoNS device is a non-invasive technology that did not cause any serious
adverse events during the registrational trial. Primary and secondary safety
endpoints in the trial—related to frequency of falls and headaches—were met.
These two issues are significant in TBI patients. Not only were they not
exacerbated, but therapy improved both. Falls in the HFP patient group
decreased from 11 incidents at baseline to 3 falls at the end of Week 2; falls in
the LFP patient group declined from 13 falls to 7 falls. Similarly, both the HFP
and LFP patient groups improved their Headache Disability Index scores by the
end of Week 5. In the HFP group, the scores improved from 43 to 35, while in
the LFP group the scores improved from 47 to 40. We feel this is a very
compelling reason for the FDA to grant approval.

Helius Medical’s management team has had discussions with FDA that point to
potential categorization as a Class II device, a lower risk classification than
Class III. In our view, the lack of side effects and the device’s strong safety data
should be a positive for the FDA’s risk-benefit consideration.

Historically, neuromodulation devices have required surgical implantation. A


surgical procedure and a permanent implant come with numerous risks, like
infection, pain, nerve damage, and problems with device hardware, making it
a less appealing option for most patients. The PoNS device would be the first
non-invasive neuromodulation therapy available for chronic balance deficits,
removing a major barrier to adoption.

Workers’ Compensation market represents low-hanging


fruit.
Helius Medical’s first target market, the workers’ compensation (WC) patient,
is a large opportunity with a network of neuro-rehabilitation clinics and a few
major third-party administrators (TPAs) covering a wide swath of the
population. Assuming approximately 85,000 eligible WC patients for PoNS

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device treatment and a potential $30,000 ASP, this is a $2.5 billion market
opportunity.

Patients with TBI-related disabilities have claims totaling an average $315,000


while in the workers’ compensation system, according to data cited by the
company based on a review of Workers’ Compensation Medicare Set Aside
Arrangements. If PoNS device treatment enables a WC patient to return to
work, the technology should be cost-effective. Neuro-rehabilitation clinics will
likely be incentivized to contract with Helius Medical, since the company will
be offering training for its PoNS Certification Designation and the treatment
would bring in new patients and additional revenue. The early contracts with
clinics are expected to lead to real-world data that can be used to drive
coverage by third-party administrators, commercial payers, and
Medicaid/Medicare – thus opening the door to other potential patient
populations.

Of the third-party administrators that provide claims management for the WC


population, just four – Gallagher Bassett, Sedgwick, Broadspire Global, and
ESIS – cover almost half of the population. The company intends to pursue
coverage with these four TPAs first. TPAs are tasked with a wide variety of
duties, from claims resolution and medical management to bill review and loss
prevention. TPA medical case managers work with clinics, therapists,
companies, and patients to ensure workers are back at work as soon as
possible. These case managers will be a key part of driving PoNS adoption in
the WC market. This focus on efficacy and a speedy recovery should encourage
adoption of the PoNS device.

While we admittedly do not have much experience monitoring how workers’


comp pays for new technology, the idea that a $30,000 therapy could save
$315,000 or a portion of it seems compelling enough to us for Helius to gain
payment from this area.

Gross margins likely to be strong.


With a potential selling price of $30,000 for the PoNS treatment and an
estimated $18,000 in net revenue to HSDT for each device sold, we expect
gross margins to be much higher than the typical medical device company.
The device consists of a pulse generator with a rechargeable battery and a
replaceable mouthpiece; these components should be relatively low cost to
produce. For our HSDT model, we estimate gross margins in the mid-to-high
70s at low volumes, climbing to the high-80s in the out years. As the company
gains operating leverage, this high level of gross margin ought to enable a
significant profit margin.

Potential for future indications.


While the chronic balance deficit in mTBI patients is a large opportunity, PoNS
device treatment has potential in several other indications. So far, Helius
Medical has completed pilot studies in multiple sclerosis, cerebral palsy,
cognition, and stroke. Together, these possible indications include almost 10
million patients in the United States. In addition, the company may eventually
devote resources to clinical work in post-traumatic stress disorder, facial nerve
palsy, depression, and Parkinson’s disease.

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There is more information on these markets and planned clinical work in the
“Potential Future Indications” section below.

Risks to our BUY Thesis


Regulatory risk.
The PoNS device needs FDA clearance before we can begin to consider the
company’s commercial prospects, so regulation is the most impactful near-
term risk. We would be surprised by a denial, but regulatory clearance could
take longer than anticipated or include unforeseen label restrictions. The
missed primary endpoint creates some risk the FDA could ask for another trial,
but we think a registry would make more sense if the FDA wants more data,
considering there were no major adverse events and falls and headaches
improved.

In the PoNS registrational trial for chronic balance deficit related to non-severe
TBI, the technology missed its primary efficacy endpoint because of a higher-
than-anticipated responder rate in the sham control arm. The sham control
arm was designed to deliver a low-frequency pulse and as has been seen in
other neuromodulation device trials, this low-frequency pulse had a clinical
effect on patients, much like a lower dose of a drug might still have a clinical
effect. After combining the two arms, the company found that 71.6% of
patients in the trial were responders to PoNS device therapy. This is
particularly impressive in a group of patients that had previously undergone
extensive physical therapy and were no longer seeing improvement in balance.

We believe the FDA is well aware of the issues around trial design for
neuromodulation devices. We think there is an ~85% chance that the agency
will clear the PoNS device after considering the technology’s impressive
efficacy and strong safety profile. Still, there is some risk around regulation.
Timing of a potential clearance is also unknown, and while we think it could
come near the end of 2018 (assuming 510(k) submission is in the second
quarter of the year or around mid-year), a delay of a few months is always a
possibility. Our model assumes a US launch during the first quarter of 2019.

FDA timing will be important considering current capital.


Management is expecting FDA approval in Q4 of this year. The FDA is
unpredictable and moves at its own pace, often seeing delays. Helius will likely
need additional capital in the first quarter of 2019. This means the FDA
response and the need for more capital may occur around the same time. We
model a significant funding round after clearance in the first half of 2019. If the
company secures clearance on its anticipated timeline, they could do this raise
in the fourth quarter of this year. The risk of course is that the FDA could ask
significant questions or there could be a delay and lack of clearance by early
2019, which could make it difficult, costly, or impossible to find capital when
needed.

Ability to execute an unknown.


While we think HSDT’s management is highly experienced and has a clear plan
for product launch, commercialization as a small standalone company is

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always an unknown. In addition to the risks we detail below around adoption
and reimbursement, the manufacturing process could present unanticipated
challenges or hiring and retaining productive sales reps could prove difficult. It
is also possible that some customers may be wary of working with a small
company without longstanding relationships in the neuro-rehab space. We
want to emphasize that we don’t have any specific concerns about this
management team’s execution abilities and note that leadership has strong
experience in marketing and commercialization.

Adoption may take longer than expected.


