Q1 2021 electroCore, Inc. Earnings Call
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John Brown.
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Error AI E R. A.
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The R Y a N at AI E R. A dot com.
Thank you.
To be our most important revenue channel.
During the first quarter of 2021 clinician meetings with our staff began to increase within the VA as the number of COVID-19 cases decrease within the system.
A total of 79, VA and Dod military treatment facilities have purchased Gam of core products through Q1, 2021 as compared to 71 through the fourth quarter of 2020 and 64 through the first quarter of 2020.
Revenue from the government channel increased 33% sequentially to $679000 in the first quarter of 2021 from $509000 in the fourth quarter of 2020 and increased 49% as compared to $454000 in the first quarter of 2020.
Also during the first quarter of 2021, the company shipped approximately 1768 paid months of therapy pursuant to the VA and Dod originating prescriptions compared to 1232 during the fourth quarter of 2020 and 1084 during the first quarter of 2020.
Our sales and marketing function continues to leverage our clinical differentiation, along with telehealth and other virtual capabilities and management believes the company remains well positioned to resume normalized sales activities as the pandemic subsides.
Turning to our international business you may have seen recent announcements about new distributor relationships around the world, which are structured as stocking distributors. We therefore have two business models driving growth outside the United States.
Direct sales through our subsidiary in the United Kingdom, and a few legacy western European countries and distributor sales elsewhere.
All of our international business has Capably managed by Ian strict Lynch Phd Vice President of global sales and strategy based in the United Kingdom.
During the first quarter of 2021 electric core shipped approximately 1156 paid months of therapy outside of the United States directly to patients as compared to 1143 during the fourth quarter of 2020 and 1008 during the first quarter of 2020 <unk>.
Revenue generated outside the U S was $380000 in the first quarter of 2021 as compared to $311000 in the fourth quarter of 2020 and $276000 in the first quarter of 2020 were.
We're pleased to see steady improvement driven mostly by the United Kingdom, which has been and continues to be hit very hard by the pandemic.
We're enthusiastic about the continued interest we are receiving for noninvasive vagus nerve stimulation or N BNS in other territories around the world.
In the first quarter of 2021 International revenue included initial orders totaling approximately $45000 from our new distributors in eastern Europe and Australia.
We're expecting initial orders from our new distributors in Canada, Belgium, the Netherlands, Luxembourg in Qatar as the year progresses.
Our team in the United Kingdom has been quietly managing the transition from the NHS innovation and technology payment program.
The P to the recently announced NHS improvement Med Tech funding mandate policy 2021 'twenty two.
We do not anticipate any material short term impact and we continue to expect that our UK business will grow under the broader coverage provided by the med Tech funding mandate.
We announced in January that health improvement, Scotland, HHS published a Scottish Health Technology group. The S. H T. G adaptation for NHS, Scotland on the use of gamma core for cluster headache the.
H T. G. Adaptational is now being disseminated across NHS, Scotland health boards to inform the use of gamma core for cluster headache.
We are working towards similar approvals in Wales, and Northern Ireland.
In February 2021, we also learn the gamma cores listing in the NHS supply chain catalog was extended for an additional two years.
Through June three 2023 the.
The NHS supply chain helps NHS deliver clinically assured quality products at the best value to its patients and the inclusion of <unk> in the catalog allows hospitals to purchase game of course sapphire for their primary headache patients taking into account their own budgetary restrictions the lid.
The thing of <unk> Sapphire as an E direct product marks an important milestone in the companys provision of its medical technologies to the United Kingdom patients in an easy cost effective way.
In recent months, we took meaningful steps to expand <unk> global availability of December 2020, we announced an exclusive distribution agreement with pro medical Baltic to distribute gamma court, Eastern Europe, including Lithuania, Latvia, Belarus, Kazakhstan, Ukraine, and more recently, Romania.
In January 2021, we entered into a similar agreement with <unk> medical in Canada and in February of 2021, we announced an agreement with <unk>, who will serve as the exclusive distributor for and BNS and Australia.
We also announced an exclusive distribution agreement with silver at medical in March 2021, who will make and BNS therapy available in Belgium, Luxembourg, the Netherlands, and France most.
