Earnings Transcript for NURO - Q4 Fiscal Year 2023

Operator: Good morning, and welcome to the NeuroMetrix Fourth Quarter 2023 Business and Financial Update. My name is Josh, 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 company's periodic filings with the SEC available on the company's Investor Relations website at neurometrix.com and on the SEC's website at sec.gov. NeuroMetrix does not intend and undertakes no duty to update the information disclosed on this conference call. I'd now like to introduce the NeuroMetrix Senior Vice President and Chief Financial Officer, Mr. Thomas Higgins. Mr. Higgins?

Thomas Higgins: Thank you, Josh, and welcome to our Q4 2023 business update. By way of background, we are a commercial stage medical device company. Our two principal products are

Shai Gozani: Thank you, Tom. Our growth strategy is built on three core efforts. The first 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 in an expanded addressable market. And the third is to revise the DPNCheck business strategy to account for the recent negative changes [Technical Difficulty] Quell is our wearable Neuromodulation platform. It is based on our proprietary adaptive transcutaneous electrical nerve stimulation technology, and it is the only daily multi-hour wearable treatment for chronic pain syndromes. It is FDA cleared for relief of lower extremity chronic pain and has received FDA de novo authorization as the first and only neuromodulation device indicated to help reduce the symptoms of Fibromyalgia and 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. Therefore, there is a critical unmet need for additional safe treatments. The fourth quarter of 2023 was the fourth 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 the solution. Our commercial team consists of a National Director of Sales and two regional business managers, which provide us with preliminary coverage in the Florida, Texas and California markets. We have partnered with a national online pharmacy to fulfill both the initial prescriptions and refills. At this time, Quell Fibromyalgia is available on a cash pay basis with the exception of certain VA facilities, where it is a covered treatment. We have also added a telehealth option that allows patients to foresee prescriptions without requiring an in-person physician visit. We are pleased with the growth in the Quell Fibromyalgia business in the fourth quarter of last year. There are 199 unique prescribers due in Q4, compared to 125 during Q3. The most common prescribers are rheumatologists, pain medicine specialists and neurologists. The number of Quell Fibromyalgia prescriptions were written -- increased written increased to 583 in Q4 from 262 in Q3, with about 60% of prescriptions filled by patients. And the number of month refills increased from 315 in the third quarter of last year to 525 in the fourth quarter. Following the end of the quarter, we increased the refill price by 33%. Overall, we are pleased with the early commercial experience with Quell Fibromyalgia and we hope to see continued progress leading to material revenue this year. Now in terms of the overall Quell Neurotherapeutics program it is the second element of our growth strategy, and that is to increase our pipeline beyond the Fibromyalgia indication. The program that is furthest along is for treatment of chronic chemotherapy-induced peripheral neuropathy, or CIPN, which affects as many as 30% of the approximately 1 million people who receive chemotherapy every year. It is a chronic and debilitating side effect of cancer treatments. Quell received FDA breakthrough designation for treating moderate-to-severe CIPN in January of 2022 based on a pilot study conducted at the University of Rochester. A NIH-funded multicenter double-blinded randomized sham-controlled trial completed enrollment in the third quarter of 2022. And we recently submitted a premarket notification our 510(k) with the FDA for a Quell CIPN indication that was done in December. Depending on the FDA review time line, the ultimate decision we could be in a position to initiate commercialization before the end of this year or early next year. We also reported positive results from a pilot study of Quell in post-acute COVID-19 syndrome, which is also called long COVID. About one-third of patients with long COVID have a Fibromyalgia-like presentation, and we are currently evaluating whether this recent clinical data is sufficient to support a 510(k) submission with Quell Fibromyalgia as the predicate device. Now moving on to DPNCheck. DPNCheck is a rapid point-of-care test for peripheral neuropathy such as diabetic peripheral neuropathy, or DPN, which is the most common long-term complication of diabetes. DPNCheck is the only point-of-care peripheral neuropathy test based on gold standard nerve conduction study technology. Our DPNCheck business has been comprised of B2B sales into the U.S. Medicare Advantage market, and international sales in China and Japan through distribution partners. Historically, 80% of our DPNCheck revenue has come from domestic sales. We have a value-based commercial care team. that has been focused on increasing DPNCheck adoption in the Medicare Advantage market. This includes large medical groups, integrated delivery networks, health systems and health assessment companies where a substantial portion of their patients are covered under Medicare Advantage. The business had been growing for several years. However, substantial uncertainty was injected into the Medicare Advantage sector last year due to policy changes announced by the Centers for Medicare and Medicaid Services, or CMS. In April, CMS announced significant changes to the Hierarchal Condition categories or HCC risk adjustment model for the calendar year 2024. The new model alters the risk adjustment environment and among its many changes essentially eliminates HCC codes for peripheral neuropathies are detected by DPNCheck screening programs. We are evaluating the evolving landscape and at this point, we believe it will be necessary to alter our strategy to move away from Medicare Advantage focused business to 1 more broadly addressing value-based care. We are currently exploring various alternate markets within value-based care and retail health care and attempt to reconstitute a profitable, scalable business model. We are not yet in a position to outline a new commercial strategy. As we saw this quarter, the Medicare Advantage changes have caused a material downward pressure on DPNCheck revenues. Implementation of new strategies will take time, and therefore, we do not see a reversal in revenue this year. Nevertheless, we expect the DPNCheck business line will continue to generate positive cash flow by virtue of its attractive operating margins. Now to move on to our recent release on executing a review of strategic options. While the company management and the Board are disappointed by the impact of external forces on DPNCheck, we remain enthusiastic about the potential for our Quelle Neuromodulation business and, in fact, also our DPNCheck business. Of course, we are also mindful of the divergence between our stock price and the potential of our product line is a strong balance sheet. A few weeks ago, we announced that we were initiating a process to review strategic options to promote growth of our product lines and to maximize shareholder value. We intend to consider various options, including changes in marketing strategies, the acquisition of new assets, potential sale of company assets and merger or other strategic transactions. While we are exploring these options, we do not -- do not expect to make any fundamental changes in the company's commercial operations. We have engaged Landenburg Thalmann with whom we have a long-standing relationship to help us in this process. There can be no assurances that any specific actions will be taken or emerge from this process. And that represents our prepared comments. And at this point, we'd be happy to take any questions.

