electroCore - Earnings Call - Q4 2021

Transcript

Speaker 0

Greetings, and welcome to Electrocor Full Year 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. I would now like to turn the conference over to your host, Mr.

Rich Cockrell. Thank you and over to you, sir.

Speaker 1

Thank you all for participating in today's electroCore earnings call. Joining me on the call today are Dan Goldberger, Chief Executive Officer Brian Posner, Chief Financial Officer and Doctor. Peter Stotts, electroCore's Chief Medical Officer. Early today, Electrocor released results for the fourth quarter and full year ended 12/31/2021. 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 that include forward looking statements within the meaning of 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 fact 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 materially differ from those anticipated or implied by these forward looking statements. Accordingly, you should not place undue reliance on these statements.

For a list of risks and uncertainties associated with the company's business, please see the company's filings with the Securities and Exchange Commission. Electrocor disclaims any intention or obligation, and please see the company's filings with the Securities and Exchange Commission. ElectroCore 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, 03/10/2022 at 04:30 p. M.

Eastern Standard Time. And with that, I'll turn the call over to Dan.

Speaker 2

Thank you, Rich. Hello, everybody, and thank you for joining us on today's call. I'm pleased to report that our dedicated team continues to dramatically improve our operating results while advancing so many new opportunities for our proprietary noninvasive vagus nerve stimulation therapy. We've implemented several new initiatives that we expect will generate strong results during 2022 and beyond. Full year 2021 revenue was a record $5,500,000 increasing 56 percent over $3,500,000 in 2020.

Gross margins expanded to 76% and net cash used in operations decreased to $13,600,000 for the full year 2021. Entering 2022, our business is more efficient, scalable, and positioned for accelerating growth. Pharmacy benefit managers or PBMs, including CVS Caremark and Express Scripts, continue to adjudicate insurance benefits for an estimated 12,000,000 covered lives and provide gammaCore therapy to patients that have a high end benefit design that does not differentiate between drugs and devices. These patients are subject to a copay of between $25 and $75 per month depending on their specific benefit plan. Even for these patients, we find that more than sixty percent of our patients going through the specialty pharmacy to have their pharmacy benefits adjudicated ultimately pay cash because the patient has not yet met deductible or copay obligations or because their benefit design does not yet reimburse for noninvasive vagus nerve stimulation therapy.

We've established three new cash pay commercial channels in recent months to improve access for patients that are willing to pay for therapy. First, GC Direct allows a prescriber to send a prescription directly to our home office for processing by our customer experience team. We work directly with the patient to dispense therapy and collect payment. Second, giconcierge. It's a physician dispense model under which the prescriber purchases inventory from electroCore at a transfer price and provides therapy directly to their patient from their own inventory.

And third, we launched ecommerce storefronts in The United States and United Kingdom where consumers can go to our website, fill out a questionnaire that is adjudicated by a telehealth process, obtain a prescription, and then move therapy seamlessly into a shopping cart that is dispensed directly to a patient. Our world class customer experience team is available to patients in all of these channels, providing training and support for new prescriptions and sending reminders about refill prescriptions. During 2022, we plan to further invest in our digital awareness campaigns, initially through paid search and social media in an effort to drive headache patients to our various channels in The United States and United Kingdom. We expect that these new channels and campaigns can significantly increase awareness and streamline availability of NVNS therapy for patients, many of whom have historically been encumbered by reimbursement and physician access challenges. Net sales of $858,000 in the 2021 from our government channels, including the Department of Veterans Affairs and Department of Defense Hospitals, increased 69% as compared to $509,000 in the fourth quarter of twenty twenty.

Full year 2021 net sales from the VA and DoD grew 61% to approximately $3,300,000 as compared to net sales of approximately $2,000,000 for the full year 2020. A total of 100 VA and DoD military treatment facilities have purchased gammaCore products through 12/31/2021, as compared to 71 in 2020. Note that there are approximately 1,300 VA health care facilities and over 500 military hospitals and medical clinics, so we still have plenty of growth ahead of us. Revenue from channels outside The United States increased 36% to $1,500,000 in 2021 as compared to $1,100,000 for the full year 2020. We look forward to continued revenue growth in The UK as the medtech funding mandate continues to roll out and we expand the indications available through The United Kingdom e commerce site.

