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Operator
Good day and thank you for standing by. Welcome to New Access Reports second quarter 2024 financial results. At this time all participants are on 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 need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised today's conference is being recorded. I would like to hand the conference over to your speaker today. Ben Shemers saying you may begin.
Ben Shemers
Good morning everyone. Thank you for joining us for New Access second quarter 2024 financial results and corporate update conference call. Joining us on today's call is Brian Karakos, CEO of New Access and Tim Hendricks, CFO of New Access. 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 a question to nrxs at litsempartners.com. If you are dialed into the live call and would like to ask a question you can follow the instructions provided by the operator by pressing star and one one button. Today's event is being recorded and will be available for replay through the webcast information provided in the press release. Finally, I'd 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 operations operating results of New Access. 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 SCC. New Access undertakes no obligation to update or revise any of these forward looking statements. With that said, I would now like to turn the event over to Brian Carrico, Chief Executive Officer of New Access. Brian, please proceed.
Brian
Thank you, Ben. Good morning and thank you for attending the second quarter 2024 earnings call. During today's call, I will highlight the many recent accomplishments in our revolutionary neuromodulation technology commercialization strategy. We will discuss the milestones and growth plans for 2024 and into 2025 as we continue the strong execution of the commercialization of our market leading PENFS technology. Following my remarks, Tim Henrichs, our CFO, will review our financial results for the second quarter 2024. First, I'm gonna review the recent achievements and milestones. We are continuing to execute at a high level on our growth objectives. Rooted in the foundation that strong published data will drive insurance expansion leading to sustainable revenues and margins. We laid out these objectives in previous calls and are coming off another very successful quarter where we continue to put the final pieces in place to allow blanket insurance coverage and in turn the scaling of PENFS revenues. In recent months, we have made significant achievements as we advanced and hit milestones, forging a clear path to profitability in 2025. Regarding IVSTEM, we are primarily focused on revenue trajectory and we had a significant change from Q1 to Q2 as new insurance policy coverage is taking effect and some of the issues from Q1 are residing. Further to that point, we are very optimistic based on the strong first month of Q3 that real revenue growth is taking hold based on the continued adoption of the insurance policy coverage. As we all know, the scientific community has accepted our flagship technology but has been hindered by a lack of written insurance policy coverage. The largest payers have been waiting on the academic society to publish guidelines for functional abdominal pain associated with IVF. The most important recognition any technology can receive, any med tech technology can receive is independent guidelines by the academic society because this is an independent review of the literature and a grade is assigned, which the payers accept as the standard. We are thrilled to announce the systematic review by the academic society NASPIGN was released at a conference in late May showing our technology has the highest grade certainty level and the largest magnitude effect. NASPIGN, as mentioned in earlier calls, is the North American Society for Pediatric Gas Neurology, Hepatology and Nutrition and they are the academic society for pediatric gastroenterology where our technology resides. This systematic review is not published guidelines but we believe this information is the work being used to publish guidelines in the coming months. That's important because we have been told by multiple, by the largest payers that this publication is an internal mandate for policy coverage. So we are eagerly waiting for this publication to get to the payers. Sticking with insurance policy coverage, I wanna go into detail about the most important aspect of our growth. As we stated, late in 23 and early in 24, written policy coverage is the key to revenue exponentially increasing. We also stated that once the insurance policy coverage is written and in place, it takes 90 to 120 days for the children's hospital to get the technology loaded, their process is in place and begin ordering. One example of this is the Care First Blue Cross, Blue Shield policy that took effect in the Washington DC and Maryland areas on January 1st of this year. The two primary children's hospitals in that coverage area began ordering in May, increased orders in June and increased again in July showing how this process works. With all of that said, I'm happy to announce that we have received written confirmation from one of the nation's largest -for-profit health plans serving 12.6 members that they have approved IV STEM for all pediatric gastroenterologists nationally and we expect that to take effect around October 1st. We did not yet see written policy coverage in the public domain, so we will technically keep our total lives at 22.5 million versus 4.5 million at the same time last year. But as soon as this policy becomes public, our covered lives will officially be 35.1 million covered lives. In addition to this announcement, we have roughly 15 payers in the review process. Assuming even a few of those payers make positive decisions this fall, we will exceed the 50 million covered lives number we projected early in 2024. Turning data into policy and then into revenue is a process that we believe is beginning to work well and the expected academic society guidelines will only expedite that process. In addition, we have submitted an application for a category one CPT code, which will allow for more seamless billing and reimbursement. Furthermore, we made a submission to the FDA for the expansion