Q3 2022 NeuroMetrix Inc Earnings Call
Good morning, and welcome to the near metrics third quarter 2022 earnings call. My name is Michelle and I will be your.
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 start are predictive in nature that.
And upon or refer to future events or conditions are forward looking statements any forward looking statements reflect current views of nearer metrics 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.
Please refer to the risks and uncertainties, including the factors described under the heading risk factors in the company's periodic filings with the FCC available on the company's Investor Relations website at Neurometrics Dot com and on the SEC website at SEC Dot Gov.
Neurometrics does not intend or undertakes no duty to update the information disclosed on this conference call.
I'd now like to introduce the neuro metrics senior Vice President and Chief Financial Officer, Mr. Thomas Higgins Mr. Higgins. Please go ahead.
Thank you Michelle and thanks to all of you who are joining our CEO , Dr. <unk> and myself for todays Q3 earnings call.
By way of background we.
Or a med Tech company, our mission is to reduce the impact of neurological disorders and pain syndromes on individuals' on population health or.
Our commercial products are noninvasive, they address worldwide market opportunities. They have no direct competition, there are alternatives, but not substitutes.
Our neuro diagnostics, our TPN check in advance and our neuro therapeutics or the <unk> product line.
Our business model is razor razor blade aftermarket revenue is the principal component of our product line profitability.
Our strategic focus is to expand TPN check in the Medicare Medicare advantage market.
And to develop the <unk> portfolio for specific disease indications.
Today, we reported Q3 revenue of $2 million and year to date revenue of $6 4 million.
In both the quarterly and the year to date periods revenue was essentially flat with the prior year.
Aftermarket sales were 70, 979% of revenue.
Versus 82% in Q3 last year.
DPM check represented about 75% of revenue.
Medicare advantage was even with Q3 of 2021 and up 11% year to date.
Our Medicare advantage business development team continues to make pipeline progress and we anticipate a boost in activity in Q4, leading into 2023.
International sales were down about $96000, primarily reflecting lower TPM check sales to China and Japan.
Neither of these countries is fully returned to pre pandemic conditions.
<unk> revenue was up 13% versus Q3 of last year direct to consumer sales ended on September 30 of this year.
Q3 revenue increase was likely related to the last time buy opportunities for direct to consumer.
The legacy advanced diagnostic business declined in Q3, and Q3 consistent with prior periods.
Gross profit in Q3 was $1 3 million and $4 5 million year to date, our gross margin rates were 65% and 71%.
Respectively.
We've continued to successfully source the electronic parts that are essential to us maintaining our production.
But often at a premium to our standard cost and this premium.
Or PPV exceeded $200000 in Q3, obviously that adversely affected gross profit and the margin rate if.
If you exclude the PPV expenditures in the quarter, our Q3 margin rate was about 74%.
The electronics industry widely expects.
Parts shortages to persist through next year.
Operating.
Expenses totaled $3 million in Q3, and $8 $4 million year to date.
As we've previously disclosed Opex reflects a $4 million program of specific spending to improve infrastructure and our capacity to handle future growth.
It covers product development sales and marketing resources, IP systems governance, and others. The program spans this year as well as into next year.
And we estimate that about half of that spending will be variable and the other half will be fixed and recurring.
R&D incremental spending covers outside engineering support third party regulatory services and clinical programs our.
Our sales and marketing investments are primarily in head count and personnel to drive Medicare advantage and the crowd neuro Therapeutics initiative.
And G&A incremental spending covers.
And ERP system quality system.
Governance and staff retention.
Net loss in Q3 was $1 6 million or 23, a share year to date net loss was $3 7 million or <unk> 53, a share.
Regarding cash flow and our balance sheet.
Net cash operating usage in the quarter was $2 1 million and $3 $8 billion year to date.
We ended the quarter with $28 million in cash and securities.
And we maintain a simple debt free capital structure. There are $7 1 million common shares outstanding as of the end of September 2022.
We believe that our liquid resources are adequate to support our growth initiatives this year and beyond.
And now for a doctor because on his comments.
Thank you Tom.
