UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended: December 31, 2023
or
☐
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: 001-41775
Neuraxis,
Inc.
(Exact
name of registrant as specified in its charter)
Securities
registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock NRXS NYSE American 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 ☐ No ☒
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 ☒ No ☐
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 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files). Yes ☒ No ☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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 ☐ Accelerated filer ☐
Non-accelerated filer ☒ 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. ☒
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 Act). Yes ☐ No ☒
The
registrant was not a public company as of June 30, 2023, the last business day of its most recently completed second fiscal quarter,
and therefore, cannot calculate the aggregate market value of its voting and non-voting common equity held by non-affiliates as of such
date. The registrant’s common stock began trading on the NYSE American on August 9, 2023.
The
registrant had 6,594,897 shares of its common stock, par value $0.001, issued and outstanding as of April 12, 2024.
TABLE
OF CONTENTS
Page
PART I
Item 1. Business 5
Item 1A. Risk Factors 35
Item 1B. Unresolved Staff Comments 60
Item 1C. Cybersecurity 60
Item 2. Properties 61
Item 3 Legal Proceedings 62
Item 4. Mine Safety Disclosures 62
PART II
Item 6. Reserved 63
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 68
Item 8. Financial Statements and Supplementary Data 68
Item 9A. Controls and Procedures 68
Item 9B. Other Information 69
Item 9C. Disclosures Regarding Foreign Jurisdictions that Prevent Inspections 69
PART III
Item 10. Directors, Executive Officers and Corporate Governance 70
Item 11. Executive Compensation 75
Item 14. Principal Accounting Fees and Services 85
PART IV
Item 15. Exhibits and Financial Statement Schedules 86
Signatures 90
FORWARD-LOOKING
STATEMENTS
This
Annual Report on Form 10-K (“Annual Report”) contains forward-looking statements within the meaning of the federal securities
laws. All statements contained in this Annual Report, other than statements of historical fact, including statements regarding our future
operating results and financial position, our business strategy and plans, potential growth or growth prospects, future research and
development, sales and marketing and general and administrative expenses, and our objectives for future operations, are forward-looking
statements. Words such as “believes,” “may,” “will,” “estimates,” “potential,”
“continues,” “anticipates,” “intends,” “expects,” “could,” “would,”
“projects,” “plans,” “targets,” and variations of such words and similar expressions are intended
to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections
about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term
and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks,
uncertainties and assumptions, including those described in the “Risk Factors” in this Annual Report. Readers are urged to
carefully review and consider the various disclosures made in this Annual Report and in other documents we file from time to time with
the Securities and Exchange Commission (the “SEC”) that disclose risks and uncertainties that may affect our business. Moreover,
we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for us to predict
all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors,
may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks,
uncertainties, and assumptions, the future events and circumstances discussed in this Annual Report may not occur and actual results
could differ materially and adversely from those anticipated or implied in the forward-looking statements.
You
should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking
statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable,
we cannot guarantee future results, performance, or achievements. In addition, the forward-looking statements in this Annual Report are
made as of the date of this filing, and we do not undertake, and expressly disclaim any duty, to update such statements for any reason
after the date of this Annual Report or to conform statements to actual results or revised expectations, except as required by law.
You
should read this Annual Report and the documents that we reference herein and have filed with the SEC as exhibits to this Annual Report
with the understanding that our actual future results, performance, and events and circumstances may be materially different from what
we expect.
This
Annual Report also contains or may contain estimates, projections and other information concerning our industry, our business and the
markets for our products, including data regarding the estimated size of those markets and their projected growth rates. Information
that is based on estimates, forecasts, projections or similar methodologies is inherently subject to uncertainties and actual events
or circumstances may differ materially from events and circumstances reflected in this information. Unless otherwise expressly stated,
we obtained these industry, business, market and other data from reports, research surveys, studies and similar data prepared by third
parties, industry and general publications, government data and similar sources. In some cases, we do not expressly refer to the sources
from which these data are derived.
EXPLANATORY
NOTE
This
Annual Report on Form 10-K for the year ended December 31 2023 (“Form 10-K”) includes the restatement of our unaudited financial
statements as of and for the three and nine month periods ended September 30, 2023. The Board of Directors (the “Board”)
of the Company, upon recommendation of the Audit Committee of the Board and discussion with management, concluded that the Company’s
previously issued unaudited financial statements as of and for the three and nine month periods ended September 30, 2023, filed with
the Securities and Exchange Commission (“SEC”) on November 20, 2023, should no longer be relied upon and should be restated
due to the identification of an accounting error.
As
disclosed in Note 19 to the financial statements included in this Form 10-K, we restated our unaudited financial statements as of
and for the three and nine month periods ended September 30, 2023 to correct an error that understated the extinguishment of debt
expense and net loss in the Statement of Operations and understated additional paid in capital in the Balance Sheet. Management also
concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2023 due to the
existence of this material weakness.
