Q3 2020 Neuronetics Inc Earnings Call
Welcome to the third quarter 2020 financial and operating results conference call. At this time, all participants are in listen only mode.
We will conduct a question and answer session and instructions will follow at that time, if anyone should you Corning assistance. During the conference. Please press Star then zero on your touched and telephone as a reminder, this conference call is being recorded I would now like turn call over to your host Mr. Mark Watson. Thank you Sir Please go ahead.
Good afternoon, and thank you for joining us for neuro genetics third quarter 2020 conference call.
A replay of this call will be available on our website for 30 days.
Joining me on today's call are neuro kinetics, President and Chief Executive Officer, Keith Sullivan, and Chief Financial Officer, Steve for long.
Before we begin I would like to caution listeners that certain information discussed by management. During this conference call will include forward looking statements covered under the Safe Harbor provisions of the private Securities Litigation Reform Act of 1995, including statements related to our business strategy financial in revenue guidance the impact of Copenhagen.
Teen and other operational issues and metrics.
Actual results could differ materially from those stated or implied by these forward looking statements due to risks and uncertainties associated with the company's business.
For a discussion of risks and uncertainties associated with neuro kinetics business I encourage you to review the Companys filings with the Securities and Exchange Commission, including the company's annual report on form 10-K filed on March 3rd 2020, and quarterly report on form 10-Q, which will be filed later today.
The company disclaims any obligation to update any forward looking statements made during the course of this call except as required by law.
During the call. We'll also discuss certain information on a non-GAAP basis, including EBITDA up management believes that non-GAAP financial information taken in conjunction with U.S. GAAP financial measures provide useful information for both management and investors by excluding certain non cash and other expenses that are not indicative of trends in our operating.
The result.
Management uses non-GAAP financial measures to compare our performance relative to forecast and strategic plan.
Benchmark, our performance externally against competitors and for certain compensation decisions.
Reconciliations between U.S. GAAP and non-GAAP results are presented in tables accompanying our press release, which can be viewed on our website.
With that it's my pleasure to turn the call over to neuro kinetics, President and Chief Executive Officer, Keith Sullivan good.
Good afternoon, and thank you for joining us.
I will provide an overview of the third quarter performance and then discuss the progress we made on our near term focus areas.
Steve will then give.
Give our third quarter results and I will conclude with our thoughts on the balance of 2020 before turning to question and answers starting with a review of the third quarter total revenue was 12.400 million up 28% sequentially over the second quarter of 2020.
Driven by growth in both system sales and treatment session revenue, although there was year over year decline in revenue due to the ongoing impact of cobot, which continue to affect both capital equipment sales and utilization in the field. We are pleased with our performance as we have begun to see a meaning.
Full recovery in the business.
On the capital equipment side, U.S. Neurostar advance therapy system revenue grew by 11% over the second quarter of 2020.
With restrictions being eased in the third quarter, and our virtual marketing and training efforts starting to pay off our BD EMS began to successfully get back into the field.
Prospect accounts, we are particularly encouraged with the mix of systems sold between Tms only providers and the traditional psychiatry EPS office is similar to our historical levels, indicating an increasingly favorable capital sales environment.
We anticipate the capital sales will continue to rebound, albeit at a slower rate than we are experiencing with the treatment sessions.
Total U.S. treatment session revenue was up 39% sequentially over the second quarter of 2020 and was down just 11% over the third quarter of 2019.
We are encouraged by this performance knowing that approximately 10% of our customers offices are still not seeing patients in person, but the 90% that are open and starting to see utilization approach pre cobiz level.
Turning to our operational update on our last call I laid out our near term focus areas.
As a reminder, they are first driving awareness of Neurostar advance therapy as a safe effective non drug therapy for depression.
Second.
Putting a focus on driving treatment session revenue by optimizing our commercial organization and third developing our indication expansion strategy.
As it relates to driving awareness of those psychiatry us who currently utilize neurostar advance therapy the results and feedback are overwhelmingly positive.
We are learning during our assessment of the market that awareness of trance craniomaxillofacial stimulation generally and Neurostar advanced therapies, specifically for the treatment of MDD is very low both on the patient and psychiatrists side.
