NeuroMetrix (NURO) 10-Q2024 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2024

OR 

Commission File Number 001-33351

_________________________________________________ 

NEUROMETRIX, INC.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

NeuroMetrix, Inc.

Form 10-Q

Quarterly Period Ended September 30, 2024

 

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

 

NeuroMetrix, Inc.

Balance Sheets

 

NeuroMetrix, Inc.

Statements of Operations

(Unaudited)

 

 

The accompanying notes are an integral part of these interim financial statements.

NeuroMetrix, Inc.

Statements of Changes in Stockholders' Equity

(Unaudited)

NeuroMetrix, Inc.

Statements of Cash Flows

 

 

NeuroMetrix, Inc.

Notes to Unaudited Financial Statements

September 30, 2024

Our Business-An Overview

 

NeuroMetrix, Inc. (the "Company" or "NeuroMetrix") develops and commercializes health care products that utilize non-invasive neurostimulation. Revenues are derived from the sale of medical devices and after-market consumable products and accessories. The Company’s products are sold in the United States and select overseas markets. They are cleared by the U.S. Food and Drug Administration ("FDA") and regulators in foreign jurisdictions where appropriate. The Company has two primary products. DPNCheck® is a point-of-care test for diabetic peripheral neuropathy, which is the most common long-term complication of Type 2 diabetes. Quell is an app-enabled, wearable device for lower extremity chronic pain and for the symptoms of fibromyalgia.

Unaudited Interim Financial Statements

 

Certain items in the Statements of Cash Flows from the prior year were reclassified to conform with the current presentation.

Revenues

Revenues include product sales, net of estimated returns. Revenue is measured as the amount of consideration the Company expects to receive in exchange for product transferred. Revenue is recognized at the point in time when contractual performance obligations have been satisfied and control of the product has been transferred to the customer. The Company has a single product delivery performance obligation. Accrued product returns using the most likely amount method are estimated based on historical data and evaluation of current information and variable consideration is not constrained. Revenue from product sales that occur via an online pharmacy agent are recognized on a gross basis and the related fulfillment fees are expensed within cost of revenues.

 

Two customers accounted for 28% of total revenues in the quarter ended September 30, 2024 and two different customers accounted for 28% of total revenues in the quarter ended September 30, 2023. One customer accounted for 10% of total revenues for the nine months ended September 30, 2024 and two customers accounted for 26% of total revenues in the nine months ended September 30, 2023. Four customers accounted for 74% and three customers accounted for 74% of accounts receivable as of September 30, 2024 and December 31, 2023, respectively.

Cash and Cash Equivalents

Cash and cash equivalents include bank demand deposits and money market funds that invest primarily in U.S. government securities.

Securities

The Company invests in highly liquid, marketable debt securities with high credit ratings and typically with maturities of two years or less. Individual securities are designated by the Company as either "held-to-maturity" ("HTM") or “available-for-sale” ("AFS") at the point of investment. Securities classified as short-term have maturities of less than one year. As of September 30, 2024, all marketable securities held by the Company are classified as AFS and had remaining contractual maturities of one year or less.

HTM securities are valued on an amortized cost basis and reviewed to determine if an allowance for credit losses should be recorded in the statements of operations. AFS securities are valued at fair value. Unrealized gains and losses on AFS securities are included as a component of accumulated other comprehensive income in the balance sheets and statements of stockholders’ equity and a component of total comprehensive loss in the statements of comprehensive loss. An AFS security may be impaired if its fair value is less than amortized cost. Unrealized losses are evaluated to determine if the impairment is credit-related or non-credit-related. Credit-related impairment is recognized as an allowance on the balance sheet with a corresponding adjustment to earnings, and a non-credit-related impairment is recognized in other comprehensive loss. For certain types of securities, such as U.S. Treasuries, the Company generally expects zero credit losses. No allowance for credit losses was recorded on its securities portfolio as of September 30, 2024 or December 31, 2023.

