electroCore - Earnings Call - Q2 2020
August 13, 2020
Transcript
Speaker 0
Greetings, and welcome to the Electrocor Second Quarter twenty twenty Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Hans Wittstrom with LifeSci Advisors.
Thank you. You may begin.
Speaker 1
Thank you, operator, and thank you all for participating in today's call. Joining me are Dan Goldberger, Chief Executive Officer and Brian Posner, Chief Financial Officer. Doctor. Peter Stotts, Electrocor's Chief Medical Officer, will be available for Q and A. Earlier today, Electrocor released results for the quarter ended 06/30/2020.
A copy of the press release is available on the company's website. Before we begin, I'd like to remind you that management will make statements during this call that include forward looking statements within the meaning of the federal securities laws, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts should be deemed to be forward looking statements. All forward looking statements, including, without limitation, our examination of operating trends and our future financial expectations are based upon the company's current estimates and various assumptions. These statements involve material risks and uncertainties that could cause actual results or events to differ materially from those anticipated or implied by these forward looking statements.
Accordingly, you should not place undue reliance on these statements. For a list and description of the risks and uncertainties associated with the company's business, please see the company's filings with the Securities and Exchange Commission. Electrocord disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward looking statements, whether because of new information, future events or otherwise. This conference call contains time sensitive information that is accurate only as of the live broadcast today, 08/13/2020. And with that, I'll turn the call over to Dan.
Speaker 2
Thank you, Hans. Hello, everyone, and thank you for joining us today. I'll begin with an update before turning the call over to Brian to review our financial results. You will recall that electroCore is in the early stages of commercialization of our proprietary gammaCore therapy for various indications. I'd like to start with a review of our balance sheet.
We ended the second quarter with cash and cash equivalents of $18,900,000 Subsequent to the end of the quarter, we raised an additional $10,300,000 through an additional drawdown on our existing stock purchase agreement with Lincoln Park Capital. As a result, our pro form a June 30 cash balance is $29,200,000 At the same time, we've made significant progress reducing our cash burn to $5,200,000 in the 2020 as compared to $8,400,000 in the first quarter of twenty twenty, and $11,200,000 in the second quarter of twenty nineteen. Together, these actions provide us with a substantial cash runway that I believe is sufficient to achieve meaningful commercial milestones both in our approved headache indications and existing revenue channels as well as the emerging opportunity in COVID-nineteen. Turning now to COVID-nineteen, on 07/13/2020, we announced that FDA has issued an Emergency Use Authorization for noninvasive vagus nerve stimulation therapy, gammaCore Sapphire CV, in known or suspected COVID patients who are experiencing an exacerbation of asthma related symptoms and for whom currently available treatments cannot be tolerated or proved ineffective. Needless to say, we're thrilled that our EUA has been approved, and we look forward to making NVNS therapy available to both the medical community and COVID patients.
GammaCore Sapphire CV is now one of a very small group of therapeutics to have received the EUA designation. The utility of NVNS in COVID-nineteen patients was initially highlighted in April 2020 through a paper published in the highly regarded peer reviewed journal Technology at the Neural Interface, the official journal of the International Neuromodulation Society. That paper was entitled Use of Noninvasive Vagus Nerve Stimulations to Treat Respiratory Symptoms Associated with A Theoretical Hypothesis and Early Clinical Experience. This paper describes the mechanistic rationale for the use of NVNS in patients with COVID-nineteen, and highlights two case reports from patients who experienced clinically meaningful benefits from NVNS therapy. In case one, the patient used NVNS to expedite symptomatic recovery at home after hospital discharge due to COVID-nineteen, and was able to discontinue use of opioid and cough suppressant medications more rapidly than anticipated.
In case two, the patient experienced immediate and consistent relief from symptoms of chest tightness, shortness of breath, as well as an improved ability to clear his lungs, and did not require hospitalization. The paper concludes that, and I quote, Preliminary observations and a strong scientific foundation suggest that NVNS might provide clinical benefits in patients with COVID-nineteen via multiple mechanisms. As a result of this evidence in combination with the early clinical trials that supported the issuance of our EUA, two investigator initiated clinical trials are underway evaluating gammaCore Sapphire CV in hospitalized COVID-nineteen patients. In Spain, Doctor. Carlos Pornero of the Hospital Clinico Universitario de Valencia is conducting a study called Savior one, a study assessing vagus nerve stimulation in COVID-nineteen respiratory symptoms.