As a reminder, our strategy is built on three core elements.
The first is organic growth in our established VPN check Medicare advantage business.
The second is to launch and grow our recently obtained <unk> fibromyalgia indication in the U S market.
And the third is to advance our cloud narrow therapeutics program, which may lead to additional indications and an expanded addressable market.
I will comment on each of these activities.
First with respect to VPN check we have a value based care commercial team that focuses on increasing <unk> adoption and the Medicare advantage market. This includes large medical groups health systems and health assessment companies.
A substantial portion of their patients are covered under Medicare advantage.
The sales cycle in this market is long and therefore, we expect the bulk of the impact from this team which was put in place earlier. This year will be felt in 2023 <unk>.
However, we are pleased with the sales activities and the quality and depth of the pipeline.
Although our <unk> Medicare advantage revenue in the third quarter was flat on a year over year basis. There were positive developments. Most importantly, we grew the number of medical groups and health assessment companies that order product.
However, we also saw a reduction in orders from our largest customer relative to prior quarters and that cancelled out the new customer acquisition new customer expansion.
It is unclear how these factors will balance in the next few quarters, but in the long term, we are reducing customer concentration, which will facilitate consistent growth in this business.
There are a number of R&D activities that will support continued growth in the Medicare advantage market.
We recently launched our second generation device called <unk> to point out. This device has improved usability, while maintaining the high diagnostic accuracy and reliability of the original DPM check device.
Another R&D program is the <unk> cloud, which is a data and analytics platform that allows our customers to monitor and optimize their <unk> implementation and address key population health questions through our family of web based dashboard, we anticipate launching <unk> cloud in the first half of 2023.
Finally, we are working to improve integration between the GP and check reporting software and our customers' electronic health record systems.
Moving on to call fibromyalgia.
As we have discussed over the past couple of years, we have been transitioning from a specific from a nonspecific over the counter treatment for chronic lower extremity pain to a prescription narrow therapeutic platform.
As of the end of the third quarter call is no longer available over the counter and will be available by prescription in the future starting with fibromyalgia.
As a reminder, fibromyalgia is a complex chronic pain syndrome that affects as many as 10 million people in the U S.
The only FDA approved treatments or three drugs Pregabalin deluxe teen in Manhasset brand, which often have substantial side effects.
We received FDA breakthrough designation for this indication in July of 2021 and de Novo authorization in May of this year.
As a first and only FDA authorized medical device to help reduce the symptoms of fibromyalgia. We are gearing up for a strategic launch this quarter and will proceed to a full launch in 2023.
Purpose of the initial launch is to confirm the effectiveness of our prescription management solution to refine our marketing messages and to collect key performance indicators that will allow us to plan to further commercial expansion. If these events occur as planned that we believe that quell revenue will resume growth in 2023.
The third element of our growth strategy is to continue to develop the 12 neuro therapeutics pipeline beyond the initial fibromyalgia indication.
Program is furthest along is for chemotherapy induced peripheral neuropathy, or CIP, and which affects as many as 70% of people who received chemotherapy.
It can be a chronic and debilitating side effect of cancer treatment.
NIH National Cancer Institute funded multicenter double blinded randomized sham controlled trial that has been underway for the past couple of years and has recently recently completed.
Study results should come out in the first half of 2023.
If the results are positive that we will look to file in de Novo request by the end of next year.
For this indication importantly, we received FDA breakthrough designation for treating moderate to severe cips in January of this year.
We have pilot studies ongoing and long Covid, and COPD, which stands for chronic overlapping pain conditions. Many individuals with long COVID-19 experience symptoms similar to fibromyalgia and therefore, we have prophesized that quell will be beneficial in this population.
<unk> is a set of common health conditions that often occur together in the same patient includes fibromyalgia chronic low back pain migraine temperament, deavila joint disorder, and irritable bowel syndrome. These conditions are thought to share a common pathological process called central sensitization, which is a state in which the brain over amplifies pain and other sensory cigna.
Mills.
Based on data that's been published and additional analysis that was presented at upcoming medical conferences, we believe that <unk> decreases central sensitization, and therefore may have clinical benefits in a host of pain and neurological conditions.