Most recently in April 2021, we announced a distribution agreement with East agency for distribution in Qatar.
We look forward to further expanding our global network with leading medical technology distribution partners to make gamma core of more broadly available outside the USA.
Yeah.
We continue to make measured investments in our commercial channel inside the United States, most notably through negotiations with national and regional insurers and pharmacy benefit managers for the purpose of expanding the population of gamma core covered lives.
During the first quarter of 2021, the company shipped approximately 185 paid months of therapy pursuant to commercially originating prescriptions compared to 184 during the fourth quarter of 2020.
Net revenue from the commercial channel was $121000 for the first quarter of 2021 as compared to $54000 for the previous quarter net revenue from the commercial channel during the first quarter of 2020 was not material.
In January 2021, we announced that CMS published its most recent level two healthcare common procedure coding system, commonly known as <unk>.
Establishing of unique code K 1020 for noninvasive vagus nerve stimulation.
All the final coding decisions for the second biannual 2020 coding cycle for non drug the non biological items and services went into effect on April one 2021.
We view the establishment of the unique hick picks code for N. VNS is an important differentiator and a potentially significant driver of additional coverage within the medical benefit pathway.
At least one regional Payor has published a positive benefit determination for K ones Euro to zero and we've entered into the fee schedule of negotiations with that organization.
Several national payers continue to lift and Bns's experimental and we're providing additional clinical and economic data in an effort to overcome those determinations.
Premier specialty pharmacy continues to be our largest distribution partner in the commercial channel and their gamma core business has been relatively flat for the past few quarters.
You'll recall the premier purchases of inventory from electric core and fills prescriptions from their inventory as they were adjudicated by the pharmacy benefit managers. Therefore, the paid months of therapy metric that we reported in the commercial channel does not map directly to revenue.
On the topic of COVID-19 pandemic, our employees in Rockaway, New Jersey and in the field continue to implement best practices, we're preserving the safety and health of all of our stakeholders.
The FDA emergency use authorization of UA, which granted tuition July 2020 for the use of gamma core Sapphire C D at home or in the health care setting for the acute treatment of adult patients with known or suspected COVID-19 gamma.
<unk> Sapphire C V is available throughout our V. A D O D channels to hospitals directly from the company through Premier specialty pharmacy by obtaining of prescription through of patients health care provider.
Or through of Telehealth console powered by our telehealth partner of script LLC we.
We've also set up an online portal for patients to use www dot get gamma core dotcom.
While unit sales in the first quarter to any 21 increased over fourth quarter of 2020 prescriptions generated through the UAE were not a meaningful source of revenue during the quarter.
At this point I'm going to ask our Chief Medical Officer, Dr. Peter Staats to provide an update on our various clinical initiatives.
Thanks, Dan we have seen a lot of positive progress in an art and the efforts over the past few months in December of 2020, we announced the Gamba core was selected for evaluation in a randomized controlled study for the treatment of opioid use disorder. The.
The study is being run by Dr. Douglas Bremner of the Emory University the collaboration with the Georgia Institute of Technology, and the City University of New York and it's supported by the National Institute of drug of abuse.
The study will enroll 40 subjects in two separate study groups of 20 subjects Inc.
Each study group of randomized 10 subjects can be treated with N VNS and Ken with Sham stimulations the.
The study will assess the ability of the Indiana decreased opioid cravings in subjects with a history of the opioid use disorder, who are stable on medication as well as examine the parcel of mechanisms that might facilitate this clinical effect.
In February of 2021, we announced the completed enrollment of the T. R. Venus study, which is evaluating the safety and feasibility of N DNS for the acute treatment of stroke.
We are enthusiastic about the potential that N VNS opposite the potential new stroke treatment and we look forward to reporting topline data from the <unk> trial later this week I'm sorry, excuse me later this year.
Also in February of 2021, we announced the publication of a pilot study in the journal colorectal disease that evaluated the effectiveness of the Nbn as improving postoperative ileus following the elective major colorectal surgery.
Postoperative ileus as the serious condition that can result in surgical complications and extended hospital stays low.
