electroCore, Inc. (ECOR) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen; and welcome to electroCore's second quarter earnings conference call and webcast.

(Operator Instructions)

I'd now like to turn the conference over to Greg Chodaczek, Investor Relations. Please go ahead.

Thank you, operator, and thank you all for participating in today's call. Joining me are Frank Amato, Chief Executive Officer; J.P. Errico, Chief Science and Strategy Officer, and Glenn Vraniak, Chief Financial Officer.

Earlier today electroCore released plans and results for the quarter ended June 30, 2018. 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 fact should be deemed to be forward-looking statements. All forward-looking statements including, without limitation, are examination of operating trends and our future financial expectations are based upon our 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 description of the risks and uncertainties associated with our business, please see our filings with the Securities Exchange Commission.

ElectroCore disclaims any intention or obligation, except as required by law, to update or revise any financial projects or forward-looking statements, whether because of new information, future events of otherwise.

The conference call contains time sensitive information and is accurate only as of the live broadcast today, August 13, 2018. And with that, I'll turn the call over to Frank.

Thank you, Greg. Good afternoon and thank you for joining us today. For those of you that are less familiar with electroCore, electroCore is a commercial stage bioelectronic medicine company marketing the first and only FDA non-invasive vagus nerve stimulation therapy, gammaCore.

GammaCore is a platform therapy with broad clinical potential, and we are initially marketing it for the acute treatment of both episodic cluster headache and migraine. We believe the total addressable market for these two indications to be approximately $4 billion.

We completed our initial public offering in June, raising approximately $90 million to help expand our marketing programs, build out a specialty distribution channel to prepare for the full commercial launch of gammaCore in the United States, and to fund research and development of gammaCore for additional indications.

I want to thank everyone involved, especially our employees, our customers that have all contributed over the many months leading up to that event, and who continue to be key to our success.

Since this is our first call as a publicly traded company, I'd like to use the next few minutes to provide an overview of our business and then turn the call over to J.P. Errico, our Chief Science and Strategy Officer, who will then walk you through how our therapy is administered, its mechanism of action, and our clinical programs.

I will circle back to talk through our commercial and reimbursement strategies, as well as upcoming milestones. And Glen Vraniak, our Chief Financial Officer, will then review our financial results. We will wrap up and open the call for questions.

Turning to our business and markets, migraine headaches affect about 36 million people in the United States with approximately 75% being women, typically of childbearing years. We believe the total addressable market for migraine is between $3.5 and $4 billion.

Cluster headaches affect roughly 350,000 people in the United States annually. There is currently only one other FDA approved therapy for cluster headache, which can cost between and $100 and $120 per injection.

Several payers restrict access to this therapy to about eight injections per month despite many patients suffering an average of 60 monthly attacks.

GammaCore, our platform therapy, is FDA approved for both the acute treatment of pain associated with migraine and episodic cluster headaches in adults. To further expand our label, gammaCore in headache, we have conducted two prevention studies, one in cluster headache and one in migraine.

We expect to file a 510(k) with the FDA by the end of this year for the prevention of cluster headache, followed by a 510(k) submission for the prevention of migraine headache after consultation with the FDA and our regulatory advisors. And with that, I'll turn the call over to J.P.

Thank you, Frank. GammaCore is the first FDA cleared prescription only vagus nerve stimulation, or VNS, therapy administered noninvasively in discreet doses using a proprietary, simple to use, handheld delivery system.

As most of you know, VNS is a form of bioelectronic medicine initially developed and brought to market back in the late 80s and early 90s by Cyberonics, now a division within LivaNova.

Cyberonics developed a pacemaker-like device that is surgically implanted in the upper chest, and its electronic leads are wrapped around the vagus nerve in the neck. Our therapy leverages the capabilities of that invasive therapy but puts it in the hands of individual patients through the use of a non-invasive handheld device.

Stimulation of the vagus nerve with the appropriate signal parameters has several effects on the body. With respect to the brain, and more particularly with the experience of pain, VNS causes the release of inhibitory neurotransmitters, including norepinephrine and serotonin.

