Vivos Therapeutics, Inc. (NASDAQ:VVOS) is a medical technology company that has developed a comprehensive suite of proprietary oral appliances and therapeutic treatments to address dentofacial abnormalities and obstructive sleep apnea (OSA) in adults. The company's innovative approach, known as The Vivos Method, has the potential to revolutionize the treatment of sleep-disordered breathing conditions.

Business Overview

Vivos Therapeutics was founded in 2016 with the goal of providing a non-surgical, non-invasive solution for the treatment of mild to severe OSA and snoring in adults. The company's flagship product, the CARE program, features a suite of FDA 510(k) cleared oral appliances that, when used in conjunction with adjunctive therapies, can effectively reduce or eliminate OSA symptoms in a significant portion of patients.

The Vivos Method is a comprehensive treatment protocol that often combines the use of customized oral appliances with other therapeutic modalities, such as myofunctional therapy, chiropractic/physical therapy, and laser treatments. This integrated approach has been shown in published studies to lead to significantly lower Apnea Hypopnea Index (AHI) scores and improved patient outcomes compared to traditional treatments like continuous positive airway pressure (CPAP) or palliative oral appliance therapies.

Vivos' business model is centered around training and supporting independent dentists, who enroll in the company's Vivos Integrated Practice (VIP) program. VIPs receive comprehensive training, educational resources, and ongoing support to effectively incorporate The Vivos Method into their dental practices. As of March 31, 2023, Vivos had over 1,950 trained VIP dentists across North America, who have treated more than 42,600 patients with the company's products and services.

Financials

For the fiscal year ended December 31, 2023, Vivos reported annual revenue of $13.8 million, a decrease of 11% compared to the prior year. This decline was primarily attributable to a $1.7 million decrease in VIP enrollment revenue and a $0.8 million decrease in appliance sales, partially offset by increases in other service revenue streams. The company's annual net loss for 2023 was $13.6 million, and its annual operating cash flow and free cash flow were -$11.9 million and -$12.8 million, respectively.

In the first quarter of 2024, Vivos generated revenue of $3.4 million, a decrease of 11% compared to the same period in 2023. This was driven by a $0.4 million decrease in VIP enrollment revenue and a $0.2 million decrease in appliance sales, partially offset by increases in other service revenue. Gross profit for the quarter was $1.9 million, with a gross margin of 57%. The company reported a net loss of $3.8 million for the first quarter of 2024, and its operating cash flow and free cash flow were -$2.5 million and -$2.6 million, respectively.

The decrease in revenue during the first quarter of 2024 was primarily due to updates to the company's revenue recognition methodology, which resulted in revenue being amortized over a longer period of time. Additionally, the introduction of new, lower-priced VIP enrollment options contributed to the decline in revenue per contract. Despite these headwinds, Vivos remains focused on driving top-line growth through various initiatives, including targeting large dental support organizations (DSOs), expanding its product portfolio, and establishing strategic partnerships with durable medical equipment (DME) companies.

Liquidity and Capital Position

As of March 31, 2024, Vivos had $2.6 million in cash and cash equivalents, which the company believes will not be sufficient to fund operations and strategic objectives over the next twelve months. The company has stated that it will need to obtain additional financing, likely through the issuance of equity securities, in order to sustain operations until it can achieve profitability and positive cash flows.

In February 2024, Vivos took a step to bolster its liquidity and stockholders' equity by entering into a warrant inducement agreement, which resulted in gross proceeds of approximately $4 million. However, the company's financial position remains challenging, and management has acknowledged that without additional financing, there is substantial doubt regarding Vivos' ability to continue as a going concern.

Regulatory Approvals and Product Developments

One of Vivos' key competitive advantages is its robust portfolio of FDA-cleared oral appliances. In November 2023, the company received unprecedented FDA clearance for its CARE devices to treat severe OSA in adults, making it the only oral appliance therapy with such an indication. This clearance, coupled with the company's existing FDA clearances for mild-to-moderate OSA, has significantly expanded the addressable market for Vivos' products and enhanced the company's credibility within the medical community.

In addition to its FDA clearances, Vivos has also made progress in securing Medicare coverage for its OSA treatments. This development provides an additional reimbursement pathway for patients, which could further drive adoption of the company's products and services.

Vivos has also been actively expanding its product offerings, including the acquisition of certain intellectual property and product rights from Advanced Facialdontics, LLC in March 2023. This acquisition has added the Vida and VidaSleep appliances to the company's portfolio, which have been well-received by VIPs and have contributed to revenue growth in the first quarter of 2024.

Strategic Initiatives and Growth Opportunities

Vivos is currently in the process of implementing a transformative strategic initiative that the company believes will significantly accelerate its revenue growth and path to profitability. This new model involves collaborating with various medical entities, such as large medical groups, hospitals, and sleep testing centers, to gain immediate access to a large pool of OSA patients who have either failed CPAP or declined CPAP treatment.

Under this new model, Vivos will leverage its proven operational capabilities to close a high percentage of new OSA cases, while also benefiting from significantly higher gross margins compared to its traditional VIP enrollment-based model. The company expects this new initiative to reduce its reliance on the dental channel and provide access to millions of additional OSA patients across the United States and Canada.

Management has stated that this strategic shift is the result of extensive analysis and collaboration with legal and financial experts to ensure compliance with relevant healthcare laws and regulations. The company believes this new model will give Vivos a critical first-mover advantage in the sleep medicine market and facilitate its path to achieving cash flow positive operations by the end of 2024 or the first quarter of 2025.

Risks and Challenges

Despite the promising growth opportunities, Vivos faces several risks and challenges that investors should be aware of. The company's ability to execute its strategic initiatives and achieve profitability is heavily dependent on its ability to secure additional financing, as its current cash position is not sufficient to fund operations over the next twelve months.

Additionally, Vivos operates in a highly regulated industry, and any changes or delays in regulatory approvals or reimbursement policies could have a material impact on the company's business. The competitive landscape in the sleep apnea treatment market is also evolving, with the potential for new technologies or treatment modalities to emerge and challenge Vivos' market position.

Furthermore, the company's reliance on third-party suppliers and contract manufacturers for its products introduces supply chain risks that could disrupt its operations. Vivos also faces the risk of potential litigation, as evidenced by the ongoing legal dispute with Ortho-Tain, Inc.

Outlook and Conclusion

Vivos Therapeutics is at a critical juncture in its development, as it transitions from a revenue-stage company to one poised for significant growth. The company's innovative treatment approach, robust product portfolio, and strategic initiatives, if executed successfully, have the potential to disrupt the sleep apnea treatment market and drive long-term value for shareholders.

However, Vivos' near-term financial position remains challenging, and the company's ability to secure additional financing will be a key determinant of its future success. Investors should closely monitor the company's progress in implementing its new strategic model, as well as its ability to navigate the regulatory and competitive landscape.

Overall, Vivos Therapeutics presents a compelling investment opportunity for those willing to take on the risks associated with an emerging medical technology company. The company's innovative solutions, combined with its strategic shift towards collaborating with the medical community, could unlock significant growth potential in the years to come.