NeuroMetrix, Inc. (NASDAQ:NURO) Q3 2023 Earnings Call Transcript

NeuroMetrix, Inc. (NASDAQ:NURO) Q3 2023 Earnings Call Transcript October 27, 2023

Operator: Good morning, and welcome to NeuroMetrix Third Quarter 2023 Business and Financial Highlights Update. My name is Norma, and I’ll be your moderator on the call. On this call, the company may make statements which are not historical facts and are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Statements are predictive in nature that depend upon or refer to future events or conditions are forward-looking statements. Any forward-looking statements reflect current views of NeuroMetrix about future results of operations or other forward-looking information. You should not rely on forward-looking statements because actual results may differ materially as a result of a number of important factors, including those set forth in the earnings release issued earlier today.

Please refer to the risks and uncertainties, including the factors described under the heading Risk Factors in the company’s periodic filings with the SEC available on the company’s Investor Relations website at neurometrix.com on the SEC’s website at sec.gov. NeuroMetrix does not intend and undertake no duty to update the information disclosed on this conference call. I’d now like to introduce NeuroMetrix’ Senior Vice President and Chief Financial Officer, Mr. Thomas Higgins. Mr. Higgins?

Thomas Higgins: Thank you, Norma, and welcome to all of you who have joined our CEO, Dr. Shai Gozani and myself for today’s Q3 2023 update. By way of background, NeuroMetrix is a commercial stage medical device company, addressing unmet needs in chronic pain and diabetes. Our products are noninvasive. They have no direct competition and offer worldwide opportunities. Our business model is razor-razorblade with aftermarket revenue as the primary financial objective. Our principal technologies are Quell, which is a wearable neuromodulation platform, which we have transitioned from over-the-counter to a prescription platform, and DPNCheck, a screening technology for peripheral neuropathy, particularly in neuropathy related to diabetes.

We have a solid balance sheet with $17.6 million in liquid assets. Our capital structure is simple and debt-free. There are approximately 8.6 million common shares outstanding and 800,000 employee equity grants, which are stock options and RSUs. Today, we reported Q3 revenue of $1.2 million, which was down 39% compared with $2 million in Q3 of last year. The reduction reflects the contraction in Medicare Advantage patient screening which followed the substantial reimbursement changes adopted by CMS, Centers for Medicare and Medicaid, in Q1 of this year. Patient risk adjustment rules were modified with a 3-year phase-in affecting a range of patient screening procedures, including neuropathy often performed with DPNCheck. We’ve discussed this in the prior quarters of this year.

There’s been no update or modification to the new CMS rules. Our DPNCheck business experienced a net revenue reduction of $512,000 or 35% in the third quarter of this year versus last year. In the 9 months year-to-date, DPNCheck revenue is down a cumulative $1.1 million or 23% versus 2022. Q3 revenue also reflects the strategic transition of our Quell Neuromod technology from chronic pain — for chronic pain from over-the-counter sales to prescription indications. This was initiated in late 2022 and continues through a strategic commercial launch. At the end of Q3 last year, we discontinued marketing Quell over-the-counter. And in Q4 of last year, we initiated our prescription sales of Quell fibromyalgia. While sales of Quell fibromyalgia have been growing this year, they have not yet reached the level of Quell over-the-counter sales in the prior year.

See also US Alcohol Exports by Country: Top 15 and 30 Most Influential Scientists of All Time.

Q&A Session

During the third quarter of this year, we expanded our Quell direct sales presence within the large markets of Texas, Florida and California. Our gross profit of this year in Q3 was $800,000 compared with $1.3 million in Q3 last year. The gross profit reduction correlates with lower revenue in the quarter. Our gross margin rate in the third quarter was 65%, which is consistent with the third quarter of last year. Operating expenses totaled $2.7 million, down from $3 million last year. The OpEx decrease of $245,000 or 8% primarily reflects the offsetting effects of increased headcount costs from our expanded sales Quell’s sales direct — direct sales team and the reduced R&D utilization of outside professional services. Net loss was $1.8 million or a negative $0.21 per share versus $1.6 million or a negative $0.23 per share in Q3 of last year.

Our operating cash usage in the quarter was approximately $2.1 million. As I mentioned, we hold $17.6 million in liquid resources. This is cash and securities, and these are expected to be adequate to support the next phase of our Quell growth initiatives. NeuroMetrix common stock is currently trading in the range of $0.65 to $0.70 per share. From an accounting standpoint, as of the end of Q3, our Neuro liquid assets were valued at $2.05 per share, and our stockholders’ equity was $2.32 per share. During the third quarter, we received a delisting notice for noncompliance with the NASDAQ minimum bid price rules of $1 per share. NASDAQ has provided us a 180-day grace period until early February next year to regain compliance. On October 19, our stockholders authorized a reverse split of our common stock if the Board of Directors believes it would be an appropriate step to address the minimum bid price issue.

The Board has not yet made a decision on a possible reverse split. And now for Dr. Gozani’s comments.

Shai Gozani: Thank you, Tom. Our growth strategy is built on 3 core efforts. The first is to establish and grow the Quell fibromyalgia indication in the U.S. market. The second is to advance the Quell Neurotherapeutics program, which will lead to additional indications and an expanded addressable market. And the third is to revise the DPNCheck business strategy to account for the recent changes in Medicare Advantage. I will now comment on each of these activities. First with respect to Quell fibromyalgia calls our wearable neuromodulation platform. It is based on our proprietary adaptive transcutaneous electrical nerve stimulation technology and is the only daily multi-hour wearable treatment for chronic pain syndromes. It is FDA-cleared for relief of lower extremity chronic pain and has received FDA de novo authorization as the first and only neuromodulation device indicated to help reduce the symptoms of fibromyalgia.

This latter indication is available by prescription only. At this time, our commercialization efforts are exclusively focused on the fibromyalgia indication. Fibromyalgia is a complex chronic pain syndrome that affects up to 15 million people in the U.S. The only FDA-approved drugs are pregabalin, duloxetine and milnacipran, which can have substantial side effects. There is a critical unmet need for additional safe treatments. The third quarter of this year was the third quarter of the commercial launch of Quell fibromyalgia. At this time, we are in a deliberate strategic phase that is intended to optimize the effectiveness of our prescription processing solution to refine the clinical and marketing messaging and to identify the most attractive patient cohorts for our solution.

Our commercial team consists of a national sales director and 2 regional business managers, which provide us with preliminary coverage of Florida, Texas and the California markets, and we expect to decide on our next expansion in the second quarter of 2024. We have partnered with a national online pharmacy to fulfill both initial prescriptions and refills. At this time, Quell fibromyalgia is available on a cash-pay basis. There are 125 unique prescribers during the third quarter compared to 123 during the second quarter. The most common prescribers of rheumatologists, pain medicine specialists and neurologists. The cumulative number of Quell fibromyalgia prescriptions that have been then increased to 752 in the third quarter from 419 in the second quarter, with over 60% of prescriptions filled by patients.