Fair Value

As a basis for considering such assumptions, ASC 820-10 established a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value as follows: Level 1 observable inputs such as quoted prices in active markets; Level 2 inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and Level 3 unobservable inputs for which there are little or no market data, which require the Company to develop its own assumptions. The hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value (See Note 5).

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make significant estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during reporting periods. Actual results could differ from those estimates.

Accounting Standards Updates ("ASUs") issued by the FASB are evaluated for their applicability. ASUs not included in the disclosures in this report were assessed and determined to be either not applicable or not expected to have a material impact on our financial statements.

 

Basic and diluted net loss per common share were as follows:

Shares underlying the following potentially dilutive weighted average number of common stock equivalents were excluded from the calculation of diluted net loss per common share because their effect was anti-dilutive for each of the periods presented: 

3. Securities

    

The Company evaluates all HTM and AFS securities for impairment at each reporting period. It determined that changes in the fair value of its securities at September 30, 2024 resulted primarily from interest rate fluctuations subsequent to the purchase date of the securities. There was no deterioration in the credit worthiness of the issuers and no credit losses were recorded as of September 30, 2024.

4. Fair Value Measurements

The Company's accounts receivable, accounts payable, and accrued expenses are valued at cost which approximates fair value.

Inventories consist of the following: 

The Company recorded a charge of $74,209 in the nine months ended September 30, 2024 to write down the value of its discontinued ADVANCE inventory within cost of revenues on the Company's statements of operations. The Company also recorded a charge of $63,420 in the nine months ended September 30, 2023 to reduce the carrying value of inventory to net realizable value.

6.     Accrued Expenses and Compensation

Accrued expenses and compensation consist of the following:

During the nine months ended September 30, 2024, the Company recorded severance costs of approximately $580,000 of which approximately $54,000 remained unpaid as of September 30, 2024. See Note 10 - Employee Headcount Reduction.

7.     Operating Leases

The Company's lease on its Woburn, Massachusetts corporate office and manufacturing facilities extends through mid-September 2025 at a monthly base rent of $13,846 and with a 5-year extension option.

Total recorded rent expense was $50,377 and $49,232, for the quarters ended September 30, 2024 and 2023, respectively. Total recorded rent expense was $151,132 and $147,696 for the nine month periods ended September 30, 2024 and 2023, respectively. The Company records rent expense on its facility lease on a straight-line basis over the lease term. The remaining operating lease term was 11.5 months as of September 30, 2024.

8.     Stockholders’ Equity

Preferred stock and convertible preferred stock consist of the following: 

In the first quarter of 2024, the Company issued 458,380 shares of its common stock, under its at-the-market ("ATM") program and realized net proceeds of $1,471,099. As of April 18, 2024, the Company terminated its ATM program.

In March 2024, 1,015 unvested restricted stock awards and 5,912 unvested restricted stock units were forfeited due to the employee reduction described in Note 10.

In June 2024, the Company issued 850 shares of fully vested common stock with a value of $2,601 pursuant to the Company's Employee Stock Purchase Plan.

In the quarter ended June 30, 2024, the Company issued 91,577 restricted stock units under its 2022 Equity Incentive Plan with a value of $376,027.

As of September 30, 2024, the Company had outstanding 1,597 unvested restricted stock awards and 92,991 unvested restricted stock units. At December 31, 2023 the Company had outstanding 6,222 unvested restricted stock awards and 60,492 unvested restricted stock units.

In May 2023, the Company issued 1,563 restricted stock units under its 2022 Equity Incentive Plan with a value of $12,625.

In June 2023, the Company issued 90,661 shares of its common stock under its ATM program and realized net proceeds of $691,405. It also issued 1,316 shares of fully vested common stock with a value of $8,715 pursuant to the Company's Employee Stock Purchase Plan.

In July 2023, the Company issued 1,470 shares of its common stock, under ATM program for net proceeds of $1,426 and issued 24,500 restricted stock units under its 2004 Stock Option Plan with a value of $22,883.

