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spk04: to ElectroCore full year 2021 earnings conference call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Rich Cockrell. Thank you, and over to you, sir.
spk01: Thank you all for participating in today's ElectroCorps earnings call. Joining me on the call today are Dan Goldberger, Chief Executive Officer, Brian Posner, Chief Financial Officer, and Dr. Peter Stotts, ElectroCorps' Chief Medical Officer. Early today, ElectroCorps released results for the fourth quarter and full year ended December 31st, 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 that include forward-looking statements within the meaning of 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, 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 risk 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 risk and uncertainties associated with the company's business, please see the company's filings with the Securities and Exchange Commission. ElectroCorps 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 10th, 2022 at 4 30 PM Eastern standard time. And with that, I'll turn the call over to Dan.
spk09: Thank you, Rich. Hello everybody. And thank you for joining us on today's call. I'm pleased to report that our dedicated team continues to dramatically improve our operating results while advancing so many new opportunities for a proprietary non-invasive vagus nerve stimulation therapy. We've implemented several new initiatives that we expect will generate strong results during 2022 and beyond. Full year 2021 revenue was a record $5.5 million, increasing 56% over $3.5 million in 2020. Gross margins expanded to 76%, and net cash used in operations decreased to $13.6 million for the full year 2021. Entering 2022, our business is more efficient, scalable, and positioned for accelerating growth. Pharmacy benefit managers, or PBMs, including CVS, Caremark, and Express Scripts, continue to adjudicate insurance benefits for an estimated 12 million covered lives and provide gamma-core therapy to patients that have a high-end benefit design that does not differentiate between drugs and devices. These patients are subject to a copay of between $25 and $75 per month, depending on their specific benefit plan. Even for these patients, we find that more than 60% of our patients going through the specialty pharmacy to have their pharmacy benefits adjudicated ultimately pay cash because the patient has not yet met deductible or copay obligations or because their benefit design does not yet reimburse for noninvasive vagus nerve stimulation therapies. We've established three new cash pay commercial channels in recent months to improve access for patients that are willing to pay for therapy. First, GC Direct allows a prescriber to send a prescription directly to our home office for processing by our customer experience team. We work directly with the patient to dispense therapy and collect payment. G-Concierge, it's a physician dispense model under which the prescriber purchases inventory from ElectriCorps at a transfer price and provides therapy directly to their patient from their own inventory. And third, we launched e-commerce storefronts in the United States and United Kingdom where consumers can go to our website, fill out a questionnaire that is adjudicated by a telehealth process, obtain a prescription, and then move therapy seamlessly into a shopping cart that is dispensed directly to a patient. Our world-class customer experience team is available to patients in all of these channels, providing training and support for new prescriptions and sending reminders about refill prescriptions. During 2022, we plan to further invest in our digital awareness campaigns, initially through paid search and social media, in an effort to drive headache patients to our various channels in the United States and the United Kingdom. We expect that these new channels and campaigns can significantly increase awareness and streamline availability of NVNS therapy for patients, many of whom have historically been encumbered by reimbursement and physician access challenges. Net sales of $858,000 in the fourth quarter of 2021 from our government channels, including the Department of Veterans Affairs and Department of Defense Hospitals, increased 69% as compared to $509,000 in the fourth quarter of 2020. Full year 2021 net sales from the VA and DOD grew 61% to approximately $3.3 million, as compared to net sales of approximately $2 million for the full year 2020. A total of 100 VA and DOD military treatment facilities have purchased Gamma Corps products through December 31, 2021. as compared to 71 in 2020. Note that there are approximately 1,300 VA healthcare facilities and over 500 military hospitals and medical clinics, so we still have plenty of growth ahead of us. Revenue from channels outside the United States increased 36% to $1.5 million in 2021 as compared to $1.1 million for the full year 2020. We look forward to continued revenue growth in the UK as the MedTech funding mandate continues to roll out and we expand the indications available through the United Kingdom e-commerce site. Net revenue from the U.S. commercial headache channel was $679,000 for 2021 as compared to $358,000 in 2020. Approximately $321,000 of our U.S. commercial revenue in 2021 came from cash pay programs. Going forward, our US sales function will be focused on the following four revenue growth initiatives. Number one, going deeper into our 100 existing VA hospital customers. Number two, leveraging our VA hospital success to open new VA hospital customers. Number three, recruiting additional commercial prescribers to our cash pay business models while we work towards broader commercial insurance coverage. And