nuro-20231231

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

_____________________________

FORM 10-K

_____________________________


(Mark One)
☒						ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2023


☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-33351

___________________________

NEUROMETRIX, INC.

(Exact name of registrant as specified in its charter)

__________________________


Delaware						04-3308180
(State or Other Jurisdiction of Incorporation or Organization)						(I.R.S. Employer Identification No.)



4B Gill Street, Woburn, Massachusetts						01801
(Address of Principal Executive Offices)						(Zip Code)

(781) 890-9989

(Registrant’s Telephone Number, Including Area Code)

___________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of exchange on which registered

Common Stock, $0.0001 par value per share

NURO

The Nasdaq Stock Market LLC

Preferred Stock Purchase Rights

The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act

None

____________________________

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o No ý

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. Yes ý No o

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) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o

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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o Accelerated filer o

Non-accelerated filer ý Smaller reporting company ☒

Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ý

As of June 30, 2023, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the voting stock held by non-affiliates of the registrant was $8,183,506 based on the closing sale price of the common stock as reported on the Nasdaq Capital Market on June 30, 2023.

As of February 29, 2024, there were 1,986,540 shares of Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The following documents (or parts thereof) are incorporated by reference into the following parts of this Form 10-K: Certain information required by Part III of this Annual Report on Form 10-K is incorporated from the Registrant’s Proxy Statement for the Annual Meeting of Stockholders to be held on April 30, 2024 (the 2024 Annual Meeting of Stockholders).

NEUROMETRIX, INC.

ANNUAL REPORT ON FORM 10-K

FOR THE YEAR ENDED DECEMBER 31, 2023

TABLE OF CONTENTS


PART I
Item 1.	Business	1
Item 1A.	Risk Factors	14
Item 1B.	Unresolved Staff Comments	29
Item 1 C .	Cybersecurity	29
Item 2.	Properties	30
Item 3.	Legal Proceedings	30
Item 4.	Mine Safety Disclosures	30
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31
Item 6.	Reserved	31
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 8.	Financial Statements and Supplementary Data	36
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	36
Item 9A.	Controls and Procedures	36
Item 9B.	Other Information	37
Item 9C.	Disclosure Regarding Foreign Jurisdictions that Prevent Inspections	37
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	38
Item 11.	Executive Compensation	40
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	40
Item 13.	Certain Relationships and Related Transactions and Director Independence	40
Item 14.	Principal Accounting Fees and Services	40
PART IV
Item 15.	Exhibits and Financial Statement Schedule	41
Item 16.	Form 10-K Summary	45
Signatures		46

“NEUROMETRIX”, “NC-STAT”, “OptiTherapy”, “ADVANCE”, “SENSUS”, “Quell”, stylized "Q", “DPNCheck” and “NC-stat DPNCHECK” are the subject of either a trademark registration or application for registration in the United States. Other brands, names and trademarks contained in this Annual Report on Form 10-K are the property of their respective owners.

All share amounts in the Annual Report on Form 10-K have been adjusted to reflect a 1-for-8 reverse stock split that was effected on November 21, 2023.

PART I

The statements contained in this Annual Report on Form 10-K, including under the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and other sections of this Annual 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; our belief that there are unmet needs for the management of chronic pain and in the diagnosis and treatment of diabetic neuropathy; our expectations surrounding Quell and DPNCheck; 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; 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; our ability to maintain the listing of shares of our common stock on the Nasdaq Capital Market; the ongoing effect of the recently completed reverse stock split of our common stock on the price or trading of our common stock; and other factors discussed elsewhere in this Annual Report on Form 10-K or any document incorporated by reference herein. 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 Annual Report on Form 10-K 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.” 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. Unless the context otherwise requires, all references to “we”, “us”, the “Company”, or “NeuroMetrix” in this Annual Report on Form 10-K refer to NeuroMetrix, Inc.

