electroCore, Inc.

Greetings and welcome to ElectroCorps First Quarter 2022 Earnings Conference Call. At this time, all participants are on 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. You may begin.

Thank you all for participating in today's ElectraCore's earnings call. Joining me today are Dan Goldberger, Chief Executive Officer, Brian Posner, Chief Financial Officer, and Dr. Peter Stotz, ElectraCore's Chief Medical Officer. Earlier today, ElectraCore released results for the first quarter ended March 31st, 2022. A copy of the press release is available on the company's websites. 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 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 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 or lists of risks and uncertainties associated with the company's business Please see the company's filings with the Securities and Exchange Commission. Electric Corps 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 5, 2022. And with that, I'll turn the call over to Dan. Go ahead, Dan.

Thank you, Rich. Hello, everybody, and thanks for joining us on today's call. Our U.S. business performance was solid in the first quarter and in March 31, 2022, more than making up for a slow start in our United Kingdom business. Revenue for the first quarter of 2022 hit a record $1.9 million last increasing approximately 58% over the first quarter of 2021, and approximately 27% sequentially. Gross margins expanded to 81%, and net cash used in operations was about $4.8 million for the quarter ended March 31, 2022. Our U.S. cash pay commercial headache channels are starting to accelerate, and we expect to continue those initiatives through the rest of 2022. We currently have about 345 active prescribers in our GC direct program that 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. We have an additional 52 prescribers in our G concierge program, a physician dispense model where the prescriber purchases inventory from ElectriCorps at a transfer price and provides therapy directly to their patient from their own inventory. E-commerce channels we established in January 2022 are off to a good start. Consumers can go to our website, fill out a questionnaire that is adjudicated by a telehealth process, obtain a prescription, and then move therapy into a shopping cart to obtain a GammaCore Sapphire for their own personal use. Our customer experience team is available to patients in all of these channels, providing training and support for new prescriptions, and following up with patients to ensure they are staying in compliance with their therapeutic protocol. We plan to continue investing 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. Net revenue from the U.S. commercial headache channel was $277,000, for the quarter ended March 31, 2022, a 90% increase from $145,000 in the first quarter of 2021. Approximately $254,000 of our U.S. commercial revenue in the first quarter came from cash pay programs. Net sales from the Department of Veterans Affairs, or the VA, and Department of Defense, or DOD, were $1.3 million, an increase of 86%, as compared to $679,000 in the first quarter of 2021. A total of 105 VA and DOD military treatment facilities have purchased Damacor products through March 31st, 2022, as compared to 79 through the first quarter of 2021. Note that there are approximately 1,300 VA healthcare hospitals and clinics and over 400 military hospitals and medical clinics. so we still have plenty of potential growth ahead of us. Revenue from channels outside the United States decreased 20% to $305,000 in the first quarter of 2022, as compared to $380,000 for the first quarter of 2021. Our UK business was affected by the resurgence of COVID, which severely impacted access to headache clinics in January and February. We saw some recovery in March, and April has been encouraging. We look forward to returning to growth in this channel in the second quarter and for the rest of 2022. On April 5, 2022, we announced an exclusive license agreement with Taysian Limited for Japan. The license covers our proprietary non-invasive vagus nerve stimulation technology for headache and provisions to expand to additional indications and or territories in the future. Taysian will be responsible for the regulatory process in Japan at Taysian's expense. with support from ElectriCorps and leveraging previously published pivotal data. The initial license fee will be recognized over the next four quarters, starting in the current quarter, ending June 30th, 2022. The agreement provides for additional license payments tied to successful completion of regulatory and commercial milestones in the future. It also requires an annual license fee that will come due every year, starting in April of 2023. In addition to the cash consideration, this license agreement further validates the long-term commercial opportunities for NVNS therapy around the world. On April 19, 2022, we announced that GammaCore noninvasive vagus nerve stimulation has been selected for additional funding by the Department of Defense Biotech Optimized for Operational Solutions and Tactics, or BOOST program, The BOOST research program, which will be conducted under the leadership of the 711th Human Performance Wing Optimization Branch of the United States Air Force, seeks to optimize and validate the efficacy of NVNS in accelerated training, sustained attention, reduced fatigue, and improved mood among Air Force personnel. Should the BOOST program confirm previous findings? The project schedule calls for electric core to supply field-ready devices to the Air Force in the second half of 2023. We're optimistic that the solution we ultimately provided to the Air Force will also find favor among other branches of the active military in the future. Now turning to our clinical progress, we continue to advance NDNS across several trials. We participated in a pre-submission meeting with the FDA on May 2nd, 2022, where we discussed our plans in post-traumatic stress disorder, or PTSD, mild traumatic brain injury or concussion, NBNS as a bridge therapy for inpatient substance abuse programs, and acute stroke, among other topics. We believe our presentation was well received, and we have several follow-up items to pursue. In February this year, data was presented at the International Stroke Congress, suggesting that NBNS therapy could be an effective acute intervention for ischemic or hemorrhagic stroke. A subsequent larger trial, NOVIS, is more than 50% enrolled towards a 150-patient target. Novus is on track to complete enrollment early next year. Stroke data is 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 the anticipated full publication of the TRBNS study in a peer-reviewed journal later this year. On January 12th, 2022, we announced that Gamma Corp NBNS received breakthrough designation from the US Food and Drug Administration, or FDA, for the treatment of PTSD, a highly prevalent and disabling disorder with limited approved treatment options. We will schedule a sprint meeting with the agency shortly based on what we learned in our May 2nd, 2022 pre-submission discussion. Now, I'd like to turn the call over to Brian for a review of our financials and other guidance items. Brian?

