NeuroMetrix Inc (NURO) 2005 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Q2 2005 NeuroMetrix, Incorporated's Earnings Conference Call. My name is Candace and I will be your coordinator for today

(Operator Instructions)

I would now like to turn the presentation over to your host for today's call, Mr.. Brad Smith, Chief Financial Officer. Please proceed.

Good afternoon, everyone. Thank you for joining us on the call.

I would like to start -- before we begin, I would like to briefly discuss forward-looking statements. Statements we make on this call may include, statements which are not historical facts and are considered forward looking within the meaning of the Private Security Litigation Reforms Act of 1995.

Statements that are predictive in nature, that depend upon or refer to future events or conditions that include words such as believe, may, will, estimate, continue, anticipate, intend, expect, plan or other similar expressions are forward-looking statements. Any forward-looking statements reflect current views of NeuroMetrix, about future result of operation and other forward-looking information.

You should not rely on forward-looking statements, because our actual results may differ materially from those indicated by these forward-looking statements as a result of a number of important factors including those detailed in our SEC filings and other filings. NeuroMetrix does not intend to and undertakes no duty to update the information disclosed on this conference call. Let's now turn it over to Shai Gozani.

Thank you, Brad. Thank you, and good afternoon. I would like to welcome you to the NeuroMetrix Second Quarter 2005 Conference Call.

I'd like to start by extending my thanks to our shareholders for the support. We appreciate the time you have invested in understanding how NeuroMetrix is creating a new standard in the care and the diagnosis and ultimately the treatment of neuropathies or peripheral nerve disorders. We believe that the clinical need for improved methods of diagnosing and treating neuropathies are presenting unique opportunities to build a growing medical device company.

I am joined today by Gary L. Gregory, our Chief Operating Officer, Brad Smith, our Chief Financial Officer, and Nicklaus Felixy, our Director of Finance. I will start today's conference call by providing you with a brief overview of our Company and products as well as the key highlights for the second quarter 2005. I will then turn it over to Gary for discussion of our key sales and marketing metrics and Brad for summary and analysis of the financial results.

NeuroMetrix is a medical device company establishing a new standard of care for the design, development, and sales of products used to diagnose neuropathies, which are diseases of the peripheral nerves and parts of the spine. Neuropathies are frequently caused by or are associated with diabetes, low back and other spinal disorders and carpal tunnel syndrome, as well as other clinical disorders. Neuropathies affect over half of the 80 million people with diabetes in United States. Low back pain or related conditions are the second most common reason for seeing a physician. And there are as many as 5 million people in the U.S with Carpal Tunnel Syndrome and it is the second most common surgical procedure in the U.S.

The NC-stat system from NeuroMetrix is used in nearly 2700 physicians' practices throughout the U.S. and enables all physicians to effectively and objectively diagnose neuropathies. The NC-stat system is comprised of single-use -- biosensors are placed from the patients body, the NC-stat monitor which is a electro-medical instrument that performs the diagnostic procedure which is called nerve conduction study. The monitor displays nerve conduction study data in real time on a LCD screen and an NC-stat docking station and onCall Information System which together provides a physician with an optional and a highly informative health report, either during the course of the study or merely at its completion in minutes.

Because of the value created by this reporting system, we believe that essentially all our customers utilize onCall. Our revenue is derived primarily from the sales of our disposable biosensors with the remainder coming from the NC-stat monitor and NC-stat docking station, which includes access to the onCall Information System.

Key highlights for the second quarter of 2005 includes --

For the second quarter, we generated revenues of $8.1 million, an increase of 88% compared with the second quarter of 2004. Year-to-date through June 2005 our revenues total $14.9 million, an increase of 103% over the same period in 2004.

Our gross margin percentage was 71.4 -- 31.1 % -- 74.1% -- excuse me, in the second quarter of 2005, which is up from 72.8% in the second quarter of 2004.

