Neuraxis, Inc.

Q1 2024 Earnings Conference Call


spk02: Good day and thank you for standing by. Welcome to NEARAC. This reports the first quarter 2024 financial results. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised, today's conference is being recorded. I would now like to turn the call over to your speaker today. Ben Shemison, you may begin.
spk00: Good morning, everyone, and thank you for joining us for NeurAxis's first quarter 2024 financial results and corporate update conference call. Joining us on the call is Brian Carrico, CEO of NeurAxis, and Tim Hendricks, CFO of NeurAxis. At the conclusion of today's prepared remarks, we will open the call to questions. If you are listening through the webcast, you can send in a question through the portal utilizing the Ask a Question box or by simply emailing questions to nrxs at If you are dialed into the call live and would like to ask a question, you can follow the instructions provided by the operator by pressing the star and 11 buttons. Today's event is being recorded and will be available for replay through the webcast information provided in the press release. Finally, I'd also like to call your attention to the customary Safe Harbor disclosures regarding forward-looking information. The conference call today will contain certain forward-looking statements, including statements regarding the goals, strategies, beliefs, expectations, and future potential operating results of NeurAccess. Although management believes these statements are reasonable based on estimates, assumptions, and projections as of today, these statements are not guarantees of future performance. Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties, and other factors, including but not limited to the factors set forth in the company's filings with the SEC. Neuraxis undertakes no obligations to update or revise any of these forward-looking statements. With that said, I would like to turn the event over to Brian Carrico, Chief Executive Officer of Neuraxis. Brian, please proceed.
spk03: Thank you, Ben. Good morning, and thank you for attending the first quarter 2024 earnings call. During today's call, I will highlight the many recent accomplishments in our revolutionary neuromodulation technology commercialization strategy. We will also discuss the milestones and growth plans for 2024 and beyond as we continue to execute the commercialization of our market-leading PENSS technology. Following my remarks, Tim Hendricks, our CFO, will review our financial results for the first quarter of 2024. For those of you new to our story, Neuractus is a leader in the field of neuromodulation. Our initial focus is the pediatric and adult GI space, specifically on disorders of gut-brain interaction, or DGBI, which include functional abdominal pain associated with IBS, functional dyspepsia, irritable bowel syndrome, and more. With our targeted indications, we have a large total addressable market with $9 billion on the pediatric side and over $14 billion on the adult side. While we are currently focused on the pediatric space, we are evolving into the adult space later this year on two fronts, which I will discuss later. Our proprietary technology can be referred to as percutaneous electrical nerve field stimulation, or PENFF. Percutaneous electrical nerve field stimulation targets nerves, including the vagus nerve, to alter pain transmission at the CNS or central level. This is accomplished via a set of electrode needle arrays placed into and around the auricular area. We currently have one authorization from the FDA for functional abdominal pain associated with irritable bowel syndrome in children 11 to 18 years of age. We are also working on other indications, including but not limited to functional dyspepsia in children, post-concussion syndrome in children, pediatric chemotherapy-induced nausea and vomiting, and our first adult indication of functional abdominal pain and irritable bowel syndrome. With that brief review behind us, I would like to review our recent achievements. I want to start by saying that although we were just here eight weeks ago, we have had a tremendous run of continued execution since the last call. To name just a few of these achievements, we've advanced and hit more milestones, continuing our clear path to profitability in the next 12 months. We closed the necessary financing expected to take us to profitability. We just received confirmation from a Blue Cross Blue Shield licensee in Florida covering 6 million lives, bringing our covered lives to 22 and a half million and up 400% year over year. We received verbal approval for our first state Medicaid program. We received written approval from a managed Medicaid in South Carolina. We saw a large multi-site registry get published. We advanced RED closer to FDA submission. We broke several records related to patient demand. We announced our first of four centers of excellence, and much more, all of which I will highlight throughout the call. I want to start this part by highlighting the demand for IV STEM and get right to the overall numbers for Q1 with some detail. Although the official reported shift revenues were down in Q1 year over year, strictly due to short-term insurance issues, the patient numbers were up significantly, showing the growth and high demand in the business, which will soon translate to revenues with insurance policy coverage. To highlight this number, I want to first point out that we had enough patients come for treatment to get us to $1.8 million in quarterly revenue, which would translate to a $7.2 million annual run rate. Furthermore, these patients came from a small number of children's hospitals that have adopted IV STEM prior to insurance policy coverage being in place. Second, we had enough