Following another rough quarter, NeuroMetrix has sought outside help in an effort to restructure its business and is pivoting away from a direct-to-consumer business model for its wearable pain relief platform, Quell.
“NeuroMetrix has good product lines and technology, and more broadly, the company has real value,” Dr. Shai Gozani, CEO and president of NeuroMetrix, told investors in a recent earnings call. “We are, however, disappointed the overall business has not progressed as we had hoped and worked towards, but we remain optimistic. We're working hard to realize this value and have engaged outside expertise to help us in this process.”
NeuroMetrix’s total revenues in Q2 2019 were $2.4 million, a 37% drop from last year’s $3.8 million. The company recorded a net loss of $3.4 million for the quarter, a stark shift from Q2 2018’s net income of $0.6 million.
A key factor in this trend was declining consumer interest in the Quell product, which dipped to $0.8 million in the quarter after recording $1.6 million in Q1 2019 and $2.1 million in Q2 2018. Much of the drop can be attributed to NeuroMetrix scaling back its advertising efforts since last year’s major push, Gozani and Chief Financial Officer Thomas Higgins said, but the company is also contending with excess stock of Quell 2.0 parts that racked up $1.9 million in inventory costs during the quarter. The company’s collaboration with GlaxoSmithKline on adapting the platform for international distribution continues to move forward, and still has outstanding milestones that would lead to more collaboration income for the company as per its agreement with the major health company.
On the other hand, the company’s longstanding product DPNCheck plodded steadily along. Revenues for the diagnostic device reached $1.2 million during the quarter, a value roughly on par with last year’s Q2. The executives said that NeuroMetrix has kicked off an exploration of potential divestiture options for the device that could stave off short-term cash needs the company may soon face.
WHAT’S THE IMPACT
With these results in mind, Gozani said that his company “came to the determination in the second quarter that we simply do not have the resources, scale and brand equity to build Quell as a successful over-the-counter pain relief product in the large and competitive direct-to-consumer US market.” As a result, the company is now limiting its Quell marketing to “cost-effective” digital campaigns, and believes that it will have the most success shifting the business away from consumers and instead toward provider and reimbursement customers.
“It is a process that will take time, and ultimately some financial resources,” Gozani said. “Consistent with our commitment to evaluate all options for the business, in parallel, we are exploring options to sell some or all of the Quell business and intellectual property.”
Recent performance has also had a substantial impact on NeuroMetrix itself. The company recently laid off more than half of its team and closed its corporate office and engineering labs in efforts to cut costs. The company has also retained a financial advisor to restructure the business, and as such will be investigating any opportunities to improve efficiency and maintain value.
“We're exploring all legitimate possibilities, including a merger if it has a potential to create shareholder value,” Gozani said. “We're unable to commit to a specific timeline at this time and know that the process may not yield an outcome.”
THE LARGER TREND
NeuroMetrix’s revenues took a slight dip around this time last year, but executives weren’t yet raising alarms. Their eyes were instead fixed on the soon-to-come launch of Quell 2.0, a device 50% smaller than its predecessor with new programming features and an updated user app.
Despite NeuroMetrix’s woes, other takes on device-driven pain relief are picking up a bit of steam. Oska Wellness raised $5.5 million from investors in late June for its wearable pulsed electromagnetic field therapy. Around the same time, Innovative Health Solutions picked up De Novo clearance for a prescription nerve stimulation device that can reduce IBS pain in adolescents.