The only of pilot studies of the group using N VNS showed a greater improvement in several clinical important endpoints such as of decreasing the amount of oral morphine equivalent use post surgery compared to the shampoo.
The results detailed in this paper support continued development in this indication and a larger study funded by the National Institute for Health Research in England is ongoing.
In April of 2021, we announced the preliminary results from the Savior, one trial of hospitalized COVID-19 patients in Valencia, Spain.
Preliminary results from the 110 hospitalized COVID-19 patients enrolled in the Savior, one trial indicated that and BNS was well tolerated with no major device related adverse.
It was able to significantly decrease the level of C reactive protein or CRP in patients who use gamma core compared to the group using only the standard of care.
Trends towards significance were also observed from decreases in the treatment group for pro Calcitonin and D dimer.
This apparent the ability to decrease the level of systemic inflammation markers may represent the initial impact of N VNS therapy to potentially improve the course of the patient's COVID-19 symptoms.
Other biochemical measures also favorite of the treatment group, but did not achieve the typical of significance.
We look forward to the publication of stable one results later this year.
We continue to monitor the progress of the phase two trial of hospitalized COVID-19 patients in Pittsburgh, Pennsylvania, and we are also exploring the use of the end DNS therapy to treat migraine in long COVID-19 patients.
On the headache price in December of 2020, we announced the positive topline results from our premium II study of <unk> in migraine prevention.
Recall that this study was terminated early in April of 2020 due to the COVID-19 pandemic.
However, and analysis of the data demonstrated that all study endpoints, including several patients assessed the quality of life.
The measures showed benefit from N VNS with many endpoint showing a statistically significant improvement with nbn as compared to sham stimulation.
The positive results of the premium to add to the significant body of data demonstrating that Ngls is among the most effective safe and flexible treatments available to help patients looking for a way to take control of their headache treatment.
We look forward to the peer reviewed publication of the results later this year.
In February of 2021, we announced that the FDA cleared our five 10-K submission to expand the <unk> label to include the acute and preventive treatment in migraine in adolescence between 12 and 17 years of age.
It's estimated that 10% of all school age children and up to 17% of teens between the ages of 15, and 19 live with migraine and we believe that the non drug treatment option will resonate with this patient population.
With this expansion gamma quarters now cleared for most forms of primary headache.
In April of 2021, we announced the publication of the paper entitled Cluster Headache, pathophysiology insights from the current and emerging treatments by Dr. Diane away and Peter goes the in nature reviews neurology.
This paper, we've used data on existing and emerging treatments for acute and preventative treatment of cluster headache, as well as insights into the pathophysiology of cluster headache.
Among the emerging treatments gamma quarters identified is the only therapy that has been shown to be effective in clinical trials for both the acute treatment of episodic cluster headache, as well as the preventive treatment of cluster headache.
This past Tuesday, we announced that the U S Department of Veterans Affairs of starting an investigator initiated trial of gamma <unk> Sapphire N VNS for the treatment of post traumatic headache or GAAP PTH the.
The trial will be randomized multi center double blind parallel sham controlled study that will enroll up to 100 veterans and who will be directed by the veterans Health Administration of Headache Center of excellence at the West Haven, VA Medical Center in West Haven, Connecticut.
Post traumatic headache is of critical area of concern for VA and it is estimated that more than 350000 service members of headaches, resulting from traumatic brain injuries or TV sustain.
Sustained in combat.
We are thrilled to report ongoing progress in our clinical studies and then VNS continues to be studied at the therapeutic option in areas such as headache, PTSD opioid use disorder stroke, postoperative ileus, and other indications, which may ultimately improve the lives of patients everywhere.
Many of these studies are funded by investigators the department of defense, neither and private foundations and we're optimistic that the foundation of clinical work will increase the total addressable market for N VNS.
At this point I'll turn the call over to Brian for a review of our financials and other guidance items.
Brian.
Thank you Peter for the quarter ended March 31st 2021, the electric core reported net sales of $1 2 million as compared to net sales of 928000 in the fourth quarter of 2020.
The sequential increase in revenue was due to increased sales across all our revenue generating channels.
With particularly strong growth in the V H D O D channels.
