electroCore, Inc. (NASDAQ:ECOR) Q3 2023 Earnings Call Transcript

electroCore, Inc. (NASDAQ:ECOR) Q3 2023 Earnings Call Transcript November 8, 2023

electroCore, Inc. misses on earnings expectations. Reported EPS is $-0.68 EPS, expectations were $-0.64.

Operator: Greetings, and welcome to the electroCore Third Quarter 2023 Earnings Conference Call. At this time, all participants on a listen only mode. Please make sure to mute yourself. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dan Goldberger. Thank you, sir. You may begin.

Dan 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 third quarter ended September 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, November 8, 2023. electroCore was founded in 2005 to commercialize the use of our proprietary non-invasive vagus nerve stimulation for medical and general wellness applications. The vagus nerve is the longest cranial nerve in the body, bringing information from the visceral organs to the brain. Stimulating the vagus nerve affects many important autonomic functions in the brain and in the body, including neurotransmitter levels, inflammation levels, and metabolism.

Surgically implanted vagus nerve stimulators have been available from other companies for more than 40 years for chronic conditions like epilepsy and depression. So a large and growing database confirms the safety and efficacy of the technique. Building on that science, electroCore pioneered non-invasive vagus nerve stimulation. And our products are now available by prescription for certain headache conditions and without a prescription for general wellness. We have a growing pipeline of additional indications that we plan to launch in the future. We’re thrilled to report a fourth consecutive record revenue quarter with sales of $4.5 million for the three months ended September 30, 2023. That’s a 128% increase over the prior year and 27% increase sequentially.

Gross margins held steady at 85%, and Brian will discuss the financials in more detail later on. During the third 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 discipline around operating expenses should provide us with enough runway to operate our business through 2024 and beyond. Our prescription headache business continues to grow worldwide. We launched two new nonprescription general wellness product lines in late 2022. Truvaga is a direct-to-consumer brand and TAC-STIM for human performance is for our active-duty military personnel.

Both new products continued to exceed our expectations in the third quarter and are driving excitement about the future. Truvaga is currently available exclusively through our e-commerce platform at www.truvaga.com. We are positioning Truvaga as a direct-to-consumer general wellness product for stress, relaxation, sleep, and mental acuity. We are carefully managing our Truvaga advertising spend as we fine tune our messaging and explore various platforms. We held the total spend fairly constant from Q2 to Q3, so we’re not surprised that sequential revenue was relatively flat in the quarter for the Truvaga brand. Truvaga recorded net sales of $267,000 in the third quarter of 2023 in line with our second quarter 2023 Truvaga revenues of $290,000.

Based on this continued success, we’re making targeted investments in marketing Truvaga and remain confident in our previous guidance that Truvaga sales will be approximately $1 million for the full year 2023. For the three months ended September 30, 2023, our revenue return on advertising spend, what the industry calls a media efficiency ratio or MER was 2.09. In other words, we’re spending $1 to generate $2.09 of revenue. We’re carefully monitoring Truvaga return rates as well, which have decreased slightly to approximately 12% so far this year. We believe that the Truvaga business can scale nicely if we can maintain or improve these metrics. 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 more information is available at www.tac-stim.com. We recorded $601,000 of TAC-STIM revenue in the third quarter of 2023, up from $311,000 in the second quarter of 2023. Through the nine months ended September 30, 2023, we’ve already met our previously stated guidance of $1 million of revenue from the TAC-STIM brand for the full year 2023. The sales funnel for this product continues to grow as word spreads across active duty 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 continue to build prototypes for evaluation by our government research partners.

We have stated before that revenue growth for this product line is likely to be lumpy as active duty units purchase 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 135% from $1.167 million in Q3 2022 to $2.737 million in the third quarter of 2023. 141 VA and DOD military treatment facilities have purchased prescription gammaCore products through September 30, 2023 as compared to 113 through September 30, 2022.

The VA Hospital administration Headache Centers of Excellence or HCoE estimates approximately 600,000 patients are being treated for headache in the VA hospital system. Since we’ve dispensed approximately 4,000 gammaCore devices to veterans, that represents less than 1% of the total addressable market within the VA system. We look forward to continued penetration of this important channel. Our physician dispense cash paid channel, including gCDirect and gConcierge grew 19% from $359,000 in the third quarter 2022 to $427,000 in the third quarter of 2023. These channels have grown from 938 prescribers at the end of the third quarter of 2022 to 2,599 at the end of the third quarter of 2023. We added 362 new prescribers during the third 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, that we believe will add more than 12.5 million covered lives within a select managed care health system. The business model with Joerns is similar to how we work with the VA hospital system. Joerns handles adjudications, billing and collections, while electroCore ships 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 we are pleased to have recorded small initial revenue from this relationship during the third quarter of 2023.

Our field sales function will continue developing champions within the target managed care system, and we think Joerns could be a significant revenue source in 2024 and beyond. Revenue from channels outside the United States increased by 11% in U.S. dollars to $464,000 in the third quarter of 2023 as compared to $417,000 for the third 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 13% in local currency. On October 17, 2023 we announced that gammaCore therapy will continue to be listed in the United Kingdom’s National Health Service or NHS, supply chain catalog were leases an additional two years through March 17, 2026.