Net revenue from The US commercial headache channel was $679,000 for 2021 as compared to $358,000 in 2020. Approximately $321,000 of our US commercial revenue in 2021 came from cash pay programs. Going forward, our US Sales Function will be focused on the following four revenue growth initiatives. Number one, going deeper into our 100 existing VA hospital customers. Number two, leveraging our VA hospital success to open new VA hospital customers.

Number three, recruiting additional commercial prescribers to our cash pay business models while we work towards broader commercial insurance coverage. And number four, increasing our direct to consumer advertising spend to build awareness and demand. We've grown our US sales function in recent months within our customer experience team, territory business managers in the field, and sales agents. We look forward to reporting accelerating growth within The United States channels. While focused on commercializing our broad headache indications, we continue to advance future applications of NVNS across several clinical trials, regulatory submissions, as well as in our intellectual property estate.

In February 2022, data was presented at the International Stroke Congress suggesting that NVNS therapy could be an effective acute intervention for ischemic or hemorrhagic stroke. In the TRVINUS trial, sixty nine acute stroke patients were randomly assigned to three treatment arms, sham, low dose, and high dose NVNS. The study met its primary safety objective and all secondary safety and feasibility endpoints. Relative infarct growth measured by diffusion weighted imaging in the high dose NVNS group was lower than in the sham group with a p value of 0.05 against baseline. A subsequent larger trial called NOVIS is more than fifty percent enrolled towards a 150 patient target and should be fully enrolled by early twenty twenty three.

These early data are exciting as there are relatively few acute interventions approved for treating stroke and none that can be deployed before an ischemic hemorrhagic determination has been made. NVNS could be a very exciting new tool in fighting this debilitating condition. We look forward to publication of the stroke data in a peer reviewed journal later this year. On 01/12/2022, we announced gammaCore NVNS received breakthrough designation from US Food and Drug Administration or FDA for the treatment of post traumatic stress disorder or PTSD, a highly prevalent and disabling disorder with limited approved treatment options. Research from an Emory Georgia Tech team showed a thirty one percent reduction of symptoms of PTSD as well as changes in the inflammatory cytokine IL-six when compared to sham stimulation.

The ability of NVNS to target the underlying causes of PTSD supports its potential as a breakthrough treatment for PTSD. We look forward to scheduling a breakthrough device sprint meeting with the FDA in coming months to discuss the regulatory pathway for NVNS therapy to treat the symptoms of PTSD. FDA offers SPRINT discussions to support sponsors needing a timely resolution of potentially novel issues within a set time period, for example, forty five days. During a sprint discussion, the sponsor may provide additional information or revisions to initial proposals. We also plan to request pre submissions meeting with the FDA to discuss NVNS for opioid use disorder, traumatic brain injury, and Parkinson's disease among other possible indications we will evaluate later this year.

A presub provides the opportunity for a submitter to obtain FDA feedback prior to an intended premarket submission. A presub is appropriate when FDA's feedback on specific questions is necessary to guide product development and or submission preparation. Recently, Lancet Neurology published a review highlighting the potential role of noninvasive neurostimulation approaches for Parkinson's disease, a progressive neurodegenerative disorder. One study cited in the review found that patients who received active stimulation had significant improvements in both non motor, especially cognitive, and motor symptom burden scores compared with patients who received sham simulation. We are encouraged by the growing amount of data supporting the role of NVNS as a plausible therapeutic option for Parkinson's disease.

In addition to our ongoing clinical and regulatory activities, we have also been investing in and building on our strong intellectual property portfolio. Last year, we announced two new patents issued by the United States Patent and Trademark Office. The first patent is related to the treatment of stroke symptoms and methods for treating the acute symptoms of stroke or transient ischemic attack. The second patent is related to devices, systems, and methods integrated with smartphones that allow patients to self treat medical conditions such as migraine headache by electrical noninvasive stimulation of nerves. This specific patent is the eighth US patent issued to us in the company's mobile connectivity platform with additional US and international matters pending.

We will continue building an intellectual property portfolio smartphone connected noninvasive therapy. This may provide a foundation for combining the company's clinically proven therapy with digital health platforms that could enable health care providers to use remote patient monitoring or remote therapeutic monitoring reimbursement codes. That combination, in turn, may enable future business models as well as expand revenue streams for the company's products. Earlier this week, we announced a few changes to our board of directors. Doctor Steven Andra has resigned effective 03/04/2022, and Mike Attia has notified us that he will serve out his remaining term but not stand for reelection at our annual general meeting later this year.