number four, increasing our direct-to-consumer advertising spend to build awareness and demand. We've grown our U.S. sales function in recent months within our customer experience team, territory business managers in the field, and sales agents. We look forward to reporting accelerating growth within the United States channels. While focused on commercializing our broad headache indications, we continue to advance future applications of NVNS across several clinical trials, regulatory submissions, as well as in our intellectual property estate. In February 2022, data was presented at the International Stroke Congress suggesting that NVNS therapy could be an effective acute intervention for ischemic or hemorrhagic stroke. In the TR venous trial, 69 acute stroke patients were randomly assigned to three treatment arms, sham, low-dose, and high-dose NVNS. The study met its primary safety objective and all secondary safety and feasibility endpoints. Relative infarct growth measured by diffusion-weighted imaging in the high-dose NVNS group was lower than in the sham group with a p-value of 0.05 against baseline. A subsequent larger trial called NOVIS is more than 50% enrolled towards a 150-patient target and should be fully enrolled by early 2023. These early data are exciting as there are relatively few acute interventions approved for treating stroke, and none that can be deployed before an ischemic hemorrhagic determination has been made. NVNS could be a very exciting new tool in fighting this debilitating condition. We look forward to publication of the stroke data in a peer-reviewed journal later this year. On January 12, 2022, we announced Gamma Corps NVNS received breakthrough designation from the U.S. Food and Drug Administration, or FDA. for the treatment of post-traumatic stress disorder, or PTSD, a highly prevalent and disabling disorder with limited approved treatment options. Research from an Emory Georgia Tech team showed a 31% reduction of symptoms of PTSD, as well as changes in the inflammatory cytokine IL-6 when compared to sham stimulation. The ability of NVNS to target the underlying causes of PTSD supports its potential as a breakthrough treatment for PTSD. We look forward to scheduling a breakthrough device sprint meeting with the FDA in coming months to discuss the regulatory pathway for NVNS therapy to treat the symptoms of PTSD. FDA offers sprint discussions to support sponsors needing a timely resolution of potentially novel issues within a set time period, for example, 45 days. During a sprint discussion, the sponsor may provide additional information or revisions to initial proposals. We also plan to request pre-submissions meeting with the FDA to discuss NVNS for opioid use disorder, traumatic brain injury, and Parkinson's disease, among other possible indications we will evaluate later this year. A pre-sub provides the opportunity for a submitter to obtain FDA feedback prior to an intended premarket submission. A pre-sub is appropriate when FDA's feedback on specific questions is necessary to guide product development and or submission preparation. Recently, Lancet Neurology published a review highlighting the potential role of non-invasive neurostimulation approaches for Parkinson's disease, a progressive neurodegenerative disorder. One study cited in the review found that patients who received active stimulation had significant improvements in both non-motor, especially cognitive, and motor symptom burden scores compared with patients who received sham stimulation. We are encouraged by the growing amount of data supporting the role of NBNS as a plausible therapeutic option for Parkinson's disease. In addition to our ongoing clinical and regulatory activities, we have also been investing in and building on our strong intellectual property portfolio. Last year, we announced two new patents issued by the United States Patent and Trademark Office. is related to the treatment of stroke symptoms and methods for treating the acute symptoms of stroke or transient ischemic attack. The second patent is related to devices, systems, and methods integrated with smartphones that allow patients to self-treat medical conditions such as migraine headache by electrical, non-invasive stimulation of nerves. The specific patent is the eighth U.S. patent issued to us in the company's mobile connectivity platform with additional U.S. and international matters pending. We will continue building an intellectual property portfolio around smartphone-connected noninvasive therapy. This may provide a foundation for combining the company's clinically proven therapy with digital health platforms that could enable healthcare providers to use remote patient monitoring or remote therapeutic monitoring reimbursement codes. That combination, in turn, may enable future business models as well as expand revenue streams for the company's products. Earlier this week, we announced a few changes to our board of directors. Dr. Steven Andra has resigned effective March 4, 2022, and Mike Attia has notified us that he will serve out his remaining term but not stand for re-election at our annual general meeting later this year. Both directors will remain available to the chairman and CEO as advisors, and we greatly appreciate their long, dedicated service to ElectroCorp. I'm thrilled to announce the two fine executives, Ms. Julie Goldstein and Ms. Tricia Wilber, have agreed to join our Board of Directors effective March 15, 2022. Ms. Goldstein and Ms. Wilber have had tremendous success building direct-to-consumer businesses, and we look forward to bringing their expertise to Electric Court. Now, I'd like to turn the call over to Brian for a review of our financials and other guidance items. Brian?