We
have not filed and do not intend to file amendments to our Quarterly Report on Form 10-Q as of and for the three and nine month periods
ended September 30, 2023. Comparative amounts for 2023 presented in our 2024 Quarterly Reports on Form 10-Q will be changed retrospectively
to reflect the restatement. Accordingly, investors should only rely on the financial information and other disclosures as of and for
the three and nine month periods ended September 30, 2023 in this Form 10-K or in future filings with the SEC and not any previously
issued or filed reports.
The
impact of the restatement and the unaudited restated financial statements as of and for the three and nine month periods ended September
30, 2023 are described and included in Note 19 to our audited financial statements included in this Form 10-K.
PART
I
ITEM
1. BUSINESS
Overview
Neuraxis, Inc. (“we”, “us”, the “Company” or “Neuraxis”) is a medical technology
company focused on developing neuromodulation therapies to address chronic and debilitating conditions in children and adults. We
are dedicated to advancing science with our proprietary IB-Stim therapy, based on our Percutaneous Electrical Nerve Field
Stimulation (PENFS) technology, which was developed internally by the Company. We believe that superior science and evidence-based
research, are necessary for adoption by the medical and scientific community. With one FDA indication (functional abdominal pain
associated with IBS in adolescents 11-18 years old) on the market, additional clinical trials of PENFS in multiple pediatric
conditions are underway focused on unmet healthcare needs in children, see “—Our Pipeline” for more
information.
Our
first product, IB-Stim, is a PENFS system intended to be used in patients 11-18 years of age with functional abdominal pain associated
with IBS. IB-Stim is a US FDA Class II medical device that has received one regulatory clearance: IB-Stim (DEN180057, 2019), under the
regulation name of “non-implanted nerve stimulator for functional abdominal pain relief.”
Our
Mission
Our
mission is to provide solutions that create value and provide better and safer patient outcomes. We believe in improving lives and minimizing
suffering; particularly in the pediatric population, where research and therapeutics are usually lacking. The Company already has market
clearance for its IB-Stim ® that targets functional abdominal pain associated with IBS, in children, with a total addressable market
of up to 6 million children. Through innovation and research, we are reimagining the future of patient care.
Our
Corporate History
Neuraxis,
Inc. was established in 2011 and incorporated in the state of Indiana on April 17, 2012, under the name of Innovative Health Solutions,
Inc. The name was changed to Neuraxis, Inc. in March of 2022. Additionally, the Company filed a Certificate of Conversion to become a
Delaware corporation on June 23, 2022. The authorized shares were increased, and a par value established. On September 7, 2021, the Company’s
board of directors authorized a 4-for-1 stock split. They also increased the number of authorized common stock shares from 2,700,000
to 10,800,000. Furthermore, on September 9, 2021, the board authorized and increase of authorized shares of common stock from 10,800,000
to 13,400,000 in anticipation of a capital offering.
As
part of the conversion to a Delaware corporation, the total number of shares of all classes of stock which the Corporation shall have
authority to issue is 101,120,000 shares, consisting of (i) 100,000,000 shares of common stock, par value $0.001 per share, and (ii) 1,120,000
shares of Preferred Stock, par value $0.001 per share (“Preferred Stock”), 1,000,000 of which is designated as “Series
A Preferred Stock” and 120,000 of which is designated as “Series Seed Preferred Stock”.
Furthermore,
on January 10, 2023, the Company’s board of directors authorized a 1-for-2 reverse stock split. All per share information has been
adjusted for this reverse stock split. The reverse split became effective on January 12, 2023.
We
have developed three FDA cleared products, the IB-Stim (DEN180057, 2019), the NSS-2 Bridge (DEN170018, 2017), and the original 510(K)
clearance (K140530, 2014), all of which were developed internally by the Company.
Pediatrics
Industry Overview
Pediatric
providers, as a whole, had expressed concern about the lack of attention given to children with functional abdominal pain disorders (including
IBS) and the limited treatment options available for a population that suffers from significant disabilities. With 20% of the United
States population under age 18, our Company focus is on opportunities in pediatrics industry. The pediatrics industry has multi-billion-dollar
market opportunities. The following points clearly outline the unmet need in children:
Our
Opportunity
For
years, physicians and qualified healthcare professionals have resorted to the use of off-label medications without proper evidence of
efficacy or safety. This is despite a technical report from the American Academy of Pediatrics and NASPGHAN which found very little evidence
to endorse the use of any drugs in the treatment of FAPDs in children. Medications including tricyclic antidepressants, SSRIs and gabapentinoids
continue to be used off-label despite lack of evidence to support efficacy or safety. Not only have the most commonly used medications
(amitriptyline and citalopram) failed to beat placebo in clinical trials, but new studies also suggest significant risks with the potential
for serious side effects with these drugs. The absence of conclusive data to support treatments based on scientific evidence, and the
fact no drug therapies have been approved by the FDA for the treatment of FAPDs or IBS in children, presents a unique market opportunity
for Neuraxis. Below are the current standard treatments in children with functional abdominal pain and IBS.