Both directors will remain available to the chairman and CEO as advisers, and we greatly appreciate their long dedicated service to electroCore. I'm thrilled to announce that two fine executives, miss Julie Goldstein and miss Tricia Wilbur, have agreed to join our board of directors effective 03/15/2022. Ms. Goldstein and Ms. Wilbur have had tremendous success building direct to consumer businesses, and we look forward to bringing their expertise to electroCore.

Now I'd like to turn the call over to Brian for a review of our financials and other guidance items. Brian?

Speaker 3

Thank you, Dan. For the fourth quarter ended 12/31/2021, electroCore reported net sales of $1,500,000 and $928,000 during the same period of 2020. This represents a 61% revenue increase over the same period last year. For the full year 2021, the company reported approximately $5,500,000 as compared to net sales of approximately $3,500,000 for the full year 2020, an increase of 56%. Gross profit for the 2021 was $1,200,000 as compared to $109,000 for the fourth quarter of twenty twenty.

Gross profit for the 2021 and 2020 included an increase in inventory reserves of $70,000 and $434,000 respectively. Gross margin for the full year 2021 was 76% as compared to 63% for the full year of 2020, excluding the increase in inventory reserves in both years. Total operating expenses in the 2021 were approximately $6,700,000 an increase of approximately $300,000 from $6,400,000 in the fourth quarter of twenty twenty. Total operating expenses for the 2020 included a charge of $558,000 in connection with the write off of a right of use operating lease asset. Total operating expenses for the full year 2021 were $24,100,000 as compared to $26,500,000 for the full year 2020.

Research and development expense in the 2021 was $742,000 as compared to $1,000,000 for the same period in 2020. R and D expenses for the full year 2021 were $2,500,000 as compared to $4,200,000 for the full year 2020. Selling, general and administrative expense in the 2021 was $5,900,000 as compared to $5,400,000 for the same period in 2020. SG and A expense for the full year 2021 was $21,600,000 as compared to $21,800,000 for the full year 2020. GAAP net loss was $600,000 as compared to $21,800,000 for the full year 2020.

GAAP net loss for the fourth quarter twenty twenty one was $4,900,000 as compared to a GAAP net loss of $6,300,000 for the same quarter of 2020. GAAP net loss for the full year 2021 was $17,200,000 as compared to a GAAP net loss of $23,500,000 for the full year 2020. Adjusted EBITDA net loss in the 2021 was $4,400,000 as compared to a loss of $4,300,000 during the fourth quarter of twenty twenty. Adjusted EBITDA net loss for the full year of 2021 was a loss of $15,800,000 as compared to an adjusted EBITDA net loss of $18,400,000 for the full year 2020. 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 operating activities during the quarter ended 12/31/2021 was approximately 4,400,000 as compared to 3,600,000.0 in the fourth quarter of two thousand twenty. Net cash used in the 2021 included approximately $700,000 due to the company's refund of overpayments it received related to the sale of New Jersey net operating losses and the termination of the company's lease for its former corporate headquarters. Net cash used in operations for the full year 2021 was $13,600,000 as compared to net cash used of $20,100,000 reported in 2020. Cash, cash equivalents and marketable securities at 12/31/2021 totaled approximately $34,700,000 as compared to approximately $22,600,000 at 12/31/2020. Looking ahead, for the first quarter of twenty twenty two, we expect net revenue to be at least $1,700,000 and net cash usage to be less than $5,000,000 The increase in expected net cash usage in the 2022 compared to the 2021 is largely expected to be due to seasonal factors affecting working capital and increased spending in cash pay initiatives.

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

Speaker 2

Thank you, Brian. We're pleased with our improving operating results and we are in a strong financial position. Longer term, clinical indications beyond primary headaches supported by the ongoing clinical developments discussed earlier could greatly expand the total addressable market for NVNS therapy. We continue to build our intellectual property portfolio, and we're developing some very exciting next generation product platforms to leverage it. Our VA DoD channel continues to grow as the pandemic recedes, and we remain optimistic for our direct to consumer initiatives in our commercial channels.