of our IB STEM label to include a patient population beyond the current 11 to 18 years old to eight to 21 years old, which would nearly double the number of children we can treat. We're cautiously optimistic that the FDA will clear that age expansion later in 2024. Regarding RED, or rectal expulsion device, our point of care device that identifies patients with pelvic floor dysfunction and provides immediately actionable test results in patients with chronic constipation licensed from the University of Michigan. We submitted an FDA 510K in early August and we are optimistic we will begin commercialization in late 2024. And finally, we have closed the necessary financing with reputable healthcare funds ensuring we are properly positioned to reach profitability. I will touch upon each of these areas in more detail throughout the call today. I wanna move to the focus on PENFS or IB STEM. I wanna begin by highlighting the work we have done over the last five years to demonstrate and document the true efficacy of our therapy, which now includes 16 publications covering 10 different types of studies. This has resulted in the highest level of evidence available for functional abdominal pain and IBS in children. We at Naraxis are very proud of this and believe it validates our optimism and expectations for IB STEM. I'm excited to say that the efforts we have put in are finally starting to bear fruit. Not only do we expect this abstract to change the guidelines, but we also expect it to significantly expand insurance coverage with the largest payers. We are beginning to see many of our achievements reflected in the numbers. The number of treated cases has increased over 850 in the last 12 months, which represents just over one-tenth of 1% of the 600,000 debilitated children in the US who suffer from IBS and are in strong need of IB STEM. Now I would like to focus on how all of this translates to revenue growth and why we expect revenue growth to accelerate in the second half of 2024 and beyond. I wanna start by highlighting the sustained and increasing demand for IB STEM. If you recall, revenue in Q1 was down 20% year over year and units were down 14%. In the second quarter, we had a strong acceleration with year over year revenue declining by roughly 5% and total units increasing by a robust 16%. The positive change here is insurance reimbursement, which has taken a strong turn for the positive. There's a vast majority of patients in desperate need of IB STEM. Their insurance does not cover the product. These patients mostly forego the treatment altogether, but some purchase the devices through various financial assistance programs offered through our IB STEM guidance and patient support program. A key point to add here is that the revenue loss from 2023 is from children's hospitals that need written policy covered from large payers, which is not yet in place. The fact that we are alleviating those losses without these children's hospitals shows the growth in new and existing accounts. Once large payers write policy coverage, the children's hospitals on pause will begin ordering immediately, adding significant revenue. On average, selling prices for patients receiving IB STEM through patient financial assistance are roughly 60% below our list price. The insurance barrier is causing us to leave significant dollars on the table. By our calculation, in the first half of 2024, we have left close to $2 million on the table from just a very small number of children's hospitals, which is not just revenue, but margin. 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 continues to be clear. We believe that strong peer-reviewed publications and key society support from the likes of Nassphigan and the American Academy of Pediatrics result in successful coverage from insurance companies, which result in strong revenues. From a proof of concept standpoint, we see the children's hospitals with even some policy coverage translating into strong revenue. We have two examples of hospitals with moderate insurance policy coverage, and each is on pace to generate well over $500,000 in annual revenue in 2024, and many more are now growing in that direction. When you think about 260 children's hospitals plus pediatricians' offices, you can understand why we are bullish on our revenue trajectory as policy coverage and coding become formal, and that 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, continuing to grow 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 billing code. Regarding prior authorizations, we built and launched an internal prior authorization team in 2023 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 us. This program continues to grow monthly, and we believe that in time, most accounts will move their prior authorizations to the NeurAxis team. Regarding a billing code, we have our own Category 3 CPT technology-specific billing code today, which is helpful, but in some areas, but can be challenging for children's hospitals when building their charges to bill insurance. This has caused a delay in treating patients, even after written insurance policy coverages in place. As mentioned earlier, we've submitted an application for obtaining a Category 1 CPT permanent billing code. We expect revenue growth to accelerate meaningfully in the latter half of 2024 and into 2025 to profitability based on two catalysts, to continued gaining of coverage from insurance companies for IV STEM and the commercialization of RED. Demand for the product has never been stronger, but expanding insurance coverage is critical to growing revenues. While we have 22.5 million lives currently under coverage, many of them have been affected for less than 120 days. It is important to appreciate the lag time from coverage from insurance companies for PNFS to when hospitals begin purchasing the product, as time is needed for billing teams to put the proper processes in place. To that point, we saw the coverage that took place in early 2024 beginning to show up in May and June, the Q3 we see an even stronger foothold. Regarding RED for adult patients, we recently filed our FDA submission and are cautiously optimistic about FDA clearance and commercialization commencing in late Q4. Let's speak a little bit more about RED, or the rectal expulsion device product, which we believe to be a great opportunity for Neuracris. We have now officially licensed this product from the University of Michigan, where it was developed and we recently submitted a 510K to the FDA and are optimistic about this product, as I said, being on the market late Q4. If successful, RED is expected to bring great clinical benefits to patients and because the technology already 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. RED is a self-employing balloon that is easy to use, office-based -of-care, and a rectal function test to identify patients with chronic constipation due to pelvic floor dysanersia and who are unlikely to improve with increased lack of use. The current treatment involves much trial and error by the physician as to which treatment will work, and RED 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. 