Q3 2023 NeuroMetrix Inc Earnings Call
Good morning, and welcome to new <unk> metrics third quarter, 2023 business and financial highlights update my name is Norman and I'll be your moderator on the call.
This call the company May make statements, which are not historical facts.
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 newer metrics about future results.
Operations or 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 Companys periodic filings with the FCC available on the company's Investor Relations website at new metrics Dot com on the Sec's website at SEC Gov newer metric does not intend and undertake no duty to update the information disclosed on this conference call I'd now like to enter.
This new metric senior Vice President and Chief Financial Officer, Mr. Thomas Higgins Mr. Higgins.
Thank you Norma and welcome to all of you who are joining our CEO, Dr. Shai Giussani and myself for today's Q3 2023 update.
By way of background neuro metrics as a commercial stage medical device company addressing unmet needs in chronic pain and diabetes.
Our products are noninvasive, they have no direct competition on offer worldwide opportunities.
Our business model is razor razorblade with aftermarket revenue is the primary financial objectives.
Our principal technologies our quell.
Which is a wearable neuromodulation platform, which we have transitioned from over the counter to a prescription platform.
And TPN shack screening technology for peripheral neuropathy, particularly in neuropathy related to diabetes.
We have a solid balance sheet was $17 6 million in liquid assets. Our capital structure is simple and debt free there are approximately $8 6 million common shares outstanding and 800000 employee equity grants, which are stock options and <unk>.
Today, We reported Q3 record Q3 revenue of $1 2 million, which was down 39% compared with $2 million 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.
Risk adjustment rules for modified with a three year phase in affecting a range of patient screening procedures, including neuropathy, often performed with VPN shack.
We've discussed this in the prior quarters of this year, there's been no update or modification to the new CMS rules.
Our <unk> business experienced a net revenue reduction of 512000 or 35% in the third quarter of this year versus last year.
In the nine months year to date DPM check revenue is down accumulative, $1 1 million or 23% versus 2022.
Q3 revenue also reflects the strategic transition of our crowd neuroma acknowledge 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 just continued marketing quell over the counter and in Q4 of last year, we initiated our prescription sales of qualified for my Alger.
While sales of crawl fibromyalgia have been growing this year they have not yet reached the level of <unk> over the counter sales in the prior year.
During the third quarter of this year, we expanded our crowd direct sales presence within the large markets of Texas, Florida and California.
Our gross profit of this year in Q3 was $800000 compared with $1 3 million.
In Q3 last year.
The gross profit reduction correlates with lower revenue in the quarter.
Our gross margin rate in the third quarter was 65%, which is consistent with the third quarter of last year.
Operating expenses totaled $2 7 million down from $3 million last year, the opex decrease of $245000 or 8%.
Primarily reflects the offsetting effects of increased head count costs from our expanded sales through cross sales direct direct sales team.
And the reduced R&D utilization of outside professional services.
Net loss was $1, one $1 8 million or a negative <unk> 21 per share versus $1 6 million or a negative <unk> 23 per share in Q3 of last year.
Our operating cash usage in the quarter was approximately $2 $1 million.
As I mentioned, we hold $17 6 million in liquid resources. This is cash and securities and these are expected to be adequate to support the next phase of our crowd growth initiatives.
For our metrics common stock is currently trading in the range of <unk> 65 cents to <unk> 70 per share.
From an accounting standpoint as of the end of Q3.
Our neuro liquid assets were valued at $2 <unk> five per share and our stockholders' equity was $2 32 per share.
During the third quarter, we received a delisting notice for noncompliance with the NASDAQ minimum bid price rules of one dollar per share NAV.
NASDAQ has provided US a 180 day Grace period until early February next year to regain compliance.
On October 19th.
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.
And now for a Doctor goes on his comments.
Thank you Tom.
Our growth strategy is built on three core efforts the.
The first is to establish and grow the qual fibromyalgia indication in the U S market.
The second is to advance the quality narrow therapeutics program, which will lead to additional indications and an expanded addressable market.
And the third is to revise the <unk> business strategy to account for the recent changes in Medicare advantage.
I will now comment on each of these activities.
First with respect to Quad fibromyalgia.
Cause our Wearables Neuromodulation platform. It is based on our proprietary adaptive transfer tennis electrical nerve stimulation technology and is the only daily multi hour wearable treatment for chronic pain syndromes. It is <unk>.
<unk> cleared for relief of lower extremity chronic pain and has received FDA de novo authorization as the first and only neuromodulation.
Neuromodulation device indicated to help reduce the symptoms of fibromyalgia. This latter indication is available by prescription only.
