March 25, 2024
Company Participants
Jennifer Ernst – CEO
Kimberly Bambach – Interim CFO
Blake Gurfein – Chief Scientific Officer
Operator
Welcome to the Tivic Health Systems’ 2023 Year End Shareholder Update Conference Call. All participants will be in listen-only mode.
Please note that the conference is being recorded.
Statements made during this call contain forward-looking statements about Tivic’s business. You should not place undue reliance on forward-looking statements, as these statements are based upon management’s current expectations, forecasts, and assumptions, and are subject to significant risks and uncertainties.
These statements may be identified by words such as may, will, should, could, expect, intend, plan, anticipate, believe, estimate, predict, potential, forecast, continue, or the negative of these terms or other words or terms of similar meaning. Risks and uncertainties that could cause Tivic’s actual results to differ materially from those set forth in any forward-looking statements include, but are not limited to, the matters listed under Risk Factors in the company’s annual report on Form 10-K for the year ended December 31, 2023, filed with the Securities and Exchange Commission on March 25, 2024, as well as the company’s subsequent filings with the SEC.
Statements and information, including forward-looking statements, speak only to the date that they are provided unless an earlier date is indicated and Tivic does not undertake any obligation to publicly update any statements or information, including forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Now, let me hand over the call to Jennifer Ernst, Tivic Health’s Chief Executive Officer.
Jennifer Ernst
Hello everyone and thank you for joining us today. I’m Jennifer Ernst, CEO of Tivic. I’m joined today by our Interim CFO, Kimberly Bambach, and our Chief Scientific Officer, Blake Gurfein. Before Kim goes over the details of the financial performance, I’d like to go over the business developments for the year and then hand the call over to Blake Gurfein, to discuss the vagus nerve research we are conducting with The Feinstein Institute for Bioelectronic Medicine at Northwell Health.
Let’s begin………
Over the past year, we maintained our focus on optimizing our operations for increased efficiency.
Coming out of 2021 and 2022, a major focus this past year was stabilization.
We stabilized our supply chain after significant disruptions and price fluctuations in 2022. We created new supply chain partnerships resulting in lower material, assembly, and fulfilment costs.
In the first quarter of 2023, we completed a 2000-person marketing segmentation and pricing study that allowed us to take a hard look at areas where improvements were possible. In Q2, we undertook a price increase of nearly 50%. That change negatively impacted unit volume and temporarily suppressed revenue. However, it was an important step that allowed us to then greatly improve our gross profit for 2023.
Simultaneously, we reset and relaunched our advertising programs, improving efficiencies in our marketing spend.
We established new distribution agreements with industry giants like McKesson and their affiliate Simply Medical, Cardinal Health and Cencora (formerly AmerisourceBergen). These are distributors targeting less price sensitive market segments. We expect to see these relationships unlock new potential sales opportunities for the ClearUp product this coming year. Through our collaboration with InStep Health, we began to introduce the ClearUp device to over 2,500 healthcare providers and their patients, receiving particularly strong response among general practitioners.
We decreased our internal headcount, better aligning the team size to the current scale of the ClearUP business. We have streamlined operations with a very lean, focused team to minimize excess operating expenses.
Like many other companies in the biotech and microcap space, we faced compliance issues with our NASDAQ listing that placed pressure on the share price and forced the company into a reverse stock split to regain compliance with the Nasdaq continued listing rules.
Net – looking at 2023 — we took the painful but necessary actions to bring our consumer health business to a point from which we can anticipate cash being generated from the ClearUP line.
As I noted earlier, though, we took a hard look at where the business has been and where we see the strongest opportunities to build incrementally new value for our shareholders.
In 2022, we conducted internal experimentation on a novel method of non-invasive vagus nerve stimulation. Results indicated we could more precisely target and influence the activity of the vagus nerve in regulating biological functions than what had been thus far demonstrated in the state of the art.
In 2023, we started building our patent portfolio in VNS. Tivic’s prior patents and current products have focused on the trigeminal and sympathetic nerve structures. The new filing addresses a novel approach for non-invasive Vagus Nerve Stimulation (often called VNS or “nVNS”). Our patent-pending includes a circuit design for more precise targeting of the signals carried by the vagus nerve, with the potential to offer superior efficacy to alternative VNS approaches.
In Q3, we announced and began enrolling the first patients in our paid-for study at The Feinstein Institutes for Medical Research. We have recently announced the completion of patient enrollment and expect to be reporting out results of that study in early Q2.
I have invited Blake Gurfein, our Chief Scientific Officer, to join us today in order to provide some additional context for this particular area of investment. Let me know hand this call over to Blake Gurfein to discuss the study and moreover its importance/significance to Tivic Health and our shareholders.
Blake Gurfein
Thank you, Jennifer. My name is Blake Gurfein and I am the CSO for Tivic Health. Since I have not previously presented on these calls, I will share some of my professional background. I am a neuroscientist and immunologist and maintain an appointment as adjunct faculty in the department of neurosurgery at UC San Francisco. My work in the industry has focused on developing non-invasive neurotechnologies to stimulate the brain and peripheral nerves to treat a variety of conditions with limited therapeutic options. The ClearUP device was one of the technologies I had the privilege to help develop.