ITEM 1. BUSINESS

Our Business — An 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 are authorized by the U.S. Food and Drug Administration (FDA) and regulators in foreign jurisdictions where appropriate. We have two principal product categories:

•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 (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

may be triggered by an injury or there may be an ongoing cause such as disease or illness. There may also be no clear cause. Chronic pain can also lead to other health problems which can include fatigue, sleep disturbance and mood changes, which cause difficulty in carrying out important activities and contributing to disability and despair. In general, chronic pain cannot be cured. Treatment of chronic pain is focused on reducing pain and improving function. The goal is effective pain management.

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 (OTC) 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 204,000 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.

In 2021, Quell received Breakthrough Device Designation from the FDA for a fibromyalgia indication. A pivotal double-blind, randomized, sham-controlled clinical study of Quell - Fibromyalgia was completed, and a De Novo marketing authorization was obtained from the FDA in 2022. Quell – Fibromyalgia is indicated for use as an aid for reducing the symptoms of fibromyalgia in adults with high pain sensitivity. This Rx product was introduced to the domestic market in late 2022 under the auspices of a controlled, strategic commercial launch in order to broaden market awareness and our understanding of market dynamics.

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 (NCI) and the NIH, was completed in 2023. A 510(k) application, which is required for pre-market review and clearance by FDA of pre-market notification, has been filed with FDA for marketing authorization for CIPN patients with moderate to severe neuropathic pain and cramps. Review and approval of the application by FDA could lead to market introduction of Quell - CIPN in late 2024. This would be the second product in our emerging portfolio of Quell-based Rx wearable therapeutics. We plan 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 (COPC).

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.

In early 2023, the Centers for Medicare and Medicaid (CMS) proposed significant changes to its MA Hierarchical Condition Categories (HCC) risk adjustment payments and to its MA Risk Adjustment Data Validation (RADV) audit practices. These changes created significant uncertainty in the market among participating healthcare providers and insurers. Subsequently, CMS confirmed that RADV changes would be implemented immediately and applied retroactively, and that changes in HCC payments would be phased in over a three-year period. The changes to HCC risk factor coding significantly reduced CMS payments for population screening for various conditions, including for neuropathy. During 2023 we experienced a significant reduction in MA sales as a result of these CMS reimbursement changes. As a result, we reduced our commercial sales team while continuing to support our customer base and working to attract new accounts. However, it appears unlikely that there will be a near-term recovery from the decline in revenue of the DPNCheck MA business. DPNCheck sales in Asian markets have remained consistent between the past two years and unaffected by the reimbursement changes in MA.

ADVANCE is a legacy, point-of-care neurodiagnostic technology primarily used for the diagnosis and screening for carpal tunnel syndrome (CTS). Manufacturing of ADVANCE devices was discontinued in 2012; however, we continue to service devices and provide disposable electrodes to a customer base of hand surgeons and manufacturers for industrial health use.

Research and Development for Competitive Advantage

Our products are proprietary and were developed in-house by our research and development team. We believe that continual product innovation, focusing on our unique competency of precision neurostimulation, is essential to profitable growth and competitive advantage. Our 2024 research and development efforts are focused in two areas important to our future: 1) further development of the Quell technology platform of disease-specific wearable neuromodulation products for chronic pain and related symptoms and 2) improvement of our enterprise integration and health analytics tools for DPNCheck users.

Business Model

Our products consist of a medical device used in conjunction with a consumable electrode or biosensor. Other accessories and consumables are also available to customers. Our goal is to develop active, installed user bases regularly ordering or subscribing to aftermarket products. Our DPNCheck, Quell and ADVANCE products all conform to this business model.

