Q2 2024 Tivic Health Systems Inc Earnings Call - Pre-Recorded

Speaker Change: [inaudible]

Operator: [inaudible] Blake Gurfein, Tivic Health, Blake Gurfein, Tivic Health System [inaudible] Welcome to the Tivic Health System second quarter 2024 financial results and shareholder update conference call. All participants will be in listen-only mode.

Speaker Change: Welcome to the Tivic Health System second quarter 2024 financial results and shareholder update conference call. All participants will be in listen-only mode.

Operator: Please note that the conference is being recorded. Statements made during this call contain forward-looking statements about Tivic's. You should not place undue reliance on forward-looking statements, as these statements are based upon management's current expectations, forecasts, and assumptions, that are subject to significant risk and uncertainty.

Speaker Change: Please note that the conference is being recorded. Statements made during this call contain forward-looking statements about Tivic's business.

Speaker Change: You should not place undue reliance on forward-looking statements, as these statements are based upon management's current expectations, forecasts, and assumptions, and are subject to significant risk and uncertainties.

Operator: Forward-looking statements contained in this press release may be identified by the use of words such as anticipate, believe, contemplate, could, estimate, Expect, Intend, Seek, May, Might, Plan, Potential, Predict, Project, target, aim, should, will, would, or the negative of these words, or other similar expressions, although not all forward-looking statements contain these words. Forward-looking statements are based on Tivic Health Systems, Inc.'s current expectations and are subject to inherent uncertainties, risks, and assumptions that are difficult to predict. Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate.

Speaker Change: Forward-looking statements contained in this press release may be identified by the use of words such as anticipate, believe, contemplate, could, estimate,

Speaker Change: Expect. Intend. Seek. May. Might. Plan. Potential. Predict.

Speaker Change: project

Speaker Change: target, aim, should, will, would, or the negative of these words, or other similar expressions. Although not all forward-looking statements contain these words.

Operator: Actual results could differ materially from those contained in any forward-looking statement as a result of various factors, including without limitation, and future development of NCDNS treatment. Tivic Health's ability to commercialize products arising out of the NCVNS treatment and Tivic Health's plans to seek regulatory approval for such clinical products. Tivic Health's continued focus on developing NCVNS treatment, including in the epilepsy, post-traumatic stress disorder and or ischemic stroke space. Expected Clinical Utility, including which patient populations may be pursued, market and other conditions. Supply chain constraints, macroeconomic factors, including inflation, Tivic Health's ability to raise additional capital on favorable terms, or at all, when needed.

Speaker Change: Forward-looking statements are based on Tivic Health Systems, Inc.'s current expectations and are subject to inherent uncertainties, risks, and assumptions that are difficult to predict.

Speaker Change: Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate.

Speaker Change: Actual results could differ materially from those contained in any forward-looking statement as a result of various factors, including, without limitation, the future development of NCVNS treatment.

Tybik Health: Tybik Health's ability to commercialize products arising out of the NCVNS treatment and Tybik Health's plans to seek regulatory approval for such clinical products.

Speaker Change: Pacific Health's continued focus on developing NCVNS treatment including in the epilepsy, post-traumatic stress disorder and or ischemic stroke space

Speaker Change: Expected Clinical Utility, including which patient populations may be pursued, market, and other conditions.

Speaker Change: Supply chain constraints, macroeconomic factors, including inflation, civic health's ability to raise additional capital on favorable terms, or at all, when needed.

Operator: Tivic Health's ability to maintain its NASDAQ listing and unexpected costs, charges or expenses that reduce Tivic Health's capital resources. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements, for a discussion of other risks and uncertainties and other important factors, any of which could cause Tivic Health's actual results to differ from those contained in the forward-looking statements see Tivic Health's filings with the SEC, including its annual report on Form 10-K, where the year ended December 31, 2020, filed with the SEC on March 29, 2024, under the heading Risk Factor, as well as the company's subsequent filings with the FDA. Now, let me hand over the call to Jennifer Ernst, Tivic Health's Chief Executive. Hello, everyone, and thank you for joining us today.

Tivic Health: Tivic Health's ability to maintain its NASDAQ listing and unexpected costs, charges, or expenses that reduce Tivic Health's capital resources.

Tivic Health: Give me these risks and uncertainties. You are caution not to place undue reliance on such forward-looking statements.

Speaker Change: For a discussion of other risks and uncertainties, and other important factors, any of which could cause Typic Health's actual results to differ from those contained in the forward-looking statements see Typic Health's filings with the SEC.

Speaker Change: Including its annual report on Form 10K, for the year ended December 31, 2023, filed with the SEC on March 29, 2024, under the heading risk factors.

Jennifer Ernst: I'm Jennifer Ernst, CEO of Tivic, and I'm joined today by our interim CFO, Kimberly Bambach, and our chief scientific officer, Blake Gurfein. On today's call, the format is going to be a little different than many of our ARCIS calls. That's because over the past few months, we've made some important progress in our development of a novel vagus nerve stimulation system. Working with the fine scene institutes at Northwell Hall, a leader in bioelectronic medicine, we have shown a new approach that demonstrated profound biological effects. And this area of development is a critically important part of our strategy to build shareholder value.

Speaker Change: as well as the company's subsequent violings with the SEC. Now, let me hand over the call to Jennifer Ernst, Tific Health's Chief Executive Officer.

Jennifer Ernst: We also believe that with the recent announcement, we are at a transformational opportunity for Tivic. So with that in mind, I'm beginning the call today with Kim going through our Q2 2024 financial results, then Blake and I will provide a much more in-depth discussion on the vagus nerve, why we care about it, the study results, and the potential for this development area inside Tivic. So, as we start this call, Kim, I'd like to hand it over to you right now to first go through the Q2 financial results while Blake and I prepare to give the presentation portion of the call. Thank you, Jennifer.

Kimberly Bambach: Financial results for the second quarter and first half reflect our continued progress on operational expense reductions as we focus our resources and efforts towards the next steps in our VNS research. Obviously, our financial results are primarily focused on clear up our first, FDA approved device in market. Clear up revenues for the three and six months ended June 30 was $140,000 and $474,000 respectively, a decrease of $63,000 or 12% as compared to the first half of 2023, primarily due to a 27% decrease in unit sales offset by a 20% increase in the per unit average sale price as we repositioned the product in 2023.

Jennifer Ernst: Hello everyone, and thank you for joining us today. I'm Jennifer Ernst, CEO of Civic. I'm joined today by our interim CFO Kimberly Bambach, and our chief scientific officer, Blake Gurfein.

Speaker Change: At today's call, the format is going to be a little different than many of our ARCIS calls.

Speaker Change: That's because over the past few months we've made some important progress in our development of a novel vagus nerve stimulation system.

Speaker Change: Working with the Feinstein Institutes at Northwell Health, a leader in bioelectronic medicine, we have shown a new approach that demonstrated profound biological effects. And this area of development is a critically important part of our strategy to build shareholder value.

Speaker Change: We also believe that with the recent announcement, we are at a transformational opportunity for TBIC.

Kimberly Bambach: Cost of sales for the three and six months ended June 30 was $110,000 and $277,000 respectively, a decrease of 86,000 or 24% compared to the first half of 23, primarily driven by the decrease in sales volume as well as cost improvement.

Speaker Change: With that in mind, I'm beginning the call today with Kim going through our Q2 2024 financial results.

Speaker Change: and I will provide a much more in-depth discussion on the vagus nerve, why we care about it, the study results, and the potential for this development area inside TIVIC.

Kim: So as we start this call, Kim, I'd like to hand it over to you right now to first go through the Q2 financial results while Blake and I prepare to give the presentation portion of the call.

Kimberly Bambach: Gross profits in the three and six months ended June 30 was $30,000 and $197,000 respectively compared to $61,000 and $174,000 in 2023, showing margin improvements of 42% for six months ended June 30, compared to 32% in 2023. Total operating expenses in the three and six months ended June 30 was $1.2 million and $2.9 million, respectively, compared to $2.2 million and $4.4 million in 2023, with year-over-year cost reductions of $1.5 million. Cost reductions in the last year include research and development expenses decreasing by $400,000 from reduced headcounts and certain expenses incurred in 2023 related to the clear-up device.

Kim: Thank you, Jennifer. Financial results for the second quarter and first half reflect our continued progress on operational expense reductions as we focus our resources and efforts towards the next steps in our VNS research.

Speaker Change: Obviously, our financial results are primarily focused on clear up our first

Speaker Change: FDA-approved device in market.

Speaker Change: Clear up revenues for the three and six months ended June 30 was $140,000 and $474,000 respectively.

Speaker Change: a decrease of 63,000 or 12% as compared to the first half of 2023, primarily due to a 27% decrease in unit sales offset by a 20% increase in the per unit average sale price as we repositioned the product in 2023.

Speaker Change: Cost of sales for the 3 and 6 months ended June 30 was $110,000 and $277,000 respectively, a decrease of $86,000 or 24% compared to the first half of 23. Primarily driven by the decrease in sales volume as well as cost improvements.

Speaker Change: Gross profits in the three and six months ended June 30 was $30,000 and $197,000 respectively, compared to $61,000 and $174,000 in 2023, showing margin improvements of 42%.

Speaker Change: for six months ended June 30 compared to 32% in 2023.

Speaker Change: Total operating expenses in the 3 and 6 months ended June 30 was $1.2 million and $2.9 million respectively compared to $2.2 million and $4.4 million in 2023 with year-over-year cost reductions of $1.5 million.

Speaker Change: Cost reductions in the last year include research and development expenses decreasing by $400,000 from reduced headcounts and certain expenses incurred in 2023 related to the clear-up device.

Kimberly Bambach: R&D in 2024, as you are aware, has focused primarily on completion of the Phase I, Vegas Neurostinulation Study, an initiation of the Phase I Optimization Study. Sales and marketing expenses decreased by $198,000. The decrease was primarily due to reductions in unprofitable clear-up advertising spend, as well as reductions in agency and staff.

Speaker Change: R&D in 2024, as you are aware, has focused primarily on completion of the Phase 1 Vagus Nerve Stimulation Study and initiation of the Phase 1 Optimization Study.

Speaker Change: Sales and marketing expenses decreased by $198,000. The decrease was primarily due to reductions in unprofitable clear up advertising spend as well as reductions in agency and staff costs.

