NeuroMetrix Q3 2023 Earnings Call Transcript

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October 26, 2023

There are 3 speakers on the call.

Operator

Good morning, and welcome to Neuometrics Third Quarter 2023 Business and Financial Highlights Update. My name is Norma, and I'll be your moderator on the call. On the 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 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 newer metrics about future results of operations or other forward looking information.

Operator

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 headings Risk Factors and the company's periodic filings with the SEC available On the company's Investor Relations website at neumetrics.com, on the SEC's website at sec.gov. Neumetrics does not I'd now like to introduce New Ametric's Senior Vice President and Chief Financial Officer, Mr. Thomas Higgins. Mr. Higgins?

Speaker 1

Thank you, Norma, and welcome to all of you who are joining our CEO, Doctor. Shai Gozani and myself for today's Q3 2023 update. By way of background, Neurometrics is a commercial stage medical device company addressing unmet needs in chronic pain and diabetes. Our products are non invasive. They have no direct competition and offer worldwide opportunities.

Speaker 1

Our business model is razor razorblade With aftermarket revenue as the primary financial objective. Our principal technologies are Quell, Which is a wearable neuromodulation platform, which we have transitioned from over the counter to a prescription platform And DPNCheck, a screening technology for peripheral neuropathy, particularly neuropathy related to diabetes. We have a solid balance sheet with $17,600,000 in liquid assets. Our capital structure is simple and debt free. There are approximately 8,600,000 common shares outstanding and 800,000 employee equity grants, which are stock options and RSUs.

Speaker 1

Today, we reported Q3 revenue of $1,200,000 which was down 39% Compared with $2,000,000 in Q3 of last year. The reduction reflects the contraction in Medicare Advantage patient screening, Which followed the substantial reimbursement changes adopted by CMS, Centers For Medicare and Medicaid in Q1 of this year. Patient risk adjustment rules were modified with a 3 year phase in affecting a range of patient screening procedures including neuropathy Often perform with DPNCheck. We've discussed this in the prior quarters of this year. There's been no update or modification to the new CMS rules.

Speaker 1

Our DPNCheck business experienced a net revenue reduction of $512,000 or 35% in the Q3 of this year versus last year. In the 9 months year to date, DPNCheck revenue is down a cumulative $1,100,000 or 23% versus 2022. Q3 revenue also reflects the strategic transition of our Quell Neuromod technology from chronic pain For chronic pain from over the counter sales to prescription indications. This was initiated in late 2022 And continues through a strategic commercial launch. At the end of Q3 last year, we discontinued marketing Quell over the counter And in Q4 of last year, we initiated our prescription sales of Quell Fibromyalgia.

Speaker 1

While sales of Quell Fibromyalgia have been growing this year, They have not yet reached the level of Quell over the counter sales in the prior year. During the Q3 of this year, we expanded our Quell direct sales presence Within the large markets of Texas, Florida and California. Our gross profit of this year In Q3 was $800,000 compared with $1,300,000 in Q3 last year. The gross profit reduction correlates with lower revenue in the quarter. Our gross margin rate in the Q3 was 65%, Which is consistent with the Q3 of last year.

Speaker 1

Operating expenses totaled $2,700,000 down from $3,000,000 last year. The OpEx decrease of $245,000 or 8% primarily reflects the offsetting effects of increased headcount costs From our expanded sales direct sales team and the reduced R and D utilization of outside professional services. Net loss was $1,800,000 or a negative $0.21 per share versus 1,600,000 Or negative $0.23 per share in Q3 of last year. Our operating cash usage in the quarter was approximately $2,100,000 As I mentioned, we hold $17,600,000 in liquid resources. This is cash and securities and these are expected to be adequate to support the next Phase of our Quell growth initiatives.

Speaker 1

NeuroMetrix common stock is currently trading in the range of 0.65 dollars to $0.70 per share. From an accounting standpoint, as of the end of Q3, our neuro liquid assets We're valued at $2.05 per share and our stockholders' equity was $2.32 per share. During the Q3, we received a delisting notice for non compliance with the NASDAQ minimum bid price rules of $1 per share. NASDAQ has provided us a 180 day grace period until early February next year to regain compliance. On October 19, our stockholders authorized a reverse split of our common stock If the Board of Directors believes it would be an appropriate step to address the minimum bid price issue, The Board has not yet made a decision on a possible reverse split.

Speaker 1

And now for Doctor. Gozani's comments.

Speaker 2

Thank you, Tom. Our growth strategy is built on 3 core efforts. The first is to establish and grow the Quell fibromyalgia indication in the U. S. Market.

