electroCore, Inc.
Q2 2020 Earnings Call Transcript

Published: 14 Aug 2020

[Operator:]

Greetings and welcome to electroCore's Second Quarter 2020 Earnings Conference Call. At this time all participants are in a listen-only mode. 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, Hans Vitzthum with LifeSci Advisors. Thank you, you may begin.

[Hans Vitzthum:]

Thank you, operator, and thank you all for participating in today's call. Joining me are Dan Goldberger, Chief Executive Officer and Brian Posner, Chief Financial Officer. Dr. Peter Staats, electroCore's Chief Medical Officer will be available for Q&A. Earlier today electroCore released results for the quarter ended June 30, 2020. 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 this call that include forward-looking statements within the meaning of the federal securities laws, which are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Any statements contained in this call that are not statements of historical facts, should be deemed to be forward-looking statements. All forward-looking statements, including without limitation, our examination and operating trends and our future financial expectations 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 differ materially from those anticipated or implied by these forward-looking statements. Accordingly, you should not place undue reliance on these statements. For a list and description 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 13, 2020. And with that, I'll turn the call over to Dan.

[Dan Goldberger:]

Thank you, Hans. Hello, everyone and thank you for joining us today. I'll begin with an update before turning the call over to Brian to review our financial results. You'll recall that electroCore is in the early stages of commercialization of our proprietary gammaCore therapy for various indications. I'd like to start with the review of our balance sheet. We ended the second quarter with cash and cash equivalent of $18.9 million, subsequent to the end of the quarter we raised an additional $10.3 million through an additional draw down on our existing stock purchase agreement with Lincoln Park Capital. As a result, our pro forma at June 30, cash balance is $29.2 million. At the same time we've made significant progress reducing our cash burn to $5.2 million in the second quarter of 2020 as compared to $8.4 million in the first quarter of 2020 and $11.2 million in the second quarter of 2019. Together, these actions provide us with a substantial cash run rate that I believe is sufficient to achieve meaningful commercial milestones both in our proved headache indication and existing revenue channels as well as the emerging opportunity in COVID-19. Turning now to COVID-19 on July 13, 2020 we announced that FDA has issued an emergency use authorization for non-invasive vagus nerve stimulation therapy, gammaCore Sapphire CV in known or suspected COVID patient who are experiencing an exacerbation of asthma related symptoms and proven currently available treatments cannot be tolerated or proved ineffective. Needless to say, we're thrilled that our EUA has been approved and we look forward to making nVNS therapy available to both the medical community and COVID patients. gammaCore Sapphire CV is now one of a very small group of therapeutics to have received the EUA designation. The utility of nVNS in COVID-19 patients was initially highlighted in April 2020 through a paper published in the highly regarded peer review journal Neuromodulation

[Brian Posner:]

Thanks Dan. For the quarter ended June 30, 2020 electroCore reported net of $753,000 compared to $734,000 in the first quarter of 2020 and slightly above guidance range of $700,000 to $750,000 that we provided in our July 14th update. The increase in revenue compared to the first quarter of 2020 reflects sales from our commercial channel were offset by decreased revenue within the VA and OUS. Paid months of therapy shipped to the VA and DoD decreased 9% sequentially to 988 during the second quarter of 2020 from 1,084 in the first quarter of 2020. Revenue from the VA and DoD also decreased 9% sequentially to $415,000 during the second quarter of 2020 from 454,000 in the first quarter of 2020 and $378,000 in the fourth quarter of 2019. Paid months of therapy shipped outside of the US decreased 7% sequentially to 938 during the second quarter of 2020 from 1,008 first quarter of 2020 and 961 in the fourth quarter of 2019. Revenue from outside of the US decreased sequentially to $247,000 in the second quarter of 2020 from $277,000 in the first quarter of 2020 and $294,000 in the fourth quarter of 2019. During the quarter ended June 30, 2020, electroCore restructured its commercial distribution channel and exhausted all of the inventory that had previously been placed in that channel. As a result, the company recorded revenue of approximately $60,000 during the period for a small replenishment order and expects to be able to report recurring revenue in the commercial channel in the future. Total operating expenses for the second quarter of 2020 were approximately $6.4 million, down approximately 50% compared to $12.7 million in the comparable period in 2019. SG&A expense declined approximately 44% to $5.3 million in the second quarter of 2020 from approximately $9.4 million for the comparable period in 2019, primarily driven by a decrease in sales and marketing expenses consistent with the cost reduction plan that we first implemented in June 2019. R&D expense decreased by approximately $1.5 million or 60%, to $1 million in the second quarter of 2020 from $2.5 million versus a year ago period. This reduction is consistent with the company's strategy of reducing its near-term investment in R&D. During the second quarter of 2020, the company recorded a tax benefit of approximately $1.2 million in connection with the sales of some of its New Jersey NOL. GAAP net loss for the second quarter of 2020 was $4.7 million compared to a GAAP net loss of $12.1 million in the second quarter of 2019. Adjusted EBITDA net loss for the second quarter of 2020 was a loss of $4.3 million as compared to an adjusted EBITDA net loss of $10.8 million for the same period in 2019. The company defines adjusted EBITDA net loss as GAAP net loss, excluding income tax expense or benefit, stock-compensation expense, restructuring and other severance related charges, legal fees associated with stockholders' litigation and total other income and expense. A reconciliation of GAAP net loss to Non-GAAP adjusted EBITDA net loss has been provided in the financial statement tables included on our press release this afternoon. Cash and cash equivalents and marketable securities at June 30, 2020 totaled approximately $18.9 million, as compared to approximately $24.1 million at December 31, 2019. Subsequent to the second quarter of 2020, the company raised approximately $10.3 million through previously announced stock purchase agreement with Lincoln Park Capital, adjusted for the rate subsequent to the end of the second quarter our pro forma cash and cash equivalents and marketable securities balance is $29.2 million as of June 30, 2020. Net cash used in operations for the quarter ended June 30, 2020 was approximately $5.2 million, not including approximately $1.2 million received from the sale of NJ, NOL. This operating burn for the quarter is down from $8.4 million in the first quarter, 2020 and $9.4 million for the fourth quarter of 2019. Specific to the third quarter of 2020, we anticipate that revenue will be an excess of second quarter level and that operating cash burn will be less than $4.5 million. And now I'll turn the call back over to Dan.