While our United Kingdom business was impacted by COVID during the first few months of 2022, we look forward to accelerating growth in the near future. Mike Romanu and his operations team have driven gross margins to 76% for the year ended December 31, a healthy increase from 2020. Brian Posner's finance team have maintained discipline around operating expenses and I have faith in their continued vigilance as we make targeted investments in the commercial channels and product development. We look forward to further penetrating our large opportunity in the VA DoD channel in The United States under Mr. Deshaun's capable leadership, while Ian Strickland is leading the growth of our international businesses through the continued rollout of the medtech funding mandate in The United Kingdom and our growing group of distributors in other countries.

As we look forward to 2022, I see many growth drivers, including first, continued penetration of our VA DoD channel in The United States, continued penetration of The United Kingdom market as the pandemic recedes, growth in our U. S. Commercial channels driven by cash pay business models and direct to consumer advertising longer term, we're going to continue our efforts to gain commercial insurance coverage and fourth, expansion of our international business through our growing distributor network and added traction within The United Kingdom e commerce store. Longer term, there are real opportunities for label extensions into PTSD, opioid use disorder and traumatic brain injury that could come as early as next year. Lastly, we are exploring growth opportunities to enhance and leverage distribution channels through acquisitions.

Our focus will be on revenue stage targets that optimize channel synergies to enhance top line growth. I'll turn the call over to the operator. Operator, please open the line for questions.

Speaker 0

Thank you. At this time, we will be conducting a question and answer session. The first question comes from the line of Jeffrey Cohen with Ladenburg Thalmann. Go ahead.

Speaker 4

Dan, Brian and Peter. How are you? Good.

Speaker 5

Hi, John. How are

Speaker 2

doing? Good.

Speaker 4

So, I guess, firstly, perhaps for, Dan or Peter, if you could talk about some of these other indications and more specifically talk about the type of data you expect to see from this, 150 patient, trial when that reads out as well as maybe talk a little bit about, treatments as far as times, frequency, and power for various indications as far as if it's any, different from current labeling?

Speaker 2

Peter, do you wanna take that one?

Speaker 6

Yeah. Sure. I'll I'll take that one. So thanks, Jeff. You know, this is really an exciting time in a variety of different areas.

The first area that I'll just comment on for your your your question is the stroke data. The stroke data that was presented at the International Stroke Conference showed that in doses higher than what we pre previously recommended for headache, particularly the high dose stimulation of vagus nerve stimulation that required two sets of two over two different hours, seven stimulations. So 14 stimulations or or twenty eight minutes showed a really dramatic improvement in the or mitigation of the size of the growth of an evolving stroke. And there's mechanistically, that kind of mirrors what we saw in the animal models, and there's still some questions to be asked. And one of the questions that is being asked in the subsequent trial being performed in Europe is whether or not we need to stimulate for an extended period of time and whether or not we can get, longer term and better benefits.

I suspect that we will need more stimulations than, what we've been doing for a typical headache. Right now, it is all within our current label, I mean, in terms of the number of stimulation, but that would be an easy thing for us to go back to the FDA with when we are applying for a new indication if we need to expand the number and amount of stimulation that we're using in that indication. Now with other indications that we're looking at, for example, opioid use disorder or post traumatic stress disorder, it does not appear that we need to use much more than what we've been using all along for our headache trials, for the original asthma trials, or for the gastrointestinal trials that have been done. Those all seem to be somewhat in line with the periodic usage of our device.

Speaker 4

Okay. Super. That's very helpful. So and secondly, as a follow-up, I guess, for Brian, if you could maybe talk about the margins a little bit and the SG and A as far as the is the five point level kind of the new level as you expand through 2022? And then thirdly, talk a little bit about the inventory.

I don't know if I saw a specific, net delta for the fourth quarter, but how does inventory look as far as, supplies and backlog and ordering, etcetera?

Speaker 3

Okay. Well, I'll I'll Thanks, Jeff. I'll start with the margin. We continue to see margin expansion quarter over quarter. We had a very strong quarter of gross margin in q four, about 80%, and that's basically driven by labor and overhead absorption as well as product mix.

