Executive Summary / Key Takeaways

• NeurAxis, a medical technology company focused on neuromodulation, is executing a strategy centered on generating robust clinical data to drive insurance coverage and secure favorable billing codes for its IB-Stim device, targeting functional abdominal pain in children.
• Recent significant milestones, including a 38.5% year-over-year revenue increase in Q1 2025, the awarding of a Category I CPT code for IB-Stim (effective Jan 1, 2026), expansion of covered lives to approximately 51 million, and the soft launch of the new RED device, signal building commercial momentum.
• While the company continues to incur operating losses ($2.30M in Q1 2025) and faces a going concern risk, management is targeting cash flow breakeven at $10M-$12M in annual revenue and expects profitability in Q1 2025, contingent on the realization of key catalysts like academic guideline publication and broader insurance adoption.
• The commercialization of the RED device, which already has a Category I CPT code and national reimbursement, is expected to contribute meaningful revenues in 2025 and offers a complementary opportunity leveraging the existing sales force.
• Key risks include the timing and impact of insurance policy decisions following guideline publication, successful remediation of identified material weaknesses in internal controls, and the need for potential future financing if revenue acceleration is slower than anticipated.

Setting the Scene: A Niche Innovator in Neuromodulation

NeurAxis, Inc. operates within the dynamic medical technology sector, specializing in the development and commercialization of neuromodulation therapies. The company's core focus lies in addressing chronic and debilitating conditions, initially carving out a niche in pediatric functional gastrointestinal disorders. Its flagship product, the IB-Stim, is a percutaneous electrical nerve field stimulator (PENFS) device designed to treat functional abdominal pain associated with irritable bowel syndrome (IBS) in patients aged 8 to 21 years. This focus positions NeurAxis against larger, more diversified players in the broader neuromodulation market, such as Nevro Corp. (NVRO), Axonics, Inc. (AXNX), Medtronic plc (MDT), and Boston Scientific Corp. (BSX), who primarily target adult populations and different indications like chronic pain or incontinence with often more invasive technologies.

NeurAxis's strategic approach has been deliberate: build a foundation of compelling clinical evidence, leverage that data to secure widespread insurance coverage, and establish streamlined billing processes to unlock significant commercial scale. This strategy is a direct response to the historical challenges faced in gaining broad market access for innovative therapies, particularly in pediatric populations where reimbursement pathways can be complex. The company's journey, from its origins as Innovative Health Solutions focusing on electroacupuncture devices to its current identity with FDA-cleared products like IB-Stim and the recently cleared Rectal Expulsion Device (RED), reflects an evolution towards targeted, evidence-backed solutions aimed at addressing specific unmet needs.

The competitive landscape highlights NeurAxis's position as a smaller, specialized player. While larger competitors like Medtronic plc and Boston Scientific Corp. possess vast scale, extensive R&D budgets, and broad product portfolios, NeurAxis differentiates itself through its focused expertise in pediatric functional disorders and its specific technology platforms. Compared to companies like Nevro Corp. and Axonics, Inc., which have established positions in SCS and sacral neuromodulation respectively, NeurAxis's PENFS technology for pediatric GI pain offers a less invasive approach. However, this niche focus and smaller scale mean NeurAxis faces challenges related to higher per-unit costs compared to the economies of scale enjoyed by larger rivals, potentially impacting margins. Despite this, NeurAxis's reported gross profit margin of 85.86% (TTM) remains competitive, indicating efficiency in its current operational model, albeit on a smaller revenue base compared to competitors whose gross margins range from approximately 66% to 75% (based on available annual data).

Technological Edge and Innovation Pipeline

At the heart of NeurAxis's strategy is its differentiated technology. The IB-Stim device utilizes Percutaneous Electrical Nerve Field Stimulation (PENFS), a non-invasive approach that involves placing electrodes on the ear to stimulate cranial nerves. While specific quantifiable benefits compared to alternative treatments (like pharmaceuticals or behavioral therapy) in terms of percentage points of efficacy or cost savings are not detailed, the company highlights that a systematic review by the academic society NASPGHAN in late May 2024 showed the PENFS technology had the "highest grade certainty level and largest magnitude effect" for functional abdominal pain associated with IBS. This strong clinical validation is a critical differentiator and forms the basis for driving broader adoption and reimbursement.

Beyond the current IB-Stim, NeurAxis is actively investing in its technology roadmap. Research and development expenses saw a significant increase in Q1 2025, surging by 987.2% year-over-year, reflecting investment in new medical research projects and the development of the RED device. The company is also developing a second-generation IB-Stim device, targeting a 2026 release. Stated goals for this next version include a more modern look, a potential light indicator to confirm operation (addressing patient feedback), and the potential integration of diagnostic capabilities related to heart rate variability and autonomic dysfunction to help predict treatment response. These R&D initiatives aim to enhance the user experience, improve clinical outcomes, and potentially expand the technology's application, further solidifying its competitive position.