At this time, our commercialization of our commercialization efforts are exclusively focused on the fibromyalgia indication.
For my allergies are complex chronic pain syndrome that affects up to 15 million people in the U S.
The only FDA approved drugs or Pregabalin to walk the team I'm, an aspirin, which can have substantial side effects. There is a critical unmet need for additional safe treatments.
The third quarter of this year was the third quarter of the commercial launch of quell fibromyalgia at this time, we're in a deliberate strategic phases intended to optimize the effectiveness of our prescription processing solution to refine 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 in two regional business managers, which provide us with preliminary coverage of a Florida, Texas and California markets.
And we expect to decide on our next expansion in the second quarter of 2024.
We have partnered with the national online pharmacy to fulfill both the initial prescriptions and refills at this time qualifier myalgia is available on a cash pay basis.
There were 125 unique prescribers during the third quarter compared to 123 during the second quarter. The most common prescribers, a rheumatologist pain medicine specialists and neurologists.
The cumulative number of fibromyalgia prescriptions that have been written increased to 752 in the third quarter from 490 in the second quarter with over 60% of prescriptions filled by patients.
Accumulative number of month refills, almost double from 348 in Q2 to 663 in the third quarter.
Overall, we are pleased with our early commercial experience with <unk> fibromyalgia, we expect to see continued progress leading to material revenue in 2024.
Moving on to our broader neuro Therapeutics program.
As I mentioned, the second element of our growth strategy is to develop this pipe.
The pipeline for <unk> therapeutics beyond the initial fibromyalgia indication.
The program that is furthest along is for treatment of chronic chemotherapy induced peripheral neuropathy or cips.
Which affects as many as 30% of the approximately 1 million people who receive chemotherapy every year.
Is a chronic and debilitating side effect of cancer treatment.
<unk> received FDA breakthrough designation for treating moderate to severe CIP and in January of 2022 based on a pilot clinical study conducted at the University of Rochester.
NIH funded multicenter double blinded sham controlled randomized sham controlled trial completed enrollment in the third quarter of last year and we have now had the opportunity to review the results and have determined they support a FDA 500, 10-K filing for a quasi iPad indication.
We have largely completed our 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 first quarter of next year at the latest.
Depending on the FDA review timeline and ultimate clearance decision. We believe that we can be positioned to initialize initiated commercialization before the end of 2024.
Now moving onto DPM check <unk> is a rapid point of care test for peripheral neuropathy, such as diabetic peripheral neuropathy or DPM.
Which is the most common long term complication of diabetes.
<unk> is the only point of care peripheral neuropathy tastes.
Tests based on gold standard nerve conduction studies technology.
Our <unk> business has been comprised of.
<unk> sales into the U S Medicare advantage market and international sales in China, and Japan through distribution partners.
About 80% of <unk> revenue has historically come from domestic sales.
We have a value based <unk>.
Commercial team that has been focused on increasing <unk> adoption in the Medicare advantage market.
This includes large medical groups and health systems, and health assessment companies, where a substantial portion of their parent 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 categories, our HCC risk adjustment model.
For calendar year 2020 for the new model alters the risk adjustment environment and amongst many changes.
Essentially eliminated HCC codes for peripheral neuropathy or detected by <unk> screening programs.
We believe that this uncertainty led our largest Medicare advantage customer and several smaller customers to suspend their medical.
Screen programs, including for TPN check or cleaning using DPA uncheck.
We are 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 fourth quarter.
As we saw this quarter the Medicare advantage changes have caused a material downward pressure on <unk> revenues.
The implementation of our new strategy will take time, and therefore, we do not see a reversal in 2024.
Nevertheless, we expect the <unk> business line, we will continue to generate positive cash flow by virtue of its attractive operating margins, which will help offset our investments in the growing quantity our therapeutics business.
And that constitutes our prepared comments and we'd be happy to take questions at this point.
Thank you.
Unnamed Moderator: Good morning and welcome to NeuroMetrix Third Quarter 2023 Business and Financial Highlights Update. My name is Norm and I will 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 Security's litigation reform act of 1995. Statements are predictive in nature that depend upon or refer to future events or conditions or forward looking statements.
To ask a question you will need to press star one on your telephone to withdraw your question. Please press star one again, please wait for your name to be announced please standby, while we compile the Q&A roster.
And again Thats Star one wanted to ask your question.
Again as a reminder to ask a question. Please press star one on your telephone.
Unnamed Moderator: Any forward looking statements reflect current views of NeuroMetrix about future results of operations or 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.
I am currently showing no questions at this time I would like to hand, the conference back to Dr. Giovanni for closing remarks.
