NeurAxis, Inc. (NRXS) Q4 2023 Earnings Report, Transcript and Summary

Thank you for standing by and welcome to NeurAxis Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the call over to Ben Shamsian with Lytham Partners. Please, go ahead.

Thank you and good afternoon everyone. Thank you for joining us for NeurAxis' fourth quarter and full year 2023 financial results and corporate update conference call. Joining us on today's call is Brian Carrico, CEO of NeurAxis, and Tim Henrichs, 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@lythampartners.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. Today's event is being recorded and will be available for replay through the webcast information provided in the press release. Finally, I would 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 NeurAxis. Although management believes these statements to be 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 available -- may no longer be accurate at the time of any [telegraphic] (ph) 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 obligation 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.

Thank you, Ben, and welcome everyone. Good afternoon and thank you for attending the first quarterly earnings call from NeurAxis. We look forward to holding these quarterly calls going forward to update you on our progress. During today's call, I will highlight the many accomplishments from 2023 and our commercialization strategy of our revolutionary neuromodulation technology. We will also discuss the milestones and growth plans for 2024 as we continue to execute the commercialization of our market leading PENFS technology. Following my remarks, Tim Henrichs, our CFO, will review our financial results for our fourth quarter and full year 2023. But before that, with this being our first call, I thought it’s best to provide a broad overview of NeurAxis and the opportunities that we believe will drive the company's growth going forward. NeurAxis is a leader in the field of neuromodulation. Our company was founded in 2012 with the vision of using neuromodulation to help treat many of the disorders that exist today and we are the first to market for our indications. Our initial focus is the pediatric and adult GI space, specifically on disorders of gut-brain interaction or DGBIs, which includes 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 23 billion in adults. 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. There are currently no FDA approved drug therapies for children with abdominal pain related disorders of the gut-brain interactions. The current medical treatments, which are off-label drugs, can often have serious side effects and most lack scientific evidence of efficacy. In peer-reviewed publications, our proprietary technology has been shown to be equivalent to or better than prescription medications in alleviating symptoms associated with these disorders. In part, this has driven the support of academic medical societies, including the American Academy of Pediatrics and the North American Society of Pediatric, Gastroenterology, Hepatology & Nutrition. With the great body of work we have on all the publications and the subsequent support from the key societies, we are now rapidly achieving insurance company acceptance. We expect to significantly expand upon the 16 million covered lives that we currently have throughout 2024 and earn broad coverage by all the major insurance companies by the end of 2025. This will mark the true acceptance of our therapy and our goal is to become the standard of care for these debilitating conditions. Our proprietary technology can be referred to as percutaneous electrical nerve field stimulation or PENFS. Percutaneous electrical nerve field stimulation targets nerves, including the vagus nerve, to alter pain transmission at the 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. This was a de novo clearance from the FDA. We also received and currently have a PENFS technology specific CPT Category III billing code and are now taking the natural next steps in working with the American Medical Association toward an eventual Cat I CPT code. We also have other indications we are working on, 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. We are on track, barring any unforeseen hurdles, to begin commercialization of these additional indications over the next two years. Separately, we are working to expand our portfolio of devices with the rectal expulsion device, or RED, for which we have acquired a right to license from the University of Michigan. This is a very exciting opportunity for NeurAxis, which I will speak about in more detail in a moment. With that review behind us, I would like to review our 2023 achievements. During the 2023 calendar year, 3,321 IB-Stim devices were purchased, which treated about 830 children. Children's hospitals and private pediatric GI practices accounted for 67% of sales through a purchase order process, indicating the patient had insurance coverage for IB-Stim. The remaining 33% were patient purchase devices through various financial assistance programs offered through our IB-Stim guidance and patient support for GPS 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 access -- to increase access to care for children. GPS also provides prior authorization services, patient advocacy services where families are educated on how to do consumer appeals for coverage, and several financial assistance options. In 2023, GPS assisted 645 patients, a 53% increase from 2022. Prior authorizations were launched in May of 2023 and served 101 patients throughout the year, with 74 of those 101 in the fourth quarter alone, showing this program's growth and importance. As insurance coverage increases across the country, the percentage of sales through purchase orders will increase exponentially. This is why our number one priority is 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 NASPGHAN and the American Academy of Pediatrics result in successful coverage from insurance companies, which results in strong revenues. With this formula, we have rapidly reached 16 million covered lives as of today. And as mentioned earlier, we have great confidence that throughout 2024, we will significantly expand upon the 16 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 from the primary [academic] (ph) societies in this broad coverage over the next few years, we expect a significant acceleration of revenue. 