electroCore, Inc. (NASDAQ:ECOR) Q2 2023 Earnings Call Transcript

electroCore, Inc. (NASDAQ:ECOR) Q2 2023 Earnings Call Transcript August 9, 2023

electroCore, Inc. misses on earnings expectations. Reported EPS is $-1.03 EPS, expectations were $-1.

Operator: Greetings, and welcome to the electroCore Second Quarter 2023 Earnings Conference Call. [Operator Instructions]. It is now my pleasure to introduce your host, Dan Goldberger. Thank you, sir. You may begin.

Daniel Goldberger: Thank you all for participating in today’s electroCore’s earnings call. My name is Dan Goldberger. I’m the Chief Executive Officer of electroCore, and I am also a member of the Board of Directors. Joining me today is Brian Posner, our Chief Financial Officer. Earlier today, electroCore released results for the second quarter ended June 30, 2023. 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 were 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 could 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 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 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, August 9, 2023. We’re thrilled to report another record revenue quarter with sales of $3.6 million for the 3 months ended June 30, 2023. That’s a 65% increase over the prior year. Gross margins continue at 84% and cash used in operating activities was $3.3 million for the second quarter of 2023. Subsequent to the end of the quarter, we strengthened our balance sheet by raising net proceeds of approximately $7.5 million in a registered direct and private placement of equity to returning institutional and accredited investors and certain directors and officers. We believe that our increased cash balance, along with potential future increases in revenue and continued rationalization of operating expenses will provide us with enough runway to operate our business through 2024 and beyond.

More on that later when we discuss guidance. Our prescription headache business continues to grow worldwide. We launched 2 new nonprescription product lines in late 2022, Truvaga as a direct-to-consumer wellness brand and TAC-STIM for human performance for our active duty military personnel. Both new products continued to exceed our expectations in the second quarter and are driving excitement about the future. Truvaga is currently available exclusively through our e-commerce platform at truvaga.com. We are positioning Truvaga as a direct-to-consumer wellness product for stress, mental acuity and sleep. No prescription is required for this category. Truvaga recorded net sales of $290,000 in the second quarter of 2023, up from $147,000 in the first quarter of 2023.

Based on this initial success, we continue to make targeted investments in marketing Truvaga. Through the first half of 2023, our revenue return on advertising spend, what the industry calls the media efficiency ratio has been greater than 2.2. In other words, we are spending $1 to generate more than $2.20 of revenue. We are carefully monitoring Truvaga return rates as well, which have increased slightly to approximately 14% so far this year. We believe that the Truvaga business can scale nicely if we can maintain or improve these metrics as we move through the year. TAC-STIM for human performance is being sold to select Air Force Special Forces and Army Special Forces units for accelerated training, sustained attention, reduce fatigue and improved mood as defined by the Air Force Research Laboratory, or AFRL.

No prescription is required, and you can find more information at www.tac-stim.com. We recorded $311,000 of TAC-STIM revenue in the second quarter of 2023, up from $88,000 in the first quarter of 2023. The sales funnel for this product continues to grow as word spreads across military units of the potential human performance benefits provided by TAC-STIM. In parallel, we’re developing a second-generation product known internally as TAC-STIM 2.0 in collaboration with AFRL, and we delivered 10 prototypes to AFRL at Wright-Patterson Air Force Base for evaluation last month. Note that revenue growth for this product line is likely to be lumpy as active duty units purchased in bulk for pilot deployment. Turning now to our prescription headache business.

The VA/DoD hospital channel continues to be our largest customer. You’ll recall that our gammaCore prescription therapy is free to patients covered by veterans administration benefits, representing about 9 million covered lives across approximately 1,300 healthcare facilities. Sales in the VA/DoD channel grew 75% from $1.19 million in Q2 2022 to $2.81 million in the second quarter of 2023. 138 VA and DoD military treatment facilities have purchased prescription gammaCore products through June 30, 2023, as compared to 106 through June 30, 2022. Our physician dispensed cash pay channel, including gCDirect and gConcierge grew 33% from $325,000 in 2Q ’22 to $433,000 in the second quarter of 2023. These channels have grown from 660 prescribers at the end of the second quarter of 2022 to 2,237 at the end of the second quarter of 2023.