Our
Solutions
We
entered the pediatric market with clinical evidence, key opinion leaders and society endorsement, including a signed letter from the
American Academy of Pediatrics and NASPGHAN supporting our request for insurers to pay for our IB-Stim device. Our IB-Stim® is a
non-drug alternative to reduce functional abdominal pain in patients with IBS. In June 2019, the FDA cleared IB-Stim, a
non-surgical, neuromodulation device for children and adolescents who suffer from IBS, through a de novo process (DEN180057, 2019).
The FDA created a new classification of PENFS for the IB-Stim device. This is based on pre-clinical and clinical studies
demonstrating the mechanism of action and efficacy. Based on this new class of devices, the IB-Stim falls under 21 CFR Part 876,
Subpart F – Therapeutic Devices, 876.5340, Product Code QHH. As a PENFS device, it is non-implantable and provides field
stimulation to cranial nerves V, VII, IX and X in the ear to access the CNS. It stimulates remotely from the source of pain to
modulate central pain regions, such as the limbic system, and relieve functional abdominal pain associated with IBS. Studies have
demonstrated long-term benefits in functional disability, psychological co-morbidities, and pain. For example, the table below is
from a recently published study of IB-Stim in a population of patients with chronic functional abdominal pain. The follow-up was
done at 6-12 months post-treatment and shows improvements in validated questionnaires compared to baseline (API), functional
disability index (FDI), pain catastrophizing scale (PCS), Screen for Childhood Anxiety Related Disorders (SCARED) and the Promis
Anxiety.
Santucci
NR, King C, El-Chammas KI, Wongteerasut A, Damrongmanee A, Graham K, Fei L, Sahay R, Jones C, Cunningham NR, Coghill RC. Effect
of percutaneous electrical nerve field stimulation on mechanosensitivity, sleep, and psychological comorbidities in adolescents with
functional abdominal pain disorders. Neurogastroenterol Motil. 2022;34:e14358.
We
have only submitted one FDA De Novo request and have not submitted any additional 510(k) premarket notifications for our pipeline indications
to date.
Compliance
with treatment so far has been outstanding with the four weeks of therapy required to sustain long-term benefits. Compliance has been
an issue with non-pharmacological treatment for children, particularly with some of the psychological approaches such as cognitive behavioral
therapy or guided imagery, which sometimes requires 8-12 weeks of treatment. In fact, 95% of adolescents who used IB-Stim said that they
would recommend this treatment to family and friends. Many children’s hospitals across the country are already treating children
with IB-Stim successfully since it provides a better alternative for therapy in children with IBS and disability and allows them to treat
them safely and effectively.
We
have concentrated our marketing focus on the 260 children’s hospitals within the United States. To date, we have sold our IB-Stim
product to approximately 57 children’s hospitals within our target market.
Competition
The
competitive landscape for therapies includes off-label drugs and drugs with FDA approved only for adults with IBS while there is no
FDA indicated treatments for patients 11-18 years of age with functional abdominal pain associated with IBS and prescriptions often
contain FDA black box labels. Psychological treatments such as cognitive behavioral therapy (CBT) or guided imagery have been shown
to be some of the most effective treatments for these conditions, however, these are limited by access to trained therapists. It also
includes devices that could theoretically be used, but do not have supporting data or FDA clearance for functional bowel disorders
or IBS. Digital therapeutics that offer CBT for IBS have been developed for adults with IBS with limited success in terms of
reaching large numbers of patients. Virtual reality could potentially be used in the future to also deliver CBT to patients with
IBS. Our method patents also limit other devices from targeting IBS through stimulation of cranial nerve branches in the
ear.
Approved
drugs for Adults with IBS
1. Rifaximin: an intraluminal antibiotic approved for IBS-diarrhea
Devices
The
neurostimulation market is predominantly comprised of surgically implanted, invasive technologies that are not directly competitive with
our technology. Several neurostimulation companies are large, publicly traded companies that have a history in the market, have significantly
easier access to capital and other resources and have an established product pipeline. The combined clinical research and product development
done by the industry, including by us and all our competitors, is uncovering the beneficial effects of neurostimulation which now establishes
neuromodulation as a valid and scientifically supported approach to the treatment of neurological conditions, and accordingly, we expect
for competition in the non-implanted space to grow in the future.
While
many companies have joined the neuromodulation space, there are no companies targeting the CNS or the brain-gut axis through auricular
nerves for functional bowel disorders or IBS. Currently, the Neuraxis method patents protect access to the brain, particularly the limbic
systems through branches of cranial nerves in the ear.
Our
Competitive Strengths
We
believe that the following competitive strengths will enable us to compete effectively:
● First to market
● Strong portfolio of device and method patents
● Large Market Opportunities
● Strong pediatric pipeline
● Academic Society Support
● Strong clinical data carried out in leading academic institutions in the U.S.