2023 was a year filled with many important milestones and achievements. In total, to date, over 2,600 children have been treated with the IB-Stim 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 IB-Stim, representing a penetration rate of 0.14%. We believe this is less than one quarter of 1% of all children that suffer from functional abdominal pain that 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 MedTech 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 covers for major Blue Cross Blue Shield plans nationally and we have just announced new policies, bringing our total covered lives to over 16 million with multiple payers, both small and large, currently in the review stage. Our goal is to recognize as many covered lives as we can by the end of 2024, which will set the stage for a significant revenue ramp in 2025. From a proof of concept standpoint, we see the children's hospitals with moderate policy coverage translated 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 pediatricians' 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 what's only our first indication. One of the more relative proof-of-concept numbers relates to the total number of patients who came to our GPS and prior authorization teams in the fourth quarter. We had 201 patients come to our GPS and prior authorization team in the fourth quarter. If those 201 patients had insurance coverage, the revenue total would have been almost $1 million in addition to the revenue that we did record. Maybe more important is the fact that the majority of those 201 patients came from only about 15 children’s hospitals who are currently using these services of the 260 children's hospitals. We have several short-term focused opportunities, including insurance policy coverage, which is being successfully addressed, as mentioned earlier, growing our internal prior authorization team to reduce the workload for clinical 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-sensitive 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 NeurAxis. We believe that in time, most accounts will move their prior authorizations to the NeurAxis prior authorization team. Regarding the billing code, we have our own technology-specific billing code now, which is helpful in some areas but can be challenging for children's hospitals when building their charges to bill insurance. And this has caused a delay in treating patients even after written policy coverage is in place. As mentioned earlier, we are working towards obtaining the CPT Category 1 permanent billing code. Insurance coverage, though, is by far the most critical component to success, and our team is diligently addressing that. We expect revenue growth to accelerate meaningfully in the latter half of 2024 and into 2025 based on two catalysts, the continued gaining of coverage from insurance companies for IB-Stim or PENFS and the commercialization of RED. With regards to expanded insurance coverage, we remain laser-focused on gaining policy coverage and shortening the gap between policy coverage effectiveness and utilization with the children's hospitals. Demand for our product has never been stronger, but expanded insurance coverage is critical to growing revenues. While we have 16 million lives currently under coverage, most of them have been in place for less than 90 days or are not yet effective. It is important to appreciate that there's typically a 90 to 120 day lag from the time coverage is gained, from the time insurance companies for PENFS to when hospitals begin purchasing the product, as time is needed for billing teams to put the proper processes in place. As such, we expect to see a revenue ramp as the year progresses just from the 16 million lives we haven't recovered today. But we of course also expect that covered lives number to significantly increase by the end of 2024. Regarding RED for adult patients, we are cautiously optimistic for FDA clearance this fall, with commercialization commencing in Q4. Let's speak a little more about RED, or the rectal expulsion device product, which we believe to be a great opportunity for interactions. RED is a self-inflating balloon that is an easy-to-use, office-based, point-of-care, intrarectal function test to identify patients with chronic constipation due to pelvic floor dyssynergia and who are likely -- who are unlikely to improve with increased [likes] (ph) of use. The current treatment is a guessing game 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. We acquired a right to license this product from the University of Michigan where it was developed. We are in track for FDA 510(K) submission late Q2 and are cautiously optimistic, as mentioned, that this product will be on the market before the end of 2024. If successful, RED is expected to bring great clinical benefits to patients, and because the technology has a Category 1 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 execution of building the foundation on strong data and academic society support. This has resulted in early insurance adoption, which we expect to ramp up throughout 2024, setting the stage for a prosperous 2025. Before I turn the call over to Tim Henrichs to discuss the financials, I want to welcome and introduce Tim, who joined NeurAxis as our permanent CFO in early February. Tim brings over 20 years of global leadership experience across several industries which is already bringing significant changes and benefits to the finances and daily operations. Tim?

