electroCore, Inc. (NASDAQ:ECOR) Q4 2022 Earnings Call Transcript

electroCore, Inc. (NASDAQ:ECOR) Q4 2022 Earnings Call Transcript March 8, 2023

Operator: Hello, and welcome to the electroCore Fourth Quarter and Full Year 2022 Earnings Conference Call and Webcast . As a reminder, this conference is being recorded. It’s now my pleasure to turn the call over to Nicole Jones at CG Capital. Please go ahead, Nicole.

Nicole Jones: Thank you all for participating in today’s electroCore earnings call. Joining me today are Dan Goldberger, Chief Executive Officer; and Brian Posner, Chief Financial Officer. Earlier today, electroCore released results for the fourth quarter and full year ended December 31, 2022. 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, any guidance, outlook or future financial expectations, or operational activities and performance, are based upon the company’s current estimates and various assumptions. These assumptions 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 the risks and uncertainties associated with the company’s business, 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, March 8, 2023. With that, I will turn the call over to Dan.

Dan Goldberger: Thank you, Nicole. Hello everyone, and thank you for joining us on today’s call. We made great progress advancing non-invasive vagus nerve stimulation in 2022 for various uses. We reported record sales of $8.6 million for the year ended December 31, 2022, a 58% increase over the prior year and record fourth quarter 2022 sales of $2.6 million. Gross margins expanded nicely to 81% for the full year 2022. Revenue from the US commercial channel was $1.7 million for the full year ended December 31, 2022, a 158% increase from $679,000 in the full year 2021. $1.6 million of our US commercial revenue in 2022 came from cash pay programs as compared to $310,000 for 2021. We have several initiatives in the US Commercial Channel, which continue to grow in terms of revenue and number of prescribers.

Our cash pay clinician dispense programs, gCDirect and gConcierge have grown from 218 prescribers at the end of 2021 to 1,328 by the end of 2022. In the fourth quarter ended December 31, 2022, we added an additional 390 new prescribers and our prescriber numbers continue to show strong growth through the first few months of 2023. We believe the increase in prescribers could be a leading indicator of future growth. In December 2022, we announced the launch of Truvaga, our direct-to-consumer wellness product for stress, anxiety and sleep available online without a prescription at truvaga.com. We’re pleased with the early performance of Truvaga, which has generated sales of almost $100,000 in January and February, 2023. On future earnings calls, we’ll provide additional metrics around the Truvaga product line, but the soft launch so far has greatly exceeded our expectations.

During the year, we also announced a distribution agreement with Joerns Healthcare, LLC that we believe will add more than 12.5 million covered lives within its select managed care health system. The business model with Joerns will be similar to how we work with the VA hospital system. Joerns will handle adjudications, billing and collections, while electroCore will ship directly to patients and provide in-servicing and patient support. Joerns will pay electroCore for devices dispensed. We continue to work with Joerns on the implementation and our field sales team will be responsible for educating clinicians within those managed care systems. Net sales from the government channel, including Department of Veterans Affairs or the VA, the Department of Defense or DoD, and other government departments were $5.2 million, an increase of 60% as compared to $3.3 million in the full year 2022, a total of 117 VA and DoD military treatment facilities have purchased gammaCore products through December 31, 2022 as compared to 100 through the fourth quarter of 2021.

We anticipate continued growth in the number of facilities and penetration within those facilities through our customer experience team, territory business managers and sales agents in the field. On April 19, 2022, we announced that gammaCore non-invasive vagus nerve stimulation has been selected for additional funding by the Department of Defense Biotech Optimized for Operational Solutions and Tactics or the BOOST program. The BOOST Research Program, which will be conducted under the leadership of the 711th human performance optimization branch of the United States, Air Force, seeks to optimize and validate the efficacy of nVNS in accelerated training, sustained attention, reduced fatigue and improved mood among Air Force personnel. More recently, we’ve signed an agreement with the prime contractor and received our first purchase commitments under that contract.

