TIVC - Earnings call transcript Q3 2024 | Tivic Health Systems, Inc.

Thank you to our operator. And of course, thank you to everyone who is listening today on this call and also those of you that are listening in playback.

So as we begin this report on Q3, I'll highlight that I talked quite a bit about our vagus nerve stimulation program in the recent call. Today, I'd like to touch a little more broadly on all 3 legs of our strategy to build shareholder value and to create a growth business.

Now that starts first with turning our ClearUP product line into a profitable business line.

Second, we're looking at leveraging our expertise in bioelectronic medicine to generate new business opportunities and that is specifically advancing a novel approach to noninvasive vagus nerve stimulation that we have been making significant progress in the last few quarters.

And finally, streamlining our corporate operations to manage overhead costs as a public company. We've made significant progress on all 3, and the numbers that I'm reporting this quarter will only tell part of the story, but they're absolutely the place to start. I'd also like to highlight as we're talking about our numbers that Lisa Wolf joined us this quarter as our interim CFO. She's taking over the reins from Kimberly Baumbach, who continues with us on a consulting basis. Lisa has been part of the Tivic team now for about 2 years, been part of the team that streamlined our public operating costs and has been working side-by-side with Kim.

So I'm very excited to welcome her to this new role, particularly with more than 30 years of financial leadership experience that encompasses both public and private finance and accounting.

2 years she spent with the Tivic team prior to this role, she's bringing to the table both a broad experience base and an up close understanding of our business. Lisa succeeds Kimberly Baumbach, who continues to work with the company as an adviser with a focus on special transactions. And since both Kimberly and Lisa have worked together for some time now, I'm very encouraged by the financial team that we are putting together. Both have made substantial contributions to the improvement of the company. And Lisa, while you are listening here, I want to thank you for preparing the numbers today that I'll be going over.

So for today's call, I'll be taking you through the numbers.

All of the references will be comparing the third quarter ended September 30, 2024, to the third quarter ended September 30, 2023, or for the same 9-month period comparison, unless I specifically identify otherwise.

So taking a look at our profit and loss statement. Revenue net of returns was $600,000, a decrease of $219,000 or 27% compared with $819,000 a year ago. We saw a 36% decrease in unit sales, but this was offset by a 13% increase in per unit average sales price. I'll spend a little bit more time talking about the unit sales as we get into the narrative section. Cost of goods, $359,000 compared to $537,000 a year ago. And our gross profit for the third quarter was $44,000 compared with $108,000 a year ago.

This is particularly due to some significant costs we incurred as we redesigned and reengineered our supply chain, and I'll speak a little bit more about that in a moment. The gross margin was 35% for the third quarter compared to 38% in 2023. But if we backed out the onetime charges associated with moving our logistics site, the gross margin would have been about 52%, again, continuing our improvement in the gross profit.

Another area in which we made good progress was on our operating expense.

For the third quarter of this year, operating expense was $1.5 million. This compared with $1.9 million last year, and that translated to a net loss for the third quarter of $1.4 million, down $1.8 million for the same period in 2023.

Turning to the balance sheet at September 30, 2024. Cash and cash equivalents totaled $2.2 million compared with $3.4 million at December 31, 2023.

So with that as a backdrop, I'd actually like to take a deeper look at the 3 areas I mentioned at the start of the call.

Let's start first with the commercial clearUP product line. One item I'd like to share as context is that last year, we discovered a technical issue in the silicon that was part of the clearUP charging circuit. Many of you have read the reviews from earlier in the year may have noticed some of the complaints from customers on this.

So though it's an intermittent problem, the diagnosis from the specifics led us to a product redesign, and we had to deliver a new version.

I'm proud to say the team did deliver a new version in January of 2024 as clearUp 2.0.

So that led us into working through inventory such as swaps with our channel partners. We reduced our marketing spend until new versions were shipping to customers, and we began a process to rebuild the reviews. In Q1 and Q2, we also undertook a restructuring of our supply chain and distribution to improve profitability.

So this work completed in Q3. Unfortunately, it also resulted in the convergence of various expenses that were associated with the relaunch of the product, the inventory swaps, the supply chain redesign, we incurred a significant amount of expense in July for inventory disposal for removal of inventory from [13PL] and restocking in another and with other expenses that were associated with this overall transition.