The release of these inhibitory neurotransmitters enhances a natural pain suppression network in the brain called descending inhibition. In addition, VNS causes the release of acetylcholine, which has been shown to affect immune cells to reduce inflammation.

Together, these inhibitory neurotransmitters and anti-inflammatory effects cause the down regulation of excitation in the central nervous system. More particularly, VNS reduces excessive glutamate levels which have been closely associated with pain pathway activation in the brain stem.

The anti-inflammatory effects of vagus nerve stimulation have been shown to have additional profound effects on the body outside of the brain, the potential applications of which I will touch on in a bit.

First, however, I would like to better describe our latest product, the rechargeable and reloadable gammaCore Sapphire, how it is dispensed and how it's used.

Like the gammaCore S, the Sapphire is a handheld VNS delivery device, about the size of a cell phone. It is distributed to the patient's home via a specialty pharmacy in a recharging case, and comes with an RFID card programmed with the initial authorization code that enables the device.

Once enabled, the Sapphire is able to deliver up to 24 two-minute doses of therapy per day for 31 days. While it is highly unlikely that any patient will require that many doses of therapy per day, and most patients use the therapy for fewer than 10 minutes per day, the therapy is thus available for all reasonable needs a patient may have.

The therapy is delivered by placing the gammaCore on the patient's neck where our proprietary therapy is delivered through the skin to the nerve. Training patients how to deliver their therapy in this manner has been described as being simpler than teaching a patient how to use an asthma inhaler.

At the end of the month, gammaCore users will retain the rechargeable unit but it will require reactivation of the device using a refill RFID card specifically programmed to authorized that patient's specific device.

Reactivating the device is as simple as turning the device on and placing the refill card over it for about five seconds.

Because VNS has traditionally been delivered through an implanted device with associated risks, costs and surgery, it was relegated to the far end of the continuum of care, typically after pharmacological options were exhausted.

When we developed the gammaCore non-invasive VNS therapy delivery system, we recognized that the position VNS would hold in that care continuum would change, and we would thus be competing with small module and biologic therapies.

To do so, we recognized that we would have to commit ourselves to a clinical study program equivalent to or superior to more traditional therapies.

After conducting a series of pilot studies and case series to gain experience and knowledge about the therapy's effects across various patient populations, we initiated two large multi-centered randomized sham-controlled studies for the acute treatment of cluster headache, the Act I and Act II studies.

The positive efficacy and safety results of these studies resulted in us receiving our first FDA clearance through the de novo pathway, which is a pathway available to novel therapies with safety profiles that are deemed by FDA as not high risk.

A successful de novo results not only in the approval of a labeling claim, but also in the creation of a new category of product in which it's possible to expand the label through an expedited process known as a 510(k).

The category we were granted, non-invasive vagus nerve stimulation for the treatment of headache, was initially expanded through a 510(k) submitted in November 2017, seeking the acute treatment of migraine supported by the excellent results of our recently published PRESTO trial.

In January of this year, less than three months after submitting the application, we received FDA clearance for the acute treatment of pain associated with migraine headache in adults. Now we've also conducted several pilot studies and two large multi-centered randomized control studies for the prevention of severe headaches, one in cluster headache and one in migraine.

As Frank previously mentioned, we expect to file a 510(k) with the FDA by the end of this year for the prevention of cluster headache; and in consultation with FDA and our regulatory advisors, we'll follow with a 510(k) submission for the prevention of migraine headaches.

Beyond prevention of cluster headache and migraine, we will be seeking to expand our label from 18 years of age down to 12, as the peak penetrance of migraine happens to be in the ages of 12 to 15 years old, again, in women post-puberty.

This strategic plan for expansion has been advocated to us by many of the key opinion leaders from whom we look for guidance as they weigh the safety profile of our non-invasive therapy against injected, ingested and inhaled alternatives.

As we look beyond these expansion targets, we will be initiating preliminary studies of the use of gammaCore in post-traumatic headache as well. Implanted VNS was originally developed for the treatment of epilepsy and has experienced significant commercial success over the past two decades.

Many therapies that were initially developed for epilepsy, such as topiramate, gabapentin and Neurontin, have found significant commercial success in the treatment of pain conditions including headache.