Thank you, Brian. I'm excited to be on board and let me add my welcome to everyone joining us on this call. These financial results, which are currently unaudited, were included within our press release, which was issued earlier and will be provided in detail within our 10-K that will be filed. I will aim to add some color on key areas of the financial results, as well as an outlook on certain areas where I can. At a high level, 2023 was a transition year for us. The company laid the foundation that will allow us to accelerate on the commercialization of this amazing technology. We were able to complete the remainder of the 14 studies which showed the medical community the true effectiveness of our technology and laid the foundation for the insurance coverage that we are achieving. We also were able to take the company public to help fund our growth strategy. While achieving these milestones was expensive and time consuming, these steps lay the foundation that will allow us to accelerate revenues in the coming years as we gain insurance coverage and market awareness. Most importantly, we continue to make strides toward profitability with these investments behind us. Our net loss in the fourth quarter of 2023 was $5.3 million, primarily due to a $3.7 million charge for the extinguishment of debt. Our operating loss of $1.6 million in the fourth quarter of 2023 improved sequentially from a $3 million operating loss in the third quarter of 2023. Given our current cost structure, our goal as a company to reach profitability [as a] (ph) 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. And finally, we have strengthened our liquidity position heading into 2024 as we have secured $6.1 million in financial commitments since December via strong long-term investors who know the MedTech space well. With that, I'll go into the financial highlights in detail. Revenues for fiscal year 2023 of $2.5 million were down 8.4% from $2.7 million in fiscal year 2022, while the company was focused on its clinical results. The change was primarily due to fewer shipments to certain customers as they manage through the insurance reimbursement process to insurance policy coverage. New customers and total patients coming to NeurAxis has increased, but they have come to our financial assistance programs due to a lack of written insurance policy coverage, therefore paying a discount price and lowering our ASP and revenues. 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 in order. As such, we expect growth in late 2024 and into 2025. 2023 fourth quarter revenues were $531.5 thousand compared to $613.1 thousand for the same period in 2022. While revenue was down in the quarter compared to last year, we had more accounts ordering from us and we had more patients coming to us via our GPS patient assistance program. And Brian mentioned earlier what those numbers turn into with policy coverage. We continue to have very strong gross margins. Gross margin for fiscal year 2023 was 87.7% compared to 88.9% in fiscal year 2022. The change in gross margin was primarily due to growth in our financial assistance programs that provide discounts to patients without insurance coverage. Gross profit margin in the fourth quarter of 2023 was 86.4% compared to 87.7% for the same period in 2022. Selling expenses for fiscal year 2023 were $323.6 thousand, a decrease of 21.3% compared to $410.9 thousand for fiscal year 2022. The decrease is primarily due to lower commissions with the commission rate being lowered at the beginning of 2023. Selling expenses for the fourth quarter were $72.6 thousand, an increase of 10.1% compared to $66.0 thousand for the fourth quarter of 2022. Research and development costs for fiscal year 2023 were $169.3 thousand, a decrease of 25% compared to $225.6 thousand for fiscal year 2022. The decrease is primarily due to the initiation, payment and expense of more patient trials. In fiscal year 2022, as the company prepared for more FDA submissions, the trials continued into fiscal year 2023. General and administrative costs for fiscal year 2023 were $8.3 million, an increase of 62.6% compared to $5.1 million for full year 2022. Increased costs were due primarily to increased headcount to build out our market access and patient assistance teams, including recruiting costs and the incremental costs of becoming a publicly held company in the latter half of the year, including but not limited to, higher insurance, investor relations and Board of Director costs post IPO and one-time advisory costs. G&A costs for the fourth quarter of 2023 were $2.0 million, an increase of 46.1% compared to $1.4 million for the fourth quarter of 2022. The increase was primarily driven due to increased headcount and professional services tied to market access and a higher cost structure from becoming a publicly held company including insurance and Board seats. The company's net loss in fiscal year 2023 was $14.6 million versus $4.8 million in fiscal year 2022, primarily due to higher G&A, the full amortization of the debt discount, and a $3.6 million loss on the extinguishment of debt. The net loss in the fourth quarter of $5.3 million was primarily driven by the $3.7 million debt extinguishment charge and higher G&A costs from headcount advertising, new public company costs, and professional fees as we gain market access. Cash on hand at December 31, 2023 was $78.6 thousand. Cash used by operations of $6.7 million was substantially less than our net loss of $14.6 million, primarily due to the $4.9 million non-cash debt discount charge and the $3.6 million non-cash debt extinguishment charge. Although the company had no long-term debt as of December 31, 2023, $6.1 million in convertible note financing has been secured with $1.5 million funded as of March 31, 2023. Lastly, the company filed a current report on Form 8-K today regarding the restatement of the company's financial statements as of and for the three and nine-month period then at September 30th, 2023. It will be included in the company's annual report on Form 10-K as of and for the year ended December 31, 2023. The restatement will result, among other things, in a $3.7 million increase in the company's net loss and a $3.7 million increase to additional paid capital as of and for the three and nine month periods ended September 30th, 2023 and it's unrelated to revenues or cash expenses. The company's cash position as of September 30th, 2023 did not change as a result of this misstatement. And with that, let me turn the call back over to Brian.

