NeuroMetrix Inc (NURO) 2021 Q4 法說會逐字稿

Good morning, and welcome to NeuroMetrix Fourth Quarter and Full Year 2021 Earnings Call. My name is Towanda, 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.

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

Thank you, Towanda and those of you attending today's quarterly review. Dr. Shai Gozani, President and CEO of NeuroMetrix, is participating in this call.

For those unfamiliar, we are a Boston-based medical device company focused on reducing the impact of neurological disorders and pain syndromes, both on individuals and on populations. Our technologies are noninvasive. We hold extensive proprietary intellectual property. Our business model is based on recurring revenue from a customer installed base. And our principal products are DPNCheck, a diagnostic device providing rapid point-of-care detection of peripheral neuropathy; and Quell, a wearable neurostimulation device indicated for symptomatic relief of lower extremity chronic pain.

Revenues in the fourth quarter of the year were $1.8 million. This is flat with Q4 of last year. Full year revenues of $8.3 million were up 11.9% from the prior year. DPNCheck sales to U.S. Medicare Advantage accounts constitute the majority of revenue. Medicare Advantage revenue was up 26% year-on-year, primarily reflecting pricing increases.

International DPNCheck sales, which are primarily to Japan and China, were up 7% year-on-year. However, within that growth rate, revenue from consumables grew 46%, and this was a combination of volume growth and higher pricing.

Quell revenue in Q4 was up slightly quarter-on-quarter and down on a full year basis. Ad spending continues to be carefully managed to ensure a positive product line contribution to operating results.

Our aftermarket sales, primarily our consumable electrodes and biosensors across all product lines, constituted 89.9% of total 2021 revenue versus 76.6% in 2020. This was a meaningful year-on-year expansion of recurring revenue from the installed user base.

Gross profit on revenue was $1.2 million in the quarter, down from $1.3 million in Q4 of 2020. Spending to secure critical parts caused the unfavorable variance. For the full year, gross profit increased to $5.9 million from $5.2 million in 2020. Our gross margin rates were 71.7% in 2021 versus 71.2% in 2020, an improvement of 20 basis -- sorry, 50 basis points.

Looking back to 2020, we saw delays in parts deliveries and longer lead times on orders starting late in the second quarter, early in the third quarter. This evolved in the second half of the year into part shortages at traditional sources. So far, we've been able to meet our production requirements by turning to alternate distributors albeit at higher prices and with the margin effects we experienced in the fourth quarter. As we all know, this is a global problem and it's not possible to predict when we'll see a return to a more orderly supply environment. In the next several quarters, we will likely experience further margin contraction as we deal with the situation and take all essential steps to maintain production.

Operating expenses totaled $2.2 million versus $1.7 million in Q4 last year. For the full year, OpEx increased to $8.2 million from $7.3 million.

Fourth quarter of 2021, we transferred R&D certain unique custom parts to support the development and the eventual commercialization of Quell technology for specific disease indications, with fibromyalgia being the initial prescription program. These parts carried a value of $400,000.

Also in the fourth quarter, we incurred sales and marketing costs related to an independent consulting study and evaluation of commercialization options for the emerging prescription portfolio.

Increased personnel costs, including incentive compensation, were recorded within all categories in OpEx in the fourth quarter and during the full year 2021.

Net loss for the fourth quarter was $1 million versus $326,000 in 2020. On a full year basis, the loss was $2.3 million in 2021 versus $2.1 million in 2020. Converted to a per share, net loss for the year was $0.45 in 2021 versus $0.69 in 2020, with the increase in shares outstanding in the last year diluting the EPS number.

With regard to the balance sheet and capitalization, we ended the quarter with $22.6 million in cash, 6.7 million shares outstanding, that's $3.38 cash per share, and stockholders' equity of $23.2 million, which is $3.48 a share. We have adequate funding to invest in the growth strategies during 2022 and beyond.

Dr. Gozani will now address our overall strategy.

Thank you, Tom. So I will be covering updates on our product lines. I'll discuss our growth catalysts and provide directional guidance for 2022.

Starting with DPNCheck. We are preparing for a focused launch of our second-generation DPNCheck device in the U.S. market. Now unfortunately, the breadth of the launch is constrained by the supply chain challenges that limit our ability to build inventory. Due to these production issues, we expect to phase in the second-generation device over the course of 2022.

The key innovations in the second-generation device are around enhanced usability. We leveraged our experience with the first-generation device accumulated over about 8 years in nearly 2 million patient tests to substantially revamp the technician's experience to make it easier and faster to complete a DPNCheck test, both of which are critical for scalability of a point-of-care test. Importantly, however, the underlying diagnostic measurements are unchanged. So the large body of published peer-reviewed clinical literature that has validated the diagnostic accuracy and utility of the DPNCheck test continues to apply.

On the commercial front, we are building our DPNCheck commercial team under the direction of Sue Bell, our SVP, Population Health and Value Based Care. Brandi Damkier recently joined as VP, Clinical Partnerships, and we are expecting to hire several more individuals with deep Medicare Advantage experience in the near term.

This is the first time we have had a dedicated commercial effort targeting the Medicare Advantage market and, more broadly, value-based care. We expect to see a positive revenue impact from this organization starting later this year given the long sales cycle characteristics of an insurance-oriented business. We believe that investing now in enhancing our DPNCheck commercial capabilities will provide a substantial and sustained return in the coming years.

