NeuroMetrix, Inc.
Q1 2021 Earnings Call Transcript

Published: 22 Apr 2021

[Operator:]

Good morning and welcome to the NeuroMetrix First Quarter 2021 Earnings Call. My name is Deborah 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 and 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.

[Thomas Higgins:]

Thank you, Deborah and those attending today’s earnings call. Dr. Shai Gozani, NeuroMetrix's President and CEO is participating in this Q1 2021 review. NeuroMetrix' is a leader in proprietary noninvasive medical devices for the diagnoses and treatment of pain and neurological disorders. We design and deploy a recurring revenue business model in all of our products. These commercial products include the neurodiagnostic technologies of DPNCheck and ADVANCE, plus our primary chronic pain technology Quell. Our Q1 2021 earnings release demonstrated continued progress, profitability combined with modest net cash usage. Among the relevant details from the Q1 results, Q1 revenue was $2.2 million. This represented 19% sequential growth from the fourth quarter of 2020 and approximately flat revenue with Q1 of 2020. Our sense is, there continues to be some delay, albeit diminishing, and our customer base returning to its pre-pandemic diagnostic testing levels. DPNCheck was the lead revenue generator, domestic Medicare Advantage sales were up both sequentially and year-to-year international sales, primarily Japan like Q1 of last year. ADVANCE sales were also up sequentially and year-on-year. This reflected higher volume levels as well as improved pricing. Quell continued to deliver positive operating margin. Our gross profit on revenue was $1.6 million. The margin rate was 73.3% versus 71.4% in Q1 of last year, an improvement of a 190 basis points from the year-over-year result. Operating Expenses totaled $1.6 million. Spending in Q1 2021 was reduced by $570,000 or 26% from Q1 of last year. R&D expenses benefitted from a one-time credit of $450,000 upon the resolution of a technology license. OpEx also reflected a charge of $187,000 to write off the remaining right to use asset under the company's lease and its Waltham, Massachusetts facility. This facility was idle in 2019 and offered for sublet. However, current market conditions make it unlikely that the sublet will be secured during the remaining lease term which is about a year. Net loss for the quarter was approximately $60,000 which compared favorably with the net loss of $657,000 in Q1 of last year. And on a per share basis the net loss was $0.02 per share versus $0.45 last year. Regarding balance sheet, we ended the quarter with $5.1 million in cash and net cash used this first quarter totaled $81,000. The company's cash resources are sufficient to fund its operations well into Q2 of next year and likely beyond. Stockholders' equity at the end of the quarter was $5.2 million or $1.39 per share. The company’s capital structure remains debt free and there were $3.8 million common shares outstanding.

[Shai Gozani:]

Thank you, Tom. Our current business strategy is guided by three core principles. First is, continued R&D investment in our established DPNCheck and Quell technology platforms to drive the respective market penetration and to open up additional markets. Second is to continue transitioning the business to operating profitability and cash generation, and the third is establishing a consistent and predictable top line growth. I’ll take this opportunity to provide brief updates on each of these elements. First focusing on R&D. Our R&D strategy is to develop unique, proprietary medical devices that utilize noninvasive neural stimulation to diagnose and treat pain and neurological disorders. We always seek to define new product categories or leapfrog to existing technology. We develop products using our in-house 10 person R&D team. We have two near-term R&D projects along with several nascent programs. First on DPNCheck, we are in the late stages of our second-generation DPNCheck project. Our current expectation is to launch in the U.S. before the end of the year. This version of DPNCheck captures our experience for the first-generation device collected over 3 million patient tests. We believe that the new DPNCheck will solidify our first mover Advantage and make it highly challenging for future competition to emerge and will also protect our growing high margin aftermarket consumables revenue stream. The new device includes a number of features that will position us to grow both the domestic and international businesses. Some examples include, improved usability features, wireless communication with reporting software and multiple language support. Our next program is in the disease state of fibromyalgia. We are developing a prescription treatment for the symptoms and functional impairment associated with fibromyalgia based on Quell technology. Fibromyalgia is a common chronic pain disorder that affects 2% to 6% of the adult population and is more common in women than men. Although there are several FDA approved drugs, including pregabalin and duloxetine, they have side effects and poor adherence. The global fibromyalgia treatment market size is several billion dollars with the U.S. being a large slice of that. A recently completed double-blinded, randomized, sham-controlled trial using Quell produced encouraging results with evidence of several important treatment benefits compared to sham, particularly in certain well defined patient subgroups. We anticipate scientific presentations at pain medicine conferences later this year, and a couple of manuscripts will soon be submitted to peer reviewed medical journals. We are finalizing our regulatory strategy and anticipate the filing in early 2022 with commercialization to commence by the end of 2022, and we will provide updates as this program continues to develop.

[Operator:]

Your first question comes from Bill Church with TGRA Capital.

[William Church:]

Good morning. Thanks for taking my call. I saw earlier this year that both of you are taking all or some of your salary in stock, and I applaud your support of the company and what you're doing for the shareholders. My, comment, question, the tennis channel, they usually have commercials for Tylenol and then Cymbalta talking about the fibromyalgia, I can't pronounce the name and then with a whole long list of side effects, and being a longtime tennis player and older and arthritic and all that sort of thing, I know a lot of my friends have pain and arthritis and all that sort of thing, and there are a couple of people on the tour that have arthritis too. And so I think we all look forward to see if Quell can help be one of their solutions for what we're experiencing and keep us going on the court, and so that's all I have. Thank you.