We are establishing the TAC-STIM brand of nVNS for human performance to commercialize the product being developed under the BOOST program and we’re exploring ways to make our initial product offerings available to all branches of the active duty military and first responders in the United States and abroad. In 2022, TAC-STIM product sales contributed $125,000 of the government channel revenue reported above. Revenue from channels outside the United States increased 7% to $1.6 million in the full year 2022 as compared to $1.5 million for the full year 2021. In 2022, $139,000 was attributed to licensing fees associated with the exclusive relationship for nVNS in Japan. Now turning to our clinical progress. On September 7, 2022, the company announced the publication of a peer reviewed manuscript, Transcutaneous Cervical Vagus Nerve Stimulation reduces behavioral and physiological manifestations of withdrawal in patients with opioid use disorder in the Journal, Brain Stimulation, which was conducted with the support of Emory University and Georgia Tech University and sponsored by a grant from the National Institute on Drug Addiction.

We subsequently participated in a pre-submission meeting jointly with the FDA and IDA where we discussed the pivotal trial to support future regulatory submission for an indication to treat the symptoms of substance withdrawal. And IDA has indicated that they’re likely to finance that pivotal trial in its entirety. On October 20, 2022, we announced data from an oral presentation at Neurocritical Care Society’s 20th Annual Meeting held in San Antonio, Texas on the possible role of gammaCore in the acute treatment of traumatic brain injury or TBI. Additional work on the potential benefits of nVNS on TBI will be funded by an exploratory development research grant and R21 from the National Institute of Neurological Disorders and Stroke. We will continue to provide updates about our pipeline and other opportunities.

Now, I’ll turn the call over to Brian for a review of our financials and other guidance items. Brian?

Brian Posner: Thank you, Dan, for the quarter ended December 31, 2022, electricCore reported net sales of $2.6 million, representing 72% growth compared to $1.5 million in the same period of 2021. For the full year 2022, the company reported net sales of $8.6 million, representing 58% growth as compared to net sales $5.5 million for the full year 2021. The increase of $3.1 million is due to an increase in net sales across all major channels, including the US Department of Veterans Affairs, US commercial channel and sales from outside the US. Gross profit for the fourth quarter of 2022 was $1.9 million as compared to $1.2 million for the fourth quarter of 2021. Gross margin for the fourth quarter of 2022 was 75% as compared to 80% in the fourth quarter of 2021.

Gross profit for the full year 2022 was $7 million compared to $4.1 million for the full year 2021. Gross margin for the full year 2022 was 81% as compared to 75% for the full year of 2021. The fourth quarter of 2022 included a charge of $217,000 to gross profit related to the change in estimate of the useful life assumption for certain of the company’s licensed products. Gross margin excluding the change in the estimated useful life charge would have been 84% for the quarter ended December 31, 2022. Total operating expenses in the fourth quarter of 2022 were $7.8 million as compared to $6.7 million in the fourth quarter of 2021. Total operating expenses for the full year 2022 were $29.9 million as compared to $24.1 million for the full year 2021.

Research and development expense in the fourth quarter of 2022 was $1.6 million as compared to $742,000 for the same period in 2021. R&D expense for the full year 2022 was $5.5 million as compared to $2.5 million for the full year 2021. This increase was primarily due to targeted investments to support the future iterations of our product platform, including the implementation of our intellectual property around the delivery of smartphone integrated and smartphone connected non-invasive therapies. Selling, general and administrative expense in the fourth quarter of 2022 was $6.2 million as compared to $5.9 million for the same period in 2021. SG&A expense for the full year 2022 was $24.3 million as compared to $21.6 million for the full year 2021.

This increase is primarily due to targeted investments to support our commercial efforts, particularly around sales and marketing efforts for our cash pay initiatives. Note that the $300,000 increase in Q4 2023 SG&A drove a corresponding $700,000 increase in revenue for the quarter, signaling accelerating leverage from our sales and marketing spend. GAAP net loss in the fourth quarter of 2022 was $5.8 million as compared to a GAAP net loss of $4.9 million in the fourth quarter of 2021. GAAP net loss for the full year 2022 was a loss $22.2 million as compared to a GAAP net loss of $17.2 million for the full year 2021. Again, the year-over-year increase was largely driven by our investment in new product development. Adjusted EBITDA net loss in the fourth quarter of 2022 was a loss of $4.7 million as compared to a loss of $4.4 million in the fourth quarter of 2021.