We expect Helius to concentrate early efforts on its trial sites and other high-
volume PT clinics, but any hiccups could delay sales. Our model assumes a
gradual ramp in patients, from 15 patients in the first quarter of US commercial
availability to ~260 patients treated within the first 12 months of US launch.
We see this as an achievable pace, since the company intends to have
commercial contracts in place with eight neuro-rehab clinics and we
conservatively forecast just three clinics treating patients in the first quarter of
launch. However, if those contracts are not in place, if there are fewer clinics in
contract with the company, or if it takes these clinics longer to start offering
PoNS therapy than initially anticipated, the adoption curve may take longer
than we have modeled.

Reimbursement risk.
Reimbursement is always a risk with medical devices, and Helius Medical does
not yet have third-party reimbursement in place. While we think the
company’s plan to contract with a few clinics before the PoNS device is cleared
by FDA may shorten the time between clearance and commercial coverage,
there is no guarantee that this will happen. In addition, while management
currently believes that an ASP of approximately ~$30,000 is appropriate for
the PoNS device, therapy, and other costs, this may not be feasible if
insurance payment is set significantly lower than expected. As with any
medtech product, there is a possibility that coverage is more restrictive or set
at a lower price than predicted; this would impact HSDT’s commercial outlook.

Potential need for future capital raises.


Helius Medical has completed a few fundraising rounds in the past and may
need additional capital in the future. HSDT is a pre-revenue medical device
company approaching regulatory and commercialization milestones. We
estimate the company is well-capitalized for approximately the next 6-9
months, but we do anticipate at least four capital raises over the next five
years. We don’t know how these potential financings might be structured, but
they could dilute current shareholders. If the company cannot secure funding,
its future will be in jeopardy.

Single product company.


HSDT has one product, which is not yet commercial. As with any other
medtech company at a similar stage, this means an investment in HSDT shares
comes with heightened risk related to any potential hiccups around

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manufacturing, regulatory, market recall, personnel, product adoption, or
commercial ramp.

Neuromodulation trials have less defined endpoints than


other areas of medicine.
While we have absolutely no reason to believe there is anything wrong with
Helius’s data or clinical practices, we do note that neuromodulation data has a
subjective component which can sometimes lead to misleading information.
For instance, while trials in other areas of medicine like cardiology or oncology
can have hard endpoints like death, neuromodulation can depend upon
patient and physician reporting for endpoints like pain, headache, or
depression. While balance is likely a less subjective endpoint than pain or
depression, it is not as hard an endpoint as mortality or stroke, for instance.
Again, we do not see any issues with Helius’s data but feel there is a tiny bit of
risk here and with any neuromodulation study that does not involve outcomes
like mortality or stroke or seizures.

Valuation
Our HSDT rating is Buy. Our $14 price target is based on a DCF, assuming a
15% discount rate and a terminal EV/EBIT multiple of 16x. We selected this
terminal multiple after reviewing multiples for a microcap comp group. We
estimate an ~85% chance of FDA clearance, as the regulatory pathway is never
100% guaranteed, but we see the low-risk profile of the technology offsetting
any messiness in the data. Near term, we think shares will trade around an
FDA decision and quarterly reports once a commercial launch has begun.
We model $5M in revenue for the company’s first year of sales. We think Helius
may travel a similar path as Senseonics (Buy, $5 PT). Senseonics offers a
compelling, differentiated, minimally invasive technology that addresses a
very large market. SENS did about $6M in revenue in its first year of
commercialization. Senseonics stock came under pressure when its available
capital became a risk and as the FDA took a bit longer than expected to
schedule its panel, but now with a strong balance sheet and a positive FDA
advisory panel vote, has seen its market cap more than double to over $400M
in the past year or so. We could see Helius following a similar trajectory.

Upcoming Potential Trading Events


Announcement that the de novo to 510(k) application has been filed for the
PoNS device: Since there is not a clear predicate device, Helius Medical’s
management team intends to follow a de novo to 510(k) pathway to FDA
regulatory clearance. The de novo petition process would require FDA to
determine that the PoNS device can be down-classified from a Class III medical
device (because there is not a clear predicate) to a Class II medical device for
the chronic balance deficit related to mTBI indication. HSDT anticipates filing a
510(k) submission in the second quarter of 2018, with potential FDA clearance
as soon as the second half of 2018. We expect shares to trade around the
timing of this submission. An on-time announcement would likely push shares
slightly higher while any significant delay (more than 2 months) could lead to
concerns about credibility and the eventual commercial timeline.

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FDA clearance of the PoNS device: The company is targeting FDA clearance
in the second half of 2018. We are more conservative and expect FDA
clearance and US launch in the first quarter of 2019. An announcement either
way – clearance or rejection—should be a major trading catalyst for HSDT. If
an FDA decision is not announced in early 2019, shares may start to pull back,
particularly if the delay extends beyond a couple months.

Announcement of international regulatory clearances: Helius Medical is


planning to file regulatory submissions in Canada, Europe, and Australia
around the same time as its FDA submission. Announcement of OUS
clearances (anticipated by the company in the second half of 2018) should
boost shares. We have more conservative expectations for an international
launch and model OUS revenue beginning in late 2019.

Quarterly updates on commercial launch and contract agreements for


reimbursement: Following FDA clearance, we expect investor focus to shift to
commercial progress. While we are not sure what metrics will be offered on
earnings calls each quarter, HSDT shares will likely trade in reaction to the
number of clinics offering PoNS Treatment, the number of patients receiving
the therapy, and reimbursement agreements with workers’ comp third-party
administrators.

Potential Market Opportunity


Chronic Balance Deficits Related to mTBI
In addition to the $2.5 billion market potential from just the workers’
compensation patient population, there may be as many as 2 million patients
who have chronic balance deficits from a non-workplace related mTBI. On top
of this civilian population, there are approximately 25,000 active duty soldiers
who suffer a TBI each year and about 200,000 retired soldiers with TBI. If about
40% of these soldiers are experiencing chronic balance deficits, the military
population represents another 80,000 patients, with as many as 10,000 new
patients annually.

We estimate that there are at least 150 highly specialized clinics devoted to
neurorehabilitation in the United States. However, we believe that some
physical therapy centers will be willing adopters of the PoNS treatment. While
the treatment isn’t suited for every site, we think some portion of the several
thousand physical therapy centers in this country can develop a PoNS practice
and become a referral site for physicians and case managers.

Potential Future Indications


Helius may go after additional clinical indications, including multiple sclerosis,
stroke, and cognition. These segments could represent extremely large patient
populations – a portion of the approximately 1 million US patients with
multiple sclerosis, some segment of the almost 800,000 US patients who have
a stroke each year, and almost any healthy adult for a cognition indication.

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Multiple Sclerosis:

Multiple sclerosis patients often suffer falls. Helius Medical has conducted a
feasibility study on the effect of PoNS treatment in patients with a chronic
balance and gait deficit from multiple sclerosis. That 14-patient study (7 active,
7 control) found a statistically significant improvement in SOT scores in the
patients who received PoNS treatment for 14 weeks (p<0.001) as well as
improvement in the five patients in the sham control arm who chose to return
for PoNS treatment.