This is a randomized, open label study that is targeting ninety hospitalized patients with a confirmed diagnosis of, or presumed to be, COVID-nineteen positive. In The United States, Doctor. Tariq Chema of Allegheny General Hospital in Pittsburgh is conducting a study called SAVIOR II, targeting sixty hospitalized patients with a confirmed diagnosis of or presumed to be COVID-nineteen positive. Both studies follow the recommendations outlined for clinical trials by the WHO in their COVID-nineteen R and D blueprint, and will measure the safety and efficacy of gammaCore sapphire CV plus standard of care versus standard of care alone in patients hospitalized with COVID-nineteen across a broad range of clinical and laboratory endpoints. We are grateful to Drs.
Tornero and Cemma and their staff for taking the lead on these important studies, and we look forward to their results. We should note that it is difficult to predict when the studies will achieve full enrollment, as the number of hospitalized COVID patients tends to fluctuate from one country to the next and within different regions of a country. More recently, we've agreed to support a clinical trial within the Veterans Administration System of NVNS to treat COVID-nineteen patients in an outpatient setting prior to any hospital admission that will be coordinated by the Hampton Virginia VA Medical Center. We will provide additional details on this study, tentatively called Vanguard, later in Q3. In terms of pricing and availability of gammaCore Sapphire CV, the list price of gammaCore Sapphire CV is $17.50 dollars In light of the emergent pandemic, we are making the therapy available to all customers for $12.50 dollars a 29% discount until further notice.
We have instituted what we believe to be a very simple process for hospitals, physicians, patients, and VA military treatment facilities to access gammaCore Saphyr CV, and I refer you to the press release issued on 07/30/2020, for specific instructions. To further support these EUA distribution activities, we are planning to launch a telehealth option for gammaCore Saphyr CV that will facilitate the immediate processing and fulfillment of prescriptions. Note that our specialty pharmacy partner has expressed confidence that gammaCore Sapphire CP will be eligible for reimbursement. The Department of Veteran Affairs COVID-nineteen National Summary, available on the Internet, shows more than four thousand active cases as of August 11. You may recall that we have a small team of sales executives calling on the VA system and military treatment facilities.
That team has been trained on gammaCore Sapphire CV and has started promoting our therapy for COVID patients in that channel. Since our 07/30/2020 announcement, our team has reached out to almost 1,500 providers within the VA system, in addition to all of our legacy headache relationships. Operationally, the health and safety protocols that we put in place upon the emergence of the pandemic to protect our employees, customers and suppliers remain in effect. We continue to manufacture and ship products on schedule and manage our inventory and supply chain with very few disruptions. Turning now to our results for the quarter ended 06/30/2020, we experienced softness in some of our key metrics, particularly paid months of therapy, as physicians and hospitals pivoted to fight the pandemic.
Physician appointments were postponed, and travel and other restrictions made it difficult to conduct direct physician outreach. Total paid months of therapy in the 2020 were 2,407, representing a sequential decline of approximately 8.5% from 2,633 in the first quarter. However, by the end of the second quarter, more than 2,890 physicians have written at least one gammaCore prescription, as compared to 2,850 at the end of the first quarter. Total revenue for the quarter was $753,000 a modest increase from $734,000 in the first quarter, a result that we are pleased with given the logistical challenges posed by the pandemic. As with prior quarters, the Federal Supply Schedule and The United Kingdom's National Health Service contributed most of the revenue, and we recognized revenue in the commercial channel for the first time this year.
I will now discuss each of our revenue channels in more detail, some of which we previewed in our business update press release for 07/14/2020. During the second quarter, 67 Department of Veterans Affairs, the VA, and Department of Defense, DoD, military treatment facilities purchased gammaCore products, as compared to 64 during the '54 during the fourth quarter of twenty nineteen. Also, during the second quarter, the company shipped approximately nine eighty eight paid months of therapy pursuant to VA and DoD originating prescriptions, compared to ten eighty four paid months of therapy during the first quarter of twenty twenty, and eight twenty nine during the fourth quarter of twenty nineteen. Revenue from the VA and DoD in the second quarter was $415,000 as compared to $454,000 in the first quarter, and $378,000 in the fourth quarter of twenty nineteen. As we indicated during our first quarter conference call, in light of the ongoing pandemic, our ability to visit hospitals and doctors has been limited, and according to VA officials, some 5,700,000 appointments with VA providers were canceled between February and April.
