electroCore, Inc. (ECOR) 2019 Q4 法說會逐字稿

Greetings.

Welcome to electroCore's Fourth Quarter and Full Year 2019 Earnings Conference Call.

(Operator Instructions) Please note, this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Hans Vitzthum with LifeSci Advisors.

Please go ahead.

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.

Earlier today, electroCore released results for the quarter ended December 31, 2019.

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 of operating trends and our future financial expectations are based upon today'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, March 23, 2020.

And with that, I'll turn the call over to Dan.

Thanks, Hans.

Hello, everyone, and thank you for joining us today.

We are all adjusting to the impact of the COVID-19 pandemic, and that has affected our ability to forecast our business.

I'll begin with an operational 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 headache patients.

Total revenue for the full year 2019 was $2.4 million, a 141% increase from $993,000 in 2018.

Of course, we've made substantial changes to our go-to-market strategies over the last year.

We have dramatically reduced our efforts to reach patients through commercial channels in favor of 2 specific opportunities where we are reliably getting paid.

First, the Federal Supply Schedule eligible entities, which encompass the Veterans Administration, Department of Defense and the Indian Health Services; and second, the United Kingdom's National Health Service.

In parallel with our sales efforts, we continue to take aggressive steps to reduce our operating expenses.

You're all aware that the COVID-19 pandemic is affecting business is everywhere.

In our case, our access to prescribing physicians has been impacted as VA hospitals limit entry and travel becomes more difficult for our field sales personnel.

In addition, patient access to prescribing physicians is increasingly challenged.

I expect our ability to grow the business will be uncertain until our health care system returns to a more normal footing.

That said, I'm pleased to report positive trends in total paid prescriptions and prescribing physicians.

By the end of the fourth quarter, more than 2,735 American physicians have written at least 1 prescription, up from 2,600 in the third quarter.

This demonstrates physicians' growing awareness of and comfort with the efficacy and safety of gammaCore therapy.

During the fourth quarter, we had 24% sequential growth in paid months of therapy across all lines of business, rising to 2,158 in the fourth quarter from 1,736 in the third quarter and 1,023 in the second quarter.

Paid months of therapy shipped to the VA and DoD increased 50% sequentially to 829 in the fourth quarter of 2019 from 553 in the third quarter of 2019.

Revenue from the VA and DoD increased 36% sequentially to $378,000 in the Q4 of 2019 from $279,000 in the Q3 of 2019.

The discrepancy in growth rate between paid months of therapy and revenue is driven by the launch of our 93-day offering at a lower price per month of therapy than our 30-day offering.

Paid months of therapy shipped in the United Kingdom increased 16% sequentially to 961 in the fourth quarter of 2019, from 828 in the third quarter of 2019.

Revenue from the United Kingdom increased 60% sequentially to $271,000 in the Q4 of 2019 from $170,000 in the Q3 of 2019.

The discrepancy in growth rate between paid months to therapy and revenue was driven by the timing of revenue recognition and currency exchange fluctuations.

In January 2020, we issued a comprehensive business update, which is available on our website.

So I'll just hit the highlights here.

Beginning with the Federal Supply Schedule, or FSS, last year, we redeployed significant sales resources to focus on this important channel, and we continue to see positive growth in our key metrics as a result.

During the fourth quarter, 54 Veterans Administration and Department of Defense military facilities purchased gammaCore, up from 48 during the third quarter and 35 during the second quarter.

We launched our 93-day product offering in the fourth quarter at an attractive price per month of therapy compared to our 30-day offering.

The 93-day configuration fits into the VA workflow much more gracefully and helped drive the growth in paid months of therapy.

Our average selling price declined during the quarter as product mix shifted from the 30-day to the 93-day offering.

And we believe that this has leveled off in the current quarter.

In light of the COVID-19 pandemic, we're going to temporarily have our sales team stop visibly calling on VA facilities in order to give them space to deal with this crisis.

Our goal is to create a process that will allow providers to see patients virtually, submit an order for gammaCore and get therapy to their veteran in their home without the veteran having to leave their home.

I believe this program will show our commitment to the VA as a partner and our understanding of their needs to both manage the crisis and take care of their veterans.

FSS encompasses more than 9 million covered lives.

Some 400,000 of whom saw VA health care providers for headache in 2018.

Based on activity through March 13, 2020, we believe we're on track to ship approximately 1,000 months of therapy to the VA and military treatment facilities in the current quarter.

Moving on to the United Kingdom.