We reached a very important milestone in the second quarter and that was that over 1 million biosensors had been utilized since inception of our product by our physician customers. We also launched our physician education partnership with Lilly & Co., and our partnership is designed to increase physicians' awareness of the diagnosis and treatment of diabetic peripheral neuropathy, and is also designed to increase exposure to the NC-stat system.

On an additional note, we reached the one-year anniversary of our RAPO this past week and want to thank all of you who have supported us during this first year as a publicly traded company. I will now turn it over to Gary Gregory who will outline our performance as reflected in certain key operating metrics.

Thank you Shai. I want to reiterate our thanks to each of you for joining our call today.

As Shai has noted, we are coming off another quarter that demonstrates the continued progress of our company for the objectives as establishing the NC-stat system as a standard of care and NeuroMetrix as the leading company in neuropathic diseases.

In Q2 2005 we expanded our customer count to 2,696 active customers, which demonstrates the continued ability to secure and establish new customers across the primary care and specialty care segments.

Testing with the NC-stat system in the second quarter of 2005, grew year over year by approximately a 112% to 173,100 biosensors compared to 81,500 biosensors in the second quarter of 2004.

Through this performance our average customers now delivers over 8,500 in annual biosensors revenue based on their usage during the second quarter. The distribution of testing bio customers is as follows --

59% of total testing was performed by our primary care account and 41% came from within our specialty care segments.

Here, 22% of the total testing came from the orthopedic market and 19% of total test were performed by other specialty care physicians.

Testing within primary care markets, which we define as internal medicine, family practice, diabetology, endocrinology and rheumatology grew by 230% year-over-year, illustrating our progress in this market segment.

Testing by all specialty care physicians segments which includes orthopedics, occupational medicine, pain management neurology and physiatry grew by 39% year over year.

So, to summarize, overall testing grew by a 112% year-over-year to 173100 biosensors. And this growth was manifested across all of our key market segments, which validates our continued progress in both the primary care and specially care markets.

Of additional importance, new NeuroMetrix customers delivered an average annualized revenue of approximately $14,500 per account during Q2 based on their present usage. And we are very pleased with this progress relative to the previous quarters as it demonstrates that our new customers continue to adopt our technology within their practice.

In Q2 2005, we also completed our second full quarter post market launch of the servo (ph) biosensors. The servo biosensor represents an advance for our customers and our Company. The product further reinforces our fundamental value proposition, by enhancing our customer's practice on both the clinical and economical level. We are very pleased with our results as we experience the use of over 18,000 servo biosensors in the second quarter.

As a final note towards our progression in customer testing, testing for diabetic peripheral neuropathy and low back and leg pain now represents approximately 45% of the total testing in the second quarter. This position which is evenly split between the two categories, details the Company's continued progression from our original foundation built on testing for carpal tunnel syndrome to our present position of allowing all physicians to test for and more effectively diagnose patients presenting with major clinical conditions such as hand and wrist pain, diabetic neuropathy and low back life pain with the NT-stat system.

On the market development front, as mentioned by Shai, we conducted a number of educational programs with Lilly & Co. The primary objectives for these programs are to advance physicians' awareness towards the disease state of diabetes, clinical complications presented by diabetic peripheral neuropathy or DPN, and advancing the diagnoses and ultimate treatment of patients presenting with DPN by utilizing the NT-stat system.

In Q2 we conducted the first phase of these programs with Lilly and view them being successful in achieving the objective we mutually established for our initial wave of programs. With Lilly's recent launch and corresponding strong focus on Bolta and Bayeda, we plan to slow down our educational programs thrust with Lilly in the coming months as we had originally planned. We once again reaccelerate these programs as we're moving in latter part of this year and early 2006.

On an organizational front, we've vamped our independent sales agent network, which serves as an effective resource for regeneration for our regional sales managers to a base of over 450 sales agents in Q2 2005.

This extension of our sales organization is a key component of our market approach, which allows us to better secure and service our customers.