This points to a significant opportunity to raise awareness of Neurostar advance therapy there.
There are over 26000 psychiatrists practices in the United States, and just 800 haven't Neurostar advance therapy system in their office the market remains underserved and we will continue to work to penetrate it.
Shifting to optimizing our commercial organization in October we announced Sarah Grubs as our vice President of sales in my 30 years of managing sales teams I rank Sarah as one of the top sales strategist and tacticians I've had the pleasure to work with.
She has developed extensive expertise commercializing medical devices similar to the Neurostar advance therapy that involved and the ongoing sale of consumables and world class customer support in particular wireless cell T.
She spent time developing and implementing the strategy on both capital and consumable portions of the business before stepping up to run the company's sales strategy for one of the largest US regions. We are excited to have her on board and believe she is the right person to lead the re formulation of our sales strategy.
To drive treatment session revenue.
We are focused focused on expanding our base of clinical evidence and developing our indication expansion strategy.
In addition to bolstering our commercial leadership, we added other talent aimed at leveraging the huge amount of data available to us.
Including in the large repository of treatment data within our track Star Cloud management tool.
With over 80% of our treatment sessions captured on the cloud we have a significant amount of data that is being annual analyze to help inform and support our strategy around patient marketing payer reimbursement and regulatory pathways.
In October clinical data was published in the journal of affective disorders, suggesting that neurostar advance therapy could be evaluated as a first line treatment for MDD.
The authors analyze to sample sets from our track Star Registry, which included more than 5000 patients across 103 practices evaluating clinical outcomes data for the treatment with Neurostar. The authors stated that research further validate the efficacy.
See results shown in a prior naturalistic study, which showed a 58% response rate and a 37% remission rate. These results are especially intriguing considering similar metrics for anti depressant drugs, which on a whole have a response rate of 40. So.
7% and a remission rate of 27, according to the star D. data for patients undergoing their first drug therapy.
The data continues to demonstrate that neurostar advance therapy, as a safe and effective treatment for those with depression, who have not benefited from anti depressant medications and importantly provide physicians with the scientific evidence needed to optimize the treatment of patients with depression.
According to the lead author of the study Dr. Harold Soc time, the neuro stars.
Strong efficacy and the low side effects and medical risk profile suggests the Tms be evaluated as a first line treatment for MDD.
Given that approximately half of the payers, who reimbursed for Neurostar advance therapy still require patients to fail for courses of drugs before being approved for treatment. The continued collection and publication of data showing the benefits of our therapy is critical.
During this year's clinical Tms Society event in September Dr., Scott Aronson presented a webinars on his pilot study on the treatment of bipolar depression utilizing neurostar advance therapy. His presentation review data from a two center open label prospective trial.
He concluded that bipolar depression is most likely an excellent target for the Neurostar advance therapy.
With so few treatments available for the management of bipolar depression, making neurostar advance therapy, a non drug treatment option could be groundbreaking.
Overall, we are pleased with our performance during the third quarter, we saw strong seat sequential recovery in the business. Both in terms of system sales and treatment session volumes we.
We also have generated some significant momentum internally with the bolstering of our leadership team and the continued development of our industry leading clinical data.
Very proud of how the entire organization has adapted to the uncertainty of co bid as well as a change in management I continue to be energized by the enthusiasm I am seeing out of the team every day with that I'll turn the call over to Steve.
Thank you Keith total.
Total revenue for the quarter was $12.4 million.
Up 28% on a sequential basis over the second quarter of 2020 compared to the prior year third quarter revenue was down 22%, primarily as a result of COVID-19 related governmental responses, and resulting economic turmoil, which persisted throughout the quarter.
Neurostar advanced therapy system revenue was $2.5 million up 9% on a sequential basis over the second quarter of 2020 compared to the prior year third quarter Usdone Aerostar advanced therapy system revenue was down 45%, primarily driven by a lower number of nurse.
Star systems sold during the quarter.
In the quarter. The company sold 39 systems down from 68 in the third quarter of 2019 as a result of the impact of Cove at 19.
During the quarter, we saw our installed base increased by 11% over the prior year quarter to 1143 system. A net increase of 811 systems from the third quarter of 2019, and a net increase of 21 system since June Thirtyth 2020.