The listing, which commenced on June 04, 2019 [ph] was scheduled to terminate on March 18, 2024. Now, turning to our clinical progress, on October 24, 2023 we announced top line data from an abstract presented at the 2023 American College of Gastroenterology Annual Meeting regarding the potential for nVNS to decrease the use of acute rescue medication for exacerbation and nursing due to Gastroparesis, GP or functional dyspepsia, FD. The study is entitled non-invasive vagal nerve stimulation reduces nausea rescue medication in patients with gastroparesis and related disorders with additional benefits on multiple other associated symptoms. The primary endpoint was reducing the use of anti-nausea medications. On October 10, 2023 we announced top line data from two abstracts that were presented at the 15th World Stroke Congress on the possible role of nVNS in the treatment of acute neurological injuries.

Image Point Fr/Shutterstock.com

The first trial entitled non-invasive vagal nerve stimulation is safe and efficacious in the treatment of headache associated with subarachnoid hemorrhage, VANQUISH was conducted at Northwell Health is New York and showed a significant reduction in the overall pain score and a 14% decrease in the average morphine equivalent dosage after two weeks of treatment as well as a trend towards a three-day decrease in average hospital stay. The second study, entitled non-invasive vagal nerve stimulation in acute ischemic stroke or NOVIS is a prospective randomized clinical trial with blinded outcome assessment being conducted at the Leiden University Medical Center. A 150 patients with ischemic stroke of being randomly allocated one-to-one to nVNS for five days in addition to standard treatment versus standard treatment alone.

On September 27, 2023 we announced the publication of two peer reviewed publications supporting gammaCore nVNS in patients with post-traumatic stress disorder or PTSD. Both studies were conducted at Emory University and were published in the peer reviewed Journal of Affective Disorders. The first publication, effect of transcutaneous cervical vagus nerve stimulation on declarative and working memory in patients with post-traumatic stress disorder or PTSD was conducted under the direction of Dr. Bremner with the support of Emory University, the Georgia Institute of Technology and the Atlanta Veterans Affairs Medical Center and was sponsored by a Department of Defense small business technology transfer grant. The study suggested that transcutaneous cervical vagus nerve stimulation improves attention, declarative and working memory in patients with PTSD as measured by multiple endpoints.

The second published peer reviewed manuscript entitled transcutaneous cervical vagus nerve stimulation modulates stress induced plasma ghrelin levels, a double-blind randomized sham-controlled trial. Concluded that transcutaneous vagus nerve stimulation could reduce the levels of ghrelin in response to various stressful stimuli. Ghrelin is a neuropeptide hypothesized to be involved in the stress response. If you recall, the FDA previously awarded prescription gammaCore breakthrough designation to treat the symptoms of PTSD, and those publications provide important data that may be leveraged as we work with the agency towards a 510K de novo clearance for a PTSD indication. On July 6, 2023 we announced that the NFL and 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.

The study is actively enrolling investigators and we’ll continue to provide updates about the NFL and NFL PA study, our pipeline and other opportunities in coming months. 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 September 30, 2023 electroCore reported net sales of $4.5 million compared to $2 million during the same period of 2022, which represents an approximately 128% increase over the prior year. The increase of $2.5 million is due to an increase in net sales across major channels including the sale of our prescription gammaCore devices in the U.S. and abroad, and revenue from the sales of our non-prescription general wellness Truvaga and TAC-STIM brands. Total operating expenses in the third quarter of 2023 were approximately $8 million as compared to $7.3 million in the third quarter of 2022. Research and development expense in the third quarter of 2023 was $1.2 million as compared to $1.6 million in the third quarter 2022.

This decrease was due to a decrease in compensation associated with cost cutting measures offset by our target investments to support the next generation of the company’s non-invasive nerve stimulators. Selling, general and administrative expense in the third quarter of 2023 was $6.7 million as compared to $5.7 million in the third quarter of 2022. This increase was due to greater variable selling and marketing costs consistent with our increase in net sales. GAAP net loss in the third quarter of 2023 was $4 million compared to the $5.5 million net loss in the third quarter of 2022. Adjusted EBITDA net loss in the third quarter of 2023 was $3 million, as compared to a net loss of $4.8 million in the third 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.

Cash, cash equivalents and restricted cash at September 30, 2023 totaled approximately $13.7 million as compared to approximately $18 million as of December 31, 2022. In July 2023, the company raised net proceeds of approximately $7.5 million through our registered direct offering and concurrent private placements priced at the market under NASDAQ rules. Looking ahead, for the full year 2023 we are increasing our net revenue guidance to $15 million to $15.5 million from $14 million to $15 million, representing more than 70% growth over 2022. And now I’ll turn the call back over to Dan.