Photographee.eu/Shutterstock.com

We added 403 new prescribers during the second quarter of 2023. We believe that the increase in prescribers could be a leading indicator of future growth. Last year, we announced a distribution agreement with Joerns Healthcare, LLC that we believe will add more than 12.5 million covered lives within a 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. Our field sales team is responsible for educating clinicians within those managed care systems. We continue to work with Joerns on the implementation. And while we did not have any revenue in this channel in the second quarter of 2023, we did process several prescriptions during the quarter and expect to begin recognizing small initial revenues in the current quarter.

Revenue from channels outside the United States decreased by 9% in U.S dollars to $424,000 in the second quarter of 2023 as compared to $467,000 for the second quarter of 2022. Most of our OUS revenue was generated in the United Kingdom by prescription gammaCore sales funded by the National Health Service, or NHS, which increased 8% in local currency before unfavorable foreign exchange adjustments. Now turning to our clinical progress. On July 25, 2023, we announced the publication of a peer-reviewed manuscript, effect of transcutaneous cervical vagus nerve stimulation on declarative and working memory in patients with post-traumatic stress disorder or PTSD in the Journal of Effective Disorders. The study was conducted under the direction of Dr. Bremner with the support of Emory University and Georgia Institute of Technology in the Atlanta Veterans Affairs Medical Center and was sponsored by a Department of Defense small business technology transfer grant.

The FDA previously awarded Prescription gammaCore breakthrough designation to treat the symptoms of PTSD, and we are working with the agency towards De Novo submission for that indication. On July 6, 2023, we announced that the NFL and the NFL Players Association, jointly awarded two grants to independent medical researchers at the American Society of Pain and Neuroscience, ASPN and Emory University to fund investigations into innovative, first-of-their-kind alternative pain management methods that could benefit NFL players and society at large, and nVNS will be used in a pilot study assessing noninvasive treatment of refractory post-concussion headache pain led by Dr. Erika Petersen and researchers at the ASPN. The randomized study will compare nVNS in contact sport athletes experiencing post-traumatic headache to current standard of care treatments.

On April 26, 2023, we announced that the National Institute on Drug Abuse, NIDA, part of the National Institute of Health, NIH, was awarded Emory University and the Georgia Institute of Technology, a 3-year, $6 million grant through the NIH, Helping to End Addiction Long-term initiative or HEAL, to conduct a pivotal clinical trial of gammaCore nVNS for the treatment of opioid use disorder or OUD. The double-blind, randomized, sham-controlled study to be funded by this grant will recruit approximately 100 patients with OUD. The primary efficacy endpoint of the study will be peak difference in the subjective opioid withdrawal score between nVNS and sham treatment on day 2 and 3 of the initial withdrawal period. On April 24, 2023, we announced that the Air Force Research Laboratories reported data from its study on the ability of our noninvasive vagus nerve stimulation to improve second language learning.

The study was conducted at the Defense Language Institute in Monterey, California, the U.S. Department of Defense Premier Language School. The study was supported by the Defense Advanced Research Projects Agency, DARPA, within their targeted neuroplasticity training program. The study showed a significant positive effect of nVNS over sham on language recall. Participants received our treatment also showed significant increases in energy and focus over the course of each training segment. We’ll continue to provide updates about our pipeline and other opportunities in the future. 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 June 30, 2023, electroCore reported net sales of $3.6 million compared to $2.2 million during the same period of 2022, which represents an approximately 65% increase over the prior year. The increase of $1.4 million is due to an increase in net sales across major U.S. channels, including the sale of our prescription gammaCore devices and revenue from the sales of our nonprescription human performance TAC-STIM and Truvaga products. Total operating expense in the second quarter of 2023 were approximately $8 million as compared to $7.6 million in the second quarter of 2022. Research and development expense in the second quarter of 2023 was $1.2 million as compared to $1.3 million in the second quarter of 2022.

