NeuroMetrix, Inc. (NURO), a medical device company, has reported a revenue decline in the fourth quarter of 2023, with total revenue reaching $1.3 million, a 32% decrease from the previous year. The company attributes the decline primarily to changes in the Medicare Advantage CMS rules, which have adversely affected their DPNCheck product, contributing 80% of the revenue.
Despite this setback, NeuroMetrix has seen growth in their Quell Fibromyalgia product and is actively reevaluating its business strategy to adapt to the shifting healthcare landscape. The company is also exploring strategic options to enhance growth and maximize shareholder value.
Key Takeaways
- NeuroMetrix's Q4 2023 revenue fell to $1.3 million, a 32% decrease year-over-year.
- DPNCheck, heavily impacted by Medicare Advantage CMS rule changes, made up 80% of the quarter's revenue.
- Revenue from the Quell Fibromyalgia product increased.
- The company is shifting focus from Medicare Advantage to alternative markets in value-based care and retail healthcare.
- NeuroMetrix is reviewing strategic options to promote growth, including potential sales of assets or mergers.
Company Outlook
- NeuroMetrix is working on expanding its Quell Neurotherapeutics program to include new indications like chronic chemotherapy-induced peripheral neuropathy.
- Strategic changes are underway, but revenue is not expected to recover within the current year.
Bearish Highlights
- Significant rule changes by CMS will impact the company's DPNCheck screening program by eliminating HCC codes for peripheral neuropathies in 2024.
- The market has shown limited receptivity to pipe deals for micro-cap companies like NeuroMetrix.
Bullish Highlights
- The Quell Neuromodulation business shows potential despite the company's overall revenue decline.
- NeuroMetrix is exploring new markets and strategic options to recover and grow its business.
Misses
- The company's revenue has significantly decreased due to the Medicare Advantage CMS rule changes.
- The ATM offering has been defended by the company, although the market's response has been lukewarm.
Q&A Highlights
- NeuroMetrix discussed the need for an economic model that covers costs for physicians in light of CMS reimbursement changes.
- The company's capital strategy, including the ATM offering, has been justified as a necessary measure, guided by advice from investment bankers and internal discussions.
In summary, NeuroMetrix faces challenges due to regulatory changes but remains focused on adapting its strategy to ensure future growth. The company's efforts to navigate the evolving healthcare market and its pursuit of strategic opportunities signal its commitment to recovering from the current downturn and improving shareholder value.
InvestingPro Insights
NeuroMetrix, Inc. (NURO) has demonstrated resilience in the face of regulatory challenges, as evidenced by their proactive shift in business strategy and exploration of new market opportunities. InvestingPro data and tips provide a more granular view of the company's financial health and market performance:
InvestingPro Data:
- Market Cap (Adjusted): 3.34M USD, reflecting the company's current valuation in the market.
- Revenue Growth (Quarterly) Q1 2023: -38.86%, indicating a significant decrease in revenue compared to the previous quarter.
- Price, Previous Close: 2.94 USD, showing the stock's latest closing price which can be a benchmark for investors.
InvestingPro Tips:
1. NeuroMetrix holds more cash than debt on its balance sheet, which may provide some financial flexibility in executing its strategic plans.
2. Analysts anticipate sales growth in the current year, suggesting potential recovery and optimism about the company's future performance.
Investors looking for more in-depth analysis can find additional InvestingPro Tips by visiting https://www.investing.com/pro/NURO. With a total of 14 tips available, these insights could be pivotal in making informed investment decisions. To enhance the experience, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription.
The InvestingPro data and tips highlight key financial metrics and expert analysis that can help investors understand NeuroMetrix's position in the market. Despite the recent challenges, the company's strategic pivot and the potential for sales growth paint a picture of a firm that is actively working to turn the tide.
Full transcript - NeuroMetrix (NURO) Q4 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: first, is Quell, a wearable neuromodulation platform addressing chronic pain related to Fibromyalgia and with multiple emerging indications, including CIPN, long COVID, chronic low back pain, chronic overlapping pain condition and others. And second, DPNCheck which is a screening technology for peripheral neuropathy, particularly related to diabetes. Our business model is razor-razor blade with aftermarket revenue as the primary financial objective. At our current operating scale, we are adequately funded with about $18 million in liquid assets. Our cash usage rate averaged about $1.5 million per quarter during 2023. Our capital structure is simple, it's step-free and common stock-based. Earlier today, we reported Q4 2023 revenue of $1.3 million. DPNCheck continues as the largest contributor, representing about 80% of revenue in the quarter. It was down by 32% from Q4 of last year. And as we've discussed in prior quarters, this significant decline was attributable to the Medicare Advantage CMS rule changes in early 2023, which initiated a two-year timetable to phase out reimbursement for a range of patient screening, including peripheral neuropathy. On a full-year basis, this business contracted by 25%. The balance of our Q4 revenue reflects offsetting dynamics of Quell Fibromyalgia revenue growth on the upside, nearly doubling from Q3 to the sequential quarter and continuing revenue shrinkage in our legacy products, primarily consisting of electrode sales for nerve conduction testing by long-time customers. For the full-year 2023, revenue of $5.9 million was down by 29% from $8.3 million in 2022, principally due to the Medicare Advantage CMS rule changes. Gross profit in Q4 2023 was about $850,000. The gross profit reduction of about $400,000 from $1.2 million in Q4 of last year, correlates with the drop in revenue. Our Q4 gross margin rate was 64.4%, a slight contraction from the prior year quarter, reflecting a reduction in the absorption of indirect manufacturing costs, which resulted from lower production problem -- lower production volumes. For the full-year 2023, gross profit was $3.9 million at a margin rate of about 67%, down by $1.8 million from $5.8 million in 2022 at a margin rate of just under 70%. Operating expenses in the fourth quarter totaled $2.7 million. The OpEx increase of about $600,000 or 30% from the prior year quarter reflects the timing of R&D spending for outside engineering services plus increased sales and marketing headcount during the year to support the launch of Quell Fibromyalgia. Personnel costs, this will be headcount and compensation, throughout the organization were significantly higher in comparison with the prior year. Full-year OpEx of $11.1 million increased by $600,000 or 5.8% from 2022. Net loss in Q4 was $1.6 million or $1.43 per share. The net loss increased by $1 million from a net loss of just under $700,000 a or $0.73 a share in Q4 of last year. Operating cash usage in the quarter was about $1.4 million this year versus $1.5 million in Q4 of last year. For the full-year, our net loss of $6.5 million or $6.27 per share increased from a loss in 2022 of $4.4 million or $4.97 per share. We closed the quarter with liquid assets of $18 million, as I mentioned previously. During Q4, we executed sales of common stock under our ATM facility of approximately $1.9 million and of that, about $1.6 million settled during the fourth quarter. Common stock outstanding at the end of 2023 totaled approximately 1.5 million shares. And this is after the November 1, 2023, date in which we implemented a reverse split in the ratio of 1.8% in order to comply with NASDAQ minimum bid requirements. So those are the highlights from the financial report. And now for the comments of Dr. Shai Gozani, our Founder and CEO.
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.
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