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 significant early insurance adoption, which we expect to ramp revenues in the latter half of 2024, moving us towards profitability and setting the stage for a prosperous 2025. I will now turn the call over to our CFO, Tim Henrich, to discuss the financials.
Tim Henrich
Tim? Thank you, Brian, and 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 Q2-2410Q. 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 16 completed studies to gain insurance coverage. We expect the number of covered lives to continue to grow through the end of the year. In addition, we are optimistic with regards to the commercialization of RET in late 2024. As such, we expect revenue growth in the back half of 2024 and into 2025. Given our current cost structure, our goal as a company to reach profitability is achievable and a function of our sales volume, given our strong growth margins. Our recent successes in obtaining substantially more insurance coverage since December keeps us on that path. Finally, we have strengthened our liquidity position in the second quarter of 2024, as we secured an incremental $3 million in funding in May, in addition to the 6.1 million in financial commitments in the first quarter of 2024, from strong long-term investors who know the MedTech space well. So far, we have funded 4.9 million with the remaining 4.2 million coming in monthly installments through 2025. With that, I will go through the financial highlights in detail. 2024 second quarter revenues were 612,000 compared to 646,000 at the same period in 2023. Although revenues in Q2-24 declined 5% on a -over-year basis, this is a significant improvement compared to -over-year declines of 20% and 13% in Q1-24 and Q4-24, respectively. But more importantly, we had more accounts ordering and more patients coming to us via our financial assistance program. As Brian mentioned earlier, our unit sales were up 16% in the quarter -over-year, and that is why we expect revenue growth in the second half of the year as these discounted financial assistance orders turn into full reimbursement dollars with policy coverage. The -over-quarter decrease was primarily due to fewer shipments to certain customers as they managed through the insurance reimbursement process to insurance policy coverage, partly offset by an increase in volume from our financial assistance customers. New customers and total patients coming to our access have increased, but they have come through our financial assistance programs due to a lack of written insurance policy coverage. They are paying a discounted price and lowering our average selling price and revenues. As 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 while our customers get their coding and billing processes implemented for our new device. As such, we expect revenue growth late into 2024 and into 2025. Gross profit for the second quarter of 2024 was $538,000 compared to $578,000 in the second quarter of 2023. Although the gross profit declined due to sales volume, we continue to have strong gross margins. Gross margin in the second quarter of 2024 was 88% as compared to .5% in the second quarter of 2023. The decline is primarily due to growth in our financial assistance program, which offers discounts to patients without insurance coverage. Our operating loss for the second quarter of 2024 was 2.2 million compared to 1.1 million in the second quarter of 2023. The increase was due to a number of factors. First, our lower sales volume resulted in lower gross profit, but the demand is there to turn that around once our new insurance coverage has become reimbursable for our patients. Second, 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 IVCM device. Third, we have incremental public company costs in the second quarter of 2024, such as legal, insurance, investor relations, exchange listing, and board fees that did not exist in the second quarter of 2023. Fourth, our advertising spend increased as we look to expand our market access. And lastly, we incurred 435,000 related to non-recurring severance and consulting costs. Our net loss in the second quarter of 2024 was 2.9 million versus a $2.2 million net loss in the second quarter of 2023, primarily due to higher general administrative costs and the non-cast settlement of certain pre-IPOs, series A, preferred stocks, shareholder claims, partly offset by the elimination of debt discount, issuance costs, debt extinguishment, and derivatives fair valuation charts. Our liquidity position has substantially improved as we had $1.8 million of cash on hand as of June 30, 2024 compared to 51,000 as of June 30, 2023. That increase is primarily due to the funding of $4.9 million in financing during the first six months of the year, partially offset by cash used by operations of 2.9 million in 2024 compared to 1.2 million in 2023. The increased outflow was primarily due to higher general and administrative costs, including market access and sales payroll, as well as continuing to secure insurance coverage, new public company costs such as legal, insurance investor relations, exchange listing, 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 two vendors which did not occur in the second quarter of 2023. In addition to cash on hand, we have access to $4.2 million of capital as a result of our recent financing transactions with healthcare focused investors. With that, let me turn the call back over to Brian.
