electroCore - Earnings Call - Q2 2021

Transcript

Speaker 0

Greetings, and welcome to the Electrocor Second Quarter twenty twenty one 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, Rich Cockrell.

Thank you, sir. You may begin.

Speaker 1

Thank you all for participating in today's call. Joining me today are Dan Goldberger, Chief Executive Officer Brian Posner, Chief Financial Officer and Doctor. Peter Stotts, Electrocor's Chief Medical Officer. Earlier today, Electrocor released results for the second quarter ended 06/30/2021. 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 the 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 of descriptions 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, 08/05/2021. And with that, I'll turn it all over to Dan. Thank you.

Speaker 2

Thank you, Rich. Hello, everybody, and thank you for joining us today. I'm excited to report that Q2 twenty twenty one revenue was a record $1,300,000 Gross margins have expanded to more than 70% and net cash used in operations decreased over 20% to $3,200,000 for the second quarter of twenty twenty one from $4,100,000 for the first quarter of twenty twenty one. For the second quarter of twenty twenty one, total revenue of $1,300,000 increased approximately 69% from $753,000 in the second quarter of twenty twenty. Revenue from the government channel increased 88% to $779,000 for the quarter ended 06/30/2021, as compared to $415,000 in the second quarter of twenty twenty.

A total of 85 VA and DoD military treatment facilities have purchased gammaCore products through 06/30/2021 as compared to 79 through the 2021 and sixty '7 through the second quarter of twenty twenty. Note that there are approximately 1,300 VA health care facilities and four seventy five military hospitals and medical clinics. So we still have plenty of growth ahead of us. Revenue from outside The United States through direct channels increased 50% to $369,000 in the second quarter twenty twenty one as compared to $247,000 during the second quarter of twenty twenty. These figures did not include newly appointed stocking distributors, which contributed $18,000 of revenues from Canada and Western Europe during the second quarter of twenty twenty one.

During the quarter, we expanded gammaCore's global availability through our international distribution relationships. In April 2021, the company announced that East Agency will serve as the exclusive distributor of the gammaCore Sapphire NVNS in Qatar. In June 2021, we announced an exclusive distribution agreement with Chromax International Corporation to serve as the exclusive distributor of the gammaCore Sapphire NVNS in Taiwan and ultimately China. Net revenue from The U. S.

Commercial headache channel was $104,000 for the 2021 as compared to $91,000 in the second quarter of twenty twenty. I'm going to take a few moments to explain our initiatives in this important opportunity. We currently service approximately 12,000,000 covered lives through pharmacy benefit managers including CVS Caremark and Express Scripts for patients that have a benefit design that does not differentiate between drugs and devices. These patients are subject to a co pay of between 25 and $75 per month depending on their specific benefit plan. We also have a small number of patients that are paying cash for access to gammaCore therapy.

Our unique level two health care common procedure coding system or hCPCS code K1020, noninvasive vagus nerve stimulator became effective 04/01/2021. This is an important milestone in our quest to obtain reliable insurance coverage for gammaCore therapy. Previously, all of our prescriptions were coded as miscellaneous, which made for an easy initial coverage denial for an insurance company. Armed with our unique code, we are ramping up discussions with insurers. We've engaged policy reporter to help us negotiate with an initial list of 30 regional and national benefit providers.

Highmark Blue Cross Blue Shield was our first positive benefit determination, and we are now negotiating their fee schedule. I look forward to sharing news of additional payer wins in coming months. More and more Americans have high deductible insurance plans, which means that patients are likely to be faced with a cash pay obligation even when coverage is available. To fill that gap, we've been carefully testing cash pay business models and direct to consumer promotions. We had a small amount of revenue in the second quarter from these pilot programs and we hope to see accelerating growth from our cash pay consumer initiatives in the second half of the year.

Mitch Deshaun joined us in May 2021 as our new sales leader to leverage his long standing success with cash pay business models. We've also established a customer experience team in New Jersey led by Lisa Martin BSN RN to support physicians and their patients taking advantage of our cash pay programs. At this point, I'm going to ask our Chief Medical Officer, Doctor. Peter Stotts, to provide an update on our various clinical initiatives. Peter?

Speaker 3

Thanks, Dan. We've had progress across our trials on various fronts this quarter. In April 2021, we announced the publication in Nature Reviews Neurology of a peer reviewed article entitled, Highlighting the Role of Noninvasive Vagus Nerve Stimulation or NVNS as an emerging treatment for cluster headache. This is the second peer reviewed publication suggesting NVNS as a first line therapy for cluster headache. As you may recall that in July, cephalgia recommended NVNS a first line treatment for both the acute and preventive treatment of cluster headache and a highly relevant treatment option for patients suffering from migraine.

