NeuroMetrix Inc (NURO) 2023 Q4 法說會逐字稿

Good morning and welcome to the NeuroMetrix fourth-quarter 2023 business and financial update. My name is Josh 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 and undertakes no duty to update the information disclosed on this conference call.

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

Thank you, Josh, and welcome to our Q4 2023 business update. By way of background, we are a commercial stage medical device company. Our two principal products are first is Quell, a wearable neuromodulation platform, addressing chronic pain related to fibromyalgia and with multiple emerging indications, including CIPN long COVID, chronic low back pain, chronic overlapping pain condition and others.

And second DPNCheck, which is a screening technology for peripheral neuropathy, particularly related to diabetes. Our business model is razor-razor blade with aftermarket revenue as the primary financial objective at our current operating scale, we are adequately funded with about $18 million in liquid assets.

Our cash usage rate averaged about $1.5 million per quarter during 2023. Our capital structure is simple. It's debt free and common stock based. Earlier today, we reported Q4 2023 revenue of $1.3 million. DPNCheck continues as the largest contributor, representing about 80% of revenue in the quarter. It was down by 32% from Q4 of last year. And as we've discussed in prior quarters, this significant decline was attributable to the Medicare Advantage CMS rule changes in early 2023, which initiated a two year time table to phase out reimbursement for a range of patient screening, including peripheral neuropathy.

On a full year basis, this business contracted by 25%. The balance of our Q4 revenue reflects offsetting dynamics of Quell Fibromyalgia revenue growth on the upside, nearly doubling from Q3 to the sequential quarter and continuing revenue shrinkage in our legacy products, primarily consisting of electrodes sales for nerve conduction testing for long-time customers.

For the full year 2023 revenue of $5.9 million was down by 29% from $8.3 million in 2022, principally due to the Medicare Advantage CMS rule changes. Gross profit in Q4 2023 was about $850,000. The gross profit reduction of about $400,000 from $1.2 million in Q4 of last year, correlates with the drop in revenue. Our Q4 gross margin rate was 64.4%, a slight contraction from the prior year quarter, reflecting a reduction in the absorption of indirect manufacturing costs, which resulted from lower production problem, brought lower production volumes.

For the full year 2023 gross profit was $3.9 million at a margin rate of about 67%, down by $1.8 million from $5.8 million in 2022 at a margin rate of just under 70%. Operating expenses in the fourth quarter totaled $2.7 million. The OpEx increase of about $600,000 or 30% from the prior year quarter reflects the timing of R&D spending for outside engineering services plus increased sales and marketing headcount during the year to support the launch of Quell Fibromyalgia.

Personnel costs, this would be headcount and compensation throughout the organization were significantly higher in comparison with the prior year. Full year OpEx of $11.1 million increased by $600,000 or 5.8% from 2022.

Net loss in Q4 was $1.6 million or $1.43 per share. The net loss increased $1 million from the net from a net loss of just under $700,000 or $0.73 a share in Q4 of last year. Operating cash usage in the quarter was about $1.4 million this year versus $1.5 million in Q4 of last year. For the full year, our net loss of $6.5 million or $6.27 per share increased from a loss in 2022 $4.4 million or $4.97 per share.

We closed the quarter with liquid assets of $18 million. As I mentioned previously. During Q4, we executed sales of common stock under our ATM facility of approximately $1.9 million, and of that, about $1.6 million settled during the fourth quarter. Common stock outstanding at the end of 2023 totaled approximately $1.5 million shares and this is after the November 1, 2023 date in which we implemented a reverse split in the ratio of 1.8% in order to comply with NASDAQ minimum bid requirements.

So those are the highlights on the financial report and now for the comments of Dr. Shai Gozani, our Founder and CEO.

Thank you, Tom. Our growth strategy is built on three core efforts. The first, establish and grow the Quell Fibromyalgia indication in the US market. The second is to advance the Quell neurotherapeutics program, which will lead to additional indications and an expanded addressable market. And the third is to revise the DPNCheck business strategy to account for the recent negative changes. (technical difficulties)

Quell is our wearable neuromodulation platform. It is based on our proprietary adaptive transcutaneous electrical nerve stimulation technology. And it is the only daily multi-hour wearable treatment for chronic pain syndromes. Is FDA-cleared for relief of lower extremity chronic pain and has received FDA de novo authorization as the first and only neuromodulation device indicated to help reduce the symptoms of Fibromyalgia and this latter indications available by prescription only.