Brian
Thank you, Tim. Let me conclude with where I started. I cannot stress enough how the consistent execution continues to lay the foundation and pathway to meet our goals. And we are seeing the results of that via insurance policy coverage to release some of the issues that were present and reflected in Q2 and more, so to start Q3. This is what the milestones we are achieving and it's setting their access 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 lives we have covered today to a significantly higher number by the end of 2024. Furthermore, we remain excited about our opportunity with RED, which we expect to become commercial in late 2024 and has the potential to be our largest revenue driver in the 12 months following. With that, operator, we'd be happy to take any questions.
Operator
Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star one one on your telephone. If your question has been answered, you wish to move yourself from the queue, please press star one one again. We'll pause for a moment while we compile our Q&A roster.
spk05
Our first question comes
Operator
from Mark Foster with Kerr Marbach & Co. Your line is open.
Mark Foster
Hey, Brian, good morning. Good morning. Hey, a couple of questions for you. If I look year to date, your operating expense is averaging roughly two and a half million a quarter. So obviously to get to breakeven, you've got a ramp sales pretty good to cover that. Can you talk a little bit more? I mean, you've given some indications of what's out there and maybe teased us a little bit with July. So what kind of visibility do you have into that? Can we still expect breakeven by the fourth quarter of this year?
Brian
Good questions. A couple of answers to those questions. I won't speak for Tim and the CFO, but I think a significant number of those expenses in the first half of the year and late last year were non-cash, non-recurring. But I won't get into those numbers. And if you have specific questions around the financials, Tim can answer those. Regarding the growth, yeah, we've had a very nice start to Q3 because of the policy covers that took effect early this year are starting to take hold in only a couple of accounts. There are three or four large payers that we are told by them are waiting on the guidelines. And 90%, 95% of the children's hospitals nationally are waiting on those large payers. The revenues that we have are from a very small number of children's hospitals. We're not attached to the guidelines. The guidelines are going to be published independently. So we don't know if that will happen next week or if that will happen in October or September. We just don't know when those will be published. And that's why those are so strong is because they come independently from the academic society. Regarding profitability, I think on the last call I said, we expect to be profitable within 12 months, which would be Q1 of 2025. I don't see any reason to change that, if I call that guidance, but I don't have any reason to change that mindset. We're more confident today, especially with startup Q3 than we were even six or eight weeks ago. We're very pleased with the insurance policy covers that's taken effect and in those areas and how that's translating to revenues in those few areas. And I'll stress few. We have countless, multiple accounts from revenue we lost in 2023. I don't have the exact number in front of me, but well over a million dollars where accounts were billing insurance companies receiving a no authorization required and then not being paid. So those accounts are all on hold. And as I said today, we've brought that revenue back to went from down 20%, down 5% and Q3 is very good. Is looking very nice to date. And I think that everyone's going to be pleased with the direction we're going. I can tell you that we're certainly confident in the position and still have no reason to believe that we are trending towards profitability in Q1 of 25.