Adjusted EBITDA net loss for the full year 2022 was a loss of $19 million as compared to an adjusted EBITDA net loss of $15.8 million for the full year 2021. 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 in the quarter ended December 31, 2022 was $4 million as compared to $4.4 million in the fourth quarter of 2021. Net cash used in operating activities for the full year 2022 was $16.6 million as compared to net cash used of $13.6 million reported in 2021. This increase is primarily due to the increase in our net loss from operations. Cash, cash equivalents and restricted cash at December 31, 2022 totaled $18 million as compared to $34.7 million as of December 31, 2021.

Looking ahead, for the full year 2023, we are guiding to $14 million to $15 million of net revenue. We believe that our legacy headache channels will grow again by more than 50% to at least $12 million for the full year and revenue from new products in the Truvaga and TAC-STIM brands could be more than $2 million for the full year. We expect net cash usage in the first quarter 2023 to increase as compared to the fourth quarter of 2022, largely due to seasonal factors affecting working capital, increased investment in product evolution. And now I’ll turn the call back over to Dan.

Dan Goldberger: Thank you, Brian. I’m super excited about our year-over-year operating results and the momentum we’re carrying into 2023, and I’m even more enthusiastic about the company’s long term prospects. Continued investments in our cash pay and covered business models have greatly expanded the nVNS therapy market as reflected by the revenue growth realized in 2022. We are also very enthusiastic about the initial results of our new wellness proposition, Truvaga. We believe our metrics are trending in the right direction and we’ll continue to evaluate our investments in all of our cash pay channels as the year progresses. The BOOST project being financed by the Air Force could accelerate the adoption of nVNS for human performance among our active-duty military.

Interest from different branches of the military continues to build for our TAC-STIM product, which may result in expanded adoption in future quarters. Orders within the VA DoD channel have been strong in January and February, which we believe may bode well for the first quarter. Similarly, Truvaga sales are outpacing our initial expectations, which could add a nice lift to our commercial revenue in 2023. Our cash pay initiatives are showing positive results. Our physician dispense programs are growing faster than expected as new prescribers make gammaCore available to patients directly through their practices or directly from electriCore. The Joerns announcement we discussed earlier is expected to dramatically increase the number of covered lives with access to insurance coverage for nVNS, and could generate material revenue later this year.

Further out, we continue working towards additional indications to treat post traumatic stress disorder and/or opioid use disorder, look for new product launches in 2024, featuring our app-enabled technology that can provide digital health solutions. That product platform will be launched in the headache, wellness and human performance as we ramp up our supply chain. I see many potential growth drivers in 2023 and beyond, including continued penetration of our VA DoD channel in the United States, growth in our US commercial channel, driven by cash pay business models, further development of the Truvaga product for wellness, anxiety and sleep, driven by an increased spend directed to consumer advertising efforts, further development of the TAC-STIM brand for human performance in the active duty military and beyond by leveraging the BOOST program financed by the Air Force and our app enabled new product platform that’ll facilitate consumer facing digital health solutions and unlock new business models.

We quietly instituted a reduction in first quarter of 2023 that’ll reduce operating expenses by about $700,000 for the remainder of 2023. While we are primarily focused on revenue growth, we’re constantly looking for ways to streamline our operations in the path to profitability. In closing, I would also like to point out that several directors of the company put common shares in the open market during the fourth quarter of 2022. In February, 2023, we implemented a one for 15 reverse split and regained compliance with NASDAQ listing requirements on March 6, 2023. At this time, I’ll turn the call over to the operator. Operator, please open the line for questions.

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Q&A Session

Operator: Our first question today is coming from Jeffrey Cohen from Ladenburg Thalmann.

Jeffrey Cohen: Thanks for the verbose read out. So a few questions from our own. I know you talked about the small OpEx reduction and talk about if that’s coming out of R&D or SG&A, and then maybe talk about tie that into R&D and all these programs. It’s wonderful you’ve got a lot of programs pushing forward and it sounds like there’s some grants and sponsorship out there. So should we anticipate a similar level of R&D for you but getting more for less, if you will, as far as programs?