And that represents our prepared comments and we'd be happy to take questions at this point.
As a reminder to ask a question you will need to press star one one on your telephone.
Please standby, while we compile the Q&A roster.
Again to ask a question. Please press star one one on your telephone.
Please standby, while we compile the Q&A roster.
Our first question comes from Jared Cohen with JM Cohen <unk> Company. Your line is now open.
Yes.
I know you've talked about this in the past there with your new strategy.
Can you just remind us how you are going to go market.
Clearly positions.
<unk> for fibromyalgia and.
For chronic pain going forward in terms of.
Them, writing prescriptions for <unk>.
Yes. Thank you for the question Jared.
<unk>.
That is still to be determined we have brought on our first.
Sales leader.
To direct us in that effort, we're going to be starting by those on primarily too.
The key professor.
Professional conferences.
To speak to the relative positions, which in this case will be focused on rheumatologist and pain physicians and that will that will be the basis for the initial launch which will be strategic and then based on the results of that initial experience will determine how we proceed forward whether that would be what.
Our digital strategy or will put.
Salespeople directly into the market so that will be determined after our initial experience.
Alright.
Alright, Thank you very much.
Please standby for our next question.
Our next question comes from William Church.
With Keybanc capital your line is now open.
Yes. Thank you.
Mrs.
What's the timing on the VIP.
Yes.
The study has completed.
It is now being the results are being compiled and we would expect that the the group that conducted the study will release the results sometime in the first half of next year and based on what that looks like we would be prepared if they are positive to file.
Our de Novo request similar to what we did before for fibromyalgia by the end of next year.
Okay. Thank you.
As a reminder to ask a question. Please press star one on your telephone.
At this time I am not showing any further questions.
I'd now like to turn the conference back to Dr. <unk> for closing remarks.
Thank you Michelle and thank you for joining us on this conference call today, and we look forward to updating you after the end of the year thinking.
This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
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Good morning, and welcome to the <unk> metrics third quarter 2022 earnings call. My name is Michelle and I will be your mob radar on the call.
This call the company May make statements, which are not historical facts.
Considered forward looking within the meaning of the private Securities Litigation Reform Act of 90 95.
Statements that are predictive in nature that could begin.
Upon or refer to future events or conditions are forward looking statements any forward looking statements reflect current views of nearer metrics 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.
Please refer to the risks and uncertainties, including the factors described under the heading risk factors in the Companys periodic filings with the FCC.
On the company's Investor Relations website at Neurometrics Dot com and on the SEC website at SEC Dot Gov, Neurometrics does not intend or undertakes no duty to update the information disclosed on this conference call.
I would now like to introduce the neuro metric senior Vice President and Chief Financial Officer, Mr. Thomas Sapiens. Mr. Higgins. Please go ahead.
Thank you Michelle and thanks to all of you who are joining our CEO , Dr. <unk> and myself for todays Q3 earnings call.
By way of background, we are a med Tech company. Our mission is to reduce the impact of neurological disorders and pain syndromes on individuals' on population health or.
Our commercial products are noninvasive, they address worldwide market opportunities. They have no direct competition, there are alternatives, but not substitutes.
Our neuro diagnostics, our TPN shack in advance and our neuro therapeutics or the <unk> product line.
Our business model is razor razor blade aftermarket revenue is the principal component of our product line profitability.
Our strategic focus is to expand VPN check in the Medicare Medicare advantage market and to develop the <unk> portfolio for specific disease indications.
Today, we reported Q3 revenue of $2 million and year to date revenue of $6 4 million.
In both the quarterly and the year to date periods revenue was essentially flat with the prior year.
Aftermarket sales were 70, 979% of revenue.
Versus 82% in Q3 last year.
<unk> represented about 75% of revenue.
Medicare advantage was even with Q3 of 2021 and up 11% year to date.
Our Medicare advantage business development team continues to make pipeline progress and we anticipate a boost in activity in Q4, leading into 2023.
International sales were down about $96000, primarily reflecting lower TPM check sales to China and to Japan.