Our
Growth Strategies
● List price of our product is $1,195 per device and $4,780 per patient
● Strong gross margin
● Direct sales force
● Target customers are children’s hospitals and pediatric clinics
Our
Pipeline
The
IB-Stim device is to be used for the indication of functional abdominal pain associated with IBS and functional nausea in children.
The same underlying technology will be used for the remaining pipeline indications, but we may use a name other than
“IB-Stim” for marketing and commercialization purposes.
With
one FDA indication—functional abdominal pain associated with IBS in adolescents 11-18 years old—on the market, additional
clinical trials of PENFS in multiple pediatric conditions are underway focused on unmet healthcare needs in children. These indications
consist of chronic nausea, post-concussion syndrome, chemotherapy-induced nausea and vomiting, cyclic vomiting syndrome.
The
chart below shows our status in the FDA review process for IB-Stim and each of the following pediatric indications:
1. Chronic
nausea: RCT completed, and data being analyzed. ClinicalTrials.gov Identifier: NCT03675321, Defining Adolescent
Nausea Through Brain-Gut Physiology and Non-Invasive Neurostimulation Response. A randomized, double blind,
placebo-controlled trial to evaluate the efficacy of IB-Stim in children with functional nausea. The primary endpoint was to measure
improvements in nausea using the Nausea Severity Scale after IB-Stim therapy compared to a placebo device. The study enrolled 110
participants and was conducted at Children’s Wisconsin/Medical College of Wisconsin.
2. Post-concussion
syndrome: RCT currently enrolling patients. ClinicalTrials.gov Identifier: NCT04978571, A Prospective Study on the
Effect of Auricular Percutaneous Electrical Nerve Field Stimulation (PENFS) in Patients with Post-Concussion Syndrome
(PCS). A randomized, double blind, placebo-controlled trial to evaluate the efficacy of IB-Stim in children with
post-concussion symptoms. The primary endpoint will be to measure improvements in validated measures, including the Immediate
Post-Concussion Assessment, Post-Concussion Symptom Scale, and Balance Error Scoring Symptom compared to placebo. The study will
enroll 100 participants and is being conducted at Children’s Hospital of Orange County.
3. Chemotherapy-induced
nausea and vomiting: RCT currently enrolling patients. ClinicalTrials.gov Identifier: NCT05143554, Efficacy of
Auricular Neurostimulation for Children Adolescents and Young Adults with Chemotherapy Induced Nausea and Vomiting. Subject
will be randomized to five days of active vs placebo device during administered chemotherapy known to cause moderate to severe
nausea/vomiting. With the next scheduled identical chemotherapy cycle, each subject will cross over to the other device (active vs
placebo). The primary endpoint will be to measure improvements in validated measures of nausea and vomiting including the Baxter
Retching Faces Scale, Rhodes Index of Nausea, Vomiting and Retching, and also assessment of rescue medication. The study will enroll
50 participants and is being conducted at Children’s Wisconsin/Medical College of Wisconsin.
4. Cyclic
vomiting syndrome: Pilot study completed, see ClinicalTrials.gov Identifier: NCT03434652. Auricular
Neurostimulation for Children with Cyclic Vomiting Syndrome: A randomized, placebo-controlled trial. RCT anticipated to
begin enrolling patients in the second half of 2023. This will be a double blind, placebo-controlled trial
to evaluate efficacy of IB-Stim in pediatric patients with cyclic vomiting syndrome. The primary endpoint will be to measure
decreases in the frequency and severity of cyclic vomiting episodes compared to a placebo device. The study will include a minimum
of 120 patients and the site is yet to be finalized.
Each
step in the FDA review process differs in duration and cannot be predicted with accuracy. Timing of FDA review and approval, if ever
received, cannot be assured and the process and any approval is within the sole control and discretion of the FDA.
Products
The
IB-Stim is a percutaneous PENFS system intended to be used in patients 11-18 years of age with functional abdominal pain associated with
IBS. IB-Stim already has market clearance from FDA for functional abdominal pain associated with IBS in children. FDA has classified
the non-implanted nerve stimulator for functional abdominal pain relief as Class II devices.
The
IB-Stim is intended to be used for 120 hours per week for three (3) consecutive weeks, and not to exceed four (4) weeks, through application
to branches of Cranial Nerves V, VII, IX and X, and the occipital nerves identified by transillumination, as an aid in the reduction
of pain when combined with other therapies for IBS (DEN180057, 2019). In published studies, patients treated with IB-Stim demonstrated
significant improvement in pain, disability and global symptoms with no serious adverse events, and minimal to no side effects, including
localized skin irritation. See Neurostimulation for abdominal pain-related functional gastrointestinal disorders in adolescents:
a randomized, double-blind, sham-controlled trial, Kovacic K, et.al., Lancet Gastroenterol Hepatol. 2017;2:727-737; Efficacy
of Auricular Neurostimulation in Adolescents With Irritable Bowel Syndrome in a Randomized, Double-Blind Trial, Krasaelap A et.al.,
Clin Gastroenterol Hepatol. 2020;18:1987-1994; Effect of percutaneous electrical nerve field stimulation on mechanosensitivity,
sleep, and psychological comorbidities in adolescents with functional abdominal pain disorders, Santucci et.al., Neurogastroenterol
Motil. 2022;34:e14358.