At this time, our commercialization efforts are exclusively focused on the Fibromyalgia indication. Fibromyalgia is a complex chronic pain syndrome that affects up to 15 million people in the US. The only FDA approved drugs pregabalin, duloxetine and milnacipran, which can have a substantial status. Therefore, there's a critical unmet need for additional safe treatments.

The fourth quarter of 2023 was it was the fourth quarter of the commercial launch of Quell Fibromyalgia. At this time, we are in a deliberate strategic phase that is intended to optimize the effectiveness of our prescription processing solution to refine the clinical and marketing messaging and to identify the most attractive patient cohorts for the solution.

Our commercial team consists of a national director of sales and two regional business managers, which provide us with preliminary coverage in the Florida, Texas and California markets. We have partnered with the National Online Pharmacy to fill both the initial prescriptions and refills. At this time, Quell Fibromyalgia is available on a cash pay basis with the exception of certain VA facilities where it has a cover treatments.

We have also added a telehealth option that allows patients to receive prescriptions without requiring an in-person physician visits. We are pleased with the growth in the Quell Fibromyalgia business in the fourth quarter of last year. There are 199 unique prescribers during Q4 compared to 125 during Q3. The most common prescribers are rheumatologists, pain medicine specialists and neurologists.

The number of qualified miles of prescriptions written increased to 583 in Q4 from 262 and Q3 with about 60% of prescriptions filled by patients. And the number of month refills increased from 315 in the third quarter of last year to 525 in the fourth quarter.

Following the end of the quarter, we increased the refill price by 33%. Overall, we are pleased with the early commercial experience with Quell Fibromyalgia, and we hope to see continued progress leading to material revenue this year.

Now in terms of the overall quality of our therapeutics program. This is the second element of our growth strategy, and that is to increase our pipeline beyond the Fibromyalgia indication. The program that is furthest along is for treatment of chronic chemotherapy-induced peripheral neuropathy or CIPN, which affects as many as 30% of the approximately 1 million people who receive chemotherapy every year. It is a chronic and debilitating side effect of cancer treatments.

Quell received FDA breakthrough designation for treating moderate to severe CIPN in January of 2022, based on a pilot study conducted at the University of Rochester. An NIH-funded multicenter, double-blinded randomized sham-controlled trial completed enrollment in the third quarter of 2022, and we recently submitted a premarket notification or 510(k )with the FDA for Quell CIPN indication that was done in December, depending on the FDA review time line ultimate decision, we could be in a position to initiate commercialization before the end of this year or early next year.

We also reported positive results from a pilot study of Quell in post-acute COVID-19 syndrome, which is also called long COVID. About one-third of patients with long COVID have a Fibromyalgia like presentation, and we are currently evaluating whether this recent clinical data is sufficient to support a 510(k) submission with Quell Fibromyalgia as the predicate device.

Now moving on to DPNCheck. DPNCheck is our rapid point-of-care test for peripheral neuropathy such as diabetic peripheral neuropathy or DPN, which is the most common long-term complication of diabetes. DPNCheck is the only point of care peripheral neuropathy test based on gold standard nerve conduction study technology.

Our DPNCheck business has been comprised of B2B cells into the US Medicare Advantage market and international sales in China and Japan for distribution partner. Historically, 80% of our DPNCheck revenue has come from domestic sales. We have a value-based commercial care team that has been focused on increasing DPNCheck adoption in the Medicare Advantage market. This includes large medical groups, integrated delivery networks, health systems and health assessment companies where a substantial portion of their patients are covered under Medicare Advantage.

The business had been growing for several years. However, substantial and uncertainty was injected into the Medicare Advantage sector last year due to policy changes announced by the Centers for Medicare & Medicaid Services or CMS.

In April, CMS announced significant changes to the hierarchal conditions categories or HCC risk adjustment model for the calendar year 2024. The new model, alters the risk adjustment environment and iAmong its many changes, essentially eliminates HCC codes for peripheral neuropathies are detected by DPNCheck screening programs.

We are evaluating the evolving landscape at this point, believe it will be necessary to alter our strategy to move away from Medicare Advantage focused business to one more broadly addressing value-based care. We are currently exploring various alternative alternate markets within value-based care and retail health care in attempt to reconstitute a profitable, scalable business model. We are not yet in a position to outline the new commercial strategy.

As we saw this quarter, the Medicare Advantage changes have caused a material downward pressure on the DPNCheck revenues, implementation of new strategies will take time and therefore, we do not see a reversal in revenue this year. Nevertheless, we expect the DPNCheck business line will continue to generate positive cash flow by virtue of its attractive operating margins.