Operator: Thank you. [Operator Instructions] Our first question comes from Jarrod Cohen with JM Cohen & Company. You may proceed.

Jarrod Cohen: Yes. Just -- I know you -- is there a broader opportunity for DPNCheck in the -- just I know when I answered it in the broader diabetes market? It just seems odd that it's more for the older population?

Shai Gozani: Well, yes, Jarrod, I mean that is -- it is used extensively for diabetic peripheral neuropathy. So yes, the diabetes market. We have been focused on the diabetes market within Medicare Advantage, because of the strong clinical benefits, as well as the economic benefits to the medical groups that were using it and many continue to use it. But sort of to your point, expanding our reach outside of Medicare Advantage into other diabetes sectors is part of our strategic consideration.

Jarrod Cohen: Okay. It just hasn't been used so far, yes, in the broader -- okay. All right. And just in doctors I know because they use codes, but don’t they use other beyond codes, because I guess I'm trying to get -- don't they want to use the device or the diagnosis, even if we're in a broader scale to help diagnose the patient? What else do they have to do it?

Shai Gozani: Well, I think that's a good point. So I think the -- there is a cost to the device, and there's a cost of the consumables. So they do need to be compensated for their time and the materials in some fashion, and that was well established in the Medicare Advantage market. There is, in fact, a CPT code for our nerve conduction testing technology. The challenge is that most insurers, and this includes Medicare, as well as commercial insurers, typically do not reimburse for screening testing as opposed to clinical testing. So meaning the -- just an annual screening, it's not something that typically is reimbursed for really most diagnostics with some notable exceptions. So the -- but the largest part of the market is on the screening side. So that was established for Medicare Advantage. And then unfortunately, CMS decided to make some broad changes to that. Again, not just for peripheral neuropathy, but for many other tests as well. So your point is well taken, but there has to be some sort of economic model that at least covers the cost of the test for physicians.

Jarrod Cohen: Okay. All right. Thank you.

Operator: Thank you. [Operator Instructions] Our next question comes from Joshua Horowitz with Palm Global Small Cap Master Fund LP. You may now proceed.

Joshua Horowitz: Good morning. I'd like to know who is advising the company that it's a proper and efficient use of the company's capital strategy to clandestinely sell stock every quarter under the ATM as opposed to doing a legitimate stock offering with institutional investors?

Shai Gozani: Yes. I'll -- I wouldn't describe it as clandestine, but I'll let Tom address that question.

Thomas Higgins: Sure. That's an interesting choice of words that you use since whenever we do use the ATM, that's reported every quarter. So perhaps you want to reconsider some of the

Joshua Horowitz: Well I'm not going to reconsider.

Thomas Higgins: But let me answer.

Joshua Horowitz: We don't find out about that you guys publish, right? So it's sort of clandestine. I'm out there in the market interested in the company buying stock. You guys are sitting there pressing a button and selling it. It's a pretty ridiculous structure, and it sort of makes the company uninvestable. Don't you agree?

Thomas Higgins: No, I think you've absolutely got it wrong. If you look at our company, we are a consumer of cash. We're also a company that's looking to grow. And so we do have two choices here. We can either do as you recommend, which is to try to put together an offering to the market. But you may -- since you're in this business, you may be aware that the market hasn't been very receptive to pipe deals, particularly for micro-cap companies over the last couple of years. And so we think that it makes a little bit more sense to sell shares directly to people that are interested in buying on a small basis when the opportunity presents itself. And so if you're asking who gives us this advice, while it comes from investment bankers that we speak with and it's discussed internally.

Joshua Horowitz: There were $10 billion of issuances last year. So I don't know what you're talking about, but I would recommend that you've canceled the pipe to a legitimate offering, bringing long-term value-oriented institutional investors that will support the company. Maybe that comes along with some governance changes. And absent that, you should just literally close down, melt the whole thing down and return the cash to the stockholders, because the current setup is just a recipe for disaster. You can't point to one legitimate company that's used in ATM.

Thomas Higgins: Well, thank you very much for your input.

Operator: Thank you. [Operator Instructions] And I'm not showing any further questions at this time. I would now like to turn the call back over to Dr. Gozani for any closing remarks.

Shai Gozani: Well, thank you for joining us on this conference call, and we look forward to updating you over the course of this coming year. Thank you for your attention.

Operator: Thank you for your participation. You may now disconnect.