Kimberly Bambach: General and administrative expenses decreased by $933,000. The overall decreases were primarily attributable to reduced headcount, lower consulting, and professional fees expenses. During the three months ended June 30, the company incurred a net loss of $1.3 million versus $2.1 million in 2023. Net loss for the first half of 2024 of $2.7 million was $1.5 million lower than 2023. On May 13, 2024, the company sold an aggregate of 4,710,000 shares of common stock to certain investors in a registered public offering at a combined public offering price of $0.85 per share with a company, Lawrence.

Speaker Change: General and administrative expenses decreased by $933,000. The overall decreases were primarily attributable to reduced headcount, lower consulting, and professional fees expenses.

Speaker Change: During the three months ended June 30 and the company incurred a net loss of 1.3 million versus 2.1 million in 2023. Net loss for the first half of 2024 of 2.7 million was 1.5 million lower than 2023.

Speaker Change: On May 13, 2024, the company sold an aggregate of 4,710,000 shares of common stock to certain investors in a registered public offering at a combined public offering price of $0.85 per share with accompanying warrants.

Kimberly Bambach: The company received gross proceeds of approximately $4 million, with net proceeds of approximately $3.3 million, excluding any potential proceeds of the warrants issued in connection with the offering, as of June 30, 2024. Cash and cash equivalents totaled $3.7 million, compared to December 31st of 23, where we had cash and equivalents of $3.4 million.

Speaker Change: The company received gross proceeds of approximately $4 million, with net proceeds of approximately $3.3 million, excluding any potential proceeds of the warrants issued in connection with the offering.

Speaker Change: As of June 30, 2024, cash and cash equivalents totaled $3.7 million, comparative to December 31, 2023, where we had cash and equivalents of $3.4 million.

Kimberly Bambach: And lastly, on June 28th, as expected, we received a notification letter from the NASDAQ that the company is not currently in compliance with the $1 per share minimum bid price requirement. The notification had no immediate effect on the listing of our common stock. Tivic has a period of 180 calendar days from June 27th to regain compliance with the minimum bid price requirement.

Speaker Change: and lastly, on June 28th, as expected, we received a notification letter from the NASDAQ that the company is not currently in compliance with the $1 per share minimum bid price requirement.

Speaker Change: The notification had no immediate effect on the listing of our common stock.

Speaker Change: Tivic has a period of 180 calendar days from June 27 to regain compliance with the minimum bid price requirement.

Kimberly Bambach: If at any time before December 26, the closing bid price of our common stock closes at or above $1 per share for a minimum of 10 days, the NASDAQ will provide written notification that the company has achieved compliance, and the matter would then be resolved. That concludes the financial update portion of the call today. Please stand by while Jennifer and Blake provide a detailed presentation on the VNS results study and its plausible impact on Tivic. Hey, thank you, Kim, for taking us through the Q2 financials. Now what I'm hoping the numbers are starting to tell.

Speaker Change: If at any time before December 26, the closing bid price of our common stock closes at or above $1 per share for a minimum of 10 days, the NASDAQ will provide a written notification that the company has achieved compliance.

Speaker Change: and the matter would then be resolved.

Speaker Change: That concludes the financial update portion of the call today. Please stand by while Jennifer and Blake provide a detailed presentation on the VNS results study and its plausible impact on Tivic.

Speaker Change: Thank you, Kim, for taking us through the Q2 financials. Now, what I'm hoping the numbers are starting to tell. The past year and a half, we have focused intensely on improving the economics of our Thera product line.

Jennifer Ernst: The past year and a half, we have focused intensely on improving the economics of our Thera product line. We've made significant progress from where we were a couple of years ago, and we still have work to do. Over that period, we've improved the cost of goods, we've reduced overhead and operating expenses, and we've improved the ratio of revenue to marketing expense, increasing the productivity of every single marketing dollar we spend. A lot has changed though in the macro environment since we started the company. Supply chain and shipping costs have increased.

Speaker Change: We've made significant progress from where we were a couple of years ago, and we still have work to do.

Speaker Change: Over that period, we've improved the cost of goods, we've reduced overhead and operating expenses, and we've improved the ratio of revenue to marketing expense, increasing the productivity of every single marketing dollar we spend.

Speaker Change: A lot has changed though in the macro environment since we started the company.

Jennifer Ernst: The cost of marketing direct to consumers is steadily increasing, and the platform that we use to reach our customers, including Amazon, Meta, and Google, are placing tighter and tighter restrictions on health product marketing due to expansion of HIPAA concerns. Next slide, please. We believe there are limits to the profitability that can be achieved with this particular product, particularly in the short-term, and as such, we will continue to target the improved economic, improving those economic, but we will also be evaluating alternative monetization strategies for the ClearUp product and for the associated intellectual property. And with that as background, it's particularly important.

Speaker Change: Supply chain and shipping costs have increased.

Speaker Change: The cost of marketing direct to consumers is steadily increasing, and the platforms we use to reach our customers, including Amazon, Meta, and Google, are placing tighter and tighter restrictions on health product marketing due to expansion of HIPAA concerns.

Speaker Change: net, we believe there are limits to the profitability that can be achieved with this particular product, particularly in the short term.

Speaker Change: and as such, we will continue to target the improved economic, improving those economic, but we will also be evaluating alternative monetization strategies for the clear-up product and for the associated intellectual property.

Speaker Change: And with that as background, it's particularly important that today's call, we are providing investors transparency about our plans for the future. Really, this is the crux of today's presentation.

Jennifer Ernst: In today's call, we are providing investors with transparency about our plans for the future. Really, this is the crux of today's presentation. More than a year ago, we began a program designed to broaden our footprint in bioelectronic medicine. We've taken a number of both technical and market learnings from the first product, and we are applying them instead to very high-value medical targets with the goal of generating much stronger shareholder returns.

Speaker Change: More than a year ago, we began a program designed to broaden our footprint in bioelectronic medicine.

Speaker Change: We've taken a number of both technical and market learnings from the first product, and we are applying them instead to the very high-value medical targets with the goal of generating much stronger shareholder returns.

Jennifer Ernst: As a result, the progress we've made in vagus nerve stimulation, or VNS, has resulted in a number of recent announcements. We have designed, developed, and tested a new method of non-indesisegist nerve stimulation that has shown an extremely strong clinical result.

Speaker Change: As a result, the progress we've made in Vagus Nerve Stimulation, or VNS, has resulted in a number of recent announcements.

Speaker Change: We have designed, developed, and tested a new method of non-invasive vagus nerve stimulation that has shown extremely strong clinical results.

Jennifer Ernst: Just a few months ago, we announced the successful completion of a Phase I trial with the Feinstein Institute at Northwell Health. The Feinstein Institute of Bioelectronic Medicine is one of the world leaders in this field. It was founded by Kevin Tracy, the father of bioelectronic medicine, and the Institute is particularly known for being at the most advanced edges of vagus nerve stimulation. So this area of bioelectronic medicine, which involves selective activation and engagement of the vagus nerve, is one of the most promising new areas of medicine. While there are studies ongoing in animal studies, a good number of academic studies, there are also very few companies who are actively positioned to deliver in and to capitalize on this space.

Speaker Change: Just a few months ago, we announced the successful completion of the Phase I trial with the Feinstein Institutes at Northwell Health.

Speaker Change: The Feinstein Institute of Bioelectronic Medicine is one of the world leaders in this field. It was founded by Kevin Tracy, the father of bioelectronic medicine.

Speaker Change: And the Institute is particularly known for being at the most advanced edges of vagus nerve stimulation.

Speaker Change: So this area of bioelectronic medicine, which involves selective activation and engagement of the vagus nerve, is one of the most promising new areas of medicine.

Speaker Change: While there are studies ongoing in animal studies, a good number of academic studies, there are also very few companies who are actively positioned to deliver in and to capitalize on this space.

Jennifer Ernst: It is this area of our company that we are focusing on today. So let me start with the next slide to talk about the labio electronic medicine itself. Bioelectronic medicine is a branch of the Global Neuromodulation Market. It's about treating disease by modulating the electrical signals that manage various biological functions.

Speaker Change: It is this area of our company that we are focusing on today.

Speaker Change: So let me start with the next slide to talk about the bioelectronic medicine itself.

Speaker Change: Bioelectronic medicine is a branch of the global neuron modulation market. It's about treating disease by modulating the electrical signals that manage various biological functions.

Jennifer Ernst: Okay, to put it more simply, we have on the slide here, restoring healthy function by engaging the body's electrical signals the same way that pharmaceuticals engage the chemical part. The field grew out of neuromodulation industry and so has relied historically on implanted devices. We're all familiar with things like pacemakers, final impound, inside deep brain stimulators. Now Tivic has focused on non-invasive bioelectronic medicine. We could go to the next slide.

Speaker Change: Okay, to put it more simply, we have on the slide here, restoring healthy function by engaging the body's electrical signals the same way that pharmaceuticals engage the chemical part.

Speaker Change: The field grew out of the neuromodulation industry and so has relied, historically, on implanted devices. We're all familiar with things like pacemakers, spinal implants, deep brain stimulators.

Speaker Change: Now, TIVIC has focused on non-invasive bioelectronic medicine.

Jennifer Ernst: We currently have two non-invasive bioelectronic platforms, each designed to deliver therapeutic benefits via electrical signals, without requiring surgically implanted technology. Our first platform, the one on the left, is our commercial one. This is a handheld design that interfaces non-invasively with the trigeminal, sympathetic, and other facial and cranial nerve structures. That platform is the basis for existing products, currently marketed with FDA approval as clear up sinus pain relief for the treatment of various sinus and allergy conditions.

Speaker Change: We could go to the next slide.

Speaker Change: We currently have two non-invasive bioelectronics platforms.

Speaker Change: Each designed to deliver therapeutic benefits via electrical signals without requiring surgically implanted technology.

Speaker Change: Our first platform, the one on the left, is our commercial one. This is a handheld design that interfaces non-invasively with the trigeminal, sympathetic, and other facial and cranial nerve structures.

Speaker Change: Lab Platform is the basis for our existing product.