patients come to us to be up 27% year-over-year if insurance policy coverage was in place in those areas. To explain this further, we generated $646,000 in Q1 revenue from 222 patients but had another 231 patients come to GPS, of which only 42 patients received devices in the quarter. The remaining 189 patients would have potentially resulted in $900,000 of revenue if they had insurance coverage. Furthermore, we missed out on $250,000 in Q1 2024 that we had a year ago from very strong accounts, children's hospital accounts, due to recent authorization issues that will reside throughout the next 12 months as more payer coverage is written. Those three avenues equate to a revenue total of $1.8 million in Q1 of 2024, with insurance coverage equating to a growth rate of 27% year over year, And this is how we know the demand is there and why we continue to be so bullish on the growth trajectory. To further break down the Q1 2024 numbers, 888 IV stem devices were shipped, which treated about 222 children. Children's hospitals and private pediatric GI practices accounted for 49% of sales through a purchase order process, indicating the patient had insurance coverage for IV stem. The remaining 51%, were patient-purchased devices through various financial assistance programs offered through our IB STEM Guidance and Patient Support Program, indicating that insurance coverage was unavailable for those patients. This data demonstrates why increasing insurance coverage for PENFS has been and continues to be our top priority. The GPS program is primarily in place to increase access to care for children. GPS provides prior authorization services for select accounts, patient advocacy services where families are educated on how to do consumer appeals for coverage, and several financial assistance options. In the first quarter, GPS assisted 231 patients, a 40% increase year over year. As we mentioned on our last call, prior authorization services were launched in May of 2023 and served 191 patients through the end of first quarter 24, with 87 of those 191 patients coming in the most recent quarter, again showing this program's growth and importance. As insurance coverage increases across the country, the percentage of sales through purchase orders will also increase. This is why our number one priority continues to be written insurance policy coverage. Our plan of action is clear. We believe that strong peer-reviewed publications and key society support from the likes of NASPGAN and the American Academy of Pediatrics result in successful coverage from insurance companies, which result in strong revenues. With this formula, we have rapidly reached 22.5 million covered lives as of today, a 400% increase year over year. As mentioned earlier, we have great confidence that throughout 2024, we will significantly expand upon the 22.5 million covered lives already in place and obtain broad coverage by all the major insurance companies by the end of 2025. With the support that we already have With the primary academic societies and this broad coverage over the next few years, we expect a significant acceleration of revenue. In total, to date, about 2,900 children have been treated with the IV stem PENFS therapy, which treats functional abdominal pain associated with IBS in patients 11 to 18 years of age. In 2023, we treated 830 of the 600,000 debilitated children with IV stems. represented a penetration rate of 0.14%. In the first quarter of 2024, we treated 222 patients. We believe this continues to be less than one quarter of 1% of all children that suffer from functional abdominal pain and could benefit from our therapy. From a commercialization standpoint, we know there is a very large market with an unmet need, and the key to success in the med tech space is strong insurance reimbursement. This plan is on schedule and the proof of concept is apparent as we have seen 14 studies published by independent investigators from top children's hospitals. The studies include a preclinical study, a placebo RCT, long-term data, health economic data, quality of life data, real-world registry data, and many others. These 14 studies have led to early insurance policy coverage for major Blue Cross Blue Shield plans nationally, and we have just announced new policies bringing our total covered lives to over 22 million with multiple payers, both small and large, currently in the review stage. In Q1, a national multi-site registry was published of 292 patients showing sustained benefits and abdominal pain symptoms up to 12 months post-treatment. This publication caps off an incredibly deep and robust compilation of data showing why PENFS is moving towards standard of care. Additionally, we have just learned that the first state Medicaid office will write policy for PENFS, and we also just learned approval for a Blue Cross Blue Shield licensee in Florida with 6 million covered lives. Again, as mentioned, bringing our total covered lives to 22.5 million. Furthermore, we know there are multiple payers inching closer to what we believe will be written policy coverage, and we will announce those as soon as possible. We aim to continue succeeding with payers throughout 2024, setting the stage for a significant revenue ramp in 2025. From proof of concept standpoint, we see the children's hospitals with moderate policy coverage translating into nice revenue. We have two examples of hospitals with moderate insurance policy coverage, and each is on pace to generate over $500,000 in annual revenue in 2024. When you think about 260 children's hospitals, plus private pediatric gastroenterology offices, plus pediatrician's offices. You can understand why we are bullish on our revenue trajectory in the coming years as policy coverage and coding become formal, and this is