Primary Marketed Products

Quell

Quell is a wearable device for symptomatic relief and management of chronic pain indications. It incorporates a collection of proprietary approaches designed to optimize the effectiveness of nerve stimulation. These include high power electrical stimulation hardware with precise control, algorithms that automatically determine therapeutic stimulation intensity and compensate for nerve desensitization, and automated detection of user sleep and appropriate adjustment of stimulation level. Quell is comprised of (1) an electronic device that is placed in a flexible band worn on the upper calf; (2) an electrode that attaches to the device and is the interface between the device and the skin; and (3) a smartphone app to control the device and visualize, understand and optimize data relating to chronic pain and health. The app is integrated with the Quell Health Cloud for storage of user data, data analytics and scientific research. An Apple Watch® app provides many of the functions of the smartphone app with the convenience of a smartwatch. The Quell device is lightweight and can be worn during the day while active, and at night while sleeping. It has been authorized by the FDA for symptomatic relief and management of lower extremity chronic pain and as an aid for reducing the symptoms of fibromyalgia in adults with high pain sensitivity. Cumulatively through 2023, over 204,000 Quell devices have been shipped to customers.

DPNCheck

DPNCheck is a fast, accurate, and quantitative nerve conduction test that is used to evaluate peripheral neuropathies (also called polyneuropathies or systemic neuropathies) such as DPN. It is designed to be used by primary care physicians, endocrinologists, podiatrists and other clinicians at the point-of-care to objectively detect, stage, and monitor peripheral neuropathies. The device measures nerve conduction velocity and response amplitude of the sural nerve, a nerve in the lower leg and ankle. These parameters are recognized as sensitive and specific biomarkers of peripheral neuropathies. DPNCheck is comprised of: (1) an electronic hand-held device and (2) a single patient-use biosensor (limited biosensor re-use is allowed in certain international markets). In addition, we provide users with PC-based software that links to the device via a USB connection thereby allowing physicians to generate reports, manage their test data and integrate with enterprise systems including electronic medical record (EMR) systems.

DPNCheck is a modified version of our previously marketed NC-stat nerve testing device that has the same clinical indications with respect to peripheral neuropathies. While lower in cost than the original device, DPNCheck has the same functionality with respect to sural nerve testing. Over 4 million patient studies have been performed using our NC-stat technology. Our nerve testing technology has been the subject of over 50 peer-reviewed publications, including over 30 studies specifically addressing the accuracy and clinical utility of the DPNCheck device in the assessment of DPN and other peripheral neuropathies. Cumulatively through 2023, over 9,000 DPNCheck devices have been shipped to customers.

ADVANCE

The ADVANCE System is a part of our legacy neurodiagnostics business. It is a comprehensive platform for the performance of nerve conduction studies. The ADVANCE System is comprised of (1) the ADVANCE device and related modules; (2) various types of electrodes; and (3) a communication hub that enables a physician’s office to network the device to its office computers and to our servers for data archiving and report generation. The ADVANCE System is used with proprietary nerve specific electrode arrays. These electrode arrays combine multiple individual electrodes and embedded microelectronic components into a single patient-use disposable unit. We supply the market with a number of different nerve-specific electrode arrays. The manufacturing of ADVANCE devices was discontinued in 2012. However, we continue to provide disposable electrodes to a customer base of hand surgeons and manufacturers for industrial health use.

Historically, the ADVANCE System was marketed to a broad range of physician specialties including neurologists, orthopedic surgeons, primary care physicians, and endocrinologists, and utilized for a variety of different clinical indications including assessment of CTS, low back and leg pain, and DPN. It is most commonly used in the assessment of CTS. Over 20 peer-reviewed studies have been published on the use of the ADVANCE System in its clinical application. As of December 31, 2023, we had an installed base of approximately 40 active customers for the ADVANCE System.

The following chart summarizes our previously and currently marketed products.