Speaker Change: It's currently marketed with FDA approval as clear up sinus pain relief for the treatment of various sinus and allergy conditions

Jennifer Ernst: A couple of years ago, though, Blake and I saw an opportunity to apply the expertise we developed in low current non-invasive neuro stimulation to much higher value opportunities, and that was when we turned our attention first for the vagus nerve, what started as an internal series of experiments, has now led to a potential breakthrough in the field. Also, the result is a second platform, one that is currently in our R&D stage, directed to non-invasive vagus nerve stimulation, was only a few months ago that we announced that we had successfully completed a phase 1 study with the Fine Steen Institute of Bioelectronic Medicine. In that study, we demonstrated a profound effect on biological functions that are related to neurological, cardiovascular, and autonomic system diseases. If we can go to the next slide.

Speaker Change: A couple of years ago, Blake and I saw an opportunity to apply the expertise we've developed in low current, non-invasive neurostimulation to much higher value opportunities.

Speaker Change: and that was when we turned our attention first to the vagus nerve.

Speaker Change: what started as an internal series of experiments

Speaker Change: has now led to a potential breakthrough in the field.

Speaker Change: Also, the result is a second platform, one that is currently in our R&D stage, directed to non-invasive vagus nerve stimulation.

Speaker Change: It was only a few months ago that we announced that we had successfully completed a phase one study with the Feinstein Institute of Bioelectronic Medicine.

Speaker Change: In that study we demonstrated a profound effect on biological functions that are related to neurological, cardiovascular, and autonomic system diseases.

Jennifer Ernst: Let me say a little bit more about the Vegas nerve, about how it's possible to see such a broad effect and why we believe that the Vegas nerve is such an opportunity for us. Why, in fact, it's considered an extremely high-value target in medicine generally, as you can see in the diagram. The vagus nerve runs from the brain stem to the gut.

Speaker Change: If we can go to the next slide.

Speaker Change: Let me say a little bit more about the Vagus Nerve, about how it's possible to see that broad of an effect, and why we believe that the Vagus Nerve is such an opportunity for us.

Speaker Change: why, in fact, it's considered an extremely high-value target in medicine generally.

Jennifer Ernst: It touches every major organ in between. I've heard it aptly described as the information superhighway of the body. The signals are going back and forth from the organs to the brain. Different signals are being sent back from the brain to the organs to the peripheral systems. All of this results in a holistic system that monitors and manages everything from digestion and heart rate to breathing, inflammation and our brain activity. [inaudible] And since the vagus nerve regulates so many organs and neurologic systems, that has also been shown to be an active player in many chronic diseases, modulating or tuning the activity in this NERD pathway is of significant interest in medicine and, even more recently, in general wellness.

Speaker Change: As you can see in the diagram, the vagus nerve runs from the brainstem to the gut. It touches every major organ in between.

Speaker Change: I've heard it aptly described as the information superhighway of the body.

Speaker Change: Signals are going back and forth from the organs to the brain. Different signals are being sent back from the brain to the organs, to the peripheral systems.

Speaker Change: All of this results in a holistic system that monitors and manages everything from digestion and heart rate to breathing, inflammation, and our brain activity.

Speaker Change: And since the vagus nerve regulates so many organs and neurologic systems,

Speaker Change: that has also been shown to be an active player in many chronic diseases.

Speaker Change: modulating or tuning the activity in this nerve pathway is a significant interest in medicine and even more recently in general wellness.

Jennifer Ernst: So with that, I have a couple slides here to give you a sense of the overall VNS landscape. You can go to the first, the next slide. Let me start with this slide to show the implanted technology. I have a couple of slides here that are meant to give you a sense of the overall landscape.

Speaker Change: So with that, I have a couple slides here to give you a sense of the overall VNS landscape.

Speaker Change: We can go to the first, the next slide. Let me start with this slide to show the implanted technologies.

Speaker Change: I have a couple slides here that are meant to give you a sense of the overall landscape. So if we can go to the slide on the NS and the Implanted Technology, let me start here by talking a little bit about Implanted Technologies.

Jennifer Ernst: So if we can go to the slide on BNS and the implanted technology. Let me start here by talking a little bit about implanted technology. Now vagus nerve stimulation or VNS has already been established as a valid, clinically important medical treatment using implanted devices. Chosmetically approved devices for the August Nurse simulation are, in fact, in plants.

Speaker Change: Biggest nerve stimulation or VNS has already been established as a valid, clinically important medical treatment using implanted devices.

Speaker Change: post-medically approved devices for vagus nerve stimulation are in fact implants. And when I say implanted I'd like you to think think of an electrical device that looks like a pacemaker

Jennifer Ernst: And when I say I'm planted, I'd like you to think, think of an electrical device that looks like a pagemaker, surgically implanted in the upper chest, with wires that run up inside the neck and then are attached near or directly to the vagus nerve. Let's look at the next slide. Levanova is one of the commercial leaders in this category. They have approved offerings in treatment of epilepsy and depression. With small penetration rates, Levonova has made over a billion dollars each at the last two years.

Jennifer Ernst: VNS is also currently being investigated to treat inflammatory diseases such as rheumatoid arthritis and multiple sclerosis, two companies on the bottom of this slide, Galvani and SetPoint Medical, both pre-commercial implanted devices have secured over a billion dollars in funding between the two of them. I share this not to scare investors, but because it represents the market potential for solutions in this space. The one particularly interesting approved device is for microtransponder in the upper right corner. This implant is used for approximately a six-week course of treatment during stroke rehabilitation, for a limited use time zone in planting a device.

Sir Dickly: surgically implanted in the upper chest with wires that run up inside the neck and then are attached near or directly to the vagus nerve.

Sir Dickly: Let's look at the next slide.

Sir Dickly: LevaNova is one of the commercial leaders in this category. They have approved offerings in treatment of epilepsy and depression.

Speaker Change: With small penetration rates, Levonova has made over a billion dollars each at the last two years.

Speaker Change: VNS is also currently being investigated to treat inflammatory diseases such as rheumatoid arthritis and multiple sclerosis.

Speaker Change: Two companies on the bottom of this slide, Galvani and Setpoint Medical, both pre-commercial implanted devices, have secured over a billion dollars in funding between the two of them.

Speaker Change: I share this not to scare investors, but because it represents the market potential for solutions in this space.

Speaker Change: One particularly interesting improved device is from microtransponder in the upper right corner. This implant is used for approximately a six week course of treatment during stroke rehabilitation. So for a limited use time zone, implanting a device.

Operator: Welcome to the Tivic Health System, 2nd quarter, 2024 financial results, and Cheryl, their update conference call. All participants will be in listen only mode. Please note that the conference is being recorded.

Jennifer Ernst: These implanted VNS devices are rigorously tested. They're obviously tested for the efficacy and for the safety of the device itself. But the companies developing them also have to prove the safety of the surgical procedures that are used to implant them, as well as the long-term biological compatibility of the device, destroys chorus. These require FDA approval, certainly a PMA.

Speaker Change: These implanted VNS devices are rigorously tested. They are obviously tested for the efficacy and for the safety of the device itself.

Operator: Statements made during this call contain forward-looking statements about Tivic's business. You should not place undue reliance on forward-looking statements as these statements are based upon management's current expectations, forecasts, and assumptions, and are subject to significant risk and uncertainties. Forward-looking statements contained in this press release may be identified by the use of words such as anticipate, believe, contemplate, could estimate, expect, intend, seek, may, might, plan, potential, predict, project, target, aim, should, will, would, or the negative of these words or other similar expressions, although not all forward-looking statements contain these words.

Speaker Change: But the companies developing them also have to prove the safety of the surgical procedures that are used to implant them.

Speaker Change: as well as the long-term biological compatibility of the device.

Speaker Change: The Strides Costs

Jennifer Ernst: And they can command high premiums and create barriers to entry, but the invasive nature of the technology intrinsically increases risk, drives up the cost of clinical trials, and it limits the space of adoption. A non-invasive approach, such as ours, should be able to get to market at far lower costs given an intrinsically lower risk. And as we hear from Blake, the work we've done with the Feinstein Institute has shown biological effects from our approach that are on par with implanted devices. Now, if we go to the next slide, I should also comment on a more recently emergent section of noninvasive PNS. And this is the wellness category.

Speaker Change: These require FDA approval, certainly a PMA, and they can command high premiums and create barriers to entry.

Speaker Change: But the invasive nature of the technology intrinsically increases risk, drives up the cost of clinical trials, and it limits the space of adoption.

Speaker Change: non-invasive approach such as ours.

Speaker Change: should be able to get to market at far lower costs given an intrinsically lower risk.

Speaker Change: As we hear from Blake, the work we've done with the Feinstein Institute has shown biological effects from our approach that are on par with implanted devices.

Operator: Forward-looking statements are based on Tivic Health System's current expectations and are subject to inherent uncertainties, risk, and assumptions that are difficult to predict. Further, certain forward-looking statements are based on assumptions as to future events that may not prove to be accurate. Actual results could differ materially from those contained in any forward-looking statement as a result of various factors including without limitation, the future development of NCBNS treatment, Tivic Health's ability to commercialize products arising out of the NCBNS treatment, and Tivic Health's plans to seek regulatory approval for such clinical products.

Speaker Change: If we go to the next slide, I should also comment on a more recently emergent section of non-invasive PNS, and this is the wellness category.

Jennifer Ernst: There's a second sector of BNS. It's recently proliferated in the marketing of vagus nerve stimulators, as wellness devices, wellness means they do not require clinical data as long as they don't make medical claims. These are sold almost exclusively for stress in the U.S. Without clinical studies, they cannot be approved for any specific medical indication, and I have even heard them on medical device manufacturers call to the FDA to begin providing stronger oversight of these devices, given the potential risk that can be associated with an unregulated VNF. Now if we go to the next slide.

Speaker Change: There's a second sector of BNS. It's recently proliferated in the marketing of vagus nerve stimulators as wellness devices.

Speaker Change: Wellness means they do not require clinical data as long as they don't make medical claims.

Speaker Change: These are sold almost exclusively for stress in the U.S.

Speaker Change: Without clinical studies, they cannot be approved for any specific medical indication.