The
ability of the IB-Stim to produce systemic effects by modulating the central nervous system has been demonstrated in a pre-clinical animal
model of IBS (see Business—Pre-Clinical Data). In patients with IBS, the largest effect on all pain measures, including
composite pain scores, worst pain, disability and global symptoms, was seen after completing three consecutive weeks of treatment (see
Business—Clinical Data). A fourth consecutive week of treatment was included in clinical testing; no safety concerns were
identified with this extra consecutive week of treatment. In the trial of 115 subjects, 10 patients reported side-effects and only three
discontinued the study because of side-effects. Of such 10 patients, six experienced ear discomfort (three in the PENFS group, three
in the sham group), three experienced adhesive allergies (one in the PENFS group, 2 in the sham group), and one experienced syncope due
to needle phobia (in the sham group). There were no serious adverse events.
Medical
providers are trained to place the IB-Stim through IB-Stim Training and Certification. Once the provider is trained, the device can be
placed in the outpatient clinic and can be removed by the provider in the clinic or the patient at home. IB-Stim stays on for a total
of five-days to allow delivery of gentle electrical pulses to nerves below the skin that access the central nervous system. A study in
adolescents showed greater improvement in functional abdominal pain and global symptom improvement with every week of treatment (up to
four weeks). At the end of the four-week study, 95% of adolescents stated they would recommend the treatment to family or friends. Safety
of percutaneous electrical nerve field stimulation has also been reported in a separate study of over 1200 adult patients with no serious
adverse events and minimal to no side-effects.
When
wearing our IB-Stim device and following an easy-to-learn and efficient procedure, patients can still attend school and extracurricular
activities, exercise or play non-contact sports, shower, wear ear buds or headphones, and travel.
Our
IB-Stim device costs $1,195 per device, and each patient will use four (4) devices. Potential patients with other indications are expected
to use six (6) or more devices per patient.
Technology
A
maladaptive central nervous system can process pain and emotions differently. This often occurs in children following a traumatic event,
viral infections, inflammation or trauma. Changes in brain pathways are known to be involved in the pathophysiology of functional bowel
disorders and IBS. The IB-Stim works by sending gentle electrical impulses into cranial nerve bundles located in the ear. This stimulation
targets brain areas that process pain and helps reduce functional abdominal pain associated with IBS. An animal model of IBS demonstrated
that the firing of neurons in the amygdala could be reduced by more than 50% in just 15 minutes of stimulation with the IB-Stim technology.
A recent human study in adults with pain related to fibromyalgia suggested that the IB-Stim technology exerts its effect by modulating
emotional and executive control centers related to pain processing, see Feasibility of Auricular Field Stimulation in Fibromyalgia:
Evaluation by Functional Magnetic Resonance Imaging, Randomized Trial, Woodbury et.al., Pain Med. 2021;22:715-726. The
field of art pertains to an electrical stimulation device, including a stimulator containing a generator to deliver electrical pulses
with defined parameters, and a power supply for supplying the electrical energy through four separate needles, and at least one of which
is a needle array.
Pre-ClinicalData
In
an animal model of IBS, extracellular, electrophysiologic recordings were performed from neurons in the rat amygdala before and 15 minutes
after PENFS treatment. There was a 65% decrease in the spontaneous firing of these neurons after 15 minutes of PENFS.This dampening of
neurons in the CNS likely accounts for the modulation of pain responses in a model of post-inflammatory visceral and somatic hyperalgesia.
Clinical
Data
We
have over 700 published patients specific to our first FDA indication which is functional abdominal pain associated with irritable bowel
syndrome in patients 11-18 years of age. A published patient is defined as a patient who went through a study, the study was analyzed
and now the study has been published in a peer-reviewed journal.
A
randomized, controlled study in children 11-18 year of age used primary endpoint of improvements in abdominal pain. The Pain Frequency-Severity-Duration
(“PFSD”) questionnaires was completed at baseline by all subjects and after each week of treatment (weeks 1–3), as
well as at extended follow-up occurring in the 8–12 weeks following the end of treatment. The PFSD scale incorporates multiple
aspects of the pain experience and was administered weekly during treatment and at extended follow-up appointments. The PFSD scale validated
for chronic pain in children (aged 8–18 years). The PFSD was also used to rate weekly worst abdominal pain on a numerical rating
scale (0 for no pain, 10 for worst pain). Patients were followed up for a median of 9.2 weeks from the last week of treatment.