In May, the U. S. Department of Veterans Affairs announced an investigator initiated trial on the use of gammaCore sapphire or NVNS for the treatment of post traumatic headache. Post traumatic headache or PTH accounts for approximately four percent of all symptomatic headache disorders is one of the most common consequences of mild traumatic brain injury or also known as TBI or concussion. In June, the company announced the publication of a peer reviewed paper entitled Noninvasive vagus nerve stimulation improves clinical and molecular biomarkers of Parkinson's disease in patients with freezing gait in the journal entitled Nature Partner Journal or NPJ Parkinson's Disease.

This paper reports the results of a randomized, double blinded, sham controlled crossover trial conducted at the Institute of Neuroscience in Kolkata, India in collaboration with the Department of Medical Science at Newcastle University in England using gammaCore Sapphire. The study provides preliminary evidence supporting the safety and efficacy of NVNS in treating motor and non motor symptoms of Parkinson's disease. Most patients were able to self administer NVNS and subjects were reportedly satisfied with the treatment.

Speaker 4

Also in June, the company announced the publication of a peer reviewed paper entitled Effect of Transcutaneous Vagus Nerve Stimulation on Cognitive Performance Under Sleep Deprivation Stress. This was published in the journal Communication Biology, a Nature publication. The paper reports the ability of gammaCore to reduce fatigue and increase performance in a randomized double blind sham controlled trial conducted at Wright Patterson Air Force Base using gammaCore and sponsored by the United States Air Force Research Laboratories or USAFRL. At this point, I'll turn the call over to Brian for a review of our financials and other guidance items. Brian?

Speaker 5

Thank you, Peter. For the second quarter ended 06/30/2021, electroCore reported net sales of $1,300,000 as compared to net sales of $1,200,000 in the first quarter of twenty twenty one. This 5% sequential increase in revenue was in line with previously stated guidance and was driven by growth in the channels where we reliably get paid, the VA, DoD and United Kingdom. Gross profit for the 2021 was $895,000 as compared to $840,000 for the 2021 and $480,000 for the second quarter of twenty twenty. Gross margin for the 2021 was 71% compared to 70% in the 2021 and sixty four percent in the second quarter of twenty twenty.

Total operating expenses in the 2021 were approximately $6,100,000 a reduction of approximately $126,000 or 2% from $6,200,000 in the 2021 and a reduction of $306,000 or 5% from $6,400,000 in the second quarter of twenty twenty. Research and development expense in the 2021 was $825,000 as compared to $500,000 in the first quarter of twenty twenty one, a change of approximately $326,000 sequentially. The increase in R and D expense during the quarter was primarily driven by the initiation of the GAP PTH program. R and D expense decreased by $206,000 or 20% from $1,000,000 during the second quarter of twenty twenty. Selling, general and administrative expense in the 2021 was $5,300,000 as compared to $5,700,000 in the first quarter of twenty twenty one.

SG and A expense was flat as compared to the second quarter of twenty twenty. GAAP net loss in the 2021 was $2,900,000 compared to first quarter twenty twenty one GAAP net loss of $5,400,000 primarily due to the extinguishment of debt associated with the forgiveness of our PPP loan and a tax benefit from the sale of our New Jersey NOL tax carry forwards. GAAP net loss decreased by 39% or $1,800,000 as compared to a GAAP net loss of $4,700,000 in the second quarter of twenty twenty. Adjusted EBITDA net loss in the 2021 was $4,100,000 as compared to $4,200,000 during the 2021 and as compared to a loss of $4,300,000 in the second quarter of twenty twenty. The company defines adjusted EBITDA net loss as GAAP net loss excluding depreciation and amortization, stock compensation expense, restructuring and other severance related charges, legal fees associated with stockholders litigation, total other income and expense, extinguishment of debt and benefit from income taxes.

A reconciliation of GAAP net loss to non GAAP adjusted EBITDA net loss has been provided in the financial statement tables included in today's press release. Net cash used in the quarter ended 06/30/2021, exclusive of cash proceeds from the sale of NJ NOL carry forwards was approximately $3,200,000 as compared to $4,100,000 in the 2021 and $5,200,000 in the second quarter of twenty twenty. Cash, cash equivalents and marketable securities at 06/30/2021 totaled approximately $23,700,000 as compared to approximately $25,500,000 at 03/31/2021. Subsequent to 06/30/2021, the company raised net proceeds of approximately $18,800,000 through a public offering of 20,700,000 shares of its common stock. Looking ahead, for the third quarter of twenty twenty one, we expect net revenue to be at least $1,500,000 and net cash usage exclusive of financing activities to approximate $4,500,000 The expected increase in net cash usage is largely due to the annual renewal of our insurance policies.

