Morning and welcome to the SIDOTI & Company June Virtual Investor Conference. The next company to present is Myomo, Inc. With us, we have the CEO, Paul Gudonis, and the CFO, Dave Henry. Like always, this will be a 30-minute presentation, and there should be some time at the end for Q&A. So if you do have a question, you can type them into the Q&A box at the bottom of your screen. With that, it's all yours, Paul and Dave.
Well, thank you, Jim, and good morning, everyone. It's my pleasure to introduce Myomo to you, my own motion. Our mission is to conquer upper limb paralysis, a large unmet medical need with our wearable medical robotics, as we'll discuss today. Please review our safe harbor statements. What we can tell you today is that thanks to this new development with Medicare, which we'll cover in detail, where we have Medicare coverage now for patients who need this myoelectric orthosis, as you can see Jessica wearing here, it's really created a new world for people suffering from upper extremity impairments. Now, what causes arm and hand paralysis? Well, the major diagnosis or indication is stroke because this blood clot or hemorrhage often damages the motor cortex, leaving the other side of the body paralyzed.
We call hemiparesis, traumatic brain injuries, spinal cord injuries, brachial plexus, which is a shoulder nerve injury, often from, say, a motorcycle accident or a workplace accident. There are other diagnoses: cerebral palsy, MS, ALS, SMA, acute flaccid myelitis. It's a very large prevalence, as you'll see here, in terms of target opportunity. What happens after someone has a stroke or other neurological injury like this? Well, the standard of care is you go to a rehab hospital to try to restore the native function that you lost due to this neurological injury. Occupational therapy is the first approach, the theory here being that through repetitive task practice, practicing activities of daily living, you can restore neuronal pathways so that you can use that arm and hand again.
Now, that works for many people, but about half the population that goes into the rehab hospital plateaus after six-12 months. They're basically told, "You're not going to get any better. We can't do anything more for you. Get used to it. You'll never use that arm and hand again for the rest of your life." So they'll try static bracing. They'll try a Saebo, which is a spring-powered device, electrical stimulation. There are some stationary robotic systems. If you have spasticity where the muscles are tightly clenched around the hand or the upper limb, you might take Botox or Baclofen, but you're still not restoring function. So this creates a large unmet medical need, which is for a lightweight, portable device that you can use for function at home, at work, and at school. So how big is this opportunity?
So let's look at just the United States. On the left-hand side, you'll see this pyramid that shows the annual incidence of stroke because that is the largest indication: 800,000 strokes a year. Now, those that survive, they'll go to rehab hospitals, as I said, for occupational therapy, and some will progress and be able to restore enough function in their affected limbs, but about 250,000 a year are left with this chronic arm paralysis. Now, as we narrow the inclusion criteria, that's somewhere between 25,000 and 50,000 patient candidates a year who could be medically qualified for MyoPro. So they go into this prevalence population shown here on the right side. There are over 3 million individuals in the United States that have had chronic arm paralysis. So if you know 100 people, you probably know somebody who needs this device. Now, we narrow this down.
You got to be living at home, not in assisted living, because insurance only pays for a device like this if you are at home and independent. You have to meet our medical inclusion criteria, which means you have to have significant cognitive ability, enough what we call the EMG signal, which I'll describe. You have to not have a contracture. So you got to be able to use this device. And then you have to have the correct insurance that will pay for this, which is expanded with Medicare coverage. So that leaves us with as many as 500,000 patients in this prevalence pool that could qualify for MyoPro. Now, what's significant is 2/3 of the strokes happen to people that are aged 65 and older, which are primarily covered by Medicare. Half of those have been covered by Medicare Advantage plans.
We've had success with some of these payers to cover the MyoPro. The other half have been covered by Medicare Part B, Standard Fee-for-Service Medicare. Until now, they have not been able to get a MyoPro. With this new change we'll describe here, we've basically doubled our addressable market because now Medicare Part B patients are eligible for MyoPro. This is a real inflection point for the company. We've had this clarity on reimbursement. We applied several years ago for the HCPCS codes, which are the billing codes by Medicare. Now, we had initial codes issued in January of 2019, but they were in the wrong category. They categorized our custom fabricated orthosis as durable medical equipment on a rental basis. So we worked with CMS primarily post-COVID.