We were 76% overall for the year, And we're confident we can, you know, stay at, you know, very strong levels in terms of our gross margin. In terms of our s g and a, We were at, as you mentioned, 5.9 for the quarter. We would expect that to increase as we continue to invest both in our sales footprint, as Dan outlined in his remarks, as well as our direct to consumer marketing. You know, I think this management team has proven, you know, it's a good guardian of shareholder capital. There's a chance we'll spend more when we are where we see things are are really working to to promote growth, and we'll cut back in areas where we see things aren't working as well as we had planned.

So you would expect that number to go up somewhat in 02/2022. In terms of inventory, we still have quite a bit. We have about 5,300,000 as of the end of the year. We we have enough to get us through next year and probably well into 2024 as well. And, you know, we're working on or starting to work on the next generation of our product, you know, for several years down the road.

Speaker 0

The next question comes from the line of John Vendomosten with Zacks SCR. Please go ahead.

Speaker 7

All right, great. Thank you and good evening everyone. Wanted to start off with Start off with a question just on all your opportunities. On the call you mentioned stroke, PTSD, opioid use disorder, and others. I know you're waiting for data, especially in that stroke with the Novus trial.

Speaker 1

What you will be

Speaker 7

looking for going forward in order to allocate funds towards this? And then how will you think about R and D in light of that? Will you pick the best one of the indications that are out there? Or will you allocate based on just the individual opportunities? So you could either spend $5,000,000 on R and D or $10,000,000 I'm just wondering how you're thinking about that and how the opportunity might change based on the data that you get from these studies that are ongoing.

Speaker 2

Very good question, John. And a lot of it is going to be answered, as we talk to see, the sprint meeting for PTSD and the and the pre sub meetings for opioid use disorder, concussion, etcetera. And so the we expect that the agency will give us some guidance on regulatory pathway and and, of course, a key element of the regulatory pathway is what kind of data we ultimately will need to provide against what kind of indications we're asking for. So most of these indications, PTSD, concussion, opioid use disorder, our current product configuration will work very nicely. We already have quite a bit of data that's in process.

The vast majority of it is through investigator initiated trials that are being funded by government agencies like DARPA hospital system or or NIDA, the National Institute of Drug Abuse. So our cash spend, to get the label would begin commercialization.

Speaker 0

Hello, John? You able to hear us?

Speaker 7

I I I can hear you. I think Dan faded out.

Speaker 2

I'm sorry. Have I been talking to myself?

Speaker 0

Yes. I think John's line is disconnected, but he's still showing on the talk mode. So we'll take the next question now. Thank you. Just a minute.

So the next question comes from the line of Swayampakula Ramakanth with HC Wainwright. Please go ahead.

Speaker 5

Thank you. This is RK from HC Wainwright. Good afternoon, folks. Hope hope all are well. Can you hear me, Dan?

Speaker 2

Yes. Can you hear me?

Speaker 5

I think it's my fault. Yes.

Speaker 8

The the difficulty.

Speaker 5

So so on on the cash pay business, certainly, you know, you're you're you're done the the not only the talk to talk, but also walk to walk. What is the market per se for the cash pay business? I'm just trying to understand, you know, in terms of thinking about growth from here onwards in that business. What's what's the cash pay market business both in The US and The UK? And I don't know if you have any internal landmarks to try to get to in in '22.

Speaker 2

Yeah. So thanks for the question, RK. In headache, which is the the indications that that we can market for today, as you know, there are tens of millions of of migraine sufferers. There are almost a million cluster headache patients in The United States. You know, within those large numbers, you know, all of the cluster headache patients are reasonable targets for us.

And, you know, the the sort of five million migraine headache sufferers out there that are on prescription meds currently are probably targets for us. So, you know, the challenge that we have is our our relatively de minimis insurance coverage at this time. And so we are making our our therapy available through these various cash pay channels directly to consumers. And and the total addressable market is very large, but we still need a prescription. And so we need to be conscious of the the friction in the channel.

Speaker 5

Very good. In in terms of the the VA market and the VA centers, as, you know, things are opening up in general from the from the pandemic situation, what what are your, you know, sales? What is your experience of your Salesforce now? And, also, in terms of making new new new visits to physicians beyond the 100 centers that you are in now?