Neither of these countries is fully returned to pre pandemic conditions.
<unk> revenue was up 13% versus Q3 of last year direct to consumer sales ended on September 30 of this year.
Q3 revenue increase was likely related to the last time buy opportunities for direct to consumer.
The legacy advanced diagnostic business declined in Q3, and Q3 consistent with prior periods.
Gross profit in Q3 was $1 3 million and $4 $5 million year to date, our gross margin rates were 65% and 71%.
Respectively.
We've continued to successfully source the electronic parts that are essential to us maintaining our production.
But often at a premium to our standard cost and this premium.
Or PPV exceeded $200000 in Q3, obviously that adversely affected gross profit and the margin rate. If you exclude the PPV expenditures in the quarter, our Q3 margin rate was about 74%.
Okay.
The electronics industry widely expects par.
Parts shortages to persist through next year.
Okay.
Operating expenses totaled $3 million in Q3, and $8 4 million year to date.
As we've previously disclosed Opex reflects a $4 million program of specific spending to improve infrastructure and our capacity to handle future growth.
It covers product development sales and marketing resources, IP systems governance and others.
Program spans this year as well as into next year and.
And we estimate that about half of that spending will be variable and the other half will be fixed and recurring.
Okay.
R&D incremental spending covers outside engineering support third party regulatory services and clinical programs our.
Our sales and marketing investments are primarily in head count and personnel to drive Medicare advantage and the crowd neuro Therapeutics initiative.
And G&A incremental spending covers.
And ERP system quality system.
Governance and staff retention.
Net loss in Q3 was $1 6 million or 23, a share year to date net loss was $3 7 million or <unk> 53, a share.
Regarding cash flow and our balance sheet.
Net cash operating usage in the quarter was $2 1 million and $3 $8 billion year to date.
We ended the quarter with $20 8 million in cash and securities and we maintain a simple debt free capital structure. There are $7 1 million common shares outstanding as of the end of September 2022.
We believe that our liquid resources are adequate to support our growth initiatives this year and beyond.
And now for Dr. Chris on his comments.
Thank you Tom.
As a reminder, our strategy is built on three core elements.
First is organic growth in our established VPN check Medicare advantage business.
The second is to launch and grow our recently obtained <unk> fibromyalgia indication in the U S market.
And the third is to advance our neuro Therapeutics program, which may lead to additional indications and an expanded addressable market.
I will comment on each of these activities.
First with respect VPN check we have a value based care commercial team that focuses on increasing <unk> adoption and the Medicare advantage market. This includes large medical groups health systems to help assessment companies.
A substantial portion of their patients are covered under Medicare advantage.
The sales cycle in this market is long and therefore, we expect the bulk of the impact from this team which was put in place earlier. This year will be felt in 2023. However.
However, we are pleased with our sales activities and the quality and depth of the pipeline.
Although our <unk> Medicare advantage revenue in the third quarter was flat on a year over year basis. There were positive developments. Most importantly, we grew the number of medical groups and health assessment companies and order product.
However, we also saw a reduction in orders from our largest customer relative to prior quarters and that cancelled out the new customer acquisition new customer expansion.
It is unclear how these factors will balance in the next few quarters, but in the long term, we are reducing customer concentration, which will facilitate consistent growth in this business.
There are a number of R&D activities that will support continued growth in the Medicare advantage market. We recently launched our second generation device called <unk> pointed out. This device has improved usability, while maintaining the high diagnostic accuracy and reliability of the original VPN check device.
Another R&D program is the <unk> cloud, which is a data and analytics platform that allows our customers to monitor and optimize their <unk> implementation and address key population health questions through our family of web based dashboard, we anticipate launching <unk> cloud in the first half of 2023.
Finally, we are working to improve integration between the GP and check reporting software and our customers' electronic health record systems.
Moving on to call fibromyalgia.
As we have discussed over the past couple of years, we have been transitioning from a specific from a nonspecific over the counter treatment for chronic lower extremity pain to a prescription narrow therapeutic platform.
As of the end of the third quarter call is no longer available over the counter and will be available by prescription in the future starting with fibromyalgia.