Helius expects to conduct further clinical work for this indication, including
plans to secure an investigation device exemption (IDE) for a US registrational
trial. This trial could start as early as the second half of 2018, but depends on
capital and FDA go-ahead for the IDE.

Stroke:

The company is evaluating its plans for stroke studies using the PoNS device.
The technology may have potential in helping patients recover from stroke-
related disabilities.

Cognition:

Helius has conducted a study at HealthTech Connex Inc. (HTC) in Surrey, BC on


the effect of PoNS treatment on cognition in healthy patients. The study
revealed that a single 20-minute session of translingual neurostimulation
resulted in statistically significant changes to brain activity (as measured by
EEG), that these changes to brain waves extended beyond the treatment
session, and that attentional microstate activity significantly increased with
stimulation and kept climbing for a period after the stimulation session.

The company may also eventually pursue other indications such as addiction,
Parkinson’s Disease, cerebral palsy, and more.

Company Overview
Helius Medical Technologies is a neuromodulation company poised to submit
its Portable Neuromodulation Stimulator (PoNS) device to the FDA for 510(k)
clearance. The technology behind the PoNS device originated at the Tactile
Communication and Neurorehabilitation Laboratory (TCNL) at the University
of Wisconsin-Madison. The researchers who expanded the science of
translingual neurostimulation and invented the PoNS device started Advanced
NeuroRehabilitation, LLC (ANR). ANR and MPJ Healthcare created
NeuroHabilitation Corporation as a joint venture in 2013 to bring the PoNS
device to market. Helius Medical Technologies acquired NeuroHabilitation
Corporation (NHC) via a reverse merger in 2014. The company went public on
the Toronto Stock Exchange in 2016 and also traded on the OTCQB until its
April 2018 uplisting to Nasdaq.

Helius has historically worked closely with the US Army. The company’s
subsidiary, NHC, signed a cooperative research and development agreement
(CRADA) with the US Army in February 2013 to study whether PoNS
technology could be commercialized to offer injured soldiers a clinical benefit
in TBI-related disorders like PTSD, pain, and tinnitus. In July 2015, NHC and the

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US Army agreed to a sole source cost sharing arrangement under which NHC
would carry out and manage the clinical trials for the mTBI-related chronic
balance deficit indication and the US Army would reimburse the company for
trial costs up to $3 million. The reimbursement has been received.

The company’s relationship with the US Army may extend to future research
on additional indications with the PoNS device.

Products
The Portable Neuromodulation Stimulator (PoNS) Device and Therapy

The PoNS device delivers translingual neurostimulation to the trigeminal and


facial nerves using a replaceable mouthpiece that is powered by an electric
pulse generator with a rechargeable lithium polymer battery. The mouthpiece
has 143 electrodes that are plated with gold and used to deliver electrical
stimulation that mimics neural signals. The patient holds the mouthpiece in his
or her mouth and when the neurostimulation--25.7 million pulses over a 20-
minute session--is being delivered, would feel a slight tingling on the tongue,
described by the company as reminiscent of a carbonated drink. The device
can also record details of the patient’s treatments.

Patients who are prescribed the PoNS device work with a physical therapist in
the clinic for two weeks, combining the translingual neurostimulation with
rigorous physical therapy. These two weeks are followed by 12 weeks of
independent therapy at home. The physical therapist can monitor the length
and strength of the patient’s treatment sessions. According to the company,
the device halts treatment after 14 weeks, but can be reset by the physical
therapist to continue treatment.
Exhibit 2: The PoNS Device

Source: Helius Medical Technologies website

The Science of Neuromodulation

A review of the medical literature on translingual neurostimulation reveals that


in patients with chronic balance deficits, the visual cortex area that plays a key

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role in processing motion (known as hMT+) often has an exaggerated response
to visual motion. Stimulating the tongue seems to quiet this overactive
response by sending afferent signals to the trigeminal nucleus via the
trigeminal and facial nerves. A high-resolution functional magnetic resonance
imaging (fMRI) study described in a 2011 NeuroImage article by researchers
from the TCNL at the University of Wisconsin-Madison seems to indicate that
this neurostimulation induces activity within part of the brain stem that plays a
key role in balance. The stimulation also seems to affect vestibular systems
and other parts of the central nervous system. These impacts may explain
balance improvements in these patients. It also seems that the stimulation
“resets” this portion of the brain and increases propensity for learning. This is
likely why physical therapy alongside the stimulation often leads to clinical
improvement.
Exhibit 3: The Trigeminal Nerve and Facial Nerve

Source: Helius Medical Technologies website

Review of PoNS Registrational Trial Data


The PoNS registrational trial, which started in August 2015, included 122
patients enrolled at seven centers in the US and Canada:

• HealthTech Connex, Inc. in Surrey, British Columbia

• MedStar National Rehabilitation Hospital in Washington, DC

• Montreal Neurofeedback Center in Montreal, Quebec

• Oregon Health & Science University, Center for Regenerative


Medicine/Portland VA Hospital in Portland, OR

• Orlando Regional Medical Center in Orlando, FL

• University of Wisconsin in Madison, WI

• Virginia Commonwealth University in Richmond, VA

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Patients were randomized 1:1 to receive either high-frequency pulse (HFP)
stimulation or low-frequency pulse (LFP) stimulation. The LFP arm served as a
sham control in this double-blind trial. These patients had been injured at least
one year prior to the start of the trial, had undergone intensive physical
rehabilitation, and had seen balance improvements flatten out. The trial
consisted of five weeks of treatment – two weeks in a clinic and the following
three weeks at home – in combination with physical therapy. Treatment
sessions were 20 minutes long. Patients in the HFP arm received 25.7 million
pulses per 20-minute session while those in the LFP arm received 13,728 pulses
per 20-minute session; pulse intensity was the same in both groups.

Balance was measured using the NeuroCom Sensory Organization Test (SOT).
Under the SOT protocols, patients stand on a balance system and their degree
of sway is measured in six scenarios involving various combinations of eyes
open or closed, a fixed surface or sway-referenced surface, and a visual
surround or sway-referenced visual surround. The SOT score is measured on a
scale of 0-100, with 0 being a person who cannot stand on their own and 100
being someone with perfect balance. A person scoring in the 70-80 range
would be able to function normally. At baseline entering the trial, the patients
in the PoNS registrational trial had an average SOT score of approximately 40.

In the trial, a patient was termed a “responder” if they achieved an


improvement in their SOT score of 15 points or more. To put this in
perspective, the medical literature points to about 8-10 points in improvement
with physical therapy, but that this benefit begins to fade after therapy
cessation.