Product

Time on Market

Technology

Primary Clinical Indications

No. Patients
Tested/Treated

Quell

Q2 2015 – present

Transcutaneous Electrical Nerve Stimulation

Symptomatic and management relief of lower extremity chronic pain (OTC) and fibromyalgia (Rx)

> 204,000

SENSUS

Q1 2013 – Q4 2020

Transcutaneous Electrical Nerve Stimulation

Symptomatic relief and management of chronic pain (Rx)

> 11,000

DPNCheck

Q4 2011 – present

Nerve Conduction

Evaluation of peripheral neuropathies

> 2,500,000

ADVANCE

Q2 2008 – present

Nerve Conduction

Evaluation of entrapment and systemic neuropathies

> 1,960,000 (ADVANCE and NC-stat)

NC-stat

Q2 1999 – Q3 2010

Nerve Conduction

Evaluation of entrapment and systemic neuropathies

Customers

DPNCheck customers include managed care organizations, endocrinologists, podiatrists and primary care physicians in the United States and distributors in Japan and China. Through December 31, 2023, over 9,000 DPNCheck devices have been shipped to customers. Quell customers are primarily located in the United States. Through December 31, 2023, over 204,000 Quell devices have been shipped. Our legacy ADVANCE System customers include approximately 40 active accounts covering occupational health, primary care, internal medicine, orthopedic and hand surgeons, pain medicine physicians, neurologists, physical medicine and rehabilitation physicians, and neurosurgeons.

At December 31, 2023, three customers accounted for 74% of accounts receivable and two customers accounted for 34% of revenue.

Sales, Marketing, and Distribution

Our U.S. sales efforts for DPNCheck primarily focus on MA organizations and providers who assume financial responsibility and the associated risks for the health care costs of their patients. We believe that DPNCheck presents an attractive clinical case with detection of peripheral neuropathy allowing for earlier clinical intervention to help mitigate the effects of peripheral neuropathy on both patient quality of life and cost of care. Outside the United States, DPNCheck is sold in Japan by our distribution partner Fukuda Denshi Co., Ltd. and in China by Omron Medical (Beijing) Ltd. Sales and marketing efforts for DPNCheck are led by our Senior Vice President, Population Health and Value Based Care.

Quell – Fibromyalgia is available in the United States via HealthWarehouse.com, an online pharmacy. An Rx is required for purchase. The Company is conducting a strategic launch of this product to optimize its marketing strategy. Quell (OTC) for lower extremity chronic pain is no longer available to new customers. Sales and marketing efforts for Quell are led by our National Sales Director, Neuromodulation.

Customer Service handles domestic ADVANCE accessory sales and support. A small network of independent distributors in several European countries support ADVANCE in their jurisdictions.

Manufacturing and Supply

We perform final assembly and servicing of our Quell and DPNCheck devices at our manufacturing facility in Massachusetts. The ADVANCE device is no longer in production; however, we continue to sell accessories and repair services. Outside suppliers provide the sub-assemblies and components that we use in manufacturing Quell and DPNCheck, as well as our consumable products including biosensors and electrodes. Reflecting the relatively small volumes of our products being manufactured and sold, we do not have alternative suppliers for many of the key components of our products. Rather, we rely on regular contact and close working relationships with local suppliers developed over many years. In outsourcing, we target companies that meet FDA, International Organization for Standardization (ISO), and other quality standards supported by internal policies and procedures. Supplier performance is maintained and managed through a corrective action program ensuring all product requirements are met or exceeded. Following the receipt of products or product components from our third-party manufacturers, we conduct the necessary inspection, final assembly, packaging, and labeling at our manufacturing facility. We believe that our manufacturing relationships minimize our capital investment, provide us with manufacturing expertise, and help control costs.

A New England regional supplier has been manufacturing devices and providing sub-assemblies to us since 2005. The supplier currently manufactures sub-assemblies for Quell and DPNCheck. A supplier based in the central United States has been manufacturing ADVANCE electrodes for us since 1999. A full-service original equipment manufacturer (OEM) also based in the central United States and specializing in medical and cosmetic devices, manufactures DPNCheck biosensors and Quell electrodes.

We are registered with the FDA and subject to compliance with FDA quality system regulations. As a registered device manufacturer, we undergo scheduled FDA quality system inspections, are subject to inspections by state agencies and, if deemed necessary by the FDA, additional inspections may occur. We are also ISO registered and undergo annual quality system audits for regulatory compliance by TÜV SÜD. ADVANCE and DPNCheck are cleared for marketing within the United States and Canada. DPNCheck is also cleared for marketing in Japan and China. Quell is authorized for marketing in the United States.