[Shai Gozani:]

Thank you, Bill.

[Operator:]

And your next question comes from the line of Jared Cohen, with JN Cohen and Company.

[Unidentified Analyst:]

Yes, I have a few questions, one, can you give us a just as a percentage of revenue, the breakdown between DPN and Quell?

[Thomas Higgins:]

So Jared this is Tom. We have decided not to lay out each product line revenue and profitability, but certainly DPNCheck is the dominant part of the revenue chain, and Quell as we said, we operate at a much lower level than in the past, but we ensure that its operating profitability as we look to reposition that product going forward.

[Unidentified Analyst:]

Okay, first thing, there were, all right, then in the Quell line, how much there is still is revenue coming from reusables or electrode, or so forth?

[Thomas Higgins:]

Let me just, it's running in the range of about 60%.

[Unidentified Analyst:]

Okay.

[Thomas Higgins:]

That's reuseables.

[Unidentified Analyst:]

[Thomas Higgins:]

Yes, it's a good question, Jared. We believe that, Quell technology strength wise in chronic conditions based on its design, wearability, the fact that it can be used for prolonged periods of time, both within a day as well as over long periods. So our focus really is on chronic conditions.

[Unidentified Analyst:]

Right, but I am afraid more months or so forth, or even years, is that right?

[Thomas Higgins:]

Yes, so we're focused on, in principle, it could have utility in more acute settings, but our focus again and I think where the strength of the technology lies is in chronic conditions. And so we're focused on of course lower extremity chronic pain, which is what it's currently available for over-the-counter, and then from the investigational side, we're working on as I mentioned of course, fibromyalgia, which we have very good clinical data on, and then chemotherapy induced peripheral neuropathic pain, and then some additional chronic conditions, potentially after that as well.

[Unidentified Analyst:]

All right, as you said you've always tried to convince my mother-in-law not to do the back surgery, just use the Quell and she was more absolute. I actually bought it for her and she just used it for a day and she gave it back to me, and it turns out it actually it wasn't as great as she thought it was. Yes, so that’s why I was just curious. All right, thank you very much.

[Shai Gozani:]

Thank you, Jared.

[Operator:]

Your next question comes from Kin Marius with EBT.

[Unidentified Analyst:]

Thanks for taking my call. Hey, a question around the consumables, if consumable revenue is about 60%, and that's great, what is the company doing to drive greater persistence with the product and therefore greater consumable revenue over time?

[Shai Gozani:]

Are you referring to the -- specifically the cloud business? Because the…

[Unidentified Analyst:]

The cloud business in particular, yes.

[Shai Gozani:]

Well, we have a number of different programs in place; we have features in the mobile app that supports the project that tried to drive engagement and retention of users. So there's a number of things that we're doing on an ongoing basis. But as I said, most of our R&D focus at this point is on these specific; disease specific applications, such as fibromyalgia that we're pursuing. We believe that in those specific instances they'll drive even better long-term engagement.

[Unidentified Analyst:]

Got it. Thank you.

[Operator:]

And your next question comes from the line of Bill Church with TGRA Capital.

[William Church:]

Thanks, I'm just following up on Jared's question. The experience, I've seen from a couple of people coming back from ACL surgery, using the Quell for a period of six to 10 or 12 weeks during rehab and both of them said that they were -- they thought that the cloud really helped them get through this pain as they were going through rehab, which is, can be kind of painful. And then after their rehab was over, and they were sort of pain free, they kind of dropped it. One of them now seems to have arthritis and in her knee and she's about to start using it again, but I'm wondering, you sort of came back to Jarrod’s, about with some mother-in-law, use it one day. I mean, I know it's not like Advil or something like that, but do you see in your studies that over longer use and say a week or two weeks or something that tends to build up some comfort or relief from the pain?

[Shai Gozani:]

Yes, but we don't have specific clinical studies that address that question. We've done a lot of work looking at the real world data that we have through the Quell Health Cloud status. Most the majority of Quell users link up their devices via the app to our cloud server. So we have published some work on that. And we do think that it has a sort of aggregating benefit over several weeks and historically, our sense has been that it takes two to three weeks, at least for most chronic conditions, chronic pain conditions for it to start to take effect. But we really don't have a lot of experience on the acute side for me to comment on. It is an interesting application. It's something that we may revisit in the future, but at this point where we have to be fairly narrowly focused, so we've chosen these kinds of large chronic conditions such as fibromyalgia to put our energy into at this point.

[William Church:]

Sure, okay. Thank you.

[Operator:]

There are no questions in queue. I would like to turn the call back over to Mr. Higgins for closing remarks.

[Shai Gozani:]

Well, this is Shai, but I would like to thank you for joining us on our call today and we look forward to keeping you updated over the balance of the year.

[Operator:]

This concludes today's conference call. Thank you for participating. You may now disconnect your lines.