Tim Henrich
And Mark, Mark, let me address the expense question directly. It's a good one, right? And we pay attention to it, of course. You know, and you mentioned two and a half million on average, which obviously is correct in Q1, Q2. Specifically for Q2, our GNA expenses were higher than a year ago by about 1.1 million. But last year we were not a publicly traded company yet. And that has added about 375,000 quarter over quarter. Then in the current quarter, we actually did incur about 625,000 of one time costs of severance and consulting that will not recur next year. So when you put our GNA, so that would put our GNA expenses at about $100,000 higher than last year on a pro forma basis. And looking forward when you exclude these one time costs in the second quarter in particular, but it would flow into the first quarter as well. Our current quarterly GNA run rate is approximately about 2 million. So just trying to bridge the gap for you between, you know, the two and a half and the two million because of one time charges in there.
Mark Foster
Yeah, yeah, that's helpful. So what's a reasonable cash burn number going forward?
Tim Henrich
So our cash burned depending on the month, but it's in between $400,000 and $500,000 a month. And year to date, right, in the cash flow statement that we filed in Q today, it's right around $3 million and it's rated at $500,000 mark on average through the first six months of the year. We continue to believe that we'll hold that through the remainder of the year. From an expense standpoint, those numbers that I just gave you, I don't really expect those to change that much in the last six months of the year. It is, you know, our ability to continue to get insurance coverage, drive IV STEM revenue. And then when we get, we believe when we get the approval from the FDA on red, that top line revenue will drop down at pretty healthy gross margins, which will drop all the way down into operating profit and improve our profitability position.
Mark Foster
Right, okay. So you've got 1.8 million cash on hand, you got 4.2 in these monthly installments. So 6 million, if your cash burn is 500, out of that 6 million, you've got a 12 month runway. So if you think you're profitable in the first quarter, you shouldn't need any additional financing, given what you have on the table currently, is that correct?
Brian
We're cautiously optimistic, we would never say never, of course, you know, we can't dictate, you know, we see the abstract that was posted, we're told that that's what the guidelines will be published based on. We can't dictate when those guidelines will be published, and then we can't dictate how many months it takes for payers to actually put policy coverage in place, or if there's some additional unexpected, unforeseen hurdle, but assuming the guidelines are published this fall, and the insurance companies take those guidelines and translate those, the policy coverage as we're told, then we're cautiously optimistic we have the funding we need to get us a profitability based on current knowledge.
Mark Foster
And it seems like your relationships with Inspire, Flagstaff, those firms has been pretty good, if you needed to do that, I assume those are still viable options?
Brian
I wouldn't commit funding from anyone for them, but I'm confident, it's safe to say we have strong relationships with these investors,
Mark Foster
yes. Yeah, okay, great, thank you very much.
Operator
Sure. Again, ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your telephone.
Ben Shemers
Hey Brian, we have a question that was sent in. Can you talk about any feedback from doctors or patients who've used IBSTEM?
Brian
Yeah, I mean at this point, the overwhelming majority of pediatric gastroenterology physicians tell us that there's nothing in this space with as much evidence and nothing that performs nearly as well as IBSTEM, and as soon as the blanket policy coverage is in place, we will see the results of that. Regarding patients, the number of letters and emails we get from families who have had their life changed to the positive continues to grow exponentially. You have to remember that the revenues we are seeing, and this goes back to Mark's questions, are from only a small number of children's hospitals who have some insurance policy coverage, and even those children's hospitals aren't treating most of the children they need to treat. Again, as I mentioned earlier, just in the past 12 months, we've only treated about one-tenth of 1% of the children that are debilitated and in need. So it's safe to say that we have complete academic society buy-in and the technology is here to stay.
Ben Shemers
Okay, we have another question for you. Can you talk about the timeline for the commercialization of RED and how do you think about the revenues for the product?
Brian
Good question. Two things, we know the need is immense, and we also know there's already a CPT-CAT1 billing code and blanket commercial and Medicare insurance policy coverage. Predicting revenues is difficult at this point because we cannot market the product. We, of course, have internal models which we are not ready to share, but as we launch and apply those models to reality, we'll
spk05
be able to share those and give guidance. And I'm not showing any other questions on the phone lines. Okay, well thank you all very much
Brian
for being with us today. We look forward to communicating with you again soon. Have a great Friday and a great weekend. Thank you.
Operator
Thank you, ladies and gentlemen. This concludes today's presentation. You may now disconnect and have a wonderful day.
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