Research and Development

We believe that we have research and development (R&D) capability that is unique to the industry with over two decades of experience in developing diagnostic and therapeutic devices involving the precision nerve stimulation and measurement of nerve signals for clinical purposes. Our company has extensive experience in neurophysiology, biomedical instrumentation, signal processing, biomedical sensors, and information systems.

Our R&D team works closely with marketing and customers to design products that are focused on improving clinical outcomes. The team of seven engineers includes one member who holds an M.D. Our founder and Chief Executive Officer leads R&D and coordinates our clinical program. He holds both an M.D. and a Ph.D.

R&D efforts planned for 2024:

•DPNCheck. In 2024 we will continue to focus on supporting customer adoption of our DPNCheck technology, technology maintenance, and further development of the software ecosystem beyond the patient test itself to covering the broader healthcare enterprise. The primary features of the ecosystem incorporate development of a DPNCheck data cloud where test information is aggregated for an enterprise-wide view of testing, and also to enable the transmission of patient data to EMR.

•Quell Rx Wearable Therapeutic Initiative. We continue to develop the Quell Rx portfolio for chronic pain. Quell Fibromyalgia is in the market and available commercially. Our next therapeutic target is CIPN, the subject of a recent multi-center, double blind, randomized, sham-controlled trial. We have filed a premarket notification (510(k)) with the FDA for moderate to severe neuropathic pain and muscle cramps in patients with CIPN. R&D efforts will encompass supporting the FDA review process while developing CIPN-specific product features including a customized mobile app and digital health integration which will be essential to marketing launch.

•Clinical studies for our wearable technology. We plan to continue efforts to build the body of evidence from independent, external clinical studies that is foundational to our Quell initiative.

Clinical Program

Our clinical program operates under the direction of our Chief Executive Officer. This may from time to time be comprised of internal, collaborative, and external clinical studies. Internal clinical studies are designed and implemented directly by us for the purposes of product design and early clinical validation. Collaborative studies are conducted with leading researchers around the world to provide clinical validation and to explore the clinical utility of our products. External studies are entirely independent of us, although in many cases the researchers request unrestricted grants for financial and/or material support, such as providing devices and consumables. External studies may examine the clinical performance and utility of our products, or use our products for outcomes measures. We actively seek to publish clinical study results in leading peer-reviewed journals while also encouraging our clinical collaborators and clinical study grant recipients to do the same. In 2024, we expect that our clinical program will be limited to external studies.

Competition

The Quell technology falls within the crowded TENS category which encompasses a wide number of neurostimulation devices, the majority of which are imported from Asia-based manufacturers. However, we believe there is no direct competition to our Quell technology with the level of power, sophistication, and user-friendly features for the symptomatic relief of chronic pain. The most common approach to chronic pain is pain medication. This includes OTC drugs (such as Advil and Motrin), and Rx drugs including anti-convulsants (such as Lyrica and Neurontin) and anti-depressants (such as Cymbalta and Elavil). Topical creams may also be used (such as Zostrix and Bengay). With severe pain, narcotic or opioid pain medications may be prescribed (such as codeine, fentanyl, morphine, and oxycodone). The approach to treatment is individualized, where drug combinations may be employed, but the results are often inadequate. Side effects, including the potential for addiction, are substantial.

Reflecting the difficulty in treating chronic pain, inadequate relief leads many pain sufferers to turn to the OTC market for supplements or alternatives to Rx pain medications. These include non-Rx medications, topical creams, lotions, TENS devices, dietary products, braces, sleeves, pads and other items. In the United States, over $4 billion is spent annually on such pain relief products.