Given our clinical success in headache, we believe gammaCore may have efficacy in pain conditions as these other therapies have.

In fact, coupled with the effects that VNS has been shown to have on inflammation, we have elected to pursue a clinical program looking at the potential for VNS across several rheumatologic conditions where inflammation and pain are key features of these conditions.

In fact, rheumatology is a field that is particularly interesting to us as it has a number of conditions that are underserved. In many ways, it offers a parallel to the way we progressed into headache, first with cluster headache and then migraine.

Cluster headache sufferers comprise a high unmet need population and offered our company an opportunity for instant credibility and to gain relevance among the key opinion leaders. After demonstrating our efficacy in cluster headache, we have been able to expand our footprint into migraine. We believe the same opportunity exists for us in rheumatology.

In fact, recently, at the 2017 American College of Rheumatology Conference last November, and again at the 2018 EULAR conference in Europe a couple of months ago, research partners of ours who are studying gammaCore in rheumatology reported positive preliminary results in two conditions, Sjogren's syndrome and rheumatoid arthritis.

There are currently no approved treatments for Sjogren's syndrome and is a potential parallel to cluster headache in this respect. Success in this condition may serve as a launching pad into the larger and more competitive rheumatoid arthritis space.

Over the next several quarters we will be sharing key milestones in our progress into rheumatology. I would now like to turn it back over to Frank who will talk about our commercial strategy and reimbursement.

Thanks, J.P. In mid-2017 on the heels of our initial clearance for the acute treatment of episodic cluster headache, we launched a product registry in the United States.

This was an effort on our part to work with about 40 of the 130 headache centers in the United States, and through it to develop a clinical experience and ultimately advocacy with 250 to 300 headache treating neurologists.

Additionally, we had hoped to generate and submit about 1,000 patient claims to commercial insurance companies to establish a reimbursement pathway.

The interest in our registry quickly blossomed, and at the conclusion of the registry, about a month-and-a-half ago, more than 80 of the leading headache centers were participating. In fact, as of June 30, 2018 we had about 800 physicians writing prescriptions for gammaCore and approximately 4,500 patients who had been prescribed gammaCore.

This demand has enabled us to engage with several dozen commercial payers with clinical presentations by our Chief Medical Officer, Peter Staats, and our Medical Science liaison team.

Our primary goal is to establish a pharmacy benefit pathway for reimbursement, just like all other acute treatment options for episodic cluster headache and migraine.

Currently, we have an agreement in place with CVS Caremark. We are also in active discussions with Optum RX, Express Scripts and several Blue Cross Blue Shield providers across the country.

Our plan is by the beginning of 2019 to have access to about 25% of the commercialize in the United States.

As far as our commercial presence, we have 31 of the 32 sales representatives we intended to hire at this point in our product launch, and a partnership with UpScript to offer direct-to-patient telemedicine option for gammaCore.

Our direct sales force is covering the lion's share of 6,400 physicians who drive the majority of prescriptions in the market. Our goal for our sales people is to support these practices with direct representation at least four to eight times a year.

We can eventually move to 48 sales territories which we believe will be enough to support approximately 10,000 physicians in the market.

Finally, we are in the early days of our commercial rollout of gammaCore. As a result, [as] our rollout progresses we will be closely monitoring payer coverage and covered lives, the number of sales reps and territories, and the number of clinicians writing prescriptions.

As the market evolves and matures, we will also be monitoring the number of clinicians writing multiple prescriptions and prescription refill rates. And with that, I'd like to turn it over to Glenn Vraniak, our CFO, for a more detailed review of our financial results. Glenn?

Thank you, Frank. As Frank and J.P. both mentioned, the Company's principle product, gammaCore, received FDA clearance for the acute treatment of pain associated with migraine headache in adult patients on January 29 of this year, after which we began to experience a rise in prescriptions for migraine, principally through the sites participating in our cluster headache registry.

Although we only began full commercialization of gammaCore following our initial public offering, prelaunch commercial activity in the second quarter was marked by accelerating physician adoption and, correspondingly, higher rates of prescription writing, which drove our increase in revenue.