The primary effectiveness endpoint in the trial compared responder rates


between the HFP and LFP arms. Safety endpoints examined the frequency of
falls through the first two weeks and the headache disability index out to five
weeks; there was a decrease in falls and headaches in both trial arms and these
safety endpoints were met. However, the 75.4% responder rate in the HFP arm
did not meet statistical significance vs the 60.7% responder rate in the LFP arm
(p<0.081). The possibility of a high response rate in the sham control arm had
been anticipated when the trial was being designed. With this outcome, the
statistical analysis plan called for a secondary effectiveness endpoint
combining the two trial arms and evaluating the score improvement at two
weeks (after the in-clinic portion) and at five weeks. At two weeks, mean score
improvement was 18.3 points (p<0.0005) for the combined arms. After five
weeks, the mean improvement in the combined arms was 24.6 points
(p<0.0005).

The chart below from HSDT’s company presentation shows the SOT score
improvement in HFP patients at Week 2 and Week 5.

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Exhibit 4: Efficacy Data from the PoNS Registrational Trial

Source: Company presentation from Helius Medical Technologies website

While a perfect data set would have been preferable, we believe the device
should be approved even though it missed the primary effectiveness endpoint.
Both stimulation groups improved after failing physical therapy alone, these
patients have a debilitating condition with no other real options, and the
device is safe. These patients have falls and headaches and the device not only
did not worsen these issues, it significantly improved them. In our minds it
would be irresponsible for the FDA not to approve this device, but as always,
the FDA can be unpredictable. Further, in the neuromodulation device field,
there is precedent for sham control arms that have a strong therapeutic effect.

One example of this is the ReCharge pivotal trial for EnteroMedics’ (since
renamed ReShape Lifesciences (RSLS, Not Rated)) VBLOC therapy using vagal
blocking therapy for obesity. That double-blind trial included a sham, inactive
device for the control arm. At 12 months in the intent-to-treat population of
239 patients, VBLOC patients experienced 24.4% average excess weight loss
while the sham control patients had 15.9% average excess weight loss. This
was a statistically significant difference (p=0.002) but did not meet the super-
superiority pre-specified 10% margin (p=0.705). In addition, the other co-
primary effectiveness endpoint required that at least 55% of VBLOC patients
reach at least 20% excess weight loss and at least 45% of VBLOC patients
reach at least 25% excess weight loss. The therapy missed this endpoint too,
with 52.5% of VBLOC patients and 32.5% of control patients achieving >20%
excess weight loss (p=0.004) and 38.3% of VBLOC patients and 23.4% of
control patients reaching >25% excess weight loss (p=0.02).

During the FDA advisory committee meeting regarding VBLOC therapy,


panelists grappled with the missed effectiveness endpoints and trial design
and seemed to be confounded by the effect of the sham control. Yet, the
weight loss results in treated patients and relatively low-risk profile of the
procedure helped lead to a positive advisory panel vote on the question of
whether the benefits of the therapy outweigh the risks. VBLOC received FDA
approval in January 2015. We believe TBI is a more critical disease with fewer
treatment options than obesity. At the same time, the FDA is learning more

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and more about neuromodulation and the issues around low-dose shams
having an impact on controls. Both factors increase our optimism for PoNS
device clearance.

We believe the clear clinical benefit, unmet need, and low-risk profile of the
PoNS device makes FDA clearance highly likely.

Intellectual Property
According to Helius Medical’s latest 10-K filing, the company owns 25 US
patents, 15 foreign patents, and is the exclusive licensee of seven US medical
method patents via an agreement with Advanced NeuroRehabilitation (ANR).
ANR will be paid a 4% royalty on revenue related to these patents. These
seven licensed patents, issued between September 2014 and May 2017, cover
non-invasive neurostimulation through the mouth or through the skin, in
combination with physical therapy, cognitive therapy, exercise or “stimulation
of the . . . vision, hearing, vestibular systems, or somatosensory systems” to
treat “various maladies.” These medical method patents seem to provide a
broad base protecting the PoNS device treatment in any number of diseases
and for other types of non-invasive neurostimulation.

The 25 US patents (nine utility patents and 16 design patents) and the 15
foreign patents (four utility and 11 design patents) cover specific details of the
PoNS mouthpiece and controller, as well as manufacturing methods and
alternative designs for the mouthpiece and controller.

In addition to these issued patents, there are several patents pending in the US
and outside the US. There are also three Chinese design patents that have
been transferred to China Medical Systems Holdings LTD as part of the
company’s development and marketing agreement with A&B (HK) Limited
(see the “Sales, Manufacturing, and Marketing” section below for more).

While we feel Helius’s IP is strong, we do note that the neuromodulation field


is seeing a growing number of companies filing IP. We do not know of others
using the tongue to treat TBI, but we do know companies are targeting some
of the same nerves that Helius’s therapy likely stimulates. It is possible there
could be IP disputes in the future, but for now we see neuromodulation as a
giant market with many potential clinical targets and many different routes of
administration.

Reimbursement
There is not yet an established reimbursement pathway for the PoNS
treatment. Helius Medical plans to try to attain reimbursement coverage for
the PoNS device and accompanying therapy. Since the company’s first target
market is the WC patient population, a first step toward broader payer
coverage will be to contract with the payers and third-party administrators
(TPAs) that specialize in the WC population.

Helius is also likely to target the US military through both the active and VA
systems. The active system is likely to pay faster as there is considerable cost
in training soldiers who are then no longer able to work. While some may make
it back to the battlefield, others who experience clinical improvement may be
able to work in military training, recruitment, or office jobs. Longer term, we

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15
expect other militaries outside of the U.S. to pay for the therapy as well.
Military personnel who are injured serving their country are considered heroes
by many and there is significant public pressure to provide top care to these
individuals.

Gaining this commercial experience is an important step in the CMS


reimbursement coverage process, as there is not yet an ideal Healthcare
Common Procedure Coding System (HCPCS) Level II Code for the PoNS
treatment. Helius Medical may choose to request a new HCPCS code, but as
part of that application, the company must document at least 3 months of
commercial marketing after regulatory clearance. According to information
found on the CMS website, applications requesting changes to the HCPCS
Level II coding system must be received in early January (January 4, 2018 for
the 2018-2019 cycle). These strict deadlines mean that the timeline for Helius
Medical’s potential HCPCS code request is dependent upon the timing of
anticipated FDA clearance and commercialization.

We also expect the company to pursue reimbursement coverage with other


payers, including disability insurers and private payers.

Reimbursement is a risk for Helius Medical, as it is for any medical device


company poised to offer a novel technology. We expect the company will
eventually be able to secure reimbursement coverage, but don’t have any
insight into the timing, payment level, or any other specific conditions that
might be required. We do think workers’ comp and the military are both likely
to act faster than CMS usually does, because of the high cost associated with
care for the workers’ comp patient group and—for the military—because of
public perception and the significant investments made to train and retain
soldiers.

Sales, Manufacturing, and Marketing


For manufacturing, Helius Medical is working with contract manufacturer Key
Tronic. The commercial PoNS device will be made and assembled at Key
Tronic’s Oakdale, MN facility. Helius worked with Providence, RI-based
Ximedica on the design and development of the PoNS device used in clinical
study, and has been working with Cambridge Consultants on design
verification testing and other steps needed for the FDA filing as well as the
transition to the commercial manufacturing phase.