Over the last 18 months, they expanded the definition of the brace benefit category, included powered braces like ours, meaning they're covered and paid on a lump sum basis. Then as of April 1st, just over two months ago, the published fees went into effect. The Motion W, which is the elbow and wrist, is paid for with $33,000. The Motion G, which is our most important product at over 90% of our unit volume, is the elbow, the wrist, and the grasp that gets paid for over $65,000. In addition to having these Part B patients now covered, Medicare Advantage plans are obligated to cover the MyoPro as well. It must be medically necessary on a case-by-case basis. We're going to start filing claims with some of these payers who have been recalcitrant in paying for their beneficiaries until now.
So that will expand that market for us. Then we've had nearly 100 VA medical centers ordering MyoPros over the last 10 years for their veterans in their care. In addition to the progress in the U.S., we've had good international expansion. We've had record growth in our international markets driven primarily by Germany. We've gotten good reimbursement by statutory health insurers like TK and Barmer, for example, in Germany. Often insurers will pay for a six-month trial. Then over half of these patients then get paid for with their device to continue on with their own custom MyoPro for long-term usage. We've had good social court rulings there. We've also had some progress in a smaller market of Australia and a couple of other locations around the world. What drove this reimbursement was some recently published clinical research.
We've had research published over the last 10 years, but we interviewed payer medical directors and we said, "What do you need to see to demonstrate medical necessity and the value of the MyoPro Orthosis?" So they wanted to see long-term use in situ in the home. So we created a patient registry. We enrolled patients, including Medicare Advantage patients over 65 years old, showing that they were actually getting a lot of benefit from this device. They're using it. They're performing activities of daily living. And based on the strength of this research by noted stroke researchers, we had the DME MAC medical directors approve the device for Medicare beneficiaries. And so that's a real inflection point for our company and for the patients who need this device. A little bit about how it works.
So when you try to use any limb, for example, want to pick up this cup of coffee, I'm sending a signal from the motor cortex through the central nervous system into the muscles. And if you're a healthy individual, your muscles respond. You can pick up a cup. You can feed yourself, do other activities. And when your muscles try to move, they emit a trace microvoltage called the electromyogram or EMG signal. And that can be read on the surface of the skin. So we have a non-invasive brain-computer interface that is interpreting what you want to do and turning it into motion with the device. So these individuals who've had this damage to the motor cortex or to the transmission system, the nervous system, typically have an attenuated signal, maybe less than 1% of what a healthy individual has. And that's why they struggle. They're frustrated.
They can't move that affected limb. But they generate enough trace EMG signal when they think about moving that we can amplify. We've gotten so good at this with our sensors and algorithms, we can amplify it up to 100,000x. And so therefore, we create movement with the microprocessor, the software and algorithms, a couple of small motors on the device, creating that type of motion similar to my own motion. This came out of MIT, Harvard Medical School. We're here in the Boston area near these institutions. We also have built a set of IP around this technology. Our latest patents go out to the year 2039. They're valid in the U.S., plus selected international markets to really defend our position as the leader in myoelectric orthosis to restore function.
Here's an example with this short video clip of what happens after a stroke and how frustrating it is for an individual.
Jessica Peters of Salem had a major stroke when she was just 26 years old. So after the stroke, you really had no use of this arm then?
Nothing, really.
Despite years of therapy, her speech and right arm never fully recovered.
I used to dead arm.
Until she met the team at Myomo.
Here's an example. A young woman had a stroke. Here's what happens when you get a MyoPro and the things that you can do. Here's an example about the stroke survival.
It changed my life. I'm doing things now that I could never do.
Then an example from our German team. If you're German, an activity of daily living may be opening your beer. Try to do opening any type of bottle or food container with one arm. So as you can see, the MyoPro restores function, which is a key part of the value proposition here. So let's talk about how do we get this device to patients. Well, the majority of these patients are in this prevalence pool with chronic arm paralysis. So they're not in the rehab hospital anymore because they've been discharged and not with the neurologist, but they're out across the country. So we reach out to these individuals through online marketing with social media, recent TV advertising. They find us on the web. They contact us.
We have a call center in the Dallas-Fort Worth area where individual staff then talks to the patient, identifies their medical condition, their insurance, and then arranges for one of our licensed clinicians to do an online screening of these individuals. If they look like they are a good candidate, we send them to their physician because they'll need all the medical documentation that justifies the medical necessity here in terms of having a pre-authorization from certain plans like the Medicare Advantage plans. For standard Medicare, however, there's no pre-authorization required. As long as our Chief Medical Officer and his team approve the medical documentation that we've submitted to CMS, then we can go ahead and proceed to custom fabricate the device.