spk11: Thank you, Dan. Where the fourth quarter ended December 31st, 2021, ElectroCorps reported net sales of $1.5 million and $928,000 during the same period of 2020. This represents a 61% revenue increase over the same period last year. For the full year 2021, the company reported net sales of approximately $5.5 million as compared to net sales of approximately 3.5 million for the full year 2020, an increase of 56%. Gross profit for the fourth quarter of 2021 was 1.2 million, as compared to 109,000 for the fourth quarter of 2020. Gross profit for the fourth quarters of 2021 and 2020 included an increase in inventory reserves of $70,000 and $434,000, respectively. Gross margin for the full year of 2021 was 76% as compared to 63% for the full year of 2020, excluding the increase in inventory reserves in both years. Total operating expenses in the fourth quarter of 2021 were approximately $6.7 million. an increase of approximately $300,000 from $6.4 million in the fourth quarter of 2020. Total operating expenses for the fourth quarter of 2020 included a charge of $558,000 in connection with the write-off of a right of use operating lease asset. Total operating expenses for the full year 2021 were $24.1 million as compared to $26.5 million for the full year 2020. Research and development expense in the fourth quarter of 2021 was $742,000 as compared to $1 million for the same period in 2020. R&D expenses for the full year 2021 were $2.5 million as compared to $4.2 million for the full year 2020. Selling general and administrative expense in the fourth quarter of 2021 was $5.9 million as compared to $5.4 million for the same period in 2020. SG&A expense for the full year 2021 was $21.6 million as compared to $21.8 million for the full year 2020. GAAP net loss for the fourth quarter of 2021 was 4.9 million as compared to a GAAP net loss of 6.3 million for the same quarter of 2020. GAAP net loss for the full year 2021 was 17.2 million as compared to a GAAP net loss of 23.5 million for the full year 2020. Adjusted EBITDA net loss in the fourth quarter of 2021 was 4.4 million to a loss of $4.3 million during the fourth quarter of 2020. Adjusted EBITDA net loss for the full year of 2021 was a loss of $15.8 million as compared to an adjusted EBITDA net loss of $18.4 million for the full year 2020. A reconciliation of GAAP net loss to non-GAAP adjusted EBITDA net loss has been provided in the financial statement tables included in today's press release. Net cash used in operating activities during the quarter ended December 31st, 2021 was approximately $4.4 million as compared to 3.6 million in the fourth quarter of 2020. Net cash used in the fourth quarter of 2021 included approximately $700,000 due to the company's refund of overpayments it received related to the sale of New Jersey net operating losses and the termination of the company's lease for its former corporate headquarters. Net cash used in operations for the full year 2021 was $13.6 million as compared to net cash used of $20.1 million reported in 2020. Cash, cash equivalents, and marketable securities at December 31st, 2021 totaled approximately $34.7 million. as compared to approximately $22.6 million at December 31st, 2020. Looking ahead, for the first quarter of 2022, we expect net revenue to be at least $1.7 million and net cash usage to be less than $5 million. The increase in expected net cash usage in the first quarter of 2022 compared to the fourth quarter of 2021 is largely expected to be due to seasonal factors affecting working capital and increased spending in cash pay initiatives. And now I'll turn the call back over to Dan.