As a final note we continue to train and integrate our recent region manager hires within the direct sales force, which is essentially doubled in the past 12 months from the launch of our IPO to present count of 30 region managers.

We've also created a new level within our field organization and initiated the hiring of four sales representatives. Our sales representatives will primarily be charged with in-field training and focus upon developing their knowledge and skills towards selling the NC-Stat System and advancing its clinical use. In essence, the sales representatives will create a team that is ready to be placed in the region when an opening occurs or as we further expand our direct sales organization.

We continue to evaluate our hiring plans for additional sales personnel and will evaluate them within the context of our own overall growth and other key business factors in our decision making process.

Finally, we have and we will continue recruit sales representatives through a highly selective process, which positions the Company to continue our efforts towards establishing a new standard of care within the market place.

I'll now turn it over to Brad Smith who'll discuss our financial results for the second quarter and year-to-date in 2005.

Thank you Gary and thanks again for all of you joining us on the call today.

Here's a recap of our financial performance for the year's second quarter and year-to-date.

Total revenues for the second quarter of 2005 were $8.1 million compared to the revenues of $4.3 million for the second quarter of the year 2004 representing an increase of 88%.

Biosensor revenues totaled approximately $7.1 million, or 88% of total revenue in the second quarter of 2005 and the diagnostic device revenues totaled to $951,000 for the second quarter of 2005 representing 12% of total revenue. This compares with approximately $3.7 million in biosensor revenues in the second quarter of 2004 or 87% of total revenue and $554,000 of the diagnostic device sales from the second quarter of 2004 or 13% of total revenue.

Revenues for the first six months of 2005 were $14.9 million compared with 7.3 million for the same period in 2004 representing a 103% growth year-over-year.

For the first six months of 2005, biosensor revenue was $13.1 million, or 88% of the total revenue and diagnostic device revenue was $1.8 million or 12% of revenue. The increase in revenues in the three- and six-month in 2005 as compared to the same period in 2004 is a result of the expansion of our direct sales force and independent sales agency network, an increase in number of active customer accounts, and the growth in the average revenue per account.

We may experience some seasonality in the third quarter due to the effective fewer patient visits and fewer physician working days during the summer months. So we expect to build our business through this potential seasonality.

During the second quarter 2005 our overall gross margin was 74.1% compared with 72.8% for the same period in 2004.

On examining the gross margins very closely by revenue type -

Our biosensors gross margin percentage was 74.2% in the second quarter of 2005 compared with 73.8% of the same period in 2004. The average selling price was relatively unchanged from period to period at approximately $35 per biosensor.

Device gross margin for the second quarter of 2005 was 73.0% compared to gross margin of 65.8% in the second quarter of 2004.

The increase in device gross margin percentage was primarily due to an increase in device list price from $3500 to $4000, which took place in the beginning of 2005.

Gross margin percentage for the 6-months ended June 30, 2005 was 73.7% compared with 72.7% for the same period in 2004.

The gross margin for biosensors was 73.8% for the six months through June 2005 versus 74.0% for the same period in 2004, whereas the gross margin for devices was 73.0% for the six months ended June 2005, compared with 63.7% for the same period in 2004.

Again, this improvement was primarily due to the increase in the list price of our devices beginning of 2005.

We do not see any immediate factors that affect or believe will affect our gross margin.

Total operating expenses in Q2 2005 were $6.2 million compared with $4.3 million in the second quarter of 2004 representing an increase of 44% year-over-year. The increase in operating expenses during the second quarter of 2005 was primarily associated with the expansion of our sales and marketing efforts as reflected in increase sales compensation expense including sales commissions to sales managers and increased sales commissions for independent sales agents. Total sales and marketing expenses increased 54% year over year.

There was also an increase in Research and Development expenses in the second quarter of 2005, 22% year-over-year, primarily pertaining to new product development including our development efforts on third generation devices.

