NeuroMetrix [NURO] Conference call transcript for 2022 q2
2022-07-21 11:14:15
Fiscal: 2022 q2
Operator: Good morning and welcome to the NeuroMetrix Second Quarter 2022 Earnings Call. My name is Michelle and I will 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 that are predictive in nature that depend upon or refer to future events or conditions are forward-looking statements. Any forward-looking statements reflect current views of NeuroMetrix about future results of operations and other forward-looking information. You should not rely on forward-looking statements, because actual results may differ materially as a result of a number of important factors, including those set forth in the earnings release issued earlier today. Please refer to the risks and uncertainties, including the factors described under the heading Risk Factors in the companyâs periodic filings with the SEC available on the companyâs Investor Relations website at neurometrix.com and on the SECâs website at sec.gov. NeuroMetrix does not intend and undertakes no duty to update the information disclosed on this conference call. Iâd now like to introduce the NeuroMetrix Senior Vice President and Chief Financial Officer, Mr. Thomas Higgins. Mr. Higgins?
Thomas Higgins: Thank you, Michelle and thanks for those of you attending todayâs quarterly review. Both myself and Dr. Shai Gozani, the President and CEO of NeuroMetrix are participating in this call. By way of background, we are a med-tech company with a mission to reduce the impact of neurological disorders and pain syndromes on individuals and on population health. Our commercial products are not invasive. They address worldwide market opportunities and have no direct competition. Alternatives do exist, but not substitutes. DPNCheck is our leading product in terms of revenue generation. It is a diagnostic providing rapid point-of-care detection of peripheral neuropathy. Quell is our over-the-counter wearable neurostimulation therapeutic indicated for lower extremity chronic pain. Quell recently achieved FDA authorization as a prescription offering for treating the symptoms of fibromyalgia. Our business model is razor blade with aftermarket revenue being the principal component of product line profitability. During the second quarter, our revenues were $2.1 million and year-to-date totaled $4.4 million. Q2 revenues were down by 3.4% year-on-year and first half revenues increased by 1.6%. These modest changes in comparative period revenues for Q2 and for the first half of the year obscure the interesting revenue perspective and that is that DPNCheck, our leading product posted another strong quarterly performance with overall revenue growth of 17.6% in the second quarter and 14.6% year-to-date. Looking a little deeper into the DPNCheck numbers, the U.S. Medicare Advantage business was up 20.3% in the second quarter and 14.6% year-to-date. Most of this growth was attributable to our existing domestic customers, combined with some early new account activity generated by our commercial team. The remaining DPNCheck business is primarily with distributors in Japan and China, where it is somewhat difficult to assess performance on a quarterly basis. It appears that these markets and particularly China continue to be adversely affected by the COVID situation. Regarding Quell, revenues in the second â in the quarter and 6-month period were down, reflecting limited promotion as well as our positioning for the transition to a prescription Quell portfolio with specific disease indications. Shai will address this in his comments. The Advanced Diagnostic business recorded a decline in revenue with erosion of its user base. We manage this product line for its cash flow. Gross profit was $1.5 million in the quarter, reflecting a margin rate of 68%. Year-to-date margin was 3.2% at a margin rate of 73%. Q2 cost of goods and gross profit were adversely affected by PPV payments to secure critical parts. In the second quarter, we experienced the highest total PPV that we have seen and we expect Q3 to be at the same magnitude or higher. There simply isnât a viable alternative to bang a premium to secure the electronic parts and components that we need to produce our devices. If one were to exclude the Q2 PPV payments, our margin rate in the second quarter was 75.5% or about 70 basis points better than in Q2 of last year. Along with the rest of the industry, we find it impossible to forecast when parts supply will return to a more normal environment and what, if any, of the PPV markups will make their way into the normal cost of goods. Operating expenses totaled $2.7 million in the quarter and $5.4 million year-to-date. R&D spending reflects our product development commitment in two strategically important areas, DPNCheck Medicare Advantage and Quell prescription indications. The spending increase includes variable cost outlies for engineering consulting for both of these initiatives. Sales and marketing personnel costs increased with the addition of our DPNCheck commercial team. And this increased OpEx spending is guided by 2022 and 2023 investment program with a target range of approximately $4 million. The program is designed to address several aspects of the company that are essential to our future growth. These aspects include corporate governance, infrastructure, product development and commercialization talent. Weâre in the early stages of the program and expect that approximately half of the program spending will be one-time costs. Net loss in the second quarter was $1.2 million or $0.17 a share. Year-to-date net loss was $2.1 million or $0.30 a share. Regarding cash flow and our balance sheet, net cash consumption in the quarter was about $850,000 and year-to-date was $1.6 million. We ended the period with a total of $23 million in cash, cash equivalents and securities. And we continue to maintain a simple debt-free capital structure with approximately 7.1 million common shares outstanding. Weâre adequately capitalized and our funding on hand is adequate to support our growth initiatives this year and beyond. And now for Dr. Gozaniâs comments.
