electroCore, Inc. (ECOR) 2021 Q1 法說會逐字稿

Greetings, and welcome to the electroCore First Quarter 2021 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Rich Cockrell . Thank you, sir.

You may begin.

Thank you all for participating in today's call.

Joining me today are Dan Goldberger, Chief Executive Officer; Brian Posner, Chief Financial Officer; and Dr. Peter Staats, electroCore's Chief Medical Officer.

Earlier today, electroCore released results for the quarter ended March 31, 2021.

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 the 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 the company's 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 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, May 6, 2021.

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

Thank you, Rich.

Hello, everybody.

And thank you for joining us today.

I am thrilled to report that Q1 2021 revenue was a record $1.2 million.

Furthermore, net cash used for the quarter decreased over 50% to $4.1 million for the first quarter of 2021 from $8.4 million for the first quarter of 2020.

For the first quarter of 2021, total revenue of $1.2 million increased approximately 30% sequentially from $928,000 in the fourth quarter of 2020 and approximately 64% from $734,000 in the first quarter of 2020.

We believe that our revenue growth is driven by the various initiatives we put in place during 2020 and the gradual relaxation of pandemic restrictions.

When Brian and I joined the company in 2019, we focused on reporting paid months of therapy as a metric to illustrate progress and as a lead indicator of net revenue growth.

Over the last few months, the business has become more diverse through the addition of stocking distributors in a few international territories and the soft launch of gammaCore Sapphire D, provisioned with 36 months of therapy to meet the CMS definition of durable medical equipment.

As such, paid months of therapy no longer tells the whole story, and you'll see increased variability in average selling price per month as different product and revenue streams are combined.

We will continue to report paid months of therapy where it is an appropriate metric.

The Federal Supply Schedule, or FSS, which encompasses the Department of Veterans Affairs, Department of Defense and other government and military agencies, continues to be our most important revenue channel.

During the first quarter of 2021, clinician meetings with our staff began to increase within the VA as the number of COVID-19 cases decreased within the system.

A total of 79 VA and DoD military treatment facilities have purchased gammaCore products through Q1 2021 as compared to 71 through the fourth quarter of 2020 and 64 through the first quarter of 2020.

Revenue from the government channel increased 33% sequentially to $679,000 in the first quarter of 2021 from $509,000 in the fourth quarter of 2020; and increased 49% as compared to $454,000 in the first quarter of 2020.

Also, during the first quarter of 2021, the company shipped approximately 1,768 paid months of therapy pursuant to VA and DoD originating prescriptions compared to 1,232 during the fourth quarter of 2020 and 1,084 during the first quarter of 2020.

Our sales and marketing function continues to leverage our clinical differentiation along with telehealth and other virtual capabilities and management believes the company remains well positioned to resume normalized sales activities as the pandemic subsides.

Turning to our international business, you may have seen recent announcements about new distributor relationships around the world, which are structured as stocking distributors.

We, therefore, have 2 business models driving growth outside the United States, direct sales through our subsidiary in the United Kingdom and a few legacy Western European countries and distributor sales elsewhere.

All our international business is capably managed by Iain Strickland, Ph.

D., Vice President of Global Sales and Strategy, based in the United Kingdom.

During the first quarter of 2021, electroCore shipped approximately 1,156 paid months of therapy outside of the United States directly to patients as compared to 1,143 during the fourth quarter of 2020 and 1,008 during the first quarter of 2020.

Revenue generated outside the U.S. was $380,000 in the first quarter of 2021 as compared to $311,000 in the fourth quarter of 2020, and $276,000 in the first quarter of 2020.

We're pleased to see steady improvement, driven mostly by the United Kingdom, which has been and continues to be hit very hard by the pandemic.

We're enthusiastic about the continued interest we are receiving for noninvasive vagus nerve stimulation or nVNS in other territories around the world.

In the first quarter of 2021, international revenue included initial orders totaling approximately $45,000 from our new distributors in Eastern Europe and Australia.

We're expecting initial orders from our new distributors in Canada, Belgium, The Netherlands, Luxembourg and Qatar as the year progresses.

Our team in the United Kingdom has been quietly managing the transition from the NHS Innovation and Technology Payment Program, ITPP, to the recently announced NHS Improvement Medtech Funding Mandate Policy 2021/'22.

We do not anticipate any material short-term impact, and we continue to expect that our U.K. business will grow under the broader coverage provided by the Medtech Funding Mandate.