The Rectal Expulsion Device (RED) represents another facet of NeurAxis's technological portfolio, licensed from the University of Michigan. This point-of-care device is an easy-to-use, self-inflating balloon test for adults with chronic constipation due to pelvic floor dyssynergia. Its key technological benefit is providing immediate actionable test results in an office setting, helping physicians streamline diagnosis and treatment selection. Crucially, RED already possesses a Category I CPT billing code and national reimbursement, removing significant market access hurdles that IB-Stim has faced.

The "so what" for investors regarding this technological focus is clear: these innovations are designed to address significant unmet medical needs with differentiated approaches. The strong clinical evidence for IB-Stim supports its value proposition to payers and physicians, while the RED device offers a direct path to revenue leveraging existing reimbursement infrastructure. The R&D pipeline aims to maintain this edge, potentially expanding the addressable market and improving the technology's effectiveness and usability, which could translate into higher adoption rates, pricing power, and ultimately, improved financial performance.

Financial Performance and Liquidity: Momentum Building

NeurAxis's financial performance reflects a company in a growth stage, heavily investing in market access and product development while working towards profitability. The first quarter of 2025 demonstrated tangible progress, with net sales increasing by a robust 38.5% year-over-year to $895,655. This growth was primarily driven by higher sales volume from both fully reimbursed customers and those utilizing the company's financial assistance programs. Gross profit also saw a healthy increase of 32.3% to $756,180. However, the gross margin slightly decreased to 84.4% in Q1 2025 from 88.4% in Q1 2024. This margin contraction was attributed to the higher growth rate of discounted sales through financial assistance programs compared to full reimbursement sales, alongside increased manufacturing and shipping costs. This highlights a key operational dynamic: while demand is increasing, the lack of widespread insurance coverage necessitates discounted sales, impacting profitability.

Operating expenses increased by 26.9% year-over-year in Q1 2025 to $3.1 million. This rise was influenced by several factors, including expenses related to new incentive plans, higher advertising costs to expand market awareness, and third-party costs incurred to enhance the company's internal control environment. Notably, the settlement of a lawsuit also contributed significantly to the increase in general and administrative expenses. Excluding this one-time legal settlement charge, operating expenses would have remained relatively flat, and the operating loss would have shown a year-over-year improvement. The reported operating loss for Q1 2025 was $2.30 million, an increase of 25.3% from Q1 2024, primarily due to the aforementioned G&A increase. The net loss for the quarter was $2.28 million, a 7.5% increase from $2.12 million in Q1 2024. However, excluding the impact of the lawsuit settlement and the absence of prior-year financing charges, interest expense, and issuance costs, the net loss would have improved by 22% year-over-year. Management points to operating expenses as a percentage of sales (excluding the legal settlement) decreasing for the third consecutive quarter as evidence of leveraging fixed costs.

Liquidity remains a critical area for NeurAxis. As of March 31, 2025, the company had cash and cash equivalents of $2.01 million, down from $3.70 million at December 31, 2024. The working capital surplus decreased from $1.83 million to $439,823 over the same period, reflecting the utilization of cash to fund operating losses. Net cash used in operating activities was $1.60 million in Q1 2025, an increase from $1.33 million in Q1 2024, partly due to changes in payables timing. The company has historically funded operations through sales, debt, and stock issuance and has incurred losses and negative cash flows since inception, leading its auditors to express substantial doubt about its ability to continue as a going concern. Management acknowledges that planned R&D and commercialization efforts will require significant working capital through 2025 and beyond. While the company secured $11.2 million in capital raises in 2024, with $4.2 million in remaining committed funding, the path to profitability is essential for long-term sustainability.

Outlook, Guidance, and Catalysts for Acceleration

Management's outlook is grounded in the expectation that recent strategic achievements will translate into accelerated revenue growth and a path towards profitability. The core assumption is that the strong clinical data, particularly the NASPGHAN systematic review, will directly lead to broader and more favorable insurance policy coverage from major commercial carriers. Management expects the NASPGHAN guidelines to be published in the coming weeks (as of the May 2025 call), which they believe is a prerequisite for many large payers to issue positive coverage decisions. Historically, such policy changes have taken 90-120 days to translate into increased orders from children's hospitals, although hospitals already using the product are expected to ramp up orders more quickly once coverage is secured in their specific geographic areas.

A pivotal catalyst is the awarding of a Category I CPT code for IB-Stim, set to become effective on January 1, 2026. This is considered the company's most important milestone to date, as it will streamline billing processes for healthcare providers, establish a permanent reimbursement amount, and, crucially, provide Relative Value Units (RVUs) for physicians. The current lack of RVUs means physicians are effectively treating patients without compensation for their time, a significant barrier to widespread adoption. The Category I code is expected to remove this hurdle and incentivize greater utilization.