Revenue for the quarter ended March 31, 2020 was $734000.
Revenue from the government channel increased 33% sequentially to 679000 in the first quarter of 2021 from 509000 in the fourth quarter 2020, and increased 49% as compared to 454000 in the first quarter of 2000.
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Revenue from outside the U S increased sequentially to 380000 in the first quarter of 2021 from 311000 in the fourth quarter of 2020.
U S revenue was 276000 during the first quarter of 2020.
O U S revenue for the first quarter of 2021 included $45000 from our new distributors of Eastern Europe and Australia.
Net revenue from the commercial channel was 121000 for the first quarter of 2021 as compared to 54000 for the previous quarter.
Net revenue from the commercial channel during the first quarter of 2020 was not material.
Gross margin for the first quarter of 2021 was approximately 70%.
Going forward, our margins will continue to be highly dependent on revenue and product mix.
Total operating expenses for the first quarter of 2021 were approximately $6 2 million as compared to $6 4 million last quarter and $8 4 million from the comparable period in 2020.
SG&A expenses for the period were approximately $5 7 million compared to $5 4 million in the fourth quarter of 2020.
SG&A expenses declined approximately 13% from approximately $6 6 million for the comparable period in 2020.
The decrease in expense was due to the cost reduction plan put in place during 2019 of 2020, including the restructuring of the commercial channel.
Research and development expenses decreased sequentially by approximately $500000 of 50% to 500000 in the quarter and $1 million or 67% from $1 5 million in the year ago period.
This reduction is consistent with the company's strategy of significantly reducing its near term direct investment in R&D.
As well as the early termination of the premium II study in April of last year.
We will continue to maintain our discipline around R&D spending by leveraging funds available through external parties as Peter discussed earlier.
GAAP net loss in the first quarter of 2021 was $5 4 million.
Third to fourth quarter of 2020, GAAP net loss of $6 3 million.
GAAP net loss decreased by 33% or $2 6 million as compared to a GAAP net loss of $8 million in the first quarter of 2020.
Adjusted EBITDA net loss in the first quarter of 2021 was $4 2 million as compared to $4 3 million during the fourth quarter of 2020, and as compared to a loss of $6 4 million in the first quarter of 2020.
The company defines adjusted EBITDA net loss of GAAP net loss, excluding depreciation and amortization stock compensation expense restructuring and other severance related charges legal fees associated with stockholders' litigation and total other income and expense of <unk>.
Conciliation of GAAP net loss to non-GAAP adjusted EBIT of net loss has been provided in the financial statement tables included in this afternoon's press release.
The company ended the first quarter of 2021 with approximately $25 5 million of cash cash equivalents in marketable securities compared to $22 6 million as of December 31, 2020.
The company raised $6 9 million during the quarter under our stock purchase agreement.
That stock purchase agreement was voluntarily terminated by the company before the end of the first quarter the.
This capital raise was offset by net cash used of approximately $4 1 million to fund operations during the first quarter of 2021.
Looking ahead for.
For the second quarter of 2021, we expect net revenue to exceed $1 $2 million and net cash usage to approximate Q1 2021 levels.
And now I will turn the call back over to Dan.
Thank you, Brian we're pleased with our performance during this quarter.
I also want to point out that we're in a very healthy financial position with the cash of $25 $5 million on the balance sheet as of March 31, 2021 as the.
The pandemic received I'm excited about the prospects of building on sequential revenue growth and our V. I D O D headache market and achieving accelerated growth of our U K business of the Med Tech funding mandate takes effect over the course of the year are.
Our unique H C. P. C. S code became effective on April 2021.
And we will continue to work diligently with select regional payers to provide reimbursement of the N VNS therapy.
We've recently announced five new international distributors and I look forward to continued expansion of that channel throughout the year longer term label expansions beyond cluster in migraine headache supported by the exciting ongoing clinical development of the Doctor starts discussed could dramatically increase the total addressable market for N VNS therapy.
Finally, I want to again recognize our dedicated staff working steadfastly through the pandemic disruptions and thank the health care professionals, the prescribed gamma core and their patients for their loyal support of gamma core therapy.
At this point I'll ask the operator to open the line for questions.