In August 2023, the Company issued 172,660 restricted stock units with a value of $240,000 as long term incentives to its directors under its 2022 Equity Incentive Plan.

9.     Employee Headcount Reduction

The following table sets forth the quarterly activity in accrued severance.

Within the Company's Statements of Operations for the nine months ended September 30, 2024, total severance charges of $580,427 were recorded in the first quarter as follows: $310,200 within research and development, $234,527 within sales and marketing, $4,200 within general and administrative and $31,500 within cost of revenues.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

NeuroMetrix is a commercial stage neurotechnology company based in Woburn, Massachusetts. The Company’s mission is to improve individual and population health through innovative medical devices and technology solutions for pain syndromes and neurological disorders. Our core expertise in biomedical engineering has been refined over two decades of designing, building and marketing medical devices that stimulate nerves and analyze nerve response for diagnostic and therapeutic purposes. We are fully integrated with in-house capabilities spanning research and development, manufacturing, regulatory affairs and compliance, sales and marketing, product fulfillment and customer support. We hold extensive, proprietary intellectual property.

NeuroMetrix created the market for point-of-care nerve testing and introduced sophisticated wearable technology for chronic pain syndromes. Nearly five million patients have been served with our products. Revenue is derived from the sale of medical devices, after-market consumable products and accessories in the United States and select overseas markets. Products

•Therapeutic technology – wearable neuromodulation for chronic pain syndromes

•Diagnostic technology - point-of-care peripheral neuropathy assessment

Chronic pain is a significant public health problem. It is defined by the National Institutes of Health (the "NIH") as pain lasting more than 12 weeks. This contrasts with acute pain which is a normal bodily response to injury or trauma. Chronic pain conditions include low back pain, arthritis, fibromyalgia, neuropathic pain, and cancer pain, among many others. Chronic pain

Chronic pain affects nearly 100 million adults in the United States and more than 1.5 billion people worldwide. The estimated incremental impact of chronic pain on health care costs in the United States is over $250 billion per year, and lost productivity is estimated to exceed $300 billion per year. The most common approach to chronic pain management is pain medication. This includes over-the-counter internal and external analgesics as well as prescription pain medications, both non-opioid and opioids. The approach to treatment is individualized, drug combinations may be employed, and the results are often inadequate. Side effects, including the potential for addiction, are substantial. Reflecting the complexity of chronic pain and the difficulty in treating it, we believe that inadequate relief leads 25% to 50% of pain sufferers to seek alternatives to prescription pain medications. These alternatives include nutraceuticals, acupuncture, chiropractic care, non-prescription analgesics, electrical stimulators, braces, sleeves, pads and other items. In total, these pain relief products and services account for approximately $20 billion in annual out-of-pocket spending in the United States.

Nerve stimulation is a long-established category of treatment for chronic pain. This treatment approach is available through implantable devices which have both surgical and ongoing risks, such as migration of the implanted nerve stimulation leads. Non-invasive approaches involving transcutaneous electrical nerve stimulation ("TENS") have achieved limited efficacy in practice due to power limitations, inadequate dosing and low patient adherence. We believe that our Quell wearable technology for chronic pain is designed to address many of the limitations of traditional TENS.