Speaker 2

Yeah. So the in the fourth quarter, you know, Brian went through some of the numbers in the government channel for the fourth quarter, and things really started to return to growth in the fourth quarter, and and we've carried that momentum over into the current quarter. So we're we're very we're getting increasingly excited about momentum in the government channels for the reasons that you just talked about. The pandemic is receding, getting back to a more normal cadence of of patient visits and and dealing with headache patients. There's also in the VA channel quite a bit of excitement about breakthrough designation for PTSD, and that gives our field sales force and our inside sales force great talking points and and another reason to be in the office communicating with physicians.

Peter has been spending a lot of his time, talking to clinicians about PTSD and the breakthrough designation and what that means. So we're very excited about momentum building in that channel as we speak.

Speaker 5

So so because it looks like the PTSD is probably the the closest indication that that we can talk about in terms of new new areas of expansion. How, you know, what is the route there? Like, you know, what what do you have to do in terms of trying to get that expansion now that you have this breakthrough designation? And, also, do you need to generate additional data, or all that needs to be hammered out with the FDA? So what is the situation there?

Speaker 2

Yeah. So we're we're working to schedule the sprint meeting with the agency in in in the near future. We believe that we have adequate data from the VA hospital system sponsored trials. DARPA also participated in sponsoring those trials. But the agency may say that we need additional work.

So until we have that sprint meeting, it's I really shouldn't speculate.

Speaker 5

Okay. And then for for the stroke, I know there was some questions ahead of me. But I'm just trying to understand. Do you need to have not only the data that you already published, but also the Novus data before you file for an approval, or or can you take the current data and have a conversation with the FDA if they can take this, and then you can back it up with the Novus data later.

Speaker 2

So the door number two. We are we're planning to schedule a presubmission meeting with the FDA on the on the stroke work. The NOVIS trial, we don't expect it to be fully enrolled until the very end of this year or beginning of next year. And, you know, you're exactly right. We we wanna start the process with the FDA, set expectations with the FDA before that trial is fully enrolled and reports out.

Speaker 5

Okay. Perfect. Thank you very much for taking all my questions.

Speaker 0

The next question comes from the line of Anthony Vendetti with Maxim Group. This

Speaker 8

is actually Jeremy on the line for Anthony. How is everyone doing?

Speaker 5

Jeremy. Good.

Speaker 8

Thank you. Just okay. So just, like, just to start off about on the cash pay new initiatives, what could you just explain a little bit more what the difference between the GC Direct and the ecommerce sites? Because I think think both of them are being bought directly from from you as opposed to through a physician who has bought the gammaCore from you.

Speaker 2

Correct. So for for GC Direct, a patient goes to their favorite doctor. That doctor writes a prescription and sends the prescription, to the company, and and we fill the order. For the ecommerce platform, the patient goes to our website, fills out a questionnaire, and we're providing a telehealth service. So a so a health care professional looks at the questionnaire and, and creates a prescription for that patient.

So the nuance is that if I have a doctor that I like and will write the prescription, that's GC Direct. If I don't wanna bother my family practitioner, I can just go to the Internet and get a telehealth prescription.

Speaker 8

Okay. I understand. And so what has been the reception from physicians for these new the GC Direct and the GC Concierge? Is there anything any more information or anything you could provide regarding

Speaker 2

Yeah. So so we just reported on our fourth quarter results where where those those programs were just getting started. We'll be putting up some KPIs when we report out, in a couple of months on the first quarter, but it's very exciting right now.

Speaker 8

Okay. That's good to hear. And then, I guess, I know this is still always up in there, but if you can maybe you know, one of it's been an initiative for a while now to get more insurance coverage. Could you give us any information where you are in talks with potential commercial payers? You know, when do you think?

Is that a 2022 event? Is that something maybe early twenty twenty three? Any any more details you could provide?

Speaker 2

So it's been the the back half of 2021 was very frustrating. The our all of our initiatives were were met with, quiet. So it's been very frustrating. I wish we could report more progress. A key element of getting the commercial insurers to pay attention is consumer demand.

And so the work that we're doing in the cash pay channels is likely to have a spillover effect and and create some demand pull, among the commercial insurers. We continue to, to have conversations with Kaiser. We continue to have conversations with TRICARE, many of the regional regional blues, some of which have, you know, have already given us positive benefit determinations, but it's not it's going much slower than than it we had ever hoped.

Speaker 8

Okay. I understand. And then I'll just it doesn't seem like there's been any issues that have I know other companies have had supply chain issues, inflationary pressures. Is there anything that you're seeing on your end? You have enough inventory?