with only our first indication. We have several short-term focus opportunities, including insurance policy coverage, which is being successfully addressed, as mentioned earlier, growing our internal prior authorization team to reduce the workload for clinic staff, which allows greater access for pediatric patients, and ultimately assisting in acquiring a permanent Category 1 CPT billing code. Regarding prior authorizations, we built and launched an internal prior authorization team in 2023, as mentioned earlier, to help with the time-intensive prior authorizations required to increase access to care for children. This program has been extremely successful for those children's hospitals that have transferred their prior authorizations to their access. This program continues to grow monthly, and we believe that in time, most accounts will move their prior authorizations to the Interaccess team. Regarding a billing code, we have our own technology-specific billing code now, which is helpful in some areas but could be challenging for children's hospitals when billing their charges to bill insurance. And this has caused a delay in treating patients even after written insurance policy coverage is in place. As mentioned earlier, we are working towards obtaining a CPT Category 1 permanent billing code. Insurance coverage is by far the most critical component to success, and our team is diligently addressing that with success. We recently launched our Centers of Excellence program, but publicly announced the first one, Children's Hospital of Orange County. Children's Hospital of Orange County has treated 700 patients with IB STEM and is the first of four Centers of Excellence that will be announced in the coming months. In marketing news, the Balancing Act, a morning television show on Lifetime Network, did a story on a patient from Nemours Children's Hospital in Orlando, Florida, and the piece was aired live on April 15th and April 23rd and will air 500 times in syndication over the next year. From a company standpoint, we own this material for use on our website, social media, and other marketing channels. The response of this patient story has been nothing short of incredible, and we are thrilled that the public can see the life-changing side of our technology as we see these stories daily. Growth outlook. We expect revenue growth to accelerate meaningful in the latter half of 2024 and into 2025 to the point of profitability based on two catalysts, the continued gaining of coverage from insurance companies for IV stem and the commercialization of risk. With regards to expanding insurance coverage, we remain laser focused on gaining insurance policy coverage and shortening the gap between policy coverage effectiveness and utilization within the children's hospital. Demand for our product has never been stronger, but expanding insurance coverage is critical to growing revenues. While we have 22 and a half million covered lives currently under coverage, most of them have been effective for less than 90 days. It is important to appreciate that there is typically a 90 to 120 day lag from the time coverage is gained from the insurance companies for PE and FF to when hospitals begin purchasing the product as time is needed for billing teams to put the proper processes in place. In areas where we have new policy coverage, we also see how many payers exist in those areas because so many patients still come to us without policy coverage. Once again, proving why widespread policy coverage is so critical to access for these children. As such, We expect to see a revenue ramp as the year progresses, just from the 22.5 million lives we have under coverage today, but we also expect that covered lives number to increase significantly by the end of 2024. The biggest challenge for us is speed to national insurance policy coverage. Although we have the 22.5 million covered lives, those policies have just taken effect, and we're still at only about 7% of the covered lives nationally. Regarding RED for adult patients, we are still on track for a late Q2 FDA submission and are cautiously optimistic about FDA clearance this fall, with commercialization commencing in Q4. Let's speak more a little bit about RED, or the Rectal Expulsion Device product, which we believe to be a great opportunity for Neuraxis. RED is a self-inflating balloon that is an easy-to-use, office-based, point-of-care, antirectal function test to identify patients with chronic constipation due to pelvic floor dysinertia, and who are unlikely to improve with increased laxative use. The current treatment is a guessing game by the physician as to which treatment will work, and REDD will allow the physician to streamline the diagnosis and choose the best treatment option after the first visit, which is a real win for the patient. We acquired a right to license this product from the University of Michigan, where it was developed. We are on track for a 510K submission late Q2 and are cautiously optimistic that this product will be on the market before the end of 2024. If successful, REDD is expected to bring great clinical benefits to patients, and because the technology has a Category 1 CPT billing code assigned and strong national reimbursement, we believe the providers will be able to bring this clinically beneficial technology to their practice immediately. In summary, We are pleased with the continued and consistent execution of building the foundation on strong data and academic society support. This has resulted in early insurance adoption, which we expect to ramp revenues in the latter half of 24, moving us toward profitability, setting the stage for a prosperous 2025. I will now turn the call over to our CFO, Tim Hendricks, to discuss the financials. Tim, please proceed.