As Jennifer mentioned, moving into the development of vagus nerve stimulation technology is a very exciting and promising direction for Tivic. The vagus nerve is an important target for clinical development because it is a key component of the autonomic nervous system, which controls cardiovascular activity, respiration, digestion, and many other critical functions in the body. Clinical use of vagus nerve stimulation has frequently employed implantable devices requiring surgery. Vagus nerve stimulation has been proven effective for conditions including treatment-resistant depression, epilepsy, and migraine headache and is currently being investigated to treat inflammatory diseases like rheumatoid arthritis and multiple sclerosis. There is a significant opportunity to develop safe and effective vagus nerve devices that can be applied non-invasively.
Tivic has developed a proprietary non-invasive approach to vagus nerve stimulation based on our experience building evidence-based bioelectronic therapies. One of the key goals of this work is to more precisely target stimulation of the vagus nerve and more carefully control the types of physiologic effects that result from stimulation. In collaboration with the Feinstein Institute for Medical Research, a leader in vagus nerve research, we recently completed enrollment for a 20-person study evaluating the biological effects of our proprietary approach to vagus nerve stimulation.
Analysis of the magnitude of the treatment effects and how they compare to clinically meaningful biological changes is an important stepping stone as we accelerate this program towards product development for large market clinical use cases. I personally am looking forward to completing the study and sharing the results in the coming weeks.
Now – Let me hand the call over to Kim to go over the 2023 financial results.
Kimberly Bambach
Thanks Blake good afternoon everyone. I am pleased to report the financial results for the year-ending December 31, 2023.
Revenue
Revenue (net of returns) for the year ended December 31, 2023 was $1.2M compared to $1.8M for the year ended December 31, 2022. The decrease of $664 thousand or 36% was due to a 52% decrease in ClearUP unit sales, offset by 46% higher average selling price per unit. Greater than 90% of Sales were Direct to Consumer in 2023.
Return as a percentage of product revenue was approximately 12% for the year ended December 31, 2023 and 10% for the year ended December 31, 2022. We expect with the improved battery circuitry on ClearUp 2.0 that returns will decline.
Cost of sales for the year ended December 31, 2023 was $889 thousand compared to $1.5 million for the year ended December 31, 2022, a decrease of $652 thousand, or -42%. The decrease was due to the -52% decrease in overall unit sales, offset by $172 thousand of costs related to write-offs or reserves on old inventory & components primarily related to our ClearUP 1.0 unit as the ClearUP 2.0 unit began shipping in December of 2023. We do not expect to incur similar costs in 2024.
Gross Profit
Gross profit for the year ended December 31, 2023 was $287 thousand compared to a gross profit of $299 thousand for the year ended December 31, 2022.
Research and Development Expenses
Research and development expenses decreased by $75 thousand to $1.7 million for the year ended December 31, 2023, from $1.7 million for the year ended December 31, 2022. The decrease was primarily due to reduced internal headcount/costs. The emphasis of research and development activities in 2023 was primarily related to our work with The Feinstein Institutes. Activities in 2022 were primarily focused on product research and design in the migraine therapeutic area, initiation of a double-blind randomized controlled trial for post-operative pain relief following sinus surgery, and enhancement of our intellectual property protection.
Sales and Marketing Expenses
Sales and marketing expenses decreased to $2.1 million for the year ended December 31, 2023, compared to $2.8 million for the year ended December 31, 2022. The decrease was primarily due to reduction of Advertising and Agency expenses as Jennifer mentioned earlier in the call.
General and Administrative Expenses
General and administrative expenses decreased to $4.8 million for the year ended December 31, 2023, compared to $5.9 million for the year ended December 31, 2022. The decrease is primarily due to a reduction in legal and professional fees and other corporate expenses as the Company worked to reduce overhead costs.
As a result, our 2023 full year net loss was $8.2 million, compared to $10.1 million in 2022.
Regarding Financing activity, On February 13, 2023, we sold shares of common stock resulting in net proceeds of approximately $3.6 million. From July 11, 2023 to August 9, 2023, we sold shares of common stock resulting in aggregate net proceeds to the Company of approximately $4.3 million.
As of December 31, 2023, the company had $3.4 million of cash and cash equivalents and we continued to maintain a no debt balance sheet.
On August 23, 2023, we implemented a 1-for-100 reverse stock split, and on September 15, 2023, we received confirmation from NASDAQ on our regaining compliance with the minimum bid price requirement.
I will now hand the call back to Jennifer for ending remarks.
Jennifer Ernst
This year was one of reseting, rebuilding and recovery. As part of our commitment to fiscal responsibility, we’ve decreased expenses, reduced internal headcount, and focused the team on profitably building the ClearUP product line.
We revamped the administrative cost structure of the business, reduced overhead expenses, and have undertaken a more focused marketing strategy. We continue to see improvements in both gross and contribution margins.
As always, we continue to evaluate business combinations, licensing opportunities and M&A that may help to enrich our product portfolio with complementary offerings. We recognize, though, that they must be the right opportunities at the right time, and remain vigilant in assessing opportunities that may disproportionately benefit our shareholders.
Our research pipeline is beginning to mature and become an even more important part of our strategy to build shareholder value. We believe that the VNS opportunity, as well as the medical extensions of our trigeminal nerve stimulation, have the potential to be of great significance to the company.
2023 involved hard decisions and strict prioritization of spending. I am appreciative of our team and the measures they have undertaken to control costs while improving business performance.
And with that, I thank you for taking the time with us today and look forward to speaking with you as we make progress through the year and continue to report out on both financial and research progress.
Operator closes the call