Nerve stimulation is an established treatment for chronic pain. It is available through implantable spinal cord stimulation; however, this approach requires surgery and has attendant risks. Non-invasive approaches to neurostimulation have achieved limited success in practice due to device limitations, inadequate dosing and low patient adherence. We believe that our Quell – Fibromyalgia wearable technology whose Rx indications make it the only FDA authorized non-pharmaceutical treatment for fibromyalgia, and its personalized features including app control, high power and automation, and digital health integration characteristics place it in a unique neurostimulation category without direct competition. Further, we expect that our initiative to build a portfolio of Quell-based Rx wearable neurotherapeutics will, if successful, significantly reduce or eliminate direct competition from TENS devices.

We believe that DPNCheck is currently the only objective and standardized test for peripheral neuropathies widely available at the point-of-care. The American Diabetes Association and other organizations recommend at least annual evaluation of all people with diabetes for DPN. Due to cost and availability, the evaluation is typically performed using a simple (5.07/10g) monofilament. The method is subjective and only identifies late-stage neuropathy where intervention is generally limited to foot care. Experts in the field have indicated that there is an unmet need for a practical, objective, and sensitive test for diabetic neuropathy that can be widely deployed in the regular care of all people with diabetes. Monofilaments (5.07/10g) are a commodity sold by multiple medical supply companies.

There are several companies that sell neurodiagnostic devices that may compete with our ADVANCE System. These companies include Cadwell Laboratories, Inc. and Natus Medical Incorporated, both of which have substantially greater financial resources than we have. Natus Medical Incorporated and Cadwell Laboratories, Inc. have effective worldwide distribution channels for supplying medical instruments to neurologists and physical medicine and rehabilitation physicians.

Intellectual Property

We rely on a combination of patents, trademarks, copyrights, trade secrets, and other intellectual property laws, nondisclosure agreements and other measures to protect our proprietary technology, intellectual property rights, and know-how. We hold issued utility patents covering a number of important aspects of our Quell, SENSUS, DPNCheck and ADVANCE products. We believe that in order to have a competitive advantage, we must develop and maintain the proprietary aspects of our technologies. We also require our employees, consultants and advisors, whom we expect to work on our products, to agree to disclose and assign to us all inventions conceived, or developed using our property, or which relate to our business. Despite any measures taken to protect our intellectual property, unauthorized parties may attempt to copy aspects of our products or to obtain and use information that we regard as proprietary.

Patents

As of December 31, 2023, we had 48 issued U.S. patents, 41 issued foreign patents, and 22 patent applications. Our wearable therapeutic products have 26 issued U.S. utility patents, 23 foreign utility patents, 10 issued U.S. design patents plus 11 issued foreign design patents. We also have 22 patent applications related to our wearable therapeutic products (10 U.S. and 12 foreign). For our DPNCheck diagnostic device, 11 utility patents (4 U.S. and 7 foreign) were issued that cover the core technology.

With regard to our legacy neurodiagnostic products, our issued design patents began to expire in 2015, and our issued utility patents began to expire in 2017. We have additional patents and patent applications directed to other novel inventions that extend patent terms into 2024 to 2031.

The medical device industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. Patent litigation can involve complex factual and legal questions, and its outcome is uncertain. Any claim relating to infringement of patents that is successfully asserted against us may require us to pay substantial damages. Even if we were to prevail, any litigation could be costly and time-consuming and would divert the attention of our management and key personnel from our business operations. Our success will also depend in part on our not infringing patents issued to others, including our competitors and potential competitors. If our products are found to infringe the patents of others, our development, manufacture, and sale of these potential products could be severely restricted or prohibited. In addition, our competitors may independently develop similar technologies. Because of the importance of our patent portfolio to our business, we may lose market share to our competitors if we fail to protect our intellectual property rights.

A patent infringement suit brought against us may force us or any strategic partners or licensees to stop or delay developing, manufacturing, or selling potential products that are claimed to infringe a third-party’s intellectual property, unless that party grants us rights to use its intellectual property. In such cases, we may be required to obtain licenses to patents or proprietary rights of others in order to continue to commercialize our products. However, we may not be able to obtain any licenses required under any patents or proprietary rights of third parties on acceptable terms, or at all. Even if we were able to obtain rights to the third-party’s intellectual property, these rights may be non-exclusive, thereby giving our competitors access to the same intellectual property. Ultimately, we may be unable to commercialize some of our potential products or may have to cease some of our business operations as a result of patent infringement claims, which could severely harm our business.