Thank you, Dan. For the first quarter ended March 31st, 2022. ElectroCorps reported net sales of $1.9 million as compared to $1.2 million during the same period of 2021. This represents a 58% revenue increase over the same period last year. Gross profit for the first quarter of 2022 was $1.5 million as compared to $840,000 for the first quarter of 2021. Gross margin was 81% and 70% for the periods ended March 31st, 2022 and 2021 respectively. Our evolving commercial strategy has resulted in a launch of cash payment models under which we license certain starter devices. The cost of the licensed starter device is being recognized as cost of goods sold over the estimated useful life of the starter device versus expensing the cost of goods at the time of sale. Moreover, in recent quarters, we have sold an increasing amount of longer duration therapy resulting in a higher average selling price. These factors, along with favorable absorption of labor and overhead costs, contributed to the increase in gross margin. Total operating expenses in the first quarter of 2022 were approximately $7.1 million, an increase of approximately $896,000 from $6.2 million in the first quarter of 2021. Research and development expense in the first quarter of 2022 was $934,000 as compared to $499,000 for the same period in 2021. R&D expense for the quarter include investments for our next generation product currently under development. Selling, general, and administrative expense in the first quarter of 2022 was $6.2 million as compared to $5.7 million for the same period in 2021. Total SG&A expenses for the first quarter of 2022 included increased investment in our sales and marketing efforts to support our cash pay initiatives. Gap net loss for the first quarter of 2022 was $5.6 million, as compared to a gap net loss of $5.4 million for the same quarter of 2021. Adjusted EBITDA net loss in the first quarter of 2022 was $4.7 million as compared to a loss of $4.2 million during the first quarter of 2021. 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 March 31, 2022, was approximately $4.8 million as compared to $4.2 million in the first quarter of 2021. The increase in net cash usage in the first quarter of 2022 compared to the fourth quarter of 2021 is largely due to seasonal factors and the timing of disbursements affecting working capital and continued investment in sales and marketing activities. Cash and cash equivalents at March 31st, 2022 totaled approximately $29.9 million as compared to approximately $34.7 million at December 31st, 2021. Looking ahead for the second quarter of 2022, we expect net revenue to be in excess of $1.9 million and net cash usage to be approximately $3.5 million. You may recall that on December 20th, 2021, we received a notification from NASDAQ indicating that we are not in compliance with NASDAQ listing rules because the minimum bid price of our common stock on the NASDAQ Global Select Markets closed below $1 per share for 30 consecutive business days. The NASDAQ letter had no immediate effect on the NASDAQ trading or listing of our common stock. Pursuant to the initial NASDAQ notice and NASDAQ listing rules, we have 180 calendar days from the date of the notice or until June 20, 2022, to regain compliance with the global select rule, by achieving a closing bid price for our common stock of at least $1 per share for at least 10 consecutive business days. If we do not regain compliance with the Global Select Rule by June 20th, 2022, we intend to apply to transfer our securities from the NASDAQ Global Select Market to the NASDAQ Capital Market. which will require that we satisfy the requirements for initial listing on such market as set forth in NASDAQ listing rules, with the exception of the minimum bid price requirement. If our application for this transfer is approved, we would have an additional 180 calendar days to achieve the minimum bid price requirement for at least 10 consecutive business days in order to comply with the rules of the NASDAQ capital market. We believe that the transfer, if required, will not materially affect the NASDAQ trading or listing of our common stock. And now I'll turn the call back over to Dan.