Lastly, costs associated with being a public company including professional fees, Sarbanes-Oxley 404, director and officer insurance and expenses associated with financial reporting requirements contributed to higher overall operating expenses for the second quarter 2005 compared with the second quarter of '04.

G&A expenses increased 41% year-over-year in Q2 of 2005. Year-to-date, operating expenses for the six months ended June 2005 were $11.9 million compared with $7.1 million for the same period in 2004, or an increase of 68%.

Sales and marketing expenses increased $3.1 million or 86% due to the expansion of the sales force and again increases in compensation including commission.

G&A increased $1.2million or 60% for the same reasons previously mentioned in describing our second quarter increase, namely expenses associated with being a publicly traded company.

Finally, R&D increased little over $400000, or 3% as a result of expanded staff and increased product development efforts.

We anticipate that operating expenses will increase over the remaining 2 quarters in 2005 due to hiring to support the potential growth of our business and due to increased expenses in connection with our Sarbanes-Oxley 404 compliance program.

Interest expense was negotiable in the second quarter of 2005 whereas we had a $145000 in interest expense in the second quarter of 2004 related to a line of credit with Light House Capital. Interest expense again was negotiable for six months ended June 30, 2005 compared with almost $300,000 in the same period in 2004.

The outstanding balance of $3 million on the line of credit with Light House Capital, which was outstanding in 2004, was paid off in the second half of 2004 using a portion of the proceeds from our initial public offering.

Interest income during the second quarter of 2005 was a $185,000 compared to $14,000 in the second quarter of 2004 and year-to-date interest income of $361,000 versus $18,000 in 2005 versus 2004 the six-month period. The substantial increase in interest income was also from the investment of the net proceeds from our initial public offering.

The operating loss was $225,000 in the second quarter of 2005 compared with nearly $1.2 million in the second quarter of 2004 and the operating loss for the six-months ended June 2005 was $995,000 compared with approximately $1.8 million for the same period in 2004.

The net loss in the second quarter of 2005 was $40,000 compared with nearly $1.3 million in the second quarter of 2004 and the net loss for the six month period ended June 2005 was $636000 compared with nearly $2.1 million for the six month period ended June 2004.

Our basic and diluted earnings or loss per share was $0.00 in the second quarter of 2005 compared to basic and diluted loss per share of $1.85 in the second quarter of 2004.

The basic and diluted loss per share for the six months ended June 2005 was a loss of $0.05 and for the six-month period ended June 2004 was a loss of $10.59.

The basic and diluted loss per share figures in 2004 reflect charges pertaining to the Company's preferred stock which was converted to common stock at the time of the initial public offering and also reflect only common shares being included in the weighted average calculation since the shares of preferred stock were redeemable preferred and therefore not considered part of stock holders equity.

Let us now shift and focus on our financial position as of the June 30, 2005.

Cash, cash equivalent, short-term investments and long-term investments totaled $29.6 million as of June 30, 2005 compared with $30.0 million at the end of 2004. For the first six months of 2004, the company had net cash of approximately $400,000. We believe we have sufficient cash and investment balances to reach sustainable profitability.

Working capital was $28.9 million compared to $22.5 million as of year-end 2004. A large increase in working capital was primarily due to long term investments that matured during the first six months of 2005 and were reinvested in short term investments and therefore are now included in working capital.

Total assets were $39.1 million as of June 30, 2005 compared with $38 million at the end of June 2004 and this increase was due to increases in account receivables and inventories related to the overall growth of our business.

Our accounts receivables totaled $3.7 million as of June 30, 2005 and our DSO or Day Sales Outstanding was $40 as compared to $3.1 million in accounts receivables and $50 in DSO respectively as of December 31, 2004.

Our inventory turnover was 4.8 at the end of June compared with 4.1 for 2004. As of June 30, 2005, there was no long-term debt in our balance sheet and our total liabilities were $5.3 million and stockholders equity totaled $33.8 million.

This concludes the financial update portion of the conference call and I would like you to now turn it back over to Shai.