For
the active PENFS group, median worst pain at follow-up remained lower (baseline: 8.0 vs. follow-up: 6.0), whereas there was no difference
at follow-up in the control group (baseline: 7.5 vs. follow-up: 7.0). The between-group differences in worst pain ratings after 3 weeks
of treatment showed that the PENFS group improved to a greater extent, with the control group reporting significantly higher worst pain
(median 7.0) than the PENFS group (median 5.0).
At
long-term follow-up, median PFSD composite scores were 12.6 (IQR 3.6–22.5) in the PENFS group and 16.8 (4.8–33.6) in the
control group. A comparison of changes in PFSD composite scores (baseline to follow-up) showed that patients in the PENFS group reported
significantly greater improvement in pain (median –8.4) than those in the control group (median 0.0). This study was published
in the Lancet Gastroenterology Hepatology, (Kovacic K, et.al. Lancet Gastroenterol Hepatol. 2017;2:727-737).
A
secondary endpoint in the same study used the functional disability index (FDI) to assess functional disability in those treated
with PENFS and compared to sham treatment. Those treated with PENFS changed from moderate disability to minimal at the 2–3-month
follow-up while the sham device group had no change.
A
separate published paper looked at 51 pediatric patients with IBS and used the symptoms response scale (SRS) to assess global symptoms
improvement following PENFS treatment compared to sham. Global symptom improvement was assessed with a validated pediatric questionnaire,
Symptom Response Scale (SRS). Symptoms were recorded as better, worse, or no change based on a 15-point scale across individual domains
for both improvement and deterioration of overall symptoms. Findings from several studies that used the SRS have shown that using 7-point
scale response options in disease-specific measures, a change score of 0.5 represents the minimal clinically important difference (Juniper
et.al. J Clin Epidemiol 1994; 47: 81–87 and Guyatt GH et.al.1987; 42: 773–78). As previously noted, a minimum change in score
of ≥ 2 was chosen for this study as a more stringent criterion for global improvement before and after PENFS treatment and to compare
between groups. Patients and providers were blinded in terms of those who received active PENFS or sham. At the end 3 weeks of therapy
using the change of ≥ 2, 81% of the PENFS group compared with 26% of the sham group (*p≤ 0.001, #p=0.002) reported overall symptom
improvement. When applying an even more stringent criteria with a change ≥ 3 on the SRS, 67% of the PENFS group compared with 22%
of the sham group reported symptoms improvement (p=0.002) (Krasaelap A et.al. Efficacy of Auricular Neurostimulation in Adolescents With
Irritable Bowel Syndrome in a Randomized, Double-Blind Trial. Clin Gastroenterol Hepatol. 2020;18:1987-1994).
Recently,
the largest, prospective, multicenter registry for any drug or device in pediatric patients with pain associated DGBIs was
published. It evaluated outcomes of pediatric patients (8-18 years) following a 4-week course of IB-Stim in a real-world clinical
setting. Overall, 292 patients met Rome IV Diagnostic criteria for any pain associated disorder of the gut-brain interaction
(DGBIs). In this cohort, 92% had failed medication therapy and 61% of patients had failed 4 or more medications when they entered
the study. Patients were asked to fill out several validated pediatric measures, including the abdominal pain index (API) and a
validated questionnaire that assesses frequency, duration, and intensity of abdominal pain episodes. Data were collected weekly for
the first 3 weeks and at 3, 6, 9 and 12 months. Compared to baseline scores, there were significant improvements in the API after 4
weeks of IB-Stim treatment at every time point, including 6 month (p<0.001) and 12 months (p<0.001). Although there were many
dropouts by the end of the 12 months, the results were still significant and sustained. No serious adverse effects were recorded
during the entire 12 month follow-up. (Chogle, A. et. al. A multicenter registry study on percutaneous electrical nerve field
stimulation for pediatric disorders of gut-brain interaction. J Pediatr Gastroenterol Nutr. 2024 Mar 7.)
Abdominal Pain Index (API)
Time point n Median (IQR) p Value
An open-label study of 20 patients treated with PENFS in a “real-world” clinical setting at Cincinnati Children’s
Hospital demonstrated that after PENFS, abdominal pain (p < 0.0001), nausea (p=0.001), pain catastrophizing (p = 0.001), functional
disability (p<0.0001), and anxiety (p = 0.03) exhibited significant improvements, and were sustained 6-12 months after treatment (Santucci
et.al. Effect of percutaneous electrical nerve field stimulation on mechanosensitivity, sleep, and psychological comorbidities in adolescents
with functional abdominal pain disorders. Neurogastroenterol Motil. 2022;34:e14358). Validated questionnairesincluded the abdominal pain
index (API), nausea severity scale (NSS), functional disability index (FDI), as well as psychological measures of catastrophizing (PCS-C)
and anxiety (SCARED). The table below summarizes the results pre, during and post PENFS results at long-term follow-up (Santucci et.al.