So then after we get that authorization, whether it's from a commercial payer or from we get the Medicare documentation, we then go to the custom fabrication process. So we have a licensed clinician measure the patient's arm because these, again, are all custom fabricated to fit each individual arm and hand. We then produce the MyoPro 2+, which is 3D printed. We do the final assembly and testing here at our facility in Boston. And then we send it out for delivery either by one of our clinicians or by a trained orthotics and prosthetics professional. Then we follow that up with our MyoCare coaching team. Patients go to a rehab hospital for up to 12 weeks of training sessions once a week to learn how to use that arm because they may not have used it for 20 or 30 years with their chronic arm paralysis.
That is the revenue cycle. Then to generate demand, we found that television can be very effective, especially for this demographic that is watching certain television shows. Here's an example of one of our ads to patients and their families.
Do you know someone with a paralyzed arm? Please share our contact information with them. They may be able to regain use of their hand or arm again with a MyoPro orthotic device. The MyoPro is a powered arm and hand orthosis designed to help restore function to the wearer's paralyzed or weakened upper extremities. Please share our contact information with them or request a free brochure. Call 800-453-1234 or visit movemyarmagain.com.
So this has been very effective ways to get the word out to patients and their families, to clinicians. Then after we get the prescription and the medical documentation, we go and fabricate the device for the patient. Now, we have a multi-channel approach here. So if you look at our most recent quarterly revenue, most of our revenue, 59%, comes to what we call our direct billing and provider business. So about five years ago, we integrated forward not just being the medical device manufacturer, but having our own licensed clinicians in the field delivering product to patients. We bill insurance companies directly. Now, in Europe, you see the 25% slice of our revenue. That goes all through orthotics and prosthetics providers, mostly in Germany, where then we sell wholesale to them. We also sell to the VA about 9% of our revenue.
Only 7% of our revenue right now comes for orthotics and prosthetics clinics. However, that's going to change significantly now that there's reimbursement by Medicare. So as you see on the next slide, we have our direct provider business where, again, we will continue to expand that business. But also we've got a lot of interest now from these orthotics and prosthetics clinics. There are about 3,000 of these locations across the United States. Some are privately held, like G.R.E. in Cleveland, Limb Lab up in Minnesota. Hanger Clinics is a nationwide provider with about 800 offices. Now that reimbursement is in place where they can bill Medicare, they have a higher opportunity with Medicare Advantage and other plans. We are now actively recruiting this channel. We're going to set up certification classes. These firms are already Medicare accredited. They're in network with payers.
They already serve this population. So we see this as a major new growth opportunity for us in addition to our own direct billing and delivery operation. And then on the international front, primarily our international growth has been in Europe, where we have CE Mark. We follow all the EU MDR regulations. We've got a team there in Germany that's been growing thanks to statutory health insurance. We've got a new patent in Japan. We've established a joint venture company in China with Riser Medical. They make other rehab medical equipment and other devices. Our shareholders have an approximate 20% equity interest in that joint venture, which is licensed to sell products just in Greater China and just in that marketplace.
So they are getting ready to gear up and start delivering as soon as they get the final approval from the NMPA, which is the equivalent of the Chinese FDA, which they're expecting in the next few months. So Dave Henry, you cover our pipeline and other financials here.
Sure. So good morning, everyone. Yeah, our pipeline, this pipeline and backlog are leading indicators of future revenue growth. The pipeline represents those patients where we've, in the case of a commercial patient like on a Medicare Advantage plan, where we received an authorization, or actually where we've completed a successful telehealth evaluation, but have not received an authorization yet. Or in the case of a Medicare patient, someone that has also completed that successful telehealth evaluation, but we're still waiting to collect medical documents. So that pipeline was more than 1,100 patients at the end of March, compared to 855 patients at the end of the same period a year ago. That pipeline at 3/31/2024 included 230 Medicare Part B patients. Once a patient exits the pipeline, which is upon insurance authorization, they enter the backlog.
The backlog is those patients that we've received insurance authorization or we've collected appropriate medical documentation from Medicare providers, but we're just waiting now to deliver Medicare patients, but we're just waiting to deliver to the patient and be able to then take revenue. That backlog was a record 275 patients at the end of the first quarter. That backlog included 83 Medicare Part B patients. We're positioned for strong growth here with a backlog, with a revenue value of that backlog well in excess of $10 million. Looking to our financial results, I would classify first quarter as a transition quarter. The Medicare fees became effective on April 1. We were being paid by the DME MAC in the first quarter, but they weren't at the Medicare rates. They were at ASPs that were lower than that.