However, what is important in the months following that transition, we averaged over 70% gross margin on our clearUp sales. This compares to just the 40%, 50% reported previously and the negative gross margin of just 2 years ago. I am very proud of being able to move this product line forward in the gross profit and gross profitability.

We also undertook at the beginning of the year and through this quarter, a realignment of our marketing spend.

We are now achieving solid return on our advertising, resulting in significant increases in our per unit profitability.

Now we can focus on growing sales in part through the distribution partners that we signed earlier this year. That included McKesson, Cardinal Health and continuing sales through their affiliate of RGH.

I did note last quarter, though, that we do believe there are limits to how quickly we can grow the consumer-facing business, particularly in this market that is dominated by the over-the-counter products, which brings me now to the second leg of our strategy, creating new product opportunities to drive shareholder value based on advanced research in vagus nerve stimulation. I've spent time over the last couple of quarters highlighting the importance of the vagus nerve. It is the largest autonomic nerve in the body. It runs from the brain stem to the stomach and touches every major organ in between.

Last quarter, we reported Phase I trial results on a new form of vagus nerve stimulation, some of the industry-leading data in the field. Polaris market research estimates the global vagus nerve stimulation, or VNS market will grow from $8.6 billion in 2021 to $21.3 billion in 2030, compound annual growth rate of 10%. We completed a trial at the Feinstein Institute for Medical Research at Northwell Health. And in that trial, we demonstrated profound effects on the neurologic, cardiac and autonomic nervous system, showing again some of the strongest data in the field. In Q3, we engaged the same institution to help optimize the treatment parameters and test several key variables that will be important as we move forward in the clinical design.

In October, we announced that we started enrolling patients in a Phase I optimization study. This study is being led by Dr. Theodoros Zanos, the PhD and Associate Professor at the Institute of Bioelectronic Medicine and leads the Neuro and Data Science Lab at the Feinstein Institute of Maxwell Health. We announced yesterday that we have completed enrollment in the optimization study and expect to complete the study by early Q1. The results of the second trial will also inform the Phase II study design that is slated to begin in the first half of 2025.

We are making very rapid progress on our vagus nerve stimulation program.

Based on the successful results in the Phase I trial, we have retained a leading growth strategy firm called Fletcher State or FSI, to assess the market opportunity, the very particular specific market opportunity for our approach to vagus nerve stimulation. They are looking at both the market, the competitive landscape, the likelihood of adoption for bioelectronic medicine across various disease arenas. This work with FSI is key to accelerating our commercial development strategy for our noninvasive VNS.

So to report today, FSI has already completed a comprehensive market assessment.

Drawing from the clinical outcomes of our Phase I trial, we worked with FSI and Tivic work together. We identified 30-plus potential use cases for the Tivic device. These use cases are in the areas of neurologic, cardiac, psychiatric and autonomic nervous system diseases. FSI helped us narrow these down to a list of the top 10 for a deeper dive and are currently interviewing payers and providers for the top 2. Interviewing clinical key opinion leaders and payers is important in defining our product development pipeline for this program. This is helping us develop our clinical study plans, it's identifying the reimbursement pathways and helps sharpen and hone our go-to-market strategy.

As we down select the key target therapy decisions, we are looking at 3 levers of success: patient adoption, the likelihood for provider recommendations and payer reimbursement.

We are keenly aware that these 3 factors are critical in the success of a new product launch on BMS. This approach by moving forward with both with the FSI and the clinical work in concert with each other, this approach is allowing us to take both commercial and clinical validation to move forward in lockstep.

So I haven't yet disclosed to you exactly which ones we're going to be tackling, but I do look forward to discussing with you in the near future the work that is converging between our clinical program outcomes as we report out on the Phase Ia trial and with the FSI work that is now coming together.

We have identified several multibillion-dollar segments in which our VNS approach offers solutions for high-value unmet needs with extremely high likelihood of adoption. The reception among the provider population and among the payer reimbursement interviews has been extremely encouraging. They have been strongly, strongly positive.

We are very excited about what we are seeing as the opportunity now for our Vagus nerve program.

So now as I move into the third leg of our strategy, we do continue to operate with a continuous eye on, let me call it, surgically reducing our operating costs.