spk09: Thank you, Brian. We're pleased with our improving operating results and we are in a strong financial position. Longer term, clinical indications beyond primary headaches supported by the ongoing clinical developments discussed earlier could greatly expand the total addressable market for NVNS therapy. We continue to build our intellectual property portfolio and we're developing some very exciting next-generation product platforms to leverage it. Our VA DOD channel continues to grow as the pandemic recedes and we remain optimistic for our direct-to-consumer initiatives in our commercial channels. While our United Kingdom business was impacted by COVID during the first few months of 2022, We look forward to accelerating growth in the near future. Mike Romanu and his operations team have driven gross margins to 76% for the year ended December 31, a healthy increase from 2020. Brian Posner's finance team have maintained discipline around operating expenses, and I have faith in their continued vigilance as we make targeted investments in the commercial channels and product developments. We look forward to further penetrating our large opportunity in the VA DOD channel in the United States under Mr. Deshaun's capable leadership, while Ian Strickland is leading the growth of our international businesses through the continued rollout of the MedTech funding mandate in the United Kingdom and our growing group of distributors in other countries. As we look forward to 2022, I see many growth drivers, including first, continued penetration of our VA DOD channel in the United States, Continued penetration of the United Kingdom market as the pandemic recedes. Growth in our U.S. commercial channels, driven by cash pay business models and direct-to-consumer advertising. Longer term, we're going to continue our efforts to gain commercial insurance coverage. And fourth, expansion of our international business through our growing distributor network and added traction within the United Kingdom e-commerce store. Longer term, there are real opportunities for label extensions into PTSD, opioid use disorder, and traumatic brain injury that could come as early as next year. Lastly, we are exploring growth opportunities to enhance and leverage distribution channels through acquisitions. Our focus will be on revenue stage targets that optimize channel synergies to enhance top line growth. I'll turn the call over to the operator. Operator, please open the line for questions.
spk04: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. The first question comes from the line of Jeffrey Cohen with Leidenberg Thelman. Please go ahead.
spk02: Oh, hi, Dan, Brian, and Peter. How are you? Good. Good. So I guess firstly, perhaps for... Dan or Peter, if you could talk about some of these other indications and more specifically talk about the type of data you expect to see from this 150-patient trial when that reads out, as well as maybe talk a little bit about treatments as far as times, frequency, and power for various indications as far as if it's any different from current labeling.
spk09: Peter, do you want to take that one?
spk10: Yeah, sure. I'll take that one. So, thanks, Jeff. You know, this is really an exciting time in a variety of different areas. The first area that I'll just comment on for your question is the stroke data. The stroke data that was presented at the International Stroke Conference showed that in doses higher than what we previously recommended for headache, particularly the high-dose stimulation of vagus nerve stimulation that required two sets of over two different hours, seven stimulations, so 14 stimulations or 28 minutes, showed really a dramatic improvement in the mitigation of the size of the growth of the evolving stroke. And there's mechanistically that kind of mirrors what we saw in the animal models. And there's still some questions to be asked. And one of the questions that is being asked in the subsequent trial being performed in Europe is whether or not we need to stimulate for an extended period of time and whether or not we can get longer term and better benefits. I suspect that we will need more stimulations than what we've been doing for a typical headache. Right now, it is all within our current label, I mean, in terms of the number of stimulations. But that will be an easy thing for us to go back to the FDA with when we are applying for a new indication, if we need to expand the number and amount of stimulation that we're using in that indication. Now, with other indications that we're looking at, for example, opioid use disorder or post-traumatic stress disorder, it does not appear that we need to use much more than what we've been using all along for our headache trials, for the original asthma trials, or for the gastrointestinal trials that have been done. Those all seem to be somewhat in line with the periodic usage of our device.
spk02: Okay, super. That's very helpful. So, and secondly, as a follow-up, I guess, for Brian, if you could maybe talk about, the margins a little bit and the SG&A as far as the 5.9-ish level, kind of the new level as you expand through 2022. And then thirdly, talk a little bit about the inventory. I don't know if I saw a specific net delta for the fourth quarter, but how does the inventory look as far as supplies and backlog and ordering, et cetera?