Dan Goldberger: First of all, Jeff, I’m going to dodge the question about the rift. I don’t like to talk too much about people’s livelihoods. The various — the R&D spending is shifting from clinical work that was ongoing in 2019 and 2020 towards product development work for the new platform that we expect we’ll be able to launch in 2024. And that new platform is very exciting, it’ll lead to a family of app connected platforms, that in turn opens up the opportunity to get into some digital health in addition to our traditional vagus nerve stimulation and gives us quite a bit of freedom with business models. So look for quite a bit of innovation on the product side as we go into 2024. And as you know, the nature of product development is that it’s lumpy.

You end up with a large outlay upfront and then that engineering work tails off as you get towards product launch. As far as the indications go, post traumatic stress disorder is next up for us and then working with Dr. Bremner’s group on opioid use disorder financed by the National Institute of Drug Abuse would be following that, but those are probably both 2024 opportunities.

Jeffrey Cohen: Can you talk about the prescribers a bit? It sounds like you had a nice uptick toward the end of the year, and it sounds like it’s carrying through. Are you seeing any lumpiness there in the first quarter as far as deductibles and payers go, or would you expect that kind of the trajectory that you have gone upon recently is going to continue at that space?

Dan Goldberger: So for better or worse, most of our commercial business driven by those prescriber numbers is cash pay. And so while folks are using their HSA cards or their FSA cards, we are not really exposed to the deductible cycle on that cash pay portion of our business. We do have a small but hopefully growing cohort of insurance covered patients and those do indeed slowdown in the first quarter, but it’s very small compared to the cash pay component right now.

Jeffrey Cohen: And then lastly for Brian on the financial side. Any commentary on margins, it looks like 2022 overall was very strong and perhaps you got some headwinds from the labor environment or the supply chains out there. But for ’23 I think we were previously thinking high 70s, any reason given away there to think lower or higher on that front?

Brian Posner: No, we have been consistently in the 80s up until this quarter where we had that change an estimate. But as we said in our prepared remarks, we were over 80% without that charge. So we are fairly comfortable that we are going to still see north of 80% in 2023 as well.

Jeffrey Cohen: And do you expect the Truvaga major portion of that business or the direct to consumers to drive that lower or higher from previous levels?

Brian Posner: I think at this point, it won’t have a significant impact either way. So I’m very comfortable again with the overall percent or better gross margin going forward.

Operator: Your next question is coming from John Vandermosten from Zacks.

John Vandermosten: To start out with a question on your guidance, it looks like it brackets what we have over here at Zacks. And I was wondering if you could break down some of the areas where you think it’s coming from? I think you said earlier on the call that there is $2 million coming from Truvaga and the TAC-STIM program. But how do you see VA OUS and just some of the other more legacy, I guess, areas growing year-over-year in 2023?

Dan Goldberger: Our VA hospital business has two pieces to it. The first is going deeper into our existing customer accounts and the second is opening up new hospitals. And increasingly, we have been able to grow our field sales. I call them sales agents in the trade we call them 10.99 reps. These are folks who get paid straight commissions. So it’s all variable expense as we grow the business. The VA hospital business through the pandemic, right, we grew it 60% year-on-year from €˜21 to €˜22 and 60% the year before that. So I’m looking for at least 50%, 60% growth in that channel this year, as we continue to recruit 10.99 reps and go deeper into our existing accounts. The US commercial business, as I was just chatting with Jeff, is largely cash pay at this time.

Although, the announcement about Joerns giving us access to the Kaiser hospital system, once we get the bureaucracy worked out that’s another 12 million covered lives that could come on in the back half of the year, and that will be a very exciting upside to the numbers we’re talking about. But our cash pay business is driven by those prescriber numbers. And as we sign up a new prescriber that’s interested in offering nNVS therapy on a cash pay basis, that should have a multiplier effect going forward. So it’s been growing far more than that 50%, 60% and starting from smaller numbers. So I think that can grow very aggressively through the rest of this year. The new products TAC-STIM and Truvaga, very, very exciting starts. We already have some revenue from TAC-STIM, as we reported in the fourth quarter, fast start to our Truvaga launch.

And by the way everybody who’s listening, please go take a look at our new products at truvaga.com. But lots of reason for acceleration in all of our business channels as we go through the year, especially in the back half of the year.