spk01: Thank you, Brian. Let me add my welcome to everyone joining us on this call. These financial results were included within our press release, which was issued earlier, and were also provided in more detail within our Q1 24 10Q. I will add some color on key areas of the financial results, as well as an outlook on certain areas. From a big picture standpoint, we are continuing to execute on our plans, including the commercialization of our PENFS technology. We have been successful in leveraging our 14 completed studies to gain insurance coverage. We have 22 and a half million lives currently under coverage and expect that number to continue to grow through the end of the year. In addition, we are optimistic with regards to the commercialization of bread in the fourth quarter. As such, we expect revenue growth in the back half of 2024. Given our current cost structure, our goal as a company to reach profitability is achievable but a function of our sales volume given our strong gross margins. Our recent successes in obtaining substantially more insurance coverage since December keeps us on that path. Finally, we have strengthened our liquidity position heading into 24 as we secured $6.1 million in financial commitments through March of 2025 via convertible notes since November from strong long-term investors who know the MedTech space well with over $1.5 million funded in Q1 of 24. With that, I will go through the financial highlights in detail. 2024 first quarter revenues were $647,000 compared to $805,000 for the same period in 2023. While revenue was down 19.7% in the quarter compared to last year, we had more accounts ordering from us and we had more patients coming to us via our patient assistance program. And Brian mentioned earlier what those numbers turn into with policy coverage. The quarter-over-quarter decrease is primarily due to fewer shipments from certain customers as they manage through the insurance policy reimbursement process, partly offset by an increase in volume from our patient assistance customers. New customers and total patients coming to Neuraxis have increased, but they have come through our financial assistance programs due to a lack of written insurance policy coverage, therefore paying a discounted price and lowering our average selling price and revenue for now. As we mentioned before, we are highly focused on expanding our insurance coverage. While we have made great strides in recent months in gaining coverage, note that there is a lag until accounts begin ordering the product while they get their coding and billing processing implemented for a new device. As such, we expect growth in late 2024 and into 2025. Gross profit for the first quarter of 2024 was $572,000 compared to $709,000 in the first quarter of 2023. Although the gross profit declined due to sales volume, we continue to have strong margins. Growth margin in the first quarter of 2024 was 88.4% as compared to 88.1% in the first quarter of 2023, primarily due to growth in our financial assistance program at lower discounts. Our operating loss for the first quarter of 2024 was $1.8 million compared to $896,000 in the first quarter of 2023. The increase was due to a number of factors. Our lower sales volume resulted in lower gross margin, but the demand is there to turn that around once our new insurance coverage has become reimbursable for our patients. Second, our payroll increased as we continue to build out our market access and sales teams to secure that insurance coverage on behalf of our patients that will benefit from the IV sim device. Third, we have incremental public company costs in the first quarter of 2024. such as legal, insurance, investor relations, and board fees that did not exist in the first quarter of 2023. Fourth, our advertising spend increased as we look to expand our market access and awareness. And lastly, we incurred $287,000 related to non-cash, non-returning consulting and hiring costs. Our net loss in the first quarter of 2024 was $2.1 million, 2.4% favorable to the $2.2 million net loss in the first quarter of 2023, primarily due to the absence of debt discount and issuance cost amortization and interest expense upon conversion of convertible notes in the August 2023 IPO. That benefit was partly offset by higher general and administrative costs the absence of a benefit from debt extinguishment in the first quarter of 2023, a lower benefit from the revaluation of warrants and derivatives as they were recognized upon the August 2023 IPO, and a $230,000 non-cash non-return charge related to a 2023 convertible note settlement. From a liquidity standpoint, Cash used by operations for the first quarter of 2024 was $1.3 million compared to $623,000 in the first quarter of 2023. The increased outflow was primarily due to higher general and administrative costs, including market access and sales payroll as we continue to secure insurance coverage, new public company costs such as legal, insurance, investor relations, and board fees that were not previously incurred and higher advertising costs as we look to expand our market access, as well as payments made to past due vendors, which did not occur in the first quarter of 2023. As we previously mentioned, but it bears repeating, investors funded $1.5 million in the first quarter of 2024 as part of $6.1 million in commitments from the company secured from investors through convertible notes in Q1 of 2024. Importantly, as we mentioned in our press release this morning, we further strengthened our liquidity position this week as we signed documents for an additional $3 million in convertible notes from a reputable healthcare-focused fund. With that, let me turn the call back over to Brian.