We announced in January that Health Improvement Scotland, HIS, published a Scottish Health Technology Group, SHTG, adaptation for NHS Scotland on the use of gammaCore for cluster headache.

The SHTG adaptation is now being disseminated across NHS Scotland health boards to inform the use of gammaCore for cluster headache.

We're working towards similar approvals in Wales and Northern Ireland.

In February 2021, we also learned that gammaCore's listing in the NHS supply chain catalog was extended for an additional 2 years through June 3, 2023.

The NHS supply chain helps NHS deliver clinically assured quality products at the best value to its patients and the inclusion of gammaCore in the catalog allows hospitals to purchase gammaCore Sapphire for their primary headache patients, taking into account their own budgetary restrictions.

The listing of gammaCore Sapphire as an e-Direct product marks an important milestone in the company's provision of its medical technologies to United Kingdom patients in an easy, cost-effective way.

In recent months, we took meaningful steps to expand gammaCore's global availability.

In December 2020, we announced an exclusive distribution agreement with Pro Medical Baltic to distribute gammaCore in Eastern Europe including Lithuania, Latvia, Belarus, Kazakhstan, Ukraine and more recently, Romania.

In January 2021, we entered into a similar agreement with RSK Medical in Canada, And in February 2021, we announced an agreement with Medistar who will serve as the exclusive distributor for nVNS in Australia.

We also announced an exclusive distribution agreement with Silvert Medical in March 2021 who will make nVNS therapy available in Belgium, Luxembourg, The Netherlands and France.

Most recently, in April 2021, we announced a distribution agreement with East Agency for distribution in Qatar.

We look forward to further expanding our global network with leading medical technology distribution partners to make gammaCore more broadly available outside the U.S.A.

We continue to make measured investments in our commercial channel inside the United States, most notably through negotiations with national and regional insurers and pharmacy benefit managers, for the purpose of expanding the population of gammaCore-covered lives.

During the first quarter of 2021, the company shipped approximately 185 paid months of therapy pursuant to commercially originating prescriptions compared to 184 during the fourth quarter of 2020.

Net revenue from the commercial channel was $121,000 for the first quarter of 2021 as compared to $54,000 for the previous quarter.

Net revenue from the commercial channel during the first quarter of 2020 was not material.

In January 2021, we announced that CMS published its most recent Level 2 Healthcare Common Procedure Coding System, commonly known as HCPCS, establishing a unique code, K1020, for noninvasive vagus nerve stimulator.

All final coding decisions for the second biannual 2020 coding cycle for nondrug and nonbiological items and services went into effect on April 1, 2021.

We view the establishment of a unique HCPCS code for nVNS as an important differentiator and a potentially significant driver of additional coverage within the medical benefit pathway.

At least 1 regional payer has published a positive benefit determination for K1020, and we've entered into fee schedule negotiations with that organization.

Several national payers continue to list nVNS as experimental, and we're providing additional clinical and economic data in an effort to overcome those determinations.

Premier Specialty Pharmacy continues to be our largest distribution partner in the commercial channel, and their gammaCore business has been relatively flat for the past few quarters.

You'll recall that Premier purchases inventory from electroCore and fills prescriptions from their inventory as they were adjudicated by the pharmacy benefit managers.

Therefore, the paid months of therapy metric that we report in the commercial channel does not map directly to revenue.

On the topic of COVID-19 pandemic, our employees in Rockaway, New Jersey and in the field continue to implement best practices for preserving the safety and health of all of our stakeholders.

The FDA Emergency Use Authorization, or EUA, was granted to us in July 2020 for the use of gammaCore Sapphire CV, at home or in a health care setting, for the acute treatment of adult patients with known or suspected COVID-19.

gammaCore Sapphire CV is available throughout our VA DoD channels to hospitals directly from the company, through Premier Specialty Pharmacy by obtaining a prescription, through a patient's health care provider or through a telehealth consult powered by our telehealth partner, UpScript, LLC.

We have also set up an online portal for patients to use, www.getgammacore.com.

While unit sales in the first quarter 2021 increased over fourth quarter 2020, prescriptions generated through the EUA were not a meaningful source of revenue during the quarter.

At this point, I'm going to ask our Chief Medical Officer, Dr. Peter Staats, to provide an update on our various clinical initiatives.

Thanks, Dan.

We have seen a lot of positive progress in R&D efforts over the past few months.

In December of 2020, we announced that gammaCore was selected for evaluation in a randomized controlled study for the treatment of opioid use disorders.