Thank you, Brian. I'm very excited about our operating results this quarter, and we continue to be in a strong financial position. Longer term, indications beyond primary headaches supported by the ongoing clinical developments discussed earlier could greatly expand the NBNS therapy market. The mutation license we announced in April brings in some non-dilutive cash and is a huge validation of the commercial appeal of NBNS therapy around the world. The BOOST project being financed by the Air Force and the Defense Advanced Research Project Agency, DARPA, could accelerate the adoption of NBNS for a variety of new indications among our active duty military. We continue to build our intellectual property portfolio, and we are developing a very exciting next generation product platform to leverage it. Our VA DOD channel continues to grow as the pandemic recedes, and our direct-to-consumer initiatives are showing results in our commercial channels. While our UK business was negatively impacted during the first quarter of 2022, we look forward to a return to growth as the pandemic recedes. I see many potential growth drivers through 2022 and 2023, including continued penetration of our VA DOD channel in the United States, continued penetration of the United Kingdom market as the pandemic received growth in our U.S. commercial channel, driven by cash-paid business models and directed consumer advertising, while we continue our efforts to gain commercial insurance coverage. And fourth, expansion of our international business through our distributor network and added traction within the U.K. e-commerce store. Longer term, there are real opportunities for label extensions and into PTSD, opioid use disorder, and mild traumatic brain injury. The Air Force Boost program could lead to incremental product sales to the active duty military as soon as next year. Lastly, we're exploring growth opportunities to enhance and leverage distribution channels through acquisitions. We're focused on revenue stage targets that might enhance top line growth and offer other synergies. At this time, I'll turn the call over to the operator. Operator, please open the line for questions.

Thank you. We will be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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 start keys. One moment, please, while we poll for questions. Our first question comes from Swamupakula with HC Wainwright. Please proceed with your question.

Thank you. This is RK from HC Wainwright. Good afternoon, Dan. Hi there.

How are you? Good afternoon, RK.

Good, good. Certainly an exciting quarter in terms of sales growth and also obviously some interesting programs that you're trying to embark on. Regarding the BOOST program, I'm sure it's a very exciting opportunity as you work with the Air Force and them trying to assimilate your technology for their needs. In terms of the development cycle itself, how should we think about this, both in terms of, is it ElectroCore that's going to spend initially and then bill them for the expenses? Or is it them funding you even before you start your initial work on the project? And then, The second part of that question is once you develop the device such that Air Force could use it, do they require any additional regulatory approval to ensure that they can prescribe it for military personnel?

Let me try and unpack the questions, RK. Just by coincidence, I'm speaking to you from Fort Hulbert in Florida, where we're having a kickoff meeting for the BOOST program. Okay.

So you need to go into the secret room. Please go ahead. Right.

So we're getting our arms around it all. So the Air Force has been doing quite a bit of work quietly since behind the scenes. They have done a few publications about the use of nerve stimulators in general and the GammaCore non-invasive vagus nerve stimulator in particular. The first place that they want to deploy this technology is in what they call ISR, which is their intelligence surveillance. So these are analysts who work in not an office environment, but a light industrial environment where they're looking at a lot of monitors and they have 8-hour, 10-hour, 12-hour shifts. The next cohort after the ISRs are the remote pilots, the drone operators. And so, again, the initial deployment is going to be in relatively benign, uh, physical environments, but, you know, they are looking forward over the long haul, uh, to, um, uh, to deploy it to the special tactics community, uh, and ground tactical operators. So, you know, talking beyond the air force to, uh, to the army and special forces command about, uh, deploying this therapy, you know, pretty broadly. Um, As far as how does the money flow, the Air Force has been buying devices in very small quantities from us. And there are two pieces to this program. They're going to be buying a few more of our commercial devices to continue their validation. And they're going to be fully funding the development of a hardened, more robust version of our device that would ultimately be deployed, you know, first in that analyst and remote pilot environment, and then hopefully longer term into the, you know, boots on the ground opportunities. So the cash impact on ElectriCorps is significant. is small. We're going to be providing our staff and our know-how, but the vast majority of the development work for the Air Force implementation is fully funded. As far as regulatory process, we may or may not file a special 510K. That'll be up to the up to the Air Force. We're not going to be looking for any additional indications beyond what we are FDA cleared for today. There will probably be a variety of mil-spec testing as far as mechanical ruggedness, electrical interference, you know, those kinds of things that are common certification requirements for deploying to active duty military. So, Hopefully I answered the question, but we're very excited about the program. I think deploying revenue units towards the end of 2023 is achievable, but it may take a little bit longer than that.