Partly offsetting this is the VA's advanced telehealth capabilities, which have increased almost tenfold from 2,500 daily sessions in early March to nearly 25,000 current daily sessions, according to the Federal News Network. As we've said before, but bears repeating, gammaCore can be prescribed easily during a telehealth consult and delivered directly to the patient's home, and this has allowed us to navigate through the crisis with only a modest sequential reduction in paid monthly therapy. We continue to see encouraging signs that certain VA hospitals are planning to host in person meetings with our field staff, and are starting to see patients in clinic. While the VA system is a long way from opening up, the current quarter is off to a good start. We shipped four thirty five paid months of therapy in July 2020, compared to an average of three twenty nine per month in the second quarter.
Outside The U. S, turning now to The United Kingdom and other OUS territories. The UK was particularly hard hit during the pandemic, and as a result, paid months of therapy decreased about 7% to $9.38, from one thousand and eight during the first quarter of twenty twenty, and nine sixty one during the fourth quarter of twenty nineteen. The modest sequential decline was also affected by discontinuation of operations in Germany. Barring a second wave, COVID related restrictions are loosening in The United Kingdom, and as a reminder, gammaCore is reimbursed through the Innovation Technology Payment Program.
During the second quarter of twenty twenty, total revenue generated outside The U. S. Was $247,000 as compared to $277,000 in the 2020 and $294,000 in the fourth quarter of twenty nineteen. New patient starts have been impacted by the COVID pandemic, but we are optimistic that we can return to growth in both revenue and months of therapy in the back half of the year. July was off to a good start, with three sixty eight paid months of therapy, as compared to an average of three thirteen per month during the second quarter.
Turning now to The U. S. Commercial and pharmacy benefit managers. I've previously said that I did not expect to recognize any revenue from the commercial pharmacy benefit manager channel during 2020, because there appeared to be adequate inventory in that channel. It now appears that I was too conservative.
Commercial pharmacies have been filling 300 to 500 paid months of therapy per quarter during the first two quarters of twenty twenty. Those prescriptions have been delivered from inventory purchased by a distributor in 2019. During the second quarter of twenty twenty, we successfully transitioned our business model in the commercial space to work directly with the specialty pharmacies. We exited our remaining distributor relationship as of 05/31/2020, and that distributor was able to dispense all of the inventory that they had originally purchased last year. We shipped a small replenishment order to pharmacies in June 2020, and we expect to ship at least two hundred paid months of therapy per quarter going forward for the rest of the year.
Now that we have streamlined our commercial channel, we will start to look at making selective investments to grow that business more aggressively once the COVID related headwinds recede. Turning to our clinical programs beyond the COVID trial discussed earlier, the PREMIUM II trial in migraine prevention was closed due to the pandemic in March 2020, and we expect to have more than two twenty five patients in the intent to treat group and more than 110 patients in the modified intent to treat group. We look forward to analyzing the data from this study, and the data will be subsequently reported at upcoming medical meetings. I look forward to sharing that data with you. The company is aware of several other investigator initiated trials in a variety of indications.
Many of these are having difficulty recruiting patients in the short term as the world manages through the pandemic. We'll share updates as they become available. On 07/28/2020, we announced the publication of a clinical update paper in the peer reviewed journal, Cephalologia, the official journal of the International Headache Society. The paper is a narrative review of recent scientific and clinical research into the non invasive vagus nerve stimulation for headache, including findings from mechanistic studies and their possible relationships to the clinical effects of NVNS. The review concludes that scientific and clinical studies support the emergence of NVNS as an effective, safe, well tolerated, and practical treatment for primary headache disorders, and supports the consideration of NVNS as: number one, a first line treatment for both acute and preventative treatment of cluster headache and number two, an effective option for acute treatment of migraine and number three, a highly relevant practical option for migraine preventative therapy.
