NeuroMetrix Inc (NURO) 2022 Q3 法說會逐字稿

Good morning, and welcome to the NeuroMetrix Third Quarter 2022 Earnings Call. My name is Michelle, and I will be your moderator on the call.

On this call, the company may make statements which are not historical facts and are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Statements that are predictive in nature that depend upon or refer to future events or conditions are forward-looking statements. Any forward-looking statements reflect current views of NeuroMetrix about future results of operations and other forward-looking information.

You should not rely on forward-looking statements because actual results may differ materially as a result of a number of important factors, including those set forth in the earnings release issued earlier today. Please refer to the risks and uncertainties, including the factors described under the heading Risk Factors in the company's periodic filings with the SEC available on the company's Investor Relations website at neurometrix.com and on the SEC's website at sec.gov. NeuroMetrix does not intend or undertakes no duty to update the information disclosed on this conference call.

I'd now like to introduce the NeuroMetrix Senior Vice President and Chief Financial Officer, Mr. Thomas Higgins. Mr. Higgins, please go ahead.

Thank you, Michelle, and thanks to all of you who are joining our CEO, Dr. Shai Gozani, and myself for today's Q3 earnings call. By way of background, we are a med tech company. Our mission is to reduce the impact of neurological disorders and pain syndromes on individuals and on population health. Our commercial products are noninvasive. They address worldwide market opportunities. They have no direct competition. There are alternatives but not substitutes.

Our neurodiagnostics are DPNCheck and ADVANCE, and our neurotherapeutics are the Quell product line. Our business model is razor-razorblade. Aftermarket revenue is the principal component of our product line profitability. Our strategic focus is to expand DPNCheck in the Medicare Advantage market and to develop the Quell portfolio for specific disease indications.

Today, we reported Q3 revenue of $2 million and year-to-date revenue of $6.4 million. In both the quarterly and the year-to-date periods, revenue was essentially flat with the prior year. Aftermarket sales were 79% of revenue versus 82% in Q3 last year.

DPNCheck represented about 75% of revenue. Medicare Advantage was even with Q3 of 2021 and up 11% year-to-date. Our Medicare Advantage business development team continues to make pipeline progress, and we anticipate a boost in activity in Q4 leading into 2023. International sales were down about $96,000, primarily reflecting lower DPNCheck sales to China and to Japan. Neither of these countries has fully returned to prepandemic conditions.

Quell revenue was up 13% versus Q3 of last year. Direct-to-consumer sales ended on September 30 of this year. The Q3 revenue increase was likely related to the last time buy opportunities for Quell direct-to-consumer.

The legacy ADVANCE diagnostics business declined in Q3, consistent with prior periods.

Gross profit in Q3 was $1.3 million and $4.5 million year-to-date. Our gross margin rates were 65% and 71%, respectively. We've continued to successfully source the electronic parts that are essential to us maintaining our production, but often at a premium to our standard costs. And this premium, or PPV, exceeded $200,000 in Q3. Obviously, that adversely affected gross profit and the margin rate. If you exclude the PPV expenditures in the quarter, our Q3 margin rate was about 74%. The electronics industry widely expects parts shortages to persist through next year.

Operating expenses totaled $3 million in Q3 and $8.4 million year-to-date. As we've previously disclosed, OpEx reflects a $4 million program of specific spending to improve infrastructure and our capacity to handle future growth. It covers product development, sales and marketing resources, IT systems, governance and others. The program spans this year as well as into next year, and we estimate that about half of that spending will be variable and the other half will be fixed and recurring.

R&D incremental spending covers outside engineering support, third-party regulatory services and clinical programs. Our sales and marketing investments are primarily in headcount and personnel to drive Medicare Advantage and the Quell neurotherapeutics initiative. And G&A incremental spending covers IT and ERP system, quality system, Board governance and staff retention.

Net loss in Q3 was $1.6 million or $0.23 a share. Year-to-date net loss was $3.7 million or $0.53 a share.

Regarding cash flow and our balance sheet. Net cash operating usage in the quarter was $2.1 million and $3.8 million year-to-date. We ended the quarter with $20.8 million in cash and securities, and we maintain a simple debt-free capital structure. There are 7.1 million common shares outstanding as of the end of September 2022. We believe that our liquid resources are adequate to support our growth initiatives this year and beyond.

And now for Dr. Gozani's comments.

Thank you, Tom. As a reminder, our strategy is built on 3 core elements: the first is organic growth in our established DPNCheck Medicare Advantage business; the second is to launch and grow our recently obtained Quell Fibromyalgia indication in the U.S. market; and the third is to advance our Quell neurotherapeutics program, which may lead to additional indications and an expanded addressable market.

Now I will comment on each of these activities. First, with respect to DPNCheck. We have a value-based care commercial team that focuses on increasing DPNCheck adoption in the Medicare Advantage market. This includes large medical groups, health systems and health assessment companies where a substantial portion of their patients are covered under Medicare Advantage. The sales cycle in this market is long, and therefore, we expect the bulk of the impact from this team which was put in place earlier this year will be felt in 2023. However, we are pleased with the sales activities and the quality and depth of the pipeline.