Net sales for the three months ending June 30 of 2018 was $393,000, representing an increase of $217,000 over second quarter of 2017, and approximately a $312,000 increase over the first quarter of 2018.

Gross profit for the second quarter of 2018 was $153,000 up from $138,000 in the same period of the prior year.

Cost of goods sold in the second quarter of 2018 included stock base compensation expense due to our corporate conversion. Total operating expenses for the second quarter of 2018 were $16.4 million, an increase of $8.8 million compared to the same period in 2017.

The increase in operating expenses was driven primarily by cost related to the expansion of the Company's sales and additional stock base compensation expense due again to our corporate conversion.

The operating loss for the quarter ended June 30 of 2018 was $16.2 million compared with operating loss of $7.4 million for the same period of the prior year. When calculating the net loss attributable to electroCore Inc, the public company, for the last 10 days of the second quarter the loss per share is $0.21.

This takes into account approximately $4.5 million of immediately recognized compensation expense attributable to the public entity as a result of the corporate conversion. Now, turning to our balance sheet as of June 30, 2018 we had $88.3 million in cash and cash equivalents, and $7.5 million in debt securities and other investments for sale.

On June 22, 2018 our common stock began trading on the NASDAQ exchange following the pricing of our initial public offering.

The IPO generated gross proceeds of approximately $90 million netting approximately $77.7 million after deducting underwriter discounts and other estimated offering costs. And, Frank, with that I'll turn it back over to you.

Thank you, Glenn. So in summary, electroCore is a commercial stage bioelectronic medicine company with a platform non-invasive vagus nerve stimulation therapy.

Our therapy, gammaCore, has pharmacologic effects on the peripheral and central nervous systems, and is FDA cleared for the acute treatment of pain associated with migraine and episodic cluster headache in adults, a market we believe to be approximately $4 billion.

Having established the base of advocacy among key opinion leaders in the headache field through a product registry, we recently began our commercial launch in migraine and episodic cluster headache.

Based on our clinical data, we are pursuing label expansions for the prevention of cluster headaches, migraine headaches, migraine in adolescents, and post-traumatic headache; and are also engaging in clinical development for potential new labeling claims in rheumatology. That concludes our prepared remarks today. Operator, please open up the call for questions.

Thank you.

(Operator Instructions)

David Turkaly with JMP Securities.

Hi. Good afternoon, guys. Quickly, on the sales reps, I think you said you had 31 and your plan is still to move to 48. I was wondering how quickly that may happen? And then could you talk maybe a little bit about where you're recruiting folks from?

Sure. We believe that we'll move to 48 sales territories once we've gone beyond the 50% of commercial lives covered in the United States. When that happens, at this point we're not completely sure; but when we get to that point that's when we'll start to add more sales folks.

We've hired the 32nd person. They're in training right now; will be out and in the field here in the next week or so.

Regarding where we're recruiting from, all of our sales representatives are coming from the pharmaceutical industry with experience working in the field on average for about eight years across the team; and most of them have neurology experience or have sold in headache in the past.

Great. And I think you mentioned by 2019 the goal to have 25% of lives covered. I'm just trying to jibe that with some of the numbers that you talked about in the past in terms of total patient lives that that would imply how quickly that base could build given what you're seeing.

And maybe with Sapphire, I know it's very early, but certainly it seems like that may expand the number of folks that could get this more rapidly than your original device.

Yes, David. So the commercial life strategy here is to really work first with the PVMs, the three large national PBMs, CVS Caremark, Express Scripts and Optum RX United, each of which have a template type formulary that are around 30 million lives apiece -- that if you were to get those three template formularies in place, that would somewhere around 50% of the lives in the United States.

So that's where we're targeted first. Once we get those agreements in place with the PBMs, then we'll move to a strategy of bringing in the individual Blue Cross Blue Shield plans and the other commercial payers that typically contract with the PBMs.

So that's, kind of, our thinking around the reimbursement piece. So as those contracts are signed, and as we can expand that out and take it across the various different commercial payers, that'll help us. Thank you.

Thank you. (Operator Instructions).

Sean Lavin with BTIG.