The study is being run by Dr. Douglas Bremner of Emory University in collaboration with the Georgia Institute of Technology and The City University of New York and is supported by the National Institute of Drug Abuse.

The study will enroll 40 subjects in 2 separate study groups of 20 subjects each.

Each study group will randomize 10 subjects to be treated with nVNS and 10 with sham stimulations.

The study will assess the ability of nVNS to decrease opioid cravings in subjects with a history of opioid use disorder, who are stable on medication as well as examine the possible mechanisms that might facilitate this clinical effect.

In February of 2021, we announced the completed enrollment of the TR-VENUS study, which is evaluating the safety and feasibility of nVNS for the acute treatment in stroke.

We are enthusiastic about the potential that nVNS offers as a potential new stroke treatment, and we look forward to reporting top line data from the TR-VENUS trial later this week -- I'm sorry, excuse me, later this year.

Also, in February 2021, we announced the publication of a pilot study in the Journal of Colorectal Disease that evaluated the effectiveness of nVNS in improving postoperative ileus following elective major colorectal surgery.

Postoperative ileus is a serious condition that can result in surgical complications and extended hospital stays.

While only a pilot study, the group using nVNS showed a greater improvement in several clinical important endpoints, such as a decrease in the amount of oral morphine equivalent used post surgery compared to the sham group.

The results detailed in this paper support continued development in this indication and a larger study funded by the National Institute for Health Research in England is ongoing.

In April 2021, we announced the preliminary results from the SAVIOR 1 trial of hospitalized COVID-19 patients in Valencia, Spain.

Preliminary results from the 110 hospitalized COVID patients enrolled in the SAVIOR 1 trial indicated that nVNS was well tolerated with no major device-related adverse events and was able to significantly decrease the level of C-reactive protein, or CRP, in patients who used gammaCore compared to the group using only the standard care.

Trends toward significance were also observed for decreases in the treatment group for procalcitonin and d-dimer.

This apparent ability to decrease the level of systemic inflammation markers may represent the initial impact of nVNS therapy to potentially improve the course of a patient's COVID-19 symptoms.

Other biochemical measures also favor the treatment group, but did not achieve statistical significance.

We look forward to the publication of SAVIOR 1 results later this year.

We continue to monitor the progress of the SAVIOR 2 trial of hospitalized COVID-19 patients in Pittsburgh, Pennsylvania, and we are also exploring the use of nVNS therapy to treat migraine in long COVID patients.

On the headache front, in December of 2020, we announced the positive top line results from our Premium 2 study of gammaCore in migraine prevention.

Recall that this study was terminated early in April of 2020 due to the COVID-19 pandemic.

However, an analysis of the data demonstrated that all study endpoints, including several patient-assessed quality of life measures, showed benefit from nVNS with many endpoints showing a statistically significant improvement with nVNS compared to sham stimulation.

The positive results of Premium 2 add to the significant body of data demonstrating that nVNS is among the most effective, safe and flexible treatments available to help patients looking for a way to take control of their headache treatment.

We look forward to a peer-reviewed publication of the results later this year.

In February 2021, we announced that the FDA cleared our 510(k) submission to expand the gammaCore label to include the acute and preventive treatment in migraine in adolescents between 12 and 17 years of age.

It's estimated that 10% of all school-age children and up to 17% of teens between the ages of 15 and 19 live with migraine.

And we believe that a nondrug treatment option will resonate with this patient population.

With this expansion, gammaCore is now cleared for most forms of primary headache.

In April 2021, we announced the publication of a paper entitled Cluster headache pathophysiology- insights from current and emerging treatments by doctors, Diana Wei and Peter Goadsby in Nature Reviews Neurology.

This paper reviews data on existing and emerging treatments for acute and preventive treatment of cluster headache as well as insights into the pathophysiology of cluster headache.

Among the emerging treatments, gammaCore is identified as the only therapy that has been shown to be effective in clinical trials for both the acute treatment of episodic cluster headache as well as the preventive treatment of cluster headache.

This past Tuesday, we announced that the U.S. Department of Veterans Affairs is starting an investigator-initiated trial of gammaCore Sapphire nVNS for the treatment of posttraumatic headache or GAP-PTH.

The trial will be randomized, multicenter, double-blind, parallel sham-controlled study that will enroll up to 100 veterans and who will be directed by the Veterans Health Administration's Headache Center of Excellence at the West Haven VA Medical Center in West Haven, Connecticut.