The primary author of the paper is Doctor. Steven Silverstein, past president of the American Headache Society and director of the Jefferson Headache Center at the Thomas Jefferson University Medical Center. It's publications such as this, together with support from influential opinion leaders, including all of the authors of that paper, that are core to our ongoing marketing efforts and represent a very powerful tool as we work to drive adoption of gammaCore therapy in all of our channels.
Speaker 3
At this point, I'll turn the call over
Speaker 2
to Brian for a review of our financials and other guidance items.
Speaker 3
Thanks, Dan. For the quarter ended 06/30/2020, electroCore reported net debt of $753,000 compared to $734,000 in the 2020 and slightly above guidance range of $700,000 to $750,000 that we provided in our July 14 update. The increase in revenue compared to the 2020 reflects sales from our commercial channel offset by decreased revenue within the VA and OUS. Paid months of therapy shipped to the VA and DoD decreased 9% sequentially to nine eighty eight during the 2020 from ten eighty four in the first quarter of twenty twenty. Revenue from the VA and DoD also decreased 9% sequentially to $415,000 during the 2020 from $454,000 in the 2020 and $378,000 in the fourth quarter of twenty nineteen.
Paid months of therapy shipped outside The U. S. Decreased 7% sequentially to $9.38 during the 2020 from 1,008 in the 2020 and $9.61 in the fourth quarter of twenty nineteen. Revenue from outside The U. S.
Decreased sequentially to $247,000 in the 2020 from $277,000 in the 2020 and $294,000 in the fourth quarter of twenty nineteen. During the quarter ended 06/30/2020, Electrocor restructured its commercial distribution channel and exhausted all of the inventory that had previously been placed in that channel. As a result, the company recorded revenue of approximately $60,000 during the period for a small replenishment order and expects to be able to report recurring revenue in the commercial channel in the future. Total operating expenses for the 2020 were approximately $6,400,000 down approximately 50% compared to $12,700,000 in the comparable period in 2019. SG and A expenses declined approximately 44% to $5,300,000 in the 2020 from approximately $9,400,000 for the comparable period in 2019, primarily driven by a decrease in sales and marketing expenses consistent with the cost reduction plan that we first implemented in June 2019.
R and D expenses decreased by approximately 1,500,000 or 60% to $1,000,000 in the 2020 from $2,500,000 versus the year ago period. This reduction is consistent with the company's strategy of significantly reducing its near term investment in R and D. During the second quarter of twenty twenty, the company recorded a tax benefit of approximately $1,200,000 in connection with the sale of some of its New Jersey NOLs. GAAP net loss for the 2020 was $4,700,000 compared to a GAAP net loss of $12,100,000 in the second quarter of twenty nineteen. Adjusted EBITDA net loss for the 2020 was a loss of $4,300,000 as compared to an adjusted EBITDA net loss of $10,800,000 for the same period in 2019.
The company defines adjusted EBITDA net loss as GAAP net loss, excluding income tax expense or benefit, stock compensation expense, restructuring and other severance related charges, legal fees associated with stockholders' litigation and total other income and expense. A reconciliation of GAAP net loss to non GAAP adjusted EBITDA net loss has been provided in the financial statement tables included in our press release this afternoon. Cash and cash equivalents and marketable securities at 06/30/2020, totaled approximately $18,900,000 as compared to approximately $24,100,000 at December 3139. For the second quarter, the company raised an additional $10,300,000 through our previous announced stock purchase agreement with Lincoln Park Capital. Adjusted for the raise, subsequent to the end of the second quarter, our pro form a cash and cash equivalents and marketable securities balance was $29,200,000 as of 06/30/2020.
Net cash used in operations for the quarter ended 06/30/2020, was approximately $5,200,000 not including approximately $1,200,000 received from the sale of NJ NOL. This operating burn for the quarter is down from $8,400,000 in the first quarter twenty twenty and $9,400,000 for the fourth quarter of twenty nineteen. Specific to the third quarter of twenty twenty, we anticipate that revenue will be in excess of second quarter levels and that operating cash burn will be less than $4,500,000 And now I'll turn the call back over to Dan.
