NeuroMetrix Q2 2023 Earnings Call Transcript

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July 27, 2023

There are 5 speakers on the call.

Operator

Good morning, and welcome to the Neurometrics Second Quarter 2023 Business and Financial Highlights Update. My name is Mikey, 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 NeurMetrix about future results of operations and 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 heading Risk Factors in the company's periodic filings with the SEC available on the company's Investor Relations website atneurometrics.com and on the SEC's website atsec.gov. Neurometrics does not intend and undertakes No duty to update the information disclosed on this conference call. I'd now like to introduce the Neurometrics' Senior Vice President and Chief Financial Officer, Mr. Thomas Higgins.

Speaker 1

Thank you, Mikey, and welcome to all of you who are joining Doctor. Shai Gozani and myself for today's Q2 2023 update. By way of background, We are a commercial stage medical device company addressing unmet needs in chronic pain and in diabetes. Our product Invasive, they have no direct competition and offer worldwide opportunity. Our business is based on a razor razorblade model with aftermarket revenue as the primary financial objective.

Speaker 1

Our principal technologies are Quell, A wearable neuromodulation platform that has transitioned from over the counter to prescription and DPNCheck, A legacy screening technology for peripheral neuropathy, particularly diabetes related neuropathy. We maintain a strong balance sheet with about $19,600,000 in liquid assets. Those are cash and securities. Our capital structure is simple and debt free. There are approximately 8,600,000 common shares outstanding.

Speaker 1

Today we reported Q2 revenue of $1,700,000 compared with $2,100,000 in Q2 of last year. The reduction in revenue reflects uncertainty in the Medicare Advantage market among healthcare insurers and providers Caused by recent CMS changes in patient risk assessment rules. Our DPNCheck business, which sells into that market, Experienced a net 16% drop from Q2 of last year. However, within that drop, there was a 30% gain in sales for China and Japan year on year. Other factors affecting the Q2 reduction in revenue were the Quell transition to a prescription indication We're in growing Fibromyalgia sales partially offset the drop in over the counter and also the natural erosion of our legacy advanced electrode sales where we continue to support our existing users but do not promote the product and manage it for its cash flow benefits.

Speaker 1

Aftermarket sales across all products constituted 75% of revenue in the 2nd quarter. Our gross profit was $1,100,000 compared with $1,500,000 in Q2 last year and the drop in gross profit links to the lower revenues. Importantly, our gross margin rate of 68% was consistent with Q2 of 2022. Operating expenses totaled $2,700,000 virtually unchanged from the prior year quarter. A small increase in OpEx of $80,000 or about 3% reflected increased personnel costs offset by reduced spending on professional services.

Speaker 1

Our net loss was $1,500,000 in the quarter or $0.19 a share versus $1,200,000 or 0 point 17 per share in Q2 of 2022. Operating cash usage in the quarter was approximately 1,500,000 Our $19,600,000 in liquid resources are projected to be adequate to support the next phase of our Quell and DPNCheck Growth initiatives. And now for Doctor. Ghazani's comments.

Speaker 2

Thank you, Tom. Our growth strategy is primarily built on 3 core efforts. The first is to establish and grow the Quell Fibromyalgia indication in the The second is to advance the Quell neurotherapeutics program, which may lead to additional indications and And the third is organic growth in the DPNCheck Medicare Advantage business. And I'll now comment on each of these activities. First with respect to our Quell Fibromyalgia business.

Speaker 2

Quell is our wearable neuromodulation platform. 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 last year received FDA de novo authorization as the first and 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. S.

Speaker 2

The only FDA approved drugs are pregabalin, duloxetine and menasepran, which can have substantial side effects. There is a critical unmet need for additional safe treatments. The Q2 of this year was the Q2 of the commercial launch of called Fibromyalgia and followed a small amount of activity in December. This initial phase is strategic and intended to optimize the effectiveness of our prescription processing solution to refine the clinical and marketing messaging and to collect key performance indicators. Our commercial team has consisted of a single dedicated headcount, which is our Director of Sales.