Speaker 2

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 changes in Medicare Advantage. I'll now comment on each of these activities. First with respect to QUAL Fibromyalgia. QUAL is our wearable neuromodulation platform.

Speaker 2

It is based on our proprietary adaptive transcutaneous electrical nerve stimulation technology and is the only daily multi hour wearable treatment for chronic pain syndromes. It 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. This latter indication is 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 15,000,000 people in the U.

Speaker 2

S. The only FDA approved drugs are pregabalin, duloxetine and minaseprine, which There is a critical unmet need for additional safe treatments. The Q3 of this year was the Q3 of 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 find the clinical and marketing messaging and to identify the most attractive patient cohorts for our solution. Our commercial team consists of a National Sales Director and 2 regional business managers, which provide us with preliminary coverage over Florida, Texas and the California markets.

Speaker 2

And we expect to decide on our next expansion in the Q2 of 2024. We have partnered with a national online pharmacy to fulfill both Prescriptions and refills. At this time, Qual Fibromyalgia is only available on a cash pay basis. There are 125 unique prescribers during the Q3 compared to 123 during the Q2. The most common prescribers are rheumatologists, Pain medicine specialists and neurologists.

Speaker 2

The cumulative number of cough Fibromyalgia prescriptions that have been written increased to 752 In the Q3 from 490 in the 2nd quarter with over 60% of prescriptions filled by patients. The cumulative number of month refills almost doubled from 348 in Q2 to 663 in the 3rd quarter. Overall, we are pleased with our early commercial experience with Quell Fibromyalgia. We expect to see continued progress leading to material revenue in 2024. Moving on to our broader Quellner Therapeutics program.

Speaker 2

As I mentioned, the second element of our growth strategy is to develop Developed the pipeline for Quelv Neuro Therapeutics beyond the initial 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 1,000,000 people who receive chemotherapy every year It is a chronic and debilitating side effect of cancer treatment. Quell received FDA breakthrough designation for treating moderate to severe in January of 2022 based on a pilot clinical study conducted at the University of Rochester. A NIH funded multicenter double blinded sham controlled randomized sham controlled trial completed enrollment in the Q3 of last year. We have now had the opportunity to review the results and have determined that they support a FDA 510 filing for a Quell C IPAN indication.

Speaker 2

We have largely completed the submission documents, but since the study was externally funded by NIH, we must wait for the results to be published before sending the data to the FDA. We hope that this occurs in this quarter or in the Q1 of next year at the latest. Depending on the FDA review timeline and ultimate clearance decision, We believe that we could be positioned to initialize initiate commercialization before the end of 2024. 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.

Speaker 2

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 a B2B sales into the U. S. Medicare Advantage market In international sales in China and Japan through distribution partners, about 80% of DPNCheck revenue has historically come from domestic sales. We have a value based commercial team that has been focused on increasing DPNCheck adoption in the Medicare Advantage market.

Speaker 2

This includes large medical groups, IDNs, health systems and health assessment companies where a substantial portion of their patients are covered under Medicare Advantage. This business has been growing over the past several years. However, substantial uncertainty was injected into the Medicare Advantage Sector Due to policy changes announced by the Centers For Medicare and Medicaid Services or CMS. In April of this year, CMS announced significant changes to the hierarchical condition Risk Adjustment Model for calendar year 2024. The new model alters the risk adjustment environment and among its many changes, Essentially eliminated ATC codes for peripheral neuropathy are detected by DPNCheck screening programs.

Speaker 2

We believe that this uncertainty led our largest Medicare Advantage customer and Several smaller customers suspend their medical screening programs, including for DPNCheck or cleaning using DPNCheck. We're evaluating the evolving landscape and 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. Our expectations that we will finalize our new commercial strategy during the Q4. As we saw in this quarter, the Medicare Advantage changes have caused a material downward pressure on DPNCheck revenues. Implementation of a new strategy will take time Therefore, we do not see a reversal in 2024.

Speaker 2

Nevertheless, we expect the DPNCheck business line will continue to generate positive cash flow By virtue of its attractive operating margins, which will help offset our investments in the growing qualm neurotherapeutics business.

Operator

Please standby while we compile the Q and A roster. I am currently showing no questions at this time. I'd like to hand the conference back to Doctor. Ghazani for closing remarks.

Speaker 2

Thank you for joining us on the call today, and we look forward to keeping you updated over the balance of the year.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.

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Earnings Conference Call
NeuroMetrix Q3 2023
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