Q3 2021 electroCore, Inc. Earnings Call
[music].
Greetings and welcome to Electro Corp, third quarter 2021 earnings call.
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It is now my pleasure to introduce your host rich Cockrell. Thank you rich you may begin.
Thank you all for participating in the electric core earnings call joining.
Joining me today are Dan Goldberger, Chief Executive Officer, Brian Posner, Chief Financial Officer, and Dr. Peter Staats, Chief Medical Officer earlier today. The company released results for the third quarter ended September 32021, you can find a copy of the press release on the company's website.
Before we begin I'd like to remind you that during the call management will be making forward looking statements within the meaning of the federal securities laws, which are pursuant to the safe Harbor provisions of the private Securities Litigation Reform Act of 1095 any statements mentioned during this call that are not historical fact.
Should be deemed as forward looking statements.
All forward looking statements include without limitation, the examination of operating trends and the company's future financial expectations are based upon current estimates and various assumptions. These statements.
Involve material risks and uncertainties that could cause actual results or events to material Lee differ from those anticipated or implied by these forward looking statements.
Accordingly, you should not place undue reliance on these statements for a list that describes the risks and uncertainties associated with the company's business. Please see the company's filings with the Securities Exchange Commission.
Electric core 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 this law.
Live broadcast today November 4th 2021.
And with that I'll turn the call over to Dan go ahead Dan.
Thank you rich Hello, everybody and thank you for joining US today I'm excited to report that Q3 2021 revenue was a record one $5 million gross margins have expanded to more than 75% and net cash used in operations decreased to $3 4 million for the third quarter of 2021.
For the third quarter of 2021 total revenue of $1 $5 million increased approximately 38% from $1 1 million in the third.
Third quarter of 2020.
Revenue from our government channel increased 46% to $946000 for the quarter ended September 32021, as compared to $646000 in the third quarter of 2020.
And our VA Dod channel.
96, VA and Dod military treatment facilities have purchased gamba core products through September 32021, as compared to <unk> 67 in the third quarter of 2020.
Note there are approximately 1300, VA health care facilities, and 475 military hospitals and medical clinics. So we still have plenty of growth ahead of us.
Revenue from direct channels outside the United States increased 33% to $371000 in the third quarter 2021, as compared to $278000 during the third quarter of 2020.
We look forward to continued revenue growth in the United Kingdom as the Med Tech funding mandate continues to rollout.
Spite of pandemic headwinds.
Turning to our commercial headache channels in the United States pharmacy benefit managers, including Cvs Caremark and express scripts provide gamba core therapy to patients that have a high end benefit design that does not differentiate between drugs and devices. These patients are subject to a co pay of between 25% to $75 per month.
Depending on their specific benefit plan.
Our unique level two healthcare common procedure coding systems.
Fixed code zero.
020, noninvasive vagus nerve stimulator.
Effective April one 2021.
An important milestone in our efforts to obtain reliable insurance coverage for gamma core therapy.
Previously all of our prescriptions with coders, miscellaneous, which make for an easy initial coverage denial for an insurance company.
On August four 2021, we announced the release of an article entitled Gamma core for cluster headache in the journal pharmacodynamics, highlighting the cost savings of Gamma course, noninvasive vagus nerve stimulation therapy platform for patients with cluster headache.
The paper validated that gamma core both reduces the frequency and severity of cluster headaches and provides 450 British pounds per patient cost dominance and cost savings in the first year of therapy versus standard of care alone.
Subsequent to the end of the quarter on October 2021, we.
We announced the publication of a peer reviewed paper entitled Noninvasive Vagus nerve stimulation for treatment of cluster headache, a retrospective review of prescribing in England in the British Journal of Health care management.
The study is one of the largest clinical audits of patients with cluster headache, and highlights that of the 655 patients who started on gamma core 46, 3% of patients were prescribed at least one rebuilt.
39% were prescribed two or more refills.
Real World results suggested durable benefit for patients utilizing gamma course, noninvasive vagus nerve stimulation for cluster headache in England.
These two publications add to our growing bibliography of positive health care economics evidence, which is very powerful and our conversations with private insurance companies in the United States and distributor prospects around the world.