This is certainly an exciting opportunity. Also, when you're said and done with this new version of Gamma Corps, how freely can you take that, even if it is as a protocol of a prototype, and work with other military groups, you know, call it, say, like, either IDF in Israel or the Royal Air Force in UK, you know, could you do that, or you have certain documentation with the U.S. Air Force that you could not take this elsewhere.

So in principle, it's going to be exclusive to the U.S. Armed Forces, but presumably with the government's permission, we could take it more internationally.

Okay, great. And then just trying to understand the commercial business, especially in the commercial pay business, how is that working out? Because I know as a management team, you are pretty excited about going that route. Where do you think that process is at this point And what should we expect from that segment going forward?

So, you know, we've been building out our physician dispense model that we call GC Direct and GConcierge, slowly but surely. And, you know, earlier we talked about some of the numbers of prescribing physicians, and that's starting to accelerate. In January, we launched our e-commerce initiative, and we've been ramping up our spending on search, paid search, and social media. The e-commerce was relatively small revenue, but all indications are that it's going to scale with our media spending as we go through the year. And our physician dispense models also get a lift from the direct-to-consumer awareness spending that we're going to do. So I think we're trying to be thoughtful and methodical about the timing of ramping up our consumer spending and make sure that we have channels that, as we spend more on advertising, that consumers have a place to go to acquire the therapy, either through our e-commerce platform from our physician dispense partners. So it's off to a great start, and now we've got to prove that we have, we're tracking a parameter that we call media efficiency ratio. In other words, how much do we have to spend on advertising to generate a dollar of revenue? And I'm looking forward to increasing that investment and getting the associated increase in revenue.

Thank you. And then last question from me is on the Teijin license agreement. What should we expect from there? You know, is this going to turn into commercial revenues anytime soon or, you know, you need to go through the Japanese regulatory agency which obviously could take a little bit of time, but I'm just trying to understand, you know, when that could start flowing through.

Yeah, that's an interesting challenge. As you know, the Japanese Ministry of Health is no more expeditious than the FDA. A key determination is going to be later this year as Teijin takes the legacy pivotal data that we use for U S and European clearances, uh, to the Japanese ministry of health. And ideally, uh, they will be able to use the existing pivotal data. Uh, but it's entirely possible that, um, uh, that the Japanese regulators will say that they needed a small in country cohort of, uh, of pivotal data, in which case the timeline will be extended to go execute that trial. So I'm going to dodge that question until we know a little bit more.

Absolutely fine. Absolutely fine. Thank you very much for taking all my questions. Talk to you soon.

Our next question comes from Jeffrey Cohen with Ladenburg-Thalmann. Please proceed with your question.

Hi, Dan, Brian, and Peter. How are you? Good, thank you. How are you, sir? Just fine. So I guess firstly, do you have any commentary on this transitional coverage for emerging technologies, the CMS 3421? And if that ever goes through, I know it's just been proposed as kind of an MSIT replacement. Any effect upon the company of material nature? Sure.

So not this year. We really have not petitioned for Medicare coverage at this point and have not negotiated with any of the MACs yet. So we don't have any reimbursed. We don't have any CMS reimbursed channels at this point in time. So as to the reimbursement process in the future, I'm not really sure yet.

Okay. I think I heard you say, was it 5,200 on the G concierge program?

No, I think we have 52 prescribers that are signed up at this point.

Got it. Okay. And those are all HCPs? Yes, absolutely. Yes. Okay. And, Any color on the direct channel to patients directly?

We're not breaking out that detail just yet. You're asking about the e-commerce channel?

Yes, or the GC direct.

Right. The only detail we've given are the number of prescribers. So roughly 345 GC direct prescribers in a smaller number of patients. of G concierge prescribers.