Thank you Brad. We are very pleased with our second quarter performance and look forward to the latter half of the year.

As we condition to the question-and-answer session, I would like you to note that we are pleased to discuss the second quarter business details and relavant metrics, but I do want to remind our audience that we maintain a policy of not providing guidance on our future financial performance.

Now, we would like to take questions at this point.

(Operator Instructions)

Our first question comes from Bill Clark of RBC Capital Market. Please proceed.

Yeah, thanks. Good afternoon and congratulations on the quarter guys.

Thank you, Bill.

Thank you, Bill

Gross margin, they came in well ahead of our expectation and if we kind of think about the third party manufacturing relationship you guys utilize right now, are there any, I guess specifics outside of those relationships, in other words, on the NeuroMetrix side or any projects that you could point to as kind of why, or how we could continue to see the gross margin picked down in the future, or is it simply you have the some very incremental leverage on the -- vis-à-vis the revenue line.

Thank you, Bill for the question. Part of this is certainly -- we are seeing some impact of volume and some cost efficiency, particularly specific cost efficiency project we have put in place with specific biosensors. We are not guiding towards any potential improvement in gross margins, but we certainly in the second quarter saw improvements the overall gross margin, but primarily impacted by the increase in the list price of our device, which went again from 3500 to $4000 at the beginning of 2005.

No, no, it's certainly understood, and maybe I could follow-up there and I have a question for Gary. With respect, Brad, to the program you talked about in terms of reducing some of the cost inputs on the biosensors, is that something you are providing manufacture with an then who in turn is passing through some of the cost reduction? Is that kind of the right way to think about that relationship?

Yes, Bill, that's correct. We are constantly looking at the design features of the biosensor and ways that we can take out cost, and then we work very closely with our manufacturer, Poly-Flex Circuits, which is a division of Parlex, in a very collaborative fashion to utilize those design improvements to reduce costs and make sure they pass some of those through to us. So it's a very collaborated process.

Understood, OK great, And then I have a question for Gary and I'll jump back into the queue. When you think of your sales rep ad targets, what do you think the optimum number of account is for a single account to cover, and can you talk a little bit about this may evolve over time, if you were to expand your own internal support system?

Yes, very good question. In terms of our optimal coverage, I think it's something that's really under continued evaluation and development. We, as we look at our key business indicators, and that is, can we accrue customers at the right rate, and then can we drive the utilization of the technology on a practice-by-practice basis. Right now, we view our coverage as being very appropriate, and it's evident by the continued expansion of both, our base of customers and also on the utilization of our technology on a existing and new customer basis.

So, we're moving in the right direction. We don't have a resolute number on what is the right number of accounts, per region manager, because we are still developing into finding a new standard up here in the market place and that's emerging as we progress. But, clearly right now our region managers are well equipped to cover the accounts they have, and add new accounts as we move forward, but that is something that we continue to monitor closely and will continue to evolve as we move forward on quarter-by-quarter basis. Hope that answers your question. Thanks, for asking.

Bill Clark Yes, it does. Thanks guys. I'll jump back in the queue.

Our next question comes from Ryan Rauch, of Jefferies & Co. Please proceed.

Hi, guys. Congratulations on a great quarter.

Thank you, Ryan.

Thanks, Ryan.

I apologize if I missed it? How many skilled people do you have today and what is your head count target for year-end '05 and then maybe projected out for year-end '06?

Right, we presently have an account of 30 regional managers today, and as mentioned earlier, we've added a new level for the organization 4 sales representatives. In essence, there are representatives who are in training and development and on deck for the next opening that may occur on a regional level, whether that is an opening that's created internally or through expansion.

Regarding our head count, as we move towards the end of this year and into '06, we are not providing direction on that yet because it's under evaluation. We are evaluating it based on the following metrics-

One, is our overall growth. Two, is our ability to add customers. Three, is our ability to drive utilization on a by-customer basis. Four, is our product portfolio and the last but not the least is our view towards profitability.