HSDT has not detailed its initial plans for the size of a commercial salesforce,
but we anticipate the company will ramp up hiring – and thus SG&A spend –
around the time of launch. However, the company is planning to implement an
investigational device clinical experience program (CEP) with at least four
clinics before regulatory clearance and commercial entry. This should help the
company gain key learnings as it approaches market launch into the workers’
compensation market, potentially as early as the fourth quarter of 2018. The
company anticipates offering training for physical therapists, PoNS
Certification Designation for clinics, and may potentially offer geographic
exclusivity to early adopters.

Beyond the WC market opportunity, PoNS treatment may be adopted by the


US Army at its rehabilitation centers. Separately, brain injury centers

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associated with military treatment facilities and Veterans Affairs medical
centers may be part of the company’s pre-commercialization CEP.

Outside the United States, the company may hire sales reps in some
geographies and partner in other countries. For instance, A&B (HK) Company
Limited is an exclusive partner for development and sale of the PoNS device in
China, Hong Kong, Macao, Taiwan, and Singapore, according to an agreement
announced in October 2015.

Management
Philippe Deschamps, President, Chief Executive Officer, and Chairman: Mr.
Deschamps joined the company in 2013. He has spent more than 30 years with
healthcare and pharmaceutical companies. Before Helius, Mr. Deschamps was
CEO of MediMedia Health Market Services. Prior to that role, he was President
and CEO of GSW Worldwide, a division of inVentiv Health. Earlier in his career,
Mr. Deschamps was Director of Neuroscience Marketing at Bristol-Myers
Squibb. Mr. Deschamps earned a degree in Chemistry from the University of
Ottawa.

Joyce LaViscount, Chief Financial Officer and Chief Operations Officer: Ms.
LaViscount was a member of Helius Medical’s Board of Directors from March
2015 to December 2015 and became the company’s CFO and COO in October
2015. She has almost 30 years of experience in the health sciences industry.
Before joining Helius, Ms. LaViscount was COO and CFO for MM Health
Solution; during part of her tenure there, she was also CFO for MediMedia
Pharmaceutical Solutions. Before those roles, she was Executive Director and
Group Controll North America at Aptalis Pharmaceuticals. Earlier in her career,
Ms. LaViscount was in leadership roles at Endo Pharmaceuticals and spent
many years at Bristol-Myers Squibb and Pharmacia. Ms. LaViscount is a
Certified Public Accountant and earned a degree in Business with a
concentration in Accounting from Franklin and Marshall College before
starting her career at Ernst & Young.

Jonathan Sackier, Chief Medical Officer: Dr. Sackier became Helius Medical’s
CMO in December 2014. He has more than 30 years of experience in the
healthcare field. With his background as a surgeon, Dr. Sackier has been part
of the development of numerous medical technologies and healthcare
companies, including the AESOP robot for Computer Motion (which later
merged with Intuitive Surgical). He has worked with many major medical
device and pharmaceutical companies, such as Stryker, Siemens, Bayer,
Novartis, Karl Storz, Pfizer, Applied Medical, and ConvaTec. Dr. Sackier
started the Washington Institute of Surgical Endoscopy, and was also a Clinical
Professor at George Washington University and a Visiting Professor of Surgery
at University of Virginia. He also serves or has served on several boards within
the healthcare field.

Competition
The PoNS device will likely be the first non-invasive technology to address
chronic balance deficits related to TBI. We are not aware of any direct
competitors nearing commercialization. However, there are several indirect

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competitors to the device, including physical therapy, pharmaceuticals, and
invasive technologies like deep brain stimulation.

In other clinical areas that Helius may target in the future, there are a variety of
competitors. While we are not going to extensively document all areas of
neuromodulation, it is fair to say that there are many devices and drugs
targeting various diseases such as headache, pain, diabetes, depression,
Parkinson’s, epilepsy, etc. The brain is complex and is an area of medicine
seeing significant investment and research focus.

Model Assumptions
Our HSDT revenue model is based on patients prescribed to PoNS treatment
and the number of centers offering PoNS treatment. We assume a US launch
at three centers starting in the first quarter of 2018, ramping to 14 US centers
by the end of 2019, 29 centers at the end of 2020, 43 sites in 2021, 60 programs
in 2022, and 79 centers by the end of 2023. We expect the number of patients
added at each center to increase as programs become more established. We
assume an OUS launch starting in the fourth quarter of 2019. We model a
slower international ramp, given the potential for a distributor model. Our
model assumes that patients receive one 14-week course of PoNS treatment.
We want to wait to observe real-world prescribing trends before building
repeat treatments into our forecast. Repeat prescriptions represent upside to
our model. Our forecast assumes a PoNS device ASP of $18,000 in the US and
a $15,000 price outside the US to account for a distributor model.
For the first full year of commercialization in the US, we estimate ~$5M in
revenue. This represents ~260 patients prescribed to PoNS treatment during
the period.
We expect gross margins on PoNS device revenue to be high relative to other
medtech companies. We model gross margins in the high-70s in the early
quarters of launch, climbing to the mid-80s in 2022 and beyond. We do expect
operating expenses outpace revenue for a few years, as the company
continues to invest in its indication pipeline and builds its commercial
salesforce. We model profitability starting at the end of 2023, but admit that
there are numerous factors that impact this timeline.
We model average cash burn of ~$5M in 2018, stepping up to ~$9M in 2019. At
this rate, we expect four more share raises over the time horizon of our model,
though we do not have any insight into how future financings might be
structured. We model a $35M raise in the first quarter of 2019, followed by a
$50M raise in the fourth quarter of 2019, another $50M in the first quarter of
2021, and finally another $50M in the first quarter of 2023.