US treatment session revenue was $9.1 million up 39% on a sequential basis over the second quarter of 2020 compared to the prior year us treatment session revenue was only down 11%.
The average revenue per system was approximately $8100 during the third quarter of 2020 compared to approximately $10500 in the prior year quarter.
Both of these declines were driven by psychiatrists temporarily shifting can telemedicine.
Gross margin for the third quarter of 2020 was 78.7% compared to the third quarter 2019 gross margin of 73.8%.
This significant increase was due to a higher mix of treatment session revenue as well as a reduction in field service cost during the quarter.
Operating expenses during the quarter were $12.2 million.
Decrease of $5.9 million or 33% compared to the third quarter of 2019.
The decrease was primarily due to reduced sales and marketing expenses as well as reduced research and development costs.
On a sequential basis operating expenses decreased $2.1 million from the second quarter of 2020 as Jim as a result of the full realization of our cost saving initiatives implemented in April.
Net loss for the third quarter of 2020 was $3.4 million or 18 cents per share EPS compared to a net loss of $6.9 million or 37 cents per share during the third quarter of 2019.
EBITDA for the third quarter of 2020 was negative $2.2 million as compared to negative $5.6 million for the third quarter of 2019.
Moving to the balance sheet throughout much of this year, we focused on having adequate capital resources and liquidity to support the business over both the near and long term.
As of September Thirtyth cash and cash equivalents were $50.7 million. We continue to believe that cash on hand provides us the capital necessary to get to breakeven.
Now turning to guidance.
For the fourth quarter of 2020, we expect revenue in the range of $13 million to $13.5 million.
As we continue to expect to see sequential improvement in the business during the quarter the.
The company continues to project total 2020 operating expenses for the full year to be in the range of $59 million to $61 million.
I'd now like to turn the call back over to Keith.
Thanks, Steve.
Moving to our thoughts on the balance of 2020 as well as 2021 since joining the company in July we have made a lot of progress throughout the organization. There is still heavy lifting to be done around the development and implementation of our commercial strategy, but we have put the right people and process in place.
To drive this strategy forward.
As mentioned on our last call we have engaged a market research firm to identify the proper target audience, the messaging that resonates with them and the most efficient way to communicate with them. Ultimately our goal is to arm our end Pcs with the tools and business development strategies to help customers drive increased patient.
Volume and educate patients on the benefit of the Neurostar advance therapy as a safe effective non drug therapy for the treatment of MDD.
We will have results of the study in late Q4, and look forward to providing an update on the results on our fourth quarter call.
In addition to developing the new communication strategy. We are currently in the process of optimizing our sales organization, we will be making decisions around the structure of our sales force, which relate specifically to the ratio of BD EMS to mpcs as well as decisions around the expansion of the sales force more.
Broadly specifically, we are planning to redefine our BD m. territories to better optimize the volume of potential customers accounts each BTM can cover.
We will also align the NPC territories to allow them to have more meaningful impact in driving patient volumes into existing customers.
These decisions will be completed shortly and we expect to selectively hire new BD EMS and mpcs during the fourth quarter with the goal of having those new reps onboard and trained ahead of our national sales kickoff meeting during the fourth week of January 2021.
Outside of our commercial organization, we have momentum building in other areas such as reimbursement clinical data development and indication expansion, which we believe will act as tailwinds for the business in the coming quarters.
From that perspective, while we continue to expect solid execution in the fourth quarter and during the first half of 2021, we believe that we will start to see more material positive inflections.
Towards the back half of 2021, we will look forward to providing more robust overview of our strategy for 2021 on our fourth quarter call.
I'd like to take a moment and acknowledge the tremendous mental strain that is ongoing pandemic has caused across the U.S.
There has been a significant disruption within almost every facet of our lives in an article published in the journal of the American Medical Association or Jama in October. It was stated that in a June 2020 survey of over 5400 adults.
It was found that 40.9% of the respondents reported at least one adverse mental or behavioral health condition, which included depression anxiety post traumatic stress and substance abuse.
These reported rates were three to four four times higher than last year.