So, well I don't have a specific answer for you. I can tell you that we definitely are continuing to evaluate that. In the past year alone, we've expanded the organization by double its size in successive ways and we certainly continue to closely look at that and continue to build our organization. Timelines and size and direction are to be determined.

Got you, and then my understanding is that, Lilly and you have hosted about 15 joint seminars and I think the goal was 84 Do they still plan on, if I am correct with the numbers, having post RBX data release -- in early September, having another 69 in the late third and fourth quarters?

A couple of notes on that. Regarding the programs, the programs that we did, were planned in our first wave, and we certainly plan on continuing with the successive waves within our partnership with Lilly. We view the programs to date as successful and definitely look to accelerate those as we move into the end of this year and early next year.

Regarding the time line on RBX, obviously, that's in Lilly's court, but certainly we view our goals of educating and developing the market together is important and we want to accelerate that as we end this year and move into 2006.

OK, sounds good. And then, can you provide a little insight into when you expect to launch in rest of world market, more specifically Europe. Is that an '06 initiative? Have you budgeted for either direct hires or have you started talking to distributors or can you just kind of walk us through your plans for rest of world?

Ryan, thanks for the question. It's definitely not a 2005 initiative at this point. We will review it carefully in 2006 and based on that analysis we will determine our timeline. But this point, we don't have a specific schedule in mind. We are obviously very focused on the US markets, it's very attractive, has demonstrated strong growth. for us. So, it's something we'll look at carefully in '06 and obviously report back to our shareholders and you our analysts, to our developing co-processor.

OK, and then finally, I mean, is it fair to say that other joint marketing agreements with other pharmaceutical players outside of Lilly -- is that something that makes sense going forward? And then will it ever make sense to have a specialty distributor, for example, for the oncology market and for the team of therapy patients that have peripheral neuropathy. I mean, is that sort of the longer-term strategy there?

Those are all possibilities. Obviously we'd look at all such partnerships in terms of their potential, and I think obviously not-- not talking about any specific partnership plans really at this point, but those types of situations that may hold promise that you have alluded to.

OK, thanks a lot. Congratulations again.

Thank you.

Thank you.

Our next question comes from Juan Sanchez, of Punk, Ziegel. Please proceed.

Hi, guys. Congratulations.

Hi Juan, how are you?

Hi Juan.

Very good. I have just a couple of questions actually. The first one would be -- what's the plan with the independent agents, you been saying in the past, but I suppose you were going to start coding the number of independent agents, Could you probably capture that kind of 15% that you paid to them.

And the second question will be, the timing for the introduction of the next generation of biosensors. What kind of treatment have you been planning to do? Thank you.

Sure, thank you Juan, and thank you for your comments . As we look at our present business model we are very pleased with both, its design, its effectiveness and ultimately the growth that it is delivering for our company. The current models, one that we are very pleased with, but it's also one that we continue to evaluate. So, as noted earlier, we just expanded our independent sales organization again quarter-over-quarter and continue to make strong strides in further optimizing that network.

So, they serve as a very inner growth component of our present business approach which is regeneration and servicing of our customers although the real key emphasis on regeneration.

As this progresses, we continue to evaluate this literally on a month-by-month basis as to what is the best design and direction, but right now our model is working very well, we are pleased to it and very committed to it.

The next question, I think was on the price Shai, you want to comment?

Yes, I think you were asking about the third generation system, Juan?

Yes, Yes.

That project is coming on very well. It is a major effort and major focus of our R&D organization and our expectation is that that product would be released in 2006. We are not, at this time, providing a specific quarter when it will be released, but we are very confident of our ability to bring to market in 2006 and confident about its expansion of our platform and the being the ideal platform to continue to grow our business.

And the last question will be about the usage of the (inaudible) Biosensor. How important do you think this Biosensor will become for your guys. I mean, it's being used by new customers only versus old customers and also about the usage between lower back pain and diabetic neuropathy.