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HELIUS MEDICAL TECHNO LO GIES Inc ome Statement Dec -1 5 Dec -1 6 Dec -1 7 Mar-1 8 Jun-1 8 Sep-1 8 Dec -1 8 Dec -1 8 Mar-1 9 Jun-1 9 Sep-1 9 Dec -1 9 Dec -1 9 Mar-2 0 Jun-2 0 Sep-2 0 Dec -2 0 Dec -2 0 Dec -2 1 Dec -2 2 Dec -2 3
$ millions FY1 5 A FY1 6 A FY1 7 A 1Q18A 2Q18E 3Q18E 4Q18E FY1 8 E 1Q19E 2Q19E 3Q19E 4Q19E FY1 9 E 1Q20E 2Q20E 3Q20E 4Q20E FY2 0 E FY2 1 E FY2 2 E FY2 3 E
Total Revenue $ 0 .0 $ 0 .0 $ 0 .0 $ 0 .0 $ 0 .0 $ 0 .0 $ 0 .0 $ 0 .0 $ 0 .3 $ 0 .8 $ 1 .4 $ 2 .5 $ 5 .0 $ 3 .3 $ 4 .2 $ 5 .3 $ 6 .3 $ 1 9 .1 $ 3 8 .2 $ 6 2 .5 $ 9 3 .5
y/y growth 1120% 457% 269% 152% 285% 100% 64% 50%
Cost of Revenue - - - - - - - - 0.1 0.2 0.3 0.5 1.1 0.7 0.9 1.1 1.2 3.8 6.8 9.7 12.9
Gross Profit - - - - - - - - 0.2 0.6 1.1 2.0 3.9 2.6 3.4 4.3 5.1 15.3 31.4 52.7 80.6
SG&A 5.0 7.7 8.5 2.2 2.5 2.5 2.5 9.7 4.0 4.5 5.3 6.0 19.8 6.5 7.5 8.2 9.0 31.2 41.0 49.0 57.0
Research & Development 4.0 5.6 14.4 2.6 2.7 2.7 2.8 10.7 4.5 4.7 5.0 5.2 19.4 5.3 5.4 5.5 5.7 21.9 23.7 26.0 28.0
Total Operating Expenses 9.0 13.3 22.9 4.7 5.2 5.2 5.3 20.4 8.5 9.2 10.3 11.2 39.2 11.8 12.9 13.7 14.7 53.1 64.7 75.0 85.0
EBIT (9.0) (13.3) (22.853) (4.7) (5.2) (5.2) (5.3) (20.4) (8.3) (8.6) (9.2) (9.2) (35.3) (9.2) (9.5) (9.4) (9.6) (37.8) (33.3) (22.3) (4.4)
Other expense (income), net (3.9) 2.6 5.2 (3.6) - - - (3.6) - - - - - - - - - - - - -
Pre-tax Income (5.1) (15.9) (28.0) (1.2) (5.2) (5.2) (5.3) (16.8) (8.3) (8.6) (9.2) (9.2) (35.3) (9.2) (9.5) (9.4) (9.6) (37.8) (33.3) (22.3) (4.4)
Income Taxes (Benefit) - - - - - - - - - - - - - - - - - - - - -
Net Inc ome (Loss) -$ 5 .1 -$ 1 6 .0 -$ 2 8 .0 -$ 1 .6 -$ 5 .2 -$ 5 .2 -$ 5 .3 -$ 1 7 .2 -$ 8 .3 -$ 8 .6 -$ 9 .2 -$ 9 .2 -$ 3 5 .3 -$ 9 .2 -$ 9 .5 -$ 9 .4 -$ 9 .6 -$ 3 7 .8 -$ 3 3 .3 -$ 2 2 .3 -$ 4 .4
Fx translation adjustments (1.5) 0.1 1.8 (1.0) - - - (1.0) - - - - - - - - - - - - -
Comprehensive Income (Loss) -$6.6 -$15.7 -$26.2 -$2.1 -$5.2 -$5.2 -$5.3 -$17.8 -$8.3 -$8.6 -$9.2 -$9.2 -$35.3 -$9.2 -$9.5 -$9.4 -$9.6 -$37.8 -$33.3 -$22.3 -$4.4
EP S (LP S) ($ 0 .4 0 ) ($ 0 .9 7 ) ($ 1 .5 0 ) ($ 0 .0 8 ) ($ 0 .2 3 ) ($ 0 .2 3 ) ($ 0 .2 3 ) ($ 0 .7 5 ) ($ 0 .3 2 ) ($ 0 .3 3 ) ($ 0 .3 5 ) ($ 0 .3 0 ) ($ 1 .3 0 ) ($ 0 .3 0 ) ($ 0 .3 1 ) ($ 0 .3 1 ) ($ 0 .3 1 ) ($ 1 .2 4 ) ($ 0 .9 8 ) ($ 0 .6 5 ) ($ 0 .1 1 )
Shares Outstanding 12.8 16.3 18.6 20.5 22.9 23.0 23.0 22.3 26.2 26.2 26.2 30.4 27.3 30.5 30.5 30.5 30.6 30.5 34.1 34.5 38.2

Margin Analysis FY1 5 A FY1 6 A FY1 7 A 1Q18A 2Q18E 3Q18E 4Q18E FY1 8 E 1Q19E 2Q19E 3Q19E 4Q19E FY1 9 E 1Q20E 2Q20E 3Q20E 4Q20E FY2 0 E FY2 1 E FY2 2 E FY2 3 E
Gross Profit Margin NM NM NM NM NM NM NM NM 77.8% 77.8% 78.3% 78.5% 78.3% 79.1% 79.8% 80.2% 80.7% 80.1% 82.1% 84.4% 86.2%
EBIT Margin NM NM NM NM NM NM NM NM -3070.4% -1139.2% -636.9% -370.8% -712.2% -279.2% -226.5% -177.8% -153.6% -198.1% -87.3% -35.6% -4.7%
Pre-tax Income NM NM NM NM NM NM NM NM -3070.4% -1139.2% -636.9% -370.8% -712.2% -279.2% -226.5% -177.8% -153.6% -198.1% -87.3% -35.6% -4.7%
Effective Income Tax Rate NM NM NM NM NM NM NM NM 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Adjusted Net Income NM NM NM NM NM NM NM NM -3070.4% -1139.2% -636.9% -370.8% -712.2% -279.2% -226.5% -177.8% -153.6% -198.1% -87.3% -35.6% -4.7%
Expenses (% of Revenue) FY1 5 A FY1 6 A FY1 7 A 1Q18A 2Q18E 3Q18E 4Q18E FY1 8 E 1Q19E 2Q19E 3Q19E 4Q19E FY1 9 E 1Q20E 2Q20E 3Q20E 4Q20E FY2 0 E FY2 1 E FY2 2 E FY2 3 E
Cost of Revenue NM NM NM NM NM NM NM NM 22.2% 22.2% 21.7% 21.5% 21.7% 20.9% 20.2% 19.8% 19.3% 19.9% 17.9% 15.6% 13.8%
SG&A NM NM NM NM NM NM NM NM 1481.5% 595.2% 368.1% 240.7% 399.3% 197.3% 178.1% 154.4% 143.5% 163.4% 107.4% 78.4% 60.9%
Research & Development NM NM NM NM NM NM NM NM 1666.7% 621.7% 347.2% 208.6% 391.2% 160.9% 128.2% 103.6% 90.9% 114.7% 62.1% 41.6% 29.9%
Total Operating Expenses NM NM NM NM NM NM NM NM 3148.1% 1216.9% 715.3% 449.3% 790.5% 358.2% 306.3% 258.0% 234.3% 278.2% 169.5% 120.0% 90.9%
Y/Y Growth FY1 5 A FY1 6 A FY1 7 A 1Q18A 2Q18E 3Q18E 4Q18E FY1 8 E 1Q19E 2Q19E 3Q19E 4Q19E FY1 9 E 1Q20E 2Q20E 3Q20E 4Q20E FY2 0 E FY2 1 E FY2 2 E FY2 3 E
Revenue NM NM NM NM NM NM NM NM NM NM NM NM NM 1120.0% 457.1% 268.8% 151.6% 284.9% 100.0% 63.7% 49.7%
Cost of Revenue NM NM NM NM NM NM NM NM NM NM NM NM NM 1049.8% 406.3% 236.7% 125.4% 253.1% 79.5% 43.0% 32.4%
Gross Profit NM NM NM NM NM NM NM NM NM NM NM NM NM 1140.1% 471.7% 277.6% 158.8% 293.8% 105.1% 68.2% 52.9%
SG&A NM NM NM NM NM NM NM NM NM NM NM 140.0% 104.9% 62.5% 66.7% 54.7% 50.0% 57.6% 31.4% 19.5% 16.3%
Research & Development NM NM NM NM NM NM NM NM NM NM NM 89.1% 81.3% 17.8% 14.9% 10.0% 9.6% 12.9% 8.2% 9.7% 7.7%
Operating Expenses NM NM NM NM NM NM NM NM NM NM NM 113.3% 92.5% 38.8% 40.2% 33.0% 31.3% 35.5% 21.8% 15.9% 13.3%
Source: BTIG estimates and company reports