And now I'll turn the call back over to Dan.

Speaker 2

Thank you, Brian. We're pleased with our results this quarter and look forward to improving our performance during the third quarter. We're in a strong financial position with a pro form a cash balance of $42,500,000 as of 06/30/2021. We look forward to further penetrating the VA DoD channel and the growth of our United Kingdom business as the medtech funding mandate continues rolling out through the year. The recent publication in Pharmacoeconomics reiterating the evidence supporting a first year benefit of GBP450 per patient when gammaCore therapy is used in conjunction with standard of care versus provides further support to our payer negotiations.

Longer term, clinical indications beyond cluster and migraine headaches supported by the ongoing clinical developments that Doctor. Stotts discussed could greatly expand the market for NVNS therapy. I want to recognize our dedicated staff for their work and commitment in these trying times and thank the healthcare professionals and their patients for their loyal support of gammaCore therapy. Finally, I want to congratulate our Doctor. Peter Stotts on his Lifetime Achievement Award announced at the Annual Meeting of the American Society of Pain and Neuroscience in July 2021.

At this point, I'll ask the operator to open the line for questions.

Speaker 6

Thank And And the first question is coming from Jeffrey Cohen from Ladenburg Thalmann. Jeffrey your line is live.

Speaker 7

Hi Dan, Brian and Peter. How are you?

Speaker 2

Good. Thank you. Thanks for the opportunity. So

Speaker 7

a few from our end. So Dan, walk us through the geographical setting now outside The U. I heard the the eventual addition of Taiwan, and I'm pretty familiar with what's going on in The UK. Where else are you currently and expect to be over the coming months?

Speaker 4

So,

Speaker 2

Jeff, as you know, we've got a wholly owned subsidiary in The United Kingdom, and and that business is growing nicely now that we have transitioned to the med tech funding mandate. We're also starting to explore some more traditional pharmacy based channels in The United Kingdom. We announced earlier this year distribution arrangements in Australia and in Canada, several distribution arrangements in Europe, more recently in Qatar, which is the first of what we think will be a few more in The Middle East, and most recently, Chromax in in Taiwan and and ultimately in China. You know, we're gonna continue to look for stocking distributor relationships in other parts of Europe. We also have initiatives, for national health care reimbursement in a few specific target markets in Europe, and we may, if we do get those coverage wins, we may choose to go direct in those countries as opposed to distributor, but one thing at a time.

Speaker 7

Perfect. I got it. And could you talk a little bit I know you mentioned Mitch and some of the other folks here, could you talk about the DTC channels or maybe kind of walk us through how that could play out logistically and what that could mean as far as money flow with DTC.

Speaker 2

Yeah. So we really think that that's going to be that initiative is gonna be the future of our commercial headache channel. We're gonna continue to to work with the payers to establish reimbursement for a larger number of covered lives, and in the meantime, develop these opportunities for cash pay business where the the patient works directly with their insurance company. You know, you you've seen this model in a in a variety of home health care devices, you know, similar to what goes on in diabetes therapy, in supplemental oxygen therapy, in CPAP for sleep apnea. And then we're following a sort of a well worn path in terms of offering a a very competitive cash pay opportunity while continuing to develop more traditional insurance coverage options in the background.

Speaker 7

Got it. And then lastly for us, Peter, walk us through the timelines on when we may see some podiums, presentations, new trials or investor driven initiated or FDA for that matter over balance of this year in 'twenty two? Anything specific that we should kind of head out for?

Speaker 3

Yes. I think that the big issues are going be coming in 2022. We've announced the completion of one of the stroke studies and we anticipate that that will be submitted and hopefully presented at the International Stroke Conference next year. I think that will be one of the upcoming meetings. There's not too much coming in 2021 for the remainder of this year, as I'm trying to think through the various issues, a lot has been published and came out with the data on Parkinson's, as I've mentioned, and other interesting areas are coming out.

But I don't see many more presentations coming

Speaker 6

out in 2021.

Speaker 7

Got it. Okay, perfect. That does it for us. I'll jump back in queue. Thank you.

Speaker 6

Thank you. And the next question is coming from Orke from H. C. Wainwright. Orkai, your line is live.