Unnamed Moderator: Please refer to the risk and uncertainties including the factors described under the headings, risk factors and the company's periodic followings with the SEC available on the company's investor relations website at NeuroMetrix.com on the SEC's website at SEC.gov. NeuroMetrix does not intend and I undertake no duty to update the information disclosed on the conference call.
Okay.
Thank you for joining us on our call today, and we look forward to keeping you updated over the balance of the year.
This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
Thomas Higgins: I'd now like to introduce NeuroMetrix Senior Vice President and Chief Financial Officer, Mr. Thomas Higgins. Mr. Higgins. Thank you, Norma, and welcome to all of you who are joining our CEO, Dr. Shango Zani, and myself for today's Q3 2023 update. By way of background, NeuroMetrix is a commercial stage medical device company addressing unmet needs in chronic pain and diabetes. Our products are not invasive, they have no direct competition on offer worldwide opportunities.
Okay.
[music].
Yeah.
[music].
Thomas Higgins: Our business model has raised a razor blade with aftermarket revenue as the primary financial objective. Our principal technologies are QAL, which is a wearable neuromodulation platform, which we have transitioned from over the counter to a prescription platform, and DPN checked a screening technology for peripheral neuropathy, particularly neuropathy related to diabetes. We have a solid balance sheet with 17.6 million in liquid assets. Our capital structure is simple and debt-free. There are approximately 8.6 million common shares outstanding and 800,000 employee equity grants, which are stock options in our issues.
Thomas Higgins: Today, we reported Q3 revenue of 1.2 million, which was down 39 percent compared with 2 million 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 three-year phase-in, affecting a range of patient screening procedures, including neuropathy, often performed with DPN checked.
Thomas Higgins: We've discussed this in the prior quarters of this year. There's been no update or modification to the new CMS rules. Our DPN checked business experienced a net revenue reduction of 512,000 or 35 percent in the third quarter of this year versus last year, in the nine months year-to-date DPN check revenue is down accumulative 1.1 million or 23 percent versus 2022. Q3 revenue also reflects the strategic transition of our Kuala NeuroMet technology from chronic pain, for chronic pain, from over-the-counter sales to prescription indications.
Thomas Higgins: This was initiated in late 2022 and continues through a strategic commercial launch. At the end of Q3 last year, we discontinued marketing Kuala over-the-counter, and in Q4 of last year, we initiated our prescription sales of Kuala Fibromyalgia. While sales of Kuala Fibromyalgia have been growing this year, they have not yet reached the level of Kuala over-the-counter sales in the prior years. During the third quarter of this year, we expanded our Kuala direct sales presence within the large markets of Texas, Florida, and California.
Thomas Higgins: Our gross profit of this year in Q3 was $800,000 compared with 1.3 million in Q3 last year. The gross profit reduction correlates with lower revenue in the quarter. Our gross margin rate in the third quarter was 65 percent, which is consistent with the third quarter of last year. Operating expenses totaled 2.7 million down from 3 million last year. The off-ex decrease of $245,000 or 8 percent primarily reflects the offsetting effects of increased headcount costs from our expanded sales direct sales team and the reduced R&D utilization of outside professional services.
Thomas Higgins: That loss was 1.8 million or a negative 21 cents per share, versus 1.6 million or a negative 23 cents per share in Q3 of last year. Our operating cash usage in the quarter was approximately $2.1 million. As I mentioned, we hold 17.6 million in liquid resources. This is cash and securities, and these are expected to be adequate to support the next phase of our quail growth initiatives. Nuremberg's common stock is currently trading in the range of 65 cents to 70 cents per share.
Thomas Higgins: From an accounting standpoint, as of the end of Q3, our neural liquid assets were valued at $2.5 per share, and our stockholder's equity was $2.32 per share. During the third quarter, 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 19th, 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.
Shai Gozani: The board has not yet made a decision on a possible reverse split, and now for Dr. Gazzani's comments. Thank you, Tom. Our growth strategy is built from three core apps. The first is to establish and grow the Kuala Fubberman Algae Indication in the US market. The second is to advance the Kuala Neuro Therapeutics Program, which will lead to additional indications and expanded addressable market. And the third is to revise the DPN Check Business Strategy to account for the recent changes in Medicare Advantage. I will now comment on each of these activities.
Shai Gozani: First was respect to Kuala Fubberman Algae. Kuala's our wearable neuromodulation platform. It is based on our proprietary adaptive transcutaneous electrical nurse stimulation technology. It 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-denovo authorization as the first and only neuromodulation device indicated to help reduce the symptoms of Fubberman Algae. This lighter indication is available by prescription only.