spk03: Thank you, Tim. Let me conclude the call where I started. I cannot stress enough how the consistent execution continues to lay the foundation and pathway to meet our goals. This has led to the milestones we are achieving and is setting NARACUS up to achieve accelerated growth in the second half of 2024 and into 2025. We remain focused on leveraging the strong data from our studies, leading us to insurance acceptance from the covered lives we have today to a significantly higher number by the end of 2024. Furthermore, we remain very excited about our opportunity with REDD, which we expect to become commercial in 2024. With that, Operator, we would be happy to take any questions. As a reminder, you can ask a question on the webcast by typing into the Ask a Question box, or if you are dialed in and would like to ask a question, to press star 1-1.
spk02: Again, ladies and gentlemen, if you have a question or a comment, please press star 1-1. If your question has been answered, here's to yourself from the queue. Please press star 1-1 again. We'll pause for a moment to compile the questions on the phone lines.
spk03: And I'm not showing any questions on the phone lines.
spk00: First, how do you plan to allocate capital to drive revenue in 2024 and 2025?
spk03: Well, first, we want to ensure we don't build a commercial machine. I talked about this on the first call. We don't want to build a commercial machine in areas where we do not have policy coverage. and therefore a real revenue source. So we are placing reps in areas with positive PENFS policy coverage. Second, we are spending some capital to educate families about the technology and physicians about the data where there is insurance coverage. Third, we're using resources to leverage our data to drive more policy coverage. And additionally, and equally as important, we are putting time and money toward the REDD technology via the FDA process and commercialization.
spk00: Great. Thank you. We have some more questions that have come in. Can you speak about your path to profitability?
spk03: Yes. As we mentioned on the call, we already have enough patients coming to Neuraxis to really push towards that profitability number from a cash flow standpoint. And we can dive more into that number on the next call. And this is only from a fraction of the children's hospitals nationally, as we mentioned earlier. Second, this answer continues to be about how fast we can gain coverage nationally. In areas where we have policy coverage, we still see most patients coming from other payers. We've got some really nice Blue Cross Blue Shield policies, and we still see 60, 70, 80% of the patients coming from those children's hospitals from other payers, which speaks to My point earlier about us only having about 7% of covered lives nationally in place, and those policies have either just taken effect or they have not taken effect. So that's the biggest issue right now.
spk00: Great. As a reminder, you can ask questions either on the chat or by following the operator's instructions. We have some more questions that were sent in to us. The biggest challenge at this point to gaining written policy, what do you see the biggest challenge there in terms of written policy?
spk03: Well, it's speed. How fast can we get this policy coverage in place and executed? The data is now published and in place, so the key is gaining the attention of the payers to get this policy coverage written and effective. The good news is that we used to be told we need more data, and we very rarely, if ever, hear that now. We're often aware of policy coverage that cannot be announced until the payer announces it. So we've talked about this in previous calls. We could be aware of policy coverage now, significant policy coverage that we are aware is becoming effective, but it's not been announced by the payer. So we are not able to announce that yet.
spk00: Okay, great. Questioner is asking, what plans do you have to increase visibility among the investment community?
spk03: significant plans we're doing where we have significant weekly meetings with investors we have two investor relation outsource we have one lithium partners that is we have multiple as I said weekly meetings on with investors new investors and investors who are potential investors and then we're doing multiple conferences we're starting to do monthly conferences both virtually and in person and which we would hope would drive interest in the company and ultimately the stock price and the stock volume.
spk00: Okay. Next question regarding Q1 revenues. Are you concerned about the decline in the Q1 revenues relative to last year?
spk03: Well, on the surface, it's frustrating, but we're not concerned, no. So many accounts had issues with prior authorizations, this Q1 versus a year ago, and we know that's a short-term issue. And the number of patients who came to us were up significantly. The demand continues to grow, and this is, again, from only a small number of children's hospitals. Most children's hospitals are waiting on policy coverage before the chief revenue officers will allow the product in. We're extremely encouraged by the continued ramp in demand, which we know will translate to revenue in the coming months and year.
spk00: Okay. Operator, I believe I don't see any more questions.
spk02: And I'm not showing any other questions on the phone lines either, so I guess we'll turn it back to Brian for closing remarks.
spk03: Sure. I just want to thank everyone for joining the Q1 call and look forward to talking to everyone in the coming weeks and months. Have a nice day.
spk02: Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect and have a wonderful day.

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