For example, this quarter, we terminated our office lease, relocated to a smaller site, brought up a small volume manufacturing site in-house to continue to be able to produce product, contributing to a durable 20% reduction in year-over-year net operating loss.

So as we continue to move forward, this really is an exciting time, and I think we're moving into that inflection point zone. The data we've already collected show up with a high degree of confidence that we can reach very new large markets with our technology, with our science. We've done the work on the road map, and we are beginning to lay out the strategic and commercial plans in a new area.

We are continuing to see improvements in the clearUp business, and we are continuing to explore additional strategic alternatives, strategic opportunities for the company, which may eventually include acquisitions, transactions that align with our growth strategy or that complement our existing product offerings and generally will serve the interest of the company to grow shareholder value.

So overall, as I said, 3 legs of the strategy, while we continue to assess all alternatives for -- all alternatives for creating shareholder value, we are focused primarily on the 3 legs of improving the product performance and the pipeline of ClearUP, moving forward our VNS program to address extraordinarily high-value opportunities and continuing to focus on operational efficiencies as a public operating company.

Okay.

Let me now take a couple of the questions that we received in advance of this call. What is the company planning to do with clearUP if the company is shifting its focus to VNS? So at this time, we are continuing to develop and allow clearUP to grow organically.

While we continue to work on improving the economics, we also are exploring the alternate commercialization and monetization strategies that might include licensing, white labeling, other alternatives that would allow the product to achieve a much greater scale. We can't have any guarantees, of course, that we'll be successful in those efforts, but we will be exploring ways to create alternative monetization opportunities for the ClearUP product line.

Particularly though, I should note that the strength of the clinical results in VNS, we have down prioritized product improvements or other development investments of any significance in clearUP and will allow the product line to grow organically, explore alternative monetization strategies and focus our investment resources instead on increasing our likelihood to win in the new markets with our noninvasive VNS approaches. We genuinely believe that it is the clinical pipeline and the advancement of that pipeline that is going to drive shareholder value.

Now with all the -- with the company having made some cutbacks and some downsizing, do we have the resources to move the VNS programs forward? And how do we plan to raise capital? So our research pipeline is obviously a very important part of the strategy to build the shareholder value. as we progress into Phase II, Phase III trials, those are important -- those are very significant inflection point opportunities.

We will, of course, need to at least [moderate] expand our clinical research team.

We will need to fund those trials.

Some of those expenses may be able to be offset with nondilutive financing. I would highlight that several areas we're looking at, there are opportunities for grants for public-private collaborations.

And additionally, we have been able to make selective use of an ATM that is in place that is allowing us to generate additional capital for the company on terms that are much more investor-friendly than, for example, our prior capital raise.

So in aggregate, we believe we will have the opportunity to fund the VNS program of some of the capital, obviously, is necessary to be moving forward on a clinical pipeline. Does the company know what diseases we're considering targeting based on the VNS study results? I mentioned earlier in my comments that the 4 areas of disease, although very broad, are neurologic, psychiatric, cardiac and autonomic nervous system.

So internally, yes, as we're working with Fletcher Space, we are starting to see some convergence around a couple of key areas.

Before making that public, though, we do want to see the results from the Finestein Institute on the clinical testing we're doing now, the one that we've just finished enrollment on as well as completing the market validation work with Fletcher Space. With those 2 pieces of the arsenal, I would expect by end of the year sometime or into the first quarter of next year to be able to share more specific commercial strategy around our VNS program. I am very excited though by the level of interest that we are seeing in even the payer community and definitely in the provider community as we have showcased and done this work with Fletcher Space.

So right now, I'd like to say thank you to everyone that is taking the time to learn about the company today.

We will continue to keep you appraised through press releases, through various communication mechanisms, obviously, through our filings. But these opportunities to talk with you in person and to share sort of my perspective on the company and the tremendous opportunity that we are facing with the VNS work, particularly. It is a great opportunity for me to be able to connect with you.

So I want to thank you all for taking the time with us, and I look forward very much to speaking with you in the next call in the new year.

Tivic Health Systems (TIVC) 14 Nov 242024 Q3 Earnings call transcript

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Tivic Health Systems (TIVC) 14 Nov 242024 Q3 Earnings call transcript