Speaker 8

Thank you. Good afternoon, Dan, Peter and Brian. So in terms of some of the growth drivers that we are looking at the sales, in the second quarter, more VA clinics have started prescribing gammaCore and you say it's 85 compared to previous number of I think it's 79 in the first quarter. So how much of this is repeat customers and how much of this is the opening of the VA centers? And I mean, obviously, it's the COVID nineteen is coming back, you know, in certain states, but, you know, to to what extent, you know, what ex what how I mean, in terms of the rest of the country where things are being opening up, do you expect this growth to continue into the second half in the sense from 79% to 85% and beyond?

Speaker 2

Yeah. So great question, RK. You know, there are two ways to grow our business in the VA hospitals. One is to to generate additional prescriptions from an existing hospital customer, to go deeper into existing customers, and the other is to open up new hospital customers. And we're doing both.

And as the pandemic receded in the second quarter, we saw both of those initiatives really start to get some traction. Lots and lots of noise, as you mentioned, about the Delta variant. That may be a headwind in the current quarter, too early to tell. But we're very excited about being back in the field, being able to open up new hospital customers. And, you know, as you saw, we opened up six new hospital customers in the three months ended June 30 and and really nice growth compared to the previous year.

But most importantly, we're just scratching the surface. Right? Out of out of more than a thousand facilities, we still have less than a 100 of them as as customers. So lots of room for upside growth as the pandemic recedes and then we get back to selling.

Speaker 8

Okay. And, you know, in terms of the the HCPC score that, know, you received in on April 1 and some of the discussions that you're having with payers, What what have, you know, what has been achieved, you know, in the in the last few months since you have had the code? And, you know, do you think 'twenty one would see some growth from that or is it more of a 'twenty two event?

Speaker 2

Yeah. So it's more of a 'twenty two event. Highmark Blue Cross Blue Shield was our first favorable coverage determination, and we're now we're negotiating a fee schedule with them. We have conversations going on with the obvious national players including Kaiser, but more likely is that we'll get a few more we'll be able to announce a few more of these sort of smaller regional players, the the Blue Crosses, over the course of this year. We really see the insurance reimbursement kicking in in 2022, but we have to do the legwork in the back half of this year.

Speaker 8

Okay. So one last question for Brian. On the OpEx, obviously, you've been able to bring in as much efficiency as you can from the operations. And you still brought it down by 2% compared to first quarter. With some of the VA hospitals opening up and some of these sales expenses potentially going up, you know, do you think you kind of reached the amount of efficiency that you can get out of the operating lines, or or do you think there is still some more efficiency to eke out of the system?

Speaker 5

Hi RK, another good question. I think there's always potentially ways to cut costs but I think right now the focus is on growing the top line and with our balance sheet being strong, we're looking to make the appropriate targeted investments to help generate that growth. But again, we're always looking for ways to cut costs where appropriate.

Speaker 8

Thank you. Thank you gentlemen for taking my questions.

Speaker 2

Thanks RK.

Speaker 3

Thanks RK.

Speaker 6

Thank you. And the next question is coming from John Van Der Mosten from Zacks SCR. John your line is live.

Speaker 9

Hey good morning, guys. Good afternoon. Gosh, I don't know what time it is. We're most excited about a lot of the distributor agreements that you have. Mean, seems like a really great way to get out there.

Obviously, you have the Taiwan and China arrangement that just was announced recently. How long is it expected to take until that they can go through regulatory process? And will Promax only be pursuing headache? Or is there a broader opportunity than that in the near term?

Speaker 2

Yes. So that's a good point, John. In The United States, we are FDA cleared for prevention and treatment of cluster headache and, and migraine. But outside The US, we have a much longer list of indications, through the CE Mark, and our international distributors that aren't explicitly covered by the CE Mark system, you know, generally mimic the the, indications on our CE mark, which include depression and epilepsy and reactive airway disease and bronchospasm and, you know, really quite a long list and showing the the future of what noninvasive vagus nerve stimulation could be in The United States. The the regulatory process in Taiwan is pretty bureaucratic, unfortunately.

We're dealing with document requests right now. I don't have good visibility on exactly what the timing is just but it is a paperwork intensive process. So I'll know more in a few days.

Speaker 9

Okay. Great. And obviously that is the access to the largest populations in the world, China. Taiwan I think is a lot smaller. I think $2,030,000,000 dollars something like that.