Trademarks

We hold domestic registrations for the trademarks NEUROMETRIX, Quell, stylized Q, Quell Health Cloud, DPNCheck, SENSUS, NC-stat, ADVANCE, and NC-stat DPNCheck. We use a trademark for Wearable Pain Relief Technology and Therapy Autopilot. We hold certain foreign registrations for the marks NEUROMETRIX, Quell, OptiTherapy, and NC-stat.

Third-Party Reimbursement

Procedures performed with our neurodiagnostic medical devices including ADVANCE and DPNCheck may be paid for by third-party payers, including government health programs, such as Medicare, and private insurance and managed care organizations. The 2024 Physicians Fee Schedule published by the CMS includes CPT 95905 for nerve conduction studies performed with pre-configured electrode arrays such as those used with the DPNCheck device and the ADVANCE System.

We believe that physicians are generally receiving reimbursement under CPT 95905 from Medicare for nerve conduction studies performed for CTS using pre-configured electrode arrays that meet the medical necessity requirements in their local Medicare region but that commercial insurers are generally not providing reimbursement. Reimbursement by third-party payers is an important element of success for medical device companies. We do not foresee a significant near-term improvement in reimbursement for procedures performed with ADVANCE and DPNCheck.

In the United States, some insured individuals receive their medical care through managed care programs which monitor and, for payment purposes, often require pre-approval of the services that a member’s provider prescribes. Some managed care programs pay their providers a predetermined annual payment per member which puts the providers at financial risk for the services provided to their members. Our domestic sales efforts for DPNCheck have been focused on the MA program. The MA program is administered by CMS and operated by private managed care organizations or insurers referred to as Medicare Advantage organizations (MAOs). CMS pays these MAOs capitated fees that are adjusted under CMS’s risk adjustment model, which uses health status indicators, or risk scores, to ensure the adequacy of payment. Members with higher risk codes generally require more healthcare resources than those with lower risk codes. In turn, the MAOs fully absorb the risk of patient health care costs. MAOs may share a portion of the risk with provider organizations such as independent practice associations (IPAs) with whom they contract to provide medical services to their members. Proper assessment of each member’s health status and accurate coding helps to assure that MAOs receive capitation fees consistent with the CMS risk adjustment model.

The MA program experienced significant change during 2023 as CMS issued a new rule regarding the MA RADV program that is used to recover improper risk adjustment payments made to MAOs and also issued its 2024 Medicare Advantage Advance Notice, which confirmed substantial changes to the HCC risk adjustment model for calendar year 2024. These changes to RADV and to HCC significantly limited patient screening for various conditions, including for peripheral neuropathy, which had an adverse effect on DPNCheck testing and revenue during 2023. We do not expect any further changes during 2024 in the CMS risk adjustment model as it relates to neuropathy.

Our success in selling DPNCheck and ADVANCE will depend upon, among other things, our customers receiving, and our potential customers’ expectation that they will receive sufficient reimbursement or patient capitated premium adjustments from third-party payers for procedures or therapies using these products. We expect that Quell will generally not be reimbursed by third-party payers in the near future. See “Risk Factors - If health care providers are unable to obtain sufficient reimbursement or other financial incentives from third-party health care payers related to the use of our products other than Quell, their adoption and our future product sales will be materially adversely affected.”

FDA and Other Governmental Regulation

FDA Regulation

Our products are medical devices that are subject to extensive regulation by the U.S. FDA under the Federal Food, Drug, and Cosmetic Act (FDCA), and the regulations promulgated thereunder, as well as by other regulatory bodies in the United States and abroad. The FDA classifies medical devices into one of three classes based on the risks associated