Effect of percutaneous electrical nerve field stimulation on mechanosensitivity, sleep, and psychological comorbidities in adolescents
with functional abdominal pain disorders. Neurogastroenterol Motil. 2022;34:e14358).
A
clinically meaningful endpoint is the number needed to treat (NNT) used in treatment for abdominal pain-related functional gastrointestinal
disorders in adolescents. NNT means the number of patients that need to be treated for one patient to get the targeted improvement (≥30%
improvement).
Reimbursement
A PENFS procedure-specific Category III CPT
Code (0720T) was published on December 30, 2021 and became effective for utilization on July 1,2022. Category III CPT Codes are
temporary codes issued to define and track the utilization of new procedural technology. In collaboration with the American Medical
Association, we withdrew our initial Category I CPT Code application submitted in 2023. We continue to work diligently with the
American Academy of Pediatrics and other specialty medical societies on the pursuit of a Category I CPT Code for PENFS procedures.
To expand patient access to PENFS procedures and IB-Stim technology, we launched our internal Prior Authorization team under our
Guidance & Patient Support function in 2023. This continues to address the Prior Authorization process barriers for providers
and children’s hospitals and streamlines a patient’s access to our Patient Advocacy and Financial Assistance offerings,
if needed. Six (6) commercial health insurers, including certain Blue Cross Blue Shield licensees, have instituted formal medical
policy coverage for PENFS. The total membership of these health insurers is approximately 9,000,000 covered lives; an additional
health insurer, with approximately 7,000,000 members, will institute formal medical policy coverage for PENFS in the second quarter
of 2024 bringing the total number of covered lives to approximately 16,000,000 over seven (7) commercial health insurers. Patients
who are appropriate clinical candidates may have policy-covered access to PENFS and IB-Stim technology under their specific health
plan. We continue to actively leverage clinical evidence and peer-reviewed publications to expand patient access to IB-Stim
technology. In addition, we anticipate academic medical society support in the form of a position paper and an update to treatment
guidelines to support the use of PENFS as a potential standard of care.
Marketing
We
market our products through search engine optimization, or SEO, internet channels and to physicians via the academic society. We plan
to extensively ramp-up our marketing efforts to patients and physicians as we gain additional indications.
Patients/Customers
Our
current patient base is children 11-18 years of age and suffering from functional abdominal pain. Our customers are primarily children’s
hospitals who serve these children.
Intellectual
Property
Our
intellectual property consists of patents, trademarks, and trade secrets. Our trade secrets consist of product formulas, research, and
development, and unpatentable know-how, all of which we seek to protect, in part, by confidentiality agreements. To protect our intellectual
property, we rely on a combination of laws and regulations, as well as contractual restrictions. Federal trademark law protects our registered
trademarks. We also rely on the protection of laws regarding unregistered copyrights for certain content we create and trade secret laws
to protect our proprietary technology. To further protect our intellectual property, we enter into confidentiality agreements with our
executive officers and directors.
Trademarks
The
Company has 10 registered trademarks, eight (8) of which are being used in commerce:
Country Trademark Reg. No. Reg. Date Class/Goods Status
Country Trademark Reg. No. Reg. Date Class/Goods Status
Country Trademark Reg. No. Reg. Date Class/Goods Status
The
Company has no unregistered trademarks.
Patents
The
Company has eight (8) granted patents and nine (9) applied for patent applications in the United States and nine (9) applied for foreign
patent applications.
License
Agreements
TKBMN
Exclusive License Agreement
On
May 7, 2020, the Company entered into an exclusive license agreement with TKBMN, LLC to obtain an exclusive license under certain
patent rights (the “Patent Rights”) owned by TKBMN. Dr. Thomas Carrico, our Chief Regulatory Officer, is the manager of
TKBMN. Brian Carrico, our Chief Executive Officer, and Matt Carrico, our National Sales Director, are members of TKBMN. TKBMN owns
the Patent Rights set forth in the patents listed in the following table (the “TKBMN Patents”) by virtue of an
assignment from Dr. Carrico, who is the sole inventor listed on the TKBMN Patents. TKBMN has assigned the auricular portion of the
TKBMN Patent Rights to the Company.
Licensed TKBMN Patents
* If all maintenance fees remain paid
Pursuant
to the exclusive license agreement, TKBMN agreed to grant an exclusive, worldwide, non-transferable, royalty-free license under Patent
Rights, which including three patents applications filed by TKBMN in connection with systems and methods for elector-therapy treatment,
to the Company to develop, market, and sell licensed products, in the field of electro-therapy treatment by stimulation of cranial nerves,
cranial nerve branches, auricular nerves, auricular nerve branches, auricular nerve bundles, and/or auricular anatomical structures in
human patients (the “Field”), in consideration of a one-time license fee of $1.00. The Company has the right to grant sublicenses
to the Patents Rights in the Field. The exclusive license agreement expires upon the expiration of the last to expire valid claim within
the Patent Rights and may be terminated by the Company upon 60 days prior written notice. Upon expiration or termination of the exclusive
license agreement, all rights in the Patent Rights will revert to TKBMN. There are no royalties or any other form of committed revenue
to TKBMN or any of its members Under the agreement, the Company has agreed to cover fees and expenses associated with maintenance, prosecution,
and additional associated/continuation patent filings for the TKBMN Patents.