Posttraumatic headache is a critical area of concern for VA, and it is estimated that more than 350,000 service members have headaches resulting from traumatic brain injuries, or TBIs, sustained in combat.

We are thrilled to report ongoing progress in our clinical studies and nVNS continues to be studied as a therapeutic option in areas such as headache, PTSD, opioid use disorder, stroke, postoperative ileus, and other indications, which may ultimately improve the lives of patients everywhere.

Many of these studies are funded by investigators, the Department of Defense, NIDA and private foundations.

And we're optimistic that the foundational clinical work will increase the total addressable market for nVNS.

At this point, I'll turn the call over to Brian for a review of our financials and other guidance items.

Brian?

Thank you, Peter.

For the quarter ended March 31, 2021, electroCore reported net sales of $1.2 million as compared to net sales of $928,000 in the fourth quarter of 2020.

The sequential increase in revenue was due to increased sales across all our revenue-generating channels, with particularly strong growth in the VA DoD channels.

Revenue for the quarter ended March 31, 2020, was $734,000.

Revenue from the government channel increased 33% sequentially to $679,000 in the first quarter of 2021 from $509,000 in the fourth quarter 2020 and increased 49% as compared to $454,000 in the first quarter of 2020.

Revenue from outside the U.S. increased sequentially to $380,000 in the first quarter of 2021 from $311,000 in the fourth quarter of 2020.

OUS revenue was $276,000 during the first quarter of 2020.

OUS revenue for the first quarter of 2021 included $45,000 from our new distributors in Eastern Europe and Australia.

Net revenue from the commercial channel was $121,000 for the first quarter of 2021 as compared to $54,000 for the previous quarter.

Net revenue from the commercial channel during the first quarter of 2020 was not material.

Gross margin for the first quarter of 2021 was approximately 70%.

Going forward, our margins will continue to be highly dependent on revenue and product mix.

Total operating expenses for the first quarter of 2021 were approximately $6.2 million as compared to $6.4 million last quarter and $8.4 million for the comparable period in 2020.

SG&A expenses for the period were approximately $5.7 million compared to $5.4 million in the fourth quarter of 2020.

SG&A expenses declined approximately 13% from approximately $6.6 million for the comparable period in 2020.

The decrease in expense was due to the cost reduction plan put in place during 2019 and 2020, including the restructuring of the commercial channel.

Research and development expenses decreased sequentially by approximately $500,000 or 50% to $500,000 in the quarter, and $1 million or 67% from $1.5 million in the year ago period.

This reduction is consistent with the company's strategy of significantly reducing its near-term direct investment in R&D as well as the early termination of the Premium 2 study in April of last year.

We will continue to maintain our discipline around R&D spending by leveraging funds available through external parties, as Peter discussed earlier.

GAAP net loss in the first quarter of 2021 was $5.4 million compared to fourth quarter 2020 GAAP net loss of $6.3 million.

GAAP net loss decreased by 33% or $2.6 million as compared to a GAAP net loss of $8 million in the first quarter of 2020.

Adjusted EBITDA net loss in the first quarter of 2021 was $4.2 million as compared to $4.3 million during the fourth quarter of 2020 and as compared to a loss of $6.4 million in the first quarter of 2020.

The company defines adjusted EBITDA net loss as GAAP net loss, excluding depreciation and amortization, stock compensation expense, restructuring and other severance-related charges, legal fees associated with stockholders' litigation and total other income and expense.

A reconciliation of GAAP net loss to non-GAAP adjusted EBITDA net loss has been provided in the financial statement tables included in this afternoon's press release.

The company ended the first quarter of 2021 with approximately $25.5 million of cash, cash equivalents and marketable securities compared to $22.6 million as of December 31, 2020.

The company raised $6.9 million during the quarter under a stock purchase agreement.

That stock purchase agreement was voluntarily terminated by the company before the end of the first quarter.

This capital raise was offset by net cash used of approximately $4.1 million to fund operations during the first quarter of 2021.

Looking ahead, for the second quarter of 2021, we expect net revenue to exceed $1.2 million and net cash usage to approximate Q1 2021 levels.

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

Thank you, Brian.

We're pleased with our performance during this quarter.

I also want to point out that we're in a very healthy financial position with a cash of $25.5 million on the balance sheet as of March 31, 2021.

As the pandemic recedes, I'm excited about the prospects of building on sequential revenue growth in our VA DoD headache market and achieving accelerated growth of our U.K. business as the Medtech Funding Mandate takes effect over the course of the year.