spk11: Okay. Well, thanks, Jeff. I'll start with the margin. We continue to see margin expansion quarter over quarter. We had a very strong quarter gross margin in Q4, about 80%. And that's basically driven by labor and overhead absorption as well as product mix. We were 76% overall for the year. And we're confident we can stay at very strong levels in terms of our gross margin. In terms of our SG&A, we were at, as you mentioned, 5.9 for the quarter. We would expect that to increase as we continue to invest both in our sales footprint, as Dan outlined in his remarks, as well as our direct-to-consumer marketing. I think this management team has proven it's a good guardian of shareholder capital. There's a chance we'll spend more where we see things are really working to promote growth. And we'll cut back in areas where we see things aren't working as well as we had planned. So you would expect that number to go up somewhat in 2022. In terms of inventory, We still have quite a bit. We have about 5.3 million as of the end of the year. We have enough to get us through next year and probably well into 2024 as well. And we're working on or starting to work on the next generation of our product for several years down the road.
spk02: Okay, got it. Perfect. Thank you all for taking our questions.
spk11: Thank you.
spk04: Thanks, Jeff. Thank you. The next question comes from the line of John Vandermosten with Zacks SCR. Please go ahead.
spk06: All right, great. Thank you, and good evening, everyone. I wanted to start off with how you doing, Dan? Start off with a question just on all your opportunities. Just on the call, you mentioned stroke, PTSD, opioid use disorder, and others. And I know you're waiting for data, especially on that stroke with the Novus trial. What you would be looking for going forward in order to allocate funds towards this? And then how will you think about R&D in light of that? Will you pick the best one of the indications that are out there? Or will you allocate based on, you know, just the individual opportunities? So, you know, you could either spend $5 million on R&D or $10 million. I'm just wondering how you're thinking about that and how the opportunity might change based on the data that you get from these studies that are ongoing.
spk09: Very good question, John. And a lot of it is going to be answered as we talk. The sprint meeting for PTSD and the pre-sub meetings for opioid use disorder, concussion, et cetera. And so we expect that the agency will give us some guidance on regulatory pathway and, of course, a key element of the regulatory pathway is what kind of data we ultimately will need to provide. against what kind of indications we're asking for. Most of these indications, PTSD, concussion, opioid use disorder, our current product configuration will work very nicely. We already have quite a bit of data that's in process. The vast majority of it is through investigator-initiated trials that are being funded by government agencies, like DARPA, the hospital system, or NIDA, the National Institute of Drug Abuse. So our cash spend to get the label and begin commercialization.
spk11: On the next slide.
spk04: Hello, John, are you able to hear us?
spk06: I can hear you. I think Dan faded out.
spk08: I'm sorry. Have I been talking to myself?
spk04: Yes, I think John's line is disconnected, but he's still showing on the talk mode. So we'll take the next question now. Thank you.
spk11: Just a minute.
spk04: So the next question is, comes from the line of Swayam Patula, Ramakant, with H.C. Wainwright. Please go ahead.
spk05: Thank you. This is R.K. from H.C. Wainwright. Good afternoon, folks. Hope all are well. Can you hear me, Dan?
spk09: Yes, can you hear me? I think it's my fault.
spk05: Yes, yes.
spk09: It's a bit difficult.
spk05: Okay, so... On the cash pay business, certainly you're done not only the talk the talk but also walk the walk. What is the market per se for the cash pay business? I'm just trying to understand in terms of thinking about growth from here onwards in that business. What's the cash pay market business both in the US and the UK? And I don't know if you have any internal landmarks to try to get to in 22.
spk09: Yeah, so thanks for the question, RK. In headache, which is the indications that we can market for today, as you know, there are tens of millions of migraine sufferers. There are almost a million cluster headache patients in the United States. Within those large numbers, all of the cluster headache patients are reasonable targets for us. And the sort of 5 million migraine headache sufferers out there that are on prescription meds currently are probably targets for us. So the challenge that we have is our relatively de minimis insurance coverage at this time. And so we are making our therapy available through these various cash pay channels directly to consumers. And the total addressable market is very large, but we still need a prescription. And so we need to be conscious of the friction in the channel.
spk05: Very good. In terms of the VA market and the VA centers, as things are opening up in general from the pandemic situation, what is your experience of your sales force now? And also in terms of in making new visits to physicians beyond the 100 centers that you are in now?