Operator: Tivic Health's continued focus on developing NCBNS treatment, including in the epilepsy post-traumatic stress disorder, and, or, a ski-make stroke space expected clinical utility, including which patient populations may be pursued, market, and other conditions. Supply chain constraints, macroeconomic factors, including inflation, Tivic Health's ability to raise additional capital on favorable terms, or at all when needed. Tivic Health's ability to maintain its NASDAQ listing and unexpected costs, charges, or expenses that reduce Tivic Health's capital resources. Given these risks and uncertainties, you are cautioned not to place undue reliance on such forward-looking statements.

Speaker Change: and I have even heard among medical device manufacturers some calls for the FDA to begin providing stronger oversight of these devices given the potential risks that can be associated with an unregulated VNS.

Jennifer Ernst: I'm showing a few of the companies here, but should you do a search for vagus nerve stimulation? I can almost guarantee you will start to see some of these names popping up in your social, But while these are not approved for any particular indication and do not have rigorous clinical data necessarily behind them for the general application of stress, The Sun's lead us to a third category. This is the area of medical grade non-invasive The Sun's lead us to a third category. If we can go to the next slide.

Speaker Change: Now if we go to the next slide.

Speaker Change: I'm showing a few of the companies here, but should you do a search for vagus nerve stimulation?

Speaker Change: I can almost guarantee you will start to see some of these names popping up in your social media feeds.

Speaker Change: So while these are not approved for any particular indication and do not have rigorous clinical data necessarily behind them for the general application of stress

Speaker Change: This does lead us to a third category. This is the area of medical-grade non-invasive DNS, if we can go to the next slide.

Jennifer Ernst: Put in between the implanted DNS and the non-invasive wellness. I think we have a few people on the call who actually are familiar with some of the companies in this space. There are significant opportunities available in medical grade non-invasive DNA, still the rigorous clinical testing, FDA regulation, and approved for specific medical indication, much like their implanted cousins, but like the wellness devices, they're also non-invasive, have a much lower risk at the clinical stage. Medical-grade non-invasive devices must be proven to be safe and effective for specific indications. Great, they go through the regular rigorous trials.

Operator: For a discussion of other risks and uncertainties and other important factors, any of which could cause Tivic Health's actual results to differ, for those contained in the forward-looking statements, Tivic Health's filings with the SEC, including its annual report on Form 10K. For the year-end December 31, 2023, filed with the SEC on March 29, 2024, under the heading as well as the company's subsequent filings with the SEC.

Speaker Change: sitting between the implanted VNS and the non-invasive wellness.

Speaker Change: I think we have a few people on the call who actually are familiar with some of the companies in this space. There are significant opportunities available in medical grade non-invasive BNS.

Speaker Change: still the rigorous clinical testing FDA regulation and approved for specific medical indication much like their implanted cousins

Speaker Change: But like the wellness devices, they're also non-invasive, have a much lower risk at the clinical stage.

Jennifer Ernst: Now, let me hand over the call to Jennifer Ernst, Tivic Health's Chief Executive Officer. Hello, everyone, and thank you for joining us today. I'm Jennifer Ernst, CEO of Tivic, and I'm joined today by our interim CFO, Kimberly Bambach, and our Chief Scientific Officer, Blake Gurfein.

Speaker Change: Medical grade non-invasive devices must be proven to be safe and effective for specific indications. They go through the regular rigorous trials.

Jennifer Ernst: So think of these as the evidence-based portion of noninvasive ENF. Using a non-invasive approach, though, can be expected to markedly reduce the time and risks and therefore the cost. They're associated both with clinical evaluation and with product development. Now, for investors, that means non-invasive products should be able to get to market more quickly. At lower costs than their implanted cousins. And in some cases, we expect we may even be able to secure a first mover advantage for new indications. This is the arena in which we intend to play.

Speaker Change: So think of these as the evidence-based portion of non-invasive ENFs.

Kimberly Bambach: At today's call, the format is going to be a little different than many of our articles. That's because over the past few months, we've made some important progress in our development of a novel, Vegas Nerves simulation system. Working with the Finestein Institute at North Wilhelm, a leader in bioelectronic medicine, we have shown a new approach that demonstrated profound biological effects. And this area of development is a critically important part of our strategy to build shareholder value.

Speaker Change: Using a non-invasive approach, though, can be expected to markedly reduce the time and risks and therefore the costs that are associated both with clinical evaluation and with product development.

Speaker Change: Now for investors, that means non-invasive products should be able to get to market more quickly at lower costs than their implanted cousins.

Speaker Change: And in some cases, we expect we may even be able to secure a first mover advantage for new indications.

Kimberly Bambach: We also believe that with the recent announcement, we are at a transformational opportunity for Tivic. So with that in mind, I'm beginning the call today with Kim going through our Q2 2024 financial results. Then, Blake and I will provide a much more in-depth discussion on the study result and the potential for this development area inside Tivic. So, as we start this call, Kim, I'd like to hand it over to you right now to first go through the Q2 financial results.

Speaker Change: This is the arena in which we intend to play.

Jennifer Ernst: This is an area, medical grade, non-invasive device, is an area where significant white space exists. There's differentiation opportunity based on the indication, on the form factor, based on the scale of your advocacy data, and on a host of other factors, and this is a space with opportunity to create highly differentiated products that can command a premium, and secure high barriers to entry. With all of that as background, I'd like now to turn the presentation over to Blake Gurfein, our Chief Scientific Officer.

Speaker Change: This is an area, medical grade non-invasive devices, is an area where significant white space exists. There's differentiation opportunity based on the indication, on the form factor, based on the scale of your efficacy data, and on a host of other factors.

Speaker Change: And this is a space with opportunity to create highly differentiated products that can command a premium.

Speaker Change: and secure high barriers to entry.

Blake Gurfein: With all of that as background, I'd like now to turn the presentation over to Blake Gurfein, our Chief Scientific Officer.

Kimberly Bambach: Well, Blake and I prepare to give the presentation portion of the call. Thank you, Jennifer. Financial results in the second quarter in first task reflect our continued progress on operational expense reductions as we focus our resources and efforts towards the next steps in our VNS research. Obviously, our financial results are primarily focused on clear up our first FDA approved device in market. Clear up revenues for the three and six months ended June 30 was 140,474,000 respectively.

Jennifer Ernst: Blake is a neuroimmunologist by background, an assistant professor at UCSF in the Department of Neurosurgery, and he is leading this research and development program at Tivic. I've invited him today to share with investors more details about a recent study result, as well as the import of what we demonstrated. Now with that. Blake, I'll turn it over to you for the next slide. Thank you, Jennifer.

Blake Gurfein: Blake is a neuroimmunologist by background, an assistant professor at UCSF in the Department of Neurosurgery, and he is leading this research and development program at Tivic.

Speaker Change: I've invited him today to share with investors more details about our recent study results as well as the import of what we demonstrated.

Speaker Change: And with that, Blake, I'll turn it over to you for the next slide.

Blake Gurfein: I'll now walk you through the key results from our collaborative study with the Feinstein Institute, which is considered, as Jennifer mentioned, one of the leading research organizations on the topics of vagus nerve stimulation and bioelectronic medicine. In our study, we applied non-invasive cervical VNS to 20 healthy subjects for a period of 20 minutes. And then we evaluated the biological effects of the intervention on pupillometry, which is an indicator of autonomic nervous system activity, cardiovascular function, and brain activity.

Blake Gurfein: Thank you, Jennifer.

Blake Gurfein: I'll now walk you through the key results from our collaborative study with the Feinstein Institute, which is considered, as Jennifer mentioned, one of the leading research organizations on the topics of vagus nerve stimulation and bioelectronic medicine.

Kimberly Bambach: A decrease of 63,000 or 12% is compared to the first half of 2023. Primarily due to a 27% decrease in unit sales offset by a 20% increase in the per unit average sale price as we repositioned the product in 2023. Cost of sales for the three and six months ended June 30 was 110,277,000 respectively. A decrease of 86,000 or 24% compared to the first half of 23. Primarily driven by the decrease in sales volume as well as cost improvements.

Blake Gurfein: In our study, we applied non-invasive cervical VNS to 20 healthy subjects for a period of 20 minutes, and then we evaluated the biological effects of the intervention on pupillometry, which is an indicator of autonomic nervous system activity.

Blake Gurfein: cardiovascular function, and brain activity.

Blake Gurfein: We were pleased to announce recently that we saw meaningful changes in all three measures, which are correlated to treatment opportunities in neurology, psychiatry, cardiovascular disease, and autonomic nervous system diseases. The first slide I'm showing you is a measure of pupil diameter. We care about pupil diameter because measuring changes in the pupil gives us a strong indication of whether we're engaging the vagus nerve and actually influencing the autonomic nervous. Here, we measured pupil diameter in subjects before, during, and after the non-invasive intervention and observed sustained reductions in pupil diameter during stimulation. On average, there was a 9.5% reduction in pupil diameter.

Kimberly Bambach: Gross profits in the three and six months ended June 30 was 30,000 and 197,000 respectively compared to 61,000 and 174,000 in 2023. Showing margin improvements of 42% for six months ended June 30 compared to 32% in 2023. Total operating expenses in the three and six months ended June 30 was 1.2 million and 2.9 million respectively compared to 2.2 million and 4.4 million in 2023 with the year over your cost reductions of 1.5 million.

Blake Gurfein: We were pleased to announce recently that we saw meaningful changes in all three measures, which are correlated to treatment opportunities in neurology, psychiatry, cardiovascular disease, and autonomic nervous system diseases.

Blake Gurfein: And this is considered strong evidence of vagus nerve engagement and activation of parasympathetic tone. Next. We also used electrocardiography to quantify another key measure of parasympathetic tone called heart rate variability, or HRV.

Blake Gurfein: Next slide.

Blake Gurfein: The first slide I'm showing you is a measure of pupil diameter.

Speaker Change: We care about people diameter because measuring changes in the pupil gives us a strong indication of whether we're engaging the vagus nerve and actually influencing the autonomic nervous system.

Kimberly Bambach: Cost reductions in the last year include research and development expenses decreasing by 400,000 from reduced headcounts and certain expenses incurred in 2023 related to the clear up device. R&D in 2024, as you are aware, has focused primarily on completion of the Phase I Vegas Neurostimulation Study, an initiation of the Phase I Optimization Study. Sales and marketing expenses decreased by 198,000. The decrease was primarily due to reductions in unprofitable clear-up advertising spend, as well as reductions in agency and staff costs.