Okay. Got it. And then from the standpoint of the, the VA channels, right, you were, I think at about a hundred end of year and one on five. Now, can you give us a sense of number of new centers that we should expect to come on board during 22 or, More importantly, some of the trends you're seeing at existing facilities as far as number of patients as well as any utilization trends.

Yeah, so we've focused in the short run, we're focusing more on going deeper into our existing accounts. So you're going to see that total number increase, but as we spend more money on direct-to-consumer awareness. That also allows us in the VA hospitals to go to other departments. By that I mean, traditionally, we've been going to the headache specialists and neurologists, but as we drive consumer awareness, we can go to women's health, we can go to pain management, we can go to psychiatry. All these more primary care departments within the facility that are seeing headache patients and maybe getting a little bit of demand from our direct-to-consumer advertising. So we're pretty excited about the return we're getting on those efforts of going to our existing customers and opening up additional call points within the hospital campus.

Okay, got it. One more, if I may. I know that you've got a lot of readouts coming, both pivotal and pilot studies in the coming quarters, but any commentary specifically on migraine and the separation of migraine via your cluster headache indications in that market?

There have been publications now that NVNS therapy should be considered first-line therapy in cluster headache, and we're able to make quite a bit of traction with headache specialists that do see that subset of cluster headache patients, and we're going to continue to drive that clinical differentiator. Migraine is far more challenging, both because of the... heterogeneity of migraine. It's a large cohort, but there are different phenotypes. And as well as our direct-to-consumer promotions are bringing forward patients who would not have heard about the therapy from their primary care physicians. So nothing definitive yet, but We do believe that all these channels are going to get a lift from the direct-to-consumer awareness that they're doing.

Okay, perfect. That does it for us. Thanks for taking the questions. Absolutely.

Our next question comes from John Vandermassen with Zax. Please proceed with your question.

Good evening, everyone. I've got some additional questions on Jason. Hey, Dan, how are you? Go ahead. I think you mentioned there are some other territories that they might develop for you. What are those? Is that other Asia, I assume? Is there any specific countries that are identified?

I'm sorry, I didn't catch the beginning of the question. Cajun, you mean? Yeah, Cajun. Yeah, right. So you think you had mentioned that there are some other territories? Yeah, in our negotiations with Cajun, you know, look, they are a... a pretty established international company. They have a substantial footprint in the US and in Europe. More specifically, they're interested in the Pacific Rim and China. But the real business opportunity in the short run is around Japan. And internally, if they can get comfortable about the effectiveness of our therapy and the business model for our therapy in Japan, they're probably going to want to do something much more substantial with this.

Okay. So it sounds like there's some opportunities to deepen the relationship there. Absolutely. Okay. And, um, on the, on the boost program, um, it, it, is there any more clinical work that needs to be done? It sounds like that that has already been, um, completed. And the only thing that the air force needs to see from you is just, uh, the higher spec, um, more durable perhaps, or you said the electronic interference issues regarding the device. Is that all that needs to get done? Or is there any more clinical work?

Okay. So, you know, the researchers that have really championed the project want to take it to other cohorts of Air Force personnel and personnel beyond the Air Force and continue to demonstrate the the various benefits of the therapy in sort of other cohorts of end users. So I'm not sure that rises to the level of clinical work, but part of it is demonstrating the effectiveness of the therapy in different groups and therefore opening up additional groups to purchase.

I see. And does the Air Force need FDA clearance to use it for another indication?

So they're primarily using it for mood and anxiety and then the peripheral benefits of increased attention span and energy levels. They're looking at things like caffeine consumption, reducing caffeine consumption. They're looking at it as an alternative to unfortunately our soldiers self-medicating with alcohol. These are not FDA indications per se. These are more wellness indications.

Okay. And then last one, Brian, this one's for you on gross margins. Those have continued to be better than our estimate, and how should we think about the different channels and the associated margins, or is that not the driver? Because I'm thinking some are growing faster than others. Should we use some of those growth rates to help modify our margins going forward, or are there other factors to think about?

Well, we've been in the mid-70s, or better, for the past couple quarters. We've been 80 or better for the past two quarters, and so... So I think the margin should be mid-70s to low-80s, depending on the mix. Obviously, the VA is the biggest part of our business right now, but like Dan said, we're optimistic on some of the other channels will contribute in an increasing fashion, too. So I think right now, again, we've been mid-70s to low-80s since the middle of last year, and I think there's no reason to maybe change your model significantly at this point.