Further expanding the addressable market, NeurAxis received FDA clearance to expand the IB-Stim label to cover patients aged 8-21 (from 11-18) and has submitted an application for an expanded indication for functional dyspepsia in children aged 8-21. If cleared, the functional dyspepsia indication would nearly double the pediatric market opportunity and leverage the same CPT code, insurance coverage, call points, physicians, and sales force, creating significant commercial synergies. The company is also pursuing an adult indication for IB-Stim, aiming for late 2025 clearance.

The commercialization of the RED device, which began a soft launch in Q1 2025, is anticipated to contribute meaningful revenues in 2025, with demand expected to pick up in Q2 and beyond. Unlike IB-Stim, RED already benefits from a Category I CPT code and national reimbursement, positioning it for potentially faster adoption by adult GI practices, although initial uptake has been slower than expected due to administrative processes in larger practices.

Management is targeting cash flow breakeven at an annual revenue run rate of $10 million to $12 million, based on the current cost structure and gross margins. They expect operating expense dollars to increase in the near- to medium-term to support sales and marketing expansion but anticipate operating expenses as a percentage of sales to decrease as top-line growth outpaces cost increases. While not providing specific revenue guidance figures, the expectation is for revenue growth to accelerate meaningfully, driven by the combination of increasing insurance coverage for IB-Stim, the impact of the Category I CPT code (both pre- and post-effective date), and the commercialization of RED. The stated goal is to reach profitability in Q1 2025, contingent on the successful realization of these catalysts.

Risks and Challenges

Despite the positive momentum and aligning catalysts, NeurAxis faces significant risks and challenges that could impact its ability to achieve its growth and profitability targets. The most prominent risk is the substantial doubt about the company's ability to continue as a going concern, as noted by its auditors. This stems from its history of operating losses and negative cash flows, requiring successful execution of its business plan and potentially additional funding if revenue growth is slower than needed.

A critical dependency for revenue acceleration is the timing and extent of insurance policy coverage decisions. While management is optimistic about the impact of the NASPGHAN guidelines and the Category I CPT code, there is no guarantee that payers will issue positive policies quickly or cover the technology broadly. Delays in policy adoption or unfavorable coverage terms could significantly impede revenue growth and the path to profitability. The reliance on financial assistance programs for uninsured patients, while expanding access, results in lower gross margins compared to fully reimbursed sales, highlighting the financial impact of the insurance barrier.

Operational challenges include the need to successfully scale commercial operations, particularly the sales and market access teams, to capitalize on expanding coverage. The soft launch of RED has shown that adoption in large practices can take time due to administrative hurdles, even with existing reimbursement. Furthermore, the company has identified material weaknesses in its internal control over financial reporting as of March 31, 2025, related to approval processes, segregation of duties, contract management, and GAAP application. While remediation efforts are underway, failure to effectively address these weaknesses could impact financial reporting reliability and operational efficiency.

Legal risks persist, including the pending patent claim by Dr. Arturo Taca, which the company intends to defend vigorously but could result in unforeseen costs or outcomes. The settled lawsuit, while resolving a legacy issue, requires significant cash payments starting in 2026, adding to future liquidity requirements.

Conclusion

NeurAxis stands at a critical juncture, with a clear strategy and several significant catalysts converging that could fundamentally alter its trajectory. The company has successfully built a strong foundation of clinical evidence for its IB-Stim technology, culminating in the NASPGHAN systematic review and the awarding of a Category I CPT code effective in 2026. These achievements, coupled with the expansion of covered lives to approximately 51 million, are beginning to translate into accelerating revenue growth, as evidenced by the 38.5% increase in Q1 2025. The introduction of the RED device, with its existing CPT I code and reimbursement, provides an immediate complementary revenue opportunity leveraging the company's commercial infrastructure.

While the company's history of losses and current liquidity position underscore the inherent risks and the need for successful execution, management's target of cash flow breakeven at $10M-$12M in annual revenue and the expectation of profitability in Q1 2025 highlight the potential leverage in its business model as revenue scales. The investment thesis hinges on the timely realization of key catalysts: the publication of academic guidelines leading to widespread insurance policy adoption, the full impact of the Category I CPT code, and the successful commercialization of RED and potential new indications. Should these catalysts materialize as anticipated, NeurAxis could transition from a development-stage company facing significant financial headwinds to a growth-stage company with accelerating revenues and improving profitability, leveraging its differentiated technology and specialized market focus to carve out a meaningful position in the neuromodulation landscape. Investors should closely monitor progress on insurance coverage expansion, RED commercialization uptake, and the company's ability to manage its cash burn and internal control remediation efforts.