spk09: Yeah, so in the fourth quarter, Brian went through some of the numbers in the government channel for the fourth quarter, and things really started to change. return to growth in the fourth quarter, and we've carried that momentum over into the current quarter. So we're getting increasingly excited about momentum in the government channels for the reasons that you just talked about. The pandemic is receding, getting back to a more normal cadence of patient visits and dealing with headache patients. There's also in the VA channel quite a bit of excitement about breakthrough designation for PTSD and that gives our field sales force and our inside sales force great talking points and another reason to be in the office communicating with physicians. Peter has been spending a lot of his time talking to clinicians about PTSD and the breakthrough designation and what that means. So we're very excited about momentum building in that channel. as we speak.
spk05: So, because it looks like the PTSD is probably the closest indication that we can talk about in terms of new areas of expansion. How, you know, what is the route there? Like, you know, what do you have to do in terms of trying to get that expansion now that you have this breakthrough designation on also do you need to generate additional data or all that needs to be hammered out with the FDA so what is the situation there yeah so we're we're working to schedule the sprint meeting with the agency in in the near future we believe that we have adequate data
spk09: from the VA hospital system sponsored trials. DARPA also participated in sponsoring those trials. But the agency may say that we need additional work. So until we have that sprint meeting, I really shouldn't speculate.
spk05: Okay. And then for the stroke, I know there was some questions ahead of me But I'm just trying to understand, do you need to have not only the data that you already published, but also the Novus data before you file for an approval? Or can you take the current data and have a conversation with the FDA if they can take this and then you can back it up with the Novus data later?
spk09: So door number two. We are planning to schedule a pre-submission meeting with the FDA on the stroke work. The Novus trial, we don't expect it to be fully enrolled until the very end of this year or beginning of next year. And, you know, you're exactly right. We want to start the process with the FDA, set expectations with the FDA before that trial is fully enrolled and reports out.
spk05: Okay. Perfect. Thank you very much for taking all my questions.
spk04: Thank you. The next question comes from the line of Anthony Vendetti with Maxim Group. Please go ahead.
spk07: Hi, this is actually Jeremy on the line for Anthony. How is everyone doing? Good. So just Okay, so just to start off about on the cash pay new initiatives, could you just explain a little bit more what the difference between the GC Direct and the e-commerce sites? Because I think both of them are being bought directly from you as opposed to through a physician who has bought the GammaCorp from you?
spk09: Correct. So for GC Direct, a patient goes to their favorite doctor. That doctor writes a prescription. and sends the prescription to the company and we fill the order. For the e-commerce platform, the patient goes to our website, fills out a questionnaire, and we're providing a telehealth service. So a healthcare professional looks at the questionnaire and creates a prescription for that patient. So the nuance is that if I have a doctor that I like and will write the prescription, that's GC Direct, if I don't want to bother my family practitioner, I can just go to the internet and get a telehealth prescription.
spk07: Okay, I understand. And so what has been the reception from physicians for these new, the GC Direct and the GC Concierge? Is there anything, any more information or anything you could provide regarding?
spk08: Yeah, so we just reported on our fourth quarter results where those programs were just getting started.
spk09: We'll be putting up some KPIs when we report out in a couple of months on the first quarter, but it's very exciting right now.
spk07: Okay, that's good to hear. And then, I guess I know this is still always up in the air, but if you could maybe, you know, one of, it's been an initiative for a while now to get more insurance coverage. Could you give us any information where you are in talks with potential commercial payers? You know, when do you think, is that a 2022 event? Is that something maybe early 2023? Any more details you could provide?
spk09: so it's been the the back half of 2021 was very frustrating that uh our all of our initiatives were were met with um quiet um so it's been very frustrating i wish we could report more progress a key element of getting the commercial insurers to pay attention is consumer demand and so the work that we're doing in the cash pay channels is likely to have a spillover effect and create some demand pull among the commercial insurers. We continue to have conversations with Kaiser. We continue to have conversations with Tricare. Many of the regional blues, some of which have already given us positive benefit determinations, but it's going much slower than we had ever hoped.
spk07: Okay. I understand. And then I'll just, it doesn't seem like there's been any issues, but I know other companies have had supply chain issues, inflationary pressures. Is there anything that you've seen on your end or you have enough inventory?