Although our DPNCheck Medicare Advantage revenue in the third quarter was flat on a year-over-year basis, there were positive developments. Most importantly, we grew the number of medical groups and health assessment companies that ordered product. However, we also saw a reduction in orders from our largest customer relative to prior quarters, and that canceled out the new customer expansion. It's unclear how these factors will balance in the next few quarters, but in the long term we are reducing customer concentration, which will facilitate consistent growth in this business.

There are a number of R&D activities that will support continued growth in the Medicare Advantage market. We recently launched our second-generation device called DPNCheck 2.0. This device has improved usability while maintaining the high diagnostic accuracy and reliability of the original DPNCheck device. Another R&D program is DPNCheck Cloud, which is a data that analytics platform that allows our customers to monitor and optimize their DPNCheck implementation and address key population health questions through a family of web-based dashboards. We anticipate launching DPNCheck Cloud in the first half of 2023. Finally, we are working to improve integration to the DPNCheck reporting software and our customers' electronic health record systems.

Moving on to Quell Fibromyalgia. As we have discussed over the past couple of years, we have been transitioning Quell from a specific -- from a nonspecific, over-the-counter treatment for chronic lower extremity pain to a prescription neurotherapeutic platform. As of the end of the third quarter, Quell is no longer available over the counter and will only be available by prescription in the future, starting with fibromyalgia. As a reminder, fibromyalgia is a complex chronic pain syndrome that affects as many as 10 million people in the U.S. The only FDA-approved treatments are 3 drugs: pregabalin, duloxetine and milnacipran, which often have substantial side effects.

We received FDA breakthrough designation for this indication in July of 2021 and De Novo authorization in May of this year. Quell is the first and only FDA-authorized medical device to help reduce the symptoms of fibromyalgia. We are gearing up for a strategic launch this quarter and will proceed to a full launch in 2023. The purpose of the initial launch is to confirm the effectiveness of our prescription management solution, to refine the marketing messages and to collect key performance indicators that allow us to plan further commercial expansion. If these events occur as planned, then we believe that Quell revenue will resume growth in 2023.

The third element of our growth strategy is to continue to develop the Quell neurotherapeutics pipeline beyond the initial fibromyalgia indication. The program that is the furthest along is for chemotherapy-induced peripheral neuropathy, or CIPN, which affects as many as 70% of people who receive chemotherapy. It can be a chronic and debilitating side effect of cancer treatments. NIH National Cancer Institute-funded multicenter double-blinded randomized sham-controlled trial has been underway for the past couple of years and has recently completed. Study results should come out in the first half of 2023. If the results are positive, that we will look to file a De Novo request by the end of next year for this indication. Importantly, we received FDA breakthrough designation for treating moderate to severe CIPN in January of this year.

We have pilot studies ongoing in Long COVID and CLPC, which stands for chronic overlapping pain conditions. Many individuals with Long COVID experienced symptoms similar to fibromyalgia, and therefore, we hypothesized that Quell will be beneficial in this population. CLPC is a set of common health conditions that often occur together in the same patient and includes fibromyalgia, chronic low back pain, migraine, temporomandibular joint disorder and irritable bowel syndrome.

These conditions are thought to share a common pathological process called central sensitization, which is a state in which the brain over amplifies pain and other sensory signals. Based on data that has been published and additional analyses that were presented at upcoming medical conferences, we believe that Quell decreases central sensitization and therefore may have clinical benefits in a host of pain and neurological conditions.

And that represents our prepared comments, and we'd be happy to take questions at this point.

(Operator Instructions) Our first question comes from Jarrod Cohen with JM Cohen & Company.

Yes. Just I know you've talked about this in the past with your new strategy. Just -- can you just remind us how you're going to go marketing to physicians both for fibromyalgia and for chronic pain going forward in terms of them writing prescriptions for Quell?

Yes. Thank you for the question, Jarrod. So we've -- that is still to be determined. We have brought on our first sales leader to direct us into that effort. We're going to be starting by going primarily to the key professional conferences to speak to the relevant physicians, which in this case we'll be focused on rheumatologists and pain physicians. And that will be the basis for the initial launch, which will be strategic. And then based on the results of that initial experience, we'll determine how we proceed forward, whether that would be more of a digital strategy or we'll put salespeople directly into the market. So that will be determined after our initial experience.

Our next question comes from William Church with Tgra Capital.

I just missed, what's the timing on the CIPN?

Yes. The study has completed. It is now being -- the results are being compiled, and we would expect that the group that conducted the study will release the results sometime in the first half of next year. And based on what that looks like, we would be prepared, if they're positive, to file a De Novo request, similar to what we did for fibromyalgia by the end of next year.

(Operator Instructions) At this time, I am not showing any further questions. I would now like to turn the conference back to Dr. Gozani for closing remarks.

Thank you, Michelle, and thank you for joining us on this conference call today, and we look forward to updating you after the end of the year. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.