The National Institute for Health and Care Excellence, or NICE, in its final guidance, has recommended the use of gammaCore for the acute and preventative treatment of cluster headache in adult patients across the National Health Service.

Interestingly, the guidance document affirms that gammaCore, when used with standard of care, can save an average of 450 British pounds per patient in the first year of treatment through a reduction in acute rescue medication.

Additionally, the NHS has indicated to us that it will extend the previously announced Innovation and Technology Payment program through April 2021 in two 6-month steps.

NHS has also identified gammaCore as being eligible for the new MedTech Funding Mandate mechanism, which, if confirmed, could provide a basis for the long-term sustainable reimbursement of gammaCore.

We view these developments as important additional validations of the benefit of noninvasive vagus nerve stimulation therapy in general and gammaCore specifically.

Furthermore, the monetary savings calculated by the NICE is a powerful market access tool that payers across all channels find compelling, to say the least.

In terms of our own progress during the fourth quarter of 2019, we shipped 961 paid months of therapy to the NHS, up from 828 in the third quarter.

Based on activity through March 13, 2020, we believe that we're on track to ship approximately 1,000 months of therapy to the United Kingdom in the current quarter.

Turning now to our U.S. commercial activities.

In January 2020, we announced that we have entered into a rebate agreement with Ascent Health Services on behalf of Express Scripts to transition to preferred brand coverage on all Express Scripts national formularies.

This favorable decision, which applies to beneficiaries with plan designs that do not differentiate between drugs and devices, lowers the monthly preferred copay to $25 to $45.

And by doing so makes the gammaCore device financially more accessible to significantly more Express Scripts members.

We've been told that more than 6.0 million ESI members have a benefit design of this type.

Meanwhile, CVS Caremark continues to pay for prescriptions at a nonexclusionary copay of roughly $50 to $75 per month for those beneficiaries who have a benefit design that does not differentiate between drugs and devices.

We believe that approximately 5 million CVS Caremark members currently have a benefit design of this type.

Our distributors reported shipping about 368 paid months of therapy in the fourth quarter from gammaCore inventory that they had previously purchased from electroCore.

We will continue to service ESI and CVS patients as we migrate to less expensive fulfillment partners in the first half of 2020.

We have suspended our previous partners and coverage program and substantially scaled back our copay support.

We are not planning to invest sales or marketing resources in the commercial channel at this time, and so we are not expecting any meaningful commercial revenue in 2020.

We are studying the viability of relaunching in the commercial category, perhaps, through the medical benefit pathway in the future.

Moving on to our clinical development activities.

We previously announced that FDA had requested more information related to our 510(k) submission seeking approval to expand the gammaCore label into migraine prevention.

We met with the agency during the fourth quarter of 2019, and has subsequently responded to their information requests.

Our advisers believe that the FDA will be satisfied with the answers we have provided without the need for additional clinical trials.

Furthermore, PREMIUM II is the only study of gammaCore therapy that the company has been funding directly.

PREMIUM II is a randomized, double-blind, sham-controlled clinical trial of gammaCore for the prevention of migraine being conducted at approximately 30 sites in the United States.

As of the end of 2019, we've enrolled slightly more than half of our 400-patient target.

However, after a careful review of the enrollment time line and ongoing costs associated with this trial and in light of our focus on areas immediately impacting revenue-generating channels, we've decided to pause enrollment in PREMIUM II to further conserve cash in the short term.

It's worth emphasizing here that we believe our decision to pause enrollment in the PREMIUM II study does not, in any way, impact our ongoing discussions with FDA related to our 510(k) submission for migraine prevention.

The suspension of enrollment in PREMIUM II is part of a broader cost savings initiative as we continue to identify opportunities to streamline our organization.

Aside from PREMIUM II, there are other investigator-initiated studies of gammaCore underway.

Those trials are primarily supported by third-party grants and are exploring the use of gammaCore in indications that would be considered more exploratory.

Still those studies speak to the potential broad clinical utility of noninvasive vagus nerve simulation, and we look forward the results from those ongoing studies as they become available.

Guidance.

In our January 2020 business update, we announced revenue guidance for full year 2020 revenue to be a range of $7 million to $9 million.

Since that time, the COVID-19 pandemic has affected the geographies in which we operate.

Since we do not yet know the full extent of the impact of this global health crisis, we are suspending guidance until we have a better understanding of when our customers will return to normal operations.

At this point, I'm going to turn the call over to Brian for a more in-depth review of our financials and other guidance items.