Thank you we will now be conducting the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.
For participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
One moment, please let me pull for the first question.
Yeah.
Our first question is coming from the line of Ryan Zimmerman with <unk>. Please proceed with your question.
Hi, This is actually Carolyn on Brian Thanks for taking my questions. The first one from me I appreciate the guidance for the second quarter could you provide some color on how you expect the V. H D O D channel to recover through the balance of the year and then I do have one follow up thank you.
Yeah.
So thanks for making time.
The nobody knows where the pandemic is going.
We are starting to see.
The VA hospitals open up and allow our sales reps to come back in.
But a lot of the providers of lot of the prescribers are still working remotely so it's difficult for us to assess.
What the what the trajectory is going to be so.
Coming from the line of Sean paying with a C. Wainwright. Please proceed with your question.
Hi, Thank you for taking my question.
So.
Uhm I have of the question regarding the view of your study.
For the two mono post traumatic headache.
So HM how.
Probably the crunch human Ford the indications post traumatic ahead of <unk> headache is different from the.
The <unk> closer of headache, which can be treated by a chemical with the current label.
Peter or are you available to the sure no yeah. That's good I'm I'm happy to take it sure. So so we right now we are on label for anything that condition would say is a migraine or for a cluster headache, but there are a variety of specific headaches that are wouldn't exactly be.
Third on label for a migraine or for a cluster attack and some of those would fall under the category of post traumatic headache.
So I think of this as broadening our portfolio of of what we can make claims on but.
Right now many of the patients with post traumatic headache would present as migraines and patients could use our therapy today, but we will be able to broaden our claims and I also think mechanistically, we should be particularly effective.
In a post traumatic type of headache, and I think that would again potentially brought in what we can do not just in the military system, but if you think about all of the patients out there who of had a concussion or of post traumatic headache of Samson trauma to the to the head and are left with debilitating headaches. This will open up a whole new Avenue for.
Cross as well.
I see that's good and one more question regarding investing initiated studies. So of course, the aura uhm multiple ongoing investor you initiated studies.
But then what kind of of data do you do.
Do you hope to get from the study and then at what point do you want a person that particular labor the expansion and what kind of what would it be the next that when you did make the decision.
So.
That is very go ahead, yeah, I've got a theater. So all all very good questions and we haven't laid out the.
The pathway to of label extension publicly yet.
But you know as as Peter said as we gain experience you know specifically with Postconcussion patient.
We'll be able to formulate our our regulatory plans we've got a good relationship with the agency and you know the high road would be to wait until the trial reach out before we file anything with the agency, but we may be able to look at some more accelerated pathways.
I see.
Sounds great. Thank you that's helpful.
Thank you. Our next question is coming from the line of Anthony Vendetti with Maxim Group. Please proceed with your question.
Hi, This is actually Jeremy on the line for Anthony just to quite a year of one or more of a high level just to piggyback off the last question about the trials and I know obviously, the there's really you have to have positive date of before you could the commercial is there anything to what what do you think or what what do you hope it would be your next focus and what do you consider the most of opportunistic commercial opportunity.
Unity out of all of the trials that are going on now or any sort of in the kitchen.
So the that'd be great question.
As Peter mentioned, we've got a pretty broad coverage for most forms of.
Primary headache, I should say clearance rather for most forms of primary headache, and so with the with the the gap P. T H trial, where now extending into the secondary headache. So post-traumatic headaches. That's in the obvious direction force to go.
Beyond that as you know there is work going on again in many cases financed by by DARPA or the V. A system into mild traumatic brain injury and the treatment of post traumatic stress disorder. We also recently announced.
A a DARPA funded.
The trial looking at opioid use disorder, which as you know is is a very important.
The objectives at many levels of government and certainly in our health care system. So in terms of label expansion I think those are aware.
We get not only the most benefit to patients uhm, but also have the the largest commercial opportunities.
And then that's helpful. And then one last question on the commercial payer side of no you know the the new code come into effect April 1st what is your could you provide any more details or specifics how you're approaching the regional payors. What your strategy is to try and get them on board.