Masimo
License and Collaboration Agreement
On
April 9, 2020, the Company entered into a license and collaboration agreement with Masimo. As consideration, in part, Masimo entered
into a Series A Preferred Stock purchase agreement with the Company. Under the license and collaboration agreement, the Company grants
an exclusive, fully paid-up, royalty-free license to specifically identified patents and trademarks in a limited Field of use. At all
times, the Company remains the owner of all licensed intellectual property rights, and there is a possibility of joint ownership of collaboratively
developed products and methods. The licensed patents are generally directed to a device and the treatment of opioid withdrawal symptoms.
The licensed trademarks are generally directed to the NSS-2 Bridge mark. The license agreement includes a collaboration component to
efficiently develop, obtain regulatory approval, and commercialize products for the limited field of use. The term of the agreement is
in effect until the expiration or lapse of the last intellectual property rights. Masimo paid a one-time fee of $250,000. The license
and collaboration agreement may not be terminated by the Company for any reason, and the sole remedy for any breach or default by Masimo
shall be to seek monetary damages and equitable remedies. The license and collaboration agreement may be terminated by Masimo if there
is material breach by the Company that remain uncured for thirty (30) days or without cause by providing thirty (30) days prior written
notice. See“—Our Corporate History” for more information.
Implications
of Being a Smaller Reporting Company
We
are a “smaller reporting company” as defined in Rule 10(f)(1) of Regulation S-K. Smaller reporting companies
may take advantage of certain reduced disclosure obligations, including, among other things, providing only two years of audited financial
statements. We will remain a smaller reporting company until the last day of the fiscal year in which (1) the market value of our shares
held by non-affiliates equals or exceeds $250 million as of the prior June 30th, or (2) our annual revenues equaled or exceeded
$100 million during such completed fiscal year and the market value of our shares held by non-affiliates equals or exceeds $700 million
as of the prior June 30th. Such reduced disclosure and corporate governance obligations may make it more challenging for investors
to analyze our results of operations and financial prospects.
For
additional information, see “Risk Factors – Because the Company is a ‘smaller reporting company,’ we may take
advantage of certain scaled disclosures available to us, resulting in holders of our securities receiving less Company information than
they would receive from a public company that is not a smaller reporting company” and “As a smaller reporting company,”
we may at some time in the future choose to exempt our Company from certain corporate governance requirements that could have an adverse
effect on our public stockholders.”
Implications
of Being an Emerging Growth Company
We
are an “emerging growth company” as defined in the JOBS Act. We will remain an emerging growth company until the earlier
of (1) December 31, 2028, (2) the last day of the fiscal year in which we have total annual gross revenue of at least $1.235 billion,
(3) the last day of the fiscal year in which we are deemed to be a “large accelerated filer” as defined in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur on the date on which we have issued
more than $1.0 billion in non-convertible debt securities during the prior three-year period. An emerging growth company may take advantage
of specified reduced reporting requirements and is relieved of certain other significant requirements that are otherwise generally applicable
to public companies. As an emerging growth company, we may:
● provide reduced disclosure about our executive compensation arrangements; and
In
addition, under the JOBS Act, an emerging growth company can delay the adoption of certain accounting standards until those standards
would otherwise apply to private companies. We have elected not to take advantage of the extended transition period for complying with
new or revised accounting standards provided to emerging growth companies under the JOBS Act.
Government
Regulation
Our
products and our operations are subject to extensive regulation by the U.S. Food and Drug Administration, or FDA, and other federal,
state, and local authorities in the United States, as well as comparable authorities in foreign jurisdictions. Our products are subject
to regulation as medical devices in the United States under the Federal Food, Drug, and Cosmetic Act, or FDCA, and its implementing regulations.
United
States Regulation
The
FDA regulates, among other things, the development, design, non-clinical and clinical testing, manufacturing, safety, effectiveness,
labeling, packaging, storage, installation, servicing, recordkeeping, premarket clearance or approval, adverse event reporting, advertising,
promotion, marketing and distribution, and import and export and post-marketing surveillance of medical devices in the United States
to ensure that medical devices distributed domestically are safe and effective for their intended uses and otherwise meet the requirements
of the FDCA.
FDA
Premarket Clearance and Approval Requirements
Unless
an exemption applies, each new or significantly modified medical device commercially distributed in the United States requires FDA clearance
of a 510(k) premarket notification. The 510(k) clearance can be resource intensive, expensive, and lengthy.
Under
the FDCA, medical devices are classified into one of three classes—Class I, Class II or Class III—depending on the degree
of risk associated with each medical device and the extent of manufacturer and regulatory control needed to ensure its safety and effectiveness.