Peripheral neuropathies, or polyneuropathies, are diseases of the peripheral nerves. They affect about 10% of adults in the United States, with the prevalence rising to over 30% among individuals 65 years and older. Peripheral neuropathies are associated with loss of sensation, pain, increased risk of falling, weakness, and other complications. People with peripheral neuropathies have a diminished quality of life, poor overall health and higher mortality. The most common specific cause of peripheral neuropathies, accounting for about one-third of cases, is diabetes. Diabetes is a worldwide epidemic with an estimated affected population of over 400 million people. Within the United States there are over 30 million people with diabetes and another 80 million with pre-diabetes. The annual direct cost of treating diabetes in the United States exceeds $100 billion. Although there are dangerous acute manifestations of diabetes, the primary burden of the disease is in its long-term complications, which include cardiovascular disease, nerve disease and resulting conditions such as foot ulcers which may require amputation, eye disease leading to blindness, and kidney failure. The most common long-term complication of diabetes, affecting over 50% of the diabetic population, is peripheral neuropathy. Diabetic peripheral neuropathy ("DPN") is the primary trigger for diabetic foot ulcers which may progress to the point of requiring amputation. People with diabetes have a 15 to 25% lifetime risk of foot ulcers and approximately 15% of foot ulcers lead to amputation. Foot ulcers are the most expensive complication of diabetes with a typical cost of $5,000 to $50,000 per episode. In addition, between 16% and 26% of people with diabetes suffer from chronic pain in their feet and lower legs.

Early detection of peripheral neuropathies, such as DPN, is important because there are no treatment options once the nerves have degenerated. Currently available diagnostic methods for peripheral neuropathies range from a simple monofilament test for lack of sensory perception in the feet to a nerve conduction study performed by a specialist. Our DPNCheck nerve conduction technology provides a rapid, low cost, quantitative test for peripheral neuropathies, including DPN. It addresses an important medical need and is particularly effective in screening large populations. DPNCheck has been validated in multiple clinical studies.

Business Strategy

Our leading commercial products, and the focus of our strategic attention, are Quell and DPNCheck.

Quell is our wearable neuromodulation technology for chronic pain. It has been refined over the past seven years with feedback from over 200,000 chronic pain patients and is protected by over 20 U.S. utility patents. Patients control and personalize the technology with a mobile phone app, and their utilization of the devices and certain clinical metrics may be tracked in the Quell Health Cloud. The degree of technological sophistication, combined with our extensive consumer experience and the compelling results of clinical studies, gives us the opportunity to leverage this technology base into a portfolio of Quell-based prescription ("Rx") wearable neurotherapeutics.

Quell also received FDA Breakthrough Device Designation in early 2022 for the treatment of chronic Chemotherapy Induced Peripheral Neuropathy ("CIPN"). A CIPN double-blind, randomized, sham-controlled clinical study employing Quell, funded by the National Cancer Institute and the NIH, was completed in 2023. A 510(k) marketing application was submitted to FDA in late 2023; however, after evaluating the unique characteristics of the oncology market, the Company decided to follow the De Novo model that was used for Quell-fibromyalgia. A De Novo application for marketing Quell-CIPN to patients with moderate to severe neuropathic pain and cramps is planned for filing in late 2024 or early 2025. This would be the second product in our emerging portfolio of Quell-based Rx wearable therapeutics. We anticipate a similar approach to other disease indications involving chronic pain. These potentially include Fibromyalgia-like Long COVID, Chronic Low Back Pain, and Chronic Overlapping Pain Conditions.

DPNCheck is our well-established testing technology for peripheral neuropathies. This technology has been evaluated in multiple clinical studies and promoted both in the domestic Medicare Advantage ("MA") market and also in the Asian markets of Japan and China. MA has historically contributed the majority of DPNCheck revenue and been the driver of product-line growth.

Strategy Review

Results of Operations

Comparison of Quarters Ended September 30, 2024 and 2023

Comparison of Nine Months Ended September 30, 2024 and 2023

Revenues for the nine months ended September 30, 2024 decreased by $2.1 million or 46.5% compared to the nine months ended September 30, 2023. DPNCheck sales, primarily focused on MA, accounted for the majority of revenues in both quarters and the decline in DPNCheck sales was the primary contributor to the revenue decrease.

The net loss for the nine months ended September 30, 2024 increased by $1.1 million compared to 2023. Net loss per common share was ($3.10) in the nine months ended September 30, 2024 versus ($4.86) per common share in 2023. The increase in the number of common shares outstanding in the nine months ended September 30, 2024 (2.0 million) versus common shares outstanding in the nine months ended September 30, 2023 (1.0 million) offset the effect of a greater net loss in the current year period.