This decrease was due to a decrease in compensation associated with cost-cutting measures, offset by our targeted investments to support the future iterations of our nVNS delivery platform. Selling, general and administrative expense in the second quarter of 2023 was $6.8 million as compared to $6.3 million in the second quarter of 2022. This increase was due to our continuing targeted investments to support our commercial efforts, offset by decreases in insurance and stock-based compensation expense. GAAP net loss in the second quarter of 2023 was $4.9 million compared to the $5.3 million net loss in the second quarter of 2022. Adjusted EBITDA net loss in the second quarter of 2023 was $4.5 million as compared to a net loss of $4.9 million in the second quarter of 2022.

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 June 30, 2023, was approximately $3.3 million as compared to $3.2 million in the second quarter of 2022 and significantly lower than the $5.9 million reported in the first quarter of 2023. Cash, cash equivalents and restricted cash at June 30, 2023, totaled approximately $8.7 million as compared to approximately $18 million as of December 31, 2022. Subsequent to June 30, 2023, the company raised net proceeds of approximately $7.5 million through a registered direct offering and concurrent private placements priced at the market under NASDAQ rules.

Looking ahead, for the full year 2023, we are reiterating our net revenue guidance of $14 million to $15 million, representing more than 60% growth over 2022. We believe that our prescription headache channels will continue growing by more than 50% to at least $12 million for the full year. Revenue from new products in the Truvaga and TAC-STIM brands could be more than $2 million for the full year, and we will begin recognizing revenue for our distribution agreement with Joerns Healthcare for the sale of prescription gammaCore with a select managed care health system. Including our recent capital raise, we had a pro forma cash balance of $16.2 million as of June 30, 2023. We expect that cash usage will continue to decrease for the remainder of 2023 as revenues increase.

We reduced R&D expense and continue to rationalize other operating expenses. Therefore, we expect our net cash usage to decrease significantly as we progress through the year. And now I’ll turn the call back over to Dan.

Daniel Goldberger: Thank you, Brian. I’m very impressed with our second quarter 2023 operating results and with the continued momentum in our prescription headache business and bolstered balance sheet. We are increasingly enthusiastic about the company’s long-term prospects. Continued investment in our cash pay and covered business models have greatly expanded the prescription gammaCore therapy market. As reflected by the continued revenue growth, number of facilities and number of prescribers realized in the second quarter of 2023, Truvaga has tons of potential as a direct-to-consumer wellness offering. We have started with an e-commerce business model, which will be the focus this year, and I look forward to launching a next-generation app-enabled product platform next year.

Our metrics held strong during the second quarter of 2023 and we will continue to adjust our investment in all of our commercial channels as the year progresses. TAC-STIM 2.0 is a next-generation human performance product being financed in part by the Air Force Special Forces through their BOOST program. It could accelerate the adoption of nVNS for human performance among our active duty military in coming years. A pipeline of interest from different branches of the military continues to develop for our TAC-STIM product, which may result in expanded adoption in future quarters. We also believe that there will be civilian crossover as first responders, athletes, transportation workers and e-gamers become aware of the human performance benefits published so far.

Demand for our prescription gammaCore therapy in the VA/DoD channel continues to grow based on clinical performance and our increased presence in the field. We have about 35 trade commission sales agents for 1099 reps in the field, managed by our small team of territory business managers and supported by our customer experience team. Note that our sales and marketing expense increased by approximately $550,000 in the second quarter of 2023, while sales grew almost $1.4 million, signaling that there may be real leverage opportunities in the P&L if revenue increases over time. Our R&D spend on new products likely peaked during the first quarter of 2022 and we expect our quarterly cash usage to decline as we go through the year due to anticipated revenue growth, gross margin stable at approximately 84%, declining R&D investments and our intention to maintain discipline around operating expenses.