Armed with our unique code in recent publications, we are ramping up discussions with insurers. We've engaged policy reporter to help us negotiate with an initial group of 30 regional and national benefit providers.
Mark Blue Cross Blue Shield was our first positive benefit determination and were now negotiating their fee schedule.
We subsequently won our second positive benefit determination from Blue Cross Blue Shield of North Dakota.
While we work towards broader insurance coverage note that more and more Americans have high deductible insurance plans, which means that patients are likely to be faced with a cash pay obligation even when coverage is available to.
To fill that gap, we've been aggressively testing several cash pay business models and direct to consumer promotions.
Net revenue from the U S commercial headache channel was $158000 for the third quarter of 2021 as compared to $112000 in the third quarter of 2020.
Approximately $124000 of our U S commercial revenue in the third quarter came from cash pay programs specialty pharmacy and direct from electric <unk> and the balance was paid by insurers through the pharmacy benefit managers going forward.
U S sales function is focused on the following revenue growth initiatives.
First going deeper into our 96 existing VA hospital customers.
Leveraging our VA hospital success to open new VA hospital customers.
And recruiting additional commercial prescribers to our cash pay business models, while we work towards broader commercial insurance coverage.
We have grown our U S sales function in recent months through a combination of our inside customer experience team territory business managers and sales agents in the field.
I look forward to reporting accelerating growth in our U S channels as our team becomes more productive in coming months.
As the number of commercial prescribers offering our cash pay alternatives increases we will also evaluate direct to consumer marketing investments to drive revenue growth in future quarters.
At this point I'm going to ask our Chief Medical Officer, Dr. Peter Staats to provide an update on our various research and clinical initiatives Peter.
Thanks, Dan.
We continue to advance and DNS across several trials and our FDA cleared indication.
As well as in our intellectual property throughout this quarter.
August 10, 2021, we announced the publication of a peer reviewed manuscript tranche detainees cervical vagal nerve stimulation in patients with post traumatic stress disorder or PTSD, a pilot study of effects on PTSD symptoms and interleukin six response distress.
In the journal affective disorders reports.
The manuscript reports the results of a randomized double blind Sham controlled study conducted at Georgia Institute of Technology, and Emory University.
The results confirmed previous animal and human signals and showed that three months of treatment with Nbn that leads to a 31% reduction in PTSD symptoms compared to sham on the PTSD checklist or PCL as well as a significant decrease in hyper arousal symptoms and a decrease in overall.
And somatic gas.
Gastric symptoms.
At the conclusion of the study patients who continue to use and DNS for a further three month open label period showed a significant improvement in their overall symptoms reported by the critical Global index.
Furthermore, and DNS effectively block the increase in the levels of inflammatory cytokines or IL six that is over expressed in patients with PTSD, who are exposed to dramatic script.
PTSD is prevalent in our veterans represents a high unmet medical need and is highly relevant in the migraine population in the VA and department of defense.
In September of 2021, we announced the company received section five 10-K clearance from the United States Food and drug administration or FDA of the Companys submission to expand the label of Gamba core N. VNS to include the treatment of paroxysmal Hemicrania and heavy cranial continue in adults.
Paroxysmal Hemicrania at Henry and Hemicrania continue are both rare forms of <unk> general Autonomics without it.
It typically debilitating and difficult to treat.
<unk> now has five distinct FDA clearances and primary headache or did any other headache therapy, we are aware of.
Subsequent to the end of the quarter on October 14th we announced the publication of an amended medical device license from health, Canada to expand the label of Gamba core and DNS to include the acute and preventive treatment of migraine and adolescence between 12 and 17 years of age.
In addition to our ongoing clinical and regulatory activities, we have been investing.
Vesting in our intellectual property portfolio.
In September of 2021, we announced the United States patent and trademark office has issued got number 110 97 102.
Relating to devices systems and methods that integrate integrated with smartphones.
Outpatients itself that is self.
Self treat medical condition, such as migraine headache.
Electrical noninvasive stimulation.
The 100 to CAD is the eighth U S patent issued to electric or the company's mobile connectivity platform with additional U S and international matters pending.