Go ahead, Brian.

Thanks, Dan.

For the quarter ended December 31, 2019, electroCore reported net sales of $675,000 compared to $683,000 in the third quarter of 2019.

Revenue in the company's channels of focus, the VA and the United Kingdom, increased approximately $200,000 or 45% from third quarter of 2019 levels.

This increase was offset by a decrease in revenue from the U.S. commercial channel.

The increase in revenue compared to the fourth quarter of 2018 reflect increased sales in the VA and the United Kingdom.

Total operating expenses for the fourth quarter of 2019 were approximately $8.9 million compared to $15.9 million in the fourth quarter of 2018.

The decrease was due to a reduction in SG&A expense, which declined to approximately $7.3 million in the fourth quarter of 2019 from approximately $12.4 million for the comparable period in 2018, primarily driven by a decrease in compensation and other expenses consistent with the cost reductions implemented in 2019.

GAAP net loss from operations for the fourth quarter of 2019 was $8.5 million as compared to a loss of $15.3 million in the fourth quarter of 2018.

Adjusted EBITDA from operations for the fourth quarter of 2019 was a loss of $6.7 million or a 54% decrease when compared to adjusted EBITDA net loss from operations of $14.5 million for the same period last year.

The company defines adjusted EBITDA from operations as GAAP net loss from operations, excluding income tax expense, 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 from operations to non-GAAP adjusted EBITDA net loss from operations has been provided in the financial statement tables included in today's press release.

Now looking at the full year.

For the full year 2019, we generated revenue of $2.4 million as compared to $993,000 for the full year of 2018.

The gross profit for the full year 2019 was $1.2 million as compared to $414,000 for the full year 2018.

Total operating expenses were $47.3 million for the full year 2019 as compared to $55 million for the full year of 2018.

The decrease in full year operating expenses was due to significant reductions in our cost structure implemented during 2019.

GAAP net loss from operations for the full year 2019 was $45.1 million as compared to $55.8 million for the full year 2018.

Our adjusted EBITDA loss for the full year was $39 million as compared to $46.9 million for the full year 2018.

Cash, cash equivalents and marketable securities at December 31, 2019, totaled $24.1 million as compared to $68.6 million at December 31, 2018.

Net cash burn was $9.4 million for the quarter ended December 31, 2019.

It should be noted that the December quarter cash burn included several nonrecurring items, such as previously committed purchase of inventory as well as severance and fees related to the company's CEO transition and costs resulting from the company's 2019 comprehensive redeployment and cost reduction plan.

Now looking ahead.

As Dan indicated, we have suspended revenue guidance for 2020.

We expect to continue to reduce quarterly research and development expenses throughout 2020.

We expect to continue to reduce quarterly SG&A throughout 2020.

Our expected cash requirements for 2020 and beyond are based on the commercialization success of our products and our ability to reduce operating expenses.

There are significant risks and uncertainties as to our ability to achieve these operating results, including as a result of the potential adverse impact on our business from the ongoing COVID-19 pandemic.

Due to these risks and uncertainties, we may need to reduce activity significantly more than our current operating plan and cash flow projections assumed in order to fund operations to the end of 2020.

And now I'll turn the call back over to Dan.

Thank you, Brian.

The COVID-19 pandemic has changed our lives and our ability to plan for the coming months.

electroCore employees have been asked to work from home effective Monday, March 16, 2020, but we continue to take orders and process shipments from our New Jersey facilities to provide gammaCore therapy to patients in the United States and abroad.

gammaCore therapy can be dispensed virtually, unlike our pharmaceutical competitors, BOTOX and CGRP antibodies, which require an injection by a health care professional.

That may become yet another marketing advantage for noninvasive vagus nerve stimulation.

I want to take a moment to thank our employees and service providers, our physicians and their patients and our investors for your support during this uncertain and difficult period.

With that, operator, please open the call up for questions.

(Operator Instructions) Our first question comes from the line of Ryan Zimmerman with BTIG.

I know these are challenging times, certainly for a company your size, and appreciate all the updates.

Maybe, Dan, just to start, you alluded to potentially using telehealth to treat some of the veterans in their homes.

Where are you at in terms of setting that up?

How long could that potentially take you?

That's -- let's start there.

And then I want to ask just in terms of characterizing kind of what you're hearing from headache clinics and clinicians in those channels where you have been successful, and how long you're kind of assuming for the impact in terms of modeling the slowdown?

And I appreciate that this is a very fluid situation.

Yes.