Further out, we’re working towards establishing additional indications for prescription gammaCore 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 headache, wellness and human performance as we ramp up our supply chain. We see many potential growth drivers for the remainder of 2023 and beyond, including continued growth in our U.S. prescription headache business in both the VA/DoD and commercial channels. Further development of the Truvaga product for wellness, mental acuity and sleep driven by ongoing consumer marketing efforts, further development of the TAC-STIM brand for human performance in the active duty military and beyond, revenue through our distribution agreement with Joerns Healthcare for the sale of prescription gammaCore within a select managed care health system, our app-enabled new product platform that will facilitate consumer-facing digital health solutions and unlock new business models and prescription gammaCore label extensions into PTSD and/or OUD in 2024 and 2025.

Finally, in July 2023, we strengthened our balance sheet by raising net proceeds of approximately $7.5 million in a registered, direct and private placements, institutional and accredited investors and certain directors and officers. The cash infusion, along with increased revenues and consistent reduction in burn could provide us with enough runway to operate our business well into the future. 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: [Operator Instructions]. Our first question comes from John Vandermosten with Zacks.

John Vandermosten: Great. Dan and Brian, can you review the structure of the Reliefband arrangement and how the economics work for that?

Daniel Goldberger: So we haven’t said very much publicly about it. We have signed a distribution agreement with Reliefband for their Reletex product that we’re going to take to our channel in the VA hospital system. And it’s early days, but it overlaps very nicely with our call point and with our broader mission of bringing neurostimulation devices to the health care marketplace.

John Vandermosten: Great. And TAC-STIM and Truvaga have really seemed to have come out pretty strong. And with regard to TAC-STIM, are there any national opportunities, international defense agencies perhaps that you can pursue there? And do you need clearance from the DoD to do that? And then perhaps also maybe the DoD could kind of be a conduit to talking to others? What do you think about the opportunity there in terms of international department?

Daniel Goldberger: Yes. You’re exactly right over the long haul. In the short run, the Air Force and Army that we’re working with are very confidential about how they’re deploying our vagus nerve stimulation technology in their conversations with their colleagues in NATO. It has come up, but we don’t have very much visibility on how aggressively they’re going to offer it to our colleagues overseas. Truvaga, we have to go through some regulatory compliance issues, but I certainly expect that Truvaga is going to be available in Canada, in the United Kingdom and in the European Union as we roll into next year and get through some of those compliance issues.

John Vandermosten: Great. It sounds like a lot of opportunities there. And last question for me. You had mentioned that R&D is going to be going down, but I’m wondering how that might be allocated going forward? I think there’s PTSD, OUD and perhaps there’s been a lot of other small things that are potential out there. How do you see kind of, I guess, in a pie chart of breaking down R&D into those different areas?

Daniel Goldberger: Yes. So our largest chunk of R&D spend right now is in new product development. We’re looking forward to launching our next-generation technology platform that’s going to use a smartphone as a display and a control system and as a way to incorporate other wellness data from other devices in our own device. That is on track for product launch early next year. And so the R&D spend on product development is going to tail off as we go through the rest of this year and transition to pilot production and ultimately, building inventory for product line. We’re working with the FDA around the de novo submission to extend our label to treat the symptoms of post-traumatic stress disorder. That data has already been collected.

So it’s not a large component of our R&D spend. The next level extension beyond that is to treat the symptoms of withdrawal from controlled substances like opioids. NIDA, the National Institute on Drug Abuse has awarded a $6 million grant to fund the pivotal trial in that indication. Dr. Bremner at Emory University and the VA hospital in Atlanta is the principal investigator for that trial. And so again, that’s not going to hit our books because the pivotal trial is almost entirely funded by the NIDA grant. So we see our — sorry for the long-winded explanation here, but we see our R&D expense declining over the course of this year and settling out at a much lower level through 2024.

Operator: Our next question comes from Swayampakula Ramakanth with H.C. Wainwright.