Hi. Thanks for taking the questions. This is actually Marie Thibault on for Sean Lavin today. I just have a quick question on the early days of launch.

I'd love to hear a little bit more about what the feedback is like from current prescribers, how patients are doing, and any, I guess, beyond the insurer barriers, is there any other barriers, I guess, to adoption at this point?

Sure. I'll comment first, Marie. This is Frank. Good to hear your voice. We recently began our commercial launch, as you know, back on July 1, so the feedback we're getting from providers varies across the market, as you would imagine. You have some folks that are early adopters.

We have several physicians who have prescribed more than 100 patients at this point in time. And then we have some other groups across the country that want to see us get more traction with the commercial payers before they'll begin to prescribe the product.

But, generally speaking, the headache community, the neurologists who treat the headache patients that get up into secondary care are looking for additional options and have been very supportive of the Company and our sales forces that are out in their practices speaking with them about gammaCore and promoting our therapy.

As we mentioned earlier, we have 800 physicians who have already prescribed the product, so we're very proud of that and I think that demonstrates significant support from a provider standpoint.

I think on some of the social media mediums you'll find that patients who have success using our therapy are, even though it's early days, are very pleased with their experience; and many of those folks, as you know, are looking for alternative options.

There are probably 5 to 6 million patients that get referred up into secondary care and they're being referred up there because they either have a toxicity issue with the current therapies that are available in primary care, or they're contraindicated for what's typically prescribed there, or they're just not getting the benefits they need in order to manage their disease state.

So that's some of the feedback we hear. We're also very proud and pleased with the efforts our sales force has made in getting our first PBM contract signed with CVS Caremark. Now that contract doesn't begin to take effect until January 1, 2019; but I think it demonstrates quick p0artnership with a key payer or a pharmacy benefit manager in the U.S. market.

Great. Great. Thanks for that color. Just a couple of quick questions follow-up on some of your commentary. I'd love to hear a little bit more about -- a little more detail about the telemedicine opportunity. Maybe you could help size that population for us or how it might impact the adoption ramp?

And then, secondly, on the prevention of cluster headache it sounds like maybe we could see a clearance for that sometime in 2019. Love to hear how that might impact how we should think about adoption ramp or, kind of, critical mass there? Thanks.

Sure. You know, as I mentioned a moment ago, we recently began the commercial launch July 1, so it's kind of early days with respect to understanding how some of these things will affect ramp.

I will say that our partnership for telemedicine is one where we want to make our therapy available to those patients who may not live near a headache center at this point in time, or individuals who may not be seeing a neurologist where we're primarily focused right now. They may just be seeing a primary care physician but want to have access to the therapy.

We see that partnership as one where we're meeting the needs of the customer out in the marketplace who may either have already been diagnosed with a migraine headache or cluster headache, or will get diagnosed over Skype with one of the physicians who are working for Up Script.

And then they can get immediate access to our product which is prescribed to them right to the specialty pharmacy from that clinician. So we see that as an opportunity for us. I think over time we'll have more information to see what kind of impact that's going to actually have on our ramp and see how that additional channel will help us from a revenue standpoint.

With respect to the prevention of cluster headache, we're hopeful that in 2019 we will have a FDA clearance for that particular indication; and that represents about 10% of the cluster headache population which, in the United States, is about 350,000 people.

Those are typically chronic cluster headache patients, patients who really don't remit from their disease at all, or have any remission. And we think the opportunity to go in there and provide our sales force with the ability to talk to the physicians about using our therapy for prevention will be key.

We don't have a prevention indication today, but the therapy is available and on board for patients to use on a daily basis. And we believe based on some of the initial clinical data we did receive in cluster headache with the PREVA study that patients benefit when they use this product on a daily basis.

Thank you. I show no further questions in queue, so I'd like to turn the conference back over to Mr. Amato.

OK. Well, that said, thank you again for joining the call today, everyone. We appreciate your interest in electroCore, and we look forward to our next progress update. Have a good evening.

Thank you. Ladies and gentlemen, that does conclude today's conference. Thank you very much for your participation. You may all disconnect. Have a wonderful day.