Now let's move on to our recent release on executing a review of strategic options. While the company management and the Board are disappointed by the impact of external forces of DPNCheck. We remain enthusiastic about the potential for our Quell neuromodulation business and in fact, also our DPNCheck business. Of course, we are also mindful of the divergence between our stock price and the potential of our product lines and strong balance sheet.

A few weeks ago, we announced that we were initiating a process to review strategic options to promote growth of our product lines and to maximize shareholder value. We intend to consider various options, including changes in marketing strategies, the acquisition of new assets, potential self company assets and merger or other strategic transactions.

While we are exploring these options, we did not expect to make any fundamental changes in the company's commercial operations. We have engaged Landenburg Thalmann with whom we have a long-standing relationship to help us in this process. So there can be no assurances that any specific actions will be taken or emerge from this process.

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

Thank you. (Operator Instructions)

Jarrod Cohen, JM Cohen & Company.

Just, I know you, want to is there a broader opportunity for DPNCheck in the, just I know you don't want to answer it in the broader diabetes market. It's just seems odd that or for the older population.

Well, Jarrod, I mean, that is used extensively for for diabetic peripheral neuropathy. So yes, the diabetes market, we have been focused on the diabetes market within Medicare Advantage because of the strong clinical benefits as well as the economic benefits, too, the medical groups that were using it and made and many could continue to use it, but sort of to your point, expanding our reach outside of Medicare Advantage to other diabetes sectors is part of our strategic consideration.

Okay. Just haven't been used so far, -- in the broader. Okay. All right. And just in doctors, I know because they use codes, but they don't they use other beyond codes because I guess I'm trying to get those they want to use the device or the diagnosis, even if we're in a broader scale that help diagnose the patient. But what else do they have to do it?

Well, I think that's a good point. So I think the there is a cost to the device and there's a cost to the consumables. So they do not to be compensated for their time and materials and some fashion, and that was well established in the Medicare Advantage market. But there is a, in fact, a CPT code for our nerve conduction testing technology. The challenges that most insurers and this includes Medicare as well as commercial insurers typically do not reimburse for screening testing as opposed to clinical testing submitting based just on annual screening. That's not something that typically is reimbursed for really most diagnostics with some notable exceptions.

So but the large part of the market is on the screening sites that was established for Medicare Advantage. And then unfortunately, CMS decided to make some broad brush changes to that. Again, not just for peripheral neuropathy, but for many other tests as well. So your point is well taken, but there has to be some sort of economic model that at least covers the cost of the tests for physicians.

Okay. All right. Thank you.

Joshua Horowitz, Palm global small-cap Master Fund LP.

Good Morning. I'd like to know who's advising the company that it's the proper and efficient use of the company's capital and strategy to clandestinely sell stock every quarter under the ATM as opposed to doing a legitimate stock offering with institutional investors?

Yes, I'll. I wouldn't describe it as clandestinely, but I will I'll let Tom address that question.

Sure. That's that's an interesting choice of words that you use since whenever we do use the ATM that's reported every quarter. So perhaps you what to reconsider some of -- (multiple speaker)

We don't find out about that you guys publish, right? So it's sort of clandestine on out there in the market interested in the company buying stock, you guys are sitting there pressing a button and selling it. It's a pretty ridiculous structure that sort of makes the company on investable. Don't you agree?

No, I think you've absolutely got it wrong. If you look at our company, we are a consumer of cash. We're also a company that's looking to grow and so we do have two choices here we can either do as you recommend, which is to tried to put together on an offering to the market. But you may since you're in this business. You may be aware that the market hasn't been very receptive to pipe deals, particularly for micro-cap companies over the last couple of years.

And so we think that it makes a little bit more sense to sell shares directly to people that are interested in buying on a small basis when the opportunity presents itself. And so if you're asking who gives us this advice well, it comes from investment bankers that we speak with and it's discussed internally.

There was $10 billion of issuances last year. So I don't know what what you're talking about, but I would recommend that you cancel the pipe to a legitimate offering, bringing long-term value oriented institutional investors that will support the company. Maybe that comes along with some governance changes. And absent that, you should just literally close down melt the whole thing down and return the cash to the stockholders because the current setup is just the recipe for disaster, you can't point to one legitimate company that's used in ATM.

Well, thank you very much for your input.

(Operator Instructions)

And I'm not showing any further questions at this time. I would now like to turn the call back over to Dr. Gozani for any closing remarks.

We'll thank you for joining us on this conference call and look forward to updating you over the course of this coming year. Thank you for your attention.

Thank you for your participation. You may now disconnect.