Speaker Change: Here, we measured pupil diameter and subjects before, during, and after the non-invasive intervention and observed sustained reductions in pupil diameter during stimulation.

Speaker Change: On average, there was a 9.5% reduction in pupil diameter. And this is considered strong evidence of vagus nerve engagement and activation of parasympathetic tone.

Speaker Change: Next slide.

Speaker Change: We also used electrocardiography to quantify another key measure of parasympathetic tone called heart rate variability or HRV.

Kimberly Bambach: General and administrative expenses decreased by 933,000. The overall decreases were primarily attributable to reduced headcount, lower consulting, and professional fees expenses. During the three months and a June 30, and the company incurred a net loss of 1.3 million versus 2.1 million in 2023. Net loss for the first half of 2024, of 2.7 million, was 1.5 million lower than 2023. On May 13, 2024, the company sold an aggregate of 4,710,000 shares of common stock to certain investors in a registered public offering at a combined public offering price of 85 cents per share with accompanying mourns.

Blake Gurfein: Here I'm showing a figure of the before and after measures of a type of HRV called RMSSD or the Root Mean Squared of Successive Difference, Importantly, this is an accepted proxy of vagus nerve activity. Compared with before simulation, after our non-invasive cervical VNF. Study subjects showed a 2X increase in RMSSD after stimulation, and 60% of the subjects who are the high responders, had close to a 3x increase in this widely used measure.

Speaker Change: Here, I'm showing a figure of the before and after measures of a type of HRV called RMSSD or the Root Mean Squared of Successive Differences

Speaker Change: Importantly, this is an accepted proxy of vagus nerve activity.

Speaker Change: Compared with before stimulation, after our non-invasive cervical VNS, study subjects showed a 2x increase in RMSSD after stimulation.

Speaker Change: and 60% of the subjects who are the high responders had close to a 3x increase in this widely used measure.

Blake Gurfein: To provide some additional context, increasing RMSSD may have clinical value in treating arrhythmias, and higher RMSSD is associated with lower morbidity and mortality in patients with cardiovascular. Additionally, the size of the effect that we observed and the responder rate is comparable to some of the published data on implanted Vegas nerve simulation device. Whereas other non-invasive approaches have shown much more inconsistent results in the published literature.

Kimberly Bambach: The company received gross proceeds of approximately $4 million, with net proceeds of approximately $3.3 million, excluding any potential proceeds of the warrant issued in connection with the offering. As of June 30, 2024, cash and cash equivalent total $3.7 million, comparative to December 31st of 23, where we had cash and equivalent of $3.4 million. And lastly, on June 28, as expected, we received a notification letter from the NASDAQ that the company is not currently in compliance with the $1 per share minimum bid price requirement.

Speaker Change: To provide some additional context, increasing RMSSD may have clinical value in treating arrhythmias and higher RMSSD is associated with lower morbidity and mortality in patients with cardiovascular disease.

Speaker Change: Additionally, the size of the effect that we observed and the responder rate is comparable to some of the published data on implanted vagus nerve stimulation devices.

Kimberly Bambach: The notification had no immediate effect on the listing of our common stock. Civic has a period of 180 calendar days from June 27 to regain compliance with the minimum bid price requirement. If at any time before December 26, closing bid price of our common stock closes at or above $1 per share for a minimum of 10 days, the NASDAQ will provide written notification that the company has achieved compliance. And the matter would then be resolved.

Speaker Change: Whereas other non-invasive approaches have shown much more inconsistent results in the published literature.

Blake Gurfein: Lastly, I'd like to highlight that the study subjects in our trial were healthy and young, the magnitude of the treatment effects are expected to be meaningfully larger in older patients and those that have chronic diseases. Next slide. Finally, we used electroencephalography to measure brain activity in study participants. What I'm now showing is an analysis of brain activity across five different frequency bands, where red indicates increased activity in that frequency and blue indicates a decrease. First, let's focus on the figure in the upper left corner. This is the theta band.

Speaker Change: Lastly, I'd like to highlight that the study subjects in our trial were healthy and young. The magnitude of the treatment effects are expected to be meaningfully larger in older patients and those that have chronic diseases.

Speaker Change: Next slide.

Speaker Change: Here.

Speaker Change: Finally, we use electroencephalography

Blake Gurfein: We found that study subjects had a 24% mean increase in frontal theta activity, which is associated with calm, weak states learning and memory. And clinically, increased frontal theta is expected to be useful in anxiety, post-traumatic stress disorder, and other psychiatric and neurological disorders that have unmet treatment needs. Second, if we look at the lower right figure, we saw a striking 66% reduction in frontal gamma activity, which is associated with reduced arousal and anxiety.

Speaker Change: What I'm now showing is an analysis of brain activity across five different frequency bands where red indicates increased activity in that frequency and blue indicates a decrease.

Jennifer Ernst: That concludes the financial update portion of the call today. Please stand by, will Jennifer and Blake provide a detailed presentation on the VNS result study and its plausible impact on Civic. Hey, thank you, Kim, for taking us through the Q2 financials. Now, what I'm hoping the numbers are starting to tell the past year and a half, we have focused intensely on improving the economics of our thorough product line. We may have significant progress from where we were a couple of years ago and we still have work to do.

Speaker Change: First, let's focus on the figure in the upper left corner. This is the Theta band.

Speaker Change: We found that study subjects had a 24% mean increase in frontal theta activity, which is associated with calm, weak states, learning and memory.

Jennifer Ernst: Over that period, we've improved the cost of goods, we've reduced overhead and operating expenses, and we've improved the ratio of revenue to marketing expense, increasing the productivity of every single marketing dollar we spent. A lot has changed though in the macro environment since we started the company. Supply chain and shipping cost have increased. The cost of marketing direct consumers is steadily increasing and the platform that we use to reach our costs, customers, including Amazon, Meta, and Google, are placing tighter and tighter restrictions on health, product, marketing due to expansion of HIPAA concerns.

Speaker Change: And clinically, increased frontal theta is expected to be useful in anxiety, post-traumatic stress disorder, and other psychiatric and neurological disorders that have unmet treatment needs.

Speaker Change: Second, if we look at the lower right figure, we saw a striking 66% reduction in frontal gamma activity, which is associated with reduced arousal and anxiety.

Blake Gurfein: And we also saw a 62% reduction in temporal gamma activity, which is associated with reduced risk in epileptic seizures. Next slide. Together, our novel non-invasive vagus nerve simulation approach uses a new electrode configuration, a specific set of stimulation frequencies and a low current amplitude.

Speaker Change: And we also saw a 62% reduction in temporal gamma activity, which is associated with reduced risk in epileptic seizures.

Speaker Change: Next slide.

Speaker Change: Together, our novel non-invasive vagus nerve stimulation approach uses a new electrode configuration, a specific set of stimulation frequencies, and a low current amplitude.

Jennifer Ernst: Matt, we believe there are limits to the profitability that can be achieved with this particular product, particularly in the short term. And as such, we will continue to target the improved economic, improving those economics, but we will also be evaluating alternative monetization strategies for the clear-up product and for the associated intellectual property.

Blake Gurfein: Through our work with the Feinstein Institute, we've observed a very large rapid effect in important biological measures. And while implanted technologies have been clinically proven and have also validated the commercial viability of ENS, they're not always appropriate for the clinical scenario. So the key takeaway here is that there's a sizable technical and commercial gap in medical-grade, non-invasive BNS devices. And Tivic Health is now positioned to capitalize on that. I hope it goes without saying, thank you, Blake, for sharing that.

Speaker Change: Through our work with the Feinstein Institute, we've observed a very large, rapid effect in important biological measures.

Speaker Change: And while implanted technologies have been clinically proven and have also validated the commercial viability of DNS, they're not always appropriate for the clinical scenario.

Jennifer Ernst: And with that as background, it's particularly important that today's call we are providing investors transparency about our plans for the future. Really, this is the crux of today's presentation. More than a year ago, we began a program designed to broaden our footprint in bio-electronic medicine. We've taken a number of both technical and market learnings from the first product, and we are applying them instead to the very high-value medical targets with a goal of generating much stronger shareholder returns.

Speaker Change: So the key takeaway here is that there's a sizable technical and commercial gap in medical-grade, non-invasive BNS devices, and Tivic Health is now positioned to capitalize on that gap.

Jennifer Ernst: But I think both of us are quite excited about the potential for this work. So I'd like to tell you how we see this program unfolding, you look at this next slide, really is a catalyst-rich timeline for Tivic. We started with clinical feasibility. That was demonstrated first internally and for our phase one study at the Fine Steen Institute.

Speaker Change: I hope it goes without saying. Thank you, Blake, for sharing that. But I think both of us are quite excited about the potential for this work.

Speaker Change: So I'd like to tell you how we see this program unfolding.

Jennifer Ernst: As a result, the progress we've made in Vegas Nurse simulation or VNS has resulted in a number of recent announcements. We have designed, developed, and tested a new method of non-invasive Vegas Nurse simulation that has shown extremely strong clinical results. Just a few months ago, we announced the successful completion of the Phase I trial with the Fine Screen Institute at Northwell Health. The Fine Screen Institute of Bio-Electronic Medicine is one of the world leaders in this field, founded by Kevin Tracy, the father of bio-electronic medicine, and the institute is particularly known for being at the most advanced edges of Vegas Nurse simulation.

Speaker Change: If you look at this next slide, it really is a catalyst-rich timeline for TBIC.

Speaker Change: We started with clinical feasibility. That was demonstrated first internally and for our phase one study at the Feinstein Institutes.

Jennifer Ernst: Now with clinical feasibility demonstrated and patent filings underway, we are moving into optimization and intervalidation of market opportunities. Industry experts outside the company will be working alongside our team to validate the precise applications that have the highest likelihood to yield strong commercial results. And I anticipate over the next several quarters, we will be sharing continuous progress on these activities. So let's summarize. This quarter is the start of a potentially transformational period for Tivic. We announce the results of our successful Phase One trials of a new approach to non-invasive vagus nerve stimulation.

Speaker Change: Now, with clinical feasibility demonstrated and patent filings underway, we are moving into optimization and into validation of market opportunities.

Speaker Change: Industry experts outside the company will be working alongside our team to validate the precise applications that have the highest likelihood to yield strong commercial results. And I anticipate over the next several quarters, we will be sharing continuous progress on these activities.