[Dan Goldberger:]

Thank you, Brian. Overall, we're pleased with our performance during the second quarter against the challenging backdrop of COVID-19 pandemic. It's a testament to their entire electroCore team that we're navigating through this crisis and remain well positioned to achieve our ultimate goal to make our nVNS technology available through the broadest possible patient population. Looking forward to the next 12 months, we're working towards multiple milestones and catalyst. Including number one, a return to revenue growth in both the DoD and OUS channels as well as increased revenue contribution from our US commercial channel. Number two, peer reviewed manuscript publications exploring nVNS in new indication such as PTSD and traumatic brain injury. Number three, the launch of gammaCore Sapphire CV for COVID patients. Number four, data from the Premium 2 trial. Number five, data update from both SAVIOR trails and the VAnguard trial in COVID-19 patient and number six, data updates from the acute stroke trials progressing in Europe sometime next year. I also want to point out that our cash balance and runway are substantially improved to June 30, 2020. More than $29 million pro forma cash, cash equivalents and marketable securities at June 30, 2020 and a steadily decrease in cash burn. electroCore is healthier than it has been since I joined the company. Finally, I want to thank our patients, their physicians, our hospital customers, our suppliers, our shareholders and most of all, our dedicated employees who are working with us through these unprecedented times. At this time, I'll ask the operator to open the lines for questions.

[Operator:]

[Operator Instructions] our first question comes from the line of Ryan Zimmerman with BTIG. Thank you, you may proceed.

[Ryan Zimmerman:]

First congrats to you guys on a tremendous progress. Dan, since you joined the company and to Brian as well. Maybe just to start, I must understand kind of how you're thinking about the opportunity with gammaCore Sapphire CV in the COVID population. You gave us a metrics around your salesforce getting out to the VA physician population and sell. How should investors think about that over the coming quarters in terms of what it can result in revenue potentially? If you're willing to give some thoughts there and then I have a couple other questions.

[Dan Goldberger:]

Sure, first and foremost we want make sure that the therapy is available to anybody that'll benefit from it. This is about responding to the emergency and revenue and commercial attributes are certainly important. But they're secondary to making the therapy available. We have a small direct salesforce in the VA system. We have a lot of relationships in the VA system. So that's sort of the path of least resistance to making the therapy available. And as I mentioned in the comments, we're talking to the VA system at large about running outpatient system with gammaCore Sapphire CV for treating respiratory symptoms associated with COVID. Commercially our pharmacy partners are ready to go. But there is a big awareness hurdle and we're trying to figure out how to efficiently get the word out and everybody on this call can help us get the word out that there is an effective therapy for treating, confirmed or suspected COVID-19 patients with respiratory distress.