Liquidity and Capital Resources

Our primary sources of liquidity are cash and cash equivalents, securities, revenues from the sales of our products, and net proceeds from equity sales. Our expected cash outlays relate to funding operations. We believe that our resources are sufficient to fund our cash requirements over at least the next twelve months from the date of issuance of the financial statements. As indicated above, we have initiated a review of our strategic options to maximize shareholder value. These options include changes in marketing strategies, the acquisition of new assets, potential sale of Company assets, and a merger or other strategic transaction, which could affect our future liquidity.

Days sales outstanding ("DSO") reflect our customer payment terms which vary from payment on order to 60 days from shipment date. The decrease in DSO in 2024 in comparison with the prior year reflects a greater weighting during 2024 of cash sales as compared to credit sales. Inventory turnover rate declined during the quarter ended September 30, 2024 due to the lower DPNCheck sales.

Cash Flows

Equity sales in the nine months ended September 30, 2024 and 2023 contributed $1.5 million and $701 thousand, respectively. Shares of our common stock were sold to investors pursuant to the Company's at-the-market facility which was terminated during the second quarter of 2024.

Cautionary Note Regarding Forward-Looking Statements

 

The statements contained in this Quarterly Report on Form 10-Q, including under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other sections of this Quarterly Report, include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including, without limitation, statements regarding our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the future, such as our estimates regarding anticipated operating losses, future revenues and projected expenses, our future liquidity and our expectations regarding our needs for and ability to raise additional capital; our plan to pursue strategic alternatives to maximize shareholder value and the outcome of such pursuant; our ability to maintain the listing of our common stock on the Nasdaq Capital Market; our ability to manage our expenses effectively and raise the funds needed to continue our business; our belief that there are unmet needs and our estimates regarding the addressable market for the management of chronic pain and in the diagnosis and treatment of diabetic neuropathy; our expectations surrounding our commercialized neurostimulation and neuropathy diagnostic products; our expected timing and our plans to develop and commercialize our products; our ability to meet our proposed timelines for the commercial availability of our products; our ability to obtain and maintain regulatory approval of our existing products and any future products we may develop; regulatory and legislative developments in the United States and foreign countries; the performance of our third-party manufacturers; our ability to obtain and maintain intellectual property protection for our products; the successful development of our sales and marketing capabilities; the size and growth of the potential markets for our products and our ability to serve those markets; our estimate of our customer returns of our products; the rate and degree of market acceptance of any future products; our reliance on key scientific management or personnel; the payment and reimbursement methods used by private or government third party payers; and other factors discussed elsewhere in this Quarterly Report on Form 10-Q. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect,” “plan” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements contained in this quarterly report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors described in the section titled “Risk Factors” in our Annual Report on Form 10-K. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

We do not use derivative financial instruments in our investment portfolio and have no foreign exchange contracts. Our financial instruments consist of cash and cash equivalents and available for sale debt securities. We consider investments that, when purchased, have a remaining maturity of 90 days or less to be cash equivalents. The primary objectives of our investment strategy are to preserve principal, maintain proper liquidity to meet operating needs, and maximize yields. To minimize our exposure to an adverse shift in interest rates, we invest mainly in cash equivalents and investments with a maturity of twelve months or less and we maintain an average maturity of twelve months or less. We do not believe that a notional or hypothetical 10% change in interest rate percentages would have a material impact on the fair value of our investment portfolio or our interest income.

Item 4. Controls and Procedures

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

While we are not currently a party to any material legal proceedings, we could become subject to legal proceedings in the ordinary course of business. We are not aware of and do not expect any such potential issues. However, should they occur, we would not expect them to have a significant impact on our financial position.

Item 1A. Risk Factors

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

Item 3.    Defaults Upon Senior Securities

None. 

Item 4.    Mine Safety Disclosures

 

Not applicable. 

Item 5.    Other Information

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.