Speaker 2

We have partnered with a national online pharmacy to fulfill both initial prescriptions and refills. And at this time, call, fibromyalgia is only available on a cash Our most common prescribers are rheumatologists, pain medicine specialists and neurologists. The cumulative number of Quell Fibromyalgia prescriptions that have been written increased to 490 in the 2nd quarter from 234 in Q1, with approximately 60% of RIN prescriptions being sold by patients. The cumulative number of month refills increased to 348 in the 2nd quarter from 141 in the 1st quarter. As recently announced, we have expanded our sales force to drive further adoption.

Speaker 2

This stage of the commercialization process will focus on the Texas, California and Florida markets, And then we expect to decide on our next expansion in the first half of next year. The second element of our growth strategy is to develop the Quell neurotherapeutics pipeline beyond the initial fibromyalgia indication. The program that is furthest along is a treatment of chronic chemotherapy induced peripheral neuropathy or CIPN, which affects as many as 30% of the approximately 1,000,000 people in the U. S. Who receive chemotherapy every year, is a chronic and debilitating side effect of cancer treatment, And there are no FDA approved treatments for CIPN.

Speaker 2

All received FDA breakthrough designation for treated moderate to severe CIPN in January of 2022 based on a pilot study conducted at the University of Rochester. A NIH funded multi center, double blinded, sham controlled trial completed enrollment in the Q3 of last year. We have now had an opportunity to review the results and have determined that they support a FDA 510 filing for a Quell CIPN indication, which we expect to make in the Q4 of this year. Depending on the FDA review timeline and ultimate clearance decision, we believe that we should be in position to initiate commercialization in the second half of next year. Moving to DPNCheck.

Speaker 2

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 is comprised primarily of B2B sales into the U. S. Medicare Advantage market and international sales in China and Japan through distribution partners.

Speaker 2

About 80% of our DPNCheck revenues come from domestic sales. This business has been growing for the past several years. However, in the past 6 months, Substantial uncertainty was injected into the Medicare Advantage Sector due to policy changes announced by the Centers for Medicare and Medicaid Services. We believe this uncertainty and other related factors led to our largest Medicare Advanced customer and several smaller customers suspending their medical screening programs, which included DPNCheck among other tests. At this time, we did not know if this is a temporary or permanent decision.

Speaker 2

These Medicare Advantage changes are putting material downward pressure on DPNCheck revenues, although it is too early to determine the magnitude and direction of the impacts. However, we expect that the DPNCheck business line will continue to generate positive cash flow by virtue of its attractive operating margins. We also believe there is a potential for resumed growth once we get through this period of uncertainty. And that represents our prepared comments and we'd be happy to take questions at this point.

Operator

Thank you. Please stand by while we compile the Q and A roster. Your first question comes from the line of William Church from PGRA Capital Management, your line is open.

Speaker 3

Hi, good morning. I was reading a study, University of Oxford Press, December 2022 talking about Tylo was using artificial intelligence to improve pain assessment and pain management. And they mentioned some of the numbers you do in terms of Americans experiencing pain. They concluded though, collective studies mentioned have demonstrated that AI has advanced understanding in multiple areas of clinical care, but none has fully Discuss the application of AI based intervention and their assessment. That was a statement or a question, because I'm Thinking about pain, electric signals, it's through the body's neural network and Quell's device Alleviate those and it just seems that with the history you have and are gathering, you're really at the frontline in terms of Trying to find a less non invasive solution.

Speaker 3

And I don't know if that's AI or non AI, but it just Seems to me like the data that you have in all the FDA, the clinical trials put your company in a pretty favorable position. I guess they said, I don't think it's a statement or a question, but that's what I was thinking. Thanks.

Speaker 2

Yes. Thank you, Bill. I mean, AI, we view as a tool to leverage the data sets that we're collecting by virtue of having Our device on so many patients, so we have very rich data sets. We have used basic AI techniques, machine learning in the past And continue to utilize that tool to improve the performance of our devices as well as the delivery of our solution to patients. So I think it's a good statement and I think it sort of more it reflects the fact that I think that is a powerful utility that I think all medical device companies should be looking at and we are among those.

Speaker 3

Okay. Thank you. Congratulations on the rollout of the product and it looks exciting. Thank you.

Speaker 2

Thank you, Bill.

Operator

Your next question is from the line of Jared Cohen from J. M. Cohen and Company. Your line is open.