Our unique HCPCS code became effective on April 2021, and we'll continue to work diligently with select regional payers to provide reimbursement of nVNS therapy.

We've recently announced 5 new international distributors, and I look forward to continued expansion of that channel throughout the year.

Longer-term, label expansions beyond cluster and migraine headache, supported by the exciting ongoing clinical developments that Dr. Staats discussed, could dramatically increase the total addressable market for nVNS therapy.

Finally, I want to again recognize our dedicated staff for working steadfastly through the pandemic disruptions and thank the health care professionals that prescribe gammaCore and their patients for their loyal support of gammaCore therapy.

At this point, I'll ask the operator to open the line for questions.

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

This is actually Carolyn on for Ryan.

First one for me, I appreciate the guidance for the second quarter.

Could you provide some color on how you expect the VA DoD channel to recover through the balance of the year?

And then I do have one follow-up.

Yes.

So thanks for making time.

Look, nobody knows where the pandemic is going.

We are starting to see the VA hospitals open up and allow our sales reps to come back in.

But a lot of the providers, a lot of the prescribers are still working remotely.

So it's difficult for us to assess what the trajectory is going to be.

So I'm optimistic that we'll steadily get back to whatever normal is with our sales force functioning in the VA systems.

We've been able to open up some new facilities so far this year, which is always a lot harder to open up a new customer than to merely sell more into an existing customer.

So steady as she goes, but I think the future is pretty bright.

Understood.

Great.

And then on the posttraumatic headache study, you just announced initiation of that study earlier this week.

What are some of the milestones or timing we should expect as that study progresses?

Yes.

We've gotten into the pattern of reporting on enrollment statistics.

And again, we're optimistic that enrollment will proceed relatively quickly.

They've got a pretty solid cohort of patients to draw from.

I hope we can complete enrollment towards the end of this year, but it may slide into the beginning of 2022.

Our next question is coming from the line of Sean Kang with H.C. Wainwright.

So I have a question regarding the VA study for the treatment of posttraumatic headache.

So how is the current treatment for this indication?

Posttraumatic headache is different from the cluster headache, which can be treated by gammaCore with the current label.

Peter, are you available to take that one?

Sure.

Yes, that's good.

I'm happy to take it.

Sure.

So we -- right now, we are on label for anything that a physician would say is a migraine or for a cluster headache.

But there are a variety of specific headaches that wouldn't exactly be considered on label for a migraine or for a cluster attack and some of those would fall under the category of posttraumatic headache.

So I think of this as broadening our portfolio of what we can make claims on.

But right now, many of the patients with posttraumatic headache would present as migraines and patients could use our therapy today, but we will be able to broaden our claims.

And I also think mechanistically, we should be particularly effective in a posttraumatic type of headache.

And I think that would again potentially broaden what we can do, not just in the military system, but if you think about all of the patients out there who have had concussion or a posttraumatic headache or some trauma to the head and are left with debilitating headaches.

This will open up a whole new avenue for us as well.

I see.

That's good.

And one more question regarding investigator-initiated studies.

So of course, there are multiple ongoing investigator-initiated studies.

But then what kind of data do you hope to get from this study?

And then at what point do you want to pursue that particular label expansion?

And what kind of -- what will be the next step when you just make that decision?

Can I -- go ahead.

Yes, I've got it, Peter.

So all very good questions.

And we haven't laid out the pathway to a label extension publicly yet.

But as Peter said, as we gain experience specifically with post-concussion patients, we'll be able to formulate our regulatory plans.

We've got a good relationship with the agency.

And the high road would be to wait until the trial reads out before we file anything with the agency, but we may be able to look at some more accelerated pathways.

Our next question is coming from the line of Anthony Vendetti with Maxim Group.

This is actually Jeremy on the line for Anthony.

Just 2 questions.

One, more of a high level, just to piggyback off the last question about the trials.

And I know, obviously, there's really you have to have positive data before you could commercialize anything.

But what do you think or what do you hope is would be your next focus?

And what do you consider the most opportunistic commercial opportunity out of all the trials that are going on now or any sort of indication?

So that's a great question.

As Peter mentioned, we've got pretty broad coverage for most forms of primary headache, I should say, clearance, rather, for most forms of primary headache.

And so with the -- with the GAP-PTH trial, we're now extending into secondary headaches, so posttraumatic headaches.

That's an obvious direction for us to go.

Beyond that, as you know, there is work going on, again, in many cases, financed by DARPA or the VA system into mild traumatic brain injury and treatment of posttraumatic stress disorder.