I know you mentioned. So that's not really

Speaker 2

quite changed. Yeah. We're in a unique situation of of having quite a bit of inventory as as Brian mentioned that, you know, something like $5,000,000 of of inventory on our balance sheet and at 75% gross margins. That's quite a bit of revenue.

Speaker 8

Okay. I see. And then just last question. Is there a target you know, you said you're gonna one of your initiatives for the 2022 growth is to grow your sales function, grow out your sales reps. Is there any target you have, and how is that gonna be split up among the different channels of your business?

Speaker 2

Yeah. So internally, yes, of course, we have targets, but we haven't we haven't said anything about that publicly.

Speaker 8

Okay. Alright. So that's that's all the questions for me. Thank you. I'll get back in the queue.

Speaker 0

Thank you. The next question comes from the line of John Wundermonstin with Zacks SER. Please go ahead.

Speaker 7

All right. Thanks for taking me back. You may have answered the part of my question I was going to ask next just about all the investment opportunities. Wanted to see what the r and d thoughts are for 2022 and and perhaps beyond and and how that might relate to, you know, the the first part of the question I asked earlier.

Speaker 2

Yeah. So we we have not yeah. We we we haven't given guidance on r and d spending for 2022. We have kicked off a design project for the next generation vagus nerve stimulator. So that program will will step up our r and d spending compared to 2021.

The clinical work is not likely to increase our r and d spending. Right? As as we mentioned earlier, we're really blessed that the vast majority work is sponsored by government agencies in The US and abroad. So that particular element where we're making a lot of progress, is not going to impact our r and d spending in 2022.

Speaker 7

Okay. Great. So it sounds like it's gonna tick up a little year over year, but but that's about it.

Speaker 2

That would be the best way to plan for it. Yes.

Speaker 7

Okay. Great. Last one for me is just on on Pro Medical Baltic. I I don't know if they had been generating any revenues for you so far, but, can you update us on on how how much maybe they've contributed so far and and what impact that might have in the future?

Speaker 2

Yeah. We're not we haven't broken out international distributors as a as a separate reporting item. But in general, Greater Europe right now is is really challenged. Our our UK business has been challenged first because of COVID and now because of the Ukraine mess. The the public states are in the line of fire.

So, you know, we we really have to be patient about how our business in Europe for the first half of this year.

Speaker 7

Got it. Got it. And and have you provided any kind of indication on on sales from any of the distributors so far? Kinda how those are are progressing?

Speaker 2

No. We have not.

Speaker 7

All right. Thank you, Dan. Appreciate it.

Speaker 3

Thank you.

Speaker 0

Thank you. The next question comes from John Beatty with Lazarus Fund. Please go ahead.

Speaker 9

Yeah. Hi, Dan. How are you doing?

Speaker 2

Good. Thank you. How are you, sir? Good.

Speaker 9

On the cash pay front, and and I see the challenges with the insurance coverages, have have you reached out to any of the health care ministries like Samaritan's Purse or Christian Healthcare Ministries or any of those that are essentially have always run on a cash pay model anyways?

Speaker 2

So that's a very good point. I'm not aware that we have that we have made an an initiative in that direction. So that's a very good question.

Speaker 9

Yeah. Yeah. I mean, they they end would very much put pressure on insurance companies also because they are the most affordable insurance companies. I I myself participate in in in Christian health care ministries. So I think it should not be overlooked.

Speaker 0

As there are no further questions, we have reached the end of question and answer session. And I would like to turn the call back to Dan Goldberger for closing remarks. Thank you.

Speaker 2

Operator, thank you, everybody, for joining today's call. 2021 was an exciting year of changes for the company, and we look forward to a transformational 2022. Stay tuned. I wanna again acknowledge the hard work that doctor Andra and mister Atia have performed on our board of directors, and I look forward to the fresh perspectives that our new directors, miss Goldstein and miss Wilbur, will bring. I'd like to give a special thanks to all of our employees who worked tirelessly through the pandemic.

Their hard work and commitment in these trying times have set the stage for our expected growth during 2022. I also wanna thank the health care professionals and their patients for the loyal support of made so much progress, and it couldn't have been done without your unwavering support. Thank you all, and have a good day.

Speaker 0

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.