Electrical is building a portfolio of intellectual property IP around small branded smartphone connected noninvasive therapy.
This IP may provide a foundation for combining the companies clinically proven therapy with digital health platform that could enable healthcare providers to use remote patient monitoring or remote pudic monitoring reimbursement codes.
That combination in turn May enable future business models expand revenue streams for the company's products.
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 September 32021 electric <unk> reported net sales of $1 5 million compared to $1 3 million in the second quarter of 2021, and $1 1 million during the same period of 2020.
This represents a quarterly revenue increase of 17% sequentially and 38% over the same period last year.
Gross profit for the third quarter of 2021 was $1 1 million as compared to 895000 for the second quarter of 2021 and 733000 for the third quarter of 2020.
Gross margin for the third quarter of 2021 was 76%.
Impaired to 71% in the second quarter of 2021, and 68% in the third quarter of 2020.
The increase in gross margin was largely due to increased sales, resulting in a more favorable absorption of labor and overhead costs and product mix.
Total operating expenses in the third quarter of 2021 were approximately $5 1 million.
A reduction of approximately $1 million from $6 1 million in the second quarter of 2021.
Operating expenses decreased by $100000 from $5 2 million in the third quarter of 2020.
Yeah.
Research and development expense in the third quarter of 2021 was $470000 as compared to $825000 in the second quarter of 2021.
Decrease of approximately $355000 sequentially.
The decrease in R&D expense during the quarter was due to timing of expenses in connection with the gap PTH program.
R&D expense decreased by 159000 from $629000 during the third quarter of 2020.
SG&A expense in the third quarter of 2021 was $4 6 million as compared to $5 $3 million in the second quarter of 2021 and consistent with the year ago period.
GAAP net loss in the third quarter of 2021 was $4 million compared to a GAAP net loss of $2 9 million in the second quarter of 2021.
GAAP net loss decreased by 11% or $500000 as compared to a GAAP net loss of $4 $5 million in the third quarter of 2020.
In the second quarter of 2021, the company recorded a total gain of $2 $3 million on the extinguishment of debt and a tax benefit from the sale of New Jersey NOL carry forwards.
Adjusted EBITDA net loss in the third quarter of 2021 was $3 1 million as compared to $4 1 million during the second quarter of 2021 and as compared to adjusted EBITDA net loss of $3 3 million in the third quarter of 2020.
The company defines adjusted EBITDA net loss as GAAP net loss, excluding depreciation and amortization.
Stock compensation expense restructuring and other severance related charges.
<unk> fees associated with Stockholders' litigation.
Total other income and expense extinguishment of debt and a provision and benefit from income taxes are.
A reconciliation of GAAP net loss to non-GAAP adjusted EBITDA net loss has been provided in the financial statement tables included in the press release, we issued earlier this afternoon.
Net cash used in operating activities. During the quarter ended September 32021 was approximately $3 4 million as compared to $3 2 million in the second quarter of 2021, and $4 1 million in the third quarter of 2020.
The second quarter of 2021 amount is exclusive of cash proceeds from the sale of NOL carryforwards.
Cash cash equivalents and marketable securities at September 32021 totaled approximately $39 million as compared to approximately $23 7 million at June 32021.
During the third quarter. The company raised net proceeds of approximately $18 8 million through a public offering of $20 million 700000 shares of its common stock.
Now I'll turn the call back over to Dan.
Thanks, Brian.
We're pleased with our operating results this quarter.
And we are in a strong financial position with cash and cash equivalents of 39 $39 million as of September 32021.
Recent publication and pharmacodynamics confirming cost dominance of 450 British pounds per patient when gamma core therapy is used provides further support to our payer and distributor negotiations.
The term clinical indications beyond cluster in migraine headache.
Supported by the ongoing clinical development. The Doctor starts discussed could greatly expand the market for <unk> therapy.
We continue to build our intellectual property portfolio and we're planning some very exciting next generation product platforms to leverage that asset.
For the current quarter that ends December 31, 2021, we expect revenue to exceed $1 $5 million.
Our VA Dod channel slowed in the first two weeks of October as those hospital customers.
Worked through their September 30 year end accounting.
And our U K business was impacted by Covid during the month of October.