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HELIUS MEDICAL Revenue & CO Gs Mar-1 8 Jun-1 8 Sep-1 8 Dec -1 8 Dec -1 8 Mar-1 9 Jun-1 9 Sep-1 9 Dec -1 9 Dec -1 9 Mar-2 0 Jun-2 0 Sep-2 0 Dec -2 0 Dec -2 0 Dec -2 1 Dec -2 2 Dec -2 3
$ millions 1Q18A 2Q18E 3Q18E 4Q18E FY1 8 E 1Q19E 2Q19E 3Q19E 4Q19E FY1 9 E 1Q20E 2Q20E 3Q20E 4Q20E FY2 0 E FY2 1 E FY2 2 E FY2 3 E
Summary
US PoNS Device Rev $0.0 $0.0 $0.0 $0.0 $0.0 $0.3 $0.8 $1.4 $2.3 $4.7 $2.8 $3.4 $4.1 $4.7 $14.9 $26.8 $42.2 $61.6
y/y growth NM NM NM NM NM NM NM NM NM NM 920% 350% 181% 107% 215% 80% 57% 46%
OUS PoNS Device Rev $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.0 $0.2 $0.2 $0.5 $0.8 $1.3 $1.6 $4.2 $11.4 $20.3 $32.0
y/y growth NM NM NM NM NM NM NM NM NM NM NM NM NM 600% 1760% 171% 79% 57%
Total Revenue $ 0 .0 $ 0 .0 $ 0 .0 $ 0 .0 $ 0 .0 $ 0 .3 $ 0 .8 $ 1 .4 $ 2 .5 $ 5 .0 $ 3 .3 $ 4 .2 $ 5 .3 $ 6 .3 $ 1 9 .1 $ 3 8 .2 $ 6 2 .5 $ 9 3 .5
y/y growth NM NM NM NM NM NM NM NM NM NM NM NM 269% 152% 285% 100% 64% 50%
Total CO GS $ 0 .0 $ 0 .0 $ 0 .0 $ 0 .0 $ 0 .0 $ 0 .1 $ 0 .2 $ 0 .3 $ 0 .5 $ 1 .1 $ 0 .7 $ 0 .9 $ 1 .1 $ 1 .2 $ 3 .8 $ 6 .8 $ 9 .7 $ 1 2 .9
y/y growth NM NM NM NM NM NM NM NM NM NM NM NM 237% 125% 253% 80% 43% 32%
Gross P rofit $ 0 .0 $ 0 .0 $ 0 .0 $ 0 .0 $ 0 .0 $ 0 .2 $ 0 .6 $ 1 .1 $ 2 .0 $ 3 .9 $ 2 .6 $ 3 .4 $ 4 .3 $ 5 .1 $ 1 5 .3 $ 3 1 .4 $ 5 2 .7 $ 8 0 .6
y/y growth NM NM NM NM NM NM NM NM NM NM 1140.1% 471.7% 277.6% 158.8% 293.8% 105% 68% 53%
Gross Margin 77.8% 77.8% 78.3% 78.5% 78.3% 79.1% 79.8% 80.2% 80.7% 80.1% 82.1% 84.4% 86.2%

US Market
Cumulative Patients 0 0 0 0 0 15 57 137 263 263 416 605 830 1,091 1,091 2,581 4,924 8,344
Patient Adds 0 0 0 0 0 15 42 80 126 263 153 189 225 261 828 1,490 2,343 3,420
y/y growth NM NM NM NM NM NM NM NM NM NM 920.0% 350.0% 181.3% 107.1% 214.8% 80.0% 57.2% 46.0%
Repeat Patients 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Number of Centers Offering PoNS Treatment 0 0 0 0 0 3 6 10 14 14 17 21 25 29 29 43 60 79
Avg. Number of Patient Adds/Center in qtr. NM NM NM NM 5 7 8 9 9 9 9 9

PoNS Device Units Sold 0 0 0 0 0 15 42 80 126 263 153 189 225 261 828 1,490 2,343 3,420
PoNS Device Pricing ($s) 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000 18,000
PoNS Device Revenue ($m) 0.0 0.0 0.0 0.0 0.0 0.3 0.8 1.4 2.3 4.7 2.8 3.4 4.1 4.7 14.9 26.8 42.2 61.6

O US Market
Cumulative Patients 0 0 0 0 0 0 0 0 15 15 51 105 189 294 294 1,051 2,405 4,537
Patient Adds 0 0 0 0 0 0 0 0 15 15 36 54 84 105 279 757 1,354 2,132
y/y growth NM NM NM NM NM NM NM NM NM NM NM NM NM 600% 1760% 171% 79% 57%
Repeat Patients 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Number of Centers Offering PoNS Treatment 0 0 0 0 0 0 0 0 3 3 6 9 12 15 15 29 45 61
Avg. Number of Patient Adds/Center in qtr. NM NM NM NM NM NM NM 5 6 6 7 7

PoNS Device Units 0 0 0 0 0 0 0 0 15 15 36 54 84 105 279 757 1,354 2,132


PoNS Device Pricing ($s) 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000
PoNS Device Revenue ($m) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 0.2 0.5 0.8 1.3 1.6 4.2 11.4 20.3 32.0

CO Gs

Total PoNS Devices Sold 0 0 0 0 0 15 42 80 141 278 189 243 309 366 1,107 2,247 3,697 5,552
PoNS Device Costs 4,000 4,000 4,000 4,000 4,000 4,000 4,000 3,900 3,800 3,925 3,650 3,500 3,400 3,300 3,463 3,050 2,650 2,331
Total PoNS Device COGS 0.0 0.0 0.0 0.0 0.0 0.1 0.2 0.3 0.5 1.1 0.7 0.9 1.1 1.2 3.8 6.8 9.7 12.9