Yes, it's a - you asked a few questions.

It is being used by all new customers who test for low back pain, spinal disorders and diabetic neuropathy. It is also being used by many of our prior customers as have gone back and upgraded them and educated them about using the (inaudible)nerve clinical utility.

As you know, the NC-stat system is designed such that if the remote software upgrade and which gives them access to new sense of approaching this process and helps us to give us an opportunity to revisit our customers and account manage.

As far as the clinical important, this is an extremely important sensor. I would say it is important as any other sensor we have, because it is a very, very important piece of information in any assessment at the lower extremities which will include assessment of back pain, spinal disorders and diabetic neuropathy. So we see it as a key element of our moving forward and that is very important indications for us.

Thank you very much.

Our next question comes from Dave Turkaly of WR Hambrecht. Please proceed.

Thanks a lot. I think you may have mentioned this, but I may have missed it earlier on, I think you said the new customer you are analyzing are14,500. Did you say overall what the utilization was in the quarter?

Yes, the utilization rate on a revenue level annualized is 8,500. So both indicators continue climb for us Dave.

And, could you just refresh our memory on -- 30 reps now. What did you have at the end of first quarter and at the end of '04?

The end of '04, we exited the year with approximately 22 and at the end of the first quarter we were standing at 27. So now have 30 region managers plus the 4 sales representatives which are in hire as we speak.

I can't help myself on this one. Just bear with me. You know obviously, the loss was substantially lower than we were thinking with the flat quarter, even with potential seasonality this broad stroke general terms as we model forward. Do you think that's sustainable -- I mean is that going to dip back down, any comments just broad comments you could make on that, would be great.

Yes, Dave, I appreciate the question. Thanks for joining us. As we indicated, we're not giving specific guidance. You know, we did have nearly a breakeven quarter, but as we mentioned we do expect increases in our expenses over the balance of the year, obtaining too the hires that Gary spoke about, some other hires in the business that we think are important and also Sarbanes-Oxley is going to hit us significantly later in the second quarter.

So, we are not giving any guidance as to whether -- where the trend is in terms of profitability.

And one last one. You know, the cash that you have, I mean, any plans other than some new hires, anything else you talked about, R&D, I know you once mentioned a therapeutic device, any update there?

Well, our current positioning is that we have adequate cash as Brad said to have the Company reach sustained profitability, so that includes our R&D effort and that R&D effort does include our therapeutic product line which is a drug delivery system, as we talked about in the past, that of course is at a very early stage and is a number of years out but that is reflected in our, we believe that is fundable from our cash and growing business.

Right. Thanks a lot.

Thanks, David.

Our next question comes from Rod Palasu of Brakrock (ph). Please proceed.

Hi, thank you, I have just a quick question on the average revenue utilization you talked about. Do you think it's a case of getting in into higher utilization, utilizing doctors hands or is it more just your early customers are excited about the product, and tend to use it a little more?

I think there is a number of indicators behind that -- thanks for the question. The first is that we continue to - when we instill or install a technology in a practice today, we're customarily installing it across or to be used across all of the clinical indications -- so low back pain and leg pain, diabetic neuropathy, hand and wrist pain

So, we are introducing the technology to our customer and having them take advantage of the full spectrum of our clinical indications. That's the key driver. The other is that the rationale of our efforts on our marketing and sales front and creating a new standard of care.

So the clarity and ability for us to deliver the connection between diagnosis and therapy and working through that with each and every practice, on a clinical level, on a practice integration level, on an economic level has progressed substantially through the evolution of NeuroMetrix. So we do it right and we do it with a portfolio that's much broader, and those two things together allows us to deliver customers that are now averaging over 14,500 when they come on board.