So I'll take the last question first.

We have no idea when normalcy comes back in terms of patients visiting their physicians in the clinics.

Nobody does at this point.

But coming back to your opening question, the VA system where we've been focusing in the United States has been migrating to telehealth solutions for quite a while, especially for, I'll call it, more routine therapies like headache, like recurring migraine, and certainly for cluster headache.

In January, we started shipping our product directly to the patient's home.

And so during the first quarter, we became fully capable of a physician having a telehealth consult with new patient or a returning patient.

Physician writes a prescription, it goes to the supply chain folks in the VA.

They send us a PO, and we ship directly to the patient.

So for returning patients, they already know how to use the device.

For new patients, they can be prescribed and then receive the therapy without having to leave their homes, and we have a variety of video support and of course, telephone support for those new patients.

So call it good planning or call it just in time, but we have a fully serviceable telehealth solution for headache patients in the VA system as of January of this year, and that's been very, very well received.

As far as our run rate, I alluded to it on the call, but our -- the prescriptions that we're writing -- that we're filling in the VA system in the United States and in the U.K. are on plan.

We haven't seen any drop off.

And so we're nervous about whether things will slow down.

But right now things are still humming.

That's helpful.

And then Brian, just one for you.

You talked about R&D coming down through the year as well as SG&A coming down through the year and obviously that's a necessity.

But if you can any -- provide any more color in terms of how rapid can you wrap up PREMIUM II to the point where you have very little R&D cost.

Maybe just some color there, I think, would be helpful for people ascertaining what OpEx is for the year?

Sure, Ryan.

No problem.

Yes, I think running it down now.

And so I think Q1 will still be -- will be lower than Q4, and Q2 will be lower than Q1, and so on and so forth.

So R&D will be coming at a much more manageable level for the company as the year goes on, right?

And any commentary on SG&A, more progress?

Yes, SG&A, a function of our SG&A costs have been some of the distribution costs associated with the partners for coverage.

And those wrapped up pretty much in Q4, some -- a little bit of spillover in Q1.

So we, again, other ways to sell our products, we should see, again, significant reduction in G&A -- SG&A as the year goes on as well.

Distribution costs -- but we're also looking at all other costs in the SG&A line.

Our next question comes from the line of Craig Bijou with Cantor Fitzgerald.

Let me start with maybe just a couple of follow-ups.

So -- or a clarification.

Dan, so it sounds like you guys -- I guess, let me ask directly, it sounds like -- I'm not sure if you guys are seeing an impact from COVID-19.

I know you said that your access has been limited, but has -- I guess, I just want to be sure.

Has that shown up in the numbers yet?

Or you're expecting it to?

Or it's a possibility?

So I just kind of wanted to get that distinction.

Yes.

And so -- and I'm choosing my words carefully here, Craig.

But through Friday, the 20th, prescriptions are coming in, in fact, last week was a record week for prescriptions in the U.S. So if I just look through March 20, you don't see any impact in paid prescriptions in our business.

That said, our sales reps are no longer traveling, the hospitals in the U.S. and in the U.K. no longer allow vendors to come in and frankly, even patients can't come into the hospitals.

So we're anticipating, especially our ability to bring on new patients to -- new to the therapy, we think is -- we expect is going to be impacted.

But just looking at the numbers as of last Friday, we don't see it.

Got it.

Maybe another follow-up on the program to deliver to veterans at home.

I mean, I guess, what do you guys have to do, either steps or maybe limitations, to transition more of that business to telehealth?

Obviously, it sounds like you guys started in January, and it seems like it's -- it would be financially advantageous anyway.

So maybe just talk about how much you can actually deliver through that pathway and then plans for the rest of the year, even beyond the COVID-19 impact?

Yes, good question.

So we piloted the program in Florida and California in January, and then we accelerated rolling it out across the rest of the country because it was going so well.

At this point, it's purely education and making sure that our existing customers know that they have that capability and that we can provide the support directly from electroCore.

As we go further into the year, we had a variety of marketing programs that we had planned, both for awareness of headache patients in the VA system as well as the clinical folks.

But we've placed all of that on hold until we have better visibility on what kind of access we have post virus.

Got it.

And 1 more, and you talked about it a little bit, just -- but maybe a more specific question on the impact of COVID-19 in the U.K. I mean is there any other -- I mean I think you talked about access being denied or restricted.

So is there any other ways or channels to sell in the U.K.?

So that's a good question.

We have had our success so far through the ITP program.