Speaker 2
Thank you, Brian. Overall, we are pleased with our performance during the second quarter against the challenging backdrop of the COVID-nineteen pandemic. It's a testament to the entire Electrocor team that we are navigating through this crisis and remain well positioned to achieve our ultimate goal, to make our NVNS technology available to the broadest possible patient population. Looking forward to the next twelve months, we're working towards multiple milestones and catalysts, including number one, a return to revenue growth in both the DoD and OUS channels, as well as increased revenue contribution from our US commercial channel number two, peer reviewed manuscript publications exploring NVNS in new indications such as PTSD and traumatic brain injury. Number three, the launch of gammaCore Sapphire CV for COVID patients.
Number four, data from the PBM-two trial. Number five, data updates from both SAVIOR trials and the VANGOAR trial in COVID-nineteen patients. And number six, data updates from the acute stroke trials progressing in Europe sometime next year. I also want to point out that our cash balance and runway are substantially improved at 06/30/2020. With more than $29,000,000 of pro form a cash, cash equivalents and marketable securities at 06/30/2020, and a steadily decreasing cash burn, electroCore is healthier than it has been since I joined the company.
Finally, I want to thank our patients, their physicians, our hospital customers, our suppliers, our shareholders, and most of all, our dedicated employees for working with us through these unprecedented times. At this point, I'll ask the operator to open the line for questions.
Speaker 0
Thank you. Ladies and gentlemen, at this time, we will be conducting a question and answer session. Our first question comes from the line of Ryan Zimmerman with BTIG. Thank you. You may proceed.
Speaker 4
All right. Thank you. Good afternoon, everyone.
Speaker 2
Hey, Ryan. Thanks for listening in.
Speaker 4
Of course. First, congrats. I mean, you guys have made tremendous progress, Dan, since you've joined the company. And congrats to Brian as well.
Speaker 3
Thank you.
Speaker 5
So maybe just to start, I'd love to understand kind
Speaker 4
of how you're thinking about the opportunity with gammaCore staff or CV in the COVID population. You gave us some metrics around your sales force getting out to the VA physician population. And so how should investors think about that over the coming quarters in terms of what it can result in revenue potentially, if you're willing to give some thoughts there? And then I have a couple other questions.
Speaker 2
Sure. So, look, first and foremost, we want to make sure that the therapy is available to anybody that will benefit from it. This is about responding to the emergency and revenue and commercial attributes are certainly important, but they're secondary to making the therapy available. We have a small direct sales force in the VA system. We have a lot of relationships in the VA system, so that's sort of the path of least resistance for us to making the therapy available.
And as I mentioned in the comments, we are talking to the VA system at large about running an outpatient study with gammaCore sapphire CV for treating respiratory symptoms associated with COVID. Commercially, our pharmacy partners are ready to go, and but there's a big awareness hurdle, and, we're trying to figure out how to efficiently get the word out. And everybody on this call can can help us get the word out that there is an effective therapy for treating confirmed or suspected COVID-nineteen patients with respiratory distress.
Speaker 4
Okay. That's helpful then. And then you gave a nice metric out around the trends in July in terms of what you're seeing in terms of the rebound into July off of the second quarter. I'm just wondering if you can kind of talk about whether you think that's pent up demand, whether you didn't realize their backlog in the second quarter, because you kind of did hold pretty steady relative to maybe some of the medtech peers out there. So maybe just talk about kind of how you're thinking about the July trends and whether that's a surge or a backlog in any capacity?
And then what you think that may portend to in terms of August and September?
Speaker 2
Yeah. So good question, Ryan. So, you know, look, headache is, generally speaking, chronic issue, and then we're offering a chronic therapy. We had some challenges around new patient starts in April and May, more in The United Kingdom than in The United States. But I think it's a return reflects more of a return to the new normal.
Our, you know, physician prescribers have figured out, especially in the VA system, how to leverage the telehealth consults. And so, no, I don't I don't think it's pent up demand. I I think it's figuring out how to deliver the therapy reliably in whatever this new normal is in The United States and in The United Kingdom.
Speaker 4
That's helpful, Ben. And then last one for me, and I'll hop back in queue. You've successfully managed your burn very nicely. You've whittled that down over the course of a few quarters. Your cash balance is stabilizing and improving.
When you think about the investments you want to make, given the cash you have, and I appreciate the fact that you're managing the burn appropriately, but where do you think it's prudent to start making investments again? I mean, where can you start adding back the things that maybe had to be cut earlier, maybe just even a few quarters ago?