Okay, and are there materially different gross margins between the different channels?

Yeah, there's differences between the channels, and sometimes there's differences within the channels as well, depending on the product mix within the particular channel.

And if I could interrupt, it's also, you know, I think, Brian, what you said earlier is duration of therapy, which is another way of saying... uh you know refill prescriptions because of our fundamental model is uh is the longer you use the device the better your clinical results are going to be and basically we generally get paid on a recurring revenue model got it is that so which which channel has the the most uh um all of them okay so there's no material difference between

uh you know the number of refills that people get depending on channels well it's yeah not yet but we're we're just minor okay okay great thank you for taking my questions thank you as a reminder if you'd like to ask a question please press star 1 on your telephone keypad one moment please while we poll for questions

Our next question comes from Anthony Vendetti with Maxim Group. Please proceed with your question.

Hi, Dan. This is actually Jeremy on the line for Anthony. A couple of quick follow-up questions. I know you mentioned you said there were 345 active prescribers and 52 for GC direct and G concierge. Is that through the end of the first quarter or is that to date?

That was at March 31st.

That was at March 31st. Okay. And then could you maybe give us any more information, you know, what you've seen in the first month of in second quarter, has that pace increased or is it, is it really go in tandem to your marketing spend?

So, um, April was, uh, was solid. Uh, but there's more and more excitement about, uh, signing up to work with us. And I think that's not directly driven, but is in part driven by the direct to consumer awareness that we're spending money on. So we're, we continue to feel like it's accelerating nicely.

And that you mean you're referring to signing up physicians to be part of this program? Correct. Okay, that's great. And then just I know you mentioned also one of the prior questions that right now your short-term focus is to drive deeper into current accounts, but just let's say looking a little bit past that, I don't know if it's the end of this year, maybe next year, 2023, what are some initiatives you have planned or that you're throwing around that will help to bring in more facilities and expand, not just expand and broaden your reach, as opposed to just driving deeper into the accounts? Any initiatives you could share?

So the VA hospital channel is driven by our field sales force to a great degree, supported by our customer experience team in New Jersey. And so we've been selectively adding direct employees to our field sales function, but the bigger cohort is coming from independent distributors that have a call point in the VA hospitals. And so that cohort of, and so these are folks who are working for straight commission. And we always like that because while it's a little bit more expensive on the SG&A line, It's all variable expense, and they only get paid if we're generating the revenue, and that leverages the manpower of our smaller direct employee force.

Okay, I understand. And then just last question, I don't know. Is there any update on the commercial coverage side, or you're just still in negotiations or just still proceeding at a slow pace?

Yeah, we've got some bright spots, but they're not ripe yet, and I look forward to announcing that later in the year.

Okay. All right. That's all for me. Thanks for taking my question.

And, Rob, we have time for one more question.

Our next question comes from John Vitale with Lazarus Fund 2. Please proceed with your question.

Yeah. Hi, Dan. I'm trying to understand the PTSD, I know you're going back in front of to get approval FDA. Is there a different path or do you have to wait for the FDA on that to sell PTSD into the VA channel?

So unfortunately, it's a simple question. I'm going to give you a little bit of a complicated answer. PTSD is comorbid with headache in very relatively high percentage. And so we can talk about headache in PTSD under our current labeling. The idea is to go back to the FDA and get a standalone label for PTSD. The nuance is that within the VA hospital system, PTSD is treated by psychiatry. Headache is treated by neurology. They don't always talk to each other, and that's what we're trying to bridge.

So there's nothing really holding it back on the VA, and then it's just a matter of access to the different departments.

It's more subtle than that, but that's the gist of it. Yes, sir. Gotcha. Gotcha. Okay. Thank you. That's all.

We've reached the end of the question and answer session. I would like to turn the call back over to Dan Goldberger for closing comments.

Thank you, everybody. Greatly appreciate your time. It's been a difficult day on Wall Street, I know that. I'd like to give a special thanks to all of our employees who work tirelessly to deliver our amazing therapy to patients. Their hard work and commitment are setting the stage for growth in 2022 and beyond. I also want to thank our healthcare professionals and their patients for their loyal support of GammaCorp therapy. We've made tremendous progress, and it couldn't have been done without your unwavering support. Thank you, everybody, and have a better day.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.