And we're loath to try and tinker with that government-funded program since we've had so much success with it.

But as we've been experimenting with telehealth in the United States, our colleagues in the U.K. are watching carefully, and we may be able to roll out some of those programs, but probably not this year.

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

I hope your families are safe and healthy during this crazy times.

I have a couple of questions.

In terms of current revenue or in terms of what you have seen so far, is there a way for you to qualitatively give us some kind of a color as to what percent of that revenue comes from returning patients in the sense because your scripts can be basically written electronically in the sense you can just reload the device.

So how -- what percent of that basically comes from that way of doing this?

So RK, it's a perfectly reasonable question.

Historically, we have not given out data between new prescriptions and refills.

And so we're just not in a position to do that right here.

Okay, fair enough.

And then -- and say, for certain areas where there is no physical access to the physician.

What is a typical interaction between a physician and a patient before the script is written, in the sense, is it basically a face-to-face meeting and the script is written?

Or do -- does the physician have to do some specific lab test on the patient before the patient is prescribed therapy through the VNS system?

It's a very good question, RK.

So historically, patients that have been offered gammaCore therapy tend to be patients who have been to the headache clinic to their neurologist historically, right?

That they have some pattern with the physician that's giving them care.

So they've had previous visits.

They've tried other therapies.

Going forward, we expect that that will migrate to new patients being able to gain access to the therapy without a preexisting history.

But that's not what we've experienced so far.

And then the last question, on the same way, in terms of the telehealth and whatnot.

So how does the physician and the patient think about gammaCore?

Do they think it's quite a bit of an innocuous therapy in the sense, "Hey, I can bring you in and do all the stuff that I would like to do, then I -- before I have to give you a certain medicine, pills or whatever.

But this is something that you can try while we are waiting for you to come into the clinic so that I can do other tests to give you a pill." Does that strategy work here?

Or does that -- has that been employed before?

So we think that's going to happen.

Many of our most successful patients are those that have been on Triptans, have had some number of BOTOX treatments and finally get relief when gammaCore therapy is offered to them.

Given that access -- direct access to the physicians is changing, we think that gammaCore is going to move up towards first-line therapy because it's so safe, and because it can be delivered virtually.

And so proof, we'll see in the next 6 months, but we do think that's going to happen.

Our next question comes from the line of Ahu Demir with NOBLE Capital.

My question will also be on the COVID.

So do you have enough inventories, let's say, the lockdown will continue, you won't be able to manufacture, do you have enough inventory of gammaCore to deliver for the whole year?

It's Brian.

We got plenty of -- yes, we have plenty of inventory, plenty of inventory.

No.

I think we have $7 million of inventory on the balance sheet, I think, Brian, is that the right number?

Yes, that's the number we're reporting, about $6.9 million.

So that's not something that's keeping us up at night.

Okay.

That's nice to hear.

My second question is on the FDA letter that you were supposed to submit early March.

I know things are postponed, of course, but I was just curious if you actually are submitting the letter for the migraine prevention still?

And is it on track?

Yes, yes.

We -- you'll recall that the FDA sent us questions.

We met with the agency at the end of last year, and we filed our formal response -- I think it was February 28, February 27, we filed our official response to the FDA questions.

So we are still expecting potential clearance on that in 2020, if things go well?

Yes.

Who knows what's -- how the agency is staffed these days either, but my expectation is that there will be one more round of questions before we get to a final determination.

And it's very hard to figure out what the calendar looks like.

Okay.

And my last question is the Doctor's LLC group.

What is the revenue on that side for the fourth quarter?

Did you actually make any changes on that?

Do we expect -- moving forward, do we expect any adoption or acceleration on that side?

So short answer is no.

Doctor's Medical is set up as a distribution agreement.

They buy product from us at a transfer price and then sell it into their channel for workers' comp and personal injury practices.

They made an initial purchase of 50 units in the third quarter, and they continue to place those units, but I don't think -- I think they've placed less than half of the original order of 50.

So we don't -- it's a good business relationship, but we don't anticipate any substantial reorders for the rest of the year, given the slow pace at which they've been placing their original order.

Ladies and gentlemen, there seems to be no further questions left in the queue.

And I would like to turn the call back over to Mr. Dan Goldberger for any closing remarks.

Thank you, operator.

Thank you all for making time to hear our story.

We're all hoping for the best and -- but planning for survival.

So have a good evening, everybody.

This concludes today's teleconference.

You may now disconnect your lines at this time.

Thank you for your participation, and have a wonderful day.