Speaker Change: So, let's summarize.

Speaker Change: This quarter is the start of a potentially transformational period for TIPIC.

Jennifer Ernst: This area of bio-electronic medicine, which involves elective activation and engagement of the Vegas Nurse, is one of the most promising new areas of medicine. While there are studies on going in animal studies, the good number of academic studies, there are also very few companies who are actively positioned to deliver them and to capitalize on this space. It is this area of our company that we are focusing on today.

Speaker Change: We announce the results of our successful Phase I trials of a new approach to non-invasive vagus nerve stimulation.

Jennifer Ernst: We're partnering with the Feinstein Institute of Bioelectronic Medicine, one of the leaders in the field for optimization, and we are continuing to build our intellectual property portfolio in an area of significant potential value to the company and to our investors. Over the last 18 months, we've improved gross margins of our clear-up product. We've increased the revenue produced for marketing dollars spent, and we've aggressively reduced operating expenses. Just this quarter, we've relocated manufacturing and driven down cost of fulfillment with a new third-party logistics provider.

Speaker Change: We're partnering with the Feinstein Institute of Bioelectronic Medicine, one of the leaders in the field for optimization.

Speaker Change: And we are continuing to build our intellectual property portfolio in an area of significant potential value to the company and to our investors.

Speaker Change: Over the last 18 months, we have improved gross margins of our clear-up product. We've increased the revenue produced per marketing dollar spent.

Jennifer Ernst: So let me start with the next slide to talk about the labio-electronic medicine itself. Bio-electronic medicine is a branch of the Global Neural Modulation Market. It's about treating disease by modulating the electrical signals that manage various biological functions. Okay, to put it more simply, as we have on the slide here, restoring healthy functions by engaging the body's electrical signals the same way that pharmaceuticals engage the chemical part. The field grew out of neuromodulation industry and so has relied historically on implanted devices.

Speaker Change: and we've aggressively reduced operating expenses.

Speaker Change: Just this quarter we've relocated manufacturing and driven down cost of fulfillment with a new third-party logistics provider. Over time we've evaluated and performed due diligence on potential licensing and acquisition candidates while simultaneously building our organic growth options.

Jennifer Ernst: Over time, we've evaluated and performed due diligence on potential licensing and acquisition candidates while simultaneously building our organic growth option, and in the organic growth options, we have demonstrated industry leading clinical results in a new high-value medical target of VNF. Now, I will draw a contrast with some other companies in our space. We are directly making this investment rather than relying solely on investigator-led research. Meaning we have very strong work in relationships with our partners, access to the data for clinical violence and meaningful ways that we can shape our development programs and our intellectual property in real time.

Speaker Change: And in the organic growth options, we have demonstrated industry-leading clinical results in a new high-value medical target of VNF.

Speaker Change: Now, I will draw a contrast with some other companies in our space. We are directly making this investment rather than relying solely on investigator-led research.

Jennifer Ernst: We're all familiar with things like pacemakers, final improv, getting science, deep brain stimulators. Now, TIVIC has focused on non-invasive bio-electronic medicine. We could go to the next slide. We currently have two non-invasive bioelectronic platforms. Each designed to deliver therapeutic benefits via electrical signals without requiring surgically implanted technology. Our first platform, the one on the left is our commercial one. This is a handheld design that interfaces non-invasively with the trigeminal, sympathetic, and other facial and cranial nerve structures.

Speaker Change: Meaning we have very strong working relationships with our partners, access to the data for clinical filings, and meaningful ways that we can shape our development programs and our intellectual property in real time.

Jennifer Ernst: I really can't underscore strongly enough that the results we've shown and our investment in research said enables and is directed to creating breakthrough products. These are both highly differentiated, and they create significant new opportunities for generating shareholder value. We're not done yet. But I am sure as hell proud of what we have accomplished with a small and very dedicated team.

Speaker Change: I really can't underscore strongly enough that the results we've shown and our investment in research that enables and is directed to creating breakthrough products

Speaker Change: These are both highly differentiated, and they create significant new opportunities for generating shareholder value.

Speaker Change: We're not done yet.

Jennifer Ernst: Last platform is the basis for existing products. It's currently marketed with FDA approval as clear up sign as pain relief for the treatment of various sinus and allergy conditions. A couple of years ago, though, Blake and I saw an opportunity to apply the expertise we developed in low current non-invasive neuro stimulation to much higher value opportunities. And that was when we turned our attention first to the vagus nerve. What started as an internal series of experiments has now led to a potential breakthrough in the field.

Speaker Change: But I am sure as hell proud of what we have accomplished with a small and very dedicated team.

Jennifer Ernst: And with appropriate investor support, we believe that we are well positioned to capitalize on these opportunities. Now with that, I'd like to turn to the Q&A portion of the call. Thank you to the investors that did send some questions in advance. We'll do my best to address as many as I can here.

Speaker Change: And with appropriate investor support, we believe that we are well positioned to capitalize on these opportunities.

Speaker Change: With that, I'd like to turn to the Q&A portion of the call.

Speaker Change: Thank you to the investors that did send some questions in advance. I'll do my best to address as many as I can here. But let me start first with a couple that pertain to the Clear Up product.

Jennifer Ernst: So let me start first with a couple that pertained to the clear-up products, was asked the gross profit and gross margin were up significantly in the past year, well expenses and that loss were reduced. Do you see this as a trend as scalable and continuing going forward? So yeah, so the macro level, we've made a number of durable improvements to the business including some of the transitions I mentioned just this quarter.

Speaker Change: I was asked, the gross profit and gross margin were up significantly in the past year, while expenses and net loss were reduced. Do you see this as a trend of scalable and continuing going forward?

Jennifer Ernst: So also the result is a second platform. One that is currently in our R&D stage directed to non-invasive vagus nerve stimulation. There's only a few months ago that we announced that we had successfully completed a phase one study with the Fine Steen Institute of Bioelectronic Medicine. Now in that study, we demonstrated a profound effect on biological functions that are related to neurological cardiovascular and autonomic system diseases.

Speaker Change: So, yes, at a macro level, we've made a number of durable improvements to the business, including some of the transitions I mentioned just this quarter.

Jennifer Ernst: We have achieved marked improvement ones that are generally going to stay with us, and as I said earlier, it doesn't mean we're done. Customer acquisition costs is now a focus, and when we're partnerships and some of the alternative monetization strategies I mentioned earlier could play a role. I was also asked along this vein that last year we announced pricing increases to clear up that negatively impacted volume as we were going direct to consumers, and do we foresee any further price increases? The pricing increase itself was based on the sophisticated marketing segmentation of pricing research we conducted with IntelGo.

Speaker Change: We have achieved marked improvement, ones that are generally going to stay with us, and as I said earlier, it doesn't mean we're done. Customer acquisition cost is now a focus, and when we're partnerships and some of the alternative monetization strategies I mentioned earlier could play a role.

Speaker Change: I was also asked along this fame that last year we announced pricing increases to clear up that negatively impacted volume as we were going direct to consumers. And do we foresee any further price increases?

Jennifer Ernst: If we can go to the next slide, let me say a little bit more about the vagus nerve about how it's possible to see that broad of an effect and why we believe that the vagus nerve is such an opportunity for us. Why in fact, it's considered an extremely high value target in medicine generally. As you can see in the diagram, the vagus nerve runs from the brain stem to the it touches every major organ in between.

Speaker Change: The pricing increase itself was based on the sophisticated marketing, segmentation, and pricing research we conducted with Intelgo. The increase was a significant contributor to improving gross margins and improving our overall business.

Jennifer Ernst: The increase was a significant contributor to improving gross margins and improving our overall business. Now that said, both our market research and our in-market experience, so just we've got the pricing roughly at the sweet spot now, the balance, sales and profit needs. So I'm not expecting a plan pricing increase for the product in the near future. What is the company planning to do with Clara, but the company is turning towards CNS? Well, frankly, we hear from our customers that Clear Up is an amazing product. You can see from the reviews, particularly those on our website, that it can be life-changing.

Speaker Change: Now, that said, both our market research and our in-market experience suggest we've got the pricing roughly at the sweet spot now, the balance, sales, and profit needs. So I'm not expecting a planned pricing increase for the product in the near future.

Jennifer Ernst: I've heard it aptly described as the information superhighway of the body. The signals are going back and forth from the organs to the brain. Different signals are being sent back to the brain to the organs to the peripheral systems. All of this results in a holistic system that monitors and manages everything from digestion and heart rate to breathing, inflammation, and our brain activity. And since the vagus nerve regulates so many organs and neurologic systems, it has also been shown to be an active player in many chronic diseases. Modulating or tuning the activity in this nerve pathway is a significant interest in medicine and even more recently in general wellness.

Speaker Change: What is the company planning to do with Clear Up if the company is turning towards BNS?

Speaker Change: Well, frankly, we hear from our customers that Clear Up is an amazing product.

Speaker Change: You can see from the reviews, particularly those on our website, that it can be life-changing.

Jennifer Ernst: And while we work on continuing to improve the economics of the product line, We have begun to explore alternative monetization strategies, which could include licensing, white labeling, international distribution agreements, or other alternatives that would provide much needed scale or create alternative cash options for the company. So we can't offer any guarantees that any specific effort in these areas will be successful. But what I can say, though, is you can count on us to continue the blocking and tackling.

Speaker Change: and while we work on continuing to improve the economics of the product line,

Speaker Change: We have begun to explore alternative monetization strategies, which could include licensing, white labeling, international distribution agreements, or other alternatives that would provide much-needed scale or create alternative cash options for the company.

Jennifer Ernst: So without I have a couple slides here to give you a sense of the overall VNS landscape. We can go to the first, the next slide. Let me start with this slide to show the implanted technologies. I have a couple slides here that are meant to give you a sense of the overall landscape. So if we can go to the slide on VNS and the implanted technology, let me start here by talking a little bit about implanted technology.

Speaker Change: So we can't offer any guarantees that any specific effort in these areas will be successful. But what I can say, though, is you can count on us to continue the blocking and tackling. It's blocking and tackling that's involved in getting the business metrics in alignment and finding these opportunities for new cash flow.