[Ryan Zimmerman:]

Okay, that's helpful Dan. You gave nice metric out around the trends in July in terms of what you're seeing in terms of a rebound and to July and off of the second quarter. I'm just wondering if you can kind of talk about whether you think that's pent up demand, whether your billing [ph] was the backlog in the second quarter, so you kind of did hold through steady relatively to maybe some of the metric peers out there. So maybe just talk about kind of how you're thinking about the July trends and whether that is surge or backlog and then perhaps what you think that may [indiscernible] in terms of August and September.

[Dan Goldberger:]

Good question, Ryan. Headache is generally speaking a chronic issue and then we're offering a chronic therapy. We had some challenges around new patient starts in April and May, more in the United Kingdom than in the United States. But I think it reflects more of a return to the new normal. Our physician, prescribers have figured out especially and the VA system had a leverage to Telehealth consoles and I don't think it's pent up demand. I think it's figuring out how to deliver the therapy reliably in whatever this new normal is, in the United States and the United Kingdom.

[Ryan Zimmerman:]

Thoughtful, Dan and then last one from me and I'll hop back in queue. You've successfully managed your burn very nicely. You would have let down over the course of few quarters. Your cash balance is stabilizing and improving. When you think about the investments you want to make, with even the cash you have and I appreciate the fact that you're managing the [indiscernible]? Where do you think it's prudent to for making investments again, I mean where can you start adding back to things that maybe have to be cut earlier maybe just even if you forwarded it up?

[Dan Goldberger:]

So certainly we've made an investment in the Emergency Use Authorization for COVID. The SAVIOUR trials our investigator initiated. But we're helping out there and we're going to invest in awareness campaign around gammaCore Sapphire CV. On the headache side especially in the commercial channel. Now that we have quietly restructured our distribution channel, that business model and the commercial channel for headache now works for the company and so I think you'll see us starting to make some investments in growing the commercial headache business sooner than I had originally inspected. So we're going to see revenue in that channel in the second half of this year which is pulling it forward from the last time, we spoke.

[Ryan Zimmerman:]

Thanks for taking the question. See you guys in next quarter.

[Operator:]

Our next question comes from the line of Swayampakula Ramakanth with H.C. Wainwright. Please proceed with your question.

[Swayampakula Ramakanth:]

Couple of quick questions. So in your prepared remarks you seemed to be very comfortable with what is happening in - the ambiguity for the second half. Just trying to understand what makes you have that confidence in terms and any color about opening or recent flow of appointments, anything at all related to COVID?

[Dan Goldberger:]

So it's very as you know, it's very regional. There are some parts of the country that are still suffering either a second wave or from the original COVID environment. But what's been very compelling for us. Is that how well our therapies fit into virtual dispense Telehealth modality and on the headache side, our physician prescribers are sort of not coming back to normal. But they're getting more comfortable dispensing our therapy and as we've discussed in previous announcements that's competitive advantage for us over the injectable therapies for headache. So I think it's a mix of some parts of the country getting back to normal and opening up to have in-person visits in the clinic and in other parts of the country that is so challenged leveraging the Telehealth capabilities.

[Swayampakula Ramakanth:]

Okay, thanks for the color. And then on the commercial side, what is working for you? And so do you expect additional replenishment orders following [indiscernible] some of investigators. And also earlier in the year, I believe [indiscernible] talked about - speaking on gammaCore as I [indiscernible]? How are those fairing in these times? And is there any [indiscernible] on that space?

[Dan Goldberger:]

We've previously announced that shipped more than 500 paid months of therapy in the first quarter more than 400 paid months of therapy in the second quarter. Certainly the ESI, Express Scripts relationship helped to accelerate that business. The channel for electroCore has been the legacy distribution agreement that was in place and inventory in the channel. So going forward, we are conservatively forecasting 200 to 300 paid months of therapy. There's every reason to believe that that's a conservative forecast given that we shipped more than 500 in the first quarter and more than 400 in the second quarter. So for the second half of the year we'll be able to recognize revenue from those paid months of therapy and the commercial channel which we were not able to do in the first half of the year. Beyond that, now that we have restructured the distribution channel. We're much more comfortable making investments and so accelerating additional conversations with the pharmacy benefit managers, talking to the insurance companies that are behind the pharmacy benefit managers to go plan-by-plan as well as looking at what we're doing with deploying our sales assets.

[Swayampakula Ramakanth:]

Thanks a lot. And then, the COVID-19 especially and operationally and specific [indiscernible]. Are you start talking about your therapies? Are you able to increase your visibility because of this trial and also what should we think about VAnguard and what stage of planning has done by them? I know you said you got some more information regarding the [indiscernible] later in the year. I'm not trying [indiscernible] as I understand. [Indiscernible].