Now moving to the Quell neuromodulation platform. Quell is currently FDA-cleared for symptomatic treatment of lower extremity chronic pain and is available over the counter. As we have discussed over the past couple of years, we are transitioning from over-the-counter to prescription applications. In particular, we are building a portfolio of prescription wearable neurotherapeutics for specific disease indications. Our lead program is for fibromyalgia, a complex, chronic pain condition that affects about 10 million U.S. adults.

In July of last year, we received an FDA breakthrough device designation for the use of Quell to treat fibromyalgia symptoms in adults. And in October of last year, we filed our de novo request for this clinical indication which is currently under review at the FDA. Depending on FDA review time lines, we hope to be positioned for a focused launch of the prescription Quell offering for treatment of fibromyalgia later this year.

Now at this time, we are primarily focused on the ongoing regulatory process, but we are also starting to ramp up our commercial efforts. We have engaged a leading health care consultancy to conduct a go-to-market strategy analysis. And we hope to provide more information about the market and our strategy as we get closer to launch. However, we can offer some general direction at this time.

The primary sales target for the fibromyalgia indication at launch will be about 10,000 rheumatologists and pain medicine physicians who are the key specialists that manage fibromyalgia. We are planning to utilize regional and national professional conferences, digital outreach and other novel strategies to educate these physicians about Quell as a treatment option for fibromyalgia. At this time, we are not planning to establish a dedicated field sales organization.

We intend to work towards broad, third-party reimbursement for the fibromyalgia indication, and there may be some patients for which reimbursement under the existing durable medical equipment benefit for TENS devices is applicable. However, generic TENS reimbursement is sporadic, administratively burdensome to physicians and the co-pays and coinsurance can be quite expensive for patients, particularly those with high deductible plans. As a result, we do not expect a significant number of covered lives at launch because obtaining effective reimbursement will be a multiyear process.

As an alternative, we are developing a streamlined and cost-effective self-pay approach. We are leveraging our extensive direct-to-consumer experience to create a subscription model that should be financially acceptable to most patients with fibromyalgia and it will generate attractive sales and margins for the company.

From an operations perspective, we are not expecting to engage distributors or other third parties. We already manage prescription medical devices with our existing customer support and fulfillment infrastructure and believe that we can support the Quell fibromyalgia prescription business with modest growth in headcount and systems.

My last update is on our chemotherapy-induced peripheral neuropathy or CIPN program. This condition is a disabling complication that occurs in many patients treated with common chemotherapeutic drugs. There are a few treatment options for CIPN, and those that are used have limited effectiveness and cause side effects.

We recently announced that we received a second FDA breakthrough device designation for treatment of chronic CIPN by Quell. There's also an ongoing National Cancer Institute-funded, multicenter, randomized, sham-controlled trial of Quell in patients with CIPN. The trial is expected to complete this year. And if the results are positive, we anticipate a regulatory filing for this indication in 2023. And if those time lines hold, we may be in a position to launch this indication by the end of 2023.

Now though we are not positioned to provide specific financial guidance for this year, we can provide some directional guidance relative to last year. In terms of overall revenue, we expect it to increase, driven primarily by growth in the domestic DPNCheck business. Now this will be partially offset by a temporary decrease in Quell revenue as the business transitions from over-the-counter to prescription neurotherapeutics as well as a continued downward trend in ADVANCE revenue, which is a legacy business that lacks attention due to our focus on other priorities. We expect a modest increase in operating expenses, reflecting investment in our DPNCheck and Quell growth initiatives. We also anticipate a modest increase in net loss due to relative timing of investments and the resulting revenue growth. Finally, cash will decrease due to negative income. However, we expect to finish the year with about $20 million on the balance sheet -- $20 million of cash on the balance sheet. At this time, we are not planning to execute financings outside of opportunistic use of our ATM facility.

So in summary, NeuroMetrix is a committed and operationally efficient organization with novel products that are targeting large markets with unmet needs.

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

(Operator Instructions) We have a question from the line of [Joe Gudin].

Yes, this is Jarrod Cohen. Yes, so I guess, yes, as you said, this is a transition year in the sense that you'll both have over-the-counter and ultimately go to a prescription-based model ultimately in terms of -- at least for the -- I'm talking about the Quell, because I keep getting e-mails about that. So ultimately, you'll go to a total prescription-based model for the Quell. I'm just a little confused by that.

Yes. So thank you for the question, Jarrod. The plan is to ultimately wind down the over-the-counter business and transition completely to a focus on prescription products. So you are correct in that. That process will proceed through the course of the year. But ultimately, we see the real opportunity for us and the strongest growth in the disease-specific prescription indications that we've been talking about. That being said, we have FDA clearance for over-the-counter, so we will continue to support and provide product to all our existing over-the-counter customers.

Okay. So it's to the existing customers, they can keep getting reusables. And then to new indications will be a prescription model. Okay.

Exactly. Exactly.

(Operator Instructions) I'm showing no further questions in the queue. I would now like to turn the call back over to Dr. Gozani for closing remarks.

Well, thank you very much for joining us this morning, and we look forward to keeping you updated over the balance of the year. Thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.