The need for treatment options to help those suffering from psychiatric disorders has never been greater and we will continue to work diligently to ensure that as many patients as possible can get relief with Neurostar advance therapy.
With the quarter under my belt at the organization I am very excited about the future of neuro kinetics, we are in a very unique position.
We are the market leader in an industry that is largely underpenetrated we.
We have a large and growing set of clinical data pointing to the efficacy of the Neurostar advanced therapy, and we have a highly experienced team throughout the organization with a proven track record.
On top of all that.
In early learnings from our market research, we have found that few psychiatry.
For patients are aware of transcranial magnetic stimulation or nurown data neurostar advance therapy as a treatment option for depression taken all together, we have a massive opportunity in front of us to bring relief to a significant population of patients who are struggling.
With drug resistant depression, and potentially other psychiatric disorders with.
With that I'd like to open the line for questions.
Ladies and gentlemen, if you would like to ask a question at this time. Please press Star then the number one key on your Touchstone telephone. If your question has been answered or you wish to your sales from the Q guidance.
Again star one to ask a question.
Your first question comes from the line of natural Brian I personally.
Thanks, Thanks for taking the question afternoon.
I guess can we start with.
The realignment plans on the Pdm and MPC side of things.
You've seen these in the past I'm, assuming that you are getting a look under the hood now and Thats. The conclusion that youve drawn probably in collaboration with Sarah but.
Im seeing these historically typically isn't a six month periods are really refine the sales force and in change territories et cetera, before you really see a meaningful improvement, it's typically more like a year or more than that so I guess what gives you. The confidence you can really start to see the improvement in the second half of next year and then how do you really.
Make sure that your larger Tms provider customers are comfortable with how things are.
Adjusted.
Thanks, Matt.
I think the the analysis that we did have the sales organization is that we have a pretty good team in place and that when we are restructuring the sales organization, we're really redefining what the BTM territories would look like we're balancing them. So that they will each have a specific.
Number of psychiatry is involved in them. So right now we because of the realignment earlier in the year.
There are much there are some territories that are very large and some that are very small so on the BBM side, we balance them on the NPC side again, I think we have a talented group that is out there and what we're trying to do is make them more effective in the field by.
Also balancing them to have about between 30 and 35 accounts each so.
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We are going to provide training throughout January and at our sales meeting on how we can best utilize the data from our market research, but we're not overhauling the sales organization, we're just trying to make them more efficient.
Okay, Alright, Thats really helpful. And then I mean, just to put a little bit finer point on the guidance that you're providing for keyboards little bit below the street certainly not the end of the world, but as we think about the first half of next year should we still think about contracting business for the first couple of quarters, and then hopefully getting back to.
Even to take growth next year, assuming that we don't have another big offering of coated.
Yes, Matt This is Steve now where sales.
Budgeting and planning for a rebound in 2021.
I know the expectations are to get back to either at or above 2019 levels.
And that is something we're certainly not shying away from obviously, there are still some economic and pandemic.
Dependencies, but no the within revamped commercial structure, along with the revised strategy.
Looking at.
Growth to return in 2021.
Got it and just one more for me and I know this is probably a little bit farther out question, but.
Keith your commentary about the first line therapy is obviously really interesting and compelling I mean, what steps need to happen to get to that point and then I know this is a difficult question to answer but can you just frame up a bit.
So a timeframe for when something like this could even just a few in insurance providers be the first line of therapy, rather than drug. Thank you.
Matt Thats a question, we talk about almost daily here.
I think we are digging into our track star data, where we have 72000 patients and in our registry, which is a subset of that we have over 5000 patients. So we are.
Looking at that data to be able to help put the information into a formula that can be used by the societies to take to the payers and.
I have no idea what the timeframe on that is.
I think we should have a handle on our data in the next several months, but how long the payers take to react to it I don't know.
Fair enough. Thank you.
Your next question comes from the line of Margaret tax from William Blair Your line.
Hi, everyone. This is Brandon on for Margaret.
I could just follow up on that last question first.
As we look to a rebound in the business and you get this one is 21 and creating more of a sustainable kind of growth rate you.
Do you think you need to have some of these market access wins in order to.
Hit your internal goals.
Or it can just some reconfiguring and refining of the commercial organization be enough.