Speaker 2
So, you know, certainly, you know, look, we've made an investment in the emergency use authorization for COVID. You know, we're not the savior trials are investigator initiated, but we're helping out there, and we're going to invest in an awareness campaign around COVID, around gammaCore Sapphire CV. On the headache side, especially in the commercial channel, you know, now that we have quietly restructured our distribution channel, that business model in the commercial channel for headache now works for the company. And so I think you'll see us starting to make some investments in growing the commercial headache business sooner than I had originally inspected. So we're gonna see revenue in that channel in the second half of this year, which is pulling it forward from the last time we spoke.
Speaker 4
All right. Thanks for taking the questions. See you guys in the quarter.
Speaker 0
Our next question comes from the line of Swayampakula Ramakanth with H. C. Wainwright. Please proceed with your question.
Speaker 5
You. Good evening.
Speaker 6
RK. Hi, RK.
Speaker 2
Thanks for
Speaker 5
making time. A
Speaker 4
couple of
Speaker 5
quick questions. So in your prepared remarks, you seem to be very comfortable with what is happening in the VA and The UK for the second half. Just trying to understand what makes you have that confidence in terms of any color about opening or increasing flow of appointments, anything at all that could help us?
Speaker 2
So it's it's very as you know, it's very regional. There are some parts of the country that are are still suffering either a second wave or from the original COVID environment. But what's been very compelling for us is how well our therapy fits into virtual dispense telehealth modality. And on the headache side, our physician prescribers are sort of not coming back to normal, but they're getting more comfortable dispensing our therapy. And as we've discussed in previous announcements, a competitive advantage for us over the injectable therapies for headache.
So I think it's mix of some parts of the country getting back to normal and opening up to having in person visits in the clinic, and in other parts of the country that are still challenged leveraging the telehealth capabilities.
Speaker 5
Okay, thank you for that. And then on the commercial side, you know, what is working for you? And should we expect additional replenishment orders flowing out to some of the distributors? And also earlier in the year, I believe in the month of January you talked about ascent health doing a taking on the gammaCore as a preferred drug. So how are they getting, you know, given these times?
And, you know, is there any comment on that space?
Speaker 2
Yeah. So, you know, we previously announced that we shipped more than 500 paid months of therapy in the in the first quarter, more than 400 paid months of therapy in the second quarter. Certainly, the ESI Express Scripts relationship, you know, helped to to accelerate that business. The challenge, for electroCore has been the the legacy distribution agreement that was in place inventory in the channel. So, you know, going forward, we are conservatively forecasting 200 to 300 paid months of therapy, but there's no there's every reason to believe that that's a conservative forecast given that we shipped more than 500 in the first quarter and more than 400 in the second quarter.
So for the second half of the year, we'll be able to recognize revenue from those paid months of therapy in the commercial channel, which we were not able to do in the first half of the year. Beyond that, now that we have restructured the distribution channel, we're much more comfortable making investments, and so accelerating additional conversations with the pharmacy benefit managers, talking to the insurance companies that are behind the the pharmacy benefit managers to go plan by plan, as well as looking at what we're doing with deploying our sales assets.
Speaker 5
Thanks for that. And then the COVID-nineteen, COVID-nineteen associated opportunity, especially with Serbia one and Serbia two, are you able to increase, your visibility because of this trial? And also, you know, how what should we think about RANDAL? How would you know, and what stage of planning with Vanguard? Know you said you would, you know, put out some more information regarding the design later in the year, but I'm not trying to send the number.
Speaker 4
I'm just not understanding, You know? Sure. Yeah.
Speaker 2
So savior one, savior two are hospitalized patients, and those are investigator initiated trials. Now that we have the emergency use authorization, we're getting a lot more interest from investigators that either would be interested in adding to the adding their sites to the SAVIOR II trial in The United States, or initiating their own trials. And then, as I mentioned on the call, we're also very excited in leveraging our relationships within the VA system around an outpatient trial that could be done at scale just because of the reach of the VA system in The United States. There are more than four thousand active cases in the VA system. As of yesterday, COVID, unfortunately, is not going away, and so there's there's a real opportunity to do something on an accelerated basis within the VA system for patients in the home environment, not hospitalized patients.
Okay,
Speaker 4
thank you for that.