Both channels have seen a return to growth in recent weeks, giving us confidence in our revenue projection and the sales momentum we will carry into next year.
For the year ending December 31, 2021, the company expects net revenue to exceed $5 million 450000.
A 55% or more increase from $3 $5 million of revenue in 2020.
We currently expect to end the year with approximately $34 $5 million in cash <unk>.
Indicating that operations will require approximately $4 $5 million of cash during the fourth quarter of 2021.
We believe that our cash balance will allow us to execute our operating plan through next year and beyond.
Mike.
The operations team has driven gross margins to 76% in the quarter ended September 30, the healthy increase from earlier this year.
Brian Posner is finance team has maintained discipline around operating expenses and I have faith in their continued vigilance as we make targeted investments in the commercial channels and product development.
We look for.
We look forward to further penetrating our large opportunity in the VA Dod channel in the United States under Mitch <unk> capable leadership.
While <unk> is leading the growth of our international businesses through the continued rollout of the med Tech funding mandate in the United Kingdom, and our growing group of distributors in other countries.
As we look towards 2022.
See many growth drivers, including continued penetration of our VA Dod channel in the United States continued penetration of the U K market as the pandemic hopefully recedes once and for all growth in our U S. Commercial channel driven it first by cash pay business models and bolstered by our efforts to gain insurance.
Coverage and expansion of our international distributor network.
I wanted to recognize our dedicated staff for their hard work and commitment in these trying times and thank the healthcare professionals 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 a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
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One moment, please while we poll for questions.
Thank you. Our first question is from Jeffrey Cohen with Ladenburg Thalmann. Please proceed with your question.
Hi, Dan Brian and Dr. <unk>.
Thank you Greg.
So a few familiar so so far.
Firstly could you talk about the <unk> channels for us and a new type of predictability and how youre seeing trends formed booths at.
New facilities coming on as well.
Existing solar facilities.
Yes sure.
First thing is that there is a little bit of seasonality in that channel just around the September 30 year end.
They pulled a little bit of business forward into September and then Theres about two quiet weeks at the beginning of October.
While they finish up their accounting that's a pattern that we've seen.
Previously.
Over the course of the summer.
We rebuilt our field sales function under <unk> leadership, and that new group of folks and it's been in for training now and they're getting they're out now in the streets detailing the existing customers in and starting to prospect for new VA hospitals, and we leverage that capability with our insight.
Sales of the customer experience team that Lisa Martin months so.
And also look the pandemic once and for all.
Seems to be receding so.
I think.
Hope Springs, eternal, but we're starting to see things accelerate.
Just in the last few weeks and looking forward to great things in coming months.
Okay got it and could you talk about Europe a bit stronger.
Your commentary about growing distributors and maybe talk about are there are there any reimbursement.
Process is going on through and you see your countries.
Yes, so on that last point.
We've got tremendous success in the UK and support from NHS and their health care economics arm.
E.
Wales is likely to come on towards the end of this year, but that may slide into next year Brexit has been a little bit of a headwind because.
We run the rest of Europe through our <unk>.
UK subsidiary.
There are various countries around Europe, where we are working through the national health care system to try and drive.
Additional.
Psychological response, but it's the actual measurement of interleukin six.
Which is an inflammatory cytokine that frankly was associated with a high mortality in the patients with Covid what that is.
A real.
Pro inflammatory cytokines, it was able to be shown to be altered.
This study of course is not going to be enough in and of itself for an FDA clearance et cetera, but.
The scope of the problem out there in our veterans is really quite high.
The disease is out there, it's probably close to 3% in some capacity.
<unk>.
<unk> in the non veteran population. So this is a big unmet medical need.
No. It was very strong however, and I think it will lead us to.
The next set of studies as we were you know.
Processing this what needs to be done next.
For a true F D a.
Study in pilot.
Would you expect to starting to you Steve for some for the agency to one or for you to want to do some imaging.
And then I'm sorry to cut you off from our depression question.
Sure now you didn't cut me off I am I right exactly.
So we have had imaging studies done or.
The years there've been a number of.
Functional type of imaging studies that had been done demonstrating an improvement in brain activity as well. So those are what we just we just talked about was kind of an additional.