So kind of make a more sustainable growth profile.
So.
What I will tell you is in the research that we have back so far is our opportunity just in treating MDD is large and the number of physicians that are not using.
Neurostar advance therapy at this point is also large so I think we have a large amount of runway to go.
Without any other indications, but I think.
We have an opportunity to advance the ball on a couple of different fronts.
We all know that it's going to take time with the FDA and then with the payers, but I think we're starting to move forward down those fronts.
Got it and then.
As we look towards kind of on the system utilization side and the system revenue side.
Sorry, rather the treatment revenue side.
Steve you had mentioned needs.
A little over $10000 breakfast system.
The year over year comp as we go moving forward into 21 should we think about.
The the system basically install base able to reach kind of a 10000 dollar plus number and then as we kind of look at a sustainable.
2021, plus the 10000 kind of a floor can we look for upside there or is that kind of be a level where we.
Level out.
Yes granted to our expectations are to continue to increase utilization throughout the period near term.
You saw about a year ago, we felt the initial utilization declined and had plans in place to address it and then co it hit and really limited.
Our ability to go out and work with the customers who saw those declines.
We fully expect to reengage those customers as well as others.
With our Mpcs and co marketing programs and other awareness tools.
To drive well beyond that $10000 average revenue per system.
Got it and.
Just one last one for me.
I appreciate there's probably some noise going on in the the the Japan business given Tobin, but.
But any updates there even just anecdotal feedback how the how the commercialization is going there.
Updates on a potential reimbursement update thank you.
Thanks, Brendan so in Japan, we do have reimbursement today.
And there are a couple of things happening our distributor is.
Is selling systems at a controlled.
Placement model he is making sure that all of the training is done properly and he.
He is beginning to.
Conduct our post market study in the 20 hospitals that we we have agreed to do so there is activity in Japan.
It is on a controlled pace.
Your next question comes from the line.
Danny with Canaccord your line.
Hey, great. Thanks, good evening.
Just first if we could talk about the systems is you roll them out how does cove. It impact your new account strategy as it relates to the change versus the independent operators.
We've heard some of the larger chains are holding back on some of the capital spend and don't know if this is adjusted your strategy as well.
Good to hear your voice Bill we have.
We've been in touch with our our service providers and their business is growing at this point so I think.
Our individual psychiatry risks and our service providers have put the policies and procedures in place to be able to handle.
The the cobot situation and so they have their patients weight in the waiting room in the car before they bring them and Theres no waiting in the waiting room. So I think that's under control so.
I think I had a meeting with Green Brooks senior leadership team and they are placing systems now so.
Okay. So you talked about it a little bit just in your opening remarks regarding kind of the balance is shifting back to the individual.
Operators versus the changes and then you, but should we expect that theres going to be more focused or more drive into the individual going forward just to balance it out a little more or.
Will it move one way or another I guess is what I'm trying to figure out.
Well I think our business today is about 50 50 and we're.
We're providing the same level of help and assistance and awareness on two individual psychiatry space as well as the service providers. So.
I don't think we're trying to shift in one direction or the other I think it's in our benefit and there's two.
To increase treatment sessions to individuals and the providers.
Okay, and then in terms of the treatment sessions.
Obviously, you've you've come back to about 8100 per system.
Per quarter in Im trying to understand if.
Yes back to that 10000, I think you said about 10% of Omar treating patients was there any differences you when it through July and September October are you seeing more and more common because im just trying to figure out the cadence of this and when would you expect to go back to 100 per se.
Cent of your customers operating.
Yes, Thats a good question Bill and we just finished up and received october's data, which was extremely impressive and exceeded our own internal expectations.
We did see I would say of a healthy number of sites that had embraced.
Telemedicine research.
Restart their Tms platforms in the month of October and again, we're hopeful that that momentum can continue.
Through the end of the year, but it was a really strong month.
So you tend to sound just some of the guidance provided might just be conservatism given the given what's going on with the third way to for Covidien I don't want to put words in your mouth, but it's just the kind of the takeaway im getting is that a fair assessment.
I think thats fair yet.
Okay and then just last question for me is on the on the operating expenses.