Thank you, Tim. Let me conclude with where I started. The consistent execution has led to the milestones we achieved in 2023 and set NeurAxis 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, which will lead us to wide insurance acceptance from the 16 million lives we have under cover today to an exponentially higher number by the end of 2024. Furthermore, we remain excited about our opportunity with RED, which we expect to become commercial in 2024 and has the potential to be our largest revenue driver in the 12 months. With that, operator, we'd be happy to take any questions.

[Operator Instructions] We have a couple of questions that were sent in by some investors. Firstly, how do you plan to allocate capital to drive revenue in ‘24 and into ‘25?

Good question. First, we want to ensure we don't build a commercial machine in areas where we do not have policy coverage. So we're currently placing reps in areas with positive PENFS policy coverage. Second, we're spending some capital to educate families and drive market awareness where new insurance coverage has begun. Additionally, and equally as important, we're putting time and money toward the RED technology via the FDA process and commercialization. Those three points are critical to the question.

Okay, great. Thank you. Can you speak about your path to profitability?

Yeah, profitability is extremely important to us and we believe we do have a clear path. As we mentioned on the call, we already have enough patients coming to NeurAxis each month, each quarter to be profitable And this is from only a fraction of the children's hospitals nationally. Second, we have accounts with decent policy coverage at best who are on pace to do well over $500,000 this calendar year, which speaks to proof of concept. The system is working. The answer to the question is that written policy coverage to meet the demand is the key to profitability. We believe we're on track for that.

Okay, thank you. A questioner asked, what is the biggest challenge at this point to gaining written policy coverage?

Speed. The answer is, how fast can we do this? The data is now published in place. So the key to gaining -- the key is gaining the attention of payers who are being pulled in so many directions. The good news is that we used to be told we need more data, and we very rarely have ever heard that now. The process is now about getting meetings and expediting the policy coverage. For example, we gained one large Blue Cross Blue Shield plan last May, but it was not announced until November. It did not take effect until January 1st of this year. This means that we are often aware of policy covers that cannot be announced until a payer announces it.

Okay, thank you. We have a question. Do you expect any IPO related charges to affect financial results going forward in 2024?

No, we do not. The IPO was completed in 2023, and any direct costs related to the IPO per GAAP were included in our additional paid-in capital. And so therefore, even within 2023, you don't see them reflected because they were deferred and pushed into the equity section of the balance sheet. There are no draggling costs, if you will, that we would expect to be incurred in 2024. 2024 should be a pure operational year for us.

[Operator Instructions] We have another question for you. Are you concerned about the decline in revenue in the fourth quarter compared to last year?

No, we're not at all. Revenue was very concentrated in 2023 from a smaller number of accounts, and those accounts just ran into coverage issues over the last year and therefore began sending their patients to GPS instead of purchasing devices at full price. We now see a much more diverse customer base each week, each month, with more steady revenue per account, which will increase in spades as coverage and reimbursement mature. We also see an increasing number of accounts that order each month, building a strong base ready to expand revenue as the coverage landscape improves. I mentioned in the call that over 200 patients without insurance coverage came to our GPS and prior office services in Q4. Those revenues would have equaled roughly $1 million additional dollars on top of our revenue if there was written policy coverage in place. And those numbers alone get us the profitability. So now we're sitting in a very strong position. All the revenues are down. That is not -- we're not concerned about that part.

Okay. At this point, we don't see any more questions in the queue. Therefore, I would like to turn the call over to Brian for closing remarks.

Thanks, Ben. Thank you all very much for being with us today. We look forward to communicating with you again soon. Have a nice day.

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