[Dan Goldberger:]

Sure. Yes. SAVIOR I [ph], SAVIOR II are hospitalized patients and both are investigator-initiated trials. Now that we have the Emergency Use Authorization. We're getting a lot more interest from investigators that either would be interested in adding their sites to the SAVIOR II trial in the United States or initiating their own trials. And then as I mentioned on the call, we're also very excited in leveraging our relationships within the VA system around, an outpatient trial that could be done at scale just because of the reach of the VA system in the United States. There are more than 4,000 active cases in the VA system as of yesterday COVID unfortunately is not going away and so there's a real opportunity to do something on accelerated basis, within the VA system for patients in the home environment, not hospitalized patients.

[Swayampakula Ramakanth:]

Okay, thank you for that. And then my last question on the financial and then congratulations to Brian and team for getting the operational expenses down to [indiscernible] or at this point.

[Brian Posner:]

Thanks RK.

[Swayampakula Ramakanth:]

How much more can be done [indiscernible] or have you in order to optimize all the systems and seeing on more operational level [indiscernible]?

[Brian Posner:]

I think there's some more, I think the R&D line will go down to Premium 2 is wrapping up. Number one, we're still looking at G&A. we did switch auditors in the second quarter, so that will start and reflected in the numbers Q3 and beyond. And there's still some other things we're looking at obviously I thank you for the kudos there. Under Dan's leadership we're really made a lot of strides there. So I still think there's some things arcade out, we can continue to deploy our capital efficiently.

[Swayampakula Ramakanth:]

Fantastic, thank you gentlemen. Thank you for taking these questions.

[Operator:]

[Operator Instructions] Our next question comes from the line of John Vandermosten with Zacks Investment Research. Please proceed with your question.

[John Vandermosten:]

Let me start off with a question on the innovation technology program award that's supporting some of the sales in UK and also congratulations on the strong results there, in the Bridge [ph] South [ph]. Will that expire some point and will it passed off onto program later, how does that work?

[Dan Goldberger:]

So we've been on a six-month grant cycle and so the current grant goes through September and we've had conversations about getting to next cycle of the grant for six months that will take us October through April of 2022. These are supposed to be bridges until we get broader NHS coverage unfortunately between COVID and BREXIT. The bureaucracy in the United Kingdom has slowed in stake. So we're comfortable continuing to work under the six-month extensions. But of course we'd like to be able to get through the next step. We've also made progress in extending to Scotland and into Wales and other parts of the United Kingdom besides England. We've also had some initial success in other parts of Europe. So the future post COVID is very, very exciting for us overseas.

[John Vandermosten:]

Okay. And I'm looking about three different areas where you have opportunities. There's Medicare, one the big payers or potentially new geography and how are each one of these areas coming along and which seems most likely probably to generate incremental sales next between or among the three of Medicare, big payers or a new geography.

[Dan Goldberger:]

So that's a very good question, John. So with respect to Medicare, we've met with CMS back in November 2019, we filed an application for a unique HCPCS code unfortunately that bureaucracy has also slowed due to COVID. So we've got some uncertainty about when we're going to hear back on that HCPCS code process with Medicare. The large insurance players are starting to come back to life. So I think that's where our next big win is going to be in the United States. But it's very difficult to predict timing in the pandemic environment. The other wild card, our distribution agreements in other geographies around the world, where I keep saying it. COVID is slowing everybody down but we've got increasing excitement especially around the news of the Emergency Use Authorization in the United States. So very difficult to put calendar on it, but it's very exciting time for the company.

[John Vandermosten:]

Okay, thank you and last one from me. So if there's a big spike in demand for COVID-related devices, well I'm going to guess they're all the same. Is there enough supply and inventory to meet that? And what kind of demand could you absorb if it spikes?

[Dan Goldberger:]

So yes, that's a bit of good news, bad news answer. If you look at our statements, we have more than $7 million of inventory on our balance sheet that translates to at least 40,000 units. So we can handle that initial surge of demand. I look forward to reporting to you that we've had accelerate our supply chain beyond the inventory that we currently have in.

[John Vandermosten:]

Thank you, guys. There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

[Dan Goldberger:]

All right. Thank you, Doug, and thank you all for joining our call. Just a quick plug, that Dr. Peter Staats, our Chief Medical Officer one of the Founders of the Company is on the call with - but more importantly he'll be a featured speaker tomorrow afternoon on the Fox Business, Claman Countdown tentatively scheduled for 3 PM tomorrow afternoon and that timing of course could be pre-empted or to be earlier later depending on whether there's any big news that gets ahead of us. But if you've got nothing better to do tomorrow afternoon join Dr. Staats and watch him on TV. We greatly appreciate everybody's support during these very difficult times and we look forward to getting past this pandemic. Thank you everybody.

[Operator:]

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time and have a wonderful day.