As a reminder, fibromyalgia is a complex chronic pain syndrome that affects as many as 10 million people in the U S. The only FDA approved treatments or three drugs per gatlin deluxe teen in Manhasset brand, which often have substantial side effects.
We received FDA breakthrough designation for this indication in July of 2021 and de Novo authorization in May of this year.
<unk> is a first and only FDA authorized medical device to help reduce the symptoms of fibromyalgia.
Our gearing up for a strategic launch this quarter and will proceed to a full launch in 2023 the.
The purpose of the initial launches to confirm the effectiveness of our prescription management solution to refine our marketing messages and to collect key performance indicators that will allow us to plan further commercial expansion.
These events occur as planned and we believe that quell revenue will resume growth in 2023.
The third element of our growth strategy is to continue to develop the 12 neuro therapeutics pipeline beyond the initial fibromyalgia indication.
The program is the furthest along is for chemotherapy induced peripheral neuropathy, or CIP, and which affects as many as 70% of people who received chemotherapy.
It can be a chronic and debilitating side effects of cancer treatment.
NIH National Cancer Institute funded multicenter double blinded randomized sham controlled trial that has been underway for the past couple of years and has recently recently completed.
Study results should come out in the first half of 2023.
If the results are positive that we will look to file in the novo request by the end of next year.
For this indication importantly, we received FDA breakthrough designation for treating moderate to severe CIP and in January of this year.
We have pilot studies ongoing and long Covid, and COPD, which stands for chronic overlapping pain conditions. Many individuals with long COVID-19 experience similar symptoms similar to fibromyalgia and therefore, we hypothesize that quell will be beneficial in this population.
<unk> is a set of common health conditions that often occur together in the same patient includes fibromyalgia chronic low back pain migraine temperament, deavila joint disorder, and Euro bowel syndrome. These conditions are thought to shared common pathological process called central sensitization, which is a state in which the brain over amplifies pain and other sensory cigna.
<unk>.
Based on data that's been published and additional analysis that were presented at upcoming medical conferences, we believe that <unk> decreases central sensitization, and therefore may have clinical benefits in a host of pain and neurological conditions.
And that represents our prepared comments and we'd be happy to take questions at this point.
As a reminder to ask a question you will need to press star one one on your telephone.
Please standby, while we compile the Q&A roster.
Again to ask a question. Please press star one one on your telephone.
Please standby, while we compile the Q&A roster.
Our first question comes from Jared Cohen with JM Cohen <unk> Company. Your line is now open.
Yes, just.
I know you've talked about this in the past there with your new strategy.
Can you just remind us how youre going to market.
Clearly positions.
<unk> for fibromyalgia.
And.
For chronic pain going forward in terms of.
Them, writing prescriptions for <unk>.
Yes. Thank you for the question Jared.
So we've.
That is still to be determined we have brought on our first.
Sales leader.
To direct us in that effort, we're going to be starting by the ongoing primarily too.
The key professor.
Professional conferences.
To speak to the relative positions, which in this case, we've focused on rheumatologists and pain physicians and that will that will be the basis for the initial launch which will be strategic and then based on the results of that initial experience will determine how we proceed forward whether that would be what.
But digital strategy or will put salespeople directly into the market. So that will be determined after our initial experience.
Alright.
Alright, Thank you very much.
Please standby for our next question.
Our next question comes from William Church.
With eight capital your line is now open.
Yes. Thank you.
Yes.
What's the timing on the.
Yes.
Yes.
The study has completed.
It is now being the results are being compiled and we would expect that the the group that conducted the study will release the results sometime in the first half of next year and based on what that looks like we would be prepared if they are positive to file.
De Novo request similar to what we did before for fibromyalgia by the end of next year.
Okay. Thank you.
As a reminder to ask a question. Please press star one on your telephone.
At this time I am not showing any further questions.
I'd now like to turn the conference back to Dr. <unk> for closing remarks.
Thank you Michelle and thank you for joining us on this conference call today, and we look forward to updating you after the end of the year thinking.
This concludes today's conference call. Thank you for participating you may now disconnect.