The data that's already been done and research of N VNS and PTSD will show a number of papers out there on Google scholar or the NIH websites et cetera. So you can find a lot of stuff that in fact already has been done that are supportive of this now.
Now the second question about depression is not an area that we have.
I decided to invest in today, but I would just.
Patients to pay.
Treat their symptoms, especially when they don't get too much reimbursement.
From there from their insurances.
So thanks for the question RK.
Currently have we started this.
Last summer and we currently have.
A 50 plus.
Prescribers around the country.
Enrolled in one of these cash paid pilot programs.
And we've been.
Very upside surprise.
That.
Something like 65% or 70% of the patients that get a prescription written.
Do ultimately pay that.
That out of pocket cash price when it's when it's highly recommended by there.
By their physician so I don't.
I'd love to be able to say that we're going to be able to maintain that high conversion ratio.
But right now we're off to a very exciting start.
Perfect Thats pretty good.
Then.
For the VA.
Stream.
You currently have.
Our interactions with about 9% to six centers as of the third quarter.
Steady growth of course with the number of centers that you're interacting with.
I just said.
<unk>.
The COVID-19.
We're seeding.
You know what.
What's the benefit.
What are your thoughts on trying to do a big bolus of resources so that.
'twenty two.
It gets to a good start, especially in the <unk>.
Meaningful let's say in the next 12 to 18 months.
So COVID-19 has been a bigger challenge in the UK and in Europe than it has been in the U S and it's actually been kind of personal we've had we have a small team in the U K and <unk>.
And two of our employees in the U K.
Had actually came down with Covid and in.
September and October but they are all they are healthy again, but it's a big impact on our on our activities. So we're.
We're going to be a little bit slower recovering in the current quarter.
That said all.
All of the.
All of the mechanics.
For growing the U K business at that sort of 10% sequentially.
As the Med Tech funding mandate rolls out already in place and so we should see that return to growth.
As we roll into next year and the pandemic does whatever it does in and get back to that steady growth.
With the support from NHS in the United Kingdom.
Outside.
Canada and Australia.
Are very likely to start to accelerate as we roll into 2022.
And it's still a little bit too early to tell what our European distributors are going to be able to do between the challenges of Brexit and the pandemic.
Okay Fantastic. Thank you for taking all my questions.
Thanks for the opportunity.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.
Our next question comes from Jon Vander Marston with Zach. Please proceed with your question.
Okay. Thank you and good afternoon I also had a question on the VA and trends there, but when you look at.
Congratulations on the nice.
Kris and facilities that you're serving.
Ask about you had a you had a gross margin that's.
Higher than our long term estimates there.
Should we think about changing our estimates and moving them up a bit or it sounded like from Brian It sounded like from what you were saying that these were sustainable types of improvements is that has that kind of what you see or or are there. Some issues in there that may bring those down a little bit in the future.
Yes.
In the short term it really depends on rate labor and overhead absorption, which is obviously dependent on revenue and profit product mix as well.
So and the long term we're confident that.
We will sustain.
Very strong gross margins.
Okay, great. So it sounds like.
It wouldn't be a problem to kind of bring them up maybe longer term to this level that you achieved in the third quarter.
That's a fair assessment.
Okay, Great that's good news.
And then the other question kind of follows up on one of the other analyst questions about the distributors and how they are trending so.
If you look at each of them and trying to think of them in a category of.
Preparing to make sales are almost making sales are kind of making sales.
Can you clarify that a bit for <unk>. It sounded like kind of you mentioned, a little bit about Canada, Australia, and Europe, but I was wondering if theres any more clarity on kind of where each of them are in terms of.
Getting getting getting sales going in it.
Thank you Dan Bryan, Texas, that's always a pleasure to talk to you guys. Thank you. Thank you.
Thanks, John.
Thank you there are no further questions at this time I would like to turn the floor back over to management for any closing comments.
Thank you operator and greatly appreciate everybody's time and attention and also I'd be remiss, if I didn't point out veterans day next week.
Given the strong support that we have in the VA hospitals and the Dod military treatment facilities, so stay healthy everybody.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.