So there was really no reason, I think, to go ahead and try to serve a Medicare patient in the first quarter when we were just waiting for the higher fees to be published beginning April 1. First quarter revenue was $3.8 million. Gross margin was 61%. That due in part to a bit lower ASP during the quarter and also just increases in costs as we're preparing to scale up the business here for accelerated revenue growth the second half of the year. Same thing applies below the line. We were at $6.2 million in operating expenses compared to $5 million for the same quarter a year ago. Again, we're adding capacity throughout the organization, not only just manufacturing capacity to deliver to more Medicare Part B patients, but also in our clinical and reimbursement teams as well, which their costs are generally found below the line.
In addition, we're increasing our R&D spending because Medicare, by virtue of publishing these fees, has basically created a multi-billion dollar market where we have first mover advantage. And so we are the only company in the U.S. that provides a device that is able to bill under the two codes that Medicare has published fees for. So we want to do our best to maintain that advantage through putting out the best product that we can provide as well. So we'll be expanding our R&D spending as we go through 2024 and beyond, and you can see the results of that in the first quarter. And so for a full year, for the full quarter, I should say, first quarter net loss was $3.8 million compared to $2.7 million a year ago.
On the balance sheet, we had about $11 million in cash at the end of the first quarter. We have about 37.3 fully diluted shares outstanding. That includes unexercised pre-funded warrants. Our direction here is to accelerate revenue growth in 2024. We've guided to $28 million-$30 million of revenue for 2024. Given first quarter results and our second quarter guidance for revenues in excess of $5 million, what that implies is a back-end loaded 2024 based on the ability to increase our capacity during the first half of the year. Not only, again, manufacturing capacity, but clinical and reimbursement capacity as well. If we think that we're able to achieve that, we think that by the end of 2024, we're generating revenue in excess of $10 million in that quarter.
If we think that we can achieve revenue of $10 million in that quarter, we think we can be cash flow break even on a quarterly basis for the first time. What that requires is that we're able to add our clinical manufacturing reimbursement capacity as planned. And then we don't have really any unforeseen supply chain disruptions that might impact deliveries for revenue. But assuming those things, we think that we could be cash flow break even by the end of the year. We don't think we need any additional equity capital for liquidity. We may want to go back to the markets for maybe growth capital to spend more on advertising and accelerate our growth, but we don't think we need any more for liquidity. And so we have a multifaceted plan and a multi-layered plan to achieve future revenue growth. We've talked about Medicare Advantage plans.
We were penetrating only a small portion of that market. Maybe 40% of Medicare Advantage plans by market share were reimbursing for the MyoPro at least once. And now with the published fees, Medicare Advantage plans are required to cover the device and reimburse for it so long as medical necessity can be established. So we'll be looking, as Paul mentioned, to serve some of those patients from those other insurers that were being recalcitrant and not reimbursing for the device. So that provides an opportunity for growth as well as expanded revenues in Germany, the launch of the joint venture in China, and then continued penetration of the Medicare Part B market, which we're just starting to penetrate now. Then also the OMP channel, as Paul mentioned, we'll be looking to restart that.
We think that could deliver meaningful revenue to us in 2025 and beyond and really not cannibalize in any meaningful way our existing direct provider business because the O&P providers are really seeing patients in that annual incidence population that we talked about, whereas our marketing efforts are geared toward the prevalence population. We think we're positioned to really serve patients in all aspects of the TAM going forward, not only the incidence population, but then the prevalence population as well. Paul, do you want to talk about the team?
Just a bit. These bios are on the website. We really built a team here of people with senior-level experience in the medical device field and reimbursement and medical technologies. As you can see here, our board of directors, while I serve as chairman, we have a team of six outside board members bringing experience in the orthotics and prosthetics field. Tom Kirk, the former CEO of Hanger Clinic. Amy Knapp, former senior executive at UnitedHealthcare. Tom Crowley, Milton Morris, medical device executive. Yacov Jacobovich , a financial investor in the medical device field. Heather Getz, the CFO with strong medical device experience. So it's a really strong team. As Dave said, we started the year with about 100 people. We're in the process of hiring 50-60 more by mid-year so we can scale up our capacity here. And so with that, Jim, thanks for the time.
We're available for some questions in the time remaining.