Yeah, So we've gotten the and I think I mentioned it in the prepared remarks, we've gotten one positive benefit determination and we're talking to that the insurance company about pricing now.
We've been in touch and have conversations with many others. The oh not surprisingly the first reaction is send us more data and so we're continuing to add to the database on not just clinical performance, but health care of economics, we have a large and growing patient cohort.
In the United Kingdom, and positive determinations from the N H S, which cross crosswalk very nicely to what we're trying to do with the U S insurance companies and even more compelling is the large and growing database of success in the V. A hospital where out of therapy is is free.
Two patients and is is covered 100% by the V. A system. So it never goes as fast as we would like but we are making progress and will continue to report on positive coverage decisions as they become available.
Alright. Thank you that's all for me.
Thank you as a reminder of ladies and gentlemen, if you would like to ask the question at this time. Please press star one on your telephone keypad. Our next question is kind of from the line of John Xander Matson What Zack's. Please proceed with your question.
Good afternoon, everyone of pressure on line true of.
The the partnerships you have from highest the lowest in terms of revenue potential of it the western Europe, one stands out to me as as the top line just because there's a big population there that's well able to pay but you know we have a bunch of others, maybe some characteristics there that make them, particularly valuable.
So.
It's hard for us to handicap.
It's hard first the handicap right now the size of the opportunities and how quickly we'll be able to penetrate I agree with you that the the.
Western Europe Benelux is is probably the largest ultimately Australia is is actually from can be surprisingly productive.
Qatar is a very very small country, but as you know, they're relatively wealthy and can probably the support higher and use the pricing and if the cash pay market. So I think you're gonna see small relatively small initial orders over the <unk>.
Second half of 2021, and I'll be be better able to answer who the early of doctors are and what their trajectory of for 2022 will be based on that early data.
And just between Australia, and Canada, any sense of which one there's the the bigger one.
Probably Australia.
Okay [noise].
And then these agreements are they all design some of similarly in terms of duration and take or pay requirements.
Yeah, they're not take or pay they are we sell inventory at a at a transfer of price and there are minimum obligations to maintain exclusivity in the out years.
Okay.
And a question on gross margin. It was it was pretty good this quarter the highest I've I've seen.
Should we expect it to stay there are there are some one time items in there that that won't repeat or is this kind of of base for the future.
Go ahead organic yeah, Hi, Giants, Brian Nice to speak to you I I think it's really going to be dependent on a revenue levels and all of product ma'am. It's not there was no really one time.
Items driving that other than you know very good quarter of revenue wise, So that you know which <unk>.
Of resulted in Absorpt labor and overhead so it's really about revenue of product mix. I mean, we had one 1 million one of revenue in two three and we had a 68% gross margin. Then so we can definitely be you know in this ballpark.
Forward as long as long as those two metrics capable of.
Okay, great Yeah. It sounds like your level of getting the fixed parts of that first of all.
Yes exactly.
Yeah. My last one for me. It's just on you mentioned that the day of the NVA of the most important customers right now, but with all of these new partners. How do you anticipate the revenue mix looking at a year or two distributors vs. The national health in the UK and then.
D O D.
How do you see that Pie chart looking.
Yeah, well you've done the great question, John So right now we're looking at sequential growth in the in the mid teens too maybe low twenties in in our U K.
Channel as we get the as the Med Tech funding mandate takes hold and we have a larger addressable market.
We think our initiatives with the federal supply schedule into the V. A N D. O D can continue to grow 25% to 30% sequentially and the big opportunity in 2022.
Is that we establish more more reliable insurance company reimbursement in the commercial channel in the U S. That's you know that's foundational work that we're gonna be doing in the second half of 2021, and I believe will be 20 twenty-two our our largest revenue component.
Oh, Okay, great well, thank you for taking the questions.
Absolute.
Thank you I'm not seeing any issue of questions. At this time, so I'd like the past the fly back over the management for any additional closing comments.
Thank you operator, and and for all of you that the dialed in for what turned it into a relatively link Lee business update we greatly appreciate your your patience and support and I Hope all of you were able to stay healthy and and we're all praying that the pandemic moves on have a good evening.
Ladies and gentlemen, just does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.
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Yeah.
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