Jennifer Ernst: It's blocking and tackling that's involved in getting the business metrics in alignment and finding these opportunities for new cash flow. I should note, though, that with the strength of our clinical results in DNS, we have down-prioritized product improvements or other development investments in clear-up. We intend to focus our resources instead on increasing our likelihood to win in new markets with our non-invasive BNS approaches. Along those lines, I was asked if the company has obviously made operational cutbacks, if obvious, from the numbers that you're showing.

Speaker Change: I should note, though, that with the strength of our clinical results in DNS, we have down-prioritized product improvements or other development investments in ClearUp.

Speaker Change: We intend to focus our resources instead on increasing our likelihood to win in new markets with our non-invasive DNS approaches.

Jennifer Ernst: [inaudible] Now if we go to the next slide, I'm showing a few of the companies here, but should you do A search for vagus nerve stimulation, I can almost guarantee you will start to see some of these names popping up in your social media feed. But while these are not approved for any particular indication and do not have rigorous clinical data necessarily behind them for the general application of stress, the Sun's lead us to a third category.

Speaker Change: Along those lines, I was asked, the company has obviously made operational cutbacks, that's obvious from the numbers that you're showing. Do you have resources to move forward with the DNS program?

Jennifer Ernst: Do you have resources to move forward with the VNS program? The research pipeline is an important part of our strategy to build shareholder value, and as we progress past this optimization phase and into phase two and phase three trials, the company will need to at least begin to expand its clinical research team as well as the relevant market expertise. Some of these expenses may be able to be offset with non-diluted funding in the form of grants or public-private collaborations, but we do expect to see some increase in our expenses as we approach those Phase 2 and Phase 3 periods. Does the company know what diseases we're considering targeting based on the BNS study?

Speaker Change: The research pipeline is an important part of our strategy to build shareholder value.

Speaker Change: As we progress past this optimization phase and into Phase 2 and Phase 3 trials, the company will need to at least begin to expand its clinical research team as well as the relevant market expertise.

Speaker Change: Some of these expenses may be able to be offset with non-dilutive funding in the form of grants or public-private collaborations, but we do expect to see some increase in our expenses as we approach those Phase II and Phase III periods.

Speaker Change: Does the company know what diseases we're considering targeting based on the BNS study?

Jennifer Ernst: Internally, we have a prioritized list we are working through, but at this point we're not ready to communicate any of that publicly yet. This is both for developing intellectual property protection, as well as not wanting to queue off competitors prematurely. So at this time, not making any public statements about the specific indications we will be going after, but rest assured that is the type of information we'll be communicating more about, as the program unfolds. Question about are there any patents pending, any risk of expiration of patents? Candidly, I wasn't sure when I first saw this question if it was about ClearUp or about our VNS program.

Speaker Change: Internally, we have a prioritized list we are working through.

Speaker Change: But at this point, we're not ready to communicate any of that publicly yet. This is both for developing intellectual property protection, as well as not wanting to cue off competitors prematurely. So at this time, I'm not making any public statements about the specific indications we will be going after.

Speaker Change: but rest assured that is the air type of information we'll be communicating more about.

Speaker Change: as the program unfolds.

Speaker Change: Question about, are there any patents pending? Any risk of expiration of patents?

Speaker Change: Candidly, I wasn't sure when I first saw this question if it was about ClearUp or about our VNS program, but regardless, the answer is yes, we have patents. We have built a robust patent portfolio.

Jennifer Ernst: But regardless, the answer is yes, we have patents. We have built a robust patent portfolio. And across the two platforms, we have nine issued patents with about 100 independent claims and 10 more patents pending that are in in the pipeline. All of these are fresh patents. Patent Issue dates dating, I think, 2020, but the most recent ones issued in 2024. And we expect to see more new patent issuances. So this is one of the really cool things about devices.

Speaker Change: and across the two platforms we have nine issued patents with about a hundred independent claims and and ten more patents pending that are in in the pipeline.

Speaker Change: All of these are fresh patents, patent issue dates dating I think about 2020, but the most recent ones issued in 2024, and we expect to see more new patent issuances.

Speaker Change: So this is one of the really cool things about devices.

Jennifer Ernst: Unlike pharmaceuticals, where it can take years to get to market and your patents can get close to expiration. With the type of devices we're developing, we expect to be able to get them to market so much faster, which allows for us to have significant patent lifetime left after commercialization. So at this point, these are very newly issued patents. There's nothing that would drive an expiration of a patent except being successful over time. So finally.

Speaker Change: Unlike pharmaceuticals where it can take years to get to market and your patents can get close to expiration, with the type of devices we're developing, we expect to be able to get them to market so much faster.

Speaker Change: which allows for us to have significant patent lifetime left after commercialization. So, at this point, these are very newly issued patents. There's nothing that would drive an expiration of a patent except being successful over time. So, finally,

Jennifer Ernst: We've received a number of questions about forward-looking guidance. We are not at this time giving forward guidance. Questions about mergers, which of course we will not comment on until such time as we would enter a definitive agreement. SharePrize. Unfortunately, as a company, we don't set the share price, that's set in the public market. We don't control it.

Speaker Change: We've received a number of questions about forward-looking guidance. We are not, at this time, giving forward guidance. Questions about mergers, which, of course, we will not comment on until such time as we would enter a definitive agreement.

Cheryl Price: Cheryl Price.

Speaker Change: Unfortunately, as a company, we don't set the share price. That's set in the public market. We don't control it. And several similar items that were asked about around executive compensation, which is reflected in our financial filings.

Speaker Change: and no to the one investor that sent a request whether our performance appraisals are public, no. So there's a lot of items that we just don't comment on or either wouldn't until they are definitive items, particularly the questions that came in about mergers.

Jennifer Ernst: And several similar items that were asked about around executive compensation, which is reflected in our financial filings, and no to the one investor that sent a request whether our performance appraisals are public, no. So there's a lot of items that we just don't comment on, or either wouldn't until they are definitive items, particularly the questions that came in about mergers. So what I can tell you, though, The team and I are focused on the areas we control.

Speaker Change: So, what I can tell you, though,

Jennifer Ernst: Right now, that means prioritizing our time and dollars, to navigate this potentially transformational period in the company's evolution. As I noted earlier, we've made significant improvements in the economic profile of the CLEAR-UP product line. Still I'm more to do, we've dramatically reduced and restructured our operating overhead. And we've delivered the first phase of the non-R&D program with the potential to generate significantly higher profit and shareholder value. So I'd like to thank all of the shareholders and investors that have remained in our corner as we turn this corner.

Speaker Change: The team and I are focused on the areas we control. Right now, that means prioritizing our time and dollars to navigate this potentially transformational period in the company's evolution.

Jennifer Ernst: This is the area of medical grade non-invasive DNF, so if we can go to the next slide, sitting between the implanted DNS and the non-invasive wellness, I think we have a few people on the call who actually are familiar with some of the companies in this space. There are significant opportunities available in medical grade non-invasive DNF. Still, the rigorous clinical testing at the regulation and approved for specific medical indication, much like they're implanted cousins.

Speaker Change: As I noted earlier, we've made significant improvements in the economic profile of the Clara product line.

Speaker Change: Still have more to do.

Speaker Change: We've dramatically reduced and restructured our operating overhead.

Speaker Change: And we've delivered the first phase of a non-R&D program with the potential to generate significantly higher profit and shareholder value.

Speaker Change: So, I'd like to thank all of the shareholders and investors that have remained in our corner as we turn this corner.

Jennifer Ernst: Genuinely, on behalf of our current and future customers, we thank you, who value you more than you could ever imagine. It's the investment you've made that will enable us to deliver life-changing, opportunities. So with that, that is what we'd like to cover today and I want to thank you for taking time with us and look forward to speaking with you as we make progress through the remainder of this year. This concludes today's conference and you may disconnect your lines at this time.

Jennifer Ernst: But like the wellness devices, they're also non-invasive, have a much lower risk at the clinical stage. Medical grade non-invasive devices must be proven to be safe, and in fact they first have specific indications for they go through the rigorous trials. So think of these as the evidence-based portion of non-invasive DNFs. Using a non-invasive approach, though can be expected to markedly reduce the time and risks, and therefore the costs, they're associated both with clinical evaluation and with product development.

Speaker Change: Genuinely, on behalf of our current and future customers, we thank you. We value you more than you could ever imagine. It's the investment you've made that will enable us to deliver life-changing.

Speaker Change: opportunities.

Speaker Change: So with that, that is what we'd like to cover today and I want to thank you for taking time with us. I look forward to speaking with you as we make progress through the remainder of this year.

Jennifer Ernst: Now, for investors, that means non-invasive products should be able to get to market more quickly, at lower costs than their implanted cousins. And in some cases, we expect we may even be able to secure a first mover advantage for new indications. This is the arena in which we intend to fight. This is an area, medical grade non-invasive devices, is an area where significant whites face exists. There's differentiation opportunity based on the indication, on the form factor, based on the scale of your advocacy data on a host of other factors. And this is a space with opportunity to create highly differentiated products that can command a premium and secure high barriers to entry.

Blake Gurfein: With all of that as background, I'd like that to turn the presentation over to Blake Garfine, our chief scientific officer. Blake is a neuro-immunologist by background, an assistant professor at UCSF, in the Department of Neurosurgery, and he is leading this research and development program at TIBIC. I've invited him today to share with investors more details about a recent study results, as well as the import of what we demonstrated, and with that, Blake, I'll turn it over to you for the next slide.

Blake Gurfein: Thank you, Jennifer. I'll now walk you through the key results from our collaborative study with Define Institute, which is considered, as Jennifer mentioned, one of the leading research organizations on the topics of biggest nerve stimulation and bioelectronic medicine. In our study, we applied non-invasive cervical VMS to 20 healthy subjects for a period of 20 minutes, and then we evaluated the biological effects of the intervention on pupil ommetry, which is an indicator of autonomic nervous system activity.

Blake Gurfein: Cardiovascular Function and Brain Activity. We were pleased to announce recently that we saw meaningful changes in all three measures, which are correlated to treatment opportunities in neurology, psychiatry, cardiovascular disease, and autonomic nervous system diseases. Next slide. The first slide I'm showing you is a measure of pupil diameter. We care about pupil diameter because measuring changes in the pupil gives us a strong indication of whether we're engaging the vagus nerve and actually influencing the autonomic nervous system.