spk09: I know you mentioned, so that's not really, yeah, we're in a unique situation of, of having quite a bit of inventory is, uh, as Brian mentioned that, uh, you know, something like $5 million of, uh, of inventory. on our balance sheet, and it's 75% gross margins. That's quite a bit of revenue.
spk07: Okay, nice. And then just last question, is there a target? You said one of your initiatives for the 2022 growth is to grow your sales function, grow your sales breadth. Is there any target you have, and how is that going to be split up among the different channels of your business?
spk09: Yeah, so internally, yes, of course we have targets, but we haven't said anything about that publicly.
spk07: Okay, all right, so that's all the questions for me. Thank you. I'll get back into you.
spk04: Thank you. Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone keypad. The next question comes from the line of John Wendermonston with Zacks SCR. Please go ahead.
spk06: All right, thanks for taking me back. You may have answered the part of my question I was going to ask next, just about all the investment opportunities. I wanted to see what the R&D thoughts are for 2022 and perhaps beyond and how that might relate to the first part of the question I asked earlier.
spk09: Yeah, so we have not... we haven't given guidance on R&D spending for 2022. We have kicked off a design project for the next generation vagus nerve stimulator. So that program will step up our R&D spending compared to 2021. The clinical work is not likely to increase our R&D spending. As we mentioned earlier, we're really blessed that the vast majority of work is sponsored by government agencies in the U.S. and abroad. So that particular element where we're making a lot of progress is not going to impact our R&D spending in 2022. Okay, great.
spk06: So it sounds like it's going to tick up a little year over year, but that's about it.
spk09: That would be the best way to plan for it, yes.
spk06: Okay, great. Last one for me is just on pro-medical Baltic. I don't know if they have been generating any revenues for you so far, but can you update us on how much maybe they've contributed so far and what impact that might have in the future?
spk09: Yeah, we haven't broken out international distributors as a separate reporting item, but In general, greater Europe right now is really challenged. Our UK business has been challenged first because of COVID and now because of the Ukraine mess. The public states are in the line of fire. So we really have to be patient about how our business in Europe for the first half of this year.
spk06: Got it. And have you provided any kind of indication on sales from any of the distributors so far, kind of how those are progressing? No, we have not. All right. Thank you, Dan. Appreciate it.
spk04: Thank you. Ladies and gentlemen, if you wish to ask a question, please press star 1 on your telephone keypad. Again, if you wish to ask a question, please press star one on your telephone keypad. Thank you. The next question comes from John Beatty with Lazarus Fund. Please go ahead.
spk03: Yeah. Hi, Dan. How are you doing? Good, thank you. How are you, sir?
spk09: Good.
spk03: On the cash pay front, and I see the challenges with the insurance coverages, have you reached out to any of the healthcare ministries like Samaritan's Purse or Christian Healthcare Ministries or any of those that essentially have always run on a cash pay model anyways?
spk09: So that's a very good point. I'm not aware, uh, that we have, uh, that we have made an initiative in that direction. So that's a very good question.
spk03: Yeah. Uh, I mean, they, they, and would very much put pressure on insurance companies also because they are much more affordable insurance companies. Um, I, I myself participate in, in, in Christian healthcare ministries. Um, So I think it should not be overlooked.
spk09: Agreed. Thank you for bringing it to our attention. Okay. Thank you.
spk04: Thank you. Ladies and gentlemen, again, if you wish to ask a question, please press star 1 on your telephone keypad. Thank you. As there are no further questions, we have reached the end of question and answer session, and I would like to turn the call back to Dan Goldberger for closing remarks. Thank you.
spk09: Great. Thank you, everybody, for joining today's call. 2021 was an exciting year of changes for the company, and we look forward to a transformational 2022. Stay tuned. I want to again acknowledge the hard work that Dr. Andra and and Mr. Atiyah have performed on our board of directors, and I look forward to the fresh perspectives that our new directors, Ms. Goldstein and Ms. Wilbur will bring. I'd like to give a special thanks to all of our employees who worked tirelessly through the pandemic. Their hard work and commitment in these trying times have set the stage for our expected growth during 2022. I also want to thank the care professionals and their patients for the loyal support We've made so much progress, and it couldn't have been done without your wavering support. Thank you all, and have a good day.
spk04: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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