Great. Great. Let me just start my video. Perfect. I think I mentioned to you before we started, we had Lifeward or the ReWalk people present right before you, and they got reimbursement too about the same time as you did. For them, it was a real game changer. Would you characterize this Part B reimbursement as really a fundamental game changer for the company?
Yes, I would. To me, as I describe, I see this as an inflection point because we get all this demand for our device, and we've had to turn away all these Part B patients. They contact us on the web, our call center. We basically said, "Sorry, we can't serve you." And now we can. We just delivered a device to a Medicare patient. Her husband said, "Gee, a year ago, she really needed this. She can finally get it." So that really opened up the market for us for those Part B patients. But also, it's a higher ASP, and it accelerates the revenue cycle because we don't have to wait for pre-authorization from an insurance company.
Have you started to get paid on the Part B for the Part B patients? Have you received some revenue in?
Yeah, we have. And right now, while we're sort of building up our history of collections with the DME MAC and getting data on what they will pay so that we can demonstrate not only fair value, but then collectibility, which are required to take revenue. We're right now recording revenue at payment from CMS, but we would expect sometime during the second half of the year to be able to switch and then have enough history to be able to record revenue at delivery.
How will it work with the OMP centers? Because I know years ago when you worked with them, they would file for the reimbursement. Under the current arrangement, are you still going to handle the revenue cycle management, or will they take that on?
Jim, they will take that on because they do this on a regular basis now that there's clarity with the Medicare Part B patients. So patient comes in, they will evaluate them, work with their physician, get all the medical documentation, place the order with us. So we'll sell to them on a wholesale basis, just like other orthotics prosthetics manufacturers. Then they will fit the device on the patient. They will file for the Medicare claim, and they'll get paid directly. So we don't have to do any of the marketing, the reimbursement work. We will do the training and channel support.
And I'm assuming that this arrangement will be much more profitable for the OMP centers now than it was 4 or 5 years ago now that this reimbursement's in place.
Yeah, given the Medicare reimbursement level, and then there's typical markup is about 100%, about 50% margin for the O&P providers. So this is a very substantial unmet need that they can now address for their patients.
Have you been able to reestablish those relationships you had 4 or 5 years ago, or are those folks calling you up to resume business?
Yes, they're calling us. We're attending the orthotics and prosthetics conferences. We've got a new OMP channel team in place of account managers and clinical trainers. And so we've started the certification classes that they need because they have to understand how to evaluate patients, collect the medical documentations, how to fit them, how to do the post-delivery support. So we're in the process of launching this Centers of Excellence program later this year.
I would imagine you need to be prepared for a pretty sharp ramp-up in demand. Are you bringing on folks? Are you bringing on workers to get the units out? Workers are fitting the patients and then more revenue cycle management people yourself?
Yes. As Dave mentioned, we're in the process of hiring 50-60 people. We've gotten most of those hired by now. We've been shipping about 40-50 devices per month and supporting those patients. Our goal is by the second half of this year to be doing 80-100 units per month.
Okay. So 2024 sounds like it'll be pretty much a hockey stick year with much stronger growth in the back half than in the front half.
Right. Yeah. And hopefully just the beginning of the hockey stick.
All right. Can you talk about the opportunities outside the U.S.? I know Germany's been one for you. Are there any other places where you think that there's potential?
Well, Germany is the best market for us in the EU. I mean, it's a big country, over 80 million population. They like high-tech devices, good economy, good reimbursement. So we decided we're just going to double down and continue to grow our account management and our clinical training team there in Germany. Selectively, we'll look at other markets over time.
All right. Then the last one for me because we are just about out of time. I know you've experimented between social media, direct-to-consumer advertising, television ads. Do you think you have the right balance now? What's the strategy to get the word out there about the product?
Yeah. We are always tuning that strategy, working with our agency to find out what's the right mix, what TV channels this population is watching. Facebook has been working really well for us. But we're now starting to see more clinical referrals because occupational therapists that are working with these patients upon discharge say, "Now that I know you can get this covered, let me refer you to MyoPro for a MyoPro.
That's probably well-timed because I know in an election year, the costs for some of those other media outlets can increase pretty significantly. It sounds like it's a good time to open up a new channel.
That's right.
All right. All right. Well, we are out of time. I appreciate the time today. I know you have a lot of meetings. I appreciate the time you're spending on that as well. And we hope to hear from you again soon.
All right. Thank you.
All right. Thank you.
Thank you.
Bye-bye.