Speaker 5
And then my last question on the financials, and then congratulations to Brian and team for getting the operational expenses down to
Speaker 4
the levels at this point. How
Speaker 5
much more can be done in that route? Or have you pretty much optimized all the systems that there is no more operational leverage left?
Speaker 3
Yes. I think there's some more. I think the R and D line will go down as premium two is wrapping up, number one. We're still looking at G and A. We did switch auditors in the second quarter.
So that will start being represented in the numbers reflected in the numbers in Q3 and beyond. And there's still some other things we're looking at, obviously. And I thank you for the kudos there. You know, under Dan's leadership, we've really made a lot of strides there. So I still think there's some things, RK, that we can continue to do to deploy our capital efficiently.
Speaker 5
Fantastic. Thank you, gentlemen. Thank you for taking my questions. Thank
Speaker 2
you. Thanks, RK.
Speaker 0
Our next question comes from the line of John Vandermosten with Zacks Investment Research. Please proceed with your question.
Speaker 6
Thank you. And hi, Dan, Brian, how are doing? Me start off with a question on the innovation technology program award that's supporting some of the sales in The UK. And also congratulations on the strong results there in the British Isles. How will that expire at some point?
And will it be passed off into another program later? How how does that work?
Speaker 2
So, we've been, on six month, on a six month grant cycle. And so the current grant goes through September, and and we've had conversations about getting the next getting the next cycle of the grant for six months. That'll take us October through April. These are supposed to be bridges until we get broader NHS coverage. Unfortunately, between COVID and Brexit, the bureaucracy in The United Kingdom is a little bit slow these days.
So we're comfortable continuing to work under the six month extensions, but, of course, we'd like to be able to get to the next step. We've also made progress in extending Scotland and then to Wales and other parts of The United Kingdom besides England. We've also had some initial success in other parts of Europe. So the future, you know, post COVID, is very, very exciting for us overseas. Okay.
Speaker 6
And I I've seen you know, I'm looking at about three different areas where you where you have opportunities. You know, there's there's Medicare, one of the big payers or potentially a new geography. And how how are each one of these areas coming along? And which seems most likely probably to to generate incremental sales next between or among the three, the Medicare, big payers, or, a new geography?
Speaker 0
So that that's a very
Speaker 2
good question, John. So, with respect to Medicare, we we met with CMS back in November. We filed an application for a unique HC PCS code. Unfortunately, that bureaucracy has also slowed down due to COVID. So we've got some uncertainty about when we're gonna hear back on that HCPCS code process with Medicare.
The large insurance players are starting to come back to life. So I think that's where our next big win is going to be in The United States. But it's very difficult to predict timing in the pandemic environment. The other wildcard are distribution agreements in other geographies around the world where, you know, we're again, I keep saying it, but, you know, COVID is slowing everybody down, but we've got increasing excitement, especially around the news of the emergency use authorization in The United States. So very difficult to to put calendar on it, but it's a very exciting time for the company.
Speaker 6
Okay. Thank you. And last one for me. So if there's a big spike in demand for COVID related devices
Speaker 4
well, I mean,
Speaker 6
I guess they're all the same. But is there enough supply and inventory to meet that? What what kind of demand could you could you absorb if it if spikes?
Speaker 0
So yeah. So that that's a bit of
Speaker 2
a a good news, bad news answer. If you look at our statements, we have more than $7,000,000 of inventory on our balance sheet that translates to at least 40,000 units. So we can handle that initial surge of demand. I look forward to reporting to you that we've had to accelerate our supply chain beyond the inventory that we currently have at hand.
Speaker 5
Thank you, guys.
Speaker 2
Thank you, John.
Speaker 0
There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.
Speaker 4
All
Speaker 2
right. Thank you, Doug, and thank you all for joining our call. Just a quick plug that Doctor. Peter Starz, our Chief Medical Officer, one of the founders of the company, is on the call with us. But more importantly, he'll be a featured speaker on tomorrow afternoon on the Fox Business claimant countdown tentatively scheduled for 3PM tomorrow afternoon.
And that timing, of course, could be preempted or could be earlier or later depending on whether there's any breaking news that that gets ahead of us. But if you've got nothing better to do tomorrow afternoon, join doctor Stotts and and watch him on TV. We greatly appreciate everybody's support during these very difficult times, and we look forward to getting past this pandemic. Thank you, everybody.
Speaker 0
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.