We also recently announced a DARPA-funded trial looking at opioid use disorder, which, as you know, is a very important objective at many levels of government and certainly in our health care system.

So in terms of label expansion, I think those are where we get not only the most benefit to patients, but also have the largest commercial opportunities.

Okay.

That's helpful.

And then one last question.

On the commercial payer side, I know that the new code coming into effect April 1, what is your -- could you provide any more details or specifics how you're approaching the regional payers?

What your strategy is to try and get them on board?

Yes.

So we've gotten -- and I think I mentioned it in the prepared remarks, we've gotten 1 positive benefit determination, and we're talking to that insurance company about pricing now.

We've been in touch and had conversations with many others.

Not surprisingly, the first reaction is send us more data.

And so we're continuing to add to the database on not just clinical performance, but health care economics.

We have a large and growing patient cohort in the United Kingdom and positive determinations from NHS, which cross-walk very nicely to what we're trying to do with the U.S. insurance companies and even more compelling is the large and growing database of success in the VA hospital, where our therapy is free to patients and is covered 100% by the VA system.

So it never goes as fast as we would like, but we are making progress, and we'll continue to report on positive coverage decisions as they become available.

(Operator Instructions) Our next question is coming from the line of John Vandermosten with Zacks.

Perhaps you can run through the partnerships you have from highest to lowest in terms of revenue potential.

The Western Europe one stands out to me is the top line just because there's a big population there that's well able to pay.

But you have a bunch of others and maybe there's some characteristics there that make them particularly valuable.

So it's hard for us to handicap.

It's hard for us to handicap right now the size of the opportunities and how quickly we'll be able to penetrate.

I agree with you that the Western Europe, Benelux is probably the largest ultimately.

Australia is actually -- can be surprisingly productive.

Qatar is a very, very small country, but as you know, they're relatively wealthy and can probably support higher end-user pricing, and it's a cash-pay market.

So I think you're going to see small, relatively small initial orders over the second half of 2021 and I'll be better able to answer who the early adopters are and what their trajectory for 2022 will be based on that early data.

And just between Australia and Canada, any sense of which one there is the bigger one?

Probably Australia.

Okay.

And then these agreements, are they all designed somewhat similarly in terms of duration and take-or-pay requirements?

Yes, they're not take-or-pay.

They are -- we sell inventory at a transfer price.

And there are minimum obligations to maintain exclusivity in the out years.

Okay.

And a question on gross margin, it was pretty good this quarter, the highest I've seen in a while.

And should we expect it to stay there?

Are there some onetime items in there that won't repeat?

Or is this kind of a base for the future?

Go ahead, Brian.

John, it's Brian.

I think it's really going to be dependent on our revenue levels and our product mix.

It's not -- there was no really onetime item driving that other than a very good quarter revenue-wise.

So that resulted in absorbed labor and overhead.

So it's really about revenue and product mix.

I mean we had $1.1 million of revenue in Q3 and we had a 68% gross margin then.

So we could definitely be in this ballpark going forward as long as those 2 metrics stay favorable.

Okay.

Great.

Yes.

It sounds like you're leveraging the fixed parts of that gross margin.

Yes.

Exactly.

Yes.

Last one for me is just on -- you mentioned the DoD and VA are the most important customers right now.

But with all these new partners, how do you anticipate the revenue mix looking in a year or 2, distributors versus the National Health in the U.K. and then VA DoD?

How do you see that pie chart looking?

Yes.

Great question, John.

So right now, we're looking at sequential growth in the mid-teens to maybe low 20s in our U.K. channel as we get -- as the Medtech Funding Mandate takes hold and we have a larger addressable market.

We think our initiatives with the Federal Supply Schedule into the VA and DoD can continue to grow 25% to 30% sequentially.

And the big opportunity in 2022 is that we establish more reliable insurance company reimbursement in the commercial channel in the U.S. That's foundational work that we're going to be doing in the second half of 2021 and I believe will be, in 2022, our largest revenue component.

Thank you.

I'm not seeing any additional questions at this time.

So I'd like to pass the floor back over to management for any additional closing comments.

Thank you, operator.

And for all of you that dialed in for what turned into a relatively lengthy business update.

We greatly appreciate your patience and support.

And I hope all of you are able to stay healthy, and we're all praying that this pandemic moves on.

Have a good evening.

Ladies and gentlemen, this does conclude today's teleconference.

We thank you for your participation, and you may disconnect your lines at this time.