The other is that the reality of the business - you know, some of those earlier customers bought in when the technology offered less, if you will, was motor only testing for Carpal Tunnel, some of those customers who were extremely pleased with the platform, only use it for Carpal Tunnel testing. So a hand surgeon in Topeka, Kansas is still just going to use Carpal Tunnel only as his application. There is really not much room to impact his utilization behind him optimizing use for Carpal Tunnel.

So, that is, I guess, the progression of the company, and we're very, very pleased with the continued expansion on utilization of our new customers and for that matter, our overall base of customers.

Great. And do you have any metrics that you follow and possibly give us about how many of your customers that have been on more than a year, and starting to expand their indications that they're testing for?

Yes, I think the most relevant one is that we upgraded a large number of customers who were on the original platform, to the next generation platform and in doing that, we expanded their ability to use it not only for Carpal Tunnel and what was originally motor only testing, the motor and sensory testing for Carpal Tunnel and as well low back pain and diabetic neuropathy.

So we upgraded a number of those customers and have reported those in the past, and I'd say that that progression has occurred through a majority of our account base now. So that was the biggest indicator and I hope I'm answering your question on that, but that wave is essentially been completed, and now our focus is on optimizing the utilization on our existing customers and on our new customer basis.

And do you have any estimate as to what your average new doctor could utilize, the number of sensors they could utilize, you know, the number of patients they could see per week or something like that? That 14,500 is going to move up but how far can it move up?

Our target is one a day and one a day is a patient a day for practice. And that is a highly achievable number, but one that we are marching towards, on a core-by-core basis, and fundamentally whether it is a single man practice in Kentucky, or a 22 man practice in Dolbey(ph), Washington, almost all of these practices in the primary care or for that matter specialty care arenas have the ability to test at least a patient a day. So that's our target, and that's the one we are marching to. And the good news is, we're marching towards it now for well over a year and continue to progress on a quarter-by-quarter basis.

And is the average number of sensors per test increasing or is it relatively stable?

With the launch of the servo-biosensor(ph), that number increased and now remains relatively stable.

Thank you very much.

Thank you.

(Operator Instructions)

Our next question comes from Will Pass of AH Vasanti (ph). Please proceed.

Hi, Can you hear me?

Yes

Great. I think you may have given this number, but number of devices different from this quarter and also I don't think you gave the ASPM advise statement? Could you just--?

We've approached the number of accounts, the number of expansion the number of active accounts versus the number of device shipments, the reasons for that is that what we are interested in is the number of -- basically ordering sensors for disposable sensors, and whether we sell one unit into an account of 5, which is basically as far as we are concerned, it's a single account. The expansion went from 2,424 at the end of the first quarter to 2,696 at the end of this quarter, which was an increase of 272 accounts.

OK. Thank you.

Our next question comes from Brian Colemann, of SSP Asset Advisors (ph). Please proceed.

Thanks. Can you give us an update on the status of the long-term supply agreement you've been negotiating for the biosensors and after that can we expect to see any additional gross margin improvement on biosensors as you move from a purchase order basis to a long-term supply arrangement.

Certainly, thanks for the question, Brian. We have all our biosensors manufactured by Poly-Flex, a company located in Cranston, Rhode Island and we have a longstanding relationship with them. We have been in the process of negotiating a longer term agreement with them, and we are well down the path towards not giving any kind of timeline as to when we'll have it complete, but we are in active discussion with them.

And as far as improvements in the biosensor margins, the guidance we have been giving is that we don't -- surely don't see any practice today that have materially changed our gross margins on the biosensors.

We are not guiding towards higher margins, we certainly have, over the course of time, we're always looking at cost efficiency programs and improvements in our biosensors and looking at ways to reduce costs. But again, we are not guiding towards any improvements overall on our gross margins.

OK, fair enough, thanks.

(Operator Instructions)

Gentlemen, there are no questions. And thank you. Please proceed to your closing remarks.

Brad Smith Thank you very much. We appreciate you joining us on our Second Quarter Conference Call and we look forward to providing you with updates as we go forward on the year. Good afternoon.

Thanks again.

Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.