Really done an amazing job cutting back the cost in making the cash you have last a long time and I think thats something that people may have been concerned about and I can see that you've done a great job there, but if.
As we look at Q3.
Any one time charges in any of the operating lines that we should think about that might go away in Q4, or Alternatively, given cove is not as much t. any going on maybe not as much marketing support or that you have had to provide what have you.
Where is the lever points in that offline from bus the plus and the minus we should think about as you drive into the end of the year and next year and Thats all my questions. Thank you.
Yes, Q3 from an expense perspective was very normal so no significant.
Out of the ordinary entries.
Going forward I guess.
Again, so we.
Very deeply and April and May and now are I would say very strategically, adding resources and I don't think you'll ever see us.
Back to where we were from an operating expense perspective anytime soon and so we know from a marketing side a lot of the expenses are being reallocated.
Two different programs, so not necessarily incremental spend.
In Q4, I think we'll see some incremental spend as we roll out our programs and new campaigns in 2021.
And then from a sales perspective.
Again, the increases to the team I would term as modest and you know we're not going to go back to the days of of 59 began in.
In 2021, there'll be a handful on both teams.
So you know I think what you saw in Q3, and there will be an uptick in Q4, which is reflective in the guidance.
And that will continue into 2021 as we drive growth.
We're certainly not going to be in a position to spend ahead of revenue.
So we want to make sure that the efforts we've put in place in 2020.
Where value then and we won't get ahead of ourselves.
Great. Thank you for taking my questions.
Well.
Your next question comes from the line get movie time with BTG Your line.
Hi, Good evening. Thank you for taking the question, maybe I could start with one there on the discussion on adding back modestly TV teams with some new began an NBC hires.
The ideal profile for these positions is that difference and then typically higher than the and then I guess a related question with all these.
Ah you realign capacity could you.
Tell us a little bit about what morale Mike right now.
Okay. So on the.
On the BTM side we're.
We're going to be looking for people that have capital equipment experience.
Preferably capital equipment that also has a trailing revenue piece on the NPC side.
It's a relationship.
Builder, that's able to go into the accounts gain the trust and be able to.
Walk in and help them through their marketing efforts train them on how to work with their front desk staff there a consultation of patients.
And teach them how to do.
Do digital and social media and get their practice up and running.
So.
I think the morale in the organization both inside and outside is high I think we have a plan we have.
Given that two of our teams on a very high level and I think over the next couple of months as we roll it out I think there'll be a higher level of excitement.
That's great to hear I want to ask a follow up on the capital equipment side, along the lines of what Phil was asking about.
It does sound like some buying has come back from the psychiatric.
He says.
Could you characterize who is buying or who is doing well enough I guess at this point you think about equipment sales.
And then of the remaining 10% of customers that have steak.
Are they waiting for a vaccine or is there. Some other timeline that you consider for them coming back on line.
Thank you.
I'm sorry, this is Steve.
So with respect to the 10% and so we Didnt survey our end Pcs.
Contacted the subset of customers directly and the vaccine was one of the overarching themes.
Again, they want to be very responsible for their staff and patients and have really moved away from from bringing patients in house.
And so that will continue to be a pressure as we exit Q4 until folks are comfortable.
With a vaccine if it does come in 2021.
In terms of who's purchasing systems.
Again, we mentioned in the call that there's not a lot of difference between the number of systems sold to the Tms only providers and the traditional psychiatry psychiatrists.
We do analyze this data and just to see if we can see any trends, but the sales in Q.
Three will really along historical line.
And then even in the month of October and what we did a fair amount of system sales again, those ratios were pretty consistent to what we've seen in the past couple of years.
No it's not easy for an individual psychiatrists too.
Make the capital equipment purchasing decision in this environment.
There is a significant amount of trust and validation that they must go through.
To acquire a system.
And this and this environment so.
We continue to support them and the Tms only providers as well.
Thank you.
That concludes the question and answer session for today I will now turn the call back to Mr. Sullivan.
Susan.
Thank you operator, and thanks again for joining us on the call today I look forward to updating you on our progress in the next quarterly call and I Hope you are safe.
Thank you.
Ladies and gentlemen, this concludes today's conference call participating given the disconnect.
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