Source: BTIG estimates and company reports

BTIG LLC Sean Lavin, MD (212) 527-3570 www.btigresearch.com


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HELIUS MEDICAL 10-YEAR DCF Model
$ millions 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E 2028E

Revenue $0 $5 $19 $38 $62 $94 $131 $169 $203 $223 $231
y/y change (%) Step -10% 285% 100% 64% 50% 40% 30% 20% 10% 4%

Gross Profit 0 4 15 31 53 81 114 151 183 200 208


Gross Margin (%) Step 1% 78% 80% 82% 84% 86% 88% 89% 90% 90% 90%
Max 90%
Operating Expenses 20 39 53 65 75 85 105 118 120 111 116
% of Revenue Step -11% 790% 278% 169% 120% 91% 80% 70% 59% 50% 50%
Min 50%
Operating Profit/(Loss) (20) (35) (38) (33) (22) (4) 9 32 62 89 93
Operating Profit/(Loss) Margin (%) -712.2% -198.1% -87.3% -35.6% -4.7% 7.2% 19.1% 30.6% 40.0% 40.0%

NOLs (18) (35) (38) (33) (22) (4) 0 0 0 0 0

Taxes 20.0% 0 0 0 0 0 0 2 6 12 18 19

NOPAT (20) (35) (38) (33) (22) (4) 8 26 50 71 74


Assumed Terminal Value Using Terminal EV/EBIT Multiple 1,481.4
NOPAT + Terminal (20) (35) (38) (33) (22) (4) 8 26 50 71 1,555

Period 0.00 0.75 1.75 2.75 3.75 4.75 5.75 6.75 7.75 8.75 9.75
Factor 1.00 0.90 0.78 0.68 0.59 0.51 0.45 0.39 0.34 0.29 0.26

Discount Rate 15.0%


LT Growth 4%
Terminal EV/EBIT Multiple 16.0x
PV of NOPAT (Enterprise Value) $330
+ Net Cash $33
Equity Value $362
Proj. FD Shares 26.2
Value Per Share $13.83
Pipeline Assets $0.00
Value Per Share $13.83
Price Target $14.00

Source: BTIG Research estimates and company reports

BTIG LLC Sean Lavin, MD (212) 527-3570 www.btigresearch.com


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BTIG Covered Companies Mentioned in this Report
HELIUS MEDICAL TECHNOLOGIES, INC (HSDT, Buy, $14.00 PT; Current Price: $11.11; Analyst: Sean.Lavin)

BTIG LLC Sean Lavin, MD (212) 527-3570 www.btigresearch.com


22
Appendix: Analyst Certification and Other Important Disclosures
Analyst Certification
I, Sean Lavin, MD, hereby certify that the views about the companies and securities discussed in this report are
accurately expressed and that I have not received and will not receive direct or indirect compensation in exchange
for expressing specific recommendations or views in this report.
I, Marie Thibault, hereby certify that the views about the companies and securities discussed in this report are
accurately expressed and that I have not received and will not receive direct or indirect compensation in exchange
for expressing specific recommendations or views in this report.
I, Andrea Alfonso, hereby certify that the views about the companies and securities discussed in this report are
accurately expressed and that I have not received and will not receive direct or indirect compensation in exchange
for expressing specific recommendations or views in this report.

Regulatory Disclosures
Ratings Definitions
BTIG LLC’s (“BTIG”) ratings, effective June 12, 2017, are defined as follows:
BUY – A security which is expected to produce a positive total return of 15% or greater over the 12 months following
the recommendation. The BUY rating may be maintained as long as it is deemed appropriate, notwithstanding
price fluctuations that would cause the target to fall outside of the 15% return.
SELL – A security which is expected to produce a negative total return of 15% or greater over the next 12 months
following the recommendation. The SELL rating may be maintained as long as it is deemed appropriate,
notwithstanding price fluctuations that would cause the target to fall outside of the 15% return.
NEUTRAL – A security which is not expected to appreciate or depreciate meaningfully over the next 12 months.
NOT RATED – A security which is not rated or covered by BTIG.
UNDER REVIEW – Effective immediately, coverage of the following securities is Under Review. Ratings, price
targets, disclosures, and estimates for the companies listed below are suspended and should no longer be relied
upon.

Distribution of Ratings and Investment Banking Clients


BTIG must disclose in each research report the percentage of all securities rated by the member to which the
member would assign a “buy”, “neutral” or “sell” rating. The said ratings are updated on a quarterly basis. BTIG
must also disclose the percentage of subject companies within each of these three categories for whom the
member has provided investment banking services within the previous twelve months. Stocks under coverage as
of the end of the most recent calendar quarter (March 31, 2018): 282

Distribution of BTIG’s Research Recommendations (as of March 31, 2018):


BUY: 59.6%; NEUTRAL: 36.5%; SELL: 3.9%

Distribution of BTIG’s Investment Banking Services (as of March 31, 2018):


BUY: 21.4%; NEUTRAL: 6.8%; SELL: 0.00%

For purposes of FINRA ratings distribution rules, BTIG’s stock ratings of Buy, Neutral and Sell fall into Buy, Hold and
Sell categories, respectively.

Company Valuation and Risk Disclosures


Helius Medical Technologies, Inc (HSDT, Buy, $14.00 PT)
Valuation: Our HSDT rating is Buy. Our $14 price target is based on a DCF, assuming a 15% discount rate and a
terminal EV/EBIT multiple of 16x. We selected this terminal multiple after reviewing multiples for a microcap
comp group. We estimate an ~85% chance of FDA clearance, as the regulatory pathway is never 100%

BTIG LLC Sean Lavin, MD (212) 527-3570 www.btigresearch.com


23
guaranteed, but we see the low-risk profile of the technology offsetting any messiness in the data. Near term,
we think shares will trade around an FDA decision and quarterly reports once a commercial launch has begun.
Risks: Risks to our rating include regulatory clearances, interpretation of data, need for capital, commercial
execution, adoption ramp, US reimbursement, and being a single-product company.

Company–Specific Regulatory Disclosures


BTIG LLC expects to receive or intends to seek compensation for investment banking services in the next 3
months from: Helius Medical Technologies, Inc (HSDT)

BTIG LLC has received compensation for investment banking services in the past 12 months from:
Helius Medical Technologies, Inc (HSDT)

BTIG LLC had an investment banking services client relationship during the past 12 months with:
Helius Medical Technologies, Inc (HSDT)

BTIG LLC managed or co-managed a public offering of securities in the past 12 months for:
Helius Medical Technologies, Inc (HSDT)

Other Disclosures
Additional Information Available Upon Request
General Disclosures
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This research report is not an offer to buy or sell or solicitation of an offer to buy or sell any security in any jurisdiction
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BTIG LLC Sean Lavin, MD (212) 527-3570 www.btigresearch.com


24
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BTIG LLC Sean Lavin, MD (212) 527-3570 www.btigresearch.com


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