Shai Gozani: At this time, our commercialization efforts are exclusively focused on the Fubberman Algae Indication. Fubberman Algae is a complex chronic pain syndrome that affects up to 15 million people in the US. The only FDA-approved drugs are pre-gablin to oxidize them in the aspirin, which can have substantial side effects. There is a critical unmened need for additional safe treatments.
Shai Gozani: The third quarter of this year was the third quarter of the commercial launch of Kuala Fubberman Algae. At this time, wearing a deliberate strategic phase is intended to optimize the effectiveness of our prescription processing solution to refine 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 two regional business managers, which provide us with preliminary coverage of the Florida Texas and the California markets.
Shai Gozani: And we expected to slide on our next expansion in the second quarter of 2024. We have partnered with the National Online Pharmacy to fulfill both initial prescriptions and reveals. At this time, Kuala Fubberman Algae is only available on a cash pay basis. There are 125 unique prescribers during the third quarter compared to 123 during the second quarter. The most common prescribers are rheumatologists, pain myths, and specialists, and neurologists. The cumulative number of Kuala Fubberman Algae prescriptions that have been run increased to 752 and the third quarter from 490 in the second quarter, with over 60% of prescriptions filled by patients.
Shai Gozani: The cumulative number of month refills almost double from 348 in Q2 to 663 in the third quarter. Overall, we are pleased with our early commercial experience with Kuala Fubberman Algae. We expect to see continued progress leading to material revenue in 2024.
Shai Gozani: Moving on to our broader Kuala Fubberman Algae program. As I mentioned, the second element of our growth strategies to develop the pipeline for Kuala Fubberman Algae. The program that has furthest along is for treatment of chronic chemotherapy induced peripheral neuropathy or CIPN, which affects as many as 30% of the approximately 1 million people who receive chemotherapy every year, is a chronic and debilitating side effect of cancer treatment. Kuala Fubberman Algae received FDA breakthrough designation for treating moderate severe CIPN in January of 2022, based on a pilot clinical study conducted at the University of Rochester.
Shai Gozani: A NIH funded multi-center double-blinded ran-on-my-sham-control trial completed enrollment in the third quarter of last year, and we have now had the opportunity to review the results and determine if they support a FDA-510K filing for a QLCI-PAN indication. 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 first quarter 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.
Shai Gozani: Now moving on to DPN check. DPN check 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. DPN check is the only point-of-care peripheral neuropathy test based on gold standard and nerve-conductive study technology.
Shai Gozani: Our DPN check business has been comprised of a B2B sale of B2B sales into the US Medicare Advantage Market and international sales in China and Japan through distribution partners. About 80% of DPN check revenue has historically come from domestic sales. We have a value-based commercial team that has been focused on increasing DPN check adoption in the Medicare Advantage Market. This includes large medical groups, IDNs, health systems, and health assessment companies, or a substantial portion of their patients are covered under Medicare Advantage. This business has been growing over the past several years.
Shai Gozani: 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 categories or HCC risk adjustment model for calendar year 2024. The new model alters the risk adjustment environment and among its many changes essentially eliminated HCC codes for peripheral neuropathy are detected by DPN check screening programs.
Shai Gozani: We believe that this uncertainty led our largest Medicare Advantage customer and several smaller customers spend their medical screening programs including for DPN check or cleaning using DPN check. 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 focus business to one more broadly addressing value-based care. Our expectations and we will finalize our new commercial strategy during the fourth quarter.
Shai Gozani: As we saw in this quarter, the Medicare Advantage changes have caused the material downward pressure on DPN check revenues. Implementation of a new strategy will take time and therefore we do not see a reversal in 2024. Nevertheless, we expect that DPN check business line will continue to generate positive cash below by virtue of its attractive operating margins, which will help offset our investments in a growing column neuropathy experience business.
Unnamed Moderator: And that constitutes our prepared comments and we happy to take questions at this point. Thank you. To ask a question, you'll need to press star 1-1 on your telephone. To withdraw your question, please press star 1-1 again. Please wait for your name to be announced. Please stand by where we compiled a Q&A roster. And again, that star 1-1 to ask your Again, as a reminder to ask a question, please press star 111 on your telephone. I am currently showing no questions at this time.
Shai Gozani: I'd like to hand the conference back to Dr. Gozani for closing remarks. Thank you for joining us on the call today and we look forward to keeping you updated over the balance of the year.
Unnamed Moderator: This concludes today's conference call and thank you for your participation.
Unnamed Moderator: You may now disconnect. Everyone have a wonderful day. [inaudible]