But a little bit higher wages there, a little bit higher economic status. I mean, what what kind of penetration do you think you can get into these areas? And I mean, is this the most material arrangement that you have out there, you know, just be based on the population? Or is it another one perhaps Western Europe? How do you how do you rank these, I guess, terms of

Speaker 2

Yeah. So, you know, long term, if we can get through the the regulatory issues, then then, obviously, Asia is a a larger opportunity and, you know, just has a a larger middle class that can afford these kinds of therapies. This that's gonna take quite a bit of calendar time. I think '22 and even into 2023 Europe and The Middle East will probably be more substantial revenue contribution while Asia is a long term big win for us.

Speaker 4

Okay.

Speaker 7

Okay.

Speaker 9

And I saw that you announced $18,000 in sales to your distributors and I'm assuming that was RSK Medical and Silver just based on the geographies there. Does that mean that clearance to the market? Or are they just stocking up and anticipating anticipation of that happening soon?

Speaker 2

So Canada and Australia have clearance regulatory clearance and Europe obviously and through the CE market's clearance.

Speaker 9

Okay. So they're already they can those are those are sales that may emerge in the very short term. Great. And and then the the last question for me is just on opportunities. You recently announced a sleep deprivation sleep deprivation study, and there's like 10 or 12 more.

I can't I can't always keep track of them because you have so many. And with the recent capital raise, does that mean that you're you want to pursue some more of these? I mean, there's just so many opportunities out there. It just seems like you could take two or three of the best ones and kind of run with them. Is that something you may alter now that you have a little bit more cash in the balance sheet?

Speaker 2

Exactly. You know? And and I think the sequencing and and Peter alluded to some of it, but the sequencing is, secondary headache, in traumatic brain sorry, headache associated with traumatic brain injury or concussion. The work that that doctor Bremner has been doing on PTSD and opioid use disorder, the work that that doctor Chapman published in The UK around Parkinson's, I think those are the sort of the closer in opportunities for us to get expanded indications.

Speaker 9

Okay, great. Thank you, Dan.

Speaker 3

If I could just add one little comment there. There's the alias work with Doctor. Chapman, and there's of course the Mondal work in Parkinson's. But some of the really interesting things that you're seeing in the Parkinson's work is really significant changes in some biomarkers, which are adding, in my mind, validity to the entire field of non invasive vagus nerve stimulation. So when we pair those types of activities with the papers that are coming out on cost dominance for our therapy for cluster headache and first line therapies that we alluded to earlier, there is a momentum that I hope that will be palpable for the rest going forward.

Speaker 6

Thank you. And the next question is coming from Jeremy Perlman from Maxim. Jeremy, your line is live.

Speaker 4

Hi, thanks. I'm actually I'm calling on behalf of Anthony Mendetti. How are you guys doing? Good.

Speaker 2

Thank you. How are you?

Speaker 3

Thank you.

Speaker 4

Most of my questions were answered. Just have two quick ones. One is we're halfway through Q3 now. Is there any more visibility you can give to us? I know you guided towards an increase sequentially on year over year revenue.

Is there any sort of headwinds you're seeing as the Delta variant is unfortunately gaining traction, especially in parts of the country where there's not such high vaccination rates? Or are your sales reps, are the VA hospitals, is everything open as usual or as much as normal as possible?

Speaker 2

Yeah. I don't you know, based on the the daily dashboard that we monitor, I don't I don't we don't see a dramatic effect from the delta variant. We're not yet seeing in our sales efforts. Know, appointments are being held. The insurance companies though, when we go to make appointments to talk about reimbursement, the insurance companies are using it as another excuse not to take meetings.

But clinicians are very open minded and insurance companies don't affect what we're doing in the VA channel. So fingers crossed that this passes and we get back to a normal life sooner rather than later.

Speaker 4

Okay. Thanks. And then one just a more bigger picture question. Know we talked a lot. You have a lot of plates spinning when it comes to studies and what the gammaCore is capable of.

Just is there any sort of maybe some more clarity on the timeline of when we could expect if it's 2022, another 05/10 submission and possible clearance for another indication? And what would that be?

Speaker 2

Yes. We specifically haven't given any guidance on expanded indications. You're likely to see a clinical publication before we say anything about regulatory approvals.

Speaker 4

Okay. All right. That's all I have. Thank you so much.

Speaker 6

Thank you. And that's all the questions we have. I will now hand it back to Dan Goldberger for any closing remarks.

Speaker 2

Thank you, operator, and thank you all for joining our call. Greatly appreciate your time and attention and look forward to better things in the future. Good night.

Speaker 6

Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time. Have a wonderful day. Thank you for your participation.