Blake Gurfein: Here, we measured pupil diameter and subjects before, during, and after the non-invasive intervention and observed sustained reductions in pupil diameter during stimulation. On average, there was a 9.5 percent reduction in pupil diameter, and this is considered strong evidence of vagus nerve engagement and activation of parasympathetic tone. Next slide. We also used electrocardiography to quantify another key measure on parasympathetic tone called heart rate variability or HRV. Here, I'm showing a figure of the before and after measures of a type of HRV called RMSSD or the root mean squared of successive differences.

Blake Gurfein: Importantly, this is an accepted proxy of vagus nerve activity. Compared with before stimulation, after our non-invasive cervical VNS, study subjects showed a 2X increase in RMSSD after stimulation, and 60 percent of the subjects who were the high responders had close to a 3X increase in this widely used measure. To provide some additional context, increasing RMSSD may have clinical value in treating arrhythmias and higher RMSSD is associated with lower morbidity and mortality in patients with cardiovascular disease.

Blake Gurfein: Additionally, the size of the effect that we observed and the responder rate is comparable to some of the published data on implanted vagus nerve stimulation devices, whereas other non-invasive approaches have shown much more inconsistent results in the published literature. Lastly, I'd like to highlight that the study subjects in our trial were healthy and young. The magnitude of the treatment effects are expected to be meaningfully larger in older patients and those that have chronic diseases.

Blake Gurfein: Next slide. Finally, we use electroencephalography to measure brain activity and study participants. What I'm now showing is an analysis of brain activity across five different frequency bands, where red indicates increased activity in that frequency, and blue indicates a decrease. First, let's focus on the figure in the upper left corner. This is the theta band. We found that study subjects had a 24% mean increase in frontal theta activity, which is associated with calm awake states learning and memory.

Blake Gurfein: And clinically, increased frontal theta is expected to be useful in anxiety, post-traumatic stress disorder, and other psychiatric and neurological disorders that have unmet treatment needs. Second, if we look at the lower right figure, we saw a striking 66% reduction in frontal gamma activity, which is associated with reduced arousal and anxiety. And we also saw a 62% reduction in temporal gamma activity, which is associated with reduced risk in epileptic seizures. Next slide.

Blake Gurfein: Together, our novel non-invasive vagus nerve simulation approach uses a new electrode configuration, a specific set of simulation frequencies and a low current amplitude. Through our work with Hansen Institute, we've observed a very large rapid effect in important biological measures. And while implanted technologies have been clinically proven and have also validated the commercial viability of the NS, they're not always appropriate for the clinical scenario. So the key takeaway here is that there's a sizable technical and commercial gap in medical grade non-invasive BNS devices, and typically health is now positioned to capitalize on that gap.

Blake Gurfein: I hope it goes without saying.

Jennifer Ernst: Thank you, Blake, for sharing that. But I think both of us are quite excited about the potential for this work. So I'd like to tell you how we see this program on folding. You look at this next slide. It really is a catalyst-rich timeline for typically. We started with clinical feasibility. That was demonstrated first internally, and for our phase one study of defined STEAM institutes. Now with clinical feasibility demonstrated and patent filings underway, we are moving into optimization and intervalidation of market opportunities.

Jennifer Ernst: Industry experts outside the company will be working alongside our team to validate the precise applications that have the highest likelihood to yield strong commercial results. And then anticipate over the next several quarters, we will be sharing continuous progress on these activities. So let's summarize. This quarter is the start of a potentially transformational period for TIFFIC. We announced the results of our successful phase one trials of a new approach to invasive vagus nerve stimulation.

Jennifer Ernst: We're partnering with the Fine Steen Institute of Bioelectronic Medicine, one of the leaders in the field for optimization. And we are continuing to build our intellectual property portfolio in an area of significant potential value to the company and to our investors. Over the last 18 months, we've improved gross margins of our clear-up product. We've increased the revenue produced for marketing dollars spent, and we aggressively reduced operating expenses. Just this quarter we relocated manufacturing and driven down cost of fulfillment with a new third-party logistics provider.

Jennifer Ernst: Over time, we devaluated and performed due diligence on potential licensing and acquisition candidates, while simultaneously building our organic growth options. And in the organic growth options we have demonstrated industry-leading clinical results in a new high-value medical target of VNF. Now, I will draw a contrast with some other companies in our space. We are directly making this investment rather than relying solely on investigator-led research. Meaning we have very strong working relationships with our partners, access to the data for clinical violence and meaningful ways that we can shape our development programs and our intellectual property in real time.

Jennifer Ernst: I really can't underscore strongly enough that the results we've shown and our investment in research that enables and is directed to creating breakthrough products. These are both highly differentiated and they create significant new opportunities for generating shareholder value. We're not done yet, but I am sure it's all proud of what we have accomplished with a small and very dedicated team. And with appropriate investor support, we believe that we are well positioned to capitalize on these opportunities.

Jennifer Ernst: So that I'd like to turn to the Q&A portion of the call. Thank you to the investors that did send some questions in advance. We'll do my best to address as many as I can here.

Jennifer Ernst: Well, let me start first with a couple that pertains to the clear-up products. I was asked the gross profit and gross margin were up significantly in the past year. Well, expenses and that loss were reduced. Do you see this as a trend as scalable and continuing going forward? So yes, at a macro level, we've made a number of durable improvements to the business, including some of the transitions I mentioned just this quarter.

Jennifer Ernst: We have achieved marked improvement ones that are generally going to stay with us. And as I said earlier, it doesn't mean we're done. Customer acquisition costs is now a focus. And when we're partnerships and some of the alternative monetization strategies I mentioned earlier could play a role.

Jennifer Ernst: I was also asked along this fame that last year we announced pricing increases to clear-up that negatively impacted volume as we were going direct to consumers and do we foresee any further price increases. The pricing increase itself was based on a sophisticated marketing segmentation of pricing research we conducted with IntelGo. The increase was a significant contributor to improving gross margins and improving our overall business. Now, that said, both our market research and our in-market experience suggests we've got the pricing roughly at the sweet spot now. The balance sales and profit needs. So I'm not expecting a plan pricing increase for the product in the near future.

Jennifer Ernst: What is the company planning to do with clear-up as the company is turning towards the NS? Well, frankly, we hear from our customers that clear-up is an amazing product. You can see from the reviews, particularly those on our website, that it can be life-changing. And while we work on continuing to improve the economics of the product line, we have begun to explore alternative monetization strategies, which could include licensing, white labeling, international distribution agreements, or other alternatives that would provide much needed scale, or create alternative cash options for the company.

Jennifer Ernst: So we can't offer any guarantees, but any specific effort in these areas will be successful. But what it can say, though, is you can count on us to continue the blocking and tackling. It's blocking and tackling and it's evolving, getting the business metrics and alignment, and finding these opportunities for new cash flow.

Jennifer Ernst: I should note, though, that with the strength of our clinical results in DNS, we have down-prioritized product improvements or other development investments in clear-up. We intend to focus our resources instead on increasing our likelihood to win in new markets with our non-invasive DNS approaches.

Jennifer Ernst: One of the lines I was asked to the company has obviously made operational cutbacks that thought be it from the numbers that you're showing. Do you have resources to move forward with the DNS program? The research pipeline is an important part of our strategy to build shareholder value, and as we progress past this optimization phase and into phase two and phase three trials, the company will need to at least begin to expand its clinical research team as well as the relevant market expertise.

Jennifer Ernst: Some of these expenses may be able to be offset with non-diluted funding in the form of grants or public-private collaborations, but we do expect to see some increase in our expenses as we approach those days two and phase three periods.

Jennifer Ernst: Those are the company know what diseases we're considering targeting based on the DNS study. Internally, we have a prioritized list we are working through, but at this point, we're not ready to communicate any of that publicly yet. This is both for developing intellectual property protection as well as not wanting to queue off competitors prematurely, so at this time, not making any public statements about the specific indications we will be going after, but rest assured that is the air type of information we'll be communicating more about as the program unfolds.

Jennifer Ernst: Question about, are there any patent pending, any risk of expiration of patents? Candidly, when I wasn't sure when I first saw this question, if it was about clear-up or about our VNS program, but regardless, the answer is yes, we have patents. We have built a robust patent portfolio, and across the two platforms, we have nine issue patents with about 100 independent claims and 10 more patents pending that are in the pipeline.

Jennifer Ernst: All of these are fresh patents. Patent issue date dating, I think 2020, with the most recent ones issued in 2024, and we expect to see more new patent issuances. This is one of the really cool things about devices, unlike pharmaceuticals where it can take years to get to market and your patents can get close to expiration. With the type of devices we're developing, we expect to be able to get them to market so much faster, which allows for us to have significant patent lifetime left after commercialization. So at this point, these are very newly issued patents. There's nothing that would drive an expiration of a patent except being successful over time.

Jennifer Ernst: So finally, we've received a number of questions about forward-looking guidance. We are not at this time giving forward guidance.

Jennifer Ernst: Questions about mergers, which of course we will not comment on until such time as we would enter a definitive agreement. Share price. Unfortunately, as a company, we don't set the share price, that's set in the public market. We don't control it.

Jennifer Ernst: And several similar items that were asked about around executive compensation, which is reflected in our financial filing. And no to the one investor that's in a request whether our performance appraisals are public now.

Jennifer Ernst: So there's a lot of items that we just don't comment on or either wouldn't until they are definitive items, particularly the questions that came in about mergers. So what I can tell you though, the team and I are focused on the areas we control. Right now, that means prioritizing our time and dollars to navigate this potentially transformational period in the company's evolution. As I noted earlier, we've made significant improvements in the economic profile of the Clara product line. Still, I'm more to do. We've dramatically reduced and restructured our operating overhead. And we've delivered the first phase and on R&D program with the potential to generate significantly higher profit and shareholder value.

Jennifer Ernst: So I'd like to thank all of the shareholders and investors that have remained in our corner as we turn this corner. Genuinely, on behalf of our current and future customers, we thank you. We value you more than you could ever imagine. It's the investment you've made that will enable us to deliver life changing opportunities.

Operator: So with that, that is what we'd like to cover today and I want to thank you for taking time with us. I look forward to speaking with you as we make progress through the remainder of this year. This concludes today's conference and you may disconnect your lines at this time.

Operator: Thank you for your participation.