Shai Gozani: Thank you, Tom. We are transitioning from a multiyear effort to stabilize the companyâs financial health towards a focus on top-line growth with a balanced attention on the bottom line. There are three core elements to our growth strategy. The first is organic growth in our DPNCheck Medicare Advantage business, the second is to launch the Quell fibromyalgia indication and the third is to advance our Quell Neurotherapeutics program. And Iâll comment on each of these initiatives. First, with respect to DPNCheck. The year-over-year revenue growth in the DPNCheck Medicare Advantage business was an encouraging 20%. This growth primarily reflected increased utilization of DPNCheck biosensors by existing customers. We now have a value-based care commercial team that focuses on increasing DPNCheck adoption in the Medicare Advantage market. This includes large medical groups, health systems and health assessment companies, where a substantial portion of the patients are covered under Medicare Advantage. The sales cycle in this market is long, and therefore, the bulk of the impact from the new commercial team will be felt starting in 2023. However, we are pleased with the sales activities and the quality and depth of the developing pipeline. There are a number of R&D activities that will support continued growth in the Medicare Advantage market. We recently launched our second-generation device, called DPNCheck 2.0. The initial devices are being strategically deployed in pilot trials with large potential customers. A full market launch will follow once we have built up our inventory position and have confidence in the supply chain. We hope to meet this goal before the end of the year. Another R&D program is development of the DPNCheck cloud, which is a data analytics platform that allows our customers to monitor and optimize DPNCheck implementation and address key population health questions through a family of web-based dashboards. We anticipate launching DPNCheck cloud by the end of the third quarter and expect that it will start to positively impact biosensor utilization in 2023. And we have additional R&D efforts that should come to fruition in early 2023, which we will talk about over the balance of the year. Moving to our Quell fibromyalgia indication, as we have discussed over the past couple of years, we are transitioning Quell from a non-specific over-the-counter treatment for chronic lower extremity pain to a focused prescription neurotherapeutic platform, starting with the treatment of the symptoms of fibromyalgia. As a reminder, fibromyalgia is a complex chronic pain syndrome that affects as many as 10 million people in the U.S. The only FDA-approved treatments are three drugs pregabalin, duloxetine and milnacipran, which often have substantial side effects. We received FDA breakthrough designation for this indication in July of 2021 and de novo authorization in May of this year â FDA de novo authorization in May. Quell is the first and only non-pharmacologic treatment for individuals with fibromyalgia. We are planning a limited launch in the fourth quarter of this year and will proceed to a full launch in 2023. The purpose of the initial launch is to confirm the effectiveness of our prescription management solution to refine the marketing messaging and to collect key performance indicators that will allow us to plan further commercial expansion. If these events occur as planned and we expect Quell revenue to resume growth in 2023. And moving now to the overall Quell neurotherapeutics platform, the third element of our growth strategy is to continue to develop the Quell neurotherapeutics pipeline beyond the initial fibromyalgia indication. The program thatâs furthest along is for chemotherapy-induced peripheral neuropathy, or CIPN, which affects as many as 70% of people who receive chemotherapy. It can be a chronic and debilitating side effect of cancer treatment. An NIH and National Cancer Institute-funded multicenter, double-blinded, randomized, sham-controlled trial has been underway for the past couple of years and is now fully enrolled. Disclosure of study results will take some time, but preliminary findings could come out before the end of the year or in the first half of next year. If the results are positive, then we expect to file a de novo request to the FDA in 2023. And as a reminder, we received the FDA breakthrough designation for treating moderate to severe CPN in January of this year. We have other pilot studies ongoing or starting soon in long COVID and what is called COPC, or chronic overlapping pain conditions. Many individuals with long COVID experience symptoms similar to fibromyalgia and therefore, we hypothesized that Quell will be beneficial in this population. COPC is a set of common health conditions that often occur together with the same patient includes fibromyalgia, chronic low back pain, migraine, temporomandibular joint disorder and irritable bowel syndrome. These conditions are thought to share a common pathological process that is called central sensitization, which is a state in which the brain over amplifies pain and other sensory signals. We hypothesized that Quell decreases the central sensitization and therefore, may be beneficial in this overall syndrome. And that concludes our prepared comments, and we will be happy to take questions at this point.
Operator:Shai Gozani: Thank you for joining us today and we look forward to keeping you updated over the balance of the year.
Operator: This concludes the program. You may now disconnect. Everyone, have a great day.