Speaker 4

Just a broad based question, because now I've seen a lot of Just on television and just on the Internet, a lot of other pain management devices, A lot of quirky ones advertised now on TV, Some lower, some higher than what the Quell used to be advertised online For over the counter, I'm saying.

Speaker 3

And

Speaker 4

I just wanted to get to see if you've seen those, because that was obviously a problem you got, I think, Feedback that it was always overpriced, over the price point was over too much, which I never thought. This is when it was priced at $2.50 and The electrodes were $30 each or whatever depending on how much you used them per month or less. I just wanted to get your feedback because I always thought it's a great device and particularly it either work for the person or not, Brickley, there are no side effects?

Speaker 2

Yes. Thank you. Thank you, Jared. So our there is a lot of noise In the pain management, pain relief space, I think what you're seeing on TV and I would say digital media, it reflects that. And I think that largely speaks to why we've taken this over that we've transitioned Over the last several years, from a over the counter focus to our what we would call our prescription therapeutics effort, where we Our focusing on specific disease states where we have compelling clinical trial data such as fibromyalgia, such as that's emerging for CIPN, where we can work with and generally I would say convince physicians This is a useful tool for them and their patients with those specific conditions.

Speaker 2

So really Kind of reflecting your comment, that's the reason we've gone away from that generalized Pain management space to focusing on specific disease indications and also why we're going through physicians As opposed to trying to compete in the broad kind of broad ether of over the counter pain relief, which I think is just Very noisy and very difficult to rise above that noise. So we feel based on our initial traction that we've experienced This is going to be a positive strategy to get Quell into the hands of patients.

Speaker 4

Okay. It means we can probably ask question. Because going through physicians, quickly, who treats fibromyalgia? Is it a Neurologist or I've never been sure or is it just a who treat which type of doctor treats fibromyalgia?

Speaker 2

So historically, fibromyalgia has been within rheumatology,

Speaker 4

although it's

Speaker 2

now understood to be a neurological condition. So you find rheumatology I would say the top 3, a rheumatologist, pain physicians for the obvious reason that just a lot of pain associated with it and neurologist.

Speaker 4

Okay. Okay. And then, say they go to and it's a prescription type, Where does the prescription come for the Quell come from? Does it come from a pharmacy or does the doctor give it to the patient themselves?

Speaker 2

The prescription is sent to our pharmacy partner.

Speaker 4

Okay.

Speaker 2

Directly from the physician either electronically or Via fax and then the pharmacy contacts the patient and completes the prescription and fulfills it and then they ship the product to the

Speaker 4

Patient. And is it and then it's billed through the patient's insurance company?

Speaker 2

At this point, we're not working through insurance. That may be something we do in the future right now that like Any most online pharmacies, it's cash pay.

Speaker 4

Okay. So it's still cash pay, but FSA reimbursable, I assume.

Speaker 2

FSA and HSA reimbursable, I guess.

Speaker 4

Okay. All right. Then I won't ask. All right. I guess the last, did you I've always forgotten what's the broad market for fiber and myalgia in terms of is it what $5,000,000,000 or $6,000,000,000 or more than that, Just out of curiosity, I know it's a lot, but it's a broad question because I know on an annual basis What people charge for drugs and fibromyalgia on an annual basis is probably what $10,000 or $12,000

Speaker 2

It was until those drugs became generic. So most of the widely used fibromyalgia drugs, which were branded Lyrica and Cybalta are now generic. So the market from that perspective has come down. There are probably as many as 15,000,000 patients, at least probably 3,000,000 to 5,000,000 that are diagnosed and another 10,000,000 that half of our neurologists probably I don't have the proper diagnosis. So it's a large market.

Speaker 2

I don't think there's an easy number to put on it, but it's a very prevalent condition And represents is really one of the more common forms of chronic pain. So larger market, but don't have a good Dollar number to give you at this point because of the change in the market related to the fact that the drugs became generic.

Speaker 4

Okay. All right. Thank you very much.

Speaker 2

Sure. Thanks,

Operator

There are no further questions at this time. I would now like to I'll turn the conference back to Doctor. Ghazani for closing remarks.

Speaker 2

Thank you for joining us today on the conference call, and we

Operator

This concludes today's conference call. Thank you for participating. You may all disconnect. Have a great day.

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Earnings Conference Call
NeuroMetrix Q2 2023
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