Dan Goldberger: Thank you, Brian. I am very proud of our third quarter 2023 operating results and with the continued momentum in our prescription headache business and strong balance sheet. We continue to be enthusiastic about the company’s long term-prospects across all brands and product lines. Truvaga continues to show tons of potential as a direct to consumer general wellness offering. We’ve started with an e-commerce business model which will continue to be the focus and I look forward to launching a next generation app enabled product platform next year. Our metrics remain strong through the first nine months of Truvaga sales. We will continue to monitor our KPIs and metrics and adjust our investment in all of our consumer channels as the year progresses.

A pipeline of interest from different branches of our active duty military continues to develop for our TAC-STIM products. The TAC-STIM brand is likely to be lumpy as active duty unit’s purchase in bulk for pilot deployment. Longer-term, we also believe that there will be civilian crossover as first responders, elite athletes, transportation workers, traders and e-gamers become aware of the human performance benefits published so far. Demand for our prescription gammaCore therapy in VA/DOD channel continues to grow based on clinical performance and our increased presence in the field. We have about 35 trade commission sales agent entities representing about 60, [ph] 1099 reps in the field managed by our small-team of territory business managers and supported by our customer experience team.

This growing number of sales agents continues to open new facilities and increase the number of orders coming from existing accounts. Our sales and marketing expense increased by approximately $1 million in the third quarter of 2023 over the third quarter of 2022, while sales grew by $2.5 million, signaling that there may be real leverage opportunities in the P&L. 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 initially be launched in general wellness with future uses and prescription indications as we ramp up our supply chain.

We see many potential growth drivers for the remainder of 2023 and 2024, including number one, continued growth in our U.S. prescription headache business in both the VA/DOD and commercial channels. Second, further development of the Truvaga product line for general wellness, mental acuity and sleep driven by ongoing consumer marketing efforts. Number three, further development of the TAC-STIM brand for human performance in the active duty military and future civilian crossover. Number four, revenue through our distribution agreement with Joerns Healthcare for the sale of prescription gammaCore within a select managed care health system, number five, our app-enabled new product platform that will facilitate consumer-facing digital health solutions and unlock new business models, and number six, prescription gammaCore label extensions into PTSD and OUD in 2024 and 2025.

Finally, in 2023 we strengthened our balance sheet. Our cash balance along with increased revenue and consistent reduction in expenses should provide us with enough runway to operate our business. 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: Thank you. [Operator Instructions] And our first question comes from the line of Jeff Cohen with Ladenburg Thalmann. Please proceed with your question.

Destiny Hance: Hi. Thank you. This is actually Destiny on for Jeff. Firstly…

Dan Goldberger: Hi Destiny.

Destiny Hance: Hi. Congratulations on a really strong quarter. That was really wonderful to see and quite a beat even for our models – with our models as well. And I guess what I would like to start with is your increased guidance. Just want to kind of gauge, is that going to be mostly again driven by growth within the VA and DOD prescription channel? Or is that going to be a little more heavily weighted towards Truvaga or TAC-STIM? Can you just help me understand how that could look for the remainder of the year and into 2024?

Dan Goldberger: Yes. So, look the VA hospital system is our biggest number, so that’s obviously where more of the dollar growth has to come from. We’re several weeks into the quarter and we feel really good about that growth in the VA hospital system being consistent with the percentage growth that we showed from sequentially for the last few quarters. So that’ll be the largest dollar contribution, even though it may not be the largest percentage contribution. The Truvaga will be relatively flat because that’s driven by our advertising marketing spend, we may do a Black Friday promotion for example, but on a percentage basis or rather on a dollar basis compared to our larger panels it’s not going to be meaningful. TAC-STIM, we’ve got a lot of momentum there. So I think you’ll see a solid percentage increase in that channel, and our UK business will continue to be in that sort of mid- to high-teens growth.

Destiny Hance: Okay. Got it. Thank you for that. And I guess maybe sticking with my question around, like the DOD and VA channel; you noted 35 sales agents and about 60, [ph] 1099. How has that changed over the nine months in 2023 as compared to 2022? Can you just remind me?

Dan Goldberger: I don’t think we had any in 2022.

Destiny Hance: Okay, perfect. So you’ve on-boarded a lot of these this year, all of these this year?

Dan Goldberger: Correct.

Destiny Hance: And how are you seeing the time from on-boarding to revenue generation. How long are you seeing that take typically?

Dan Goldberger: So what happens is not so much a steady cadence but rather 20% to 30% of the folks that we enroll get it and bring relationships with them and become productive very quickly. And then the rest take either more time or they just don’t cut it and we end up replacing them. But the best situation is one in which we engage a sales agent who already has other product lines in a particular facility. Already it has relationships in that facility, and can turn on the business very quickly.

Destiny Hance: Okay. Got it. I understand the strategy there. Maybe I’ll transition over to – a question on Truvaga. I know you’re holding Ad Spend about the same, so revenue will likely be consistent. I’m just wondering what kind of KPI you’re looking for or that you’re trying to optimize before you ramp up that Ad Spend a bit more?

Dan Goldberger: That’s a very good question. And that’s a topic that we’re working with the Board on right now as we think through our budget for 2024. We’re very happy as long as that media efficiency ratio stays comfortably above two. We think that business scales very, very nicely at anything above two. We’ve consistently been favorable to that metric, and so now it’s about convincing the Board to take the gloves off.